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exhibit a - recoverable

6 September 2013

In the recent case of The Board of Trustee of National Museums and Galleries on Merseyside v AEW Architects and Designers Ltd and PIHL Galliford Try JV (2013) EWHC 2403 TCC, Mr Justice Akenhead gave a landmark ruling regarding the circumstances in which adjudication costs can be recovered. 

The case

The case concerned design and construction defects at the new Museum of Liverpool. In a judgment containing detailed findings of fact regarding breach of contract and negligence, the court ordered that the architect (AEW Architects and Designers Ltd, AEW) and the contractor (PIHL Galliford Try JV, PIHL), pay the claimant over £1.1 million in damages.

The judgment is important because the court allowed the museum to recover from AEW costs the museum had incurred in an earlier adjudication commenced against it by PIHL (see paragraphs 124 to 130) - a head of loss for which parties rarely claim. That adjudication concerned PIHLs liability for design responsibility for certain work at the museum. The adjudicator found for PIHL, granted it declaratory relief and ordered that the museum pay his fee (which it did).

Despite the fact that AEW had not been party to the adjudication proceedings, the court held that the museum was entitled to recover from it the adjudicators fee, along with (in part) the museums own legal and expert fees. Mr Justice Akenhead said that this was a matter of causation and what was reasonably foreseeable. He found that: 1. It was reasonably foreseeable that PIHL would refer the dispute to adjudication. 2. For AEWs breaches of contract and negligence, there would have been no dispute between the museum and PIHL: "Adjudication is a fact of life now in construction contracts… it was within the bounds of reasonable foreseeability that there could be adjudication in circumstances such as arose here. There was a sufficient causative link between the defaults of AEW and this adjudication." The court said that the causative link could only have been broken if the museum had acted unreasonably or its solicitors had negligently advised it that it had an arguable defence in the adjudication - neither of which was the case here.

Comment

This case is likely to prompt more parties to seek to recover the costs of previous adjudications - and it seems likely that the court will grant such requests. This pragmatic development is in keeping with the original intention of the Construction Act: one of the purposes of statutory adjudication was to improve cash flow in the industry and the fact that the costs of the procedure are so rarely recoverable is a significant barrier in this regard.

With regard to foreseeability and causation, it is hard to imagine circumstances in which it is not "reasonably foreseeable" that a construction dispute might be referred to adjudication. However, the question of causation is more difficult (what is or is not reasonable in the context of bringing of defending an adjudication?) and it seems likely that the courts will be required to clarify this in the future.

Parties should bear in mind that elements of the judgment remain unclear. For example, is the decision confined to negligence and multi-party contracts? It also remains to be seen whether future judgments consider it relevant that here Mr Justice Akenhead found the merits of the case to be overwhelmingly in the museums favour and was "very surprised" that the case was not settled and went to trial.

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