Building contract – Dispute – Settlement – Costs – Dispute arising between parties in relation to delay in carrying out civil engineering works – Adjudicator making award in favour of defendant contractor – Claimant paying sum awarded but dissatisfied with decision in relation to prolongation and seeking to recover monies from defendant – Dispute being settled by consent with defendant making payment to claimant – Parties seeking determination on costs – Whether costs to be apportioned between parties – Costs ruling made
The claimant had been involved in a new housing development in Tyneside and was responsible to the local authority for substantial road works. The defendant was a civil engineering company operating in the North-East of England. The claimant engaged the defendant to carry out the construction of a bypass in connection with the development.
A dispute arose following delays in completing the works and the matter was referred to adjudication. The adjudicator made an award in favour of the defendant in the sum of £1,045,358.04, net of retention. The claimant paid that sum to the defendant. However, it was dissatisfied with parts of the decision and informed the defendant of its intention to commence court proceedings to recover the sum paid in relation to prolongation.
The claimant subsequently served particulars of claim seeking to recover around £513,000 plus interest. The defendant then served a defence and counterclaim claiming entitlement to prolongation costs for delay and repayment of retention monies and stating that it was willing to return to the site to remedy any genuine defects in the works done. The claimant served its reply and defence to counterclaim, accepting that the defendant had established an additional 15 days entitlement to prolongation but asserting that it was entitled to set off against it the sums claimed in the particulars of claim and the cost of rectifying defects.
Following an unsuccessful mediation, the defendant made a CPR Part 36 offer to settle to which the claimant replied on a “without prejudice save as to costs” basis, that it did not accept that the letter complied with Part 36. Settlement negotiations continued. Shortly before trial, which was due to start on 17 May 2013, the parties reached an agreement whereby the defendant was to pay to the claimant the sum of £146,953 in full and final settlement, inclusive of interest up to a specified date. However, the parties were unable to agree who should pay the combined costs of over £1m, so that the issue remained to be resolved by the court.
Held: Ruling on costs made.
(1) When considering the defendant’s offers, the question was not whether it was reasonable for the claimant to refuse the offer but whether, having regard to all the circumstances and looking at the matter as it affected both parties, an order that the claimant should pay the costs would be unjust. Each case turned on its own circumstances, but the court had to try to assess who in reality was the unsuccessful party and who had been responsible for the fact that costs had been incurred which should not have been. The court was not constrained by the list of potentially relevant factors in CPR 36.14(4) to have regard only to the circumstances of the making of the offer, or the provision or otherwise of relevant information. The court had an unfettered discretion to depart from the ordinary cost consequences set out in CPR 36.14. It followed that what was just or unjust, was dependent on the particular case, its facts, its history, and the negotiations and offers which were discloseable to the court: Smith v Trafford Housing Trust [2012] EWHC 3320 (Ch) applied.
(2) In commercial litigation, where each party had claimed and asserted that a balance was owing in its favour, the party which ended up receiving payment should generally be characterised as the overall winner. In considering how to exercise its discretion, the general rule was that the successful party was entitled to an order for costs. The court then had to consider what departures were required from that starting point, in all the circumstances. The only certain way for a defendant to shift its potential costs liability was to make a Part 36 offer which it then bettered at trial. The pursuit of exaggerated claims might deprive the claimant of some or all of its costs but it was usually only where the exaggeration was deliberate that the claimant would be ordered to pay the defendant’s costs. In general terms, for costs to be shifted as a result of conduct, there needed to be more or less total failure on the issues that went to trial or a failure to accept a Part 44 offer that would have put the claimant in a better position than going on: Multiplex Constructions UK Ltd v Cleveland Bridge UK Ltd [2008] EWHC 2280 (TCC); [2008] PLSCS 256 and Brit Inns Ltd v BDW Trading Ltd [2012] EWHC 2489 (TCC) applied.
(3) In the present case, it was not possible to make an overall issues based decision because no issues had been ultimately decided by the court. All that could be said was that the claimant pursued a claim which was worth net of interest some £135,000 against its claim for £513,000 and that probably that claim was substantially exaggerated. Thus the claimant had pursued a claim for £513,000, knowing that it would end up with less. In those circumstances, it was appropriate to make a proportionate costs decision in relation to the claimant’s costs. The fact that it had only recovered around 27% of the cost of its claim did not, however, in logic mean that it should only recover the same percentage of its costs because it had had to pursue the proceedings to secure even that amount. Therefore, the reasonable, fair and proportionate recovery was 50% of its costs.
(4) Accordingly, the defendant had to pay to the claimant 50% of its costs on a standard basis up to and including a specified date, which reflected the fact that the eventual settlement figure showed that it was entitled, through an initial pre-action protocol process, to issue and pursue proceedings to recover a not insignificant element of overpayment resulting from the adjudication decision. The claimant had to pay the defendant’s costs between the end of September 2012 and the end of January 2013 to reflect, not only that the state of the account between them was such that the claimant was entitled to nothing by reason of its continued and unjustified withholding of the retention, but also its unwillingness effectively to engage in a settlement process which reflected settlement of its claim at a level which was actually or virtually equivalent to the amount of the retention money. Thereafter, each party had to pay its own costs on the standard basis.
Adam Constable QC (instructed by Watson Burton LLP) appeared for the claimant; Sean Brannigan QC (instructed by Pinsent Masons LLP) appeared for the defendant.
Eileen O’Grady, barrister
Bellway Homes Ltd v Seymour (Civil Engineering Contractors) Ltd
Building contract – Dispute – Settlement – Costs – Dispute arising between parties in relation to delay in carrying out civil engineering works – Adjudicator making award in favour of defendant contractor – Claimant paying sum awarded but dissatisfied with decision in relation to prolongation and seeking to recover monies from defendant – Dispute being settled by consent with defendant making payment to claimant – Parties seeking determination on costs – Whether costs to be apportioned between parties – Costs ruling madeThe claimant had been involved in a new housing development in Tyneside and was responsible to the local authority for substantial road works. The defendant was a civil engineering company operating in the North-East of England. The claimant engaged the defendant to carry out the construction of a bypass in connection with the development.A dispute arose following delays in completing the works and the matter was referred to adjudication. The adjudicator made an award in favour of the defendant in the sum of £1,045,358.04, net of retention. The claimant paid that sum to the defendant. However, it was dissatisfied with parts of the decision and informed the defendant of its intention to commence court proceedings to recover the sum paid in relation to prolongation.The claimant subsequently served particulars of claim seeking to recover around £513,000 plus interest. The defendant then served a defence and counterclaim claiming entitlement to prolongation costs for delay and repayment of retention monies and stating that it was willing to return to the site to remedy any genuine defects in the works done. The claimant served its reply and defence to counterclaim, accepting that the defendant had established an additional 15 days entitlement to prolongation but asserting that it was entitled to set off against it the sums claimed in the particulars of claim and the cost of rectifying defects.Following an unsuccessful mediation, the defendant made a CPR Part 36 offer to settle to which the claimant replied on a “without prejudice save as to costs” basis, that it did not accept that the letter complied with Part 36. Settlement negotiations continued. Shortly before trial, which was due to start on 17 May 2013, the parties reached an agreement whereby the defendant was to pay to the claimant the sum of £146,953 in full and final settlement, inclusive of interest up to a specified date. However, the parties were unable to agree who should pay the combined costs of over £1m, so that the issue remained to be resolved by the court.Held: Ruling on costs made.(1) When considering the defendant’s offers, the question was not whether it was reasonable for the claimant to refuse the offer but whether, having regard to all the circumstances and looking at the matter as it affected both parties, an order that the claimant should pay the costs would be unjust. Each case turned on its own circumstances, but the court had to try to assess who in reality was the unsuccessful party and who had been responsible for the fact that costs had been incurred which should not have been. The court was not constrained by the list of potentially relevant factors in CPR 36.14(4) to have regard only to the circumstances of the making of the offer, or the provision or otherwise of relevant information. The court had an unfettered discretion to depart from the ordinary cost consequences set out in CPR 36.14. It followed that what was just or unjust, was dependent on the particular case, its facts, its history, and the negotiations and offers which were discloseable to the court: Smith v Trafford Housing Trust [2012] EWHC 3320 (Ch) applied. (2) In commercial litigation, where each party had claimed and asserted that a balance was owing in its favour, the party which ended up receiving payment should generally be characterised as the overall winner. In considering how to exercise its discretion, the general rule was that the successful party was entitled to an order for costs. The court then had to consider what departures were required from that starting point, in all the circumstances. The only certain way for a defendant to shift its potential costs liability was to make a Part 36 offer which it then bettered at trial. The pursuit of exaggerated claims might deprive the claimant of some or all of its costs but it was usually only where the exaggeration was deliberate that the claimant would be ordered to pay the defendant’s costs. In general terms, for costs to be shifted as a result of conduct, there needed to be more or less total failure on the issues that went to trial or a failure to accept a Part 44 offer that would have put the claimant in a better position than going on: Multiplex Constructions UK Ltd v Cleveland Bridge UK Ltd [2008] EWHC 2280 (TCC); [2008] PLSCS 256 and Brit Inns Ltd v BDW Trading Ltd [2012] EWHC 2489 (TCC) applied.(3) In the present case, it was not possible to make an overall issues based decision because no issues had been ultimately decided by the court. All that could be said was that the claimant pursued a claim which was worth net of interest some £135,000 against its claim for £513,000 and that probably that claim was substantially exaggerated. Thus the claimant had pursued a claim for £513,000, knowing that it would end up with less. In those circumstances, it was appropriate to make a proportionate costs decision in relation to the claimant’s costs. The fact that it had only recovered around 27% of the cost of its claim did not, however, in logic mean that it should only recover the same percentage of its costs because it had had to pursue the proceedings to secure even that amount. Therefore, the reasonable, fair and proportionate recovery was 50% of its costs. (4) Accordingly, the defendant had to pay to the claimant 50% of its costs on a standard basis up to and including a specified date, which reflected the fact that the eventual settlement figure showed that it was entitled, through an initial pre-action protocol process, to issue and pursue proceedings to recover a not insignificant element of overpayment resulting from the adjudication decision. The claimant had to pay the defendant’s costs between the end of September 2012 and the end of January 2013 to reflect, not only that the state of the account between them was such that the claimant was entitled to nothing by reason of its continued and unjustified withholding of the retention, but also its unwillingness effectively to engage in a settlement process which reflected settlement of its claim at a level which was actually or virtually equivalent to the amount of the retention money. Thereafter, each party had to pay its own costs on the standard basis.Adam Constable QC (instructed by Watson Burton LLP) appeared for the claimant; Sean Brannigan QC (instructed by Pinsent Masons LLP) appeared for the defendant.Eileen O’Grady, barrister