Neutral Citation Number: [2014] EWCA Civ 93
Case No: A2/2012/2688
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
HIS HONOUR JUDGE BAILEY
1CL20042
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 07/02/2014
Before :
LORD JUSTICE LAWS
LORD JUSTICE McFARLANE
and
LADY JUSTICE GLOSTER
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Between :
Appellant | ||
– and – | ||
(1) QUAYSIDE HOMES LTD (2) PETER BRETT ASSOCIATES LLP | Respondents |
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– – – – – – – – – – – – – – – – – – – – –
Lord Marks QC & Mr Martin Hirst (instructed by C J Hough & Co Ltd) for the Appellant
Mr Simon Browne QC & Mr Tim Sharpe (instructed by Furley Page LLP) for the Respondents
Hearing dates : Monday 28th October 2013
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Judgment
Lady Justice Gloster :
Introduction
1. The appeal and cross-appeal in this case arise out of the judgment of His Honour Judge Edward Bailey given in the Central London County Court (Technology and Construction List) on 20 September 2012 (“the judgment”), whereby he awarded a net judgment sum of £10,885 to the defendant/respondent, Quayside Homes Limited (“Quayside”), in respect of its counterclaim, and his decision in a separate judgment of the same date (“the costs judgment”) to award Quayside the majority of its cost of the action. At the end of the hearing before him the judge gave Quayside permission to appeal against his decision not to award it the sum of £8,941.16 by way of counterclaim. The appellant, and claimant in the action, Walker Construction (UK) Limited (“Walker”), was given permission to appeal against the judge’s order for costs by Tomlinson LJ at an oral hearing in the Court of Appeal on 20 March 2013.
2. Because Quayside’s cross appeal concerns a question of liability and because its outcome is arguably capable of affecting the outcome of
3. The principal issue at the hearing before us, however, was whether the judge was right to make an order for costs which required Walker (subject to certain exceptions) to pay Quayside
Background facts
4. Because the appeal challenges the judge
5.
6. Quayside is a developer of residential homes. In July 2003, planning permission was granted to construct over 300 residential homes on land known as “Willowbank”, which previously formed part of the Sandwich Industrial Estate (“the site”).
7. On 3 November 2003
8. The Part 20 defendant in the action, Peter Brett Associates (“PBA”), was Quayside
9. At the conclusion of the works, a dispute arose between
10.
i) £11,345.96 in respect of an outstanding application for payment under certain invoices;
ii) £11,916.01 in respect of retentions made by Quayside in respect of the section 38 and section 278 works; and
iii) £310.39 VAT due on the retention.
11. Quayside served a “holding” defence on 20 March 2008. That defence asserted, without providing any particulars, or quantifying any counterclaim, that
12. On 29 August 2008
i) £13,298.36 for the balance of application 28061 dated 11 May 2007;
ii) £11,916.01 of retention (comprising Quayside
13. The adjudicator
i) the full sum claimed against application 28061 dated 11 May 2007, namely the sum of £13,298.36; and
ii) the further sum of £10,142.36, being the full amount of the section 38 works retention.
It is relevant to note that, having considered in detail the evidence relating to the defects affecting the drainage works, the adjudicator concluded as follows:
“On balance therefore I find that the defects observed to the drainage works were more likely than not caused by reasons other than
14. On 15 December 2008 Quayside paid
15.
16. On 29 January 2009 Walker
“As you are aware, following the decision of Mr Turner under the contract to which this claim relates our client has been paid its claimed entitlement in full, with the exception of retention of £1,773.65.
Apart from that retention, our client’s claim in the current proceedings has been satisfied. If the court was to agree with Mr Turner’s decision, in particular his view that defects were not caused by our client’s workmanship (see paragraph 29), then there can be no doubt that our client would be entitled to its costs in these proceedings.
However, in order to bring the dispute to an end and to avoid further costs being incurred by your client our client is willing to forego its entitlement to costs and the outstanding retention.
1. our client will discontinue its claim.
2. there will be no order as to costs.
There is no counterclaim in these proceedings and this offer does not therefore take into account any counterclaim. This offer will remain open for acceptance for 21 days and can be accepted thereafter only if the parties agree costs or the court gives permission.
For the avoidance of doubt, if your client accepts this offer then it is agreed that neither party will bring any further proceedings (in court, adjudication or arbitration) in relation to our client’s entitlement to payment as claimed in these proceedings.
If this offer is not accepted and the court confirms that our client would have succeeded in its claim (disregarding the payment made pursuant to Mr Turner’s Decision) then our client will claim indemnity costs and interest on costs on the basis that this offer should have been accepted.
If there is any aspect of this offer that, in your opinion, renders it ineffective as a Part 36 offer then please would you advise us of your concerns immediately so that they may be addressed.”
17. On 2 February 2009, Quayside
18. On 20 October 2009
“Our client
19. On 23 April 2010 Quayside
20. On 13 October 2010, Quayside issued its third party claim form against PBA. On 15 October 2010 the County Court gave permission to Quayside to amend its defence and counterclaim in the form appended to its application notice dated 25 August 2010 and directed that such defence and counterclaim should be served no later than 15 December 2010.
21. On 15 December 2010 Quayside served its amended defence and counterclaim, which replaced its original defence dated 20 March 2008 in its entirety. The amended defence denied that Quayside owed Walker the sums claimed in the latter
22. On 24 December 2010 Quayside, in a letter from its solicitors to
23. That offer was not accepted by
“For commercial reasons our client has instructed us that it offers the sum of £30,000 plus VAT in full and final settlement of our client’s claims and your client’s counterclaims in these proceedings.
This is not a formal Part 36 offer to pay a sum plus costs because there were various offers made by our client to rectify defects that must be taken into account in deciding any liability of our client for costs as must your client’s unreasonable conduct in relation to investigation and rectification of defects and claims for work that has not been done or was unnecessary.
These are not matters for a Costs Judge because they relate to primary liability for costs rather than to detailed assessment and can only properly be taken into account by the trial judge who hears the case and understands the issues.
It is our client’s position that this matter should have been resolved by your client’s acceptance of one of our client’s offers and that when your client’s conduct is taken into account any primary liability of our client for costs will be reduced significantly.
On this basis our client assesses its total liability, including costs and interest, as substantially less than the amount it is prepared to offer to dispose of these proceedings.
In your letter of 24 December 2010 you referred to our client’s recent survey. This shows that the manholes have “sunk” substantially since the last survey, a fact that your client may wish to take into account in considering this offer.
This offer will remain open for acceptance for 14 days from the date of this letter.”
24. By letter from its solicitors dated 7 January 2011, Quayside rejected
“22. As to Paragraph 12 [of the Amended Defence (above)], the Claimant maintains its entitlement to payment. Insofar as the defects were not caused by the Defendant’s piling operations they were caused by matters that were the responsibility of the Defendant as detailed above.”
25. On 25 February 2011, at a case management conference, Quayside informed
26. On 8 March 2011 Quayside made a non-Part 36 offer inviting
27. On 11 May 2011
28. On 21 July 2011 the third-party made an offer to Quayside to settle the latter
29. On 2 September 2011 Quayside served its Re-Amended Defence and Counterclaim, and, as foreshadowed in its written note previously produced on 25 February 2011, reduced its pleaded counter-claim from £169,138.80 to £87.404.22. This reflected a reduction in the defects claim and the withdrawal of the claim for delay and additional preliminaries. In addition Quayside deleted the reference to the interest of £2,639.51 and a further sum of £5822.16 in respect of the adjudicator
30. On 17 February 2012 Quayside
“Because your client has refused to accept previous offers our client has subsequently incurred substantial legal costs. It is not therefore prepared to repeat those offers. However, on a purely commercial basis and to dispose of this matter our client is prepared to make a final offer to pay £10,000 in full and final settlement of the claims and counterclaims in these proceedings including interest and costs. Payment would be within 21 days from acceptance.
This offer will remain open for acceptance for 7 days from the date of this letter after which it will lapse.”
31. On 8 March 2012 Quayside
32. On 8 June 2012 Quayside served a Re-Re-Amended Defence and Counterclaim, in which the sum counter-claimed reduced yet further to £84,168.22 plus interest. Again there was no apparent claim in the main body of the counterclaim for payment of the two sums of £8941.16 and £4570.98 referred to in the defence as entitling Quayside to set off or abatement, although once again the arithmetic suggests that the total figure of £84,168.22 counterclaimed included the claims for repayment of the £8941.16 and the £4570.98.
33. The trial took place on the 10-13 September 2012. The issues in contention at trial were:
i)
ii) Quayside’s counterclaim for damages in respect of
a) Highway Works;
b) electrical certificates; and
c) sewers.
The sums claimed related to the rectification costs of the alleged defects together with other consequential losses.
iii) Quayside
iv) What allowance should be made for sums already recovered by Quayside from the contract administrator, PBA, in the Part 20 proceedings in respect of defect allegations, which, as described above, had been settled previously.
34. In the event, the judge awarded a net judgment sum of £10,035.91 to Quayside and dismissed its claim for repayment of the sum of £8941.16, which it had paid to
SCHEDULE – JUDGMENT FIGURES in respect of Quayside’s Counterclaim
Highways Defects A 6,516
Electrical B 200
Drainage C 6,825
13,541 (out of £88K odd, reduced to 55K odd)
Investigation, supervision etc. 5,092 (out of £10,185 claimed)
Future costs of Supervision etc. 1,334 (out of £8,774 reduced to 5,538)
Car Park payment reclaim 1,250 (out of £4,571 claimed)
21,217 (total counterclaim had been £169K, reduced to £84,000)
Less to avoid double recovery (5,500)
Less
Less outstanding on
Net recovery by Quayside 10,035
Plus interest 850
£10,885
Quayside’s claim to recover £8,941.16 awarded to
Quayside
The relevant statutory provisions
35. Section 108(3) of the Act provides:
“108 Right to refer disputes to adjudication.E+W+S
(1) A party to a construction contract has the right to refer a dispute arising under the contract for adjudication under a procedure complying with this section.
For this purpose “dispute” includes any difference.
(2) The contract shall—
(a) enable a party to give notice at any time of his intention to refer a dispute to adjudication;
(b) provide a timetable with the object of securing the appointment of the adjudicator and referral of the dispute to him within 7 days of such notice;
(c) require the adjudicator to reach a decision within 28 days of referral or such longer period as is agreed by the parties after the dispute has been referred;
(d) allow the adjudicator to extend the period of 28 days by up to 14 days, with the consent of the party by whom the dispute was referred;
(e) impose a duty on the adjudicator to act impartially; and
(f) enable the adjudicator to take the initiative in ascertaining the facts and the law.
(3) The contract shall provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement.
The parties may agree to accept the decision of the adjudicator as finally determining the dispute.
(4) The contract shall also provide that the adjudicator is not liable for anything done or omitted in the discharge or purported discharge of his functions as adjudicator unless the act or omission is in bad faith, and that any employee or agent of the adjudicator is similarly protected from liability.
(5) If the contract does not comply with the requirements of subsections (1) to (4), the adjudication provisions of the Scheme for Construction Contracts apply.
(6) For
36. The relevant provisions of the Scheme provided:
“Notice of Intention to seek Adjudication
1. (1) Any party to a construction contract (the “referring party”) may give written notice (the “notice of adjudication”) of his intention to refer any dispute arising under the contract, to adjudication.
(2) The notice of adjudication shall be given to every other party to the contract.
(3) The notice of adjudication shall set out briefly—
(a) the nature and a brief description of the dispute and of the parties involved,
(b) details of where and when the dispute has arisen,
(c) the nature of the redress which is sought, and
(d) the names and addresses of the parties to the contract (including, where appropriate, the addresses which the parties have specified for the giving of notices). …
Powers of the adjudicator
13. The adjudicator may take the initiative in ascertaining the facts and the law necessary to determine the dispute, and shall decide on the procedure to be followed in the adjudication. ….
Adjudicator’s decision
20. The adjudicator shall decide the matters in dispute. He may take into account any other matters which the parties to the dispute agree should be within the scope of the adjudication or which are matters under the contract which he considers are necessarily connected with the dispute. In particular, he may—
(a) open up, revise and review any decision taken or any certificate given by any person referred to in the contract unless the contract states that the decision or certificate is final and conclusive,
(b) decide that any of the parties to the dispute is liable to make a payment under the contract (whether in sterling or some other currency) and, subject to section 111(4) of the Act, when that payment is due and the final date for payment,
(c) having regard to any term of the contract relating to the payment of interest decide the circumstances in which, and the rates at which, and the periods for which simple or compound rates of interest shall be paid.
21. In the absence of any directions by the adjudicator relating to the time for performance of his decision, the parties shall be required to comply with any decision of the adjudicator immediately on delivery of the decision to the parties in accordance with this paragraph.
22. If requested by one of the parties to the dispute, the adjudicator shall provide reasons for his decision.
Effects of the decision
23. (1) In his decision, the adjudicator may, if he thinks fit, order any of the parties to comply peremptorily with his decision or any part of it.
(2) The decision of the adjudicator shall be binding on the parties, and they shall comply with it until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement between the parties.”
The judge
37. As I have already said, the judge dismissed Quayside
38. The judge accepted that he was in no way bound by the adjudicator
“110. In the course of the adjudication, the adjudicator awarded the balance claimed by
111. Quayside submits the adjudicator’s decision has no status or value whatsoever in subsequent legal proceedings. The determination, the reasons and the evaluation of parties’ case in adjudication are to be ignored by the court. The slate is wiped clean. The burden of proof lies where the law placed it. The adjudicator’s decision does not affect this burden. In other words, submits Quayside, the court, when considering claims which have been the subject of an adjudication must turn the clock back to the position prior to the adjudication.
112. The argument now becomes entirely technical. In paragraphs 10-12 of the re-re-amended Defence and Counterclaim, Quayside plead,
“10. By an adjudicator’s decision, dated 2 December 2008, the Defendant was directed to pay the Claimant £23,440.72. Such a decision was to be of temporarily binding effect, pending the final determination of the dispute between the parties in the court or arbitration. This sum was duly paid on 15 December 2008.
11. This leaves the sum of £131.64 outstanding on the Claim which the Defendant denies.
12. Further, of the sum claimed by the Claimant and paid by the Defendant pursuant to the adjudicator’s decision, £8,941.16 was not properly due. This sum was not certified by the contract administrator, Peter Brett Associates. This sum, claimed under application 28061 was in respect of repair work to defects in the drains in the LAP, said by the Claimant to have been caused by the Defendant’s piling operation. It is denied that the defects were caused by the Defendant’s piling work, and averred that the Claimant should have rectified these defects at no cost, pursuant to its obligations under the contract. It is therefore denied that the Claimant was entitled to the sum of £8,941.16, or any part of it, and the Defendant is entitled to, and claims repayment of the said sum.”
Quayside points out that
113. I quite see that I am in no way bound by the adjudicator’s decision; that is clear from the provisions of Section 108(3) of the Housing Grants Construction Regeneration Act 1996, and the decision in City Inn Limited v Shepherd Construction Limited (2002) SLT 781. There is a helpful passage in this regard in Coulson on Construction Adjudication, second edition, 2010, paragraphs 14-47 and following. Once the question that the contractor is entitled to monies paid under adjudicator’s award is validly raised in subsequent legal proceedings, the contractor must prove his entitlement in the usual way. He may not rely on the award as proof. The question does have to be raised in legal proceedings.
114. The difficulty I face is this: What is Quayside’s cause of action? In what I may describe as the ordinary case, there is a dispute on the final account at the conclusion of the works. The parties join battle, and the matters dealt with in an adjudication along the way tend to become lost in the wash. But here there is no dispute on the final account;
39. He then went on to decide (in paragraph 115 of the judgment) that that there was an implied term in any construction contract to which the Housing Grants Construction Regeneration Act 1996 (“the 1996 Act”) applied, that the contractor would repay to the employer any money paid by the employer under the terms of an adjudicator
40. The judge then went on to consider whether there was a basis for Quayside
“122. If, as I would respectfully agree, the proper analysis of the rule as it applies in policy consideration arising from the court’s power to force litigants to transfer benefits to other litigants with the right of appeal having, as a necessary concomitant, the right to recover payments under a judgment set aside, so as to prevent the appeal process being rendered nugatory as an idle exercise, then the reasoning that there is a restitutionary claim in Jim Ennis falls away.
123. The adjudicator’s decision is a temporarily binding decision. Temporary, in the words of Section 108(3), ‘until the dispute is finally determined by legal proceedings’. The decision is not appealed against, or set aside in the manner which applies in the context of civil proceedings. The court does not rule that the temporary decision should not have been made, and so its consequences require a reversal in the same way a Court of Appeal may rule on a circuit judge’s decision. Or in the same way, that having an appeal on a point of law, a court may set aside an arbitrator’s decision. An appeal to the Court of Appeal from a trial judge who has determined the relevant matters in a different way to that of the adjudicator is not a second appeal. There is no policy imperative to correct the effect of the adjudicator’s decision, always known by the parties to be of a purely temporary binding nature until there is litigation.
124. If this principle does apply, as I consider to be the case, Quayside is, in my judgment, hard-put to find some alternative principle on which to place a restitutionary remedy. There is no single simple principle in English law that any person who has been unjustly enriched at the expense of another may be required to make an appropriate restitution to that other, much as the original authors of Goff & Jones may have wished. The money paid to Quayside was not paid by mistake, neither was it paid without consideration. It was paid under the terms of a statutory scheme designed to ensure, as far as possible, that parties to lengthy construction contracts could have a swift mechanism to determine disputes that might otherwise interfere with the continued smooth operation of the contract, but on a temporary basis only.
125. Mr Townend, conscious perhaps that his approach, namely ‘Walker have no evidence so I must win’, might be viewed by the court with less than fervent favour, did address me on a number of points to indicate that Walker really did not deserve this money. He may be right. The facts of the dispute were not aired before me. Mr Webb’s submission that in the light of the adjudicator’s decision there was some initial evidential threshold that Quayside had to cross before the court could apply the use of burden of proof and find against the contractor because he had no evidence was, it would seem, part of a high risk strategy, and incidentally incorrect.
126. It is not for me to speculate as to why Walker did not adduce the evidence necessary to support its case on the work for which they obtained an adjudicator’s decision, nor indeed why Quayside did not do more than prepare to meet a case that payment was due beyond proof that PBA did not certify it, although Quayside’s approach is the more understandable. Both sides arrived at trial to argue this claim on a purely technical basis. At the end of the day this court may only award money judgments to litigants who establish that they have a good cause of action for the money, and demonstrate that the cause of action in question has been pleaded within the rules. In this respect Quayside fails. In the circumstances, I will not order repayment of the sums awarded in adjudication”.
The parties
Quayside
41. Mr Simon
i) as a claim for a set-off against
ii) as a claim for damages for breach of contract, it was sufficiently pleaded such as to allow
iii) as a claim in restitution it was sufficiently pleaded and was made out; and/or
iv) the sum ought to have been returned to Quayside under CPR 25.8.
42. In support of this contention they submitted as follows:
i) Pursuant to section 108(3) of the 1996 Act, the decision of an adjudicator was only binding until the dispute was finally determined by legal proceedings, arbitration or agreement. The judge rightly found that he was not bound by the adjudicator’s decision.
ii) Thereafter the contractor had to prove its entitlement to the sum in the usual way; see Coulson on Construction Adjudication, paragraphs 14-47 and following.
iii) The judge accepted that
iv) By way of analogy and confirmation of the error into which the judge fell,
v) The matter was sufficiently pleaded in contract, and sufficiently clear and compliant with the CPR, such that the judge ought not to have found against Quayside on what the judge himself accepted to be “purely technical grounds”; see paragraph 126. The pleadings referred to the particular contract and the express or implied terms thereunder to carry out the work with reasonable skill and care. The counterclaim clearly arose out of the same contract as that relied upon by
vi) That Quayside
a) the fact that
b) the fact that Walker did not seek to amend its Reply to the Amended Defence and Counterclaim (either in response to the Re-Amended Defence and Counterclaim or the Re-Re-Amended version), ultimately finding themselves debarred from filing and serving an amended reply and defence to counterclaim pursuant to an order of Mr Recorder Cole dated 22 November 2011;
c) that, in its only Reply and Defence to Counterclaim, in relation to the relevant paragraph in which the £8,941.16 was claimed, Walker stated only “as to para 12, the Claimant maintains its entitlement to payment. Insofar as the defects were not caused by the Defendant’s piling operations they were caused by matters that were the responsibility of the Defendant as detailed above”;
d) that, at trial,
e) that Walker put Part 18 requests for further information or clarification to Quayside which were responded to, but such requests never questioned the basis on which this sum was sought;
f) that, but for the alleged deficiency of pleadings, the judge would have found for Quayside.
vii) So far as the restitutionary claim was concerned, the judge wrongly drew a distinction between decisions of courts and decisions of adjudicators, in reliance on a passage in Goff & Jones The Law of Unjust Enrichment. That distinction was wrong, as per the obiter judgment in Jim Ennis Construction Limited v Premier Asphalt Limited [2009] EWHC 1906 (TCC). The claim in question was clearly a claim for “money had and received”.
viii) Further or alternatively, the judge ought to have treated this sum as an interim payment and either ordered
43. Lord Marks QC and Mr Hirst contended that the judge’s conclusion in relation to this issue should be upheld. In support of this contention, they submitted, in summary, as follows:
i) The effect of section 108(3) of the 1996 Act was that if litigation or arbitration was brought in which the decision of the adjudicator was challenged, that decision did not bind the subsequent tribunal in any way, nor did it alter the burden of proof in the litigation or arbitration. The court or arbitrator was free to determine the issue de novo. That was the effect of the Act as explained by Lord MacFadyen in City Inn Limited v Shepherd Construction Limited [2002] Scots Law Times 781 at paragraph [58]; and by Sir Peter Coulson in Coulson on Construction Adjudication, 2nd Edition, at 14.47 -14.48, the passage referred to by the judge at paragraph 113 of his Judgment.
ii) The decision of Akenhead J in Aspect of Contracts (Asbestos) Ltd v Higgins Construction PLC [2013] EWHC 1322 (TCC) had rejected both the implied contract analysis and the restitutionary basis suggested by the judge obiter in Jim Ennis Construction Limited v Premier Asphalt Limited supra.
iii) On the simple construction of section 108(3), it was not the law that the mere issue of proceedings to challenge the adjudicator’s decision displaced that decision. In the absence of agreement to the contrary, until there was a final judgment in the litigation or an arbitrator’s award, the adjudicator’s decision bound the parties.
iv) Quayside’s argument that it was for
v) It also followed that the judge was right that Quayside would have to have pleaded a cause of action to recover the money it had paid as a result of the adjudicator’s binding decision. The judge rightly held that there was no cause of action pleaded in contract.
vi) There was also no counterclaim on the pleadings for repayment of the £8,941.16, but only a claim for abatement of
vii) The reality of the case was that, as was apparent from the pleadings, there was a factual dispute between the parties, as to
viii) There was nothing in the point taken by Quayside that because the sum had not been certified by the Contract administrator, PBA, it was not contractually due.
“Costs to be paid as the contract component schedule unless workmanship defects found during exposure of above height lengths.”
It was irrelevant that the sum of £8,941.16 in question had not been certified by PBA. Whether it had been certified or not, by Paragraph 20 of the Scheme the Adjudicator was entitled to “open up, revise and review any decision taken or any certificate given by any person referred to in the contract unless the contract states that the decision or certificate is final and conclusive” (it did not so state).
ix) Because Quayside
Discussion and determination of the cross-appeal
44. I accept Lord Marks’ submission that, because Quayside
45. Speaking for myself, I have to confess to some difficulty with the concept of the “temporary finality” of an adjudicator
“binding on the parties, and they shall comply with it until the dispute is finally determined by legal proceedings or arbitration”.
46. As Buxton LJ said in Bouygues (UK) Ltd [2000] EWCA Civ 507 at [2], one can readily see that:
“The purpose of this procedure is to enable a quick and interim, but enforceable, award to be made in advance of the final resolution of what are likely to be complex and expensive disputes”.
To similar effect in relation to the commercial purpose of the provisions, is the statement by Chadwick LJ in the same case, at [26]:
“The purpose of those provisions is not in doubt. They are to provide a speedy method by which disputes under construction contracts can be resolved on a provisional basis. The adjudicator
Other cases similarly emphasise that the purpose of the statutory adjudication mechanism is to prevent the holding up of cash flow in the construction industry and to prevent payment being delayed by lengthy disputes: see for example Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] BLR 93 and Stiell Ltd v Riema Control Systems Ltd [2000] Scot CS 174 (23 June 2000).
47. But the more difficult question arises in relation to the status of the adjudicator
48. The issue was considered by Lord MacFadyen in City Inn Limited v Shepherd Construction Limited supra. The pursuers and defenders to the action were respectively the employer and contractor under a building contract. The dispute between the parties concerned whether, as the pursuers/employers maintained, the completion date specified in the contract remained the relevant completion date, or whether as the defenders/contractors maintained, they were entitled to various extensions of time as certified by the architect, and subsequently awarded by the adjudicator to whom the dispute was initially referred, prior to the start of the action. Lord MacFadyen said:
“[55] The dispute was referred to adjudication, and the adjudicator held that, in addition to the extension of time awarded by the architect, the defenders were entitled to a further extension of time of five weeks. The issue which has arisen, and which was briefly debated, is whether the adjudicator
[56] Mr Keen submitted that the adjudicator
“The arbitration or court proceedings are not an appeal against the decision of the Adjudicator but are a consideration of the dispute or difference as if no decision had been made by the Adjudicator.”
Mr Keen submitted that the note correctly stated the law.
[57] Mr Cormack, on the other hand, submitted that the effect of the adjudicator
[58] In my opinion, Mr Keen
49. That approach appears to have been adopted in Coulson on Construction Adjudication, 2nd Edition, at paragraphs 14.47-14.50, where the author (Sir Peter Coulson) states:
“14.47 A potentially difficult question concerns the status of the adjudicator’s decision in any subsequent litigation or arbitration. Let us take, by way of an example, a claim advanced by a contractor in adjudication that he was entitled to a 20-week extension of time, and assume that this claim was advanced to the satisfaction of the adjudicator, who decided that 20 weeks was a reasonable entitlement, even though there was an absence of detail that, in arbitration or litigation, might have proved fatal to the whole claim. The employer then says that he wishes to challenge the adjudicator’s decision, and there is subsequent litigation between the parties. Is the contractor entitled to rely in his pleaded defence upon the adjudicator’s decision in support of his claim for an extension of time of 20 weeks, contending that it was for the employer to demonstrate that the adjudicator was wrong in reaching this decision?
14.48 It seems that the unequivocal answer to this question is no. Once the decision has been formally challenged by the issue of subsequent litigation or arbitration, the contractor in the example noted above is not entitled to rely on the existing decision as having any status whatsoever, let alone one that changes or displaces the ordinary burden of proof. In City Inn Ltd v Shepherd Construction Ltd,[1] Lord MacFadyen stated that it was no part of the function of an adjudicator’s decision to reverse the onus of proof in any arbitration or litigation to which the parties might resort to obtain a final determination of the dispute between them. He said that the burden of proof lay where the law placed it and it was unaffected by the terms of the adjudicator’s decision. Thus, in the example previously noted, it would be for the contractor properly to plead and prove his entitlement to the 20-week extension of time.
14.49 The decision in City Inn was followed in another Scottish case, Citex Professional Services Ltd v Kenmore Developments Ltd.[2] There, the judge agreed with the reasoning of Lord MacFadyen in City Inn. However, in that case, the dispute was principally concerned with the correct interpretation of the contract, and the judge observed that, as a matter of practicality, he could not conceive that questions as to the burden of proof would play any significant part in the court’s determination of the issue in any event. That is rather different to the situation in City Inn, and in the example postulated above, where the potential difficulties that can arise out of the onus of proof in delay cases are such that a contractor might welcome the opportunity of reversing the normal burden of proof.
14.50 A rather unusual case on this topic, again from Scotland, is Stiell Ltd v Riema Control Systems Ltd.[3] There an adjudicator awarded the claiming party less than half the sum sought and that sum was duly paid by the defenders. The pursuers were unhappy with the adjudicator’s decision. Sums in the hands of a third party were arrested under a warrant for arrestment[4] and the defenders, having paid the sum ordered by the adjudicator, moved that the arrestment should be recalled. However, this was refused by the court on the ground that the action by the pursuer for the remaining part of the sum allegedly due (namely that part not ordered by the adjudicator) was one that involved no conditional contingency, because the sums claimed were outstanding, and thus the debt existed. The court held that the fact that the issue in the action may, in certain circumstances, have to be determined first by an adjudicator not mean that there was any change in the issue to be determined in the proceedings, and the determination by the adjudicator did not make claims, which were pure, become contingent.
It is respectfully suggested that this case turns on the particular operation of Scots law, and that in England and Wales a different result would have occurred: because the adjudicator had found that the claimant was not entitled to part of the sum claimed, the claimant would not have been able to conduct itself on the basis that that part of the sum was indeed due. If the claimant purported to do so, the defendant would have been entitled to a declaration to that effect, or to obtain summary judgment on its defence.[5]”
50. I comment that the suggestion made in the last paragraph of 14.50, by reference to the Scottish decision of Stiell Ltd v Riema Control Systems Ltd however, appears to support the proposition that, until the court has finally determined the case, the parties are bound to proceed on the basis that the award is correct and binding.
51. It is clear (and indeed was common ground on the appeal) that the court in subsequent litigation is not bound by the decision of the adjudicator and may come to a completely different conclusion on the relevant issues. It was also common ground that the adjudicator’s decision did not give rise to res judicata. But I have real difficulty with Lord MacFadyen
52. Fortunately, in my judgment there is no need to do so in the present case. That is because, in the context of this action, it was, on any basis, incumbent on Quayside to establish the set off and counterclaim it was asserting in response to Walker
“The adjudicator was wrong in relation to
53. In my judgment both the evidential burden and the burden of proof in establishing Quayside
54. It was thus for Quayside to plead, adduce evidence in support of and prove its set off and counterclaim. It did not do so.
55. I deal first with the pleading point. In this context I reject Lord Marks’ technical submission that there was no pleaded counterclaim in respect of the sum of £8491.60. I do so because: first, arithmetically, the final figure claimed in the counterclaim appears to include that figure; and, second, because, in repeating the defence, the counterclaim can be assumed to have included the claim for repayment made in paragraph 12 of the defence. However more importantly, Quayside
56. On its own, the absence of a satisfactory pleading of breach of contract probably would not have mattered if Quayside had called evidence at trial to support its claim that Walker’s original drainage construction works had been defective and in breach of the Contract; that consequently Walker had never been entitled to payment; that, accordingly, Quayside had suffered loss and was entitled to repayment or damages. No doubt the evidence, which had been before the adjudicator in relation to the cause of the defects present in the drains (i.e. whether they were caused by
57. In circumstances where
58. In the court below there was considerable discussion, in the context of the adequacy of the pleadings, as to the nature, or characterisation, of the claim for repayment. In particular the debate focused on whether the claim was based on:
i) an implied term in the underlying construction contract, that in the event of a subsequent determination by a court or arbitration proceedings which reached a conclusion contrary to the adjudication decision, the unsuccessful party in the adjudication was entitled to be repaid all sums paid by it in compliance with the award; and/or
ii) a restitutionary claim in unjust enrichment.
59. As I have already said, the judge decided (following the decision in Jim Ennis Construction Limited v Premier Asphalt Limited) that that there was such an implied term in the Contract, that Quayside indeed had such a cause of action in contract, but had failed to plead any allegation that there had been a breach of contract or identify any such breach. He also held (not following the decision in Jim Ennis Construction Limited v Premier Asphalt Limited) that there was no restitutionary claim as the payment had been made under the terms of the Scheme, and had not been paid by mistake or without consideration.
60. In Jim Ennis Construction Limited v Premier Asphalt Limited His Honour Judge Davies concluded:
i) that there was an implied term of the underlying construction contract, whereby an unsuccessful party to an adjudication was entitled to be repaid all sums paid by it in compliance with an adjudication decision, in the event that it succeeded in a subsequent action;
ii) that, accordingly, there was a new cause of action, arising as at the date of payment pursuant to the terms of the adjudication, if and to the extent that, as a matter of fact or law, that party was not liable to pay the sums decided as due by the adjudicator;
iii) that, additionally, the unsuccessful party in the adjudication had a restitutionary claim for repayment, the limitation period in respect of which ran from the date of payment.
61. In Aspect of Contracts (Asbestos) Ltd v Higgins Construction PLC, another limitation case, Akenhead J rejected the analysis of His Honour judge Davies in Jim Ennis Construction Limited v Premier Asphalt Limited. Akenhead J held that there was no implied term under the Scheme giving rise to a new right to the losing party in the adjudication to sue as from the date of payment for the recovery of sums paid. Similarly he held that there was no separate cause of action in restitution enabling the losing party in the adjudication to bring a restitutionary claim for payment within six years from the date of payment pursuant to the adjudication. He held that the relevant cause of action in court proceedings following an adjudication flowed from the underlying construction contract itself and was thus subject to the six year limitation period applicable to that contract. Depending on the circumstances, the claim in subsequent court proceedings by the unsuccessful party to the adjudication might be a claim for payment under the contract, a claim for a negative declaration that it had no contractual or tortious liability in damages to the other party or a claim for damages for breach of contract. All such claims were subject to the six year limitation period applicable to contract or tort claims.
62. No limitation issue arises in the present case. For present purposes the only possible relevance of the correct characterisation of a claim brought in subsequent court proceedings by the unsuccessful party to the adjudication would be in relation to the issues whether:
i) the onus is on the unsuccessful party to the adjudication who is claiming repayment of sums paid pursuant to the adjudication, to plead the basis of its claim to repayment and adduce evidence in support of such claim; in other words to justify its entitlement to repayment; or whether it is for the successful party to the adjudication, who has already been paid in respect of its claim, to plead and adduce evidence which satisfies the court; and
ii) if the former, whether Quayside adequately pleaded and proved, by adducing appropriate evidence, its claim for pro tanto set off and payment, or repayment, of the sum of £8491.60.
63. I prefer the analysis of Akenhead J in Aspect of Contracts (Asbestos) Ltd v Higgins Construction PLC to that of His Honour Judge Davies in Jim Ennis Construction Limited v Premier Asphalt Limited. I agree that, for limitation purposes, no new cause of action arises either as a result of an implied contractual term, or on the basis of a restitutionary claim, and that, when an unsuccessful party to the adjudication subsequently brings court proceedings, it is doing so on the basis of its original rights under the construction contract to claim payment under the contract, damages for breach of contract or a negative declaration that it is not in breach. However, neither analysis in my view actually assists the resolution of either of the issues identified above, although it could perhaps be said that the concept of a claim for a negative declaration (that the unsuccessful party to the adjudication was not in breach of contract) described in paragraph 44 of Akenhead J’s judgment, supports the analysis that it is for the unsuccessful party to the adjudication to prove his entitlement to repayment in subsequent proceedings.
64. As I have already said, in my judgment, the simple point here was that it was Quayside which was seeking to set off, arguably counterclaim and obtain payment in respect of the sum of £8491.60 in circumstances where
65. Accordingly I agree with the judge, although for somewhat different reasons, that, in circumstances where it chose not to adduce any evidence to support its claim, Quayside was not entitled to set off, or to repayment of, any part of the £8491.60. Accordingly, the judge was right to restrict the amount recoverable in respect of Quayside’s counterclaim to the sum of £10,885.
The judge
66. The judge’s order in relation to the cost of the action (“the costs order”) was in the following terms:
“1. Judgment be entered for the Defendant in the sum of £10,035.91 together with interest in the agreed sum of £850.00.
2. Orders as to costs are as follows:
(a) The Defendant shall pay the Claimant’s costs up to 15th December 2008 to be assessed on the standard basis if not agreed.
(b) The Defendant shall pay the Claimant’s costs of and occasioned by the amendment to the Defence and Counterclaim for which permission was granted by Order 1 of 15 October 2010;
(c) Save as aforesaid, the Claimant shall pay the Defendant’s costs for the period from 16th December 2008 to 24th May 2011 to be assessed on the standard basis and from 25th May 2011 to be assessed on the indemnity basis.”
67. The significance of the date of 15 December 2008 was that that was the date of payment under the adjudicator’s award, before which there was little dispute that
68. In the course of his judgment on costs, the judge considered a number of offers to settle and the consequences he attributed to them. In summary:
i) First, he considered
ii) Secondly, the judge considered
a) that, although he was not “in a position to judge whether costs incurred by them were reasonably or unreasonably incurred”, he was prepared to accept at face value Quayside’s assertion, two days later, that the offer of £30,000 did not come close to covering the Defendant’s costs, let alone the sums claimed;
b) that he was assisted in his view by Quayside’s letter dated 8 March 2011 (not 2 March as stated in the judgment), 9 weeks later, in which Quayside set out its costs to date as £52,415.85; contrary to his earlier view that he was not “in a position to judge whether costs incurred by them were reasonably or unreasonably incurred”, the judge then said “it seems very possible to me that [sic] level of costs might well have been incurred reasonably, and certainly not wholly unreasonably”; he then concluded that, working back to the time of the Calderbank offer on 5 January 2011, “it would then appear that over £30,000 worth of costs certainly had been incurred on a standard basis.”; and
c) accordingly that
iii) Third, the judge went on to consider Quayside’s Calderbank offer dated 8 March 2011 to accept £40,000 inclusive of interest and costs in full and final settlement of its claims and counterclaims; he commented that, a little surprisingly, this offer had not been accepted.
iv) Finally, the judge considered Quayside’s Part 36 offer of 3 May 2011 to accept £100 in settlement of the claim and counterclaim, plus payment of its costs. He found that Quayside had beaten this offer and therefore awarded Quayside all of its costs on the indemnity basis from 21 days thereafter (24 May 2011).
v) At the conclusion of his judgment the judge went on to award the costs which had been reserved by order of District Judge Burgess, relating to the amendment of the defence and counterclaim, to
69. Lord Marks and Mr Hirst recognised that issues of costs were matters for the trial judge’s discretion and that appellate courts were generally reluctant to interfere with costs orders. Nevertheless, they submitted that the judge made serious errors of principle in making the costs order. In summary, they submitted:
i) The judge’s approach produced a result that was completely disproportionate to Quayside’s actual recovery.
ii) The effect of his judgment was to impose a liability on Walker for the entirety of the costs of the action, in an amount of about £350,000, in respect of a case which largely failed, despite a reasonable and proportionate offer of settlement, when the costs incurred were largely attributable to contesting these proceedings in a way that befitted a major piece of litigation, when, in reality, only a minimal recovery was in prospect. Measured against the overriding objective, the outcome ordered by the judge was perverse.
iii) In the circumstances the judge did not merely err in the exercise of his discretion. He adopted an approach to the question of costs that was inconsistent with his statutory duty under CPR 44.3(4) and inconsistent with authority and common sense.
iv) The judge failed to consider the relevant factors under CPR part 44.3 (2), (4) and (5) and had had exclusive regard, in an unduly mechanistic and inaccurate way, to the offers and counter-offers made by the parties, on an “all or nothing” basis.
v) Furthermore, when the judge came to consider both the Calderbank offer made by
vi) The judge should have recognised that Walker could not realistically have made a Part 36 offer, because that would have carried the consequence, by CPR 36.10(1), that Quayside would have been entitled to its costs of the proceedings if the offer was accepted; see Medway Primary Care Trust v Marcus [2011] EWCA Civ 750, at paragraph 51.
vii) Quayside’s argument that the abandonment of £90,000 of its claim was not unreasonable, and therefore Quayside should not be penalized for adopting a proportionate approach, missed the point.
viii) The judge should have assessed
a) the proportion (at least 50%) for partial failure of Quayside’s counterclaim;
b)
c) Quayside’s costs before 15 December 2008;
d) the costs of the amendment of the Defence and Counterclaim;
e) the costs occasioned to
f) a further 30% or so to allow for taxation on the standard basis.
ix) The judge should therefore have come to the conclusion that a recovery of costs in the net sum of £19,000 as at 5 January 2011 would have been generous and should consequently have found that
x) There was nothing in Quayside’s submission that
xi) The judge’s reasoning in relation to Quayside’s Part 36 offer of 3 May 2011 was also wrong.
xii) In considering Quayside’s Part 36 offer, just as in considering
xiii) In all the circumstances it was for the Court of Appeal to exercise its discretion afresh. An appropriate order that recognised the effectiveness of
a) as per paragraph 2(a) of the judge’s order;
b) as per paragraph 2(b) of the judge’s order;
c) that Walker should pay a proportion (not more than 50%) of Quayside’s costs from 16 December 2008 to 19 January 2011, the date by which Quayside should have responded to Walker’s Calderbank offer of 5 January 2011, to be assessed on the standard basis if not agreed;
d) that Quayside should pay
Quayside
70. Mr Browne and Mr Sharpe submitted that the judge’s costs order should be upheld for the reasons given by the judge and additionally for the reasons set out in Quayside’s notice. These were as follows:
i) In the exercise of his discretion, and taking into account all of the circumstances (including the Appellant’s conduct) the judge made a costs order that was within the reasonable parameters of his discretion. In those circumstances the Court of Appeal should not interfere
ii) In the light of the decision in Fox v Foundation Piling Ltd [2011] EWCA Civ 790 (which was not cited to the judge or on the application for permission to appeal) his decision was correct.
iii) The judge was not invited by Counsel appearing for
iv) In the costs context, these were pre-eminently matters of discretion and evaluation. That was particularly so where, as in this case, the trial judge had heard all of the evidence and submissions and was more aware than anyone of the time and expense spent upon the issues. The costs judgment followed on the extensive judgment in the case delivered earlier the same day. Accordingly, the judge made a costs order that was well within his discretion and the circumstances did not justify interference by the appeal court.
v) The judge in his costs judgment did consider all elements of Part 44.3, despite, rather than because of, the submissions made.
vi) “Success” was not a technical term but “a result in real life”; see BCCI v Ali (No 4), The Times 02/03/2000). It could “easily be determined by deciding who has to write the cheque at the end of the case.”; see Day v Day [2006] EWCA Civ 415. In commercial litigation, where each party had claims and asserted that a balance was owing in its own favour, the party which ends up receiving payment should generally be characterised as the overall winner of the entire action.”; see per Jackson J in Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd [2008] EWHC 2280 (TCC).
vii) In the present case
viii) Whereas the judge did not recite a “checklist” of the factors listed under CPR 44.3(4), he nonetheless considered all the relevant circumstances listed under the rule, including the specific criteria of conduct, success and offers.
ix) The fact that the successful party has won on some issues and lost on others was not normally a reason for depriving the successful party of part of his costs; see Goodwin v Bennets UK Ltd [2008] EWCA Civ 1658.
x) A litigant will often lose on some points along the way. It is a fortunate litigant who wins on every point; see Travelers Casualty and Surety Company v Sun Life Insurance Company of Canada Ltd [2006] EWHC 2885 (Comm) and it may be inappropriate to make separate costs orders for costs in respect of issues upon which he has failed, unless the points were unreasonably taken. Here, while Quayside elected not to pursue a large element of the counterclaim (losing some £90,000 of claim in the process), that was not unreasonable as it prevented a further 190,000 documents having to be considered, and
xi) The judge was right not to place any reliance on
xii) The extensive rules and powers vested in costs judges permitted points to be taken on a detailed assessment not only in relation to proportionality but also in relation to discrete issues in the case. In the Court of Appeal case of Lahey v Pirelli Tyres [2007] EWCA Civ 91 it was held that acceptance of a Part 36 offer gave an automatic entitlement to 100% of costs to be assessed; and that it was not open to the costs judge to reduce the percentage that the receiving party would recover prior to the assessment. The costs judge was however, as part of the assessment, entitled to reduce the bill by a percentage; see paragraph 20 of the judgment. The costs judge retained a jurisdiction to disallow costs that had been unreasonably incurred.
xiii) The judge was correct to take into account Quayside’s Part 36 offer of £100 dated 3 May 2011. Quayside clearly beat that offer and, as such, the judge had been right to find that it was effective.
xiv) It was not the function of the judge to conduct some rough and ready summary assessment of costs at some historic point of the litigation, with the benefit of hindsight (as
xv)
xvi) Accordingly the judge’s order in relation to costs should be upheld.
Discussion and determination of
71. I accept that, as was common ground, an appellate court should not lightly interfere with a trial judge’s exercise of discretion in relation to costs. As Davies LJ said in F&C Alternative Investments (Holdings) Limited & Ors v Barthelemy & Anor [2012] EWCA Civ 843 at [42]:
“Decisions on costs after a trial are pre-eminently matters of discretion and evaluation. Further, it is particularly important to bear in mind that a trial judge – especially after a trial such as this one – will have a knowledge of and feel for a case which an appellate court cannot begin to replicate. The ultimate test, of course, for the purposes of an appeal of this kind is whether the decision challenged is wrong. But it is well established that an appellate court may only interfere if the decision on costs is wrong in principle; or if it involves taking into account a matter which should not have been taken into account or failing to take into account a matter which should have been taken into account; or if it is plainly unsustainable.”
72. However I have reached the conclusion that the judge was plainly wrong in this case to make the costs order which he did and that his order is unsustainable. My reasons are as follows.
73. First, in my view, the judge, when considering the history of the matter and assessing the various offers, failed adequately to take into account the commercial reality of this litigation, how it was conducted on each side, its ultimate outcome, and who, on an objective basis, was the more successful party. These were matters to which he was obliged to give appropriate consideration under CPR Part 44.3(2), (4) and (5). By failing to take into account these relevant matters, and simply focusing on the various offers, the judge in my view adopted too mechanistic an approach, and failed to address the costs issues in their proper commercial context.
74. The relevant provisions of CPR Part 44.3 for present purposes are the following:
“44.3 – (1) The court has discretion as to –
(a) Whether costs are payable by one party to another ;
(b) The amount of those costs; and
(c) When they are to be paid.
(2) If the court decides to make an order about costs –
(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but
(b) the court may make a different order”
(4) In deciding what order (if any) to make about costs the court must have regard to all the circumstances, including –
(a) the conduct of all the parties;
(b) whether a party has succeeded on part of his case, or if he has not been wholly successful;
(c) any payment into court or admissible offer to settle made by a party which is drawn to the court’s attention and which is not an offer to which costs consequences under Part 36 apply.
(5) The conduct of the Parties includes –
(a) conduct before, as well as during, the proceedings, and in particular the extent to which the parties followed the Practice Direction (Pre-Action Conduct) or any relevant pre-action protocol;
(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;
(c) the manner in which a party has pursued or defended his case or a particular allegation or issue;
(d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim”.
75.
76. From that date (December 2008)
77. Against that commercial background, and the overall outcome, it seems to me to be impossible that a proportionate, or principled, result in costs terms could be that Walker should have been subjected to a liability to pay Quayside’s costs in an amount of £345,758.73 (subject to detailed assessment), in circumstances where Quayside had failed to establish all but a very small part of its counterclaim. As Lord Marks submitted, those costs were largely attributable to Quayside having contested the proceedings in a way that befitted a major piece of substantial litigation, when in reality only a minimal recovery was ever in prospect. On any basis, when one stands back and looks at the result, Quayside’s recovery of costs in an amount of £345,758.73 appears disproportionate. At best, and without taking into consideration the various offers, one might have thought that Quayside should only have been entitled to have recovered costs attributable to a counterclaim of £10,035.
78. As demonstrated in the first six paragraphs of the costs judgment, the judge seems to have been unaware that the huge costs incurred, which he referred to as “dwarf [ing]” the contractual payments and damages involved in the litigation, were largely, if not wholly, attributable to Quayside
79. Mr Browne submitted that success in litigation could “easily be determined by deciding who has to write the cheque at the end of the case”; see Day v Day [2006] EWCA Civ 415. He relied on the statement of Jackson J (as he then was) in Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd [2008] EWHC 2280 (TCC) at paragraph 72(i) that:
“(i) In commercial litigation, where each party has claims and asserts that a balance is owing in its own favour, the party which ends up receiving payment should generally be characterised as the overall winner of the entire action.”
80. However the person who writes a cheque at the end of the day is not the only consideration that has to be taken into account, as Jackson J himself recognised when he went on to state the following seven additional principles:
“(ii) In considering how to exercise its discretion the court should take as its starting point the general rule that the successful party is entitled to an order for costs.
(iii) The judge must then consider what departures are required from that starting point, having regard to all the circumstances of the case.
(iv) Where the circumstances of the case require an issue-based costs order, that is what the judge should make. However, the judge should hesitate before doing so, because of the practical difficulties which this causes and because of the steer given by rule 44.3(7).
(v) In many cases the judge can and should reflect the relative success of the parties on different issues by making a proportionate costs order.
(vi) In considering the circumstances of the case the judge will have regard not only to any part 36 offers made but also to each party’s approach to negotiations (insofar as admissible) and general conduct of the litigation.
(vii) If (a) one party makes an order offer under part 36 or an admissible offer within rule 44.3(4)(c) which is nearly but not quite sufficient, and (b) the other party rejects that offer outright without any attempt to negotiate, then it might be appropriate to penalise the second party in costs.
(viii) In assessing a proportionate costs order the judge should consider what costs are referable to each issue and what costs are common to several issues. It will often be reasonable for the overall winner to recover not only the costs specific to the issues which he has won but also the common costs”.
81. The present case was essentially one where the exercise of the discretion to award costs had to reflect the reality that Quayside had substantially failed on its counterclaim, which on any basis was substantially exaggerated. Moreover consideration clearly had to be given to whether an issue based, or partial, costs order was appropriate.
82. Second, in my judgment the judge failed adequately to consider the respective conduct of the parties of the litigation and adjudication processes.
83. In paragraph 6 of his costs judgment the judge appears to be criticising
84. By way of contrast, the judge failed to level any criticism at Quayside in respect of the manner in which it conducted the litigation or pursued its counterclaim. Criticism was clearly justified. Quayside’s claim for repayment of the sum of £8941.16 awarded by the adjudicator, effectively involved re-litigation of the drainage issues which had been explored in some considerable detail in the adjudication. Quayside attempted to avoid that task by the erroneous arguments to which I have already referred on the cross-appeal. Viewed on any basis, Quayside
85. Third, I accept Lord Marks’ submission that, in those circumstances, the judge should have approached the question of costs on the basis that the very best Quayside could do – on the basis of an application of the general rule and before he came to consider the Calderbank offers – was to secure an order that Walker pay a proportion of its costs; and that that approach should then have governed the judge’s approach to the Calderbank offers when he came to consider them.
86. Fourth, the judge, when considering Walker
“51. … even a Part 36 offer made here at the first reasonable opportunity would have attracted wholly disproportionate costs consequences.
52. … I agree with the President that the Appellants might appropriately have made a Calderbank type offer which would have rendered this debate unnecessary. Such an offer would have been of very considerable benefit to the Claimant if you are accepted because it would have insulated him from an order such as is now being made to pay the Defendant’s costs, or a substantial part thereof, incurred in defending over a long period the ultimately unsuccessful claim. Had the Defendants at the first reasonable opportunity offered £3,000 together with costs proportionate to that recovery, their claim to recover the entirety of their costs thereafter incurred would, in my view, have been strong, if not unanswerable. However, the failure of the Defendants to make such an offer, which would not have been accepted, does not compel the court to make an order for costs which does not reflect the realities of the litigation.”
See also Fairclough Homes Ltd v Summers [2012] UKSC 26 at paragraphs 53 and 54.
87. However the judge does appear to have recognised at paragraph 18 of his costs judgment that, if
“having to pay costs assessed on the basis of the counterclaims that then stood at £169,000, producing a wholly disproportionate sum of costs”.
But, as Lord Marks pointed out, exactly the same consideration would have applied to the making of a Part 36 offer instead of a Calderbank offer in January 2011.
88. Mr Browne sought to suggest that the decision in Fox v Foundation Piling Limited [2011] EWCA Civ 790 was inconsistent with the decision in Medway. He submitted that the fact that a claimant had succeeded in part only should not lead to a reduction in the recovery of costs and should not have been expected to lead to such a reduction when the Calderbank offer was made. I do not accept that submission. All costs cases are highly fact-dependent. Fox was a personal injury case. At paragraphs 46 – 49 Jackson LJ said:
“46. A not uncommon scenario is that both parties turn out to have been over-optimistic in their Part 36 offers. The claimant recovers more than the defendant has previously offered to pay, but less than the claimant has previously offered to accept. In such a case the claimant should normally be regarded as “the successful party” within rule 44.3 (2). The claimant has been forced to bring proceedings in order to recover the sum awarded. He has done so and his claim has been vindicated to that extent.
47. In that situation the starting point is that the successful party should recover its costs from the other side: see rule 44.3 (2) (a). The next stage is to consider whether any adjustment should be made to reflect issues on which the successful party has lost or other circumstances. An adjustment may be required to reflect the costs referable to a discrete issue which the successful party has lost. An adjustment may also be required to compensate the unsuccessful party for costs which it was caused to incur by reason of unreasonable conduct on the part of the successful party”.
48 . In a personal injury action the fact that the Claimant has won on some issues and lost on other issues along the way is not normally a reason for depriving the Claimant of part of his costs: see Goodwin v Bennett UK Limited [2008] EWCA Civ 165. For example the claimant may succeed on some of the pleaded particulars of negligence but not others….
49. Nevertheless in other cases as stated above the fact that the successful party has failed on certain issues may constitute a good reason for modifying the costs order in his favour. This is commonly achieved by awarding the successful party a specified proportion of its costs. In Widlake the facts were so extreme that the successful party was ordered to bear all of its own costs.”
In the light if these comments, I see no inconsistency between the two cases.
89. Fifth, in my judgment the judge failed adequately to consider whether Walker
“we note your client
90. At paragraphs 12 and 13 of the costs judgment the judge said:
“12. Quayside’s solicitors are clearly stating then that they have incurred over £30,000 worth of costs by January 2011 and I see absolutely no reason to doubt that. I know that there is a generous discretion allowed to solicitors in making bold statements of fact in inter-solicitor correspondence, but I do not see that as such a statement. I can readily accept it at its face value.
13. Indeed, it is interesting to note that just over two months later on 2 March 2011 Quayside’s solicitors wrote setting out their costs to date, reaching a grand total of £50,415.85 including some £40,000 odd worth of profit costs. It seems very possible to me that level of costs might well have been incurred reasonably, and certainly not wholly unreasonably. Working back the two months to January 2011 it would then appear that over £30,000 worth of costs certainly had been incurred on a standard basis”.
91. In other words the judge appears to have accepted that a figure in the region of, or possibly in excess of, £30,000 had been incurred by 5 January 2011 in respect of costs on the indemnity basis. As Lord Marks submitted, the judge should then have asked himself whether the allowance of about £19,000 for costs, in
i) the fact that Quayside’s counterclaim had been exaggerated, that it had made a very modest recovery and therefore a substantial proportion of its costs would have had to have been regarded as attributable to issues on which it failed; I agree with Lord Marks that any discount in this respect would have been at least 50%, if not more;
ii)
iii) the fact that Quayside would not have been able to have recovered any costs before 15 December 2008 (probably an equivalent sum, i.e. another £2,800 odd);
iv) the fact that Quayside would not have been able to have recovered its own costs of the amendment of the Defence and the Counterclaim, which were not likely to have been less than
v) the fact that Quayside would have had to have paid
vi) a further 30% or so to allow for taxation on the standard basis.
92. In my judgment, on any realistic appraisal of the position as at 5 January 2011, the judge should have come to the conclusion that, given the ultimate outcome, an offer to pay costs in a net sum of £19,000 as at 5 January 2011 was in fact generous and that Quayside had not beaten that offer. He should consequently have found that
93. Mr Browne submitted that the fact that Quayside “elected not to pursue a large element of the counterclaim” and abandoned £90,000 of its claim, was not unreasonable and that, accordingly, Quayside should not be penalized for adopting a proportionate approach. I disagree. In the context of this particular claim, where quite clearly a large proportion of Quayside
94. Nor was there anything in Mr Browne
95. Nor was I impressed by Mr Browne
96. Sixth, I take the view that the judge
97. Although he did not expressly say so, the judge clearly exercised his discretion on the basis that rule 36.14 (1) (b) applied (because Quayside
98. In circumstances where the judge has exercised his discretion in a manner that is wrong in principle, it is for the Court of Appeal to exercise its discretion afresh. I accept Lord Marks
i) for paragraphs 2(a) and 2(b) of the judge’s order to stand;
ii) that Walker should pay 50% of Quayside’s costs from 16 December 2008 to 19 January 2011, the date by which Quayside should have responded to Walker’s Calderbank offer of 5 January 2011, to be assessed on the standard basis if not agreed; and
iii) that Quayside should pay
99. Had it not been for the time wasted by Walker at trial in litigating the contractual issues referred to at paragraphs 22-32 of the judgment, I might have awarded Quayside a lesser percentage of its costs than 50% under (ii) above. But in his oral submissions Lord Marks wisely did not press for any lower percentage than 50%.
Disposition
100. Accordingly I would allow
Lord Justice McFarlane :
101. I agree.
Lord Justice Laws :
102. I also agree.
[1] [2002] Scots Law Times 781.
[2] [2004] Scots CS 20 (28.1.04).
[3] [2001] 3 TCLR 9.
[4] See Paragraph 14.57
[5] There is no question Stiell is an unusual case. It is difficult not to agree with the commentary in the TCLR which suggests that the case might be seen as authority for the curious proposition that an adjudicator’s decision is binding when it is in favour of the claimant, but not otherwise.
