Clancy Consulting Ltd v Derwent Holdings Ltd & Ors

INTRODUCTION

In these proceedings, which were commenced on 23^rd October 2009, the claimants (“Clancy”) claim outstanding professional fees in the total sum of £578,983.82, arising out of engineering and mechanical services work carried out for the defendants on numerous projects extending over many years. By an application dated 3^rd March 2010, Clancy seek to strike out the defendants’ defence and/or summary judgment on their claim pursuant to CPR Part 24.

The defendants originally opposed the application and served a lengthy witness statement in support of their position that nothing was due. However, in a helpful skeleton argument served last Friday, Mr. Davie QC, who appears today on behalf of the defendants, conceded that Clancy were entitled to summary judgment in the sum of £329,525 and VAT. I shall explain later in this judgment why I consider that that concession was rightly made. Although this has meant that the disputes between the parties are narrower than before, it has still been necessary to deal with a variety of matters in order to explain my approach to the remaining issues.

I propose to deal with those issues in this way. In Section 2 below, I set out a brief summary of the essential features of the claim. In Section 3, I identify a number of the unusual features of this litigation and the defendants’ conduct of it. In Section 4, I deal briefly with the principles applicable to applications to strike out and for summary judgment. At Section 5, I analyse Clancy’s application by reference to the remaining issues between the parties. I should express my gratitude to Ms. Garrett and in particular to Mr. Davie for their assistance. I apprehend that, had Mr. Davie been involved earlier in this case, this application may not have been necessary.

THE CLAIM

It is common ground that Clancy carried out extensive engineering work for the defendants who are all owned and controlled by a common trust. The work was performed in accordance with contracts evidenced in writing. Instructions were given to Clancy by the defendants’ agent, Kingsley Fereday Management Limited (“KFM”).

Clancy submit that these contracts provided that they would be remunerated on an hourly rate basis, unless and until a further lump sum fee was agreed. On a handful of the contracts, a lump sum fee was agreed and a formal agreement was recorded in writing. But on all the contracts with which I am now concerned, there was no such lump sum agreement and the dispute concerns the basis on which Clancy were entitled to be paid for the services that they performed.

It is important to note that the parties also agreed a monthly process which was akin to (and I shall call) certification. That process appeared to involve:

Clancy’s claim in these proceedings is made up of:

THE LITIGATION AND THE DEFENDANTS’ CONDUCT OF IT

Clancy’s particulars of claim contained details of 22 contracts on which it was said that fees were outstanding. Each of those contracts is the subject of a separate appendix (Appendices 2 to 23 inclusive) which set out Clancy’s involvement in the project, the contractual arrangements, the unpaid work and the calculation of the payment due. It is, on any view, a thorough exercise.

The critical paragraphs as to payment are paragraphs 33 and 34 of the particulars of claim which provide as follows:

“33.

It was agreed between the parties that Clancy would be remunerated on an hourly rate basis unless and until a further lump sum fee was agreed with KFM.

34.

The hourly rates were those in force at Clancy from time to time.”

Paragraph 35 goes on to allege that this agreement was recorded in a number of letters which are then set out. I have been taken to those. They usually contain something akin to this formulation, namely:

“We confirm that at this stage we should invoice for our own costs on a time charge basis until a formal fee agreement has been entered into in relation to the scheme as a whole …”

Paragraph 36 of the particulars of claim alleges that:

“The parties’ previous course of dealing as recorded in Clancy’s letters dated 13^th and 14^th August 2008 apply to all the projects the subject of this claim.”

The letter of 13^th August refers to Clancy’s proposal “to invoice on a time charge basis”. This exchange of letters occurred in respect of the Walkden Project. A later e-mail from Clancy on that same project refers to an agreement between the parties that the defendants would pay Clancy “our hourly rates”.

The defendants’ defence, which was not settled by Mr. Davie, was served on 11^th January 2010. It is an unsatisfactory document in a variety of ways, but principally because it wholly fails to get to grips with the detail of the claims made. There is, for example, no attempt to reply to the individual appendices. The defence admits that some (unidentified) fees are due to Clancy.

In my judgment, the defence largely consists of bare denials, often in relation to matters which seem to me to be of peripheral importance. There is no positive case advanced at all. As to the critical issue of remuneration it is the defendants’ pleaded case that:

What is immediately noticeable by its absence is any pleading by the defendants of:

By an application dated 25^th January 2010 Clancy sought this information. The terms of the order that they sought was that the defendants were to provide an amended defence which:

“(a)

states in relation to each allegation in the particulars of claim and the appendices which allegations they admit, require Clancy to prove or deny, together with reasons for the denial and, in the event that they intend to put forward a different version of events, a statement of that version in accordance with CPR Part 16.5;

(b)

states in relation to each contract (for the avoidance of doubt each job number) identified in the appendices the amount which the defendants admit is due to Clancy and the basis of the calculation of that amount …”

A hearing date for the application was fixed before Ramsey J on 10^th February 2010. The day before that hearing the defendants consented to an order in the terms sought. The judge made it a final order, requiring the service of the amended defence by 17^th February 2010.

On 18^th February 2010 the defendants sought an extension until 24^th February for their amended defence. Their solicitor said that they were “working hard to meet the deadline”. Difficulties in sourcing documentation were blamed as the reason for the delay.

On 21^st February 2010 Ramsey J dealt with the defendants’ application on paper. He extended time to 24^th February but he made the order an unless order in these terms:

“If the defendants do not serve a draft amended defence by 4.00 p.m. on 24^th February 2010 they shall be limited to the case that is set out in the defence served on 11^th January 2010 and shall not be permitted to present evidence and arguments outside that pleaded case save with the permission of the court.”

Although it was indicated in the inter-solicitor correspondence that the amended defence was imminent, the deadline of 24^th February passed without any such document being served. There has been no amended defence. Thus, the defendants are stuck with the terms of the order made by Ramsey J on 21^st February. It is Clancy’s case that that unamended defence is so flawed, for the reasons that they first advertised to the judge some months ago, that they are entitled either to strike it out or to summary judgment in consequence.

I should add that in the witness statement provided by the defendants’ solicitor there was an assertion that the defendants were not obliged to provide an amended defence and had chosen not to do so. It is difficult to reconcile that assertion with either the terms of the order or the repeated promises in the inter-solicitor correspondence that they were about to provide such a document. On any fair reading of that correspondence, and the previous court orders, it seems to me that the defendants knew that their pleading was defective but, for whatever reason, were either unable or unwilling to remedy those difficulties. Wisely, this was not a matter that was pursued further by Mr. Davie in his oral submissions.

For completeness, I should also add that, according to the inter-solicitor correspondence prior to 24^th February, there was a suggestion that the defendants had an extensive counterclaim. At one point this counterclaim was said to be worth about £5 million. In fact there is no counterclaim attached to the only defence which the defendants can now pursue, and none has ever been provided.

APPLICABLE PRINCIPLES

Striking out

The rules relating to the proper pleading of a defence are set out in CPR 16.5 and include the following:

“(1)

In his defence, the defendant must state -

(a)

which of the allegations in the particulars of claim he denies;

(b)

which allegations he is unable to admit or deny, but which he requires the claimant to prove; and

(c)

which allegations he admits.

(2)

Where the defendant denies an allegation –

(a)

he must state his reasons for doing so; and

(b)

if he intends to put forward a different version of events from that given by the claimant, he must state his own version.

(3)

A defendant who –

(a)

fails to deal with an allegation; but

(b)

has set out in his defence the nature of his case in relation to the issue to which that allegation is relevant,

shall be taken to require that allegation to be proved.

(4)

Where the claim includes a money claim, a defendant shall be taken to require that any allegation relating to the amount of money claimed be proved unless he expressly admits the allegation.

(5)

Subject to paragraphs (3) and (4), a defendant who fails to deal with an allegation shall be taken to admit that allegation.

(6)

If the defendant disputes the claimant’s statement of value under rule 16.3 he must –

(a)

state why he disputes it; and

(b)

if he is able, give his own statement of the value of the claim.

…”

CPR 3.4(2) provides that the court can strike out a statement of case (which, for this purpose includes a defence), if it appears to the court:

“(a)

that the statement of case discloses no reasonable grounds for bringing or defending the claim;

(b)

that the statement of case is an abuse of the court’s process or is otherwise likely to obstruct the just disposal of the proceedings; or

(c)

that there has been a failure to comply with a rule, practice direction or court order.”

The Practice Direction makes clear at 3PD1.6 that a defence may fall within rule 3.4(2)(a) where it consists of a bare denial without more.

Accordingly, a defendant:

Summary Judgment

The test for summary judgment under CPR Part 24 is well known. Summary judgment will be given “if the defendant has no real prospect of successfully defending the claim”: see r.24.2(a)(ii). A real prospect of success means better than merely arguable: see International Finance Corporation v. Utexafrica Sprl [2001] CLC 1361. At the subsequent trial what matters is which parties’ case is the more probable, having regard to the burden of proof, whilst on an application under CPR Part 24, what matters is not probability but “an absence of reality”: see Lord Hobhouse of Woodborough in Three Rivers District Council v. The Bank of England (No. 3) [2001] 2 All ER 513 at 568.

Pursuant to CPR 24.6, the court can make a conditional order by reference to paragraph 5.2 of the Practice Direction and paragraph 2.4.6.6 of the White Book. Such an order is appropriate if the court concludes that the defence may succeed but that it is improbable that it will do so. The Court of Appeal in Olatawura v Abiloye [2002] EWCA Civ 998 set out the relevant guidelines for the making of such orders in circumstances where the court concludes that the defence is ‘unpromising’.

ANALYSIS

The Certified Sums

From all the documents, it seems to me beyond argument that Clancy are and were entitled to be paid the sums which KFM, on behalf of the defendants, certified as due and payable at the time. There is no basis in the pleaded defence to suggest that the defendants have any real prospect of defending the claim for the certified sums. It is for this reason that I consider that Mr. Davie was quite correct to concede this important element of the claim. Thus Clancy are entitled, by way of summary judgment, to the sum of £329,525 plus VAT.

Clancy’s Particulars of Claim

Before coming on to consider the two remaining claims (for uncertified sums and management costs), it is necessary to consider again those parts of Clancy’s particulars of claim dealing with remuneration, which I have summarised at paragraphs 9 to 11 above. That is because Mr. Davie’s defence to the application for striking out and/or summary judgment in relation to the uncertified sums is based four-square on his own attack on Clancy’s pleading. He says that the relevant paragraphs are inconsistent and incoherent when compared with the documents to which they refer, and which are said to support the claims pleaded but which, he argues, on analysis do not. His argument is that, although Clancy allege that they are entitled to be paid ‘the hourly rates in force at Clancy from time to time’, the pleaded letters and the documents relied on to support the course of dealing do not contain any such express reference or agreement. He says that judgment in relation to the claim for uncertified sums should not be granted, given this fundamental flaw in Clancy’s own pleaded case.

Eloquently though it was put, I do not accept that submission. It seems to me that Clancy’s pleading is clear. They are saying that they are entitled to be paid by reference to the time that they spent and the hourly rates in force within their organisation at the time that the work was done. It seems to me clear beyond doubt that that is what they meant in their pleading. Indeed, I take the view that that is what these parties meant by the repeated use of the expression ‘a time charge basis’; it seems to me that this is the only sensible interpretation of the words used in the letters. Moreover, the evidence shows that it was on that very basis that KFM certified the interim monies due. Thus I do not believe that there is any incoherence or inconsistency in Clancy’s pleaded case.

The scope of the dispute about uncertified sums

What then could be the scope of any dispute about the uncertified sums claimed by Clancy, given the nature of the defendants’ patently inadequate defence? A number of possibilities were raised in the papers, although only one was advanced by Mr. Davie today.

Time Basis/Hours Worked

Paragraph 32 of the defence, which denies Clancy’s pleaded entitlement, instead alleges that “the agreed basis of payment was a time basis without agreement on the rate”. Although this suggests a difference between a time basis, on the one hand, and the hours that Clancy actually worked (multiplied by their hourly rates) on the other, the effect (if any) of such a difference is not set out in the defence.

Clancy have claimed fees on the basis of the hours that they say that they worked and then multiplied those hours by their hourly rates. The defendants have not objected at any time or in any document to the hours claimed by Clancy. Had they wished to do so, they would obviously have needed to plead a positive case, setting out why the hours claimed by Clancy were excessive or not recoverable, and why a reduced number of hours was reasonable and/or recoverable. In the absence of such a pleading, the defendants cannot now run such a case. Thus, there can be no dispute in relation to the time claimed by Clancy, whether certified by KFM or not.

Reasonable Rates

This is the point that Mr. Davie raised in his submissions. At paragraph 20 of his skeleton he said this:

“There is (at its lowest) a realistic case that on the basis of the documents C itself relies upon to found its claim for payment, the rate of payment that Clancy was entitled to was a reasonable hourly rate, the documents simply referring to ‘a time charge basis’ and no reference being made in the documents to either (1) Clancy’s hourly rates at the level they were at the time of contracting or (2) Clancy’s hourly rates ‘from time to time’.”

That argument would suggest that the difficulty with Clancy’s claim was not the time spent, but the rates claimed. If the rates claimed were reasonable then, obviously, there could be no possible dispute. On the other hand, if the defendants wanted to say that Clancy’s rates were not reasonable then, pursuant to CPR 16.5, they would again have needed to set out a positive case to that effect. They would have needed to have explained why the rates claimed were unreasonably high, and to put forward a cogent case as to why lower rates were, in all the circumstances, reasonable and recoverable. For the reasons that I have noted, there is no such pleading in the defence and therefore it is not possible to see how any sensible challenge could be made to the rates now claimed.

That analysis also provides another answer to Mr. Davie’s criticisms of Clancy’s particulars of claim. Let us assume that, contrary to my view, he is right and that Clancy’s pleading does embrace a possible ambiguity, and could mean either a claim based on their own rates, or a claim based on reasonable rates. Even if that were the case, there is nothing in the defence which would allow the defendants to say that Clancy’s rates were not reasonable rates, and therefore this argument does not ultimately avail the defendants of anything.

Binding Certificates

There is a suggestion in the papers that Clancy’s entitlement to payment was based solely on KFM’s certificates, and that therefore they are not entitled to any uncertified sums. That is contrary to at least one of the paragraphs of the defence, but in any event it seems to me that it is not an argument that is open to the defendants on the basis of the material before the court. Nowhere does anybody say that the amounts certified by KFM would be in any way binding on either party. The contracts say no such thing. It seems to me that that defence, if it were raised, is hopeless.

Thus, in the light of the order of Ramsey J of 24^th February, it is apparent that the defendants have no defence to Clancy’s claim for uncertified sums.

Summary on Certified and Uncertified Sums

In all the circumstances therefore I am satisfied that the defendants have no realistic prospect of defending the claim for either certified or uncertified sums. The defendants’ attack on the basis of Clancy’s pleading is, I think, both wrong and unfair. The defendants understand completely that the basis of the claim made is the total hours worked multiplied by Clancy’s applicable hourly rates. Furthermore, Clancy’s case as to their entitlement, based on that time and those rates, is supported by:

I am confirmed in that view by reference to the specific project I mentioned earlier, namely, the Tesco site at Walkden. In relation to that project there is a claim for uncertified sums of £36,780 (in other words, over half the dispute in relation to uncertified sums). There are clear e-mail exchanges towards the end of that project which make clear that Clancy were claiming on the basis of what they describe as “our hourly rates”. That was never contradicted either by KFM or by the defendants themselves, who were in receipt of both that e-mail and a re-confirmation e-mail a week later. That seems to me to be further confirmation, if it were needed, that Clancy were entitled to be paid at their own rates.

For these reasons the defendants have no arguable basis for defending the claims for uncertified sums. Thus, Clancy are entitled to an order striking out the relevant parts of the defence and to summary judgment on the uncertified sums in the amount of £68,565 plus VAT.

The Claim for Management Time

The claim for management time is in a slightly different category. There is no doubt that the defendants have not pleaded any positive defence to that claim and so could only, at the most, put Clancy to proof of it. I also accept Ms. Garrett’s submission that the evidence of Mr. Hooper goes a long way towards establishing the nuts and bolts of the quantum of that claim.

However, claims of this sort, following the line of authorities from Tate & Lyle v. GLC [1982] 1 WLR 149 to RV Versicherung AG v Risk Insurance [2006] EWHC 42 (Comm), are not always easy to establish. They require two things, above all: first, they require a proper causal link between the cost incurred and the alleged default on the part of the defendant; and, secondly, they require proof of the extent to which the ordinary trading routine of the claimant was disturbed. As one might expect at this stage of the case, that aspect of the necessary evidence has not yet been fully provided by Clancy. Therefore, in the round, it does not seem to me appropriate to give summary judgment for the claim for lost management time.

On the other hand, given that the defendants can only put Clancy to proof of that claim, it also seems to me that it would not be appropriate to give them unconditional leave to defend the claim. In the circumstances noted above, the defence to this head of claim is fairly described as ‘unpromising’. Thus it seems to me that I should give leave to defend in relation to this item of claim, but on a condition: the condition being that the sum claimed, which is in the relatively modest amount of £37,242, be brought into court.

I will deal separately with any remaining issues as to interest, costs and the wording of the appropriate order.