Aldersgate Estates Ltd v HAM Construction Ltd

The trial of all issues of liability and quantum is due to commence on 7 May 2013, this having been fixed in July 2012. The Second Defendant now applies for the hearing of a preliminary issue relating to the largest head of quantum in this £4.5 million claim. The application raises some issues about how the TCC should address what is often a vexed question as to whether there should be preliminary issues.

Aldersgate Estates Ltd (“Aldersgate”), the Claimant, a property development company, redeveloped Eastbrook Hall, Leeds Road, Bradford between about 2004 and 2008. It retained Robinson Consulting Ltd ("Robinson"), the Second Defendant as its consulting engineers to provide engineering design services and Ham Construction Ltd (“Ham”), the First Defendant as its contractor. Part of the work involved the retention of an existing façade with most of the works behind the façade being new. During excavations at the base of the façade carried out by Ham, or a sub-contractor, existing stonework piers supporting the façade started to subside and cracking, distortion and damage was caused to the masonry, lintels, beams and central arch of the façade.

Aldersgate issued proceedings on 31 March 2011 against Ham alone seeking damages from Ham for the cost of rebuilding the façade (including damages for alleged delay in the re-build which is said to have been caused by Ham) amounting to £909,493.41 together with additional costs and losses said to have been incurred by reason of a delay in practical completion of the Works, amounting to £3,590,661.80 (of which £3,441,328 is said to be the result of diminution in value due to market changes). The total claim is put at £4,500,155 less withholding monies from applications made by Ham in the sum of £81,931, a total of £4,418,224. Following service of Ham’s Defence in which it alleged breach of contract/negligence on the part of Robinson and following a Pre-Action Protocol process in late 2011, Aldersgate served Amended Particulars of Claim on 1 March 2012 joining Robinson into the action. In short, it alleges that Robinson approved a change to the design of the column foundations to the Façade, without considering or advising upon the effect of that change on the foundations and without advising on the need for support. Aldersgate seeks precisely the same damages from Robinson as it seeks from Ham. In support of its damages claim, Aldersgate has served Particulars of Loss and Damage together with Further Information dated 31 August 2012.

Robinson served a Defence on 3 April 2012, denying liability. Its case is broadly that it produced a preliminary concept design which was not understood by anyone to be a final or complete design and was never intended to be acted upon and that Ham was at fault in carrying out excavations to the façade in the absence of a final design, variation and/or approval and in circumstances where Robinson did not know that such excavations were being carried out. Robinson has served an Additional Claim on Ham which has in turn reciprocated with its own Additional Claim. Aldersgate served Replies to each Defendant’s Defence on 3 August 2012 and 31 August 2012 respectively.

A first CMC was held in this matter on 13 July 2012 with directions being given leading to a trial commencing on 7 May 2013 with a trial estimate of 10 days. There was what turned out to be an unsuccessful mediation on 28 November 2012.

By an application notice dated 22 January 2013, Robinson invites the Court to order the determination of a Preliminary Issue as follows:

“Whether the claim for damages for diminution in market value as advanced in paragraph 29C(j) of the Amended Particulars of Claim falls within the scope of the Second Defendant’s duty of care and whether those alleged losses are too remote”.

Robinson relies upon the witness statement of its solicitor Mr Clayden in support of its application. The application had been sent in draft to Aldersgate’s solicitors, on 15 January 2013 inviting their response. By letter dated 18 January 2013, the Claimant’s solicitors confirmed their intention to resist such application, submitting a witness statement of Mr Radcliffe dated 25 January 2013. Prior to this exchange there was not any hint or suggestion from Robinson that any preliminary issue would be a good idea.

Broadly, Robinson argues that the determination of this preliminary issue would (if decided in Robinson’s favour) dispose of a significant element of the case, namely Aldersgate’s claim for £3,441,328 for loss caused by the diminution in value of the properties at the Site caused by the fall in the market which occurred during the delay to completion. This claim equates to approximately 78% of the total sum claimed of £4,418,224. It argues that the disposal of this issue will save time and cost, that the issue is primarily legal and can be dealt with on admitted or assumed facts and that overall it is sensible and just to order such a preliminary issue. Ham’s position is neutral and indeed given its liquidation it may well be that Ham may not actively participate (if at all) in the trial. Aldersgate’s position is that this application is made much too late, that time and cost will be wasted or misspent and that all in all it is not a good idea.

The Technology and Construction Court Guide at Paragraph 8.1.1 notes that the hearing of preliminary issues “can be an extremely cost-effective and efficient way of narrowing the issues between the parties and, in certain cases, or resolving disputes entirely”. At Paragraph 8.1.3 the Guide notes that “at any time during the litigation, any party is at liberty to raise with any other party the possibility of a PI hearing and the Court will consider any application for the hearing of such Preliminary Issues”. Paragraph 8.2.1 the Guide makes it clear that: “The Court would expect any issue proposed as a suitable PI would, if decided in a particular way, be capable of: resolving the whole proceedings or a significant element of the proceedings; or significantly reducing the scope and therefore the costs of the main trial; or significantly improving the possibility of a settlement of the whole proceedings”. Paragraph 8.3, identifies “Common Types of Preliminary Issue”, which include at (f) “Disputes as to the existence and/or scope of a duty of care at common law in circumstances where there is no or little dispute about the relevant facts”.

There are numerous cases in which judges at different levels have commented on the desirability of preliminary issues and the factors to be taken into account in deciding whether they should be ordered in any given case. The types of preliminary issues can vary from issues simply of law (for instance contractual or statutory construction) to issues which involve the consideration of factual issues. The House of Lords gave some guidance on the circumstances in which it would be appropriate to order the trial of a preliminary issue in SCA Packaging Ltd v Boyle [2009] UKHL 37; Although the speeches were concerned with a preliminary issue that had been set down for determination by an Employment Tribunal, they are of general guidance. Lord Hope identified that:

“The essential criterion for deciding whether or not to hold a pre-hearing is whether, as it was put by Lindsay J in O’Shea Construction Ltd v Bassi [1998] ICR 1130, 1140, there is a succinct knock out point which is capable of being decided after only a relatively short hearing” (paragraph 9).

Mr Justice Neuberger (as he then was) has provided a useful checklist of 10 factors (underlined by me below) to be considered by the court in deciding whether to order preliminary issues in Steele v Steele [2001] C.P. Rep 106:

“The first question the court should ask itself is whether the determination of the preliminary issue would dispose of the case or at least one aspect of the case…The second question that I think the court should ask itself is whether the determination of the preliminary issue could significantly cut down the cost and time involved in pre-trial preparation or in connection with the trial itself…Thirdly, if, as here, the preliminary issue is a question of law, the court should ask itself how much effort, if any, will be involved in identifying the relevant facts for the purpose of the preliminary issue…Fourthly if the preliminary issue is an issue of law, to what extent is it to be determined on agreed facts…Fifthly, where the facts are not agreed, the court should ask itself to what extent that impinges on the value of a preliminary issue…That indeed is effectively a sixth factor which the court should at least take into account…namely whether the determination of a preliminary issue may unreasonably fetter either or both parties or, indeed, the court, in achieving a just result which is, of course, at the end of the day what is required of the court at the trial…Seventhly, the court should ask itself to what extent there is a risk of the determination of the preliminary issue increasing costs and/or delaying the trial. Plainly the greater the delay caused by the preliminary issue and the greater any possibility of increase in cost as a result of the preliminary issue. The less desirable it is to order a preliminary issue. However, in this connection I consider that the court can take into account the possibility that the determination of the preliminary issue may result in a settlement of some sort. In other cases the court may well decide that, although the determination of the preliminary issue would not result in a settlement, it will result in a substantial cutting down of costs and time…Eighthly, the court should ask itself to what extent the determination of the preliminary issue may be irrelevant. Clearly the more likely it is that the issue will have to be determined by the court the more appropriate it can be said to be to have it as a preliminary issue…Ninthly, the court should ask itself to what extent is there a risk that the determination of a preliminary issue could lead to an application for the pleadings being amended so as to avoid the consequences of the determination…Tenthly, the court should ask itself whether, taking into account all the previous points, it is just to order a preliminary issue. In this connection, it should be mentioned that the nine specific tests overlap to some extent…”

Because the variety of preliminary issues is infinite and the timing of any application to the Court for an order that preliminary issues be determined can vary from the institution of proceedings to the commencement of a trial, I would suggest that these 10 factors are not necessarily exclusive and there may be factors, not mentioned by Mr Justice Neuberger, which are specific to be given case and which can properly be taken into account. Pragmatism will often and sensibly play a significant part in the decision.

There is no particular reason why a major quantum issue could not be dealt with as a preliminary issue, even before liability is resolved by the Court. However, that would be very unusual as recognised by His Honour Judge Thornton QC in the TCC case of Earl’s Terrace Properties Ltd v Nilsson Design Ltd and another [2004] EWHC 136 (TCC); this case involved alleged professional negligence against architects and breach of contract against builders for water penetration to a substantial property development in which delays caused by the water problems were said to have caused some £6 million worth of extended funding costs, other sums being claimed for instance for remedial costs and delay and disruption costs to the construction process. He said at Paragraph 23:

“It is highly unusual for a court to try issues of law concerned with the recoverability of damages in a professional negligence action before any findings have been made as to scope of duty or breach and it is also unusual to determine as an issue of law an issue which is fact sensitive and where the factual background is assumed and not proved and the assumptions being made are solely for the purpose of the determination of the issues. The reason why the parties made the application that they did was that the holding costs claim was, in size, about two-thirds of an overall claim of nearly £9m and the recoverability of this claim raised an initial short legal issue of principle of some difficulty. The parties informed me that they had unsuccessfully attempted to mediate a settlement and that exercise had highlighted this issue of principle which, if resolved by the court, could well enable the parties to compromise the whole dispute without further recourse to expensive preparatory steps and a lengthy trial”.

This highlights another factor which can be legitimately taken into account by the Court, which is the agreement of the parties, all three parties in the Earls Terrace case agreeing that there should be preliminary issues on the large quantum claim. Similarly the absence of agreement is a factor because, particularly where as here the parties have, through mediation, tried unsuccessfully to settle the proceedings, there is no common ground, discernible or otherwise, that the resolution of the overall proceedings is or is not likely if the suggested preliminary issue is dealt with. Of course, the Court can not go into what was discussed within mediation, invariably on a without prejudice basis. The issue of agreement about the preliminary issue is of course not determinative and the Court will have to make its own mind up. However where sensible commercial parties advised by sensible solicitors and barristers have collectively agreed that the resolution of preliminary issues will help resolve the case, that can be a weighty factor.

In the TCC, the case managing judge (to whom the case is allocated at the time that the Claim is issued) will usually fix at the first Case Management Conference a trial date. This is so that the parties know what programme they have to work to. This gives rise to a reasonable expectation that the case will be dealt with at the date fixed and parties will make their dispositions accordingly. It is therefore highly desirable for one or other or all parties to identify at the first CMC or at least at the first opportunity whether there is likely to be a useful preliminary issue to be resolved. Even if the Court can not decide at the first CMC whether such an issue ought to be ordered, it can at least make a provisional booking in the court diary to reserve some time for the hearing of a preliminary issue as well as fixing a final trial for the remainder of the issues. Indeed I have done just this in a number of cases. The problem with the parties not raising the possibility of preliminary issues at the earliest possible time in the process is that it becomes increasingly difficult to find time in the court diary for the Court to accommodate the hearing of a preliminary issue without adjourning the final trial date and that, of course, is often highly undesirable.

I have indicated to the parties at the end of the oral hearing that I would dismiss Robinson’s application and that I would give reasons in this reserved judgement.

A primary factor arises out of the delay in the making and the timing of the application by Robinson. It was reasonably clear from the time of the relatively extensive Pre-Action Protocol process conducted between July and December 2011 what Aldersgate’s case was in terms of quantum so that, when the Amended Particulars of Claim were served early in 2012, they will not have come as a great surprise. Robinson in its Defence (served in early April 2012) specifically pleaded in Paragraph 45 that the claim for capital diminution "due to market changes" was not within the scope of Robinson’s duty. The possibility of preliminary issues was not mentioned at the first CMC involving Robinson. Nothing was said when more detailed particulars were provided by Aldersgate on 31 August 2012. It is suggested that the possibility of preliminary issues was not raised before the mediation in late November because the parties were so to speak "gearing themselves up" for the mediation. That is not a good explanation or excuse as it could at the very least have been raised in correspondence and, as importantly, raised with the Court so that consideration could be given to the desirability of the hearing of such an issue. Leading Counsel for Robinson could provide no explanation why there had been silence on the issue between conclusion of the mediation and the issue of the application.

It is not unfair as a matter of logic to say that either Robinson did think about the possibility of the preliminary issue months before it made the application (in which case it should have raised it before) or it did not think about it until mid-January 2013 (which suggests that it has been an afterthought and, possibly, a tactical application). It is of interest that in the correspondence immediately after the failed mediation Robinson’s solicitors broached the idea of security for costs being provided by Aldersgate; that suggestion having been rebuffed, the next step was this application.

As I had to inform the parties, I could not find time in the TCC for a one or two day preliminary issue between now and May 2013, although of course it is possible that due to future settlements in other proceedings slots may become available. It would therefore follow as Leading Counsel accepted that the trial date of 7 May 2013 would have to be adjourned, albeit that some of the allotted time could be used for the hearing of the preliminary issue. These proceedings issued in March 2011 are already well behind the dates for disposal reasonably expected of parties who habitually use the TCC. Delay in itself is undesirable because it adds to the cost and it extends the commercial uncertainty of all the parties as to the outcome of the proceedings. The case would probably have to go off till late November 2013: a further delay of some seven months.

It is absolutely clear that that the disposal of the capital diminution quantum issue will not save any time or cost if it is decided against Robinson. If the issue is decided in favour of Robinson, then it is not going to dispose of the whole proceedings because not only is liability denied but also the other not insignificant financial claims are disputed. There will, I anticipate, in those circumstances still be an 8 + day trial and so little and probably no hearing time will be saved by having the requested preliminary issue. There will in all probability be a somewhat greater cost of having two hearings rather than one. There will therefore be no cost saving.

Whilst it is possible that the hearing of any such preliminary issue could be on the basis of assumed facts, with some of the facts admitted on the pleadings, it would be usually helpful for parties seeking a preliminary issue, particularly at a late stage, to come to the court with a list of assumed or admitted facts on which the proposed preliminary issue can be addressed. In the absence of such a list, it is difficult for the Court to be satisfied that the hearing of the preliminary issue can sensibly be achieved without the need for oral evidence. Whilst I can see in this case that no expert evidence would necessarily be required on the preliminary issue, it is not possible to be confident that the preliminary issue could be disposed of without the hearing of at least some evidence.

This application has highlighted another problem which is likely to be particularly germane to this case. There is of course often a tendency for a party at the receiving end of an application such as this to wish to reconsider its position on the pleadings. In this case, Aldersgate’s claim against Robinson is based on breach of contract and negligence. Robinson understandably wishes to argue that on the basis of authorities such as South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191 the scope of the duties owed by it to Aldersgate and the kind of loss for which it might be liable does not extend to a capital diminution attributable to any delay caused by tortious or contractual negligence on its part. Counsel for Aldersgate and his solicitors have indicated that they wish seriously to consider further amendments to the Particulars of Claim to plead amongst other things facts enabling it to rely on the second limb of Hadley v Baxendale (1854) 9 Exch. 345, that is special mutual knowledge of the particular loss claimed. It is also possible that it might seek to recast the claim in the alternative on similar grounds to those put forward in the Earls Terrace case, namely extended funding. Indeed, the procedural order which I have made requires Aldersgate to come up with such draft amendments within a short period of time. I consider that there is a real risk that amendments will now be sought which will seek to overcome any arguable gaps in the Particulars of Claim or so to recast the pleadings that alternative and substantial claims are made.

Unlike in the Earls Terrace case, this application has been opposed by Aldersgate and not agreed to by Ham, which has itself made no application. That creates at least a theoretical difficulty which is the extent to which the decision on the preliminary issue impacts upon Ham. This may not be a problem if Ham ultimately does not involve itself in the proceedings due to its liquidation.

I do not on the available evidence see any measurable prospect of the case settling even if the preliminary issue was decided in favour of Robinson. There are no open offers, no admission of liability and no acceptance of other parts of the quantum. Whilst I can see that in theory that there must be in logic commercially a greater chance of the case settling if the preliminary issue was so decided, I have no material upon which I can say that such a nominally greater chance makes it worthwhile to risk time and cost on the hearing of the preliminary issue. The issue is not the “succinct knock out point” envisaged by Lord Hope.

Robinson’s application is dismissed, taking into account the above factors. I heard argument about costs. In my view, Robinson should pay the costs of the application. It matters not that Robinson ultimately wins on the issue (if it does) because the application should not have been brought and the costs of and occasioned by the application relates to an application which Robinson has lost. There has been no suggestion that the costs should be anything other than on a standard basis. Somewhat generously, it is accepted by Counsel for Aldersgate that one third of the total costs are attributable to case management aspects which the Court was able to deal with at the hearing after the consideration of the application. That apportionment is at worst a fair and reasonable one. Accordingly, Robinson should pay two thirds of Aldersgate’s costs. I will summarily assess the bill, subject to any written representations to be made by the parties.

I should pay credit to the well-prepared written and oral presentations from both Counsel. Although on this occasion she was not on the winning side, Miss Smith’s written Note was particularly helpful.

Aldersgate’s summary cost bill totals £16,600, exclusive of VAT, which is rightly accepted as not chargeable on this assessment. This is not a case for indemnity costs and therefore the summary assessment should proceed on a standard basis. It is accepted that one third of this relates to case management and should be considered as costs in the case. Therefore £11,067 relates to the application. I did not consider that this was an unduly complex application. I see no reason for costs assessment purposes why the hourly rates should not be based on the current Statement of Costs, albeit it is said that they are being amended. There is an accepted slight error in the costs allowance for correspondence with an attendance upon the Court. I do not see that it would be necessary for a partner and an assistant solicitor to attend and travel to the hearing. I therefore reduce the overall allowance to £9,000 as overall a reasonable figure for costs to be paid by Robinson. This should be payable within 14 days.