Gotch & Anor v Enelco Ltd

This is a claim brought under Part 8 of the CPR for a declaration that the building contract that the Claimants entered into with the Defendant does not entitle the Defendant to refer a dispute to adjudication.

The subject matter of the building contract was two residential properties, known as “The Vinery” and “Woodwell”, that were to be constructed on a plot of land owned by the Claimants.

The basis of the Claimants’ claim is, first, that the provision for adjudication in the Contract Articles was deleted. Second, the Claimants say that they were residential occupiers within the meaning of section 106 of the Housing, Grants, Regeneration and Construction Act 1996.

The Defendant’s answer to the first point is that in the Contract Particulars the provision relating to adjudication was not deleted. Instead, against the side heading “Adjudication” it said “The Adjudicator is ...”, but the space for the adjudicator’s name was left blank. Immediately below, in relation to the Nominating body, which applied where no adjudicator was named or where the named adjudicator was unwilling or unable to act, four of the five options listed were deleted, leaving the Royal Institute of British Architects (“RIBA”) as the nominating body. The Defendant says that this shows that the parties intended that there was to be an adjudicator who was to be nominated by the RIBA, the parties not having named a particular adjudicator. Further, clause 9.2, which provided for the referral of disputes to adjudication, was not deleted.

The Defendant’s answer to the second point was that one of the properties, “Woodwell”, was currently being marketed as a holiday let. It was therefore not a property intended for residential occupation.

The Claimants were represented by Ms. Krista Lee, instructed by Michelmores, the Defendant was represented by Mr. Thomas Crangle, instructed by Addleshaw Goddard.

The Defendant alleges that the Claimants repudiated the contract in May 2014 by withdrawing part of the work from the Defendant and instructing others to carry it out. It therefore claims damages for breach of contract.

The Claimants’ case is that, even if there was a breach of contract (which is denied), the Defendant affirmed the contract so that it remained in force.

The position of each of the parties in relation to this issue was set out in some detail in an exchange of letters between the parties’ solicitors dated 13 and 22 August 2014. This followed an earlier letter from the Defendant’s solicitors dated 23 May 2014.

In my view these letters made each side’s position on the termination issue perfectly clear and the correspondence concluded with both firms of solicitors indicating that it would be in their client’s interests to seek a negotiated settlement. The evidence before the court does not show what happened thereafter. However, it seems that it may not have been very much because, on 20 March 2015, the Defendant’s solicitors wrote complaining that the dispute had dragged on for some months without any real progress.

In their letter of 20 March 2015 the Defendant’s solicitors suggested that the dispute should be referred to a suitable adjudicator and not one appointed by the RIBA. They put forward the names of four barristers as suitable adjudicators and invited the Claimants to select one of them. They said that in the absence of agreement by the Claimants to one of those names, the Defendant would ask the RIBA to nominate an adjudicator.

On 30 March 2015, the deadline imposed by the Defendant’s solicitors for agreeing upon the identity of an adjudicator, the Claimant’s solicitors wrote pointing out that Articles 7 and 8 of the Contract Articles relating to adjudication and arbitration had been struck out. They pointed out also that the Claimants were residential occupiers and so were excluded from the statutory provisions conferring the right to adjudication. They put forward no alternative suggestions as to an appropriate means of resolving the dispute.

The Defendant’s solicitors replied later the same day and set out their client’s case as to why there was an adjudication provision in the contract. In relation to the point about residential occupation, they said this:

“Indeed, we note that Woodwell is currently being marketed as a year round holiday let on such websites as Coast & Country Cottages at a weekly rent of between £2,750 and £5,250. This clear commercial element of the Works means that section 106 plainly cannot apply to your clients.”

The Claimants’ solicitors replied on 31 March 2015 as follows:

“Given your client’s stated intention to press ahead with a reference to adjudication we have instruction (sic) to issue a Part 8 Claim Form in the TCC seeking appropriate declaratory relief (more specifically seeking a declaration that there is no express or implied right to adjudicate) and an order that your client pay the costs of the proceedings. In that regard we invite that you let us have confirmation as to whether or not you are instructed to accept service of court proceedings?

Separately, we invite confirmation from you that pending the hearing of the Part 8 proceedings your client will postpone its threatened reference to adjudication. If your client chooses to not provide this confirmation and press ahead with its threatened reference to adjudication in any event, you may serve papers on this firm (but not by e-mail).”

Later the same day, the Defendant’s solicitors replied in the following terms:

“Contrary to your assertions otherwise, we do not understand the basis upon which you claim to not agree with our client’s position as set out in detail in our letter dated 30 March 2015. Neither your letter of today’s date, nor your letter dated 30 March 2015 make any attempt whatsoever to set out the rationale for your stated position. This in spite of the fact that, as set out in our letter dated 30 March 2015, the burden of proof as to whether or not your client is a residential occupier rests with your client.

In such circumstances, the issue of CPR Part 8 proceedings would be entirely premature. It would also be inappropriate, serving only to waste both costs and the time of the Court.

That being the case, in the event that your client does proceed to issue CPR Part 8 proceedings without first providing a detailed response to our letter dated 30 March 2015, we will draw this correspondence to the attention of the Court on the question of costs.”

On 1 April 2015 the Claimants’ solicitors replied rejecting the point about the express inclusion of a provision for adjudication and saying that the Defendant knew what had occurred in relation to the residential occupation of the buildings and that the Defendant “… even undertook specific works so as to facilitate” this.

On 9 April 2015 there was a telephone conversation between the two solicitors, following which the Claimant’s solicitors wrote to the Defendants solicitors on 10 April 2015 as follows:

“You gave an indication that your client would not be carrying through its threat to adjudicate ...

We asked you to clarify whether your client’s position was:

A that it would not be commencing a reference to adjudication at this time but was reserving its position with regard to adjudicating at some later date (this, as we explained, was what we understood your client’s position to be and no more); or

B that it was willing to confirm that it would not at any time commence any reference to adjudication (this is what we sought from you having regard to our client’s assertion that there is no right to adjudicate; whether express or implied).

You were equivocal and were not able to or prepared to give the assurance that we sought.”

On 13 April 2015 the Defendant’s solicitors replied in the following terms:

“We confirm that our client has no current intention to refer the dispute to adjudication, provided that the parties can reach a sensible agreement as to resolution of the dispute using the following:

1

A CPR Part 8 determination in relation to the matter of the repudiatory breach of contract and the heads of loss which flow from that (as summarised in the third paragraph of our letter dated 20 March 2015); and

2

A mediation (if required in the absence of earlier settlement) dealing with the quantum consequences which follow as a consequence of the findings of the Part 8 proceedings.

...

As for your reference to the issue of Part 8 proceedings in relation to whether the parties have a statutory right to adjudicate please note that no such proceedings (with their obvious time and cost consequences) are necessary.

While in a case such as this we would have expected the parties to take a sensible approach to dispute resolution and do not understand the unwillingness to adjudicate in the circumstances, the diametrically opposed positions of the parties as to the ‘residential occupier’ exemption means that the party should, sensibly seek an alternative forum in which to resolve the dispute.

If however you advise your client to make a Part 8 Application on the residential occupier exemption, please note that it is doing so of its own volition and its own cost and in circumstances where no Notice of Adjudication has been served. Our client will take no part in those proceedings (but will clearly need to be informed of the declaration) as in any event the burden falls on your client to establish that the residential occupier exemption (for the two properties in question) applies to it. For the reasons stated previously (principally in our letter dated 30 March 2015 to which we received no substantive response and in relation to which the costs consequences referred in our letter dated 31 March 2015 still stand) we have advised our client that the exemption does not apply in this case.

For the reasons explained above, such an application is, however, entirely unnecessary. We reserve the right to refer this correspondence to the Court as required.”

If one pauses there, it is clear, first, that the Defendant had withdrawn its threat to refer the dispute to adjudication in the near future: a point made, directly or indirectly, no less than three times in the letter of 13 April 2015. Second, the Defendant was proposing that the issue of who terminated the contract should be resolved by litigation, following which there could be a mediation to resolve questions of quantum. However, until the telephone conversation that took place on 9 April 2015, there is no evidence that the Defendant’s solicitors had given any hint of a willingness to back down in relation to the referral of the dispute to adjudication.

Leaving aside whether the Part 8 proceedings, as proposed by the Defendant, were the appropriate procedure, the proposals set out in the letter of 13 April 2015 were, in my opinion, reasonable and sensible. However, they were rejected out of hand. Although the Claimants’ solicitors had failed to explain the basis of why the Claimants were residential occupiers of both properties, they regarded the Defendant’s reservations of its position in relation to adjudication as unacceptable.

However, matters did not rest there. Two days later the Defendant’s solicitors wrote again, on 17 April 2015, in the following terms:

“It remains the case (following your clients’ position as confirmed in both letters) that our client’s current intention is not to issue adjudication proceedings.

We therefore repeat the very clear position stated latterly in our letter dated 13 April 2015 that a Part 8 application in relation to adjudication is entirely unnecessary and a waste of time and costs. We repeat that the costs of those proceedings, in the event they are issued and served, will be for your clients’ account. It is your clients’ choice to seek a declaration in circumstances where there is no Notice of Adjudication.

...

For the avoidance of doubt, as stated in our letters dated 30, 31 March and 13 April 2015 you have provided no substantive evidence whatsoever to demonstrate your clients’ position as to the residential exclusion. We cannot understand why not.

In fact, we now receive (sic) a draft Order (which you have asked us to consent to) which refers to four witness statements (signed between 8 and 15 April 2015) which have not been provided and which we assume (other than Mr. Offen’s statement) are the evidence on which your clients’ position is based.

To make a conscious decision not to provide that evidence but to proceed with a threat of litigation is an approach which is completely unreasonable and one which breaches the central principles of the Protocol and pre-action conduct (as summarised in the TCC Guide, which we refer to below).”

However, in the meantime, on 16 April 2015, the Claimant had issued the Part 8 proceedings seeking a declaration in relation to the adjudication provision.

The claim form was issued together with an application for directions in the terms of a draft order attached. That order closely followed the form of order used for adjudication enforcements. It did not say how the Claimants wanted the application dealt with (the relevant boxes on the form having been left blank), but it was reasonably clear that the Claimants must have expected directions to be given on paper. The service of this application was the first time that the Defendant had seen any evidence in support of the Claimant’s position in relation to residential occupation.

The application came before me on paper. I was troubled about it for three reasons. First, there appeared to be no imminent threat of adjudication proceedings, so if the dipute was resolved by litigation the declaration sought would probably serve no useful purpose. Second, it appeared that the Defendant did not intend to take part in the proceedings, so a declaration would be made on evidence and argument that was not being challenged. Third, there was a potential issue on the facts.

Having thought about the position very carefully, and not being under any misapprehension about the nature of the claim or the application, I refused to give the directions that the Claimants were seeking. It seemed to me that it was unnecessary, and therefore disproportionate, to pursue a ground of relief for which (by then) there was no immediate need.

In the circumstances, I directed that there should be a case management conference to consider the way forward. I made an order on 20 April 2015 in these terms:

“1.

There be a case management conference on Friday, 15 May 2015 at 12 pm, in order to give directions for the future conduct of this action.

2.

By 7 May 2015, the parties are to discuss and, if possible, agree, directions with a view to resolving:

i)

whether or not the contract was terminated by the Defendant’s acceptance of a repudiatory breach of contract by the Claimant; and/or

ii)

whether or not the Defendant is owed money under the contract, and, if so, how much;

iii)

any other matters in dispute between the parties.”

The response to this order from the Claimants’ solicitors came in the form of a letter to the court dated 28 April 2015. In this they wrote:

“We also note the direction in paragraph 2 of the Judge’s Order that the parties are to agree directions with a view to resolving the issues listed as 2 (i), (ii) and (iii). We apologise for the confusion that may have been caused by paragraph 4 of the Claim Form where these issues were identified as “Disputed Matters”. However, we wish to clarify that the only question, which the Claimants wish the court to decide in these Part 8 Proceedings is whether the building contract between the parties contained an express and/or implied right to refer any dispute arising to adjudication.

This is a matter of contractual interpretation, which is unlikely to involve a substantial dispute of fact.

The “Disputed Matters” were identified in the Claim Form, simply as background, to the Defendants threat to make a reference to adjudication, which the Defendant has refused to withdraw unequivocally. The Claimants wish to deal with the jurisdiction issue upfront so as to avoid the wasted costs that would otherwise be incurred in dealing with an adjudication and any enforcement proceedings, that had no jurisdictional basis.

Accordingly, whilst we shall endeavour to agree directions with the Defendant to deal with the Part 8 Claim (as clarified above), this will not cover the issues set out at paragraph 2 of the Judge’s Order. Those are not matters covered by the Part 8 Claim and in any event are not matters, which would be suitable for resolution under Part 8.”

However one reads it, the final paragraph of this letter (in the extract quoted above) was nothing less than a refusal to comply with a court order. The Claimants did not take out an application to vary the order, nor did they seek permission to appeal: they simply ignored it.

In a letter dated 28 May 2015, but not received by the court until sometime later, (Footnote: ¹) Mr. Gerald Offen, the partner responsible for the conduct of the case on behalf of the Claimants, explained that he and counsel for the Claimants thought that the court had misunderstood the position when it made the order of 20 April 2015. I have to say that I find this a little surprising having regard to the reasons that were appended to the order which explained why it had been made.

In my view this letter provides no satisfactory explanation for the Claimants’ failure to discuss directions as required by the order. If the Claimants wished to avoid becoming involved in costly litigation in relation to other aspects of the dispute, as Mr. Offen suggests, then they could have suggested that the action be stayed pending some form of ADR and discussed this with those acting for the Defendant in accordance with the terms of the order. They did not do so or, at least, not within the time frame required by the order.

On the contrary, in spite of the clearest possible indication from the court that a declaration in relation to the right to adjudication would serve no useful purpose, the Claimants persisted in seeking directions for the determination of that issue.

When I asked Ms. Lee how this attitude was to be justified, she was unable to give me an answer. She was quite right not to attempt to defend it. What she did say was that she had recently discussed the alternative directions with her opponent, Mr. Crangle. Whilst this represented some attempt to comply with the order, it did not meet the requirement that the parties were to attempt to reach agreement on the directions prior to 7 May 2015.

Another point which emerged at the hearing was that the Defendant had changed its position about not opposing any application for a declaration in relation to the right to adjudicate. Mr. Crangle told me that the Defendant was no longer standing by the position set out in its solicitors’ letter of 13 April 2015 and that the Defendant would actively oppose the declaration that the Claimants were seeking were the application to proceed. Although this change of position came after the Claimant had issued the present proceedings, it is a matter that may be relevant to costs.

Notwithstanding the change of position by the Defendant, I remained of the view that no useful purpose was to be served by the pursuit of the Claimants’ application for a declaration in relation to the right of adjudication under the contract. Both in the correspondence that I have mentioned and at the hearing the Defendant has maintained the position that it has no current intention to refer any dispute to adjudication. So long as that remains the position and the parties are engaging in some alternative means of dispute resolution, the question of whether or not the contract confers a right to adjudicate any dispute is academic. The time and costs of resolving that question would therefore achieve nothing.

In these circumstances I considered that the Claimants’ application should be stayed and that the present proceedings should continue as if they had been started under Part 7, pursuant to CPR 8.1(3). To that end the Defendant would be able to pursue the determination issue and its claim for damages by way of Counterclaim. I gave directions as to how that was to be done. In the light of the correspondence to which I have already referred, I concluded also that there was no need for the parties to go through a pre-action protocol procedure, as Ms. Lee had submitted.

As to the quantum of the Defendant’s counterclaim, I directed that it is to serve an annotated schedule setting out its losses. The Claimants were to respond to that in accordance with the directions that I gave, after which the parties were to meet in order to discuss, and if possible narrow, issues in relation to quantum.

This seemed to me to be the most expedient and efficient method of resolving the real issues in dispute.

There was then an issue about the costs of the application. Ms. Lee submitted that there had been an effective case management conference at which the court had given directions for the future conduct of the litigation so that the appropriate order was that costs should be costs in the case.

Mr. Crangle submitted that the costs of the Claimants’ application for the declaration in relation to the right to adjudicate should be paid by the Claimants in any event. There was no purpose in the application, he submitted, and in any event it was not suitable for Part 8 because of the issue about the Claimants’ residential occupancy. He relied also on what he described as the “brazen disregard” of the order of the court. He asked for the costs of the application on an indemnity basis.

In response to this Ms. Lee submitted that the Defendant always knew what the Claimant’s position was in relation to the occupation of the houses because they had built them. Rather, she submitted, the Claimants were entitled to take steps, by way of this application, to avoid the risk of being unnecessarily forced into adjudication with all its attendant costs.

Before I express any conclusions as to the appropriate order for costs, I think that it is appropriate to make a few observations about the proper approach to costs in this type of litigation.

With their introduction in 1999 the CPR introduced radical changes in the approach to litigation in England and Wales. Recently, these changes have been substantially extended as a result of the Jackson reforms to introduce the additional requirement in the overriding objective to deal with cases “at proportionate cost”.

By CPR 1.3 the parties are required to help the court to further the overriding objective.

It is therefore time to say, in the clearest terms, that parties and their solicitors can no longer conduct litigation in a manner which does not keep the proportionality of the costs being incurred at the forefront of their minds at all times.

It is no longer acceptable - if it ever was - for parties to pursue issues or applications that have no real impact on the issues that are central to the dispute. Further, it is no longer acceptable for solicitors to carry on a war of attrition by correspondence, whether instructed to do so or not: it is the parties who are the subject of the duty in CPR 1.3, not merely their solicitors.

Litigation in the TCC is primarily commercial. In a few cases, such as this one, the subject matter is, or is at least said to be, buildings intended for residential occupation. Nevertheless, these are substantial properties. So even in a case such as this, there will only rarely be any justification for fighting or taking points simply “as a matter of principle”.

Whilst English law is an adversarial process, that goes to the issues in the case: not to every aspect of the procedure. Parties to litigation, in the TCC at least, are expected to conduct that litigation in the manner that is most expeditious and economical. Bringing the right issues to trial in the most economical fashion, and taking steps to ensure that the costs are kept at a level that is proportionate to what is at stake, is to be at the heart of the process.

Unreasonableness, intransigence and the taking of every point must in my view now be regarded as unacceptable, because conducting litigation in that way flies in the face of the overriding objective as it is now formulated. These habits must disappear from the landscape of litigation in the TCC. If they do not, offending litigants must expect to bear the costs.

If access to justice is to have any real meaning, then the aim of keeping costs to the reasonable minimum must become paramount. Procedural squabbles must be banished and a culture of cooperative conduct introduced in their place. This will not prevent contentious issues from being tried fairly: on the contrary it should promote it.

Having prepared and issued this judgment in draft I received further submissions from Mr. Crangle inviting me to reconsider the order for costs that I was proposing. He gave nine reasons.

Essentially, his points can be summarised under six headings:

In a brief response Ms. Lee made the following points:

As to Mr. Crangle’s first point, I reject it for the reasons given by Ms. Lee. But in any event it is now academic because I have considered his further submissions.

I consider that Mr. Crangle’s second point is a fair one. I therefore propose to vary the order that I had in mind in order to reflect it.

Whilst the decision in Harding v Paice is obviously helpful to the Defendant, it does not of course deal with the residential occupier point. I agree with Ms. Lee that it would not be appropriate for me to consider the merits of the construction point in any detail at this stage. Anyway, at the relevant time those acting for the Defendant were unaware of the decision and so it was not a factor that influenced the Defendant’s conduct at any time prior to the hearing.

I will deal with Mr. Crangle’s remaining points in the next section of this judgment. At this stage I would simply point out that the issue about the right to adjudicate was effectively a procedural one: the Defendant was not being deprived of a substantial remedy to which it was entitled, but only of the possibility of obtaining a temporarily binding decision which could be subsequently reversed (or confirmed) in litigation.

In fact, I would go further. I am quite satisfied that the Defendant’s threat of adjudication was a negotiating tactic. Financially, adjudication would not achieve a better outcome for the Defendant than litigation because, unlike litigation, the adjudicator would have had no power to make the loser pay the winner’s costs. Any recovery by the Defendant, therefore, would always be reduced by its own costs of pursuing the referral. But the other side of this coin is that the Defendant would have taken no risk of having to pay the Claimants’ costs were it to lose. Consequently in any settlement negotiations this would have made it worth the Claimants’ while to accept some reduction in their claim to buy off the prospect of having to pay their own costs of any referral to adjudication even if theye were successful. That is a menace that lies behind any threat to adjudicate.

I have considered the conduct of the parties in the light of the principles that I have set out above and the further submissions received. My decision in relation to costs is as follows.

Having regard to the position taken by the Defendant up to the end of March 2015, I consider that the Claimants were justified in preparing these proceedings. It was not until 9 April 2015 that the Claimants had been given any indication that the threat of adjudication might no longer be imminent, even though this indication was to some extent equivocal. But by this time the Claimants’ solicitors had prepared the three main witness statements that were to be relied on in the action. It was not until they received the letter of 13 April 2015 that those advising the Claimants should have appreciated that there was no current risk that the Defendant would make an imminent referral to adjudication. However, by this time the costs of preparing the proceedings had largely been incurred and so I consider that the Claimants were justified in issuing the proceedings when they did in spite of this last minute change of position by the Defendant.

In my view, those advising the Defendant should have appreciated, much sooner than they did, that there was a serious issue in relation to the right to adjudicate under the contract and that to insist on referring the dispute to adjudication was bound to provoke the Claimants into resisting it: if the object of the exercise was to find a swift way of resolving the dispute, to proceed by way of adjudication in these circumstances was courting difficulty. Mr. Crangle described the Defendant’s change of position as being for reasons of pragmatism and proportionality. But in my view those were exactly the considerations that should have led to that position being adopted far sooner. I consider that the conduct of the Defendant in persisting with the threat of adjudication for as long as it did was unreasonable. It was, in my view, a negotiating tactic.

By contrast, I consider that it was not appropriate for the Claimants to make an immediate application for directions without any reference to the Defendant, which is what they did. In my view, the appropriate course, having issued the proceedings, was to seek an undertaking from the Defendant that it would not refer the dispute to adjudication in the near future or, at least not without giving the Claimants sufficient notice to obtain an injunction to restrain the pursuit of any referral to adjudication that the Defendant might make. That the Claimants did not do.

Accordingly, I consider that the Claimants’ approach of seeking an immediate order for directions for the further conduct of the application was both inappropriate and premature. But having done that, and having obtained the order of 20 April 2015, the Claimants should have complied with it. To write to the court a week after the order was made saying that they had no intention of complying with it because they thought the judge had misunderstood the position was inexcusable. If the Claimants were dissatisfied with the order, or really believed that the judge had misunderstood the nature of the application they were making, they could and should have made an application for the order to be varied. True it is that the order did not give the Claimants permission to apply to vary it (which was given to the Defendant since it had had no opportunity to make any submissions about the directions sought), but that did not prevent the Claimants from making an application to do so if they believed that it had been made on the basis of a misunderstanding. It just meant that, in the absence of permission to apply, the Claimants would have to pay the relevant fee in order to make the application.

The conduct of the Claimants in persisting in proposing directions that were not in accordance with the order of 20 April 2015 was pursued right up to the hearing. The skeleton argument prepared by Ms. Lee was directed to just that end. It is conduct that was, as I have said before, inexcusable. However, I had directed that a case management conference was to take place and, as Ms. Lee correctly pointed out, directions were given as the order anticipated. Nevertheless, a substantial part of that hearing was taken up by an examination of the events that had led up to it.

In the circumstances, I consider that the appropriate order for costs is as follows:

The parties have now agreed an order that deals with all the other matters raised at the hearing.