The Dorchester Group Ltd (t/a the Dorchester Collection) v Kier Construction Ltd

INTRODUCTION

In these proceedings the claimants, Dorchester, seek various declarations, accounts and determinations as to the amount of undeclared discounts which the defendants, Kier, obtained from their mechanical and electrical sub-contractors, Mitie, but which, contrary to the contract between Dorchester and Kier, they did not disclose or pass on to Dorchester.

It is important to note that, prior to the commencement of these proceedings, there was an adjudication between the parties. The adjudicator identified the sum of £686,290.93 as being the amount of the undisclosed discount. I am told this sum has been credited to Dorchester. However by these proceedings Dorchester seek to challenge that conclusion. It is their pleaded case that they are entitled to undisclosed discounts in these amounts:

This case has come before my twice in recent months: on 22 May 2015 at a Case Management Conference; and again on 7 July 2015. On both occasions there were discussions about Kier’s disclosure and concerns raised by Dorchester about that process. Kier’s disclosure is obviously an important element of the preparation for trial, since this is one of those rare cases where one party (Kier) will have almost all the relevant documentation, whilst the other (Dorchester) will have very little, if any at all. Now, some six weeks before trial, Dorchester has raised further concerns about Kier’s disclosure, and they seek orders for specific disclosure. In addition, Dorchester also seeks judgment on what they say is an admission made by Kier, in their solicitor’s letter of 21 September 2015. It is convenient to deal with that application first.

APPLICATION FOR JUDGMENT ON AN ADMISSION

In their defence to the claims in these proceedings, summarised at paragraph 2 above, Kier say as follows:

“Dorchester’s Claims in relation the Undeclared Discount.

53.

Kier admit that, as between Kier and Mitie, there was a discount of £686,575.00 which was not disclosed to Dorchester. Kier, however, deny that this discount amounted to a breach of their obligations under the Building Contract or of any other obligation owed by Kier to Dorchester:

(1)

Kier aver that Item A13/120 was not applicable and/or was waived, for the reasons set out above;

(2)

Further, or alternatively, Kier deny that this discount amounted to a change to the terms, conditions, scope and price agreed with Dorchester sufficient to amount to a renegotiation of the work package.

54.

Alternatively, for the purposes of these proceedings only, and subject to the matters set out above and below, Kier admit that Dorchester are entitled to the benefit of an “undeclared discount” in the sum of £431,639.00.

55.

Kier, however, aver that they are, in any event, entitled to retain £254,936.00 of the discount of £686,575.00.

(1)

This sum of £254,936.00 represented a discount granted by Mitie for early payment in advance of Kier’s Standard Terms of Payment of 60 days.

(2)

Such a discount was not, in any event, in breach of the provisions of Item A13/120 if, which is denied, that item was applicable to Kier. The early payment discount did not amount to a renegotiation of the work package, but was a purely “domestic” matter as between Kier and their sub-contractor.

(3)

Dorchester have, in any event, suffered no loss in relation to any breach of Item A13/120 if, which is denied, the same has occurred. Kier and Mitie have agreed, for their mutual benefit, an arrangement as to early payment. This was not in any way to the prejudice of Dorchester.

(4)

In any event, Edge, on behalf of Dorchester, have agreed that Kier should retain any undeclared discounts which relate to the securing of discounts from sub-contractors for early payments. Full particulars of this averment are set out at paragraphs 14 to 20 of the witness statement of Malcolm Fitzjohn (at Tab. 10 to the Particulars of Claim).

…

59.

Paragraphs 67 to 70 inclusive are denied. It is averred that the maximum sum to which Dorchester is entitled (if any, which is denied) in relation to undeclared discounts is that of £431,639.00 as set out in the witness statement of Mr. Fitzjohn.”

By a letter dated 21 September 2015, Kier’s solicitor made an open offer in respect of these proceedings. The letter was in these terms:

“In full and final settlement of the Proceedings we set out herein Kier’s open offer and the terms that relate to it.

For the purposes of the Proceedings only, and without making any admissions of liability save as set out below, Kier accepts that TDC is entitled to the following declarations (by reference to the prayer to TDC’s Particulars of Claim):

(1)

As to the declaratory relief sought at (1) Kier accepts (and has admitted in its Defence served on 5 March 2015) that TDC is entitled to the relief sought;

(2)

As to the declaratory relief sought at (2) Kier accepts that TDC is entitled to such a declaration and that the amount of the undeclared discount obtained by Kier from Mitie amounts to the sum of £686,575.00;

(3)

As to the declaratory relief sought at (3) Kier accepts (and has admitted in its Defence served on 5 March 2015) that TDC is entitled to a declaration that the value of the mechanical and electrical measured works and associated variations, including tunnel variations, is in the amount of £7,484,865.00. For the avoidance of doubt, this sum is composed as follows:

Measured Works	£5,080,871.00
Mechanical Variations	£791,753.00
Electrical Variations	£1,048,421.00
Tunnel Variations	£563,820.00
Total	£7,484,865.00

The total of £7,484,865.00 is exclusive of VAT. The said total is also exclusive of loss and expense, which is not part of the Proceedings. Finally, the said total is gross of the undeclared discount. Accordingly the net sum after deduction of the undeclared discount amounts to £6,798,290.60.

Kier’s offer remains open for acceptance at any point until such time as Kier notifies TDC that Kier’s open offer is withdrawn.

Finally, please note that:

(1)

This open offer is not an offer to pay a sum of money. As with the Proceedings, this offer simply concerns the declarations sought: there is no monetary claim comprised within the Proceedings.

(2)

As to costs, in the event TDC chooses to accept Kier’s offer at any point it is a condition of Kier’s offer that costs shall be in the discretion of the Court. There will be a number of matters upon which we wish to address the Court on the subject of costs.

(3)

This offer is alternative to, and cannot be accepted in conjunction with, any other offer which Kier may have made in, or in connection with, the Proceedings.”

It will be seen that the figure offered was, to all intents and purposes, the sum found by the adjudicator in the adjudications proceedings. Kier have made it clear that this was deliberate. They were saying that, if this offer was accepted by Dorchester, they would argue that Dorchester had achieved nothing by way of the litigation, and that they would consequently seek orders for costs in their favour. That is why the offer does not make any offer in respect of costs, but leaves that issue to be resolved by the court.

In their response on 23 September 2015, Dorchester’s solicitors raised a series of queries:

“If we understand the Open Offer correctly, Kier now concedes: that it is liable to account to our client (the “Dorchester”) for the Undeclared Discounts which Kier obtained from Mitie; and that the quantum of the Undeclared Discounts is £686,575.

The term “Undeclared Discounts” is defined at paragraphs 63.1 to 63.7 of The Dorchester’s Particulars of Claim. Kier pleads to paragraph 63 of the Particulars of Claim at paragraphs 53 to 56 of its Amended Defence. Given the terms of those parts of the pleadings, we understand the concession made in your offer to mean that Kier concedes that it is liable to account to The Dorchester for any Undeclared Discount obtained from Mitie, howsoever obtained. In particular, we understand that Kier now concedes that it is liable to account for any discount granted by Mitie for early payment and all issues of waiver are no longer live.

If our understanding of Kier’s concession is mistaken then we ask you to tell us otherwise. However, if our understanding of Kier’s concession is correct, it appears to us that:

•

The only issue that remains to be determined in these Proceedings is as to the quantum of the Undeclared Discount (an issue which we address further below);

•

There is no witness evidence that The Dorchester can usefully call in respect of this issue; and

•

In order to fulfil its duty to account, the onus is on Kier to call documentary and witness evidence to demonstrate the quantum of the Undeclared Discount that it in fact obtained.

Please confirm that the above analysis is correct without delay because, if it is, it will curtail the costs that The Dorchester will need to incur going forward (In this regard, we note that witness statements are due to be exchanged on 16 October) and it might also reduce the length of the trial (due to commence on 30 November).”

Kier’s solicitors answered these points in their letter of 30 September 2015. The relevant part of that letter was as follows:

“First and foremost there appears to be a misunderstanding on your part. In your second letter of 23 September you suggest that Kier has conceded that Kier is liable to account to TDC for the undeclared discount obtained from Mitie and that the quantum of the undeclared discount is £686,575.00. Our letter to you of 21 September 2015 does not make any such concession. Rather it constitutes an “open offer” which is available for acceptance by your client on the terms set out in the open offer. As stipulated in our clients open offer, the open offer remains open for acceptance at any point in time until such time as Kier notifies TDC that Kier’s open offer is withdrawn.

In the event that your client does not accept our client’s open offer then the proceedings will proceed to trial. In that case the issues that remain between the parties and which will need to be addressed at trial remain those in issue between the parties by reference to the parties’ respective pleaded cases culminating in your client’s reply.

We trust that the above clarification is sufficient for your purposes including your latest letter of 28 September 2015.”

I am told that the open offer of 21 September was not accepted. I am also told that it has now been withdrawn. However, Dorchester say that they are entitled to judgment on the basis that “Kier now concede that it is liable to account for any discount granted by Mitie for early payment and all issues of waiver are no longer live.” For the reasons set out below, I do not accept that submission.

First, the letter of 21 September 2015 was an open offer. It contained a package of terms which Dorchester could either accept or reject. It would be contrary to the whole basis of an offer if Dorchester were permitted to accept what they say was a part of it (by claiming that it was an admission), whilst rejecting other elements of the same package.

Courts must always encourage parties to make offers, in whatever form is appropriate. That is in accordance with the overriding objective. It would be contrary to that policy if the recipient of an offer like this could pick over its terms, accept parts and reject others, and thereby ensure that the litigation continues. That is not the purpose of an offer of this sort.

Secondly, CPR 14.1 entitled “Admissions made after Commencement of Proceedings” is in these terms:

“Admissions made after commencement of proceedings

14.1

(1)

A party may admit the truth of the whole or any part of another party’s case.

(2)

The party may do this by giving notice in writing (such as in a statement of case or by letter).

…

(4)

Where the defendant makes an admission as mentioned in paragraph (3), the claimant has a right to enter judgment except where–

(a)

the defendant is a child or protected party; or

(b)

the claimant is a child or protected party and the admission is made under rule 14.5 or 14.7…

(5)

The permission of the court is required to amend or withdraw an admission.

(Rule 3.1(3) provides that the court may attach conditions when it makes an order).”

Dorchester claim that by the letter of 21 September 2015, Kier has admitted that their pleaded case, that they can retain the discount for early payment to Mitie, is wrong, and that they have admitted that they are liable to Dorchester for all undisclosed discounts, including that one. They say that, in consequence, they are entitled to judgment pursuant to r.14.1(4). But:

As a result, it must follow that the letter of 21 September 2015 was not a notice pursuant to r.14.1. It was not a ‘formal admission’ of the type discussed in the short note at paragraph 14.1.1 of the White Book (Volume 1, 2015).

Thirdly, and linked to that last point, it seems to me that, for judgment to be entered under r.14.1, the admission has to be clear and unequivocal: see for example, Technistudy v Kelland [1976] 1 WLR 1047. That is how r.14.1 is intended to work. Here, the alleged admission about the discount for early payment to Mitie is neither clear nor equivocal. We know that, because Dorchester’s first reaction was to seek clarification of the offer on this point, and the explanation made it clear that there was no such admission. In those circumstances, it cannot possibly be said that there was a clear admission in the offer letter.

The disjunct between the letter of offer, on the one hand, and Dorchester’s application now, on the other, can be seen in Dorchester’s proposed draft order. The application seeks an order that:

“pursuant to CPR Rule 14.3, the defendant’s case that it is entitled to retain the benefit of any discount granted by Mitie for early payment (as set out in paragraph 55 of its defence) is dismissed.”

Yet those words simply do not appear in the letter of 21 September 2015. The order sought makes it clear that it is not a judgment on an admission, but instead, a judgment based on a contentious construction of one paragraph of the offer letter. Indeed, if the letter contained an admission at all, it was an admission in the sum of £686,575.00. That of course is the complete opposite of Dorchester’s case, because that amount has already been credited by Kier to their account. The last thing that they would want would be for the court to give judgment on such a basis.

For all those reasons, I reject the first application made by Dorchester.

Before leaving that topic, I should make this further observation, because it is relevant to the second application for specific disclosure. It also may be relevant to the future management of the case with which, due to other commitments, I will no longer be involved. Although Mr Williamson QC said, on a number of occasions, that this case was all about quantum, the effect of my dismissal of Dorchester’s application for judgment is to the contrary. On the face of the pleadings as they currently stand, liability remains in dispute. Whether that is sensible or proportionate going forward is, in the first instance anyway, a matter for Kier.

BACKGROUND TO DISCLOSURE APPLICATION

Before coming onto the disclosure application, I should set out a little of the background relating to disclosure in this case. That is in part because I have concluded that Kier’s disclosure process has, at least to an extent, gone awry.

When I fixed the budget costs in this case, Kier asked me to fix the budget for disclosure at £146,000. Following debate I identified a lower figure of £120,000. My figure reflected the fact that disclosure was to be on the standard basis, and that the relevant documents related to one sub-contract between Kier and Mitie, relating to one London building project. In my view, disclosure should not be difficult or time-consuming in a case like this.

That it has proved to be both is not due to any change in the underlying nature of the case. On the face of it, these difficulties would appear to be linked to the way in which Kier have gone about the disclosure exercise. That process has included:

That this disclosure process has been cumbersome, and inadequate, can be seen from the fact that:

APPLICATION FOR SPECIFIC DISCLOSURE

General Matters

Before going on to look at the categories of documents which are sought by Dorchester by way of specific disclosure, it is necessary to deal with a number of general matters of principle at the outset.

Mr Williamson QC rightly pointed out that the court ordered standard disclosure in this case, and not any wider or more generous basis for disclosure. I remind myself that standard disclosure requires a party to disclose only:

“(a)

The documents on which he relies: and

(b)

The documents which

(i)

adversely affect his own case;

(ii)

adversely affect another party’s case; or

(iii)

support another party’s case.”

He argued that in the circumstances, the court should not now permit the basis of disclosure to change, or that a different or wider basis for disclosure, such as that in the Peruvian Guano case, should be applied.

I accept that submission. As we shall see, that rules out a number of the categories of specific disclosure sought by Dorchester. But that does not mean that a search for other documents, which are within the standard disclosure category, should somehow be avoided. It is still necessary to look at the individual categories sought, item by item.

Mr Williamson QC also argued that any order for specific disclosure had to be proportionate and that the court had to consider:

Again I respectfully agree with both the test and the additional observation. But I do not accept that the mere fact that Kier have spent so much more on disclosure than they originally intended means, of itself, that no further order should be made on the grounds of proportionality. As I have said, I have formed the view that the disproportionate costs of the Kier disclosure exercise are due to the way in which the exercise itself has been carried out.

Neither do I accept the proposition that proportionality has to be considered against the background that the only disputes in this case go to quantum. As I have said, that may ultimately end up being what happens but, at the moment, on the face of the pleadings, there is more in issue than simply quantification. Furthermore, I think one or two of the categories with which I am concerned relate directly to quantum, even if (as I also accept), the amount in dispute in this case may be modest in TCC terms.

Mr Williams QC complains that the application for specific disclosure was premature because it was made on 7 October, when Dorchester’s solicitors knew that further disclosure had been promised.

Whilst in some circumstances that would make the application premature, the difficulty in the present case is that, because of the delay to the disclosure exercise, which led to the order of 7 July, there was always going to be a relatively short period between the exchange of the list of documents and the trial. In those circumstances, it seems to me that Dorchester were entitled to make this application, if they considered (as they obviously did) that the disclosure was inadequate. I therefore reject the submission that the application was made prematurely.

Accordingly, I turn to the categories of documents sought on the basis that disclosure has been ordered on the narrow basis of standard disclosure, not anything wider; and endeavouring to give proper emphasis to all questions of proportionality, not because of what Kier have spent so far, but because I believe that the principles which I have outlined, at paragraph 26 above, should apply to any specific disclosure exercise. They certainly apply to this one.

Categories 1, 2, 3 and 4

Categories 1, 2, 3 and 4 are described as follows:

“1.

All documents evidencing the agreement between Kier and Mitie in respect of discount arrangements recorded by Mr Fullex in the “Main Financial Procurement Schedule” dated 9 October 2009.

2.

All documents evidencing the terms of the “side agreement” between Kier and Mitie.

3.

All reports and drafts of reports prepared and issued by Mr Dathan in respect of the undisclosed discounts obtained by Kier in connection with the 45 Park Lane Project.

4.

Documents relating to the “Account” to which Mr Fitzjohn referred in his email of 21 February 2014 in which an undeclared discount of 10% for the M&E Works on the 45 Park Lane Project was recorded.”

It is fairly conceded by Mr Hopkins (Kier’s solicitor) that these documents are of a type which would be anticipated by the parameters of standard disclosure. I agree with that. Further, I have been shown contemporaneous documents which expressly refer to an agreement (or a ‘side agreement’) between Kier and Mitie; a ‘latest report’ from Mr Dathan, which clearly presupposes the existence of earlier reports, and ‘the account’ of Mitie. Thus, all of the documents sought in categories 1 to 4 would appear to exist (or have existed).

On that basis, subject to the test of proportionality, an order for specific disclosure of the documents in Categories 1-4, or a statement revealing the searches that have been made for them and the failure of those searches, is made out. In my view, such an order is proportionate. That is because the documents are, or may be, important. They go not only to Kier’s detailed knowledge of the undisclosed discount at the relevant time, but they also go to the accuracy or otherwise of the figure of £686,000 odd, on which Kier’s case rests. The documents that I have seen indicate that the figure may have been known to be higher than that, even at the time. So that is plainly a relevant matter, even if (which I do not accept) the only issue in this case is quantum. Furthermore, it seems to me to be proportionate to require the exercise to extend to those four categories of documents, since disclosure is ongoing (as Mr Hopkins fairly concedes), and further documents are currently being sought and searched for.

Accordingly, Kier’s application in relation to the first four Categories of documents succeeds.

Categories 5, 6, 7, 8 and 9

Categories 5, 6 and 7 are no longer pursued. Categories 8 and 9 are described as follows:

“8.

All correspondence and documents passing between (a) Kier or Kier’s representatives (legal or otherwise) and (b) Mitie or Mitie’s representatives (legal or otherwise) concerning the negotiation of the final M&E sub-contract sum and leading to the execution of Mitie’s Sub-Contractor’s Final Account Statement on 25 September 2015.

9.

All documents referred to in paragraph 8.2 of Pinsent Masons’ letter of 2 October 2015 concerning an agreement reached between Mitie and Kier in respect of the “M&E measured works and variation account on 12 October 2015”.”

However, Mr Selby made clear in his oral submissions that the documents in these two categories were sought only insofar as they related to the retention monies of £19,000 which may have been retained by Kier as another kind of undisclosed discount.

In relation to these documents, I am satisfied that the proportionality test has not been made out. Documents have been disclosed which show that this money may not have been returned by Kier to Mitie: that may indicate an undisclosed discount. That is where the matter rests. It would not be proportionate to require Kier to look for other documents which may go to the same point, particularly given the relatively modest sum involved. I therefore decline to make any order in relation to those two Categories.

Category 10

Category 10 is described as:

“10.

All trading agreements entered into between Kier and its key manufacturers and suppliers which are relevant to the M&E Works on the 45 Park Lane Project and provide for the payment of discounts.”

I make no order in respect of this Category. First, it is not clear whether or not there are in fact any relevant trading agreements between Kier and their suppliers. Secondly, I do not believe that Dorchester is claiming any undisclosed discounts by reference to such trading agreements in their pleading. Thirdly, I do not consider that these documents fall within standard disclosure. Fourthly, I consider that it would not be proportionate to require searches to be undertaken in respect of these documents. Accordingly, the application in respect of this Category fails.

Category 11

Category 11 is described as follows:

“11.

Minutes of Board Meetings, agendas and documents issued for Board Meetings of Kier or Kier Group relating to the undisclosed discounts obtained by Kier in connection with the 45 Park Lane Project.”

In his oral submissions Mr Selby said that, although Kier’s solicitors had searched the minutes Kier London, Kier Construction and Kier Group, they had not searched the records of Kier Southern, Kier South Eastern (who may be the parent company of Kier Wallis, who Mr Selby described as ‘the rogue entity’) and Kier Regional. He also said that this search had been limited to undisclosed discounts, not wider matters such as unethical conduct.

In my view, this is one of the categories of documents that is caught by the principle that I have outlined above, namely that the order for disclosure in this case was standard disclosure and nothing wider. The application for Category 11 is, I think, speculative. It is based on a Peruvian Guano type test. Moreover, the Board meeting minutes which have been disclosed have revealed nothing of any relevance at all, so it seems to me to be disproportionate to require searches to be carried out on the basis that something may turn up in the Board meeting minutes of another related company. That seems highly improbable so no further costs should be incurred on this aspect of the case.

Category 12

Category 12 is described as follows:

“12.

All documents contained in the HR records of Mr Peter Kitchener insofar as they relate to discounts obtained by Kier on the 45 Park Lane Project.”

Mr Hopkins deals with this at paragraph 10 of his witness statement. In essence, he says that all the documents within this Category relating to undisclosed discounts have been provided.

Mr Selby suggested that it was not appropriate in the circumstances of this case for the court to take this at face value because of the other examples of Kier’s double dealing, not least the admitted failure to pass on the discounts in the first place. He also said that the solicitors might well have adopted too literal a view of what was being searched for.

I do not think that those criticisms are relevant or fair. It seems to me that a proper distinction must be drawn between Kier (who are obviously in difficulties on certain aspects of this litigation, because of what the documents reveal) and their solicitor, who is an experienced officer of the court. If Mr Hopkins says that something has been searched for, and nothing relevant has been identified beyond that which has been disclosed, then the court is obliged necessarily to take that at face value. There is simply no reason for the court to take a contrary view. Furthermore, it does not seem to me to be proportionate to require any further searches in this Category.

Categories 13 and 14

Category 13 is not pursued. Category 14 is in these terms:

“13.

All emails and other documents sent to from or copied to Mr Steve Bowcott regarding (a) the undeclared discounts or (b) the “confession” document provided by Mr Bowcott to the Claimant on 30 March 2012.”

Mr Hopkins has provided some documents in this category and he has said that there is at least one further document to come. It seems to me, therefore, that his evidence properly accepts that this is a relevant Category. Moreover, since Mr Hopkins will have to look at Categories 1, 2, 3 and 4 for search and further disclosure purposes, it seems to me that (even though this element of disclosure is still ongoing) it is appropriate to require him to deal in his witness statement with this Category as well. It may be that the one further document which he has promised will be the end of the matter, but it seems to me that it adds very little by way of cost or effort for the matter to be finally resolved in his further statement. Accordingly, to that limited extent, I allow the application in respect of Category 14.

Witness Statement

Accordingly, a witness statement is required to deal with Categories 1 to 4 of the specific disclosure application, together with the short commentary in respect of Category 14. Mr Williamson QC is obviously right to say that the court cannot require the disclosure of documents which simply cannot be found, although, in relation to Categories 1 to 4, it would seem to me that some further documents would certainly appear to have existed at the relevant time. But whether they exist now or not, Mr Hopkins needs to deal with those Categories (but only those Categories) in his witness statement.

That is not the end of the application because, not only do Dorchester seek disclosure in the various Categories that I have now been through, but they also seek a witness statement which requires four further, separate elements. Those are identified as follows:

“1.

Identify the members of “Kier’s review team” (as identified in paragraph 1.3 of Pinsent Masons letter of 18 September 2015 and 1.7 of Pinsent Masons letter of 2 October 2015), their employer, role and level of qualification.

2.

Provide details of any “briefing that was given to “Kier’s review team”, including the briefing referred to in paragraph 1.7 of Pinsent Masons letter of 2 October 2015.

3.

Identify how many of the 313,041 documents reviewed by Kier’s review team were marked as relevant by that team (as identified in paragraph 1.7 of Pinsent Masons letter of 2 October 2015).

4.

Identify the total number of “non-relevant” documents reviewed by “Kier’s core legal team” (as identified in paragraph 1.8 of Pinsent Masons letter of 2 October 2015).”

It does not seem to me appropriate to make any order in relation to those four requirements. Item 1 has been dealt with by the evidence on this application: Kier’s review team was Exigent. Item 2 (the briefing) seems to me to be privileged, and I did not understand Mr Selby to take a different view. In addition, requiring Kier to provide the information under Items 3 and 4 would be wholly disproportionate and would not add to the material or information which is likely to lead to a resolution of this dispute between the parties. I agree with Mr Williamson QC that to require Kier’s solicitors to answer items 3 and 4 is to set them a kind of examination paper, and they were entitled to decline to complete such a paper.