BAE Systems Pension Funds Trustees Ltd v Bowmer & Kirkland Ltd

This is an application pursuant to CPR Part 38.6, which provides that, unless the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant, against whom the claimant discontinues, incurred on or before the date on which the notice of discontinuance was served on the defendant. In other words, where a claimant discontinues, there is a presumption that he will pay the costs of the defendant against whom he discontinues, unless the court otherwise orders.

In this case, the claimant, BAE, has discontinued proceedings against the second defendant, Geofirma Soils Engineering Limited, who does not appear on this application. BAE asks the court to depart from the default position under Part 38.6, and asks instead for an order that Geofirma’s costs should be paid by the first defendant, Bowmer & Kirkland Limited.

The dispute arises out of the design and construction of a warehouse, known as Unit 2 on the Winsford Industrial Estate in Cheshire. There are alleged to be defects in the floor slab which has suffered from settlement and cracking, and continues to do so.

The warehouse was constructed in 2004. BAE, the claimant, is a pension fund and the freehold owner, and was not directly involved in the original construction of the warehouse. Bowmer & Kirkland was the design and build contractor. Geofirma is a company specialising in soil stabilisation and was engaged as a subcontractor to Bowmer & Kirkland.

All of the first to fourth defendants, including Geofirma, gave warranties to BAE which were executed as deeds on 27^th September 2004. The Geofirma warranty made express reference to works that it had carried out to Unit 2. As the warranties were executed as deeds, it followed that the limitation period for a claim under the warranties would have expired in September 2016. In August 2016 and, therefore, close to the end of the limitation period, BAE issued these proceedings, and did so without having complied with the pre-action protocol. BAE accepts that its claim form was issued to protect the limitation position.

In those circumstances, BAE could not be criticised for having commenced proceedings against all possible defendants. That is the sensible approach where a limitation period is about to expire and a claimant may be unclear about the financial or insurance position of potential defendants. However, it does seem to me, in principle, that the claimant then takes the risk that the proceedings against one or more of those defendants may transpire to be ill-judged or inappropriate, and also, as Ms Sinclair QC has submitted on behalf of Bowmer & Kirkland, the claimant takes the risk that the defendants will not have all documentation and information at their fingertips in relation to a stale claim.

In this case, after the issue of the claim form, the parties entered into a standstill agreement to enable, in effect, the pre-action protocol to be complied with. As a result, BAE sent a letter of claim dated 2^nd February 2017. Geofirma said that their claim was for breach of the warranty, in that the slab construction was defective because there was insufficient lime in the filling. They pointed out that they did not have a copy of Geofirma’s subcontract, and they reserved the right to provide further details of their claim on receipt of documents.

Geofirma’s solicitors replied on 1^st March 2017. In their reply, they said that they enclosed a copy of the subcontract order between Geofirma and B&K dated 25^th June. The solicitors said that they had been instructed that a copy was executed, but could not be located, and was likely to be in B&K’s possession. They provided the Numbered Documents that were appended to the subcontract, which included Geofirma’s quotation of 19^th January 2004, a letter from B&K of 7^th January 2004, and notes of a pre-order meeting held on 12^th January 2004. They continued in this vein:

“It is apparent from the numbered documents that the Geofirma quotation dated 19^th January 2004 is a revised quotation submitted in response to B&K’s request for Geofirma to quote in respect of a revised scope of works in its letter dated 7^th January 2004 and the Pre-Order Meeting held on 12^th January.

We also enclose a copy of the marked up drawing referred to in the letter from B&K dated 7^th January 2004 (as well as a signed copy of that letter), which is incorporated by reference to Numbered Document 2 and indicates ‘the revised scope of works’ that Geofirma was requested to quote for. It is clear that this revised scope did not require works to be carried out at Unit 2”.

I pause to observe that I have been shown by Ms Sinclair this morning all of the documents that are referred to in that letter. Geofirma’s position, therefore, was quite clearly and simply that it had not carried out any works to Unit 2, and it proceeded, at para.4.2 of that letter of response, to say that there was no basis for BAE to proceed with the claim against Geofirma and said that it would not participate in a proposed pre-action meeting.

BAE responded to that letter on 9^th March. They acknowledged receipt of the un-executed copy of the subcontract order, and observed that the scope of works of the subcontract provided for certain soil stabilisation and earthmoving works to the property, together with a neighbouring development in Unit 1. They continued:

“In the letter of response, you state inter alia that, by variation to the Sub-Contract, the original scope of works was changed to omit your planned works to the Property [that is Unit 2]. As a consequence, you say Geofirma carried out works at Unit 1, but not at Unit 2”.

They continued:

“As the purchaser of the Property, our client necessarily lacks the same first-hand knowledge of the works at the Property which Geofirma and the other defendants share. It is not clear to BAE, based on the very limited information that has presently been provided, to what extent variations of planned soil stabilisation and earthmoving works were subsequently made.

We expect this is primarily a point which the other defendants … will wish to address in their responses”.

They said that, in the light of the above, in respect of the invitation to say that they would not proceed, BAE would not do so because they were not in a position to issue a further response to the point about the scope of Geofirma’s works until they received the other defendants’ responses.

Geofirma responded to that letter on 13^th March. They said that they were writing to correct a misunderstanding that there was a variation omitting Unit 2. Unit 2 had been excluded from the scope of the subcontract at tender stage. Their letter of response, they said, had made it clear that, on the basis of BAE’s allegations against Geofirma, Geofirma had no liability or responsibility as the allegations related to works to Unit 2, which were not part of Geofirma’s scope of works.

Shortly afterwards, Bowmer & Kirkland issued their letter of response to the letter of claim. They said that, firstly, the project was completed over 12 years ago and, as such, they were still in the process of reviewing their documents which had been retrieved from archive, and that none of the key personnel involved in the project was now employed by Bowmer & Kirkland. Against that background, they said that, although they were still in the process of reviewing their documents, they did not consider the matters in section 2 of the letter of claim to be in issue, those matters relating to the property and the contracts. But, they continued, they had not found a signed copy of the Geofirma subcontract, although they had a copy of what appeared to be the order placed, which they could provide if required. In relation to the works, and specifically the role of Geofirma, they said this:

“It is understood that the ground improvement was to be carried out by vibro works, rather than the addition of lime. In the event, vibro piling was carried out by Pennine. Again, we note that Geofirma has stated that they did not carry out ground improvement for Unit 2”.

It seems to me that, at that point, Geofirma’s position was clearly that its subcontract did not and had never included works to Unit 2 and that it had not carried out any so-called lime stabilisation works, and that Bowmer & Kirkland’s position was similarly that Geofirma had not carried out any lime stabilisation works because it was Bowmer & Kirkland’s understanding that the ground improvement had been carried out by vibro compaction, rather than the addition of lime.

In the light of those responses, BAE’s solicitors wrote to Bowmer & Kirkland’s solicitors on 21^st April, shortly before the end of the standstill period, in the following terms:

“As you are aware, Geofirma’s letter of response requested that our client would no longer continue its claim against Geofirma. As our client does not have the knowledge to make such a decision, we invite your client to explain precisely what work Geofirma did in relation to Unit 2 and why it was required to provide a warranty. Your client is Geofirma’s employer, so should be in a position to provide such information”.

There was, it appears, no response to that request.

On this application, BAE complains about the absence of that response and what they describe, and what I will come to more generally, as Bowmer & Kirkland’s lack of engagement. They argue that Bowmer & Kirkland, as the employer, ought to have been in a position to explain both the scope of Geofirma’s subcontract works and the warranty, and that, had they done so, BAE would not have proceeded against Geofirma.

Alternatively, BAE say that Bowmer & Kirkland ought to have, during the standstill period or later, prioritised answering the questions raised in that letter, namely what was the scope of Geofirma’s work, what did they do to Unit 2, and why were they asked to provide a warranty. Bowmer & Kirkland could, it is submitted, have prioritised that request, both during the standstill period as it was originally agreed and after the proceedings were served and there was a further stay of proceedings until 11^th July. As I have said, the claimant’s argument is that, had Bowmer & Kirkland done so and had they confirmed that Geofirma had done no work to Unit 2, BAE would not have proceeded further against that defendant.

In my view, that complaint is unfair and overstated. This claim was being brought many years after construction was completed. In those circumstances, any party could expect a reasonable time in which to ascertain its position and that of the other parties. BAE already had the subcontract documents from Geofirma and Bowmer & Kirkland’s statement that lime stabilisation works were not carried out in any event, which was consistent with the Geofirma contract documents.

The inference that I draw is that BAE was unclear as to the apparent discrepancy between the subcontract documents and the warranty, and that point is illustrated by their reference to there being possible variations to contract works. They anticipated that something might turn up that explained the position and justified a claim against Geofirma, and they did not wish to take the risk of discontinuing on the basis of the information that they currently had.

That does not seem to me to have been an unreasonable position. But, at the same time, it did not place Bowmer & Kirkland under an obligation to do any more at that stage to crystallise the extent of the risk to BAE. In any case, when BAE served their Particulars of Claim on 27^th April 2017, as Ms Sinclair QC has pointed out, the Particulars of Claim contained a positive averment that Geofirma’s works did include lime stabilisation to Unit 2 and a series of allegations of breach in respect of those works. That seems to me to evidence the fact that BAE was taking the risk of making such allegations, which might, certainly on the evidence that it had before it at the time, turn out to be unfounded.

Following the end of the second standstill or stay of proceedings, this matter came before me on a Case Management Conference on 19^th July last year. Although there had some been some earlier correspondence, that means that the total period between the letter of claim in February and the CMC was a little over five months. The main issue between the parties on that CMC was whether I should give directions through to trial or for pleadings only with a further Case Management Conference to be heard in December. I decided to give full directions, and I did so.

Geofirma attended that CMC, and their position was raised by Mr Constable QC, who represented them on that occasion. He anticipated that there might need to be a preliminary issue in relation to Geofirma but that the position would not become clear until after Bowmer & Kirkland had issued any Part 20 proceedings, Geofirma had served its Defence, and Bowmer & Kirkland had served its Reply.

Things, however, moved on during the course of the hearing, and the order that I made was intended, in part, to ensure that the position was clarified in time to accommodate an application for a preliminary issue. I ordered that any Part 20 claims or contribution notices were to be filed and served by 13^th October 2017, and this order further provided that, if Bowmer & Kirkland did not serve a Part 20 claim or contribution notice against the second defendant, which, for the avoidance of doubt, was to particularise the contractual or other basis for any claim, the first defendant, Bowmer & Kirkland, was to write to the parties to clarify its position and confirm that it did not intend to pursue the second defendant in relation to the subject matter of the claimant’s claim.

Mr Lamont has submitted to me on this application that that somehow indicated the court’s acceptance or recognition of the fact that all the parties were looking to Bowmer & Kirkland to clarify the position, and that it was incumbent on Bowmer & Kirkland to do so. That is not my recollection of the Case Management Conference or my intention in making that order. My point was simply that, if Bowmer & Kirkland did not issue Part 20 proceedings or serve any contribution notice, then it would not be apparent from that whether they had taken any view or reached any decision as to whether there might be a basis of claim against Geofirma, and they were, therefore, to set out their position in correspondence. In other words, the purpose of the direction was to make it clear that, if Bowmer & Kirkland had not issued proceedings by that stage, they were not going to at some future point.

I have been provided with a detailed and, so far as I can see, very accurate attendance note of the proceedings on that Case Management Conference. One of the points that is recorded from what was, in effect, the judgment that I gave on that occasion is my observation of the following: that I would have liked to see a shorter timetable as to the Part 20 proceedings as between B&K and Geofirma to elucidate the position between the two of them, but that I would not give such further directions on the basis of what Ms Sinclair QC and Mr Constable QC had agreed and discussed, namely that, as the attendance note says, B&K would make it clear when they choose whether or not to serve the Part 20 proceedings or the contribution notice whether they were or were not seeking to pursue a claim against Geofirma on the basis that Unit 2 was omitted or not included in the scope of their obligations.

That seems to me to be of some importance, because, when B&K served their Defence, they positively pleaded that the design did not include lime treatment. No Part 20 proceedings or contribution notice was issued and, on 13^th October 2017, the same day as the Defence was served, as they were required to do, B&K’s solicitors wrote by email to the other parties clarifying their position. They said this:

“We will not serve a Part 20 claim and/or contribution notice against the second defendant, Geofirma. We confirm that the first defendant does not intend to pursue the second defendant in relation to the subject matter of the claimant’s claim. The basis for the first defendant’s position is that no evidence has emerged to support the claimant’s pleaded allegations that the second defendant’s subcontract required lime treatment of the ground beneath the property”.

Thereafter, BAE served its notice of discontinuance on 3^rd November 2017 and made this application. Both before and after it did so, it sought B&K’s agreement to pay Geofirma’s costs. A complaint is made of a failure to engage in that correspondence. I make no comment on that. It does not seem to me to be material to this application.

Turning then to the application itself, as I have said, the nature of the application is that I should make an order that displaces the presumption of a normal order under Part 38.6 that the claimant should pay the cost of the defendant against whom they have discontinued.

Mr Lamont recognises that there is no authority in which, on discontinuance, a costs order has been made against another defendant to the proceedings. But he argues, rightly in my view, that I have a wide jurisdiction in respect of costs under Part 44, and that it would be open to me to make such an order if I were minded to do so. He says that it would be appropriate for me to make such an order in this case because B&K have acted unreasonably. Had they indicated, as they ought to have done earlier, that there was no evidence that Geofirma’s works included lime stabilisation works, BAE would have discontinued earlier and Geofirma’s costs would, in whole or in part, have been avoided.

Ms Sinclair QC on behalf of Bowmer & Kirkland argues, firstly, that the application is fundamentally misconceived. She says that because, in effect, it asks for a Sanderson order. That is an order that an unsuccessful defendant pays the costs of a successful defendant directly. That sort of application arises at the conclusion of a trial where there is potentially a successful and an unsuccessful defendant. In this case, there is a quasi-successful defendant, Geofirma, who have been let out of this action, but there is no unsuccessful defendant, and she says, therefore, that it is simply not open to me to make an order under Part 38.6 that she should pay costs of another defendant.

I am not persuaded, as I have already indicated, that that is right and that there are no circumstances in which a court could order a defendant to pay the costs of another defendant against whom proceedings have been discontinued. I say that given the wide jurisdiction of the court and the possibility of envisaging unusual circumstances, for example, where a claimant had been positively misled by one defendant into suing another, where such an order might then be appropriate. But that is not this case, and the absence of any authority in which such an order has been made seems to me to be some indication, at least, of how unusual such a case would be.

I do, however, accept Ms Sinclair’s submissions that the cases in relation to Sanderson orders provide some (and I underline the word “some”) guidance as to how I should approach this matter. She has drawn my attention, in particular, to what was said in Irvine v Commissioner of Police for the Metropolis [2005] 3 Costs LR 380, at para.15, where the Court of Appeal cited with approval the decision of the judge below, where she had said this:

“It does seem to me that this is a case where, as in all cases, parties and their legal teams have to take a careful and close look at the basis on which they seek to bring in another party to proceedings and to make a judgment for themselves on the basis of the information available to them as to whether or not they are likely to succeed in claims against those parties. They cannot expect, simply because one party seeks to lay the blame at the door of another, that they can necessarily pursue that other party at the expense of the one who is pointing the finger. Parties must give careful thought to how they are going to pursue their claims”.

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As I say, that gives me some guidance, but only some guidance, because, in this instance (that is, an application made under Part 38.6), the reasonableness or otherwise of commencing proceedings against a defendant is not the test by reference to which the default position applies or otherwise. The simple fact that it was reasonable or not to commence and pursue proceedings is not itself a factor that displaces the default presumption.

In any case, I have already said that I do not consider that it was unreasonable of BAE to commence proceedings against Geofirma, but the risk that they took was that those proceedings might turn out to be ill-judged. Further, as I have also observed, they pleaded a positive case that Geofirma had carried out lime stabilisation works and was in breach of the contract in certain respects in doing so. That repeated, if you like, the taking of the risk that those allegations would not be made out. This was further, as Ms Sinclair QC has submitted, not a case in which BAE was put up to making those allegations by Bowmer & Kirkland, who had never, as such, pointed the finger at Geofirma and had said from the outset that no lime stabilisation works had been carried out by anybody.

It simply does not seem to me, in those circumstances, that the request that was made for clarification of the extent of Geofirma’s works could somehow have the effect of transferring that risk on to Bowmer & Kirkland. Up until the date of the Case Management Conference, which, as I have said, was a little over five months from the letter of claim, it does not seem to me that Bowmer & Kirkland could be criticised for the time that they had taken or were taking to investigate matters which had occurred many years earlier, and in circumstances where they themselves were not making and had not made any positive allegation against Geofirma.

By the time of the Case Management Conference when that issue was ventilated, an order was made by me which was intended to clarify the position or flush out whether there was any further information to be provided by Bowmer & Kirkland that would justify a claim against Geofirma. Bowmer & Kirkland complied with the court’s order, and it goes too far to say that, in the spirit of case management or cooperation in the modern conduct of litigation, they ought to have gone further in making the other parties and, in particular, the claimant aware of the conclusion that they had reached (as to whether there should be Part 20 proceedings) at a significantly earlier stage than I had ordered, so as to obviate the incurring of any costs by Geofirma. That was not the order that I made. It seems to me quite unfair to suggest that Bowmer & Kirkland ought to have complied with some other timetable.

For all those reasons, I will dismiss this application. I find that the normal position on costs will apply pursuant to Part 38.6, because there will be no order of this court to the contrary.