Buildability Ltd v O'Donnell Developments Ltd [2009] EWHC 3196 (TCC)

[2009] EWHC 3196 (TCC)Case No HT-09-416
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 08/12/2009
Before
THE HONOURABLE MR JUSTICE AKENHEAD
Between
BUILDABILITY LIMITEDClaimantO’DONNELL DEVELOPMENTS LIMITEDDefendant
Simon Lofthouse QC (instructed by HBJ Gateley Wareing) for ClaimantStephen Furst QC (instructed by Trowers & Hamlins) for DefendantWritten submissions
Judgment

Introduction

[1]The parties having agreed terms as to declarations in the Part 8 proceedings issued by the Claimant in this case, they have left over the question of costs for decision by the Court. This raises issues about proportionality of the costs bill presented by the parties as well as the applicability of a conditional fee agreement. Each side says that the other should pay its costs. The background[2]Buildability Ltd (BAL”) is the main contractor employed by Birmingham Development Company Ltd (it's holding company) to design and build the “Cube” said to be a landmark building in Birmingham. The main contract was dated 22 June 2007.[3]By a sub contract made on 28 September 2007, BAL entered into a sub- contract with O'Donnell Developments Ltd ("ODD") whereby the latter undertook to carry out the ground works, drainage and concrete frame works for the development. The sub-contract incorporated the DOM/2 standard form conditions albeit that there were substantial amendments thereto. Clause 11.2.1, as amended, addressed extension of time applications: “If and whenever it becomes reasonably apparent that the commencement, progress or completion of the Sub-Contract Works or any part thereof is being or is likely to be delayed, the Sub-Contractor shall forthwith give written notice to the Contractor of the material circumstances including, in so far as the Sub-Contractor is able, the cause or causes of the delay and identify in such notice any matter which in his opinion comes within clause 11.3.1. Any failure by the Sub-Contractor to give a written notice within 10 days of when a delay ought reasonably to have become apparent shall negate any entitlement of the Sub-Contractor to an extension of Sub-Contract time." Clause 11.7 required BAL not later than 16 weeks after practical completion of the Sub-Contract works to extend time to the extent that “Relevant Events” had delayed completion apparently even if Clause 11.2.1 have not been complied with.[4]Various issues arose between BAL and ODD early on in their relationship which resulted in a signed letter agreement dated 4 March 2008 which supplemented the original terms of the sub-contract. The relevant terms were:
“2. BAL hereby grants ODD an extension of time for completion of the Contract Works of one week up to 24th July 2009. 3. Subject to the terms of this Memorandum of Agreement and in respect of all and any matters, facts or circumstances occurring prior to 21st February 2008, ODD hereby acknowledges and agrees that it has no further claim of whatsoever nature against BAL and/or in relation to the Project for extension of time delay and/or loss and expense under the Contract… or otherwise. Therefore, in so far as any such claims, rights or entitlements may otherwise have arisen or accrued prior to 21st February 2008 in favour of ODD, ODD hereby agree to waive all such claims, rights and entitlements against BAL and/or in relation to the Project generally. 4. For the avoidance of any doubt paragraph 3 above shall not in any way affect ODD’s rights and entitlements to claim money and receive payment for work done under the Sub-Contract (including the Variations) save that, in accordance with paragraph 3 above, for the period prior to 21st February 2008 ODD shall not be entitled to claim for further extension of time for delay and/or loss and expense. 5. It is hereby agreed that Programme ref. “Const Prog ODD-02” (as attached and amended to show a completion date of 24 July 2009) shall be the agreed programme for the purposes of ODD’s obligations to carry out and complete the Works, and for measuring and recording progress of ODD’s Sub-contract works…”
This programme was in the form of a bar chart which showed against some 42 areas or types of work when such work was programmed to start and finish. It did not expressly show a critical path but it did show completion of the final items of work on 24 July 2009.[5]Prior to this agreement, ODD by three letters dated 28 January 2008 had purported to give notice of delay in relation to three "Delay Events", later to be known as Delay Events 2, 4, and 6; these Events all related to alleged increases in the amount of reinforcement required and arose as the result of a comparison between tender and construction issue drawings and schedules. Extension of time claims were lodged after the supplemental agreement of 4 March 2008.[6]By the time that the current proceedings were issued in October 2009, there had already been seven concluded adjudications and two further adjudications were being pursued. In Adjudication No 4, the Adjudicator, Mr Christopher Linnett, decided amongst other things that, although the ODD had failed to comply with the notice provisions of Clause 11.2.1 in relation to Delay Events 2, 4 and 6 (amongst others), this did not negate any entitlement which it had to an extension of time. There is some ambiguity in his findings in that at one point in his decision he says that BAL had failed to establish that the notices were issued within 10 days of the date when the delay ought reasonably to have become apparent but later says that ODD failed to comply. This ambiguity apparently mattered not. He also decided that ODD was not obliged to use the ODD-02 Programme referred to in the 4 March 2008 agreement as the basis for any extension of time claim. In Adjudication No 7, Mr Linnett, again the Adjudicator, addressed, amongst others, claims relating to Delay Events 2, 4 and 6. He rejected the assertions that these Events had been effectively settled in the 4 March 2008 agreement and he allowed all or substantially all the claims for delay and related loss and expense in relation thereto.[7]By three letters dated 7 October 2009, BAL’s solicitors threatened Part 8 proceedings in relation to 3 issues, namely Mr Linnett’s findings that a failure to serve a notice under Clause 11.2.1 did not negate any entitlement to extension of time, that ODD was not obliged to use ODD-02 as the basis of any extension of time and that ODD was not entitled to an extension of time for Delay Events 2, 4 and 6. They sought agreement "on a final and binding basis": “… that notices under clause 11.2.1 of the Sub Contract…are conditions precedent to award an extension of time which, without compliance, ODD is not entitled to an extension of time [alternatively] that notices under clause 11.2.1…are conditions precedent to award extensions of time prior to Practical Completion which, without compliance, ODD is not entitled to an extension of time. … that any extension of time claimed for the matters, facts or circumstances occurring on or after 21 February 2008: 1. Shall be made in a manner consistent with the obligations set out in… ODD-02; further and/or alternatively 2. Shall not be made in a manner inconsistent with the obligations set out in… ODD-02… … that the Supplemental Agreement (and subject to paragraph 4 thereof): 1. Precludes claims by ODD in respect of the Sub Contract Works by ODD, for loss and expense or extensions of time or otherwise, in respect of all and any matters, facts or circumstances occurring prior to 21 February 2008; 2. Precludes the claims for delay events 2, 4 and 6 as advanced by ODD (assuming that the matters alleged in the claims for those Delay events are correct)”.

… that the Supplemental Agreement (and subject to paragraph 4 thereof):

[8]On 14 October 2009, ODD’s solicitors responded to the effect that ODD considered "that the Adjudicator has not erred, either as a matter of fact or law, in reaching his Decisions". They did not agree "either in whole or in part with any of the statements on which you have sought agreement in your letters of 7 October 2009.” They indicated that Part 8 proceedings were inappropriate because they said that the questions raised "substantial disputes in fact". The proceedings[9]Without more, BAL commenced Part 8 proceedings in the TCC on 19 October 2009 and sought the following relief:
“1. Save for any defence of waiver or enforceable agreement to the contrary between the parties, a declaration that notices under clause 11.2.1… are conditions precedent to award extensions of time which without compliance, the Defendant is not entitled to an extension of time; or alternatively Save for any defence of waiver or enforceable agreement to the contrary between the parties, a declaration that notices under clause 11.2.1… are conditions precedent to award extensions of time prior to Practical Completion which without compliance, the Defendant is not entitled to an extension of time. 2. A declaration that any extension of time claimed by the Defendant for matters, facts or circumstances occurring on or after 21 February 2008: (i) shall be made in a manner consistent with the obligations set out in ODD-02… (ii) shall not be made in a manner inconsistent with the obligations set out in ODD-02… 3. A declaration that the Supplemental Agreement… (i) precludes claims by the Defendant in respect of the Sub Contract Works for loss and expense or extensions of time or otherwise in respect of all and any matters, facts or circumstances occurring prior to 21 February 2008; (ii) precludes claims for delay events 2, 4 and 6 as advanced by the Defendant (assuming that the matters alleged in the claim for those delay events are correct).”
[10]On 20 October 2009, Mr Justice Ramsey gave directions for the hearing of the Part 8 Claim. There was to be a hearing on 19 November 2009. The abridged time for service by ODD of its Acknowledgement of Service was five days and further evidence was to be served by the Defendant by 5 November 2009 and by the Claimant in response by 12 November 2009. Permission to apply to vary or set aside the terms of this order was granted.[11]On 21 October 2009, BAL entered into a conditional fee agreement with its solicitors in relation to these proceedings of which notice was given to the Court and to ODD on 23 October 2009. For the period to which the agreement related there was to be 100% mark-up on solicitors fees in the event of success.[12]On 26 October 2009, ODD issued an application seeking to set aside the order of 19 October 2009, to have the claim dismissed alternatively to have it continue as if it had not used the Part 8 procedure; consequential directions were sought in effect to permit the case to proceed as a Part 7 claim. That was supported by a witness statement of Mr Bange. As to Declaration 1, he did not accept that it was justified but asserted that it would be immaterial if, as might well turn out to be the case (so he argued), there was on the facts a waiver of the need to submit notifications of delay within 10 days apparently as required by Clause 11.2.1. As to Declaration 2, he asserted that the matters raised were a matter "of enforceable obligation"; factual background and some expert evidence would be required as to the reliability of the ODD-02 programme and reliance in this context was based on an expert report which suggested that it was not a sufficiently sophisticated programme "to allow any meaningful delay analysis to be carried out on the basis of" it. As to Declaration 3, it was said that there was required to detailed factual evidence as to factual matrix surrounding the execution of the 4 March 2008 agreement, the state of the claims that had accrued and of Delay Events 2, 4 and 6 at 21 February 2008.[13]I heard this application on 29 October 2009 as a matter of some urgency given the directions given by Mr Justice Ramsey. BAL was represented by Mr Nicholas Dennys QC and ODD by Mr Stephen Furst QC. Both counsel submitted written skeleton arguments. Mr Furst QC expanded upon the points made by Mr Bange and indicated that declarations in effect should not be granted with regard to Declarations 1 and 2 as they had no "practical application" and that Part 8 was an inappropriate procedure for all three Declarations. There was no acceptance that any of the declarations were justified. Against that, Mr Dennys QC argued that the Part 8 procedure was wholly appropriate for the three declarations sought and that only limited and manageable evidence of factual matrix was required.[14]In an ex-tempore judgement, I made it clear that there could be no objection to Declaration 1 being pursued on the Part 8 procedure: a reservation was made to preserve any factual arguments relating to waiver or estoppel in the form of the alternative declarations sought, factual evidence about waiver was not required and I could see in the light of Mr Linnett’s decision in Adjudication 4 that there was some arguable merit in having a decision on such declarations. As to Declaration 2, I expressed the view that the declarations sought might be inappropriate in the context of Part 8; it was not clear what was meant by any extension of time been claimed by ODD "in a manner consistent (or not inconsistent) with the obligations set out in” ODD-02 and therefore looking at it at least from one standpoint some contested evidence might be required. As to Declaration 3, I said that it was confusing as to what was envisaged at least with regard to claims for Delay Events 2, 4 and 6 because the claim documentation put before the court would or might well have required factual analysis and evidence as to which events within those claims occurred after 28 February 2008 and of such events the extent to which in fact they were simply consequences of what had occurred before. Thus, for instance, there appeared to be claims within the claims for Delay Events 2, 4 and 6 for increased quantities of reinforcements contained in drawings or schedules issued after 28 February 2008. I made it clear however that BAL might wish to consider its position with regard to possible amendments but that, if and to the extent that it decided not to amend, the hearing on 19 November would otherwise go ahead and the Court would then consider whether it was appropriate to issue the declarations sought given any issues which might appear on the evidence submitted by the parties.[15]On 2 November 2009, BAL submitted an amended Claim Form which put forward substituted Declarations 2 and 3 as follows:
“2 (i) …ODD 2 was from 4 March 2008 the contractual programme agreed by the parties, unless varied by agreement or extended in accordance with the provisions of the agreement. (ii) Any extension of time applied for after 4 March 2008 had to take account of the periods, timing and sequencing of the work is shown on ODD 2. 3. … the Supplemental Agreement…: (i) precludes any claim for extension of time and/or loss and expense for any events which occurred before 21 February 2008; (ii) in respect of claims 2, 4 and 6 notified on 28 January 2008, precludes the Defendant from recovering an extension of time in relation thereto in so far as the changes to the reinforcement were shown on the drawings issued to the Defendant before 21 February 2008; (iii) in respect of claims 2, 4 and 6 notified on 28 January 2008, precludes the Defendant from recovering loss and expense in relation thereto in so far as the changes to the reinforcement were shown on the drawings issued to the Defendant before 21 February 2008.”
[16]There then followed over the next two weeks (mostly "without prejudice save as to costs") correspondence in which agreement was finally reached on the form of declarations. The consent order delivered to the Court on 17 November 2009 provided for the following declarations:
“1. Save for any defence of waiver or enforceable agreement and subject to the terms of Clause 11.7.1 of the Sub-Contract between the parties made on 28th September 2007, a failure by the Defendants to give a written notice under Clause 11.2.1 within 10 days of when a delay ought reasonably to have become apparent shall negate any entitlement of the Defendants to an extension of time. 2. In accordance with the Supplemental Agreement dated 4th March 2008 ODD 2 was the agreed programme for the purposes of ODD’s obligations to carry out and complete the works and for measuring and recording progress of ODD’s sub-contract works. 3. The Supplemental Agreement dated 4th March 2008 precludes any claim for extension of time and/or loss and expense for any events which occurred before 21st February 2008. In relation to delay claims 2, 4 and 6, the Supplemental Agreement precludes any claim for extension of time and/or loss and expense in relation to changes to the reinforcement shown on drawings issued to the Defendant before 21st February 2008.”
[17]The parties have agreed that all issues of costs should be left to the Court. The Costs Submissions[18]Each party has submitted written costs submissions and it has been agreed that the cost issues can be dealt with by the Court in writing. Each side argues that the other should pay its costs. BAL puts forward a bill of costs including contingency fee mark-up in the sum of £80,042, albeit that the mark-up is only claimed for the period after 21 October 2009. ODD claim its costs in the total sum of £66,736.20 (exclusive of VAT which would not be chargeable given that ODD is itself registered for VAT).[19]There appear to be the following issues:(i) which side (if either) should pay the costs?(ii) how should the costs of ODD's application heard on 29 October 2009 be dealt with?(iii) is it appropriate that costs should be assessed on a summary basis?(iv) how should the conditional fee be allowed for, if at all?(v) to what extent should the bill of costs be marked down on a summary assessment? I will deal with each of these issues in turn.

Which side (if either) should pay the costs?

[20]In broad terms, as CPR Part 44.3 (2) confirms, the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party. It is not always easy for the Court to determine success when the parties have agreed terms (save for costs) other than by reference to the order which the parties have agreed. The fact of the matter is that ODD has agreed that there should be Court declarations against it as sought by BAL, albeit such declarations agreed to have been somewhat amended since the proceedings were issued. It would still have been open to ODD, if so advised, to argue that the declarations should not have been granted because they had no practical effect or for any other reasons that might have gone to the discretion which the Court always has in deciding whether declarations should be granted. I am satisfied that Declaration 1, as agreed, is broadly the same as was sought in the alternative by BAL in its letter of 7 October 2009 and in its original Part 8 Claim; there was value, which one can readily appreciate, in that declaration being secured given the adjudicator’s apparently wrong finding that there was no condition precedent. Declaration 2 as agreed simply repeats in effect Clause 5 of the 4 March 2008 agreement; it is therefore anodyne and does not obviously take matters further. Declaration 3 clearly has value because the adjudicator appears to have allowed Claims 2, 4 and 6, although on their face elements of them are clearly (and are now agreed to be) excluded by virtue of the 4 March 2008 agreement.[21]All in all, I am satisfied that in broad terms BAL has succeeded in these proceedings in securing at least two declarations which are of value. In those circumstances, it is the successful party and subject to the points which follow should be entitled to its costs. How should the costs of ODD's application heard on 29 October 2009 be dealt with?[22]In my view, ODD had a measure of success in its application. Although it did not secure the orders which it sought in that the Court did not dismiss BAL’s Part 8 claim and did not require that the claim proceed as a Part 7 claim, I made it clear that there were problems in the wording of Declarations 2 and 3; in particular, Declaration 3 might well be considered to be inappropriate for Part 8 as formulated and that evidence would be required to determine what part of Claims 2, 4 and 6 was or was not "caught" by the Supplemental Agreement. In this context, BAL clearly accepted that there were such difficulties by proffering amendments, and substantive amendments at that, of Declarations 2 and 3. If BAL had not done so, the probability is that it would not have secured the declarations as originally sought. It is true that I rejected ODD’s arguments relating to Declaration 1.[23]Overall, I am of the view that there should be no order as to costs with regard to ODD’s application. Whilst ODD did not secure the relief which it sought, it did establish that there were serious problems in the context of Part 8 in the form of Declarations 2 and 3.

Is it appropriate that costs should be assessed on a summary basis?

[24]This is a very obvious case for costs to be assessed on a summary basis. There has been no hearing and it is important that there is finality sooner rather than later as to who pays what costs. There are no difficulties in assessing the costs which the Court can not effectively deal with. How should the conditional fee be allowed for, if at all?[25]CPR Part 44.4 identifies that the court whether dealing with costs on a summary or detailed assessment basis primarily proceed on the basis of allowing costs which are proportionate and whether costs were reasonably incurred or reasonable and proportionate in amount (at least when dealing with costs on a standard basis). It is accepted here, properly, that costs should be on a standard basis. The Practice Direction provides further insight as to what happens when there is a contingency fee agreement: “11.4 Where a party has entered into a funding arrangement the costs claimed may, subject to rule 44.3B, include an additional liability. 11.5 In deciding whether the costs claimed are reasonable and (on a standard basis assessment) proportionate, the Court will consider the amount of any additional liability separately from the base costs. 11.6 In deciding whether the base costs are reasonable and (if relevant) proportionate the court will consider the factors set out in rule 44.5. 11.7 Subject to paragraph 17.8 (2), when the court is considering the factors to be taken into account in assessing an additional liability, it will have regard to the facts and circumstances as they reasonably appeared to the solicitor or counsel when the funding arrangement was entered into and at the time of any variation of the arrangement. 11.8 In deciding whether a percentage increase is reasonable relevant factors to be taken into account may include:(a) the risk that the circumstances in which the costs, fees or expenses would be payable might or might not occur;(b) the legal representative’s liability for any disbursement;(c) what other methods of financing the costs were available to the receiving party. 11.9 A percentage increase will not be reduced simply on the grounds that, when added to base costs which are reasonable and (where relevant) proportionate, the total appears disproportionate.” (a) the risk that the circumstances in which the costs, fees or expenses would be payable might or might not occur; (b) the legal representative’s liability for any disbursement; (c) what other methods of financing the costs were available to the receiving party.[26]The risk assessment which was carried out at the time that the contingency fee agreement was negotiated sets out the basis on which the hundred percent mark-up was said to be reasonable and realistic. If BAL had lost, no fees would be payable at all. It reflected "the risks inherent in the claim", the fact that "the subject area of law is of a very specialist and technical nature" and BAL’s solicitors’ “assessment of the risks”. The problem with this risk assessment is that it must have been based on the declarations which were then sought which were later substantially to be amended. It is also wholly unclear how "success" was to be measured; no evidence or argument has been put before the Court about this.[27]I have formed the view that it would be wholly inappropriate and unreasonable for any contingency fee to be allowed in this case. My reasons are as follows:(i) BAL made no effort to comply with the TCC Pre-Action Protocol; this is designed to assist the parties to resolve matters in a way which is cheaper (usually) and much less confrontational than in court proceedings. Whilst no complaint was made by ODD about this at the time, it deciding to issue its application instead, it has raised this issue on the question of costs; the point made has not been challenged. If the Protocol had been followed, there must be a good chance that something along the lines of what was eventually readily agreed would have been agreed much earlier and before the need for any contingency fee agreement was needed. Even if it was argued that the Protocol did not have to be followed, BAL adopted a very confrontational approach; a more conciliatory approach would have been more cost effective.(ii) I find it very difficult to see that the relief claimed in Declaration 1 was ever going to be difficult to secure, albeit that the Adjudicator had surprisingly decided otherwise. That much was as good as accepted by Mr Furst QC at the hearing on 29 October 2009. It is obvious when one comes to look at the wording of the contract that there is a condition precedent broadly as set out in the agreed declaration and the alternative Declaration 1 originally claimed for.(iii) The rest of the relief had to be amended after the hearing of 29 October 2009 which involved tacit acceptance that it was unlikely that the Declarations 2 and 3 as originally drafted would have been successful at least as Part 8 business. Having considered the original form of the relief claimed as against the contractual documentation, I am of the view that it is most unlikely that Declarations 2 and 3 would have been granted on a Part 8 basis: too much contested evidence would have been required and it is likely that at best the eventual declarations would have been along the lines of those eventually agreed. Put another way, the conditional fee agreement was negotiated on the basis that Declarations 2 and 3 as originally drafted were to be pursued but they neither were nor could ultimately be pursued. To allow the imposition of a conditional fee in those circumstances would be unreasonable.(iv) Declaration 2 as eventually agreed is so anodyne (as I indicated above) that I very much doubt that it would ever have been in issue if it had been drafted originally as it was eventually agreed.(v) The absence of any definition of “Success”, put before the Court, renders it difficult to see whether such “Success” has been achieved. To what extent should the bill of costs be marked down on a summary assessment?[28]It follows from the above that in principle BAL should have its costs save for those incurred in connection with ODD’s application, exclusive of any “additional liability”. The total claimed for these costs is £17,093 for the period prior to the issue of proceedings plus £29,597 thereafter, a total of £46,690. My immediate but also considered reaction was and is that this seems disproportionately high for relatively simple legal issues in proceedings which were resolved within about 5 weeks of the letters before action. These figures do allow for the involvement of Leading Counsel which was not in itself objectionable or unreasonable because it is clear that ODD regarded matters as sufficiently weighty to justify Leading Counsel also. The figures must include a not insignificant amount for amending the Claim form which should not as a matter of principle be allowed because usually the cost of and occasioned by amendments should be borne by the amending party.[29]I have formed the view that a reasonable allowance for costs here should be a £28,000. My reasons are as follows:(i) As at 10 November 2009, BAL’s solicitors wrote that their costs were £33,923.90, excluding costs of and occasioned by ODD’s application. It was said that the following day it was anticipated that the brief to Leading Counsel would be delivered which would incur additional costs of £16,000. It is clear that that full cost was not incurred as only £9665 is claimed for all Counsel’s fees after the issue of proceedings (other than in relation to ODD’s application); that at the very least covered at least two conferences with Leading Counsel. Given that after 10 November 2009 the primary work of the legal team was settling the case, it must follow that it would not be reasonable for ODD to pay a substantial part of the extra over £34,000 (some £13,000) in respect of the post 10 November 2009 period. I would have assessed a reasonable gross allowance of some £5,000 above the figure given as at 10 November 2009 for the work done thereafter.(ii) It is difficult to ascertain precisely what the cost of and occasioned by the amendments has been but I have assumed that some £5,000 at the very least in BAL’s bill relates to this.(iii) There are some items in the bill which would seem to be unreasonable at least for ODD to pay. For instance four lawyers apparently attended a 2½ hour conference with Counsel when at most ODD should be charged with the attendance only of, say, two. Some 15.3 hours is charged for "reviewing file and perusing papers” and 34.9 hours for “drafting and preparation" after the issue of proceedings. Whilst I have no doubt that some time will have been spent on these attendances, they are unreasonably high for ODD to have to pay.(iv) I am sure that if this bill was assessed by a costs judge on a detailed analysis there would be some further reductions not immediately apparent on the face of the bill put forward by BAL.(v) A reduction of £11,000 from a gross bill of £39,000 represents a 28% reduction which fairly and adequately reflects the matters set out above. Decision[30]Accordingly, the order will be that ODD pays £28,000 for costs by 18 December 2009. No VAT is payable on this as BAL is itself registered for VAT.

Cited in 1 later judgment