Jockey Club Racecourse Ltd v Willmott Dixon Construction Ltd [2016] EWHC 167 (TCC)

Case No HT-13-310[2016] EWHC 167 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 04/02/2016
Before
MR JUSTICE EDWARDS-STUART
Between
JOCKEY CLUB RACECOURSE LIMITEDClaimantWILLMOTT DIXON CONSTRUCTION LIMITEDDefendant
Mr Geoffrey Brown (instructed by DAC Beachcroft) for ClaimantMs Anna Laney (instructed by Kennedys Law LLP) for DefendantHearing Hearing dates: 18 th January 2016
JudgmentMR JUSTICE EDWARDS-STUART
[1]This is a judgment following a case management hearing at which the Claimant made an application for indemnity costs following the Defendant’s failure to accept a claimant’s Part 36 offer made in a letter dated 30 January 2015. The offer was made in relation to the issue of liability only.[2]The dispute is about the design and construction of a new grandstand at the Epsom Race Course. The Defendant was engaged by the Claimant to design and construct it. Problems have since arisen with the roof. In high winds which, as is now accepted, were not unexpectedly high, the roof was damaged in two places near the perimeter in January 2012. This was incident No 1. Further damage occurred in high winds in October and December 2013 to another area of the roof. Again, the winds were high but not unexpectedly so. This was incident No 2. The roof is a proprietary system and is in effect a sealed structure. Accordingly, the details of its internal construction can only be seen if it is opened up.[3]Following both incidents the Claimant had to carry out repairs. The costs of these repairs, and consequential losses claimed by the Claimant as a result, are set out in Schedules A and B, respectively, to a draft Amended Particulars of Claim served on 30 January 2015. The offer was made at the same time.[4]During the period since incident No 1 the Claimant has carried out investigations into the cause of the failure. This investigation has involved experts in both engineering and materials science. It is probably fair to infer from the fact that an expert in materials science was required that the cause of the failures was not straightforward.[5]On 18 October 2012 a letter of claim was sent to the Defendant. This received no response. A claim form was issued the following year and Particulars of Claim were served on 18 September 2013, very shortly before incident No 2. The Defendant’s solicitors were notified of the first stage of incident No 2 on 28 October 2013. The further damage which formed part of incident No 2 occurred between 23 and 27 December 2013. The Defendant was notified of it on 6 January 2014. The Defendant was invited by the Claimant to arrange for its expert to liaise with the expert for the Claimant if it wanted its expert to inspect the roof. A few days later, the Claimant’s solicitors sent the Defendant’s solicitors photographs of the damage that had been caused in October and December 2013. By an e-mail dated 3 February 2014 the Claimant’s solicitors informed the Defendant’s solicitors that investigations were on foot and suggesting that its expert might wish to visit the site in order to observe the situation and the work being carried out. In September 2014 the Claimant informed the Defendant that it appeared that the whole roof would have to be replaced.[6]There was no response to the offer that was made on 30 January 2015. As I have already mentioned the Particulars of Claim were subsequently amended. In fact, the Amended Particulars of Claim were not served in the terms of the draft that had been sent on 30 January 2015, but in a revised form that was served on 20 March 2015. To them were attached, not only Schedules A and B, but also a new Schedule C. This set out the cost of the total replacement of the roof which the Claimant says is now required, together with the Claimant’s estimate of the consequential losses that will be incurred as a result of the need to carry out this work. The Amended Particulars of Claim, as finally served, included some amendments to the case on liability but I did not understand these to be sufficiently material to affect the issues that I now have to determine.[7]On 24 March 2015 there was a case management conference at which directions were given for a split trial. The preliminary issues which were to be the subject of the first trial were agreed and the court gave permission for expert evidence. These issues were concerned with liability. The experts were directed to meet by 25 September 2015. This date was subsequently put back to 16 October 2015.[8]In September 2015 there was further opening up of the roof and an inspection by the experts. At that stage the Defendant had not instructed an expert in materials science.[9]After some pressure from the Claimant’s solicitors, on 14 October 2015 (two days before the experts were to have completed (their) discussions) the Defendant named its experts in materials science and remedial works as Dr Greenhalgh and Mr Hollings. However, two days later the Defendant’s solicitors told the Claimant’s solicitors that they would not be instructing Mr Hollings as their expert in remedial works, but would instead be instructing Mr Henderson. I was told, quite candidly, that it appeared that the commitments of the former would not permit him to carry out the necessary investigations within the timeframe required, and so Mr Henderson was instructed instead. This suggests that the Defendant’s attempts to instruct experts were done in some haste.[10]On 22 October 2015 the Defendant’s expert, Dr Greenhalgh, asked for an extension of time for service of the experts’ joint statement. It seems that he received instructions to carry out investigations on 30 October 2015. The experts in remedial works and materials science produced their joint statements on 6 and 9 November 2015, respectively. However, at this stage it appeared that Dr Greenhalgh had still not completed his investigations although he had already reached some conclusions adverse to the Defendant.[11]A pre-trial review was fixed for 17 December 2015, by which the Defendant had conceded liability and the preliminary issues of liability were resolved by consent in the Claimant’s favour.[12]At the hearing the Claimant was represented by Mr Geoffrey Brown, instructed by DAC Beachcroft, and the Defendant was represented by Miss Anna Laney, instructed by Kennedys.

The offer

[13]The offer set out in the letter of 30 January 2015 was an offer to settle: “The issue of liability for losses arising out of the defects in the roof . . . (including losses arising out of storm damage occurring in January 2012 and December 2013)” on the basis that the Defendant would “accept liability to pay 95% of our client’s claim for damages to be assessed."[14]There was no response to the offer. It will be apparent from what I have already said that the 21 day period for acceptance of this offer expired several weeks before service of the Amended Particulars of Claim in their final form, which included, for the first time, the sums claimed in respect of the need to carry out a complete replacement of the roof.[15]This is not a case where there is any possibility of a reduction for contributory negligence. Either the Defendant is liable for the full extent of the Claimant’s damages, as assessed or agreed, or it is not. Accordingly, a decision that the Defendant is to pay 95% of the Claimant’s damages, as assessed or agreed, is not one that is open to the court. The offer, therefore, does not reflect a possible outcome, but is purely commercial. It is clear that the Claimant regarded liability as open and shut and the 5% discount probably represented a reduction that it is prepared to accept in order to achieve a certain and early outcome, rather than an assessment of the risk of losing. However, it could have been a combination of both: it probably does not matter. All that is, or may be, relevant is that the offer did not reflect an available outcome of the litigation.

The Defendant’s response and subsequent events

[16]The Defence, both in its original form and when amended, is notable for the absence of any positive case. Effectively, it is a litany of non-admissions. This is probably a reflection of reality, rather than a lack of willingness to engage in the litigation. The Defendant is a contractor and it may well have subcontracted the design, or at least part of it, to external consultants. Thus the Defendant may well not be in a position to assess for itself the merits of the Claimant’s criticisms of the design of the roof. However, if this is the case, all the greater the need for the Defendant to instruct experts at an early stage to investigate and advise on the position.[17]For whatever reason, it is clear from the facts that I have already set out that the Defendant took its time to instruct appropriate experts and that, when it did so it seems to have done so in some haste. As I have already mentioned, the issues of liability were resolved by consent in the Claimant’s favour. There is no question but that the Claimant was wholly successful.[18]In these circumstances the Claimant contends that it is entitled to the benefits that Part 36 confers on a claimant who has bettered its own Part 36 offer. The Defendant disagrees. It submits, first, that the Claimant did not make a valid offer within the meaning of Part 36; second, that the offer was made before the Claimant’s claim had been fully pleaded; and, third, that since the offer was for 95% liability, the Claimant would only beat the offer if at least 95% of the roof required replacement.[19]The second and third of these points can be disposed of shortly. The offer related to liability, not to quantum. The fact that quantum had not been fully pleaded by the time when the offer was made does not affect its validity, although it may be a factor to take into account when deciding whether or not it would be unjust to make an order for indemnity costs from the date when the offer could have been accepted. As to the third point, this is ingenious but misconceived. The offer was to pay 95% of the Claimant’s damages “to be assessed": whether the damages to which the Claimant was entitled represented the costs of repairing only half the roof or the whole of it is a matter of quantum, not liability.[20]So, assuming the offer to be valid, the real question raised by the second and third points is whether or not it would be unjust in all the circumstances to award costs to the Claimant on an indemnity basis and, if not, from what date indemnity costs should be ordered. I shall revert to this aspect later.

The issues in relation to the offer

[21]During the course of the hearing Mr Brown accepted, rightly in my view, that it would not be appropriate to deal with questions relating to interest or any other consequences of CPR 36.17 until the final outcome of the litigation, in financial terms, had been determined. I agree. In my view it would not be right for the court to decide now, for example, the rate of interest, either historically or going forward, on a sum which has yet to be assessed and when the conduct of the parties leading up to that assessment remains an unknown factor.[22]Accordingly, the only issue that is left is the question of the basis on which the Claimant should be awarded its costs of the litigation in relation to liability. Miss Laney has, quite rightly in the circumstances, not taken any point as to whether or not the order by which the preliminary issues were resolved is a judgment for the purposes of Part 36. I therefore proceed on the basis that it is.[23]As I see it, there are three issues:(a) Was the Claimant’s “Part 36 offer" an offer within the meaning of Part 36 at all?(b) If so, was it a genuine attempt to settle liability?(c) If the answer to (a) and (b) is yes, whether it would be unjust to make an order reflecting some or all of the incentives in Part 36? Issues (a) and (b) are closely connected and the answer to (a) may depend on the answer to (b).[24]Issue (a) arose because it was raised by the court during the course of the hearing. Since, as I have already mentioned, this is a claim where the outcome can only be success or failure for either party, there is no room for apportionment of liability: thus a conclusion that the Defendant is 95% liable for the losses sustained by the Claimant is not an available outcome. The question is whether this is fatal to the offer being considered as valid under Part 36.[25]A related, but different, question is whether an offer that comes close to requiring total capitulation can be an offer at all. Mr Brown accepted in argument that an offer of, say, 98% might be difficult to defend, but he submitted that a discount of 5% - although modest (but not insubstantial in the context of a claim in excess of £5 million) - was sufficient to create a real incentive for a defendant to accept it. However, Miss Laney made the point that until the offer was made the pleaded claim had been for less than £400,000.[26]Since, quite understandably, neither party had come to court to argue these points, I invited further post hearing submissions, which I have now received. I am grateful to both counsel.[27]Of all the decisions to which I was referred in those further submissions I regard the two that are most relevant to this point to be Huck v Robson [2003] 1 WLR 1340, a decision of the Court of Appeal, and AB v CD [2011] EWHC 602 (Ch), a decision of Henderson J. I will take the latter first. I need not summarise the facts because it is sufficient to set out Henderson J’s observations of at paragraphs 21 and 22, which were as follows:
“21. The claimant’s Part 36 offer, or purported Part 36 offer, is contained in the letter of 5 July 2010. Subject to one point, I consider that it complies with the requirements of form and content in rule 36.2. However, there is an issue whether it is a genuine offer at all, or merely a lightly disguised request for total capitulation. If it is a proper Part 36 offer, the question arises whether the judgment which the claimant has now obtained against the defendants is “at least as advantageous” to the claimant as the proposals contained in the letter, within the meaning of rule 36.14(1)(b). 22. The concept of an “offer to settle” is nowhere defined in Part 36. I think it clear, however, that a request to a defendant to submit to judgment for the entirety of the relief sought by the claimant cannot be an “offer to settle” within the meaning of Part 36. If it were otherwise, any claimant could obtain the favourable consequences of a successful Part 36 offer, including an order for indemnity costs, by the simple expedient of making an “offer” which required total capitulation by the defendant. In my judgment the offer must contain some genuine element of concession on the part of the claimant, to which a significant value can be attached in the context of the litigation. The basic policy of Part 36 is to encourage the sensible settlement of claims before trial, or even before the issue of proceedings . . . The concept of a settlement must, by its very nature, involve an element of give and take. A so-called “settlement” which was all take and no give would in my view be a contradiction in terms.”
[28]With respect, I wholly endorse and adopt this succinct and elegant explanation of what is meant by an offer. Although the Claimant’s offer in this case was hardly generous, in my view it cannot be described as “all take and no give”.[29]However, this does not answer the question as to whether the Part 36 offer has to reflect an available outcome of the litigation, even an outcome that would be most unlikely. There is, it seems to me, a difference in essence between an offer ("the claimant will take 15% of his claim as ultimately assessed”) which, in a personal injury case, would reflect an available outcome of the litigation, and a similar offer made in, say, a claim under a guarantee, where the quantum of the claim is fixed and the only question is whether or not the guarantee can be enforced. In a personal injury case, where there are issues of contributory negligence as well as quantum, success to the extent of only 15% may be unlikely on the facts of the particular case, but it is theoretically possible. In practice, such an offer probably reflects an assessment of the risk of failure on liability and the uncertainties as to quantum, but that is a different matter. However, in the claim under the guarantee success to the extent of 15% is not an available outcome. The offer is entirely commercial, based on an assessment of the risk of failure.[30]But does this matter? One knows from experience that cases, like the example that I have just given, are frequently settled on the basis of an assessment of risk which combines both the risk of failure and the uncertainty as to the true value of the claim. An offer which is made in the light of those considerations will not usually reflect a result that is a likely outcome of the litigation if fought to judgment.[31]The decision in Huck v Robson throws some light on this question. It was a road traffic case. Two cars collided in a narrow country lane. The claimant said that she had seen the defendant’s car coming and had pulled into the side and was stationary at the time of the collision. The defendant’s case up to the trial was that both cars skidded and lost control. The defendant offered to settle on a 50:50 basis. The claimant, by contrast, offered to settle on the basis of 95:5 in the claimant’s favour. The offer was refused. At trial, the defendant, whom the judge found to be a patently honest witness, could not say whether or not the claimant’s car was stationary at the time of collision. Accordingly, the claimant succeeded in full. The judge considered that an offer on the basis of 95:5 was derisory and so declined to award the claimant indemnity costs.[32]In the Court of Appeal, Jonathan Parker LJ thought that this conclusion was within the wide discretion of the judge in relation to costs and was not prepared to intervene. However, Schiemann and Tuckey LJJ each took a different view. At paragraphs 69 to 71, Tuckey LJ said this:
“69. I think it is clear that the judge deprived the claimant of indemnity costs simply because liability would never have been apportioned 95:5. Jonathan Parker LJ says that this was within the judge's discretion because such an offer did not create any real opportunity for settlement in a case where there was no real possibility of any outcome other than 50:50 or an outright win for the claimant: paragraphs 63 and 65. Schiemann LJ says that the fact that no judge would apportion liability 95:5 is irrelevant. A defendant can choose not to accept such an offer but if the claimant beats it there is nothing unjust in awarding indemnity costs. 70. I think Schiemann LJ is right about this. I do not think that the court is required to measure the offer against the likely outcome in a case such as this. In this type of litigation a claimant with a strong case will often be prepared to accept a discount from the full value of the claim to reflect the uncertainties of litigation. Such offers are not usually based on the likely apportionment of liability but merely reflect the reality that most claimants prefer certainty to the ordeal of a trial and uncertainty about its outcome. If such a discount is offered and rejected there is nothing unjust in allowing the claimant to receive the incentives to which he or she is entitled under the Rules. On the contrary, I would say that this is a just result. 71. I would however add that if it was self-evident that the offer made was merely a tactical step designed to secure the benefit of the incentives provided by the rule (e g an offer to settle for 99.9% of the full value of the claim) I would agree with Jonathan Parker LJ that the judge would have a discretion to refuse indemnity costs. But that cannot be said of the offer made in this case, which I think did provide the defendant with a real opportunity for settlement even though it did not represent any possible apportionment of liability. I would therefore allow this appeal.”
[33]Miss Laney relied on the observations of Schiemann LJ at paragraph 81, where he said:
“Nevertheless, I accept, like Tuckey and Jonathan Parker LJJ, that circumstances can exist where, notwithstanding that the claimant has recovered in full after making a Part 36 offer for marginally less, he will not be awarded costs on the indemnity basis. I do not consider that Part 36 was intended to produce a situation in which a claimant was automatically entitled to costs on the indemnity basis provided only that he made an offer pursuant to rule 36.10 in an amount marginally less than the claim.”
[34]Although that was not a case in which the offer reflected an outcome which was not available - in theory it was - it is a case where the offer did not reflect an outcome that was likely to result in practice. I consider that the approach taken by both Tuckey and Schiemann LJJ is one that can be applied to the present type of case. This conclusion is reinforced by a decision on costs made by Norris J in Wharton v Bancroft [2012] EWHC 91 (Ch). He said, at paragraph 22:
“All Part 36 offers are tactical in the sense that they are designed to take advantage of the incentives provided by Part 36. A low offer in a case where the offeror considers that the offeree’s positioned has no merit cannot be written off as self-evidently “merely a tactical step”
. But the principal has no application here. The sum to be received by each of the Daughters was small. But the offer was not derisory. On the available figures (and having regard to the fact that the Daughters were conducting the litigation on a CFA with a 100% uplift and with the benefit of ATE Insurance, the premium on which was an undisclosed percentage of their costs) the real effect of the offer (although calculated as a nuisance value offer) was of the order of £200,000 (ignoring the fact that Maureen would be bearing her own costs and those of the executors). I see no reason on that ground (or taking into account the matters to which my attention is directed in CPR 36.14(4)) why it would be unjust to order costs on the indemnity basis.”[35]Since the daughters were contesting the will on the grounds of undue influence by their father’s long-term partner, Maureen, the offer did not reflect an available outcome of the litigation but was, as explained by Norris J, by no means derisory.[36]Miss Laney submitted that Huck v Robson can be distinguished because it was decided under the previous version of Part 36.17 which did not include the present sub-paragraph (e), which requires the court to consider whether the offer was a genuine attempt to settle the proceedings. In this, Miss Laney is correct, but I have no doubt whatever that Tuckey LJ’s observations would have been to no different effect if that provision had been included in the rule at the time because that is the very point that he addresses at paragraph 71. Jonathan Parker LJ made the point even more clearly at paragraph 63.[37]For these reasons I am persuaded by the authorities that the offer in this case was a valid offer within the meaning of Part 36 and that it was a genuine attempt to settle the claim. Whilst the discount was very modest, even in the context of a claim of some £400,000 it amounted to £20,000, which in my view cannot be described as derisory.[38]Accordingly, I consider that the consequences that follow from the offer being bettered by the Claimant must be given effect unless it would be unjust to do so. In considering this the court is required to take into account all the circumstances of the case, including the following factors specifically listed in CPR 36.17 (5) which are: “(a) the terms of any Part 36 offer; (b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before trial started the offer was made; (c) the information available to the parties at the time when the Part 36 offer was made; (d) the conduct of the parties with regard to the giving of or refusal to give I information for the purposes of enabling the offer to be made or evaluated; and (e) whether the offer was a genuine attempt to settle the proceedings.” (b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before trial started the offer was made; (c) the information available to the parties at the time when the Part 36 offer was made; (d) the conduct of the parties with regard to the giving of or refusal to give I information for the purposes of enabling the offer to be made or evaluated; and[39]As I have already mentioned, the Part 36 offer in this case was made when the Claimant served its draft Amended Particulars of Claim. That did not deal with its entire case because the costs of the ultimate remedial works and of the consequential losses that would be incurred as a result of them still remained to be pleaded. Whilst it is correct that Schedule C gave, for the first time, details of a major part of the claim about which the Defendant had had little information up to then, it added very little to the case on liability. Of course, what it did do, and which is always important, was to tell the Defendant of the size of the claim that it was facing.[40]Nevertheless, once it realised that it was facing a claim in excess of £5 million one would have expected the Defendant to take prompt steps to investigate the claim and, in particular, to put itself in a position to make an informed assessment of its position on liability. At that stage only one of its experts, Mr Phillips, had inspected the roof. It had not instructed an expert in materials science. By the time of the case management conference on 24 March 2015, the Defendant knew that it was facing a split trial with the issues of liability being dealt with at a preliminary hearing and it knew the full extent of the claim. At that stage no one could suggest that this was a claim that did not require prompt and thorough investigation. So one might have expected the Defendant to take prompt steps at that point to instruct appropriate experts and obtain an opinion.[41]Having regard to sub-paragraph (5)(c) of CPR 36.17 in particular, I am prepared to accept the submission that it would be unjust to award indemnity costs from 21 days after the date of the offer, given that at that stage the Defendant had only just been made aware for the first time that the claim against it had been increased to about £850,000. However, I see no reason why the Claimant should not be entitled to indemnity costs from the earliest date after that by which the Defendant could reasonably have put itself in a position to make an informed assessment of the strength of the claim on liability. In my view, that date is four months from the date of the offer, in other words 29 May 2015. Accordingly, the Claimant is to have its costs in relation to liability on the standard basis up to 29 May 2015 and thereafter on an indemnity basis.[42]Whilst these considerations may also be relevant to the rate and period of interest, they do not reflect the full picture - much of which remains to be painted in the future - and so, as I have already mentioned, I consider that the court should not at this stage reach any decisions about interest. Those are questions, therefore, that must remain for future decision.

Cited in 8 later judgments