LITIGATION AS IT SHOULD NOT BE DONE: GOTCH -v- ENELCO

In Gotch -v- Enelco Ltd [2015] EWHC 1802 (TCC) Mr Justice Edwards-Stuart had strong words to say about the conduct of litigation and costs.

KEY POINTS

This is a case where five short passages from the judgment itself gives the full flavour of the judge’s views.

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

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

• “Whilst English law is an adversarial process, that goes to the issues in the case: not to every aspect of the procedure”

• “Unreasonableness, intransigence and the taking of every point must in my view now be regarded as unacceptable, because conducting litigation in that way flies in the face of the overriding objective as it is now formulated”

• “If access to justice is to have any real meaning, then the aim of keeping costs to the reasonable minimum must become paramount. Procedural squabbles must be banished and a culture of cooperative conduct introduced in their place.”

THE CASE

The claimants brought an action under Part 8 seeking a declaration that their contract with the defendant did not entitle them the defendant to refer a dispute to adjudication. When proceedings were issued the judge was concerned about the application serving no useful purpose and directed that a case management conference be held and that directions should cover certain key issues.  The claimant responded to the order by letter and, in essence, refused to comply with the court order in relation to directions.

Narrative in the judgment

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

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

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

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

The hearing

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

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

DISPOSAL OF THE CLAIMANT’S APPLICATION

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

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

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

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

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

THE JUDGMENT ON COSTS

Costs

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

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

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

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

The approach to costs

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

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

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

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

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

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

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

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

Further submissions

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

2. Essentially, his points can be summarised under six headings:

i) First, it had never been suggested by the Claimants that there should be an order for costs against the Defendant and so the Defendant had not addressed the point. This arose because in the draft judgment I indicated that the Defendant should pay the Claimants’ costs of issuing the proceedings (but not the costs of the application) in any event.

ii) The Claimants’ claim had only been stayed, not determined. Therefore the Defendant should not pay the costs of issuing it. Mr. Crangle submitted that the stay might be lifted at some future date and the case might proceed to trial. If the Defendant was ultimately successful, it would find itself having had to pay the costs of issuing the claim when it would be entitled to an order to the opposite effect.

iii) In a recently reported decision of Ramsey J, Harding v Paice and Springall [2014] EWHC 4819, of which Mr. Crangle was not aware at the time of the hearing, a very similar point arose in relation to the deletion of Article 7 relating to adjudication. Ramsey J held that the adjudication clause in the contract survived the deletion of Article 7. In the light of this Mr. Crangle submitted that the Claimants claim for a declaration would probably be discontinued or, if pursued, likely to fail.

iv) Unless and until any finding is made that the Defendant was incorrect in asserting that it had a right to refer a dispute to adjudication, there was nothing “worthy of criticism” in the Defendant having asserted its right to adjudicate in earlier correspondence.

v) The Claimants had not provided any details of why they relied on the residential occupier exception until they served their witness statements.

vi) In any event, the claim was not issued until 16 April 2015, which was after the letter from the Defendant’s solicitors dated 13 April 2015.

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

i) The court was asked by both parties to consider the cost of the entire proceedings to date. The order made fell well within the scope of the submissions made by the parties.

ii) The proposed order followed logically from the detailed reasons set out in the judgment.

iii) It was not appropriate for the Defendant to seek to make further submissions following the issue of the judgment in draft that could and should have been made at the hearing.

iv) In any event, the court did not make any findings on the issue of the construction of the contract that was raised in Harding v Paiceand, further, the likely conclusion would be very fact sensitive.

v) The Claimants set out their position at the hearing in relation to the timing of the correspondence and the issue of the Part 8 Claim. The Claimants proposed to make no further submissions since they considered that these points had been fully considered in the judgment.

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

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

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

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

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

My decision on costs

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

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

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

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

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

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

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

i) Subject to (iv) below, the Claimants are to have the costs of issuing the proceedings, but excluding the costs of preparing and issuing the application notice. Those costs are to be paid by the Defendant on the standard basis.

ii) The Claimants are to pay the Defendant’s costs of the action between 17 April and 21 May 2015 (both dates inclusive). These costs are to be paid on an indemnity basis.

iii) The Claimants are to pay 50% of the Defendant’s costs of attendance at the hearing of the case management conference on 22 May 2015, which is to include 50% of the Defendant’s counsel’s fee for the hearing. Those costs are to be on the standard basis.

iv) In the event that the stay of the Claimant’s application is lifted, the order at paragraph (i) above is to be set aside and any costs paid pursuant to it are to be repaid. Those costs will then become costs of the action and so subject to any further order that the court may make.

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