| Date | 7 December 2005 |
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| Judgment | Wates Construction Ltd v HGP Greentree Allchurch Evans Ltd, TCC 10 October 2005 |
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| The Issue | The payment of indemnity costs by the unsuccessful party in litigation. |
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| Implication |
Indemnity
costs may be awarded against an unsuccessful party in litigation where
its conduct during the course of the proceedings is considered unreasonable. |
printThe Civil Procedure Rules (CPR) govern the way in which court cases are conducted in England and Wales. They were introduced in April 1999 with the aim of enabling the courts to deal with cases justly and to streamline the civil justice process by resolving as many cases as possible without resorting to court proceedings. In circumstances where court proceedings are unavoidable, Part 44 of the CPR gives the court a discretion to order that the unsuccessful party should pay the costs of the successful party. This provides a powerful incentive to the parties to conduct litigation proportionately and appropriately. In making such an order, the court must have regard to all the circumstances of the case, including the conduct of the parties and whether a party has succeeded in part of its case even if it has not be wholly successful. Where the court is to assess costs it will do so on either the standard basis or the indemnity basis. Regardless of the basis, the court will not allow a successful party to be paid costs which have been unreasonably incurred or are unreasonable in amount. Where the standard basis applies, the court will resolve any doubt which it may have as to whether the costs were or reasonable and proportionate in favour of the paying party. Where the indemnity basis applies, that doubt is resolved in favour of the receiving party. Inevitably, where indemnity costs are ordered there is some implicit expression of disapproval by the court of the way in which the litigation has been conducted. These matters were examined in the recent case of Wates Construction v HGP. Wates had constructed a retail unit in Salisbury for Waitrose under a design and build contract. In May 2002, the roof collapsed due to a build up of rainwater. Waitrose commenced proceedings against Wates for breach of contract alleging negligent design of the roof drainage system. Wates denied the claim and brought their architect, HGP, into the proceedings as third party defendants, whilst at the same time notifying their insurers of the claims which might be laid at their door. As the evidence emerged however, it became less clear that the case against Wates' architects would succeed. Witness statements indicated that the design apparently complied with the appropriate standards and the problems may instead have been caused by a failure to build to that design combined with Waitrose's failure to properly maintain the roof. From Wates' perspective, it was beside the point that this information was suggesting that its case against HGP had very little going for it. They were not keen to be in court with a long standing customer and recognised that it would be sensible to seek a settlement with Waitrose. With the backing of their insurers that is exactly what they did, and insofar as Wates was concerned, that should have brought an end to the matter. Wates' insurers however were less impressed with the evidence suggesting that the architects were free from blame and using the subrogation rights available to them under the terms of their policy of insurance with Wates, continued proceedings against HGP in Wates' name. This of course is one of the difficulties with subrogation rights from the insured party's point of view. Where the insured party might wish to bring proceedings to an end to avoid adverse publicity and potentially damaging relations with an important client, the insurance company may nevertheless choose to drag the proceedings on. In this way, the proceedings between Wates and HGP rumbled on and on 10 October this year the parties appeared before Judge Peter Coulson QC in the Technology and Construction Court. Counsel for Wates commenced proceedings by informing the judge that Wates were now discontinuing the claim against HGP. He offered little explanation as to why it had taken so long for his clients to recognise that the case against the architect could not be maintained. He very properly accepted that Wates would be required to pay HGP's costs. Unsurprisingly HGP agreed, but demanded that the costs should be assessed on an indemnity basis. HGP put forward a detailed attack on the way in which Wates or their solicitors had conducted the third party litigation. In particular HGP argued that from the date on which the witness statements had been exchanged by the parties, it should have been obvious to the other side that the case against their client would fail and that indemnity costs ought properly to be awarded. In particular, the expert witnesses had signed a statement which they had sent to their respective solicitors agreeing that the defects in the roof drainage system resulted from problems with the construction of the drainage system, not its design. This therefore should have confirmed that there was no case against HGP in respect of the design and Wates and their solicitors should finally have realised that the third party claim had to be abandoned. Moreover, shortly thereafter, HGP's solicitors had written to Wates' solicitors to say that they believed that the claim was deemed to fail and inviting Wates to discontinue its claim against HGP. The letter had warned that if they failed to drop the case, they would ask the court to award costs on an indemnity basis. Taking all these factors into account, Judge Coulson concluded that all costs incurred by HGP from the date of the expert's reports should be paid by Wates on an indemnity basis.
CJ-0548
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