England and Wales High Court (Technology and Construction Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		St. Dunstan's House Fetter Lane, London
		24 June 2005

 


Introduction

1. Mr Ian McGlinn, the Claimant, has issued these proceedings as a result of alleged deficiencies in the building work carried out at his property, Maison d'Or, on Jersey ("the property"). The Defendants are, respectively, the building contractors, Waltham Contractors Ltd ("Waltham"); the Architects, Huw Thomas Associates ("HTA"); and the Engineers, DJ Hartigan & Associates Ltd. The claims involve allegations of defective work which, on the Claimant's case, was so extensive that the property had, eventually, to be demolished. Against Waltham there is an additional claim for over-payment arising out of a dispute over the true value of the Final Account. The claims in total amount to about £4.5 million.
2. Before commencing these proceedings, the Claimant properly went through the steps prescribed by the Pre-Action Protocol for Construction and Engineering Disputes. This led to a mediation in November of last year, which was unsuccessful. The claims now made by the Claimant in the Particulars of Claim are, in some cases, different to those which existed at the commencement of the Pre-Action Protocol procedure.
3. In particular, HTA point out that the claims now made against them in the Particulars of Claim do not include claims in respect of over-payment to Waltham, nor claims in respect of loss and expense paid to Waltham. This is despite the fact that, at the outset of the Pre-Action Protocol procedure, both such claims were asserted by the Claimant against HTA.
4. At the First Case Management Conference, on 24/6/05, HTA sought an interim payment in the sum of £20,000 in respect of the costs which they say were thrown away at the Pre-Action Protocol stage in considering and responding to those two claims (for over-payment and loss and expense). The application was resisted by the Claimant. In deference to the careful submissions made by Mr Roger Stewart QC, for HTA, and Miss Lucy Garrett, for the Claimant, and in the absence of any direct authority on the point, I reserved judgment in order to reflect upon the principles involved. I have now concluded that I should refuse this particular application. My reasons for so doing are set out below.

JURISDICTION: 'Costs of and Incidental to'

5. Section 51 of the Supreme Court Act 1981 provides as follows:

1. Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to the proceedings in

a. The Civil Division of the Court of Appeal;

b. The High Court, and

c. Any County Court Service

shall be in the discretion of the court.

6. Mr Stewart QC submitted that the costs incurred by a party in complying with any Pre-Action Protocol are capable of being costs "incidental to" any proceedings which are subsequently commenced if the Protocol procedure fails to lead to an early settlement. I did not understand Miss Garrett to dispute that, as a matter of principle, costs incurred during a Pre-Action Protocol procedure may be costs "incidental to" any subsequent proceedings. In my judgment, it seems clear that, as a matter of construction of Section 51, the costs so incurred are capable of being costs "incidental to" the proceedings.
7. I am fortified in this view by the decision of Sir Robert Megarry, Vice Chancellor, in the case of In re Gibson's Settlement Trusts [1981] Ch 179. In that case the Vice Chancellor decided that, on an order for the payment of costs of proceedings, costs incurred before the proceedings commenced would not be disallowed solely on that account. He said that "on an order for taxation of costs, costs that otherwise would be recoverable are not to be disallowed by reason only that they were incurred before action brought". He also made plain that the words "incidental to" extended, rather than reduced, the ambit of any order, although he said that it was important to identify what the proceedings were in any case and how and why the costs claimed were incidental to those proceedings. As to costs incurred before the proceedings commenced he said :

"Of course, if there is no litigation there are no costs of litigation. But if the dispute ripens into litigation, the question then arises how far the ambit of the costs is affected by the shape that the litigation takes"

8. As I have already noted, there is no direct authority on the question of the general recoverability of costs incurred in compliance with Pre-Action Protocols. However in Callery v Gray [2001] 1 WLR 2112, the Court of Appeal were concerned with what costs were recoverable in circumstances where claims had settled without the need for substantive proceedings. At paragraph 54 of his judgment, Lord Woolf CJ said:

"(2)Where an action is commenced and a costs order is then obtained, the costs awarded will include costs reasonably incurred before the action started, such as costs incurred in complying with a Pre-Action Protocol".

9. Accordingly, both as a matter of construction of Section 51, and by reference to In re Gibson's Settlement and to Callery v Gray, I am of the view that, as a matter of principle, the costs incurred in complying with a Pre-Action Protocol may be recoverable as costs 'incidental to' any subsequent proceedings. Whether or not a particular item of Pre-Action Protocol costs can properly be described as having been incurred 'incidental to' the proceedings will, of course, be a matter of fact and assessment on each occasion.

COSTS THROWN AWAY

10. The next question of principle concerns the costs incurred by a Defendant in responding to a claim brought in a Pre-Action Protocol, which response was so successful that, when the subsequent court proceedings were issued, that claim was no longer pursued. The Defendants in such circumstances may then assert, as HTA do in these proceedings, that they have thrown away costs in refuting an allegation which is no longer maintained. Are they entitled to recover those costs thrown away pursuant to Section 51.
11. In my judgment, save in exceptional cases, costs incurred by a Defendant at the stage of a Pre-Action Protocol, in dealing with and responding to issues which are subsequently dropped from the action when the proceedings are commenced, cannot be costs "incidental to" those proceedings. If, say, the original Pre-Action Protocol claim letter included Claims 1, 2, 3, 4, and 5, but the subsequent Particulars of Claim in the court proceedings were limited to Claims 1, 2 and 5 , it is very difficult to see how, in ordinary circumstances, the costs incurred in refuting original Claims 3 and 4, which were not included within or formed any part of those subsequent proceedings, were costs incurred "incidental to" such proceedings.
12. I draw support for this view from the words of Sir Robert Megarry In re Gibson's Settlement. At page 187 he said:

"(6)It is obvious that the matters disputed before a writ or originating summons is issued, and the matters raised by a writ or the originating summons, and by any pleadings and affidavits, may differ considerably from each other. A wide-ranging series of disputed my be followed by a writ or originating summons which raises only a few of the issues; or a narrow dispute may be followed by proceedings which seek to resolve wider issues as well. How far does the ambit of the litigation extend or restrict the matters occurring before the issue of the writ or originating summons which may be included in the taxed costs on the common fund basis"

If the proceedings are framed narrowly, then I cannot see how antecedent disputes which bear no real relation to the subject of the litigation could be regarded as being part of the costs of the proceedings. On the other hand, if these disputes are in some degree relevant to the proceedings as ultimately constituted, and the other party's attitude made it reasonable to apprehend that the litigation would include them, then I cannot see why the Taxing Master should not be able to include these costs among those which he considers to have been "reasonably incurred".

13. Accordingly, as a matter of general principle, it seems to me that claims which were made at the time of the Pre-Action Protocol procedure, but which were then deliberately excluded from the court proceedings (because those proceedings were "framed narrowly") bear, in Sir Robert Megarry's words, "no real relation" to the subject of the litigation. The costs incurred in dealing with them would not therefore be costs incidental to those proceedings. This particular case gives a good example of that general principle. The proceedings against HTA have now been sufficiently narrowed such that there is now only one real subject, namely the defective work alleged by the Claimant. The valuation claims, based on allegations of over-payment to Waltham, comprised a different category or type of claim, and have now been excluded from the proceedings. They therefore bear no real relation to the subject matter of the proceedings against HTA.
14. From a wider perspective, I should add that, in my judgment, it would be contrary to the whole purpose of the Pre-Action Protocols, which are themselves such an integral part of the CPR, if claiming parties were routinely penalised if they decided not to pursue claims in court which they had originally included in their Protocol claim letters. The whole purpose of a Pre-Action Protocol procedure is to narrow issues and to allow a prospective Defendant, wherever possible, to demonstrate to a prospective Claimant that a particular claim is doomed to failure. By inference, that is what has happened here, in respect of the claims against HTA arising out of over-payment and the payment of loss and expense to Waltham. It would be wrong in principle to penalise the Claimant for abandoning claims which the Defendants had demonstrated were not going to succeed, because to do so would be to penalise the Claimant for doing the very thing which the Protocol is designed to achieve.
15. In this respect, Miss Garrett identified a number of passages in volume 1 of the White Book dealing with the importance of Pre-Action Protocols. It is unnecessary for me to cite them all. However, at paragraph C1A-009, the learned editors make this telling point:

"Letters of claim and response are not intended to have the same status as a statement of case (a pleading). It would defeat the purpose of the protocols if a party were penalised for subsequently clarifying his/her claim or defence when proceedings were issued. However, parties should be wary of making substantial changes without explaining why this is necessary as, without good reason, this could amount to 'unreasonable conduct'".

16. Accordingly, I consider that, as a matter of principle, unless the circumstances are exceptional and thereby give rise to some sort of unreasonable conduct, costs incurred by a Defendant at the Pre-Action Protocol stage in successfully persuading a Claimant to abandon a claim (either in whole or in part) are not costs incidental to any subsequent proceedings if, in those subsequent proceedings, such claims do not feature at all. Accordingly, such costs are not recoverable under Section 51. Mr Stewart QC, quite properly, does not suggest that there has been unreasonable conduct and does not suggest that this is in any way an exceptional case. Accordingly, I conclude as a matter of general principle that the costs thrown away, which are the subject matter of this application, are not recoverable under Section 51.

DISCRETION

17. In view of my decision in principle, it is perhaps unnecessary for me to say too much about the exercise of my discretion. Much of the argument on this point was about the timing of any decision. Miss Garrett contended that, if I was against her in principle, I should not exercise my discretion at this stage and that the appropriate time to consider whether or not these costs were recoverable was at the end of the case. Mr Stewart QC submitted that, given that these claims were no longer pursued in the litigation, it was quite unnecessary to wait until the end of the case to decide whether or not the costs thrown away in dealing with them should be awarded to the Defendant. I consider that Mr Stewart QC is right on this point and that, if I had considered that the application was well-founded in principle, I would not have waited to exercise my discretion until the end of the trial.
18. For the avoidance of doubt, I should also say that, even if I were wrong on the general principle, and that the costs thrown away in these unexceptional circumstances were capable of amounting to costs "incidental to" the proceedings, I would exercise my discretion against awarding such costs to the Defendants in this case. The reasons for this are really the same as outlined in Paragraphs 10-16 above. I consider that it would be contrary to the purpose of the Pre-Action Protocol if the Claimant in this case was penalised for dropping these two claims at the commencement of this litigation. Accordingly I would in any event exercise my discretion against awarding HTA the costs thrown away on those two claims.
19. Accordingly, for the reasons set out above, HTA's application is dismissed. Since the parties have very sensibly agreed the costs position in any event, there are no consequential orders arising out of this Judgment.

GH004615A/SCW