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

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		9th December 2009

 


Mr Justice Akenhead:

Introduction


 


1. This judgement addresses various applications by which the Defendant seeks to have the proceedings against it stayed; those grounds are non-compliance with the TCC Pre-Action Protocol, failure to honour earlier adjudication decisions and judgements on related subject matters and security for costs application.

The Background

2. The Claimants are companies registered in Jersey in the Channel Islands which are owned by what has been called a "family trust" which is otherwise unidentified. They were apparently formed to acquire and develop properties in London (including the "In and Out" Club in Piccadilly) and the well-known Mentmore Towers in Buckinghamshire, designed by Joseph Paxton and originally built for Baron Mayer Amschel de Rothschild in the 19^th Century and later occupied by his daughter and her husband, the 5^th Earl of Rosebery.
3. In April 2005, the Defendant, which provides engineering services, was engaged by Anglo Swiss Holdings Ltd ("Anglo Swiss") to provide such services in connection with a project to develop 90-95, Piccadilly and 42-46, Half Moon Street, London into a "six star" hotel and spa. In June 2006, Good Start Ltd ("Good Start") retained the Defendant in connection with the development of 100 Piccadilly which was to be part of the Anglo Swiss development. Also in 2006, Mentmore Towers Ltd employed the Defendant in connection with a development of a hotel at Mentmore Towers. The terms of those engagements are not particularly material for the purpose of these applications save that payment was to be made at least in part by reference to the stages of work reached by the Defendant; these were Stages A to K and equate, I am told, to the stages commonly used in architects' fee agreements. Another agreement was entered into by which Charles Street Holdings Ltd (a related company) engaged the Defendant to carry out work at 21 Charles Street, London. All of these developments seem to have been interrelated.
4. At some stage work on the projects ceased and in about mid 2007 payments of fees to the Defendant ceased. On 30 April 2009, as it was entitled to do, the Claimants commenced adjudication proceedings against each of it's four employers on the four developments for what was said to be outstanding fees. Mr CJ Hough was appointed the Adjudicator in each case and the proceedings were contested. In those proceedings, the Claimants (in this case) in defending put forward detailed arguments and evidence to the effect that not only was nothing due but that there had been overpayments.
5. The Adjudicator decided in each case that the Claimants should pay sums to the Defendant, Anglo Swiss to pay £153,704.50 plus £1233.38 fees, Good Start to pay £83,104.83 plus £1233.38 fees and Mentmore Towers to pay £182,906.26 and £1233.38 fees. These decisions were dated 14 June 2009. He effectively decided that because notices called for under Section 110 and 111 of the Housing Grants, Construction and Regeneration Act 1996 ("HGCRA"), as reflected in the engagement contracts had never been served within time or at all by the Defendant's respective clients, it simply was not open to them to run the arguments that no sum was due or that there had been overpayments. Contrary to the contractual requirements and to the HGCRA, these decisions were not and have not been honoured by the Claimants.
6. The Claimants' solicitors having indicated earlier that they were not instructed to accept service of enforcement, the Defendant issued to enforce the adjudicator's decision. The Court gave permission for those proceedings to be served on the Claimants in Jersey with copies to their London solicitors. No Acknowledgements of Service having been filed as required, judgements were entered for the full amounts on 3 August 2009. By letters dated 14 August 2009, the Claimants were asked by the Defendant's solicitors to pay and copies of the judgements were provided. There were no applications to have the judgements set aside. On 25 August 2009 interim charging orders were made on the respective properties owned by the Claimants.
7. On 2 October 2009, the Bank of Scotland which was a primary lender to Anglo Swiss and had a priority charge over 90-95, Piccadilly and 42-46, Half Moon Street appointed a receiver in effect to sell the premises. The Bank's solicitor has indicated that the Bank is facing "a significant shortfall" with regard to the recovery of its debt from such sale, albeit that the Claimants do not accept this.
8. On 16 October 2009, this Court made a final charging order on the three sets of premises owned by the Claimants. The day before, the Claimants issued three sets of proceedings on behalf of each of the Claimants claiming recovery of alleged overpayments made by them to the Defendants, Anglo Swiss claiming £123,932.83, Good Start claiming £34,030 and Mentmore Towers claiming £220,000, all plus VAT. After Court hours on 15 October 2009, the Claimants faxed a letter to the Court inviting it to defer making the interim charging orders final until the disputes which are the subject matter of their proceedings issued on that day were resolved; the grounds were in effect that, on the Claimants' case, the Defendant had already been overpaid, the Claimants were concerned about the financial stability of the Defendant and therefore they might not recover any sums paid over to them. The Claimants did not appear and were not represented at the hearing of the Final Charging Order application. I considered the representations made but rejected them on the basis that there was no assertion that the Claimants were unable to pay the judgement sums and that, broadly, adjudication decisions and judgements should be honoured, even if there were other claims arising.
9. The three sets of proceedings having been served by their Claimants, the Defendant's solicitors wrote on 2 November 2009 pointing out in effect that, as the Claimants were registered in Jersey, all the properties in question were charged and receivers had been appointed for some of the properties and the Claimants would be unable to pay the costs of these proceedings if required to do so. Security of the costs was asked for. They specifically asked for information about what assets the Claimants had and broadly raised questions about whether or not the Claimants could pay the costs; there has been little or no response to this.
10. On 11 November 2009, the Defendant applied for, and on 19 November 2009 the court issued, an order to the effect that the Defendant's time for service of Defences in the three sets of proceedings should be extended until 28 days after the determinations /hearing of the applications which the Defendant was about to issue.

These Applications

11. On 17 November 2009, the Defendant issued the application which are the subject matter of this judgement. The application asks for the three sets of proceedings to be consolidated; this was agreed to by the Claimants. The application asked for a stay of proceedings pending compliance with the TCC Pre-Action Protocol, for a stay pending compliance with the Court's default judgements and orders for security for costs. That was supported by detailed statements from Mr Stockill and Mr Packman dated 17 November 2009. The hearing date was fixed for 4 December 2009. At 21.44 on 3 December 2009, the Claimants solicitors served a witness statement from Mr Hunter which put forward various grounds and some facts to the effect that the orders sought should not be granted. Very belatedly, in the week leading up to the Friday hearing, he had indicated that subject to restrictive conditions, the Defendant's solicitors could have access to inspect financial information relating to the Piccadilly properties owned by Anglo Swiss and Good Start. The conditions were such that the information could not come into the public arena and from what the Claimants counsel Mr Sears QC told me it could not be relied upon in the court proceedings. Mr Hunter said at Paragraph 17:

"The Claimants are confident that the information will indicate that Anglo Swiss Holdings Ltd and Good Start Ltd had significant equity in the Piccadilly properties".

There was no mention of Mentmore Towers.

12. Mr Packman's statement, which was not challenged by Mr Hunter, said that the Defendant's work went beyond Stage D; he attached by way of example the Stage F drawings for Mentmore Towers. This was material because the three sets of proceedings are predicated upon the Claimants' assertions that no work was done by the Defendant beyond Stage D; their pleaded evaluation is what sums were due in total to the Defendant is based only upon work having been performed up to and including Stage D. Stage D is the schematic design stage whilst Stage F is the detailed design stage. Mr Hunter attaches to his witness statement some of the Responses made by his clients in the adjudications in which it is recorded that the Claimants' Project Manager, a Mr Anderson, specifically asserted on 13 December 2007 that 30% of Stages E and F had been completed by the Defendant on the projects for Anglo Swiss and Good Start.
13. I will deal with each of the contested applications in turn.

Stay for Pre Action Protocol

14. The Claimants did not follow the Pre-Action Protocol process laid down for the TCC. Paragraph 1.2 of that Protocol, materially, states:

"A claimant shall not be required to comply with this Protocol before commencing proceedings to the extent that the proposed proceedings… (iv) relate to the same or substantially the same issues as had been the subject of recent adjudication under the 1996 Act…"

Part of the logic for this exclusion must be that in the adjudication process the parties will have exchanged information about their claims or defences along the lines of the Letter of Claim and Response called for in the Protocol and therefore it would be unnecessary and burdensome for the parties to have to go yet again through the process of submitting claim and response through the Protocol process.

15. In this case, although the adjudicator decided that it was unnecessary to decide whether or not in fact there was an overpayment or decide what was actually due, the parties did exchange evidence and argument about those issues. Thus, the Defendant was made aware what the Claimants were asserting on these issues.
16. I am of the view that it would be inappropriate and disproportionate to stay these proceedings to enable the Pre Action Protocol process to take place. In my judgement, the issue of how much was actually due to the Defendant under the contracts with the Claimants was one of the issues in each of the adjudications. The Claimants therefore come within one of the accepted exceptions to the requirement that the Protocol should be followed. Even if I was wrong about that, I would not order a stay as a matter of discretion because, given the exchange of information during the adjudication process on these issues, it is unnecessary and a waste of cost and resource to require the parties to go through that process.

Stay for non-compliance with adjudicators' decisions and court judgments

17. The Defendant argues that it would be wholly wrong, oppressive and unfair for the Claimants to proceed with these claims unless and until it honours its contractual, statutory and legal commitments arising from the adjudication decisions and the court judgements. If they are allowed to proceed with these claims, it is said that the Claimants unjustifiably will avoid such commitments and achieve what they could not and did not achieve in adjudication or by way of challenging the judgements obtained against them. It is said that the Claimants are acting in bad faith by not paying. The Claimants disagree: they say that the Defendant always knew that it was contracting with a Jersey company which only had specific assets within the jurisdiction and that the Defendant has secured final charging orders over those assets and are in no worse position than they would be in any event. They say that their proceedings are brought in good faith and upon the basis of expert analysis from a respectable expert and that they should not be prevented from pursuing that bona fide set of claims.
18. CPR Part 3.1 (2) gives the court wide powers to "stay the whole or part of any proceedings or judgement either generally or until a specified date or event" and "take any other step or make any other order for the purpose of managing the case in furthering the overriding objective" (as set out sub-sub-paragraphs (f) and (m)). Of course, the overriding objective is to "deal with cases justly" and one element is to ensure "that the parties are on an equal footing".
19. There is little authority as such to support or challenge the proposition that a court may stay one set of proceedings because the claimant has not complied with its contract or with judgements made against it. In Reed and others v Oury and others [2002] EWHC 369 (CH), Mr Justice Field had to deal with a very different case to this one; it involved the bringing of a counterclaim by a defendant who as an accountant and trustee misappropriated in effect from the trust; a compromise order was made which in effect gave to the claimants in that case summary judgement for breach of fiduciary claims and ordered amongst other things that this defendant was to make an interim payment of £400,000. Later agreement was reached on assessed damages but the defendant paid nothing and wished to pursue a counterclaim for various services said to have been provided amongst other things. The claimants sought to have the counterclaim struck out or stayed and also sought security for costs. Mr Justice Field said:

"34.CPR 3.1 gives the court very wide case management powers, the exercise of which may well depend in significant part on how a party has conducted the proceedings to date; see particularly CPR 3.1(2)(f) and (m). Further, CPR 3.4 (2)(b) and (c) in terms respectively empower the court to strike out a statement of case if it is an abuse of the process or there has been a failure to comply with a rule, practice direction or court order. In my judgement, it is plain from these Rules and the overall scheme of the CPR that the conduct of a party relevant to the exercise of the powers conferred by CPR 3.1(2)(f) and (m) and CPR 3.4(2)(b) and (c) is not restricted to conduct involving bad faith. Instead, the conduct in question must be looked at in the round and, even if it cannot be shown that there has been bad faith, if in respect of a particular incident or having regard to a course of conduct overall, a party has acted oppressively or very unreasonably, it may still be appropriate to stay his claim conditionally or unconditionally or strike it out or order a payment into court.

35. Mr. Oury states in his second witness statement that he has acted throughout the litigation in good faith. By this I take him to mean that he honestly believed that he was within his rights to take the steps he took. Like Master Bowman, in the absence of cross examination I accept what Mr. Oury says. Nonetheless, in my judgement, looking at the manner in which he has conducted his side of the litigation overall, he has behaved oppressively and very unreasonably. I say this having particularly in mind: (a) his refusal until the last minute to consent to the Claimants being allowed to use information obtained on discovery in other proceedings; (b) his attempt to defend the Claimants' summary judgement application only to submit to judgement on the second day of the hearing; (c) his attempt (following his submission to summary judgement) to defend the assessment of damages on the ground that the Counterclaim gave rise to a set-off or was reason for a stay pending its determination; (d) his resistance in October 1999 to making absolute the Charging Order nisi and his attempt until a late stage to appeal that order; and (e) his opposition to the making absolute of the Garnishee Order nisi. In my judgement, looking at this conduct overall, the clear picture that emerges is of a party intent on working the system to try and avoid the inevitable for as long as possible, heedless of his liabilities and of the expense and vexation he is causing to the opposite parties. In short, Mr. Oury's conduct was of the very type that the CPR was intended to discourage, if not prevent.

36. In my opinion, a decision in this case on case management grounds whether to strike out the Counterclaim or stay it until the whole of the judgement debt has been paid requires a consideration not only of Mr. Oury's conduct in the litigation, but also of the cogency of the claims made in the Counterclaim and the benefit there would be for Mr. Oury if it were to be tried out. However, regardless of these further considerations, I have no doubt that Mr. Oury's conduct of the litigation justifies at least a stay until he has paid to the Claimants the assessed costs awarded against him since he consented to summary judgement on 18^th December 1998 and has paid into court a substantial part of the unassessed costs awarded against him since that date. The jurisdiction to make such an order existed before the CPR (see eg Graham v Sutton, Garden & Co; and Thames Investment & Securities PLC v Benjamin [1984] 1 W.L.R.1381 ) and in my opinion it exists post CPR either by virtue of CPR 3.1(2)(f), together with 3.1(3), or by CPR 3.1(2)(m)."

20. The case of Ali v Hudson [2003] EWCA 1793 was concerned with whether the court could impose a stay on an appeal pending payment by the appellant of the costs ordered against him at first instance by the District Judge; this had been varied by the High Court judge who ordered that a lower sum be paid into court, to reflect some security for costs for an element of the costs ordered to be paid. It is a very different case from the present but there were some statements of principle which cast some light:

"36. Assuming that there was power to order the stay of a stayed action, the judge was, in my judgment, correct to hold that both Judge Green and he himself had jurisdiction to make their respective orders. In my opinion, on the natural meaning of rule 3.1(2)(f) and (m) the court had jurisdiction to grant a stay on terms that Mr Ali secure costs of future proceedings. Thus, for example, the court has power under paragraph (2)(f) to stay the whole or part of any proceedings until a specified event. I see no reason why, as a matter of jurisdiction, that should not be a payment into court by the respondent to the application. Thus, naturally construed, on an application by A for a stay, the rules give the court power to order a stay until a specified event, namely a payment into court by B. The court also has power under paragraph (2) (m) to make any further order for the purpose of furthering the overriding objective. That too would provide jurisdiction for such an order.

1. As I see it, that power is independent of the power conferred by rule 3.1(5), which gives the court a separate and free-standing power to order a party to pay a sum of money into court if that party has, without good reason, failed to comply with a rule, practice direction or a relevant pre-action protocol. That conclusion seems to me to be supported by rule 3.1(6A), which expressly recognises that a party may pay money into court following an order either under paragraph (3) or under paragraph (5).

2. I would not therefore accept Mr Cranston's submission in so far as it seeks to limit the jurisdiction of the court. That conclusion seems to me to be consistent with the reasoning of this court in Olatawura v Abiloye [2002] EWCA Civ 998, [2003] 1WLR 275, where the court was considering an order that a claim be dismissed under CPR rule 24.1 unless the claimants provided £5,000 security for costs. It was held that there was jurisdiction to make the order.

3. However, Simon Brown LJ (with whom Dyson LJ agreed) gave important guidance as to the correct approach to be adopted to orders for security for costs, which to my mind applies to the instant case. He said at page 281:

"21. I pass, therefore, to the more difficult second question which arises on this appeal: what should be the court's approach to the exercise of its wider new jurisdiction to order security for costs and, more narrowly, was such an order properly made in the particular circumstances of this case?

22. The first point to be made is I think this. Before ordering security for costs in any case (ie whether or not within rule 25) the court should be alert and sensitive to the risk that by making such an order it may be denying the party concerned the right to access to the court. Whether or not the person concerned has (or can raise) the money will always be a prime consideration, not least since article 6 of ECHR became incorporated into domestic law. Paradoxically, of course, the more difficult it appears to be for the person concerned to raise the money, the more obvious becomes the need for an order for security to protect the other party against the risk of incurring irrecoverable costs. The court will have to resolve that conundrum as best it may.

23. Assume, then, that in a given case the court concludes that an order for security would not unfairly deprive the party concerned of his ability to litigate the dispute. Should such an order then be made? In addressing this question it is right to bear in mind that under the new rules it is not just the claimant against whom an order for security for costs can be made; it can also be made against the defendant. Under the old rules, of course, it was only the defendant who could be ordered to pay money into court, principally in proceedings for summary judgment, as a condition of his being allowed to defend the claim. That payment in was not, of course, in respect of costs, but rather to provide some security for the claim. But if, as a condition of pursuing an unpromising defence, it is appropriate to secure the claim, why not also the claimant's costs of advancing the claim? And if that, why is it not at least as appropriate to require someone advancing an unpromising claim to secure the defendant's costs. He, after all, has chosen to involve the defendant in litigation and the defendant has no option but to concede the claim or incur costs in resisting it. Such no doubt was the thinking underlying the new rule 24.

24. Now, it is clear, the court has an altogether wider discretion to ensure that justice can be done in any particular case. Obviously relevant considerations, besides the ability of the person concerned to pay, will be (a) his conduct of the proceedings (including in particular his compliance or otherwise with any applicable rule, practice direction or protocol), and (b) the apparent strength of his case (be it claim or defence). And these considerations, of course, are expressly reflected in the new rules governing the court's power to order payment into court: rule 3.1(5) dealing expressly with compliance, rule 24 with the probabilities or otherwise of success.

25. That, however, is by no means to say that the court should ordinarily penalise breaches of the rules and the like by making orders for payment into court under rule 3.1(5). Quite the contrary. The one case drawn to our attention in which this question has been considered - Buckley J's judgment in Mealey Horgan plc v Horgan (transcript 24 May 1999, briefly reported in The Times, 6 July 1999), to which reference is made in paragraph 3.1.5 of the Annual Practice - held that it would be inappropriate to order a defendant to give security as a penalty for failure to serve witness statements in time when that had prejudiced neither the trial nor the claimant. Buckley J suggested, however, that such an order might be appropriate if "there is a history of repeated breach of timetables or of court orders or if there is something in the conduct of the party which gives rise to suspicion that they may not be bona fide and the court thinks the other side should have some financial security or protection". That seems to me to point the way admirably: a party only becomes amenable to an adverse order for security under rule 3.1(5) (or perhaps 3.1(2)(m)) once he can be seen either to be regularly flouting proper court procedures (which must inevitably inflate the costs of the proceedings) or otherwise to be demonstrating a want of good faith - good faith for this purpose consisting of a will to litigate a genuine claim or defence as economically and expeditiously as reasonably possible in according with the overriding objective.

26. Similarly it is not to be thought that an order for security for costs will be appropriate in every case where a party appears to have a somewhat weak claim or defence. The last thing this judgment should be seen as encouraging is the making by either side of exorbitant applications for summary judgment under rule 24.2 in a misguided attempt to obtain conditional orders providing security for costs. On the contrary, the court will be reluctant to be drawn into an assessment of the merits beyond what is necessary to establish whether the person concerned has "no real prospect of succeeding" and the occasions when security for costs is order solely because the case appears weak may be expected to be few and far between." (per Clarke LJ)

4. Those principles show that the power to order security for costs in a case of this kind should be exercised with great caution. The correct general approach may be summarised as follows:

i) it would only be in an exceptional case (if ever) that a court would order security for costs if the order would stifle a claim or an appeal;

ii) in any event,

a) an order should not ordinarily be made unless the party concerned can be shown to be regularly flouting proper court procedures or otherwise to be demonstrating a want of good faith; good faith being understood to consist (as Simon Brown LJ put it) of a will to litigate a genuine claim or defence (or appeal) as economically and expeditiously as reasonably possible in accordance with the overriding objective; and

b) an order will not be appropriate in every case where a party has a weak case. The weakness of a party's case will ordinarily be relevant only where he has no real prospect of succeeding.

41. That approach seems to me to be consistent with that of Field J in Reed v Oury, although he was there considering, not a possible condition that security for costs be imposed, but a condition that previous orders be satisfied. In that context he said in paragraph 24 that if, having regard to a party's conduct overall, a party has acted very oppressively or very unreasonably, it may be appropriate to stay his claim conditionally or unconditionally or strike it out or order a payment into court. That is a high test.

1. A similar approach should to my mind be adopted before imposing a condition that a party should only be permitted to proceed with a claim or an appeal by providing security for costs, unless the case falls within CPR rule 25.13, which this does not. I would accept Mr Cranstons's submission that merely to act unreasonably in a sense other than that identified above should not in general be sufficient to make an order which will have the effect of depriving the party concerned of access to the courts.

2. These principles have been recently considered in this court by Peter Gibson LJ (with whom Mance LJ and Hale LJ agreed) in CIBC Mellon Trust Co v Mora Hotel Corp NV [2002] EWCA Civ 1688, [2003] 1 All ER 564. In paragraph 38 of his judgment Peter Gibson LJ referred both to Olatawura v Abiloye and to Reed v Oury and said that both those authorities suggest that it is only appropriate for the court to exercise its powers under CPR Part 3 to require a payment into court in limited circumstances and that the court should not do so in the absence of a want of good faith on the part of the party against whom the order is sought. Peter Gibson LJ added:

"That consideration is reinforced by the greater significance, since the Human Rights Act 1998 came into force, which the court attaches to not impeding access to justice."

21. One can draw from these dicta in the light of the overriding objective and the CPR the following:

(i) The Court undoubtedly has the power and discretion to stay any proceedings if justice requires it.

(ii) In exercising that power and discretion, the Court must very much have in mind a party's right to access to justice and to issue and pursue proceedings.

(iii) The power is one that is to be used sparingly and in exceptional circumstances.

(iv) Those circumstances include bad faith and where the claimant has acted or is acting particularly oppressively or unreasonably.

22. The question then arises as to whether the established refusal to honour or satisfy a previous adjudication decision and court judgement about the very subject matter of the court case which the defendant seeks to have stayed will justify a stay of that case pending payment. One needs to consider this in the light of the policy of the HGCRA. Sections 108, 109, 110 and 111 of that Act materially state:

"108 (1) A party to a construction contract has the right to refer a dispute arising under the contract for adjudication under a procedure complying with this section…

(3) The contract shall provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement…

(5) If the contract does not comply with the requirements of subsections (1) to (4), the adjudication provisions of the Scheme for Construction Contracts apply.

109 (1) A party to a construction contract is entitled to payment by instalments, stage payments or other periodic payments for any work under the contract unless—

110 (1) Every construction contract shall—

(a) provide an adequate mechanism for determining what payments become due under the contract, and when, and

(b) provide for a final date for payment in relation to any sum which becomes due…

(2) Every construction contract shall provide for the giving of notice by a party not later than five days after the date on which a payment becomes due from him under the contract, or would have become due if—

(a) the other party had carried out his obligations under the contract, and

(b) no set-off or abatement was permitted by reference to any sum claimed to be due under one or more other contracts,

specifying the amount (if any) of the payment made or proposed to be made, and the basis on which that amount was calculated.

(3) If or to the extent that a contract does not contain such provision as is mentioned in subsection (1) or (2), the relevant provisions of the Scheme for Construction Contracts apply.

111 (1) A party to a construction contract may not withhold payment after the final date for payment of a sum due under the contract unless he has given an effective notice of intention to withhold payment.

The notice mentioned in section 110(2) may suffice as a notice of intention to withhold payment if it complies with the requirements of this section.

(2) To be effective such a notice must specify—

(a) the amount proposed to be withheld and the ground for withholding payment, or

(b) if there is more than one ground, each ground and the amount attributable to it,

and must be given not later than the prescribed period before the final date for payment…

23. The statutory framework, which applies to construction professionals engaged to provide engineering services amongst others, is thus that:

(i) there are to be stage payments;

(ii) there are to be contractual procedures for determining what is due in respect of each of these stage payments;

(iii) no sums can be set off or withheld unless the Section 11 procedure is followed;

(iv) a party to a construction contract may at any time refer a dispute to adjudication;

(v) the adjudication decision is binding until the dispute is finally determined by the final dispute resolution process chosen by the parties (e.g court or arbitration).

In effect, an adjudicator's decision which requires payment by one of the parties involves a requirement to "pay now, argue later". The contracts of engagement in this case reflected this framework.

24. In this case, the relevant bare facts are that:

(i) The Claimants have simply refused to honour the adjudicator's decisions and pay out what they have been ordered to pay.

(ii) Those adjudicator's decisions addressed the Claimants' alleged failures to pay stage payments.

(iii) A primary defence of the Claimants in each adjudication was that no sum was due and if anything there were overpayments.

(iv) That defence failed in each case because the Claimants had failed to serve the Section 110 and 111 notices provided for in the contracts of engagement.

(v) The Claimants did not seek to defend the Claims brought by the Defendant to enforce the adjudicator's decisions.

(vi) The Claimants sought to avoid final charging orders being made on the only assets which each of them apparently have within the jurisdiction on the basis partly that the Claims which they now bring would demonstrate that the sums which were legitimately the subject matter of the adjudication decisions and the judgements enforcing them were not due.

(vii) The claims are themselves suspect at least to a significant extent. There is unchallenged evidence before the Court that the whole basis upon which those claims are predicated, namely that the Defendant only achieved Stage D in each case, is simply wrong. That evidence has the ring of truth in that the drawings attached to Mr Packman's statement are clearly significantly beyond the schematic stage D; apart from the fact that they are marked "Stage F", they show the sort of plans and sections which as drawn are detailed as opposed to schematic. When one adds to this, the facts that the Claimants' own project manager accepted contemporaneously that 30% of Stages E and F had been completed by the Defendant on the projects for Anglo Swiss and Good Start and that I was told by the Claimants' counsel that his clients' expert was to inspect the Defendant's design documentation at the Defendant's premises in the week after the hearing and therefore presumably his assessment upon which the Claims were based was at best provisional, it appears on the basis of this evidence that the claims are at best exaggerated and at worse simply unjustified.

(viii) The Claimants have not honoured the judgements against them.

(xv) The Claimants have been tardy in addressing these applications, providing their witness statement very late the night before.

25. In the light of these facts, I am satisfied that there is unreasonable and oppressive behaviour and some elements of bad faith involved in the Claimants pursuing these Claims without first honouring the adjudicator's decisions (in particular) and the Court judgements enforcing them. That this is so arises from the following:

(a) The Claimants are simply ignoring the contractual and statutory requirements that they should honour adjudicator's decisions until the final resolution of the underlying disputes. They are circumventing those requirements and are trying to use their current Claims, whilst not paying the Defendant, to pressurise the Defendant.

(b) By ignoring these requirements, the Claimants are avoiding the "pay now argue later" approach adumbrated by the HGCRA. This altered the commercial balance in existence before that Act came into force. If the Defendant had been paid, it would have had the money in hand which would put it in a stronger commercial position in relation to the Claimants. By pursuing these proceedings without honouring the adjudication decisions, the Claimants are procuring an advantage which the HGCRA does not permit.

(c) The Defendant is not insured with regard to fee recovery claims as the Claimant must have known. By claiming relatively modest sums on three projects, the Claimants are putting pressure on the Defendant at a time when it properly and correctly expected to be in possession of the sums that the adjudicator has ordered should be paid by the Claimants.

(d) The bad faith comes in putting forward claims which they either knew were significantly exaggerated even on the knowledge which they themselves had or of which they have become aware since seeing Mr Packman's evidence which they have chosen effectively not to challenge. At the very least in those circumstances, they are putting forward claims in respect of which they have no knowledge whether and if so to what extent they are good claims.

(e) It is clear that the Claimants have no difficulty in funding solicitors and counsel to act for them in the current claims. It is a reasonable inference either that the "family trust" which owns the Claimants is providing such funding which is sufficient to pay for respectable solicitors, Leading Counsel and an expert from one of the leading firms or that they do have sufficient assets somewhere. Anglo Swiss and Good Start at least feel that there is sufficient equity in the London properties which they own to provide adequate security for costs as Mr Hunter says in his statement at Paragraph 17. I have formed the view that there is no good reason why the Claimant or those behind the Claimants could not honour forthwith the decisions and judgements against them.

(f) The parties are not on the equal footing in which they should have been if the Claimants had honoured their contractual commitments.

26. Therefore, this is an appropriate case for the Court to order a stay of these now consolidated proceedings until the Claimants have done what they are contractually required to do, that is pay now on the adjudication decisions and then as was always agreed argue later. There is an element of policy in this. If claimants are permitted to ignore adjudicators' decisions and seek to pursue the final resolution of the underlying disputes which have been temporarily resolved by the adjudicators, the HGCRA or its impact would be seriously undermined. The stay should remain in place until the adjudication decisions are honoured in full by the Claimants.

Security for costs

27. The basic principles as to security for costs are set out in CPR 25.13. It must be just to make the order and one of a number of conditions must be satisfied. There is no issue that at least one of these conditions is satisfied, namely that the Claimants are companies resident out of the jurisdiction (in Jersey) and which are not resident in a Brussels Contracting State, a Lugano Contracting State or a Regulation State (see CPR Part 25.13(2) (a)).
28. The other material condition is CPR Part 25.13(2) (c) which is that the Claimants are companies in respect of whom "there is reason to believe that [they] will be unable to pay the defendant's costs if ordered to do so". I am totally satisfied that there is reason to believe that the Claimants will be unable to pay the costs ultimately if ordered to do so:

(i) By reason of their failure to honour the judgements and adjudication decisions, it is clear that the Claimants are unable to pay their debts as they fall due.

(ii) It seems absolutely clear that the single purposes for which each of the Claimants were set up, namely the development of the respective sites into luxury hotels, have failed in that those developments have not been continued.

(iii)The fact that a receiver has been appointed by Bank of Scotland to sell the properties owned by Anglo Swiss and Good Start shows that the Claimants had been unable to service the loans provided by that Bank.

(iv)The fact is that there has been a late, very guarded and somewhat oblique response from the Claimants to requests for information about their financial strength and position. Mr Hunter's belated witness statement reference to the late but highly qualified offer by the Claimants to allow the Defendants solicitors access to review financial information (only about the Piccadilly properties) and the assertion that "the Claimants are confident that the information will indicate that Anglo Swiss… and Good Start…have significant equity in the Piccadilly properties" raise more questions than they answer. Nothing is said about Mentmore Towers; if the information offered can not be used in these court proceedings on the question of security costs, the offer is of little worth. I would have expected at the very least that current valuations of all three sets of property would be provided and some statement of what the likely debts of three companies are so that the stated belief of the Claimants could be tested. The un-accredited belief of the Claimants (and Mr Hunter does not say who he got instructions from to make the assertion about the Claimants' confidence) is of virtually no weight. The assertion is substantially undermined by the Bank of Scotland's solicitors' indication (albeit not accepted by the Claimant) that the Bank is facing a significant shortfall; put another way, if the Bank is right, there will be no equity.

(v) These were multi-million pound developments. An unchallenged report in the Evening Standard for 20 October 2009 indicates that the Piccadilly premises are up for sale "with a £250m price tag". The sheer size of Mentmore Towers would suggest that the property would be worth a substantial amount also. The fact that in those circumstances the Claimants cannot pay a six-figure sum, some £438,000, strongly suggests a likely inability to pay the Defendant's costs if ultimately ordered to do so.

29. In my view, this is a clear case for the ordering of security for costs in these circumstances. I now turn to the amount and mechanism by which such security should be provided. The Defendant through Mr Stockill put forward a likely bill of costs in the sum of £253,200. That is based on a consolidated trial and an eight day hearing. I do not consider that the solicitors' costs, which total some £103,000, are or are obviously excessive for the purpose of getting this case through to trial. However professional fees which include expert and Counsel are said to be £140,000 which I suspect may be pessimistic. The expert's job will be primarily to review drawings and specifications with a view to concluding whether or not particular stages had been achieved in whole or in part. That is a largely mechanical process, albeit that it may involve looking at many hundreds of drawings.
30. In fixing the amount, I proceed upon the basis that a bill of £253,200 would be likely to be reduced on a standard assessment to no more than £180,000. Given of course that the Court cannot at this stage predict whether the Claimants or Defendant will "win", security should be based on a lower gross figure which, in all the circumstances, I consider should be fixed at £140,000. It would be oppressive if the Claimants were ordered to provide all of this now as opposed to in stages as the costs are incurred. With that in mind, I consider that £50,000 should be provided by way of security now and £90,000 upon the completion of the exchange of witness statements in the case. Up to that stage, there will be doubtless extensive pleadings and disclosure is likely to be far ranging, requiring in effect all or most of the documentation generated by the Defendant on these developments being produced. There is likely to be an extensive inspection exercise of the Claimants' documents which would include correspondence and documentation to and from Fitzroy Robinson (the architects) with whom the Claimants have had some much publicised litigation in the TCC; this would be relevant because it would assist in determining the stages to which they had got by the time that the Defendant in this case ceased to work. It would not be surprising if this trial did last eight days given that there are three projects and at least some different personnel will have been involved on each of the projects. There will of course be permission to apply if it appears later that the costs are likely to be significantly more or less than those currently estimated by the Defendant.
31. In all the circumstances, there should be a stay of these proceedings in any event (whether it extends longer than the other stay or not) at least until the first tranche of security, namely £50,000, is provided by the Claimants.

Costs

32. The Defendant asks for its costs of and occasioned by these applications. It also applies for its costs of its application dated 11 November 2009 to extend time providing its defences until after these applications had been addressed. In this latter application (where costs are only £812), I consider the these should be costs in the case given that it was a regular case management application, albeit sensible.
33. As for the costs of the other applications a total sum of £13,824.10 is claimed. Mr Sears QC properly accepts that, subject to assessment, that his clients should pay the costs of the applications which have been successful. However he says with some force that his clients have succeeded on the first application relating to the Pre Action Protocol and that an element of the costs relates to consolidation which was sensible and not opposed. In my view, these are legitimate points to make. The costs of and occasioned by the consolidation application should be costs in the case; doing the best that I can that would be no more than £500. As for the costs of and occasioned by the Pre Action Protocol, I can not see that this would account for more than £500 on each side. I therefore proceed on the basis that the net bill to be assessed should be £13,824.10 less £1500, namely £12,324.10. Mr Sears QC makes a number of points challenging the hours put in such as nearly 33 hours attendances on documents. There is some weight in those points and in all the circumstances I summarily assess the net bill at £10,000 which should be paid within 14 days of the date of the hearing namely by 18 December 2009. If that cost bill is not paid as ordered, the Defendant has permission to apply to seek an order for a further stay of the Claims pending its payment.

Decision

34. There will be a stay of this consolidated Claim (Claims HT-09-410 to 412) until the Claimants pay all sums which they were ordered to pay by the adjudicator. There will also a further stay of the consolidated Claim until the Claimants provide security for costs in the sum of £50,000. The form of security should be agreed between the parties failing which the court will decide; an effective bank guarantee would be good enough or, failing that, a payment into court. There will be no stay as such to enable the Pre Action Protocol process to take place although the parties would be well advised to consider mediation or some other method of resolving these unfortunate disputes.