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

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
LEEDS DISTRICT REGISTRY
(Sitting at the TCC in London)

		Royal Courts of Justice Strand, London, WC2A 2LL
		6 August 2014

Mr Justice Ramsey:

Introduction

1. These proceedings involve claims for defects by the owners of properties in Hartlepool. I gave judgment ([2011] EWHC 1811 (TCC)) on 11 July 2011 in relation to defects in foundations at ten properties so that the principles for the claims on these properties could then be applied to all the properties. In summary, I held that the First Defendant ("SHL") was liable to the Claimants in contract, under the Defective Premises Act 1972 and also under Section 2 of the NHBC Buildmark Policy which applied to each of the properties.
2. On 26 September 2011 I handed down judgment in relation to the costs of the trial and held that SHL should pay the Claimants 95% of their costs of dealing with those foundation claims against SHL. Subsequently the Claimants and SHL have been able to reach a settlement in relation to all the claims for foundation defects and also the costs related to those claims.
3. There remain some drainage claims which, I understand, have now been resolved in advance of a trial which has been fixed to commence on 3 November 2014.
4. This judgment is concerned with a particular aspect of costs: the costs relating to the proceedings against the Second Defendant, National House Building Council ("NHBC") and the Third Defendant, NHBC Building Control Services ("NHBC-BCS").
5. When the Claimants issued proceedings against SHL on 29 February 2008, they also joined NHBC and NHBC-BCS, whom I shall refer to together as "the NHBC Parties". Soon after service of these proceedings on the NHBC Parties the claims against those two parties were stayed so that there could be compliance with the Pre-Action Protocol for Construction and Engineering disputes.
6. On 15 October 2009 NHBC issued an application to strike out the claims made against it or for summary judgment dismissing those claims. Directions were given on 23 October 2009 lifting the stay as against NHBC and directing that if the Claimants proposed to narrow or retract any claim they should write to NHBC by 16 November 2009. A timetable was also set for submissions on that application with a hearing on 8 January 2010.
7. On 16 November 2009 the Claimants wrote to NHBC to say they were no longer pursuing claims against NHBC based on a common law duty of care or under the Defective Premises Act 1972. The Claimants wished to maintain the remaining claims under section 3 of the Buildmark Policy.
8. As a result, on 11 December 2009 I ordered that the Claimants' claims against NHBC for breach of a common law duty of care and under the Defective Premises Act 1972 should be struck out with costs reserved.
9. In a judgment dated 8 January 2010 I dismissed NHBC's application to strike out the claims under section 3 of the Buildmark Policy Claims and on 12 January 2010 I made an order dismissing NHBC's application to strike out/for summary judgment, reserving all questions of costs. The stay of the proceedings between the Claimants and NHBC was then continued and has remained in place as has the stay against NHBC-BCS.
10. The Claimants then proceeded to trial against SHL in relation to claims for foundation defects at ten properties and obtained judgment against SHL. NHBC also carried out remedial works to the foundations of some ten properties. As a result of the settlement with SHL, the Claimants no longer seek to pursue their claims for foundation defects against the NHBC Parties. The issue of costs remains. In this judgment I determine the appropriate order for costs in relation to the claims brought by the Claimants against the NHBC Parties. In particular the issue is whether those costs should be borne by the Claimants, SHL or the NHBC Parties.

Background

11. The relevant properties at Eden Park, Hartlepool were constructed between September 2001 and February 2004. The foundations were piled under a sub-contract between SHL and Encia Remediation Limited ("Encia"). In about March 2003 cracking was noticed in one of the properties and, as stated by Mr Stephen Murray, the Managing Director of SHL in a witness statement served in proceedings brought by SHL against Encia, the NHBC were notified in May 2003 of the problems that existed. Between May 2004 and May 2005 SHL bought back five of the houses and between August 2006 and November 2007 SHL carried out remedial work to those houses.
12. On 18 October 2005 SHL issued proceedings against Encia which led to the judgment of Jackson J, as he then was, on 11 July 2007 in which he held that Encia were liable to SHL.
13. On 15 September 2005 SHL wrote to NHBC advising them of the situation and what they proposed to do. In its response on the 22 September 2004, Mr Egginton, the Regional Director of NHBC said that SHL had described a responsible and sensible way forward and that NHBC would rather stay at a distance to avoid any confusion as to responsibility and lines of communication. The NHBC continued to be kept informed and on 9 May 2005 Mr Simon Barrett of the NHBC attended a without prejudice meeting held by consultants instructed to investigate the foundation defects and made a number of observations.
14. On 9 September 2005 Nabarro Nathanson, the solicitors then acting for SHL wrote to the Claimants' solicitors confirming that all the houses were built to NHBC standards and that the NHBC were aware of the current issues and agreed to the approach being taken by SHL. They referred to the assessments being carried out by the consultants and added:

"Once those assessments are completed and our clients and the NHBC are sure that any and all remedial works have been identified, at that stage those works will be carried out by our clients at no cost to the purchasers, if the cause of those remedial works are failings by Encia."

15. Also on 9 September 2005, the Claimants' solicitors wrote to the NHBC saying that they were acting for over 40 residents of the Eden Park Estate in relation to potential claims against SHL for damages arising from problems with the foundations. They requested information from the NHBC. In response Mr Barrett said that the NHBC were unable to provide that information and recommended that the Claimants should seek it from SHL. He added that:

"NHBC remain committed to resolving any issues and dealing with claims if they arise on this site, under the provisions of the Buildmark warranty."

16. On 18 January 2007 Nabarro Nathanson wrote to the Claimants' solicitors enclosing a copy of the NHBC Buildmark Policy saying that they were sending these documents to them so that "you are aware of your clients' rights against the NHBC". Mr Gerard Khoshnaw of Nabarro Nathanson then contacted Miss Alison Tate of the Claimants' solicitors the same day and said that he wanted to highlight the fact that the NHBC Buildmark Policy covered the costs of rectification of foundations.
17. On 7 February 2007 Mr Khoshnaw again telephoned Miss Tate and asked for copies of the pre-action protocol letters being sent to NHBC. In her attendance note she recorded that he said that neither of them knew what was going to happen and:

"if there was a shortfall in the monies available from either Encia or Shepherd then in our own interests we should be joining in the NHBC"

18. As further recorded in the note:

"He said that in order for the NHBC to become involved they need formal notification in respect of all the clients. He said that they had been evasive at the moment and he has made an application for pre-action disclosure in respect of documentation they hold. He said that they should be meeting the cost of remediation under the policies. He said they are looking to sue them on the building control aspect as well."

19. The attendance note then continued:

"I said that the only issue that we had in respect of reports to the NHBC was that some of the problems had arisen before the two year period and therefore the clients were right to report them to Shepherd rather than the NHBC. He said that as far as he was concerned they believed that there were about fifteen properties that fell into section 2 and the rest fell into section 3. He suggested that we write setting out that it was formal notification under section 3 in respect of all properties and it would then be up to them to decide whether or not some of them should be under section 2."

20. Subsequently Mr Khoshnaw chased the Claimants' solicitors for a copy of the letter which the Claimants were sending to the NHBC. By a letter sent on 22 February 2007 the Claimants' solicitors wrote to NHBC setting out details of the homeowners for whom they acted. The letter indicated those clients whom they believed would definitely have a claim under section 3 of the Buildmark Policy and those whom they thought had a potential claim and gave formal notification. They asked the NHBC to provide them with an indication of its proposals for dealing with this issue.
21. On 8 August 2007 Weightmans LLP, instructed by the Professional Indemnity Insurers of SHL, wrote to the Claimants' solicitors explaining their position and responding to pre-action letters of claim which had been sent by the Claimants to SHL. Weightmans indicated that the professional indemnity policy would not respond to all the claims which had been intimated. They pointed out that cover had been provided under the NHBC Buildmark Policy and said this:

"In the circumstances, Shepherd accept that, subject to proof, there will be a contractual liability pursuant to the NHBC Scheme in respect of claims properly notified in writing within the two years following the date of original sale of the property. It will be necessary for you to establish which claims fall within that two year period and which fall outside it."

22. In conclusion they said that, in circumstances where there was damage and where a claim was notified in years 3 to 10, the Claimants "should be proceeding against the NHBC. Shepherd is not the correct target."
23. On 29 February 2008 the Claimants issued the Claim Form in the present proceedings. They say that they were concerned that there might be limitation difficulties for some claims and that, by that stage, the NHBC had not begun to carry out any remedial works to the properties.
24. By May 2008 following discussions between SHL and the NHBC, there was a dispute between them regarding the classification of claims that had been made or might be made under the Buildmark Policy. That dispute related to whether the claims were properly made under section 2 against SHL or under section 3 against the NHBC.
25. By a letter dated 12 May 2008, a redacted version of which had previously been disclosed but an un-redacted version of which has now been made available, the NHBC and Shepherd agreed to resolve their disputes on the terms set out in that letter. They designated certain properties as "section 2 plots" where SHL agreed it had received sufficient and timely notice from the homeowner so as to oblige it to respond in accordance with section 2 of the Buildmark Policy. Similarly they designated some properties as "section 3 plots" where the NHBC had agreed that it had received sufficient and timely notice from the homeowners so as to oblige it to respond in accordance with section 3 of the Buildmark Policy. Finally they also designated some "no claim plots" in which that NHBC and SHL agreed that they had not received notice but the NHBC accepted that, if claims were made and if they fell within section 3 of the Buildmark Policy, the NHBC would deal with those under section 3. There were various provisions as to indemnities and as to how to deal with any proceedings by the homeowners and any disputes between SHL and the NHBC.
26. There was a meeting on 4 June 2008 between the Claimants, SHL and the NHBC when the Claimants were told which properties SHL and the NHBC would each be responsible for under the Buildmark Policy. At that stage no proposals were made by the NHBC as to remedial works to be carried out to any of the properties.
27. The NHBC then wrote to the Claimants' solicitors on 16 June 2008 saying that it proposed to carry out remedial works to six properties and to monitor other properties.
28. On 20 June 2008 the Claimants' solicitors wrote to Pinsent Masons, instructed on behalf of the NHBC Parties. They referred to earlier correspondence about service of the proceedings issued against SHL and the NHBC Parties and said that it was their intention to serve the proceedings and seek a stay against the NHBC Parties so that the pre-action protocol could be dealt with. They then set out their position against the NHBC Parties.
29. On 28 June 2008 the Claim Form and Particulars of Claim were served on SHL and the NHBC Parties.
30. Following the suggestion by the Claimants' solicitors that proceedings against the NHBC Parties should be stayed, the Claimants sent a pre-action protocol letter of claim to them on 9 July 2008. There was then a consent order filed on 25 July 2008 staying proceedings. A letter of response was served on 10 October 2008.
31. On 12 November 2008 the NHBC notified the Claimants that it intended to carry out remedial work to the house at plot 13 which it had been monitoring. Between about early 2009 and 7 October 2009 the NHBC carried out remedial works to the six properties it had identified on 16 June 2008 and to the further property at plot 13.
32. On 15 October 2009 the NHBC applied to strike out the Claimants' claims and/or for summary judgment. Directions were given and, in accordance with those directions, the Claimants confirmed on 16 November 2009 that the causes of action based on a common law duty of care and the Defective Premises Act 1972 would not be pursued against the NHBC. On 8 January 2010 the NHBC's application was dismissed and the stay continued.
33. On 5 May 2010 the NHBC notified the Claimants' solicitors that it had decided to re-pile three further properties.
34. The NHBC Parties took no part in the trial of the foundation issues between the Claimants and SHL in respect of the ten lead properties. In the judgment I held that SHL was liable not only for the section 2 plots designated in the letter of 12 May 2008 but also for those designated as section 3 plots under the May 2008 agreement between SHL and the NHBC. I also held that the Claimants were entitled to 95% of their costs of the trial of the foundation defects against SHL. The Claimants were then able to agree satisfactory terms with SHL which disposed of the foundation claims for all of the properties and also the Claimants' claims for costs against SHL. That agreement was expressly on the basis that any question relating to the costs incurred in respect of the claims against NHBC and/or NHBC-BCS were reserved.
35. I now turn to deal with the submissions made by the parties on the costs relating to the Claimants' claims against the NHBC Parties.

The Claimants' submissions on costs.

36. As submitted by Mr Andrew Bartlett QC, who appeared with Mr Robert Stokell on behalf of the Claimants, the Claimants' primary position is that SHL, on the principle that it was the unsuccessful Defendant, should bear the Claimants' costs of pursuing the NHBC Parties. Mr Bartlett refers to CPR 44.2(2)(a) and the general rule that the unsuccessful party will be ordered to pay the costs of the successful party. He submits that the court also has jurisdiction under the CPR to make a Sanderson and/or a Bullock Order under which an unsuccessful party pays not only the costs incurred by a successful claimant against that party but also any costs liability the claimant may have to a successful defendant as well as the claimant's costs against that successful defendant.
37. Mr Bartlett submits that in this case the fact that the Claimants took the sensible course of staying proceedings against the NHBC Parties rather than pursuing those parties and incurring further costs should not put the Claimants in a worse position than they would have been in had they pursued those defendants and lost. He submits that, if that had happened, the Claimants would have been entitled to a Sanderson or Bullock Order under which SHL would have had to pay much larger costs and the overall costs of litigation would have been increased by the involvement of those extra parties.
38. He submits that the Claimants acted reasonably in issuing proceedings against the NHBC. He refers, in particular, to the correspondence and the attendance note in which in 2007 Nabarro Nathanson, on behalf of SHL, said that the Claimants should proceed against the NHBC. He also refers to paragraphs 8 and 42 of SHL's defence in which it pleaded that the division of responsibility between section 2 and section 3 plots set out in the agreement of 12 May 2008 should be accepted by the Claimants and that the Claimants' failure to do so would be a matter which would be drawn to the attention of the court on the question of costs.
39. He submits that in those paragraphs of the pleading SHL were saying that the Claimants should only proceed against SHL in respect of the section 2 plots and therefore, necessarily, that the Claimants should be proceeding against the NHBC in relation to the section 3 plots.
40. Mr Bartlett also says that SHL made clear that there was a risk that SHL might not compensate the Claimants and that it was desirable to have the NHBC as a party to the proceedings.
41. He submits that the Claimants acted reasonably in joining the NHBC Parties because by February 2008 the limitation period, at least for some claims against SHL, was starting to expire and it was desirable for all parties to be involved in the proceedings, particularly when, by February 2008, the NHBC had not committed to or started remedial works to any of the properties.
42. In relation to the conduct of the proceedings against the NHBC Parties, Mr Bartlett says that the Claimants acted reasonably in minimising the costs by agreeing the stay of proceedings and completing the pre-action protocol process rather than insisting that the NHBC Parties serve defences and then took a full part in the proceedings.
43. So far as the costs of the NHBC Parties are concerned, Mr Bartlett submits that the Claimants should not have to bear any of those costs which should be borne by the NHBC Parties. He says that the Claimants reasonably issued proceedings against the NHBC Parties and that it was only subsequently that the NHBC remedied properties. He submits that the NHBC's conduct in actually carrying out remedial works is not materially different from a formal admission of liability and even if the Claimants were now to be entitled only to nominal damages, there are no grounds on which the NHBC or NHBC-BCS should be awarded their costs.
44. He also makes a number of alternative submissions. First he submits that if the Claimants had to pay any costs to the NHBC or NHBC-BCS then those should be borne by SHL in a similar way to a Sanderson or Bullock Order. Secondly, he submits that if SHL were not to bear the costs of proceedings against the NHBC Parties then it was for those parties to pay the Claimants' their costs and to bear their own costs. He submits that the effect of bringing proceedings and then remedial work subsequently being carried out by the NHBC to ten properties was tantamount to an admission sufficient to make the Claimants a successful party as against the NHBC Parties or at least to make it appropriate for there to be an order for costs against the NHBC Parties under CPR 44.2.
45. He submits that in relation to the costs of the NHBC's application to strike out the Claimants' claims or seek summary judgment these costs should be paid by the NHBC as the Claimants were successful on that application. Alternatively, he submits that the Claimants should have their costs paid by SHL since they are part of the costs of the proceedings which SHL made necessary.
46. In relation to the abandonment of the claims at common law and under the Defective Premises Act 1972, Mr Bartlett submits that those claims did not affect the position on costs as there had been no pleading to those matters and under the directions given, the Claimants abandoned the claims within the timeframe indicated, after the stay had been lifted.
47. In the alternative, Mr Bartlett submits that those costs should form part of the costs which SHL should bear because they were part of the costs reasonably incurred in relation to the proceedings against the NHBC which would not have been necessary had SHL admitted liability.
48. Mr Bartlett's final submission in opening was that the appropriate order might be that SHL should pay the Claimants' costs of pursuing the claims against the NHBC Parties and that there should be no order for costs as between the Claimants and the NHBC Parties on the basis that those parties should bear their own costs.

Submissions on behalf of SHL

49. Ms Anneliese Day QC, who appeared on behalf of SHL, submits that SHL should not be responsible for any costs incurred by the Claimants in bringing proceedings against the NHBC Parties or for any costs incurred by those parties. She submits that the NHBC should be treated as an unsuccessful party and should therefore bear the relevant costs. She refers to the fact that proceedings were brought against the NHBC Parties, that there was then the agreement of 12 May 2008 between SHL and the NHBC under which they divided responsibility for the properties and that the NHBC then carried out remedial work to ten properties. She submits that, in those circumstances, the NHBC was an unsuccessful party because it carried out that remedial work pursuant to its obligations under section 3 of the Buildmark Policy.
50. Further Ms Day submits that, even if the NHBC cannot be characterised as the unsuccessful party, it certainly cannot be characterised as the successful party and therefore the principles upon which SHL, as an unsuccessful defendant, would have to pay the costs of a successful defendant under the principles of Bullock or Sanderson Orders do not apply in the present case. She says that in any event such an order is generally only appropriate where there are two or more defendants sued in the alternative, but that is not the case here.
51. In response to the Claimants' submission that SHL sought to involve the NHBC in these proceedings, Ms Day submits that it only encouraged the Claimants to pursue claims against NHBC under section 3 of the Buildmark Policy and, in fact, the NHBC has, pursuant to section 3 of the Buildmark Policy carried out remedial work to the ten properties. In such circumstances she submits that there can be no basis for SHL to pay the costs of the NHBC.
52. Ms Day submits that, whatever the position on costs, no part of the costs of the NHBC's unsuccessful application to strike out or for summary judgment should fall to be discharged by SHL. Nor, she submits, should SHL have to pay any part of the costs of dealing with allegations that the NHBC was liable at common law or under the Defective Premises Act 1972.

The position of the NHBC Parties

53. Ms Sarah Hannaford QC who appeared on behalf of the NHBC Parties submits that the Claimants' application for costs against the NHBC is premature and misconceived. First, she says that the claim is only advanced on a contingent basis against the NHBC Parties on the basis that the Claimants' claim for costs against SHL does not succeed. She also submits that the Claimants' case is predicated on an assertion that NHBC would have been liable for the claims of at least a substantial number of the Claimants. She submits that this is no more than an assertion because the claims against the NHBC Parties have never been fully particularised and certainly have not been determined in the Claimants' favour. She says that, as between the Claimants and NHBC, there has been no trial or other determination of liability. She refers to the judgment on the strike out/summary judgment application which merely decided that the claims against the NHBC were arguable.
54. She submits that the true position is that the Claimants should now discontinue the claims against the NHBC Parties in which case they would be liable for the NHBC Parties' costs. She says that this is not a case where the court should exercise its discretion to order otherwise under CPR 38.6(1), when proceedings are discontinued. If the matter is not dealt with by way of discontinuance she submits that the alternative would be for the proceedings against the NHBC Parties to continue with particularisation of the claims so that there could be a determination of liability in a trial. Without the determination of liability she submits that there was no basis for concluding that the NHBC Parties would have been liable to the Claimants or have acted unreasonably.
55. In the absence of particularisation of the Claimants' claims, the fact that liability has been established against SHL does not, she submits, support an inference that the Claimants would have succeeded against the NHBC. Ms Hannaford submits that under the Buildmark Policy the NHBC had investigated the claims submitted to it, monitored the relevant properties and carried out remedial works once proper investigations and monitoring had been completed. In relation to NHBC-BCS she says that the Claimants have not sought to particularise, evidence or prove a case and there is no proper basis for such a claim.
56. As to any suggestion that, in determining costs as between the Claimants and the NHBC, the court should take account of the agreement of 12 May 2008 between SHL and the NHBC, Ms Hannaford submits that this is not an appropriate approach. Rather she says that any matters to be dealt with under that agreement should be dealt with in due course as between SHL and the NHBC and the court should not determine the scope or effect of the terms of the agreement at this stage on this application.
57. In relation to the application to strike out or for summary judgment Ms Hannaford submits that, whilst the Claimants succeeded on the application, the court has to take into account the fact that the Claimants abandoned their claims against the NHBC in tort and under the Defectives Premises Act 1972 and that new matters were raised by the Claimants at the hearing which had an effect upon the way in which the Court determined the application.
58. Having summarised the main submissions of the parties I now turn to consider the applicable principles.

Applicable principles on costs

59. As set out in CPR 44.2(1)(a) the Court has a discretion as to whether costs are payable by one party to another. Under CPR 44.2(2) if the court decides to make an order about costs, the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party but the court may make a different order.
60. As stated in CPR 44.2(4), in deciding what order (if any) to make about costs, the court will have regard to all the circumstances which include the conduct of all the parties and whether a party has succeeded on part of its case, even if that party has not been wholly successful. CPR 44.5 states that the conduct of the parties includes the question of whether it is reasonable for a party to raise, pursue or contest a particular allegation or issue and the manner in which a party has pursued or defended its case or a particular allegation or issue.
61. In multi-party cases the exercise of the discretion involves consideration of whether orders should be made for one defendant to pay the costs relating to proceedings against another party. As set out by the Court of Appeal in Sanderson v Blyth Theatre Company [1903] 2 KB 533 and in Bullock v The London General Omnibus Company [1907] 1 KB 264, where a party sues two or more defendants and succeeds against one but fails against one or more other defendants, the court has a discretion to order the unsuccessful defendant to pay the costs of the claimant in pursuing the successful defendant and the costs of the successful defendant or defendants. Whether the unsuccessful defendant is ordered to pay the costs of the successful defendant or defendants directly, as in a Sanderson Order, or by payment to the claimant as in a Bullock Order is a question for the court's discretion.
62. In Sanderson Romer LJ made the following observations at 538 to 539

"the Court has full power over the costs of all parties of such an action; and, in my opinion, it has jurisdiction to order the plaintiff to pay the costs of the defendant against whom the action fails, and to add those costs to his own to be paid by the defendant against whom the action has succeeded, and whose conduct has necessitated the action.

…

The costs so recovered over by the plaintiff are in no true sense damages, but are ordered to be paid by the unsuccessful defendant, on the ground that in such an action as I am considering those costs have been reasonably and properly incurred by the plaintiff as between him and the last-named defendant.

…

Of course, in exercising the jurisdiction, a judge should have regard to the circumstances of the case, and be satisfied that it is just that the unsuccessful defendant should, either directly or indirectly, have to pay the costs of the successful defendant."

63. As the Court of Appeal confirmed in Irvine v Commissioner of Police [2005] 3 Costs LR 38 at [22] "the jurisdiction to make a Bullock or Sanderson Order has survived the introduction of the CPR, though the exercise of discretion to make such an Order must be guided by the overriding objective and the specific provisions of Rule [44.2]." In that case the Court of Appeal upheld a first instance decision where the judge did not order the unsuccessful defendant to pay the costs incurred by the claimant in bringing proceedings against the successful defendants or to pay the costs of the successful defendants which were ordered to be paid by the claimant.
64. In Irvine the claimant was a police office who tripped on stairs at a police station and brought an action against his employer, the first defendant, who had statutory duties. He also brought the claim against the second defendant who managed the first defendant's property and against the third defendant whom the second defendant had instructed to repair the stair carpet shortly before the accident occurred. The claimant succeeded against the first defendant but failed against the second and third defendants. The judge ordered the first defendant to pay the claimants costs and the claimant to pay the costs of the second and third defendants. The judge declined to make a Bullock and Sanderson order ordering the first defendant to pay the second or third defendant's costs. The Court of Appeal held that, on the facts of the case, the judge was entitled to decline to do so.
65. In giving a judgment with which the other members of the Court of Appeal agreed, Peter Gibson LJ said this about the discretion to make Bullock or Sanderson Orders at [22]:

"The jurisdiction is a useful one. It is designed to avoid the injustice that when a claimant does not know which of two or more defendants should be sued for a wrong done to the claimant, he can join those whom it is reasonable to join and avoid having what he recovers in damages from the unsuccessful defendant eroded or eliminated by the order for costs against the claimant in respect of his action against the successful defendant or defendants. However, it must also be recognised that it is a strong order, capable of working injustice to the defendant against whom the claim has succeeded, to be made liable not only for the claimant's costs of the action against that defendant, but also the costs of the other defendants whom the claimant has chosen to join but against whom the claimant has failed. "

66. At [24 to 31] he identified the factors relevant to the exercise of the discretion. He said that in considering whether to make a Bullock or Sanderson order the court must consider, in particular, whether the successful defendant was sued in the alternative to the unsuccessful defendant; whether the causes of action relied upon against the defendants were connected with each other; whether the claimant's conduct in joining and pursuing a claim against the successful defendant was reasonable and whether one defendant had put the blame on another defendant.

Application of those principles to the present case

67. In the present case I accept, as SHL submits, that this is not a classic case for the imposition of a Bullock or Sanderson Order. Whilst SHL is an unsuccessful defendant there has been no determination of liability on the part of the NHBC Parties so as to be able to describe them, on the usual basis, as a successful or unsuccessful defendant. However the discretion to order costs under CPR 44.2 clearly includes a discretion to order an unsuccessful defendant to pay costs relating to a co-defendant. That is generally on the basis that the claimant is liable for those costs and so an order for costs in favour of the claimant would include those costs.
68. The difficulty in this case in making an award of costs is that, as I have said, the classic analysis of whether the NHBC Parties are successful or unsuccessful parties is normally something which is decided when liability of those parties has been determined. In this case there has been no determination. If the NHBC Parties were successful then the grounds for a Sanderson or Bullock Order might apply. If the NHBC Parties were unsuccessful then the general rule would be that the NHBC Parties would have to pay the Claimants' costs and bear their own costs so that no question of a Sanderson or Bullock Order would arise.
69. There does not always have to be a determination of liability and, for instance, the Court will sometimes be called upon to determine liability for costs when the parties have settled proceedings: see the cases cited in Vector Investments v William [2010] BLR 195 at [24] to [28].
70. In the present case all that has happened is that the proceedings between the Claimants and the NHBC Parties have been stayed, those parties have undertaken a pre-action protocol process and there has been an unsuccessful application by NHBC to strike out the proceedings or for summary judgment. The parties have not developed their cases in pleadings and there has been no disclosure or witness statements or expert reports as between those parties. On that basis, the court is clearly unable to make an assessment of liability.
71. The chronology set out above shows that, by the time that the Claimants issued proceedings and included the NHBC Parties as defendants, there had been no offer from the NHBC to carry out any remedial works. There then followed the agreement between SHL and the NHBC on 12 May 2008 and the letter of 16 June 2008 from the NHBC proposing to carry out remedial works to six properties and monitor the remainder. Shortly after that the Claim Form and Particulars of Claim were served on the NHBC Parties in which the Claimants pleaded a case against those parties. Against the NHBC it was alleged at paragraph 53 that it was in breach of section 3 of the Buildmark Policy and that "despite the continuing presence of physical damage caused by Defects to the Claimants' Homes within the meaning of the Buildmark policy, the [NHBC] has failed to either pay for the cost of correcting the same or arrange for the necessary work to be carried out at the [NHBC's] expense."
72. The Claimants also alleged that the NHBC and NHBC-BCS were in breach of a common law duty and a duty under the Defective Premises Act 1972. Subsequently the NHBC carried out remedial works to ten properties. Ms Day submitted that, looking at the matter broadly, the Claimants commenced proceedings against the NHBC and the properties of ten of those Claimants have now had remedial works carried out to them by the NHBC. It is also submitted that there was a degree of acceptance of liability, at least as between SHL and the NHBC, in the letter of 12 May 2008. On that basis it is said that the Claimants should be treated as the successful party as, following the commencement of proceedings, ten of the Claimants have been successful in obtaining a remedy against the NHBC.
73. However I do not consider that this means that the Claimants have been successful against the NHBC in these proceedings. The proceedings were brought against the NHBC Parties without there being a pre-action protocol process. It is clear that after proceedings had been issued but before those proceedings had been served on them, the NHBC had notified the Claimants that they would carry out remedial works to six properties and were monitoring other properties. In such circumstances I find it difficult to characterise the NHBC as the unsuccessful party in these proceedings. The NHBC carried out remedial works pursuant to its obligations under section 3 of the Buildmark Policy but it did so, not as a result of any court order. The evidence shows that the NHBC acted independently of the court proceedings in assessing the properties and carrying out remedial works. In relation to NHBC-BCS nothing has happened.
74. Equally, though, it cannot be said that the NHBC Parties have been successful parties as they have not been held not liable to the Claimants.
75. In such circumstances where the proceedings are currently stayed and there have been no pleadings other than the Claim Form and Particulars of Claim, I reject the suggestion that the court should now give directions and embark upon a determination of liability between the Claimants and the NHBC Parties so as to be in a position to decide who should pay the costs incurred so far. Under the overriding objective it could not possibly be the proper course to adopt in this case. There could be no justification for the court's resources being made available or for the parties being ordered to spend time and costs on such a wholly disproportionate and futile exercise.
76. I have come to the conclusion that in all the circumstances the appropriate order as between the Claimants and the NHBC Parties is that there should be no order as to costs. That seems to me to do justice as between those parties where, in effect, all that has happened, apart from the strike out/summary judgment application is that the parties have complied with the pre-action protocol. The proceedings have not had to proceed any further because of the good sense of the parties in staying those proceedings. I consider that the same order should apply to both the NHBC and NHBC-BCS. There has been joint representation and no case has been articulated to differentiate between the NHBC Parties in relation to the appropriate order for costs in relation to the costs of the proceedings.
77. There is, however, the separate question of the costs of the NHBC's application to strike out the claim and/or for summary judgment against the Claimants. I dismissed that application but reserved the costs. On the basis that the Claimants have been the successful party, the general rule would be that the NHBC should pay the costs of that application. Two points are raised by Ms Hannaford as to why a different order might be made. The first is that the Claimants abandoned their claims in tort and under the Defective Premises Act after the NHBC had issued its application. Whilst the claim was stayed from June 2008 until the stay was lifted to deal with the application, costs may, in principle, have been expended in dealing with the allegations of liability in tort or under the Defective Premises Act which, on reflection, the Claimants then abandoned. The fact that the proceedings were stayed did not preclude the NHBC from investigating potential liability under those claims, particularly where there was a stay to comply with the pre-action protocol. In such circumstances, I consider that if any costs were expended in dealing with those matters between 28 June 2008 and 16 November 2009 then they should be recoverable by the NHBC from the Claimants.
78. The second point relied on by Ms Hannaford is that the arguments raised by the Claimants on the application went beyond the scope of the matters anticipated. The application was made by the NHBC at a time when evidently there had been no developed pleadings as between the NHBC and the Claimants. In such circumstances it is unsurprising that various arguments were put forward on the application which had not been previously articulated. I do not consider, therefore, that there is any basis for making a different order or reducing any order for costs in favour of the Claimants to take account of that factor.
79. It therefore follows that as between the Claimants and the NHBC Parties I make no order as to costs, save that the NHBC are to pay the Claimants' costs of the application dated 15 October 2009 and that the Claimants should pay the NHBC's costs in relation to the claims pleaded in paragraphs 25 and 54 of the Particulars of Claim.
80. As a result of my determination of the position as between the Claimants and the NHBC, it is not necessary for me to consider whether to make an order that SHL should pay the NHBC Parties' costs by way of a Bullock or Sanderson Order. However, as a result of the order made the Claimants will not recover from the NHBC Parties the costs which they expended in pursuing the claims against the NHBC Parties. I now have to consider what order, if any, should be made as between the Claimants and SHL in respect of those costs.
81. As I have stated above the general discretion as to costs would allow me to order SHL to pay the Claimants' costs of dealing with the NHBC Parties. In deciding whether to exercise my discretion to make such an order, I consider that the principles which I have outlined above relating to Bullock or Sanderson Orders are applicable. The Claimants have incurred costs in dealing with the NHBC Parties and the question is whether they should form part of the costs recoverable from the unsuccessful defendant, SHL. As the decision in Sanderson shows, the relevant order includes both the costs of the successful defendant as well as the Claimants' costs incurred in relation to the successful defendant.
82. I now consider the relevant matters. The Claimants brought claims against SHL for breach of contract, breach of the Defective Premises Act 1972 and breach of section 2 of the Buildmark Policy. It brought claims against the NHBC for breach of section 3 of the Buildmark Policy and, initially, for claims in tort and under the Defective Premises Act 1972. Although the claims against the NHBC are expressed in the pleadings as being further claims and not alternative claims, in reality the claims against SHL, in particular under section 2 of the Buildmark Policy, were alternative claims for properties in respect of which section 3 of the Buildmark Policy claims might have been brought against the NHBC, although the remedies in terms of damages might be different. Having succeeded against SHL, the Claimants have no longer found it necessary to pursue section 3 claims against the NHBC. This also indicates the alternative nature of the claims being made against SHL and the NHBC. Even if these are not alternative claims that would not preclude a costs order being made against SHL.
83. It is evident that the causes of action relied upon in this case against SHL and against the NHBC were connected with each other. In particular, claims were made under section 2 of the Buildmark Policy against SHL and under section 3 of the Buildmark Policy against the NHBC. That connection is also shown by the strong preference expressed by SHL, both in correspondence and in the pleadings, for the Claimants to accept the division of section 2 plots and section 3 plots, set out in the agreement of 12 May 2008. Whilst there are separate causes of action against SHL in contract and under the Defective Premises Act 1972, there is sufficient connection between the causes of action against SHL and the NHBC.
84. It was clearly reasonable for the Claimants to bring proceedings against the NHBC and to pursue those claims, at least in relation to the claims under section 3 of the Buildmark Policy. Indeed, SHL accepts that. This is a case where there may have been only remedies against the NHBC under section 3 of the Buildmark Policy when remedies against SHL under section 2 of the Buildmark Policy were not available, if the Claimants' claims against SHL for breach of contract and under the Defective Premises Act 1972 had failed. There were also concerns, expressed by SHL's solicitors, as to whether there were sufficient financial resources to deal with all the claims, without the involvement of the NHBC. It is clear from the evidence that, from the beginning, SHL encouraged the Claimants to involve the NHBC and bring claims against NHBC.
85. On that basis I consider that this is an appropriate case where the costs which the Claimants have incurred in dealing with the NHBC should be paid by SHL. There are two further matters. First, I do not consider that SHL should be liable for the Claimants' costs in relation to the claims which they made against the NHBC in paragraphs 25 and 54 of the Particulars of Claim which were subsequently abandoned. I do not consider that in such circumstances it was reasonable for the Claimants to make those claims which were wholly independent of claims under the Buildmark Policy.
86. Secondly, as between the Claimants and SHL, I do consider that there is a basis for distinguishing between the costs of the NHBC Parties. Whilst it is true that the possibility that SHL might seek some remedy against NHBC-BCS was mentioned at one stage, it was for the Claimants to take their own independent view of the claim against NHBC-BCS. I am not persuaded that SHL's liability to pay costs to the Claimants should include any costs which the Claimants have expended in relation to NHBC-BCS, to the extent that any costs have been spent in that respect.
87. I therefore order that SHL should pay the Claimants' costs of the proceedings against the NHBC, excluding the costs of the application to strike out/for summary judgment and excluding the costs of the claims made in paragraphs 25 and 54 of the Particulars of Claim. I make no order against SHL in respect of the Claimants' costs of the proceedings against NHBC-BCS.

The status of the proceedings against the NHBC Parties

88. An issue has arisen as to how the proceedings between the Claimants and the NHBC Parties should now be dealt with. There is currently a stay in place and the Claimants submit that this is the appropriate way to leave those proceedings, not least, they say, because there are potentially matters arising out of the remedial works which the NHBC have carried out. The Claimants are supported in that submission by SHL, who are concerned that any other disposal at this stage as between the Claimants and the NHBC Parties might prejudice the remaining issues which have to be resolved, and in particular, issues which the parties hope can be resolved by agreement as to any liabilities under the agreement of 12 May 2008 between SHL and the NHBC.
89. The NHBC Parties submit that the appropriate way of disposing of these proceedings is for the Claimants to discontinue them. That, as I indicated above, is more by way of a mechanism by which the NHBC Parties hoped to obtain a costs order in their favour. Given that there are still some outstanding matters between the parties in this case which, on one view, might be prejudiced by dealing with the position as between the Claimants and the NHBC Parties in a different way, I consider that the stay of the proceedings as between the Claimants and the NHBC Parties should continue. Given that I have dealt with costs I trust that if matters are fully resolved between the parties, as they hope, that the stay can form part of the settlement under a Tomlin Order or can otherwise be dealt with by consent. In default of agreement, the position can then be dealt with by the court.

Summary

90. Accordingly, subject to any submissions as to the wording of the order, the order I propose to make is that:

(1) As between the Claimants and the NHBC Parties, there shall be no order as to costs in respect of the claims by the Claimants against the NHBC Parties for Foundation Defects, save for the costs under (2) and (3) below;

(2) That the Claimants shall pay the NHBC's costs of the claims for Foundation Defects made against the NHBC in paragraphs 25 and 54 of the Particulars of Claim.

(3) The NHBC shall pay the Claimants' costs of the NHBC's application to strike out and/or for summary judgment dated 15 October 2009, save for any costs under (2) above.

(4) As between the Claimants and SHL, SHL shall pay the Claimants' costs of the claims for Foundation Defects against the NHBC, save for the Claimants' costs of the claims for Foundation Defects made against the NHBC in paragraphs 25 and 54 of the Particulars of Claim and save for any costs of the NHBC's application to strike out and/or for summary judgment dated 15 October 2009.

(5) The Claimants should bear any costs which they incurred in relation to the claims for Foundation Defects against NHBC-BCS.

(6) The proceedings between the Claimants and the NHBC Parties are hereby stayed until further order.