UK: Litigation And ADR Procedure News For In-House Lawyers: UK Construction Focus (July 2018)

Our pick of recent news and decisions on dispute resolution procedures for construction claims.

If you would like more information on any of the topics below, please contact one of the team listed under 'Key contacts'.

Technology and Construction Court (TCC) practice and procedure news

Pilot planned for new disclosure regime

In November 2017, the judiciary announced plans for a new disclosure pilot (see our note: " Proposals for new disclosure rules are in the offing" and the judiciary press release). The Disclosure Working Group had flagged up several issues with the current disclosure process. These issues include:

  • the large increase in disclosable data in the last few years;
  • the lack of focus in disclosure orders on key issues;
  • the failure to use the wide range of available disclosure orders;
  • parties not engaging with each other enough on how to approach disclosure; and
  • the unsuitability of the current rules to deal with electronic data.

Proposals for the disclosure pilot were published incorporating a guidance note, a new draft Practice Direction (PD) and Disclosure Review Document (DRD). There have since been a number of roadshows on the proposed changes. The Disclosure Working Group received much feedback which has resulted in amendments to both the PD and the DRD. We now understand that the Civil Procedure Rule Committee has approved the implementation of a mandatory disclosure pilot scheme in the Business and Property Courts from early next year. That timescale will give practitioners, parties and judges alike some time to familiarise themselves with the new rules. Final approval of the pilot is awaited.

Seeking disclosure before starting proceedings

Investing time in engaging with other parties on how to carry out the disclosure process often reduces the preparation time and costs of court proceedings. In some cases, it is possible to ask for the disclosure of certain documents before proceedings start. The decision in Welsh Rugby Union Ltd v. Vu Ltd [2018] EWHC 931 (QB) is a good example of the benefits of pre-action disclosure.

In Welsh Rugby, the applicant alleged the respondent was involved in unauthorised ticket selling. It argued that pre-action disclosure of certain documents would enable the applicant to learn the extent of the respondent's activities. The Master agreed and ordered pre-action disclosure under Civil Procedure Rules. Unhappy with this order, the respondent appealed.

The appeal came before the High Court, which upheld the order for pre-action disclosure on several grounds. The respondent and the applicant were likely to be party to later proceedings. Pre-action disclosure was desirable to dispose fairly of the anticipated proceedings and might help, both in resolving the dispute without the need for proceedings and saving costs. The judge also found that the Master had jurisdiction to make the order and had exercised his discretion appropriately in making the order.

"In my judgment Master Eastman was right to make an order for pre-action disclosure in this case. It is very likely to avoid the need for proceedings either because the [the applicant] will be shown to be right and matters will compromise or because the [the applicant] will be shown to be wrong and proceedings will be avoided." (Paragraph 32, Welsh Rugby Union Ltd v. Vu Ltd, 2018 WL 00559772.)

Pre-action disclosure offers a practical method of researching key facts early in the process. A better understanding of the facts can improve the chances of an earlier settlement and thereby reduce costs.

Practical note: those considering applying for a pre-action order should note that it must be made in specific terms and identify the documents or class of documents to be disclosed. The respondent may be required to explain which documents are no longer in its control or to explain in respect of which documents it claims a right or duty to withhold inspection from the applicant.

Apply for security for costs as soon as possible – or risk a reduction in security

To establish the grounds for obtaining a security for costs order against a claimant, a defendant must supply written evidence and satisfy certain conditions under Civil Procedure Rules (CPR) 25.12 and 25.13. For example, the claimant might reside outside the jurisdiction (CPR 25.13 2 (a) (i)). The more common ground (where the claimant is a company or other body) is the defendant's (reasonable) belief that the claimant will not be able to pay the defendant's costs if unsuccessful and ordered to do so (CPR 25.13 2 (f)). The court must also be satisfied in all the circumstances that it is just to make such an order.

In Accident Exchange Ltd and another v. McLean and others [2018] EWHC 1533 (Comm), the judge reminded parties to apply for a security for costs order as soon as possible. Not doing so could lead to a reduction in the amount ordered to be paid by the claimants as security.

In Accident Exchange, the claim was substantial: direct losses exceeded £60 million, the costs were over £7 million and consequential losses over £50 million. The defendants sought security of 80 per cent of the costs to be paid in three instalments. It was common ground that the claimants would be unable to meet the defendants' costs if their claim was unsuccessful. The issue was therefore, was it just for the court to award costs and, if yes, in what sum. The claimants opposed the application, arguing that the order would stifle their claim and, also, because of the defendants' excessive delay in making the application.

The judge dismissed the argument that a security for costs order would stifle the claimants' claim. However, the judge accepted that the defendants' delay in making the application should be taken into consideration. The judge ordered the claimants to give security in respect of 60 per cent of the defendants' costs but reduced that 60 per cent by a further 60 per cent to reflect the defendants' delay in making the application.

The relevant facts are worth noting. The solicitors for one of the defendants had questioned the claimants' ability to pay but had accepted the claimants' reassurance. However, that reassurance had left some crucial questions unanswered. The defendants should have reviewed the issue later. Had they raised appropriate questions and reviewed the matter, they could have made the security for costs application earlier.

The judge considered the following key principles:

  • On whether providing security might stifle the claim: the judge considered the six principles set out in Keary Developments Ltd v. Tarmac Construction Ltd. [1995] 2 BCLC 395, including:

    • the court has discretion to award security in the light of all the circumstances;
    • the fact that an order for security might deter the claimant from pursuing its claim is not reason (in itself) for refusing an order. The court must balance the injustice a security order might cause to the claimant against the prospect of the defendant being unable to recover its costs from the claimant if the court refuses the order;
    • the claimant has to show that a security order would, in all the circumstances, probably stifle its claim;
    • the court must also consider whether the claimant can access funds from interested parties (such as shareholders); and
    • the court must be satisfied that there is no prospect of the funds being made available to the claimant.
  • On whether the delay affects the security for costs order: "there are no hard and fast rules. An order for security for costs can be made at any stage of the proceedings". (See Hildyard J in Re RBS [2017] 1 WLR 4635.) "Delay in making the application is one of the circumstances to which the court will have regard when exercising its discretion to order security." (See Re Bennet Invest Ltd [2015] EWHC 1582.)
  • On what percentage of costs to award by way of security: a broad-brush approach is appropriate in matters of this nature. Sixty per cent, or thereabouts, is an appropriate figure to take when deciding on the figure the claimant should give as security (See Stokors SA & Ors v. IG Markets Ltd. [2012] EWCA Civ 1706.)
    (Case report obtained from Bailii.)

Counsel's brief fee is payable even if the dispute settles at the court's door

A barrister's "brief fee" is the fixed fee that covers their pre-trial preparation and the first day of trial. The costs of subsequent days are agreed as a "refresher". Issues about a brief fee arose in Hugh Cartwright & Amin v. Devoy-Williams and another [2018] EWHC 1692 (QB), a case which involved a dispute between solicitors and their client about costs. Hugh Cartwright was a "hotly contested" litigation that reached the court's door (but not the hearing) before settling. As part of the costs dispute, one issue that arose was whether counsel was still entitled to be paid the full brief fee. Yes, was Davies J's answer.

The parties had reached a settlement in mediation the day before a jurisdiction hearing for which a barrister had been instructed and a brief fee agreed. The Master later decided to reduce the brief fee from £6,500 to £3,000. The solicitors appealed.

The appeal court found the Master's reasoning "hard to discern". In essence, the Master held that it was not reasonable for the defendant (client) to pay all the brief fee because counsel should have been told about the settlement earlier. He should have been "stood down" earlier to avoid some of the preparation time. That way, counsel could have done something else on the day.

Davies J had little hesitation in overturning the Master's decision: "In the context of this 'high temperature' litigation the case was not settled until it was finally settled, which was not until 10:30pm on the night before the jurisdiction hearing. Counsel's brief fee had been incurred. No counsel properly observing his or her duty would stop working on this case until he or she had been informed of a final settlement. All the preparation work had been done. The barrister was entitled to be paid his or her fee." (See paragraph 23 of the judgment.)

The Master was wrong to find that the solicitor could have cancelled the day before the hearing and avoid counsel's further preparation. The fee was reasonable but the reasons for the Master's reduction of the fee were not. The brief fee was payable regardless of whether the barrister could find something else to do on the, now free, hearing day. There were no good grounds to reduce the brief fee.

Davies J's decision is a reminder to factor in the cost of the brief fee if a settlement is being negotiated immediately prior to a hearing.

Alternative dispute resolution news

  • The Centre for Effective Dispute Resolution (CEDR), in partnership with the International Institute for Conflict Prevention and Resolution, has published its 2018 CEDR Mediation Audit. A total of 336 UK mediators contributed to the survey. The key findings from their views include a 20 per cent increase in commercial mediations since 2016, with 12,000 mediations held in total (excluding small claims). Disputing parties have referred £11 billion worth of commercial claims to mediation in the last 12 months. The aggregate settlement rate for mediations is high, at 89 per cent, with 74 per cent settling on the day of the mediation.

    The audit revealed an increasing resistance to holding joint meetings at the start of the mediation day: lawyers are arguing that the parties are already aware of the other party's claim – a point with which mediators tend to disagree. That said, the number of joint meetings held later in the day is increasing and there were signs that negotiations were getting tougher. You can read the full audit here.

  • The United Nations Commission on International Trade Laws (UNCITRAL) has finalised its draft convention on mediation and adopted the corresponding Model Law. At the start of the 51st session of UNCITRAL, Mr Miguel de Serpa Soares, United Nations Legal Counsel, "expressed the hope that, once adopted, the Convention on Mediation will become the corner stone of the international mediation framework and have the same success as the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958, New York Convention)". (Click here for the papers from the 51st session.)

Adjudication review

Our latest review of adjudication decisions considers:

  • using a winding up petition to enforce an adjudication is unwise (Victory House General Partner Ltd, Re A Company [2018] EWHC 1143 (Ch));
  • the court's approach to set-off claims in adjudication enforcement proceedings (MI Electrical Solutions Ltd v. Elements (Europe) Ltd [2018] EWHC 1472 (TCC)); and, in brief
  • a last word on the benefits of adjudication (Imperial Chemical Industries Ltd v. Merit Merrell Technology Ltd).

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