WES Futures Limited v Allen Wilson Construction Limited

[2016] EWHC 2863 (TCC)

Judgment date: 10 November 2016

Summary

(1) The parties were in dispute as to whether an offer was a true Part 36 offer and if so, whether this entitled the claimant to recover its costs associated with two earlier adjudications.

(2) The Court held that it was a Part 36 offer on the basis that it was clearly intended to be so and that the Court should not invalidate it without good reason to do so. The offer letter did not contain the obvious errors identified in case law that would otherwise invalidate the Part 36 offer.

(3) In respect of the adjudication costs, the Court focused on the terms of the offer letter, which sought to make the defendant liable for “legal costs incurred in this case” if the claimant’s offer was accepted 21 days from the date of the offer. The offer letter was sent on the same day as a letter that threatened to commence proceedings.

(4) The Court held:

(a) Given the offer was a Part 36 offer, the costs of both the adjudications were not recoverable. Rule 36.13(1) of the CPR allows parties to recover the “costs of the proceedings” only. The Court held that this did not include adjudication costs when proceedings had not yet been commenced.

(b) The Court went further and confirmed that, even if this was not a Part 36 offer, the costs of the adjudications would still not be recoverable. The offer letter presupposed there would be court proceedings and the proper construction is that the offer was made in relation to the costs of those proceedings (i.e. the offer was intended to have the same consequences as a Part 36 offer). The offer made no reference to adjudication proceedings and simply referenced “costs in this case”. This aligns with the position under the Housing Grants (Construction and Regeneration) Act 1996, as amended, pursuant to which parties bear their own costs of adjudication and are usually not recoverable in enforcement proceedings.

Technology and Construction Court, His Honour Mr Justice Coulson

Background

Wes Futures Limited (the claimant) carried out subcontract works for the Allen Wilson Construction Limited (the defendant) at a building on the Strand. The claimant commenced adjudication proceedings against the defendant in 2015 seeking payment of unpaid invoices. The adjudicator resigned on jurisdictional grounds and the dispute remain unresolved.

In early 2016, the claimant instructed solicitors and made a renewed claim for the unpaid invoices. The claimant sent three letters to the defendant. The first letter, dated 8 January 2016, sought payment of £86,469.21 plus VAT within 14 days. A second letter was sent to the defendant on 11 February 2016, which explained that as no settlement had been reached, court proceedings would be issued without further notice. On the same day, the claimant sent a third letter which was headed "Without Prejudice Part 36 Offer” and made "a settlement offer in accordance with Part 36 of the Civil Procedure Rules” ...for “the sum of £65,000 plus VAT in full and final settlement of its claim. If this offer is accepted at a point which is more than 21 days from the date of this offer you will be liable for all our client's legal costs incurred in this case."

The defendant failed to pay the sums as requested and in August 2016, the claimant commenced a second set of adjudication proceedings seeking the original £86,469.21 plus VAT. The claim was disputed by the defendant but upheld in full by the adjudicator, together with VAT and interest, in a decision dated 13 September 2016.

The defendant continued to refuse payment and the claimant commenced adjudication enforcement proceedings on 6 October 2016. However, on 4 November 2016, the defendant wrote to the claimant accepting the offer made in the letter dated 11 February 2016. The letter was written in similar (although not identical terms) to the claimant’s letter.

Both sides expressly accepted that as a result of the offer letter of 11 February and the letter of 4 November 2016, there was a binding compromise between the parties. However, both parties disputed the construction of that compromise. In particular, the claimant submitted that by accepting the offer, the defendant had agreed to meet the costs of both adjudications (being the failed adjudication in 2015 and the second adjudication in 2016).

Issues

The Court was asked to decide:

1. Whether the offer dated 11 February 2016 was a valid part 36 offer or not; and
2. Whether the offer, which included terms that the defendant would be liable for all “legal costs incurred in this case”, extends to adjudication in addition to litigation costs.

Decision

The Court held that:

The offer dated 11 February 2016 was a valid Part 36 offer. The Court restated the principle that “If an offer is expressed to be a Part 36 offer it should be interpreted if possible to make it effective as what it purports to be, rather than ineffective” (Dutton & others v. Minards & others [2015] EWCA (Civ) 984, paragraph 29). The court should therefore validate it, unless there is a very good reason not to. The Court held that, as the letter of 11 February 2016 expressed it was a Part 36 offer and the acceptance of 4 November 2016 repeated this express reference, and there was no good reason to find otherwise, this was a Part 36 offer.

• On the basis that the offer is a valid Part 36 offer, the costs of both earlier adjudications are excluded. Rule 36.13(1) of the CPR refers to the claimant recovering “the cost of proceedings”. This offer threatened to commence specific court proceedings. Both parties agreed that the adjudication costs were not costs of the proceedings.
• If the offer was not a Part 36 offer, the costs position would remain the same as if it was a Part 36 offer. The letter of 11 February 2016 expressly referred to Part 36 and presupposed that there were or would be court proceedings. The Court disagreed with the claimant’s argument that the wording “all legal costs incurred in this case” was wider than “the cost of proceedings” and should therefore include adjudication costs. The Court looked specifically at the wording of the offer and held that “incurred in this case” related to court proceedings and not earlier adjudication costs. This is further supported by the fact the offer itself does not specifically mention the cost of adjudication proceedings.
• To further support its judgment, the Court restated two wider principles:

• Pursuant to the Housing Grants (Construction and Regeneration) Act 1996 (as amended) costs incurred in adjudication are not recoverable for either party.
• “Costs of proceedings” (the relevant wording, whether or not this was an offer actually made under Part 36 or simply an offer that referred to Part 36) includes “recoverable pre-action costs” (CPR 36.13.1). These recoverable costs will not usually include the costs of separate, stand-alone ADR proceedings such as adjudication (Roundstone Nurseries Limited v. Stevenson Holdings Limited [2009] EWHC 1431 (TCC)).

For the full judgment, please see: http://www.bailii.org/ew/cases/EWHC/TCC/2016/2863.html

Subject criteria: Costs, Part 36