MAC Hotels Ltd v Roder Levett Bucknall UK Ltd
| Jurisdiction | England & Wales |
| Judge | Judge Havelock-Allan |
| Judgment Date | 26 February 2010 |
| Neutral Citation | [2010] EWHC 767 (TCC) |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Date | 26 February 2010 |
| Docket Number | Claim No. 7BS90491 |
[2010] EWHC 767 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BRISTOL DISTRICT REGISTRY
TECHNOLOGY AND CONSTRUCTION COURT
His Honour Judge Havelock-Allan Q.C.
Claim No. 7BS90491
MR.JOHN BLACKMORE (instructed by LYONS ROUNSFELL) appeared on behalf of the Claimant.
MR. MARK CANNON Q.C. (instructed by MILLS & REEVE LLP) appeared on behalf of the Defendants.
Judge Havelock-Allan Q.C.:
This is an application by the defendants for disclosure and inspection of files of documents, which the claimant in the action (who I shall refer to as "MAC"), says are protected by legal professional privilege or litigation privilege.
It is necessary to set this application in context and to explain why it has come on for hearing at comparatively short notice.
I have summarised the background to this dispute in two recent judgments. I will confine my summary of that background on this occasion to the bare minimum. The claimant, MAC, engaged the first defendant (who has been referred to in this litigation hitherto by the name of "Citex"), and the second defendant (who I shall refer to as "Hills") to act, respectively as Project Manager and Quantity Surveyor on a major development. The development involved the conversion of a property called Whatley Manor in Wiltshire into a luxury hotel and spare complex. The Contractor on the project was Midas Construction Limited ("Midas"). Midas was appointed in about June 2001 and construction began in October of that year.
At the outset, the estimated project cost was in the region of £7.5 million. Construction was finished sometime in July 2003. By then the project had overrun its planned completion date. More importantly, the construction costs charged by Midas had mounted to a figure of nearly £21 million. The last interim payment application, Valuation 25, was made in August 2003. On the basis of that application Midas was estimating that the Final Account, including sums already paid on interim applications up until March 2003, would be around £21.2 million. Negotiations ensued between MAC and Midas, the consequence of which was that the Final Account was settled on payment by MAC of a sum of just over £7 million, net of a retention of £350,000. This meant that MAC accepted a Final Account total of around £21.8 million, which represented a discount to MAC on the balance that Midas was claiming of about £350,000.
MAC attributed the cost overrun to bad advice it had received from the Project Manager and the Quantity Surveyor, and from their mismanagement of the development. In June 2007 MAC commenced the present action against Citex and against Hills, alleging negligence and breach of contract. This action has hitherto been referred to as "the lead action". Aside from some complaints about defects in the works, the main claim against both defendants was for damages representing the difference between the sum that MAC had paid to Midas, for the works, and what MAC alleged would have been the lesser actual cost if MAC had been better advised and the works had been properly administered.
The lead action was only commenced after MAC had caused an investigation to be made of what had gone wrong with the development. The accounts of Midas supporting the interim payment claims, at least from March 2003, had been scrutinised by a firm of consultants, called BPP Construction Consultants, between May and August 2003, as part of the process which led to the settlement with Midas of the Final Account. BPP was engaged to carry out that task by the firm of solicitors (Boodle Hatfield) which was then acting for MAC's parent company and for the Landolt family who were the owners of the parent company. BPP in turn engaged a firm called Haymarket Management Services ("Haymarket") to assist in their investigation.
The investigation gave rise to some concern about a possible link between certain Midas employees and one of the many subcontractors on the project. However BPP reported that it could find no evidence of improper conduct on the part of Midas or any subcontractor.
In April 2004 MAC instructed another firm of solicitors called Goughs to consider whether there was any basis for bringing a claim against Citex or Hills or Midas. Goughs engaged High Point Rendel Limited to investigate. High Point Rendel considered the files which were available at that point, and produced two reports in September 2004. These contained serious criticisms of the performance of both Citex and Hills but revealed no evidence of improper conduct on the part of Midas.
In January 2006 MAC engaged Messrs Gleeds, a firm of surveyors, to investigate quantum further. Some additional voluntary disclosure was provided to Gleeds by Hills, which revealed that there was a scarcity of subcontractor records to support the costs reports which Hills produced in the course of the development.
In consequence MAC made an application for third party disclosure against Midas in October 2006. More than 65 additional files of documents were obtained from Midas as a result of that application. But they did not include the subcontractor files which MAC was expecting to find, because Midas said that they had either been mislaid or destroyed.
Mr. Alan Miskelly of Gleeds began examining all of this new documentation from Midas sometime late in December 2006 or in January 2007. As a result of his investigations MAC began a second action against Midas in March 2009. This has been referred to as "the subsequent action", but I shall call it "the Midas action".
The main allegation in the Midas action was that, as from about mid-June 2001, various employees of Midas who were part of the Midas team which had been managing the Whatley Manor project had conspired to defraud MAC in a number of ways. They had agreed with subcontractors that the subcontractors would invoice Midas at inflated rates, over and above the true cost of the subcontract works. They had organised for a hidden discount, by misrepresenting the true subcontract costs to MAC. They had obtained payment from MAC of the inflated subcontract prices, and had only paid the subcontractors the true discounted rates. By failing to account to MAC where, by virtue of remeasurement of the subcontract works, there was a repayment made by the subcontractor, Midas had pocketed the amount of the difference. Midas had received certain other payments for services from subcontractors, without accounting for those benefits to MAC. Midas manipulated the tendering process at the outset, so that one particular subcontractor, Mitie PLC, who had agreed to pay certain hidden discounts or additional payments to Midas, was selected to be the mechanical and electrical subcontractor for the project.
The damage claimed as a consequence of this alleged conspiracy to defraud and/or fraudulent misrepresentation amount to around £2.4 million. Of that figure, a sum of about £840,000 has already been reimbursed by Midas to MAC.
There are other claims in the Midas action concerning a Main Contractors' Discount ("MCD"), which was, in effect, a mark up of 2.5% charged by Midas. There is a claim in respect of overhead and profit, and a claim in respect of defects. But the foundation of the case in the Midas action is the claim for conspiracy to defraud.
Precisely what prompted the fraud allegation is a matter in issue between MAC and the defendants (Citex and Hills). MAC says that certain documents obtained on the third party disclosure application against Midas suggested that Midas had been paying its subcontractors less than the rate claimed by Midas from MAC. This led to Haymarket being instructed by MAC in 2007 to enquire into the position further. In the course of 2007 Haymarket tracked down two former employees of Midas, Mr. Lee Jackson and Mr. Gary Hibbert, and interviewed them. Mr. Jackson was interviewed in November 2007 and Mr. Hibbert was interviewed twice in the early months of 2008. What they said confirmed MAC's suspicion that Midas had negotiated arrangements with its subcontractors to inflate their rates and obtain a secret discount. Haymarket was instructed in 2008 to re- price the Midas contract. MAC says that the work done by Haymarket in that respect was unsatisfactory. Haymarket was dis-instructed, and I understand that there is a dispute between MAC and Haymarket over Haymarket's claim for outstanding fees. The task of re-pricing the Midas contract was transferred to Mr. Miskelly of Gleeds in or about January 2009. He produced a report for MAC in March 2009, which was in part the basis of the fraud claim made against Midas in the Midas action.
By the time the Midas action was commenced, MAC was convinced that Midas had not produced all the relevant documentation on the third party disclosure application. MAC believed that Midas had further documentation relating to the project, which had yet to be produced. In April 2009 MAC obtained a search order against Midas. When the search order was executed, MAC located and seized a large number of subcontractor files which Midas had failed to produce three years earlier. According to MAC this further disclosure reinforced the allegation of fraudulent conspiracy on the part of Midas.
After obtaining the further disclosure from Midas on execution of the search order, and before any defence had been served in the Midas action, MAC applied for permission to amend the Particulars of Claim in both the Midas action and the lead action. The applications to amend were filed in September of last year. A number of the proposed...
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