Walker Construction (UK) Ltd v Quayside Homes Ltd and Another

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLady Justice Gloster,Lord Justice Mcfarlane,Lord Justice Laws
Judgment Date07 February 2014
Neutral Citation[2014] EWCA Civ 93
Date07 February 2014
Docket NumberCase No: A2/2012/2688

[2014] EWCA Civ 93

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM CENTRAL LONDON COUNTY COURT

HIS HONOUR JUDGE BAILEY

1CL20042

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Laws

Lord Justice Mcfarlane

and

Lady Justice Gloster

Case No: A2/2012/2688

Between:
Walker Construction (UK) Ltd
Appellant
and
(1) Quayside Homes Ltd
(2) Peter Brett Associates Llp
Respondents

Lord Marks QC & Mr Martin Hirst (instructed by C J Hough & Co Ltd) for the Appellant

Mr Simon Browne QC & Mr Tim Sharpe (instructed by Furley Page LLP) for the Respondents

Lady Justice Gloster

Introduction

1

The appeal and cross-appeal in this case arise out of the judgment of His Honour Judge Edward Bailey given in the Central London County Court (Technology and Construction List) on 20 September 2012 ("the judgment"), whereby he awarded a net judgment sum of £10,885 to the defendant/respondent, Quayside Homes Limited ("Quayside"), in respect of its counterclaim, and his decision in a separate judgment of the same date ("the costs judgment") to award Quayside the majority of its cost of the action. At the end of the hearing before him the judge gave Quayside permission to appeal against his decision not to award it the sum of £8,941.16 by way of counterclaim. The appellant, and claimant in the action, Walker Construction (UK) Limited ("Walker"), was given permission to appeal against the judge's order for costs by Tomlinson LJ at an oral hearing in the Court of Appeal on 20 March 2013.

2

Because Quayside's cross appeal concerns a question of liability and because its outcome is arguably capable of affecting the outcome of Walker's costs appeal, it is logical to consider Quayside's cross-appeal first.

3

The principal issue at the hearing before us, however, was whether the judge was right to make an order for costs which required Walker (subject to certain exceptions) to pay Quayside's costs, for the period from 16 December 2008 to 24 May 2011 assessed on the standard basis, and from 25 May 2011 assessed on the indemnity basis. We were informed that the costs of the proceedings below, so far as both sides were concerned, were substantial. The bill submitted by Quayside in respect of its costs for the period from 16 December 2008 to 24 May 2011 on the standard basis, and for the period from 25 May 2011 on the indemnity basis, claims a total of £345,758.73.

Background facts

4

Because the appeal challenges the judge's order in relation to the costs of the action, it is necessary to set out the procedural chronology of both the action and the various offers for settlement in somewhat tortuous detail.

5

Walker is a civil engineering contractor, which carries out, amongst other things, drainage and highway works.

6

Quayside is a developer of residential homes. In July 2003, planning permission was granted to construct over 300 residential homes on land known as "Willowbank", which previously formed part of the Sandwich Industrial Estate ("the site").

7

On 3 November 2003 Walker successfully lodged a tender return with Quayside for drainage and highways works ("the works") at the site. In December 2004 Walker signed two NEC contracts with Quayside whereby the former agreed to complete the works directly for, and be paid directly by, Quayside. There were separate contracts for what were described as the section 38 works (on-site works) and the section 278 works (off-site works). There appears to have been some dispute previously as to whether the contracts were subsequently consolidated in a contract dated 23 December 2004, but the precise contractual structure is of limited relevance for present purposes. I shall simply refer to the contract or contracts between the parties as "the Contract". It was common ground that the Contract was a contract for the purposes of the Housing Grants Construction and Regeneration Act 1996 ("the Act") and that, because the parties did not make their own contractual provisions for adjudication, the result of section 108 (5) of the Act was to incorporate the adjudication provisions of the Scheme for Construction Contracts (England and Wales) Regulations 1998 ("the Scheme"), which was promulgated under section 114 of the Act.

8

The Part 20 defendant in the action, Peter Brett Associates ("PBA"), was Quayside's consulting engineer and project manager. PBA is no longer a party to the action, as Quayside's claim against it was settled on the terms of an order dated 4 April 2012.

9

At the conclusion of the works, a dispute arose between Walker and Quayside in respect of the final payment sought by Walker. PBA had issued Walker with various site instructions to carry out certain drainage and other remedial works, and Quayside had withheld parts of the retention and other payments reflecting the costs that it considered were incurred in rectifying what it alleged were Walker's defective works.

10

Walker issued court proceedings on 19 February 2008 in the Ashford County Court claiming the sum of £23,572.36. This was made up as follows:

i) £11,345.96 in respect of an outstanding application for payment under certain invoices;

ii) £11,916.01 in respect of retentions made by Quayside in respect of the section 38 and section 278 works; and

iii) £310.39 VAT due on the retention.

11

Quayside served a "holding" defence on 20 March 2008. That defence asserted, without providing any particulars, or quantifying any counterclaim, that Walker had failed to complete the works properly and that they were defective. The defence referred to the fact that, as at that date, "Contract Administrators" were dealing with Walker in relation to the defects alleged by Quayside. A stay of proceedings was agreed in the hope of settlement.

12

On 29 August 2008 Walker issued a notice of adjudication pursuant to the Scheme. By its notice, Walker claimed:

i) £13,298.36 for the balance of application 28061 dated 11 May 2007;

ii) £11,916.01 of retention (comprising Quayside's retentions in respect of the section 38 and section 278 works).

13

The adjudicator's decision was given on 2 December 2008. By his award the adjudicator rejected Quayside's claim that Walker was not entitled to be paid for the remedial works because the damage exhibited by the drainage was due to failings in the construction of the drainage by Walker. He also rejected Quayside's claim for set off and/or abatement in respect of damage allegedly suffered as a result of Walker's allegedly defective drainage works and awarded Walker the sum of £23,440.72 plus interest. The sum was made up as follows:

i) the full sum claimed against application 28061 dated 11 May 2007, namely the sum of £13,298.36; and

ii) the further sum of £10,142.36, being the full amount of the section 38 works retention.

It is relevant to note that, having considered in detail the evidence relating to the defects affecting the drainage works, the adjudicator concluded as follows:

"On balance therefore I find that the defects observed to the drainage works were more likely than not caused by reasons other than Walker's workmanship and consequently the cost of works applied for in application dated 11 May 2007 should have been allowed by the Project Manager. The value allowed in Certificate 3 should be increased by the sum of £13,298.36 (including retention of £1952.40) and this amount should have been paid to Walker by 14 June 2007."

14

On 15 December 2008 Quayside paid Walker the sum of £23,440.72 plus interest pursuant to the adjudicator's award.

15

Walker's claim for the section 278 works retention (£1,773.65) had been withdrawn from the adjudicator following concerns as to the adjudicator's jurisdiction to determine that issue. Accordingly, after the publication of the adjudicator's award, the claim for £1,773.65 retention in respect of the section 278 works remained outstanding as a claim in the proceedings, which had been adjourned pending the adjudication.

16

On 29 January 2009 Walker's solicitors, CJ Hough & Co Ltd, made a Part 36 offer to Quayside's solicitors, Furley Page LLP, offering to discontinue Walker's claim (which, as I said, at that stage stood in an amount of £1,773.65) with no order as to costs. The letter stated as follows:

"As you are aware, following the decision of Mr Turner under the contract to which this claim relates our client has been paid its claimed entitlement in full, with the exception of retention of £1,773.65.

Apart from that retention, our client's claim in the current proceedings has been satisfied. If the court was to agree with Mr Turner's decision, in particular his view that defects were not caused by our client's workmanship (see paragraph 29), then there can be no doubt that our client would be entitled to its costs in these proceedings.

However, in order to bring the dispute to an end and to avoid further costs being incurred by your client our client is willing to forego its entitlement to costs and the outstanding retention.

1. our client will discontinue its claim.

2. there will be no order as to costs.

There is no counterclaim in these proceedings and this offer does not therefore take into account any counterclaim. This offer will remain open for acceptance for 21 days and can be accepted thereafter only if the parties agree costs or the court gives permission.

For the avoidance of doubt, if your client accepts this offer then it is agreed that neither party will bring any further proceedings (in court, adjudication or arbitration) in relation to our client's entitlement to payment as claimed in these proceedings.

If this offer is not accepted and the court confirms that our client would have succeeded in...

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