Gotch v Enelco Ltd (TCC - 3.7.2015)
The subject matter of the building contract was two residential properties. The contractor claimed damages for breach of contract on the basis that the employers repudiated the contract and threatened to begin an adjudication. The employers rejected the contractor’s claim and maintained that the contractor had no right to adjudicate because they were residential occupiers. Correspondence ensued between the parties’ solicitors which eventually led to the contractor’s solicitors stating that it had no current intention to adjudicate. However, by that time the employers had begun Part 8 court proceedings for a declaration that the contractor had no right to adjudicate.
The employers applied for directions for the resolution of its claim but Edwards-Stuart J declined to give such directions in the light of the contractor’s solicitors’ statement and instead directed that the parties should try to agree directions to resolve the contractor’s claim. However, the employers refused to do so. The judge stayed the employers’ application for directions at the case management conference and gave directions for the resolution of the contractor’s claim.
The judge’s costs order was that (i) The employers were to have the costs of issuing the Part 8 proceedings on the standard basis excluding the costs of its application for directions (ii) If the stay of the employers’ application were to be lifted, the order at (i) was to be set aside, any costs paid pursuant to it were to be repaid and those costs would then become costs of the action and (iii) The employers were to pay the contractor’s costs of the action on an indemnity basis from when the contractor’s solicitors stated that the contractor had no current intention of adjudicating until the day before the case management conference took place. The judge, in giving his reason for his costs decision, focused on the parties’ conduct.
Whilst the contractor’s threat of adjudication was a negotiating tactic, there is a menace that lies behind any threat to adjudicate. The employers were justified in preparing the Part 8 proceedings up to the contractor’s last minute change in position when its solicitors indicated that the threat of adjudication was no longer imminent, even though this indication was to some extent equivocal. The contractor’s solicitors should have appreciated much sooner than they did that (i) There was a serious issue in relation to the right to adjudicate under the contract and (ii) To insist on referring the dispute to adjudication was bound to provoke the employers into resisting it.
It was not appropriate for the employers to make an immediate application for directions without any reference to the contractor. Having obtained the order for directions, the employers should have complied with it so that to write to the court a week after the order was made saying that they had no intention of complying with it because they thought the judge had misunderstood the position was inexcusable. If the employers were dissatisfied with the order or really believed that the judge had misunderstood the nature of the application they were making, they could and should have made an application for the order to be varied.