The problem of costs in construction litigation

In litigation in England, it is generally expected that the winning party will recover most of its legal costs in pursuing the claim. Accordingly, most claimants, if winning, expect that they will make a “profit” out of the litigation that they have pursued.

Unfortunately, the recent decision in Costain Limited v. Charles Haswell & Partners Limited [2009] EWHC B25 (TCC) demonstrates that this general expectation can turn out to be quite wrong. The case highlights the risks associated with high value construction litigation.

The facts:

Costain sued Haswell, a specialist civil engineering practice, alleging breach of contract and/or negligence in the design of foundations of a project being undertaken by the contractor. Initially, Costain’s claim was valued at £3.5 million. At the end of a long trial, the judge concluded that Costain was the successful party. However, unfortunately for Costain, their final damages recovery was only £163,478.51 and they failed on a significant number of the various claims that were asserted against Haswell. Not only that, Costain’s legal costs were of the order of £1.6 million and the judge ordered Haswell to pay “only” just over a third of Costain’s costs. On the assumption therefore that Costain recovered about £660,000 from Haswell, the overall result of the substantial proceedings which they had “won” was that they were out of pocket by about £950,000. Where did it all go wrong?

Discussion:

The illuminating judgment gives guidance as to what a litigant hoping to “profit” from litigation must do. The claimant must not exaggerate the claim. It must not pursue items of claim that are weak or are unsupported by the necessary evidence to prove the claim.

Both parties must look seriously at the question of settlement of the proceedings and, even if a defendant considers a claimant’s claim to be “wholly unreasonable”, it would be wise to make at least some offer in settlement even if this is dramatically less than the amount claimed. It is important to note that the court will make its costs decision based on the relative success or failure of the parties on the distinct issues raised in the litigation.

In the Costain case, the judge had regard to the amount of time spent by the court dealing with the individual items of claim and, in so doing, decided that Costain was entitled to recover 65% of its total costs liability from Haswell but, crucially, Haswell was entitled to recover 35% of its costs liability (about £1.3 million) from Costain. The effect of the costs decision in favour of Haswell was devastating for Costain since, after netting off the percentages determined by the judge, he came to the result that Costain would recover only 38.75% of its total costs. He concluded that this was “a fair and just result in all the circumstances of this case”.

It is interesting to note also that the case began in about July 2004 but that judgment was only given in September 2009. Both parties must have spent a considerable amount of management time in developing their cases with their legal teams, apart of course from the substantial sums of money paid for the fees and expenses of the litigation.

Conclusion:

What can be done about the high costs and high risks associated with construction litigation? It is the writer’s view that the courts must now adopt a far greater role in managing the costs of litigation, imposing caps on fees during the course of the litigation and, at trial, imposing time limits on the advocates who present the cases to the court. Similarly, time constraints must be imposed on the experts whose evidence is so often decisive in cases of this type. In the Costain case, the experts could hardly have been more distinguished.

Nevertheless (and not a great surprise) they had diametrically opposed views upon the key issue, this being whether it was appropriate for Haswell to recommend ground treatment by preloading.


Disclaimer

This briefing is for guidance purposes only. RadcliffesLeBrasseur accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.