REUTERS | Toby Melville

The costs of litigating large and complicated construction disputes

Is the cost of litigating large and complicated construction disputes getting out of hand? One only needs to look at the litigation that the redevelopment of Wembley stadium has generated for some recent, extreme examples.

Multiplex Constructions (UK) Ltd (now called Brookfield Construction (UK) Ltd) has spent vast sums on lawyers and experts over the last few years in a number of high-profile disputes. The parties that it has been in dispute with have not escaped lightly either, and have also incurred large legal bills.

Cleveland Bridge litigation

When he was deciding Multiplex’s claim against Cleveland Bridge UK Ltd, Jackson J criticised both parties for not taking opportunities to settle the dispute. He also criticised the level of their legal fees, which far exceeded the sums that he eventually awarded to Multiplex. As a consequence, even though it was the successful party, Multiplex was awarded only 20% of its costs.

Jackson J’s judgment strongly suggested that large-scale construction litigation should be settled. As he said, when the parties did not settle:

“…both parties bicycled over the edge of the precipice and plunged into the abyss. Costs were escalating. Huge amounts of management time were being deployed to no useful purpose. Neither party was going to escape from the abyss with any financial benefit”.

Mott Macdonald litigation

In his recent judgment in Brookfield v Mott Macdonald, Coulson J gave the parties a stern warning about the overall costs of their litigation. In an attempt to control the costs (which some may argue have already got out of hand), he tied the parties to cost estimates they submitted for a case management conference in December 2009. He added that the parties will need to have good reasons to exceed these amounts.

As Brookfield ran up legal costs of £28.5 million to December 2009, and anticipated spending another £17 million to the end of a six-month sub-trial listed for early 2011, it may come as no surprise that Coulson J was concerned about costs. By comparison to Brookfield, Mott appears relatively frugal. Its anticipated costs to the end of the sub-trial are only £27.5 million. That is less than Brookfield had spent at the turn of this year.

Of the Cleveland Bridge litigation, Coulson J said:

“By reading the judgments in that case, there is a sense that the parties allowed it to get completely out of hand, and that the senior figures directing the affairs of each of the two client companies had become remote from the action, battling on and taking every point, because there was perceived to be no other alternative.”

It is easy for parties to find themselves in such an entrenched position, with no obvious way out. The higher their legal bills, the harder it gets.

Although Coulson J did not make any costs orders (Mott had asked for an “expression” of his views), he described elements of Brookfield’s costs as both unreasonable and disproportionate. He was particularly concerned that the parties had spent so much time and money on a pre-action protocol process that appeared to be of little value to either side. (Coulson J was also concerned that this was simply more ammunition for those detractors who want rid of the process, which, they argue, simply front-loads costs and has little overall value.)

The detailed costs orders that he makes at the end of the sub-trial should make for an interesting read!

The case should settle

Picking up on another of the themes from the Cleveland Bridge litigation, Coulson J said that he does not expect the present litigation to continue beyond service of Mott’s amended defence and counterclaim in April 2010. He said the size of the case (both financially and in terms of documents) made it ideally suitable to ADR, particularly mediation; the parties will be penalised on costs if they do not explore ADR:

“…I should make it clear that, at the end of the sub-trial, I will make detailed costs orders and… my perception of one side’s willingness (or otherwise) to participate in ADR will be an important element of my deliberations on costs.”

Only time will tell whether the parties heed this warning and are able to reach a settlement.

Where does this leave us on costs?

The cost of litigating construction disputes was something that Jackson LJ’s costs review considered. His preliminary report concluded that, in the majority of TCC cases, the costs incurred were proportionate to the sums at stake. He identified the Cleveland Bridge litigation as an exception to this. If he was writing up his report this year, no doubt the Mott litigation could be added to that list of exceptions.

Litigating large and complicated disputes does not have to be this expensive, although it would be foolish to suggest that it will ever be cheap. As Coulson J noted, it is a self-fulfilling prophecy to suggest that when large sums are at stake, costs are always high.

Are Brookfield’s costs actually unreasonable and disproportionate?

Brookfield’s estimated costs to June 2011 are approximately 20% of its overall claim against Mott. While we can only guess at the eventual outcome, it is possible that Brookfield’s costs will not exceed the judgment sum. If that is the case, it will be just like many other TCC claims, where costs are reasonable and proportionate. That said, everyone is aware that costs can quickly outstrip the sums in dispute. A party can just as easily spend £100,000 dealing with a £50,000 claim as it can dealing with a £500,000 claim. It is arguable that Coulson J was being harsh on Brookfield to force a settlement.

When a party is preparing its case, it is important for it to adopt an analytical approach to the issues and not keep everything in the claim “just in case”, however tempting that may seem. Parties often use experts to help them with this. They should continue to do so. However, they need to ensure that, if experts are involved, there is some tangible benefit to their involvement. Brookfield has spent £12 million on its experts (£5 million in the pre-action phase alone), and still has a claim that is “opaque” and is in need of “greater clarity”. Coulson J was concerned that Brookfield had had the benefit of expert guidance and had not tackled issues of critical delay properly. Brookfield will be penalised on costs for this, regardless of the outcome.

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