Every so often the TCC produces a judgment that serves as a cautionary tale of how domestic building projects can go wrong and how the resultant litigation can be often be a:
“… financial disaster for one of the parties and, even if not, likely an expensive and ultimately unrewarding result for both.”
Those who have advised on and acted in such claims will be familiar with trying to manage the particular conflicting factors. On the one hand, the (understandable) emotional investment of the parties when dealing with their homes (for the homeowner) or small business/livelihood (for the contractor), makes settlement difficult. On the other hand, the likely cost bill and risk makes proceeding to trial normally best avoided.
Is there an alternative for these claims?
The Sky’s the Limit Transformations Ltd v Mirza
In his judgment in Sky’s The Limit Transformations v Mirza (published at the beginning of this year), HHJ Stephen Davies was presented with such a claim. On the facts of that case, after a lengthy analysis of the final account the judge found that the claimant contractor was not entitled to any further payment.
However, the real interest for practitioners will be his introductory remarks. After having commented on the risk of such claims (as quoted above), the judge set out the following potential solution for directions at the first CCMC:
“(a) disclosure limited to documents relied upon and to known adverse documents;
(b) a single joint expert building surveyor to be instructed in all cases to address all items in issue, both liability and valuation;
(c) a stay for mediation on receipt of the report and questions. If the parties are not willing to mediate and the judge does not consider it appropriate to order mediation, then there should be an order for compulsory early neutral evaluation before another TCC Judge.”
If there is no settlement:
“(d) witness statements, limited to matters remaining in dispute, strictly complying with PD57AC and limited in length and/or number;
(e) a trial, which should not normally exceed 1 day in length, at which:
(i) each party would have produced in advance detailed written opening submissions;
(ii) no oral openings would be permitted;
(iii) no more than 1 hour each for cross examination of each party’s witnesses on their key evidence would be permitted;
(iv) the single joint expert would attend remotely to answer questions from the judge and parties for no more than 1 hour in total;
(v) there should be 1 hour each for oral closing submissions, followed by:
(f) a judgment, orally or in writing at the judge’s discretion, which would be as summary as the trial process.”
To support, and in many ways enforce that summary trial process, the judge further commented that the approved estimated costs “should not normally exceed £25,000 per party”.
The headlines from that process are:
- There are to be no searches as part of disclosure.
- Compulsory mediation or early neutral evaluation.
- Cross-examination of factual witnesses limited to on hour per party.
While the judge made clear that these directions would not be appropriate in every case, the overall intent for the court to adopt a more “streamlined procedure” for such claims is clear from the judgment.
Interestingly, the court’s apparent enthusiasm for a move towards compulsory mediation is part of a wider trend shown by the Civil Justice Council’s report on compulsory ADR, published in July 2021, which concluded that compulsory ADR was lawful and could be desirable in certain conditions. Also, the plans published in July 2022 for all claims under £10,000 to be diverted automatically to mediation.
The legal tension introduced by such the procedure suggested by the judge is whether the parties will still receive a right to a fair trial. The related practical tension is whether the parties will still consider that they have “had their day in court”. The opportunity to at least put their case and frustrations to a third party determiner can often be a particularly important part of the process for those involved in domestic construction claims (even if the ultimate result is not favourable).
The other problem is that the directions and cost budgeting would only apply from the first CCMC. That could minimise its effectiveness, or ability to be adopted, if the parties have already committed to a different course (such as engaging their own experts). It also gives rise to the risk of parties front loading their costs in the pre-action and issuing stage to circumvent the £25,000 limit from the first CCMC onwards.
On the other hand, the regime of cost budgeting and the principle of setting directions by reference to those cost budgets and the overriding objective has already made moves to ensure that what is a “fair trial” is considered with proportionality and cost in mind. Similarly, a party acting inappropriately pre-action can be managed, albeit after the event, by the decisions on and the assessment of those costs.
The judge recognised the potential downsides of his proposal, while expressinig the view that there would still be a fair trial, stating that:
“Whilst this process would not enable a judge to produce anything like the sort of judgment I have produced in this case in terms of length and detail, it would enable the judge to produce a judgment after a fair and open, but summary, trial process in which the key issues were ventilated and which importantly, was reasonably speedy and reasonably inexpensive.”
Importantly, he explained that:
“… based again on my experience of such cases, it is unlikely that a more intensive – and thus more lengthy and expensive – trial process would produce a result significantly different to the result produced through this procedure.”
Is adjudication the alternative?
Those sentiments may sound familiar to those involved in commercial construction litigation and point towards a potential alternative. The benefits of adjudication are often said to be that it is (or is intended to be) a reasonably speedy and inexpensive process.
Equally, while adjudicator’s decisions are not always correct, there are many cases in which the court has, after a full trial, reached almost the same conclusion as the adjudicator (for example, see Fraser J’s cautionary words (at paragraph 428) of the quantum judgment in the long running saga in Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd).
Rather than making the court process a more summary or streamlined, but still final, decision making process, is the preferable alternative to retain the right of ultimate resort to court but to allow those involved in domestic construction projects to bring a claim in adjudication as an alternative?
The statutory right to adjudicate of course already applies to domestic construction projects not involving a “residential occupier” and even residential occupiers can agree to a contractual right to adjudicate (for example it is included by default in the JCT Homeowner Contract).
However, is it time to remove the residential occupier exception and extend the statutory right to adjudicate (but not the notified sum payment provisions) to all domestic construction contracts?
That change would have the benefit of maintaining the rigours of the current court process, if a party ultimately wanted recourse to the court, while also offering via adjudication the reasonably speedy and inexpensive process that HHJ Stephen Davies wanted to offer in court.
The main concern is likely to be to ensure that the adjudication is fair. However, if necessary, suitable safeguards or modifications to the adjudication process (such as limits on fees and potentially even on the amount that could be awarded under a decision) can be designed and developed to allay any concerns from extending it to domestic construction projects.
Overall, The Sky’s the Limit Transformations v Mirza provides a helpful roadmap that those acting for parties in domestic construction disputes may wish to adopt to minimise costs to their client while still seeking to achieve a fair result. An early, even pre-action, agreement between the parties to follow those directions is likely to be particularly effective.
At the same time, the problems and objectives identified by HHJ Stephen Davies could be read as further judicial encouragement for Parliament to reconsider and remove the residential occupier exception in section 106 of the Construction Act 1996, coming almost a decade after the concluding thoughts of Coulson J (as he then was) in Westfields Construction Limited v Clive Lewis that:
“…. the exception itself may now be difficult to justify. Adjudication in construction contracts is generally thought to have worked well, and it has certainly reduced costs. Is it not time for s.106, and the other exceptions to statutory adjudication, to be done away with, so that all parties to a construction contract can enjoy the benefits of adjudication? I would venture to suggest that that would be a more commercially sensible outcome than that which has been achieved, for both parties, in these enforcement proceedings.”