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The winner takes it all… provided the Legal Services Regulation Act 2015 doesn’t apply


Friday, February 5, 2021

The headline from the recent decision in Gravity Construction Limited v Total Highway Maintenance Limited [2021] IEHC 19 (“Gravity”) was that for the first time the Irish High Court handed down judgment concerning the enforcement of an adjudicator’s decision awarded pursuant to the Construction Contracts Act 2013. The decision was also significant for the Court’s examination of the normal rule that “costs follow the event” and the considerations that are to be taken into account by a court under s.169 of the Legal Services Regulation Act 2015 (the “LSRA 2015”).

The normal rule

In Grimes v. Punchestown Developments Company Limited [2002] 4 IR 515, Denham J. (as she then was) stated that the “normal rule” in relation to costs is that costs follow the event unless the Court, for special reasons, otherwise directs.[1] This means that “the winning party is to obtain an Order for Costs to be paid by the other party, unless the court for special cause otherwise directs”, per Morris P. in Cooper-Flynn v. RTÉ [2004] 2 IR 72.[2]

S.169(1) of the LSRA 2015 places the normal rule on a statutory footing as the default position and its impact on costs awards was noted by the Court of Appeal in Higgins v The Irish Aviation Authority (No.2) [2020] IECA 277 wherein Murray J stated that:

If a party is ‘entirely successful’ all of the costs follow unless the Court exercises its discretion to direct otherwise having regard to the factors enumerated in s. 169(1)… Indeed, having regard to the general discretion in s.168(1)(a) and O. 99 R.2(1) a party who is ‘partially successful’ may still succeed in obtaining all of his costs, in an appropriate case.[3]

The Gravity judgment

The second issue decided in the Gravity case was the allocation of costs. Of particular significance was the fact that the respondent (Total Highway Maintenance Limited), through its solicitors, issued a letter marked “without prejudice save as to costs” to the applicant (Gravity Construction Limited) offering to settle the proceedings shortly before the hearing date. As noted by Simons J., s.169(1)(f) of the LSRA 2015 provides that a court, when awarding costs, may consider any settlement offer made.

The parties disagreed as to the effect of this letter with the applicant maintaining that it did not meet the requirements of a valid Calderbank letter. The Court examined the specific wording of the letter – which stated that the respondent would make a “reasonable contribution” to the applicant’s costs, such costs “to be taxed in default of agreement”. In this regard, the Court noted that any settlement offer “should be certain” and leave the recipient in no doubt as to the position it will be in should the proceedings be settled by acceptance of the offer.[4]  Indeed the Court noted that the proceedings presented an important issue of principle as to how a party attempting to settle proceedings “may seek to protect themselves by indicating that they will pay costs on a party and party basis, such costs to be adjudicated by the office of the legal costs adjudicator in default of agreement[5].

Notwithstanding the settlement offer, it later transpired that the respondent wished to challenge certain costs items sought by the applicant. The Court suggested that the appropriate approach in such circumstances would be that a party making a settlement offer should reserve the right to challenge specific fee items in its settlement offer.

In deciding the costs, the Court examined s.169 of the LRSA 2015 and noted the following three considerations:

  1. The timing of the offer of settlement – s.169(1)(f)

The respondent’s settlement offer was issued on 23 December 2020 and given that most offices would be closing for Christmas around this date the Court treated the offer as being received on 4 January 2021 (which was a mere three weeks before the hearing date). On that basis, the Court felt that the timing of the offer was not a factor that should affect the default costs position. The Court noted that the parties were ready for the hearing by the time the offer issued and the “reality is that most of the costs will already have been incurred[6].

  1. The ambiguity of the terms of settlement – s.169(1)(f)

The terms of the respondent’s offer were ambiguous at best (and not saved by the wording that the offer would be adjudicated in default of agreement) and because the offer referred to a “reasonable contribution” it indicated that the applicant would not recover its full costs (on a party and party basis) as part of the settlement. In such circumstances, the Court felt it was not unreasonable for the applicant to reject the offer.

  1. The conduct of the proceedings – s.169(1)(a) & s.169(1)(c)

The Court also had regard to the respondent’s conduct in the proceedings – the respondent had initially sought to have the matter referred to arbitration and the payment of the award stayed pending determination of such arbitration before later indicating that it was prepared to pay the award (together with the adjudicator’s costs and interests). The effect of the respondent’s actions was that the applicant had been significantly delayed in getting the benefit of the adjudicator’s award (the award was made on 28 April 2020) and furthermore the hearing date had also been delayed for six months by the respondent raising grounds of opposition that it ultimately did not pursue. In this respect, the Court had regard to the legislative intent underlying the Construction Contracts Act 2013, in particular, the need for expediency.

Having considered the various factors provided for under s.169 of the LSRA 2015, the Court held that the proper exercise of its discretion was to apply the default position and ordered that the applicant should recover all of its costs on a party and party basis from the respondent (apart from the minimal costs awarded to the respondent) – with such costs to be adjudicated upon by the Legal Costs Adjudicator pursuant to the LSRA 2015.

Finally, the Court had to consider the specific cost items that were disputed by the respondent. The Court found that the applicant was entitled to the costs of two sets of written legal submissions (as it was put to the trouble of preparing these because of issues raised by the respondent) but not the costs of a third set of written submissions served the day before the hearing. The applicant was also found to be entitled to its costs for a directions hearing but not the costs relating to the re-filing of an affidavit.

Conclusion 

The Gravity case offers food for thought on how a party communicates and structures a settlement offer it wishes to make and how such an offer could impact an award of costs. While it is clear the normal rule that “costs follow the event” still applies, the Gravity judgment provides a welcome reminder of the effect of the LSRA 2015 on the allocation of legal costs.

[1] [2002] 4 IR 515, 522

[2] [2004] 2 IR 72, 79

[3] [2020] IECA 277 at 10

[4] [2021] IEHC 19 at 19

[5] Ibid

[6] [2021] IEHC 19 at 27

 

For further information in relation to the above article, contact our construction team.


Author

Clare Cashin

PARTNER


Michael Cahill

SENIOR ASSOCIATE

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