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Legal Costs ‘Wagged the Dog’ of Construction Dispute

In the context of a construction dispute where legal costs bills vastly exceeded the sums that were realistically recoverable and ended up ‘wagging the dog’, the High Court has sent a powerful message to litigants that it is often better to settle their differences at an early stage than to resort to legal action.

roadA building company  engaged in a substantial residential development had contracted with a civil engineering firm  to construct a by-pass that was an essential part of the project. A dispute arose which centred on delays to the project and the value of the road-building work.

After attempts at mediation failed, an adjudicator was appointed who ruled in favour of the engineers. The building company was dissatisfied and launched proceedings to recover sums that they had paid in compliance with the adjudicator’s decision. A settlement of the matter was, however, agreed at the doors of the court under the terms of which the engineers agreed to pay the building company £146,953.

By the time that that compromise was reached, the combined legal costs of the parties came to somewhat more than £1 million. In deciding where those costs should fall, the Court took into account a number of pre-trial offers that had been made and found that the claim was realistically never worth more than £350,000.

The court ruled that the engineers should pay 50% of the building company’s costs up to the date of a particular pre-trial offer. The building comapny was ordered to pay the engineers’ costs in respect of a four-month period prior to another offer being made. Thereafter, each side was directed to bear its own costs.

Commenting on the wide disparity between the costs of the dispute and the sums at stake, Mr Justice Akenhead concluded: “I hope that this decision will send a message to litigating parties that it is better and sensible for parties to settle earlier rather than later.”