A desire to punish can cost dearly

The opening paragraph in this construction case ruling requires you to sit up and pay attention. The Court of Appeal judge said: “There was a time, 30 or 40 years ago, when construction litigation was a byword for expense and delay, and where the costs were often out of all proportion to the sums at stake. Subsequently, thanks in part to compulsory construction adjudication, which has reduced the number of construction cases that go through to a final trial, and the careful case management by TTC [Technology and Construction Court] judges of those cases which do, construction litigation has become a much more efficient and cost-effective method of dispute resolution. But occasionally, circumstances conspire to create a construction case with echoes of the bad old days. Unfortunately, this is one such case.”

Strong guidance has been served up with the final order for who pays the huge legal costs in Burgess vs Lejonvarn. Mr and Mrs Burgess were once good friends and neighbours with Basia Lejonvarn, an architect/graphic designer who has worked for some top dogs. The Burgesses were planning a garden refurb, to the tune of around £130,000. In conversation between the friends, Mrs Lejonvarn was asked to give some professional assistance. She charged no fee, and helped out for three months or so. Terraces and banks, paths and lawns, were put in by a contractor she secured for them. Later it was said that the contractor’s work was defective: the Burgesses then sued Mrs Lejonvarn for £265,000. 

Does that surprise you? The Court of Appeal upheld that judgment

The court said there was no contract in place but that Mrs Lejonvarn nevertheless owed a duty to exercise reasonable skill and care in the provision of her professional services acting as architect and project manager on the garden project – even though it was all free of charge. Does that surprise you? The Court of Appeal upheld that judgment. The case then came back to the High Court to work out where, or how, or whether the duty of care had failed and what the consequences were. Can you see the legal costs rocketing? The outcome of that five-day trial was that the claim against the architect totally failed. Wallop: in came the winner’s claim in costs – an eye-watering £724,265. Alongside the bill was also an application for the award of costs to be on an indemnity basis. Plus, all pre-action costs. 

This “indemnity basis” is a device deployed to reflect the displeasure of the court in the conduct of the case. The more usual order is that the bill of costs will be examined for reasonableness on the “standard basis”, which means that when costs are assessed, the benefit of the doubt as to whether costs were reasonable is in favour of the paying party. But an “indemnity basis” gives the benefit of the doubt to the receiving party. The first judge took the view that the case proved unmeritorious; but that was after he heard the evidence. It was not a foregone conclusion. He did not think that the case conduct was out of the norm. That’s why he ordered the costs assessment on a “standard basis”.

And then the decision was appealed. That three-member tribunal got stuck in. You can see by the opening paragraph that the court was very troubled. It was not the correct approach, they said, to ask a court to award indemnity costs because the claims were hopeless and all dismissed at trial. The judge ought to have been asked to consider whether, at any time following commencement of proceedings, a reasonable claimant (the Burgesses) would have concluded that the claims were so speculative and weak that they should no longer be pursued. That is the test for an order for indemnity costs. It is not right to ask whether or not the claims were hopeless. It should have been recognised that the claims were so speculative or weak that they were very likely to fail and should not be pursued any further. 

It is that human flaw I have seen time and again in disputes

Moreover, there was no contract; the only duty therefore was a duty of care in what the architect actually elected to do, not what she should have done but omitted to do. That piece of law ought to have narrowed the inquiry and showed up the speculative and weak case against the architect. From then on the only difficulty was trying to rescue the position on costs because of a lost cause. The Burgesses ought to have called a halt. 

So, what’s up? It is that human flaw I have seen time and again in disputes. Here is what Lord Justice Coulson said in the Court of Appeal: “I have asked myself why, in all those circumstances, these speculative/weak claims were pursued to trial. The answer may very well lie in the judge’s comment at [108] of his main judgment: that the decision to continue was borne out of the respondents’ desire ‘to punish the appellant for her alleged negligent mistakes rather than seek fair and reasonable compensation for her alleged mistakes’. An irrational desire for punishment unlinked to the merits of the claims themselves is precisely the sort of conduct which the court is likely to conclude is out of the norm.” The Burgesses will consequently suffer the indemnity costs.

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple