Bovis Homes Ltd v Kendrick Construction Ltd

A defendant may preserve its right to seek a stay for arbitration despite failing to raise arbitration during the pre-action process. However, under paragraph 4.2.1 of the Pre-Action Protocol for Construction and Engineering Disputes, that failure may properly affect costs. Where the defendant knows that the contract is likely to contain an arbitration agreement, has considered arbitration, and has no reason to believe that the agreement was removed or amended, it should raise the issue promptly and request any missing contract documents. Costs incurred in the pre-action process are not automatically wasted. They may remain useful in the arbitration and should be assessed only after its outcome.

Bovis Homes Limited engaged Kendrick Construction Limited under a JCT Standard Form of Building Contract containing an arbitration agreement. After alleged construction defects were notified, the parties conducted an extensive pre-action process. Kendrick did not raise arbitration in its detailed response, although it later sought a stay under section 9 of the Arbitration Act 1996 after proceedings had been issued and served.

Bovis accepted that the proceedings should be stayed but sought the costs thrown away by Kendrick’s delay, including costs incurred during the pre-action process. The issues were whether Kendrick’s failure to raise arbitration should affect costs, which costs could properly be regarded as wasted, and when they should be assessed.

1. The application for a stay was granted. Kendrick’s failure to raise arbitration during the pre-action process did not prevent it from seeking a stay later. The court nevertheless held that the delay was relevant to costs under paragraph 4.2.1 of the Pre-Action Protocol.

2. A defendant who knows that the contract incorporates a standard form likely to contain an arbitration agreement, has no reason to believe that the agreement has been deleted or amended, and has considered arbitration should raise the issue in its response to the letter of claim. It should also request any relevant contract documents that it does not possess. Remaining silent and waiting to see whether proceedings are issued is inconsistent with the spirit and detailed requirements of the Protocol.

3. Kendrick was therefore liable in principle for the costs incurred by Bovis from 18 December 2007 which would not otherwise have been incurred had arbitration been raised at that time. The court declined to quantify those costs. A judge is not normally able to determine which costs were truly thrown away, and costs incurred during the Protocol process may prove useful in the arbitration and would then have been incurred in any event.

4. Assessment of the wasted costs was deferred until after the arbitration, when their value could properly be evaluated. Kendrick was awarded the costs of the stay application up to 14 April 2009. Bovis was awarded 50 per cent of its costs incurred after that date, subject to assessment, because part of those costs concerned an inappropriate attempt to have the wasted costs quantified immediately and an associated adjournment application.

not stated in the judgment.