Walker Construction (UK) Ltd v Quayside Homes Ltd & Or

Under the Housing Grants Construction and Regeneration Act 1996, an adjudicator’s decision remains binding until final determination, but it does not bind the final court or shift the burden of proof. A party seeking set-off, repayment or damages in subsequent proceedings must plead and prove its entitlement.

Costs discretion requires consideration of commercial reality, relative success, conduct, proportionality and settlement offers. Where Part 36 consequences would be disproportionate to an inflated claim, the court may give proper effect to an inclusive Calderbank offer and make a proportionate costs order.

Walker, a civil engineering contractor, brought proceedings against Quayside concerning payment under construction contracts. An adjudicator had awarded Walker substantial sums, which Quayside paid. Quayside later advanced a substantial counterclaim, including repayment of £8,941.16 paid under the adjudicator’s award.

The Central London County Court awarded Quayside a net sum of £10,885 including interest, dismissed its repayment claim, and ordered Walker to pay most of Quayside’s costs, with indemnity costs after expiry of a Part 36 offer. Walker appealed against the costs order. Quayside cross-appealed against dismissal of its repayment claim. The central issues were the burden of proof in litigation following adjudication and the proper exercise of the costs discretion.

Appeal allowed; cross-appeal dismissed. Lady Justice Gloster gave the leading judgment, with Laws LJ and McFarlane LJ agreeing.

1. Quayside sought to set off or recover £8,941.16 after Walker had received that sum under an adjudicator’s award. The adjudicator’s decision remained binding until final determination under section 108(3) of the Housing Grants Construction and Regeneration Act 1996 and paragraph 23(2) of the Scheme for Construction Contracts (England and Wales) Regulations 1998. It was not res judicata, and the court could reach a different final conclusion.
2. In the particular proceedings, however, Quayside was the party asserting a set-off, counterclaim and repayment claim. The evidential and legal burdens therefore remained on Quayside. It had to plead, adduce evidence and prove that Walker’s original drainage works were defective and that Quayside was entitled to repayment or damages. Quayside called no evidence on that issue. The absence of a certificate from the contract administrator did not itself establish that Walker lacked a contractual entitlement, and Quayside could not obtain repayment merely by asserting that the adjudicator was wrong.
3. The court preferred the analysis in Aspect of Contracts (Asbestos) Ltd v Higgins Construction PLC [2013] EWHC 1322 (TCC) to the approach in the obiter decision of Jim Ennis Construction Limited v Premier Asphalt Limited [2009] EWHC 1906 (TCC). For limitation purposes, subsequent proceedings arise from the parties’ original contractual rights rather than a new implied-term or restitutionary cause of action. That issue did not require final determination in this appeal.
4. The costs judge had adopted a mechanistic approach focused on settlement offers. CPR rule 44.3 required consideration of all the circumstances, including commercial reality, relative success, conduct, the exaggerated counterclaim and the proportionate costs attributable to issues on which Quayside failed. An appellate court may interfere where a costs decision is wrong in principle or plainly unsustainable.
5. Walker’s inclusive Calderbank offer of £30,000 was reasonable in light of Quayside’s very limited recovery and the costs that would properly have been recoverable. The Part 36 offer of £100 plus costs could not justify an order producing wholly disproportionate costs consequences. The costs order was replaced: the earlier provisions stood, Walker was to pay 50% of Quayside’s costs from 16 December 2008 to 19 January 2011 on the standard basis, and Quayside was to pay Walker’s costs thereafter on the standard basis.

• Court of Appeal (Civil Division): [2014] EWCA Civ 93. Walker’s costs appeal was allowed and Quayside’s cross-appeal was dismissed.
• Central London County Court: on 20 September 2012, Quayside obtained a net judgment of £10,885 including interest; its claim for repayment of £8,941.16 was dismissed, and it received the principal costs order under appeal.