A collapsed roof at a superstore started a chain of events that demonstrates the foolishness of risking indemnity costs when a claim looks certain to fail

If you had been hoping to buy a hairdryer from the Powerhouse superstore in Salisbury on Sunday, 26 May 2002, life might have become a tad tricky. The roof collapsed.

The immediate cause was rainwater. It was sitting, and it shouldn’t have. Mind you, the retail unit had been happily built five years earlier by Wates Construction.

Waitrose is the owner but Powerhouse was the lessee. It was a design-and-build contract and Wates had done the right thing by making sure professionals undertook its design. Its architect was HGP Greentree Allchurch Evans, which designed the drainage for the flat roof on the unit.

Wates told Waitrose that it had no liability since nothing was wrong with the design and build. Waitrose rejected that and sued, claiming the cause of collapse was the negligent design of the drainage system for the flat roof. By the way, the claim for repair was assessed at £550,000, then there was a loss-of-profit claim and an indemnity claim for any claims from Powerhouse. Since Waitrose alleged negligent design, Wates brought in its architect and sued it in turn. That’s what came on for trial on 10 October last month.

The first thing that happened at trial was that counsel for Wates told the judge that the contractor was discontinuing its claim against HGP. The second thing was that Wates properly accepted that it must pay the architect’s legal costs. The third thing was that counsel for the architect asked for its costs on what is known as an indemnity basis. No, no, said Wates; costs should be on the standard basis. Let me explain.

When deciding the amount of actual costs payable, the payer will challenge the payee’s bill of costs. If an arbitrator or court has decided to award “indemnity costs”, such doubts as to the reasonableness of the items in the bill will be resolved, says the rule, in favour of the receiving party. In ordinary standard costs, it is the other way round. So an order for indemnity costs is much less favourable to the paying party.

If the action is dropped on the morning of the trial you naturally want all your costs back without much ado. The architect’s barrister argued that an indemnity costs order was appropriate. It is an order that contains an implicit expression of disapproval in the way the litigation has been conducted. The judge applied the test by asking if Wates and its solicitor’s conduct of the litigation was so unreasonable that the architect’s costs should be assessed on an indemnity basis.

If the action is dropped on the morning of the trial you at least want all your costs without much ado, or at least a pound of flesh

A turn of events in early August 2005 had some relevance here. It seems that by then, Wates and its solicitor would have realised that the contractor had not followed its architect’s design. In fairness, Waitrose had pleaded facts that gave the impression of inadequate design but were, in fact, allegations concerned with workmanship. In early August, the witness statements of HGP, the architect, demonstrated that the design itself complied with the relative standards and, said the judgment: “The problems were caused by Wates’ failure to build to that design and the failure by Waitrose and their tenants, Powerhouse, to put in hand a proper maintenance programme. Neither matter could be attributed to HGP.”

So by August, it should have been plain that the claim against the architect was not going to succeed.

By 10 August 2005, the experts for the two parties confirmed beyond doubt the position and signed an agreement to that joint effect. The net effect of the agreement was that the defects in the roof drainage system were problems outside design. The architect’s solicitor now invited Wates to discontinue and pay costs “on the standard basis” or else they would apply to the court for indemnity costs. The judge decided that it was unreasonable to continue after 11 August 2005 and ordered indemnity costs.

It was impossible for Wates’ claim to succeed. The judge said: “I consider that to maintain a claim that you know, or ought to know, is doomed to fail on the facts and the law, is conduct so unreasonable as to justify an order for indemnity costs”. Point made.