In the first of a series of articles about firms that get entangled in the law, Chloë McCulloch tells the story of Southgrange vs Woodgrange

A worst-case scenario
A worst-case scenario

If you measure a firm by how much MILK its tea-drinking staff consume, Woodgrange in east London is a one-pinta. Peter Jackson, the director of works, says as much as he stops off at the shops on his way to the firm’s office in Stratford, east London: “It’s the end of the week, and with only four of us in the office we won’t get through more than a pint.”

Woodgrange has a turnover of £1.5m; it is the the type of firm that makes up 90% of the construction industry. This was its first encounter with the courts, and it has lost spectacularly. Jackson and his boss, Steve Prizeman, found the experience harrowing, and are keen to tell their side of the story.

“Steve used to be a lighterman on the Thames,” said Jackson. “When there was no more work, he moved into construction. He worked his way up and set up this company in 1979.”

Prizeman is waiting in the office. He is tall and imposing, with a gravelly voice and a strong East End accent. It’s clear that he feels more at home organising workmen than talking about the legal system, and as he talks he shifts about on his chair, tapping his fingers and chaining smoking. It’s easy to see how he might not come across well in court.

Woodgrange brought the case against a timber supplier called Southgrange, which then made a counterclaim. In November 2004 His Honour Judge Simpson found in favour of Southgrange at the Mayors and City of London Court and ordered Woodgrange to pay the sum of the defendant’s counterclaim and its costs. It had gone to court to fight over £12,000 and it ended up with a bill for £60,000.

The dispute arose after Woodgrange won a contract to put up oak cladding on a building in Clarence Mews in Hackney, north-east London, in 2002.

Southgrange had been a supplier for Woodgrange for years and there had never been a dispute between them. Woodgrange placed an order for 1518 m of cladding. The dispute began when the supplier demanded full payment for a second order for 3000 m of cladding worth about £27,000, which it said Prizeman had ordered and for which it had paid a deposit of £12,000. Prizeman and Jackson denied that any order had been made and claimed that the sum of £12,000 was paid because they had mistakenly thought the demand for payment referred to part of the original order. Southgrange’s counterclaim sought payment for the allegedly outstanding sum of about £15,000. It is the type of small-scale dispute that happens all the time in construction, what is unusual is that it went to court.

Victoria Russell of solicitor Fenwick Elliott, who represented Woodgrange, says she has not seen a case like it for years. “It’s one of those awful cases where the costs are out of all proportion with the amount at stake. I have worked in construction law for more than 20 years and I have never seen a case that has been fought so vehemently over a comparatively small amount of money.”

The reason Woodgrange was hit by such high costs was that the judge ordered it to pay the Southgrange’s costs on an “indemnity basis”. In court, costs are awarded on two levels: one is standard basis, which is about two-thirds of the actual legal costs; the other is on an indemnity basis of costs, a rarity, where the losing party pays closer to 100%.

Shifting about on his chair, tapping his fingers and chain-smoking, it’s easy to see how Prizeman might not come across well in court

The judge said he was awarding costs on an indemnity basis because he thought Prizeman had been lying under oath when he was giving evidence. He said that he was satisfied that the defendant had proved its case and that the paperwork existed to back it up.

Looking back, Russell says, the best thing would have been to have never have brought the claim. “We tried to settle it for a long time. Steve Prizeman wouldn’t settle on a basis that the other side would accept. He insisted on fighting.” It seems that the dispute was driven by personalities rather than by the strength of Woodgrange’s case – with disastrous consequences.

Bill Croft, the managing director of Southgrange, says all the aggravation could have been avoided. “It shouldn’t have gone to court, it was totally unnecessary. It’s sad because Mr Prizeman is a nice guy. He’s also a proud man and he wouldn’t admit that he’d made a mistake. We tried to help. We’re a small company like he is.”

For a small company, going to court can be a major disruption, says Croft: “It was an inconvenience – myself, my fellow director and my general manager had to lose three days business by attending court for this ridiculous action. I’m very annoyed about it.”

For Woodgrange the experience has been even more damaging. Whatever the weaknesses of its case, it is hard not to sympathise with a company that goes to court over a disputed £12,000 and suffers such a defeat.

“We have lost about £18,000 in solicitors’ and barristers’ fees, close to £19,000 in material costs [Southgrange’s counterclaim plus interest], and we could be looking at another £20,000 of Southgrange’s legal fees,” says Jackson.

“That will have a massive impact on our business, it could take us a year to 18 months to recover; if it’s a tight market it will take us three years.”

Of course, the reason this small claim cost so much money is that Woodgrange lost its case and its main witness incurred the wrath of a judge. Taking a claim to court is a risk, so firms need to be sure they can prove their case – and that they can pay out if the worst comes to the worst.