The Claimant is a civil engineering contractor, which carries out, amongst other things, drainage and highway works. The Defendant is a developer of residential homes. On 3 November 2003 the Claimant successfully lodged a tender return with the Defendant for drainage and highways works.

At the conclusion of the works, a dispute arose between the Claimant and the Defendant in respect of the final payment sought by the Claimant. The Claimant issued Court proceedings, and in August 2008 the Claimant issued a notice of adjudication.

The adjudicator rejected the Defendant’s claim that the Claimant was not entitled to be paid for the remedial works because the damage exhibited by the drainage was due to failings in the construction of the drainage by the Claimant. He also rejected the Defendant’s claim for set off and/or abatement in respect of damage allegedly suffered as a result of The Claimant's allegedly defective drainage works and awarded the Claimant the sum of £23,440.72 plus interest.

In September 2012 the Judge awarded damages to the Defendant in respect of its counterclaim in the sum of £10,885.00 but rejected its claim for £8,941.16 (the sum) which was not certified by the project manager for the Defendant’s Consulting Engineer. The Judge then awarded the Defendant the majority of its cost in the action in part on an indemnity basis.

The Claimant appealed against the costs order and the Defendant appealed against the rejection of part of its counterclaim. 

The appeal was allowed.

The Court of Appeal held that it was for the Defendant to plead, adduce evidence in support of, and prove its set off and counterclaim. It had not done so. The Judge was therefore entitled to conclude that the Defendant had not established its entitlement to set off the sum, or to be paid a sum by way of damages for breach of contract, or to be repaid that sum on the basis that the Adjudicators decision had been wrong.

The Judge had been wrong to make the costs order, making the Claimant liable for costs of the entire action of approximately £350,000.00 in respect of the Defendant’s Claim that had largely failed. 

The Counterclaim had been exaggerated and the Judge should have appreciated the commercial reality of the situation; that the Claimant was left in a position where it could not effectively make a Part 36 offer. It would have been disproportionate and unfair had the Claimant been liable under CPR 36.10 for all costs of the proceedings if the offer was acceptable.

It was found that the Claimant would pay 50% of the Defendant’s costs from December 2008 to January 2011. The costs were limited to January 2011 on the basis that this was when the Claimant had made reasonable and proportionate Calderbank offer.