PROVING THINGS 39: YOU CAN SPEND £10 MILLION IN COSTS AND STILL NOT PROVE YOUR CASE: DAMAGES CLAIM WAS A “NOTIONAL DESKTOP EXERCISE”

It is unusual to look at the substantive judgment in a case after examining the decision on costs. We have already looked at the cost judgment in Amey LG Limited -v- Cumbria County Council [2016] EWHC 2496. However the substantive judgment, at [2016] EWHC 2856 (TCC) fits well within the proving things series.  It is a lengthy and complex judgment. Here I concentrate upon the absence of evidence to establish the counterclaim.

“… this was a notional desktop exercise undertaken without consideration of the real life factors which any reasonably competent highways authority would consider when making the decision whether and if so how to spend its scarce resources. Instead, in my view, it was an exercise primarily driven with a view to maximising this claim.”

THE CASE

The claimant was suing for moneys due under a longstanding highway maintenance agreement.  The claim was for over £30 million, the counterclaim was for around £20 million. (The claimant’s costs were £8 million the defendant’s were £10 million).

The trial took 42 days of court time.  Once the claim and counterclaim had been calculated the claimant ended up with a net balance of £3.698 million plus interest of £1.697 million.

FAILING TO PROVE THE CASE

It is obvious that both sides failed to prove their case to a large degree.  However I want to concentrate upon the failures to prove the counterclaim.

CLUES IN THE JUDGMENT ON COSTS
  1. “… Cumbria very substantially failed to achieve success in relation to its three most substantial counterclaims, being the defects counterclaims in Schedules 2, 3 and 7. It achieved a success of only around £802,000 in relation to these multi-million pound claims, where the total claimed was around £12.6 million. Of the £802,000 it achieved a significant success only in relation to one element of the Schedule 2 and 3 claims, which was a claim for repayment of payments made for testing which I concluded had not been undertaken (around £598,000 of the sum claimed of around £2.223 million) and only in relation to around £179,000 of the sum claimed of around £877,000 for Schedule 7. The major reasons for its failure to achieve greater success were (a) its failure to satisfy me that it was proper to extrapolate its findings from inspections of work sites sample inspected to the entirety of the works undertaken by Amey; (b) its failure to satisfy me that it was proper to award damages based on the cost of remedial works which I was satisfied were never in fact going to be carried out; (c) its failure to evidence the majority of its Schedule 7 claims for notified defective works.
  2. Furthermore, whilst it achieved some success in relation to some of the other counterclaims, many of those were mirrors of Amey’s claims, rather than freestanding claims in their own right, and it failed on others. As I have said overall its level of success was not sufficient to justify the deductions it had made from Amey’s annual account claims.

THE JUDGE’S COMMENTS ON THE COUNTERCLAIM

In the judgment of costs the judge accepted that there were grounds to criticise the claimant.

  1. It follows that whilst I accept that there is some legitimate basis for criticism of Amey as regards some elements of its part 2 claim, it is nowhere near as much as that contended for by Cumbria. Furthermore, I have no hesitation in rejecting Cumbria’s argument that in some way its counterclaims were meritorious but simply happened to fail on the issues of causation and quantification. There is no need for me to rehearse in this costs judgment the serious criticisms I levelled of Cumbria in relation to its Schedule 2 claim, which was by far the largest claim in the whole case, both in terms of value and the time it took up, most significantly – as I say in paragraph 6 above – due to its failure in relation to the foundation of its case on extrapolation and the fact that the quantification was advanced on a wholly artificial basis. The same was true in large part of Schedule 3, other than in relation to testing, and I was extremely critical of Cumbria in seeking to advance Schedule 7 without sufficient evidence.

 

THE SCHEDULE 2 CLAIM

The Schedule 2 claim related to patching.

  1. Schedule 2: patching
24.1 This is one of if not the most substantial of all of the claims and counterclaims made in this case. Its value as pleaded amounted to £10,509,235.32. It had reduced to £8,289,766.58 by the time Cumbria served its opening submissions, and had reduced further to £6,826,803.76 by the time Cumbria served its closing submissions. It is also a substantial claim even when compared with the value of all of patching works undertaken over the course of the contract, something in excess of £17.3 million

THE EVIDENCE SUPPORTING THE PATCHING CLAIM

The judge noted the absence of substantive evidence in support of many aspects of the claim for patching..
25.26 In this case, the evidence shows that at the time defects complained of were identified and reported on by PTS, it was not asked to, nor did it, express any opinion as to whether or not the condition of each patch was such that it represented a danger to road users or, otherwise, whether there was a real need for replacement or remedial works to be undertaken and, if so, what those works would be. Professor Walsh was not asked to do so either and nor was a highways inspector, who would have been the relevant decision-maker within Cumbria if this case had involved a potential claim, asked to do so.
25.27 It is apparent, in my view, that had such a question been asked there would have been a range of possible alternatives, from: (1) immediate replacement or repair in full on the basis that the condition of the patch represented a current danger; to (2) replacement or repair in full within a specified period on the basis that although there was no current danger, there was a real risk of deterioration leading to a real risk of danger in the short to medium term; to (3) some lesser scheme of replacement or repair, either immediately or within a specified period, to “tide” the patch over until the next planned programme of works in that area, which might involve either full re-surfacing, patching or surface dressing; or finally to (4) no remedial works necessary, on the basis that the patch would “do” until the next planned programme of works.
25.28 In fact, what happened here was that the process of deciding which remedial works were appropriate was delegated to others, in circumstances where Cumbria produced little or no evidence either as to who was involved (and thus their skills or experience in assessing such matters) or as to what they did and how they did it. Mr O’Farrell referred to this in his witness statement, saying that he had a lengthy 2-day meeting with David Harrison and someone called Matt Scott (who appears to have been another ex-Capita inspector, not called as a witness by Cumbria) where they made these decisions, albeit with some input from Mr O’Farrell.
25.29 However when Mr Harrison was asked about this, he appeared to have little or any recollection of this having happened, somewhat surprisingly in the circumstances. There is no other evidence, documentary or otherwise, as to who was involved in this process, and on what basis. In paragraph 249 of his first witness statement Mr Robinson said that the decisions were taken, as they had to be, by Cumbria’s “team”, although he did not specify who he meant by that. It appears to me that it is a loose shorthand for the team involved in driving forward the claims process, and which included those employees of Cumbria particularly involved in the claims process, such as Mr Robinson and Mr Roper, as well as – when required – people such as Mr O’Farrell, Cumbria’s external claims consultants, JR Knowles, internal/external lawyers, experts and people such as Mr Harrison.
25.30 There is no evidence that Cumbria took the decision to delegate these decisions to Mr Harrison and/or Mr Scott on the basis that they were instructed to approach it as they would any other highways maintenance safety inspection decision. In any event, in my view it is wholly unsatisfactory to seek to rely upon Mr Harrison as some form of quasi expert, either in relation to whether or not work was defective or as to what remedial work was reasonably necessary. First, he gives no evidence at all as to his involvement in this aspect of the claim; second, as I have said, in my view he was an unreliable and a partisan witness. Cumbria cannot rescue this by seeking to rely upon the involvement of Mr O’Farrell, because Mr O’Farrell and Mr Robinson were clear that he had only limited involvement. Even if that had not been the case, in the absence of any evidence as to how this task was approached and what criteria was adopted, it is impossible to place any real reliance upon its conclusions.
25.31 In reality, it seems to me, this was a notional desktop exercise undertaken without consideration of the real life factors which any reasonably competent highways authority would consider when making the decision whether and if so how to spend its scarce resources. Instead, in my view, it was an exercise primarily driven with a view to maximising this claim.
25.32 I reached the same conclusions as regards the ascertainment of the remedial costs. This appears to have been another notional desktop exercise undertaken by JR Knowles with, I am satisfied for reasons I give when considering the detail of the individual claims, no consideration as to how it could be done most cost effectively, whether by undertaking the work in-house, or undertaking the work in batches so as to achieve economies of scale, or in terms of what traffic management was realistically required given the location of the patch and the nature and extent of the remedial works required.

THE THEORETICAL NATURE OF THE COUNTERCLAIM

25.38 In my view, the position overall is as follows:
(1) The claim that Cumbria has advanced is entirely theoretical and, I am satisfied, cannot and will not ever be implemented in the sense that the remedial works it contends for will never be implemented in the way and at the cost which Cumbria contends for. Furthermore, they are remedial works which no reasonable highways authority in Cumbria’s position would consider as being either reasonable or proportionate, even making due allowance for the fact that on this assumption Cumbria is the innocent victim of poor workmanship amounting to breach of contract by its highways maintenance contractor.
(2) Cumbria could have advanced a claim on a basis which was founded in reality, had some competent person or organisation been asked to consider what, if any, works reasonably required to be undertaken to the individual patches inspected by PTS, having regard to Cumbria’s maintenance and repair policy and its statutory obligations. I am satisfied that this would have revealed that as regards some patches falling within the sample it was necessary to undertake immediate replacement or repair works, whereas as regards the remainder there would have been a range of options along the lines that I have indicated.
(3) It would then have been necessary, when presenting the claim, to consider whether or not these or other similar remedial works would have been required anyway in the context of the service life of the patch. If so, then either the claim could not succeed or some credit for betterment would have to be given.
(4) An analysis of that nature, if properly costed, could properly have formed the basis of a claim, assuming breach was established and also assuming extrapolation was proven.
(5) In the absence of such an approach, when I consider the claims in relation to the individual patches which I examine, I will need to consider whether or not any defects for which liability is proved are such that they can properly form the subject of a claim on the basis advanced by Cumbria.

UNSUPPORTED ASSERTIONS

An example of the absence of real evidence to support the counterclaim can be seen in the judge’s analysis of one allegedly defective patch.

25.68 Cumbria’s complaint is that there is fretting, edge deterioration and delamination to this patch which, it is said, is a new patch laid on top of an old one. Cumbria seeks complete replacement.
25.69 In his response, Mr Griffiths said that there was a serious question as to whether or not PTS had located the correct patch. He also suggested that the degree of fretting and edge deterioration did not justify replacement.
25.70 This patch was inspected as part of the site visit. In cross-examination Professor Knapton accepted that the patch identified by Mr Savage was of a very different dimension to that recorded on the works instruction, and also agreed that a patch of the dimensions identified in the works instruction could not be found on site. It is therefore not possible to conclude that Cumbria is able to identify a patch which was installed by Amey and which is defective due to a breach by Amey, or that a specified remedial cost can be laid at Amey’s door. This seems to me to be a typical example of Mr Savage, working at speed, trying to locate the patch installed by Amey in a road where there were a large number of patches and, in his haste, getting it wrong, and obviously wrong. It tends to indicate, in my view, that the same is likely to be true in a significant number of other cases where Amey and Mr Griffiths have raised the same objection, but which Cumbria and Professor Knapton have ignored.
25.71 I must also say that I was unimpressed that even after the site visit Professor Knapton had said in the further joint statement (page 4) that even though he could not identify the particular patch, that did not matter because all of the patches in the area were all of poor quality with poor edges and, thus, he could still support the claim. This opinion involved an inference, without any supporting evidence, that Amey would have been responsible for all of these patches, and that the poor state of the highway generally was either Amey’s fault or, at the very least, not the real cause of the problem. However, it seems to me that Professor Knapton had no basis for making any of these suggestions. Moreover, in so far as Professor Knapton was unable to identify the patch in question, it is difficult to see how he could have endorsed the proposal for remedial works.
25.72 I therefore reject this claim.
AN ARGUMENT BASED ON EXTRAPOLATION NOT SUCCESSFUL
The defendant attempted to base its case on a number of samples of allegedly defective work.  The judge analysed the criticisms of this approach in detail.
“Reliability of the sampling and extrapolation process undertaken by Cumbria
25.143 Overall, I accept the criticisms of almost every stage of the sampling process which are made in detail in the principal report of Dr van Liere.
25.144 I am satisfied that there were a number of errors in the development of the process for choosing the samples in this case. In summary, although there were 1,706 separate works instructions involving patching issued during the course of the contract only 544 works instructions were identified and only 116 works instructions were available for selection. Only approximately 7% of the total number of works instructions and the total number of patches were available for selection.
25.145 There was an initial bias in the selection of the initial samples, both by year and by area. Worse than this, was the decision to focus on the patches laid in the first 3 years in heavily trafficked roads. This is an example of deliberate clear bias. It is difficult to say to what extent actual bias was introduced, but in my view there is clearly a risk that it was.
25.146 There were also a number of patches which Cumbria was unable to locate, with no explanation as to why: see paragraph 6.119 of Dr van Liere’s principal report.
25.147 There was a departure from the protocol as regards the number of patches per works instruction to be inspected, as I have already said.
25.148 In December 2013, when Professor Walsh and Mr Hodgen were involved, there was an ideal opportunity to assess the process and start again, addressing the criticisms made by Amey’s witnesses in the pre-action protocol process, but that was not taken. Although Cumbria is entitled not to waive privilege in relation to the advice given by these 2 experts, the end result is that there is a lack of clarity as to the further inspection process and, importantly, no material to justify a submission that this process remedied the defects in the previous process. Indeed, there was no recognition as to the dangers of combining separate sampling exercises undertaken at separate times with separate processes. If the decision had been taken to start from scratch in December 2013, it might have been possible to use the previous sample as some rough control measure. But what was not appropriate, as Dr van Liere said in cross-examination, and as I accept, was to combine them together.
25.149 There is no evidence to show that any process was used to select the samples from within the cohort available for selection. I have already referred to the departures from the protocol in terms of the numbers inspected from each works instruction, and the consequences, both in terms of the obvious outlier but also those which are not so obvious.
25.150 It appears that a total of 648 patches were visually inspected. There is, as I have said, a real difference between the quality of some of the inspections, so that whilst I am generally complimentary about Mr Johnston’s inspections, I am far more critical of those of Mr Savage. That feeds through into the reliability which can be placed on the results of the sampling process.
25.151 It appears that not every patch which was visually inspected was also core tested, even though that was the intention. It appears that only patches found to have visible defects were cored. Mr Hodgen says in his supplemental report that the explanation is that those patches which had subsequently been surfaced over were not core tested. If that is correct then, as Dr van Liere says, that introduces a source of actual bias, since in the absence of evidence that these patches had remedial works undertaken to them before being surfaced over, they are patches which are extremely unlikely ever to have remedial works undertaken within their surfaced life, so that to exclude them from coring introduces bias.
25.152 It is difficult to have confidence in the process for selecting samples for inspection, because the results indicate a skewing of samples, there being proportionately fewer samples for the earlier years and proportionately fewer samples for certain areas of Cumbria, as Dr van Liere states in his report, updated in his supplemental report as regards the areas. This is particularly significant since, as I have indicated in my review of the chronology, it is clear from the contemporaneous documentation that there was significant variation as between the different years and the different areas as to the extent of recorded complaints.
25.153 This raises the question as to whether it is safe to extrapolate at all in relation either to the early years of the contract or to the areas where there are a limited number of samples. Mr Hodgen says in his report that it is safe, because there is no reason to think that they are any different. However that view, in my judgment, is no more than wishful thinking, and not appropriate in the context of a statistical exercise. The argument is subject to cogent criticism by Dr van Liere in his report, who maintained that criticism under cross-examination, and I accept it. It is consistent with the absence of any significant contemporaneous documents of complaints in the early years, in circumstances where, apart from the first sampling in relation to 190 pen, a deliberate decision appears to have been taken not to undertake widespread sampling of patches undertaken in these early years almost certainly, I am satisfied, because of the service life credit issue.”

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THE PROVING THINGS SERIES

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