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Cite as: [2002] EWCA Civ 1112

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		Neutral Citation Number: [2002] EWCA Civ 1112
		A1/2002/0901

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE TECHNOLOGY & CONSTRUCTION COURT
(HIS HONOUR JUDGE THORNTON QC)

Royal Courts of Justice
Strand
London WC2

Thursday, 11th July 2002

B e f o r e :

LORD JUSTICE WALLER
LORD JUSTICE CHADWICK
-and-
MR JUSTICE DOUGLAS BROWN
____________________

	MOSTCASH PLC & OTHERS	Claimants/Respondents
	- v -
	FLUOR LIMITED	Defendants/Appellants

____________________

(Computer Aided Transcript of the Stenograph Notes of
Smith Bernal Reporting Limited
190 Fleet Street, London EC4A 2AG
Telephone No: 020 7421 4040
Fax No: 020 7831 8838
Official Shorthand Writers to the Court)

____________________

MR R ter HAAR QC (instructed by Lovells, London) appeared on behalf of the Appellant
MR M LEREGO QC and MR N COLLINGS (instructed by Jarmans, Kent) appeared on behalf of the Respondent
____________________

HTML VERSION OF JUDGMENT
____________________

Friday, 11th July 2002

LORD JUSTICE WALLER: I will ask Lord Justice Chadwick to give the first judgment.

LORD JUSTICE CHADWICK: For the reasons set out in the written judgments which have been handed down this morning we have allowed this appeal. It is accepted that the effect of the answers which we have given to the preliminary issues for decision, and the claimant's concession that there can be no claim in tort against the first defendant having regard to the terms of section 10.7 of the EPCM agreement of September 1996, is that the action against the first defendant must be dismissed. In those circumstances the first defendant seeks an order for the costs of the action; such costs to include the costs of this appeal and of the trial of the preliminary issues. The claimants resist an order for costs on those terms. It is submitted on their behalf that the appropriate order would be an order that the claimants pay to the first defendant 20 per cent of its costs of the action and the appeal; and that the first defendant pay to the claimants 80 per cent of their costs of the action and the appeal.

Put shortly, the claim in the proceedings was for damages for failure to exercise care and skill in the provision of design, procurement and construction management services in connection with the construction of a paper recycling plant. The primary defence - taken at an early stage - was that the claims under the contract were barred by a settlement agreement made in January 1998. That turned on what should have been a relatively short point of construction - what was the true effect of the settlement agreement. The first defendant failed on that point before the judge but succeeded on that point in this court. There is no dispute that if costs are to be determined on an issue based approach the first defendant should have the costs of that issue, both here and below.

The second line of defence was that the EPCM agreement of September 1996 itself precluded any claim for damages for breach of contract; and also precluded any claim for damages in tort. Again, prima facie, that turned on a relatively short point of construction as to the effect of sections 5.3 and 10.7 of the EPCM agreement. The first defendant failed to make good - either here or in the court below - its defence that - as a matter of construction - the relevant sections of the EPCM agreement precluded a contractual claim for damages. But that was immaterial in the circumstances that the first defendant could rely on the provisions of the settlement agreement as a bar to those contractual claims. And although the claimants had pleaded the claim in tort - which, insofar as the cause of action accrued after 15th January 1998, would not have been barred by the settlement agreement - they did not seek to rely on that claim before the judge; and, in any event, the judge found that the claim in tort was precluded by the relevant section - section 10.7 - of the EPCM agreement. The claimants did not challenge that finding in this court.

What should have been a hearing of two relatively short points of construction escalated into a three-day trial with evidence because the claimants took three further points in response to the first defendant's assertion that the EPCM agreement itself precluded any claim for damages for breach of contract. Those points were identified in the judgments that we have handed down. They it may be described as the estoppel, rectification and Unfair Contract Terms Act points. In light of the judge's decision on the construction of the EPCM agreement, none of those points arose for decision. Further, of course, they did not arise if (as this court has held) the first defendant was entitled to rely on the settlement agreement of January 1998. Nevertheless, they were argued at length before the judge and they gave rise to the need for evidence. It was - if I may say so - a mistake to include those three points in a trial of preliminary issues, which could and should have been confined to the two relatively short points of construction.

The judge found for the claimants on estoppel and made an order for rectification - but not in any form for which the claimants could be said to have been contending. For the reasons that we have given in the judgments handed down, we are satisfied that he was wrong to do so. The judge found, also, for the claimants on the UCTA point, but we did not find it necessary to address that point in the circumstances that it plainly did not arise.

The claimants ask this court to adopt an issue based approach to costs. The difficulty, of course, with such an approach in the present case is that the issues which were argued and decided at the trial were not the issues which had been the subject of the orders made for the trial of preliminary issues - as appears from the judgments which we have handed down. There were, as I pointed out in paragraph 20 of my judgment, three issues formally before the court in November 2001. First, whether the claim made against the first defendant in the proceedings was barred by the terms of compromise in January 1998; second, whether on the true construction of the EPCM agreement the first defendant's liability in respect of the recycling project was limited to the warranty and guarantee given in section 5 of the EPCM agreement; and third, whether, if so, the EPCM agreement should be rectified to include a term as to care and skill, unmerchantability quality and fitness for purpose, as set out in paragraph 11 of the claimant's reply.

On each of the first and third issues the first defendant has been successful in this court. The first defendant was successful on the second issue also - both in this court and below - in the sense that it obtained an affirmative answer to the question "is the defendant's liability limited to the warranty and guarantee given in Article 5 of the EPCM agreement?" The point on which the first defendant failed was the contention that the effect of limiting liability to the warranty and guarantee in section 5 of the EPCM agreement was to preclude a claim for contractual damages. On a strict reading of the second issue which had been ordered to be tried that point was not before the court.

The claimants, of course, draw attention to the issues which the judge addressed and decided on 11th January 2002, as set out in his judgment handed down on that date and on the issues which were the subject of his further order of 19th April 2002. But, as I sought to explain in my earlier judgment, those issues were never formally before the court; they were formulated by the judge after the trial had concluded in the face of opposition by the first defendant - as appears from the passage in the transcript of proceedings which I have set out at paragraph 23 of that earlier judgment.

In my view these considerations lead to the conclusion that this is not a case in which the court should adopt an issue based approach as to costs. To do so on the basis that the issues were those formally before the court is pointless, because the first defendant won on each of those issues. To do so on the basis that the issues were those decided by the judge would be unjust in circumstances that those issues were formulated after the trial and in the face of the first defendant's opposition - opposition which this court has held to be well-founded. I should add that it would be disproportionate to embark on the exercise of deciding whether the judge were right on the UCTA point in order to make an issue-based costs order in this court. And without embarking on that exercise, an issue-based costs order which treats that as a discrete issue is not, in my view, open to us.

The question at the root of this litigation has been whether the claimants were barred by the settlement agreement of 15th January 1998 from pursuing contractual claims under the EPCM agreement. On that question the first defendant has succeeded and the claimants have failed. It must, I think, be assumed either that the claimants or their lawyers failed to appreciate the effect of the settlement agreement at the time when it was made; or that they had second thoughts as to the bargain which they made in January 1998.

On a proper understanding of the effect of the settlement agreement the question whether the first defendant's liability was limited to the warranty and guarantee given in section 5 of the EPCM agreement arose for decision only because the claimants had pleaded a claim in tort. Absent the plea in tort the question would have been irrelevant. The judge held that the claim in tort could not be pursued and it has, in effect, been abandoned.

In my view the order for costs should reflect the outcome. The first defendant has been successful in this court and should have its costs of the action and of the appeal. The question then arises as to whether a payment on account of those costs should be ordered and, if so, in what amount. Assessment of the costs will have to go to the costs judge, but the claimants do not resist in principle an order for an interim payment and are content with an order in the amount of £100,000. I would make an order for an interim payment in that sum.

For my part I would refuse permission to appeal to the House of Lords.

The £40,000 paid by the first defendant to the claimants on account of costs of the preliminary issues must, of course, be repaid with interest. It is submitted that interest should be at the judgment rate rather than at a commercial rate. In my view the appropriate rate in these circumstances is the commercial rate, and I would order interest at the rate of base plus 1 per cent. Repayment of the £40,000 and interest to be made within 21 days; and the £100,000 also to be paid within 21 days.

LORD JUSTICE WALLER: I agree.