England and Wales Court of Appeal (Civil Division) Decisions

IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM BIRMINGHAM MERCANTILE COURT
Her Honour Judge Alton sitting as a Judge of the High Court
7BM40063

		Royal Courts of Justice Strand, London, WC2A 2LL
		18/02/2011

Lord Justice Tomlinson :

1. We must now rule on four matters arising out of the judgments handed down on 9 February 2011, in respect of which the parties have, as invited, made further written submissions. This is the judgment of the court on those outstanding matters.

Damages

2. Our expectation was that the appropriate award to De Montfort to reflect its loss of profit for the second, third and fourth quarters would be three-sevenths of that which the judge awarded in respect of the longer period – see paragraphs 53 and 61 of my judgment. That seemed to follow from paragraphs 107 and 109 of the judgment below, where the judge records:-

"The appropriate profit margin and the spread of the order between different types of artwork (which attracted different pricing and discounts) applied by De Montfort to the gross figure of £250,000 per quarter is the same as that adopted by Castle for the purposes of its counterclaim and are no longer in dispute. The figure before further deduction is £1,147,072.01, there being no award in respect of the Catalogue Order for the reasons stated above. De Montfort has conceded that it is appropriate to discount that figure by 10% to allow for Castle's permitted percentage return by value set out in the Supply Agreement.

. . .

De Montfort is entitled to judgment in the sum of £1,032,364.81 together with interest thereon . . ."

3. Castle suggests that that is the wrong approach in the light of our treatment of the counterclaim. Castle suggests that De Montfort cannot recover loss of profit posited upon performance that would not have taken place. De Montfort, it says, has not proved that the difficulties under which the parties would have laboured until the status of the disputed order was resolved could have been overcome. If they could not be overcome then De Montfort would have been unable to perform. Either the claim must fail or the matter must be remitted to the Mercantile Court for determination of the damages due.
4. These arguments are, like those advanced by Castle after circulation by the judge of her draft judgment, opportunistic and misconceived. At paragraph 39 of my judgment, albeit in the context of mistake, I rejected the argument that the difficulties in performance to which I referred at paragraph 9 could not be overcome. In part this was because it was not suggested at trial that De Montfort would, in the circumstances, have been unable to perform its obligations during the second, third and fourth quarters. Moreover, as I noted at paragraph 39, it was Castle's case that the existence of the outstanding dispute concerning the first order would have created no difficulties in performance in the ensuing quarters. In those circumstances it not open to Castle now to argue that De Montfort would have been unable to perform its obligations in the second, third and fourth quarters.
5. De Montfort is therefore entitled to recover its lost profits in the agreed sum. Paragraph 1.1 of the judge's order of 28 April 2009 should be varied so as to substitute for £1,032,364.81 as the judgment sum £442,442.04.

The Part 36 Offer

6. When at paragraph 61 of my judgment I observed that De Montfort's recovery in this amount would be less than its Part 36 offer I overlooked that the offer was expressed to be "inclusive of interest until the relevant period has expired", i.e. until 3 July 2008. The proper comparison is therefore between £500,000 and the judgment sum, together with such discretionary interest as it is appropriate to award in respect of the period between the accrual of the cause or causes of action and 3 July 2008.
7. Before the judge both the periods in respect of which interest should run and the appropriate rates to be applied so far as concerns interest prior to 3 July 2008 were agreed – see per Mr Tager QC for Castle at page 3 line 40 to page 4 line 2 of the transcript for 28 April 2009. This involved interest running at 1% above base rate from, in the case of each quarter, the end of the month falling sixty days after the end of the relevant quarter.
8. Whilst not acknowledging that that concession was made, Castle now seeks to resile from it so far as concerns the appropriate period. It is said that De Montfort delayed unreasonably in bringing the proceedings, and so should be entitled to no interest for the period 25 April 2006 to 7 August 2007. We have to say that this is a somewhat desperate attempt to avoid the conclusion that De Montfort has secured an outcome more advantageous than its Part 36 offer.
9. We can see no reason why Castle should be permitted now to resile from its concession below. In any event the artificiality of Castle's position is that it acknowledges that an award of interest is appropriate for the period 1 October 2005 until 25 April 2006, then seeks a suspension for fifteen and a half months in the light of De Montfort's failure to follow through its stated intention to issue proceedings for which purpose solicitors had evidently been instructed. The judge had no need to investigate what transpired between the parties between 26 April 2006 and 7 August 2007 further than Castle's response of 3 May 2006 and to note that, in May 2006, there was a without prejudice meeting following earlier such without prejudice meetings – see paragraphs 20 and 21 of her judgment. There is no basis upon which it could now be determined that the delay in bringing the claim was unreasonable. The conduct of neither side in this dispute attracts admiration. The starting point in commercial disputes is that parties should ordinarily be compensated for being out of their money. There is no reason to depart from that approach here.
10. An award of interest in the manner formerly agreed to be appropriate results in the comparator sum as at 3 July 2008 being £510,113.44.
11. De Montfort has maintained in this court a judgment "at least as advantageous to it as its Part 36 offer – CPR 36.14(1)(b).

The order in respect of interest and costs below

12. In these circumstances we do not consider it appropriate to revisit the judge's exercise of her discretion in relation to interest and costs. Obviously De Montfort has improved on its offer only marginally as opposed to by a factor of more than 100% as was the case before the judge. However it could be said, and De Montfort does say, that its offer was particularly well-judged. We recognise that in Carver v BAA plc [2009] 1 WLR 113 it was said by this court that the phrase "more advantageous" in CPR 36.14(1)(a) is a broad concept and that a strict monetary comparison is not the sole governing criterion. However that was a case where (a) one party had made an offer which was nearly but not quite sufficient; and (b) the other party had rejected that offer outright without any attempt to negotiate – see per Jackson J, as he then was, in Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd [2009] 1 Costs LR 55 at 73. The claimant, who sued in respect of her personal injuries, was considerably worse off, in terms of irrecoverable costs and stress, than had she accepted the payment in. She recovered £51 more than the £4,520 paid into court. Here De Montfort's proposal to settle at £500,000 met with no response. De Montfort had no option but to continue in order to recover anything. The situations addressed in CPR 36.14(1)(a) and (b) are not analogous. It would be difficult to justify a conclusion that the outcome here is not at least as advantageous to De Montfort as its proposal to settle for £500,000. Indeed, Castle attempts to do so only by concentrating on the reasonableness or otherwise of its own conduct in declining to engage with the offer. The rule however requires examination of the advantage to De Montfort. It seems to us that the situation now in the light of the outcome of the appeal is in principle no different from that in which the judge exercised her discretion. We indicated during the course of the argument that in such circumstances we were disinclined to revisit that exercise of discretion. The judge gave cogent reasons for the conclusion to which she came. We do not propose to interfere with them.

The costs of the appeal

13. De Montfort points out that Castle has failed in its grounds of appeal and its arguments pursued on the appeal and that it has achieved its qualified success in reducing the award of damages by reference to an argument which it never raised. This is of course correct. At paragraph 47 of my judgment I described the outcome, possibly generously, as inevitable in the event of partial success by Castle in its arguments advanced on the appeal. Castle has succeeded in showing, by reference to its arguments directed to a larger prize, that its own conduct was not repudiatory. It is true to say, as De Montfort does say, that its root and branch attack on the judgment below failed.
14. Nonetheless the appeal has been a substantial success for Castle in financial terms. Just as De Montfort had to pursue the action to trial to recover any damages at all, so Castle had to pursue the appeal in order to secure the more than halving of the award initially made. In commercial litigation, as Longmore LJ observed in A L Barnes v Timetalk (UK) Ltd [2003] EWCA Civ 402 at paragraph 28, the disputes are ultimately about money.
15. The starting point is therefore that Castle has been successful on the appeal. However as it very frankly recognises allowance must be made for its pursuit of points on which it was unsuccessful. Castle suggests that a reduction of 50% would reflect the partial success of the appeal and the fact that the issue on which the appeal was successful involved consideration of the bulk of the materials reviewed in the appeal generally. We agree. De Montfort must pay Castle 50% of its costs of and occasioned by the appeal, on the standard basis, to be assessed if not agreed.
16. We invite the parties to draw up an order reflecting our ruling. Obviously, the costs awarded to Castle in respect of the appeal may be set off against the larger sums due from Castle to De Montfort in respect of the trial.

Permission to appeal

17. Castle seeks permission to appeal on three grounds:-

(1) the impact of dishonesty upon a contractual relationship

(2) the impact upon a long-term contract of difficulties of performance in the early stages, and

(3) the question whether a party's intention to perform is relevant to the assessment of loss.

18. Points (i) and (ii) raise no novel issue of principle. We accept that, as noted at paragraph 51 of my judgment, the usual rule where a repudiatory breach is accepted is that an innocent party does not thereafter, as a prerequisite to the recovery of damages for the breach, have to establish his readiness and willingness to perform at the time fixed for performance. In this unusual case the repudiatory breach was not accepted until eighteen months later, the innocent party did not in the interim proffer performance and a positive finding was made that the innocent party's settled intention not to perform long pre-dated the repudiatory breach.. It must be for the Supreme Court to decide whether it is prepared to entertain an appeal from our conclusion that in such circumstances no damages are recoverable.