England and Wales High Court (Commercial Court) Decisions

Case No: 1999 Folio 1159

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 22nd November 2001

B e f o r e : THE HONOURABLE MR JUSTICE LANGLEY - - - - - - - - - - - - - - - - - - - - -

	AMOCO (UK) EXPLORATION COMPANY	Claimant
	- and -
	BRITISH AMERICAN OFFSHORE LIMITED	Defendant

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Mr M. Barnes QC, Miss F. Parkin and Mr J. Howells (instructed by Messrs Herbert Smith) for the Claimants Mr R. Siberry QC, Mr A. Griffiths, Mr C. Graham and Mr D. Toledano (instructed by Messrs Freshfields Bruckhaus Deringer) for the Defendants - - - - - - - - - - - - - - - - - - - - - JUDGMENT: APPROVED BY THE COURT FOR HANDING DOWN

The Honourable Mr Justice Langley

Mr Justice Langley :

1. It will be apparent to anyone reading my judgment in this case that I reached the conclusion that Amoco's case failed at almost every point. BAO now seeks to have the costs of the proceedings, to which it is entitled, assessed on an Indemnity and not a Standard basis. BAO also seeks a decision in principle that it be paid interest on such costs as it has already paid to its own solicitors from the date of payment to judgment.
2. The fact of success, however resounding, is not sufficient of itself to justify an award of costs to be assessed on an indemnity basis. The general rule is that costs are to be awarded on a standard basis. The factors to be considered by the courts in deciding what orders to make as to costs are stated in CPR rule 44.3. The discretion is of course ultimately to be exercised so as to deal with the case justly and authority indicates that it is not helpful to seek to define the circumstances in which indemnity costs may be appropriate.
3. The difference in approach between assessments on the standard and the indemnity bases was stated, following the wording of CPR 44.4, by Lord Woolf in Petrotrade v Texaco an unreported decision of the Court of Appeal dated 23 May 2000. The relevant paragraphs of the judgment are numbered 62 to 63. In summary, costs unreasonably incurred or unreasonable in amount cannot be recovered on either basis. On a standard basis any doubts as to whether costs were reasonably incurred or are reasonable and proportionate in amount are resolved in favour of the paying party, in this case Amoco. On an indemnity basis such doubts are to be resolved in favour of the receiving party, in this case BAO, and there is no express reference to the need for the costs to be "proportionate" in amount. But it is important to keep in mind both the basic principle that costs, even awarded on an indemnity basis, do not amount to a full recovery of costs unless all the costs have been reasonably incurred and are reasonable in amount and that there has to be some added factor to justify departure from the general rule. If such a factor is to be found it is most likely to be found in some conduct of the paying party which the court considers merits sufficient criticism beyond that which might ordinarily apply in the case of a party which has fought and lost such as to make it appropriate to order assessment of costs on the indemnity basis.
4. The grounds on which BAO submits that the order it seeks is appropriate are summarised in a skeleton argument namely that the proceedings arose from "a deliberate and calculated policy on the part of Amoco (and BP Amoco) to exert unfair commercial pressure on BAO in an attempt to force BAO to re-negotiate what had become a commercially unattractive contract. That policy led to a cold calculated decision to terminate that contract for economic reasons and eventually led Amoco to seek to support its purported termination by advancing an artificial and theoretical case based on so-called safety considerations which was wholly divorced from reality and from the true facts as they appear clearly from the contemporaneous documents".
5. Whilst I would not endorse all the precise language used in this submission I do think, as I expressed in my judgement, that Amoco and the co-venturers determined to come up with the most persuasive case they could to put commercial pressure on BAO to re-negotiate a freely-negotiated commercial contract and to do so against the risk of termination of the contract and of the litigation to which that would inevitably give rise. The target was to escape from the contract not because it was believed the RGV could not do the job it was intended for but because the job was not considered to be worth doing at the agreed price. The prospect of litigation was addressed and assessed by Amoco in commercial terms. Insofar as it was addressed in legal terms quite properly the assessment remains unknown. My views are to be found in my judgment. But it is, I think, incontestable that the major case sought to be made and sustained at trial differed very substantially both legally and factually from the case sought to be made and documented at the time of termination and so could not then have been in the minds of those concerned at Amoco. That case failed as I have described, and much of the case that was sought to be made at the time of termination was not even thought to be worth pursuing when the crunch came.
6. There is in my judgment a sound basis for concluding that Amoco conducted itself throughout the relevant events on the basis that its commercial interests took precedence over the rights and wrongs of the situation and that it was prepared to risk the outcome of litigation should BAO resist the pressures upon it and take on the challenge. BAO did take it on. It was then met with a constantly changing case as Amoco sought unsuccessfully to find a basis on which it could justify what it had done. If a party embarks on or brings upon itself and pursues litigation of the magnitude of this litigation in such circumstances and suffers a resounding defeat, involving the rejection of much of the evidence adduced in support of its case, in my judgment that provides a proper basis on which it is appropriate to award costs on an indemnity basis. Judged by the same standards I think BAO should now recover the costs it has incurred in consequence unless of course Amoco can show that they were unreasonable.
7. I would add that whilst it is a feature of many cases it is also a particular feature of this case that the termination of the contract was subject to considerable publicity and whatever order is made there can be no compensation for the disruption, executive time and commercial uncertainty visited upon BAO and Rowan. The order does not penalise Amoco; it seeks to provide still imperfect recompense for BAO to mitigate the injustice BAO has endured.
8. As I indicated at the time my judgment was handed down and the submissions were concluded on this question, I shall therefore order that BAO's costs be assessed on the indemnity basis.
9. The jurisdiction to award interest on costs before judgment derives from and originated with CPR 44.3 (6)(g). There is almost no authority on how it should be exercised. I have been referred to the decision of Ferris J in Sir Elton John and others v Price Waterhouse and others (unreported 12 July 2001) at paragraphs 36 to 41. Ferris J, at paragraph 40, considered that the fact that the costs involved are large did not carry very great weight. In that case the relevant sum seems to have been about £3m.
10. For my part, I think it may well be appropriate, at least in substantial proceedings involving commercial interests of significant importance both in balance sheet and reputational terms, that the court should award interest on costs under the rule where substantial sums have inevitably been expended perhaps a year or more before an award of costs is made and interest begins to run on it under the general rule. In this case I have seen a schedule of BAO's costs which totals in excess of £16m (exclusive of VAT). I have no difficulty in accepting that costs of such an order have had to be financed and paid over a substantial period of time. Moreover and for much the same reasons as have led me to conclude that it is appropriate for costs to be awarded on an indemnity basis I would consider it appropriate in principle to award interest upon such costs from payment to judgment. I should add that Mr Barnes was, I think, plainly right to concede that the fact that Rowan had met the bills and not BAO itself was not material anymore than it would be to the award of costs itself.
11. However, it is frankly accepted that the application for interest came very late. Not only do I have no information as to what sums by way of costs have been paid when but it is agreed that in related proceedings in the courts of Texas Rowan has claimed against BP Amoco and others for the "loss of invested capital" caused to Rowan by Rowan making payment of fees to BAO's solicitors for BAO. Whilst the precise basis for the Texan claim is not clear to me, the sum claimed is substantial. Mr Siberry, quite understandably, did not have instructions to agree that this claim would not be pursued in Texas and whilst, no doubt rightly, he said credit would have to be given to avoid any double recovery I can envisage that giving rise to some complexity. Nor do I think it fair to Amoco/BP Amoco that they should be faced with such apparently overlapping claims. In my judgment Rowan having taken its stance on seeking relief in Texas for the cost or losses said to result from the sums it has paid and not being prepared to abandon that claim it would for that reason not be appropriate to order BP Amoco to pay interest as BAO seeks. That application will therefore be refused.