England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		22/04/2009

Mr Justice David Steel :

1. I propose to give a short judgment to deal with some of the matters outstanding from the post-judgment hearing.

Indemnity costs

2. The first point that I must deal with is the claim for indemnity costs. This was the primary issue between the parties. The costs of the preparation and presentation of the case were very sizeable but so also was the claim. Accordingly no issue of proportionality arises. The only significant difference between making an order on a standard basis as compared with an order on an indemnity basis is accordingly the burden of proof as to the reasonableness of the costs incurred.
3. Against that background the scale of this hearing in regard to costs (and the attendance of an army of lawyers) was a matter of some concern to the court. The justification was put forward in this way. It was for instance the experience of the claimants' solicitors that in respect of a claim for costs it was typical that a recovery of between 70 and 75% of the sum claimed would be made on a standard basis. It was suggested that the disparity between the costs awarded on a standard basis and those awarded on an indemnity basis might be as much as 20%. Thus, given for instance that the total costs of the claimants was in the region of £16 million, it followed that the sums at stake were very large indeed and thus the cost of the hearing which was estimated at something in the region of £250 per minute rather paled into insignificance.
4. If this analysis is correct it presents a dispiriting picture. The idea that the mere reversal of the burden of proof can give rise to this level of disparity of outcome is somewhat disturbing. Of course there is likely to be a marked disparity arising in a case where the costs judge is freed from the restraints of proportionality. Equally there may be a marked disparity arising from expenses advanced by a litigant in person or perhaps even in the context of a bill of costs presented by a firm of solicitors who were somewhat inexperienced in litigation. But I do find the idea that the firms engaged in this litigation who are of international renown have somehow exposed themselves to the risk of not recovering millions of pounds of costs for their clients because they might be unable to establish that the costs were reasonably incurred as, put at its lowest, surprising. Accordingly, on the assumption that this application is not made simply in an attempt to stigmatise the defendants and their solicitors, I express the hope that the exercise genuinely merits the money that has been expended upon it.
5. So far as the legal principles are concerned there is, as might be expected, no significant dispute. The court is required to have regard to all the circumstances including the conduct of the parties. The parties claiming indemnity costs have indeed won on the preliminary issues relating to liability. Accordingly the focus of the debate is upon the defendant's conduct: CPR 44.3. In that context the claimants say that Total unreasonably contested the issues of both negligence and foreseeability and defended these issues in an unreasonable manner.
6. It is accepted that whilst there is no requirement to establish conduct which is deserving of moral condemnation (though in fact both the claimants and Chevron do so contend) there must at least be conduct which takes the case out of the norm: Excelsior Commercial v. Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879. It follows that the trial judge is well placed to make an assessment of the relevant criteria.
7. In this context I have also been referred to the following additional cases which also afford useful guidance.

i) In Brawley v. Marcynski (No 2) [2003] 1 WLR 813, Longmore LJ considered (paragraph 13) that the effect of recent authority was that "it may be appropriate to make an award of indemnity costs where there is little or no stigma to be attached to the manner in which the losing party has conducted the litigation ... But … indemnity costs are, more usually, awarded when, as here, the judge disapproves of a party's conduct in the litigation".

ii) "Where a claim is speculative, weak, opportunistic or thin, a Claimant who chooses to pursue it is taking a high risk and can expect to pay indemnity costs if it fails." Three Rivers District Council v. BCCI and the Bank of England [2006] EWHC 816 (Comm) paragraph 25 per Tomlinson J.

iii) To like effect Langley J in Amoco UK Exploration v BAO [2002] 1 BLR 135 stated at paragraph 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 ... If a party embarks on or brings upon itself 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".

Negligence

8. I turn first to the claimants claim for indemnity costs on the issue of negligence. So far as this is concerned it is accepted by Total that an order for indemnity costs on this issue would be justified up to 22 April 2008. This concession is presumably based on the fact that from the outset Total was aware from its own internal investigation that the supervisor on duty was mistaken as to the identity of the pipeline filling the relevant tank (a factor which was not revealed until July 2008 when the court ordered disclosure in relation to the internal investigation). Indeed by May 2006 this same in-house enquiry had also revealed that the accident was attributable to an overflow from Tank 912 on which, unknown to the supervisor, the gauge had stuck.
9. Proceedings were instituted in January 2007. The defence was filed in May 2007 together with the appropriate statement of truth. This denied fault. In fact a denial of fault was maintained for a further two years. Leaving aside any appropriate reservations about the identity of the supervisor's employer (i.e. whether to Total or HOSL) this was unreasonable to a marked extent sufficient to justify the award of the indemnity costs.
10. An admission was finally extracted on 22 April 2008. But it was in very guarded terms: "The Total defendants admit that there was negligence on the part of the relevant member of staff on duty at the terminal as supervisor at the time of the incident in failing to appreciate before the incident occurred that the 2800i servo-gauge on Tank 912 had become stuck and that Tank 912 could become full during his shift". Not surprisingly the claimants pressed for elucidation both as to the stand that was being taken by HOSL on the topic and also, more to the point, as to whether the admission encompassed fault in allowing the escape of some 300 tonnes of petrol. Whilst the position of HOSL was confirmed on 1 May it was not until 23 May that the position as regards responsibility of the escape was finally confirmed. In my judgement it is appropriate that the claimants should recover indemnity costs in regard to the issue of negligence up to that date.

Foreseeablity

11. I turn now to the issue of the foreseeability. It was the claimants' case that Total's position was not simply unreasonable but in effect dishonest. This proposition was advanced on the basis that want of foreseeability was put in issue when it was known to be an indefensible proposition and that Total's stance on it was akin to its shuteye approach to the issue of negligence.
12. It is fair to say that prior to June 2008 Total's position on the issue was somewhat confused. In particular it was not at all clear whether any explosion was accepted as a foreseeable consequence of the overspill and, even if so, what the extent of any foreseeable overpressure damage was.
13. In June 2008 it was conceded by Total that an explosion was foreseeable and further that over pressure damage was foreseeable within the circumference of a circle with a radius of 451m. This was challenged by the claimants as being hopeless in the sense that it was both bad in law and bad in fact. In the event the case on foreseeability was abandoned on day three of the trial and no finding in regard to the issue is contained in my judgment.
14. The skeleton arguments for the cost hearing went into considerable detail on this topic. The claimants invited me to reread paragraphs 54 to 215 of their written opening on the issue and the oral submissions that were made in support of it from p.27 to p.115 of the transcript of day one of the trial. The respondents pressed me to reject the claimants' analysis of the validity of the foreseeability argument in a section of their skeleton running from pages 4 to 19. This in turn contained cross references to a large number of authorities. In the event I was then treated to a response from the claimants running to another eight pages of fairly detailed analysis.
15. This situation gives rise to two preliminary points. First the withdrawal of an allegation and does not of itself constitute a recognition that the point was hopeless. Realistic concessions of arguable points of law or fact are to be encouraged and should not as a routine being met with applications for indemnity costs.
16. Second the process of the assessment of the merits of an abandoned allegation (or more accurately dealing with the question of whether it was so devoid of merit that it should not have been advanced at all or at least not as long as it was) may well raise a fairly elaborate analysis of the law and the facts as here. The court should be very cautious before embarking on a detailed and reasoned assessment:

"In my judgment on an altogether broader approach should be adopted. One which enables the court in a comparatively short time to decide, and decide moreover without giving a fully reasoned judgment, into which general category of discontinuance the case falls.": Brawley v. Marcynski (No 1) supra at paragraphs 18-22 per Longmore LJ.

This must be a fortiori where the identity of the winner is clear and the only issue is as between the awarding of standard or indemnity costs

17. The claimants have certainly put forward an arguable case that the issue of foreseeability was bound to fail and was (or should have been) seen to be going to fail from the outset or at least from a much earlier stage than when the concession was made.
18. The question I asked myself is this: was Total's persistence in its refusal to concede that all the damage sustained by the claimants was foreseeable of such a degree of unreasonableness as to justify the imposition of indemnity costs? In embarking on this exercise it is important that I should seek to assess matters as they proceeded without the benefit of hindsight. Very often at the end of the run-up to a long trial what had looked eminently arguable loses merit when reviewed in the context of the documents, the skeletons and the oral opening.
19. The following seem to me to be significant the considerations at the outset:

i) The extent of the damage was colossal: Total and its underwriters were justified in approaching the claims with care;

ii) This caution was the more appropriate where the immediate cause of the spillage was a failure of a shut off alarm unconnected to the gauge which had stuck, such alarm having been manufactured and maintained by others;

iii) Furthermore the site was a joint-venture site: it was a proper position to seek to maintain a common front with Chevron the joint-venture company;

iv) The initial pleaded position (shared by Chevron) was that over pressure damage outside the perimeter of the Buncefield site was not foreseeable: the absence of an equivalent denial in regard to the situation within the perimeter fence was certainly unhelpful not least given the proximity of Tank 912 to the perimeter and to the WLPS/UKOP plant but understandable on the basis that expert evidence needed to be collated and reviewed;

v) The need for expert assistance was underlined by the initial investigation by BMIIB which concluded that the overpressure generated was unexpectedly great. Indeed the explanation is yet to be fully understood. Of course what is unexpected may not be unforeseeable but there is clearly a possible connection;

vi) It became clear that calculations could be made to assess the overpressure that could develop various ranges: this was in conflict with both the DNV and the COMAH reports.

20. This in due course it led to the amendment in June 2008 apparently supported by the expert report of Mr Herbert. Pausing there I am not persuaded that Total's conduct was so unreasonable as to justify an award of indemnity costs. Did the position change thereafter? The new case pleaded in June 2008 was not on its face a very encouraging substitute. Once an explosion and consequent overpressure damage was accepted as foreseeable it must be difficult to see how it was confined within a calculated circle. This difficulty can be put both as a matter of law and as a matter of fact. As regards the law once the foreseeable type of damage is identified the conventional position would be that the extent of that type of damage is recoverable whether unexpected or even unforeseeable. The suggestion that there were two types of damage sustained one type within the circle and other type without is not easy to follow.
21. As a matter of fact the proposition is also faced with formidable difficulties. It is true that the plea was based upon an expert's report obtained by Total. It is also true that the instructions to the expert were in a form agreed by the parties. However the outcome of the report is, it is submitted, simply a modelling exercise for risk assessment purposes. If such be its proper categorisation there would have been difficulties as to its admissibility. In any event if it was essentially the product of a design tool for assessment of the likelihood of a possible damaging event, it would be of marginal help in assessing the outcome of a known event.
22. It was for these reasons that I described the proposition in the judgement as "remarkable". As a matter of first blush the concept of foreseeability within the circumference of two concentric perfect circles was surprising not least because the radius of the foreseeable range would be subject to a wide margin of error area having regard to such matters as vapour cloud size, wind, congestion and so on.
23. Standing back from all this, I am not on balance disposed to say that the case was manifestly so weak (and perceived as such) as to justify indemnity costs. In short, in seeking to review the matter without hindsight, the features which are in my judgement important are firstly the size of the claim, secondly the unexpected scale of damage and thirdly the content of the DNV and COMAH reports which had led to no challenge or comment from the HSE..

Chevron indemnity costs

24. Chevron claims indemnity costs in respect of the issues of off-site negligence and vicarious liability. It is accepted that costs in regard to the contractual disputes relating to the claim for an indemnity should be assessed on a standard basis although no doubt this represents only a small portion of the whole.
25. The basis of the application is in essence an allegation of dishonesty. It is asserted by Chevron that Total must have known that its position on these two issues was unfounded. Indeed so much so that Total had sought to fortify its case by tendering witness statements that must have been known to be untrue. It is also said that Total sought to avoid the revelation that their case was unsound by withdrawing witnesses who must have known that such was the case.
26. The foundation for this submission is to be derived from the content of my judgement which I do not propose to repeat. Furthermore I am conscious that I formed a clear view of these issues and no attempt to challenge my conclusions is made by way of an application for leave to appeal.
27. That all said I am not minded to award indemnity costs. As regards vicarious viability the issues relating to the contractual nomination of the operator of the site was an important ingredient in the debate on which argument was inevitable and certainly legitimate. This included questions as to the identification of HOSL as the operator or manager under the Novation Agreement, the examination of the provision for secondment of Total and Chevron staff to HOSL, a review of the role of HOSL in such matters as the hiring and firing of staff and health and safety. The views of individual witnesses on the issue was not determinative.
28. As regards off-site negligence, the function of HOSL remained controversial, there were arguable issues as to the existence and scope of instructions for tank filling, they were also arguable issues as regards the meaning and scope of best practice under API 2350 and the situation is complicated by the failure of the TAV switch.

BP

29. I now turn to BP. So far as indemnity casts are concerned BP has a second string to its bow based on a Part 36 offer made on 13 May 2008 which offered to accept an admission of 90% liability "in respect of the whole of BP Oil's claim" together with its costs up to 21 days after the offer was made. It is of course common ground that BP fared better in the result and is entitled to indemnity costs thereafter since it is not suggested that such an order would be unjust: CPR 36.14.
30. Two issues however remain. The first concerns the effective date of the offer. Total sought clarification of the offer by letter dated 22 May. That clarification was pursued under CPR 36.8. BP contends that clarification was not required and, that even if it was, nonetheless the appropriate date for acceptance remained 3 June. The clarification sought was whether the 90% encompassed any claim advanced by BP Oil or any assessed claim. The response made it clear that it applied to the claim as subsequently assessed.
31. The request of a clarification (although a day late under the provisions of CPR 36.8) was in my judgement a proper and legitimate one without which the terms of the offer remained uncertain: see Ford v. G.K.R. Construction [2000] 1 WLR 1397. The response was delayed and was well outside the seven-day period specified by CPR 36.8 which is somewhat surprising given the contention that no further information was required.
32. If an application for clarification had been made to the court by Total it is notable that the court would have had to "specify the date when the Part 36 offer is to be treated as having been made". I infer that, in the event it is concluded that further information was legitimately required, the time to accept should usually be extended beyond the original date. In my judgment the appropriate date is 28 June 2008.
33. The second issue relates to interest recoverable on the costs after that date. In this regard CPR 36.14 provides that "the court will unless it considers it unjust to do so award interest at a rate not exceeding 10% above base rate". It is I think accepted quite apart from CPR 36 that the appropriate rate of interest on costs paid prior to judgment it is either base or three months LIBOR +1%. Total submits that it would be unjustified to impose a higher rate under CPR 36.
34. In support of that submission Total make two points: (1) the impact of the sub rule is intended to be compensatory and not punitive and (2) that the principal rationale for the rule (that parties were unable to recover any interest on paid costs) has now gone: Rowlands v Bryn Alyn [2003] EWCA Civ 383. That said I accept the submission that Part 36 is intended to provide interest protection on a generous and commercial basis. In my view the appropriate rate is three months LIBOR +4%.

Shell

35. As regards Shell, the short issue relates to the allocation of liability costs as between the three claims advanced by Shell. The lost fuel claim in the sum of £8.4 million was in the event conceded during the course of the trial in November 2008 by way of a Part 36 offer made by Total. Prior to that no offer had been made by Total. The Part 36 offer included reasonable costs up to 25 November.
36. As I see it against that background it is legitimate for Shell to claim the costs of establishing liability for the lost fuel claim in their entirety. In respect of the other two claims on which Shell lost the costs recoverable by Total should be only those wholly attributable to those claims.

WLPS/UKOP

37. As regards WLPS/UKOP, Total underwent something of a conversion in regard to the costs. Initially Total were disposed to accept liability for all the costs. Later however this stance was changed and it was submitted that WLPS/UKOP should not recover its costs in full. The reasons advanced for that proposition were as follows:

i) The court had warned at the CMC in June 2007 that given the proposed multiple representation of claimants at trial it should not be assumed that any successful claimant would recover all its costs.

ii) The case advanced by WLPS/UKOP was handsomely covered by a combination of the Kennedy claimants for OTF and by Shell and BP and Chevron for ITF.

iii) All the more so, it was submitted, given that WLPS/UKOP were trustees all four of the oil majors present at the site.

iv) Foreseeability of fire damage which was the nature of the damage sustained by WLPS/UKOP was admitted at an early stage.

v) The specific WLPS/UKOP preliminary issues either fell away or were postponed to the quantum hearing.

38. It was contended in these circumstances that WLPS/UKOP should have adopted a stance not different from the Kennedy claimants or at least should not recover all the costs of their involvement in the trial. Whilst this submission has some attractions, I have come to the conclusion that it would be inappropriate to deprive WLPS/UKOP of all or any part of its costs and that Total's first thoughts on the topic were correct:

i) WLPS/UKOP has very large claim.

ii) If anything WLPS/UKOP presented the obvious candidate for joint representation of claims from inside the fence.

iii) Shell and BP would have had difficulty in representing the interests of WLPS/UKOP having regard to the fact that the beneficiaries included Total and Chevron.

iv) Their property was very close to the source of the fire and explosion and thus as regards the pleaded case on foreseeability they were in a different situation.

v) I accept that active and effective steps were taken to limit duplication of work between the various claimants.

vi) Whilst the specific WLPS/UKOP issues did not fare well in the judgment they were of minor significance.

39. I confess some astonishment that the costs of WLPS/UKOP are about twice that of both BP and Shell the more so since the costs of the expert evidence was shared equally between them. But this is a matter for the costs judge.

Judgment Act interest

40. The Judgement Act rate is of course 8%. Given the present and anticipated level of bank rate this is by any standards generous if not penal (although it had previously been 15% from 1985 to 1993). However the rate as such is not open to variation by the Court: Thomas v. Burn [1991] 1 AC 362. It is however open to the court to order that interest under the Act should run from a day other than the date of the judgment: CPR 40.8.
41. Total contended that such interest should only run on the costs order from the date of assessment. This was proposed on the basis that interest on paid costs was now available, there would be a very prolonged delay until the assessment was performed and 8% was way in excess of any compensatory level.
42. In response the claimants/Chevron submitted as follows:

i) While the rate was high it was designed to and would encourage payment.

ii) There was nothing to distinguish this case from the norm.

iii) Payments on account could limit any exposure to the high rate of interest.

iv) Any delays in applying for assessment would lead to a disallowance of the interest: CPR 47.8.

43. I conclude that justice requires a postponement of the liability for the interest until a later date. This was indeed a case very much out of the norm where the costs are very large indeed. Indeed the claimants themselves wish to double the time allowed for the presentation of a detailed account for assessment. The disparity between the claimants' costs and those assessed as due may, it is contended, run to millions. It follows that payments on account are exposed to an enormous margin of error. In my judgement the starting date should be extended to 6 months from today.

Postponement of assessment pending appeal

44. Total applies to postpone the time for the detailed assessment of Chevron's costs pending the outcome of the appeal for which leave has being given. I do not accede to this application. The risks of the waste of costs of assessment in the event that the appeal is successful is very limited given that the bulk of the costs claimed were incurred in regard to the factual issues on which no appeal was sought. Further given the prospect that any appeal is unlikely to be concluded until May 2010 payment would not otherwise occur until 2011.

Postscript.

45. I hope this judgment will enable the parties to complete the form of order for the post judgment hearing. There were in fact a number of other matters outstanding on which there was at least a measure of agreement. If there any residual issues they should be dealt with on paper.