England and Wales High Court (Technology and Construction Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		St. Dunstan's House 133-137 Fetter Lane London, EC4A 1HD
		13th June 2008

MR. JUSTICE COULSON:

Introduction

1. I have today handed down Judgment on the preliminary issues that arose between the parties (Neutral Citation Number [2008] EWHC 1301 (TCC)). The preliminary issues concerned the nature, scope and construction of the terms of the sub-contract between the parties. My conclusions were very largely in accordance with the case put forward by the claimant (whom I shall call "Fitzpatrick") and rejected the construction case put forward by the defendant (whom I shall call "Tyco"). Fitzpatrick, therefore, have been substantially successful.
2. Entirely properly, so it seems to me, Tyco accept that, in consequence of that Judgment, they should pay at least the bulk of Fitzpatrick's costs of the preliminary issues hearing. There are, however, three disputes remaining between the parties which I resolve by way of this ex tempore Judgment. The first is that Fitzpatrick seek an order that their costs be assessed on the indemnity basis, which Tyco resist. Secondly, Tyco seek a reduction of 20% in the total bill of costs to reflect their success on the formulation of certain implied terms and my conclusions as to the proper construction of clause 3(4), an issue which took a relatively large amount of the court time, particularly during the period after the original hearing in March. Thirdly, there is the amount of the interim payment due to Fitzpatrick on account of their costs.

Principles Relating to Indemnity Costs

3. There is no issue between the parties as to the appropriate principles to be applied in applications for indemnity costs orders. They can be summarised as follows:

(i) Indemnity costs are no longer limited to cases where the court wishes to express disapproval of the way in which the litigation has been conducted. An order for indemnity costs can be made even where the conduct could not properly be regarded as lacking in moral probity or deserving of moral condemnation (see Reid Minty v Taylor [2002] 1 WLR 2800).

(ii) However, such conduct would need to be unreasonable "to a high degree. 'Unreasonable' in this context certainly does not mean merely wrong or misguided in hindsight" (see Simon Brown LJ (as he then was) in Kiam v. MGN Limited No. 2 [2002] 1 WLR 2810).

(iii) It is always important for the court to consider each case on its facts and to decide whether there is something in the conduct of the action or the circumstances of the case in question which takes it out of the norm in a way which justifies an order for indemnity costs (see Waller LJ in Excelsior Commercial & Industrial Holdings Ltd v. Salisbury Hammer Aspden and Johnson [2002] EWCA (Civ) 879).

(iv) Examples of conduct that has led to such an order for indemnity costs include the use of litigation for ulterior commercial purposes (see Amoco (UK) Exploration v. British American Offshore Ltd. [2002] BLR 135) and the making of an unjustified and personal attack on one party by the other (see Clark v. Associated Newspapers (unreported) 21^st September 1998).

(v) There are a number of decisions, both of the TCC and of other courts, which make plain that the pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, whereas the pursuit of a hopeless claim (or a claim which the party pursuing it should have realised was hopeless) will lead to such an order. In both Wates Construction Ltd. v. HGP Greentree Allchurch Evans Ltd. [2006] BLR 45 and EQ Projects Ltd. v. Javid Alavi [2006] BLR 130 this court was persuaded that, in the circumstances of those cases, an order for indemnity costs was appropriate because the claimants should have realised that their claim was hopeless and should not have taken the matter on to trial. However, in Healy-Upright v. Bradley & Another [2007] EWHC 3161 (Ch), the court reiterated that an order for indemnity costs was not justified by the mere fact that the paying party had been found to be wrong, either in fact or in law or both, or by the fact that in hindsight, the result of the case now being known, the position adopted by that party may be thought to have been unreasonable.

The Parties' Submissions

4. Fitzpatrick make a number of points in support of their claim for an order for indemnity costs. First, they say that Tyco deliberated exploited the absence of a signed contract. They point to the fact that the original letter of award of 7^th May was not signed and returned by Tyco and they say that thereafter, although on the face of the documents a contract had been agreed and had been sent for signing to Tyco, Tyco failed to sign the documentation. Secondly, Fitzpatrick say that, once Tyco had belatedly accepted that there was a subcontract between the parties, they were always going to be in severe difficulties in being able to demonstrate that its terms were in the form for which they contended (which was radically different to the form relied on by Fitzpatrick). Thirdly, Fitzpatrick say that Tyco's case, principally relating to the alleged first meeting on 24^th April 2002, was a case that was made years after the event and was wholly inconsistent with the documents; it was a case that was supported by the factual evidence of Mr. Ward, which evidence I rejected for a variety of reasons.
5. In response, Tyco say that this is not a case where indemnity costs are appropriate. They accept that they lost the preliminary issues, and that is why they have agreed that I should make a costs order against them. However, they do not accept that their case was hopeless. They say that, on the contrary, it was a case that was supported, at least up to a point, by the contemporaneous documents, and that the evidence of Mr. Ward, on which so much turned, was evidence over which they had little control, given that he no longer worked for Tyco and was not, therefore, a witness in relation with whom they could have extensive pre-hearing communications.

Analysis

6. It seems to me that, on balance, this is not a case where an order for indemnity costs would be appropriate. There are a number of reasons for that conclusion.
7. I accept that, at the outset of the hearing on these preliminary issues, Tyco's case was not particularly strong. The contemporaneous documents were generally against them. However, the case was not at that point hopeless because, as Mr. Thomas QC has made plain, some of the documents were consistent with Tyco's case and, more importantly, there were important loose ends which both sides needed to explain. There is no doubt that, as the hearing progressed, Tyco's position was considerably weakened by the unsatisfactory nature of Mr. Ward's evidence. However, it seems to me that that is a type of risk common to all civil litigation and cannot, on its own, begin to justify an order for indemnity costs.
8. Secondly, I am satisfied that, in the round, there has been no conduct on the part of Tyco or their solicitors which would justify such an order. For example, in Tonkin v. UK Insurance [2006] EWHC 1185 (TCC), where the claimant's conduct was not fraudulent but clearly reprehensible for a variety of reasons, the court had little difficulty in concluding that an indemnity costs order was appropriate. That is emphatically not the case here, where a difficult case was fairly (not to say skilfully) pursued but which was fatally undermined by Mr. Ward's oral evidence.
9. In addition, I consider that some of the points taken by Fitzpatrick are actually points which have, at their root, a difficulty with Fitzpatrick's own contracting methods. Take, for example, the criticism that the letter of award was not signed and sent back. As we saw in argument, there was nothing on the face of the letter of award that required it to be signed and returned. More importantly, so it seems to me, in the events that I have set out in the principal Judgment, Fitzpatrick sent the letter of award first and only six days later, on 13^th May, provided to Tyco their detailed list of their proposed sub-contract terms. A method of contracting that sends out a letter of award first, with the proposed details of the contract to follow, may be common in the UK construction industry but it is a dangerous course to adopt, as the recent decision by Christopher Clarke J in RTS Flexible Systems Ltd v Molkerei Alois Muller GMBH & Co [2008] EWHC 1087 (TCC) makes clear.
10. I accept, therefore, the thrust of Tyco's submissions that this was a difficult case which was further undermined by Mr. Ward's oral evidence and that, in those circumstances, it would not be appropriate to make an order for indemnity costs. It seems to me that this is a case where the ordinary basis of assessment ought to apply.

Percentage Reduction

11. Tyco say that there should be a 20% reduction in the costs to reflect their success on the precise ambit of the implied terms and their partial success on clause 3(4).
12. In relation to the implied terms, these were matters on which, certainly by the end of the hearing, the parties were not far apart. Further, I do not consider that the costs that were incurred in relation to the precise scope of those implied terms can have been particularly extensive. I do not think therefore that it would be right to deprive Fitzpatrick of a part of their costs merely because Tyco had some success with the precise formulation of those implied terms.
13. The argument as to clause 3(4) was a bona fide construction issue and Mr. Livesey QC properly noted that, in respect of his unsuccessful application for indemnity costs, it should not cover the clause 3(4) issue in any event. The reality must be that my answer to that issue will disappoint Tyco, because it does not give them the overall cap that they wanted. Whilst it goes further than saying that the cap was solely limited to liquidated damages and third party liabilities (which was broadly Fitzpatrick's case), so that there is a potential further category of claims caught by the cap and identified at paragraph 135(c) of my Judgment, I consider that my conclusion was of more help to Fitzpatrick than to Tyco.
14. For these reasons, it would not be appropriate to make a percentage reduction in relation to the clause 3(4) point. It was not an issue on which Tyco were markedly successful, and although it is an issue on which I have found that the cap goes further than Fitzpatrick argued, it can I think be described as at least a partial Fitzpatrick success. Accordingly, no percentage deduction can be justified.
15. Accordingly, I order that Tyco should pay Fitzpatrick's costs of the preliminary issues with no percentage reduction. Those costs should be assessed and paid on the standard basis.

Payment on Account

16. A payment on account of those costs is sought by Fitzpatrick. Tyco do not object to that in principle. It seems to me that such an order ought to be made pursuant to CPR 44.3.8. The proper approach to the calculation of such a payment on account is set out in the judgment of Jacob J (as he then was) in Mars UK Ltd. v. Teknowledge Ltd. [1999] Costs Law Reports 44 where he said:

"Where a party has won and has got an order for costs the only reason that he does not get the money straightaway is because of the need for a detailed assessment. Nobody knows how much it should be. If the detailed assessment were carried out instantly he would get the order instantly. So the successful party is entitled to the money. In principle he ought to get it as soon as possible. It does not seem to me to be a good reason for keeping him out of some of his costs that you need time to work out the total amount. A payment of some lesser amount which he will almost certainly collect is a closer approximation to justice. So I hold that where a party is successful the court should on a rough and ready basis also normally order an amount to be paid on account, the amount being a lesser sum than the likely full amount."

17. In that case, Jacob J was concerned about the high level of the costs that were being claimed. He made a reduction of 60% to reflect the assessment process and then awarded 75% of the remaining figure by way of an interim payment.
18. In the present case Fitzpatrick seek £258,589.01, being their estimated costs of the preliminary issues. As I put to Mr. Livesey QC during oral argument, that does seem to me to be a high figure for what was effectively a three day hearing of preliminary issues, although there was an additional half day in Birmingham in April. In looking to see how and why those figures have reached the levels that they have, I note, amongst other things, the involvement of two partners and three counsel, and I also note the large number of hours claimed. For example, for work done on documents, there is a total claim of something like 400 hours which does seem to me very high indeed.
19. Mr. Thomas takes some points on the figures although he is possibly more constrained than the court because, as I understand it, Tyco's own figures may not be very different to those under consideration now. However, he does make the point that the schedule is simply an estimate of the time costs relating to the preliminary issues and that that is a further reason for the court to adopt a conservative approach.
20. It seems to me that I should take the total figure, which is close to £260,000, and to reduce that by half to reflect the assessment process, as was done in broadly similar terms in Mars. That would reduce the figure to £130,000. 75% of that is about £100,000. It seems to me that, on this rough and ready basis, the interim payment should be for the sum of £100,000.
21. Accordingly, I order that Tyco pay to Fitzpatrick, by way of an interim payment, the sum of £100,000 on account of costs.