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

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

		Royal Courts of Justice Strand, London, WC2A 2LL
		20th November 2009

The Honourable Mr Justice Coulson:

1. At the hearing on 17^th November 2009, I made the costs order noted below and gave brief reasons for my decision. I said that, in view of the claimant's non-attendance and the sums involved, I would provide this written judgment within a few days.
2. This is an application by the defendant for an order that the claimant pay its costs of defending the claimant's claim; the costs which the defendant has incurred in bringing the Part 20 claim; and the costs which the defendant has had to pay to the third party, Arcadis, following the discontinuation of that Part 20 claim.
3. The defendant also seeks an interim payment on account of costs pursuant to CPR 44.3 (8). This aspect of the application raises an interesting point as to the calculation of an interim payment, in circumstances where a significant proportion of the sum sought has already been paid by the defendant to the third party in settlement of their costs.
4. In these proceedings, the claimant, a company registered in Luxembourg, issued proceedings against the defendant in connection with the development of the City Gallerie retail development site in Frankfurt, Germany. The claimant had engaged the defendant to carry out cost consultancy services in respect of that development. The claim alleged that the defendant had negligently estimated that the construction costs would be just 11.096 million euros, whereas in fact the final costs were almost double that, at 21.4 million euros. It was alleged that, but for the defendant's negligence, the claimant would not have proceeded with the purchase and development of the site.
5. The defendant had sub-contracted the cost consultancy services to the third party, a German firm of cost consultants. Accordingly, when (before the commencement of the TCC proceedings) the claimant issued an adjudication claim against the defendant, the defendant commenced its own adjudication against the third party. The lead adjudicator then concluded that he had no jurisdiction and the adjudication between the defendant and the third party was discontinued by consent. Following an unsuccessful mediation involving all three parties, the claimant commenced these proceedings and the defendant successfully sought permission to join the third party.
6. The proceedings started in the middle of 2008. There was a CMC on the 20^th November 2008 and, pursuant to the directions that I gave on that occasion, the pleadings were largely completed and the parties went through an extensive disclosure exercise. However, along the way, the claimant failed to comply with a number of these directions. At the hearing on 23^rd April 2009, I made a number of final orders against the claimant, and one unless order concerning certain important requests for information which emanated from the third party and which the claimant had wholly failed to answer. The effect of the order was that, unless answers were provided to those requests by 4.30pm on Friday 22^nd May 2009, the claim would be struck out.
7. Also at the April hearing, the claimant indicated that there were funding difficulties and that they were in discussion with new funders in order to continue the proceedings. However, by letter dated 15^th May 2009, those representing the claimant indicated that they were in receivership and that there was no funding available in order to proceed. A further letter confirmed this on 22^nd May 2009, the last day for compliance with the unless order. On 18^th June 2009 the solicitor's then acting for the claimant came off the record. In these circumstances, on 19^th June 2009, Ramsey J struck out the claim against the defendant for non-compliance with the unless order of April. Thereafter, the defendant discontinued the Part 20 claim against the third party and agreed to pay the third party's reasonable costs of those proceedings.
8. The first order now sought by the defendant against the claimant is an order that the claimant pay the costs of the proceedings, including the costs incurred by the defendant and the third party in the Part 20 claim. It seems to me that the defendant is entitled to that order. The claimant is liable for the costs incurred in the main proceedings, because those proceedings have now been struck out.
9. In addition, the claimant must also be liable for the costs of the Part 20 proceedings because there would have been no such proceedings but for the claimant's original claim against the defendant. Moreover, given that the particular services which were the subject of the main negligence claim were sub-contracted by the defendant to the third party, it was entirely reasonable for the defendant to have issued the Part 20 proceedings.
10. For all those reasons therefore, I order that the claimant pay the costs of both the main action and the Part 20 proceedings.
11. Pursuant to CPR Part 44.3 (8), the defendant is entitled to an interim payment on account of costs. The general rule is that, absent exceptional circumstances, such an order should always be made at the end of a case but before detailed assessment, particularly in circumstances where the resources of the party ordered to pay costs are or may well be limited: see Allason v Random House Uk Limited [2002] EWHC 1030 (Ch), a decision of Laddie J. Making an order for the payment of a significantly smaller amount than the total costs incurred, in advance of a detailed assessment, with the sum to be paid limited to that which the successful party "would almost certainly recover", was a closer approximation to justice than making no order at all until after the detailed assessment: see Jacob J, as he then was, in Mars UK Ltd v Teknowledge Limited [1999] 2 Costs LR 44.
12. In both Allason and Mars, the court was anxious to ensure that the sum ordered by way of an interim payment was the minimum that the successful party could hope to recover on a detailed assessment. On the evidence in Mars, the judge considered that the costs were unreasonably high and arrived at a figure that was less than 40% of the total costs incurred. In more recent TCC cases, a figure of about 50% of the total has been taken: see J. Murphy and Sons v Johnston Precast (No 2) [2008] EWHC 3104 (TCC), paragraph 29, and Fitzpatrick v Tyco (No 3) [2009] EWHC 274 (TCC), paragraph 69.
13. The defendant's own costs of these proceedings are in the sum of about £220,000. That excludes the costs incurred in relation to the adjudication because, quite properly, the defendant concedes that those costs are not recoverable in these proceedings. I have been taken through the detailed bill of costs relating to that figure. The sums claimed seem to me to be reasonable, particularly given the size of the claim, the stage reached in the case (the completion of disclosure), and the work that had to be done in both the main action and the Part 20 proceedings. The hourly rates are reasonable too.
14. I have therefore concluded that the figure of £220,000 is generally reasonable in all the circumstances. Thus, for the purposes of a payment on account, I conclude that I should order the payment of £105,000, just below 50% of the total costs incurred.
15. A different question arises in relation to the separate claim for the costs paid by the defendant to the third party. The evidence is this. The third party's costs were said to be in the total sum of £598,694. However that included £78,000 odd incurred in relation to the adjudication, which is not recoverable and needs to be excluded. That leaves a net figure of £520,694. There were detailed negotiations in relation to this figure between the solicitors acting for the defendant and the solicitors acting for the third party, and those negotiations were concluded when a figure of £250,000 was agreed as the sum which the defendant would pay to the third party in full and final settlement of the third party's costs. By way of this application for an interim payment, the defendant seeks the payment of the £250,000 in full, with no percentage discount of any sort.
16. Although this separate claim relates to the payment of costs, it seems to me that the same principles apply as if it were the payment of a final sum in respect of a claim for a liquidated amount or for damages. The defendant must show that this part of their claim falls within the rule set out in Biggin and Co Ltd v Permanite Limited [1951] 2 KB 314, namely that the sum that was paid to the third party was a reasonable settlement of a claim for which, ultimately, the claimant was liable. For the reasons set out below, I conclude that it does.
17. The claim is certainly one for which the claimant was ultimately liable. As noted above, the settlement was in respect of costs which, but for the claimant's failed claim, would never have been incurred at all. Thus, provided that I am satisfied that the settlement figure was reasonable, this is a legitimate Biggin v Permanite claim, and I should include the sum of £250,000 in full in the interim payment on account of costs.
18. As to reasonableness, on the material before me, I conclude that, although it might have been towards the upper limit of what might be regarded as reasonable, the settlement between the defendant's solicitors and the third party's solicitors was reasonable, and therefore the sum of £250,000 is payable in full. Of course, Biggin is itself authority for the proposition that, even if the figure is towards the upper limit, provided that it can still be regarded as reasonable, it falls to be paid in full.
19. In support of my conclusion that the settlement figure was reasonable, I make the following points:

a) The third party's costs were considerably higher than the defendant's own costs, but that was entirely understandable. The services which were the subject of the claimant's complaints were performed by the third party, so the third party was in the best position to address the detail of the case on the estimated costs. Thus it was the third party who produced the most detailed pleading, and it was also the third party who produced the request for further information aimed at the claimant's original claim, and which the claimant ultimately failed to answer. Indeed, it could fairly be said that the third party had the most to lose from this action, and therefore the most to gain from the various interlocutory applications which led, ultimately, to the striking out of the claimant's claim.

b) The payment of the costs by the defendant to the third party was the subject of a detailed, arm's length negotiation between the respective solicitors. That of itself suggests that the eventual figure agreed at the conclusion of their negotiation was reasonable.

c) The costs paid by the defendant to the third party are costs which may well prove to be irrecoverable in practice because of the receivership and/or other financial difficulties of the claimant. Accordingly, in such circumstances, it was plainly in the defendant's interests to ensure that the costs that it paid out, which might never be recovered, were kept to an absolute minimum. That is a further reason to believe the sum of £250,000 was reasonable.

20. For all those reasons, it seems to me that the defendant has demonstrated that the settlement with the third party, in relation to the third party's costs, in the sum of £250,000, was reasonable in all the circumstances. That sum is therefore recoverable in full in accordance with the principle outlined in Biggin v Permanite.
21. Accordingly, I order that the claimant pay, pursuant to CPR 44.3 (8), the sum of £355,000 by way of an interim payment on account of costs, that sum made up of the figure of £105,000 in relation to the defendant's own costs (paragraph 14 above), and £250,000 paid by the defendant to the third party in settlement of the third party's costs (paragraph 20 above). I also order that this sum is to be paid within 14 days, namely by the 1^st December 2009.