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
		21st November 2011

 


Mr Justice Akenhead:

1. I handed down judgement on liability and causation in this case on 12 September 2011. By agreement, issues relating to costs and permission to appeal were deferred to suit the convenience of the parties until as late as 11 November 2011, when I heard the parties on those topics, detailed written submissions having been provided by Counsel.

Costs

2. On two bases, the Defendant, BWNL, argues that it should have indemnity costs, namely that CGA's case on causation was always very weak and secondly that it had made an effective CPR Part 36 Offer on 11 April 2011 which had not been accepted. The Claimant, CGA, argues that any costs order should be made on an issues basis, and, it having succeeded on a number of issues, costs orders in its favour thereon should be made.
3. CPR Part 44.3 provides that the Court has discretion as to whether costs are payable by one party to another (Part 44.3(1)) and that "the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party" (Part 44.3(2)). In deciding what order to make about costs, the Court must have regard to all the circumstances including the conduct of the parties, whether a party has succeeded on part of its case even if not wholly successful and to the existence of any admissible offer to settle the case (Part 44.3(4)). The conduct of the parties is expressed by Part 44.3(5) to include:

"(a) conduct before, as well as during, the proceedings…

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c) the manner in which the party has pursued or defended his case or particular allegation or issue…"

CPR Part 44.3 (6) gives to the Court a discretion to make a very wide range of costs orders including allowing only a proportion of costs, costs incurred from or until a certain date, costs relating only to a distinct part of the proceedings and interest on costs.

4. I refer to the lengthy judgement already handed down and I will make no attempt to summarise other than it is absolutely clear that the successful party, taken overall, was undoubtedly BWNL. CGA's claim on liability succeeded on one rather belatedly pleaded allegation of breach whilst its money claim, originally £31m to £39m but later reduced to about £16m, failed in its entirety on causation grounds. CGA ultimately abandoned its claim even for nominal damages. It follows that, subject to any arguments that require the Court to deviate from the general rule, BWNL should have its costs of and occasioned by the litigation.
5. Essentially, CGA says that there were five issues or areas of the case on which it was successful and, accordingly, it should have its costs of those issues paid for. I will deal with each in turn. The first issue is that there was a denial by BWNL, only abandoned towards the end of the trial, that there was no effective duty of care owed by BWNL to CGA prior to the latter's incorporation. This was largely a point of law, which was not an unreasonable point for BWNL to raise, although wrong, and I doubt very much that it would have taken much in terms of time or resource for CGA to address this issue; indeed, I can not see that much if any evidence, documentary or witness based, had to be adduced to deal exclusively with this point. I do not therefore see that this is a matter which should be materially reflected in the costs order.
6. The second matter relates to the one finding of breach of contractual and tortious duty upon which CGA succeeded, this being set out at Paragraph 168 of the main judgement; in effect, BWNL was negligent because it's Mr Johnson confirmed at a meeting of 15 July 2004 that there was sufficient in money terms in the Business Plan to cover works within the Preston Homes Standard; this breach was repeated or continued over the following few weeks until he saw the Offer Document which was developed between August and November 2004. Extensive breaches of duty were pleaded against BWNL, as set out in Paragraph 65 of the Amended Particulars of Claim. It was only in the amended pleading, and particularly in Paragraph 65.12, that the allegation of breach upon which it succeeded was articulated; this amended pleading was served on 21 June 2011, only nine days before the trial, although the point had been signposted in witness statements, expert reports and Joint Statements before. Another facet of the costs argument that surrounds this point was the positive defence made by BWNL that Mr Johnson had given e-mailed advice which would or could have exculpated BWNL; no such e-mail was produced on disclosure. Mr Johnson was not called as a witness albeit that witness statements from him had been exchanged; there were several procedural outings before the trial at which the possibilities were raised of him not being called (he lived in Greece and was apparently in imperfect health), giving evidence by video link or giving evidence in court but in a non-stressful atmosphere. These had all provoked extensive debate. The only explanation really given as to why he was not ultimately called was that it was not necessary given the way in which the causation evidence was left at the close of CGA's factual case. Of course, by not calling him, BWNL avoided potentially damaging evidence and the possibility of him not coming up to proof. In my judgement, the facts that CGA succeeded on one (albeit one out of many) of the grounds of complaint and that it had to adduce evidence to counter the very belatedly abandoned case of BWNL that there was undisclosed material e-mail advice from Mr Johnson can and should be taken into account in considering the costs order; however, this has to be weighed against the facts that CGA only succeeded on one out of many liability allegations against BWNL and that the bulk of the case related to the causation issues.
7. The third factor relied upon was that, although CGA lost on causation, its case that, subject to causative liability, it would have secured additional gap funding from the Government was initially challenged. Thus it was that BWNL had to deploy a witness, Ms Turner, from the OPDM to address this issue. Although this was an issue on the pleadings, it became more apparent once the funding experts, Mr Finch for CGA and Ms Osborn, became involved, that the parties were much closer on this issue. I therefore conclude that it was not such a major issue as needed to take up a substantial amount of time or resource. It is a factor to take into account in CGA's favour but a relatively minor one.
8. The fourth issue deployed by CGA upon which it succeeded was whether the right measure of loss was in some way based on capital diminution of the transferred properties. There was a certain amount of legal argument but ultimately CGA had the courage of its convictions and did not deploy separate valuation evidence. BWNL deployed an expert, Mr Baldwin, on the topic whom ultimately they did not call as a witness and Mr Onslow QC accepted there was some force in the suggestion at least that his client should bear its own costs of and occasioned by the deployment of Mr Baldwin. Again, in my judgement this is another minor factor to weigh in CGA's favour on the costs discretion.
9. Finally, CGA argues that, because the evidence of its quantity surveyor was accepted subject to causation, it "won" on this aspect of the case. I do not consider that this is a good point. CGA's quantum case, originally £31-£39 million, was substantially and belatedly reduced to about £16 million. It was perfectly legitimate of BWNL to defend the quantum case; both quantity surveyor experts did a competent and professional job in analysing the quantum issues and agreed on numerically most of the quantum issues; on five out of the six ultimately disputed issues which remained, CGA failed. Thus, the ultimate quantum if causation had ever been established was held to be two thirds of just over £10 million, which represented less than 20% of that originally claimed by CGA; it could not be said that CGA was particularly successful on quantum in the result.
10. Weighing all these matters up, I do not consider that it would begin to be appropriate to make a costs order on an issues basis. One must always bear in mind that in many cases the successful party will not be successful on every single part of the pleaded case or on the evidential issues which arise. This case is no different from the run of the mill heavy litigation in this context. The fact is that BWNL "won" the case overall and indeed the majority of the issues and on the issues which ultimately counted. It did not act unreasonably for instance in opposing the liability complaints which were ultimately not established by CGA.
11. There is however something to be said for the costs order in favour of BWNL reflecting the fact that it and CGA unnecessarily expended costs and resource and trial costs on issues upon which BWNL lost, in particular the second, third and fourth issues referred to above. In my judgement, and in the exercise of my discretion, I consider that a discount of 15% is a fair reduction on BWNL's overall costs to reflect this; this allowance takes into account not only BWNL's costs but also the fact that CGA had to expend costs on these issues.
12. I now turn to the question of indemnity costs. These proceedings were issued in November 2009. On 11 April 2011, BWNL's solicitors sent a "Part 36 Offer" to CGA's solicitors. It offered to pay £500,000 inclusive of interest in settlement on terms that its client would pay CGA's costs on the standard basis up to acceptance of the offer if within 21 days thereof. There is no issue that this was a valid Part 36 Offer. This Offer was not accepted and indeed it is clear from counter-offers that CGA was seeking an eight figure sum. On 23 June 2011, BWNL's solicitors reminded CGA's solicitors of the earlier offer. That was not accepted either. The trial started on 30 June 2011 and by the end of the fourth day, 6 July 2011, the factual evidence, bar that of Ms Turner, had been concluded. On 7 July 2011, BWNL's solicitors withdrew the Part 36 offer made in its letter of 11 April and referred to in its letter of 23 June 2011; on 8 July 2011, they offered to settle the case on the basis that CGA paid £1 million to their clients, effectively as a substantial contribution towards their costs. That appears to have provoked no acknowledgement but a "without prejudice save as to costs" offer was sent on 13 July 2011 by CGA's solicitors to settle on the basis that BWNL paid £9 million inclusive of interest and costs.
13. There is no doubt, and it is accepted that, the Court can, as a matter of discretion, in any event take into account the fact that BWNL made an offer capable of acceptance in April 2011 which was in effect for significantly more than CGA recovered. There is more of an argument relating to whether in some way it automatically follows that indemnity costs should be ordered, particularly in the context of the withdrawal of the offer, part way through the trial. CPR Part 36, which I will not set out in detail addresses Part 36 offers in general, broadly as to how they should be formulated and as to how they can be accepted. For instance CPR Part 36.10 provides for the costs consequences of the acceptance of a Part 36 offer; it is unsurprising that the rules make provision for what generally is to happen in these circumstances. CPR Part 36.14 deals with the costs consequences following judgement which apply where, as here, the claimant fails to obtain a judgement more advantageous than a defendant's Part 36 offer. The general rule (CPR Part 36.14(2)) is that the court, unless it is unjust to do so, will order the claimant to pay the defendant its costs from the expiry of the 21 day period (after the offer was made) and interest on those costs. This rule does not as such say that the defendant is in these circumstances entitled to indemnity costs, albeit that a different regime applies where there has been an effective claimant's Part 36 offer. However, CPR Part 36.14(6) says that CPR Part 36.14(2) does not apply to a Part 36 Offer "that has been withdrawn".
14. There has been a large amount of authority quoted on the impact of withdrawal of a Part 36 Offer. For instance in Trustees of Stokes Pension Fund v Western Power Distribution (South West) plc [2005] 1 WLR 3595, the Court of Appeal suggested that the withdrawal of an offer should make no difference if, in effect, that offer should have been accepted earlier. A number of the cases are concerned with the impact on the default rules as to who should pay what costs. I have formed the view however that it must always be open to the Court to take into account an offer to settle the case, which is capable of acceptance, even if it is later withdrawn. The primary effects of withdrawal of an offer are that it can not then readily cover the period after the withdrawal and the default provisions in the CPR can not then bite. In my opinion, therefore the fact that there has been an offer, as here, which happens also to be a valid Part 36 Offer, made by BWNL and CGA has failed to obtain any judgement, let alone one more advantageous than the 11 April 2011 offer, permits this Court not only to make a costs award in favour of BWNL but also to take it into account in considering an indemnity basis.
15. The second ground upon which BWNL seeks indemnity costs is, so it was asserted, that CGA's case was always fatally flawed, based as it was upon the contents of Draft 1 representing either what had been promised to tenants or what the Council or CGA intended to implement. I disagree with what BWNL argues in this context at least until the period ending with the service of the main witness evidence (April 2011). Although the judgement on liability is emphatic and outlines a significant number of reasons why the case on causation, based as it largely was on Draft 1, failed the Court must always caution itself in considering the possibility of indemnity costs on looking at this issue with hindsight. One of the main problems, as it turned out for CGA, was the unfavourable view which I formed about Mr Graham, who produced Draft 1. However, I did not find him to be dishonest and I am confident that CGA and its advisers did not put him forward knowing as such that such an unfavourable view would necessarily be formed by the Court. In reviewing the status of the Draft 1 document in Paragraph 183 of the judgement, the unreliability of and the concessions made by Mr Graham in evidence feature explicitly in five out of the fifteen points listed there and implicitly in another two points. In dealing with the topic "What if Draft 1 had emerged-Causation" between Paragraph 193 to 196 of the judgement, the reliability of Mr Graham features in a number of points made expressly or by implication.
16. However, even allowing for the unforeseen unreliability of Mr Graham, it must and certainly should have been becoming increasingly apparent to CGA following conclusion of the disclosure exercise and the exchange of witness statements that there were likely to be serious difficulties in any event in relation to the status of Draft 1 in particular and causation in general. This is at least partly supported by the perceived need on the part of CGA to file an additional two witness statements from Mr Graham and, indeed, lead some additional new evidence in chief from him. Whilst CGA could not foresee that I would necessarily or certainly find him to be unreliable, it would have been obvious that he was at best a relatively weak link in its evidence. CGA must have known that its other evidence about Draft 1, for instance from Ms Perry or Mr Roberts who gave no evidence about it, was non-existent or nearly so. The content of Draft 1 was obviously provisional and not finalised in any event and that was obvious on its face.
17. Taking into account both the Part 36 Offer made on 11 April 2011 and what must or should have been a growing perception in April 2011 on the part of CGA that its case on causation was likely to be weak, I do consider, and decide, that BWNL should have its costs on an indemnity basis from and including 3 May 2011 onwards. I select this date as being 21 days after the Part 36 Offer and the end of the period in which CGA was invited to accept the Offer.
18. It follows from the above that BWNL should have 85% of its costs on a standard basis up to and including 2 May 2011 and thereafter 85% of its costs on an indemnity basis.

Permission to Appeal

19. There are four grounds relied upon. They are all on analysis based in fact rather than law. Ground 1 is said to be that I asked myself the wrong question in relation to causation at Paragraphs 193 and 194 of the main judgement. However, CGA's whole case was predicated upon Draft 1 representing the detailed list of works either which had been promised to the tenants or which the Council initially or CGA intended to implement. CGA does not seek to challenge the finding that Draft 1 would not have been produced or that the 22 items which were the subject matter of CGA's claim would have been identified. It is necessary to consider Paragraphs 193 and 194 in the context of the findings at Paragraphs 183 to 192 of the judgement which addresses the status of the Draft 1 document and of the findings that largely the selfsame people said to have been involved prior to the production of Draft 1 were also involved in the drawing up of the formal Offer document which went to the tenants and which contained detailed promises. In the light of all the findings in these respects, the suggestion that the wrong question was asked is wrong and leads nowhere.
20. Ground 2 is that I erred in law or fact in finding that BWNL discharged its duty in the period after it saw the 11 or 12 high level point Preston Homes Standard or the Offer Document. This goes to breach and, assuming that the judgement was right on causation, also takes CGA nowhere. There was clear evidential support for the findings that there were no breaches after Mr Johnson saw the high level PHS or the Offer Document and the reason is largely spelt out in Paragraph 169, although also in Paragraphs 170 to 181 reasons are given for the findings in relation to the disabled adaptations case, about which permission to appeal is not sought. The point broadly in Paragraph 169 was that, whilst there was a breach of duty as spelt out in Paragraph 168, its efficacy expired as the Offer document was worked on by substantially the same people who had worked on the production of the high-level document and on the consultations prior to July 2004 and many of whom had attended the three Preston Homes Standard Group meetings. There was essentially nothing to put Mr Johnson on notice during the period that the Offer was being worked on that anything other than the works promised in that document were relevant, let alone had been promised or represented work which had been or was intended to be done.
21. Ground 3 suggests that the judgement failed to give consideration to the argument that a report dated the 22 April 2005 presented at the Shadow Board meeting of 9 June 2005 should have prompted Mr Johnson to undertake further enquiries as to what works have been promised. Again, this does not take CGA's case on causation further. It is assumed that this report is the note dated 27 May 2005 relating to a "tenants conference" of 22 April 2005. The judgement did address this at Paragraph 109 and also at Paragraph 169 which confirms that there "was nothing to alert Mr Johnson after the Offer had been finalised that works other than those referred to in the Offer had been promised or otherwise were understood by anyone would be required to be done." The matter is also addressed at Paragraphs 186 and 187 in the context of the status of Draft 1. It is simply wrong to suggest that consideration was not given.
22. The last Ground is that insufficient weight was given to evidence that CGA would, if properly advised, have sought further funding from the ODPM. As Paragraph 194 (e) records there was no evidence from anyone at CGA or the Council as to what would have been done if Draft 1 has emerged before funding was obtained. The fact that for other reasons (not the subject matter of complaint in the proceedings) CGA at a later stage sought and secured some additional funding does not give rise to an inference that it would have sought funding for work which had neither been promised to the tenants nor was understood within CGA or the Council to be required to be implemented.
23. None of these grounds, in my view, stand any real prospect of success on appeal. The application for permission to appeal is refused.