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

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

		Rolls Building
		26th July 2017

MR JUSTICE FRASER:

1. I will just give a short ruling. I handed down judgment on liability in this case on 12^th July. The trial took a reasonable number of days in May and the judgment is fairly lengthy, resolving what has been a long-running dispute between MMT and ICI, effectively about three main areas or categories arising out of the project in which MMT were involved. What I am doing by explaining these three categories is that I am grouping the arguments between the parties into three broad categories, although they were far more wide-ranging than this. For the full list of the issues that arose between these two parties, recourse should be had to my judgment on liability which is at [2017] EWHC 1763 (TCC).
2. The first category was which party repudiated the contract, and separately but included within that category there was an issue about the quality of the defendant's welding, and also a separate free-standing legal argument about whether in the circumstances there should be a final accounting/restitution exercise undertaken on the total that the claimant had paid to MMT. This was to the effect that if there had been an overpayment, whether ICI were or would be entitled to recover it in principle. That amount is pleaded in the sum of approximately £10 million. In the judgment MMT were successful on almost all the issues, save for that separate one, the final accounting/restitutionary argument, which means that there will be a second round of this litigation to deal with quantum.
3. Mr Mort for MMT seeks an order for costs against ICI today for the liability trial. He accepts that MMT were not successful on everything because of the legal issue identified about repayment. He also accepts that no money will change hands because he candidly accepts that in the circumstances it would not be correct to make an order for payment prior round 2 taking place. However, he does submit that the correct time in this litigation to make an order for costs is now. In respect of that, he prays in aid a short passage of Nugee J very recently in the case of Merck KGaA v Merck Sharp & Dohme, who said at [6]:

"It is in general a salutary principle that those who lose discrete aspects of complex litigation should pay for the discrete applications or hearings which they lose, and should do so when they lose them rather than leaving the costs to be swept up at trial."

I should say that Nugee J's case relates to success on a preliminary issue whereas this case is rather different in that it was a split trial of liability and quantum. However, that is what Mr Mort relies on. He also seeks indemnity costs against ICI.

4. Mr Bowdery for ICI says that this is effectively an academic debate. Given no money will change hands in any event at this stage, and the matters which were resolved by me in the judgment were fairly intractable and needed resolving in one way or another in any event, costs should be reserved. He submits that the points raised by ICI were properly arguable. He also submits that none of the provisions for indemnity costs are engaged and that any suggestion that ICI is running this litigation cynically, or deploying its economic muscle (that is not his phrase or Mr Mort's phrase but that is my phrase) to snuff out MMT, which is a fairly small company by comparison and is in any event now in voluntary liquidation, is in fact misplaced.
5. I have decided, taking into account all the circumstances, that the correct approach is to make an order for costs now. It is correct that no money will be changing hands at this stage; however, the parties are about to embark on the second round of this litigation and it is further to be hoped that round will not in fact go all the way up to and require a trial. Actions such as this sometimes settle at appropriate stages, but I have to proceed on the basis that round 2 will happen. Round 2 will be very much less of a factual enquiry because it has more limited issues, but depending on the application to amend that is being made immediately after I have finished this short ruling, round 2 will in fact involve more than purely dealing with numbers, or it may involve more than purely dealing with numbers, because there are some principles to be decided too.
6. Also it is the case that even if MMT do not receive any money now, they would in fact have an order in their favour, and certainty in respect of what could potentially be sizable costs on the liability trial. Merely postponing this off to the ultimate resolution of the entire action is, in my judgment, wholly unsatisfactory. Both parties need to know where they stand when that is possible and the cost of the liability trial, which went on for about two and a half weeks, are sizable and should be dealt with now if they can be. In my judgment they can be, and the correct approach is to make an order for costs today.
7. That then leads me to consider what is the correct order for costs? There is no doubt that Mr Bowdery for ICI was successful on his legal arguments in terms of the final accounting/restitutionary issue about the amount of money paid to MMT, and whether ICI could in principle recover any overpayment. However, that was a self-contained and purely legal point. In my judgment, the correct way to deal with that is in fact to make a modest discount to the recovery of costs to which MMT would otherwise be entitled. That discount is going to be five per cent.
8. I then turn to the correct way in which the remaining 95 per cent should be considered on detailed assessment; in other words, on the standard basis or on the indemnity basis? The principles upon which indemnity costs should be awarded are very well known and have been dealt with in a great number of cases, most recently in the TCC by Coulson J in a case called Elvanite but these principles were re-stated by Akenhead J in Courtwell Properties v Greencore [2014] EWHC 184 (TCC) and at [22] and [23] of that judgment Akenhead J explained the approach to indemnity costs. I am going to briefly identify the points which as far as I am concerned are applicable in this case.
9. The first is that indemnity costs are appropriate only where the conduct of the paying party is unreasonable to a high degree. Unreasonable in this context does not mean merely wrong and misguided in hindsight. That is taken from Kiam v MGN Ltd. Secondly, the court must decide whether there is something in the conduct of the action or the circumstances of the case in general which take it out of the norm, in a way which justifies an order for indemnity costs. That statement is taken from Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer. Pausing there, the phrase that is most often deployed in a short application for indemnity costs is that the circumstances in that particular case takes it out of the norm.
10. Thirdly, the pursuit of a of a weak claim will not usually, on its own, justify an order for indemnity costs, provided that the claim was at least arguable. But the pursuit of a hopeless claim (or a claim which the party pursuing it should have realised was hopeless) may well lead to such an order. That is taken from Wates Construction Ltd v HGP Greentree Alchurch Evans Ltd. The fourth point is that if a claimant casts its claim disproportionately widely, requiring the defendant to meet such a claim, there is no injustice in denying the claimant the benefit of an assessment on a proportionate basis given that the claimant has forfeited its rights to the benefit of the doubt on reasonableness. That is taken from Digicel (St Lucia) Ltd v Cable and Wireless.
11. Akenhead J then added the following points of his own and the first is a quotation from Three Rivers v Governor of the Bank of England which is that the discretion to award indemnity costs is a wide one. It must be exercised taking into account all the circumstances and considering the matters complained of in the context of the overall litigation. Secondly, dishonesty or moral blame does not have to be established to justify indemnity costs. Thirdly, the conduct of experts can justify an order for indemnity costs in respect of costs generated by them. Fourthly, a failure to comply with protocol could result in indemnity costs and, fifthly, a refusal to mediate or engage in mediation or some other alternative dispute resolution process could justify an award of indemnity costs.
12. I am just going to identify those principles which, in my judgment, apply here. They are the first one, indemnity costs are appropriate only where the conduct of the paying party is unreasonable to a high degree; the second one, there is conduct of the action or the circumstances of the case in general which take it out of the norm in a way which justifies an order for indemnity costs and, thirdly, the pursuit of a weak claim. I do not say overall that ICI's claim was weak but the claim ICI made for repudiation was exceptionally weak. Also I am going to also add another point of my own and then I am going to go to some passages in my judgment.
13. Adopting the Three Rivers' approach, which is to take account of all the circumstances of the case, evidence emerged during the course of this trial which showed what could only be described as a wholly unreasonable attitude by people employed by AkzoNobel to the contractual obligations in respect of the claimant (its subsidiary company) to MMT and those fall into two categories. One was what I could only describe as a wholesale disregard for their contractual obligations but the second one, which, in my judgment, demonstrates turpitude on the part of the people involved, was that a supplementary agreement was notionally suggested and agreed in principle with MMT which involved a sizable payment being "agreed" to be paid to MMT from ICI. The steering committee, Steer Co, withdrew authority to make that payment to MMT but nobody told MMT that. Therefore, for a number of weeks, MMT was conducting itself in the belief that the payment was about to be made, when in fact and reality no such payment was ever going to be made, because there was no authority to make such a payment. Those involved at AkzoNobel on ICI's behalf plainly knew that at the time and, in my judgment, that is exactly the sort of unusual factor which demonstrates that indemnity costs could potentially be justified. I am also going to identify the other factors which Mr Mort relies on and I will deal with what they are very briefly.
14. AT [42] of my judgment there is a finding, and this is demonstrated in the documents, that ICI/AkzoNobel knew just a few days before the alleged repudiation was accepted by them that there were no grounds for ICI to assert a repudiatory breach by MMT. They went ahead and behaved as they did in any event as though there were. The second item is that the breaches that were alleged as repudiatory breaches I have found were, having heard the evidence, extraordinarily thin, verging on factually non-existent, and I deal with that at [171] of my judgment. At [172] I identify that the list of repudiatory breaches read simply as if someone had trawled through the correspondence for any reference, and elevated any criticism to the status of repudiatory breach or breaches. Fourthly, this is a point that goes not only to disclosure but the way disclosure was done and what the court was told at the trial in evidence, the series of unsatisfactory explanations for either the non-involvement or involvement of the head of the Steer Co, Ms Schoelenberg. Even during the trial itself the court was simply not given a correct and frank and full explanation in circumstances where interlocutory applications had been defeated by ICI on the basis that she had not been involved in the project until February 2015. The reality was that she was involved as early as August 2014, and had in fact been the person who made the decision to accept a non-existent repudiation by MMT. That, in my judgment, is one of those unusual matters that justify indemnity costs being awarded against ICI.
15. I am also going to deal with a concession but, in my judgment, the concession does not justify indemnity costs. However, the concession was made by Mr Bowdery and is in fact relied on by Mr Mort. I want to explain what my position is on it as far as costs are concerned. There was a contractual argument between the parties whether radiography was in fact part of the contractual terms. This was a very difficult and intractable problem between the parties during the second half of 2014. That contractual argument was conceded by Mr Bowdery in his closing submissions. I do not consider that that concession of itself would justify an award of indemnity costs or is one of the number of factors that would justify it. Although I explained in my judgment that that was a retreat by ICI from a wholly unarguable position, which it undoubtedly was, it would be wrong, in my judgment, to penalise such a sensible concession by treating it as one of those factors. It was entirely sensible. Concessions like that during litigation are to be encouraged. The concession came at the end of the evidence and, in my judgment, it is not a point that can be relied upon by Mr Mort for indemnity costs and I do not take it into account at all.
16. In those circumstances, therefore, the result is that MMT are to be awarded their costs of the liability trial on an indemnity basis subject to detailed assessment, less five per cent to reflect the fact that they did not win on the final accounting/restitutionary argument.
L AT E R
17. I will now deal with the application to amend by MMT. This is an application to amend and I am not going to recite the procedural history of this case in any great detail but I am in fact going to deal with one of the orders which was made some time ago in February 2016 by Coulson J who is the judge in charge of the TCC as everyone will know. He at that CMC had to deal with two different matters. One was the fact that each party had issued proceedings against the other one, so there were two actions, HT-2015-379 and HT-2015-381. He resolved that by deciding that the action that should proceed was the one with ICI as the claimant and that the other action would effectively just come to an end. That, therefore, meant that all the issues between the parties were to be dealt with, with action 381 continuing and action 379 being stayed until further order. That stay remains in place.
18. The second thing he did substantively, rather than dates and directions, was he ordered in paragraph 15 and 17 of the Order that the proceedings be dealt with, with the liability trial happening in November 2016 and the quantum trial happening on 24^th April 2017. Liability was described using that word in inverted commas as "determining all issues of 'liability' arising out of the allegations of termination and repudiation, including issues of breach, welding defects, contractual payment issues in principle, the consequences of finding that either party was in repudiatory breach and the principle of ICI's claim for unjust enrichment." The issues that were to be dealt with in the quantum trial were described, and again quantum was in inverted commas, and now I am going to quote again from the order, "to determine the detailed apportioning of damages for breach of contract and other outstanding issues."
19. Having handed down judgment on 12^th July, Mr Mort for MMT has produced a proposed re-amendment to be made to the amended defence and counterclaim but that amendment avers that as a result of the claimant's repudiation, which I have now found in my judgment, seven different things have occurred. One is the defendant was obliged to instruct insolvency practitioners in March 2015; two was that the defendant had to plan a CVA; three was that the defendant's bank ceased to provide financial support for the defendant on 20^th March 2015, leading to an immediate loss of liquidity; four, that the defendant's management had to attend to those issues and as a result were prevented from performing their normal activities of winning work for the defendant and/or managing the defendant's business generally; five was that the defendant's position and reputation in the market in terms of existing and prospective customers was substantially affected by reason of the repudiation and consequent liquidity issues and CVA proposal; six was that the defendant was handicapped in winning new work and, seven was that the defendant had to negotiate outstanding accounts from a position of weakness because it was in dire need of cash. It had to obtain finance at uncommercial rates and to pay for credit with its suppliers.
20. Then there are new heads of loss introduced and again there are six of these and I will just quickly identify what they are. I will number them as they are numbered in the amendment. Four, the costs of professional advice; five, the cost of management time; six, loss of income including loss of contribution to overhead and loss of profit; seven, reduced ability in negotiating other projects; eight, additional costs of financing, et cetera, and, nine, additional tax liabilities.
21. This amendment is opposed by Mr Bowdery on two main grounds and the first is that they are substantially liability issues and they should have been dealt with in the liability trial. The second is he says that they are very late. I am going to deal first with whether they should have been in the liability trial or not.
22. It seems to me, having looked at the order, that issues of detailed accounting or quantification of damages for breach of contract are matters which were left over for the quantum hearing. However, any liability (properly so-called) issues should have been dealt with in the liability trial and, in my judgment, having looked at these amendments with care it seems to me they all fall into the category of detailed accounting or damages for breach of contract. They are not liability issues, with the exception of the allegation that the defendant's management were prevented from winning work for the defendant and/or were handicapped in winning new work. In my judgment, therefore, the only amendments which could properly be considered as being available to be made in the sense that the ship has sailed on liability are those that would be going in paragraph 114, 1, 2, 3, part of 4 – in other words, that part which would read "as a result of they were thereby prevented from managing the defendant's business generally," in other words, deleting sub-para.A – part of 5 (although it seems to me that there is no head of loss which goes with 5 anyway) and 7 (a) and (b). As far as the cost is concerned or the losses in paragraph 115, it seems to me that 6, which is loss of income, goes hand in hand with the parts of 4 and 6 in the preceding paragraph which I have deleted or which I say are amendments which could now properly be made. That means that the only heads of loss which could be precluded would be 4, 5, 7, 8 and 9.
23. Although Mr Mort doubtless disagrees with that, that is my analysis of the categorisation of those amendments. The only ones I am prepared to permit under any circumstances are the ones which I have identified. I am now going to come on to deal with whether this is a late amendment in any event such that it ought not to be allowed on the basis of the principles of late amendment.
24. The most useful place to start in terms of late amendments is the judgment of Carr J in Su-Ling v Goldman & Sachs but her statement of principles at [38] of that judgment have been recently summarised by Coulson J in another case called Willmott Dixon v Robert West Consulting Ltd. The most suitable principles which apply, or the most appropriate principles which apply, in my judgment, are the ones which are dealt with by Carr J at [38] (a) and (d). [38](a) is:

"In exercising that discretion, the overriding objective is of the greatest importance. Applications always involve the court striking a balance between injustice to the applicant if the amendment is refused, and injustice to the opposing party and other litigants in general, if the amendment is permitted."

25. Paragraph (b) deals with very late and (c) deals with very late and (d) is, "Lateness is not an absolute, but a relative concept" and (f) "it is incumbent on a party seeking the indulgence of the court to be allowed to raise a late claim to provide a good explanation for the delay."
26. Mr Mort does not have the benefit of a witness statement giving me any explanation for the delay due to the logistical difficulties that his solicitors had and I have taken into account, and I am indulgent in this respect. Firstly, MMT is in liquidation and is represented by a small to medium firm which does not have the depth of resources available to it of a larger city firm. I also set today's date for consequential applications arising from the judgment at relatively short notice. I also indicated today that the judgment would be handed down, which was only on 12^th July, again at relatively short notice, so I accept that to a degree time has been short for an explanation. I do not accept that no explanation in those circumstances could have been provided at all. I have taken into account that the nature of the amendments relates to the financial straits which the defendant reached as a result of the wrongful repudiation by ICI because its business went into considerable financial difficulties. It was also clear on the documents (and this is also dealt with in the liability judgment) that ICI (or more accurately AkzoNobel) took a specific business decision that it was going to be more economical for ICI to push MMT into insolvency than pay MMT the sums to which it was contractually entitled. Given the effect this would have upon the business of MMT, its reputation but also the employees all of whom would lose their employment, this is something that I take into account when considering my discretion in permitting amendments.
27. Turning to lateness, on one view this could be said as being a late amendment but, on the other view, given that there have been no directions for the quantum stage, this could be said to be the earliest time at which the defendant could reasonably be expected to plead these sorts of issues. Striking the balance, which I have to do, between injustice to ICI in facing what is effectively a raft of new allegations, on the one hand, and injustice to the defendant if none of these amendments are allowed at all, it seems to me that those that involve detailed accounting evidence of the nature I have indicated I would allow is striking the correct balance and so that is what I am going to do.
28. In those circumstances, therefore, I am going to allow the amendment to the limited extent that I have identified but I am not going to allow those parts which I have identified in submissions and need to be removed.
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