United Kingdom Supreme Court

Trinity Term
[2010] UKSC 38
On appeal from: [2009] EWCA Civ 26

JUDGMENT

RTS Flexible Systems Limited (Respondents) v Molkerei Alois Müller Gmbh & Company KG (UK Production) (Appellants) (No. 2)

before

Lord Phillips, President
Lord Mance
Lord Collins
Lord Kerr
Lord Clarke

JUDGMENT ON FORM OF ORDER AND COSTS

21 July 2010

Appellant Kenneth MacLean QC Michael Fealy (Instructed by Pinsent Masons LLP)

Respondent Stuart Catchpole QC Charles Manzoni QC (Instructed by Addleshaw Goddard LLP)

See original JUDGMENT

JUDGMENT ON FORM OF ORDER AND COSTS

Form of order

1. At the end of its judgment the Court said at para 89 that, subject to submissions on the precise form of order, including the precise formulation of the declarations to be made, its conclusion was that the appeal should be allowed, the order of the Court of Appeal set aside and declarations made (1) that the parties reached a binding agreement on or about 25 August 2005 on the terms agreed on or before 5 July and subsequently varied on 25 August and (2) that that binding agreement was not subject to contract or to the terms of clause 48.
2. The parties have now made detailed submissions on the form of order, each naturally seeking to prepare for the future in the most advantageous way possible from its point of view. The approach which the Court has taken to the resolution of the issues is this. It recognises that there remain a number of issues which, absent settlement (much the most desirable course), will have to be determined by the trial judge. In particular, as the Court's judgment makes clear in a number of places, there remain issues of construction of the agreement. It was no part of the role of the Court to resolve issues of construction. The Court has sought to resolve the issues as to formation of the contract that were fully argued before it. It has not sought to resolve issues that were not fully argued. The Court takes the view that it is clear from the judgment which documents formed part of the contractual terms. It does not deem it appropriate to seek to spell those conclusions out again in summary form in specific declarations.
3. As to issues 1.1 and 1.1.1 to 1.1.6, so far as the Court is aware, there is no suggestion that the conclusions of the judge should not stand.
4. As to issue 1.2, the Court gives the same answer as the judge, namely that Müller and RTS did enter into a new contract after the Letter of Intent Contract. However, the Court has held that the terms of the contract are different from those found by the judge. The judge answered the questions raised by issues 1.2.1 to 1.2.6 because, having identified particular documents as being part of the contract, he decided that it was necessary to do so. The Court has now held that the terms were much more extensive than those found by the judge. It has discussed the terms in some detail in its judgment and has now concluded that nothing is to be gained by summarising in an order the documents which it has held form part of the contract. The position is fully explained in the judgment. If there are any loose ends they must be resolved by the trial judge.
5. In particular, some of the issues determined by the judge, as for example issues 1.2.2 and 1.2.5, essentially raise issues of construction of the contract. As explained in the judgment, issues of construction of the contract which the Court has held to exist, and upon which the Court has not heard detailed argument, cannot sensibly be resolved by the Court and must be left to the trial judge.
6. As to issue 1.3, it was common ground that the contract, whatever may have been its original terms, was varied by agreement on 25 August 2005. The Court has referred to the variation at paras 25 to 27 of the judgment. In particular, at para 26 it has referred to the judge's findings of fact as to the variation and as to what happened thereafter and observed that it was not necessary for the Court to refer to them in any detail in order to resolve the issues in the appeal. That remains the position. Moreover, so far as the Court can see, neither party had at any stage challenged the judge's answer to issue 1.3. In these circumstances the Court accepts the submission made on behalf of Müller that it should not now reopen those findings as suggested by RTS. The detailed position will be a matter for the trial judge.

Costs

7. Each party seeks an order for costs in its favour. Each says that it has won or that it has won on balance. It is undoubtedly true that each party has had some measure of success, from which it follows that each party has had some measure of failure. On the basis of the conclusions reached by this Court as set out in its judgment, neither party has succeeded on the primary case that it advanced at any stage.
8. Before the judge the primary case advanced by RTS was that the Letter of Intent did not expire in May 2005 and was not replaced by a new contract. Its alternative case was that, if there was a new contract, it was on MF/1 terms. Müller's case was that there was a new contract, not on MF/1 terms but on the particular terms identified by the judge. The MF/1 terms were essentially those which this Court held to be the terms of the contract. The judge accepted Müller's case.
9. RTS appealed to the Court of Appeal, where its primary case was that there was no contract between the parties and that it was entitled to be paid on a quantum meruit basis. Its alternative case was that there was a contract on MF/1 terms. Müller submitted that the no contract point was not open to RTS and sought to uphold the contract found by the judge. The Court of Appeal accepted RTS' primary case and held that there was no contract.
10. In this Court Müller argued that the Court of Appeal was wrong to find that there was no contract and that the judge was right to hold that there was a contract, not on MF/1 terms, but on the terms found by him. RTS argued that the Court of Appeal was correct to hold that there was no contract but that, if there was a contract, it was on MF/1 terms. This Court held that there was a contract, essentially on MF/1 terms, as explained in detail in the judgment.
11. The Court has concluded that at the end of this whole process RTS has had a significantly greater success than Müller. It is true that, in the light of the Court's judgment, RTS' primary case has failed at each stage but its alternative case at each stage has succeeded. The result is that, although there was a contract, it was essentially on MF/1 terms and, importantly, was not on the limited terms identified by the judge and relied upon by Müller at each stage. In arriving at a fair overall result on costs, the Court must take account of those considerations but must also have regard both to the time spent in the Court of Appeal on the no contract point (which was raised by RTS and upon which it has now lost) and to the fact Müller had to come to this Court to displace the decision of the Court of Appeal and has succeeded in doing so. Moreover RTS persisted in advancing the no contract point in this Court.
12. Both parties made Part 36 Offers at first instance. In the light of that fact, subject to three points, the judge decided that the costs should be reserved to the trial judge. Subject to the same three points, this Court agrees that the costs should be reserved to the trial judge because the appropriate order might be affected by the offers. However, it seems appropriate to indicate what order the Court would have made as to the costs at first instance on the basis of its conclusion there was a contract, essentially on MF/1 terms. Subject to the three points, on this basis Müller's submissions have been rejected and RTS' alternative case has been accepted. The Court concludes that, in principle, Müller should pay part of RTS' costs. A fair proportion would be 60 per cent. Accordingly, other things being equal, the Court would have ordered Müller to pay 60 per cent of RTS' costs at first instance.
13. The three points are these. The first point relates to issue 1.3. The judge ordered RTS to pay the costs of issue 1.3, which essentially asked what were the consequences of the variation agreed on 25 August 2005. The judge answered the question in his judgment and in the schedule to his order. He held that RTS should pay the costs of this issue whatever the result of the main issue. This Court sees no reason to interfere with that conclusion.
14. The second point relates to issue 1.1.6, which raised the impact of the Unfair Contract Terms Act. For the reasons given in his judgment on the costs of this issue (at page 34 of the transcript for 10 June 2008) the judge held that RTS should pay these costs in any event. Again this Court sees no reason to interfere with that conclusion.
15. The third point relates to the costs referable to the inadmissible evidence in RTS' witness statements. Again, this conclusion is not affected by the conclusions reached by this Court in its judgment and this part of the judge's order should be restored.
16. There have been no Part 36 Offers which are relevant to the appeals to the Court of Appeal or to this Court. The Court has concluded that the fairest approach is to treat the costs in this way. RTS has ultimately succeeded in what was its alternative argument at each stage, namely that there was a contract on MF/1 terms. For that reason Müller should pay part of its costs. Those costs should however be reduced both in the Court of Appeal and in this Court for the reasons stated above. In the Court of Appeal the no contract point, which RTS raised and has now lost, plainly took up a significant amount of time. Moreover, the fact that RTS took and succeeded on that point in the Court of Appeal meant that Müller had to appeal to this Court, where RTS persisted in advancing it. In order to reflect what this Court regards as the overall success of RTS on the one hand and these considerations on the other, it has concluded that that Müller should pay 40 per cent of RTS' costs in the Court of Appeal and in this Court.
17. RTS paid Müller £65,000 on account of the costs of the three points referred to above in accordance with para 4 of the order of the judge. RTS seeks an order for repayment of that sum, but the Court has concluded that, in the light of its conclusion that that part of the order should stand, it would not be appropriate to order repayment.
18. The remaining question is whether the Court should make an order for an interim payment of the costs that it has ordered Müller to pay RTS 40 per cent of its costs in the Court of Appeal and in this Court. It has concluded that it should do so and that an interim payment of a total of £80,000 would be appropriate.