Walter Lilly & Company Ltd v MacKay & Anor

This judgment follows the handing down of the substantive judgement in this case on 11 July 2012. There remained outstanding a number of issues:

At Paragraphs 650 to 657 of the main judgement, I decided that there was no claim for interest under the Late Payment of Commercial Debts (Interest) Act 1998 in the light of the fact that there was a substantive remedy under the Contract between the parties, namely 5 per cent over the Base Rate of the Bank of England. I decided:

“655.

This claim is essentially in two halves. The first relates to wrongful deductions totalling £854,596 from between February 2007 onwards. These deductions were for liquidated damages for delay (for which WLC was, as I have held, not liable) and for defective works such as the lift, plastering, ABW and the like (a very large part of which WLC was not liable for). WLC and Mr Hunter have put forward doubtless what they consider is a simplified calculation which is all based on Base Rate plus 8%. They have taken a mid point between the start of the deductions (late February 2007) and late August 2008 when the full deduction was being maintained. Although I will hear the parties if they can not agree, the calculation can be on a mid-point basis, depending on what was deducted and when, but the interest should be Base Rate plus 5%. There should also be some allowance (in favour of DMW) to allow for the fact that some of the deductions for defective work were from time to time justifiable, although, unless persuaded otherwise, I can not see that this would exceed £60,000 for any period in 2007.

656.

The second half of the claim is more complex and relates to the various delay and disruption claims; thus for the preliminary thickening claim between March 2006 and February 2007, the net claimed figures are taken from a midpoint and, as they all gradually accumulate in time, they are taken from June 2005 through to March 2010. In relation to sub-contractor claims, nothing is claimed for Adams Joinery and Andrews whose claims have not yet been paid and interest is claimed on what was paid to Norstead in January 2009. Interest is claimed on additional overheads and profit recovery from a midpoint (16 March 2007 to March 2010). Other claims including additional static security guarding costs and disputed valuation are also claimed. I have to say that I have not been assisted by the evidence or the argument how this half of the claim should be addressed. DMW’s Counsel make the general point that there can be no entitlement to interest unless the debt has accrued and the debt can not accrue until either it is claimed or in the case of loss and expense adequate particulars and supporting information had been provided. Whilst I am satisfied that the conditions precedent in Clause 26 have been complied with, what I can not yet ascertain on the available evidence and argument is whether and when each and every one of these specific and claims and sub-claims in the final form in which they were presented in these proceedings (a) was first intimated and (b) was first adequately particularised. I am confident however that substantial further sums would, should and could have been certified over and above those which were certified or included in valuations; a good example of this is the loss and expense attributable to the delays beyond the date up to which BLDA granted extensions. I am also confident that other sums such as the static security guard costs could, should and would have been certified as 2007 and 2008 went along.

It is accepted that at least in relation to the first half of this claim it is appropriate to take a mid-point and calculate accordingly up to 26 March 2010 when proceedings were issued. The rate is not in issue any more in the light of my judgment. It is also accepted that the same rate is an appropriate one for discretionary interest.

In relation to the first half, it was accepted in oral argument that the only issue is on interest in relation to the Static Security, the point raised by the Defendants’ Counsel being essentially a pleading one. It is abundantly clear, and must always have been, that the Static Security claim related to the period from February 2007 until August 2008; indeed the quantum was not in issue. However, the pleaded claim for contractual interest set out in Annex 7 Schedule 1 to the Re-Amended Particulars of Claim (in Paragraph 5(a) thereof) mistakenly (and obviously so) states that the Static Security costs "are claimed from February ‘08 until 14 August ‘08” and the draft has then gone on to claim interest from the midpoint (May 2008) onwards. There has been no application to amend. On the basis that a party, absent amendment, should not recover what it does not claim, interest from February 2007 can not be claimed as contractual interest. However, it was and must have been obvious to the Defendants that this was a mistake; it is also clear from my main judgment that the Claimant was entitled to the full sum claimed for Static Security and has been wrongly kept out of its money for the longer period. On that basis and given that the Court has discretion to award interest, I have no doubt that it should be awarded on a discretionary basis. As has been accepted, it follows that interest at Bank of England Base rate plus 5% should be awarded from the midpoint put forward by the Claimant’s Counsel until 26 March 2010 and thereafter until judgment.

It is accepted that, subject to any final arithmetical check by the Defendants of interest in relation to the first half of this claim, this contractual interest (now including a small element of discretionary interest in relation to Static Security), amounts to £216,046.33.

I now move on to consider the contractual interest claim in relation to the prolongation and thickening costs claimed. The arguments deployed on behalf of the Defendants relate both to the contractual and discretionary claims for interest. The primary argument is that there should be no interest until at the earliest February 2011 when WLC produced its Detailed Analysis of Loss and Expense as a pleading; 20 May 2011 is pressed as more appropriate being after the hearing at which permission to amend was granted to WLC to file and serve its Re-Amended Particulars of Claim subject to the removal of errors and the provision of clarifications in the Detailed Analysis of Loss and Expense. Perhaps, more optimistically, it is argued that interest should only run on the loss and expense from late 2011 or possibly even early 2012 because information about the loss and expense claim was provided, it is said, piecemeal by WLC into early 2012.

There is a distinction to be drawn between the contractual interest which is essentially due as a debt and discretionary interest which only becomes a debt on judgment. I have made it clear in the main judgment that I was satisfied that the Clause 26 conditions precedent had been satisfied. It follows that it was the Architect’s or the Quantity Surveyor’s job to ascertain the loss and expense. In this case, as I have found (Paragraph 472 of the main judgment), £480,000 had been certified for delay related loss and expense by November 2006 and £600,000 by the end of March 2007. I have found (see Summary at Paragraph 539 of the main judgment) that only £472,098 was due in relation to prolongation and thickening costs for the period up to 16 February 2007. It therefore follows that appropriate ascertainments were made (as it turned out slightly generously) at the time. What happened however as time went on was that G&T later revised downwards the ascertainments previously made down to £407,727 in relation to this period (see Paragraph 473 of the main judgement). Indeed, in the proceedings, the Defendants sought to reduce this down to a five-figure sum.

Taking all this into account, the best assessment which I can make is as follows:

In terms of discretionary interest, thereafter, I am of the view that broadly, whilst discretionary interest should not punish a losing defendant, it should reflect the fact that the winning claimant has been kept out of its entitlement until judgment and the losing defendant has had the use of the money. In the light of what I have found, the sums which have been awarded in the main judgment for prolongation and thickening should have been certified and paid much earlier than the issue of proceedings. It therefore matters little that WLC took some time (and probably more than it should have done) to get its pleading tackle in order. The suggestion that the Defendants could not begin to know or understand what the case being made against them was is not really to the point. It is in any event wholly undermined by the fact that, when adequate particularisation and re-amendment had been made, not only were no concessions made but they sought to resile from what G&T and their respective Architects had previously valued and certified in relation to loss and expense.

There is a separate argument deployed by the Defendants’ Counsel in relation to interest in respect of the recurring or time related Head Office Overhead and Profit for which the Claimant was awarded £274,965.12 (see Paragraphs 540 to 554 of the main judgment). It is argued that the Claimant should not have interest until the production of the witness statement of Mr Corless in November 2011 because it is said that only then could the Defendants have appreciated that there was actually at least arguably likely to have been such a loss, his statement having identified amongst other things the lost opportunities to secure other work. Again, this rings somewhat hollow because even with that information the claim was fought tooth and nail by the Defendants. This claim was first detailed in WLC’s August 2008 valuation and there is no good reason why whoever was then the Architect or G&T could not have ascertained what if anything was due. This claim is primarily based on a well-known formula. If the only issue was whether WLC would have secured other work during the periods of delay, then they could have sought and I am satisfied they would have obtained from WLC the requisite information. The reality is that G&T and indeed the then Architect were not interested in allowing any further sums by way of time related loss and expense; they were clearly under pressure from Mr Mackay to reduce or limit what was to be certified or paid to WLC. Given that I have found that the Head Office Overhead and Profit claim was well-established, it should have been certified and it would therefore have been paid shortly after the August 2008 valuation. As a matter of contractual interest, interest should be awarded in relation to this entitlement up until 26 March 2010.

Accordingly, it also follows that in my discretion the Defendants should be required to pay discretionary interest on the net sums which I have found due, including contractual interest, as from 26 March 2010 up to the date of this judgment. The Claimants’ calculations which I accept are that £299,473 is due for the contractual interest until 26 March 2010 and discretionary interest thereafter in the sum of £294,306 is due. That totals £593,779 for interest and completes the exercise for what is due apart from costs.

There can be little doubt that WLC has substantially succeeded in this case with the Counterclaim being reduced to a small fraction of what it started out at and with WLC having secured a very substantial proportion of what it was claiming. All things being equal (and I address below whether they are), WLC would be entitled to its costs paid for by DMW and Mr Mackay.

In relation to indemnity costs, both parties accept the exposition of the law and practice in this area as set out in the decision of this Court in The Mayor & Burgesses of the London Borough of Southwark v IBM UK Limited [2011] EWCH 653 (TCC)

“4.

The following are unexceptionable propositions:

(a)

An award of costs on an indemnity basis is not intended to be penal and regard must be had to what in the circumstances is fair and reasonable: Reid Minty v Taylor[2002] 1 WLR 2800, Paragraph 20.

(b)

Indemnity costs are not limited to cases in which the court wishes to express disapproval of the way in which litigation has been conducted. An order for indemnity costs can be made even when the conduct could not properly be regarded as lacking in moral probity or deserving of moral condemnation: Reid Minty, Paragraph 28.

(c)

The court's discretion is wide and generous but there must be some conduct or some circumstance which takes the case out of the norm: Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (A Firm)[2002] C.P. Rep. 67, Paragraphs 12, 19 & 32

(d)

The conduct must be unreasonable to a high degree. 'Unreasonable' in this context does not mean merely wrong or misguided in hindsight: Kiam v MGN Ltd (No2)[2002] 1 WLR 2810, Paragraph 12.

(e)

The pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, 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: "[T]o maintain a claim that you know, or ought to know, is doomed to fail on the facts and on the law, is conduct that is so unreasonable as to justify an order for indemnity costs": Wates Construction Ltd v HGP Greentree Allchurch Evans Ltd[2006] BLR 45, Paragraph 27 and Noorani v Calver[2009] EWHC 592 (QB), Paragraph 9.

(f)

There is no injustice to a claimant in denying it the benefit of an assessment on a proportionate basis when the claimant showed no interest in proportionality in casting its claim disproportionately widely and requiring the defendant to meet such a claim: Digicel (St Lucia) Ltd v Cable & Wireless plc[2010] 5 Costs L.R. 709, Paragraph 68.

(g)

If one party has made a real effort to find a reasonable solution to the proceedings and the other party has resisted that sensible approach, then the latter puts himself at risk that the order for costs may be on an indemnity basis: Reid Minty, Paragraph 37.

(h)

Rejection of a reasonable offer to settle will not of itself automatically result in an order for indemnity costs but where the successful party has behaved reasonably and the losing party has behaved unreasonably the rejection of an offer may result in such an order: Noorani, Paragraph 12.

(i)

Rejection of 2 reasonable offers can of itself justify an order for indemnity costs: Franks v Sinclair (Costs) [2006] EWHC 3656.

The decision of Andrew Smith J in Fiona Trust & Holding Corporation –v- Yuri Privalov [2011] EWCR 664 (Comm) expands on this somewhat:

Para 1341 of the White Book says that where a party “embarks upon or brings upon itself and pursues large scale litigation which results in a resounding defeat involving the rejection of much of the evidence adduced in support of its case that provides a proper basis on which to award costs on an indemnity basis.  In the particular case [a decision of Mr Justice Langley] the claimant had conducted itself throughout the relevant events on the basis that its commercial interest took precedence over the rights and wrongs of the situation and it was prepared to risk the outcome of the litigation”.

CPR Part 44.3 indicates that the Court must have regard to all the circumstances in exercising its discretion including the conduct of the parties, the relative success and any admissible offer to settle (even if Part 36 does not apply). Conduct includes conduct before as well as during the proceedings, whether it was reasonable for a party to pursue or contest particular allegations or issues and whether a claimant (or counter-claimant) has exaggerated its claim.

In this case, both parties refer to various offers made before judgment whilst WLC points to various aspects of Mr Mackay’s conduct and the Defendants point to various deficiencies in the pleaded case.

The history of the offers was as follows:

Properly construed, the Defendants’ offer of 10 January 2012 in relation to Pre-February 2007 Loss and Expense did relate only to the two thickening claims up to 16 February 2007 and the prolongation claim up to that date. It is clear that the reference to Items 1 to 3 of Annex 4 of Schedule 1 was limited to such claims and in context must relate only to them. It is said, with some justification, that it is somewhat ambiguous because it relates to paragraphs 70 to 74 of the WLC pleading which also covers sub-contractors claims for loss and expense in this period (as well as later) and because the summary that in short the offer covering "all WLC’s claims for loss and expense and preliminaries thickening costs up to 16 February 2007" (emphasis added) suggests that it goes wider than Items 1 to 3. However, it is clear from WLC’s solicitors’ letter of 23 February 2012 that they were not labouring under any misapprehension as to what it meant.

There is no doubt that the Defendants were and have been proved to have been most unwise in not accepting the Part 36 offer of £1.85m of October 2011 because the final result, including interest, financing charges and VAT is approaching £3m. There is no doubt that on virtually every issue the Defendants have lost; in reality, the only significant point on which they “won” was the argument that the increase in the number of sub-contract packages in itself was the risk of WLC; that led to a not insignificant reduction in the prolongation and thickening costs claims.

There is also no doubt in my mind that for reasons perhaps best known to himself Mr Mackay has pursued his and DMW’s defences and counter claims as part of what I described in the main judgment almost as a "vendetta against WLC” (see Paragraph 96(a)); this is amply borne out by a number of factors which include his wholly unjustifiable attempt to wind up WLC, his suggestion that WLC had rigged sub-contract tenders, his anti-WLC website and his interference in an acquisition by WLC’s parent. It is also amply borne out in by the fact that, beyond doubt, he caused or permitted the "book" to be "thrown at" WLC in these proceedings. Of course, it would be wrong to infer what advice was given to him by his legal team but one can judge from the numerous defects claims which were abandoned before the close of the defence in this case that he certainly allowed some claims to be made which could not be conceivably supported. I include in this category a significant number of defects claims which related to defects in work actually carried out by artists, tradesmen and other contractors directly employed by DMW or Mr Mackay; this category was expressly referred to in evidence by Mr Josey from whom I very much drew the impression that his initial exercise had been on instructions to identify every conceivable defect in Unit C and it was only later that he was asked belatedly in the proceedings to weed out the defects which could not be put down to the Claimant. That said, DMW and Mr Mackay did have expert evidence to support the larger counter-claims for defects such as the Light Wall, the Courtyard Sliding doors and the ABW. The main judgement of course only had to deal with the defects which remained in issue.

I was also positively unimpressed with the conduct of Mr Mackay at the trial, indicating as I did in the main judgment that there were a number of important respects in which, although not dishonest as such, he was careless with the truth.

Obviously, I was unaware of any "without prejudice save as to costs” offers and counter-offers until very recently. It is clear however that Mr Mackay was simply not prepared to engage in terms of settlement or compromise on any basis which would involve a substantive payment and costs to WLC. Both the Part 36 Offer (£1.85 million plus costs), open for acceptance from 21 October 2011 for some 4½ months, and the later all inclusive offer of £4.5 million, could and should have been accepted. In effect, WLC has beaten those offers. In addition, the Defendants failed to beat the £35,000 offer in respect of the M&E defects. Save in relation to the pre-16 February 2007 loss and expense claim, all the other offers made by the Defendants were highly and primarily tactical and in the result were wholly inadequate. Examples of the tactical element lie in the offers in relation to the Light Wall, the ABW and the Courtyard Sliding doors. They were undoubtedly structured so that, if accepted simply in relation to the defects counterclaim for them, the acceptance would have counted as an admission in effect of liability which would have substantially undermined WLC’s claims for extension of time relating thereto. I find it difficult to see that these were serious attempts to bring about any overall resolution of the case for this reason and also for the reason that they were unrealistic, as it has turned out.

However, it is also clear that the pre-February 2007 loss and expense offer was not "beaten” or exceeded in the result, I awarded £472,098 in this regard, compared with the offer of £505,000 made by the Defendants on 10 January 2012. However, based on everything which I saw and heard at the trial, there would have been little if any saving in costs. The trial would undoubtedly have fought through and they would have been no less trial days. The only conceivable saving would have been in Mr Pontin’s reports because he would not absolutely necessarily have had specifically to address the quantum in the pre-February 2007 period. That said, he might well have had to deal with it because, if the 10 January 2012 offer had been accepted, he would have faced a serious challenge to his minimal allowances for loss and expense in relation to the following period because it would have been said that that this was undermined by the offer of £505,000 for the earlier period; the only way that he could have responded to that would have been to say that the £505,000 was ridiculously generous.

I have formed the view that it would be legitimate, weighing all these factors up together, to allow to WLC its costs on a standard basis up until 11 November 2011 and on an indemnity basis thereafter. From the date of its October 2011 offer and thereafter, the Defendants behaved unreasonably in not engaging in an overall settlement process and in rejecting, without any effective or commercially sensible counter-offers, that and the later all inclusive figures. I do weigh up the "successful" offer in relation to the pre-February 2007 loss and expense but attach less weight to it because it would have saved probably in real terms little or no cost or time. To some extent, it is "balanced" by the unreasonable rejection of the M&E offer made by WLC also in October 2011. The conduct particularly of Mr Mackay as the trial drew nearer and during the trial was in a number of respects unreasonable.

So far as an interim payment of costs is concerned, WLC’s total cost bill is said to be £3.953m of which just over £3.8m is said to have been paid out already. There is no issue that there can and in principle should be an interim payment of costs. I have already indicated to the parties that a figure of £1.9m should be paid by the Defendants by way of an interim payment of costs. I take into account the fact that there are some costs orders made against WLC which I nominally assume could be as high as £100,000. The interim payment is one which is fractionally less than 50% which should represent a figure above which WLC will recover costs on an assessment by the costs judge, particularly given that a proportion of them are on an indemnity basis. It is argued that the overall bill is disproportionate to the amounts in issue. However that argument fails to take into account that there were hundreds of issues which remained in issue and also that there must have been a significant increase in cost by reason of the joinder by the Defendants of the third parties. It is also more than arguable that the costs are not so obviously disproportionate if one bears in mind that there was some £6m or more in issue on the Claim and Counterclaim.

A very late application was issued by the Defendants on 11 July 2012 for an extended time period of 28 days to pay £1 million in respect of the judgement sum and a further extended time up to 11 October 2012 to pay the remainder of the judgment sum. It was very late because the draft judgment in the usual way went to Counsel on 26 June 2012, over two weeks before the handing down and before this application. It was supported, not by any witness statement from Mr Mackay, but by witness statements from Mr Patel (the Group Head of Finance of Mr Mackay’s various companies) and Mr Wilmott his tax adviser since 2002. They were both asked to “comment on the resource that will be available to Mr Mackay if he was required to pay approximately £7 million within three months”. They point to Mr Mackay having a net worth of £134 million of which the net value of his three domestic residences is £39.5 million and his shares £94.5 million. They avert to the fact that the Boltons residence has been put on the market at an asking price of £60 million which after borrowings of £28 million leaves a net value of £32 million; these values are arguably supported by valuations from two estate agents, Aylesford and Knight Frank. It is said, by inference, that the other two houses (in the country and in France) have a net worth of £7.5 million. They explain that residences and shares are "illiquid" or "semi-liquid".

I am not prepared to accede to this application for the following reasons