Amey LG Ltd v Cumbria County Council

Introduction

I handed down my judgment on the substantive issues, [2016] EWHC 2856 (TCC), on 11 November 2016 and, having heard argument on the consequential costs issues now proceed to provide my judgment on those issues.

The following issues arise:

As I said in my substantive judgment, this is a claim and counterclaim arising out of a 7 year contract for the provision of highways maintenance and other services by the claimant, Amey, to the defendant, Cumbria. By the time the contract expired a number of claims and counterclaims had already been intimated, and Cumbria had made substantial deductions from Amey’s 3 final monthly payment applications. Neither the final account process nor the subsequent pre-action protocol process resulted in an overall settlement of the claims and counterclaims, with the result that Amey commenced proceedings in the Manchester Technology and Construction Court in December 2013. Amey’s claim as originally pleaded amounted to over £30 million together with interest. The counterclaim as originally pleaded, even after taking into account Cumbria’s valuation of Amey’s claims, was around £20 million. The parties endeavoured to settle their disputes throughout the course of the proceedings, including undertaking a week-long mediation in May 2014, and achieved some success in settling some of the claims, but the majority of the claims remained in dispute. The case went to trial at the beginning of February 2016 and ran until the end of May 2016.

The result of the trial, in summary, was as follows (Footnote: ¹):

In relation to its part 1 claim, in broad terms Amey succeeded in showing that the substantial deduction of around £4.197 million made by Cumbria from the final 3 monthly claims on the stated basis that it had substantial counterclaims had been very largely unjustified. However Amey failed to show that it had been very substantially underpaid for the Better Highways work undertaken by Amey from 2008 onwards. That was because whilst Amey was able to satisfy me that it had undertaken this work to the extent that it had claimed it failed to satisfy me that it was so different from the work previously undertaken that it was entitled to payment on a re-rated and therefore substantially increased basis.

In relation to its part 2 claims, although Amey succeeded in part on 6 of its part 2 claims it failed on the remaining 10. Its net recovery of around £296,000 needs some clarification, because that includes a deduction of around £280,000 for the overpaid element of the Better Highways work as well as a deduction of around £288,000 for the deduction of a previous on account payment. Thus the total of the individual awards to Amey for the 6 items on which it succeeded was around £864,000 before deductions.

In equally broad terms, Cumbria very substantially failed to achieve success in relation to its three most substantial counterclaims, being the defects counterclaims in Schedules 2, 3 and 7. It achieved a success of only around £802,000 in relation to these multi-million pound claims, where the total claimed was around £12.6 million. Of the £802,000 it achieved a significant success only in relation to one element of the Schedule 2 and 3 claims, which was a claim for repayment of payments made for testing which I concluded had not been undertaken (around £598,000 of the sum claimed of around £2.223 million) and only in relation to around £179,000 of the sum claimed of around £877,000 for Schedule 7. The major reasons for its failure to achieve greater success were (a) its failure to satisfy me that it was proper to extrapolate its findings from inspections of work sites sample inspected to the entirety of the works undertaken by Amey; (b) its failure to satisfy me that it was proper to award damages based on the cost of remedial works which I was satisfied were never in fact going to be carried out; (c) its failure to evidence the majority of its Schedule 7 claims for notified defective works.

Furthermore, whilst it achieved some success in relation to some of the other counterclaims, many of those were mirrors of Amey’s claims, rather than freestanding claims in their own right, and it failed on others. As I have said overall its level of success was not sufficient to justify the deductions it had made from Amey’s annual account claims.

The respective cases

Amey’s position is straightforward. It is the successful party and should be awarded its costs of the claim and counterclaim with no reduction.

Cumbria’s position as clarified in oral submissions was that:

Costs incurred

The importance of the debate about costs may be seen from the costs incurred, as to which both parties produced details for the purposes of the costs argument.

Amey’s total costs from 1 July 2012 to date, excluding costs not charged to it by its solicitors and excluding costs already dealt with, are said to amount to around £8.848 million. Cumbria’s are said to amount to around £10.037 million.

I should also record that this case was not subject to costs management. At the time the case was issued costs management did not apply to claims with a stated value of over £2 million unless the court otherwise ordered. Prior to the first case management conference the court enquired whether the parties intended to file costs budgets and after consideration both parties stated in clear terms that they did not wish the court to make a costs management order. They did however, as they were required to do, indicate on their case management information sheets the estimated amounts already spent on costs and the estimated overall costs. In Amey’s case the figure was £1.7 million and £6.5 million respectively and in Cumbria’s case the figure was £2.5 million and £6 million respectively. In those circumstances the court did not order that costs management should apply against the wishes of both parties and the case proceeded to trial.

Whilst it is apparent that both parties’ incurred costs are significantly in excess of those estimates, the reasons for that have not been the subject of investigation at this stage. It is apparent from my knowledge of the case, having case managed the case throughout and tried the case, and from the costs schedules, that very significant and broadly equivalent amounts have been spent by both parties on electronic disclosure and the electronic trial process, on very significant expert input, particularly on quantum and extrapolation, and on intensive input from the respective legal teams. I have no doubt that the hard fought nature of the case, with very little in the way of agreement on issues or on figures as figures, and the need for intensive activity on all hands and at all stages to ensure that the case was ready for trial and was concluded within the trial timetable, provide explanations for much if not all of the increase on both sides.

By the end of the hearing there appeared to be no significant dispute as to the relevant principles.

The general principles are of course to be found in CPR Part 44.2. Cumbria accepts, as it must, that it is to be regarded as the unsuccessful party so that the starting point, by the application of the general rule in Part 44.2(2)(a), is that it will be ordered to pay Amey’s costs. However by Part 44.2(2)(b) the court may make a different order, and by Part 44.2(4) it is required to have regard to all the circumstances, including the particular matters referred to there, namely conduct, success and admissible settlement offers, with conduct being further expanded upon in Part 44.2(5).

Both parties referred me to the well-known and authoritative summary of the relevant principles in the context of business disputes to be found in the judgment of Jackson J. (as he then was) in Multiplex Constructions v Cleveland Bridge [2008] EWHC 2280 (TCC) at [72].

“(i)

In commercial litigation where each party has claims and asserts that a balance is owing in its own favour, the party which ends up receiving payment should generally be characterised as the overall winner of the entire action.

(ii)

In considering how to exercise its discretion the court should take as its starting point the general rule that the successful party is entitled to an order for costs.

(iii)

The judge must then consider what departures are required from that starting point, having regard to all the circumstances of the case.

(iv)

Where the circumstances of the case require an issue-based costs order, that is what the judge should make. However, the judge should hesitate before doing so, because of the practical difficulties which this causes and because of the steer given by rule [44.2(7)].

(v)

In many cases the judge can and should reflect the relative success of the parties on different issues by making a proportionate costs order.

(vi)

In considering the circumstances of the case the judge will have regard not only to any part 36 offers made but also to each party's approach to negotiations (insofar as admissible) and general conduct of the litigation.

(vii)

…

(viii)

In assessing a proportionate costs order the judge should consider what costs are referable to each issue and what costs are common to several issues. It will often be reasonable for the overall winner to recover not only the costs specific to the issues which he has won but also the common costs.”

Amey also referred me to the decision of Ramsey J. in Biffa Waste Services v Maschinenfabrik Ernst Hese [2008] EWHC 2657 (TCC) at [33] where, having reviewed the authorities, he noted that: (1) there is a distinction between the unintentional and the intentional exaggeration of claims; (2) conduct for the purposes of Part 44.2 will include exaggeration, but the ability of the losing party to protect itself from exaggerated claims by making a Part 36 offer should be borne in mind; (3) the court should not speculate on offers which were not made; (4) a failure to make offers or respond to offers may be taken into account as conduct for the purposes of Part 44.2; (5) partial success in reducing a claim and thus succeeding on the majority of issues which form the basis of the trial can deprive the other party of its costs.

Cumbria also referred me to the decision of the Court of Appeal in Walker Construction (UK) Ltd v Quayside Homes Ltd [2014] EWCA Civ 93, where Gloster L.J. rejected what she characterised as the “winner takes all” approach adopted by the judge at first instance and emphasised that “the person who writes a cheque at the end of the day is not the only consideration that has to be taken into account” [80]. She stated that the commercial reality of the litigation, the ultimate outcome and who on an objective basis was the more successful party were all matters the court had to take into account on costs [73].

Proportionality

I should however refer to one particular point upon which reliance was placed by Cumbria in its written submissions, and that is proportionality.

It is common ground that there is no express reference in Part 44.2 to proportionality as a factor to which the court should have regard when deciding what order to make about costs. Part 44.2(6)(a) does of course allow the court to make an order that a party must pay a proportion of another party’s costs. This is commonly – although to a non-costs lawyer confusingly - referred to as a proportionate costs order, i.e. an order for payment of a specified percentage or fraction of the other’s costs. There is no suggestion that the court should expressly take proportionality as defined in Part 44.3 as a factor into account when deciding whether or not to make a proportionate costs order under Part 44.2(6)(a). In contrast, by reference to Part 44.3 and Part 44.4, and as intended by the costs reforms implementing the recommendations of Jackson LJ, proportionality assumes centre stage importance when it comes to the assessment of costs to which a party is entitled under a costs order, whether under a detailed assessment or on a summary assessment. Express reference is also made to proportionality in the practice direction relating to costs management, because of course proportionality again assumes centre stage importance in relation to costs management. More fundamentally, proportionality assumes centre stage importance in relation to the overriding objective in its post Jackson amended form.

A question which appeared to arise is whether or not the court should also have regard to proportionality when deciding what order to make about costs under Part 44.2 and in particular when deciding whether or not to make a proportionate costs order and if so in what amount under Part 44.2(6)(a). In their written submissions Mr Bowdery QC and Mrs Pigott submitted that it should, whereas in his oral submissions Mr Streatfeild-James QC submitted that it should not.

It seems to me that Mr Streatfeild-James is right; if proportionality had been intended to be a relevant factor under Part 44.2 there can be no doubt that it would have been specifically mentioned. Indeed in oral submissions Mr Bowdery QC was prepared to accept this.

However the more difficult question, at least to my mind, is whether or not, when the court is considering what order to make about costs, in particular if one or more relevant circumstances such as conduct, success and admissible offers ought to justify making a proportionate costs order, considerations of proportionality should come into play. It might be argued, for example, that if a court is satisfied that a claimant had pursued its case in an unreasonable and unrestrained manner, persisting with every issue, no matter how low value or ill-founded, and devoting substantial time and cost to such issues, then when deciding what discount to make the court should consider, and often may consider, what percentage of the total time and cost would proportionately have been devoted to the claim if pursued in a reasonable and restrained manner. Thus considerations of proportionality feed into the process by which the court arrives at a discount from the 100% costs order which would otherwise have been made.

If so, that would appear to raise an important practical issue, which is that if the court at the Part 44.2 stage is making a proportionate costs order on the basis of conduct, success or admissible offers and does so taking into account considerations of proportionality, there is a risk of double-jeopardy if on detailed assessment the costs judge is also invited to reduce the receiving party’s costs by reference to the proportionality test in Part 44.3.

The same question has previously arisen in the context of conduct, where the answer is clear that conduct is something which should be considered and taken into account both by the trial judge at the end of the case under Part 44.2(4)(a) and by the costs judge when assessing costs under Part 44.4(3)(a), but that care should be taken to avoid the risk of double jeopardy so that the trial judge should take steps to ensure that the costs judge is able to understand the effect of the order made by the trial judge and thus the task remaining for him to undertake. On this point I gratefully accept the helpful analysis of the author of the current edition of Cook on Costs (2016 edition) at [22-24], where particular reference is made to the decision of the Court of Appeal in Ultraframe v Fielding [2006] EWCA Civ 1660.

However it appears to me that in most, if not all, cases, a clear dividing line can be drawn between the circumstances to be considered under Part 44.2 and proportionality. The trial judge should limit his task to addressing whether relevant circumstances such as conduct, success and admissible offers arise and, if so, their impact on the total time and cost of the trial, or the case as a whole, and how – if at all – they ought to be reflected in the costs order made. The trial judge should make a proportionate costs order based solely on such considerations, as opposed to the further consideration as to what proportion of the overall costs would have been incurred had the action been pursued in a manner which was proportionate. At this stage the trial judge will have details of the approved costs budgets of the parties, if the case is subject to costs management, and may well have been provided with some details of costs actually incurred for the purpose of making an interim payment on account of costs, but will not be in a position to know whether and if so to what extent costs have been unreasonably incurred, which is of course a matter for detailed assessment.

If however a trial judge is minded to take into account proportionality when deciding what proportionate costs order to make, and to make a discount which expressly or implicitly takes into account his assessment of overall proportionality when arriving at a percentage or fractional reduction, that should be clearly stated and identified in the order and/or the judgment, so that the costs judge will know what the trial judge has taken into account and why when undertaking the detailed assessment at the later stage. By the end of the hearing both Mr Bowdery and Mr Streatfeild-James were I think of one mind that if I was satisfied that I should exclude any question of proportionality from consideration at this stage I should say so in this judgment, so that there can be no question of the costs judge being left in any doubt as to what I have done and on what basis.

In this case I am satisfied that I should exclude any question of proportionality from consideration. That is for the reasons given in paragraph 27 above, which I consider apply in this case. It is also relevant in this case that the question of proportionality cannot be assessed by reference only to the relative lack of success on the claim, because of course Amey has also substantially succeeded in defending a very substantial defects counterclaim. Before me Mr Bowdery submitted that there was a developed practice in TCC cases that proportionality meant that the TCC Judge, whether undertaking costs management or summary assessment, would not permit the global costs of all parties to exceed the amount in issue or recovered, and thus in a two party case would not allow the successful party more than 50% in costs of the amount claimed or recovered. Even if that is so, about which I need express no opinion one way or the other, there will clearly be room for legitimate debate in this case as to whether or not it could be considered disproportionate for Amey to spend what it has spent in relation to the successful pursuit of a claim in excess of £5 million which included within it the substantially successful defence of a counterclaim of around £20 million. It is not self-evident in my view that if this case had been costs managed I would not have approved costs budgets broadly in line with the costs actually incurred, given the size of the claims advanced by both parties. Nor is it self-evident in my view that if the costs had been approved at that level a costs judge conducting a detailed assessment would inevitably conclude that the eventual result amounted to a “good reason” for departing from those approved costs under Part 3.18(b).

Having addressed proportionality, I now turn to address the arguments in relation to success, conduct and admissible offers before setting out my decision.

Success

In this case, as in many others, the issue of conduct is closely linked with the issue of success, because it is said by the losing party that the court should consider the extent to which the successful claims were exaggerated and also the extent to which it won or the winning party lost on specific issues both as relevant factors in their own right and also on the basis that the winning party’s case in relation to those issues was unreasonable. I will therefore address these mixed success / conduct issues in this section of this judgment.

I have already summarised the respective success and failure of Amey and Cumbria in relation to the principal claims and counterclaims.

Cumbria contended in its written submissions [30] that a number of Amey’s part 2 claims were exaggerated. It identified 9 separate claims pleaded as totalling around £12.15 million where either nothing or a negative amount was awarded. It contended that these claims were found to be entirely devoid of merit, and that even in relation to the other claims much less was awarded than claimed.

In my judgment that submission significantly overstates the true position. By reference to my substantive judgment the position may be summarised as follows:

It follows that whilst I accept that there is some legitimate basis for criticism of Amey as regards some elements of its part 2 claim, it is nowhere near as much as that contended for by Cumbria. Furthermore, I have no hesitation in rejecting Cumbria’s argument that in some way its counterclaims were meritorious but simply happened to fail on the issues of causation and quantification. There is no need for me to rehearse in this costs judgment the serious criticisms I levelled of Cumbria in relation to its Schedule 2 claim, which was by far the largest claim in the whole case, both in terms of value and the time it took up, most significantly – as I say in paragraph 6 above – due to its failure in relation to the foundation of its case on extrapolation and the fact that the quantification was advanced on a wholly artificial basis. The same was true in large part of Schedule 3, other than in relation to testing, and I was extremely critical of Cumbria in seeking to advance Schedule 7 without sufficient evidence.

In my judgment what Cumbria said in its written submissions at [32] is the heart of the matter, which is that whilst both Amey and Cumbria advanced a number of very substantial claims and counterclaims which failed, in whole or in part, the simple fact is that Cumbria lost this case because it deducted or withheld substantial amounts from assessed amounts due to Amey at the end of the contract because it believed, wrongly, and continued to believe, that its counterclaims were genuine and substantial and at the very least justified the entirety of the deductions or withholdings: see [37.27, 37.35 and 37.38 of the main judgment].

Conduct

Cumbria seeks a separate issues based order in relation to Amey’s default and delay in the disclosure of information available on Amey’s SAP database.

As to this, I addressed the vexed question of Amey’s compliance with its disclosure obligations as regards SAP in section 4 of my judgment. In particular I concluded at [4.37] that Amey had failed to provide Cumbria with full access to SAP from July to December 2015, but that such failure was not deliberate, at [4.38] that there had indeed been consequential delay with consequential costs consequences, but that this had made no significant difference to the eventual course of the trial. Indeed it had not made any difference to the overall outcome, because although it is true that Cumbria’s quantum expert was able to make some beneficial use of the information made available from SAP in relation to some of the claims, as regards the largest claim where SAP was said by Cumbria to be crucial I rejected Cumbria’s reliance on SAP when it came to consider the question of the Better Highways gang days worked by Amey. I also concluded at [4.39] that Amey could not be criticised for failing to give access to SAP at the pre-action stages.

In the circumstances I am quite satisfied that there is no sufficient basis for making a separate issue-based order in relation to SAP. Cumbria has produced a schedule of costs said to relate to Amey’s “late and reluctant disclosure of the SAP documentation” in the sum of £102,078. Whilst not insignificant, in the context of Cumbria’s overall costs of over £10 million this would only amount to around 1% of the total. I am satisfied that it would be a very difficult and time-consuming task to undertake a separate assessment of these costs. I am satisfied that the more appropriate course is to make some allowance for this in the overall proportionate costs order which I am going to make, as to which see below.

There are also two reserved costs orders relating to SAP, which I reserved on the basis that until after trial it would not be possible to know whether or not the determined pursuit of information from SAP by Cumbria had been a worthwhile exercise. These are the orders of 18 December 2015 and (as belatedly drawn) of 3 August 2016. I am satisfied that the appropriate order for these is costs in the case, on the basis that Cumbria will receive the benefit of the general reduction but also that Cumbria did not obtain the benefit of SAP it was hoping for in relation to the Better Highways claim.

In written submissions at paragraph 23(7) Cumbria also complained that Amey made allegations of fraud and dishonesty in its closing speech which were said to be unjustified and unjustifiable, to have not been put to Cumbria’s witnesses, and for which there were no proper grounds. Although no details were provided in written or oral submissions, it was subsequently clarified by Cumbria’s solicitors that this was intended to be a reference to Amey’s criticisms in closing submissions of Cumbria’s approach in relation to the assessment and payment of the sums claimed for Better Highways, of its approach to deducting or withholding from the final three monthly assessments, and of its approach to its assertion and substantiation of the extrapolated defects counterclaims. As to this, whilst it is true that these criticisms were put high, and that I did not for the most part in my substantive judgment accept that the position was quite as bad as characterised by Amey, nonetheless I did accept much of Amey’s case as to these matters and made a number of criticisms of Cumbria’s approach in these respects. I am also satisfied that the substance of these criticisms were put, in vigorous terms, in cross-examination both of Mr Robinson and to Mr Raymond.

It follows that I do not accept this criticism of Amey’s conduct. I am satisfied that Amey was perfectly entitled to advance its case as vigorously as it did at trial. Even if that had not been the case, I do not consider that it would have been appropriate to make any reduction from costs in this regard. This is not a case where, for example, Amey had set out from the beginning to plead and prove fraud or dishonesty, had devoted considerable time and effort to doing so through to closing submissions, but had spectacularly failed. By way of contrast, I cannot help but draw attention to my observations in my substantive judgment as regards Cumbria’s pursuit of its Schedule 1 winter services claim.

Cumbria also complained in written submissions [25-28] that Amey’s conduct in writing to allege contempt of court against Cumbria’s chief executive and others was unreasonable to a high degree and justified an award of indemnity costs. This is a reference to Amey’s criticisms of Cumbria and its advisers for pleading and persisting with the claim for extrapolation on the basis that it could be proved as statistically random when in fact it was, or ought to have been, apparent to Cumbria and its advisers, and to Mr Robinson in particular, that it could never be demonstrated that Cumbria’s sampling exercise was statistically random.

I summarised my conclusions in relation to this aspect of the case at [1.27 - 1.32] of my substantive judgment. I concluded that for reasons given in more detail later in the judgment I did not accept the serious criticism made of Mr Robinson, namely that he was responsible for the defence and counterclaim being filed and served, verified with a statement of truth, in circumstances where he knew that it was false, in that he knew that it would never be possible for Cumbria to establish its case on the pleaded basis. I was nonetheless critical of him and therefore of Cumbria for the claim having been pleaded in this way, and also for it not having been amended, or the position stated in clear terms, once it became absolutely clear to Cumbria and its advisers that the pleaded case based on the 95% confidence rate could not be supported.

I also made it plain [1.28] that I did not consider it appropriate to address in the substantive judgment either the substance of the letters written by Amey or Cumbria’s criticism of those letters. I should also make it plain that since this judgment is dealing with costs the only relevance of this allegation is in relation to costs, and it is not my function to go beyond that.

In short, I do not however consider that it was improper for Amey to take a dim view of Mr Robinson’s evidence as it emerged or of Cumbria’s behaviour as regards this matter. I also accept that the letters written by Amey to Cumbria’s chief executive and others were written in order to give reasonable warning at the earliest opportunity, in accordance with the guidance given by the Court of Appeal in KJM Superbikes v Hinton (Practice Note) [2008] EWCA Civ 1820, and not with any malign intentions. Thus the letter written to Cumbria’s solicitors dated 3 March 2016 did not make any positive allegation that Cumbria’s legal advisers had committed a contempt of court; it merely gave notice that this was something which was being investigated by Amey, and it made it plain that no further steps in that regard would be taken by Amey until the conclusion of the case. Whilst I accept that this letter would have been deeply concerning to Cumbria’s legal team, I do not accept that it was improper or unreasonable to write such a letter at that stage, and I accept Amey’s submission that its purpose was to place Cumbria’s legal team on notice of the position at the earliest opportunity, in accordance with the guidance referred to above, rather than with ulterior and discreditable tactical motives. I reach the same conclusion as regards the letters dated 16 March 2016 sent to Cumbria’s Chief Executive and in-house solicitor, which were to similar effect.

Accordingly I do not accept that it would be appropriate to make a discrete costs order against Amey in this regard, whether on the indemnity basis as advanced or otherwise. I also note in any event that the costs schedule in support of the application is limited to the cost of obtaining separate leading counsel’s advice in the sum of £3,975.

Admissible Offers

Cumbria relies upon an admissible offer which it made on 31 July 2015, whereby it proposed a “walk away” settlement, i.e. that both claims and counterclaims be withdrawn with no order as to costs. It accepts that Amey has, of course, done better than this at trial in terms of the substantive award. However it submits that:

Cumbria went so far in its written submissions as to argue that Amey’s conduct was so egregious as might have justified an award of indemnity costs against it as from July 2015. In oral submissions Mr Bowdery moderated this approach and submitted that a reasonable outcome would be to deprive Amey of 50% of its costs to reflect all relevant circumstances, including the position in relation to admissible offers.

In responding to this submission, Mr Streatfeild-James contended that the factual analysis by Cumbria was flawed. He pointed out that Cumbria had made a number of separate admissible offers both preceding 31 July 2015 and on 31 July 2015 itself, none of which it came close to matching at trial. He pointed out that Amey had also made a number of separate admissible offers in response, some of which resulted in individual settlements, which showed that Amey was not in any sense resolutely refusing to negotiate reasonable settlements. He also pointed to the fact that there was a second mediation in November 2015 which, although unsuccessful, again showed that both parties were at least trying to achieve an overall settlement. He submitted that in that context it was a hopeless argument on Cumbria’s part that if only Amey had responded more positively to its walk away offer the case could have settled. He submitted that what was quite clear was that Cumbria resolutely refused to make any admissible offer at any time whereby it was prepared to make any, let alone a substantial, payment to Amey on the basis that Cumbria had wrongfully deducted or withheld substantial monies from the last three months’ assessments. He noted that in the Multiplex case Jackson J. was able to and did find at [39] that the claimant had made an offer which was slightly too high but was nonetheless constructive, and that had the defendant entered into a dialogue as invited to do by the claimant the particular claims in question would probably have been settled. It is also the case that the 7^th principle enumerated by Jackson J., that an outright refusal to negotiate in response to a “near miss” offer may make it appropriate to penalise that party in costs, has since been said by the Court of Appeal to be in error and should be disregarded: Dufoo v Tolaini [2014] EWCA Civ 1536.

I prefer and accept Mr Streatfeild-James’ submissions. In my judgment Cumbria cannot show either that its offer was reasonable and should have been accepted, or that Amey can or should be criticised for its response, or that had Amey responded in some more appropriate way the case would have settled.

I also consider that Cumbria’s analysis of the reasonableness of Amey’s conduct from a commercial perspective as from the date of its walk away offer is flawed. As at that date Amey would have been entitled to a substantive award of around £4.87 million. It is reasonably clear that at that stage its costs were, very broadly speaking, of a comparable amount. On any view Amey would have been entitled to payment of its costs at that point. Whilst there would have been some scope for debate as to whether or not Amey should recover 100% of its costs or some lesser proportion, on any view it would have been a significant proportion. If Amey had accepted Cumbria’s offer it would have recovered nothing and would have had to write off its costs, a total loss of something approaching £9 million. It does not seem to me that it was obviously unreasonable for Amey in those circumstances to press on to trial, even at a further cost of around £4.5 million in relation to costs, in order to recover that amount.

In its responsive submissions Amey made the same point in a slightly different way, which was that if Cumbria had been more realistic it ought to have made a Part 36 offer for say £5 million. If that had been accepted Amey would have been entitled to receive the £5 million and its proportionate and reasonable costs. Even if Cumbria had a good reason for arguing that it should not have to pay all of Amey’s costs, by reference to the issues of success and conduct upon which it now relies, it could have made an admissible offer to pay £5 million together with a proportion of Amey’s costs to be determined by the court. It cannot be right in my judgment that Amey should be criticised for not accepting a walk away offer, which offered neither a substantive payment nor any offer in relation to costs, simply because it could be said that it would be very expensive to continue to trial.

Mr Bowdery advanced a further argument on proportionality to the effect that since Amey ought to have known that if it recovered only £5 million it would not secure a costs recovery in excess of 50% of that sum, namely £2.5 million, it can now be seen that Amey is worse off as a result of proceeding to trial than it would have been had it accepted the walk away offer. That is because its total relevant costs expenditure is around £8.85 million, whereas on this analysis it will recover no more than £5.365 million principal and interest and around £2.5 million costs. However, for the reasons I have already given as regards proportionality, in my judgment there can be no room for a confident assumption that on detailed assessment no more than 50% of the total recovery will be awarded to Amey. In the circumstances there is no basis for a contention that Amey ought to have known that it would be worse off by continuing than by accepting Cumbria’s walk away offer. In any event, I am far from convinced that it is appropriate to conclude that a party should be deprived of costs for failing to accept an offer which, in this case, was far short of his true entitlement, because it could be shown that he would recover less in costs than the amount he would spend to obtain that entitlement. The result of the Jackson reforms is that this problem is to be avoided in claims valued at below £10 million by way of active advance costs management and, as I have said, both Amey and Cumbria took the decision in this case not to invite the court to costs manage, on the basis that they both believed that it was proportionate to spend substantial amounts on costs given the recovery they each hoped to achieve.

Standing back, whilst there may be some room for some criticism of Amey for not counter-proposing an admissible global offer at a more reasonable level by reference to the eventual outcome, that criticism is modest when set against Cumbria’s persistent refusal to accept that it had over-deducted from monies otherwise due to Amey, and that its defects counterclaims were speculative and did not justify the substantial deductions made or counterclaims advanced, and thus when set against Cumbria’s steadfast refusal to make an offer of repayment of a substantial amount of money together with payment of Amey’s reasonable and proportionate costs.

My Decision

I am satisfied that this is a case where the right order to make is an order that Amey should recover a proportion of its costs, so as to reflect the relative success of the parties on different issues and so also as to reflect the conduct of the parties so far as relevant.

In oral submissions Mr Streatfeild-James submitted that the difficulty with this approach was that there was no proper material provided by Cumbria to enable me to make an assessment of the time and cost taken up by the issues on which Amey failed, let alone the issues on which Amey failed where it could be said that the issues had been unreasonably pursued, or pursued in an inappropriate manner, or where its successful claims had been exaggerated.

Attached to its responsive submissions Cumbria had provided a breakdown of the time spent by Mr Bowdery QC and Mrs Pigott respectively in cross-examination, which showed that Mr Bowdery QC, who addressed Amey’s claims (other than item 17), had cross-examined for 55% of the total time, whereas Mrs Pigott, who addressed Cumbria’s defects counterclaims and Amey’s item 17 claim, had cross-examined for 45% of the total time, of which one third was estimated as relating to item 17. Cumbria also sought to rely on the cost which it incurred on its quantum expert, which was almost 50% of its total expert costs.

Mr Streatfeild-James submitted that even if these calculations were correct, evidence as to time spent by one party in cross-examination at trial was no sure guide to the total time and cost of investigating and addressing individual issues from the start of the case to its end. He also submitted that it was not surprising that there was little cross-examination of Amey’s factual witnesses in relation to defects, whereas there was significant cross-examination of Cumbria’s factual witnesses in that regard. He also submitted that since this case was about defence, set off and counterclaim, the division between the claims and the counterclaims in relation to the respective time spent by counsel cross-examining cannot easily be drawn. He also submitted that since Mr Bowdery and Cumbria’s quantum expert addressed Amey’s claims as a whole, where in the end Amey succeeded, and did not just address those on which Amey failed, let alone those which were unreasonably pursued, pursued in an inappropriate manner, or exaggerated, the time spent by Mr Bowdery or the cost incurred by Cumbria’s quantum expert was not a sure guide to anything.

I agree with and accept Mr Streatfeild-James’ criticisms of Cumbria’s attempt to quantify the time and cost attributable to issues on which Amey failed, let alone those which were unreasonably pursued, pursued in an inappropriate manner, or exaggerated. I do not however accept his further submission that in such circumstances the court is unable to make any principled proportionate costs order because it does not have the material to go on. Whilst I note that in Multiplex Jackson J. was provided with such information from both sides, there is no indication or reason to believe that this is an essential pre-requisite to making a proportionate costs order, and that was a case where there were a relatively small number of self-contained claims. In my view this is an example of a case where it would be virtually impossible – save perhaps at great expense – to allocate costs to individual claims or to individual issues. There is a substantial overlap between claims and reflective counterclaims, between claims and counterclaims raising similar issues, and between claims where Amey succeeded and claims where it failed. By way of example much of the time and cost spent on the local area overhead issue, on the construction of the contract, and on the overall chronology of events, would properly in my view be regarded as common costs, where there would be no basis for apportionment. In my view there are many cases, of which this is one, where the trial judge, especially where – as here – the trial judge is also the case managing judge, is able to make an informed, but necessarily broad brush, assessment. The alternative, other than making no deduction at all, which would be unjust, would be to fall back on making an issues based order, but that should only happen where it is not “practicable” to make a proportionate order, and I am satisfied that it is practicable to do so even where there is no detailed evidence as to the costs incurred in relation to individual issues or aspects of the case.

In my view the position is as follows:

Weighing everything up in the round, in my judgment the appropriate order is that Amey should recover 85% of its costs. This reflects its failure in relation to many of the Part 2 claims and its failure in relation to the Better Highways claim, including the criticisms I have made of some of its more optimistic and/or exaggerated Part 2 claims, and also the limited criticisms I have accepted of its conduct, particularly in relation to SAP. However it reflects these matters in the context of my assessment of the overall relative success and failure of both parties, and also of Cumbria’s failure to protect itself against the adverse judgment which it has suffered, and it also reflects the extent to which in my assessment time and costs were incurred by reference to these issues and this conduct. As I have made clear, it does not take the issue of proportionality into account.

Finally, Cumbria has properly drawn my attention to the fact that there are a number of orders where costs were reserved, in addition to those already referred to in the context of SAP. Having considered these, my decision is that all such orders should be treated as orders for costs in the case.

Payment on account of costs

Cumbria accepts that there is no good reason for not ordering payment of a reasonable sum on account of costs. There is however a dispute as to the appropriate amount. Amey seeks an order for payment of £5,751,210, being 65% of its costs claimed (see paragraph 12 above). Cumbria submitted that the payment should be no more than £871,000, on the basis that Amey’s recoverable costs are likely to be allowed at no more than 50% of the sum recovered, that there should be a discount of 50% from that to reflect success, conduct and admissible offers, and finally that only 65% of that amount should be allowed by way of interim payment.

Amey referred me to the decision of Christopher Clarke L.J. (as he had by then become) in Excalibur Ventures v Texas Keystone [2015] EWHC 566 (Comm) where, having reviewed the authorities at [14] – [21], he concluded: (a) that the question was simply what was a reasonable sum, not what was the irreducible minimum of what would be recovered on assessment [22]; (b) that what was a reasonable sum would depend on the circumstances [23]; (c) a reasonable sum would often be an estimate of the likely level of recovery subject to an appropriate margin for error [23]; (d) this could be done either by taking the lowest figure in a likely range or by making a deduction from a single estimated figure [23].

Of course the costs claimed by Amey are the highest figure which might be awarded. It is in the nature of detailed assessment that the costs judge is likely to determine that some - or possibly all – of the individual items will not have been proportionately and reasonably incurred or proportionate and reasonable in amount, so that there will be a reduction from those costs. I have to consider the likely level of recovery, subject to an appropriate margin for error.

In supplementary submissions Mr Bowdery drew my attention to what he submitted were some unexplained features of or discrepancies in Amey’s costs schedule, and submitted that as a result I should treat the schedule with some caution. I do not consider that any of the matters to which my attention was drawn cause me to have any real doubt as to the essential accuracy of the schedule as a record of the costs incurred and the discounts applied to the total, which is verified by the signature of a partner of Amey’s solicitors.

The real issue is whether I accept Cumbria’s submission that by application of the proportionality requirement the likely level of recovery, or the lowest figure in a likely range, should be 50% of the judgment secured by Amey, and thus only £2.68 million. Whilst nothing I say at this point should be taken as in any way binding the costs judge, or even amounting to an indication of my opinion on the point, which is immaterial anyway, for present purposes I proceed on the assumption that whilst it is a theoretically possible result it is not a likely result, given the factors referred to at paragraph 29 above, so that there is no justification for treating that as a maximum. It is not a case where it is said there might be any difficulty which Cumbria might experience in recovery in case of any overpayment.

In my view the appropriate figure to be paid on account is £4,312,500, which is arrived at by discounting the total costs of £8.848 million by 15% to reflect the reduction which I have already determined is appropriate, producing a figure of around £7.5 million, and then taking a mid-point between 50% and 65% of £7.5 million.

Amey seeks and Cumbria accepts that Amey is entitled to an order for interest on its costs from 1 September 2015 down to the date of judgment. The date of 1 September 2015 is chosen for the eminently practical reason that it is the approximate time at which Amey incurred around 50% of its total costs.

The only dispute is as to the rate of interest to be allowed. I have been referred by Amey to the decision of Coulson J. in Murphy v Johnston Precast [2008] EWHC 3104 (TCC) where at [31 - 44] he helpfully addressed the relevant principles. At [35 - 36] he noted that the court had a discretion as to what rate to award and that base rate plus 1% appeared to represent a properly compensatory award of interest. Cumbria referred me to the recent decision of Males J. in Fiona Trust v Privalov [2016] EWHC 2657 (Comm), where the same rate was awarded, albeit without apparent debate.

Amey however submitted that it was appropriate to award interest at base plus 2%, on the basis that this was the contractual interest rate provided for by the contract (see paragraph 37.3 of my substantive judgment) and also on the basis of evidence produced by Amey shortly before the hearing which – so Amey said – demonstrated the weighted average interest rate charged to it by its bankers on its average daily drawn amount over the relevant period as being 3.716%.

Having scrutinised the evidence produced by Amey, it clearly does support Amey’s case that it has in fact incurred interest at the weighted average interest rate claimed and also that this is consistent with the agreed contractual interest rate on unpaid payments. In the circumstances I am satisfied that Amey has satisfied me that the appropriate interest rate should be 2% above base.