Lloyds Bank Plc v McBains Cooper

This is a judgment on costs following two judgments which dealt with, respectively, liability and damages. Those judgments were formally handed down on 2 October 2015 and 6 October 2016.

The claim arose out of a loan by the claimant Bank for the development of a former bingo hall for use as an evangelical church. The Defendant, McBains Cooper, was engaged as the Bank’s project monitor, and was retained to give initial advice in relation to the feasibility of the project and thereafter to monitor the progress of the work. Under the terms of the facility the borrower was to fund the development by way of monthly drawdowns. McBains Cooper was engaged to check the monthly applications and to satisfy itself that they were justified and in accordance with the facility and then recommend whether or not the amount claimed should be paid. If McBains Cooper recommended that the drawdown be authorised, the sum claimed was then paid by the Bank without further enquiry or question.

Following the first judgment I gave a “Provisional indication as to damages” dated 27 October 2015, in which I set out my tentative conclusions on damages because I had been unable to reach any firm conclusions on the basis of the evidence before the court at the trial.

There were two particular difficulties. First, the figures put forward by the Bank were virtually incomprehensible and quite incapable of reconciliation with those put forward by McBains Cooper. Second, there was no agreement as to the valuation of the building being developed, which formed a major part of the Bank’s security, at the appropriate date, which I found to be April 2009. However, there was some indication that the valuation experts might be prepared to agree that value in the sum of £800,000, which was the figure that I took when expressing my tentative conclusions on quantum.

However, the Bank was not prepared to agree the value at £800,000 and wanted to call its valuation expert to give evidence (the valuation experts not having given evidence at the trial). For various reasons, mainly concerning availability, this hearing did not take place until 2 February 2016. Unfortunately, the delays did not end there because shortly after that hearing other commitments intervened (in particular, I began a very substantial trial, which did not conclude until early June 2016). As a result, I was not able to issue my second judgment in this case until early August 2016, when it was circulated in draft. There was again a problem in finding a date suitable to both parties on which they could address me as to costs, and so this did not take place until 19 December 2016. Whilst these delays are very unsatisfactory, they were not the result of any want of prosecution of the case by either party. Fortunately, I do not consider that they have added significantly to the overall costs of the litigation.

The claim made by the Bank was for a little over £1.8 million. However, in July 2013 it recovered £288,323 following the decision of an adjudicator. It therefore gave credit for that sum, reducing the net claim to about £1.55 million. The Bank’s final recovery was £127,115 (excluding interest), after giving credit for the amount recovered in the adjudication. It was £415,439 before deducting that recovery.

Depending on how one looks at it, therefore, the Bank recovered a little under 25% of its total loss, or 8% of its net claim. McBains Cooper unsurprisingly deployed the latter figure. However, in my view that is not the correct approach because at all times McBains Cooper denied liability for any sum and had in fact brought separate proceedings to recover the £288,000 odd paid pursuant to the adjudicator’s decision. That said, I suspect that the real battle was as to whether the Bank would do better than its recovery in the adjudication: in the event it did so but, as the figures show, not by much.

As before, the Bank was represented by Lord Marks QC and Mr Luke Wygas, instructed by Clarke Willmott, and McBains Cooper was represented by Mr Sean Brannigan QC and Mr Thomas Crangle, instructed by Robin Simon LLP (later Triton Global Ltd).

The parties could hardly be further apart. Lord Marks submits that the Bank, as the successful party, should have its costs on the standard basis to 31 January 2014, 21 days after its offer of 10 January 2014, and then on the indemnity basis thereafter. In addition, the Bank seeks a payment on account of those costs.

The position of McBains Cooper, by contrast, was that it was successful on a number of discrete issues and so justice requires the court to make issues-based costs orders. Mr Brannigan submitted that this ought to result in McBains Cooper being a net payee in terms of costs in spite of being the “unsuccessful party”. Alternatively, he submitted that at its lowest (from his client’s point of view) there should be no order for costs.

This is a case which has an unsatisfactory history and where the conduct of each party has, on occasions, not been to its credit.

The events which gave rise to the dispute took place between 2006 and April 2009, when the Bank terminated the facility, although the development property was not in fact sold until January 2011.

In September 2011 the Bank’s solicitors wrote to McBains Cooper asking for copies of its “original file of papers”. At that stage, as was made clear, no claim was being made against McBains Cooper. That did not happen until January 2012, when the Bank’s solicitors wrote a letter before action to McBains Cooper dated 16 January 2012. In that letter they made allegations of negligent conduct by McBains Cooper in relation to three aspects of the performance of its retainer. These were put as follows:

“1

You incorrectly advised the Bank, in your Initial Report dated May 2007 that, the development cost was £2,540,059 whereas this figure merely accounted for the construction cost.

2

Your monthly reports between 28 September 2007 and April 2009 were inaccurate with regard to the sufficiency of the funds remaining in the loan facility, the progress of the project and the variations to the development.

3

You failed to notify the bank that funds from the facility were used to discharge the cost of works which were carried out on the 3^rd floor and which were outside the terms of the facility.

As a consequence of your negligence, our client has made payments which would otherwise not have been made and has suffered a loss as a result.”

The loss claimed was the full amount paid out by the Bank less the sums recovered from realising the security. There was no allegation that McBains Cooper had not made monthly site visits as required by its retainer, although the Bank’s solicitors did ask for a number of further documents including, “Timesheets and records of attendances at site together with the site notes”.

The Bank’s pre-action protocol letter was dated 22 November 2012. In this letter allegations of negligence were put as follows:

“3

As project monitoring surveyors, [McBains Cooper] did not provide reliable appraisal advice to the Bank, particularly in relation to the development risks and costs.

4

The advice contained in [McBains Cooper’s] monthly monitoring reports was inaccurate with regard to the sufficiency of the funds remaining in the loan facility, the progress of the works and the variations to the project.

5

[McBains Cooper] made errors in measuring and valuing the works performed by the contractor. It ought to have identified works which were outside the scope of the development loan facility and deducted the cost of these works from the valuations made on a monthly basis.”

The letter went on to make detailed allegations of breaches of duty by McBains Cooper: although these included the allegation that McBains Cooper failed to carry out independent valuations of the works carried out on the project, there was no allegation that work properly carried out was overvalued or that defective work was valued as if it had been sound. In particular, there was no allegation of a failure to carry out monthly visits to the site. The Bank’s claim was summarised as being one for negligence which “resulted in the Bank lending money, which it would otherwise not have lent”. To use the now discredited terminology, it was said that this was a “no transaction” case.

The letter in response from the solicitors acting from McBains Cooper was dated 18 March 2013. It was very detailed and ran to 23 pages. It concluded by asserting that the performance of its retainer by McBains Cooper had caused no loss to the Bank and by insisting that the Bank withdraw its claim.

On 17 May 2013 the Bank’s solicitors confirmed receipt of McBains Cooper’s protocol letter of response and indicated that the Bank intended to pursue the claim through the courts (if not settled) and invited McBains Cooper to extend the limitation period for the Bank’s claim in contract to 16 December 2013 (this followed two earlier “standstill agreements”). By an e-mail dated 23 May 2013 the Bank’s solicitors chased McBains Cooper’s solicitors for a response about the request for the proposed extension of the limitation period.

Just over a week later, on 31 May 2013, the Bank’s solicitors, without any prior warning, served a Notice of Intention to Refer a Dispute to Adjudication. The dispute referred related to both the Interim Report and the Monthly Progress Reports.

Understandably, McBains Cooper’s solicitors’ response to the Notice of Adjudication was one of surprise since, as they said, the parties had “been proceeding in accordance with the Pre-Action protocol”. They indicated that McBains Cooper would dispute the jurisdiction of the adjudicator.

On 10 June 2013, the Bank made a “without prejudice save as to costs” offer to accept £1.2 million plus costs in settlement of its claim. That offer was open for acceptance for 14 days.

On 17 June 2013 McBains Cooper’s solicitors wrote to the adjudicator challenging his jurisdiction and asserting that to proceed with the adjudication would involve a breach of natural justice, not least because there was outstanding disclosure that had been requested by McBains Cooper and the referral was effectively an ambush which flouted the purpose of the pre-action protocol process. In my view, there was probably some force in each of these points.

However, the adjudication went ahead and the adjudicator gave his decision on 31 July 2013. As I have already mentioned, he awarded the Bank £288,323. He noted that the Bank had been unsuccessful on its “no transaction” and “loss of opportunity” cases, but partially successful on its “limited loss” case. No allegation was made that McBains Cooper failed to visit the site on a monthly basis. However, the adjudicator did make the point (at paragraph 75) that the allegation that McBains Cooper should have made its own valuations of the work “goes nowhere” because the Bank was unable to say that there would have been any different result if it had carried out independent valuations. For reasons that I will give later in this judgment, the Bank should have taken note of this conclusion.

On 21 August 2013 the Bank’s solicitors wrote to McBains Cooper’s solicitors indicating that they were instructed to pursue the balance of the Bank’s losses. In relation to the monthly progress reports, the letter said this:

“33

The Bank’s position, which will be supported by witness evidence, remains that, upon discovering that its funds were being used to finance work outside of the scope for which the Facility was made available, the Bank would have immediately frozen the Facility and refused any and all further drawdown requests until it was satisfied as to what the Borrower was using funds for.

34

Had it come to the Bank’s attention that the Borrower was using funds for work outside the scope, it would have lost all faith in the Borrower and withdrawn the facility.”

The solicitors for McBains Cooper replied on 5 September 2013 saying that if the Bank pursued its claim McBains Cooper would counterclaim for the restitution of the sum paid pursuant to the adjudicator’s decision. In fact, it started separate proceedings to recover that sum. It then made these observations:

“9

The Bank has already wasted more in costs than it has recovered, has put [McBains Cooper] to similar expenditure, and now wants to start again. If this matter is to proceed, there will be very clear grounds for the Court to order that the Bank should pay [McBains Cooper’s] costs on the indemnity basis.”

On 25 October 2013 the Bank made a Part 36 offer, by which it offered to take £700,000 (which included the sum paid pursuant to the adjudicator’s decision) plus costs. I was told by Lord Marks that the Bank’s solicitors “base costs” (ie. the costs before any uplift in respect of the success fee which had been agreed with the Bank) up to that point were £110,000. However, it seems that in a telephone conversation on 30 September 2013 McBains Cooper’s solicitor was told that the Banks base costs were £90,000 and that there were disbursements of £20,000. It is now accepted that these figures were understated, but I am not sure that this matters because the solicitors made it clear that McBains Cooper would have the opportunity to test the Bank’s costs on a detailed assessment. This was said because there had been a suggestion by McBain’s Cooper’s solicitor that the figure being put forward in respect of the Bank’s costs included its costs of the adjudication.

On 7 November 2013 the Bank disclosed a number of its files to McBains Cooper. On 11 November 2013 McBains Cooper disclosed what were described as its “Property Files”.

On 10 January 2014 the Bank’s solicitors made a further offer, marked “without prejudice save as to costs”. This was to accept £310,000 (to include the £288,323 already paid) - so amounting to payment of a further £21,626 - plus its costs. The letter stated that the offer was intended to have the consequences set out in Part 36. The offer letter made it clear that the Bank accepted that it could not recover the costs of the adjudication. It was described as an offer that the Bank was “certain to beat”. In terms of the outcome, that confidence has proved to be justified.

The offer was stated to be open for acceptance for 21 days and it was made clear that if the offer was not accepted the Bank would serve its Particulars of Claim without further notice. In an e-mail sent on 28 January 2014 the Bank’s solicitor indicated that if McBains Cooper was not interested in a costs exclusive offer, the Bank “would be willing to consider a global proposal”. There was no response.

On 12 February 2014 McBains Cooper’s solicitors apologised for the failure to respond to the offer and said that they would be sending an “open letter” that day. It came on the following day. In that letter they wrote to say that, on the material in the Bank’s own files, the Bank could not succeed against McBains Cooper on the issues of reliance and causation “even in the unlikely event it were to establish breach of duty”. It said that McBains Cooper would pursue its claim for return of the sums paid pursuant to the adjudicator’s decision.

On 4 April 2014, the Bank’s solicitors wrote to say that the offer of 10 January 2014 was withdrawn, but the offer to accept £700,000 dated 25 October 2013 remained open for acceptance. On the same day the Bank served its Particulars of Claim.

I would make four observations about the position at this stage:

When the Particulars of Claim were served on 4 April 2013 they contained, for the first time, an allegation that McBains Cooper acted recklessly in preparing its monthly progress reports because Mr Symons visited the site only twice during the preparation of 16 monthly reports. This amounted to a plea of fraud and would, therefore, if made out, have had the consequence of defeating any plea of contributory negligence. I have no doubt that that was why it was made. However, if well founded, it amounted also to conduct equivalent to fraud in another sense, namely that McBains Cooper had consistently charged a fee for a service that (unknown to the Bank) it knew it had not been providing. It was therefore a very serious allegation on both counts.

I accept the submissions made by McBain’s Cooper that the making of these allegations of fraud was the reason, or at least a significant reason, why McBains Cooper then instructed leading counsel. That, in turn, led the Bank also to instruct leading counsel: that was made clear in a letter from the Bank’s solicitors dated 27 August 2014. I therefore regard the decision by each side to instruct leading counsel as being substantially caused by the Bank’s decision to plead the allegations of recklessness in relation to the preparation of the monthly reports.

Pausing there, although I concluded in the first judgment that Mr Symons attended only one site progress meeting and did not visit the site prior to at least five of the monthly progress reports, I held nevertheless (largely because there had been no allegation that McBains Cooper had either overvalued the work that had been carried out or had valued work that had not been carried out) that this was an issue on which the Bank was unsuccessful, whether in the context of recklessness or mere negligence. But that finding does not alter the fact that it reflects badly on the Bank that this point was raised so late and that, when it was raised, it was not confined to mere negligence.

In May 2015, following many invitations by the Bank, there was a mediation. It was unsuccessful. Some of the mediation documents have been disclosed by mutual agreement and it is clear from these that the Bank was using the impact of a possible finding of fraud as a bargaining lever in the mediation. Lord Marks tried to play this down by submitting that that was no more than a statement of the obvious: however, in the context of settlement discussions there is a good deal of difference between making such a point in emphatic terms, rather than just leaving it to be implied.

On 22 May 2015, after the mediation, the Bank offered to accept £650,000 including costs and McBains Cooper then made a counter proposal to pay £300,000 including costs. By that stage the Bank’s costs were well in excess of that figure, as those advising McBains Cooper must have known, so at its best McBains Cooper was offering to do nothing more than to pay the Bank’s costs, if that.

Finally, following my first judgment, the Bank offered to accept a net payment of £200,000 plus costs. McBains Cooper then made a counter proposal to accept about £81,000 plus its costs.

In the light of the history as I have set it out, it is clear that from September 2013 onwards the Bank made repeated efforts to settle the claim, although its October 2013 offer was nearly £300,000 more than its eventual recovery. However, its offer of 10 January 2014 was over £100,000 lower than its eventual recovery. In my view, that was an offer that, in the light of the subsequent judgments, should have been snapped up.

The offers made by McBains Cooper, when they finally came, were not realistic: the first was predicated, at best, on a nil recovery by the Bank, and the second involved a payment to McBains Cooper, plus its costs.

The Bank complains that McBains Cooper persistently ignored or rejected invitations to mediate the dispute. The first offer to mediate, made by the Bank on 13 February 2014, is said to have been ignored. On 20 June 2014 the Bank’s solicitors again proposed mediation, suggested the names of two mediators and invited indications from McBains Cooper as to its availability in July and September 2014. This was acknowledged a week later when McBain’s Cooper’s solicitors said they were taking instructions. There was no further response. The Bank’s solicitors raised the matter again on 17 November 2014, pointing out that no reason had been given for McBains Cooper’s unwillingness to mediate. The response was that mediation had not been rejected out of hand but the matter was being kept under review. In my view, this was tantamount to a refusal to mediate, at least at that stage of the proceedings, and, in effect, confirmed by implication, that the position had not changed over the past nine months or so. Indeed, much the same point was made by the Bank’s solicitors in their letter of 4 December 2014, in which they observed that McBains Cooper was declining to mediate without giving a reason.

McBains Cooper’s solicitors reply on the following day did not mention mediation, and instead contained a searching request for specific disclosure. On 19 December 2014 the Bank’s solicitors commented that McBains Cooper’s failure to give any reason for its unwillingness to mediate was tantamount to a refusal to do so.

The Bank raised the question of mediation again on 12 February, 6 March, 18 March, 26 March and 30 March 2015. There was no positive response from McBains Cooper.

On 31 March 2015 McBains Cooper’s solicitors responded to the last of these letters enclosing a draft application for specific disclosure, supported by an 18 page witness statement by Mr James Mckay, a solicitor in the firm acting for McBains Cooper. I do not doubt that this application was made in good faith and in the belief that it was justified, but it is a little surprising that no mention was made at the time that the lack of disclosure was the reason for McBains Cooper’s unwillingness to mediate, which was the reason put forward by Mr Brannigan at the hearing. That disclosure application was opposed by the Bank as being too late and seeking a disproportionate search. However, an order for disclosure was subsequently made.

On 21 April 2015, barely two months before the trial, McBains Cooper suggested mediation - but only on a date after 18 May. By this time the disclosure ordered by the court had not been given, although the Bank’s solicitors said that they hoped to provide the relevant documents by about the end of April.

It is not possible to draw any firm conclusions from the material before the court as to the extent to which the absence of the documents being sought would have adversely affected McBains Cooper’s ability to take part in a constructive mediation. After all, the assertion that the loan should never have been made in the first place needed little more to make it good than McBains Cooper’s Initial Report of May 2007 and a copy of the Bank’s facility letter. I accept that the documents in the Bank’s possession concerning the events of May to late 2008 will also have been relevant, but I do not know to what extent McBains Cooper did not have these documents in early 2015. I suspect that the true position was that McBains Cooper was hoping that if it pursued the Bank’s disclosure sufficiently persistently, some even more damaging material might emerge.

I am sceptical about the explanation for the unwillingness to mediate put forward by Mr Brannigan because, if it had been the true explanation, one would have expected the solicitors acting from McBains Cooper to have said something to that effect during the 15 months or so during which the Bank was asking for a mediation. A failure to provide any satisfactory explanation for a failure to engage in mediation over a period of this length is, in my view, unacceptable. In terms of the conduct of the parties, this reflects poorly on McBains Cooper.

CPR 44.2 provides, so far as is relevant, as follows:

“(1)

The court has discretion as to-

(a)

whether costs are payable by one party to another;

(b)

the amount of those costs; and

. . .

(2)

If the court decides to make an order about costs-

(a)

the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but

(b)

the court may make a different order.

In relation to offers to settle made before 6 April 2015, CPR Part 36 (as then in force) contained the following provisions. By CPR 36.2:

“(1)

An offer to settle which is made in accordance with this rule is called a Part 36 offer.

(2)

A Part 36 offer must-

(a)

be in writing;

(b)

State on its face that it is intended to have the consequences of Section I of Part 36;

(c)

specify a period of not less than 21 days within which the defendant will be liable for the claimant’s costs in accordance with rule 36.10 if the offer is accepted;

(d)

State whether it relates to the whole of the claim or to part of it or to an issue that arises in it and if so it which part or issue; and

(e)

State whether it takes into account any counterclaim.”

By CPR 36.3:

“(1)

in this part-

(a)

the party who makes an offer is the “offeror”;

(b)

the parties to whom an offer is made is the “offeree”; and

(c)

“the relevant period” means-

(i)

in the case of an offer made not less than 21 days before trial, the period stated under rule 36.2 (2) (c) or such longer period as the parties agree;

(ii)

otherwise, the period up to the end of the trial or such other period as the court has determined.

By CPR 36.14:

“(1)

. . . this rule applies where upon judgment being entered-

(a)

. . .

(b)

judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer.

(1A) For the purposes of paragraph (1), in relation to any money claim . . . “more advantageous” means better in money terms by any amount, however small, and “at least as advantageous” shall be construed accordingly.

(2)

. . .

(3)

Subject to paragraph (6), where rule 36.14(1)(b) applies, the court will, unless it considers it unjust to do so, order that the claimant is entitled to-

(a)

interest on the whole or part of any sum of money (excluding interest) awarded at a rate not exceeding 10% above the base rate for some or all of the period starting with the date on which the relevant period expired;

(b)

costs on the indemnity basis from the date on which the relevant period expired

. . .

(6)

Paragraphs (2) and (3) of this rule do not apply to a Part 36 offer-

(a)

that has been withdrawn;

(b)

that has been changed so that its terms are less advantageous to the offeree, and the offeree has beaten the less advantageous offer;

(c)

. . .

(Rule 44.2 requires the court to consider an offer to settle the does not have the costs consequences set out in this Part in deciding what order to make about costs.)”

In the context of CPR 44.2 Mr Brannigan accepted that the Bank was “the successful party”, but, as I have already indicated, submitted that there were powerful reasons for departing from the general rule that the unsuccessful party should pay the successful party’s costs.

In short, these reasons were as follows:

Mr Brannigan reminded me of the observations of Carr J in Cooper v Thamesside Construction Company [2016] EWHC 1694 (TCC), where she said, at paragraph 43:

“Whilst the courts recognise that in any litigation any [winning] party is likely to fail on one or more issues in the case, the authorities make clear that the reasonableness of taking failed points can be taken into account, the manner in which they have been pursued can be taken into account and the extra costs associated with them should be considered.”

In his skeleton argument, at paragraph 52, he then went on to make the following submission:

“In addition, the notes at paragraph 44.2.7 of the White Book, Volume 1, 2016 edition, summarise the principles to be applied. Despite suggestions in some authorities that an issues-based costs order should only be made in cases that are “suitably exceptional”, the Court of Appeal has held that there is no such requirement and all that is required for an issues-based costs order to be made is “a reason based on justice” (see F&C Alternative Investments v Barthelemy [2013] 1 WLR 548, at paragraphs 47 and 49 per Davis LJ).”

In the light of these authorities, whose guidance I propose to follow, Mr Brannigan submitted that each of the issues that he had identified was sufficiently self-contained and discrete for an issues-based costs order to be appropriate. He referred to a witness statement served by his instructing solicitor, Mr Robin, which showed how the relevant costs could be identified with, as he put it, “relative ease”.

Lord Marks, for the Bank, submitted that the Bank was the successful party, as was accepted, and therefore should, in principle, have its costs. In relation to the allegations of recklessness, he submitted that the court had found, contrary to McBains Cooper’s pleaded case, that Mr Symons attended only one site progress meeting (out of the 16 that he claimed to have attended), and that he made 10 site visits (out of 16 claimed). Thus, he submitted, this was far from being an allegation that failed.

Lord Marks relied heavily on the offer made on 10 January 2014 and the fact that McBains Cooper had taken an unreasonable approach to settlement from first to last, including its persistent failure to mediate without giving any reason for its unwillingness to do so.

I have already dealt with Mr Brannigan’s response to this last point. It would have been a rather more persuasive submission if McBains Cooper’s solicitors had given a hint of this reason at the time. In my view, intransigence in relation to settlement on any terms but its own was the driving force in relation to McBains Cooper’s approach to settlement. Even now, in spite of the findings of clear and continuing negligence in the performance of its retainer, McBains Cooper still insists that the scope of its duty was such that its liability to the Bank is either nil or no more than about £10,000 and in any event far below the sum awarded by the adjudicator.

I do not think that there is anything in the point about the Bank never having offered to withdraw the allegation of recklessness as part of its proposals for settlement. I have little doubt that if McBains Cooper had asked for such a withdrawal as a condition of accepting any of the Bank’s offers, it would have been forthcoming. I say this partly because I have already concluded that this allegation was to some extent a tactical move to defeat the otherwise inevitable finding of contributory negligence, and partly because I can see no good reason for not doing so.

Lord Marks made much of the point that if McBains Cooper had accepted the October 2013 offer of £700,000 plus costs, which were then standing at about £115,000, it would have been much better off within the meaning of CPR 36.14 than it would have been by proceeding with the litigation and incurring both its own costs and a liability to pay the costs of the Bank.

I regard this as an unsafe approach because to some extent there is an underlying conundrum within it which has echoes of quantum mechanics. Whether or not McBains Cooper would have been better off by continuing to defend the claim would, of course, depend upon the extent to which it was ultimately successful on certain issues and in consequence would have obtained an issues-based costs order in its favour on those issues so as to have a significant effect on its net outlay at the end of the day. But whether or not that would have been the case may depend in part on the conclusions that I reach in this judgment. Thus the answer to the first part of the question is to some extent dependant on the answer to the second, but the difficulty is that the latter ought to depend, at least in part, on my conclusion on the former: hence the conundrum. However, I consider that the October 2013 offer is relevant to the extent that it indicated a willingness by the Bank to settle the claim - being £500,000 less than its opening offer a few months earlier.

Lord Marks understandably placed most reliance on the offer of 10 January 2014. On any view, that was a realistic and probably generous offer, requiring as it did a further payment of only about £21,000 plus the Bank’s costs. This raises the question on the weight that the court should attach to a reasonable offer that is made and withdrawn well before the trial. On this point, the authorities, to which I will turn shortly, do not speak with one voice.

I do not consider that there is much in the point about the Bank having exaggerated its claim. Although the Bank’s presentation of the figures comprising its loss was extremely confusing, I am not aware of any evidence that any of these figures were deliberately inflated. The real point here is that the claim for £1.6 million odd took no account of possible adverse findings in relation to causation or a finding of contributory negligence. This point can therefore be considered under those heads.

Lord Marks relied on a decision of the Court of Appeal in Rehill v Rider Holdings [2014] 3 Costs LR 405, [2014] EWCA Civ 42. In that case Lewison LJ, with whom Floyd LJ agreed, said, at paragraph 14:

“14.

I begin with the effect of the withdrawn offers of April and November 2007. It is clear from CPR Part 36.14(6)(a) that the automatic consequences attaching to a subsisting Part 36 offer do not apply to an offer that has been withdrawn. Such an offer falls within CPR part 44.3, which requires the court to take into account any admissible offer to settle. The effect of a withdrawn offer was considered by this court in Trustees of Stokes Pension Fund v Western Power Distribution South West PLC [2005] EWCA Civ 854; [2005] 1 WLR 3595. In that case Dyson LJ, with whom Auld LJ agreed, said:

"If a claimant should have accepted an offer within 21 days then on the face of it the consequence should be that he is entitled to his costs up to the date when the offer should ordinarily have been accepted and the defendant is entitled to his costs thereafter. Usually the mere fact that an offer is withdrawn after the date when it should have been accepted should not lead to a different result."

15.

He added in paragraph 43:

"There may be circumstances where the court holds that the claimant acted reasonably in not accepting the offer within the 21 day period and where the offer was withdrawn before the time when the claimant should have accepted it. In that situation the withdrawal of the offer may have a very real effect on the order that should be made in respect of costs but that is very different from the present case."

The court went on to hold that it was unreasonable for the claimant in that case not to have accepted an offer made on 8 November 2007 which was withdrawn in the following January. Although I think Mr Brannigan may have made a suggestion to the contrary, I am satisfied that the court in that case was considering the former provisions of Part 36, which still apply to offers made before 6 April 2015, and so apply to the January 2014 offer in this case.

However, the more powerful point made by Mr Brannigan was that in at least two subsequent decisions the Court of Appeal has not entirely endorsed what was said by the court in Stokes, being the decision which was relied on in Rehill. Those later decisions do not appear to have been drawn to the attention of the court in Rehill. In the first of these decisions, French v Groupama [2011] EWCA Civ 1119, Rix LJ said, at paragraph 41:

“. . . However, the question remains not merely whether the withdrawn offer be taken into account but whether Part 36 consequences should ordinarily flow where a Part 36 offer has been withdrawn, and that question becomes all the more insistent where the offer is only a quasi Part 36 offer. It seems to me that, particularly under the new regime (see below), it has become hard to ignore the rules which stated that the Part 36 costs consequences (viz the consequences of the amended rule 36.14 (2) and (3)) “do not apply” to even a Part 36 offer that has been withdrawn.”

And, at paragraph 44:

“Thus it is noticeable that even under the old Part 36 regime, post-Stokes decisions in this court may be understood as underlining that part of the Stokes judgment which said “I emphasise that it is a matter for the discretion of the court”, rather than that part which said that an offer which met the four tests “should usually be treated as having the same effect as a payment into court” (Dyson LJ at paras 23/24).”

The second decision of the Court of Appeal to which I was referred was PHI Group Ltd Robert West Consulting [2012] EWCA Civ 588, in which the principal judgment was given by Lloyd LJ, with which Rix and Stanley Burnton LJ J agreed. The rules under consideration in that case were the pre 6 April 2015 form of CPR Part 36. Lloyd LJ said:

“39.

This ground of appeal may have been influenced by the decision of the Court of Appeal in Trustees of Stokes Pension Fund v Western Power Distribution South West PLC [2005] EWCA Civ 854; [2005] 1 WLR 3595. That decision, too, related to the previous text of Part 36, which has been changed in significant and relevant respects. Rix LJ, sitting with myself and Toulson LJ, considered a somewhat similar point in French v Groupama [2011] EWCA Civ 1119. As he explained, especially at paragraphs 35 to 44, the quasi-mechanistic rules of Part 36 do not apply within the broader and more general discretion of CPR Part 44. As he said at paragraph 44, about the new version of the rule:

“It seems therefore rather harder to formulate a principled approach to the Part 44 discretion that some offers which are not Part 36 offers should nevertheless, in certain circumstances which are not the circumstances of the rules, be treated as though they were Part 36 offers for the purpose of applying Part 36 consequences under Part 44.”

40.

In the present case, what is argued is that the making of the first offer, and RWC’s failure to respond to it let alone to accept it, when taken with the eventual outcome which was more favourable to PHI, should lead to the consequence that PHI should have its costs in the ordinary way. Looked at in that way, there is much to be said for the contention. In my judgment, however, the argument cannot properly be based on treating the offer, though non-compliant with Part 36, as if it had complied with the rule. The proper basis of the proposition is that this would be the appropriate way in which to exercise the court’s general discretion as to costs under Part 44. Therefore it is necessary to consider the basis on which the judge did exercise that discretion. The appeal cannot succeed unless a material error on the judge’s part is demonstrated in relation to that exercise.”

In the light of these decisions I consider that the Bank’s offer of 10 January 2014 should not be treated as if it was the equivalent of a Part 36 offer. I say this for two reasons. First, the rules specifically provide that offers that are withdrawn are not to be so treated. Second, the January 2014 offer was replaced by an offer which was far less favourable to McBains Cooper, thereby indicating that the Bank was no longer prepared to accept the lower sum - so why should the Bank be treated as if the January 2014 offer was somehow still in place? I see no reason why it should.

Lord Marks submitted that the January 2014 offer was not maintained because it was not economical to do so. This was on the basis that as the Bank’s costs increased so did the irrecoverable element of those costs. Thus the sum on offer was, in effect, diminished month by month by the amount of the increase in the Bank’s irrecoverable costs. In theory, this is a plausible point, but on the facts it does not bear close examination.

To demonstrate why this is so I will take some figures from the Bank’s October 2016 costs budget: between about mid-August 2014 and mid-May 2015 (during which the relevant costs stages were disclosure and the exchange of witness statements and experts reports) the Bank’s costs were about £270,000, and so were increasing by about £30,000 per month (on average). Of this perhaps about £5,000 per month could have been regarded as costs that were potentially irrecoverable on a detailed assessment. This does not begin to justify replacing an offer to accept £310,000 by an offer to accept £700,000. It would not have been difficult to formulate an offer that would have reflected the true extent of the problem identified by Lord Marks, which would probably have given the Bank the material necessary to persuade the court to exercise its discretion under Part 44.2 in the manner for which the Bank now contends.

I consider that the true reason for the withdrawal of the January 2014 offer is more likely to have been the fact that the Bank’s advisers had by then acquired the information upon the basis of which the claim of recklessness was pleaded. So the Bank, having this new arrow in its quiver, decided to up the ante by withdrawing the offer to accept £310,000 and reverting back to the October 2013 offer. At the same time it served Particulars of Claim alleging fraud. McBains Cooper could only have seen this for what it was, namely a hardening of the Bank’s position.

In these circumstances, and irrespective of any other considerations that there might be for not making an order for indemnity costs, I am not prepared to accept the submission that the Bank should have its costs from 31 January 2014 on the indemnity basis. Rather, I consider that the making and non-acceptance of the January 2014 offer are simply factors to be taken into account under CPR 44.2, not only because the offer is a matter to which the court “will have regard” when deciding what order for costs to make, but also because they form part of the parties’ conduct before and during the proceedings.

I have already summarised Mr Brannigan’s submissions in relation to an issues-based costs order: in short, he submitted that this was a classic case for such an order. However, I regard this submission as over pitched. For example, questions of contributory negligence and causation run right through the period of the project. I consider that it would be disproportionate to expect a costs judge to isolate the costs attributable to either of these issues, let alone to expect the exercise to be done with any degree of reliability. Accordingly, I consider that neither of these issues is an appropriate subject for an issues-based costs order.

I consider that the better approach is to take these points into account when considering the overall order for costs: for example, in the context of the Bank’s application, whether or not it should be deprived of a proportion of its costs.

In relation to the allegations of recklessness, I consider that McBains Cooper is on much firmer ground. However, the failure of Mr Symons to attend site on at least five occasions and to attend only one site progress meeting is, in my view, relevant to the performance of McBains Cooper’s duties as a whole, although it would have been far more relevant if the Bank had asserted and proved any link between the lack of site visits and shortcomings in the monthly progress reports. In addition, I do not consider that the Bank could have been criticised if it had simply relied on the fact that Mr Symons had consistently asserted that he attended almost all the meetings and visited the site every month when he had done nothing of the sort as matters going to his credit and general reliability. But, against this, there is the seemingly inexplicable failure of the Bank to raise this point until almost five years after it had first been raised internally.

I have already indicated that I accept that the decision by McBains Cooper to instruct leading counsel was made substantially because of the seriousness with which it viewed the allegations of recklessness. In a witness statement prepared for this hearing, its solicitor, Mr Robin, has said that but for the fraud allegations McBains Cooper would not have incurred the cost of instructing leading counsel. He said that McBains Cooper’s intention “had been to use junior counsel for the entirety of the case” (at paragraph 8). Although I am left with a residual doubt - given McBains Cooper’s intransigent approach to this litigation - as to whether it might still have instructed leading counsel for the trial even if the allegations relating to the site visit had always been confined to negligence, I do not feel that this amounts to a sufficient justification for not accepting Mr Robin’s evidence on this point.

However, on balance, and taking these various factors into account, I do not consider that it would be appropriate to make an issue-based costs order in relation to the issue of recklessness. Instead I consider that some reduction must be made to any recovery of costs by the Bank to reflect its ill-considered pursuit of these allegations.

From the costs budget produced by the Claimant in October 2016 the fees of leading counsel up to the end of the trial were about £250,000. The Bank had instructed a relatively experienced junior counsel whom I am confident could have conducted the case if leading counsel had not been instructed; but of course that would have involved more work and responsibility on his part and so I would have expected his fees for doing to have been substantially greater than the fees actually charged. Doing the best I can in the light of leading counsel’s fees and the fees actually charged by junior counsel, I consider that overall the additional cost to the Bank of instructing leading counsel was £125,000. In relation to McBains Cooper, Mr Robin says that leading counsel’s fees amounted to about £287,000. However, I take the view that it would be reasonable to take a figure of £150,000 to reflect the additional cost of instructing leading counsel on behalf of McBains Cooper. I have taken a lower proportion of the actual fees because I consider it likely that McBains Cooper would probably have found it necessary to instruct a second junior.

Accordingly, in my view the fairest way to deal with the additional costs to which McBains Cooper was put by reason of the allegations of recklessness, is to reduce the Bank’s recovery in respect of its costs by £125,000, plus any uplift in respect of leading counsel’s fees that may be allowed on a detailed assessment, and to order it to pay £150,000 towards the costs of McBains Cooper.

I should make it quite clear that this conclusion is not to be taken as any criticism of either Lord Marks or Mr Brannigan, both of whom conducted the case with skill and vigour - as I would have expected.

I now turn to the issues in relation to the valuation evidence and the hearing in February 2016, about half of which was taken up by the evidence of the expert valuers. The submission of McBains Cooper is that this further hearing was unnecessary and that the Bank gained nothing from it. So far as the valuation evidence was concerned, the result was a finding that the value of the development property in April 2009 was £800,000, the figure that the court understood that the valuation experts would have been prepared to agree at the time of the trial. It is reasonably clear from its submissions in relation to damages that this was a figure that McBains Cooper was prepared to agree.

Lord Marks submitted that this was a bad point. He said that the Bank’s evidence was that the value of the property was £1 million in September 2009 and that there had been no material change in the market since April 2009. Lord Marks said that since they had been no finding about this value in the first judgment, it had to be determined.

He submitted that after the trial the valuation expert instructed by McBains Cooper abandoned the residual valuation approach that he had taken for the purposes of the trial and produced an entirely new methodology two days before the February 2016 hearing. I explained at paragraph 20 of the second judgment why this change of opinion came about and I do not think that he is to be criticised for it, although service of his report should not have been left until the last minute. However, his new method was seriously flawed as I explained in that judgment.

But against that it has to be said that the expert instructed by the Bank did not fare much better, because I found that his figure of £1.2 million (which had in fact been rounded up from £1.156 million) was too high since he had underestimated the construction costs and allowance for contingencies and, it appeared, had assumed that the building was wind and weathertight in mid-December 2008, which it was not. I therefore concluded that his valuation, assuming that it was based on an appropriate approach, was probably too high by about £300,000 - £350,000.

When adjusted to take into account the various points made in the second judgment, the two valuations straddled a figure of £800,000, and so I concluded that that was the value of the building in April 2009 in its condition as at December 2008. But, looking at the position overall, I consider that Mr Brannigan is justified in submitting that the whole exercise achieved nothing of advantage to the Bank.

However, given the difficulty that I had been having with the figures put forward by either side, I consider that some form of hearing in relation to damages was pretty much inevitable. But that hearing would not have involved any valuation evidence or, indeed, the preparation of any further reports. I consider that the Bank should have agreed the figure of £800,000.

In these circumstances I have little doubt that it would be unjust to order McBains Cooper to pay any part of the costs of the Bank’s valuation evidence incurred following the first judgment. However, since I concluded that the evidence put forward by McBains Cooper was also unsatisfactory, as well as being produced very late, I consider that it would be wrong to order the Bank to pay the whole of the costs of it.

So in relation to the valuation evidence I conclude that it is appropriate to make some form of issue-based costs order. In the light of the considerations that I have mentioned, I consider that the fair order is as follows:

In the light of the matters I have already discussed, I am not persuaded that this is a case where there should be a wholesale departure from the principle that the successful party should recover its costs, particularly in the light of the Bank’s approach to settlement and, especially, its offer of 10 January 2014. However, for the reasons that I have already given I have concluded that the issues of recklessness and the costs of the valuation evidence incurred after the trial call for a different approach.

In relation to the issues of causation and a contributory negligence, I have already concluded that an issues-based costs order is not appropriate. But even if I thought that an issues-based costs order might have been appropriate in principle, I would have concluded that it was practicable to make an order under CPR 44.2 (6)(a) instead.

Until its closing submissions the Bank refused to acknowledge that there was any justification for a finding of contributory negligence or that it should bear some of the responsibility for its losses. This was an unrealistic approach.

Mr Robin says in his witness statement that it was the issues of reliance, causation and contributory negligence that led to the need to call the lending experts and some of the Bank’s witnesses. I do not accept this: so long as McBains Cooper was contending that it had no liability at all owing to the absence of reliance and causation, and that the apportionment in respect of contributory negligence should be much higher than the 30% which I found (as it still contends), I consider that all these witnesses would have been called in any event. Looking at it from another angle, I regard it as inconceivable that McBains Cooper would have agreed to admit unchallenged the evidence of the Bank’s witnesses, such as Messrs Downes, Humphrey or Arman, so that they would not have to be called.

I therefore reject the submission that the issues of reliance, causation and contributory negligence added significantly to the costs of the litigation. However, I accept that the evidence would have been more confined if the Bank had made realistic concessions at the outset. But realistic concessions are not the same as total capitulation - which is, in effect, the position for which McBains Cooper was contending. In these circumstances, I consider that the saving of costs that might have resulted from realistic concessions by the Bank would have been about 10% of each party’s total costs.

On this basis, and in the absence of any other considerations, I consider that the Bank should be deprived of 20% of its costs to reflect its lack of success on this issue. I have arrived at the figure of 20% by adopting the broad assumption that each party’s costs would have been reduced by the same amount: so the order reflects the fact that not only would the Bank’s own costs have been reduced by 10% if it had acted reasonably, but also McBains Cooper’s costs would have been reduced by about the same amount.

The final question is whether in the exercise of my discretion I should make any further adjustment to reflect the other factors are referred to in CPR 44.2. I consider that I should not.

In reaching this conclusion, I have not overlooked the unsatisfactory features of the conduct of each party that I have already mentioned. So far as the adjudication is concerned, I doubt whether this really affected the overall costs of the litigation, since the costs of the adjudication are not recoverable as part of those costs. What probably did add to the costs of the litigation was the Bank’s initial pursuit of allegations of negligence in relation to the Interim Report.

But this seems to me to be more than offset by McBains Cooper’s intransigent approach to settlement. If it were not for that, I might have been prepared to penalise the Bank more heavily for its pursuit of the allegations of recklessness - but at the end of the day all this might have been avoided if McBains Cooper had taken a more realistic approach to the offer of 10 January 2014 and had not persisted in pressing for disclosure. But, as I have explained, the Bank decided to introduce the allegations of fraud, to withdraw that offer and revert to the previous higher offer: so for all practical purposes the portcullis then came down.

Drawing the threads together:

The costs are to be assessed on the standard basis.

The Bank’s application was for a payment on account of its costs of a sum in the region of £700,000. Having regard to the order that I have made, I consider that the appropriate figure is £250,000. I have arrived at this figure by making the adjustments that I have identified and then deducting about 10% from the resulting total. This sum should be paid within 14 days of the handing down of this judgment in draft.