Essex County Council v UBB Waste (Essex) Ltd (No. 3)

On 31 May 2012, Essex County Council entered into a 25-year contract with UBB Waste (Essex) Limited for the design, construction, financing, commissioning, operation and maintenance of a mechanical biological waste treatment plant in Basildon to process the county’s household waste. The facility was built and on 25 November 2014 it was certified as having passed the Readiness Tests. The facility then entered the Commissioning Period but failed to pass the Acceptance Tests by the extended Planned Services Commencement Date of 12 July 2015, the Acceptance Longstop Date of 12 January 2017 or indeed at any point before the close of evidence in the 2019 trial between the parties.

By my principal judgment in this litigation, Essex County Council v. UBB Waste (Essex) Ltd (No. 2) [2020] EWHC 1581 (TCC), I granted declarations that:

In addition, I:

The parties are agreed that, taking matters in the round, the Authority was the successful party in this litigation and that it is entitled to a costs order in its favour and a substantial interim payment of £8 million on account of such costs. There the agreement ends and the following issues are in dispute:

The Authority has filed evidence that its cost of borrowing over the relevant period was 2.396% per annum, and it seeks interest on damages at that rate. Roger Stewart QC, who again appears for UBB with George McDonald, argues that interest should instead be awarded at 1% over the Bank of England base rate from time to time and contends that such rate accords with general practice as recognised by Langley J in Kuwait Airways Corp. v. Kuwait Insurance Co. SAK [2000] 1 All E.R. (Comm) 972, at page 992. Further, he submits that there is no evidence that the Authority in fact had to borrow monies in order to fund its additional costs incurred by reason of the operation of the QSRF Line. Marcus Taverner QC, who again appears for Essex together with Piers Stansfield QC and Daniel Churcher, contends that there is no longer any presumption in favour of 1% over base and that there is no requirement that the Authority should have to prove any specific borrowing.

The applicable principles are clear:

In my judgment, interest should be awarded on the claim at 2.4% per annum, being the approximate cost of borrowing of a local authority such as Essex during the relevant period. Further, interest should run at the same rate on the counterclaim since it will in practice be set-off against the larger award in the Authority’s favour.

Rule 36.5(1)(c) provides that a Part 36 offer must, among other matters, “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 36.13 or 36.20 if the offer is accepted.” The Authority’s offer in this case was dated 7 March 2019. It stated, in apparent compliance with r.36.5(1)(c):

“If the Defendant accepts the offer within 21 days of the date of this letter (the ‘Relevant Period’), the Defendant will be liable for the Claimant’s costs of the Proceedings (including pre-action costs) up to the date on which written notice of acceptance of this Offer is received by the Claimant, in accordance with CPR 36.13.”

The offer was not, however, “made” for the purposes of Part 36 until 8 March 2019:

Mr Stewart argues that the only proper construction of the letter is that the 21 days ran from 7 March and, because the offer was not made until the following day, the offer therefore failed to specify a relevant period of not less than 21 days. Mr Taverner responds that the court should construe the offer such that the 21 days ran from the date of deemed service. Citing C v. D [2011] EWCA Civ 646, [2012] 1 W.L.R. 1962, he submits that faced with two reasonable interpretations of the offer, the court should favour the construction that is compliant with Part 36.

In C v. D, the claimant purported to make Part 36 offers that contained the words: “… the offer will be open for 21 days from the date of this letter (the ‘relevant period’).” The defendant purported to accept one of the offers after the expiry of the 21-day period. Warren J granted the claimant a declaration that its offer was no longer open for acceptance. The Court of Appeal allowed the appeal and construed the offer letter not as meaning that the offer was “only open” for 21 days, but as indicating that the relevant period (namely the period within which the defendant would be liable for the claimant’s

Rix LJ first concluded that, under the then applicable rules, parties could not make timelimited Part 36 offers. Since 2015, such difficulty has been removed by a new provision at r.36.9(4)(b). Nevertheless, the court’s ruling upon the possibility of making a time-limited offer was important since Rix LJ approached the question of construction of the offer on the basis that:

Rix LJ then relied, at [49], on the principle of construction that the court should read a document as a whole and seek to bring rational sense and consistency to that whole. Further, he relied on the statement of principle in Lewison on The Interpretation of Contracts that:

“The court is reluctant to hold that parts of a contract are inconsistent with each other, and will give effect to any reasonable construction which harmonises such clauses.”

In addition, Rix LJ relied on the rule of construction (traditionally expressed by the Latin maxim verba ita sunt intelligenda ut res magis valeat quam pereat) that the court should prefer a construction that allows an instrument to be effective over one which would render it void, ineffective or meaningless. The judge concluded that both constructions of the offer letter were feasible and reasonable, but favoured the construction that was consistent with the clear intention to make a Part 36 offer and which ensured that such offer was effective rather than ineffective.

In his own judgment, Rimer LJ powerfully explained why it is of no utility to consider the meaning of the critical passage in isolation from the context in which it was made. As Lord Hoffmann cautioned in Charter Reinsurance Co. Ltd v. Fagan [1997] A.C. 313, at 392A:

“It is artificial to start with an acontextual preconception about the meaning of words used and then see whether that meaning is somehow displaced.”

That is, of course, because as Lord Hoffmann subsequently explained in Investors Compensation Scheme Ltd v. West Bromwich Building Society [1998] 1 W.L.R. 896, at page 913:

“The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter for dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax …”

In C v. D, Stanley Burnton LJ added simply, at [84]:

“Any ambiguity in an offer purporting to be a Part 36 offer should be construed so far as reasonably possible as complying with Part 36. Once it is accepted that a timelimited offer does not comply with Part 36, one must approach the interpretation of the offer in this case on the basis that the party making the offer, and the party receiving it, appreciated that fact.”

Lewison LJ pithily summarised the resulting principle as “validate if possible” in the subsequent case of Dutton v. Minards [2015] EWCA Civ 984, [2015] 6 Costs L.R. 1047. Further, the principles in C v. D were recently restated by Coulson LJ in Hertel v. Saunders [2018] EWCA Civ 1831, [2018] 1 W.L.R. 5852, at [22]. There are, however, limits to what can be achieved purely through construction:

Turning to the present case, I decline to construe the offer letter divorced from its proper context. Since there can be no doubt that Slaughter & May’s letter was intended to be a Part 36 offer, I consider that a reasonable person having all the background knowledge available to the parties would know that:

Approached in this way, I consider that the statement that the relevant period ran for “21 days of the date of this letter” could feasibly and reasonably be construed in one of two ways:

In accordance with the reasoning in C v. D, I prefer the latter construction since it is consistent with the clear intention to make a Part 36 offer and ensures that the offer is effective rather than ineffective. Accordingly, I reject UBB’s argument that the offer letter was not compliant with Part 36.

In view of my finding above, it is not strictly necessary to consider Mr Taverner’s fallback arguments that (1) any non-compliance was de minimis and that the court should, in any event, treat the offer as a Part 36 offer; and (2) UBB is estopped from now relying upon any defect in the offer. I have, however, heard full argument and, lest I am wrong upon the construction point, it is appropriate that I briefly consider the consequences of a finding that the offer was not compliant.

Mr Taverner submits that the court can properly overlook minor defects in a Part 36 offer that mislead no one. Mr Stewart responds that Part 36 is a self-contained code and that parties must strictly adhere to its requirements in order to obtain the benefits of the regime. Substantial compliance, he contends, is not sufficient.

In Hertsmere Primary Care Trust v. The Administrators of Balasubramanian’s Estate [2005] EWHC 320 (Ch), [2005] 3 All E.R. 274, Lightman J upheld a master’s award of additional interest and indemnity costs under what is now r.36.17 even though the claimant’s offer did not comply with the requirements of Part 36. Old cases such as Hertsmere need, however, to be treated with caution since the then applicable rules provided that non-compliant offers might still have the consequences of a Part 36 offer “if the court so orders.” By contrast, r.36.2(2) now provides:

“Nothing in this Section prevents a party making an offer to settle in whatever way that party chooses, but if the offer is not made in accordance with rule 36.5, it will not have the consequences specified in this Section.”

If I am wrong in my construction of the offer in this case then it was not made in accordance with r.36.5 and therefore, subject to Mr Taverner’s estoppel argument, rule 36.2(2) prevents there being any question of treating the offer as if it were a valid Part 36 offer. If that is right, then the court’s discretion as to costs would fall under Part 44 and not Part 36.

There is some authority that supports the proposition that the court might be able to treat a failure to comply with Part 36 as de minimis, especially where no one is misled, in order to provide like benefits under Part 44:

Of course, a number of orders are ordinarily made in favour of claimants who achieve a judgment at least as advantageous as their Part 36 offers under r.36.17 that are simply not open to the court (viz. the additional amount of up to £75,000 and additional interest on costs and damages) or which are not routinely ordered (viz. indemnity costs) under Part 44. In PHI Group Ltd v. Robert West Consulting Ltd [2012] EWCA Civ 588, [2012] 4 Costs

In F&C Alternative Investments (Holdings) Ltd v. Barthelemy (No. 3) [2012] EWCA Civ 843, [2013] 1 W.L.R. 548, Davis LJ, doubting the decisions in Huntley and Fitzroy Robinson, said at [63]:

“Given the facts there can be no quarrel at all with the overall result in the Fitzroy Robinson case; nor can there be any quarrel with the judge having regard to the without prejudice save as to costs offers as part of the relevant material in deciding overall whether to order indemnity costs. But in my respectful view, it goes altogether too far to take into account as a factor that, had only those offers been made as Part 36 offers, then indemnity costs would have been payable as a matter of course. That is a course neither mandated nor permitted either under Part 36 or under r.44.3. Similarly, while the result in the Huntley case may be capable of being justified on the special facts, in my view it is not permissible wholly to discount a number of failures to comply with the requirements of Part 36 as the merest technicality. Perhaps there can be de minimis errors or obvious slips which mislead no one: but the general rule, in my opinion, is that for an offer to be a Part 36 offer it must strictly comply with the requirements.”

Mr Taverner seizes on Davis LJ’s acknowledgment that there might be scope to accommodate “de minimis errors or obvious slips which mislead no one.” That is, however, a slim foundation upon which to build his argument.

In my judgment, where the non-compliance is a failure to comply with one of the mandatory requirements set out in r.36.5, the position is as follows:

The offer letter in this case concluded with these words:

“Should the Defendant require any clarification as to the terms of this Offer, or should the Defendant consider this Offer to be in any way defective or noncompliant with Part 36 of the CPR, please notify us by return and in any event within seven days of the date of this letter. Any failure to do so will be relied on by the Claimant to preclude the Defendant from attempting to avoid the adverse costs consequences of Part 36.”

UBB’s solicitors replied to the offer on 25 March 2019. The reply expressly referred to the Authority’s Part 36 offer and made plain that its terms were unacceptable to UBB. Norton Rose Fulbright did not point out that there was an issue as to compliance with Part 36. I accept Mr Stewart’s submission that that was simply because the service point had not yet been identified.

Relying on obiter dicta in Seeff v. Ho [2011] EWCA Civ 401, [2011] 4 Costs L.O. 443 and Ali v. Channel 5 Broadcast Ltd [2018] EWHC 840 (Ch), [2018] 2 Costs L.R. 373, Mr Taverner contends that UBB represented by its letter of 25 March that the offer was a Part 36 offer and that the Authority having acted to its detriment by relying on such representation, UBB is now estopped from taking the technical point under r.36.5(1)(c).

Seeff was not a fully argued Part 36 appeal. Rather, the Court of Appeal was dealing with written costs submissions following its decision upon a substantive appeal. Thomas LJ, as he then was, found that the offer was compliant but added, at [12]:

“… in any event the letter of 14 May 2010 made it clear that if the offer was in any way defective or non-compliant with Part 36, Mr and Mrs Ho’s solicitors were asked to let them know as soon as possible. It seems to us clear that, not only did the solicitors treat the offer as a Part 36 offer in the light of the hearing of the appeal, but they also accepted it as a Part 36 offer in their letter of 21 September 2010.”

In Ali, Arnold J (as he then was) rejected the claimants’ argument that the defendant’s offer was not a valid Part 36 offer because it offered a single sum to settle their claims. Mr Ali and Mrs Aslam argued that they had distinct individual claims. In rejecting their argument, Arnold J observed that the case involved parallel claims made by a married couple arising out of the same events in which they had throughout presented a united front. He then added that in any event it was not open to the claimants to raise the objection. The offer in that case had again contained a clause purporting to require the recipients to let the offeror know promptly if they thought that the offer was defective or not compliant with Part 36. Not only had the claimants not done so but their response to the offer appeared to treat it as being a valid Part 36 offer. Citing Thomas LJ’s judgment in Seeff, Arnold J added, at [44]:

“Although Thomas LJ did not express himself in this way, it appears to me that his reasoning was that Mr and Mrs Ho were estopped from challenging the validity of the Part 36 offer made by Mr and Mrs Seeff. In my judgment, this reasoning is equally applicable to the present case.”

One can well see that on the facts of Ali there might have been proper grounds for concluding that the claimants were estopped from denying that they were acting together such that the offer was invalid. I acknowledge, however, that in the passage cited above Arnold J appears to go further and suggest that there might be a general proposition of law that offerees who fail to take a point at the time about some defect in a purported Part 36 offer, despite a clear instruction in the offer that they should do so promptly, might subsequently be estopped from taking the point.

I recognise that there may be little purpose in cluttering the law reports with a further obiter dictum from a puisne judge upon this issue. That said, unlike Thomas LJ and Arnold J, I have had full argument from experienced leading counsel and am clear in my own conclusion that estoppel should play no part in the Part 36 regime:

Accordingly, the critical issue in this case is that of construction. If I am wrong in my construction of the offer in this case then the Authority cannot in any event obtain the advantages of Part 36 because the defect was de minimis or by a plea that UBB is estopped from now taking the point about such defect.

WAS THE JUDGMENT AT LEAST AS ADVANTAGEOUS AS THE OFFER?

Before the Authority can access the benefits under the Part 36 regime, the court must first consider the question of whether it has obtained a judgment that is “at least as advantageous” as its Part 36 offer: r.36.17(1)(b). In money claims, and following the introduction of what is now r.36.17(2), this causes no difficulty. The assessment of the relative values of offers and judgments in non-monetary cases is, of course, more subjective. There may be, as in this case, a mismatch between the precise non-monetary terms of the offer and the judgment, but that cannot of itself be fatal. The threshold question is not whether the judgment was at least as advantageous as the offer in each and every respect, but rather whether the overall terms of the judgment are at least as advantageous as the offer. While subjective, this requires a value judgment that the trial judge will usually be in a good position to make.

Here, the offer did not seek any monetary award, but proposed the following declarations in settlement:

“(i)

The Defendant has failed, in breach of contract, to achieve Service Commencement by the Acceptance Longstop Date under the Contract.

(ii)

The Defendant’s design for the Facility once executed was at all material times incapable of passing the contractual Acceptance Tests, and has not passed the contractual Acceptance Tests as at the date of the Defendant’s acceptance of this Offer.

(iii)

The Defendant is not entitled to operate the modifications made to the Facility for the production of QSRF.

(iv)

The Authority is entitled to terminate the Contract under clause 67.

(v)

The composition tests carried out by UBB between Q1 2016 and Q3 2018 were not valid Composition Tests as defined by the Contract, and the results of such tests are of no contractual effect and did not engage Clause 21.9A.2 of the Contract.

(vi)

The Composition Test results are to be determined during the Commissioning Period on a rolling annual average basis using the average results from the four most recent Composition Tests (or, where there are less than four Composition Tests, the average of the available Composition Tests).

(vii)

The requirements for an Impact and Remedy Report (Clause 21.9A.2 of the Contract) is only engaged if the results of the four most recent Composition Tests (or where there are less than four Composition Tests, the average of the available Composition Tests) confirm, on a rolling annual average basis, that the composition of the input Contract Waste does not fall within Composition Band A.”

Plainly the Authority did better in monetary terms in that it has obtained a net judgment, after setting off UBB’s modest success on its counterclaim, worth over £8 million at the time of the offer. Further, a number of the proposed settlement terms can be directly equated to the declaratory relief achieved by the Authority after trial:

I did not grant declarations in the terms proposed by paragraphs (ii), (vi) and (vii) of the offer, but I plainly made findings to such effect:

The Authority did not obtain a declaration that corresponds to paragraph (v) of its offer. Indeed, I found that it was not necessary to determine the merits of the Authority’s challenge to the composition tests because, upon my construction of the contract and other findings, nothing turned on the validity of the tests: see paragraphs 354-364 & 428.

Weighing the failure to obtain a declaration that had no bearing upon the outcome of this litigation against the additional benefit not sought in the offer of a judgment worth over £8 million at the time of the offer, I have no hesitation in concluding that the Authority obtained a judgment that was at least as advantageous as its Part 36 offer.

If the offer was a valid Part 36 offer, UBB rightly does not argue that it would be unjust to make the usual orders under r.36.17(4). Accordingly, the Authority is entitled to:

It therefore falls to me to set the appropriate rates of interest under paragraphs (a) and (c) of r.37.17(4).

Sir Geoffrey Vos C explained the proper approach to r.36.17(4)(a) in OMV Petrom SA v. Glencore International AG [2017] EWCA Civ 195, [2017] 1 W.L.R. 3465, at [31]-[39]:

In OMV, the Court of Appeal substituted the full 10% enhancement for the trial judge’s own lower award. That was, however, an extreme case in which the defendant’s case

“rested in large measure on the evidence of witnesses who were liars and Glencore put Petrom through the hoops of having to establish liability, in a very flagrant case of fraud, in a manner which was wholly unreasonable.”

Applying the principles in this case, I am, for the reasons explained more fully when considering the application for indemnity costs below, satisfied that UBB acted unreasonably by failing to engage with the Part 36 offer and in pursuing a defence and a very considerable counterclaim upon wholly unwarranted allegations of lack of good faith, demonstrably false allegations that the facility had failed to pass the Acceptance Tests solely because of the low level of putrescibles in the contract waste and an obviously compromised expert witness. Such conduct led directly to a very expensive and protracted trial which must have caused substantial disruption to the business of the Authority and significant concern to those accused of having acted in a commercially unacceptable way. I accept therefore that a merely compensatory rate of interest would not be proportionate in this case and I award the Authority interest pursuant to r.36.17(4)(a) on the net damages recovered at the maximum rate of 10% over base from 29 March 2019. In accordance with

In McPhilemy v. Times Newspapers Ltd (No. 2) [2001] EWCA Civ 933, [2002] 1 W.L.R. 934, Chadwick LJ explained that the power to award costs under what is now r.36.17(4)(c) was designed to redress the unfairness that arises from the rule that interest is not ordinarily awarded on costs before judgment. In fact, the court has power to award pre-judgment interest on costs in any event pursuant to r.44.2(6)(g). Indeed, this is a subject to which I will return in respect of the eighth issue between the parties.

In McPhilemy, interest on costs was awarded at 4% over base; a rate that Chadwick LJ described, at [23], as reflecting “albeit generously” the cost of money. For some years, such rate became the conventional award. In OMV, the Chancellor held, at [26], that the Court of Appeal was bound by McPhilemy to award interest on costs so as to achieve a fairer result for the claimant. Referring to his earlier discussion as to the proper approach to r.36.17(4)(a) (which I have already summarised), he added, at [43]:

“That does not, however, indicate that some of the factors I have already mentioned may not be relevant. Moreover, once again I do not regard the award as purely compensatory. As I have also said, different factors may in practice apply to the enhanced interest under [rules 36.17(4)(a)/(c)]. That is because account may need to be taken of how the costs, on which an enhanced rate of interest is claimed, were incurred. It could have been, for example, that despite the fact that it was unreasonable to refuse the Part 36 offer, the conduct of the litigation was itself reasonable, so that the costs on which enhanced interest was sought were not incurred in contesting bad points or dishonesty by the defendants.”

As again I explain more fully below, I do not accept that UBB acted reasonably in this litigation. These costs were incurred in denying what it knew well before the date of the offer - namely that this facility could not pass the Acceptance Tests with or without the QSRF modifications because of a fundamental design error as to density and an equally fundamental error in its bid for BMW reduction. Further, the costs were incurred in seeking to make this case about composition notwithstanding that the facility could not pass the Acceptance Tests even with Band A waste, in pursuing wholly unwarranted allegations against the Authority, in seeking substantial damages to which it was plainly not entitled and in the instruction of an obviously compromised expert witness. I therefore award interest upon costs pursuant to r.36.17(c) at the full rate of 10% over base from 29 March 2019.

While the conclusions set out above deal with the basis for the assessment of costs from 29 March 2019, the Authority seeks its costs throughout on the indemnity basis.

Rules 44.2(4)-(5) of the Civil Procedure Rules 1998 provide:

“(4)

In deciding what order (if any) to make about costs, the court will have regard to all the circumstances, including– (a) the conduct of all the parties;

(b)

whether a party has succeeded on part of its case, even if that party has not been wholly successful; and

(c)

any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply.

(5)

The conduct of the parties includes–

(a)

conduct before, as well as during, the proceedings and in particular the extent to which the parties followed the Practice Direction – Pre-Action Conduct or any relevant pre-action protocol;

(b)

whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c)

the manner in which a party has pursued or defended its case or a particular allegation or issue; and

(d)

whether a claimant who has succeeded in the claim, in whole or in part, exaggerated its claim.”

The proper approach to applications for indemnity costs is not in dispute. In Elvanite Full Circle Ltd v. AMEC Earth & Environmental (UK) Ltd [2012] EWHC 1643 (TCC), [2013] 4 All E.R. 765, Coulson J summarised the applicable principles at [16]:

“(a)

Indemnity costs are appropriate only where the conduct of a paying party is unreasonable ‘to a high degree.’ ‘Unreasonable in this context does not mean merely wrong or misguided in hindsight’: see Simon Brown LJ (as he then was) in Kiam v. MGN Ltd (No. 2) [2002] 1 W.L.R. 2810.

(b)

The court must therefore decide whether there is something in the conduct of the action, or the circumstances of the case in general, which takes it out of the norm in a way which justifies an order for indemnity costs: see Waller LJ in Excelsior Commercial & Industrial Holdings Ltd v. Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879.

(c)

The pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, provided that the claim was at least arguable. But the pursuit of a hopeless claim (or a claim which the party pursuing it should have realised was hopeless) may well lead to such an order: see, for example, Wates Construction Ltd v. HGP Greentree Allchurch Evans Ltd [2006] B.L.R. 45.

(d)

If a claimant casts its claim disproportionately wide, and requires the defendant to meet such a claim, there was no injustice in denying the claimant the benefit of an assessment on a proportionate basis given that, in such circumstances, the claimant had forfeited its rights to the benefit of the doubt on reasonableness: see Digicel (St Lucia) Ltd v. Cable & Wireless plc [2010] EWHC 888 (Ch).”

To that analysis, Akenhead J added five further observations in Courtwell Properties Ltd v. Greencore PF (UK) Ltd [2014] EWHC 184 (TCC), at [23]:

“(i)

The discretion to award indemnity costs is a wide one and must be exercised taking into account all the circumstances and considering the matters complained of in the context of the overall litigation (see Three Rivers DC v. The Governor of the Bank of England [2006] EWHC 816 (Comm) and Digicel.

(ii)

Dishonesty or moral blame does not have to be established to justify indemnity costs(see Reid Minty v. Taylor [2002] 1 W.L.R. 2800).

(iii)

The conduct of experts can justify an order for indemnity costs in respect of costs generated by them (see Williams v. Jervis [2009] EWHC 1837 (QB).

(iv)

A failure to comply with Pre-Action Protocol requirements could result in indemnity costs being awarded.

(v)

A refusal to mediate or engage in mediation or some other alternative dispute resolution procedure could justify an award of indemnity costs.”

In seeking indemnity costs, Mr Taverner takes five points:

Mr Stewart resists indemnity costs. He contends that this was simply hard-fought commercial litigation and responds:

The costs submissions in this case were detailed. That was because the Authority has spent some £15 million in pursuing this claim and defending itself against UBB’s counterclaims. Such expenditure is enormous, but needs to be seen against the legal and factual complexity of this case and the fact that it concerned fundamental questions as to the future of a 25-year contract valued at some £800 million.

It is no answer to the claim for indemnity costs to argue that the issue of good faith was not central to the court’s determination of the case, or to assert that only limited costs were directly incurred by the Authority in responding to the new allegations introduced by re-amendment of the Defence and Counterclaim shortly before trial. Indeed, the latter submission overlooks the fact that UBB had already pleaded allegations of a lack of good faith before its re-amendments.

Whatever the basis for my judgment, a core plank of UBB’s case at trial was that the Authority had not acted in good faith. I acknowledge that Mr Stewart was careful to make clear that UBB’s case was that the Authority’s officers had failed to act in good faith, and not positively to assert that they had acted in bad faith. Nevertheless, allegations of a lack of good faith involve the serious imputation that one or more individuals engaged in conduct that would be regarded as “commercially unacceptable” by reasonable and honest people. Put more colloquially, these were allegations of sharp practice rather than necessarily dishonest conduct.

I am sure that this distinction was not of any great comfort to those accused by UBB. As professional men and women employed at a senior level by a public authority, I readily accept that these officers have a deep understanding of the importance of integrity in their dealings on behalf of their employer. I have little doubt that they will have been distressed by allegations that their professional conduct might be regarded as commercially unacceptable by reasonable and honest people. Indeed, such a finding might have put their future employment, or at least their prospects of advancement in the public sector, at risk.

Since questions of good faith are likely to be fact sensitive, it is difficult for a court to weed out hopeless allegations before trial. I am pleased to say that the making of allegations of commercially unacceptable conduct without any proper evidential foundation – as happened in this case - is “out of the norm.” In my judgment, it is important that it should remain so and that parties realise that they cannot make unjustifiable allegations of a lack of good faith with impunity. While I do not equate the allegations in this case with fraud, I nevertheless conclude that UBB’s conduct in making widespread allegations of a lack of good faith against the Authority and its officers without any proper foundation was “out of the norm” and, of itself, justifies an order for costs on the indemnity basis.

In Three Rivers, Tomlinson J said, at [25(5)]:

“Where a claim is speculative, weak, opportunistic or thin, a claimant who pursues it is taking a high risk and can expect to pay indemnity costs if it fails.”

Three Rivers was of course a particularly egregious example of such conduct. Coulson J awarded indemnity costs on this basis in Wates. More recently, as Coulson LJ in Burgess v Lejonvarn [2020] EWCA Civ 114, [2020] 4 W.L.R. 43, he clarified at [45] that, in his statement of this principle in Elvanite, he used “hopeless” as shorthand for the conventional formulation of the test as identified by Tomlinson J.

It will be noted that the authorities refer to speculative, weak, opportunistic or thin claims rather than cases or defences. There is good reason to take a particularly serious view in respect of weak claims since claimants choose to initiate proceedings. Maintaining a speculative, weak, opportunistic or thin defence is, like any other relevant circumstance, a matter to be taken into account in determining the costs order but is unlikely of itself to justify ordering indemnity costs against a defendant. Here, however, UBB did not simply defend but it brought a substantial counterclaim that dwarfed the Authority’s own financial claims. By making such a counterclaim, UBB was itself pursuing a claim.

In this case, I am satisfied that UBB’s attempt to build a very substantial counterclaim on the foundation of composition was opportunistic:

Further, the counterclaim was also built on an obviously flawed construction of clause 21.9A.2 (see paragraphs 328-334) and the Throughput Test (see paragraphs 297-299), unfounded allegations of lack of good faith and in circumstances where there was no prospect of establishing causation (see paragraphs 297-300, 303-306, 309 and 444-446).

In my judgment, such counterclaim can properly be described as speculative, weak, opportunistic and thin. I infer that its determined prosecution by UBB combined with its unfounded allegations of a lack of good faith were designed to bring commercial and political pressure to bear on the Authority not to press its own claims to trial. Such conduct was “out of the norm” and, of itself, justifies an order for costs on the indemnity basis.

I should, however, make plain that I reject the suggestion that counsel who then appeared for UBB might have been party to any impropriety in comments made about costs in an earlier hearing before Waksman J which were subsequently reported by the press.

Despite enormous expenditure, the Authority can properly argue that its insistence on standard disclosure and its subsequent applications to enforce UBB’s disclosure obligations were vindicated by the eventual disclosure of highly damaging documents clearly showing UBB’s internal recognition of the serious design problems with this facility, its setting up of the red team and the circumstances surrounding the potential claim against Fichtner. These documents were very damaging to UBB’s case.

Against that, and although its argument was rejected, UBB’s suggestion of an alternative to standard disclosure obviously chimes with current thinking as to the need to control the costs of disclosure. I cannot, on the material before me, fairly reach a view upon the Authority’s submission that UBB’s approach was driven not by any concern to control costs but by a cynical attempt to prevent obviously damaging documents from being disclosed. I therefore read nothing into UBB’s original promotion of request-based disclosure. In any event, while disclosure was ordered in this case before the start of the Disclosure Pilot for the Business & Property Courts, I note that if the court had adopted an approach similar to what is now Model C under Practice Direction 51U then the parties would still have been under an obligation to disclose known adverse documents.

The subsequent conduct of UBB’s disclosure does raise questions. In particular, I share the evident bemusement of Waksman J in his 3 December 2018 decision, [2018] EWHC 3168 (TCC), as to UBB’s then argument that it did not have control of obviously relevant documents held by it in circumstances where the relevant custodians in fact worked for UBB’s sister company. It is also troubling that when UBB was ordered to procure junior counsel to review its disclosure, counsel overturned some 87% of the earlier privilege claims.

It is not, however, appropriate to allow argument as to the proper basis for the assessment of costs to degenerate into a detailed review of earlier disputes in respect of disclosure. It is, in any event, unnecessary to determine this issue given my conclusions that I should, on other grounds, order indemnity costs in this case.

At paragraphs 54-55 of my principal judgment, I concluded that both Dr Weatherby and UBB should have recognised that he had obvious and serious conflicts of interest, that his instruction should either have been withdrawn or refused and that there was no excuse for failing properly to disclose the conflict. In ICI Ltd v. Merit Merrell Technology Ltd [2018] EWHC 1577 (TCC), Fraser J rightly observed, at [237], that partisan expert evidence is not the norm in this court. It is very important to the proper administration of justice that that should remain so. In my judgment, where a party knowingly calls an expert who is obviously and seriously conflicted without declaring such conflict, as happened in this case, it cannot complain if an order for indemnity costs is made against it.

Here, a proportionate response to such conduct taken alone might well be to order that the costs of the technical evidence and an appropriate proportion of the legal costs incurred in respect of the technical issues be paid on the indemnity basis.

Taking these matters in the round, the proper and fair order for costs in this case is to award the Authority its costs throughout on the indemnity basis.

Mr Stewart argues that the court should recognise UBB’s success in recovering compensation for the cessation of delivery of waste in 2017 by reducing the award of costs in the Authority’s favour to 90%. He supports his argument by pointing to the time taken at trial upon the issue and reminding me that the percentage reduction should reflect not just some credit for UBB’s costs but also the disallowance of the Authority’s costs upon the issue.

Mr Taverner argues that any costs order should simply be an issue-based costs order, alternatively that the percentage reduction in the Authority’s costs should be less than 10%. He points to the fact that UBB’s success on this issue meant that it recovered 0.8% of the sums sought by its counterclaim.

Of course, the simple fact that the Authority was not successful on every issue does not of itself mean that the court should deprive it of some proportion of its costs. Nevertheless, I accept that the cessation of deliveries was a discrete issue that involved its own disclosure and a number of witnesses who had no relevant evidence to give in respect of the main issues between the parties. Accordingly, I consider that in principle UBB should have its costs of this issue.

I accept Mr Stewart’s argument that the most appropriate way to give effect to UBB’s partial success on its counterclaim is not, however, to make an issue-based costs order, but instead to make some proportionate reduction in the costs recovered by the Authority. Indeed, the court is sensibly enjoined by r.44.2(7) to prefer a percentage order over an issue-based costs order. As Pumfrey LJ observed in Monsanto Technology LLC v. Cargill International SA [2007] EWHC 3113 (Pat), [2008] F.S.R. 16, such approach will necessarily lack any degree of mathematical precision. It does, however, have the significant benefit of avoiding the cost and complexity of seeking to untangle costs on an issue-by-issue basis in detailed assessment proceedings.

In fixing the appropriate percentage, I take into account the following factors:

Taking all of these matters into account, in my judgment the fair reduction in the Authority’s costs is 5%. Accordingly, I make the following orders:

The parties agree that interest on costs should run from the date of payment of the costs rather than from the date of my costs order. As I have already observed, such order is of course made pursuant to r.44.2(6)(g). Unless the court makes a contrary order, interest on the award of costs would, however, run at 8% per annum pursuant to s.17 of the Judgments Act 1838. Given the disparity between that rate and the Authority’s true cost of borrowing, the parties are agreed that the court should make an order pursuant to r.40.8(1) delaying the running of interest on costs under the 1838 Act until 14 September 2020 and setting a more commercial rate until that date. I agree that such course is appropriate for the reasons explained by Leggatt J, as he then was, in Involnert Management Inc. v. Aprilgrange Ltd [2015] EWHC 2834 (Comm), [2015] 5 Costs L.R. 813 in circumstances where a significant interim payment has been ordered and it is not reasonable to expect the paying party to pay the balance of the costs liability until it has had a fair opportunity to determine what sum it accepts is properly payable. I therefore order that, subject to the order already made under r.36.17(4)(c), interest on costs shall run at the rate of 2.4% per annum from the date when the costs were incurred until 14 September 2020 and thereafter at the rate specified by s.17.

When handing down judgment in June, I was told that there might be an application for a stay pending any appeal. In fact, no such application was made. Rather, Mr Stewart sought an extended period for payment of the judgment sum. There was, however, no evidence before the court to justify such application and UBB has already had the benefit of an additional month between the date when I handed down judgment and the hearing in July. Accordingly, I explained at the conclusion of the argument on 14 July that the judgment sum and agreed interim payment on account of costs would be payable within the usual 14 days from that date.