Building contract – Dispute – Court ruling defendant subcontractor liable to claimant main contractor in damages for repudiatory breach of contract – Defendant conceding claimant entitled to some overall payment – Court determining appropriate award of costs – Whether parties wrongly failing to settle litigation – Whether defendant liable in failing to make settlement offer – Order for costs made
The claimant company, was the main contractor for the new Wembley stadium and the first defendant subcontractor was a member of a group of which the second defendant was the holding company, in proceedings brought to draw up the final account in a dispute between the two. The judge ordered the first defendant to pay £6,154,246.79 to the claimant in respect of overpayments that the claimant had previously made, damages for breach of contract and interest: see [2008] EWHC 2220 (TCC); [2008] PLSCS 254.
The court was then asked to deal with the question of costs, bearing in mind that, following the judgment of the court on a number of preliminary issues, the parties could have immediately embarked upon sensible negotiations and rapidly resolved the entire litigation, but failed to do so. Further, neither party had taken any effective steps to secure costs protection.
In determining the appropriate costs order, the judge reviewed the course of events since his decision on the preliminary issues: see [2006] EWHC 1341 (TCC); [2006] PLSCS 193 and considered correspondence submitted by the parties that had provided the court with an insight into what had been happening behind the scenes over the past two-and-a-half years.
Held: The order for costs was made accordingly.
Taking into account the parties’ conduct and in all the circumstances of the case, the first defendant would be ordered to pay the claimant 20% of the costs of the action. Having conceded that some overall payment was due to the claimant, the first defendant’s failure to make an offer was the overriding reason why the litigation had not been settled. There was a heavier onus upon the debtor to make a defendant’s offer than there was upon the creditor to make a claimant’s offer.
In commercial litigation where each party had claims and asserted that a balance was owing in its own favour, the party that finally received payment should generally be characterised as the overall winner of the entire action. In considering how to exercise its discretion, the court should take as its starting point the general rule that the successful party was entitled to an order for costs: Johnsey Estates (1990) Ltd v Secretary of State for the Environment, Transport and the Regions [2001] EWCA Civ 535; [2001] 2 EGLR 128 considered.
The judge then had to consider what departures were required from that starting point, having regard to the circumstances of the case. Where those circumstances required an issue-based costs order, that was what the judge should make but he should hesitate before doing so, because of the practical difficulties that that caused and the steer given by CPR 44.3(7). In many cases, the judge could and should reflect the relative success of the parties on different issues by making a proportionate costs order: Burchell v Bullard [2005] EWCA Civ 358 considered.
In considering the circumstances of the case, the judge should have regard not only to any CPR 36 offers but also to each party’s approach to negotiations (insofar as admissible) and general conduct of the litigation. If one party made an offer under CPR 36 or an admissible offer within CPR 44.3(4)(c), which was nearly but not quite sufficient, and the other party rejected that offer without an attempt to negotiate, it might be appropriate to penalise the second party in costs: Carver v BAA plc [2008] EWCA Civ 412; [2008] PLSCS 120 considered.
In assessing a proportionate costs order, the judge should consider what costs were referable to each issue and what costs were common to several issues. It would often be reasonable for the overall winner to recover not only the costs specific to the issues which he had won but also the common costs: Straker v Tudor Rose [2007] EWCA Civ 368; [2007] PLSCS 85 considered.
Roger Stewart QC and Paul Buckingham (instructed by Clifford Chance LLP) appeared for the claimant; Adrian Williamson QC and Lucy Garrett (instructed by McGrigors LLP) appeared for the defendants.
Eileen O’Grady, barrister
