Case No: HT-09-425

Neutral Citation Number: [2010] EWHC 1506 (TCC)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

TECHNOLOGY AND CONSTRUCTION COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 23 ^rd June 2010

Before :

THE HONOURABLE MR JUSTICE AKENHEAD

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Between :

	ENTERPRISE MANAGED SERVICES LIMITED	Claimant
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	TONY McFADDEN UTILITIES LIMITED	Defendant

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Camille Slow (instructed by HBJ Gateley Wareing LLP ) for the Claimant

Mark Chennells (instructed by Mishcon de Reya ) for the Defendant

Hearing dates: 16 June 2010

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JUDGMENT

Mr Justice Akenhead:

Introduction

Following the judgement of Mr Justice Coulson on 2 December 2009 which disposed of the substantive matters in dispute between the parties, the parties have made written submissions on costs arising out of the claim and the hearing, which I have been asked to deal with in Mr Justice Coulson’s absence.

The details are set out in the learned judge’s judgement and I will not repeat them. In summary, in 1998 TWUL employed Subterra who in turn in 2002 sub-contracted (pursuant to the “NLSDA Sub-Contract”) some of the work to Tony McFadden Ltd (“TML”). Enterprise acquired the business of Subterra in 2003. There was a Deed of Novation as between Enterprise and TWUL. Enterprise made various payments to TML but, following a termination of its agreement by TWUL, Enterprise purported to terminate its “Sub-Contract Agreement” in April 2004. Enterprise engaged TML on three other contracts, “Lot 8”, “Three Valleys” and the “Van Hire” Sub-Contracts. In May 2006 TML went into administration and later into liquidation in 2007. TML’s liquidators served various claims in relation to sums said to be due under these Sub-Contracts in 2008. In June 2009, the liquidators purported to assign to the Defendant, Tony McFadden Utilities Ltd (“TMUL”) what was said to “the ‘Net EMSL Balance’, defined by reference to “the sum due to TML from Enterprise upon the taking of accounts of what was due from each party to the other in respect of the mutual dealings between TML and Enterprise pursuant to Rule 4.90 of the Insolvency Rules 1986””.
Thereafter, on 21 September 2009, TMUL gave notice of assignment and started an adjudication process by simultaneously serving a notice of intention to adjudicate. The adjudication, relating to the NLSDA Sub-Contract, started on 24 September 2009. T he Referral on that date included, for the first time, a copy of the Deed of Assignment. Piecemeal extensions were granted or agreed to enable the adjudicator to issue his decision by 23 December 2009. Enterprise reserved its position as the jurisdiction of the adjudicator.
Having sought to persuade TMUL to delay the adjudication proceedings, Enterprise issued Part 8 proceedings in the TCC on 27 October 2009. It is clear that the court proceedings were brought not only in the context of the adjudication but also with a view to establishing that the adjudicator had no jurisdiction.
Mr Justice Coulson set out at Paragraph 16 of his judgement the issues which he was required to address:

“(a) Was the NLSDA Sub-Contract between Subterra and TML novated in favour of Enterprise?

(b) What rights and liabilities were the subject of the Deed of Assignment of 15 ^th June 2009 between TML and Utilities?

(d) Can Utilities as assignees adjudicate the NLSDA claim against Enterprise?

(e) Does the Adjudicator have the necessary jurisdiction to undertake this adjudication?”

On the first two of these issues, the learned judge decided in favour of TMUL in that he found that the NLSDA Sub-Contract was novated and that it was the net balance envisaged by Rule 4.90 of the Insolvency Rules which was assigned to TMUL by the liquidators of TML. Delete “However, on the three remaining issues, he effectively” and replace it with “On the third issue, he decided that whilst the right to an account and any payment arising on that account under Rule 4.90 of the Insolvency Rules had been validly assigned, none of the sub-contracts nor the right to make claims under or for breach of them had been assigned. On the two remaining issues, he”

By way of explanation of this suggested amendment: it was not TMUL’s case that the NLSDA Sub-Contract (or any of the other contracts between the parties) had been assigned. However, on the three remaining issues, he effectively decided in favour of Enterprise in that the NLSDA Sub-Contract itself, or the right to make a claim either under or for breach of that Sub-Contract or any of the other three sub-contracts, had not effectively been assigned by TML to Utilities, that Utilities could not adjudicate the claim under the NLSDA Sub-Contract and that no dispute had crystallised in any event such as would enable the adjudicator to have had jurisdiction. At Paragraph 99, Mr Justice Coulson was critical about the course of the adjudication:

“ In my judgment, the adjudicator ought to have taken more of a grip on this adjudication at the start, and reached early views both as to jurisdiction and as to whether it could be dealt with fairly in the time period. Had he done so, I think it likely that for one, or maybe even both, of these reasons he would have concluded that the adjudication could not be properly or fairly progressed and that the right course was resignation. That would have obviously saved a good deal of time and money, not least the costs of these Part 8 proceedings which, as I understand it, are now put at the barely credible figure of £240,000. The fact that, as a matter of practicality and fairness, this claim was not suitable for the summary adjudication process only supports my conclusion that the reference to adjudication was inappropriate as a matter of law.”

It seems clear that the adjudicator, in broad terms, had simply acceded to a course of action urged upon him by TMUL.

The Costs

The basic principles set out in CPR Part 44.3: the Court has a discretion in relation to costs and the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party. The Court must have regard to the conduct of the parties which includes:

“(a) conduct before, as well as during, the proceedings…

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

(d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.2 (CPR Part 44.3(5))

It is open to the Court in appropriate cases to order costs on an “issues” basis, that is, by awarding each party its costs of and occasioned by its success on individual issues in the litigation. That course is relatively unusual and, although referred to in passing in argument, it is not a course which is urged upon me. The order which TMUL argues should be made in this case is what is called a "proportionate costs order" along the lines of that ordered in Multiplex Construction (UK) Ltd v Cleveland Bridge Dorman Long Engineering Ltd [2008 EWHC 2280 (TCC). Enterprise’s primary case was that the ‘threshold’ for a proportionate costs order had not been met, but the bulk of its argument was directed towards addressing the proportionate costs basis of assessment. That approach involves determining which party has been successful overall in the proceedings and, taking into account the issues upon which each party has been successful, fixing the percentage proportion of its overall costs which the successful party should have. I agree that this is by far the most appropriate type of order to make in this case.
In the current case, Enterprise argues that it should have 100%, alternatively no less than 90%, of its costs whilst TMUL argues that Enterprise should only have 40% of its costs. Thus it is that both parties accept, properly in my view, that Enterprise should be regarded as the party which was in broad terms successful.
A number of general observations can properly be made in the context of this case in relation to the fixing of the relevant percentage in the proportionate costs approach:
1. The first step is obviously to determine which of the parties has been successful in overall terms; if one can not determine that, it may be that one needs to consider the issues-based approach.
2. One needs to consider the overall context of the litigation, including the reasons which led to its genesis; that involves considering the conduct of the parties which led to the need for the litigation in the first place.
3. The reasonableness, or unreasonableness, of each party taking the various points or issues upon which it lost, should be considered by the Court. The more unreasonable the position of the losing party, the more likely that, even if the court orders only standard, as opposed to indemnity, based costs, it will attach weight to this factor.
4. Whilst one needs to have regard to the issues upon which each party has succeeded, a simple mathematical approach on the basis of the number of issues “won” by each party will often not be an appropriate basis for fixing the percentage; thus, simply because the overall successful party has won 3 out of 5 issues, should not mean automatically that it should recover 60% of its costs. One needs to have regard to the likely amount of resources applied as well as to the impact overall of the success or failure on the various issues.
5. Similarly, the Court should be cautious about fixing a proportion by reference to the amount of time or space applied by the judge in his or her judgement to the issues upon which each party has been successful or unsuccessful. The judge may simply have had to take up more time and space in the written judgement to address what may be more complex issues. The fact that 80% of the judgement addresses a legal issue upon which the overall successful party lost should not, at least generally, mean that it can only recover 20% of its costs.
6. The Court needs also to have regard to the fact that the overall unsuccessful party will have incurred cost in dealing with the issues upon which it has “won”.
7. Where the parties have put before the court summary costs bills for assessment, the Court can have regard to the likely cost and resource which each party will have applied in relation to the issues upon which they have won or lost.
8. Where the parties can not put such information before the Court, and in any event, the Court must do the best that it can in fixing a proportion.
In this case, the parties are agreed that the costs should ultimately be assessed by a costs judge and they have not put before the Court any record or even assessment of what each is likely to have spent in terms of money or resource on the individual issues. I must therefore do the best that I can in fixing the appropriate proportion.
I have decided, as already indicated to the parties, that TMUL should pay 80% of Enterprise’s costs of and occasioned by this litigation. My reasons are as follows:
1. There is no doubt that, overall, Enterprise has succeeded in the litigation. It has effectively succeeded in securing its strategic objective of ensuring that the adjudication could not legitimately go ahead.
2. I do bear in mind the conduct of TMUL in not only unjustifiably but also prematurely in any event pursuing the adjudication and in not agreeing a full suspension of the adjudication whilst the Part 8 proceedings were pursued. That undoubtedly put, and must have been intended to put, tactical pressure on Enterprise. The points taken by Enterprise upon which it failed need to be looked at in that context.
3. Whilst the novation issue, upon which TMUL “won”, did involve the deployment by its solicitors of evidence, the large bulk of that evidence was not disputed and part of the issue involved a consideration of what inferences could sensibly be drawn from that undisputed evidence.
4. So far as the validity of the assignment was concerned, this issue, although, again, TMUL “won” it, was on analysis simply part of a wider issue upon which Enterprise "won" namely, in the context of what was assigned, did the adjudicator in practice have jurisdiction? In any event, the issue relating to the validity of the assignment was one which did not and did not need to involve, so far as I can judge, a substantial application of resources.
5. I do have regard to the fact that Enterprise had to commence and pursue these proceedings to ensure that the adjudication could not legitimately be continued. Although its pleaded case and position at the hearing went wider than was necessary, the basic costs of claim and hearing preparation would have had to have been incurred in any event.
6. I have no doubt that some time and resource would have been saved and avoided if Enterprise had not pursued its arguments on the issues upon which it lost albeit that I do not consider that it acted unreasonably in pursuing those arguments. Enterprise would have had to have submitted evidence and documentation and incurred brief and other hearing fees in any event.
A reduction of 20% is realistic, fair and reasonable to reflect the fact that both Enterprise and TMUL spent some time and applied some resource on the issues of novation and the basic validity of the assignment by TML to TMUL. I can not begin to see how a reduction of 60% could be anything other than wholly unfair and unrealistic to reflect this factor. Without any analysis of the cost or time provided by TMUL, I can only proceed on the basis of my impression from the information and arguments put before me which is, broadly, that no more than about 50 to 70 hours of professional time overall could or should have been applied by TMUL’s legal team to those issues, which equates to some £15,000-£18,000 at an averaged rate of £300 an hour. Allowing for the fact that rather less than that would have been expended by Enterprise’s legal team and given the broad total cost estimate for Enterprise’s costs (up to £170,000), a reduction of 20% is justified.

Decision

In my judgement, TMUL should pay 80% of Enterprise’s costs of the litigation, to be assessed on a standard basis.