IN THE HIGH COURT OF JUSTICE QUEEN'S BENCH DIVISION TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice Strand, London, WC2A 2LL 2 August 2010
B e f o r e :
MR JUSTICE AKENHEAD ____________________
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Camille Slow (instructed by Reynolds Porter Chamberlain) for the Claimant Alexander Nissen QC (instructed by Bayham Solitors LLP) for the Defendant Hearing dates: 29 July 2010 ____________________
HTML VERSION OF JUDGMENT ____________________
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Mr Justice Akenhead:
In this case, the parties have resolved it on the basis that the Claimant has "won" the litigation and that the Defendant should pay the Claimant's costs to be assessed on a standard basis. One matter upon which they cannot agree is whether or not those costs should include the costs related to the engagement of an accounting expert by the Claimant. They therefore ask for a direction from the court which will be binding on the costs judge that such accounting expert costs should, or should not, be part of the costs payable to the Claimant.
The Law and the Practice
Although both parties accept, properly in my view, that the Court has a power to make such a direction given its importance, it will be helpful if I briefly summarise why that is a correct approach.
CPR Part 44.3 gives the Court a wide power:
It is clear from the breadth of this wording that the Court and thus either the trial judge or the judge case managing the particular proceedings can make orders that certain types of cost are to be allowed or disallowed as the case may be and indeed in relation to certain types of cost between certain dates. Thus, if a witness statement has been obtained which was wholly unnecessary, the Court in making its order for costs can disallow the costs of and occasioned by the securing of that statement and giving of that witness's evidence.
Where the Court has made an order that one party pays the costs of the other to be assessed (by a costs judge), it has a discretion at that stage itself to determine whether elements of what would otherwise be going into the costs bill for assessment should be payable by the paying party. The overriding objective in Part 1 of the CPR gives the Court a wide power, in the interests of saving expense ultimately and the best application of the court resources, to decide whether and to what extent elements of the costs should be allowable. If the case managing or trial judge has had a detailed involvement in the running of the case or had to consider the pleadings and the evidence in some detail, it may well often be the case that that judge is best placed at the time of his or her involvement to decide that elements of any future costs bill should not be allowed. For instance, that judge may well be able to form a clear view about the relevance and utility of certain evidence or steps taken by one or other of the parties which is informed by the extent of judicial involvement; that should save time and cost to the parties who then do not have to rehearse argument afresh before the costs judge and the costs judge does not have to expend disproportionate effort in resolving those issues.
There are specific rules about experts and expert testimony primarily covered by CPR Part 35. Part 35.1 states:
In exercising its discretion whether to disallow elements of costs, the Court will need to have regard to the general principles on which its discretion on costs is exercised. In Home Office v Lownds [2002] EWCA Civ 365 , the Court of Appeal considered the impact of proportionality in the assessment of costs at the costs assessment stage. When the managing or trial judge is considering whether to allow or disallow elements of the potential cost bill, he or she is not actually assessing costs as such. However the Court of Appeal made some observations which need to be borne in mind at the earliest stage prior to assessment:
As proportionality is part of the overriding objective, it seems clear that the case managing or trial judge can and should take into account the proportionality of elements of costs being incurred. Thus, one might form the view that it was wholly disproportionate to call three witnesses all to say the same thing on a topic which was not controversial and therefore the Court could disallow the costs of proofing and calling, say, two of them. Similarly, if it was disproportionate to call an expert to deal with issues which did not need expert evidence, the case managing or trial judge could legitimately disallow the related costs. I do not think that it is essential at this stage to become involved in any pedantic detail about the two stage approach referred to by the Lord Chief Justice in the Home Office case but it will be legitimate to consider the necessity, desirability and reasonableness of calling an expert.
In August 2007, LPI (Hotels) Ltd ("LPI") employed a contractor, Meadmanor Contracts Ltd ("the Contractor"), to build a hotel complex in Wigan. The Defendant, Technical & General Guarantee Company SA, provided a bond in effect guaranteeing the performance of the Contractor for just under £800,000. By June 2008, the Contractor was facing a winding up order petition due to be heard on 28 July 2008; this petition related to another project altogether. By this stage, LPI was, with the concurrence of the Contractor, paying directly various subcontractors and suppliers of the Contractor.
Matters came to a head on 21 July 2008 when there was a meeting attended by two directors of the Contractor (Messrs Ilott and D'Ippolito), an accountant (Mr Chesterton, who was to become the liquidator of the Contractor), a Mr Goodwin (a director of an associated company of LPI which was eventually to take over the works from the Contractor) and two directors of LPI (Messrs Drew and Slatter). There was some issue between the parties as to what was said at that meeting but there seems little doubt that Mr Chesterton delivered a relatively pessimistic outlook for the Contractor. LPI's evidence was and was going to be that Messrs Ilott and D'Ippolito said that the Contractor was ceasing trading forthwith; LPI's primary case was that the Contractor thus repudiated the building contract which was accepted in a variety of ways. Messrs Ilott and D'Ippolito were due to give evidence to the effect that they did not say that they were ceasing to trade. On 22 July 2008, the Contractor notified LPI that it had ceased to trade, albeit that this was said to be a reaction to LPI's conduct of the previous day.
In any event, by one means or another, the building contract came to an end and not later than 28 July 2008 when the winding up order was actually made against the Contractor. It seemed and seems unlikely that the Contractor would or will ever be able to honour any valid claims from LPI.
In August 2009, LPI issued proceedings against the Defendant seeking declarations in effect that in principle it was entitled to damages for repudiation of the building contract, alternatively to additional costs calculated in accordance with Clause 27 of the building contract. The proceedings contained no monetary claim. The Particulars of Claim were predicated on there being repudiation at the meeting of 21 July 2008, alternatively on 22 July 2008 when there was further notification of cessation of trading or alternatively automatic termination of the Contractor's in employment pursuant to Clause 27.3.3 of the Building Contract. Paragraph 12 states:
The Defence and Counterclaim served in October 2009 specifically took issue on what was said at the meeting of 21 July 2008. There was a denial that the Contractor's position was financially precarious as at 7 July 2008 (Paragraph 19(5) (a)). As to Paragraph 12 of the Particulars of Claim, Paragraph 24 materially pleaded:
Through their Case management information sheets, the parties informed the Court in November 2009 that experts were not required for the case. At the first Case Management Conference, directions were largely agreed and they did not provide for expert evidence to be called.
Notwithstanding this, each party had retained an accounting expert by about January 2010. It was the Defendant's solicitor however who first raised with LPI's solicitors on 5 March 2010 the proposal that there should be an agreed order from the court that experts could be called. LPI's solicitors replied on 18 March 2010 "it would be appropriate for the parties to be permitted to adduce expert evidence relating to the solvency of" the Contractor. A consent order was agreed and lodged with the court with explanatory letters to the Court from each party's solicitors, with the Defendant's solicitors saying that such expert evidence may assist the court in its understanding of events before and after the repudiation; they recognise that it might not be relevant but would prefer that the evidence was before the court if the court needed it. LPI's solicitors told the Court that it would be greatly assisted by the evidence of forensic accounting experts. I endorsed the order albeit given that, as it was by consent, I had not analysed the detail of the case at that stage.
Witness statements were exchanged in May 2010 including a long witness statement from Mr D'Ippolito which contained extensive evidence about the Contractor's solvency or insolvency and ability to trade in the period leading up to its winding up. Expert reports were exchanged by late May 2010 and the two accountants met on 27 May 2010 and produced their Joint Statement dated 10 June 2010.
There were issues between the parties about security of costs and there was a hearing in front of Mr Justice Edwards-Stuart on 25 May 2010 in which he ordered that security should be provided by LPI but in doing so he expressly excluded from the amount of security anything for the Defendant's forensic accounting expert costs on the basis that in his view such accounting evidence was irrelevant. In consequence, the Defendant's wrote to LPI's solicitors on 1 June 2010 to the effect that the parties should give serious consideration to what to the judge had said. On 9 June 2010, LPI's solicitors responded somewhat obliquely and asking for proposals about narrowing the issues. The Defendant's solicitors responded on 10 June 2000, in effect making it clear that they now considered the expert reports were irrelevant.
By the time of the trial it had at least been agreed between the parties that the experts would not be called as witnesses but, subject to arguments about relevance, their reports and Joint Statement could be considered by the court.
That trial started on 22 July 2010 and, after short openings, I heard the evidence of Messrs Chesterton and Goodwin although the latter was incomplete at the end of the first day. In the opening submissions of Counsel for the Defendant, they specifically made it clear that they considered that the expert reports and Joint Statement were inadmissible and irrelevant.
The parties resolved the case on or about 23 July 2010, when the Court was not sitting on the trial. Effectively, the Defendant accepted the Claimant's primary case that it was liable on the basis that the Contractor had repudiated the building contract and that the repudiation had been accepted; it withdrew its defence and agreed to accede to a declaration in the terms sought. It was agreed by both parties that the Defendant should pay the Claimant's costs on a standard, as opposed to an indemnity, basis, subject to argument as to whether it should pay the Claimant's costs related to the accounting expert.
Both parties initially proceeded upon the basis that accounting expert evidence was irrelevant and was not needed following close of pleadings. In the light of that, the engagement by LPI of an accounting expert in about January 2010 must have been on a speculative basis, because the pleadings had not changed and witness evidence had not been exchanged.
However, by about late March 2010, both parties and their solicitors, perhaps with differing degrees of enthusiasm, were mutually of the view at the very least that expert evidence of this sort might be of assistance to the Court. It was therefore agreed that each party that could produce the evidence of an accounting expert and a timetable was agreed. The accounting experts were to and did meet pursuant to this agreement.
It was however clear, and, so to speak, the writing was on the wall, by late May 2010 that the Court at the very least had serious reservations about the relevance of the expert evidence. That was not surprising because the primary issue revolved around a meeting on 21 July 2008 and in simple terms whether the Contractor's directors had effectively said that it was ceasing trading and would not be continuing with the work. The reality was that on the following day the Contractor said that it was ceasing to trade and it was wound up a week later at the behest of a petitioning creditor supported by others.
I have formed a clear view that the expert evidence was tangential in terms of relevance and not strictly necessary in practice. It was tangential because the primary issue related simply to what was said at a meeting and it was not strictly necessary because almost everything that the expert dealt with could simply have been dealt with by way of cross-examination of the Contractor's witnesses. The fact that LPI agreed that the experts were not to give oral evidence perhaps highlights the tangential nature of their evidence.
However, I do not consider that it was unreasonable in all the circumstances for LPI to have utilised the services of its accounting expert from the time when it was clear that both parties believed that accounting evidence would or could be of assistance to the resolution of the dispute between the parties by the Court. Although, of course, it was for each party to decide whether it actually wanted or needed to put in such expert evidence, the parties were in practice proceeding upon the basis that they would each put in such evidence. It was not unreasonable in those circumstances for a party such as LPI to seek to protect itself by having accounting expert evidence at least by way of response to whatever the Defendant might put forward by way of such evidence. The fact that both parties encouraged and invited their accounting experts to meet and produce a Joint Statement is supportive of the view that both parties were mutually proceeding on the basis that such evidence was likely to be material.
However, by the end of May 2010 and in the light of what Mr Justice Edwards-Stuart had said, it is clear that the parties should have revisited the need or desirability of having such expert evidence. The Defendant formed a view by early June 2010 that it was not necessary and by then LPI and its advisers had had more than enough time to decide on the utility of the further use of such expert evidence.
I have formed the view therefore that it was reasonable for the Claimant, LPI, to retain and use its accounting expert between the date when solicitors expressed agreement with each other that accounting expert evidence would be helpful, 18 March 2010 and 1 June 2010, when there should have been a realisation that the further use of the accounting experts was not going to take the case significantly further.
It is argued that the conduct of the Defendant in "capitulating" after Day 1 of the trial was conduct which is material in determining whether LPI should have all its accounting costs. Although no explanation has been provided as to why the Defendant conceded defeat after the first day and none was apparent to the Court from Day 1, the parties have agreed, for better or for worse that costs should be on a standard basis. If there was material before the Court that enabled it to say that costs should be on an indemnity basis, there might be something more in this argument.
It follows from the above that the Claimant should only have its costs of and related to its forensic accounting expert and her report in respect of the period 18 March to 1 June 2010 inclusive and that it should not be paid as part of its costs entitlement for such costs as relate to work done outside that period.