Case No: 2014 FOLIO 939
Neutral Citation Number: [2016] EWHC 67 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 22/01/2016

Before :

MR JUSTICE MALES
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Between :

	C&S ASSOCIATES UK LIMITED	Claimant	
	- and -		
	ENTERPRISE INSURANCE COMPANY PLC	Defendant	

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Mr Jawdat Khurshid and Ms Clara Benn (instructed by Sidley Austin LLP) for the Claimant
Mr Timothy Dutton QC and Mr Richard Harrison (instructed by Ozon Solicitors Limited) for the Defendant

Written Submissions: 12th January 2016

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Judgment
Mr Justice Males : 
1.	I have to deal with consequential matters arising from the judgment which I handed down on 21 December 2015 ([2015] EWHC 3757 (Comm)) following the trial of seven preliminary issues. The parties have made written submissions as to such matters.
Costs
2.	The first question is what order should be made as to the costs of the preliminary issues.
3.	The claimant, C&S, contends that the costs should be reserved as a Part 36 offer has been made which may prove to be relevant (cf. Jean Scene Ltd v Tesco Stores Ltd [2012] EWHC 1275 (Ch) at [11]). I have not of course been told the terms of the offer. 
4.	The defendant, Enterprise, contends that an order for costs should be made in its favour, together with an interim payment of costs on account, for a number of reasons, principally to reflect the facts that (as it says) (i) it was successful on the issues to which most of the costs of the trial were attributable, (ii) resolution of the preliminary issues sought by C&S has not in fact substantially advanced the overall resolution of the dispute, (iii) resolution in Enterprise’s favour of the issue whether its pleaded allegations of breach of duty were capable of amounting to a repudiatory breach has achieved little or nothing of substance as the counterclaim will still need to be tried, and (iv) costs were unnecessarily wasted as a result of C&S’s adducing of inadmissible and irrelevant expert evidence concerning the merits of the counterclaim and insistence on including material going to those merits in the trial bundles. 
5.	It seems to me that the terms of any Part 36 offer may potentially have a bearing on the question of what order for costs should be made and I therefore reserve the costs of the preliminary issues subject to two provisoes mentioned below. 
6.	The two provisoes are that C&S must in any event bear (1) the costs of preparation of Mr Lewis’s first report and (2) 80% of the costs of preparing the bundles for the trial of the preliminary issues. 
7.	The first of these provisoes is necessary because, as recorded at [25] of my judgment, Mr Lewis included a lengthy section in his report which analysed and expressed his views about the merits of the allegations made by Enterprise. No permission had been given for such evidence, while the order for trial of the preliminary issues provided expressly that Enterprise was not required to prove its allegations of defective performance by C&S and these issues would not be determined. The inclusion of this material in Mr Lewis’s report was a deliberate decision, either by C&S itself or by those acting for it. Mr Lewis’s evidence was that he included this section of his report because he was instructed to do so by C&S’s solicitors, Sidley Austin. It more than doubled the length of the report and increased unnecessarily the costs of the preliminary issues. 
8.	In written submissions Ms Clara Benn for C&S rightly accepts that the passages which I required to be redacted were inadmissible but submits that any proviso ought to be confined to the costs of the redacted passages; that the redacted passages are likely to become relevant in the next phase of the litigation so that ultimately no costs will have been wasted; and, in any event, that the costs of preparing the redacted passages should be reserved.
9.	The second proviso, concerning preparation of the trial bundles, is necessary because C&S insisted on producing some 29 bundles dealing with individual claims about which Enterprise complains. These were bundles containing documents relating to the claims addressed in Mr Lewis’s report. Only one of these bundles was even opened during the trial and when it was, the reference was extremely brief and added (with respect) nothing at all to any understanding of the case. It is true that disclosure of the documents contained in these bundles had been ordered, but it does not follow that it was reasonable, let alone necessary, for these to be included in the trial bundles. Inevitably this also increased the costs of the preliminary issues. 
10.	Once again Ms Benn submits that any proviso should be limited to the 29 bundles and not to bundles A to F which were necessary for the trial of the preliminary issues; that such bundles may yet be required during the next phase of the litigation; and that the costs of their preparation should be reserved.
11.	I do not accept these submissions. In my judgment, and in the exercise of my discretion, the appropriate order in the circumstances of this case is that the costs of preparing the report should be borne by C&S in their entirety and that C&S should bear 80% of the costs of preparing the bundles regardless of the future course of the case. It is not at all obvious that the redacted passages from the report will form part of the next phase of the litigation but, in any event, it is necessary in my judgment to mark the disapproval by the court of the course taken by C&S and, moreover, to do so now rather than waiting until the end of this litigation. It is important that those litigating in this court are aware of the need for compliance with orders made regarding expert evidence; that so far as possible the costs of such evidence will not be allowed to spiral out of control; and that a party who deliberately chooses for tactical reasons to adduce expert evidence for which in large part no permission has been given should bear the risk that, in appropriate circumstances, the costs of preparing such a report may be entirely disallowed. (I make clear that the observations which I make below have not been influenced by the inadmissible parts of Mr Lewis’s report, not least as I declined to read them). Much the same reasoning applies to the preparation of the trial bundles, although I acknowledge that approximately 20% of the bundles would have been required in any event. 
The outcome of the preliminary issues
12.	It is convenient to record my view of the relative importance of the preliminary issues in the overall context of the parties’ dispute and of which party is to be regarded as the successful party, as well as the extent to which resolution of the preliminary issues has been useful. This view may prove to be falsified by events and will not bind any judge who has to determine the incidence of the costs of the preliminary issues, but I hope that it may at least be of some assistance. I do not propose to reserve this case to myself: that would unnecessarily inhibit future listing, while most of the remaining issues are distinct from those which I have had to consider. 
13.	Issue 1, whether C&S was in repudiation for refusing to deliver a further batch of claims off-site, was an important issue in the overall context of the case. C&S won that issue and has succeeded in establishing that the only ground on which Enterprise purported to terminate the parties’ contract was not a valid ground on which to do so. That represents a real success. It was an issue to which a significant part of the costs of the preliminary issues was attributable. 
14.	Issue 2, whether the pleaded allegations of breach by C&S were capable of amounting to a repudiation, was an issue of law to which relatively little factual evidence was relevant, as it fell to be decided on the assumption that Enterprise would in due course be able to make good its allegations. The admissible expert evidence provided relevant background. While success for C&S on this issue would have had a major impact on the case, that was not (and in my view was never likely to be) the outcome. As a result the determination of this question by way of preliminary issue (which C&S proposed and Enterprise resisted) has achieved little and will have added to the overall cost of the case. It is broadly equivalent to a failed application for summary judgment.
15.	Issues 3 and 4 were in the end conceded by Enterprise shortly before trial. They represent a success for C&S, but were issues to which only limited costs were attributable. 
16.	Issues 5 to 7 may be taken together. The only significance of the question whether the contract was varied to provide for a minimum two year period (an issue on which C&S succeeded) was whether the effect of that variation was to impose some obligation on Enterprise to pass new claims to C&S for handling during that two year period (on which C&S failed). If there had been such an obligation, that would have potentially increased the quantum of C&S’s claim for damages for repudiation. As it is, C&S’s claim will be limited to (i) any sums which had already accrued due before Enterprise’s termination of the contract and (ii) such profits as it would have earned on handling existing claims which had already been passed to it before that termination. C&S did, however, succeed in establishing that, absent repudiation, Enterprise was not entitled to take back claims which it was already handling. On these issues, therefore, Enterprise must be regarded overall as the successful party. 
17.	Both parties, therefore, achieved some successes from the trial. If it is necessary to reach an overall assessment, I would regard the result as approximately a score draw. 
18.	I consider that determination of the preliminary issues has been useful at least to some extent in narrowing the remaining issues and limiting the likely quantum of the claims. C&S’s claim seems likely to be fairly modest: the sums said to have accrued due for payment before termination are not large, while it was C&S’s own position in the negotiations which led to the variation of the contract that the fees which it was earning under the contract as initially concluded were not sufficient to enable it to earn any (or at least any significant) profit. Although C&S succeeded in negotiating higher fees under the variation, it seems unlikely that the result was to turn a loss making or break even contract, or even one making a very modest profit if some allowance is made for negotiating hyperbole, into something altogether more lucrative, albeit that C&S was handling a large number of claims. 
19.	There are potentially two aspects to Enterprise’s counterclaim. The first would be a claim for losses actually incurred as a result of negligent claims handling by C&S during the currency of the contract (i.e. “leakage”) or the provable loss of profitable business as a result of the negligent setting of excessively high reserves or the failure by C&S to comply with dormancy instructions. This may prove to be a viable claim, but Enterprise will have a number of hurdles to overcome in order to prove it, including what appears to have been the broadly favourable view of the way in which C&S was performing reached by those who carried out audits before October 2013 and by Enterprise itself when it agreed to the higher fee structure. The second part of any counterclaim could in theory be a claim for damages for repudiation of the contract by C&S, assuming that Enterprise is able to make good its case of breach of duty on a sufficient scale to amount to repudiation. However, it was Enterprise’s own evidence that the in-house claims handling service which it established after termination of the contract was more efficient and cost effective than continued use of C&S’s services even if those services had been properly performed. It is hard to see, therefore, that any significant damages for repudiation could be recovered. 
The future conduct of the case
20.	The second issue on which I am asked to rule concerns the future conduct of the case. C&S submits that a procedure should be determined now for a representative sample of the 11,995 claims handled by it during the currency of the contract to be tried, including 449 claims which had been audited by Ozon before the contract was terminated which include the 29 claims addressed in Enterprise’s pleading and in Mr Lewis’s report. It envisages, therefore, that a procedure should be established now which will commit the parties and the court to a determination of liability in respect of tens and possibly hundreds of such claims. 
21.	Enterprise submits that such an application is premature, and that further thought needs to be given to the future conduct of the case, so that a case management hearing should be held after there has been time to formulate and discuss considered proposals for the efficient and most effective means of disposing of the dispute. 
22.	I am not persuaded by C&S’s proposals and am concerned that a stage may soon be reached, if it has not been already, when the costs of this case will exceed any sum likely to be recovered by either party. What are needed, in my view, are realistic statements by the parties of the likely quantum of their claims, taking account of the outcome of the preliminary issues and the observations made above, including some explanation of the basis on which this quantum is said to be realistic, together with realistic estimates of the likely cost of whatever proposals may be made for the future conduct of the case. A case management hearing should now be fixed, but there must be a constructive discussion between the parties well before the date of that hearing and the parties must attend the hearing armed with this information. 
23.	That should enable the court to give directions for the further conduct of this case, including (depending on what is actually at stake) whether it should remain in the Commercial Court. Alternatively, the parties may decide that it is strongly in their interests to consider ADR, in which case the case management hearing may be deferred while that option is explored. 

Claim No. 2014 Folio 939
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
COMMERCIAL COURT

Before the Honourable Mr Justice Males 

BETWEEN:

C&S ASSOCIATES UK LIMITED
Claimant
- and -

ENTERPRISE INSURANCE COMPANY PLC
	Defendant

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ORDER
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FOLLOWING the Trial of Preliminary Issues held between 30 November 2015 and 3 December 2015, at which Counsel for the Claimant and Leading Counsel for the Defendant were heard
AND UPON reading the written submissions subsequently filed and served by the parties
AND UPON the Court having adopted for the purpose of this Order only the defined terms used in the Statements of Case and the prior case management Orders
IT IS HEREBY ORDERED, ADJUDGED AND DIRECTED THAT:
I.	Preliminary Issues
The preliminary issues are to be answered as follows:
The Claimant was not obliged to send claims files to Ozon Solicitors Limited (“Ozon”).  Even if it was under such an obligation, its refusal to do so was not repudiatory.
The breaches of the Claimant’s duties alleged by the Defendant are capable, if proved, of amounting to a repudiatory breach of the Agreement.  Whether, if proved, they do so amount is a matter to be determined at the Trial.
If the Defendant’s case on repudiation fails at the Trial, its purported termination of the Agreement by Ozon’s letter dated 13 January 2014 was itself repudiatory.
The Claimant’s solicitors accepted Ozon’s letter as a repudiation bringing the Agreement to an end by their letter dated 16 January 2014.
The Agreement was varied by an exchange of emails in October 2013 so as to (a) increase the fees payable to the Claimant and (b) provide that the Agreement should continue for a minimum term of two years from 1 October 2013.
The Agreement as varied did not include an implied term that the Defendant would continue to pass claims to the Claimant in the ordinary course of business either up to 1 October 2015 or at all.
The Defendant was entitled to restrict the number of claims to be handled by the Claimant on its behalf to whatever level it saw fit and to refuse to allow the Claimant to handle any new claims on its behalf; but unless the Claimant had repudiated the contract, the Defendant was not entitled to withdraw from the Claimant claims which the Claimant had hitherto been handling on the Defendant’s behalf.
II.	Consequential matters
The costs of the Trial of Preliminary Issues are reserved save that the Claimant must in any event bear (1) the costs of preparation of Mr Lewis’s first report and (2) 80% of the costs of preparing the bundles for the trial of the preliminary issues. 
III.	Case management hearing
There shall be a case management hearing on the next available date after 26 February 2016 with a time estimate of 2 hours.  The parties are to file and serve costs budgets in the form of Precedent H by no later than 7 days prior to the hearing and an agreed hearing bundle is to be filed by the Defendant and copied to the Claimant no later than 3 days prior to the hearing.  
Within 7 days the parties are to attend on the Clerk to the Commercial Court to fix the date for the case management hearing.
In the event that the parties agree to explore the settlement of this case by ADR, the parties must notify the court accordingly and the case management hearing shall be vacated, with liberty to apply.