Case No: HT 05 120
NEUTRAL CITATION NO: [2007] EWHC 294 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
St Dunstan’s House
133-137 Fetter Lane
London, EC4A 1HD

Date:  22nd February 2007

Before :
HIS HONOUR JUDGE PETER COULSON QC

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Between :

	IAN McGLINN	Claimant	
	- and -		
	WALTHAM CONTRACTORS LTD	First Defendant	
	- and -		
	HUW THOMAS ASSOCIATES	Second Defendant	
	- and -		
	DJ HARTIGAN & ASSOCIATES LTD	Third Defendant	
	- and - 		
	WILSON LARGE & PARTNERS	Fourth Defendant	
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Mr A Williamson QC & Mr J Selby (instructed by Speechly Bircham) for the Claimant
Mr A Bartlett QC (instructed by Freeth Cartwright) for the Second Defendant
Mr C Reese QC & Mr A Warnock (instructed by Philip Barnes of P.I. Brokerlink) for the Fourth Defendant
The First and the Third Defendant did not appear and were not represented

Hearing date: 8 February 2007
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Judgment
-No. 4-
His Honour Judge Peter Coulson QC: 

Background
1.	Yesterday, 21 February 2007, I handed down the lengthy Judgment on the defects issues in this case.   One of the features of that Judgment was my dismissal of the Claimant’s claims against the Fourth Defendant, Wilson Large (“WL”).   In those circumstances, WL seek an order for their costs of the defects issues, together with an interim payment of those costs, pursuant to CPR 44.3(8), in the sum of £500,000 odd.   It was agreed by the Claimant and the Second Defendant, Huw Thomas Associates (“HTA”) that the important subsidiary dispute, as to whether WL’s costs should ultimately be borne by the Claimant or HTA, would have to be dealt with at the costs hearing listed for 12/13 March 2007.    The only issues before me at this stage, therefore, were, first, whether WL were entitled to all or some of their costs of the defects issues and, if so, the amount of any interim payment in respect of such costs pursuant to CPR 44.3(8).   The full submissions advanced by Leading Counsel for the Claimant, WL and HTA identified a potentially important point of principle regarding appropriate costs orders arising out of sub-trials in larger cases of this kind.    In order for me to decide that point, it is necessary to set out briefly some of the history of this litigation to date.   
2.	The Claimant’s original claim related to the design and construction of his house on Jersey, known as Maison d’Or. The litigation began on 4 May 2005.   At that point, the allegations were made against the First Defendant, Waltham Contractors Ltd (“Waltham”), the building contractors who constructed the property; HTA, the architects who designed the property and inspected it during its construction; and the Third Defendant, D J Hartigan & Associates Ltd (“DJH”), the structural and mechanical and electrical engineers.    Although, at the outset of the litigation, the Claimant’s allegations were focussed principally on the defects at Maison d’Or, there was also a claim against Waltham that they had been over-paid in the sum of £650,066.    
3.	By February 2006, Waltham had gone into administration and it was clear that they were going to play no part in the trial, which had, by then, been fixed for October 2006.   In addition, HTA had made references to WL in their responses to certain items in the Scott Schedule which, so the Claimant maintained, left him no alternative but to seek to join WL as the Fourth Defendant in respect of those items.    That point is disputed by HTA, and is one of the matters with which I will have to deal at the costs hearing on 12/13 March 2007.  The Claimant’s claim was amended on 3 February 2006 to include, for the first time, allegations against WL. These were limited to certain specific defects, approximately ten in total, said by the Claimant to be worth about £1 million.   
4.	By 26 May 2006, the Claimant was seeking permission to make further amendments against DJH and WL alleging, again for the first time, that they were responsible for the over-valuations, and therefore over-payment, to Waltham. This was doubtless triggered, at least in part, by Waltham’s financial demise.   The amount of this alleged over-payment was subsequently increased from the £650,000 originally pleaded to £1.4 million odd.   I granted permission to amend to add the over-valuation claims against DJH and WL, but only on the basis that those claims would be hived off from the defects trial (still fixed for October 2006) and dealt with at a second, later hearing.  It seemed to me that this made a good deal of sense for a variety of case management reasons: it meant that the October trial date was not lost as a result of these later allegations; it meant that HTA, who were not a party to the over-payment allegations, would not have to incur the costs of sitting through a longer trial which dealt with those issues as well as the defects; and it also meant that, for the Claimant, DJH and WL, the very different allegations of bad design/construction on the one hand, and over-valuation and over-payment on the other, could be kept entirely separate.    In addition, it made it more likely that the trial in October 2006 could be dealt with within the overall time estimate that had been given by the parties.    In the event, that is exactly what happened.    
The Point of Principle 
5.	The relevant parts of CPR 44.3 are as follows:
“(2)	If the court decides to make an order about costs – 
(a)	the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party;   but 
(b)	the court may make a different order.
…
(6)	The orders which the court may make under this rule include an order that a party must pay – 
(a)	a proportion of another party’s costs;  
(b)	a stated amount in respect of another party’s costs;  
(c)	costs for or until a certain date only; 
(d)	costs incurred before proceedings had begun; 
(e)	costs relating to particular steps taken in the proceedings; 
(f)		costs relating only to a distinct part of the proceedings;  and
(g)	interest on costs from or until a certain date, including a date before judgment. 
(7)	Where the court would otherwise consider making an order under paragraph (6)(f), it must instead, if practicable, make an order under paragraph (6)(a) or (c). 
(8)	Where the court has ordered a party to pay costs, it may order an amount to be paid on account before the costs are assessed.”
6.	At paragraph 44.3.6 of the White Book, there is a clear warning to the court about deciding liability for costs too early in the particular situation of a split trial: 
“It is open to a Judge where a split trial has been ordered to reserve the question of costs of the trial on liability until after the determination of the remaining issues.    The Court of Appeal stated that there was much to be said for the view that the incidence of costs should be the same whether or not there has been an order for a split trial.    Where there is a split trial and it remains uncertain whether the claimant will recover more than nominal damages it may be proper for the trial Judge to defer making any order for the costs of the liability trial until the final outcome is known (Weill v Mean Fidler [2003] EWCA Civ 1058).”
7.	On behalf of WL, Mr Reese QC submitted that, in relation to the defects issues, WL were incontestably the successful party and should therefore have their costs of those issues pursuant to CPR 44.3(2) and 44.3(6)(f).  Although he could not but accept that WL had been entirely successful on the defects issues, Mr Williamson QC, on behalf of the Claimant, resisted WL’s application for their costs of those issues.   Essentially, he took two points.  First, he relied on the paragraph in the CPR, cited at paragraph 6 above, to say that this was essentially a split trial, and that it would not be appropriate to award costs to any party until after the conclusion of the second trial, dealing with the over-valuation issues, due to take place in September 2007.    Secondly, he submitted that what WL wanted was an order for the costs of a distinct part of the proceedings, pursuant to CPR 44.3(6)(f), and that the wording of CPR 44.3(7), which was unusually strong (“must instead…”), required the court (“if practicable”) to make a different sort of order.
8.	It is important to note at the outset that, in respect of WL’s application, no point was taken by the Claimant, or any other party, that there was in existence an offer of some kind that might affect the parties’ respective liabilities for WL’s costs of the defects issues. In any case where there is an offer which could have some bearing on the appropriate costs order to be made, it is never appropriate for the court to make a final determination of the costs position until after it has been able to consider the terms of any such offer, which (in the absence of some other agreement between the parties) will almost certainly not occur until the end of the whole case. That point did not arise here, so that I am able to decide the issue of principle concerning WL’s costs by reference to the two clear arguments that were raised by Mr Williamson QC.
Analysis
(a)	Split Trial
9.	I consider that the warning, contained in the paragraph of commentary in the White Book cited in paragraph 6 above, is concerned with the common situation where all the liability issues have been dealt with in advance of the disputes as to loss and damage.   In such circumstances, as that paragraph makes clear, it will usually be appropriate for the court to refuse to make any cost orders until after the quantum trial has been dealt with.   I consider that this reflects commercial common sense.  It can often be the case that a defendant has some reasonably good arguments on liability, and some equally strong (or better) arguments as to loss and damage which might, for instance, limit the claimant’s recovery (even assuming full liability) to nominal damages only.    It would be wrong in principle to make a defendant, who has lost a liability hearing, pay the costs of that hearing when, at the quantum hearing six months later, the damages claim then fails completely.  
10.	However that is emphatically not this case.   This was a case where the issues of liability and quantum, as against each of the three live Defendants, were divided into two distinct categories (defects and over-valuation) with the first category, relating to the defects issues only, being dealt with at the first trial.    WL have been entirely successful on all issues of liability and quantum arising out of those defects allegations.   Prima facie, therefore, they should be entitled to their costs of dealing with, and defeating, those allegations, whatever happens in the second trial on the over-valuation issues. 
11.	In my judgment, the fairness of this proposition can be tested in the present case in a number of ways.    Let us suppose that the defects issues and the over-valuation allegations had been dealt with at the same trial, and let us also suppose that WL were found liable for a large part of the valuation allegations.    Even if that were so, the Claimant’s success on the over-valuation items could not affect the outcome of the issue of costs liability in relation to the separate, and wholly unsuccessful, defects allegations.    They were distinct categories of allegation, and the costs of dealing with them were also distinct.  There was, in reality, no overlap between them at all.  Thus, even if I assume that WL are going to be liable for some or all of the Claimant’s costs in respect of the over-valuation issues, I do not consider that this could affect WL’s entitlement to recover the costs incurred in connection with the defects issues, on which they have been entirely successful.
12.	At one point, Mr Williamson QC argued that, assuming that the Claimant was successful on the over-valuation allegations, the Claimant would then be entitled to all of his costs, including those in respect of the defects issues.    I do not accept that submission, because it seems to me to be rooted in the old ‘winner-takes-all’ approach to costs, which has been replaced by the fairer and more sophisticated regime introduced by the CPR.   One of the principal purposes of the detailed rules at CPR 44.3 was to move away from the position that any success was sufficient to obtain a full order for costs, and towards a more issue-based approach on costs, which was more likely to reflect the substantive result.    In AEI Rediffusion Music Ltd v Phonographic Performance Ltd [1999] 1 WLR 1507, Lord Woolf MR reiterated the importance of making partial orders for costs which more accurately reflected the level of success achieved by the receiving party.   Subsequently, the proper approach to issue-based costs was set out by the Court of Appeal in Summit Property Ltd v Pitmans [2001] EWCA Civ 2020.   In my judgment, these and other authorities demonstrate that, in the present case, the Claimant, even assuming his success on the over-valuation issues, would not have been entitled to any costs order in respect of the defects issues.    
13.	Furthermore, it seemed to me that Mr Williamson QC’s submission ignored the fact that, from the commencement of these proceeding against WL in February 2006, until 26 May 2006, the only allegations against WL were the (ultimately unsuccessful) defects allegations, and that, even when the over-valuation allegations were added on 26 May 2006, they were immediately made the subject of a separate, and later, trial. Thus it seems to me to be incontrovertible that, up to the end of the defects trial in November 2006, most of WL’s costs were incurred in dealing with the defects issues. In such circumstances, it would be wrong in principle for the mere existence of the over-valuation allegations, (which were made late, which have not yet been the subject of major cost expenditure, and which will not be considered until later in the year) to permit the Claimant to avoid paying the costs consequences of his failure on the defects issues against WL.
(b)	CPR 44.3(7)
14.	The alternative submission advanced by Mr Williamson QC was that, again assuming that the Claimant was ultimately successful on the over-valuation issues, the court, had it heard both the defects issues and the over-valuation issues together, would have made an order in accordance with CPR 44.3(6)(a) to the effect that WL should pay the Claimant’s costs, less a percentage to reflect the Claimant’s failure on the defects issues. I understood that Mr Williamson QC also accepted that, for the same reason, it might also have been appropriate for the Claimant to be ordered to pay a percentage of WL’s costs.   He submitted that this followed from CPR 44.3(7), which required the court, if practicable, to make an order in respect of a proportion or percentage of one party’s costs, rather than an order in respect of the costs of a distinct part of the proceedings. Therefore, he said, the court should not make a costs order at this stage.
15.	I do not consider that those submissions are applicable in the present situation.    I think Mr Bartlett QC, on behalf of HTA, was right to point out that the purpose of CPR 44.3(7) was to steer courts away from making issue-based costs orders in a typical case (which can often be difficult to assess and quantify) when there were easier, and more appropriate, ways of dealing with those costs to achieve the overall fairness required by the CPR.  But here, so it seems to me, those problems do not arise.  I accept the submission, made by both Mr Reese QC and Mr Bartlett QC, that this is not a typical case. Here, the defects issues comprised the only allegations against the Defendants from the start of the litigation until last May, when the over-valuation issues were added, and immediately made the subject of a separate and later trial. Thus the defects allegations demonstrably constitute “a distinct part of the proceedings” and, for the reasons set out in paragraph 17 below, are, in my judgment, capable of relatively easy assessment.   Therefore I consider that the general warning at CPR 44.3(7) does not apply in the present case. 
16.	 Indeed, if anything, it is the other way round here.    Whilst I consider that the costs of the defects issues are capable of relatively easy assessment, by contrast, assuming that the Claimant went on to be successful on the over-valuation claims, it would be extremely arbitrary, and a very unsatisfactory exercise, to try and identify proportions or percentages of the total costs incurred by the Claimant on the one hand, and WL on the other, that could then be utilised for an order under CPR 44.3(6)(a).    
17.	It seems to me that all of the costs incurred by WL between the start of the case against them and 26 May 2006 were incurred in connection with the defects issues, there being no other allegations against WL before 26 May 2006. Thereafter, between 26 May 2006 and the end of November 2006, I consider that most of WL’s costs were spent on the defects issues, particularly given the lengthy trial of those issues in October and November 2006. Whilst plainly not all the costs incurred during that second period related to the defects issues (I am aware, for example, that experts’ reports and other evidence in relation to the valuation issues were being prepared behind the scenes) I consider that on any view, most of WL’s costs in those months would have related to the defects issues.   Thus an order requiring payment of WL’s costs of the defects issues would be an order for payment of WL’s costs of a distinct part of the proceedings pursuant to CPR 44.3(6), which costs will, unlike in most cases, be relatively easy to assess.
18.	 In the alternative, and for the same reasons, such an order in this case can be regarded, with only a little modification, as an order for costs from and until a certain date under CPR 44.3(6)(c). The order I envisage would cover WL’s costs incurred during the two distinct periods referred to above: first, from February 2006 to 26 May 2006, in respect of which WL will recover all their costs, and second, from 26 May 2006 to the end of November 2006, in respect of which WL will recover most of their costs. Such an order is, of course, one of the types of order expressly preferred by CPR 44.3(7). 
19.	For the avoidance of doubt, therefore, I should stress that the order that I propose is no different to the order that I would have made if I had dealt with all the issues together at one trial, or if I had waited to deal with the costs of the defects issues until after the second trial in September 2007. In other words, whilst I agree with Mr Williamson QC that there should not, as a matter of principle, be a different result on costs just because the issues were dealt with at two sub-trials rather than one composite trial, I am entirely satisfied that the order I propose does not produce a different result: it is the order I would have made on the defects issues, even if there had been one composite trial.
         (c)      Security
20.     I can deal rather more shortly with the final point taken by Mr Williamson QC, to the effect that, because the Claimant has provided, by way of a Bank Guarantee, security for costs, there is no need for a costs order at this stage. It seems to me that, although that is a factor to be considered in the exercise of the court’s discretion, it is not something which ought to carry any great weight here. First, as a matter of principle, any order under CPR 44.3 should generally be made as soon as possible after the handing down of the relevant judgment, and should not ordinarily be delayed merely because security has been ordered. Secondly, the Bank Guarantee is in the sum of £500,000 up to the end of the first trial; not only has that date now passed, but, as will be noted from my analysis of the figures below, WL have spent considerably more than this already. Thus I conclude that the existence of this Bank Guarantee does not lead me to alter my view that, in all the circumstances, WL are entitled to an order now in respect of their costs of the defects issues.
(d)	Summary
21.	For the reasons set out above, I have concluded that WL are entitled to their costs of and occasioned by the defects issues.   I am in no doubt that this is the appropriate order to make, whatever happens in the over-valuation trial later this year.   As I have said, the precise form of the costs order, and the important issue as to whether those costs are paid by the Claimant or HTA, will be argued and dealt with next month.    However, for obvious reasons, that issue is of no real interest to WL, who will not be represented at that hearing.
Interim Payment
22.	There was no dispute that WL’s costs will fall to be assessed on the standard basis. Further, Mr Williamson QC very properly accepted that, if I was against his first submission, and I concluded that WL were entitled to their costs of the defects issues, a payment on account of those costs was appropriate in accordance with CPR 44.3(8).    The correct approach to the assessment of that payment on account was set out by Jacob J (as he then was) in Mars UK Ltd v Teknowledge Ltd (Costs) [1999] Costs LR 44.   He said:
“Where a party has won and has got an order for costs the only reason that he does not get the money straight away is because of the need for a detailed assessment.    Nobody knows how much it should be.   If the detailed assessment were carried out instantly he would get the order instantly.    So the successful party is entitled to the money.   In principle he ought to get it as soon as possible.   It does not seem to me to be a good reason for keeping him out of some of his costs that you need time to work out the total amount.    A payment of some lesser amount which he will almost certainly collect is a closer approximation to justice.    So I hold that where a party is successful the court should on a rough and ready basis also normally order an amount to be paid on account, the amount being a lesser sum than the likely full amount.”
23.	In accordance with that guidance, I must assess the “lesser amount which [WL] will almost certainly collect”, acknowledging that such an assessment must inevitably be done on “a rough and ready basis”.    I do so making the following points: 
a)	The total costs claimed are £881,111.77.   Like the figure under consideration by Jacob J in Mars, that is, in my judgment, “an extraordinarily large amount”. The total value of the defects claims against WL was itself only about £1 million.    
b)	Some £80,000 of that total figure is made up of VAT.  There is a dispute between the Claimant’s solicitors and WL’s solicitors as to whether VAT is payable at all, given the particular position of WL’s solicitor.   That is not a dispute that I can hope to resolve at this stage but, since it was plainly raised in the inter-solicitor correspondence prior to the hearing on 8 February 2007, it is not appropriate for me to include any amount for VAT in the interim payment. Thus the start point is the net figure of £800,000.
c)	It is clear that WL’s draft bill of costs includes all their costs to date.    Mr Reese QC urges that I make a 5% reduction in relation to the over-valuation allegations, thus apportioning 95% of their costs to date to the defects issues.    I reject that analysis.    There is nothing to support the 5%.   Of course, I acknowledge that, between February 2006 and 26 May 2006, all WL’s costs were incurred on the defects issues. But most of the costs which they now claim were incurred after that date, when at least some of the costs were referable to the over-valuation allegations (see above). In my judgment, on the necessary rough and ready basis, the appropriate percentage of WL’s costs ascribable to the over-valuation issues is 25%.     That would leave a maximum costs figure in relation to the defects issues of £600,000.    
d)	Mr Reese QC argued that, in accordance with Jacob J’s approach in Mars UK, it was appropriate to make a percentage deduction to reflect the assessment process, and then award 75% of the resulting figure.     I agree with that general approach.    Mr Reese QC argued that WL would recover 80% of their costs on assessment.    I do not accept that.  Their total costs figure is very high (see above). There will plainly be arguments as to whether or not WL needed two counsel to deal with the limited defects allegations raised against them, a point expressly raised by Mr Williamson QC at this hearing. There will also be a major dispute about the level of fees charged by WL’s experts. I consider that, in all the circumstances, an appropriate deduction to make, to reflect the assessment process, would be 60%:   in other words, to allow WL just 40% of the costs incurred.  The 40% figure was also the figure used by Jacob J in Mars UK.  That would reduce the maximum figure for the payment on account to £240,000.
e)	In accordance with Jacob J’s methodology in Mars UK, I consider that it would then be appropriate to award WL 75% of the figure set out above.   That would result in a figure of £180,000.
24.	Accordingly, for the reasons set out above, I consider that the right amount of the interim payment is £180,000.    Following debate at the hearing on 8 February, it was agreed that that sum would be paid 14 days after the hearing on 12/13 March, which would give a payment date of 27 March 2007. All other matters relating to the form and wording of the costs order will be dealt with at the hearing on 12th/13th March 2007.