Date 31 March 2009
Welcome to the March issue of Stay Alert.
In this edition, we bring you up to date on recent developments in Commercial Litigation and cover the following articles:
- No presumption in favour of indemnity costs following acceptance of an expired Part 36 offer
In the case of Fitzpatrick Contractors Limited v Tyco Fire and Integrated Solutions (UK) Limited (Formerly Wormald Ansul (UK) Limited (No 3) [2009] EWHC 274 (TCC), the Court considered the suitable costs award following the acceptance of an expired Part 36 offer.
- Interest on incorrect invoices awarded
In Ruttle Plant Hire Ltd v Secretary of State for Environment Food and Rural Affairs [2009] EWCA Civ 97, the Court of Appeal held that statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 (“the Act”) was payable despite the fact that the invoices claimed incorrect amounts in error.
- Statement of case will not necessarily be struck out following a litigant's dishonest conduct
In the case of Bailey v Wood [2009] EWHC 363 (Ch), the Chancery Division of the High Court held that if dishonesty in the conduct of a litigation does not create a real risk that a fair trial would be impossible it should not lead to a statement of case being struck out.
We hope that you find this edition of Stay Alert! useful and interesting. We value your opinions and always welcome any comments you may have. If you have any feedback on this edition or any suggestions on what you would like us to cover in future, please email Clare Mackay – clare.mackay@salaw.com. We look forward to hearing from you.
Please click here if you'd be interested in receiving our Commercial Litigation Developments, Stay Alert via email.
1. No presumption in favour of indemnity costs following acceptance of an expired Part 36 offer
In the case of Fitzpatrick Contractors Limited v Tyco Fire and Integrated Solutions (UK) Limited (Formerly Wormald Ansul (UK) Limited (No 3) [2009] EWHC 274 (TCC), the Court considered the suitable costs award following the acceptance of an expired Part 36 offer.
Background
The claimant (Fitzpatrick) was a contractor and the defendant (Tyco) its sub-contractor.
The parties were litigating over a project over-run. On 24 January 2008, Fitzpatrick made a Part 36 offer of £10.25 million to Tyco. The relevant period for acceptance expired on 14 February 2008. In March 2008, there was a trial of certain preliminary issues on which Fitzpatrick was substantially successful. The full trial was listed for November 2008. Fitzpatrick produced a costs estimate for the Case Management Conference in July 2008. Costs to date were said to be £710,000 and the overall costs estimate more than £2 million. In July 2008, Fitzpatrick successfully applied for the full trial to be adjourned to April 2009. On 14 January 2009, Tyco accepted the offer.
Three issues were left to be dealt with by Mr Justice Coulson:
- Whether Fitzpatrick was entitled to indemnity costs from Tyco from 14 February 2008 (i.e. the date the relevant period for acceptance expired).
- The rate of interest on costs.
- The appropriate amount of the interim payment on account of costs.
The Law
Under CPR 36.2(2)(c) and CPR 36.3(1)(c) the "relevant period" for accepting a Part 36 offer is usually 21 days. Under CPR 36.3(6) and (7) a Part 36 offer is still capable of acceptance after the relevant period has expired unless the offeror has expressly withdrawn it.
CPR 36.10(4)(b) states that, where a Part 36 offer is accepted after the expiry of the relevant period, if the parties do not agree liability for costs, the court will make an order as to costs. Where this part applies, unless the court orders otherwise, the claimant will be entitled to his costs of the proceedings up to the date on which the relevant period expired and the offeree will be liable for the offeror's costs for the period from the date of expiry of the relevant period to the date of acceptance (CPR 36.10(5)).
Under CPR 36.14, a claimant who obtains a judgment which is "at least as advantageous" as his Part 36 offer will, unless the court considers it unjust, obtain indemnity costs, and interest on those costs not exceeding 10% above base rate.
Under CPR 44.3, the court is required to have regard to all the circumstances of the case when making costs orders. This includes the parties' conduct before and during the proceedings, the manner in which claims have been pursued and whether or not claims have been exaggerated in whole or in part.
Paragraph 6.6 of the Costs Practice Direction provides that, on an assessment of a party's costs, the court may take into account a costs estimate filed by any party in the same proceedings as a factor when assessing the reasonableness and proportionality of any costs claimed.
Judgment
The Judgment can be found by clicking here and is broken down into various sections:
- In paragraph 37 of his judgment Mr Justice Coulson states that:
“I accept the proposition that what Tyco have done - accepting the Part 36 offer outside the 21 days period - is something which they are permitted to do by the CPR. It would be a curious result if Tyco had to pay indemnity costs as a consequence (whether automatic or not) of something permitted by the CPR. Moreover, given the delays, it was always open to Fitzpatrick to withdraw the offer. The fact that the offer had been made and had existed for a year without being taken would have been a relevant fact at the end of the trial, even if, 11 months on, Fitzpatrick had chosen to withdraw the offer because it had not been accepted.”
He concluded that Fitzpatrick was not entitled to indemnity costs under CPR 36.10 or CPR 44.3 and costs were therefore to be assessed on the standard basis. In particular see Section D of his judgment. He also said that the presumption as to indemnity costs in CPR 36.14 is not to be inferred into CPR 36.10 (see Section C of the judgment).
- Tyco should pay interest at 1% over base on all the costs paid by Fitzpatrick to their solicitors after 14 February 2008 (see section F of the judgment).
- Tyco must make an interim payment on account of Firtzpatrick’s costs in the amount of £937,500 (see sections H and I of the judgment).
2. Interest on incorrect invoices awarded
In Ruttle Plant Hire Ltd v Secretary of State for Environment Food and Rural Affairs [2009] EWCA Civ 97, the Court of Appeal held that statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 (“the Act”) was payable despite the fact that the invoices claimed incorrect amounts in error.
The Law
The Act provides for a high rate of interest, currently 8% above base rate, on commercial debts if they are not paid on time.
Section 4 of the Act defines the period for which the statutory interest runs. The period starts on the "day after the relevant day for the debt". The "relevant day" is "...the last day of the period of 30 days beginning with –
(a) the day on which the obligation of the supplier to which the debt relates is performed or
(b) the day on which the purchaser has notice of the amount of the debt or (where that amount is unascertained) the sum which the supplier claims is the amount of the debt, whichever is the later".
Section 5 of the Act gives the Court the power to reduce the rate of interest. This applies where, by reason of any conduct of the supplier, the interests of justice require that statutory interest should be reduced in whole or part in respect of a period for which it would otherwise run.
Section 35A of the Supreme Court Act 1981 confers on the court a general discretion to award interest "...on all or any part of the debt or damages in respect of which judgment is given or payment is made before the judgment, for all or any part of the period between the date when the cause of action arose and –
(a) in the case of any sum paid before judgment, the date of the payment; and
(b) in the case of the sum for which judgment is given, the date of the judgment."
Background
The claimant (Ruttle) contracted with the defendant (DEFRA) to provide cleansing and decontamination services after an outbreak of classical swine fever in Bury St. Edmunds in August 2000. Between August 2000 and January 2005 various invoices were submitted by Ruttle to DEFRA but some of them had been based on an incorrect hourly rate for plant hire. DEFRA could have worked out the correct amount due from the underlying documentation which was submitted with the invoices.
Ruttle issued a final account in April 2007 which showed the correct rates.
Ruttle recovered various sums due pursuant to the invoices but the judge refused to award interest on some of those sums. Ruttle’s appeal against the judge's refusal to award interest raised five issues:
- Whether the fact that invoices had been calculated using the wrong rates for plant hire precluded the application of the Act.
- If the Act applied, whether Ruttle should be deprived of all interest until 11 May 2007 (i.e. 30 days from the Final Account) by way of a reduction under section 5(1) of the Act, or;
- Whether the Act rate of interest should apply after 11 May 2007, or whether it should be reduced to 2% above base.
- If the Act did not apply, whether the Supreme Court Act 1981 applied, and whether Ruttle’s cause of action arose before the correct invoices were submitted in the Final Account and;
- Whether interest should be withheld until 11 May 2007.
Judgment
Lord Justice Jacob, supported by Lord Justice Lloyd and Lord Justice Sedley, held that:
- Ruttle did give notice to DEFRA of the invoices within the meaning of the Act and they are therefore within its scope.
- There would not be a remit wholly or in part statutory interest under the Act.
- There was “no sufficient reason flowing from Ruttle’s conduct as to why, in the interests of justice, it should not get the normal, statutory, rate intended by Parliament (…….) Of course interest only runs on the amount actually due.”
- It was concluded that the case falls within the Act and the application of the Supreme Court Act 1981 is purely “academic”. So far as a cause of action is concerned, it “arose no later than June 2001”, which is when the work was completed. Lord Justice Jacob cited Chitty on Contracts which states that “unless a time for payment is otherwise agreed, the right to claim payment upon an entire contract accrues when the work is completed.”.
- No conduct or period of delay by Ruttle is “sufficiently identified to justify withholding interest under the 1981 Act. Nor for giving DEFRA the benefit of having withheld paying what on its view (or what should have been its view) was properly payable.”
Conclusion
The decision shows that simply withholding all payment until a correct invoice is presented will expose the paying party to a risk of interest under the Act.
3. Statement of case will not necessarily be struck out following a litigant's dishonest conduct
In the case of Bailey v Wood [2009] EWHC 363 (Ch), the claimant alleged that his previous partners in his previous firm had retrospectively created or altered various notes and records of conversations and meetings in order to benefit their case.
The claimant therefore sought to strike out the defence and/or those sections supported by the notes.
Mr Justice Blackburne found Mr John Randall QC’s, appearing with Mr Mark Anderson for the defendants, review of the authorities accurate:
- “First, an order debarring a litigant from participating at the trial is a serious step which requires a real (or substantial) risk that the trial would otherwise be unfair.”
- “Second, such a risk is not to be readily inferred but where the complaint involves interference with documents (for example, forging or tampering with them), it may be inferred if the interference is found still to be continuing and the court is of the view that it will (or may) affect the testing of a witness's evidence at the trial.”
- “Third, the purpose of such an order is not to punish or penalise a litigant's bad behaviour even if the litigant's behaviour has amounted to a contempt of court; rather, the question is whether a fair trial is achievable or whether any judgment in favour of the party whose conduct is the subject of complaint would be unsafe.”
- “Last, past misbehaviour if rectified can ordinarily pose no threat to the fairness of the trial. The court should therefore guard against allowing any sense of indignation at a litigant's conduct to lead to a miscarriage of justice by denying that litigant the right to participate at the trial.”
Blackburne J held that the claimant had failed to satisfy this test, as there was “no question of any documents having been forged in the present case”. He explained in paragraph 71 and 72 that it was open to Mr Bailey to cross-examine the second defendant on any allegation of dishonesty and that the court will only strike out a statement of case following a party's misconduct in exceptional circumstances where the fairness of the trial is jeopardised. In this case Blackburne J could not say that the circumstances gave “rise to any risk that a fair trial will not be possible” and the claimant’s application was therefore dismissed.
© SA Law 2009
Every care is taken in the preparation of our articles. However, no responsibility is accepted as being owed to any person or organisation who acts on the basis of information contained in them. You should obtain specific advice in respect of individual cases.