Munkenbeck & Marshall (a firm) v Harold

Under the Unfair Terms in Consumer Contracts Regulations 1999, standard contractual terms may be unfair where, viewed at the time of contracting, they create a significant imbalance to the consumer’s detriment and that imbalance is not necessary to protect the supplier. Unusual and onerous terms are relevant to the good-faith assessment even if they form part of profession-wide standard conditions. An agreed interest rate may nevertheless be a genuine pre-estimate of loss where it reflects a statutory commercial rate. Indemnity costs require more than the fact that a party has defended its professional reputation. Proportionality includes the amount involved, the importance of the case and the complexity of the issues.

The claimant architectural firm claimed unpaid professional fees and time spent dealing with the proceedings. The defendant denied most of the claim and counterclaimed for professional negligence. The principal claims and counterclaim were settled, leaving the court to determine the claimant’s claim for litigation time, the enforceability of contractual provisions for interest and costs, the rate of interest, the appropriate costs basis, and an interim payment on account of costs.

The court also had to construe the draft consent order and determine responsibility for the costs of the unresolved issues.

1. Claim for time spent in the proceedings. The claimant failed to prove the amount of time for which payment was sought. The evidence was based on retrospective estimates, unsupported by time sheets or other contemporaneous documents, and was wholly unreliable. The claim therefore failed on the facts.
2. Unfair contractual terms. Clauses 5.13 and 9.6 of SFA/99 were unusual and onerous. They had not been drawn to the defendant’s attention and had not been individually negotiated. Although the architect had some legitimate interest in protecting its position, the clauses created an imbalance to the consumer’s detriment which was not required for that purpose. They were unfair under regulation 5(1) of the Unfair Terms in Consumer Contracts Regulations 1999 and were not contractually enforceable by virtue of regulation 8(1).
3. Interest. Clause 5.13 was not a penalty. The rate of 8 per cent over Bank of England base rate corresponded with the statutory commercial rate and could properly be regarded as a genuine pre-estimate of loss. Interest was awarded at 8 per cent on the outstanding fees from 12 November 2002 to 12 January 2005 and thereafter.
4. Part 36 offer. The claimant’s offer was ambiguous because it was unclear whether VAT was payable on the specified preparation costs. Even if the judgment was more advantageous than the offer, the ambiguity made a higher rate of interest unjustified.
5. Costs. The claimant was entitled to costs on the standard, not indemnity, basis. The value of its professional reputation did not justify an order of general application to failed professional-negligence claims. Proportionality under CPR 1.1(2)(c) includes the amount involved, the importance of the case and the complexity of the issues. The defendant was ordered to make an interim payment of £60,000.
6. Costs of the unresolved issues. The draft consent order did not clearly provide for those costs. They remained within the court’s discretion, and the claimant was ordered to pay 90 per cent of the defendant’s costs of determining them, on the standard basis if not agreed.