Fitzpatrick Contractors Ltd v Tyco Fire & Integrated Solutions (UK) Ltd

Indemnity costs require conduct that is unreasonable to a high degree and takes the litigation out of the ordinary norm. A claim that is merely weak, or unsuccessful in hindsight, will not usually suffice. The court must assess the conduct and circumstances as a whole. Where a party has succeeded and detailed assessment is required, an interim payment on account should ordinarily be made. The amount should be a conservative, rough and ready estimate below the likely recoverable total.

The judgment concerned costs following the court’s decision on preliminary issues concerning the construction of a construction sub-contract, reported at [2008] EWHC 1301 (TCC). Fitzpatrick had been substantially successful against Tyco.

The remaining issues were whether Fitzpatrick should receive indemnity costs, whether its costs should be reduced to reflect Tyco’s partial success on certain issues, and the appropriate interim payment on account of costs.

1. Indemnity costs. The applicable principles, derived from Reid Minty v Taylor [2002] 1 WLR 2800, Kiam v MGN Limited No. 2 [2002] 1 WLR 2810 and Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson [2002] EWCA (Civ) 879, were applied. Indemnity costs are not confined to conduct deserving moral condemnation, but the conduct must be unreasonable to a high degree and take the case out of the norm. A weak claim does not ordinarily justify indemnity costs, whereas a hopeless claim which should not have been pursued may do so. The court refused indemnity costs because Tyco’s case was difficult but not hopeless, and its deterioration during the hearing was an ordinary litigation risk.
2. Percentage reduction. Tyco’s partial success on the formulation of implied terms and construction of clause 3(4) did not justify a percentage deduction. Those issues did not amount to marked success sufficient to deprive Fitzpatrick of part of its costs.
3. Contracting observation. Sending a letter of award before the detailed contractual terms may be dangerous in construction contracting, as illustrated by RTS Flexible Systems Ltd v Molkerei Alois Muller GMBH & Co [2008] EWHC 1087 (TCC).
4. Payment on account. Pursuant to CPR 44.3.8, the court applied the approach in Mars UK Ltd v Teknowledge Ltd [1999] Costs Law Reports 44. A successful party should ordinarily receive money on account while detailed assessment is pending. Fitzpatrick’s estimate of about £260,000 was reduced by half to reflect assessment uncertainty, and 75% of the remainder was rounded to £100,000.
5. Tyco was ordered to pay Fitzpatrick’s costs of the preliminary issues on the standard basis, without percentage reduction, together with £100,000 on account.

First-instance costs judgment following the preliminary-issues judgment reported at [2008] EWHC 1301 (TCC).