J Murphy & Sons Ltd v Johnston Precast Ltd (Formerly Johnston Pipes Ltd) [No 2 Costs]

The unsuccessful party will ordinarily pay the successful party’s costs. An issue-based costs order is appropriate only where the successful party’s failure on a discrete issue materially affected the length and cost of the litigation, or where the overall result makes the parties’ success genuinely difficult to identify. In an all-or-nothing claim, success on minor issues will not normally justify a reduction. A reasonable offer covering pleaded and unpleaded claims may qualify as a Civil Procedure Rules 1998 Part 36 offer. A successful party is normally entitled to an interim payment on account and compensatory interest on costs. However, the court has no power under the relevant Part 36 provisions to award a defendant enhanced interest on costs.

The claimant had pursued a £4.17 million claim arising from a burst water main. In the principal judgment, the court found that a contract existed but contained no fitness-for-purpose term, that the defendant had not breached contract or duty, and that the loss resulted from a void for which the claimant was responsible.

This reserved judgment determined the consequential costs issues: whether the defendant should recover all its costs, the amount of an interim payment, and whether interest on those costs should be awarded, including at an enhanced rate following settlement offers.

1. Costs. The defendant was the plainly successful party because the claimant recovered nothing and lost the significant issues concerning contractual terms, breach and causation. The general rule therefore applied. The claimant’s success on the existence of a contract and on alkaline attack being an effective cause did not justify an issue-based order, because those points did not materially add to the trial and the defendant succeeded on the underlying liability arguments.
2. An issue-based order would also have failed the approach considered in Fleming v Chief Constable of Sussex Police Force [2004] EWCA Civ 643. The unsuccessful points did not add sufficiently to the length or cost of the trial. The defendant’s two settlement offers provided a further reason for awarding its costs in full.
3. The later offer was properly treated as a Part 36 offer. It reasonably covered claims whether pleaded or not because amendments were plainly contemplated and were later permitted. The offer was expressly made under Part 36 and both parties treated it as such.
4. Interim payment. Applying Mars UK Ltd v Teknowledge Ltd [1999] 2 Costs L.R. 44, the successful party should normally receive a rough and ready payment on account, being less than the likely assessed costs. On a starting figure of £600,000, a 50 per cent deduction produced an interim payment of £300,000.
5. Interest. The court had a broad discretion to award interest on costs under CPR 44.3. The compensatory rate was 1 per cent above base rate, payable from commencement of the action to 10 December 2008. CPR 36.14(2)(b) did not authorise enhanced interest on a defendant’s costs, unlike CPR 36.14(3)(c) in relation to a claimant. Enhanced interest was therefore refused.
6. The claimant was ordered to pay 100 per cent of the defendant’s costs, assessed on the standard basis if not agreed, an interim payment of £300,000 by 4 pm on 16 January 2009, and interest on costs at 1 per cent above base rate.

The judgment records the principal judgment in the same litigation as [2008] EWHC 3024 (TCC). The present judgment determined consequential costs, interim payment and interest issues.