National Museums and Galleries On Merseyside (Trustees of) v AEW Architects and Designers Ltd

The Late Payment of Commercial Debts (Interest) Act 1998 applies to qualifying debts arising from an obligation to pay the contractual price for goods or services. It does not ordinarily apply to unliquidated common law damages for breach of contract, which become payable as a judgment debt only when judgment or an award is given. Interest on such damages may instead be awarded under section 35A of the Senior Courts Act 1981.

Indemnity costs require conduct taking the case out of the ordinary run, generally involving conduct unreasonable to a high degree. Costs budgets are an important starting point, but the court may permit a substantial departure for good reason.

The Board of Trustees of National Museums and Galleries on Merseyside had obtained judgments awarding damages against AEW Architects and Designers Ltd for breach of contract. The remaining issues concerned the rate of interest on historical costs, the appropriate costs basis and amount, the effect of a conditional fee agreement and costs management orders, and costs in AEW’s contribution proceedings against Pihl UK Ltd and Galliford Try Construction Ltd trading as the Pihl Galliford Try joint venture.

The principal questions were whether damages for breach of the architectural services contract were a qualifying debt under the Late Payment of Commercial Debts (Interest) Act 1998, and how the parties’ litigation conduct and approved costs budgets should affect costs orders.

1. Interest. The claim was for damages for breach of contractual duties to exercise reasonable care and skill, not payment of the contract price. A qualifying debt under section 3(1) of the Late Payment of Commercial Debts (Interest) Act 1998 is ordinarily a debt arising from an obligation to pay all or part of the contract price. The Act therefore did not apply. Interest was instead available under section 35A of the Senior Courts Act 1981. Interest on historical costs was agreed at 2.5% until 3 September 2013, with judgment-rate interest thereafter.
2. Costs. The principles summarised in Igloo Regeneration (GP) Ltd v Powell Williams Partnership [2013] EWHC 1859 (TCC) were adopted. AEW’s late admissions, inadequate liability defence, late disclosure and limited engagement with quantum would have supported indemnity costs. However, NML’s late appointment of a quantum expert and late further witness statement also required consideration. The fair order was that NML recover all its costs on the standard basis.
3. Costs budgets and CFA. The reasoning in Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd [2013] EWHC 1643 (TCC) was accepted. The approved budget remained the starting point, but there was good reason for a substantial upward departure because the case had become more complex and the parties had agreed a congested programme. The costs judge was to address the detailed assessment. The validity and effect of the CFA were left to that judge, subject to the court’s obiter observations that discounted rates were not inherently unlawful and that unreasonable rates could be reduced.
4. AEW was ordered to pay £700,000 on account of NML’s costs, credit being given for the £300,000 already ordered. In the Part 20 proceedings, AEW recovered 60% of its costs against PGT, while PGT was ordered to bear 7.5% of NML’s and AEW’s relevant costs, pay £50,000 on account, and contribute £700 interest.