Fluor Ltd v Shanghai Zhenhua Heavy Industries Ltd

In a split trial, costs need not await the assessment of damages. The court may defer liability costs where there is a real possibility that the claimant will recover only nominal or derisory damages and the quantum outcome may affect costs entitlement. A party successful on the principal liability issues will ordinarily receive costs, even if it failed on other issues. Costs relating to distinct issues may be reserved or apportioned where that is more just and practicable. Where costs are ordered subject to detailed assessment, the court will ordinarily order a reasonable payment on account, allowing for uncertainty and the likely recovery on assessment.

The claimant succeeded in establishing contractual liability for cracking in monopiles and transition pieces at the liability trial. The court had nevertheless held that waiver and warranty letters restricted the losses recoverable. The defendant argued that liability-trial costs should be reserved until the quantum trial, or that the claimant should bear the costs of the waiver and estoppel issues. The claimant sought its costs as the overall winner on breach of contract and an interim payment on account.

The court therefore had to determine the appropriate allocation of liability-trial costs and the amount of any interim payment.

1. Costs of the liability issues. The claimant was the overall winner on breach of contract. The defendant had denied breach and unsuccessfully contended that the monopiles and transition pieces were fit for purpose. The claimant’s unsuccessful conspiracy case did not materially increase the costs, and the defendant’s unsuccessful allegation concerning the claimant’s inspectors offset it. A successful party is not necessarily deprived of costs because it loses on one or more issues, particularly in complex commercial litigation.
2. Deferral and reservation. The court could defer liability costs until the quantum trial under the principles identified in Weill v Mean Fiddler Holdings [2003] EWCA Civ 1058 and Shepherds Investment Limited v Andrew Walters [2007] EWCA Civ 292. The split-trial procedure did not itself determine the costs outcome. Deferral would be appropriate where there was a real possibility of nominal or derisory damages and the quantum result might affect costs entitlement. That possibility was not established here on the defendant’s case.
3. Waiver and estoppel issues. The outcome on those issues was uncertain because the defendant had excluded much of the claim, and the extent of that effect could not yet be assessed. Their costs were therefore reserved until the quantum trial.
4. Apportionment and payment on account. Applying CPR 44.2 and CPR 44.4, the appropriate order was that the defendant pay 35% of the claimant’s liability-trial costs, subject to detailed assessment. The court considered common costs and the relative work attributable to breach of contract and waiver and estoppel. Under CPR 44.2 (8), an interim payment was required absent good reason. A reasonable sum was an estimate of likely recovery subject to an appropriate margin for uncertainty, as explained in Excalibur Ventures v Texas Keystone [2015] EWHC 566 (Comm). The defendant was ordered to pay £1.75 million by 4 pm on 28 October 2016.

The application followed the court’s principal judgment dated 7 October 2016, which determined contractual liability and separated liability from quantum. The present judgment determined costs arising from the liability trial.