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National Museums and Galleries on Merseyside (Trustees of) v AEW Architects and Designers Ltd [2013] EWHC 3025 (TCC) ? 11/10/13


Anis Waiz, solicitor at Curtis Law Solicitors, continues his critical review of current case law.

In this case, the court considered a novel issue regarding interest and the court's power to depart from approved costs budgets. This decision followed two judgments dealing with issues of liability and quantum in respect of a claim for breach of contract (see [2013] EWHC 2403 (TCC) and [2013] EWHC 2576 (TCC)).

1) Interest

It was common ground between the parties that the claimant was entitled to interest on parts of the judgment which related to historic costs. The issue was the rate at which interest should be allowed. It could be awarded at either the current usual discretionary rate (0.5% plus 2%) or pursuant to the Late Payment of Commercial Debts (Interest) Act 1998 (8%). However, the issue of interest was not so straightforward, raising the novel point of whether the 1998 Act applies to an award of common law damages arising from a breach of a contract.

Section 35A, Senior Courts Act 1981 (power of the High Court to award interest) refers to both ‘debt' and ‘damages' - two types of entitlement are therefore provided for.

Considering section 3 of the 1998, the court noted;- 1) It is only ‘qualifying' debts that attract statutory attention. Those debts must relate to an obligation under a contract to which the 1998 Act applies; 2) There is a clear distinction between the payment of the contract price and a liability for damages for breach of contract; 3) A debt is usually considered to be a sum due for work done, materials delivered or services rendered. That sum is either specifically ascertained and agreed within the contract or is ascertainable from what has been agreed; 4) In a claim for breach of contract for (unliquidated) damages, the sum claimed can only convert into a debt as a result of a judgment or arbitration award. It does not become a debt until that stage and then at that stage it attracts the specified judgment rate of interest for late payment of a judgment sum; 5) However, certain contracts may convert, or bring what is or might be, a liability for damages for breach of contract into the contractual machinery for the payment of the contract price. For example, in certain construction contracts, the liability of the contractor to pay liquidated damages for culpable delay is often to be brought into the certification and payment regime and the certification regime can result in a net sum payable by the contractor to the employer, which might be caught by the 1998 Act regime; 6) In this case there was no suggestion that the contract between the parties contained any such provisions. In essence, the claim was for breach of contract, primarily involving complaints about failures to exercise reasonable care and skill on the part of the defendant. It was not a claim for a debt as such.

Accordingly, Mr Justice Akenhead held that the 1998 Act did not apply to the sums awarded to the claimant, which in essence were damages for breach of contract. Interest was awarded pursuant to section 35A of the 1981 Act. There was general agreement that interest should be allowed at 2½%, i.e. the Bank of England base rate plus 2%, from the dates that the historical costs were incurred.

2) Costs

Issues: i) whether the claimant should be awarded costs on the indemnity or standard basis; ii) whether any interim payment on account of costs should take into account the impact of the CFA between the claimant and solicitors; iii) whether any interim payment should reflect an earlier cost management order or a later costs management budget submitted at a pre-trial review.

i) Indemnity or Standard Basis

The claimant sought indemnity costs on a number of grounds. First, the belated submission of admissions, only several working days before the trial commenced. Secondly, the failure by the defendant to admit liability either prior to trial or, at the latest, after unimpressive expert evidence.

Mr Justice Akenhead set out a number of key authorities dealing with the grounds upon which the courts will grant indemnity costs: Igloo Regeneration (GP) Ltd v Powell Williams Partnership [2013] EWHC 1859 (TCC) in which the court noted Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (a firm) [2002] EWCA Civ 879, as per Waller LJ, in which he said: ‘Is there something in the conduct of the action or the circumstances of the case which takes the case out of the norm in a way which justifies an order for indemnity costs?'; general principles as set out in Multiplex Construction (UK) Ltd v Cleveland Bridge UK Ltd [2008] EWHC 2280 (TCC) at [72]; the conduct of the party against which indemnity costs are sought does not have to be lacking ‘in moral probity or deserving of moral condemnation' but the conduct should generally be unreasonable to a high degree.

Costs were granted against the defendant on the standard basis. Late admissions, failures to admit liability and reluctance to make concessions on quantum on the part of the defendant were balanced by the claimant's late appointment of an expert and belated production of a witness statement.

ii) The CFA

Although the court considered it was more appropriate for the issues to be addressed by the costs judge, a number of obiter comments were offered: The discounting of rates in the event of failure is simply a commercial arrangement as between the client and the solicitor, which is not inherently unlawful or wrong; If the basic rates are above what is fair, reasonable or realistic for solicitors in a particular area, it is open to the costs judge simply to reduce those rates so that the losing party pays no more on a standard assessment than by reference to reasonable and appropriate rates. Subject to that, and to the risk which it took in contesting the proceedings after becoming aware of the CFA, the defendant would then be liable for costs assessed on such reasonable and appropriate rates plus any mark-up (up to 50% thereon) which the costs judge endorses or accepts.

iii) Interim Payment

The defendant sought to argue that the court was unable to depart from the claimant's last approved budget, relying on Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd [2013) EWHC 1643 (TCC).

The court noted that paragraph 6 of PD 51G requires parties to file and serve budget revisions when their previous budgets are no longer accurate. Importantly, no formal application need be issued by the parties seeking a revision and the court may, of its own motion, approve or disapprove the revision, albeit giving the parties the opportunity to be heard.

Elvanite was distinguished. In the present case, there was simply an oversight by both parties and, indeed, by the Court at the PTR to address the substantially increased costs budgets. There was no hint or suggestion that either was challenging or would have challenged the other's revised budget.

Mr Justice Akenhead held:

‘I consider that it is more likely than not that I would have approved a revised budget for NML at the PTR of at least £1 million and, allowing for appropriate departures (for good reason) from the originally approved budget, that is an appropriate basis at least against which to assess the interim payment of costs on account'.


This useful authority provides an excellent analysis and overview of the Late Payment of Commercial Debts (Interest) Act 1998 and the issue of contractual sums due and damages. Likewise the resume of authorities on indemnity costs will provide a very useful starting points for practitioners.

The last word goes to Mr Justice Akenhead, who noted:

‘The adage "the proof of the pie is in the eating" comes to mind. The reality is that AEW, even after all the evidence had been heard and indeed after the closing submissions, never produced a Part 36 or comparable offer of settlement that was anywhere near what the judgments secured for NML.'