Payments On Account In Budgeted Cases And Pre Judgment Interest On Costs

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1. What interest/financing costs should be awarded to IRDL on the damages?

IRDL’s position:

1. IRDL claimed interest and financing costs under five separate heads:
   • Interest Claim 1: Work completed prior to Arcadis defect discovery
   • Interest Claim 2: Interest on recovered costs awarded (up to 23 July 2021)
   • Interest Claim 3: Interest on increased cost of remedial works after completion
   • Interest Claim 4: Increased rates from “Together” Facility
   • Interest Claim 5: Additional Lending Fees
2. For Interest Claim 2, IRDL claimed £149,285.21, calculated using a midpoint approach for the remedial works period.
3. For Interest Claim 3, IRDL initially claimed £1,135,616.37, later reduced to £1,121,560.05. This was based on actual incurred rates and costs from the completion of remedial works until the consequentials hearing.
4. IRDL argued for compound interest on a portion of the claim (34.4%) to reflect the Wellesley Facility’s terms, with the remainder at simple interest to reflect the PAG Facility.
5. IRDL claimed that the apportionment between facilities was fair and reasonable, reflecting the overall borrowing picture.
6. For the Sales Fees Claim, IRDL calculated interest separately due to a later effective date of loss.

Arcadis’s position:

1. Arcadis argued that IRDL was not entitled to compound interest.
2. They contended that there was no evidence that additional funds under the Wellesley facility were used to fund the sums awarded in the judgment.
3. Arcadis pointed out that the actual loan drawdown from the Wellesley facility was less than planned, while the PAG loan drawdown was substantially more than planned.
4. They argued that at most, IRDL should only recover simple interest at 8% under the PAG facility terms.
5. Arcadis highlighted that recent loan agreements between IRDL and PAGV/PAG only provided for simple interest, suggesting this should be the basis for any interest award.
6. They contended that there was no evidence IRDL had incurred compound interest on the sums awarded.
7. Regarding the “Together” facility (Interest Claim 4), Arcadis argued this was not necessitated by the structural remedial works but by other financial issues with the project.

In essence, IRDL sought to recover substantial financing costs based on their actual borrowing arrangements, while Arcadis argued for a more limited interest award based on simple interest at 8%.

2. Who should pay the costs of the action and in what proportion?

IRDL’s position:

1. IRDL argued that they were the successful party overall and should be awarded their costs in full.
2. They pointed out that they had been awarded a substantial sum in damages (around £6 million including interest).
3. IRDL highlighted that Arcadis had not made any Part 36 or Calderbank offer until February 2024, which was too late and ultimately insufficient.
4. They argued that the late offer by Arcadis (and its subsequent increase) did not provide adequate costs protection.
5. IRDL contended that their success on the main issues outweighed any failures on specific points.
6. They argued that any reduction in costs for issues they lost on should be minimal, as these issues were part of the overall case.

Arcadis’s position:

1. Arcadis argued that IRDL should pay 30% of Arcadis’s costs, despite IRDL winning overall.
2. They contended that IRDL lost on three significant issues which took up considerable time and resources during the trial: a) Whether Arcadis caused critical delay b) Whether Arcadis was liable for damage to the modules c) Whether Arcadis was liable for over £1 million for loss of sales
3. Arcadis argued that these losses by IRDL justified a substantial costs order in Arcadis’s favor, or at least a significant reduction in any costs awarded to IRDL.
4. They claimed that it was difficult to make an earlier offer due to lack of documentation and deficiencies in IRDL’s disclosure.
5. Arcadis suggested that the court should make an issue-based costs order to reflect IRDL’s partial success and failure on significant issues.
6. They argued that the costs incurred in relation to the issues IRDL lost on were substantial and should be reflected in the costs order.

In summary, IRDL sought their full costs as the overall winner, while Arcadis argued for a costs order in their favor or, alternatively, a significant reduction in IRDL’s recoverable costs to reflect the mixed outcome on different issues.

3. Who should pay the costs of Arcadis’s earlier disclosure application?

IRDL’s position:

1. IRDL argued that they should be awarded the costs of the disclosure application for the following reasons: a) They enjoyed the greatest measure of success in the application, with Arcadis’s conduct being strongly criticized in the judgment. b) IRDL had provided all documents that responded to the agreed search criteria, demonstrating an open approach to disclosure. c) They had repeatedly offered to look for further documents outside the search criteria if Arcadis specified the proper scope of further searches.
2. IRDL contended that if the order had been “costs in the case,” they would have been awarded those costs, reflecting both parties’ partial success and the necessity of disclosure issues in litigation.
3. Alternatively, IRDL argued for no order as to costs, on the basis that: a) This would reflect that both parties enjoyed a measure of success (IRDL defeating 2/3 of the application, but Arcadis obtaining some further disclosure). b) It would mirror the position if the order had been “Defendant’s costs in the case,” given that Arcadis did not ultimately succeed in obtaining an overall costs judgment in its favor.
4. IRDL strongly opposed any award of costs in Arcadis’s favor, given that Arcadis lost the litigation overall, lost the application “in the round,” and was criticized for how it approached the application.

Arcadis’s position:

1. Arcadis argued that the disclosure application was necessary because IRDL had not carried out its disclosure exercise properly.
2. They contended that the application led to a significant quantity of documentation being disclosed, justifying the need for the application.
3. Arcadis likely argued that the costs should follow the event, i.e., that they should be awarded their costs as they achieved some success in obtaining further disclosure.
4. They may have argued that the application was necessitated by IRDL’s inadequate initial disclosure, making it reasonable for Arcadis to bring the application.

In essence, IRDL sought either their costs of the application or no order as to costs, reflecting their view that they largely succeeded in resisting the application. Arcadis, on the other hand, argued that the application was necessary and successful in part, justifying an award of costs in their favour.

4. What interim payment on account of costs should be ordered?

IRDL’s position:

1. IRDL applied for an order for an interim payment in respect of its costs.
2. They argued that such an order was usual practice in these circumstances.
3. IRDL’s approved costs budget was £1,164,708.50, of which £399,753.50 was in respect of incurred costs.
4. They proposed that the appropriate approach was to award: a) 90% of budgeted costs as approved b) 75% of the incurred costs
5. IRDL likely argued that this approach balanced the need for prompt payment against the risk of overpayment.
6. They contended that as the successful party overall, they were entitled to a substantial interim payment.

Arcadis’s position:

1. Arcadis did not dispute the principle of an interim payment if costs were awarded against them.
2. However, they likely argued that any interim payment should be limited, especially if the court made a significant reduction in IRDL’s recoverable costs.
3. Arcadis may have contended that the percentage of budgeted and incurred costs proposed by IRDL was too high, given the mixed success on different issues.
4. They possibly argued for a lower percentage or a different calculation method that would result in a smaller interim payment.
5. Arcadis might have suggested that the interim payment should reflect only the proportion of costs related to issues on which IRDL was successful.
6. They may have argued that the uncertainty around the final costs order (given their arguments for a substantial reduction or even a costs order in their favor) justified a more conservative interim payment.

In summary, while IRDL sought a substantial interim payment based on high percentages of their approved costs budget, Arcadis likely argued for a more limited payment, reflecting the mixed outcome of the case and the potential for a significant reduction in IRDL’s recoverable costs.

5. What interest should be awarded on costs?

IRDL’s position:

1. IRDL claimed interest on the costs awarded at a rate of 8% simple interest.
2. They argued that this rate was appropriate as it matched the rate used for the financing cost calculations on damages.
3. IRDL contended that interest should be payable from the date of payment of each cost invoice.
4. They cited the decision in Sharp and others v Blank and others [2020] EWHC 1870 (Ch) to support their position that pre-judgment interest on costs is commonplace.
5. IRDL argued that this approach reflects the actual financing costs they incurred in paying their legal fees throughout the case.
6. They likely contended that this method of calculating interest on costs is standard practice and fair compensation for the time value of money.

Arcadis’s position:

The judgment does not explicitly state Arcadis’s position on interest on costs. However, based on typical arguments in such cases, Arcadis may have argued the following:

1. They likely did not strongly contest the principle of awarding interest on costs, as this is indeed common practice.
2. Arcadis may have argued for a lower interest rate than the 8% proposed by IRDL, possibly suggesting that the court use the Bank of England base rate instead.
3. They might have contended for a later start date for interest, such as from the date of the costs order rather than from the date each invoice was paid.
4. Arcadis possibly argued that interest should only apply to the proportion of costs ultimately awarded to IRDL, rather than on the full amount of costs incurred.
5. They may have suggested that any interest awarded should be subject to the same percentage reduction as the overall costs award, if the court decided to reduce IRDL’s recoverable costs.

In summary, while IRDL sought interest at 8% from the date of payment of each invoice, Arcadis likely argued for a more limited interest award, either through a lower rate, later start date, or application only to the final awarded costs. However, the principle of awarding some interest on costs does not appear to have been strongly contested.

Decision

The judge determined that IRDL was the successful party overall, despite losing on some significant issues. He based this on the substantial damages awarded, the lack of early settlement offers from Arcadis, and the fact that Arcadis’s later offers were insufficient.

“In my judgment IRDL was the successful party: (1) IRDL has been given judgment for a substantial sum: around £6 million when interest is included; (2) Before me the only uncontested issue was the claim for £4,956 in respect of the cost of relocation of homeowners during demolition; (3) Despite the fact that negligence and breach of duty was not in dispute, no Part 36 or Calderbank offer was made until 20 February 2024, when an offer of £2,500,000 plus costs of £600,000 was made. This was then increased to £4,000,000 plus costs of £600,000 on 8 April 2024. (4) Neither offer was in the event sufficient; (5) As Jefford J. said in paragraph [26] of her judgment, a defendant’s primary means of providing costs protection is to make an appropriate Part 36 offer: here no offer was made until February 2024, and when an offer was made neither it nor its successor was sufficient.” [34]

He rejected Arcadis’s argument that late disclosure prevented them from making an earlier offer, finding that they had sufficient information to assess the claim’s value well before February 2024.

“The conclusion I come to is that it would have been possible for Arcadis and its advisers to have made at least a broad assessment of the value of the claim well before February 2024. Accordingly, in reaching the conclusion that IRDL is the successful party, I have rejected the suggestion that the failure to make any offer prior to February 2024 can be justified by lack of relevant documentation. By February 2024 Arcadis had had the benefit of discussions between the quantum experts and had filed Mr Huntley’s Quantum Report: Arcadis had sufficient material by then to assess the value of the claims made.” [38]

However, the judge acknowledged that IRDL lost on two significant issues which incurred substantial costs. He therefore decided to reduce IRDL’s recoverable costs to reflect this partial success.

“However, in respect of the first two issues I do accept that in each case significant costs were incurred by IRDL putting forward a case upon which it lost. In both cases the amounts turning on the issue were substantial and both took up time and money in being investigated and argued.” [42]

“I reject that extreme suggestion: however I do accept that the award of costs in IRDL’s favour should be tempered by a reduction to reflect the issues upon which Arcadis succeeded. Standing back and looking at the justice of the case, I determine that Arcadis should pay IRDL 60% of its costs of the action.” [44]

Regarding the costs of the earlier disclosure application, the judge decided there should be no order for costs, reflecting the mixed success of both parties.

“In my judgment, the appropriate order is that there should be no order for costs. Whilst the application succeeded in part, it also failed in large part. Accordingly I accept Ms Slow’s argument in paragraph 96.1 of her skeleton argument.” [49]

For the interim payment on costs, the judge accepted IRDL’s proposed approach of awarding 90% of budgeted costs and 75% of incurred costs, applying this to the 60% of costs he had awarded.

“I accept Ms Slow’s submission that the appropriate approach is to award 90% of budgeted costs as approved and 75% of the incurred costs. Thus, as to budgeted costs, the interim payment will be 90% of 60% of £764,955, i.e. £413,075.70. As to incurred costs the interim payment will be 75% of 60% of £399,753.50, i.e. £179,889.07. Accordingly the total interim payment will be £592,964.77.” [53-54]

On the matter of interest on costs, the judge agreed with IRDL’s submission for 8% simple interest from the date of payment of each invoice.

“In this case Ms Slow submits, and I agree, that the figure of 8% used for the financing cost calculations on a simple interest basis is appropriate. I also agree that interest is payable from the date of payment of each cost invoice (subject to the application of the 60% apportionment I have made above).” [56-57]

Finally, the judge set a date for payment of the total judgment debt, allowing some time for the parties to calculate the precise figures based on his rulings.

“My decision is that the date should be 28 August 2024, subject to any application on the part of Arcadis to extend this date.” [59]