HT-2023-000321 - [2025] EWHC 2496 (TCC)

In this section “conduct” includes any act or omission.”

The trial of this matter was originally listed to commence on 1 April 2025 and to conclude on 8 April. Unfortunately, it had to be adjourned due to Pharos’ Counsel suffering a medical emergency. In the event, it commenced on 9 June and concluded on 19 June. Judgment was handed down on 11 July. Mr Macey-Dare KC makes the point that had the trial commenced when originally scheduled, it is likely that judgment would have been handed down earlier, and that consequentials would also have been dealt with much earlier, without the long vacation intervening: it is suggested (using equivalent time periods) that consequentials would likely have been resolved by 11 May had the matter not been adjourned. It is said, with some justification, that a consequence of the adjournment of the trial is therefore that KML has been exposed to liability for LPA Interest and Part 36 Interest for longer than it would otherwise have been. He submits that while the adjournment of the trial was not the fault of Pharos, it was not the fault of KML either: it would be unjust for KML to pay LPA enhanced interest for the period caused by the adjournment.

Mr Woolgar’s succinct response is that KML wrongly failed to pay sums it owed to Pharos. It continued that non-payment during the period of the adjournment of the trial to delay paying even longer. There is no basis for restricting the award of interest to an earlier date. I agree. The adjournment, whilst unfortunate, was simply an exigency of litigation. I do not consider the adjournment (no doubt as unwelcome to Pharos as to KML) is sensibly to be regarded as the type of ‘conduct’ envisaged by section 5 of the LPA; but even if the words of the section are wide enough, purposively construed, to encompass the act of seeking an adjournment, I would not regard the interests of justice to require the disapplication of the LPA when the circumstances in which Pharos did so were entirely beyond its control. Similarly, I do not consider that the hypothetical hand down date should be relevant for the purposes of calculating the consequences of failing to beat the Part 36 offer, referred to below.

On 10 February 2025 WFW made a Part 36 offer on behalf of Pharos to accept the sum of £550,000 inclusive of the counterclaim, VAT and interest. KML accept that the judgment Pharos has obtained is “at least as advantageous” as the offer, in the language of CPR 36.17(1)(b). The relevant period ended on 4 March 2025.

Pursuant to CPR 36.17(4)(a), Pharos contends that it is entitled to interest on the whole of the principal sum at the rate of 10% above base rate for the whole of the period from 4 March 2025 to the date when the judgment was handed down (in lieu of interest on the principal sum for the same period under the Late Payment Act). KML accept the 10% rate but argue that it should not be due on VAT. In circumstances where, by definition, the purpose of the Part 36 regime is to incentivise settlement, there is no basis to construe its provisions in such a way as to exclude from the definition of ‘sum of money awarded’ under CPR 36.17(4)(a) the element of VAT (particularly in circumstances where CPR 36.17(4)(a) does specifically exclude interest).

There is no dispute that Pharos is entitled to indemnity costs from the expiry of the relevant period.

Pursuant to CPR 36.17(4)(c), Pharos contends that it is entitled to interest on those costs at 10% above base rate. KML contends that the rate should, in the Court’s discretion, be 4% above base rate, relying upon the following authorities:

As indicated by Sir Geoffrey Vos J (as he was then) in OMV Petrom SA v Glencore International AC [2017] 1 WLR 3465, many factors will be relevant. They may include (a) the length of time that elapsed between the deadline for accepting the offer and judgment, (b) whether the defendant took entirely bad points or whether it had behaved reasonably in continuing the litigation, despite the offer, to pursue its defence, and (c) what general level of disruption can be seen, without a detailed inquiry, to have been caused to the claimant as a result of the refusal to negotiate or to accept the Part 36 offer. In the present case, focussing on these particular factors, the appropriate enhancement would be towards the lower rather than higher end of the scale: the offer was later, rather than earlier, in the litigation and, not least in light of its timing, the decision to see the litigation through could certainly not be regarded as unreasonable. I regard the appropriate rate as 5% over base.

It is common ground that there should be no order as to costs in relation to the adjournment of the trial. Previous costs orders plainly remain unaffected.

As to the balance of costs, Mr Macey-Dare KC submits that the Court should depart from the general rule and make an order that KML should pay a proportion of Pharos’ costs up to 4 March 2025. He relies in particular on the fact that it succeeded, not only in reducing Pharos’ claim by £174,540.48 (over 20%), from the pleaded sum of £783,423.79 to £608,883.31; but also in proving its counterclaim in the sum of £113,214.63. In so doing, Mr Macey-Dare KC emphasises that KML proved that Pharos was in breach of contract in several respects, and that proving these allegations involved consideration of factual (documentary and witness) evidence and expert evidence, and took up a significant amount of court time at trial, which ought to be matters which deserve to be reflected in the costs order that the Court makes.

It is not appropriate to depart from the ordinary rule that costs follow the event in this case. The reduction in the sum awarded to Pharos was, in the scheme of things, relatively small. A very large part of the dispute on the invoices related to waiting on weather as to which, for the reasons set out in the Judgment, KML’s position was – to put it at its most neutral – opportunistic. Whilst there was a recovery on the counterclaim as a result of various ways in which Pharos’ services were sub-standard, I am in little doubt that a driving force behind the continuation of this litigation was the size of KML’s counterclaim which was – notwithstanding modest success – substantially overstated. These are not circumstances which lend themselves to a percentage reduction in Pharos’ costs, even if their success was not complete.

In the circumstances, Pharos is to recover 100% of its reasonable costs on a standard basis up to the end of the relevant period.