Essex County Council v UBB Waste (Essex) Ltd

JurisdictionEngland & Wales
JudgeMr Justice Pepperall
Judgment Date11 September 2020
Neutral Citation[2020] EWHC 2387 (TCC)
Docket NumberCase No: HT-2017-000110
CourtQueen's Bench Division (Technology and Construction Court)
Date11 September 2020

[2020] EWHC 2387 (TCC)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

TECHNOLOGY AND CONSTRUCTION COURT (QBD)

Rolls Building

Fetter Lane, London EC4A 1NL

Before:

THE HONOURABLE Mr Justice Pepperall

Case No: HT-2017-000110

Between:
Essex County Council
Claimant
and
UBB Waste (Essex) Limited
Defendant

Marcus Taverner QC, Piers Stansfield QC and Daniel Churcher (instructed by Slaughter and May) for the Claimant

Roger Stewart QC and George McDonald (instructed by Norton Rose Fulbright LLP) for the Defendant

Judgment No. 3

Hearing dates: 13–14 July 2020

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Mr Justice Pepperall THE HONOURABLE
1

On 31 May 2012, Essex County Council entered into a 25-year contract with UBB Waste (Essex) Limited for the design, construction, financing, commissioning, operation and maintenance of a mechanical biological waste treatment plant in Basildon to process the county's household waste. The facility was built and on 25 November 2014 it was certified as having passed the Readiness Tests. The facility then entered the Commissioning Period but failed to pass the Acceptance Tests by the extended Planned Services Commencement Date of 12 July 2015, the Acceptance Longstop Date of 12 January 2017 or indeed at any point before the close of evidence in the 2019 trial between the parties.

2

By my principal judgment in this litigation, Essex County Council v. UBB Waste (Essex) Ltd (No. 2) [2020] EWHC 1581 (TCC), I granted declarations that:

2.1 UBB had failed, in breach of contract, to achieve Service Commencement by the Acceptance Longstop Date under the contract;

2.2 UBB was not entitled to operate the modifications made to the facility for the production of so-called QSRF; and

2.3 the Authority was entitled to terminate the contract as at 13 June 2019 by giving notice pursuant to clause 67.

3

In addition, I:

3.1 awarded damages to the Authority in the sum of £9,038,428 to the end of February 2019 with continuing losses thereafter at £99,563 per month;

3.2 dismissed UBB's claim for declaratory relief and its counterclaim for damages, pleaded at some £77 million; but

3.3 found that UBB was entitled to compensation of £745,234 pursuant to clause 39 of the contract.

4

The parties are agreed that, taking matters in the round, the Authority was the successful party in this litigation and that it is entitled to a costs order in its favour and a substantial interim payment of £8 million on account of such costs. There the agreement ends and the following issues are in dispute:

4.1 At what rate should the court award interest upon damages?

4.2 Did the offer made by the Authority in March 2019 comply with the requirements of Part 36?

4.3 If not, should the court nevertheless treat the offer as a valid Part 36 offer either on the basis that any non-compliance was de minimis or because UBB is estopped from challenging the validity of the offer?

4.4 Has the Authority achieved a judgment that is at least as advantageous as its offer?

4.5 If the offer was compliant with Part 36, or is to be treated as having been a valid Part 36 offer, and the judgment is at least as advantageous as the offer, what orders should be made pursuant to r.36.17 of the Civil Procedure Rules 1998?

4.6 Irrespective of the position under Part 36, should the Authority be awarded its costs on the indemnity basis?

4.7 Should the court recognise UBB's partial success in this litigation and, if so, how?

4.8 On what terms should the court defer the running of interest under the Judgments Act 1838 on costs?

4.9 Should the court extend time to pay the judgment sum?

1

INTEREST

5

The Authority has filed evidence that its cost of borrowing over the relevant period was 2.396% per annum, and it seeks interest on damages at that rate. Roger Stewart QC, who again appears for UBB with George McDonald, argues that interest should instead be awarded at 1% over the Bank of England base rate from time to time and contends that such rate accords with general practice as recognised by Langley J in Kuwait Airways Corp. v. Kuwait Insurance Co. SAK [2000] 1 All E.R. (Comm) 972, at page 992. Further, he submits that there is no evidence that the Authority in fact had to borrow monies in order to fund its additional costs incurred by reason of the operation of the QSRF Line. Marcus Taverner QC, who again appears for Essex together with Piers Stansfield QC and Daniel Churcher, contends that there is no longer any presumption in favour of 1% over base and that there is no requirement that the Authority should have to prove any specific borrowing.

6

The applicable principles are clear:

6.1 There is ample authority for the proposition that in exercising the court's discretion as to the rate of interest to be awarded under s.35A of the Senior Courts Act 1981 the court is seeking to estimate the claimant's further loss in being kept out of the money that, but for the breach of contract or other wrong, it should have had.

6.2 In exercising that discretion, the court should not embark on an enquiry as to the actual further loss, but should rather seek to award a commercial rate of interest at which somebody in the position of the claimant would have had to borrow the money. Such assessment should be fairly broad brush and there is no need for evidence that the particular claimant did in fact have to borrow funds.

6.3 In the current era of historically low interest rates, the conventional rate of 1% over base adopted by Langley J in Kuwait Airways might well not fairly reflect the true cost of borrowing. Indeed, the Commercial Court Guide provides the following guidance at paragraph J14.1:

“Historically the Commercial Court has generally awarded interest at base rate plus one percent unless that was shown to be unfair to one party or the other or to be otherwise inappropriate. In the light of recent interest rate developments there is no presumption that base rate plus one percent is the appropriate measure of a commercial rate of interest.”

[See generally Tate & Lyle Food & Distribution Ltd v. Greater London Council [1992] 1 W.L.R. 149, ( Banque Keyser Ullman SA v. Skandia (UK) Insurance Co. Ltd unreported, 11 December 1987), Kuwait Airways, Lindsay v. O'Loughnane [2010] EWHC 529 (QB) and Kitcatt v. MMS UK Holdings Ltd [2017] EWHC 786 (Comm).]

7

In my judgment, interest should be awarded on the claim at 2.4% per annum, being the approximate cost of borrowing of a local authority such as Essex during the relevant period. Further, interest should run at the same rate on the counterclaim since it will in practice be set-off against the larger award in the Authority's favour.

2

WAS THE OFFER A COMPLIANT PART 36 OFFER?

8

Rule 36.5(1)(c) provides that a Part 36 offer must, among other matters, “specify a period of not less than 21 days within which the defendant will be liable for the claimant's costs in accordance with rule 36. 13 or 36.20 if the offer is accepted.” The Authority's offer in this case was dated 7 March 2019. It stated, in apparent compliance with r.36.5(1)(c):

“If the Defendant accepts the offer within 21 days of the date of this letter (the ‘Relevant Period’), the Defendant will be liable for the Claimant's costs of the Proceedings (including pre-action costs) up to the date on which written notice of acceptance of this Offer is received by the Claimant, in accordance with CPR 36.13.”

9

The offer was not, however, “made” for the purposes of Part 36 until 8 March 2019:

9.1 Rule 36.7(2) provides that Part 36 offers are made when they are served.

9.2 The Authority's offer was sent by email at 4.54pm on 7 March 2019. Given that the email was sent after 4.30pm, it was deemed by r.6.26 to have been served on the following day.

10

Mr Stewart argues that the only proper construction of the letter is that the 21 days ran from 7 March and, because the offer was not made until the following day, the offer therefore failed to specify a relevant period of not less than 21 days. Mr Taverner responds that the court should construe the offer such that the 21 days ran from the date of deemed service. Citing C v. D [2011] EWCA Civ 646, [2012] 1 W.L.R. 1962, he submits that faced with two reasonable interpretations of the offer, the court should favour the construction that is compliant with Part 36.

DISCUSSION

11

In C v. D, the claimant purported to make Part 36 offers that contained the words: “… the offer will be open for 21 days from the date of this letter (the ‘relevant period’).” The defendant purported to accept one of the offers after the expiry of the 21-day period. Warren J granted the claimant a declaration that its offer was no longer open for acceptance. The Court of Appeal allowed the appeal and construed the offer letter not as meaning that the offer was “only open” for 21 days, but as indicating that the relevant period (namely the period within which the defendant would be liable for the claimant's costs upon acceptance in accordance with what is now r.36.13) was a period of 21 days and that thereafter it might be withdrawn.

12

Rix LJ first concluded that, under the then applicable rules, parties could not make time-limited Part 36 offers. Since 2015, such difficulty has been removed by a new provision at r.36.9(4)(b). Nevertheless, the court's ruling upon the possibility of making a time-limited offer was important since Rix LJ approached the question of construction of the offer on the basis that:

12.1 both parties' solicitors would know such legal context; and

12.2 it was common ground that the offer was intended to be made and understood as a Part 36 offer.

13

Rix LJ then relied, at [49], on the principle of construction that the court should read a...

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    ...a Part 36 offer, the usual costs consequences should follow. He also referred to the recent decision of Pepperall J in Essex County Council v UBB Waste (Essex) Limited [2020] EWHC 2387 (TCC) in which the issue was whether an offer contained in a letter dated 7 March 2019 but not served unt......
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