Phi Group Ltd (Defendant Appellant) v Robert West Consulting Ltd (Third Party Respondent)

Hearing date: 15 June 2011

On 15 June 2011, I handed down judgement on liability and quantum in this matter. There remain issues in relation to costs as between RWC and Phi. An order for costs has been agreed between RWC and Carillion, to the effect that RWC is to pay Carillion its costs on a standard basis up to 28 December 2009 and thereafter on an indemnity basis; in addition, RWC is to make an agreed payment on account of costs of £700,000. I have heard oral arguments and also received written submissions from Phi and RWC on costs.

The procedural background is that in the first Claim issued in 2009, in which Phi was the defendant, RWC was joined in as a third party and a contribution sought against it. Those proceedings were compromised in May 2010. By then, Carillion had instituted in March 2010 its own proceedings against RWC as defendant, in which RWC joined in Phi as a third party seeking a contribution.

Just before joining in RWC in the 2009 proceedings, Phi made what it suggested was a Part 36 Offer to RWC. In its solicitors' letter dated 5 February 2010 to RWC's solicitors, the following was said expressly in the context of the 2009 proceedings:

"4.3 Our client does not wish to extend costs on further legal and expert views and acknowledges that its likely liability (alongside your client's) coupled with the irrecoverable costs of defending a claim such as this, make an early settlement preferable. On this basis our client offers to split liability with your client on a 70:30 basis (in your client's favour).

4.4 We consider on discussing this matter with our expert and counsel that your client's apportionment of liability may well exceed 30%. Notwithstanding, in order to be sure of the offer providing costs protection, coupled with a desire to conclude a speedy resolution of the dispute, our client's offer is that your client accept 30% liability.

4.5 This offer is made under Part 36 of the Civil Procedure Rules and the offer is intended to have the consequences of Part 36 of the Civil Procedure Rules.

4.6 Notwithstanding, in light of the pressing timescales in this claim, our client would be grateful if your client's response to this offer could be provided within the next 7 days…

4.10 If there is any aspect of this offer which is unclear would you please let us know within 7 days and we will endeavour to provide an appropriate clarification…

6.2 We look forward to receiving your client's response to our client's Part 36 offer, within 7 days if possible…"

This offer was never even acknowledged, let alone answered in one way or the other.

RWC was joined in as a third party into the 2009 proceedings following a hearing before Mr Justice Edwards-Stuart on 10 March 2010 at which in effect Phi sought not only to join RWC in to the proceedings but also to secure their participation in the full trial which was due to go ahead in May 2010. The learned judge allowed RWC to be joined in but refused to order that RWC be required to participate in effect because Phi had acted too late. As the main judgement indicates, Phi and Carillion then settled and it is undoubtedly the position that Carillion very much took into account the fact that Phi's insurance was worth £3m in total and that its new holding company was in all probability topping up the settlement figure from its own funds. The contribution proceedings within the 2009 proceedings however remained alive and were ultimately to be dealt with at the trial which has recently been concluded.

By November 2010, it was clear to RWC and Phi that Carillion's claim was quantified at over £8m gross, and included substantial sums for the future Chiltern costs. Two further offers were made by Phi's solicitors on its behalf to RWC. On 4 November 2010, they wrote on a "without prejudice save as to costs" basis to RWC's solicitors shortly before a mediation between RWC and Carillion, which Phi was not able to attend:

"…our client is willing to agree in advance of the mediation that should the mediation result in a full and final settlement of the claim between your client and Carillion (specifically, that it extinguishes your client's liability to Carillion for negligence and/or breach of contract arising out of any aspect of your client's works whatsoever in connection with the Wembley LMD project, including those works (whether undertaken in 2004, 2005 or 2006) which are the subject of Carillion's legal action), our client would be prepared to agree to a discontinuance of its proceedings against your client, in return for your client discontinuing its proceedings against our client, with no order as to costs.

The above is not a 'starting point' for negotiations by our client. Our client could have written demanding a contribution towards the sums it has paid to Carillion and/or towards the costs it has incurred progressing its claim against your client. Rather the offer above is intended to be a realistic commercial proposal to permit the resolution of the entire dispute with out further wasted costs on all sides.

This offer is open until 5 pm on the 16 ^th of November at which time it shall be deemed withdrawn as our client will then be beginning its preparations for trial. Clearly, however, if the offer contained within it is not accepted by your client within the prescribed time, we will be referring to this letter, and the offer contained within it, when questions of costs of the ongoing litigation come to be considered by the Trial Judge…"

The mediation between Carillion and RWC failed and Phi's solicitors, being apprised of that, wrote another "without prejudice save as to costs" letter on 29 November 2010 to RWC's solicitors:

"Our client now writes to propose settlement on very similar terms to those previously proposed, namely: (i) with a discontinuance of a contribution proceedings ongoing between our respective clients; and (ii) with each party bearing its own costs to date, but without a condition that your client's claim against Carillion is settled…

With the above in mind our client offers to agree to a discontinuance of its proceedings against your client, in return to your client discontinuing its proceedings against our client, with no order as to costs.

This offer will be open for 21 days, however if your client intends to accept this offer your client is encouraged to confirm the same as soon as possible-as costs on all sides (specifically with regard to experts' costs) will be saved if the contribution actions are swiftly concluded.

Whilst this offer cannot be made on a Part 36 bases as it prescribes costs consequences, should the offer contained within this letter not be accepted by your client within the prescribed time, we will be referring to this letter, and the offer contained within it, when questions of costs of the on-going litigation come to be considered by the Trial Judge…"

Neither of these two letters were acknowledged let alone substantively responded to by RWC or its solicitors. Both letters had been headed by reference to the 2009 proceedings and not expressly to the 2010 proceedings. The trial proceeded with the consequences set out at length in the principal judgement.

There are a number of issues raised by Counsel for Phi and RWC:

(i) Whether any proportion of Carillion's costs should be borne by Phi; RWC argues that 60% of Carillion's costs should be borne by Phi to reflect the apportionment which has been made as between the two of them. Phi argues that none of Carillion's costs should be borne by it.

(ii) Whether and in what proportion Phi should pay the costs of RWC's contribution proceedings against it. RWC argues that, as it has succeeded in effect in securing a net additional sum of more than £500,000 from Phi over and above what Phi has paid to Carillion by way of the settlement, it should have all its costs. Phi argues that it should pay no part of RWC's costs.

(iii) Whether and in what proportion RWC should pay the costs of Phi's contribution proceedings against it. Phi asserts that RWC should pay all of those costs whilst RWC argues the reverse.

As to costs generally, the Court retains an absolute discretion in the context of the CPR to order what is fair and reasonable in all the circumstances. The exercise of the Court's discretion involves all the circumstances including the conduct of the parties, the extent to which at least in broad terms time and resource has been spent by one party or the other on issues which it has effectively lost and the existence of any appropriate "without prejudice save as to costs" or Part 36 offers.

A key element in Phi's argument relates to the offer made in its solicitors' letter dated 5 February 2010 which it classifies as a Part 36 Offer; if that is right, it argues that, as it was never withdrawn in accordance with Part 36, it remained current and capable of acceptance at any time up to judgement; as it was never accepted, the costs of the respective contribution proceedings in both Claims should be borne by RWC because the latter recovered less than the 70% contribution offered by Phi from Phi. It is therefore necessary to consider Part 36 and some of the authorities arising.

Part 36 so far as it...