A bundle of fun, and other stories… Insights into recent decisions

Posted: 05/05/2017

Life as a commercial litigator is (large disclosure exercises aside) usually varied and stimulating. No two cases are ever the same, and you never know what is going to cross your desk next. With that in mind, this column offers a smorgasbord of recent cases for your delectation.

Contractual intention

First stop, that old (sweet) chestnut of contractual intention. In MacInnes v Gross, the claimant was an investment banker, who had worked with the RunningBall group of companies at his bank. The claimant enjoyed a meal with the defendant, the ‘principal figure’ behind RunningBall, at a Mayfair restaurant in March 2011. This could have proved a very expensive meal for the defendant: Mr MacInnes alleged that they had agreed an oral contract for him personally to provide services to maximise the return on the sale of RunningBall, to the tune of €13.5 million. This was not Mr Gross’ recollection of events.

Although this is another of those old chestnuts, a case which turns on its facts, the judgment contains some interesting reminders and practical points on contract formation. Coulson J was clear from the outset that “A contract can be made anywhere, in any circumstances. But… the fact that this alleged agreement was made in a highly informal and relaxed setting means that the court should closely scrutinise the contention that… there was an intention to create legal relations” (paragraph 81).

The fact that the defendant was operating in his second language during this conversation sounded a further note of caution to the court (particularly as he had required an interpreter at times during trial).

Coulson J then turned to the email sent by the claimant immediately after the dinner. This, as the claimant himself argued, was the only contemporaneous record of the dinner in question; and yet, the highest Mr MacInnes put it in his email was that there was an agreement ’on headline terms’. The court was not convinced. Added to this was a lack of agreement over how much and in what form the claimant would be remunerated, and the fact that the claimant did not challenge the defendant’s suggestion in December 2011 that “Next time we see each other let's make a proper contract” (pararaphs 62 and 92).

The court therefore was clear that there had been no intention to create legal relations in March 2011. The final crucial factor was that, despite having been critical of RunningBall for not appreciating the importance of a written contract, and despite having expressly pointed out the advantages of producing any draft documentation in his initial email, the claimant had never produced a written contract or draft. As ever then, the moral of the story is – to avoid doubt, spell/write/type it out.

Costs issues

Mr Gross did not, however, get it all his own way.  At the subsequent costs hearing, the court worked its way through a tasting menu of costs issues (to mix our culinary metaphors).

To start with, Coulson J refused to award costs on the indemnity basis, holding that this was not a case that was 'out of the norm'. The claimant had had a genuine belief in the rightness of his case and had litigated his claim in a reasonable and proportionate manner (£234,000 approved costs budget on a claim of €13.5 million). Significantly, Coulson J had not found that the claimant had deliberately lied to the court.

As a palate cleanser, Coulson J declined to raise the pre-judgment interest rate of 4% above base rate. Although the main authority on this point was now 15 years old (McPhilemy v Times Newspapers Limited (No 2)), the fact that interest rates are much lower now was “nothing to the point, since the successful party recovers interest at the base rate applicable at the time, with a 4% uplift” (paragraph 13).

To follow, the court considered the more complicated matter of post-judgment interest, currently set at 8% (far higher than any commercial rate currently applicable). Coulson J acknowledged that “There is a risk of a windfall if such a rate is applied without consideration of the wider position” (paragraph 14). Given that he was ordering the payment of a substantial sum on account, he followed Leggatt J in Involnert Management Inc v Aprilgrange Limited and deferred the date of judgment, solely for the purposes of interest calculations, for a period of three months.

Currency rate fluctuations

The main course here though was whether to award the defendant additional compensation for losses suffered as a result of the falling value of sterling. Coulson J declined to follow the recent case of Elkamet, in which Arnold J awarded an uplift to costs of £20,000. He pointed out that Elkamet involved a summary assessment of costs, in which the court had particular figures to consider, and evidence as to how they had been reached. In MacInnes (2), he was effectively being asked to make an open-ended order.

Coulson J was also uncomfortable with the idea that an award of costs should be treated as an order for compensation, as if it were a claim for damages: orders for costs have never been regarded as compensating the payee for the costs that he has actually paid out. On the contrary, unless the payee is awarded indemnity costs, he will never recover all the costs that he has incurred.

Neither did he see the close analogy between the commonplace order for interest on costs, and ordering exchange rate losses due to the particular time that the costs were paid, which is unusual. The paying party can calculate in advance the additional risk created by their potential liability to pay interest on costs, but any potential liability to pay currency fluctuations is uncertain and wholly outside their control. Moreover, the generous rate of interest on costs at 4% over base does arguably provide at least some protection to the payee against such events.

It will be interesting to see how future judgments deal with the tension between these two judgments.

Interim order on account

While it was agreed that there should be an interim payment on account of costs, the parties differed by £195,000 as to the appropriate amount. Coulson J was clear that the payee’s approved costs budget was almost always the appropriate starting point for detailed assessment (as was also underlined by Carr J in the recent case of Merrix v Heart of England NHS Foundation Trust). He rejected the claimant’s suggestion that the court would have to 'start from scratch' when carrying out this exercise. The significance of CPR 3.18(b) could not be overstated: “It means that, when costs are assessed, the costs judge will start with the figure in the approved costs budget. If there is no good reason to depart from that figure, he or she is likely to conclude the assessment at the same figure” (paragraph 25). 

He also observed that the court assessing the interim payment can ignore any significant overspend on costs by the payee above the budget figure: any increase is a matter for the costs judge at detailed assessment, and it will be for the payee to justify why they should recover more than the budget figure.

Accordingly, Coulson J took as his starting point the defendant's approved budgeted costs. He then reduced this figure by 10% (the “maximum deduction that is appropriate in a case where there is an approved costs budget”) to arrive at the figure for interim payment (paragraph 28).

Bundle of fun

And finally, as a petit four if you will… In PM Project Services Ltd v Dairy Crest, Edwards Stuart J adjourned two out of three limbs of an application for summary judgment because of the poor quality of the bundles he had received. The page references in the witness statements differed from those in the hearing bundle and the original page numbers had not been retained. The issues with the pagination were such that they completely “derailed” any sensible pre-reading (the time estimate for which had been somewhat optimistic in any event).

The costs of the re-bundling exercise, and the costs of the adjournment would lie with the preparing party.

There may be mutterings about grandmothers and eggs, but in essence, all litigators should make sure that they allow enough time to prepare all bundles, check pagination before copying multiple times, and check the copies themselves when they receive them. Or, as Edwards Stuart J made abundantly clear, face the costs - not least of which might be judicial displeasure.

This article was published in Commercial Litigation Journal in April 2017.

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