DEFENDANT’S CONDUCT OF THE CASE LED TO INDEMNITY COSTS BEING PAID: MAKING ALLEGATIONS OF “NOT ACTING IN GOOD” FAITH: A SPECULATIVE & WEAK CASE: EXPERTS WITH A CONFLICT OF INTEREST

This is the third (but not the last) look at the judgment on costs  in Essex County Council v UBB Waste (Essex) Ltd (No. 3) [2020] EWHC 2387. The judge held that the defendant’s conduct of the case was such that indemnity costs should be paid. There were three different grounds on which indemnity costs were ordered.

“I am pleased to say that the making of allegations of commercially unacceptable conduct without any proper evidential foundation – as happened in this case – is “out of the norm.” In my judgment, it is important that it should remain so and that parties realise that they cannot make unjustifiable allegations of a lack of good faith with impunity. While I do not equate the allegations in this case with fraud, I nevertheless conclude that UBB’s conduct in making widespread allegations of a lack of good faith against the Authority and its officers without any proper foundation was “out of the norm” and, of itself, justifies an order for costs on the indemnity basis.”

THE CASE

The judge had given judgment for £8 million following a trial.  This hearing related to costs. The claimant argued that the defendant’s costs were such that they should be ordered to pay indemnity costs.

THE JUDGMENT ON INDEMNITY COSTS

DISCUSSION
    1. The costs submissions in this case were detailed. That was because the Authority has spent some £15 million in pursuing this claim and defending itself against UBB’s counterclaims. Such expenditure is enormous, but needs to be seen against the legal and factual complexity of this case and the fact that it concerned fundamental questions as to the future of a 25-year contract valued at some £800 million.
The good faith allegations
      1. It is no answer to the claim for indemnity costs to argue that the issue of good faith was not central to the court’s determination of the case, or to assert that only limited costs were directly incurred by the Authority in responding to the new allegations introduced by re-amendment of the Defence and Counterclaim shortly before trial. Indeed, the latter submission overlooks the fact that UBB had already pleaded allegations of a lack of good faith before its re-amendments.
    1. Whatever the basis for my judgment, a core plank of UBB’s case at trial was that the Authority had not acted in good faith. I acknowledge that Mr Stewart was careful to make clear that UBB’s case was that the Authority’s officers had failed to act in good faith, and not positively to assert that they had acted in bad faith. Nevertheless, allegations of a lack of good faith involve the serious imputation that one or more individuals engaged in conduct that would be regarded as “commercially unacceptable” by reasonable and honest people. Put more colloquially, these were allegations of sharp practice rather than necessarily dishonest conduct.
    2. I am sure that this distinction was not of any great comfort to those accused by UBB. As professional men and women employed at a senior level by a public authority, I readily accept that these officers have a deep understanding of the importance of integrity in their dealings on behalf of their employer. I have little doubt that they will have been distressed by allegations that their professional conduct might be regarded as commercially unacceptable by reasonable and honest people. Indeed, such a finding might have put their future employment, or at least their prospects of advancement in the public sector, at risk.
    3. Since questions of good faith are likely to be fact sensitive, it is difficult for a court to weed out hopeless allegations before trial. I am pleased to say that the making of allegations of commercially unacceptable conduct without any proper evidential foundation – as happened in this case – is “out of the norm.” In my judgment, it is important that it should remain so and that parties realise that they cannot make unjustifiable allegations of a lack of good faith with impunity. While I do not equate the allegations in this case with fraud, I nevertheless conclude that UBB’s conduct in making widespread allegations of a lack of good faith against the Authority and its officers without any proper foundation was “out of the norm” and, of itself, justifies an order for costs on the indemnity basis.
Speculative, weak, opportunistic or thin claims
    1. In Three Rivers, Tomlinson J said, at [25(5)]:
“Where a claim is speculative, weak, opportunistic or thin, a claimant who pursues it is taking a high risk and can expect to pay indemnity costs if it fails.”
    1. Three Rivers was of course a particularly egregious example of such conduct. Coulson J awarded indemnity costs on this basis in Wates. More recently, as Coulson LJ in Burgess v Lejonvarn [2020] EWCA Civ 114[2020] 4 WLR 43, he clarified at [45] that, in his statement of this principle in Elvanite, he used “hopeless” as shorthand for the conventional formulation of the test as identified by Tomlinson J.
    2. It will be noted that the authorities refer to speculative, weak, opportunistic or thin claims rather than cases or defences. There is good reason to take a particularly serious view in respect of weak claims since claimants choose to initiate proceedings. Maintaining a speculative, weak, opportunistic or thin defence is, like any other relevant circumstance, a matter to be taken into account in determining the costs order but is unlikely of itself to justify ordering indemnity costs against a defendant. Here, however, UBB did not simply defend but it brought a substantial counterclaim that dwarfed the Authority’s own financial claims. By making such a counterclaim, UBB was itself pursuing a claim.
    3. In this case, I am satisfied that UBB’s attempt to build a very substantial counterclaim on the foundation of composition was opportunistic:
67.1 The fundamental problem with this project was that the design density for the waste on arrival at the biohalls was 0.55 t/m3 whereas the true density was 0.3 t/m3, meaning that the volume of waste was as much as 83% higher than the design volume and the biohalls were seriously undersized: see paragraphs 156-163 of my principal judgment.
67.2 UBB had identified the design problem by January 2015: see paragraphs 165-168.
67.3 Furthermore, UBB bid an unattainable level of BMW reduction without any proper understanding of:
a) the contractual BMc test;
b) the guaranteed but unproven performance measured by the AT4 test of a Spanish plant that was then still in construction;
c) any differences in composition between the waste assumed in the Spanish plant and that likely to be processed in Essex;
d) any differences in the processing methods in the two plants; and
e) the correlation, if any, between test results reported as AT4 and BMc.
[See paragraphs 172-185.]
67.4 UBB realised that a mistake had been made as early as September 2010 and, by February 2016, accepted that its BMW reduction bid was unattainable: see paragraphs 185-191.
67.5 As a result of these errors, UBB knew that the facility as designed was not capable of passing either the Throughput or the BMW reduction Tests: see paragraphs 169 and 172-199.
67.6 Despite attempting to buy down the Acceptance Tests in 2015, UBB’s position changed significantly as soon as the composition data started to show a reduction in the putrescible content of the waste: see paragraphs 280-295 and 324-327. It was quickly seized on as the answer to UBB’s problems. Indeed, I observed at paragraph 326 of my judgment:

“Plainly, Mr Faraldo was contemplating that UBB might be able to seize upon the latest composition data to blame the waste for all ills and propose the acceptance of the QSRF Line and other modifications as part of the necessary solution, all at the Authority’s cost. It was an audacious plan given that the true causes of the facility’s inability to pass the tests were the serious density design error and the unrealistic BMW reduction bid.”

    1. Further, the counterclaim was also built on an obviously flawed construction of clause 21.9A.2 (see paragraphs 328-334) and the Throughput Test (see paragraphs 297-299), unfounded allegations of lack of good faith and in circumstances where there was no prospect of establishing causation (see paragraphs 297-300, 303-306, 309 and 444-446).
    2. In my judgment, such counterclaim can properly be described as speculative, weak, opportunistic and thin. I infer that its determined prosecution by UBB combined with its unfounded allegations of a lack of good faith were designed to bring commercial and political pressure to bear on the Authority not to press its own claims to trial. Such conduct was “out of the norm” and, of itself, justifies an order for costs on the indemnity basis.
    3. I should, however, make plain that I reject the suggestion that counsel who then appeared for UBB might have been party to any impropriety in comments made about costs in an earlier hearing before Waksman J which were subsequently reported by the press.
Disclosure
    1. Despite enormous expenditure, the Authority can properly argue that its insistence on standard disclosure and its subsequent applications to enforce UBB’s disclosure obligations were vindicated by the eventual disclosure of highly damaging documents clearly showing UBB’s internal recognition of the serious design problems with this facility, its setting up of the red team and the circumstances surrounding the potential claim against Fichtner. These documents were very damaging to UBB’s case.
    2. Against that, and although its argument was rejected, UBB’s suggestion of an alternative to standard disclosure obviously chimes with current thinking as to the need to control the costs of disclosure. I cannot, on the material before me, fairly reach a view upon the Authority’s submission that UBB’s approach was driven not by any concern to control costs but by a cynical attempt to prevent obviously damaging documents from being disclosed. I therefore read nothing into UBB’s original promotion of request-based disclosure. In any event, while disclosure was ordered in this case before the start of the Disclosure Pilot for the Business & Property Courts, I note that if the court had adopted an approach similar to what is now Model C under Practice Direction 51U then the parties would still have been under an obligation to disclose known adverse documents.
    3. The subsequent conduct of UBB’s disclosure does raise questions. In particular, I share the evident bemusement of Waksman J in his 3 December 2018 decision, [2018] EWHC 3168 (TCC), as to UBB’s then argument that it did not have control of obviously relevant documents held by it in circumstances where the relevant custodians in fact worked for UBB’s sister company. It is also troubling that when UBB was ordered to procure junior counsel to review its disclosure, counsel overturned some 87% of the earlier privilege claims.
    4. It is not, however, appropriate to allow argument as to the proper basis for the assessment of costs to degenerate into a detailed review of earlier disputes in respect of disclosure. It is, in any event, unnecessary to determine this issue given my conclusions that I should, on other grounds, order indemnity costs in this case.
The expert evidence
    1. At paragraphs 54-55 of my principal judgment, I concluded that both Dr Weatherby and UBB should have recognised that he had obvious and serious conflicts of interest, that his instruction should either have been withdrawn or refused and that there was no excuse for failing properly to disclose the conflict. In ICI Ltd v. Merit Merrell Technology Ltd [2018] EWHC 1577 (TCC), Fraser J rightly observed, at [237], that partisan expert evidence is not the norm in this court. It is very important to the proper administration of justice that that should remain so. In my judgment, where a party knowingly calls an expert who is obviously and seriously conflicted without declaring such conflict, as happened in this case, it cannot complain if an order for indemnity costs is made against it.
    2. Here, a proportionate response to such conduct taken alone might well be to order that the costs of the technical evidence and an appropriate proportion of the legal costs incurred in respect of the technical issues be paid on the indemnity basis.
Conclusions
  1. Taking these matters in the round, the proper and fair order for costs in this case is to award the Authority its costs throughout on the indemnity basis.