Mouchel Ltd v Van Oord (UK) Ltd (No 2) – recovery of costs

Mouchel was sued by construction company Kier Group (Kier) in respect of alleged design deficiencies in an offshore cooling water system for South Humber power station. Van Oord was Kier’s sub-contractor.

Mouchel and Kier settled the claim and Mouchel sought a contribution from Van Oord under the Civil Liability (Contribution) Act 1978. Two heads of claim by Kier were relevant to the contribution proceedings: those concerning the unsuitability of Grimsby Middle Sand (GMS) supplied by Van Oord and the placing of scour protection rock by Van Oord around the cooling water intake structures.

The first judgment

In his first judgment, Ramsey J held that because Mouchel had settled the claim against it, all it needed to do under s1(4) of the 1978 Act was to show that it would have been liable to Kier assuming that the factual basis of Kier's pleaded claim against Mouchel could be established. Satisfied that this was the case, he held that Van Oord was responsible for the inadequate scour protection but not for the unsuitability of the GMS.

Looking at whether Mouchel and Van Oord were liable to Kier for the “same damage” as required by the 1978 Act, the relevant damage was scour caused by the reduction in the level of scour protection. This was caused by Mouchel's breach in failing to design a filter layer (65 per cent) and also by Van Oord's failure to lay 500mm scour protection (35 per cent). Both breaches caused the same damage and led to the need to carry out remedial work.

The second judgment

Ramsey J considered the amount of Van Oord’s contribution in respect of Kier’s costs and Mouchel’s costs of the main action. He reviewed the conflicting case law on the point and concluded that:  

  • Where a party settles a claim made against it by a third party and pays costs to the third party, the court may order the party liable to make a contribution to pay the costs under s51 of the Senior Courts Act 1981.
  • Those costs may also give rise to a contribution under the 1978 Act. A contribution is not limited to being a contribution in respect of “damages” but includes a contribution based on “liability for damage”.
  • The costs incurred by the party seeking a contribution cannot be recovered under the 1978 Act since the party’s own costs do not form a liability to a third party in respect of damage (see s1).
  • The costs incurred by the party seeking a contribution can in principle be recovered under s51.
  • A decision under s51 will take account of the matters set out in CPR 44.3 whereas under the 1978 Act the causative potency in relation to the damage is likely to be the most important factor in assessing contribution.  

Contribution to Kier’s costs

Although the settlement between Mouchel and Kier was for a lump sum of £517,500, it was known that £399,500 of this related to costs. In determining the correct level of contribution under the 1978 Act, the judge held that it was in principle necessary to differentiate between costs relating to the GMS (for which Van Oord was not responsible), costs relating to scour protection (for which Van Oord was 35 per cent responsible) and other matters. He used as a starting point an analysis of the number of paragraphs concerning different issues in the witness statements, statements of case and experts’ reports. This happened to result in broadly the same proportion as that applied to the recovery of damages from Van Oord which had been assessed at 8.456 per cent. In the circumstances, it was appropriate to use the same proportion for Van Oord’s contribution in respect of both damages and costs.

Contribution to Mouchel’s costs

This claim had to be made under s51 of the Senior Courts Act 1981. Van Oord had been involved in the main action only at a late stage. Since the proceedings between Mouchel and Kier were confined to issues relating to Mouchel’s liability to Kier rather than anything to do with Van Oord’s primary liability to Kier, Van Oord was not ordered to contribute to Mouchel’s costs in defending proceedings to establish Mouchel’s liability. In any event, looking at the factors under CPR 44.3, there was no conduct by Van Oord to justify such an order.

Comment

There is surprisingly little guidance on the nitty gritty of contribution claims, such as liability for costs. There are plenty of rather confusing authorities about the meaning of “same damage” under the 1978 Act but few that go into the detail. This was apparent in 2009 when Christopher Clarke J had to deal with the complex issues which arose in Nationwide Building Society v Dunlop Haywards Ltd and Cobbetts. DHL was held liable in deceit for fraudulent overvaluation and could not therefore allege contributory negligence against the claimant. Cobbetts sought a contribution from DHL having settled the claim against it in negligence, relying both on its contractual limit of liability and a defence of contributory negligence. The judge found little direct guidance on the approach he should take to some of these issues, let alone cases or commentary providing him with answers.

In the present climate, in particular where claims are funded by a conditional fee agreement and after the event insurance, the greater part of any settlement figure is likely to be in respect of the claimant’s costs. This was the position in the Mouchel case. It becomes critical therefore to know upon what basis a contribution in respect of those costs can be recovered under the 1978 Act.

It was possible for the judge to be accurate here because the parties provided him with the breakdown of the global settlement figure. Where this does not exist or is not made available, the court will not be able to differentiate between costs and damages. For this reason, Ramsey J concluded that in general, unless there is strong evidence to the contrary, it is undesirable to differentiate between damages and costs when apportioning liability under the 1978 Act. He therefore applied the same percentage to both.

In the Nationwide case, the circumstances required another approach. The claimant had recovered costs from both defendants in respect of significantly different claims. Christopher Clarke J commented that where two defendants are both innocent (negligent) parties who both reasonably defended the action to the same stage, you could aggregate the costs each has to pay to the claimant and apply the appropriate proportions to the aggregate figure. This approach treats the total costs as if they are an addition to the claimant's damages and shares them out in the same proportion. However, this can lead to unfairness where the defendants are not in similar positions. It was not appropriate in the Nationwide case because it would have required Cobbetts to share in the costs of DHL’s unsuccessful defence of the fraud claim.