Case Law Updates – July 2023

Topalsson GmbH v Rolls-Royce Motor Cars Limited [2023] EWHC 1765 (TCC)

Background

This case consists of claims and counterclaims for damages resulting from the termination of an agreement between Topalsson GmbH (“Topalsson”) and Rolls-Royce Motor Cars Limited (“RR”), for the development and delivery of a software for a new car configurator.

The parties entered into a service agreement in October 2019, RR engaged Topalsson to design, build, implement and maintain digital visualisation software to replace the current system, improving the customer’s experience when configuring a car. Throughout the project, delays occurred, which both parties blame each other for.

Topalsson stated that RR imposed a methodology that was not appropriate for the works, meaning that the scope of works expanded, but RR refused to agree a billing plan to provide Topalsson with adequate funding.

RR said that Topalsson obtained the appointment by misrepresentation regarding its experience and expertise, failed to properly resource the project, poor performance throughout the project and caused delays. RR also state that Topalsson failed to achieve ‘Technical Go-Live’ for many elements of the new software, despite a deadline being agreed in the March 2020 plan.

RR issued their first termination notice by letter dated 16 April 2020, they purported to terminated Topalsson’s appointment, this was rejected by Topalsson as they deemed it ineffective and affirmed the agreement.

Without prejudice to the first termination notice, RR served a further termination notice by letter on 22 April 2020, purporting to terminate at common law under clause 13.11.3 of the parties’ agreement. Topalsson ceased work on the project at the end of May 2020.

Topalsson’s claim for damages was set at €6,420,793 and €2,420,793 in respect of work carried out and invoiced at the date of termination. RR counterclaimed for damages flowing from the apparent repudiatory breach and damages for misrepresentation, It claimed they suffered loss and damage amounting to €20,000,000. Both parties’ claims are capped at €5 million under clause 20 of section 7 of the agreement.

Issues

Mrs Justice O’Farrell DBE summarised the key issues to be considered as:

1. Whether Topalsson were under any obligation to deliver and install the software in line with an agreed programme or within a reasonable time;
2. Whether Topalsson achieved any of the agreed milestone dates or carried out its obligations in a reasonable time;

• Whether Topalsson was impeded in its performance or prevented from performing its obligations by RR;

13. Whether RR was entitled to terminate under clause 13.11.3 of the agreement or at common law on the ground of Topalsson’s repudiatory or anticipatory breach, or if RR were in fact in repudiatory breach as a result of the termination notices;
14. Whether Topalsson induced RR into the agreement by making false representations
15. Quantum of the claims and counterclaims;

• Whether either party is entitled to an order for delivery up or destruction, and/or declaratory relief in respect of deliverables, supplier software and bespoke software

Issue 1 – Time Obligation

Under the implementation plan, which set out framework for the detailed planning of the project, did not impose a contractual obligation on Topalsson to deliver the works within the timeline as shown in the ‘ITT’ document.

However, the plan agreed between the parties in December 2020 imposed a contractual obligation to deliver the works in accordance with the plan, and time was of the essence in respect of the milestone dates. The March 2020 plan was also deemed to impose a contractual obligation on  Topalsson.

Issue 2 – Compliance with Time Obligations

At the date of termination, Topalsson had failed to comply with the March 2020 plan, it failed to reach ‘Technical Go-Live’ on 3 elements of the software.

Issue 3 – Reasons for Delays

It was accepted that there were some initial delays caused by the project starting later than anticipated. However, this initial delay was decided not to exonerate Topalsson from failing to meet the agreed deadlines. Under the agreement, Topalsson undertook to provide deliverables and services for the project in accordance with the agreed dates. The agreement of the December 2019 plan meant that Topalsson was obliged to comply with it.

Mrs Justice O’Farrell DBE was of the opinion that the most likely reason for the delays was the lack of appropriately skilled resources, either because Topalsson took on a project beyond its capacity, or because it struggled to recruit and maintain the needed staffing levels.

Issue 4 – Termination

The first termination notice issued on 17 April 2020 was erroneous as RR has already agreed to the revised dates in the March plan, so as a result were not able to rely on breaches of the December plan.

The second termination notice relied on Topalsson’s failure to comply with the March plan. The second notice was deemed to be valid as the March plan was binding on the parties. The express terms of the agreement made time of the essence. Topalsson’s failure to comply amounted to a breach, entitling RR to terminate under 13.11. if the agreement or at common law for repudiatory breach.

Issue 5 – Misrepresentation

The statements regarding Topalsson’s expertise were deemed to be true. RR failed to establish any case of actionable misrepresentation.

Issue 6 – Quantum

Under clause 26 of the agreement, Topalsson were entitled to €1,551,787 for the deliverables. €757,028 had already been paid by RR to Topalsson, which left an outstanding balance of €794,759.

RR were deemed to have suffered damages of €7,962,323, after subtracting the sums due to Topalsson, RR were awarded €7,167,564. However, as mentioned previously, each parties’ claim is capped at €5 million. RR were entitled to 4% interest on the sums owed.

Issue 7 – Intellectual Property Issues

It was decided that all deliverables must be provided to RR and the title has passed to RR. Mrs Justice O’Farrell DBE set out her findings as to the value of the work done by Topalsson as at the date of termination. It showed that payment in accordance with the agreement had been made in respect of the deliverables provided to RR. Therefore, RR were entitled o delivery up or destruction of any material held by Topalsson.

Conclusion

Topalsson were found to have failed to comply with their obligations under the agreement and plans between the parties. In turn, they were ordered to pay €5 million to RR.

Simpsons (Preston) Ltd (trading as Simpsons) and another v MS Amlin Underwriting Ltd [2023] EWHC 1370 (Comm)

Facts:

• The Claimant had stated in its costs budget that it expected to incur around £59,665.00 of costs during the disclosure stage of proceedings;
• The Claimant subsequently applied to the Court to increase its disclosure estimate to £117,807.56, an increase of £58,142.56;
• The Claimant’s reasons for applying to increase the estimate were:
  • Over 300,000 documents were obtained during the disclosure stage, which they could not have reasonably anticipated;
  • This included two network drives having to be searched which were not initially envisaged.
• The Court had to consider if the increase in the disclosure costs was a ‘significant development’ which warranted such an increase under CPR Practice Direction 3.15A.

Judgment

The Judge made the following points:

• There is a difference between the ‘retrospective’ and ‘prospective’ review of costs. In the latter, the Court should take a pragmatic view of what work may be carried out during each stage of the proceedings and deciding what costs are appropriate for each stage.  The Court should not award the lowest potential level of costs but should be flexible.
• A ‘significant development’ under CPR PD 3.15A may include both internal developments (such as a solicitor’s client providing more documents than anticipated) and external developments (such as the other party providing more documents than anticipated).
• Instead, the Court should focus on if what has happened has caused the stage of proceedings to become more time consuming, costly and complicated than previously anticipated.
• Such significant developments must include events which could not have been known about when the costs budgets were agreed.
• The Judge held that having to review a substantial amount of documents more than initially anticipated could be construed as a ‘significant development’.
• In this matter, the Judge was not convinced that the Claimant’s had demonstrated that their circumstances constituted a ‘significant development’.
• The reasons included the fact the discovery of the new documents did not change the assumptions on which the Claimant based its original cost estimate. The Judge also noted that the increase in documents did not inherently indicate a more onerous burden on the Claimant.
• The Judge ultimately did not allow the increase as he wanted to ensure the costs budget process was ‘rigorous’ so as to provide clarity to the potential paying party (i.e., the unsuccessful party) in relation to the costs it may pay if there is an adverse costs order.

Leighton Denny v Kambiz Babaee & Others [2023] EWHC 1490 (TCC)

Facts:

• The Claimant was successful on its claim in respect of defects in his new home. The Judge had to consider what costs order he should make.
• The Claimant sought costs on the indemnity basis. The Claimant argued this should be made because the first Defendant did not co-operate during the litigation and he had attended a mediation and entered into a settlement agreement but did not carry out the terms of the agreement (by buying the property).
• The first Defendant, Kambiz Babaee, argued that the costs ordered should be reduced because the Claimant’s claim value was reduced during the proceedings.

Judgment

• The Judge commented that Mr Babaee’s argument in respect of reducing the costs Mr Denny should be awarded was not a well made out argument. However, he surmised that Mr Babaee’s argument was based on either:
  • Mr Denny should be sanctioned for relying on a higher valuation, which he significantly reduced at the Trial;
  • The fact Mr Denny had claimed higher costs inherently meant more expert and legal costs were incurred.
• The Judge was not convinced that either of the above limbs of the argument had merit.
• The Judge was not given evidence that the Claimant’s high value claim was egregious conduct. This would include as a result of recklessly or purposefully misleading the Court or the other parties.
• The Defendant did not present the Judge with any evidence that he had incurred more costs as a result of the higher valuation.
• Therefore, the Judge did not believe the Claimant should be penalised. However, he did believe that relying on the higher valuation was a factor in determining if indemnity costs should be awarded.
• The Judge stated that the Claimant’s argument in respect of lack of co-operation was not enough to justify an indemnity costs order. The first Defendant had previously had adverse costs orders made against him to reflect this lack of cooperation.
• The Judge was convinced that the Claimant should be awarded indemnity costs because of the Defendant not carrying out the terms of the settlement agreement. The Judge described how this was “conduct which is well outside of the norm and sufficient to justify the censure of the court.  There is no evidence of the additional costs incurred because of the Defendants’ change of stance on this issue but the purpose of the order is to mark disapproval of conduct that its likely to incur unnecessary costs rather than compensating the party who has actually incurred those costs.”
• The Judge ultimately ordered that the Defendants should pay the Claimants costs on a standard basis for part of the proceedings and on the indemnity basis for the remainder of the proceedings.

Henderson and Jones Ltd v Stargunter Ltd & Anor [2023] EWHC 1849 (TCC)

The First Defendant served an incomplete cost budget on time. The defendant then sought to serve a “replacement” budget which was complete but five days late. The defendant sought an application for relief from sanctions, which was granted.

Background:

• Proceedings arise from a construction contract between Stargunter (First Defendant) and Rudgard (Second Defendant) on 20th November 2008.
• Stargunter owns a property at 6 Tregunter Road, London, SW10, which was part of the contract and Rudgard, a construction company, became insolvent in 2010.
• Rudgard’s rights under the contract were assigned to Henderson, but the effectiveness of the assignment is in question. Rudgard has not participated in the proceedings.
• A dispute arose during the construction works, involving delay and the value of Rudgard’s account.
• On 30th April 2010, Stargunter issued a notice of specified default against Rudgard for failure to proceed diligently.
• On 13th May 2010, Stargunter issued a notice terminating Rudgard’s contract for default on 18th May 2010.
• Henderson is seeking a valuation of Rudgard’s termination account.
• Issues related to liability for delay and delay losses, valuation of Rudgard’s works, and the validity of Stargunter’s notices.
• Henderson claims £980,802 in total.
• Stargunter seeks to rely on its second budget, however this was issued incorrectly.
• Mr David Gwillim claims he was not timely notified of an order and encountered difficulties in preparing the budget.
• The first version of the budget was filed and served on 15th June 2023 but contained errors and was incomplete.
• A corrected version was filed and served on 20th June 2023.
• On 21st June, Henderson’s solicitors requested a prompt application for relief from sanctions if Stargunter wants to rely on the second budget.

Arguments:

• The claimant argues that the first defendant has not served a budget in accordance with the civil procedure rules. The first budget does not adhere to the requirements set out in the CPR and the second budget was served after the deadline set by the CPR. The default position is that the budget will be regarded as comprising the applicable court fees. This can be changed with a court order.
• The claimant also relied on the fact the defendant had not made a formal application for relief.
• On 28th June, Mr Gwillim replied, stating Stargunter’s intention to invoke the saving provision in CPR 3.14.1 at the hearing, arguing that the revised budget had no material impact on the proceedings.
• The defendant relies on the notes set out in the white book that referred to cases which granted relief because the consequences “were not so material nor significant”.
• The defendant also relied on Mott v Long which held that 10 days delay was serious and significant but relief was granted as it did not change the position of the parties.

Issue:

• Is a formal application for relief required?
• Is the breach serious or significant and did it have a material effect on the litigation overall?

Held:

• The court granted relief from sanctions.
• A separate application for relief is not required where the defaulting party is looking to invoke CPR 3.14, however, the Denton test must apply.
• In accordance with the Denton test, the breach was not serious nor significant. However, there was no good reason or default as the breach occurred due to the inefficiency of the defendant’s solicitors. Nonetheless, granting life will not prevent litigation from being conducted properly.

Judgement:

• When assessing whether the breach was serious or significant, the court must consider whether it had a material effect on the litigation overall.
• The defendant sought relief promptly and the mistake was unintentional due to IT difficulties rather than deliberate non-compliance.