The parties in the Museum of Liverpool case have just trooped back into court to settle the matter of legal costs and interest to be paid - a battle almost as contentious as the case itself

Tony Bingham

The architect got bashed for damages, loads of damages on the new Liverpool Museum.  He got most of the blame for collapsed suspended ceilings and a tricky design muddle about amphitheatre steps.  The trials earlier this year sorted out liability and all those pound notes for damages, compensation for the repair and the cotton wool needed to wrap John Lennon’s old specs up and store them away.  The lawyers happily trooped back into court a week or so ago to argue about all the legal costs and what interest is payable to the winning side, the trustees of the National Museums and Galleries on Merseyside. 

Start, said the judge, at what rate of interest is payable when there is a breach of an architect’s contract resulting in payout of damages. It was argued that the same rules for late payment of a debt apply. For example, if you fail to pay the right amount now due to, say, your roofing subcontractor, then the rules in the Late Payment of Commercial Debts (Interest) Act 1998 apply. Well, said the River Mersey Trustees, that’s what goes when the architect costs us a few bob and we want interest. The rules in the act say pay 8% over base rate. The museum trustees calculated that it came to 8.5% per annum. The architect’s lawyers argued that the interest rate on a claim for breach of duty of care is at the discretion of the court and the mark in court today is only 2% over base.

The Late Payments Act applies to late payment of any part of the contract price. Most adjudicators have that underlying theme, hence the 8.5% rate.  It’s about a debt. But wait, this claim against the architect was a claim in what is called common law “damages” for failing to take care of his client under a contract. So that only attracts the 2% over base rate. It’s true that many a building contract goes on about liquidated “damages” for delay. But those damages are part of the payment due, contract price, regime - and any net sum payable, or repayable for that matter, might well be caught by the Late Payments Act at this higher rate.  Confused?  Yes, well, what do you expect from this law game?  So, a claim for common law damages for breach of a duty of care is not caught by the 8.5% rate; it’s the lower “discretionary” rate, being 2% over base.

The basic rule is that ‘costs follow the event’, rather like the two Liver Birds and Gerry and the Pacemakers never walk alone

Turn now said the judge to the liability and allocation of legal costs.  The architect was the plain loser.  The basic rule is that “costs follow the event”, rather like the two Liver Birds and Gerry and the Pacemakers never walk alone. The trustees, cock-a-hoop as to their outright two-nil win, wanted costs on something called the indemnity basis, rather than standard basis. That requires the winner to show there was something in the conduct of the legal proceedings or the circumstances, which takes the case out of the norm and justifies this more penal order for costs.  So it’s not just losing nor is it want of moral probity or deserving of moral condemnation; instead, it is conduct generally unreasonable to a high degree. By the way, I would support that test for an adjudicator to award a party its legal costs because there are times when behaviour is more than iffy and ought be condemned in costs. As to the losing architect’s behaviour and his legal team, there was no such iffy behaviour, so there was no order on this “indemnity” basis. 

As to how much is payable of the museum trustees’ legal costs, the architect’s barrister argued it should only be 60% of the “standard” basis to reflect the conduct of the trustees. They argued that the winner wasted costs by running arguments that failed, by refusing to mediate, by causing delays, and so on. The judge decided none of these complaints made any difference, nor to the prospect of mediation doing its stuff.  The proof of that pie is in the eating, said the judge.  Seemingly the architect made no offer of settlement of any substance. That might be a useful litmus test for forecasting the usefulness of mediating. No point in going to that added mediation expense if the parties are miles apart perhaps; though any process that opens people’s eyes is worthwhile. In the end the judge seems to have been unimpressed with penalising the trustees and was prepared to order an interim payment of legal costs to them.  Earlier this year both sides had told the court they each expected to spend (heaven help us) £1m+ on litigation. An order for interim £700,000 was made. 

The building, the design and the work done for all that’s happened is really good. Do visit.

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple