Monday, 14 July 2003

1. LORD JUSTICE SCHIEMANN: This is an appeal by two defendants in relation to a costs order from Mr Michael Briggs QC sitting as a Deputy Judge of the Chancery Division. They appeal with the leave of Aldous LJ.

2. The first defendant was involved in the development of scientific equipment used in the early diagnosis of cancer. He was involved in a number of projects through a number of different companies. He was anxious to obtain funding to enable one of these projects, known as cytometry, to continue. The second defendant was one of the companies through which the first defendant operated.

3. The substantive claim was about an introduction fee. It had originally been envisaged that the business which would result from an introduction would be the takeover of a company by the defendants. In the event the business which resulted from the introduction was a reverse takeover.

4. The claimant effected a business introduction which resulted in the first defendant receiving a very large sum of money. The second defendant paid the claimant £30,000 and the two defendants made a Part 36 offer of a further £30,000. However the claimant claimed that he was entitled to more and so he brought a claim on 27 July 2000. In their re-reamended form the particulars of claim said this:

"The Claimant's claim is against the 1st and/or the 2nd Defendant for commission arising out of an oral agreement leading to the negotiation of financing and other arrangements relating to Medical Solutions PLC for the benefit of and at the request of the Defendants; or in the alternative damages on the basis of quantum meruit.

2. The 1st Defendant was at all material times Managing Director and effective proprietor of the 2nd Defendant. As a result of discussions between the parties commencing in or about 1995, it was agreed that the Claimant would introduce the Defendants to a source of financing to enable them to exploit certain medical products and technology, particularly in relation to the international market for such products in the field of cancer diagnosis and treatment worldwide.

3. Pursuant to the agreement, the Claimant carried out very substantial work on the Defendants' behalf and worked closely with the Defendants between 1995 and 1999 to bring about the objective specified in 2 above.

(a) The Claimant introduced Michael McDonald, an entrepreneur to the Defendants on or about 23rd April 1997.

4. On or about 20th July 1998, it was orally agreed between the Claimant and the 1st Defendant that, if the Claimant were successful in bringing about a state of affairs where the 1st and/or 2nd Defendants received cash or shares or both as a result of the Claimant's efforts, the Claimant would receive 10% either of the sum received or 10% of the shares received or 10% of both if both were received. It was implicit in what was orally agreed between the Claimant and the 1st Defendant that, if the financing of the 2nd Defendant was by way of reverse takeover (as in the event it was) the Claimant would be entitled to 10% of the shares and/or cash received by the shareholders of the 2nd Defendant."

There are then various paragraphs which recite that the claimant had carried out various works, and that eventually the defendant gave him £30,000. That was on the basis that he had only received £300,000. It was alleged that in truth he had received much more and therefore the first and/or second defendants were in breach of contract as a result of which they had suffered loss and damage amounting to in excess of £1 million. Then paragraph 10 reads:

"If (which is denied) the Court finds that no specific sum or formula was agreed for the Claimant's remuneration, the Claimant claims such sum as the Court thinks just on a quantum meruit basis for the work carried out on the Defendants' behalf from 1995 to 1999, brief details of which are provided in..."

- a document which was attached and which runs to many pages of what we are told is Mr Vernon-Kell's diary. It sets out all the things he claims to have done.

5. In short, the claim had two limbs. There was a claim in contract of 10 per cent of any amount paid in cash or shares to the defendants, and there was a fall-back quantum meruit claim on the basis set out in paragraph 10. As I say, had the claim in contract succeeded the claimant would have received well over £1 million.

6. The defendants requested further particulars of both the contract and the quantum meruit claims. The claimant's solicitors wrote to say that they wished the contract claim to be tried first and the defendants were agreeable to this. It seemed sensible to both parties at the time and neither party had second thoughts in the years before the results of the trial of the contract claim.

7. On 7 November 2000 District Judge Nathan gave directions to the trial of the contract claim, and directed that:

"The trial of the Claimant's claim on a quantum meruit basis as pleaded in paragraph 10 of the Claimant's statement of case ... is adjourned with liberty to apply."

8. The contract case came on for trial on 29 April 2002 after a fair amount of discovery and to-ing and fro-ing.

9. In due course the judge below gave judgment for the defendants in the following order:

"1. The Claimant's claim for damages based on the contract alleged in paragraph 4 of the Re-Re-amended Particulars of Claim be dismissed. 2. The costs of the trial of the preliminary issue be reserved to the Judge hearing the claim for a quantum meruit."

This is followed by various further details which do not need to be investigated.

10. The quantum meruit case came on shortly thereafter. In the light of findings of fact made by the judge in the contract case the claimant amended his quantum meruit claim so as to change its basis. He had, it will be recalled, originally asked to be remunerated on the basis of time spent on the project. He deleted this and asked instead to be remunerated on the basis of the value which the parties themselves put on those services in the light of the amount of money to be made from the project, basing himself on Way v Latilla [1937] 3 All ER 759.

11. The costs order which was made and which has given rise to this appeal is part of the order which was made at the conclusion of the quantum meruit trial. Paragraph 1 records that a judgment for the claimant against the first defendant for £137,000-odd plus interest. Then there are various other detailed provisions which do not concern us, but paragraph 4 does. It reads:

"There be no order as to the costs of days 2 to 5 of the trial which commenced on 29.04.02..."

Then paragraph 5:

"Save as aforesaid:

(a) the 1st Defendant do pay the claimant's costs of the action to be assessed on a standard basis; and

(b) there be no order as to the costs of the 2nd Defendant."

The judge's reasoning on the subject of costs is careful and set out at page 200. He says this:

"The combined length of the two trials on this matter has been six and a half days. At first blush it would appear that five days were taken up with a claim, unsuccessful as it turned out, by Mr Vernon-Kell to establish and enforce a contract for his remuneration and that one and a half days were taken up with his alternative claim based on quantum meruit, upon which he succeeded, in excess I should add of a payment in made before the first trial. That first blush appearance masks the reality as both counsel concede because there was on any view a very substantial overlap of facts and matters as being relevant both to the contract and quantum meruit claims, facts and matters all of which were litigated at length at the first trial. ...

In my judgment if the case had been confined to quantum meruit, but in the way in which it was subsequently argued rather than originally pleaded, it would have been likely to have occupied the court for about four and a half days. In other words about two days were spent by Mr Vernon-Kell in unsuccessfully pursuing a separate claim in contract for an amount, be it noted, greater by about an order of magnitude than the amount which I have held that he should recover."

A little later the judge dealt with the conduct of both parties in the way they had dealt with the case. He said that Mr Ralls, who appeared for the defendant, concentrated mainly on the significant number of changes of case through which Mr Vernon-Kell's claim proceeded, and in particular the fairly fundamental change in the way in which the case on quantum meruit was presented. He said that Mr Ticciati, for his part, concentrated on aspects of the conduct of the case by the defendants and in particular what he said were serious, and in one instance even disgraceful, failures in the giving of full disclosure. The judge continues:

"I do not propose to found my order for costs upon a view that one party's conduct of this action has been such as to merit the court's displeasure to any significant degree more than the other party's conduct. In my judgment the real question is whether, and if so to what extent, Mr Vernon-Kell's costs arising prima facie from having been the successful party should be reduced by virtue of the fact that he vigorously advanced a contract claim which was unsuccessful and which was advanced in a way which, had it been successful would have produced a very much larger award than that which I have made.

In my judgment the key to this analysis does lie in asking the question how much longer a trial had it been by virtue of the contract claim than it would have been if the claim had been limited to quantum meruit alone, and I have indicated that in my judgment it was two days longer.

The question then arises whether I should merely disallow two days' worth of Mr Vernon-Kell's costs or treat the costs of those two days as properly apportionable in favour of the Defendants. In my judgment I should take the latter course, but rather than requiring lengthy taxation with cross set-offs, achieve that result by an order that Mr Vernon-Kell should have his costs of this action, that he should be disallowed his costs of all after the first day of the first trial, that is days two to five of the first trial."

Shortly thereafter in the discussion the deputy judge is recorded as saying:

"I am not providing ... the costs up until the end of the first day, which would carry the brief fees with them, Mr Ralls, form part of the general costs order which I have made in Mr Vernon-Kell's favour."

Then a little later on:

"I should say also I make no costs order separately in favour of the Second Defendant. The Defendants have throughout acted through one legal team and so far as I can see no time or no significant time has been taken up by any issue as to the apportionment between the Defendants of the liability to meet the judgment which I have given."

12. So the position at the end of the day was that the claimant was awarded as against the first defendant the entirety of his costs, save days 2 to 5 of the contract trial. In short, the whole of the costs of the quantum meruit trial and for such preliminary work as was done in relation to the contract claim and the brief fee in relation to the contract claim.

13. The first defendant makes no complaint in relation to the order to pay the costs of the quantum meruit trial, but does complain of the result of the costs order so far as the contract trial is concerned. The first defendant was awarded nothing in terms against the claimant and no order was made either in favour or against the second defendant which had successfully defended, whichever way the claim was put.

14. Mr Peter Ralls QC, who appears for both defendants with Mr Gary Pryce, in clear and forceful submissions said that at the end of the day the judge, who had tried both limbs of the action, had made an order which was outside even the generous discretion which the trial judge has in such circumstances. The claimant had fought and lost a contract claim and had abandoned the originally pleaded quantum meruit case; he had succeed only on a late amendment amounting to a complete reformulation of the quantum meruit claim. He submitted that the starting point for the judge ought to have been that the defendant should recover the costs of the contract claim and that the claimant should recover the costs of the quantum meruit claim, and that the judge should then have given defensible reasons for departing from this prima facie position. He accepted that there were defensible reasons for a departure, but submitted that the departure was far too great to be within the ambit of the judge's discretion. He accepted that there was of degree of overlap between the two trials and that the judge was entitled to give the claimant credit for the fact that the quantum meruit trial was shorter than it would have been had it not been proceeded by the contract trial. He accepted that it was relevant that the claimant recovered four times more than the defendant. He accepted that a setting off of what the defendant was entitled to recover for fighting the case which had been lost against what the claimant was entitled to recover in respect of the case which he won was, in principle, acceptable.

15. Given all that, submits Mr Ralls, the end result was striking in that it meant that of the total of the claimant's costs of the contract hearing originally claimed at £138,000 later taxed down to £129,000, only £12,000 had been disallowed, that amount being the costs of the contract trial. In particular the defendants have landed up paying the claimant's costs of a brief fee of trial which the claimant had lost, as well as costs of a brief fee of a trial which the claimant had won. He submitted that the judge ought to have paid more regard to the fact that the claimant had not succeeded on the way the case was originally pleaded and had recovered merely one/tenth of that which they claim to be entitled to.

16. As regards the position of the second defendant he submitted that while it was true that the defendants shared legal representation their roles in the action were not identical; and he pointed to the fact that the disclosure obligations of each of them were distinct in an action concerning a substantial number of documents, including company documents in the possession and control of the second defendant.

17. It was contrary to the overriding objective of the CPR that costs should not follow the event on the two main issues as between the second defendant and the claimant. Thus he submitted that the second defendant should recover its costs from the claimant.

18. Mr Oliver Ticciati, who appeared for the respondent, submitted that the understandable aim of the judge was to produce a just, overall result, which involved the minimum difficulty in taxation. He accepted that the approach of the judge of not the only approach to the case, but submitted that it was a perfectly reasonable approach and that the end was consistent with justice. He submitted that, given that the claimant had recovered significantly more than the defendant had offered and given that the contractual claim which failed could not be described as having been brought unreasonably, albeit that it failed, some judges, when faced with a case where a claimant had been successful overall although unsuccessful on a particular issue, would only have deprived that claimant of his own costs of that issue and would not have gone on to order that the other party pay the costs of the defendant who had succeed on that issue, albeit he did not overall. He did not complain that the judge had not followed this course in the present case but had, in effect, ordered the claimant to bear two days of the defendant's costs, but he asked the court to bear that in mind in evaluating the overall reasonableness of the order which was made. He submitted that although the claimant had lost overall in the contract he had won on some issues, including some related to causation, and the degree to which the claimant's introduction had resulted in the deal which had brought (or so it seemed at the time) a considerable amount of benefit to the defendants. He submitted that the causation findings were of some relevance to the quantum meruit claim. He pointed out this that the judge who, after six days of trial, had given two careful judgments, was uniquely well placed to evaluate the amount of overlap between the two trials and the degree to which he had been able to deal with the second trial by reason of what had gone on in the first. The quantum meruit trial proceeded on the basis that various findings had been made in the contract trial.

19. As to the defendants' criticisms founded on the fact that the pleadings on which the claimant ultimately succeeded only saw the light of day after the judgment in the contract case he made the following submission: first, that the claimant's reformulation of his quantum meruit claim was only made possible by reason of discovery made in the quantum meruit proceedings after the contract trial; second and perhaps more importantly, the judge had taken a view as to each party's conduct of the action, had formed the view that there were faults on each side and that the force of these cancelled each other out and had already therefore taken the question of late re-amendment into account in arriving at his ultimate costs order; and third, that the judge's reasoning in relation to the second defendant being made liable was one which was open to the judge and that in any event the second defendant had played only a partial part in the enterprise.

20. I have to say that my mind wavered in the course of the arguments and I originally saw much merit in the defendants' contention. However I have been persuaded that the judge in the present case was particularly well placed to make an evaluation of what was the just, ultimate result; and that neither his method of approach nor the ultimate results can be criticised as being outside the range of conclusions which was lawfully open to him. I have some sympathy with the defendant but bear in mind that he could have avoided the order which the judge made if he had only made an adequate offer to dispose of the case. He did not do so and so the claimant had to come to court to receive that to which was entitled.

21. I would therefore dismiss this appeal.

22. LORD JUSTICE LATHAM: I agree.

23. LORD JUSTI CE JONATHAN PARKER: I also agree.

(Appeal dismissed; Appellant's costs summarily assess in the sum of £10,647, including VAT to be paid to the Respondents).