Boyd & Hutchinson (a firm) v Foenander

1. LORD JUSTICE AULD: Lord Justice Chadwick will give the first judgment on the application.

2. LORD JUSTICE CHADWICK: This application is made in an appeal from an order made on 12th April 2002 by Buckley J, in proceedings brought against the applicant, Mr Johan Foenander, by a firm of solicitors, Boyd & Hutchinson. In those proceedings the solicitors sought to enforce payment of an order for costs made on 2nd December 1996. Those costs had been taxed, on 7th September 1998, in the sum of £5,333.57.

3. The appeal itself is brought with permission granted by this court (Potter LJ) on 12th July 2002. The order granting permission limits the appeal to a single issue, identified at ground four of the appellant's grounds of appeal; namely, whether the appellant's liability to pay the costs taxed on 7th September 1998 has been discharged by a compromise agreement made on 22nd November 1999.

4. Shortly after permission to appeal had been given, Mr Foenander, was adjudicated bankrupt. We were told that the bankruptcy order - - which we have not been shown - - was made on 30th September 2002. The order was not made on the petition of Boyd & Hutchinson. It was made on the petition of another firm of solicitors; but was, itself, founded on a debt in respect of unpaid costs.

5. Mr Foenander sought an annulment of that bankruptcy order. We were told that the application to annul was refused by the Registrar on 15th August 2003. The Registrar, it seems, extended the time for appealing to a judge of the High Court (under section 375 of the Insolvency Act 1986) until after the hearing of an application by Mr Foenander for a wasted costs order. No appeal against the refusal of the annulment has yet been heard. It is not said that the proceedings in the bankruptcy have been stayed pending any appeal against the refusal to annul.

6. In those circumstances, Mr Munro, counsel for the respondent to the appeal listed for hearing today, has taken the point that Mr Foenander has no standing to pursue that appeal. He has reminded us of the observations of Hoffmann LJ in Heath v Tang [1993] 1 WLR 1421, at page 1424F- G:

"In cases in which the bankrupt is a defendant, there is of course usually no question of the cause of action having vested in the trustee. Unless the defence is set- off ... the bankrupt will not be asserting by way of defence any cause of action of his own. But in cases in which the plaintiff is claiming an interest in some property of the bankrupt, that property will have vested in the trustee. And in claims for debt or damages, the only assets out of which the claim can be satisfied will have likewise vested. It will therefore be equally true to say that the bankrupt has no interest in the proceedings. As we have seen, section 285(3) [of the Insolvency Act 1986] deprives the plaintiff of any remedy against the bankrupt's person or property and confines him to his right to prove."

7. As matters now stand that is the position in this case. The order for costs which Boyd & Hutchinson seek to enforce is a debt provable in the bankruptcy. It is not a liability which Mr Foenander can now be called upon to meet himself. In so far as Boyd & Hutchinson are seeking to enforce that debt by a charging order against property in which, prior to the bankruptcy, Mr Foenander had a beneficial interest, that property has now vested in the trustee in bankruptcy under section 306 of the Insolvency Act 1986. Mr Foenander has no interest to pursue while he remains bankrupt; and his trustee in bankruptcy has not, herself, sought to pursue the appeal which he initiated.

8. Faced with that application, Mr Foenander, who has addressed us through Miss Adshead who has been assisting him in this litigation, seeks an adjournment of this appeal. On his behalf she points out that an appeal against the refusal to annul the bankruptcy order may yet succeed; and that if it does, the effect will be that Mr Foenander will have been, throughout, a person entitled to pursue the appeal for which this court has already given permission. Accordingly, she submits, the opportunity for Mr Foenander to pursue this appeal should be preserved by adjourning the appeal until the question whether or not the bankruptcy order should be annulled has been finally determined; that is to say, first determined by the High Court on appeal from the Registrar, and then perhaps, on any further application for permission to appeal or appeal, by this court. That may be some way in the future. There is obvious force in her submission that the court should not dismiss the appeal, on the basis that Mr Foenander has no standing to pursue it, while there remains a possibility that he will regain such standing.

9. Nevertheless, in deciding whether or not to grant an adjournment, the court must have regard to the overriding objective of the Civil Procedure Rules set out in CPR 1.1, and in particular at subrule (2) of that rule. Having regard to the overriding objective requires the court to deal with a case, so far as is practicable, in a manner which saves expense, is proportionate to the amount of money involved and allocates to it an appropriate share - - but no more than an appropriate share - - of the court's limited resources. Courts are directed (by CPR 1.4) to have the overriding objective in mind when managing cases.

10. In the present case, the parties have come to court to argue the appeal on the merits. The members of this court have read the papers in advance, with a view to considering on the merits what is on a proper analysis a short point of construction; namely, what is the effect of a letter, dated 22nd November 1999, in which the terms of compromise are set out? In those circumstances, it has seemed to us that, in deciding whether or not to grant an adjournment if this appeal, we should consider and form a view as to the potential for success of the appeal. We should hear the arguments which could be advanced on the appeal; and if, having heard those arguments, we are satisfied that the appeal has no prospect of success, then the right course is to refuse an adjournment, rather than simply put the point off to a further occasion.

11. Accordingly, we have heard argument on the merits of the appeal, with a view to deciding whether or not to grant the application to adjourn which Mr Foenander makes through Miss Adshead. We, of course, are in a much better position to form a view as to the prospects of success on the appeal than Potter LJ was on the application before him. We have had the advantage of skeleton arguments on both sides; and of much further oral argument.

12. Before turning to the point on which Potter LJ gave permission, I should mention that in the skeleton argument which Miss Adshead has prepared for Mr Foenander she raises a number of other matters. She asserts, first, that the order of Potter LJ restricting the issues which can be raised on an appeal is itself flawed because it has been amended under the slip rule to include that limitation. For my part, I see no substance in that submission. It is plain that the amendment to the order reflects Lord Justice Potter's intention, as it appears from the transcript of his judgment which we have before us.

13. Secondly, she says that the order ought to be revisited in the circumstances that there are a number of issues which she would wish to raise on appeal for which permission was refused. But it is important to keep in mind that this is a second appeal. On examination, those issues turn out to be issues which were the subject of a refusal of permission to appeal on the first appeal to the judge below, in an order of Buckley J of 20th March 2002. The only matter which Buckley J had before him, as a result of his refusal to give permission to appeal other issues, was the compromise issue. Potter LJ identified that point in his judgment; and pointed out that, permission to bring a first appeal on the other issues having been refused by the judge below, there was no power in this court to reopen that question: see section 54(4) of the Access to Justice Act 1999 and the recent decision of this court in Jolly v Jay [2002] EWCA Civ 277. Potter LJ concluded (at paragraph 18) that he had no power to grant permission to appeal in relation to those other matters. The position remains the same today.

14. In those circumstances, the only issue that would be before this court on an appeal is the issue to which I have already referred, namely, that identified at ground four of the appellant's grounds of appeal: has the appellant's liability to pay the costs taxed on 7th September 1998 been discharged by a compromise made on 22nd November 1999?

15. It is not in dispute that an agreement to compromise claims made by Boyd & Hutchinson against Mr Foenander was reached on 22nd November 1999. Nor is it in dispute that if the claim for payment of the costs taxed on 7th September 1998 was within the scope of that compromise, Mr Foenander's liability to pay those costs has been discharged. The only issue is whether the claim was within the scope of the compromise. That turns on the construction of a letter dated 22nd November 1999, written by Landau & Scanlan, solicitors then acting for Mr Foenander, to Boyd & Hutchinson. But, as with any other question of construction, that letter must be interpreted in the light of the circumstances in which it was written and received. As Lord Hoffmann put it in his speech in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, at page 912H- 913A:

"(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the 'matrix of fact,' but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man."

But it is important to keep in mind the exception to which Lord Hoffmann there refers. He spelt it out in the next paragraph:

"(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them."

16. The practical policy underlying that qualification was explained by Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381 in a well- known passage between page 1384G and 1385H. The whole passage is, of course, instructive, but I need read only parts of it. First, at page 1385A- D:

"It may be said that previous documents may be looked at to explain the aims of the parties. In a limited sense this is true: the commercial, or business object, of the transaction, objectively ascertained, may be a surrounding fact. Cardozo J thought so in the Utica Bank case. And if it can be shown that one interpretation completely frustrates that object, to the extent of rendering the contract futile, that may be a strong argument for an alternative interpretation, if that can reasonably be found. But beyond that it may be difficult to go: it may be a matter of degree, or of judgment, how far one interpretation, or another, gives effect to a common intention: the parties, indeed, may be pursuing that intention with differing emphasis, and hoping to achieve it to an extent which may differ, and in different ways. The words used may, and often do, represent a formula which means different things to each side, yet may be accepted because that is the only way to get 'agreement' and in the hope that disputes will not arise. The only course then can be to try to ascertain the 'natural' meaning. Far more, and indeed totally, dangerous is it to admit evidence of one party's objective — even if this is known to the other party. However strongly pursued this may be, the other party may only be willing to give it partial recognition, and in a world of give and take, men often have to be satisfied with less than they want. So, again, it would be a matter of speculation how far the common intention was that the particular objective should be realised."

Lord Wilberforce summarises his conclusion in a short paragraph at 1385H:

"... evidence of negotiation or of the parties' intentions, ... ought not to be received, and evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the 'genesis' and objectively the 'aim' of the transaction."

The House of Lords took the opportunity to confirm that those principles were as applicable to compromise agreements as they were to other contracts in Bank of Credit and Commerce International SA v Ali and others [2001] UKHL 8, reported at [2001] 1 All ER 961.

17. The circumstances in which the compromise agreement in this case was reached may be stated shortly. On 2nd December 1996 an order was made in these proceedings for the taxation of a bill of costs rendered by Boyd & Hutchinson to Mr Foenander in respect of work done under a retainer in connection, I think, with ancillary relief proceedings. Paragraph 2 of that order requires a reference of the bill to taxation. On taxation the amount of the bill was payable by Mr Foenander under an earlier order. Paragraph 3 provided that the costs of and occasioned by the reference to taxation should be paid by Mr Foenander. Paragraph 7 provided that the costs of and occasioned by the action and appeal should be the plaintiff's in any event, also to be taxed if not agreed. The taxation which led to the certificate on 7th September 1998 was a taxation of the costs ordered by paragraph 7.

18. On 11th December 1997 the bill of costs, which was the subject of the order for taxation under paragraph 2 of the order of 2nd December 1996, was taxed at £3,173.91. Shortly thereafter, on 17th December 1997, Boyd & Hutchinson obtained a charging order in the Lambeth County Court charging Mr Foenander's beneficial interest in property known as 154 Knollys Road, Streatham with payment of that sum of £3,173.91, together with the further sum of £3,754.87, said to be the costs incurred by Boyd & Hutchinson in obtaining the charging order. That appears on the face of an order dated 17th December 1997, which bears the Lambeth County Court seal.

19. It is clear that that order could not have been sealed on the date which it bears. That appears from the County Court's own computer- based case history, which indicates that the order for taxed costs - - leading to the quantification of £3,754.87 - - was not obtained until 2nd November 1998. On the face of it, therefore, the charging order dated 17th December 1997 must have been sealed at some date later than 2nd November 1998. But nothing turns on that. The order is not a nullity because it may bear the wrong date.

20. The charging order charges the property with the costs that had been taxed on 11th December 1997, and the additional costs of the application to obtain the charging order. Those sums together amount to £6,928.78. It is clear, and it is not in dispute, that the costs subsequently taxed on 7th September 1998 - - being the costs ordered by paragraph 7 of the order of 2nd December 1996 (although themselves costs awarded against Mr Foenander in the proceedings) were not included in the sums secured by the charging order dated 17th December 1997.

21. In October 1999 Boyd & Hutchinson sought to enforce the charging order of 17th December 1997. They applied, as is usual, in separate proceedings for an order for sale of 154 Knollys Road; and they gave notice on that application to the other person having an interest in that property. That application was made in the Lambeth County Court under reference LB924552. The application was supported by a witness statement signed by Mr Tariq Firdose, a solicitor employed as an associate or assistant solicitor by Boyd & Hutchinson.

22. Mr Firdose referred to and exhibited the charging order of 17th December 1997. He stated, correctly, that the sum secured by that order was £6,928.78 plus interest. He did not refer in his witness statement to the subsequent order which had been made in the Supreme Court Costs Office on 7th September 1998, in respect of costs which were not secured by the charging order of 17th December 1997. In the context of the application which was being made to the Lambeth County Court, there was no reason why he should have done so. Those costs were not secured by the charging order which was the subject of that application.

23. That application to enforce the charging order of 17th December 1997 was due to be heard by a District Judge in the Lambeth County Court on 23rd November 1999. Shortly before that hearing, Mr Foenander instructed new solicitors, Landau & Scanlan. On 22nd November 1999, that is the day before the hearing in the County Court was due to take place, Mr de Cruz, an associate solicitor with Landau & Scanlan, had a number of telephone conversations with Mr Firdose at Boyd & Hutchinson. We have been provided with Mr de Cruz's attendance note of those conversations; and also with an attendance note prepared by Mr Firdose. Mr de Cruz's attendance note confirms, in the first paragraph, that:

"The telephone conversations resulted in a deal being done which is contained in the terms of my letter of the same date."

Save, therefore, to notice that in neither the attendance note of Mr de Cruz, nor in the attendance note of Mr Firdose, was there any reference to the outstanding amount of £5,333.57 under the taxation of 7th September 1998, it is unnecessary to examine those notes further. Whatever agreement was reached, it is the agreement set out in the letter of 22nd November 1999 which Mr de Cruz wrote to Mr Firdose.

24. It is necessary, therefore, to examine that letter. It is headed "Yourselves - v- Foenander, Hearing - 23rd November 1999". It goes on:

"We write further to our various telephone conversations today to confirm that agreement has been reached in settling the outstanding amount owed to you on the following basis. Upon such agreement being reached, we agree to an adjournment of the hearing tomorrow with liberty to restore. The agreement is based on the amount said to be due today under the terms of a Charging Order Absolute obtained by you against our client on 17th December 1997."

There are then set out, under four sub- paragraphs, a schedule of payments to be made, beginning with £4,000 in the post "tomorrow", ending with a final sum of £900 to be paid by post on 23rd February 2000, and amounting in aggregate to £6,900 - - a figure which is, of course, close to the amount secured by the charging order of 17th December 1997.

25. The letter continues:

"In the event our client defaults on payment any accrued interest due on the sum indicated on the Charging Order Absolute dated 17th December 1997 will become payable."

And the final paragraph is in these terms:

"Therefore, by payment of the total sum of £6900 as indicated above, our client will discharge all liabilities due to you, including any orders for costs and interest in the above- mentioned proceedings. We are grateful that you will attend Court tomorrow to indicate to the District Judge that agreement has been reached on this basis."

There is then a post scriptum, written in manuscript by the author of the letter, Mr de Cruz. It reads:

"P.S. This agreement is made on the assumption that no monies have been paid to you since 17 December 1997 and therefore that at that date the sum of £6928.78 plus interest was due and owing.

You also agreed to secure the removal of the caution registered in your favour upon payment of the £6900."

26. Effect was given to that agreement by an order made by the Deputy District Judge in Lambeth County Court on the following day, 23rd November 1999. He ordered that the claimant's application be adjourned generally; that it be dismissed upon the defendant making full payment of £6,900 by 23rd February 2000; and that the claimant have leave to restore the application if any part of the £6,900 remained outstanding after 23rd February 2000. Payment of the £6,900 was made by the due date, 23rd February 2000.

27. The letter of 22nd November 1999 contains no express reference to the costs payable under paragraph 7 of the order of 2nd December 1996, which, as I have said, had been taxed at £5,333.57 on 7th September 1998, but which were not secured by the charging order of 17th December 1997.

28. It is plain - - and it is not, I think, in dispute - - that Mr Firdose knew that those costs were outstanding. Boyd & Hutchinson had been instrumental in obtaining taxation of them. Mr Firdose had sent to Mr Foenander on 15th July 1998 the bill of costs which Boyd & Hutchinson sought to have taxed, pursuant to paragraph 7 of the order of 2nd December 1996; and on 15th September 1998 had sent both him and the solicitors who were then acting for him the taxation certificate and a copy of the order. Mr Firdose, therefore, was plainly aware that a further sum of £5,333.57 not secured by the charging order was payable.

29. Miss Adshead asked us to assume that Mr Foenander was not aware of those costs. But as the judge made no finding to that effect and, for my part, I am not prepared to make that assumption. The letters of 15th July 1998 and 15th September 1998 had been sent to him; and the second of those letters, at least, had been sent to solicitors who were then acting for him. It may well be that Mr Foenander had not told Mr de Cruz about those costs. There is no evidence that Mr de Cruz was aware of them. But this matter must, as it seems to me, be approached on the basis that Mr Foenander, who was giving instructions to Mr de Cruz, did know that the costs secured by the charging order did not include all the costs for which he was liable under the order of 2nd December 1996.

30. What then is the effect of the letter of 22nd November 1999; in the circumstances that the parties plainly are addressing their minds to the costs which are secured by the charging order of 17th December 1997 and, for whatever reason, choose not to refer to the other costs payable under the order of 2nd December 1996 - - costs which they each knew had been taxed at £5,333.57?

31. It seems to me that on the true construction of that letter, and the agreement which it reflects, the parties did not intend to include in their compromise the costs of £5,333.57. It is unnecessary, and would be unprofitable, to speculate why there is no express reference to those costs. It may be that Mr Firdose thought that it was better not to raise the point, lest Mr de Cruz sought to have those costs included. It may be that Mr de Cruz thought it better not to raise the point (if indeed he was aware of it) lest raising it might cause the settlement to go off. This is, as it seems to me, one of those cases where the observations of Lord Wilberforce in Prenn v Simmonds are particularly apposite. It may have to be accepted that the parties agreed on a formula which they both hoped would mean different things when it came to be applied.

32. But there are, I think, three important pointers to what they must be taken to have intended. The first lies in the words "our client will discharge all liabilities due to you, including any orders for costs and interest in the above- mentioned proceedings." In context, the "above- mentioned proceedings" are the proceedings to enforce the charging order which were due for hearing on 23rd November 1999. Those were the proceedings in Lambeth County Court, LB924552. That is not simply a technical point. The point to which the parties were addressing themselves in the later part of that sentence was further orders for costs and interest in the proceedings LB924552. It is important to have in mind that the whole of the sum of £6,900 was itself to be paid in respect of a sum payable by way of costs. The additional costs that they must have been considering were the costs which had not yet been assessed, but which would be incurred if the application for the sale of the property proceeded. It would be very odd to refer to "including any orders for costs (unspecified)", if they had intended to include the order for costs which they knew had been quantified at £5,333.57. That was so significant an amount, in context, that it would have been brought into account by express reference.

33. Secondly, the phrase "all liabilities due to you" must be interpreted in the context that, in the first paragraph of the letter, there is the sentence, "The agreement is based on the amount said to be due today under the terms of a Charging Order Absolute obtained by you against our client on 17th December 1997." Those were the liabilities to which the letter was primarily addressed.

34. Thirdly, that is confirmed by the manuscript postscript, which refers to the agreement being made on the assumption that the sum of £6,928.78 plus interest was due and owing on 17th December 1997.

35. It seems to me that had the parties intended to include in their compromise the sum which had, at that date, already been quantified in the amount of £5,333.57, they would have said so. The fact that they did not say so leads me to the conclusion that this compromise was, for whatever reason, not intended to include that sum.

36. It follows that I reach the view that an adjournment of this appeal would be without purpose; because, if and when the appeal came to be heard, it would fail. In those circumstances, the adjournment ought in my view to be refused. If the application for the adjournment is refused, the court is then left with an appeal which, as things now stand, the appellant has no standing to pursue. It should be dismissed.

37. LORD JUSTICE AULD: I agree.

ORDER: Appeal dismissed with costs on an indemnity basis; application for permission to appeal to the House of Lords refused.

(Order not part of approved judgment)

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