Leicester Circuits Ltd. v Coates Brothers Plc

LORD JUSTICE JUDGE: We will deal with the issues which now arise in the order in which they were canvassed.

Mr Sutcliffe has asked us to order that following the successful appeal by Coates we should order a new trial. In effect he says that on our findings his clients, Leicester, have not really had a sufficient opportunity to present their case to a judge in its full measure.

What we have done in our judgment is to accept the judge's findings about the witnesses he heard. We considered their evidence in detail in that context, and then considered the documents relied on by Leicester to establish their case. That case in our judgment, for the reasons given in it, was not established. In those circumstances, we do not think it appropriate to order a new trial.

We should say by way of footnote that the question whether a new trial would follow a successful appeal was canvassed in the course of argument before us. We bore those discussions in mind, as well as Mr Sutcliffe's submissions today.

The second question is whether we should give permission to appeal to the House of Lords. We do not think that would be justified in this case. If Leicester wish to take the matter further they must seek their Lordships' permission.

We now come to the question of costs. The result of this appeal is that Coates have succeeded on the appeal and the cross-appeal. They are therefore entitled to judgment on the counterclaim as well as judgment on the claim. The counterclaim in fact adds very little to all the issues that we have canvassed. But whether that is so or not, in normal circumstances, as Mr Coles submitted to us, the anticipated order would be that Coates should recover their costs from Leicester both here and below.

Mr Sutcliffe sought to defeat the application of what I shall describe as the normal rule here in a number of different ways. So far as his written submission was concerned, he developed considerable argument about the impact on the trial of the sudden arrival of a much closer analysis of the document referred to in the judgment as "the scrap schedule". We understand that submission, but in our view that does not affect the appropriate order to be made below. He also asked to us bear in mind in relation to the costs below an important change of case, almost a key point in the litigation. When Mr Slater QC opened his defence before the judge below he agreed that it was common ground that T4 should have been reasonably fit for the purpose of coating ground planed PCBs, an issue which until that point had been in dispute.

Again, we take the view that that is part and parcel of the ordinary stages in litigation and therefore should not affect this particular issue.

There is, however, a more substantial feature developed by Mr Sutcliffe in his argument before us today, as well as in his skeleton argument, and that arises from events in late 2001/early 2002, very shortly before the trial of the action which began on 4th February and ended in a judgment on 27th February.

In December 1999, way back at the earliest stages of the trouble that arose between Coates and Leicester, there was a Part 36 offer. There was another on 18th September 2001. In the meantime, although we are not clear about the details, steps were being taken, on the face of it by mutual consent, to see whether the issues between the parties could be mediated.

On 4th January 2002 the solicitors for Leicester wrote indicating that following "without prejudice" discussions, Leicester had agreed to mediation. It was agreed that Mr Pryor should act as the mediator and that the mediation would take place in Birmingham on 10th January. That, the solicitors said, they understood would be agreeable to Coates. Moreover, they said they had spoken to CEDR about the agreement and that Mr Pryor's availability was confirmed, and that it had been requested that the parties should send their case summaries directly to Mr Pryor.

On 7th January the solicitors for Coates wrote in relation to the mediation, confirming that it would take place on 10th January and raising a question about whether Eversheds, the solicitors for Leicester, would charge any fee for the use of the premises as the venue. The only significant further passage in it is that Mr Pryor is described in terms as the mediator and he was asking for an estimate of the parties' costs incurred to date. In other words, at this stage, it is clear that the case would go to mediation.

The process did not go on very long. By a letter dated 9th January Mr Pryor wrote to solicitors for both parties in these terms:

Solicitors acting for Coates faxed the following message to Leicester's solicitors on the same date, 9th January:

There was a separate issue which we need not go into, save to record that we have read the correspondence about it, which arose from the fact that whereas Leicester had supplied their case summary to Coates, Coates had not supplied its case summary to them. At one stage I believe, but perhaps it does not matter, that there was an implied allegation of bad faith.

Our understanding of why this mediation failed is summarised in the letter from Mr Pryor. Mr Coles today, when we asked for an explanation, confirmed that the decision was based on the insurance company's instructions. He described this mediation as a form of negotiation which came to nothing. With respect to that argument, we do not agree. The whole point of having mediation, and once you have agreed to it, proceeding with it, is that the most difficult of problems can sometimes, indeed often are, resolved. We note Mr Sutcliffe's argument that, as the litigation was to show, a considerable amount of time and effort had been spent by both sides trying to sort out and resolve their problems.

Mr Coles also submitted that there was no realistic prospect of a successful resolution of the issues. He showed us correspondence which he said demonstrated that Leicester had taken an over-robust, perhaps overenthusiastic belief, in the likelihood of a successful outcome from its point of view.

Again, we take the view that having agreed to mediation it hardly lies in the mouths of those who agree to it to assert that there was no realistic prospect of success. We do not of course assume that the mediation would have been successful, but we reject the idea that we should treat Coates' decision to withdraw from the process as simply an acknowledgement of the fact that they had agreed to something which was pointless. As I have already said, as far as we know the only reason the mediation was derailed was the insurance company's instructions. The mediator left the position open if there were any attempt to return to him. As far as we can see there was none. There were some further negotiations, but they did not involve the mediator himself.

The correspondence starting on 22nd January shows the solicitors for Coates asserting that they believed that their clients would succeed. The offer of a "drop-hands" settlement was rejected by Leicester, and then on 1st February Coates, asserting confidence that the claim would be unsuccessful, made an offer of £150,000 in full and final settlement of the claim inclusive of costs and interest. That, as we understood it, really meant no more than that there would be a contribution to costs. Indeed, that was how Leicester's solicitors viewed it, pointing out the offer was rejected because their client had already spent more than £150,000 on legal and expert fees.

So the case proceeded. Before judgment, on 22nd February 2002, this court gave its judgment in Dunnett v Railtrack Plc [2002] 1 WLR 2434. The costs in issue in Dunnett were the costs of an appeal only. The costs below did not enter into the discussion or judgment. The defendants who were successful in the appeal had refused to participate in alternative dispute resolution. They had not, as here, agreed to mediation and then withdrawn from it without giving any satisfactory explanation.

Although the defendants in Dunnett had successfully resisted the appeal and drew attention to offers made in settlement, their approach to the alternative dispute resolution was treated by this court as such that no order for costs should be made in their favour.

Brooke LJ, giving the only reasoned judgment, at paragraph 12 of the judgment quoted what he described as the helpful notes to the CPR r 1.4 in Civil Procedure, Autumn 2001, vol 1, and in particular this text:

When Coates sought permission to appeal there were discussions about the possible settlement of the appeal. It is unnecessary to relate the process by which permission was eventually given.

This appeal was listed for hearing on 10th December, and shortly before the hearing of the appeal there was some correspondence which can be fairly summarised as an offer by the solicitors acting for Coates, expressly made without instructions, to see whether a settlement could be achieved. This culminated in an offer, on instructions, which was withdrawn about a quarter of an hour after it had been received.

On 10th December, that is to say after the first day of the hearing of the appeal, there was notification to Leicester of a conditional fee agreement entered into between Coates and their solicitors.

Mr Sutcliffe relies on the decision in Dunnett and the facts which we have endeavoured to summarise in support of the contention that there should be no order for costs of trial and no order for the costs of the appeal. He has suggested in his written argument that somehow Coates took advantage of the process by submitting an over-lengthy and overdeveloped skeleton argument on appeal. But we simply record that as Coates did that without any application for an adjournment, we do not think that criticism should affect the decision.

It seems to us that the unexplained withdrawal from an agreed mediation process was of significance to the continuation of this litigation. We do not for one moment assume that the mediation process would have succeeded, but certainly there is a prospect that it would have done if it had been allowed to proceed. That therefore bears on the issue of costs.

Trying to achieve a fair balance to reflect the issue of mediation, the outcome of the case, the correspondence which we have looked at and endeavoured to summarise, we have come to this conclusion. As to the costs below, Leicester will pay the costs up to 1st January 2002 but there will be no order for costs thereafter. As to the costs of the appeal, in our judgment they should follow the event. Therefore Leicester will pay Coates' costs of the appeal.

Next we come to a further application by Leicester for judgment debts to be paid by instalments. There are three different classes of debt. First, and perhaps most important, the sums already paid by Coates to Leicester in compliance with the court's order. Then there is Coates' counterclaim which is now successful and, finally, there are the costs which now follow the order that we have just made.

According to the latest statement from Mr Williams, a director of Leicester, supported by a letter from his accountants, Leicester is in a parlous financial situation. Plainly this judgment and its consequences will be, to put it neutrally, extremely damaging to its financial position. It is said that Leicester cannot afford to repay the sums now due to Coates and the likelihood is that the company's bank will call in the receiver unless an instalment order is made or agreed.

Mr Coles pointed out that this picture of a desperate financial situation is rather at variance with the impression given to this court when considering the application for permission to appeal, and in particular the support derived by Leicester from a letter from its bank. We do not propose to decide a jurisdiction issue. It seems to us that even if there were a discretion in the court to make an order for payment by instalments of the sums paid by Coates to Leicester under a court order, that should be ordered to be repaid in full at once. Coates should not be prejudiced by compliance with and obedience to an order of the court. They are entitled to have their money back forthwith. The question then for Coates, of course, is whether they might see fit to temper the wind to the shorn lamb and come to some agreement of their own with Leicester. That will depend, as has been made clear by Mr Coles, on Coates coming to the conclusion that Leicester's true position is brought clearly to their attention. Having seen exactly where Leicester stand financially, they will make their own decision. It is difficult to argue with that approach.

As to the counterclaim, it is not, in practical terms, of significance in this context. We do not propose to make an instalment order. What we shall do in relation to the costs is to say that they will have to be assessed, if not agreed, and during the time while they are being assessed or agreed the parties will have time to disclose in the case of Leicester, to investigate in the case of Coates, what the true financial position is. We shall therefore not make an instalment order in relation to the costs. We shall be open to make that order if an application is made on notice after costs have been assessed, if they are not otherwise agreed. Subject to the consent of the parties, it would be sensible for that decision to be reached by one member of this court rather than for us to try and reconstitute again.