Venture Finance Plc v Mead & Anor

This is an appeal from an order as to costs made on 26 July 2004 by Mr Justice Beatson in proceedings brought by the appellant, Venture Finance Plc, against Mr Nigel Mead and Mrs Sarah McCarrick as guarantors under deeds of guarantee and indemnity dated 17 September 2002. Mr Mead was adjudged bankrupt on 7 December 2004. Neither he nor his trustee in bankruptcy have taken any substantive part in the appeal.

The proceedings were commenced by the issue of claim form on 21 October 2003. The basis of the claims against Mr Mead and Mrs McCarrick – as appears from particulars of claim of the same date and a witness statement dated 17 May 2004 made by Mr Nicholas Reason, a portfolio manager in the employ of the claimant – may be summarised as follows:

As I have said, these proceedings were commenced a few days later, on 21 October 2003. It was alleged in the particulars of claim – and is not in dispute – that each defendant had failed to pay the sum of £530,804 or any other sum.

Paragraphs 21 and 23 of the particulars of claim set out the claims made against each defendant:

“21.

In the premises pursuant to [clause 2] . . . of the Deeds of Guarantee and Indemnity there is now due and owing to the Claimant from each of the First Defendant and the Second Defendant the sum of £100,000, alternatively damages in such sum.

23

Further or alternatively, pursuant to the indemnity contained in clause 3 of the Deeds of Guarantee and Indemnity there is now due and owing from each of the First Defendant and the Second Defendant the amount of the loss suffered by the Claimant by reason of SLC’s failure in breach of the Debt Purchase Agreement to pay to the Claimant the Funds in Use, currently £530,804.”

The claimant sought judgment in those sums, with interest.

On or about 8 December 2003 Mr Mead and Mrs McCarrick served a joint defence. Most of the allegations in the particulars of claim were admitted. But the amount of Funds in Use as at 19 September or 21 October 2003 was not admitted. Accordingly it was not admitted that the claimant had suffered loss or that the defendants were liable under the indemnity contained in clause 3 of the guarantees. Further it was said that any liability under clause 3 was limited to £100,000. Paragraph 24 of the defence was in these terms:

“By reason of the matters set out in Paragraphs 5, 6 and 8 above, Paragraph 21 of the Particulars of Claim is not admitted.”

Paragraph 21 of the particulars of claim – to which I have already referred – contained the allegation that each of the defendants owed £100,000 under clause 2 of his or her guarantee. Paragraphs 5, 6 and 8 of the defence put in issue the amount of the Funds in Use.

It can be seen, therefore, that the position taken on the pleadings by the defendants was to put in issue (i) whether and in what sum the claimant could establish the amount of Funds in Use – on which alone the demands against SLC and the defendants were based - and (ii) whether whatever liability each of the defendants had under clauses 2 or 3 of the guarantees was limited to £100,000 - to which could be added interest under clause 6 and costs and expenses under clause 9.

On 21 May 2004 the claimant issued an application notice seeking summary judgment, under CPR Part 24, on the grounds that the defendants had no real prospects of defending the claim. Judgment was sought on that application in the sum of £294,851.00. The application was supported by the witness statement of Mr Nicholas Reason to which I have already referred. The amount sought – as appears from paragraph 9 of that witness statement – was the amount which, as the claimant alleged, represented Funds in Use on 17 May 2004. It is clear, therefore, that in May 2004 the claimant was continuing to assert that the liability of each defendant was not capped at £100,000.

The application for summary judgment was fixed for hearing on 5 July 2004, with a time estimate of six hours. On 24 June 2004 the defendants made application that that date be vacated. That order was made by Mr Justice Gray on 25 June 2004. The hearing was re-fixed for 26 July 2004.

By the time that the application for summary judgment came back before the court on 26 July 2004 the parties had agreed the amounts that each of the defendants should pay under clauses 2, 3 and 6 of the guarantees. Each defendant was to pay £92,5000 with interest from 26 July 2004 to the date of payment. Mr Mead was to pay that sum by 9 August 2004; and Mrs McCarrick was to pay by 17 September 2004. Mrs McCarrick gave an undertaking that she would not dispose of her interest in certain properties pending payment. It was also agreed that each defendant should make payment towards the claimant’s costs and that those costs should be assessed on an indemnity basis. That reflected the contractual obligations in clause 9 of the guarantees. But the parties were not agreed on the question whether each defendant should be liable for all the claimant’s costs of the proceedings. The claimant contended that each should be liable for 100% of its costs of the proceedings. The defendants contended that each should be liable for only 50% of the costs of the proceedings. It was that question that Mr Justice Beatson was asked to decide on 26 July 2004.

It is not in dispute that a judge has jurisdiction to make an order for costs in proceedings in which all substantive issues have been disposed of by agreement – see the decision of this court in Brawley v Marczynski (No 1) [2002] EWCA Civ 756 [18], [2003] 1 WLR 813 at 819B. But he is not obliged to do so; and the dangers of embarking on that course were illustrated in BCT Software Solutions Ltd v C Brewer & Sons Ltd [2003] EWCA Civ 939, [2004] F.S.R 9 – see, in particular the observations of Lord Justice Mummery at paragraphs [4]-[6] and [18]. In the judgment that I delivered on that appeal I sought to analyse the difficulties at paragraphs [22] to [24]. I pointed out, at paragraph [23] that, unless the Court had a proper basis of agreed or determined facts upon which to decide whether the case was one in which it should give effect to “the general rule” under CPR 44.3(2)(a), or should make some “different order” (and if so what order) pursuant to CPR 44.3(2)(b), it must accept that it is not in a position to make an order about costs at all. I said this:

“That is not an abdication of the court’s function in relation to costs. It is a proper recognition that the course which the parties have adopted in the litigation has led to the position in which the right way in which to discharge that function is to decide not to make an order about costs”

At paragraphs [25] and [26] of my judgment in the BCT Software case I offered some guidance for the future:

“25.

It does not, of course, follow that there will be no cases in which (absent a judgment after trial) the judge will be in a position to make an order about costs. There will be cases (perhaps many cases) in which it will be clear that there was only one issue, that one party has been successful on that issue, and that conduct is not a factor which could displace the general rule. But, in such cases, the answer to the question which party should bear the costs of the litigation is likely to be so obvious that, as Mummery LJ has pointed out, the judge will not be asked to decide that question. It will be agreed as one of the terms of compromise.

26.

The cases in which the judge will be asked to decide questions of costs – following a compromise of the substantive issues – are likely to be those in which the answer is not obvious. And it may well be that, in many such cases, the answer is not obvious because it turns on facts which are not agreed between the parties and which have not been determined. The judge should be slow to embark on the determination of disputed facts solely in order to put himself in a position to make a decision about costs. As Mummery LJ has put it, the better course may be to require the parties to confront the realities of their litigation situation; to point out to them that, if they have not reached an agreement on costs, they have not settled their dispute and the action must proceed to judgment.”

At first sight the present case was one in which the judge would have been entitled – indeed, I would say well advised – to decline to make any order as to costs. The claimant had obtained judgment (by consent) for less than one third of the amounts which it had been claiming in the application for summary judgment. There was nothing which enabled the judge to decide whether the claimant had been willing to settle at less than the amount claimed because it accepted that it could not prove the amount of Funds in Use on which the claim was based or because it accepted that the liability of each defendant was capped at the £100,000 limit. It is pertinent to keep in mind that the defendants had accepted, on the pleadings, that they were each liable up to £100,000 to the extent that the claimant could prove loss in that amount. It was impossible – as it seems to me – to say that one party had obviously won and the other party had obviously lost.

It is important, therefore, to see how the matter was presented to the judge. We have been provided with the skeleton argument prepared by the claimant’s advisers for use at the hearing on 26 July 2004. Paragraph 2 sets out the orders sought, respectively, by the parties: the issue was presented as a contest between an order that each defendant was liable for 100% of indemnity costs and an order that each was liable only for 50% of indemnity costs. Paragraph 10 set out, correctly, the issues on the pleadings in the action. Paragraph 14 set out – under six sub-paragraphs – reasons why it was said that the defendants were severally (alternatively jointly and severally) liable for all the claimant’s costs. Essentially these reasons relied upon the separate and distinct obligations in each of the guarantees. It was said that the liability of each defendant for the whole debt was a several liability; and that the liability of each for the claimant’s costs on a full indemnity basis, under clause 9 of the guarantees, was also a several liability. It was said that the discretion to order costs under CPR 44.3 should be exercised so as to reflect contractual rights. In that context, reference was made to PD 48, paragraph 50.3(2). So, it was said, “there is no proper basis to deprive the claimant of its contractual right to its costs against both defendants”.

We were told that the defendants did not rely on skeleton arguments before the judge. We have no record of the case advanced by the defendants, save in so far as that appears from the judgment.

I turn, therefore, to the transcript of the judgment approved by the judge. In the last sentence of paragraph 4 the judge identified the issue before him as “whether under the guarantees the liability of the two defendants is joint and several, or several”. But identification of the issue in those terms is difficult to reconcile with the judge’s summary of the submissions made to him by counsel. In the first sentence of paragraph 5 of his judgment, he recorded that it had been submitted by counsel for the claimant that the terms of the guarantees showed that liability was several. And, in the first sentence of paragraph 10, he recorded that counsel for the defendants had submitted that “there is no reference in the separate documents to each other, they are discrete documents, there is no reference to the liability being joint and several”. It is difficult to see why the judge thought that either party was contending that liability under the guarantees was joint and several.

The judge addressed the issue which he had identified at paragraph 4: “whether under the guarantees the liability of the two defendants is joint and several, or several”. At paragraph 13 of his judgment he concluded that each defendant was severally liable on the guarantee which he or she had executed. As he put it “The contractual rights contained in the deed of guarantee do not include joint and several liability for costs”. He went on to say this, at paragraph 14 of his judgment:

“14.

Therefore, in the exercise of my discretion under CPR 48.3 I make an order in the terms sought by the defendants, that the first defendant do pay 50 per cent of the claimant’s costs on an indemnity basis to be subject to a detailed assessment, if not agreed, and that the second defendant will pay 50 per cent of the claimant’s costs on an indemnity basis to be subject to a detailed assessment, if not agreed.”

And, on the basis that the hearing of 26 July 2004 had been made necessary only because of the dispute as to costs – on which the defendants had won – the judge awarded the costs of that hearing to the defendants.

Following judgment counsel for the claimant sought permission to appeal. It is pertinent to refer to the exchange which appears on the transcript.

“COUNSEL: My Lord, very briefly if I may, I ask for permission to appeal. I regret to say I did not make my submissions clear enough. I think perhaps when my learned friend stood up and said that I had submitted that the guarantee liability is joint and several that rather swayed you. My submission was that the liability under the guarantees were several but that in relation to the costs each of the defendants were liable for all of the costs because none of them had been incurred only against one of the defendants.

THE JUDGE: I had understood that. It may be that my oral judgment did not make that clear. I had understood that submission.

COUNSEL: I am much obliged. Your Lordship had stated that my submission was that the liability under the guarantee was joint and several.

THE JUDGE: That was a slip.”

The possibility that – as the judge acknowledged - he might have mis-stated counsel’s submission in the oral judgment which he had just delivered finds some support in a note of that judgment taken by the claimant’s solicitors and provided to us as a typed-up copy. In the passage in that note which corresponds to the last sentence of paragraph 4 and the first sentence of paragraph 5 of the approved transcript the judge is recorded as having said this:

“The issue before me is whether the liability under the guarantees is a joint and several one or several. Mr Mills submits that the liability is joint and several . . . and the relevant terms of the guarantee show, in context, that the liability is indeed joint and several.”

And, as I have said, the issue which the judge actually addressed was the issue which he had identified: whether the liability under the guarantees was joint and several or merely several. It seems to me that there was some force in counsel’s observation, when asking for permission to appeal, that his submissions had been mis-understood.

If that is what happened, the judge is entitled to some sympathy, as Lord Justice Tuckey observed when granting permission to appeal on paper. Paragraph 14 of the claimant’s skeleton argument, prepared for the hearing on 26 July 2004, does advance joint and several liability in the alternative and, although it is possible to discern the contention on which the claimant was really intending to rely – in sub-paragraphs (3) and (6) of paragraph 14 - the point is made in terms which are less than clear.

Be that as it may, neither party seeks to quarrel with the judge’s view that the liability of each defendant under his or her guarantee was several. Indeed it is the claimant’s case that it was always common ground that liability was several. The issue – as the parties saw it – was what costs order should follow from the conclusion that liability under the guarantees was several and not joint. That was the question which the judge addressed at paragraph 14 of his judgment where – having observed in the final sentence of paragraph 13 that “contractual rights contained in the deed of guarantee do not include joint and several liability for costs” - he said: “Therefore in the exercise of my discretion under CPR 48.3 I make an order in the terms sought by the defendants”. That was an order that each defendant pays only 50% of the claimant’s costs.

If the judge thought that he was required to exercise a discretion under CPR 48.3 he was in error. CPR48.3(1) is in these terms:

“Where the court assesses (whether by the summary or detailed procedure) costs which are payable by the paying party to the receiving party under the terms of a contract, the costs payable under those terms are, unless the contract expressly provides otherwise, to be presumed to be costs which –

(a)

have been reasonably incurred; and

(b)

are reasonable in amount; and the court will assess them accordingly.”

The relevance of CPR 48.3, as it seems to me, is that CPR 44.3(4) requires that when deciding what order (if any) to make about costs the court must have regard to all the circumstances; and those circumstances will include the fact, if it be the case, that there is a contractual obligation to pay costs – as there is under clause 9 of the guarantees. So, it is said, in order to be consistent with the requirement in CPR 48.3 at the assessment stage, the Court ought (unless there is good reason to the contrary) exercise discretion under CPR 44.3(4) so as to reflect contractual rights. The practice direction supplemental to CPR Pt.48, at section 50 (Amount of costs where costs are payable pursuant to contract) requires this where costs are recoverable under a mortgage. Paragraph 50.3(2) – to which the claimant’s counsel had referred in his skeleton argument on 26 July 2004 – provides that, in such a case: “Where there is a contractual right to the costs the discretion should ordinarily be exercised so as to reflect that contractual right”. It is plain, as it seems to me, that is the principle to which the judge thought that he was giving effect. Paragraph 14 of his judgment begins with the word: “Therefore”.

The problem is that the judge gives no reasons for his view (and it is not at all self evident, at least to me) that an order that each defendant should pay 50% of the claimant’s costs did give effect to contractual rights and obligations under clause 9 of the guarantees. The contractual obligation on each defendant was to pay “all costs and expenses (on a full indemnity basis) arising out of or in connection with recovery of the monies due to you hereunder”: that is to say, all costs arising out of the recovery of monies from that defendant under that guarantee, but excluding costs which do not arise out of recovery of monies from that defendant under that guarantee. To put the point another way, there was no contractual right to recover from one defendant costs which were exclusively referable to the recovery of monies from the other defendant. So (if the judge chose to embark on the exercise of awarding costs in a case in which he had not tried the substantial issues) the right course was to consider, in relation to each defendant, the extent to which the whole costs of the proceedings could be said to arise out of the claim to recover under the guarantee obligations of that defendant. That approach might lead to a conclusion that a proper proportion of the whole costs of proceedings to be awarded against each defendant was 100% - or some proportion less than that. It is very difficult to see how, in the present case, the appropriate proportion could be as low as 50%. It is, I think, obvious that the overwhelming proportion of the costs incurred in these proceedings were incurred in relation to issues which were common to both defendants. Although there were, no doubt, some costs which were peculiar to each, those are likely to have been de minimis.

I am left, therefore, with the conviction that the judge erred in principle. He must, I think, be taken to have thought that his decision that liability under the guarantees was several – and not joint and several – led, necessarily, to the conclusion that the only order for costs which gave effect to the parties’ contractual rights was that each defendant should be liable for only 50% of the whole costs of the proceedings. That cannot be right.

In BCT Software Solutions Ltd v C Brewer & Sons Ltd, (supra), [2004] F.S.R 9, Lord Justice Mummery emphasised that an appellate court should be very slow to set aside the decision of a judge as to where costs should fall in circumstances in which (at the invitation of the parties) he has undertaken the task of awarding costs without having decided the substantive issues at a trial. As Lord Justice Mummery put it, at the end of paragraph [8] in his judgment:

“As both parties agreed that he should undertake the task, it is reasonable to expect them to accept his decision, unless it can be shown that the result is, in all the circumstances, manifestly unjust. I would certainly not be inclined to interfere with the judge’s decision simply because it is possible to detect imperfections in his approach or in his reasoning”

That approach, as it seems to me, recognises the hurdle which ought to confront an appellant who complains of the result reached by a judge who (at the parties’ invitation) has set out to do something which – as should have been appreciated on a more careful analysis of the principles underlying CPR 44.3 – he was never in a position to do properly and should not have done at all. But I do not think that that approach should prevent the Court from setting aside the judge’s order in the present case.

First, the only issue which the judge was asked to decide, in the present case, was what costs order should follow from several liability under the guarantees. Neither party suggested that the order should be any order other than all, or one half, of the whole costs of the proceedings. In particular, it was not suggested that the judge should have any regard to the questions whether the defendants would have won on the limit of liability point, or whether the claimant would have succeeded in establishing the figure claimed in respect of Funds In Use. Neither party can complain that the judge did not, in fact, have any regard to those questions. Second, for the reasons which I have sought to explain, it is difficult to avoid the conclusion that the judge had not fully appreciated, when he gave his oral judgment, what point the claimant's counsel had been seeking to make in argument. And, if he did appreciate the point, he did not deal with it. Third, the result is plainly wrong. Fourth, the wrong result, in this case, does cause real injustice to the claimant. This is not a case in which the claimant has two solvent defendants from whom (in aggregate) it can recover the whole of its costs by recovering one half from each. Mr Mead has been adjudged bankrupt. If the claimant cannot recover 100% of its costs from Mrs McCarrick, it will be left with a shortfall. In my view, this is one of those rare cases in which this Court should interfere with a costs order made (at the invitation of the parties) by a judge who has not decided the substantive issues at a trial.

I would allow the appeal and set aside the judge’s order. In its place I would order that each of the defendants pay the whole of the claimant’s costs of the proceedings; but that, as between themselves, each defendant shall be responsible for one half of those costs.

I am in entire agreement with the order of Chadwick LJ and with the important guidance given in paragraph 11 of his judgment. I explain below the reasons why I have come to the same result, but would first state some further guidance for the future, which I hope will be useful.

It occasionally happens that, after a judge has given judgment, the advocate or party who has lost jumps up and says that the judge has failed to deal with a point. On many occasions, the judge will do precisely what the judge did in this case and make it clear that he regards that submission as unsustainable. However, even in that situation, the judge may decide to give a supplementary judgment in the interests of clarification. Such a judgment may be very brief. However, it might help prevent an unnecessary appeal with the attendant cost to the parties.

Very occasionally, the judge may conclude that there is some substance in the party’s point. Indeed, he may want to retire for a few moments just to consider the position. If, on reflection, he decides that a point was overlooked in the judgment, he should consider the materiality of the point, and whether it undermines the decision reached. If necessary, the judge will have to give judgment again and may reach a different, or even the opposite, conclusion (see, for example, Moon Motors, Ltd v Kiuan Wou [1952] Lloyd’s List Rep. 80). This does not, and should not happen, very often. But it is worth repeating that a judge is entitled to vary or reverse his order until the order is drawn. Accordingly, he is entitled to give judgment again if the circumstances require that course.

In this case, however, I do not think that that is what happened. The judge thought that he had dealt with the submission that, even if contractual liability was several only, the defendants should still pay 100 percent of the claimants’ costs (see the exchange with counsel set out in paragraph 17 of the judgment of Chadwick LJ). I consider that the judge rejected that submission in paragraph 14 of his judgment. (For the reasons given in paragraph 23 of the judgment, I consider that the judge was in error in doing so). I consider that what happened was that he failed to appreciate that the whole of the costs of the action (or virtually the whole of the costs of the action) could in fact be referable to the claim against each defendant. (His failure in this regard would explain his statement of the issue in paragraph 4 of the judgment and his use of the word “Therefore” in paragraph 14). The conclusion that each defendant could be liable for virtually all the costs is a conclusion which on the face of it defies the law of mathematics. But it is the result which clause 9 of the guarantee mandates. By virtue of that clause, the question, as against each respondent, is: what costs incurred by the claimant in the action arose out of or in connection with the recovery of the monies secured by the guarantee executed by that respondent? The answer is: all the costs of the action, other than the insignificant costs of serving the proceedings on the other party. In other words, as against each respondent, the claimant in fact incurred the same or virtually the same costs as it would have incurred if only one defendant had been served.

Chadwick LJ has referred to the solicitor’s note of the oral judgment given by the judge. It follows from the preceding paragraph that, for my part, I do not found my decision on that note. However, I do not read my Lord’s judgment as in any way encouraging parties in the usual case to rely on such notes or to seek to invite the court to conduct a forensic exercise into the differences between such a note and the approved transcript. I accept that what is said by the judge in giving judgment orally is a matter of public record, but a judge is always entitled to make amendments to a transcript of judgment in order to express his reasons more clearly. (I do not intend thereby to set out a comprehensive statement of the circumstances for which amendments may be made). Therefore, ordinarily only the approved transcript is relevant. Accordingly, recourse to an unapproved note of judgment should be the exception not the rule. In my judgment, a party who seeks to rely on an unapproved note of judgment should show good reason for doing so. Otherwise, costs may be wasted preparing such notes, putting them in evidence and arguing about them.

Finally, as to the form of the order in this case, it is in my judgment implicit therein that not more that 100 percent of the costs is recoverable by the claimant. In my judgment, this should be expressly stated and, if my Lords agree, I would invite counsel to produce a minute of order reflecting my Lord’s order with that addition.

For the reasons given by Lord Justice Chadwick I agree that the appeal should be allowed and that the order of the Court should be in the form he specified.