Sahota & Anor v Sohi

SIR PETER GIBSON: This is a renewed application by the appellants, Mrs Sahota and her former husband, Mr Sahota (together conveniently referred to as “the Sahota Interest”), for permission to appeal from the costs order made by Park J on 1 March 2006 in a partnership action. Permission to appeal was refused by the judge and by Jonathan Parker LJ on paper.

Mr Sahota and the defendant, Mr Sohi, formed a property investment partnership in 1988 and acquired three properties in Ilkeston, Hillingdon and Battersea. On Mr and Mrs Sahota’s divorce in 1994, Mr Sahota transferred his interest in the partnership to Mrs Sahota. The partnership ended in 1998. The Ilkeston property had been sold in 1995. A question arose whether the division made by Mr Sahota of the funds in the accounts relating to that property was correct, Mr Sahota saying that he had got it wrong. There were other disputes as well.

The action was commenced by Mrs Sahota against Mr Sohi on 25 February 2000. In it she sought an order for sale of the partnership assets or an account. After a four day trial before Park J, he gave judgment on 17 June 2002. He said of the action in his later judgment on costs:

“The amounts involved in winding up the partnership were not particularly large. Two properties had to be sold and the proceeds shared, or one partner had to buy the other out. In the event the latter happened. There was nothing significantly contentious about this aspect of winding up the partnership’s affairs. There also had to be an accounting between the partners to resolve how much each owed to the other, leaving the net balance between the two amounts to be paid from one former partner to the other. In the event around £50,000 changed hands, being paid by Mr Sohi to the Sahota Interest …”

Then the judge set out how the £50,000 was arrived at. He pointed out that £17,500 was paid by cheque as representing the final compromise figure to bring the dispute to an end except, significantly, as to costs. The judge continued at paragraph 3:

“As respects many of the figures which entered into the accounting exercise, the end result of which was the payment of just below £50,000 to the Sahota Interest, there was no major dispute. It was not as if Mr Sohi was denying that he owed the Sahota Interest anything but ended up conceding liability for £50,000. The disputes were mostly about marginal issues.”

As I have said, the parties could not agree on costs and Mr Sohi offered £17,500, provided that each side bore its own costs. The Sahota Interest wanted the £17,500 plus all its costs. Eventually, £17,500 was agreed as a final sum to resolve the substantive issues and the court was left to make the appropriate costs order. The judge had intended to deal with costs on paper only, but by a written direction of 11 October 2002 he directed an oral hearing, saying that preserving proportionality had been a lost cause for some time. The oral hearing did not take place until three and a half years later. That was a substantial hearing.

The judge after his judgment in 2002 had indicated his inclination that there should be no order as to costs. Heroically, in his judgment he resisted the temptation of saying “A plague on both your houses” and delivered a massive judgment running to no less than 44 pages. In the course of his judgment, he spelt out the five stages of his evaluation:

On the first stage, the judge treated Hamer v Giles as authority for the proposition that where the assistance of the court is required for the winding up of a partnership’s affairs, the costs are ordinarily borne out of the partnership assets, before the final division between the partners, and the judge referred to what was said in Lindley & Banks on Partnership 18^th Edition paragraph 23 page 120 as to the continued applicability of the principle and the exception therefrom, despite the advent of the CPR.

The judge decided that some proportion of the costs should be subject to the Hamer v Giles principle. He said that a lot of the legal costs of each side was incurred on the same matters that would have had to be sorted out in any event and the judge thought it appropriate that they should be dealt with in the same manner as if the background had not been contentious, with each side bearing its own costs. That was the principle which he applied. The judge then dealt with the quantum of that proportion. He gave various examples of the central matters to wind up the partnership, such as what was to be done about the Hillingdon and Battersea properties. He concluded on that matter that there was never any real argument about the necessity for a sale, Mr Sahota in the end buying Mr Sohi’s interest, and that neither side should pay the other’s costs. He then went through various considerations tending to affect the appropriate proportion. He expressed himself as being in general sympathy with the Sahota Interest’s submission that it had to take proceedings to make Mr Sohi do something about winding up the partnership affairs. The Sahota Interest argued for 5 per cent as the appropriate proportion, Mr Sohi for at least 50 per cent. The judge said that, as a matter of subjective impression, 40 per cent was appropriate.

On the second stage the judge went through, issue by issue, the issues disputed to any significant extent:

On the third stage, the judge considered the five offers made by Mr Sohi to settle, none of which was accepted. The judge criticised the offers as not giving serious recognition to the costs which had been incurred by the Sahota Interest. The judge did not accept that the issue was a win for Mr Sohi. The judge took account of the manner in which the Sahota Interest would not negotiate and was largely unconcerned about the disproportionate level at which costs were incurred. He said that Mr Sohi had to bear some responsibility for the case having got out of hand but he was in no doubt that by far the greater responsibility lay with the Sahota Interest. The judge considered that this merited a serious reduction of the proportion of costs which he would otherwise have been minded to award to the Sahota Interest. He decided on a reduction of 50 per cent. Thus, on the fourth stage, he reduced to 12 per cent the 24 per cent which he had decided at the second stage.

On the fifth stage, the judge asked himself whether it was reasonable and fair in the circumstances that Mr Sohi should pay 12 per cent of the Sahota Interest’s assessed costs. The judge considered that that was too low, having regard to the fact that the Sahota Interest had been compelled to take action. The judge increased the per centage of its recoverable costs to 15 per cent.

Even that was not the end of the decisions on costs to be made by the judge. He was then faced with an argument on the costs of the hearing, which, it was said, should be treated as a discrete issue. The Sahota Interest claimed that it had won the costs hearing and that Mr Sohi should pay 100 per cent of the costs of that hearing. For Mr Sohi, it was argued that there should be no order as to costs.

The judge gave another full judgment, this one of 18 paragraphs, and ordered Mr Sohi to pay 20 per cent of the Sahota Interest’s assessed costs. The judge said that the costs had so dwarfed the substantive issues that he thought it right to make an exception from the normal practice whereby the costs of the costs hearing are included in the costs of the action.

In refusing the Sahota Interest’s application for permission to appeal, the judge said that one consideration was that the case was:

“an extreme example of satellite litigation where the costs had been allowed vastly to outstrip the amounts involved in the substantive dispute”.

The grounds of appeal in the appellant’s notice constitute a substantial document running to 14 detailed paragraphs under five heads, supported by an even more substantial skeleton running to 21 closely typed pages. Under the first head the judge is said to have misunderstood the principle of Hamer v Giles and grossly overestimated the proportion of costs falling within the principle. Under the second head, the Sahota Interest challenges the judge’s view of which party on which issue and to what extent won in relation to a number of matters. Under the third head, the Sahota Interest challenges the judge’s decision to reduce by 50 per cent the award of costs in its favour; it is said that this was a penalty imposed by the judge to a wholly disproportionate and unjust extent. Under the fourth head, the Sahota Interest says that the conclusion that it should only be entitled to 15 per cent of its costs was unfair. Under the fifth head, the Sahota Interest says that the judge’s conclusion, giving the Sahota Interest 20 per cent of the costs of the costs hearing, was unreasonable.

Jonathan Parker LJ formed the view that under each head the Sahota Interest had no reasonable prospect of success on an appeal.

Mr Bernard Weatherill QC and Mr Paul Norris have helpfully provided the statement required by paragraph 4.14A of the Part 52 Practice Direction identifying the points which they wish to raise on this hearing.

Before I discuss those points, there are certain preliminary comments which I would wish to make. CPR 44.3, as the judge rightly acknowledged, provides the principles which guide the exercise of discretion by the judge when he determines the appropriate order for costs. While there are specific matters to which the court must have regard, the duties and powers are expressed in wide terms; for example the court must have regard to all the circumstances (rule 44.3(4)). The court must also take proper account of the overriding objective. Unless the judge exercising the discretion has gone plainly wrong, this court cannot interfere, and it has repeatedly been said that a trial judge is in a far better position than an appellate tribunal to answer matters relating to the conduct of the trial and the weight to be attached to particular factors. I have to say that I have never seen a more painstaking and transparent judgment on costs than the judge’s main judgment in this case. No one can have been left in any doubt as to how and why he reached his conclusions and the factors which he took into account.

Sir George Jessel MR in Hamer v Giles stated the general rule that where partnership accounts have to be taken in court, the costs must come out of the partnership assets, but he added that where the action for dissolution has been rendered necessary by the misconduct of a partner, as for example where he has neglected to keep accounts, the court will make that partner pay so much of the costs as was occasioned by his misconduct. It is not suggested by Mr Weatherill that the exception must be construed literally. In Lindley & Banks on Partnership the rule is expressed in paragraph 23 – 120 more generally, that unless there is a good reason for making some other order, the costs of proceedings consequent on a dissolution should be paid out of partnership assets. Further, the editor expresses the view that the old rule would continue to apply to such cases, notwithstanding the advent of the CPR. The editor also recognises that in cases involving orders relating to the winding-up of the partnership affairs, it may be impossible to say that there has been a winner or a loser for the purposes of the principle that costs follow the event.

The judge recognised, as it seems to me, that on this aspect of the case he was not applying the Hamer v Giles statement of principle strictly; several times he refers to an analogy with that principle. The question to my mind therefore is whether in the exercise of his discretion he has arguably gone wrong in attributing 40 per cent to the costs subject to the Hamer v Giles principle or to an analogy with it, with the result that there was to be no order as to costs in respect of that proportion of the costs.

Mr Weatherill says firmly that the judge did go wrong because 40 per cent is far too large a proportion. He submits that that can be tested by looking at the amount which the judge is saying that, for example, the Sahota Interest incurred in relation to such costs. 40 per cent of the costs which the Sahota Interest says it incurred, £250,000, amounts to £100,000. Mr Weatherill submits that that is a ludicrously high sum. Jonathan Parker LJ pointed out that the amounts incurred are not necessarily the amounts which on an assessment by the costs judge would be allowed. Mr Weatherill nevertheless submits that even if the figure he suggested, 5 per cent, was doubled, the amount determined by the judge is still too large.

I see the force of Mr Weatherill’s submission, but I am not persuaded that the judge went outside the generous ambit that must be allowed to the trial judge in his assessment of this particular matter. The judge plainly was in a good position to determine which matters should fall within the broader principle which he was applying and what was the appropriate proportion of the overall costs, and in my judgment there is no real prospect that this court would wish to interfere with that assessment. The judge was painstaking, as I have indicated, in setting out the matters which he considered did fall within the principle. I do not think that there is any real prospect that this court would say that he thereby erred. It seems to me that the Sahota Interest’s costs would be severely reduced on any assessment by a costs judge. Accordingly, I am not persuaded that this ground of appeal is one on which an appeal would arguably succeed.

Mr Weatherill submits that the decision of the judge contravened the principle laid down in Day v Day [2006] EWCA Civ 415, at paragraphs 17 to 21 per Ward LJ and paragraph 23 per Sir Martin Nourse. That case related to the beneficial ownership of the net proceeds of sale of a property. What Ward LJ said was this:

“… in a case like this, the question of who is the unsuccessful party can easily be determined by deciding who has to write the cheque at the end of the case …”

Day v Day  was not a partnership case such as the present where, as the judge’s judgment shows, the many conclusions taken into account by him pointed in different directions. I do not regard Day v Day as laying down a general rule to be applied in every case, regardless of the appropriateness of its application to the circumstances of the particular case. Again, I see no real prospect of the court interfering with the judge’s conclusion as to the respective successes of the parties, even though I recognise that much depended on the subjective view of the judge.

Mr Weatherill submitted that the judge’s analysis as to who was to blame for the Sahota Interest’s reluctance to negotiate was flawed.

Had the judge not acknowledged that Mr Sohi was also blameworthy, the judge’s analysis could indeed have been criticised. But the judge was plainly acknowledging the difficulties created by the terms of Mr Sohi’s offers to settle and also acknowledged Mr Sohi’s share of responsibility for the case getting out of hand. Again, I cannot see that this court would be prepared to interfere with the judge’s view on this point when the judge, who was in a good position to assess responsibility, was quite adamant as to where by far the greater responsibility lay and to what extent that should be taken into account.

Mr Weatherill’s argument that the 15 per cent award by the judge failed to do justice is largely dependent on success on his earlier grounds. Again, I am not persuaded that this ground has a real prospect of success, given the wide discretion accorded to the trial judge.

Mr Weatherill argues that the judge should have decided the costs of the costs hearing as a separate exercise of discretion turning on the fact that his award of costs resulted in a win for the Sahota Interest, and that accordingly the judge should have awarded the Sahota Interest all its costs. Before the judge, as I have indicated, there was a serious dispute as to what was the appropriate award. The judge, in deciding in the way that he did to acknowledge that the Sahota Interest had had greater success than Mr Sohi in the arguments on costs, seems to me not to have gone even arguably outside the permitted range of discretion. Again, on this point I see no real prospect of success on an appeal.

Finally, Mr Weatherill has drawn my attention to the fact that in the Law Society Gazette of 20 July 2006 there is an article on partnership law by Mr Peter Garry, a solicitor, in which Mr Garry refers to the present case, although he gives the wrong name for the defendant. Mr Garry gives this description of the judge’s decisions:

“As the recent decision in Sahota v Sahota [2006] EWHC 344 (Ch) shows, even complete success in a dissolution action does not in all cases guarantee reasonable recovery of costs incurred.”

Mr Weatherill submits that this provides a compelling reason why this court should hear the appeal. He says that it is a matter of some general interest that the award of costs in this case to which attention has been drawn should be made on correct principles. Whilst I do not doubt that the award of costs can raise points of general principle, in my judgment the peculiar facts of the present case should not be taken as giving rise to some general principle which will be easily applied to other cases. I do not regard what is said in that article about this case as constituting a sufficient reason for allowing the appeal to go ahead.

Mr Weatherill in his skeleton argument and orally has said everything that could possibly be said in favour of this court permitting the appeal to go ahead, but, for the reasons which I have given, I am not persuaded that there is a real prospect of success on this appeal, nor do I find any other compelling reason for the appeal to be heard. Accordingly, despite the excellence of Mr Weatherill’s argument, I must refuse this application.