Kingsway Investment & Anor v Falmouth House Freehold Company Ltd

There is before me an application for security for costs. I indicated at the outset of this hearing that it would be sensible if I first expressed the view about quantum, because it is only possible for me to look at the question of the company being able to pay either now or at some future time when it is clear what the amount at stake is. The claim for the costs for which security is required is some £86,977.50 for this appeal. The appeal is expected to last at the maximum of a day. The sums at stake are put by the claimant at about £220,000, a sum in respect of which it was necessary for me to obtain a degree of detail. It was made up as follows: (1) the advance of some £32,000 to the company to enable it to buy the interest in this block of flats; (2) the amount obtained by the company is said to be somewhere between £1.5 million and £2 million from the sale of leasehold extensions; the claimant’s share in that would be about £60,000. (3) There is a dispute over the service charge, but the claimant’s share of that could not be more than £5,000. (4) There is a dispute over the sale of a parking space which had been sold at a gross sum of £20,000; again the maximum amount which the claimant could be interested is £1,000. (5) There is the possibility that if the company became insolvent, the freehold reversion would be lost; bearing in mind the value of the freehold reversion, the claimant would lose £120,000.

So the maximum at stake is about £220,000. What is said on the other side is, well, actually if you look at the risk of any of that happening the sum at stake is much nearer £10,000. I do take into account of course the fact that this is a dispute between the owners of the management company of the block of flats and the place where the claimant has his home, and that obviously is an important matter to him. But in looking at the proportionality of what is involved, it is important to bear all that in mind, because the sum of £86,000 for costs simply of the appeal must have a degree of proportionality.

The costs of the appeal effectively break down, as claimed, into two parts. First there has been a dispute between the parties as to whether there should be a stay of the order of Peter Smith J. What happened in relation to that was the matter was referred to Arden LJ for directions. Various directions were given. Long skeleton arguments appear to have filed, but eventually, on 14 March 2008, the solicitors to the parties entered into the following consent order which they sent by fax to the court: “upon the parties agreeing terms and by consent it is ordered that (1) the order of Peter Smith J dated 16 January 2008 be stayed pending appeal”. The fax went on to deal with listing, and it was necessary for Arden LJ to correct the way in which the rest of the fax had been expressed, and the court subsequently then made an order dated 20 March, by consent staying the order of Peter Smith J.

Unfortunately I am told by the claimants that the parties could not agree with the respondents on how the costs of the stay were to be dealt with, but nothing was inserted into the order. It is apparent to me that obviously a great deal of money was spent in relation to that application. The second matter that seems to have contributed to the costs to date was the preparation of the chronology. Apparently an order was made for an agreed chronology, but the parties could not even agree a chronology. Although it is my experience when sitting as a judge in the Commercial Court, and prior to that as counsel before the court, that there were on occasions disagreements about being able to summarise the nature of the case for the purpose of the commercial court’s procedures, I have never before come across a case where people have not been able to agree a chronology. But maybe that is some indication of the problems in this case.

Also in the incurred costs to date, are the costs of preparing a respondent’s notice and a skeleton argument. The respondent’s notice is a short document taking the point that the judge could have decided the case on the basis that, under the agreement made between the parties initially for the acquisition of the property, the company is a bare trustee and therefore obliged to provide the documents in any event. I am told the answer to that point will be made in this court. That basis of claim was never put in correspondence or raised before the judge. That will be a matter for the court to deal with. Secondly, a skeleton argument has been served by the respondents, which runs to some 40 pages. What is said is that those costs have already been incurred and form part of the solicitors’ costs of £19,852.50 and counsel’s fees of some £21,050. The estimate of future costs in this case is some £27,310 for the future costs of the solicitors. That includes eight hours in attendance at court by one person at £195 an hour and one at £95 an hour, and then counsel’s further fees come to a further £18,725. I am told that these very, very high figures have been put in because it was anticipated there will be wrangles in relation to all sorts of matters, partly in relation to other matters that have got nothing to do with the appeal and partly in relation to matters such as agreeing the bundle, and partly in relation to a possible application to this court to stay any application that may be made to present a section 994 application.

I have taken the view, bearing in mind what has happened to date in this case, that I will now, after the conclusion of the rest of the argument in this case, order the agreement of the bundle and sort that issue out. As to the prospect of yet further interlocutory applications, it seems to me that the only way to deal with this is to order this appeal be expedited. It is simply intolerable for the parties to go on behaving in this way and wasting money as well as the time of the court.

What do I think are the reasonable costs of the appeal as such? In my view, taking a view on proportionality and taking great account of the claimant’s real concern that this dispute relates to his home but also having regard to what is in issue, my view is that the reasonable costs strictly incurred in relation to the appeal and not all the other matters would be a sum of £12,000 to include the solicitors in attendance, brief fees, preparation of skeleton argument and the respondent’s notice. I cannot conceive that fees beyond that are in any way proportionate to what is in issue. Of course it is entirely for the claimant, who is not in court to hear this judgment, to make up his own mind as to what he wants to spend by way of legal costs on the case, but in my view a sum of £12,000 should be ample to cover the entirety of the costs of the appeal and the future costs of the appeal. I make it absolutely clear that includes the respondent’s notice, the skeleton argument, the appearance of counsel on this appeal, the solicitor checking the appeal bundle and carrying into effect any changes I will hereafter direct and attending. Litigation must be conducted with due proportionality.

As to the costs that have been incurred to date, I simply refuse to allow any costs whatsoever in relation to the preparation of the chronology. That should have been encompassed within the sum of £12,000 to which I have already referred. As to the question of costs for a stay, I intend to make no order for security in respect of those. The parties did not agree to how this matter was to be dealt with. They did not make an agreement as to the costs of stay, and if there is to be an argument in relation to who is to be responsible for those that is not a matter I am prepared to determine today, and if the parties fail to agree as to how they were to be dealt with in the future I see no reason to make an order for security for costs in respect of them. Therefore the quantum of the order I am prepared to make today is the sum of £12,000. I will now deal with the remaining issues which I intend to deal with quite shortly as to the provision of security in respect of that sum.