Forcelux Ltd v Binnie

Following the handing-down of the judgments, to the parties in draft in July, we were asked not to make a formal hand down then because it might prejudice an application for permission to appeal to the Supreme Court if we ourselves refused such permission. We acceded to that request and the parties were directed to provide written submissions with regard to the form of order. This they have now done. So this judgment is being handed down immediately following our judgment on the main appeal.

In order to deal with the costs of the appeal (including the costs of the Respondent’s notice), it is necessary to look at when various different points were taken. Before I do that, I must mention that Forcelux now relies on the provisions of the Lease as entitling it, as a matter of contract, to its costs of the appeal as well as the costs before DJ Hudson and HH Judge Hampton. Mr Hayes accepts that the court has a discretion to make an order which departs from the contractual position, but submits that the contractual provision remains a very important factor in the exercise of that discretion.

The Lease contains a covenant by Mr Binnie in the following terms:

“To pay all costs charges and expenses (including legal costs and also charges payable to a Surveyor) which may be incurred by the Lessor or in contemplation of any application to the Lessor for any consent pursuant the covenants herein contained and of any steps or proceedings or the service of any notice under Sections 146 or 147 of the Law of Property Act 1925 including the reasonable costs charges and expenses aforesaid of and incidental to the inspection of the Demised Premises the drawing up of schedules of dilapidations and notices and any inspection to ascertain whether any notice has been complied with and such costs charges and expenses shall be paid whether or not any right of re-entry or forfeiture has been waived by the Lessor or avoided otherwise than by relief granted by the Court”

Mr Hayes submits that, as a matter of construction, this provision entitles Forcelux to its costs of the entirety of the proceedings both below and in this court. The important words are “all costs charges and expenses (including legal costs…..) which may be incurred by the Lessor in or in contemplation ……of any steps or proceedings….under sections 146 or 147 …..”.

The Court of Appeal in Fairview Investments Ltd v Sharma CA (unreported 14 October 1999) was concerned with a covenant in a lease very similar to the one in the present case. The lessor covenanted to pay all expenses “under section 146 of the Law of Property Act 1925 or incurred in contemplation of or in proceedings under sections 146 or 147 of that Act….”. Chadwick LJ (with whom Thorpe LJ agreed) saw the covenant as dealing with the three distinct phases for which, according to him, sections 146(1) and (2) provide. Thus it required the lessee to pay (1) the lessor’s costs in relation to the preparation and service of a section 146 notice (2) the costs incurred by the lessor after notice and in contemplation of proceedings to enforce the right of re-entry (i.e. contemplatedpossession proceedings) and (3) the costs of proceedings actually commenced (i.e. actual possession proceedings). Section 146, however, is concerned with forfeiture and relief from forfeiture: proceedings for possession are not brought pursuant to an authority conferred by section 146 although frequently they are brought in order to enforce a right of forfeiture (rather than by effecting actual re-entry which would not, in any case, be permissible in relation to an occupied residential property).

Although he does not expressly say so, Chadwick LJ must have regarded possession proceedings brought to enforce a right of re-entry following a notice under section 146(1) as proceedings “under” section 146. I would respectfully agree given the terms of section 146(2) which clearly contemplate the enforcement of a right or re-entry “by action or otherwise”. It makes perfect sense to regard the action (i.e. an action for possession) as proceedings “under” section 146 in the sense that they are the very proceedings within the contemplation of the section. Similarly in the present case, the possession action is within the scope of the words “any steps or proceedings” within the scope of the covenant. It follows that the application to set-aside the possession order, as much as the application for relief from forfeiture coupled with it, is also within the scope of those words.

When setting aside the order for possession and granting relief from forfeiture, DJ Hudson dealt with the costs. It was not suggested on that occasion that Mr Binnie had covenanted to pay any part of the costs. DJ Hudson did not therefore address the issue. In fact he made a split order, giving Forcelux its costs to 25 June 2008 but not thereafter. This was to reflect the fact that Mr Binnie had produced evidence prior to that to indicate that funds were available; one can see from DJ Hudson’s judgment that he regarded Forcelux’s behaviour after that to have been wrong and his costs order was clearly intended to reflect that behaviour.

DJ Hudson dealt with the substance of the set-aside application on the basis of CPR 39.3. The meaning of “trial” was not an issue before him. When the matter came before HH Judge Hampton, the meaning of “trial” was an issue. It was formally raised in Mr Binnie’s Respondent’s notice filed 26 August 2008 although it had been adumbrated a few days earlier in Mr Diggle’s skeleton argument for the appeal from DJ Hudson (which took place before HH Judge Hampton on 18 September 2008). HH Judge Hampton, it will be remembered, dismissed the appeal from DJ Hudson. She decided that there had been no “trial”. She did not herself exercise any discretion as I have explained in my judgment on the appeal. In relation to costs, it was again not suggested that Forcelux had a contractual right to its costs. The judge ordered Forcelux to pay Mr Binnie’s costs of the appeal save that she ordered there be no costs of (i) Mr Binnie’s application for permission to file a Respondent’s notice and (ii) the costs of a hearing on 13 November 2008 (about which I know nothing).

The judgment of this court was that HH Judge Hampton was correct in holding that there was no “trial”. We went on to exercise the discretion to set aside the possession order in favour of Mr Binnie and formally to dismiss the appeal. Forcelux’s Appellant’s notice seeks an order setting aside the whole of HH Judge Hampton’s order including the costs order which she made. It sought substitution of an order (1) allowing the appeal from DJ Hudson’s order setting aside the possession order and granting relief from forfeiture (2) dismissal of Mr Binnie’s application to set-aside the order and relief from forfeiture (3) an order that Mr Binnie pay the costs of that application and of the appeal to HH Judge Hampton. The contractual point about costs was not raised before us on the appeal; it did not feature in the grounds of appeal or in Mr Hayes’ skeleton argument. It has surfaced for the first time in relation to the consequential directions which are sought following the judgments of this court.

It will be apparent from the main judgment that all of the members of this court are doubtful that Mr Binnie acted promptly for the purposes of that rule and my own judgment proceeded on the basis that he was not, without actually deciding the point. We accordingly reached a decision in favour of Mr Binnie on different grounds from DJ Hudson and on grounds which were not argued before him and which had not even been raised between the parties.

Mr Hayes now submits that we should give effect to what he says are Forcelux’s contractual rights under the Lease and award it the whole of the costs of the appeal and of the proceedings below notwithstanding (a) that the contractual point was not raised below or before us on the appeal (b) that costs orders were made below including the one made by DJ Hudson which deprived Forcelux of an element of its costs and (c) that the appeal failed on both the “trial” point and the issue of the exercise of discretion.

As I have said he accepts the jurisdiction of the court to make a different order notwithstanding the contractual position as he states it, but submits that the general principle is that the discretion should be exercised in line with the contract. He relies on Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] CH 171 (a mortgage case) and Church Commissioners for England v Ibrahim [1997] 1 EGLR 13 (a lease case) to demonstrate that principle. I do not dissent in any way from the proposition that the general principle is as he states. But the general principle is not a rule of law and it may well be that in a particular case, or even in a class of case, the court’s discretion should be used to override the contractual right.

For example, if a lessor loses a piece of litigation at first instance which it was reasonable for him to fight, it might be wrong to deprive him of a contractual right to costs. But if he goes on to appeal the decision against him and loses the appeal, then it is not obvious to me that the general rule should be that the discretion should be exercised in accordance with the contractual right; or if it is the general rule, then the court should be willing to depart from it quite readily.

Mr Diggle seeks Mr Binnie’s costs of the appeal; as from 5 February 2009, he seeks costs on an indemnity basis to reflect the rejection by Forcelux of a “drop-hands” offer (i.e. the appeal being withdrawn with no order as to costs) to settle the appeal which was rejected.

In my judgment, Mr Binnie has been the substantial winner of the appeal. He has succeeded on the question whether there was a “trial”, an issue on which he had previously succeeded before HH Judge Hampton. Although neither DJ Hudson nor HH Judge Hampton dealt with the discretion point on the correct basis, Forcelux has lost that point on appeal too. Although it may well be that Mr Binnie did not act promptly, that is not a reason for depriving him of any costs to which he would otherwise be entitled. I reject the submission that the costs of the “promptness” issue should form the basis of an issue-based order or found a percentage reduction.

Further, even assuming that the contractual provisions in the Lease cover the costs of the appeal as a matter of construction, I consider that this is a case where, in the exercise of the court’s discretion, Mr Binnie is entitled to a costs order which departs from the contract. I would reach that conclusion even if the point had been taken at the beginning of this litigation before DJ Hudson. I would do so because application of the general rule in relation to the facts of this appeal would cause an injustice to Mr Binnie. As I said in my main judgment, and as is made clear by Chadwick LJ in Fairview Investments Ltd v Sharma CA, the right of re-entry is to be regarded as security for compliance with the terms of the Lease; the covenant can be seen as protection to the Lessor in enforcing that security. But at least by the time of the conclusion of the hearing before DJ Hudson, it was clear that Forcelux would receive everything to which it was entitled and clear that Mr Binnie was entitled to relief from forfeiture. In choosing to challenge the basis on which relief was given by appealing against the order of HH Judge Hampton upholding the decision to set aside the possession order. Forcelux did so at its own risk as to costs. That disposes of Mr Hayes’ argument based on the contractual provisions.

Mr Hayes is, however, right when he says that Mr Binnie should not have the costs of his Respondent’s notice in this court or the costs or preparation of the witness statement of Mr Stenson. I would not go so far as to make a costs order in relation to these aspects in favour of Forcelux. It would be disproportionate to require a detailed assessment in respect of the cost of these aspects which it must be very difficult to separate from the overall costs of preparation and which, in the context of the whole case, are unlikely to have incurred Forcelux in any significant extra expenditure.

I reject Mr Diggle’s submission that Forcelux should be liable for indemnity costs over any period. The "trial" issue was not straightforward and Forcelux had an arguable point. It should not be penalised by indemnity costs by reason of Mr Binnie’s offer to settle on a drop-hands basis.

So far as the costs before DJ Hudson are concerned, it must be borne in mind that he actually deprived Forcelux of some of its costs. It is possible to see from his judgment that this must have been done because of his disapproval of the conduct of Forcelux. It may be that he would have taken the same view even if he had been aware of the contractual point. This court is not, in my view, in possession of facts sufficient to enable us to exercise a discretion about the award of costs before DJ Hudson even if it was considered appropriate to do so. It would be quite wrong at this stage of the litigation to send the matter of costs back to DJ Hudson for him to exercise his discretion again. In my judgment, the costs order made by DJ Hudson should not be disturbed.

The position in regard to costs before HH Judge Hampton is more complex. Quite apart from the contractual point, Mr Hayes submits that up until the Respondent’s notice was served, the case was proceeding on the basis that CPR 39.3 applied; had the point about the meaning of “trial” not surfaced, Forcelux would have won the appeal. I am not sure that that is correct, but it is certainly the case that the “trial” point totally changed the landscape. And it is certainly true that the hearing before HH Judge Hampton was the first occasion on which the “trial” issue was debated. Accordingly, Mr Hayes suggests that Forcelux should have its costs in any event up to the date when the contents of the Respondent’s notice were brought to Forcelux’s attention 10 days before the hearing. But Forcelux did not at that point accept that the hearing before DJ Hudson was not a trial; indeed it appealed to this court on the basis that there was a trial. I can accept that, the point having been raised so late in the day, it remained appropriate to proceed with the hearing; and had Forcelux not appealed to this court I would have some sympathy with the submission that it should have its costs on the footing that it would not have incurred them if the point had been raised earlier. However, an appeal having been made to this court, it is perfectly clear that Forcelux would have proceeded to contest the point even if it had been raised much earlier in the appeal or, come to that, as a basis for the application before DJ Hudson.

Apart from the contractual point, I would not disturb the costs order made by HH Judge Hampton. Since the point was not put to her, it cannot be said that she approached the exercise of her discretion about costs in the wrong way. The issue comes down to this. Should Forcelux be allowed to raise on this appeal a claim to costs, and to overturn the exercise of the judge’s discretion, on the basis of a contract on which it could have, but did not rely, before HH Judge Hampton and which this court is asked to give effect to for the first time when dealing with orders consequential on our decision? In my judgement, we should not. I would leave the costs order of HH Judge Hampton as it stands.

The figure of £10,000 sought by Mr Diggle seems reasonable. Mr Hayes submits that no order should be made because there may be a breach of the indemnity principle in the light of the fee arrangement between Mr Binnie and his legal team. This argument appears to me to be very weak in the light of the evidence filed by Mr Binnie’s solicitor, Mr Stenson. I would order a payment on account of costs of that amount.

I consider that this should clearly be left to the Supreme Court to decide. I am not persuaded that there is any really significant point of public interest. The question of "trial" does not appear to have arisen for the several years during which CPR have been in force. In practice, the point is hardly ever likely to arise since ordinarily one might expect that a lessee in the position of Mr Binnie would either (a) take no action at all and allow the possession order to run or (b) get extremely excited and make very sure that he acts promptly, in which case it makes no difference whether the hearing was a trial or not.

I would continue the stay which has been in force during the course of this appeal to allow Forcelux to petition the Supreme Court for permission to appeal. The stay should last until that petition is dealt with and, if permission is granted, until resolution of the appeal. Although Mr Diggle says that the property is deteriorating, there is no evidence about that. Moreover, Mr Hayes expresses concern that Mr Binnie’s intention is to do up the property and sell it. Those factors point towards continuing the stay.

The parties should present an agreed order in the light of this judgment or, in default of agreement, their own suggested versions.

I agree.

I also agree.