Hannan & Anor v Maxton

The first claimant, the respondent in this appeal, and the appellant lived together for a number of years as partners in a property known as Pathways, Blackpool Road, Newton le Scales, Preston. Their relationship broke down. The second claimant was a company owned by the first claimant in the original action, Mr Hannan, who is a mortgage broker.

For reasons I need not go into, the title to the property was in two parts. Pathways, the parties’ home was in Mr Hannan’s name. The Nursery, from which a business was conducted and which adjoined Pathways, was in Miss Maxton’s name. The main issue in the litigation was whether there was an implied trust under which each party had a beneficial interest in the part held by the other: in short, whether Miss Maxton had any beneficial interest in Pathways, whether Mr Hannan had any beneficial interest in the nursery.

Pursuant to a notice to quit dated 12 February 2006 the first claimant sought possession of Pathways. He and the second claimant also sought repayment of alleged loans made to Miss Maxton in the sum of some £348,340 plus interest. By her counterclaim, the appellant sought a declaration that she held Pathways on trust for her and the first claimant equally. She accepted that she held The Nursery similarly on trust for the first claimant and herself equally and sought a declaration to that effect. She sought too an order for sale of both properties, equal division of the proceeds, all necessary accounts and enquiries and costs. She disputed the alleged loans. The case was ordered to proceed on the counter claim.

It was due to be heard in the Blackpool County Court on Monday 24 November 2008. A report was produced by a jointly instructed expert called Mr Coney; it was dated 13 October 2008. It did not in terms contain a valuation. On 21 November 2008, on the Friday before the trial was due to begin on the following Monday, Mr Coney produced a valuation. It was in the sum of £725,000. Against Pathways there were borrowings of some £450,000. Against The Nursery there were borrowings of some £227,000. There were total borrowings, therefore, in the order of £677,000 against a property worth £725,000. Add to that the sale and conveyancing costs agreed to be in the order of £21,000, it meant that in financial terms the argument was effectively about some £25,000. If, as the judge thought possible, there was liability for capital gains tax, there might effectively be nothing left. The case was listed for 3 days. The costs on each side were about £50,000.

We are told that Mr Hannan believed prior to the valuation that the property was worth between £1 million and £1.5 million. Subject to costs, the case settled at the door of the court. As material to the present appeal, orders by consent to the following effect were made: first, there should be a declaration that each party had a one half beneficial interest in the property registered in the name of the other, second, that the first and second claimant’s claims in respect of the alleged loans should be dismissed and third, that there be an order for sale of Pathways and The Nursery. In other words the case on the counterclaim succeeded in its entirety.

This appeal concerns the order made by the judge, Deputy Judge Howarth, regarding costs. He ordered that the first and second claimants were to pay the defendants’ (the appellants’) costs in respect of the claims for repayment of the loans. No issue arises regarding that. Otherwise, he made no order for costs. This appeal relates to that order. It is said in short, the appellant effectively succeeded in her claim. She had made a part 36 offer on 2 July 2008 which she exceeded. By that offer she had suggested that both properties should be sold, the net proceeds to be divided 55% to the respondent, 45% to her. Further, it is said earlier attempts to settle the case were rebuffed by the claimants until the door of the court. The only offer made by the first claimant was on 11 November 2008, 13 days before trial, when he suggested a 65/35 division in his favour regarding the properties and also that the appellant pay some £260,000 in respect of the loans.#

The appellant in this appeal seeks an order for costs on the main action on a standard basis until 28 July 2008, thereafter on an indemnity basis.

Having referred briefly to the history of the matter he set out, in paragraphs 13 to 20, the basis of the decision he was making:

“13.

What am I to do? Well, Mr Shaw has suggested that the normal rule should apply. If the defendant has succeeded in her counterclaim she should be entitled to costs. In addition, there is a Part 36 offer made on 2^nd July 2008 which suggested that both properties should be sold as a single concern and that the net proceeds of sale should be divided 55% to the claimant and 45% to the defendant. It did not produce a favourable response, and indeed no offer seems to have come from the claimant until 11^th November when a 65/35 division was suggested, 65 obviously in his favour.

14.

It seems to me plain in part that the claimant’s solicitors have not been enamoured of any idea of any form of alternative dispute resolution, but, as Mr Booth has very fairly said, that can only succeed if at least the facts of the case are not substantially in dispute. But the facts in this case were fiercely in dispute and the facts are matters really as to what the parties between them actually said and agreed, not in the presence of some third party who could give evidence as an independent witness but, not surprisingly, in the absence of any such third party. If the dispute had been litigated I would have had to decide that issue, having heard conflicting testimony from the two parties simply on the basis of which party I assess as being more credible of belief.

15.

I make no judgment as to which of them was more credible of belief in this case because, whilst I can see them both sitting before me, I do not claim by looking at people to know whether they can tell me the truth or not. Having sat for a long time as a Judge and a period as a barrister in goodness knows how many cases for much longer years than that, I quickly learnt that one had to sit and listen and make your mind up at the end, not start off making a decision, and that is what I would have done had the case fought. I simply do not know whether any form of dispute resolution would have produced some form of satisfactory solution or no. It would depend, I suspect, on whether one or other of the two parties was willing to climb down to some extent from their pleaded position. I do not know whether that would have been likely or not. It may be that some form of conciliation could have succeeded. I do not know.

16.

It is said on behalf of Mr Hannan that the concessions which he has made have been made not on the basis of the merits of the case but on the basis of the practical situation which faces the parties, namely, do they throw two further days’ legal costs at this matter, making possibly a bad disaster into an absolutely catastrophic one, or do they cut their losses at the only possible and earliest stage after receipt of the valuation and not encumber anybody else, including themselves, with even more unpalatable sums to have to pay? Nobody enjoys paying their lawyers for litigation, or at least they ought not to. Is that a relevant consideration, or is it not? It seems to me that this is a very very difficult matter to decide upon.

17.

It seems to me that I ought to look at the two claims which the claimant has made separately. It seems to me that the possession action is inextricably bound up with the question of whether or not there is a beneficial interest in the properties and in Pathways whether Miss Maxton has that beneficial interest, but it does seem to me that the financial claim is one which, if it has been abandoned, whether on the basis that he does not think he is ever going to get paid by Miss Maxton because she has no money, is a different point altogether because what I have been told is that Mr Hannan is going to seek to prove in the litigation of a company called Happy Horse which is now in liquidation, which is perhaps not as happy as the name originally hoped it would be, and if he is going to try and get that money by a different route I d o not see why he should not pay Miss Maxton for the costs which are attributed to that claim alone. Those costs I would expect would be fairly trivial in their nature.

18.

What about the costs in relation to the main claim, the possession case, and the defence and counterclaim, the counterclaim having become the lead action as a result of an order made by a Deputy District Judge in this case; an order that was made on 28^th July this year. Both submissions are not without merit. Admittedly on the face of the concession the defendant has succeeded. Admittedly, a Part 36 offer was made which is highly relevant, let us put it that way. There are suggestions for dispute resolution; they have not been taken up. Equally, I can see the claimant’s point that this litigation is financially a millstone round everybody’s neck and it should be got rid of at the earliest opportunity and at the least cost and the only practical way of doing that is the way that is has been done.

19.

Which of those concessions is right, which, on the facts of this case (and I emphasise that because it is no the facts of this case), is the one that persuades me that it is the right submission? Well, it seems to me that in the main, where at a late stage in an action of this nature it becomes clear to the parties that they are fighting over nothing, then they are to be encouraged to recognise that fact and to get rid of the case on reasonable terms.

20.

Although it is a matter of regret, it would be a matter of regret whichever way I were to decide the case, my view is that, subject to the point that I have made about the financial claim litigation, there should be no order as to costs for the reasons which Mr Booth has put forward. It seems to me that this is the right decision. Admittedly it is departing from the general rule, but I am entitled to depart from the general rule if the facts of the case are sufficient to justify it as a matter of discretion, and as a matter of discretion my view is that on the facts of this case, bearing in mind the situation which everybody was in today, there should be no order as to costs, and that is the decision which I make.”

I have read all the correspondence which the parties have provided. I shall only refer to some parts. I have also read the statement of Mr Greensmith, who was the respondent solicitor throughout. The respondent relies upon it pursuant to a notice in which he states that he wishes this court to uphold the lower court’s order on additional grounds. In broad terms the history discloses the following.

A flavour of the correspondence can be gauged from the following.

Mr Julian Shaw, on behalf of the appellant, makes submissions which can be distilled to the following. The respondent abandoned his claim at the door of the court. The order that the court made reflected what was sought throughout by the appellant. It was set out in the defence and counterclaim, dated as long ago as 8 April 2008. There was no reason why, in accordance with CPR 44.3 2A, the general rule regarding costs should not be followed. There was no reason why the rule under CPR 36 should not be followed. The judge failed to identify why he did not follow the ordinary rule and made the order which he did. There is nothing, it is submitted, to indicate he applied his mind to the issue. He did not deal in any depth with the history of the litigation, the attempts at negotiation by the appellant or the part 36 offer made by her; neither did he recognise, it is submitted, the limited nature of the respondent’s part 36 offer, in particular that it required the appellant to pay £260,000 to the claimants.

Mr Howard Shaw, on behalf of the respondent, accepts that generally the unsuccessful party will pay the costs of the successful. The overwhelming feature, it is said, of this case was that the valuation, which revealed effectively that there were no assets, was produced just before trial. That was the appellant’s fault because she had not paid her share of the costs to him. The late production of that report meant that the litigation became pointless. That is why, on purely economic commercial grounds, the respondent effectively conceded the case; the appellant, it is said, not being prepared to do so. Had the respondent not done so, the costs would have been even greater.

It is said that the history of the case indicates uncertainty about alternative dispute resolution suggestions made by the appellant. I have already dealt with Mr Greensmith’s comments regarding that and will not repeat them. It is said that the offers of alternative dispute resolution were confused; there was no genuine attempt. Had there been a genuine attempt to resolve the issues, the witness statement would have been served sooner. The suggestion of FDR would not have been rejected. The submission also is that the judge plainly considered the history of the matter, although he may not have set it out in detail. The decision he reached was not perverse; it was within the realms of the discretion he had. Our attention has been drawn to two cases. It is unnecessary to go into their detail. The first was Petrotrade Inc v Texaco Limited A3/00/0044; the second was McPhilemy v Times Newspapers Ltd and (2) Liam Clarke (3) Andrew Neil [2001] EWCA Civ 933. Neither sets out any statement of principle with which this court is not familiar.

As I have indicated, this case raises no issue of principle, and I do not feel it necessary to refer to any detail of those authorities. The question is whether the judge acted within that wide area of discretion he has when deciding what order for costs to impose. It is, I am afraid, not at all easy to follow the reasoning behind the judge’s order. He did not, as Mr Julian Shaw rightly complains, explain it in detail, or refer in detail to the background or correspondence. As it seems to me, the following is the case. First, both sides bear some responsibility for what happened. Second, I find it surprising that litigation such as this could be embarked upon without an up-to-date valuation of the net value of the property in issue. Thirdly, the appellant’s suggestions for a round table conference, made continually in the early days in particular, were rebuffed. The fact that Mr Greensmith ultimately suggested AFDR suggests that it might have borne fruit; so does the fact that each side in due course made a part 36 offer. Fourthly, the respondent is right to complain of the late production of the appellant’s statement; however, it has become apparent that is irrelevant to what happened. The statement did not, as Mr Howard Shaw in argument conceded, indicate a stronger case than that which was disclosed by the appellant in the pleadings. She had filed, moreover, a full and detailed pleading. It is clear that the respondent knew the essence of the appellant’s case. Fifthly, had the appellant paid her share of the valuer’s report sooner, the valuation might have been produced earlier and the pointless nature of the proceedings become apparent sooner. However, on any view, that valuation would only have been produced shortly before the trial. Its absence did not prevent the respondent making his Part 36 offer. Moreover, it was not the late production of the valuation which produced the settlement; it was the collapse of the property market which did so. Sixthly, in the final analysis it seems to me the position is this: the respondent abandoned all his claims; the appellant obtained what she had said throughout; she was entitled to. She had offered to settle on less favourable terms than in the event occurred. In my view, in such circumstances the costs should have followed the event. The judge, in my view, was wrong not to award her costs. It was not within the reasonable exercise of his discretion to fail to do so. Seventhly, I would not, as is sought, order indemnity costs. I would order that the respondent pay the appellant’s costs on a standard basis. Such an order of indemnity costs would not reflect that, even at the door of the court, the respondent did make some concessions; also that there was some fault on the part of the appellant, as I have indicated.

I would therefore allow this appeal.

I agree.

I also agree. I would add just two points. First, I would emphasise the point my Lord has made, which is that what made this litigation unrealistic was not the late production of the valuation but the collapse of the property market. That is an unfortunate fact of history. Any party who starts litigation bears the risk that circumstances may change before the matter comes to trial. That, in my view, can very rarely be a reason to depart from the ordinary rules in relation to costs.

Secondly, I would mention the question of alternative dispute resolution. Fortunately most cases of this kind are settled and do not come to court. When they do, it is often said that there should have been alternative dispute resolution of some kind. Usually each side blames the other for having failed to achieve it, and usually it is not very helpful for the court to try and assess that question. I note however that at paragraph 14 of the judgement there appears the following:

“…as [counsel for the respondent] has very fairly said, [ADR] can only succeedif at least the facts of the case are not substantially in dispute. But the facts of this case were fiercely in dispute and the facts are matters really as to what the parties between them actually said and agreed, not in the presence of some third party who could give evidence as an independent witness but, not surprisingly, in the absence of any such third party.”

I would not like it to be thought that ADR is only suitable for cases where the facts are not substantially in dispute. Indeed, experience shows that it is often in those cases where the facts are most hotly disputed that ADR can be useful, because it focuses attention of he parties on the commercial reality of the litigation and the costs involved, rather than on the very uncertain question of which of them will ultimately be believed by the judge on the bare factual dispute..

On the other matters I agree entirely with what my Lord has said. Accordingly, the appeal will be allowed.