Dammermann v Lanyon Bowdler LLP

This is the judgment of the court, to which we have both contributed.

In this appeal Mr Peter Dammermann seeks to overturn a costs order made against him at the conclusion of a first appeal in a case which had been allocated to the Small Claims Track.

The factual background can be shortly stated. Mr Dammermann entered into a legal mortgage with United Trust Bank Limited in February 2002. Mr Dammermann subsequently defaulted on his mortgage payments and, consequently, the bank appointed receivers to sell the charged property under the terms of the mortgage and the Law of Property Act 1925.

The appointed receivers retained a local firm of solicitors, Lanyon Bowdler LLP, to conduct the sale of the charged property. In due course the property was sold and Lanyon Bowdler rendered a bill to the receivers which was duly paid and became part of Mr Dammermann’s overall liability under the terms of the mortgage.

By a claim brought in the Telford County Court against Lanyon Bowdler, Mr Dammermann sought to challenge the level of fees charged by that firm for this work. As Lanyon Bowdler had already been paid by the receivers the claimant’s claim was, effectively, for a refund of a proportion of the overall charge.

At a hearing on 14 August 2015, Deputy District Judge Holden held that there was neither an agency nor any contractual relationship between Mr Dammermann and the solicitor’s firm and that, consequently, he had no standing to make a claim against them. The contract for solicitor’s services was between the receivers, who had been appointed by the lenders, and Lanyon Bowdler. In the circumstances the Deputy District Judge dismissed the claim, no order as to costs at the first instance hearing.

Mr Dammermann sought to appeal against the Deputy District Judge’s decision. He was granted permission to appeal by His Honour Judge Main QC, following consideration of the papers on 21 September 2015.

In a skeleton argument dated 16 October 2015 counsel then instructed by Lanyon Bowdler, set out a succinct and clear legal argument demonstrating that the principles of the ordinary law of agency were not applicable in the particular circumstances of an agency that exists between a receiver and a mortgagor. Reliance was placed, in particular, on the observations of Hildyard J in an unreported decision relating to administrative receivers, Edenwest v CMS CameronMcKenna (a firm) [2012] EWHC 1258 (CH). The skeleton argument supported the Deputy District Judge’s decision and submitted that the appeal should be dismissed “with costs”.

The appeal was heard by HHJ Main on 14 December 2015. Mr Dammermann appeared in person and Lanyon Bowdler was represented by counsel, Ms Hannah Tildesley. Having heard arguments, the judge, in a relatively detailed judgment referring to the case law relied upon by Lanyon Bowdler, concluded that the contract for services in this case was “not an agency contract properly so called as known at common law. The principles that would apply to a common law agency contract, do not apply I find on the facts of this case.” Insofar as the appeal was concerned, therefore, the judge concluded (paragraph 16):

“Standing back from this, it is entirely clear to me that the learned district judge, for reasons that she did not actually properly exemplify or set out other than in the most general terms, in fact got the law entirely correct, and that so far as the primary submission made by Mr Dammermann is concerned, it is wrong.”

and …

“Therefore the primary case presented by Mr Dammermann is simply not right.”

As a result the appeal was dismissed.

Lanyon Bowdler applied for costs and, following a brief discussion regarding one or two elements of the costs schedule, the judge began to give a judgment seemingly based upon the court having a wide discretion on the issue of costs.

Quite properly, Ms Tildesley sought to interrupt the judge in order to point out that, as this was a case allocated to the Small Claims Track, the court’s jurisdiction was proscribed (as I will explain in due course) and Lanyon Bowdler’s application for costs could only succeed on the facts of this case under CPR 1998, Part 27.14(2)(g) on the basis that Mr Dammermann had “behaved unreasonably”. Thereafter the judge heard very brief submissions from each side before concluding his judgment, now within the terms of Part 27.14 (2)(g) as follows (para 29, page 43):

“I am satisfied he has acted unreasonably. I was not aware until just a moment ago, that an offer had been paid of £1,000 to seek to mollify his concerns in any way in respect of this bill. I would have thought that was a very generous offer that should have been accepted, but leaving that to one side, he has persisted in an argument, notwithstanding – and I agree with the submission made by Ms Tildesley – that it is entirely clear on the basis of this skeleton argument, very clearly argued and presented by Mr Millington, an argument which I noted is dated 16^th October 2015 and probably would have been in the hands of Mr Dammerman six or seven weeks ago, that he could have backed off this appeal, not proceed with it, and matters probably would have rested there. He has not done so. It is obvious from that skeleton argument that he was barking up the wrong tree, he had confused himself, he was applying principles of general agency law which could not apply and did not apply, if he had even read those authorities, which are referred to in the skeleton argument and the extracts therein. In those circumstances, I do take the view he has behaved unreasonably, and in those circumstances, I do continue therefore with the assessment of these costs. I am not going to repeat myself in respect of what I have hitherto said in the course of this summary assessment.”

The judge did, however, make some reduction to the bill to reflect the particular matters of potential overcharging that he had previously identified.

The costs regime applicable to cases under the Small Claims Track is set out in CPR, Part 27.14. In particular, by Part 27.14(2):

“the court may not order a party to pay a sum to another party in respect of that other party’s costs, fees and expenses, including those relating to an appeal, except: …”. (emphasis added)

There then follows a list of exceptions, the only one applicable to this case is (g):

“Such further costs as the court may assess by the summary procedure and ordered to be paid by a party who has behaved unreasonably.”

Attention must also be paid to Part 27.14(3):

“A party’s rejection of an offer in settlement will not of itself constitute unreasonable behaviour under paragraph 2(g) but the court may take it into consideration when it is applying the unreasonableness test.”

The first point to note about the provisions in Part 27.14 is that they apply to an appeal. Ms Tildesley was therefore right to draw the provision to the judge’s attention and the judge was equally correct in seeking to determine whether or not Mr Dammermann had “behaved unreasonably” with respect to his conduct of the appeal, see Akhtar v Boland [2014] EWCA Civ 943.

Mr Dammermann was granted permission for a second appeal by Lord Justice Vos (as he then was) partly on the basis that the judge may have been in error in taking account of the rejected offer of settlement of £1,000. and, secondly, because of the more generally important points of practice arising from the need to establish “unreasonable behaviour” in the context of CPR Part 27.14(2)(g) in a Small Claims case.

Mr Dammermann, who appears in person, makes three substantive points. The unreasonableness of his behaviour must be seen in the light of the fact that the very same judge had granted him permission to appeal on the basis of the case that he went on to argue at the full appeal hearing.

Secondly, Mr Dammermann argued that the point of law which was eventually decided against him is to a degree obscure, as the mortgage deed indicates that the receivers were acting as his agents but, as the judge found, the solicitors were not. Mr Dammermann submits that, in judging his “unreasonableness”, the seeming obscurity of the point of law must be taken into account.

Thirdly, Mr Dammermann submits that the judge was wrong to take his rejection of the £1,000 offer into account and that, if he had been afforded time, he would have informed the judge of his counter-offer to settle at a higher figure, which Lanyon Bowdler in turn refused.

In a most helpful and clear skeleton argument, Ms Tildesley, for Lanyon Bowdler, having referred to the existing case law on the topic of unreasonable behaviour, submits that the judge’s decision on costs should be upheld. She, too, makes three central submissions. Firstly, that Mr Dammermann received Lanyon Bowdler’s very clear skeleton argument some six or seven weeks prior to the appeal hearing and, notwithstanding the grant of permission to appeal, he should have understood that, in the light of the law cited in the skeleton, there was no prospect at all of the appeal succeeding. He had therefore unreasonably pursued a losing case.

Secondly, although the court cannot base a finding of unreasonable behaviour solely on the rejection of an offer in settlement, the court may take such a rejection into account when applying the unreasonableness test. In the present circumstances, as the judge came to hold that this was “a very generous offer that should have been accepted” and its rejection should therefore, in this case, be taken into account.

Thirdly, by a Respondent’s Notice, Lanyon Bowdler seeks further to support the judge’s judgment on the basis that the judge had, in effect, categorised Mr Dammermann’s appeal as “totally without merit”. In making that submission, Ms Tildesley readily accepts that the phrase “totally without merit”, which obviously has a technical legal meaning in this context, was not deployed by the judge. However, she points to the judge’s clear words (at paragraph 20) holding that Mr Dammermann’s primary case “simply is not right” and (at paragraph 29) that “it is obvious from that skeleton argument that he was barking up the wrong tree”.

The Appeal

Mr Dammermann’s first two points have considerable force.

The point on which Mr Dammermann lost the appeal is, not an entirely straightforward point. The mortgage deed describes the receivers as “agents for the mortgagor” namely Mr Dammermann but, in relation to instructions to solicitors to realise the value of the mortgaged property, it does not mean what it appears to say. Those instructions come from the receivers who are the contracting party with the solicitors unless, as the judge said (para 17), they authorise the mortgagee to become the contracting party and the solicitors agree to that course.

In the main case cited by the skeleton argument of Lanyon Bowdler for the appeal to the circuit judge it is correctly said that the description in the mortgage deed is “apt to give a somewhat false impression” and is a device “designed to insulate the mortgage from liability for the receiver’s acts and is in some ways artificial or contrived, see Edenwest v CMS CameronMcKenna (A Firm) [2012] EWHC 1258 (Ch) at paras 61 and 62. As further explained by Hildyard J in that case (and as recited in paragraph 13 of His Honour’s judgment):-

“The question in every case is whether the specific contract was one which the receiver intended or must be taken to have made on behalf of the [mortgagor] or on his own behalf” (para 65).

Although Deputy District Judge Holden had correctly said (para 11) that the receivers were not acting on Mr Dammermann’s behalf, that did not prevent Judge Main from granting permission to appeal. Lanyon Bowdler’s skeleton argument fleshed out the point by reference to authority but the position still remained a curious one, in the light of the express terms of the mortgage deed. Judge Main himself takes 12 paragraphs of his judgment to explain the legal position. It seems to us that the fact that the point on which Mr Dammermann lost was a somewhat intricate point arising from a legal document which was “artificial or contrived” and “apt to give a false impression” and the fact that the judge had granted permission to appeal were matters which the judge should have taken into account in assessing whether Mr Dammermann had behaved unreasonably for the purposes of CPR 27.14(2)(g).

Further we do not agree that Ms Tildesley’s submission to the effect that the judge all but held that the appeal was ‘totally without merit’ can be justified. Although the judge did reach the stage of holding that Mr Dammermann’s case was ‘simply not right’ or that it was ‘obvious’ from the skeleton argument that he was ‘barking up the wrong tree’, this was only after the judge had, himself, granted permission to appeal and then conducted a careful legal analysis of this somewhat obscure point.

We are, however, not persuaded that the judge was in error in the manner in which he approached Mr Dammermann’s rejection of the settlement offer of £1,000. The judge did not base his decision on unreasonable behaviour on this point, as can be seen by the phrase ‘but leaving that to one side’ early in paragraph 29). He was entitled by Part 27.14(3) to take it into account and, in our view, he was justified in doing so. The fact that Mr Dammermann was prepared to settle for a substantially higher figure is, obviously, irrelevant to this consideration. If the appeal had turned on this point alone, it would not have succeeded.

On the basis of our holding that the judge was in error in failing to take account of the nature of the somewhat intricate point of law upon which the appeal turned, and that he himself had given Mr Dammermann permission to argue the point, the appeal must succeed. It therefore falls to this court to re-determine the costs issue.

‘Unreasonable behaviour’ in relation to costs in Small Claims Track appeals

Before doing so it is necessary to refer to the invitation made by Vos LJ, when granting permission to appeal, to consider the proper meaning of CPR Part 27.14 (2)(g). We doubt if we can usefully give general guidance in relation to the circumstances in which it will be appropriate for a court to decide whether a party “has behaved unreasonably” since all such cases must be highly fact-sensitive. In the somewhat different context of the jurisdiction to order a party’s legal (or other) representative to meet what are called “wasted costs” (defined as costs incurred “as a result of any improper, unreasonable or negligent act or omission” of such representative), the court speaking through Sir Thomas Bingham MR said:-

“… conduct cannot be described as unreasonable simply because it leads in the event to an unsuccessful result or because other more cautious legal representatives would have acted differently. The acid test is whether the conduct permits of a reasonable explanation. If so, the course adopted may be regarded as optimistic and as reflecting in a practitioner’s judgment, but it is not unreasonable,” see Ridehalgh v Horsefield [1994] Ch 205, 232F.

While we would not wish to incorporate all the learning about wasted costs orders into decisions under CPR Part 27.14 (2)(g), we think that the above dictum should give sufficient guidance on the word “unreasonably” to district judges and circuit judges dealing with cases allocated to the Small Claims Track. Ridehalgh was, of course, dealing with acts or omissions of legal representatives but the meaning of “unreasonably” cannot be different when applied to litigants in person in Small Claims cases. Litigants in person should not be in a better position than legal representatives but neither should they be in any worse position than such representatives.

The only other thing we can usefully add is that it would be unfortunate if litigants were too easily deterred from using the Small Claims Track by the risk of being held to have behaved unreasonably and thus rendering themselves liable for costs. The rules could have provided that on appeal the normal rules as to costs should prevail, but Part 27.14(2) applies in terms to costs relating to an appeal; an appellate court should therefore be wary of ordering costs on appeal to be paid if they were not ordered below, unless circumstances on appeal are truly different.

Re-determining the costs issue

On the basis that we have described, and giving proper weight to the somewhat obscure legal point that lay at the centre of this case, for which the judge had, himself, given permission to appeal, we conclude that it is not possible to hold that Mr Dammermann had behaved unreasonably in pursuing his appeal. The rejection of the £1,000 settlement offer is the only remaining factor that might be supportive of a finding of unreasonableness, but that, on it is own, is incapable of satisfying the test in Part 27.14(2)(g). There being no other basis for awarding costs under the Small Claims Track regime in Part 27.14, Lanyon Bowdler’s application for costs must be dismissed.

For the reasons that we have given, the appeal is allowed and the judge’s order that Mr Dammermann is to pay the costs of the appeal to the county court is set aside and replaced with an order of ‘no order for costs’.

As Lord Justice Vos observed in giving permission to appeal, there can be no order for the costs of this appeal either.

The appeal is allowed.

The Order of His Honour Judge Main QC that the Appellant do pay the Respondent’s costs summarily assessed in the sum of £3577.48 dated 14/12/2016 be set aside and replaced with “no order for costs”.

There be no order for costs of the appeal save that the respondent do pay the costs incurred by the appellant in obtaining a transcript of the judgment of HHJ Main QC in the sum of £396.90.