Allan John Doyle v M&D Foundation & Building Services Limited

The approach to interpreting a court order was summarised in Pan Petroleum AJE Ltd v Yinka Folawiyo Petroleum Co Ltd [2017] EWCA Civ 1525 by Flaux LJ (with whom Gross and Lewison LJJ agreed), drawing in particular on the judgment of Lord Clarke of Stone-cum-Ebony JSC in the Supreme Court in JSC BTA Bank v Ablyazov (No. 10) [2015] 1WLR 4754. Whilst Flaux LJ was considering the interpretation of an injunction, the following general approach to court orders was identified at [41(3)]:

“The words of the Order are to be given their natural and ordinary meaning and are to be construed in their context, including their historical context and with regard to the object of the Order.”

Flaux LJ emphasised at [42] that there was a consistent line of authority to the effect that court orders are to be construed objectively and in the context in which they are made, a point that was made clearly by Lord Sumption giving the judgment of the Privy Council inSans Souci Ltd v VRL Services Ltd [2012] UKPC 6 at [13] as follows:

“…the construction of a judicial order, like that of any other legal instrument, is a single coherent process. It depends on what the language of the order would convey, in the circumstances in which the Court made it, so far as these circumstances were before the Court and patent to the parties. The reasons for making the order which are given by the Court in its judgment are an overt and authoritative statement of the circumstances which it regarded as relevant. They are therefore always admissible to construe the order. In particular, the interpretation of an order may be critically affected by knowing what the Court considered to be the issue which its order was supposed to resolve.”

In the present case, where the Order was by consent and so made administratively by the court, there was no judgment to assist in construing it. The immediate context of the Order was that it embodied an agreement between the parties, the terms of which had been finalised via a travelling draft between the respective solicitors. For that reason, and because the central question in construing costs provisions in the Order is whether the parties had contracted out of the fixed costs regime, the real question is the true interpretation of the parties’ agreement.

In that regard, there was no dispute between the parties that the principles applicable to interpretation of contractual provisions were summarised by Lord Hodge in Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173 as follows:

“10.

The court's task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. It has long been accepted that this is not a literalist exercise focused solely on a parsing of the wording of the particular clause but that the court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning…

11.. Interpretation is…a unitary exercise; where there are rival meanings, the court can give weight to the implications of rival constructions by reaching a view as to which construction is more consistent with business common sense. But, in striking a balance between the indications given by the language and the implications of the competing constructions the court must consider the quality of drafting of the clause…and it must also be alive to the possibility that one side may have agreed to something which with hindsight did not serve his interest… Similarly, the court must not lose sight of the possibility that a provision may be a negotiated compromise or that the negotiators were not able to agree more precise terms.

12.

This unitary exercise involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated…To my mind once one has read the language in dispute and the relevant parts of the contract that provide its context, it does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each.

13.

Textualism and contextualism are not conflicting paradigms in a battle for exclusive occupation of the field of contractual interpretation. Rather, the lawyer and the judge, when interpreting any contract, can use them as tools to ascertain the objective meaning of the language which the parties have chosen to express their agreement. The extent to which each tool will assist the court in its task will vary according to the circumstances of the particular agreement or agreements. Some agreements may be successfully interpreted principally by textual analysis, for example because of their sophistication and complexity and because they have been negotiated and prepared with the assistance of skilled professionals. The correct interpretation of other contracts may be achieved by a greater emphasis on the factual matrix, for example because of their informality, brevity or the absence of skilled professional assistance. But negotiators of complex formal contracts may often not achieve a logical and coherent text because of, for example, the conflicting aims of the parties, failures of communication, differing drafting practices, or deadlines which require the parties to compromise in order to reach agreement. There may often therefore be provisions in a detailed professionally drawn contract which lack clarity and the lawyer or judge in interpreting such provisions may be particularly helped by considering the factual matrix and the purpose of similar provisions in contracts of the same type. The iterative process…assists the lawyer or judge to ascertain the objective meaning of disputed provisions.”

As the contract in this case was a compromise agreement and the product of negotiation between solicitors as to the terms with a view to being embodied in a court order, it is instructive to recollect the way in which certain of the principles reflected in Lord Hodge’s summary above were framed in earlier decisions. First, Lord Hoffman’s exposition of the principles applicable in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 at 913B-E included the following:

“The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax…

…. The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in The Antaios Compania Neviera S.A. v. Salen Rederierna A.B. 19851 A.C. 191, 201:

 ". . . if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense."”

Second, both parties identified that certain of the factors emphasised by Lord Neuberger of Abottsbury PSC in Arnold v Britton [2015] UKSC 36, [2015] AC 1619 are particularly pertinent:

“17.

First, the reliance placed in some cases on commercial common sense and surrounding circumstances (eg in Chartbrook [2009] AC 1101, paras 16-26) should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision.

18.

Secondly, when it comes to considering the centrally relevant words to be interpreted, I accept that the less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. That is simply the obverse of the sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it….

…..

20.

Fourthly, while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Experience shows that it is by no means unknown for people to enter into arrangements which are ill-advised, even ignoring the benefit of wisdom of hindsight, and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party.

This Court first considered the nature of the fixed costs regime and its interplay with the more general costs provisions in the rules in Solomon. That case concerned road traffic accident claims where Part 36 offers of less than £10,000 had been accepted. Although the claims fell within the pre-2013 fixed costs regime set out in (what was then) section II of Part 45, the consequence of the acceptance of a Part 36 offer was, at that time (pursuant to rule 36.10(1)(3)), stated to be that the claimants were entitled to their costs up to the date of acceptance to be assessed on the standard basis. The position has now been corrected by the introduction of rule 36.20, dealing specifically with the costs consequences of acceptance of a Part 36 offer in ex-Protocol cases. But in Solomon this Court was confronted by an apparent conflict between the fixed costs regime and the wording of rule 36.10, which did not provide for costs on that fixed basis.

Moore-Bick LJ (with whom Aikens and Pill LJJ agreed) explained why the provisions could not be reconciled at [19]:

“Section II of Part 45 is intended to provide a consistent outcome that is fair across a broad range of cases and obviously does not necessarily lead to an outcome in every individual case equivalent to that which would result from a detailed assessment on the standard basis. I think it is inescapable, therefore, that there is a degree of conflict between rule 36.10(3) and the fixed costs regime for which it provides. Although I accept that that regime does involve an assessment of some kind (particularly in relation to disbursement and cases where the court is satisfied that exceptional circumstances exist), I do not think that one can properly regard it as representing an assessment on the standard basis in those case to which it applies).”

Moore-Bick LJ concluded at [20] that, despite the wording of rule 36.10(3), Part 45 should govern cases to which it applies, including as to the cost which followed from accepting a Part 36 offer.

As referred to above, at [22] Moore-Bick LJ stated that there is nothing in the rules that prevented parties settling a dispute on any terms they please, including as to costs. However, he did not consider that the Part 36 offers in question, even when referring to costs being payable pursuant to rule 36.10, could be read as anything more than an offer to pay costs on the usual basis, namely, fixed costs under Part 45.

In Broadhurst v Tan [2016] EWCA Civ 94, [2016] 1 WLR 1928 this Court determined that, where a claimant in an ex-Protocol case obtained judgment at least as advantageous as a Part 36 offer they had made, the claimant was entitled to indemnity costs (rather than fixed costs) from the relevant period after the offer expired because rule 36.17(4) (which applies specifically in that situation) trumps the general fixed costs provision in Part 45. Lord Dyson MR rejected an argument that fixed costs are to be equated with indemnity costs as follows at [30]:

“The starting point is that fixed costs and assessed costs are conceptually different. Fixed costs are awarded whether or not they were incurred, and whether or not they represent reasonable or proportionate compensation for the effort actually expended. On the other hand, assessed costs reflect the work actually done. The court examines whether the costs were incurred, and then asks whether they were incurred reasonably and (on the standard basis) proportionately. This conceptual difference was accepted in the Solomon case…”

In Sharp v Leeds City Council [2017] EWCA Civ 33, [2017] 4 WLR 98 a claimant in an ex-Protocol claim sought standard basis costs of an application for pre-action disclosure, contending that the fixed costs regime did not apply to such an application. Briggs LJ (with whom Irwin and Jackson LJJ agreed) rejected the argument, holding at [14] that section IIIA of Part 45 provides almost as comprehensively for fixed recoverable costs in relation to ex-Protocol claims as section III provides for cases remaining within the Protocol. At [31] Brigg LJ further explained:

“The starting point is that the plain object and intent of the fixed costs regime in relation to claims of this kind is that, from the moment of entry into the Portal pursuant to the EL/PL Protocol (and, for that matter, the RTA Protocol as well) recovery of the costs of pursuing or defending that claim at all subsequent stages is intended to be limited to the fixed rates of recoverable costs, subject only to a very small category of clearly stated exceptions. To recognise implied exceptions in relation to such claim-related activity and expenditure would be destructive of the clear purpose of the fixed costs regime, which is to pursue the elusive objective of proportionality in the conduct of the small or relatively modest types of claim to which that regime currently applies.”

Another issue relating to fixed costs under Part 45 in the context Part 36 offers arose in Hislop v Perde [2018] EWCA Civ 1726, [2019] 1 WLR 201, this time in cases where Part 36 offers had been accepted out of time. This Court allowed appeals against decisions to award the costs incurred after the offer should have been accepted on the standard basis. Coulson LJ (with whom King and Longmore LJJ agreed) held at [42] that the situation was different to that described in Broadhurst v Tan and very similar to that explained in Solomon’s case. Rule 36.20 makes it plain that it is the only rule which applies in relation to the acceptance of Part 36 offers in fixed costs cases, preserving no part of rule 36.13. As rule 36.20 provides only for fixed costs, that would apply in cases of late acceptance of an offer, unless the late acceptance amounted to an exceptional circumstance. Coulson LJ considered at [50] that such interpretation preserves the autonomy of Part 45, further stating that:

“If a case begins under the fixed costs regime then it should only be in exceptional circumstances that the parties are able to escape it. The whole point of the regime is to ensure that both sides begin and end the proceedings with the expectation that fixed costs is all that will be recoverable. The regime provides certainty. It also ensures that in low value claims, the costs which are incurred are proportionate…”

Most recently, in Adelekun, this Court construed the very same wording as in issue in this case, an accepted Part 36 offer to settle an ex-Protocol case offering to pay costs in accordance with Part 36.13, such costs to be “subject to detailed assessment if not agreed”. In holding that the offer was not one to pay costs outside the fixed costs regime and that Part 45 therefore applied, Newey LJ (with whom Sir Geoffrey Vos C and Males LJ agreed) first dismissed certain arguments based on the provisions of Part 36, then continued:

“30.

A third point arises from the fact that it is abundantly clear…that the appellant was intending to make an offer to which CPR Part 36 applied. That is evident both from the reference to CPR 36.13 and from the overall description of "Part 36 Offer Letter". Yet the letter will not, I think, have contained a Part 36 offer if it proposed anything other than the fixed costs regime. The "self-contained procedural code" for which Part 36 provides makes it plain that the fixed costs regime found in Part 45 is to apply "where … a claim no longer continues under the RTA … Protocol pursuant to rule 45.29A(1)": see CPR 36.20 (1) and also the passages from CPR 36.13 quoted in the previous paragraph of this judgment. If, therefore, a party to a claim that no longer continues under the RTA Protocol offers to pay costs on a basis that departs from Part 45, the offer will be incompatible with Part 36 and cannot be an offer under that Part…

31.

Fourthly, while the 19 April letter's reference to "detailed assessment" was far from ideal if the appellant intended the fixed costs regime to apply, it was not wholly inapposite. "Assessed costs" in the sense of costs assessed item by item by reference to work actually done are, as Lord Dyson MR said in Broadhurst v Tan, conceptually different from fixed costs, and such "assessment" as the fixed costs regime may call for is not to be equated with an assessment on the standard basis (see the quotation from Moore-Bick LJ's judgment in the Solomon case set out in paragraph 20 above). As, however, Moore-Bick LJ also noted, the fixed costs regime "does involve an assessment of some kind (particularly in relation to disbursements and cases where the court is satisfied that exceptional circumstances exist)". I do not think, therefore, that reference to "detailed assessment" should be taken to imply an intention to displace the fixed costs regime where there are other indications that that was not intended.

32.

Fifthly, it is inherently improbable, as a reasonable recipient of [the offer letter] should have appreciated, that the appellant intended to offer conventional rather than fixed costs. The fixed costs regime could be expected to be considerably more favourable to the appellant than conventional costs and, on the face of it, the appellant would be vulnerable to the latter as regards costs to date only if a Court were persuaded that there were "exceptional circumstances" warranting an award of extra costs under CPR 45.29J or that there should be a direction disapplying the fixed costs regime retrospectively under CPR 46.13 following re-allocation to the multi-track pursuant to CPR 26.10. None of this was obviously inevitable and it is improbable that the appellant would have been willing to concede the higher costs in her offer.”

In his concurring judgment, Males LJ made the following observation at [43]:

“…Mr Mallalieu [in that case arguing for standard basis costs] advanced a powerful argument that assessed costs and fixed costs are "conceptually different" (see Broadhurst v Tan…), so that the words "costs to be subject to detailed assessment if not agreed" in the offer letter indicated an intention to depart from the fixed costs regime. In the end I have concluded, in agreement with Newey LJ, that taking the letter as a whole those words are not sufficiently clear to demonstrate such an intention and are outweighed by other considerations. It is unfortunate, however, that it has taken a trip to the Court of Appeal for this to be determined. If parties wish to settle on terms that fixed costs will be payable if an offer is accepted, it is easy enough to say so and thereby to avoid any scope for argument.

The appellant’s case rested on two central arguments. The first was that the use of the term “subject to detailed assessment” in the Order did not, or did not necessarily, indicate that the costs were to be assessed on the standard basis, particularly as the Order could have specified standard basis costs but did not do so. The appellant contended that the term “detailed assessment” was also apt to refer to the process of assessing the amount of fixed costs and, in particular, the quantum of disbursements, there being no other provision in the rules for the determination of the amount payable in the event of disagreement.

In that regard, the appellant placed heavy reliance on the fact that this court in Adelekun construed the very same phrase, in a Part 36 offer, as “not referring to conventional costs rather than fixed costs”, with the result that the parties had not contracted out of the fixed costs regime. The appellant stressed that part of Newey LJ’s reasoning was that, as remarked upon by Moore-Bick LJ in Solomon, the fixed costs regime “does involve an assessment of some kind”.

Accordingly Mr Mallalieu QC, for the appellant, disavowed any argument that something had “gone wrong” with the language of the Order (as per Lord Hoffmann in ICS v West Bromwich). He accepted that the parties had intended to provide for a detailed assessment (absent agreement), the only question being whether, in the context, such assessment should be read as relating to standard costs or of fixed costs (including disbursements).

Building on that, the appellant’s second argument was that, in the context of an ex-Protocol claim where there was no realistic prospect of bringing the case within one of the specified exceptions to the costs being fixed, the parties (acting through solicitors with expertise in this type of litigation) must be taken to have intended that the costs to be assessed would be fixed costs (consistently with the clear expectation identified in Hislop). In particular (and as recognised in Adelekun), it was inherently improbable that the appellant would have agreed to pay standard basis costs when the fixed costs regime was likely to be much more favourable to the paying party. The necessary and inevitable conclusion was, Mr Mallalieu contended, that the Order did not reflect an agreement between the parties to disapply the fixed costs regime, and therefore the detailed assessment they provided for must be read as relating to fixed costs and disbursements.

In my judgment, and contrary to the appellant’s contention, there is no ambiguity whatsoever as to the natural and ordinary meaning of “subject to detailed assessment” in an agreement or order as to costs. The phrase is a technical term, the meaning and effect of which is expressly and extensively set out in the rules. It plainly denotes that the costs are to be assessed by the procedure in Part 47 on the standard basis (unless the agreement or order goes on to provide for the assessment to be on the indemnity basis). The phrase cannot be read as providing for an “assessment” of fixed costs pursuant to the provisions of Part 45 unless the context leads to the conclusion that the wrong terminology has been used (by the parties or by the Court) so that the phrase should be interpreted otherwise than according to its ordinary meaning.

This is abundantly clear from consideration of the rules themselves:

The clear distinction between assessed costs and fixed costs to be found in the rules (as set out above) was recognised in Broadhurst, Lord Dyson MR describing them at [30] as “conceptually different”, a difference also recognised by Moore-Bick LJ in Solomon at [19]. Moore-Bick LJ went on, in the same paragraph, to state that the fixed costs regime does involve an assessment of some kind (particularly in relation to disbursements), but not one that is properly regarded as an assessment on the standard basis.

In Adelekun Newey LJ noted at [19] that Part 45 does not itself explain how the amount recoverable in respect of disbursements under rule 45.29I is to be determined (the assumption being that no determination at all is necessary in relation to fixed costs other than disbursements), but recorded that it was common ground between counsel that the provisions in Part 47 relating to detailed assessment would apply. In my judgment the position agreed by counsel in that case was not correct, for the following reasons:

Notwithstanding the agreement between the parties in Adelekun (which I consider to have been mistaken, for the reasons set out above), Newey LJ took the view, in [31], that the reference in the offer letter under consideration in that case to detailed assessment of the costs “was far from ideal if the appellant intended the fixed costs regime to apply”, but accepted that the reference was “not wholly inapposite” as an assessment of some kind was necessary. For that reason Newey LJ did not consider that the use of the term detailed assessment “should be taken to imply an intention to displace the fixed costs regime where there are other indications that that was not intended”. I read that analysis as recognising that the term “detailed assessment” does not naturally or ordinarily include an assessment of fixed costs (hence the term was “not ideal”), but also recognising that that meaning might permissibly be overridden where it was clear that the fixed cost regime was applicable under the rules and was not intended to be disapplied. The circumstances arising in Adelekun, which resulted in such a finding in that case, are discussed in the next section.

Notwithstanding that the natural and ordinary meaning of the relevant words is entirely clear (for the reasons set out above), it remains necessary and appropriate to consider the context to determine whether, judged objectively, that meaning was truly intended by the parties in the present case, including whether they had used the wrong words.

In this case the terms of the Order were agreed by firms of solicitors acting for the parties, both specialists in this type of litigation. They reached agreement in the course of inter-solicitor correspondence in which a Part 36 offer by the appellant was expressly rejected by the respondent, but a counter-offer (not pursuant to Part 36) in the form of a draft of the order was accepted by the appellant (being returned with minor amendments which were in turn accepted by the respondent).

In so doing, the solicitors must, applying an objective test, be taken to have been aware of the relevant rules and principles, in particular, (i) that the fixed costs regime can be disapplied by agreement and (ii) that an order providing for detailed assessment (without more) entails an assessment on the standard basis (rule 44.3(4)(a)). In those circumstances it is difficult to see any basis on which the use of the term “detailed assessment” could bear anything other than its natural and ordinary meaning as discussed above. No matter how strictly enforced the fixed costs regime may be in cases to which it properly applies, and no matter how unlikely it was that the respondent would have been able to escape that regime had the matter proceeded, the parties reached a compromise of the dispute on the basis of a provision as to costs which, on its face, would take the case out of the fixed costs regime and entail assessment on the standard basis. There is no objective reason to believe that the solicitors did not intend the term to bear its natural, ordinary (and in my judgment, obvious) meaning, not least because it would be impermissible (and to no avail) to speculate as to the parties’ respective legal or commercial motivations for reaching a settlement on the terms they did. Indeed, the appellant has not suggested that the use of the term “detailed assessment” was a mistake or otherwise did not reflect the parties’ agreement.

The above reasoning formed the basis of both decisions below:

The Judge did not accept that the reasoning in Adelekun (which was reported after DJ Rodgers’ judgment) applied in this case. In my judgment she was entirely right in that regard. In that case the document being construed was described as, and intended to be, a Part 36 offer (which was duly accepted) and offered to pay costs in accordance with rule 36.13 (although the applicable provision, referred to in rule 36.13, was in fact rule 36.20). It did, however, go on to provide “such costs to be subject to detailed assessment if not agreed”.

As Newey LJ pointed out at [30], there was an internal inconsistency in the wording of the letter, in that both rule 36.20 and 36.13 make it plain that the fixed costs regime is to apply where a Part 36 offer is accepted so that, if a party to an ex-Protocol case offers to pay costs on a basis that departs from Part 45, that offer will not be a Part 36 offer. It followed that, if the offer letter in that case was indeed to be construed and given effect as a Part 36 offer, the reference to detailed assessment of the costs could not be read as disapplying the fixed costs regime.

It was therefore clear that something had “gone wrong” with the wording used in the offer letter considered in Adelekun, justifying reading the term detailed assessment as applying to fixed costs, even though that reading was “not ideal”: see [31]. The fact that the parties clearly intended to make and accept a Part 36 offer meant that there were “other indications” that it was not intended to disapply the fixed cost regime by reference to an assessment on the conventional basis. It is apparent, however, that even in that context Males LJ took considerable persuading before concluding in the end that the intention to depart from the fixed costs regime indicated by the term “detailed assessment” was outweighed by other considerations. He pointed out that, if parties wish to settle on terms that fixed costs will be payable, it is easy enough to say so (see [43]).

In the present case the agreement reached was not the result of the acceptance of a Part 36 offer: the parties’ intentions are not to be understood in that highly restrictive context and there is no inherent ambiguity in the reference to detailed assessment, internal inconsistency within the terms of the Order or other “indication” that detailed assessment did not bear the meaning ascribed to it under the rules. Although Adelekun appears, on its face, to be a decision on similar facts to the present case, it was in reality a quite different situation, rooted in the parties’ use of the Part 36 offer and acceptance mechanism. No such fetter on the application of the natural and ordinary meaning of the agreed wording as to costs arises in the present case, where the parties reached a free-standing settlement agreement. That agreement included a simple and well-understood provision that the appellant would pay costs subject to detailed assessment, that is to say, on the standard basis.

For the above reasons I would dismiss the appeal.