Redstone Mortgages v B Legal

I must now deal with the question of costs in relation to the preliminary issues which I have determined. The first preliminary issue required me to determine what were the terms and scope of the duties owed by B Legal to Redstone on each of the four transactions that formed the subject matter of the proceedings. The second preliminary issue required me to determine whether B Legal discharged such duties in each case. The determination of the first issue required me to determine some matters that were potentially relevant in other cases (of which I was told there was a number pending), as well as some issues relevant only to the four cases before me. Both parties encouraged me to take a broad view of the scope of the first preliminary issue. The second of the preliminary issues addressed only the four particular transactions raised in the proceedings.

Having considered the skeleton arguments I formed the provisional view as to the just order for costs, and put this to the parties. Redstone was minded to accept my analysis (which was in line with its “fallback” position outlined written argument). But B Legal strongly resisted my suggested analysis. At the end of oral argument I thought that my provisional view still led to a fair and just costs order. I reserved judgment to ensure that I gave full and fair consideration to B Legal’s arguments and to ensure that I was not overly attracted to my own provisional analysis.

In the end, I have adhered to my provisional view.

A costs order must do justice between the parties: but the judge must be content to do broad justice if an attempt to do exact justice is likely to involve the parties and the costs judge in complicated attempts to attribute what are essentially common costs between different claims and different issues within those claims. That is particularly true where (as here) these were four separate sample actions directed to be tried together.

The general principles that ought to be applied were not in doubt. First the Court must decide whether to make an order about costs at all. Second, if the Court decides to make an order about costs then it will in relation to each action seek to identify who is the successful party, in which event the general rule will be that the successful party is entitled to its costs. Third, before making such an order the court must, however, consider all the circumstances of the case, which might indicate a departure from the general rule. Fourth, the consideration of the Court is not confined to considering the costs as a whole: the court may make an “issues based” costs order (though in that event the Court is directed to reflect that approach by making an order in relation to a proportion of the overall costs or part of the costs fixed by reference to a date in preference to making an order by reference to issues). Fifth, in deciding whether to make an “issues based” order the Court must bear in mind that almost invariably overall success involves losing on some issues. As the Court of Appeal observed in Fox v Foundation Piling Limited [2011] EWCA Civ 790 at paragraph 72:-

“There has been a growing and unwelcome tendency by first instance courts and… this court as well to depart from the starting point set out in rule 44.3(2)(a) too far and too often. Such an approach may strive for perfect justice in the individual case, but add huge additional costs to the parties and add huge costs to other litigants because of the uncertainty which such an approach generates.”

I am clear that I should make an order about costs in each of the actions (though, as will become clear, Counsel for B Legal submitted that I should not make an order about part of the costs).

I have dismissed the claims against B Legal in the action concerning Welch and in the action concerning Sher. In each of these cases B Legal has been successful. There is no reason not to make a final order as to costs in each of these actions. Under the general rule B Legal would be entitled to its costs as against Redstone.

B Legal submits that (subject to some submissions about the basis of assessment and about particular issues) that is the appropriate order. B Legal advanced an argument (to which I will come) that the costs of the proceedings generally should be divided between “generic issues” (by which was meant issues concerning the terms and meaning of the retainer) and “claim specific issues” (by which was meant the factual and legal issues relating to the specific transaction with which the particular action was concerned). But in the context of Welch and Sher B Legal did not in its written submissions suggest that there should be anything other than straightforward orders that Redstone should pay B Legal’s costs of these two claims.

I was at one time attracted by the thought that one should simply treat the combined costs of all four actions as a single whole, and then attribute one quarter of the combined costs to each of the actions. But that would mean that in order to assess the recoverable costs in Welch and Sher one would have to assess B Legal’s costs in Howard and McOwen (cases in which breach of duty has been established against B Legal and in which, on the information at present available to me, it is unlikely that an overall costs order in favour of B Legal to date will be made). So I think there has to be a separate assessment of the costs in Welch and Sher.

How then to treat the costs of dealing with common issues i.e. matters relevant to each of Welch and Sher respectively but also relevant to Howard and McOwen? Although the precise significance of these common issues varied marginally from action to action, in broad terms they were of equal significance. A fair and just order would be that one quarter of the costs of these common issues should be attributable to each action.

How then to identify these common issues? Although it is possible to analyse the statements of case sentence by sentence, and to trawl through the disclosure and the witness statements identifying the precise issue that is being addressed and deciding what precise significance that material has in each action, such an issues-based approach is to be avoided where possible. The costs judge needs a simpler (if less accurate) tool.

There is a difficulty in distinguishing between “the common issues” and “the specific issues”. An attempt was made in argument to do so by reference to the statements of case, and it was readily apparent that there was considerable scope for disagreement. Any solution is going to be imperfect. So one needs the simplest of tools: and one needs to reduce the significance of the decision to the minimum consistent with its objective. It is probably easier to identify when material is specific to the one case than it is to identify what is common to more than one. That has informed my definition of the “generic costs” in the order I propose. Nichola Chard’s witness statement covers all cases. So one quarter of the costs of its preparation is treated as incurred in Welch and one quarter in Sher even though if one picked through it sentence by sentence one might arrive at different proportions. The disclosure in Welch related only to Welch (even though the documents on the list might also appear on other lists).

B Legal submitted that it should be awarded some or all of its costs in Sher on the indemnity basis. In general terms, an award of costs on the indemnity basis is justified only if the paying party’s conduct is morally reprehensible or unreasonable to a high degree, so that the case falls outside the norm: see Kellie v Wheatley & Lloyd [2014] 5 Costs LJ 854 at paragraphs [18] and [19] per HHJ Keyser QC for a convenient summary of the relevant principles.

In the instant case B Legal relied upon two features. First, the adducing by Redstone of a lengthy witness statement from Mr Duncan most of which was inadmissible. Secondly, the late service of a notice to prove the authenticity of the Sher Memorandum and the attempt, on the basis of that challenge, to submit that the Memorandum was a forgery. In my judgment neither warrants an order that any part of the costs be assessed on the indemnity basis. In particular the circumstances surrounding the late production of the Sher Memorandum were highly suspicious and warranted challenge, and the fact that I have concluded on the balance of probabilities that the Sher Memorandum was authentic should not be taken as an indication that I regarded the challenge as morally reprehensible or unreasonable to a high degree (to use convenient but not comprehensive summaries of the relevant factors to be weighed).

The costs in Howard and McOwen must be approached in a different way. Here I have determined the breach of duty issues against B Legal (the claim is in tort) but Redstone has yet to establish causation and quantification of the losses which it seeks to recover from B Legal (which may involve a consideration of issues of contributory negligence and of mitigation). If it fails on any of these issues then its claim will be dismissed.

Here B Legal’s position was (a) that I should deal with the costs of the generic issues now (with an award substantially in favour of B Legal giving it 80% of its costs of the generic issues); (b) that the costs of the specific issues should in general be reserved but that I should here and now impose a cap upon the recoverable costs of the action to date (to reflect the fact that Redstone did not succeed on some of the issues which it argued). The practical outcome would be that having successfully established liability Redstone would have to pay 80% of B Legal’s costs of the generic issues and would only be entitled to recover (say) 50% of its costs of the specific issues.

The approach to costs questions upon the determination of preliminary issues was considered by the Court of Appeal in Weil v Mean Fiddler Holdings Limited [2003] EWCA Civ 1058. The guidance given (at paragraph [31]) was that in any ordinary case in the absence of special circumstances the court would make an order for costs in favour of a Claimant who has succeeded on the issue of liability: but where it is uncertain until the conclusion of the trial on quantum whether there will be a recovery of substantial damages it may be proper to defer making any order until the final outcome is known.

In the four cases with which I am concerned the parties submitted to an order for the trial of two broadly stated preliminary issues, At trial the parties encouraged wide view to be taken of these issues (because of their potential value for other cases). This means that there is some force in the point that the order for costs (insofar as it addresses the costs of “the generic issues”) should not turn on the ultimate outcome of the Howard and McOwen cases. But it is in my judgment outweighed by two considerations.

First, the parties chose to debate these issues in the context of these four actions. The terms and scope of the retainer in each case had to be decided for the purpose of disposing of that case: the issues are “generic” in the sense that to a significant degree the same issues arose in the four actions. The fact that they are “generic” also in the sense that they might be relevant in other, as yet unbrought actions, is not a reason for singling them out for special treatment.

Second, I do not agree that B Legal is to be regarded as the successful party on “the generic issues” so that it is necessary to single out those issues for special treatment. B Legal accepted that it was “at first blush” difficult to say who won and who lost: but suggested that a paragraph by paragraph analysis of the judgment would show that B Legal’s arguments prevailed to a greater extent than those of Redstone, and that in terms of relative significance had established the key point that the duty owed to Redstone was identical to that owed to Beacon. The true position is that both sides put in issue and argued aspects of the retainer (of varying significance to the determination of the case) on which they failed. B Legal won on some (and claims its costs) and lost on others (where it does not suggest it should pay Redstone’s costs). In particular, B Legal argued for a somewhat nebulous modification to the written terms of its retainer “by a course of dealing from around the end of October 2005” in addition to the restrictions in the CML Part 2, for a restriction on its obligations to verify title because of title insurance (more extensive than was warranted) and for a general restriction on its duty to report (the “flagging up” point referred to in paragraph 76 of B Legal’s closing submissions). Further, in areas where the arguments of B Legal succeeded there were highly significant qualifications to the position for which it successfully contended which greatly altered the ultimate content of the duty(see paragraph [18] of the judgment). The same factors were equally relevant to the cases of Welch and Howard where B Legal is to recover the whole of its costs, not simply those on which it succeeded.

Whilst it is necessary to put in place a method of identifying the generic costs for the purposes of assessment it is not appropriate to make the costs so identified the subject of a special order as to liability.

This brings me to whether the specific costs should be reserved.

The ordinary expectation would be that an order for costs would be made at the conclusion of the preliminary issue. Reserving the costs simply requires another judge on another day to adjudicate upon how the costs of the earlier determination of issues on which he or she did not adjudicate should be borne. It is true that the possibility of a successful causation defence might justify reserving the costs so that the ultimately successful party can preserve a right to argue entitlement to the entire costs of the action (notwithstanding complete failure on the breach of duty issue). But it might equally justify a “costs in case” order being made at the conclusion of the preliminary issue reflecting the degree of success in the contest the parties have chosen to set up.

The latter is the course I propose to take. Redstone established breach of duty. To my mind an order that it pay 80% of the losing party’s costs of one group of issues, and at best recover only a limited proportion of its costs of the remaining issues (which are to be reserved) simply does not reflect the outcome the B Legal is established as a wrongdoer.

This brings me to the “costs cap” argument. B Legal argued that whatever order I made (reserving costs or making a “claimant’s cost in case” order) I should impose a cap.

First, it was said that in putting B Legal to proof of the authenticity of the Howard Memorandum Redstone in fact ran a positive case that it was forged, and the disapproval that I expressed of such course being taken should be reflected in the costs order. The order sought was that Redstone’s costs must exclude the costs of that issue (and, indeed, the Redstone should pay B Legal’s costs of that issue on the indemnity basis).

I consider that Redstone went right up to the line (if indeed “a line” can be drawn) of what was permissible where an opponent party is put to proof of a document: but Redstone was absolutely justified in putting B Legal to proof of authenticity. The coincidence of two key memoranda containing key advice both existing only in hard copy form (with no digital trace), both filed in a place that was overlooked when the claims were reported, examined and responded to and only coming to light when the Defences had to be pleaded is startling. I expressed and retain some doubts about the authenticity of the Howard Memorandum, and it is unfortunate that I am obliged to repeat those doubts when adjudicating upon a submission that the fact that I did not find the Howard Memorandum to be inauthentic (because even if authentic it was insufficient) warrants a costs order adverse to Redstone.

Second, it was submitted that although Redstone succeeded on the specific issues it did not succeed to quite the extent it claimed. The breaches of duty found were not all of those alleged. This it seems to me is simply a routine part of litigation: none of the breaches alleged could be said to be a complaint that was exaggerated or unreasonably pursued.

In the end my provisional view as to the just order (having reconsidered B Legal’s 35 page and 92 paragraph skeleton argument, and most of the 24 authorities to which the arguments on both sides made reference) still seems to me sound. Whilst of course one has to consider the order for costs on an issue by issue basis, one ultimately has to arrive at an order that fairly reflects the outcome, that is practically workable (bearing in mind the difficulties faced by skilled costs judges) and which does not commit or encourage the parties to indulge in expensive satellite costs litigation. My solution is not perfect: but its imperfections are no greater than the alternatives.

I will hand down this judgment in Manchester. I do not expect the attendance of parties.