Hanspaul & Anor v Ward & Ors

This judgment concerns the proper approach the court should adopt in determining the costs of this claim where the issues between the parties have been resolved, or substantially resolved, without the need for a trial. Generally, the issue is whether the court should direct that a trial, with relevant witnesses attending for cross-examination, should take place in order to enable the court to make a determination of costs issues, or, alternatively should the court adopt a more limited procedure and determine such issues without “live evidence” being called.

The issue arises in a claim which has had a lengthy and relatively complex procedural history. It is necessary to summarise both the background to the claim and the procedural history in order to provide a proper context for this judgment.

The first claimant and the sixth defendant are brother and sister. Their parents were the settlors of a discretionary family settlement known as the Sat Bachan Singh Sehmi and Pritam Kaur Sehmi Family Settlement (“the Settlement”). The parents were the original trustees of the trust. Unusually the Settlement made provision for the appointment of a protector and the first claimant’s and sixth defendant’s father was the original protector. They and their respective children are the living beneficiaries of the trust.

The trust property principally comprises shares in a private limited company, Rochmills Limited (“the company”), which was joined as seventh defendant to the claim during the course of the proceedings. The company is a trading and holding company and the principal business of the Rochmills group is the ownership, management and operation of residential care homes in Northamptonshire and Buckinghamshire.

In about August 2012 the first claimant and sixth defendant fell out and thereafter they have been engaged in a highly charged dispute between them relating to the conduct of the company and the Settlement. The sixth defendant, having been appointed as the protector by his father as his successor, exercised the power vested in him under the Settlement to remove his parents and the first defendant as trustees and appointed the first to fifth defendants as trustees in their place. The first and fifth defendants are or were partners in the firm of DW Solicitors in Northampton and the second, third and fourth defendants are partners in the firm of Hatten Wyatt Solicitors in Gravesend.

On 4 December 2013 this claim was issued. The second claimant is the first claimant’s son. The relief sought in the claim (as amended) falls into three categories:

The particulars of claim set out in detail a number of complaints about the first to fifth defendants taking the headings to the complaints which are fully detailed in the particulars of claim. They include:

The basis of the claim which is said to justify the removal of the sixth defendant as the protector is set out fully in paragraphs 16 and 17 of the particulars of claim. Serious allegations of hostility, bias and abusive behaviour are made against him.

In the early stages of the claim the parties made efforts to resolve their difficulties and the claim was stayed for a period until 4 August 2014. The claim came before the court for case management on 17 October 2014. Two important points emerged from that hearing. First, it was clear that the preference share issue needed to be resolved as a preliminary issue and in order to achieve that objective it was necessary for the particulars of claim to be amended. Accordingly directions were given to enable that to take place. In fact, although the court considered the case was fit for expedition, it was not until 13 March 2015 that a Deputy Judge of the High Court made an order for expedition and the preference shares issue came on for trial in July 2015. Secondly, it was clear to the court that the first to fourth defendants should not remain as trustees (on 11 June 2014 the claim was discontinued as against the fifth defendant by consent) but they could not, in practice, all resign without new trustees being appointed in their place. Directions were given, therefore, for the claimants and the sixth defendant to use their best endeavours to identify individuals who will be willing to be appointed as new trustees. Importantly, paragraph 12 of the order for directions was in the following terms:

“In the event that new trustees cannot be agreed the claimants and the sixth defendant shall file and serve concise reasons for any objection to a proposed new trustee on or before 4pm on 17 November 2014 and any party may request the court to decide upon the identity of the new trustees either at the resumed CMC or at a subsequent hearing.”

On 14 January 2015 the claim came before me again. Although there was some measure of agreement between the parties, the order made on that occasion was not made by consent. It was acknowledged that the parties had failed to reach any agreement about the appointment of new trustees and that it was necessary for trustees to be nominated by the President of the Law Society and, if approved, such nominees would have to be appointed by the court. An information memorandum was settled by me following that hearing, the parties having been unable to agree its terms, and following a request to the President of the Law Society to nominate suitable candidates, I appointed the eighth and ninth defendants as trustees in substitution for the first and second defendants (the third and fourth defendants having already resigned as trustees).

As I have indicated, the preference share issue came on for trial in July 2015 before His Honour Judge Hodge QC sitting as a Judge of the High Court. During the course of the trial, terms were agreed between the claimants, the sixth defendant and the eighth and ninth defendants. The settlement was embodied in a Tomlin order which was approved by the Judge. By consent, all further proceedings in the preliminary issue were stayed save for the purposes of carrying the terms set out in the schedule into effect. In the usual way permission to apply was given to the claimants and sixth defendant to enable those provisions to be implemented without the need for fresh proceedings. Costs orders were agreed. The sixth defendant agreed to pay the claimant’s costs and provision was made for the costs of the eighth and ninth defendants. Importantly, no provision was made in the order for the costs of the first to fourth defendants who were not present at the hearing and did not consent to the order. On 5 October 2015 an order was made by consent, under which the sixth defendant was ordered to pay to the claimants £243,000 on account of their claim for costs of the preliminary issue.

The parties, with the assistance of the new trustees, have continued to make efforts to resolve their differences and there have been extensive negotiations which ultimately, it is hoped, will lead to a partition of the family assets, including the assets within the trust, between the first claimant and the sixth defendant so that they no longer need to have dealings with each other. No terms have yet been agreed. In the absence of agreement, the claimants asked the court to hold a further CMC which took place on 19 January 2016. That hearing was taken up with a fiercely debated issue concerning whether the court should, in the circumstances which then prevailed, give directions for the claim to proceed to trial. Immediately prior to that hearing the sixth defendant, had without any consultation with the first claimant or the new trustees, resigned as the protector having exercised his power to appoint Mr Brian Binley (a former MP) as the protector in his place. Thus, by the time the hearing in January 2016 took place, the only remaining issue arising from the claim concerned what order or orders for costs should be made, the first to fifth defendants no longer being trustees, the sixth defendant no longer being the protector and the preference share issue having been resolved. In broad terms the differences of approach between the parties were that the claimants insisted that the court should give directions for the claim to be tried so that the court might make a determination about the costs of the claim and the defendants opposed that approach and suggested that costs could be dealt with without such a trial taking place. In the event, because there had been an inadequate amount of time to consider the issue beforehand, I gave directions for the hearing to be adjourned and in the event of disagreement remaining for the court to give further directions about the future conduct of the claim at a CMC to be held on 26 April 2016. The position adopted by the parties can broadly be summarised in the following way:

The costs orders which remain for the court to deal with are broadly as follows:

The first to fourth defendants were not a party to the Tomlin order or the underlying agreement. The order made on 17 October 2014 which gave directions for the preliminary issue to be tried recites that the first to fourth defendants would not be participating in the trial of the preliminary issue but would be bound by the outcome of that trial. Nevertheless, the first to fourth defendants say that they have incurred costs in relation to the preliminary issue which they wished to recover out of the Settlement.

The terms of the Tomlin order stayed the preliminary issue except for the purpose of carrying the agreed terms into effect. The order, unsurprisingly, does not deal with the costs of the first to fourth defendants. It was suggested at the hearing before me that the first to fourth defendants could only make an application for costs to His Honour Judge Hodge QC but, in any event, there was no entitlement to make such an application because the preliminary issue had been stayed. For my part, to the extent that these points go to court’s power to make an order, I consider that they raise obstacles which do not in reality exist. His Honour Judge Hodge QC, although seized of the preliminary issue, did not make a determination of it and the Tomlin order, in effect, removed his ability to do so. The Judge was not asked to deal with the costs of the first to fourth defendants and those costs were not dealt with in the Tomlin order placed before the Judge by those parties who had actively participated in the preliminary issue. To my mind, there is no basis for construing the Tomlin order as being binding as to the costs of the first to fourth defendants. I can see no reason why the first to fourth defendants should not apply, should they wish to do so, to me for a determination of their entitlement, if any, to an order for costs of the preliminary issue. What the merits of such an application may be remains to be seen.

Although a number of authorities were cited to me at the hearing, the issue I have to decide is more to do with an application of the relevant principles rather than an issue about what those principles may be. It is not uncommon that the court is faced with a situation in which the substantive issues between the parties no longer need to be determined either because those issues have fallen away or they have been agreed between the parties, without the parties having reached any agreement about costs. Wherever the issue of costs remains to be determined between the parties, it seems to me, at the risk of stating the obvious, the most important starting point is CPR 1.1. In doing so, when reviewing authorities decided prior to April 2013, account should be taken of the amendment to CPR 1.1(1) adding the words “at proportionate cost”. Furthermore, the provisions of CPR 44.2 will inevitably be central to any decision about costs.

Pathway Resourcing Limited v Kaul [2008] EWHC 3078 (Ch) is a relatively recent first instance example of the court having to consider how to deal with a claim where the only remaining issue between the parties, other than recording the outcome the parties had agreed, was costs. In that case, Morgan J expressed the view that there were really two separate lines of authority, one of which he described as the ‘BCT line’ after BCT Software Solutions Limited v C Brewer & Sons Limited [2004] Fleet St Reports 9 and the ‘Brawley line’ after Brawley v Marczynski (No. 1) and (No. 2) [2003] 1 WLR 813. For my part, I consider it is safer to see the numerous authorities on this subject as examples of the way the court has exercised its discretion in the particular circumstances of each case. I would only add that, as Mr Burton submitted, there is some risk attached to conflating judicial observations made in cases where the parties have expressly agreed terms of settlement, other than costs, with observations arising in cases where the issues have, for one reason or another, fallen away. I agree.

In BCT Software Solutions Limited v C Brewer & Sons Limited [2003] EWCA Civ 939 the Court of Appeal considered an appeal against a determination on the subject of costs by a Judge at first instance after the parties had agreed terms of settlement, other than costs, during the course of a trial. The Judge was asked to determine the issue based on submissions and agreed to this course of action and the appellant was aggrieved by the judge’s decision. The Court of Appeal declined to interfere with the Judge’s exercise of discretion but made a number of observations about the wisdom, or otherwise, of making a determination of costs without having heard evidence about disputed issues of fact. In the course of his judgment, Mummery LJ pointed out at [5] that there are cases in which it would be difficult for the Judge to decide who is the winner and who is the loser without embarking on a course which comes close to conducting a trial of the action that the parties intended to avoid by their compromise. He went on to say at [6]:

“In my judgment, in all but straightforward compromises, which are, in general, unlikely to involve him, a judge is entitled to say to the parties ‘If you have not reached an agreement on costs, you have not settled your dispute. The action must go on, unless your compromise covers costs as well.’”

In a similar vein, Chadwick LJ at paragraph 26 observed:

“The cases in which the judge will be asked to decide questions of costs – following a compromise of the substantive issues – are likely to be those in which the answer is not obvious. And it may well be that, in many such cases, the answer is not obvious because it turns on facts which are not agreed between the parties and which have not been determined. The judge should be slow to embark on the determination of disputed facts solely in order to put himself in a position to make a decision about costs. As Lord Justice Mummery has put it, the better course may be to require the parties to confront the realities of their litigation situation; to point out to them that, if they have not reached an agreement on costs, they have not settled their dispute and the action must proceed to judgment.” [My emphasis]

I draw two points from these observations. First, Mummery LJ’s observation says no more than that in exercising the court’s discretion the court may decide to direct a trial to enable issues of costs to be resolved. It is not, however, inevitable, that if there are disputed issues of fact a trial must take place. Secondly, Chadwick LJ noted in the passage I have emphasised that a decision to direct a trial should not be reached lightly. The corollary is that the court should carefully consider the alternatives to a trial and decide whether only a trial will meet the justice of the case and be fair to the parties.

Brawley v Marczynski & Another (No. 1) [2002] EWCA Civ 756 predates the decision in BCT Software by a few months and was decided taking into account two decisions in the field of administrative law R v Holderness Borough Council ex parte James Robert Developments Limited [1992] 66 P&CR 46 and R (Boxall) v Waltham Forest London Borough Council (unreported) 21 December 2000. The former case is cited at the commentary in the White Book on section 19 of the Senior Courts Act 1981 paragraph 9A-77 as authority for the following principle:

“A live issue between parties may become ‘academic’ or ‘hypothetical’ for various reasons. Generally, it is inappropriate for parties seeking to resolve a dispute between them as to costs to seek to do so by litigating to a conclusion a substantive issue that has become ‘academic’.”

However, in giving the judgment of the Court of Appeal in Brawley v Marczynski (No. 1) Longmore LJ indicated that he found the principles deduced from the authorities by Scott Baker J in R (Boxall) v Waltham Forest Council to be “most helpful”. These principles are:

“(i)

the court has power to make a costs order when the substantive proceedings have been resolved without a trial but the parties have not agreed about costs.

(ii)

it will ordinarily be irrelevant that the claimant is legally aided.

(iii)

the overriding objective is to do justice between the parties without incurring unnecessary court time and consequently additional cost.

(iv)

at each end of the spectrum there will be cases where it is obvious which side would have won had the substantive issues been fought to a conclusion. In between, the position will, in differing degrees, be less clear. How far the court will be prepared to look into the previously unresolved substantive issues will depend on the circumstances of the particular case, not least the amount of costs at stake and the conduct of the parties.

(v)

in the absence of a good reason to make any other order the fallback is to make no order for costs.

(vi)

[this principle only has application to judicial review cases].”

Pathway Resourcing Limited & Another v Kaul is an example of a case in which the Judge, without being attracted to any of the positions which the parties had identified for him, determined that the claim should go to a trial. The hearing before the Judge was the hearing of an application by the defendant for an order to strike out the claim or, in the alternative, for summary judgment. It took place just a few months before the trial date and although the parties had not completed disclosure or exchanged witness statements, it was common ground that there was little difficulty in them doing so and that the trial could take place on the trial date. The defendant was a former employee of the claimants who were recruitment consultants. Very shortly after she left their employment, the claimants made a without notice application seeking interim relief. Having obtained a doorstep delivery up order the defendant gave undertakings on the return date in terms of the injunction sought against her. The issue between the parties concerned whether the claimants were entitled to bring the proceedings based upon the facts they alleged. Although the claim as originally drafted sought damages, the claimants conceded the claim for damages leaving only the terms of the permanent injunction to be set out in an order (the terms were not in dispute) and costs. In the end, Morgan J, with some reluctance, directed that the claim should proceed to a trial but it is, I think, important to note that he did not suggest that a trial was the only possible outcome. He observed that he was: “…faced with choices that are plainly imperfect and unattractive to me and applying a legal principle where my decision depends on my assessment of all the circumstances of the case including the amount of the costs at stake….”.

It is common ground between the parties that, in an appropriate case, the court may give directions for the trial of the claim to take place even though the only issue to be resolved is costs. To do so would be a surprising exercise of the court’s discretion in a case in which it is obvious who has won and who has lost. Whether the case should go to a trial (meaning a hearing at which evidence is called and tested by cross-examination) or some other procedure is adopted is entirely fact specific and will be determined applying the principles set out in the overriding objective. The change to the terms of the overriding objective in April 2013 signals that proportional cost will be an important factor in all decisions.

At this stage I am determining only how the outstanding issue of costs is to be determined, not what the determination should be.

It is instructive to consider how the current position came about. For that purpose it is necessary to take the three issues in the claim (see paragraph 6 of this judgment) in turn:

It is common ground that the claimants have no entitlement to demand that the removal claim goes to trial solely in relation to the question of costs and that there is no default position in which the court will, faced with a difficult decision, make no order for costs.

It seems to me applying the principles to be derived from the overriding objective (as it has been amended) and the authorities to which I have referred, the court should try to establish an approach to resolving a dispute about costs which as far as possible minimises the necessity for the parties to incur further legal costs to enable a determination to be obtained. That said, the court must ensure, as far as possible, that the procedure which is adopted enables the issue of costs to be determined in a manner which is fair whilst incurring costs which are proportionate to what is at stake. To my mind, the spectre of further expenditure running to hundreds of thousands of pounds being incurred in this claim for the sole purpose of deciding who shall pay the costs incurred to date is a deeply unattractive one. It does not follow necessarily, of course, that the costs of the costs litigation will be awarded in the same way as the costs incurred to date as the future costs award may be affected by offers yet to be made and future conduct.

A factor heavily relied upon by Mr Burton is that the court should not make a determination of contested facts on untested paper evidence. It is only paper evidence which is manifestly incredible which can be disregarded or disbelieved (see Philip James Long v Farrer & Co [2004] EWHC 1774 (Ch) [61] per Rimer J). This principle is right as a general proposition but in matters of costs the court regularly has to make decisions based upon an application of the criteria in CPR 44.2 and the court does not, for example, direct a trial on issues of conduct.

Another feature of this claim which is not present in any of the authorities to which reference have been made is that CPR 46.3 sets out a general rule that a trustee is entitled to be paid the costs of the proceedings, insofar as they are not recovered from or paid by another person, out of the trust fund. The first to fourth defendants will rely upon that general rule although it provides only a starting point rather than being determinative.

The court is faced with a choice between making a determination based upon written evidence and oral submissions, the “Trial Lite” approach and a full trial of the removal issues. Mr Burton submitted that the claim his clients wish to pursue against the sixth defendant for appointing Mr Binley, which is said to be a fraud on the power in the Settlement, would be dropped if the court was willing to agree the Trial Lite proposal (or a full trial). However, the claimants are unwilling to drop that issue if costs are to be decided without a trial with oral evidence. I consider this is an unattractive position for the claimants to adopt but, in any event, it is based upon a false premise. The claim as it is currently pleaded seeks an order to remove the sixth defendant as protector. That relief can no longer be granted and if a claim relating to Mr Binley’s appointment is to be pursued the claim will require significant amendment for which either consent or approval from the court is needed. No application has yet been made. It seems to me that the court must decide what course of action to adopt based upon the claim as it stands not based upon a claim which may, or may not, be pursued and for which the claimants may, or may not, obtain approval from the court. In any event it is unattractive for a party to offer a concession (if it can be said to be such) on terms that it is withdrawn if the party does not get its own way.

Two further points arise in connection with the protector issue. First, there is no reason in principle why the claimants may not pursue this claim in separate proceedings and it is likely to be more convenient and cost efficient if they do so. Secondly, much of the sting has been taken out of the claimants’ concern about Mr Binley’s appointment by undertakings he has given to the court concerning the exercise of his powers. These powers are now in reality much curtailed.

The issue I have to determine, at its heart, is whether it is possible for the court to conduct a fair determination of the costs issues without there being a trial in some form or another. This question can has to be considered in the light of two sub-questions:

Is it essential for there to be cross-examination of witnesses?

I am not attracted to Mr Burton’s Trial Lite proposal. First, I am far from convinced that it is workable given the depth of ill feeling which exists. The trial Judge would have an almost insuperable difficulty in shoe-horning a resolution of the issues in the removal claim within the two day trial estimate which takes no account of closing submissions which are to be provided in writing. By the time judicial reading is taken into account together with a review of the, no doubt lengthy, written closing submission, the true length of the trial is likely to be considerably in excess of three days before judgment writing time is taken into account. Secondly, the costs saving resulting from Trial Lite, when set against a full trial of the issues (case managed to reduce such a trial as far as possible), are not such as to make the Trial Lite proposition an attractive one.

It appears to me that the court will, without the benefit of cross-examination, be able to determine in a manner which is just and fair to all the parties how the costs of the claim should fall applying the criteria in CPR 44.2 and CPR 46.3. I consider that a trial can be avoided and this is highly desirable in the context of a painful family dispute. The claimants may feel they have been cheated out of their ‘day in court’ but applying the considerations in the overriding objective, including taking into account the interests of all the parties and the needs of other court users in competition for scarce resources, it would be wrong to direct a trial when I am satisfied a fair result can be achieved by a hearing with oral submissions.

I will hear counsel, if necessary, as to the directions which are required to set up such a hearing but I presently envisage that each party should be entitled to serve and file one witness statement providing the evidence which is relied upon in relation to costs and exhibiting the documents that party wishes the court to consider. I hope it will be possible for the parties to agree directions.