Case No: Case No: HC 2013 000250
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Civil Justice Centre
Manchester
M60 9DJ
Before :
HIS HONOUR JUDGE PELLING QC
SITTING AS A JUDGE OF THE HIGH COURT
Between :
HURRY NARAIN PURRUNSING | Claimant |
- and - | |
(1) A’COURT & CO (A FIRM) (2) HOUSE OWNERS CONVEYANCERS LIMITED | Defendant |
Mr Paul Marshall (instructed by Anthony Gold) for the Claimant
Mr William Flenley QC (instructed by Caytons Law) for the First Defendant
Mr Simon Hale (instructed by Plexus Law) for the Second Defendant
Hearing date: 27th May 2016
Judgment
HH Judge Pelling QC:
Introduction
This is the post judgment hearing of the remaining costs issues following the hand down of my substantive judgment ([2016] EWHC 789 (Ch)) in this case on 14 April 2016. Judgment was reserved only because the hearing finished after 4 p.m. on a Friday and I was listed to sit in London only for that day.
Issues
So far as costs are concerned, the issues that I have to determine are:
Whether as between the claimant and the first defendant (“ACC”), the claimant is entitled to recover all of his costs;
Whether some of all of the costs recoverable by the claimant should be assessed on the Indemnity rather than the standard basis;
What costs provision is appropriate as between the defendants.
The Outcome of the Substantive proceedings
The claimant succeeded against both defendants and, as between the defendants, each was directed to bear an equal part of the loss. The Order made on the hand down of the substantive judgment recorded that ACC was to pay the claimant’s costs of the claim against ACC (paragraph 6) and HOC was to pay the claimant’s costs of the claim against HOC (paragraph 7) but with all other issues concerning costs (apart from an interim payment) being adjourned to the hearing on 27 May 2016.
The Claimant’s Entitlement to 100% of his Costs as against the First Defendant
It was submitted on behalf of ACC that there should be a reduction in the costs the claimant was otherwise entitled to recover because the claim as against ACC was pleaded by reference to alleged breach of warranty of authority that was abandoned during the week before trial and a claim based on an alleged breach of an undertaking that was abandoned in part at the start of the trial and at best played a secondary role and was not in the end resolved by the judgment because it did not need to be resolved in light of the decision that I reached in relation to the claim based on breach of trust. ACC submitted that in effect I should adopt an issued based approach to the assessment of costs and resolve this issue by directing that the claimant should recover only 80% of its costs of and occasioned by the claim against the first defendant.
The abandonment of the claim for damages for breach of warranty of authority was the subject of correspondence. The claimant’s solicitors proposed that this element of the claim be abandoned essentially for pragmatic reasons – or as it was put in the letter of 7 March 2016, “… in order to save court time and in the interests of proportionality…”. The proposal made by the claimant’s solicitors was that the claimant would not seek a finding on this issue unless ACC’s solicitors insisted and that the costs issues should be left to the trial judge. This proposal was agreed by ACC’s solicitors by email on 8 March 2016. In oral submissions, Mr Flenley QC submitted in essence that if you plead an allegation and then do not proceed with it, then you should expect to have to pay the costs of and occasioned by that issue.
I am not able to accept ACC’s submissions on this issue. First, I do not see how an order in the terms sought can be sought or made given the terms of paragraph 6 of the order made on 14 April 2016. However leaving that point to one side, in my judgment the matters abandoned did not add materially to the costs of these proceedings at either the pleading, evidential or hearing stages. The cost of preparing pleadings and witness statements and of complying with disclosure obligations would have been much the same whether the allegations relied on by ACC to support the submission I am now considering were made or not. My assessment (admittedly on very much a broad brush basis) is that to reduce the costs recoverable by the claimant by 20% (or by any percentage that could be material) would significantly over compensate ACC for the costs incurred in relation to the issues that Mr Flenley points to.
The starting point in deciding the issue I am now considering is that identified in CPR r.44.2(2)(a) namely who has been successful. There can be no doubt about that on the facts of this case. The claimant has succeeded against ACC in obtaining an order that ACC restore the trust fund lost. The court is permitted to depart from that approach – see CPR r.44.2(2)(b) – and in deciding whether to do so the court is required to have regard to whether a party has succeeded in part of its case but “… has not been wholly successful” – see CPR r.44.2(4)(b). Here the claimant has been wholly successful in the sense that he has recovered as against ACC the whole of the sum that he had lost as a result of ACC’s breach of trust. There is no automatic rule to the effect that an issue based order will be made in the form of a reduction of the costs a successful party should recover if he loses one or more issues – see HLB Kidsons v. Lloyds Underwriters [2007] EWHC 699 [2008] 3 Costs L.R. 427. The reality is that a successful party in complex litigation (and the issues that arose in this case were legally complex) is unlikely to succeed on all issues.
In this case, I consider it would be inappropriate and unreasonable to make the Order sought by ACC because one of the issues relied on was one that was not abandoned but was simply one that it was not necessary for me to resolve and in relation to that issue and the others because the likely costs generated by the inclusion of the issues within the claim is unlikely to have had a material effect. In addition, success or failure on the issues concerned had no material effect on the outcome in terms of what was recovered so that the inclusion of these claims can realistically have had no serious impact on the assessment of the claim so far as offers were concerned.
Enhanced Costs– Part 36 Offers
The Relevant Part 36 Offer
By a letter dated 20 May 2015, the claimant made a Part 36 offer by which he offered to settle the claim at £516,000 inclusive of interest. The claimant valued his claim at that stage at £573,698.15 inclusive of interest. The discount was therefore £57,698.15. Following the trial, the claimant recovered £470,000 together with interest at the rate of 2.5% above base rate, which down to the date of the order (14 April 2016) was £48,983.01. This totalled £518,983.01. It was submitted on behalf of the claimant that since he had recovered a sum in excess of what had been offered, he was entitled to recover an enhanced costs order for the period from the date 21 days after the Part 36 offer was made – 10 June 2015.
On 21 July 2015, the claimant made a further Part 36 offer of settlement on the basis of a payment to him of £444,500, being 90% of his claim, inclusive of interest at the rate of 1.5% from 24 October 2012. That offer was withdrawn on the third day of the trial with the result that the only Part 36 offer that is relevant for present purposes is that made on 20 May 2015. All references hereafter to the “Part 36 offer” are to the Part 36 offer made on 20 May 2015.
Parties’ Submissions
Mr Flenley submits that in deciding whether this should be the outcome it is necessary to deduct the interest that has been awarded between the date 21 days after the Part 36 offer was made and the date of judgment and determine whether the offer has been bettered by the claimant by reference to the resulting figure. It is submitted that if this exercise is carried out correctly then it becomes apparent that the claimant has recovered less than his effective Part 36 offer and the enhanced costs provisions are of no application. Mr Hale adopts this submission so far as HOC is concerned. Mr Marshall on behalf of the claimant submits that this is an impermissible approach and that all that is required is to compare the sum offered on 20 May 2015 with the sum inclusive of interest that the claimant was left with at the date when judgment was given and if the latter figure is higher than the former then the claimant is entitled to an enhanced costs order.
The Legal Framework
By CPR r.36.5(4):
“(4) A Part 36 offer which offers to pay or offers to accept a sum of money will be treated as inclusive of all interest until—
(a) the date on which the period specified under rule 36.5(1)(c) expires; or
(b) if rule 36.5(2) applies, a date 21 days after the date the offer was made.”
The costs consequences for a defendant of not accepting a claimant’s Part 36 offer which the claimant has then bettered following a trial is set out in CPR r.36.17, which in so far as is material is to the following effect:
“Costs consequences following judgment
36.17
(1) Subject to rule 36.21, this rule applies where upon judgment being entered—
…
(b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer.
(2) For the purposes of paragraph (1), in relation to any money claim or money element of a claim, “more advantageous” means better in money terms by any amount, however small, and “at least as advantageous” shall be construed accordingly.
(3) Subject to paragraphs (7) and (8), where paragraph (1)(a) applies, the court must, unless it considers it unjust to do so, order that the defendant is entitled to—
(a) costs (including any recoverable pre-action costs) from the date on which the relevant period expired; and
(b) interest on those costs.
(4) Subject to paragraph (7), where paragraph (1)(b) applies, the court must, unless it considers it unjust to do so, order that the claimant is entitled to—
(a) interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;
(b) costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired;
(c) interest on those costs at a rate not exceeding 10% above base rate; and
(d) provided that the case has been decided and there has not been a previous order under this sub-paragraph, an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is—
(i) the sum awarded to the claimant by the court; or
(ii) where there is no monetary award, the sum awarded to the claimant by the court in respect of costs—
Amount awarded by the court | Prescribed percentage |
Up to £500,000 | 10% of the amount awarded |
Above £500,000 | 10% of the first £500,000 and (subject to the limit of £75,000) 5% of any amount above that figure. |
(5) In considering whether it would be unjust to make the orders referred to in paragraphs (3) and (4), the court must take into account all the circumstances of the case including—
(a) the terms of any Part 36 offer;
(b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;
(c) the information available to the parties at the time when the Part 36 offer was made;
(d) the conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated; and
(e) whether the offer was a genuine attempt to settle the proceedings.
(6) Where the court awards interest under this rule and also awards interest on the same sum and for the same period under any other power, the total rate of interest must not exceed 10% above base rate.
(7) Paragraphs (3) and (4) do not apply to a Part 36 offer—
(a) which has been withdrawn;
(b) which has been changed so that its terms are less advantageous to the offeree where the offeree has beaten the less advantageous offer;
(c) made less than 21 days before trial, unless the court has abridged the relevant period.
(8) Paragraph (3) does not apply to a soft tissue injury claim to which rule 36.21 applies.
(Rule 44.2 requires the court to consider an offer to settle that does not have the costs consequences set out in this Section in deciding what order to make about costs.) ”
The general principles that apply in this area are not controversial: non-acceptance of what turns out to be a sufficient offer normally advantages the claimant in the respects identified in the rule – see McPhilemy v. Times Newspapers Limited [2001] EWCA Civ 933 - unless the usual order that would otherwise follow on this basis would be unjust – see Matthews v. Metal Improvements [2007] EWCA Civ 215 – in the particular circumstances of the case – see Downing v. Peterborough & Stamford Hospitals NHS Foundation Trust [2014] EWHC 4216 (QB). In deciding whether the paying party has demonstrated injustice, the particular focus is on the making of the offer and the provision or otherwise of relevant information in relation to it rather than on the general conduct of the parties other than the manner in which the claim was pursued after the making of an offer – see Lilleyman v. Lilleyman [2012] EWHC 1056 [2012] 1 WLR 2801 at [16]. This last point is a necessary qualification in order to control conduct subsequent to the making of an effective offer that fails to give effect to the Overriding Objective.
Discussion
The factual basis of Mr Flenley’s submission is relatively straight forward. He says that in this case the last date for acceptance of the operative Part 36 offer was 10 June 2015, being the date identified by CPR r.36.5(1)(c). This is common ground and is correct given the terms of the offer letter. Judgment was handed down on 14 April 2016. This too is not in dispute. There were thus 309 days between the two relevant dates and Mr Flenley submits that it is necessary to deduct 309 days interest from the judgment sum (inclusive of interest) in order to test whether the claimant has done better than the offer. Mr Flenley submits that the interest inclusive judgment sum is £518,983.01. This again is common ground. Mr Flenley submits that the correct rate to adopt for the exercise he submits must be carried out is 3% being the interest rate that I directed should apply. I do not understand Mr Marshall to disagree with this point. In any event in my judgment it is correct for reasons that are obvious and results in a figure of £11,936.71. If this sum is deducted from the interest inclusive judgment sum then the resulting figure is £507,046.30. That being so, it is submitted that the offer sum was greater than the properly adjusted judgment sum and thus the claimant is not entitled to recover enhanced costs. I do not understand Mr Marshall to disagree with any of this if otherwise the approach is a correct one. As I have said already, his submission is that this approach is wrong in principle and that the only proper approach is to compare what was offered with what has been awarded and if what has been awarded is greater than what had been offered then that triggers the entitlement to an enhanced costs order.
In my judgment Mr Marshall’s submission is mistaken and must be rejected. My reasons for reaching that conclusion are as follows. As is apparent from the extract from the Rules set out above, by CPR r.36.5(4) a Part 36 offer to pay money is deemed to include all interest down to the date when the relevant period for acceptance of the offer expires. In order to work out whether a judgment is more advantageous than such an offer it is necessary to ensure that the offer or the judgment sum is adjusted by eliminating from the comparison the effect of interest that accrues after the date when the relevant offer could have been accepted. In my judgment this is the effect of the words “… better in money terms …” in CPR r. 36.17(2). If that is not done then comparing the offer with the judgment is not comparing like with like and thus it is not possible to assess whether the judgment is “… more advantageous …” in money terms than the offer. Interest compensates for the loss of use of money over a given period. In theory at least interest that accrues due for the period between the last date when the offer could have been accepted and the date of judgment is neutral and so immaterial in deciding the question whether a subsequent judgment is “… more advantageous …” than a previous offer. The only interest that is material is that included or deemed included within the offer.
If it was otherwise then whether an offer from a claiming party should be accepted by a defending party would depend not on an analysis of liability in respect of the claim but what in many cases will be entirely unpredictable namely the date when a trial takes place and what is perhaps even more unpredictable, when judgment will be handed down. An enhanced costs order is draconian in effect. Particularly draconian is CPR r.36.17(4)(d), which provides for the payment of an additional amount not exceeding £75,000 which is arrived at by applying a percentage to the sum (including interest) that has been awarded by the Court. It is in the highest degree unlikely that it was intended that the applicability of the enhanced costs regime would depend on an entirely random event such as when judgment would be given following a trial.
Although Mr Flenley’s methodology is one way of arriving at the point at which advantageousness can be assessed, another way of arriving at the same point would involve taking the principal adjudged due (in this case £470,000) and adding to that interest at the rate adjudged applicable following the trial (here 3%) for the period down to the date by which the offer had to be accepted (here 10 June 2015). If this methodology was adopted in this case then the outcome would be the same for the reasons identified by Mr Hale in paragraph 14.7 of his written submissions.
In those circumstances, I conclude that the claimant is not entitled to recover enhanced costs by reference to CPR r.36.17 as against ACC. The relevant Part 36 offer was sent to both defendants at the same time. Although an additional sum of £3,787.84 was recovered by the claimant as against HOC it is not suggested that made any practical difference once it is accepted that the assessment requires adjustment as described above. In those circumstances the discretionary issues that would otherwise have arisen had the enhanced costs regime applied do not arise.
Indemnity Costs Applying the General Costs Regime
Introduction and General Principles
In support of his alternative submission that the claimant should be awarded some or all of his costs of these proceedings against both defendants on the indemnity basis, Mr Marshall submits that neither ACC nor HOC had proper or reasonable grounds for seeking relief under s.61 Trustees Act 1925 and in consequence they should each be required to pay the claimant’s costs on an indemnity basis. Mr Marshall also submits that an indemnity costs order ought to be made because neither defendant engaged in a realistic attempt to settle.
A trial judge has a wide discretion as to whether to direct costs to be assessed on an indemnity basis but before that discretion is engaged there must be conduct on the part of the paying party that takes the case out of the norm – see Excelsior Commercial & Industrial Holdings Limited v. Salisbury Hamer Aspden & Johnson [2002] EWCA Civ 879. Pursuit of a weak, wrong or misguided claim or defence will not usually justify the award of indemnity costs – see Kiam v. MGN (No.2) [2002] 1 WLR 2810 - unless the claim is a hopeless one which has been brought or pursued for illegitimate reasons or collateral purposes – see Noorani v. Calver (No.2) [2009] EWHC 592 (QB) at [9], [19] and [20]. Refusing settlement offers can justify an indemnity costs order for some or all of the successful party’s costs – see Franks v. Sinclair (Costs) [2006] EWHC 3656 (Ch) but whether such an order is appropriate will depends on the particular circumstances and will depend upon what occurred justifying a conclusion that the refusing party acted unreasonably to a high degree in refusing offers to settle.
Nature and Quality of the s.61 Defences
Mr Marshall submitted that both defendants had acted unreasonably to a high degree because breach of trust had been admitted or established by summary judgment and both defendants were relying on s.61 Trustee Act 1925 as an answer to what was otherwise their absolute obligation to reinstate the fund when there was no prospect of those defences succeeding. He submits (and this is not in dispute) that s.61 places the onus squarely on a trustee to establish an entitlement to relief. Mr Marshall submitted in effect that neither defendant had any prospect of demonstrating either that they had respectively acted reasonably or if they had of persuading the court to grant relief in circumstances where the claimant was uninsured and had suffered catastrophic losses as a result of what had happened but HOC was insured and ACC was indemnified as to 90% of the claim. He submits therefore that in pursuing the s.61 defence both defendants acted unreasonably to a high degree.
I do not accept that in pleading and pursuing the s.61 defence either defendant acted unreasonably to the degree required to justify me directing that the claimant should recover costs assessed on the indemnity basis. My reasons for reaching that conclusion are as follows.
First, the mere fact that an unmeritorious defence has been pursued to a conclusion does not justify a direction that the successful party’s costs be assessed on an indemnity basis under the law as it currently is. This is not a case where the defences were unarguable. Had they been, no doubt an application for summary judgment could have been made. No application was made in relation to HOC and an application against ACC failed on this point although it succeeded in relation to the allegation of breach of trust. There was no appeal against the order dismissing the application for summary judgment against ACC on their s.61 defence.
Secondly and in any event, the circumstances must be truly exceptional before a court can properly exercise its discretion to direct an assessment on the indemnity basis simply on the basis that the claim has failed. There has to be an aggravating factor or factors that take the case out of the norm. Such factors include those identified by Mr Hale in paragraph 20 of his written submissions by reference to the examples given in paragraphs 9 and 19 in Noorani. None of those factors apply in this case. In any event as a perusal of the substantive judgment reveals, the outcome depended at least in part on the oral evidence given in the course of cross-examination by each of the individuals called to give evidence on behalf of the defendants. Even if, now, the defences could be characterised as weak or even misguided that depends to a degree on hindsight and in any event is not enough to justify the order sought.
Settlement
In my judgment there is nothing in the facts of this case that would justify an indemnity costs order being made by reference to the settlement discussions that took place between the parties. Various offers were made by the defendants either jointly or separately. They all fell short of what the claimant was prepared to accept. Two of the later offers were inclusive of a sum for costs, which of itself was not acceptable to the claimant given the costs arrangements that he had made in order to be able to bring his claim. Whilst a great deal of time at the cost hearing was taken up in expounding upon why these offers were unacceptable and in some cases made subject to time limits for acceptance that were too short, in my judgment that is not a sufficient basis on which to contend that costs should be awarded to the ultimately successful party to be assessed on the indemnity basis.
Much is made by the parties concerning the terms of the various offers. Mr Flenley submits that the offers made on behalf of his client were not merely reasonable but in excess of what was reasonable given that each of the defendants was ordered to pay 50% of the claim. This is to mischaracterise the outcome as is apparent from the order made on the hand down of the substantive judgment. Judgment was entered against both defendants for the full amount the subject of the breach of trust claim and against HOC for a small additional amount as damages for breach of contract or duty. The division was as between the defendants in the contribution proceedings not in relation to the claim by the claimant. However that is not the real point.
Under the Civil Procedure Rules it is open to a claimant to protect himself first by applying for summary judgment where there is no realistic defence available to the defendant and secondly by himself making a Part 36 offer, which, if effective, will expose a defendant who is unwilling to settle to the risk of an enhanced costs order being made against him. That being the relevant procedural context, in my judgment it would have to be a exceptional case that would justify a court directing that a successful party should be entitled to recover its costs on an indemnity basis because the paying party failed to settle the claim prior to trial. Walter Lilly & Co v. Mackay [2012] EWHC 1972 (TCC) was such a case. Nothing in that case justifies me concluding that a test falling short of those identified at the start of this section of this judgment should be applied when considering conduct in relation to settlement attempts. If a court was to adopt such an approach it would substantially undermine the Part 36 code. On the facts of this case, had the claimant’s Part 36 offer been effective, instead of being ineffective for the reasons set out above, then the issue I am now considering would not have arisen. Absent conduct that falls outside the norm or which is unreasonable to a high degree, failure to make what the winning party perceives to be a reasonable offer in settlement does not justify the court directing that the costs of the ultimately successful party should be assessed on the indemnity basis. In this case all the parties made offers at various stages that were not acceptable to the parties to whom they were made. That is not conduct that is outside the norm.
Costs as between the Defendants
Two issues arise as between the defendants being:
Whether and if so for what period either should be exclusively responsible for the costs of the claimant, as to which ACC submits that HOC should be exclusively liable for those costs from and after 4 March 2015 (“the Global Costs Issue”); and
As between each, who should pay the costs of and occasioned by the contribution proceedings, as to which ACC submits that they should be paid by HOC from and after 4 March 2016 (“the Contribution proceedings Costs Issue”).
ACC submits that the position as at 4 March 2016 was that ACC was willing to meet 51% of the claimant’s claim and interest thereon and what it thought was 51% of his costs (which impliedly valued HOC’s contribution at 49%) whereas the maximum that HOC was prepared to pay was 30% of the claim, interest and costs. By a letter dated 4 March 2016, ACC’s solicitors had warned HOC’s solicitors that if ACC’s net liability was determined at less than £266,000 then ACC would seek their costs from HOC. By a letter dated 7 March 2016, HOC’s solicitors warned ACC’s solicitors that if HOC’s net liability was determined at less than £161,564.77 then HOC would seek its costs from ACC. It is submitted on behalf of ACC that since its liability for the claim and interest is less than the figure identified in the 4 March letter it follows that HOC should be liable for the costs of all parties after that date.
HOC’s response to this submission is that the contention that HOC ought to pay the costs of all parties after 4 March should fail because ACC cannot show that a higher offer by HOC would have enabled the trial to be avoided and in any event the court should not exercise its discretion in the manner suggested on behalf of ACC. HOC submits that it ought not to be ordered to pay the costs of the contribution proceedings after 4 March because the “offer” relied on was one that could only be accepted by the claimant and, in any event, was not bettered.
The Global Costs Issue
The first submission made by HOC is that ACC is precluded from making this submission because by paragraphs 6 and 7 of the Order made on the hand down of the judgment, each defendant was ordered to pay the claimant’s costs of his claim against that defendant. There is some force in that submission. Whilst it is true to say that those paragraphs establish the position as between the claimant on the one hand and the defendants respectively on the other, that does not lead to the conclusion that liability for the claimant’s costs as between the defendants remains at large. The issue of what part of the claimant’s claim was to be borne by each defendant was resolved by the substantive judgment. On that basis there is much force in the view that it has already been decided that each defendant would be responsible for 50% of the claimant’s costs. The remainder of this part of the judgment proceeds on the basis that this is wrong.
HOC submits that a trial would not have been avoided because the parties could not agree the claimant’s costs. The claimant was insisting that it receive 100% of its assessed costs from the defendants collectively. The defendants were not able to establish what those costs would be because the claimant had not informed the defendant about the terms on which a success fee was recoverable by the claimant’s solicitors. This information was provided definitively only on 27 May 2016. It is submitted on behalf of HOC that neither defendant was prepared to agree to incur an unquantified liability for the whole of the claimant’s costs and that is why the case did not settle and proceeded to trial.
ACC’s offer of 2 March 2016 included a liquidated sum in respect of costs of £154,000. In response to this the claimant’s solicitors wrote in their letter of 4 March 2016, that it was difficult to see why the claimant should not be entitled to his costs assessed on the standard basis in the usual way and that the sum offered in respect of costs was not representative of what would be recovered on a standard assessment. There is nothing within this letter that suggests the costs offer would have been acceptable even if the other terms had been. They were not, not least because at least 10% of what was notionally being offered might be irrecoverable given ACC’s insurance position. Although this point was at least addressed in a letter from ACC’s solicitors dated 4 March, the costs issue was not. HOC adopted a similar stance both in its negotiations with ACC’s solicitors and generally. However, it also maintained the position in relation to the claim and interest that it should pay very much less than ACC, reflecting the analysis of HOC’s advisors that ultimately it would be required to bear less of that liability than ACC would be required to bear.
ACC’s 2 March offer was communicated to HOC’s advisors on Friday 4 March, and, on Monday 7 March 2016, HOC made an offer in respect of its liability representing about 30% of the claim plus interest at 3% and a liquidated sum of £96,000 towards costs or alternatively 30% of the claimant’s costs to be assessed on the standard basis. HOC’s solicitors informed ACC’s solicitors of this offer on the same date. The key points to emerge from this correspondence is that HOC quantified its liability taking account of the contribution proceedings at no more than 30% of the claimant’s claim. On Friday 11 March 2016, ACC’s solicitors made an increased offer in respect of costs made on 2 March from £154,000 to £180,000. It did not offer to meet the, or any part of the, claimant’s costs to be assessed on the standard basis.
The claimant responded to these variously increased offers by letter dated Monday 14 March 2016 (the reading day prior to the start of the trial). The combined offers were rejected by the claimant’s solicitors. The letter drew attention to what the claimant’s solicitors said was a shortfall between the sums offered by way of costs and the costs in fact incurred and added in relation to HOC’s alternative costs offer that it “… is of absolutely no benefit to our client when [ACC] have not accepted a liability for a costs assessment.”. The letter also drew attention to the fact that the offer took no account of the potential 10% shortfall caused by ACC’s insurance position. The letter concluded with the statement that “100% of our client’s assessed costs should be paid as part of any settlement. The defendants’ unwillingness to engage with this basic proposition is unreasonable.” It was submitted that it is obvious from this correspondence that the predominant reason why the various offers made down to 14 March had not been accepted by the claimant was the defendants’ position as to costs. I agree that the primary focus of the letter appears to be the costs issue, but the failure of the defendants to grapple with the risk that 10% of ACC’s contribution to any agreed settlement sum would go unpaid remained an issue as well. Both offers in respect of the claim were expressed to be inclusive of interest. That being so, the total value attributed to the claim by the combined offers of the defendants at that stage was £427,000 inclusive of interest, which net of the 10% attributable to ACC’s contribution brought that sum down to £400,964.77 inclusive of interest. This was a significant discount from the value of the claim which was quantified exclusive of interest at £470,000 for breach of trust.
Negotiations continued on the first day of the trial before it commenced. The claimant was prepared to settle at that stage for £462,775 inclusive of interest together with costs to be assessed on the standard basis with the claim sum and a sum on account of costs of £250,000 being paid within 28 days. Some information of a skeletal nature was provided as to how the claimant’s costs were made up. In the end however, neither defendant was prepared to move from the position recorded above.
In my judgment the onus rests on ACC to demonstrate that an increase on or about 7 March 2016 of the sum offered by HOC for the claim above 30% of its value would have been accepted by the claimant and the trial avoided. In my judgment ACC has failed to discharge that burden. The claimant was not willing to accept a fixed sum by way of costs. It is not difficult to see why given the sums said to have been incurred in the course of the discussions on the first day of the trial. The correspondence from the claimant’s solicitors makes clear that they were not willing to settle other than on terms that he recovered 100% of his costs to be assessed on the standard basis. That was a reasonable position for them to adopt, particularly given that this case had been subjected to cost budgeting, that there was at least a risk that the claimant would not recover 10% of the sum to be contributed to the proposed settlement by ACC and the claimant was discounting from the gross value of his claim. At no stage did ACC indicate that they were willing to match HOC’s alternative costs proposal. Mr Flenley submits that an increase in the sums offered in respect of costs to “49% of costs” misses the critical points that (a) the claimant was not prepared to accept a fixed sum by way of costs, (b) the claimant was not prepared to share information about its costs at any stage down to the end of negotiations on 15 March but chose instead to stand on the ground that their client was entitled to recover 100% of its assessed costs and (c) the claimant was fully entitled to adopt that position in the circumstances. Finally, when the costs sum was estimated (at about 1.30 p.m. on 15 March) neither defendant appears to have been willing to countenance a settlement at figures other than those that had been identified previously.
All this leads me to conclude that the submission made on behalf of ACC that all the costs of these proceedings incurred after 4 March ought to be paid by HOC must be rejected.
In those circumstances, it is not either necessary or desirable that I should consider the counter-factual question whether, had I accepted that it was HOC’s conduct that caused the trial to go ahead, I would have exercised my costs discretion in the manner suggested on behalf of ACC. I should perhaps make it clear however that I would not have acceded to the submission that the costs consequences for which ACC contend should not follow because the judgment made by or on behalf of HOC concerning its net liability was reasonable when it was made. That misses the point about offers. To be effective an offer must be made that reflects the outcome that emerges following trial. If it does not, then the offer is non-effective and the fact that it might have been considered to be reasonable at the time it was made is not to the point.
The Contribution Proceedings Costs Issue
In my judgment there is no permissible basis on which I can properly accede to the submission made on behalf of ACC that HOC should pay the costs of and occasioned by the contribution proceedings. Although Mr Hale submits that the offers made by ACC to the claimant were not offers that HOC could accept because they were made to the claimant not ACC, I am not persuaded this is a necessary answer to the application that I am now considering. This is so because that submission ignores the letter marked “without prejudice save as to costs” dated 4 March sent by ACC’s solicitors to HOC’s solicitors. The real difficulty is that this letter is not one that can in the circumstances constitute a foundation for the application by ACC that I am now considering. That is so because no offer was made then or thereafter which addressed the issue of costs. ACC’s ultimate liability is something that can be ascertained in monetary terms only once costs have been assessed. Had the offer been formulated in terms that sought to impose a cost consequence based on a percentage outcome and that percentage outcome had been bettered by ACC following trial of the contribution proceedings, then I could see a potentially good reason for directing HOC to pay the costs of those proceedings after the date when any such offer should have been accepted. However that is not how matters proceeded. The offer made and rejected by the claimant was for a cash sum in respect of costs. The costs condition imposed by the letter to HOC dated 4 March was premised on ACC’s liability being less than the cash sum referred to. Whether ACC is liable for a sum less than £266,000 can be assessed definitively only once the costs issues have been resolved. However, even if the claimant’s costs are assessed at £350,000 rather than the £520,000 his solicitors referred to on 15 March, the total liability will be well in excess of £266,000. It is almost certain therefore that ACC’s ultimate liability will exceed the cash sum it specified in its 4 March letter. That being so, there is no proper basis for making the direction sought by ACC concerning the costs of the contribution proceedings.
Conclusions
It follows from the conclusions set out above that:
the claimant is entitled to recover his costs of and occasioned by these proceedings to be assessed on the standard basis if not agreed;
the defendants will bear the claimant’s costs as provided for in the order made at the hand down of the substantive judgment; and
there will be no order as to the costs of and occasioned by the contribution proceedings.
Further developments
Following the delivery of this judgment in draft to the parties, Mr. Hale applied for an order that the costs of and occasioned by the hearing on 27 May 2016 should be paid as to 50% by ACC and 50% by the claimant on the basis that HOC had succeeded in resisting the claim for costs to be assessed on the indemnity basis made by the claimant and against ACC in relation to the costs of the contribution proceedings. This stimulated both the claimant and ACC to submit that there should be no separate order in respect of the costs of the argument on 27 May, and ACC to submit in the alternative that the costs should be disposed of by an order requiring the claimant to pay 80% of the defendants’ costs and ACC 20% of HOC’s costs of the argument on 27 May.
In my judgment the hearing on 27 May was unnecessary and in consequence generated unnecessary and avoidable cost. The issues that arose could have been dealt with in a fraction of the time and at a fraction of the cost if they had been determined orally at the hand down of the judgment, as they should have been. If that was not possible because of the non-availability of Mr. Flenley, then the issues that arose could have been disposed of more quickly and at significantly less cost on the basis of written submissions, and in any event the hearing was needlessly over elaborate. It generated a lever arch file of authorities, comprehensive written submissions and lengthy oral submissions that lasted 5 1/2 hours. In reality, if the issues had to be determined at an oral hearing at all, the arguments that arose should have been dealt with in half that time.
Mr Marshall informs me that he suggested to the defendants that the remaining issues were ones that could be addressed on paper but that the defendants rejected this proposal. The defendants have not disputed this. That said, the points made by Mr. Marshall would have had more force had most of the hearing not been taken up with a problematic application for the claimant’s costs to be assessed on the indemnity basis that failed. It had been open to the claimant to avoid the costs of the 27 May hearing by not making that application.
In those circumstances, I consider that all parties are responsible for the 27 May hearing taking place. In those circumstances, I am satisfied that a costs order ought to be made in respect of that hearing and, in the circumstances, I am satisfied that in principle, issue based provision ought to be made for the costs of the 27 May hearing.
In my judgment as between the claimant and HOC, the claimant ought to meet 50% of HOC’s costs of and occasioned by the 27 May hearing. As best I can judge it that portion of HOC’s costs of the 27 May hearing is properly attributable to the indemnity costs issue. Whilst in the end both defendants made essentially the same point that does not mean that HOC should not recover its costs of resisting the application made by the claimant against it since assessment on the indemnity basis was sought against by the claimant against HOC and HOC was put to the trouble of resisting that application and did so using a different method to that advocated by ACC.
As between ACC and the claimant, in my judgment ACC ought to recover 40% of its costs of the 27 May from the claimant. I reach that conclusion because I consider that the claimant is entitled to recover his costs of successfully resisting ACC’s application that the claimant should be deprived of some of its costs because he had pleaded an issue that was subsequently abandoned. The costs relevant to that issue were limited however, which is why I have dealt with it in that way.
Finally as between the defendants in my judgment HOC is entitled to recover the balance of its costs against ACC because it was successful in resisting a submission made on behalf of ACC concerning the costs of the contribution proceedings.
HOC ask me to assess its costs of the 27 May hearing and I do so in the sum identified by HOC in its revised costs schedule for the 27 May hearing. I arrive at the conclusion that the sum claimed is both reasonable and proportionate and is the correct sum claimed because I accept the submissions made by Mr. Hale in support of that contention. However, I direct that no sum shall be recoverable by HOC from the claimant until after agreement or completion of the detailed assessment of the claimant’s costs and that the sum due from the claimant to HOC shall be set off against the sums due to the claimant by way of costs from HOC. The sum due to HOC from ACC shall be paid within 14 days of the date of the final order in these proceedings. The costs that ACC is entitled to recover from the claimant will be the subject of detailed assessment. Again there will be a direction that the sum found recoverable by ACC will be set off against the sums due to the claimant from ACC. However, there is a difficulty about this identified by Mr Marshall. ACC is indemnified only in respect of 90% of the sums found due from them to the claimant. Clearly if there are sums due to the claimant from ACC that have not been paid or which ACC says it will not or cannot pay at the date when the set off is applied then to apply the set off without taking account of what is due but unpaid or cannot or won’t be paid would unfairly penalise the claimant. In those circumstances, the best course is that any sum due from the claimant to ACC should be calculated net of any sum due from but unpaid or which won’t or cannot be paid by ACC at the date of the calculation.