Kastor Navigation Co Ltd. & Anor v AGF M.A.T & Ors

I will also for convenience here set out CPR 36.21. This provides: -

“ Costs and other consequences where claimant does better than he

In Phonographic Performance Ltd v AEI Rediffusion Music Ltd 1999 1 WLR 1507 Lord Woolf MR said of the then prospective new CPR 44.3,at pp.1522-3:

“ The most significant change in emphasis of the new Rules is to require courts to be more ready to make separate orders which reflect the outcome of different issues. In doing this the new Rules are reflecting a change of practice which has already started. It is now clear that too robust an application of the “follow the event principle” encourages litigants to increase the costs of litigation, since it discourages litigants from being selective as to the points they take. If you recover all your costs as long as you win, you are encouraged to leave no stone unturned in your effort to do so.”

In Gwembe Valley Development Ltd v Thomas Koshy & Ors, unreported, 17 February 2000 Rimer J observed that he did not find it easy to detect in CPR 44.3 anything reflecting the change in emphasis to which Lord Woolf had referred. However that may be, the debate has moved on and the Court of Appeal in the two decisions to which I referred earlier, Johnsey and Summit, has made clear that the approach advocated by Lord Woolf is that which is now to be followed.

In Johnsey Chadwick LJ said, at paragraph 21 of his judgment:-

“The principles applicable in the present case may, I think, be summarised as follows: (i) costs cannot be recovered except under an order of the court; (ii) the question as to whether to make any order as to costs – and, if so, what order – is a matter entrusted to the discretion of the trial judge; (iii) the starting point for the exercise of discretion is that costs should follow the event; nevertheless, (iv) the judge may make different orders for costs in relation to discrete issues – and, in particular, should consider doing so where a party has been successful on one issue but unsuccessful on another issue, and, in that event, may make an order for costs against the party who has been generally successful in the litigation; (v) the judge may deprive a party of costs on an issue upon which he has been successful if satisfied that the party has acted unreasonably in relation to that issue…”

Implicit in Chadwick LJ’s fourth proposition is that it is no longer a prerequisite of an order that a party who has been financially successful overall in the litigation should nonetheless pay the costs of the other party of a particular issue on which he, the first party, has failed that it be demonstrated that the first party has acted unreasonably or improperly. This point was expressly confirmed by the Court of Appeal in Summit – see in particular the judgment of Longmore LJ at paragraph 16. Subject to that gloss, the court should still as I read the various decisions of the Court of Appeal follow the approach of Nourse LJ In re Elgindata Ltd (2) 1992 1 WLR 1207 where he said, at p.1214:-

“ The principles are these. (i) Costs are at the discretion of the court. (ii) They should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made. (iii) The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of his costs. (iv) Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or the part of the unsuccessful party’s costs.”

Obviously that passage must now be read subject to the qualification that, as has been expressly decided by the Court of Appeal in Summit, an order such as that described in the fourth of Nourse LJ’s principles may be made in the absence of improper or unreasonable raising or pursuit of issues or allegations. Subject to that, I consider that the starting point of my approach must be to consider whether the fact that the Claimants made and pursued a claim for an actual total loss caused a significant increase in the length or cost of the proceedings. It seems to me that the answer to that question is likely to be determinative of the question whether there should be a departure from the principle that costs follow the event and, in consequence, the making of an issue based order.

Before turning to that issue, I would however just note that the extent of the sea change in the court’s approach to costs is demonstrated by the fact that Nourse LJ in Elgindata described an order of the kind made in Summit, and of the kind that Mr Berry invites me to make here, as “such an unusual order to make,” – see p. 1213. A similar order made by the trial judge in that case was overturned. Yet in Budgen v Andrew Gardner Partnership 2002 EWCA Civ 1125, 3 July 2002, Simon Brown LJ said this:-

“ [23] In advancing this appeal Mr Livesey relies on a number of passages in Lord Woolf’s final report Access to Justice as well as upon the two authorities to which Buxton LJ referred when granting permission (see paragraph 4 above). As to the Access to Justice report it is sufficient, I think, to quote only from paragraphs 24 and 25 of Chapter 7:

[24]“ Orders for costs should reflect not only whether the general outcome of the proceedings is favourable to the party seeking an order in his favour but also how the proceedings have been conducted on his behalf… Judges must therefore be prepared to make more detailed orders than they are accustomed to do now. The general order in favour of one party or another will less frequently be appropriate. Different orders will need to be made on different issues, eg, where… an offer to settle that issue has been unreasonably refused.

[25] Unless the court is prepared to take the time necessary to elevate decisions as to costs above the conventional approach adopted at present, the parties will not take as seriously as they should the obligations which a managed system will place on them….”

[24] In AEI Rediffusion Lord Woolf said at pp.1522-1523:

“ The most significant change in emphasis of the new Rules is to require courts to be more ready to make separate orders which reflect the outcome of different issues.”

[25] Brooke LJ’s judgment in the unreported case of Winter v Winter was to similar effect:

“..before the Civil Procedure Rules came into effect… if a Claimant substantially succeeded he was likely to be awarded an order for costs even though he failed on certain issues. The new Rules provide a break from that tradition and enable a court to do greater justice if a party has caused court costs to be expended on an issue on which he ultimately fails.”

[26] For my part I have no doubt whatever that judges nowadays should be altogether readier than in times past to make cost orders which reflect not merely the overall outcome of proceedings but also the loss on particular issues. If, moreover, the “winning” party has not merely lost on an issue but has pursued an issue when clearly he should not have done, then there are two good reasons why that should be reflected in the costs order: first, as a sanction to deter such conduct in the future; secondly, to relieve the “losing” party of at least part of his costs liability. It is one thing for the losing party to have to pay the costs of issues properly before the court, another that he should have to pay also for fighting issues which were hopeless and ought never to have been pursued.”

In the same case Mance LJ, in the course of a judgment which dissented in the result but not as to the principles to be applied, observed:-

“ It is not “very draconian” to mark the outcome of a particular issue by ordering that the losing party on that issue bears, in whatever way, both parties’ costs of that issue. It is on the contrary in full accord with the principles underlying the new Civil Procedure Rules, which aim at making: “orders for costs a more effective incentive for responsible behaviour and a more compelling deterrent against unreasonable behaviour” and “to discourage unreasonable conduct” (cf. paragraphs 5(d) and 8 of Access to Justice Final Report by Lord Woolf, July 1996, as well as paragraphs 24-5 of that Report which Simon Brown LJ has quoted).”

Chadwick LJ spelled out the consequences of that approach in Summit at paragraph 27 of his judgment:-

“ An issue based approach requires a judge to consider, issue by issue in relation to those issues to which that approach is to be applied, where the costs on each distinct or discrete issue should fall. If, in relation to any issue in the case before it the court considers that it should adopt an issue based approach to costs, the court must ask itself which party has been successful on that issue. Then, if costs are to follow the event on that issue, the party who has been unsuccessful on that issue must expect to pay the costs of that issue to the party who has succeeded on that issue. That is the effect of applying the general principle on an issue by issue based approach to costs.”

The Court of Appeal described that as a “suitably exceptional case” with “special and particularly strong circumstances.” I am not sure whether that indicates that, in the new climate, an order which requires a financially successful party to pay to his opponent the costs of issues on which he has lost should be regarded as unusual and exceptional, although of course the starting point remains that costs follow the event, so that one must look for special circumstances to justify a departure. Lastly, I bear in mind Chadwick LJ’s reminder that :-

“ It is, of course, still necessary to stand back and ask whether the result is so plainly wrong that it must be regarded as perverse.”

That was said in the context of appellate review of a judge’s exercise of discretion, but it is no doubt a useful injunction to which I should have regard when exercising that discretion.

I turn then to the question whether the making and pursuit of the claim for indemnity for an actual total loss caused a significant increase in the length or cost of the proceedings. To some extent this is an exercise in rewriting history. However I entertain no real doubt that if the Claimants had never made a claim for an actual total loss, restricting themselves to a claim for a constructive total loss, the course of the litigation would have been different. Naturally the initial evidence-gathering exercise, involving the interviewing of the crew members, would have been the same. But had the proceedings issued in November 2000 related only to a claim as for a CTL, the whole focus of the debate would have been different, and in particular it would never have been necessary to investigate at such length and at such expense implausible theories as to how, in consequence of the fire, sufficient water might conceivably have been admitted in sufficient time to cause the vessel to sink within 15 hours of the outbreak of fire.

It is of course true that it was the Defendants’ case that one reason why the CTL claim must fail is because the vessel was doomed to sink by reason of substantial water ingress from unknown causes. However this point was only the corollary of their very limited concession to the effect that, on the figures, the cost of repairing damage exceeded the value of the vessel only in the scintilla temporis before sinking. The point was therefore a limited one. On the figures it was not a point of any substance. I dealt with it fairly summarily at paragraph 19 of my judgment. Furthermore the fact that some of the machinery in the engine room, particularly in the lower part, must be presumed to have been damaged by seawater, possibly in addition to being damaged by fire, adds little to the debate. On the figures it is obvious that an uncontrolled fire burning in the engine room and in the accommodation block in the manner described by the witnesses would readily and quite quickly cause damage the cost of repair of which would exceed the insured value.

Mr Baker for the Claimants also pointed out that, by an amendment made at trial, underwriters advanced a positive case to the effect that by the time the vessel was abandoned there was water forward of frame 36 the presence of which could not be accounted for by the fire. This was not however directed towards underwriters’ attempt to show that the vessel could not be regarded as a CTL because doomed to become an actual total loss – rather it was put forward as indicative that something other than the fire was responsible for the ingress of seawater. I very much doubt if this point would ever have been raised had the claim been confined throughout to one in respect of a CTL.

Valiantly though Mr Baker strove to persuade me that the issue whether the fire sank the vessel did not significantly increase costs overall, I am afraid that I regard that submission as wholly unreal. Had the claim been confined to the CTL issue the action would have assumed an entirely different shape. In many ways that that is so is demonstrated by the fact that the Claimants were able to say on the first day of the trial that the CTL claim involved no disputed issues of fact and required no further evidence for its determination. It is of course true that that position had only finally and formally been reached by trial and confirmed by the underwriters’ skeleton argument, but in an action confined to a claim for a CTL that position would have been reached very much earlier and in wholly different circumstances. It is I think almost certain that an application would have been made at an early stage for summary determination of the CTL claim, an application which would have been far less ambitious than that which was in fact made and which would have relied upon, so far as necessary, the same factual evidence as did that. Even if the matter had proceeded to trial I consider it inconceivable that the Claimants would have called oral factual evidence in support of a claim confined to that for a CTL. Expert evidence would have been confined to the extent and cost of repairs issue on which there would have been little if any scope for debate.

I have no doubt that the greater part of the costs expended on both sides will have been directed to proof and disproof of the suggestion that the ingress of seawater that caused the vessel to sink was caused by the fire and such explosions as that may in consequence have caused. That was the purpose of the great bulk of the experts’ work. The work of the naval architects (and of the metallurgists although their cost must pale into insignificance) was devoted to nothing else and the issue as to the extent and cost of the fire damage was only a very small part of the work of the fire experts and of the marine engineers. At trial the argument as to the CTL was entirely of a legal nature, without the need even to refer to the factual or expert evidence. According to Mr Berry’s calculation, with which Mr Baker did not quarrel, the argument on the CTL issues, including the application that they should be dealt with first, occupied only about 1½ out of the 17 days of the trial. The rest of the time, including days of expert evidence, was spent in investigation of the claim that the fire caused the vessel to sink.

I am therefore satisfied that the making and pursuit of the claim for an actual total loss substantially lengthened and increased the costs both of the action and of the trial. An action directed simply toward recovery as for a CTL would have been completely different in nature. It is simply inconceivable that it would have generated costs on anything like the scale which has in fact occurred.

It was suggested by Mr Baker that such a claim would still have been met by underwriters making the minimum possible concession at the latest possible moment in the hope that something might eventually turn up which would justify them in making an allegation of scuttling. I consider that there is some force in that point as a general observation. However the answer to it is that an action so confined would have presented underwriters with a very limited opportunity to pursue such a strategy, since attention would very quickly have been focused on the minimal effort required from the Claimants to prove the facts on which their case would have depended. Unless underwriters were prepared to allege a wilful casting away, it would very quickly have become apparent that the only real point of substance dividing the parties was the question whether the Claimants could recover for a CTL in the absence of notice of abandonment served before the vessel was actually lost by sinking.

For all these reasons I am satisfied that this a case in which I should make different orders for costs in relation to discrete issues. I should emphasise that I have reached that conclusion simply upon the basis that the Claimants raised and pursued an issue which significantly increased the length and cost of the action and of the trial and upon which they lost. That does not involve a finding that the Claimants acted unreasonably or improperly in that regard. Should such considerations be relevant however I would have to record that the Claimants’ case as to sinking caused by fire was supported by expert evidence which was seriously flawed in that it failed to address the question how, realistically, sufficient water can have entered the ship within the required time scale in consequence of damage caused simply by fire and explosion.

Before considering what order I should make I must however deal with the impact of the Claimants’ Part 36 offer. Mr Baker submitted that the effect of the rule is that the Claimants are entitled as of right or at any rate should be awarded the entirety of their costs incurred after 1 July 2002 (and moreover on an indemnity basis) unless the court considers it unjust to make such an order. He also submitted that it is insufficient to justify a finding of injustice that, had the Claimants not made a Part 36 offer upon which they had improved at trial, the court would not otherwise have awarded them their full costs incurred after 1 July 2002. This raises two distinct issues. The first is whether, as Mr Berry submits, “his costs” in CPR 36.21(3)(a) means such costs as would ordinarily be awarded to him applying the principles set out in CPR 44.3, i.e. without regard to the impact of Part 36.The second issue is whether the policy underlying Part 36 requires what is in effect an arithmetical approach. A Claimant who succeeds to an extent greater than his Part 36 offer has demonstrated that the trial need never have taken place. In such circumstances it cannot be unjust that the Claimant should recover the costs of an exercise which should not and need not have occurred – the rule prescribes what is in such circumstances the just result. So proceeded Mr Baker’s argument.

On the proper construction to be given to the rule I prefer Mr Berry’s argument. There is a contrast between CPR 36.20 and CPR 36.21. CPR 36.20, dealing with the case where a Claimant fails to better a Defendant’s Part 36 offer redefines success or failure. When the Claimant fails to beat a Part 36 offer “ unless it considers it unjust to do so, the court will order the Claimant to pay any costs incurred by the Defendant after the latest date on which the payment or offer could have been accepted without needing the permission of the court” – 36.20(2) – emphasis supplied. Even then no doubt the approach is not simply mechanistic. There will no doubt be cases in which it would not be appropriate to award to the defendant all of his costs incurred during the relevant period. But it is worthy of note that CPR 36.21 uses very different language. It does not refer to “ any costs incurred” but rather to “ his costs.” That to my mind is a pointer to the reference being to such costs as are or would otherwise be awarded to the Claimant. Thus the rule is concerned with the basis of assessment of such costs as are ordered to be paid not with the basic incidence of costs. It would be surprising if a rule drafted in terms which appear to focus on the basis of assessment should have been intended to bring about a rebuttable presumption as to the incidence of all costs incurred after a certain date, irrespective of the issue upon which they have been expended and of the relative success of the parties on that issue.

In the light of that conclusion the second issue does not arise. However in my judgment it would be unjust to award the Claimants the entirety of their costs at trial and, in the light of the modern approach to costs, it would be unjust to order the Defendants to bear their own costs of successfully resisting the claim to recover as for an actual total loss. It may be that that latter consideration cannot permissibly be taken into account since the only factor mentioned in CPR 36.21(4) is whether it would be unjust to order that the Claimant has his costs on an indemnity basis. That is perhaps another pointer to the correctness of Mr Berry’s construction of the words “ his costs.” In any event it is sufficient that I conclude that it would be unjust to award to the Claimants all of their costs incurred after 1 July 2002. I do not consider that the decision of the Court of Appeal in Huck v Robson 2002 3 All ER 263 compels me to a different conclusion. That case was concerned, and concerned only, with the question whether a Claimant in a case arising out of a road traffic accident should upon succeeding 100% at a trial on liability be awarded indemnity costs having offered under Part 36 to apportion liability 95%-5%, an acceptance of 5% contributory negligence. The Court of Appeal held, by a majority, that it is nothing to the point that no judge would be likely in such a case to arrive at such an apportionment. In the present case the outcome could only be 100% or zero, but Mr Berry rightly did not contend that the Part 36 offer was for that reason to be regarded as unreal or as one which was bound to be rejected. In the context of commercial litigation an offer of the sort made in this case may amount to a discount offered to reflect the business inconvenience in witnesses having to attend court, as well as an assessment of the prospects of success and a recognition of the vagaries of litigation. However in Huck v Robson it was not in dispute that the Claimant should be awarded 100% of her costs, the only question was as to the basis of assessment upon which such costs should be recoverable. I do not consider that the decision in that case supports Mr Baker’s broad submission that the philosophy underlying CPR Part 36 requires the court in a case such as this to abandon so far as concerns post offer costs the issue by issue approach which CPR 44.3 has been held to encourage. Such an approach would I think be open to an abuse more serious than is represented by the possibility of offers in an amount marginally less than the claim made for tactical purposes to secure the benefit of the incentives provided by CPR 36.21. The Court of Appeal gave some guidance in relation to that latter device in Huck v Robson. If Mr Baker were right, a Claimant with only a 50-50 case could by careful use of a Part 36 offer produce a situation in which he had a potentially free run on any number of wholly unmeritorious bases of claim which had no prospect of success whatever. A Defendant in such circumstances might be deterred from defending a 50-50 case, perhaps involving an important point of principle, by fear of the prospect of having to pay the Claimants’ costs (and on an indemnity basis) on a whole raft of wholly unmeritorious makeweight points, the successful rebutting of which might even require him to call witnesses, possibly from overseas. So mechanistic a rule would completely frustrate the principles underlying the new Civil Procedure Rules to which Simon Brown and Mance LJJ referred in the Budgen case.

I turn finally to the order which I should make. My order must reflect that the Claimants should in principle recover their costs of the CTL issue, and moreover should recover such of these costs as were incurred on and after the first day of the trial on an indemnity basis. However since so small a part of the trial was concerned with that issue the adjustment necessary on account of the latter consideration must be very small. The Defendants should in principle recover their costs of the actual total loss issue. I do not consider it relevant that the Claimants attempted on the first day of the trial to bring about a saving in trial costs. That attempt was in the event unsuccessful and the Claimants must live with the consequences of pursuing and losing a claim which significantly increased the length and cost of the trial. I must if I can make an order that requires payment of a proportion of the costs of the other party rather than leaving to detailed (and expensive) assessment the question which costs related to which issue – see CPR 44.3 (7). Mr Berry submitted that an assessment that 10% of all of the costs of the action were attributable to the CTL issue would be generous to the Claimants and would comfortably take into account the small uplift to which they are in principle entitled pursuant to Part 36. I consider that an assessment that 15% of the Claimants’ overall costs relate to the CTL claim eliminates all possibility that it might be an underestimate. It does not of course logically follow from this that 85% of the Defendants’ costs relate to the claim for the actual total loss, indeed I am inclined to think that a higher figure might well be justified. However Mr Berry did not argue for a figure higher than that represented by the difference between the proportion of the Claimants’ cost attributable to the CTL claim and 100%. Therefore an award to the Defendants of 85% of all of their costs involves yet further generosity to the Claimants, which is perhaps not inappropriate given that without resort to litigation they would not have recovered the US$3 million to which I have held them entitled.

If both parties’ costs are indeed of a similar order as I was informally told they may wish to agree to give effect to my orders by simply netting off one against the other, so that the net result is that the Claimants pay the Defendants 70% of their costs of the action. That would also avoid the cost of two assessments in the event that costs cannot be agreed. However I do not think that I should without more give effect to my orders in that way, simply upon the basis of the parties’ informal estimate that each had incurred costs of a broadly similar order. Should that prove not to be correct, netting off in the event of even a relatively small disparity could give rise to substantial injustice. I would of course make a “netting-off” order if evidence indicated that it was appropriate so to do.

I direct therefore that the Defendants pay to the Claimants 15% of the Claimants’ costs, and that the Claimants pay to the Defendants 85% of the Defendants’ costs. I must stand back and ask myself whether the outcome, effectively that the Claimants will bear all of their own costs and pay 70% of the Defendants’ costs, is in the light of the Claimants’ recovery of US$3 million, together with interest, so plainly wrong that it must be regarded as perverse. In the light of the considerations identified by the Court of Appeal in the cases to which I have referred which must now inform the approach of the court to questions of this sort I do not consider that this outcome can be regarded as plainly wrong. It is the logical outcome of considering costs on an issue basis. Comparisons are dangerous, but if costs are in some cases to be considered on an issue basis, it is difficult to see how the present cannot be an appropriate case for such treatment.