Alpacas Ltd. v Wilsey (t/a Blackmore Valealpacas)

JUDGMENT

Master Simons:

1. This is an Appeal by the Claimants against the decision of Costs Officer Baker, made on the 10 ^th April 2003, on a preliminary issue, when he decided that the Consent Order dated the 7 ^th May 2002, which provided that the Defendant pay the Claimant’s costs of the action, was ambiguous, and that the order for costs of the action did not include the costs of the counterclaim. He also decided that, as this was an assessment on a standard basis, any element of doubt that he had, had to be resolved in favour of the Defendant/Paying Party.

2. As this was an appeal from an authorised costs officer, I remind myself that it is made pursuant to CPR 47.23 which enables me to re-hear the proceedings and to make any order and give any directions as I consider appropriate. Prior to the hearing of the appeal, the Claimant sought to lodge an additional bundle of correspondence, that was not before Costs Officer Baker when he made his decision. The defendants objected to the lodging of this bundle. After hearing arguments I decided that in the exercise of my discretion I would admit these additional documents, pursuant to my discretionary powers contained in CPR 47.23(b) and CPR 52.11(2) on the grounds that I considered that their content contained relevant material as to the background to the issues which would assist me in reaching my decision.

3. The Appeal relates to the interpretation of a Consent Order ("the Consent Order") dated 7 ^th May 2002, the main body of which reads as follows:-

"UPON THE PARTIES having agreed the terms of settlement set forth in the schedule hereto

BY CONSENT it is ordered that:-

1. All further proceedings in this action be stayed except for the purpose of carrying such terms into effect for which the parties are at liberty to apply.

2. The Defendant do pay the Claimant’s costs of the action to be assessed on a standard basis if not agreed.

Dated this 7 ^th day of May 2002

SCHEDULE

1 The Defendant will pay the claimant the sum of £8,000 in full and final settlement of the Claimant’s claim in this action for damages and interest; such sum to be paid to the Claimant’s solicitors within 14 days of receipt by the Defendant’s solicitors of a sealed copy of this Order; and

2 The Defendant’s Part 20 counterclaim is withdrawn; and

3 The parties agree to keep confidential the terms of the settlement save that for the avoidance of doubt the parties and their legal advisors may make disclosure pursuant to an Order of the Court or by compulsion of law in so far as is necessary to their respective auditors who have advised in this litigation or in order to secure compliance of this term in the event of breach by any party. Neither party will be bound by the terms of this clause if there is a breach of this clause by the other party.

4. In February 2001 the Claimant commenced proceedings against the Defendant for monies due under various invoices. The claim amounted to £14,687.50 plus interest. The Defendant duly filed a defence, and also entered a counterclaim for commission allegedly due in the sum of £24,234.37. The proceedings were originally commenced in the Swindon County Court but were subsequently transferred to the Royal Courts of Justice, and were set down for a trial, with a time estimate of three days, to commence on the 22 ^nd April 2002. The matter was eventually compromised by way of negotiation culminating in the Consent Order.

5. The issue that I have to decide is whether, upon construction of the Consent Order, the Claimant is entitled to its costs of prosecuting its claim, and of defending the counterclaim or, whether it is just entitled to receive its costs of the claim.

6. Section 151 of the Supreme Court Act 1981 defines the words "action" as follows:-

"action" means any civil proceedings commenced by writ or in any other manner prescribed by the rules of court;

7. In a note to Section 151 the White Book adds the following footnote:

"Action" "Cause" "Matter"

These words are terms of art. They were used throughout the Rules of the Supreme Court in their technical senses. Their meanings and the differences between them were important and, in some respects, of practical significance. However, in the Civil Procedure Rules they are not used. The result is that there is now a lack of consistency between the language of the primary legislation governing the jurisdiction, practice and procedure of the High Court and the Court of Appeal and the language of the rules of court applicable in those courts and some distinctions which had a practical usefulness have been lost.

CLAIMANTS’ SUBMISSIONS

8. The definition of "action" in Section 151 of the Supreme Court Act 1981 does not exclude a broad construction of "action" as including the claim and counterclaim. The word "action" is not used in CPR and it would be unjust to construe it narrowly as a term of art in those circumstances.

9. Mr Power has referred me to the case of Dennis Tanner v. Blueprint Books Limited and Others (2002) EWCA 1429 as authority for the proposition that the meaning to be given to a particular word should be the meaning given to it by the parties in antecedent negotiations. He specifically refers me to paragraph 33 of the judgment of Lord Justice Potter which stated

"Having concluded that the consent order was definitive of and/or accurately represented the scope and terms of the parties earlier agreement, his task became one of construction in the light of the background to, and circumstances surrounding, the agreement excluding the individual subjective intention and understanding of the parties".

10. Mr Power submits that both parties throughout the proceedings used the words "action" or "matter" in an untechnical sense, and not referring to claim and counterclaim separately. He refers me to the fifth paragraph of a letter from the Defendant’s solicitors Theodore Goddard dated the 4 ^th April 2002 (p30-31) which reads:-

"Having made those points, we – like you – are aware of the uncertainties of litigation. It is for that reason but also in the light of the very firm advice which our client has received in respect of his counterclaim and as to the viability of your client’s claim that we would be prepared to advise our client to agree to the following terms of settlement of this action:

1. Blackmore Vale Alpacas to pay Alpacas Limited £8,000 in full and final settlement of its claim for damages;

2. Blackmore Vale Alpacas to pay to Alpacas Limited £8,000 in settlement of its claim for costs and disbursements.

3. Blackmore Vale Alpacas to withdraw its counterclaim; and

4. Our client to agree to keep the terms of settlement confidential so long as your client does likewise. In the event that your client or anybody on its behalf were to break this term our clients would be released from the obligation of confidence; the same would of course apply vice versa."

11. Mr Power submits that it is quite clear from that paragraph that the Defendants use the word "action" to mean claim and counterclaim. In addition, there are specific references to claim and counterclaim.

12. I am also referred to the letter of the 21 ^st September 2001 (page 6 in supplemental bundle) where the word "matter" is used by the Claimant’s solicitors in a non technical sense. In the faxed message sent on the 8 ^th April 2002 (page 33) the Claimant’s solicitors also used the word "matter" in a non technical sense.

13. Mr Power refers me to the letter of the 12 ^th April 2002 from the Defendant’s solicitors (page 7 Supplemental bundle) in which no distinction is made between the costs of the claim or the counterclaim. Mr Power submits that both parties were talking about costs of the action, as costs of the whole proceedings and not in a technical or narrow sense.

14. Mr Power then referred me to the Consent Order (page 39 to 41) and submits that Costs Officer Baker made his decision based on the wording of paragraph 2. However, the words "costs of the action" in paragraph 2 of the Consent Order cannot be read in isolation. They have to be read with reference to the words in paragraph 1 "All further proceedings in this action be stayed …". It is clear that the words in paragraph 1 are used in a non technical sense.

15. Furthermore, Mr Power submits that one has to look at how a counterclaim can be disposed of. CPR 20.3.1 reads:-

A Part 20 claim shall be treated as if it were a claim for the purposes of these Rules …"

16. The rules provide that the there are only three ways in which a counterclaim can be disposed of, namely, it can be pursued to judgment, it can be discontinued or it can be stayed. There is no such status as being withdrawn. The effect of paragraph 1 of the Consent Order is that the counterclaim is stayed; if that was not the case then the counterclaim would be left in limbo.

17. Mr Power then referred to the application by Costs Officer Baker of CPR 44.4.2 in which he said that he had to resolve any doubt in favour of the paying party. Mr Power submitted that such application of CPR 44.4.2 was wrong. CPR 44.4.2 only applied to resolve any doubt as to whether costs were reasonably incurred or reasonable and proportionate in amount, but such rule could not apply to the actual interpretation of a particular phrase.

18. In conclusion Mr Power submitted that it was the Defendant’s solicitors who first used the word "action" and they used it in a broad sense. It would, therefore, be wrong to penalise the Claimant for similar adoption of that word by the Claimant. The use of the words a factual matrix. Mr Power accepts that when looking through the correspondence, the intention of the parties is not a factor which should be taken into account, but he relies on the usage of specific terms that are used in the correspondence which is a question of fact.

DEFENDANT’S SUBMISSIONS

19. Mr Bacon’s primary submission was that party does not get costs of a counterclaim unless the order provides. This he submits is a principle enshrined in a case of Atlas Metal Company v. Miller ( 1898) 2 QB 500 CA . The head note to that case reads as follows:

"In an action where there is a claim and counterclaim the party ordered to pay or receive the costs of the action pays or receives the whole of such costs as if there were no counterclaim".

20. Mr Bacon also took me to a passage in the judgment on page 505 which referred to a previous authority in which the plaintiff recovered on his claim more than the defendant recovered on the counterclaim. The plaintiff got the costs of the action but he had to pay the costs of the counterclaim. He sought to escape from the foregoing rule and wanted the costs of the litigation, but the Court of Appeal decided against him.

21. Mr Bacon submitted that the issue was clear. Unless an order specifically refers to the costs of the counterclaim a claimant can only claim the costs of the claim. Not only is that a matter of law but it is also enshrined in the practice of the Supreme Court Costs Office.

22. Mr Bacon also referred to the letter from the Defendant’s solicitors of the 4 ^th April 2002 (page 30) and said that this letter clearly supported the Defendant’s case. He submitted that Mr Power had only referred to part of that letter but the whole of the letter had to be looked at in context and with special reference to the third paragraph which referred to the strength of the Defendant’s counterclaim. Mr Bacon said that as part of the background I should consider the strength of the Defendant’s case and the actual terms of settlement. Similarly, the letter of the 12 ^th of April 2002 (page 7 supplemental bundle) should also be looked at with regard to the background and the fact that paragraph 3 of that letter challenged the extent of the costs as only being pertinent to the claim. Mr Bacon also refers to the first sentence of the final paragraph of the letter of the 31 ^st March 2003 (page 128) which was written by the Defendant’s solicitors. The relevant words were

"As is borne out by the inter parties correspondenc,e in the discussions leading to the settlement no distinction was drawn by either party between the Claim and the Counterclaim when discussing costs".

23. In addition Mr Bacon referred to the letter from the Claimants’ solicitors of the 3 ^rd April 2002 (page 23) which referred simply to "this claim" with no reference to the counterclaim.

24. Mr Bacon also referred to the Consent Order and to paragraph 3 of the Schedule where there was reference to "this litigation".

25. Mr Bacon submitted with regard to the discontinuance or withdrawal of claim that the note to CPR 38.1 in the White Book indicates that a claim can be withdrawn.

26. In his skeleton argument Mr Bacon also referred me to the contra proferentem rule. He said that the Consent Order was drafted by the Claimant’s solicitors. The contra proferentem rule dictates where there is ambiguity in a document the ambiguity is to be construed against the maker.

CLAIMANTS’ RESPONSE

27. Mr Power referred me back to the letter from the Defendant’s solicitors of the 12 ^th April 2002 (page 7-8 supplemental bundle) and to the third paragraph in which the Defendant’s solicitors are challenging the quantum of costs. If ever, he submits there was an opportunity for the Defendant’s solicitors to suggest that the costs that were being claimed appeared to include the costs of defending the counterclaim and that those costs were not payable by the Defendant, that was it.

28. He also distinguishes this case from the Atlas Metal case. In that case the Order was made following a trial and judgment by the court. This case was different because it was a settlement by way of consent order which was approved by both parties prior to trial.

29. With regard to the note CPR 38.1 Mr Power submits that only part of a claim can be withdrawn. It is perfectly possible to abandon certain elements of a claim but not to withdraw the whole of a claim or counterclaim. Such a claim or counterclaim can only be disposed of by judgment discontinuance or a stay.

THE LAW

30. The principles of interpretation were clearly set out by Lord Hoffmann in the House of Lords decision in Investors Compensation Scheme Limited v. West Bromwich Building Society [1998] 1 WLR 896-918. On page 912 the principles were summarised as follows:-

"1. Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation which they were at the time of the contract.

2. The background was famously referred to by Lord Wilberforce as the "matrix of fact" but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

3. The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, and in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear…..

4. The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Manni Investments Co Limited v. Eagle Star Life Assurance Co Limited [1997] A.C 749.

5. The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes particularly in formal documents. On the other hand if one would nevertheless conclude from the background that something must have gone wrong with the language the law does not require judges to attribute to the parties an intention which they plainly could not have had……."

31. I consider that I must interpret the Consent Order of the 7 ^th May 2002 based on those principles.

32. I must also give consideration to CPR 44.4(2) that reads:

"Where the amount of costs is to be assessed on the standard basis the court will

(a) only allow costs which are proportionate to the matters in issue; and

(b) resolve any doubt which it may have as to whether costs are reasonably incurred or reasonable and proportionate in any amount in favour of the paying party."

CONCLUSIONS

33. Costs Officer Baker concluded (amongst other reasons) that he was obliged to find in favour of the Defendant, as he was dealing with an assessment of costs on a standard basis, and pursuant to CPR 44.4(2) had to resolve any doubt in favour of the paying party. I accept Mr Power’s submission, that CPR 44.4(2) applies to doubt as to whether costs were reasonably incurred or reasonable or proportionate in amount. In this instance, Costs Officer Baker was asked to interpret the terms of the particular Order and in my judgment it is not correct to apply CPR 44.4(2) when dealing with that specific issue.

34. To enable me to have regard to the principles enounced by Lord Hoffmann in Investors Compensation Scheme Limited v. West Bromwich Building Society I have to consider the factual background of the parties in the situation in which they were at the time of the making of the Consent Order.

35. I have not seen the pleadings, but as appears from the narrative to the bill lodged by the Claimant solicitors, the claim was for monies owing under two invoices dated 6 ^th June 1998 and 6 ^th December 1998 and was for a total sum alleged to be due from the Defendant for £14,687.50. The claim was defended by the Defendant who alleged that he was not a customer of the Claimant, but was in fact the Claimants’ agent. The Defendant served a counterclaim for commission due in the sum of £24,234.37. His counterclaim therefore exceeded the Claimants’ claim by almost £10,000. The terms of settlement were that the Defendant would pay the Claimant the sum of £8,000 in full and final settlement of the Claimants’ claim, and the counterclaim was to be withdrawn. If one were to ask a reasonable person whether, on those settlement terms, there was a winner or a loser, undoubtedly the Claimant would be declared the winner and the Defendant the loser. Notwithstanding the fact that the Defendant alleged that he was owed over £24,000 in what Mr Bacon described in his skeleton argument as "an entirely separate claim," the Defendant still agreed to settle the case by paying £8,000 to the Claimant and forgo his claim for £24,000. From the Claimants’ point of view it was owed £14,000 and it succeeded in recovering £8,000 and it had successfully resisted a claim in excess of £24,000. Given this resounding win, would a reasonable person believe that the Claimant should not recover all of his costs of succeeding in his claim and successfully resisting the counterclaim?

36. Mr Bacon has suggested that the letter of the 4 ^th April 2002 from the Defendant’s solicitors (page 30) clearly indicated that the Defendant had a strong counterclaim, and that this is a background fact that I should take into account in deciding that the counterclaim was an entirely separate issue. I have to say that the first two paragraphs of that letter indicate to me that this is a sort of letter that a solicitor writes to his opponent, where the client, for whatever reason, wishes to extract himself from the litigation. The terms of settlement whereby the Defendant was abandoning a claim of £24,000 and actually paying money out to the Claimant confirms my view.

37. The fifth paragraph of that letter (set out in paragraph 10 of this judgment) also assists me in considering the meaning of the word "action" in the Consent Order as to what the parties using those words against the relevant background would reasonably have been understood to mean.

38. In that paragraph the Defendant’s solicitors refer specifically to "his counterclaim", and to "….. your client’s claim." They then set out the terms of settlement using the generic word "action". The first term specifically refers to the settlement of the claim for damages. The second term refers specifically to "its claim for costs and disbursements." What is not offered is settlement of the Claimants claim for costs and disbursements of the claim . The third term specifically refers to the counterclaim.

40. Given that background, how would the reasonable person understand the wording of the Consent Order. I am in no doubt that the reasonable person would have interpreted that the use of the word "action" in the Consent Order includes all the costs of the action whether it is the costs of the claim or the costs of the counterclaim. I agree with Mr Power’s submission that paragraph 2 of the Consent Order cannot be read in isolation. One has to look at clause 1 which states that "all further proceedings in this action be stayed …". That must surely cover the claim and the counterclaim. There was a claim and a counterclaim, and clause 2 is used entirely in the plural. Furthermore the words "claim" and "counterclaim" are specifically used in the Schedule to the Consent Order, and in my judgment any reasonable person would, without difficulty, form the view that where it is intended to use the word action that is clearly intended to mean both the claim and the counterclaim.

41. I consider that the present case is distinguishable from that of Atlas Metal Company v. Miller . Firstly, as Mr Power submits, that case was decided following a judgment, and the present case was concluded, not as a result of a judgment, but as a result of a consent order agreed between the parties. More importantly, in my judgment is the fact that in Atlas Metal there were specific judgments made in favour of the defendants on the claim with costs and for the plaintiffs on the counterclaim with costs. In the present case there were only orders in favour of the Claimant and the Defendant withdrew its counterclaim. I believe that those facts are sufficient to distinguish this present case from the Atlas Metal Company case.

42. Mr Bacon also relies on the contra proferentem rule. This is relevant if there was an ambiguity in the document concerned. In my judgment there is no ambiguity. I have come to the conclusion that the word "action" conveys to a reasonable person, having all the background knowledge which would reasonably have been available to the parties in the situation which they were at at the time of the making of the Consent Order, includes the costs of the claim and the costs of the counterclaim. Consequently, the contra proferentem rule does not apply.

43. I therefore propose to rescind the directions made by Costs Officer Baker on the 10 ^th April 2003.

44. I will formally deliver this judgment on Friday the 25 ^th day of July 2003 at 10.00am when I will give any further directions with regard to the Detailed Assessment and hear any further applications.