Shore v Sedgwick Financial Services Ltd & ors

On 8 November I gave judgment dismissing the claimant’s claim against the defendant as time barred. On 13 December I ordered that the claimant pay 75% of the defendant’s costs and refused him permission to appeal. Additionally, by consent I granted a stay of the adverse costs order made against the claimant pending the outcome of an application to the Court of Appeal for permission to appeal, such application to be pursued expeditiously. In the light of the approach of Christmas, and also with the consent of the defendant, I extended time to lodge grounds of appeal until Friday 18 January 2008.

I now give my reasons for rejecting the application made on behalf of the claimant that I depart from the general rule in CPR 44.3(2) that costs follow the event and make an issues based costs order.

The delay in dealing with costs and permission to appeal is due to my decision not to hand down the judgment on 1 November, the date originally set, for the reasons given in the note at the end of the judgment when it was handed down on 8 November. It was not possible to re-list the case before I went on circuit or, in the event, before 13 December.

On behalf of the claimant Mr Soole QC sought an issues based costs order on the ground that, although the claimant’s claim was dismissed as time barred, he succeed on the majority of the issues dealt with. He submitted that the claimant succeed in part in respect of his primary claim for damages by reference to the loss of his rights under the Avesta pension scheme. The court found that Mr Ormond, the defendant’s financial adviser who dealt with the claimant, was under no duty to advise him to stay in the Avesta scheme and take his benefits at age 60. Mr Soole, however, relied on my finding that Mr Ormond was under a duty to advise the claimant he had the option to defer benefits until age 60, to compare the benefits under the Avesta scheme and under the PFW scheme at that age, and to inform the claimant of the rate of growth required under the PFW scheme to match the benefits under the Avesta scheme, and Mr Ormond’s failure to give any such advice, make any such comparison or inform the claimant of the required rate of growth. He also relied on my finding that the defendant was under a duty to advise the claimant to purchase an annuity in the summer of 1997 which he breached: thus, apart from the limitation point, he submitted that the claimant succeeded on the duty and breach aspects of his secondary claim. He also submitted that he succeeded on the causation aspect of the secondary claim, on contributory negligence, and on breach of statutory duty. Paragraph 7 of Mr Soole’s written submissions states:

“Indeed, but for the issue of limitation, the claimant would have succeeded in recovering damages of over £400,000. The limitation defences pleaded by the defendant (namely that the “primary claim” loss was suffered upon transfer in April 1997, and the “secondary claim” loss was suffered by the end of July 1997… ) were rejected by the court (para 204). It was not until the defendant’s closing submissions in reply, at the very end of the trial, that the defendant raised the alternative argument that the loss was suffered as soon as the annuity rates fell, i.e. in 1997…”

Mr Soole invited the court to take into account the fact that the defendant challenged the entirety of the claimant’s case and that this approach inevitably resulted in the costs of the proceedings escalating. He submitted that the defendant’s refusal to make any admission that the claimant was not properly advised and as a result had suffered a substantial loss resulted in the vast majority of the costs being incurred, and was unreasonable, particularly in the light of the expert evidence.

Mr Soole also submitted that the defendant took an unreasonable approach to settlement. On 25 August the defendant made a “drop hands” offer and on 25 January 2007 an offer of £15,000 inclusive of interest and costs. Mr Soole relied on the inter-party correspondence to show that the principal reason why no settlement was reached was because the defendant mistakenly took the view that the claim involved an allegation of dishonesty against Mr Ormond: see the defendant’s solicitor’s letters dated 13, 22 and 27 February 2007. The allegations which the defendant considered involved an allegation of dishonesty against Mr Ormond included that the copy of the Financial Needs Analysis Questionnaire (FNAQ) sent to Mr Shore did not contain page 6, and that Mr Ormond exaggerated Mr Shore’s assets on the FNAQ. Mr Soole also relied on the finding that Mr Ormond put a lower figure for income requirement on the submission form than the figure on the FNAQ and that I found that in general he was not a satisfactory witness. He submitted that in assessing what costs order to make the court should take into account the defendant’s conduct in refusing to accept that Mr Ormond had conducted himself in the way which I found he did conduct himself.

CPR 44.3(4) provides that “In deciding what order if any to make about costs the court must have regard to all the circumstances, including (a) the conduct of all the parties; (b) whether a party has succeeded on part of his case, even if he has not been wholly successful; and (c) any payment into court or admissible offer to settle… which is drawn to its attention”. One of the alternatives open to the court is an issues-based costs order.

Both Mr Soole and Mr Wardell, on behalf of the defendant, accepted the summary of the relevant principles concerning issues-based costs orders in the judgment of HH Judge Coulson QC in McGlinn v Waltham Contractors Ltd and Others [2007] EWHC 698 (TCC) at [89]. Judge Coulson dealt with a number of the authorities in paragraphs [81]-[88] of his judgment. He then summarised the principles he considered to be derived from the authorities as follows:

“(a)

The starting point for the exercise of the court’s discretion is that costs follow the event (CPR 44.3(2) (Johnsey)). To work out who is the successful party, the court has to ask: ‘Who, as a matter of substance and reality, has won?’ (Roache; Painting)

(b)

In a commercial case, it is important to identify which party is to pay money to the other (A L Barnes). Where there has been a payment into court, it is important to see whether or not that payment into court has been beaten (Johnsey).

(c)

A defendant’s failure to beat a payment into court will usually mean that he is treated by the court as the losing party, particularly if the case is not appropriate for an issue-based costs order (Johnsey; Firle; Jackson). However, such failure may not always be regarded as decisive (Bajwa).

(d)

Depending on the facts, the court may treat a defendant who has failed to beat the payment into court as the successful party, or make no order as to costs; although it is not possible to list all the circumstances in which this may be appropriate, they might include the situation where the claimant has only just beaten the payment into court; where the payment into court reflected much more closely the amount eventually recovered, as compared to the amount claimed; where the claimant’s conduct made it difficult or even impossible to make an effective payment in; and where the trial was largely devoted to the failure of the claimant’s exaggerated case (Bajwa: Molloy; Islam; Painting).

(e)

It may not always be possible for the court to say, when considering the action as a whole, that one party should be regarded as the overall winner (Roache). Indeed, even if it is still possible to identify one party as the successful party, it may still be appropriate, depending on the circumstances to make an issue-based costs order, so as to give effect to the substance of the result and to move away from too rigid an application of the ‘follow the event principle’ (A.E.I.; Summit; Fulham Leisure; Kotonou).

(f)

In making an issue-based costs order, the court will generally endeavour to translate success/failure on particular issues into percentage terms (Summit; Fulham Leisure; Kotonou). In an exceptional case (namely, as compared to the general run of cases) such orders may result in an otherwise successful party paying the otherwise unsuccessful party’s costs of a particular issue (as in Summit).

(g)

Conduct must also be taken into account pursuant to CPR 44.3(4)(a) and (5). This will include questions of exaggeration, whether intentional or unintentional, and whether the parties demonstrated a willingness to negotiate and/or make offers and counter-offers (Painting).”

Although there was a fundamental difference between the parties as to the application of these principles to this case the difference as to the principles themselves was only one of emphasis. Thus, Mr Soole relied on the statement of Lord Woolf MR in AEI Rediffusion Music Ltd v Photographic Performance Ltd [1999] 1 WLR 1507 that the “follow the event principle”, while still playing a significant role, “will be a starting point from which a court can readily depart” and, relying on Re Elgindata Ltd (No. 2) [1993] 1 All ER 232, that it was no longer necessary for a party to have acted unreasonably or improperly to be deprived of its costs of a particular issue on which it has failed. He also relied on David West v Fuller Smith and Turner plc. Arden LJ stated (at [11-12]) that under the CPR, where each side has won on significant issues, the judge should look to see whether justice can be done on an issues basis and that “the CPR have brought about great change in this regard”. Mr Wardell, on the other hand, relied on the statement of the Court of Appeal in SpiceGirls Ltd v Aprilia World Service BV [2002] EWCA Civ 15 that while the court may make a different order to the general rule that the unsuccessful party will be ordered to pay the costs of the successful party, “it should not do so unless there is reason to depart from the general rule. That, as it seems to us, is a constraint which follows necessarily from the existence of a ‘general rule’”.

Mr Soole submitted, relying on David West v Fuller, Smith and Turner plc [2003] EWCA Civ 429 and the principles summarised in McGlinn v Waltham Contractors Ltd and quoted above, that where each side has won on significant issues the court should make an issues-based costs order which reflects the relative success and failure of the parties on the issues. He also submitted, relying on Summit Property Ltd v Pitmans [2001] EWCA Civ 2020, that if a defendant succeeds in defeating a claim on one issue but the claimant succeeds on others, it may be appropriate to recover the bulk of his costs and to pay only a small proportion of the defendant’s costs. It was on the basis of this that he invited the court to order the defendant to pay 80% of the claimant’s costs of his claim and the claimant to pay 20% of the defendant’s costs.

The first question to be addressed is whether the general rule applies. In this case it is clear that the defendant was the successful party. The defendant was, in the words of Potter LJ in Fleming v Chief Constable of Sussex Police Force [2004] EWCA Civ 643 at [35] “the party who has really won at trial”. In Day v Day [2006] EWCA Civ 415 at [16] Ward LJ approved Lightman J’s statement in an earlier case that “the question as to who has succeeded is a matter for the exercise of commonsense”. Accordingly the starting point is the general rule that the unsuccessful party, here the claimant, is ordered to pay the successful party, here the defendant. The mere fact that a party succeeds on some points does not in itself justify departing from the general rule. In Fleming v Chief Constable of the Sussex Police Force the court was concerned with the costs in relation to claims of assault, wrongful arrest and imprisonment, malicious prosecution and misfeasance. The claimant was awarded modest damages in respect of the assault but his claims for false arrest and misfeasance in public office failed. Nevertheless, the trial judge applied the general rule and awarded the claimant all his costs. Potter LJ, with whom Mance and Jacob LJJ agreed, stated (at [43]) that he felt “unable to say that there was any discrete issue or matter pleaded which added sufficiently to the length of the trial to necessitate displacing the prima facie rule that costs should follow the event”.

The reasons given by Mr Soole on behalf of the claimant for departing from the general rule are the defendant’s conduct in not admitting to a breach of duty (in the light of the success of the claimant’s submissions referred to in [4] and [6] above) and the defendant’s unreasonable attitude in challenging the whole claim and in relation to settlement. Moreover, Mr Soole relied on the fact that it was not the limitation defence pleaded which succeeded but one raised late in the day. He relied on what was said by the Court of Appeal in Summit Property Ltd v Pitmans (a firm) [2001] EWCA Civ 2020 at [9-10] about the fact that the point on which Pitmans ultimately won had been introduced by amendment to the pleadings very shortly before the case began and took only a short time to argue.

As far as conduct is concerned, the conduct of the claimant has to be taken into account as well as the defendant’s conduct. As is evident from paragraph 12 of my judgment I was critical of the claimant’s conduct. The position taken by him meant the defendant had to cross-examine him extensively as to his intention to retire before the age of 60, what he told Mr Ormond in January 1997 about his income requirements, and his claim to be unaware that his PFW pension fund was exposed to market risks. Moreover, the defendant legitimately had to explore the differences there were on a number of issues between the claimant’s witness statement, the pleaded case and the evidence he gave. I have concluded that in the light of all the circumstances of this case and taking into account the conduct of both parties, this factor is a neutral one.

I turn to the CPR 44.3(4)(b) factor, whether the claimant has succeeded on part of his case. The claimant’s primary case took a significant part of the time at trial. I did accept some of the points made by the claimant in relation to this. But at the core of this claim was the claimant’s argument that he had no settled intention to retire before 60, that in January 1997 he told Mr Ormond his income requirement was £3,000 a month net, and that he would have deferred taking his benefits under the Avesta scheme until he was 60 had Mr Ormond advised him to do so. I rejected these three fundamental planks of the primary claim.

As to limitation, although the defendant’s principal argument was that the loss was suffered on the transfer from the Avesta scheme in April 1997, the alternative argument that loss was suffered when annuity rates fell was dealt with by Mr Wardell in opening and explored in the questions put to Mr Shore, Mr Ormond and the experts. What is, moreover, significant is that limitation was an issue squarely raised in these proceedings by the defendant. The position is therefore different from that in Summit Property Ltd v Pitmans (a firm) where the issue on which the defendants ultimately succeeded was (see Longmore LJ at [2]) a point of law on causation or quantum described by the judge as “a short and convincing point of law”. That point had not been raised at all until shortly before trial. The main issue in the case was whether the defendants were in breach of their duty as solicitors to their client. They failed on this.

In principle it may indeed be appropriate to make an issues-based costs order in a professional negligence claim. In this case, however, the issues were to an extent intertwined, as Mr Soole conceded in relation to the matters canvassed in relation to duty and breach on the one hand and contributory negligence on the other. The claimant did not succeed in his primary case. Moreover, as in Fleming v Chief Constable of the Sussex Police Force, on the facts of this case, I am not able to identify a discrete issue unsuccessfully raised by the defendant which added sufficiently to the length of the trial to displace the prima facie rule.

I accept Mr Wardell’s submission that the claimant’s argument is based on a fine analysis of my findings of fact which is not seen in the cases relied on by the claimant. I also accept his submission that the decision in Summit Property Ltd v Pitmans (a firm) does not assist. In that case the defendants failed on what the judge regarded as the main issue in the case, the issue of whether they were in breach of duty as solicitors to their client. By far the greater part of the trial had been taken up by this question: see [2001] EWCA Civ 2020 at [9]. The judge stated that the circumstances of the case were special and particularly strong: ibid at [23]. The judge also regarded that case as an unusual case ibid at [27]. The present case is a professional negligence case arising out of pension mis-selling. As the authorities cited at the trial show, such cases are not unusual.

I turn to the CPR 44.3(4)(c) factor, payments into court and admissible offers to settle. Mr Soole submitted that the defendant’s conduct was unreasonable because it took the view that Mr Shore’s claim involved an allegation of dishonesty against Mr Ormond and the nature of the allegations affected its approach to settlement. He submitted that account should be taken of the defendant’s refusal to accept that Mr Ormond had conducted himself in the way which I found that he had conducted himself in certain respects. Put in this way the submission is similar to his submission that the defendant’s conduct of the case in defending all the issues was unreasonable. As far as costs are concerned, however, it is clear that what is relevant is not how a party should have behaved, but what was offered and what the outcome was. For instance in David West T/A Eastenders v Fuller Smith and Turner plc [2003] EWCA Civ 429 at [5] Pumfrey J said it was not proper to consider which party was being more unreasonable than the other. He stated that “either the offer is met, or it is not; and to spend time on the analysis of what might have happened had one or other party approached the offer in a different way is both time consuming and ultimately irrelevant”: see also Schiemann LJ at [15].

I do not consider the present case is a suitable one for a split or issues-based costs order. Applying the ordinary principles, however, I have concluded that in the circumstances of this case a reduction should be made from the costs to be awarded to the defendant. I have taken into consideration the time taken at trial in dealing with the explanations of the transaction given to Mr Shore, the warnings given about the risks, particularly if maximum income is drawn, the implications of an income stream based on high assumed growth rates and, albeit to a lesser extent, in considering whether regulatory rules had been breached. This is necessarily a broad brush approach but, in my judgment, the appropriate deduction is 25%. Accordingly my order is that the claimant pay 75% of the defendant’s costs.