McGlinn v Waltham Contractors Ltd & Ors

There were 77 Items in the Scott Schedule that were alleged against HTA. Of these, Mr McGlinn failed on 55 and was successful, in whole or in part, on 22 of them. Many of those Items on which he failed were relatively modest in value.

By the time of the trial, I consider that the five most important Items, or groups of Items, alleged in the Scott Schedule against HTA were the external walls (Items 1.1 and 1.2); the glazing and timber (Item 2); the roof (Item 4.1); the internal joinery (Item 5.1); and the floors at ground floor level (Item 5.4). These were the Items that took up the bulk of the time at trial, and in particular the cross-examination of Mr Jowett and Mr Salisbury, the parties’ respective architectural experts. Of those five Items, Mr McGlinn was successful against HTA in respect of Items 4.1, 5.1 and 5.4; he was successful on only relatively small aspects of Items 1.1 and 1.2, and he failed on Item 2.

Certain categories of Items that were alleged against HTA failed completely. Those included the allegations that HTA were responsible for certain civil/structural defects, and certain mechanical and electrical items. In addition, as noted above, all the 16 Items alleged against HTA which were also alleged against WL failed in their entirety.

Mr McGlinn’s ability to take an ‘uncommercial’ approach to litigation.

The attempt to make HTA responsible for unfinished work.

The attempt to make HTA responsible for matters which were the responsibility of Waltham.

The pursuit of unfair, unreasonable, unrealistic or exaggerated allegations.

Payments in/Offers

In Roache v News Group Newspapers Ltd [1998] EML 191 (a decision of the Court of Appeal delivered on 19 November 1992, many years before the CPR), the plaintiff recovered £50,000 at his libel trial, which was precisely the figure that the defendants had paid into court. The judge at first instance awarded the plaintiff his costs, on the basis that he had also obtained an injunction against re-publication. The Court of Appeal overturned that decision on the basis that, if the plaintiff had indicated a willingness to accept the money in court, the “overwhelming probability” was that the defendants would have given him an undertaking equivalent in effect to the injunction. Sir Thomas Bingham MR (as he then was) referred to a number of the authorities and said:

“The upshot of these cases is in my judgment clear. The judge must look closely at the facts of the particular case before him and ask: who, as a matter of substance and reality, has won? Has the plaintiff won anything of value which he could not have won without fighting the action through to a finish? Has the defendant substantially denied the plaintiff the prize which the plaintiff fought the action to win?”

He concluded that the plaintiff had won nothing of value and that the defendant had substantially denied the plaintiff the prize he had fought the action to win and he made a costs order accordingly.

In his concurring judgment in that case, Simon Brown LJ (as he then was) dealt more generally with the concepts of success and failure. He said:

“It is, I think, necessary to be a little wary about how precisely one determines which party in proceedings is successful. In the first place it is important to adopt an approach which does not dilute the important certainties inherent in the payment in machinery. Assume, for instance (a) that a plaintiff makes plain in correspondence and perhaps in evidence too that he is intent on damages of £150,000, (b) that £50,000 is paid into court and (c) that the plaintiff then recovers £51,000 (or, indeed, £50,050). Surely no-one could doubt the plaintiff’s entitlement to his costs. The defendants could not in those circumstances assert that, in denying the plaintiff the prize he sought, they and not he were the substantial winners. Nor would it avail them to establish that the plaintiff would not have accepted the money in court even had it been increased to £51,000. It would have been for them to increase the payment in to put the plaintiff on risk to that extent.

Secondly, it seems to me important to recognise that on occasion it will be impossible to regard either party as the substantial winner … In circumstances such as those one would not rule out the possibility of making no order or making a partial order as to costs.”

As noted above, Roache was decided before the CPR. Although the decision was expressly referred to by Lindsay J in Douglas v Hello! Ltd [2004] EWHC 63 (Ch) it is clear that what was being referred to there was the general approach of Sir Thomas Bingham MR referred to at paragraph 63 above. There is no post-CPR authority in which the approach of Simon Brown LJ in Roache has been applied, and I would respectfully suggest that the ‘winner-take-all’ principle which he there discusses has now been expressly modified by the CPR.

A post-CPR case in which the Court of Appeal dealt generally with the issue of success and failure was A L Barnes Ltd v Timetalk (UK) Ltd [2003] EWCA Civ 402; [2003] B.L.R. 331. There, although the claimant was successful on his quantum meruit claim, in a sum which was in excess of that which had been offered by the defendant, the judge at first instance held that no order for costs should be made in respect of the costs of experts, which costs were substantially related to that successful quantum meruit claim. He did this because of what he called the “highly unorthodox” basis on which the parties contracted, which, he said, made a dispute inevitable. He also decided that, because much of the trial had been taken up with an allegation of dishonesty which had successfully been pursued by the defendant against the claimant, the defendant should be seen as the successful party and should recover one half of his other costs.

The Court of Appeal overturned that order, holding that, in all the circumstances, the claimant was the successful party and that it was entitled to 25 per cent of its costs. Longmore LJ said:

“28.

… In what may generally be called commercial litigation … the disputes are ultimately about money. In deciding who is the successful party the most important thing is to identify the party who is to pay money to the other. That is the surest indication of success and failure …

30.

… If he [the judge] had asked himself who was the successful party, before segregation of the effective costs of proving the quantum meruit claim, he would in my judgment have had to answer that it was the claimants who had recovered more than the defendants had ever offered and thus it must be the claimants who were the successful party.”

I have been referred to a large number of cases in which it was argued that, although the defendant failed to do better than the offer/payment into court that it had made, the offer or payment in was still a relevant factor in determining success or failure. Many of these were decisions by the Court of Appeal. Given that, in the present case, it is an integral part of Mr McGlinn’s case that he should be regarded as the successful party because HTA had made a payment into court which they failed to beat, it is important to identify these authorities and the principles that can be discerned from them. I deal with them below in chronological order.

In Bajwa v British Airways [1999] PIQR 152, the claimant recovered slightly more than the payment into court, although a direct comparison was made more complicated by the relevant Social Security legislation. The judge’s costs order reflected that success and gave the claimant her costs. The Court of Appeal disagreed, saying that whilst the fact that the judgment sum was worth more than the payment in was a consideration, “when set against all the other factors … it pales into insignificance”. The defendant obtained all its costs after the date of the payment in because its assessment of the overall damages was right; the claimant’s assessment was extravagantly wrong; and the claimant lost on every issue in the four day trial.

Amber v Stacey [2000] EWCA Civ 286, was another case decided very shortly after the CPR came into effect. The claimant claimed £7,500 odd and recovered judgment for just £2,321. There had been an offer to pay £4,700 at the outset of the litigation. A first payment in of £2,000 was made and a second payment in five months later of another £1,000. The judge at first instance deprived the claimant of all his costs from the date of the offer to pay £4,700, and also ordered the claimant to pay the defendant’s costs. The Court of Appeal considered this to be wrong in principle and the order was varied so that the claimant paid one half of the defendant’s costs for the period up to the second payment in. Thereafter, the claimant had to pay the entirety of the defendant’s costs.

It appears that the Court of Appeal’s approach in Amber v Stacey was chiefly concerned with an argument as to whether an offer had the same status and effect as a payment into court (which does not arise in the present case). It was also based on the principle set out in In re Elgindata [1992] I WLR 1207, which reiterated the old pre-CPR position that it generally required unreasonable or improper conduct on the part of a successful party to make him a paying party. As explained below, the Court of Appeal has made plain in a number of subsequent cases that this approach is no longer good law. For these reasons, I do not consider that the decision in Amber v Stacey is of any great assistance, either generally, or on the facts of the present case. However, at paragraph 40 of his judgment, Simon Brown LJ made the general point that payments into court “are not themselves necessarily decisive”. He went on to say that defendants who pay in too little or too late “may nevertheless be able to establish that it was their opponent’s unreasonable conduct which prevented them from making a properly informed decision about their prospects in the litigation, and thus avoid what in a part 36 case would be the usual costs order”.

In Johnsey, referred to above, the claimant pursued a dilapidations claim, based on an alleged diminution in value of £1.25 million. On 25.9.96, the defendant paid £200,000 into court. Following the exchange of experts’ reports on 19.2.99 the defendant paid a further £250,000 into court. The judge awarded the claimant £200,000 together with interest in the sum of £36,000, but he ordered that the claimant should pay the defendant’s costs of the diminution in value claim from the date of the first payment into court. The Court of Appeal varied that order, agreeing that the claimant should pay the defendant’s costs from the date of the second payment into court but concluding that the defendant should pay the claimant’s costs up to that date, because the first payment in was too low. Chadwick LJ said:

“27…. It cannot be said that the outcome of the trial was that the Secretary of State succeeded in defending the position which had been adopted on his behalf prior to 11.2.99. The most that can be said is that the outcome was much closer to that position than it was to the position which had been adopted on behalf of the landlord.

28.

On a proper understanding of the position, the first payment in, on 25.9.96, was irrelevant to a consideration as to where the costs of the litigation should lie. It was irrelevant because it fell short of the amount (£236,000) to which the claimant has been entitled as at that date by a margin (some 15%) which cannot be dismissed as de minimis …

29.

It follows, in my view, that the judge’s approach was flawed. He ought to have recognised that in relation to costs incurred before 19.2.99, the landlord was the successful party; and that, accordingly, the starting point from which to approach the exercise of discretion in which he was engaged was that the landlord should have its costs down to that date. I accept, of course, that a party that has been successful overall may, nevertheless, be deprived of his costs – and may be ordered to pay the costs of the other party – in respect of issues which he has fought unsuccessfully. But an exercise of discretion on that basis cannot lead, in the present case, to an order that the claimant pay the defendant’s costs of the diminution in value issue in respect of any period prior to 11 February 1999 (the date of the exchange of revised experts’ reports); nor to an order that the claimant should be deprived of its costs of that issue prior to that date. That is because it cannot be said that the claimant failed to establish what, as matters stood prior to 11.2.99, it had to establish in order to succeed on that issue – namely that the diminution in the value of the reversion as at 21 June 1994 was greater than the equivalent value, as at that date, of the payment in.”

The decision in Johnsey is also instructive because of the defendant’s alternative argument that the landlord was throughout seeking damages in amounts that were far in excess of the amount to which it was ultimately entitled, and that it was the landlord’s inflated and unrealistic valuation of its claims which had made it impossible to dispose of the action by agreement in 1996. It was said that the fact that the defendant did not beat the first payment in was ultimately immaterial because, even when the amount of that payment in was increased to £450,000, the landlord still would not take it. This argument too was rejected by the Court of Appeal. At paragraph 32 of his judgment, Chadwick LJ said:

“The submission has some superficial attraction on the facts of the present case; but, for my part, I would reject it. It seems to me that a court should resist invitations to speculate whether offers to settle litigation which were not in fact made might or might not have been accepted if they had been made. There are, I think, at least two reasons why a court should not allow itself to be led down that road. First, the rules of court provide the means by which a party who thinks that its opponent is not open to reason can protect himself from costs. He can make a payment in; he can make a Calderbank offer; now under the CPR, he can make a payment or an offer under CPR Part 36. The advantage of the courses open under the Rules is that they remove speculation. The court can see what offer was made, when it was made, and whether it was accepted. Second, speculation is likely to be a most unsatisfactory tool by which to determine questions of costs at the end of a trial. It is not, I think, suggested that each party would be required to disclose, at that stage, what advice it had received, from time to time, as to the strengths and weaknesses of its claim or defence. But without knowing that – and without a detailed knowledge of the financial and other pressures to which each party was subject from time to time – speculation would be hopelessly ill-informed. If Mr Gaunt’s submission were to be accepted generally, there would, I think, be a serious danger that at the end of each trial, the court (in order to decide what order for costs it should make) would be led into another potentially lengthy inquiry on incomplete material into ‘what would have happened if …?’ I am not persuaded that that could be compatible with the overriding objective to deal with cases justly.”

In Firle v Datapoint [2001] EWCA Civ 1106, the defendant paid £35,000 into court on 17.12.99. The claimant made a Part 36 offer of £135,000 on 1.3.00. The defendant made a further payment in of £15,000 on 10.3.00. The claimant recovered £53,695.25. The trial judge awarded the claimant 33.3 per cent of his costs up to 10.3.00 and 15 per cent of his costs thereafter. The Court of Appeal overturned that order and ordered the defendant to pay all of the claimant’s costs up to 10.3.00 (the date of the second payment in) and 70 per cent of the claimant’s costs thereafter. At paragraph 17 of his judgment, Schiemann LJ said, in respect of the period prior to the second payment into court, that:

“The claimant succeeded by a substantial amount so far as the offers which were on the table were concerned. The defendant could have made a payment in and therefore in principle the claimant is entitled to its costs. This is not a case where there were clear separate issues on some of which the claimant won and on others lost if issues be taken as matters which had to be proved by one side or the other in detail for the points to succeed. As it seems to me up to 10 March the position ought to be that the claimant gets his costs in full as opposed merely to one-third of its costs which was the view of the judge.”

It is therefore important to note that Firle, like Johnsey, was expressly said to be a case in which it was not appropriate for an issue-based costs order to be made.

There are three other Court of Appeal decisions in which a rather different conclusion was reached as to the status of a defendant who had not beaten his own payment into court. In Molloy v Shell UK Ltd [2001] Civ 1272, the claim was for over £300,000. The defendant’s Part 36 payment was £15,000 and the claimant eventually recovered £18,897. The claimant had not only exaggerated his claim but, until his dishonesty was exposed a few days before the trial, had advanced a dishonest case about loss of earnings and employment. The judge ordered the claimant to pay 75% of the defendant’s costs but the Court of Appeal increased that to 100%. Laws LJ described the claimant’s conduct as “a cynical and dishonest abuse of the court’s process”. He considered that, on those facts, it was doubtful whether the court should have entertained the case at all, save to make the dishonest claimant pay the defendant’s costs, and there was no defence to an order that the claimant pay 100% of the defendant’s costs after the date of the payment in.

In Islam v Ali [2003] EWCA Civ 612, the claimant recovered £12,000. He was also awarded his costs. The Court of Appeal considered that result against the final negotiation positions before trial, which were that Mr Islam would have settled for £45,000, whereas Mrs Ali sought a withdrawal of the claim and the payment of her costs. The amount ordered by the judge was, as Auld LJ pointed out, somewhat closer to Mr Islam’s Part 36 offer than the offer or proposal of Mrs Ali “but they were both significantly distant in their opposite ways from the sum awarded”. He concluded that, on an investigation of the issues and their resolution by the judge, the reality of the case was that Mrs Ali was the winner and that Mr Islam had lost the case on principle in relation to the main issues. The Court of Appeal therefore varied the judge’s order on costs because, in the exercise of his discretion, he failed to have due regard to the fact that Mrs Ali had won the case in principle. In agreeing, Mummery LJ said there were “special circumstances in this case” which justified such an order, including in particular the question of the basis on which Mr Islam claimed that he should be remunerated, on which Mrs Ali was the successful party. The Court of Appeal concluded that the appropriate action in all the circumstances was to make no order as to costs.

Both of these decisions were considered in Yvonne Painting v University of Oxford [2005] EWCA Civ 161. There the claimant was seeking £400,000 for a back injury sustained at work. The defendant admitted liability and paid into court £10,000. At the assessment hearing the principal issue was exaggeration. The defendant was successful on that issue and the claimant recovered £25,321.78. The judge at first instance ruled that the defendant should pay all the costs because the £10,000 paid in was a figure that the claimant could in no circumstances have been expected to accept. The Court of Appeal overturned that order, substituting it for an order that the claimant pay the defendant’s costs after the date of the payment in.

Maurice Kay LJ concluded that the winner in the litigation was the defendant, who won on the issue of exaggeration, which was the overwhelming issue at the heart of the two day hearing. The defendant, he said, “was in real terms the winner”. He also found that, but for the exaggeration, the claim would have been settled at an early stage and with modest costs. He also held that it was relevant that the claimant had failed to negotiate or put forward a counter-proposal. He said:

“… At no stage did Mrs Painting manifest any willingness to negotiate or to put forward a counter-proposal to the Part 36 payment. No-one can compel a claimant to take such steps. However to contest and lose an issue of exaggeration without having made ever a counter-proposal is a matter of some significance in this kind of litigation. It must not be assumed that beating a Part 36 payment is conclusive. It is a factor and will often be conclusive, but one has to have regard to all the circumstances of the case.”

In giving a concurring judgment, Longmore LJ also picked up on the defendant’s failure to negotiate. He said:

“The second matter is that I agree with My Lord that it is relevant that Mrs Painting herself made no attempt to negotiate, made no offer of her own and made no response to the offers of the University. That would not have mattered in pre-CPR days, but to my mind that now matters very much. Negotiation is supposed to be a two-way street, and a claimant who makes no attempt to negotiate can expect, and should expect, the court to take that into account when making the appropriate order as to costs.”

Longmore LJ’s short judgment is also significant because he expressly referred to CPR 44.3(4)(a)(Conduct) and 44.3(5)(d)(Exaggeration). He made plain that a court must have regard to questions of exaggeration when dealing with the appropriate costs order to be made, and that exaggeration could take many forms. He explained that the CPR made no distinction between intentional exaggeration and unintentional exaggeration.

The final case in this series is Jackson v The Ministry of Defence [2006] EWCA Civ 46. In that case the claim was for about £1 million. On 24.2.05, £150,000 was paid into court. The claimant recovered £155,000. The judge awarded the claimant 75 per cent of his costs on the ground that he had beaten the payment into court. This ruling was undisturbed by the Court of Appeal. Tuckey LJ did not accept the defendant’s submissions which were based, at least in part, on Painting. He said:

“The claimant was successful in the sense that he established a claim for substantial damages and beat the payment into court, albeit by a small margin. The defendant was perfectly able to protect itself against the fact that it faced an exaggerated claim. As most defendants do in such circumstances, it had access to experienced lawyers and (if necessary) experts to evaluate the strength of the claim it faced. It could with the benefit of such advice – and perhaps with the benefit of hindsight in this case should – have made an earlier Part 36 payment into court, and certainly could have increased that payment into court by making a further payment after the unsuccessful settlement meeting. The judge took into account the fact that the claimant had only just beaten the payment in which had been made, as I have already said …. The reduction which the judge made – and the reduction which we can anticipate the costs judge is likely to make – must act as a considerable disincentive to claimants and their advisers against making exaggerated claims. The case of Painting is, as Ms Griffiths accepted, an exceptional case where the claimant persisted in a claim for £400,000 at trial and was awarded about £25,000 at the end of the process. The basis upon which the court was persuaded to interfere with the judge’s discretion was that the Recorder had not addressed the question as to who was the overall winner or given appropriate weight to that fact. Here there is no basis upon which it can be said that the judge failed to take into account who had been the overall winner, because he noted how close to the payment into court his ultimate award had been and did, unlike the Recorder in the case of Painting, make an appropriate reduction to reflect that fact.”

The CPR encourages the court to consider making orders which reflect a more detailed analysis of success and failure and, in particular, to make costs orders in respect of certain periods, or by reference to certain issues, or by way of percentages. I shall refer to these types of orders generically below as “issue-based costs orders”. Such issue-based costs orders were identified by Lord Woolf MR at the time that the CPR was coming into force in A.E.I. Rediffusion Music Ltd v Photographic Performance Ltd [1999] 1 WLR 1507. He said, by reference to the CPR, that:

“… The ‘follow the event principle’ will still play a significant role, but it will be a starting point from which a court can readily depart. This is also the position prior to the new Rules coming into force. The most significant change of 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.”

He also made the point, by reference to the earlier decision in In re Elgindata Ltd (No.2) 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.

In Summit Property Ltd v Pitmans (A firm) [2001] EWCA Civ 2020, the defendant lost on the major issue of liability but won on causation/loss. As a result of this, the judge considered that an issue-based costs order was appropriate. He ordered the unsuccessful claimant to pay 30% of the successful defendant’s costs, and the defendant to pay 65% of the claimant’s costs. The judge arrived at these percentages on the basis that, since this was a case in which it was appropriate to make an issue-based costs order, the attribution of percentages to each party was a way in which this could be done to achieve “practical convenience”. His order was upheld on appeal. Longmore LJ referred to Johnsey and said:

“17.

It is thus a matter of ordinary commonsense that if it is appropriate to consider costs on an issue basis at all, it may be appropriate, in a suitably exceptional case, to make an order which not only deprives the successful party of his costs of a particular issue, but also an order which requires him to pay the otherwise unsuccessful party’s costs of that issue, without it being necessary for the court to decide that allegations have been made improperly or unreasonably.”

As to the approach required in making issue-based costs order, Chadwick LJ said:

“27 … 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 the 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. Further, there will be cases (of which this is not one) where, on an issue-by-issue approach, a party who has been successful on an issue may still be denied his costs of that issue because, in the view of the court, he has pursued it unreasonably.”

It should be noted that the judge’s approach at first instance in Summit was entirely in accordance with CPR 44.3(7). That is the rule which requires a court, if it was considering making an order relating to “a distinct part of the proceedings” to make instead, if practicable, an order in respect of a proportion of another party’s costs or costs from a certain date. The purpose of this particular rule is to create costs orders which are capable of straightforward application by the costs judge. It is much easier to enforce a percentage-based order than one which seeks to separate out the costs incurred on particular issues.

I have been referred to two recent authorities in which an issue-based costs order was made. In Fulham Leisure Holdings Ltd v Nicholson Graham & Jones [2006] EWHC 2428 (Ch), the claimant was seeking £7.75 million in a professional negligence action against its former solicitors. The claimant recovered just £6,750. On the dispute as to costs, Mann J was concerned only with the period up to the payment into court of £500,000 because, of course, the defendants were entitled to all of their costs from the date of that payment in. As to that earlier period, Mann J said this:

“10.

This is a case in which liability and causation/quantum were each a very significant part of the case. Each will have attracted very significant costs. Having reviewed the position and having heard the parties, I think it would be appropriate to regard the costs and effort put into this whole action as being roughly equally split between those two areas – a fifty-fifty split. I am not prepared to treat the claimant as being the successful party, for the reasons appearing above, so the claimant does not have the starting point referred to by Mr Croxford. If anything, the defendants are the successful party. However, even if they are, I consider that the liability point was such a significant point that it requires a modification of the order which they might otherwise expect. I consider that this is a case in which I should make an order which reflects the fact that each party won and lost on a substantial issue. If I start from the position that the defendants start from the position of being the successful party, then I think that this is a case where the failure on a substantial issue means that the [defendants] should not have all its costs. Indeed, I consider that this is one of the more exceptional cases (see Summit) where the successful party should not only be deprived of the costs to which it might otherwise be entitled (by virtue of having lost on a significant issue) but it should also have to pay the costs of that issue.

11.

That means that the defendants have to pay the claimant its costs of that issue. They should have the costs of the quantum/causation issue. Having decided that as a proper approach, CPR 44.3(7) requires me to make a form of proportionate order if possible. Since it is likely that the costs of each side were roughly equal, and since it is likely that the costs of each issue are likely to have been incurred in similar proportions on each of the major issues, I consider it to be appropriate to net the two orders off one against the other. That means that the appropriate order for the costs of the action (other than those incurred after the payment in acceptance date) would be no order as to costs.”

In National Westminster Bank plc v Angeli Kotonou [2006] EWHC 1785 (Ch), Mr Kotonou was successful in guarantee proceedings, although he lost on 4 of the 5 issues which he had raised. For this reason, the judge at first instance concluded that an order that the bank should pay his costs would be grossly unjust to the bank. In deciding that “this is a classic case justifying departure from the normal rule”, the judge pointed to the fact that Mr Kotonou had fought the case on a number of distinct bases, all but one of which he had lost. Thus he made a split order, with the bank paying 50 per cent of Mr Kotonou’s costs and Mr Kotonou paying 50 per cent of the bank’s costs, with the result that, on a detailed assessment, it was likely that there would be a net payment by Mr Kotonou. This decision was upheld in the Court of Appeal on 26.2.07.

One of the principal submissions made by Mr Williamson QC and Mr Selby was to the effect that it would be truly exceptional to require a successful party to pay any part of the costs of an unsuccessful party, even on an issue-based costs order. Of course, in general terms, it is right that it will be unusual for the court to make an order which has that effect. However, a certain degree of caution is needed when labelling particular orders as ‘unusual’ or ‘exceptional’. These words do not appear in the CPR. In my judgment, the position is analogous to the power to order costs against a non-party pursuant to Section 51 of the Supreme Court Act 1981. Although it is often said that such a power will only be exercised in exceptional cases, as Morritt LJ pointed out in Globe Equities Ltd v Globe Legal Services Ltd [1999] BLR 232, there is no pre-condition to that effect; such an order will be ‘exceptional’ simply by comparison with the ordinary run of cases.

In my judgment precisely the same point applies here. Ultimately the test is whether, in all the circumstances, an issue-based costs order should be made and, if so, what the appropriate and just apportionment might be. If, in all the circumstances, it is just to make orders which result in the successful party paying a large part of the unsuccessful party’s costs (as happened, for example, in Summit), then that is a function of the CPR and the deliberate move away from the rigid application of the ‘costs-follow-the-event’ policy. Thus, for the avoidance of doubt, I reject the submission made by Mr Williamson QC and Mr Selby that there is, in some way, a “line in the sand” across which a judge cannot pass when making costs orders against an otherwise successful party.

In general terms, I consider that issue-based costs orders can provide a way of making appropriate costs orders in circumstances where a claimant’s claim has largely failed, but where his recovery could not be regarded as de minimis. Even pre-CPR, a claimant who recovered next to nothing would have to pay the defendant’s costs: see, for example, Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All E R 873; Alltrans Express Ltd v C V Holdings Ltd [1984] l WLR 394; and Lipkin Gorman v Carpnale Ltd [1989] 1 WLR 1340. If, on the other hand, the claimant made some small recovery, even if it was far less than the amount claimed, then, prior to the CPR, the obstruction to justice was that identified by Lord Woolf MR in A.E.I. Ltd, namely the rigid application of the ‘follow the event principle’. For the reasons outlined below, I conclude that the instant case is a classic example of one where an issue-based costs order is appropriate.

Summary as to Applicable Principles

I consider that the following principles can be derived from the authorities cited above:

I now turn to apply those principles to the relevant facts set out in Section E above.

It will, I think, be apparent from the preceding paragraphs that I am reluctant, in all the circumstances of this case, to identify either Mr McGlinn or HTA as the overall successful party. That is because, for each point that one side can make to demonstrate their success, the other can counter with an almost complete answer. Thus, Mr McGlinn claims that he is the winner because he is going to be paid a sum of money by HTA and that amount is more than the payment into court. HTA, for their part, counter this by saying that the amount in court is far closer to their ultimate liability and that the Judgment gave Mr McGlinn just 14% of that which he claimed. Mr McGlinn claims that he won across the board, because he won a number of the items on liability and those translated into damages. HTA counter that by saying that he lost many more Items than he won and that the result on causation/quantum was disastrous for him. Mr McGlinn’s best point is that he beat the payment in; HTA’s best point is that, on his own figures, it has cost Mr McGlinn in excess of £1.5 million in costs to recover just £470,000 odd against them, and that their payment in of £300,000 has been shown to be far more realistic than his claim of £3.5 million.

However, if I am able to make an issue-based costs order, I consider that these difficulties will fall away. An issue-based costs order, translated into percentages, is likely to be a much fairer and more appropriate way to do justice between these parties on costs. The question then becomes: is an issue-based costs order appropriate here on the facts? For the reasons set out in greater detail in paragraphs 94-112 below, I conclude that it is.

Subject to this vital caveat, I would venture the view that, to the extent that it matters at all, Mr McGlinn could be regarded (just about) as the overall winner of this case. I say that because of the principles outlined at paragraph 89(b) and (c) above, namely that he was the net payee and he beat the payment into court (as per Johnsey and Jackson). Furthermore, although there was significant exaggeration of his damages claim, it is not possible to say that the entirety of the trial was given over to dishonest or wholly exaggerated claims made on his behalf, of the sort that were ultimately fatal to the claimants in Molloy and Painting.

I am in no doubt whatsoever that an issue-based costs order must be made in this case. As explained below, I consider that Mr McGlinn can be regarded as the successful party (subject to certain qualifications) on liability, and that HTA can be regarded as the successful party (subject to fewer qualifications) on causation/quantum. In accordance with the principles outlined at paragraph 89(d)-(f) above, this is precisely the sort of situation which was designed for an issue-based costs order. Indeed, in the absence of such an order, I consider that any other result on costs would be manifestly unfair to one of the parties.

I acknowledge, of course, that issue-based costs orders are not that common, and there are good reasons for that. In the ordinary run of litigation, it is almost always correct to award the payee his costs against the payer without further ado. But this is a very different sort of case, with a myriad of issues on both liability and quantum, which took some seven weeks to try out. The parties’ respective success and failure on the separate issues was markedly different. It is therefore a case that is similar to Summit and Fulham Leisure (where issue-based costs orders were made), and a long way from the sort of ‘one issue’ cases like Johnsey and Jackson (where such orders were not considered to be appropriate). Summit and Fulham Leisure were some way removed from the ordinary run of litigation, and, like them, I consider that this case is also singularly appropriate for an issue-based costs order.

For reasons which will become apparent later, it is, I think, important for me to identify, in general terms, what the parties have spent their time and their money doing in this case. It is appropriate to make a broad division between the liability issues and the causation/quantum issues in this case (a division which, I note, was also made in both Summit and Fulham Leisure). I think it overwhelmingly likely, from what I know about this case, that each of the parties spent about twice the time/money on the HTA liability issues as they did on the HTA causation/quantum issues. How do I arrive at that assessment?

The first point is to consider the trial itself, since that is such a large element of the costs of both Mr McGlinn and HTA. I would conclude that, at the trial, all issues concerning liability took about 18 days in total. The issues concerned with causation and quantum took about 5 days. However, that gives a slightly misleading impression of the costs overall that would have been spent on the causation/quantum issues. One of the reasons that less of the time at the trial was taken up with quantum issues than might otherwise have been the case was because of the large measure of agreement reached between the experts, during the course of the trial, on repair rates and cost items. Thus, by the time the oral evidence on quantum came to be called, most of the relevant figures had been agreed, and the expert quantity surveyors were not required to give extensive oral evidence. But they had been closely involved, both before and during the trial, in endeavouring to agree the relevant figures in an attempt to save time and money, and the extent of their efforts in this regard (and the time and costs expended) should not be underestimated. Indeed, I note that the fees paid by Mr McGlinn to Mr Jowett, his architectural liability expert, were almost precisely the same as the amount that he paid to Mr Fitch, his quantum expert. Both men were paid in excess of £270,000.

I am also conscious that, whilst, in the usual way, the lawyers on both sides would have been concentrating their efforts on the liability issues, this was a case in which the causation and quantum disputes took up more than their usual share of time and effort. This was particularly so given the argument pursued by Mr McGlinn to the effect that he was entitled, as a matter of principle, and as a matter of fact, to claim the costs of demolition and rebuilding as against HTA. This argument, which was of course ultimately unsuccessful, depended on a certain amount of factual evidence and a certain amount of legal analysis. Again, the time involved in both these aspects of this element of Mr McGlinn’s case should not be underestimated.

In all those circumstances, therefore, I conclude that the parties spent 65% of their HTA-related time and costs in dealing with the liability issues both before and at trial. I consider that the remaining 35% of HTA-related time and costs can safely be apportioned to the causation/quantum issues. This therefore constitutes an apportionment of the total of HTA’s costs of the action; for Mr McGlinn, it apportions all his costs incurred as against HTA. I turn to consider the question of the precise issue-based costs order which I should make with this broad 65%/35% split in mind.

In my judgment, when considering the liability issues, it is appropriate to regard Mr McGlinn as the successful party. There are a number of reasons for that, which I have summarised at paragraphs 52-53 above.

First, there were a number of important items on which Mr McGlinn was largely successful. I have in mind here Item 4.1.3 (which required the relaying of the roof); Item 5.1.1 (the replacement of almost all the internal joinery which had been the catalyst for Mr McGlinn’s dissatisfaction with the house in the first place); and Item 5.4.3 (the need for new floors downstairs). There were a number of other important Items on which Mr McGlinn was also successful, even if the quantum recovered did not match the amount of the claim. These included Items 1.2.3 and 10.3.2.

Secondly, as I have pointed out in Paragraph 53 above, Mr McGlinn was also successful on most of the wider issues which underlined the liability Items in the Scott Schedule. For example, he was successful on his analysis of HTA’s contractual position which gave rise to their liability; he was successful in his case that the standard of finish had to be high; he was successful in his contention that HTA should have, but failed, to provide a specification; and he was successful in arguing that HTA were not somehow prevented from issuing instructions to Waltham, the contractor. I also upheld his general criticisms of HTA’s inspection regime.

Thirdly, it is right to note that HTA made no concessions in respect of the Items in the Scott Schedule. Of course, in relation to many of them, they were right not to do so because they defeated them, but there were some, including one or two of the larger Items such as Items 4.1.3 and 5.4.3, where, in view of their own evidence, HTA should have conceded liability. There were other Items which, although Mr Salisbury in his report suggested were not HTA’s responsibility, he was unable to defend when he came to give oral evidence, and where he described the work in question as ‘shocking’ or HTA’s defence as ‘a non-argument’.

Finally, of course, Mr McGlinn is to be regarded as the successful party because he succeeded in proving liability on sufficient Items to ensure that he beat the payment into court. Mr Bartlett QC and Mr Hamilton made the point that, had they defeated one of the larger Items (such as Item 5.1), they would have beaten the payment in; in my view, that rather makes Mr McGlinn’s point that, on the basis of the findings in the main Judgment, he was the successful party because he won enough of the Items to beat the payment into court.

For all these reasons, therefore, I consider that Mr McGlinn is properly regarded as the successful party in respect of the liability issues. In principle, he should therefore get his costs of those issues.

However, it would plainly be wrong to regard Mr McGlinn as the unqualified victor in relation to the liability issues. He plainly was not. He lost a large number of the Items (55 out of 77), including many which were trivial and which he had been invited to withdraw at the outset of the trial. There were also other Items which should never have been pursued, such as those based on an assertion that changes had been made without his knowledge, when the documents plainly demonstrated the contrary. Mr McGlinn’s failure to win on more of the Items, and his failure on one or two of the larger Items, such as the majority of Items 1.1 and 1.2 (aspects of the external walls) and Item 10.1.1 (the swimming pool cover) provided at least one of the reasons why the amount he recovered was so much less than the amount he claimed (see the first bullet point at paragraph 57 above). That therefore also explains, at least in part, why, although Mr McGlinn beat the payment in, the payment into court was so much closer to the amount recovered than the amount claimed. In addition, I must take into account Mr McGlinn’s failure to open up the settlement of the fee claim. Further still, there is also the point that, in my view, Mr McGlinn should have made a counter-proposal to the payment into court.

For all those reasons, therefore, I am of the view that a significant reduction is required in respect of Mr McGlinn’s costs on liability, to reflect these failures and HTA’s partial success. I have already said that, in my judgment, Mr McGlinn spent about 65% of his costs as against HTA in pursuing liability. To reflect the matters referred to in paragraph 106 above, a substantial reduction from that percentage is necessary. I assess that reduction at 20% of the costs that Mr McGlinn incurred against HTA. In the round, therefore, I consider that it would be appropriate to make an issue-based costs order which entitled Mr McGlinn to be paid 45% of his total costs incurred as against HTA, to reflect his (qualified) success on the liability issues.

When we turn to consider the outcome of the causation/quantum issues, the outcome is also very clear, and completely the other way. In my judgment, for the reasons summarised at paragraphs 54-56 and 59(h) above, there can be no doubt that HTA were the successful party in respect of these issues. Indeed, on any analysis, Mr McGlinn did very badly indeed in relation to this important element of the proceedings. His primary case on causation/quantum, namely the claim for demolition and rebuilding, failed in its entirety. A significant amount of costs were attributable to this issue, and Mr McGlinn lost it completely. It was, in many ways, the one clear-cut ‘result’ in the whole case. His secondary case, in respect of repair costs, was partially successful, but the amount recovered was far less than the amount originally claimed (25% odd). In part, this reflected the failure of some of the Items in the Scott Schedule, particularly some of the larger Items. But it was chiefly explained by the fact that Mr Fitch eventually agreed figures for the repair items that were far less than the amount claimed. It is difficult not to conclude that the original damages claimed in respect of the repair costs, which were generally supported in Mr Fitch’s first report, were greatly exaggerated, and that the figures that were eventually agreed were much more realistic and ought, therefore, to have formed the basis of the original claim.

Nor does an analysis of the nature and extent of Mr McGlinn’s failure on causation/quantum end there. The claims for professional fees and contingencies were much too high. More importantly, I consider that the claim for preliminaries at £475,000 odd was wildly exaggerated. Whilst it is right that I took a percentage based assessment for the preliminaries rather than utilise the specific items/sums calculated by Mr Fitch, I observed in the main Judgment that Mr Fitch’s calculations led to on-costs of about 50 per cent of the value of the works themselves, which could not possibly have constituted a sensible or commercial approach. I ultimately awarded a sum that was less than 10% of the sum claimed for preliminaries.

Similarly, I found that the scope of the enabling works was excessive and that the sums claimed in respect of those enabling works were “absurdly large”. I had to do my own assessment of the amount in respect of the enabling works that was recoverable. As set out in paragraph 55 above, it was a small fraction of the amount claimed.

For all those reasons, HTA can properly be regarded as the winners on the causation/quantum issues. I also consider that the quantum of the damages claim was exaggerated (see paragraphs 59(h), and 108-110 above) which must be reflected in the costs order I make pursuant to CPR 44.3(4)(a). Should HTA therefore be awarded 35% of their costs to reflect their victory on this part of the case, or should there by a deduction?

I have concluded that there should be a deduction. HTA lost some important quantum arguments, including those in respect of Items 4.1.3 and 5.1.1. They were also liable for a substantial sum in respect of Item 1.2.3, even though its proper calculation gave rise to a figure that was not nearly as much as Mr McGlinn wanted. Moreover, I must bear in mind that it was always open to HTA to protect themselves on the costs of causation/quantum issues by making a payment into court that was higher than the £300,000 which they chose to pay in, although I recognise that this can be a difficult thing to gauge in a case like this. In all those circumstances, I would make a 10% reduction in HTA’s costs to reflect these points. That would leave HTA with an order that Mr McGlinn pays 25% of their costs, to reflect their overall success on the causation/quantum issues.

On the analysis which I have carried out above, the parties are left with a result whereby HTA pays 45% of Mr McGlinn’s costs incurred as against HTA, and Mr McGlinn pays 25% of HTA’s costs of the action. This would therefore mean that, in relation to costs generally, Mr McGlinn comes out modestly ahead. I am in no doubt that this result reflects all of the circumstances set out above, is consistent with my finding at paragraph 93 above and, more generally, does overall justice as between Mr McGlinn and HTA.

I should add that, in my judgment, this issue-based costs order constitutes a much fairer resolution of the costs issues than either of the orders proposed by the parties themselves. Mr McGlinn sought what was described as ‘a high proportion’ of his costs, despite the fact that his recovery of damages was just 14% of what he claimed, and that the money in court was much closer to his entitlement than the claim pursued at trial. I consider that such an outcome would have reflected a pre-CPR approach, and, in the words of Lord Woolf MR, would have comprised much too rigid an application of the ‘costs-follow-the-event principle’. HTA, for their part, sought 75% of their costs from Mr McGlinn, which would have all but ignored the fact that they did not pay sufficient sums into court, and that the amount that they did pay in was exceeded by a not insignificant amount.

In one or two of the reported cases, including Fulham Leisure, the judge went on to undertake a netting-off exercise as between the two percentages. It seems to me that, if I was confident that the parties’ expenditure was broadly similar, that would be an appropriate thing for me to do in the present case. However, there is no material before me that would allow me to reach such a conclusion. I note that in Kotonou, the judge did not undertake the netting-off exercise precisely because he thought that the bank’s costs were likely to be higher than those of Mr Kotonou. It may well be that Mr McGlinn’s costs are higher than those of HTA; the evidence before me certainly suggests that that might be the case. There is also the complication introduced by the fact that HTA only incurred costs in defending the claims brought against them, whilst Mr McGlinn’s 45% has to be calculated as a proportion only of those costs referable to HTA, and excluding those costs which he incurred as against WL and DJH. I therefore decline to net off the percentages referred to above because, at present, I simply do not have the information that would allow me to conclude that such an exercise was fair.

As to interest, the parties are to draw up an order to reflect paragraph 12 above. The claimant is entitled to interest at 1 per cent over base on the £380,225.49 from 4 May 2005 to today’s date. In addition, the claimant is entitled to 1 per cent over base on the £58,625.27 for three years from 29 March 2004 to today’s date.

For the reasons set out in Sections C and D, I reject Mr McGlinn’s application for a Bullock/Sanderson order in respect of WL’s costs. It would be wrong in principle, and wrong on the facts, to make HTA pay any part of those costs. Thus Mr McGlinn will be liable for WL’s costs of the defects issues, and liable for his own costs of pursuing WL on those defects issues.

I consider that this is precisely the sort of case in which an issue-based costs order should be made. In all the circumstances, no other type of costs order would do justice between the parties.

As between Mr McGlinn and HTA, I have concluded that the parties each spent 65% of their HTA-related time/costs on the liability issues and 35% of their HTA-related time/costs on the causation/quantum issues. For the reasons set out above, I have concluded that Mr McGlinn is to be regarded as the (qualified) winner on the liability issues, and HTA are to be regarded as the (rather less qualified) winners on the causation/quantum issues. Taking into account the appropriate deductions to reflect a more detailed analysis of their respective success and failure, I have concluded that HTA should pay Mr McGlinn 45% of his costs incurred as against them, and that Mr McGlinn should pay 25% of HTA’s costs of the action. I decline, at least at this stage, to net off these percentages.

I consider that, in the round, the orders that I have made as between HTA and Mr McGlinn reflect the broad justice of their respective positions. Whilst Mr McGlinn should be regarded as (just about) the winner, his recovery of about 14% of his overall claim, and his large scale failure on the causation/quantum issues, must count against him significantly in costs. I believe that my issue-based costs order achieves the necessary justice as between the parties. And although I have not ultimately made the order for which either set of counsel contended so eloquently, I am, as ever, grateful to all four of them for their detailed research and careful submissions.