Case No: 0LS04381 Appeal No: 1LU90043
BAILII Citation Number: [2011] EW Misc 22 (CC)
IN THE LUTON COUNTY COURT

2nd Floor, Cresta House
Alma Street
Luton, Bedfordshire
England LU1 2PU

Date: 16th December 2011

BEFORE:

HIS HONOUR JUDGE KAY QC

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BETWEEN:

	Black Horse Limited	Appellant/Defendant 	
	- and -		
	Mr T and Mrs C Dickinson	Respondent/Claimant	

APPEARANCES:
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For the Appellant: Miss Ruth Bala (instructed by Messrs DWF Solicitors, Manchester, M3 3AA)
For the Respondent: Mr Jonathan Butters (instructed by Messrs Michael Lewin Solicitors Limited, Leeds,LS17 6PY)

Judgment Transcript of Whole Hearing, including Judgment 

HHJ KAY QC:	Yes, I’ve read the skeleton arguments; I’ve read the papers; I know what the issue is. 
MISS BALA:	Thank you, Your Honour, I’m obliged. In that case, I needn’t set out the background to the appeal. Perhaps if I begin with - - with the Lockley line of cases before explaining why this case - - 
HHJ KAY QC:	Yes. 
MISS BALA:	Black Horse’s contention is that it would have been - - the Judge ought to have set the Order off. 
HHJ KAY QC:	Yes. 
MISS BALA:	In the Lockley line of cases, which I needn’t take you to in detail if you’re familiar with them, the - - I wish to refer firstly to the case of Burkett, which is in the appeal authorities bundle. I refer to that just briefly - - authority that although pre CPR, Lockley is still considered ‘good law’ and that is stated - - the case of Burkett appears at page 32 of the - - 
HHJ KAY QC:	Yes. 
MISS BALA:	Authorities bundle at paragraphs 29 to 30 on page 36, it was suggested in that case that Lockley no longer applied at paragraph 29: 
“This decision has been applied and practiced on many occasions in the last twelve years and unless there is any significant…” - - 
HHJ KAY QC:	I don’t think Mr Butters disputes that, does he? 
MR BUTTERS:	Your Honour, there is a point, actually, that I ought to mention perhaps usefully at this stage - - 
HHJ KAY QC:	Sorry to interrupt you but I don’t want to go - - 
MISS BALA:	Yes - - 
HHJ KAY QC:	I don’t want to deal with points which are not in dispute. 
MISS BALA:	Of course. 
MR BUTTERS:	No. There is a point that’s been raised by Burkett, which, I am afraid, I didn’t come across and wasn’t mentioned in My Learned Friend’s skeleton. It appears, upon reading Burkett and tracking back through Lockley and Fearns, that, actually, the Judge did have a discretion pursuant to Section 51 of the Senior Courts Act. So, whilst I say in my skeleton that it’s accepted that the decision the Judge had to make was outside of the discretion on costs, I actually would advance today that it was within that discretion.  
HHJ KAY QC:	Okay. 
MR BUTTERS:	Yes. 
HHJ KAY QC:	Yes, Miss Bala? 
MISS BALA:	The Lockley line of case - - 
HHJ KAY QC:	Yes. 
MISS BALA:		Is sought to be distinguished by My Learned Friend on several basis. One of those is that, in this case, the possession claim and the PPI claim were not consolidated. However, in the case of Puddephatt, which appears at page 9 of the authorities bundle – I will refer to this case later, so just to summarise briefly what it was about, reading the headnote there:
“Prima facie the Court ought not, owing to the existence of a solicitor’s lien, to refuse a set-off, if as between the parties to the action it would be fair and just to allow it, and if no fraud or imposition has been practised on the solicitor by collusion between them.” 
So, that was an application to set-off costs ordered to be paid by the Defendant to the Plaintiff against the sum ordered to be paid by the Plaintiff to the Defendant. And it was held - - this was prior to the Lockley but it was held that: 
“…having regard to the fact that the Plaintiff’s claim…might have been raised by counter-claim…in which case the set-off would have been a matter of course, the Court ought to allow the set-off notwithstanding the Plaintiff’s solicitors lien.” 
HHJ KAY QC:	Let me just read the headnote, please. [short pause] Yes. 
MISS BALA:	So - - 
HHJ KAY QC:	Right. 
MISS BALA:	At page 172 - - 
HHJ KAY QC:	Yes. 
MISS BALA:		The final paragraph it is said on that page:
“…it will be observed that the Plaintiff, if she had been so minded, might quite appropriately have raised the issue in this action by way of counter-claim... There can, I think, be no doubt that had she done so, and had the issues on either side in that way been determined in one proceeding as they have now been in two, the set-off asked for would have been a matter of course.”
Then further, at page 179 the penultimate paragraph there beginning “In my opinion…” - - 
HHJ KAY QC:	Yes. 
MISS BALA:		“In my opinion, I ought to exercise it [i.e. the discretion] in favour of the set-off notwithstanding the Plaintiff’s solicitor’s lien. I have pointed out that the Plaintiff’s case in this action might have been raised by way of counter-claim... If it had, the set-off would have been a matter of course, for reasons similar to those stated in by Eve J in Meynall v Morris. I cannot think that the result should be affected by a mere accident of procedure.”
So, that’s really just the preliminary points to support the Appellant’s submission that the fact that these claims weren’t in fact consolidated shouldn’t affect the ultimate result. 
So, turning then to the test which ought to have been applied, that of a ‘close connection’, namely that it would be inequitable to allow the Claimant’s claim without taking into account the Defendant’s claim, the principle of equitable set-off, as set out in Lockley by the Court of Appeal. This should be distinguished from the test in Fearns, which is the broader discretion to set-off by judgment, and those are two entirely separate tests. So, Black Horse’s position is that - - initially, the ‘close connection’ test applies and it ought to be that test which the Judge ought to have applied, and that test is not a matter of discretion. If there is a ‘close connection’, then it follows, inevitably, that set-off should be granted. And, in the alterative, if the ‘close connection’ test, for some reason, is found by the Court not to be satisfied, then, under the Fearns set-off by judgment test, the Judge ought to have exercised discretion and clearly in this case it would have just to set-off the costs award against the existing judgment. 
In My Learned Friend’s skeleton, it is said that, in Fearns, the High Court describes the Lockley test as discretionary; that’s not correct, with respect. In Fearns, the two different tests are set out. Paragraph 38, which My Learned Friend refers to, relates to the set-off by judgment test, which is discretionary and not to the ‘close connection’ test. 
Further in My Learned Friend’s skeleton, he also says that, in fact, this is actually seeking to set-off a possession judgment against a costs Order, rather than the other way round, seeking to set-off a costs Order against a possession judgment. Again, with respect, that doesn’t make sense, [inaudible] can only set-off a lower sum against a higher sum because that is what set-off is. In this case, the existing judgment was the higher sum, the costs Order was the lower sum so what the Defendant sought to do was  set-off the costs Order against the higher existing judgment in its favour.
As to whether the ‘close connection’ - -  
HHJ KAY QC:	I mean, he’s right in this sense, the Lockley point is where one is setting-off - - where one is unsuccessful at the end of the case, one is setting-off an award of damages made earlier in the case, if you like, in ones favour, whereas here you have - - it’s the other round, isn’t it? What you’re trying to deal with is a liability against you at the end of a trial for the costs of a trial, which you - - on a judgment which you don’t - - you don’t contest, you shouldn’t have - - you shouldn’t have defended. 
MISS BALA:	I mean certainly the Defendant doesn’t seek to dispute - - 
HHJ KAY QC:	No. 
MISS BALA:	Liability to pay those costs, even though it is the mortgagee and there may be arguments [inaudible] - - 
HHJ KAY QC:	But it’s the reverse of Lockley. Lockley is, at the end of the case, you’ve lost - -  
MISS BALA:	Yes. 
HHJ KAY QC:	And you’re trying to set-off, get something that you’ve won earlier in the case.
MISS BALA:	Yes. Well, had the two claims been consolidated - -
HHJ KAY QC:	Yes. 
MISS BALA:	It would be the position that Black Horse would be the ultimate victor, I suppose, in that its existing judgment exceeds by some large margin the judgment against itself. So, if - - if one looks beyond the fact - - 
HHJ KAY QC:	What I don’t understand - - the argument that I want some help with is this: the ‘close connection’ test. 
MISS BALA:	Yes. 
HHJ KAY QC:	Right. I can see, and as the District Judge saw, that the two claims have a ‘close connection’, they arise out of the same transaction. 
MISS BALA:	Yes. 
HHJ KAY QC:	All right. The loan and the PPI were bound together in one transaction and that is why the judgment debt is - - was set-off - - the judgment debt was set-off against - - 
MISS BALA:	Yes. 
HHJ KAY QC:	The money judgment. You keep calling it - - everyone calls it “Damages”, you both call it “Damages” from the possession proceedings; it wasn’t “Damages”, it was a money judgment - - 
MISS BALA:	Yes. 
HHJ KAY QC:	It was a debt - - 
MISS BALA:	Yes, I take [inaudible] - - 
HHJ KAY QC:	There is not a set-off against damages; it’s a set-off against debt or money judgment. By the by. Okay. But, why should that apply to costs because the rationale of this is that you should never have resisted this claim and the costs - - the costs, which is Mr Butters’ point, the costs don’t have a ‘close connection’; the claim - - the two judgment sums have a ‘close connection, but why should the - - why should the costs have a ‘close connection’?  
MISS BALA:	Well, the Lockley line of cases refer - - deals with setting costs Orders off against judgment sums and the costs arise from the action. So - - 
HHJ KAY QC:	But that’s more - - that’s more - - there’s an interlocutory dispute - -  
MISS BALA:	Yes. 
HHJ KAY QC:	Which goes one way or the other and so it’s - - one can immediately say “well you can’t - - you can; have the benefit of the judgment at the end without taking into account you took some bad points along the way…” - -
MISS BALA:	Yes. 
HHJ KAY QC:	“…And you had costs Orders against you”, that - - I mean, that’s obvious common-sense. But it’s not so obvious in this case because you had your money judgment and then there was this separate claim about the PPI, which, on the basis of the judgment of the District Judge, you shouldn’t have resisted and you racked up an awful lot of costs by resisting it. 
MISS BALA:	Had - - Black Horse has now already been penalised twice for having resisted the claim for PPI mis-selling once by means of the judgment entered against it - - 
HHJ KAY QC:	Yes - - 
MISS BALA:	And secondly by the costs - - 
HHJ KAY QC:	Which you’ve been able to set-off. 
MISS BALA:	Yes - - 
HHJ KAY QC:	Yes. 
MISS BALA:	But it still had to - - it still had to - - that - - nevertheless, that was still a penalty imposed for the PPI mis-selling. 
HHJ KAY QC:	Well, penalty – you lost the case, yes. 
MISS BALA:	Yes. Secondly, Black Horse had a costs Order made against it. 
HHJ KAY QC:	Yes. 
MISS BALA:		It can’t be fair that, having already been penalised by the Court for resisting the claim, which is the costs Order and judgment made against it, there’s a further penalty in that set-off is not allowed because, when one comes to the question of set-off, it’s a separate stage - - well, it’s already got past the stage where “Is it just that the PPI was mis-sold? No” and, accordingly, Orders have been made against Black Horse. On the other hand, Orders have been made against the Claimants for defaulting. So, both parties, before you come on to the question of set-off, both parties have been penalised either for defaulting on the agreement or for mis-selling the PPI. 
Finally, [inaudible] set-off is, looking at all the cost Orders which have been made with regard to the parties’ current conduct and looking at the different Orders the Court has made in the round, is it equitable to set various ones off against each other? And the cases - - perhaps it’s better if I take you [inaudible] - -   
HHJ KAY QC:	Is there any case which deals with the scenario we have, other than the Lockley scenario? Is there any case which deals with the scenario we have? 
MISS BALA:	Where it’s - - two separate actions?
HHJ KAY QC:	Yes. When - - Yes. 
MISS BALA:	Well, yes, Puddephatt v Leith where the claims were not consolidated and as the passages I referred to earlier - - read out they - - the two claims could have been consolidated because there was a similar ‘close connection’, they both arose out of the same transaction. Looking through the relevant passages of the judgment in that case, apart from the ones I have already referred to, so firstly at page - - well, I’ve already referred to the part where it says the action could have been raised by way of counter-claim, then at the end of page 173 - - 
HHJ KAY QC:	Yes. 
MISS BALA:		It is said: 
“Further it is made clear by… Edwards v Hope and David v Rees that not only does the discretion where it exists extend to the setting-off of costs against costs, but it extends also, in a proper case, to the setting-off of debt or damages against costs.”
Then, on the same page, 174 about two thirds of the way down, the paragraph beginning “I need…” - -  
HHJ KAY QC:	What’s this discretion we’re talking about? Is it - - 
MISS BALA:	Well, this is pre Lockley you see. So, this is not an application of the ‘close connection’ test, this - - 
HHJ KAY QC:	What is it then? 
MISS BALA:	This is simply the discretion to allow set-off what Fearns refers to as the set-off by - -  
HHJ KAY QC:	Is it the judgment set-off?
MISS BALA:		Yes, it’s - - well, it’s the set-off of costs against debt or damages or debt or damages against costs but it’s just the Court’s general discretion rather than the ‘close connection’ test, which is said not to be discretionary. So, this is what Black Horse relies on in the alternative to the ‘close connection’ Lockley scenario. So, two thirds of the way down:
“I need perhaps hardly say that the objection to allowing a set of is not really usually entertained as an objection between party and party; it is as between the solicitor of the party against whom the set-off is asked and the party claiming it, for the set off is, or may be, destructive of the solicitor’s lien for costs.” 
Just pausing there. Equally here, in this case, it’s irrelevant to the Claimants whether set-off is allowed or not, they have a debt which is simply going to be replaced by a debt to one party rather than another, which there’s no prospect of anybody really enforcing. So it’s - - the question of as to who bears the loss is as between Black Horse, which has a very large outstanding judgment as creditor against the Dikinsons as debtors, whether it’s just that Black Horse as creditor must then pay a large sum in costs to the Dikinsons as debtors, although, at the same time, the Dikinsons owe them a huge debt because, of course, these are the Claimants’ costs, they are the Dikinsons’ costs and what District Judge Sethi ordered was that Black Horse discharge their liability to Michael Lewin by making this  payment, disregarding the fact that they already owe Black Horse a very large sum of money. 
Then, on page 176, about a third of the way down there - - well, actually, it’s probably easier if I count the lines – one, two, three, four, five, six, seven, eight, nine, ten, eleven lines down - - 
HHJ KAY QC:	Yes.
MISS BALA:		“That being so, just suppose the case (which is the only case in which the matter becomes the least material) that one of those parties, A [let’s say they’re the Dickinsons] was insolvent and unable to pay anything; why B [Black Horse] should pay costs to A for the sake of A’s solicitor is what I cannot understand. I cannot see how there can be any equity for that. There is no connection whatever between A’s solicitor and B. It is said A’s solicitor by his diligence has obtained this Order for costs against B. Very well; but suppose that is so…[and cites Mercer v Graves]…‘The question is simply whether the Defendant has or has not a right to set-off his judgment against that of the plaintiff, the reason alleged in the replication that he cannot is that the attorney for the Plaintiff has a lien for his costs on the Order or judgment obtained by the Plaintiff… But the attorney has no such lien for costs as to be able to compel the plaintiff to bring the action on his behalf as trustee for him…”
Then, at the end of that page, there’s - - after the semicolon: 
“…but how can A’s solicitors possibly have an equity against B to make B pay the costs which B is ordered to pay to A, when B cannot recover from A the costs which A is ordered to pay to B – How can A’s solicitor have equity to make B pay instead of setting them off? If this matter were free from authority, I should say that this is the most extraordinary equity I ever heard of.” 
There’s also a relevant passage at page 179, the final third of that page: 
“On every ground therefore and notwithstanding the decisions in…” - - 
HHJ KAY QC:	Sorry, where - -oh, yes, yes. 
MISS BALA:	 “…Blakey v Latham… I think I have a discretion in this case and the only question that remains for determination is how I ought to exercise it. In my opinion, I ought to exercise it in favour of the set-off notwithstanding the Plaintiff’s solicitor’s lien. I have pointed out that the Plaintiff’s case in this action might have been raised by way of counter-claim… If it had, the set-off would have been a matter of course…” 
I’ve already read out that passage. 
HHJ KAY QC:	Yes. 
MISS BALA:	[inaudible] - - 
HHJ KAY QC:	You’ve already read - - yes, I’ve read - - read that. 
MISS BALA:	Yes. Then the next paragraph:
“Moreover, I am struck by the fact that both actions arise out of the same transaction…”
 Although this was prior to the close connection test.
Then, on the following page, finally, page 180, about two thirds of the way down, the citation from Pringle v Gloag:
“He says: ‘It appears to me that it would be a monstrous extension of the rights of a solicitor against the parties to an action to say that he should have the right to make the party who may have been successful in the ultimate result pay the losing party’s costs; and unless I found an authority so deciding, I should decline to accede to any such proposition. If a solicitor says ‘Unless I have a lien I cannot get paid’, the answer is, he should see before he undertakes the particular business for a client, that that client is able to pay him for it; a solicitor is not compelled to work for an insolvent client.’… And the result, I think, is that prima facie a set-off should not owing to such a lien be refused if as between the parties themselves it would be fair and just to allow it and if no for drawn imposition has been practiced upon the solicitor by collusion between them.”
So, there are a number of propositions I seek to derive from that, even though in that case it was a discretion which was said to be to be exercised. Firstly, as between - - looking - - as between the parties themselves - - 
HHJ KAY QC:	Your argument, as I understand it, is this. That it’s perfectly fair, and just, and equitable for there to be a set-off as between the parties - -  
MISS BALA:	Yes. 
HHJ KAY QC:	Because the Dikinsons will get the benefit of their judgment and their costs Order because it will reduce the 44,000 or so debt that they owe down to about £5,000. 
MISS BALA:	Yes. 
HHJ KAY QC:	That’s your argument. 
MISS BALA:	Yes. 
HHJ KAY QC:	And the Court should ignore the underlying issues of the solicitor, which is that he may or may not get – I don’t know what the terms of the CFA are or whether there’s some mechanism for the solicitor to be paid in these circumstances but let’s assume there isn’t, then this is really the problem the solicitor has - - 
MISS BALA:	Yes. 
HHJ KAY QC:	And you say on the basis of Puddephatt and in any event I should have no - - I should pay no attention to the solicitor’s problems - - 
MISS BALA:	Yes. 
HHJ KAY QC:	[inaudible] dealing with it party and party.  
MISS BALA:	Well - - 
HHJ KAY QC:	Is that the argument? 
MISS BALA:	Yes - - 
HHJ KAY QC:	Yes. 
MISS BALA:	The solicitors, Michael Lewin, chose to work for an insolvent client in full knowledge of what the position was on this account, even if they - - not quite sure whether they were aware of the possession proceedings – but the property had been repossessed by the first mortgagee, Northern Rock, Michael Lewin knew that this was a secured loan - - 
HHJ KAY QC:	Well, they knew they might not get paid because they might not get paid anything because they entered into a CFA.  
MISS BALA:	Well, yes. 
HHJ KAY QC:	So, if they lost, if the Dickinsons had lost, they wouldn’t have got paid anyway - - 
MISS BALA:	Yes. 
HHJ KAY QC:	Unless they’ve got insurance in place which, I don’t know how it works but - - 
MISS BALA:	Well, it was for them to make those arrangements. 
HHJ KAY QC:	There are different types - - no, they wouldn’t have got paid anyway if they’d loss so they knew they were taking a punt. 
MISS BALA:	Yes. And if I could also take you to the case of In Re A Debtor, which is at pages 74 to 79 of the authorities bundle. 
HHJ KAY QC:	74 to 79, yes. 
MISS BALA:	That’s again also pre Lockley so prior to the ‘close connection’ formulation of the test [muttering] in the High Court - - 
HHJ KAY QC:	Just a moment. In Re A Debtor.
MISS BALA:	It might assist if you were just to read the headnote first before I - - 
HHJ KAY QC:	Yes. [short pause] Yes, it has reference to special rules in bankruptcy - - 
MISS BALA:	Yes. I acknowledge that - - 
HHJ KAY QC:	I assume those don’t - - yes. 
MISS BALA:	No, of course, I’m not saying that any - - that it’s a perfect analogy. 
HHJ KAY QC:	No. 
MISS BALA:	At page 617, two thirds of the way down, the paragraph beginning “However…” - -  
HHJ KAY QC:	Yes. 
MISS BALA:		“However, later the tide seems to have turned against the debtor and the consideration rendered to the solicitor’s Lien seems to have been reduced…” 
And refers to the same passages from Blakey v Latham about the most extraordinary equity; then cites, on the following page, extensively from Puddephatt I needn’t read that out again - - 
HHJ KAY QC:	Mhmm. 
MISS BALA:		Because I’ve just gone through that. 
Then, at the end of page 618: 
“In the circumstances of this case should a stay be directed so as to prevent the debtor issuing execution against his creditor? Prima facie, it seems to me that it is most unfair that the creditor should have to pay his debtor…” 
Which would be the position here if the appeal were dismissed. Then quotes from Pringle v Gloag, again, the same quotes I read out earlier, and then at the end of that paragraph, on page 619, that - - 
HHJ KAY QC:	Well, then reading this bit:
“On the other hand, it is said that unless the debtor recovers his costs, his solicitor will have no chance of being paid...”
MISS BALA:	[short pause] Yes, so he sets out the argument [inaudible] - - 
HHJ KAY QC:	That’s the argument we’ve got - - 
MISS BALA:	Yes, yes. 
HHJ KAY QC:	In essence. 
MISS BALA:	The arguments on either side. But then concludes, towards the end - - 
HHJ KAY QC:	[muttering] “… it is difficult to see why an unpaid creditor should be required to provide for the costs of…” [short pause] Yes. 
MISS BALA:	Then concludes the sentence beginning “But…”, near the end - - 
HHJ KAY QC:	Yes, I’ve read that, yes. 
MISS BALA:	Oh, I see. So [inaudible] why should an unpaid creditor with a very large outstanding balance have to pay costs of - - for the debtor’s benefit and then - - 
HHJ KAY QC:	Well, the solicitor’s benefit. 
MISS BALA:	Well, the - - these are the Claimants’ costs, so the liability is the Claimants’, the Dickinsons’ liability. 
HHJ KAY QC:	Yes, but the point that’s taken - - the point that’s being made again in this case is it’s really the solicitor that’s going to suffer - - 
MISS BALA:	Yes. 
HHJ KAY QC:	Because the solicitor will say “I can’t get paid...” - - 
MISS BALA:	Yes, yes. 
HHJ KAY QC:	“… If you apply this set-off” and the Court says “Well, so be it.”
MISS BALA:	[short pause] Then, on the following page 620 - - 
HHJ KAY QC:	Hmm. 
MISS BALA:	About half way down the paragraph beginning “It seems…” - - 
HHJ KAY QC:	Hmm. 
MISS BALA:		“It seems to me, as it seemed to Kay J in Blakey v Latham, that as between the parties there can be no equity to refuse a set-off and that to suggest that there is some equity obliging one party to pay the costs of the solicitor to the other is absurd.” 
And then, finally, the conclusion, as at page 621, the final paragraph: 
“I agree, therefore, with my brother Dankwerts in thinking that we have a discretion to allow the set-off, or a stay, which amounts to much the same thing, if it be just. In my opinion it would be right to allow it. I cannot see that as between the parties themselves, there can be any justice in allowing the debtor to levy execution against the goods of his creditor, nor do I think this ought to be allowed for the sake of the debtor’s solicitor. I cannot see any reason why the creditor should pay the costs of his debtors solicitor if the latter is unable to do so, nor do I believe that a solicitor accepting the retainer of a person against whom bankruptcy proceedings are pending does so in reliance on the view that the petitioner’s solicitor may blunder and thus give him the advantage of an Order for costs against the petitioner.” 
HHJ KAY QC:	Yes.
MISS BALA:	So, similar principles really to those - - 
HHJ KAY QC:	Yes, I see that.
MISS BALA:	Set out in the Puddephatt v Leith case. So, the Appellant’s primary case is that the Lockley line of cases does apply, although it’s not - - it’s a slightly different situation in that these aren’t interim costs Orders but a final costs Order. Nevertheless, if one looks at the substance rather than the form of procedure which has been adopted, and particularly takes into account the fact that, had these two claims been consolidated, as would be the normal course of events, then one would be in the position where the judgment against the Dikinsons’ far exceeds the judgment against the - - against Black Horse but then it’s not that one party is found to be in the wrong - - and another’s been completely vindicated, both parties have had judgments entered against them and there have been costs order - - well, of course, costs of possession proceedings will be added to the security - - 
HHJ KAY QC:	Hmm. 
MISS BALA:	But there will be costs in favour of both parties. So, looking at the situation in substance, there’s no proper basis for distinguishing it from the Lockley series of cases and that - - if that is accepted, then clearly the ‘close connection’ test is satisfied as both arise out of the same credit agreement, including - - the debt includes the sums payable in respect of the PPI. 
And, alternatively, if that submission is not accepted, then the Judge ought to have recognised that he had a discretion to set-off the costs; this is not a case where the Judge exercised his discretion and Black Horse seeks to say he exercised it in a way no reasonable Judge would have done, he is simply was under the misapprehension that it wasn’t possible to set-off the costs against the - - 
HHJ KAY QC:	I don’t think you could - - I don’t think you can gage anything from what he’s said. I mean, it’s obvious from the three lines in which he deals with this that nobody really thought about the argument or certainly didn’t advance it. You didn’t advance it, you just asked for a set-off and he said “No” and that was it. 
MISS BALA:	Well, I’d already made submissions on the justice of set-off in relation to - - 
HHJ KAY QC:	It’s very difficult to see exactly on what basis he’s made the decision - - although one has to, as an Appeal Court, I’m not exercising the discretion of threshold or - - one has to examine on what basis the District Judge came to his decision - - 
MISS BALA:	Yes. 
HHJ KAY QC:	And it’s really quite impossible to say, certainly not on the basis of having had the benefit of all these authorities and arguments. 
MISS BALA:	No. I - - 
HHJ KAY QC:	I mean, it’s - - my impression is he just hasn’t - - he hasn’t really given it any thought. 
MISS BALA:	Yes. Well, I made submissions initially on set-off in relation to the set-off of judgment - - 
HHJ KAY QC:	Yes, you did. 
MISS BALA:	Against judgment - - 
HHJ KAY QC:	Yes. 
MISS BALA:	As to whether that would be just. When it came to set-off of costs against the existing judgment, I simply requested set-off - - 
HHJ KAY QC:	And he’s - - 
MISS BALA:	And he said “No, the costs are separate” I think - - 
HHJ KAY QC:	Yes, yes. 
MISS BALA:	And then swiftly moved on without there being an opportunity to develop the submissions further. 
HHJ KAY QC:	Yes. 
MISS BALA:	Now, I mean, it may - - in Black Horse’s submission, this is not a case where he attempted to balance the different factors on either side as to why - - whether it was just to allow set-off, he didn’t - - there was no balancing exercise at all carried out, so, therefore, Black Horse’s case is that there was no exercise of discretion at all in this case and the Judge simply said “Costs…” - - 
UNIDENTIFIED:	[whispering] “Costs are separate.”
MISS BALA:	The exact words “Costs are separate.”
HHJ KAY QC:	“Costs are separate”, yes. 
MISS BALA:	Which does not amount to an exercise of discretion - - 
HHJ KAY QC:	Well, it is the exercise - - it’s a judgment whether he’s recognised he has a discretion and exercised it or what, it’s difficult to say. It’s a decision but it’s difficult to say on what basis he arrived at that decision. 
MISS BALA:	I think my primary - - 
HHJ KAY QC:	Whether he was exercising a discretion or what, it is very difficult to see. 
MISS BALA:	My primary position would be he said that and moved on because he didn’t realise he had a discretion, and that’s the most likely. Of course one [inaudible] but that’s the most likely situation to be inferred from what he’s said. Alternatively, if he did realise he had a discretion, then clearly he didn’t balance various factors and reach - - exercise that discretion properly or take into account the injustice to Black Horse. 
HHJ KAY QC:	Well, I think I’ve got your arguments and I think I probably want to hear from Mr Butters now. 
MISS BALA:	I think the only other thing, really, I was going to say - - I don’t think it’s being suggested that the existence of a CFA makes any difference to - - 
HHJ KAY QC:	It can’t do. 
MR BUTTERS:	It wasn’t in the transcript - - 
HHJ KAY QC:	No. 
MR BUTTERS:	And it’s not today.
MISS BALA:	Yes. When I drafted my skeleton, I was under the misapprehension that that was what had been said but it appeared from the skeleton it wasn’t, so I don’t think I need to deal with that. 
HHJ KAY QC:	Yes. 
MISS BALA:	There were a few points which were made in My Learned Friend’s skeleton argument about unenforceability and the allegation that coming to equity not with clean hands, which I wish to address if - - 
HHJ KAY QC:	I don’t think you need to address me on that. I don’t see - - this is not - - although I’ve stated somewhat pejoratively that you shouldn’t have resisted the proceedings, that doesn’t mean you’ve got unclean hands. 
MISS BALA:	No, well, no, no, quite. 
HHJ KAY QC:	Unclean hands there’s a little bit more misbehaviour that’s connoted in the term ‘unclean hands’ than simply resisting proceedings. 
MR BUTTERS:	I do put it slightly differently to that, Your Honour - - 
HHJ KAY QC:	Then let me hear - - 
MR BUTTERS:	It may not change your view but - - 
HHJ KAY QC:	All right. Well, let me - - rather than you dealing with his point, let me hear his points and then see if I need to hear from you again.  
MISS BALA:	Yes, thank you, Your Honour. 
HHJ KAY QC:	Yes, Mr Butters, yes. 
MR BUTTERS:	I’m grateful, Your Honour. Well, we say there is a generous discretion that the Judge had. We’re on an appeal - - 
HHJ KAY QC:	Yes. 
MR BUTTERS:	That he reached a decision that he wasn’t entitled to. Plainly, Black Horse would have preferred him to reach a different decision, but that’s not the test you apply. It’s evident from, in particular, Burkett that, although that was an appeal where the Judge at first instance had ordered the set-off sought, so it’s the reverse of this situation, nevertheless, the Court of Appeal held the Judge had a generous discretion, he was entitled to reach the decision he did, and they weren’t going to interfere.   
HHJ KAY QC:	If he’s dealing with equitable set-off - - 
MR BUTTERS:	Yes. 
HHJ KAY QC:	Then he doesn’t have a discretion as such, he has to decide - - 
MR BUTTERS:	Yes. 
HHJ KAY QC:	Whether the ‘close connection’ test is satisfied. 
MR BUTTERS:	Yes. Now, the first point is, we say, he had discretion. The second point is, if you find that he should have applied the principles of equitable set-off, he didn’t err in reaching the decision he did. 
HHJ KAY QC:	On whatever basis he did. He must - - 
MR BUTTERS:	Yes. 
HHJ KAY QC:	He must have concluded - - 
MR BUTTERS:	Yes. 
HHJ KAY QC:	That there was no ‘close connection’. 
MR BUTTERS:	Well, or no - - 
HHJ KAY QC:	Or it didn’t satisfy - - 
MR BUTTERS:	‘Close connection’ such that it would be just inequitable to Order the set-off - -  
HHJ KAY QC:	Yes, yes. 
MR BUTTERS:	It’s not just the finding of ‘close connection’, I say, one then has to look to the overall justice. 
HHJ KAY QC:	Yes. 
MR BUTTERS:	I should say, at this stage, of course, the Judge wasn’t invited to give reasons because he didn’t receive any argument - - 
HHJ KAY QC:	No. 
MR BUTTERS:	My Learned Friend clearly would have had the opportunity, if she wished, to say “I’ve requested set-off, you’ve indicated you’re against me, I’d now like the opportunity to set out why set-off is the correct Order in these circumstances.” My Learned Friend plainly didn’t take that opportunity, there wasn’t a submission, there wasn’t an argument, there was a request, no different to, at the end of the case, one might say “Can I have twenty-one days for payment?” and a Judge may say “No, it’s fourteen.” And I say it’s very difficult - - given the discretion the Judge had, I say, to impugn his decision in those circumstances. 
Your Honour, may I deal first with why I say this decision fell within the Judge’s discretion on costs? The decision in Fearns goes through the different types of set off in some detail. At page 50 of the authorities bundle, paragraphs 36 and 37 to 38 deals with set-off by judgment [inaudible] - - 
HHJ KAY QC:	So, this is the decision of Mr Leggatt - - 
MR BUTTERS:	Yes, in the High Court. And - - 
HHJ KAY QC:	Yes. Which paragraphs? 
MR BUTTERS:	36, 37 and 38 deals with set-off by judgment. 
HHJ KAY QC:	Just a moment. [short pause] Yes. 
MR BUTTERS:	And he’s referring to the inherent jurisdiction of the Court to set-off two judgment sums, and he refers to Rule 40.13 of the CPR, which deals with cross claims in the same action. 
HHJ KAY QC:	Yes. 
MR BUTTERS:	That clearly doesn’t apply here. 
HHJ KAY QC:	No. 
MR BUTTERS:	But he goes on to say the jurisdiction extends to judgments in different actions and that is where clearly Section 72 of the County Courts Act 1984 comes in, which enshrines the Court’s inherent jurisdiction in relation to different actions.  
HHJ KAY QC:	Yes. 
MR BUTTERS:	So, plainly the set-off by judgment jurisdiction was engaged in this case. There’s a damages judgment on the one hand and a costs judgment on the other in different actions.  
HHJ KAY QC:	But it’s not damages. 
MR BUTTERS:	A money judgment - - 
HHJ KAY QC:	It’s a money judgment, yes. 
MR BUTTERS:	Yes. Now, Your Honour, plainly set-off by judgment applies and it is described as discretionary by George Leggatt, errm, 38, paragraph 38. 
HHJ KAY QC:	Yes. 
MR BUTTERS:	The issue then becomes, I would say - - well, if equitable set-off also applies, does that fetter the Judge’s discretion to set-off by judgment? Now, Your Honour, one of the powers, I say, by which the Court can exercise its jurisdiction to set-off by judgment is enshrined within the Senior Courts Act, Section 51, the discretion on costs. The Court can plainly - - it’s tab 1 of the bundle - -  
HHJ KAY QC:	Yes. 
MR BUTTERS:	The Court can plainly exercise its discretion so as to Order a set-off and that is what happened in the case of Burkett, which is a case where a set-off of costs against costs within the same proceedings were sought. Now, what the Court of Appeal decided in Lockley, is that a set-off of costs against damages is unlikely to fall within the Court’s discretion on costs, unlikely to fall within Section 51 of the Senior Court’s Act. 
HHJ KAY QC:	Hmm. 
MR BUTTERS:	So, if I can take you to Lockley, in particular page 21 of the bundle of authorities. You have, by the second [inaudible], the beginning of the five-fold test that Scott LJ set out, which My Learned Friend refers. And, importantly, is question five - - sorry, question four and, over the page, in particular, he deals with Section 51 and you can see the last sentence, a set-off of damages against damages can’t be discretionary, nor can set-off of costs against damages be described as discretionary.
Pausing there, you discussed with My Learned Friend what type of set-off is sought here; it’s not a set-off of costs against damages, it’s a set-off of a money judgment against costs. The bank has incurred a liability to the Claimants in costs. It seeks to extinguish that liability by setting off against it a liability the Claimants have incurred to the bank under the money judgment.
HHJ KAY QC:	Yes. 
MR BUTTERS:	So it’s the other way around and, in fact, the cases of Lockley, Burkett, Fearns and Ahmad, all the recent cases that are in the authorities bundle, they’re all examples of set-off of costs against damages rather than damages against costs, and I say that is an important distinction. 
HHJ KAY QC:	I mean, isn’t Black Horse saying - - just dealing with semantics here, isn’t Black Horse actually saying “You, Mr and Mrs Dickinson, owe us £44,000, we owe you £39,000 and we are going to ask for a set-off of that £39,000 against the £44,000.”
MR BUTTERS:	Yes. But that is properly guised as - - 
HHJ KAY QC:	You want to describe it as setting off the money judgment against the costs.  
MR BUTTERS:	Well, that is - - 
HHJ KAY QC:	Whereas Black Horse want to say it’s setting off the costs against the money judgment. 
MR BUTTERS:	Well, they do but that would ignore distinctions that exist within the law as to how damages and costs should be dealt with in that context, so it is important to identify what is being set-off against what. However you describe it, whether you describe it as a judgment or whether you describe it as a money judgment and costs, this much - - this much must be accepted: it is the judgment in the possession proceedings that is being sought to be set-off against the judgment in the PPI proceedings. My Learned Friend keeps referring to it being the other way round, an attempt to set-off the judgment in the PPI proceedings against the judgment in the possession proceedings. That would be the Claimants’ right of set-off, not Black Horse’s right of set-off. The Court can’t compel the Claimants to exercise a right of set-off, so the proper way in which to describe the set-off that is sought here is a set-off of the judgment in the possession proceedings against the judgment in the PPI proceedings. That’s the first point. 
The second point is, it is of importance to distinguish between a money judgment on the one hand and costs on the other and I say there is a difference between seeking to set off costs against damages or a money judgment and the other way around, seeking to set-off a money judgment against costs. And that is borne out not only in Lockley but then when one looks at the case of Burkett.
HHJ KAY QC:	So, you properly describe it as the setting off a money judgment against costs.
MR BUTTERS:	Yes. 
HHJ KAY QC:	And what principles then apply? 
MR BUTTERS:	Well, Your Honour - - 
HHJ KAY QC:	Does equitable set-off apply?
MR BUTTERS:	Well, no. I say - - 
HHJ KAY QC:	What? It doesn’t apply at all? 
MR BUTTERS:	Well, I say that the Court’s discretion as to costs under Section 51 of the Senior Courts Act applies, and where that applies, whilst the principles of equitable set-off may operate as a guide to how the Judge should exercise his discretion, the Judge’s discretion is save for that and save for the other Rule of Part 44 and the like that apply unfettered. And, Your Honour, there is support, I say, for that proposition, firstly, in Burkett. This is a case where the Claimant ultimately lost the main action and incurred a liability in costs, but had won a number of preliminary issues in respect of which she became entitled to costs. 
HHJ KAY QC:	Is this the Lockley point - - 
MR BUTTERS:	Yes. Well, not precisely because whereas in Lockley what was sought was a set-off of the costs to which the Defendant had become entitled at an interlocutory stage against the damages that the claimant ultimately became entitled to at the end of the action, this was costs against costs. 
HHJ KAY QC:	I see. 
MR BUTTERS:	Claimant became entitled to interlocutory costs, lost the main action; Defendant became entitled to costs of the action; Claimant, legally aided, tried to argue that the cost to which she had become entitled at an interlocutory stage should not be the subject of set-off by reason of the costs she had to pay to the Defendant in the main action because of the fact that she was legally aided and that would deprive her lawyers of their fate. 
HHJ KAY QC:	Hmm. 
MR BUTTERS:	And what the Court of Appeal decided was that the jurisdiction to set costs off against costs fell plainly within Section 51 of the Senior Courts Act and, therefore, the Judge had a wide discretion. In paragraph 41, page 38 of the bundle - - 
HHJ KAY QC:	Yes. But we’re not dealing with costs against costs in this case - - 
MR BUTTERS:	No - - 
HHJ KAY QC:	We’re dealing with costs against - - or money judgment against costs - - 
MR BUTTERS:	Yes. 
HHJ KAY QC:	Is what we’re dealing with. 
MR BUTTERS:	Yes. But - - 
HHJ KAY QC:	Yes. 
MR BUTTERS:	41 says all the “complications” were elided by Section 51 providing the discretion and that, therefore, the Judge at first instance was exercising a discretion at paragraph 42. 
HHJ KAY QC:	Yes. 
MR BUTTERS:	The Court of Appeal then goes on, at paragraph 44, to consider the rules that apply to equitable set-off, in essence, and paragraph 46 then goes on to say “…[Well, that’s irrelevant because this is]… a discretionary balance between two sums of costs.”
HHJ KAY QC:	“…two sums of costs.” Yes. 
MR BUTTERS:	Yes. But, importantly, the Court of Appeal goes on to say: 
“First, it is for the Judge to decide, in his discretion, what costs order is appropriate. The exercise of striking a fair balance between such payments is quite different from the Judge’s task in a case of equitable set-off as just discussed, where he has to decide as a matter of law, not of discretion, what claims can be asserted, and then, but only then, decide whether the rules governing equitable set-off permit the one claim to be set-off against the other. Secondly and illustrative of the point just made, no right to costs arises until the Judge decides that the right exists. [This is the important bit] Since he has discretion in creating the right, so he has discretion in deciding the amount in which, and the form in which, that right should be enforced.”
And so the reason why I say there’s a distinction is that the Judge anterior to the arguments about set-off was fundamentally being asked to make a decision about costs, about which undoubtedly he had a discretion under Section 51 of the Senior Courts Act. So, under that discretion, he decides first that Black Horse should pay Claimants’ costs; secondly, he assesses those costs in the sum of 29,000 odd and thirdly, he makes a decision about enforcement of those costs, he decides those costs are not going to be set-off, they are going to be paid by Black Horse direct to the Claimant. That is what the Court of Appeal is saying at paragraph 46; the Judge as a discretion to decide whether costs are payable at all, what amount and how they are to be enforced and that latter decision, how the costs are to be enforced, is what the Defendant seeks to today to be impugned but the Court of Appeal held that that was part of the Judge’s discretion on costs because - - and that is why it can be distinguished from costs being set-off against damages because in that instance, the Court isn’t making a decision about costs, if a losing party in the litigation becomes entitled to interlocutory costs, at the end of the proceedings, they’re not asking the Judge to make a decision about costs, that decision has already been made, they’re asking for a set-off of one liability against another. 
Here, what My Learned Friend requested towards the end of the hearing was for the Judge to make a particular decision about how costs were to be enforced and that is a discretionary decision under Section 51 of the Senior Courts Act and there is support for that proposition within Fearns, which is a more recent High Court case that I’ve already taken Your Honour to. So, if I could ask Your Honour to turn to page 68 of the bundle? First, in the bracketed number (4) is the section from Lockley that I’ve already drawn Your Honour’s attention to where Scott LJ refers to set-off of damages against damages as not being discretionary and also set-off of costs against damages not being discretionary and paragraph 73 of Fearns reference to Burkett in which the view was endorsed that: 
“…as with all other questions of costs, whether to Order a set-off between two sums of costs is subject to the statutory discretion conferred by section 51 of the Senior Courts Act 1981. However, the present case involves a set-off between costs and damages and, like Scott LJ in Lockley, I cannot see how this can be said to fall within the discretion conferred by section 51 – at any rate where, as here, the application is to set-off an order for costs against damages rather than vice-versa.”  
So it is the “… rather than vice-versa” that is key particularly when coupled with Scott LJ’s observations in Lockley, which is on the same page, where he refers to damages against damages and costs against damages as not falling within the discretion but he’s silent on damages against costs. And that is further supported by Burkett by the Court of Appeal found at - -    
HHJ KAY QC:	So, if your argument - - let me see if I’ve got your argument right, you say, if you’re setting off a money judgment against costs, that falls - - it’s a matter of discretion - - 
MR BUTTERS:	Yes. 
HHJ KAY QC:	Under - - 
MR BUTTERS:	Section 51 of the Senior Courts Act - - 
HHJ KAY QC:	Section 51 - - 
MR BUTTERS:	Which grants - - 
HHJ KAY QC:	And how is - - and how is the Court to exercise that discretion? 
MR BUTTERS:	Well, in Fearns, the Court goes on to say that the principles of equitable set-off may well be a guide as to how that discretion should be exercised but it is a discretion nonetheless and if one looked at it from the perspective of a discretion, the Judge’s discretion on costs, can it be said that he was wrong to exercise his discretion in the way that he did. As we have already canvassed - -  
HHJ KAY QC:	So, get this right, you’re argument is either under Section 51, this is a discretionary matter, or set-off by judgment, it’s a discretionary matter - - 
MR BUTTERS:	Well - - 
HHJ KAY QC:	Do you argue that’s possible, set-off by judgment in this case? 
MR BUTTERS:	Yes, well, in effect - - 
HHJ KAY QC:	There are two judgments - -  
MR BUTTERS:	In effect - - 
HHJ KAY QC:	To pay money - - 
MR BUTTERS:	Set-off by judgment would be an option available to the Judge in exercising his discretion under Section 51. 
HHJ KAY QC:	All right. So, it all comes back to Section 51. 
MR BUTTERS:	Yes. But, it is a discretion rather than, as My Learned Friend describes, a matter of law, do the principles of equitable set-off apply? And there is - - 
HHJ KAY QC:	Well, her argument is it’s equitable set-off and there there’s no discretion, either this is a - - the ‘close connection’ test is fulfilled or it isn’t, or there is a discretion under the set-off by judgment test, that is, I understand, her argument. You’re saying to me “No, equitable set off is not the position, this is an attempt to set-off a money judgment against costs, that’s solely the preserve of Section 51, which is a question of discretion and if it is set of by judgment, that too is a discretion.”  
MR BUTTERS:	Yes. Well, I say there’s no real difference between - - 
HHJ KAY QC:	And then you must go on from there to say well the Judge has exercised his discretion, I shouldn’t interfere. 
MR BUTTERS:	Yes. I say - - 
HHJ KAY QC:	That’s your argument. 
MR BUTTERS:	It is, Your Honour and for clarities sake, set-off under - - the discretion under Section 51 of the Senior Courts Act is the same, I say, as the discretion to set-off by judgment. 
HHJ KAY QC:	It’s all really one; it’s all part and parcel of the same test. 
MR BUTTERS:	Yes, it’s the same discretion. 
HHJ KAY QC:	Yes. 
MR BUTTERS:	And the crucial difference between My Learned Friend’s primary position and how I set it out is that, whilst the principles of equitable set-off may have been a guide for the Judge, it would not have been wrong for him to conclude that the principles that equitable set-off apply but nevertheless, exercising his discretion, there are reasons that point against the Order of a set-off.  It would not be wrong for the Judge to ignore whether equitable set off applied or not in coming to a conclusion that he wasn’t going to order set-off because he had a discretion. And, Your Honour, the cases My Learned Friend has referred you to regarding the solicitors lien are cases in which it was asserted that the existence of the solicitor’s lien was determinative of the issue and we accept that the existence of a solicitor’s lien is not determinative of the issue, the cases make that plain. It doesn’t mean it’s not a factor for the Judge to take into account in the exercise of his discretion. 
Now, Your Honour, we say the Judge had a discretion and it cannot be said that he exercised that discretion wrongly by refusing the set-off. We also say that if you’re against us on the discretionary point and the principles or the [inaudible] of equitable set-off applies directly, nonetheless, it cannot be said the Judge was wrong in refusing set-off in these particular circumstances, and I set that out in more detail in my skeleton argument. 
HHJ KAY QC:	Yes. 
MR BUTTERS:	Firstly, there are three key cases referred to in My Learned Friend’s skeleton argument: Lockley, Fearns and Ahmad all of which are examples of a set off of costs against damages, rather than the other way round and all of which involve the situation where the claimant is ultimately successful in the litigation and is entitled to damages or a money judgment but has become liable for interlocutory costs along the way, and the principle is quite plain. Irrespective of whether the Claimant is legally aided or bankrupt or whatever, if a Claimant, along the way to achieving success in litigation, incurs liabilities in costs to the defendant, there’s no reason why they shouldn’t be set-off but this isn’t the same situation that exists here and it’s important that we’re not dealing with the same proceedings, it’s a completely different state of affairs. There’s no sense in which in order to achieve the costs to which the claimants have become entitled in this action they have, by reason of incurring those costs, somehow incurred the money judgment, there is no connection between the way in which the Claimants became entitled to those costs that has caused the money judgment in the possession proceedings, there’s no connection whatsoever. 
HHJ KAY QC:	Yes, I see your argument - - 
MR BUTTERS:	Yes, yes - - 
HHJ KAY QC:	I actually raised it with Miss Bala - - 
MR BUTTERS:	I say there’s no ‘close connection’ because there’s a superficial attractiveness to the fact that the PPI and the money judgment were the subject of the same loan agreement but actually that’s where the ‘close connection’ ends and it’s not a relevant ‘close connection’ for the purposes of the equitable jurisdiction because it’s not just “Do they have a ‘close connection?” But, “Do they have a ‘close connection’ such that it would be inequitable not to Order set-off? Does one claim impeach the other?” Well, Your Honour, the Claimants’ liability under the loan agreement arose from their breach of contract under the loan agreement in failing to keep up with payments and the subsequent judgment - - 
HHJ KAY QC:	Yes, I follow all that - - 
MR BUTTERS:	Quite clear - -
HHJ KAY QC:	You don’t need to - - you don’t need to tell me - - 
MR BUTTERS:	Yes, yes. 
HHJ KAY QC:	I follow the argument. 
MR BUTTERS:	Yes. Whereas, the Defendant’s liability under the costs judgment - - 
HHJ KAY QC:	Yes, because they resisted the claim - - 
MR BUTTERS:	It’s not just because they resisted the claim though, Your Honour, it’s because they told the Claimants, this was the judgment of the Court, they told the Claimants they had to have the PPI when that was not true. Now, it’s very difficult to envisage how that could be mistaken. There’s no finding of fraud in the judgment of District Judge Sethi but he has found that the bank have told an untruth to the Claimants. 
HHJ KAY QC:	Yes, on the balance of probabilities, looking back over many years - - 
MR BUTTERS:	Yes. 
HHJ KAY QC:	There’s no doubt when the individual would have no recollection of this whatsoever on the Bank’s side; the District Judge was prepared, on the balance of probabilities, to accept your clients’ evidence - - 
MR BUTTERS:	Yes. 
HHJ KAY QC:	That that’s what they were told.  
MR BUTTERS:	Yes. But, we’re not exercising the discretion afresh here. So, the Judge has decided, whether on the balance of probabilities and whatever the evidential position was - - 
HHJ KAY QC:	Yes. 
MR BUTTERS:	He has decided the bank told the Claimants an untruth, which caused them loss of £10,000. In order to establish they have sustained that loss and their entitlement to recoup that money, the Claimants have had to incur those costs. 
HHJ KAY QC:	Hmm. 
MR BUTTERS:	First, because the bank told them an untruth; second, because the Bank, rather than admit that that’s what it had done, defended the proceedings and forced them to incur those costs. 
HHJ KAY QC:	Well, no. The costs can only, in any common-sense approach, be said to have arisen because of the resistance to the claim. 
MR BUTTERS:	Yes. 
HHJ KAY QC:	They didn’t arise because of the misrepresentation; they arose because of the resistance, the defence of the claim. 
MR BUTTERS:	Well, very well. But I say it’s relevant to the background that this wasn’t a case where - - 
HHJ KAY QC:	It’s not a fraud case. 
MR BUTTERS:	It’s not a fraud case - - 
HHJ KAY QC:	No, it’s not a fraud case - - 
MR BUTTERS:	But it is a finding that the Bank - - 
HHJ KAY QC:	That might be different - - 
MR BUTTERS:	It is a finding that the Bank - - 
HHJ KAY QC:	That might be different. 
MR BUTTERS:	Yes, okay. 
HHJ KAY QC:	But it’s not a fraud - - 
MR BUTTERS:	But I say it’s a fining - - it’s a finding that the Bank told an untruth - - 
HHJ KAY QC:	Yes. 
MR BUTTERS:	To the Claimants - - 
HHJ KAY QC:	Well, they made - - 
MR BUTTERS:	And I say that is relevant - - 
HHJ KAY QC:	You can call it that, or you can call it they made a misrepresentation. 
MR BUTTERS:	Yes. Well - - 
HHJ KAY QC:	It may be an entirely innocent misrepresentation. 
MR BUTTERS:	Yes. In either event, we’re not dealing with a road traffic case where it’s who failed to put their indicator on or something - - 
HHJ KAY QC:	No, no. 
MR BUTTERS:	It’s a more serious allegation, I say, whether it amounts to fraud or not. And, its relevant, therefore, to the exercise of the Judge’s equitable discretion because it’s not just “Is there a ‘close connection’?”, “Is there a ‘close connection’ so that it would be just to Order set-off?” I say there’s not a ‘close connection’ because the facts that gave rise to the claim are anterior to the entering into the loan agreement. In fact, rather than the Claimants’ default on the loan having a connection to their entitlement to compensation for the mis-sale of the insurance. It’s the other way round. The insurance increased the likelihood of a default because it rendered them a further £10,000 in debt to Black Horse. And, Your Honour, if you want a comparison between what would have happened had the claimants not instructed solicitors to raise the point about mis-sale of Payment Protection Insurance, one could only look at the possession proceedings. Its common ground, I understand that neither set of solicitors knew about the possession proceedings until two days before the PPI trial. The Bank had issued the possession proceedings through a different department, so I understand, and the left hand wasn’t speaking to the right hand and the Claimants, unfortunately, didn’t inform those who instruct me of the possession proceedings. 
Now, I would expect it to be common ground between My Learned Friend and I that, had the two proceedings been consolidated or had the possession proceedings been issued as a counterclaim to the PPI proceedings – and remember that the possession proceedings were issued second – and had the arguments as to mis-sale of PPI been raised in a consolidated action, and had the Judge found as DJ Sethi found as to those allegations, prima facie the credit agreement would be unenforceable and the Court would have a discretion to order enforcement but prima facie it would render the entire agreement unenforceable because the insurance would have been compulsory and, therefore, ought to have been treated as part of the total charge for credit.  
HHJ KAY QC:	But I really don’t follow this point. If that’s what the claimants wish to raise as an argument and have decided, they could have raised that - - 
MR BUTTERS:	Yes. 
HHJ KAY QC:	In the possession proceedings. 
MR BUTTERS:	Yes and they didn’t - - 
HHJ KAY QC:	And they didn’t. 
MR BUTTERS:	Yes - - 
HHJ KAY QC:	So - -
MR BUTTERS:	They didn’t because, through what can only be described as their own failure, they didn’t tell their solicitors - - 
HHJ KAY QC:	But that’s their fault, their problem. 
MR BUTTERS:	It is but the point is, Your Honour, that - - 
HHJ KAY QC:	You can’t have it the other way round and say “Well if - - if this had been thought of at an earlier stage, this PPI point, then it might have undermined the whole agreement.” You can’t have it that way round because you had - - you had the remedy in your own hands - - 
MR BUTTERS:	Well, Your Honour, I say if the - - 
HHJ KAY QC:	You can’t separate the solicitors from the clients, it’s the clients’ remedy and they chose, for whatever reason, not to inform you and - - 
MR BUTTERS:	Well, I say its relevant to the equity - - 
HHJ KAY QC:	Anyway - - lawyers might have thought about it, they must have - - I mean, they must - - they knew of the underlying agreement - - 
MR BUTTERS:	Yes. 
HHJ KAY QC:	So, if they want to try and - - if they wanted to, they could have included it in this claim for PPI - - 
MR BUTTERS:	But, Your Honour, its most unfortunate that the situation developed as it did, in particular for the Claimants - - 
HHJ KAY QC:	Well, I don’t think you can - - 
MR BUTTERS:	Who lost their house but I say that it - - 
HHJ KAY QC:	Yes, of course, it’s very unfortunate - - 
MR BUTTERS:	As a matter of equity, if the Court is applying an equitable jurisdiction and the Court has to decide is there a ‘close connection’ such that it is just to Order set-off, then the fact that the allegation has been found proved would have been sufficient to render the agreement prima facie unenforceable - - 
HHJ KAY QC:	But I think we’re missing the reality. The reality of this case, as I see it, is that this is an argument between the lawyers on behalf of Mr and Mrs Dickinson - - 
MR BUTTERS:	Yes. 
HHJ KAY QC:	And the Bank, and the Dikinsons will get the benefit of all of this because they will be able to reduce their outstanding liability to nothing. I mean, it’s entirely their own fault that they did not raise - - possibly the lawyers fault, I don’t know, that they did not raise this question of impeaching the underlying loan agreement. And, anyway, I’ve no idea whether that’s a good argument or not and whether it [inaudible] succeeded or not.
MR BUTTERS:	Well - - 
MISS BALA:	In this case, the loan is post 6th April 2007 in any event, so there’s no question of the - - [inaudible] of appeal of Section 1273 so - - that would be the very good reason why this point [inaudible] - - 
HHJ KAY QC:	Well, I’m not going - - 
MR BUTTERS:	[inaudible] prima facie unenforceability - - 
HHJ KAY QC:	I’m not - - 
MR BUTTERS:	I said the Court had a jurisdiction not to grant a declaration of unenforceability - - 
HHJ KAY QC:	Yes. But who knows what would have happened, - - 
MR BUTTERS:	I don’t think there’s a dispute there - - 
HHJ KAY QC:	Who knows what would have happened, yes - - 
MR BUTTERS:	Who knows what would have happened but the point is I say - - I fully accept that, Your Honour, and I won’t press the point any further. I say it’s relevant to the exercise of the Judge’s equitable jurisdiction if, indeed that applied, because, if they’d been consolidated, if the point had been raised, the money judgment that is sought to be set-off may not actually have been enforceable, I say that’s a relevant point. Now - - 
HHJ KAY QC:	Right. 
MR BUTTERS:	Your Honour, I set out in detail the reasons why I say that equitable set-off doesn’t apply. The allegation - - 
HHJ KAY QC:	Yes, I’ve got a lot of red underlining in your skeleton argument - - 
MR BUTTERS:	Yes, indeed, well, I’m grateful, Your Honour. The allegation was resisted, as you say, the Claimants had to incur the costs in order to have found their entitlement to damages. Had they not incurred those costs, one can imagine the situation would have been exactly as happened in the possession proceedings – unrepresented, not raising the argument, no reduction in the liability, no unenforceability. That’s the reality of what would have happened had they not incurred those costs and so to say that there is a ‘close connection’ between those costs and the debt is looking through the wrong end of the telescope. The equity works all the other way and if the Claimants were applying today to set-off costs against damages, which is the situation that exists in all those cases, Lockley et cetera, if they were applying to set-off their costs entitlement against the money judgment liability, then it might be a different story but they’re not applying to do that. 
HHJ KAY QC:	Yes. 
MR BUTTERS:	One final point, Your Honour, My Learned Friend may be able to assist with this, but the way My Learned Friend puts the Judge’s Order on set-off as between the money judgment and the PPI damages, it doesn’t reflect the way in which the Order is drafted. The Order is drafted in a permissive fashion. Your Honour, if I can ask you to turn to page 7 of the appeal bundle - - tab 7 sorry, page [inaudible].  
HHJ KAY QC:	Yes. 
MR BUTTERS:	As you will have noted from the transcript, the Claimants have paid just shy of £2,000 already in respect of the PPI, so they got judgment for that sum and any further sum was to be paid and plainly form part of the possession judgment. So, the first Order was judgment for the amount that had been paid and then there was argument between My Learned Friend and counsel who represented the Claimants at first instance as to what, if any, set-off there should be in relation to the money judgment in the possession proceedings. and you will see paragraph 2 is a permissive Order granting the Claimants the right to set-off: 
“The Claimant shall be entitled to set off 10,717.98  [ten, seven, one, seven, nine, eight] which includes the sum at paragraph 1…” 
So, its granting the claimant a right, should they wish, to set-off damages against damages - - or sorry, damages against money judgment. It’s not ordering that there is a set-off of the money judgment against the Claimants’ damages; it’s not allowing the Defendant a right of set off, its allowing the Claimants a right of set-off, the wording is plain. So, for My Learned Friend to say that “Well, the Judge has allowed the Defendant a set-off, therefore, that set-off should extend to a set-off against costs not just a set-off against damages” belies paragraph 2 of the Order, which, on its wording plainly grants the Claimant a right, not the Defendant. 
Your Honour, I don’t know if My Learned Friend can address you on that point but it’s a point that I noticed when I looked at the Order and I think it cuts against her argument that, once the Judge had gone down the route of a set-off of damages against damages, logically, he couldn’t then ring-fence the cost, but he doesn’t appear to have done the first step that My Learned Friend says he did. I just set that out and I’m sure My Learned Friend will address you on it, but it was a matter that I noticed. Before she does, perhaps I should conclude my submission just by setting out in summary that the Respondent’s position is: first, its plainly a matter of the Judge’s discretion - - 
HHJ KAY QC:	Yes. 
MR BUTTERS:	In which case, the principles of equitable set-off may be relevant but not determinative of the exercise of his discretion. Second, if the jurisdiction of equitable set-off does apply, the Judge was not wrong to conclude that there should be no equitable set-off in this case, for the reasons I set out more particularly in my skeleton and that if that is so, should you be with me on a discretion point, plainly the Judge did not err in the exercise of his discretion. And, on a more general point, in light of the way in which this point was dealt with at trial, can it be said that the judge was wrong, either in the exercise of his discretion under Section 51 of the Senior Courts Act and/or his discretion to set-off judgment or in the exercise of his judgment as to whether equitable set-off applied? We’re on an appeal and I say there is nothing that can be said to point to the Judge being wrong in either of those instances. Unless I can assist you further, those are my submissions. 
HHJ KAY QC:	Thank you very much, thank you. Yes, I don’t need to hear from you. 
MISS BALA:	You don’t wish for me to respond to any of the points? 
HHJ KAY QC:	No, thank you. 
Judgment is given.

JUDGMENT								        16th December 2011
HIS HONOUR JUDGE KAY QC:
1.	This is an appeal against a particular part of a decision made by District Judge Sethi on 2nd June 2011. It relates to paragraph 3 of the Order he made on that day, which reads as follows: 
“The Defendants shall pay the Claimants’ costs summarily assessed in the sum of £29,615.50 by 4pm on the 16th June 2011.”  
It is against that paragraph of the Order that this appeal arises. 
2.	The background to the matter can be stated fairly briefly. On 30th October 2007, the Claimant in the underlying proceedings (the Respondent to this appeal) entered into a credit agreement with the Appellant and, as part of that agreement, purchased a Payment Protection Insurance Scheme (‘PPI’.)
3.	On 12th May 2010, the Respondents issued proceedings against the Appellant in which they alleged the Appellant was guilty of mis-selling the PPI. It is a type of allegation and case that is well-known to the County Courts up and down the country; it arises out of what I think the papers describe as a “Scandal” concerning the mis-selling of PPI. 
4.	On 17th August 2010, and whilst the PPI proceedings were on-going, the Appellant issued proceedings against the Respondents seeking possession of their home and a money judgment. The credit agreement or the loan, as I understand, was secured on the Respondents’ property. Those proceedings were not defended and there was no application to consolidate the two sets of proceedings. It is plain that those proceedings could have been brought by way of a Part 20 counter-claim to the claim that had been issued by the Respondents. That never occurred. As far as I understand the situation, the Appellant was acting through two different departments and the right hand did not speak to the left hand in relation to those proceedings. 
5.	It is also the position that the Respondents to this appeal did not seek themselves to consolidate the proceedings that had been issued for possession of their property. It has been argued before me today that, if they had done so, it might have been open to them to establish to the satisfaction of the Court that the credit agreement should not be enforced. For whatever reason, the Respondents did not inform their lawyers of the possession proceedings.   Nor is it the case that those representing the Respondents considered that they should add into their claim the assertion that the underlying credit agreement was not to be enforced by reason of the mis-selling of the PPI. 
6.	And so it was that, on 28th September 2010, the Appellant obtained a Possession Order over the Respondents’ property and a money judgment in the sum of £44,547.66; that money judgment has not been paid. 
7.	The PPI proceedings continued and they came before District Judge Sethi on 2nd June 2011. They were before him as a claim on the fast-track. He heard evidence and found in favour of the Respondents. He ordered that there be judgment for a monetary sum to be paid to the Respondents and that the Respondents be entitled to set-off a larger sum, something over £10,000, against the judgment in the possession proceedings. Certainly by that time, everyone was aware of the possession proceedings and the money judgment. I understand it is common ground that the parties and/or their lawyers became aware of those earlier proceedings a couple of days before the hearing before District Judge Sethi.  
8.	The District Judge was then asked summarily to assess the Respondents’ costs and he did so in the quite staggering sum of £29,615.50. There is some mitigation, I suspect, for that sum because the Respondents’ solicitors were acting under a CFA. 
9.	Thus far, the Appellant does not contest the Orders made or the findings of District Judge Sethi. After the District Judge gave his rulings, there was a substantial argument, which I need not refer to, about the set-off of the judgment sum. He then assessed the costs, as I have indicated, and then the transcript of the hearing below records the following. Miss Bala, who appears before me today on behalf of the Appellant and appeared before the District Judge, asked for the sum assessed as the Respondents’ costs to be set-off against the judgment owing to the Appellant in the possession proceedings. Mr Turner, acting on behalf of the Respondents (who does not appear for them today) responded that the costs should be paid and not set off.  “They are going to the legal representative” he said. The response from District Judge Sethi was “Yes, the costs are separate.” That is the extent of the argument that there was in the Court below on the issue that has now been argued before me at considerable length, certainly in writing and some length orally. All of the quite sophisticated arguments that have been put before me today were plainly not raised before the District Judge. He has clearly made a decision that there should be no set-off in relation to these costs. The only interpretation one can put on the words that appear in those few lines of the transcript is that the District Judge appears to have been influenced in the decision he made by the argument that the costs should be treated separately from the judgment sum when it came to the question of set-off because the costs will be going to the Respondents’ lawyers. It is against the decision that there should be no set-off in relation to the costs that this appeal is brought. 
10.	It is common ground that the two claims could have been consolidated by either side and, if they had been consolidated, then the almost inevitable result would have been that any awards of monies or costs in the claim made by the Respondents would have been balanced or set-off, if one likes to put it that way, against any sums owing in the possession proceedings brought by the Appellant. The situation has arisen here because the two were not consolidated…
11.	[Interjection by Mr Butters] 
MR BUTTERS:	Your Honour, I don’t think I ever accepted that if the proceedings were consolidated - - 	
HHJ KAY QC:	You don’t accept that?	
MR BUTTERS:	Any costs that were awarded to the Respondents in respect of the PPI issues would necessarily have been set-off. 	
HHJ KAY QC:	All right. 	

12.	…That is not the position accepted on behalf of the Respondents to this appeal but, in my judgment, that would have been the very likely result if the two actions had been heard together. 
13.	For the Appellant on this appeal, Miss Bala’s argument, as set out in her skeleton argument, is that the fact of non-consolidation should not affect the result, and she relies upon the case of Puddephatt v Leith (No. 2) [1916] 2 CH, a decision of Younger J.    That case bears some similarities to this, although it is certainly not on all fours. What is evident is the reaction of the Court in circumstances where the real underlying issue was whether a party’s solicitor was going to get paid or not, depending on whether set-off was allowed or was refused. However one dresses up the case before me, it is also plain here that the real underlying issue is whether those acting under the CFA for the Respondents are going to get paid or not. The quite forceful response to that proposition can be found at pages 176 to 177 of Younger J’s decision. Again, although it’s not quite on all fours, Younger J found it an “extraordinary equity” where it was claimed that a party’s solicitor had an equity against the other party to make that other party pay the costs which that party was ordered to pay to the solicitor’s client.  
14.	Miss Bala puts her case on two bases.  First, she says that there was here the right for the Appellant to assert an equitable set-off.  It is common ground that equitable set off is not available as a matter of discretion; what has to be asserted and established is the ‘close connection’ test which is set out in many authorities and in particular the authority of Lockley v National Blood Transfusion Service [1992] 1WLR 492. That test is whether the parties’ claims are so closely connected that it would be inequitable to allow the Claimant’s claim without taking into account the Defendant’s claim; as it has sometimes been put, the Defendant’s claim must in equity impeach the Plaintiff’s claim. 
15.	Miss Bala says, in the alternative, that here there can be a set-off by judgment (there are, in effect, cross-judgments between the parties) and there should be a set-off where it would be just to apply such a set-off. She recognises that relief is a matter of discretion. Miss Bala has referred me to the cases that have followed Lockley, all of which are rightly described, it seems to me, by Mr Butters, acting on behalf of the Respondents, as somewhat differently factually in that they concern the set-off of interlocutory costs against an award of damages granted at the end of the case. 
16.	Miss Bala has, however, referred me to the case of In Re A Debtor. Again, that is not a case on all fours with the circumstances I have before me. It is, however, informative in that the court reacted in a manner similar to the reaction of Younger J in Puddephatt to an assertion that, as it was in this case, an unpaid creditor should be required to provide for the costs of his debtor’s solicitor otherwise the solicitor will have no chance of being paid. So, in that broad sense, there is some similarity in the sort of plea that is made to this Court. 
17.	Mr Butters for the Respondents argues that I am here dealing with a case on appeal and that I should not interfere with the decision of the District Judge save on well-established principles.  He submits that it must be shown that the Judge below has either erred in principle in his approach, or has left out of account or has taken into account some feature that he should or should not have considered, or that his decision was wholly wrong because the Court is forced to the conclusion that he has not balanced the various factors fairly in the scale. He rightly says that, when it comes to a matter of discretion that is being impugned, a lower Court has a wide ambit within which it can exercise its discretion before an Appeal Court can interfere. 
18.	Mr Butters’ argument is that, where one is dealing with what is in truth a set-off sought by the Appellant of its money judgment in the possession proceedings against the costs it has been ordered to pay in the PPI proceedings, the whole matter comes within the Court’s discretion under Section 51 of the Senior Courts Act 1981. He has referred me to passages in the case of Burkett (R) v London Borough of Hammersmith and Fulham [2004] EWCA Civ 1342, in particular paragraph 46, and Fearns v Anglo-Dutch Paint & Chemical Company [2010] EWHC 2366 (Ch), a decision of George Leggatt QC, in particular at paragraph 73, in support of that argument. In exercising that discretion under Section 51, Mr Butters’ argument is that the Court can have regard to the principles of equitable set-off or a set-off by judgment as a guide but they are not determinative of the exercise of the discretion. He says that that discretion has not been exercised wrongly by the District Judge or at least it is not outside the ambit of reasonable discretion that the District Judge has in such circumstances. In the alternative, if equitable set-off does apply to this case, then the Judge was correct to arrive at his decision and Mr Butters has set out various arguments in his skeleton argument to which I have been referred. 
19.	I have come to the conclusion that this is a case in which I can and should interfere with the decision of the District Judge. There is very little in his decision, as I have indicated, in the way of analysis of what the position is. I do not attribute that criticism at the door of the District Judge because it seems to me that the much more sophisticated arguments I have heard were not raised in front of him and he made a decision without the benefit of such analysis. As a result, he has, it seems to me, fallen into the error of placing reliance as a factor to be taken into account on the existence of the CFA and on the vulnerability, if I can put it that way, of the Respondents’ solicitors to the prospect of not being paid. I derive that from the very short passage to which I have referred earlier in this judgment. 
20.	I, therefore, come to look at the matter afresh because the District Judge has fallen into error in taking a matter into account he should not have taken into account. Whichever way I look at the position, whether it is on the arguments advanced to me by Miss Bala that here the principles of equitable set-off apply or set-off by judgment, or whether I look at the matter under Section 51 of Senior Courts Act 1981 as suggested by Mr Butters, I come to the same conclusion. The prospects, whether they are good or bad, as to whether the Respondents’ solicitor will be paid are irrelevant for these purposes. I am simply looking at the position as between the Appellant and the Respondents. 
21.	Taking Mr Butters’ argument first, there is a discretion as to whether, in these circumstances, the Appellant should be entitled to set-off its money judgment against its liability for costs in the PPI claim. There can be some guidance, he says, to be found in the equitable set-off test of ‘close-connection’ or, indeed, the set-off by judgment test as to whether such a set off is just. I do not accept the arguments he has advanced in his skeleton argument in relation to the ‘close connection’ test or as to whether it would be unjust to order a set-off. It seems to me that the two claims are closely connected. One cannot divorce the costs that have arisen in relation to the PPI claim and say they are not closely connected to the matters that arose in the possession proceedings. These cross disputes all arose out of one transaction, namely the credit agreement that was entered into on 30th October 2007. The Respondents, if there is a set-off, will gain the benefit of the judgment in the PPI proceedings and their award of costs by having the money judgment in the possession proceedings reduced to almost nothing. 
22.	As regards whether it is just or not to order the set-off, I do not accept that because the PPI proceedings related to a misrepresentation made by the Appellant to the Respondents, that means that the equitable remedy is unavailable or should not be made available. It does not signify, in my judgment, that the Appellant came with unclean hands to this equitable remedy. Mr Butters has raised arguments that the Appellant’s conduct in making a misrepresentation as regards the PPI might have led to a Court refusing to enforce the underlying credit agreement. It seems to me that is all water under the bridge; the point was never taken as it might have been and was never adjudicated upon and one does not know whether it would have been acceded to or not. 
23.	Accordingly, whether I apply the legal test of equitable set-off, or set-off by judgment, or as a matter of discretion under Section 51 of the Senior Courts Act 1981, it seems to me that the correct Order would have been to permit the Appellant to set-off its money judgment against the award of costs. They are, in essence, two debts and they should, in my judgment, be set-off.  I can allow this appeal because it seems to me that the District Judge fell into error in taking into account a wrong factor and I can exercise the discretion afresh. So, the appeal is allowed. 

End of judgment 
        16th December 2011
HHJ KAY QC:	How do you want to word this now given what’s been said about the Order below? 
MISS BALA:	I suppose, looking at the Order below actually, which is [inaudible] - - it seems - - I was under the impression, although I don’t have a record of the hearing before me, that that’s actually just an error and that it should be the Defendant rather than the Claimants at paragraph 2, that’s what I understood but it’s neither here nor there really for the purposes of - - 
MR BUTTERS:	Specifically asked for by Mr Turner on behalf of the Claimants that it should read as that and not opposed - - 
MISS BALA:	Ah - - 
MR BUTTERS:	By My Learned Friend is what the transcript shows but - - 
HHJ KAY QC:	Well, I don’t know - - 
MR BUTTERS:	[inaudible] - - 
MISS BALA:	Well - - 
HHJ KAY QC:	Well - - 
MISS BALA:	[inaudible] whatever - - 
HHJ KAY QC:	If an issue arises, you may have to go back to the Court about that. 
MR BUTTERS:	Yes, it’s only paragraph 3 that can be amended plainly. 
HHJ KAY QC:	Yes, yes. 
MISS BALA:	Yes. 
MR BUTTERS:	So - - 
HHJ KAY QC:	Well, we strike out the words “…by 4pm on 16th June 2011…”  it seems to me. 
MR BUTTERS:	Yes. 
MISS BALA:	So, the Defendant shall pay the Claimants’ - - 
HHJ KAY QC:	So, paragraph 3 of the Order of District Judge Sethi is varied to read:
“The Defendants shall pay the Claimants’ costs summarily assessed in the sum of £29,650.50 and the Defendants shall be entitled to set-off their money judgment in claim number…” 
What is it?  
MISS BALA:	It’s the previous [inaudible] - - 
HHJ KAY QC:	Thank you - - 
MISS BALA:	0PB - - 
HHJ KAY QC:	I see it; “…0PB14739 against this Order.” Content with that? 
MISS BALA:	Yes, thank you, Your Honour. 
HHJ KAY QC:	Yes? 
MR BUTTERS:	Yes, Your Honour. 
MISS BALA:	There is also an application for the costs of the appeal. 
HHJ KAY QC:	Yes. 
MISS BALA:	I’m not sure whether you’ve seen the schedule. 
HHJ KAY QC:	I think I have. [short pause] This one here, yes, let’s have a look. 
MISS BALA:	It should be dated 13th December. 
HHJ KAY QC:	£11,852. 
MISS BALA:	That’s the amount claimed, yes. 
HHJ KAY QC:	Yes, that’s the amount claimed. Yes? 
MISS BALA:	In respect of that, I think I would say in summary [inaudible] - - that - - and then perhaps My Learned Friend can respond. 
HHJ KAY QC:	I see on the other side its £1,513, plus counsel’s fees, is that right? 
MR BUTTERS:	Yes.
HHJ KAY QC:	Is that right - - 
MISS BALA:	And the success fee [inaudible] - - 
HHJ KAY QC:	Well - - 
MISS BALA:	[inaudible] - - 
HHJ KAY QC:	[inaudible] success fee of a hundred per cent, it would be £22,000 so there’s a certain imbalance here, is there not? 
MISS BALA:	Yes, I think I have to accept that. 
HHJ KAY QC:	Shall we - - but, of course you had to run the appeal - - 
MISS BALA:	Yes. 
HHJ KAY QC:	It’s your appeal so there’s bound to be a bit more cost in that, I accept - - 
MISS BALA:	Yes. 
HHJ KAY QC:	Preparation of bundles and so forth. 
MISS BALA:	My instructing solicitor did also spend - - 
HHJ KAY QC:	There’s a hugely impressive array of people involved in this case, As many as - -
MISS BALA:	Err, yes - - 
HHJ KAY QC:	As many as, my word, one, two three, four, five, six, seven.
MISS BALA:	That’s explained in the paragraph below because - - well, number six was the case - - then left the firm - - 
HHJ KAY QC:	Yes. 
MISS BALA:	Who was then replaced by a number three. There needs to be some limited supervision by the partner. Steven Dawson was the costs - - provided costs advice, there were a number of conferences because it was felt - - this was the first case Black Horse had appealed on this issue of set-off and CFA - - and indeed there’s no authority directly on point either. Those instructing me did do a large amount of research in the Law Society Library in which they found the cases of Puddephatt and In Re A Debtor so I’m very much obliged to them for that and - - and those weren’t cases which I was able to find just by looking on Westlaw, I did a simple Westlaw search but they have been found by some quite laborious research in the Law Society Library.  
HHJ KAY QC:	Well, you know I’m going to reduce this? 
MISS BALA:	Yes, yes, I - - 
HHJ KAY QC:	The question is by how much. 
MISS BALA:	Yes. 
MR BUTTERS:	Your Honour, quite a lot - - 
HHJ KAY QC:	Yes, it will be quite a lot yes. 
MR BUTTERS:	[inaudible] - - 
HHJ KAY QC:	Yes, it will be quite a lot. 
MR BUTTERS:	Err - - 
HHJ KAY QC:	Is there any specific points you want to make to me? 
MR BUTTERS:	Well - - 
HHJ KAY QC:	Solicitors costs come to £6,717 - - 
MR BUTTERS:	Yes. You Honour - - 
HHJ KAY QC:	Court fees obviously are no problem and counsel’s fee is - - 
MR BUTTERS:	I don’t know if My Learned Friend - - 
HHJ KAY QC:	This is - - what does this mean by “Future costs?” What are “Solicitor’s fees future” meant to be? Is that today?   
MISS BALA:	Err, yes, that’s for today, yes. 
HHJ KAY QC:	That’s for today, is it? Yes. 
MR BUTTERS:	Well, I say that can come out straight away. Your Honour, this is an appeal, it’s not the sort of case where instructions are likely to be needed, it’s not a trial. One has to remember this was a fast-track case and it - - on the fast-track, they’d be limited to £350 - - 
HHJ KAY QC:	Look at your costs of £30,000 on a fast-track, that’s quite impressive [laughter] - -  
MR BUTTERS:	Well, Your Honour, there’s an success fee and an ATE premium - - 
HHJ KAY QC:	Even so - - 
MR BUTTERS:	Well, Your Honour, I think one has to look, and I have it here I think somewhere, the costs in relation to the - - if it assists, I think the sub total of profit costs was £7,899, that’s the base costs. So, when you add in ATE, which wasn’t challenged and, of course, it depends on what’s available in the market, we’re actually looking at the Defendant claiming more in solicitors costs - - 
HHJ KAY QC:	Right. Let me tell you what I’ve got in mind - - 
MR BUTTERS:	Yes. 
HHJ KAY QC:	And then see if you’ve got any objections to it. Without any great scientific input into this - - 
MR BUTTERS:	Yes. 
HHJ KAY QC:	I have in mind a sum of £6,000. 
MR BUTTERS:	Well, Your Honour, I wouldn’t disagree with that. 
HHJ KAY QC:	Okay. 
MISS BALA:	I don’t think there’s anything further I can say really which I - - 
HHJ KAY QC:	It’s up to you. 
MISS BALA:	[short pause] [whispering] [inaudible] - - Sorry, if I could just take instructions.
HHJ KAY QC:	Yes. [inaudible] two hour appeal. 
MISS BALA:	[short pause] Yes. There’s no objection to - - 
HHJ KAY QC:	No objection? All right Thank you very much. So, Respondents to pay Appellant’s costs of appeal, summarily assessed at £6,000. Thank you very much.  
MR BUTTERS:	Your Honour, may I ask for permission to appeal? 
HHJ KAY QC:	You can ask but it would have to be a second appeal. 
MR BUTTERS:	Yes. 
HHJ KAY QC:	And that’s, as you know, only in rare circumstances, and I refuse that. 
MR BUTTERS:	Do you need me to set out my grounds now or are you happy… - - 
HHJ KAY QC:	I’m perfectly happy, you take it - - if you think the Court of Appeal is interested, it might well be interested, I don’t know, then you take it to the Court of Appeal. 
MR BUTTERS:	I’m grateful, Your Honour. 
HHJ KAY QC:	But this being a second appeal, I think it’s a matter for the Court of Appeal themselves to decide whether they wish to hear it. 
MR BUTTERS:	Yes, I’m grateful. 
HHJ KAY QC:	Right. Thank you very much, if I could hand these files back to you. Well, thank you for an interesting argument, which one doesn’t always get in this building. Right. Thank you. 
End of hearing.

APPEAL AUTHORITIES BUNDLE INDEX

Tab	No.	Document Page	
			
1.	s51 of the Senior Courts Act 1981	1-2	
2.	Section 72 of the County Courts Act 1984	3	
3. 	Wheaton v Graham Nov 12, 1857	4	
4. 	Knapman v Wreford [1879 K. 14] CA 1881	4a – 4f	
5. 	Forbes v Jackson [1880 F. 1226] VCH 1882 Jan 12,	16 5-8	
6. 	Puddephatt v Leith (No. 2 [1915 P. 2064]	9-15	
7. 	Lockley v National Blood Transfusion Service [1992] 1 WLR 492	16-22	
8. 	Yeheskel Arkin v Borchard Lines [2001] CP Rep 108	23-31	
9. 	Burkett (R) v London Borough of Hammersmith and Fulham [2005] 1 Costs LR 104	32-44	
10. 	Sandler v Sandler and Lloyd Platt and Co [2010] EWHC 1415 (Fam) Family Division Macur J 18 June 2010	44a – 44e	
11. 	Fearns v Anglo-Dutch Paint Co (2010) EWHC 2366	45-69	
12. 	Ahmad v London Borough of Brent [2011] EWHC 378 (QB)	70-73	
13.	In re: A Debtor, No 21 or 1950 (No. 2) Ex parte the Petitioning Creditors v the Debtor	74-79	
14. 	Cousins on Law of Mortgages Third Edition by Edward F Cousins, 2010	80-89	
15. 	Fisher & Lightwood 13th Edition 2010	90-100	
16. 	Section A Civil Procedure Rules 1998 Part 44	101-103