England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand,London WC2
		5 March 1999

LORD JUSTICE MORRITT:

1. On 18th January 1996 Jonathan Parker J, sitting as the Vice-Chancellor of the County Palatine of Lancaster, upheld orders of the District Judge giving summary judgment in each of two actions ("the First Action and "the Second Action" respectively) to Globe Equities Ltd ("Globe") against Globe Legal Services Ltd ("GLS") for arrears of rent and service charges due under a lease granted by Globe to GLS on 5th September 1991 ("the Lease"). At that time there were pending two other connected actions. The first, chronologically, was an action ("the Guarantee Action") in which three of the original four guarantors of the obligations of GLS under the Lease sought to establish that they had been discharged from liability. The second was an action ("the Option Action") brought by Globe seeking to enforce against two of the guarantors an agreement whereby GLS would take on lease further parts of the building. The Guarantee Action was discontinued and the Option Agreement effectively terminated with a judgment against the sole effective guarantor. On 6th June 1997 Jonathan Parker J made orders against the firm of solicitors, Miller Gardner ("the Firm"), who had acted for GLS and the guarantors in each of the four actions, requiring it to pay the costs of Globe in respect of the First Action and the Second Action against GLS. On the same day he dismissed applications by Globe that similar orders should be made in the Guarantee Action and the Option Action. This is an appeal by the Firm in respect of the orders made against them in the First Action and the Second Action and a cross-appeal by Globe from the judge's refusal to make such orders in either the Guarantee Action or the Option Action.
2. The applications were made pursuant to three distinct jurisdictions, namely, (a) s.51(1) and (3) Supreme Court Act 1981, (b) the inherent jurisdiction of the court and (c) the special jurisdiction conferred by s.51(6) Supreme Court Act 1981 and RSC Ord 62 r. 11 in respect of "wasted costs". The orders made in the First Action and the Second Action were made under the jurisdictions summarised in (a) and (b) but not (c). Globe contends, if the appeal were to succeed in respect of (a) and (b), that the judge erred in refusing to make an order under (c). In its cross-appeal it contends that the orders it seeks in the Guarantee Action and the Option Action can and should be made under each of the three jurisdictions.
3. In the event we heard argument in respect of the orders made in the First Action and the Second Action only in so far as they were made under the jurisdiction conferred by s.51(1) and (3) Supreme Court Act 1981. We also heard argument in respect of the merits of the application for orders against the Firm in the Guarantee Action and the Option Action whichever of the three jurisdictions was being relied on. At the conclusion of those arguments we indicated that we did not require further argument if, as counsel for Globe confirmed, it was of academic interest only whether the orders made in the First Action or the Second Action might be justified by reliance on either or both of the other two jurisdictions and if, as he also confirmed, the merits relied on did not suffice to justify making an order under any of the three jurisdictions. Lest it be thought that the hearing was thereby unduly curtailed it must be borne in mind that this court has said on more than one occasion that proceedings in respect of orders such as these should be dealt with in a summary way, to be measured in hours not days, and not allowed to give rise to substantial satellite litigation: Ridehalgh v Horsefield [1994] Ch 205, 238. The application before the judge, who had already spent four days hearing the applications leading up to his orders made on 18th January 1996, took two full days and the hearing before us took three.
4. At all material times Globe was the freehold owner of an office block called Globe House, Southall Street, Manchester. By an agreement made on 26th April 1991 ("the Pre-Letting Agreement") Globe agreed to grant the Lease to Mr G.B.Miller and Mrs Mary Kotrie. Mr Miller and Mrs Kotrie carried on business as solicitors in partnership under the name Miller Monson. They employed Mr A.J.Wheeler as an assistant solicitor. By a further agreement made on the same day ("the Option Agreement") Globe granted to Mr Miller and Mrs Kotrie an option to take on lease a further part of Globe House. On 19th July 1991 Mr Miller and Mrs Kotrie incorporated GLS for the purpose of taking the Lease and acting as a service company for Miller Monson. GLS had been intended to carry on other functions but in the event never did so. Two shares were issued, one to Mr Miller and one to Mrs Kotrie. Mr Miller and Mr Wheeler were the directors and Mr Wheeler was the secretary. GLS took possession of the premises on 5th August 1991 and the Lease was executed on 5th September 1991.
5. By the Lease Globe demised the first floor of the building for a 15 year term from 31st March 1991 at an initial rent of £14,625, subject to a three year review, payable quarterly in advance and an additional rent in respect of the service charge payable quarterly in arrear. Both the rent and service charge were to be paid without deduction or set-off. The demised premises were to be used for offices only. The tenant's covenants included covenants against assigning, sub-letting or parting with possession and a covenant to pay the prescribed costs of the landlord on an indemnity basis. The obligations of GLS were guaranteed by Mr Miller, Mr and Mrs Kotrie and Mr Wheeler. The rent and service charges due under the lease were duly paid down to 29th September 1992.
6. On 20th July 1992 Mr Miller and Mrs Kotrie exercised the option granted to them on 26th April 1991 to take on lease additional office space on the first floor of Globe House. By then Mr Wheeler had left the employment of Miller Monson. In September 1992 his place, as an employee of Miller Monson, was taken by Mr R.M.Gardner. Mr Gardner became the Secretary of GLS sometime after 26th January 1993. Mr Gardner had entered into an individual voluntary arrangement with his creditors in June 1992 which, in accordance with its terms, would last until June 1996. In October 1992 Globe sent the keys to the option premises to Miller Monson, but they were returned on 7th January 1993 following a letter dated 11th December 1992 written by Mr Gardner on behalf of Miller Monson purporting to rescind the contract arising from the exercise of the option on account of the alleged breach thereof by Globe.
7. In January 1993 the practice of Miller Monson was reorganised. By a deed of release dated 23rd January 1993 Globe released Mr Wheeler from his liability as a guarantor of the obligations of GLS under the Lease. On 26th January 1993 the partnership between Mr Miller and Mrs Kotrie was dissolved. On 27th January 1993 Mr Miller and Mr Gardner entered into a new partnership in the name Miller Gardner. The Firm continued to occupy the offices demised by the Lease from the time of its constitution on 27th January 1993 until it vacated them on 31st March 1995, but it paid nothing for that occupation either by way of rent or by way of service charge.
8. Globe's first attempt to recover the unpaid rent and service charges was by way of statutory demands served on the remaining guarantors of the obligations of GLS, Mr Miller, and Mr and Mrs Kotrie, on 4th January 1993. They were set aside on 17th May 1993 on the ground that the release of Mr Wheeler as guarantor had, arguably, released his co-guarantors. In the meantime the Option Action had been started by a writ issued by Globe on 8th February 1993 to which the defendants were GLS, Mr Miller and Mrs Kotrie. Initially Globe sought specific performance of the contract to take on lease further offices in Globe House. On 24th June 1994 those further offices were let to another and the action proceeded as a claim for damages only. After the statutory demands had been set aside the Guarantee Action was commenced by a writ issued on 23rd July 1993 by Mr Miller, Mr Kotrie and Mrs Kotrie against Globe seeking a declaration that they had been discharged by the release of Mr Wheeler.
9. The First Action was started by a writ issued by Globe on 27th January 1994 against GLS as the tenant and Mr Miller and Mr and Mrs Kotrie as the guarantors of the obligations of GLS. Globe sought recovery of the arrears of rent and service charge due in the period from 29th September 1992 to 25th December 1993. Mr and Mrs Kotrie dropped out of the three actions then in existence when, on 21st April 1994, a bankruptcy order was made against Mrs Kotrie and, on 9th February 1995, an agreement not to sue was concluded between Globe and Mr Kotrie. The Second Action was started by a writ issued by Globe on 11th May 1995 against GLS as tenant and Mr Miller as guarantor seeking the recovery of the rent and service charges due by GLS under the Lease for the period between 25th March 1994 and 25th March 1995.
10. In both the First Action and the Second Action the respective defendants served defences and counterclaims. First, they alleged that the rent was not due because the practical completion date under the Pre-Letting Agreement had not arrived. Second, they contended that the Lease should be rectified so as to reduce the floor area by reference to which the rent was calculated. Third, they sought to set-off damages claimed by the counterclaim for breach of the obligation of the landlord under the Lease to keep the premises in good repair and for breach of the obligations of Globe undertaken in the Pre-Letting Agreement to sound-proof the offices and to provide a staircase. Fourth, they sought damages for breach of the Option Agreement in that, so it was alleged, Globe had failed to give vacant possession as required thereunder. In paragraph 26 of their re-amended counterclaim GLS and Mr Miller asserted that

(2) ....Further the sole use which the First Defendant has been able to make of the demised premises have been in licensing their use by Solicitor's practices in which the Fourth Defendant has been a partner since the date of the lease.... In the result the First Defendant has lost the indemnity that would otherwise have obtained against its said liabilities under the lease; the Fourth Defendant and his current Solicitor's practice Miller Gardner removed from the premises in March 1995 by reason of the said problems of access and soundproofing affecting the premises and for no other reason

(3) Further or in the alternative a sum equal to the profits lost by the Fourth Defendant and his partners in the said practices .... the best estimate of which the First and Fourth Defendants can at present give being about £20,000 per annum; the First Defendant has licensed as aforesaid the Fourth Defendant and his practices to occupy the premises by informal agreement ... The First Defendant seeks an indemnity from the Plaintiff from its liability to the Fourth Defendant and his partners in regard to such loss of profits.

In his affidavits sworn on 27th August and 3rd November 1994 Mr Miller referred to the Firm as the occupier of the offices and as the licensee of GLS.

11. In due course Globe issued summonses in both the First Action and the Second Action seeking (a) summary judgment on its claims against GLS, (b) an order striking out the counterclaims of the guarantors, and (c) security for the costs of the counterclaim of GLS. Orders were made by the District Judge as sought in the First Action under a) and c) only, but he granted a stay on the judgments on the claims pending trial of the counterclaims of GLS and trial of the Guarantee Action. The appeals from those orders and the summonses for equivalent orders in the Second Action came before Jonathan Parker J in November 1995. After a four day hearing he gave a reserved judgment on 18th January 1996. In summary his conclusions were:

a) the orders of the District Judge in the First Action granting summary judgment on the claim against GLS and striking out the counterclaim of the guarantors should be upheld but that the stay of execution thereon should be removed;

b) equivalent orders should be made in the Second Action;

c) GLS should be required to give security for the costs of its counterclaim (in respect of which he gave leave to reamend) in both the First Action and the Second Action;

d) all questions in respect of the costs were adjourned for argument on another day.

In the course of his judgment he described the defence that the rent was not payable because the date of practical completion had not arrived as one which "defied common sense" and the defence that the Lease should be rectified as "unarguable, bound to fail and without substance". With regard to the counterclaim of GLS he considered that the court was "faced with a tenant which was trying to work up a counterclaim in order to avoid performance of a clear obligation to pay rent and service charge".

12. GLS did not provide the security for costs required and, in the face of this judgment, went into creditors voluntary liquidation on 2nd February 1996. In the statement of affairs sworn by Mr Miller he claimed that the Firm was a creditor of GLS in the sum of £30,000 in respect of legal fees and disbursements. The other creditor disclosed was Globe in respect of a debt of £151,508. There were no assets revealed. Shortly thereafter the liquidator disclaimed the lease.
13. On 1st May 1996 Globe issued a summons in each of the First Action, the Second Action and the Guarantee Action against Mr Miller for summary judgment against him as the guarantor of the obligations of GLS. On the same day the solicitor for Globe swore affidavits seeking orders that the costs of Globe in respect of the First Action and the Second Action against GLS and the counterclaim of GLS in those actions be taxed on an indemnity basis and paid by the Firm. On 31st January 1997 the Firm was dissolved. Mr Gardner continued in practice as a sole principal under the same name and Mr Miller became a consultant. On 25th February 1997 Mr Miller withdrew his defences in the First Action, the Second Action and the Option Action and sought leave to discontinue the Guarantee Action. A further summons seeking summary judgment against Mr Miller in the Option Action was issued and a further affidavit seeking such costs orders in respect of the Guarantee Action and the Option Action was sworn by Mr Willan on 27th February 1997.
14. Judgments for the amounts claimed and indemnity costs were awarded against Mr Miller in the First Action, the Second Action and the Option Action on 15th April 1997 and leave to discontinue the Guarantee Action was subsequently given on 6th June 1997. Thus the hearing before Jonathan Parker J on 4th and 5th June 1997 was concerned only with the application for costs against the Firm. The evidence before him consisted of the affidavits of the solicitor for Globe to which I have referred and an affidavit of Mr Miller sworn on 24th February 1997. He also considered a draft affidavit of Mr Gardner subsequently sworn on 10th June 1997. In his affidavit Mr Miller accepted that GLS had always been unable to pay the costs of the Firm incurred in acting on its behalf in all four actions unless it won the action and expressed his opinion that the counterclaim of GLS in the First Action and the Second Action had merit. In his affidavit Mr Gardner stated

5. I was instructed to deal with these so far as they related to GLS and GBM personally. Mr. Kotrie was separately represented subsequently by Hammelberger Marks Solicitors and Miss Kotrie by Brian Thompson & Partners, Solicitors of Sheffield.

6. In view of the allegations in relation to champerty, maintenance and contingency referred to above I wish to make it absolutely clear that at no time did GBM and I reach any understanding with regard to the fees and disbursements to be incurred in relation to the various actions, which understanding could be termed a contingency fee or arrangement. Indeed, on entering into Partnership I expressly agreed with Mr. Miller that I would deal with these matters on his behalf but that he would be responsible for the costs. Pro bono work is often done for Partners and sometimes for staff, but this usually relates to conveyancing or re-mortgage work, and not long and indeterminate cases in terms of costs.

7. All the various actions were allotted an individual client number and time charged on the computer records accordingly from on or about January 1994 when the firm computerised its manual system.

8. Moreover, I also agreed with GBM at the outset of our partnership that I would not accept any liability for the rent and costs outstanding and continuing. I was not prepared to enter into any guarantee or indeed take an assignment of a long lease for 15 years duration with all the attendant and pre-existing issues as to the suitability of the premises.

It was suggested that the judge had wrongly restricted the evidence from Mr Gardner which he was prepared to consider. I do not accept this submission. First, there is no appeal in respect of his decision in that respect. Second, in view of the time which had elapsed since Mr Gardner had known of the application against the Firm, it was well within the discretion of the judge to refuse to accept any other late evidence from him.

15. Jonathan Parker J made it plain that he did not make any findings of bad faith against Miller Gardner. Likewise he made no finding that the claim of Miller Gardner in the liquidation of GLS for £30,000 in respect of costs incurred on behalf of GLS in the conduct of the four actions was a sham. Nevertheless the judge concluded that he should make an order as sought in the First Action and the Second Action under the jurisdiction conferred by s.51(1) and (3) Supreme Court Act 1981. He said [transcript: 8A-9B]

"The position here, in my judgment, is that the real defendants to the rent actions were the guarantors (or in the case of the Second Action, Mr. Miller as guarantor), and the firm of Miller Gardner. These actions were, in my judgment, continued for the benefit of Miller Gardner, in the sense that Miller Gardner stood to benefit if they succeeded. The benefit in this respect took two forms. Firstly, the continuation of the litigation enabled Miller Gardner to occupy the premises for a period of more than two years without paying a penny towards rent or service charge. Secondly, the pleaded counterclaim for damages is premised upon losses alleged to have been suffered by the firm Miller Gardner by reason of the alleged unsatisfactory nature of the premises. It is not necessary for me to recite the terms of the counterclaim in this respect. They are set out at some length in an affidavit sworn by Mr. Willan, Globe's solicitor, in support of the present applications. Mr. Elleray submits that there is no element of benefit to the firm of Miller Gardner, since all the issues in the proceedings were already joined by the time Mr. Gardner became a partner. In my judgment, however, that is no answer to the question, whether Miller Gardner benefitted by the continuation of the litigation. For the reasons which I have already given, plainly in my judgment it was. The litigation was conducted by Miller Gardner, in its capacity as solicitors, in the knowledge that GLS could not pay its own legal costs, and a fortiori the costs of any other party, without outside funding, and that in the circumstances that outside funding could only have emanated from Mr. Miller or from the firm of Miller Gardner itself.

In my judgment, those considerations render this an exceptional case within the meaning of that expression as used by Balcombe LJ in Symphony. In my judgment the principle of Aiden Shipping and Interbulk clearly applies, and an order must be made against Miller Gardner for Globe's costs of the First and Second actions upon that basis."

16. In respect of the Option Action and the Guarantee Action Jonathan Parker J took a different view. He said [transcript: 10D-11A]

"Both the Option Action and the Guarantee Action seem to me to be of a substantially different character. In the first place it cannot be said that Miller Gardner derived from those actions the benefits which I identified earlier as arising in relation to the First and Second Actions. Secondly, I have to bear in mind that the latest evidence supplied by Mr. Gardner is to the effect that Mr. Miller was to be responsible for his fees, and that Mr. Gardner was under no liability in relation to the claims in the litigation. It seems to me on that basis that it would not be appropriate to make an order against the firm Miller Gardner........The Guarantee Action is a fortiori in this respect, since GLS is not a party to it. Accordingly, the same results must follow as those which I have identified in relation to the Option Action."

17. As I have indicated Miller Gardner contends that the judge was wrong in respect of the First Action and the Second Action and Globe contends that he was wrong in respect of the Option Action and the Guarantee Action. Before referring to the rival arguments it is convenient to set out in more detail the nature of the jurisdiction of the court now relied on. The jurisdiction is conferred by s.51(1) and (3) Supreme Court 1981 in these terms:

(1) Subject to the provisions of this or any other enactment and to rules of the court, the costs of and incidental to all proceedings in -

(a) the civil division of the Court of Appeal;

(b) the High Court, and

(c) any county court,

shall be in the discretion of the court.

..............

(3) The court shall have full power to determine by whom and to what extent the costs are to be paid.

In Aiden Shipping Co.Ltd v Interbulk Ltd [1986] 1 AC 965 the House of Lords determined that the reference to persons in subsection (3) was not confined to the parties to the proceedings. The exercise of such discretion was to be controlled by the Rules of the Supreme Court to which the jurisdiction was expressed to be subject and principles to be established by the appellate courts.

18. The principal, but by no means only, decision of the Court of Appeal on this subject is Symphony Group plc v Hodgson [1994] QB 179. At page 192/3 Balcombe LJ with whom Staughton and Waite LJJ agreed said

(1) An order for the payment of costs by a non-party will always be exceptional; see per Lord Goff in Aiden Shipping Co. Ltd v Interbulk Ltd. [1986] AC 965, 980F. The Judge should treat any application for such as order with considerable caution.

(2) It will be even more exceptional for an order for the payment of costs to be made against a non-party, where the applicant has a cause of action against the non-party and could have joined him as a party to the original proceedings. Joinder as a party to the proceedings gives the person concerned all the protection conferred by the rules, as to e.g. the framing of the issues by pleadings; discovery of documents and the opportunity to pay into court or to make a Calderbank offer (Calderbank v Calderbank [1976] Fam. 93); and the knowledge of what the issues are before giving evidence.

(3) Even if the applicant can provide a good reason for not joining the non-party against whom he has a valid cause of action, he should warn the non-party at the earliest opportunity of the possibility that he may seek to apply for costs against him. At the very least this will give the non-party an opportunity to apply to be joined as a party to the action under Ord. 15r. 6(2)(b)(i) (ii).

Principles (2) and (3) require no further justification on my part; they are an obvious application of the basic principles of natural justice.

.......

(6) The procedure for the determination of costs is a summary procedure not necessarily subject to all the rules that would apply in an action. Thus, subject to any relevant statutory exceptions, judicial findings are inadmissible as evidence of the facts upon which they were based in proceedings between one of the parties to the original proceedings and a stranger: see Hollington v F. Hewthorn & Co. Ltd. [1943] KB 587; Cross on Evidence, 7th ed. (1990), pp 100 - 101. Yet in the summary procedure for the determination of the liability of a solicitor to pay the costs of an action to which he was not a party, the judge's findings of fact may be admissible; see Brendon v Spiro [1938] 1 KB 176, 192, cited with approval by this court in Bahai v Rashidian [1985] 1 WLR 1337 1343D, 1345H. This departure from basic principles can only be justified if the connection of the non-party with the original proceedings was so close that he will not suffer any injustice by allowing this exception to the general rule.

19. Basing himself on the principles expounded by Balcombe LJ counsel for Miller Gardner made a number of submissions which may be summarised in this way:

(1) Miller Gardner were not parties to the original proceedings so that the findings of Jonathan Parker J made therein are not binding on them;

(2) the facts of this case do not bring it within the category of "exceptional" so as to entitle the court to make any order against Miller Gardner;

(3) the costs incurred by Globe in the First Action and the Second Action and ordered by the judge to be paid by Miller Gardner were not sufficiently caused by the conduct of Miller Gardner to warrant the order made by the judge;

(4) the costs (if any) to be paid by Miller Gardner should be taxed on the standard not the indemnity basis.

I will deal with those submissions in the order in which I have set them out.

20. The sixth proposition set out by Balcombe LJ in Symphony Group plc v Hodgson, which I have quoted, indicates that the findings in other proceedings may be admissible against a person who was not a party thereto against whom an application for costs is made. The test suggested by him is the closeness of the connection of the non-party with the original proceedings. In my view the proximity of the solicitors on the record for a party could hardly be closer and certainly entitled the judge in his discretion, as confirmed by Brendon v Spiro [1938] 1 KB 176, to rely on his findings in the actions on the application for costs against Miller Gardner. In any event if objection was to be taken it should have been taken before the judge. It was not. I would reject this submission.
21. The principal argument was directed to the question whether the circumstances in these applications could properly be regarded as "exceptional". Counsel for Miller Gardner submitted that they could not. In addition to the judgment of Balcombe LJ in Symphony Group plc v Hodgson he referred to similar statements in Taylor v Pace [1991] BCC 406 at p.410 per Lloyd LJ; Metalloy Supplies v MA (UK) Ltd [1997] 1 WLR 1613 at p. 1620 per Millett LJ and Murphy v Young's Brewery [1997] 1 WLR 1591 at p.1604 per Phillips LJ. But these statements left open the question by what standard the circumstances are to be judged in ascertaining whether they are exceptional. That question was answered by Phillips LJ in Chapman v Christopher [1998] 1 WLR 12 at p. 20 where he said

"The test is whether they [sc. the features relied on] are extraordinary in the context of the entire range of litigation that comes to the courts."

I would also comment that there appears to me to be a danger of treating the requirement that the circumstances are "exceptional" as being part of the statute to be applied. It is not. The epithet originates in the first proposition enunciated by Balcombe LJ in Symphony Group plc v Hodgson, but it is based on what Lord Goff said in Aiden Shipping Co.Ltd v Interbulk Ltd [1986] 1 AC 965, 980

"In the vast majority of cases it would no doubt be unjust to make an award of costs against a person who is not a party to the relevant proceedings. But, as the facts of this case show, that is not always so."

In none of the cases to which I have referred have "exceptional circumstances" been elevated into a precondition to the exercise of the power; nor should they be.

Ultimately the test is whether in all the circumstances it is just to exercise the power conferred by subsections (1) and (3) of s.51 Supreme Court Act 1981 to make a non-party pay the costs of the proceedings. Plainly in the ordinary run of cases where the party is pursuing or defending the claim for his own benefit through solicitors acting as such there is not usually any justification for making someone else pay the costs. But there will be cases where either or both these two features are absent. In such cases it will be a matter for judgment and the exercise by the judge of his discretion to decide whether the circumstances relied on are such as to make it just to order some non-party to pay the costs. Thus, as it seems to me, the exceptional case is one to be recognised by comparison with the ordinary run of cases not defined in advance by reference to any further characteristic.

22. For Miller Gardner counsel emphasised that the Firm now consists of Mr Gardner alone, that he was not a director of GLS, that the judge specifically absolved him from any aspersion of bad faith and that throughout he acted for GLS in the normal way as their solicitor and not for his own benefit. He submitted that in those circumstances this case could not be regarded as exceptional. I am unable to accept that submission.
23. First the issue is whether an order should be made against the Firm. The fact that it was dissolved after the events in question does not appear to me to be material. The liability, if there is one, is that of the Firm to be dealt with in its winding up in accordance with the rights of the partners between themselves. It was suggested, by reference to the third proposition in the judgment of Balcombe LJ in Symphony Group plc v Hodgson, that Globe might have sought possession rather than payment of the arrears of rent so that warning should have been given to the Firm and Mr Gardner that Globe would seek costs from them. But there is nothing in the third proposition requiring a plaintiff to change its cause of action altogether. Globe had no cause of action against the Firm for the arrears of rent. But even if it had the principles of natural justice did not require Globe to warn the Firm of the jurisdiction of the court to order it to pay the costs incurred by Globe. As a firm of solicitors it may be presumed to have been well aware of it. It was also submitted that the case could not be exceptional because Globe had its remedies against GLS for summary judgment and security for costs, thereby protecting itself from weak claims. But I do not see why the existence of those remedies should preclude the order sought in respect, primarily, of the costs of obtaining those remedies.
24. Second I do not accept that the First Action and the Second Action, which were throughout conducted on behalf of the Firm by Mr Gardner, were conducted by the Firm in the normal way as solicitors for GLS. There is no evidence that instructions were given to Mr Gardner from time to time on behalf of GLS by Mr Miller or anyone else. The clear inference from the affidavits of Mr Miller and Mr Gardner is that Mr Gardner was left to conduct those actions as he thought fit in the interests of the Firm of which he was the junior partner.
25. Third, it was admitted that both Mr Miller and Mr Gardner knew that GLS could not pay its (or the other side's) costs of those actions unless it was successful. It was suggested that the evidence of Mr Gardner established that Mr Miller had agreed to pay the costs incurred by the Firm in acting for GLS. This submission is based on the passages from the affidavit Mr Gardner, particularly paragraph 6, which I have quoted. I do not accept that the evidence supports the submission. In the context it is in my view plain that Mr Miller agreed to pay his own costs not those of GLS.
26. Fourth, the Firm, as licensee of GLS, benefited from the proceedings in a number of ways. First, it occupied the offices free of rent or service charge for over two years from 27th January 1993 to 31st March 1995. Second, it preserved the quality of such occupation being free of charge in that it succeeded in staving off judgment against GLS or Mr Miller for the rent and service charges both during its occupation and thereafter until after the Firm was dissolved. Third it would benefit from the counterclaim of GLS, if it succeeded, through the loss of profit claim.
27. In all these circumstances, in my view, the judge was fully entitled to reach the conclusion that the case was exceptional so as to justify an order for costs being made against the Firm. In my view his analysis of the facts was correct and on that analysis it was open to him to treat the case as exceptional. It is not necessary for that purpose to reach any conclusion whether the conduct of the Firm was improper. That element may be essential to an exercise of the inherent jurisdiction but is not a pre-requisite to the exercise of the jurisdiction conferred by s.51(1) and (3) Supreme Court Act 1981.
28. I pass then to the issue of causation. In Bristol & West plc v Bhadresa (No.2) (13th November 1998 New Law Online Case 2981117704) Lightman J expressed the view that to justify an order for costs being made under s.51(1) and (3) Supreme Court Act 1981 it was necessary to consider the question

"whether and if so to what extent the conduct of [the non-party] complained of caused loss to [the Applicant] in the sense of occasioning or increasing the costs which [the Applicant] incurred in the actions."

It was not disputed that the conduct of the non-party must have been a cause of the applicant incurring the costs it seeks to recover. For Globe it was submitted that this requirement was satisfied by the obvious fact that the costs of Globe were incurred because of the defences and counterclaims maintained by the Firm ostensibly on behalf of GLS but in substance for its own benefit. Counsel for the Firm contended that that was not enough. He submitted that all the circumstances which made the case exceptional must also be a cause of the costs sought to be recovered. He submitted that the proper question was "but for the exceptional circumstances would the costs sought have been incurred". I do not accept that submission. I accept that the costs claimed must have been caused to some extent by the non-party against whom the order is sought for otherwise it is hard to envisage any circumstance in which it could be just to order the non-party to pay them. But I do not see why they must be caused by all the factors which render the case exceptional. For example, one of the factors likely to be present in most, if not all, cases where an order is made is that the litigation was for the benefit of the non-party; but that is no reason to require that the costs were all incurred in obtaining that benefit. The point was clearly made by counsel for the Firm who pointed out that the costs were incurred in seeking to compel payment of the rent not to obtain vacant possession. For my part I do not think that it makes any difference that the relief sought is not directed to stopping the benefit to the non-party. In any event in this case it appears to me that the condition, if as onerous as the Firm contends, is satisfied. The defence to the First Action preserved the rent free occupation of the Firm until it vacated the offices on 31st March 1995. Thereafter the defence to both the First Action and the Second Action was effective to preserve the rent free nature of that occupation. The counterclaims in each of them would have been to the benefit of the Firm if they had succeeded. The second benefit ceased on 18th January 1996 when judgment was entered against GLS, though the liquidator seems to have made no attempt to recover on the indemnity expressed or implied in the counterclaim of GLS. The third ceased in February 1996 when GLS went into liquidation without having put up the required security for costs. Accordingly I see no reason to draw any distinction between the First Action and the Second Action.

29. It was also suggested that the judge was wrong to have included in his order against the Firm the costs of the action against Mr Miller as guarantor. I do not agree. Given the rights of Mr Miller against GLS as a guarantor of its liability and given his relationship with GLS any judgment against him would threaten the rent free nature of the occupation current or past.
30. The fourth point related to the basis of taxation of the costs. In his judgment the judge recorded that there was no issue as to Globe's entitlement to indemnity costs against GLS because of the terms of the lease. For Globe it was submitted that as an order for indemnity costs against GLS was justified either because of the manner of the conduct of the litigation or because of the terms of the lease the order against the Firm should be on the same basis. The conclusion of the judge was

"In my judgment the appropriate approach in this matter is to recognise that Miller Gardner have in effect stood in the shoes of GLS so far as the first and second actions are concerned,and thus exposure is co-extensive with the exposure of GLS."

He ordered GLS to pay to Globe their costs of the action and counterclaim in both the First Action and the Second Action to be taxed on an indemnity basis and therefore ordered the Firm to pay such costs to be taxed on the same basis.

31. Counsel for the Firm contends that the judge was wrong. He submits that on its true construction Globe was not entitled under the Lease to recover costs of litigation from GLS on an indemnity basis and that the conduct of GLS in the litigation did not entitle the judge to make an order for indemnity costs against it. In those events, so it was submitted there can be no justification for ordering the Firm to pay indemnity costs.
32. I will consider first the submission based on the terms of the lease. By clause 5.10.1 the tenant, GLS, covenanted

"to pay to the Landlord on an indemnity basis all proper and reasonable costs, fees, charges, disbursements and expenses (including without prejudice to the generality of the foregoing those payable to Counsel, Solicitors, Surveyors and bailiffs) and all or any VAT thereon incurred by the Landlord in relation or incidental to:

.......

5.10.1.3. the recovery or attempted recovery of arrears of rent or other sums due from the Tenant."

It is in my view plain that the words "attempted recovery" do not refer to claims which the courts have dismissed but rather to those which succeeded in law but ultimately failed because the tenant did not have the means to pay. So read it seems me that costs of proceedings to enforce payment of rent in arrear are included in the covenant.

33. A similar conclusion was reached by Walton J in Bank of Baroda v Panessar [1987] Ch. 335. In that case the charge provided that the chargee was entitled to recover "costs, charges and expenses...which you may incur in enforcing or obtaining payment of the sums of money due to you..". Walton J held that that provision entitled the chargee, by contract, to the costs of court proceedings to be taxed on an indemnity basis. He considered that such a contract could not override the discretion of the court conferred by the Supreme Court Act 1981 s.51 and the rules made thereunder but was a relevant factor in determining how to exercise it. So in this case the terms of the tenant's covenant was a material consideration in considering what order to make against GLS.
34. In any event the test of whether to order costs to be taxed and paid on an indemnity basis is the reasonableness or otherwise of the conduct of the litigation by the person liable for the costs: Disney v Plummer per Kerr LJ (CA 16th November 1987 unreported) I see no grounds on which the exercise by the judge of his discretion in that respect could be challenged either. If an order for indemnity costs is appropriate against GLS then I can see no reason why this, compensatory, jurisdiction should not be similarly exercised against the Firm. Accordingly I would reject this objection to the judge's order.
35. For all these reasons I conclude that the judge was entitled in the exercise of his discretion under s.51(1) and (3) Supreme Court Act 1981 to make an order that the Firm pay the costs of Globe of and occasioned by the First Action and the Second Action in the form which he did. Accordingly I would dismiss the appeal.
36. I turn then to the cross-appeal. It is convenient to deal first with the Option Action. Counsel for Globe submitted that the judge was wrong to find that the Firm did not benefit from the Option Action and that the agreement of Mr Miller to pay his own costs was no different from the position in the First Action or the Second Action. I have already quoted the relevant passage from the judge's judgment. With regard to benefit he found that the Firm did not derive from the Option Action the benefits he had earlier identified. This is self-evident for the Firm never did occupy the further offices comprised in the Option Agreement and there is no evidence that they ever needed or wanted them. It is true that there may have been some more insubstantial benefit to the Firm in avoiding a judgment against GLS or Mr Miller for damages for breach of the Option Agreement but in my view such a benefit is too tenuous to justify an order for costs against the Firm.
37. With regard to the second objection it is clear that Mr Miller agreed to pay his own costs but not those of GLS. But the Option Agreement was made between Globe and Mr Miller and Mrs Kotrie; the option was exercised by Mr Miller and Mrs Kotrie. It is apparent from the statement of claim that GLS was joined as a defendant because it was the equitable assignee of the benefit of the agreement and therefore the person in whose favour the agreement should be specifically performed. GLS was not a contracting party and so not liable for its breach. Thus after the further offices had been let to a third party in April 1994 so that thereafter the action was for damages only GLS ceased to have any interest in the proceedings. I do not think that the judge made any error in treating the factor to which he referred as distinguishing the Option Action from the First Action and the Second Action.
38. In the case of the Guarantee Action GLS was not a party. Moreover, as counsel for Globe accepted there was no evidence that Mr Miller could not pay his own costs of that action. Counsel for Globe contends, nevertheless, that the judge was wrong in considering that the Firm did not derive the same benefit from the Guarantee Action as it did from the First Action and the Second Action. I do not accept this submission. In the same way that the liability under the Guarantee is secondary so the benefit to be derived from the action was secondary to that derived from the First Action and the Second Action. But in any event it did not have the essential feature of the First Action and the Second Action that the proceedings were being carried on by the Firm in the name of GLS which could not pay its own or the other side's costs. However strong or weak the claim may have been it was being conducted on behalf of an individual who was then apparently good for the costs. In those circumstances I can see no reason to make an order for costs of the Guarantee Action to be paid by the Firm.
39. For those reasons I would dismiss the cross-appeal. I should mention that initially counsel for the Firm sought to amend his notice of appeal. It was never clear to me that it would make any difference in substance if the amendment were allowed. During the morning of the second day the court suggested that a slight further amendment might make the proposed amendments uncontentious. At the mid-day adjournment it was left that counsel for Globe and the Firm would see if the matter could be dealt with on an agreed basis. We were never told whether or not agreement had been reached but the application for leave to amend was not pursued. In those circumstances I would dismiss the application.

LORD JUSTICE SEDLEY:

I agree.

LADY JUSTICE BUTLER SLOSS:

I also agree.

Order: Appeal, cross appeal and application dismissed; respondent to receive 90% of the costs of the appeal, the application and the cross appeal; application for leave to appeal to the House of Lords refused. (This order does not form part of the approved judgment)