England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM BRIDGWATER COUNTY COURT
(His Honour Judge O'Malley)

		The Royal Courts of Justice The Strand London WC2A Wednesday 7 February 2001

Wednesday 7 February 2001

1. LORD JUSTICE MUMMERY: This is a most unfortunate neighbour dispute about drains. Even more unfortunately, the dispute has been expensive. The only issue for this court is the question of who should pay the costs.
2. This is the fourth time in eighteen months that a court has heard argument on the costs. The first occasion was before the trial judge on 7 June 1999, after District Judge Dowell had dismissed the action brought by Mr Anthony Carr against this neighbours, Mr and Mrs Bemrose. The judge made an order that Mr Carr should pay the costs of the action after 13 January 1999, and that there should be no order as to costs prior to that date.
3. The matter was argued again before His Honour Judge O'Malley on 24 November 1999, when Mr Carr's appeal against the district judge's order was dismissed. On the issue of costs, the county court judge said this:

"As to the appeal against the district judge's order for costs it is impossible to fault the exercise of her discretion. She had the opportunity of assessing the parties and their responses at various stages of the litigation. She was alive to the issue of costs and the relevance to costs of the parties' actions. There are no grounds for interfering with her order.

It follows that the appeal must be dismissed. The appellant must pay the costs of the appeal."

4. The matter was argued for a third time in this court before the then Vice-President of the Court of Appeal Civil Division, Nourse LJ. On 14 June 2000 he refused Mr Carr's application for permission to appeal on the substantive point on which he lost, expressing the view that the appeal had no real prospect of success. He did, however, grant limited permission to appeal in relation to the district judge's orders for costs, saying that it was arguable that she had erred in principle in making no order for costs in respect of the period to 13 January 1999. He also thought it arguable that the costs after that date were subject to an error of principle by the district judge because the offer made by the defendants on 13 January 1999 had not included an offer for costs.
5. Nourse LJ cautiously added:

"At this stage I merely say that it is arguable that the claimant ought to have got his costs up to and including 13th January 1999 or some substantial part of them. Mr Jack [then counsel for Mr Carr] points out, however, that the offer then made did not provide for the claimant's costs. It was a term of the offer that each side should bear its own costs. So it may be arguable that the claimant ought to have obtained a still more favourable order for costs."

6. Nourse LJ added that he was loath to encourage an appeal only in relation to costs, particularly in view of the amount of costs already incurred. He mentioned that Mr Carr's own costs up to 13 January 1999 were of the order of £2,300, and that the defendants had submitted a bill of just under £18,700 in respect of the period from 14 January 1999 onwards. At the outset of the hearing we were informed of even more substantial figures for the costs incurred in respect of the appeals to His Honour Judge O'Malley and to this court. I am sure that it was with those figures in mind that Nourse LJ directed that the Civil Appeals Office should write an Alternative Dispute Resolution letter to both sides.
7. There has been no settlement. The matter has been argued efficiently this morning by counsel, neither of whom were counsel at the trial. Miss Hutton appeared for Mr Carr and Miss Tipples for Mr and Mrs Bemrose.
8. Before examining the background of this dispute, I should mention one important point of agreement. That is the proper approach of this court to an appeal against an order for costs by a trial judge. In the case of AEI Rediffusion Music Ltd v Phonographic Performance Ltd [1999] 1 WLR 1507 at 1523C-D, Lord Woolf, then Master of the Rolls, quoted a passage from the judgment of Stuart-Smith LJ in Roache v News Group Newspapers Ltd [1998] EMLR 161 at 172 as stating the conventional approach of the Court of Appeal, when asked to interfere with a trial judge's decision on costs. I quote from the judgment of Stuart-Smith LJ, which was approved by Lord Woolf:

"Before the court can interfere it must be shown that the judge has either erred in principle in his approach, or has left out of account, or taken into account, some feature that he should, or not, have considered, or that his decision is wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale."

9. I come now to the circumstances in which the costs were incurred. The claimant, Mr Carr, had in 1987 bought a property at Chilton Polden in Somerset called the Tower House. It is not in dispute that the property enjoyed an easement of drainage over an adjourning property called The Old Stables. There was a soil pipe across the back of the garden of The Old Stables and an inspection chamber. Mr Carr, as the owner of the Tower House, had a right of access to the drain and inspection chamber on giving reasonable advance warning.
10. The defendants, Mr and Mrs Bemrose, acquired the adjoining property, called The Old Stables, in July 1997. Trouble started after 28 July 1998. On that date the defendants obtained planning permission for the construction of a conservatory at the back of The Old Stables. They intended to start construction on 12 October 1998. The dispute arose because Mr Carr claimed that the conservatory substantially interfered with his right to repair and maintain the drain, and to have access to it and to the inspection chamber.
11. Before the proceedings started on 26 October 1998, there was correspondence between the parties about the matters raised by Mr Carr. Letters were written by Mr and Mrs Bemrose making various offers to Mr Carr. Those offers were not, however, accepted. Proceedings were issued on 26 October 1998.
12. The correspondence continued. A letter was written on 2 November 1998 by the solicitors acting for the defendants, Clarke Willmott & Clarke. After stating that they had been instructed vigorously to defend an injunction sought by Mr Carr, they said that they wished to deal with the matter by negotiation and consent, if at all possible. They stated that their clients were willing to enter into an undertaking that they would not lock or impede access to the drain or inspection chamber lying within the curtilage of the conservatory, which was currently under construction at The Old Stables, until such time as an inspection chamber had been installed outside the curtilage of the conservatory for use upon reasonable notice by the claimant. The cost of the installation was to be borne by the defendants. That offer was never withdrawn.
13. Another offer was made by a letter from the same solicitors to Messrs Pardoes, the solicitors then acting for Mr Carr, on 18 November 1998. The letter repeated that the claim would be defended vigorously and no admission of liability was made, but went on to say that it was the stated intentions of both sides to make every effort to resolve the matter by consent. A proposal of settlement was set out. It involved the installation of two rodding eyes, coupled with the continuation of permission for Mr Carr to have access to and use of the inspection chamber within the conservatory at reasonable notice. That offer was not withdrawn and it was not accepted.
14. On 13 January 1999 a letter was written from Clarke Willmott & Clarke to Mr Carr personally, as it was understood that Messrs Pardoes were no longer instructed by him. That letter contained an open offer in these terms:

"1. Mr and Mrs Bemrose shall enter into restrictive covenants in favour of you which provide for the conservatory not to be locked at any time unless agreed otherwise.

2. Our clients will meet the costs incurred in drawing up the restrictive covenant

3. Both parties shall meet their own costs of the proceedings to date".

15. The solicitors added that they considered the offer to be extremely reasonable. They clarified the position in regard to the restrictive covenants by stating that they would be binding on successors in title. They explained why they considered that each party meeting their own costs was a reasonable proposal, saying this:

"You have refused to accept what our clients regard as extremely reasonable offers of settlement. We have advised our clients that they have a very strong defence and that the offer set out in this letter is a considerable concession on their part."

16. They point out that paragraphs 1 and 2 of the offer would remain open for acceptance indefinitely, but that the offer on costs would lapse within seven days.
17. The response to that letter was sent on 22 January 1999 by a new firm of solicitors, Andrew Isaacs Practice, on behalf of Mr Carr. The letter explained why he did not accept the offer. It set out what were considered by Mr Carr's advisors to be three ways forward on any reasonable assessment of the situation:

"(a) to construct a conservatory that would leave the inspection chamber outside so that it was free to be used when required; or

(b) to investigate and propose an alternative means of conveying the foul [sewage] together with any necessary inspection chamber(s) outside the proposed construction with clear access so that there was no diminution of our client's easement; or

(c) to ensure that the conservatory was so constructed that the area that contained the inspection chamber provided a suitable working space and immediate access for our client to exercise his legal rights.

The present situation is such that alternative (a) appears never to have been considered, alternative (b) has been extensively investigated but is technically impossible to achieve - which leaves only alternative (c) as a way forward (unless your clients are willing to demolish a sufficient length of the conservatory to satisfy alternative (a)).

If alternative (c) is to be the way forward then your clients should remove the wall (with the door or doors and windows) for at least a third of its length along the front of their conservatory nearest to our client's property and then build a returned wall from the new end point back to the original wall of the building thereby creating a roofed open area which could, reasonably, have a flagstone floor or similar and would provide an attractive 'outdoor' sitting and/or eating area for your clients.

The cost of achieving these alterations would be entirely that of your clients - as would be the costs of this action, to be paid on an indemnity basis and taxed in default of agreement."

18. By that date the conservatory had been completed.
19. The matter came on for trial before District Judge Dowell on 1 February 1999. The state of the pleadings before her was that in the prayer to the particulars of claim, Mr Carr was seeking an injunction in these terms:

"The plaintiff's claim is for:-

an injunction to restrain the Defendants by themselves or their servants or agents or workmen or otherwise howsoever from proceeding with the erection of a building over the inspection chamber and drainage pipes on under or through the Defendants' land and from doing any other acts (and taking such steps as may be necessary) which will deprive the Plaintiff of his right of access to the said inspection chamber and drainage pipes for the purpose of effecting repairs and otherwise interfering with his rights."

20. There was also a claim for damages limited to £5,000.
21. The hearing was not completed on 1 February. The adjourned hearing for trial took place on 7 June 1999. The district judge heard evidence from two experts, Mr Davis, on behalf of the defendants, and Mr Buxton, on behalf of Mr Carr.
22. Before examining the judge's decision on liability for costs, I should clarify the position in relation to the relief claimed. In the transcript at page 2, the district judge stated:

"Insofar as it is relevant, today Mr Norman, on behalf of [Mr Carr], seeks to amend the wording of the injunction to an order requiring removal of the building over the enclosed inspection chamber to such extent as to ensure that the inspection chamber is external to the building and to provide an area in the inspection chamber, as I understand it, to allow surface water drainage."

23. The position has been confirmed by a reference to the transcript of the proceedings for 7 June, which records that, in his very closing submission on behalf of Mr Carr, his then counsel, Mr Norman, stated this:

"The building was not erected when proceedings commenced. The relief that was sought in the particulars of claim was an injunction to restrain the defendants from proceeding with the erection of a building. I know my learned friend will reserve the right to address your Honour on the wording of any injunction that there might be, but may I at this stage simply propose that it should be to remove the building over the inspection chamber to such extent as may be necessary to ensure that the inspection chamber is external to any building. I have been asked also to add to that 'and to provide the area where the inspection chamber is with surface water drainage.' That is because there is a problem about an upstand and therefore one wants to avoid the difficulty of there not being any run-off."

24. With those words, Mr Norman closed his submissions.
25. The district judge dismissed those claims. She made an order which provided for inclusion of undertakings by the defendants relating to the incorporation of the restrictive covenants, which had been offered on 13 January 1999, and the installation by the defendants at their own expense of two rodding eyes, one outside the conservatory of The Old Stables and the second in the claimant's soil stack.
26. In making that order, the district judge had reached the conclusion that the enclosure of the inspection chamber within the conservatory was not a substantial interference with the rights of Mr Carr. I shall come later to some more detailed passages in the judgment dealing with that aspect of the case. Of more immediate relevance are the conclusions that the judge reached on the question of costs. When submissions came to be made after judgment, Mr Norman made this statement:

". . . I do not ask for an order for costs in favour of Mr Carr because he has not succeeded, my submission is that this is a proper case under the new rules [the Civil Procedure Rules, which had come into force on 26 April, between the date of the first day of the trial and the adjourned hearing] which your Honour can order, for no order as to costs throughout. That would properly reflect, in my submission, the conduct of the parties in the light of your Honour's judgment and the consequences that that has had upon the litigation, firstly commencing and secondly continuing."

27. The judge, after hearing further submissions from counsel for the defendants, gave a short judgment on the question of costs, resulting in the order that there be no order in respect of the costs prior to the offer letter of 13 January 1999 and that the costs after that date should be paid by Mr Carr.
28. The district judge said this in her judgment:

"I have already directed myself to Part 44(3) [sic] in its entirety. This is the type of case in which the court should not rest on 44.3(2)(a) [of the Civil Procedure Rules], the general rule that the unsuccessful party will be ordered to pay the costs of the successful party, but to consider all the circumstances which under (4) are described as the conduct of the parties defined in (b), whether a party has succeeded on the part of his case and any other offers whether or not made in part 36 terms.

I take the view that on conduct there is little to choose between the parties up to the issue of the proceedings and that each brought the costs of the proceedings on themselves. I make no order for costs on that principle up to issue.

At issue I look at when did the defendant put forward largely what I have decided today and I find that that was available to the claimant from 13th January 1999. I therefore have a choice in my mind as to whether I say that the defendant has his costs in defending the action and I do a discount, or whether I make the order from a date. For the reasons that I have already discussed with your Counsel, I make no order as to the costs of the action up to 13th January and from 13th January to the date of the adjourned trial, the claimant do pay the defendant's costs, to be subject to detailed assessment if not agreed."

29. The district judge concluded:

"Then the order is simply the claimant's claim dismissed and no order for costs after 13th January. Then claimant do pay the defendant's costs from 13th January to date. . ."

30. Miss Hutton submitted that that decision on costs, which was unsuccessfully challenged before His Honour Judge O'Malley, is flawed. Her main point (in outline based upon a skeleton argument prepared by her predecessor counsel, Mr Jack) was that Mr Carr ought to have his costs of the action throughout because he won; or, putting it another way, that he had had to go on with the case right down to 7 June 1999 in order to get what he was entitled to (that is, a decision of the judge regarding the interference with his easement) and it was not until evidence was given orally by the expert, Mr Davis, on 7 June that the judge was able to arrive at the conclusion that there was currently no interference with the rights of Mr Carr. In those circumstances, it was wrong to order Mr Carr to pay the defendants' costs. They should have been ordered in his favour. He had started the proceedings only because the defendants had threatened to interfere with his rights of access to the drain. That threat was not lifted until the last day of the trial. The offer made in the letter of 13 January 1999, only 18 days before the trial, had not lifted the threat in its entirety, and was made on the basis that each side should meet its own costs. So Mr Carr should be entitled to continue in order to recover his costs incurred in securing the offer in that letter. The position was as summarised in the skeleton argument: that he had had a good cause of action, that he had had to incur costs to establish it, and that the defendants had never offered to pay his costs. It was said that he had beaten the offer made to him in correspondence. He had not behaved unreasonably in seeking to have the conservatory wall moved back, as clarified in the form of injunction sought.
31. In her oral submissions, Miss Hutton, who is in the unenviable position of inheriting a case argued at earlier stages by two other counsel, focused on an aspect of the case which certainly had not become clear from the arguments previously advanced. She helpfully set out the position in this way. She said that her primary argument was that the defendants should be ordered to pay Mr Carr's costs throughout. That was on the basis that he had won on 7 June. That was the earliest date on which he could reasonably have been expected to stop the litigation. This was so because, on the judge's own findings in the judgment given on that day, the actions of the defendants had only ceased to be a substantial interference with the rights of Mr Carr by reason of the position current on that date, as explained in the oral evidence of Mr Davis and not previously referred to in his reports. That evidence related to extra remedial provisions which had been made, in the form of sealants in connection with the inspection chamber and drains. The position described by Mr Davis and accepted by the judge had only been achieved by Mr Carr pressing on with the proceedings. Until the evidence of Mr Davies had been given and accepted, there was a continuing wrong suffered by Mr Carr. He had incurred the costs in the proceedings, and necessarily, in order to secure the positive benefits of a situation , which was an improvement over and above the offers in the letters to which I have referred.
32. The second possibility canvassed by Miss Hutton was that the proper order should be that Mr Carr have his costs from the defendants down to 13 January, and that there be no order as to costs throughout. The basis of this submission was that the offer of 13 January had only been forthcoming from the defendants by reason of the proceedings instituted by Mr Carr against them. The offers had been compelled by the proceedings started in October 1998. Those offers were a recognition that there had been a wrong committed to Mr Carr's rights and that had continued down to the date of the January offer.
33. The third possibility is that advanced by the previous counsel, Mr Norman, at the hearing on 7 June 1999. That is that there would be no order for costs throughout.
34. In deploying those three alternatives, Miss Hutton submitted that the judge had committed an error of principle; or, alternatively, had left a relevant matter out of account: namely, that the district judge had decided that there was no substantial interference with Mr Carr's rights only when she accepted the evidence given by Mr Davis as to the improved inspection chamber as it now existed, with the watertight seal and the flexible sealant up to the required standards. Mr Carr had not been offered that in any of the letters in November 1998 or in the letter of 13 January 1999. He had had to fight on with his case to 7 June in order to achieve what was not previously available to him. Miss Hutton made this submission in the context of a broad assertion that the burden was on the defendants, who were interfering with Mr Carr's rights, to provide a solution. The solution was not provided until 7 June. So all the costs should be paid by the defendants down to then.
35. Miss Tipples, on behalf of the defendants, submitted that the appeal should be dismissed. She said that arguments were now raised on costs at the appeal stage which had never been raised before; that there was no reason for Mr Carr to have pursued the matter to trial; and that there were no grounds for interfering with the judge's discretion. The judge had correctly applied the Civil Procedure Rules. It was open to her to do so, even though the trial had started before those rules came into force. Reference was made to the transitional arrangements in Part 51 paragraphs 15(2) and 15(3). She pointed out that in fact no submission had been made by Mr Norman to the district judge on the basis of the old rules. The submissions were made on the basis of the application of the Civil Procedure Rules in Part 44. Miss Tipples submitted that Mr Carr had carried on with the proceedings after 13 January 1999 regardless of the terms of that offer. He had forced the defendants to incur the costs of defending the proceedings. He had not obtained the injunctive relief sought in his claim, or in his proposed amended claim, so he should have to pay the costs incurred from 13 January 1999. As for the position on no order as to costs before 13 January, the judge had correctly directed herself, having regard to the conduct of the parties both before and after the institution of the proceedings.
36. I have carefully considered these competing arguments. I have reached the conclusion that this appeal should be dismissed. I am satisfied that there is no error of principle in the district judge's order as to costs, and nothing relevant was left out of account by her. It was a correct exercise of her discretion. I can summarise my reasons for this conclusion quite briefly as follows.

1. I am in no doubt that it was in the power of the district judge to apply the provisions of the Civil Procedure Rules. That was the basis upon which Mr Norman had made the application for costs. I would also add that, even if the matter were to be argued under the old rules, the position would, for the reasons which I will explain, produce the same result.

2. Miss Hutton is in a substantial forensic difficulty in advancing her argument. In substance, she is attacking the exercise of a discretion by the trial judge in not making in her client's favour a more favourable order than her client's then counsel asked the judge to make. Mr Norman asked for an order that there be no costs throughout. The district judge acceded to this argument in part by making no order no respect of the costs before 13 January 1999. Miss Hutton now argues that the judge's discretion was flawed because she should have made an order for costs in favour of Mr Carr throughout or, at least, for the period after 13 January. This argument invites the question, how can the judge have been in error in not making an order more generous than was being sought? In fact I am satisfied that the judge properly exercised her discretion in not making the order asked for by Mr Norman.

3. Looking at the Civil Procedure Rules, I have already referred to Part 44.3(2), a which provides that:

"If the court decides to make an order about costs -

(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but

(b) the court may make a different order."

37. As regards the general rule, which is the starting point, though not necessarily the finishing point, Mr Carr was unsuccessful and the defendants were successful. He was unsuccessful for this reason: he did not get what he was asking for. In his initial pleading, he sought a negative injunction. In his proposed amended pleading, he would have sought a mandatory injunction in relation to the already constructed conservatory. That was made clear in Mr Norman's closing submissions to the district judge. It was made clear in his letter of 22 January 1999 in response to the offer letter of 13 January that what he wanted was a partial removal of the conservatory.
38. If, as Miss Hutton appeared to be asserting at one point of her submissions, Mr Carr was in fact the winner, one is driven to ask what on earth he was doing by not only appealing to His Honour Judge O'Malley and, having failed before him, seeking to appeal on the whole question of liability to this court? It is not a common experience of this court that those who are successful in litigation seek to bring appeals. I do not think he won at all.

4. I look at the next thing that the district judge was entitled to do. That is to consider whether, and if so to what extent, to make a different order from the general rule of costs following the event. In exercising that discretion under 44.4 the court is required to have regard to all the circumstances, including the conduct of the parties, whether the success has been total or partial, and what offers have been made to settle.

39. The district judge did that. She looked at the conduct of the parties before and after the start of the proceedings. She looked at the result of the case. She considered the offers which had been made. They led her to make a slightly different order from the general rule. She did not order all the costs to be paid by Mr Carr to the defendants. She made a different order in respect of the costs incurred before 13 January. That was an order which she was entitled to make. There had been offers made, but they had not been accepted, even though they remained open. In my view, the judge was entitled, having regard to all those factors of conduct, the outcome of the case and the offers which had been made, to conclude that the fair and just order to make in respect of costs before 13 January was to make no order. That was a departure in the exercise of her discretion which was justified by consideration of those circumstances.
40. For all those reasons, I conclude that there are no grounds of principle or failure to take relevant matters into account which flaw the exercise of discretion by District Judge Dowell. His Honour Judge O'Malley was right to dismiss the appeal. I also would dismiss this appeal.
41. SIR RONALD WATERHOUSE: I also would dismiss this appeal for the reasons given by my Lord, Lord Justice Mummery.
(There followed a discussion as to costs)
42. LORD JUSTICE MUMMERY: In respect of the respondents' application for costs to be assessed the indemnity basis, we have been shown a letter of 6 October 2000, written by the solicitors for the respondents and containing a without prejudice offer on the matters the subject of the appeal. That offer was not accepted. Miss Tipples asks us in those circumstances to regard this as a suitable case for ordering costs on the indemnity basis.
43. I do not agree with that for these reasons. First, the letter does not make any mention of a possible application for indemnity costs being made if the offer is not accepted. As I read the letter, it is written to protect the position of the respondent in the event of the appellant possibly succeeding in the appeal for which permission was granted by Nourse LJ on 14 June. Secondly, I think that it is difficult to make such an application for indemnity costs when the appeal has proceeded with permission granted on the basis that the appeal on costs has a real prospect of succeeding on the ground of an error of principle in the exercise of the trial judge's discretion. We therefore decline to make the order for indemnity costs. Costs of the appeal will be subject to detailed assessment.
ORDER: Appeal dismissed with costs, to be subject to detailed assessment. (Order not part of approved judgment)