England and Wales Court of Appeal (Civil Division) Decisions

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

		Royal Courts of Justice Strand London WC2
		Monday, 19th November 2001

1. LORD JUSTICE LONGMORE: This is an appeal on costs from the order of Park J, after a six day trial between the 3rd and 11th January 2000 in the Chancery Division, in which he gave judgment for the defendant firm of solicitors. He ordered the unsuccessful claimant property company to pay 30 per cent of the successful defendant's costs and he ordered the successful defendant firm to pay 65 per cent of the costs of the unsuccessful claimant. We were not given precise figures of costs on either side but we were given ballpark figures which indicate that the costs on either side are in the same range, varying between £140,000 and £146,000.
2. The reason why the judge made this comparatively unusual order is that the defendants failed on what he regarded as the main issue in the case, viz the question whether they were in breach of duty as solicitors to their client. They succeeded ultimately on what he called a point of law on causation or, perhaps more accurately, the quantum of the claim, namely that, even if the defendants had performed their duty and had obtained for the claimant the benefit of the transaction which they lost, the claimant would have obtained that benefit by virtue of being in possession of confidential information from a third party and could not have kept that benefit because it would have been accountable for it to that third party.
3. It is necessary to say a little about the facts of the case. The action was a claim by a property investment company called Summit Property Ltd ("Summit") for damages for breach of contract and negligence against the defendant firm of solicitors, Messrs Pitmans. The claim was based on the contention that Pitmans had acted in breach of a retainer to act for Summit which they, Pitmans, had accepted on 18th December 1996. Summit had been introduced on that day to Pitmans by a property developer, Stanley Hetherington ("Mr Hetherington") who had, many months previously, been offered, by reason of his personal connections, the opportunity to acquire a properly known as The Pincents Kiln Estate, near Reading, at a highly advantageous price.
4. Before Summit became involved Pitmans had been acting for Mr Hetherington's company, Longwood Estates, ("Longwood") and the negotiations were already at an advanced stage. The vendors had set a deadline for exchange of contracts on 24th December 1996 but Longwood were in need of finance. In these circumstances, Mr Hetherington had approached Summit to see whether they were prepared to finance the transaction. They eventually said they would be but only on terms, which Mr Hetherington was prepared to accept, that the acquisition be in the name of a company to be wholly owned by Summit, and that the profits on resale would be split 50/50.
5. Summit were on 18th December 1996 introduced to Pitmans and Pitmans agreed to act for Summit for the purpose of exchanging contracts in the name of an "off the shelf" company which Summit would own, it being left to the parties themselves to finalize and document the proposed profit sharing agreement. Pitmans alleged that by agreeing to act in this way for Summit they were not ceasing to act for Longwood, but there was in effect a joint retainer to act for both Longwood and Summit, with Summit as the funder being in an analogous position to that of a mortgage lender, and that such joint retainer would come to an end, leaving Pitmans free to act for Longwood alone should the parties fall out before exchange of contracts had taken place.
6. The judge, however, found that this was not the case. In essence, he held that, because the purchase was to be in the name of a Summit owned company, the retainer which Pitmans accepted on 18th December was necessarily a retainer to act exclusively for Summit, and that by such acceptance Pitmans had ceased to act for Longwood at all. There is no appeal from that decision.
7. Four days later, on the very day before exchange was due to take place, Summit told Mr Hetherington that they were only prepared to proceed on the basis that the profit share arrangement was to be revised in their favour, so that they received 75 per cent instead of 50 per cent of the profit, and Longwood would accordingly receive only 25 per cent of any profit on resale. Mr Hetherington was naturally furious at this last minute volte face but reluctantly expressed his agreement in principle on the basis that Summit had left him with no choice. Shortly after the meeting he changed his mind. At trial Summit contended, in support of their assertion that they were entitled to proceed with exchange the following day, even in the teeth of objection by Mr Hetherington, that it was too late for him to change his mind because he was contractually bound by what he had agreed the previous day. This contention was rejected by the judge.
8. The following morning, 24th December, Mr. Hetherington visited his bank manager and managed to arrange sufficient funds for the deposit in his own name. He then instructed Pitmans to exchange contracts in the name of a newly acquired off-the-shelf company to the exclusion of Summit. Pitmans, in breach of their retainer from Summit, did just that. Summit allege that Pitmans acted in breach of their retainer by accepting instructions from Mr Hetherington and claimed that, as a result of that breach, they had lost the opportunity to purchase the property. They claimed damages equal to the loss of profit which they said they would have earned. Ultimately this claim was defeated because the judge held that Summit had received the information about the property being available for sale at an advantageous price in confidence from Longwood, and that they would thus be accountable to Longwood for any profit to be made on the resale unless Longwood had agreed that they could retain any part of it. No such agreement had been reached.
9. When it came to costs the judge decided that, since by far the greater part of the trial had been taken up by the question whether Pitmans were in breach of their retainer and since he had held that they were, the costs of the case should be determined essentially on an issue basis. The point on which Pitmans had won had been introduced by amendment on 6th June 2000, four weeks before the case began, and, according to the judge, took only a comparatively short time to argue. No doubt he also bore in mind that the responsible partner in Pitmans had already, by the time of trial, been reprimanded by the Office for the Supervision of Solicitors on the basis that the firm was in breach of its retainer.
10. The judge in the course of his judgment said this:

"On the face of the papers in the case which I read before the trial began, the main issue being raised by the defendants, Pitmans, by way of defence to the claim against them, was that Summit Property had ceased to be their client before the crucial event as described in my main judgment, and that therefore Pitmans were not in breach of their duty to Summit ...

rather than the confidentiality issue. The case turned in the end on the confidentiality issue and on the basis of it Pitmans succeeded. It was, however, in essence a point of law. It was in my judgment a short and convincing point of law but the introduction of the point did not lead to Pitmans deciding to drop what I believe to have been its misguided arguments based on breach of duty. Lest there be any misunderstanding I do not suggest, by saying that the arguments were misguided, that there was, in the terms of the Elgindata case anything improper or unreasonable about them being raised."

11. I interpose to say that that is a reference to the Elgindata Ltd (No 2) [1982] 1 WLR 1207. Continuing the quotation:

"I think that issue based costs orders such as I believe are appropriate in this case will be exceptional. I would not want to be thought to be encouraging or believing that there will develop a general trend in the majority of cases for the courts to make costs orders in both directions. I do, however, consider that the circumstances in this case are special and particularly strong. I believe that it is open to me to make an issue based costs order and I am going to do so. Before I adapt my order so as to produce practical convenience, the principle of it would be that I would order Summit Property to pay to Pitmans its costs attributable to the confidentiality issue. I would order Pitmans to pay to Summit Property Summit Property's costs of and attributable to the breach of duty issues. Further, to introduce a detailed point which I have not mentioned yet, I would make no order for costs in favour of either party on costs of and attributable to the loss of a chance issue."

12. Mr. Steinfeld QC, who appears for the defendants, Pitmans, attacks that exercise of discretion by the judge. He has to do that by reference to the new Civil Procedure Rules and any relevant binding Court of Appeal authority. Part 44.3 of the rules is entitled: "Court's discretion and circumstances to be taken into account when exercising its discretion as to costs", and provides relevantly:

"(1) The court has discretion as to -

(a) whether costs are payable by one party to another;

(b) the amount of those costs; and

(c) when they are to be paid.

(2) 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.

….

(4) In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including -

(a) the conduct of all the parties;

(b) whether a party has succeeded on part of his case, even if has not been wholly successful; and

(c) any payment into court or admissible offer to settle made by a party which is drawn to the court's attention (whether or not made in accordance with Part 36).

(5) The conduct of the parties includes -

(a) conduct before, as well as during, the proceedings, and in particular the extent to which the parties followed any relevant pre-action protocol; [there is none here]

and,

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c) the manner in which a party has pursued or defended his case or a particular allegation or issue;

(d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.

(6) The orders which the court may make under this rule include an order that a party must pay -

(a) a proportion of another party's costs."

13. The first authority to which it is necessary to refer is Phonographic Performance Limited v AIE Rediffusion Music Ltd [1999] 1 WLR 1507, in which the Master of the Rolls, Lord Woolf, referred to the new rules which were about to be brought into force. Having recited some of Part 44.3, he said this at 1522H:

"I draw attention to the new rules because, while they make clear that the general rule remains that the successful party will normally be entitled to costs, they at the same time indicate the wide range of considerations which will result in the court making different orders as to costs. From 26 April 1999 the 'follow the event principle' will still play a significant role, but it will be a starting point from which a court can readily depart. This is also the position prior to the new rules coming into force. The most significant change of emphasis of the new rules is to require courts to be more ready to make separate orders which reflect the outcome of different issues. In doing this the new rules are reflecting a change of practice which has already started. It is now clear that a too robust application of the 'follow the event principle' encourages litigants to increase the costs of litigation, since it discourages litigants from being selective as to the points they take. If you recover all your costs as long as you win, you are encouraged to leave no stone unturned in your effort to do so."

14. He then referred to the earlier case of Re Elgindata Limited (No.2). He cited four principles set out in the judgment of Nourse LJ in that case in the following terms:

"The principles are these. (1) Costs are in the discretion of the court. (2) They should follow the event, except where it appears to the court that in the circumstances of the case some other order should be made. (3) The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of his costs. (4) Where the successful party raises issues and makes allegations improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party's costs."

15. I need not read the rest of the citation. The Master of the Rolls went on as follows at 1523H:

"The 'well-established practice' on which Nourse LJ based his third principle is, as I have already indicated, less generally followed than it has been in the past and it is no longer necessary for a party to have acted unreasonably or improperly to be deprived of his costs of a particular issue on which he has failed."

16. In my judgment, it is also no longer necessary for a party to have acted unreasonably or improperly before he can be required to pay the costs of the other party of a particular issue on which he (the first party) has failed. That is the substance of what the Master of the Rolls was there saying. That that must be so is shown partly by the earlier citation at pages 1522H-1523B but, more importantly, by the only other case to which, for my part, I would have thought it was necessary for this court to be referred, namely the case of Johnsey Estates (1990) Limited v Secretary of State for the Environment [2001] EWCA CIV 6535, judgment given on 11th April 2001. In that case Chadwick LJ, giving the judgment of the court with which the other members of the court agreed, set out the principles in paragraphs 21 and 22 as follows:

"The principles applicable in the present case may, I think, be summarised as follows: (i) costs cannot be recovered except under an order of the court; (ii) the question whether to make any order as to costs -- and, if so, what order -- is a matter entrusted to the discretion of the trial judge; (iii) the starting point for the exercise of discretion is that costs should follow the event; nevertheless, (iv) the judge may make different orders for costs in relation to discrete issues -- and, in particular, should consider doing so where a party has been successful on one issue but unsuccessful on another issue and, in that event, may make an order for costs against the party who has been generally successful in the litigation; and (v) the judge may deprive a party of costs on an issue on which he has been successful if satisfied that the party has acted unreasonably in relation to that issue; (vi) an appellate court should not interfere with the judge's exercise of discretion merely because it takes the view that it would have exercised that discretion differently.

22. The last of those principles requires an appellate court to exercise a degree of self restraint. It must recognise the advantage which the trial judge enjoys as a result of his feel for the case which he has tried. Indeed, as it seems to me, it is not for an appellate court even to consider whether it would have exercised the discretion differently unless it has first reached the conclusion that the judge's exercise of his discretion is flawed. That is to say, that he has erred in principle, taken into account matters which should have been left out of account, left out of account matters which should have been taken into account; or reached a conclusion which is so plainly wrong that it can be described as perverse."

17. It is thus a matter of ordinary common sense that if it is appropriate to consider costs on an issue basis at all, it may be appropriate, in a suitably exceptional case, to make an order which not only deprives a successful party of his costs of a particular issue but also an order which requires him to pay the otherwise unsuccessful party's costs of that issue, without it being necessary for the court to decide that allegations have been made improperly or unreasonably.
18. Mr. Steinfeld makes three central submissions. Firstly, while he accepts that it is a proper exercise of discretion to deprive a successful party of costs of an issue on which he has failed, the judge should have considered the extent to which time taken up dealing with the issue on which that party failed and the issue on which that party succeeded overlapped, and that he did not do so in this case. Secondly, the judge gave no reason for going the further step of requiring the successful party to pay the costs of the unsuccessful party of the issue on which the successful party failed. He submits that that was contrary to Elgindata which did decide that to justify such a course, it must have been improper or unreasonable to make the allegation which failed. That approach was approved, after the introduction of the Civil Procedures Rules, by a case called Universal Cycles v Grangebriar, decided on 8th February 2000, and is not supported by Johnsey Estates which, while indicating the scope of orders that can be made, gives no guidance as to how the discretion should be exercised. Thirdly, the judge's further step of depriving the defendant of the costs of 'the loss of a chance' issue without giving reasons for doing so shows how cavalier the judge was to the question of costs in general.
19. As far as Mr. Steinfeld's first submission is concerned, it seems to me to be the case that the judge did in fact consider the degree of overlap of the two issues of breach of duty and the absence of loss by reason of the confidentiality aspect of the matter on pages 5 to 6 of his judgment when he explained that his order that Pitmans could recover 30 per cent of their costs might appear somewhat high if it was considered as a percentage which reflected time and material devoted to the confidentiality issue. The way he puts it is this:

"The second point is that, although at 30% Pitmans costs may seem in some respects somewhat on the high side if it is simply a question of the time and material specifically devoted to the confidentiality issue, I accept, up to a point, Mr Steinfeld's submission that some of the more general costs incurred by Pitmans in putting the entire background facts of the case before the court, even if believed to have been incurred at the time for purposes other than the confidentiality issue, can be seen to have contributed to the ability later of Pitmans to develop the confidentiality issue on which it succeeded and to my ability to assimilate that issue. That feature accounts for the percentage of 30% rather than a lower percentage which would have been appropriate if I had simply adopted a time based analysis."

20. Mr. Steinfeld's real complaint, as expressed in the earlier part of his argument this morning, was that the judge got the proportion wrong on a time based analysis and he offered to conduct the court on a voyage through six days of transcripts in order to demonstrate that more time was taken up on the confidentiality issue and less time was taken up on the retainer issue than the judge had remembered when he came to make his costs order some three months after giving his judgment. That, as Mr Steinfeld himself came to recognise, was a wholly inappropriate exercise on an appeal which had been listed for half to one day and would have been disproportionate to the sums at stake.
21. Mr Steinfeld's revised version of that argument now appears as his first submission to the court as made after the short adjournment but, in the light of the judge's express consideration of the degree of overlap and his determination to be generous to the defendants in his assessment of it, his first submission must fail.
22. The second submission, that before the judge makes an order which not only deprives the successful party of his costs of an issue on which he has failed but also requires him to pay the costs of the other side, he must be satisfied that the allegations were made improperly or unreasonably, must fail for the reasons already given in setting out the approach of this court to this matter. To the extent that Elgindata may once have so required, it is no longer the law in view of the new Civil Procedure Rules under which the judge has the widest discretion. We are, in any event, bound by the decision of this court in Johnsey Estates v Secretary of State for the Environment, and in the light of paragraph 22 of Chadwick LJ's judgment in that case, it is not helpful for other cases to be cited unless it can be shown that the judge has made some error of principle or has taken into account matters which should have been left out of account or has left out of account matters that should have been taken into account or has reached a conclusion which is so plainly wrong as to be perverse. For my own part, I do not read the decision of the two judge court in Universal Cycles as saying that there is any principle of law that, before a judge considers making an order that a successful party pays the costs of an unsuccessful party of an issue on which the successful party has failed, the issue must have been raised improperly or unreasonably. The court in that case was only concerned to point out that the effect of so doing was, on the facts of that case, that, because the costs were so large, the claimant's recovery would be more than wiped out. The case shows no more than that different cases have different facts. I record the melancholy fact that counsel have indeed sought to put before us 13 authorities on this appeal against the exercise of the judge's discretion.
23. Mr. Steinfeld did argue, as something of a last resort, that the judge's decision was indeed perverse and that his conclusion was thus plainly wrong. That argument was no more than a repetition of the point of substance under this head and must fail. The judge recognized that he was making an exceptional order but he said in terms that the circumstances of the case were special and particularly strong. No doubt, other judges would not necessarily have come to that view, but it was plainly a possible view of the case as a whole. It is of the essence of a discretion that different judges might exercise their discretion differently. For my part, I can discern no error of principle, let alone perversity. Nor can I accept Mr Steinfeld's third submission that it was in any way wrong for the judge to make no order on the loss of a chance issue. The chance that had to be assessed was the chance of Mr. Hetherington acting so as to prevent the purchase proceeding at all. The judge assessed that chance as being quite high, at least as high as 50% (paragraph 59). Mr. Steinfeld claims that Pitmans therefore won on that issue and should have the costs but quite apart from the fact that the judge did not, in the end, have to decide that issue, it is difficult to say that Pitmans won that issue when their argument was that Mr Hetherington would in fact have prevented the sale and for that reason also the claim should fail. Summit would no doubt say that they, rather than Pitmans, had won that issue since if it had mattered the judge would have given them something, even if it was a comparatively low percentage. It was an archetypal situation where many a judge would say, if considering the matter on an issue basis, that there should be no order as to costs. That is not therefore a decision which can be criticised, and still less can it be said to indicate an approach by the judge which infected the other parts of his order. In my view, Park J's exercise of discretion cannot be criticised. The appeal must fail.
24. LORD JUSTICE TUCKEY: I agree.
25. LORD JUSTICE CHADWICK: The effect of the judge's order, on the basis of the costs figures which we have been given today and subject to any reduction of those costs claimed upon a detailed assessment, is that the appellant will pay to the respondents 65 per cent of £146,000 (that is to say, £95,000 or thereabouts) and the respondents will pay to the appellants 30 per cent of £140,000 (that is to say, £42,000). Setting the one amount against the other, the appellants, who were the successful party in the sense that the monetary claim in the proceedings against them failed, will pay their own costs and some £53,000 towards the costs of the unsuccessful claimant. At first sight, that must seem a surprising outcome to this litigation. The appellants have successfully resisted a monetary claim in excess of £1m but will pay not only the whole of their own costs but also a substantial sum towards the claimant's costs. But it is a result which follows necessarily from the approach which the judge adopted.
26. The first question for this court is not whether it would have made the order which the judge made. The first question is whether this court is satisfied that the basis upon which the judge reached the conclusion that he did has been shown to be flawed. It is only if that question is answered in the affirmative that this court can properly interfere with the exercise of the judge of the discretion entrusted to him. It is only then that this court will go on to consider what order it will make in the exercise of its own discretion.
27. In my view, it has not been shown on this appeal that the judge erred in principle. An issue based approach requires a judge to consider, issue by issue in relation to those issues to which that approach is to be applied, where the costs on each distinct or discrete issue should fall. If, in relation to any issue in the case before it the court considers that it should adopt an issue based approach to costs, the court must ask itself which party has been successful on that issue. Then, if the costs are to follow the event on that issue, the party who has been unsuccessful on that issue must expect to pay the costs of that issue to the party who has succeeded on that issue. That is the effect of applying the general principle on an issue by issue based approach to costs. Further, there will be cases (of which this is not one) where, on an issue by issue approach, a party who has been successful on an issue may still be denied his costs of that issue because, in the view of the court, he has pursued it unreasonably. The question, therefore, can be re-stated: was the judge entitled to approach the costs in this case on an issue by issue basis? In my view, for the reasons set out by the judge and by Longmore LJ, I am not persuaded that the judge can be criticised for adopting that approach in what he described as an unusual case, having circumstances which were special and particularly strong. If judges are to approach the question of costs on an issue by issue basis, then their decisions as to cases in which that approach is appropriate must be respected.
28. In my view, it cannot be said that this is a case in which the judge took into account matters which he should have left out of account or left out of account matters which should have been taken into account. Despite the criticisms made of the judgment by Mr. Steinfeld in the course of his submissions, it seems to me that the judge weighed the matter correctly.
29. It is, of course, still necessary to stand back and ask whether the result is so plainly wrong that it must be regarded as perverse. I do not think that it is open to this court to take that view in this case. It is pertinent to have in mind the fact that this judge had tried a six day case in an action which arose out of the defendant solicitors' decision to determine unilaterally a retainer by a client proceeding towards the purchase of property; in circumstances where that action was plainly prejudicial to the client. The outcome, taken as a whole, is not one which can be described as so unjust that the judge's decision on costs must be rejected as perverse.
30. For those reasons, as well as for the reasons given by Longmore LJ with which I agree, this appeal must be dismissed.
Order: Appeal dismissed with costs, to be assessed if not agreed. (Order not part of the judgment of the court)