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
QUEEN'S BENCH DIVISION
(Mr Justice Goldring)

		Royal Courts of Justice Strand London WC2 Tuesday 8th May, 2001

1. LADY JUSTICE ARDEN: This is a renewed application by the defendant for permission to appeal from the order of Goldring J dated 18th December 2000. By his order Goldring J allowed the appellant's appeal against the order of His Honour Judge Hall dated 2nd October 2000. The order of His Honour Judge Hall of that date ordered that, upon the preliminary issue of whether a compromise exists, there be judgment for the defendant.
2. This matter came before Buxton LJ on paper and he declined to give permission to appeal. His reasons were that:

"No point of principle is identified, and I have not been able to discern any."

3. Mr Power appears for the applicant. He accepts that this is a second appeal and that the applicant must show either that the appeal would raise an important point of principle or practice or that there is some other compelling reason for the court to hear it.
4. I now turn to the background. These proceedings were, in short, a claim for damages for breach of a contract to apply heat treatment to crankshafts. The defendants contracted the work to a Part 20 defendant called Bowmic Ltd, and the defendants joined Bowmic in these proceedings. The trial was fixed for 24th May 2000 and the material discussions took place on 19th May 2000. However, some preliminary discussions took place in the preceding weeks.
5. On 28th April 2000 the claimant's solicitors made a Part 36 offer without prejudice, in which they indicated that they would be prepared to accept the sum of £20,000 plus their legal costs in full and final settlement of their claim against the claimants, i.e. in settlement of their claim.
6. On 17th May 2000 Mr Gamble, solicitor for the defendants, received a call from Mr Cadman, who was a solicitor acting for the claimant, asking for a reply to the Part 36 offer. Mr Gamble stated that it was unlikely that the offer would be accepted, and in due course the offer was rejected on Thursday 18th May. What Mr Gamble says in his witness statement is that on this date he spoke to Mr Cadman and said:

"... the offer was rejected, it was poor and that there was no counter-proposal, my instructions were to continue with trial preparation. It was clear to me that the parties were miles apart and no settlement was even on the horizon. Once again I was of the view that there seemed little point to involve the Part 20 Defendant until I could obtain favourable terms for the Defendant."

7. Then Mr Gamble says this in his witness statement:

"I recall that I referred to this as `chapter 1' and `chapter 2'. By this I mean that I intended to firstly agree the Defendants position, `chapter 1', once this was settled I could then discuss the position of the Part 20 Defendant, `chapter 2'. As regards time and costs it seemed unnecessary for me to commence on chapter 2 without having settled chapter 1. This would have been a great drain upon my time and an inappropriate approach when the Claimant and Defendant were so far apart and trial so close."

8. So far as that passage is concerned, it is not stated to whom Mr Gamble referred to the two separate matters of settlement with the claimant and settlement with Bowmic as chapter 1 and chapter 2. It is quite clear that when he goes on to say that he intended, firstly to agree the defendant's position and then set about agreeing the Part 20 defendant's position, that he is in fact talking about some internal strategy and not something that he put to Mr Cadman. Indeed, that would have been premature as the whole passage makes clear.
9. So that was Thursday 18th May. On the next day Mr Gamble wrote to Bowmic's solicitor and asked whether Bowmic had compromised the case with the claimant. That was a `without prejudice' request for information. On the afternoon of that day Mr Gamble received a call from Mr Cadman, who suggested that each party walk away and bear own costs. He would talk to his client and revert to him.
10. Then on Thursday 18th May, slightly later in the afternoon, Mr Gamble spoke to counsel and to the client and discussed further trial preparation. He says:

"Once again it was clear to me at this time that no realistic proposal had been made by the Claimant to compromise `chapter 1'."

11. The next day, 19th May, Mr Cadman telephoned with a new offer, and he recollected that this was for the claimant to abandon its claim on being paid £10,000 towards its costs. So there was a movement from £35,000 damages and costs made in the Part 36 offer, and the claimant was abandoning its claim but still seeking a contribution as to its costs.
12. Later that very same day Mr Gamble took the initiative of writing to Mr Cadman and stating that in the normal course of events it would be the claimant who would pay the defendant's costs. There was a further letter without prejudice, save as to costs, in which Mr Gamble proposed that his client, the defendant, should agree to walk away in settlement and vacation of the trial at Leicester County Court on the basis that the claimant do pay the defendant's costs of £7,000, such sum to be paid within 14 days. The letter stated that there was a discount of approximately 30 per cent on the defendant's costs, and that the discount was only available if accepted by 2.00pm that day, that is 19th May 2000.
13. In all those discussions nothing had been said by Mr Gamble to Mr Cadman about the position of the Part 20 defendant. Undoubtedly, Mr Gamble had been giving that some consideration and indeed had written to the solicitors for the Part 20 defendant, but had not, as I see it, raised that with Mr Cadman.
14. I now turn to the further events of 19th May. At approximately 4.50 on the afternoon of 19th May a telephone conversation between Mr Gamble and Mr Cadman took place. Mr Cadman said that Mr Gamble said that he would not accept £5,000. Mr Cadman's note continues:

"... but he'd already spoken to his client. Have authority to accept £6,000. Withdraw claim and £6,000 contribution. Can't write to us today."

15. There is another attendance note in the evidence. This is Mr Cadman's attendance note of this conversation. He says:

"Received a call from Mr Gamble. He said that we were almost there. His clients were prepared to settle but thought that £5,000 was a bit light. I said that I had authority to go to £6,000. He said that Mr Kiddie would accept that. On that basis, it was agreed that my clients would not pursue the claim and would pay a contribution of £6,000 towards the defendant's costs. I said that I would not have a chance to send a fax tonight. Mr Gamble said that he was making notes of the discussion and said that he would notify the court, Dr Hainsworth, etc that the matter had been resolved. He would also tell his counsel, Mr Power."

16. I should say that Mr Gamble did not recollect those final parts of the conversation, and therefore I have put those matters on one side.
17. On the same afternoon Mr Cadman did in fact send a fax. It is not clear to me precisely when it was received, but Mr Cadman's evidence was that he dictated this before a further conversation to which I must come. The letter is to the defendant's solicitors. It refers to conversations that afternoon and continues as follows:

"It has been agreed that our clients will not pursue their claim against your clients and will pay a contribution of £6,000 towards your clients' costs in the proceedings. We will notify the Court of the resolution of the proceedings between our clients. We think that the simplest way to deal formally with the resolution of the proceedings is to have a Notice of Discontinuance by Consent and we will forward the appropriate document to you under separate cover."

18. In the meantime Mr Gamble had, as I understand it, spoken to counsel. But very shortly after his original conversation at 4.50 - he says it is at 5 minutes past 5 - he rings up Mr Cadman and states that obviously the Part 20 defendant's costs can now be considered. Mr Cadman's response was that that was a matter for the defendants, that the defendants had brought in the Part 20 defendant and therefore it was up to them to settle with Bowmic. That is confirmed on 22nd May which is from the claimant's solicitors, which states as follows:

"The fact is that we reached an agreement with you on Friday afternoon that our clients would not pursue their claim against your clients and would pay your clients a contribution towards costs of £6,000.00. That was the agreement reached. With respect, you cannot go back on that agreement now. It is for your clients to resolve the issues between them and Bowmic Ltd since it was your clients who brought Bowmic Ltd into the proceedings. We note your reference to a `mistaken belief'. At no time was any reference made to discussions with Bowmic Ltd. Indeed, as we have made clear above, it is for your clients to resolve the position with Bowmic Ltd. Our clients' claim is against yours. That claim has been settled under the terms referred to above. Those are the facts."

19. The question whether a settlement had in fact been reached came before His Honour Judge Hall as a preliminary issue. What the judge said was as follows:

"I ask myself this hypothetical question: would a person looking at the situation that existed at 4.50 pm on 19th May, knowing that there was litigation between three parties, two of whom were attempting to negotiate, one of those parties only having brought in the third party, have left out of account the fact that there were implications for costs all round, not just between the claimant and the defendant but between the defendant and that third party that was brought in and became Part 20 defendant? Looked at in this way it is in my judgment that no reasonable person would overlook the fact that to settle with one, without having in mind what might be going on elsewhere within the same case, would in fact apply their mind in that way.

Further, if one is seeking to impose a settlement by agreement between two parties, to overlook the fact that there were or should be repercussions in costs between one of those parties and the third party is not to do substantial justice to all parties.

In my judgment, the agreement which was reached was one which was almost there, but it was only almost there, it was not finally there; and in my judgment the question of the costs of the Part 20 defendant not having been resolved and having been firmly in the subjective mind of the defendant, in fact should have informed the litigation so far as settlement was concerned on the part of the claimant also. The claimant's solicitor must be taken to have known that there were costs repercussions."

20. As I have said, His Honour Judge Hall found for the defendant.
21. Goldring J took the contrary view. He said it is the court's task to decide whether what was said during the telephone conversation objectively amounts to a completed agreement. He continued:

"In deciding that it considers what was said in its context. Things said and done before the conversation are material. They are to be considered objectively. The following seem to me the material considerations.

(1) The aim of the negotiation between the Claimant and Defendant was the settlement of the action.

(2) The Part 20 Defendant's costs formed part of the action. They were, however, the Defendant's, not the Claimant's responsibility.

(3) The Claimant's solicitor did not mention the Part 20 Defendant's costs.

(4) The Defendant's solicitor did not mention the Part 20 Defendant's costs. In particular, he did not suggest he was looking to the Claimant to pay them.

(5) On its face there was a clear agreement between the Claimant's solicitor and the Defendants. It was unconditional. Its terms were clear. It could have been conditional. For example, the Defendant's solicitor could have inserted a reservation that the agreement was to depend upon the settlement of the costs of the Part 20 Defendant. They were, after all, his responsibility.

(6) Although there has been some argument about it, it seems to me that the effect of the correspondence conversations leading up to the crucial conversation is all one way. Nowhere is chapter one mentioned. Nowhere is it said that until chapter two had been agreed there can be no agreement between the Claimant and the Defendant. Nowhere is it said that any agreement between the Claimant and Defendant would depend upon disposal of the case between the Defendant and the Part 20 Defendant. The correspondence and Mr Cadman's attendance notes suggest that once agreement between Claimant and Defendant was reached that was to be an end of the case.

(7) Another consideration mentioned to me which may not have been at the forefront of the submissions to the learned judge was this. The responsibility of the Part 20 Defendant's costs was upon the Defendant. The Claimant in many such cases may never be told what has been agreed between a Defendant and the party that a Defendant is suing. His solicitor may ask. He is not obliged to. He may never be told. It is strictly not his business. A solicitor could reasonably conclude in such a case that all or part of the amount his client is paying the Defendant is being passed on to the Part 20 Defendant: here, that the £6,000, or part of it, was going to the Part 20 Defendant.

In the light of the considerations I have set out, I am afraid I have come to a different conclusion from the learned judge. In my view on the objective facts, an agreement was reached between the Claimant and the Defendant. A reasonable solicitor could have concluded that the agreement would have the effect of disposing of the action as a whole."

22. Mr Power has made a number of submissions on behalf of the defendant, both in his helpful skeleton argument and here in his helpful oral submissions. He submits that the judge took into account subjective facts and accepted evidence in the attendance notes which was disputed. The judge made no finding as to the facts at any point. He simply reviewed the documentary evidence. However, I note that it was the judge who found that the defendant accepted the proposal made in the course of the 4.50 telephone conversation, and indeed it does not seem to be in dispute that that particular matter, i.e. the position between the claimant and the defendant, was resolved.
23. Mr Power submits that the judge erred in finding a positive duty on the solicitor to reserve his position, and wrongly applied the test of a reasonable solicitor. In the last sentence which I read from the citation of the judge's reasons the judge uses the words "a reasonable solicitor" when, on Mr Power's submission, the correct test - it seems to me this is the correct submission - is what the agreement would have connoted to a reasonable observer, whether a solicitor or not. It need not be a person with a special qualification.
24. Mr Power also submits that the judge erred in finding a complete agreement because there was no provision to pay for the costs of the Part 20 defendant, that is Bowmic's costs. Mr Power cogently submits that the sum of £6,000 was patently inadequate to cover the costs of both the defendant and Bowmic. Indeed, the correspondence suggests that the £6,000 was a contribution only to the defendant's costs. The judge should have considered, on Mr Power's submission, whether all the factors, including unmentioned factors, had been resolved.
25. In the course of his helpful submissions Mr Power put it this way. He said: what was agreed at 4.50 on 19th May was that the claimant would discontinue the claim against the defendant and pay a contribution of £6,000 to the defendant's costs. Mr Power submits that Mr Cadman must have known of the Part 20 proceedings, and that the existence of those proceedings is part of the factual matrix which, as is well-established, the court must have regard to when construing an agreement.
26. The court must indeed have regard to the factual matrix. That may indeed include matters which are not uppermost in the parties' mind. But the parties are not expected to divine matters which are not part of the factual matrix and were not made explicit. Mr Power has to go on to submit that the agreement that was reached at 4.50pm on 19th May was an incomplete one; that it was subject to a further term that the claimant would pay the Part 20 defendant's costs through the defendant, those costs being the costs that were negotiated by Mr Gamble; that accordingly what would happen next is that Mr Gamble would go ahead and negotiate those costs and present the bill to the claimant. What Mr Power submits is that Mr Cadman should have appreciated that the claimant would have to pay more. Indeed, he relies on the fact that Mr Gamble was already in communication with the Part 20 defendant. In addition to the letter to which I have referred, there was in fact a telephone conversation between Mr Gamble and the Part 20 defendant in the course of the afternoon of 19th May. Mr Power says it was 45 minutes before the crucial conversation about the disposal of the action. So Mr Gamble and the Part 20 defendant were certainly alive to the need to settle those proceedings. But the question is what a reasonable observer of the conversation at 4.50 on 19th May would, in the light of the factual matrix, conclude that the agreement amounted to.
27. In my judgment, there is no real prospect of the Court of Appeal holding on appeal that a reasonable observer would have concluded that Mr Cadman had agreed to be bound to an unknown figure in respect of the Part 20 defendant's costs. Therefore, in my judgment, there is no ground for giving permission to appeal.
28. I have considered this case carefully in the light of the written submissions. I consider that there would be no prospect of challenging the learned judge's approach to this matter. The test is whether there was a complete agreement. One very crucial and telling fact is that nowhere in the course of the negotiations between Mr Cadman and Mr Gamble did Mr Gamble reserve what was definitely for him to reserve, namely his position vis-à-vis the Part 20 defendant.
29. In all those circumstances, it seems to me that I must decline permission to appeal.
30. Additionally, this is a second-tier appeal. Mr Power realised that. He submitted that because this matter was being pursued by insurers it must be an important point of practice, and it is considered to be so by the two firms of solicitors involved. That is a separate matter. I do not think that it follows that because there are two sets of insurers, or even one, involved that it necessarily follows that this must be an important point of practice. As far as I can see this case is very much fact-specific, and does not set out any important point of principle or practice, and that there is no other compelling reason either for which the court should grant permission to appeal.
31. Accordingly, I dismiss the application.
ORDER: Application for permission to appeal refused. (Order not part of approved judgment)