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 BRISTOL COUNTY COURT
(HIS HONOUR JUDGE ANTHONY TIBBER)

		Royal Courts of Justice Strand London, WC2
		4th July 2003

1. LORD JUSTICE CHADWICK: This is a cross appeal from an order made on 17th November 2000 by His Honour Anthony Tibber sitting at Salisbury as a judge in the Bristol County Court in Part 20 proceedings brought against the cross appellants, Mr James McLay and his wife, Mrs Maria McLay. By that order, so far as material, the judge dismissed the Part 20 claims against Mr and Mrs McLay, but made no order as to the costs of those proceedings. Mr and Mrs McLay seek to challenge the judge's decision to make no order for costs in their favour.
2. Although refused permission to cross appeal by the judge, the Mclays were granted permission by this court (Tuckey LJ) on 2nd February 2001. Their cross appeal came before this court (Rix LJ and Sir Martin Nourse) on 9th October 2001; but was then adjourned sine die, with liberty to restore. This is the restored hearing of that cross appeal.
3. The underlying facts are set out in the judgment of Sir Martin Nourse on the earlier hearing, on 9th October 2001. it is unnecessary to rehearse them at length. It is sufficient to note the following.

(1) Mr and Mrs McLay were, between November 1992 and March 1996, owners of a barn, some plots of land and a roadway on land in Somerset known or formerly known as The Faulkland Estate. That property had been transferred to them by a transfer made on 20th November 1992 by Mr Eric Moody.

(2) Mr Moody had obtained title to the property under a conveyance dated 28th June 1990 from Mr Victor Francis and his brother, Mr Philip Francis. Until that conveyance the Francis brothers had been the owners, not only of the barn, the plots and the land which was to become the roadway, but also of an adjoining farmhouse, known as Lower Farm House. The conveyance of 28th June 1990 contained a covenant by Mr Moody that he would, at his own expense and within nine months, construct the roadway in accordance with the local highway authority requirements. The roadway, it seems, was to serve not only the barn but also the adjoining farmhouse and the plots. That covenant had been construed in earlier proceedings to mean "construct the roadway to local highway authority adoption standard".

(3) On the following day, 29th June 1990, the Francis brothers transferred the farmhouse to Mr Alan Kingston and his wife, Mrs Jacqueline Kingston. That transfer included a right of way over the roadway which Mr Moody was to construct and an express assignment of Mr Moody's covenant given in the conveyance of the previous day. The transfer of 29th June 1990 to the Kingstons contained no direct covenant by the Francis brothers for the construction of the roadway. Plainly, the Francis brothers took the view that their obligation to provide access, assumed in the contract for the sale of the farmhouse, had been performed or discharged by the transfer of Mr Moody's covenant and had merged in the conveyance; and the Kingstons must have been advised to accept that view.

(4) By November 1992 the roadway had been partially constructed. But, in the transfer of 20th November 1992 to the McLays, Mr Moody took a covenant from Mr and Mrs McLay to complete the construction in accordance with local highway authority requirements. That was to be done within nine months of the date of the 1992 transfer.

(5) In August 1994 Mr and Mrs Kingston commenced these proceedings in the county court in order to have the roadway completed to the standard which they thought was required. By that date the roadway had been constructed, but not to a standard sufficient to enable it to be adopted by the highway authority.

(6) The Kingstons did not sue Mr Moody on his covenant in the conveyance of 28th June 1990, the benefit of which had been assigned to them. They chose to sue the Francis brothers. As the judge was later to hold, when the matter came before him in October 2000, that claim against the Francis brothers was hopeless. Whatever obligation the Francis brothers might otherwise have been under had been subsumed in the transfer of 29th June 1990. Thereafter the Kingstons' claim lay against Mr Moody on his covenant, not against the Francis brothers.

(7) On 6th March 1995 the Francis brothers issued a third party notice against Mr Moody as first third party and against Mr and Mrs McLay as second third parties. The claim against Mr Moody was for a declaration that he had failed to perform the covenant in the conveyance of 29th June 1990 and for damages. Those damages included a sum of £2,000, which the Kingstons had retained at the time of the sale and transfer on 29th June 1990. The claim against the McLays was for a declaration that they had failed to perform the covenant in the transfer of 20th November 1992 and for specific performance of that covenant.

(8) On 22nd October 1997 Mr Moody issued a fourth party notice against the McLays. That, too, sought a declaration that they were in breach of the covenant in the November 1992 transfer.

(9) In the meantime, on 25th March 1996, the McLays had transferred the two plots, part of the property transferred to them by the November 1992 transfer, back to the Francis brothers. With that transfer, it seems, went the McLays' benefit of the covenant to construct the roadway.

4. When the proceedings came before the judge in October 2000 he dismissed the Kingstons' claim against the Francis brothers; and, subject to assessment of the amount which it would be reasonable for them to pay, ordered that the Kingstons pay 90% of the defendants' costs. Those costs were subsequently the subject of a wasted costs order against the solicitors and counsel who had advised the Kingstons to bring a claim against the Francis brothers rather than against Mr Moody. We were told that a portion of the defendants' costs have been recovered under that order; but not all of those costs have been recovered. The judge went on to record in his order that the Francis brothers were discontinuing their third party claim against the McLays. That intention to discontinue had been notified in a letter a few days before the start of the trial. It was not a matter which the judge had to try. The judge held that the Francis brothers were entitled to indemnity from Mr Moody in respect of their costs of the action. But he dismissed Mr Moody's fourth party claim against Mr and Mrs McLay. He made no order for costs of any of the parties to the third and fourth party notices as between themselves. By then, proceedings under those third and fourth party notices had become Part 20 proceedings.
5. The reason why the judge held that, although the Francis brothers were entitled to an indemnity from Mr Moody, Mr Moody was not entitled to pass that liability on to the McLays appears from the judgment which he gave on 27th October 2000. Counsel, Mr David Fletcher, who had appeared before the judge on behalf of the Francis brothers and Mr Moody, had accepted on behalf of Mr Moody that the claim brought by the Francis brothers against Mr Moody under the third party notice should succeed. So there was an admission as between Mr Moody and the Francis brothers. Indeed, if there had not been such an admission, it is difficult to see how the Francis brothers and Mr Moody could have been represented by the same solicitors and counsel. The dispute, therefore, was between the Francis brothers and Mr Moody on the one hand and Mr and Mrs McLay on the other hand.
6. In order to decide whether the McLays were liable for the costs incured by the Francis brothers in resisting the Kingston's claim, the judge had to consider whether Mr Moody's acceptance of liability - by which the McLays were not bound - was rightly made. He held that it was not. He said this in the course of his judgment:

"I do not think the defendants' costs, claims and demands arose from any breach of covenant. They arose because the claimant mistakenly alleged the defendants to be in breach of a covenant which did not exist. True it is that had the road been built by Moody there would not have been, or may not have been any action by the claimant, but the claim was based on allegations of fraud and breach of collateral contracts, and of clause 10(a) of the agreement for sale.

I doubt that if Mr Fletcher had not made the concession he did I would have found for Moody against the defendant. As he did make that concession I think I have to find for the defendants on the indemnity point."

The judge then turned to the position of the McLays. In relation to Mr Moody's claim against the McLays, he said this:

"The McLays were clearly aware of Moody's liability to the defendants (see the correspondence on this subject), and would therefore be liable to compensate him for his indemnity to the defendants. Mr Fletcher's admission cannot bind the McLays, and I have found in fact no liability by Mr Moody to the defendants and that means there is no liability to Mr Moody from the McLays."

7. The McLays were not liable to Mr Moody because, as the judge thought, Mr Moody was not liable to the Francis brothers. Nevertheless, the judge gave Mr Moody permission to appeal on the question whether the McLays were liable to indemnify him. He heard submissions as to the costs of the Part 20 proceedings - that is to say, the proceedings under the third and fourth party notices - from counsel for the Francis brothers and Mr Moody on the one hand and counsel for the McLays on the other hand. He dealt with the matter summarily, in a couple of sentences at page 3 of the proceedings after judgment:

"It seems to me that nobody has succeeded in these proceedings. I think it would be wrong to make any order for costs and I propose to make no order for costs to anybody."

8. Mr Moody's appeal against the judge's refusal to order an indemnity against Mr and Mrs McLay came before this court under reference 2000/3550 on 9th October 2001. The McLays' cross appeal against the judge's refusal either to order the Francis brothers to pay their costs of the discontinued third party claim, or to order Mr Moody to pay their costs of the fourth party claim on which he had failed, was listed for hearing before the court under reference 2000/3551 at the same time.
9. On 9th October 2001 this court allowed Mr Moody's appeal against the judge's refusal to order an indemnity against Mr and Mrs McLay. The court ordered an inquiry as to damages and ordered the McLays to pay Mr Moody his costs of the appeal. Put very shortly, this court held that Mr and Mrs McLay were plainly in breach of their covenant, in the November 1992 transfer, to construct the roadway. The damages which Mr Moody had sustained, by reason of that breach of covenant, included the costs claims and demands made against him by the Francis brothers; in the sense that, had the McLays performed their covenant, those costs claims and demands would not have been incurred or made, and that damages arising therefrom were well within the contemplation of the McLays at the time when they entered into their covenant in November 1992. Accordingly, the appeal was allowed.
10. But the court did not go on, on 9th November 2001, to consider what consequences (if any) their decision should have on the refusal of the judge to make any order for the costs of the fourth party proceedings. We have not been shown a transcript of the discussion after judgment, but we were informed that that court was told that all costs would "come out in the wash" in the course of the inquiry as to damages. Just how that could be so in relation to the costs of the fourth party proceedings (absent some order as to those costs) has escaped me. Had the court considered the question who should pay the costs of the fourth party proceedings in the county court, it is difficult to see what order it could have made as between Mr Moody and the McLays other than that the McLays should pay Mr Moody's costs of the fourth party proceedings. The court had held, on the appeal in 2000/3550, that Mr Moody had been entitled to succeed in the fourth party proceedings.
11. In this court Mr Sahonte recognised the inevitability of that result by indicating, today, that he would not oppose an order that the McLays pay the costs of the fourth party proceedings. But, as he pointed out, it does not follow that the McLays should be denied their costs of the third party claim brought against them by the Francis brothers. That was a claim which had been withdrawn before trial and on which the judge made no order as to costs. Mr Sahonte drew our attention to the provisions in CPR 38.6:

"(1) Unless the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant against whom he discontinues incurred on or before the date on which notice of discontinuance was served on him."

It is said that the claim under the third party notice against the McLays was discontinued and that the usual result should follow, namely, that the McLays should have their costs as against the Francis brothers of that claim.

12. Mr Sahonte submitted that, although the judge did "order otherwise", he did not give any reasons for departing from the general rule. That is, perhaps, putting it too high. The reason which the judge gave was that nobody had succeeded in these proceedings. In that context he must be taken to be treating the Part 20 proceedings as a whole, taking the third party proceedings and the fourth party proceedings together. But, if that is what the judge did, then it is plain that his exercise of discretion must be revisited in the circumstances that his decision on the fourth party claim has been held to be wrong.
13. The question for this court is what order should be made in the circumstances of this case. The McLays succeeded against the Francis brothers on the third party claim but failed against Mr Moody on the fourth party claim. The particular feature of these proceedings is that Mr Moody is liable to indemnify the Francis brothers; and the McLays are liable to indemnify Mr Moody in respect of his liability to the Francis brothers. There is, therefore, a very real possibility that, if the Francis brothers have to pay Mr and Mrs McLay's costs of the third party notice, they will seek to pick up those costs in their claim for damages against Mr Moody under the indemnity, and Mr Moody will seek to pass them back to the McLays under his claim for damages for their breach of covenant in the 1992 covenant. The costs will go round in a circle without benefit to anybody. No doubt, that was something which the judge had in mind. It is a matter to which, for my part, I think this court should have regard.
14. Looking at the litigation as a whole, the position was this. The Francis brothers had two routes by which they could bring home to the McLays liability for the costs and expenses to which the Francis brothers had been put as a result of the McLays failure to do what they had covenanted to do in the transfer of 20th November 1992. One way was by a direct claim against the McLays, brought in the third party notice. The other way was by an indirect claim via Mr Moody; that is to say, the claim against Mr Moody in the third party notice conjoined with his claim against the McLays in the fourth party notice. As between the Francis brothers and the McLays, it can be seen that the Francis brothers have succeeded on the indirect route; after deciding not to pursue the more direct route. If this matter had fallen to be dealt with purely under CPR 44.3, a court would have been entitled to take the view that the successful party overall -- that is the Francis brothers -- had succeeded on one issue and failed on another; and would have made a costs order which reflected that position: see CPR 44.3(6)(f) and 44.3(7). In particular, a court would have been entitled to take the view that, overall, the costs of success on one limb of the claim were balanced by the costs of failure on the other limb, and to hold that the right order in the circumstances of this case was no order as to costs.
15. That that would be an appropriate order in this case is reinforced by the real possibility that any order which resulted in the Francis brothers being liable to pay costs to the McLays might well turn out to be academic; in the circumstances that they would pick them up through the chain of indemnities via Mr Moody in any event. An order that there be no order as to costs avoids further expense in the assessment of quantum, and further argument about liability under the indemnities.
16. Although I can see the attraction, as a matter of logic, in making separate orders in relation, first, to the costs of the fourth party claim in favour of Mr Moody, and, second, as to the costs of the third party claim against the McLays in favour of the McLays, I am satisfied that, when this matter is looked at in the round, the sensible and appropriate order is no order as to costs in relation to the proceedings between the Francis brothers, Mr Moody and the McLays.
17. That is the order which I would propose as an exercise of discretion in this court.
18. LORD JUSTICE RIX: I agree.