England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURTS OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
QUEEN'S BENCH DIVISION
(HIS HONOUR JUDGE GILLIARD)

		Royal Courts of Justice Strand London, WC2
		Thursday, 16th June 2005

1. LORD JUSTICE WALLER: This is an application for permission to appeal an order made in relation to costs. Reading some of the correspondence in this case, I have to say for my part I slightly feared I was back in some of the worst days of commercial litigation, but be that as it may.
2. The facts are straightforward. Corus, formally British Steel, made a claim against Terex-Demag Limited, formally Mannesmann Demag Limited, whom I shall call Terex, by a letter dated 10th September 2004. That letter asserted breaches of a contract which had been meant to be performed during 1998. The allegations seemed to be of breaches relating to attempts to put matters right, but nevertheless the advisers of Corus were concerned that there might be a possibility, on one view, of a limitation defence being open to Terex. They therefore issued a claim form on 15th September 2004 but they did not serve that claim form. They did not serve it, as the advisers for Corus asserted, because they wished Terex and its advisers to have a full opportunity of considering the claim letter.
3. Those advising Terex, Howes Percival, took steps to discover what the dispute was about from their clients and they also discovered that that claim form had in fact been issued. They wrote certain letters in September. There was a letter of 22nd September in which they wrote requesting a full list of breaches of the contract that Corus alleged had taken place less than six years before the issue of the claim form; thus they were by implication taking a limitation point. On 24th September they sent a copy of a compromise agreement, thus by implication asserting that that agreement had compromised matters between Terex and Corus. It was in that letter of the 24th September that they also asked for Corus to supply a copy of the contract referred to in claim number TCC093/04, that being the number which had been applied to the claim form issued.
4. The solicitors acting for Corus I shall call DLA. They were asked to deal with those points and clearly there were conversations between solicitors at Howes Percival, probably a Mr Andrew Myers and the individual who was acting for Corus/DLA, and that resulted, as it seems, in an agreement between the solicitors (recorded in a letter of 20th September) that no further action should be taken until DLA received instructions from their client and reverted to Howes Percival on the two issues that had been raised, that is to say whether the compromise agreement covered the matters in dispute between the clients and whether there were any breaches which were being alleged which would not be statute barred.
5. The pre-action protocol that applies to Construction and Engineering disputes provides by paragraph 4.2.1 that:

"If a defendant intends to take any objection to all or any part of the claimant's claim on the grounds that (i) the court lacks jurisdiction, [or that] (ii) the matter should be referred to arbitration ... [then] the objection should be raised by the defendant within 28 days after receipt of the letter of claim."

Howes Percival, on behalf of Terex, took no point on the jurisdiction or arbitration at this stage. They say that the fact that there was an arbitration clause in the contract did not come to their attention until January 2005, when the particulars of claim were served with the appendix, which included all the conditions.

6. Clearly, so far as the judge was concerned, it seemed to him surprising that, in the context of this type of contract where arbitration clauses are very common form, that someone, either at Howes Percival or at Terex, did not think of the possibility that there might be an arbitration clause and did not make further efforts to check the position at an early stage. Having requested a copy of the contract by that letter of 24th September, no further effort was made to obtain the contract from DLA and, as my Lord pointed out during the course of argument today, in particular it was not said in the letter of 29th September that, although no further action was going to be taken, at the very least would DLA supply a copy of the contract in order that the provisions could be checked and to see whether there was an arbitration provision.
7. DLA in fact did not come back to Howes Percival after the 29th September conversation with answers on the limitation or compromise points, but equally, and it was confirmed by Mr Flannery before us today, Howes Percival did incur costs considering the merits of the claim that was being made. That is readily apparent from a costs schedule which was placed before the judge. Indeed, Mr Flannery accepts that, in so far as the costs of the action are concerned -- the costs that would have been claimed was some £6,607 -- the bulk of those costs would be incurred after the 29th September conversation.
8. Ultimately, as I have already indicated, the proceedings were served on 13th January 2005. Now, in fact, still no application was made for a stay with any speed. Mr Flannery explains that the documents were substantial and the arbitration provision was well near the end of the conditions. In any event, what actually happened was that, without any notice to DLA or to Corus, an application was issued on 2nd February 2005 to stay the proceedings under section 9 of the Arbitration Act in order that the matter could be referred to arbitration.
9. Once DLA and Corus had been served the application, they immediately accepted that there should be a stay of the proceedings. So then the only issue that arose between the parties was one of costs and it is the resolution of that issue which Terex now wish to try and bring to the Court of Appeal. Terex were claiming £6,607 as the costs of the action and £4,024.25 as the costs of the application for a stay and those were the costs that they said that they should be entitled to.
10. Corus, through DLA, were saying that the costs of the action should be reserved. Their point was that only once the arbitration had taken place and the costs had been awarded in that context would it be possible to see what extra costs had been incurred by Terex as a result of court proceedings having been commenced.
11. That may not have been a very practical response in one sense, the prospect of bringing the matter back to the court many years later, but on the whole it does not seem an unreasonable stance. However, Howes Percival claimed that they were entitled to the whole of the costs of their activities while the proceedings were in place, including the costs incurred after 29th September.
12. As regards the costs of the application for a stay, Corus' stance was that the application for a stay should have been served within the 28 days laid down by the protocol and that there was a breach of the protocol in failing so to do and, more importantly, were saying that, since the notification to them would have produced a response that a stay would be agreed, there should be no order for costs of the application.
13. So the judge heard argument on the dispute as to costs. He was not persuaded by Howes Percival's argument that, since they did not know about the arbitration clause until January 2005, as they were submitting, any point taken in relation to the 28 days was an unfair point to take. The judge's attitude was that someone in the position of Terex and Howes Percival should have done a great deal more to discover whether there was an arbitration clause. His ultimate solution, however, was not to reserve the costs of the action but to make no order for the costs in that regard. Because of Terex's late application and the failure to inform DLA of the application before issuing, his view was that there should be no order for the costs of the application. But having ruled against Howes Percival's argument on the costs question, he did make an order for costs in relation to the costs of the hearing that had taken place before him.
14. Mr Louis Flannery, on behalf of Terex, seeks to challenge the exercise of the discretion of the judge in the Court of Appeal. In his skeleton he suggests that matters of importance are raised in relation to how a court should approach an order for costs on a section 9 application. He says that important points would arise in relation to the pre-action protocol and he suggests that the judge erred in principle, that he was wholly wrong and he suggests that it is a golden opportunity for the Court of Appeal to give some clear guidance in relation to costs orders being made where applications are made under section 9.
15. I do not think that any matter of great importance is raised or that this is a case in which any golden opportunity should be taken and I say that particularly, even at this stage, because of the amount of costs with which this case is concerned and in the context of this dispute as a whole.
16. Just examining, however, the judge's discretion, the judge in fact correctly directed himself that where a successful application is made by the defendant for a stay under section 9, then in normal circumstances the defendant will get both the costs of the action and the costs of the application, and that he makes clear in paragraph 18 of his judgment. He also correctly directs himself that the normal circumstances are ones in which the application for a stay is made at an early stage, that is it to say before a defendant has incurred any major costs in the action. Indeed, in normal circumstances, practically the only costs should relate to dealing with the stay application. Costs will be obviously incurred in consulting the contract, taking instruction and then making an application, but that is all.
17. The judge then deals with why the application was late in this case or later than would have been the norm. He appreciates that Howes Percival asked for the contract on 24th September 2004 and he appreciates that they did not receive a copy of the contract until the proceedings were served. He noted that it still took some time even when the contract was served for Howes Percival to react. He accepts that Howes Percival may well not have appreciated that there was an arbitration clause until they got the contract. That he makes clear in paragraph 21 of his judgment.
18. He does not make any finding about whether persons at Terex knew whether there was an arbitration provision, because he has no evidence about that, and indeed part of Mr Flannery's application to this court is to put in fresh evidence about that. But the question of actual knowledge was not, as I understand the judge's judgment, really to the point, because what the judge was saying was that it is common form for engineering contracts to have arbitration clauses in them. He is saying that the solicitors and Terex were examining the terms of the contract and the issues in September 2004. That is how they discovered the compromise agreement, and what he says is that it should have occurred to them, either the solicitors or Terex, that there might be an arbitration clause, and it should have occurred to them that there was a need to move promptly.
19. His view on the basis of the above findings was that essentially Corus had complied with the pre-action protocol and Terex had not. Thus, in so far as further costs were incurred by Terex during the five-month delay, they brought those costs on themselves.
20. He also notes that, although Terex had suggested that it was agreed that no steps would be taken until certain questions had been answered, on 29th September Howes Percival in fact went on incurring costs and he noted how it would be in fact those costs that Terex would now be trying to recover, though it was fair to say that he did not make as much of that aspect as it seems to me he could have done. But his ultimate conclusion on the costs of the action was that in the particular circumstances of this case, Terex, because they failed to follow the pre-action protocol, should not have any of their costs of the action.
21. So far as the costs of the applications were concerned, the judge said this in paragraph 30 of his judgment:

"... it seems to me there is no good reason why the application was issued before the claimant had been asked would it consent. It seems that the application, on the balance of probabilities, was unnecessary. There may well have been an issue as to costs and that of course has come before me today, but in the ordinary way, it seems to me that this is a case where, whatever the rights and wrongs in relation to the pre-action protocol are concerned, this is a case where this application is one which really ought to have been made, if it was going to be made, very much earlier than it was, and long before a significant amount of costs had been incurred, and I propose simply to make no order as to costs in relation to both the application and in relation to the costs of the action."

So what the judge is saying overall is that, if the arbitration clause had been discovered, as it should have been, at a very early date, there really would have been very little in terms of costs incurred by the defence in the action or in the making of any application, and no costs incurred by Corus in dealing with the application. On that basis, the fair order was no order as to costs on either.

22. That, it should be said, although I accept the judge did not put it this way, will leave Terex in the position to claim costs in the arbitration in so far as it succeeds and can demonstrate that some of the costs incurred go to the merits of the breach of contract claim. Furthermore, and again I accept that the judge did not reason it in this way, the order did not require Terex to pay some costs which Corus says it had incurred on the application which it should not have had to incur if, instead of issuing an application, agreement had been reached to stay the action.
23. In my view, and in agreement with the single Lord Justice, Latham LJ, this is not a case in which permission to appeal should be granted. It is an appeal about costs and the exercise of discretion. Even if some judges might have been more generous to Terex, in my view the decision was within that generous ambit where there can be room for disagreement. I do not think there is any matter of general importance in relation to a costs order under section 9. I do not think there is any issue of general importance relating to the right approach to the pre-action protocol. Mr Flannery is right to suggest that he was taken somewhat by surprise by the argument of Corus by reference to pre-action protocol, and he himself relies on breaches by Corus of the pre-action protocol. Indeed he suggests that, even if one is not having regard to the particular pre-action protocol, that there would be failures by Corus to conform with the views expressed in the editorial in the White Book in relation to considering an alternative to litigation. That editorial suggests it is incumbent on both parties to consider whether there are not more cost-effective ways of having their disputes decided, other than by litigation including arbitration, and Mr Flannery stresses that that is what Corus should have done here.
24. But in my view that raises no issue of principle. There has not, for example, been laid down by this judge any general rule that protocols must be looked at in a particular way in all cases. This was a judge exercising his discretion in this particular case.
25. In so far as what I should call the overlap point, it seems to me that the following points are pertinent first, so far as Terex's cost are concerned, and those are the only relevant costs for these purposes, if they were incurred, considering the merits of the claim, then I do not see why there is not a strong argument for recovering them in the arbitration if Terex succeeds. If that be wrong, there is still a powerful argument for them not being recoverable as the costs of the action, first because, as the judge held, it was up to Terex to consider the arbitration aspect right at the outset and not incur costs in the action and, in any event, they were incurred post the agreement of 29th September. It is as a result of Terex not keeping to that, that the costs were incurred.
26. If there is a small sum of costs, which will not relate to the merits incurred simply in dealing with staying action, they were small and the judge was entitled, having regard to the conduct of Terex and their lawyers, not to award them. In any event, as I sought to emphasise to Mr Flannery, it would be quite disproportionate to allow this case to come to the Court of Appeal to deal with that small amount.
27. It seems to me unnecessary to say anything about other points. This is not a case which, in my view, should come to the Court of Appeal and I would refuse permission to appeal.

Order: Permission to appeal the costs order refused.