England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM SOUTHAMPTON COUNTY COURT
(HIS HONOUR JUDGE MARSTON)

		Royal Courts of Justice Strand, London, WC2A 2LL
		22nd October 2007

Sir Peter Gibson:

1. This is an appeal brought by the defendant appellant Mr Randall against two paragraphs of the order made by HHJ Marston in the Southampton County Court on 5 December 2006. By his order the judge gave judgment for the claimant Mr Martin in the sum of £32,812.50 including interest. By paragraph three of the order he ordered Mr Randall to pay the costs of Mr Martin the claimant from 19 May 2005, the date of a CPR Part 36 offer to settle, until 26 November 2006, the day before the commencement of the trial. By paragraph four the judge ordered Mr Martin to pay Mr Randall's costs from 27 November 2006, that is to say his costs of the trial including the costs of attendance at trial and counsel's brief fees. By paragraph five the judge made no order for costs prior to 19 May 2005. Mr Randall appeals against paragraphs three and five of the order. Permission to appeal was granted by Auld LJ on the papers at a time when they did not include any skeleton argument for Mr Martin.
2. This unfortunate litigation, in which the costs appear to dwarf the subject matter in dispute, relates to a partnership dispute. Until 1999 Mr Randall owned and ran as a sole trader a business called Blackfield Hardware which the judge described as a traditional ironmongery shop and garden centre. In early 1999 Mr Randall began to look for a partner. Mr Martin agreed to enter into partnership with Mr Randall, taking a 28% interest for which he paid £20,000. The partners entered into a formal partnership agreement dated 21 April 1999. However the relationship between the partners soon broke down and the partnership was dissolved as from 18 July 2000. After an abortive attempt by Mr Martin in July 2000 to sell his share to an employee of the business at £28,000, a valuation which the partnership accountant Mr Simpson thought was fair as being close to the partnership's net assets, it was left to Mr Martin and Mr Randall to try to agree a price for Mr Martin's share including his share in the capital account of the partnership. Mr Martin was of course entitled under the partnership agreement to be paid for that share. The partners made some attempts in 2000 and 2001 to try to reach agreement. On 7 November 2000 Mr Martin offered to accept £50,000 together with a contribution in respect of his costs. But that contribution was not specified and so that offer was incomplete. On 29 November 2000 Mr Randall offered to pay Mr Martin £22,000 but the offer was not complete because it was stated that there had to be further agreement as to the payment terms. On 20 January 2001 the offer to pay £22,000 was repeated by Mr Randall, but it was stated that he could not pay that sum immediately but would pay within six months with a "longer stop date" of 12 months, and that if the £22,000 was not paid within six months, interest at a commercial rate to be agreed would be payable on the balance outstanding from the end of six months until payment. Again that is not a complete offer.
3. On 16 November 2001 Mr Martin offered to settle on immediate payment to him of £35,000. That was not accepted. Mr Martin mentioned the possibility of jointly instructing an expert. He and Mr Randall agreed to instruct, and on 25 July 2002 they jointly instructed, a chartered accountant independent of both of them, Ms Berry. Mr Martin appears to have harboured suspicions that the books of the business did not set out the actual takings but understated them. The business was largely a cash business. Ms Berry was instructed to prepare the valuation on alternative bases, one of which was on the basis that the books accurately recorded the turnover. She was also instructed to make valuations on the higher turnover figures which Mr Martin suspected were correct. On 11 August 2003 Ms Berry sent Mr Randall's solicitors her draft report. In it she valued Mr Martin's share at £24,100 on the basis of the business books. She gave alternative valuations of £54,800 and £97,000 on the basis of higher turnover figures suggested by Mr Martin. Both sides saw the draft report.
4. Nothing material then occurred until 19 May 2005 when Mr Martin's solicitors wrote a letter to Mr Randall's solicitors making a Part 36 offer. They said this:

"For the purposes of immediate settlement we are instructed to advise that our client will settle his interest in relation to the partnership upon payment of the sum of £32,000 on the basis that this will also determine any of our client's liabilities in relation to any previous partnership debts which will accordingly be assumed by your client who continues in the same business and accordingly that our client will receive indemnity in this regard."

The letter made explicit that it was a Part 36 offer and that it would remain open for a period of 21 days from the date of receipt of that letter. In the letter reference was made to the three valuation figures which Ms Berry had produced in her draft report. The letter also made clear that on the lowest valuation figure, that of £24,100, the amount that would be due with interest amounted to a sum in excess of £32,000, the subject of the offer. That was a complete offer made in accordance with the provisions of Part 36 and capable of immediate acceptance.

5. In their response on 23 May 2005 Mr Randall's solicitors raised some questions and said that clarification of Ms Berry's draft report was needed. By a further letter of 9 June 2005 they said that Mr Randall refused to consider the Part 36 offer until they obtained that clarification. Mr Martin, they said, had not paid his share of the fees due to Ms Berry, who was complaining about that and who was refusing to provide any clarification or indeed to complete the report pending payment of the fees due to her. Mr Martin eventually paid at least the major part of his share of Ms Berry's fees in July 2005. Although Ms Berry was still not answering questions on the draft report, a situation which persisted until a court order was obtained in November 2006 requiring her to answer, Mr Randall was still exploring offers of settlement. On 22 July 2005 his solicitors wrote to Mr Martin's solicitors saying that Mr Randall was prepared to consider payment of £10,000 payable over a ten year period to settle the dispute. The judge described that offer as derisory.
6. Despite requests made by Mr Martin for an interim payment no such payment was made or offered. On 10 August 2005 Mr Martin commenced proceedings claiming dissolution of the partnership and payment to him of the value of his partnership share. In the statement of case, allegations suggestive of fraud on Mr Randall's part were made. It is regrettable that there were however no clear averments of fraud in the pleadings, as there should have been.
7. After the pleadings were closed the case was set down for hearing before the judge with the trial due to commence on Monday 27 November 2006. Ms Berry's report had been finalised shortly before then. Mr Randall was not accepting the correctness of her valuations and wanted to cross-examine her at the trial with Mr Simpson's assistance. A valuation was put forward showing Mr Martin's share at a value of only £5,453. On Friday 24 November 2006 Mr Randall finally and, as he himself has put it in his grounds of appeal, reluctantly agreed the alternative valuations made by Ms Berry. That left outstanding the question of fraud and the question of interest on whatever sum was found to be payable depending on the answer to the question of fraud.
8. On 27 November 2006 the trial commenced, both sides being represented by solicitors and counsel. During the short adjournment that day counsel sensibly agreed the interest figure that should be added to the capital sum so that if no fraud was found the amount payable to Mr Martin including interest would be £32,812.50. The next one and a half days were taken up with trying Mr Martin's allegations of fraud. On 5 December 2006 the judge gave judgment. He criticised parts of Mr Randall's evidence but found that he was not a fraudulent man and was sure that fraud was not happening. The judge continued:

"I have no idea why the Claimant has made these accusations. I don't know whether he has convinced himself of the truth of them or whether it is simply a way of trying to get more money out of the Defendant. It doesn't matter. The claim for anything more than the agreed payment fails by a very long way."

9. The judge then heard arguments on costs. In the course of the submissions of counsel the judge indicated that he was minded to make Mr Martin pay the costs of the hearing and to make no order as to costs before that. Having heard further argument the judge came to a different conclusion in respect of part of the costs incurred before the hearing. The judge's judgment on costs reads as follows:

"The position with regard to this case in terms of costs is horrendous. I am told that there is something in the order of £80,000 worth of legal costs between the parties. That, quite frankly, is the fault of both of them. Documents were not produced on one side. Issues were not addressed [I interpose the comment that those are criticisms of Mr Randall.] On the other side pleadings were put in which were not sustainable. Allegations and pleadings were put in which were not sustainable at trial [I interpose the comment that that is a criticism of Mr Martin.] That, of course, has an effect on the mind-set of the parties in terms of attempting to settle the case. However, it seems to me that there are two primary points here.

"A Part 36 offer, dated 19 May 2005, was £32,000. That is incredibly close to the order that I made. It seems to me that the litigation could have been avoided by settling on that basis. The expert's report was not available, but it also seems to me that there was a draft and that the litigation was quite concludable at that point.

"Secondly, the litigation did not conclude and the hearing for two days was to pursue allegations which were not founded. That was the primary purpose of that piece of litigation. I could just dodge all of this and make no order for costs. I do not think that is right in the circumstances here.

"In my view, exercising my discretion, and having been pointed at the various matters that I should take into consideration, I am going to make an order that the defendant pays the claimant's costs with a Part 36 offer to the first day of trial. The claimant pays the defendant's costs of the trial itself. That in my view reflects where the fault lies in this case and the position with regard to the reasonableness of continuing the litigation. That is the best I can do."

10. Auld LJ, when faced with the application for permission to appeal, gave permission as I have said, and his reasons were these:

"This case was driven, before and at trial by groundless allegations of fraud, not by any significant issue as to valuation absent fraud. The applicant's complaints about the Judge's order for pre-trial costs against him are, in my view, strongly arguable for all the reasons advanced in the grounds and skeleton argument."

11. The learned Lord Justice may not have been made aware of the fact that until shortly before that there was indeed a serious issue on valuation to be resolved, Mr Randall not accepting Ms Berry's valuations and wanting to cross-examine her until agreement was reached on the Friday before the case came on for trial.
12. Before this court Mr Randall appears in person. He drafted the grounds of appeal and has supplied us with two skeleton arguments. I am grateful to him for his assistance and although he is not a lawyer I would pay tribute to him for the clear and courteous way in which he has addressed this court and endeavoured to assist us.
13. It may help if at this point I set out the relevant legal framework against which Mr Randall's submissions fall to be considered. The court has a wide discretion as to costs (CPR 44.3(1)) but the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, though the court may make a different order (CPR 44.3(2)). In considering which party is the successful party a test which may sometimes be applied is: which party has to pay money to the other? See for example Day v Day (Costs) EWCA Civ 415 paragraph 17 per Ward LJ.
14. In deciding what order if any to make on costs the court must have regard to all the circumstances, including the conduct of the parties, whether a party has succeeded on part of his case even if he has not been wholly successful, and any admissible offer to settle made by the party and drawn to the court's attention, whether or not made in accordance with Part 36 (see CPR 44.3(4)). The conduct of the parties includes conduct before as well as during the proceedings, whether it was responsible for a party to raise or pursue a particular allegation or issue, and the manner in which it was pursued and whether a claimant who has succeeded in his claim in whole or in part exaggerated his claim (see CPR 44.3(5)). The wide range of orders which the court may make include ordering a party to pay costs from or until a certain date only and costs incurred before proceedings have begun (see CPR 44.3(6)).
15. Part 36 provides for offers to settle which are made in accordance with its provisions and the consequences of doing so. If a Part 36 offer is made by a claimant and is not accepted by the defendant and the judgment is more advantageous to the claimant than the offer proposes, the court may order that the claimant is entitled to his costs on the indemnity basis from the end of 21 days after the offer was made (see CPR 36.21 and 36.11). The offer is made when it is received by the offeree (see CRP 36.8(1)).
16. An appellate court's ability to interfere with a trial judge's exercise of discretion is constrained. It is only where the trial judge has exceeded the generous ambit within which reasonable disagreement is possible that the appellate court is entitled to interfere. An often adopted statement of the circumstances in which an appeal against an exercise of discretion will be allowed is that of Stuart-Smith LJ in Roache v News Group Newspapers Ltd [1998] EMLR 161 at page 172:

"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 has taken into account some feature that he should, or should not, have considered, or that his decision was wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale."

17. Mr Randall takes the following points.
18. First he referred us to the fact of Mr Martin's continued allegations of fraud against him from at least February 2001 to November 2006. Mr Randall in effect adopted the remarks of Auld LJ in giving permission to appeal. It is his case that he was the successful party in the litigation because the fraud allegations failed. So, he would say, the judge erred in principle in his approach and should have given him the costs throughout the time that they were being incurred both before and during the hearing.
19. There is no doubt that fraud was being alleged throughout the period up to the start of the trial, and that had that claim succeeded Mr Martin would have been entitled to a larger sum than that which he did receive. Do those facts mean that the judge erred in principle in awarding the costs from the making of the Part 36 offer until trial to Mr Martin? To do so would require this court to conclude that the judge was wrong to take full account of the fact that Mr Martin's basic claim was for the payment to him of his partnership share. I cannot so conclude. The judge was well aware of the entire history of the dispute, including the settlement offers made and the fact that Mr Randall never made or offered an interim payment, despite repeated requests to him in 2005 that he should do so, and despite the fact that the partnership had been dissolved as long ago as 2000.
20. It was put to the judge by Mr Randall's counsel that Mr Randall felt he could not accept the offer to settle for £32,000 because he had to clear his name. I can fully understand and sympathise with that view of Mr Randall as a layman but the judge himself provided the answer to that point, that if Mr Randall settled at £32,000 it would have been pretty clear that the allegations of fraud were abandoned de facto. That is the clearer because of the terms of the Part 36 offer letter itself, indicating that Mr Martin did have regard to the lowest valuation figure of £24,100 in Ms Berry's draft report, that is to say a valuation based on there being no fraud and quite separate from the higher valuation figures if fraud was found. Indeed the Part 36 offer as I have pointed out, was of a payment lower than that which the £24,100 valuation would have justified. I accept that it is possible that another trial judge might have come to a different conclusion on the facts. Indeed for my own part I can see much to commend the judge's original view that there should be no order as to costs in respect of that period. However that is an irrelevant consideration because it is only if the judge himself has erred in principle or has otherwise gone astray that this court can interfere. I regret that I am unable to say that this judge, with his knowledge of all the facts having tried the case, made any such error. He said this in the course of the arguments on costs before him:

"JUDGE MARSTON: I accept the point that the purpose of the litigation was to get a payment of money and a payment of money did not happen until the litigation was commenced and even then it did not happen until I have ordered it.

MR SHAPIRO: Yes.

JUDGE MARSTON: So that on the justification for issuing proceedings argument you have succeeded."

21. The judge went on to say that Mr Martin had succeeded on what he called the bottom line of his case but that he had not got the top line of the case because Mr Martin had failed on the argument relating to fraud. That also indicates that the judge clearly kept in mind the fact that fraud had been alleged and had been alleged wrongly. Accordingly I would not accept Mr Randall's first ground of appeal.
22. Secondly, Mr Randall referred us to the delay in Ms Berry finalising her report, the blame for which he attributed to Mr Martin because of his failure to pay his share of her fees promptly. The relevance of this, according to Mr Randall, was that he could not assess the Part 36 offer made by Mr Martin on 19 May 2005 without obtaining clarification from Ms Berry of the valuation in her draft report, and he could not obtain that clarification without the payment by Mr Martin of the outstanding fees. Part 36 does not provide for a suspension of the 21 day time limit while the offeree investigates the offer. It may be that in highly unusual circumstances, in which vital information about a Part 36 offer is withheld from the offeree by the offeror, the court will take that into account in considering the just order to make in cases where there has been such an offer.
23. Mr Shapiro properly accepts that there was a three month delay by Mr Martin in paying his share of the fees, though he points to far longer delays by Mr Randall and Mr Simpson in providing information to Ms Berry. However I do not accept that Mr Randall was unable to respond to the Part 36 offer without clarification of Ms Berry's draft report. Mr Martin was not possessed of any special information to enable him to make his offer when he did, having regard to the valuations in Ms Berry's draft report. Mr Randall in contrast had all the documents and furthermore had Mr Simpson to help him in assessing the offer and in coming to a conclusion as to what he asserted was the correct valuation. I have already drawn attention to Mr Randall's ability to come up with figures for an offer without any such clarification. The offer having been made, it seems to me, as it plainly seemed to the judge, that it was for Mr Randall either to accept the offer within the 21 days specified or to risk the consequences. I do not see anything in this ground of appeal which would entitle Mr Randall to succeed on the appeal.
24. Third, Mr Randall referred to Mr Martin refusing to accept Mr Randall's offer to settle by accepting his offer made in November 2000 to pay £22,000. Mr Randall said that the costs incurred prior to 19 May 2005 were entirely attributable to that fact. He criticised Mr Martin for not accepting that offer and the judge for failing to take that into account. It is sufficient to repeat that the offer made on 29 November 2000 was not a complete offer as it required further agreement on the payment terms. Mr Randall has, I am afraid, only himself to blame for making an incomplete offer. The judge was shown a schedule prepared by Mr Shapiro of all the offers that were made. The judge was not addressed by Mr Randall's counsel on this incomplete offer and in my judgment that counsel cannot be criticised for not doing so. The judge was entitled to treat that offer as not on a par with Mr Martin's Part 36 offer. In my judgment there are no consequences in costs resulting from the fact that Mr Randall had sought to settle in November 2000.
25. For completeness I should add that Mr Randall provided us with a list of what were called "other relevant matters" such as alleged breaches by Mr Martin of the partnership agreement, but Mr Randall did not show how those matters were relevant to the exercise of the judge's discretion on costs. In my judgment they take Mr Randall's case no further.
26. For these reasons, which owe much to Mr Shapiro's able submissions, and subject to one point it seems to me that the judge's exercise of discretion cannot be impugned. His exercise of discretion fell within the generous ambit within which reasonable disagreement is possible. Accordingly, subject to that further point and notwithstanding my sympathy for Mr Randall, I would dismiss this appeal.
27. The one point is a point which was not taken by Mr Randall but which occurred to this court. Mr Shapiro properly accepts that the Part 36 offer was a little less advantageous than what Mr Martin in fact recovered. However there can be no doubt that the judge was entitled to have regard to that offer. The fact that the offer was not accepted was a significant part of the judge's reasoning on the award of costs for the period between the offer and the date of trial. But it would be very odd if Mr Martin could achieve consequences more favourable to him by the Part 36 offer than he would have achieved under Part 36 had he in fact recovered more than he had offered. The judge, by paragraph three of the order, has given Mr Martin the costs for a period longer than could have been given under Part 36 if Mr Martin had recovered more than the Part 36 offer. That is because the period in paragraph three of the order starts with the date of the offer rather than 21 days from the receipt by Mr Randall of the offer. The offer was not received until 23 May 2005 according to the stamp showing the receipt of the offer. The last day for acceptance was therefore three weeks from that date. I make that to be 13 June 2005 but I would be grateful if Mr Randall and Mr Shapiro could check that date. That seems to me to have been an error of principle by the judge which this court is entitled to correct. I would therefore amend paragraph three to reduce the period accordingly. Subject to that correction I would dismiss this appeal.

Lord Justice Sedley:

28. With regret, because the grant of permission to appeal must have raised Mr Randall's hopes, I agree that this appeal cannot succeed. The judgment reached by HHJ Marston as to how the costs should be allocated, while it could legitimately have been different, had a logical basis in the history of the litigation and involved no error of law. The sole frank error is in the computation of the period for which Mr Randall's liability for costs was to run.
29. The case is another cautionary tale about the pitfalls of litigation. Mr Randall is entitled to feel aggrieved at finding himself asked to pay substantially more in costs than were awarded to him in respect of a trial in which fraud was alleged against him and which he won. But the fact was that he had had the opportunity of seeing the entire claim off for a sum very close to what he eventually agreed was due. By the time Mr Randall eventually agreed the money claim Mr Martin's fraud claim was unstoppable and Mr Martin had to pay the price of going on with it. For the rest, the judge was entitled to take the view that Mr Randall had had it within his power well before the eve of trial to put a stop to the entire proceedings by paying Mr Martin a sum almost the same as eventually turned out to be due, and that he was therefore liable to pay the costs of the litigation which could have been avoided by acceptance of Mr Martin's Part 36 offer.
30. This is not a case in which who writes the cheque necessarily determines who pays the costs, there, that is, the pre-trial costs. I can understand Mr Randall's anxiety to dispel a baseless allegation of fraud; but the dismissal of Mr Martin's claim in return for no more than the book value of his share would have had exactly that effect. What brought about the prolongation of the proceedings was not in reality Mr Randall's need to be acquitted of fraud at a trial, but his failure to accept a well gauged offer to settle until the eve of trial. That at least was a view legitimately open to the judge, and it was upon that view point that he acted.
31. I agree therefore that this appeal succeeds only to the extent indicated by my Lord.

Order: Appeal allowed in part.