England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE SHEFFIELD COUNTY COURT
HHJ GRAHAM ROBINSON
SMB03394

		Royal Courts of Justice Strand, London, WC2A 2LL
		13 November 2008

Lord Justice Goldring :

Introduction

1. On 15 January 2007 before His Honour Judge Graham Robinson sitting at Sheffield County Court there began the trial of this claim and counterclaim. Evidence and submissions took 7 days. Judgment was given on the eighth day, the 19 December 2007. The judge awarded the claimant Mr David Peakman £1145, which was less than he was claiming, and the defendant Linbrooke Services Limited ("Linbrooke") £1410 and interest of £56.28, which was less than it was counterclaiming. His decision to make no order for costs is appealed by Mr Peakman. The judgments were to be satisfied by the payment of £265 plus interest by Mr Peakman to Linbrooke. There is no challenge to any other aspect of the judgment. Waller LJ granted permission to appeal. While recognising that this court would be reluctant to involve itself in the order for costs, he added that it was arguable that an injustice had been done to Mr Peakman. He expressed the hope that mediation could prevent further expenditure and the Civil Appeals Office was instructed to send a draft mediation letter to the parties.
2. It is not disputed that costs were in the discretion of the trial judge who knew the case better than anyone having listened to 7 days of evidence and legal argument. In order to interfere with his wide remit on this aspect of the litigation this court would have to be satisfied that he went wrong in principle or that for some other reason he was plainly wrong, for example in not taking any account of a factor relevant to the exercise of his judicial discretion.

The costs incurred

3. Relative to the sums involved the costs are enormous. Linbrooke's costs below were estimated to be £32,700 before the costs of an 8 day trial. Mr. Peakman's costs were some £18,000. According to the Statement of Costs supplied to this court Mr Peakman's costs of his appeal (taking into account the uplift on a conditional fee agreement) amount to £30,481.80. This is deeply troubling, not only for this case but as a reflection of the least satisfactory aspect of our civil justice system. It makes no sense at all for over £100,000 and 9 days (including the appeal) to be spent on what was a perfectly straightforward piece of litigation about a few thousand pounds.

The claim

4. Mr Peakman was a self employed cable jointer. His services were retained by Linbrooke in April 2005 to joint multi-strand cables into junction boxes situated along railway lines in the Vale of Glamorgan and in Blackburn. Linbrooke was doing the work for a company called Thales. His claims against Linbrooke were for pay for work done (£860); the cost of diesel fuel bought by him for the use of Linbrooke (£45); damages for breach of contract in summarily terminating his contract and failing to give him reasonable notice (£995); and damages for the cost of replacing personal tools which went missing. His total claim was therefore for £2,232.40.
5. Linbrooke contested all the claims. It admitted that Mr Peakman had done certain works but contended that there was a total failure of consideration because they were of poor quality and alleged that he had repudiated his contract or that his contract was terminable at will. It counterclaimed £3,019.44 for the cost of remedial work required to rectify his defective work ("the basic counterclaim"). It also claimed for profits which it claimed had been lost due to Mr. Peakman's work. The loss on a single contract was said to be in the region of £30,000 to £40,000; it claimed too that it lost further contracts with Thales ("the Thales counterclaim").

The Thales counterclaim

6. The fundamental submission of Ms Judith Ayling, who appeared for the appellant (but did not appear below), revolves around the Thales counterclaim. She submits it was hopeless from the beginning. It should never have been advanced. There was never the evidence to support it. That was clear from the belated response to Mr. Peakman's request for further information about it. It became even clearer when the respondent's (unsigned) witness statements were received on 8 January 2007, a week before the trial was due to begin. The existence of the Thales counterclaim had a profound effect on the litigation. It meant that instead of this case being in the small claims track with Mr. Peakman representing himself, it was in the multi track with all that that involved as far as costs were concerned. That should have been reflected in the judge's costs decision.
7. In my view that the Thales counterclaim was hopeless is clear both from the trial documents and what the judge said about it in his judgment.
8. In response to Mr. Peakman's request for the date upon which Thales became aware of Mr. Peakman's defective work, it was said that:

"Thales was not made aware of the defective work of the Claimant. Thales was simply aware of the delay in completing the work."

9. It later transpired there was no delay in completion.
10. In response to the request for details of the contracts lost by Linbrooke as a result of Mr. Peakman's defective work, it was said that:

"It is…impossible to know which contracts were subsequently not awarded to the Defendant. However, the Defendant refers to the schedule below which sets out the further contracts that have been awarded to the Defendant by other offices of Thales, whilst during the same period, no further contracts have been awarded to the Defendant from the Reading office of Thales."

11. The witness statements provided no support for the claim.
12. On the first day of the trial, Mr. Wilkin, the solicitor who represented Mr. Peakman at trial, submitted as a preliminary issue that the Thales counterclaim stood no reasonable prospect of success. It should not be permitted to proceed. Whatever Mr. Moffett on behalf of the defendant may now seek to argue (and whatever the judge may subsequently have believed), Linbrooke did not capitulate. In his skeleton argument Mr. Moffett stated:

"Establishing [the Thales counterclaim] has proved commercially sensitive and Thales have refused to comment as to the reason for offering…no new contracts. The Defendant is therefore not in a strong position to promote its case forcefully in this respect, save to point to the strong inference arising from the juxtaposition of the Claimant's defective work and the failure of the Thales Reading Office to offer…any further contracts, and to invite the Court to order a further enquiry into this head of loss if it considers the same appropriate."

13. Quite what Mr. Moffett was inviting the judge to do is not clear to me. He told the judge that striking out the Thales would not save time. The claim was not struck out. The judge did however say that:

"…I will review the position at the end, and, if I take the view that [the Thales counterclaim] ought never to have been made in the circumstances, I can consider any costs consequences that flow…"

14. In his main judgment the judge was highly critical of the Thales counterclaim. In paragraph 7, having said he did not find it easy to answer why the questioning of witnesses was so prolonged (something I shall return to), he went on to say:

"The starting point may be the allocation to the multi track, but this followed from the filing by the defendant of a defence and more particularly, a…counterclaim. The defendant alleges that the claimant's workmanship was poor, such that it spent £3019.44 in correcting defects caused by the claimant. That of itself would not have justified a transfer to the multi track. However, also claimed was consequential loss of profits in a sum estimated…to be in the region of £30,000 to £40,000 in the case of a single contract. The defendant claimed it has lost "further contracts"…The clear implication was that damages…would be measured in multiples of £30,000 to £40,000. I have to record that I consider the overall conduct of the proceedings, by or on behalf of the defendant, to be at the very least shabby and frankly bordering on the disgraceful. "

15. He later said this (in paragraph 12):

"…right up to the moment that this case was opened by the claimant, the defendant had at the very least given the impression of pursuing what was described even as late as 5 December 2006, as a "legitimate claim"…for loss of profits on lost contracts. It is essential to look at what I shall describe as this last minute posturing of the defendant in relation to the loss of profits claim and also to the extraordinary manner in which the defendant departed from…its further and better particulars…and the witness statement of Mr. Hallam…"

16. The judge referred to Mr. Moffett's skeleton argument. He said:

"That was the very first indication that all was not well with the defendant's case under this head. Ultimately it was abandoned. Until that moment the claimant had been left with very little option but to defend the counterclaim, which I emphasise principally comprised a claim for damages for loss of profits…in multiples of £30,000 to £40,000. I do not think any further comment is required from me on that issue; it speaks for itself. However, the manner in which that head of loss was pursued is by no means the only unsatisfactory aspect of the manner in which the defendant has sought to present its case."

17. In short it is clear there was never any evidential basis for the Thales counterclaim. That was so when the case was assigned to the multi track. The further information ultimately provided underlined that. Yet even on the first day of the trial, Mr. Moffett sought to keep the issue in play. The Thales counterclaim should never have been brought. It should in any event have been abandoned long before trial.

Other criticisms of the defendant

The basic counterclaim

18. Mr. Peakman succeeded in his claim for work done, for the reimbursement of his fuel costs and in respect of his tools (subject to a reduction of 25%). Linbrooke recovered 50% of its claim for defective work. It is of course implicit in the judgment that Mr. Peakman's claim that any defective workmanship was the fault of others was rejected.
19. While in the final paragraph of the judgment the judge said that no party or witness had a monopoly on the concept of accuracy, he was critical of the defendant's conduct of the basic counterclaim. In particular, he rejected a contention that what had been set out in a schedule of defects served before trial did not represent all the defects that existed.

The costs argument and judgment

20. I have read a transcript of the submissions made to the judge on costs. The argument took one and a half hours. Each side claimed it had won. The way in which the judge dealt with the submissions of Mr. Wilkin on behalf of Mr. Peakman does not make happy reading. Mr. Wilkin sought to argue that the only reason why the case was in the multi track was the spurious Thales counterclaim. The judge wrongly insisted it had been abandoned at the outset of the case. Mr. Wilkin drew the judge's attention to CPR44 and the comments the judge had made about the conduct of the respondent in his judgment. He submitted that the Thales counterclaim was brought in bad faith and that on the basis of Afzal and others v Ford Motor Company Limited [1994] 4 All E.R 720, Mr. Peakman should have his costs. The judge rejected that submission.
21. In his judgment on costs, the judge said:

"Right down to the first day of the trial, the claimant was facing a Part 20 counterclaim worth at least £60,000. That is because the claim for loss of profits…was not abandoned until the first day of the trial…

The claimant succeeded in all the factual part of his claim…

In terms of the Part 20 claim, what did the defendant succeed in establishing? It did succeed in establishing the defective work. It failed to establish the full amount of its claim…It received not a penny of the £60,000…Can it be said that a claim which started life out as a claim for £60,000, as a result of which it was allocated to the multi track, that claim having been pursued in the…disgraceful manner it was right the way down to the first day of trial then abandoned so that instead of £60,000 plus, the defendant in fact received a balancing payment, claimant to defendant, of £265, can be described as a win? Not in my judgment…

…I take [CPR44] into account. It has been submitted [by Mr. Moffett] that I should determine this case on an issue by issue basis. In my judgment that is the wrong way of approaching this. If ever there was a case where justice cried out for no order as to costs, it is this case…"

The argument

22. Ms Ayling submits that to all intents and purposes Mr. Peakman won. He succeeded on the three factual issues he raised. That he was the winner was something the judge should have had in mind when considering Linbrooke's conduct. He should have taken that conduct into account in his costs order. He failed to have regard to the fact that, absent the Thales counterclaim, the case would have been in the small claims track.
23. Mr. Moffett submits that it cannot be shown that the judge was plainly wrong. Although he does not seek to overturn the decision, he submits that the better argument would be that Mr. Peakman should pay the respondent's costs. Much of the trial was taken up with his spurious claims that others were responsible for any defective workmanship. The Thales counterclaim was to all intents and purposes abandoned at the outset of the trial. It did not extend its length. It was not, as the judge found, brought in bad faith, although he accepts it should have been abandoned earlier.
24. The judge must, he submits, have had the respondent's conduct in mind when he made the costs order.
25. As to the suggestion that, absent the Thales counterclaim, the case would not have been in the multi track, he disagrees. He submits that the complexity of the remaining issues would require a trial lasting longer than one day, which would have meant the multi track.

CPR44

26. By CPR44.3(2)(a) the general rule of course is that the unsuccessful party will be ordered to pay the costs. By CPR44.3(4)(a), the court is obliged when deciding whether to make any order for costs to have regard to all the circumstances including the conduct of the parties. By CPR44.3(5), that conduct includes:

"(a) conduct before, as well as during, the proceedings…

(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."

27. It seems to me the judge was right to find, as far the claim and basic counterclaim were concerned, there was no winner. Mr. Peakman succeeded in respect of part of what he was claiming. His claim that any defective work was not his fault failed. So too did the claim regarding the loss of future work. Linbrooke succeeded in its claim regarding defective workmanship, although not to the full extent of its claim. The criticisms of Linbrooke in respect of the basic counterclaim do not seem to me to take matters much further. Mr. Peakman had to pay an insignificant sum to Linbrooke.
28. That however is not the end of it. Linbrooke, in advancing the Thales counterclaim, advanced a claim which at no time had any evidential basis. That there was no evidence to support it must have been clear both to its directors and its legal advisers. That was known when the case was allocated to the multi track. It was starkly revealed when the further information was provided. Yet still the claim was pursued. It was not even abandoned on the first day of trial.

The track allocation

29. It seems to me inconceivable, that absent the Thales counterclaim, the case would have been in the multi track, as the judge more than once observed. It would have amounted to a straightforward case involving at most a little over £3000 in which Mr. Peakman might have represented himself. The normal track for such a claim would be the small claims track: see CPR26.6(3). While when deciding into which track to allocate, the court would have had regard to the factors set out in CPR26.8(1), such as complexity, the amount of oral evidence required, the parties' views and their circumstances, I reject Mr. Moffett's submission that the complexity and length would have dictated the multi track. Application of the overriding objective would have excluded that. The court would have exercised its power to limit and control the evidence it heard. In my view, without the Thales counterclaim, this would have been a small claims track trial.
30. In short therefore, the respondent's conduct, described by the judge in the way I have set out, has resulted in Mr. Peakman incurring substantially more costs than would otherwise have been the case. As it seems to me, the order made by the judge entirely fails to recognise that and in doing so renders an injustice to Mr. Peakman. I am satisfied, in other words, that the judge was plainly wrong in not taking any account of a factor relevant to the exercise of his discretion and that his order for costs should be set aside.
31. Ms Ayling primarily submits that in such circumstances this court should order that all the costs incurred from the date of allocation should be awarded to her client. Her secondary position is that the respondent should pay 75% of the costs.
32. It seems to me that any costs order should recognise that Linbrooke did succeed to some extent on its basic counterclaim. Mr. Peakman's suggestions that the poor workmanship was down to others failed. So too did his claim in respect of the summary termination of his contract and failing to give reasonable notice. In the end, Mr. Peakman had to pay Linbrooke £265 plus interest. Moreover, the Thales counterclaim took up very little court time. In my view, the respondent should pay 50% of Mr. Peakman's costs from the date of allocation.

A final observation

33. What happened in this case exemplifies much that is wrong with our civil justice system. The costs involved dwarf the damages. The trial took far too long. It was virtually 12 months after it began that it finished. The advocates appear to have lost all sense of proportion in their conduct of it. Mr. Moffett, for example, cross-examined Mr. Peakman for some two days (albeit the judge himself appears to have asked many questions during the course of that cross-examination). The judge should not have allowed such a cross-examination to take place. He should not have permitted the case to take, in all, 8 days. I am afraid that it is clear that overall the judge failed to exercise that degree of control over these proceedings which he should have. The CPR gives him wide powers in that regard. Unfortunately he did not exercise them.

Lady Justice Smith: I agree

Lord Justice Mummery: I also agree