England and Wales Court of Appeal (Civil Division) Decisions

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

		Royal Courts of Justice Strand, London, WC2A 2LL
		19th June 2009

Lord Justice Lloyd:

1. This is a building dispute which went to trial in July 2007 on an occasion that was intended to be the substantive trial but which could not proceed in that way for a number of reasons. Instead of that, the judge's time, over some two days with a reserved judgment, was devoted to deciding a number of factual issues between the parties, the resolution of which was, no doubt rightly, thought to be constructive in terms of narrowing the issues. The judge handed down his judgment in September 2007 and gave directions with a view to a hearing, which was eventually to come on in December 2008. The proceedings were in the Gloucester County Court and the judge was His Honour Judge Harrington.
2. The matter came on, or was about to come on, in December 2008; but at that stage, with the benefit of expert reports which had been adduced at a later stage than perhaps had been desirable, the parties were able to settle the dispute, except that they could not resolve the issue of costs. The judge was asked to decide that issue and he did. He ordered the claimant to pay the defendants' costs. With permission granted by Stanley Burnton LJ, the claimant appeals from that order.
3. The problems facing a judge who is asked to decide a question of costs when all other issues have been settled have been described in a number of cases, to which we drew the attention of counsel: Brawley v Marczynski [2002] EWCA Civ 756, also found at [2003] 1 WLR 813; then BCT Software Solutions v C Brewer & Sons [2003] EWCA Civ 939; and thirdly, Venture Finance Plc v Mead & Ors [2005] EWCA Civ 325. In Brawley my lord, Longmore LJ, at paragraph 21, endorsed principles set out in a judicial review case in 2000 by Scott Baker J, as he then was, which include these two of particular relevance to this case:

"(iv) At each end of the spectrum there will be cases where it is obvious which side would have won had the substantive issues been fought to a conclusion. In between, the position will, in differing degrees be less clear. How far the court will be prepared to look into the previously unresolved substantive issues will depend on the circumstances of the particular case, not least the amount of costs at stake and the conduct of the parties.

(v) In the absence of a good reason to make any other order the fall back is to make no order as to costs."

4. In BCT Software Mummery LJ at paragraphs 4 through to 9, and Chadwick LJ at paragraphs 21 through to 27, urged caution on judges who were invited to decide questions of costs in these circumstances. I will read particularly paragraphs 5 and 6, but all of the passages that I have mentioned are valuable:

"5. There are, however, more complex cases (and this is such a case) in which it will be difficult for the judge to decide who is the winner and who is the loser without embarking on a course, which comes close to conducting a trial of the action that the parties intended to avoid by their compromise. The truth often is that neither side has won or lost. It is also true that a considerable number of cases are settled by the parties in the belief that the terms of settlement represent a victory, or at least a vindication of their position, in the litigation, or in the belief that they have not lost; or, at the very least, in the belief that the other side has not won.

6. In my judgment, in all but straightforward compromises, which are, in general, unlikely to involve him, a judge is entitled to say to the parties 'If you have not reached an agreement on costs, you have not settled your dispute. The action must go on, unless your compromise covers costs as well.'"

5. In BCT the court proceeded on the footing that an appeal against an order made by a judge in these circumstances should not be allowed unless the appellant could show manifest injustice. In such a case the well known difficulties facing an appellant on an issue of costs are all the greater. The three cases that I have mentioned are all to be found referred to, with passages or summaries set out, in the White Book at paragraph 44.3.6. They may not have come sufficiently to counsel's attention, and it seems to me that it might be more useful for practitioners if the treatment of this point in that part of the notes to the White Book were presented in a more focussed way.
6. In the present proceedings the claimant, the builder, claimed some £13,000 and the defendants, the employers, denied that claim, alleged an overpayment of £36,000 and counterclaimed for that and other sums, amounting in all to about £52,000. At the trial in July 2007 twenty-one identified issues were for decision, although two of those overlapped and some had by then been agreed. Of those in dispute, issues numbers 3 and 21 were decided in favour of the defendants; but 4, 5, 6, 7, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18 and 19 in favour of the claimant. I note that on issue 15 the defendants' case involved, as they realised, an allegation of dishonesty against the claimant which was unsuccessful.
7. When the judge handed down his judgment on the points debated in July 2007, the judge ordered the defendants to pay the claimant £2,000 on account of the costs of the trial and he reserved the balance of the costs. We were told that the £2,000 was quantified because it represented the claimant's counsel's brief fee.
8. At a very early stage of the dispute the defendants had made a part 36 offer to accept £25,000 in settlement of the counterclaim net of the claim. That was communicated in January 2006. The proceedings had only been issued in November 2005. The offer was not accepted and no counter offer was made. The response on behalf of the claimant was to suggest mediation, but nothing came of that suggestion. The agreed terms of compromise in December 2008 involved the claimant having certain agreed outstanding work done, employing a surveyor to supervise that, and paying to the defendants the sum of £5,000. Thus the financial cost to the claimant was £5,000, plus whatever it was going to cost to employ the surveyor and whatever it was going to cost to engage subcontractors (because he himself was not to do the work) to carry out the agreed outstanding work to the satisfaction of the surveyor. In the end the judge awarded costs to the defendant and did so for a number of reasons identified in his judgment. He placed no reliance on points either way about failure to agree to mediation, but he did take the part 36 offer into account and said that, even though it was not possible to say that the outcome for the defendants was more advantageous than under that offer, on the other hand the claimant did not respond by negotiating or putting forward another offer. He accepted that the defendants' claim was inflated and that the element of dishonesty had been rejected, but he said in substance they had won and should get their costs though only on the standard basis.
9. The appellant contends that this conclusion placed an altogether untenable amount of weight on an unreliable view of the financial outcome of the agreement and on the claimant's failure to engage with the part 36 offer by making a rival offer of some kind. It is also submitted that it placed inadequate weight on (a) the overall clear success, as Mr Troup for the appellant says, of the claimant at the first trial; and (b) the fact that the defendants' unsuccessful case at that trial included the dishonesty allegation to which I have referred. He submitted that these points amount to manifest errors and that the result is one which does amount to manifest injustice for the claimant. Mr Jones, on behalf of the respondent, contends, as regards the 2007 trial, that the issues on which the defendants won were among the most significant in financial terms, so outweighing the success the appellant had on a larger number of issues and, on that basis, he submits that the judge was fair in his assessment that the defendants were the winners, or the successful party, to use the language of CPR Part 44. If that was so, it would be difficult to understand the award of any costs to the claimant at the time. It is not clear why the judge made the costs order that he did at that trial, but it seems that he must have regarded the claimant as to some extent the successful party, otherwise the fact that he ordered counsel's brief fee to be paid to the claimant would be difficult to justify. The actual order made, under which £2,000 was paid and the balance was reserved, might suggest that what was intended to be left over was whether the claimant was to recover any more and, if so, how much of his costs up to that stage or of that hearing, which might depend on how important the various different issues turned out to be -- which was not at that stage quantifiable for the lack of expert evidence -- rather than leaving at large the question of which of the two parties should recover the costs of that trial or the costs up to that stage.
10. The judge did not refer to this in terms in his 2008 judgment and we therefore do not know whether he thought about it or about the implications of his having awarded £2000 and reserved the balance of the costs. He was, of course, aware of the order that he had made. As for the part 36 offer and the question of whether the defendants' position at the end of the day was more advantageous or not than it would have been under the offer, Mr Jones for the respondents argues that, on the figures apparent from the expert reports which would involve the work being done by independent subcontractors, the costs to the claimant of having the work done and engaging the surveyor and paying £5,000 to the defendant would be greater than the cost of having accepted and complied with the part 36 offer, even if adjustments are made in terms of the time value of the work. As to that, the judge did not find that the defendant had come to a more advantageous outcome, or the claimant to a less advantageous outcome, and he could not have done so because the correct figure would be the cost to the claimant of having subcontractors do the work. Since the claimant is in the business, one supposes that he might be able to get subcontractors to do the work for him on what might be favourable terms. The judge said no more on this point than that the cost was "certainly not very different" from the £25,000 being proposed in January 2006. Mr Jones submitted that the judge was also entitled to rely on the fact that the claimant had not made any counter offer.
11. It does seem to me that the judge could not properly attach weight to the part 36 offer itself because, as in effect he recognised, he could not tell whether the defendants had done better (using that as shorthand for "come to a more advantageous position") or the claimant worse than under the offer. Equally, it seems to me he could not properly criticise the claimant for failure to make a counter-offer, since the claimant's actual response was to propose mediation which was not taken up by the defendants; but he justifiably, and understandably, refused to criticise either side as regards their stance in relation to mediation. As to the appellant's first point, the judge's ordering the claimant to pay the defendants' costs, including those of the July 2007 trial, does not seem to me to reflect the fact that the claimant must clearly have been regarded as at least partly successful at that trial, as was apparent from the judge's costs order made at that stage, nor in particular the fact that the claimant had been able to refute and prove to be unjustified a claim based in dishonesty against him. It seems to me that, the judge having made the order that he did as regards the costs of the first trial, it would require some clear justification to make an order the other way that would include the costs of that trial. He should at least have qualified his order in favour of the respondent so as to exclude the costs of the first hearing, and I have some doubt whether he could properly have made an order for costs against the claimant in respect of those costs at all, having made his previous order. It seems to me also that his reasoning is internally inconsistent by excluding any factor to do with the offers or suggestions as regards mediation but then criticising the claimant for not making a counter-offer to the defendants' part 36 offer made at a very early stage.
12. As regards overall success in the outcome, the more we were taken to figures showing what was said to be the relative value of different issues, the more I became convinced that the only order that this court could make as to the costs below, if we were minded to allow the appeal, would be no order. HHJ Harrington could perhaps have made a different order if he had felt able to assess the outcome of the July 2007 trial by reference to the relative value or significance of the different issues, he having been the trial judge. He was not asked to conduct that exercise and should therefore not be criticised for not doing so. It can be said that his implicit view, plainly, was that the defendant was the winner of the trial, despite, for example, his having referred expressly to the defeat of the defendants' fraud allegation. But it seems to me that the judge's conclusion on that aspect was based mainly on the view that he took of the response, or rather lack of it, to the part 36 offer, which in my judgment is an inadequate reason. I have to say that this seems to me to be a case in which the judge might have been well-advised to follow the guidance of the Court of Appeal in BCT Software and to have declined to decide the question of costs on their own. However, we were told that he indicated (on request during the negotiations) that he would be willing to help the settlement by deciding the question of costs on its own if it could not be agreed, and in those circumstances, having given that indication no doubt for good reason, he clearly could not refuse at the end of the day to engage with the issue.
13. Having embarked on it, albeit that he was entitled to do so on a broad-brush basis, it seems to me that in two respects he did err in principle. I do not see how he could properly have made the order that he did under which the claimant had to pay the defendants their costs of the July 2007 trial in the light of the order he had made, albeit to a limited extent, the other way at the time. Having rightly proceeded on the basis that he did not know whether the defendant had done better or the claimant worse than under the part 36 offer, he could not properly proceed on the basis that this had any relevance to his task. It was not, in my judgment, relevant that the claimant had not made a counter-offer any more, as the judge rightly said, than that the parties has adopted a number of different, and not particularly constructive, approaches to the idea of mediation at different stages. In my judgment the judge's order was wrong, and was manifestly wrong, being vitiated by those two errors. It seems to me that the right course is to set aside the judge's order for costs and, rather than remit it to the judge to conduct the same exercise again, that the appropriate order is to make no order as to costs below, including no order as to the outstanding costs of the July 2007 trial. I regard it as impossible for this court to conclude in favour of the order that the appellant sought which would have given him three quarters of his costs of that trial.
14. I would follow the principle 5 approved in Brawley and paragraphs 23 and 24 of Chadwick LJ's judgment in BCT Software and, in place of the judge's order, make no order as to the costs of these whole proceedings at first instance. Of course, the order made in 2007 stands and has been paid, but in all other respects I would make no order as to costs.

Lord Justice Longmore:

15. I agree.

Order: Appeal allowed