England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COVENTRY DISTRICT REGISTRY
(HIS HONOUR JUDGE GREGORY)

		Royal Courts of Justice Strand, London, WC2A 2LL
		31st January 2013

Lady Justice Hallett:

1. On 1 July 2005, a Mr Osborne hired a narrow boat from the first defendant for a cruise on the Oxford Canal. The second defendant was the owner of a lift bridge that had to be raised manually to let the boat pass along the canal. The boat party included the claimant and a Mr Neil Williams. Mr Williams was one of those given instruction on how to navigate the canal. He was meant to hold the bridge open as the boat passed underneath. Unfortunately, it fell down onto the claimant. He suffered a skull fracture and permanent brain damage. The extent of the claimant's disability is reflected in the claim for damages, which was in the order of £5 million. In June 2008 close to the limitation deadline, the claimant issued proceedings against the British Waterways Board and Funafloat, but the Particulars of Claim were directed solely against Funafloat, and served on them alone. This did not prevent the claimant's solicitors seeking the assistance of the Board in pursuing the claim.
2. The claim was based on an alleged failure to provide adequate warning and/or instruction about how to operate the bridge safely. The first defendant served their defence, denying liability and attributing blame to Mr Williams and the claimant. In October 2008, the parties were alerted to the fact that there was a limit on the first defendant's right to an indemnity in the sum of £2 million. At that stage, the claimant did nothing in relation to the second defendant. However, in December 2009, over a year later, the first defendant issued Part 20 proceedings against the second defendant. The first defendant's position remained that the operation of the bridge was self-evident, and required no warning. However, they added the assertion that if the claimant succeeded in establishing that a warning or instruction was required, then the second defendant was also in breach of duty and liable to contribute.
3. In March 2010, the claimant decided to renew his pursuit of the second defendant, and applied to join them as defendants in the main action. The claimant alleged that he could establish a good prima facie case against the Board, on the basis that they were the occupiers of the bridge and canal, and "had a duty to ensure that the bridge was safe at all times for novices to operate". At the hearing, at which permission was sought to join the second defendant, the claimant relied, in part, on the limit to the first defendant's insurance policy. The first defendant remained neutral on the claimant's application to add the second defendant, but resisted the second defendant's attempts to strike out the Part 20 claim. The claimant's claim thereafter proceeded against both defendants on the basis of an alleged failure to warn and/or instruct.
4. Thereafter, the claimant pursued his claims against both defendants vigorously. He disclosed witness statements critical of the second defendant, he applied for specific disclosure in relation to the second defendant's risk assessments and inspection regime and criticised the second defendant in his opening. The second defendant's witnesses were robustly cross-examined and in closing submissions the claimant insisted that the second defendant was in part responsible for the accident.
5. The two defendants did not pursue allegations against each other with any enthusiasm. The first defendant limited its case against the second defendant to the way in which it was pleaded in the Part 20 Particulars of Claim and expressly made no positive criticism of its own against them. They relied on no statements criticising the second defendant and were neutral on the application for specific disclosure. At trial they maintained there was no sound basis for either defendant being found liable. Only if the claimant succeeded in persuading the judge that a warning notice was required did the first defendant purport to place the blame on the second defendant.
6. After nine days of trial HHJ Gregory dismissed the claim on the basis the bridge's see-saw operation was self evident and in any event, the first defendant had provided specific instruction. Thus, even if there was a breach by failing to put up a warning, it was not causative. It followed that the Part 20 claim was also dismissed. The judge declared that if and in so far as he was wrong on breach and causation, liability should be apportioned equally between the defendants.
7. Some time later, there followed a hearing in relation to the costs. The costs of the main action were high for such a simple, albeit serious, claim. Each defendant estimated their costs at over £300,000. No representative from the claimant attended the handing down of the judgment and the subsequent costs argument. This was because there was a limit on the claimant's after-the-event insurance and therefore a limited pot of money available with which to pay any successful defendant. The claimant's legal advisors sensibly did not wish to incur further costs unnecessarily. They wrote to the court explaining their absence and stating inter alia that:

"The only submission the Claimant asks the court to consider is that the Claimant's joinder of the Second Defendant was based exclusively on the First Defendant Part 20 proceedings. In short, the Claimant would not have brought the Second Defendant into the proceedings had it not been for the First Defendant's part 20 claim."

8. It was not clear to me what interest the claimant had in making this so-called submission. Its status has been the subject of hot debate. The first defendant invited the judge not to rely on the letter because they did not accept its contents, and it was not capable of being tested on the material available. Mr Vandyck argued the letter did not contain the whole story. The claimant's decision to join the second defendant must have been influenced to some extent by the limit on the first defendant's indemnity, which meant that if only the first defendant was found liable, only part of the claim would have been be satisfied. Further, he pointed to the fact that the second defendant owed the claimant a duty as occupier of the lift bridge. This obviously offered another target if the claimant was right that the bridge required warning or instruction. In any event, he submitted the claimant's solicitors' internal reasoning should not determine the justice of the case and where the burden of the costs shall fall. The usual order should be made, and the costs of the action should follow the event. Both defendants had succeeded, the action was dismissed and therefore the claimants should pay the costs of each. However, he accepted the first defendant must pay the very limited costs of the Part 20 claim.
9. Mr Arney for the second defendant explained to the judge that the claimant was not likely to be able to meet the second defendant's costs, and that was in part why he sought an order for costs from the first defendant. Nevertheless, he argued there was a very good case for ordering that the first defendant should bear the costs because they were responsible for bringing the second defendant into the litigation.
10. The judge agreed with Mr Arney's submissions. He ordered that the first defendant pay the second defendant's costs of the action subject to an indemnity from the claimant -an indemnity which in the circumstances will be worthless. The judge gave a very full and careful judgment. He explained that the issue of costs was not academic, because of the limit on the claimant's indemnity. He declared that this was a claim in which there were always two potential defendants. He reviewed the conduct of the litigation, he reminded himself of the appropriate principles to be applied, and he concluded that once the Part 20 claim, which had remained live throughout, was issued, it was inevitable that the claimant's advisors would revisit the decision not to pursue the second defendant. This was confirmed by their letter. He declared the first defendant was not obliged to bring the second into the action. Had the first defendant been found liable, they could have issued separate proceedings under the Civil Liability (Contribution) Act. Thus he accepted the submission that "as a matter of reality" the British Waterways Board featured in the litigation as a consequence of the actions of the first defendant. He described the claimant's amending of its statement of case to join the second defendant as a "happenstance".
11. The first defendant has leave to repeat their submissions before us. Mr Vandyck insists that whatever a judge's discretion on costs to do justice, there was here no good reason to depart from the usual rule. The claimant failed against both defendants. The normal rule would be that the claimant pay both defendants' costs. There are, he conceded, circumstances when any shortfall might be visited on one defendant rather than another, but he insists that this is not one. The first defendant denied liability, but neither expressly nor impliedly suggested the claimant's claim should be directed against the second defendant. The first defendant did not suggest that the second defendant rather than the first owed a duty relied on by the claimant. The first defendant simply made the point that if the claimant was right that a warning was required, the second defendant, as occupier, would be in breach of that duty and should contribute. The point was made in discrete Part 20 proceedings which were perfectly capable of being dealt with separately, albeit by the same trial judge. The claimant's joinder, it was said, made it inevitable that the second defendant would play a full part in the main action.
12. Once the second defendant had been joined, the claimant pursued the proceedings equally against both defendants, and they each responded. The judge's decision to apportion liability, if he was wrong on breach of duty and causation, equally between the defendants confirmed the equality of their position. In those circumstances, it was submitted it was plainly unjust for the first defendant to bear the second defendant's costs of the whole action. Even if such a result were within the legitimate bounds of the judge's discretion, this court should look fresh at the matter, the judge having relied upon an irrelevant consideration, namely the contents of the letter.
13. For his part, and for obvious reasons, Mr Arney placed heavy reliance on the extent of HHJ Gregory's management of the case from an early stage to the very end and including a hearing over a number of days. No one could have been better placed to understand the litigation and the interplay between the various parties. He submitted that HHJ Gregory was not only entitled but was right to order costs to be paid in the way that he did. The claimant had initially decided not to pursue a claim against the British Waterways Board. They only changed that position after Funafloat had brought the Board into the proceedings. They had no option, in truth, once the Part 20 claim had been issued. This was the reality of the situation and the judge did not need the solicitors' letter to reach that conclusion. It merely confirmed the obvious. The claimant's claim against the Waterways Board was framed on exactly the same basis as Funafloat's. Had they wished, Funafloat could, have dropped their claim against the Board. This they did not do, despite a warning shot at the merits of their claim at the strike-out hearing, and the very limited scope on which the claim was permitted to proceed.
14. Mr Arney described the Board's conduct as exemplary. The Board simply challenged the weaknesses of the claim. They succeeded in limiting the scope of argument and adopted a proportionate approach at the trial, keeping cross-examination and the calling of witnesses to a minimum. They defeated the claims against them, and they were, in fact, the only entirely successful party to the litigation. Despite HHJ Gregory's reference to the limitation on the claimant's indemnity in his judgment and when refusing permission to appeal, the main thrust of the judge's reasoning for refusing permission to appeal was that Funafloat was responsible for making the Board a party and ultimately incurring the costs. The extent of the claimant's funding cover was simply part of the background. It explained why the issue was far from academic. Mr Arney rejected Funafloat's attempt to link the claimant's decision to add a claim against the Board to the notice of Funafloat's limited indemnity insurance. He simply reminded the court of the timetable. The claimant's advisors waited well over a year before making their claim against the second defendant. Even if the claimant had not added his claim against the Board, the Board would still have been a party to the litigation, thereby requiring them to meet the pleaded case against them
15. Mr Vandyck was accused of oversimplifying what has occurred. Ultimately the claimant has been ordered to meet both defendants' costs through direct order in relation to Funafloat, and indemnity to Funafloat in relation to the Board's costs. In other words, in so far as reliance can properly be placed on any usual rule, here. that is what would happen were it not for the fact that the claimant is impecunious. He pointed to the fact that HHJ Gregory recognised the starting position that costs should follow the event, and declared that he would not shy away from making the correct order in the exercise of his discretion, even if that gave rise to interesting questions of apportionment on detailed assessment. The judge was acutely conscious of the need to exercise his discretion judicially and to further the overriding objective.
16. As far as the law is concerned, it can be shortly and simply stated. Counsel have limited their reliance on authority to a minimum. We have one lever arch file with seven cases reported within it. Counsel are to be commended. It is rare that members of this court are in a position to make such a comment. The law is straightforward, and is to be found for the most part almost entirely within the Civil Procedure Rules. I shall not rehearse the well-known provisions in relation to costs. All agree that the usual rule is that costs follow the event, i.e. the loser pays. However, the court has a discretion to do justice which is sufficiently broad that any party seeking to overturn a judge's order as to costs faces a high hurdle.
17. The only authorities to which I need to refer are three-fold. The first two Sanderson v Blyth Theatre Company [1903] 2 KB 533, and Bullock v London General Omnibus Company [1907] 1 KB 264, can be taken together. They hold that in an action in tort claiming relief from two or more defendants, there is jurisdiction, in a proper case, to direct that the unsuccessful defendant pay the costs of a successful defendant. Although the defendants here were both successful against the claimant, Mr Arney argues the situation is analogous. The only other decision to which I shall refer is Arkin v Borchard & Ors [2005] EWCA Civ 655. Lord Phillips, then Master of the Rolls, giving the judgment of the court, made a number of observations on the approach to making orders of costs. The facts of Arkin are extraordinarily complex, and again I am grateful to counsel for not taking up the time of the court in trying to explain them to us. What I derive from the judgment relevant to these proceedings is an emphasis upon the duty of any trial judge to do justice as best he or she can on the facts of the case, and an emphasis on causation. When a judge is considering the issue of costs, the judge should focus on who is responsible for causing the costs to be incurred.
18. Having considered those judgments, and the extremely able submissions of both counsel, I am satisfied that the judge was wrong and this was a case where the usual rule applied. I am acutely conscious of the care which HHJ Gregory took throughout his handling of this case and his knowledge of it. Save for the parties, no one knows more about this litigation than he. He has been closely involved throughout, and as an appellate Judge I am aware that I need to tread warily. However, to my mind, he has unfortunately exceeded the bounds of his legitimate discretion.
19. As it seems to me, he placed too much emphasis on the fact that the claimant is impecunious, if that was a relevant factor, (about which I have my doubts) and too little emphasis on the question of causation. The issue for him to resolve was not simply who was responsible for introducing the second defendant into the litigation; the question was: "who caused the costs to be incurred?" The answer to that is straightforward. As far as the main action is concerned, the claimant did. As Mr Vandyck put it: this was a claim against two defendants. It was the claimant who brought the second defendant into the litigation in the first place, dropped the claim, and then had second thoughts. The claimant was not obliged to have second thoughts; he was not obliged in any way to make the second defendant a party to the action. He could have pursued his action against the first defendant, leaving the second defendant in a battle with the first defendant. It was simply not good enough for the claimant's advisors to assert, "We only sued the second defendant because the first defendant issued a Part 20 claim". The Part 20 claim may have prompted a re-evaluation of the claimant's approach, but that is all.
20. The decision to resurrect the claim against the second defendant was a calculated risk. It was a reassessment of the risk that had no doubt been considered at the time proceedings were served: the risk of facing a potentially heavier penalty in costs and an even stronger defence team against the possible benefit of another source of damages. Having decided to take the risk, the claimant's advisors then not only jumped on the bandwagon of blaming the second defendant, they took over the reins. They pursued the second defendant with enthusiasm, asserting a substantial positive case. That much is obvious from the material before us: the applications for disclosure, the examination of witnesses, the submissions, and the judgment. The claimant explored the second defendant's attitude to safety, inspection procedures, and risk assessment going back many years. It was the claimant, not the first defendant, who put the second defendant's conduct under the spotlight, both before and during the trial, and I have little doubt this is how a significant proportion of the costs were incurred. As Mr Vandyck described it, the Part 20 claim "dropped off the radar".
21. Thus, the costs the judge has ordered the first defendant to pay, albeit subject to an indemnity, were in fact caused by the conduct of the claimant. In my judgment it cannot be just to make the first defendant pay them simply because the claimant was impecunious. Both defendants succeeded against the claimant, and the claimant should be ordered to meet their costs of defending his action against them. Neither defendant behaved unreasonably so as to be deprived of their costs. There was nothing unreasonable in the first defendant's attempting to offload a share of the blame onto the second defendant in Part 20 proceedings. The judge declared that this was a case in which there were always potentially two defendants. That is right. Had the judge found there should have been a warning in place there could have been thereafter a discrete and limited exercise in apportioning blame between the two defendants, one the operator and one the occupier.
22. Thus, with the greatest respect to the trial judge, I feel he has erred in making the costs order that he did. The costs should have followed the event directly, not indirectly, and the first defendant should only be penalised in costs for the costs it caused to be incurred, i.e. the costs of defending the Part 20 claim. I appreciate, as the judge appreciated, this may cause some difficulties on taxation, but that is the kind of problem the Taxing Masters are well used to and I have every confidence in their ability to resolve it.
23. For those reasons I would allow the appeal. I would substitute an order that the claimant meet the costs of the action of both the first and the second defendant. The first defendant must of course pay any costs of the Part 20 action. I would add that if it is possible to ensure that the limited pot of money available in the claimant's hands to meet the costs of each defendant can be fairly distributed between the two, that would be the fairest result and a course that I should like to see adopted. To my mind, what ought to follow is an assessment of the Part 20 costs, an analysis of the claims of each party, and a proportionate order made so that each defendant receives something from the claimant's indemnity insurance. For those reasons I would allow the appeal.

Lord Justice Rimer:

24. I too would allow the appeal for the reasons given by my Lady, Lady Justice Hallett.

Lord Justice Laws:

25. So would I.

Order: Appeal allowed