England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
His Honour Judge Pelling QC (sitting as a Judge of the High Court)
[2012] EWHC 462

		Royal Courts of Justice Strand, London, WC2A 2LL
		19/06/2013

Lord Justice Rimer :

1. On 25 April 2013, this court handed down its reserved judgments on the main appeal by Matthew Walsh (claimant in the proceedings) against an order made on 8 March 2012 by His Honour Judge Pelling QC, sitting as a Judge of the Chancery Division. Mr Walsh sought by that appeal to establish that the judge had been wrong to refuse him an order for an account of the profits made by the defendants/respondents in consequence of their breach of confidence, and instead simply to award him compensatory damages of £16,965, plus interest of £10,188.54. The court upheld the judge's order in that respect and dismissed Mr Walsh's appeal. Our judgments (Walsh v. Shanahan and Others [2013] EWCA Civ 411) are publicly accessible, and for the purposes of this further judgment I shall take them as read.
2. Mr Walsh also appealed against the judge's costs order. Had his 'account of profits' appeal succeeded, his costs appeal would not have required decision because in that event the court would have had to re-visit the judge's costs order. The costs appeal only required determination if, as happened, the main appeal should fail. Mr Walsh's case was that even if the judge had correctly decided the account of profits issue, he fell into error in his order as to costs.
3. As I wrote in paragraph 2 of my judgment on the main appeal, argument on that appeal occupied the whole of the available hearing time and so, upon reserving judgment on the main appeal, the court adjourned the costs appeal until after judgment. The court contemplated that, if it should become necessary to decide the costs appeal, it would hear oral argument on it. In fact, counsel have now asked the court to deal with the costs appeal on the basis of their written submissions. This is my judgment on the costs appeal.
4. Although Mr Walsh had obtained the judgment for the damages and interest referred to above, the judge ordered him to pay: (i) 90% of the respondents' costs down to and including 13 October 2010, and (ii) all their costs thereafter, subject to a detailed assessment. That was a significant liability: the respondents' costs of the claim were estimated at £162,000. The explanation for the judge's split order is as follows. The claimants (of whom I need refer merely to Mr Walsh: see paragraph 3 of the main judgment) issued the claim form on 21 July 2010. The respondents made an early Part 36 offer. The last day for its acceptance without the court's permission was 13 October 2010. Mr Walsh did not accept it, nor by the judgment obtained after the trial did he better it. In those circumstances, Mr Walsh makes no complaint about limb (ii) of the costs order. But he does challenge limb (i).
5. The judge gave a written ruling on costs on 6 March 2012, in which he said that the only issue was as to the costs of the period down to 13 October 2010. Mr Walsh's position in relation to such costs had vacillated. His original stance had reflected the recognition that he would have to pay at least a percentage of the respondents' costs. His revised stance was that he should have all his costs, on the basis that he should be regarded as the successful party down to 13 October 2010: he had recovered £16,695 by way of damages.
6. The respondents' position, by contrast, was that they were the successful parties in the proceedings and so should recover their costs down to 13 October 2010. The judge agreed with the respondents that, in the first instance, he should approach the issue as to the costs of that period without regard to the Part 36 offer; and that, to that end, he should first assess whether, as they claimed, the respondents were the real winners and so entitled to recover all their costs. The judge accordingly directed himself that he must decide which party had been successful, and whether he should make an order other than one requiring the loser to pay the successful party's costs. He referred to the provisions of CPR Part 44.3(4).
7. In the judge's view, the case was one in which although the respondents had been very largely successful, they had not succeeded on all issues. He therefore considered that an 'issue based' approach was called for. He noted that the respondents resisted the damages claim at trial on only two bases, namely (i) that the duty of confidence was owed only by Allied, not by Messrs Shanahan and Leonard; and (ii) that it was owed only to Harlequin IoM. He said those issues did not involve either an extensive factual or legal inquiry. Whereas it had been open to the respondents to admit the existence and breach of the duty of confidence and to contend that no remedy other than damages was appropriate, they did not do so.
8. The judge concluded that it would not, therefore, be just for the respondents to recover all their costs from Mr Walsh. He said:

'13. The matters I have so far considered have to be tempered by the following factors. First, it is wholly unrealistic to suppose that this litigation was commenced to recover the sums that in the end I have concluded [Mr Walsh] ought to be permitted to recover. At no stage in the proceedings has [he] ever indicated that this was the sum that he was seeking to recover. If that had been the case High Court proceedings would not have been commenced. County Court proceedings would have been commenced. Leading counsel would not have been retained. The principal issue in this case is and always has been a claim by [Mr Walsh] to be entitled to an account of the profits made [by] the defendants from the acquisition of the property. Secondly, whilst [Mr Walsh] has undoubtedly recovered money as a result of the judgment and thus is prima facie entitled to recover his costs of the issue upon which he has been successful, by the same token the defendants are entitled to recover their costs attributable to resisting the remaining issues and the costs common to both. On any view those costs dwarf those attributable to the issue on which [Mr Walsh] has been successful.

14. One way of proceeding in circumstances such as this would be to direct an assessment of the costs incurred by [Mr Walsh] limited to the claim for damages for breach of confidence and an assessment of the defendants' costs of resisting the claim for an account based on an allegation of breach of fiduciary duty down to the same date and direct that one be set off against the other.

15. In my view that would be a recipe for delay and expense which is avoidable if I adopt the inevitably broad brush technique of directing that the defendants recover a reduced percentage of the costs that they are otherwise entitled to.

16. The next question to be considered is what that reduced percentage ought to be. As I have said almost the whole of the focus of the witness statements, the disclosure and the legal submissions is the assertion that the defendants owed fiduciary duties for the breach of which the remedy was an account of profits at the election of [Mr Walsh]. Almost none of the effort that has been deployed was focussed on the issues between the parties relevant to the damages claim. Nonetheless, [Mr Walsh] has succeeded in relation to that element of the claim to which in reality there was no defence. In those circumstances, I consider the fair outcome to be that [Mr Walsh] should pay the defendants 90% of their costs of and occasioned by these proceedings.'

9. Having so concluded, the judge turned to consider the effect of the Part 36 offer. By that offer, the respondents had offered an amount to Mr Walsh commensurate with the damages he eventually recovered for the issue on which he was successful. Applying his conclusion in the last sentence of paragraph 16, he ordered Mr Walsh to pay all the respondents' cost after 13 October 2010, as to which there is no challenge, and 90% of the respondents' costs down to and including 13 October 2010, as to which there is a challenge.
10. In her original skeleton argument, Ms Andrews QC specifically did not criticise the judge's approach in the passages just quoted. In particular, she did not criticise his conclusion that, had there been no Part 36 offer, he would have ordered Mr Walsh to pay 90% of the respondents' costs. What, however, she does criticise is the judge's consequential application of that 90% figure to the costs of the period down to 13 October 2010. It is said that it does not logically follow that such percentage should be applied to that period, and that to do so was unfair.
11. Mr Walsh started his claim on 21 July 2010. The respondents instructed solicitors on 6 August 2010 and filed their Defence on 17 September 2010. It is said that most of the respondents' costs incurred down to 13 October 2010 are likely to have been attributable to drafting the Defence. Ms Andrews referred to Mr Wilson QC having, on 24 February 2012, informed the judge that the respondents' costs up to 22 September 2010 were £9,400. On that figure, the 10% allowance given to Mr Walsh for his success on the damages claim would be a mere £940, which cannot fairly have reflected his costs referable to that claim: the cost of the issue of the claim form alone was £1,530.
12. The judge is therefore criticised for not considering what Mr Walsh's costs in respect of the damages claim during the period to 13 October 2010 were likely to have been; and for not considering how the costs expended during that period related to the pleaded issues as they then stood. It is said that the Defence provided no answer to the claim for damages and that the assertion that an account of profits was inappropriate was raised for the first time in the respondents' skeleton argument for the trial. Had Mr Walsh accepted the Part 36 offer in time, he would have recovered all his costs down to 13 October 2010. It is said that, even though he did not accept it, as he recovered at trial damages approximating to what he would have obtained if he had accepted it, he ought to recover his costs down to the last date of acceptance. It is said that, if he does not, he is being punished twice: first, in respect of the costs of the period subsequent to 13 October 2010 (as to which he makes no complaint); and, secondly, in being deprived of his proper costs for the period to 13 October 2010.
13. In sum, it is said that the judge should have had specific regard to the fact that most of the costs incurred by the respondents during that period were attributable to their unsuccessful defences. It is also said that the award to the respondents of 100% of their costs of the period subsequent to 13 October 2010 adequately compensated them for the issues upon which they won. The judge's error was to make an assessment as to what the fair order as to costs would have been if there had been no Part 36 offer, and then to ignore the consequences of that offer when making his order as to costs in relation to the period down to 13 October 2010. It is said that the judge should either have awarded Mr Walsh his costs of that period, or else have made no order as to costs.
14. In my judgment, these criticisms of the judge's costs order are unjustified. That order was a matter within his discretion; and it is elementary that this court will not review his order unless in arriving at it the judge erred in principle. The court may review it if the judge took into account an irrelevant consideration, or failed to take into account a relevant one, or arrived at a decision that was plainly wrong. Otherwise it will not interfere. In this case, the judge's approach was orthodox and rational. The consequence of Mr Walsh's rejection of the Part 36 offer was that the only costs in issue were those of the period down to 13 October 2010. It was entirely appropriate for the judge to approach that issue by first asking himself what costs order would have been appropriate had no Part 36 offer been made. For the reasons he gave, his assessment was that the case was all about Mr Walsh's claim for an account of profits, and hardly at all about his alternative claim for damages, although the respondents resisted the latter claim on two grounds that failed, whereas they could have conceded it. As the respondents won on the account of profits issue, the judge concluded that they were the substantially successful parties, although their success should be regarded as reduced by their unsuccessful resistance of the damages claim. That meant that they were not the successful parties on all issues, just as Mr Walsh was not the unsuccessful party on all issues. In all the circumstances, the judge considered that the fair costs order to make (had there been no Part 36 offer) would have been to order Mr Walsh to pay 90% of the respondents' costs of the claim. In her original skeleton argument, Ms Andrews described that approach as 'unexceptionable'. I agree.
15. The complaint, however, is that, having decided, unexceptionably, that a fair order (Part 36 offer apart) would be to order Mr Walsh to pay 90% of the respondents' costs of the claim (including, therefore, in respect of the period down to 13 October 2010), the judge was wrong when deciding (in light of the rejection of the Part 36 offer) what costs order to make in respect of that period simply to apply his 90% approach to it. It is said that he should have wholly ignored his earlier unexceptionable approach and focussed exclusively on what would be a fair order to make in respect of that period. That required him to consider the issues in the pleadings and to assess the extent to which the costs incurred by Mr Walsh were fairly attributable to the damages issue. Moreover, as Mr Walsh had succeeded on the damages claim, he ought in principle to be entitled to his costs down to 13 October 2010: he would, after all, have recovered all such costs had he accepted the Part 36 offer.
16. I disagree with these criticisms of the judge's reasoning. I regard the criticisms as comprehensively mistaken. First, the fact that Mr Walsh would have been entitled to his costs incurred in the relevant period had he accepted the Part 36 offer is irrelevant: he did not accept it. Second, I fail to understand why the application of the judge's 90% approach to the costs of the relevant period was erroneous or unprincipled. Had no Part 36 offer been made, the judge would have ordered Mr Walsh to pay 90% of the respondents' costs of the claim. The logic of Mr Walsh's position is apparently that the judge's 'unexceptionable' arrival at the 90% figure required him promptly to jettison it and instead to focus on different periods of the history of the claim with a view to deciding what order to make in respect of such periods. I regard that as an impossible argument. It cannot stand with the acceptance of the correctness of the judge's arrival at the 90% figure.
17. In any event, the correctness of the judge's assessment that Mr Walsh's claim was all about the 'account of profits' claim and hardly at all about the alternative damages claim is conclusively demonstrated by the costs that Mr Walsh incurred in his pursuit of the respondents. His own costs of the claim down to 31 July 2010 (ten days after the issue of the claim form) were estimated at £34,670.50 (including VAT), and his entire costs of the claim were estimated at over £328,000 (including VAT). It is obvious that he was not remotely interested in recovering damages of £16,965: he was interested only in recovering an account of profits. That was the sole objective of the claim, and it was with the aim of achieving that objective that he was prepared to make the very considerable cost investment that he did. The judge correctly assessed what this claim was all about and made a costs order which involved no error of principle. In my judgment, there is no sound basis upon which his costs order can be challenged.
18. I would dismiss Mr Walsh's appeal against the judge's costs order.

Lady Justice Hallett :

19. I agree.

Lord Justice Laws :

20. I also agree.