England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE BIRMINGHAM COUNTY COURT,
TECHNOLOGY AND CONSTRUCTION COURT
HIS HONOUR JUDGE DAVID GRANT
2BM30054

		Royal Courts of Justice Strand, London, WC2A 2LL
		20th April 2015

Lord Justice Jackson:

1. This judgment is in three parts, namely:

Part 1. Introduction	Paragraphs 2 to 7
Part 2. The facts	Paragraphs 8 to 21
Part 3. The appeal to the Court of Appeal	Paragraphs 22 to 34

Part 1. Introduction
2. This is an appeal by a claimant against a costs order, which effectively wipes out the damages that she has recovered in the litigation. The claimant has succeeded in her claim for breach of statutory duty, but failed in her claims for negligence and misrepresentation based upon substantially the same facts. The issue in the appeal is whether the judge was entitled to make such a swingeing costs order by reason of the claimant's failure correctly to characterise the legal cause of action to which her pleaded facts gave rise.
3. I shall refer to the Housing Act 1985 as "the 1985 Act". Part V of the 1985 Act, which is entitled "The Right to Buy", contains provisions which (in certain circumstances) enable secure tenants of dwelling houses owned by local authorities to purchase those properties. Section 125 of the 1985 Act provides:

"125. Landlord's notice of purchase price and other matters

(1) Where a secure tenant has claimed to exercise the right to buy and that right has been established (whether by the landlord's admission or otherwise), the landlord shall—

(a) within eight weeks where the right is that mentioned in section 118(1)(a) (right to acquire freehold), and

(b) within twelve weeks where the right is that mentioned in section 118(1)(b) (right to acquire leasehold interest).

serve on the tenant a notice complying with this section.

…

(4A) The notice shall contain a description of any structural defect known to the landlord affecting the dwelling-house or the building in which it is situated or any other building over which the tenant will have rights under the conveyance or lease."

4. The local authority in this case discharged its duty under section 125(4A) by attaching to the notice a House Sale Inspection Report. The report has been generally referred to, in this case, as the "HSIR".
5. The claimant in this action was initially Mr Syed Majid, but subsequently has been his wife, Mrs Syeda Shahrin Begum. I will refer to them as "Mr Majid" and "Mrs Begum". The defendant in the action is Birmingham City Council, to which I shall refer as "the Council".
6. I shall refer to Eric Bowes & Co, the claimant's solicitors, as "EB". I shall refer to the Technology and Construction Court as "TCC".
7. After these introductory remarks, I must now turn to the facts.
Part 2. The facts
8. In July 2001 Mr Majid and Mrs Begum became joint tenants of a terraced house owned by the Council at 95 Church Street, Lozells, Birmingham. In 2003-4 Mrs Begum purchased the house from the Council under the Right to Buy provisions of the 1985 Act. The HSIR dated 20^th October 2003 which the Council provided pursuant to section 125 (4A) of the 1985 Act drew attention to a number of defects, but it is fair to say, nothing unduly serious.
9. Subsequently cracking appeared in the rear extension of the house. The rear wall had pulled away from the wall of number 93, leaving a large gap. Mr Majid and Mrs Begum made a claim on their insurers. The insurers refused to pay on the ground that the damage was attributable to pre-existing defects.
10. Mr Majid and Mrs Begum then took legal advice. After much investigation they intimated a claim against the Council for the cost of the necessary remedial works. By a letter dated 20^th August 2009 their solicitors, EB, alleged that the Council ought to have drawn attention to the pre-existing structural defects, but had failed to do so. EB enclosed a copy of the HSIR dated 20^th October 2003 and commented that the Council was obliged to disclose "all structural defects which are known to it and which affect the property". This phrase was a reference to section 125 (4A) of the 1985 Act and would no doubt have been understood as such by the Council officials. The Council denied liability.
11. On 8^th April 2010 EB issued proceedings against the Council in the Birmingham County Court, naming Mr Majid as the claimant. Mr Majid remained as claimant in the action until September 2011, when Mrs Begum, who is and was the legal owner of the property, was substituted as claimant.
12. A more challenging issue for the claimant's legal team was to identify the relevant cause of action. They originally pleaded a claim for negligence and misrepresentation. It was not until 14^th May 2012 that they amended to plead the cause of action upon which the claimant ultimately succeeded, namely breach of statutory duty under section 125 (4A) of the 1985 Act.
13. The trial was originally listed to commence on 14^th May 2012 before His Honour Judge Oliver-Jones QC with an estimated length of two days. There were many reasons why the trial could not go ahead on that date. These included the need to translate documents from English into Bengali, a gross under-estimate of the likely length of trial, the Council's late disclosure and the claimant's late amendment to plead breach of statutory duty. His Honour Judge Oliver-Jones adjourned the trial and transferred the case to the Birmingham Technology and Construction Court.
14. Thereafter, His Honour Judge Grant, the Birmingham TCC judge, case managed the litigation through to trial in May 2013. The trial lasted five days. The judge handed down his reserved judgment on 4^th June. He held that there were two causes of the damage to the house, namely:

i) lack of wall ties between the right-hand corner of the rear wall of the back addition and the adjoining property, number 93; and

ii) inadequate foundations, which progressively caused damage in the form of cracking in and displacement of the associated drains.

I shall refer to these as "defect 1" and "defect 2".

15. The judge held that, having regard to the Council's maintenance records over the years, the Council was aware of defect 1 and ought to have disclosed it in the HSIR. The Council was in breach of its statutory duty under section 125 (4A) of the 1984 Act in that regard and liable to the claimant in damages. The Council was not aware of or liable for defect 2. The judge dismissed the claimant's claims for negligence and misrepresentation.
16. The judge was unable on the material before him to determine the relative causative potency of defect 1 and defect 2. At paragraph 94 of his judgment he said:

"Because the Particulars of Claim failed to state the Claimant's case with sufficient clarity on the issue of causation, i.e. to state precisely what defect caused what damage to the property, it is perhaps not surprising that neither structural engineer addressed this particular point in their reports or in their joint statement. In those circumstances, I shall direct that the structural engineers file a further joint statement on the basis of the findings of fact which I have made immediately above, for them to state in percentage terms what was the respective causal potency of the two causes of structural damage to the property."

17. The experts duly complied with that direction. There was a further hearing in November 2013 to deal with causation and quantum. On 18^th December 2013 the judge handed down his second judgment. He held that defect 1 (lack of wall ties) had caused 90% of the damage and defect 2 (inadequate foundations) caused 10% of the damage. He held that if the Council had disclosed defect 1 in the HSIR, the claimant would have insisted upon rectification before purchasing the property. The judge assessed remedial costs at £71,178 and general damages for inconvenience at £11,500. After deducting 10% in respect of defect 2 (for which the Council was not liable) and making other adjustments he awarded damages of £74,876 to the claimant.
18. The judge then heard argument in respect of costs. Limited time was available for this phase of the argument. That was unfortunate, because the amount of costs in issue exceeded the value of the claim. The judge gave his judgment on costs orally ("the costs judgment") on 18^th December 2013.
19. In the costs judgment the judge made no order for costs in respect of the period before issue of proceedings. In respect of the period from issue to 14^th May 2012 (which the judge called "period 1"), he ordered the claimant to pay the defendant's costs subject to one proviso. The proviso was that the Council should pay the claimant's cost of obtaining expert evidence during that period. This produced the curious consequence that each party was required to pay the costs of the other side's expert during period 1. In respect of the period 14^th May 2012 to 4^th June 2013 (which the judge called "period 2"), he ordered the defendant to pay 40% of the claimant's costs. In respect of the period 5^th June 2013 to 18^th December 2013 (which the judge called "period 3"), he ordered the defendant to pay 80% of the claimant's costs.
20. The judge gave the following reasons for reaching those decisions on costs:

i) During period 1 the action was bound to fail because the claimant's only pleaded claim was for negligence and misrepresentation.

ii) During period 2 the claimant was pursuing three causes of action only one of which succeeded, namely her claim for breach of statutory duty.

iii) If the claimant's case had been properly pleaded, all issues would have been dealt with in the hearing during May 2013. Therefore the claimant's inadequate pleading caused matters to be dealt with in two hearings rather than one hearing. On the other hand all the evidence at both hearings needed to be deployed in any event. In order to reflect the inefficient way in which the litigation proceeded the claimant should recover 80%, rather than 100%, of her costs during period 3.

21. The claimant is aggrieved by the judge's costs order. Accordingly she appeals to the Court of Appeal.
Part 3. The appeal to the Court of Appeal
22. Mr Stephen Cottle for the claimant submits that the judge fell into error in his approach towards costs. The claimant's case from the beginning to the end of the litigation was that Birmingham City Council was aware of serious structural defects in 95 Church Road which it ought to have disclosed, but failed to disclose, to Mr Majid and Mrs Begum. The claimant succeeded on that case. The fact that the claimant originally applied the wrong legal label to the claim was immaterial. Little time was spent at trial debating whether the claimant had a cause of action in negligence and/or misrepresentation. Therefore the claimant ought to have recovered all her costs up to 4^th June 2014, less only a small discount for the issues of negligence and misrepresentation on which she failed. Mr Cottle accepts the judge's decision on costs in period 3 and the reasoning on which that decision was based.
23. Mr Jonathan Manning for the Council has manfully striven to uphold the judge's order. He points out, quite correctly, that the Court of Appeal does not interfere with decisions on costs unless the judge has made an error of law or an error of principle. He submits that the judge made no such error in this case.
24. Both counsel have helpfully taken us through the history of the litigation, for which I am most grateful. Counsel have also furnished the court with a bulging authorities bundle, containing some thirty previous decisions on costs, for which I am not quite so grateful.
25. The principles upon which the courts decide costs issues are well known. I will not re-state those principles lest, inadvertently, I add yet more bulk to the authorities bundles in future appeals. The real issue is how to apply those principles to the somewhat unusual facts of the present case.
26. The claimant has succeeded in her claim and recovered damages of £74,876. Accordingly the claimant is the successful party in the action. The starting point therefore is that the court, in the exercise of its discretion, should award costs in the claimant's favour. The fact that initially the husband was named as claimant and subsequently the wife was substituted was a technical error on the part of EB, which has had no impact on the costs of the litigation. That can be ignored for present purposes.
27. The next question to consider is what departures should be made from the starting point, having regard to all the circumstances of the case. As the judge correctly noted, two factors require a departure from that starting point. First, although the claimant has succeeded on her claim for breach of statutory duty, she has failed in law on her claims for negligence and misrepresentation. Secondly, by reason of the claimant's deficient pleading there were two trials rather than one.
28. In respect of the second matter, the judge reduced the claimant's recoverable costs for period 3 by 20%. That was an eminently fair decision and neither party seeks to challenge it.
29. The real issue concerns the first factor, the claimant's lack of success in relation to negligence and misrepresentation. Here, with all due respect, I take a different view from the judge. That circumstance cannot possibly justify an order that the claimant pays the defendant's costs during period 1 or that the claimant forfeits 60% of her costs during period 2.
30. The claimant's case is and always has been that the Council was at fault in failing to refer back to its own records and to alert the claimant to serious structural defects before selling the property to her. The claimant's pleaded claims for negligence, misrepresentation and breach of statutory duty were different labels which the pleader applied to the same underlying facts. The factual and expert evidence which both parties assembled was directed to those facts. Both parties would have prepared and adduced substantially the same evidence, even if the claimant had only ever pleaded her claim as one for breach of statutory duty.
31. This case is very different from Beoco Ltd v Alfa Laval Co Ltd [1995] QB 137, on which the Council relies. In Beoco the claimant's late re-amendment substantially altered the case which the defendant had to meet. Also, the defendant was prejudiced by lack of opportunity to make a payment into court. In the present litigation the case which the defendant had to meet was essentially the same both before and after the claimant's re-amendment. The claimant continued to assert, and the defendant continued to deny, the same basic facts and the same disputed propositions of expert evidence. There is no suggestion that the defendant lost an opportunity to settle. The defendant at all times disputed the factual basis of the claimant's claim.
32. I accept that at trial a modest amount of time was spent debating the legal issues. The claimant effectively abandoned her case on misrepresentation at that stage, but not her claim in negligence, which was the subject of some argument.
33. In my view the proper way to reflect the claimant's lack of success on negligence and misrepresentation would be to make a discount of 15% from the claimant's costs up to 4^th June 2013.
34. In the result, if my Lords agree, this appeal will be allowed. The claimant will recover 85% of her pre-issue costs and 85% of her costs during periods 1 and 2. In respect of period 3, for good reason neither party challenges the judge's order and that order will stand.

Lord Justice Bean:

35. I entirely agree. I only add an observation about Beoco v Alfa Laval [1995] QB 137, to which Jackson LJ has referred. In that case, where the claim was for damages in the order of £1 million, an amendment was made after the trial had been under way for several days (too late for any payment into court, equivalent to a Part 36 offer under the CPR). It introduced a new factual case, on which the claimant was expected to recover some £22,000. The original claim was rejected. As Stuart-Smith LJ said at 156C, it made no commercial sense to have incurred costs on the scale which the action involved in order to recover such a modest sum. With this combination of factors – the very late amendment, the new factual case and the very small size of the claim introduced by amendment relative to the litigation as a whole - it is not in the least surprising that the claimant was ordered to pay all the defendant's costs up to the moment of amendment (as well as 85% of them thereafter).
36. Beoco is frequently cited, but it is not authority for the proposition that in all cases where an amendment to a claim makes the difference between failure and success, the claimant must pay the defendant's costs up to the moment of the amendment. It all depends on the case. Here the amendment was made at a hearing which proved ineffective for a number of reasons. The defendant then had the opportunity to make a Part 36 offer before the effective trial date but did not take it. The factual dispute at trial was the same as it would have been anyway: only the legal label attached to the factual allegations had changed. In those circumstances, for the reasons given by Jackson LJ, I too would award the claimant 85% of her costs both pre-issue (which the judge did not mention at all) and for the judge's periods 1 and 2.

Lord Justice Sales:

37. I agree with both judgments.