England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM THE SUPREME COURT COSTS OFFICE

		Royal Courts of Justice Strand, London, WC2A 2LL
		14th July 2003

Mr Justice Peter Smith:

INTRODUCTION

1. This is an appeal by the Appellants (the second and third respondents in the original action) against the final costs certificate of Deputy Master Jefferson dated 31^st January 2003, when he assessed the costs of the Applicants/Respondents arising under the Consent Order ("Consent Order") dated 28^th February 2002 as being £122,289.50 (One Hundred and Twenty-two Thousand, Two Hundred and Eighty-nine Pounds, Fifty Pence) (including £14,063.58 (Fourteen Thousand and Sixty-three Pounds, Fifty-eight Pence) for costs of the detailed assessment). In addition he declared that interest pursuant to the Judgments Act 1838 was payable on the Applicants' costs.
2. He ordered that the interest on the Applicants costs be disallowed for the period between 28^th February 2002 to 27^th May 2002. There is no appeal by the Respondents against that disallowance.
3. The Deputy Master granted the Appellants permission to appeal against his order as to costs of the detailed assessment. On 20^th March 2003 Hart J gave the Appellants permission to appeal against his decision to allow interest on the assessed costs under the Judgments Act.

BASIS FOR APPEAL

4. The appeal was on two bases. The first was a question of law. It was submitted on behalf of the Appellants that the Deputy Master ought not to have ordered interest be payable on the cost because the costs were payable out of a fund. The Appellant contended that the established practice of the Court was not to award interest under the Judgments Act on payments out of a fund (as opposed to an adversarial order) in reliance upon two decisions namely, A G –v- Nethercote [1841] 11 SIM. 529 and Re. Marsdens Estate [1889] 40 Ch D 475.
5. The second basis for appeal was that the Deputy Master ought not to have ordered the Appellant to pay the Respondents' costs of the detailed assessment. The Notice of Appeal does not indicate what order should have been made, but Mr Schmitz who appeared for the Appellants in the course of argument submitted that the Respondents should have their cost of the detailed assessment down to the offer of 10^th January 2003, when the Appellants offered £115,000.00 (One Hundred and Fifteen Thousand Pounds) in full and final settlement of all claims arising out of the assessment, but that the costs thereafter should be paid by the Respondents to the Appellants.
6. The costs of the Respondents in the Detailed Assessment were assessed by the Deputy Master in the sum of £14,063.58 (Fourteen Thousand and Sixty-three Pounds, fifty-eight Pence). Of that Mr Schmitz contended the proper sum payable was £5,792.75 (Five Thousand, Seven Hundred and Ninety-two Pounds, Seventy-five Pence) being the sum assessed (inclusive of VAT) up to the date of the hearing (but excluding the hearing). He submitted that there was still time to have accepted the Appellants' offer and vacate the hearing. Thus the amount of costs in issue on the assessment (which lasted three days) was just over £8,000.00 (Eight Thousand Pounds).
7. That concerned me, because of the costs of the appeal. The appeal had an air of disproportionality. This disproportionality became even more apparent when the question of quantum of interest arose.

AMOUNT OF INTEREST

8. The interest amounted to £5,538.58 (Five Thousand, Five Hundred and Thirty-eight Pounds, Fifty-eight Pence). As I have already observed, that interest was payable from 27^th May 2002.
9. During the course of argument it emerged that the proceeds of sale of the two flats, the subject matter of the Consent Order were held in a joint deposit account in the solicitors' names. I will deal with this aspect in more detail in the Judgment. Flat 2 was sold on 2^nd August 2002, for £210,000.00 (Two Hundred and Ten Thousand Pounds) and Flat 4 Wolsley House was sold for £220,000.00 (Two Hundred and Twenty Thousand Pounds). Under the terms of the Consent Order the joint account was opened on 22^nd August 2002, and the sum of £399,939.57 (Three Hundred and Ninety-nine Thousand, Nine Hundred and Thirty-nine Pounds, Fifty-seven Pence) was paid in. On 3^rd September 2002, £237,072.60 (Two Hundred and Thirty-seven Thousand and Seventy-two Pounds Sixty Pence) was withdrawn from the joint account and paid to the Appellants' solicitors on behalf of the Appellants. No payment on account of the Respondents' costs was made out of the joint account until 9^th January 2003 when the sum of £75,000.00 (Seventy-five Thousand Pounds) was withdrawn. On 29^th January 2003 a further 33,225.92 (Thirty-three Thousand, Two Hundred and Twenty-five Pounds, Ninety-two Pence) was paid out to the Respondents' solicitors. The disputed interest and the costs of the detailed assessment remain in the joint deposit account pending this appeal.
10. Under the terms of the Consent Order, both counsel acknowledged in argument that the funds standing to the credit of the account were held upon trust for the Appellants and the Respondents in shares proportionate to their interest. The Respondents' share was the proportion of the costs (approximately 25% of the proceeds of sale) and the balance (under the terms of the Consent Order) was payable to the Appellants. It is quite clear (and both counsel accepted it) that these funds were held upon trust for the parties according to their relevant shares. Thus whatever the result of the appeal, the Respondents will be entitled to interest from 22^nd August 2002 on their share of the costs, until payment out. Whilst the interest rate is less than the Judgment rate, this made the Respondents' stance unfair because they would have interest on the money on deposit and were awarded interest by virtue of the Deputy Master's decision for a substantial part of the same period. Thus in real terms the actual interest at risk was the period between 27^th May 2002 and 22^nd August 2002, when the monies were paid into the joint account, a period of 3 months. The amount of interest in issue for this period would be approximately £2,300.00 (Two Thousand, Three Hundred Pounds) on the assessed costs. There is no appeal against the quantum of the assessed costs.
11. I was very concerned at the proportionality of this appeal for those reasons. I was also very concerned (as I shall set out in this Judgment) at the proportionality of the assessment exercise, bearing in mind that to-ing and frow-ing of offers and counter offers that passed between the parites.

THE CONSENT ORDER

12. The Consent Order was made in compromise of the parties' claims. It was substantially in the form of Tomlin Order. Although Blackburne J commented as to the length of time that the parties' legal advisers had spent in negotiating the settlement and also expressed the view that there maybe something leftover for the Appellants, those observations after the settlement have no impact on the exercise before me. As I have said above the result of the sale had meant that the Appellants will receive a little over £300,000.00 (Three Hundred Thousand Pounds).
13. Equally, it did not seem to me to be appropriate to go behind the Consent Order in order to attempt to see who won. The background to the dispute is set out in the skeleton arguments and relates to a number of flats in a Victorian detached house. Nothing turns on those, but there were difficulties about the conveyancing aspects of the titles, because a company controlled by the Appellants had gone into liquidation, was struck off and dissolved, with the result that the freehold had vested in the Crown. In respect of the costs of obtaining vesting orders affecting the freehold a Consent Order was made on 6^th December 2000, whereby the parties agreed to pay their own costs. Those issues were therefore not of relevance (despite Mr Post's attempt to introduce them) in the assessment of the costs of the rest of the application, which related to the title to three flats. The Appellants sought the title to the three flats. The Respondents contended that they should not have title to the three flats. The Consent Order provided for the Appellants to have the three flats, but that two of them were to be sold. The third (number 6) was retained by Mrs. Barrett, one of the Appellants.

TERMS OF CONSENT ORDER

14. The operative parts are clause 4, which provided:-

"(4) that the costs of the Applicants of the proceedings (save as ordered otherwise by paragraph 5 of the Order herein dated 6^th December 2000) be assessed if not agreed and raised and paid as set out in the Schedule hereto"

15. Under the Schedule, provisions were made for the granting of leases in respect of all the flats including those number 2, 4 and 6, which were disputed and the sale as I have said of numbers 2 and 4. When those were sold the proceeds were to be paid in accordance with paragraph 3 of the Schedule, into a joint account in the name of the parties' respective solicitors and to be paid out in the following order:-

"(a) in discharge of the costs of the Applicants as above ordered. If such costs are not by that date agreed or assessed then an amount to cover the costs claimed, including in respect of the Applicants' costs of any detailed assessment proceedings, to be fixed by the Court under the permission to apply if not agreed, shall be retained pending assessment or agreement

(b) the sum of £7,500 to the Applicants in full and final settlement of any maintenance responsibility through to the date of vacation of flats 2 and 4 by the Second and Third Respondents (regardless of the actual date of vacation). This is mainly in satisfaction of previous failure to contribute towards maintenance, moneys having been expended by the Applicants as leaseholders. The said sum of £7,500 is not therefore to be held on trust by the Applicants

(c) any surplus thereafter shall be held on behalf of the Second and/or Third Respondents as (they wish) but receipt by either of them to bind them both as will receipt of their said solicitors on their behalf "

16. I have thus already commented as to the impact of the interest by virtue of the creation of a trust of the fund.

THE DECISION OF THE DEPUTY MASTER BELOW

17. He delivered his Judgment on the question of interest on the second day of the assessment. He rejected the argument that the decision of Nethercote referred to above had any application. Marsden was not cited. He concluded that the decision of Netherton should be confined to administration of estates only.
18. He considered that the equitable course was to order that there be no interest for the period 28^th February 2002 to 27^th May 2002. I have already observed that no one appears to have considered before the present appeal as to the interrelation as to the interest on the costs order and the interest which is payable by virtue of the trust affecting the sums on deposit.
19. I, with the greatest of respect to the Deputy Master, do not agree with his limitation of the Nethercote decision. Further, it is contrary to the decision of Chitty J in Marsden, which was not referred to him. It is quite clear that whenever there are funds, out of which costs are paid, there is not an order which attracts interest. The reason for that is that there is not an order of the court in adversarial litigation. Thus in the present case the Appellants had no liability to make up any shortfall if the properties had sold for less than the amount of the costs. Both parties were interested as beneficiaries in the fund, as I have set out above and I see no reason to limit the Deputy Master's reasoning to administration of estates.
20. Further, the order was a Tomlin Order. The reality is that the substantive costs provisions were to be found in the Schedule. Mr Post conceded that the Schedule ordinarily, if it contained the cost provisions did not form part of a Judgment for the purposes of the Judgments Act. I do not think that the provisions as to payment of costs in the Schedule here fall within the Judgments Act either.
21. Finally, it seems to me that there was a contract agreement between the parties and if interest was to be payable it should be expressly included, or else it is not included. We had no evidence about the negotiations (none will be receivable on the question of the construction of the Consent Order).
22. I conclude therefore, that I ought to follow the decision in Marsden.
23. It follows that the appeal should be allowed in relation to the amount of interest ordered although I regret the appeal was necessary, because of the extremely modest sum involved to which I have made reference.

GROUND 2 – DISCRETION

24. Mr Schmitz sought to argue that the appeal ought to be a rehearing rather than a review. This seemed to me to be unsustainable. An appeal is normally a review, unless justice requires it to be a rehearing. Mr Schmitz was unable to point to any injustice in the Judgment. He referred to the fact that the Deputy Master had given permission to appeal, but I do not see that that is enough to create an injustice. The rule in question (CPR 52.11(3)(b)) was considered by the Court of Appeal in Audergon –v- La Baguette Ltd [2002] EWCA CIV10. It is clear for the matter to proceed as a rehearing there must be some element of injustice of a serious procedural or other irregularity. I cannot see that there is anything wrong with the thought processes of the Deputy Master.
25. It follows therefore that it would be necessary to establish that the Deputy Master had exercised his discretion according to the wrong principles.
26. The starting point of an order for the costs of the assessment is CPR 47.18 which provides that the receiving party is entitled to its costs of the detailed assessment except where:-

"(a) the provision of any Act, any of these Rules or any relevant practice direction provide otherwise; or

(b) the court makes some other order in relation to all or part of the costs of the detailed assessment proceedings.

(2) In deciding whether to make some other order, the court must have regard to all the circumstances, including –

(a) the conduct of all the parties;

(b) the amount, if any, by which the bill of costs has been reduced; and

(c) whether it was reasonable for a party to claim the costs of a particular item or to dispute that item."

27. The decision of the Deputy Master was based on a rejection of the Appellants' contention based on their offer of £115,000.00 (One Hundred and Fifteen Thousand Pounds) on 10^th January 2003. The Deputy Master said this:-

"I don't think the conduct of your opponents has been unreasonable. Having heard the whole saga, I would not lay that charge at their door. I find the Applicants are entitled to the costs of the detailed assessment".

28. The amount of costs were £122,289.59 (One Hundred and Twenty-two Thousand, Two Hundred and Eighty-nine Pounds, Fifty-nine Pence) (including £14,063.58 (Fourteen Thousand and Sixty-three Pounds and Fifty-eight Pence)) leaving a net figure of £108,226.01 (One Hundred and Eight Thousand, Two Hundred and Twenty-six Pounds and One Pence). The disallowance of the entirety of the interest therefore reduces the Respondents costs to that figure which is below the figure of £115,000.00 (One Hundred and Fifteen Thousand Pounds) offered on 10^th January 2003.
29. That did not reflect the entirety of the offers.
30. On 26^th June 2002, the Respondents sought £116,057.98 (One Hundred and Sixteen Thousand and Fifty-seven Pounds, Ninety-eight Pence) (with no breakdown). The Applicants sought a proper bill. They made an offer on 25^th October 2002 of £88,250.00 (Eight-eight Thousand, Two Hundred and Fifty Pounds), which was unpardonably low in the context of the amount of costs as determined. On 18^th December 2002, the Respondents counter offered £120,000.00 (One Hundred and Twenty Thousand Pounds) plus interest and costs of the detailed assessment. This would have given them a figure of approximately £128,000 (One Hundred and Twenty-eight Thousand Pounds) plus a figure for the costs of the assessments down to that date. That was rejected by the Appellants. They offered £107,000.00 inclusive on 3^rd January 2003. The Respondents sought £135,000.00 (One Hundred and Thirty-five Thousand Pounds) on 7^th January 2003 and thereafter the offer of £115,000.00 (One Hundred and Fifteen Thousand Pounds) was made. Finally, an offer was made on 21^st January 2003, of £119,000.00 (One Hundred and Nineteen Thousand Pounds) by the Respondents. That was rejected by the Appellants.
31. The offers are made in Calderbank form under CPR 47.19. The provisions of that rule require the Court to take the offer into account in deciding who should pay the costs of those proceedings. S. 46 of the Costs Practice Direction provides that an offer made by a paying party should usually be made within 14 days after service of notice of commencement on that party. Offers made after this period are likely to be given less weight by the Court in deciding what order as to costs to make unless there is a good reason for the offer not being made until the later time.
32. In my Judgment, the Deputy Master having heard a three day hearing, and having doubtless had the various letters drawn to his attention, was entitled to come to the conclusion that there was no reason for him to depart from the prima facie rule that the Respondents as the receiving party were entitled to the costs. In particular, he was correct to find that the only offer which complied with CPR 47.19 and S. 46 of the CPD was the offer of £88,250.00 (Eighty-eight Thousand, Two Hundred and Fifty Pounds) made on 25^th October 2002, which, as I have said was unpardonably low. He was also right to give less weight to the later offers in respect of which, no good reason was given for not making them earlier.
33. There were matters entirely within his discretion and I do not see that he exercised his discretion wrongly. This appeal emphasises the need for paying parties who wish to protect themselves against the costs consequences of CPR 47.19 to make realistic settlement offers at the beginning of the detailed assessment proceedings and not at the end. The Court is bedevilled with late settlements. The procedures in CPR 47.19 are designed to promote early reasonable offers and parties should bear this in mind in the future.
34. I would therefore dismiss the appeal in relation to the question of costs on the basis of the reasoning of the Deputy Master.
35. At the end of the submissions I indicated that the Appellants were successful in the interest arguments and unsuccessful in relation to the costs arguments, but would deliver a written judgment at a later stage.
36. To avoid adding to the unnecessary costs, I indicated that I would not require a court hearing and would deal with the matter by way of written submissions.
37. In my provisional view, even if the interest figure is reversed, the amount is so minimal that I do not accept that the Deputy Master would have exercised his discretion any other way. If I am wrong in that, and the interest reversal is a relevant factor, if I were reconsidering the discretion I would follow the same conclusion as the Deputy Master. The offers in this case were not really capable of sensible settlement so that the Respondents were still entitled to their costs. It is unfortunate that the original offer (admittedly without sight of the details) of £116,000.00 (One Hundred and Sixteen Thousand Pounds) or something thereabouts was not accepted. The meeting between the parties became very close at a very late stage.
38. I am not therefore minded to interfere with the Deputy Master's determination as to costs before him even after the interest appeal has been successful.
39. Equally, bearing in mind the costs that have been incurred, my provisional view is that I should make no order for costs on the appeal as both parties have won something and lost something. Either party is at liberty to apply to seek to persuade me that those orders for costs are not the correct ones, and if so they should provide a written submission as to why within seven days of delivery of this Judgment. The other party will have seven days to reply and the claiming party can serve any reply within three days thereafter. I will then deliver a Judgment on the costs. I do not encourage such an application having regard to the modest sums involved; although I appreciate there may be factors of which I am presently unaware.