England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		29/07/2010

Mr Justice Newey :

1. This is an appeal by the Claimant, Mrs Hay, against a decision of Master Haworth, Costs Judge. The appeal raises a short point as to the construction of a consent order dated 16 June 2009.
2. The proceedings compromised by the consent order concerned overage provisions contained in a contract and transfer governing Mrs Hay's purchase from the First and Second Defendants, Mr and Mrs Szterbin, of a property called Highdown Vineyard. The Third Defendants, Green White Chalton Annis, are the firm of solicitors who acted for Mrs Hay when she was buying Highdown Vineyard. As against Mr and Mrs Szterbin, Mrs Hay sought a declaration that she had not become liable to make a payment under the overage provisions. As against Green White Chalton Annis, Mrs Hay alleged professional negligence.
3. The proceedings were compromised by the consent order with which I am now concerned. This order, which was in "Tomlin" form, contained the following provisions as regards costs:

"3 The Third Defendant will pay the Claimant's costs of the action against the Third Defendant only, such costs to be the subject of a detailed assessment on the standard basis if not agreed. For the avoidance of doubt the costs to be paid pursuant to this paragraph relate exclusively to the professional negligence claim against the Third Defendant and do not encompass any costs incurred by the Claimant in respect of any dispute with the 1st and 2nd Defendants.

4 As between the Claimant and the 1st and 2nd Defendants there be no order as to costs."

A schedule to the order provided, among other things, for Mr and Mrs Szterbin to release Mrs Hay from the overage provisions and for Green White Chalton Annis's insurers to make a £160,000 payment. £110,000 of this was to be paid to Mr and Mrs Szterbin, and the balance of the £160,000 was to be retained by Mrs Hay.

4. An issue arose between the parties as to the implications of paragraph 3 of the consent order. The position of Green White Chalton Annis, as put in the Points of Dispute they filed, was as follows:

"It is submitted that the effect of that Order is that the Claimant is only entitled to costs against the Third Defendant of work carried out only against the Third Defendant and if work was carried out in relation to the claims against the First, Second and Third Defendants then the cost of such work is not recoverable against the Third Defendant ….

… It is submitted that the only proper construction … that can be placed upon the Order is that only those costs which were incurred against the Third Defendant which were not incurred also in part against the First and Second Defendants, are payable by the Third Defendant."

In contrast, Points of Reply filed on behalf of Mrs Hay argued that it was "fair to apportion the general work 75/25 in value after allocating specific items".

5. The issue came before Master Haworth on 1 February 2010. The substance of his decision is to be found in the following paragraphs of a transcript of his judgment:

"03 I have to remember that the costs order in this case was a consent order; it was not made by a judge – it was made by the parties; it was agreed by the parties – it has simply been sealed as an order of the court. I cannot look with hindsight at the terms of the order, and neither can I consider any other documentation – indeed I have not been provided with any other documentation that relates to the terms of the order. Had the costs order finished at the end of the first sentence then it seems to me clear that the order would have encompassed the costs incurred by the Claimant in respect of both the First, Second and Third Defendant as argue for by Mr Kittow [for Mrs Hay]. The problem arises from the second sentence of the order, which is meant to clarify the first sentence ….

04 Mr Vinsent [for Green White Chalton Annis] says that in effect Mr Kittow is trying to argue the case the wrong way round, and to be fair that must be my view on an interpretation of this order. On the basis of the interpretation of the second sentence in the order for costs the Third Defendant is deprived of any common costs that relate to the First and Second Defendant. The order is drafted on the basis that the Claimant is not to recover any costs whatsoever for any dispute with the First and Second Defendant. That must therefore impact severely in the terms of the way in which the bill is drawn and therefore the consequences and in my judgment I prefer the submissions put forward by Mr Vinsent to those of Mr Kittow and in those circumstances the bill will have to be assessed on that basis."

The order drawn up following the hearing before Master Haworth provided, in paragraph 2, as follows:

"Permission is granted for the Claimant to appeal, limited to the ruling that pursuant to Paragraph 3 of the Consent Order of the 16^th June 2009 the Third Defendant shall pay the Claimants costs of the case only to the extent that those costs were incurred exclusively against the Third Defendant and shall not be liable in respect of those costs of the case which were incurred either exclusively against the First and Second Defendants or in common with the First Second and Third Defendants"

6. It is against that decision that Mrs Hay now appeals.
7. It is common ground between the parties that the consent order falls to be construed in accordance with established principles relating to the interpretation of commercial instruments. In this regard, Mr Jonathan Russen QC, who appears for Mrs Hay, referred me to Sirius International Insurance Co v FAI General Insurance Ltd [2004] 1 WLR 3251. In that case, which also concerned a "Tomlin" order, Lord Steyn said the following in relation to the interpretation of commercial instruments:

"18 The settlement contained in the Tomlin order must be construed as a commercial instrument. The aim of the inquiry is not to probe the real intentions of the parties but to ascertain the contextual meaning of the relevant contractual language. The inquiry is objective: the question is what a reasonable person, circumstanced as the actual parties were, would have understood the parties to have meant by the use of specific language. The answer to that question is to be gathered from the text under consideration and its relevant contextual scene.

19 There has been a shift from literal methods of interpretation towards a more commercial approach…. The tendency should therefore generally speaking be against literalism…. If possible it should be resisted in the interpretative process. This approach was affirmed by the decisions of the House in  Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd  [1997] AC 749, 775e-g , per Lord Hoffmann and in  Investors Compensation Scheme Ltd v West Bromwich Building Society  [1998] 1 WLR 896, 913d-e , per Lord Hoffmann."

8. Paragraph 3 of the consent order which is now at issue plainly extends to costs which are entirely attributable to the claim against Green Wright Chalton Annis and not to that against Mr and Mrs Szterbin. It is equally clear that Green Wright Chalton Annis have no liability in respect of costs which can be attributed only to the claim against Mr and Mrs Szterbin. Where the parties differ is in relation to costs which can be said to have been incurred in relation to both the claim against Mr and Mrs Szterbin and that against Green Wright Chalton Annis. Examples might include the issue fee and fees paid to counsel for, say, advice in conference or drafting the Particulars of Claim.
9. It is Mrs Hay's case, as developed by Mr Russen, that such common costs should be apportioned between the claims against, on the one hand, Mr and Mrs Szterbin and, on the other, Green Wright Chalton Annis. Mr Russen argues that Master Haworth was mistaken in thinking that the consent order precluded such apportionment. Mr Russen recognised that the greatest obstacle in the way of his submissions was the use of the phrase "relate exclusively" in the second sentence of paragraph 3 of the order, but he contended that those words did not in fact bar apportionment. Amongst the points he made in this connection were these:

i) The second sentence of paragraph 3 was designed to clarify the preceding sentence, not to alter Green Wright Chalton Annis' liability in a material way;

ii) It is by apportionment that costs which "relate exclusively to the professional negligence claim against the Third Defendant" are to be distinguished from costs "incurred by the Claimant in respect of any dispute with the 1^st and 2^nd Defendants". Those costs apportioned to the claim against Green Wright Chalton Annis will "relate exclusively to the professional negligence claim against the Third Defendant";

iii) It is reasonable to assume that the second part of the last sentence of paragraph 3 (dealing with "costs incurred by the Claimant in respect of any dispute with the 1st and 2nd Defendants") should be construed in the same way as the earlier part. Were, therefore, the first part to be construed as having no application to common costs, so would the final part be. In that event, the order would have made no provision at all in relation to common costs, which could not have been intended.

10. For his part, Mr Benjamin Williams, who appears for Green Wright Chalton Annis, submits that apportionment is impermissible. He attaches significance, in particular, to the use of the word "only" in the first sentence of paragraph 3 and the phrase "relate exclusively" in the second sentence. Mr Williams summarises Green Wright Chalton Annis' case as follows in his skeleton argument:

"The 3^rd defendant accepts, of course, that the parties might have reached an agreement whereby it accepted liability to pay an appropriate share of the common costs. But, as the master rightly found, this was not the accommodation which the parties agreed. The 3^rd defendant contracted to pay only the costs exclusively referable to the proceedings against it. The balance of the claimant's costs would have been incurred in any event, because of the claim against the other defendants. Those costs lie where they fall."

11. Mr Williams drew an analogy with cases in which a claim and counterclaim have both been dismissed with costs (e.g. Medway Oil and Storage Co Ltd v Continental Contractors Ltd [1929] AC 88) or where a party has been awarded the costs of a particular issue (for example, Cinema Press Ltd v Pictures & Pleasures Ltd [1945] KB 356). For present purposes, it is sufficient to refer to the Medway Oil case. That case is authority for the proposition that, where a claim and counterclaim have both been dismissed with costs, common costs do not fall to be apportioned. The effect of the case is stated as follows in the headnote:

"Where a claim and counterclaim are both dismissed with costs, upon the taxation of the costs, the true rule is that the claim should be treated as if it stood alone and the counterclaim should bear only the amount by which the costs of the proceedings have been increased by it. No costs not incurred by reason of the counterclaim can be costs of the counterclaim. In the absence of special directions by the Court there should be no apportionment. The same principle applies where both the claim and the counterclaim have succeeded."

12. While, however, common costs cannot be apportioned in such a case, there may be scope for them to be divided. Viscount Haldane noted (at 100) that "the distinction between division and apportionment may in certain circumstances be a thin one", but he described it as "fundamental". He went on to say as follows (at 101-102):

"My Lords, the principle applied in Wilson v. Walters may have consequences in individual cases which would be harsh if the Taxing Master did not supervise the costs of claim and counterclaim closely, and split up the costs of items which are required by both. In such instances he takes an item, a single fee on the plaintiff's brief for example, and splits it into two notional fees, the one attributable to the claim, and the other to the counterclaim. This is not an apportioning, in which the payment is treated as a single item and the question is to what it is attributable. It is in reality a notional division of what on the face only of it is one item."

Viscount Haldane's earlier comments on Christie v Platt [1921] 2 KB 17 are also instructive. He said (at 99-100):

"There were obviously costs incurred in common; the single fee on the brief given by the plaintiff is an example. It may be that this fee would not have been too much if there had been no counterclaim to meet. But that does not affect the fact that it was paid to the plaintiffs' counsel to cover his services in both proceedings. It ought therefore to have been divided for the purposes of taxation. The same thing appeared to have been true of a good deal of the evidence put forward on the two sides. There may well be costs which have to be divided."

As Mr Williams recognised, this passage is significant because it indicates that a fee may potentially fall to be divided even if it "would not have been too much if there had been no counterclaim to meet".

13. In my judgment, the distinction between apportionment and division also applies in the present case. In so far as common costs can be attributed to the claim against Green Wright Chalton Annis in accordance with the process of division to which reference is made in the Medway Oil, they represent, to my mind, costs which "relate exclusively to the professional negligence claim against the Third Defendant" within the meaning of paragraph 3 of the consent order. I do not consider, however, that paragraph 3 extends to any other common costs. An item of common costs which is not susceptible to division will not, as it seems to me, "relate exclusively" to the claim against Green Wright Chalton Annis; it will also relate to the claim against Mr and Mrs Szterbin. Similarly, where division is appropriate, it appears to me that Green Wright Chalton Annis can have no liability in respect of so much of the item in question as is not, on division, allocated to the claim against them; the balance of the item cannot "relate exclusively" to the professional negligence claim. The words "relate exclusively" preclude ordinary apportionment.
14. In short, I agree with Master Haworth (and Mr Williams) that common costs do not fall to be apportioned. On the other hand, paragraph 2 of the order prepared to give effect to Master Haworth's judgment might be thought to preclude not only apportionment, but also division. I doubt whether that was Master Haworth's intention. So far as I am aware, the distinction between the two was not aired at the hearing before Master Haworth. At any rate, Master Haworth does not refer to division (as opposed to apportionment) in his judgment. As I say, however, Master Haworth's order could be read as barring both apportionment and division, which would not, on the view I take, be correct. It follows that I do not think that paragraph 2 of the order should stand in its current form.
15. In the circumstances, I shall set aside paragraph 2 of Master Haworth's order and make an order to the effect that Green Wright Chalton Annis are not liable for any common costs except to the extent that those costs fall to be attributed to the claim against them by division (rather than apportionment). I would hope that counsel can agree an appropriate wording.
16. I am very grateful for the assistance I have received from the assessors who sat with me. Responsibility for this decision rests, of course, with me.