England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
(Transferred from the Manchester County Court)

		Royal Courts of Justice Strand, London, WC2A 2LL
		23/11/2012

Judgment on Damages & Costs

Mr Justice Briggs :

Damages and Costs

1. When handing my judgment in this matter on 16 November 2012 I stated that the parties had agreed that the precise quantification of the damages, together with any other matters, including costs, were by agreement to be resolved upon written submissions, following which I would hand down a further short judgment.
2. In its original form, Mr Smith's claim was for damages for breach of his employment contract and for a declaration that, in demoting him, the Trust had acted incompatibly with his Convention rights. The claim for a declaration was based upon the allegation in paragraph 24 of the Particulars of Claim that the Trust was a public authority.
3. The claim for a declaration, together with those parts of the Particulars of Claim upon which it was based, was struck out pursuant to the order of District Judge Khan made on 21 March 2012, upon the ground that Mr Smith had no real prospect of demonstrating at trial that the Trust was a public authority. Mr Smith was ordered to pay the costs of that application. That decision was not appealed and it has since then been common ground that Mr Smith's case has been a private law claim for damages for breach of contract.
4. For the reasons given in my main judgment, Mr Smith's claim for damages is limited to the difference in his salary and benefits between his contractual entitlement and the reduced amount payable by reason of his demotion, but only for the twelve week notice period which the contract is deemed to have provided. The Trust has advanced calculations tending to show that damages are therefore limited to £98, together with interest of £4.10, and this has not been challenged by Mr Smith. Accordingly I award damages, and interest, in those amounts.
5. Mr Smith's claim was issued in the Manchester County Court in October 2011, the Particulars of Claim being dated 19 October. It was issued following a pre-action protocol letter by Mr Smith's solicitors to the Trust dated 20 June 2011, alleging breach of contract, and seeking re-instatement of Mr Smith to his former position as a housing manager, together with re-payment of any deductions from his salary, and the rescission of his final written warning, issued after the conclusion of the disciplinary proceedings against him. The Trust's response, by letter dated 29 June 2011 was that, since Mr Smith was still employed by the Trust, any employment concerns of his "should be raised through the recognised internal company procedures". It was suggested that it was inappropriate for the Trust to "enter into correspondence with a third party on these matters".
6. Following the issue of proceedings, the Trust made a Part 36 offer by letter dated 21 December 2011. The letter denied any infringement of Mr Smith's Convention rights and asserted a contractual entitlement to demote him, together with an expression of the Trust's confidence that "when the court hears the evidence from the witnesses who were upset by your client's actions, against the background of the very clear policy your client as a manager breached, we will succeed." Nonetheless, and in order to save costs, the Trust offered to pay Mr Smith £1,000, inclusive of interest, upon the basis that the Trust calculated that, even if Mr Smith succeeded in his claim for breach of contract, his entitlement would amount to a mere 84 pence.
7. Mr Smith did not accept that offer. The case proceeded to trial. The Trust did not call as witnesses any of those of its employees alleged to have been upset by Mr Smith's postings on his Facebook wall page. It was in the event sufficiently proved that two of his colleagues were upset, one of them because she misinterpreted Mr Smith's comments about gay marriage in church, and the other because of what I concluded was an unreasonable view about the tone of his comments.
8. The outcome of the trial is that Mr Smith's claim that he had been wrongly demoted, in breach of contract, succeeded. It appears that the Trust thereafter apologised to him for the way in which he had been treated, but he has not been re-instated, as he sought by his pre-action letter. A claim based upon breach of his contract of employment could not have given rise to an order for re-instatement.
9. Mr Smith did not accept that, if he succeeded in proving a breach of contract, his damages would be limited to £100. On the contrary, detailed submissions were made by Mr Tomlinson QC on his behalf to the effect that he was entitled to compensation for the shortfall in his reduced remuneration to date, and prospectively. I rejected that basis for quantification of damages.
10. CPR Part 36.14 provides, so far as is relevant, as follows:

"(1) This rule applies where upon judgment being entered-

(a) a claimant fails to obtain a judgment more advantageous than a defendant's Part 36 offer;

…..

(1A) For the purposes of paragraph (1), in relation to any money claim or money element of a claim, "more advantageous" means better in money terms by any amount, however small, and "at least as advantageous" shall be construed accordingly.

(2) Subject to paragraph (6), where rule 36.14(1)(a) applies, the court will, unless it considers it unjust to do so, order that the defendant is entitled to-

(a) his costs from the date on which the relevant period expired; and

(b) interest on those costs.

(4) In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3) above, the court will take into account all the circumstances of the case including-

(a) the terms of any Part 36 offer;

(b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;

(c) the information available to the parties at the time when the Part 36 offer was made; and

(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated."

11. For Mr Smith, Mr Tomlinson accepts that the Trust's offer of £1,000 was made in accordance with Part 36. But he submits that it would be unjust for Mr Smith to have to pay the whole of the Trust's costs of the proceedings, with interest, from 11 January 2012, in summary for the following reasons. First, this was not a claim about money, but rather a successful vindication by Mr Smith of his right to free speech after an unjustified finding of gross misconduct, and which has, in effect, cancelled out a serious blot on his employment record. Secondly, acceptance of the Trust's offer would have left Mr Smith nonetheless demoted, would have left intact the finding of gross misconduct against him, causing serious and continuing damage to his reputation, and to his relationship with fellow employees. Thirdly, the trial raised matters of principle, warranting the transfer of a small case in monetary terms to the High Court from the Manchester County Court, which made it reasonable for Mr Smith to pursue his claim, notwithstanding the Trust's offer. Finally, reliance was placed upon the Trust's un-co-operative response to Mr Smith's pre-action protocol letter, as something warranting adverse costs consequences.
12. For the Trust Mr Short submitted that nothing in the circumstances of the case made it unjust for the ordinary consequences of a failure to beat a Part 36 offer to follow. In particular he submitted that the claim was (after the striking out for a claim for a declaration as to Mr Smith's Convention rights) merely a claim for damages for breach of contract. A finding of liability against the Trust came nowhere near to making it unjust that Mr Smith should pay its costs. The court's sense of unease at the inadequate financial outcome of the case (recorded at the end of my main judgment) was nothing to the point. Mr Smith had obtained all to which the common law of contract entitled him, and could not sensibly pray in aid the prospect that he might have obtained more than the Trust had offered, had he proceeded in the Employment Tribunal.
13. I was not referred to any authority on the application of the injustice test under Part 36.14. For present purposes, the principles which I derive from the authorities are as follows:

a) The question is not whether it was reasonable for the claimant to refuse the offer. Rather, the question is whether, having regard to all the circumstances and looking at the matter as it affects both parties, an order that the claimant should pay the costs would be unjust: see Matthews v Metal Improvements Co. Inc [2007] EWCA Civ 215, per Stanley Burnton J (sitting as an additional judge of the Court of Appeal) at paragraph 32.

b) Each case will turn on its own circumstances, but the court should be trying to assess "who in reality is the unsuccessful party and who has been responsible for the fact that costs have been incurred which should not have been." : see Factortame v Secretary of State [2002] EWCA Civ 22, per Walker LJ at paragraph 27.

c) The court is not constrained by the list of potentially relevant factors in Part 36.14(4) to have regard only to the circumstances of the making of the offer or the provision or otherwise of relevant information in relation to it. There is no limit to the types of circumstances which may, in a particular case, make it unjust that the ordinary consequences set out in Part 36.14 should follow: see Lilleyman v Lilleyman (judgment on costs) [2012] EWHC 1056 (Ch) at paragraph 16.

d) Nonetheless, the court does not have an unfettered discretion to depart from the ordinary cost consequences set out in Part 36.14. The burden on a claimant who has failed to beat the defendant's Part 36 offer to show injustice is a formidable obstacle to the obtaining of a different costs order. If that were not so, then the salutary purpose of Part 36, in promoting compromise and the avoidance of unnecessary expenditure of costs and court time, would be undermined.

14. In my judgment it would be unjust for Mr Smith to have to pay the Trust's costs of these proceedings from 11 January 2012, in all the circumstances. My reasons follow. First, this was not, as far as I have been able to ascertain, primarily a case about money, for either of the parties. Mr Smith was seeking (in the event successfully) in effect to restore his reputation after being found guilty of gross misconduct, in particular in his treatment of fellow employees. The Trust was seeking to uphold the correctness, in contractual terms, of the conduct of its disciplinary procedures in relation to him. The case raised important matters of principle in relation to the interpretation and application of the Trust's Code of Conduct and Equal Opportunities Policy. It was for those reasons that it was appropriate for the case to be transferred to the High Court at the beginning of the trial. Neither party opposed the transfer, and if the case had been primarily about the money in issue it would not have been transferred.
15. Secondly, the essential purpose behind Part 36 is to visit costs consequences upon parties of whom it can properly be said that they ought to have settled by accepting the other party's offer, rather than taken the matter to trial. I consider that this was, unusually, a case properly taken to trial, by both parties. Settlement, upon Mr Smith obtaining £1,000 (a larger but still inadequate level of compensation) would have left the real matters in issue between the parties still unresolved, in circumstances where they were in a continuing relationship of employer and employee. By contrast, the outcome of the trial is that, although Mr Smith has not been reinstated, the Trust has made an apology to him and there is reason to suppose that their employment relationship may continue on a less unsatisfactory basis.
16. Thirdly, Mr Smith has in reality been the successful party. Although in form the proceedings were (after the striking out of the Convention rights claim) purely for damages for breach of contract they were in reality, and were perceived by both parties to be, about issues of liability, upon which Mr Smith succeeded.
17. I consider that justice would be served by making no order for costs. I do not regard it as just in all the circumstances to make the Trust pay Mr Smith's costs, even though he was successful on the main bone of contention between the parties. This is mainly because I do not regard it as fair wholly to deprive the Trust of the protection intended to be afforded by Part 36, to the extent of leaving the Trust exposed to having to pay Mr Smith's costs.
18. Nor do I regard it as unjust for Mr Smith to have to bear his own costs. He has been supported throughout by the Christian Institute. As between him and the Trust the responsibility for, and burden of, having failed to proceed in the Employment Tribunal in sufficient time must, whatever his personal reasons, lie with him. Furthermore he failed on the question whether some more generous basis for the quantification of damages should be applied. Thus to the limited extent that the case was about money, he was unsuccessful.
19. Accordingly, the costs of this litigation will lie where they fall, save that the costs order made upon the striking out of the Convention claim of course stands.