Mercantile Court

IN THE MERCANTILE COURT
AT BIRMINGHAM

		Birmingham County Court.
		25th October 2011

JUDGE SIMON BROWN:

1. In this case the parties have come to an agreement following a Part 36 offer which was made on 11th August 2011 by the claimants, on a without prejudice save as to costs basis. The letter is a comprehensive letter where they deal with the position of the claimants and they make it plain that, in this particular case, which is a solicitors' mortgage fraud case, for want of better words, that their case was one which was undefendable. One of the particulars that they identified was that the transactions clearly were by way of a sub-sale involving Mr Edwards purchasing properties from Ellis & Carter Limited, who owned the properties for six months, and that the defendant, Mr Alomo, failed to notify the lender, GMack, of the sub-sales and, in particular, to identify the involvement of Ellis & Carter Limited, of which Mr Edwards (and another Mr Edwards) were whole owners of. Those matters were clearly identifiable from a companies search which the defendant failed to do, and admitted so in the witness box, and it is perfectly apparent that that was a situation which was very important.
2. The second point that they make is that it was clear from all the documents that both transactions - that the uplifts were applied on all four properties of approximately 44% and that that was a matter which the defendant, Mr Alomo, was aware of and failed to inform GMack that this was the case, and in the witness box today he accepted that he did know of the uplift and that he did not inform GMack that that was the case. That is really, simply, what the case was all about.
3. The purchase prices were matters which were not revealed to GMack, and the case proceeded, quite properly, with particulars of claim, which is a modest document of just 12 pages, clearly setting out what the case was. When the defence came in, the defence was a document which extended to 66 pages. It was drafted by counsel, who has appeared a trial, Mr Tunkel, on 15th June. A statement of truth was signed by Fuglers on 16th June and it was not signed by an individual but it was signed by that firm of solicitors. In the witness box today, Mr Alomo has confirmed, from the outset of his cross-examination, that he approved of those documents. It would have been better in a case such as this that he had signed the statement of truth. So, the case has proceeded on the basis of a very lengthy defence which has raised every single issue possible, including the identity of the claimant as much as everything else, when in fact the position really ought to have been clearly identified by some rigorous treatment by the solicitors and counsel in tackling the defendant about them. There were insurers involved, and I am surprised that this matter has carried on as it has fully to trial. The defence included particular key paragraphs: paragraph 20: "The prices paid by Ellis & Carter were substantially lower than the 309 which had been stated in the mortgage application forms, in that the apartments were sold for 215" - that is in the particulars of claim, and there is no admission about that. It is highly unsatisfactory. But also 21: "Ellis & Carter is or was a company of which the borrower was a 50% shareholder and, therefore, connected to the borrower." Again, no admissions about that. And also, there are matters in the further information which have been borne out, where it was quite apparent that the defendant did not have a defence.
4. This form of pleading is to be deprecated and in many instances it would attract an order for wasted costs against the drafter and the person who approved it, namely counsel and the solicitors. No application has been made for that in this case, but the courts are extremely concerned generally at the state of pleadings (as they were called; now statements of case) which are prolix and confused. Indeed, the matter continued through the conduct of this case to the skeleton argument that was served by the defendant, which made little sense, it did not appear to address whether there was an issue on liability, when it is abundantly apparent that there was no issue on liability at all. It was conceded by Mr Tunkel that there was a duty of care at least owed, although that was vigorously contested during the trial, and it is accepted that there is a serious breach by the defendant, at least, of failing to notify of an unexplained uplift of price and a failure to inquire of the title of the previous seller involved. Those matters were almost impossible to defend.
5. The result is that in this particular case we have had costs management, and every single effort has been made to try and control the costs - not to cap them - so that the case could be heard and could be heard for a reasonable sum of money. As it turns out, the claimants originally submitted a costs budget which was rigorously looked at and it was around the sum of £120,000. Eventually, they pleaded through correspondence with the court for an uplift in that budget to £174,000. I have no doubt that that is because they were having to deal with all sorts of defences or ideas put forward by the defendants in the conduct of these proceedings. There was no attempt to narrow the issues by the defendants. Quite the reverse. In the end, I have inquired of counsel for the claimants what the costs bill will be when it goes to detailed assessment, and I am told that the budget figure of £174,000 will be exceeded and that the bill is likely to be more in the region of £200,000. That is an enormous sum of money to spend on having to proceed with a claim for what was quite a straightforward solicitors' mortgage fraud case. There were no real difficulties about it, no complexities, but I am satisfied that the work had to be done, and partly, and mainly, in response to the conduct of the proceedings by the defendant, who did not appear to cooperate in the proceedings.
6. It is worth remembering that the overriding objective refers to dealing with cases justly, saving expense and dealing with cases in ways which are proportionate. And it is the court's duty under 1.4 to manage the case actively, to encourage the parties to cooperate with each other in the conduct of the proceedings and in identifying the issues at an early stage. That is something that the court has done to a great degree in this particular case, but it has not been helped by the fact that one of the parties has failed, under 1.3, to help the court to further the overriding objective.
7. In those circumstances, I am satisfied that this is a case where the conduct of the defence is one which requires an order, to indicate the court's displeasure, of indemnity costs. Furthermore, I am satisfied that it is only fair on the claimants that that should be the case - putting the burden of proof on detailed assessment on the defendants to show that their costs are unreasonable, rather than having to prove that their own costs are reasonable.
8. This is a case also where I take into account that there were no offers until last week, notwithstanding that in this matter the offer was made back in August 2011. It therefore meant that the case then had to be fully prepared and come to trial, to the state where it collapsed when the defendant gave evidence under cross-examination. This is a clear Part 36 offer, which identifies what the consequences were, and the trial has been one where all the issues have been contested, they have not been narrowed, and I am satisfied that this is a case which falls squarely within the rules which appertain to indemnity costs. Therefore, I order that the costs be assessed on an indemnity basis.
9. I want to raise one other matter about pleadings, and it is worthy that perhaps everybody should note this. It is referred to in the Mercantile Court website, under the section, "Our work", where the website rehearses some pre-CPR dicta from the House of Lords in the Lloyd's litigation: Ashmore v. Corporation of Lloyd's [1992] 1 WLR. It says there:

"The judge is under a duty to identify the crucial issues and to see that they are tried as expeditiously and as inexpensively as possible. It is the duty of the advisors of the parties to assist the trial judge in carrying out his duty."

That was Lord Roskill, and that reflects what is in 1.4 and 1.3 of CPR subsequently. More apposite perhaps to this case, in referring to the defendant's pleading of 66 pages, is this:

"The parties' representatives are under a duty to cooperate with the court by chronological, brief and consistent pleadings which define the issues and leave the judge to draw his own conclusions about the merits when he hears the case and to assist the judge by simplification and concentration and not to advance a multitude of ingenious arguments in the hope that, out of 10 bad points, the judge will be capable of fashioning a winner."

That is Lord Templeman, and that, in my judgment, has been the situation in this case, that the defendant's pleading has placed the court under.

10. In a lecture in South Africa at a conference in Johannesburg 7^th – 11^th July 2011, Mr Justice Rares from Australia said this:

'Experience in writing judgments suggests that, frequently, the parties have lost sight of the real dispute between them. It is buried in a morass of complex, long pleadings or, worse still, additionally, a great deal of evidentiary material. Very often, the most apparently complex cases distil down to one or a few critical documents or conversations, despite the mountain of other material that the parties tender or adduce into evidence by witnesses.

One early remedy that had an effect was used by the Lord Keeper in England in 1596. He ordered that a pleading 120 pages long be removed from the file because it was about eight times longer than it need have been. He ordered that the pleader be taken to the Fleet prison. His Lordship then ordered that on the next Saturday the Warden of the Fleet bring the pleader into Westminster Hall at 10 a.m. and then and there cut a hole in the midst of the pleading and place it over the pleader's head so that it would hang over his shoulders with the written side outwards. The Warden had to lead the pleader around Westminster Hall while the three courts were sitting and display him "bare headed and bare faced" and then be returned to the Fleet prison until he had paid a £10 fine – a huge sum in those days. Sir Robert Megarry said that the general present day ignorance of this case among both pleaders and laypersons "is much to be deplored" : Mylward v Weldon: Bailii citation number: [1595] EWHC Ch 1; also inaccurately referred to as Milward v Weldon (1565) Tothill 102 [21 ER 136]: see R E Megarry, Miscellany at Law (Stevens & Sons Ltd : London) at 41

Early identification of the real issues can streamline the conduct of a case. By making each party identify what must be proved to succeed, the judge can then begin to craft orders to focus the preparation of the case on those issues. Of course, this does not always result in a narrowing of the dispute. And, in any event, the judge may have to spend considerable time before and during an initial directions hearing to elucidate the issues'.

11. In my judgement these wise words ought to be heeded even though the first Elizabethan remedy is no longer viable.

MR SIMS: My Lord, I think that concludes matters - unless there is anything further?

JUDGE SIMON BROWN: No. I will duly go and sign the order and transmit it.

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