England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

David Foskett QC:

INTRODUCTION

Following the handing down of the Judgment in this case on 29 September 1999, I heard argument about various consequential matters, including the issue of costs. Given the extensive argument about costs, I thought it wise to reduce my decision to written form.

Before dealing with the question of costs and the other ancillary matters, I should simply record the following:

For the reasons expressed orally to Mr Lawrence before the Judgment was handed down formally, I was not prepared to permit further argument on the issue of whether the Claimants were obliged to give credit for the ACT liability of £34,284 against the losses for which they were otherwise entitled to compensation arising from the non- implementation of stage 2 of Scheme 1 prior to 30 April 1990. As far as I am concerned, that issue was concluded against the Defendant on the basis of the evidence and argument I had heard and it would, in my view, have been wholly inappropriate for the matter to be re-visited at the stage I was being invited to do so.

For the reasons given in the short ex. tempore judgment I gave, the rate of interest on the damages awarded to the Claimants is to be the "commercial rate" - namely, base rate + 1%. However, that will need adjustment in the light of my ruling on the effect of the Claimant's Part 36 offer given later.

COSTS

The Claimants seek their costs of the proceedings, having brought the matter to trial and having succeeded in obtaining individual judgments worth together about £50,000 (inclusive of interest). There was no Part 36 payment or Part 36 offer on the part of the Defendant. In addition, the Claimants seek indemnity costs and enhanced interest on those costs and upon the damages they have succeeded in obtaining as from 19 June this year, that date being the last date upon which the Defendant could, if it had chosen to do so, have accepted a Part 36 offer made by the Claimants in a letter dated 28 May. In that letter the Claimants' solicitors indicated that the Claimants would accept £30,000 (inclusive of interest) in satisfaction of the whole of their claim against the Defendant. Although the letter did not expressly seek the costs of the proceedings to date against the Defendant, it seems clear that this is the way the letter was interpreted by the Defendant. Mr Lawrence certainly addressed his argument on that basis.

The Defendant submits that the Claimants should not have their full costs for a number of reasons with which I will deal shortly. It is further said that the Part 36 offer should not be regarded as having significance because, even at the date of the offer (28 May), the Claimants ought to be regarded as effectively owing the Defendant something in relation to costs. Accordingly, if that is my conclusion, the offer is not to be treated as having been bettered.

This case came on for trial 2 months after the implementation of the Civil Procedure Rules. The provisions of those rules govern my decision as to the liability for costs.

The main point relied upon by Mr Lawrence was the proposition that until the amendment of the pleadings at the trial the claim for damages arising from Scheme 2 was doomed to fail. The Defendant had, therefore, been under no obligation to meet that claim, or the costs associated with it. Acceptance of the Part 36 offer would, he submitted, have resulted in the Defendant paying costs to the Claimants to which they were not entitled. Indeed, his submission, based upon Beoco Ltd v Alfa Laval Co. Ltd [1995] QB 137, was that the Claimants should pay the Defendant its costs of the proceedings relating to Scheme 2 to the date of trial and, subject to one additional submission, that the Claimants should have their costs relating to that scheme thereafter.

In the Beoco case, the amendment for which the trial Judge gave leave at the beginning of the trial, and upon which the Plaintiff succeeded whilst losing all other claims and issues, became the subject of the re-re-re-re-Amended Statement of Claim. It was a strong case for the application of the general principle referred to by Stuart-Smith LJ at p. 154. Stuart-Smith LJ recognised that there may be exceptions to the general rule in such a situation, one of which being when the Judge is satisfied that, even if the amendment had been made earlier, the action would have been resisted vigorously.

If one accepts the premise that, as originally pleaded, the claim arising from Scheme 2 would have failed, there are, it seems to me, two relevant questions when it comes to the issue of costs:

(1) If it had been pleaded correctly, would it have succeeded?

(2) If it had been pleaded correctly, would the Defendant's attitude to the litigation have changed?

The answer to (1) is "Yes", as is evidenced by the (albeit very late) acceptance of the case under Scheme 2 at the trial. As to (2), the answer is clearly "No", Mr Goodfellow reminded me of the terms of the letter from the Defendant's solicitors dated 11 February 1999. The letter was apparently written on the basis of "advice ... from Mr Hobbs" (the Defendant's expert). It makes a number of points about the way in which the negligible value claim had been made to the Revenue and the implications of that for the claim for damages under Scheme 2. The letter contains the following paragraph:

"In any event, the section 574 claim for 1994/1995 is not pleaded. We take it that you are aware of that fact but hasten to point out that any attempt to amend the pleading will be pointless because the claim is, in any event, misconceived and will fail."

The letter goes on to deal with various other matters, suggesting that the Claimants' expert, Mr Crouch, could not be taken seriously as an independent expert because his own firm had, it was asserted, caused the losses of which the Claimants complained. It ended with the following paragraph:

"We trust that this letter will give you, your clients and Mr Crouch the opportunity to reconsider this whole litigation and on reflection we expect these proceedings to be discontinued to save your clients further exposure on costs."

Whatever other views may have been formed by the Claimants' advisers as a result of that letter, the one thing of which they could be clear was that, even if an amendment was made in the manner foreshadowed in the letter, the Defendant was going to resist it vigorously because the claim, in the view of its advisers, was "misconceived and will fail".

As events turned out at the commencement of the trial, Mr Lawrence conceded in his Outline Opening that "the claim which the Claimants seek to introduce by amendment may be sustainable." He said, however, that it was subject to proof of payment of tax and that the value of the claim was unclear. In the "Note of Agreed Issues and of Issues in Dispute" prepared by Mr Goodfellow and Mr Lawrence and, as I recall, handed to me on the second day of the trial, the measure of the loss under Scheme 2 was agreed at £14,800, whether the shares became of negligible value in 1993/1994 or 1994/1995. This was subject to proof by the Claimants that there was no real prospect of allowable losses having been preserved by the fact that no section 574 loss relief was claimed. Notwithstanding the conditional nature of this agreement, it represented a considerable about-turn from the assertions made in the Defendant's solicitors' letter of 11 February and indeed in the pleaded position of the Defendant whereby both causation and quantum were put in issue.

Mr Goodfellow has submitted that all the essentials of the claim under Scheme 2 were pleaded. I think that is right, although it must be said that there was no specific pleading based upon the assertion that the shares became of negligible value in 1994/1995. As it turned out, as I have indicated, there was no difference in the damages to be recovered whether the shares became of negligible value in 1993/1994 or 1994/1995. The only issue was the date from which interest on those damages was to be awarded.

Against the background to which I have referred, I do not see any basis for altering the normal order for costs in favour of the Claimants on the grounds of the pleading point taken by Mr Lawrence. I do not believe that the Defendant's position in relation to the litigation was in any way affected by the pleadings position. My impression is that the Defendant had decided to resist all aspects of the Claimant's case, however presented, and the final paragraph of the letter of 11 February reinforces and confirms that belief. The fact that this argument does not affect the overall position on costs does not mean that I should not consider whether to make an adjustment to the order for costs relating to the trial to reflect the fact that some part of the trial was spent on an issue which I determined against the Claimants. That, however, is a different matter, and if an adjustment fell to be made on that account, it would not affect my evaluation of the Part 36 offer. Of course, if that offer had been accepted, the issue as to the correct starting date for the payment of interest would not have arisen at all.

In round figures the amount that hung upon my decision was about £1,000 of interest. It did seem to me (as I said at the time) that quite a lot of time was being spent on something of no great value, although it could not be said to have been unreasonable for the issue to be raised. It is impossible to be exact, but I estimate that about one half day of evidence and argument was spent on this issue which would amount to about 10% of the trial time. By far the greater part of the debate at the trial was about Scheme 1 and I believe a 90%/10% split would be about right.

I propose, therefore, to make an order depriving the Claimants of 10% of the trial costs (and I emphasise that the costs here are those solely related to the trial). I do not propose to order the Claimants to pay the Defendant's 10% of the trial costs - that, it seems to me, would operate as a double penalty. I intend that the order for costs of the proceedings against the Defendant that I will otherwise make be limited, so far as the costs of the trial are concerned,to 90% of those costs.

Mr Lawrence also suggested that the costs order should be adjusted to reflect what he suggested was the Claimants' "loss" of the issue relating to the possibility of the repurchase price of the shares being less than was paid for them if the repurchase took place after 30 April 1990. The suggestion underlying that submission reflects an over-simplification. The issue of the value of the shares arose from the amendment which I permitted. The amendment was designed to deal with the Claimants' secondary case, namely, that if, contrary to their primary case, the repurchase had not occurred prior to 30 April 1990, it would still have gone ahead in the early part of 1991. That assertion was contested strongly by the Defendant and formed a very substantial part of its Defence to the claim. Although I found for the Claimants on their primary case, I rejected the Defendant's case on the secondary case. I found, on the balance of probabilities, that Stage 2 of Scheme 1 would have been implemented in early 1991, albeit at a repurchase price of about £10 for the relevant number of shares. The price I determined was not specifically contended for by either party. However, the substance of the issue was resolved in favour of the Claimants. I can see no grounds, therefore, for altering the normal order for costs in their favour on the basis for which Mr Lawrence contends.

Finally, Mr Lawrence sought to rely upon the abandoned heads of claim under paragraph 19(a)-(d) of the Statement of Claim. These allegations were abandoned in a letter dated 25 September 1997. He accepted that the costs of this issue would have been modest, but submitted that it again made the Part 36 offer impossible to accept. I was not referred to any rules during the argument, but my impression (without myself having looked at the rules at that time either) was that the Defendant would, in any event, have been able to obtain its costs on the abandoned issue without other considerations in the case being affected. Since the argument, I have noted the provisions of Order 62, rule 5(3), Rules of the Supreme Court, which were in force at the time of the letter of 25 September 1997. This provision, in my judgment, confirms that the Defendant has for a long time been the beneficiary of a deemed order for its costs of the withdrawn claim. That matter, therefore, has no bearing at ail on the costs order I should make.

I have already drawn attention to my impression that the Defendant had decided to contest this claim no matter how it was pleaded. That assessment seems to be confirmed by the Defendant's response to the suggestion for mediation made by the Claimants' solicitors and in the fact that no Part 36 payment or offer was made. As from 26 April 1999, it was possible for a Part 36 payment to be made in relation to "part" of a claim, or to an "issue'' within it, and the Court had the power to give effect to a wider range of offers than merely those coming within the precise provisions of Part 36 if it considers it appropriate to do so: see r.36.1(2). No steps in any of these regards were taken. The concession as to liability under Scheme 1 was made only on the eve of the trial, despite the fact that Mr Hobbs had not put forward any justification for the Defendant's conduct concerning this scheme in his report. Witness statements from Mr Northcott and Mr Edwards-Ker had been submitted which contained matters that, if advanced, looked like material which sought to justify what had occurred. It was by no means obvious, therefore, to the Claimants' advisers that liability was to be conceded- Nonetheless, even when it was conceded, the issue of causation and quantum remained in dispute. There was always going to be a substantial contest in this case.

THE PART 36 OFFER

Given my conclusions so far, there is, in my judgment, no doubt at all that the Claimants achieved more at trial than the proposals contained in their Part 36 offer. I will not recite the terms of rule 36.21, but paragraph (4) of that rule plainly contemplates that indemnity costs "will" be awarded by the Court from the date when the offer could have been accepted without the permission of the Court, together with enhanced interest on those costs and on some or all of the damages awarded, unless "it is unjust to do so". Paragraph (5) sets out the matters to which the Court is to have regard in its decision as to the justice of making orders of this nature.

Although Mr Lawrence suggested that late disclosure of documents was still taking place in the period of the Part 36 offer, he was unable to point to some particularly significant document that altered the whole landscape of the litigation. If he had done so, that would, of course, have been a highly material factor. He specifically told me that there was no response to the Part 36 offer on which he sought to rely. He was not able to suggest, therefore, that there had been some failure to disclose information which made the evaluation of the offer impossible. Apart from relying on the Scheme 2 pleading point, which I have rejected for the reasons already given, there is nothing further upon which he was able to rely.

That being so, and having regard to the terms of r.36.21, I must make an order for indemnity costs from 20 June. I do so until 17 September which is the date upon which the judgment would have been handed down had it not been for my acceptance of the suggestion that I should give a little longer to enable calculations to be effected.

Mr Goodfellow restricted his claim for interest on the costs to 8%, which I understand to be 2% above base rate. It is, of course, and has been for a number of years, the special account rate. Although the discretion as to the rate of interest rests with the Court, I do not think it would be right for me to substitute a higher rate of interest than that sought on behalf of the Claimants. The rate of interest on the indemnity costs will, therefore, be 8% from 20 June to 17 September.

Mr Goodfellow did, however, seek the full uplift of 10% on the base rate in respect of the damages. It is now some 5 months since the power has been available to award enhanced interest in these circumstances. No previous authority has been cited to me about how this power should be exercised and I am not aware of any case from which guidance may be obtained on how the Court should approach the exercise of its discretion.

As with all powers conferred by these Civil Procedure Rules, it must be exercised to give effect to the overriding objective: r.1.2(a). Many of the features of the overriding objective are more directly applicable to the pre-trial and trial periods of a case than to a decision made after a case has effectively been concluded. On the other hand, since one of the factors mentioned in the overriding objective is the saving of expense, the powers conferred by the rules are likely to be interpreted by the Courts in a way that encourages settlement. Settlement is achieved only if parties focus properly on the strengths and weaknesses of their respective cases. The powers conferred by r.36.21 are plainly designed to sharpen that focus. Unless the discretions conferred by the rule are exercised in a way that makes a material, albeit proportionate, difference to the outcome of the case, the rule becomes otiose.

In the circumstances of this case, I see no reason not to award 10% above base rate for the period from 20 June until 17 September. It will be upon the sum of £36,500 which, in round figures, reflects the amount of the award inclusive of interest (£50,000) less the amount referable to interest (approximately £13,500).

PERMISSION TO APPEAL

Mr Lawrence sought permission to appeal against my finding that Stage 2 of Scheme 1 would have been implemented before 30 April 1990 had proper advice been given and in relation to my conclusion that no credit against the damages for the ACT payment of £34,000 odd was required. As to the first matter, this was essentially a finding of fact based upon my inferences from the evidence and upon my evaluation of the Claimants as witnesses and as businessmen. As to the second, this also depended upon my evaluation of the financial position of Holdings in May 1990, about which there was really no dispute. I do not believe there is a realistic prospect of successfully appealing against those findings and, accordingly, I refuse permission to appeal. To the extent that Mr Lawrence would seek to raise the points set out in the Outline he provided shortly before the handing down of the Judgment, my position is summarised at the beginning of this ruling and is reflected in the comments I made to Mr Lawrence at the beginning of proceedings on 29 September. To the extent that it is for me to do so, I refuse permission to appeal on those points.

Mr Goodfellow sought permission to appeal against my decision on the negligible value argument. I would have been inclined to grant him permission to appeal in the light of the points made in his Outline also supplied before the handing down of the Judgment. However, since I cannot believe his clients will wish to appeal my decision on that issue alone unless faced with an active appeal by the Defendant, I think the right course for me is to refuse permission to appeal. A single Lord Justice who considers any application made by the Defendant will doubtless decide what steps should be taken to protect the Claimants' rights on any appeal that may be permitted. The same approach broadly applies to Mr Goodfellow's desire to appeal against my conclusion as to the credit for ACT to be given in what I have described in the Judgment as the "alternative scenario", although I would have been doubtful if there were realistic prospects of a successful appeal in relation to that. Unless my primary conclusions are the subject of a successful appeal, Mr Goodfellow's argument will be academic. If permission to appeal my findings on his primary case is given, doubtless the Claimants' position in relation to all countervailing arguments will be protected.

I did not ask at the conclusion of the argument on costs whether either party wanted permission to appeal. At that stage, of course, they would not have known my decision. For convenience, I will treat applications for permission to appeal as having been made by both parties and I refuse such applications.

INTERIM PAYMENT OF COSTS

There is little dispute in principle that the Claimants should have an interim payment on account of costs. I do not think that extensive reasoning is required. I have been supplied with a copy of the transcript of the decision of Mr Justice Jacob in Mars UK Ltd v Teknowledge Ltd and, whilst the circumstances of that case are rather different from this, I have been much assisted by the approach adopted in that case.

The total costs of the Claimants are, I am told, likely to be in the region of £115,000 before detailed assessment. I can see no reason why they should not receive £60,000 as an interim payment and I so order.