Jersey Unreported Judgments

[2006]JRC145

royal court

(Samedi Division)

17^th October 2006 

BritanniaBuilding Society

v

Simon Philip Milborn

Advocate A. J. D. Winchester for Britannia.

Advocate F. B. Robertson for Milborn.

judgment

the Commissioner:

The issues

1.        Two matters are before the Court. First, an application by Advocate Robertson on behalf of Mr. Milborn for an order for costs in his favour following the conclusion of the trial of the liability stage of the action and the Court's judgment handed down on 31^st August 2006, together with an application for an order releasing back to Mr. Milborn money previously paid into Court by him as security for any award of costs that might be made in Britannia's favour.  Secondly, the question whether Britannia's original claim against Mr. Milborn remains available to be set off against any award of damages that may ultimately be made to Mr. Milborn. This second point is argued by Advocate Winchester, representing Britannia, to be relevant to the question of costs; but quite part from that it will also, plainly, be of importance in the second stage of the action and merits consideration at this stage so that the parties now have at least some idea of where they stand. The purpose of this judgment is to give my reasons for the orders made in relation to costs at the video-link hearing on 12^th October and to give guidance on the issue of set-off.  It makes sense to take the second point first.

Set-Off

2.        This arises out of steps taken by Britannia to have Mr. Milborn declared bankrupt in 1993 (successfully resisted by Mr. Milborn); the petition by Midland Bank some two-and-a-half years later, as a result of which Mr. Milborn was declared bankrupt by the High Court in London in May 1996; Britannia's proof in those bankruptcy proceedings for the debt owed by Mr. Milborn in respect of the 1989 loan; Mr. Milborn's discharge from bankruptcy in October 2001; and Britannia's acknowledgement at the start of the liability trial in June this year that these events meant that its claim for re-payment of the 1989 together with accrued interest was no longer sustainable as such, leaving as live issues (i) Mr. Milborn's counterclaim and (ii) whether Britannia's former claim would still be available to it by way of set-off against any damages that might be awarded to Mr. Milborn (see this Court's judgment of 31^st August 2006 at paragraphs 7 and 8.)

3.        Mr Winchester submits that such a set-off must take effect necessarily as a matter of English insolvency law.  Mr. Robertson does not dispute the principle but argues that because of the way in which Mr. Milborn formulates his damages, his claim of £7.5 - £8 million does not fall to be reduced by his (former) debt to Britannia because it has "already been taken into account". 

4.        Certainly as far as principle goes, Mr. Winchester appears to me to be right. The effect of Section 323 of the English Insolvency Act 1986 as explained by Lord Hoffmann in the leading speech in Stein v. Blake [1996] 1 AC 243, HL, so far as relevant to the present issue, appears to be this: (i) where there are mutual credits, "mutual debits or other mutual dealings" between a bankrupt and a creditor proving for a debt set-off pursuant to that section (and there is dispute here that that is the case), an account is taken of what is due from each party to the other and set-off takes place automatically, without having to be triggered by any particular procedural step; (ii) the result of that account-taking is that the original obligations of each party are extinguished and only the resulting balance, one way or the other, survives; and (iii) that the time when the account has to be struck is at the time of the declaration of bankruptcy.

5.        Suppose, for the purposes of argument, that Mr. Milborn had, at the time of his bankruptcy in 1996, a right to damages on his counterclaim which exceeded the debt owed to Britannia (including accrued interest): he, or his trustee, would have been entitled to recover only the net difference between the two and no more.  And if that were the case then, it would be surprising if the end-result were to be any different in 2006 or 2007 just because trial of that counterclaim has taken as long as it has. (Whether the benefit of any such recovery belongs beneficially, as a result of assignment, to some third party is, of course, another matter altogether.) 

6.        This conclusion coincides, moreover, with the expectation of Mr. Milborn and his advisers as expressed, variously, in paragraph 2 of his notice dated 21^st January 1994 of intention to oppose Britannia's bankruptcy petition; in paragraphs 2, 15 and 18 of his affidavit dated 4^th March 1994 in those proceedings; in an affidavit dated 16^th September 1994 sworn by Mr. Leslie Norman, an accountant, in support of Mr. Milborn's position; and in paragraph 19 of Mr. Milborn's further affidavit dated 22^nd December 1994. It also appears to coincide with the expectation of the Deputy Bailiff in his judgment dated 13^th May 2003, on Mr. Milborn's application to join Auray Limited as a party in.

7.        So far as Mr. Robertson's contention is concerned the answer appears to me to be that it all depends on how the proper calculation of Mr. Milborn's loss and damage is expressed. If it is formulated in a way that gives full credit for the original loan, then it may be that the question of set-off as discussed above becomes, ex hypothesi, otiose.  But if it is not so formulated, judgment could only be given for Mr. Milborn on his counterclaim in an amount that represented the net balance due after setting-off his debt to Britannia.  This is not the time and place to examine exactly how Mr. Milborn does formulate his claim. The difference between the parties on this issue of set-off is, I suspect, more imagined than real and the matter is, I think, best left for further exploration at trial of the next stage of the action if necessary. Accordingly the observations made above on this subject should be treated as no more than guidance to the parties at this stage and not as any definitive ruling.

8.        The only other thing I want to say at this stage is that nothing in the foregoing should be taken as involving any ruling on the appropriate amount of interest on the 1989 loan that would have to be included in any set-off exercise.

Costs

9.        Mr. Robertson's submission is simple: having been successful at trial of the issue of liability on his counterclaim, Mr. Milborn should have an order for costs in his favour irrespective of the outcome of the assessment of damages due to be heard in Stage 2. Not so, says Mr. Winchester, for four reasons. First, because Mr. Milborn will only "succeed" on his counterclaim if his damages are assessed at a figure in excess of £6 million (that being Britannia's contention as to the current level of unpaid loan-principal and interest - as to which I express no view at this time); that there is no realistic possibility of the damages so awarded "getting anywhere near" £6 million;  that, in that event, "the whole litigation will have been pointless on Mr. Milborn's behalf" and that he should, accordingly, be made to pay the costs of the entirety of the proceedings. Secondly, because, before any award of costs is made in Mr. Milborn's favour, the Court ought to conduct an investigation as to who in fact has borne the costs of the action on Mr. Milborn's side, having regard to his avowed impecuniosity and various suggestions over time that the proceedings have been funded by third parties. Thirdly, because Mr. Milborn's success on liability has in any event only been partial and that justice can only be done once the whole picture is known. And, fourthly, because the order made by the Deputy Bailiff on the occasion of Mr. Milborn's application to join Auray Limited as a party was that costs should be 'costs in cause' an order that pre-supposes that there is a clear overall winner one way or the other - which would not be the case here if there is an award of costs in Mr. Milborn's favour on Stage 1 but he fails to establish any net entitlement to recovery on Stage 2.

10.      Both Counsel accept that the applicable principle as regards the award of costs in the Royal Court are those that I ventured to summarise in Watkins v. Egglishaw [2002] JLR 1, supplemented by such additional guidance as can be derived from the English Court of Appeal's decision in Weill v. Mean Fiddler Holdings Ltd. [2003] EWCA Civ 1058. So far as the latter case is concerned, it was comparable with the present one (i) to the extent that it was a case in which there had been a split trial and the issue - so far as relevant to the present case - was whether the successful Claimant should have an award of cost on his favour of the trial on liability straight away, and (ii) in that the Defendant argued that any damages that might be awarded against him at the later stage could only be nominal, and that the matter of costs should therefore be left over until the conclusion of the second stage of the trial. The judge at first instance acceded to the Defendant's submission on this point and declined to make an order for costs at that stage, saying

"I have reached this conclusion primarily for the reason that it would be pre-empting the exercise of the court's discretion at the final stage of the proceedings after it has decided whether or not the claimant suffered anything more than a nominal loss."

The Court of appeal unanimously dismissed the Plaintiff's appeal.

11.      Both Advocates in the present case relied on the same passage from the judgment of Lightman J, with whom Ward and Tuckey LJJ concurred, while emphasising different aspects of that passage.  Having referred to the modern practice of English courts to be more ready than in the past to make issue-specific orders for costs, as endorsed by Lord Woolf MR in Phonographic Performance Ltd. v. AE Rediffusion Music Ltd [1999] 1 WLR 1507, Lightman J (at paragraph 31) continued: 

"The considerations to which I have referred would in any ordinary case in the absence of special circumstances be likely to lead the court to make an order for costs in favour of the claimant who has succeeded on the issue of liability. In this case the Defendant sought to establish the existence of special circumstances requiring or justifying a different course" - the nominal damages contention being the principal circumstance. 

Mr. Robertson emphasised the words "in any ordinary case", submitting that there were no special circumstances here to justify taking a different course.  Mr Winchester, by contrast, argued that there are indeed "special circumstances" here - and very similar ones to those of Weill v. Mean Fiddler, in that there is, he says, no prospect whatever of Mr. Milborn succeeding in obtaining an award of damages in excess of his (former) debt to Britannia.

12.      But so far as the Weill v. Mean Fiddler decision itself goes, it is no more than an illustration of the reluctance of an appellate court to interfere with the exercise of discretion by a judge at first instance in such cases.  It is certainly not authority for the proposition that an allegation that a plaintiff's damages are unlikely to be nominal (or even a prima facie case to that effect) will necessarily - or even normally - be regarded as a "special circumstance" sufficient to warrant the deferral of any costs order following the conclusion of a trial of liability: only, as indicated in paragraph 33 of Lightman J.'s decision, that the possibility that damages may turn out to be only nominal 'may' justify taking such a course. Indeed, it is evident from paragraph 32 of his speech that it was only "with some hesitation" that he concluded that the decision below should be left to stand, suggesting that if that decision had gone the other way he would have been equally reluctant to interfere with it.

13.      The guiding principles remain, therefore, substantially as summarised in Watkins v. Egglishaw, and the question is how, having regard to those principles, the Court's discretion should be exercised in the present case. The factors that weigh most heavily with me are as follows.

14.      First, Mr. Milborn's success in establishing liability on the part of Britannia, albeit only a partial success, was more than just a technical or fine-line win for him: it represents an emphatic vindication of the major plank of his complaint. It has, moreover, taken a very long time to get to this point and although he himself has contributed in some measure to that delay, there is a strong case for saying that he is  entitled to see his success marked not only by a judgment in his favour but an award of costs in his favour.

15.      Secondly, as the trial progressed the evidence disclosed a disturbing picture of the circumstances in which the 1989 loan came to be made: a state of affairs that reflected poorly, to put it at its mildest, on an institution such as Britannia (see in particular paragraphs 36 to 39 of this Court's judgment of 31^st August 2006).

16.      Thirdly, Britannia's conduct of the action to date has also left much to be desired, not least (i) in its response to its obligation to give discovery (the subject of comment in this Court's Case Review of August last year at paragraphs 12 and 32 to 34 - not that that was the end of the story) and in particular its failure, until September 2005, to disclose documents revealing that as long ago as 1992 a review of Hall Pain Foster's 5^th July 1898 valuation by another firm of valuers, Lambert Smith Hampton, commissioned by Britannia for that purpose had evidently concluded that that valuation was "grossly optimistic" and that Britannia itself had, in consequence, at one stage considered suing Hall Pain Foster; (ii) in Britannia's persistent efforts earlier this year to secure the adjournment of the trial of any issue (the decision of this Court to order a split trial in May this year is one that was brought about every bit as much by the conduct of Britannia as by that of Mr. Milborn: see this Court's judgment of 18^th May this year); (iii) in continuing to contest the validity of that valuation in circumstances where it must have been obvious that it was insupportable, resulting in the last-minute abandonment of any pretence that any independent expert witness would be called by Britannia; and (iv) in its vacillation over the abandonment of its claim against Mr. Milborn (other than for the purposes of set-off) and the waste of the whole of the first day of the trial. The fact that criticism can also be made of certain aspects of Mr. Milborn' conduct of his case is no answer: for the most part his failings occurred at a time when he was not legally represented and, in any event, relate to his case on damages rather than liability - a factor that can properly and more satisfactorily be addressed in due course at the conclusion of the next stage of the action.

17.      Fourthly, I am not prepared to assume, on the materials currently before me and in circumstances where I am sitting without the other members of the Court, that Britannia is necessarily right in its assertion that Mr. Milborn's losses could not possibly exceed Britannia's (former) claim. But even if such an assertion were likely to be right, the case for dealing with costs at this stage is still a strong one - as indeed it would be in my view even if the matter were left over until the conclusion of the trial on damages: I have little doubt that Mr. Robertson would still be making substantially the same submissions - with justification - and I would at that stage still be entitled to award Mr. Milborn his costs of the trial on liability, whatever the outcome on damages. 

18.      Having regard to the case as a whole and with the foregoing considerations in particular in mind, I have no doubt that the just course to take is to award Mr. Milborn his costs of and incidental to Stage 1, subject to a relatively modest discount to reflect the fact that he did not succeed on all aspects of his case, and subject to certain provisions as regards enforcement of that order to take account of his avowed lack of financial means and to protect Britannia's position should it end up with a costs order in its favour on Stage 2. 

19.      As to Mr. Winchester's second and fourth points, I do not regard either of those as of sufficient weight to displace the conclusion expressed in the preceding paragraph.  Britannia's position on both is adequately protected by the terms of paragraphs 5 and 6 of the orders that I have made.

Authorities

English Insolvency Act 1986.

Stein v. Blake [1996] 1 AC 243 HL.

Watkins v. Egglishaw [2002] JLR 1.

Weill v. Mean Fiddler Holdings Ltd. [2003] EWCA Civ 1058.

Phonographic Performance Ltd. v. AE Rediffusion Music Ltd [1999] 1 WLR 1507, p 31.