Our Services

Unsuccessful party should pay the successful party’s costs? Not always!

 

If you are a Solicitor specialising in civil litigation you need to read Patel & Patel -v- Barlows & Ors (No 2) [2020] EWHC 2795 (Ch).

His Honour Judge Mithani QC sitting as a judge of the High Court in the Business and Property Court in Birmingham has helpfully given us a reminder of the process the court will go through to determine the correct cost order. It doesn’t always follow that the loser pays.

 

The Case

The facts of the substantive case were summarised by the judge in his main judgment (at [2020] EWHC 2753 (Ch)) as:

‘In February 2010, Barlows were instructed by the Bankrupt to act for him in the purchase of the Properties. The vendor of all three properties was Wingfield.

The proposed purchase of the First and Second Properties came first in time. Part of the purchase price of the Properties (sums totalling £210,515, i.e. the amount of the Claimants’ Advance) was paid by the Claimants directly, or through the Third Defendant, to Barlows.

Barlows transferred the purchase monies for the acquisition of the First and Second Properties to Wingfield’s solicitors. The purchase monies comprised the Claimants’ Advance and the amount of a bridging loan which MPV had made to the Bankrupt. Barlows paid the purchase monies over to Wingfield’s solicitors without ensuring that the Bankrupt would acquire a good and marketable title to those properties. Wingfield’s solicitors, in turn, released the monies to Wingfield, who dissipated them. Wingfield became insolvent very shortly afterwards. The monies could not, therefore, be traced or recovered from Wingfield.

The Claimants thereupon brought the Claim, i.e. the present claim, against Barlows in negligence and also against the Bankrupt, for the amount of the Claimants’ Advance together with interest. I understand that MPV has been reimbursed in full for the monies which it lost as a result of the negligent acts or omissions of Barlows.

On 20 March 2012, the Bankrupt was made bankrupt by an order of District Judge Whitehurst made in the Leicester County Court. On 28 June 2012, the Previous Trustee was appointed trustee in bankruptcy of his estate; and on 4 July 2016, the Second Defendants were appointed the joint trustees of that estate to replace the Previous Trustee. The Previous Trustee was substituted as second defendant to the Claim in place of the Bankrupt and the Second Defendants are now Mr Stanley and Mr Barber as the present joint trustees of the estate of the Bankrupt.

On their appointment as trustees in bankruptcy, the Second Defendants brought a separate claim against Barlows in negligence (i.e. the Negligence Claim) claiming, as was the case, that Barlows had been negligent in, inter alia, failing to properly investigate title and failing to obtain an adequate undertaking from Wingfield’s solicitors, as a result of which the Bankrupt could not complete the purchase of those properties. In that claim, the Second Defendants reached a settlement with Barlows under which Barlows paid the Settlement Amount to the Second Defendants in full and final settlement of all the claims of the Second Defendants against Barlows.

As a result of that settlement, the Claimants allege that they had to discontinue their own claim against Barlows in the present action. They state that this was because the effect of the discontinuance was to compromise the cause of action which they had against Barlows – see paragraph 10 of the Re-Amended Particulars of Claim.

The claim of the Claimants – essentially now only the First Claimant – in the Claim is for the return of the capital invested by him, a declaration that the Joint Venture, which was run as a partnership business, is dissolved and a direction for the taking of all necessary accounts and inquiries. In the alternative, the First Claimant claims that the Claimants’ Advance was held on trust by Barlows for the Claimants, and the Settlement Amount, which represents or includes that amount, should be paid to him.’

The Issue

After giving judgment in the substantive case HHJ Mithani QC gave direction at paragraph 323 for skeleton arguments on the type of order sought, commenting:

‘It would also be helpful for the skeleton argument to include the parties’ submission on any other issue which arises, including whether, given how I have indicated the Second Defendants have conducted themselves, they should be entitled to the costs of this litigation from any free assets which are available in the Bankrupt’s estate. The First Claimant and the Third Defendant may have an interest in this issue…’

He then turned to consider the parties’ competing positions in relation to costs:

‘The principles governing the payment of costs are set out in CPR 44.2

The general rule, specified in CPR 44.2(2)(a), is that the unsuccessful party should pay the successful party’s costs…

The court plainly has jurisdiction to order that the Second Defendants should pay the Claimants’ costs of the abortive claim against Barlows in addition to paying the Claimants’ costs of the Claim against the Second Defendants. This is made clear by the following provisions of CPR 44.2:

(a) CPR 44.2(1)(a) which states that the court has discretion as to whether costs are payable by one party to another; and

(b) CPR 44.2(6) which sets out the non-exhaustive powers which the court has in determining the costs which are payable by one party to a claim to another party or parties when deciding how it should exercise its discretion on costs.

The Claimants relied on the decision in Jabang v Wadman [2017] 4 Costs LR 807 and Woodland v Swimming Teachers’ Association [2018] 3 Costs LR 469 in support of their claim for those costs.

In the latter case, His Honour Judge Pearce, at [41], approved the following summary of the principles which governed the making of such an order, based on the decision of the Court of Appeal in Irvine v Commissioner of Police [2005] EWCA Civ 129 on that issue:

(a) the issue is one for the court’s discretion, informed by the overriding objective and CPR 44.2;

(b) where a claimant does not know who wronged him, it may be reasonable for him to join more than one defendant and not see his damages eroded by failing to recover costs against a successful defendant;

(c) but such orders are ‘strong order[s]’ capable of working injustice on defendants, who can become liable to pay cost[s] of parties they had no choice in joining;

(d) even where a claimant reasonably joins more than one defendant, there is no rule compelling a costs order in his favour; the court must consider potential injustice to the defendant as well.

(e) the ‘ordinary circumstance’ for an order is where a claimant sues the defendants in the alternative and is sure to succeed against one of them. However, while this may be the ‘classic’ scenario for an order, it does not mean that an order may not be made in other circumstances.

(f) orders are less likely where the causes of action asserted against defendants are different.

(g) the reasonableness of the claimant’s action is an important consideration.

(h) whether one defendant blames another is also significant – although not determinative, as even where a defendant does, a claimant must exercise his own judgment.”

…

The Second Defendants’ response to factor (b) was to say that this factor was not applicable in the present case. I do not agree.

As soon as the Second Defendants issued their own claim, i.e. the Negligence Claim, against Barlows, and it became apparent that the Second Defendants would claim the benefit of the fruits of the Negligence Claim for themselves, albeit on behalf of the creditors of the Bankrupt, the Claimants would have had to join the Second Defendants to the Claim to seek a declaration that the loss suffered as a result of Barlows’ acts or omissions was their, not the Bankrupt’s, loss. If they had not taken that course of action, and the court had found that the only person having standing to bring the claim against Barlows was the Bankrupt (and, through him, the Second Defendants) on the basis that the Bankrupt was the only person on whose behalf Barlows had acted in the proposed purchase of the First and Second Properties, their claim against Barlows would have been dismissed. It was essential, therefore, for the Second Defendants to be joined to the Claim, not just to avoid that outcome but also to ensure that all the potential claimants were before the court and were bound by its judgment. It would have been an act of sheer folly if the Claimants had not taken that course of action. Indeed, in my view, if the Claimants had not done so, it is likely that Barlows would have done because of the potential risk that if they paid any amount payable under the Negligence Claim to one party, as opposed to the other, they might be exposed to the risk of a further claim by the other party. That was why the two claims were consolidated and why paragraph 5 of the Schedule to the Tomlin order included a provision that the Second Defendants would indemnify Barlows from any claims made by the Claimants against Barlows.

In those circumstances, it had to be reasonable for the Claimants to have taken the course of action they did. Factor (b), therefore, has to be taken into account in favour of the Claimants. It cannot be said to be irrelevant.

As regards factors (c) and (d), the Second Defendants make the bold statement that it “would be unjust to order the Second Defendants to pay the First Claimant’s costs of his claim against Barlows for a period when the First Claimant could not possibly have succeeded against the Second Defendants.” That statement proceeds on an entirely flawed basis.

As the Main Judgment makes clear at various places, the Previous Trustee put in issue the First Claimant’s entitlement to the Claimants’ Advance almost from the point when he was appointed. That position was adopted by the Second Defendants and continued throughout the progress of the Claim and also at the trial of the Claim. In those circumstances, it is difficult to see how it can conceivably be said that there was ever a point that the First Claimant could not have succeeded in their claim against the Second Defendants.

Factor (d) makes it clear that the making of an order of the type sought by the Claimants is intended to be compensatory, not penal, although neither the Court of Appeal nor Judge Pearce used those expressions. In other words, it would not be appropriate for a court to make the order pour encourager les autres or to penalise the Second Defendants. In the present case, the court should only make the order if it is satisfied that it is reasonable to do so in order to compensate the Claimants for the unnecessary costs which they have incurred in bringing the Claim against Barlows.

…

Factor (e) stipulates the ‘ordinary circumstance’ in which such an order can be made and expressly states that where the ordinary circumstances do not apply, “it does not mean that an order may not be made in other circumstances.”

The reliance placed by the Second Defendants on what constitutes “ordinary circumstances” is misplaced. True it is that the Claim was not made against Barlows and the Second Defendants in the alternative. But the crucial point here is that the Claim was almost certainly likely to succeed against Barlows if the Second Defendants had not intermeddled with it and had conceded the Claimants’ entitlement to bring it.

It is very difficult to see a clearer case of a claim against Barlows for negligent acts or omissions succeeding and this is reflected by the fact that even before the Negligence Claim and the Claim were issued, Barlows had made an offer of settlement to the Bankrupt and subsequently, the case was resolved without the Negligence Claim having to be tried. I have not seen the defence of the Barlows to the Negligence Claim. It is difficult to see what their substantive defence would have been if they had not settled the Negligence Claim at the point at which they did.

The plain fact is that the Claim against Barlows was necessary because they had dissipated the Claimants’ Advance and the claim against the Second Defendants was necessary because they were claiming to be entitled to the repayment of the Claimants’ Advance and the interest thereon for their own benefit. It was necessary, therefore, for the Claimants to bring a claim against both.

For the reasons referred to in the Main Judgment, there is no substance in the point made by the Second Defendants in response to factor (f), which in any event, only says that orders are less likely where the causes of action asserted against defendants are different. The causes of action against Barlows and the Second Defendants may have been different but they were inextricably linked and, given the stance taken by the Second Defendants, it is difficult to see how the Claimants could have proceeded with the Claim against one and not the other.

Nor for the reasons set out in the Main Judgment can I see any substance in the Second Defendants’ response to factor (g) which refers to the reasonableness of the claimant’s action as being an important consideration. The Second Defendants’ response seeks to go behind the Main Judgment. Other than in connection with the application for relief from sanctions, I cannot see anything in the Main Judgment which amounts to a criticism of the First Claimant about how he has sought to recover his losses against Barlows or the Second Defendants.

Nor does the suggestion made by the Second Defendants that there was no cause of action against the Second Defendants withstand proper scrutiny. It wholly ignores the nature of the relief that the Claimants sought against the Second Defendants. The Second Defendants had advanced a claim to be entitled to the proceeds of the Negligence Claim. Those proceeds did not belong to them and, so far as they were claiming to be entitled to them, it was perfectly appropriate for the Claimants to seek to maintain a claim to those proceeds against the Second Defendants. The Claimants sought a declaration that the Claimants’ Advance belonged to them. That was precisely the relief that they should have sought in the Claim.’

 

His Honour Judge Mithani QC decided  

“…I directed that the costs payable by the Second Defendants to the Claimants should include the costs incurred by the Claimants for bringing the Claim against Barlows.”

“I am entirely satisfied that the Second Defendants should not be entitled to recoup the costs which they have incurred in the Claim…”

“…The reasons relate to the entirely unsatisfactory way in which the Second Defendants and the Previous Trustee have dealt with the Claim and the subject-matter of the Claim, both before and during its progression in this court, including in the course of the trial…”

“…As the Claimants rightly state, the conduct of the Second Defendants has fallen below (indeed well below) the standards expected from insolvency practitioners.”

 

The PIC View

It is right that costs do not always follow the general rule. Wider factors must always be considered.

Prior to settling a file or as part of pretrial review, PIC often advise on the appropriate costs order which could be sought.

The team at PIC are always available to advise on the cost consequences of litigation behaviour so please don’t hesitate to get in touch.

04.03.21