IT'S ALL ABOUT THE COSTS (AND A LOT OF TROUBLE): COURT OF APPEAL CASE CONSIDERED
The Court of Appeal judgment today in Patience -v- Tanner  EWCA Civ 158 is a classic example of the difficulties that arise when a case is, in essence, all about the costs. It shows the danger of making, and then withdrawing an offer. Litigation went on for a long time after the offer was withdrawn, and considerable costs were incurred thereafter which were not recovered by either side.
“This is another unfortunate case where costs have come to overshadow the issues as to liability originally in dispute. With respect, the failure to separate wood from trees has brought the parties to the position in which they now find themselves.”
“I would not wish to do anything to encourage the approach to litigation demonstrated by the parties before us – in needlessly prolonging this litigation, to their own cost.
- The defendant made an offer to settle but then withdrew that offer.
- The action proceeded to trial and, shortly before trial, the defendant made the same offer again and the claimant accepted the offer.
- It was left to the trial judge to determine the issue of costs. The judge ordered that the defendant pay the claimant’s costs up to the date of the first offer and the claimant pay the defendant’s costs thereafter.
- On appeal that costs order was varied. The defendant was ordered to pay the claimant’s costs up to the date of the offer. There was no order for costs thereafter.
- With the benefit of hindsight (which is always a useful view) it can be seen that the defendant would have been much better off in keeping the initial offer open and agreeing to pay costs on the standard basis.
- This case highlights the dangers of withdrawing an offer; refusing to state or clarify the costs consequences if an offer is accepted and also ignoring an offer.
The claimant issued proceedings claiming specific performance for an order that the defendant would grant an easement.
- In May 2014 the defendant’s solicitors wrote sending an grant of easement for signature by the claimant. The letter was silent on the issue of costs.
- There was then some discussion in relation to costs.
- When no agreement was reached the defendant wrote stating that the offer was open for 21 days “and is no longer capable of being accepted”.
- The trial date was listed. Shortly before the trial the defendant repeated its offer. This was accepted.
- However the parties attended before the trial judge and spent 2 1/2 days arguing the issue of costs.
- The judge ordered that the defendant pay the claimant’s costs up to the date of the offer in May 2014. The claimant was to pay the defendant’s costs thereafter.
- The claimant appealed.
THE COSTS INVOLVED
“We were told that the costs for the period post-29th May, 2014 were roughly as follows: Mr. Patience’s costs were in the region of £35-40,000, inclusive of VAT; the Respondents’ costs amounted to some £80,000, excluding VAT, of which Mr. Tanner’s came to about £20,000 and Bloor’s to about £60,000.”
THE DECISION ON APPEAL
This was an unusual case in that the Court of Appeal overturned the trial judge’s decision as to costs and made an order that there be no order for costs after the date of the offer.
The law in this area is well established; as Davis LJ expressed it in F & C Alternative Investments Ltd v Barthelemy (No.3)  EWCA 843; 1 WLR 548, at :
” Decisions on costs after a trial are pre-eminently matters of discretion and evaluation. Further, it is particularly important to bear in mind that a trial judge – especially after a trial such as this one – will have a knowledge of and feel for a case which an appellate court cannot begin to replicate. The ultimate test, of course, for the purposes of an appeal of this kind is whether the decision challenged is wrong. But it is well established that an appellate court may only interfere if the decision on costs is wrong in principle; or if it involves taking into account a matter which should not have been taken into account or failing to take into account a matter which should have been taken into account; or if it is plainly unsustainable. “
In BCT Software Solutions Ltd v Brewer & Sons (supra), the parties settled the action shortly after the trial had begun but were unable to reach a compromise on costs. They therefore agreed that the costs of the proceedings should be decided by the court. The Judge did so, essentially adopting an “issue-based” approach. On the claimant’s appeal to this Court, all three members of the constitution were troubled by the Judge having undertaken the exercise; indeed, at , Mummery LJ said that if there was a point of principle in that case it concerned the question of whether the judge should have embarked upon the particular exercise at all. However, given that both parties had agreed that the judge should undertake the task, Mummery LJ also observed (at ) “….it is reasonable to expect them to accept his decision, unless it can be shown that the result is, in all the circumstances, manifestly unjust“. In such a situation, this Court should interfere with the judge’s discretionary decision on costs “…with an even greater degree of reluctance than is usually the case…” (loc cit). Chadwick LJ said nothing on this particular point and Brooke LJ agreed with both judgments.
With respect, it is not entirely clear to me that the reference to “manifest injustice” imposes a further threshold requirement, additional to the classic test as now expressed in F & C Alternative Investments Ltd v Barthelemy (No.3) (supra), before interference by this Court is justified. Nor is it clear to me that the Court in BCT Software Solutions was intending to enunciate any new principle. Still further, it is not self-evident why this Court should be more reluctant to intervene where (as in BCT Software Solutions) the Judge has not conducted the trial; cf. the opening remarks in the passage cited from Davis LJ’s judgment in F & C Alternative Investments Ltd v Barthelemy (No.3). Be that as it may, given the view I take of the facts of the present case, I am content to proceed as if a test of “manifest injustice” were additionally applicable where the Judge has exercised his discretion as to costs with the agreement of the parties when they have otherwise settled the case. For these particular purposes, I am further prepared to proceed on the working assumption that there was such a settlement here, so that the “manifest injustice” requirement is not rendered inapplicable because of the absence of a settlement.
I return to the facts. A very few facts loom large and can be distilled from the mass; the minutiae can be put to one side – as can the theoretical (almost philosophical) arguments as to whether the May offer was an offer to settle or merely an effort at mitigation; the difference is immaterial. So too, with the arid dispute between the parties as to whether the case had truly “settled” by day one of the trial. Points such as those distract attention from the real issues; their price, as the Court observed in argument, was needlessly expensive litigation continuing to trial between parties not substantively at odds.
In depriving Mr Patience of his costs after the 29th May, the Judge gave effect to the May offer, as provided by CPR 44.2(4)(c). The Judge did not, however, stop there. As we have seen, he went on to order Mr Patience to pay the Respondents’ post-29th May costs. He did so, despite the Respondents having withdrawn the May offer.
In my judgment, just as there was no good reason for Mr Patience not to accept the May offer, so there was no good reason for the Respondents to have withdrawn the May offer – rather than letting it stand – until they re-issued the identical offer on the 3rd November, one week before the trial was due to commence. I am unable to accept that Mr Patience’s probing of the May offer justified its withdrawal – still less the legal posturing and dogged resistance to the substance of the claim from the 16th June at least until the 3rd November. The continued commercial haggling as to the rights of way on Mr Patience’s part may well have been tiresome; but it did not furnish any or any good reason for the abrupt withdrawal by the Respondents of the May offer with, it may be remarked, a number of questions to which they had promised answers remaining unanswered. On the view taken by the Judge, however, and despite the circumstances of its withdrawal, the May offer not only served to deprive Mr Patience of his post-29th May costs but obliged him to pay the Respondents’ costs for that period as well.
As it seems to me, the conduct of both Mr Patience (in not accepting the May offer) and the Respondents (in withdrawing it) contributed substantially to the case coming before the Judge for two to three days of argument in November, when it should long since have settled. The force of the point is emphasised by the undisputed fact that the November and May offers were identical. Given the parties’ sustained determination to pursue this dispute, no one can be sure that, if the May offer had been accepted or allowed to stand, the hearing before the Judge would not have taken place. But the dynamics of the situation would have been dramatically altered had the May offer been accepted or allowed to stand so the probabilities are that the case would have settled well before then. Moreover, I would not wish to do anything to encourage the approach to litigation demonstrated by the parties before us – in needlessly prolonging this litigation, to their own cost.
I sympathise greatly with the position in which the Judge found himself and share his sense of bemusement which found expression in passages in the transcript and judgment. I fear, however, that while the Judge correctly focused on the failings of Mr Patience after the 29th May, the judgment suggests that, in reaching his conclusions, he lost sight of and did not take into account the failings of the Respondents after that date. However understandable, that is a material omission.
It follows that this Court would be justified in intervening under the test in F & C Alternative Investments Ltd v Barthelemy (No.3) (supra); most simply put, the Judge failed to take a matter into account which should have been taken into account. If it is necessary that there be a “manifest injustice” before intervening (BCT Software Solutions Ltd v Brewer, supra), then, for my part, I am satisfied that there was such an injustice here: the Judge’s focus on the conduct of Mr Patience alone rather than on the conduct of both Mr Patience and the Respondents post-29th May, has cost Mr Patience some £80,000 in terms of costs which he is liable to pay by reason of the judgment. Reluctant as this Court should be to intervene in matters such as this, I am, with respect to the Judge, unable to accept that such a result is properly sustainable.
In coming to this conclusion, I have not overlooked that appropriate effect is to be given to the May offer, notwithstanding the Respondents’ failings (as just outlined). However, an additional and relevant factor here is that the May offer did not give Mr Patience his costs up until the 29th May; by contrast, the Judge’s conclusion – awarding Mr Patience his costs up until that date – entails that he “beat” the May offer. The Respondents could have addressed this aspect of the matter by making a Part 36 offer on the 8th May but that they did not do. Such considerations fortify me in thinking that in depriving Mr Patience of his post-29th May costs, the Judge gave sufficient effect to the May offer and that, for the reasons already set out, he was neither entitled nor obliged to go further and order Mr Patience to pay the Respondents’ costs thereafter.
Furthermore, I am not dissuaded from this conclusion by Mr McNae’s reliance on the Respondents’ Notice. The essence of the Respondents’ Notice was a focus on the parties’ conduct overall, over a period of a number of years. The Judge, however, had such conduct well in mind when ruling that Mr Patience was entitled to his costs up and until the 29th May, 2014. As earlier underlined – and perfectly understandably – the Respondents have not sought to challenge the Judge’s decision on that part of the case.
No sensible question arises of this Court remitting the matter for further consideration by the Judge. We must substitute our own view. In my judgment, the conduct of the parties post-29th May was such that each party should bear its own costs after that date. To my mind, the justice of the case cries out for “no order as to costs” after 29th May, 2014. That is the order I would make, in place of the Judge’s order that Mr Patience should pay the Respondents’ costs thereafter. To such extent, I would allow the appeal.