NO ISSUE BASED COSTS ORDER WHEN UNSUCCESSFUL CLAIMANT HAD TURNED DOWN A PART 36 OFFER OF £500,000

In Lyons -v- Fox Williams LLP  [2017] EWHC 532 (QB) Mr Justice Turner considered issues relating to costs after a claimant had been unsuccessful in a claim for professional negligence.

THE CASE

The claimant had been unsuccessful in a claim for professional negligence against the defendant.  Some of the defendant’s lines of defence had not succeeded, however the claimant had still recovered nothing.  The earlier judgment is available here. 

KEY POINTS

  • Although the defendant had raised issues upon which it was not successful the claimant had failed to recover damages.
  • In this case it was not appropriate to make an issue based costs order.
  • In particular the claimant had turned down a Part 36 offer of £500,000.

THE JUDGMENT

APPLYING THE RULES
    1. The claimant recovered nothing from the proceedings he brought. By the application of the general rule, he is undoubtedly the unsuccessful party and would normally expect to be ordered to pay the costs of the successful defendant.
    2. The question, therefore, arises as to whether the court should make “a different order”. In consideration of this option the court is mandated to have regard to all the circumstances including (but not limited to):
i) conduct – sub-paragraph (4)(a):
ii) partial success – sub-paragraph (4)(b); and
iii) offers to settle – sub-paragraph (4)(c).
CONDUCT
    1. To an extent, there is an overlap between the “conduct” and the “partial success” factors. In particular, the relevance of partial success to the exercise of the discretion relating to costs may, at least in part, be determined by the reasonableness (or otherwise) of the successful party in raising an issue or issues upon which he lost.
    2. Save for the extent to which the defendant lost on issues which the claimant argues that they should never have contested, the parties do not articulate any free-standing arguments relating to “conduct”. I consider that they were right not to do so. This judgment will therefore concentrate on the other potentially relevant features of the case and assess matters of conduct to the extent (if any) they arise within the scope of such issues.
PARTIAL SUCCESS
    1. The claimant’s case centred around two main issues. The first was an allegation that Mr Custance had failed properly to advise him on his potential claims under two long term disability policies (“LTDs”) which had been taken out on his behalf by EY. The second was based on Mr Custance’s failure to advise the claimant that the agreement under which he parted company with EY (“the 2009 agreement”) should contain an English law and jurisdiction clause.
    2. The claimant was successful on neither main issue but not every line of defence raised by the defendant prevailed.
    3. On the LTD claims the claimant lost because I found that it never fell within the scope of Mr Custance’s retainer to advise him on this issue. The defendant, however, disputed liability on alternative grounds of causation many of which were unsuccessful. My analysis of these are to be found in paragraphs 202 to 247 inclusive of my judgment. I observed at paragraph 245:
“It will be appreciated that there arise many speculative permutations of what may or may not have been the outcome of Mr Custance’s advice on the LTD policies if he had given them proper and careful consideration. I am of the view that, despite the hurdles I have identified, there would have remained a real and substantial chance of the claimant recovering payments under the policies.”
    1. I subsequently assessed this chance to be at the level of 50% and rejected a short point made by the defendant on the proper method of assessing the level of damages which would have been awarded if the claimant had succeeded on liability.
    2. On the 2009 agreement claim, the claimant lost because I found that, although Mr Custance should have strongly recommended to the claimant that he should strive to include an English law and jurisdiction clause in the 2009 agreement, the claimant was well aware that the agreement contained no such clause but decided to proceed in any event. EY would simply not have agreed to the inclusion of any such clause.
    3. The claimant contends that the fact that the defendant raised a number of arguments which did not succeed should be reflected in an issue-based order which departs from the starting point that costs should follow the event. I accept that the matters upon which the defendants failed were sufficiently discrete to amount to issues. As the notes to CPR 44 at 44.2.7 of the White Book provide:
“An “issue” in this context could be described as anything upon which, standing alone, a court could grant relief, but it may mean something less than that. In any event, it has to be something arising in the proceedings upon which one party can be said to have been “successful”.”
Nevertheless, the question remains as to whether in the circumstances of the case as a whole it would be fair and just to reflect this factor by departing from the “costs follow the event” starting point.
    1. The notes at 44.2.7 go on to review the authorities on the proper approach to this question:
“So, in summary, the position is that, where a party successful overall has been unsuccessful on an issue (or issues), a court (1) should consider adopting an issue-based approach, and (2) in deciding what order to make in relation to that issue (or issues) may decide (a) that party should be deprived of his costs of that issue, or a proportion of those costs, or those costs from or until a certain date; or even (b) that that party should pay the costs of the otherwise unsuccessful party on that issue, or a proportion of those costs, or those costs from or until a certain date…
In some judgments judges have extensively reviewed the previous cases and endeavoured to extract propositions of general application from them. A notable example is the judgment of Jackson J. in Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd [2008] EWHC 2280 (TCC)
Propositions that may be derived from the Multiplex Constructions case and other authorities and which may be stated with a degree of confidence are as follows.
1. The rules themselves impose no requirement to the effect that an issue-based costs order should be made only “in a suitably exceptional case”, and none is to be implied, although “there needs to be a reason based on justice” for departing from the general rule, and that the question of the extent to which costs of a particular issue are to be disallowed should be left to the evaluation and discretion of the judge.
2. The reasonableness of taking failed points can be taken into account, and the extra costs associated with them should be considered.
3. Where the circumstances of the case require an issue-based order in the form of an order expressed by reference to the costs of the issue, that is what the judge should make; however, generally, because of the practical difficulties which this causes, the judge should hesitate before doing so and, where practicable, the order should be expressed as a percentage or with reference to a distance period of time.
4. There is no automatic rule requiring an issue-based cost order in the form of a reduction of a successful party’s costs if he loses on one or more issues…The mere fact that the successful party was not successful on every last issue cannot, of itself, justify an issue-based costs order.
5.The courts recognise that in any litigation, especially complex commercial litigation but including personal injury litigation, any winning party is likely to fail on one or more issues in the case (possibly issues on which the losing party could have taken steps to protect himself, at least to an extent, to costs liability). That point is frequently made…
6. In considering the circumstances of the case the judge will have regard not only to any Part 36 offers made but also to each party’s approach to negotiations (insofar as admissible) and general conduct of the litigation … However, the court should not approach r.44.2(4)(c) on the basis that it supports a special “near miss” rule that may be invoked to penalise a successful party in costs, because, to do so, would be to seek to use r.44.2(4)(c) to give to “near miss” offers an effect similar to Part 36 offers, and would introduce an unwelcome degree of uncertainty…
7. In assessing a proportionate costs order the judge should consider what costs are referable to each issue and what costs are common to several issues. It will often be reasonable for the overall winner to recover not only the costs specific to the issues which he has won but also the common costs…”
    1. In my judgment, despite the fact that the defendant fought and lost on certain issues, there are sound reasons not to make an issue based costs order to reflect this. I note the following features:
i) The over-arching result was complete victory for the defendant on all issues;
ii) The issues upon which the defendant succeeded were, by some margin, the most important ones and those upon which the greater part of the resources of time and effort had been expended by the parties;
iii) This was a commercial case of a complexity which almost inevitably meant that no side would be successful on each and every area of dispute;
iv) The defendants had not taken a “kitchen sink” approach to the litigation as a whole as is evidenced by the settlement of issues which would otherwise have been left to the court to adjudicate upon comprising the costs of an application relating to the jurisdiction issue under the 2009 agreement and also in respect of a separate Accidental Death and Dismemberment policy.
OFFERS TO SETTLE
    1. By letter dated 29 January 2016 the defendant made a Calderbank offer to settle the claim in the sum of £500,000. This was rejected by letter of 5 February 2016. It is not disputed that the court is entitled to take this factor into consideration on the issue of costs.
    2. The defendant contends that it is appropriate for an order to be made awarding indemnity costs from the date of refusal.
    3. The authorities provide that the refusal of a settlement offer may justify the award of indemnity costs but only where the refusal is unreasonable to a high degree.
    4. Undoubtedly, the claimant’s refusal of the settlement offer was, particularly with the benefit of hindsight, unwise. Nevertheless, I am satisfied that it does not fall into that class of case in which the courts have considered it apt to impose the further burden of indemnity costs. I thus decline to make the order requested in this regard.
PART 36 OFFERS
    1. The claimant accepted two Part 36 offers made by the defendant in respect of the costs of an application relating to the jurisdiction issue under the 2009 agreement and also in respect of the separate Accidental Death and Dismemberment policy.
    2. The claimant now seeks further orders relating to the costs consequences of the acceptance of these offers. However, the deemed costs consequences of accepting Part 36 offers are laid down in CPR 44.9 and paragraph 4 of my order of 25 October 2016 identified the fact that it had been made without prejudice to the terms of the settled claims and the orders made pursuant thereto. Accordingly, I decline to make any further order relating to this aspect of the case.
INTERIM PAYMENT
    1. The court has power under CPR 44.2(8) to order a party to pay a reasonable sum on account of costs. A dispute arises in this case, however, as to what sum is reasonable. I have considered the contentions set out in the respective written submissions of the parties and the authorities referred to.
    2. I am, in broad terms, satisfied that there can be a relatively high level of confidence about the level of costs which are likely to be awarded to the defendant on detailed assessment and that the overall figure claimed does not appear to be unduly ambitious. Bearing in mind that this is ultimately an exercise in discretion, I have reached the conclusion that, to reflect the residual elements of uncertainty and to factor in an appropriate margin of error, it would be appropriate to order an interim payment in the sum of £500,000 in accordance with the defendant’s position on this issue.
INTEREST
    1. The claimant assumed that the draft order sought by the defendant aimed to achieve an interest rate of 8% with respect to costs. However, this ambition was limited to interest on the costs payable under any delayed or unpaid interim payments. As the orders relating to such payments were set aside, the issue no longer arises.
COSTS OF THE SET ASIDE APPLICATION
  1. The application to set aside the earlier order of the court was necessitated primarily by a breakdown of communication between the claimant’s counsel, his clerks and his instructing solicitors. The draft judgment had been served on leading counsel and his clerks. There was no justification for subsequent inactivity. The original order of this court was set aside not on the ground that inadequate notice had been given to the members of the claimant’s team but that the demands of fairness to permit them to make representations counterbalanced the deficits in their original response.
  2. I do not take the view that the defendant’s resistance to the application was unduly opportunistic despite the fact that, in the event, the claimant was given a further opportunity to make his representations.
  3. These factors justify the court in departing from the starting point that costs are awarded to the successful party in the circumstances of the present case and, taking a broad approach to the issue, I award the defendants the costs thereof summarily assessed in the sum of £10,000.”

Issue based costs orders