WITNESS EVIDENCE: GRAPPLE WITH THOSE DIFFICULTIES: KNOW WHETHER YOU CAN PROVE YOUR CASE: OTHERWISE IT IS GOING TO COST YOU (ALSO THE IMPORTANCE OF AN OFFER)

The previous post looked at the witness evidence of some of the claimants against one of the defendants in the case of Zagora Management Ltd & Ors v Zurich Insurance Plc & Ors [2019] EWHC 140 (TCC).  Here we look at the cost consequences of that.  Costs consequences that could have been avoided if a suitably critical approach had been taken to the claimants’ evidence and whether they could, in fact, give the evidence that was stated in their statements.   This highlights the fact that the critical appraisal of witness evidence (especially your own) is a crucial skill for the litigator. It is not widely taught or written about. However a failure to appreciate the limitations of your own evidence can be costly.  In this case the judge held that the claimants should have assessed and appreciated the fundamental weakness in their case and accepted an offer.  Despite a finding of deceit against the defendant the judge ordered the claimants to pay all the defendant’s costs from the date an offer expired.

“I am satisfied that by this point the ZBC claimants ought to have begun to realise, even if they had not done so before, the real extent of the problems with their case on reliance. As I held, they never really grappled with these difficulties in their response to ZBC’s detailed case and only belatedly at trial attempted to address the difficulties, but unconvincingly and without supporting evidence either from the conveyancing files or from the conveyancing solicitors. They ought therefore in my judgment to have appreciated at around the time of the offer that it was likely that the leaseholder claimants at least would fail on reliance and that Zagora faced real problems on intention and that they ought, therefore, to have realised that the offer represented the best way of extricating themselves from a claim which they were likely to lose.”

THE CASE

The claimants were  a group of leaseholders bringing an action against the defendants in relation to the development of several blocks of flats. The claim was against the defendant that issued building warranties. In addition some of the claimants brought proceedings against Zurich Building Control Services Ltd (“ZBC”) which had inspected and certified approval of the development.

THE CLAIM AGAINST ZBC

To succeed in a clam against ZBC the claimants had to prove (i) “deceit” (there were no reasonable grounds for believing the statements in the certificates were true); (ii) that they relied on the certificates issued by ZBC in circumstances where the certificates were not issued directly to the claimants.  The claimants succeeded in showing “deceit” but failed on the issue of reliance.  The judge assessed the claimants’ evidence on this issue with care and found that there was no evidence of any reliance.

THE JUDGMENT ON COSTS

There is a separate judgment on costs, Zagora Management Ltd & Ors v Zurich Insurance Plc & Ors No. 3 (Costs) [2019] EWHC 257 (TCC).  The judge is here considering the costs award to be made against ZBC.
  1. Mr Asquith submits that costs should follow the event. Mr Selby QC and Mr Thompson for the ZBC claimants submit that to award ZBC all of its costs would be to ignore the fact that the ZBC claimants succeeded in proving that ZBC had been guilty of deceit in issuing the Building Regulations final certificates the subject of the claim. (Whilst they also succeeded in proving certain other elements of their claim those issues are in my view of far less significance, both in themselves and as drivers of costs.) The reasons why the ZBC claimants failed despite this finding in their favour are that: (a) Zagora as subsequent freeholder failed to establish that ZBC intended that Zagora should rely on the final certificates; (b) all of the leaseholder ZBC claimants failed to establish that they relied on the final certificates.
  2. I am satisfied that in general terms the costs of the deceit and the reliance issues were roughly equal to each other and also far more significant than were the costs of the remaining issues. The costs in relation to limitation and quantum were however not insignificant and I should also record that ZBC failed to make much progress on either issue, since (save in relation to one of the leaseholder claimants) they failed to defeat the claims on limitation grounds and they failed to make much inroad into the quantum of the claims.
  3. Mr Asquith for ZBC realistically acknowledges that if there was nothing else of relevance to set against its loss on the issue of deceit the court would be likely to depart at least to some extent from the general rule in order to reflect this significant finding on a major element of the case. However, ZBC relies upon two countervailing factors. The first is that on 29 May 2018 it made an admissible offer to settle the claim, inclusive of costs, for £250,000. The second is what it submits was the unreasonable conduct of the ZBC claimants in relation to the reliance issue. I shall address each point separately.
  4. As regards the offer the starting point is that it is apparent that the ZBC claimants, having obtained nothing, failed to better that offer by proceeding to trial. Mr Selby’s two principal ripostes were that the offer should be disregarded because: (a) in the context of the case overall, it offered only a trifling amount; (b) it failed either to contain an admission or an apology for ZBC’s deceit.
  5. Before addressing these arguments I should record that this offer was made shortly after there at been a tripartite mediation earlier that month and at a time when ZBC had served: (a) a draft detailed case, following disclosure, on reliance which set out what transpired to be successful arguments as to why the ZBC claimants would be unable to establish reliance on the final certificates; (b) a draft application to strike out the claim on reliance (which ultimately, sensibly in my view given the fact sensitive nature of the issue, was not proceeded with). I should also make clear that I accept, as I said in my principal judgment, that in my view the ZBC claimants never really grappled in a convincing way with the difficulties in their case on reliance which were pointed out by ZBC in its detailed case. They failed to appreciate that, with the exception of Zagora, they never personally relied on the final certificates and they also failed to appreciate that, given the particular terms of the sale contracts employed in this case, without evidence from the conveyancing solicitors retained on the flat purchases they had no realistic prospect of establishing that their solicitors had relied on the final certificates issued by ZBC (as opposed to the completion certificates issued by ZIP). Their witness statements were, as I found, a confused and confusing attempt to ride two horses on reliance (i.e. personal reliance and solicitor reliance) which were convincingly demolished in cross-examination by Mr Asquith.
  6. As to whether or not the offer was trifling, I should record that whilst both parties addressed me as to whether or not the £250,000 offered would, if accepted, have produced a net recovery for the ZBC claimants after deduction of their costs as incurred as against ZBC it is simply not possible in my judgment to reach any firm conclusion on that point because: (a) according to the claimants’ solicitors the total costs incurred by the claimants overall are significantly in excess of the budgeted costs; (b) the claimants’ approved costs budget was not sub-divided as between ZIP and ZBC. What I can say with some confidence is that, if accepted, it would have provided the ZBC claimants with at least a significant proportion of the costs incurred as against ZBC up to that point and insofar as they had any realistic prospect of recovering them against ZBC. I do however accept that it was unlikely to have provided the ZBC claimants with any substantial net recovery for their claim as advanced against ZBC, which was that they should be refunded their purchase prices together with interest. The offer was clearly intended, as I am satisfied the ZBC claimants through their advisers must have appreciated at the time, as an attempt by ZBC to settle the case, on the basis that the claim would ultimately fail on reliance even if deceit was proved, by offering a generous dose of sugar, in the form of a significant contribution towards costs, to sweeten the pill of being compelled to abandon the claim.
  7. As a matter of fact it is true that the offer contained no apology or made no admission as regards what I have found was the fraudulent issuing of the Building Regulations final certificates. Ought it to have done? Mr Selby referred me to and relied upon the decision of the Court of Appeal in Yentob v MGN Limited [2015] EWCA Civ 1292, in which the court upheld the decision of Mann J at first instance in a “telephone hacking” case that the claimant should not suffer the normal consequences of not accepting a Part 36 offer which he had failed to beat at trial because the defendant had made only a limited admission in which it had failed to admit the full extent of its wrongdoing and because the defendant would have failed to make a full joint statement had it been invited to do so. Mr Selby accepted, and in any event I agree with Mr Asquith, that in normal commercial cases a desire on a part of a claimant to have a public judgment exposing wrongdoing cannot be a good reason for justifying a refusal to accept a reasonable offer and proceeding to trial: see the judgment of the Court of Appeal in Ashdown v Griffin [2018] EWCA Civ 1793 at [35]. Mr Selby submitted that there was a public interest in knowing about the fraudulent issuing of public documents such as Building Regulations final certificates, which were intended for the protection not only of purchasers but also of occupants of or visitors to newly constructed buildings, so that this case fell within the category of case where it would have been reasonable for the ZBC claimants to regard the offer as inadequate from a broader perspective than the purely financial.
  8. Forcefully though the point was put I am unable to accept it. This was a commercial case where the ZBC claimants’ overwhelming interest was – and in any event ought – in my judgment to have been in obtaining a financial recovery from ZBC. It is clearly not the case in general terms that a claimant who makes a claim in fraud against a defendant can justify a failure to accept a good offer which did not contain an admission or apology by arguing that it was entitled to proceed to trial to obtain a public exposure of the fraud. I do not consider that the public interest nature of the Building Regulations certification regime makes any significant difference to the position. Indeed I am satisfied that this was not the ZBC claimants’ intention in any event, since: (a) the claim had originally been pleaded in negligence and the claim in fraud was only made by amendment once ZBC had made the point that any claim in negligence alone was bound to fail as a result of the decision of the House of Lords in Murphy v Brentwood DC [1991] 1 AC 398; (b) the ZBC claimants had never sought (at least in any open or admissible correspondence) any admission or an apology, whether prior to or in response to ZBC’s offer.
  9. As to the way in which I should analyse the impact of the offer, Mr Asquith referred me to the decision of Mann J in Fulham Leisure Holdings v Nicholson Graham & Jones [2006] EWHC 2428 (Ch), a case where a claimant had established liability against the defendant firm of solicitors but failed to establish causation in relation to the main claim of £7.75M, although it did obtain a modest award of £6,750 for professional fees incurred in sorting out the consequences of the defendant’s negligence. For present purposes the relevant part of the decision relates to the claimant’s failure to accept a “drop hands” offer made by the defendant. Mann J considered that but for the offer he would have applied what he acknowledged [10] was the more exceptional course of requiring the defendant to bear the claimant’s costs of fighting liability even though the defendant had not in his view acted unreasonably in so doing. He therefore concluded that the claimant had not in substance done better than the offer in fighting the case to trial and as a result at [12] ordered the claimant to pay the defendant’s costs from the date when the offer ought to have been accepted.
  10. The ZBC claimants’ primary argument was that I should ignore the offer and – adopting a similar approach to that of Mann J in Fulham Leisure – order that each party should bear their own costs throughout. ZBC’s primary argument is that it should have its costs in full but argues as a fall-back position that that if there is to be any departure from the general rule it should be limited to a modest percentage discount from its costs prior to 12 June 2018 when its offer expired. Mr Asquith submitted that on any view the ZBC claimants could not, disregarding the offer, have hoped to do better than obtaining no order as to costs prior to the offer so that by parity of reasoning on any view ZBC should have all of its costs post offer.
  11. As to the period prior to the offer it would plainly be wrong in my judgment not to direct that there should be some percentage discount against ZBC to reflect the fact that it elected vigorously to contest the issue of deceit from start to finish notwithstanding: (a) the damning conclusions of its own building inspector expert witness that Mr Mather had issued final certificates despite the presence of manifest non-compliances with Building Regulations; (b) that a proper analysis of the limited documentary evidence which ZBC had been able to provide clearly demonstrated that neither Mr Mather as the building inspector nor the building surveyors undertaking warranty inspections (on whom he claimed to have relied) had undertaken anything like the number of inspections of this development which ought to have been performed during the course of construction. Whilst I do not find that ZBC was unreasonable in defending the case on liability, in circumstances where of course the ultimate question was the state of Mr Mather’s mind and where he insisted that he was genuinely unaware of the deficiencies in the development and in the inspections undertaken, I am satisfied that ZBC ought to have known of the serious obstacles to successfully defending liability and ought, therefore, to be responsible both for their own costs of the issue of deceit and for the costs of the ZBC claimants of the issue of deceit in relation to the period prior to the offer. The end result is that since, as I stated in paragraph 7 above, the costs of the deceit and the reliance issues were by the far the most significant of the costs incurred and roughly equal to each other, I consider that there should be no order as to costs as between the parties for the period up to and including 12 June 2018, being the last date for acceptance of the offer.
  12. However, for the reasons I have already given, I do not accept Mr Selby’s argument that I should ignore the offer. I am satisfied that by this point the ZBC claimants ought to have begun to realise, even if they had not done so before, the real extent of the problems with their case on reliance. As I held, they never really grappled with these difficulties in their response to ZBC’s detailed case and only belatedly at trial attempted to address the difficulties, but unconvincingly and without supporting evidence either from the conveyancing files or from the conveyancing solicitors. They ought therefore in my judgment to have appreciated at around the time of the offer that it was likely that the leaseholder claimants at least would fail on reliance and that Zagora faced real problems on intention and that they ought, therefore, to have realised that the offer represented the best way of extricating themselves from a claim which they were likely to lose. It ought to be borne in mind that they all, of course, still had their primary claims against ZIP which, being claims for the cost of repairs as opposed to diminution in value, must clearly have appeared to be a far more substantial claim in money terms than was the claim against ZBC.
  13. In the circumstances I am satisfied that the ZBC claimants ought to pay all of ZBC’s costs from the date when the offer was stated to expire which, given the background leading up to the offer, I consider to have given the ZBC claimants sufficient time to decide whether or not to accept or to reject the offer. I therefore order that this order should take effect from 13 June 2018, being the day after the last day for acceptance of the offer.
  14. Whilst there might otherwise have been some attraction in ordering the ZBC claimants to pay something towards ZBC’s costs prior to the offer to reflect ZBC’s overall success and in ordering some reduction of ZBC’s costs after the offer to reflect its persistence in fighting the case on liability it seems to me that the better course is to make a time-based order. This is because as well as being in my view the right order in principle for the reasons already given it also has the advantage of reducing the cost and complexity of any detailed assessment as well as producing what I am satisfied would be the same or a similar overall result to that which would have been produced by my making a percentage based order throughout but applying differing percentages to the periods before and after the offer.