IF YOU SETTLE WITH SOME OF THE PARTIES THE OTHERS CAN STILL COME AFTER YOU FOR COSTS: THE LESSONS OF DUFOO
In Dufoo -v- Tolaini and Ors  EWCA Civ 1536 the Court of Appeal considered the issue of costs liability between the claimants where two claimants had settled their action with a defendant but a third went on to trial and lost. It was held that, despite an agreement that the defendant would not seek costs from the claimants who had settled, those claimants who had settled should contribute to the costs to be paid by their co-claimant to the defendant.
The facts, in short,were:-
- Three applicants issued proceedings against the respondent seeking the winding up of the respondent and a declaration in relation to shareholdings.
- During the proceedings two of the applicants settled their claims.
- The respondent agreed that he would not seek to recover any costs against these applicants.
- Mr Dufoo’s action did not resolve. The action proceeded to trial and all the parties gave oral evidence.
- The trial judge found Mr Dufoo to be a dishonest witness and he succeeded, in part, only on the basis of a new claim introduced in the course of the trial. Otherwise he was unsuccessful.
- The judge ordered Mr Dufoo to pay the respondent’s costs on an indemnity basis. He did not order any contribution by the co-applicants on the grounds that there had been a settlement and the defendant had agreed not to seek costs from these applicants.
THE CONTRIBUTION TOWARDS COSTS
The trial judge had not ordered the co-applicants to make any contribution towards costs.
“55. Having reflected on the rival submissions, I agree with the judge that this is a difficult issue. Also I can see why Mr Pannell, having entered into a “no costs” settlement agreement with Mr Tolaini, feels strongly aggrieved at the prospect of being ordered to contribute towards costs payable to Mr Tolaini. On the other hand Mr Dufoo was not a party to the settlement agreement. That agreement did not and could not preclude Mr Tolaini from claiming his costs as against Mr Dufoo. I have, with some regret, come to the conclusion that the settlement agreement between Mr Pannell/DAP and Mr Tolaini is not an answer to Mr Dufoo’s contribution claim. It is merely part of the circumstances of the case which the judge, exercising his discretion under CPR 44.2, should take into account.
- The judge was in error in finding that the settlement agreement was a sufficient reason for refusing the contribution claim.
THE STARTING POINT
The starting point is that the parties advancing the same cause should all contribute to the recoverable costs of the successful party.
“58. When different parties advance the same unsuccessful case against their common adversary, the normal starting point for a court considering costs is that they should all contribute to the recoverable costs of the successful party. The judgment of Lord Esher MR in Stumm, upon which Mr Shaw relies, is merely an illustration of that proposition. I would not dignify that proposition with the label of legal principle. It is merely a sensible way of applying what is now CPR 44.2 (2) in the general run of multi-party cases. The special rules governing group actions, upon which Mr Tilley relies, do not detract from that observation.
- Of course there may be good reasons for departing from the starting point. The later provisions of rule 44.2 make this clear. “
- In the current case the applicants made common cause for an extended period of the action.
- The settlement precluded the respondent from recovering costs from the first two applicants, it did not preclude him from recovering costs against Mr Dufoo.
- The first two applicants had been largely unsuccessful in the claims they were advancing for a period. They should be ordered to contribute to the costs that Mr Dufoo was ordered to pay for that period.
- Mr Dufoo had been ordered to pay costs on an indemnity basis. The first two applicants should not contribute to the excess caused assessment was on the standard basis.
- There was no good reason for exempting the other applicants from contributing to the costs that the judge ordered should be paid by Mr Dufoo.
- The starting point should be that the other applicants should pay 50% of the costs of a particular issue on the standard basis.
- This was, however, only the starting point. There could be reasons for varying that by reference to the parties’ conduct before or during the litigation.
The costs in the action were substantial. The Court of Appeal remitted the case to the trial judge to re-decide the claim for a contribution in accordance with the guidance given in the judgment.
THE KEY POINT: YOU CAN SETTLE A CLAIM WITH A DEFENDANT BUT STILL REMAIN LIABLE TO INDEMNIFY A CO-CLAIMANT FOR THAT DEFENDANT’S COSTS
This is the important advice that will have to be given whenever parties settle. If the action still goes on with other litigants involved there remains a possibility that a client could be asked to contribute regardless of the settlement with the defendant.