WE LOST, BUT WE STILL WANT 90% OF OUR COSTS: CLAIMANT’S UNSUCCESSFUL APPEAL: A DEVELOPING FIELD OF LAW?

The judgment of Mr Justice Miles in Terracorp Ltd v Mistry & Ors (Rev 1) [2020] EWHC 2623 (Ch) contains an interesting review of the principles relating to costs where a party has failed on a number of issues.  It also serves as a useful guide to the hurdles facing a party seeking to appeal an order as to costs.

“… while the extra costs associated with failed points need to be considered, the court still has to stand back and look at the matter globally and consider the extent, if any, to which it is just to deprive the successful party of costs (see the guidance given in the Sycamore case). The exercise is not mechanical, and it involves an element of discretionary judgment. The ultimate question is what the just costs order is.”

THE CASE

The claimant company bought up parcels of land and sold them off as potential “land banks”. The defendant purchased one of these parcels.  The sites remain fields but the claimant sought to recover additional charges in relation to the cleaning and maintenance of roads. The liability to pay these charges was set out in certain covenants, however the roads do not, in fact, yet exist.   The fields remain fields.

THE DECISION AT TRIAL

At trial the defendants succeeded on the basis of construction of the covenants themselves. They could not be construed to impose an obligation to pay towards services that do not exist.  The claimant’s appeal against this decision was dismissed.

THE DEFENDANTS’ OTHER ARGUMENTS

The defendants ran other arguments that did not succeed “ including fraudulent misrepresentation, conspiracy, estoppel, title to sue, and allegations that the original sales had been part of an unauthorised collective investment scheme”. These defences did not succeed.

THE ORDER FOR COSTS AT TRIAL

The trial judge, bearing in mind the defences that had failed, order the claimant to pay 50% of the defendants’ costs.

THE APPEAL IN RELATION TO THE ORDER FOR COSTS

The claimant’s appeal against the order for costs was also unsuccessful.

The costs appeal

1. 1. As I have already explained, as well as arguing about the meaning of the contracts, the Defendants ran a number of defences and counterclaims. These were (i) that there had been fraudulent misrepresentations, (ii) that the Claimant was estopped from claiming the Covenant Charges by reason of representations about planning permission and its likelihood, (iii) that the benefit of the obligation to pay the Charges had not been validly transferred or assigned to the Claimant, (iv) that some of the sales contracts had not been properly executed, (v) that monies previously paid by the Defendants under the Covenants had been converted, (vi) that the various selling companies’ business activities comprised a single unregulated Collective Investment Scheme, (vii) that the sale contracts constituted or involved irrecoverable consumer credit under the Consumer Credit Act 1974, (viii) that the selling companies and Mr Deschauer had conspired against the Defendants (a claim parasitical on the alleged misrepresentations), and (ix) that the Claimant was required to establish the title of each of the selling companies. Points (iv) and (ix) were hardly pursued at trial and, on the remaining points the Defendants lost.

   2. The Claimant says that these various defences and counterclaims greatly prolonged the trial and led to increased costs on both sides. The Claimant’s counsel took me on a tour through the way some of these defences and counterclaims were pleaded and advanced, including in a long schedule of alleged misrepresentations and in the Defendants’ witness statements. He also said (with some justification) that a number of the defences or counterclaims were barely comprehensible, were bad in law, or were effectively abandoned at trial.

   3. The judge addressed each of the defences or counterclaims in his main judgment. He analysed the evidence with care and set out his reasons for dismissing them, and there is no appeal by the Defendants from this part of his decision.

   4. The judge gave his main judgment on 9 September 2019. The parties served skeleton arguments on consequential matters including costs. A hearing took place on 25 September 2019. The judge then handed down a reserved judgment on these points (“the second judgment”).

   5. At the consequentials hearing the judge was faced (as is often the case) with parties urging starkly opposing positions about costs. The Defendants said that, as the winners, they should have all of their costs. The Claimant sought an issues-based costs order, with the Defendants to pay 90% of their own costs and the Claimant to pay 10% of the Defendants’ costs.

   6. The judge referred in his second judgment to the relevant provisions of CPR 44.2. He cited a helpful summary of the principles in Sycamore Bidco v Breslin [2013] EWHC 583 (Ch) where Mann J said at [11]-[12]:

“[11] The principles on which I should determine this dispute were not themselves disputed. Many are set out in the judgment of Jackson J in Multiplex v Cleveland Bridge [2009] Costs LR 55:

“(i) In commercial litigation where each party has claims and asserts that a balance is owing in its own favour, the party which ends up receiving payment should generally be characterised as the overall winner of the entire action.

(ii) In considering how to exercise its discretion the court should take as its starting point the general rule that the successful party is entitled to an order for costs.

(iii) The judge must then consider what departures are required from that starting point, having regard to all the circumstances of the case.

(iv) Where the circumstances of the case require an issue-based costs order, that is what the judge should make. However, the judge should hesitate before doing so, because of the practical difficulties which this causes and because of the steer given by Rule 44.3(7).

(v) In many cases the judge can and should reflect the relative success of the parties on different issues by making a proportionate costs order.

(vi) 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.

…

(viii) 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.”

[12] In addition:

(i) The fact that a party has not won on every issue is not, of itself, a reason for depriving that party of part of its costs.

“There is no automatic rule requiring reduction of a successful party’s costs if he loses on one or more issues. In any litigation, especially complex litigation such as the present case, any winning party is likely to fail on one or more issues in the case. As Simon Brown LJ said in Budgen v Andrew Gardner Partnership [2002] EWCA Civ 1125 at paragraph 35: “the court can properly have regard to the fact that in almost every case even the winner is likely to fail on some issues” … (Gloster J in Kidsons v Lloyds Underwriters [2007] EWHC 2699 (Comm)).

(ii) The reasonableness of taking a failed point can be taken into account (Antonelli v Allen The Times 8th December 2000 per Neuberger J).

(iii) The extra costs associated with the failed points should be considered (Antonelli).

(iv) One still has to stand back and look at the matter globally, and consider the extent, if any, to which it is just to deprive the successful party of costs (Antonelli).

(v) The conduct of the parties, both before and during the proceedings, is capable of being relevant (CPR 44.3(5)).”

1. 1. Neither side took issue with this statement of the principles before me. As Sycamore shows, while the Court will often undertake a quasi-mathematical assessment of the time and costs spent on particular issues, that is only the starting point and the overall decision as to the appropriate discount often involves a broad-brush judgment. In that case Mann J (at [28]) discounted the costs payable to the winning party by less than the amount he considered it had spent on the points on which it had lost.

   2. The core reasoning of the judge on costs is set out in the second judgment at [17]-[21]:

“[17] The Defendants are the winners. They have succeeded in defending the claim to the Covenant Charges in its entirety I must therefore give weight to the general rule that the winners should receive their costs.

[18] It does seem to me though that the fact that the Defendants failed on the other defences requires that a different order be made. Those defences did account for a large part of the trial, both as to evidence and argument. Those circumstances take this case beyond those where a successful party loses on one or more issues but should not be deprived of any costs as a result.

[19] However, while the defendants lost on the fraudulent misrepresentation defence and related arguments, the defendants were not, in my judgement, unreasonable and running that case. They honestly believed misrepresentations had been made to them about the availability of planning permission. And I accepted that, had they been made, Baron Deschauer could not have had an honest belief in their truth.

[20] Further, I do not accept that, had the question of interpretation been the only one for trial, there would have been no evidence called at trial. The Covenants fell to be interpreted in light of the factual matrix existing when they were made. At least some live evidence is likely to have been called dealing with that matrix. Further, Terracorp called several witnesses detailing what works have been carried out at the sites, seemingly with a view to arguing that these works come week came within the scope of the Covenants.

[21] Given these last two points and the fact that the Defendants have won overall, it would, in my judgment be unjust to make an order that the Defendants play any part of Terracorp’s costs. Rather, justice is done by ordering Terracorp to pay 50% of the Defendants’ costs of the proceedings.”

1. 1. The Claimants initially sought permission to appeal the costs order on four grounds. The first three criticised the judge for failing to make an issues-based order. The fourth was that “the award of 50% of the Defendants costs of the trial (when the interpretation issue took up approximately 15-20% of preparation and court time) is not just, fair or proportionate as it fails to reflect the Defendants’ conduct and level of success at trial”.

   2. Fancourt J limited permission to appeal to “the question of whether a proportionate order of 50% of the Respondents’ costs was unjustifiably high and therefore wrong, given that the Appellants were not awarded any of their costs for the issues on which they succeeded at trial“. He said that the judge had correctly treated the Defendants as the successful party and was entitled to conclude that the Defendants had only been partly successful and should be awarded part only of their costs; and that the Claimant should be awarded no part of its own costs.

   3. It follows from the terms of the permission order that the only question on the appeal is whether the judge erred in setting the percentage that the Claimant should bear. The judge put this at 50%. The fourth ground of appeal says that the interpretation issue took up approximately 15-20% of preparation and court time. At the hearing of the appeal, the Claimant’s counsel did advance some calculations during his submissions about the number of pages devoted in the pleadings, witness statements and trial bundle to the interpretation issue (which he put at around 10%). None of that was in put in evidence before the judge or before me.

   4. An appellate court will only interfere with a judge’s exercise of discretion in relation to costs in limited cases. The appellate judge does not simply ask whether he or she would have reached the same decision, but, in a spirit of self-restraint, recognises the advantage the trial judge enjoys from being immersed in the case, and having a better feel for the way the case has been run. It is not for an appellate court even to consider whether it would have exercised the discretion differently unless it has first concluded that the judge’s exercise of discretion is flawed, i.e., that the judge has erred in principle, taken into account matters which should have been left out of account, left out of account matters which should have been taken into account, or reached a conclusion which is so plainly wrong that it can be described as perverse (see e.g. Johnsey Estates (1990) Limited v Secretary of State for the Environment [2001] EWCA Civ 535 at [21]-[22] and Dufoo v Tolaini [2014] EWCA Civ 1536 at [40]).

   5. In Straker v Tudor Rose (a firm) [2007] EWCA Civ 368 Waller LJ said this:

“[2] The key issue is whether the judge misdirected himself. It is well known that this court will be loath to interfere with the discretion exercised by a judge in any area but so far as costs are concerned that principle has a special significance. The judge has the feel of the case after a trial which the Court of Appeal cannot hope to replicate and the judge must have gone seriously wrong if this court is to interfere”.

1. 1. The judge had the advantage of conducting a six day trial and had a feel for the case. His careful principal judgement shows that he was aware of the large number of defences and counterclaims run by the Defendants and appreciated the nature and scale of the evidential material going to those various issues. He went through the defences and counterclaims and assessed each separately. He was also aware of the way that the Defendants’ defences and claims had been formulated and advanced, including in the pleadings and particulars that have been given in various schedules. He commented on some of these in his principal judgment.

   2. The costs argument took place soon after the main judgment was given, and the judge had the benefit of long skeleton arguments.

   3. The judge’s core reasoning on the exercise of his discretion was expressed concisely and would perhaps have benefited from some expansion. But the Claimant goes further and contends that the judge erred so seriously in the exercise of his discretion that this Court should substitute its own view.

   4. The Claimant says, first, that although, in [19] of the second judgment, the judge referred to the fraudulent misrepresentation defence “and related arguments” he did not refer to a number of the other defences. It submits that the defences concerning the assignment, due execution, title to the land, conversion, and the Consumer Credit Act do not “relate” to the misrepresentation defence. The Claimant says that the judge appears to have overlooked these other defences and that this is a serious flaw in his judgment.

   5. I do not agree with this reading of the second judgment. The judge had recently given the full principal judgment where he had carefully and comprehensively gone through each of the defences and counterclaims. The Claimant’s skeleton argument on consequential matters had also gone separately through the various defences and at [15] of his second judgement the judge recorded counsel for the Claimant saying that the Defendants had failed on all their defences save interpretation of the Covenants. The judge was clearly alive to the points on which the Defendants had lost, and I do not accept that he overlooked them when considering costs. Costs judgments are often briefly stated, and I read the phrase “and related arguments” in [19] as shorthand for the defences and counterclaims run by the Defendants which were not successful.

   6. The Claimant next criticises the judge for taking account of the fact that the Defendants honestly believed that misrepresentations had been made and were not unreasonable in running the misrepresentation case. It says that he overlooked the tortuous history of the pleading and the schedule of representations. It points out that the Defendants had alleged a wide and unfocused array of representations which, by the time of trial, had reduced to one main representation. It says that this scattergun approach served to increase the costs. I reject this challenge. The cases show that the relevant conduct of the parties includes whether it is reasonable or unreasonable to run a particular point and the judge, who heard the trial, took the view that the Defendants had not acted unreasonably in running this part of their argument. Again, I read this part of his judgment as stating (perhaps too concisely) that the Defendants’ conduct of the defence had not been unreasonable. I see no basis for saying that his view was not reasonably available to him. He was well aware of the way the case had been presented and the evidence that the parties had advanced.

   7. The Claimant’s principal criticism is that the judge failed to undertake the exercise, at least expressly, of assessing what proportion of the Defendants’ costs were properly attributable to the interpretation issue. There is some force in this submission. The judge did not spell out assessment of the amount of the costs attributable to the interpretation issues.

   8. There are three comments to make before assessing this submission further. The first is that, even where a judge fails to give sufficient reasons for a decision on costs, an appellate court will only interfere if satisfied that the judge has reached a decision which is plainly wrong (in the sense of being outside the generous ambit of his discretion): see Budgen v Andrew Gardner Partnership [2003] CP Rep 8, where the Court of Appeal referred to English v Emery Reimbold [2002] EWCA Civ 605. At [28]-[30] of English the Court said this about costs decisions:

“[28] It is, in general, in the interests of justice that a Judge should be free to dispose of applications as to costs in a speedy and uncomplicated way and even under CPR this will be possible in many cases.

[29] However, the Civil Procedure Rules sometimes require a more complex approach to costs and judgments dealing with costs will more often need to identify the provisions of the rules that have been in play and why these have led to the order made. It is regrettable that this imposes a considerable burden on Judges, but we fear that it is inescapable.

[30] Where no express explanation is given for a costs order, an appellate court will approach the material facts on the assumption that the Judge will have had good reason for the award made. The appellate court will seldom be as well placed as the trial Judge to exercise a discretion in relation to costs. Where it is apparent that there is a perfectly rational explanation for the order made, the Court is likely to draw the inference that this is what motivated the Judge in making the order. This has always been the practice of the Court – see the comments of Sachs LJ in Knight v Clifton [1971] Ch 700 at 721. Thus, in practice, it is only in those cases where an order for costs is made with neither reasons nor any obvious explanation for the order that it is likely to be appropriate to give permission to appeal on the ground of lack of reasons against an order that relates only to costs.”

1. Hence a judge should give reasons where he makes an order out of the ordinary. But it is not enough to say that the judge has failed to give sufficient reasons. The Court will only intervene where there is no obvious (or rational) explanation for the order.

2. The second comment is that, as explained in the Multiplex case, where the court concludes a percentage order is appropriate, the successful party is likely to be entitled to the costs of common issues in the litigation, as well as the costs of discrete issues on which that party has won. Here, the judge held that some of the evidence about the process by which the plots were sold to plot purchases was relevant to the factual background against which the contracts were to be interpreted. I note in this regard that during the appeal on the interpretation issue, counsel for the Claimant took me to a number of passages in the witness statements of the Defendants and Mr Deschauer to seek to establish what the Claimant said was the relevant background. That was part of the evidence before the judge at trial.

3. The Claimant says that, without the plethora of defences run by the Defendants, the evidence about the factual matrix would have a good deal more contained and that may be right; but the judge did not say that all of the evidence was relevant to interpretation, only some of it. This was an assessment he could make in light of his knowledge of and feel for the case.

4. The third comment is that while the extra costs associated with failed points need to be considered, the court still has to stand back and look at the matter globally and consider the extent, if any, to which it is just to deprive the successful party of costs (see the guidance given in the Sycamore case). The exercise is not mechanical, and it involves an element of discretionary judgment. The ultimate question is what the just costs order is.

5. With these three points in mind, I return to the Claimant’s challenges to the judge’s decision. In the second judgment the judge started by concluding that the Defendants had won overall but also recognised that the Defendants had lost on a substantial number of issues and that these had led to the trial being longer and more complex. This justified a deduction from the costs payable to the Defendants. He noted that some of the costs would have been incurred in any case in relation to the factual background to the contracts and also noted that the Claimant had called evidence to attempt to argue that some works have been carried out within the scope of the covenants. He took account of the conduct of the parties and the reasonableness of the Defendants’ conduct of the case. As I read [21] of his second judgment, he then stood back and asked overall what the just outcome was. This is how he came to the 50% proportion.

6. Ideally the judge might well have given fuller reasons. He should probably have set out more explicitly the proportion of time which he considered was spent on the interpretation issues and the common issues and attempted to quantify this, at least as a starting point. He should also have said more than he did in [19] about the various other defences and counterclaims that had been run by the Defendants.

7. However, I am unable to conclude that the judge’s decision was not rationally open to him or that he erred in the exercise of his discretion. The judgment shows that he took into account the fact that the Defendants had lost a number of issues and he considered the conduct of the parties, as well as the fact that some of the evidence would have been required in any case. But he also gave weight to the fact that the Defendants had won an important victory by obtaining a declaration that they were not liable to pay the Covenant Charges to the Claimant. This was the target of the proceedings. The judge was fully immersed in the details of the case and he had a far better understanding of the various strands of evidence and how much time they took at the trial than this court can possibly achieve: the appeal on this point was largely an exercise in island-hopping. As I read his judgment the Judge was well aware of the arguments that the lost defences had taken up much time and cost and had in mind the course the proceedings and trial had taken. The judge had to make an overall decision as to the justice of the costs order and that is what he did. I do not see any basis for concluding that his decision was irrational or outside the range of decisions reasonably open to him.

8. The Claimant has not established that the judge’s exercise of his discretion was flawed. The costs appeal is dismissed.