SECOND DEFENDANT ORDERED TO PAY COSTS CLAIMANT INCURRED IN PURSUING FIRST DEFENDANT: AN UNUSUAL CASE

In Patel v Barlows & Ors (No. 2) [2020] EWHC 2795 (Ch) HHJ Mithani QC (sitting as a High Court judge) found that a defendant was liable to pay the costs of another defendant where the claimant had had to discontinue the claim against that defendant.  The circumstances are unusual.

 

THE CASE

The claimants brought an action against a firm of solicitors and the second defendant trustee in bankruptcy.. The second defendant had compromised an action against the first defendant firm of solicitors which had made it impossible for the claimants to continue against those solicitors.  The claimants were successful in their action against the second defendant. An issue arose as to whether those  second defendants were liable to pay the costs incurred in the action against the first defendant solicitors, that had to be discontinued, as a result of the second defendant’s actions in settling the action without reference to the claimants. The judge held that the second defendants were liable to pay those costs.

 

THE JUDGMENT ON THIS ISSUE

Costs incurred by the Claimant for bringing the Claim against Barlows
    1. The basis upon which the Claimants seek those costs can be summarised in the following three short points.
    2. First, they say that it was necessary for them to issue the Claim against Barlows because it was their claim, not that of the Second Defendants, to pursue. If they had not taken that course of action, and if the Second Defendants had either not brought the Negligence Claim, or if that claim had been dismissed, the First Claimant would have lost the entirety of the investment which he had made in the purchase of the First and Second Properties.
    3. Second, as the Main Judgment makes clear, the Previous Trustee and the Second Defendants had ample opportunity to act in concert with the Claimants against Barlows to collect the losses which they all claimed to have suffered as a result of Barlows’ negligent acts or omissions. The Second Defendants failed to cooperate with the Claimants; rather, they compromised the Negligence Claim without the consent of, or reference to, the First Claimant.
    4. Finally, the claim by the Claimants against Barlows had to be discontinued because the Second Defendants pulled the rug out from under the First Claimants’ feet by settling the Claim without any prior reference or notice to the Claimants. That, in turn, led to the Claimants having to discontinue their claim against Barlows.
    5. The court plainly has jurisdiction to order that the Second Defendants should pay the Claimants’ costs of the abortive claim against Barlows in addition to paying the Claimants’ costs of the Claim against the Second Defendants. This is made clear by the following provisions of CPR 44.2:

(a) CPR 44.2(1)(a) which states that the court has discretion as to whether costs are payable by one party to another; and

(b) CPR 44.2(6) which sets out the non-exhaustive powers which the court has in determining the costs which are payable by one party to a claim to another party or parties when deciding how it should exercise its discretion on costs.

    1. The Claimants relied on the decision in Jabang v Wadman [2017] 4 Costs LR 807 and Woodland v Swimming Teachers’ Association [2018] 3 Costs LR 469 in support of their claim for those costs.
    2. In the latter case, His Honour Judge Pearce, at [41], approved the following summary of the principles which governed the making of such an order, based on the decision of the Court of Appeal in Irvine v Commissioner of Police [2005] EWCA Civ 129 on that issue:

“(a) the issue is one for the court’s discretion, informed by the overriding objective and CPR 44.2;

(b) where a claimant does not know who wronged him, it may be reasonable for him to join more than one defendant and not see his damages eroded by failing to recover costs against a successful defendant;

(c) but such orders are ‘strong order[s]’ capable of working injustice on defendants, who can become liable to pay cost[s] of parties they had no choice in joining;

(d) even where a claimant reasonably joins more than one defendant, there is no rule compelling a costs order in his favour; the court must consider potential injustice to the defendant as well.

(e) the ‘ordinary circumstance’ for an order is where a claimant sues the defendants in the alternative and is sure to succeed against one of them. However, while this may be the ‘classic’ scenario for an order, it does not mean that an order may not be made in other circumstances.

(f) orders are less likely where the causes of action asserted against defendants are different.

(g) the reasonableness of the claimant’s action is an important consideration. (h) whether one defendant blames another is also significant – although not determinative, as even where a defendant does, a claimant must exercise his own judgment.”

  1. The Second Defendants contended that the application of these principles militated against an order being made for them to pay the costs of the Claimants arising from the dismissal of the Claimants’ claim against Barlows.
  2. I respectfully disagree.
  3. In every case, the decision of the court will be to determine whether it was just to exercise its discretion in favour of making such an order. That decision will depend entirely upon the facts of an individual case and is recognised by the first of the factors specified in paragraph 41, i.e. paragraph 41(a).
  4. The Second Defendants’ response to factor (b) was to say that this factor was not applicable in the present case. I do not agree.
  5. As soon as the Second Defendants issued their own claim, i.e. the Negligence Claim, against Barlows, and it became apparent that the Second Defendants would claim the benefit of the fruits of the Negligence Claim for themselves, albeit on behalf of the creditors of the Bankrupt, the Claimants would have had to join the Second Defendants to the Claim to seek a declaration that the loss suffered as a result of Barlows’ acts or omissions was their, not the Bankrupt’s, loss. If they had not taken that course of action, and the court had found that the only person having standing to bring the claim against Barlows was the Bankrupt (and, through him, the Second Defendants) on the basis that the Bankrupt was the only person on whose behalf Barlows had acted in the proposed purchase of the First and Second Properties, their claim against Barlows would have been dismissed. It was essential, therefore, for the Second Defendants to be joined to the Claim, not just to avoid that outcome but also to ensure that all the potential claimants were before the court and were bound by its judgment. It would have been an act of sheer folly if the Claimants had not taken that course of action. Indeed, in my view, if the Claimants had not done so, it is likely that Barlows would have done because of the potential risk that if they paid any amount payable under the
    Negligence Claim to one party, as opposed to the other, they might be exposed to the risk of a further claim by the other party. That was why the two claims were consolidated and why paragraph 5 of the Schedule to the Tomlin order included a provision that the Second Defendants would indemnify Barlows from any claims made by the Claimants against Barlows.
  6. In those circumstances, it had to be reasonable for the Claimants to have taken the course of action they did. Factor (b), therefore, has to be taken into account in favour of the Claimants. It cannot be said to be irrelevant.
  7. As regards factors (c) and (d), the Second Defendants make the bold statement that it “would be unjust to order the Second Defendants to pay the First Claimant’s costs of his claim against Barlows for a period when the First Claimant could not possibly have succeeded against the Second Defendants.”
  8. That statement proceeds on an entirely flawed basis.
  9. As the Main Judgment makes clear at various places, the Previous Trustee put in issue the First Claimant’s entitlement to the Claimants’ Advance almost from the point when he was appointed. That position was adopted by the Second Defendants and continued throughout the progress of the Claim and also at the trial of the Claim. In those circumstances, it is difficult to see how it can conceivably be said that there was ever a point that the First Claimant could not have succeeded in their claim against the Second Defendants.
  10. Factor (d) makes it clear that the making of an order of the type sought by the Claimants is intended to be compensatory, not penal, although neither the Court of Appeal nor Judge Pearce used those expressions. In other words, it would not be appropriate for a court to make the order pour encourager les autres or to penalise the Second Defendants. In the present case, the court should only make the order if it is satisfied that it is reasonable to do so in order to compensate the Claimants for the unnecessary costs which they have incurred in bringing the Claim against Barlows.
  11. It is clear to me that by not making the order, real injustice will only be caused to one party, viz the Claimants. Given the findings I made against the Second Defendants in the Claim, it would be wrong for me not to compensate the Claimants for the costs which they properly and reasonably incurred in bringing the Claim against Barlows – a claim which they had to discontinue because of the entirely unacceptable actions of the Second Defendants. If I decided that the order should not be made, I would indirectly be rewarding the Second Defendants for those actions; and I would be failing to compensate the Claimants for the expense which they incurred in bringing the Claim against Barlows, which, at the time the Claim was brought, it was perfectly proper for them to do so.
  12. Factor (e) stipulates the ‘ordinary circumstance’ in which such an order can be made and expressly states that where the ordinary circumstances do not apply, “it does not mean that an order may not be made in other circumstances.”
  13. The reliance placed by the Second Defendants on what constitutes “ordinary circumstances” is misplaced. True it is that the Claim was not made against Barlows and the Second Defendants in the alternative. But the crucial point here is that the Claim was almost certainly likely to succeed against Barlows if the Second Defendants had not intermeddled with it and had conceded the Claimants’ entitlement to bring it.
  14. It is very difficult to see a clearer case of a claim against Barlows for negligent acts or omissions succeeding and this is reflected by the fact that even before the Negligence Claim and the Claim were issued, Barlows had made an offer of settlement to the Bankrupt and subsequently, the case was resolved without the Negligence Claim having to be tried. I have not seen the defence of the Barlows to the Negligence Claim. It is difficult to see what their substantive defence would have been if they had not settled the Negligence Claim at the point at which they did.
  15. The plain fact is that the Claim against Barlows was necessary because they had dissipated the Claimants’ Advance and the claim against the Second Defendants was necessary because they were claiming to be entitled to the repayment of the Claimants’ Advance and the interest thereon for their own benefit. It was necessary, therefore, for the Claimants to bring a claim against both.
  16. For the reasons referred to in the Main Judgment, there is no substance in the point made by the Second Defendants in response to factor (f), which in any event, only says that orders are less likely where the causes of action asserted against defendants are different. The causes of action against Barlows and the Second Defendants may have been different but they were inextricably linked and, given the stance taken by the Second Defendants, it is difficult to see how the Claimants could have proceeded with the Claim against one and not the other.
  17. Nor for the reasons set out in the Main Judgment can I see any substance in the Second Defendants’ response to factor (g) which refers to the reasonableness of the claimant’s action as being an important consideration. The Second Defendants’ response seeks to go behind the Main Judgment. Other than in connection with the application for relief from sanctions, I cannot see anything in the Main Judgment which amounts to a criticism of the First Claimant about how he has sought to recover his losses against Barlows or the Second Defendants.
  18. Nor does the suggestion made by the Second Defendants that there was no cause of action against the Second Defendants withstand proper scrutiny. It wholly ignores the nature of the relief that the Claimants sought against the Second Defendants. The Second Defendants had advanced a claim to be entitled to the proceeds of the Negligence Claim. Those proceeds did not belong to them and, so far as they were claiming to be entitled to them, it was perfectly appropriate for the Claimants to seek to maintain a claim to those proceeds against the Second Defendants. The Claimants sought a declaration that the Claimants’ Advance belonged to them. That was precisely the relief that they should have sought in the Claim.
  19. Factor (f) is irrelevant.
  20. For all the reasons set out at paragraphs 24-49, above, I directed that the costs payable by the Second Defendants to the Claimants should include the costs incurred by the Claimants for bringing the Claim against Barlows.
  21. So far as the Second Defendants seek to restrict those costs to costs incurred after the issue of the Claim or suggest that some of the costs may have been duplicated by the Claimants having changed solicitors, those matters seem to me to be matters for the detailed assessment.