COURT OF APPEAL UPHOLDS AN ORDER THAT NO COSTS BE ORDERED ON AN APPEAL

In South Lodge Flats Limited v Malik [2022] EWCA Civ 411 the Court of Appeal upheld a decision that no order for costs be made on an appeal.  The defendants had succeeded in the appeal but required the indulgence of the court in order to do so. This was one of the factors the judge had been entitled to take into account.

THE CASE

An action that concerned, among other things, possession of a flat  being heard before the Circuit Judge had been adjourned part heard in October 2019  and was due to recommence in June 2020.  The defendants made an application for an adjournment, arguing that COVID issues meant they could not attend. The defendants also argued that the action was automatically stayed by Practice Direction PD 51Z.   The trial judge did not accept either argument. The trial commenced and the defendants’ defence and counterclaim was struck out and an order made for possession.

THE APPEAL TO THE HIGH COURT JUDGE

The defendants appealed to the High Court judge.  By the time of the appeal it was clear that the Court of Appeal decision in TFS Stores Ltd v The Designer Retails Outlet Centres (Mansfield) General Partner Ltd [2020] EWCA Civ 833, [2020] 4 WLR 99 meant that the action was automatically stayed.

The judge therefore granted the defendants relief from sanctions in relation to an extension of time for appealing. This was one of those rare cases where the court would look at the merits of the case. The Court of Appeal decision meant it was possible to form a clear view and the Circuit Judge’s decision was wrong.

THE HIGH COURT JUDGE’S DECISION ON COSTS

The High Court judge made no order for the costs of the appeal.

“… I am going to make no order as to costs. It is a unique costs situation piled on top of [a] unique substantive situation. The principle under the CPR that costs should follow the event is a very important one but the appellants have only been successful on terms, and although it is very difficult for me to get into the detail, I am as sure as I can be that a lot of money has been spent [on] the question of whether there was a reasonable excuse. I think it was predictable that that would have to be argued and so I am going to make no order as to the costs of the appeal.”

The defendants appealed that decision to the Court of Appeal.

THE CRITERIA FOR APPEAL WHERE THERE IS AN ISSUE IN RELATION TO COSTS ON APPEAL

Lord Justice Lewison considered the relevant criteria when the decision being appealed is an order for costs of the appeal.

“17. The appellants now appeal. Because there was some confusion about the test to be applied for the grant of permission to appeal, I should make it clear that the “first appeal” test applies to an order for costs made on appeal: Handley v Lake Jackson Solicitors (a firm) [2016] EWCA Civ 465, [2016] 1 WLR 3138.”

THE DEFENDANTS’ UNSUCCESSFUL APPEAL

The Court of Appeal rejected the Defendants’ appeal against there being no order for costs.  Lord Justice Lewison stated that the decision was one within the High Court Judge’s discretion.

1. 1. It is common ground that a judge has a wide discretion in relation to costs. CPR Part 44.2 provides:

“(1) The court has discretion as to—

(a) whether costs are payable by one party to another;

(b) the amount of those costs; and

(c) when they are to be paid.

(2) If the court decides to make an order about costs—

(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but

(b) the court may make a different order.

…

(4) In deciding what order (if any) to make about costs, the court will have regard to all the circumstances, including—

(a) the conduct of all the parties;

(b) whether a party has succeeded on part of its case, even if that party has not been wholly successful; and

(c) any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply.

(5) The conduct of the parties includes—

(a) conduct before, as well as during, the proceedings and in particular the extent to which the parties followed the Practice Direction—Pre-Action Conduct or any relevant pre-action protocol;

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c) the manner in which a party has pursued or defended its case or a particular allegation or issue; and

(d) whether a claimant who has succeeded in the claim, in whole or in part, exaggerated its claim.”

1. 1. Since the judge has a wide discretion, it is well-settled that an appeal court should not interfere simply because it considers that it would have exercised the discretion differently. As Chadwick LJ explained in Johnsey Estates (1990) Ltd v Secretary of State for the Environment [2001] L & TR 32, that principle:

“…requires an appellate court to exercise a degree of self-restraint. It must recognise the advantage which the trial judge enjoys as a result of his “feel” for the case which he has tried. Indeed, as it seems to me, it is not for an appellate court even to consider whether it would have exercised the discretion differently unless it has first reached the conclusion that the judge’s exercise of his discretion is flawed. That is to say, that he has erred in principle, taken into account matters which should have been left out 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.”

1. 1. In English v Emery Reimbold & Strick Ltd [2002] EWCA Civ 605, [2002] 1 WLR 2409 this court held at [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.”

1. 1. It is quite clear that the judge was fully aware of “the general rule”. Indeed, he described that principle as “very important”. He was also aware that the appellants had been successful albeit “only on terms”.

1. 1. Nevertheless, he declined to order costs to be paid. That was, in effect, an exercise of his discretion under CPR Part 44.2 (1) (a) (“whether costs are payable”). Strictly speaking, the “general rule” applies only where the court has moved on to CPR Part 44.2 (2) (“If the court decides to make an order”); but no doubt a judge will always consider that principle when deciding whether to make a costs order. On the other hand, the factors listed in CPR 44.2 (4) apply to both stages (“In deciding what order (if any) to make”).

1. 1. Although the first ground of appeal was that the judge had no good reason for depriving the appellants of any of their costs, Mr Letman for the appellants did not press that ground; not least because at the hearing below Mr Jourdan QC (then appearing for the appellants with Mr Letman) did not ask the judge to make that order. The judge cannot be criticised for not making an order that he was not asked to make. What that means, however, is that this is a case in which the general rule has been displaced by concession. How far to depart from that general rule is a matter for the judge’s discretion.

1. 1. As Mr Letman recognises, it is open to a judge to take into account the various issues raised before him, and to consider who has been successful on each. The judge had three issues before him corresponding to the three stages of the Denton test and the further issue whether the proceedings came within the scope of PD 51Z. That last issue was, in effect, determinative both of the third stage of the Denton test and the appeal itself. So of the three substantive issues before the judge, the appellants lost on two and won on one. Moreover, they only won on that issue at the price of paying costs thrown away on the abortive trial, which they had not offered before the hearing in front of Meade J. That, to my mind, is what the judge meant when he said that the appellants had only succeeded on terms. Had the terms been offered earlier, that might have led to a different costs order; but they were not. It is true that the route to success on that issue involved dealing with the legal issues raised in the Respondent’s Notice; but it is unrealistic to think that the judge was unaware of that, having just given judgment on all those questions.

1. 1. The judge took the view that “a lot of money” had been spent on the second issue, on which Iftikhar also won,. He had already expressed that view in the course of his dialogue with counsel. That would have justified him in giving greater weight to that issue than to the others.

1. 1. Although the court, of course, has the power to make an issue-based costs order under CPR Part 44.2 (6) (f), CPR Part 44.2 (7) encourages it not to do so if it is practicable to make a different order: see English v Emery Reimbold & Strick Ltd at [115]. In this case, although broad brush, the judge in effect balanced the costs of the two issues on which Iftikhar won against the costs of the issue on which he lost (albeit on terms that were favourable to him). Mr Letman took us to the transcript of the argument in order to demonstrate how many pages of the transcript were devoted to particular issues and argument. I do not consider that that is necessarily the way to assess the significance of particular arguments and issues to the overall costs order. Moreover, I do not consider that an appeal court should unpick the balance struck by the judge in granular detail.

1. 1. He also took the view that if an application for permission to appeal had been launched promptly, then the appeal itself might have been avoided. Although the judge’s reasoning on that point was compressed, I think that Mr Kinman was justified in unpacking it along the following lines. If an appeal had been lodged in time, the trial date would not yet have arrived. But the lodging of an in-time appeal from the order of 14 May 2020 was unlikely to have been heard and determined by the trial date. Unless the appeal had been heard by the trial date, it was unlikely that the trial would have gone ahead (or Iftikhar would have agreed to the adjournment); and the appeal would have been academic. So Vaqar would have achieved indirectly what his applications to adjourn had not achieved; and the costs of the appeal would have been avoided.

1. 1. In addition, the application itself, and the basis on which the judge decided it, was a plea by the appellants for the indulgence of the court in granting relief against sanctions.

1. 1. Professor Zuckerman observes in Civil Procedure (4^th ed) para 11.199:

“The court has always had the power to require a litigant who has applied for an extension of time or for late performance to pay the costs of the application.”

1. 1. That is an element of “conduct” to which the court must have regard under CPR Part 44.2 (4) (a).

1. 1. In R (Idira) v Secretary of State for the Home Department [2015] EWCA Civ 1187, [2016] 1 WLR 1694 the Home Secretary applied for permission to serve a Respondent’s Notice out of time. On an opposed application, the Master granted an extension of time for the filing of the Respondent’s Notice on the grounds that the issues raised constituted the bulk of the Home Secretary’s case, it was a significant appeal and it was in the public interest for the court to consider the points it raised. But, because the delay had been excessively long and no sufficient excuse had been provided for the failure to comply with the rules, the Home Secretary was ordered to pay the claimant’s costs of the application for an extension of time on an indemnity basis. Thus, even though the application succeeded despite opposition, the Home Secretary was still ordered to pay the costs; and on the indemnity basis, to boot. The Master’s decision was upheld by this court. Lord Dyson MR said that the Master had been right to grant the extension of time because the point went to the heart of the Home Secretary’s case and it was in the public interest for it to be decided. He continued:

“[83] On the other hand, the delay was substantial and unjustified. The case did not fall within the ambit of para 43 of Denton‘s case i.e. the claimant was not unreasonably seeking to take advantage of a minor error on the part of the Secretary of State. Master Meacher rightly applied what this court said at para 21 in Altomart’s case … and asked whether the Secretary of State should be granted an indulgence or whether “the application should be refused in the interests of encouraging more rigorous compliance with the requirements of the rules and promoting a more disciplined approach to litigation generally”.

[84] In my view, her decision struck the right balance on the facts of this case. I agree with it.”

1. 1. Indeed, Salford Estates (No 2) Ltd v Altomart Ltd [2014] EWCA Civ 1408, [2015] 1 WLR 1825, to which Lord Dyson MR referred, was another case in which an extension of time for serving a Respondent’s Notice was granted, but on terms that the applicant bore “the costs occasioned by its need to seek the court’s indulgence.”

1. 1. Mr Letman correctly pointed out that what was in issue in those cases was the costs attributable to a “stand-alone” application for an extension of time. But in the present case (a) Trower J had ordered a “rolled up” hearing of both the application and the appeal; and (b) it was only because the judge formed a clear view on the strength of the appeal based on his analysis of TFS Stores that he was persuaded to grant the extension and allow the appeal. It would not have been realistic to divorce the two.

Conclusion and result

1. Although the judge’s reasons were very compressed, I do not consider that he erred in principle, took into account matters which should have been left out 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. In my judgment there is a “perfectly rational explanation” for the order that he made. Another judge might have made a different order; and I might have done so myself. But that is beside the point.