COST BITES 85: JUDGE HAD THE POWER TO MAKE COSTS ORDER WHICH INCLUDED COSTS OF APPLICATIONS AGAINST NON-PARTY

In McCarthy v Jones & Anor [2023] EWCA Civ 589 the Court of Appeal refused an appeal against a decision that an unsuccessful party pay the costs involved in applications against a non-party.  The trial judge had a discretion to make such an order and it could not be said that the decision was outside the realms of appropriate judicial discretion.

“… where, as here, the application is made in the course of proceedings to which the wrongdoer is already a party, I consider that to deal with the costs of the application as part of the general costs of the underlying action is entirely legitimate.”

THE CASE

During the course of an action the court had made an order to preserve documents and permitting the claimant to rely on disclosed documents in another action.  The person against whom the order was made – Mr Mallett – then gave voluntary disclosure and a third party application for disclosure was not necessary.

At the end of the case Mr Jones, the successful party, obtained an order that Mr McCarthy pay the costs that had been incurred in making the applications against Mr Mallett.  Mr McCarthy appealed that order.

THE UNSUCCESSFUL APPEAL AGAINST THE COSTS ORDER

The appeal was unsuccessful.  The Court of Appeal held that the judge had power to make such an order. There was room for disagreement in relation to the exercise of the discretion in relation to costs, however the decision made was well within the proper range of judicial discretion.

THE JUDGMENT ON APPEAL

After dismissing the substantive appeal the Court considered that part of the appeal that dealt with costs.

1. 1. In the course of the proceedings Mr Jones made an application against Mr Mallett in two parts. The first was an order under CPR 25.1 (1) (c) requiring him to preserve documents. The second was an order under CPR 31.22 permitting Mr Jones to rely on documents disclosed in the current action for the purpose of pursuing an action against Mr Mallett and Sr Serra. At the time Mr Jones was contemplating issuing separate proceedings against Mr Mallett for breach of a settlement agreement. The application was initially made without notice and was supported by a witness statement made by Mr Ward, Mr Jones’ solicitor. In paragraph [27] of that statement Mr Ward said:

“I respectfully request that the Court reserve the costs of this application for future determination in either these proceedings or the Mallett Breach Of Contract Claim.”

1. 1. An order was made giving effect to the application. Although Mr McCarthy was given liberty to apply to vary or set aside the order, he never did so. At the time of the application it was also envisaged that an application for third party disclosure in this action would be made against Mr Mallett, as Mr Ward said in his witness statement. But following the making of the order for the preservation of documents, Mr Mallett made voluntary disclosure; so the potential application for third party disclosure fell away. That exercise brought to light documents relevant to the action between Mr Jones and Mr McCarthy. At the interlocutory stage the costs of the application were reserved. Following the judge’s hand down of his substantive judgment, the question arose who should pay those costs. Mr Jones asked for the costs to be borne by Mr McCarthy; alternatively that they be reserved to any claim which they might subsequently bring against Mr Mallett, which were the alternatives suggested by Mr Ward in his witness statement. Mr McCarthy argued that there should be no order for costs as between him and Mr Jones. The judge decided that because the disclosure application “brought forth documents relevant to the present proceedings, it is appropriate to make the order primarily sought” by Mr Jones. He therefore ordered Mr McCarthy to pay those costs.

1. 1. The grant of permission to appeal by Asplin LJ is headed with the Court of Appeal reference for this appeal as well as the substantive appeal, although she did not make any comment on the grounds of appeal in relation to the costs order.

1. 1. In Mr McCarthy’s skeleton argument it was asserted that the costs of such an application are governed by CPR part 46.1 which provides:

“(1) This paragraph applies where a person applies—

…

(b) for an order under—

(i) section 34 of the Senior Courts Act 1981; or

(ii) section 53 of the County Courts Act 1984,

(which give the court power to make an order against a non-party for disclosure of documents, inspection of property etc.).

(2) The general rule is that the court will award the person against whom the order is sought that person’s costs—

(a) of the application; and

(b) of complying with any order made on the application.

(3) The court may however make a different order, having regard to all the circumstances, including—

(a) the extent to which it was reasonable for the person against whom the order was sought to oppose the application; and

(b) whether the parties to the application have complied with any relevant pre-action protocol.”

1. 1. Thus, the general rule would have resulted in Mr Jones paying Mr Mallett’s costs of the application, unless the court decided to make a different order. But CPR Part 46.1 only deals with the position as between the applicant and the respondent to the application. It does not deal with costs as between the applicant and the other party to the underlying proceedings. This point was not pressed in oral argument.

1. 1. An analogous situation is where an applicant seeks a Norwich Pharmacal order. In such a case the applicant will normally be ordered to pay the costs of the respondent to the application. But as Aldous LJ said in Totalise plc v The Motley Fool Ltd [2001] EWCA Civ 1897, [2002] 1 WLR 1233 at [29]:

“Norwich Pharmacal applications are not ordinary adversarial proceedings, where the general rule is that the unsuccessful party pays the costs of the successful party. They are akin to proceedings for pre-action disclosure where costs are governed by CPR r 48.3. That rule, we believe, reflects the just outcome and is consistent with the views of Lord Reid and Lord Cross in the Norwich Pharmacal case [1974] AC 133, 176, 199. In general, the costs incurred should be recovered from the wrongdoer rather than from an innocent party.”

1. 1. That statement was approved by the Supreme Court in Cartier International AG v British Telecommunications Plc [2018] UKSC 28, [2018] 1 WLR 3259 at [12] in relation to an order for the blocking of internet sites for websites selling counterfeit goods. Lord Sumption said that it was not clear how the costs were actually dealt with in Norwich Pharmacal itself. It is true that it is not clear how the costs as between the applicant and HM Customs & Excise were dealt with by the House of Lords; but in the ultimate action for patent infringement the patentee recovered the costs it had incurred in making the Norwich Pharmacal application from the infringers by way of damages: Morton-Norwich Products Inc v Intercen Ltd (No 2) [1981] FSR 337. Thus the principle that the costs should ultimately be paid by the wrongdoer was, indeed, applied.

1. 1. In the case of a Norwich Pharmacal application the application is usually made before the applicant knows the identity of the wrongdoers, so recovery of the costs of the application in the subsequent action as damages is the most effective route to recovery. But where, as here, the application is made in the course of proceedings to which the wrongdoer is already a party, I consider that to deal with the costs of the application as part of the general costs of the underlying action is entirely legitimate.

1. 1. In principle, therefore, I consider that the judge was entitled to make the order that he did. The appeal therefore concerns the judge’s exercise of the wide discretion that a first instance judge enjoys under CPR Part 44.3. As Wilson J (sitting in this court) put it in SCT Finance v Bolton [2002] EWCA Civ 56, [2003] 3 All ER 434 at [2]:

“This is an appeal brought with leave of the single Lord Justice from the county court in relation to costs. As such, it is overcast, from start to finish, by the heavy burden faced by any appellant in establishing that the judge’s decision falls outside the discretion in relation to costs conferred upon him under rule 44.3(1) of the Civil Procedure Rules 1998. For reasons of general policy, namely that it is undesirable for further costs to be incurred in arguing about costs, this court discourages such appeals by interpreting such discretion very widely.”

1. 1. Mr Sims argued with some force that Mr McCarthy was not a party to the application itself; he did not cause costs to be incurred in making it; and the issue was in effect between Mr Jones and Mr Mallett. It was unfair to require him to pay any part of the application against Mr Mallett. As regards that application he was in the same position as a third party against whom a third party costs order is sought. Such a person will not usually be liable unless he has in some way caused the costs to be incurred.

1. 1. Mr Campbell, who argued this appeal on behalf of Mr Jones, pointed out that the trigger for the application was the discovery that Mr Mallett had been passing documents to Mr McCarthy; that Mr McCarthy’s disclosure of those documents was the trigger for the application; that the application was intended as a prelude to the making of an application for third party disclosure (which in the event turned out to be unnecessary) and that if a successful third party disclosure application had been made the costs of such an application would have been recoverable by the successful party in the underlying litigation. In addition, the judge reduced the recoverable costs by 10 per cent overall which in the context of this particular application could be attributed to such of the costs as were occasioned by the application under CPR Part 31.22.

1. 1. There is, in my judgment, force in both sides of the argument. The judge could legitimately have taken either view. But the question is not whether we would have made the order that the judge did. It is whether the order was within the wide ambit of his discretion. Another judge might well have made a different order; but that is beside the point. I have not been persuaded that the order that the judge made fell outside the scope of his discretion.

Result

1. I would dismiss this appeal too.