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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Rowles-Davies & Ors v Call 24 7 Ltd [2010] EWHC 1695 (Ch) (07 July 2010) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2010/1695.html Cite as: [2010] EWHC 1695 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Claim No. HC08C01433
		7 July 2010

1. On the 16 June 2010 I handed down judgment (Neutral Citation No. [2010] EWHC 1443 (Ch)) on the substantive issues in this action and on 22 June 2010 heard argument in relation to the costs of the litigation.
2. The position in short is as follows: the first and second claimants had advanced their claim under the Heads of Agreement mentioned in the judgment in a number of alternative ways. Their primary claim had been in the sum of £827,535.91 plus damages and interest at an enhanced rate pursuant to the Late Payment of Commercial Debts (Interest) Act 1998; alternatively in the sum of about £585,000 plus interest. In the result I gave judgment for the first and second claimants on their claim in debt in the sum of £155,187.55 which, inclusive of interest under the 1998 Act, amounts to a total award of £243,668.61. The claim by RDA was dismissed.
3. The debt on which the first and second claimants succeeded arose out of an Agreement in June 2003 which was terminated by notice given in August 2004. It was in 2004 that the right of action was assigned to the claimants. An application was made for disclosure of documents by the liquidator of RDA in 2006. These proceedings were commenced by Claim Form issued on 29 May 2008. There were two interlocutory hearings before a Master and a further hearing before Vos, J.
4. It appears that a number of offers were made pursuant to CPR Part 36 including the following:

i. 11 December 2008 - by the defendant in the sum of £75,000 inclusive of costs; the offer was withdrawn on 20 February 2009;

ii. 16 March 2009 - by the defendant in the sum of £200,000 inclusive of costs;

iii. 19 April 2009 - by the claimants in the sum of £621,000 plus interest and costs;

iv. 15 September 2009 - by the defendant in the sum of £200,000 plus costs;

v. 6^th October 2009 - by the claimant in the sum of £400,000 plus costs.

5. The case was listed for trial on Thursday 25^th March 2010 and heard over three and a half days. At midday on Friday 26^th I let the parties know in open court my provisional view that the claimants' primary claim was unsustainable. The primary claim was based on the proposition that the Agreement provided for fixed payments to be made for 3 years certain. I explained that this was unsustainable because clause 7 of the Heads of Agreement provided for termination on two weeks notice. I invited the parties to consider whether they might wish to enter into without prejudice discussions with a view to reaching an agreed settlement which would save the costs of the additional two days for which the trial was listed and projected to continue and I gave them time to attempt to do so.
6. It became evident that it would not be possible for agreement to be reached that day

and I resumed hearing the case mid way through the afternoon. After judgment, during the argument on costs, I learned of the offers which had been made on the Friday and of the further attempts at settlement which continued through the weekend.

7. On the Friday, the defendant had made a verbal offer to settle the case in the sum of £125,000 (inclusive of costs) in full and final settlement; the claimants were minded to accept the offer but could not confirm acceptance without obtaining instructions from the reinsurers of the claimant's ATE insurance policy, which they were unable to obtain.
8. On the Saturday the defendant wrote pointing out that, because they would now be unable to avoid further significant expense the following day, they were instructed to reduce the offer at which they were prepared to settle to £115,000 inclusive of costs, which offer would remain open until 10.30 am on Monday 29^th March 2010.
9. The claimants at some time during the weekend purported to serve Notice of Acceptance of the defendant's Part 36 offer dated 15^th September 2009

"in the sum of £200,000 plus the claimants' costs to be assessed on the standard basis if not agreed, up until the last date on which this offer was open for acceptance, namely 6^th October 2009.

The claimants agree to pay the defendant's costs of the action after 6^th October 2009 to be assessed on the standard basis if not agreed." [Emphasis supplied]

10. However, by Pt 36.9(3)(d) the permission of the court is required for a valid acceptance of a Part 36 offer made by the other party "where the trial has started". Unless the defendant consented to the terms on which the claimants proposed in their Notice, the claimants would have to apply to a judge of this Division other than me on Monday morning (a listing of which would then be unobtainable) and, where as here the other party objected to the acceptance, another judge would not be likely to permit acceptance.
11. The hearing of the action continued on the Monday and Tuesday to completion. In final submissions the claimants abandoned their primary claim and substituted an unpleaded and equally unsustainable claim for payment of instalments until 13 ^th July 2005 - a total of £573,844.05 plus statutory interest.

The claimants' arguments:

12. At the hearing on 22 June 2010 to consider the issues arising from my judgment, and in particular issues as to the costs of the proceedings, the claimants submitted that this was a case where the general rule, thai the unsuccessful party should be ordered to pay the costs of the successful party [Pt 44.3 (2) (a)] plainly applied; and that the court should have regard to the conduct of the defendant (in particular that I had observed in my judgment that Mr Griswold had sworn an affidavit containing statements which plainly were untrue) and on those grounds should order that the claimants' costs should be assessed on the indemnity basis.
13. The claimants asked also for an interim payment on account of costs: they did not

take the trouble to present a schedule of the costs incurred but stated orally that the total costs, inclusive of a Conditional Fee uplift of between 50 and 100% and an ATE premium would amount to something in the region of £600,000; they argued that an interim payment of £300,000 should be made.

14. I observe in passing that it is unacceptable in a case of this sort for a party to seek an interim payment without providing and serving on the other party in good time before the application is heard a detailed schedule of costs. As it happened I was unable to deliver this judgment immediately, so I ordered a detailed schedule to be served by the claimants within 24 hours and gave the defendant a further three days to respond to the schedule in writing and it has done so.
15. The schedule showed a total figure for the costs claimed of £601,935.28, inclusive of Conditional Fees. Although the claimants did break down the headings of costs to some extent the schedule remained in summary form and in particular did not indicate the dates or periods during which the costs were incurred.
16. The schedule differed from the claim;ints' estimate lodged with their pre-trial checklist dated 25 January 2010 when their total estimated costs to that date amounted to £146,897.98 plus vat, or £171,966.53 when vat is included; they estimated further costs "to the end of the trial" of £37,340 plus vat. On this basis there was likely to be a grand total of costs of £215,841 - plus, as we now know, a substantial success fee and an ATE insurance premium of about £81,000.

The Defendant's arguments:

17. The defendant argued that the general rule should not be followed and the court should make a different order having regard to what it asserted was an exaggeration of the size of the primary claim and because five of the seven submissions made by the claimants failed.
18. It also argued that the claimants' schedule showed that the costs were both excessive and disproportionate. The defendant asserted that its own costs of defending the claim have amounted to a total in the region of £130,000 to date.
19. My attention was drawn to Carver v BAA plc [2009] 1 WLR 113 and a submission made that it was debatable whether the claimants had secured a judgment at least as advantageous as the Pt 36 offer made by the defendant on 15^th September 2009 in the amount of £200,000 (inclusive of interest) plus costs; that is because, the amount of irrecoverable costs incurred by the claimants since that date will almost inevitably have exceeded the amount of £30,000 - that is to say the amount by which the aggregate of the judgment sum of £155,187.15 plus interest (recalculated to the latest date for acceptance of the offer) will have exceeded the Pt 36 offer at that date.
20. In these circumstances, the defendant submitted that an order should be made for the defendant to pay the first and second claimant's costs on a standard basis up to the latest date for acceptance of the Part 36 offer and that each party should pay its own costs since that date. It argues that RDA should be ordered to pay the costs of proceedings as between RDA and the defendant.

DISCUSSION:

21. My conclusions are as follows. First it is right that I should have regard as a starting point to the general rule preserved in Pt 44.3(2)(a) and then consider whether there ought instead be another order.
22. I reject the suggestion that this is a case in which I ought to order the defendant to pay the whole of the costs of the litigation on an indemnity basis: that is because the untruthful affidavit of Mr Griswold related specifically to one application for disclosure, did not affect the documents disclosed, did not lengthen the trial or cause unnecessary costs to be expended to a wider extent than the application itself and was not central to a determination of the action.
23. I do need to consider whether this is a case in which I should make an issue based order. This is because in relation to the seven issues, which I set out in paragraph 36 of my judgment, the claimant failed on five (i.e. a, b, c, f and g) won on one (e) and drew on a further issue (d). The claimants also succeeded on the issue of statutory interest. Apart from its own success on a number of major issues, the defendant argues that the claim was exaggerated and pointed to the fact that £827,535 plus statutory interest was claimed whereas only £155,187.15 plus interest was awarded.
24. In my judgment this is a case in which an issue based order should be made. As I recollect, the bulk of the time during the trial was taken up by the defendant seeking to argue and support with evidence the proposition (which I rejected) that the claimants' entitlement (as assignees of CSL) to payment under the Heads of Agreement was subject to an express "pay as and when paid" term. On the other hand, a significant amount of time was spent by the claimants seeking to establish with documentary evidence put to Mr Griswold that draft and executed Third Party Administration Agreements affected the operation of clause 7 of the Heads of Agreement, together with a number of other subsidiary issues on which the claimants failed.
25. The claimants were right to abandon what had been their primary argument by the time it came to closing submissions but still advanced alternative (b) which had no merit and was doomed to fail on the same basis. These arguments ought not to have been advanced and had nothing to commend them. I can also understand that the claimants' approach will have driven at least some of the applications for disclosure and generated a lot of heat. Importantly, it will also have served to position the claimants outside the real world when it came to attempts either to mediate or negotiate a settlement of the claim.
26. For its part, the defendant is not immune from criticism in relation to its attitude to negotiation. It made offers at an early stage which were unrealistic. Although it recognised the important fact that clause 7 of the Heads of Agreement entitled it to terminate the Agreement by giving 2 weeks' Notice, it failed to respond to the obvious fact that it had not given Notice prior to August 2004. In particular, at a time during the trial when the claimants were reacting to the remarks I made on Friday 26^th March 2010, the defendant responded in an unconstructive manner and sought to take advantage of the discomfiture that my remarks clearly provoked in the claimants. It would, it can now see, have done very well to have allowed the claimants to accept its Part 36 Offer of 15^th September 2009. which had not been withdrawn, particularly since the claimants had made it clear that they would pay the defendant's costs on a standard basis from 6^th October 2009.
27. The claimants submit that their Notice of Acceptance should be regarded as the equivalent, and have the consequences, of a Part 36 offer. Although the Notice can be construed as an offer it is simply not realistic for me to regard it as an offer under Part 36 for various reasons, not least the fact that it is plainly not compliant with the mandatory form and content required by Pt 36.2(2) and the differences are not mere matters of technicality: cf. Mary Gray Ritchie Deceased Ritchie & Others v Joslin and Others [2009] EWHC B7 (Ch). It was however an offer which I am required to take into account under CPR Pt 44.3(4)(c) and during argument I indicated that I proposed to do so.
28. The defendant argued that it should not suffer adverse consequences in costs by reacting as it did to the Notice of Acceptance: it was, after all, a situation which arose suddenly and unexpectedly and, it argued, that it is difficult to think through the implications of a situation like this arising in the middle of a trial and reach an accurate judgment. While there is something in what the defendant says, lawyers who specialise in litigation are not unaccustomed to the need continually to scrutinise the twists and turns in the trial process and there was anyway a golden opportunity, as the weekend arrived, for some serious thought to be given not merely to the opportunity of negotiating but also of making a proper analysis and judgment of the possible outcomes, the inherent risks of litigation and the opportunity to save costs.
29. It seems to me that whatever other order I make, I should make some provision to reflect the fact that the defendant was responsible for losing the opportunity of avoiding two days' costs on both sides.
30. This brings me to the submission in relation to Carver v BAA. Carver was a personal injury action where the claimant wanted £19,000 in damages but was awarded a sum which exceeded a Part 36 offer of £4,520 made by the defendant by a mere £51. The trial judge made an order that the claimant should pay the defendant's costs from the date of expiry of the defendant's offer. The Court of Appeal held that the judge was entitled to do so. Ward LJ observed

[31] ....Litigation is time consuming and it comes at a cost, emotional as well as financial. Those are, therefore, appropriate factors to take into account in deciding whether the battle was worth it. Money is not the sole governing criterion.

[32] It follows that Judge Knight was correct in looking at the case broadly. He was entitled to take into account that the extra £51 gained was more than off set by the irrecoverable cost incurred by the claimant in continuing to contest the case for as long as she did. He was entitled to take into account the added stress to her as he waited for the trial and the stress of the trial process itself. No reasonable litigant would have embarked upon this campaign for a gain of £51.

31. A not dissimilar case was Morgan v UPS [2008] EWCA Civ 1476 which was a personal injury action where the claimant claimed damages in the region of £200,000, was awarded a total of £44,329 and thereby beat a Part 36 offer by the defendant by £629.10 - or "by a whisker" as the Recorder observed. After considering the competing arguments the Recorder rejected the application by the defendant for an order that the claimant should pay its costs from the expiry of the time for acceptance. The defendant appealed and cited Carver. The Court of Appeal dismissed the appeal and upheld the order of the Recorder.
32. It seems to me that the reason for the failure of the defendant's appeal lies in paragraphs [17] and [18] of the judgment of Pill, LJ., who observed as follows:

"[17] There is strong authority that the judge does have a broad discretion. Recently, in Straker v Tudor Rose (a firm) [2007] EWCA Civ 368 Waller LJ stated:

'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 a 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.'

[18] On its facts this case has considerable differences from either of those cases cited in which orders in a defendant's favour were made. In my judgment the Recorder was entitled, in the exercise of his discretion, to make the order he did. The reasons on which he relied were tenable reasons. He certainly had the flavour of the case, having conducted the trial on quantum in which hotly contested issues arose...... In those circumstances the Recorder was entitled to reach the overall conclusion he did: that because the payment into court was insufficient, albeit by a small margin, that the claimant should be awarded his costs."

33. After the close of argument counsel has supplied to me a further case on this issue, namely Gibbon v Manchester City Council and L.G. Blower Ltd v Reeves both reported at [2010] EWCA Civ 726. Gibbon was on a different Part 36 issue but L.G Blower is directly in point.
34. Blower was a claim by a builder arising out of a contract to perform building works on the home of Mr & Mrs Reeves. Blower claimed £15,793.06 in respect of building works; the Reeves disputed the quality of works and counterclaimed. They acknowledged that there was a balance due to the builder and made a Pt 36 offer in May 2007 of £8,023.14 inclusive of interest in full and final settlement. The matter proceeded to trial where Blower obtained judgment for £8,375.94 together with interest and cost. The District Judge ordered Mr & Mrs Reeves to pay one half of Blower's costs from 8th January 2009^[1]. The Reeves appealed arguing that Blower should pay the whole or a substantial part of their own costs or at least have made no order for costs. They appealed to the judge but their appeal was dismissed. Theywere given permission to make a further appeal.
35. The Court of Appeal compared the Pt 36 offer net of interest to be equivalent to the offer of a principal sum of £7,714.56 and that meant that the judgment obtained by the claimant was £661.38 greater than the offer. The Court of Appeal went on to consider a submission inspired by Carver. At paragraph [40] Moore-Bick LJ stated of that case:

"[40].... The decision in Carver is binding on us, but it should be recognised that what may be more important than the factors to be taken into account is the weight that is to be attached to them, and that remains a matter for the judge in each case. Moreover, when deciding how much weight to attach to any particular factor I think it important to see things from the litigant's perspective rather than to be too ready to impose the court's own view of what is and is not to his advantage. That is particularly important when dealing with money claims, both because to recover judgment for more than what was offered is legitimately regarded as success, and because a party faced with a Part 36 offer ought to be entitled to evaluate it by reference to a rational assessment of his own case (including the risk of recovering unrecoverable costs if he presses on). He should not have to make a significant allowance for the court's view of factors that are inherently difficult to value, such as the amount of unrecoverable costs and (even more so) the stress likely to be generated by pursuing the case to judgment. In the case where an offer has been beaten by a very small amount and there is clear evidence that the successful party has suffered serious adverse consequence as a result of pursuing the case to judgment those factors may be sufficient to outweigh success in pure financial terms, but in my view such cases are likely to be rare. In most cases obtaining judgment for an amount greater than the offer is likely to outweigh all other factors."

36. In the result, the Court considered the terms in which the District Judge had considered and explained his order and concluded that his order was well within the ambit of his discretion.

CONCLUSION:

37. If Carver is binding on the Court of Appeal it is obviously binding also on me. That means that I must and do take into account the factor set out in that case. For the purposes of evaluating this factor I am prepared to assume that it is probable that the amount of unrecoverable costs suffered by the claimant is likely to be greater than the amount by which the value of the Judgment sum exceeded the Pt 36 offer (assessed with interest to the date in October 2009 which was the last date for acceptance).
38. However, I do not attach much weight to the Carver factor in the present case, for a number of reasons. These include the fact that the judgment sum is conceded to be some £30,000 greater than the amount of the Pt 36 offer (when re-calculated to the last date for acceptance of the Part 36 offer in October 2009). £30,000 is not an insignificant sum (or in the words of the Court of Appeal 'a very small sum') when compared with the sum of £51 by which in Carver the Part 36 offer of £4,520 was astray of the judgment. In the present case the defendant had the opportunity to make a larger Part 36 offer, which would have given him all the protection he needed, but chose not to do so. The claimants chose not to accept the offer and will suffer the burden of unrecoverable costs as a consequences of this. It is unclear to me why I should make a substantial increase of that burden by denying them what would otherwise be the appropriate order for costs. The notion that there ought be an obligation on the claimants to concede £30,000 out of a claim of £230,000 for fear of being further penalised in costs even if they recover their entitlement in a judgment is really attempting to turn the Pt 36 process on its head and reward the defendant despite his failure to make an appropriate offer. Apart from which, unless the claimants were clairvoyant, they would not be able to judge whether this offer, which in my judgment was insufficient, would turn out to be the defendant's final offer. I therefore do not regard the Carver factor as something which displaces the other factors which my experience of the trial has brought to me.
39. That leaves it necessary to explain the orders for costs that the considerations I have set out in this judgment drive me to make.
40. First of all, the claim by RDA was unsustainable: it is likely that the claimants will have incurred costs in pursuing it (including the costs of arranging an assignment and witness evidence) and these I propose to disallow before the effect of the other orders I make are taken into account; but the defendants are unlikely to have incurred significant costs on this issue.
41. As I have indicated above, I do judge it to be appropriate to make an order that the defendant should pay the whole of the costs incurred by the claimants on the last two days of the trial and subsequently. I reject the invitation of the claimants to order that these costs be paid on an indemnity basis. I have not concluded that the defendant acted unreasonably in refusing to accept the offer contained in the Notice of Acceptance, though in retrospect its judgment was wrong and perhaps unwise. I take also into account the fact that the defendant will already have suffered a significant financial disadvantage by not accepting that offer and do not judge it appropriate to increase that disproportionately.
42. As I have already indicated above, this is a case where an issue based order is appropriate and I propose to exercise the power to order the payment of a proportion of the costs under CPR Pt 44.3 (6).
43. In my judgment for the reasons given above and, save as otherwise ordered, the proper order in the present case is that the defendant should pay to the first and second claimants a total of 60% of their costs of the action on a standard basis if not agreed.

Interim Payment:

44. The power to make an order for an interim payment of costs is contained in CPR 44.3(8). The general rule is that, unless there is a good reason why not, the court will order such an interim payment. The leading case is the decision of Jacob J. In Mars UK Ltd v Teknowledee Ltd [1999] 2 Costs LR 44 and I propose to follow the principles set out there.
45. It is evident to me that there is merit in the defendant's submission that the claimants' schedule of costs may well be grossly exaggerated. What I therefore propose to do is fix as my starting point a figure at a more realistic level which for present purposes I assess at £300,000 - that is to say, the aggregate of the pre-trial estimate plus an insurance fee of about £81,000. I do not propose to assume that an uplift will be recoverable from the defendant and understand that this is a matter which will be hotly contested.
46. I need to reduce that figure to take account of the fact that I have for the most part only awarded the claimants 60 per cent of their costs. The figure needs to be reduced by a further amount to reflect the likely reduction on an assessment of costs on the standard basis. Making the appropriate reduction enables me to award a round figure of £100,000 by way of interim payment of costs.
47. I would be grateful if counsel could agree the terms of the final order.

Note 1   This was the date on which the Reeves withdrew an even higher Pt 36 offer which they had made and would have protected them.    [Back]