HT 04 334
Neutral Citation Number: [2006] EWHC 126 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice

Thursday, 2nd February 2006

Before:

HIS HONOUR JUDGE TOULMIN CMG QC

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B E T W E E N :

PHILIP SMALL
Claimant

-  and  -

(1) ANDREW MARTIN
(2) JAMES FENTON
Defendants

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Transcribed by BEVERLEY F. NUNNERY & CO
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MR. K. MUNRO (instructed by Devereaux Solicitors) and MR. J. IOANNOU (Solicitor of Devereaux Solicitors) appeared on behalf of the Claimant.
MR. R. DEACON (instructed by 	CKFT) appeared on behalf of the First Defendant.
THE SECOND DEFENDANT did not appear and was not represented.

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J U D G M E N T
C O S T S    J U D G M E N T

JUDGE TOULMIN:    

1	This judgment deals with ancillary matters arising out of my judgment in the two actions.  The first action is a building claim by Mr. Small against Mr. Martin.  In this action I found for Mr. Small and I awarded Mr. Small damages in the sum of £48,532.25.  The second action is a claim in harassment under the Protection from Harassment Act 1997 by Mr. Martin against Mr. Small and Mr. Fenton.  In this action I found for Mr. Martin and awarded him £10,000 in general damages plus the sum of £2,256 for the cost of security guards.  There was a claim by Mr. Martin that Mr. Fenton interfered with Mr. Martin's business relations with Mr. Small.  This claim took up little time.  I found that those business relations were irreparably damaged before the events in which Mr. Fenton participated.  

2	I have been much assisted by the detailed written submissions of Mr. Munro for Mr. Small, and Mr. Deacon for Mr. Martin.  Mr. Fenton put in a short written submission but, although he had ample notice, decided not to attend the oral hearing.  Mr. Munro and Mr. Deacon also made helpful oral submissions.  

3	I had thought that all matters could be dealt with by the court without the need for a further oral hearing but, having reconsidered the matter, I have concluded that it is more convenient and fairer to the parties to have a further oral hearing at which all outstanding matters can be dealt with.  

	PERMANENT INJUNCTION 

4	Mr. Munro for Mr. Small invited the court to accept a permanent undertaking from Mr. Small (and Mr. Fenton).  He accepted in his skeleton submission that the court is entitled to make a permanent injunction against Mr. Small.  Mr. Fenton took a similar position to Mr. Small.  I conclude that a permanent injunction should be made against both Mr. Small and Mr. Fenton in the terms that they be permanently restrained from: 

"(i) making any threats of violence or harm or otherwise communicating with Mr. Martin or any member of his family either verbally or by email or in writing otherwise than through solicitors, and 

(ii) from entering upon the property known as 3 Tate Garden, Bushey Heath, Hertfordshire, WD23 4GS, or entering Tate Gardens".  

	COSTS 

5	The parties have made a number of detailed submissions on costs which I must consider after setting out the relevant legal principles.  I note that both Mr. Martin and Mr. Small made formal Part 36 offers, and Mr. Fenton made it clear, in circumstances which I shall describe, that he would submit to an injunction.

	THE LAW  

6	The general rule on costs is set out in Part 44.3 CPR and in particular in  Part 44.3(2):

"(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 must have regard to all the circumstances, including - 

(a) the conduct of all the parties; 

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

(c) any payment into court or admissible offer to settle made by a party which is drawn to the court's attention (whether or not made in accordance with Part 36)."  

7	The rule emphasises that the conduct of the parties includes:

"44.3(5)(a) conduct before, as well as during, the proceedings and in particular the extent to which the parties followed any relevant pre-action protocol; 

(b) whether or not 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 his case or a particular allegation or issue; and 

(d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim."  

8	In relation to Part 36 offers, Part 36.20 prescribes:

"36.20(1)  This rule applies where at trial a claimant -

(a) fails to better a Part 36 payment; or 

(b) fails to obtain a judgment which is more advantageous than a defendant's Part 36 offer.  

(2)  Unless it considers it unjust to do so, the court will order the claimant to pay any costs incurred by the defendant after the latest date on which the payment or offer could have been accepted without needing the permission of the court."  

9	Part 36.23(4) provides that:

"For the purposes of rule 36.20, a claimant fails to better a Part 36 payment if he fails to obtain judgment for more than the gross sum specified in the Part 36 payment notice."  

10	Part 44.4 CPR specifies that costs may be awarded on the standard basis or on an indemnity basis but leaves judges with a wide discretion.  

11	Part 36.2(1) provides that where a claimant makes an offer to settle and the defendant is held liable for more than the sum in the Part 36 offer, the claimant is entitled to indemnity costs and interest on the sum and costs not exceeding 10% above base rate unless the court considers that it is unjust to make the orders.  

12	In Ford v GKR Construction Ltd. [2000] 1 All ER 802, the Court of Appeal laid down guidelines in amplification of the Rules.  Judge LJ said at p.807:

"Civil litigation is now developing a system designed to enable the parties involved to know where they stand in reality at the earliest possible stage and the lowest practicable cost so that they may make informed decisions about their prospects and the sensible conduct of cases.  Among other factors the judge exercising his discretion about costs should consider is whether one side or the other has or has not conducted litigation with those principles in mind."  

13	Lord Woolf, MR, at p.810 made pertinent observations on Part 36 offers.  He emphasised that if the process of making Part 36 offers was to work in the way in which the CPR intended, the parties must be provided with the information which they require in order to assess whether to make an offer or whether to accept an offer.  He went on to say:

"I also draw attention to the fact that the rules refer to the power of the court to make other orders and make it clear that the normal cost consequence of failing to beat the sum paid in does not apply when it is unjust that it should do so.  If a party has not enabled the other party properly to assess whether or not to make an offer or whether or not to accept an offer which is made because of non-disclosure to the other party of material matters… that is a material matter for the court to take into account in considering what orders it should make…"  

14	In Molloy v. Shell UK Ltd. [2001] EWCA (Civ) 1272, Laws LJ emphasised that in accordance with Part 44.3(5), the judge is obliged in relation to costs issues to consider first the whole of the parties' conduct and make his judgment.  Where there has been a Part 36 offer the judge must consider, as effectively the second stage, the questions relating to payment into court.  

15	In that case he concluded on the facts that, at least until he was found out:

"The respondent's approach to this action has been nothing short of a cynical and dishonest abuse of the court's process.  For my part, I entertain considerable qualms as to whether, faced with manipulation of the civil justice system on so grand a scale, the court should, once it knows the facts, entertain the case at all, save to make the dishonest claimant pay the defendant's costs." 

16	In Johnsey Estates (1990) Ltd. v.  Secretary of State for the Environment, Transport and the Regions [2001] EWCA (Civ) 535, [2001] 2 EGLR 128, Chadwick LJ set out the relevant principle that the starting point was that costs should follow the event but that a court may deprive a party of costs on an issue on which he has been successful if the court is satisfied that the party acted unreasonably in relation to that issue.  

17	In Painting v. University of Oxford [2005] EWCA (Civ) 161, Kay LJ emphasised that it must not be assumed that beating a Part 36 payment is conclusive:

"It is a factor and will often be conclusive but one has to have regard to all the circumstances of the case."  

	RELEVANT CORRESPONDENCE ETC

18	The parties rely on various matters raised in correspondence, including Part 36 offers.  On 19th March 2004 Mr. Small's solicitors wrote to Mr. Martin's solicitors immediately after Mr. Martin had obtained an interim injunction against Mr. Small in the harassment proceedings.  The letter notified Mr. Martin that Mr. Small was in the process of issuing a claim in excess of £100,000 against Mr. Martin.  

19	The letter went on:

"Our client is going to oppose the injunction but invites your client to consider whether there is any merit in having a meeting to resolve the dispute.  We should make it clear that this request is without prejudice to our client's position to strike out your client's injunction and to seek costs and damages."  

20	On 15th April 2004 GSC, solicitors on behalf of Mr. Small, denied categorically that he had made any threats or engaged anyone else to make threats against Mr. Martin.  The letter, heavily relied on by Mr. Small, continues:

"(c) Our client is happy to comply with the undertaking… so that the claim can be determined at trial.  Our client will challenge your client's right to have obtained the injunction without notice or no notice on the evidence available and to seek his costs at trial."  

21	The letter concluded by saying that the same judge should have both matters (i.e. the building and harassment claims) before him to avoid the risk of different judges making inconsistent findings.  

22	I do not read this letter as consenting to a permanent injunction but as a proposal that the existing injunction be continued until trial or further order.  

23	On 23rd April 2004 GSC proposed that the injunction proceedings against Mr. Small should be dealt with by a consent order continuing the injunction to trial or further order and that costs of the application should be reserved to the trial.  

24	On 26th April 2004 Mr. Martin's solicitors responded by saying that the proceedings should continue because Mr. Small had denied any knowledge of the man known as "Steve" (Mr. Fenton), who had made the anonymous telephone calls.  The solicitors noted that Mr. Martin had continued to receive anonymous telephone calls after the original injunction order had been made.  

25	In a fax dated 27th April 2004 CKFT, for Mr. Martin, noted that Mr. Fenton's identity had yet to be established, and Mr. Small and Mr. Fenton were required to attend court for cross-examination.  

26	A schedule of Mr. Martin's costs in relation to the harassment claim up to the hearing on 29th April 2004 amounted to £28,328.02, including VAT.  

27	On 10th May 2004 Mr. Martin's solicitors wrote to Mr. Fenton notifying him of the injunction and serving further proceedings upon him.  They urged Mr. Fenton to take legal advice and said that if he did not wish to defend the proceedings his solicitors might wish to contact them at an early stage to discuss settlement terms.  

28	On 24th May 2004 Mr. Fenton replied to the letter dated 10th May 2004.  He said that he chose not to be represented and that he had consented to the injunction.  He recorded his amazement that Mr. Martin's costs had escalated to over £28,000 and said that he would challenge the level of costs insofar as they related to him.  

29	Mr. Fenton's letter went on:

"I have dealt with your client's complaints openly and honestly and I have gone out of my way to minimise any unnecessary costs and any claim for damages which are disputed."  

30	I have to observe that a substantial part of Mr. Martin's costs to that date in the harassment proceedings had been incurred necessarily in unmasking Mr. Fenton's identity.  These costs would have been saved if Mr. Small or Mr. Fenton had revealed Mr. Fenton's identity at the earliest opportunity.  In the letter Mr. Fenton was giving Mr. Martin notice that he would contest any claim for damages, as well as the figure which was being claimed for costs.  

31	On 10th May 2004 CKFT also wrote to Mr. Small's solicitors.  They invited Mr. Small to reconsider his position and agree to a final injunction, an appropriate order for costs and an appropriate contribution towards Mr. Martin's damages claim.  There was no reply to this letter.  

32	It would of course have been open to Mr. Small to respond positively.  Had he done so, it may well have been that the harassment proceedings would have been brought to an early conclusion.  

33	On 16th February 2005 Mr. Martin made a payment into court relating to Mr. Small's building claim.  His solicitor's letter said:

"We refer to discussions earlier today between Ms. Breadman of this office and your Mr. Nathan, and confirm that our client made a payment into court on 15th February 2005 totalling £35,000 in settlement of your client's building claim… 

The offer is made in accordance with Part 36 Civil Procedure Rules.  For the avoidance of doubt, the offer is in settlement of your client's building claim only and is inclusive of interest.  In the event that your client accepts this offer, the injunction proceedings will continue."  

34	This letter is relied on both by Mr. Small and Mr. Martin.  Mr. Small says he should be entitled to his costs after this date on an indemnity basis because Mr. Martin failed to beat the payment in.  Mr. Martin says that, considered against the claim that was then being made, he was successful and should have his costs after that date.  He said that this is the case because, on 15th November 2005, Mr. Small notified further claims totalling £23,747, which Mr. Martin was not in a position to take into account when making the payment into court.  

35	There was no reply to Mr. Martin's solicitor's Part 36 letter, but two days later Mr. Small's solicitors responded with a letter dated 18th February 2005 expanding Mr. Small's claim.  The letter claims that Mr. Small suffered substantial loss as a result of Mr. Martin's failure to deal with the district surveyor to obtain building approval.  

36	To follow this point through, in June 2005 Mr. Small met Mr. Tunstall, who was in charge of building control of Mr. Small's house.  This was followed by an exchange of correspondence between them.  

37	On 17th May 2005 Mr. Small changed his solicitors from GSC to Abercorn.  It would appear that this occurred because Mr. Small's instructing solicitor moved firms.  

38	Their letter dated 17th May 2005 headed "Without prejudice save as to costs" referred to the harassment proceedings.  The letter said that since their client had consented to a final injunction in the early part of the proceedings, all that was in dispute was the question of costs.  The letter proposed that each side should bear its own costs.  This letter was factually inaccurate in that Mr. Small had not agreed previously to submit to a final injunction but only to an injunction to trial or further order.  The letter did not mention the question of damages.  

39	There were then various without prejudice discussions before 18th July 2005 when it was anticipated that the trial would take place.  (In fact it was adjourned on that date to 14th November 2005).  

40	Abercorn for Mr. Small wrote another without prejudice letter dated 12th July 2005.  The letter acknowledged that in the letter dated 15th April 2004 Mr. Small did not agree to a permanent injunction.  In the course of this letter Mr. Small offered to settle all matters on the following terms:  (1) Mr. Martin would pay Mr. Small £70,000 in respect of the building claim with costs to be assessed if not agreed; (2) Mr. Small would forego the Building Regulations claim which was said to be worth in excess of £50,000; (3) each party would bear its own costs of the harassment claim.  It was acknowledged that this would cost Mr. Martin £35,000, but it was argued that he would save the £50,000 which Mr. Small would recover on the Building Regulations claim, making a net saving to Mr. Martin of £15,000.  

41	On 1st August 2005 Abercorn made another offer on behalf of Mr. Small in the following terms, headed "Without prejudice except as to costs":  (1) Mr. Small would offer £1,000 and £10,000 costs in the harassment proceedings "without any liability at all"; (2) Mr. Small would submit to a permanent injunction.  The letter continues to claim that, by reason of his solicitor's letter dated 15th April 2004, Mr. Small should not be liable for costs after that date; (3) the offer was made in full and final settlement of all matters in the harassment proceedings and without any admission of liability; (4) Mr. Martin would pay Mr. Small £55,000 plus interest on the building claim with costs to be assessed; (5) Mr. Small would not pursue the claim under the Building Regulations.  

42	On 19th September 2005 Mr. Small made another Part 36 offer.  This offer was to settle the building claim for £50,000.  This of course could not take into account the additional items amounting to £23,747, which were notified to Mr. Martin for the first time on 15th November 2005.  

43	By a letter dated 22nd September 2005 CKFT responded on behalf of Mr. Martin to the letters dated 12th July and 1st August 2005, making a formal Part 36 offer.  It noted in relation to the harassment proceedings that at the hearing on 18th July 2005 Mr. Small indicated for the first time through his counsel that he was prepared to submit to a permanent injunction.  The letter said:

"As your client has now agreed to the permanent injunction, our client is prepared to waive his damages claim and will settle the injunction proceedings on the basis that your client pays the costs of the injunction proceedings to be assessed if not agreed."  

44	A similar offer was made to Mr. Fenton who was advised to obtain legal advice.  

45	On 28th September 2005 Abercorn made a counter offer on behalf of Mr. Small saying that the issue between the parties was whether or not Mr. Martin was entitled to recover any costs from April 2004 onwards because Mr. Small was prepared to consent to a permanent injunction.  

46	Mr. Fenton responded with an undated letter which was endorsed as having been received by CKFT on 13th October 2005.  In the letter he said that he agreed to submit to a permanent injunction in open court on 29th April 2004.  He said that any costs after that date were Mr. Martin's responsibility and any costs incurred before then were unnecessary.  He also said that the bulk, if not all, of the costs of the action related to Mr. Small and not to him.  He also referred to a letter from the Legal Services Commission, dated 7th September 2004, refusing legal aid and saying that the matter could be dealt with by an undertaking and that in its view the damages would not exceed £5,000.  I do not know who made this decision or on what the opinion was based.  

47	CKFT replied to Mr. Fenton's letter on 4th November 2005, taking issue with him on his assertion that in April 2004 he agreed to a permanent injunction rather than to one that was continued to trial or further order.  The letter also takes issue with Mr. Fenton's assertion that he caused no damage to Mr. Martin.  On the contrary, the letter claims that:

"Your conduct caused our client considerable distress and he is therefore entitled to damages to reflect this distress, in addition to the reimbursement of the security costs he paid for to protect his family, which are outlined in our client's claim." 

48	On 15th November 2005 in the course of the trial Mr. Small wrote a letter directly to Mr. Martin.  Unless it was agreed between the parties and their solicitors that Mr. Small could communicate directly with Mr. Martin, the letter was grossly improper.  The letter appears to be an attempt to intimidate Mr. Martin.  Mr. Small said that his award in the litigation with interest and costs "could well be in excess of £250,000", whilst Mr. Martin's claim in harassment was negligible.  He offered to settle on the basis that he recovered £50,000 for his building claim, together with £120,000 agreed costs.  
49	On 18th November 2005 CKFT noted that approximately 50 items had been added to the schedule of building works in respect of which claims were being made.  It noted that these items had not been pleaded and that they could not obtain instructions since Mr. Martin was in the middle of giving his evidence.  This letter was a reference to the £18,467 worth of additional items which were added to schedule 2 and the invoice for £5,280 referring to Miles Davis.  These items were taken into account by the experts in reaching their agreed figure of £40,000.  Mr. Martin's expert said in court that, disregarding these items, the settlement figure would have been £27,000.  

50	I also have Mr. Small's schedule of costs which, for the whole action, amount to £162,261.89, including £22,649.89 VAT which may well not be recoverable.  This is apportioned in the manner most favourable to Mr. Small, being £122,888.87 (76%) costs relating to the building claim and £39,373.02 (34%) relating to the harassment claim.  

51	Mr. Martin is applying for an interim payment in respect of costs.  His figures apportioned by his solicitor in a manner most favourable to him amount to £190,855.01 plus VAT, apportioned £94,595.66 (49.56%) to the harassment claim, and £96,259.35 (50.44%) in respect of the building claim.  

	THE SUBMISSIONS OF THE PARTIES 

52	Mr. Small invites the court to make an order for costs that awards him the costs of the building claim.  He asserts that the harassment costs after April 2004 should be regarded as costs in the building claim and that he should be entitled to recover them.  Alternatively, if the costs after 29th April 2004 are regarded as costs in the harassment claim, they should be paid by Mr. Martin.  Either way, Mr. Martin should recover the costs of the harassment claim on a standard basis up to and including 29th April 2004, otherwise Mr. Small should recover the costs of the two actions on a standard basis.  

53	Mr. Small relies on the following points:  (1) Mr. Small has recovered over 60% of his amended claim (excluding the Building Regulations claim); (2) Mr. Small recovered a sum substantially in excess of the Part 36 payment; (3) on 19th September 2005 Mr. Small offered to accept £50,000 in respect of the building claim; (4) on 15th November 2005 Mr. Small offered to accept £50,000 and a contribution to his costs; (5) it is claimed that the amendments subsequent to the payment into court added only £1,700 to the claim; (6) no costs were incurred by the defendant's expert on the Building Regulations issue and no time was spent on it at trial; (7) the time spent at trial on the harassment claim was minimal compared to the time spent on investigating the building claim; (8) on 15th April 2004 Mr. Small offered to submit to a permanent injunction; (9) on 1st August 2005 Mr. Small offered to pay Mr. Martin £1,000, to submit to a permanent injunction and make a contribution of £10,000 towards Mr. Martin's costs; (10) while it was made clear at the beginning of the trial that Mr. Martin was seeking damages, the real issue in the harassment case was whether the facts relied on warranted a permanent injunction; (11) in closing, Mr. Deacon, Mr. Martin's counsel, did not give the court any indication of the level of damages which he thought was appropriate, thereby emphasising that damages was not the issue; (12) the costs of the harassment claim after 29th April 2004 were minimal compared with the costs of the building claim.  

54	In short, it is claimed on behalf of Mr. Small that he succeeded in the building claim.  In relation to the harassment claim, an injunction was offered in April 2004 and the offer was repeated.  This was always primarily a building claim and while there were some costs at trial relating to the harassment claim, Mr. Munro suggested in argument that this should be reflected by a modest reduction in the overall costs which should be awarded to Mr. Small.  

55	Mr. Fenton contends that at all times he has offered to submit to an injunction and has apologised for his conduct at the earliest opportunity.  He says that proceedings against him were unnecessary after he had agreed to a permanent injunction in the harassment proceedings.  I found that he was not liable for inducing a breach of contract in the building proceedings.  

56	Mr. Martin submits that he should have the costs of the building claim and the harassment proceedings on an indemnity basis.  He makes his case on the following bases:  I should exercise my discretion under Part 44.3 of the CPR to reflect Mr. Small's conduct before as well as during the proceedings.  Mr. Martin relies on the following: (a) before the proceedings were on foot, Mr. Small altered the character of the dispute with Mr. Martin by embarking on a campaign of harassment in concert with Mr. Fenton in order to gain an advantage in the building dispute; (b) this harassment placed a serious strain on Mr. Martin, distorted the normal progress of civil litigation and made the settlement of the building dispute more difficult; (c) Mr. Small refused to acknowledge his involvement in the harassment which needlessly increased the costs of the dispute; (d) Mr. Small and Mr. Fenton concocted a false story which they presented to the court; (e) the lies concocted by Mr. Small and Mr. Fenton amounted to a serious abuse of the process of the court; (f) Mr. Small's involvement in the harassment is relevant both to the harassment proceedings and fundamentally to the issues in the building dispute; (g) at the hearing before Jack J. on 20th January 2005, as a result of which the harassment proceedings were transferred to this court, it was submitted on behalf of Mr. Small that the harassment claim was so inextricably linked to the building claim that the two should be heard together.  The issues in the harassment claim were pleaded in the building claim; (h) much of the trial was occupied in unravelling Mr. Small and Mr. Fenton's lies about Mr. Small's involvement in the harassment; if Mr. Small had been truthful at the outset, the harassment claim would not have been contested; (i) Mr. Small's misconduct in this litigation was extreme:  he was involved in the harassment; he lied to the court in his three witness statements; he lied to the police in the police interview; he concocted the evidence with Mr. Fenton and lied at trial.  Following Molloy v. Shell UK Ltd., Mr. Martin submits that following such abuse it is doubtful whether Mr. Small is entitled to pursue any claim, let alone a claim for costs.  

57	In addition, Mr. Martin contends that if one discounts the additional items considered by the experts which were not included in the original claim and relates the offer made on 16th February 2005 to Mr. Small's claim as then quantified, the offer made by Mr. Martin was a successful Part 36 offer.  If one has regard only to those items which were pleaded and particularised at the time when the offer was made, in respect of those items Mr. Small eventually recovered £27,000, less than the sum offered.  Mr. Martin contends that Mr. Small should have accepted Mr. Martin's offer and is liable to pay indemnity costs after that date.  

58	Mr. Martin also relies on the fact that no offer was made by Mr. Small until 12th July 2005 (six days before the original trial date of 18th July 2005).  The offer made on that date was to settle the building claim for the sum of £70,000.  The Building Regulations claim was to be foregone in exchange for no award of damages on the harassment claim.  It could not be said that this was a successful Part 36 offer.  

59	Mr. Martin further contends that Mr. Small's Part 36 offer of 19th September 2005 is of no value because it took into account items which had not been pleaded and were not supported by invoices.  It was not possible therefore for Mr. Martin to make a realistic assessment of the offer.  

60	In this context, Mr. Deacon notes that in the particulars of claim, even as amended, accommodation and storage charges were put (without particulars) at £13,500.  Despite an unless order made on 26th May 2005, no disclosure was given relating to accommodation, storage or removal costs.  Finally, on 11th November 2005, in the skeleton opening on behalf of Mr. Small, the item was particularised and expanded to include rubbish removal, £2,200 - no invoice, not upheld - and the Miles Davis claim for decoration amounting to £5,280, which also was not successful.  This was out of a total claim of £13,662.25.  This was in addition to the claims particularised on 15th November 2005 to which I have already referred.  

61	Mr. Martin also contends that significant costs were incurred in dealing with the claim in relation to the Building Regulations which he says was put forward two days after the Part 36 offer of 16th February 2005 in order to try to defeat the Part 36 offer.  It was never quantified in detail, although at one stage a value of £94,600 was placed upon it.  The claim was virtually ignored in the final figure of £40,000 agreed by the experts.  Mr. Hird's witness statement and Mr. Martin's fifth witness statement were concerned with this issue.  Substantial costs were incurred in taking instructions, including the cost of expert advice, obtaining instructions from witnesses of fact and in attempting to obtain the building control file from the London Borough of Barnet.  This was a claim which had potentially serious consequences for Mr. Martin and had to be fully investigated.  

62	It is also argued that I should take into account that the claim was substantially exaggerated.  The total claim for pleaded and unpleaded items was £179,752.66, of which £94,600 related to the Building Regulations claim and £23,747 to unpleaded items.  

63	Mr. Martin relies on the passage at CPR 44.3.10 that litigants should be selective as to the points which they take and should conduct litigation so as to enable the parties to know where they stand at the earliest possible stage.  He argues that a claimant who pursues an exaggerated and inflated claim for damages must expect the consequences when his costs come to be assessed.  

64	Put briefly, Mr. Martin contends:  (1) Mr. Small's conduct before and during the litigation was so reprehensible that this should be reflected in the costs order; (2) the building claim grew beyond the pleadings and in such a way as to make a sensible Part 36 payment impossible; (3) Mr. Small did not beat the offer made on 16th February 2005, if one takes into account that the £40,000 figure agreed by the experts was not out of a claim for £47,560.48 for items then in the schedule, but included a further £18,467 worth of items not then pleaded, together with a claim for painting of £5,280, making a total of £23,747.  The claim of £2,200 for removal and storage was substantiated by an invoice which Mr. Martin saw for the first time when it was admitted in evidence late in the trial.  The £35,000 offer was a generous offer on the basis of information available at the time and should have been accepted.  

65	In oral answer to Mr. Munro's written submissions, it is said by Mr. Deacon on behalf of Mr. Martin that the agreement to submit to an injunction in April 2004 was not on the basis that it was to be final but was until trial or further order.  The letter dated 23rd July 2004 made it clear that Mr. Small would defend the claim vigorously.  The first time Mr. Small made any offer to settle was 1st August 2005.  On that occasion there was no offer of damages.  Mr. Deacon for Mr. Martin emphasised in oral argument that the vast amount of work which had to be undertaken in the injunction proceedings.  This included six applications to the court, applications for the disclosure of telephone records from the police and Orange, and the piecing together of the evidence when it became available.  

66	Mr. Deacon was invited to give me an indication of the level of damages which he thought appropriate but declined to do so.  I am satisfied that this was not to emphasise that damages were not the issue but because on his reading of Sir Richard Scott V-C's judgment in Penharic he thought it would not be proper to do so.  

67	In reply, Mr. Munro for Mr. Small said that the amendments to the building claim were not substantial.  Although the claim relating to the Building Regulations was included in May 2005, it did not feature throughout the hearing.  He conceded that any costs relating to it should be Mr. Martin's in any event.  Otherwise, he said costs should be Mr. Small's.  In relation to the harassment claim, Mr. Martin should have responded to the open letter of 15th April 2004 and that should have brought the proceedings effectively to an end.  If the letter was thought to be vague, Mr. Martin's solicitors should have asked for clarification.  It was clear from Mr. Martin's own Part 36 offer to compromise the claim by payment of all his costs, that the damages claim was not important to him.  

68	Mr. Munro went on to say that, in any event, Mr. Martin should have accepted Mr. Small's Part 36 offer made on 1st August 2005 even though the offer to pay £10,000 towards Mr. Martin's costs was substantially less than the costs which Mr. Martin had incurred.

	CONCLUSIONS  

69	The first question is whether the conduct of either or both the defendants in the harassment case was such that it amounted to an abuse of the process of the court.  If it did, I must consider whether or not it amounted to a manipulation of the civil justice system so that I should award costs against one or both of them in both the harassment action and the building action.  In this I am guided by the Supreme Court Rules and the decided cases, in particular Molloy v. Shell UK Ltd.  

70	I am satisfied that Mr. Small's conduct has been nothing short of a cynical and dishonest abuse of the court's process.  In relation to the harassment claim, I have found that he concocted the plan with Mr. Fenton to put pressure on Mr. Martin in relation to the building claim.  He then proceeded to carry this plan through.  He persisted to the end of the trial in denying that he had anything to do with Mr. Fenton's anonymous and threatening telephone calls.  His conduct was an abuse of the process of the court which not only affected the harassment proceedings but also affected the building claim.  

71	What started out as a relatively straightforward building dispute between Mr. Small and Mr. Martin was distorted by the harassment claim.  In terms of settlement, or the possibility of settlement, the harassment occurred at the time and immediately after relations between Mr. Small and Mr. Martin had broken down.  This altered the character of the building dispute and distorted the progress of that litigation.  

72	Further, Mr. Small's conduct was intended to enable him to gain an advantage in the building dispute.  Mr. Fenton was posing as a debt collector who was threatening Mr. Martin.  This is encapsulated in Mr. Fenton's message to Mr. Martin on 16th March 2004:  "I suggest you try and contact Philip [Small] to try and sort this out amicably, otherwise it will get nasty".  

73	I am satisfied that Mr. Small's conduct amounted to an abuse of the process of the court and that he should pay Mr. Martin's costs in both actions on an indemnity basis.  

74	In the event that I am wrong about this, I turn to the two actions separately.  In relation to the harassment action, Mr. Small contends that his Part 36 offers on 15th April 2004 and 1st August 2005 were effective to bring in operation the provisions of Part 36 CPR.  

75	The offer dated 15th April 2004 denied that Mr. Small had made any threats or engaged anyone to make any threats against Mr. Martin.  Mr. Small did not disclose the name of Mr. Fenton who was harassing Mr. Martin on his behalf.  This denial was therefore untrue.  

76	Further, Mr. Small did not agree to submit to a final injunction but only to an injunction until trial or further order and he made it clear that the issue of costs would be contested at trial.  I do not regard this as a successful offer within the terms of Part 36.  

77	I note that on 10th May 2004, after Mr. Fenton had been identified, Mr. Martin's solicitors, CKFT, wrote to Mr. Small's solicitors asking Mr. Small to agree to a final injunction, to submit to an order for costs, and to make an appropriate contribution to Mr. Martin's damages claim.  This offer does not appear to have been taken up by Mr. Small.  It was, in the circumstances, a generous offer.    

78	Mr. Small also contends that Mr. Martin should have accepted his offer contained in Abercorn's letter dated 1st August 2005.  This followed Mr. Small's earlier offer dated 18th July 2005 and, as part of a package, Mr. Martin should not recover his costs from Mr. Small in relation to the harassment claim.  

79	The offer of 1st August 2005 that Mr. Small would pay £1,000 damages and £10,000 costs in the harassment proceedings "without any liability at all" fell far short of what Mr. Martin has recovered.  The £10,000 costs is a small fraction even of the costs of £28,328.02, including VAT, which was set out in the schedule for the hearing on 29th April 2004.  Significant additional costs would have been incurred between 29th April 2004 and 1st August 2005.  The £1,000 offered by way of damages was a very small fraction of the £10,000 which I have awarded.  This offer has also to be considered bearing in mind that Mr. Small told Mr. Martin that he would be unlikely to recover any money from Mr. Fenton.  

80	I find that Mr. Martin was justified in refusing both offers which were not, in any event, successful offers in the terms of Part 36.  I conclude that, if I am wrong in my initial conclusions, Mr. Small should in any event pay costs on an indemnity basis.  His conduct in relation to the way in which he conducted the harassment dispute was unreasonable to a high degree and worthy of moral condemnation.  

81	I turn now to the building claim.  I have already found that Mr. Small altered the character of the dispute by his conduct.  This made early resolution of the dispute much more difficult.  I have also noted that as the actions progressed the terms of settlement in one action impinged on the other.  Mr. Small contends that two Part 36 offers should protect him in costs and that Mr. Martin's payment into court on 15th February 2005 did not protect Mr. Martin.  

82	In considering these questions I bear very much in mind the guidance of Lord Woolf MR and Judge LJ in Ford v. GKR Construction Ltd. - a party can only take an informed decision about its prospects if the opposing party has made full and open disclosure of its claims at the earliest practicable time.  Equally, a party can only make a decision on whether or not to accept a payment into court or a Part 36 offer on the basis of the information in its possession.  
83	On 16th February 2005, Mr. Martin's solicitors wrote to Mr. Small's solicitors saying that on 15th February 2005 Mr. Martin had made a payment into court totalling £35,000 in settlement of Mr. Small's building claim.  Mr. Martin could only make that payment in on the basis of his assessment of the claims then being made against him.  I am told that the sum of £40,000 agreed by the experts took into account not only those claims but also additional claims which were only documented at trial and perhaps to a small extent the claim under the Building Regulations.  The suggestion is that this was taken into account, albeit only to a very limited extent.  I was told that the claims that were pleaded and had been documented accounted for £27,000 of the £40,000 eventually agreed by the experts.  It could not be said in these circumstances that Mr. Small had been right to refuse the sum which was paid into court.  I note that Mr. Small's solicitor's response to the payment in, as part of the general tactics, was to add the Building Regulations claim on the following day and emphasise that it would be substantial.  

84	On 18th July 2005 Mr. Small offered to settle the dispute on the basis that Mr. Martin would pay £70,000 with costs to be assessed if not agreed, plus a sum of £35,000 representing the value of the claim relating to the Building Regulations.  

85	On 1st August 2005, apart from Mr. Small's offer relating to the harassment claim, he offered to accept £55,000 plus interest and costs for the building claim.  

86	On 19th September 2005 Mr. Small offered to settle the building claim for £50,000.  I accept that Mr. Martin's legal advisers could only evaluate this offer on the basis of claims which had been particularised and supported by documents.  A number of claims taken into account by the experts had not then been particularised or supported by documents.  These claims were only quantified and supported by documents at trial.  I would have regarded it as unjust for Mr. Small to have had this offer reflected in a Part 36 costs order in his favour even if Mr. Small had recovered just over £50,000.  

87	If I had not reached my overriding conclusion, I should, in respect of the building claim, have awarded Mr. Small his costs on a standard basis to 16th February 2005, except for the costs relating to the Building Regulations, which would have been Mr. Martin's in any event, and thereafter I should have awarded costs on an indemnity basis to Mr. Martin.  I should have directed that if there is any duplication between the building claim and the harassment claim, the costs should be assessed as part of the harassment claim.  

88	Mr. Fenton did not reveal his identity until immediately before or at the injunction hearing on 29th April 2004.  In response to a letter from Mr. Martin's solicitors, he wrote on 24th May 2004 saying that he consented to the order for an injunction made against him.  He said that he disputed any claim for damages.  On 10th May 2004, Mr. Martin's solicitors made an offer - generous in the circumstances - inviting him to discuss terms of settlement.  In Mr. Fenton's letter dated 24th May 2004 he said that he disputed the total of Mr. Martin's costs and Mr. Martin's right to damages.  

89	On 22nd September 2005 a further offer was made to Mr. Fenton to compromise this action on the basis that he submit to a final injunction and pay the costs on a standard basis.  He refused the offer on the unsustainable basis that any costs before 29th April 2004 were not necessary and any costs after that date were Mr. Martin's responsibility.  

90	Aside from the crucial fact that he persisted in the deception that Mr. Small was not involved in the harassment of Mr. Martin, I am satisfied that the majority of costs in the harassment claim were incurred by Mr. Martin in his dispute with Mr. Small.  I am satisfied that if the matter had been resolved with Mr. Small, there would have been no difficulty in also resolving matters with Mr. Fenton.  I am also satisfied that only to a relatively minor extent did Mr. Fenton's conduct adversely affect the building dispute between Mr. Martin and Mr. Small after 29th April 2004.  

91	I have considered whether Mr. Small's conduct in persisting with the deception until trial should result in an order for costs against him in the building action on the basis that his conduct as well as that of Mr. Small distorted the progress of the building claim, but I have decided that this would be unjust and disproportionate.  In relation to the harassment claim if Mr. Small had told the truth he could have brought the harassment claim to an end.  He participated in the deception, including giving untruthful evidence in the witness box.  No doubt he did this not only to benefit Mr. Small but also in an attempt to avoid paying the significant costs of unmasking his identity incurred before 29th April 2004.  He must pay the costs of the harassment claim on an indemnity basis jointly with Mr. Small.  As between him and Mr. Small, the appropriate costs apportionment is that he should pay one half of the costs for 29th April 2004 and that thereafter Mr. Small should pay 90% of the costs and 
        Mr. Fenton 10%.  

	ORAL HEARING ON 2 FEBRUARY 2006

JUDGE TOULMIN:  First of all, are there any observations in relation to matters of fact?  (After a pause):  

MR. DEACON:  My Lord, I think that there were occasions when you said 2002 rather than 2004, but nothing substantial.  

JUDGE TOULMIN:  I will check.  

MR. DEACON:  Yes.  

MR. IOANNOU:  There was also the occasion -- first of all, thank you very much indeed for allowing me to represent Mr. ---- 

JUDGE TOULMIN:  No, well, that is clearly right ---- 

MR. IOANNOU:  There is also -- I was just quickly taking a note but there was also where you made reference to Small when I think you were making reference to Fenton, most recently in the last part, the conclusion of your judgment.  

	But can I say, my Lord, obviously this is a difficult judgment which we need to consider.  I need to obtain a transcript of this judgment.  I need to put this before Mr. Munro for him to advise Mr. Small accordingly.  So on the question of an appeal, we would obviously like to appeal this but we need to consider in great detail what has been said.  We have written as quickly as we possibly can.  

	The other thing is the enforcement of the judgment, if I could ask for a stay pending the transcript so that Mr. Munro of course can advise Mr. Small accordingly on the grounds of an appeal.  

JUDGE TOULMIN:  Well, I will deal with that question in due course.  I want to take things by stages.  The first matter is that.

MR. DEACON:  My Lord, I think certainly the costs orders injunction has been dealt with.  I think both sides are asking for permission to appeal.  

JUDGE TOULMIN:  Well, they were but in relation to a number of the matters identical parties -- I will deal with that matter.  I have not forgotten it and I will deal with it.  

MR. DEACON:  Certainly.  

JUDGE TOULMIN:  It seemed to me that there is a question in relation to the trial but there may also be a question in relation to costs.  

MR. DEACON:  Certainly, yes.  

JUDGE TOULMIN:  That is why I have not dealt with that.  It did occur to me that once a number of matters have been clarified, on your side at least there might be rather less enthusiasm ---- 

MR. DEACON:  My Lord, indeed.  

JUDGE TOULMIN:  -- for appealing than there was.  

MR. DEACON:  Yes.  Certainly we need to consider the judgment as a whole.  

JUDGE TOULMIN:  The orders that I have are as follows.  I will read these out quite slowly and then you can consider them.  The first is judgment for Mr. Martin against Mr. Small and Mr. Fenton on the harassment claim in the sum of £12,256 plus interest to be assessed.  That is on the basis of joint and several liability.  Secondly, as between Mr. Small and Mr. Fenton, damages in the harassment claim to be apportioned 60% to Mr. Small, 40% to Mr. Fenton.  Thirdly, permanent injunction against Mr. Small and Mr. Fenton in relation to the harassment claim.  That is in the terms set out in the judgment, in the costs judgment.  Four, judgment for Mr. Small against Mr. Martin on the building claim in the sum of £48,532.25 plus interest to be assessed.  Five, Mr. Small to pay Mr. Martin's costs of the building proceedings on an indemnity basis.  Six, Mr. Small and Mr. Fenton to pay Mr. Martin's costs of the harassment proceedings on an indemnity basis, joint and several liability.  As far as next one is concerned, it is the last part of the judgment, I need to hear you on any apportionment of costs between Mr. Fenton and Mr. Small.  What I have set out in the judgment is provisional in relation to that matter.  The next one, but at the moment it is number 7 and this is provisional, as between Mr. Small and Mr. Fenton, each are to pay 50% of Mr. Martin's costs to 29th April 2004 and thereafter Mr. Small is to pay 90% and Mr. Fenton 10%.  Eight, in the event of any duplication of costs between the building claim and the harassment claim the costs are to be ascribed to the harassment claim.  That leaves interest, order for payment out of court and interim payment of costs and permission to appeal.  

MR. DEACON:  My Lord, I would appreciate, subject to your Lordship, five minutes just to consider this, if I may.  

JUDGE TOULMIN:  Yes.  I think that is very sensible.  I think you both may want to have five minutes to consider it.

(Adjourned for a short time)

JUDGE TOULMIN:  Would you like the machine to remain on?  

MR. DEACON:  My Lord, certainly I have no objection to that.  Yes.  

	My Lord, we have discussed the orders that are now proposed.  Can I just say what our position is on that?  

JUDGE TOULMIN:  Yes.  

MR. DEACON:  With regard to interest, we would like time to agree those figures.  

JUDGE TOULMIN:  Yes.  

MR. DEACON:  We have figures, but Mr. Small's side would like to consider the matter.  

JUDGE TOULMIN:  Yes.  

MR. DEACON:  With regard to payment out, that money that is in court, £35,000-odd plus accrued interest, is of course Mr. Martin's money.  

JUDGE TOULMIN:  Yes.  

MR. DEACON:  There is a very large balance on the basis of the orders that have now been made in his favour, so I would submit that that money therefore ought to be paid out to Mr. Martin.  There is absolutely no reason, I would submit, why it should not be.  As I say, it is his money.  

	With regard to the interim payment of costs, my Lord, what I would suggest, our total figure is £218,000 ---- 

JUDGE TOULMIN:  Does that include VAT?  

MR. DEACON:  It does, my Lord.  

JUDGE TOULMIN:  What is the figure without VAT?  

MR. DEACON:  £190,000-odd.  

JUDGE TOULMIN:  Yes.  

MR. DEACON:  My Lord, I was going to ask for an interim payment of £120,000 to take account of the £35,000-add.  That would be an interim payment of £85,000.  

JUDGE TOULMIN:  Yes.  

MR. DEACON:  With regard to permission to appeal, we are not pursuing that application.  

JUDGE TOULMIN:  Thank you.  

MR. DEACON:  My Lord, those are our submissions.  

JUDGE TOULMIN:  Yes?  

MR. IOANNOU:  My Lord, I obviously need to obtain a transcript of the judgment so I can put this before Mr. Munro.  So the first point I would kick off is saying that my client's instruction is to seek to appeal so I would ask for permission to appeal.  

JUDGE TOULMIN:  If I am to evaluate that permission, you have to set out some grounds, otherwise there is no basis on which I can, as I am required to do, either give permission or not give permission.  

MR. IOANNOU:  Well, my difficulty of course is this is a matter that -- I was here taking a note for Mr. Munro, but, I mean, the grounds are that you, with respect, have totally gone from the extreme in relation to a successful party being awarded its costs where it has succeeded in its claim, Mr. Small has succeeded in his building claim, as it were, and you have found that the reason why he should pay all costs on an indemnity basis is that he has concocted the story of Mr. Fenton.  Now, Mr. Small's position has been that he did not concoct this story with Mr. Fenton, he was entitled to give his evidence to that as far as he was concerned.  He had no involvement with Mr. Fenton.  The evidence, on my submission, with the utmost respect, does not lead to the conclusion that on those bases it should be -- you know, costs on an indemnity basis and no costs at all in relation to his building claim, although obviously he lost on his harassment case, but not insofar as the building case was concerned.  

JUDGE TOULMIN:  Well, I think probably the best way of dealing with that in order to move things on is to ask you this.  There is of course the possibility to appeal, if I refuse permission, to appeal to the single judge.  I can deal with this in one of two ways.  Either I can deal with it on the basis of the application which you have just made, and I will clearly order a transcript, and the matter then can go before Mr. Munro.  The order which I would propose to make in respect of that is that time for application to appeal runs from the date on which you receive the perfected transcript in the event that I do not give permission.  

MR. IOANNOU:  Indeed.  

JUDGE TOULMIN:  The alternative is for Mr. Munro to make the application before me.  That simply, I think, slows up the whole process, but in the first instance, before reaching a decision one way or another on that matter, I would like to have your views.  

MR. IOANNOU:  Those two options that you have just put to me, my Lord?  

JUDGE TOULMIN:  Yes.  

MR. IOANNOU:  Yes, I think the former is perhaps more appropriate.  I do desperately need to get a copy of the transcript.  I have written as best and fast as I possibly could and of course ---- 

JUDGE TOULMIN:  Of course.  That is why I have said that there are two options.  One is for me to consider permission to appeal on the basis of what you have submitted to me, which I am happy to do.  

MR. IOANNOU:  Indeed.  

JUDGE TOULMIN:  And if we go down that route, that still means that you will be in a position where the matter can, if so advised by Mr. Munro, and if that is what Mr. Small chooses to instruct you to do ---- 

MR. IOANNOU:  Indeed.  

JUDGE TOULMIN:  -- there can still be a written submission to the single judge.  The alternative would be for me to get the judgment and for there to be a further hearing here.  I am bound to say that the point which you are making is one which I think is intelligible and on which I would be able to rule today, but before reaching a decision I want to make sure that I have your submission as to which course you would like me to follow.  

MR. IOANNOU:  I would have thought -- well, could I just take instructions first, my Lord?  Do you mind awfully if I ---- 

JUDGE TOULMIN:  Yes.  (After a pause):  

MR. IOANNOU:  Mr. Small's position, my Lord, is that he obviously wants this matter resolved as quickly as possible insofar as the appeal is concerned.  I think the former perhaps is the ---- 

JUDGE TOULMIN:  Right.  Well, I have got your submissions on that.  Now, in relation to the question of payment out of the £35,000 to Mr. Martin.  

MR. IOANNOU:  My Lord, I would first submit that pending the appeal the matter should be stayed.  I accept that I would have difficulty with regard to the £35,000, but just on the payment of £35,000, if the appeal were successful, then it would be £35,000 that Mr. Small could lose.  There is no prejudice with the money staying there pending the appeal ---- 

JUDGE TOULMIN:  Well, this may take some time.  There is prejudice.  First of all, I suspect that in order for the £35,000 to kick in you would have to be successful both in relation to the building claim on what I call the overall finding in relation to your client's conduct, but also in relation to the payment in.  

MR. IOANNOU:  Well, I mean ---- 

JUDGE TOULMIN:  Because I have found that the payment in of £35,000 ought to have been accepted and that, in any event, your client must pay indemnity costs after that date.  So I suspect that in relation to the £35,000 you would be in difficulties.  

MR. IOANNOU:  May I just revert to that in a moment, my Lord, but can I then just deal with the interim payment, which I anticipate will be the next point, 
	and I ---- 

JUDGE TOULMIN:  Why do you not deal with the £35,000 whilst we are dealing with it?  

MR. IOANNOU:  Well, with respect, my Lord, my understanding from the judgment I have just taken down, it is -- using the word "punish", we were punished because of -- on the question of costs.  I mean, my understanding is that we did meet the £35,000 that was paid into court and, with respect, my Lord, the actual claim that was amended was, I think, £77,000-odd.  I have not got the amended pleading in front of me.  

JUDGE TOULMIN:  No, there are two points.  The first is, and I understand your submission on it, that if you win on the overriding point and you say that my finding is wrong in principle ---- 

MR. IOANNOU:  Indeed.  

JUDGE TOULMIN:  -- in relation to the indemnity costs for the whole of the building claim ---- 

MR. IOANNOU:  Yes.  

JUDGE TOULMIN:  -- you are still left with the second argument in relation to the £35,000, that Mr. Small ought to have accepted the payment into court from the defendants on 12th February last year, or 16th February last year.  Unless you upset that, you are in a position, I suspect, where the £35,000 does not kick in any way.  So in order for your client to recover part of the £35,000 paid into court, bearing in mind the costs in the harassment proceedings, I would suspect that you have to win on that point as well.  

MR. IOANNOU:  Well, with the utmost respect, my Lord, I thought we had won on that point because we had beaten the £35,000.  The total judgment was £48,000.  

JUDGE TOULMIN:  Well, you have to win on that point as well before you can be successful in having part of the £35,000 paid to Mr. Small.  Your submission on that is that you would say that you have realistic prospects of winning on that point.  Is that right?  

MR. IOANNOU:  Indeed I would, my Lord.  

JUDGE TOULMIN:  I see.  Yes?  

MR. IOANNOU:  Shall I then go on, my Lord, in relation to the interim payment point?  

JUDGE TOULMIN:  Yes.  

MR. IOANNOU:  Right.  My Lord, I would invite you to stay any interim payment on the basis that if the appeal is successful and then costs are awarded to Mr. Small, then of course an interim payment will need to be made back.  There again there is no prejudice pending the appeal.  This is quite a complicated case to assess in any event.  I accept that where one is successful an interim payment ought to be made by the court but pending an appeal, if the roles are reversed, as it were, and the costs are not awarded, then those costs would have to go back.  So I would invite you not to order an interim payment to be made, most certainly not £120,000 or £120,000 less £35,000.  So on that basis, my Lord, I would ask that there is permission to appeal ---- 

JUDGE TOULMIN:  You would ask for no order of interim payment?  

MR. IOANNOU:  Pending the appeal, my Lord, yes, that is correct.  

JUDGE TOULMIN:  Should that be pending appeal or pending permission to appeal?  Pending the hearing of permission to appeal.  

MR. IOANNOU:  Well, I am being told pending appeal, my Lord, but if your view is that -- if you are against me, then it be would pending the appeal but I would invite -- it is pending the appeal.  I mean, that is the hypothesis that I am successful or we are successful on application for permission to -- it should be pending appeal, my Lord.  

JUDGE TOULMIN:  I see.  Thank you.  

MR. IOANNOU:  I think those are the only points I can say at the moment.  

JUDGE TOULMIN:  Thank you.  

MR. DEACON:  My Lord, with regard to the money in court, that is Mr. Martin's money.  There is a very large balance in his favour as a result of the judgment and it is plainly just and proportionate, I submit, that that money is returned to him.  There is no reason why it should not be returned to him.  As I say, it is his money.  

JUDGE TOULMIN:  Yes.  

MR. DEACON:  My Lord, I do not think I can take that any further.  It is not as though we are asking for the other side's money to come back to us, it is money that Mr. Martin paid in.  

	With regard to the application for permission to appeal, this is an application for permission to appeal on a costs order.  My Lord, appeals on costs orders are extremely difficult to pursue.  Of course it is a matter for your Lordship.  I would submit that this really is a matter for the Court of Appeal.  If they want to entertain an appeal on costs, that is a matter really that the Court of Appeal ought to decide rather than the court of first instance.  But, as I say, that is entirely a matter for you, and one appreciates order that has been made.  It is one of those matters where the single judge reading the judgment will have a full appreciation of the issues that arise on the costs.  

	My Lord, I submit that there are no grounds here really for not ordering an interim payment.  Your Lordship has made the judgment and it follows under the rules that the court must consider making an interim payment, and that is really all I ---- 

JUDGE TOULMIN:  What rule?  (After a pause):

MR. DEACON:  I think it is 25.7.18.  

JUDGE TOULMIN:  Thank you.  (After a pause):  

MR. DEACON:  Well, in fact the order is -- that is the note ---- 

JUDGE TOULMIN:  25.7.  

MR. DEACON:  It is 25.7.  (After a pause):  

JUDGE TOULMIN:  It does not look like the right provision.  

MR. DEACON:  No, I do not think so, my Lord.  I am afraid it is dealing with another matter.  (After a pause):  Yes, it is 44.3(8) at 1098.  It is an order on account of costs.  The notes are at 44.3.15.  (After a pause):  My Lord, in those notes, at p.1110, it is the fifth paragraph into those notes:

	"In general an interim order for payment of costs prior to assessment should be made, but the court has to take into account all the circumstances in the particular case including the unsuccessful parties' wish to appeal; relative financial position of each party; the court's overriding directive to deal with cases justly."

	(After a pause):  

JUDGE TOULMIN:  So one of the matters which I should take into account -- have you got the ---- 

MR. IOANNOU:  I have not, unfortunately, no.  If I could share with Mr. Deacon.  

JUDGE TOULMIN:  

	"… the court has to take into account all the circumstances in the particular case including the unsuccessful parties' wish to appeal..."

	And then the next one:

	"… the relative financial position of each party; the court's overriding objective to deal with cases justly."  

MR. IOANNOU:  Yes, I can see that.  

JUDGE TOULMIN:  So you need to take instructions on the relative financial position, if there are any matters relating to that, which you want to urge on the court as a reason why an order should not be made.  

MR. IOANNOU:  Could I have a few moments to take those instructions?  

JUDGE TOULMIN:  Yes.  

MR. DEACON:  My Lord, just to repeat, the figure we would be asking for is £85,000 that would need to be found.  

JUDGE TOULMIN:  Yes.  There is one other matter, just before you turn round.  I understand that Mr. Small may wish to make an application for permission to appeal in relation to the judgment as well as to costs.  

MR. DEACON:  Yes.  

JUDGE TOULMIN:  So the submission you have made in relation to costs would not be the same one that you would make ---- 

MR. DEACON:  No.  

JUDGE TOULMIN:  So you might think about that ---- 

MR. DEACON:  Certainly.  

JUDGE TOULMIN:  -- while you are taking instructions on the other matter.  

MR. IOANNOU:  Indeed.  That is correct, that point… just reminded me, so I shall take those instructions now, shall I?  

JUDGE TOULMIN:  Yes.  (After a pause):  Yes?  

MR. IOANNOU:  My Lord, I have taken those instructions.  Can I just comment as follows?  Sorry, can I just submit as follows?  What limited funds are available will be utilised for the appeal, which means that if you do find ---- 

JUDGE TOULMIN:  Well, unless you are prepared to give me some idea of figures, I shall not be ---- 

MR. IOANNOU:  Indeed.  

JUDGE TOULMIN:  -- in a position to be able to understand the submission.  

MR. IOANNOU:  Indeed.  My Lord, I apologise.  First of all, of course I just remind myself that you have awarded judgment in favour of Mr. Small for £48,300 already, so there is that credit figure there, as it were.  There is approximately £40,000 that is owed in legal fees which need to be paid and ---- 

JUDGE TOULMIN:  Sorry?  Whose legal fees?  

MR. IOANNOU:  Well, there is my firm's fees and Mr. Munro's fees that are still outstanding that have not actually been settled yet.  They were just about to be paid so ---- 

JUDGE TOULMIN:  But I do not know that those necessarily take precedence over fees on the other side.  

MR. IOANNOU:  There are some small fees.  I have not been able to quantify the figure.  I would need to get Mr. Small to make a telephone call to get that.  And there is a VAT bill that needs to be settled as well.  So there really are not any savings at the moment that can be put forward towards ---- 

JUDGE TOULMIN:  That does not tell me anything about Mr. Small's circumstances.  For all I know, Mr. Small may have a large sum of money in a bank account.  What you have told me simply is relating to what is the position in relation to that claim.  That does not tell me anything, I think ---- 

MR. IOANNOU:  May I just have a few more moments, my Lord, just to ---- 

JUDGE TOULMIN:  Yes.  (After a pause):  Mr. Deacon, I think I will rise for five minutes.  

MR. DEACON:  Yes.  

JUDGE TOULMIN:  But I will be back at twenty past, so literally five minutes.  

MR. IOANNOU:  Yes.  

MR. DEACON:  Yes.

(Adjourned for a short time)

MR. IOANNOU:  My Lord, thank you very much indeed for that short period, my Lord.  My client's position is that insofar as savings are concerned, he can probably raise, or has, approximately £5,500.  Insofar as his monthly income and monthly outgoings are concerned, his monthly income is he has a drawing of £3,000 or has a salary of £3,000 from his business.  That is a net figure.  His outgoings are approximately £2,000.  

JUDGE TOULMIN:  That is a month, a week?  

MR. IOANNOU:  A month.  This is monthly.  These are monthly figures.  I apologise, my Lord.  The mortgage is approximately £1,200 and then there are general household bills.  

JUDGE TOULMIN:  Mortgage £1,200 a month.  Outgoings?  

MR. IOANNOU:  Other household bills, telephone, guess, etc., food, £800.  Which leaves a surplus of approximately £1,000.  There are school fees of approximately £6,000 to £7,000, but they can be, I suppose, kicked into touch at the moment, as it were.  There are some credit card debts which are not significant.  They run into thousands.  So that is basically his financial position.  

	Just referring to the White Book though, my Lord, of course you need to take into account, as was drawn out, the position to give fairness to both parties and of course this is an application for permission to appeal not only on costs but also on the actual judgment itself.  It is unfortunate that Mr. Small is not in a position where he could offer this financial payment on an interim basis, and there are limited funds, as it were.  

	The other point I have referred to is of course he has judgment of £48,300 and all that is being asked is a stay pending the appeal.  Now I accept I have difficulties on the 35.  Mr. Deacon says that it is Mr. Martin's money but if I am correct in my appeal, speaking in the first person, then the costs position is reversed, as it were.  So I would invite you to maintain the status quo pending appeal.  

JUDGE TOULMIN:  Thank you.  Well, if I maintain the status quo pending the appeal, that means there is £83,000 -- you get your £35,000 back and there is a stay on the judgment of £48,000.  

MR. DEACON:  Yes.  

JUDGE TOULMIN:  It may be that for the limited time in which the question of an appeal is being dealt with, that that would be probably as fair a balance as one could achieve.  

MR. DEACON:  Yes.  I factored in the 48 and also the 12,500 in damages that Mr. Small has to pay Mr. Martin.  My Lord, that is how I eventually reached the figure of 120.  Our costs are 218, in fact 190-odd with VAT, and then less the 48 plus the 12,500, and then taking off the 35,000 in court.  That is really how I reached the figure of 120,000 by way of an interim payment.  

JUDGE TOULMIN:  But there is also the 48,000 which, if one is, as it were, leaving things as they were, Mr. Martin gets his own money back, which is the 35,000 plus interest.  

MR. DEACON:  Yes.  

JUDGE TOULMIN:  He does not have to pay the 48,000 pending appeal.  

MR. DEACON:  Yes, certainly, my Lord.  The real issue is, taking into account that he is not having to pay the 48,000 and taking into account that he is getting the 35, what figure, if any, by way of interim payment should be ordered.  

JUDGE TOULMIN:  It seems to me that -- anyway, I think I have got your submissions on that.  

MR. DEACON:  Yes.  My Lord, will it assist if I tell you Mr. Martin's financial position, which is not good.  

JUDGE TOULMIN:  Well, I am not sure that it would.  I suspect that the financial position of both sides is not wonderful.  

MR. DEACON:  No.  

JUDGE TOULMIN:  And, unfortunately, they have embarked on this litigation and neither of them can really afford the loss.  

MR. DEACON:  Certainly.  

JUDGE TOULMIN:  Equally, Mr. Fenton clearly cannot.  

MR. DEACON:  My Lord, so far as Mr. Martin is concerned, part of his financial straits at the moment result from the fact of this litigation.  He has had to borrow, as any normal individual would, to fund a litigation of this sort.  So doing justice between the parties, I think one of the points that is made is that Mr. Small's side would need money to fund the appeal.  Equally, Mr. Martin would need money to respond to any appeal if it was made.  

	My Lord, as I say, it is not good, Mr. Martin's position.  He has got a very large mortgage of £500,000.  He also has school fees.  He has other borrowings.  The school fees are £14,000.  He has borrowings of £100,000 which are unsecured.  There are unpaid legal bills - I am afraid I cannot give you the precise figure.  His earnings are around £100,000 to £150,000 per annum.  So we are looking at a situation where it appears that both sides have financial difficulties.  The position here of course is that Mr. Martin has the judgment in his favour, which is going to produce a large sum by way of costs in his favour.  What I say is that in those circumstances it would be appropriate to make an interim order.  The amount of course is another matter.  That is a matter for your Lordship's discretion but, given that there is this large sum at the moment in his favour, it should be reflected by something in addition to the 35,000 that is paid out.  

	My Lord, with regard to the application for permission to appeal on the harassment claim, the single ground that is put forward at para.10 of Mr. Munro's submissions was that there was no evidence that Mr. Small knew before or after the telephone calls found to have been made by Mr. Fenton what the content of those calls had been and was intended to be.  My Lord, with regard to that, I would simply say that that is a clear matter of inference on the facts and there was plenty on which the court could make that inference.  So it is an appeal, if it were to be pursued, on fact, and I would submit it would be hopeless because it is an appeal on fact and because the court was fully entitled to make the inference it did.  Of course the court is not going to have direct evidence on the point; by the nature of things, that is not going to happen.  But there was plenty of other evidence that pointed to the conclusion that the court reached.  

	So, taking that into account as a global assessment of Mr. Small's position, he has got an appeal on fact which is unlikely to succeed, in my submission, or go anywhere, and he has also got an extremely difficult appeal on costs which also, on the findings that have been made, is unlikely to go anywhere.  At this point, my Lord, I would submit that the proper course is to dismiss both applications for permission to appeal and, looking at it globally, they are unlikely to be entertained, in my submission, with any favour by the Court of Appeal and that really is that.  If Mr. Small manages to get something from the Court of Appeal, then the Court of Appeal no doubt would reflect that.  There would be an application for a stay etc. before the Court of Appeal, but at this stage the prospects of Mr. Small really getting any further with this litigation, I would submit, are very slim.  

MR. IOANNOU:  Can I just respond very quickly to that, my Lord?  That is just simply increasing costs unnecessarily.  That… the case, the court will incur further costs, as it were.  

JUDGE TOULMIN:  Is there anything else you want to say?  

MR. IOANNOU:  Not really, my Lord. 

JUDGE TOULMIN:  Thank you.  

92	I have to consider a number of matters.  First of all, the question of interest.  The parties have had discussions in relation to that matter and the appropriate order is that interest is to be the subject of agreement between the parties.  There is permission to apply to this court if interest is not agreed within 21 days of today.  That is by 23rd February 2006.  

93	Secondly, I have to consider the question of payment out of the £35,000 which was paid into court by Mr. Martin on, I think, 15th February 2005.  I consider that matter, along with the question of the judgment of £48,532.25 in Mr. Small's favour in relation to the building claim, and in relation to the application for an interim payment of costs, that application being made by Mr. Martin.  I am told that the total costs incurred in the action by Mr. Martin are £190,000 plus VAT, and what is asked for is an interim payment of £120,000.  It was originally proposed that this should be achieved by an interim payment of £85,000 plus the payment out of £35,000, that being the sum in court.  Very helpfully on behalf of Mr. Small, my attention was drawn to the judgment debt of £48,532.25.  If one aggregates those two sums, they amount to £83,000-odd.  

94	In deciding what the level of interim payment should be, I have to take into account what sum would be just in all the circumstances.  It seems to me that what would be appropriate would be to order the £35,000 plus interest in court to be paid out to Mr. Martin's solicitors forthwith and for there to be a stay on the payment of the judgment debt of £48,532.25 to Mr. Small pending resolution of the appeal.  I then have to consider whether an additional sum should be paid.  It seems to me that probably in all the circumstances the fairest order would be that there should be no additional interim payment but - and I will hear the parties on this - there should be permission to review the situation if and depending on the extent of any permission to appeal granted by the single judge.  That, I think, is the fairest way of dealing with the matter and I am pleased to see that counsel on both sides are nodding approval at that suggestion.  
95	I then come to the question of permission to appeal.  Originally there was going to be an application for permission to appeal on the part of Mr. Martin but after considering the matter further Mr. Deacon indicated that he is not pursuing that matter.  As far as Mr. Small is concerned, he has asked for permission to appeal on the liability judgment and also on the costs judgment.  In my view, these two applications should be refused.  He has no real prospects of success either in succeeding on his appeal in relation to the judgment in the harassment claim or, bearing in mind the findings in my judgment and the application of the law which I set out in the judgment, does he have any real prospect of success in appealing the costs order which I have made.  I can see no other compelling reason why the appeal should be heard.  

96	In order that the single judge, if the matter does go forward, is in a better position to deal with these matters and consider them, I order that a transcript of the argument relating to the application made today on 2nd February 2006 is to be put before the single judge.  As far as the time for appeal to the single judge is concerned, I direct that a transcript should be done of the judgment which I have given today.  That transcript should come to me in the first instance to be approved.  Upon approval it will then be sent to the parties and time will run for the appeal from the time when it is received by the parties.  That will have the advantage that Mr. Munro, Mr. Small's counsel in the case, who was not able to be here today, will have a proper opportunity of considering the judgment with Mr. Small and the solicitors before deciding whether or not to take the matter further.  

MR. IOANNOU:  Can I just raise one point, my Lord?  We telephoned Mr. Fenton, just to let him know what was going on today, and obviously he decided that he was not going to turn up.  Upon whom is it going to be incumbent to let him know the outcome of today?  

JUDGE TOULMIN:  So far as the outcome of today's hearing is concerned, Mr. Small's solicitors have until now kept, and should continue to keep, Mr. Fenton fully informed with what is happening and should ensure that he gets a copy of the judgment in due course.  

MR. IOANNOU:  Thank you very much.  

JUDGE TOULMIN:  That is what has happened until now?  

MR. IOANNOU:  Well, it has.  I mean, my Lord, I am the solicitor for Mr. Small obviously but my difficulty -- of course I am quite happy to notify him what is going on, but I do not really want to enter into conversation with this gentleman.  

JUDGE TOULMIN:  Well, you do not need to enter into conversations with him, I would have thought.  If it has not been a problem until now, I cannot see that it will be - and you say it has not?  

MR. IOANNOU:  No.  

JUDGE TOULMIN:  I cannot see that it will be a problem in the future, and the court is grateful to you for doing it.  

MR. DEACON:  My Lord, one final matter.  The order - will that be drawn by 
	the ---- 

JUDGE TOULMIN:  Sorry, I ought to have added that the defendant's solicitors - that is Mr. Martin's solicitors - should draw up the order, please, by 4.00 on 9th February.  

MR. DEACON:  Thank you very much, my Lord.