Damages claim – Discontinuance – Costs order – Respondent settling damages claim against solicitors with no order for costs – Court finding discontinuance of action against second appellant firm appropriate with no order for costs — Whether judge erring in departure from normal costs rule — Appeal allowed
The respondent was the tenant of commercial premises that were held under two separate leases granted for terms of 12 years from November 1994. Each lease contained tenant covenants to keep the premises in good repair and a proviso for re-entry in the event of a breach.
In 2001, the respondent consulted a firm of solicitors (LMA) in relation to a proposed assignment of the leases. The landlord subsequently served notices under section 146 of the Law of Property Act 1925 requiring the respondent to remedy items of disrepair within one month of the date of the notices, accompanied by schedules of dilapidations relating to both properties. The respondent claimed that LMA had failed to: (ii) advise him of his right to serve counter notices on the landlord; (ii) serve such notices within the 28 days allowed, or at all; and (iii) advise him of the consequences of that omission. In particular, they had failed to advise him to make an allocation to the court for relief from forfeiture.
The respondent had also consulted the appellant in connection with the section 146 notices and complained that they had also failed to advise him of the need to apply to the court for relief from forfeiture. Since no steps were taken to protect the leases, the landlord forfeited them by peaceable re-entry; the combined value of the forfeited leases was around £20,000. The respondent claimed damages for negligence against LMA and the appellant.
The proceedings against LMA were settled on terms that they paid the respondent £21,500 plus his costs. LMA discontinued contribution proceedings that they had served on the appellant but the appellant refused to agree to the respondent discontinuing his claim against them with no order for costs. The respondent served notice of discontinuance and applied for an order, under CPR 38.6(1), that he should not be required to pay the appellant’s costs; the court made the order sought. The appellant appealed on the basis that the judge’s exercise of discretion was flawed, in particular, his conclusion that the settlement of the claim against LMA constituted a material change of circumstances, making it appropriate to consider what order to make in place of the normal rule under CPR 38.6. Further, there was no reason for the judge to depart from the normal rule.
Held: The appeal was allowed.
The rule in CPR 38.6 that the party that discontinued the action should pay the defendant’s costs was the normal rule and it was for the party discontinuing to justify some other order. The court had to be persuaded that it was just to depart from the normal rule. However, the rule recognised that justice would normally lead to the conclusion that a defendant that defended itself at substantial expense against a claimant that changed its mind during the action for no good reason (other than that it had re-evaluated the factors that remained unchanged) should be compensated for its costs: Re Walker Wingsail Systems plc [2005] EWCA Civ 247; [2006] 1 WLR 2194 applied.
The starting point had to be the recognition that discontinuance of a claim would under CPR 38.6(1), ordinarily result in the defendant receiving its costs up to the date of discontinuance. Had the intention been to create a general discretion as to costs in those circumstances CPR 38.6 would have made that clear. It would be unnecessary for a default rule. The provisions made it clear that the defendant started from the position of being entitled to its costs and it was for the claimant to justify the making of another order. In the instant case, the issue was whether the settlement of the claim against LMA with the result that the respondent had merely a claim for nominal damages and costs against the appellant justified the recorder in making no order for costs following the discontinuance of the claim against LMA.
A material change of circumstances might amount to a sufficient justification or reason for departing from the normal rule depending on the circumstances. However, the correct approach was for the court to consider all the matters relied on as justifying the making of an alternative order for costs and then deciding whether they were sufficient to support such an order. That assessment would inevitably be case and fact specific.
Although the respondent (having settled with LMA) had made an informed choice to discontinue knowing the probable costs consequences of doing so, the court had to decide whether the obvious benefits that discontinuance brought, in terms of a saving of court time and expense, were to be rewarded by depriving the appellant, whose chance to contest and defeat the claim had been removed, from at least being able to recover its costs. No judge encouraged litigation in relation to costs and the theme of the CPR was the avoidance of unnecessary disputes and the associated costs. However, the avoidance of the costs of a trial was the necessary consequence of discontinuance and could not, of itself, justify a departure from the normal rule that the discontinuing party should pay the other side’s costs up to the date of discontinuance. There had to be something more to justify that departure otherwise the normal rule would be displaced in every case.
There was nothing more in the instant case; the respondent was aware of the appellant’s position and that it wanted to contest its liability for the claim. The respondent made his decision to discontinue notwithstanding that and in the knowledge that the settlement with LMA made no provision for the payment of the appellant’s costs against the respondent as opposed to those of the third party proceedings. By doing so, the respondent had removed the appellant’s ability to establish its defence and left the court in the position of being unable to determine what the outcome of the trial was likely to have been. The circumstances were therefore the usual consequences of a decision to discontinue and there was nothing to justify the order that the recorder made. The respondent’s natural desire to settle his claim against LMA on terms that they paid the claim in full should not be allowed to override the entitlement of the appellant to be paid its costs when the respondent chose no longer to pursue them. Consequently, the respondent would be ordered to pay the appellant’s costs up to the date of discontinuance.
William McCormick QC (instructed by McMillan Williams Solicitors) appeared for the appellant; Tim Calland (instructed by Dewar Hogan Solicitors) appeared for the respondent.
Eileen O’Grady, barrister
