Damages claim – Payment into court – Order for costs – Respondents making offer to settle – Court making award in excess of offer – Court awarding no costs of action – Whether judge misdirecting himself – Appeal allowed
The appellant wished to purchase two properties off-plan from a developer. He instructed the respondent firm of solicitors to carry out the conveyancing; the respondents acted for both parties. The appellant entered into purchase contracts at a discounted price of £87,125 for each property, conditional upon him obtaining mortgage finance by October 2002. The obtaining of finance was a condition in the appellant’s favour, which he could have waived. He failed to obtain finance by that date and the respondent neither obtained an extension nor sought instructions from the appellant as to whether he wished to waive the condition. In March 2003, the appellant received offers of finance that were later withdrawn and the developer rescinded the contracts.
The respondent failed to inform the appellant of that rescission. Subsequently, the appellant obtained new finance that left him £18,000 short of the amount needed to complete the purchase of both properties. He informed the respondent that he would have to withdraw from the purchase of one of the plots and transfer the deposit to the other.
The respondent subsequently accepted that it had acted in breach of duty in failing to obtain an extension of time and/or failing to take the appellant’s instructions. At the trial, the repondent argued that the appellant had suffered no loss since he would not have been able to raise the finance to purchase either property. In pre-action correspondence, the respondent had indicated that it was prepared to negotiate on the basis that the appellant had lost the opportunity to purchase one of the plots (the one-property issue), but he persisted with his claim in relation to both plots (the two-property issue). The respondent made an offer of £9,000 under CPR 36.
The judge found that the appellant would have been able to purchase one property by transferring the deposit from one to the other. He awarded damages of £11,688.25 plus interest at 6%, which exceeded the respondent’s Part 36 offer. The judge refused to make an order for costs in respect of the action and granted only limited pre-action costs on the ground that the appellant had failed to comply with the pre-action protocol as required by CPR 44.3 by his refusal to negotiate a settlement on the one-property issue. The appellant appealed.
Held: The appeal was allowed.
The loss of the two-property issue was a relevant factor in considering the extent to which the general rule, namely that the unsuccessful party should pay the costs of the successful party, should not apply because the rules required a judge to take all circumstances into account.
However, a finding had to be made in clear terms if it was to lead to punitive measures. The judge had concluded no more than that an allegation had been made that was always likely to fail and this should be reflected by reducing the costs order. It would have been harsh to find that the appellant had behaved unreasonably when the respondent had accepted that it was in breach of duty. The appellant had intended to buy two properties and the respondent had asserted at trial that he could not have bought even so as to establish no damage.
The court had to mark its disapproval of failures to comply with the pre-action protocol, but to reduce the recovery of costs to nil in a case such as the present was so seriously wrong as to be outside the generous ambit within which reasonable disagreement was possible: Tanfern Ltd v Cameron-Macdonald [2000] 1 WLR 1316. The judge must have misdirected himself as to the applicability of the general rule and had failed to appreciate that a reduction in the costs of one third or one quarter reflected the appropriate discount for the running of a case that failed.
Accordingly, the appeal court had to exercise a discretion afresh and, in all the circumstances, he should have 60% of his costs from the date of the Part 36 offer. The judge’s order for the period up to that date would be undisturbed.
Giles Maynard-Connor (instructed by Brabners Chaffe Street LLP, of Manchester) appeared for the appellant; Neil Hext (instructed by Morgan Cole, of Cardiff) appeared for the respondent.
Eileen O’Grady, barrister
