JUDGE SHOULD NOT HAVE MADE COSTS ORDER WHICH WIPED OUT CLAIMANT’S DAMAGES: COURT OF APPEAL DECISION TODAY

In Begum -v- Birmingham City Council [2015] EWCA Civ 386 the Court of Appeal allowed an appeal by a claimant where the decision on costs at first instance effectively deprived her of damages.

THE CASE

The issue is succinctly summarised by Jackson LJ in the second paragraph.

Part 1. Introduction

  1. This is an appeal by a claimant against a costs order, which effectively wipes out the damages that she has recovered in the litigation. The claimant has succeeded in her claim for breach of statutory duty, but failed in her claims for negligence and misrepresentation based upon substantially the same facts. The issue in the appeal is whether the judge was entitled to make such a swingeing costs order by reason of the claimant’s failure correctly to characterise the legal cause of action to which her pleaded facts gave rise.

The case was based on an action against the council for failing to disclose serious structural defects in a house which the claimant bought. The claim was originally brought in negligence and misrepresentation but later amended to plead breach of statutory duty. The claimant succeeded on the claim for breach of statutory duty. The judge held that the earlier pleading was inadequate he ordered  the claimant ot pay the defendant’s costs from issue to a certain period; each part to pay the costs of the other sides of expert for a period; the claimant to recover 40% of her costs for a second period and 80% for a third.

KEY POINTS

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  • The claimant’s factual case was always the same – that the house was defective.
  • The amended case did not lead to a major amount of costs being incurred or involve any change in the facts.
  • The judge had erred in the way in which costs were apportioned.
  • An appropriate result was to order the defendant to pay 85% of the claimant’s costs.
  • The judge’s decision that the defendant pay 80% of the claimant’s costs for one stage of the litigation was not appealed by either party.

THE JUDGMENT IN THE COURT OF APPEAL

Part 3. The appeal to the Court of Appeal

  1. Mr Stephen Cottle for the claimant submits that the judge fell into error in his approach towards costs. The claimant’s case from the beginning to the end of the litigation was that Birmingham City Council was aware of serious structural defects in 95 Church Road which it ought to have disclosed, but failed to disclose, to Mr Majid and Mrs Begum. The claimant succeeded on that case. The fact that the claimant originally applied the wrong legal label to the claim was immaterial. Little time was spent at trial debating whether the claimant had a cause of action in negligence and/or misrepresentation. Therefore the claimant ought to have recovered all her costs up to 4th June 2014, less only a small discount for the issues of negligence and misrepresentation on which she failed. Mr Cottle accepts the judge’s decision on costs in period 3 and the reasoning on which that decision was based.
  2. Mr Jonathan Manning for the Council has manfully striven to uphold the judge’s order. He points out, quite correctly, that the Court of Appeal does not interfere with decisions on costs unless the judge has made an error of law or an error of principle. He submits that the judge made no such error in this case.
  3. Both counsel have helpfully taken us through the history of the litigation, for which I am most grateful. Counsel have also furnished the court with a bulging authorities bundle, containing some thirty previous decisions on costs, for which I am not quite so grateful.
  4. The principles upon which the courts decide costs issues are well known. I will not re-state those principles lest, inadvertently, I add yet more bulk to the authorities bundles in future appeals. The real issue is how to apply those principles to the somewhat unusual facts of the present case.
  5. The claimant has succeeded in her claim and recovered damages of £74,876. Accordingly the claimant is the successful party in the action. The starting point therefore is that the court, in the exercise of its discretion, should award costs in the claimant’s favour. The fact that initially the husband was named as claimant and subsequently the wife was substituted was a technical error on the part of EB, which has had no impact on the costs of the litigation. That can be ignored for present purposes.
  6. The next question to consider is what departures should be made from the starting point, having regard to all the circumstances of the case. As the judge correctly noted, two factors require a departure from that starting point. First, although the claimant has succeeded on her claim for breach of statutory duty, she has failed in law on her claims for negligence and misrepresentation. Secondly, by reason of the claimant’s deficient pleading there were two trials rather than one.
  7. In respect of the second matter, the judge reduced the claimant’s recoverable costs for period 3 by 20%. That was an eminently fair decision and neither party seeks to challenge it.
  8. The real issue concerns the first factor, the claimant’s lack of success in relation to negligence and misrepresentation. Here, with all due respect, I take a different view from the judge. That circumstance cannot possibly justify an order that the claimant pays the defendant’s costs during period 1 or that the claimant forfeits 60% of her costs during period 2.
  9. The claimant’s case is and always has been that the Council was at fault in failing to refer back to its own records and to alert the claimant to serious structural defects before selling the property to her. The claimant’s pleaded claims for negligence, misrepresentation and breach of statutory duty were different labels which the pleader applied to the same underlying facts. The factual and expert evidence which both parties assembled was directed to those facts. Both parties would have prepared and adduced substantially the same evidence, even if the claimant had only ever pleaded her claim as one for breach of statutory duty.
  10. This case is very different from Beoco Ltd v Alfa Laval Co Ltd [1995] QB 137, on which the Council relies. In Beoco the claimant’s late re-amendment substantially altered the case which the defendant had to meet. Also, the defendant was prejudiced by lack of opportunity to make a payment into court. In the present litigation the case which the defendant had to meet was essentially the same both before and after the claimant’s re-amendment. The claimant continued to assert, and the defendant continued to deny, the same basic facts and the same disputed propositions of expert evidence. There is no suggestion that the defendant lost an opportunity to settle. The defendant at all times disputed the factual basis of the claimant’s claim.
  11. I accept that at trial a modest amount of time was spent debating the legal issues. The claimant effectively abandoned her case on misrepresentation at that stage, but not her claim in negligence, which was the subject of some argument.
  12. In my view the proper way to reflect the claimant’s lack of success on negligence and misrepresentation would be to make a discount of 15% from the claimant’s costs up to 4th June 2013.
  13. In the result, if my Lords agree, this appeal will be allowed. The claimant will recover 85% of her pre-issue costs and 85% of her costs during periods 1 and 2. In respect of period 3, for good reason neither party challenges the judge’s order and that order will stand.

Lord Justice Bean:

  1. I entirely agree. I only add an observation about Beoco v Alfa Laval [1995] QB 137, to which Jackson LJ has referred. In that case, where the claim was for damages in the order of £1 million, an amendment was made after the trial had been under way for several days (too late for any payment into court, equivalent to a Part 36 offer under the CPR). It introduced a new factual case, on which the claimant was expected to recover some £22,000. The original claim was rejected. As Stuart-Smith LJ said at 156C, it made no commercial sense to have incurred costs on the scale which the action involved in order to recover such a modest sum. With this combination of factors – the very late amendment, the new factual case and the very small size of the claim introduced by amendment relative to the litigation as a whole – it is not in the least surprising that the claimant was ordered to pay all the defendant’s costs up to the moment of amendment (as well as 85% of them thereafter).
  2. Beoco is frequently cited, but it is not authority for the proposition that in all cases where an amendment to a claim makes the difference between failure and success, the claimant must pay the defendant’s costs up to the moment of the amendment. It all depends on the case. Here the amendment was made at a hearing which proved ineffective for a number of reasons. The defendant then had the opportunity to make a Part 36 offer before the effective trial date but did not take it. The factual dispute at trial was the same as it would have been anyway: only the legal label attached to the factual allegations had changed. In those circumstances, for the reasons given by Jackson LJ, I too would award the claimant 85% of her costs both pre-issue (which the judge did not mention at all) and for the judge’s periods 1 and 2.

Lord Justice Sales:

  1. I agree with both judgments.

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