PREVIOUS COSTS ORDERS STAND EVEN AFTER DISCONTINUANCE: A HIGH COURT DECISION

In Dar Al Arkan Real Estate Company -v- Al Refai [2015] EWHC 1793 (Comm) Mr Justice Andrew Smith considered whether discontinuance of an action should have an effect on previous costs orders.

THE CASE

The claimants had agreed terms of settlement with certain defendants and obtained an order for permission to discontinue against Mr Al Refai.   The order made was that the claimant pay Mr Al Refai’s costs on an indemnity basis.

KEY POINTS

  • When a claimant discontinues an action this does not have any effect upon any interlocutory cost orders.
  • If a defendant has been ordered to pay the claimant costs in interlocutory hearings these costs orders will not be re-visited if the action is discontinued.

THE JUDGMENT ON THIS ISSUE

“The previous orders question

  1. My order of 19 May 2015 expressly provided that the costs that the claimants were to pay to Mr Al Refai should include “costs previously ordered against [him]”. I included this to avoid uncertainty about whether the order impinged on costs orders previously made in the litigation, in particular orders that Mr Al Refai should pay the claimants’ costs. I do not need to list the occasions when such orders have been made: an example, according to Mr Ritchie the most significant example in terms of quantum, is the order of Cooke J made when he refused to vary the freezing order against Mr Al Refai. However, I made clear that I included the provision about such costs so that my order reflected what would be the prima facie position under an order for discontinuance made without permission under CPR38.6(1) as that rule was interpreted by Pill LJ in the Twigger case (cit sup), which is cited in the White Book guidance at 44.9.3. I also made clear, and the parties accepted, that this was ordered without prejudice to the claimants being entitled (without showing a change of circumstance after 19 May 2015) to dispute what Pill LJ had said, and to argue that, even if he is right about the interpretation of CPR38.6(1), I should direct that the interim orders in their favour previously in force should so remain.

  2. Pill LJ expressed his view in the Twigger case (loc cit) at para 58 of his judgment, and said “The position should be, and … the wording of [CPR 38.6] provides, that [upon discontinuance] the claimant is on the face of it liable for [a] defendant’s costs. That would have the effect of reversing the order for costs below. The claimant should not normally have the luxury of bringing a claim now accepted as invalid and not meeting costs incurred along the way”. The other members of the Court of Appeal, Longmore and Lloyd LJJ, expressly left the question open: Longmore LJ observed at para 33 that generally “the formal position must … in my view be that orders for costs in favour of a claimant before discontinuance remain in effect. They will not be unwound merely because the claimant discontinues”. But he acknowledged that discontinuance might have the effect that Pill LJ suggested.

  3. Nothing either in CPR38.6 or elsewhere in the CPR states in terms that prima facie discontinuance reverses (or otherwise affects) previous costs orders, nor is it obvious that this is their necessary implication. I have already questioned Pill LJ’s apparent starting point that discontinuance typically indicates acceptance that the claim (or, presumably by parity of reasoning, a part of a claim) was not valid. Mr Foxton advances other arguments to challenge Pill LJ’s view: they seem to me powerful and persuade me respectfully to disagree with it. I draw heavily on the skeleton argument of Mr Foxton and Mr Paul Casey in explaining my reasons.

  4. The general position is that interlocutory costs orders are not affected by other costs orders in the proceedings. The table at CPRPD44.2 provides that the effect of an interlocutory order for costs is that “The party in whose favour the order is made is entitled to that party’s costs in respect of the part of the proceedings to which the order relates, whatever other costs orders are made in the proceedings”. Of course, a practice direction cannot amend the rules themselves, but on the face of it it would be surprising if the rule and directions under them are not harmonious.

  5. This point is vividly illustrated by the order of Cooke J. He rejected Mr Al Refai’s application to vary the freezing order so as to allow him to raise funds against the security of a property, notwithstanding that he was in breach of the freezing order. He ordered Mr Al Refai to pay the claimants’ costs, which he assessed at £25,000. When I discharged the freezing order, having concluded that the claimants had obtained and defended it dishonestly, it was never suggested that this should affect Cooke J’s order, or that it should be revisited. Why then should the notice and order to discontinue the claims?

  6. The courts’ approach is not to revisit interlocutory orders for costs. After all, often the costs are assessed summarily and paid accordingly, and it is not easy to identify a legal mechanism to require a recipient to disgorge costs already paid, there being good consideration for the payment at the time that it was made: the recipient might have altered his position on the basis of the payment. In Koshy v Deg-Deutsche Investition, [2003] EWCA Civ 1718 Mummery LJ said (at para 19): “I start from the position that this is in substance an attempt, after the trial is over and in light of the results of the trial and the findings made at it, to re-litigate an interlocutory costs order. No court, whether on an application to set aside at first instance or by way of appeal, is receptive to such an application. It is bound to be a difficult exercise for the court to review the exercise of a discretion made at an early stage where not all the evidence is available or all the facts known or even the issues identified”. Similarly, in Business Environment Bow Lane Ltd v Deanwater Estates Ltd, [2009] EWHC 2014 (Ch) Mann J observed at para 31 (surely correctly) that, “The modern practice is to be much more willing to make adverse orders for costs in interim matters as the case progresses rather than to leave them to be made later. The purpose of this is to fix liabilities and to allocate costs. … It is consistent with this that such orders for assessment should be dealt with on a self-contained basis. Otherwise part of the purpose of the orders is lost”.

  7. Further, Mann J’s judgment (at para 38) implicitly rejects Pill LJ’s characterisation of interlocutory costs as being “incurred along the way” in the course of proceedings. In a case concerning the costs of the trial of a preliminary issue, he considered it “entirely logical” that costs orders should remain unaffected by subsequent events in the litigation, and saw this as “consistent with a scheme of litigation in which the costs of applications are dealt with according to the fate of the application. It does not produce unfairness to the paying party, It was the defendant’s choice in this case to take the collateral contract point, and it accepted that it should be dealt with as a preliminary issue”.

  8. As a matter of policy it would be surprising if the CPR provides for harsher consequences on a litigant who discontinues a claim or part of a claim than are typically visited on one who pursues an invalid claim or arid litigation to the bitter end. Surely a litigant who comes to appreciate that there is no point in pursuing a claim or part of one is to be encouraged to discontinue it promptly.

  9. In practical terms Pill LJ’s interpretation seems to me to produce inconvenient results. How often, having heard a potpourri of applications at a hearing, does the court direct that each party bears his own costs because overall the spoils are divided more or less equally? This avoids spending time on assessing the costs of each application and is justified if it would make little or no practical difference to make separate orders for one party on some applications and for the other on others. However, if favourable orders would routinely be undone on discontinuance, the two approaches would have different consequences in these circumstances, and legitimate objection could be taken to the convenient course that I have described.

  10. I therefore conclude that prima facie under the rules discontinuance does not affect costs orders already made. I see no justification for a contrary order in this case. Even if I took a different view about the prima facie position, I would make orders to depart from it, and uphold orders already made. I do not propose to go through each such order: I have not, while case managing this litigation, made them in respect of applications and hearings that I considered a natural incident of the proceedings and for costs that were incurred “along the way”. They were made because a position adopted by a party was unreasonable and obstructed the management of difficult litigation. The claimants’ decision to discontinue against Mr Al Refai does not impinge on those assessments.

Conclusion

  1. I therefore conclude (i) that the claimants’ application for a stay be granted, and (ii) the costs order of 19 May 2015 should be adjusted so that it does not affect previous orders for costs. I should be grateful if counsel could draft an order to give effect to these conclusions.”

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