THE RISKS OF JOINING A THIRD PARTY INTO AN ACTION: THE DEFENDANT MAY NOT RECOVER THE COSTS

The judgment on costs in Axon -v- Ministry of Defence [2016] EWHC 883 (QB) highlights the risks of a defendant bringing a Third Party into an action.  The defendant was successful, however the claimant was not ordered to pay all of the Third Party costs. The defendant was considerably out of pocket. There is also an interesting observation on the impact of the costs budget on the making of an interim payment for costs.

KEY POINTS

  • The claimant was not liable to pay all the costs of a third party that the defendant had joined into an action.
  • The claimant was liable to pay the Third Party costs to a key date (disclosure), the defendant was liable to pay the costs thereafter.

THE CASE

The claimant brought an action against the Ministry of Defence claiming breach of confidence when  of certain information was disclosed about him.  The MOD then joined the newspaper “NGN” into the action.

The claimant’s action failed and there was no issue that the claimant was liable to pay the defendant’s costs.  The judge rejected the argument that those costs should be on an indemnity basis.

THE THIRD PARTY COSTS

The issue then arose as to who should pay the Third Party costs. The judge rejected the argument that the claimant should pay all those costs. Instead the claimant was liable up to disclosure. Thereafter the costs (which appeared to be the bulk of the costs) should be paid by the defendant.
  1. I am grateful to all the parties for their submissions. I bear in mind that the Senior Courts Act 1981 s.51(1) gives the court a discretion as to who should pay the costs of the proceedings. Rule 44.2 provides guidance as to the exercise of that discretion which must also be exercised in accordance with the overriding objective to deal with the case justly and at proportionate cost.
  2. I reject Ms Michalos’s primary argument that the Claimant should bear all of the Third Party’s costs. As I said in my provisional views, over and above the reasons why the Claimant was unsuccessful against the Defendant, there was a separate reason as to why any claim by him would not have succeeded against NGN. I was not persuaded by Ms Michalos’s attempt to distinguish between publication on the one hand and the news gathering methods which gave the Sun the information to publish on the other. In my judgment at [103] I had said that the means by which the Suncame by the information would be a factor against the newspaper but the other factors to which I referred in my judgment would decisively tip the Article 8/Article 10 balance in NGN’s favour. I do not think that it is relevant to my decision that (a) the MOD was a public body (since for these purposes, the MOD was to be treated in the same way as if it had been a private litigant, neither advantaged nor disadvantaged by its public status), or (b) that the insurance which the Claimant had taken out would be sufficient to cover the costs of the Third Party as well as those of the Defendant (since, as Mr Tomlinson said, insurance is a precaution against liability, not the cause of liability).
  3. I will return to the use which the Claimant made of the Third Party proceedings for disclosure. However, I do not think that it would be right to require the Claimant to bear the entirety of the costs of the Third Party because, once disclosure had been achieved, he did not take the initiative to apply for a stay of the Part 20 proceedings. He had of course been served with NGN’s application for a stay of those proceedings in the summer of 2015 and had taken a position in relation to that application. But it would be a different matter to regard him as carrying an onus to take the initiative to stay the proceedings once disclosure had been achieved. The MOD could have made such an application. It had not done so, it seems, because it wished to try to set a precedent for other proceedings in which it anticipated that both it and NGN would be involved as a result of Operation Elveden. Ms Michalos took me to the Defendant’s skeleton argument (settled by previous counsel) dated 21st July 2015 for the Costs and Case management conference which was due to take place on 22nd July to demonstrate that this was but one of the MOD’s considerations in opposing the stay. Other arguments were indeed advanced by the Defendant, but it is telling that it was the late advancement of the ‘precedent’ argument which seems to have caused the Master to order the MOD to bear the Third Party’s costs of the application for a stay, even though, on receipt of the Defendant’s skeleton, NGN did not pursue its application for a stay.
  4. While, therefore, I reject Ms Michalos’s principal position, on reflection, I consider that there is more force in her fall-back position, namely that the Claimant should bear the Third Party’s costs up until the completion of disclosure on 17th November 2015 and not just the costs of the disclosure exercise itself.
  5. Mr Tomlinson said that the Third Party proceedings came as a surprise to the Claimant (who himself, of course, had chosen not to sue NGN). That may be, but the Third Party claim was issued in November 2014. By 21st July 2015 the Claimant had decided that the Third Party proceedings could be turned to his advantage as an opportunity to gain disclosure. I have observed that disclosure did in fact benefit the Claimant, although that is not strictly relevant to the present exercise. What is relevant is that the Claimant chose to obtain disclosure by encouraging the Third Party proceedings to continue (strictly speaking, by indicating that he would oppose an application for a stay of those proceedings). Since the Claimant took that course, it does not seem to me to be just that the Claimant should be able to avoid the costs which the Third Party properly incurred in defending the Third Party proceedings up until the time that disclosure was complete.
  6. I shall therefore order the Claimant to pay the Third Party’s costs of the proceedings up to and including 17th November 2015. The Defendant is to pay the Third Party’s costs thereafter. If the Third Party’s costs cannot be agreed they are to be assessed on the standard basis.
  7. It is right that the Claimant and the Defendant should make some interim payment on account of those costs.
  8. It was agreed at the hearing, that the starting point was the costs budget of the Third Party as approved by the Master. The Third Party’s budget had been for a total of £347,791.04, but the Master had approved a total of only £275,000. Ms Evans QC argued that, since the budget had been approved, the interim payment should be for more than the conventional two thirds. I indicated at the hearing that my provisional view was that, while some acknowledgement should be paid to this argument, (a) the Third Party’s costs were very high; (b) part of the costs had already been incurred by the time of the Costs and Case Management Conference and, while the Master was at liberty to comment on past costs, it was not for him to approve or disapprove of them; (c) some of the costs budget was for witness statements, but NGN had not, in the end, served any witness statements. Two thirds of the approved budget would have been £183,331. I indicated that my provisional view was that the interim payment should be for £190,000.
  9. Ms Evans argued that some of the costs which had been budgeted for witness statements would have had to be incurred in considering the witness statements served by the other parties. I was not persuaded that this expense (to the extent that it was not properly treated as part of trial preparation) was sufficiently significant to alter my provisional view.
  10. Mr Tomlinson submitted that the amount in the budget on disclosure was excessive given that a great deal of the exercise would already have been undertaken for Operation Elveden. In my view, this is a matter which can be properly left to assessment (in the absence of agreement). It did not alter my view as to the overall amount which should be paid by way of interim payment.
  11. Because of the debate which took place after I had given my provisional views, the discussion as to how the interim payment of £190,000 should be divided as between the Claimant and the Third Party took place on a different premise and not on the basis that ultimate responsibility for the Third Party’s costs should be divided in the way that I have now decided should be the case.
  12. If I look at the costs budget of the Third Party, the budgeted costs of the PTR, trial preparation and trial were £229,680 as against total costs of £347,791 i.e. about two thirds. The Master, as I have said, approved the Third Party’s budget only in a more limited sum. No one was able to tell me as to whether the Master had done more than reduce the global sum and the impression was that he had not.
  13. If I were to apply the same proportion to the interim payment, it would mean that the Defendant should make an interim payment to the Third Party of £126,666 and the Claimant make an interim payment of £63,334. I will, however, give the parties a short opportunity to make written submissions if they wish to contend for any different interim payment. These should be made by Monday 18th April 2016 with any submissions in reply 2 days thereafter. [Following the circulation of this decision in draft, I received corrections from the parties which I have incorporated in this final version of the decision. No further submissions were made by any party as to interim payments.]

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