IT’S NOT JUST WINNING BUT HOW YOU PLAY THE GAME: COSTS ORDERS WHEN BOTH PARTIES ASSERT THAT THEY HAVE “WON”

In Milanese -v- Leyton Orient Football Club Limited [2016] EWHC 1263 (QB) Mrs Justice Whipple considered issues relating to costs after a case in which each party claimed to have won.

“I remind myself that this is an area where the individual facts and result of the case will drive the costs outcome, and that common sense must play a significant role in determining the correct costs order.”

KEY POINTS

  • Where a claimant had not succeeded on a claim for wrongful dismissal but recovered a small amount in damages for breach of contract the claimant could not be regarded as the “winner” of an action.
  • It was appropriate, in this case, to order the claimant to pay 67% of the defendant’s costs of defending the wrongful dismissal claim.
  • The defendant had failed in a counterclaim. The defendant was ordered to pay  100% of the claimant’s costs of defending the counterclaim.
  • The claimant’s costs of defending the counterclaim were to be assessed on the basis that the claim stood alone and the claimant entitled only to the costs by which the action was increased by the counterclaim.
  • The costs of the claimant’s contractual claim of around £8,300 were not to be assessed on the basis of reference to small claims track costs but on the basis that this was a High Court action.

THE CASE

The claimant brought an action claiming wrongful dismissal from his job as a football manager .The defendant  asserted that the claimant’s conduct justified summary dismissal and counterclaimed on the basis that the conduct had led the defendant to suffer damages. The claimant’s action failed, the judge finding that summary dismissal was justified.  The counterclaim, however, was dismissed.  There was consequently a balance of  around £8,300 due to the claimant. The first judgment is available here.

THE JUDGMENT

Introduction
  1. I handed down judgment in this case today, 26 May 2016. I gave judgment for the Claimant on a small part of his claim, amounting to around £8,300, although the figures are yet to be finalised. I dismissed the claim for wrongful dismissal and dismissed the counterclaim.
  2. As a result of that judgment, both Claimant and Defendant seek an order for costs in their favour. The Claimant claims that it was the winner, given that the consequence of my judgment is that a payment of £8,300 or so will now be made by the Defendant to the Claimant, to reflect outstanding contractual liabilities for salary and expenses. The Claimant says that it has succeeded in rebutting the counterclaim and in that respect also it is the winner. Thus my starting point should be a costs order in the Claimant’s favour.
  3. The Defendant submits that it is the winner. It has won on the essential issue in this case, by establishing that the Claimant was not wrongfully dismissed when his contract of employment was terminated in January 2015. The Defendant advances alternative submissions which are aimed at different methods of recognising the small elements of success which the Claimant has achieved on the contract claim and counterclaim, always recognising that the starting point is a costs order in the Defendant’s favour.
  4. Before considering which party’s submissions should prevail, it is important to consider the outcome of this case in overview. There were three distinct aspects to this litigation: (i) the Claimant’s wrongful dismissal claim; (ii) the Claimant’s contract claim; and (iii) the Defendant’s counterclaim.
  5. More particularly: the Claimant brought a claim for damages for breach of contract. The claim form sought damages of £100,000 attributable to wrongful dismissal (the “wrongful dismissal claim”), and £6,849.32 for unpaid salary (which I shall refer to as the “contract claim”, noting that the figure now due by way of damages under that head is £8,300 or so with interest etc.) The Defendant resisted the wrongful dismissal claim on six grounds, only one of which has succeeded. But success on just one ground (relating to the Child) is sufficient to defeat the wrongful dismissal claim in its entirety. In addition to defending the wrongful dismissal claim, the Defendant advanced its “counterclaim”, which was largely based on the same factual grounds as underpinned the defence to the wrongful dismissal claim, but which invited a particular analysis of the facts as the Defendant perceived them (namely that the Claimant was acting in a fiduciary capacity), and sought equitable damages on the basis of that analysis. Thus it can be seen that the counterclaim added what was in essence a legal argument, together with some modest factual arguments about the precise losses claimed by way of counterclaim (for example in relation to the payment received for the Child). The Defendant relied on its counterclaim as a defence to the contract claim for unpaid salary and expenses (see paragraph 24 of the defence). If the counterclaim was dismissed (as in the event it was) then it followed that the contract claim would be made out in the relatively small sums claimed to be outstanding. There was no separate argument which attached to the contract claim.
  6. Accordingly, the counterclaim and the contract claim are inextricably linked. The contract claim would succeed if the counterclaim failed, without more, and vice versa. Given that linkage, I conclude that the costs attaching to those two aspects should therefore stand together and be treated in the same way.
  7. By contrast, the claim for wrongful dismissal was the main part of this action. It encompassed the six grounds advanced by the Defendant. It occupied far and away the lion’s share of court time and preparation time. I conclude that the costs attaching to the wrongful dismissal (and the six grounds of resistance to it relied on by the Defendant) fall to be considered separately. That is not to say that the wrongful dismissal claim has no connection with the counterclaim – plainly there is such a connection. But as I have said, the counterclaim raised different and additional issues which should be considered separately for costs purposes.
Approach
  1. CPR 44.2 requires me first to consider whether I should make any order about costs, and if I do consider an order should be made, to note the general rule that the unsuccessful party should pay the successful party’s costs, but that a different order can be made. The rule then lists a number of factors I should take into account in considering what order (if any) to make about costs.
  2. I have been taken to a number of cases which have examined the issue of identifying for costs purposes who is the successful party. Many of those cases concern situations where a claimant has taken a case to trial, but recovered at trial something much less than was originally sought. Two lines of authority emerge, with Medway PCT v Marcus [2011] 5 Costs LR 808 providing an example of one line of authority, where a modest award to a claimant was insufficient to justify classifying the claimant as the “winner” in costs terms, and the winner was the defendant who had resisted the bulk of the claim; and Fox v Foundation Piling Ltd [2011] EWCA Civ 790 providing an example of the other line of authority, where a modest award to the claimant was sufficient to justify the starting point that the claimant was the “winner”. The White Book discusses these and other cases at CPR 44x.3.6. I have taken account of the authorities and the commentary on them in the White Book. But I remind myself that this is an area where the individual facts and result of the case will drive the costs outcome, and that common sense must play a significant role in determining the correct costs order.
This case – the winners
  1. Turning to this case, in my judgment it is clear that the Defendant was the winner on the wrongful dismissal claim, the most significant aspect of the case by far. That claim has been dismissed. The Defendant established that the Claimant was dismissed for gross misconduct. The Defendant is entitled to a costs award in its favour on that aspect of the claim.
  2. There is no doubt that the Claimant was the winner on the counterclaim. The counterclaim too has been dismissed. The Claimant is entitled to an award of costs for the counterclaim.
  3. Because of the axiomatic effect of success on the counterclaim in establishing the contract claim, the Claimant was also the winner on the contract claim, which I have allowed in the amount of £9,000 or thereabouts. The Claimant is entitled to an award of costs for the contract claim.
Adjustment
  1. There then arises a question as to whether there should be any adjustment to those starting positions, to reflect the individual aspects of this case, the factors contained within CPR 44.2, or the overall justice of the case.
  2. The first question is whether I should aggregate all of the aspects of the litigation together. This is, in effect, what the Claimant invites me to do, because the Claimant argues that the success on the contract claim and counterclaim makes him the “overall winner”, taking all aspects of the case into account. The Claimant relies on those cases where the unsuccessful party is identified as the party “who has to write the cheque at the end of the day” see Ward LJ in Day v Day, cited in the White Book at 44x.3.6; and see Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd[2009] 1 Costs LR 55, paragraph 72, proposition (i). I do not accept that submission, on the facts of this case. The Claimant’s approach conflates what are, conceptually, different aspects of this case. The contract claim related to accrued salary and expenses during the currency of the contract. It was temporally and conceptually different from the wrongful dismissal claim by which the Claimant sought damages for the period after the contract was terminated. Success on the contract claim does not therefore, in my judgment, denote success in the wrongful dismissal claim or in the action overall. It is better characterised as success on one small and conceptually discreet part of the case. That outcome is different from some of the cases relied on by the Claimant, where an “overall view” of the litigation outcome was taken, because the damages recovered relate to the claimant’s single complaint (in many cases, of personal injury), although they are smaller in quantum than the amount sought. Put another way, I do not consider that the “overall” approach does justice to this particular case, with its three aspects which are conceptually separate. For that reason, I will distinguish between the aspects in the costs orders that I make.
  3. I must have regard to all the circumstances of the case (CPR 44.2 (4)).
  4. Dealing first with the costs award in the Defendant’s favour on the wrongful dismissal claim: there are two features of this case which operate against the Defendant and suggest to me that the Defendant’s recovery on the wrongful dismissal claim should be something less than 100% of its costs. The first of those is that the Defendant has not been wholly successful in the points that it raised. It failed in five out of six of its grounds set out in its defence. That said, I accept that some of those grounds, although they did not succeed as grounds for summary dismissal, were material to the wrongful dismissal claim on the issue of the Claimant’s credibility. His credibility lay at the heart of this case. My adverse credibility finding was essential to my conclusion in dismissing his wrongful dismissal claim. Nonetheless, the failure of five out of six grounds must be reflected in some costs discount.
  5. The second factor which militates against the Defendant is the lack of patency in the Defendant’s case as it was explained to the Claimant at an early stage. This is an issue going to the Defendant’s conduct. I noted in my judgment that the Defendant did not tell the Claimant at the point at which he was dismissed what were the grounds for his dismissal, and that the first intimation of those grounds arrived with the Defendant’s defence and counterclaim served in March 2015 (see paragraph 7). That conclusion, based on the Claimant’s counsel’s opening of the case before me, now needs a little qualification. I have now been shown without prejudice correspondence, and on 2 March 2015, the Defendant by its solicitors did write to the Claimant’s solicitors asserting that the Claimant had been engaged in “very serious acts of gross misconduct in respect of [the Child]and inviting discontinuance: so the Claimant did know that much, at least, within a month or two of his dismissal. This draws some of the sting, but I believe that the point I made at paragraph 7 of the judgment still holds water, given that the Defendant’s letter related to only one of six allegations which the Defendant then relied on in the defence served just weeks later.
  6. On the other hand there are two countervailing factors which tend to promote the Defendant’s claim for costs on the wrongful dismissal claim. The first of those is the Defendant’s letter dated 2 March 2015, by which the Defendant suggested (although using language which was not crystal clear) that it would not pursue the Claimant for costs if the Claimant simply dropped his claim. With the benefit of hindsight, that was a good offer for the Claimant: he ended up losing the wrongful dismissal claim on the basis of the allegations about the Child. The potency of this offer is moderated, however, by the fact that it was not in crystal clear terms, and it contained no offer to pay the Claimant all salary and expenses due to him to date so that it left one aspect of the Claimant’s claims untouched and unremedied. There were other offers and counteroffers which were made later in time, but none was as close to the outcome of the case as this one and for that reason, I find the 2 March 2015 offer to be significant on the question of costs. I reject the Claimant’s argument that this early offer left the Claimant potentially facing the counterclaim, even if he abandoned his own claim: there had been no suggestion of any counterclaim by this date, and there is no reason to conclude that the Defendant would not have allowed the Claimant simply to “drop hands” at this stage.
  7. The second factor I take into account in the Defendant’s favour is the fact, as I have found it, that the Claimant’s case was based to a large extent on false evidence. I found the Claimant to have given the Court a false account in relation to Lowry, Henderson, Liberty Italia and the Child. That lack of honesty with the Court must count against the Claimant when it comes to costs. It is an aspect of conduct which I am specifically required to take into account under the CPR, because it goes to the “manner in which a party has pursued or defended its case“.
  8. Balancing the various factors I have identified above, based on my starting point of the Defendant being entitled to an award of costs in its favour, I conclude that the appropriate order is for the Defendant to recover 67% of the costs of the wrongful dismissal claim. That is the order that I will make in relation to the claim for wrongful dismissal.
  9. The Claimant is entitled to his costs of the counterclaim, probably by way of offset against the costs order in the Defendant’s favour on the wrongful dismissal claim. The counterclaim did not take up much time, although there will be some discreet costs to attribute to the legal argument on fiduciary duty, at least. I see no reason to reduce the award by reference to any factor rehearsed in CPR 44.2 or otherwise.
  10. I am mindful of the principle discussed in Medway Oil and Storage Co Ltd v Continental Contractors Ltd [1929] AC 88. This is a case where I have dismissed the claim and the counterclaim with costs (albeit in the case of the claim, the costs award is at 67%), as occurred in Medway Oil. TheMedway Oil principle applies to my costs order. That means that the claim should be treated as if it stood alone, and the counterclaim should bear only the amount by which the costs of the proceedings have been increased by it. There will be no apportionment of costs which were common to the wrongful dismissal claim and counterclaim. It is only additional costs, exclusively attributable to the counterclaim, which will be subject to the costs order on the counterclaim in the Claimant’s favour. Mr Croxford suggests that Medway Oil is rather outmoded, and an approach which treats the costs of the claim and counterclaim as common costs to be apportioned is nowadays preferred. But it is clear from the commentary in the White Book at 48GP.69 that Medway Oil remains good law. Further, on the facts of this case I am persuaded that it provides the right approach. The great bulk of the costs of this case were attributable to the wrongful dismissal claim and should not be treated as common costs, apportioned between the wrongful dismissal claim and the counterclaim.
  11. Finally, if and to the extent that there are costs on the contract claim, these too are to be in the Claimant’s favour, to the tune of 100%. This follows from my conclusion that the Claimant should have his costs of the counterclaim, the contract claim standing with the failure of the counterclaim, and logically to be subject to the same costs outcome. These too should be paid by way of offset against the costs going in the Defendant’s favour, for the wrongful dismissal claim.
  12. The Defendant invites me to direct assessment of costs of the contract claim according to the small claims track costs regime. I do not accede to that invitation. I doubt that there will be substantial costs attaching to the contract claim, but those that there are should be paid on the standard basis. This was, in the end, a High Court trial and the costs basis should reflect that.
Conclusion
  1. In summary:
i) The Claimant is to pay 67% of the Defendant’s reasonable costs of the wrongful dismissal claim, on the standard basis;

ii) The Defendant is to pay the Claimant’s reasonable costs of the counterclaim, on the standard basis;

iii) The Defendant is to pay the Claimant’s reasonable costs of the contract claim on the standard basis; and

iv) All the above costs orders are to be subject to detailed assessment if not agreed.

  1. Standing back, I am satisfied that these orders correctly reflect the outcome of the case. The Claimant will have to bear a significant part of the Defendant’s costs, but not all of them. Returning to two of Mr Croxford’s submissions, and answering them: in my judgment, that takes account of the Defendant’s cost budget for this case, which was shaped by the counterclaim as well as the defence of the wrongful dismissal claim; and that reflects the way the cards have fallen at the end of the trial and thus the position, assessed overall.”

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