I’ve heard about a few costs decisions by trial judges recently which might be considered, to put it politely, interesting, or brave, in the Yes Minister sense. So it was with some interest that I read the Court of Appeal decision in Begum v Birmingham City Council [2015] EWCA Civ 386.

Mr Majid and Mrs Begum were secure tenants. In 2003-4 Mrs B bought the property under the Right to Buy. The s.125 notice did not disclose any significant defects to the property under s.125(4A) Housing Act 1985, obliging the Council to disclose “all structural defects which are known to it and which affect the property”. Subsequently cracking appeared in the rear extension of the house. The rear wall had pulled away from the wall of number 93, leaving a large gap. Mr Majid and Mrs Begum made a claim on their insurers. The insurers refused to pay on the ground that the damage was attributable to pre-existing defects.

After a pre-action letter, proceedings were begun against the Council in April 2010 for negligence and misrepresentation. These were initially in Mr Majid’s name only. In September 2011, Mrs B was substituted as Claimant. In May 2012, the claim was amended to also plead breach of statutory duty under section 125 (4A) of the 1985 Act. The Council denied liability throughout.

The original 2 day trial in May 2012 was adjourned because of, variously, the need to translate documents from English into Bengali, a gross under-estimate of the likely length of trial, the Council’s late disclosure and the claimant’s late amendment to plead breach of statutory duty.

In May 2013, in the Technology and Construction Court, after a five day trial, the Judge found two causes of damage:

i) lack of wall ties between the right-hand corner of the rear wall of the back addition and the adjoining property, number 93; and
ii) inadequate foundations, which progressively caused damage in the form of cracking in and displacement of the associated drains.

The Judge found that the Council was aware of the first issue at the time of the s.125 notice from its maintenance records, but was unaware of the second cause. After further expert evidence, cause 1 was found to be 90% responsible for damage to the property. The Judge found that the claimant would have insisted on the council rectifying the defect prior to purchase had it been disclosed in the s.125 notice. Damages of £74,876 were awarded in respect of the costs of rectification, general and special damages.

This might look like a significant win for Mrs B. But then the arguments turned to costs at a subsequent hearing.

In the costs judgment the judge made no order for costs in respect of the period before issue of proceedings. In respect of the period from issue to 14th May 2012 (which the judge called “period 1”), he ordered the claimant to pay the defendant’s costs subject to one proviso. The proviso was that the Council should pay the claimant’s cost of obtaining expert evidence during that period. This produced the curious consequence that each party was required to pay the costs of the other side’s expert during period 1. In respect of the period 14th May 2012 to 4th June 2013 (which the judge called “period 2”), he ordered the defendant to pay 40% of the claimant’s costs. In respect of the period 5th June 2013 to 18th December 2013 (which the judge called “period 3”), he ordered the defendant to pay 80% of the claimant’s costs.

The judge gave the following reasons for reaching those decisions on costs:

i) During period 1 the action was bound to fail because the claimant’s only pleaded claim was for negligence and misrepresentation.

ii) During period 2 the claimant was pursuing three causes of action only one of which succeeded, namely her claim for breach of statutory duty.

iii) If the claimant’s case had been properly pleaded, all issues would have been dealt with in the hearing during May 2013. Therefore the claimant’s inadequate pleading caused matters to be dealt with in two hearings rather than one hearing. On the other hand all the evidence at both hearings needed to be deployed in any event. In order to reflect the inefficient way in which the litigation proceeded the claimant should recover 80%, rather than 100%, of her costs during period 3.

Mrs B (perhaps understandably) appealed to the Court of Appeal – as this costs award would wipe out her damages.

The Court of Appeal was not particularly impressed, even given the notorious reluctance of the appellate courts to interfere with first instance discretion on costs awards.

For Mrs B, the argument was:

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 [Counsel for Mrs B] accepts the judge’s decision on costs in period 3 and the reasoning on which that decision was based.

On the other hand, Counsel 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.”

The Court of Appeal was perhaps less impressed with the authorities on costs

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.

The starting point was that Mrs B had been successful and should have her costs. The initial error on Mr M being named as claimant and then substituted was a mere technical error that had not affected the costs of litigation.

So on what basis should there be a departure from the usual rule here?

“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.”

On the second point, there was no argument from either party with the award of 80% of costs for the third period (after June 2013) as fair – a 20% deduction arising from the need to have two hearings rather than one due to inefficient conduct of litigation by the Claimant around the trial hearings..

On the first and most significant point:

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.

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.

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.

The result – Claimant awarded 85% of her costs from pre-issue to June 2013 and 80% thereafter. And presumably the costs of the appeal.

Comment

This is hopefully a useful corrective to some of the wilder first instance costs decisions I have heard of lately. Micro decisions on merit and motivation at each stage, or on the losing party’s ‘justifiable’ motivations in mounting a failed case, or alternatively, ignoring which party’s responsibility it was that a matter went to trial, regardless of the history of the matter.

It is also useful as an indicator that the court of appeal (or appellate court) can and maybe will intervene in costs decisions, so often regarded as an unchallengeable exercise of discretion by the first instance judge. Given the often devastating consequence of such decisions, even for a winning party as here, this is to be welcomed.