Purrunsing v A'Court & Co & House Owners Conveyancers Ltd
The recent decision of His Honour Judge Pelling QC in Purrunsing v A’Court & Co (1) & House Owners Conveyancers Ltd (2)  EWHC 1528 emphasises the need for Claimants to put forward realistic Part 36 offers, particularly where such offers are inclusive of interest. It also demonstrates the high threshold that successful parties must get over in order to persuade Courts to award costs on the indemnity basis.
This was a post judgment hearing concerning the remaining costs issues following the handing down of the substantive judgment, which can be found here.
This was a claim arising out of the purported sale of a property to the Claimant by a fraudster. The fraudster claimed to be, but was not, 'Mr Nicholas Robert Dawson', the registered proprietor of the property (any reference to Mr Dawson is a reference to the fraudster, not the true registered proprietor of the property).
By the time the fraud was discovered, the whole of the purchase price (£470,000) had been paid by the Claimant to the registered conveyancer retained by him to act on his behalf in the purchase of the property, the Second Defendant (House Owners Conveyancers Ltd), by the Second Defendant to Mr Dawson's solicitors, the First Defendant (A’Court & Co), and by the First Defendant to an account at a bank in Dubai on the instructions of Mr Dawson. None of the money paid over by the Claimant had been recovered.
It was common ground that there was never a genuine completion of the transaction and that the monies paid away were payments made in breach of trust and thus both Defendants were liable to the Claimant for breach of trust. It was also common ground that the Claimant had no other claims available to him as against the First Defendant, and that he sued the Second Defendant not merely for breach of trust but also for breach of contract and duty.
The payments were made in October 2012 and the Claimant issued proceedings initially against the First Defendant only in July 2013. Although judgment was subsequently entered for the Claimant against the First Defendant, in that the purchase money had been paid away by the First Defendant in breach of trust, the First Defendant made an application for relief under s.61 of the Trustee Act 1925, which the court directed was to be determined at trial. The Second Defendant was joined into the proceedings in November 2014 and although they admitted breach of trust in their Defence, they also applied for relief under s.61 of the Trustees Act 1925 (the Second Defendant denied liability for breach of contract and/or duty). No allegations of dishonesty were made by the Claimant against either Defendant or by either Defendant against the other.
The case proceeded to trial on 15-18 March 2016 where HHJ Pelling dismissed both Defendant’s applications to rely on s.61 of the Trustee Act 1925 and ordered that both Defendants bear an equal part of the loss suffered by the Claimant. The Claimant’s costs of pursuing the claims against the First and Second Defendants were to be paid by the First and Second Defendants respectively. The matter was adjourned to a hearing on 27 May 2016 to determine the remaining costs issues which, for the purposes of this blog, were:
1. Whether the Claimant should be entitled to enhanced costs as a result of the Part 36 offer made; or alternatively
2. Whether the Claimant should be entitled to costs on the indemnity basis as a result of the Defendants’ conduct.
Part 36 offer
On 20 May 2015 the Claimant made a Part 36 offer to settle the claim at £516,000 inclusive of interest. At trial the Claimant was awarded £470,000 together with interest at the rate of 2.5% above base rate, which was £48,983.01. In total therefore the Claimant recovered £518,983.01.
The Claimant submitted that since he had recovered a sum in excess of his own Part 36 offer, he was entitled to an enhanced costs order from the date 21 days after the offer had been made. The Defendants submitted that the Claimant had not recovered in excess of his own Part 36 offer and therefore no such order should be made. The Defendants’ position was that in deciding whether the offer had been beaten it was necessary to deduct the interest that had been awarded between the date 21 days after the Part 36 offer had been made and the date of judgment (£11,936.71 - 309 days at 3%). Whilst both parties accepted that the interest inclusive judgment sum was £518,983.01, the Defendants submitted that the £11,936.71 should be deducted from that figure for the purposes of deciding whether the Claimant had bettered his offer, thereby resulting in a figure of £507,046.30.
The Court accepted the Defendants’ argument and determined that the Claimant was not entitled to enhanced costs:-
“As is apparent from the extract from the Rules set out above, by CPR r.36.5(4) a Part 36 offer to pay money is deemed to include all interest down to the date when the relevant period for acceptance of the offer expires. In order to work out whether a judgment is more advantageous than such an offer it is necessary to ensure that the offer or the judgment sum is adjusted by eliminating from the comparison the effect of interest that accrues after the date when the relevant offer could have been accepted. In my judgment this is the effect of the words "… better in money terms …" in CPR r. 36.17(2)…………The only interest that is material is that included or deemed included within the offer………………If it was otherwise then whether an offer from a claiming party should be accepted by a defending party would depend not on an analysis of liability in respect of the claim but what in many cases will be entirely unpredictable namely the date when a trial takes place and what is perhaps even more unpredictable, when judgment will be handed down.”
The Claimant’s position was that he should be entitled to some or all of his costs against both Defendants on the indemnity basis as not only did they have no proper or reasonable grounds for seeking relief under s.61 Trustees Act 1925, they also failed to engage in a realistic attempts to settle. The Claimant submitted that both Defendants had acted unreasonably to a high degree because breach of trust had been admitted or established by summary judgment and there were no prospects of their applications for relief succeeding.
The Court did not accept the Claimant’s argument that in pursuing the s.61 defence either Defendant had acted unreasonably to the degree required to justify directing that the Claimant should recover costs on the indemnity basis:-
“First, the mere fact that an unmeritorious defence has been pursued to a conclusion does not justify a direction that the successful party's costs be assessed on an indemnity basis under the law as it currently is………….Secondly and in any event, the circumstances must be truly exceptional before a court can properly exercise its discretion to direct an assessment on the indemnity basis simply on the basis that the claim has failed. There has to be an aggravating factor or factors that take the case out of the norm. In any event as a perusal of the substantive judgment reveals, the outcome depended at least in part on the oral evidence given in the course of cross-examination by each of the individuals called to give evidence on behalf of the Ds. Even if, now, the defences could be characterised as weak or even misguided that depends to a degree on hindsight and in any event is not enough to justify the order sought.”
The Court also did not accept the Claimant’s argument that the Defendants’ conduct in settlement negotiations justified an indemnity costs order being made:-
“Under the CPR it is open to a Claimant to protect himself first by applying for summary judgment where there is no realistic defence available to the Defendant and secondly by himself making a Part 36 offer, which, if effective, will expose a Defendant who is unwilling to settle to the risk of an enhanced costs order being made against him. That being the relevant procedural context, in my judgment it would have to be an exceptional case that would justify a court directing that a successful party should be entitled to recover its costs on an indemnity basis because the paying party failed to settle the claim prior to trial.”
The Defendants were ordered to pay the Claimant’s costs of and occasioned by the proceedings to be assessed on the standard basis if not agreed.
Given the recent decisions in relation to proportionality (see BNM v MGN Ltd and May v Wavell Group Ltd) and the significant reductions being made to costs, the desire for indemnity basis costs orders has never been felt so keenly by Claimants.
Although the threshold for achieving an indemnity basis costs order has always been high, this case highlights just how high it is.
As a result, there is an increased emphasis on Claimants putting forward realistic Part 36 offers in order to potentially benefit from CPR 36.17.
By Adam Quinn - Solicitor