Practitioners take a lively interest in costs. In cases where costs dwarf the sums in real dispute the Court of Appeal also take an interest, and tend to make critical comments. In a recent case, the Court of Appeal in effect encouraged judges to take a broad-brush approach to ensure that costs reflect the justice of the case.

In Burchell v Bullard Lord Justice Ward said of the Claimant,

‘Recovery of £5,000 will have cost him about £136,000. On the other hand the defendants who lost in the sense that they have to pay the claimant £5,000 are only a further £26,500 out of pocket in respect of costs. Then there are the costs of the appeal - £13,500 for the appellant and over £9,000 for the respondents. A judgment of £5000 will have been procured at a cost to the parties of about £185,000. Is that not horrific?’

The claimant was building extensions on the defendant’s house. Builder and client fell out, and client withheld tranche of the payment. Builder sued for payment, and client counter-claimed for faulty work. The builder was found entitled to payment, about £18k. The client was found entitled to the cost of correcting faulty reports, about £14k. The judge was impressed by the willingness of the builder to own up to this. But the defendant threw into the counter-claim a claim for the cost completely dismantling and reconstructing the roof, at a cost of about £100k, and the builder had to join the roofing sub-contractor as a third party. I say ‘threw in.’ Lord Justice Rix said of it, ‘I do not know if litigants are being fully advised as to the risks involved in a "kitchen-sink" approach to litigation. I do not say that that was the defendants' approach in this case.’ Ward LJ was unenthusiastic about the counter-claim for the roof.

The Court of Appeal made several points which may not be novel but which provide useful guidance in this type of case. The first point has already been made: beware of beefing up a claim or counter-claim for tactical reasons. If the court thinks this has happened, it is a tactic which can bite back hard, even if you win, and the Court of Appeal in effect reminds practitioners that they must warn clients about the dangers of overegging the pudding.

Then, Ward LJ said that he honoured the judge’s discretion to make two costs awards, one on the claim and one on the counter-claim, rather an a global award. It should be borne in mind that when the judge made costs orders, it was not clear just how the sums would work out.

On the question of breaking down the various elements in the claim and costing them individually, the Court of Appeal’s preference for a broad-brush approach is interesting. The judge decided that it was too complicated to separate out the roof issue which, as it turned out, had made the counter-claim very expensive. The Court of Appeal, at the heart of the main judgment, in effect gave clear encouragement to judges to utilize their discretion to adjust the overall costs order by making a percentage adjustment, where that is a practical way to do justice. It worth making a longish quotation from what Ward LJ said about this at paragraphs 29-30:

29. The modern tendency is at least to consider the award of costs on an issue by issue basis. The recorder addressed that but dismissed it because of the difficulty in the preparation of a bill of costs and the enormous complication of the process of detailed assessment. I agree with that. I also agree with him that it is better if possible to deal with the matter another way. His judgment shows, however, that he did not find another way: he resorted to costs following the event. In doing so I fear he fell into error.

30. His error in my judgment was to fetter his discretion and not to go on to consider, as he should have considered, what alternatives were available to him. The most obvious and frequently most desirable option is that signposted in CPR 44.3 paragraph (6)(a), namely to order a proportion of the party's costs to be paid. The recorder had directed his mind to paragraph 6(f), namely ordering costs relating only to a distinct part of the proceedings but he seems to have overlooked paragraph (7) which required him, where he would otherwise have considered confining costs to part of the proceedings only, to make instead, where practicable, an order under (6)(a) for a proportion of the costs. Ordering a proportion of costs obviates all the difficulties he acknowledged in an assessment of how much is properly to be allocated to each and every issue considered in isolation. Better by far to decide, despite the difficulty and imprecision of the calculation, that the relevant issue or issues should bear a percentage of the costs taken overall. As the recorder erred in principle, the appeal on this aspect must be allowed.

Attention was also paid to the refusal of the defendants to submit the dispute to mediation (and critical comment passed about a refusal to use the Court of Appeal mediation scheme). The guidelines in Halsey v The Milton Keynes General NHS Trust [2004] EWCA Civ 576 were set out, and Ward LJ added, ‘Halsey has made plain not only the high rate of a successful outcome being achieved by mediation but also its established importance as a track to a just result running parallel with that of the court system.’ The only reason the party refusing mediation, in this case the defendants, were not hammered in costs was because the refusal to go to mediation pre-dated Dunnett v Railtrack plc (Practice Note) [2002] 1 WLR 2434 (in which warning was given of the possibility of penalising a party who refused ADR).

To summarise, nothing new, but two strong messages: first, in appropriate cases judges should be ready to make ‘broad-brush’ percentage adjustments to costs orders to reflect the justice of the case; second, if you unreasonably refuse ADR in an appropriate case, woe betide you. And there is a ‘consequential’ message: clients must be warned about the costs risks of aggressive litigation tactics and ‘overegging’ a claim.

Unincorporated associations may present problems in practice for practitioners who act for sports clubs, small independent churches and so on. Howells v. Dominion Insurance [2005] EWHC 552 (QB) highlights one of the problems which being unincorporated can create for the association, and for parties who litigate against it. This appeal decides that a person litigating against an unincorporated association can in appropriate cases potentially enforce a judgment against the members who were not individually named (contrary cases are distinguished), but cannot enforce a costs order against them. The situation looks anomalous, and the case may be destined to go for second appeal.

An unincorporated club provided its members with clubhouse facilities: pool tables and cheap drinks and so on. A manager running the club bought insurance. The policy said the insured were the members for the time being of the club. There was a fire. The club got part of their insurance payout. Then the insurer found out that the officer who took out the insurance had been dishonest. The club and its new officers were faced with the nightmare that the insurance was invalid, and worse still, the insurers asked for the return of the money they had paid (over £50,000 plus interest). The club sued for the rest of the insurance payout, disputing that the policy was void. The insurers counter-claimed for their money back, and won. The club’s manager and secretary as the named representative litigants owed over £75,000 on the judgment and over £65,000 in costs. These two men did not pay, and only handed over the names of the other members when they were ordered to do so. One cannot help feeling sympathy with these club officers, who seem to have been placed in a horrible situation.

The Master had decided that the members had not given sufficient authority to pursue the litigation, so the judgment was not enforceable against them. He had relied on a passage in Chitty which reads,
‘No member of a members club is liable for the debts of the club, except to the extent that he has expressly or impliedly authorised some official of the club to pledge his personal credit. Clubs are not partnerships, and the law which was at one time uncertain is now settled that no member of a club is liable to a creditor except so far as he has assented to the contract in respect of which liability has arisen.’
On appeal it was held that he had erred in conflating the authority to contract, where absence of liability of club members was for reasons of privity, with the authority to litigation, where privity was not relevant. The rule in Chitty about contractual liability being unenforceable against association members, who are third parties, did not stop a judgment debt being enforceable.

This is odd. The members of the club cannot be liable on its contractual debts. They can be liable on a judgement debt arising from an action brought in their name by their manager. In a way it seems fair enough – they were named on the policy, and had received unjust enrichment of the insurance payout under the void policy, so they should give it back. But the situation is contradictory. It is raises difficult issues of contract, agency, and restitution which are not covered in the judgment, and which there is insufficient space to explore here.

But it gets odder. The individual members may or may not have given sufficient authority to the named claimants / part 20 defendants (i.e. the Manager and Secretary) to conduct the litigation. Nevertheless the members are liable on the judgment debt, in effect because they were named on, and benefited from, the insurance policy. But the court held, on the basis that it is bound by Court of Appeal authority, the club members cannot be forced to pay the costs. This is a further anomaly.

The liabilities and rights of unincorporated associations need more clarification from the higher courts, if not from the legislature. It would be pity if insurers become unwilling to insure small clubs which are reluctant to bear the costs of incorporation. As it is, though, legal advisers to officers of unincorporated clubs who contract or litigate on behalf of their membership need to keep an eye on this case, in which it is decided that members not named as parties may be liable on a judgment debt, though not for costs. Conversely, the case is a reminder to lawyers who litigate against such entities to be aware of the possible difficulty in enforcing any costs order.

Dr John Birchall - Professional English, Legal English, and Common Law Training