Wraith v Wraith & Anor [1997] EWCA Civ 929 (5th February, 1997)

This appeal, with leave granted by Aldous LJ, arises from a partnership dispute between brothers in relation to a family farm in the North-East of England. The respondent to the appeal claimed that he was a partner with the appellants. They denied that he was a partner and the respondent issued a writ on the 22nd July 1982. He obtained a legal aid certificate in order to pursue that action, (the partnership action). The appellants were not legally aided.

On the 28th August 1991 the District Judge struck out the partnership action for want of prosecution. He awarded the costs of the partnership action to the appellants and, in view of the legal aid certificate, directed that the order for costs be not enforced without further leave of the court, (the costs order). The respondent sued his solicitors for negligence and settled that action, (the negligence action) on payment to him of approximately £60,000 and his costs of the negligence action. As part of the settlement, he was also indemnified by the Solicitors Indemnity Fund, (the insurers), against any costs which might be incurred if the appellants obtained leave to enforce the costs order in the partnership action, the insurers undertaking to act in resisting any application by the appellants for such leave.

The costs of the appellants in the partnership action were taxed in the sum of £27,864.62 and they sought leave of the District Judge to enforce the costs order in the partnership action on the ground of a change in the respondent´s circumstances since the date of the order, (reg 130, Civil Legal Aid (General) Regulations 1989). The District Judge, on the 2nd January 1996, gave them leave to enforce the costs order. The respondent appealed to His Honour Judge Cooke, (sitting as a High Court Judge) who, on the 15th April 1996, allowed the appeal and dismissed the appellants´ summons for leave to enforce the costs order. From that decision the appellants appeal to this court.

"(1) The liability of a legally assisted party under an order for costs made against him with respect to any proceedings shall not exceed the amount (if any) which is a reasonable one for him to pay having regard to all the circumstances, including the financial resources of all the parties and their conduct in connection with the dispute."

The implementation of section 17(1) is to be found in Part XIII of the Regulations. By reg 124(1) no costs shall be recoverable until the court has determined the amount of the liability of the legally assisted party in accordance with section 17(1). Reg 124(3) provides that the amount of the legally assisted party´s liability shall be determined by the court which tried or heard the proceedings. By reg 127 the court may postpone or adjourn the determination "for such time and to such place (including chambers) as the court thinks fit". The court may also refer any question of fact relevant to the determination for investigation to a master or registrar. Reg 127 is to be contrasted with reg 129 which states:-

Reg 130 provides the mechanism by which a party, in whose favour an order for costs has been made, may apply to the court for a variation of that order on either of two grounds. They are either material additional information or, the ground relevant on the present appeal, "a change in the assisted person´s circumstances since the date of the order". The limitation period is six years. On the application ´the order may be varied as the court thinks fit´.

On the appellants´ application to vary under reg 130, District Judge Heath was satisfied that the respondent was then in a position to satisfy the order for costs. He distinguished the facts of the present case from the decision in McAleer v Derwentside DC and Waugh (1995) Vol 11 P.N. N0 4 page 148, a decision of His Honour Judge Stephenson ( sitting as a High Court Judge).

In reversing the District Judge, Judge Cooke adopted the reasoning in McAleer (supra). In that case a child plaintiff who was three at the time of the accident did not accept a settlement offered by the defendants and went on to lose the action. Judge Stephenson assessed the damages at £20,000. Costs were awarded to the defendants not to be enforced without leave of the court. The plaintiff sued his legal advisers for negligence and, as in this case, the settlement included an indemnity in the event of leave being given to enforce the costs order in the personal injury action.

1. That to enforce the order would leave the appellants better off than they would have been even if they had won the action, because, even if they had won, they would not have been paid the costs of the action awarded against a legally assisted plaintiff. This may be described as the ´windfall´ argument.

2. That it would be wrong to enforce an order where the source of the funds for payment of the costs arose from a solicitor´s negligence action which, in the case of a substantial settlement, must be presumed to have been settled on the basis that the plaintiff had a substantial chance of winning the original action. This may be described as the ´source of funds´ argument.

Mr Karsten submitted that neither of these arguments could sustain analysis. As to the windfall argument, he referred us to the provision of section 31(1) of the 1988 Act as demonstrating a cardinal principle underlying the legal aid legislation namely that, except so far as is made clear by the express provisions of the 1988 Act, the rights and liabilities of the parties inter se and the underlying exercise of the court´s discretion should remain the same as in any case where both parties are privately funded. In those circumstances he submitted that, where the court has the statutory opportunity conferred by reg 130 to vary the effects of a costs order made at a time when one party was legally aided, so as to redress or adjust the economic disadvantage imposed upon the other by depriving him of a payment to which he would otherwise have been entitled, then it should take the chance to do so.

Mr Karsten submitted that such a process cannot properly be described as the occasioning of a windfall: rather is it an opportunity to mitigate the unfairness which the legal aid scheme so often works upon a privately funded defendant who is successful against a legally assisted plaintiff. In fact, Mr

Karsten argued, in a case of the kind before us, it is more accurate to describe the insurers as the beneficiaries of a windfall. Had the respondent been privately funded and therefore subject to immediate liability under the appellants´ costs order, the insurers would have been obliged to indemnify him in respect of such liability. The result of the judge´s decision, however, was to relieve the insurers of that obligation.

Mr Karsten also relied by analogy upon the decision in Godfrey v Smith [1955] 1 WLR 692, where an unsuccessful legally aided defendant was uninsured and the Motor Insurers Bureau undertook to pay any order for damages and costs made against the defendant. On the issue of costs Donovan J said at page 693:-

Whether I take that into account or not seems to me to be largely a matter of discretion, and I look at it this way: here is an individual plaintiff who is not legally aided, who has suffered a wrong, and who has been awarded damages in consequence. I think it would be wholly unjust if he had to be out of pocket of a considerable sum because the defendant was legally aided and could not, in the ordinary way, pay the full costs which I should imagine amount to more than £50. I think justice requires that I should take into account the circumstances of the Motor Insurers Bureau being behind the defendant in the sense I have indicated, as something which is relevant when it comes to the question of making a full order or not. Therefore I order that the first defendant shall pay the two plaintiffs´ costs, as taxed in the ordinary way."

Mr Karsten submitted that, on the basis of that reasoning, the judge in this case was wrong to ignore the significance of the indemnity offered to the respondent who would not suffer any financial consequence from the enforcement of the costs order. Indeed, as Mr Karsten pointed out, in Godfrey v Smith the M.I.B. had a right of recourse against the legally assisted party and yet the order for costs was made.

As to the source of funds argument, Mr Karsten submitted that the court should not concern itself with the source of the fund which led to the respondent´s change of circumstance. If his means improved to an extent which enabled him to meet the costs order by the accretion of a fund which, if available at the time, would have led the court to make an unqualified costs order, the source of the fund should be treated as irrelevant. Alternatively, Mr Karsten argued that if, contrary to his primary submission, it was relevant and appropriate for the court to regard the sum received in settlement as representing the sum the respondent would have received in the partnership action, then the costs order should nonetheless be enforced. This is because it is frequently appropriate, in an action by a legally assisted plaintiff which is pursued to judgment, for the court to order set off against the judgment of any previous costs ordered in favour of the defendant (cp Bloomfield v BTC [1960] 2 All E R 54, where the legally aided plaintiff in a personal injury action was ordered to have set off against his award of damages the costs of his unsuccessful appeal).

Mr Davidson QC for the respondent supported the grounds upon which the judge made his decision. He reminded us that ability to pay is not the only criterion. Under section 17 of the Act there is a statutory requirement to have regard to all the circumstances. Equally, the wording of reg 129 provides for the court a wide discretion to "vary the order as it thinks fit". He asserted that, if enforcement of the order for costs in this case were allowed, the appellants would be in a better position than if the respondent´s solicitors had acted impeccably and the case had been fought to a conclusion. He pointed out that, win, lose or settle, the appellants would not have been paid their costs. Thus, he submitted, the effect of striking out the action was in fact to relieve the appellants of the burden of costs at an early stage, thereby giving the appellants a windfall in addition to the relief from exposure to the risks of losing the partnership action.

Mr Davidson also submitted that the source of the funds and the use to which those funds might be put were indeed relevant considerations. Although it would be wrong to speculate as to the detailed reasons underlying the settlement of the negligence action, a substantial settlement of the kind reached should be treated as demonstrating a substantial chance of a successful outcome for him in the partnership action, if it had been fought to a conclusion. The appellants were thus saved the possibility of paying damages and costs had the matter proceeded, and the insurers should not be obliged to put the appellants in a yet more favourable position.

In our view the submissions of Mr Karsten are to be preferred. Section 31 provides for the court to follow the normal inter partes procedures within the general framework of costs orders. The court in accordance with the normal practice, and as provided by section 31, decides in each case whether a party ought in principle to pay the costs of that case regardless of whether either party is a legally assisted person. If it decides that there ought to be an order for costs against the legally assisted party, the court is then obliged under section 17(1) to consider the amount which it would be reasonable for him to pay having regard to all the circumstances, including the financial resources of all the parties and their conduct in connection with the dispute. While it is true, as Aldous LJ stated in different circumstances in Chaggar v Chaggar [1997] 1 All E R 104 at page 110:-

in a case such as this reg 130 affords the court the ex post facto opportunity to alleviate such unfairness in appropriate circumstances, in particular where there has been a substantial addition to the legally aided party´s means, whereby he may fairly be required to satisfy an order for costs earlier made against him.

In the present case the judge made a typical order for costs not to be enforced without the leave of the court. In the light of the decision of this Court in Parr v Smith (supra) such an order must be treated as having been made under reg 129(b): see Sir Thomas Bingham MR at page 1038d. The effect is to suspend the plaintiff´s obligation of payment indefinitely. On an application by the defendant under reg 130 the court may make such order as it thinks fit. As already stated, the court has a wide discretion as to the order that might be made, ranging from refusing any variation to giving the defendant leave to enforce the order in whole or in part.

Given such a wide discretion, on hearing the reg 130 application what are the relevant considerations? The order was originally termed a "football pool" order, a phrase still in general use but the origins of which are somewhat obscure. Its first reported use appears to have been in Rogan v Kinnear Moodie & Co Ltd [1955] 1 Lloyds Reports 442, when Pearson J made a nominal order for costs against the plaintiff and said at page 448:-

No doubt, the term was coined on the assumption that many legally aided litigants who lose have only a remote prospect of ever achieving a financial situation sufficient to meet the costs of their unsuccessful litigation. No doubt, it also reflects a notion that it is only a substantial, (as opposed to marginal) increase of means which is likely to merit variation of an order earlier made on the basis of relative impecuniosity. However, in the case of the unsuccessful legally aided litigant coming into possession of substantial assets, or otherwise being in a position readily to pay costs previously awarded to the other party, there seems no reason of principle or common sense why he should be treated differently from a formerly impecunious litigant who wins a football pool. If he pulls off a business coup, obtains highly paid employment or inherits a small fortune it is likely to be equally appropriate that he meet a costs order previously outside, but now well within, his means. Nor, in our view, is there any good reason to exclude from the list of contingencies the settlement of an action, (whether or not connected with the litigation in which the order for costs was made), see Broomfield v BTC (supra). Finally, where that settlement carries with it the right to an indemnity against payment of costs under the very order the subject of the other party´s application, the case for a variation is likely to be overwhelming.

For the reasons given by Mr Karsten, we reject entirely the notion that to make an order for payment in such a case is to grant a windfall to a party whom ex hypothesi the court has earlier decided is entitled to payment of those costs on the ordinary principles of discretion which govern the making of such orders.

As to the relevance of the source of funds, we do not accept Mr Karsten´s argument that such source is irrelevant in all cases. We can envisage cases where such source or conditions governing use of a party´s available funds might properly lead a court to leave them out of account. Funds donated to ease hardship or meet expenses arising from personal injuries following an unsuccessful action would be an obvious example.

It will always be a matter for the judge or district judge on the facts of each case before him to consider whether the suspended order should be met in full or in part. There are bound to be many cases where it would not be reasonable to order costs despite the existence of available funds and it is important that this court should not limit the exercise of discretion of the court hearing an application under reg 130. We therefore resist the temptation to give further examples of cases in which an order might not be made.

We do consider, however, that it is not appropriate in a case of this kind to speculate on the reasoning underlying settlement of a solicitor´s negligence action, nor to seek to evaluate the plaintiff´s chance of success in any action the outcome of which was uncertain. When an order is made striking out an action it marks the end of the case, the basis of the order for costs in favour of the defendants being the default of the plaintiff or his advisers. Any subsequent application for variation should not depend for its outcome on balancing the notional advantage or disadvantage to the defendant had the action been fought. That is to give to the plaintiff or his advisers the benefit of their own default. In any event, in a case of this kind, the plaintiff himself suffers no adverse financial consequence; he has the insurers´ indemnity. We can see no reason at all why the insurers, often solicitors who were at fault, should reap any benefit at the expense of the successful non-legally aided party.

In our judgment both Judge Stephenson and Judge Cooke were wrong in principle in their approach to this issue. We allow the appeal against Judge Cooke´s decision and give leave to the appellant to enforce the order for costs against the respondent who will be able to call upon the Solicitors Indemnity Fund to pay them on his behalf.

Order: Appeal allowed; order of His Honour Judge Cooke, dated 15 April 1996, be set aside; leave granted to the Defendants to enforce the order for costs, together with interest, against the Plaintiff; the Plaintiff do pay the Defendants' costs of the Appeal and of the costs of the application before the District Judge and the hearing before the Circuit Judge, such costs to be taxed if not agreed; Plaintiff's application to present a Petition of Appeal to the House of Lords be refused.

England and Wales Court of Appeal (Civil Division) Decisions

JOHN WALTER WRAITH v. BENJAMIN WRAITH ALEC WRAITH [1997] EWCA Civ 929 (5th February, 1997)

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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Wraith v Wraith & Anor [1997] EWCA Civ 929 (5th February, 1997) URL: http://www.bailii.org/ew/cases/EWCA/Civ/1997/929.html Cite as: [1997] EWCA Civ 929, [1997] 1 WLR 1540, [1997] WLR 1540