Parker Lloyd Capital Ltd v Edwardian Group Ltd [2018] 6 Costs LR 1235

                  [2018] 6 Costs LR 1235

                  Costs consequences where a receiving party had refused to enter into mediation, having considered the case to be hopeless and the request to mediate to be a tactic designed to extract a nuisance payment.

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                  Case 62

                  Parker Lloyd Capital Ltd


                  Edwardian Group Ltd

                  [2018] 6 Costs LR 1235

                  Neutral Citation Number: [2017] EWHC 3207 (QB)

                  High Court of Justice, Queen’s Bench Division

                  27 October 2017


                  Lavender J


                  Where a successful defendant had refused to enter into a mediation because it believed that the claimant’s case was hopeless and that the proposal for mediation had been a tactic designed to extract a nuisance payment, such a refusal was not unreasonable and was not a reason to adjust the costs order made in its favour. Those costs would be payable on the indemnity basis on account of the claimant’s unreasonable conduct in having sought to bolster its case with evidence in whose truth it had no reasonable belief and which was, in fact, untrue.

                  Cases Cited

                  Dunnett v Railtrack plc [2002] EWCA Civ 303

                  Garritt-Critchley and Others v Ronnan and Another [2015] 3 Costs LR 453; [2014] EWHC 1774 (Ch)

                  Halsey v Milton Keynes General NHS Trust; Steel v Joy and Halliday [2004] 3 Costs LR 393; [2004] EWCA Civ 576; [2004] 1 WLR 3002

                  Hurst v Leeming [2003] 2 Costs LR 153; [2001] EWHC 1051 (Ch)

                  Parker Lloyd Capital Ltd v Edwardian Group Ltd [2017] EWHC 2421 (QB)

                  Swain Mason and Others v Mills & Reeve (a Firm) [2012] 4 Costs LO 511; [2012] EWCA Civ 498

                  Three Rivers District Council and Others v The Governor and Company of the Bank of England [2006] 5 Costs LR 714; [2006] EWHC 816 (Comm)


                  1. LAVENDER J: I gave judgment in this action on 16 October 2017: Parker Lloyd Capital Ltd v Edwardian Group Ltd [2017] EWHC 2421 (QB). I will not repeat what I said in that judgment, which I will refer to as the principal judgment. Words defined in the principal judgment will be used in the same sense in this judgment.

                  2. I have dismissed the claimant’s claim. As is agreed, the starting point is that the claimant should pay the defendant’s costs of the action. The issues before me today as to the incidence of costs are as follows:

                  (1) The defendant says that I should make an order for costs to be assessed on the indemnity basis.

                  (2) The claimant says that I should deprive the defendant of some of its costs because the defendant refused to mediate.

                  (3) The claimant asks for its costs of two matters:

                  (a) an application for specific disclosure; and

                  (b) a threatened application concerning security for costs.

                  3. I start with the issue of indemnity costs. Mr Green submits:

                  (1) First, that this claim was so “speculative, weak, opportunistic or thin” (to use the words of Tomlinson J in Three Rivers District Council v The Governor and Company of the Bank of England [2006] EWHC 816 (Comm); [2006] 5 Costs LR 714) that the claimant’s decision to pursue this claim in itself merits an award of indemnity costs.

                  (2) Secondly, Mr Green relies on the fact that I rejected much of the claimant’s evidence.

                  (3) Thirdly, Mr Green relies in particular on the false evidence which was given in relation to the disqualification order imposed on Mr Mehta.

                  4. As to the first point, the claimant submits that this is not a case in which the claimant knew or should have been advised that the claim was hopeless or bound to fail.

                  5. It is worth noting in this context that it was not until trial that the defendant abandoned its alternative case and accepted that the claimant had introduced MetLife to the defendant. That introduction was effected at the May 3 Meeting, which only took place because Mr Singh, on behalf of the defendant, had, at the May 2 Meeting, put the claimant in contact with Mr Anscomb. The suggestion that Mr Singh must have appreciated that the claimant would expect a reward for its services was not a fanciful one, especially in a context where it was not unknown for the relevant individuals to do business orally.

                  6. Mr Sweeting rightly points out that:

                  (1) I should eschew the advantages of hindsight;

                  (2) I should bear in mind that the defendant did not apply for summary judgment (although I note that summary judgment would be difficult in a case such as the present, which turned on the reliability and credibility of the witnesses); and

                  (3) in the principal judgment I made some adverse observations about the reliability of the defendant’s witnesses.

                  7. On the other hand, the claim, in order to be pursued, required not merely an introduction, but an agreement. The claimant’s case was that an oral agreement was made at the 2012 Meeting. That case faced a number of challenges, as is apparent from para 187 of the principal judgment. Such documents as there were tended, if anything, to support the defendant’s position. The claimant’s case all came down to the witnesses. I dealt with them in para 188 of the principal judgment, where I said as follows:

                  “I acknowledge, in reaching the conclusion that there was no contract, that it may well be that some or all of the claimant’s witnesses were lying in some of the evidence which they gave. It is unnecessary for me to decide whether and, if so, in what respects, they were being deliberately untruthful, or were mistaken in their recollection or had subconsciously convinced themselves of the truth of matters which were in fact untrue. All of these would affect the reliability of their evidence, and I have already identified a number of grounds for regarding their evidence as unreliable.”

                  8. It is appropriate, however, to refer to the issue which I dealt with in paras 25 to 40 of the principal judgment. That is the issue of the disqualification order. As I have found, Mr Mehta committed multiple breaches of this order. Indeed, criminal proceedings were instigated against him and remained on foot until February of this year, i.e. during the currency of this action.

                  9. Moreover, Mr Mehta was not just a witness. He was “the main gentleman behind the Parker Lloyd Group” and, as emerged at trial, one of the respects in which he was in breach of the disqualification order is that he was a shadow director of the claimant company. That breach included being a shadow director when this action was commenced on 10 June 2016, since the disqualification order remained in force until 27 December 2016.

                  10. Since the alleged contract was entirely oral, this was a case in which the credibility and reliability of the crucial witnesses was bound to be important. The defendant identified well in advance of trial that the disqualification order was a significant issue in relation to Mr Mehta’s credibility. In August 2016 the defendant’s solicitors wrote and drew attention to this point. I note that that was before the criminal proceedings against Mr Mehta were dropped.

                  11. That in due course prompted the untrue statement from Mr Mehta which I quoted in para 28 of the principal judgment. That untrue evidence was compounded by more evidence at trial which was also untrue.

                  12. This is a matter which is sufficiently significant in the context of this action that, if Mr Mehta had laid the full and correct facts before the claimant’s solicitors, it is at least possible that this action would never have come to trial.

                  13. In conclusion on this aspect of the evidence, I said as follows in paras 39 and 40 of the principal judgment:

                  “39. In these circumstances, it is surprising that Mr Mehta felt able to say in his witness statement that ‘At no stage have I contravened the disqualification order’. It is even more surprising that he felt able to say, as he did in cross-examination, that in his mind he had not misled the court when he said this in his witness statement.

                  40. A troubling feature of Mr Mehta’s evidence was that he appeared to have convinced himself that he had not done anything wrong. Some people deal with inconvenient facts by subconsciously persuading themselves that the facts were different or that their actions were somehow justified. It may well be that Mr Mehta is such a man. When challenged, however, he sought to justify himself by reference to whatever explanation came to mind, regardless of the truth. I need not decide whether he was consciously lying or whether he was the victim of his own subconscious delusions. Either way, he was far from being a reliable witness.”

                  14. One of the matters which is important on an application for indemnity costs is whether a party has behaved unreasonably to a high degree. It was clearly unreasonable for the claimant to advance Mr Mehta’s evidence on this point on an issue which, although it strictly only relates to credibility, was significant in the context of this case. In all the circumstances, I am satisfied that the claimant’s conduct, in seeking to bolster its case with evidence in whose truth it had no reasonable belief, and which was in fact untrue, was unreasonable to a sufficiently high degree to merit an order for costs to be assessed on the indemnity basis.

                  15. I turn now to the question whether I should reduce the costs ordered by reason of the defendant’s refusal to mediate. There is no doubt that the defendant refused repeated invitations to mediate. It made its position clear as long ago as 20 November 2014 and it stuck to its guns. The defendant did so even in the face of Master Cook’s observations at the costs and case management conference on 30 November 2016 that “that is a dangerous stance to take” and that “it is difficult to conceive of a more straightforward mediation”.

                  16. In relation to what Master Cook said, Mr Sweeting has drawn my attention to para 29 of the judgment of the Court of Appeal in Halsey v Milton Keynes General NHS Trust [2004] 1 WLR 3002:

                  “So far we have been considering the question whether a successful party’s refusal of ADR was unreasonable without regard to the impact of any encouragement that the court may have given in the particular case. Where a successful party refuses to agree to ADR despite the court’s encouragement, that is a factor which the court will take into account when deciding whether his refusal was unreasonable. The court’s encouragement may take different forms. The stronger the encouragement, the easier it will be for the unsuccessful party to discharge the burden of showing that the successful party’s refusal was unreasonable.”

                  17. The defendant says that its conduct was reasonable. There was no issue in this case about quantum. The principal issue was liability. That was a binary issue. The defendant was confident that it would win on that issue. The issue was whether Mr Singh made an oral contract. Mr Singh was confident that he did not. The defendant could not envisage any offer being made which it would accept. It could see no point in mediating.

                  18. An additional reason given by the defendant for refusing to mediate was the cost of mediation. Master Cook included £25,000 in the defendant’s budget for mediation. The defendant has overspent that budget by over 20 times that amount.

                  19. Mr Sweeting has drawn my attention to a number of authorities in which the courts have discouraged a refusal to mediate on what he submits are similar grounds. In Dunnett v Railtrack plc [2002] EWCA Civ 303 at 14, Brooke LJ said:

                  “Mr Lord, when asked by the court why his clients were not willing to contemplate alternative dispute resolution, said that this would necessarily involve the payment of money, which his clients were not willing to contemplate, over and above what they had already offered. This appears to be a misunderstanding of the purpose of alternative dispute resolution. Skilled mediators are now able to achieve results satisfactory to both parties in many cases which are quite beyond the power of lawyers and courts to achieve. This court has knowledge of cases where intense feelings have arisen, for instance in relation to clinical negligence claims. But when the parties are brought together on neutral soil with a skilled mediator to help them resolve their differences, it may very well be that the mediator is able to achieve a result by which the parties shake hands at the end and feel that they have gone away having settled the dispute on terms with which they are happy to live. A mediator may be able to provide solutions which are beyond the powers of the court to provide.”

                  20. In Phillip Garritt-Critchley and Others v Andrew Ronnan and Solarpower PV Ltd [2014] EWHC 1774 (Ch), His Honour Judge Waksman QC, sitting as a judge in the High Court, said:

                  “14. His first point is that this is not a claim which provides any natural middle ground between the parties because it centres on whether a concluded agreement was reached. But that is usually the case on liability: it usually is a binary issue. There may be various liability outcomes in a more complex case but in a simple case the question is going to be, ‘Was there a breach of duty of care? Was there a breach of contract? Was there a contract?’; and so on and so forth. To consider that mediation is not worth it because the sides are opposed on a binary issue, I’m afraid seems to me to be misconceived.

                  15. But para 17 concludes, ‘In our view most cases are not by their very nature unsuitable for ADR.’ In my judgment, this case by its very nature was eminently suitable for ADR as the claimants appreciated in their first letter.”

                  21. I interject that Mr Green accepted that this case, in itself, was suitable for ADR. His Honour Judge Waksman continued:

                  “16. Paragraph 5A of Mr Tyrrell’s witness statement goes on to say that the defendants are ‘confident that no agreement will ever be reached’. I am not going to make pronouncements in a judgment which I am not now giving. All I will indicate is that given the nature of this dispute, it does not seem to me to be realistic for someone in the position of Mr Ronnan to say that all the odds are so stacked in his favour that there is really no conceivable point in talking about settlement.

                  17. Indeed if that had been his view then it is surprising that no application for summary judgment was ever made, which it was not. Of course the reason why it was not is because there was evidence going both sides: both sides were relying on documents and the inferences which could or could not be reasonably drawn there from.”

                  22. In Hurst v Leeming [2002] EWHC 1051 (Ch) at 14, Lightman LJ said:

                  “The fact that a party believes that he has a watertight case again is no justification for refusing mediation. That is the frame of mind of so many litigants.”

                  23. Against that, Mr Green referred to para 76 of the decision of the Court of Appeal in Swain Mason v Mills & Reeve [2012] EWCA Civ 498:

                  “In Halsey, the Court of Appeal was concerned to make clear that parties are not to be compelled to mediate. Further, as stated by the Court of Appeal at para 16 of the judgment delivered by Dyson LJ: ‘mediation and other ADR processes do not offer a panacea and can have disadvantages as well as advantages; they are not appropriate for every case.’ The Court of Appeal was also concerned to point out the relevance of the fact where a party reasonably believes that he has a strong case; otherwise there is scope for a claimant to use the threat of costs sanctions to extract a settlement even where the claim is without merit: ‘courts should be particularly astute to this danger’ (at para 18). It was thus emphasised that where a party reasonably believes that he has a watertight case that may well be a sufficient justification for a refusal to mediate.”

                  24. In fact, both parties referred me to para 19 of the judgment in Halsey v Milton Keynes NHS Trust, paras 18 and 19 of which say as follows:

                  “18. The fact that a party reasonably believes that he has a strong case is relevant to the question whether he has acted reasonably in refusing ADR. If the position were otherwise, there would be considerable scope for a claimant to use the threat of costs sanctions to extract a settlement from the defendant even where the claim is without merit. Courts should be particularly astute to this danger. Large organisations, especially public bodies, are vulnerable to pressure from claimants who, having weak cases, invite mediation as a tactical ploy. They calculate that such a defendant may at least make a nuisance-value offer to buy off the cost of a mediation and the risk of being penalised in costs for refusing a mediation even if ultimately successful.

                  19. Some cases are clear-cut. A good example is where a party would have succeeded in an application for summary judgment pursuant to CPR 24.2, but for some reason he did not make such an application. Other cases are more border-line. In truly border-line cases, the fact that a party refused to agree to ADR because he thought that he would win should be given little or no weight by the court when considering whether the refusal to agree to ADR was reasonable. Border-line cases are likely to be suitable for ADR unless there are significant countervailing factors which tip the scales the other way. In Hurst, Lightman J said:

                  ‘The fact that a party believes that he has a watertight case again is no justification for refusing mediation. That is the frame of mind of so many litigants.’

                  In our judgment, this statement should be qualified. The fact that a party unreasonably believes that his case is watertight is no justification for refusing mediation. But the fact that a party reasonably believes that he has a watertight case may well be sufficient justification for a refusal to mediate.”

                  25. Finally, in relation to the potential outcome of a mediation, Mr Green referred to para 28 of the judgment in Halsey v Milton Keynes NHS Trust, which states as follows:

                  “The burden should not be on the refusing party to satisfy the court that mediation had no reasonable prospect of success. As we have already stated, the fundamental question is whether it has been shown by the unsuccessful party that the successful party unreasonably refused to agree to mediation. The question whether there was a reasonable prospect that a mediation would have been successful is but one of a number of potentially relevant factors which may need to be considered in determining the answer to that fundamental question. Since the burden of proving an unreasonable refusal is on the unsuccessful party, we see no reason why the burden of proof should lie on the successful party to show that mediation did not have any reasonable prospect of success. In most cases it would not be possible for the successful party to prove that a mediation had no reasonable prospect of success. In our judgment, it would not be right to stigmatise as unreasonable a refusal by the successful party to agree to a mediation unless he showed that a mediation had no reasonable prospect of success. That would be to tip the scales too heavily against the right of a successful party to refuse a mediation and insist on an adjudication of the dispute by the court. It seems to us that a fairer balance is struck if the burden is placed on the unsuccessful party to show that there was a reasonable prospect that mediation would have been successful. This is not an unduly onerous burden to discharge: he does not have to prove that a mediation would in fact have succeeded. It is significantly easier for the unsuccessful party to prove that there was a reasonable prospect that a mediation would have succeeded than for the successful party to prove the contrary.”

                  26. The defendant believed that the claimant’s proposal for mediation was a tactic designed to extract a nuisance payment. I am not persuaded that that was an unreasonable belief in the circumstances of this case. In reaching that conclusion, I have considered all the circumstances of the case and, in particular, the following:

                  (1) Mr Singh was the one who was alleged to have made the oral contract. His firm view was that he did not.

                  (2) As I found in para 17 of the principal judgment, Mr Singh’s understanding was that Mr Mehta and Mr Shah had a reputation for not being trustworthy.

                  (3) By August 2016, i.e. shortly after the action was commenced, the defendant’s solicitors had written to identify the issue as to the disqualification order, which was to prove to be a significant issue going to Mr Mehta’s credibility.

                  (4) At no stage between then and trial did the claimant ever disclose the true position, despite the fact that, until February 2017, its shadow director, Mr Mehta, was being prosecuted for breach of the disqualification order.

                  (5) The evidence which Mr Mehta actually gave about this issue, in his witness statement of 10 June 2017, was untrue.

                  (6) Mr Mehta was to give further untrue evidence on that issue at trial.

                  27. In all the circumstances, I do not consider that the claimant has shown that the defendant’s refusal to mediate was unreasonable.

                  28. I turn now to the disclosure application. This was made by the claimant on 10 July 2017, only a week before trial. It largely concerned requests for unredacted copies of documents which had been disclosed in redacted form. The defendant gave disclosure of most of the documents sought, or confirmed that they did not exist, and allowed the claimant to make use of a privileged email which had been inadvertently disclosed. The defendant said that it was doing so, not because it believed that it was obliged to do so, but in order to enable the trial to proceed and not become bogged down in a preliminary dispute about disclosure.

                  29. As a result, only one aspect of the disclosure application was pursued. I dismissed that application, for the reasons given in my ruling of 17 July 2017: [2017] EWHC 1865 (QB). Therefore the application was partially successful and partially unsuccessful.

                  30. The claimant says that its disclosure application was largely successful and that it should have its costs. The defendant says that the application would, if it had been argued, have been unsuccessful, and that the defendant should not be ordered to pay the claimant’s costs of the application simply because the defendant took a pragmatic decision at the outset of the trial. Mr Green said that the appropriate order on the application should either have been no order as to costs, or costs in the case (which in the event would be equivalent to giving the defendant its costs of the application).

                  31. I did not consider it proportionate to conduct a full hearing of the disclosure application in order to decide who would have won, simply in order to allocate the costs of that application. Neither party invited me to go down that route.

                  32. I have considered what use was made of the documents disclosed in response to that application. I appreciate that that is not a full answer to the claimant’s application, but it was striking that, in the case of the email which was disclosed inadvertently, the claimant knew what its contents were, applied for permission to use it at trial, but then did not demonstrate that it added anything of significance to the issues which I had to decide. Indeed, I did not find it necessary to refer to it in the principal judgment. Other documents were also put to the defendant’s witnesses, but the newly unredacted parts did not contribute in any significant way to the central issues which I had to decide.

                  33. All in all, I consider that the appropriate order on the disclosure application is that there should be no order as to costs.

                  34. Finally, I turn to the threatened application in relation to security for costs. It was agreed at an early stage that the claimant would provide security for costs. There was a dispute as to the amount of security to be provided in respect of the defendant’s incurred costs by the time of the costs and case management conference. The claimant offered £65,000 and then £75,000. The defendant offered to accept £98,000. The master decided on £75,000 at the costs and case management conference.

                  35. There was also a dispute about the form of security. Master Cook was to say that he was surprised that the defendant had refused to accept security in the form of money paid into the claimant’s solicitors’ bank account. His words prompted the defendant to rethink its position. Agreement was reached shortly afterwards and an order was made.

                  36. Both that order and the order made at the costs and case management conference provided for costs in the case. I do not consider that it would be appropriate for me to make a different order.

                  Mr D Sweeting QC (instructed by Stewarts Law LLP) appeared on behalf of the applicant.

                  Mr A Green QC (instructed by Baker & McKenzie LLP) appeared on behalf of the respondent.

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