Dolphin Quays Development Ltd v Mills (aka Mills v Birchall)
| Jurisdiction | England & Wales |
| Judge | THE CHANCELLOR OF THE HIGH COURT,The Chancellor |
| Judgment Date | 17 May 2007 |
| Neutral Citation | [2007] EWHC 1180 (Ch) |
| Docket Number | Case No: HC04C03670 |
| Court | Chancery Division |
| Date | 17 May 2007 |
[2007] EWHC 1180 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
the Chancellor of the High Court
Case No: HC04C03670
Mr M K I Kennedy (instructed by Portner and Jaskel LLP) for the 1st Defendant (Applicant)
Mr William Trower QC and Mr Barry Isaacs (instructed by DLA Piper UK LLP) for the 2nd and 3rd Defendants (Respondents)
Hearing date: 10 th May 2007
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
The Chancellor:
Introduction
By an agreement in writing dated 21st August 2001 made between Orb Estates plc (1) and the first defendant Peter Mills (2) the former agreed to sell to the latter a long lease of flat 78 at Dolphin Quays, Poole, Dorset, then in course of development, for £650,000. It had also been agreed between them that the purchase price should be paid by set-off against the debt of £1.85m due by Orb Estates plc to Mr Mills but this was not recorded in the written agreement. On 16th August 2002 Orb Estates plc sold its interest in Dolphin Quays, together with the benefit of the agreement with Mr Mills, to the claimant Dolphin Quays Developments Ltd (“the Company”). On the same day the Company charged all the property so acquired to Royal Bank of Scotland International Ltd (“the Bank”) as security for all liabilities of any kind and in any currency due by the Company to the Bank. The Charge provided, in the terms of s.109(2) Law of Property Act 1925, that the Bank might, in certain events, appoint a receiver of the charged property
“but any Receiver shall be deemed to be the agent of the Company and the Company shall be solely responsible for the Receiver's acts defaults and remuneration.”
On 13th June 2003 the Bank appointed the second and third defendants, Messrs Birchall and Gilbertson (“the Receivers”), as LPA receivers of the property subject to the Charge and Messrs Birchall and Lomas as joint administrative receivers under a debenture given by the Company to the Bank. All three were partners in PwC. Mr Mills was the sole director of the Company, had executed the Charge and the debenture on its behalf and sworn the affidavit verifying the statement of affairs as at the date of the appointment of the administrative receivers.
On 23rd November 2004 the Company, by the Receivers, instituted these proceedings against Mr Mills for specific performance of the contract for the sale of the long lease of flat 78. Mr Mills was quite prepared to complete on the basis of the agreement as to payment of the price by set-off, but this was not acceptable to the Receivers. In due course the Receivers accepted Mr Mills refusal to complete except on that basis as discharging them from further performance and sold flat 78 for £495,000. Accordingly the claim, when it came before Mr Peter Leaver QC, sitting as a deputy High Court judge of the Chancery Division, on 28th March 2006, was for damages for breach of contract equal to the balance of the purchase price, namely £155,000. In his judgment handed down on 12th April 2006 Mr Leaver rejected this claim. He concluded that the set-off agreement had been an integral part of the contract for the sale of the lease and, not having been included in that document, the contract was unenforcible under s.2 Law of Property (Miscellaneous Provisions) Act 1989.
The application before me, issued by Mr Mills on 28th January 2007, seeks an order that the Receivers, who were, by consent, joined as additional defendants by Lightman J on 16th February 2007, do pay to Mr Mills under s.51 Supreme Court Act 1981 his costs of the unsuccessful claim brought against him by the Company. The grounds on which such an order is sought are stated to be that (1) the Receivers brought the claim at the request of the Bank, (2) the Bank alone had any financial interest in the claim, (3) the Bank had funded and directed the proceedings throughout and (4) it would be a grave injustice to Mr Mills, a man of modest means, if he had to bear his own costs, especially as he is a substantial creditor of Orb Estates plc, the parent of the Company.
The Evidence
The evidence before me consists of witness statements made by Mr Mills on 31st January 2007 and his solicitor, Mr Hershkorn on 29th January and 26th March 2007 and by Mr Birchall on 12th March 2007 and the exhibits thereto. There has been no cross-examination of any of them. In paragraphs 13, 14 and 22 of his witness statement Mr Birchall specifically denied the allegations made in the Application notice which I have summarised in paragraphs (1) and (3) of paragraph 4 above. There is no evidence to support those allegations and I reject them.
The evidence from Mr Mills and his solicitor emphasise a number of other matters on which Mr Mills relies. First, it is accepted that Mr Mills could have applied for security for costs pursuant to CPR Rule 25.13 at any time after the proceedings issued on 23rd November 2004 had been served on him. Mr Mills explains his failure to do so by his belief that if he were successful his costs would be paid out of the funds held by the Receivers and the fact that he had not been advised otherwise. His solicitor admits that it did not occur to him or to counsel instructed by him from time to time to advise that such an application should be made because he believed that the real parties were the Receivers and, because of their standing and reputation, they would honour any order for costs made against the Company. There is no suggestion that the Receivers or the Bank gave any express or implied assurance to that effect.
Second, Mr Mills relies on the fact that after Mr Leaver handed down his judgment in draft counsel for the Company sought time to consider applying for leave to appeal and disputing its liability as the loser for all Mr Mills costs. In the event, neither course was pursued and by his order, as drawn up on 27th April 2006, Mr Leaver dismissed the action with costs to be subject to a detailed assessment on the standard basis. The Receivers do not suggest that they suffered any prejudice from this delay. Mr Mills does not contend that the Receivers thereby accepted a liability for his costs in whole or in part.
On 3rd May 2006 the solicitors for Mr Mills indicated that he would accept a little over £60,000 in respect of his costs. After obtaining instructions from their clients the solicitors for the Company indicated that in their view there was no point in seeking to agree Mr Mills' costs or proceeding to a detailed assessment because “our client is in Receivership and as such your client is an unsecured creditor”. This gave rise to extensive correspondence in which the solicitors for Mr Mills contended that in their view there was no ground to distinguish between the Receivers and the Bank because the former could recover any costs they might be ordered to pay as an expense in the receivership. They continued:
“If that is not the case, please let us know and we will consider joining the Bank as a party (either in addition to or instead of the Receivers).”
This proposition was repeated in a letter from the solicitors for Mr Mills dated 27th July 2006. Ultimately the Receivers responded on 17th August 2006:
“The receivers acted at all times as agents of the Company and have a statutory right of indemnity from the Company's assets in respect of costs incurred.”
In the event the advisers of Mr Mills did not decide to join the Bank as a respondent to this application whether in addition to or instead of the Receivers. The third matter arises from this correspondence. Counsel for Mr Mills submits that this correspondence entitles him on behalf of Mr Mills to conflate the Receivers and the Bank so as to aggregate their rights, obligations, acts and omissions. I do not accept that this correspondence or any other communication entitles him to do so. Thus it must be accepted that the litigation against Mr Mills was instituted and prosecuted by the Receivers and paid for by funds subject to their control as such Receivers. They had no beneficial or personal interest in those funds or in the outcome of the action.
The case for Mr Mills
The jurisdiction to make the order Mr Mills seeks is conferred by s.51(3) Supreme Court Act 1981. That subsection provides that:
“The court shall have full power to determine by whom and to what extent the costs [of and incidental to all proceedings] are to be paid.”
As is well known it was established by the decision of the House of Lords in Aiden Shipping Company Ltd v Interbulk Ltd [1986] AC 965 that the wide discretionary power thereby conferred was not subject to an implied limitation restricting its exercise to the parties to the proceedings in question. Lord Goff of Chieveley, with whom the other members of the Appellate Committee of the House of Lords agreed, considered (p.975G) that it was for:
“the rule-making authority to control the exercise of discretion (if it thinks it right to do so) by the making of rules of court and [for] the appellate courts to establish principles upon which the discretionary power may, within the framework of the statute and the applicable rules of court, be exercised.”
The only relevant rule of court ( CPR 48.2) relates to the procedural aspects of an application for a third party costs order but there have been a number of decisions of the appellate courts indicating the principles on which the court should act in the exercise of its discretion conferred by...
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