Healy-Upright v Bradley and Another
| Jurisdiction | England & Wales |
| Judge | MR J GAUNT QC |
| Judgment Date | 02 November 2007 |
| Neutral Citation | [2007] EWHC 3161 (Ch) |
| Court | Chancery Division |
| Docket Number | TLC/14107 |
| Date | 02 November 2007 |
[2007] EWHC 3161 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand
London WC2A 2LL
Mr J Gaunt Qc
TLC/14107
Mr T Sisley appeared on behalf of the Claimant
Mr S Jelf appeared on behalf of the Defendants
APPROVED JUDGMENT
Mr Upright and Mr Bradley were chartered accountants. From about 1980 they practised in partnership under the name of Patterson Brodie from offices at Providence House, Navigation Road in Burslem, and Clifton Chambers, Longton Place, Longton – both in Stoke-on Trent. Mr Upright died on 11 th August 2003. The proceedings arose as a result of a dispute as to how the assets of the partnership were to be dealt with after his death and the resultant dissolution of the partnership. Mr Bradley maintains that on 29 th August 2003, about a fortnight after Mr Upright's death, he met Mrs Healy-Upright, the claimant, at a public house called The Swan with Two Necks and that they reached a contractually binding agreement as to the disposal of the partnership assets (“the Swan Agreement”). Mrs Healy-Upright denies that any such agreement was made at all.
The present proceedings were commenced on 8 th September 2005 by Mrs Healy-Upright for a declaration that the partnership had been dissolved by the death of Mr Upright and an order that the affairs of the partnership be wound up. The proceedings seem to have been prompted by frustration at the lack of progress being made in the winding up of the partnership affairs by Mr Bradley's insistence on the terms of the Swan Agreement.
Indeed, Mr Bradley's Defence, signed by him personally and served on 19 th January 2006, set up the Swan Agreement in the following terms. It averred that there was a meeting on 29 th August 2003 at a pub called The Swan with Two Necks between the claimant and Mr Bradley. In paragraph 7 of the Defence it was pleaded:
“It is averred that
(a) for many years, despite sharing profits as partners, Mr Upright and Mr Bradley had run the separate offices of the partnership as distinct entities with inter alia separate clients;
(b) on the death of Mr Upright, Mr Bradley did not wish to take on the long term running of the Burslem office;
(c) accordingly, Mr Bradley suggested to the Claimant, and the Claimant agreed, that
(i) save for a small number of clients known personally to Mr Bradley, for which he would pay in three annual instalments, the assets (including goodwill and work in progress) of the Burslem office would be sold;
(ii) the price obtained for the assets of the Burslem office (together with the payment from Mr Bradley referred to in (i) above) would be paid to the Claimant in lieu of Mr Upright's share of all the assets (including goodwill) of the partnership;
(iii) on the sale of the freehold interest in the property used as the Burslem office of the partnership, Mr Bradley would pay to the Claimant Mr Upright's share (through his shareholding in PFM) of the sale proceeds thereof in lieu of Mr Upright's interest in the partnership property used as the Longton office; and
(iv) otherwise, the Claimant would receive the balance on Mr Upright's capital account as shown in a balance sheet drawn to the dissolution date by three annual instalments;
(d) the Claimant stated that she thought the said agreement was excellent and undertook to try to sell the assets of the Burslem office to one David Riley.”
Shortly afterwards, i.e. after the Defence served on 19 th January, on 4 th April 2006 and just before the matter was due to come before the court for directions, Mr Bradley died. The proceedings were continued by his personal representatives. On 27 th November 2006 Master Price made an order substituting the personal representatives as defendants, declaring that the partnership had been dissolved on 11 th August 2003 by the death of Mr Upright, that Mr Upright and Mr Bradley were each entitled to half shares in the capital and the profits of the partnership, giving the claimant permission to amend the claim, and ordering the trial of the following issues, namely:
(1) whether the claimant and the defendant reached an agreement, as pleaded in paragraph 7(c) of the Defence (the Swan Agreement);
(2) whether that agreement, if in fact made, was enforceable as a contract and/or was binding on the parties;
(3) whether, as a result of the determination of those issues, a sale of the remaining assets of the business of Paterson Brodie should be ordered and, if so, by what means, or
whether the defendant should be given the option of purchasing any interest of the claimant and, if so, the terms of such option and how the price payable by the defendant should be ascertained, and that the counterclaim should proceed.
Subsequently, and relatively recently, the defendants decided to abandon their claim that there had been an agreement at The Swan with Two Necks. They stated in correspondence that they were doing so because they regarded the issue as academic and thought Mrs Healy-Upright might indeed be better off under the agreement than if the partnership were wound up under the Partnership Act and so saw no point in incurring the cost of further litigation.
I should say that I feel bound to treat that statement with some caution. It was made in the course of correspondence designed to persuade the claimant to agree to favourable terms as to costs and not in a witness statement. I think it likely that, in deciding to abandon reliance on the Swan Agreement, the defendants were also influenced (to some extent at any rate) by an appraisal of the merits of their case.
On 28 th October 2007 the parties agreed a consent order in the following terms:
“The Defendants having discontinued their claim that there was an agreement as pleaded in paragraph 7(c) of the (Re-Amended) Defence forming the subject matter of the Preliminary Issue ordered by Master Price on 23 rd September 2006 to be tried but there being disagreement between the parties as to:
(a) whether the Defendants should as they contend pay costs on the standard basis or as the Claimant contends on the indemnity basis; and
(b) the amount of a payment on account of those costs.
IT IS ORDERED that the trial ordered by Master Price for the preliminary issue be restricted to:
(i) the issues set out in (a) and (b) above,
(ii) further directions for the determination of the remaining issues.”
So the only issues before me are, first, whether the defendants should pay the costs assessed on the standard or on the indemnity basis and, secondly, the amount of any payment to be made on account of such costs, it being agreed that an interim payment should be ordered.
There seems to be no very clear guidance either in the Civil Procedure Rules or in the authorities as to the criteria to be applied by a judge at first instance in deciding whether to award costs on the indemnity basis. Obviously there must be something unusual about the way in which the paying party has conducted itself or the case to justify a departure from the standard. It is also, in my judgment, worth bearing in mind the effect of such an order, which is to shift the burden of proof as to whether the amounts expended by the receiving party were reasonable or unreasonable from the receiving to the paying party, and to deprive the paying party of the protection of the rule that the court will only allow costs which are proportionate to the matter in issue – see Civil Procedure Rules Part 44 Rule 4(2) and 4(3).
I was helpfully referred by counsel to several authorities. In Reid Minty v Taylor [2002] 1 WLR 2800 at paragraph 27 May LJ stated that the court has a wide discretion under CPR 44.3 which is not constrained by pre-CPR authorities, and stated that “it is not correct that costs are only awarded on an indemnity basis if there has been some sort of moral lack of probity or conduct deserving moral condemnation on the part of the paying party”.
In Kiam v MGN (No 2) [2002] 2 All ER 242 at paragraph 12 Simon Brown LJ said:
“To my mind, however, such conduct [of the paying party] would need to be unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight. An indemnity costs order made under Pt 44 (unlike one made under Pt 36) does, I think, carry at least some stigma. It is of its nature penal rather than exhortatory. The indemnity costs order made on the principal appeal in McPhilemy's case was certainly of that character. We held ( [2001] 4 All ER 361 at [29]) that the appeal involved an abuse of process on the footing that 'to have permitted the defendants to argue their case on perversity must inevitably have brought the administration of justice into disrepute among right–thinking people.'
In the next paragraph the learned Lord Justice said:
“It is very important that the Reid Minty case should not be understood and applied for all the world as if under the CPR it is now generally appropriate to condemn in indemnity costs those who decline reasonable settlement offers.”
However, in Excelsior Commercial v Industrial Holdings Limited v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879 Waller LJ reminded practitioners that the guidance given by the Court of Appeal in recent cases...
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