Kotonou v National Westminster Bank Plc

JurisdictionEngland & Wales
JudgeMr Justice Morgan,Mr Justice Briggs
Judgment Date05 July 2010
Neutral Citation[2009] EWHC 3309 (Ch),[2010] EWHC 1659 (Ch)
Docket NumberCase No: HC07C00673,Case No: HC04C01190
CourtChancery Division
Date05 July 2010
Between
National Westminster Bank
Claimant
and
Angeli Luki Kotonou
Defendant

[2009] EWHC 3309 (Ch)

Before : Mr Justice Briggs

Sitting With

Master Hurst And Mr Martin Cockx

Case No: HC04C01190

IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION

Mr Andrew Post (instructed by Berwin Leighton Paisner) for the Claimant

Mr Simon P Browne (instructed by Bates NVH) for the Defendant

Hearing dates: 10th December 2009

Mr Justice Briggs

Mr Justice Briggs:

1

This is an appeal against the decision of Master Campbell sitting as Costs Judge on a preliminary issue arising in a detailed assessment of the costs incurred in two closely related proceedings between the same parties, which were in the event tried together by Mr Jules Sher QC sitting as a deputy High Court judge, in 2006.

2

By the first proceedings (“the Guarantee Claim”) National Westminster Bank plc (“the Bank”) sought to enforce a guarantee purportedly given by Mr Angeli Kotonou in July 2001 in respect of a loan by the Bank to Olympic Resources Services plc, a company of which Mr Kotonou was a director.

3

Mr Kotonou and his wife Mrs Deborah Kotonou had in July 2001 charged their family home known as “Domani”, Mount Park Road, Harrow on the Hill, Middlesex (“the Property”) as security for Mr Kotonou's liability under the Guarantee, by way of a second charge (“the Mortgage”).

4

For the first year after its commencement in April 2004, Mr Kotonou defended the Guarantee Claim mainly as a litigant in person. In April 2005 he instructed solicitors Messrs Hugh Cartwright & Amin to act for him. One of the early tasks which he gave his solicitors was to negotiate, if they could, a means whereby he and his wife could release equity from the Property, notwithstanding the Bank's Mortgage, for the purposes of funding his defence to the Guarantee Claim. Mr Kotonou had by then been trying for some time to achieve that objective, but without success.

5

An issue arose at a very early stage in that correspondence, between the Kotonous' solicitors and the Bank, as to whether the Mortgage secured merely the principal sum guaranteed of £425,000 (as the Kotonous claimed) or, in addition, interest together with the Bank's charges, expenses and legal costs incurred and to be incurred in the enforcement of the Guarantee, thereby increasing the amount recoverable under the Mortgage by at least a further £200,000, with the prospect of a substantial further increase as the Guarantee Claim proceeded.

6

On 28 th April 2005 Mr and Mrs Kotonou issued a Part 8 Claim seeking declarations as to the true construction of the Mortgage, for the purposes of resolving the issue which I have described. I shall refer to it as “the Part 8 Claim”. The existence of this dispute between the Kotonous and the Bank as to the extent of the security afforded by the Mortgage bedevilled the Kotonous' attempts to release equity from the Property for the purposes of funding Mr Kotonou's defence to the Guarantee Claim. There was at the time a first charge of some £230,000 and the Property had been valued at between £1.75 and £2 million, so that there was, on any view as to the extent of the Bank's security, substantial equity available in theory. Nonetheless, an uncertainty whether the Bank's Mortgage secured a fixed amount, or an indefinite and potentially ever-increasing amount, plainly affected the Kotonous' prospects of obtaining funding by way of a third charge.

7

The Kotonous' response to this difficulty was to make a number of applications seeking to defer the trial of the Guarantee Claim and accelerate the determination of the issues raised by the Part 8 claim, while at the same time continuing negotiations (between the parties' solicitors) with a view to negotiating an equity release acceptable to the Bank. The first limb of that strategy did not in the event need to be pursued, so that the Guarantee Claim and the Part 8 Claim were eventually ordered to be tried together by Pumfrey J, by an order made on 1 st July 2005, in the event by agreement.

8

This was because in the meantime the second limb of the strategy had succeeded, in that the Kotonous negotiated with the Bank a sensible agreement under which they were permitted to obtain £1 million by a new third party mortgage in priority to the Bank's Mortgage, and to use that sum first to pay off the first mortgage, secondly to pay £425,000 into court to abide the outcome of the Guarantee Claim, and thirdly to use the balance to fund the litigation. The Bank's disputed claims to additional security under the Mortgage beyond £425,000 were thus preserved, but subject to the Kotonous' new mortgage for £1 million. It was this agreement which secured a consensual way forward in the litigation, as reflected in the order for a combined trial made on 1 st July 2005.

9

The Kotonous had incurred substantial legal fees in the negotiation of this agreement with the Bank, between April and July 2005. They have come to be known as the “funding-related costs”, and do not include the parties' conveyancing costs occasioned in the implementation of that agreement, for which the Kotonous agreed to be responsible.

10

Both claims proceeded to trial in 2006. The Kotonous succeeded on the Part 8 Claim, and were awarded their costs of that claim. Mr Kotonou also succeeded in defending the Guarantee claim but, because he had lost on a number of allegations, including allegations of fraud, the costs order in the Guarantee claim was that each party should pay 50% of the other party's costs. The costs of the various applications before Pumfrey J which concluded with the consent order made on 1 st July 2004 had all been reserved to the trial judge, and Mr Sher QC decided that no order as to costs should be made in respect of any of them, there having been no clear winner, and the issues to which they related having in the end been resolved by agreement. The costs of and occasioned by those applications therefore lay where they fell.

11

Mr Kotonou was dissatisfied with the costs orders made by Mr Sher QC, and appealed both the costs order in the Guarantee Claim, and Mr Sheer's decision to make no order as to costs in relation to the applications before Pumfrey J. The appeal was dismissed by the Court of Appeal in February 2007, with costs.

12

The present appeal is concerned solely with the funding-related costs. After hearing full argument, Master Campbell decided on 27 th November 2007 by way of preliminary issue that those costs were part of the costs of the Part 8 Claim, so that they were payable by the Bank to the Kotonous. In so deciding, he rejected the alternative submissions of the Bank, to the effect that:

i) Since costs incurred in negotiating funding for proceedings are not costs in proceedings, the funding costs were not costs of either the Part 8 Claim or of the Guarantee Claim;

ii) the negotiations were unnecessary because the Kotonous could have re-mortgaged the Property earlier, by other means;

iii) they were not costs of the Part 8 Claim, because that Claim could not in any event have achieved the re-mortgage which the Kotonous in the event obtained by agreement with the Bank, and because that Claim in any event proceeded to trial;

iv) if the funding-related costs were costs of any proceedings at all, they were costs of the Guarantee Claim.

13

Master Campbell's reasons, given in a succinct extempore judgment, may be summarised as follows:

i) The principle that the costs of negotiating funding for litigation are not part of the recoverable costs of the litigation did not apply where the negotiations in question had to take place with the other party to that litigation.

ii) Alternative funding, subject to the uncertainty as to the amount which might be recoverable under the Bank's Mortgage might have been available, but would have been substantially more expensive, so that the funding-related negotiation had a real purpose.

iii) Similarly the Part 8 Claim had a real purpose of its own, connected with obtaining funding for the defence of the Guarantee Claim, namely the resolution of the uncertainty as to the amount capable of being recovered by the Bank under its Mortgage.

iv) The funding-related costs arose from a negotiation which followed upon the Bank's denial that the Mortgage was security only for £425,000, such that the Kotonous' costs of negotiating and obtaining an alternative agreed basis for funding which accommodated the Bank's challenge were both costs in respect of which the Bank was on risk, and costs sufficiently connected with the Part 8 Claim to be part of the costs of that claim.

14

By its appeal, for which permission was given by Evans-Lombe J in April 2008, the Bank challenges Master Campbell's decision on three grounds:

(I) the decision was inconsistent with Mr Sher QC's decision, upheld by the Court of Appeal, to make no order as to the costs of the application before Pumfrey J;

(II) the decision was inconsistent with the long-established costs practice that funding costs are not recoverable from opposing parties; and,

(III) even if, contrary to (a) and (b), the costs were recoverable at all, they formed part of the costs of the Guarantee Claim, and not the costs of the Part 8 Claim.

15

As was fairly acknowledged by Mr Andrew Post who appeared for the Bank on this appeal, the first ground of appeal was not an argument advanced before Master Campbell. Mr Simon Browne for Mr and Mrs Kotonou submitted that it should not therefore be permitted to be argued by way of appeal, since that would amount more to a rehearing than to a review of the decision below.

16

In my judgment the fact that, unless the court orders otherwise, an appeal is by way of review does not necessarily preclude the consideration of fresh legal argument. In the present case, all the factual material upon the basis of which the...

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