Dufoo v Tolaini & Ors [2014] EWCA Civ 1536

Case No A2/2014/0263

[2014] EWCA Civ 1536

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

MR STEPHEN JOURDAN QC

3275OF2012

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 27/11/2014

Before

THE CHANCELLOR OF THE HIGH COURT

LORD JUSTICE JACKSON

LADY JUSTICE GLOSTER

Between

ALUN DUFOOAppellant

JEAN-PAUL TOLAINIRespondents

DA PHILLIPS & CO LTDRespondent

JOHN PANNELLRespondent

QUIET MOMENTS LIMITEDRespondent

Mr Ben Shaw (instructed by Memery Crystal LLP) appeared for Appellant

Mr Gareth Tilley (instructed by Pinsent Masons LLP) appeared for Second Respondent

Mr Pannell appeared in person for in person

Mr Tolaini was not present or represented

Hearing Hearing date: 30 th October 2014

Judgment

[1]This judgment is in eight parts, namely: Part 1. Introduction Paragraphs 2 to 5 Part 2. The facts Paragraphs 6 to 17 Part 3. The present proceedings Paragraphs 18 to 34 Part 4. The appeal to the Court of Appeal Paragraphs 35 to 37 Part 5. The relevant legal principles Paragraphs 38 to 41 Part 6. The first ground of appeal – the loan terms issue Paragraphs 42 to 47 Part 7. The second ground of appeal – contribution Paragraphs 48 to 71 Part 8. Executive summary Paragraphs 72 to 75

Part 1. Introduction

[2]This is an appeal against a costs order in a case where the three claiming parties originally joined forces but subsequently fell out, with the result that two of them settled with their adversary, but the third pressed on to trial and lost. The central issue in this appeal is whether the judge erred in failing to order the claiming parties who settled to pay any costs.

[3]In this judgment I shall use the following abbreviations: “Mr Brown” means Mr Christopher Brown. “Bridleway” means Bridleway Ltd, a company in a group of companies known as the McLaren Group. “CPR” means the Civil Procedure Rules 1998, as amended. “DAP” means D.A. Phillips & Co Ltd, a company which is trustee of the Premier Trust. The Premier Trust holds various pension funds. It was second applicant in the proceedings below and is a respondent in this court. “Mr Mansoori” means Mr Rossano Mansoori-Dara. “Mr Pannell” means Mr John Pannell, who was third applicant in the proceedings below and is a respondent in this court. “QML” means Quiet Moments Ltd. “Mr Tolaini” means Mr Jean-Paul Tolaini, the respondent against whom all the original claims were made. Mr Tolaini is not affected by the issues in the appeal, although nominally he is a respondent to the appeal.

[4]On many issues Mr Pannell and DAP have identical interests. Where appropriate I shall refer to those two parties collectively as “Mr Pannell/DAP”.

[5]After these introductory remarks, I must now turn to the facts.

Part 2. The facts

[6]Mr Tolaini is a property developer, who has traded through limited companies, using “Colony” as his business name. Mr Dufoo is an estate agent, who became a friend and business associate of Mr Tolaini.

[7]In 2008 Mr Dufoo and Mr Tolaini agreed that Mr Dufoo would invest £200,000 in the Colony business and would acquire an interest in that business. They also agreed that they would incorporate special purpose vehicles to carry out individual developments. Between 2008 and 2010 Mr Dufoo duly paid over the sum of £200,000 in instalments.

[8]One development project which Mr Tolaini and Mr Dufoo undertook was at 6 Upper Brook Street, London W1. The company which they used for this project was QML. There were 100 shares of QML. Mr Dufoo was allotted 26 shares and Mr Tolaini held the remaining 74 shares.

[9]In late 2009 there were difficulties in the relationship between Mr Dufoo and his civil partner, Mr McKenna. Mr Dufoo decided to put his assets beyond the reach of Mr McKenna in any future litigation between them. With that in mind Mr Dufoo signed a stock transfer form, transferring his 26 shares in QML to Mr Tolaini.

[10]In March 2010 Mr Dufoo and Mr McKenna were reconciled. They resumed living together.

[11]Mr Tolaini and Mr Dufoo could not raise enough funds on their own to purchase 6 Upper Brook Street. They approached “C Group”, a company owned and controlled by Mr Mansoori and Mr Brown. The original intention was that a joint venture company called “C Land” would buy the property; C Group and QML would jointly own C Land.

[12]The plans changed in 2011. It was decided that a company in the McLaren Group should buy 6 Upper Brook Street. That company would undertake the development and pay a share of the profits to C Group; C Group, in turn, would share such profits with QML.

[13]On 3rd March 2011 Bridleway, a company in the McLaren Group, exchanged contracts for the purchase of 6 Upper Brook Street.

[14]In early March 2011 Mr Tolaini approached Mr Pannell and asked if he would like to invest in the Upper Brook Street project. Mr Tolaini explained that he and Mr Dufoo had a company, QML, which was entitled to a share of the profits of that development. Mr Pannell agreed that he and his pension fund would provide £80,000 to QML for the purposes of the project. Mr Pannell duly paid £60,000. DAP, the trustee of Mr Pannell’s self-invested personal pension, paid £20,000.

[15]On 6th October 2011 Mr Tolaini, Mr Dufoo and “the Premier Trust-JEV Pannell” entered into a shareholders’ agreement. The shareholders’ agreement recorded that as at that date Mr Tolaini held 65 shares, Mr Dufoo held 26 shares and the Premier Trust held 9 shares. Clauses 16.1 to 16.6 of the shareholders’ agreement provided that if any shareholder committed a material breach of the agreement and failed to remedy it within 28 days of being served with a notice to remedy, then he was obliged to transfer his shares to the other shareholders at £1 per share. These clauses have been referred to as the “bad leaver” provisions.

[16]On 14th October 2011 Bridleway completed the purchase of 6 Upper Brook Street. Development works began, but as I understand it the project is not yet complete.

[17]Unfortunately there was a falling out between the parties in early 2012. Mr Dufoo, Mr Pannell and DAP commenced the present proceedings.

Part 3. The present proceedings

[18]In April 2012 Mr Dufoo, Mr Pannell and DAP commenced proceedings in the Chancery Division of the High Court against Mr Tolaini and QML. These proceedings had two parts. First there was a petition presented by Mr Dufoo for the winding up of QML. Secondly there was an application by Mr Dufoo, Mr Pannell and DAP for the court to determine what shares in QML each party was entitled to hold. This has been referred to as the “shares application”.

[19]In the shares application Mr Dufoo, Mr Pannell and DAP contended that Mr Tolaini had wrongfully tried to divert profits from QML to himself; also he had secretly filed documents at Companies House, purporting to show that he was the sole director and shareholder of QML. The applicants further alleged that Mr Tolaini was in breach of an agreement to transfer 35 shares to Mr Pannell/DAP. They claimed an order that Mr Tolaini should transfer all his shares to the three applicants under the bad leaver provisions. Alternatively they asserted that Mr Dufoo was entitled to 26 shares in the company, Mr Pannell to 26 shares and DAP to 9 shares.

[20]Mr Tolaini served a defence denying all the allegations of misconduct and breach of contract. He denied that Mr Pannell had any entitlement to shares in QML, asserting that he had simply made a loan to the company. Mr Tolaini denied that the shareholders’ agreement was binding on him. He subsequently served a counterclaim asserting that, if the shareholders’ agreement was binding on him, then Mr Dufoo, Mr Pannell and DAP were in breach; they should transfer their shares to Mr Tolaini under the bad leaver provisions.

[21]One of the allegations in the counterclaim was that Mr Dufoo had dishonestly altered an email in order to support his case. This allegation was true. It led to a parting of the ways between the applicants. Mr Dufoo instructed one legal team. Mr Pannell and DAP instructed another.

[22]In June 2013 Mr Dufoo served amended points of claim, as the first applicant. He advanced a new claim, namely that he was entitled to 50 shares in QML on the basis of an oral agreement which he had reached with Mr Tolaini. He also maintained his claim that he was entitled to receive all Mr Tolaini’s shares under the bad leaver provisions.

[23]Mr Pannell and DAP, as second and third applicants, also served their amended points of claim in June 2013. They maintained that in return for their loan of £80,000 they were entitled to one third of QML’s profits of the development, subject to a guaranteed minimum of £130,000. They were also entitled to 35 shares in QML (26 for Mr Pannell and 9 for DAP) as security for that entitlement. Mr Pannell and DAP based this claim on oral agreements allegedly reached with Mr Tolaini.

[24]On 19th September 2013 Mr Pannell, DAP and Mr Tolaini reached a settlement of their differences. Mr Tolaini accepted that Mr Pannell/DAP were entitled to a return on their loan comprising the principal sum plus one third of QML’s profits, subject to a guaranteed minimum return of £130,000. Mr Pannell/DAP would also receive 35 shares as security for that entitlement. Mr Tolaini and Mr Pannell/DAP dropped their claims against each other under the bad leaver provisions. Mr Tolaini agreed not to seek any order for costs against Mr Pannell or DAP.

[25]Mr Dufoo did not settle his differences with Mr Tolaini. Instead, on 9th October 2013, he served a re-amended points of claim in which he asserted that Mr Pannell/DAP were entitled only to repayment of the £80,000 loan. Mr Dufoo denied that Mr Pannell/DAP had any entitlement to part of the profits of the development or to shares, save that DAP was entitled to receive nine shares as security for the £20,000 which DAP had lent. In other words Mr Dufoo turned against his former allies. He substantially adopted what had previously been (but was no longer) Mr Tolaini’s case against Mr Pannell and DAP. In those circumstances, despite the settlement agreement reached on 19th September, the action proceeded to trial with all parties still required to participate.

[26]The trial of the proceedings took place in October 2013 before Mr Stephen Jourdan QC sitting as a deputy judge of the High Court (“the judge”). Mr Dufoo, Mr Tolaini and Mr Pannell gave oral evidence.

[27]The judge found Mr Tolaini and Mr Pannell to be honest witnesses. He formed a very different impression of Mr Dufoo. He noted that Mr Dufoo had deliberately altered the text of two emails in order to support his case. Also for a long time Mr Dufoo denied that he had transferred 26 shares to Mr Tolaini in late 2009. He maintained that his signature on the stock transfer form was a forgery by Mr Tolaini. Mr Dufoo only backed down and admitted that the signature was his when he saw a handwriting expert’s report.

[28]On 4th December 2013 the judge handed down his reserved judgment. He rejected Mr Dufoo’s claim that he was entitled to 50 shares on the basis of the alleged oral agreement. He held that Mr Dufoo was entitled to 36 shares on the basis of a new claim which Mr Dufoo had added by amendment during the trial.

[29]In relation to the terms of Mr Pannell’s and DAP’s loan (“the loan terms issue”) the judge did not accept the case of any party in its totality. He held that the sum of £20,000 which DAP paid was the purchase price of nine shares. Therefore DAP was entitled to receive those nine shares. The balance of £60,000 was a loan by Mr Pannell. Mr Pannell was entitled to interest on that loan at the same rate of return as earned by Bridleway on its equity investment. Mr Pannell was entitled to a minimum return of £100,000 in any event (provided that QML received at least this sum from C Group).

[30]In relation to the claim and counterclaim under the bad leaver provisions, the judge rejected the case of both Mr Dufoo and Mr Tolaini. He held that neither party was entitled to receive the shareholding of the other at the price of £1 per share. Finally the judge dismissed the petition for the winding up of QML. He did not regard that drastic step as being either necessary or just and equitable.

[31]In relation to costs, the judge made no order as between Mr Pannell/DAP and Mr Tolaini. This gave effect to the settlement agreement between those parties. He ordered Mr Dufoo to pay 80% of Mr Tolaini’s costs. This reflected the degree of success which each had achieved on the issues between those two parties. The judge ordered that Mr Tolaini’s costs should be assessed on the indemnity basis up to 1st June 2013 and on the standard basis thereafter. The reason for this order was that Mr Dufoo had conducted his case dishonestly. Not only had he altered two emails, but also he had made an unfounded allegation of forgery.

[32]The judge noted that the loan terms issue had been fought out between Mr Pannell/DAP and Mr Dufoo. Both parties had enjoyed a measure of success. Neither had won outright. The judge made no order for costs in relation to that issue.

[33]Finally the judge considered whether Mr Pannell/DAP should make any contribution to the costs which he was ordering Mr Dufoo to pay to Mr Tolaini. He concluded that he had the power to make such an order under CPR 44.2. However, he declined to do so. He took the view that any such order would undermine the settlement agreement between Mr Tolaini and Mr Pannell/DAP.

[34]Mr Dufoo was aggrieved by the judge’s costs order. Accordingly he appealed to the Court of Appeal.

Part 4. The Appeal to the Court of Appeal

[35]By an appellant’s notice issued on 24th January 2014 Mr Dufoo has appealed against the costs order on two grounds. The first ground is that Mr Dufoo was the winner on the loan terms issue. Therefore Mr Pannell/DAP should pay his costs of that issue. The second ground is that all the applicants in the chancery proceedings caused Mr Tolaini to incur costs. Mr Pannell/DAP only dropped out two weeks before trial. Therefore the judge ought to have ordered Mr Pannell/DAP to contribute to the costs payable to Mr Tolaini, alternatively to be joint and severally liable for those costs.

[36]We heard the appeal on 29th October 2014. Mr Ben Shaw appeared for Mr Dufoo. Mr Gareth Tilley appeared for DAP. Mr Pannell appeared in person. Because the interests of Mr Pannell and DAP substantially overlap, most of Mr Tilley’s submissions, in so far as they prevail, inure to the benefit of both DAP and Mr Pannell. I am grateful to both counsel and to Mr Pannell for their helpful submissions.

[37]Before addressing the two grounds of appeal, I should first review the relevant legal principles.

Part 5. The relevant legal principles

[38]CPR 44.2 (1) provides that costs are in the discretion of the court. Rule 44.2 (2)-(4) provides:

“(2) If the court decides to make an order about costs – (a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but (b) the court may make a different order. … (4) In deciding what order (if any) to make about costs, the court will have regard to all the circumstances, including – (a) the conduct of all the parties; (b) whether a party has succeeded on part of its case, even if that party has not been wholly successful; and (c) any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply.”

Rule 44.2 (5) elaborates on the meaning of conduct, but I need not set that provision out. (a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but (b) the court may make a different order. (a) the conduct of all the parties; (b) whether a party has succeeded on part of its case, even if that party has not been wholly successful; and (c) any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply.”

[39]In Multiplex Constructions (UK) Limited v Cleveland Bridge UK Limited

[2008] EWHC 2280 (TCC)

at [72] I set out the general principles governing the exercise of discretion under what is now rule 44.2 (but was then rule 44.3). I need not repeat that paragraph. According to the notes in the White Book (at paragraph 44.2.7) many recent judgments have been taking the propositions in paragraph 72 as a starting point. I therefore wish to make it clear that sub-paragraph 72 (vii) of Multiplex should now be disregarded. That sub-paragraph was my attempt to summarise the effect of the much criticised decision in Carver v BAA Plc

[2008] EWCA Civ 412

;

[2009] 1 WLR 113

. Carver has now effectively been reversed by rule change in accordance with recommendation 93 of the Review of Civil Litigation Costs Final Report. That rule change is contained in CPR 36.14 (1A). In those circumstances sub-paragraph 72 (vii) of Multiplex no longer adds anything of value to sub-paragraph 72 (vi). Any court following the guidance set out in paragraph 72 of Multiplex should ignore sub-paragraph (vii).

[40]A judge making a costs order under rule 44.2 is exercising a broad discretion. He is not just deciding who is the winner on each issue. He is also taking into account the conduct of the parties and all the circumstances of the case. The judge having been immersed in the details of the trial is the best person to exercise that discretion. The Court of Appeal does not have and cannot have the trial judge’s feel for the case. Accordingly the Court of Appeal will only interfere with the trial judge’s exercise of discretion if the judge has(a) made an error of law,

(b) failed to take account of relevant factors,

(d) made an order which, even allowing for the judge’s superior knowledge of the details and feel for the case, cannot be right.

[41]Having reviewed the relevant principles, I must now turn to the first ground of appeal.

Part 6. The first ground of appeal - the loan terms issue

[42]Mr Shaw contends that Mr Dufoo was substantially more successful than Mr Pannell/DAP on the loan terms issue. Therefore the judge was wrong to characterise the outcome on this issue as a “score draw” (transcript of 4th December 2013, page 14). The judge ought to have ordered Mr Pannell/DAP to pay all or at least part of Mr Dufoo’s costs of the loan terms issue.

[43]Both Mr Tilley and Mr Pannell resist that argument. They contend that the judge made a proper appraisal of the two sides’ success on the loan terms issue. As Mr Pannell put it in the note which he handed up during the hearing, “the judge in the original trial gave a judgment that was within the limits of discretion allowed to him”.

[44]In relation to the first ground of appeal, I accept the submissions of Mr Tilley and Mr Pannell. Both parties had a measure of success on the loan terms issue. Neither party won outright. In my view the judge correctly characterised the outcome on that issue. An order that each party should bear its own costs of that issue meets the justice of the case.

[45]There is a wider point which arises here. Even if I thought that one party had done rather better than the other on the loan terms issue, I still would not interfere with the judge’s costs order. The judge heard the oral evidence of all parties to the litigation. He also read a (probably massive) trial bundle. He knows precisely which pieces of evidence he accepted and which arguments he accepted in order to arrive at his decision on the loan terms issue. The judge’s judgment, which is commendably concise, does not trawl through every line of the evidence or every detail of counsel’s arguments.

[46]In relation to the loan terms issue, it cannot possibly be said that the judge failed to take account of relevant factors or took into account irrelevant factors. Nor can it be said that, after allowing for the judge’s superior knowledge of the details and feel for the case, he made an order which cannot be right. I therefore dismiss the first ground of appeal.

[47]I must now turn to the second ground of appeal.

Part 7. The second ground of appeal – contribution

[48]Mr Shaw does not challenge the order requiring Mr Dufoo to pay 80% of Mr Tolaini’s costs. Nor does he challenge the order that those costs should be assessed on the indemnity basis up to 1st June 2013. Mr Shaw very properly accepts that in making those orders the judge was acting within the discretion conferred upon him by CPR 44.2 and 44.3.

[49]Mr Shaw’s case is that the judge ought to have ordered Mr Pannell and DAP to contribute to the costs which Mr Dufoo was being ordered to pay to Mr Tolaini. Mr Shaw points out that Mr Dufoo, Mr Pannell and DAP made common cause in the litigation up until June 2013. He submits that between June and September 2013 Mr Dufoo and Mr Pannell/DAP, although separately represented, were advancing “substantially overlapping claims” (paragraph 14 of Mr Shaw’s skeleton argument).

[50]On the basis of those facts Mr Shaw contends that Mr Dufoo, Mr Pannell and DAP all caused Mr Tolaini to incur costs defending claims which ultimately failed. Therefore Mr Dufoo, Mr Pannell and DAP should all contribute to the costs which are due to Mr Tolaini. Mr Shaw relies upon the reasoning of Lord Esher MR in Stumm v Dixon & Co

(1889) 22 QBD 529

at 533-4.

The judge set out his reasons for rejecting that argument in paragraph 6 of his costs judgment:

“I have found this a difficult issue, but in the end I have decided that it would not be right to make any such order. My principal reason for that is that Pannell and DAP settled their dispute with Mr Tolaini on terms that there would be no order as to costs. There is a strong public interest in encouraging settlements – encouraging people to give up part of what they are claiming in order to achieve a settlement, and that is exactly what Mr Pannell and DAP did, and to make an order of this kind would be to force them to contribute to Mr Tolaini’s costs in relation to the loan terms issue, they having settled it. That weighs more heavily in my judgment in the scales of justice than Mr Dufoo’s claim that he joined in with Mr Pannell and DAP in advancing this case for their benefit, and therefore it would be unfair on him to require him to bear the whole of the costs. Ultimately, as it seems to me, if a party choose to continue a case to trial when others have settled their disputes, they do take the risk that they will end up bearing a share of the costs in excess of that which they would have borne if all parties had continued their dispute to trial.”

[52]Mr Shaw criticises the reasoning in that paragraph. He submits that the settlement agreement which Mr Pannell and DAP entered into with Mr Tolaini is not a reason for exempting them from liability to share the costs burden imposed on Mr Dufoo.

[53]Both Mr Pannell and DAP resist these arguments. Mr Pannell argues that by entering the settlement agreement he recovered less than he would have done if he had proceeded to trial against Mr Tolaini. He settled in the belief that he would not have to pay any of Mr Tolaini’s costs. Mr Pannell points to the judge’s findings of dishonesty against Mr Dufoo. He submits that the judge made an order within the ambit of his discretion.

[54]Mr Tilley submits that the judge was right to give weight to the settlement agreement when considering the contribution issue. He also argues that having regard to all the circumstances of the case, including Mr Dufoo’s conduct, the judge’s decision that Mr Pannell/DAP should not contribute to Mr Dufoo’s liability for adverse costs was properly within his discretion.

[55]Having reflected on the rival submissions, I agree with the judge that this is a difficult issue. Also I can see why Mr Pannell, having entered into a “no costs” settlement agreement with Mr Tolaini, feels strongly aggrieved at the prospect of being ordered to contribute towards costs payable to Mr Tolaini. On the other hand Mr Dufoo was not a party to the settlement agreement. That agreement did not and could not preclude Mr Tolaini from claiming his costs as against Mr Dufoo. I have, with some regret, come to the conclusion that the settlement agreement between Mr Pannell/DAP and Mr Tolaini is not an answer to Mr Dufoo’s contribution claim. It is merely part of the circumstances of the case which the judge, exercising his discretion under CPR 44.2, should take into account.

[56]Therefore the judge fell into error in paragraph 6 of his costs judgment when he held that the settlement agreement was a sufficient reason for refusing the contribution claim. That is to mis-state the significance and effect of the settlement agreement.

[57]Accordingly the judge’s order on the contribution issue cannot stand. In those circumstances the Court of Appeal must either re-exercise the judge’s discretion or, alternatively, remit the contribution issue to the judge for re-consideration.

[58]When different parties advance the same unsuccessful case against their common adversary, the normal starting point for a court considering costs is that they should all contribute to the recoverable costs of the successful party. The judgment of Lord Esher MR in Stumm, upon which Mr Shaw relies, is merely an illustration of that proposition. I would not dignify that proposition with the label of legal principle. It is merely a sensible way of applying what is now CPR 44.2 (2) in the general run of multi-party cases. The special rules governing group actions, upon which Mr Tilley relies, do not detract from that observation.

[59]Of course there may be good reasons for departing from the starting point. The later provisions of rule 44.2 make this clear.

[60]In the present case Mr Dufoo and Mr Pannell/DAP made common cause from April 2012 when they issued proceedings until May 2013, when they instructed separate solicitors. During that year Mr Dufoo and Mr Pannell/DAP were pleading an identical case in the same points of claim.

[61]In June 2013 Mr Dufoo and Mr Pannell/DAP served two separate amended points of claim. Mr Shaw submits that they were still in effect making common cause between June and September 2013, because there was substantial overlap between their respective pleadings. I do not accept that. By June 2013 the cases of Mr Dufoo and Mr Pannell/DAP were no longer consistent or mutually supportive.

[62]I therefore conclude that in the period up to Friday 31st May 2013 Mr Tolaini was incurring costs in resisting the largely unsuccessful claims pleaded by Mr Dufoo, Mr Pannell and DAP in their joint points of claim. Thereafter Mr Tolaini was fighting on two fronts in defending the separate claims of Mr Dufoo and Mr Pannell/DAP.

[63]By reason of the settlement agreement Mr Tolaini is not entitled to seek or recover any of the costs which he incurred in defending the amended claims of Mr Pannell/DAP after 1st June 2013. In respect of the costs which Mr Tolaini incurred in resisting the joint claims of Mr Dufoo, and Mr Pannell/DAP up to 31st May 2013, Mr Tolaini is precluded from seeking to recover those costs against Mr Pannell/DAP. He is not precluded from seeking to recover those costs against Mr Dufoo.

[64]The judge has ordered Mr Dufoo to pay 80% of Mr Tolaini’s costs of the entire proceedings below. Those costs are to be assessed on the indemnity basis up to Friday 31st May 2013. (For present purposes I assume that no costs were incurred on Saturday 1st June.)

[65]Mr Pannell/DAP have been largely unsuccessful in the claims which they were advancing against Mr Tolaini up to 31st May 2013. They ought therefore to contribute to the costs which Mr Dufoo is required to pay to Mr Tolaini in respect of that period.

[66]In so far as Mr Dufoo’s costs liability has increased because the assessment is on the indemnity basis rather than the standard basis, Mr Pannell/DAP should not contribute to the excess.

[67]Mr Tilley has sought to argue that the 80% costs order made by the judge already includes a discount for the fact that some of Mr Tolaini’s costs as against Mr Dufoo related to claims in which Mr Pannell/DAP had joined. In my view this is not correct. It is clear from the transcript of the costs arguments and the costs judgment that the 80% figure was intended to reflect matters on which Mr Tolaini had not been successful.

[68]In my view there is no good reason for exempting Mr Pannell or DAP from contributing to the costs which the judge has ordered to be payable to Mr Tolaini in respect of the shares application during the period up to 31st May 2013. The settlement agreement is not a good reason for granting such an exemption.

[69]In a multi-party action the court has power under CPR 44.2 to order that party A should contribute to the costs payable by party B to their mutual adversary. In the unusual facts of this case it is appropriate to exercise that power.

[70]In my view the starting point should be that Mr Pannell/DAP should make the following contribution to the costs payable by Mr Dufoo: one half of Mr Tolaini’s costs of the shares application up to 31st May 2013, assessed on the standard basis. That, however, is only the starting point. There may well be reasons for varying that proportion by reference to the parties’ conduct before or during the litigation. For example, Mr Pannell/DAP may be able to say that, but for Mr Dufoo’s misconduct, there would have been less common ground between their respective cases. Also it may be sensible to avoid the need for two separate assessments of Mr Tolaini’s costs on different bases, by ordering Mr Pannell/DAP to pay a reduced proportion of Mr Tolaini’s costs but assessed on the indemnity basis.

[71]The costs involved in this litigation are very substantial. Unfortunately this court is simply not in a position to re-exercise the first instance judge’s discretion under CPR 44.2. In those circumstances, if my Lord and my Lady agree, we must remit this case to the judge to re-decide Mr Dufoo’s claim for a contribution towards his costs liability, in accordance with the guidance given in this judgment.

Part 8. Executive summary

[72]This is an unusual case is which three applicants made common cause against the same respondent, originally relying upon the same points of claim. They subsequently fell out and served separate pleadings. Shortly before trial two applicants settled with the respondent, but the remaining applicant (having amended to contradict the other applicants’ case) pressed on and lost. The judge ordered the continuing applicant to pay 80% of the respondent’s costs, with no contribution to those costs being made by the other two applicants.

[73]The unsuccessful applicant now appeals against the costs order on two grounds. First, the appellant says that he should have his costs of an issue between himself and the other two applicants, because he was the victor. I would reject that ground, because both parties were partly successful and partly unsuccessful on that issue. The judge’s decision to make no order for costs on that issue was well within his discretion under CPR 44.2.

[74]The second ground of appeal is that the judge ought to have ordered the other two applicants to make a contribution to the appellant’s costs liability to the original respondent. In my view the judge ought to have made such an order in respect of the period when all three applicants were advancing the same (unsuccessful) case against the respondent. The judge erred in treating the settlement agreement, to which the appellant was not a party, as a good reason for rejecting the contribution claim.

[75]Unfortunately this court is not in a position to assess the contribution to costs which the appellant is entitled to receive. If my Lord and my Lady agree, this case will be remitted to the trial judge for him to make that assessment in the light of the guidance given in this judgment.

The Chancellor of the High Court:

[76]I agree with Lord Justice Jackson for the reasons he has given that the appeal should be allowed only insofar as the judge failed to make an order that Mr Pannell and DAP contribute towards the costs payable by Mr Dufoo to Mr Tolaini in respect of the period when all three were advancing the same unsuccessful case against Mr Tolaini.

[77]Neither Mr Pannell nor DAP could have had any legitimate expectation that the settlement agreement would preclude an order for such contribution. Clause 9 of the settlement agreement provided that Mr Tolaini agreed not to seek any order for costs against Mr Pannell or DAP in the proceedings. It would have been open to Mr Pannell and DAP to have negotiated and obtained from Mr Tolaini, as part of the settlement, an agreement that Mr Tolaini would not seek to recover any costs from Mr Dufoo or, if he did seek and recover such costs, that Mr Tolaini would indemnify them against any contribution they were ordered to make in respect of such costs. They did not do so even though it ought to have been entirely foreseeable that, if Mr Tolaini did seek to recover his costs from Mr Dufoo, Mr Dufoo would in turn seek a contribution from Mr Pannell and DAP in respect of the period when all three were making common cause in the litigation and advancing an identical case against Mr Tolaini.

[78]I also agree with Lord Justice Jackson for the reasons he has given that the Court of Appeal is not in a position to re-exercise the judge’s discretion as to costs with fairness to all parties. I agree that the case must be remitted to the judge, who should exercise his discretion as to costs in accordance with the guidance in Lord Justice Jackson’s judgment.

[79]I agree with the judgment of Lord Justice Jackson and with that of the Chancellor. For the reasons given by Lord Justice Jackson, the case should be remitted to the judge to re-consider Mr Dufoo’s claim for a contribution towards his costs liability, in accordance with the guidance given in Lord Justice Jackson’s judgment.