Turvill v Bird & Ors [2016] EWCA Civ 703

Case No A1/2014/3728[2016] EWCA Civ 703
IN THE COURT OF APPEAL (CIVIL DIVISION)
Case No 9LV07060
ON APPEAL FROM HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
LIVERPOOL DISTRICT REGISTRY
MR RECORDER SINGER
Venue Royal Courts of Justice, StrandDate 11/07/2016
London, WC2A 2LL
Before
LORD JUSTICE GROSSLORD JUSTICE HAMBLEN
Between
ANDREW TURVILLAppellantDAVID LINDON BIRDRespondentKERRY BIRDRespondentHANNAH BIRDRespondentJOSEPH BIRDRespondent
Jamie Carpenter (instructed by Billy Hughes & Co.) for AppellantsGiles Maynard-Connor (instructed by Metamorph Law Ltd trading as Linder Myers LLP) for RespondentsHearing Hearing dates: 23 June 2016
Judgment

Introduction

[1]The Appellant (“Mr Turvill”) appeals against a non-party costs order which was made against him in respect of part of the costs of a claim by the Respondents against Swancote Developments Limited (“Swancote”), Chartland LLP (“Chartland”) and Mr Graham Evans.[2]The order was made by Mr Recorder Singer, sitting as a judge of the Technology and Construction Court in Liverpool, following a judgment given on 20 October 2014.[3]By amended grounds of appeal the order is challenged on the basis that:(1) there was no conduct by Mr Turvill which engaged the jurisdiction to make a non-party costs order; and in any event,(2) the requirement of causation was not satisfied. Background The underlying claim

Background

[4]The Respondents were the Claimants in a claim against Swancote, Chartland and Mr Graham Evans. The claim related to the Claimants’ purchase of a newly constructed property as their home (“the Property”). The Property was purchased from Swancote on 29 January 2007. Swancote engaged Chartland as project manager in respect of the building of the Property. Chartland in turn engaged subcontractors to construct the Property. Mr Evans is a building surveyor, who was engaged by Chartland to provide a Professional Consultant’s Certificate in respect of the construction of the Property.[5]The basis of the claim was that the Property was defective in a number of respects, a particular alleged problem being the quantity of dust in the Property, which was alleged to have caused personal injury to the Second, Third and Fourth Respondents. Except in respect of some very minor defects, Swancote and Chartland at all times denied liability in full.[6]The Claim Form was issued on 18 September 2009. After three adjournments of previous trial dates, the claim was listed for trial on 4 March 2014. On 17 February 2014, Swancote and Chartland made a drop hands offer to the Respondents, which was rejected the same day. On 19 February 2014, as foreshadowed in the offer letter, notices to creditors were issued in respect of the proposed voluntary liquidation of Swancote and Chartland. The creditors’ meeting took place on 3 March 2014 and it was resolved to put Swancote and Chartland into liquidation.[7]Swancote and Chartland therefore did not attend the trial and were not represented at trial, though they had filed a skeleton argument on 27 February 2014 asking the Court to stay the claims[8]In the meantime, the Respondents had settled their claim with Mr Evans for £50,000 in damages and £50,000 in costs (a total of £100,000).[9]At trial, the Recorder gave judgment for the full amounts claimed by the Respondents, namely:(1) £132,431.71 in respect of the defective works claim, less the £50,000 received from Mr Evans;(2) £68,062.94 in special damages; and(3) £19,147.50 in respect of the personal injury claims.[10]The total net amount awarded in damages against Swancote and Chartland was therefore £219,642.15 plus applicable VAT. Swancote and Chartland were also ordered to pay the Respondents’ costs of the action and £100,000 on account of those costs. The Respondents total costs at trial are said to have been almost £370,000.

Chartland’s insurance position

[11]This is relevant to the basis for the Recorder’s order against Mr Turvill.[12]Chartland was insured in respect of the personal injury claim, but not the defective works claim. The extent of that indemnity had led to a dispute between Chartland and its insurers, RSA. In an email of 8 March 2011 from Neil Thompson of RSA to Stephen Hester, Chartland’s broker, Mr Thompson proposed that either RSA should appoint separate solicitors just to deal with the personal injury claims or that RSA would pay the full value of the indemnity to Chartland and leave Chartland to conduct the claim as it saw fit. In those circumstances, RSA valued the indemnity at £40,000, being £12,000 in respect of damages, £10,000 in respect of defence costs, the balance allowing for the Respondents’ costs and taking into account the amounts which RSA had already paid.[13]Neither proposal was taken up by Chartland and the matter remained dormant until February 2014, when Chartland’s former solicitor in the litigation, Mr Billy Hughes of Billy Hughes & Co, sought to agree a full and final settlement with RSA on behalf of Chartland. On 14 February 2014, Ian Middleton of RSA wrote that the offer of £40,000 remained open for acceptance and the offer was accepted on 17 February 2014. The sum of £40,000 was received by Mr Hughes and, on the instructions of Mr Turvill, retained by him as a payment towards his outstanding fees. The Recorder found that this was the result of a decision made by Mr Turvill.

The costs application and the Recorder’s judgment

[14]Mr Turvill was one of four members of Chartland, the other members being Mr Chris Shaw and two limited companies which were controlled by Mr Turvill and Mr Shaw, so that in effect, Chartland was owned and run by Mr Turvill and Mr Shaw and the Recorder found that Mr Turvill and Mr Shaw jointly controlled Chartland. Although this had been denied by Mr Turvill, the Recorder held the Mr Turvill controlled the litigation on behalf of Chartland and Swancote from at least April 2013 until February 2014 and was the directing mind of their approach to the litigation.[15]The main basis of the application for costs against Mr Turvill made by application notice dated 12 March 2014 was that he had implemented a “Master Plan” to give the impression of defending the claims to trial, when in fact he had no intention of doing so, deliberately putting Swancote and Chartland into liquidation and leaving the Respondents with unenforceable judgments.[16]The application was heard over three days with cross-examination of the Respondents’ solicitor, Mr Paul Magee, Mr Bird (the First Respondent) and Mr Turvill. The Respondents’ skeleton argument in support of their application mainly relied on the alleged Master Plan, although reliance was also placed on Mr Turvill’s alleged funding of the proceedings.[17]The Respondents’ skeleton referred to the receipt of RSA’s £40,000 by Billy Hughes as an aspect of Mr Turvill’s general lack of bona fides, but the use of that money was not put forward as a standalone potential basis for ordering Mr Turvill to pay costs until the Respondents’ submissions in reply.[18]In his judgment, the Recorder found Mr Turvill to be an unreliable witness and when his evidence conflicted with evidence from other witnesses or documents he rejected it.[19]He nevertheless found that the alleged Master Plan had not been proved. He held that none of the trial adjournments had been Mr Turvill’s fault and that he had not deliberately strung out the litigation. He did not find it possible to conclude on the evidence that Mr Turvill had planned to liquidate Swancote and Chartland from the inception of the litigation. The Recorder found that there were no demonstrable irregularities in Swancote and Chartland’s statements of affairs, that Chartland was not insolvent before the end of January 2014 at the earliest, that it was not trading unlawfully before 18 February 2014, but would have been if it had continued to trade after that date. He further found that “it is clear and contrary to paragraph 17 of Mr Turvill’s statement that the decision to place Swancote and Chartland in liquidation was taken before 18th February 2014”.

The Recorder also held that Mr Turvill had not funded the litigation himself.

[21]In relation to the settlement with RSA the Recorder found as follows:(1) RSA’s March 2011 offer of £40,000 included £10,000 for Swancote and Chartland’s own costs “so £30,000 was earmarked, so to speak, for the Claimants’ personal injury claims including their claim for costs”.(2) When RSA was approached in February 2014 to repeat and increase its March 2011 offer, it was informed that “there is a possibility that we may be able to agree settlement of this matter by doing a “wrap round” deal which would be incumbent on RSA payment of the sum of £50,000 under their indemnity being just £10,000 more than the figure of £40,000 which you offered back in 2011”.(3) The Recorder did not accept Mr Turvill’s evidence in relation to the “wrap around” settlement and found that there was no “real or realistic possibility of concluding an all party settlement in February 2014”. He found that “on this point I find his evidence to be self-serving, unheralded and the absence of it from his witness statement was, I found, indicative of the lack of accuracy behind it.”(4) The Recorder found the motive behind the approach to RSA, once it became clear to Mr Turvill “that Chartland was asset free and facing an expensive trial that it was very likely to lose”, was “to obtain funds to pay Billy Hughes and Co who had by then run up a considerable amount of work in progress for Swancote and Chartland on account of his friendship with Mr Shaw”.(5) RSA’s offer of £40,000 was accepted on 17 February 2014 and on that day it either was or was about to be in Billy Hughes and Co’s client account. On the same day, on Mr Turvill’s instructions, a drop hands settlement offer was made to the Respondents which was “unsurprisingly” rejected.(6) “No part of the RSA’s £40,000 was ever offered to the Claimants. It is accepted by Mr Turvill that the RSA money has been paid to Billy Hughes & Co to cover some of their fees claim which amounts to over £300,000 according to Swancote and Chartlands’ statement of affairs.”(7) He further found that “Mr Turvill personally decided to allow Billy Hughes and Co to use the RSA money to cover some of its fees as Chartland was by then clearly on the verge of liquidation and other than a payment from third parties Billy Hughes & Co would otherwise be totally out of pocket. Mr Turvill himself therefore chose to pay Billy Hughes & Co rather than offer to pay the Claimants the RSA money.”[22]Against the background of those findings, the Recorder found that a non-party costs order in the amount of £30,000 should be made against Mr Turvill for the following reasons:
“67. ….In my judgment the RSA monies were, as Mr Wood put it, morally the Claimants’ money. Certainly as far as £30,000 of the sum was concerned. In deliberately deciding to, in a neutral sense, prefer to pay Billy Hughes & Co the monies rather than leave them in the bank account of Chartland, Mr Turvill has, in my judgment, acted outside the ordinary run of cases and his conduct in the particular respect does, in my judgment, make it just to impose an order for non party costs in the sum of £30,000 and I refer again to System Care at paragraphs 29-31 and the case of Metalloy. In the fact specific circumstances of this application in my judgment that award is appropriate. 68. Rather than an award of a particular percentage of assessed costs or costs from a particular date, alternatively though the sum of £30,000 seems to me to be a good approximation of the costs incurred by the Claimants after 20th February 2014 on an assessment at 60% which is, if anything, generous to the paying party. 69. Mrs Toman submitted that there had to be causation in the strict legal sense of a loss to the Claimant of that or any identifiable sum before a non party costs order can possibly be made. I do not accept that submission as a matter of law. The only requirement to make an order is if it should be just and strict consideration of causation can sometimes interfere with the Court’s discretionary power to do justice. 70. In any case, it seems to me, there is causation here. If instead of sending the offer in February 2014 Billy Hughes & Co had, on Mr Turvill’s instructions, sent a different offer, including the £30,000 share of the RSA monies, then either the Claimants would have accepted it and then saved over £50,000 of additional costs, or not accepted it and then been to that extent the authors of their own loss. But, having not offered it at all Mrs Toman cannot, it seems to me, seek to use that on her client’s behalf and cannot bar the Claimants’ claim in this respect and it follows therefore that I will make a non party costs order against Mr Turvill in sum of £30,000”
.

The law

[23]The Court has jurisdiction to make a non-party costs under s.51 (3) of the Supreme Court Act 1981 which provides that:
“The court shall have full power to determine by whom and to what extent the costs are to be paid.”
[24]A number of recent authorities have stressed that this is a jurisdiction which must be exercised in the interests of justice and that its exercise should not be overcomplicated by authority.[25]As stated in Petromec Inc v Petroleo Brasileiro SA Petrobras [2006] EWCA Civ 1038 [2007] 2 Costs LR 212: “11. There is a danger that the exercise of the jurisdiction to order a non-party to proceedings to pay the cost of those proceedings becomes over-complicated by reference to authority.” (Longmore LJ) …. “19. I would wish to emphasise my agreement with his statement at para 11 that the exercise of this jurisdiction becomes over-complicated by reference to authority. Indeed I think it has become overburdened. Section 51 confers a discretion not confined by specific limitations. While the learning is, with respect, important in indicating the kind of considerations upon which the court will focus, it must not be treated as a rule-book”. (Laws LJ)[26]Those comments were recently endorsed by the Court of Appeal in Deutsche Bank AG v Sebastian Holdings Inc [2016] EWCA Civ 23 [2016] 4 WLR 417 – see the judgment of Moore Bick LJ at [62]:
‘As all three members of the court observed in Petromec, the exercise of the discretion is in danger of becoming over-complicated by authority. The decision of the Privy Council in Dymocks, which contains an authoritative statement of the modern law, explains and interprets the Symphony guidelines in a way which reflects the variety of circumstances in which the court is likely to be called upon to exercise the discretion. Thus, the Privy Council has explained that an order of this kind is “exceptional” only in the sense that it is outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. Similarly, it has made it clear that the absence of a warning is simply one factor which the court will take into account in an appropriate case when deciding whether, viewed overall, it would be unjust to exercise the discretion in favour of making an order for costs against the third party. We think it important to emphasise that the only immutable principle is that the discretion must be exercised justly. It should also be recognised that, since the decision involves an exercise of discretion, limited assistance is likely to be gained from the citation of other decisions at first instance in which judges have or have not granted an order of this kind.’
[27]The authorities illustrate “the variety of circumstances in which the court is likely to be called upon to exercise the discretion” and “the kind of considerations upon which the court will focus”, but are not to be treated as providing “a rulebook”. The kind of considerations illustrated by the authorities include the following:(1) Whether the non-party funds the proceedings and substantially also controls or is to benefit from them and is the “real party” to them;(2) Whether the non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit;(3) Whether there is impropriety by the non-party in the pursuit of the litigation.(4) Whether the non-party causes costs to be incurred. See Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807; Systemcare (UK) Ltd v Services Design Technology Ltd [2011] 4 Costs LR 666.[28](1) (2) and(3) are all examples of circumstances in which non-party costs orders have been made. Generally (4), causation, is also required “to some extent” (per Morritt LJ in Global Equities Ltd v Globe Legal Services Ltd [1999] BLR 232) although it is not a necessary pre-condition, as held in Total Spares & Supplies Ltd v Antares SRL [2006] EWHC 1537 (Ch). In that case, however, there was still a causal link between the non-party’s actions and the claimant’s costs recovery in that he had deprived the claimant of any realistic opportunity of recovering its costs. The link was with the recovery of costs rather than the incurring of costs, but in both cases the claimant has to bear costs in circumstances where he otherwise would not have done.

Whether the Recorder’s non-party costs order was justified

[29]The Recorder’s decision to award non-party costs against Mr Turvill was a discretionary decision. It follows that it needs to be shown that he has erred in principle or reached a decision outside the generous range of reasonable decisions open to him.[30]Mr Carpenter for Mr Turvill submits that the necessary grounds for setting aside a discretionary decision can be established. In particular he submits that:(1) Chartland was under no legal obligation to effect the insurance which it had taken out with RSA. The insurance was taken out for Chartland’s benefit, not the Respondents’, and the Respondents had no right to expect Chartland to have insurance when they purchased the Property.(2) Unless and until Chartland was wound up or a receiver was appointed the Respondents had no claim under the Third Parties (Rights Against Insurers) Act 1930 (“the 1930 Act”) and had no legal or beneficial interest in the policy or its fruits - see Normid Housing v Ralphs [1989] Lloyd’s Rep 265(3) It was not unlawful to permit Mr Hughes to retain the money, as the Respondents accepted at trial. If so then it was not improper to do so.(4) Defeating a moral claim involves no or no sufficient impropriety. In any event, the Recorder was wrong to regard the Respondents as having even a moral claim on the money.(5) At the time payment was made, Chartland had no established liability to the Respondents and denied any such liability. On the other hand, Chartland did have a substantial liability for its own lawyers’ costs.(6) Causation is not established. The Recorder identifies the causation issue but does not find, as he would need to have done, that had an offer of settlement of the personal injury claim been made in the amount of £30,000 it would have been accepted. Further, it would have been contrary to the Respondents’ own evidence so to find.[31]Mr Maynard-Connor for the Respondents submits that the necessary grounds for setting aside a discretionary cannot be shown. In particular he submits that:(1) The Recorder referred to and directed himself in accordance with Dymocks Franchise Systems (NSW) Pty Ltd v Todd and Systemcare (UK) Ltd v Services Design Technology Ltd. He recognised that it was an application to be approached with caution that the jurisdiction is to be exercised where “in all the circumstances it is just to make the order” and that it involves cases which are out of the ordinary run.(2) The Recorder was entitled to find that Mr Turvill was sufficiently connected with the litigation, with Chartland and Swancote’s defence of it and with the dealings with RSA and the monies paid by it, to invoke the statutory discretion. This case was clearly outside the ordinary run of cases, as correctly found by the Recorder.(3) Mr Turvill’s misconduct reveals a lack of good faith and serious impropriety on his part in that: (i) Contrary to his evidence, he was found to be in control of Chartland and Swancote and to their approach to the litigation; (ii) He gave instructions to Billy Hughes to seek payment from RSA under the insurance policy and to misrepresent to RSA that payment was required to make a settlement offer to the Respondents when he knew no such offer would be made. (iii) In giving that instruction he was motivated to obtain monies for Billy Hughes, the friend of his co-member in Chartland. (iv) At a time when he knew that Chartland was insolvent and that it was ‘very likely’that the imminent trial would be lost in favour of the Respondents, he instructed Billy Hughes to accept RSA’s offer. (v) As a result RSA paid the monies under a false premise. (vi) He determined that Billy Hughes should retain all the RSA monies. (vii) He decided that Chartland and Swancote would not make an offer to the Respondents using the RSA monies. (viii) He instructed that the only offer to be made was a drop hands offer with the threat of immediate liquidation if not accepted. (ix) He gave dishonest and misleading evidence to the Court. In particular, he lied to the Recorder about the nature and extent of his control of Chartland and Swancote and of their approach to the litigation. He further lied as to his involvement with the approach to and settlement with RSA and the obtaining and disposition of the settlement monies. (x) At a time when Chartland was insolvent and about to be placed into liquidation he caused it to make a claim on the RSA insurance policy. Had he not done so the Respondents would have been entitled to claim against it.(4) Causation is not a necessary condition but is nevertheless established to a sufficient extent in that it is implicit in the judgment that the Recorder was satisfied on the evidence before him that on the balance of probabilities the Respondents would have accepted “a different offer, including the £30,000 share of the RSA monies”. Further, Mr Turvill is seeking to argue that there was no causation in speculative circumstances where, because of his own decision not to make an offer of the RSA monies, the Respondents were not given the opportunity to accept such an offer. As a result, the Recorder was also correct in finding that Mr Turvill could not use the absence of that hypothetical scenario against the Respondents. In any event, the obtaining and payment away of the RSA monies deprived the Respondents of the rights of recourse under the insurance policy which they would otherwise have obtained and which they could have used for partial recovery of their costs.[32]I agree with the Respondents that the Recorder directed himself properly in law. Further, his decision was a matter of discretion and involved a consideration of whether he considered it was just to make a non-party costs order. Having heard the evidence over a three day trial he was best placed to make that assessment.[33]I consider that there is force in Mr Turvill’s contention that there was no obligation to offer £30,000 of the money received in settlement from the RSA to the Respondents. The benefit of the insurance policy was an asset of Chartland that it was free to deal with as it sought fit, and it was used to discharge a genuine liability. There is also force in his argument that the Recorder has not set out his finding on causation clearly, although it is apparent that he was finding that, if necessary, causation was established.[34]On the other hand, the essential grounds of the Recorder’s decision were that there was serious impropriety, in particular in relation to the RSA settlement, and that there was causation “to an extent”. In my judgment such a conclusion is borne out by the Recorder’s findings and the evidence before him. In this regard I agree that the findings relied upon at paragraph 31(3) above are made expressly or impliedly in the judgment.[35]In relation to serious impropriety, the Recorder found that, contrary to Mr Turvill’s evidence, he controlled the litigation on behalf of Swancote and Chartland. The Recorder found that by February 2014 Chartland was insolvent, and that, contrary to Mr Turvill’s evidence, he had decided to place Swancote and Chartland into liquidation before 18 February 2014. Mr Turvill misled the court about these matters.[36]The Recorder further found that Mr Turvill knew that it was “very likely” that Chartland would lose the imminent trial.[37]It is against that background that the sudden and urgent return to negotiations with RSA, after a gap of nearly three years, is to be seen. Those negotiations involved misrepresenting to the RSA that the funds were needed for a “wrap around” settlement, a statement which Mr Turvill knew to be false. This assisted in obtaining a prompt settlement offer which in turn was immediately accepted on 17 February 2014. Chartland thereby became entitled to the settlement monies. On Mr Turvill’s instructions these monies were immediately used to pay Billy Hughes. Mr Turvill lied about these matters in evidence and again misled the court.[38]In relation to causation, having obtained the RSA settlement monies Mr Turvill immediately took steps to place Chartland into liquidation. On liquidation the Respondents would have become entitled to any insurance recovery under the 1930 Act. The consequence of concluding the settlement the day before acting on his already made decision to place Chartland into liquidation was to prevent that occurring.[39]This is therefore a case in which Mr Turvill took steps to ensure that the Respondents were deprived of any realistic opportunity of recovering their costs. Such a recovery could have been made had the Respondents acquired rights against RSA under the 1930 Act. Such rights would be acquired when steps were taken to put Chartland into liquidation, which Mr Turvill was about to do. Before doing so he secured a swift settlement with RSA on the back of a false representation of imminent settlement. Although it was not unlawful to use the insurance proceeds to pay Billy Hughes, Mr Turvill lied to the court about his knowledge and involvement in the settlement and the disposal of the settlement funds. The repeated misleading of the court in his evidence in relation to these matters and the costs application generally can be regarded as serious impropriety.[40]In summary, in my judgment this is a case in which the Recorder was entitled to conclude that there had been serious impropriety and that there was causation “to an extent”. On any view the Recorder was entitled to conclude that in all the circumstances it was just to exercise his discretionary power to make a non-party costs order.[41]In our judgment there were grounds upon which the Recorder could properly exercise his discretion to make a non-party costs order and the decision he reached was within the generous range of reasonable decisions open to him.

Conclusion

[42]For the reasons outlined above I conclude that this appeal should be dismissed.[43]I agree.

Cited in 11 later judgments

and 2 more of the most senior