Black Horse Limited v Mr T and Mrs C Dickinson [2011] EW Misc 22 (CC)

IN THE LUTON COUNTY COURT
[2011] EW Misc 22 (CC)Case No Case No: 0LS04381 Appeal No: 1LU90043Venue 2nd Floor, Cresta House, Alma Street, Luton, Bedfordshire, England LU1 2PU
Between
Black Horse LimitedAppellant/DefendantMr T and Mrs C DickinsonRespondent/Claimant
Before
His Honour Judge KayFor the Appellant: Miss Ruth Bala (instructed by Messrs DWF Solicitors, Manchester, M3 3AA)For the Respondent: Mr Jonathan Butters (instructed by Messrs Michael Lewin Solicitors Limited, Leeds,LS17 6PY)Date 16 December 2011
[1]- MR BUTTERS: In effect - - HHJ KAY QC: To pay money - - MR BUTTERS: Set-off by judgment would be an option available to the Judge in exercising his discretion under Section 51. HHJ KAY QC: All right. So, it all comes back to Section 51. MR BUTTERS: Yes. But, it is a discretion rather than, as My Learned Friend describes, a matter of law, do the principles of equitable set-off apply? And there is - - HHJ KAY QC: Well, her argument is it's equitable set-off and there there's no discretion, either this is a - - the 'close connection' test is fulfilled or it isn't, or there is a discretion under the set-off by judgment test, that is, I understand, her argument. You're saying to me "No, equitable set off is not the position, this is an attempt to set-off a money judgment against costs, that's solely the preserve of Section 51, which is a question of discretion and if it is set of by judgment, that too is a discretion." MR BUTTERS: Yes. Well, I say there's no real difference between - - HHJ KAY QC: And then you must go on from there to say well the Judge has exercised his discretion, I shouldn't interfere. MR BUTTERS: Yes. I say - - HHJ KAY QC: That's your argument. MR BUTTERS: It is, Your Honour and for clarities sake, set-off under - - the discretion under Section 51 of the Senior Courts Act is the same, I say, as the discretion to set-off by judgment. HHJ KAY QC: It's all really one; it's all part and parcel of the same test. MR BUTTERS: Yes, it's the same discretion. HHJ KAY QC: Yes. MR BUTTERS: And the crucial difference between My Learned Friend's primary position and how I set it out is that, whilst the principles of equitable set-off may have been a guide for the Judge, it would not have been wrong for him to conclude that the principles that equitable set-off apply but nevertheless, exercising his discretion, there are reasons that point against the Order of a set-off. It would not be wrong for the Judge to ignore whether equitable set off applied or not in coming to a conclusion that he wasn't going to order set-off because he had a discretion. And, Your Honour, the cases My Learned Friend has referred you to regarding the solicitors lien are cases in which it was asserted that the existence of the solicitor's lien was determinative of the issue and we accept that the existence of a solicitor's lien is not determinative of the issue, the cases make that plain. It doesn't mean it's not a factor for the Judge to take into account in the exercise of his discretion. Now, Your Honour, we say the Judge had a discretion and it cannot be said that he exercised that discretion wrongly by refusing the set-off. We also say that if you're against us on the discretionary point and the principles or the [inaudible] of equitable set-off applies directly, nonetheless, it cannot be said the Judge was wrong in refusing set-off in these particular circumstances, and I set that out in more detail in my skeleton argument. HHJ KAY QC: Yes. MR BUTTERS: Firstly, there are three key cases referred to in My Learned Friend's skeleton argument: Lockley , Fearns and Ahmad all of which are examples of a set off of costs against damages, rather than the other way round and all of which involve the situation where the claimant is ultimately successful in the litigation and is entitled to damages or a money judgment but has become liable for interlocutory costs along the way, and the principle is quite plain. Irrespective of whether the Claimant is legally aided or bankrupt or whatever, if a Claimant, along the way to achieving success in litigation, incurs liabilities in costs to the defendant, there's no reason why they shouldn't be set-off but this isn't the same situation that exists here and it's important that we're not dealing with the same proceedings, it's a completely different state of affairs. There's no sense in which in order to achieve the costs to which the claimants have become entitled in this action they have, by reason of incurring those costs, somehow incurred the money judgment, there is no connection between the way in which the Claimants became entitled to those costs that has caused the money judgment in the possession proceedings, there's no connection whatsoever. HHJ KAY QC: Yes, I see your argument - - MR BUTTERS: Yes, yes - - HHJ KAY QC: I actually raised it with Miss Bala - - MR BUTTERS: I say there's no 'close connection' because there's a superficial attractiveness to the fact that the PPI and the money judgment were the subject of the same loan agreement but actually that's where the 'close connection' ends and it's not a relevant 'close connection' for the purposes of the equitable jurisdiction because it's not just "Do they have a 'close connection?" But, "Do they have a 'close connection' such that it would be inequitable not to Order set-off? Does one claim impeach the other?" Well, Your Honour, the Claimants' liability under the loan agreement arose from their breach of contract under the loan agreement in failing to keep up with payments and the subsequent judgment - - HHJ KAY QC: Yes, I follow all that - - MR BUTTERS: Quite clear - - HHJ KAY QC: You don't need to - - you don't need to tell me - - MR BUTTERS: Yes, yes. HHJ KAY QC: I follow the argument. MR BUTTERS: Yes. Whereas, the Defendant's liability under the costs judgment - - HHJ KAY QC: Yes, because they resisted the claim - - MR BUTTERS: It's not just because they resisted the claim though, Your Honour, it's because they told the Claimants, this was the judgment of the Court, they told the Claimants they had to have the PPI when that was not true. Now, it's very difficult to envisage how that could be mistaken. There's no finding of fraud in the judgment of District Judge Sethi but he has found that the bank have told an untruth to the Claimants. HHJ KAY QC: Yes, on the balance of probabilities, looking back over many years - - MR BUTTERS: Yes. HHJ KAY QC: There's no doubt when the individual would have no recollection of this whatsoever on the Bank's side; the District Judge was prepared, on the balance of probabilities, to accept your clients' evidence - - MR BUTTERS: Yes. HHJ KAY QC: That that's what they were told. MR BUTTERS: Yes. But, we're not exercising the discretion afresh here. So, the Judge has decided, whether on the balance of probabilities and whatever the evidential position was - - HHJ KAY QC: Yes. MR BUTTERS: He has decided the bank told the Claimants an untruth, which caused them loss of £10,000. In order to establish they have sustained that loss and their entitlement to recoup that money, the Claimants have had to incur those costs. HHJ KAY QC: Hmm. MR BUTTERS: First, because the bank told them an untruth; second, because the Bank, rather than admit that that's what it had done, defended the proceedings and forced them to incur those costs. HHJ KAY QC: Well, no. The costs can only, in any common-sense approach, be said to have arisen because of the resistance to the claim. MR BUTTERS: Yes. HHJ KAY QC: They didn't arise because of the misrepresentation; they arose because of the resistance, the defence of the claim. MR BUTTERS: Well, very well. But I say it's relevant to the background that this wasn't a case where - - HHJ KAY QC: It's not a fraud case. MR BUTTERS: It's not a fraud case - - HHJ KAY QC: No, it's not a fraud case - - MR BUTTERS: But it is a finding that the Bank - - HHJ KAY QC: That might be different - - MR BUTTERS: It is a finding that the Bank - - HHJ KAY QC: That might be different. MR BUTTERS: Yes, okay. HHJ KAY QC: But it's not a fraud - - MR BUTTERS: But I say it's a fining - - it's a finding that the Bank told an untruth - - HHJ KAY QC: Yes. MR BUTTERS: To the Claimants - - HHJ KAY QC: Well, they made - - MR BUTTERS: And I say that is relevant - - HHJ KAY QC: You can call it that, or you can call it they made a misrepresentation. MR BUTTERS: Yes. Well - - HHJ KAY QC: It may be an entirely innocent misrepresentation. MR BUTTERS: Yes. In either event, we're not dealing with a road traffic case where it's who failed to put their indicator on or something - - HHJ KAY QC: No, no. MR BUTTERS: It's a more serious allegation, I say, whether it amounts to fraud or not. And, its relevant, therefore, to the exercise of the Judge's equitable discretion because it's not just "Is there a 'close connection'?", "Is there a 'close connection' so that it would be just to Order set-off?" I say there's not a 'close connection' because the facts that gave rise to the claim are anterior to the entering into the loan agreement. In fact, rather than the Claimants' default on the loan having a connection to their entitlement to compensation for the mis-sale of the insurance. It's the other way round. The insurance increased the likelihood of a default because it rendered them a further £10,000 in debt to Black Horse. And, Your Honour, if you want a comparison between what would have happened had the claimants not instructed solicitors to raise the point about mis-sale of Payment Protection Insurance, one could only look at the possession proceedings. Its common ground, I understand that neither set of solicitors knew about the possession proceedings until two days before the PPI trial. The Bank had issued the possession proceedings through a different department, so I understand, and the left hand wasn't speaking to the right hand and the Claimants, unfortunately, didn't inform those who instruct me of the possession proceedings. Now, I would expect it to be common ground between My Learned Friend and I that, had the two proceedings been consolidated or had the possession proceedings been issued as a counterclaim to the PPI proceedings – and remember that the possession proceedings were issued second – and had the arguments as to mis-sale of PPI been raised in a consolidated action, and had the Judge found as DJ Sethi found as to those allegations, prima facie the credit agreement would be unenforceable and the Court would have a discretion to order enforcement but prima facie it would render the entire agreement unenforceable because the insurance would have been compulsory and, therefore, ought to have been treated as part of the total charge for credit. HHJ KAY QC: But I really don't follow this point. If that's what the claimants wish to raise as an argument and have decided, they could have raised that - - MR BUTTERS: Yes. HHJ KAY QC: In the possession proceedings. MR BUTTERS: Yes and they didn't - - HHJ KAY QC: And they didn't. MR BUTTERS: Yes - - HHJ KAY QC: So - - MR BUTTERS: They didn't because, through what can only be described as their own failure, they didn't tell their solicitors - - HHJ KAY QC: But that's their fault, their problem. MR BUTTERS: It is but the point is, Your Honour, that - - HHJ KAY QC: You can't have it the other way round and say "Well if - - if this had been thought of at an earlier stage, this PPI point, then it might have undermined the whole agreement." You can't have it that way round because you had - - you had the remedy in your own hands - - MR BUTTERS: Well, Your Honour, I say if the - - HHJ KAY QC: You can't separate the solicitors from the clients, it's the clients' remedy and they chose, for whatever reason, not to inform you and - - MR BUTTERS: Well, I say its relevant to the equity - - HHJ KAY QC: Anyway - - lawyers might have thought about it, they must have - - I mean, they must - - they knew of the underlying agreement - - MR BUTTERS: Yes. HHJ KAY QC: So, if they want to try and - - if they wanted to, they could have included it in this claim for PPI - - MR BUTTERS: But, Your Honour, its most unfortunate that the situation developed as it did, in particular for the Claimants - - HHJ KAY QC: Well, I don't think you can - - MR BUTTERS: Who lost their house but I say that it - - HHJ KAY QC: Yes, of course, it's very unfortunate - - MR BUTTERS: As a matter of equity, if the Court is applying an equitable jurisdiction and the Court has to decide is there a 'close connection' such that it is just to Order set-off, then the fact that the allegation has been found proved would have been sufficient to render the agreement prima facie unenforceable - - HHJ KAY QC: But I think we're missing the reality. The reality of this case, as I see it, is that this is an argument between the lawyers on behalf of Mr and Mrs Dickinson - - MR BUTTERS: Yes. HHJ KAY QC: And the Bank, and the Dikinsons will get the benefit of all of this because they will be able to reduce their outstanding liability to nothing. I mean, it's entirely their own fault that they did not raise - - possibly the lawyers fault, I don't know, that they did not raise this question of impeaching the underlying loan agreement. And, anyway, I've no idea whether that's a good argument or not and whether it [inaudible] succeeded or not. MR BUTTERS: Well - - MISS BALA: In this case, the loan is post 6 th April 2007 in any event, so there's no question of the - - [inaudible] of appeal of Section 1273 so - - that would be the very good reason why this point [inaudible] - - HHJ KAY QC: Well, I'm not going - - MR BUTTERS: [inaudible] prima facie unenforceability - - HHJ KAY QC: I'm not - - MR BUTTERS: I said the Court had a jurisdiction not to grant a declaration of unenforceability - - HHJ KAY QC: Yes. But who knows what would have happened, - - MR BUTTERS: I don't think there's a dispute there - - HHJ KAY QC: Who knows what would have happened, yes - - MR BUTTERS: Who knows what would have happened but the point is I say - - I fully accept that, Your Honour, and I won't press the point any further. I say it's relevant to the exercise of the Judge's equitable jurisdiction if, indeed that applied, because, if they'd been consolidated, if the point had been raised, the money judgment that is sought to be set-off may not actually have been enforceable, I say that's a relevant point. Now - - HHJ KAY QC: Right. MR BUTTERS: Your Honour, I set out in detail the reasons why I say that equitable set-off doesn't apply. The allegation - - HHJ KAY QC: Yes, I've got a lot of red underlining in your skeleton argument - - MR BUTTERS: Yes, indeed, well, I'm grateful, Your Honour. The allegation was resisted, as you say, the Claimants had to incur the costs in order to have found their entitlement to damages. Had they not incurred those costs, one can imagine the situation would have been exactly as happened in the possession proceedings – unrepresented, not raising the argument, no reduction in the liability, no unenforceability. That's the reality of what would have happened had they not incurred those costs and so to say that there is a 'close connection' between those costs and the debt is looking through the wrong end of the telescope. The equity works all the other way and if the Claimants were applying today to set-off costs against damages, which is the situation that exists in all those cases, Lockley et cetera, if they were applying to set-off their costs entitlement against the money judgment liability, then it might be a different story but they're not applying to do that. HHJ KAY QC: Yes. MR BUTTERS: One final point, Your Honour, My Learned Friend may be able to assist with this, but the way My Learned Friend puts the Judge's Order on set-off as between the money judgment and the PPI damages, it doesn't reflect the way in which the Order is drafted. The Order is drafted in a permissive fashion. Your Honour, if I can ask you to turn to page 7 of the appeal bundle - - tab 7 sorry, page [inaudible]. HHJ KAY QC: Yes. MR BUTTERS: As you will have noted from the transcript, the Claimants have paid just shy of £2,000 already in respect of the PPI, so they got judgment for that sum and any further sum was to be paid and plainly form part of the possession judgment. So, the first Order was judgment for the amount that had been paid and then there was argument between My Learned Friend and counsel who represented the Claimants at first instance as to what, if any, set-off there should be in relation to the money judgment in the possession proceedings. and you will see paragraph 2 is a permissive Order granting the Claimants the right to set-off:
"The Claimant shall be entitled to set off 10,717.98 [ten, seven, one, seven, nine, eight] which includes the sum at paragraph 1…"
So, its granting the claimant a right, should they wish, to set-off damages against damages - - or sorry, damages against money judgment. It's not ordering that there is a set-off of the money judgment against the Claimants' damages; it's not allowing the Defendant a right of set off, its allowing the Claimants a right of set-off, the wording is plain. So, for My Learned Friend to say that "Well, the Judge has allowed the Defendant a set-off, therefore, that set-off should extend to a set-off against costs not just a set-off against damages" belies paragraph 2 of the Order, which, on its wording plainly grants the Claimant a right, not the Defendant. Your Honour, I don't know if My Learned Friend can address you on that point but it's a point that I noticed when I looked at the Order and I think it cuts against her argument that, once the Judge had gone down the route of a set-off of damages against damages, logically, he couldn't then ring-fence the cost, but he doesn't appear to have done the first step that My Learned Friend says he did. I just set that out and I'm sure My Learned Friend will address you on it, but it was a matter that I noticed. Before she does, perhaps I should conclude my submission just by setting out in summary that the Respondent's position is: first, its plainly a matter of the Judge's discretion - - HHJ KAY QC: Yes. MR BUTTERS: In which case, the principles of equitable set-off may be relevant but not determinative of the exercise of his discretion. Second, if the jurisdiction of equitable set-off does apply, the Judge was not wrong to conclude that there should be no equitable set-off in this case, for the reasons I set out more particularly in my skeleton and that if that is so, should you be with me on a discretion point, plainly the Judge did not err in the exercise of his discretion. And, on a more general point, in light of the way in which this point was dealt with at trial, can it be said that the judge was wrong, either in the exercise of his discretion under Section 51 of the Senior Courts Act and/or his discretion to set-off judgment or in the exercise of his judgment as to whether equitable set-off applied? We're on an appeal and I say there is nothing that can be said to point to the Judge being wrong in either of those instances. Unless I can assist you further, those are my submissions. HHJ KAY QC: Thank you very much, thank you. Yes, I don't need to hear from you. MISS BALA: You don't wish for me to respond to any of the points? HHJ KAY QC: No, thank you. Judgment is given. JUDGMENT 16 th December 2011 HIS HONOUR JUDGE KAY QC: This is an appeal against a particular part of a decision made by District Judge Sethi on 2 nd June 2011. It relates to paragraph 3 of the Order he made on that day, which reads as follows:
"The Defendants shall pay the Claimants' costs summarily assessed in the sum of £29,615.50 by 4pm on the 16 th June 2011."
It is against that paragraph of the Order that this appeal arises.[2]The background to the matter can be stated fairly briefly. On 30 th October 2007, the Claimant in the underlying proceedings (the Respondent to this appeal) entered into a credit agreement with the Appellant and, as part of that agreement, purchased a Payment Protection Insurance Scheme ('PPI'.)[3]On 12 th May 2010, the Respondents issued proceedings against the Appellant in which they alleged the Appellant was guilty of mis-selling the PPI. It is a type of allegation and case that is well-known to the County Courts up and down the country; it arises out of what I think the papers describe as a "Scandal" concerning the mis-selling of PPI.[4]On 17 th August 2010, and whilst the PPI proceedings were on-going, the Appellant issued proceedings against the Respondents seeking possession of their home and a money judgment. The credit agreement or the loan, as I understand, was secured on the Respondents' property. Those proceedings were not defended and there was no application to consolidate the two sets of proceedings. It is plain that those proceedings could have been brought by way of a Part 20 counter-claim to the claim that had been issued by the Respondents. That never occurred. As far as I understand the situation, the Appellant was acting through two different departments and the right hand did not speak to the left hand in relation to those proceedings.[5]It is also the position that the Respondents to this appeal did not seek themselves to consolidate the proceedings that had been issued for possession of their property. It has been argued before me today that, if they had done so, it might have been open to them to establish to the satisfaction of the Court that the credit agreement should not be enforced. For whatever reason, the Respondents did not inform their lawyers of the possession proceedings. Nor is it the case that those representing the Respondents considered that they should add into their claim the assertion that the underlying credit agreement was not to be enforced by reason of the mis-selling of the PPI.[6]And so it was that, on 28 th September 2010, the Appellant obtained a Possession Order over the Respondents' property and a money judgment in the sum of £44,547.66; that money judgment has not been paid.[7]The PPI proceedings continued and they came before District Judge Sethi on 2 nd June 2011. They were before him as a claim on the fast-track. He heard evidence and found in favour of the Respondents. He ordered that there be judgment for a monetary sum to be paid to the Respondents and that the Respondents be entitled to set-off a larger sum, something over £10,000, against the judgment in the possession proceedings. Certainly by that time, everyone was aware of the possession proceedings and the money judgment. I understand it is common ground that the parties and/or their lawyers became aware of those earlier proceedings a couple of days before the hearing before District Judge Sethi.[8]The District Judge was then asked summarily to assess the Respondents' costs and he did so in the quite staggering sum of £29,615.50. There is some mitigation, I suspect, for that sum because the Respondents' solicitors were acting under a CFA.[9]Thus far, the Appellant does not contest the Orders made or the findings of District Judge Sethi. After the District Judge gave his rulings, there was a substantial argument, which I need not refer to, about the set-off of the judgment sum. He then assessed the costs, as I have indicated, and then the transcript of the hearing below records the following. Miss Bala, who appears before me today on behalf of the Appellant and appeared before the District Judge, asked for the sum assessed as the Respondents' costs to be set-off against the judgment owing to the Appellant in the possession proceedings. Mr Turner, acting on behalf of the Respondents (who does not appear for them today) responded that the costs should be paid and not set off. "They are going to the legal representative" he said. The response from District Judge Sethi was "Yes, the costs are separate." That is the extent of the argument that there was in the Court below on the issue that has now been argued before me at considerable length, certainly in writing and some length orally. All of the quite sophisticated arguments that have been put before me today were plainly not raised before the District Judge. He has clearly made a decision that there should be no set-off in relation to these costs. The only interpretation one can put on the words that appear in those few lines of the transcript is that the District Judge appears to have been influenced in the decision he made by the argument that the costs should be treated separately from the judgment sum when it came to the question of set-off because the costs will be going to the Respondents' lawyers. It is against the decision that there should be no set-off in relation to the costs that this appeal is brought.[10]It is common ground that the two claims could have been consolidated by either side and, if they had been consolidated, then the almost inevitable result would have been that any awards of monies or costs in the claim made by the Respondents would have been balanced or set-off, if one likes to put it that way, against any sums owing in the possession proceedings brought by the Appellant. The situation has arisen here because the two were not consolidated…[11][Interjection by Mr Butters] MR BUTTERS: Your Honour, I don't think I ever accepted that if the proceedings were consolidated - - HHJ KAY QC: You don't accept that? MR BUTTERS: Any costs that were awarded to the Respondents in respect of the PPI issues would necessarily have been set-off. HHJ KAY QC: All right.[12]…That is not the position accepted on behalf of the Respondents to this appeal but, in my judgment, that would have been the very likely result if the two actions had been heard together.[13]For the Appellant on this appeal, Miss Bala's argument, as set out in her skeleton argument, is that the fact of non-consolidation should not affect the result, and she relies upon the case of Puddephatt v Leith (No. 2) [1916] 2 CH , a decision of Younger J. That case bears some similarities to this, although it is certainly not on all fours. What is evident is the reaction of the Court in circumstances where the real underlying issue was whether a party's solicitor was going to get paid or not, depending on whether set-off was allowed or was refused. However one dresses up the case before me, it is also plain here that the real underlying issue is whether those acting under the CFA for the Respondents are going to get paid or not. The quite forceful response to that proposition can be found at pages 176 to 177 of Younger J's decision. Again, although it's not quite on all fours, Younger J found it an " extraordinary equity" where it was claimed that a party's solicitor had an equity against the other party to make that other party pay the costs which that party was ordered to pay to the solicitor's client.[14]Miss Bala puts her case on two bases. First, she says that there was here the right for the Appellant to assert an equitable set-off. It is common ground that equitable set off is not available as a matter of discretion; what has to be asserted and established is the 'close connection' test which is set out in many authorities and in particular the authority of Lockley v National Blood Transfusion Service [1992] 1WLR 492 . That test is whether the parties' claims are so closely connected that it would be inequitable to allow the Claimant's claim without taking into account the Defendant's claim; as it has sometimes been put, the Defendant's claim must in equity impeach the Plaintiff's claim.[15]Miss Bala says, in the alternative, that here there can be a set-off by judgment (there are, in effect, cross-judgments between the parties) and there should be a set-off where it would be just to apply such a set-off. She recognises that relief is a matter of discretion. Miss Bala has referred me to the cases that have followed Lockley , all of which are rightly described, it seems to me, by Mr Butters, acting on behalf of the Respondents, as somewhat differently factually in that they concern the set-off of interlocutory costs against an award of damages granted at the end of the case.[16]Miss Bala has, however, referred me to the case of In Re A Debtor . Again, that is not a case on all fours with the circumstances I have before me. It is, however, informative in that the court reacted in a manner similar to the reaction of Younger J in Puddephatt to an assertion that, as it was in this case, an unpaid creditor should be required to provide for the costs of his debtor's solicitor otherwise the solicitor will have no chance of being paid. So, in that broad sense, there is some similarity in the sort of plea that is made to this Court.[17]Mr Butters for the Respondents argues that I am here dealing with a case on appeal and that I should not interfere with the decision of the District Judge save on well-established principles. He submits that it must be shown that the Judge below has either erred in principle in his approach, or has left out of account or has taken into account some feature that he should or should not have considered, or that his decision was wholly wrong because the Court is forced to the conclusion that he has not balanced the various factors fairly in the scale. He rightly says that, when it comes to a matter of discretion that is being impugned, a lower Court has a wide ambit within which it can exercise its discretion before an Appeal Court can interfere.[18]Mr Butters' argument is that, where one is dealing with what is in truth a set-off sought by the Appellant of its money judgment in the possession proceedings against the costs it has been ordered to pay in the PPI proceedings, the whole matter comes within the Court's discretion under Section 51 of the Senior Courts Act 1981. He has referred me to passages in the case of Burkett (R) v London Borough of Hammersmith and Fulham [2004] EWCA Civ 1342 , in particular paragraph 46, and Fearns v Anglo-Dutch Paint & Chemical Company [2010] EWHC 2366 (Ch) , a decision of George Leggatt QC, in particular at paragraph 73, in support of that argument. In exercising that discretion under Section 51, Mr Butters' argument is that the Court can have regard to the principles of equitable set-off or a set-off by judgment as a guide but they are not determinative of the exercise of the discretion. He says that that discretion has not been exercised wrongly by the District Judge or at least it is not outside the ambit of reasonable discretion that the District Judge has in such circumstances. In the alternative, if equitable set-off does apply to this case, then the Judge was correct to arrive at his decision and Mr Butters has set out various arguments in his skeleton argument to which I have been referred.[19]I have come to the conclusion that this is a case in which I can and should interfere with the decision of the District Judge. There is very little in his decision, as I have indicated, in the way of analysis of what the position is. I do not attribute that criticism at the door of the District Judge because it seems to me that the much more sophisticated arguments I have heard were not raised in front of him and he made a decision without the benefit of such analysis. As a result, he has, it seems to me, fallen into the error of placing reliance as a factor to be taken into account on the existence of the CFA and on the vulnerability, if I can put it that way, of the Respondents' solicitors to the prospect of not being paid. I derive that from the very short passage to which I have referred earlier in this judgment.[20]I, therefore, come to look at the matter afresh because the District Judge has fallen into error in taking a matter into account he should not have taken into account. Whichever way I look at the position, whether it is on the arguments advanced to me by Miss Bala that here the principles of equitable set-off apply or set-off by judgment, or whether I look at the matter under Section 51 of Senior Courts Act 1981 as suggested by Mr Butters, I come to the same conclusion. The prospects, whether they are good or bad, as to whether the Respondents' solicitor will be paid are irrelevant for these purposes. I am simply looking at the position as between the Appellant and the Respondents.[21]Taking Mr Butters' argument first, there is a discretion as to whether, in these circumstances, the Appellant should be entitled to set-off its money judgment against its liability for costs in the PPI claim. There can be some guidance, he says, to be found in the equitable set-off test of 'close-connection' or, indeed, the set-off by judgment test as to whether such a set off is just. I do not accept the arguments he has advanced in his skeleton argument in relation to the 'close connection' test or as to whether it would be unjust to order a set-off. It seems to me that the two claims are closely connected. One cannot divorce the costs that have arisen in relation to the PPI claim and say they are not closely connected to the matters that arose in the possession proceedings. These cross disputes all arose out of one transaction, namely the credit agreement that was entered into on 30 th October 2007. The Respondents, if there is a set-off, will gain the benefit of the judgment in the PPI proceedings and their award of costs by having the money judgment in the possession proceedings reduced to almost nothing.[22]As regards whether it is just or not to order the set-off, I do not accept that because the PPI proceedings related to a misrepresentation made by the Appellant to the Respondents, that means that the equitable remedy is unavailable or should not be made available. It does not signify, in my judgment, that the Appellant came with unclean hands to this equitable remedy. Mr Butters has raised arguments that the Appellant's conduct in making a misrepresentation as regards the PPI might have led to a Court refusing to enforce the underlying credit agreement. It seems to me that is all water under the bridge; the point was never taken as it might have been and was never adjudicated upon and one does not know whether it would have been acceded to or not.[23]Accordingly, whether I apply the legal test of equitable set-off, or set-off by judgment, or as a matter of discretion under Section 51 of the Senior Courts Act 1981, it seems to me that the correct Order would have been to permit the Appellant to set-off its money judgment against the award of costs. They are, in essence, two debts and they should, in my judgment, be set-off. I can allow this appeal because it seems to me that the District Judge fell into error in taking into account a wrong factor and I can exercise the discretion afresh. So, the appeal is allowed. End of judgment 16 th December 2011 HHJ KAY QC: How do you want to word this now given what's been said about the Order below? MISS BALA: I suppose, looking at the Order below actually, which is [inaudible] - - it seems - - I was under the impression, although I don't have a record of the hearing before me, that that's actually just an error and that it should be the Defendant rather than the Claimants at paragraph 2, that's what I understood but it's neither here nor there really for the purposes of - - MR BUTTERS: Specifically asked for by Mr Turner on behalf of the Claimants that it should read as that and not opposed - - MISS BALA: Ah - - MR BUTTERS: By My Learned Friend is what the transcript shows but - - HHJ KAY QC: Well, I don't know - - MR BUTTERS: [inaudible] - - MISS BALA: Well - - HHJ KAY QC: Well - - MISS BALA: [inaudible] whatever - - HHJ KAY QC: If an issue arises, you may have to go back to the Court about that. MR BUTTERS: Yes, it's only paragraph 3 that can be amended plainly. HHJ KAY QC: Yes, yes. MISS BALA: Yes. MR BUTTERS: So - - HHJ KAY QC: Well, we strike out the words "…by 4pm on 16 th June 2011…" it seems to me. MR BUTTERS: Yes. MISS BALA: So, the Defendant shall pay the Claimants' - - HHJ KAY QC: So, paragraph 3 of the Order of District

Judge Sethi is varied to read:

"The Defendants shall pay the Claimants' costs summarily assessed in the sum of £29,650.50 and the Defendants shall be entitled to set-off their money judgment in claim number…"
What is it? MISS BALA: It's the previous [inaudible] - - HHJ KAY QC: Thank you - - MISS BALA: 0PB - - HHJ KAY QC: I see it; "…0PB14739 against this Order." Content with that? MISS BALA: Yes, thank you, Your Honour. HHJ KAY QC: Yes? MR BUTTERS: Yes, Your Honour. MISS BALA: There is also an application for the costs of the appeal. HHJ KAY QC: Yes. MISS BALA: I'm not sure whether you've seen the schedule. HHJ KAY QC: I think I have. [short pause] This one here, yes, let's have a look. MISS BALA: It should be dated 13 th December. HHJ KAY QC: £11,852. MISS BALA: That's the amount claimed, yes. HHJ KAY QC: Yes, that's the amount claimed. Yes? MISS BALA: In respect of that, I think I would say in summary [inaudible] - - that - - and then perhaps My Learned Friend can respond. HHJ KAY QC: I see on the other side its £1,513, plus counsel's fees, is that right? MR BUTTERS: Yes. HHJ KAY QC: Is that right - - MISS BALA: And the success fee [inaudible] - - HHJ KAY QC: Well - - MISS BALA: [inaudible] - - HHJ KAY QC: [inaudible] success fee of a hundred per cent, it would be £22,000 so there's a certain imbalance here, is there not? MISS BALA: Yes, I think I have to accept that. HHJ KAY QC: Shall we - - but, of course you had to run the appeal - - MISS BALA: Yes. HHJ KAY QC: It's your appeal so there's bound to be a bit more cost in that, I accept - - MISS BALA: Yes. HHJ KAY QC: Preparation of bundles and so forth. MISS BALA: My instructing solicitor did also spend - - HHJ KAY QC: There's a hugely impressive array of people involved in this case, As many as - - MISS BALA: Err, yes - - HHJ KAY QC: As many as, my word, one, two three, four, five, six, seven . MISS BALA: That's explained in the paragraph below because - - well, number six was the case - - then left the firm - - HHJ KAY QC: Yes. MISS BALA: Who was then replaced by a number three. There needs to be some limited supervision by the partner. Steven Dawson was the costs - - provided costs advice, there were a number of conferences because it was felt - - this was the first case Black Horse had appealed on this issue of set-off and CFA - - and indeed there's no authority directly on point either. Those instructing me did do a large amount of research in the Law Society Library in which they found the cases of Puddephatt and In Re A Debtor so I'm very much obliged to them for that and - - and those weren't cases which I was able to find just by looking on Westlaw, I did a simple Westlaw search but they have been found by some quite laborious research in the Law Society Library. HHJ KAY QC: Well, you know I'm going to reduce this? MISS BALA: Yes, yes, I - - HHJ KAY QC: The question is by how much. MISS BALA: Yes. MR BUTTERS: Your Honour, quite a lot - - HHJ KAY QC: Yes, it will be quite a lot yes. MR BUTTERS: [inaudible] - - HHJ KAY QC: Yes, it will be quite a lot. MR BUTTERS: Err - - HHJ KAY QC: Is there any specific points you want to make to me? MR BUTTERS: Well - - HHJ KAY QC: Solicitors costs come to £6,717 - - MR BUTTERS: Yes. You Honour - - HHJ KAY QC: Court fees obviously are no problem and counsel's fee is - - MR BUTTERS: I don't know if My Learned Friend - - HHJ KAY QC: This is - - what does this mean by "Future costs?" What are "Solicitor's fees future" meant to be? Is that today? MISS BALA: Err, yes, that's for today, yes. HHJ KAY QC: That's for today, is it? Yes. MR BUTTERS: Well, I say that can come out straight away. Your Honour, this is an appeal, it's not the sort of case where instructions are likely to be needed, it's not a trial. One has to remember this was a fast-track case and it - - on the fast-track, they'd be limited to £350 - - HHJ KAY QC: Look at your costs of £30,000 on a fast-track, that's quite impressive [laughter] - - MR BUTTERS: Well, Your Honour, there's an success fee and an ATE premium - - HHJ KAY QC: Even so - - MR BUTTERS: Well, Your Honour, I think one has to look, and I have it here I think somewhere, the costs in relation to the - - if it assists, I think the sub total of profit costs was £7,899, that's the base costs. So, when you add in ATE, which wasn't challenged and, of course, it depends on what's available in the market, we're actually looking at the Defendant claiming more in solicitors costs - - HHJ KAY QC: Right. Let me tell you what I've got in mind - - MR BUTTERS: Yes. HHJ KAY QC: And then see if you've got any objections to it. Without any great scientific input into this - - MR BUTTERS: Yes. HHJ KAY QC: I have in mind a sum of £6,000. MR BUTTERS: Well, Your Honour, I wouldn't disagree with that. HHJ KAY QC: Okay. MISS BALA: I don't think there's anything further I can say really which I - - HHJ KAY QC: It's up to you. MISS BALA: [short pause] [whispering] [inaudible] - - Sorry, if I could just take instructions. HHJ KAY QC: Yes. [inaudible] two hour appeal. MISS BALA: [short pause] Yes. There's no objection to - - HHJ KAY QC: No objection? All right Thank you very much. So, Respondents to pay Appellant's costs of appeal, summarily assessed at £6,000. Thank you very much. MR BUTTERS: Your Honour, may I ask for permission to appeal? HHJ KAY QC: You can ask but it would have to be a second appeal. MR BUTTERS: Yes. HHJ KAY QC: And that's, as you know, only in rare circumstances, and I refuse that. MR BUTTERS: Do you need me to set out my grounds now or are you happy… - - HHJ KAY QC: I'm perfectly happy, you take it - - if you think the Court of Appeal is interested, it might well be interested, I don't know, then you take it to the Court of Appeal. MR BUTTERS: I'm grateful, Your Honour. HHJ KAY QC: But this being a second appeal, I think it's a matter for the Court of Appeal themselves to decide whether they wish to hear it. MR BUTTERS: Yes, I'm grateful. HHJ KAY QC: Right. Thank you very much, if I could hand these files back to you. Well, thank you for an interesting argument, which one doesn't always get in this building. Right. Thank you. End of hearing. APPEAL AUTHORITIES BUNDLE INDEX Tab No. Document Page 1. s51 of the Senior Courts Act 1981 1-2 2. Section 72 of the County Courts Act 1984 3 3. Wheaton v Graham Nov 12, 1857 4 4. Knapman v Wreford [1879 K. 14] CA 1881 4a – 4f 5. Forbes v Jackson [1880 F. 1226] VCH 1882 Jan 12, 16 5-8 6. Puddephatt v Leith (No. 2 [1915 P. 2064] 9-15 7. Lockley v National Blood Transfusion Service [1992] 1 WLR 492 16-22 8. Yeheskel Arkin v Borchard Lines [2001] CP Rep 108 23-31 9. Burkett (R) v London Borough of Hammersmith and Fulham [2005] 1 Costs LR 104 32-44 10. Sandler v Sandler and Lloyd Platt and Co [2010] EWHC 1415 (Fam) Family Division Macur J 18 June 2010 44a – 44e 11. Fearns v Anglo-Dutch Paint Co (2010) EWHC 2366 45-69 12. Ahmad v London Borough of Brent [2011] EWHC 378 (QB) 70-73 13. In re: A Debtor, No 21 or 1950 (No. 2) Ex parte the Petitioning Creditors v the Debtor 74-79 14. Cousins on Law of Mortgages Third Edition by Edward F Cousins, 2010 80-89 15. Fisher & Lightwood 13th Edition 2010 90-100 16. Section A Civil Procedure Rules 1998 Part 44 101-103