Part 20 Claims Revisited

It seems that not all practitioners are intimately acquainted with the finer points of the law relation to legal costs in relation to Part 20 claims. That was the conclusion reached by Master Campbell in the recent Supreme Court Costs Office decision in Bateman v Joyce (2008). More specifically, it was the seminal decision, albeit one of nearly 80 years vintage, of no less than the House of Lords in Medway Oil v Continental Contractors (1929) with which the Master presumed that solicitors were not fully conversant. In fact, this was the second time that the Courts have recently had to dust down their copies of the 1929 law reports to consider the issue. In July 2007, Mr Justice Patten in the Chancery Division gave judgment in the case of Dyson Technology v Strutt (2007) and centre stage in his decision was the House of Lord’s decision in Medway. It therefore seems like an ideal time to bring the ‘Medway Oil’ principle out from, as Master Campbell described it, ‘the depths of the Costs law reports’.

Medway Oil was a commercial dispute involving a contract for the purchase of kerosene oil. Proceedings were issued and defended with a counterclaim and, ultimately, both claim and counterclaim were dismissed with costs. The Claimant (Continental) was therefore responsible for the Defendant’s (Medway) costs of the unsuccessful claim and the Defendant (Medway) was responsible for the Claimant’s (Continental) costs of the unsuccessful counterclaim. But how does the Court separate the costs of claim and counterclaim when they are often intertwined? The House of Lords concluded that the costs of the counterclaim were those costs that were solely and wholly occasioned by the counterclaim and no more. Any costs that could be said to relate to both the claim and the counterclaim should therefore be considered as costs of the claim. Therefore, where the court made cross orders for costs of a claim and counterclaim, the party receiving costs of the counterclaim was in a far worse position than the party receiving costs of the claim. The Court acknowledged that this may produce harsh results, but at least the principle had the advantage of clarity:

Following the introduction of the Civil Procedure Rules, the Courts were given a broad discretion to deal with the costs of claims and Part 20 claims (as they were now to be known). CPR 44.3(9) states:

The rules therefore envisage the Court dealing with the costs of claims and counterclaims in a new inclusive manner but, where a Court does not exercise its discretion in this way, the Medway Oil principle will still apply.

This was confirmed in the case of Dyson. The claim concerned proceedings brought by the Claimant for an injunction against a former employee seeking to prevent him acting in breach of a restrictive covenant and from disclosing confidential information. The confidentiality issue was discontinued but the restrictive covenant claim was successful with the Defendant ordered to pay the Claimant’s costs of the action, save for the costs of confidentiality issue. The Defendant was therefore entitled to the costs of the confidentiality issue and the Court was faced with the task of quantifying those costs. Specifically, how should the Court deal with costs which were common to both parts of the claim? Master O’Hare held that the common costs should be apportioned between the issues in proportion to the time spent on the different issues. The Claimant appealed on the basis that the Court should not apportion the common costs but should apply the Medway Oil principle such that the costs of the failed issue were only those costs solely and wholly occasioned by that issue and that no part of the common costs should be included. Mr Justice Patten agreed and reaffirmed the Medway Oil principle, confirming that it still applied in the post CPR era.

A more traditional claim and counterclaim situation was under consideration in Bateman. The parties had been involved in a Road Traffic Accident. The Claimant brought proceedings and the Defendant counterclaimed. The matter was compromised at a round table meeting with the Defendant paying the Claimant damages of £3,000 and the Claimant paying the Defendant damages of £350,000. Costs were not resolved at the meeting and the Defendant solicitor wrote to the Claimant Solicitor enclosing a draft consent order containing the following term as to costs:

The Claimant replied with a ‘slightly amended consent order’ (the importance of this phrase will be seen):

The order was signed and approved by the Court in the above terms (save for the replacement of the first ‘Defendant’ with ‘Claimant’ in paragraph 4).

Costs were presented by the Defendant in relation to the counterclaim and the Defendant challenged the extent of them on the basis of Medway Oil. The Defendant argued that they were only responsible for the costs solely and wholly occasioned by the counterclaim and, therefore, any costs common to the claim and counterclaim should be excluded from the Bill. The matter came before Master Campbell in the Supreme Court Costs Office for determination.

Master Campbell accepted the basic principle of Medway Oil but distinguished its application in this case. Key to his decision was the, clearly correct, principle that the parties can, if they chose, agree terms different from the standard Medway Oil principle. It was the Claimant’s position that the terms of the order, as amended by the Claimant and agreed by the Defendant, were such that they had an established meaning. In agreeing to those terms, so argued the Claimant, the Defendant has accepted that their costs were going to be limited to the costs solely attributable to the counterclaim. The Defendant, by contrast, argued that this was not the intention of the parties at all. It was clear from the dealings between the parties, taken as a whole, that the parties did not intend to agree to an order such that the Defendant’s costs were limited by the Medway Oil principle. The Claimant, when they amended the consent order, were not attempting to insert a new clause that dramatically limited their costs liability and this was evidenced by their comment that they had slightly amended the consent order. Master Campbell agreed.

The Court therefore concluded that neither solicitor could possibly have intended the order to have the Medway Oil effect and, in those circumstances, Medway Oil would not apply.

The above decision certainly seems to do justice between the parties. The Defendant’s claim was considerably more substantial than the Claimant’s and for the Defendant to have recovered only a fraction of their total costs, purely on the basis that it was their opponent who issue proceedings first and thereby became the Claimant and they the Defendant, would appear grossly unfair. However, the Medway principle is House of Lords authority and, however harsh it may appear, must be applied by the Courts. Parties agreeing costs terms in claims and counterclaims need to be aware of this principle because, next time this issue comes before the Court, they may not receive such a generous interpretation of their intentions.

Paul Jones
Technical Director
LCN

Cases Cited:

Bateman v Joyce [2008] EWHC 90100 (Costs)
Medway Oil v Continental Contractors [1929] AC 88
Dyson Technology v Strutt [2007] EWHC 1756 (Ch)