Lawyers Briefing Notes

Mon, 13 Dec 2010

Costs Liability: Discontinuance under CPR 38.6(1)

Does saving costs and time justify a departure from the general rule that a party who is served with a notice of discontinuance can recover their costs from the discontinuing party?

This was the issue addressed in the court of appeal in Messih v McMillan Williams & Others [2010] DWCA CIV 844.

The fourth defendant, McMillan Williams (MW), a firm of solicitors, appealed against the order of the court directing that there should be no order in respect of costs against the claimant, Mr Messih, after he had served a notice of discontinuance.

Civil Procedure Rule 38.6(1) provides that “unless the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant against whom the claimant discontinues incurred on or before the date on which notice of discontinuance was served on the defendant”.

Mr Messih was the tenant of commercial premises which were held under lease. The lease contained covenants by the tenant to keep the premises in good repair and a proviso for re-entry in the event of a breach.

Mr Messih sought legal advice on the lease and consulted the first, second and third defendant, Laurie Moran Arthur (LMA), a firm based in Wimbledon. These defendants were partners of the firm. Shortly after the initial consultation, the landlord of Mr Messih’s premises served a notice requiring items of disrepair to be remedied within one month. However, unbeknown to Mr Messih, he was entitled to protection under the Leasehold Property (Repairs) Act 1938 by serving a counter schedule on the landlord and claiming the benefit of that Act and the landlord could not enforce the repairing covenants or exercise his right to forfeit the lease without leave of the court.

Mr Messih brought a claim against LMA for the failure to advise him of the right to claim the benefit of the 1938 Act. LMA also brought a claim against MW (his original solicitors) for contribution.

The claim against MW was for the same loss but had a more limited factual basis in that MW had also failed to advise the claimant of the need to apply to the court for relief from forfeiture. However, in their defence MW stated that they were consulted by Mr Messih under the Community Legal Services Green Form Scheme which enabled initial advice to be given but did not extend to the funding of representation in court proceedings, which, clearly applied here.

In August 2009 the claim against LMA was settled on terms that LMA agreed to pay Mr Messih the sum of £21,500 plus costs. It was a term of that settlement that LMA would discontinue the contribution but MW refused to agree to Mr Messih discontinuing his claim against them with no order for costs. It had always been MW’s case that the claim against them was unmeritorious and had no realistic prospect of success.

Mr Messih, nonetheless, went ahead and served a notice of discontinuance.

On this basis MW proceeded to commence detailed assessment proceedings for the recovery of their costs. This was met by an application by Mr Messih for an order under CPR 38.6(1) that he should not be required to pay MW’s cost of the action.

Mr Messih contended that MW’s defence was weak and it would have been unjustifiable to have proceeded with the claim simply in order to establish Mr Messih’s entitlement to his costs. Therefore, given the saving of court time and additional costs, it was appropriate for the claim against MW to be discontinued with no order for costs.

The judge at first instance relied on the leading case of Re Walker Wingsail Systems Plc [2006] 1 WLR 2194 CA which is authority for the exercise of the court’s discretion in setting aside the rule under CPR 38.6(1) in cases where the circumstances had changed.

In this case the change in circumstances was the settlement of the claim with LMA. The judge reasoned that this change saved costs and time on the part of MW thereby justifying a departure from the normal cost consequence following discontinuance.

Whilst the Court of Appeal confirmed that the assessment of whether to grant an order under CPR 38.61 will inevitably be fact specific, it raised a stark question which would be of a general application, namely whether a claimant who has achieved what amounts to the satisfaction of the whole of his claim against one set of defendants can rely upon the avoidance of a trial on liability against the remaining defendants to recover costs as justifying a departure from the ordinary rule.

Although keen to stress that no judge would encourage a trial solely about costs, the Court of Appeal held that the avoidance of the costs of a trial is a necessary consequence of any discontinuance and cannot, of itself, justify a departure from the normal rule that the discontinuing party pays the other side’s costs up to the date of discontinuance.

Mr Messih had made an informed choice to discontinue and did this in the knowledge that the settlement with LMA made no provision for the payment of MW’s costs. In settling the case with LMA, he removed the ability of MW to establish its defence and left the court, at first instance, in a position of being unable to determine what the outcome of the trial was likely to have been. Had there been separate proceedings against MW it would be difficult to see how Mr Messih could have avoided paying their costs on discontinuance and on the facts of this case the Court of Appeal could not see any justification beyond the possible saving of costs for the order that was made and accordingly allowed the appeal.

What is clear from this case is that the general rule under CPR 38.6 will apply unless the claimant can demonstrate that some other order should be made. Justification on the saving of costs will not, alone, suffice.

There is of course an overarching policy consideration to this case. If a claimant is able to discontinue and apply for an order that they should not have to pay the defendants costs, without strong justification, then it would potentially allow a claimant to pursue anyone and everyone without properly considering who is the correct party to sue.