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	England and Wales High Court (Queen's Bench Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Rackham v Sandy & Ors [2005] EWHC 1354 (QB) (28 June 2005) URL: http://www.bailii.org/ew/cases/EWHC/QB/2005/1354.html Cite as: [2006] 1 Costs LR 34, [2005] EWHC 1354 (QB)

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		28 June 2005

Mr Justice Gray:

1. On 23 March 2005 I gave judgment in this libel action in favour of the Claimant, Mr Paul Rackham, against the first Defendant, Mr Nigel Sandy. I awarded Mr Rackham £2,000. However, I found against Mr Sandy and in favour of the other two Defendants, Mr Hugh Etheridge and Mr Stephen Hardman. The reason why the outcome was different as between the three Defendants was that the case turned on malice, it being accepted that the occasion of the publication of the letter complained of was protected by qualified privilege. I found that Mr Sandy was actuated by malice but that Mr Etheridge and Mr Hardman were not. I now have to rule on costs.
2. It is some indication of the significance of the incidence of costs in contemporary litigation, not least in libel actions, that the skeleton arguments on behalf of Mr Rackham on the issue of costs run to fifteen pages and the skeleton arguments of the Defendants run to a total of thirty-four pages. There is a joint bundle consisting of twenty-four authorities bearing on the issue of costs. The argument occupied a full day. I shall nevertheless endeavour to set out the parties' respective contentions economically.
3. The contention of Mr Richard Rampton QC on behalf of Mr Rackham is that his client should recover virtually all of his costs of the entire action from the unsuccessful Defendant, Mr Sandy. In support of that contention Mr Rampton relies on the pre-action correspondence and upon the findings of malice including opprobrious conduct made in the judgment (see Reid Minty v Taylor [2002] 1 WLR 280). He maintains that virtually all of Mr Rackham's costs of the action would have been incurred in any event had Mr Sandy been sued alone. Reliance is further placed on what is said to be the exorbitant manner in which these proceedings have been conducted on behalf of the Defendants, including vast reams of irrelevant documents and inadmissible evidence in the witness statements. The order for costs should reflect the fact that Mr Sandy was the principal actor in the events with which this action has been concerned. Costs are sought against him on an indemnity basis because, it is said, Mr Rackham did better than his Part 36 offer.
4. As regards the appropriate costs order as between Mr Rackham on the one hand and Messrs Etheridge and Hardman on the other, Mr Rampton relies, firstly, on the fact that prior to proceedings being commenced all that was sought from these two Defendants was an apology and payment of Mr Rackham's modest legal costs. That opportunity having been declined, it is argued that Mr Rackham had no option but to continue the proceedings against them. Messrs Etheridge and Hardman cannot escape their share of responsibility for what is said to be the exorbitant manner in which the litigation has been conducted. Mr Rampton suggests that in reality the proportion of the Defendants' total costs which are attributable to the conduct of the Defences of Mr Etheridge and Mr Hardman would not exceed ten per cent for each (twenty per cent in total). That percentage should be reduced to a total of fifteen per cent to reflect the "manifestly excessive" way in which the Defendants case was prepared: see Liverpool City Council v Chavasse (unreported, 18 August 1999). Mr Rampton further contends that, the liability of the Defendants for the publication of the letter complained of being joint and several, it would be appropriate for the court to order that the unsuccessful Defendant (Mr Sandy) should, directly or indirectly, pay the costs of the successful Defendants in accordance with the principals in Sanderson v Blyth Theatre Company [1903] 2 KB 533 and Bullock v London General Omnibus Co. [1907] 1 KB 265. It is said that Mr Rackham could not know until trial how liability for the letter complained of should be apportioned between the Defendants.
5. Miss Adrienne Page QC for the Defendants argues for a very different order. She starts by drawing attention to the very modest amount of the money judgment (£2,000) in comparison with the costs incurred by Mr Rackham which approach £600,000. She says that the consequences for Mr Sandy of an adverse costs order of the kind sought by Mr Rampton would be utterly disproportionate and catastrophic for him. She argues that the libel action brought by Mr Rackham served no legitimate aim and was punitive rather than vindicatory. She says that Mr Rackham made it impossible for the Defendants to settle the action on objectively reasonable terms. In reliance on a large number of authorities, including Tolstoy Miloslavsky v United Kingdom 20 EHRR 442 at para 49; Steel & Morris v United Kingdom [15 February 2005] ECHR 68416/01 at paragraph 96; Musa King v Telegraph Group Limited [2004] EMLR 429; Wallis v Valentine [2003] EMLR 175 and Jameel v Dow Jones & Co. lnc [2005] EWCA Civ 75, and in reliance further on a detailed analysis of the facts of the case and the history of the action, Miss Page argues that the normal order that costs should follow the event would produce a substantial injustice so far as Mr Sandy is concerned. She therefore invites me either to direct that there should be no order for costs as against Mr Sandy with effect from 2 April 2004 (when, it is said, Mr Rackham unreasonably rejected an offer of settlement made by the Defendants) or to order that Mr Sandy pay £100,000 or twenty per cent of the Claimant's costs of the action on a standard basis. Miss Page contends that there is no justification for an indemnity costs order against Mr Sandy.
6. As regards Mr Etheridge and Mr Hardman, Miss Page's position is that there is no reason for the normal order as to costs not to be applied: Mr Etheridge and Mr Hardman succeeded in the action and they should not be deprived of any part of their costs. It will, she says, be for the Costs Judge to decide at the detailed assessment the amount of the costs recoverable by Mr Etheridge and Mr Hardman against Mr Rackham. So far as her clients' retainer is concerned, Miss Page's instructions are that each Defendant is liable to his solicitor for one-third of the common costs plus their own individual costs. It is submitted that the vast majority of these Defendants' costs are common costs. There is no question here of the indemnity principle being breached. In reliance on dicta of Chadwick J in Baylis v Kelly and others [1997] 2 Costs LR 54 at 59, Miss Page maintains that it is irrelevant if Mr Sandy was the "principal actor" in the case. Accordingly on behalf of Mr Etheridge and Mr Hardman Miss Page seeks a payment on account of their costs in the sum of £260,000. She rejects the criticisms of the scope of the Defendants' disclosure and witness statements and has herself a number of criticisms to make of the conduct of the proceedings on behalf of Mr Rackham.
7. In a further written submission, Miss Page, amongst other things, rejects the contention that a Sanderson or Bullock order would be appropriate.
8. Such being the parties' respective contentions, I turn to the material provisions of the Civil Procedure Rules. Part 44.3 provides, so far as material:

1) The court has discretion as to

a) whether costs are payable by one party to another;

b) the amount of those costs and

c) when they are to be paid.

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 must have regard to all the circumstances, including

a) the conduct of all the parties;

b) whether a party has succeeded on part of his case, even if he has not been wholly successful; and

c) any payment into court or admissible offer to settle made by a party which is drawn to the court's attention (whether or not made in accordance with Part 36).

...

5) The conduct of the parties includes

a) conduct before, as well as during, the proceedings, and in particular the extent to which the parties followed any relevant pre-action protocol;

b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

c) the manner in which a party has pursued or defended his case or a particular allegation or issue;

d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.

6) The orders which the court may make under this ruling include an order that a party must pay

a) a proportion of another party's costs;

b) a stated amount in respect of another party's costs;

c) costs from or until a certain date only

...

g) interest on costs from or until a certain date, including a date before judgment

9. Part 44.4 provides for assessment of costs on either the standard or the indemnity basis, adding:

"But the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount".

Further, Part 44.2 provides:

(2) Where the amount of costs is to be assessed on the standard basis, the court will

a) only allow costs which are proportionate to the matters in issue; and

b) resolve any doubt which it may have as to whether costs were reasonably incurred or reasonable and proportionate in amount in favour of the paying party."

Factors which the court may take into account are set out in rule 44.5 and in particular sub-rule 5.3:

"The court must also have regard to

a) the conduct of all the parties, including in particular

i) conduct before, as well as during, the proceedings; and

ii) the efforts made (if any), before and during the proceedings in order to try to resolve the dispute;

b) the amount or value of any money or property involved;

c) the importance of the matter to all the parties ... "

10. Part 36 deals with the position as to costs where a claimant fails to do better than a Part 36 offer or a Part 36 payment and where the claimant does better than he proposed in his Part 36 offer. Part 36.20 provides:

"(1) This rule applies where at trial a claimant

a) fails to better a Part 36 payment;

b) fails to obtain a judgment which is more advantageous than a defendant's Part 36 offer

(2) Unless it considers it unjust to do so, the court will order the claimant to pay any costs incurred by the defendant after the latest date on which the payment or offer could have been accepted without needing the permission of the court."

Part 36.21 provides:

"(1) This rule applies where at trial-

a) a defendant is held liable for more or

b) the judgment against a defendant is more advantageous to the claimant than the proposals contained in a claimant's Part 36 offer.

(2) The court may order interest on the whole or part of any sum of money (excluding interest) awarded to the claimant at a rate not exceeding ten per cent above base rate for some or all of the period starting with the latest date on which the defendant could have accepted the offer without needing the permission of the court.

(3) The court may also order that the claimant is entitled to

a) his costs on the indemnity basis from the latest date when the defendant could have accepted the offer without needing the permission of the court; and

b) interest on those costs at a rate not exceeding ten percent above base rate.

(4) Where this rule applies, the court will make the orders referred to in paragraphs (2) and (3) unless it considers it unjust to do so."

The circumstances to be taken into account in deciding whether it would be unjust to make those orders are set out in sub-rule 21(5).

11. It appears to me to be sensible to consider first whether Mr Rackham is entitled to recover costs from Mr Sandy and, if so, what proportion of those costs. (I shall ignore for the time being the effect, if any, of the pre-action correspondence, offers and counter-offers). As to this, I have recorded the contentions advanced on behalf of Mr Rackham and Mr Sandy respectively. In addressing this question, it is necessary to say something about the background and the issues which arose in the course of the hearing. The material facts appear to me to be these: at the relevant times Mr Sandy was the CEO of the company (WRG) which Mr Rackham had founded. It was principally the concern felt by, amongst others, Mr Rackham that Mr Sandy was under-performing in that role which led to the internal dissensions within WRG with which much of the evidence in the case was concerned. The criticism of Mr Etheridge was muted in comparison and there was no real complaint about the performance of Mr Hardman. Mr Sandy was the author and sole signatory of the letter complained of. The circumstances in which that letter came to be composed are set out in paragraphs 41 to 59 of the judgment. Mr Etheridge, who was abroad on holiday, played no part in the composition of the letter. Mr Hardman had an active role but he was largely acting on the instructions of Mr Sandy and on the basis of advice received from Gouldens. As will, I think, be clear from paragraphs 60 to 90 of the judgment, most of the evidence was directed to the questions whether and, if so, which of the Defendants had knowledge of the falsity of the allegations about Mr Rackham contained in the letter. Most of that evidence was concerned with what Mr Sandy did, said and knew. In paragraphs 91 to 99 of my judgment I explained why I felt it right and necessary to distinguish between the Defendants in regard to their knowledge of the falsity of the allegations. A particular reason for criticising Mr Sandy and his evidence relates to his knowledge of and conduct in connection with the takeover bid for WRG by Candover which was current at the time when the letter complained of was written: see paragraphs 105 to 114 of the judgment. Thereafter I dealt much more briefly with the positions of Mr Etheridge and Mr Hardman.
12. Having had the advantage of presiding over the trial, I feel I am well placed to assess the roles played by the various defendants and, in broad terms, the amount of time directed to the case for and against each of them. It is pertinent to note in passing that the witness statement of Mr Sandy runs to 222 paragraphs and 65 closely-typed pages. The witness statements of the other two defendants are much shorter. According to my recollection, the cross-examination and re-examination of Mr Sandy occupied the better part of two days, whereas the evidence of the other two defendants was significantly shorter. My provisional assessment is that Mr Sandy was indeed the principal actor and that the mounting and presentation of the case against him could not be responsible for less than two-thirds of Mr Rackham's costs.
13. Having made that provisional assessment, I turn to the question whether Mr Rackham's entitlement to costs from Mr Sandy should be eliminated or reduced for any of the reasons advanced by Miss Page. Her first argument is that the libel action served no legitimate aim and was punitive rather than vindicatory. Reliance is placed on the modest award of damages relative to the costs incurred. I can well understand that, if this were a commercial action, a claimant who had recovered so small a sum at such a large cost might be deprived of a significant proportion of his costs. But libel actions are often not about money. Where an individual has been seriously defamed and the defamer refuses to apologise, that individual is not in my judgment to be criticised if, instead of abandoning his complaint, he commences proceedings. That is what Mr Rackham did. Mr Sandy chose to contest the proceedings and, in the course of doing so, to ventilate in open court what were in my view exceedingly serious allegations of criminal dishonesty and other impropriety on the part of Mr Rackham in his capacity as a director of a public company. I awarded him a small sum in damages in part because it appeared to me that a reasoned judgment would vindicate Mr Rackham's reputation more efficaciously than a more substantial award of damages would do.
14. I reject the submission that an award of costs of the kind which I provisionally have in mind would be disproportionate. Neither Tolstoy nor Steel & Morris (both cited earlier) dissuade me from that view. As to Musa King, I read that case as being concerned with the interaction of conditional fee agreements and article 10 of the ECHR. It does not appear to me that article 10 is engaged in relation to the costs of this case. I note that Brooke LJ referred to the financial value of the claim as being no more than "a useful starting point" when determining the amount of costs which might reasonably be incurred. The cases of Wallis, Schellenberg v BBC [2000] EMLR 296 and Jameel all appear to me to be readily distinguishable on their facts from the present case.
15. Next I ask myself whether there is anything about the facts of the present case which justifies a revision of my provisional view as to Mr Rackham's entitlement to costs against Mr Sandy. I will not rehearse all the points taken by Miss Page in paragraph 8 of her first skeleton argument. It is sufficient if I say this: this was, as I have said, a serious libel on Mr Rackham which, according to my judgment, entitled him to an apology from Mr Sandy. None was ever offered. Limited though the publication was and despite the findings of the Investigatory Sub-Committee, I take the view that Mr Rackham was entitled to seek vindication from the court. Not only did I find malice proved against Mr Sandy, I also found it necessary to make serious criticisms of his conduct in his then capacity as CEO of a public company. I am not persuaded that there is anything about the facts of this case which requires me to reduce the proportion of Mr Rackham's costs which should be paid by Mr Sandy below two thirds. It follows that I do not accept that I should make the order for costs as against Mr Sandy for which Miss Page contends.
16. The next question to be decided is whether those costs payable to Mr Rackham by Mr Sandy should be paid on the standard or the indemnity basis. I see the force of the submission made by Mr Rampton that both before proceedings were commenced and in his solicitors' later letters of 23 December 2003 and 20 May 2004, Mr Rackham made clear that what he was seeking from the Defendants was a withdrawal of the allegations, an apology and payment of his costs on a standard basis. I can also see the sense in which it may be said that the outcome for Mr Rackham (a reasoned judgment in his favour against Mr Sandy, damages - albeit modest - and costs) may be said to be better than what Mr Rackham proposed in the Part 36 correspondence. It is also true to say that my judgment contains serious criticisms of Mr Sandy's conduct, including of course a finding that he was malicious. The normal consequences in such circumstances are set out in Part 36.20 and 21 (2) and (3). But Part 36 expressly provides that such orders should not be made if the court considers it "unjust" to do so: see Part 36.20(2). In deciding whether it would be unjust to do so, I am enjoined to take into account all the circumstances of the case: Part 36.21(5). Would it be just to order Mr Sandy to pay the very substantial sum which an indemnity costs order would entail? I have not found this an easy question. I bear in mind that Mr Sandy is sued as an individual who, contrary to his expectation, has no recourse to those who had agreed to indemnify him. I also bear in mind his age and the fact that, if he were to be bankrupted he would be unable to find employment as a company director in the future. Looking at the matter in the round I have concluded that it would not be just for me to make such an order. I therefore direct that Mr Sandy should pay two-thirds of Mr Rackham's costs on the standard basis.
17. I come now to the position as between Mr Rackham on the one hand and Mr Etheridge and Mr Hardman on the other. Mr Rampton contends for an order that each of those Defendants should recover between 7Y2. and 10% of the Defendants' total costs. Miss Page argues that each of Mr Etheridge and Mr Hardman should recover from Mr Rackham one third of the Defendants' total combined costs. The starting point for the resolution of that dispute is that Mr Rackham failed to prove malice against either Mr Etheridge or Mr Hardman and so lost the action against them. I see no reason to depart from the normal rule that, having won the action, those two Defendants should be entitled to a costs order against Mr Rackham.
18. I am not impressed by Mr Rampton's argument that, once the Defendants had refused to withdraw and apologise, Mr Rackham had no option but to continue the proceedings. Nor is it right to say that until witness statements were served and evidence given at trial Mr Rackham was not to know the strength or weakness of his case in malice against those two Defendants. It was incumbent on Mr Rackham to evaluate his prospects of proving malice against Mr Etheridge and Mr Hardman. He chose to join them as Defendants and must in my judgment accept the consequences of failing to prove malice against them.
19. The real question which I have to determine appears to me to be the appropriate proportion of the costs which Mr Rackham should be required to pay to Mr Etheridge and Mr Hardman. As to that, if I understood her correctly, Miss Page argues, on the basis of Baylis v Kelly (cited above), that the terms of these Defendants' retainer of their solicitors are relevant to the question what proportion of the Defendants' total costs should be ordered to be paid to Mr Etheridge and Mr Hardman. I reject that submission. I do not accept that Baylis v Kelly supports it: the issue with which Chadwick J was dealing in that case was the solicitor's entitlement to recover his fees from his own clients. I accept that the starting point in the present case should be, as Mr Rampton suggests, to ask what proportion of the Defendants' total costs are in reality attributable to the conduct of the defences of Mr Etheridge and Mr Hardman.
20. For analogous reasons to those which led to my decision that Mr Rackham is entitled to recover two-thirds of his costs from Mr Sandy, I reject the notion that it is realistic to divide the Defendants' costs into three and to award each of Mr Etheridge and Mr Hardman one-third of the total costs against Mr Rackham. It appears to me, having regard to the history of the case, the pre-action correspondence, preparations for trial (including witness statements), the events of the trial (including the time spent by the parties respectively in the witness box) and the terms of the judgment, that the proportion of the total costs referable to the cases against Mr Etheridge and Mr Hardman is significantly less than one third. I think that an appropriate figure would be one quarter of the total costs, i.e. that Mr Rackham should pay a total of one half of the Defendants' costs to be shared equally between Mr Etheridge and Mr Hardman.
21. The next question is whether that order should be made on the standard or the indemnity basis. I have considered the correspondence exchanged before trial and in particular the offer made on behalf of the second and third Defendants on 2 April 2004. As Miss Page rightly accepts, that was not an offer made in accordance with Part 36. I do not find it necessary to decide whether it would be right to treat the offer as being analogous to a Part 36 offer as was done in Crouch v Kings Healthcare NHS Trust [2005] 1 All ER 207 because there appear to me to be broader reasons why it would not be right to make an order on the indemnity basis in respect of the costs recoverable by Mr Etheridge and Mr Hardman. The reasons are these: the letter complained of was on its face written by Mr Sandy on behalf of the other two Defendants. Mr Etheridge approved its terms and Mr Hardman drafted part of it. The letter contained serious allegations of criminal and other improper behaviour on the part of Mr Rackham. It was couched in part in inappropriate terminology. There was no plea of justification. By adopting a more conciliatory stance in the inter-solicitor correspondence, Mr Etheridge and Mr Hardman could have achieved an honourable compromise which would not have involved their paying damages or costs. Whilst I do not resile from my previous comment that Mr Rackham must suffer the consequences of his having decided to join Mr Etheridge and Mr Hardman as Defendants, it appears to me to be unjust within the meaning of Part 36.21(5) to direct that those consequences should include an order that he pay their costs on an indemnity basis plus interest. My order is therefore that Mr Rackham must pay to each of Mr Etheridge and Mr Hardman one quarter of the total Defendants' costs on the standard basis.
22. I make clear, for the benefit of the Costs Judge, who will have the unenviable task of assessing the costs, that in arriving at my decision as to the incidence of costs, I am not taking account of the rival arguments that extravagant or exorbitant costs have been incurred. No doubt the Costs Judge will want to consider carefully the suggestion that the witness statements prepared on behalf of the Defendants were unnecessarily prolix and the number of documents deployed by them was excessive.
23. The last question which arises for decision is whether, as Mr Rampton invites me to do, I should direct that Mr Sandy should pay the costs which I have ordered should be paid by Mr Rackham to Mr Etheridge and Mr Hardman in accordance with the principles laid down in Sanderson. In the course of his submissions Mr Rampton referred me to a series of authorities including, Sanderson itself; Bullock; Besterman v British Motor Cab Company Limited (1914] 3 KB 181; Goldsworthy v Brickell [1987] 1 Ch 378; Irvine v Commissioner of Police for Metropolis [2005] EWCA Civ 129 and King v Zurich Insurance Company [2002] EWCA Civ 598. It appears to me from that line of authority that a Sanderson order will be appropriate where two or more defendants are blaming each other and the claimant cannot reasonably predict which defendant will be found liable. In the present case Mr Rackham knew who had signed the letter. Qualified privilege was conceded from the outset. There was no question of anyone of the three Defendants blaming the others. Mr Rackham had to decide whether he would be able to prove malice against all three Defendants. As I have already said, he elected to sue all three Defendants. That was his decision. I do not accept that it would be just in all the circumstances for Mr Sandy to bear the additional burden of paying the costs which I have ordered that Mr Rackham must pay to Mr Etheridge and Mr Hardman.