Neutral Citation Number: [2014] EWHC 4621 (Comm)
Case No:   2013-68
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
COMMERCIAL COURT

7 Rolls Buildings
Fetter lane
London EC4A 1NL

Date:  Wednesday, 22 October 2014
BEFORE:

MR JUSTICE HAMBLEN

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BETWEEN:

FREEHOLD ESTATES LIMITED
Claimant
- and -

NATIONAL WESTMINSTER BANK PLC & ANR
Defendant

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REPRESENTATION not provided
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Judgment
MR JUSTICE HAMBLEN:  

1.	This is the second CMC in this matter and it raises various issues in relation to costs.  Those issues arise as follows.  

2.	In January 2013 the claimants commenced proceedings claiming damages for the mis-selling and/or misrepresentations made in relation to 27 swaps transactions entered into with the defendant bank.  In May 2013 the claimants indicated that they would wish to make a claim in review procedures instigated by the bank at the behest of the FSA/FCA.  In June 2013 the bank made it clear that its position was that 20 of the swaps transactions were time-barred under the Limitation Act.  In October 2013 points of claim were served maintaining the claim in respect of all of 27 of the swaps transactions.  In January 2014 the claimants were told that, in relation to seven of the swaps transactions, they had qualified for the review.  

3.	On 16 May 2014 the first CMC took place.  At that hearing the court indicated that it appeared that the claims for 20 of the swaps transactions were prima facie time-barred and that, if the claimants wished to rely on section 14A of the Limitation Act, they would need to set that case out in a pleading.  The claimants subsequently did so when they served their reply on 13 June 2014.  On 4 July 2014 the bank’s review team indicated that the seven swaps would be cancelled and replaced with an alternative product, details of which would be explained in a follow-up letter.  On 1 August 2014 the bank issued a summary judgment application to dismiss the claims in respect of 20 of the swaps transactions on the grounds that they were time-barred.  On 14 August 2014 the bank made an offer of redress in relation to the seven swaps in the sum of £1.153 million.  

4.	There was an extension of time agreed for service of defence evidence in relation to the bank’s summary judgment application up to 2 September 2014, but no such evidence was served.  On 16 September 2014 the claimants accepted the bank’s offer of redress in relation to the seven swaps.  On 17 September 2014 the claimants served notice of discontinuance in relation to the claims made in respect of the seven swaps transactions and also in respect of the further 13 swaps transactions which the bank contended were time-barred.  

5.	Against that chronology and background four costs issues arise.
(1) Is the bank entitled to the costs of the discontinued proceedings in relation to the seven swaps? 
(2) Is the bank entitled to the costs of discontinued proceedings in relation to the 13 swaps?
(3) What order should be made in relation to the summary judgment application costs?
(4) What order should be made in respect of the 40 per cent reserved costs from the first CMC?

(1) Is the bank entitled to the costs of the discontinued proceedings in relation to the seven swaps? 
6.	The bank contends that the usual order made where proceedings are discontinued is that the party discontinuing the action has to pay the costs of the other party in respect of the discontinued claim.  The bank further submits that its claim to costs has not been compromised by the settlement reached and that in all the circumstances the ordinary rule should be followed and it should have its costs.  The claimants say that, in a case where there has been full and final settlement of the claim and of the proceedings in respect of which that claim is made, there is no room thereafter for a party to make an application for costs in the proceedings unless that right has been expressly preserved in the settlement agreement, which it has not.  Alternatively the claimants contend as a matter of discretion no order for costs in favour of the bank should be made in circumstances where the claim has been discontinued because a substantial sum has been received in settlement of the claims made.  

7.	The terms of the settlement so far as material are as follows:

“If you decide to accept this offer and provided it is not superseded by an increased offer following review by the Independent Reviewer, it will represent full and final settlement of any claims, actions, liabilities, costs or demands that you may have against the bank arising under or in any way connected with the sale of these IRHPs.”

8.	The bank says that these terms of settlement refer only to claims by the claimants and not to claims by the bank.  It also refers only to the claimants’ costs and not to the bank’s costs.  In those circumstances the bank submits that a settlement does not preclude it from applying to the court for a costs order in relation to the discontinued claim.  That claim, they say, is not covered by the settlement.  

9.	The claimants dispute this both as a matter of authority and as a matter of principle.  As to authority, I have been referred to Foskett on the Law and Practice of Compromise, 2nd Edition at paragraph 560, where it is stated as follows:

“Whilst a court will always deal with the question of costs in contested proceedings, it is, of course, something for the parties to resolve by agreement if they settle those proceedings.  If they do not mention it at all in their negotiations or their agreement, the only conclusion would seem to be that each side must bear its own costs.  It is not necessary, in order to give efficacy to the agreement, for the court to imply a term relating to costs."

10.	In support of that proposition Foskett cites the case of Somerset v Lee [1964] 1 WLR 640.  That case is summarised in Foskett as follows:

“In Somerset v Lee disputed proceedings concerning a will were compromised and the court approved a settlement on behalf of an infant respondent.  The proceedings were conducted in chambers, leading counsel having been briefed on behalf of several of the parties.  The consent order embodying the compromise, although making provision for the claimant’s costs to be taxed and paid out of the trustee’s residuary estate, did not make express provision for the payment of leading counsel’s fees, something required by the relevant costs rules in relation to proceedings in chambers.  Cross J (as he then was) held that a provision that the fees of leading counsel would be met could not be implied into the terms of settlement.”

11.	I have also been referred to a county court case which followed Somerset v Lee, and the note relating to it is as follows:

“The plaintiff sued the defendant for £494 5s, being the price of an organ sold and delivered.  A compromise was subsequently reached between the solicitors for the plaintiff and the defendant whereby the plaintiff do agree to accept the return of the organ and pay the defendant £80.  No mention was made as to costs by either party.  The compromise was concluded on September 15 1967.  On November 7 1967 the defendant brought an application for an order that his costs be taxed which was adjourned to be set down.  On November 8 1967 the plaintiff filed a notice of discontinuance of proceedings and an application under Order 18 Rule 2 that the defendant be barred from bringing a bill of costs for taxation on the ground inter alia that terms of settlement of the case had been agreed and carried out by both parties which contained no reference to costs.
Held: that since there was no mention of costs in the compromise the defendant could not at that stage ask for an order.  Somerset v Lee applied.”

12.	As to principle, the claimants submit that where there has been a settlement of a claim made in proceedings which says nothing about costs, then neither party is entitled thereafter to make an application in those proceedings in relation to the costs in respect of the claim so settled.  

13.	In my judgment, the issue can best be tested by asking what the position would be if the only claim made in the proceedings had been the claims which have been compromised.  In those circumstances the effect of the settlement would be not just settlement of the claims but also of the action in which those claims had been brought.  The action would in effect be at an end as between the parties for all purposes.  It is right that, from the court’s perspective, in order to reflect the settlement there may need to be further steps taken, such as obtaining an order for dismissal or for stay or for discontinuance, but that is for the court’s purposes rather than the parties’ purposes.  In such a case, in my judgment, it would be contrary to the agreement that there had been a full and final settlement of the claim and the action for either party thereafter to be able to make an application in those proceedings other than for the purpose of bringing the proceedings to an end consistently with the settlement reached.  Neither party could in those circumstances make an application, for example, for disclosure in relation to the claim, nor could it in my judgment make an application for costs.  

14.	If that is the correct analysis, where the settled claim is the only claim in the proceedings, in my judgment it is equally the correct analysis where there has been a settlement of part of the proceedings in relation to the part of those proceedings so settled.  I therefore accept the claimants’ submission, which is consistent with both authority and principle, that where there has been a full and final settlement in the terms agreed here and nothing said about the issue of costs, it is not open to either party thereafter to make an application in those proceedings which have been settled for costs in relation to the settled claim.  If I am wrong about that then as a matter of discretion I do not consider that any order for costs should be made.  

15.	The usual circumstances in which a claim is discontinued is where there is a recognition that the claim is unlikely to succeed.  In those circumstances one can well understand why the usual order should be that the other party should receive the costs of the discontinued claim.  That however is not this case.  The effective reason for discontinuance of the seven claims is the fact that the claimants have been paid over a million pounds in settlement of those claims, and in such circumstances it does appear unjust and unfair that they should have to pay costs in relation to claims so settled.  

16.	The bank points out that there is a clear distinction between liability under the review procedure and in the court proceedings and the settlement agreement is careful not to involve an admission of legal liability.  That may be so, but it does not affect the substance of the matter which, in my judgment, is that the bank has paid the claimants a substantial sum to settle the claim, and it is that which has been the reason for the discontinuance.  

17.	The bank further submits that the only reason that costs have been incurred in the action is that the claimants unreasonably brought claims both in court and under the review.  However, it was necessary for the claimants to issue legal proceedings to protect the time bar position.  Having done so, it was necessary for them to progress those proceedings unless a standstill agreement was made, but that was neither offered nor suggested.  Further, it was also reasonable for them to continue those proceedings unless and until it was apparent that they would receive a satisfactory offer in the review process, and that did not become clear until August 2014.  

18.	Finally, the bank submits that the real cause of the discontinuance is a recognition that the claims made are time-barred.  That issue however has not been decided and I do not accept that it can simply be assumed that there was here a time bar in respect of these claims.  In my judgment the effective reason for discontinuance was the settlement.  

19.	In those circumstances I consider that there is here a good reason for departing from the usual order that would be made in relation to discontinued claims and I accept the claimants’ case that there should be no order as to costs in respect of the seven settled claims. 

(2) Is the bank entitled to the costs of discontinued proceedings in relation to the 13 swaps?
20.	These claims have not been settled.  The claimants seek to claim damages in respect of 11 of the 13 swaps as a consequence, they say, of entering into the seven swaps transactions in respect of which a settlement has been made.  However, they are no longer pursuing the cause of action in respect of the 13 swaps transactions which were the subject matter of the proceedings which they brought.  In such a case in my judgment there is no good reason for departing from the usual rule in relation to discontinuance.  The fact of the matter is that the claimants have discontinued the claims that they had brought in circumstances where there has been and will be no settlement of those claims.  In principle, in my judgment, the usual rule should be followed in respect of those 13 swaps transactions and insofar as there are costs incurred in respect of those claims additional to those incurred in relation to the seven swaps transactions which have been settled, and the six remaining swaps transactions which are still in issue, then those costs should be paid by the claimants, as is reflected in their alternative draft order.

(3) What order should be made in relation to the summary judgment application costs?
21.	In my judgment there is no reason to treat these costs differently to the other costs of the action.  The application which was made related to all 20 transactions including the seven swaps transactions which were settled.  Further, the application was issued at a time when the bank knew that an offer was shortly to be made in relation to the seven swaps.  In all the circumstances in my judgment as a matter of discretion the order in relation to these costs should be the same as in relation to the costs generally.

(4) What order should be made in respect of the 40 per cent reserved costs from the first CMC?
22.	The precise basis for reserving costs is not fully apparent, but it would appear that it was related to the direction given by the court that the claimants should make clear whether they were relying on section 14A and, if they were, to plead that out.  If it had transpired that no such case was being made, then one could well understand that they might have to bear those remaining costs.  But in the event they did set out a case on section 14A and pleaded it.  

23.	In those circumstances I do not consider that there is a good reason to depart from the usual order that would be made in relation to CMC costs, which would be costs in the case and that, in my judgment, is the appropriate order in relation to those costs.