Counsel Adrian Davies, a legal expert in the Chancery Division, drafts the Skeleton Argument to be submitted to the Court of Appeal -- Monday, February 3, 2003 | |
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Monday, February 3, 2003
SKELETON ARGUMENT OF THE CLAIMANT Background 1. On 14th January 2003 Gray J. dismissed Mr Irving's application to discharge or stay the interim costs order ("the Interim Order") in the sum of £150,000 which he had made on 5th May 2000 in favour of Penguin Books Limited ("Penguin") pursuant to CPR Part 44.3 (8), following the dismissal of Mr Irving's libel action against Penguin ("the Libel Action"), against which Mr Irving later unsuccessfully attempted to appeal to the Court of Appeal.
The Order of Deputy Registrar Derrett 2. Mr Irving has been adjudicated bankrupt on the basis of the Interim Order in the following circumstances. On 4th March 2002, Deputy Registrar Derrett made a Bankruptcy Order ("the Bankruptcy Order") against Mr Irving on a petition in bankruptcy presented by Penguin, and founded upon the Interim Order. The Deputy Registrar declined to go behind the Interim Order. 3. Mr Irving appealed against the Deputy Registrar's Order of 4th March 2002, contending that the Court sitting in bankruptcy might go behind the Interim Order, and look afresh at the evidence that Penguin had been maintained throughout the Libel Action.
The Judgment of Peter Smith J. 4. On 21st May 2002 Peter Smith J. upheld the Bankruptcy Order, albeit on different grounds, for he was critical of the Deputy Registrar's reasoning, and took a different view from her on the question whether the Court might go behind the Interim Order.
Mr Bays's Witness Statement 5. In the course of the hearing, Peter Smith J. suggested that Mr Kevin Bays, Penguin's solicitor and the partner in the firm of Davenport Lyons who had the conduct of the Libel Action, should make a witness statement dealing with the question of who paid Penguin's costs. 6. The material paragraphs of Mr Bays's witness statement read as follows:- "2. . . . I can confirm that the liability for the costs incurred by Penguin is that of Penguin, that all accounts for fees and disbursements have been rendered to Penguin, and that in the event of non-payment, I would hold Penguin liable to account for such fees. Breach of the Indemnity Principle 7. The words "in practice, the VAT exclusive sums in relation to bills was (sic) transferred directly to my firm by Penguin's insurers" show that Penguin has not suffered any damnification (i.e. "loss" in the archaic terminology of costs). 8. Gray J. was wrong to find at paras. 16 and 17 of his judgment that Penguin is entitled to recover its costs from Mr Irving simply because it was exposed to a notional liability that it was never called upon to meet. 9. It must be borne in mind that:- "Costs as between party and party are given by the law as an indemnity to the person entitled to them; they are not imposed as a punishment on the party who pays them, nor given as a bonus to the party ho receives them. Therefore, if the extent of the damnification can be found out, the extent to which costs ought to be allowed is also ascertained. (emphasis added)" 10. Since Penguin has suffered no damnification, it is not entitled to a penny for its costs. Its position, as a party with indemnity insurance, is analogous to the example given in McGregor on Damages, 16th ed., para. 674 at pp. 1087 to 1088:- "Where a plaintiff's medical expenses have been paid for him under a private medical insurance scheme to which he subscribes . . . the question of whether he is entitled nevertheless to claim the expenses as part of his damages is a question which does not arise because the insurances under these schemes, unlike the accident policies considered when dealing with loss of earning capacity, are regarded as indemnity insurances which entitle the insurers themselves to recover their outlays directly from the tortfeasor through the medium of subrogation. Thus the injured party has no standing to claim the medical expenses; he has been made whole by his insurers, who in their turn step into his shoes and make the claim for the moneys expended by them." (emphasis added). 11. Gray J. erred in law at para. 17 of his judgment in purporting to distinguish the example given in McGregor from the facts of this case. No sensible distinction can be drawn between the rule in costs and the rule for damages. 12. The Interim Order was made contrary to the indemnity principle, which continues to underpin the law of costs. See, for example, per Longmore LJ in Brawley v. Marczynski, (2002) The Times 7th November: "The indemnity principle ensured that an award of costs, whether on a standard or indemnity basis, did not enable the litigant to profit from any costs order." 13. Penguin have long since had a complete indemnity for their costs from their insurers. It has never been suggested that Penguin sought and obtained the Interim Order at the request of their insurers in the exercise of the insurers' subrogated right. Further recovery from Mr Irving would lead to Penguin's making a profit out of the costs of the action, contrary to the principle expounded by Longmore LJ. 14. That is the Claimant's case on the merits. Two subsidiary procedural question also arise.
Venue 15. Penguin's counsel contended, and Gray J. accepted at paras. 13 and 14 of his judgment, that the Interim Order has in some sense been transferred to the Bankruptcy Court for the purpose of enforcement, so that any application to discharge it should be made in that Court. 16. Bankruptcy is not a form of execution for the benefit of an individual judgment creditor, akin to a Writ of Fi. Fa., a garnishee or third party debt order, an attachment of earnings order etc. 17. As the Cork Committee said at para. 232 of their Report on Insolvency Law and Practice: "Insolvency proceedings are inherently of a collective nature; their prime beneficiary is the general body of the insolvent's creditors, each of whom is affected, though clearly by no means necessarily to the same extent, by the common disaster." 18. In the course of argument, Gray J. dismissed the Cork Report as "no authority," whereas it is the theoretical underpinning of the Insolvency Act 1986. See moreover per Harman J. in Re Western Welsh International System Buildings Ltd: " . . . a winding up is not a lis inter partes. The presentation of a petition is not a matter between the company and the petitioner alone." 19. While Western Welsh was a winding up case, in this regard no sensible distinction can, it is submitted, be drawn between personal bankruptcy and the winding up of a company.
Finality 20. The application before Gray J. was primarily an application to discharge an interim order, and so not governed by the stricter rules applying to appeals. 21. It is conceded that under CPR Rule 44.3 (8) (interim orders for costs) there is no direct equivalent to CPR Rules 25.8 (1) and 25.8 (2) (a) and (b) (interim orders generally). 22. Absent an express power to discharge an interim costs order, it is submitted that the High Court has an inherent jurisdiction so to do, and that Gray J. ought to have exercised it in this case. The Claimant derives this proposition from principle and authority. 23. As a matter of principle free from binding authority, it is submitted that the Court must have the power to discharge an interim costs order, else there would be no difference between an interim order and a final order, which cannot be right. 24. It is further submitted that support can be derived for this proposition from the observations of Brooke LJ in Seray-Wurlo v. Hackney L.B.C. [2002] 3 All E.R. 448 at 453, holding that:- " . . . the High Court . . . possessed an inherent jurisdiction to do what it had to in order to maintain its character as a court of justice." 25. If that is wrong, Mr Bays's witness statement is new evidence within the principle of Ladd v. Marshall [1954] 3 All E.R. 745. 26. On 5th May 2000 Penguin most certainly did not tell Gray J. that every penny of its cost had been paid by its insurers. Its position was that it was entitled to rely on the presumption that costs are recoverable, and leave it to Mr Irving to show otherwise. 27. Contrary to Gray J.'s finding at para. 7 of his judgment, the Court of Appeal did not refuse to entertain argument about breach of the indemnity principle on 20th July 2001 because they saw no merit in it, but rather because they took the view that the matter was not properly before the court on that occasion: see per Pill LJ at paras. 96 and 120, and per Buxton LJ at para. 100 of the transcript of 20th July 2001. Indeed, the Court of Appeal gave Mr Irving permission to raise the issue in relation to the costs of the appeal itself. 28. It is submitted that this matter raises a point of some general importance about the application of the indemnity principle, and that permission to appeal should accordingly be granted.
ADRIAN DAVIES
tel. 020-7353-4854 Monday, February 3, 2003
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