Ipsofactoj.com: International Cases [2003] Part 2 Case 1 [CAEW]


COURT OF APPEAL, ENGLAND & WALES

Coram

Union Discount Co Ltd

- vs -

Zoller

LORD PHILLIPS M.R.

LORD JUSTICE SCHIEMANN

LORD JUSTICE MAY

21 NOVEMBER 2001


Judgment

Schiemann LJ

  1. This is the judgement of the Court. It concerns the correctness of the statement in Halsbury's Laws of England 4th Ed Reissue Vol. 12(1) (1988) Damages, Para 828 "Costs incurred in foreign proceedings cannot be recovered in an English action between the same parties". For this proposition the learned editors cite The Ocean Dynamic [1982] 2 Lloyd's Rep 88, a decision of Robert Goff J..

  2. Union Cal Ltd ("Union Cal") entered into contracts with Robert Zoller & others to whom we shall refer collectively as Zoller. Each contract contained an Exclusive Jurisdiction Clause ("EJC") nominating England.

  3. For present purposes the complicated procedural position can be summarised as follows. Union Cal claimed that money was owing under the contract and sued Zoller in England. Zoller issued proceedings against Union Cal in New York. Union Cal successfully applied in the New York court to strike out the New York proceedings against it on the ground that, by reason of the EJC, the New York court had no jurisdiction. Thereafter Zoller served a defence and counterclaim in the English proceedings alleging misrepresentation by Union Cal. Union Cal raised a new claim ("the costs claim") in the English proceedings against Zoller. This claim was struck out by HH Judge Peter Heppel Q.C. sitting as a judge of the High Court. Union Cal, with the judge's permission, appeal the correctness of that striking out of the costs claim.

  4. The costs claim concerned Union Cal's costs incurred in the striking out proceedings in New York. In those proceedings Union Cal did not ask the New York court to award it costs because under the law of New York costs would not have been awarded in such circumstances. For the purposes of the proceedings before HHJ Peter Heppel, Zoller conceded that there were real prospects of Union Cal establishing at trial that

    1. the EJC was effective as a contractual term breach of which sounds in damages

    2. by issuing the US proceedings Zoller breached their contracts with Union Cal.

  5. Were this aspect of the case to proceed to trial the defendants would argue:

    1. that the exclusive jurisdiction clause was not binding on them by reason of the provisions of the Unfair Terms in Consumer Contracts Regulations 1994,

    2. that upon its true construction the clause did not prohibit the defendants from proceeding in the USA,

    3. that Union Cal could have applied for and obtained an order for costs before the New York Court, and

    4. points regarding causation and mitigation of damage.

  6. The Judge below, having considered The Ocean Dynamic [1982] 2 Lloyd's Rep 88, Walshaw v Brighouse Corporation [1899] 2 Q.B. 286, Berry v BTC [1962]1 Q.B. 306, Lonrho Plc v Fayed (No 5) [1993] 1 W.L.R. 1489 and Donohue v Armco Inc [2000] Lloyd's Rep. 579 held as follows

    .... no proceedings may be brought before a civil court in England to recover costs incurred by a party successfully prosecuting or defending an action in the foreign court.

  7. The written submissions, outstandingly well formulated on behalf of the appellant by Guy Phillipps, correctly identify the issue in the present appeal as follows:

    whether the defendants are right to assert (in para. 14 of the Defence to Counterclaim) that:

    As a matter of law the costs of litigation can not be recovered as damages for breach of contract by one party to the said litigation against another or whether the true principle of law is, as Union Cal asserts (in para. 12 of the Amended Reply to Defence to Counterclaim) that:

    The costs of prior proceedings between the same parties may be recovered as damages for breach of contract if (as in the present case) the party seeking to recover the costs of the prior proceedings as damages could not in the circumstances of the prior proceedings have obtained an order for the payment of those costs as costs.

  8. The appellant submits and the respondents accept that if the rule is as stated by the judge then this must be because of policy considerations. The judge proceeded on this basis but failed to identify the policy considerations in play in the present case apart from making reference to the cases to which we have already referred. The appellant submits that those cases do not identify any policy consideration which is applicable to the present case.

  9. The leading decision in this court is Berry. That had no foreign element. It concerned the recoverability, in civil proceedings for malicious prosecution, of costs incurred in criminal proceedings by the claimant who had been unsuccessfully prosecuted but who had been awarded some of her costs but who had not been awarded her remaining costs. This Court held she could recover the remaining costs as damages. Its approach was, first, to recognise that in subsequent civil proceedings there are policy reasons which in some cases inhibit recovery as damages of all the costs reasonably incurred in prior civil proceedings, and, then, to hold that there was no policy reason in an action for malicious prosecution for extending to costs in prior criminal proceedings the rule which applied to prior civil proceedings. That is how it came about that there was a lengthy and considered judgment by Devlin LJ (with whom Ormerod and Danckwerts LJJ in their judgments agreed) about the reason for and nature of the rule in relation to prior civil proceedings.

  10. The reasoning process of Devlin LJ appears from the following passages

    (i)

    [Quartz Hill Consolidated Gold Mining Co. v Eyre (11 Q.B.D. 674)] was a case in which the defendant presented a petition to wind up the plaintiff company. It was never served on the company and the defendant gave notice that he was withdrawing it, but the company nevertheless appeared to ask for its dismissal. It was dismissed by Hall V.C. without costs; I have no doubt that my brother Danckwerts was right when he said in the course of the argument, after looking at the report of the case in the Weekly Notes, that the reason why the plaintiff company was given no costs was because their appearance was considered to be unnecessary. The company brought an action for malicious prosecution and the damage they alleged was the expenditure of costs incurred in opposing the petition which they estimated at 30. The Court of Appeal held that the damage was not recoverable. 

    Brett M.R. said: 

    The theory is that the costs which the losing party is bound to pay, are all that were necessarily incurred by the successful party in the litigation, and that it is right to compel him to pay those costs because they have been caused by his unjust litigation; but that those which are called "extra costs", not being necessarily incurred by the successful party in order to maintain his case, are not incurred by reason of the unjust litigation.

    Bowen L.J. said:

    .... the only costs which the law recognises, and for which it will compensate him, are the costs properly incurred in the action itself. If the judge refuses to give him costs, it is because he does not deserve them; if he deserves them, he will get them in the ordinary action; if he does not deserve them, he ought not to get them in a subsequent action.

    [p.319]

    (ii)

    The rule is not easy to apply with justice because it embodies a presumption, which the law finds it convenient and maybe necessary to make; but which it has to, and does in other contexts, admit not to be in accordance with fact.

    [p.320]

    (iii)

    The reason for the rule is not that the costs incurred in excess of the party and party allowance are deemed to be unreasonable; it is that what is presumed to be the same question cannot be gone into twice. The rule appears to have been first laid down by Mansfield C.J. in Hathaway v Barrow (1807) 1 Camp. 151 where he put it on the ground that "it would be incongruous to allow a person one sum as costs in one court, and a different sum for the same costs in another court. If in the earlier case there has been no adjudication upon costs (as distinct from an adjudication that there shall be no order as to costs), a party may recover all his costs assessed on the reasonable, and not on the necessary, basis. If a party has failed to apply for costs which he would have got if he had asked for them, a subsequent claim for damages may be defeated; but that would be because in such a case his loss would be held to be due to his own fault or omission. In any case in which the legal process does not permit an adjudication, the rule does not apply."

    [p.320, our emphasis]

    (iv)

    .... if as the result of a breach of contract see Agius v Great Western Colliery Co. Ltd. [1899] 1 Q.B. 413 or a tort see The Solway Prince (1914) 31 T.L.R. 56 a person brings unsuccessfully an action against a third party or loses an action brought by a third party, he may recover against the wrongdoer who has brought his contract or committed the tort the costs of the suit; and he will get all the costs he has reasonably expended. The wrongdoer may not argue that the plaintiff is entitled only to party and party costs, notwithstanding that that is all he could or would have got from the third party if he had been successful. Thus the reason for the rule is that the law cannot permit a double adjudication upon the same point. It would be a rational rule and in accordance with the ordinary principle as to res judicata if in truth it were the same point. But it is not.

    [p.321]

    (v)

    I find it difficult to see why the law should not now recognise one standard of costs as between litigants and another when those costs form a legitimate item of damage in a separate cause of action flowing from a different and additional wrong .... The stringent standards that prevail in a taxation of party and party costs can be justified .... It helps to keep down extravagance in litigation and that is a benefit to all those who have to resort to the law. But the person who ought to be able to share in that benefit is the man who ex hypothesi is abusing the legal process for his own malicious ends. 

    [p. 322, our emphasis]

    (vi)

    If the matter were res integra, I should for myself prefer to see the abandonment of the fiction that taxed costs are the same as costs reasonably incurred and its replacement by a statement of principle that the law for reasons which it considers to be in the public interest requires a litigant to exercise a greater austerity than it exacts in the ordinary way, and which it will not relax unless the litigant can show some additional ground for reimbursement over and above the bare fact that he has been successful. Without a restatement of that sort, there is undoubtedly a practical need for the rule in civil cases. Otherwise, every successful plaintiff might bring an action against the same defendant in order to recover from him as damages resulting from his original wrongdoing the costs he had failed to obtain upon taxation .... I have not inquired into the reason for the rule because I think it open to us to reject it but because we are asked to extend it. The question is whether it should be extended to costs in criminal cases as well as costs in civil cases. 

    [p.323, our emphasis]

  11. From the passages which we have emphasised it is clear that Devlin LJ considered that, in a case such as the present where there was in the earlier action no prospect of obtaining costs although there had been no fault on behalf of the successful party, there was no policy inhibition on granting him the amount of those costs as damages in a later action if he had available to him an appropriate cause of action.

  12. Further, Devlin LJ was clearly unhappy with the reasoning which had led to the rule in English civil cases even where it did apply. In our judgment, just as a malicious prosecutor should not be able to rely for his own benefit on any policy consideration which is designed to keep down the cost of litigation, so a person who starts totally unnecessary proceedings in a foreign jurisdiction in breach of an EJC should not be able to rely on such policy considerations.

  13. There is nothing in Berry which supports the view that there are policy considerations which dictate that Union Cal should be kept out of its normal award of damages.

  14. The leading case at first instance upon which the judge below relied is a decision of Goff J: The Ocean Dynamic. In the judgement Berry is not referred to. The Ocean Dynamic is apparently the only reported case in which a litigant in US proceedings has sought to recover its costs of those proceedings as damages in subsequent English proceedings. The facts of that case were very different from the facts here. The claimant commenced proceedings in England against the defendant, a US company carrying on business in Wisconsin, alleging breach of a contract of carriage by sea. The defendant disputed the jurisdiction of the English court. The claimant therefore issued a protective writ in Wisconsin. The defendant's challenge to the jurisdiction of the English Court was then dismissed. The claimant undertook to the English court to discontinue the US proceedings, which it did. The claimant then sought in the English proceedings to recover as damages for breach of the contract of carriage its costs of the abortive US proceedings in the sum of $4168.45.

  15. At the end of his unreserved judgment following the trial of the action, Robert Goff J. dismissed that minor head of claim in the following terms:

    [The United States] proceedings were between the parties to the present action in respect of the same claim. As such, the general principle is that they [sc. the costs] cannot be recovered as damages, but can only be recovered if an order for costs was made by the appropriate Court. Indeed, there is no evidence that if the United States action had been pursued to judgment, the relevant Court would have made any order for costs in favour of the plaintiffs recovering these particular costs, and bearing in mind the practice in the Courts of that country, I certainly cannot infer that this would have been done. The plaintiffs' submission involves therefore the bizarre consequence that, having discontinued the United State proceedings, they should now be able to recover as damages costs which they would not have been awarded in the United States action if they had won it. This plainly cannot be right. I therefore reject that head of damages.

  16. Mr. Phillipps does not contend that the result reached by Goff J is in any way to be criticised. He submits, and we accept, that the result was right because the costs sought to be recovered by the claimant were in no sense caused by the defendant's breach of the contract of carriage. Rather they flowed from the claimant's own decision to issue a protective Writ in the U.S.A..

  17. Mr. Phillipps submitted and we accept that Robert Goff J. was not considering a case in which as here the plaintiffs had available to them a free-standing cause of action entitling them to seek to recover their costs as damages. His statement of the "general principle" that "costs cannot be recovered as damages" must be read in that light. Absent a separate cause of action, there is no doubt that costs, even if irrecoverable under the procedural rules of the foreign court, cannot be recovered as damages in separate proceedings in England. The claimant has suffered damnum sine injuria.

  18. It is important to emphasise that in the present case the following unusual features are all present:

    1. The costs which the claimant seeks to recover in the English proceedings were incurred by him when he was a defendant in foreign proceedings brought by the defendant in the English proceedings.

    2. The claimant in the foreign proceedings brought those proceedings in breach of an express term, the EJC, which, it is assumed for present purposes, has the effect of entitling the English claimant to damages for its breach.

    3. The rules of the foreign forum only permitted recovery of costs in exceptional circumstances.

    4. The foreign court made no adjudication as to costs.

  19. It is common ground that there is no binding authority which inhibits us from granting Union Cal relief in damages in the present case. That relief is predicated on the assumption, not in issue before us, that the bringing of the New York proceedings itself constituted a breach of contract which has resulted in damages which are prima facie recoverable. Thus it is common ground that the action should not have been struck out unless there are policy reasons which prevent the recovery of these damages.

  20. Mr. Mark Hubbard, appearing for Zoller, put forward the following policy reasons which he submitted justified the conclusion of the judge.

    THE COMITY ARGUMENT

  21. He submitted that the rules of comity prevented the recovery of costs of civil proceedings in foreign jurisdictions as damages for breach of contract. The argument went as follows. Costs rules and practices in a state's jurisdiction are a matter for the state in question. One can advance policy arguments in favour of an approach, such as that which prevails in this country, that in general the successful party recovers his costs. Equally one can advance policy arguments in favour of an approach such as that which prevails in New York that in general each side pays its own costs. It would breach international comity if we sought indirectly to apply our approach to litigation which had taken place in the foreign country.

  22. We accept that policy arguments can be made in favour of either approach but we reject the notion that by allowing a party in the position of Union Cal to recover these costs we would be breaching international comity. Comity is, as the editors of the 13th edition of Dicey and Morris on Conflict of Laws point out in paragraph 1-010, a term of very elastic content. Suppose the situation were reversed. A party from a jurisdiction which had an indemnity approach to costs more generous than our own is sued here in breach of an EJC. He persuades the English courts that we had no jurisdiction. He asks for costs but only recovers, let us say, a small amount of costs because our courts thought a larger amount was disproportionate to the amount at stake. He then sues for the difference in the jurisdiction named in the EJC and recovers the difference. We can not think that such a happening would be the cause of the slightest concern to this country or its courts if indeed it ever came to their attention.

  23. There is in these cases no reason of comity why our courts should enforce a foreign jurisdiction's policy perception in preference to our own nor why they should enforce ours in preference to theirs.

  24. If, as Berry demonstrates, an English civil court is prepared to give as damages in tort costs which have been refused by an English criminal court, we see no reason based on comity which would prevent an English civil court from giving as damages costs which a foreign court has not awarded. We would not expect to show a foreign court more comity than we show our own.

    THE RES JUDICATA ARGUMENT

  25. The courts manifestly should avoid two adjudications on the same point. That is common ground. However in cases such as the present where there is assumed to be an independent cause of action then, as Devlin L.J. points out in the fourth passage we cite from Berry in paragraph 10, what is being adjudicated upon on the second occasion is not the same point.

  26. In the present case there is the additional point that in fact there was no adjudication upon costs in the New York court and so res judicata does not arise.

    THE HENDERSON v HENDERSON POINT

  27. This founds on the well known passage in that case in the Vice-Chancellor's judgement in that case where he said

    .... where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have ... omitted part of their case.

    [p.319]

  28. We accept of course that it is important that there should be an end to litigation but that principle has no sensible application to the present case. Since it was Union Cal's contention that the New York courts had no jurisdiction to consider breaches of the contract between Zoller and Union Cal, the latter could not in New York bring an action for damages caused to Union Cal by the bringing of the action in New York. If it wished to advance that contention it had to do so in England. The principle in Henderson v Henderson is manifestly inapplicable.

    THE UNITY OF LAW POINT

  29. Mr. Hubbard, submitted that since the English courts have for years proceeded on the presumption referred to in the second of the quotations cited in paragraph 10 to the effect that the litigant who won the earlier proceedings will have got such costs as the law considers he deserves, the same presumption ought to apply whether those earlier proceedings were abroad or here. The law there referred to, it was implicit in his submissions, was the law of the courts in which the earlier proceedings were litigated. He submitted that either the general presumption should be abandoned or it should be kept and universally applied.

  30. While in some ways an attractive proposition, it falls at first base because it was ruled in Berry by this court that it should not apply in malicious prosecution cases. Therefore the unity of the law after which he strives is not available in any event in this court.

  31. EJCs arise because the parties agree to litigate in one jurisdiction. It may be that one of the considerations which led to the adoption of the EJC in question was the costs regime in the nominated jurisdiction. We see no policy reason connected with either party for allowing one party to the contract to escape from liability for the damages which he has caused to the other by attempting to sue in a country where a different costs regime prevails.

  32. There remains the question whether there is a policy reason for the benefit of society at large which argues in favour of applying the usual rule in cases where the costs sought to be recovered as damages represent the cost of litigation abroad in breach of an EJC. In the present case we can see none unless it be a desire to keep down litigation purely involving costs often referred to as parasitic litigation. A rationale behind the reluctance to facilitate parasitic litigation is that the state's legal resources should be devoted to central rather than parasitic questions. While this seems attractive, one must note that the amount of costs (or damages in the form of costs) at stake can be very much more than many a sum which otherwise is allowed to be recovered as damages.

    THE AVAILABILITY OF ANTI-SUIT INJUNCTION

  33. Mr. Hubbard submitted correctly that Union Cal had the option of obtaining an anti-suit injunction in England. The fact that they did not do this but instead chose to apply to strike out the New York proceedings was a tactical decision no doubt motivated, he submitted, by the desire not to expose themselves to a costs order should they fail in the strike out application. This in substance is an argument that Union Cal should have mitigated their damages by trying to obtain an anti-suit injunction. Even if this submission be correct, which we do not have to decide and do not decide, it goes to quantum not to the principle as to whether any damages are recoverable. We confess that it seems to us unattractive for the New York claimant to submit that the English defendant should not have gone to New York to resist the proceedings which the New York claimant had, as a matter of choice, started there.

    CONCLUSION

  34. In circumstances such as the present we do not consider that the public interest requires that the claimant should be deprived of its reasonable expenses in litigating at the instance of the defendant in a jurisdiction which the defendant chose in breach of an EJC. The proposition quoted in paragraph 1 of this judgment is too widely stated.

  35. Treading cautiously in a field not much explored in recent litigation we do not propose to go further. One can envisage more doubtful cases.

  36. Suppose, for instance, that the costs rules in Australia were broadly the same as those which apply here. Suppose an attempt to litigate there in breach of an EJC which nominated England. Assume successful proceedings there to strike out the Australian litigation. Assume that costs are awarded to the successful defendant but he only recovers two thirds of those costs although the remainder was reasonably incurred. That defendant then sues here asking to be awarded the remaining third as damages for breach of the EJC. Would our public policy prevent him from recovering?

  37. Or suppose an arbitration clause which nominates arbitration in England. One of the parties sues in the High Court. The other obtains a stay and a court order for costs which does not fully recompense him for his costs reasonably incurred.

  38. We prefer to leave such cases for the future. The present case concerns someone who in breach of an EJC litigates in a jurisdiction which save exceptionally does not award costs in strike out proceedings. Hence, no costs are asked for by the party who successfully applied for the strike out. It would have been pointless to do so. In such a case, on the assumption that to bring suit in the foreign jurisdiction amounts to a breach of contract, we consider that justice requires that he should receive the damages which he has suffered by reason of the breach. Those damages will be what he has reasonably expended on the strike out proceedings. The situation appears to us to be akin to malicious prosecution and the same rule as that established in Berry should prevail.

  39. This appeal is allowed.


Cases

The Ocean Dynamic [1982] 2 Lloyd's Rep 88; Walshaw v Brighouse Corporation [1899] 2 Q.B. 286; Berry v BTC [1962]1 Q.B. 306; Lonrho Plc v Fayed (No 5) [1993] 1 W.L.R. 1489; Donohue v Armco Inc [2000] Lloyd's Rep. 579 

Authors and other references

Halsbury's Laws of England 4th Ed Reissue Vol. 12(1) (1988) Damages, Para 828 

Dicey and Morris on Conflict of Laws, 13th Ed

Representation

Guy Phillipps for the Appellant (instructed by Denton Wilde Sapte)

Mark Hubbard for the Respondent (instructed by Harkavys)


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