Dufoo – v – Tolaini and others [2014] EWCA Civ 1536

The Court of Appeal has delivered a stark warning to co-claimants who settle in multi-party disputes where the proceedings continue between the other parties.

In Dufoo –v- Tolaini & Ors, two claimants thought they had limited their costs liability in on-going proceedings by agreeing a settlement with the defendant, including the defendant’s agreement not to seek his costs from them. However, the claimants have now been ordered to contribute to that same defendant’s costs, following his success at trial against the third co-claimant.

The Court of Appeal held that a settlement agreement is only a starting point for the court when exercising its broad discretion under CPR 44.2, and is not binding in respect of contribution orders. Anthony Willis considers the decision.

Background

The underlying dispute related to the ownership of a property development company, QML. One of the claimants, Dufoo, and the defendant, Tolaini, had set up QML, obtaining investment from the two other co-claimants, Pannell and DAP.

The relationship between the parties broke down, and Dufoo, Pannell and DAP issued proceedings against Tolaini and QML in April 2012. The claimants asked the court to decide (among other things) what shares each party was entitled to hold in QML.

Initially, the claimants pursued a common case against the defendant. However, after Tolaini served a counterclaim that included an assertion that Dufoo had dishonestly altered an email to support his case, Pannell and DAP instructed separate representation. The claimants subsequently served separate amended particulars of claim on 1 June 2013.

In September 2013, Pannell and DAP settled their claim against Tolaini. Within the settlement agreement Tolaini agreed not to seek an order for costs against Pannell and DAP. Dufoo did not settle his claim, but re-amended his particulars of claim to dispute the settlement between Tolaini and Pannell and DAP. The matter proceeded to trial in October 2013.

Dufoo lost at trial, the findings including that he had indeed dishonestly altered the e-mail. He was ordered to pay 80% of Tolaini’s costs. At trial the judge declined to order Pannell and DAP to contribute towards those costs on the basis that to do so would undermine the settlement agreement. Dufoo appealed that point.

Appeal: settlement agreement not decisive

The Court of Appeal allowed Dufoo's appeal. Giving leading judgment, Lord Justice Jackson emphasised that a judge making a costs order under CPR 44.2 is exercising a broad discretion, and that all of the circumstances of the case must be considered, including a party’s conduct, any measure of success and any offers made.

While noting that the contribution issue was a difficult one, Jackson LJ held that the settlement agreement should not be considered so significant as to be the answer to the contribution claim. It is merely part of the circumstances of the case which the judge should take into account. When parties advance the same unsuccessful case against a common adversary, then all parties are usually ordered to contribute. There may be good reason to depart from this principle, but it should be the starting point.

Here, Jackson LJ decided that as Pannell and DAP were largely unsuccessful in the claims advanced up until the amended particulars of claim on 1 June 2013, they ought to contribute toward Tolaini’s costs up to that date. The starting point should be a 50% contribution, but the precise split was remitted to the trial judge to decide. Costs incurred after the amended pleadings on 1 June 2013, or after Pannell and DAP had settled with Tolaini, were not subject to the contribution.

A stark warning

There are positives arising from this case for defendant insurers involved in multi-party claims, such as those often seen in the construction sector, especially where the remaining claimant is financially unstable. However, this decision should still serve as a warning to all parties considering settlement in such claims.

While there were clearly case-specific factors at play here, and it remains to be seen whether this reasoning would be applied to co-defendants and/or where a reduced level of costs is paid under the settlement agreement, Jackson LJ has, again, reiterated the extremely broad discretion that the court has when considering costs. This now appears to include the court being willing to interfere with a settlement agreement made by two consenting parties.

From a practical perspective, in circumstances where you want to agree settlement terms with an opponent but other parties will not, then you should certainly include an express indemnity against any costs that the court may order you to contribute.

Dufoo – v – Tolaini and others [2014] EWCA Civ 1536