John David Sheffield v John Julian Lionel George Sheffield & Ors (2018)
The court considered the proper approach to determining liability for costs where parties had reached a compromise. In particular, in a breach of trust claim where accounts and inquiries had been ordered against the defaulting trustees, the starting point was that the trustees would be ordered to pay the beneficiary's costs of the claim, including the costs of the accounts and inquiries made necessary by the breach of trust.
The court was required to determine the appropriate costs order following the parties' agreement reached in respect of the relief ordered in a breach of trust claim.
The claimant had sought to establish his rights as a direct or indirect beneficiary of a trust in respect of an estate of land. The judge held in his favour and made a consequent order for a number of accounts and inquiries against the first and second defendants. The parties ultimately reached an agreement as to sums due to the claimant on the basis of the accounts and inquiries.
The claimant argued, relying on the general rule in CPR r.44.2(2), that he was the successful party in the account proceedings, and that there was no good reason to deprive him of his costs.
Legal principles - There were two lines of authority which were not wholly reconcilable concerning the determination of liability for costs where the parties had reached a compromise. In BCT Software Solutions Ltd v C Brewer & Sons Ltd  EWCA Civ 939, the judge held that in a case of any complexity the court could properly refuse to undertake the exercise at all, whereas in Powles v Reeves  EWCA Civ 1375 the judge had found that it was neither desirable nor generally practical for the whole case to be heard solely for the purpose of determining costs, and that it would usually be an unacceptable waste of both the court's and the parties' resources to do so. Although the instant case was of substantial complexity, it would not be proportionate or an efficient use of the parties' or the court's resources to refuse to determine costs liability and require the parties to proceed to trial. In a claim resolved by agreement, the court necessarily adopted a more broad-brush approach to costs, reflecting the fact that there had been no judicial determination of the issues. However, the task still had to be undertaken, and had to be done in accordance with the guidance set out in Powles. In the absence of a determination of the merits of the claim, the judge determining costs should consider various factors such as the result of the settlement; the conduct of the parties in the course of the litigation; any reasonable offers of settlement that might have been made; and in any case where it was tolerably clear, which party would have succeeded at trial, Powles followed, BCT Software considered. Further, in the case of accounts and inquiries ordered against trustees, special considerations applied: when the accounts and inquiries were rendered necessary by the breach of trust, the defaulting trustee would be ordered to pay the costs of the claim, including the costs of accounts and inquiries made necessary by the breach. The starting point in determining the costs of accounts and inquiries ordered against a defaulting trustee was that the trustee should pay those costs. That remained the case even if the accounts established that no sum was payable to the beneficiary, because the beneficiary's primary right was to information about the trust assets and their exploitation, with an accompanying entitlement to be paid the appropriate share of the fruits of that exploitation. Until the account was given, the beneficiary did not know what that financial entitlement was. It followed that a defaulting trustee could not protect themselves from costs of providing the account merely by making a monetary offer. Without the information which was solely in the trustee's possession, the beneficiary had no means of evaluating the offer, and was entitled to be satisfied as to the accuracy of any information provided by the trustee by reference to the relevant documents proving the trust's income and expenditure. The principles of the costs provisions in the CPR, in particular r.44.2, formed the background against which the court should consider the appropriate costs order, but they were not directly applicable in such a case. In particular, if a defendant made a CPR Pt 36 offer in respect of an account without having provided the information the claimant needed to evaluate that offer, then if the claimant failed to beat the offer, it would not normally be just to order the claimant to pay the defendant's costs. The claimant was not only entitled to payment of what was due to them, but also to the information and documents which enabled them to be satisfied that the sums paid reflected their true entitlement (see paras 26-39 of judgment).
Appropriate costs order - Against that background, in the circumstances the appropriate orders were for the first defendants to pay 90% of the claimant's costs of the accounts and inquiries as ordered against them, and for the second defendant to pay 97% of the claimant's costs of the accounts and inquiries as ordered against him (para.69).