Supreme Court allows appeal to set aside draconian costs order requiring full payment for amendment liberty.

THE SUPREME COURT

Denham J.

Geoghegan J.

Fennelly J.

206/01

BETWEEN/

MICHAEL LARKIN

Plaintiff

and

WHITONY LIMITED, GREEN OAKS INVESTMENTS COMPANY, WHITURIUS LIMITED, PETER WHYTE, MYLES CROFTON AND PETER

BLAKE

Defendants

JUDGMENT of Mr. Justice Geoghegan delivered the 19th day of June 2002

This is an appeal brought by the first, fourth and fifth-named defendants in the above entitled proceedings against a costs

order made by the High Court (Kinlen J.) when granting leave to those defendants to amend their defence. The particular costs

order complained of was of the classic draconian kind under which permission to amend the Defence was only to be granted

upon payment by those defendants of the entire costs of the plaintiff to date. In the approved note of the learned High Court

judge's ex tempore judgment it is made quite clear that he was giving liberty for the amendment of the Defence strictly on

terms which were that all costs up to the date of lodgment had to be paid to the plaintiff. But he also made it clear that this

was only to happen if the relevant defendants did in fact amend their Defence which included the making of a lodgment.

Unfortunately, the actual order of the High Court as drawn up does not accurately reflect the judgment. The first part of the

order grants the relevant defendants liberty to amend their defence in the manner sought and the second part of the order is

simply a straightforward order that those defendants pay to the plaintiff all costs up to the date of the lodgment. At the

hearing of this appeal both parties were in agreement that the intended effect of the order was as stated by the learned High

Court judge in the approved note. As will clearly emerge when I outline the circumstances of the application there is further

confusion both in the judgment and in the order as drawn up by virtually interchangeable references to amending the Defence

and making a lodgment. This is particularly true having regard to the fact that the proposed so called "lodgment" was far

removed from the conventional lodgment with which all practitioners are familiar. However, it will be clear from this judgment

how it arose and how it fits in.

As the history of this action is complex and the transactions, the subject of it, unusual I think it useful even at the risk of

oversimplification to explain shortly what the real net issue is.

This is a specific performance suit with an alternative claim for damages for breach of contract which was initiated by a plenary

summons issued on the 19th of January, 1988. A Statement of Claim was not delivered until the 13th of September, 1990.

There were a number of different agreements entered into between the relevant parties some of which are specifically referred

to and explained in the Statement of Claim and the remaining agreements emerged from the Defence which, incidentally, was

not delivered until the 19th of December, 1994. The additional agreements referred to in the Defence which have relevance to

this application and appeal were first signposted in the case itself by the defendants in an affidavit sworn on the 21st of

October, 1991 for the purposes of an application for security against costs. It is totally unnecessary for the purposes of

understanding the issues on this appeal to explain even in summary form the precise nature of the four agreements referred to

in the Statement of Claim and the two additional agreements referred to in the Defence. What is necessary to understand

however is the following. This was a purchaser's specific performance suit relating to a house in Raheny in the city of Dublin and

the purchase price was £300,000. But it so happened that £300,000 and upwards was already owing by the vendor to the

plaintiff purchaser and it was part of the agreement that that debt could be set off against the purchase price and that

therefore no money would pass on the completion of the transaction. However, by later agreements (those referred to in the

Defence) it was agreed that if £120,000 was paid to the plaintiff in a particular manner and by particular dates with interest

payments and penalties as agreed in the case of late payment, the agreement for the sale of the Raheny house was to stand

rescinded and discharged. This was only to happen upon the full payment of the sums due. In their Defence, the defendant

appellants pleaded (inter alia) that £90,000 of the £120,000 had been paid to the plaintiff (presumably all before the

commencement of the action though that is not entirely clear) and that although the balance of the £30,000 had not been

physically paid over it was being set off against disrepair and dilapidation caused to the premises during a period that the

plaintiff was in occupation as caretaker. Effectively, these defendants were pleading that they must be deemed to have paid

the full £120,000 and that therefore, the contract being sued upon was rescinded.

The action proceeded at a very slow pace. There were a number of factors which may have contributed to that. The plaintiff

apparently left to live in the United States of America. There were applications for security for costs, for discovery and for

judgment in default of defence but for the purposes of the issues raised on this appeal the next relevant step was a letter of

the 8th of November, 2000 written by the solicitors for these defendants to the solicitors for the plaintiff and headed "without

prejudice save as to costs". The letter read as follows:

"Dear Sirs

We refer to the above entitled matter in which we appear on behalf of the defendants.

We refer to the claim made by the plaintiff in these proceedings and to the defence and counterclaim filed by the

defendants.

The defendant in these proceedings has pleaded that a substantial sum of money was paid to your clients in pursuance

of the 1986 agreement but not all of it at the time.

The 1986 agreement specifically provided that in the event of any payment not being made within the prescribed period

a penalty of IR£2,500 was to be payable in respect of each such instalment in arrears together with interest at the rate

of 20 per cent per annum from the due date on any sum in arrears.

As solicitors for the defendant we have now been instructed by the defendants to tender to the plaintiff the sums set

out in the schedule below in full and final settlement of the plaintiff's claim herein.

Kindly take note that the offer in settlement remains open for a period of 7 days from the date hereof and failing

acceptance by the plaintiff of the said sum, this correspondence will be produced to the trial judge on the completion of

the hearing of the action in support of the defendants' application for their costs of these proceedings in the event that

the court should find that the offer was well made and that the plaintiff was only entitled to the sum as claimed herein.

We would be obliged to hear from you within the time allowed and confirm that in default of acceptance of settlement

we will be proceeding to issue a motion seeking liberty of the court to amend our defence in these proceedings.

SCHEDULE

Instalment Date due Principal Penalty Interest Total Amount

£20,000 25/2/1987 £20,000 £2,500 £61,628.78 £84,128.73

£10,000 25/3/1987 £10,000 £2,500 £24,019.16 £46,519.16

Sum tendered by defendants £130,647.89.

Yours faithfully"

That letter gave rise to considerable correspondence between the two firms of solicitors to which it is not necessary to refer. It

is sufficient to state that the offer was not accepted and the defendant/appellants proceeded with their motion seeking leave

to amend their Defence.

The notice of motion was dated the 9th of March, 2001 and was brought for the 23rd of April, 2001. On its face there is no

reference to a lodgment as such. It merely seeks (correctly in my view) an order granting liberty to the defendants to serve an

amended Defence. The notice of motion should have been more specific as to the nature of the amendment sought and, of

course, a late lodgment is itself an "amendment" but it became clear from the grounding affidavit of Myles Crofton a director of

the first-named defendant what the nature of the proposed amendments were in that he exhibited a draft of the proposed

amended Defence. The proposed amendments were contained in three new paragraphs numbered 8(a), 9(a) and 10(a)

respectively and they read as follows:

"8(a) Further or in the alternative, and without prejudice to the foregoing, payment of the balance outstanding (inclusive

of penalties and interest) on foot of the said agreement dated the 1st day of August, 1986 was made by the first, fourth

and fifth-named defendants, in accordance with the terms of the said agreement, but was subsequently wrongfully

refused by the plaintiff. Notwithstanding such refusal, the payment made and/or proffered by the first, fourth and fifth-

named defendants as aforesaid effected a discharge of the contract of sale of 1982, which said contract (together with

all or some of the other agreements made between the parties) now stands rescinded and/or discharged in accordance

with the terms of the said agreement of August 1986.

9(a) It is denied that the plaintiff now has, or has ever had, any legal or beneficial interest in the property, the subject

matter of these proceedings.

10(a) Pursuant to Order 22 of the Rules of the Superior Courts, the first, fourth and fifth-named defendants have

tendered money in satisfaction of the plaintiff's claim, if any, against the first, fourth and fifth-named defendants."

It is not clear what arguments, if any, were made in the High Court against the granting of leave to amend but at any rate

there is no appeal before this court against the granting of leave to amend as such. The appeal is against the costs aspect of

the order. It is clear from the note of the ex tempore judgment of the learned High Court judge that he was unimpressed by the

lateness of the application. He described the application as a "very very late application". It would appear that this is what

influenced him to make the particular costs order which he did make. But given the view which the learned High Court judge

understandably took there were other options open to him. He could have refused leave to amend or at least he could have

refused to permit a lodgment. The curious feature of this case is that although the learned trial judge refers to the word

"lodgment" continually throughout his judgment it would seem doubtful whether the actual amended pleas in the amended

Defence give rise to a payment into court. The only amended plea that could conceivably give rise to a payment into court is

that contained in paragraph 10(a). But on the face of it that is merely a plea of tender. Order 22, r. 3 of the Rules of the

Superior Courts provides that with a Defence or affidavit setting up a tender before action, the sum of money alleged to have

been tendered must be brought into court. That rule has existed from time immemorial. But it refers to a tender "before action".

The tender being pleaded in this case is a tender after action and it is, therefore, not entirely clear to me under what rule the

money could be paid into court. I understood Mr. Paul Murray, counsel for the defendant/appellants to be relying essentially not

on r. 3 probably for the obvious reason which I have indicated, but rather on r. 1 of Order 22 which is the rule providing for the

normal lodgment with which we are all accustomed. But that rule which has also existed for a great number of years only applies

to an action for debt or damages. It does not apply to a specific performance suit. It is true that there was an alternative claim

for damages but it is quite clear that the intended payment into court in this case does not in any way relate to the alternative

claim for damages. It relates to the balance of the payment which would allegedly have the effect of rescinding the contract

being sued upon. Kinlen J. did seem to intend that money would be paid into court but the effect of any such lodgment will be a

matter for the trial judge ultimately if it becomes relevant. As was pointed out at the hearing of the appeal it is entirely

inaccurate to describe the application before Kinlen J. as an application for a late lodgment. It was an application for a

substantive amendment of the Defence and an amendment of a most unusual kind because it arose out of a payment tendered

in November, 2000 almost thirteen years after the action was commenced. No such defence was available at the time of the

action or during any of the intervening period.

In the light of these extraordinary facts, it is certainly arguable that the severe costs order made by Kinlen J. was open to be

made by him in his discretion. But on balance, I have come to the conclusion that it was not a just order in that it failed to take

account of the possibility that the defendants might succeed in the action on one or more of their original grounds of Defence.

If that happened it would seem unfair that they had to pay the plaintiff's full costs up to the date of the application to amend

the Defence. On the other hand, if, in the event the defendant/appellants are successful in the defence of the proceedings but

only on the amended grounds of the Defence, it would be absolutely just that the plaintiff should nevertheless be paid his costs

up to the date of the delivery of the amended Defence. Therefore, in my view, the order of Kinlen J. should be set aside and

there should be substituted an order which would reflect that position. The order should be in the following terms:

"An order that in the event of this action being dismissed exclusively on a ground arising from the amendments to the

Defence the first, fourth and fifth-named defendants will be liable to pay to the plaintiff all costs (including reserved

costs) up to the date of delivery of the amended Defence but excluding the costs of the motion the subject matter of

this appeal and it shall be further ordered that in the event of any dispute as to whether the action was dismissed

exclusively on the grounds of the amended Defence any such issue shall be determined by the High Court."

I would like to make absolutely clear certain other matters relating to costs in this case. First of all, save and except in relation

to the contingent order for costs set out above, the trial judge shall be fully at large in relation to what kind of costs order is

ultimately made. As it has not arisen directly on the appeal, I am expressing no final opinion on whether O. 22 of the Rules of

the Superior Courts would have any effect on the question of what costs a trial judge should make in any particular

circumstance. It is likely also that in the event of the defendant/appellants ultimately succeeding on the grounds contained in

the amended Defence they may well seek to rely on the terms of the letter of the 8th of November, 2000, already cited, in

relation to any costs order that might be made in respect of the costs subsequent to the date of delivery of the amended

Defence. I am expressing no view whatsoever on the effect or otherwise of that letter in that connection. All of these matters

will be for the trial judge.

Finally, there is the question of the costs of this motion and appeal. Presumably, they will be dealt with by this court in the

normal way if a costs application is made after judgment.

I have arrived at my conclusions on general principles. I am fully aware that counsel for the defendant/appellants referred to

authorities and in particular Ely v. Dargan [1967] I.R. 89. But in my opinion these authorities are not in point. Ely v. Dargan was

referring to the ordinary kind of lodgment and the situation where an application had been made to increase a lodgment. The

Supreme Court effectively endorsed a practice of Murnaghan J. in the High Court whereby he made it a condition of giving

liberty to increase a lodgment that the defendant would undertake to recoup the plaintiff for all costs incurred or ordered to be

paid by him since the date of the original lodgment. But I do not find that case as being any particular help in determining what

should be the just order in this case.

I would, therefore, allow the appeal to the extent that I have indicated.