A Party Cannot Set-Off An Interim Payment Against Contingent And Uncertain Costs Entitlements

The decision in Baldudak v Matteo [2024] EWHC 301 (Ch) dealt with the costs issues arising from the main judgment in the proceedings : [2024] EWHC 167 (Ch).

The action involved a dispute between Mustafa Erdem Baldudak (the Claimant) and Mark Matteo (the Defendant) regarding the beneficial ownership of a property (the “Property”). The Claimant sought a declaration that the Property was held on trust by the parties for his benefit alone. The Defendant denied this and counterclaimed, alleging that the Property was purchased as a gift for both the Claimant and Defendant equally.

In the main judgment, the court granted the Claimant’s request for a declaration that the Property was held on trust for his benefit alone and dismissed the Defendant’s counterclaim.

The court had to determine the following issues relating to costs:

1. Whether the Claimant was the successful party entitled to his costs.
2. Whether the Claimant should recover all his costs or only a portion, and from what date.
3. Whether there was any good reason not to order the Defendant to make a payment on account of costs.

The Claimant’s position was that:

• He was the successful party, having succeeded on his claim and defeated the counterclaim, so he should recover all his costs.
• There was no good reason to depart from the usual rule that the unsuccessful party pays the costs of the successful party.
• He should receive a substantial payment on account of costs, calculated as a percentage of his costs budget.

The Defendant argued that:

• The Claimant should only recover a portion of his costs to reflect his conduct regarding disclosure and not relying on his witness statement.
• Costs should be disallowed or reduced regarding disclosure and the witness statement.
• There should be no order for a payment on account, or enforcement should be stayed, as the Defendant had a costs order in his favor from earlier proceedings that could be set-off against the costs awarded to the Claimant.

Decision

The judge, Mr Andrew Sutcliffe KC, held that the Claimant was the successful party entitled to his costs:

“There can be no doubt that the Claimant is the successful party. He succeeded on his claim and the Defendant’s counterclaim has been dismissed.” [13]

The judge rejected the Defendant’s argument that the Claimant should only recover costs from the date he pleaded his amended reply or when he indicated reliance on the Estoppel and Election issues:

“I accept the Claimant’s submission that the doctrines of issue estoppel and election simply fed into the fundamental question in the case which was whether the Property was held on a resulting trust for the Claimant. The Claimant has succeeded on the claim pleaded in his particulars of claim. He is the successful party and there is no good reason to depart from the general rule in CPR 44.2(2).” [19]

However, the judge held that a 15% reduction in the Claimant’s costs was appropriate due to his conduct regarding disclosure, not relying on his witness statement, and being unsuccessful on one issue (the Quistclose Issue):

“Nevertheless, I consider that it is appropriate to make a reduction in the Claimant’s costs in order to reflect the fact that (i) his conduct in relation to non-disclosure of WhatsApp messages during the Crucial Period caused both parties to incur additional unnecessary costs, (ii) he did not rely on his trial witness statement and (iii) he was unsuccessful on the Quistclose Issue. In my judgment, the appropriate reduction is 15% which means that I will order the Defendant to pay 85% of the Claimant’s costs to be assessed on the standard basis if not agreed.” [24]

The judge rejected the Defendant’s argument that there was good reason not to order a payment on account of costs:

“I accept the Claimant’s submissions. In my judgment there is no good reason for departing from the usual rule that the successful party is entitled to a payment on account of his costs pending any detailed assessment.” [30]

Payment on Account and Set-Off

The judge addressed the Defendant’s argument that there should be no order for a payment on account of costs, or that enforcement of such an order should be stayed, due to the Defendant’s entitlement to costs from earlier proceedings which could be set off against the Claimant’s costs in the present case:

“The Defendant submits there should be no order for costs on account because the Claimant will be facing a bill of costs from the previous proceedings which is ‘not unlikely’ to be equivalent to or even significantly in excess of his costs budget for these proceedings. The Defendant further argues that whilst the court is not yet in a position to ascertain the precise effect of the ultimate set-off, a set-off is inevitable and it will most likely extinguish or significantly reduce the costs ordered in these proceedings.” [27]

The judge accepted the Claimant’s submissions on this issue, including the following key points:

1. The Defendant’s argument was misconceived as a matter of law, per the decision in Benyatov v Credit Suisse Securities (Europe) Ltd [2020] 1 WLR 2913, which held that “CPR 44.2(8) would be undermined if a party was able to bring into account contingent and uncertain costs entitlements in order to defeat another party’s sure entitlement to an interim payment” [28-29].
2. The Defendant had already received a substantial payment on account of £259,000 in the earlier proceedings and was now seeking to deprive the Claimant of the same benefit [29].
3. The correct forum to argue about the further costs to which the Defendant may be entitled from the earlier proceedings was in detailed assessment proceedings, not by inviting the court to speculate or prejudge proceedings which were not on foot and might never be brought [29].
4. Even if the Defendant’s argument was factually arguable, it did not come close to providing a ‘good reason’ for departing from the usual rule that the court should order a payment on account of the successful party’s costs pending any detailed assessment [29].

Ultimately, the judge concluded:

“I accept the Claimant’s submissions. In my judgment there is no good reason for departing from the usual rule that the successful party is entitled to a payment on account of his costs pending any detailed assessment… the Claimant is entitled to be paid 85% of his costs, assessed on the standard basis if not agreed, and to a payment on account of those costs of £90,000.” [30]