The rule cited by his Lordship is identical with Part 52A r 8 of the SCR (see [32] above). His Lordship set out what the trial Judge had said about the basis on which the quantum of costs should be determined. He concluded that Steyn J "was indeed trying to produce the same result as would have been produced by an assessment of damages"; he had "considerable doubts as to whether the Judge was right"; but the appeal was as to costs and could not be heard without leave (at 29). Scott LJ and Sir Roger Ormrod agreed. Because the appellant had not come prepared to argue the competency question, on application made before the entry of the order of dismissal, there was reconsideration by the Court of the appeal after further argument (see 30). Judgment was delivered by Parker and Scott LJJ, Sir Roger Ormrod having died. Parker LJ said at 33 - 34:
"The provisions of ss 51 and 18(1)(f) of the Act and of the Rules of Court which I have quoted appear to me to be perfectly clear, but it is sought to argue that because the costs of the failed claim against the underwriter are a recoverable head of damage against the brokers, such costs are not by law left to the discretion of the Court and thus the prohibition in s 18(1)(f) of the 1981 Act has no application. It is further submitted that, as damages, such costs must be assessed on an indemnity basis.
If this submission is correct it would in my judgment involve engrafting on to s 51(1) of the Act words of exception for costs which also formed a recoverable head of damage or making amendments to the rules to which s 51 is expressly subject. I can see no justification for so doing.
The costs of the failed claim against the underwriter are in my judgment in like case to the costs of the successful claim against the brokers which have been incurred but which are not recoverable on taxation, as to which see the judgment of Lord Justice Devlin in Berry v British Transport Commission [1962] 1 QB 306, at p 313 et seq. At that time party and party costs only permitted the recovery of costs necessarily incurred and there was a wide margin between such costs and costs reasonably incurred. This difference has now been alleviated and enables the successful party who is awarded costs on a standard basis to recover a reasonable amount in respect of all costs reasonably incurred. The only difference between that and the indemnity basis being that on the standard basis the burden of proof is upon the receiving party, whereas on the indemnity basis the burden is upon the paying party.
The standard basis is moreover, in effect, the same as its predecessor, the common fund basis, which in turn was intended to replace the old solicitor and client basis, see EMI Records Ltd v Ian Cameron Wallace Ltd [1983] Ch 59 at p 63, and it was on that basis that the cost of a previously failed action against the underwriter would, according to the old cases, have been recovered in a subsequent action against the brokers. It was these changes which the learned Judge referred to as the 'new dispensation'. Such dispensation, in my view, destroys any argument that justice requires any gloss to be placed on the plain words of the statutory provisions and the rules.
It must in my view be remembered that cases of this sort have much in common with the large number of cases in which each of two defendants blames the other and which end up with either a Bullock order or a Sanderson order and where there is no question but that the costs are wholly in the discretion of the Judge. It is in my judgment right that they should be. The Judge has all three parties before the Court and he can determine whether as between them certain orders for costs should be made. It does not as it seems to me make sense that as to one element of the costs he should be deprived of discretion.
I am therefore of the clear opinion that the Act and the Rules mean what they say and that there is no warrant for making an exception in cases such as the present. Prima facie, no doubt, the Judge will proceed on the basis that the party who has failed against one defendant and whose own costs are a legitimate head of damage against the other, should have such costs against the other on the same basis as would have prevailed had he claimed them as damages against the other defendant in a separate action. But depending on the way the whole action has been conducted by all the various parties I see no reason why he should not depart from that basis to reflect his view of their respective conduct.
In addition it must not be forgotten that if A sues B and fails he will prima facie be obliged to pay B's costs on the standard basis and bear his own costs. If he then sues C successfully he may be entitled to recover the costs he has had to pay to B and his own costs, but he will or may by then have had to pay B, and C may be unable to pay. If however B and C are sued together it can be ordered that B's costs shall be paid not by A but directly by C. In certain circumstances this can be an advantage to A.
Finally I should add that, whereas in my previous judgment I expressed doubts on the question whether the Judge had been right to consider the standard basis as that appropriate to the assessment of costs in the guise of damages, further argument has convinced me that these doubts were misplaced."
43 The general area was revisited by Carnwarth J in the Chancery Division in British Racing Drivers' Club Ltd v Hextall Erskine & Co [1996] 3 All ER 667. There the plaintiffs sued their solicitors who had failed to warn them a certain course could be taken by the companies only with the prior approval of the shareholders. Retrospective approval by the shareholders was refused. Among the damages claimed were costs paid by the company in relation to an action brought by strangers to this litigation, which action was settled on the basis that there was no order as to costs. His Lordship extensively reviewed the authorities (including the tortuous course of The Tiburon) and concluded at 691 - 692:
"The expenditure on the professional fees of solicitors and accountants was, as I have held, expenditure incurred by the plaintiffs in reasonably mitigating their loss. Prima facie therefore, it is claimable under the ordinary rules relating to mitigation. However, litigation costs have traditionally been subject to special rules for policy reasons. Prior to the change in the taxation rules there was an established distinction between such costs incurred in proceedings between the same parties, and those incurred in proceedings against third parties. This was anomalous, given that similar policy considerations applied in each case. The most recent cases show that the position must be reconsidered in the light of the changes to the taxation rules. This enables the anomaly to be resolved. Under the new dispensation, taxation on the standard basis is to be regarded as equivalent to the solicitor and client basis referred to by McGregor. Accordingly, where costs on the standard basis have been recovered from the defendant in other proceedings, there is no basis for an additional claim by way of damages.
In principle the same reasoning must in my view apply where, as in this case, the other proceedings have been settled on terms that each side pays his own costs. The present defendant should not be worse off, in respect of the basis of taxation, because no order for costs was made in the other proceedings. If anything this should justify a more rigorous test. In this case a very substantial claim is made in respect of BRDC's own costs in the Walkinshaw action. If there had been an order for those costs to be paid by the defendants in those proceedings, or if the present defendants had been held liable as contributories, they would have been entitled to have them taxed on the standard basis. In my view, the same principle should apply in this case, and there should be an inquiry to establish the appropriate amount."
44 In Penn v Bristol & West Building Society [1997] 1 WLR 1356, the Court of Appeal squarely faced the problem of recoverability of costs where the second proceeding was not brought separately, but by cross claim in the first proceeding. There solicitors were led to believe that they were acting jointly for husband and wife in the sale of their home. The husband had fraudulently signed documents for his wife. The wife successfully sued the building society which "financed" the fraudulent transaction and took a charge over the property. The building society cross claimed against the solicitors. The trial judge ordered the solicitors to pay the Building Society's costs of defending the wife's action on the indemnity basis. On appeal it was argued that the indemnity costs were justified because the building society could have claimed and recovered against the solicitors as damages in separate proceedings the costs of the previous proceedings. The Court of Appeal overruled the indemnity costs order. It held that the indemnity costs order was not justified merely because the costs of defending the action would have been recoverable as damages had separate proceedings been brought. In the absence of other factors indemnity costs were not justifiable. Waller LJ said at 1365 - 1366:
"I have not found it easy to establish what is the correct approach to the problem which faced the judge in this case and am surprised to find that there is apparently no authority to guide the court in what must be a not unfamiliar situation. Furthermore, for sound commercial reasons, because the difference in costs on a standard basis and on an indemnity basis are not so great as to justify expenditure on detailed argument, we have had the benefit of only very brief submissions.
The problem as it seems to me is that there are competing considerations which do not necessarily lie easily together. The first consideration is that a wrongdoer should indemnify in damages for the wrong done. The second is that when it comes to costs a wrongdoer is only liable to pay on a standard basis unless 'it appears to the court to be appropriate to order costs to be taxed on the indemnity basis:' see RSC Ord 62 r 3(4). In other words, a wrongdoer is normally thought to be compensating the person wronged so far as costs are concerned by paying costs on a standard basis, and it takes something out of the norm for there to be an order for indemnity costs.
It is in my view important that it is expressly provided by Ord 62 r 3(2) that 'No party to any proceedings shall be entitled to recover any of the costs of those proceedings from any other party to those proceedings except under an order of the court.' Thus a defendant cannot claim as part of his damages against a third party the costs of fighting the plaintiff, and it also follows that even if the third party is bound to indemnify the defendant under an express contract of indemnity, the note in The Supreme Court Practice 1997 p 1157 para 62/B/144 is correct in saying that an order for costs awarded on an indemnity basis would have to be obtained if an indemnity is to be achieved.
I am, however, concerned as to the accuracy of the note in so far as it might encourage the thought that in any situations in which costs might have been recoverable as damages if separate proceedings had been brought, it would be appropriate on that basis alone to order taxation on an indemnity basis. As I see it, the philosophy that lies behind Ord 62 r 3(2) is to prevent costs being included in an award of damages in third party and other proceedings in the same action, in order that costs will be assessed normally on a standard basis. It seems to go contrary to that philosophy for the court to order costs to be assessed on an indemnity basis where, but for Ord 62 r 3(2), they would have been recoverable as damages.
The other side of the coin, I accept, is that it could be said that if the court does not order indemnity costs where such costs would have been recoverable as damages if a separate action had been brought, that will discourage the bringing of third party and other claims in the one action. That, however, I do not think is a serious risk having regard to the many other benefits of proceeding in one action and having all issues tried at the same time. In any event the philosophy which lies behind Ord 62 r 3(2) would seem to me to be clear. If it is followed, it should not by itself be a ground for awarding indemnity costs that the costs of defending or fighting another party would have been recoverable as damages if separate proceedings had been brought. I have accordingly concluded that for an order for indemnity costs to be appropriate there should be some additional factor of the nature which normally gives rise to such an order. I am not going to attempt further definition of the ingredients of that additional factor, because as I understand it, no factor other than that the costs would have formed part of the claim to damages in a separate action was relied on in this case."
45 I derive the following propositions from the foregoing authorities: