Saunderson & Ors v Sonae Industria (UK) Ltd

A contractual costs undertaking is construed according to the natural and ordinary meaning of its words, read in their commercial context and against the shared background known when it was given. The parties’ later conduct, a party’s subjective understanding, and subsequently obtained ATE insurance do not alter that construction. In an ATE insurance context, a reference to “this litigation” may extend in general terms to an appeal, but the relevant undertaking may nevertheless be confined to trial proceedings where the commercial context shows that the parties distinguished trial costs from appeal costs. A later explanatory letter cannot vary or widen the undertaking unless its terms do so. An unsuccessful application for permission to appeal was therefore outside the undertaking.

The claimants appealed from proceedings in the Queen’s Bench Division before the Hon Mr Justice Jay. The issue concerned a costs undertaking given by the defendant’s solicitors in a letter dated 11 July 2012. The claimants later obtained ATE insurance and unsuccessfully applied for permission to appeal. The defendant sought its costs of that application, while the claimants contended that the undertaking covered them. The Court of Appeal had to determine the proper construction of the undertaking, including the significance of the phrase “this litigation”, the ATE insurance context, the defendant’s understanding, and a later letter dated 18 December 2013.

1. The court held that the undertaking had to be construed by reference to the natural and ordinary meaning of its words, the commercial context, and the shared background knowledge available when it was given.

2. The claimants’ subsequent procurement of ATE insurance was irrelevant to construction. The defendant’s own understanding and the contents of its later letter were likewise irrelevant to the proper construction. The later letter purported only to explain the undertaking, not to vary or widen it. Any attempted reliance on estoppel therefore failed.

3. The words “this litigation” were capable in the abstract of encompassing the trial and appeals. However, the undertaking was given in the context of ATE insurance. In that context, the parties would have distinguished clearly between first-instance proceedings and appeals. The court considered that, in July 2012, the parties had in mind only the proceedings at trial. Any question concerning cover for liability arising from an appeal or an application for permission to appeal would have been addressed after the trial, in light of its outcome and the judgment’s terms.

4. The defendant’s undertaking of 11 July 2012 therefore did not extend to the defendant’s costs of the claimants’ unsuccessful application for permission to appeal. There was no impediment to an order for those costs in the defendant’s favour.

5. Obiter, had the court reached the opposite conclusion on construction, it would not have characterised pursuit of the permission application as unreasonable behaviour in the circumstances.

• Court of Appeal (Civil Division): ruled that the costs undertaking did not cover the claimants’ unsuccessful application for permission to appeal and that costs could be ordered in the defendant’s favour.
• Queen’s Bench Division: appeal proceedings arose from a claim before the Hon Mr Justice Jay; no citation for the decision is stated in the judgment.