Tuesday, 29th July 2003

J U D G M E N T

1. LORD JUSTICE MANCE: I will ask Sir Anthony Evans to give the first judgment.

2. SIR ANTHONY EVANS: This appeal is concerned with the costs order made at the close of a case management conference in January 2003. The proceedings in question were begun in 1999, and there are some indications in the transcripts that the learned judge was becoming somewhat concerned about the slow progress being made and the costs being incurred in this litigation. The fact that there has been this appeal, which has taken half a day of this court's time in relation to the costs of the case management conference, is perhaps sufficient to underline that concern which the judge appears to have felt.

3. The case management conference, held on 29th and 30th January, followed, first, the hearing of a preliminary issue in the litigation which was heard by the same learned judge, His Honour Judge Howarth, sitting as a High Court judge, in October 2002. There was then a hearing on 20th December, when the defendant, the respondent to this appeal, applied for a stay of various costs orders which had been made following the October hearing and certain other interlocutory hearings; and the claimants, the present appellants, applied for a charging order over the defendant's home in respect of those same costs orders, which appear to have totalled £60,000 or more. On that occasion in December interim orders for a stay and a charging order were made and the matter came before the court again on 29th January.

4. The appellants are a group of companies. The defendant was a director and employee. The claim is that the defendant took -- using that word in a neutral sense -- large sums of money from the companies for his own use and benefit. The claim mentioned a figure of £317,000, which has now increased to approaching £4 million. The defendant has accepted -- taking that word again in a neutral sense -- £190,000. Dishonesty was not alleged against him initially, but it is now. The background may or may not have been the use of substantial sums of money for the purpose of making cash payments, whether or not they are the subject of this appeal, to contractors with whom the companies were dealing.

5. Immediately after the October hearing the claimants sought permission to amend the claim in order to join the defendant's family -- that is his wife and two sons -- as second to fourth defendants. They had given no notice of that application to the other persons concerned, but counsel instructed by the wife appeared and asked for an adjournment, which was granted on the basis that no notice had been given, and the appellants were ordered to pay the costs of that appearance to be assessed.

6. On 29th and 30th January 2003 the learned judge heard seven applications. He gave three separate judgments on different issues and then he came to the costs, that is to say of preparing for that hearing and of the hearing itself, including to some extent, no doubt, the previous hearing of 20th December. He made no order as to costs, and this is an appeal by the claimants with the permission of the learned single judge, who said:

"The judgment may not contain sufficient reasons to justify the order made."

The appellant's contention is that the reasons given were not valid reasons and they were not good enough, or clear enough, to justify a departure from the basic rule that costs should follow the event, which herein, of course, has to mean a number of different events.

7. We were referred to the now leading authority of the judgment of the Master of the Rolls in English v Emery Reimbold & Strick Ltd [2002] 1 WLR 2409. The principles which govern an appeal in these circumstances are set out in the passage to which Mr Gledhill referred us at paragraphs 26 through to 31.

8. The applications made to the judge in the course of the case management conference were these. First, it was necessary for him to assess the costs which the claimants had been ordered to pay of the abortive appearance by counsel for the second respondent on the previous 20th October hearing. That was done and no question arises about it on this appeal.

9. As regards the proceedings themselves, I should note that there are two separate proceedings: the claim by the claimants, to which I have already referred, and a section 459 petition brought by the defendant in his capacity as a minority shareholder.

10. In these proceedings the first matter was an application, previously indicated in October by the claimants, to join the defendant's wife and two sons as second to fourth defendants in the action. That was opposed by the defendant to the extent that it was argued that the effect of joining the additional defendants would be to delay still further the main claim against the existing defendant, Mr Thewlis. The learned judge gave the first of his three judgments in relation to that issue and he gave leave to amend. As the order indicates, the leave to amend was accompanied by what the judge called the usual order "that the costs of and occasioned by any such amendment should be borne by the claimants in any event". Today's application does not in any way derogate from that order made by the judge.

11. Secondly, on 29th January the learned judge was invited to confirm the interim orders that he had made on 20th December. These were, first, a charging order on the defendant's home for the costs orders previously made. That was not opposed by the defendant and the final order was duly made. The second matter involved the application by the defendant for a stay of those costs orders. That application was opposed. The learned judge considered the matter in some detail and ruled against the defendant. In other words, he confirmed the stay which had been ordered on an interim basis in December. That was the subject matter of his second judgment.

12. Third, there was an application by the defendant to serve a Part 20 notice in the main proceedings naming Mr Ennis, who is the principal shareholder of the claimant company, as a Part 20 defendant. The allegation in broad terms was that he, Mr Ennis, was also involved in the illicit transactions which are alleged by the claimants against the defendant. That application was opposed by the claimants, but it was allowed in part. The learned judge gave his third judgment in relation to that application, and it has emerged that the central issue on this appeal is whether the outcome was a success for one party or the other or a partial success for the defendant alone. I shall return to that issue shortly.

13. There were two other matters which went by consent. Both resulted from applications made by the defendant in the action as petitioner in the related proceedings. These were, first, an application to amend the petition, and, second, an application for an injunction restraining the claimant companies from using their funds in order to pay costs incurred by Mr Ennis. Neither of those was objected to at the hearing. In relation to the injunction, we have been told that a few days before the hearing on 24th January, the claimants and Mr Ennis had indicated that they would not oppose such an order being made or rather, as it was embodied in the judge's order, an appropriate undertaking being given. In relation to those two matters, therefore, no substantial costs were incurred at the hearing on 29th/30th January, but there may have been some previous costs in relation to them.

14. Then the judge on the second day, 30th January, came to the question of the costs of the case management conference. He gave a reasoned judgment, which may be summarised as follows. In paragraph 2 he said:

"... I am I think reluctant to conduct any detailed assessment in this matter."

We have been told that the background to that remark was that there was an application by counsel for the claimants for a summary assessment of the costs of the stay application in which it was submitted that the claimants had been wholly successful and that an appropriate offer should be made for payment forthwith. Those costs were put at 50 percent, or so we are told, of the costs of the January hearing. When the learned judge referred to his reluctance to conduct a detailed assessment, he was almost certainly meaning he was not prepared to make any form of summary assessment at that stage.

15. He then went on to say that there were a number of considerable problems; and he identified the number of applications which had been made to him. The only one to which I need refer is the Part 20 application. He said this:

"... and there was a question of issuing the Part 20 claim, which I gave permission to issue in a slightly amended form. If it had been in that amended form from the beginning it may be that it would have gone by a consent. I do not know, but certainly Mr Gledhill's submissions substantially succeeded, although not wholly succeeded, in that regard."

He then continued in paragraph 5 of his judgment:

"If one breaks it down it seems to me that one could make very complicated orders in relation to costs, orders which would in their implementation lead to enormous problems between these solicitors, not problems demonstrating any lack of commonsense or good will or anything of that sort but simply problems in working them out because there would be inevitably wildly different views."

In paragraph 7 he said:

"I think that I would be, if I were to try and break it down, dealing with almost an impossible task and it seems to me that I really have to make a decision in the round on all the costs are concerned and Mr Sterling's suggestion that there should be no order as to costs on any of these matters as between the claimants and the first defendant has an enormous attraction and one which I for one at least cannot resist and I propose to make an order in those terms."

16. The fact is that part of the attraction which the learned judge recognised was the fact that such an order would mean that no further assessment of costs would be necessary. It has the effect -- quoting from Mr Gledhill's skeleton argument -- that neither party will ever recover any of those costs from the other. But it seems (to me at least) reasonably clear that what the learned judge had in mind was this. If he had said that 50 percent of the costs were to be awarded to one party in any event and the other 50 percent to the other party in any event, that would have the effect of postponing until the end of the proceedings a detailed assessment of those two lots of costs, which would then be set off against each other. If he were to make no order as to costs, there would be an immediate cancelling out and the further costs and aggravation of assessment would have been avoided. That, it seems to me, was the thought process which led the learned judge to the conclusion that he did reach. If that is correct, it means that the question on this appeal comes down to the one to which I have already referred.

17. Assume in the claimant's favour that they were entitled to the costs of the stay application in any event, and assume against the claimants that the remaining costs should be awarded to the defendant in any event, then, by the process I have just described, one reaches a situation where no order can properly be justified on practical and proportionate as well as more technical grounds.

18. It becomes necessary, therefore, to consider what the situation was with regard to the remaining 50 percent of the costs. To some extent those related to the claimant's application for leave to amend where they had successfully overcome such resistance as was proffered. More specifically, it relates to the Part 20 application, where the defendant did obtain leave as requested; but, on the other hand, the claimants, through Mr Gledhill's submission, had at least some measure of success. As he would put it and as he has put it to us today, he achieved not merely substantial but effectively total success.

19. On that issue the position was that the application was for proceedings to be brought in relation to which the claim was made under four headings (reading from the prayer at page 463):

"(1) A declaration as to the sums received by [the defendant] and Mr Ennis under [particular schemes];

(2) A declaration as to whether or not those sums or any of them are repayable to [the claimant company] and if so which;

(3) An order that any repayment to [the claimant company] ... be contributed to by Mr Ennis as to 80 percent ... or in such other proportion as the Court thinks fit;

(4) An order that Mr Ennis indemnifies Mr Thewlis against any repayments ... to be made ... in such amount or proportions as the Court thinks fit."

20. Mr Gledhill has shown us the skeleton argument which he submitted in opposition to that claim to bring Part 20 proceedings against Mr Ennis. The points he made in it were, first, that in relation to paragraphs 1 and 2 of the prayer the claim offended the rule in Foss v Harbottle on the basis that it was a claim which only the company, not Mr Thewlis himself, could bring; and, second, in relation to paragraphs 3 and 4, that as a matter of law there could be no right to contribution or indemnity based upon Mr Thewlis' alleged liability in respect of the restitutionary claim as distinct from the claim for damages for deceit and in tort which were also made against him.

21. The learned judge's judgment on this point contains indications that he rejected the first of Mr Gledhill's submissions in that he held that the rule in Foss v Harbottle might affect the second of the declarations sought but that it did not impair the claim for the first. Then, dealing with the second objection in relation to the contribution claims, he upheld the contention that as a matter of law that objection did apply in relation to the restitutionary claims made against the defendant. It is noteworthy that the learned judge, when discussing the state of law, referred, first, in paragraph 24 of his judgment, to the fact that there were divergent authorities on this issue. But one of them is a recent decision by the House of Lords, and he acknowledged that that decision was binding upon him. However, that may explain why he held later that the claim as pleaded could be allowed, although counsel for the defendant might find at trial that "the state of the law as it happens to be at that time" might not permit the claim to succeed in full. Therefore the learned judge concluded, in paragraph 34 of his judgment, that he gave permission to issue the Part 20 claim subject to the deletion from it of the second declaration, that is to say paragraph 2 only.

22. Nevertheless, the claim as made, subject to the leave given by the learned judge, contains an amended form of prayer for relief which shows that, in addition to deleting paragraph 2, paragraphs 1, 3 and 4 have been amended so as to reflect the objection taken by Mr Gledhill in relation to the proper scope of any contribution claim. He has told us that immediately after that judgment was given, relating to the Part 20 claim application, he raised this point with the learned judge to the effect that the significance of the learned judge's judgment led to the conclusion not that paragraphs 1, 3 and 4 should remain in their existing form, but that they too should be amended in order to reflect the learned judge's holding as to the relevant law. It followed that whether by consent or as a result of a further indication by the judge, the prayer was amended in that way.

23. In that situation the submission to us today is that Mr Gledhill's objections did succeed effectively and therefore the time taken on arguing that issue should be regarded as time concerned with an event which went in the claimant's favour. The defendant says, of course, that he asked for (and got) leave to issue the notice, although in its somewhat amended form.

24. When the learned judge gave his costs judgment he said, as I have already read, that he regarded the situation in relation to that claim as one where Mr Gledhill's submissions had substantially, although not wholly, succeeded. It does seem, in the light of the history as we have been told it, that that was under-estimating the degree of success which Mr Gledhill's submissions had in fact had.

25. In these circumstances it seems to me that the first question for this court is whether the learned judge's decision that there should be no order as to costs can stand; in other words, whether it is outside the wide range of latitude which is allowed to any judge exercising a judicial discretion of this sort.

26. For the reasons which I hope I have indicated, it seems to me that it could only be upheld on the basis that the learned judge was entitled to take the view that in relation to those costs which were not concerned with the stay application, the defendant could properly be given his costs in any event. Only on that basis would it be appropriate to see "no order" being justified.

27. In the circumstances, it seems to me, not without some hesitation and not, I may say, without some regret, that the learned judge was not entitled to go so far. It seems to me that, taking account of the degree of success on the Part 20 application and the modest success on the amendment application, the claimants would have been entitled to object to an order which gave the defendant the costs of those applications in any event and in full.

28. If the judge's orders is set aside on that basis, then it becomes necessary to consider what order would be appropriate in the circumstances of this case. It seems to me that the first point to make is that the learned judge's order, so far as it relates to the specific costs of and occasioned by amendments, should stand. It seems to me, secondly, that in relation to the two applications made by the defendant in relation to his petition, the costs of the amendment are covered by the judge's order. With regard to the application for an injunction, it seems to me that the appropriate order should be that the costs of that application should be the defendant's in any event, having regard to the fact that the injunction or undertaking was conceded before the hearing began, but, for that same reason, that those costs should not include any costs of the hearing on 29th and 30th January. With regard to those costs, it seems to me that considerable weight should be given to the fact that this was a case management conference, and, in those circumstances, I would propose that one third of the costs of the hearing should be costs in the proceedings. The remaining two-thirds of the costs then have to be considered in relation to the specific issues which were raised and decided by the judge; and I would order that the claimant should recover two-thirds of those of its costs in any event.

29. To that extent I would allow this appeal and substitute that order.

30. LORD JUSTICE MANCE: I agree.

Order: Appeal allowed as above with costs summarily assessed at £8,000 plus VAT.