This is an appeal by Mr Koshy against an order made by Harman J dated 20 March 1998 (the Harman Order). Permission to appeal out of time was granted by the Court of Appeal at a renewed application on 11 March 2002. In substance it is an appeal against an order for costs made against Mr Koshy and his company, Lasco, on the dismissal of an interlocutory application to set aside freezing orders on the ground of material non-disclosure.

The background to the litigation and the course of the proceedings in which the Harman Order was made are fully set out in the judgment of this court handed down on 28 July 2003 (the Main Judgment). As the resolution of the appeal against the Harman Order involved some of the same points as arose on the main appeals against the orders made by Rimer J on the trial of the two actions, it was decided that the convenient course was to postpone giving judgment on this appeal until after the Main Judgment had been handed down and then to deal with all outstanding disputes on costs at the same time.

As mentioned in the Main Judgment (paragraph 9) Harman J made world wide freezing orders against Mr Koshy and Lasco on 8 November 1996 on the ex parte application of DEG.

Applications were then made by Mr Koshy and Lasco (a) by summonses dated 8 December 1996 to strike out the action; and (b) by motions dated 4 December 1996 to discharge the freezing orders. Harman J dismissed the summonses, on their being withdrawn or abandoned, and the motions, which he held to be “wholly unjustified.” He ordered Mr Koshy and Lasco to pay the costs of DEG on the motions, being discrete from the progress of the action, such costs to be taxed on the standard basis and paid forthwith. The costs involved are estimated to be in the region of £350,000. On the basis of that costs order Lasco was subsequently put into liquidation.

Neither Mr Koshy nor Lasco appealed or sought permission to appeal against the Harman Order at that time. This appeal was brought out of time solely on the basis of material that was not before Harman J, as it was not then available to Mr Koshy. The material takes the limited form of certain findings of fact by Rimer J at the trial. The findings were relevant to a defence of limitation. The Harman Order obviously could not have been appealed by Mr Koshy on the basis of material contained in a judgment, which had not been delivered, as the trial had not yet taken place.

The DEG action and the GVDC action proceeded to trial before Rimer J in 2001. The trial lasted for two months. In his judgment handed down on 26 October 2001 Rimer J dismissed the action by DEG. He ordered DEG to pay 50% of Mr Koshy’s costs of the action to be assessed on the standard basis. He refused to order indemnity costs, which were sought by Mr Koshy on the basis that the judge had rejected DEG’s evidence on the crucial limitation point dealt with in paragraph 236 of his judgment, quoted in paragraph 13 below. The freezing orders were discharged. Mr Koshy was given liberty to apply for an inquiry on DEG’s cross undertaking as to damages. Mr Koshy did not make any application to Rimer J to set aside the Harman Order. Instead he applied for permission to appeal against that order out of time.

It is accepted that the only objective which can now be achieved by a successful appeal from the Harman Order is that of setting aside the costs order. The rest of the order relating to interlocutory freezing orders has expired and is history. No practical purpose would be served by setting anything else aside. The object of the appeal is to cancel the costs order and to substitute a different costs order, which is more favourable to Mr Koshy.

The grounds of the appeal are that it now appears, in the light of the findings of fact made by Rimer J at the trial, that DEG acted, it is alleged, in breach of its obligations to make full and frank disclosure to the court on the ex parte applications for the freezing orders; that, had DEG made adequate investigation and full disclosure, and had Harman J known at the time of the hearings before him the facts found by Rimer J at the trial about DEG’s state of knowledge concerning the profits made by Lasco, he would never have granted the freezing orders; that, if he had made freezing orders, he would have granted the applications to set them aside; and that he would not have made the costs order against Mr Koshy.

On the appeal DEG made an application for permission to adduce fresh evidence, but this was not pursued at the hearing. There is now a dispute as to whether DEG should pay Mr Koshy’s costs of that application.

As already mentioned, the appeal is based on material which was not available for use at the hearings before Harman J. The material is not fresh evidence in the conventional sense of documents or witnesses discovered by a party after the trial is over. The material now relied in this appeal consists of the findings of fact made by Rimer J in his judgment after hearing evidence from DEG’s witnesses at the trial of the proceedings, in which, at an earlier stage, the Harman Order was made. The unusual feature of the case is that a successful defendant seeks, after final judgment in the action, to set aside and reverse on appeal an interlocutory order made before trial. I do not say that this is impossible in principle, but it is certainly a most unusual form of appeal in practice. In most cases interlocutory orders made in the course of proceedings cease to have any independent practical significance after the proceedings have been tried and final judgment entered. A court would not normally entertain an appeal after final judgment, attempting to re-open a costs order made inter partes at an interlocutory stage on the ground that the facts as found by the trial judge were different from what they were alleged to be at the date of the interlocutory order. It cannot be said in this case, however, that the setting aside of the Harman Order has no practical significance. As matters stand there is a liability to pay a large amount of costs. It also has the feature that the original order of Harman J was made ex parte and such orders are undoubtedly more vulnerable to applications to set aside than inter partes orders are.

The essence of the point can be shortly stated. DEG’s evidence before Harman J was that it had discovered the alleged fraud of Mr Koshy when by chance it came across a document (the IBM telex of 13 May 1986) in the files of GVDC in June 1996. The date of DEG’s knowledge was important in the context of a limitation point, in particular the application of the provisions of section 32 of the Limitation Act 1980 relating to concealed fraud.

In his judgment (paragraph 78) Rimer J referred to DEG’s evidence that it first saw an IBM telex in June 1996, from which it discovered the cost to Lasco of the IBM debt and the scale of the profits made by Lasco from the pipeline transactions. The evidence about the discovery of the telex was given by Mr Kidd, a partner in CMS Cameron McKenna, DEG’s solicitors, and by Mr Ward, the receiver of GVDC. Rimer J referred to the consequence of the discovery in June 1996 in these terms-

In his judgment (paragraph 236) Rimer J made the following findings, which are relied on by Mr Koshy on this appeal-

The point made by Mr Hugo Page QC appearing for Mr Koshy is quite simply that, if Harman J had been told of this, he would have made different orders than he did in 1996 and 1998. He submitted that DEG’s evidence before Harman J contained deliberate misrepresentations about DEG’s discovery of its cause of action against Mr Koshy and Lasco. Harman J had accepted DEG’s account about the discovery of the IBM telex in June 1996. That was the only option open to him on the material before him. It was relevant to DEG’s case on limitation, s 32 and concealed fraud. DEG in fact knew in 1993 about Mr Koshy and Lasco’s intention to make a profit from the pipeline transactions. It had misled Harman J by saying that the explanation for the lateness in instituting proceedings was that it had only discovered by chance in June 1996 the IBM telex. The telex was not found by chance. It was the result of a search for evidence. A false case on s 32 of the Limitation Act had been made to Harman J. DEG knew all along that its claims against Mr Koshy and Lasco were statute barred and that fact and the evidence relating to it should have been disclosed. Harman J had dismissed the applications to set aside the freezing orders on the basis that there was no serious non-disclosure by DEG. There had in fact been material non-disclosure in the evidence put before him. Mr Koshy was, on that ground alone, entitled to have the Harman Order set aside.

DEG comprehensively opposed the appeal. An initial procedural point was taken. An appeal from the order of Harman J was not, in all the circumstances, the appropriate procedure for setting aside the order for costs. An application should have been made to Rimer J, as the trial judge, when the action was dismissed and the freezing order expired. No reason was given for failing to make the application then. Such an application, rather than an appeal, was the normal procedure for setting aside an order on the grounds of material non-disclosure. The usual trial process involved the giving of evidence on such applications. The court of first instance would have to make findings of fact about non-disclosure and the circumstances in which it had occurred. That was not the function of the appellate court.

On the substantive grounds it was contended that the findings of fact by Rimer J in paragraphs 78 and 236, which were the only “fresh evidence” relied on, were in themselves insufficient to support Mr Koshy’s case for setting aside the Harman Order, including the costs order; alternatively, and more ambitiously, the findings of fact made by Rimer J in those paragraphs should be overturned. It was on the last part of the case that DEG initially sought permission to adduce further evidence, but at the hearing in July 2002 DEG indicated that it did not wish to pursue the application.

During the hearing of the appeal Mr Thompson appearing for DEG indicated that DEG would agree to the suggestion that the application to set aside the Harman Order should be remitted to Rimer J. Mr Koshy indicated, however, that he would not agree to that course. He wished to pursue the appeal. It was made clear that he would rather take the risk that the appeal might be dismissed than have the matter of costs in the Harman Order referred back to the judge at first instance. In those circumstances DEG contended that, as he had not taken that course, his appeal should be dismissed as misconceived and he should be ordered to pay the costs of the appeal.

I have reached the conclusion that the appeal should be dismissed, though with some hesitation, as I do not regard the result as entirely fair or satisfactory.

I start from the position that this is in substance an attempt, after the trial is over and in the light of the result of the trial and the findings made at it, to re-litigate an interlocutory costs order. No court, whether on an application to set aside at first instance or by way of an appeal, is receptive to such an application. It is bound to be a difficult exercise for the court to review the exercise of a discretion made at an early stage when not all the evidence is available or all the facts known or even all the issues identified. As for the parties, more time will be taken up and additional costs incurred

After a 12 day hearing of the applications to discharge the freezing orders, Harman J had exercised his discretion to make an order that the costs of the application should be paid by Mr Koshy and by Lasco in any event. So far as the costs were concerned it was a final order in the action. Neither his substantive decisions on the applications nor his orders as to costs were appealed at the time.

On this appeal it is important, as Carnwath LJ observed during the hearing, to focus on what precisely the Court of Appeal is now being asked to do. Harman J had exercised his discretion on the costs of the hearing to set aside the freezing orders by taking into account all the circumstances of the applications. The court would not normally interfere with his discretion on costs unless it could be demonstrated that he had taken a wrong approach to the exercise of his discretion or had made an order which was plainly wrong.

This court is being asked to interfere with the exercise of his discretion on a very different basis. It is not being asked to look at all the circumstances in which he exercised his discretion or at his approach or at the result at the time of the order, but at one circumstance only: namely a comparison between (a) the affidavit evidence placed before Harman J on the ex parte application for the freezing orders and the applications to set them aside on the issue of DEG obtaining knowledge about the profits made by Lasco and Mr Koshy; and (b) the findings of Rimer J on that issue at the trial. No other material is relied on either as to the course of the proceedings before Harman J or by way of other evidence from Mr Koshy or anyone else. The point is argued on the sole basis that Mr Koshy is entitled as of right to have the freezing orders set aside on the ground of material non-disclosure and that it necessarily follows from that that the order for costs should also be set aside.

In my judgment, Mr Page’s approach to this appeal oversimplifies the situation. Without doubting for a moment the power of the court to set aside an ex parte order on the ground of material non disclosure, I do not think that it necessarily follows that the ultimate liability for all the costs incurred on the application to set the order aside should follow that event. What this court is being asked to do is to cancel an order for costs, which was made in the exercise of a discretion by having regard to all the circumstances at that time, solely on the basis of what has transpired at the trial on an issue of disputed fact. When Rimer J made his findings of fact the issue of non-disclosure by DEG to Harman J was not before him. He was not addressing that issue. I do not think that it is satisfactory simply to lift findings of material fact out of his judgment and use them without more to set aside the Harman Order. In my judgment, it would be wrong and potentially unfair to DEG in these circumstances for the court to set aside the costs order made by Harman J. If the exercise of discretion is to be reviewed in circumstances of alleged material non-disclosure with a view to making a different order for costs, it can only be fairly and satisfactorily done in this case by an application at first instance, in which the issues of fact are defined and on which evidence can be adduced by both sides about the circumstances in which the orders were made, including the orders for costs.

As to the costs of DEG’s application for permission to adduce fresh evidence. DEG contended that the costs of the application should be costs in the appeal. Its position was that further evidence was inevitable. It would have been allowed on an application to the trial judge to make the application to set aside the costs order. Non-disclosure to the court on the ex parte application was not an issue before the trial judge. It was a reasonable response to Mr Koshy’s appeal, which was procedurally misconceived, for DEG to apply for permission to place before the court evidence, which was not before Rimer J in support of its contention that, on the material before him, Rimer J should not have found that Mr Kidd and Mr Ward had lied and to demonstrate that Harman J had not been misled.

In my judgment Mr Koshy should be entitled to his costs of that application. It was made and it was withdrawn. It proved to be an unnecessary exercise for which DEG should pay the costs.

I agree.

I also agree.