Walker v Walker

J U D G M E N T

1. LORD JUSTICE CHADWICK: This is an appeal from an order made on 17 June 2004 by Mr Justice Lawrence Collins in proceedings brought by the liquidator of Walker Windsail Systems Plc against Mr John Walker and his late wife, Mrs Jean Walker.

2. The company, Walker Windsail Systems Ltd, was incorporated in 1981. Its business was the development and marketing of fixed vanes or sails - described as windsails - designed to provide forward propulsion at sea by the use of wind forces. When used in conjunction with mechanical power in propeller driven commercial vessels the windsail was intended to produce an increase in speed or a saving in fuel, or both. The concept attracted considerable investment in the company, but it did not prove a commercial success. The company was placed in creditors' voluntary liquidation in 1998 with a substantial deficiency as regards contributories, and, an excess of liabilities over assets of some £1.7m.

3. Mr John Walker was appointed a director of the company on incorporation. Mrs Jean Walker was appointed a director in 1984. Mr Walker and, save for a period between 1997 and 1998, Mrs Walker remained directors of the company up to the date of liquidation.

4. These proceedings were commenced on 4 October 1999 by the issue of an originating application in the winding up of the company. That application sought declarations that Mr and Mrs Walker had been guilty of misfeasance in relation to the company in a number of respects which were listed under four main headings: remuneration, expenses, patents and preferences to creditors. The application sought orders for repayment to the company of sums said to have been misapplied or misappropriated. It sought, also, orders pursuant to Sections 213 and 214 of the Insolvency Act 1986 in respect of alleged fraudulent and wrongful trading.

5. The application was supported by an affidavit sworn by the liquidator on 1 October 1999. No copy of that affidavit is now before this court. But it was on the basis of that affidavit that application was made on 1 October 1999 to Mr Justice Ferris, without notice to Mr and Mrs Walker, for freezing injunctions restraining the disposition of their assets up to the value of £500,000. That is indicative of the value which the liquidator was then putting on these claims.

6. Those injunctions were granted on 1 October 1999. They were continued at a hearing on 8 October at which Mr and Mrs Walker were represented by counsel.

7. Following directions for service of evidence, the trial of these misfeasance proceedings was set for a date at the beginning of October 2000. But that date was overtaken by events. In August 2000 - just before the end of the period of two years from the commencement of liquidation - the Secretary of State commenced proceedings against Mr and Mrs Walker under the Directors Disqualification Act 1986. On their application, the date for trial of the misfeasance proceedings was vacated and it was ordered that the misfeasance proceedings and the disqualification proceedings should be heard together - on the ground that they raised issues which were, in substance, the same. After some delay and extensions of time, a date for the trial of the conjoined proceedings was fixed for 12 November 2001. Sadly on 1 October 2001 Mrs Walker took her own life. The trial which had been due to start on 12 November 2001 was adjourned to a date to be fixed in the future. No further date has been fixed; although it seems that at some point a provisional date of 11 May 2002 was in mind.

8. The conjoined proceedings came before Mr Justice Lawrence Collins on 21 April 2004. There were before him on that day, first, an application by the Secretary of State to sever the disqualification proceedings from the misfeasance proceedings and, second, an application by Mr Walker to strike out the misfeasance proceedings on the grounds of delay. At that hearing an informal application was made by the liquidator for leave to discontinue the misfeasance proceedings. Leave to discontinue was required, on any view, because the freezing injunctions granted in October 1999 remained in force (see CPR 38.2 (2) (a)).

9. By his order, made on 21 April 2004, the judge dismissed the application to strike out the misfeasance proceedings and reserved the costs of that application. He adjourned the liquidator's application to discontinue to a date to be fixed. He ordered severance of the disqualification proceedings so that those proceedings could continue independently. We were told that they are still on foot.

10. The liquidator's formal application to discontinue with no order as to costs was made on notice dated 10 June 2004. The basis for the application, as appears in the notice, is -

"because there is now no useful purpose to be served by the continued prosecution of the claim having regard to (i) the costs of the proceedings; (ii) the apparent assets of the 1st respondent and the estate of the 2nd respondent; and (iii) the likely recoveries by the applicant."

11. That application was made under CPR 38.2. It was supported by a witness statement made by the liquidator on 14 May 2004. At paragraphs 7 and 8 of that statement the liquidator set out, in general terms, the position as he then saw it:

"7 In short, I consider that the continued prosecution of these proceedings would now serve no useful purpose. More particularly, there is, having regard to the costs incurred by me and Mr Walker's apparent means with which to satisfy any judgment, no prospect of any return for the company's creditors even if I were ultimately wholly successful. To pursue the claim to trial would now be wholly about recovery in part but not all of my legal costs.

8 The decision to seek to abandon the claim against Mr Walker and his late wife's estate has not been made lightly. Apart from the significant energies and resources devoted to the investigation and conduct of the claim by me and professionals instructed on my behalf, I remain of the view that Mr Walker's conduct as director of the company manifested itself in several serious breaches of duty causing loss to the company. In no way therefore should the application for permission to discontinue the proceedings be seen as any sort of acknowledgment or recognition by me that the claims against Mr Walker and his late wife's estate are unlikely to succeed. I consider, notwithstanding voluminous evidence adduced by Mr Walker and his late wife in opposition to the allegations against him, my claim has good prospects of success."

12. In the following ten paragraphs - paragraphs 9 to 18 of his witness statement - the liquidator explained why he continued to take the view that the claims against Mr Walker and the estate of the late Mrs Walker remain well founded. That is, of course, wholly and hotly disputed by Mr Walker. But it is no part of the function of a court on an application to discontinue to attempt to reach a decision whether or not the claim would succeed. I am content, as the judge was, to assume that the liquidator has a serious claim deserving of argument at the trial. This is not a claim which could be dealt with on a summary basis; and it is not a claim that could be struck out as having no real prospect of success.

13. At paragraphs 19 and 20 of the witness statement, the liquidator refers to the disqualification proceedings commenced in August 2000. At paragraph 21 he says:

"It has been the impact of the proceedings being run in tandem and the orders made by Mr Justice Hart on 26 September 2001 and by Mr Justice Evans-Lombe on 30 July 2002 which has rendered the claim against Mr Walker and his late wife's estate progressively worthless."

The two orders to which the liquidator referred in that paragraph were orders which had the effect of releasing assets from the freezing injunctions for the purpose of enabling Mr Walker to fund the costs of his defence in these and in the disqualification proceedings.

14. In the following paragraphs of his witness statement the liquidator analysed the movement of Mr and Mrs Walker's assets which, it must be remembered, had been the subject of freezing injunctions at all material times. The position may be summarised as follows. The amount of the assets as they appear from the affidavit of means sworn on 26 October 1999 - that is to say at the outset of these proceedings - was £292,000 or thereabouts. Following the death of Mrs Walker there was an accretion of those assets of £150,000 representing the proceeds of a life policy which matured on Mrs Walker's death. Against that, there were to be set the amounts allowed by way of payment of legal costs (some £55,000). There must also be set - although they may not yet have been paid - the costs both of defending these proceedings (something in the order of £200,000) and the cost of defending the disqualification proceedings (some £55,000). Mr Walker has told us that his understanding is that his former solicitors will not be pursuing him for the £55,000 billed in respect of the disqualification proceedings. And we have been told by counsel for the liquidator that it would be wrong to assume that the whole of the profit costs billed in respect of these proceedings (£167,000 odd) will have to be paid: first, because some part will be met by public funding which was available to Mr and Mrs Walker for part of the proceedings and, second, because that figure is before assessment or deduction on any taxation which Mr Walker may seek against the solicitors. But in broad terms, assets of some £440,000 have been reduced by out-goings in respect of legal expenses which may be regarded as exceeding £100,000 on any basis.

15. Seen in that light, the position, now, is that the assets are of very much the same order as they were at the time when the proceedings were started. That is because the out-goings in respect of legal expenses is balanced - or more than balanced - by the proceeds of the insurance policy which fell in on the death of Mr Walker's wife. In fairness to Mr Walker, I should add that, in his written submissions, he asserts that his net assets are rather greater now than they were in 1999. He attributes that to two factors: first, because frozen pension policies have increased in value as a result of the accrual of income and dividends and, second, because the proceeds of the insurance policy were used to purchase the house in Greece in which he now lives and which, he says, has increased substantially in value because of local conditions. Leaving that out of account, the broad position is that there has been little or no change in the amount of the assets available to meet (i) the liquidator's claim of £500,000 or thereabouts, (ii) any costs and expenses which the liquidator may be entitled to recover in these proceedings and (iii) any residual costs to be incurred by Mr Walker.

16. The liquidator has indicated, in paragraph 46 of his statement, that his own legal costs are estimated to be in the region of £180,000; but that figure, I think, is before taking account of the costs of the trial, which he estimates at three to four weeks. Further his own liquidation costs as at February 2001 were approximately £100,000 (see paragraph 29). On any basis therefore, if the liquidator were to proceed to trial in this matter, his liquidation costs and his further litigation costs, together with Mr Walker's own further litigation costs, would be likely to absorb any available pool of assets, leaving nothing to satisfy the £500,000 claim which the liquidator has been pursuing.

17. The liquidator's witness statement concludes (at paragraph 52) in these terms:

"The claim against Mr Walker has become increasingly worthless because of progressive reduction in the value of his reserved assets. That reduction has been a direct consequence of the use of such assets to fund the defence in the misfeasance and disqualification proceedings permitted by successive court orders starting with the order made by Mr Justice Hart on 26 September 2001. Although Mr Walker's asset position altered considerably in May 2001 following receipt by him of the proceeds of the Equitable Life insurance policy, the point has been reached where continued prosecution of the claim cannot be justified."

18. To my mind, on a proper examination, there has been no substantial change in the assets available to meet the claim; seen in the overall context of the size of the claim and the costs of pursuing it. The size of the claim can be estimated, from the freezing orders, at about £500,000. The assets then available to Mr and Mrs Walker were £292,000 or thereabouts. That was known to the liquidator by the end of October 1999 when the affidavits of means were filed in response to the requirement in the freezing injunctions. So that £292,000 was all that was then thought to be available to meet the claim, and the liquidator's costs of pursuing the action and the defendant's costs of resisting it.

19. The liquidator contends that it was not to be envisaged that the defendants would resist the claim; or, at least, that they would spend money on doing so. But it was reluctantly conceded, by his liquidator, to some extent at least, that Mr and Mrs Walker were entitled to resist declarations sought against them which, in the circumstances, would plainly have involved the imputation of dishonesty. It is important to keep in mind that the declarations sought included declarations as to fraudulent trading.

20. It is said, also, that the liquidator was entitled to assume that - once the funds were secure within the freezing orders - Mr and Mrs Walker's further costs would all be paid through public funding. It is not clear to me why that would be a reasonable assumption to make. It is common practice that funds are released from freezing orders for the purpose of defending claims. I know of no principle which supports the view that funds should not be released so that the public purse can be left to meet the defence costs.

21. Further as it seems to me, given the allegations that were being made in the misfeasance proceedings, it was obviously forseeable that proceedings for disqualification would be commenced by the Secretary of State; if only for the reason that the liquidator would have been required to report to the Secretary of State, or to the Official Receiver, the facts on which he was relying in his misfeasance proceedings. Those allegations, if made good, would be likely to lead the Secretary of State to the view that this was a case in which unfitness to be a director required disqualification.

22. So that from the outset, as it seems to me, the claim against Mr and Mrs Walker has been commercially worthless. I am not persuaded by the assertion in paragraph 52 of the liquidator's witness statement that it has become worthless as a result of events which have taken place since proceedings were commenced. Indeed it is the unfortunate death of Mrs Walker which has made the claim worth, if anything, rather more than it otherwise would have been.

23. The stance adopted on behalf of the liquidator is that it is perfectly proper to bring proceedings against a defendant for a claim which can never be met having regard to the assets available to meet it; to pursue that claim until all those assets have been expended by the defendants in defending that claim, perfectly properly; and then to walk away on the basis that the defendants are left to bear all their own costs. If that is what the law permits or requires, then I am bound to say I find that startling.

24. The matter came back before the judge on the application to discontinue on 17 June 2004. He referred to the relevant rule, CPR 38.6 (1). It is in these terms:

"Unless the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant against whom he discontinues incurred on or before the date on which notice of discontinuance was served on him."

The form in which that rule is expressed - which differs from the earlier rule, Ord.21,r.3 in the Rules of the Supreme Court 1965 - makes it clear that the normal order on discontinuance is that the claimant bears the defendant's costs up to the date on which notice of discontinuance is served. The rule makes it clear that a court may order otherwise; but the burden is on the party who seeks to persuade the court that some other consequence should follow; and the task of the court is to consider whether there is some good reason to depart from the normal order.

25. The judge directed himself by reference to two authorities to which he referred - Britannia Life Association of Scotland v Duncan-Smith , a pre-CPR case, and Everton v WPBSA , a post-CPR case - that he had to look at the state of the action as it was at the date when the application for leave to discontinue is made and see what was the fair and just thing to do at that time. He thought that that was really all that had to be done. He went on to say this, at paragraph 12 in his judgment:

"Taking into account what is fair and just, I take into account the following matters whether the application by the defendant can be safely equated with defeat or acknowledgment of defeat, whether the proceedings had in some way become academic, whether the claimant has obtained some legitimate benefit from the proceedings which it might not otherwise have obtained, what the economic value of the claim is, what the potential benefits of the claim might be, what the strength of the claim on a very prima facie basis is, not so as to conduct a mini trial but simply to see whether there was a reasonable basis for the claim and a continuing reasonable basis for the claim."

26. In making that list of the matters which he took into account, the judge made no reference to the relevance of any change (or not) in circumstances between the date when the proceedings were started and the date when the application to discontinue was made or the decision to discontinue was taken. In other words, he left out of account any consideration as to why a claim which was started on the basis of certain expectations should be discontinued without an order for costs against the claimant in circumstances where the expectations have not, in fact, changed - even though they may have been re-evaluated. The nearest that the judge came to that was at paragraph 18 of his judgment where he said this:

"Another important factor is that although the claim is for several hundred thousand pounds, the assets available for execution are very limited. When the action was started Mr and Mrs Walker disclosed assets of some £292,000. It is possible now that the assets consist of no more than the house in Greece which may be worth £200,000 and some pension policies of modest value".

But the assets available for execution at the time when the claim was started were not £292,000; they were £292,000 less the costs of pursuing and resisting the claim, liabilities which would have to be met before the assets could be available to satisfy this claim of £500,000. Further, in that context, the diminution which the judge identifies - from £292,000 to a figure just over £200,000 - is of little or no significance. This is not a claim in which it can be said that the underlying position has changed.

27. To my mind, the judge failed to take that material consideration into account. That was pointed out when permission to appeal was given by Lord Justice Neuberger on Mr Walker's application in person. I read from that judgment - not of course because we are required to follow it, but because it encapsulates the point clearly and succinctly and Mr Walker has adopted it, in effect, of his ground of appeal in substitution for the grounds which he set out in his appellant's notice. Lord Justice Neuberger said this at paragraphs 6, 7 and 8 of his judgment of 7 October 2004:

"6 The argument is this. When the liquidator began these proceedings, the position was as follows. First, he has a reasonable case for expecting in due course a judgment for a substantial sum for wrongful trading. I use the rather vague expression 'a reasonable case', because it is clear that the judge thought the claim had a real prospect of success and, in so far as that is relevant, I assume that that was always the position.

7 Secondly, it must have been clear to the liquidator that Mr Walker and (until she sadly died) his wife would fight the claim vigorously. That would not change from the start of the proceedings.

8 Thirdly, as the judge said, again quoting from paragraph 18 of the judgment .....

'When the action was started Mr and Mrs Walker disclosed assets of some £292,000.'

In other words, and in many ways crucial to my mind, the assets position of Mr and Mrs Walker (now sadly only Mr Walker) was almost identical when the action started to when the action was sought to be discontinued. [Counsel] makes the point that, because of the directors disqualification proceedings and the costs incurred by Mr Walker in connection therewith, it appeared from time to time that Mr ..... Walker had less money. That may or may not be right, but the essential point may well be that the value of the assets they had at the date that the liquidator was seeking to discontinue was virtually identical to the value of the assets they had when he began the proceedings."

He went on at paragraph 9:

"9 In all these circumstances, on the face of it, it appears to me that it is strongly arguable the crucial point is that there is no difference between a situation, in terms of prospects of success, likelihood of the matter being an expensive fight and the level of the defendants' recoverable assets, nothing in those three vital respects, that changed between the issue of proceedings and the date on which the proceedings were sought to be discontinued. In those circumstances, as a matter of principle I can see a very powerful argument for saying that the only correct answer at which the judge could have arrived, absent other points, was that the normal rule had to apply. Otherwise, it might be said with force that the normal rule is a dead letter."

28. Mr Ascroft - who has appeared for the respondent liquidator in this appeal and has sought valiantly to defend the judge's judgment - has taken us to a number of authorities which he suggests makes it unnecessary to consider the point identified by Lord Justice Neuberger: that is to say whether it is a good reason to depart from the normal rule that the claimant discovers at a late stage that which he could have discovered at an early stage, namely that his claim has, all along, been commercially valueless.

29. He began by inviting us to look at observations in this court in JT Stratford & Son Ltd v Lindley and Others [1969] 1 WLR 1547. As will be familiar, Stratford v Lindley was a case which went to the House of Lords on the question whether the plaintiffs - barge owners and repairers - could obtain an injunction restraining the defendants (who were trade union officials) from enforcing an embargo on the plaintiffs' barges in furtherance of a trade dispute. One outcome of the hearing in the House of Lords was that all the costs of the interlocutory proceedings for the injunction were ordered to be costs in the cause; so that those expensive interlocutory proceedings had no immediate costs consequences. It was, no doubt, anticipated that, sooner or later, the action would go to trial. But, by the time the matter was before this court again, in July 1969, the action had never come to trial. No one had lost; no one had won. And there was no likelihood that the action ever would come to trial. It in the nature of that type of litigation that the result that the parties are interested in is whether or not the interlocutory injunction is granted at the outset.

30. Lord Denning, MR, explained that the defendants - that is the trade union officials - in order to bring matters to a head had taken out a summons to dismiss the action for want of prosecution. The plaintiffs had taken out a cross-summons seeking leave to discontinue on terms that the defendants should pay the plaintiffs' costs. Those summonses had come before the master and then the judge; and were on appeal to this court. The Master of the Rolls said, at page 1553 E-F:

"It is plain that neither side wishes to go on with the action so as to get his own costs. But neither side wishes to pay the other side's costs. Each will fight rather than pay the other side's costs. So what is to be done? Is this case to go on simply about costs?"

He referred to the rule in relation to striking out, and to the rule (then Ord.21 r.3 (1)) as to discontinuance. Order 21 r. 3 (1) was in these terms:

" ..... a party may not discontinue an action ..... without the leave of the court, and the court ..... may order the action ..... to be discontinued ..... on such terms as to costs, the bringing of a subsequent action or otherwise as it thinks just."

This court held that the right course was to give leave to discontinue on the basis of no order as to costs.

31. There are three important features of Stratford v Lindley . The first, of course, is that the case was determined on the basis of Ord.21,r.3 of the Rules of the Supreme Court and not on the basis of CPR 38.6. Insofar as there is a difference between the two rules, the later rule indicates what the normal order should be in a case where a plaintiff seeks to discontinue, in a way that the former rule did not. Second, as Lord Denning and Lord Justice Cross (page 155 E) make clear, neither side wanted the issue to be determined for its own sake; so that the issue was, in truth, academic in the sense that neither side had any interest in the outcome of the underlying issue in the litigation. Third that was a case between powerful employers and a powerful trade union in which both sides could continue to fight over the question of costs; that is to say, they each had the means to do so.

32. The distinction between Stratford v Lindley and this case, quite apart from the difference in the wording of the rule, is that in this case Mr Walker would like to have the question whether or not the allegations of misfeasance and fraudulent trading made against him are well founded, decided; and is quite happy to continue to fight in person to that end. It is the liquidator who no longer wants that issue decided: first, because it will not bear him any fruit even if it is decided in his favour and, second, because his own funding position, as counsel frankly accepted, is such that he cannot afford to continue to fight. By that, I take counsel to accept that there are no funds in the liquidation to finance a three-to-four-week trial; that there are no creditors willing to indemnify the liquidator against the costs of a three-to-four-week trial; and that the funding that the liquidator is at present enjoying, under a conditional fee arrangement, is unlikely to continue for the purpose of conducting a three-to-four-week trial against a defendant who, on the figures, would be unlikely to meet any costs that were awarded. So that, in contrast to Stratford & Son Ltd v Lindley , this is not a case where, if the claimant is refused leave to discontinue on the terms which he seeks, he will simply go on with the action. He is not in a position to do so.

33. We were referred, also, to the decision of this court in RTZ Pension Property Trust Ltd v ARC Property Developers Ltd [1999] 1 AER 532, and to a decision made on application for permission to appeal to this court in Britannia Life Association of Scotland v Wallace Duncan Smith , (reported 8 June 1995).

34. Britannia is the earlier of the two. It must be kept in mind that it was an application for leave to appeal rather than an appeal itself; and it was an application which required consideration of the old rule, Ord.21,r.3. In that case the defendant was Mr Wallace Smith, who - as was quite notorious at the time - had been convicted of offences of dishonesty in relation to his commercial activities. Those convictions did not relate to the particular claim that was being made in the proceedings. But it is difficult to see that Mr Wallace Smith could have had any interest in wishing to pursue, or to be pursued, in the action; having regard to the fact that he had already been convicted of dishonesty in related matters. This court refused permission to appeal on the basis that Mr Justice Waller, at first instance, had been correct in the test which he had applied. That test, which is set out in the judgment of Lord Justice Morritt in this court, was this:

" ..... the real point at the end of the day is that one just has to look at the state of the action as it is at the date when the application is made and see what the fair and just thing to do is at that moment in time. Obviously in doing that, one has to take a variety of different matters into account."

35. Mr Justice Waller took into account five factors, of which the first was that the plaintiff had a strongly arguable case against this defendant. It does not appear from the judgment in this court what the other four matters were. Parties' researches have not unearthed a transcript of the judgment of Mr Justice Waller.

36. It is clear that the test formulated as "one just has to look at the state of the action as it is and see what the fair and just thing to do is at the moment in time" influenced the judge in this case. For my part, I doubt whether the test is as simple as that under CPR 38.6. Plainly, under the new rule, the court has to be persuaded that it is just to depart from the normal rule. The rule recognises that justice will normally lead to the conclusion that a defendant who defends himself at substantial expense against a plaintiff who changes his mind in the middle of the action for no good reason - other than that he has re-evaluated the factors that have remained unchanged - should be compensated for his costs.

37. For my part, I do not think much weight can be put upon the judgment in Britannia Life in the circumstances that we do not know what were the other factors that Mr Justice Waller took into account. The point that was exercising this court, as it seems, is that there had become a perception, following a decision of Mr Justice Henry in Barrett v Bear , that the claimant would only be required to pay a defendant's costs on discontinuance if he was, in effect, surrendering and acknowledging defeat. That perception was laid to rest in Britannia ; and it is plainly no longer the law in the light of CPR 38.6, if (indeed) it ever was.

38. We were referred also to the decision of this court in RTZ Pensions v ARC [1999] 1 AER 532, in which (at page 541 between D-F) Lord Justice Potter indicated that he was approaching the case on the basis that where discontinuance occurs in circumstances tantamount to an acknowledgment of defeat, then the more normal rules as to costs, namely that a defendant is entitled to an order for his court costs, should apply unless good reason can be shown to the contrary. As I have said, if the rule was ever so circumscribed, it is not now in the light of the CPR.

39. The only post-CPR authority that we were shown was a decision of Mr Justice Gray in Everton v WPBSA Promotions Ltd (unreported) 13 December 2001. The particular feature of that case was that the fourth defendant, against whom the claimant was seeking to discontinue, had become bankrupt during the course of the proceedings as a result of his unsuccessful claim against a newspaper for libel. He had been ordered to pay the newspaper's costs in the sum of £325,000; and he has to bear his own costs in a further £416,000. So that, during the course of the proceedings with which Mr Justice Gray was concerned, there had been a substantial change in the defendant's position leading to bankruptcy. That change was not a consequence of the proceedings in which he was being sued by the claimant. Mr Justice Gray summarised the position in paragraph 17 of his judgment. He said this:

"Certainly it cannot be said that this discontinuance 'can safely be equated with defeat or an acknowledgment of likely defeat'. I must seek to make an order which is in the circumstances of this case just. The reality is that the claimant's claim against the fourth defendant has become worthless to him through no fault of his own but rather by reason of the supervening bankruptcy of the fourth defendant. I think the claimant would be entitled to feel that there was some injustice in ordering him to pay costs whether to the fourth defendant or to Gouldens [the fourth defendant's solicitors] in circumstances where he has in effect been compelled to abandon his claim against the fourth defendant. For these reasons I have decided that the just and reasonable course is to permit the claimant to discontinue his claim against the fourth defendant with no order as to costs."

Everton v WPBSA was a case in which the change in the factors which had to be taken into account in deciding whether or not it was sensible to pursue the claim had occurred, not as a reason of anything the claimant had done, but because the defendant had embarked on unsuccessful libel proceedings which had led to his bankruptcy. The claimant's claim had become worthless as a result of something the defendant had done of his own initiative. That feature is wholly absent from the present case; not least because there is, in the present case, the unusual factor that the defendant's assets have at all times been subject to the control of the court under the freezing orders.

40. I have taken those authorities into account. There is nothing in them which leads me to think that we should accept that it would be a good reason for departing from the general rule under CPR 38.6 merely because the plaintiff has become alive at a late stage to the commercial effect of factors which have been there from the outset and which, if properly evaluated, could have led to a decision in 1999 that these were proceedings which were not worth pursuing.

41. It is because the judge failed to take that into account that I am persuaded that his exercise of discretion is flawed. It is only because I am persuaded that his exercise of discretion is flawed that I think it appropriate that this court should go on to consider the matter itself in the exercise of the discretion conferred under CPR 38.6.

42. The question then is whether there is a good reason for departing from the normal rule. To my mind, there is no reason at all for departing from the normal rule. Indeed as it seems to me, it would be most unjust if Mr Walker was left to bear the costs of these proceedings - amounting to a sum likely to be in excess of £100,000 - simply because the liquidator has arrived late at a decision which he could and should have reached at the time when the proceedings were commenced. I do not think it is just to allow the liquidator to walk away from these proceedings leaving Mr Walker to bear his own costs, in the circumstances that the relevant factors have not changed in any material respect since the time at which proceedings were commenced.

43. For those reasons I would allow this appeal to the extent of setting aside paragraph 3 of the order of 24 June 2004 - that is the paragraph that records no order as to costs. In place of that paragraph I would substitute the usual order requiring the claimant to pay the costs of the defendants down to the date of the notice of discontinuance.

44. LORD JUSTICE LAWS: I agree that this appeal should be allowed for all the reasons given by my Lord, Lord Justice Chadwick, and that the orders proposed by my Lord should be made.

45. In my judgment, the judge below has, with respect, articulated no proper reason why the liquidator should not pay the appellant's costs as the price of his discontinuing his action. The order made below was, in my opinion, frankly unjust.

46. LORD JUSTICE JONATHAN PARKER: I agree with both judgments.

( Post judgment discussion )

R U L I N G

47. LORD JUSTICE CHADWICK: The order we propose to make in relation to interim payment is this: there shall be an order for interim payment in the amount of £25,000 on terms that Mr Walker provides to the liquidator's solicitors within seven days the receipts for moneys which he has paid to his solicitors in respect of the misfeasance proceedings. Payment - of the £25,000 - is then to be made within fourteen days of those receipts being provided.

48. We give liberty to both parties to apply to the Companies Court to vary that order. The liquidator can apply to the Companies Court if the receipts fail to justify a payment of £25,000 and Mr Walker can apply to the Companies Court if he produces receipts which, in his view, justify an interim payment of more than £25,000. It is to be hoped that when the receipts have been produced, the parties will be able to agree an appropriate figure.

Order: Appeal allowed with the costs and those of application on 17 June to be paid by liquidator to appellant to be assessed if not agreed