Hashem v Shayif & Anor

I handed down judgment in these proceedings on 22 September 2008: Ben Hashem v Al Shayif [2008] EWHC 2380 (Fam), [2009] 1 FLR 115.

I have now to deal with two questions:

The issue as to costs came on for hearing before me on 22 January 2009, the issue in relation to the injunction on 25 February 2009. The company and the children were represented, as before, by Miss Jane Evans-Gordon and the wife by Mr Christopher Wagstaffe, now appearing necessarily without the assistance of Miss Judith Parker QC (Parker J as she now is).

The two issues are quite discrete, and were dealt with at separate hearings. It is convenient, however, to deal with them in a single judgment.

I deal first with the question of the costs.

Miss Evans-Gordon and Mr Wagstaffe had each prepared most helpful skeleton arguments. But the course of oral argument revealed that a point which Mr Wagstaffe had raised about the possible impact of section 11 of the Access to Justice Act 1999 raised somewhat more complicated issues than had originally been anticipated and issues, moreover, on which I was likely to be assisted by further submissions. It was agreed that both sides should lodge further skeleton arguments on the section 11 point. Miss Evans-Gordon’s submissions were dated 26 January 2009, Mr Wagstaffe’s followed on 5 February 2009 and Miss Evans-Gordon’s brief riposte on 18 February 2009.

I shall take my earlier judgment as read. It suffices to recall that I was concerned with two separate sets of proceedings, the ancillary relief proceedings and the Chancery proceedings (paragraph [13]); that the company and the children were wholly successful in the Chancery proceedings, the wife succeeding against them only (and even then only in part) in her claim against the company for relief under section 24(1)(c) of the 1973 Act (paragraphs [302], [337(i)]); and that the wife succeeded in her claim for ancillary relief against the husband in the amount she had claimed (paragraphs [333], [337(ii)]).

To the facts as set out in my judgment I need add only two things:

I have referred to the ancillary relief proceedings and the Chancery proceedings as separate sets of proceedings. So they were in origin, and it is convenient for analytical and descriptive purposes to use the two separate labels. But it is important to remember, first, that on 12 October 2006 the company was joined as a respondent to the ancillary relief proceedings and, second, that on 20 November 2006 the two sets of proceedings were consolidated (paragraph [14]). So from that comparatively early stage in the litigation the wife, the husband, the company and the children have all been parties to the one single consolidated action.

It should be emphasised that there is one potentially important strand of this litigation which remains outstanding, namely the loan account issue. As to this, of course, if the wife is successful in establishing that the company is indebted to the husband (and thus now to her), that indebtedness was a fact which, says Mr Wagstaffe, ought to have been disclosed; certainly by the husband and arguably by the company which, as second respondent to the ancillary relief application, was also, he submits, bound by the duty to give full and frank disclosure. At this stage, as he says, it is impossible to say what the court’s conclusions on that issue will be. However there is, he submits, at least a reasonable prospect that the wife will succeed in showing that a substantial sum is (now) owed to her. In these circumstances, he says, the uncertainty surrounding this issue means that the court should be cautious when it comes to making costs orders at this stage. Indeed, he submits, it may be premature for me to be making any costs orders at this stage at all.

I do not agree. The loan account issue is an entirely discrete matter and one which, moreover, was first raised by the wife only at the very end of the original hearing – which is, indeed, why it has to had to be ‘hived-off’ as a discrete matter. No injustice, in my judgment, will be done to anyone if I deal here and now with the other costs issues. I do not see how the outcome of the loan account issue, whatever it may be, is going to affect the other costs issues I have to decide; and full justice in relation to the costs of the loan account issue can, I am confident, be done once the outcome of that issue is known. The parties are entitled to have a decision now as to the costs of the various issues which, unlike the loan account issue, were dealt with at the original hearing and in relation to which I have given judgment.

The company and the children seek an order that the wife pays their costs of the Chancery proceedings. In relation to the dispute under section 24(1)(c) of the 1973 Act – the costs of which, Miss Evans-Gordon says, were minimal – the company says that there should be no order for costs. Translating this into a single order Miss Evans-Gordon says that the wife should be ordered to pay 95% of the company’s and the children’s costs of the litigation.

The wife seeks an order that the husband pays her costs both of the ancillary relief proceedings and of the Chancery proceedings in full. Mr Wagstaffe says that, as between the wife and the company and the children, there should be no order for costs; though neutral on the question of whether they ought to be able to recover their costs against the husband, he says that if the company and the children are to recover their costs at all it should be against the husband and not the wife. Alternatively, he says that if any order for costs is made against the wife in favour of the company and the children, then those costs (i) should form part of the costs she is entitled to recover from the husband and (ii) should not become enforceable until she has in fact recovered them from the husband.

Accordingly, as Mr Wagstaffe puts it, the order the wife seeks is closer to a Sanderson order (see Sanderson v Blyth Theatre Co [1903] 2 KB 533) than a Bullock order (see Bullock v London General Omnibus Co [1907] 1 KB 264), save that she is not positively advocating a costs order in favour of the company and the children even at the husband’s expense. Her alternative position is that if I am nonetheless satisfied that a costs order should be made in favour of the company and the children against her, she ought to be able to recover those costs against the husband as part of her more general claim for costs on a Bullock basis: cf KSO v MJO and JMO (PSO intervening) [2008] EWHC 3031 (Fam).

The wife further submits that, if and to the extent that she would otherwise be exposed to an order for costs in favour of the company and the children, she is entitled to the protection of section 11 of the 1999 Act.

Mr Wagstaffe submits that in dealing with these issues, I have to deal with what might be regarded as issues of pure principle, for there are, as Miss Evans-Gordon accepts, no Calderbank or Part 36 offers from any party which I need to deal with. Indeed there are no Calderbank or Part 36 offers at all.

Mr Wagstaffe submits that so far as the wife’s costs are concerned, she has the plainest possible claim for costs against the husband. He reminds me of the following points:

I agree with Mr Wagstaffe. This is the plainest possible case for making the husband pay the wife’s costs of proceedings in which, as against him, she has been fully vindicated. For all the reasons given by Mr Wagstaffe, costs should here follow the event and should be awarded on an indemnity basis.

Much more difficult questions arise in relation to the costs incurred by the company and the children.

Miss Evans-Gordon submits that:

Inevitably in the circumstances Mr Wagstaffe’s submissions are more complex. Essentially they can, I think, be boiled down to the following propositions:

Miss Evans-Gordon responds as follows:

In my judgment it is important at the outset to distinguish between the company and the children, for their roles and interests in the litigation were not the same. The children no doubt had a financial interest in the outcome of the claims being brought by the wife against the company, but their only interest qua litigant was in meeting the wife’s claims that their shareholdings in the company belonged beneficially to the husband and, more generally, that the corporate veil should be pierced. On those issues – the only issues in relation to which they were parties – they were wholly successful. The company, in contrast, was involved not merely in meeting the wife’s claim to pierce the veil of incorporation but also in meeting her claims that the properties, although vested in the company, belonged beneficially to the husband and that she was entitled to relief under section 24(1)(c). The company was wholly successful in relation to the first two but only partially successful in relation to the third.

The point, in short, is that the ‘discount’, as I have referred to it, properly impacts only on the costs to which the company would otherwise be entitled; it does not, in my judgment, impact on the costs to which the children would otherwise be entitled.

I turn to the point of substance. In my judgment, and essentially for the reasons given by Miss Evans-Gordon, both the children and (subject only to the ‘discount’) the company are entitled to their costs of the proceedings.

One can well understand how, given what the husband had said to her, the wife may initially have got herself into the ‘mindset’ of thinking – at least in layman’s terms – that the company and the properties all belonged to the husband. But the brute fact is that she wholly failed in making good any of those claims. And the mere fact – if fact it be – that she may have had a reasonable basis for making, and even for pursuing, those claims cannot of itself and without more ado immunise her from the normal consequences of defeat in such litigation, namely that costs follow the event.

The fact, as I found, is that the company and the children and the husband were separate entities in fact and in law. Nor, in my judgment, has it been demonstrated that they were acting in cahoots in the litigation. So the wife cannot, in my judgment, rely upon the husband’s behaviour as a reason for escaping the normal consequences of failure in such litigation. The fact that the Chancery proceedings were, as Mr Wagstaffe puts it, essentially satellite litigation – if they were; it should not be assumed that I necessarily accept his characterisation – is, in large part, neither here nor there. No doubt it was the husband’s actual and anticipated stance which in large part drove the wife down the path of litigation with the company and the children, but that is not of itself something which should immunise her from the consequences of her chosen litigation strategy, given, to repeat, my findings that the company and the children and the husband were separate entities in fact and in law and that they were not acting in cahoots in the litigation.

Nor, with all respect to Mr Wagstaffe’s submissions, does reliance upon the alleged litigation misconduct of the company and the children justify an adjustment of the orders for costs which would otherwise be appropriate. The company’s disclosure may have been delayed, but the simple fact is that the wife and her legal advisers had access to all the relevant material well in advance of the final hearing and in circumstances where they had more than adequate time to master the finer details, as, indeed, was demonstrated by the various very helpful schedules and analyses prepared by Mr Wagstaffe that were put before me and some of which I referred to in my judgment. And any shortcomings in their witnesses did not, in truth, impact upon either the outcome or, perhaps more important for present purposes, the ability of the wife and her advisers to evaluate the merits or otherwise of her case.

The fact is, in my judgment, that, well before the final hearing began, the wife had access to all the relevant available material. She was in a position, with the assistance of her advisers, to take an informed view and to make an informed assessment and evaluation of her prospects of success. There is, in my judgment, no way in which either the company or the children are to be blamed or in which they can properly be held liable in costs for the wife’s ultimate failure.

At the end of the day the simple truth, in my judgment, is that the litigation in which the company and the children were involved was litigation of a type where costs normally follow the event and that, despite his endeavours to suggest otherwise, none of the matters canvassed by Mr Wagstaffe suffice, either on their own or even when taken in combination, to deny the company and the children the orders for costs to which, absent such matters, they could normally expect to be entitled.

Accordingly, for these reasons, the children are, in principle, entitled to an order that the wife pays their costs of the proceedings.

For precisely the same reasons, and subject only to the question of the ‘discount’, the company is likewise, in principle, entitled to an order that the wife pays its costs of the proceedings. The question thus arises as to the appropriate amount of the ‘discount’.

The facts are that the company was wholly successful in relation to that part of the claim under section 24(1)(c) which related to 57 Forest House and very largely, though not completely, successful in relation to 17 Kensington Heights. And I must make it clear that, despite Mr Wagstaffe’s submissions to the contrary, its substantial measure of success in relation to 17 Kensington Heights was in no way due to its having held a gun to my head – a species of constraint of which I was at all times wholly oblivious.

Miss Evans-Gordon suggests that, in all the circumstances, the appropriate order in relation to the section 24(1)(c) issue is that there should be no order for costs. I agree with that approach, though not with the arithmetical consequence which she says should flow from it.

I recognise that the length of that part of my judgment which deals with the section 24(1)(c) issue is not an accurate reflection of the proportion of overall time and energy devoted to the issue. But I cannot accept Miss Evans-Gordon’s characterisation of the costs of the issue as being minimal. Precision in such matters is notoriously impossible of achievement, and at best any assessment can only be impressionistic, but I think the appropriate ‘discount’ is more accurately assessed as being 10% rather than the 5% Miss Evans-Gordon suggests.

Accordingly, and for all these reasons, the company is in principle, entitled to an order that the wife pays 90% of its costs of the proceedings.

The question then arises as to whether the costs the wife recovers from the husband should include the costs she has incurred in contesting the claims of the company and the children (and pursuing her counterclaims against them), including the costs she has been ordered to pay them.

This topic is, of course, of no concern to Miss Evans-Gordon. As she says, to the extent that the wife seeks to recover any costs that she may be ordered to pay to the company and/or the children against the husband by way of a Bullock order, she makes no submissions, as it is of no concern to her clients.

Mr Wagstaffe says that, essentially for the same reasons as he has deployed in support of his primary argument that the wife should not be required to pay the costs of the company and the children, if that argument is unsuccessful, and the wife is ordered to pay those costs, she should be entitled to recover them in full from the husband. He submits that her approach was essentially compelled by what the husband said during the marriage and the stance he took after it. So, he submits, just as the wife ought to recover as against the husband not only her costs of the ancillary relief application but also her costs of the Chancery proceedings, so it would also be appropriate, essentially for the same reasons, for her to recover as against him any costs that she is ordered to pay to the company or the children.

I agree with Mr Wagstaffe, essentially for two reasons. In the first place, had it not been for the husband’s actual and anticipated stance in relation to the ancillary relief proceedings – his evident determination to set his face against the court’s jurisdiction and to defy the court’s orders (none of which he has ever complied with) – the wife would not have been driven down the path of litigation with the company and the children. So it was, in a very real sense, because of the husband – and only because of the husband – that the wife ever embarked upon her ill-fated disputes with the company and the children. Secondly, she was encouraged in that endeavour by what the husband had told her, however inaccurately is largely neither here nor there, about his ownership of the properties and the company.

In all the circumstances it is just and fair that the husband should pay the wife’s costs of the entirety of the litigation, including the costs I have ordered her to pay the company and the children.

The question then arises, given the orders I have made in favour of the company and the children, on what basis should they be entitled to enforce them? Mr Wagstaffe submits that in this context two separate issues need to be borne in mind. The second, relating to section 11 of the 1999 Act, I deal with separately below.

The first, which arises independently of section 11, is this. Mr Wagstaffe submits that, assuming I accept (as I have) that the wife should be entitled to recover from the husband any costs she has to pay the company and the children, it would in the circumstances of this case be plainly wrong for them to recover their costs from the wife before she can recover her costs from the husband. He accepts that the wife may never recover her costs from the husband at all. Yet, he says, as a matter of principle, and quite apart from the further considerations mentioned below, it would be wrong in the circumstances of this case to compel her to pay their costs unless and until she recovers her own costs – including the sums she has to pay them – from the husband.

Mr Wagstaffe further seeks to pray in aid the wife’s financial circumstances. He says that, as regards her resources, as matters stand at present, the wife has no assets and no income. She has an award of £7 million which the husband so far refuses to pay, and which she will not find it easy to enforce (if she can do so at all). She has the benefit of such sums as are owed to the husband by the company, though its position is of course that it does not owe the husband anything. Mr Wagstaffe submits that in these circumstances it would not be unprincipled for the court to determine that it would be unreasonable to require her to pay anything as things currently stand and to decline to make an immediate costs order on that basis alone. Looking to the future, the reality, he says, is that unless and until the wife is able to enforce her award (including any award of costs) against the husband, she has no ability whatsoever to satisfy any costs order in favour of the company and it cannot, he says, be reasonable to require her to pay what she does not have. Moreover, as he reminds me, the aggregate of the wife’s housing budget and her Duxbury fund exceeded £5 million. It is not reasonable, he says, to expect the wife to pay any costs (if, contrary to her submissions, she is ordered to) unless and until her need for income and accommodation have been met.

Mr Wagstaffe refers to no authorities in support of an approach which far from being principled, as he would have it, seems to me to be largely unprincipled, not least because, as he accepts, the wife may never in fact recover her costs from the husband at all. What then? Is the wife to be indefinitely, even permanently, immunised from the enforcement of the costs orders against her? Or only for some limited period – and, if so, for how long?

l have already determined that the company and the children are entitled to look to the wife, rather than to the husband, for payment of their costs. True it is that I have also ordered that she should have a right of recourse over as against the husband (and, I am bound to add, though I may be proved wrong, for what that is worth), but why should that – or, indeed, the husband’s misconduct generally and his anticipated failure to comply with the substantive orders I have made against him – stand in the way of the company and the children taking whatever steps may be open to them to enforce against the wife the costs orders I have made? And poverty, though it may be an answer to certain methods of enforcement, is not of itself any reason to defer the operation of an order for costs.

Sympathetic though one may be for the predicament in which the wife now finds herself, sentimentality, to speak plainly, is no proper basis for the exercise of the court’s jurisdiction in relation to costs. Were I to accede to Mr Wagstaffe’s submissions on this point, I would in large measure be taking away with the one hand what I have already determined ought to be given by the other.

In my judgment, there is, section 11 apart, no proper or principled basis for denying or deferring the right of the company and the children to enforce the orders for costs which, in the exercise of my discretion, I have decided they are entitled to. I decline to do so.

Finally, Mr Wagstaffe prays in aid section 11 of the Access to Justice Act 1999.

The wife, as I have mentioned, has had the benefit of a public funding certificate since 16 September 2006. That of course has the consequence that she has the benefit of the protection conferred by section 11 of the 1999 Act, which in a nutshell, according to Mr Wagstaffe, provides that any costs order against the wife cannot exceed the amount which in the court’s view it is reasonable to require her to pay, having regard to her resources and to the way in which she conducted the litigation.

Miss Evans-Gordon submits that this is an inaccurate over-simplification, and that section 11 does not in the circumstances afford the wife the protection she seeks.

Section 11, so far as material, provides as follows:

“costs ordered against an individual in relation to any proceedings or part of proceedings funded for him shall not exceed the amount (if any) which is a reasonable one for him to pay having regard to all the circumstances including –

(a)

the financial resources of all the parties to the proceedings, and

(b)

their conduct in connection with the dispute to which the proceedings relate;

and for this purpose proceedings, or a part of proceedings, are funded for an individual if services relating to the proceedings or part are funded for him by the Commission as part of the Community Legal Service.”

But that, as Miss Evans-Gordon observes, has to be read in conjunction with section 22(4), which provides that:

“Except as expressly provided by regulations, any rights conferred by or by virtue of this Part on an individual for whom services are funded by the Commission as part of the Community Legal Service or Criminal Defence Service in relation to any proceedings shall not affect –

(a)

the rights or liabilities of other parties to the proceedings, or

(b)

the principles on which the discretion of any court or tribunal is normally exercised.”

The effect of this provision, which as Miss Evans-Gordon points out has been a feature of the legislation ever since 1949 (see section 1(7)(b) of the Legal Aid and Advice Act 1949, section 2(5) of the Legal Aid Act 1974 and section 31(1) of the Legal Aid Act 1988), is that the question of the exercise of the court’s discretion over the award of costs should not be affected by the fact that a party is legally assisted: see Daley v Diggers Ld [1951] 1 KB 661 at page 663, Stewart v Stewart [1974] 1 WLR 877 at page 886, Lockley v National Blood Transfusion Service [1992] 1 WLR 492, Knight v Lambeth London Borough Council [1995] 2 CLY 3969, Hornby v Cripps [1995] 2 CLY 3993, Re Neckles [2003] All ER(D) 161 (Mar) and Hill v Bailey [2003] EWHC 2835 (Ch), [2004] 1 All ER 1210. So section 11 has no application at all to the exercise of the court’s discretion in relation to the incidence, the initial award, of costs; it goes at most to questions of enforcement.

Mr Wagstaffe does not take issue with this, acknowledging that section 11 has, as he puts it, no bearing on the initial question of whether a costs order is appropriate in principle, but asserting, on the other hand, and correctly, that once a costs order has been made section 11 assumes considerable importance.

Miss Evans-Gordon further submits that, since the true effect of section 11 is merely to protect the assisted person from being subject to an enforceable order to pay costs to the other party otherwise than as provided by the 1999 Act, it does not affect any other rights of a successful party, such as the right to set-off any costs order in his favour against any sums he may be ordered to pay the assisted party: see Lockley v National Blood Transfusion Service [1992] 1 WLR 492 and Hill v Bailey [2003] EWHC 2835 (Ch), [2004] 1 All ER 1210.

The general principle was explained by Scott LJ in Lockley v National Blood Transfusion Service [1992] 1 WLR 492 as follows at page 495:

“The operation of a set-off does not place the person whose chose in action is thereby reduced or extinguished under any obligation to pay. It simply reduces or extinguishes the amount that the other party has to pay. The operation of a set-off, in respect of the liability of a legally assisted person under an order for costs does not require the legally aided person to pay anything. It does not lead to any costs being recoverable against the legally aided person. Accordingly, in my judgment, there is nothing in section 17(1) [of the 1988 Act] or in regulation 124(1) to prevent set-off. An assessment of the amount that it would be reasonable for the legally aided person to pay, is not, therefore, a precondition of, and, indeed, has nothing to do with, set-off.”

In the present case, she submits, no sufficiently unusual circumstances exist to displace the usual right of set-off exercisable against any sum the wife may recover against the company if she succeeds on her claim in relation to the loan account. She points to Lockley v National Blood Transfusion Service [1992] 1 WLR 492 at page 496 (see below) as showing what she says is the very limited discretion the court has to refuse to order that an unassisted party can set-off costs orders in his favour against costs or damages awarded to the assisted party.

Moreover, as Miss Evans-Gordon points out, referring in this context to Re Neckles [2003] All ER(D) 161 (Mar), section 11 affords protection only in relation to the period during which the person has the benefit of a Legal Services Commission certificate. Since the wife was privately funded until 16 September 2006, she has no protection in relation to the company’s or the children’s costs incurred prior to that date, and accordingly should be ordered to pay them following a detailed assessment if not agreed.

In relation to their costs since then, Miss Evans-Gordon confirms that the company and the children seek only orders permitting them to set-off their costs against any sums they must pay to the wife.

Mr Wagstaffe submits that Miss Evans-Gordon reads too much into the two authorities she particularly relies upon, Lockley v National Blood Transfusion Service [1992] 1 WLR 492 and Hill v Bailey [2003] EWHC 2835 (Ch), [2004] 1 All ER 1210. First, however, he seeks to set them in what he says is their proper context. A litigant, he says, has in general terms no automatic right to set-off sums he has been ordered to pay another party against sums that the other party has been ordered to pay him. A right of set-off may arise under a contract (as for instance many banking contracts make provision for) but it is important to note, he says, that in that situation the effect of the set-off clause in such a contract does not simply illustrate or draw attention to a pre-existing right of set-off, it creates the right of set-off. In litigation, he says, the question of set-off usually arises because the court specifically directs that, for example, a defendant be entitled to set off sums which he is owed by the claimant against the judgment in the claimant’s favour which has just been entered against the defendant. The important point, he submits, is that unless the court specifically directs a set-off, or there is some other basis for a set-off (for example, a contractual entitlement to set-off), there is no automatic right or entitlement to set-off sums owed by X to Y against sums owed the other way.

So, he says, in the present case, there is no pre-existing right of set-off which the company or the children are entitled to exercise, whatever. Of course, as he accepts, the court has the power to order such a set-off, but unless and until it does, section 11, he submits, continues to offer the usual protection to a publicly funded litigant. What Miss Evans-Gordon’s submissions amount to, he says, is in essence a suggestion that the company and the children are – at present and without more – entitled to set-off any sums they are obliged to pay the wife against any costs order in their favour, and thus that section 11 is not engaged. This however, he submits, is quite incorrect: at best, he says, they are entitled to invite the court to direct a set-off, and they have not (so far) done so. Section 11 is therefore fully engaged.

Mr Wagstaffe seeks to distinguish Hill v Bailey [2003] EWHC 2835 (Ch), [2004] 1 All ER 1210. Indeed, he says that, correctly understood, that case does actually provide the answer to the point, though not the answer for which Miss Evans-Gordon contends. The case concerned a solicitor’s partnership dispute. One of the defendants was found to be liable to the claimant (who was legally assisted) in the sum of some £36,000. The claimant was awarded his costs down to a certain date; thereafter, the defendant was awarded two-thirds of his costs against the claimant. Master Dyson, who had heard the claim at first instance, directed that the parties’ costs be taxed and ordered that the sums due under the costs orders he had made be set-off as against each other. The defendant took the view that the costs payable to him dwarfed the sums he owed the claimant and therefore decided not to pursue his taxation. Eventually proceedings were taken against him by the claimant, who had had his costs taxed and who sought to enforce the aggregate amount due; this prompted the defendant belatedly to seek to have his costs assessed. The Taxing Master however took the view that the application for a determination of the claimant’s (assisted party’s) ability to pay was time-barred and dismissed the defendant’s application. The defendant successfully appealed to Lightman J, sitting with two assessors.

What Mr Wagstaffe seeks to derive from this is that Master Dyson had specifically – and, Mr Wagstaffe says, crucially – ordered that the parties should be entitled to set-off the sums due under the orders he had made as against each other. The right of set-off arose accordingly, he says, not from the fact that the defendant expected to recover £X from the claimant in circumstances where in fact he was separately indebted to the claimant in the sum of £Y; it arose from the direction made by the Master. It was that fact, according to Mr Wagstaffe, which caused Lightman J to hold that section 11 was not engaged: the claimant was not required to ‘pay’ any costs to the defendant; rather, the set-off direction conferred upon the defendant a defence to the sum claimed by the claimant from him.

Mr Wagstaffe refers in this context to what Lightman J said at para [15], which does indeed demonstrate (see also para [24]) that it is the existence of the set-off which enables the non-assisted party to avoid what would otherwise be the impact of section 11. But this, with all respect to Mr Wagstaffe, does not meet Miss Evans-Gordon’s real point, which is that, one way or another, and even if only by judicial order – which she invites me to make – the company and the children are entitled to a set-off.

What are for present purposes the relevant principles were, as Miss Evans-Gordon and Mr Wagstaffe agree, accurately and succinctly summarized by Scott LJ in Lockley v National Blood Transfusion Service [1992] 1 WLR 492 at page 496:

“(1)

A direction for the set-off of costs against damages or costs to which a legally aided person has become or becomes entitled in the action may be permissible.

(2)

The set-off is no different from and no more extensive than the set-off available to or against parties who are not legally aided.

(3)

The broad criterion for the application of set-off is that the plaintiff’s claim and the defendant’s claim are so closely connected that it would be inequitable to allow the plaintiff’s claim without taking into account the defendant’s claim. As it has sometimes been put, the defendant’s claim must, in equity, impeach the plaintiff’s claim.

(4)

Set-off of costs or damages to which one party is entitled against costs or damages to which another party is entitled depends upon the application of the equitable criterion I have endeavoured to express. It was treated by May J in Currie & Co v The Law Society [1977] Q.B. 990, 1000, as a “question for the court’s discretion.” It is possible to regard all questions regarding costs as being subject to the statutory discretion conferred on the court by section 51 of the Supreme Court Act 1981. But I would not have thought that a set-off of damages against damages could properly be described as a discretionary matter, nor that a set-off of costs against damages could be so described.

(5)

If and to the extent that a set-off of costs awarded against a legally aided party against costs or damages to which the legally aided party is entitled, cannot be justified as a set off (i) the liability of the legally aided party to pay the costs awarded against him will be subject to section 17(1) of the Act of 1988 and regulation 124(1) of the Regulations of 1989; and (ii) the section 16(6) charge will apply to the costs or damages to which the legally aided party is entitled.”

Mr Wagstaffe focuses on paragraph (3). In other words, he says, if C recovers damages from D, but in fact is already liable to D for other reasons, D is not entitled ex debito justitiae to set off the one against the other; only where C’s claim against D is ‘impeached’ by D’s cross-claim should a set-off be directed. Miss Evans-Gordon for her part draws attention to paragraph (4), emphasising that the matter is not simply the application of some general and unconfined discretion.

Mr Wagstaffe’s says that I should not be minded to direct any set-off. His submissions on this point can be summarised as follows:

Miss Evans-Gordon submits that the wife’s claim to the loan account is intimately connected with the original claim, such that it would be, as she puts it, deeply inequitable to permit the wife to pursue the company for the loan account and not permit it to set-off any sums it may be ordered to pay her, not least when the loan account issue should have been raised much earlier than it was – something which, she says, has caused further unnecessary and possibly irrecoverable expense to the company. She has more difficulty in framing a satisfactory response to Mr Wagstaff’s submissions in relation to the children.

For completeness, and looking to the future, Miss Evans-Gordon submits that the company will in any event have a right to set-off any costs it may be ordered to pay the wife (a possibility if she is successful in establishing a debt due to the husband from the company) against the costs she has been ordered to pay it.

Mr Wagstaffe also raises a quite separate, and in my judgment most important, point, namely the need to distinguish carefully, in this context as in others, between the company and the children. He submits that in pursuing the issue of a set-off, the company and the children have unfortunately blurred the distinction between the company and its shareholders in a way which is, as he wryly comments, quite at odds with their case in the substantive proceedings. What they seek (collectively) is to set off the entirety of the sums that the company and the children will need to pay to the wife – which are two separate things – against the entirety of the costs (if any) which she will have to pay them – which are also two separate things. No distinction is drawn between what is payable by, or to, the company on the one hand and the children on the other. He illustrates the point with a worked example which there is no need for me to set out but which, as he submits, serves to demonstrate why, as he puts it, this cannot be right. The flaw, as he points out, is in the assumption that A should be able to set-off sums which B owes to C against his own liability to B.

I need not explore the point any further, save to say that in my judgment Mr Wagstaffe is plainly right as a matter of principle. Miss Evans-Gordon is rightly content for separate costs orders to be made in respect of the company and the children and for there to be separate set-offs, the one as between the wife and the company and the other as between the wife and the children. She refers to the evidence previously filed in which the company stated that the costs division between it and the children was approximately 75% to 25% and says that the company is content to stand by that division. More generally, she says, the amount that may be set-off by either the company or the children is a matter for determination as and when any potential set-off arises, but it does not affect the principle that costs should be awarded to them as the successful parties.

What then of the claim to a set-off.

I consider first the issue so far as the children are concerned. Essentially for the reasons given by Mr Wagstaffe it seems to me that the children are not entitled to any set-off. The wife has not recovered anything from them by reason of the litigation. All her claims against them have failed, and they are not concerned qua litigant with the loan account issue, however its outcome may affect their financial interests. The only thing which the wife has achieved vis-à-vis the children is their agreement to buy-out their father’s (now the wife’s) 30% shareholding in the company, but that, as Mr Wagstaffe correctly points out, is a product of an agreement between them quite separate from anything that was ever in issue between them in the proceedings.

I agree. There is, in my judgment, no sufficient nexus between the children’s right to recover costs against the wife pursuant to court order and their obligation to pay her the consideration for the shares pursuant to an agreement arrived at out-of-court and not itself referable to anything in issue in the litigation. To adopt Scott LJ’s terminology, I agree with Mr Wagstaffe that the one claim does not ‘impeach’ the other.

Accordingly, I decline to direct any set-off as between the children and the wife. And absent any such direction, the children, in my judgment, will not be entitled to any set-off against her. So, as against the children, the wife will indeed be entitled to the full protection of section 11, though only of course since 16 September 2006.

As between the company and the wife the position, in my judgment, is very different. Here there is indeed, in my judgment, a nexus between the company’s right to recover costs against the wife pursuant to court order and their obligation (if I so find) to pay her the balance of the loan account, an obligation which arises out of a matter in issue, albeit only recently raised, in the litigation. These obligations are, as Miss Evans-Gordon puts it, and for the reasons she gives, intimately connected. To adopt Scott LJ’s terminology, the one claim does ‘impeach’ the other. And as Miss Evans-Gordon says, and I agree, it would be deeply inequitable to permit the wife to pursue the company for the loan account and not permit it to set-off any sums it may be ordered to pay her.

Accordingly, I will direct a set-off as between the company and the wife. So, to that extent, as against the company, the wife will not be entitled to the protection of section 11.

In the course of his submissions Mr Wagstaffe posed two hypothetical cases in each of which, he asserted, there would be no set-off. Miss Evans-Gordon begged to differ, submitting that it was unlikely in the extreme that a court would not permit a set-off. Given this difference, given also the fact that the hypothetical cases posed by Mr Wagstaffe are far removed from the problem with which I am confronted, and given in particular the undesirability of judges deciding hypothetical cases, I propose to say no more about this part of Mr Wagstaffe’s submissions.

To summarise: the wife is to pay the children’s costs and 90% of the company’s costs of the litigation, both on the standard basis. The husband is to pay the wife’s costs of the litigation, including the costs she has to pay the company and the children, on an indemnity basis. The company is to be entitled to set-off the costs payable to it by the wife against any liability which it may have to her in relation to the loan account issue. There is to be no set-off as between the wife and the children.

Miss Evans-Gordon seeks the variation of the injunction so as to permit the charging of 17 Kensington Heights to secure a sum not exceeding £150,000 which is required, she says, to put the company in funds to meet the costs of the ongoing litigation and various other ongoing business costs.

Miss Evans-Gordon has various things to say about the circumstances in which the injunction was last amended, by me, on 14 October 2008; but I need not go into this, for she is not seeking the discharge of the injunction and the grounds upon which she seeks its variation are in fact quite independent of these complaints.

The reasons why Miss Evans-Gordon seeks the variation I have mentioned can be summarised as follows:

Mr Wagstaffe resists the company’s application. He submits that the matter is discretionary, that I should not exercise my discretion in favour of the company and that I should dismiss its application. He invites me to take account of the following factors:

Mr Wagstaffe accepts that, on one view, it is matter between the company and its shareholders whether or not the directors maximise its income or seek to hold the husband to his agreement, just as it is a matter for the company and the children whether or not they seek to reach a compromise with the wife or for Isam to determine the terms upon which to continue to advance money to the company (if, indeed, the money is coming from him). But, he says, when the court is being asked to exercise its discretion, these are all matters which nonetheless impact on the exercise of that discretion. Put shortly, he says, the company should first be having recourse to 57 Forest House and the husband before seeking to charge 17 Kensington Heights.

I cannot accept Mr Wagstaffe’s arguments. Whatever their factual merits – and they are far from being as clear-cut as he would have me accept – they do not begin to meet the central thrust of Miss Evans-Gordon’s case based on the principles explained by Morritt J in Investment and Pensions Advisory Service. To that, in truth, Mr Wagstaffe had no effective answer. In my judgment, none of the matters he relies on suffices, either on its own or taken in conjunction with the others, to deny the company the relief it seeks – relief which, as Miss Evans-Gordon correctly points out, is entirely consistent with the approach adopted at an earlier stage of the litigation by Holman J.

Accordingly, as I informed the parties on 8 April 2009, the injunction will be amended to permit the company to secure borrowings of up to £150,000 against 17 Kensington Heights to fund its normal business expenses and its legal costs up to and including the hearing currently listed on 30 April and 1 May 2009. In all other respects the injunction will remain in force for the time being.

The parties sensibly agreed that the costs of the hearing on 22 January 2009 and the other costs of the application in relation to the costs should follow the event. And the same, it seems to me, should equally go for the hearing on 25 February 2009 in relation to the injunction.

In substance the company and the children won on every point with the sole exception of the set-off claimed by the children. Accordingly, subject to any further submissions which any party wishes to address to me, I propose to order the wife to pay the costs of both hearings.

I will invite counsel to agree the appropriate forms of order to give effect to this judgment. There will be two orders: the order in relation to the injunction (including the costs in relation to that issue) will be dated 8 April 2009, when I announced my decision; the order in relation to the costs issues generally will be dated 17 April 2009, when this judgment was handed down.