Mark Chassy v Left Shift IT Limited & Ors

Judgment in this case was handed down on 4 February 2025. My conclusions, in summary, in relation to the claims which the Claimant had brought were as follows:

Given the uncertainty that I had identified in relation to the tax treatment of at least some elements of the award in respect of the Claimant, I invited the parties to provide written submissions on this issue and to attempt to agree the terms of a draft order, with additional submissions to be provided on the terms of that order in the event that agreement could not be reached.

On 8 April 2025, I received written submissions from both counsel, together with their respective drafts of the order that they invited me to make. From the drafts provided, it was apparent that the parties had effectively agreed the tax consequences of the award to the Claimant, with the result that the order should be made in the sum of £275.397.65. As to interest, there was an inconsequential difference of £0.03 in the daily figure. I will proceed on the basis that the daily figure for interest is the calculated by the Claimant, namely £22.64 as this is the figure that I reached through my own calculation.

There is also a fairly inconsequential dispute between the parties as to the recitals that should be included in the final order.

The main area of dispute however related to the issue of costs. Given the distance that the parties were apart on this question, coupled with the fact that the Submissions had been provided on a mutual exchange basis between counsel, I concluded that counsel should each have to opportunity to provide further submissions in response to what had been provided by their opponent. I then received those further submissions from both counsel on 16 May 2025.

From both sets of submissions, it is clear that the most significant remaining area of dispute is in relation to costs. In principle, the Claimant is entitled to his costs in respect of his claim against the First Defendant whereas the reverse is true as far as his claim against the Second and Third Defendants is concerned. As to that, the starting point is that they are entitled to recover their costs of defending the claims brought against them in their capacity as directors of the First Defendant. I will deal firstly with the issue of Claimant’s successful claim against the First Defendant.

In her draft order, Ms Grossman on behalf of the Claimant suggests that the order should simply read that the First Defendant “shall pay the Claimant’s costs of and occasioned by the action (i.e. the combined costs of the claim and the counterclaim)”. Mr Innes’ draft acknowledges that the First Defendant should pay the Claimant’s costs of the action against that Defendant “only (i.e. excluding the costs of the claim against the Second and Third Defendants)”. It seems to me that on this point, Ms Grossman’s draft is to be preferred – if the award is in terms made against the First Defendant, it is not then necessary to say in terms that it is not being made against the Second or Third Defendants. The point is however well made by Mr Innes that the Claimant is not entitled to all of the costs incurred in the litigation as he did not succeed in his claims against either of the two individual Defendants.

The question then arises as to how one goes about determining what proportion of the Claimant’s overall costs of the litigation can properly be regarded as attributable to the claim brought against the Second and Third Defendant’s as opposed to the First Defendant. There are, it seems to me, two potential ways to go about this – first, one could simply say that it is a matter for the costs judge to determine in the event that the parties are unable to reach agreement on the point. Alternatively, I could make an assessment myself based on the fact that I conducted the hearing and have a good understanding of the issues, documents and evidence involved in the two claims.

It seems to me that the latter option is to be preferred – were I to go with the first option, I would, it seems to me, be putting the costs judge in a potentially very difficult position in trying to determine what proportion of the overall costs should be regarded as attributable first, to the claim against the First Defendant and secondly, the claims against the Second and Third Defendants. As to that, I take account in particular of the fact that a significant part of the cross-examination of the Second Defendant was taken up with trying to establish that his conduct was such as to amount to a breach of his duties as a director. The same is true of M Grossman’s closing arguments (both written and oral). Whilst it is plainly the case that any percentage assessment from me will lack any precise calculation as to how the cost should fall, I nevertheless take the view that a broad-brush assessment can and should be made. In doing so, I come to the conclusion that the Claimant should be entitled to recover 75% of his costs incurred in bringing the action as a whole, that reduction being referrable to the fact that he succeeded against only one of the three Defendants.

The next issue for me to consider is whether that award of costs should be made on an indemnity basis. The Claimant’s argument for making such an order is two-fold. First it is said that the First Defendant refused to mediate the claim when mediation was first proposed in June 2022. Secondly, the First Defendant is said not to have done better than the offer of settlement contained in the Claimant’s Part 36 letter dated June 2023.

Dealing with those matters in reverse order, it is right that a Part 36 letter was indeed sent to the Defendants on 5 June 2023. In the letter, no attempt was made to distinguish between the three Defendants and it was stated in terms that the offer was that the Defendants should pay the Claimant the sum of £178,491.51 and also that the Defendants would be liable to pay his costs on a standard basis up to the date of any acceptance of the offer.

In response to that suggestion, Mr Innes relies on the judgment of ICC Judge Barber in Re: IT Protect Limited [2020] EWHC 3001 (Ch). In that case, a Part 36 offer had been made to two Respondents of whom only one was ultimately liable in damages following a trial of the action. The offer made no distinction between the Respondents (who were husband and wife and both alleged to be directors and both said to be liable for misfeasance). At the trial, the Applicants achieved a better result than that which had been set out in their Part 36 offer but succeeded only against one Respondent. The Judge was invited to consider whether the consequences of CPR 36.17 should apply with the effect that interest should run at 10% above base rate from the date on which the offer expired and costs should be paid on an indemnity basis. The court is obliged to proceed on this basis unless it considers it unjust to do so.

In considering this issue, the court is required to look at all the circumstances which, according to ICC Barber, would include the reasonableness of the refusal of the Part 36 offer that had been made. I agree with the judge that that is the correct approach. He was also prepared to proceed on the basis that CPR 36.17(4) was engaged even in circumstances in which a relevant offer is made jointly (but not severally) to two Respondents which is beaten in respect of one but not the other. In the same paragraph (paragraph 23) he then said this:

“The offer was made jointly to the first and second respondents and it is clear that the first respondent could not accept it without the second respondent accepting it as well. The consequence of the second respondent accepting it would be to render the second respondent liable to make payment in damages and for costs for which she was not liable. In addition, a consequence of the first respondent accepting it would be to render the first respondent liable for all of the applicant’s costs of the proceedings, including those relating to its unsuccessful claims against the second respondent up to the point of acceptance.”

Those features in my view apply equally to the present case, not least in the light of my ruling set out above that the Claimant is restricted to recovering 75% of his costs of the action which he brought against all three Defendants. In addition, the fact that acceptance of the offer would have left the Second and Third Defendants liable to pay damages and costs, is it seems to me a significant factor in circumstances in which, as this case has demonstrated, there were significant doubts as to the solvency of the First Defendant. This would have meant that the Second and Third Defendants would potentially have found themselves in the firing line as far as enforcement was concerned. I therefore take the view that in the particular circumstances of this case, it would be unjust for the First Defendant to be subject to the uplifts contained in CPR 36.17.

As to the issue of mediation, Ms Grossman makes the assertion that mediation was first proposed in June 2022 and the Defendants refused to engage. Mr Innes’ response is to suggest that in their letter of 8 August 2022, the Defendants did not refuse point blank to mediate but stated that this could only happen once their application to set aside default judgment had been deals with. Furthermore, in their letter of 21 September 2023, Freeths (on behalf of the Defendants) made the point in terms that the Claimant might succeed against the First Defendant but not against the Second or Third and put forward an offer of settlement from the First Defendant alone, with discontinuance against the Second and Third. This did not lead the Claimant to take a different view of whether to proceed against all three Defendants. All of this perhaps supports the suggestion made by Mr Innes that, in any event, this was never a case that was likely to settle as a result of mediation given the significant gap between the parties both as to the amount of any award and against whom it might be recovered.

The Claimant is entitled to a payment on account in respect of the costs which the First Defendant is liable to pay to him. Ms Grossman asks for an order based on 90% of his costs and has stated that his total costs are £328,800 (inclusive of VAT). However, as stated above, I have reached the conclusion that he should only recover 75% of his costs of the action as he did not succeed against the Second or Third Defendants, 90% of which would produce a figure of £221,940. Mr Innes puts forward a figure of £128,232 based on the uncertainties as to what the Claimant might actually be entitled to receive following a detailed assessment. I am minded at this stage to roughly split the difference between those figures and so order payment on account by the First Defendant in the sum of £175,000.

Ms Grossman suggests that the answer to this question is ‘yes’ – at least as to half the total, on the basis that the Claimant was successful – presumably against the Second and well as the First Defendant – in relation to the equitable set off defence and his alleged refusal to mediate. As to the first point, the set off point was and could only ever be a claim by the First Defendant and the Claimant did not owe any contractual or other relevant duties to the Second Defendant. I also do not accept that the mediation question can give rise to an obligation on the part of the Second Defendant to pay costs in respect of an action which did not succeed against him but only succeeded against the First Defendant. For those reasons, the liability to pay the costs of the action in respect of which the Claimant has succeeded, rest with the First Defendant alone.

Ms Grossman also suggests that the Third Defendant should also be liable in respect of some of the costs of the equitable set off. I disagree for the same reasons as set out above in relation to the First Defendant.

As set out in the Introduction above, the Claimant’s claims against the Second and Third Defendants were dismissed in my Judgment handed down on 4 February 2025. They are therefore on the face of it, entitled to their costs although Mr Innes’ submissions are limited to the Second Defendant only as he has at no time been instructed on behalf of the Third Defendant. He suggests that not only should the Claimant pay the Second Defendant’s costs but also that there should be a payment on account in the sum of £22,780.

I agree with Mr Innes that the Claimant should be required to pay the Second Defendant’s costs limited to those incurred specifically in addressing the allegations made against him in his personal capacity as a Director of the First Defendant. In default of agreement between the parties, it will be for the costs judge to assessment what those costs are – I have not made a similar decision in respect of those costs to that which I made in relation to the Claimant’s costs against the First Defendant. In the latter case, I did feel able to come to a sensible and reasonably informed view as to what proportion of the Claimant’s costs overall should be regarded as being attributable to the claim against the First Defendant only. I do not have the same level of confidence in relation to the collective costs of the Defendants and so feel obliged to leave this to a detailed assessment if appropriate. Given the uncertainty surrounding this issue, I do not think that it is appropriate to award any sum greater than £5,000 by way of payment on account.

Ms Grossman has suggested that it would be “an affront to justice” for the Second Defendant to receive any payment on account, given what she says are the substantial uncertainties around the question of whether he has in fact incurred any costs, and if so how much, in defending the action against him. Whilst I think that the language of “affront” of perhaps an overstatement of the position, the underlying concerns that she has expressed are in any event addressed in terms of the low figure that I have determined should be paid on account.

As to the Third Defendant, whilst it seems to me that he is also entitled to the costs of defending the action against him. However, given that he has played no part in the trial process and I have no information as to his position save the limited contents of paragraph 25 of Mr Innes’ submission of 8 April 2025 (in which he says that the Third Defendant’s position aligns with that of the Second Defendant) and paragraph 16 of Ms Grossman’s submission of 8 April 2025 (in which she refers to an email to similar effect apparently having been received from the Third Defendant), I am not prepared to make any order for payment on account of any of his legal costs. It will be for the Third Defendant to take such steps as he is able to as an undischarged bankrupt in the event that he wishes to take the issue of costs further based on the Order which I have made.