England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION (COMPANIES COURT)
(MR JUSTICE HARMAN)

		Royal Courts of Justice Strand London WC2 Friday 31 July 1998

LORD JUSTICE ALDOUS: I will ask Lord Justice Chadwick to give the first judgment.

LORD JUSTICE CHADWICK: There are before us an appeal and an application for leave to appeal. I will first give judgment on the appeal.

The appeal is from an order made on 13 December 1996 in the Companies Court by Mr Justice Harman, dismissing an appeal from an order made on 22 November 1996 by the Registrar under section 167 of the Insolvency Act 1976. It raises the question what should be the approach of the court on an application by a liquidator for leave to compromise proceedings.

Greenhaven Motors Limited (GML) was ordered to be wound up by the court on 17 October 1990 on the ground that it was insolvent and unable to pay its debts. The appellant, Mr Ronald Mayers, is the principal shareholder of GML and was, at the date of liquidation, a director of that company. The sixth respondent to this appeal, Mr Robert Valentine, is a licensed insolvency practitioner and the liquidator of GML. He was appointed liquidator on 5 July 1995 on the initiative of Mr Mayers following the restoration of that company to the register - it having been dissolved on 22 October 1994.

At the date of its liquidation, and thereafter until July 1991 or thereabouts, GML was the registered proprietor of four plots of land at the junction of Windmill Road and Hampton Road, Croydon. Taking the four plots together they had potential as a development site. One plot, 175/177 Windmill Road, was charged to Midland Bank Plc. The other plots were charged to BG Funding Limited (BGFL), the first respondent to this appeal, or to one of its subsidiaries, Oltongold Limited.

On 26 June 1991, BGFL acquired 175/177 Windmill Road from the bank, and a few days later, on 2 July 1991, a BGFL subsidiary, GBC Properties Limited, acquired the other three plots from BGFL or from Oltongold. In each case the property was acquired on a sale by the mortgagee. On 10 January 1992 the three plots held by GBC Properties Limited were transferred on to BGFL. In particular BGFL was registered at HM Land Registry under Title SGL 253799 as the proprietor of the plot, known as the Elcon land, immediately to the rear of 175/177 Windmill Road.

On 2 February 1994 BGFL commenced proceedings in the Croydon County Court under reference CR420688 against Jay Gee Car Sales Limited for possession of the Elcon land and for mesne profits. On 23 March 1994, Mr Mayers was joined as a defendant in those proceedings on his own application. On 22 March 1996, on the application of its liquidator, Mr Valentine, GML was also joined as defendant to those proceedings. It appears that GML and Mr Mayers were represented by the same firm of solicitors who were put in funds for the purpose by Mr Mayers. He deposed in an affidavit sworn on 27 November 1996 in these proceedings:

"Firstly, all the costs at that stage both for myself and Mr Valentine were provided for by myself and in fact our then joint solicitors Boyd & Hutchinson had requested £10,000 to be held in a special account strictly to protect Mr Valentine from any costs that he may be asked to discharge."

GML was joined as a defendant in the Croydon proceedings so that it could assert a claim to ownership and possession of the Elcon land. That claim, as pleaded in a defence and counterclaim served on 4 April 1996, was based on an assertion that GBC Properties Limited, through which BGFL had derived title as freehold owner, had, with the knowledge of BGFL, acquired the Elcon land pursuant to a collusive sale at an undervalue from the mortgagee, Oltongold.

In response to GML's claim in the Croydon proceedings, BGFL amended its particulars of claim to rely on its own title as mortgagee under a legal charge of 15 September 1989 made between GML and BGFL. It was said that, in so far as BGFL could not rely on title on purchaser from GBC Properties Limited, it was entitled to an order for possession of the land as mortgagee pursuant to the legal charge of 15 September 1989. On 4 September 1996 Mr Mayers and Mr Valentine were advised by counsel that, unless the legal charge of 15 September 1989 could be set aside, there was no defence to BGFL's claim for possession in the Croydon proceedings. The legal charge had been executed pursuant to an agreement for compromise of the same date. Mr Mayers and Mr Valentine were advised that, unless the compromise agreement of 15 September 1989 and the associated legal charge could be shown to have been procured by fraud, which in counsel's view seemed highly improbable, there was no alternative other than to settle the Croydon proceedings.

Mr Valentine, whether as a result of counsel's advice or otherwise, became aware that the continuation of the Croydon proceedings might expose him to a personal liability for costs. In those circumstances, he took steps, independently of Mr Mayers, to settle the proceedings as between GML and BGFL.

On 1 November 1996, BGFL, GML and Mr Valentine, in his personal capacity, entered into an agreement described as a settlement agreement. The other parties to that agreement were Mr Stephen Kaye, Mr Anthony Burstow and Mr George Goodman. They are, respectively, the third, fourth and fifth respondents to this appeal. Mr Burstow and Mr Goodman - the "B" and "G" of BGFL - were directors and shareholders of that company. The settlement agreement was expressed to be in full and final settlement of all issues between GML, the liquidator, BGFL, Mr Kaye, Mr Burstow and Mr Goodman, both known or unknown, made or which could have been made in connection with, or arising out of, the Croydon proceedings or any other claims between GML and the liquidator on the one hand and the other parties on the other hand. By paragraph 11 it was provided that the agreement was conditional upon the approval of the court if such approval were necessary under section 167 of the Insolvency Act 1986.

It was in those circumstances that the liquidator applied ex parte to the Registrar of the Companies Court for leave to compromise the Croydon proceedings. The application was supported by an affidavit sworn by the liquidator on 19 November 1996. Expedition was required because the trial of the Croydon proceedings had been fixed to commence on 26 November 1996. The order sought was made by Mr Registrar Buckley on 19 November 1996.

On learning of the settlement agreement of 1 November 1996, Mr Mayers applied to the Registrar, inter partes, for an order that the agreement be not approved. It seems likely that, at the time when that application was put in hand, Mr Mayers did not know of the ex parte order. Certainly, he had not been given notice of the liquidator's application. The inter partes application was heard by the Registrar on 22 November 1996 and was dismissed.

Accordingly when the possession action, CR4206888, came on for trial in the Croydon County Court on 26 November 1996 the settlement agreement was in place. An order for possession was made against GML in accordance with that agreement. The other defendants, other than Mr Mayers, had taken no part in the proceedings and orders for possession had already been obtained against them. Mr Mayers was the only remaining defendant and he submitted to an order that BGFL have possession of the Elcon land within fourteen days.

On 28 November 1996 Mr Mayers gave notice of his intention to appeal the order made by the Registrar on 22 November. That appeal was heard by Harman J on 9/10 December 1996. He gave judgment dismissing the appeal and made the order on 13 December 1996 which is the subject of the appeal now before us.

On 24 December 1996 BGFL completed the sale of the development site, of which the Elcon land had formed part, to Boots Properties Plc, pursuant to an option agreement which had been made on 19 April 1995. Harman J treated the inter partes application before the Registrar as having been made pursuant to section 167(3) of the Insolvency Act 1986. Accordingly, he addressed, first, the question whether Mr Mayers was a creditor or contributory of GML. He concluded that there was no doubt that Mr Mayers, as a shareholder, was a contributory, but he directed himself - in reliance on a decision of this court in Re Rica Gold Washing Co Ltd (1879) 11 Ch 36 - that no application by a contributory could be entertained unless the applicant showed that there was a substantial prospect of a distribution to him. The judge was not satisfied on the evidence before him that Mr Mayers had shown any substantial interest as a contributory in the assets of GML.

The submission that the judge was wrong to reach that conclusion, although not abandoned in this court, was not pursued with any enthusiasm. I need say no more about it. It is not wholly clear whether the judge accepted that Mr Mayers was a creditor of the company; but he went on to deal with the application on the basis that locus standi as a creditor might have been established. He directed himself that the court would only intervene with a decision of a liquidator if it was shown by positive evidence that the transaction proposed was undoubtedly unsuitable. He referred to the decision of Plowman J in Leon v York-o-Matic Limited [1966] 1 WLR 1450, in particular to a passage at page 1455C where Plowman J said:

"I am not satisfied that the liquidator did not exercise his discretion bona fide, nor am I satisfied that the liquidator acted in a way in which no reasonable liquidator could have acted."

After pointing out that there was no allegation of fraud on the part of a liquidator in the present case, Harman J said:

"There is only the question: was the liquidator not exercising his discretion bona fide?"

He then went on to consider whether the settlement agreement was:

"One which no reasonable liquidator could have made?"

He summarised his conclusion in the following passage:

"It seems to me that a reasonable liquidator not only could but almost certainly would have entered into the settlement agreement of 1st November and would have accepted the very wide terms included in the terms of clause 3 imposed upon him -- it may well be by the other side -- as a term of having the settlement agreement at all.

In my judgment the attack upon Mr Valentine's decision wholly fails. There is no substance in the allegation that a reasonable liquidator could not have made this agreement. I will therefore dismiss this appeal."

It was common ground before us that the judge was exercising a discretion de novo in this case. There was material before him which he took into account which had not been before the Registrar. No point was taken that the judge was himself exercising an appellate jurisdiction, subject to the constraints imposed by rules 7.47(2) and 7.49 of the Insolvency Rules 1986. That, as it seems to me, reflected a common sense approach to what had occurred.

Whatever the strict position might have been below, it is trite law that this court should not interfere with a discretion exercised by a judge unless satisfied that he applied a wrong principle, took into account matters which he should not have taken into account, disregarded matters to which he should have had regard, or was plainly wrong. It is necessary, therefore, to consider whether the judge was correct in his view that he should apply the test in Leon v York-o-Matic to the circumstances in which he had to exercise a discretion in relation to the approval of the compromise contained in the settlement agreement of 1 November 1996.

Where a company has been wound up by the court, the powers of the liquidator are conferred by section 167 of the Insolvency Act 1986. The section is in these terms so far as material:

"(1) Where a company is being wound up by the court, the liquidator may-

(a) with the sanction of the court or the liquidation committee, exercise any of the powers specified in Parts I and II of Schedule 4 to this Act (payment of debts; compromise of claims, etc; institution and defence of proceedings; carrying on of the business of the company), and

(b) with or without that sanction, exercise any of the general powers specified in Part III of that Schedule.

....

(3) The exercise by the liquidator in a winding up by the court of the powers conferred by this section is subject to the control of the court, and any creditor or contributory may apply to the court with respect to any exercise or proposed exercise of any of those powers."

Part I to Schedule 4 of the Act includes the following paragraphs, so far as material.

"2. Power to make any compromise or arrangement with creditors or persons claiming to be creditors, or having or alleging themselves to have any claim (present or future, certain or contingent, ascertained or sounding only in damages) against the company, or whereby the company may be rendered liable."

3. Power to compromise, on such terms as may be agreed-

(a) ....all claims (present or future, certain or contingent, ascertained or sounding only in damages) subsisting or supposed to subsist between the company and....[a] person apprehending liability to the company.

(b) all questions in any way relating to or affecting the assets or winding up of the company."

The settlement agreement of 1 November 1996 included a compromise with a person, GML, having a claim against the company. It included a compromise or release of the company's claims against BGFL or Mr Goodman. The power which the liquidator wished to exercise fell plainly within paragraphs 2 and 3 in Part I of Schedule 4(2) and section 167(1)(a) a of the Insolvency Act 1986. It follows that the liquidator could not enter into the settlement agreement without obtaining the sanction of the court, there being no liquidation committee in this liquidation. This was not a case within section 167(3). It was not for the creditor or the contributory to apply to the court for an order to restrain the liquidator from exercising some power that he was otherwise free to exercise. It was for the liquidator himself to obtain sanction for what he was proposing to do. For that purpose it was necessary for the liquidator to make application to the court under Part VII of the Insolvency Rules 1986. That was an application under which any person claiming to be a creditor or contributory and willing so to state in writing was entitled to attend - see rule 7.52 (1).

In deciding whether or not to sanction the exercise of a power under 167(1)(a) of the Insolvency Act 1986, the court may have regard to the wishes of the creditors and contributories, as proved to it by evidence - see section 175 of the Insolvency Act. The court may, if it thinks fit, direct that a meeting be called for that purpose. In my view it is plain that a creditor or contributory of a company is entitled to be heard on an application by the liquidator under section 167(1)(a). I do not understand that to be in dispute. But an application under section 167(1)(a) of the Act is not a suitable context in which to decide whether or not a person claiming to be a creditor is indeed a creditor. In my view, the Act does not require the court to attempt that task. At the end of the day it is a matter for the discretion of the court whether or not to authorise or sanction the compromise - see Bank of Credit and Commerce International SA (No 2) [1992] BCC 715 at page 735H. The court may, and usually will, take into account the views of someone claiming to be a creditor or contributory, but it is not bound by those views. If the claim appears thin, or the claimant can be seen to have no real interest in the assets having regard to prior claims, his views may carry little weight. I would think it inappropriate for the court to embark, in the context of application under section 167(1)(a) of the Act, on a detailed examination of the question whether a person wishing to be heard is indeed a creditor or a contributory. The circumstances in the present case demonstrate that such examination is likely to prove inconclusive. I think it is sufficient that the court should be satisfied that the claim is made bona fide and it is not plainly misconceived. If the claimant satisfies that test, then it seems to me that he should be heard. It remains a matter for the court what weight should be given to his wishes.

The decision whether or not to sanction the exercise of a power which falls within Part I or Part II of schedule 4 of the Act is a decision for the court or for the liquidation committee. it is not a decision which the liquidator can take. If the exercise of the power is sanctioned, the liquidator, in the absence of a direction from the court, can decide whether or not actually to exercise it. The court may think it sensible in an appropriate case to leave that decision to him. That is a different matter. It is because the decision whether or not to sanction the exercise of the power is a decision which is not entrusted to the liquidator that it is wrong in principle for the court to approach its task on the basis that the liquidator's wish to exercise the power should prevail unless it is satisfied that the liquidator is not acting bona fide or that he is acting in a way in which no reasonable liquidator should act.

In my view, the correct approach in cases under section 167(1)(a) of the Act was identified by Lightman J in In Re Edennote Ltd (No 2) (1997) 2 BCLC 92g-h. He said:

"Where a liquidator seeks the sanction of the court and takes the view that a compromise is in the best interest of the creditors, in any ordinary case where (as in this case) there is no suggestion of lack of good faith by the liquidator or that he is partisan the court will attach considerable weight to the liquidator's views unless the evidence reveals substantial reasons why it should not do so, or that for some reason or other his view is flawed."

In deciding whether or not to sanction a proposed compromise the court must consider whether the interests of those, whether creditors or contributories, who have a real interest in the assets of a company in liquidation, are likely to be best served (i) by permitting the company to enter into that compromise with all the terms that it contains; or (ii) by not permitting the company to enter into that compromise. It is not for the court to speculate whether the terms of the proposed compromise were the best that could have been obtained; or whether the proposed compromise would have been better if it did not contain all the terms that it does contain; or whether there could have been a better compromise unless it is satisfied that, if the company is not permitted to enter into the compromise on the terms which the liquidator has negotiated there will then be better terms or some other compromise on offer, the decision is between the proposed compromise and no compromise at all.

In reaching that decision, the court may have to weigh the different interests of creditors and contributories and, perhaps, the different interests of preferential and non-preferential creditors. It will not give weight to the wishes of those who will be unaffected whichever way the decision goes; for example, the interests of contributories who have no realistic prospect of receiving a distribution in any foreseeable circumstances, or the wishes of preferential or secure creditors who will be paid in full in any event. Subject to that, the court will give weight to the wishes of creditors and contributories whose interests it has to consider, for the reason that creditors and contributories, if un-influenced by extraneous considerations, are likely to be good judges of where their own best interests lie. For the same reason the court will give weight to the views of the liquidator, who may, and normally will, be in the best position to take an informed and objective view. But, as I said, at the end of the day it is for the court to decide whether or not to sanction compromise.

Nothing that I have said is intended to cast doubt on the correctness of the approach in Leon v York-o-Matic in cases under section 167(3) of the Act. In cases of that nature the court is asked to control the exercise of a power for which the liquidator does not require sanction or, exceptionally, for which he has obtained sanction from the liquidation committee. The liquidator has taken a decision which under the Act he is entitled to take. It is right that the court should not interfere in such a case unless the liquidator is acting mala fide or his decision is one which no reasonable liquidator could take.

With these considerations in mind, I return to the question whether the judge applied the correct principles to the exercise of the discretion with which he was faced. In my view it is impossible to escape the conclusion that he did not. First, he appears to have approached the matter on the basis that this was an application under section 167(3) of the Act. For the reasons which I have set out, it was not. Secondly, approaching the matter on that basis, he applied the test in Leon v York-o-Matic. That would have been the right test if the application had been an application under section 167(3); but it was the wrong test for the application which was actually before him. Thirdly, in my view, he left out of account three significant matters. These were (i) that it was open to the liquidator simply to inform BGFL that it was taking no further part in the Croydon proceedings, leaving BGFL to obtain the possession order which it sought without opposition or further expense; (ii) that in the circumstances that GML had no assets at all, and no prospect of any assets because its claims against BGFL and others were to be released by the settlement agreement, the agreement of BGFL not to prove for its debt in the liquidation would be of no benefit to any other creditor or contributory; and (iii) the contribution of £10,000 which was to be made by BGFL towards the liquidator's costs of the Croydon proceedings would be of no benefit to any creditor or contributory in the liquidation, other than Mr Mayers who was opposed to the compromise, because the liquidator's costs of that action were funded by Mr Mayers - there being no assets in the liquidation. These are matters to which I shall return.

This, then, is a case in which the judge reached his conclusion on a flawed basis. It is for this Court to exercise its own discretion in the matter, that being the course envisaged by the Court (Millett LJ and Sir Brian Neill) when the appellant was given leave to appeal.

I turn therefore to a comparison of the position if GML is permitted to enter into the proposed compromise and the position if it is not so permitted. Clauses 2, 4, 6 and 7 of the settlement agreement dated 1 November contain acknowledgements or confirmations by "the liquidator". On a true construction of the agreement, in which the phrase "the liquidator" is defined to mean Mr Valentine in his personal capacity, it is at least arguable that GML is not bound by those provisions. But, in any event, they confer no benefit on GML. Clause 8 provides that:

"Immediately upon the signing of Greenhaven Settlement Agreement, BG Funding will arrange to stay the Croydon Proceedings as between BG Funding and Greenhaven, upon the terms of the draft order, attached hereto marked Schedule A, and the schedule to such order shall be the Greenhaven Settlement Agreement."

Clause 9 provides that, except as specified in clause 1, all parties to the agreement should pay their own costs of the Croydon proceedings and two other sets of proceedings. In the circumstances that GML had, and has, no assets at all, provisions for relieving the company from a potential liability to BGFL's costs in the various proceedings will be of no benefit to the creditors or contributories.

The relevant provisions in the agreement of 1 November 1996, in the present context, are those contained in clauses 1 and 3:

"1. Provided that BG Funding has first received vacant possession of the [Elcon] Land, BG Funding agrees to make a contribution to the Liquidator's costs of £10,000. This sum is paid without admission of any liability and will be paid to the Liquidator within 14 days after vacant possession has been received by BG Funding. It is a condition precedent for the making of this payment that BG Funding have first received vacant possession of the Land.

3. This settlement agreement ("The Greenhaven Settlement Agreement") is in full and final settlement of all issues between Greenhaven, the liquidator, BG Funding, Mr Kaye, Mr Burstow and Mr Goodman, both known and unknown, made or which could have been made, in connection with, or arising out of, the Croydon proceedings or any other claims between Greenhaven and the Liquidator on the one hand and on the other hand the other parties to the Greenhaven Settlement Agreement. Without prejudice to the generality of the foregoing, the Greenhaven Settlement Agreement is a full and final settlement of:

(a) all issues between Greenhaven, BG Funding and Mr Kaye pleaded in the Croydon proceedings.

(b) all issues between Greenhaven and BG funding and the other parties to the Greenhaven Settlement in the Chancery Proceedings.

(c) BG Funding's claim to be a creditor in the liquidation of Greenhaven....

(d) any rights to costs or mesne profits or interest on such mesne profits that BG Funding may have against the Liquidator or Greenhaven."

At first sight those clauses appear to contain two elements of benefit, or potential benefit, to GML. First, there is the contribution of £10,000 towards the liquidator's costs; second, there is the settlement or release of the claims of BGFL and other parties against GML; including, in particular, BGFL's claim to prove as a creditor for some £700,000 in the liquidation of GML. On examination, however, these apparent benefits were illusory; for the reason that GML had, and has, no assets at all other than its claims (for what they may be worth) against BGFL, Mr Kaye, Mr Burstow and Mr Goodman, and those claims, "both known and unknown, made or which could have been made", are themselves to be released by the agreement.

By clause 1 of the settlement agreement the sum of £10,000 is to be paid to the liquidator as a contribution to his costs. So expressed, the payment is limited to the amount of the liquidator's costs, if less than £10,000. Leaving aside the considerations (i) that the liquidator in that context means Mr Valentine personally; and (ii) that the sum is not payable unless and until BGFL obtains vacant possession of the land which, prima facie, would have required an order for possession against Mr Mayers, the payment can be of no benefit to any creditor or contributory of GML - other than Mr Mayers, as the person who put the liquidator's solicitors in funds. This is because the liquidator's costs had not, and could not, come out of funds which would otherwise be available for a distribution amongst creditors and contributories. There were and are no such funds. The only effect of the £10,000 payment would be to relieve Mr Valentine of some possible liability to his solicitors in so far as the funds provided by Mr Mayers proved inadequate, or to reimburse Mr Mayers. Mr Mayers opposes the settlement agreement.

The release by some creditors (say group A creditors) of their claims in the liquidation will benefit other creditors (say group B creditors) if, but only if, group A and group B would, but for the release, both be potential recipients in the distribution of the same pool of assets. In that situation, the removal of group A from participation in that pool increases the share available for distribution to group B. But, if there is no pool of assets available for distribution, the removal of group A is of no benefit to group B. A larger share of nothing is still nothing at all. In the circumstances that GML had, and has, no assets, the agreement of BGFL and others to give up the right to prove in the liquidation, is of no benefit to the remaining creditors or to the contributories. The position is emphasised when it is appreciated that a further effect of the agreement is that by releasing its claims against BGFL and others, GML is giving up whatever hope it might have, however remote, to recovering any assets by the pursuit of those claims.

In my view, properly understood, this settlement agreement confers no discernible benefit on any creditor or contributory of GML; other than, perhaps, Mr Mayers who wants no part of it. It may confer some benefit on the liquidator personally, but that is no reason for the court to sanction it. There is some risk, perhaps remote, that the agreement may cause loss to GML by reason of the very wide terms of the release contained in clause 3. By contrast, I can see no detriment to GML if it is not permitted to enter into the agreement. There is no difficulty, so far as I am aware, from GML disengaging from the Croydon proceedings and from any other proceedings, without further expense. No orders for costs obtained in those proceedings would be enforceable against GML at present because GML has no asset. If, in the future, GML recovered assets by the enforcement of its claims against BGFL, the liability to costs already incurred would be a price which it would have to pay in order to obtain and take advantage of that benefit. But if that were not a price worth paying, common sense and commercial judgment would suggest that the claims would not be pursued.

We were pressed with the submission that the only GML claims so far identified are so speculative as to be worthless. That may well prove to be the case. It is impossible for this court to form anything other than a superficial view on the material available. I can see no advantage in attempting to do so. The question for this court is whether a compromise which provides no discernible benefits, but which just might do some harm to the creditors and contributories, should be sanctioned. I am satisfied that that question should be answered in the negative. The court should not sanction this compromise.

I would allow this appeal.

LORD JUSTICE POTTER: I agree with the analysis and reasoning of Lord Justice Chadwick in what seems to be a most unusual case. I too would therefore allow the appeal.

LORD JUSTICE ALDOUS: I agree with both judgments.

LORD JUSTICE CHADWICK: I turn, therefore, to the application for leave to appeal against the order for costs made in the Croydon proceedings against Mr Mayers personally. As I have already indicated in the judgment just delivered, that order was made at the hearing on 26 November 1996 when possession was ordered against GML by consent under the compromise agreement; and also against Mr Mayers without his opposition. The judge clearly took the view that, as Mr Mayers was the only defendant then before him against whom he could make an order for costs (GML being protected by the settlement agreement), an order for the whole of the costs of the proceedings should be made against Mr Mayers. It does not appear that any submission to the contrary was made to the judge at that time.

The application for leave to appeal is put on the basis that either the judge did not apply his mind to the question - because he was not asked to do so - and so never exercised a discretion in respect of costs at all; or that, in so far as he did exercise a discretion, he exercised that discretion on the basis that there was a binding compromise between the plaintiff, BGFL, and the fourth defendant GML, under which no order for costs could be made against GML and GML was withdrawing from the proceedings.

In the light of the judgments we have just delivered, the premise that no order for costs could be made against GML can now be seen to be false. The effect of refusing to sanction the compromise is that GML is exposed to an order for costs in the Croydon proceedings for whatever that may be worth. In those circumstances, it seems to me that, in so far as the judge in the Croydon proceedings exercised a discretion at all, he must have exercised it on a wrong basis; because he was, necessarily in the circumstances, adopting a basis of facts which have now been held not to exist. In those circumstances it seems to me right to give leave to appeal so that the matter can be reconsidered in the light of the facts as they are now known to be.

I would propose therefore to give leave appeal; and to proceed to consider the appeal against the order for costs made by His Honour Judge Crush on the basis that we should exercise our own discretion in the matter.

The argument against an order that Mr Mayers should bear the whole costs of an action to which he had no defence and never had had any defence - is put in this way. It is said that following the joinder of GML as a party to that action in March 1996, the basis of the action changed. Before March 1996 the claim had been a simple claim brought by a plaintiff, relying on its title as registered proprietor, against a trespasser who had no claim to title or possession of his own. After March 1996, or more particularly after the service of GML's particulars of claim in April 1996, it became apparent that there was an issue in the action whether or not BGFL could rely on its title as registered proprietor. It was said that that title was liable to be set aside because it had been obtained through a chain of transactions from a mortgagee who had sold at an undervalue in a collusive sale of which BGFL had notice. That, of course, introduces complexity into what had been a simple claim. During the summer of 1996 that new allegation generated a considerable volume of pleadings and, no doubt, discovery. In particular, GML's claim was met by an alternate claim on behalf of BGFL, which relied on its own title under the November 1989 mortgage. That alternate claim itself was then met by a counterclaim seeking to set aside that title on the grounds of fraud; or, alternatively, on the basis of some estoppel which prevented BGFL from calling in the debt.

Mr Mayers says through counsel, that all that was nothing to do with him. It is suggested that he was an unfortunate litigant caught up in complex litigation which was not of his making. From facing a simple claim based on the establishment of title under a land certificate, he had become enmeshed in an action involving claims as to the propriety of mortgagees' sales, valuation of properties at the time of those sales in 1991, allegations of fraud and counter allegations of estoppel. With reluctance, it is accepted on his behalf that he might have to pay the costs of the action up to March 1996; but not, it is said, thereafter.

I would have more sympathy towards that submission if I were persuaded that Mr Mayers was indeed a litigant who had, involuntarily, become caught up in the complex litigation between other parties. But the facts speak for themselves. GML's claims were advanced by GML on the instigation of Mr Mayers who was throughout jointly advised with GML. He is not in the position of a disinterested and innocent outsider caught up in complex litigation which was not of his own making. The complexity was very much of Mr Mayers' making.

For those reasons, it seems to me that although the judge's order needs to be reconsidered, following reconsideration it can be seen that it is the right order. Accordingly I would dismiss the appeal against the order for costs in the Croydon action.

LORD JUSTICE POTTER: I agree.

LORD JUSTICE ALDOUS: I also agree.

Orders: Appeal allowed with costs. Order of Mr Registrar Buckley set aside. Costs of the appeal (including costs of application for leave to appeal) will be paid by the respondents. The costs before Harman J and the inter partes hearing before Mr Registrar Buckley will be paid by the respondents other than the liquidator and the company. (In County Court action leave to appeal granted; appeal dismissed. Costs of application to be set off against costs allowed on main appeal). Legal Aid Taxation of appellant's costs. (Does not form part of approved judgment)