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 HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(Mr Justice McCombe)

		Royal Courts of Justice Strand London WC2 Wednesday 13th March, 2002

1. LORD JUSTICE PETER GIBSON: The recognition in Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965 that the court has jurisdiction under section 51 of the Supreme Court Act 1981 to order a person not a party to proceedings to pay the costs of those proceedings, has led to much satellite litigation. The appeal in the present case relates to an attempt to make a non-party pay the costs of certain proceedings in the County Court. That attempt failed before the County Court judge, but an appeal to the Queen's Bench Division succeeded. The further appeal to this court is brought with the permission of Potter LJ.
2. The Landlord and Tenant Act 1987 ("the 1987 Act") confers on tenants the right of first refusal if the landlord desires to dispose of his interest. A landlord who proposes to dispose of his interest is required to give tenants notice under section 5 of his intention, and the opportunity to nominate someone to buy that interest. If the landlord, in breach of that requirement, disposes of that interest without giving the required notice, the tenants may exercise their rights against the purchaser. Section 11 confers rights on the tenants to serve a notice on the purchaser to obtain particulars of the disposal. By section 12 the tenants have the right to serve a notice on the purchaser for the tenants to purchase the freehold. Section 18 allows the prospective purchaser from the landlord to serve notice on the tenants, inviting them to say whether they wish to avail themselves of the right of first refusal. By section 18(2)(b) the tenants can, in response, serve a counternotice on the purchaser to enforce their rights.
3. 2-6 Palmeira Square, Hove ("the Property") consists of five large Georgian houses, subdivided into 22 flats. The appellant in this appeal, Nicholas van Hoogstraten, is a wealthy businessman with property interests in, amongst other places, Hove. The respondent in this appeal is Palmeira Square Nos 2-6 Ltd ("Palmeira"). It was set up by the tenants of the Property as a vehicle by which they would exercise the right under the 1987 Act to purchase the freehold of the Property.
4. On 23rd October 1991 Saga Properties Ltd ("Saga") agreed to purchase the freehold of the Property for £120,000 from the landlord. No section 5 notice was served by that landlord. On 15th October Saga served section 18 notices on the tenants of the Property. Counternotices were served by the requisite majority of the tenants on 9th November 1991. Thereby they indicated their wish to exercise their right to buy the freehold. Despite the counternotices, completion of the sale to Saga took place on 20th November 1991. On 7th January 1992 the tenants served section 11 notices on Saga. Saga did not respond.
5. On 9th January 1992 Saga granted to Mr Ahmed Ben Zarti reversionary leases of eight flats at the Property. The existing leases of those flats were all due to expire in 1998. The reversionary leases were for a term of 36 years from 25th March 1992.
6. On 16th March 1992 the tenants served a section 12 notice on Saga requiring it to sell the freehold of the Property to Palmeira. No response to that notice was received from Saga.
7. On 20th May 1992 Saga granted Agnes Gnoumou, a girlfriend of Mr van Hoogstraten and the mother of one of his children, a lease of Flat 1, 6 Palmeira Square for a premium of £30,000.
8. On 7th October 1992 the executors of the tenant of Flat 1, 3 Palmeira Square, Mr Huddleston, assigned the lease to Mr Ben Zarti.
9. In the meantime, on 11th June 1992 Palmeira and a director of Palmeira, Oliver Maland, issued proceedings ("the Saga action") in the Brighton County Court against Saga, seeking declarations that it was entitled to purchase the freehold and an order for particulars of Saga's purchase. No defence was filed nor disclosure given, despite court directions requiring such action from Saga. Saga sought an extension of time. That was refused on 23rd February 1993 by His Honour Judge Coltart, who made declarations establishing the tenants' right to nominate Palmeira to acquire the freehold of the Property. He also ordered Saga to comply with the section 11 notice. A wasted costs order was made against Saga's solicitors, and an order for costs was also made again Saga. On 18th March 1993, Saga not having obeyed the order, substituted service was ordered on the directors of Saga. On 21st April 1993 Saga produced the information required.
10. In March and April 1993 Palmeira brought proceedings before the Leasehold Valuation Tribunal to value the encumbrances which would reduce the price to be paid by it for the freehold of the Property. That tribunal valued the encumbrances, including the leases to Mr Ben Zarti, at a little over £140,000. Saga, although it had taken no part in the tribunal proceedings, appealed to the Lands Tribunal which, on 26th September 1994, gave its decision reducing the value of the encumbrances, and so leaving a sum which Palmeira had to pay Saga as consideration for the freehold. Apart from the costs of a preliminary issue which Palmeira were ordered to pay, the Lands Tribunal awarded costs against Saga.
11. In the meantime, on 29th April 1993, Saga served notice of a lease which it had granted at a premium of £2,000 of basement premises at 2-5 Palmeira Square to Apollo Investments Ltd ("Apollo") for 20 years. On 12th July 1993 Mr Ben Zarti subleased the ground-floor flat at 3 Palmeira Square to Olympia Properties Ltd ("Olympia") and the first-floor of 2 and 3 Palmeira Square to Castries Land Ltd ("Castries"), a property company controlled by Mr van Hoogstraten. On 5th August 1993 Mr Ben Zarti subleased the ground floor of 2 Palmeira square to Miss Gnoumou. The subleases were for more than 21 years and were registered at the Land Registry.
12. On 3rd October 1993 William Bagot, a director of and shareholder in Saga, died. On 13th June 1994 Mr van Hoogstraten, who was the residuary legatee under Mr Bagot's will, obtained probate of the will as executor.
13. On 7th June 1994, by a Deed of Surrender, Mr Ben Zarti surrendered his leases in the Property on terms that neither he nor Saga would be bound by his or its obligations under the leases. That document was produced at the Lands Tribunal hearing, but Palmeira failed to do a search at the Land Registry and was unaware of the subleases. Further, the Land Registry failed to transfer the registration of the subleases onto the freehold title when Mr Ben Zarti surrendered his leases.
14. On 20th October 1994, on Palmeira undertaking to pay the sum found by the Lands Tribunal to be the consideration for the freehold, some £35,000, Judge Coltart ordered Saga to transfer the freehold to Palmeira and directed that if it failed to do so, a District Judge could execute the transfer. Saga did not execute the transfer, and so the District Judge did so in December 1994. The consideration for the freehold was set-off by Palmeira against the costs which it had been awarded in the Lands Tribunal and other costs awarded to Palmeira in the Saga action. In 1995 the balance of the taxed costs Saga owed to Palmeira, plus interest, amounted to some £20,000.
15. Palmeira petitioned for the winding-up of Saga and on 26th July 1995 Saga was wound up. Palmeira has recovered nothing in the liquidation.
16. On 8th August 1995 Castries transferred its interest in the first-floor flat, 2 and 3 Palmeira Square, to Francis Frimpong, making a small profit on the transaction.
17. Palmeira, having acquired the freehold of the Property, transferred the freehold of 6 Palmeira Square to Olympia or Mr Hamdan on sale. Mr Hamdan is a shareholder in and secretary of Olympia.
18. On 7th November 1996, some two years after the Saga action effectively ended, Palmeira by letter gave notice to Mr van Hoogstraten that it was intending to seek to recover the outstanding costs of the Saga action from him. Palmeira applied to join Mr van Hoogstraten as a party to the Saga action, but that was refused by Judge Coltart on 2nd May 1997, though he allowed the application that Mr van Hoogstraten pay the costs of the Saga action to be tried, in circumstances to which I must return later.
19. In July 1996 Palmeira attempted to carry out certain works at 2-3 Palmeira Square. On 17th July solicitors for Miss Gnoumou and Olympia wrote to Palmeira, alleging trespass by Palmeira and claiming that they had valid subleases granted to them by Mr Ben Zarti. On 22nd November 1996 Miss Gnoumou commenced proceedings ("the Gnoumou action") and Olympia commenced proceedings ("the Olympia action") in the Brighton County Court against Palmeira, seeking declarations that each was the lawful leasehold owner and damages for trespass. Palmeira defended each of the actions, and in the Olympia action counterclaimed again Mr Ben Zarti, Mr van Hoogstraten, Miss Gnoumou, Castries and Mr Frimpong, alleging that they and Olympia conspired to injure Palmeira by depriving it of its right to purchase the freehold of the Property, depriving it of any benefit from the exercise of the right, and obtaining revenge upon Palmeira and the tenants for exercising their rights in defiance and against the interests of Mr van Hoogstraten.
20. Palmeira commenced a further action in the Brighton County Court against Mr Ben Zarti, Olympia, Miss Gnoumou, Castries, Mr Frimpong and Mr van Hoogstraten. It is not clear when that action started, but by amended particulars of claim on 10th March 1997 Palmeira sought declarations that all the interests of the defendants were determined by Mr Ben Zarti's Deed of Surrender.
21. Olympia, Miss Gnoumou and Mr Frimpong failed to give disclosure and were debarred from defending the Palmeira action, and on 7th April 1998 were debarred from defending the Palmeira action and the counterclaim in the Olympia action, and Olympia and Miss Gnoumou were debarred from prosecuting the Olympia action and the Gnoumou action respectively. Olympia, Miss Gnoumou and Mr Frimpong were ordered to pay Palmeira's costs.
22. On 27th January 1999 Mr van Hoogstraten filed a defence to the counterclaim, which he later amended.
23. The substance of what remained for determination were two matters. One was the conspiracy claim made by Palmeira in the counterclaim in the Olympia action, and which required to be tried with evidence. The other was the claim against Mr van Hoogstraten to pay the costs awarded to Palmeira against Saga and the parties to the other proceedings. When Judge Coltart on 2nd May 1997 refused to join Mr van Hoogstraten as a party to the Saga action, he nevertheless ordered the costs claim to be dealt with by the judge who tried the conspiracy claim.
24. Those two matters came before Her Honour Judge Coates at a hearing which extended over 10 days between June and October 1999. It was Palmeira's case that Saga, Mr Ben Zarti, Miss Gnoumou, Mr Frimpong, Olympia and Castries were all nominees for Mr van Hoogstraten, who orchestrated a plan to make the freehold of the Property valueless to Palmeira, that Mr van Hoogstraten was the beneficiary of profits made by the nominees and that he acted improperly in causing litigation to commence or be defended, or in the manner in which the litigation was conducted. It was said that the same facts justified both the conspiracy claim and the claim for costs.
25. In her full and careful reserved judgment which Judge Coates gave on 6th January 2002, she concluded that the conspiracy claim was not made out and that it was not appropriate to order Mr van Hoogstraten personally to pay the balance of the costs of the Saga action, or the costs of the Olympia action and the Gnoumou action.
26. The Judge paid particular attention to whether there was commercial justification for the actions taken by Saga and the other persons said by Palmeira to be nominees of Mr van Hoogstraten. She noted the extremely dilapidated state of the Property when purchased by Saga, and that only 13 of the 22 flats were held on long leases with full repairing covenants. For nine of the flats, including Mr Huddleston's, the tenant was only required to pay a fixed maintenance charge of £78 a year and an annual ground rent of £10. Until the nine leases ran out in 1998, Saga would have been liable for 41 per cent of the maintenance costs of the Property. The reversionary leases granted Mr Ban Zarti were of eight of those nine flats, and the terms provided for a substantial contribution by him towards the maintenance of the Property. The annual ground rent increased to £4,000, and he was liable for 40 per cent of the insurance of the Property and 30 per cent of the external maintenance. Palmeira's valuation expert conceded that the leases to Mr Ben Zarti had commercial sense. Mr Ben Zarti acquired Mr Huddleston's lease for £9,000, and that, the Judge found, was a reasonable commercial transaction. The Judge noted the advantage to Saga of receiving a £30,000 premium for the lease to Miss Gnoumou and a £2,000 premium for the lease to Apollo. She also accepted that from a commercial viewpoint the subleases had logic for Mr Ben Zarti, who received more than £23,000 in total and a 12 per cent contribution towards the 30 per cent maintenance liability which his leases imposed on him. The Judge noted that there was a planning application in respect of the flat which had previously belonged Mr Huddleston, and that if the plan had been carried out it would have produced a significant profit. She also noted that when Castries assigned its sublease to Mr Frimpong, it made a small profit.
27. The Judge next considered the legal process. She took account of the sorry part played by Saga's solicitors, who had had a wasted costs order made against them. She considered the proceedings before the Leasehold Valuation Tribunal and the Lands Tribunal, noting that the grounds of appeal were settled by counsel, and said that she was satisfied that there was some argument - which I take to mean a proper argument - about the status of 6 Palmeira Square. She also considered the background to the Olympia action and the Gnoumou action, noting that had Palmeira checked the register at the Land Registry it would have seen the subleases, and she noted the serious failure of the Land Registry. She said that these factors contributed to the situation in 1996 when the litigation resumed.
28. The Judge found that the commencement of the Saga action was the product of the poor advice given to Saga by its solicitors. She found that there had been a significant falling-out between Mr Duncan, a director of Saga, and Mr van Hoogstraten at the end of 1992, partly because Mr van Hoogstraten had then been made aware of the mess that Saga found itself in, and that Mr van Hoogstraten thereafter gave instructions on behalf of Saga to its lawyers. She also found that until Judge Coltart's order on 23rd February 1993, Saga was still being told that it would be able to obtain a clear freehold title. At that point the Judge found no conspiracy to injure Palmeira, nor any sufficiently non-commercial purposes to the activities undertaken by Saga, which would allow an order for costs against Mr van Hoogstraten. Pursuing the case to the Lands Tribunal, she found, was a legitimate furtherance of Saga's trade.
29. The Judge found that the Olympia action and the Gnoumou action the most difficult aspect of the case, but she was not prepared to find that the granting of the subleases by Mr Ben Zarti was part of a conspiracy and done with the prime purpose of causing harm to Palmeira. The Judge said that there was a good arguable case that Olympia and Miss Gnoumou, like Mr Frimpong, had enforceable subleases, and that Olympia and Miss Gnoumou had a particular interest in asserting its and her rights because the properties were vacant and had a significant value when converted. She also found it not unreasonable for Olympia and Miss Gnoumou later to cut their losses and not to proceed with their actions, once they had been advised that ultimately a transfer of their subleases could have been required upon payment of the necessary premium. But again the Judge found that there was no actionable conspiracy, there being a clear commercial purpose to the bringing of their actions.
30. The Judge finally turned to the question of whether costs should be awarded against Mr van Hoogstraten. She dealt, first, with the Gnoumou action and the Olympia action, pointing out that although Miss Gnoumou had not relinquished her interest in Flat 1, 6 Palmeira Square, no attempt had been made to enforce the order for costs against her or Olympia. The Judge said that she had considered with care the judgment of Balcombe LJ in Symphony Group Plc v Hodgson [1994] QB 179, and particularly the summary by that Lord Justice under six heads of the previous cases where awards against non-parties had been sought to be enforced. She said that she had looked with care at the guidance given by that Lord Justice as to the material considerations to be taken into account, and had borne in mind a subsequent decision of this court, Globe Equities Ltd v Globe Legal Services [1999] BLR 232. The Judge said that given the cautious way she was enjoined to approach these matters, and given the findings she had made, that this was not an appropriate case for an award to be made pursuant to the Symphony case in relation to the Saga proceedings. In relation to the later proceedings, she said that she had no evidence to show that Mr van Hoogstraten was financing the proceedings and that there was evidence to suggest that Mr Hamdan or Olympia had assets and that Miss Gnoumou had at least one asset, and that no attempt had been made to enforce the costs orders. The Judge said that it would be wrong to argue that merely because Mr van Hoogstraten knew that the Olympia and Gnoumou actions were being taken costs should be ordered against him. Heeding the warning for caution given by Balcombe LJ in Symphony, she refused the application for costs against Mr van Hoogstraten.
31. In view of the criticisms made of Judge Coates, I should emphasise that throughout the judgment the Judge had made clear how unimpressed she was with Mr van Hoogstraten's approach to the case. Save in respect of Castries, a company which Mr van Hoogstraten, under one of the aliases he from time to time uses, unquestionably operated, he is not overtly an officer or shareholder of any of the entities which feature in the history of this dispute, nor is he named as the owner of any interest in the Property. Because of Palmeira's case against him, the Judge had to consider with some care the connection between Mr van Hoogstraten and the persons said to be his nominees. She was highly critical of Mr van Hoogstraten's evidence, for example finding him to have prevaricated over the inactive role of Mr Bagot in Saga's affairs. She was prepared to make adverse inferences against Mr van Hoogstraten, for example that Miss Gnoumou's lease was entered into under his guidance and that he was involved in the commencement of the Gnoumou action and the Olympia action. She found Mr van Hoogstraten's evidence about Messina Investments Ltd, an Isle of Man company which was the majority shareholder in Saga, evasive and a deliberate attempt to distance himself from anything to do with that company. She described the impression which he made as a witness as "aggressive, evasive and downright misleading", and she had no doubt that he could have produced further documents and other witnesses to shed light on the situation she was considering. She also found that he wielded substantial influence over individuals, such as Mr Duncan and Mr Brown. Nevertheless, she concluded against Palmeira for the reasons which I have recounted.
32. Permission to appeal against both parts of her decision was sought from but refused by the Judge because, as she said in her written reasons, her decision was based on fact and because there was insufficient evidence to satisfy the burden of proof. Gage J also refused permission on paper, but on a renewed application that Judge directed an oral hearing of the application for permission, with the appeal to follow immediately if permission was granted. At the adjourned hearing before McCombe J, permission was only sought in respect of the refusal to order costs against Mr van Hoogstraten. Nevertheless, we are told that the appeal hearing on that single point lasted four days.
33. McCombe J, with some diffidence, found that Judge Coates approached the exercise of discretion wrongly in three respects, to which I must return later. On the basis of that conclusion he felt able to exercise the discretion afresh. In doing so, he drew upon matters dealt with by Judge Coates in her judgment, with additions which he had garnered from the transcripts of evidence.
34. McCombe J reviewed the evidence, noting Judge Coates' findings that there had been failure by Mr van Hoogstraten to give proper disclosure, and that some parties had been debarred for failing to comply with disclosure orders. McCombe J thought that in the circumstances no conclusion should have been drawn on whether the transactions which Judge Coates had found had commercial logic were commercial. He held that the directing mind behind Saga's defence of the Saga action was Mr van Hoogstraten, and that the only proper inference was that he was the guiding hand behind the actions on the part of the other parties. He held that an evidential burden arose on Mr van Hoogstraten to demonstrate that he was not the controlling mind behind the litigation, if he was to meet Palmeira's strong case.
35. On the financing of the litigation, McCombe J noted that there was no evidence to show that Mr van Hoogstraten was financing the later proceedings, but commented that there was no evidence to show how the proceedings were financed by those opposing Palmeira. McCombe J held that the court was more than entitled to infer that the substance of Palmeira's case was correct, namely that it was Mr van Hoogstraten who was orchestrating and organising, if not supplying the funds for, this litigation for his own benefit and taking such litigation only so far, without any substantial intention of properly pursuing it through discovery and trial, the litigation then being abandoned, leaving Palmeira to enforce its claims for costs against persons who could not be found or who had no substantial assets. He held that Mr van Hoogstraten had caused the litigation costs of Palmeira from at least the beginning of 1993, and he ordered payment by Mr van Hoogstraten of such of those costs as had been ordered to be paid to Palmeira by other parties to the litigation. He therefore granted Palmeira permission to appeal and allowed the appeal. It is plain that McCombe J felt strongly that Judge Coates had reached the wrong decision on many points of fact and the wrong overall conclusion.
36. It is convenient at this point to say a few words about the jurisdiction to award costs against a non-party, and the jurisdiction of an appeal court to interfere with the exercise of discretion vested in the lower court.
37. By section 51 of the Supreme Court 1981 (as amended):

"... the costs of and incidental to all proceedings ... in-

(a) ...

(b) ...

(c) any county court,

shall be in the discretion of the court.

(2) ...

(3) The court shall have full power to determine by whom and to what extent the costs are to be paid."

38. No statutory conditions are laid down as to the manner in which the discretion to award costs is to be exercised, but, as has repeatedly been said, the exercise of discretion is only limited in accordance with the requirements of reason and justice.
39. The heads under which decisions in the cases between the Aiden case and the Symphony case were summarised by Balcombe LJ at pages 191 and 192 were, in short, these:

(1) where a person has some management of the action, e.g. a director of an insolvent company who causes the company improperly to prosecute or defend proceedings;

(2) where a person has maintained or financed the action;

(3) a solicitor against whom a wasted costs order is made;

(4) where a person has caused the action;

(5) where a person is a party to a closely related action which has been heard at the same time but was not consolidated;

(6) group litigation where one or two actions are selected as test actions.

40. Balcombe LJ, at page 192, went on to say:

"I accept that these categories are neither rigid nor closed. They indicate the sorts of connection which have so far led the courts to entertain a claim for costs against a non-party."

41. He then stated what he thought were material considerations to be taken into account in such cases, though he expressly left open the possibility that other considerations were relevant. Those which have possible relevance to the present case are these (and I take them from pages 194 and 195):

"(1) An order for the payment of costs by a non-party will always be exceptional ... The judge should treat any application for such an order with considerable caution.

(2) It will be even more exceptional for an order for the payment of costs to be made against a non-party, where the applicant has a cause of action against the non-party and could have joined him as a party to the original proceedings. ...

(3) Even if the applicant can provide a good reason for not joining the non-party against whom he has a valid cause of action, he should warn the non-party at the earliest opportunity of the possibility that he may seek to apply for costs against him. ...

(4) An application for payment of costs by a non-party should normally be determined by the trial judge ...

(5) ...

(6) The procedure for the determination of costs is a summary procedure ..."

42. In the Globe Equities case, Morritt LJ (with whom Butler-Sloss and Sedley LJJ agreed) pointed out at page 239 that Balcombe LJ's first consideration, that the order for a non-party to pay the costs will always be exceptional, should not be elevated into a precondition for the exercise of discretion. Morritt LJ continued, at page 240:

"Ultimately the test is whether in all the circumstances it is just to exercise the power conferred by subsections (1) and (3) of section 51 Supreme Court Act 1981 to make a non-party pay the costs of the proceedings. Plainly in the ordinary run of cases where the party is pursuing or defending the claim for his own benefit through solicitors acting as such there is not usually any justification for making someone else pay the costs. But there will be cases where either or both these two features are absent. In such cases it will be a matter for judgment and the exercise by the judge of his discretion to decide whether the circumstances relied on are such as to make it just to order some non-party to pay the costs. Thus, as it seems to me, the exceptional case is one to be recognised by comparison with the ordinary run of cases not defined in advance by reference to any further characteristic."

43. At page 241 Morritt LJ said that the costs which are claimed must have been caused by the non-party, and that in most if not in all cases where an order is made, the litigation was for the benefit of the non-party.
44. McCombe J correctly directed himself as to the jurisdiction of the appeal court to interfere with the exercise of discretion vested in a lower court when he noted that under CPR 52.11(3) an appeal will be allowed when the decision of the lower court was wrong. He rightly said that before the appeal court can entertain an appeal, it must be shown that the Judge below exercised the discretion under a mistake of law or in disregard or principle or under a misapprehension of fact, and took into account irrelevant matters or failed to exercise a discretion at all.
45. These categories of grounds permitting interference are frequently referred to compendiously: for example, where there is an error of principle or where the decision is plainly wrong (see, for example, Re Aurum Marketing Ltd [2000] 2 BCLC 645, at 649, per Mummery LJ).
46. Mr Graham Campbell, for Palmeira, prayed in aid the power conferred on the appeal court to draw inferences of fact (CPR 52.11(4)). He suggested that assistance could be derived from Benmax v Austin Motor Co Ltd [1955] AC 370, and in particular what Lord Reid said at page 376:

"But in cases where there is no question of the credibility or reliability of any witness, and in cases where the point in dispute is the proper inference to be drawn from proved facts, an appeal court is generally in as good a position to evaluate the evidence as the trial judge, and ought not to shrink from that task, though it ought, of course, to give weight to his opinion."

47. But Benmax must now be read subject to the comments of Lord Hoffmann (with whom the other members of the House of Lords agreed) in Biogen Inc v Medeva Plc [1997] RPC 1, at page 45:

"The need for appellate caution in reversing the judge's evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance (as Renan said, la vérité est dans une nuance), of which time and language do not permit exact expression, but which may play an important part in the judge's overall evaluation. It would in my view be wrong to treat Benmax as authorised or requiring an appellate court to undertake a de novo evaluation of the facts in all cases in which no question of the credibility of witnesses is involved. Where the application of a legal standard such as negligence or obviousness involves no question of principle but is simply a matter of degree, an appellate court should be very cautious in differing from the judge's evaluation."

48. These remarks are pertinent to the exercise by the appeal court of its review function, when considering whether from the way the lower court, which made findings of fact, expressed its conclusion on an exercise of discretion, it can be seen to have erred.
49. The first question that arises is whether McCombe J was right to find that Judge Coates made errors such as entitled the appeal court to exercise the discretion afresh. If the three respects in which he identified errors by Judge Coates in her judgment cannot be sustained, then, there being no Respondent's Notice, McCombe J was not entitled to interfere with her decision.
50. The first was that Judge Coates, having heard a lengthy trial of the conspiracy claim, failed to apply separately and distinctly the law that has developed as to the court's powers to award costs against non-parties, and concentrated almost exclusively on considering whether she could discern commercial reasons for the activities of Saga. McCombe J referred to two passages in the Judge's judgment to illustrate this criticism. One was the comment made by the Judge at page 36 of her judgment, line 13:

"... at this stage I do not find that there is evidence of an actionable conspiracy, and I cannot find that there is a sufficiently non-commercial purpose to the activities undertaken by Saga which would allow me to look at making some finding under Symphony Group v Hodgson."

51. The Judge, it is to be noted, continued:

"... as I say, I will come back to that later in more detail."

52. It is thus only a preliminary observation by the Judge.
53. The second passage was that at page 42 of Judge Coates' judgment:

"I have already said that I can see commercial reasons for most of the actions taken by Saga, and this is dealing with the earlier proceedings, and whilst in the later stages I have found that de facto directions did come from Mr Hoogstraten, I do not find that that earlier situation comes within any of the heads set out by Lord Justice Balcombe. I do not think in the circumstances, as I have found them, Saga's participation in the litigation, up to the decision of the Lands Tribunal, was improper. It may well have been conducted, as I have said, in a slovenly fashion until the appearance at the Lands Tribunal, but there is evidence on which I have made my findings to suggest that much of the problems arose in litigation as a result of the difficulties with Saga's solicitors."

54. McCombe J said that this second passage illustrated both the first error which he had identified and the second error, which was that the Judge approached the matter as if she had no power to act under the section by making an order against Mr van Hoogstraten, unless it was shown that the case could be brought specifically within any of the heads set out by Balcombe LJ in Symphony.
55. Mr Leonard, for Mr van Hoogstraten, submits that neither criticism is justified. I agree with him. McCombe J does not appear to have taken proper account of the way the case was put by Palmeira before Judge Coates. In the written opening submission of Mr Campbell put before the Judge, it was made clear that the same facts alleged by Palmeira justified relief both in respect of the conspiracy claim and the claim for costs, and that the case fell within the Symphony principles. Thus in paragraph 1, this was said:

"Mr Hoogstraten by use of this network deliberately caused those companies and various individuals to act in a manner calculated to damage the financial interests of Palmeira. He has done this by forcing Palmeira to enter into prolonged and expensive litigation in order to establish and take advantage of their rights under the Act. Palmeira's claim is framed in law in two ways:

(a) damages for conspiracy

(b) claim for costs to be paid by a person not a party to an action under the principles of Symphony Group v Hodgson."

56. Again at paragraph 5 Mr Campbell had referred to paragraph 4 of the counterclaim, stating:

"At all material times [Olympia] together with [Mr Ben Zarti, Miss Gnoumou, Castries and Mr Frimpong] acted together in concert with and upon the instructions of [Mr van Hoogstraten] and have conspired and agreed together wrongfully and with intent to injure [Palmeira]."

57. The submission continued:

"This allegation contains the guts of the case which is for trial. Palmeira says that all other persons who have been parties in various aspects of this litigation are no more than creatures of Mr van Hoogstraten and are either companies which are accustomed to act at his direction or are persons to act as nominees and do his bidding. It is Palmeira's case that this entitles them to damages for conspiracy and costs under the Symphony Group v Hodgson principles."

58. Again, at paragraph 10 reference is made to the tenants' attempts to take advantage of their rights under the 1987 Act. The submission continues:

"The attempts to frustrate them form the subject matter of the conspiracy allegation and the foundation for the application under Symphony Group v Hodgson."

59. That this was how the Judge understood the way Palmeira's case was put is apparent from her judgment, at page 31:

"Effectively they argue that if I am satisfied with these connections, and that Mr Hoogstraten is seeking to distance himself from them, I can draw the inference that he has been behind the whole of this operation since its inception, and therefore I can, on the basis of a conspiracy, or on the basis of Symphony Group v Hodgson, find for them."

60. Mr Campbell has told us that although he put in written submissions running to no less than 74 pages as closing submissions, those submissions related to the evidence; they do not specifically refer to his case for costs to be awarded against Mr van Hoogstraten. He says that he also made oral submissions directed only to the costs point and that he raised 18 factual matters in support. He says that on the basis of the skeleton argument which he prepared for the hearing before McCombe J, by which time the conspiracy claim was not being appealed.
61. No doubt those matters were mentioned. They were all part of the history which the Judge considered when looking at the conspiracy claim. The Judge was bound to deal in her judgment with the case presented by Palmeira, and there can be no doubt that the factual basis for the costs claim was essentially that for the conspiracy claim. Indeed, Mr Campbell accepted that Judge Coltart would himself have dealt with the costs claim, had it not been for the close connection between the conspiracy claim and the costs claim.
62. Moreover, I see no basis for McCombe J's conclusion that Judge Coates did not apply the law relating to section 51(3) applications. The two most relevant cases, Symphony and Globe Equities, were cases which she says she read carefully and took into account. The commerciality of the steps taken by the various parties, other than Mr van Hoogstraten, was plainly a relevant consideration when the question was whether it should be inferred that those various parties were merely nominees of and acting in the interests of Mr van Hoogstraten. If for example Olympia and Miss Gnoumou had good reasons of their own for starting actions in their own interests, or Saga had good commercial reasons for granting leases to Mr Ben Zarti and if for Mr Ben Zarti there was commercial logic in granting subleases, these were powerful pointers away from the correctness of Palmeira's case that the court should infer that everything was done on the orchestration of Mr van Hoogstraten for his own benefit.
63. Nor is it right that Judge Coates only looked at those commercial reasons. She plainly took into account other matters, such as whether, as Palmeira claimed, Mr van Hoogstraten financed all the litigation, and whether the conduct of the litigation was improper; and she also noted the delay in notifying Mr van Hoogstraten that it was seeking the costs of the Saga action from him two years after that litigation had ended.
64. I therefore cannot agree with McCombe J's first criticism, which in my opinion was unjustified.
65. The second criticism seems to me equally wide of the mark. The grounds on which Palmeira's case was presented did fall within the heads identified by Balcombe LJ, in particular heads (1) and (2). The substance of Palmeira's case was that Mr van Hoogstraten managed the actions and caused the other parties improperly to prosecute and defend proceedings, and that he financed the actions for his own benefit. Indeed, Mr Campbell accepts that he never argued that the present case fell outside the cases identified under those heads. It was therefore understandable that the Judge referred to those heads when rejecting Palmeira's case. But in any event, it seems to me impossible to justify the uncharitable view taken by McCombe J of Judge Coates that, although she said she had read Balcombe LJ's judgment carefully, she had ignored the sentence which I have already cited and which immediately followed head (6), and which expressly recognised that the categories in the six heads were neither rigid nor closed, but treated the six heads as exclusive.
66. The third criticism by McCombe J was said to be that Judge Coates did not correctly draw the consequences of her own finding at the conclusion of her judgment, when the Judge said this:

"So overall, whilst I emphasise and repeat I have been most unimpressed by the manner in which Mr Hoogstraten has approached this case, and whilst I am more than satisfied that in a number of respects there has been a deliberate attempt to mislead the court, I am not satisfied on the balance of probabilities that Palmeira has been able to show either an actionable conspiracy or any basis upon which I can award costs pursuant to Symphony Group v Hodgson, ..."

67. McCombe J said this, at page 8 of his judgment:

"It seems to me that that important finding impinges upon the whole exercise of the discretion under section 51 in two ways. First, it substantially impaired the possibility of discerning to what extent the court might have been successfully misled in the case before it. Secondly, to my mind it gave rise to an additional and very important feature to put into the balance in weighing up the manner in which to exercise a discretion, namely this, that in the very enquiry being undertaken as to whether costs should be borne by the defendant he had not only arguably brought himself within the principles to which the orders could be made, but had also deliberately attempted, possibly successfully in some respects, to prevent the court reaching an accurate and just assessment of the facts."

68. Mr Leonard again criticises that ground too as unsustainable.
69. In my judgment, neither point taken by McCombe J leads to the conclusion that Judge Coates did not correctly draw the consequences of her own finding. As for the first limb of that criticism, I do not understand on what logical basis it can be asserted that the fact that in some respects Mr van Hoogstraten deliberately attempted to mislead the court, substantially impaired for the trial judge the possibility of discovering to what extent the court might have been successfully misled in the case before it. On the contrary, the very fact that the Judge was fully aware of that deliberate attempt was bound to make her even more alert to the possibility that in other respects the court was being misled. It would be absurd to suggest that once someone is shown to have made such an attempt, it must follow that every point had to be decided against that person.
70. At page 30 of her judgment, the Judge expressly adverts to the difficulty which had been caused by Mr van Hoogstraten's behaviour. She said this:

"I have been left with the conundrum: does Mr Hoogstraten's lack of frankness demonstrate that he has something to hide which goes to the root of this case, or was it a demonstration of irritation at investigation into his own personal affairs which he believed was an unjustifiable intrusion?"

71. That the Judge found in favour of Mr van Hoogstraten, despite her manifest unhappiness with his approach, indicates how carefully and conscientiously the Judge performed her judicial task.
72. The second limb of the third criticism is divided into two parts. The first on its face is that Mr van Hoogstraten's conduct at the hearing before Judge Coates arguably made him liable to have an order for costs made against him. But it would a novel, indeed unjust, principle that someone who behaves badly at the hearing to determine whether he should pay the costs of litigation conducted prior to that hearing, renders himself liable to the award of such costs against him. Of course that person may thereby render himself liable to an award against him in respect of the costs of that hearing, but that is irrelevant.
73. The second point is that Mr van Hoogstraten had deliberately attempted to prevent the court reaching an accurate and just assessment of the facts, and may have succeeded and that was to be put in the balance. That appears to be a repetition of the first limb of the third criticism, and adds nothing to it. Again, it cannot properly be said that the Judge failed to draw the consequences of her own finding.
74. For these reasons, I have reached the clear conclusion that none of the three errors in Judge Coates' approach which were identified by McCombe J is in truth an error, and that he was therefore not justified in embarking on the fresh exercise of discretion which he undertook. It may well be that other judges if they had heard the evidence presented to Judge Coates would have reached a conclusion different from that of Judge Coates, and would robustly have drawn the inferences adverse to Mr van Hoogstraten which McCombe J was prepared to do. But the appeal court is not the trial judge, who has seen the witnesses and heard all the evidence and made an assessment of all that material. The appeal court must loyally accept the constraints which limit its ability to interfere with the lower court's exercise of discretion, even if it believes that it would have come to a different evaluation of the facts if it had been the trial judge.
75. Because of the conclusion which my Lords and I have reached on whether McCombe J was entitled to exercise the discretion afresh, we have not found it necessary to consider the other grounds of appeal attacking that fresh exercise of discretion, and I say nothing about them.
76. I would only add this comment. I am left with a feeling of deep unease that the application for permission to appeal and the appeal to the appeal court on the single issue of awarding costs against a non-party should have taken so much of the appeal court's time. As Morritt LJ said in the Globe Equities case at page 230, such proceedings should be measured in hours, not days.
77. For these reasons, I would allow the appeal and restore Judge Coates' order.
78. LORD JUSTICE ALDOUS: I agree.
79. LORD JUSTICE TUCKEY: I also agree.
ORDER: Appeal allowed; the order of McCombe J to be set aside and the order of Judge Coates restored; costs to be paid by the Respondent to the Appellant here and below; an interim order for costs made in the sum of £50,000, to be paid within 28 days; liberty to apply; permission to appeal to the House of Lords refused; stay pending an application for permission to appeal to the House of Lords refused. (Order not part of approved judgment)