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
QUEEN'S BENCH DIVISION
(MR JUSTICE EADY)

		Royal Courts of Justice Strand London, WC2
		19th April 2005

LORD JUSTICE CLARKE:

Introduction

1. This is an appeal brought with the permission of Sedley LJ and Gage LJ from an order for costs made by Eady J on 30th July 2004. The order was part of a much wider order made by the judge on that day.

The Background

2. The background to the order for costs is important. The appellants are the first and sixth defendants in an action brought by the respondent. The judge correctly summarised the position in paragraphs 7 to 13 of his judgment. The action arises out of a joint venture which failed. The respondents made allegations of fraud and mismanagement against the defendants. The claims are partly for financial compensation and partly proprietary in nature. There is, as the judge correctly observed, a complicated contractual history. It is not, however, now disputed that the action should be stayed under section 9 of the Arbitration Act 1996, (the 1996 Act) by reason of arbitration clauses in the relevant agreements. However it was not always conceded by, or on behalf of, the respondents that the action should be stayed.
3. On 4th March 2004, on an application made without notice to Holland J, he granted the following orders:

A. world wide freezing order.

B. A disclosure order.

C. An order for the preservation of documents and a disk imaging order.

D. An order for the provision of information about specified assets.

E. An order for provision of information about assets generally and.

D. An order for the disclosure of documents.

4. On 25th March at a hearing at which the respondents and Mr Thompson were represented, the order was varied in a number of respects. As Andrew Smith J observed when the matter came before him on 5th May 2004, the order as varied went beyond what was necessary to police the freezing order. It required the disclosure by Mr Thompson of documents which were relevant to the merits of the dispute.
5. In April 2004 Mr Thompson sought a stay of the disclosure process to enable him to prepare an application to stay the proceedings under section 9 of the 1996 Act and to discharge the whole order. He indicated a wish to argue that if a stay was granted it was likely that, having regard to the provisions of section 44 of the 1996 Act, the court would limit the scope of the order to an order relating to the preservation, as opposed to disclosure of evidence.
6. On 5th May, on certain undertakings being given, Andrew Smith J ordered the disclosure process to be suspended until 31st May 2004 or, if Mr Thompson issued an application to discharge the order, until seven days after the determination of that application. Andrew Smith J declined to stay the process pending a hearing of an application for a stay of the proceedings under section 9.
7. On 13th May the respondents served points of claim in the action. On 24th May they refused both to agree to a stay and to replace the order with undertakings in substitution for the freezing and disclosure orders. They also said that even if there were a stay it would be open to the court to dismiss any application to discharge the order and to continue, or reimpose or vary its terms.
8. On 28th May, Mr Thompson issued an application (1) for a stay under section 9 of the Arbitration Act (2) to discharge the orders and for the return of the documents disclosed under it and (3) in the alternative, for an order suspending the disclosure process and varying the order to make it consistent with section 44 of the 1996 Act, by which was meant limiting it to the preservation of documents.
9. On 17th June the respondents agreed, in principle, to a stay of the action, although that agreement was subject to conditions. Correspondence ensued as to the type of arbitration that might be agreed. On 1st July the parties agreed that all interested parties would use their best endeavours to agree to an ad hoc arbitration. Pending a hearing of Mr Thompson's applications on 19th and 20th July, it was agreed that there should be a temporary moratorium on his obligations under the order.
10. In the event the contemplated ad hoc agreement was not reached before the hearing began before Eady J on 19th July. However, in the respondents' skeleton argument, served the day before, that is on 18th July, they accepted that the variation or suspension of the order effected by the order of Andrew Smith J on 5th May should be made permanent. That was, in effect, to concede the third order sought by way of alternative in Mr Thompson's application of 28th May.

The hearing before Eady J

11. The hearing took place on 19th and 20th July. As is plain from the judge's judgment he considered a number of issues. As I said earlier, he set out the contractual and commercial background to the dispute in paragraphs 7 to 13 of his judgment. He then considered the application of Mr Thompson and of the sixth defendant to set aside the order of Holland J, as varied. The application was made on two grounds: (1) that the order was made without jurisdiction and (2) that there was a lack of full and frank disclosure to the court on behalf of the respondents.
12. The judge rejected the first ground in paragraphs 14 to 22. It was common ground that under section 44 and, in particular, 44(3) of the 1996 Act, there was no power to order disclosure of documents going to the substantive issues between the parties, but only for the purposes of preserving assets or evidence. I note in passing, in the light of the issues which may or may not arise in an application or an appeal we are hearing later today, the question whether that view of section 44 is correct did not arise before the judge and does not arise in this appeal.
13. The appellant's argument was that the respondents should have appreciated from the outset that a stay would be granted and recognised that the court had no jurisdiction because of the common ground, to which I have just referred. The judge rejected that suggestion. He accepted the respondent's argument that the application was under the inherent jurisdiction of the court or under section 37 of the Supreme Court Act 1981. He expressly held that that was how it was framed and presented. However, he also noted in paragraph 17 that it was the respondents' argument that the appellants did not in fact give any disclosure beyond what would have been appropriate for the preservation of assets and evidence. The judge referred to the variation of the order by Andrew Smith J and to the concession made on 18th July by the respondents, that they would abide by that variation in the future.
14. However, as I read his judgment, the judge did not base his conclusion on jurisdiction on that concession. He held in paragraph 21 that the concession was made without any acknowledgment on the part of the respondents that the order of 4th March was wrongly made, or that they were confined by the limitations of the 1996 Act. He held in paragraph 22 that there was on the evidence before him an arguable case on the respondents' part at the time of the hearing before Holland J in March and, indeed, that there was still such a case based both upon fraud and mismanagement. There had also been disclosed evidence to justify a reasonable apprehension of dissipation of assets. In those circumstances, the judge said that he could not accept that the orders were made without jurisdiction.
15. In paragraphs 23 to 38 of his judgment the judge rejected the appellant's case based upon alleged non-disclosure and indeed misrepresentation. It is not necessary to refer to the reasons for reaching his conclusion. In short he held in paragraph 38 that none of the criticisms amounted to material non-disclosure or if they did that it would be disproportionate to set aside the order because of them.
16. In paragraphs 39 to 43 he rejected submissions directed to Norwich Pharmacal orders in relation to others. He refused to set aside the orders or to order delivery up of documents disclosed under them. In paragraphs 46 to 49 he considered and rejected the respondents' application that the court should appoint an arbitrator under section 18 of the 1996 Act, partly because Mr Neill indicated on behalf of the appellants that they wished to rely upon their contractual rights as to the appointment of an arbitrator or arbitrators. Finally, the judge simply recorded that the action must be stayed.

Costs

17. The judge ordered the respondents to pay the appellants' costs of obtaining the stay under section 9 of the 1996 Act and of resisting their application for the appointment of an arbitrator under section 18. Importantly, paragraph 3 of his order was in these terms:

"The First Defendant's obligations under paragraph 23 of the Order of Holland J of 4 March 2004 and further steps to be taken under paragraph 6 (b) to (e) of the Variation Order made by Holland J on 25 March 2004 be suspended until further order of the Court. The Claimants shall pay the First Defendant's costs of and occasioned by its applications before Mr Justice Andrew Smith on 5 May 2004 and before Mr Justice Eady on 19/20 July 2004 for suspension of the obligations contained in these paragraphs."

18. The judge ordered the appellants to pay the respondents' costs of the appellant's application for discharge of the order and of the Norwich Pharmacal issues and he directed that the costs of the applications on 25th March and 1st July 2004 be costs in the arbitration. As I understand it, although the judge reserved his judgment until 30th July, he did not then provide a written judgment, but delivered his judgment orally. There then followed argument on costs and the judge determined the issues which he perceived to arise from that argument and the order to which I have referred was subsequently drawn up.

The application for permission to appeal

19. The judge refused permission to appeal. So did Hooper LJ on paper. The application was renewed before Sedley LJ and Gage LJ. The appellants' skeleton argument in support of the application is an extensive document running to 25 pages and 109 paragraphs. It begins by asserting that the case raises important and fundamental issues: (1) regarding the jurisdiction of the court to grant freezing and disclosing orders under its inherent jurisdiction and/ or under the Supreme Court Act 1981 to a claimant who has begun proceedings in breach of an arbitration agreement; (2) regarding such jurisdiction in respect of disputes which the parties have agreed to submit to arbitration; (3) the scope of the duty on a claimant to make full and frank disclosure in such a case; and (4) the scope of the court's jurisdiction to make Norwich Pharmacal Orders.
20. In the skeleton the appellant set out the background in considerable detail and focused in detail on the above issues between paragraphs 1 and 104. The issue of costs was discussed between paragraphs 105 and 109.
21. The appellants renewed their application for permission to appeal orally on all the grounds. Their application was refused on jurisdiction, non-disclosure and the Norwich Pharmacal grounds and granted only on the costs grounds.

The appeal

22. In this appeal the appellants invite the court to set aside the judge's orders that they pay the respondents' costs of the applications to discharge the freezing and discharge orders, to set aside the Norwich Pharmacal Orders. They say that, once the respondents had conceded not only that the proceedings should be stayed under section 9 of the 1996 Act but also that the variation of the order of Holland J, directed by the order of Andrew Smith J, should stand for the future, the order for costs was unfair. It will be recalled that, as Eady J observed in paragraph 21 of his judgment, the effect of the variation was that the order, as varied, would not have the effect that it embraced disclosure of documents relevant to substantive issues rather than the protection and preservation of evidence or assets.
23. Mr Neill submits further that the judge gave no reasons for his decision in circumstances in which he ought to have done: see English v Emery Reimbold & Strick Ltd [2002] 1 WLR 2409. Mr Neill submits in his written documents that the appellants were substantially successful in respect of their applications and that they should either have been awarded all their costs or the bulk of their costs, subject to a small discount to reflect the fact that the application to discharge the whole of the order of Holland J or the Norwich Pharmacal orders failed.
24. The correct approach of this court is not in dispute. It will only very rarely interfere with orders for costs and then only if the judge has erred in principle or reached a conclusion which was plainly wrong.
25. It appears from the oral argument this morning that Mr Neill has been under a misapprehension as to the true construction of the order. It appears that he overlooked paragraph 3 of the order when the application was made orally to Sedley LJ and Gage LJ. He says that he, and indeed also the respondents, had proceeded on the basis that the effect of the order was to order the appellants to pay all the respondents' costs of the application, save those specifically reserved.
26. We have seen no correspondence between the parties on that topic, but to my mind that construction of the order is plainly wrong. Indeed, as I understand it, Mr Flint accepts that the order does not have that meaning or effect. I have reached the clear conclusion that the appellants have failed to show that the judge erred in principle or that he did not balance the various factors fairly in the scale, or that he exceeded the generous ambit within which disagreement is possible.
27. Further, although the judge did not specify his reasons for making the order, the reasons for his decision are plain. He gave each party its costs of the issues upon which it succeeded, including the issue raised by the appellants' alternative case which was conceded by the respondents on 18th July. That part of the order is clearly expressed in paragraph 3 of the order of the 30th July, which I have already quoted. It will be entirely a matter for the costs judge how the figures are worked out. It will be for him or her to decide what costs are attributable to each of the issues. That is not something for an appellate court to consider.
28. It is unfortunate, to put it no higher, that Mr Neill overlooked paragraph 3 of the order when he made the oral application before Sedley LJ and Gage LJ. In granting permission to appeal Gage LJ said this:

"Mr Neill submits that it was not until the day before the hearing before Mr Justice Eady that he achieved that which he needed to achieve by his application, namely the stay of the disclosure order made by Mr Justice Holland. Apparently - we have been told by Mr Neill - what happened was that the day before the hearing the claimants conceded that there should be a stay of the orders and the matter referred to arbitrators. Accordingly Mr Neill submits that his application to Mr Justice Eady succeeded in obtaining the relief which he had sought all along. That being the case, he submits that the justice of the case required that either he should have an order for his client's costs or, at the very least, there should be some order other than that they should pay all the costs occasioned by the application."

29. It can be seen that that statement by Gage LJ is seriously inaccurate, principally because the court was not referred to paragraph 3 of the order. To my mind that is a very regrettable circumstance.
30. Further, I would reject two particular submissions made by Mr Neill. The first is that since the concession to make the variation of the order permanent was not made until the day before the hearing, the appellants were denied the opportunity of considering the position in the light of this finding. I see no reason why appropriate instructions could not have been taken, but whether that is so or not the appellants' alternative case, that is the case conceded by the respondents the day before the hearing, could have been advanced alone in the first place. It was entirely the appellants' decision to apply to discharge both the whole order against them and the Norwich Pharmacal Orders against others in the first place. The applications failed. Moreover, as indicated earlier, they took up a considerable time before the judge and formed the vast bulk, not only of the judge's judgment, but also of the skeleton argument lodged in support of the application for permission to appeal. They were described as important and fundamental issues, which the appeal on costs is plainly not. In short, the appellants chose to advance the issues on which they lost and must bear the costs' in the consequences of doing so.
31. The second submission, which is made in the written materials, is the suggestion that the issues on which the appellants lost were small points by comparison with the points on which they won, at any rate, in terms of costs. I am far from persuaded that that is the case. However, if it is, the costs judge will no doubt reflect it in his or her determination. The order of the judge does not involve any determination of that question. It simply divides the costs on an issue by issue basis. Such an order is consistent with principle and not in any way wrong, let alone plainly wrong. For all these reasons, I would dismiss this appeal.
32. LORD JUSTICE NEUBERGER: I entirely agree.
33. THE VICE-CHANCELLOR: I also agree. It seems to me that it is worth repeating the well known proposition that advocates appearing on ex parte applications, that is to say without notice, are under a duty to bring to the attention of the court all relevant matters, whether they are in the favour of that advocate's client or not. For the reasons given by my Lord, Clarke LJ, it appears that paragraph 3 of the order was overlooked and the Court of Appeal was therefore misled into granting permission to appeal. I refer to paragraph 10 of the judgment of Gage LJ in which he says this:

"I should add that it is unusual for this court to grant permission to appeal in respect of orders for costs. In this case, for my part, I would grant permission on the basis of what we have been told by the solicitor representing the first and sixth defendants. Obviously we take very much on trust what we have been told about the issue in relation to costs and for that reason, I would grant permission in respect of that part of the order alone."

34. That statement demonstrates that the duty under which Mr Neill undoubtedly was, when addressing the Court of Appeal on the earlier application, was not properly or fully discharged. I can only repeat that that is a matter of some concern. For the reasons given by Clarke LJ, I would dismiss this appeal.
Appeal dismissed with costs