England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM High Court (Chancery Division)
Master Clark
HC-2013-000223

		Royal Courts of Justice Strand, London, WC2A 2LL
		14/05/2018

Lord Justice Coulson :

Introduction

1. In a lengthy written judgment dated 5 May 2016, Master Clark made a detailed costs order following the discontinuance of the proceedings. On 14 November 2016 Patten LJ refused permission to appeal, on the basis that there were no arguable errors of principle in the exercise of the Master's discretion, and nothing to indicate that her decision was plainly wrong. At an oral renewal hearing on 24 July 2017, King LJ granted permission to appeal.
2. The appeal raises two issues. First there is an issue as to whether or not the Master failed to have regard to the default rule as to costs on discontinuance, set out at CPR 38.6(1). The second issue is whether the Master's conclusions were outside the wide ambit of her discretion.

The Relevant Facts

3. The chronology is set out with some care by the Master at paragraphs 2 to 19 of her judgment. From that history, I take the following essential facts.
4. The claimants are directors of the defendant company. In September 2012 the company was the subject of an investigation by the EU Commission in respect of suspected unlawful anti-competitive behaviour. On 16 July 2013, the claimants sought copies of a wide range of documents from the defendant's solicitors. At about the same time, it became apparent that there was an email, dating back to 2006, which allegedly implicated Mr Meyers, the majority shareholder and chairman of the defendant, as well as other senior management, in the anti-competitive behaviour that was the subject of the investigation.
5. At a Board meeting on 23 July 2013, the second claimant requested a copy of the email. Mr Foulkes, the relevant partner at the defendant's solicitors, said that it would be provided "at the appropriate time". Further requests for copies of the email were made in writing on 7 August 2013. The response on 19 August was that the relevant documents would only be provided in accordance with an "appropriate process to ensure necessary protections for those documents and for the Company generally". Over the next 6 weeks or so, further requests to see the email were blocked in a similar way.
6. At a Board meeting on 9 October 2013, a resolution was passed that all directors be permitted to review the materials which the defendant's solicitors had in their possession in New York, although no copies or notes were to be taken. The claimants understood that this resolution meant that they could view the 2006 email. The second defendant confirmed that understanding in writing on 9 October, and the response from Mr Foulkes did not suggest that this understanding was wrong. However, the email was not within the binder of documents being held by the solicitors for review in New York. On 10 October, and again in more direct language on 28 October, the first claimant responded to this latest rebuff (as the Master put it) "in terms of understandable frustration". In the email of 28 October, the first claimant indicated that proceedings would be issued so that the claimants could obtain access to the email. Proceedings were subsequently commenced on 1 November 2013 requiring the delivery up of the email.
7. At a further Board meeting on 4 December 2013, a resolution was passed to the effect that the directors could have access to the email at the offices of the defendant's new solicitors, Freshfields. The resolution identified various undertakings that would be required from the directors if a copy of the email was also required. The email was viewed by the claimants on 4 December 2013 for about 15 minutes.
8. In February 2014, an interim injunction application for delivery up of the email, without conditions, was dismissed, largely as a result of the failure by the claimants to offer a cross-undertaking in damages, and because the balance of convenience favoured the status quo of non-disclosure. The claimants were consequently ordered to pay the defendant's costs of that application, and that order is unaffected by the Master's decision and this appeal.
9. In June 2014, the claimants amended their statement of claim to add declarations in respect of other documents. In the amended defence dated 4 August 2014 it was alleged that the claimants were seeking the 2006 email for an improper purpose. Following a long delay and the instruction of new solicitors on behalf of the claimants, on 20 February 2015, the first claimant provided an undertaking in the form contemplated by the Board resolution of 4 December 2013. The defendant still failed to provide a copy of the email, pointing to difficulties created by the absence of similar undertakings from the second claimant. On 31 March 2015, the second claimant also provided the relevant undertaking. A copy of the email was finally made available to the claimants on 1 May. On 14 July the claimants indicated in general terms that the proceedings would not be pursued although it was not until 24 July that the claimants served their notice of discontinuance.

The Judgment

10. In her careful judgment, having set out the relevant facts, the Master identified the applicable legal principles. It is not suggested that her summary of the law was in any way inaccurate or incomplete. Thereafter, she divided the analysis of the parties' costs liabilities into four periods, as follows:

i) The first period, from 31 July 2013 (by which time the email had already been sought) to 4 December 2013 (the Board meeting at which the relevant disclosure resolution was passed);

ii) The second period, from 5 December 2013 (immediately after that Board meeting) to 20 February 2015 (the date of the first claimant's undertaking);

iii) The third period, from 21 February 2015 (immediately after the first claimant's undertaking) to 1 May 2015 (the date that the email was finally provided); and

iv) The fourth period, from 2 May 2015 (when the email was provided) to 24 July 2015 (when the proceedings were discontinued).

11. The Master concluded that the claimants were entitled to their costs of the first period. In respect of the second period (which was obviously much the longest), it was agreed between the parties that the defendant was entitled to its costs. The only argument was in relation to the basis of assessment of those costs: the defendant argued for indemnity costs, but the Master refused that application and no further issue now arises.
12. In respect of the third period, the Master said that there would be no order for costs between 21 February 2015 (when the first claimant's undertaking was provided) and 31 March (when the second claimant's undertaking was provided). She found that the claimants were then entitled to their costs from 1 April 2015, which was the day after the second claimant had given an undertaking in the same terms as the first claimant, until 1 May, when the email was finally provided. As to the fourth period, the Master found that the defendant was entitled to its costs up to 14 July, which was the date that she said that the claimants had indicated that the action would be discontinued, but she ruled that the defendant was not entitled to its costs for the period from 14 July to 24 July.

The Applicable Legal Principles

i) Discretion

13. Appeals against the exercise of a judge's discretion are difficult to sustain: as Lewison LJ said in Abdulle & Ors v Commissioner of Police for the Metropolis (practice note) [2016] 1 WLR 898:

"24. Let me say at once that if I had been the first instance judge I would have accepted Mr Thomas's submissions… But that is not the question for an appeal court.

25. Mr Thomas's submissions did not include a submission that the judge overlooked any relevant factor, or that he took into account irrelevant factors. Nor did he suggest that the judge misdirected himself in law. Rather, his submissions were directed to the weight that the judge attributed to the various factors that he did take into account in exercising his discretion. That is not a promising start to an attack on an exercise of discretion. What it amounts to is a submission that the judge's decision was perverse."

14. In my view, these principles apply a fortiori to decisions on costs. A decision by a judge relating to costs is an exercise of discretion, in respect of which the judge has considerable latitude: see in particular CPR Part 44, and the extensive list of matters which the judge can take into account when arriving at his or her decision on costs. Moreover, decisions on costs are usually reached at the end of a trial or a hearing in which the judge has been involved in all aspects of the decision-making process. This court can rarely be in the same position. Thus, it will only be where a decision is contrary to law, or so wrong as to be perverse, that this court will permit an appeal from a decision on costs.

ii) The Default Rule on Discontinuance

15. CPR 38.6(1) provides that:

"Unless the court orders otherwise, a claimant who discontinues is liable for the costs which the defendant against whom the claimant discontinues incurred on or before the date on which notice of discontinuance was served on the defendant."

16. This default rule was considered by Moore-Bick LJ in Brookes v HSBC Bank PLC [2011] EWCA Civ 354. At paragraph 6 of his judgment, he summarised the relevant principles:

"(1) when a claimant discontinues the proceedings, there is a presumption by reason of CPR 38.6 that the defendant should recover his costs; the burden is on the claimant to show a good reason for departing from that position;

(2) the fact that the claimant would or might well have succeeded at trial is not itself a sufficient reason for doing so;

(3) however, if it is plain that the claim would have failed, that is an additional factor in favour of applying the presumption;

(4) the mere fact that the claimant's decision to discontinue may have been motivated by practical, pragmatic or financial reasons as opposed to a lack of confidence in the merits of the case will not suffice to displace the presumption;

(5) if the claimant is to succeed in displacing the presumption he will usually need to show a change of circumstances to which he has not himself contributed;

(6) however, no change in circumstances is likely to suffice unless it has been brought about by some form of unreasonable conduct on the part of the defendant which in all the circumstances provides a good reason for departing from the rule."

At paragraph 10 of his judgment, Moore-Bick LJ went on to say that a claimant who seeks to persuade the court to depart from the normal position "must provide cogent reasons for doing so and is unlikely to satisfy that requirement save in unusual circumstances".

17. The six point summary set as above was later adopted and approved by the Court of Appeal in Nelson's Yard Management Co v Eziefula [2013] EWCA Civ 235. In that case, Beatson LJ gave some examples of the height of the hurdle that a claimant needed to get over to displace r.38.6(1). One example was Messih v MacMillan Williams [2010] EWCA Civ 844, where Patten LJ ruled that the achievement by the claimant of what he had sought from the proceedings, by a settlement with one of a number of defendants, did not justify disapplying the default rule when the claimant discontinued against other defendants.
18. However, notwithstanding these examples, Beatson LJ concluded that the Recorder in Nelson's Yard had erred in principle in failing to take into account a relevant consideration which went to the claimant's case that the default rule should be disapplied. Thus the appeal was allowed and, as a result of the unreasonableness of the defendant's conduct, the default rule was disapplied, and the defendant was ordered to pay the claimant's costs of the action up to the date that the defence was served.

The First Issue

19. The defendant accepts that the Master set out the correct legal principles, including r.38.6 and a number of the authorities noted above. However, they maintain that, having set out the default rule, she then went on to deal with the incidence of costs as if this was an ordinary case under r.44.2.
20. In my view, with one exception relating to the fourth period (addressed in paragraphs 40-46 below), the submission that the Master failed to have regard to r.38.6 has not been made out. The effect of her decision was that, in accordance with the default rule, the defendant recovered its costs from 5 December 2013 to 21 February 2015 (the second period) and from 1 May to 14 July 2015 (most of the fourth period). This amounted to approximately 17 of the 21 months during which these proceedings were extant. In addition, in respect of the first and third periods, where she reached a different view, she explained in detail what the relevant factors were and why the default rule was displaced.
21. It is also important to step back and look at this case, and the default rule, in the round. The presumption in r.38.6 arises because, in the ordinary case, the discontinuance of a claim by a claimant against a defendant will usually amount to an admission or an acceptance that the proceedings should never have been commenced. In such a case, the starting point must be that the defendant is entitled to its costs, and that is reflected in the default rule.
22. But here, the proceedings were commenced because the claimants wanted copies of the relevant email and had been frustrated, over many months, in their attempts to obtain copies of it. Eventually, after considerable prevarication and delay (most of which was their fault, as reflected in the costs orders made against them, although some of it was not), the claimants obtained those copies. So this action was discontinued at least in part because the claimants' original aim had been achieved. Unlike Messih, however, the claimants were not using that as a reason to avoid other costs liabilities which they have incurred.
23. For these reasons, subject to the stand-alone point at paragraphs 40-46 below, I do not consider that the defendant has made out its case on the first issue. There was no error of law. The default rule was properly considered and applied, and only disapplied after a proper consideration of the facts. But I shall go on to consider the second issue, namely the defendant's criticisms on the points of detail, not because I think these were appropriate matters for an appeal, but because, in the main, my analysis of them supports the view I have reached on the first issue. For the reasons set out below, again with the exception of the fourth period, I do not consider that there is anything in the detailed criticisms that have been made of the Master's judgment.

The Detailed Criticisms

i) The First Period

24. The Master found that the claimants had a reasonable perception that they were entitled to know the contents of the email. They had sought access to the document and had been told that it would be made available. She concluded that the Board resolution of 9 October 2013 was clear and unconditional and included the email, and that the decision the next day not to permit access, because the email was not in a particular folder in New York, was "irrational and unreasonable". She therefore found that the r.38.6 presumption was displaced and that the claimants were entitled to their costs for the first period. That was a view that she was quite entitled to reach on the evidence.
25. The defendant's first criticism is that the Master gave no weight to the fact that there had been no pre-action letter in accordance with Paragraph 6 of the PD dealing with Pre-Action Conduct and Protocols. That is wrong as a matter of fact: the absence of such a letter is expressly referred to at paragraph 39 of her judgment. She considered that this omission was outweighed by other factors, such as the repeated requests for the email from July to October. In circumstances where the claimants had sought a copy of the email for so long, and had been treated in what the Master found to be an irrational and unreasonable way, she was entitled to conclude that this was not a case where yet another round of correspondence would have been of any utility whatsoever. The parties were, even before proceedings began, engaged in a feud which rendered such procedural matters irrelevant.
26. The defendant's second criticism is that the Master wrongly assumed that the claimants were entitled to the email, an entitlement that was, in the words of Mr Hollander QC, "highly contentious and never proved in the litigation". But the Master made no such assumption: she merely said that the claimants had a reasonable perception that they were entitled to see the email. Given the exchanges in the summer of 2013, and the terms of the Board resolutions in October and December 2013, I consider that she was entitled to reach that conclusion.
27. Indeed, I consider that if any party was endeavouring to re-run arguments about the merits of the claims and the defences, in order to bolster their position on costs, it was the defendant. Both before the Master and before us, Mr Hollander QC emphasised the defendant's belief that the email was required for improper or illegitimate purposes. That was not a matter on which the Master could reach, or should have reached, any conclusion.
28. The defendant's third criticism is that the Master was not entitled to decide that the resolution of the Board on 9 October included the email, because there was no evidence about it and it was a disputed issue. I disagree: it was relevant to her decision to disapply the default rule, and the Master was entitled, on the material before her, to conclude that the email was included in the resolution, and so should have been provided. That went to the defendant's conduct. It was a view to which she was entitled to come: for what it is worth, I consider that she was right.
29. The defendant's fourth criticism is that the Master failed to pay any attention to the decision of the Deputy Judge when he refused the interim injunction (paragraph 8 above). Again that criticism is wrong on the facts: it is apparent from paragraph 35 of her judgment that this was a matter that she expressly considered. However, she concluded that the claimants' claim for costs during the first period did not amount to an attempt to reopen that decision, because that was solely concerned with their entitlement to an interim injunction in February 2014, not the parties' conduct in the period between 31 July 2013 and 4 December 2013. Moreover, unlike the Master, the Deputy Judge did not look at the detailed documents produced during that period, and which formed the basis of the Master's decision. Beyond that, this becomes another criticism about the alleged failure to give sufficient weight to a particular point which, on an appeal about the exercise of discretion, I consider to be illegitimate.
30. The final criticism of the Master's decision in respect of the first period is the suggestion that the proceedings should not have been commenced in November 2013 because the issue of access by all directors to the relevant email had been put on the agenda for the 4 December 2013 Board meeting. In my view that point is entirely unpersuasive. Given the defendant's conduct from July 2013 onwards, the Master was entitled to conclude that claimants were justified in thinking that "enough was enough", and that they had no option but to commence proceedings.
31. Standing back for a moment, the Master found that the defendant's conduct during the first period was unreasonable, for the reasons she gave. That is why the default rule was displaced. To that extent, this case is on all fours with the decision of this court in Nelson's Yard, where Beatson LJ set aside the decision of the Recorder and found that the unreasonable conduct of the defendant at the outset displaced the default rule, at least until the service of the defence.
32. For these reasons, the appeal against the Master's decision in respect of the first period must fail.

ii) The Third Period

33. The Master concluded that there should be no order as to costs between 21 February and 31 March 2015 (the period during which the first claimant had provided an undertaking, but the second claimant had not). She found that the claimants were entitled to their costs between 1 April 2015 (when both claimants had given the necessary undertakings) and 1 May 2015 (when a copy of the email was finally provided).
34. As to the period between 21 February and 31 March, the Master expressly criticised both parties' conduct, and explained that this was why the default rule was displaced. She was entitled to reach that conclusion. In addition, in respect of the period between 1 April and 1 May, I consider that the Master's decision to award the claimants their costs was self-evidently correct. After all that time, when both claimants had finally given the undertakings in the form required by the resolution at the Board meeting on 4 December 2013, the defendant still spent another month before finally providing copies of the email. That unreasonable conduct displaced the r.38.6 presumption.
35. The defendant's first criticism of the decisions relating to the third period is that the Master wrongly focused on issues of company law. There is nothing in that criticism: she was addressing what happened (or did not happen) after first one and then the second undertaking was given.
36. The second criticism is that the Master should not have found that the defendant's conduct during this period was unreasonable. This is an attempt to rerun arguments which were properly considered and rejected by the Master. The defendant had (unsuccessfully) argued that they were entitled to take time to consider whether or not they should provide copies of the email and that they could leave it for the Board to decide at the end of April. The Master rejected that submission as she was entitled to do. The decision to provide copies of the email, as long as suitable undertakings were given, had been taken as long ago as 4 December 2013. Once the undertakings had been provided, it was plain that the email should have been provided straightaway.
37. The third criticism is that the Master should have found that the claimants were seeking access to the email for an improper purpose. That submission is misconceived because it is seeking a determination on the merits of the action (or at least one part of it) which is impermissible when a claim is discontinued. On a related point, I note that there is even a criticism that the Master failed to acknowledge that the second claimant never collected his copy of the email. There is nothing in that point either. As the Master found, once the claimants' solicitors had been provided with a copy of the email, there was no reason for any personal collection of any further copies.
38. The fourth and final criticism is that, because by this time the pleaded claim extended to documents in addition to the email, the Master should not have concluded that the provision of the email would have affected the question of discontinuance. I agree with the claimants that this is no more than a suggestion that the Master should have given this argument more weight, which is not a legitimate ground of appeal, for the reasons I have given already. In any event, the defendant put the point much too high by suggesting that the only available conclusion was that the provision of the email did not affect the continuation of the proceedings. Given the history, and the centrality throughout of the email in question, it plainly did. The conclusion that the action would probably have come to an end more quickly if the email had been provided sooner seems to me to be inescapable.
39. Accordingly, I consider that in respect of the third period, the Master was entitled to come to the conclusions she did in explaining why the default rule was displaced.

iii) The Fourth Period

40. In respect of the fourth period, the Master applied the r.38.6 presumption in favour of the defendant up to 14 July, but in respect of the final ten days she reached a different view, namely that there should be no order as to costs.
41. The reason that the Master concluded that there should be no order as to costs as to the last ten days was that, by 14 July, it had been made sufficiently clear that the claimants would not be proceeding to trial. The Master concluded that at that point, the appellant's solicitors "ought reasonably to have stopped incurring costs" so that, to the extent that they did, they would have to bear their own such costs. In my view, there are three reasons why that conclusion was not open to her.
42. First, I consider that the letter of 14 July from the claimants' solicitors (on which the Master relied so as to say that the defendant was aware that the proceedings were definitely going to be discontinued) is equivocal in its terms. Although they say that no part of the claims would proceed to the trial then fixed for December 2015, the claimants' solicitors go on to say that, in respect of the wider declarations that were being sought, they would maintain that a stay was appropriate. The letter said that they would therefore seek a stay from the court and it was only if such a stay was not granted, that the action would be discontinued.
43. On the face of it, therefore, the letter was not saying unequivocally that the action was going to be discontinued. On the contrary, it presupposed that there would be a further application to the court and only if that failed would the action be discontinued. In those circumstances, the defendant's solicitors were not entitled to assume that the action was definitely coming to an end. As Mr Hollander QC rightly said, whilst proceedings are ongoing, the courts expect the parties to comply with the CPR. In this case, witness statements had to be exchanged at the end of July. Unless and until the defendant's solicitors received an unequivocal assurance that the action was to be discontinued, they had no alternative but to continue to prepare for trial.
44. Secondly, as I have already noted, this litigation bore all the hallmarks of a feud between the directors in which every point was taken on either side as they jockeyed for position. In those circumstances, an equivocal letter in the terms of the letter of 14 July was never going to be sufficient to bring about a cessation of hostilities, and the claimants' solicitors must have realised that. Although we asked, we received no satisfactory explanation as to why the notice of discontinuance was not issued until 24 July 2015.
45. Thirdly, and perhaps most importantly of all, I consider that, in respect of this ten day period, the Master lost sight of the default rule at r.38.6(1). She gives no explanation in her judgment as to why the default rule should be disapplied for this final ten day period. In my view, there was no justification for departing from the rule. Accordingly, for this period only, I consider that the defendant has demonstrated an error of principle which, when allied to the points made in paragraphs 42-44 above, lead inevitably to the conclusion that, on this point only, the appeal should be allowed.

Conclusion

46. In my judgment, if my Lord agrees, the Master's order should be varied so that the defendant is entitled to its costs, not up to 14 July, but up to close of business on 24 July 2015 (in other words, for the whole of the fourth period). However, for the reasons that I have given, I would dismiss the remainder of the appeal.

Lord Justice Gross :

47. I agree.