England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		27/02/2007

Mr Justice Warren :

1. Following my judgment on 24 August 2006, the Defendants took the opportunity which I had afforded for more detailed proposals to be put forward. The matter came back before me on 11 December 2006. No agreement had been reached. Mr Potts renewed his application on behalf of the Claimant for permission to continue the action as a derivative action.
2. After some submissions had been made, I allowed the parties some time to see if an agreement could be reached. An agreement was, happily achieved as was indicated to me by Mr Potts and by Mr Atkins. The question of costs was not, however, agreed. I heard submissions on costs and indicated that I would decide that issue once an agreed Minute of Order (other than as to costs) had been lodged.
3. It is not entirely clear to me now for which Defendants Mr Atkins was appearing. His skeleton argument was expressed to be on behalf of the first to fourth Defendants. Mr Potts seems to have been under the impression that Mr Atkins was acting only for the first to third Defendants, although recitals to various order record him as appearing for the first to fourth Defendants. Mr Bernard Cordell, the solicitor instructing Mr Atkins, has signed a Minute of Order on behalf of the first to fifth (but not the sixth) Defendants. The real dispute, however, was between the individuals concerned namely the Claimant and the first to third Defendants.
4. For reasons not known to me, Mr Atkins was not, as I understand, permitted by Mr Cordell to sign an agreed Minute of Order. Mr Cordell himself initially declined to sign a Minute of Order but has now done so on behalf of the first to fifth Defendants. This Minute of Order is, in its first part, a consent order reflecting the agreement made. The second part is my order for costs which, of course, the parties have not agreed.
5. The Minute of Order as initialled and signed by Mr Cordell refers to Counsel "for the First to Third, Fourth and Fifth Defendants". Since it is not clear to me whether Mr Atkins acted for the Fourth and Fifth Defendants, and since nothing turns on the recital "AND UPON HEARING…" I propose to delete it. Mr Cordell has also made a manuscript amendment (before initialling and signing) which replaces "AND UPON READING the evidence" with "AND UPON READING such of the evidence as was drawn to his attention" ["his" being a reference to me]. Mr Cordell points out that I stated, at the beginning of the hearing, that I had not read the new material produced since the previous hearing in August and that my attention was not drawn to all of it. I think, although I cannot be sure, that I did read it while the parties were negotiating the agreement outside court. I have, in any event, read it (or re-read it) prior to preparing this short judgment.
6. Since the first part of the Minute of Order records a consent order, it is not necessary, it seems to me, for any reference at all to be made to what I did or did not read. The agreement and the consent order are matters for the parties (subject to my being satisfied, as I am, that it is an appropriate order to make). So far as costs are concerned, a recital should be included in the second part of the Order where I deal with costs so that the last recital will read "AND UPON READING THE EVIDENCE AND HEARING COUNSEL IT IS FURTHER ORDERED that…..".
7. So far as costs are concerned, Mr Potts sought, on behalf of the Claimant, the entire costs of the action on the indemnity basis with a payment on account. Mr Atkins sought costs on behalf of the Defendants (or at least those whom he represented) with a fall-back position that there should be no order.
8. In my judgment, the Claimant should, as against the first to third Defendants, have the costs of his application for permission to continue the action as a derivative action up to and including the giving of judgment on 24 August 2006. That application was justified and I was satisfied in August that, absent a reasonable offer from the Defendants, the action should continue as a derivative action. However, I allowed further time for the Defendants to formulate a reasonable offer by which to satisfy the court that the action should not be allowed to continue as a derivative action. An offer was made; it was unacceptable to the Claimant. However, following submissions before me, but before I had given a decision, the parties reached a compromise. Mr Atkins said that I should not determine costs on the basis that the compromise (which represented some concessions by the Defendants) reflected what I would have decided. Further, he says that the underlying action would fail because the actions which were complained about never in fact took place. As to that last point, proceedings by the Claimant were I consider, in the light of the threatened and actual actions of the Defendants, justified. But I accept that I should not simply assume that the eventual agreement represents something which the court would have required as a condition for refusing the application for permission to continue the action as a derivative action. There was, however, considerable force in Mr Potts' submissions where he identified the unsatisfactory elements (from the Claimant's point of view) of the draft agreement on offer at the beginning of the resumed hearing before me. Nonetheless, on balance, I think that it would not be right to make any costs order against the first to third Defendants in respect of the costs of the application incurred after 24 August 2006. In the other direction, there is no question, in my mind, of the Defendants having any costs order against the Claimant in their favour in relation to the application.
9. As to the Claimant's costs of the action other than the costs of the application, these should not, in my judgment, be visited on the first to third Defendants. I could not do so, I think, without considerably more detailed submissions about the merits of the underlying action, something it would be entirely inappropriate to contemplate in a case where the parties have settled the case without dealing with costs. This is particularly so given that there are factual disputes. However, as I have said, I am satisfied that the Claimant was justified in launching his action and that, at least on the material before me in August, his claim would have been permitted to continue as a derivative claim. I think it only fair that he should be entitled to recover the entirety of his costs of the action (insofar as not recovered from the first to third Defendants in relation to the costs of the application up to 24 August 2006) from the fifth Defendants. Although, in theory, the derivative action was to be continued on behalf of the sixth Defendant as well as the fifth Defendant, my impression is very much that the real claim was to be made on behalf of the fifth Defendant. I propose to make an order only against the fifth Defendant.
10. Mr Cordell asks me to make an order that the bulk of the costs payable by the Defendants should be paid by the fifth Defendant. He considers (and he may well be correct) that this will have tax advantages – the first to third Defendants would have to pay out of their taxed income or capital whereas the fifth Defendant should obtain a deduction in the calculation of its corporation tax liability. I do not consider that it would be right for me to take that course since (even if the Claimant could be compensated for the greater share of costs thereby falling on the fifth Defendant, in which he has a material interest) it would not reflect what I consider to be the reality. I would, however, point out that the fifth Defendant is liable for costs to the extent that the first to third Defendants do not actually pay.
11. Accordingly, I order as follows:

a. The first, second and third Defendants shall pay to the Claimant his costs of the application to continue the action as a derivative action up to and including 24 August 2006, such costs to be assessed on the standard basis if not agreed.

b. The fifth and sixth Defendants shall pay to the Claimant his costs of the action (including the costs of the application save to the extent received from the first, second and third Defendants pursuant to the order against them), such costs to be assessed on the standard basis if not agreed.

12. Finally, Mr Potts asks me to order an interim payment on account of costs. As at 26 January 2007, the Claimant's costs of the applicant stood at some £91,000 including VAT and his total costs at nearly £111,000. I think it is right that the Claimant should receive a payment on account in respect of both his costs of the application and his costs of the action. I propose to make an order for payment of £50,000 on account of the £91,000 odd claimed and of £10,000 on account of the costs of the action other than the application, that is to say £10,000 of the £20,000-odd difference between £111,000 and £91,000. These payments are to be made on or before 6 April 2007.