England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY

		Claim No: 7BM30279 Birmingham Civil Justice Centre The Priory Courts 33 Bull Street Birmingham B4 6DS
		6th February 2009

Judge Purle QC:

1. A number of issues arise out of my judgment handed down on 27^th June last year.
2. I must first consider the appropriate costs orders, both in relation to the action generally and in relation to a number of reserved items of costs.

Action costs generally

3. So far as the action generally is concerned, Clearview was wholly unsuccessful but Mr Bragoli and Mr McMahon ("the individuals") achieved a substantial degree of success in their derivative claims for the 4^th Defendant ("the Company").
4. Mr Spratt for the Claimants, urging me to venture into the "real world", invites me to conclude that, overall, the Claimants won. I should ignore the fact that Clearview lost on everything and view all the various claims as having been brought by the individual Claimants under the alternative guises of Clearview and (derivatively) the Company. The individuals were apparently solely liable to their solicitors for the costs (including Clearview's costs) throughout. Thus viewed, they obtained relief in respect of all of their main heads of complaint. Their case has developed and changed over time, but this is largely because they were kept in the dark (and even misled) by the evasion and lies of the Defendants, who were less than frank and truthful about what had happened to the database and the furniture venture in their early evidence. Moreover, the Second and Third Defendants deliberately stole the holiday venture's name by the incorporation of the First Defendant, and it is hardly surprising for this and other reasons that the Claimants viewed everything the Defendants did with acute suspicion. They were largely justified in that approach, and the fact that not every element of their various claims got home is not of great significance. Overall, they are the winners and should have their costs against the 2^nd, 3^rd and 4^th Defendants.
5. Mr Machin, for the Defendants, has a dramatically different submission. Not only did Clearview lose on everything, he says, but down to what he calls the watershed of the joinder of the individuals, under an order made on 12^th November 2007, and consequential amendments eventually served on 10^th December 2007 (the first day of the trial), there was no effective claim before the Court at all for the Company. His clients should, therefore, have all their costs of Clearview's claims from beginning to end and, as regards the Company's claims, his clients should have all their costs down to the watershed, from all Claimants as well as from the solicitors then acting purportedly for the Company.
6. As to the Company's claims after the watershed, these were to a limited extent successful, but not to anything like the extent pleaded, and then they were much exaggerated with unjustified allegations of dishonesty. Further, they were dependent on late amendments for success in relation to the Blue Chip and Espana shares. Amendments after the trial began were served in mid-January 2008, and it was only on the final day of the trial (March 4^th) that claims for declarations of trust were formally raised for the Company in relation to the Blue Chip and Espana shares. Mr Machin in those circumstances invites me to make no order in relation to the post-watershed costs of the derivative claim, or at most award the individuals a relatively small fraction (20% at most) of those costs.
7. I do not think it would be right to split the proceedings up pre- and post-watershed in the way suggested by Mr Machin. Once I permitted the derivative claim to proceed, the individuals, with the Court's approval, effectively adopted what had gone on before in the name of the Company. It seems to me, therefore, that I should attach no great significance to the watershed.
8. I equally do not think that Mr Spratt's approach is wholly correct. I was surprised to be told that Clearview had no liability towards its solicitors for any part of the costs, though this was confirmed by disclosure of the terms of the retainer, and various invoices. It seems to follow from this that, even had Clearview won, it could not, having regard to the indemnity principle, have recovered any costs. Be that as it may, Clearview did not win, and it seems to me that I should be careful not to allow the costs of unsuccessful claims to be recovered by the individuals just because they happened to be joined subsequently, and attained some success on similar claims.
9. Were I making separate orders for costs in relation to Clearview's and the derivative claim, my provisional starting point would be an inclination to dismiss Clearview's claims with costs and order Mr Machin's clients to pay the costs of the derivative claims to the extent that they succeeded (including pre-watershed costs referable to the Company's claims). However, I do not think I should necessarily ignore entirely the community of interest between the individual Claimants and Clearview, and how they were seeking similar relief though one route or another. The individuals, as funders, were seeking to protect the holiday and furniture ventures from what they perceived to be the Defendants' depradations and have in significant respects succeeded. In the light of that, I have considered the appropriateness of making a single order for costs in respect of all claims (rather than split orders in respect of Clearview's claims and the Company's claims) reflecting the individuals' overall degree of success. This could involve ordering Mr Machin's clients to pay a proportion of the costs to reflect the individuals' ultimate success, but not the whole of those costs, as it would be wrong for the costs referable to the unsuccessful Clearview claims to be paid by the Defendants.
10. Against that, I agree with Mr Machin that the claims were exaggerated, in some respects unjustifiably so. A claim for interference with the Inside Right contract failed on the grounds that there was no contract. This took up a considerable amount of time at the trial. The database claims were bedevilled by an inability to distinguish between the 2 databases. The dishonest motives attributed to one or more of the Defendants in relation to the failure to register the change of name and the opening of the bank accounts were rejected by me, and the "conspiracy" label with which virtually every claim was conjoined raised the temperature needlessly. Having said all that, my judgment was critical in several respects of the behaviour, candour and motives of Mr Machin's clients. I need to take that into account also.
11. The most important single claim to emerge during the proceedings appeared to be that relating to the loss of the furniture venture. The most time was devoted to this and it seemed economically the most important. That raised the issue of whether the furniture venture was Clearview's or the Company's. I found that it was the Company's and accordingly granted relief in the derivative claim. It would however be unrealistic to dress this up as a success for the individuals, as their primary claim was that the furniture deal was Clearview's and, as the finally pleaded case confirmed, it was only if (contrary to the Claimants' case) the Defendants' version was correct that any claim for the Company arose. On this major issue, the Defendants were, I found, right, and the Claimants wrong.
12. A good deal of time was spent in evidence determining whether the parties agreed to an equal 50/50 or 5-way split in relation to the Blue Chip shares (which were at the time the key to securing the furniture venture). I found that the agreement was for a 50/50 split, as the individuals alleged, but this did not ultimately avail them, as I found that none of the directors, including the individuals, gave the Company's interests a moment's thought, and that the agreement amounted to an incomplete gift and unratifiable breach of fiduciary duty beyond the powers of the directors, including the individuals. I would not regard it as appropriate for the individuals, who on this hypothesis were acting in breach of duty, to recover their costs of that part of the claim.
13. In addition, Mr Machin is correct to rely upon the progressive pleading of the case, and the late raising of the trust claims upon which the Company ultimately succeeded. The claim when it came before me shortly before the trial was difficult to digest. There was no clear delineation between the Company's claims and Clearview's, and the meat of the claim was buried in mounds of further information. There was, it is fair to say, late discovery of Blue Chip material, but the trust in Mr Farnell's favour of the Espana shares was known after standard disclosure. The whole claim, including that in relation to the Espana shares, could and should have been pleaded in a more focussed way earlier.
14. When the claims were pleaded out in a more satisfactory manner, I was left with the impression that Clearview was the main Claimant, and the Company's claims were second-string claims. The course of the trial confirmed this. Even where the claims were clearly the Company's, there was an ill-defined joint venture claim by reference to which Clearview appeared to be claiming on its own account for amongst other things wrongs done to the Company. I dismissed these claims in paragraph 111 of my judgment.
15. In my judgment, taking all these matters into account, the fair course is to make no order as to the costs of the claims, leaving all parties to bear their own costs. This includes post-judgment costs down to (but not including) the hearings of 6^th and 8^th October (I shall entertain submissions on the appropriate costs orders in relation to those hearings in the light of this judgment). I also do not think it would be right to order the Company to indemnify the individuals in respect of any part of their costs.
16. It follows from these rulings that there is no occasion for making any order against the Claimants' former solicitors to pay the costs of the unauthorised claims of the Company down to the watershed.

Reserved costs

17. As regards the reserved costs, these include the following:

(i) the costs of the interim application made on 17^th August 2006;

(ii) the costs of the Freezing Order applications (made without notice initially, followed by an application made with notice);

(iii) the Defendants' applications for discharge of the Freezing Order, security for costs and fortification of the cross-undertakings.

18. As regards the interim application of 17^th August 2006, this was intimately connected with the proceedings generally, and the costs cannot sensibly be treated differently from the remainder of the proceedings. There will therefore be no order as to these costs.
19. As regards the security for costs application, this failed, but only because the individuals were joined. I found that the application was otherwise well-founded. As however no costs have been ordered in relation to the proceedings generally, it does not seem appropriate now to make any order in relation to this application either.
20. All costs connected with the Freezing Order applications, and their attempted discharge, including the fortification application, should be borne by the Claimants. The Claimants will also jointly and severally pay the Second and Third Defendant's costs of and occasioned by the Freezing Order applications, including the costs of the application for discharge and for fortification of the cross-undertakings (but not, as mentioned, of the application for security for costs).
21. I explain the reasons for my costs orders in relation to the Freezing Order and related applications below, when considering the claim to enforce the cross-undertakings in damages.

Enforcement of cross-undertakings

22. The Second and Third Defendants seek enforcement of the cross-undertakings in damages against the Claimants and an inquiry for that purpose. I accede to that application and shall order the necessary inquiry, for the reasons which follow.
23. I made a Freezing Order on 14^th September 2007 against Mr Hinett and Mr Farnell and continued it to trial subsequently. This was made on the application of Clearview, as the Company was not properly before the Court. The individuals subsequently gave their own cross-undertakings in damages, but it remained Clearview's order, who also gave a cross-undertaking.
24. The claims of Clearview having been dismissed, I did not continue the Freezing Order following judgment, or make a further Freezing Order at the suit of the individuals in support of the derivative claim. I gave my reasons for this at the conclusion of the telephone hearing held on 27^th June 2008.
25. With hindsight, it is evident in my judgment that no Freezing Order should have been made, whether at the suit of Clearview or the Company. I took the view that the injunction relating to the Espana shares sufficiently protected the Company's claim at the conclusion of the trial. Whilst an interim injunction might justifiably have been obtained, at the suit of the Company, limited to the Espana and Blue Chip shares, and to unauthorised dealings with the database, it would be wrong to regard these as the near equivalent of a Freezing Order relating to assets generally.
26. I am pressed with the proposition that I have a discretion as to whether or not to enforce the cross-undertakings and that, having regard to the 2 Defendants' evasiveness (as mentioned, for example, in my judgment at paragraph 25) and extraordinary behaviour in incorporating the First Defendant and diverting the furniture contract to Mr Farnell, preceded by the implementation of the 3-way split behind the Claimants' back, these Defendants only had themselves to blame for the Freezing Order which was made. The conditions for a Freezing Order were, it is said, amply met at the time.
27. I have weighed those considerations carefully, but am not persuaded that it would be right to regard them as decisive or even especially important. I do not, in the light of all the facts now known to me, consider that a Freezing Order was ever justified. Leaving aside the fact that only Clearview obtained the Order (a factor which I do not, incidentally, consider to be irrelevant) the legitimate concerns of the Claimants are in my judgment met and would always have been met by the more limited injunctions I have granted following a trial. Those considering making an application for a Freezing Order should always consider whether more limited relief can afford the applicant practical protection. It would be unsatisfactory for the Court to give the impression that a party can safely apply for excessive relief and take comfort in the expectation that, even if that relief is subsequently cut down substantially, the Applicant is likely to be relieved from the consequences under the cross-undertaking in damages of its excessive application. That can ultimately only encourage excessive applications to be made. This is undesirable in any case, but especially so in the case of Freezing Orders.
28. In the present case, the 3-way split of the Blue Chip shares was not known about at the time of the Freezing Order. I do not think that matters. What was known about (more importantly) was that Mr Farnell had the benefit of a declaration of trust in relation to half of the Espana shares. Blue Chip was by then an empty shell. So the focus of the Claimants' attention should have been on the Espana shares. In any event, Mr Wood's ownership of Blue Chip for the Company had been known about for a long time, as was his apparent failure to give effect to the agreed 50/50 split.
29. In the circumstances, I exercise my discretion in favour of enforcement of the cross-undertakings. Freezing Orders are notoriously disruptive, and their disruptive effect is confirmed by the evidence that has now been adduced in support of the application for enforcement. The conduct of these Defendants, though I have criticised them in several places in my judgment, has not in my judgment been such that they should in effect be deprived of the benefit of the cross-undertakings in damages.

Freezing Order Costs

30. For similar reasons, the costs in relation to the Freezing Orders (which should never have been obtained) should, as mentioned, be paid by the Claimants. I include in that the costs of the application to discharge and for fortification. The cross-undertaking was in fact fortified by the individuals' cross-undertakings, so in that sense the application was justified by the result. In addition, there had been material non-disclosure in relation to financial matters which, though not sufficient to persuade me at the time to discharge the without notice Order, was enough to persuade me that the application was properly brought, and that I should therefore reserve the costs to await the end result. I think it is right that the costs of that application should follow the Freezing Order costs generally, and be paid by the Claimants.

Other costs

31. The amendment costs (to the extent that they have not been dealt with in the orders permitting amendments) will follow the general costs order – i.e, they are costs in case, which means that there will be no order as regards those costs. The same applies to the costs of applying to make the amendments, including the costs of applying to add the individuals.
32. The costs of the Counterclaim (which has not been adjudicated upon, but is left over to an inquiry) are reserved to the outcome of the inquiry, as are all future costs in relation to the various other inquiries I ordered.

Liens for Expenditure

33. Mr Machin also asks that each of Mr Woods and Mr Farnell, as trustees, should have a lien for his expenditure in relation to the Blue Chip and Espana shares respectively, and a reasonable allowance for general administration and (in Mr Farnell's case) for advancing monies to Espana without interest.
34. There is no evidence that Mr Woods has outstanding expenditure in relation to the Blue Chip shares that he has not recouped. He was paid (albeit late) for the work he did in Spain, including while acing as trustee of the Blue Chip shares. No allowance is appropriate. An allowance is only awarded exceptionally. Mr Wood's claims are therefore rejected.
35. The same applies to Mr Farnell in relation to administration and expenditure. As regards the advances to Espana, the evidence was that one of his companies (which had outside shareholders) advanced the monies in question. This cannot be treated as Mr Farnell's expenditure. I would not in any event regard this as a suitable case for an allowance. Mr Farnell negotiated the terms upon which he and Inside Right invested in Espana. To the extent that those terms no longer suit him, he cannot retrieve the position by an allowance to be enforced against the shares themselves. Moreover, the position he finds himself in is attributable not to his carrying out of the trust but to his breach of duty in diverting the furniture venture to himself.

Final Order

36. I hope that these rulings will now enable Counsel to determine the final form of order. If matters cannot be agreed, a telephone or other hearing will be arranged on another occasion when the final order can be settled. The outstanding applications for costs of the hearings of 6^th and 8^th October 2008, and for permission to appeal, including any application to appeal this judgment, are adjourned to that further hearing. The injunctions I granted on 27^th June 2008 are continued in the meantime.