England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		21/12/2009

Mr Justice Briggs :

1. This is the appeal of Mainstream Ventures Ltd ("the Company") against the order made by Mrs Registrar Derrett on 13^th May 2009 whereby on the application of Caroline Holmes ("the Petitioner") she ordered that the Petitioner's costs of the winding up petition against the Company, then being dismissed by agreement, should be paid by the Company. Pursuant to a direction given in writing by Floyd J, the Company's oral application for permission to appeal was, if successful, to be followed immediately by the substantive appeal. In the course of the hearing on 11^th December 2009 I concluded that I should give the Company permission to appeal. This is therefore my judgment on the substantive appeal. I permitted Mr Howell, a director of the Company to make representations on the Company's behalf, as indeed he did at the hearing before the Registrar. Both then and now the Petitioner has been represented by Miss Clara Johnson of counsel.
2. The hearing on 13^th May 2009 was the fifth occasion upon which the Petition had been before the Companies Court, having been adjourned on four previous occasions, and, before that, adjourned by consent without the need for a hearing upon its first return date. The Petition was based upon an alleged liability of £13,337.35, the subject matter of a prior Statutory Demand, which was itself based upon orders for costs made in the Petitioner's favour in certain county court proceedings between the Petitioner and the Company. £2,756 of that amount was paid by the Company on the same day as the presentation of the Petition, namely 7^th October 2008, and the Petition was thereafter pursued for the purpose of recovery of the balance.
3. It is apparent from a less than perfect transcript of the hearing before the Registrar that she was informed that the balance of the Petition debt had that morning been paid by the Company. Although the Registrar did not say so in terms, I consider it a fair inference that she ordered the Company to pay the costs of the Petition on the conventional basis that, by paying the balance of the Petition debt shortly before the hearing, the Company had, in effect, acknowledged that the Petition was both well-founded, and a proper way of seeking to obtain payment of the amount due.
4. The Company's first ground of appeal is that Mr Howell was given no fair opportunity to explain to the court the Company's reasons for opposing an order for costs against it, and in particular, no opportunity to explain relevant aspects of the background which justified the Company's opposition. Mr Howell told me that the Registrar interrupted him in his attempt to do so, with the result that she made the order for costs in ignorance of those matters. One reading of the imperfect transcript provided to me would tend to support Mr Howell's case that he was interrupted. Nonetheless, Miss Johnson who was also present, told me that Mr Howell simply failed to put those matters before the Registrar, and confined himself to a submission that the Petition should never have been presented, since it was based upon a disputed debt. The transcript does not enable me to decide with certainty which of those descriptions of what occurred before the Registrar is correct. In the relatively speedy process necessitated by the volume of business before the Companies Court when winding up petitions are dealt with, and having regard to the fact that Mr Howell was, in effect, a litigant in person, I would not be surprised if there was an element of truth in both accounts.
5. The background of the matter, to which Mr Howell referred in his concise and helpful submissions before me, may be summarised as follows. The dispute between the parties which led to the presentation of the Petition originated in a letting agency conducted by the Company for the Petitioner in relation to the letting of a flat in London SW1 between August 2007 and February 2008. As letting agent, the Company collected both rent and a deposit from the tenant. The Petitioner claimed that the Company had failed to account for the whole of the rent, or for any of the deposit.
6. Litigation commenced in October 2007 with the issue of a defamation claim by the Company against the Petitioner in the Lambeth County Court which was struck out in January 2008, with costs on the indemnity basis, assessed at £2,756.25, which the Company failed to pay, and in respect of which a third party debt order against the Company's bank also failed to provide execution.
7. In February 2008 the Petitioner issued county court proceedings against the Company for the outstanding rent (£8,700 plus interest) and, notwithstanding a defence and alleged set-off, obtained summary judgment in August 2007, on the basis that the alleged set-off had no real prospect of success. At the same time the Petitioner obtained permission to amend her claim to include a claim for the deposit. Permission to appeal was refused on paper and, after the presentation of the Petition, after an oral application on 12^th December 2008.
8. Without waiting for the outcome of that appeal, the Company served an amended defence and counterclaim in September 2008 seeking, so I was told by Miss Johnson, to raise the same matters as had been unsuccessful thus far. In any event, those parts of the defence and counterclaim were struck out in March 2009 with costs against the Company, and an appeal dismissed in July 2009, again with costs. A further attempt to raise the same matters by way of re-amendment was dismissed with costs in or after March 2009.
9. In the meantime, in May 2009 the Company issued a defamation claim in the High Court relating to statements made by the Petitioner in a witness statement in the county court proceedings, and obtained judgment in default of defence. That judgment was set aside in July 2009, and the High Court claim was struck out in part. On 2^nd December 2009 the balance of the High Court claim was struck out upon the basis that it disclosed no prospect of success, again with costs against the Company.
10. The present position therefore is that, save for this appeal, the only live litigation between the parties now consists of the Petitioner's claim against the Company for the recovery of the deposit, all claims by the Company, including its defence to the Petitioner's claim for rent, having been dealt with by strike out or summary judgment, without the need for any trial on the merits.
11. This description of the litigation background takes matters well beyond either the presentation of the Petition, or the hearing before the Registrar in May of this year. Nonetheless, and because the Company seeks a re-exercise by this court of the discretion as to the costs of the Petition, it is relevant to the exercise of that discretion now for me to have regard to the whole of the history of the litigation between the parties, including events which have happened since the decision appealed against.
12. Turning to the history of the Petition itself, the Company's immediate response to its presentation took the form of an application for it to be struck out as an abuse of process, on the ground of the Company's pending counterclaim in the county court, and its then contemplated High Court defamation claim. That application was dismissed by Mann J with costs assessed at £750, on 14^th October 2008.
13. On 17^th October the Company wrote to the Petitioner's solicitors with an offer that the Petition should be struck out upon the basis that the Company would pay the balance of the Petition debt to the Petitioner's solicitors, to be held (in effect in escrow) to abide the outcome of the Company's appeal against the county court judgments upon which the Petition was based. This offer was rejected on behalf of the Petitioner on 22^nd October, by the making of a counter-offer to withdraw the Petition if the Company withdrew its county court appeal, paid the balance of the Petition debt unconditionally, and paid the costs ordered by Mann J.
14. An alternative offer and counter-offer were made by the Company on 24^th October and by the Petitioner on 4^th November, to the detail of which I need not refer, save to note that no agreement for the disposal of the Petition was reached, then or thereafter, until the hearing on 13^th May 2009.
15. The Petition was on its first return day adjourned by consent and was first heard on 21^st January 2009, when Mr Registrar Jaques adjourned it for 56 days on the unopposed application of the Company. I shall refer to that as the first hearing.
16. The second hearing took place on 8^th April 2009 before Mr Registrar Simmonds. Having heard from both parties, he said this:

"I will give you 14 days to resolve this matter, either by payment into court or a payment into an escrow account with the petitioning creditor, failing which you are likely to have a winding up order made against you, against the company. Stand 14 days."

17. The third hearing took place before Mr Registrar Jaques on 22^nd April 2009. On the previous day the Company had tendered a cheque for £10,316.36 to be held by the Petitioner's solicitors in escrow. Mr Registrar Jaques adjourned the Petition to enable that cheque to clear. In fact, it was stopped by the Company and replaced with a cheque dated 24^th April for £10,397.36 which, upon presentation, was returned marked "refer to drawer please represent".
18. By the time of the fourth hearing, on 6^th May 2009, £6,397 had been paid into escrow on the Company's behalf, leaving a shortfall in the region of £4,000 still to pay, which Mr Howell attributed to the freezing of the Company's bank account due to the re-advertisement of the Petition. Mr Registrar Jaques ordered a final adjournment of seven days, and the balance was paid into escrow on the morning of the hearing before Mrs Registrar Derrett.
19. I consider it probable that when Mrs Registrar Derrett ordered the Company to pay the Petitioner's costs on 13^th May she was unaware that the balance of the Petition debt had been paid into an escrow account rather than paid outright. More importantly, it is clear that she was unaware that the Company had, before the first return date of the Petition, offered to pay the balance of the Petition debt into escrow, to abide the outcome of the Company's appeal against the judgments upon which it was based. Of course, by May 2009, all avenues of appeal against those judgments had been exhausted, albeit that there remained in being an outstanding appeal against the dismissal by H H Judge Knight QC of the Company's further attempt to resurrect the same matters by way of re-amendment of its defence and counterclaim.
20. The thrust of Mr Howell's submissions amounted to two points. First, he said that the Petition should never have been presented since the underlying debt was then disputed by means of a still-unresolved appeal. Second, he submitted that since the Company had offered to deal with the Petition in substantially the way in which, eventually, it was dealt with, by correspondence before any of the hearings to which I have referred, the substantial costs thereafter expended were the consequence of the Petitioner's unreasonable rejection of that offer.
21. Notwithstanding Miss Johnson's submission that Mrs Registrar Derrett's ignorance of those aspects of the relevant background was, in substance, Mr Howell's fault for not raising them at the hearing, I am not satisfied that her exercise of discretion to order the Company to pay the Petitioner's costs should be allowed to stand. In short, I am not persuaded, from my reading of the admittedly defective transcript, that her misapprehension that the debt had simply been paid by the Company was Mr Howell's fault. It is no criticism of the learned Registrar that, in the pressurised circumstances of the Companies Court winding up list she made a decision on incomplete facts. I consider that fairness and justice, in particular to a company which appeared by an unqualified representative, requires a re-exercise of that discretion on this appeal. Since the facts are all before this Court, no useful purpose would be served merely by requiring the matter to be reheard by the Registrar.
22. Looking at the matter therefore afresh, I consider that there is nothing of substance in Mr Howell's first point. At no time had the judgments upon which the Petition debt was based been subjected to a stay of execution. In fact, the Company's application for permission to appeal had been refused in writing before the Petition had even been presented, and the oral application for permission had been refused long before the hearing before the Registrar. I am entirely satisfied that the presentation of the Petition was an appropriate means for the Petitioner to seek to obtain payment of her debt from the Company.
23. Much more significant is the offer to pay the Petition debt into escrow, made by the Company on 17^th October 2008, shortly after the dismissal of its application to have the Petition struck out. Although the condition of the escrow had changed in certain respects by the time that payment into escrow of the whole of the balance of the Petition debt was achieved on the morning of 13^th May 2009, it remained in substance the same means of resolution of the Petition as had been posed by the Company on 17^th October. Prima facie at least, the fact that the Petition was eventually dealt with by agreement (save as to costs) substantially on the terms of an offer which the Petitioner had rejected more than six months previously, is a very material consideration on the question of costs.
24. The matter does not however rest there. An important question is whether the rejection of that offer actually caused more costs to be incurred, than would in any event have been incurred if the offer had been promptly accepted. It was open to the Company to proffer the balance of the Petition debt by way of payment into court, or into escrow, at any of the subsequent hearings of the Petition, between January and May 2009. The adjournment ordered by Mr Registrar Simmonds on 8^th April was specifically designed to enable the Company to take that course, and it attempted, but failed, to do so in time for the two following hearings, being successful only just before the hearing before Mrs Registrar Derrett.
25. Mr Howell sought to blame the Petitioner for the Company's prior failures to pay that sum into escrow, on the ground that, for example, the Petitioner had re-advertised the Petition before each new hearing, thereby causing successive freezings of the Company's bank account. It is fair to note that Mr Registrar Jaques described that process of repeated advertisements as unnecessary and oppressive, but there had been no order restraining advertisement at any time, no application by the Company for permission to make payments while the Petition was pending, and the Company's owners were at all time free to raise the necessary amount otherwise than from the Company's assets, as appears ultimately to have been done.
26. It is in my judgment also material to have due regard to the wider background, as revealed by the sorry history of the litigation between the parties which I have already described. Albeit with the benefit of knowing the outcome of various matters which were still pending in May 2009, it is possible now to say that the entirety of the Company's efforts to use litigation as the means of placing obstacles in the way of the Petitioner's recovery of the Petition debt had not merely failed, but been dealt with summarily, on the basis that they afforded the Company no real prospect of success. It has now become fully apparent that the whole of the Company's campaign to avoid payment of the Petition debt has been a long drawn out, expensive and wholly unmeritorious filibuster.
27. It is well established that, where a petition is dismissed upon payment by the company of the petition debt, or upon the giving of security for that debt in a satisfactory manner, that the court may properly order the company to pay the petitioner's costs: see for example Amalgamated Properties of Rhodesia (1913) Ltd [1917] 2 Ch 115, at 123-4, and, more recently, Re Lanaghan Bros Ltd [1977] 1 All ER 265, per Brightman J. The rationale is that payment of the debt by the company usually demonstrates that the petition was a proper means for the petitioner to seek recovery of it.
28. Taking together all the matters to which I have referred, and re-exercising afresh the discretion as to the costs of the Petition, I consider that the appropriate order is that the Company should pay 85% of the Petitioner's costs. My reasoning follows. First, there can be no doubt that the costs of the Petition down to and including the date of the Company's offer of an escrow payment, namely 17^th October 2008, should be paid by the Company.
29. Secondly, the Company's sensible offer to make an escrow payment, and the Petitioner's refusal of it, ought to be reflected in a significant disallowance of the Petitioner's costs. In my judgment a 15% disallowance appropriately reflects that aspect of the matter. But for what follows, the disallowance would have been larger.
30. Thirdly, I am not persuaded that the costs subsequently incurred in connection with the five hearings of the Petition were to any significant extent caused by the Petitioner's refusal to accept that offer. The first hearing was adjourned on the Company's application. The second hearing was adjourned specifically to enable the company to make the escrow payment which it had, until then, failed to tender. It was not the Petitioner's fault that payment was not effected in full in time either for the third or fourth hearings, and one hearing of the Petition would in any event have been necessary for the escrow procedure to have been put into effect, if the October offer to that effect had been promptly accepted.
31. Finally, looking at the matter in the round, the unhappy story of this Petition may properly be regarded as part of an unmeritorious attempt by the Company to avoid payment of the Petition debt, for the reasons which I have described in detail.
32. The appeal is therefore allowed, to the limited extent that the order made by Mrs Registrar Derrett is varied by disallowing 15% of the Petitioner's costs of the Petition, but otherwise leaving her order for costs intact.