England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		15/11/2018

Mr Justice Zacaroli :

1. This judgment deals with consequential matters following the handing down of the main judgment in this action on 17 August 2018. I refer to that main judgment for the background and my detailed conclusions on the substantive issues.
2. The parties have reached agreement on a number of consequential matters, including: (i) the principal amounts recoverable from each defendant, subject only to one point to which I refer below; (2) the rate of pre-judgment interest to be applied to the principal sums due from the defendants; and (3) the claimant's entitlement to seek an account and tracing remedies against the first defendant.
3. The following matters remain for decision:

i) Whether the amounts to be ordered against the second, third and fourth defendants on the basis of unconscionable receipt include the amounts of PAYE and NI contribution paid directly by the claimant to HMRC (I will call this the "net or gross issue");

ii) The time period for which the claimant should be entitled to pre-judgment interest on the principal sums due;

iii) Costs; and

iv) An application by the first defendant for permission to appeal.

Net or Gross

4. The claimant succeeded, as against the second, third and fourth defendants, solely on the ground that they were liable to account on the basis of unconscionable receipt of sums paid in breach of fiduciary duty, received by them after 10 July 2008.
5. Each of them was an employee of the school. Accordingly, the amount actually received by them, on each occasion when a sum was paid in breach of the fiduciary duty owed by one or other of the defendants, was a net sum after deduction of PAYE and NI contributions. The amounts so deducted were paid directly by the school to HMRC, pursuant to a statutory obligation imposed on the school: see Regulation 1 of the Income Tax (Pay as You Earn) Regulations 2003 (SI 2003/2682) and paragraph 3 of Schedule 1 to the Social Security Contributions and Benefits Act 1992.
6. As a preliminary matter, I was concerned that this point had not been raised at any stage during the trial. The overpayments claimed from the defendants were, throughout the claimant's opening written submissions for trial, expressed as gross amounts, and no party took issue with this during the trial.
7. For the following reasons, however, I accept the submission made by Mr Clarke QC for the second defendant (adopted by each of the second to fourth defendants) that it is not too late for the point to be raised at this stage.
8. First, it is only in respect of the cause of action in unconscionable receipt that it is relevant to distinguish between the gross and net amounts paid. That is because the claims in conspiracy, breach of fiduciary duty and misfeasance in public office sought compensation for the amounts paid and it is irrelevant in that context to distinguish between that part of each payment received by the relevant defendant and that part paid to HMRC.
9. Second, the claim in unconscionable receipt was not the principal focus of the claimant's case. As I noted in the main judgment, although the elements of the cause of action were pleaded, it was not until the trial had commenced that the claimant clarified that it sought relief based on a claim in unconscionable receipt (but did not assert an alternative claim in dishonest assistance).
10. Third, in response to an order made by Rose J at a pre-trial review on 24 July 2017, while some of the defendants stated that they "did not deny" receiving the payments set out at paragraph 41 of the Particulars of Claim (where the gross amounts are set out), two of the defendants (being the first and fourth defendants) did specifically deny receiving the amounts pleaded on the basis that tax and national insurance had been paid by them. In other words, the claimant had at least been alerted to this issue at an earlier stage of the proceedings.
11. Fourth, and most importantly, the claimant itself did not seek to persuade me that this point should not be determined on the grounds that it was now too late. The net or gross issue is a pure point of law, the facts (i.e. the extent to which the school deducted and paid PAYE and NI contributions) being agreed. In response to the point raised by me that, had the issue been raised at an earlier stage, it might have been open to the claimant to overcome it by pleading a claim in unjust enrichment in the alternative, Mr Rees QC for the claimant fairly responded that the claimant would not have done so because of the perceived problems with limitation in relation to such a cause of action. The same limitation problem existed (as matters turned out, as decided by me in the main judgment) in relation to the claim in unconscionable receipt, but the importance of this concession lies in establishing the lack of prejudice, in practice, caused by the net or gross issue being squarely raised only at this very late stage.
12. As to the substance of the net or gross point, Mr Clarke QC relied on a number of authorities that establish that actual receipt of trust assets is a fundamental requirement of the cause of action.
13. He relied first, on Underhill & Hayton, Law of Trusts and Trustees (16^th edition, 2016) at paragraph 98.15:

"Receipt of trust property is the 'gist of the action' for knowing receipt. It does not suffice for liability that the defendant has been benefited in the abstract sense that his overall wealth has been increased, e.g. because his debt to a third party has been discharged: he must have received property for which he can be made accountable as constructive trustee."

14. Second, he relied on Goff & Jones, The Law of Unjust Enrichment (9^th edition, 2016) at paragraph 8-20, in a passage distinguishing 'knowing receipt' from claims in unjust enrichment:

"As the law now stands, the reason why the defendant must have received misapplied assets or their traceable proceeds before he can be liable is not that the defendant must have been unjustly enriched, but that liability for knowing receipt depends on the defendant owing custodial duties as a trustee of assets which he has actually received. If the only reason why it mattered that the defendant had received title to such assets was to establish that he had been enriched, then liability for knowing receipt could be expected to arise in a far wider range of cases – as where the defendant has never received any assets, but has been enriched as a result of assets being used in some other way, as in the discharge of his debts. However, the courts have expressly denied that "receipt" has this extended meaning."

15. Third, he referred me to the case cited in the last sentence of that passage from Goff & Jones, Quince v Varga [2008] QCA 376, in which the Supreme Court of Queensland distinguished between (a) payments made to the defendant and (b) payments made to others in discharge of debts owed to those others by the defendant (for example school fees). The former, but not the latter, could be recovered from the defendant on the basis of a claim in knowing receipt.
16. Fourth, he submitted that the importance of receipt as the foundation of a claim in unconscionable receipt was restated in the following passage from the judgment of Lord Sumption in Williams v Central Bank of Nigeria [2014] AC 1189, at [31]:

"The essence of a liability to account on the footing of knowing receipt is that the defendant has accepted trust assets knowing that they were transferred to him in breach of trust and that he had no right to receive them. His possession is therefore at all times wrongful and adverse to the rights of both the true trustees and the beneficiaries. No trust has been reposed in him. He does not have the powers or duties of a trustee, for example with regard to investment or management. His sole obligation of any practical significance is to restore the assets immediately. It is true that he may be accountable for any profit that would have been made or any loss that would have been avoided if the assets had remained in the hands of the true trustees and been dealt with according to the trust."

17. The claimant contended that where a payment is made by the receiving party, subsequent to the unconscionable receipt of the money, for taxes owed by the receiving party in respect of that receipt, the amount so paid in tax is considered to have been beneficially received for the purposes of the claim in unconscionable receipt. It relied on a decision of Master Clark in FHR European Ventures LLP v Mankarious [2016] EWHC 359 (Ch) at [71]-[74]. That case concerned the payment of a fee of $10 million, the receipt of which by the three defendants was found to constitute a breach of their fiduciary duties to the claimant. The first defendant received monies deriving from the fee in a total sum in the region of $7 million. Of this amount, the first defendant paid $4.8 million to the United States Treasury, in relation to tax due (from the first defendant personally) in respect of the fee. The first defendant argued that the tax payment was made on behalf of one of the other defendants, so he ought not to be the accounting party in respect of it. Master Clark held, however, that the liability to the US tax authorities was a personal liability of the first defendant, and the payment was made for his benefit. He was accordingly the accounting party in respect of it.
18. I do not find this case to be of any assistance. The claim was not for the recovery of money on the basis of unconscionable receipt, but a claim for breach of fiduciary duty. In any event, it was not in issue that the first defendant had received the relevant money (such that, had it been a claim in unconscionable receipt, there could have been no answer to the contention that he had received the money). The issue was a different one, namely whether his payment away of the money should be regarded as payment for the benefit of another defendant, such that the other defendant, and not him, was the appropriate accounting party.
19. At best, this case illustrates an apparent oddity that, whereas someone who receives a payment (but themselves pays tax arising from the fact of that payment) may be liable for unconscionably receiving the gross amount, a person who receives a sum net of tax (paid in respect of it by the payer) may be made liable for unconscionably receiving only the net sum.
20. On the basis of the authorities cited, and arguments presented, to me (as set out above) that apparent oddity is merely a consequence of the fact that a claim in unconscionable receipt is (unlike a claim in unjust enrichment) dependent on actual receipt of property by the defendant. The claimant suggested that the defendants might be liable to account for the amount of PAYE and NI paid by the claimant, on the basis that it represented a loss that would have been avoided had the assets remained in the hands of the trustees (relying on the final words of Lord Sumption in the passage from Williams v Central Bank of Nigeria quoted above). The point was not developed by reference to any authority in which such an account had been ordered, and is on the face of it inconsistent with all of the authorities referred to in paragraphs 13 to 15 above (because it could always be said that the payment of the defendant's debt to a third party was a loss that would not have occurred had the assets remained in the claimant's hands).
21. Accordingly, I accept the argument of the defendants on this issue, such that only the net sum (net of PAYE and NI contributions paid by the school) actually received by the first to fourth defendants is recoverable from them pursuant to the claimant's claim based on unconscionable receipt. So far as the first defendant is concerned, this conclusion has no practical relevance, since although I found him to be liable to repay sums received by him on the basis of unconscionable receipt, the totality of that claim was subsumed within the claim that he was liable to account for the same (and further) sums paid to him and others on the basis of breach of fiduciary duty, in which context it is common ground that he is accountable for the gross sum.

The time period within which interest accrues on the sums payable

22. The first defendant accepts that interest is payable at the rate of 1% above base rate on the sums claimed from him for the whole period between the date those sums were paid away and the date of judgment.
23. The second defendant, while agreeing that pre-judgment interest is to be paid at the rate of 1% above base rate, contends that interest should only be payable from the date of commencement of the claim, on 10 July 2014. He relies on the three propositions set out by Jackson J in Claymore Services Ltd v Nautilus Properties Ltd [2007] EWHC 805:

"(1) Where a claimant has delayed unreasonably in commencing or prosecuting proceedings, the court may exercise its discretion either to disallow interest for a period or to reduce the rate of interest.

(2) In exercising that discretion the court must take a realistic view of delay. In the case of business disputes, litigation is for all parties an unwelcome distraction from their proper business. It is not reasonable to expect any party to take every litigious step at the first possible moment, or to concentrate on litigation to the exclusion of all else. Delay should only be characterised as unreasonable for present purposes when, after making due allowance for the circumstances, it can be seen that the claimant has neglected or declined to pursue his claim for a significant period.

(3) When determining what disallowance or reduction of interest should be made to mark a period of unreasonable delay, the court should bear in mind that the defendant has had the use of the money during that period of delay."

24. The principal delay complained of in this case is between April 2009, when the claimant first discovered the overpayments, and July 2014, when the proceedings commenced. Some complaint is made of the fact that the case was ready for trial in January 2017, but was adjourned by reason of matters outside the control of either the second defendant or the claimant. I reject the submission that the delay in commencing the trial, between January 2017 and February 2018, justifies an order precluding interest from running during that period. This constituted neither neglect, nor a decision not to pursue the claim, on the part of the claimant.
25. The delay between April 2009 and July 2014 is undoubtedly a significant period. Absent the criminal proceedings commenced in early 2011, which were brought against the same defendants and involved a similar claim in conspiracy, the claimant would be in considerable difficulty in justifying that delay. Even allowing a generous period of time for investigation and pre-action communications with the defendants, the claimant should have been in a position to commence the civil claim by late 2010.
26. The claimant seeks to justify the delay by reference to the fact that, even if it had commenced the civil claim, it would have been stayed pending determination of the criminal proceedings (which were not in fact concluded until October 2013).
27. I accept that this factor does provide some justification for the delay. While, as Mr Clarke for the second defendant points out, there is no certainty that the civil claim would have been stayed (had it been commenced before the criminal proceedings) I consider that there is a high likelihood that it would have been, given the substantial common elements in the two proceedings. Nevertheless, I do not consider that the criminal proceedings provide a reasonable justification for the whole of the delay. It is likely that, even if the court had imposed a stay on the civil claim, it would have been on terms that allowed at least some steps in the civil claim to take place in parallel with (and without causing prejudice to the defendants in) the criminal proceedings. Moreover, the delay between the date the criminal proceedings were disposed of (October 2013) and the actual commencement of the civil claim (July 2014) would probably not have occurred. Overall, I consider that even taking into account the existence of the criminal proceedings, a period of roughly two years, of the five years between April 2009 and July 2014, was not reasonably justified.
28. That is not, however, the end of the analysis. Unreasonable delay on the part of the claimant is the starting point for the exercise of discretion, taking into account all of the circumstances, including the particular factors identified by Jackson J in Claymore Services. So far as the second, third and fourth defendants are concerned, I take particular account of the following factors. First, the discretion extends to adjusting the rate, as well as the period, of interest. It is relevant, therefore, to note that the claimant seeks interest at a relatively modest rate (1% above base). Second, in considering the fact that each of the second, third and fourth defendants has had the use of the money for the whole of the period, it is relevant to take account of the fact that the money concerned consists of overpayments which they should never have received from the school. Third, the claimant's delay in commencing proceedings has, as it turns out, worked substantially to the advantage of these defendants, due to my conclusion that the claim in respect of all overpayments other than the few that were made after 10 July 2008 is time-barred. In other words, had the claimant not delayed, the second, third and fourth defendants would have been required to repay substantially higher amounts.
29. Taking into account all of these factors, I conclude that interest is payable on the principal sums due from the second, third and fourth defendants for the whole of the period between the date of the relevant payment and the date of judgment.
30. The position is materially different, however, in relation to the fifth and sixth defendants. In the first place, they received nothing from the claimant. I do not suggest that the third factor identified in Claymore Services (that the defendant has had the use of the money) refers only to money which a defendant is ordered to repay to the claimant (i.e. money which a defendant previously received from the claimant). Nevertheless, there is a qualitative difference when considering the period for which interest should run between a defendant who was the recipient of an overpayment and a defendant who never received anything but is made liable to account for payments received by others. Secondly, there is no limitation defence available to the fifth and sixth defendants, such that the claimant's delay has not otherwise operated to their advantage. Taking account of these differences, I conclude that it is appropriate to order that interest will not run, on the principal sums due from the fifth and sixth defendants, for the period of two years for which I have found the claimant's delay cannot be reasonably justified. In circumstances where there has been little fluctuation in the base rate in the period April 2009 to July 2014, it does not make much practical difference which particular period is excluded. It is, however, more consistent with my reasoning as to why the delay was unreasonable, to exclude the two-year period immediately prior to the issue of proceedings, such that interest will run (as against the fifth and sixth defendants) from the date of each relevant payment until 10 July 2012, and from 10 July 2014.

Costs

31. Costs remain in issue between the claimant and each of the first, second, third, fifth and sixth defendants (the "relevant defendants"). The claimant and fourth defendant have reached agreement that there will be no order as to costs as between them.
32. The general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, but the court may make a different order: CPR 44.2(2)(a).
33. The claimant contends that it is the successful party as against all of the relevant defendants. The first, fifth and sixth defendants accept that, as against them, the claimant was the successful party. The second and third defendants contend, however, that they were the successful party. The third defendant contends, alternatively, that as between it and the claimant there was no overall winner.
34. I will address the position of each of the relevant defendants in turn.

Costs as against the first defendant

35. Although the first defendant accepts that the claimant was the successful party, as against him, he contends that there should be a substantial reduction in the proportion of the costs which the claimant can recover against him, to reflect the fact that the claimant failed in certain significant respects. Mr Hood, for the first defendant, referred me to the White Book, at paragraph 44.2.8 (p.1354): "in numerous cases the Court of Appeal has stressed that the courts should be ready to make proportionate (or percentage) costs orders which reflect not merely the overall outcome of the proceedings but also the loss on particular issues."
36. The first defendant relies, in particular, on two matters. First, the claimant failed in its claim based on the tort of conspiracy and, second, it failed to establish that the first defendant was liable in respect of any of the payments authorised via the PRC, meaning that it recovered less than half of the total amount claimed against him. This should result, contends the first defendant, in a proportionate costs order in the claimant's favour of 65% of its costs.
37. While it is true that much of the underlying evidence relating to the conspiracy claim was relevant to the alternative claim based on breach of fiduciary duty, the broad approach which the claimant took towards the conspiracy claim, as regards the length of time over which it was said to extend, the number of people it was said to involve, and the overt acts relied on, meant that the scope of the proceedings was expanded substantially. The extra work involved will have resulted in a substantial amount of cost, both for the claimant (none of which would be recoverable had the conspiracy claim stood alone) and for the first defendant.
38. This is a case, therefore, where I consider that the claimant should be entitled to recover only a proportion of the costs it incurred as against the first defendant. Nevertheless, taking account of the fact that the claimant was still substantially successful against the first defendant and that there was a large degree of overlap in the evidence relating to the conspiracy claim and the fiduciary duty claim, the reduction should not be as great as that sought by the first defendant. In my judgment, in all the circumstances the appropriate order is that the first defendant pays to the claimant 75% of the claimant's costs incurred as against him.

Costs as against the fifth and sixth defendants

39. The fifth and sixth defendants also accept that the claimant was the successful party as against them, but contend that they should be liable to pay only 25% of the costs incurred by the claimant as against them. They rely on similar points to those made by the first defendant, namely that the claimant failed in its claim based in conspiracy and that in relation to the causes of action which did succeed against them, the claimant recovered less than one fifth of the total amount claimed.
40. For similar reasons to those I have set out in relation to the first defendant, I consider it appropriate to make a proportionate reduction in the costs recoverable as against the fifth and sixth defendants. In their case, however, a greater reduction is warranted in light of two factors. First, while the claimant has succeeded in establishing the requisite mental element for breach of fiduciary duty and misfeasance in public office, my finding in this respect is qualitatively different from a finding that they were involved in a pre-meditated conspiracy to misappropriate the claimant's money. Refuting such a claim was no doubt a matter of great importance to them, apart from the considerable costs they would have incurred in relation to it. Second, the period of time during which I found that they had the requisite state of mind was very much smaller than that asserted by the claimant, which led directly to the consequence that the claimant only recovered one fifth of the amount claimed against them.
41. The fifth and sixth defendants additionally relied on (1) the claimant's conduct in the way that it obtained witness statements from many of its witnesses (copying and pasting from prior statements made in the context of the criminal proceedings, without providing the witnesses with contemporaneous evidence to refresh their memory) and (2) the claimant's failure to follow through on its initial proposal for mediation. Neither of these points makes a material difference to the extent to which I am prepared to make a proportionate costs order.
42. In all the circumstances, I consider that the appropriate order to make is that they pay 65% of the claimant's costs incurred as against them.

Costs as against the second defendant

43. The claimant contends that it is the successful party as against the second defendant, on the basis that the main judgment requires the second defendant to pay a sum of money to it, and that the second defendant never made any costs-protective offer.
44. There is something of a divergence of view in the authorities on this issue.
45. On the one hand (as submitted by the claimant), where a claimant recovers less than the amount claimed, but more than the amount (if any) that the defendant offered, the claimant should be regarded as the "successful party" within rule 44.3(2): see the White Book at 44.2.13, pp.1361-1362, and Fox v Foundation Piling Limited [2011] EWCA Civ 790, per Jackson LJ at [37]-[43].
46. On the other hand (as submitted by the second defendant) the court should decide on the particular facts of the case who has, as a matter of substance and reality, won: see Magical Marking Ltd v Ware & Kay LLP [2013] 4 Costs LR 535. In that case, Briggs J concluded that, where in a negligence action the claimant recovered £28,000, in the context of a claim exceeding £10 million, the defendant should be regarded as, in substance, the successful party. He distinguished Fox v Foundation Piling Limited on the basis that the question as to who should be regarded as the successful party was not in issue.
47. Mr Rees QC, for the claimant, suggested that the Magical Marking decision was an 'outlier' and that the weight of authority favoured the approach adopted in the Fox case. I disagree. In (albeit somewhat simplistic) terms of the number of cases cited to me on the topic, it is the Fox decision which appears to be the outlier. In each of Roache v Newsgroup Newspapers Ltd [1998] EMLR 161, Painting v University of Oxford [2005] EWCA Civ 161, Islam v Ali [2003] EWCA Civ 612, Fulham Leisure Holdings Ltd v Nicholson Graham & Jones [2006] EWHC 2428 and Medway Primary Care Trust v Marcus [2011] EWCA Civ 750, the court adopted the approach that seeks to identify the successful party as a matter of substance, and awarded the defendant its costs where the amount recovered by the claimant was very small or insignificant in comparison with the total amount claimed.
48. It is, however, important to add (as submitted by Mr Speaight QC, on behalf of the third defendant) that when adopting the "in substance" approach, the court may well conclude that there has been no overall winner: see the White Book at paragraph 44.2.13.
49. Indeed, in my judgment, that is the correct analysis of the position as between the claimant and the second defendant.
50. I am satisfied that the claimant was not, in substance, the successful party, for three reasons: (1) of the three claims brought against the second defendant, the claimant failed in respect of conspiracy and breach of fiduciary duty, succeeding only in respect of the claim in unconscionable receipt (the precise formulation of which occurred only very late in the day); (2) even in respect of the claim in unconscionable receipt, the claimant succeeded in recovering only a fraction of the payments complained of, since most were statute-barred; (3) accordingly, in a claim for over £2.7 million, the claimant recovered only the principal sum of just over £40,000. Accordingly, I reject the contention that the starting point should be that the claimant, as the successful party, should be entitled to a payment of costs in its favour.
51. On the other hand, an important aspect of the claimant's case was to demonstrate that the second defendant had acted wrongfully in receiving the overpayments. The second defendant throughout denied any wrongful conduct or state of mind and at no point offered any amount in order to settle the claim. I accept that little account is to be taken of the failure to make a formal offer under CPR Part 36, given the disproportionate costs consequences to which that would have given rise (as acknowledged, for example, by Briggs J in Magical Marking, at [22]). It was, however, always open to the second defendant to make a less formal Calderbank offer, without prejudice save as to costs. I consider it a fair inference to draw that the claimant was in practice required, in order to recover any amount against the second defendant, to pursue the claim to trial. Moreover, although the question as to the second defendant's state of mind at the time of the receipt of the few payments that I have found were within the limitation period, for the purposes of the claim in unconscionable receipt, was a relatively minor one in the context of the proceedings as a whole, it is important to appreciate two things. First, that his state of mind relating to later payments required an investigation into his state of mind in relation to earlier payments and, second, to establish its cause of action the claimant had to establish that the overpayments were the result of a prior breach of fiduciary duty. That was something which was, throughout, in issue as between the claimant and the second defendant, and something in respect of which a substantial amount of time and cost was incurred. For these reasons, I do not regard the second defendant as, in substance and reality, the successful party such that the starting point is a costs award in his favour.
52. Balancing all of the factors in paragraphs 50 and 51 above, while I conclude that there was no overall successful party, the second defendant was on balance more successful than the claimant, such that the appropriate order is that the claimant pays to the second defendant 25% of his costs of the proceedings.

Costs as against the third defendant

53. The third defendant is in a materially similar position to the second defendant. He too was found liable to the claimant in respect of only part of the unconscionable receipt claim (in a sum which is a small fraction of the total amount claimed), and he too succeeded in respect of the conspiracy and breach of fiduciary duty claims. For the same reasons that apply to the second defendant, therefore, I conclude that while there was no overall successful party, as between the claimant and the third defendant, the balance comes down in favour of awarding the third defendant a portion of his costs.
54. The third defendant also made no offer to settle the proceedings. Mr Speaight QC, however, in addition to echoing the submissions of the second defendant relating to who was the successful party and the costs relating to each of the issues, submitted that two further factors militated in favour of a substantial costs award in favour of the third defendant.
55. First, he contended that the claimant's costs (at an estimated £1.4 million) were wholly disproportionate to the amount achieved. The headline figure is, however, misleading, as it relates to the claimant's costs of pursuing the claim against all defendants, whereas the claimant accepts that it would only be entitled as against each defendant, to the costs it incurred as against that defendant. In any event, while this point might be relevant to reducing costs that would otherwise be awarded to the claimant, it does not provide any assistance in determining what proportion of the third defendant's costs should be paid by the claimant.
56. Second, he contended that the claimant had unreasonably failed to mediate, and that this ought to be reflected in an increase in the amount of costs which the claimant should be ordered to pay. The claimant itself proposed mediation in March 2016, but this was not taken up by the third defendant. Following a period in which the third defendant had been acting in person, he re-engaged solicitors in October 2017. They quickly re-opened the question of mediation. The claimant's response was that a mediation would be meaningless unless all the parties were willing to proceed. Mr Speaight QC submitted that this reason for refusing to mediate was unreasonable, pointing out that it did not appear among the list of possible reasonable excuses in Halsey v Milton Keynes NHS [2004] 1 WLR 3002. He further submitted that an unreasonable failure to mediate should be met with a costs consequence. In PGF IISA v OMFS Company [2014] BLR 1, the Court of Appeal held that a finding of unreasonable failure to engage in mediation did not of itself produce automatic results in terms of costs penalties, but was simply an aspect of the parties' conduct which needed to be addressed in a wider balancing exercise. Briggs LJ, at [51]-[52], suggested a range of sanctions, from ordering the successful party to pay all or part of the unsuccessful party's costs, in the most serious and flagrant cases, to disallowing only a modest part of the successful party's costs at the other end of the range.
57. On the basis of the correspondence I have been shown, I do not regard the claimant's conduct in failing to engage in mediation in and after October 2017 as sufficiently reprehensible to justify any further specific costs consequence. I take account of the following: the claimant itself initiated mediation discussion at an earlier stage; the third defendant made no further response to the claimant's letter indicating that it was not interested in mediation without all parties being involved; and nothing prevented the third defendant from making an offer to settle the claim, or commence a bi-lateral negotiation otherwise than through a formal mediation.
58. Accordingly, I regard the position of the third defendant as being materially similar to that of the second defendant, such that the same costs order is appropriate, namely that the claimant be ordered to pay 25% of the third defendant's costs of the proceedings.

Payment on account of costs

59. The claimant initially sought an order for payment on account of its costs. It has produced no detailed schedule of the costs actually incurred against each of the defendants. In the absence of such schedule, which would be necessary in order to evaluate what amount of costs would be likely to be recovered from each defendant, it did not press this part of its application at the hearing.
60. The second defendant seeks a payment on account of his costs. He has submitted a costs schedule indicating a total amount of costs incurred of £762,449.18, inclusive of VAT. In the absence of detailed submissions from either party on the quantum of costs claimed, I conclude that a sum of at least 60% of the costs claimed would likely to be recovered on detailed assessment, of which the claimant is liable for 25%. Accordingly, the sum payable on account is £114,367. Such amount should be set-off against his liability for principal and interest in respect of the claim in unconscionable receipt.

Permission to appeal

61. The first defendant, alone, seeks permission to appeal. Mr Hood, on his behalf, has submitted brief written reasons supporting the application on a number of grounds.
62. The first ground relates to my refusal to draw adverse inferences against the claimant from its failure to call Mrs Davidson and Mr Mistry as witnesses and, in particular, my conclusion that it was open to the first defendant to call either of them in order to corroborate his evidence. I do not consider this argument has a real prospect of success. Moreover, I do not accept that, even if Mrs Davidson had known of a greater proportion of the overpayments, that in itself would have altered my conclusion on the first defendant's state of mind as regards the propriety of the payments that I found were wrongful, bearing in mind the numerous factors I relied on for that conclusion.
63. Under the second ground, the first defendant contends that I failed to take account of a statement given to the police by Mrs Davidson as to her recollection that the governing body at its meeting on 4 July 2007 delegated authority to the chair and vice-chair of governors. My conclusion on this issue, however, was consistent with Mrs Davidson's statement (in that I concluded that there had been such delegation). Insofar as the first defendant challenges my conclusion that such delegation was likely to have been for a limited purpose, and that had Mrs Davidson been called, this could have been explored with her, I do not think that speculating about what Mrs Davidson might have said provides any ground for overturning my conclusion as to the limited nature of the delegation in July 2007, particularly in circumstances where it was open to the first defendant to call Mrs Davidson, or obtain a witness statement from her, on the point.
64. The third ground relates to my finding that fiduciary duties were owed by the first, fifth and sixth defendants. In part this relies on points of law. These were matters raised and dismissed in the course of the main judgment. Insofar as it raises questions of fact (in particular my conclusion that as a matter of substance the first defendant was a decision maker in respect of the overpayments made otherwise than via the PRC), I do not consider that there is a real prospect of the Court of Appeal interfering with those findings.
65. Accordingly, I refuse permission to appeal.
66. Finally, the first defendant seeks a stay of execution of the judgment pending appeal. In a short witness statement, the first defendant has disclosed that he owns limited assets, such that there is a risk that he would be unable to afford any further legal representation, and a possible appeal would be stifled, if he were required to satisfy the judgment immediately. Taking account of this potential injustice to the first defendant, on the one hand, and the fact that a short further delay is unlikely to cause prejudice to the claimant, I will grant such a stay pending the first defendant's application for permission to appeal to the Court of Appeal. Any further stay, if permission is granted, will be for the Court of Appeal to consider. The order will need to contain wording (which I will leave the parties to agree upon, in the first instance) to ensure that the stay falls away in the event that the first defendant fails to prosecute an application for permission to appeal.