England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		25 October 2010

HH Judge Anthony Thornton QC:

Introduction

1. This judgment is concerned with the applications of the first claimant ("GA-C") and the second claimant ("A-CL") that the second defendant ("JB") and the third defendant ("CNR") should pay the entirety of their costs in the action down to and including the hearing of this costs application on an indemnity basis. These costs include their costs relating to the part of the action in which JB and CNR were sued in their own name and in relation to the costs relating to the part of the action in which the first defendant, Hofmann & Mountfort Limited ("HML") was sued. The claim made against JB and CNR was not made against HML and the claims made against HML were not made against JB and CNR. However, all claims made in the action were very closely related to each other and arose out of the same factual background. Moreover, the principal issue, relating to JB and CNR's contention that all claims had previously been settled by an agreement reached between JB and GA-C, involved all three defendants to the same extent. However, the trial itself only involved GA-C's claims against JB and CNR since HML had gone into voluntary liquidation a few weeks previously. The three defendants had been represented by the same solicitors who had been instructed immediately after proceedings had been issued. Those solicitors came off the record when HML went into liquidation a few weeks before the trial and JB and CNR then acted in person until they instructed new solicitors very shortly before the trial. Those solicitors, in turn, instructed counsel to represent both JB and CNR at the trial who had not previously been involved in the proceedings.
2. The second claimant is named as Ashley-Carter Co (a firm) ("ACC"). This unincorporated company is the trading name that has, on occasion been used by GA-C to undertake private consultancy work related to Rolls-Royce cars. The company has not traded for many years and, in particular has not traded, since GA-C acquired HML and it was only joined as a second claimant because GA-C considered that it was possible that JB and CNR might contend that GA-C's claim for the conversion of his prized and valuable Bentley engine, which he owned and which he contended had been converted by JB and CNR, could only be brought in the name of ACC. The basis of their defence was thought to be that HML owned the engine but if it did not own it, ACC and not GA-C owned it and HML had converted it. Thus, they were thought likely to contend that ACC was the only proper claimant and HML the only proper defendant in relation to the claim for converting the engine. In fact, since ACC is the trading name of GA-C, they are in law one and the same person. These contentions that the proper claimant was ACC were raised at the trial but they were rejected by me in judgment no 1 when giving judgment on the conversion claim in favour of GA-C against JB and CNR. Thus, the costs that are claimed by GA-C include the minimal additional costs incurred by and on behalf of ACC.
3. It will be necessary for the order drawn up following the handing down of this judgment to record that ACC's costs are to be assessed as part of the costs that GA-C may recover from JB and CNR.
4. HML took an active part in the action until it was placed into voluntary liquidation on 23 February 2010. From that date, the solicitors who had been appointed on 5 August 2008 to act for all the defendants in this litigation, Marriott Harrison, ceased to act for all the defendants and HML took no part in the trial or the costs application. The action was not, however stayed against it and I must also decide what judgment, interest and costs orders GA-C is entitled to against HML.

Factual Background

(1) The sale of HML

5. GA-C acquired HML in 1984 and ran it in the Henley area for over twenty years as a successful sales outlet and servicing company for Rolls-Royces, Bentleys and other prestige cars. The company was wholly-owned by GA-C and his wife. In 2003, Mr Maggs was recruited as HML's service manager since GA-C had little aptitude or inclination for administration or management. Instead, GA-C's expertise lay in the servicing and mechanical side of the business coupled with his remarkable ability to win and retain customers through his mechanical and personal skills and his reliable, honest and transparent approach to their servicing requirements. By 2005, already well over the conventional retiring age and suffering from cancer, GA-C began to seek someone younger to take over the business. HML, in 2005, had a turnover of £1.5m and a net profit of £33,412. Approximately half HML's turnover was derived from sales and half from servicing. The significant profit that was earned from servicing carried the even more significant losses that resulted from sales.
6. HML rented its premises from GA-C who owned the premises it occupied. However, due to intended redevelopment of the site in the near future, GA-C was soon to sell the premises and GA-C planned that HML would have to move to new rented premises in the locality. The servicing team were skilled in the mysteries of performance car maintenance, having acquired their expertise working with GA-C for many years. The business was, therefore, in significant need of being shaken up, particularly on the sales side, but it had an extensive and valuable good will which would need continued personal attention from the new owners supported by continued mechanical excellence from the workshop and the continued efficient management being provided by Mr Maggs. For this reason, GA-C was looking for a private sale with a lengthy hand-over period whilst he continued to work for HML as a consultant reinforcing the excellent customer relationships and workshop practices that he had built up and on which its success depended.
7. Despite much interest, it took some time for a serious offer to materialise. This finally came from Mr Martyn Brennan, who is JB's father. Mr Brennan senior had been introduced to GA-C by JB who had, in turn, learnt of GA-C's interest in selling the business from GA-C himself. At that time, JB was renting his personal office from MML as the basis of his own internet business. JB had started his working life as a stockbroker but had changed careers after twelve years and was now looking for a further career outlet.
8. JB's father's interest in HML was to assist JB to acquire HML. After an introductory proposal in March 2006, Mr Brennan senior made GA-C a firm offer on 31 May 2006 to purchase HML's business and to discharge its indebtedness to GA-C for £180,000. It was an integral part of this offer that HML would take GA-C on as a consultant for an annual salary of £25,000. In the meantime, JB would be appointed company secretary forthwith, and before the sale was completed, to familiarise himself with the business. This offer was acceptable to GA-C and JB became company secretary soon afterwards. Moreover, Mr Brennan was given exclusive acquisition rights for the next three months.
9. Over the next six months, however, little more was done to progress the sale until, in late November 2006, negotiations were resumed by Mr Brennan senior who made GA-C a further and reduced offer to acquire the business for £160,000 and the same previously proposed consultancy agreement for a minimum period of three years. By then, JB had involved CNR in his plan to acquire HML. JB was very friendly with CNR who visited him frequently in his office. CNR had been running a business centre locally, letting out serviced offices. He was now looking for a new outlet, particularly one that would complement his principal interest which was to race and drive Lotus racing and sports cars. Like JB, he had had no previous experience in the motor trade. CNR's father, Mr Nick Randall, was prepared to assist CNR financially in this new venture and Mr Randall senior took over the negotiations with GA-C from Mr Brennan senior at this point.
10. The upshot was that an agreement was reached in principle in January 2007 whereby JB and CNR would buy GA-C for £160,000 which would be made up by a cash payment of £111,000, to buy all the shares in the company, and a further £49,000 which would be used to repay GA-C his outstanding director's loans. In addition, GA-C would be granted a consultancy agreement for a minimum period of three years and for a remuneration of £35,000 per annum. The purchasers would also, before completion, enter into a five-year lease on nearby premises to be used by HML since their existing lease was now on the point of expiring. The proposed method of purchasing HML was that JB and CNR would form a new company, all of whose shares they would hold equally. This company, called Hofmann Holdings Limited ("HHL") would, in turn, own all the shares in HML. HHL would then purchase HML with money provided by JB and CNR, their respective fathers and a bank loan from Coutts of about £45,000.
11. GA-C was then introduced to a solicitor at Boyes Turner by JB to draft the necessary Share Purchase Agreement ("SPA") and Services Agreement ("SA"). Once that solicitor had been appointed, JB persuaded GA-C and his wife to sign an authorisation whereby all instructions would be given to that solicitor by JB. It was then discovered that HML's outstanding loan to GA-C was not about £49,000, as had been assumed by JB's father in formulating the offer and CNR's father in renewing it, but was now reduced to about £22,000. JB then instructed both HML's and GA-C's respective SPA solicitors to proceed on the basis of a unilaterally imposed variation to the purchase price and as to how it would be paid. The SPA draft, as varied, provided that the purchase price would be £121,000 and, in addition, the purchaser would discharge the loan of £22,000. The balance of the purchase price would be paid by way of a deferred payment by HML to GA-C of HML's recovery from its creditors of aged debts outstanding on completion that were due for payment thirty days or more after completion. The debts would be recovered by HML and paid onto GA-C as and when they were collected by HML. On JB's instructions, Boyes Turner drafted a complex provision that was inserted into the SPA which created HML's obligation to recover these debts and its corresponding obligation to pay GA-C the sums it recovered. These changed provisions were not discussed with or explained to GA-C prior to completion.
12. It remained an integral part of the purchase that GA-C would be provided with a consultancy agreement which would run for at least three years at an annual payment of £35,000 payable monthly. This was allied to a restrictive covenant whereby GA-C would neither compete with HML nor entice customers away from his former company. The SA, however, provided for termination by either HML or GA-C on the giving of three month's notice. This provision was inserted on JB's instructions and it was not explained to GA-C that it had the effect that he had no security that the agreement would last for a minimum of three years even though he was relying on a minimum of three years' consultancy income to make up for the shortfall in what he had originally intended to recover from the sale of his business. The consultancy services that he was to provide were not defined in the SA save that GA-C was:

"… to carry out the Services and complete the project".

However, their general nature had been spelt out in Mr Randall senior's offer letter to GA-C dated 2 January 2007 as being:

"… to leverage your extensive experience and technical ability to assist [JB and CNR] in the successful running of the business and also to learn the 'tricks of the trade'".

13. The sale of HML to HHL was provided for by two complimentary agreements, the SPA entered into by GA-C and Mrs Ashley-Cooper as vendors and HHL as purchaser and the SA entered into by HML and GA-C. Both were signed on 10 April 2007 and completion occurred on 24 May 2007 after HML had completed on the new lease of the premises that it was to move into a few days later.

(2) The termination of the SA

14. HML's move to new premises took place soon after the sale agreement was completed and the business was closed for a month in consequence^[1]. Prior to the move, JB took all the papers, pictures and office furniture that were located in GA-C's office without his agreement or prior knowledge and arranged for some of them to be burnt and the rest to be thrown or given away. Many of these items were GA-C's personal property. On moving to the new premises, when trading resumed towards the end of June, GA-C found that he was put to work in the work shop undertaking menial mechanical tasks under the supervision of one of the mechanics that he had trained up and who had worked as his junior for many years. He also found that he had no role liaising with customers or advising on the business or its development. Moreover, he was not allocated an office. Both JB and CNR treated him in a cavalier and disrespectful manner as exemplified by this unwarranted and untruthful description of GA-C in an email to Mr Jim Demetriou ("JD") dated 27 September 2007. Mr JD was GA-C's accountant who undertook some of the negotiations with JB and CNR on his behalf. JB stated:

"… we have turned a blind eye to many things leaving the premises with GAC but are not prepared to continue listening to Graham bleating about how he somehow managed to sell a company with all its assets whilst retaining ownership of any assets he fancied by claiming them to be his 'Private Items'."

15. GA-C met with Mr Ian Freeman on 20 June 2007, about three weeks after the move and at a time when HML had just re-opened following the move. The two men discussed GA-C's future working arrangements and the nature and detail of GA-C's consultancy role in HML. Mr Freeman was an accountant who ran his own mergers and acquisitions broking company and he had been introduced to JB by his father as someone who could act as a non-executive chairman and provide financial and other advice to the company. For a short period, between 27 March 2007 and 10 July 2008, Mr Freeman was the non-executive chairman of HML.
16. The arrangements proposed by Mr Freeman left GA-C with little involvement with customers of HML and they also imposed on GA-C what he reasonably regarded as being unnecessarily petty restrictions and controls on his working routine. He was, however, prepared to try and work to these arrangements. Mr Freeman wrote to him on 28 June 2007 in a letter dated 26 June 2007 to confirm these proposals. GA-C met with Mr Freeman again on 28 June 2007 to discuss his own relatively minor proposed changes to Mr Freeman's proposals. GA-C considered that he had reached a satisfactory understanding at the meeting but the next day he was sent a letter by Mr Freeman which had been initiated and drafted by JB and CNR. This letter unilaterally sought to replace the four-day per week, £35,000 per annum services agreement to provide consultancy services with a £50 per hour limited role to provide ad hoc services to HML when called upon and whilst working from home. It was proposed that this arrangement would start on 1 August 2007.
17. Not surprisingly, GA-C did not agree to these new proposals which had not been discussed with him previously. He then attempted to work to the proposed working arrangements that he had already agreed with Mr Freeman for the next three weeks. At that point, out of the blue, he was asked to see Mr Freeman again. Mr Freeman, it is clear, had been asked by JB to see Mr GA-C to give him notice. Mr Maggs, in his evidence, stated that he had been told that JB had persuaded Mr Freeman to see GA-C in order to sack him because he did not have the courage to do this himself. Mr Freeman started the meeting by asking GA-C for his suggestions as to his future employment as a consultant. GA-C responded by outlining the many ways in which he could assist JB and CNR in developing HML including giving general advice to anyone involved with HML; training staff; working on cars; assisting in testing, diagnosis and tuning work; involvement in customer relations; developing new business; participating in advertising and organising and attending promotional events. Mr Freeman informed him that none of these activities were required since they all needed to be undertaken by other staff who needed to be "brought on". He then informed GA-C that JB and CNR had already decided to terminate the consultancy services agreement. This was confirmed by CNR in a letter he sent to GA-C dated 18 July 2007 which stated:

"… I confirm that we have reluctantly decided that we have no alternative but to terminate the Services Agreement with you."

18. The letter gave GA-C three months' notice and reminded him that he would continue to be bound by the non-compete and confidentiality provisions of the SPA and SA. The only reason given for terminating the SA by Mr Freeman during the meeting was that "it was not working". Neither JB nor CNR, whether in the letter or at any other time, gave GA-C any explanation for terminating his SA and both treated him throughout their relationship in a disdainful, dismissive and disrespectful manner.

(3) The claims

19. The engine. This claim was made against JB and CNR personally, was tried by me and has led to a judgment in favour of GA-C against both of them who are, in consequence, severally liable for the conversion of the engine in question. The engine was a historic and valuable Bentley R type engine which GA-C was given in 1981 prior to his acquisition of HML. He moved it into HML's premises in 1984 on acquiring the company and had stored it there ever since. This engine was not referred to in the SA as one of the items of valuable property owned by HML nor was its value included in HML's accounts as being part of HML's assets. Moreover, JB and CNR were well aware that it belonged to GA-C. It was moved to HML's new premises on the express understanding reached between GA-C and both JB and CNR that it was GA-C's property which HML would continue to store free of charge. Soon after the move, in late June 2007, a long-standing customer had brought his Bentley Special in for extensive renovation. The required work included the replacement of the car's frost damaged engine. GA-C informed both JB and CNR that he would be prepared to sell the customer this engine for £10,000 and suggested that HML should use the engine, should charge the customer £12,000 and should pay him £10,000 for it, keeping the balance as commission. JB and CNR subsequently instructed Mr Maggs to arrange for the repair shop to install this engine into the Bentley Special and the customer was invoiced by HML for the work a sum which included £10,000 for this engine. JB and CNR then accepted the sum that had been invoiced for the engine, paid it into their own accounts, did not inform GA-C that they had sold his engine and did not make any attempt to pay him £10,000.
20. From then on, JB and CNR adopted every ruse to avoid paying GA-C £10,000 that they had received and which they had previously agreed that he would be paid for the engine. Initially, when GA-C took up the question of payment for the engine, through Boyes Turner in mid-June 2007, JB and CNR agreed with GA-C's solicitor at Boyes Turner that the engine was owned by GA-C and that they would arrange for him to be paid £10,000 once it had been sold. After the sale, GA-C failed to get any sense out of either JB or CNR. He then arranged for Mr JD to chase up payment or the return of the engine. Initially, JB replied, in an email dated 27 September 2007, that the only items belonging to GA-C were stored in part of the mezzanine area and "I can most certainly say that there was no engine of any sort up there". Then, on 31 October 2007, in a letter to Mr JD , he had changed his tune and stated that "the engine was a stock item at completion of the acquisition of [HML] on 25 May 2007". There was no response to Wilmot & Co, GA-C's litigation solicitors ("Wilmot"), who included in their letter before action dated 6 December 2007 a claim against those who had been responsible for selling GA-C's engine to the customer. This claim was based on what the letter described as a deliberate act carried out in the knowledge that the engine did not belong to HML. Finally, in their defence and at the trial, JB and CNR claimed that the engine had been given or allocated to HML by GA-C as part of an informal agreement dividing a large collection of spares located on the mezzanine area between HML and GA-C even though this agreement could not have concerned the engine since it was never located on the mezzanine area and had in any event been sold to the customer before this agreement was made.
21. At the trial, judgment was entered against both JB and CNR. Mr Jerome Wilcox, GA-C's counsel, correctly summarised the basis of the findings against both JB and CNR in his skeleton prepared for this costs hearing as follows:

"The court was satisfied [JB and CNR] instructed Mr Maggs to fit the engine and that both had knowledge and gave approval. More pertinently, the court found:

'it is clear that JB and CNR were fitting an engine belonging to GA-C … it is inconceivable that JB and CNR honestly believed that the mezzanine agreement gave title to the engine to the company … both directors were aware they were mis-using GA-C's engine.'

One inevitably recalls JB in cross-examination where he claimed the company held the engine pursuant to clause 6.4 of the SPA having thought about his answer for perhaps 30 quiet seconds in the witness box.

Without standing on ceremony, this was the clearest finding of dishonest conduct by directors acting in breach of their roles as directors. Alternatively put, they stole the engine from GA-C. It follows, it is submitted, that everything else asserted by them in these costs proceedings must be scrutinised and viewed with suspicion."

22. Mr Robert Evans, JB and CNR's counsel, submitted that what he described as Mr Wilcox's allegation that JB and CNR had, effectively, stolen the engine should never have been made and should be withdrawn since dishonesty was expressly disavowed by Mr Wilcox at the trial. Mr Evans submitted that the highest that my findings could be put against JB and CNR was on the basis that they sold the engine believing it to belong to HML but knowing that GA-C asserted ownership and possession of it.
23. I do not accept Mr Evans's submission as to the effect of my findings. It is the case that dishonesty was not pleaded and that Mr Wilcox stated that he was not seeking a finding of dishonesty or a judgment on the basis of fraud. Thus, no finding of dishonesty or fraud was made. However, the judgment made adverse findings as to JB and CNR's knowledge based on the evidence adduced at the trial. Although those findings had led to an overall finding that each converted GA-C's engine and for damages to be awarded based on conversion, the evidence showed that neither of them had ever had any belief, let alone a reasonable belief, that the engine had ever belonged to HML. It also showed that neither of them believed that they were entitled to sell the engine to HML's customer on any other basis than that it was owned by GA-C or that they were entitled to keep for themselves the sum of £10,000 that the customer had paid for the engine. Indeed, the findings were to the effect that they knew that the money belonged to GA-C and that instead of keeping it themselves, they should pay it over to him.
24. The tools. This claim was based on a long-standing practice that had been adopted by GA-C and HML whereby GA-C hired to HML the use of his personal collection of specialised Rolls-Royce chassis tools. These tools are very specialised, valuable and difficult to acquire but are essential for use in undertaking significant repair or maintenance work on Rolls-Royce vehicles. As was disclosed to the purchasers of HML and was well-known to both JB and CNR, HML owed GA-C the hire charges for these tools for the two years prior to completion and the sale proceeded on the basis that GA-C would be paid the outstanding hire by HML after completion in addition to any other sum that he was to be paid. The rate that had been established over time and which it had been agreed and notified to the purchasers would be applicable for the two years in question was £5,052.50 per annum. GA-C also supplied at cost to HML specialised parts from his personal stock of such parts as and when HML needed any of these parts when servicing a prestige vehicle. There remained an outstanding indebtedness for some of these parts which JB and CNR had also agreed before completion would be added to the sum that HML would pay GA-C for tool hire after completion.
25. No attempt was made by JB and CNR to pay the outstanding sum for tool hire or spare parts supply. Thus, in October 2007, as part of the negotiations conducted with JB to agree and finalise all sums outstanding and due to GA-C, JD spent some time with JB listing and agreeing the outstanding sum for tool hire and parts. Their agreed total, and how this sum was made up, are recorded in a document whose contents both agreed to at that time and which was sent to GA-C and forwarded by him to HML as a request for payment. The overall sum due is £10,048.10 and the statement was dated and submitted to HML on 31 October 2007.
26. The defence to this unpaid claim was simply and solely that the claim for this sum was covered by the alleged settlement agreement whose non-existence is dealt with below.
27. The SA. As has already been dealt with, GA-C was given three-months notice terminating the SA. No explanation, let alone a satisfactory explanation, has ever been given as to why JB and CNR decided to terminate GA-C's consultancy role as soon as it started nor why they implemented that decision soon afterwards despite the clear understanding that their respective fathers had reached with GA-C prior to completion, which each of them was fully aware of, that GA-C's consultancy role would last for at least three years following completion.
28. There was, subsequently, a suggestion by JB in a letter to JD dated 31 October 2010 that GA-C had sought to interfere with HML's relationship with the customer to whom the engine had been sold and a veiled suggestion of his interference with its relationship with other customers. However, these allegations were never subsequently pursued, lacked any factual basis and, in any event, related to a period after notice had been served on GA-C so they could not found any basis for this ill-conceived premature termination. GA-C worked out his notice but, despite invoicing HML, was never paid for the three months that he worked out his notice. There was also raised in the defence, for the first time, an unparticularised allegation that GA-C had refused to comply with HML's operating procedures or to respond to direct requests from HML and that, in consequence, the relationship became unworkable. It was also suggested by JB that GA-C had been contacting clients of HML privately in breach of the SA and that the working relationship between GA-C and HML broke down because GA-C had misunderstood his more limited role as an employee of HML, was unhappy at work and had decided to leave. These allegations were never particularised, are clearly groundless and were no longer being pursued by HML when it went into voluntary liquidation a few weeks before the trial.
29. The reality is that neither JB nor CNR ever intended to involve GA-C in the consultancy role envisaged by their respective fathers and always intended to engineer an early termination of this role. They also clearly bitterly resented the continued presence and involvement of GA-C at HML following the completion of the SPA, they had an arrogant disregard for him, his achievements and his abilities and they were not prepared to pay GA-C anything more even if it was due to him. In short, they never allowed GA-C's consultancy role to get off the ground and terminated it within a few days of it starting.
30. The sum due under this head of claim was £9,099.61. The only basis for non-payment was that GA-C had not established that he was registered for VAT and that the claim was covered by the settlement agreement. In fact, GA-C was registered for VAT and had submitted invoices to HML with his VAT number shown on them. It was also suggested by JB to GA-C following receipt of Wilmot's letter before action, that HML had a cross-claim from GA-C for an indemnity for its liability to various customers under warranties for shoddy work undertaken on their vehicles prior to completion and for a fine levied against HML by HMRC for a VAT default in that period. These allegations amounted to an unparticularised breach of warranty claim arising out of the vendors' warranties contained in the SPA. They were, however, never pursued, pleaded or made the subject of a counter-claim in these proceedings and no documents were ever disclosed that related to them. They are also briefly discussed and dismissed below.
31. Debtors' list. The origin of this claim is to be found in the provisions in the SPA dealing with the payment for the GA-C's shares in HML that was partly to be paid for by HML's recovery of debts owed to HML and then passing on that recovery to GA-C. The agreement was structured so that the purchase price was defined as being £123,000 and the consideration for the shares as being the purchase price. However, the agreement also required the purchaser to procure the company to discharge the director's loan of £22,000 on completion. Thus, the consideration was, strictly speaking, £145,000 notwithstanding the agreement reached between GA-C and JD that it should be £160,000. That is why the agreement also provided for further payments to be made that were to be funded by the recovery of HML's aged debts. These debts were neither defined nor quantified save as provided for in clause 8 which read:

"6 Completion

…

6.6 Upon completion … the Purchaser shall:

…

6.6.3 transfer by electronic same day delivery to the Escrow Account the sum certified in accordance with the provisions of clause 8.1;

…

8 Escrow Account

8.1 Immediately prior to Completion the Purchaser shall procure that the Company shall prepare and deliver to the Purchaser an aged debtor list which shall be certified as complete and accurate by the Company Secretary; and the total value of debtors over thirty days shall then be transferred to the Escrow Account on Completion in accordance with clause 6.6.3.

8.2 One month from the date of Completion the Company Secretary shall deliver to the Purchaser, the Vendors and the Purchaser's Solicitor a certified list of those debtors (included in the certified aged debtors list referred to in clause 8.1 as being over thirty days) who have paid the Company, either in full or in part, during the previous one month period; and the Purchaser's Solicitor shall six working days thereafter transfer to the client account of the Vendor's Solicitors (at the bank account referred to in clause 6.6.1) the full amount of the sum so certified …

8.3 The procedure referred to in clause 8.2 shall be repeated one month later (i.e. two months from the date of Completion); … the Purchaser's Solicitor shall return to the Purchaser the full balance of the Escrow Account after making the final payment due to the Vendors and less any interest which shall be dealt with in accordance with the provisions of clause 8.4.

… ."

8.8 If any debt included in the certified list of debtors remains outstanding, in whole or in part, on the expiration of the period of two months from the date of Completion, the Purchaser, at the request and cost of the Vendors, shall procure that the Company assigns such debts to the Vendors for no consideration."

32. JB was HML's company secretary and he must have provided a certified aged debtors' list on completion because completion took place and HHL paid into an escrow account held by its SPA solicitors a sum of money representing the value of all aged debts over thirty days. A copy of that list prepared by JB, which was dated 27 June 2007, was provided to GA-C soon afterwards. During the first two months after completion, a total of £20,915.65 for the first month and £5,890.33 for the second month was recovered by HHL and paid to Boyes Tuner and, at the end of the second month, the balance of the sum paid by HHL into the escrow account was returned to HHL. At that point, there remained a significant outstanding total sum representing aged debts over 30 days that had been certified by JB as the relevant aged debts at completion which had not yet been recovered. GA-C has not been paid any of this outstanding sum and still does not know precisely what that outstanding sum is. The claim is for £12,000, being the minimum that it is estimated that that outstanding sum stood at and an account was also claimed to identify the total value of that sum with a claim for payment of any sum in excess of £12,000. It is clear from the documents, however, that the total sum due for this claim is £13,909.56 being the difference between the total of aged debts in excess of thirty days certified by JB at completion (£38,934.85) less the two sums paid out of the escrow account (£25,025.32).
33. In the months after July 2007, GA-C and JD attempted to ascertain what the outstanding debts were but JB never supplied a list of these debts nor any documentation identifying the outstanding aged debtors and the nature and size of each debtor's outstanding debt. Furthermore, by an email dated 17 September 2007, JD asked JB to assign these outstanding aged debts to GA-C, pursuant to clause 8.8 of the SPA, so that GA-C could himself chase and obtain payment of these debts. JB neither answered these requests nor provided the requested details. According to JB's evidence and the defence, these details were provided and, although this is not clearly pleaded, he asserted that they had been assigned to GA-C and that, in any event and whether or not they had been assigned, HML had no further obligation to chase up the remaining unpaid aged debts and pay over any recovery of them received by HML. Finally, JB contended that the claim for outstanding unpaid debts was compromised by the settlement agreement.
34. However, no documents were disclosed by HML or JB relating to these debts and no assignment ever took place. GA-C offered to sell these outstanding debts to JB "à la sub prime" in an email he sent on 12 February 2008 to which JB replied:

"Perhaps it is best for us to collect what we can of the old debts and take a cut rather than buying them direct. That way you get the same as what we might pay for them and we aren't exposed to any risk. A win win I feel… ".

35. Further discussions did take place and JB sent GA-C a list of outstanding debts and GA-C replied to this list, understandably angrily, in an email dated 16 May 2008:

"James

Half the names on this list should not exist as you must know and I believe you have not been completely honest in firstly placing them there and secondly not advising me that you have received payment and thirdly withholding details of invoices and addresses.

The following are examples:

[There follows a list of eight listed aged debts on the list which GA-C contended had already been paid but which he had not received payment for]

I look forward to your cheque as per our agreement."

Confirmation that JB had already collected some unpaid aged debts but not accounted for them to GA-C was provided by the unchallenged evidence of Mr Maggs who stated in his witness statement that JB had asked some customers to pay him cash for their outstanding debts which were then placed in the safe that had been installed in the office by JB's father rather than being paid to GA-C.

36. In June 2007 GA-C arranged for Boyes Turner to contact JB about the outstanding aged debts. Boyes Turner contacted JB and recorded the result of that contact in an attendance note wrongly dated 27 June 2008 and actually prepared on 27 June 2007 as follows:

"RJB attending GA-C to discuss the aged debtors list as sent through by James Brennan. RJP explained that he had received from JB a schedule of aged debtors as at 25 June [2008] and a breakdown of those debts unpaid at completion that had now been paid. … GA-C explained that he had seen the schedules that JB had prepared and he was aware of the figure of approximately £20K that was now due to him. … GA-C confirmed that he was happy [with the figure to be received] and that we agreed to confirm to the purchasers and the purchasers solicitor that the figure of approximately £20k is agreed."

37. The basis of GA-C's claim for £12,000 plus an account is three-fold:

(1) The effect of clause 8 of the SPA is that HML had agreed to pay GA-C all debts recovered from aged debtors including those remaining unpaid after the escrow account had been closed and that it was HML's responsibility to collect all those aged debts including those remaining unpaid when that closure took place. This collection obligation would only be terminated if and when HML assigned these unpaid debts to GA-C following a request for such an assignment by GA-C.

(2) In breach of its contractual obligations, HML had failed to collect any of the unpaid debts outstanding when the escrow account was closed or to chase them up. JB erroneously contended that HML had no obligation to chase up any debts outstanding when the escrow account was closed, that obligation was created by the SPA and it survived the closure of the escrow account. Moreover, JB had received payment for some of these sums and had appropriated those sums to himself or had failed to arrange for them to be paid to GA-C.

(3) GA-C and Mr JD on his behalf had asked JB and HML to assign the remaining unpaid debts to him and to provide the documents needed to identify and prove the outstanding debts and also to notify the outstanding debtors of that assignment and JB had placed HML in breach of its contractual obligations by both refusing and failing to do any of these things.

38. It would appear that JB and HML's response to these claims was no more than that they were covered by the settlement agreement and that GA-C did not need to be given the necessary information since he already knew it. Moreover, the debts had been assigned to him. However, no assignment was ever disclosed, particularised in the pleadings or proved by the evidence and no documents relating to the debts were ever disclosed.

(4) Breach of warranty cross-claims

39. Introduction. Prior to the disclosure of a few documents by JB as part of his response to this costs claim following the judgment against him for £10,000, HML had not notified GA-C of any allegation or claim either for breach of warranty or on any other basis and no cross-claim or abatement was pleaded in these proceedings, no discovery was provided and no evidence was served that identified or particularised any such claim. The only indication that had been given was given by JB in a telephone call to GA-C on 17 December 2007 when arranging to meet him in connection with GA-C's claims. GA-C's note, which he made of that call whilst speaking to JB, reads:

"They want to agree zero payment against the warranties – or they want me to come back due to customer demand. Don't know why there is such secrecy about the warranties which they have known for some time."

GA-C recalled that JB also stated that there were two warranty claims arising from a customer's claim based on faulty workmanship to a back axle and from another customer's claim based on faulty workmanship to an engine. GA-C recalled that, on hearing of these contentions, he recalled that one complaint had arisen more than six years previously and that he had no recollection of the other complaint. He was not provided with any more details of these complaints at the meeting.

40. It emerged for the first time in JB's evidence in response to this costs claim that there were three matters allegedly giving rise to a cross-claim. He did not give any details in his witness statements about these possible cross-claims and the only particulars that were provided were to be gleaned from the copies of letters and an estimate that he so belatedly provided. These disclosed the following matters:

(1) Axle gears. On 16 August 2007, a customer returned with his Rolls-Royce complaining that new axle gears that HML had fitted were noisy because the axle gears that had been fitted were unfit for purpose. In a subsequent letter dated 19 October 2007, the customer recorded his satisfaction that HML was prepared to rectify the problem and enclosed a cheque for £500 to defray the cost of initial dismantling.

(2) These details provide no basis for a claim against GA-C for breach of warranty. Such a claim can only be made against GA-C if the facts of the customer's claim give rise to a separate breach by GA-C of one of the warranties that he had provided in the SPA. No such breach is evidenced by the relevant letters. Furthermore, it seems that the initial fitting that was complained of had been carried out after the date of completion of the SPA and, in any case, the problem appears to have arisen from a faulty axle gear mechanism supplied to HML and then fitted to the vehicle so that whatever complaint arose was one that HML should have made to the supplier direct and not to GA-C. Finally, JB provided no quantification of this claim with these brief details and therefore failed to establish the loss allegedly caused by GA-C's breach of warranty.

(3) Coachwork panel rectification. Details of this potential claim were contained in a document which summarised charges invoiced and others that had been estimated in relation to extensive work being carried out to a customer's Rolls-Royce Corniche. This work covered work to the engine and bodywork which had already been invoiced in sums totalling about £20,000. Further work had been estimated in a sum of about £4,000. In a document summarising these various charges and estimates, it stated that:

"Coachwork/panel rectification costs borne by Hofmanns as agreed

Coachwork parts & labour & replacement panels £10,542.53"

(4) No other details were provided. It is therefore unclear what the basis was for HML agreeing to undertake some of the repair work required for this Rolls-Royce for no charge, why that work arose from faulty workmanship by HML prior to May 2007 and why, in any event, any such faulty workmanship gave rise to a warranty claim against GA-C under the SPA. Finally, no demand for payment was ever made by HML against GA-C.

(5) Engine rectification. No further details were provided at any stage of the engine rectification claim intimated in JB's telephone call on 17 December 2007.

(6) HMRC VAT "fine". There was a reference to a VAT fine being imposed on HML by HMRC that related to errors in accounting for VAT on MOT testing work undertaken by HML in the periods between June 2004 and December 2006. The only evidence of this that was ever provided was contained in a copy of a letter dated 19 June 2007 from HMRC to JB which he provided with his witness statement served just before the costs hearing. This letter stated that an assessment would be served on HML relating to errors in the declaration of VAT inputs in those periods due to arithmetical errors that HML had made in calculating the VAT element of MOT charges that it had recovered. HML and JB had never previously intimated a claim against GA-C nor provided him with copies of the assessment or of documents evidencing any additional payment made by HML so the claim, even after the service of these documents, was hopeless and was bound to fail.

41. It is also clear that none of these matters, even if properly particularised, could have resulted in cross-claims recoverable from GA-C for breach of warranty. The warranties are set out in schedule 5 of the SPA and none of them relate to claims made by customers based on bad workmanship or other breaches of a repair or servicing contract which the vendors were unaware of at completion. Moreover, even if the customer's claim gave rise to a warranty claim by HML against GA-C, for that claim to be maintainable, it had to be made in writing within twelve months after completion and the claim had to contain details of the event or circumstances giving rise to the breach, the basis upon which the purchaser was making the claim and the total amount of liability. None of these details were ever provided. The possible VAT claim could have amounted to a breach of warranty claim which would not have been subject to the twelve-month time limit that non-tax warranty claims were subject to but, to be valid, it had to have been made subject to a written demand containing the full details of the claims and a copy of the relevant HMRC demand for payment.

(5) The alleged settlement agreement

42. Introduction. JB and CNR insisted that all claims and cross-claims were settled by an agreement reached between JB and GA-C on New Year's Day 2008. It is clear that no such agreement, or any other agreement, was reached between them on that occasion or at any point thereafter.
43. The background to this alleged agreement is that GA-C had unanswerable claims, which JB knew were unanswerable, which totalled approximately £43,000. These claims, being those that I have already summarised, were as follows:

(1)	Engine:	£10,000.00
(2)	Tool hire:	£10,048.10
(3)	Unpaid Consultancy fees:	£ 9,099.61
(4)	Debtors list:	£13,909.56
	Total:	£43,057.27

44. At the date of the meeting, GA-C had not precisely quantified his debtors' list claim but the letter before action had provisionally valued it at £12,000 and JB would have known that that was a conservative estimate of its total value. All four claims had been fully, clearly and unequivocally explained and particularised in Wilmot's letter before action dated 6 December 2007 which had been sent to, and received and read by, JB prior to this meeting and JB had previously accepted each of the figures that were being put forward.
45. The only claim that JB was disputing was GA-C's claim for the engine but, as JB knew, GA-C's claim was unanswerable. JB knew that GA-C owned the engine and he was only asserting that HML owned it in order to try and avoid having to pay GA-C the sum that he had already received from the customer who had bought it knowing that it was owned by GA-C.
46. For these reasons, therefore, JB's case that he had achieved a settlement with GA-C was, before the available evidence was considered, unbelievable. The claim amounted to a contention that JB had successfully persuaded GA-C to settle all his claims for which there was no defence for £10,000, to be paid in two equal instalments on unspecified future dates. GA-C had agreed to this settlement for no other reason than that he had been informed by JB for the first time a few days earlier that HML had a number of previously unclaimed and still unparticularised cross-claims for damages based on GA-C's breaches of warranty that had resulted from HML's historic bad workmanship and which GA-C had rejected as being totally without foundation as soon as JB had told him about them during their telephone conversation on 17 December 2007.
47. The New Year's Day 2008 meeting. JB rang GA-C soon after he had received Wilmot's letter before action and said that he would like to discuss matters. He suggested a meeting. GA-C said that he wanted some payment in advance of a meeting and suggested £10,000 on account but JB stated that he was not prepared to pay anything, mentioning for the first time that there were warranty claims that had to be sorted out first. JB was already fully aware that GA-C was unwell. He had been diagnosed with cancer in late 2006 and he received treatment for this throughout 2007. In December 2007, GA-C had just started this treatment. Nonetheless, JB made the call suggesting a meeting and persisted with his request for a meeting with GA-C alone even though it would have been more appropriate for settlement discussions to have been left to Wilmot and JB's recently instructed solicitors, Marriott Harrison. JB also asked specifically for GA-C to meet him on New Year's Day at HML's premises because he wanted GA-C to advise him about a servicing complaint relating to work currently being undertaken to a Rolls-Royce Silver Ghost which was lying in pieces in the workshop. GA-C reluctantly agreed to meet JB as suggested. There was no good reason for insisting on a meeting in the unheated workshop on New Years Day other than that the premises would be otherwise empty and the cold would be unbearable for a seriously unwell man who was well into his 70s, both being conducive to cajoling GA-C into an unmeritorious settlement.
48. According to GA-C, the meeting lasted for about an hour. He obviously and understandably particularly remembered the meeting given that it took place in HML's deserted unheated workshop on a bitterly cold day whilst he was feeling unwell. JB contended that the meeting lasted for three hours but I accept GA-C's more reliable recollection of it. Much of the meeting was taken up by GA-C's inspection of the Rolls-Royce Silver Cloud parts that JB wanted gratuitous expert advice about and by GA-C's consequent advice about the problems with that maintenance job that JB was asking him about. Neither man had any papers relating to GA-C's claims nor Wilmot's letter before action with him and the circumstances of this meeting, being held on a public holiday in freezing conditions, would not have lent themselves to a detailed or prolonged discussion. GA-C contends that there was no discussion of the contents of Wilmot's letter before action and that he stated that he would accept £10,000 to be rid of the outstanding claims for tool hire and SA payment arrears. He made it clear that he also wanted payment in full for the engine and for the outstanding debtors' list claims. JB, according to GA-C, replied that he would think about things and he also mentioned that cash flow was a bit tight.
49. JB's case, as stated by him in subsequent communications he sent to GA-C, Wilmot and JD and as pleaded in the defence served for all three defendants, was that the two men discussed the contents of the letter before action in some detail and that JB agreed to settle all claims and the unparticularised warranty claims for £10,000 in full and final settlement and that this sum would be paid in two equal instalments on unspecified future dates.
50. I unhesitatingly accept GA-C's evidence. In particular, I accept that there was only limited discussion about the claims, that this took place in freezing conditions after he had done JB a favour by examining and advising about a customer's engine and that he only put forward a possible settlement because he was unwell, was undergoing painful cancer treatment and wanted to be shot of the claims. I also accept that the claims that he referred to were the claims relating to tool hire and unpaid consultancy fees. As he explained in his evidence, he would not have been prepared to settle the engine claim for less than £10,000 since the engine was his pride and joy, had been in his possession for well over twenty years and JB had already been paid for it by the customer to whom JB had wrongfully and dishonestly sold it. He would also not have been prepared to settle the debtors' list claim because he had not been provided with sufficient information by JB, despite several requests, to allow him to decide what sum he should settle for. For these reasons, he did not include the engine and debtors' list claims in his settlement offer. I also accept GA-C's evidence that no agreement of any kind was reached at this meeting. I reach this conclusion because the claim is so inherently improbable, because GA-C's evidence is wholly credible and JB's evidence is incredible and wholly inconsistent with JB and GA-C's subsequent statements and actions.
51. The 21 January 2008 telephone conversation. GA-C's further evidence was that since he had heard nothing from JB following the inconclusive ending to the meeting on New Year's Day, he phoned him on 21 January 2008 and repeated his offer to settle the two claims relating to tool hire and payment arrears for £10,000. JB again said that he would think about it.
52. There then followed the following exchanges:

(1) GA-C wrote a handwritten note to Wilmot dated 8 February 2008 stating that he had:

"… offered to settle for £10,000 which has been agreed possibly in 2 stages. I have asked for written confirmation receipt of which we will withdraw proceedings."

(2) JB did not, however, respond to GA-C's offer and GA-C therefore emailed him on 11 February 2008 a short email stating:

"Awaiting your confirmation various items discussed."

(3) JB emailed back by return:

"With respect to all points raised by Wilmot & Co in their letter of December the 6^th I confirm that we are both agreed on a figure of ten thousand pounds to settle the matter in full.

As discussed this figure is likely to be paid in two instalments."

(4) On 12 February 2008, GA-C replied to JB's email by stating:

"Can you be more specific please! There were also a few items on the debtors list which we discussed which should no be allowed to fester. I still have no list of invoices and addresses? May I sell you these à la sub prime!?"

(5) JB replied the same day:

"I thought Wilmot & Co's letter was very specific.!

…

Perhaps it is best for us to collect what we can of the old debts and take a cut rather than buying them direct. That way you get the same as what we might pay for them and we aren't exposed to any risk. A win win I feel …"

53. GA-C's evidence was that the offer he was referring to was the one that he had made to JB on New Year's Day and repeated on 21 January 2008. This evidence is consistent with the terms of the letter to Wilmot. This provides a clear indication that GA-C considered that he had not yet reached any legally binding agreement with JB since he was still awaiting both a written confirmation that JB was prepared to settle the tool hire and unpaid consultancy fees claims and an agreement as to the dates on which the stage payments would be paid. It is also consistent with his request that HML should buy the outstanding debts on the debtors' list since, had the debtors' list claim been included in the settlement offer, there would have been no need to suggest such a course of action.
54. Equally, had a settlement already been reached in the way that JB contended, JB would not have stated on the 11 February 2007 that "we are both agreed" as a response to GA-C's requested confirmation of an agreement. He would instead have referred to the agreement as one that had already been reached at the New Year's Day meeting. Furthermore, JB would not have offered to take a cut on the old debts since, had there already been an overall settlement agreement in place, there would have been nothing left for HML to take a cut on. Instead, HML would have been able to collect these outstanding debts and keep for itself everything that was recovered.
55. It follows that GA-C's emails of 8 and 11 February 2008 amounted to an offer to settle the tool hire and unpaid consultancy fees claims and all cross-claims and JB's emails of 11 and 12 February amounted to a counter-offer to settle all claims and cross-claims except the debtors' list claim which would be settled separately and in the way suggested in the later email.
56. Payment of £5,000. On 18 February 2008, JB sent GA-C a cheque for £5,000. The cheque was sent without a covering letter or any accompanying conditions and without any reference to a settlement or a settlement offer. The payment was accepted by GA-C. Thus GA-C can only have been accepting the cheque as an on-account payment towards all of GA-C's outstanding claims.
57. GA-C and JB's subsequent conduct. Noting further occurred until JB had a lengthy exchange of emails with JD about a possible future binding settlement. This exchange started with this email from JB to GA-C dated 27 March 2008:

"Dear Graham

I have various amounts of paperwork here re the proposed credit note route that seems to point to a required credit of £13,049.61. If you could send that over along with a note stating something along the lines of full and final settlement as discussed I will dispatch the final cheque straight back."

This email showed that JB was contending that, before a concluded and legally binding settlement could be achieved, GA-C would have to agree that he was foregoing the precise sum of £13,049.61 and he would need to send JB both the requested credit note and a note whose contents were "as discussed".

58. GA-C referred JB's email to JD who immediately asked JB for a reconciliation of the figure of £13,049.61. JB was not prepared to provide that reconciliation in the subsequent exchanges, no doubt because his answer would have shown that there was no agreement as to what was to be settled. These exchanges ended with this somewhat blustering email from JB dated 31 March 2008:

"As you may know we agreed a settlement of £10k with GAC and have paid half of it so far. I would therefore expect your outstanding balance to be £5k less than anything you've sent over to reflect the first payment. I would then require a credit note further reducing the total balance to £5k to fully reflect the final settlement necessary."

59. JD replied on 14 May 2008 that he had just spoken to GA-C who had informed him that the settlement offer GA-C had made to JD covered the engine and unpaid consultancy fees claims. In stating this, JD was correct in stating that GA-C's offer only covered two of GA-C's four claims and that one of those claims was the unpaid consultancy fees claim. However, as GA-C confirmed in his evidence and as I have already found, the other claim covered was not the engine claim but the tool hire claim. However, JB's response to the suggestion that GA-C's offer only covered two of the four claims was the somewhat offensive:

"I hope you're not taking the piss!!!". "

He also informed JD that all that was needed for the settlement was for JD to provide him with credit notes taking the outstanding balance down to £5,000 whereupon a cheque would be sent to GA-C for £5,000 and a settlement would be concluded. JD responded that he didn't think that JB was being completely honest in asserting that all claims had been agreed. That email ended the discussion between JB and JD about the possible settlement without the two men reaching agreement as to the scope of the settlement agreement. The exchanges between them clearly showed that there was yet to be concluded any agreement between JB and GA-C, let alone there being a final and binding settlement.

60. Thereafter, JB continued to discuss the outstanding debtors' list claim with GA-C. These discussions continued even though JB now contends that all claims had been settled for £10,000 on New Year's Day 2008 and that he needed to receive an appropriate credit note from JD to enable a settlement to be concluded. He would not have had these further discussions with GA-C had he honestly and genuinely believed that all claims had been settled several months previously or that the only remaining issue precluding a settlement was his receipt of an appropriate credit note from JD.
61. It is noteworthy that GA-C, in an email that he sent JB in the course of these debtors' list discussions, told him that that he had deliberately inserted errors favourable to himself into the current outstanding debtors' list that JB had sent him in May 2008 and which he had only recently been provided with a copy of. His email dated 16 May 2008 communicated this to JB by stating that JB was being dishonest^[2] and asked him to forward a cheque to cover all the outstanding debts that he had recovered which his list suggested remained outstanding. This exchange provides yet further evidence that there was no settlement agreement of any kind then in existence.
62. JB's case as to the all-embracing nature of the alleged compromise. The issue as to what, if anything, was agreed at this meeting has not been tried but it is crucial to the question of costs since the strength of the three defendants' defences, the reasonableness of JB and CNR's conduct in defending themselves and in arranging for HML's defence to GA-C's claims and the suggested legal advice they received that the defences were sound are largely based on the defendants' case that GA-C compromised all claims at this meeting or, at the very least, it was highly arguable that JB's belief that he had compromised them was correct or reasonable. However, JB and CNR were provided both before the trial and before the costs hearing with an opportunity to put down any evidence that related to their case that a compromise was achieved yet they did not set out any further evidence about the suggested compromise so that the issue of the compromise has to be determined on the basis of GA-C's unchallenged witness statement, his cross-examination and the documents provided by the parties. That evidence overwhelmingly shows that no compromise or settlement agreement was never achieved, that one was ever close to being achieved and that JB never genuinely or reasonably believed that a settlement had been achieved.
63. At the trial and during the costs argument, Mr Evans contended that JB, when negotiating with GA-C and JD in relation to a possible settlement agreement, was acting throughout in three separate capacities: on his own behalf, on CNR's behalf and on HML's behalf. Equally, Mr Evans contended that the compromise that JB asserted that he had reached had been concluded with both GA-C and A-CL and covered all claims made by each of them against all three defendants.
64. It is not necessary for me to reach a conclusion as to whether this contention would have been sustainable had this issue been tried. For the purposes of this costs application, it is sufficient to note and accept that all three defendants accepted or had previously asserted that JB had been negotiating and had purportedly concluded a settlement agreement with GA-C on their behalf and that that purported agreement covered all claims and all contentious issues with which they were concerned. It is, however, highly unlikely that JB would have succeeded in showing that any agreement he reached, had he reached one, covered the engine claim which was made only against him and CNR, that he was negotiating on his and CNR's behalf as well as on HML's behalf or that any agreement was supported by adequate consideration since JB and CNR gave up nothing in the agreement since all their claims and defences were hopeless.
65. Counsel's contention did, however, confirm three significant features of this litigation:

(1) The close interconnection that all claims had with all other claims;

(2) The settlement issue was directly relevant and of crucial significance to all claims advanced against each defendant; and

(3) Each defendant was directly involved in, and was a necessary party to, all disputes including, but not limited to, those that involved monetary claims against that particular defendant.

66. Conclusion. It is clear, therefore, that no agreement, settlement or compromise of any kind was ever reached, that the parties were never close to reaching an agreement, even in principle, that they acted throughout on the basis of there being no agreement and that JB only started to assert in a somewhat bullying way that there was an overall settlement because he knew that there was no settlement and was attempting to bully GA-C into accepting one on his terms. It is also clear that JB has never had a genuine or reasonable belief that he had reached a settlement with GA-C. The parties could have reached an agreement to settle the tool hire and payment arrears claims as suggested by GA-C but such a settlement was unacceptable to JB.
67. JB did not provide, at any stage of the proceedings, a draft or final statement or any other evidence relating to the settlement negotiations or agreement that he had previously asserted he had been reached with GA-C. In particular, although he stated that he had prepared a draft statement prior to the service of witness statements in the action, this draft was not served when he served his witness statement. Furthermore, it was not served when he served a detailed witness statement in response to this costs application even though that draft, if it existed, or his evidence about these matters, are both very relevant to his continued insistence, in response to this costs application, that HML and he both had a good case that all claims were settled on New Year's Day 2008. I am therefore reinforced in my conclusion that JB knows that he is unable to provide any evidence that could contradict or challenge my finding that there never was a settlement agreement and JB has always been aware that he never reached one.
68. It was contended by Mr Evans on behalf of JB and CNR that clear evidence of a concluded agreement, or at least evidence which had the capability of proving that there was a concluded agreement if tested at a full trial, was provided by the occasions on which GA-C or Wilmot on his behalf asserted that there was an agreement in existence. These occasions were:

(1) GA-C's handwritten note to Wilmot dated 8 February 2008. In this note, GA-C informed Wilmot that he had offered to settle for £10,000 and this has been agreed. This note followed, and in context was only referring to, GA-C's offer to JB at the New Year's Day meeting which was repeated on the telephone on 21 January 2008 to settle the tool hire and consultancy fees claims and any cross-claim for £10,000. On both occasions, JB had demurred and had stated that he would think about it. On the second occasion, GA-C understood that his offer was favourably received and his subsequent letter to Wilmot was referring to his offer to settle those two claims which he was obviously confident, at that stage, would lead to a concluded settlement. However, JB responded on 11 February 2008 with an offer to settle all claims for £10,000 and made it clear in subsequent emails to JD that it was a condition precedent for a legally binding settlement on those terms that he first received appropriate credit notes and an acknowledgment in writing that referred to an overall settlement. This showed that there was no settlement in existence and also led to the collapse of settlement discussions.

(2) JB's dispatch of a cheque for £5,000. JB unilaterally offered to pay this cheque into GA-C's account and then did so in March 2008 without any covering letter or accompanying condition. GA-C, therefore, did not accept or retain this sum in a way that could be said to amount to an acceptance of an offer of compromise. In any event, it would not have been possible to identify whether the compromise covered all claims or only the tool hire and consultancy fees claims.

(3) JD 's statement in an email dated 31 March 2008. In this email, JD stated that GA-C that just informed him that the settlement of £10,000 covered the engine and consultancy fees so that the other claims remained outstanding. This statement was made in response to JB's email which stated that a settlement had been agreed of all claims for £10,000. JD's email was clearly in error in stating that the settlement or settlement offer covered the engine and consultancy fees claims, it actually covered only the tools and consultancy fees claims. It is not clear, nor material, how this mistake occurred. What is clear is that JD was referring to GA-C's favourably received offer made on 21 January 2008 which had subsequently been rejected by JB. This inconclusive exchange of emails clearly showed that neither GA-C's offer nor JB's counter-offer to settle all claims for £10,000 had been accepted.

(4) Wilmot's letters dated 11 and 21 July 2008. In these letters, Wilmot & Co referred to the compromise GA-C had negotiated with "you" (i.e. HML) which HML had repudiated by not paying the second instalment of £5,000 and which made time of the essence to pay the balance. The letters also asserted that the non-payment of the balance within the stipulated timescale amounted to a clear repudiation of the compromise agreement which GA-C accepted. It is clear that the letters are referring to the agreement or offer of an agreement to settle the tools and consultancy fees claims. These were the claims that GA-C had been negotiating about. Furthermore, since the letter was addressed to HML, it could not have been referring to the engine claim which was made solely against JB and CNR and was not made against HML. The letters were written in order to attempt to achieve a quick settlement of GA-C's claims, which he was wanting given his poor health. He also wished to be shot of the worries of his on-going dispute with his former company and the two men who now controlled and owned it.

(5) As the evidence that I have analysed in detail shows, there was no legally binding agreement to settle the two claims but there was, or was capable of being shown to be, an informal agreement, a so-called gentleman's agreement, to this effect reached in principle on the telephone on 21 January 2008. The letter was resurrecting that agreement and offering to turn it into a legally binding agreement if £5,000 was paid within seven days. The subsequent letter accepted the repudiation of that informal agreement or resurrected offer. Thus, at the conclusion of this exchange, there remained no settlement agreement.

(6) MH's letter dated 13 August 2008. This letter attempted to revive the settlement offers made by Wilmot's letters which JB had so comprehensively, and offensively, rejected and the subsequent service of proceedings on all three defendants. The letter referred to the settlement agreement entered into on New Year's Day, namely "at the beginning of 2008", to it not being open to GA-C to "re-open the matters that were settled" and to the application to strike out the proceedings as being hopeless as a result of that agreement if the action proceeded. These allegations merely repeated JB's groundless assertions in earlier communications and could not add weight to the existence of an agreement that had never been reached. Needless to say, the threatened striking out application was never issued.

69. It follows that there is nothing in these various statements and actions which could provide any basis for a case that a binding settlement agreement had been reached between GA-C and JB.
70. It is also the case that had a settlement agreement covering all claims been reached between GA-C and JB on New Year's Day 2008, it is impossible to see how such an agreement could be enforceable. The agreement as contended for by JB was clearly subject to contract and JB had clearly imposed a condition precedent to its enforceability that a credit note should be issued and no such note was ever issued. Furthermore, the agreement would not have been supported by any consideration since GA-C obtained no benefit from it. All his claims had been admitted or were unarguably recoverable and there was no cross-claim. Finally, given GA-C's ill-health which JB was fully aware of, the parties to such an agreement could not be said to have been entered into it voluntarily and the parties could not be said to have been in agreement as to its scope and payment terms, particularly as JB appeared to be taking advantage of GA-C's ill-health at the time that the agreement was reached. These issues were subsequently raised by GA-C in his pleadings and, on these further grounds as well, a case based on the alleged legally binding overall settlement or compromise was hopeless.

(6) The conduct of the proceedings

71. Negotiations and communications about the possible settlement and the aged debtors' claim ceased on 14 May 2008 when it became clear to JB that GA-C was not prepared to settle all claims for £10,000. GA-C was, however, very unwell at that time since he was mid-way through his course of treatment. In consequence, he instructed Wilmot to attempt to reach a settlement with JB, CNR and HML. For this purpose, Wilmot wrote to both HML and HHL on 11 July 2008 a letter in the following terms that resurrected GA-C's settlement offer that was directed to the tool hire and consultancy fees claims:

"Dear Sirs

Graham Ashley-Carter

As you know we act for Mr Ashley-Carter and we refer to our letter to you dated 6^th December 2007.

Our client negotiated a compromise with you on the basis that he though it was better to receive a relatively small sum quickly than a much larger amount which might take some time and expense to recover from you. Accordingly, we understand that he negotiated a compromise payment from you. It was quite clearly understood by both parties that the money would be paid promptly. An initial £5,000 was not paid until the following month. The further £5,000 has not been paid at all. It seems to us, therefore, that you have repudiated the agreement since there has been no indication whatsoever that you have any intention of complying with the agreement.

This letter is notice that time is made of the essence and that unless the sum due is paid to us or our client by 4.00 pm on Friday 18^th July 2008, our client will consider the contract repudiated by you and will accept that repudiation.

Yours faithfully

Wilmot & Co"

72. On 17 July 2008, JB replied to Wilmot & Co's letter with a letter on HML's note paper which showed that JB knew and understood that Wilmot & Co's letter was only offering to settle the tool hire and consultancy fees claims and which rejected that settlement offer in offensive, tendentious and deliberately inaccurate terms. The letter read as follows:

"Dear Sirs

Your letter dated 11^th July arrived at our offices on 15^th July and I have only just had sight of it this morning due to various appointments.

Firstly we fully refute your understanding and implication that the settlement was 'relatively small'. Perhaps in comparison to Mr Ashley-Carter's over-inflated initial claims but not, however, to reality. Indeed, had Mr Ashley-Carter not been able to offer a sensible settlement we would have been more than happy to progress the matter further.

Other matters you appear not to be aware of:

1. I wrote to Mr Ashley-Carter via email on 11^th February stating the terms of our agreement as follows 'With respect to all points raised by Wilmot & Co in their letter of December 6^th I confirm that we are both in agreed on a figure of ten thousand pounds to settle the matter in full'. I then went on to state 'As discussed this figure is likely to be paid in two instalments'. Mr Ashley-Carter agreed to these terms (1) and as such (2) the initial £5,000 was paid. You will also note that these terms differ from your description in that 'likely to be paid in two instalments' does not equal two payments of £5,000. At this juncture I should also mention that your implication that our first instalment was late is also inaccurate. Mr Ashley-Carter left for India, for a month, shortly after our meeting of the 1^st of January and it was agreed the first payment would be made once cash flow had been assessed on his return.

2. When Mr Ashley-Carter made his offer on the morning of 1^st January 2008 (3) he was very clear that a settlement of £10,000 would not only clear all matters in your letter of December 6^th but it would also make sure he would uphold all other aspects of our SPA, some of which had gone wayward of late (4).

3. You will note no timeframe was specified in our settlement agreement and indeed I made Mr Ashley-Carter very aware that cash flow was paramount to us and that post a premises move we had to be very careful. Mr Ashley-Carter fully understood our situation and stated 'He wouldn't want to put the firm in jeopardy that had spent 24 years in his stewardship'.

4. Our next contact in this matter was with Mr JD on the 16^th of May 2008, who had been asked by Mr Ashley-Carter to chase us for monies in relation to 'Tool Hire'. When I explained the workings of our agreement to Mr JD he first suggested I wasn't telling the whole truth. Shortly after his receipt of my email correspondence showing Mr Ashley-Carter's acknowledgement that the £10,000 was indeed settlement for all matters pertained in your letter of December 6^th, he agreed the matter was closed (5).

5. You can therefore imagine my surprise to be contacted by a number of individuals (some customers, some suppliers) informing us that Mr Ashley-Carter was directly soliciting work from our customers both on his behalf and for another local firm (6). These actions are expressly forbidden in our SPA. When I contacted Mr JD to request he asked Mr Ashley-Carter to cease he replied with a scanned letter that Mr Ashley-Carter had sent to the local firm asking denying all knowledge and asking them to desist. Whilst I may be able to accept this, I can not accept customers who have had direct contact.

6. With all the above taken into account you might think that Mr Ashley-Carter would have attempted to make contact after the first payment based on the fact he knew the second payment was cash flow sensitive and no timeframe had been agreed. This is of course not the case. You letter dated the 11^th July is the first we have heard on the matter.

In summary, it is Mr Ashley-Carter who appears to have repudiated on our contract. He has not honoured our agreement in any way (7) other than to accept the first instalment of £5,000. Not only has he not contacted us to discuss further payment as agreed but he has tried to claim monies that were not owing to him and on the basis the number of communications we have had on the matter are too many to be false, either Mr Ashley-Carter or someone is posing as him is both directly and indirectly soliciting business from our customers. At 72 years of age Mr Ashley-Carter should be wise enough to understand that agreements reach an agreeable conclusion when both parties stick to the terms.

Yours faithfully

James Brennan"

73. I have highlighted the factually erroneous statements in this letter which JB would have known to have been incorrect when writing the letter and I have numbered each highlighted passage. I comment as follows about these numbered passages:

(1) The description of GA-C's claims as "over-inflated" is a travesty. JB had previously agreed the quantification of the tool hire and consultancy fees claims and had offered no defence to them. He had received from the customer and retained the same sum that GA-C was claiming for the engine which JB knew belonged to GA-C. He had prepared the outstanding debtors list and he knew which aged debts had been collected but not paid on and which were as yet uncollected because HML had not chased them. Finally, he knew that there was no available cross-claim that had any prospects of success and no cross-claim was, in any event, being pursued by HML or by him.

(2) The payment of £5,000 in February 2008 was not linked to any settlement agreement. Indeed, it was not coupled with any condition and was paid directly into GA-C's account without any covering letter being sent. It was therefore no more than a payment generally on account of all HML's indebtedness to GA-C and had been sent in the mistaken hope that the payment would create a binding settlement agreement on a basis that was acceptable to himself but which he knew was unacceptable to GA-C.

(3) GA-C made an offer on New Year's Day 2008 to settle the tool hire and consultancy fees claims which JB declined to discuss and stated that he would think about it and get back to GA-C.

(4) There were no breaches of warranty claims being made or in existence and no other breaches of the SPA had ever been mentioned or committed.

(5) Mr JD never agreed that the matter (i.e. all disputes) was closed in writing (no email has ever been disclosed that states such an agreement) or verbally.

(6) JB has never particularised any breach of the SPA and no documents were ever disclosed which showed or related to any actual, alleged or possible breaches of the SPA.

(7) It is also a travesty to suggest that GA-C has not honoured the SPA at all let alone "in any way". No evidence, whether in verbal or documentary form, was adduced to show that GA-C had done other than comply with all aspects of the SPA fairly, scrupulously and honestly.

74. Wilmot & Co replied to JB by informing him that his letter clearly intimated that HML was repudiating any settlement agreement. The effect of this letter was that GA-C was acknowledging that JB had refused his offer to settle. Wilmot & Co informed JB that proceedings would be issued in due course. A claim form was issued in the Chancery Division on 30 July 2008 and the proceedings were transferred to the Queen's Bench Division on 17 October 2008. The defence served on behalf of all three defendants in August 2008 served a detailed and tortuous defence based entirely on the alleged settlement agreement reached on New Year's Day 2008 with only token defences provided covering the merits of the four individual claims. No cross-claim or set-off based on alleged breaches of the warranties in the SPA were pleaded. There was then a pause whilst the parties attempted to settle the dispute. These settlement initiatives came to nothing and Wilmot listed the case for a CMC before the Master. The hearing on 27 April 2009 was adjourned because the defendants were not represented and there was no signed consent to the proposal put forward by Wilmot of the listing of the trial of a preliminary issue relating to the alleged compromise.
75. There was then a further pause, requested by Marriott Harrison. The parties then obtained standard directions from the Master and prepared for disclosure. Wilmot wrote to Marriott Harrison on 12 August 2009 asking them to ensure that the defendants' list contained all documents relating to a list of the relevant categories of disclosable documents. The defendants, notwithstanding this suggested list, initially provided what appeared to be inadequate discovery but, having been threatened with a striking out application, responded with a detailed letter dated 14 October 2009 which amounted to a full explanation as to why there were no further relevant disclosable documents save for seven documents and two email strings, copies of which were provided. This absence of further disclosable documents can now be seen to provide a further indication of the absence of any defence to GA-C's claims and the non-existence of any settlement agreement.
76. The parties then worked on the preparation of their witness statements which, in accordance with the directions previously issued, were due on 21 October 2009. The preparation of GA-C's witness statement was held up by his undergoing a heart by-pass operation but, on 17 November 2009, Wilmot wrote to Marriott Harrison and informed them that GA-C was now ready to exchange witness statements and asking them when they would be ready to exchange their witness statements.
77. Work was also undertaken by JB and CNR to prepare their witness statements and their other witness statements. However, on 5 November, Marriott Harrison informed them that their cost estimate to take the case to trial was now in the order of approximately £100,000 including VAT. These steps no doubt provided the spur to JB attempting to get in touch again with GA-C direct, being another attempt to communicate direct with GA-C by by-passing the parties' solicitors. This produced a firm rebuke from Wilmot to Marriott Harrison to the effect that:

"Both we and our client have made it clear, in view of past misunderstandings, that any contact about this case must only be made through the party's legal advisers. Your client knows this and it is quite improper for Mr Brennan to get in touch with our client direct. Please ensure that it does not happen again."

78. Wilmot's letter dated 17 November 2009 and JB's failure to get to see GA-C to seek to persuade him to settle clearly brought home to the defendants that they were soon to face up to the trial of claims that they had no effective defences to. As a result, JB and CNR, with the third director who had been appointed earlier in 2009, held a board meeting on 20 November 2009 which led to JB emailing Marriott Harrison in these terms:

"Last Friday, the 20^th November 2009, Hoffmann & Mountford held a board meeting, the main point of which was to discuss the case brought against us by Graham Ashley-Carter.

The board has found the following:

1. We are disappointed with regard to how initial legal advice from Mariott-Harrison re costings has spiralled out of all proportion, roughly trebling.

2. In light of your most recent doubling of estimated costs (with indication they could go higher still) to take the case to trial we have concluded the company may not have sufficient funds to meet our obligations to all creditors. We are taking professional advice in this regard and will revert to you as soon as possible. In the meantime, please do not incur any additional costs without our prior approval."

79. The defendants undertook no further steps but the decision not to incur further costs was not communicated to Wilmot who sought, and obtained, a date for the trial and who then made a sealed offer dated 18 December 2009 in the sum of £65,000 in full and final settlement of all claims including costs against all three defendants. This elicited no response and Marriott & Harrison finally notified Wilmot & Co that they were taking no further steps in the case by serving a Notice of Change dated 22 January 2010 indicating that the defendants would now be acting in person. Meanwhile, HML had obtained a valuation report from Amco and the board met again on 25 January 2010 and resolved to go into voluntary liquidation. That did not stay the action being brought against it by GA-C but Wilmot & Co were informed that HML would be taking no further part in the proceedings.
80. Wilmot & Co proceeded with its application to strike out JB and CNR's defence in default of the service of any witness statements which was heard on 19 February 2010. The Master made an unless order and, on 25 February 2010, the last day for compliance with this order, JB and CNR served their witness statements on Wilmot & Co. Neither statement made any reference to the settlement agreement allegedly reached by JB on New Year's Day 2008. This was particularly significant since the statements that were served had the appearance of having been prepared by Marriott Harrison who had informed them in an email dated 24 November 2009 that their witness statements were in a "fairly final draft form".
81. Two days before the trial, JB and CNR appointed new solicitors, ViHIPS Legal Ltd, to represent them and, at the trial, Mr Evans appeared for them having been instructed by ViHPS Legal Ltd the previous day. On instructions, he applied for permission to adduce evidence from both JB and CNR about the alleged settlement agreement reached on New Year's Day 2008 notwithstanding the unless order made on 19 February 2010 requiring them to serve all their evidence by 25 February 2009 and the consequent service by them of the draft statements that had been prepared by Marriott Harrison, their then solicitors, in November 2009 which did not contain any reference to the settlement agreement. I refused them permission since, as was contended by Mr Wilcox on behalf of GA-C, they had clearly abandoned this defence since Marriott Harrison, whilst still acting for them, had not prepared any evidence to deal with it when preparing their other evidence and they had not included any evidence about it when serving their evidence in compliance with the unless order only eight weeks before trial and in not thereafter, serving any draft of this proposed further evidence. Indeed, no draft of it was available on the first day of the trial to support the application being made on their behalf.

(7) Legal advice and payment for legal services

82. JB and CNR instructed Marriott Harrison to act for HML and themselves on being served with GA-C's claim form in these proceedings. The claim form was issued on 30 July 2008 and Marriott Harrison's engagement letter, addressed to all three defendants, is dated 5 August 2008. It would appear that Marriott Harrison had not previously been engaged by any of the three defendants in relation to the acquisition of HML from GA-C or the subsequent dispute with him. The engagement letter but not the accompanying standard terms and four emails sent to JB subsequently were disclosed by JB. Marriott Harrison acted in this litigation for a period of fifteen months between 5 August 2008 and 23 November 2009 when JB instructed the firm not to incur any further costs without express instructions due to HML's financial difficulties whereupon they did nothing further. It is clear from the disclosed documents and the inter-party correspondence that Marriott Harrison was not involved in the settlement discussions and negotiations with GA-C. These were dealt with by JB and, for a short period, by a go-between known to GA-C, Mr Andrew Hughes-Hallett, who otherwise took no part in the dispute.
83. HML, JB and CNR engaged Marriott Harrison to act for each of them individually and all contact with the firm was between JB, on behalf of all three, and the assistant solicitor who was working with the relevant partner on the case. It is clear that the work that Marriott Harrison subsequently undertook was always carried out on behalf of all three defendants collectively and without distinguishing between them. JB has voluntarily disclosed privileged documents, including five significant emails, which provide a full picture of the advice and cost estimates that the defendants received from Marriott Harrison and the work that was undertaken by and the payments that were made to that firm.
84. When first instructed, in the engagement letter dated 5 August 2008, Marriott Harrison estimated that if the matter could be settled promptly, the costs would be unlikely to exceed £5,000. This advice was based solely on a reading of the claim form and what appears to have been brief instructions from JB that he was confident that the matter could and would be settled in the near future. Apart from taking instructions and arranging for the drafting of the collective defence by counsel, Marriott Harrison did little until April 2009. In the intervening nine months, there was a pause due to GA-C's ill health and some settlement discussions which did not involve Marriott Harrison and in which JB continued to display an intransigent resistance to a fair and reasonable settlement.
85. Marriott Harrison's next involvement followed a breakdown in the parties' attempts to settle the dispute, which the firm had not been involved in, and a sealed offer from Wilmot dated 30 March for £23,000 plus the delivery up of GA-C's specialist Rolls-Royce tools estimated to be worth £7,000. Marriott Harrison drafted a sealed counter-offer dated 14 April 2009 on terms instructed by JB for £15,000. This was followed by an email which stated that the firm's view was that the case was, in reality, predominantly about costs. It offered no other advice about the merits of the without prejudice offers or of the defendants' position save as contained in this reminder to JB about the costs position:

"In relation to costs generally, as you know our view is that this case is, in reality, predominantly about costs.

As such, this is a good opportunity to remind you about the costs position.

As you will be aware, you have already received bills in the region of £7,000 (inc VAT). To be added to this amount will be "work in progress" which will be billed fairly soon. This amounts to approximately £3,500 plus VAT. If this matter proceeds to trial, we anticipate that in addition to that £11,000, you will incur additional costs of approximately £30,000 plus VAT meaning that the total of your own costs are likely to be in the region of £45,000 for a claim stated to be worth between £50,000 and £100,000. As mentioned to you on various occasions, you ought to be very mindful of the facts that:

If Mr Ashley-Carter and Ashley-Carter Co succeed on their claim you are more than likely to be liable for their costs in addition to your own costs; and

even if Mr Ashley-Carter and Ashley-Carter Co do not succeed on their claim and/or you are awarded your costs, you will not recover all of the costs that you have incurred in this case, in those circumstances are most likely to only recover 60 – 70% of the costs meaning that you would still be liable for the balance."

86. The first passage which I have highlighted contains the only advice as to the merits of the defendants' position or as to the settlement offers but it is highly instructive in that it does not advise the defendants that they have a strong, or even an arguable, case. The only advice that is given is that the case is "predominantly about costs". The email is also instructive because of the clear warnings in the other highlighted passages that the dispute should be settled so as to avoid the risk that each defendant separately was running of incurring substantial costs if they were to lose or even if they were to win. This risk was one that it is clear that the email was warning JB, CNR and HML collectively and individually that they were at risk of incurring personally in addition to the risk being run by HML as can be seen from the other highlighted passages which continuously refer to "you" in a context which makes it clear that all three clients are being referred to individually.
87. In response to this email, JB asked for a similar estimate to "get this thing to mediation". Mediation had been discussed previously as a possible means of resolving the dispute and both solicitors had indicated that their respective clients were favourable to that suggestion but Wilmot had made it clear that in view of the previous failed attempts to settle, GA-C would only be prepared to mediate after witness statements had been exchanged. In consequence, Marriott and Harrison responded to JB on 16 April 2009 that the estimated costs of disclosure and witness statements would be £10,000 and mediation a further £5,000. This would make the total cost to the defendants about £25,000. If Wilmot was able to persuade GA-C to mediate without there being any prior disclosure or an exchange of witness statements, the further cost would be £5,000 and the total cost approximately £15,000.
88. Marriott and Harrison then undertook disclosure and the drafting of witness statements from JB and CNR and two further brief and relatively inconsequential statements from Mr Freeman and a part-time machinist, Mr David Bevan. The statements were being drafted for both the trial, if that ever took place, and for the proposed mediation. They were, therefore, presumably as full as JB and CNR's instructions permitted. The drafting exercise was such that the statements were in a "fairly final draft form", to quote from Marriott Harrison's email dated 24 November 2009, when Wilmot threatened to issue a striking out summons as a result of what appeared to be significant gaps in the defendants' disclosure. At the same time, Marriott Harrison drew to JB's attention difficulties with regard to the defendants' case in relation to the debtors' list and the tool hire claims and that the settlement agreement appeared to lack any consideration provided by the defendants. In consequence, in the two significant emails sent to JB dated 5 and 24 November 2009. Marriott Harrison's first email was sent before the critical HML board meeting held on 20 November 2009 whose minutes were not disclosed whereas the second email was sent before the second board meeting held on 25 January 2010 whose minutes were disclosed.
89. Marriott Harrison advised the defendants that their current costs estimate to take the matter to trial was £100,000 inclusive of VAT, that the defendants should arrange to pay the firms outstanding bill as soon a possible and that settlement should be attempted. This last strand of the advice was given in the first email sent before the first board meeting in these words:

"Not least because of:

•    the amount and the disproportionality of this amount [£100,000] to the value of the claim; and

•    the fact that Mr Ashley-Carter and Ashley-Carter Co's fees are likely to be of the same sort of order and the possibility, depending on what the court orders, that you personally, Chris personally and/or Hoffmann & Mountford could be liable for any part of these costs.

I repeat my advice that serious steps ought to be taken to try and settle this matter without the need for this to proceed to trial with the incumbent costs as soon as possible." (email dated 5 November 2010)

90. The highlighted passage in this email clearly and significantly again warns JB and CNR that they were personally at risk of having to pay some or all of GA-C's costs. The passage also warns them that these costs would be likely to be in the order of £100,000.
91. The second email following the first board meeting contains this advice:

"I fully understand your concern relating to the estimated and indeed actual costs of this litigation and as you will know from various conversations we have had, I am (and have been for some time) concerned that they are disproportionate to the amount claimed. As you will recall, it was for this reason that I have on a number of occasions encouraged you to seek to reach a resolution of this dispute with Mr Ashley-Carter. I also know that you have tried to do so but that, as far as I understand it, despite your getting very close on at least one occasion (had it not been for your side's reluctance to include any/certain tools within the settlement), this has not yet been possible." (email dated 24 November 2009)

92. The highlighted passage in the first email clearly and significantly again warns JB and CNR that they were personally at risk of having to pay some or all of GA-C's costs. The passage also warns them that these costs would be likely to be in the order of £100,000.
93. Marriott Harrison's second email suggested that one of the reasons why their costs estimate had grown to a greater than predicted extent was on account of their response to what was suggested to be Wilmot's aggressive and unhelpful attitude that had required greater work input from the firm in response. No details were provided as to what this attitude was and how it had led to unnecessary and unforeseen further work and it is clear from a consideration of the entire inter-party correspondence that Wilmot had conducted GA-C's case throughout in a reasonable and responsible manner. This second email also summarised the defendants' options, namely to resolve the matter, to take the matter forward as litigants in person and disinstruct them, to carry on themselves preparing for trial or some other unspecified way.
94. The defendants had already decided in principle, at the board meeting held on 20 November 2009, to liquidate HML and to continue to defend the case brought against themselves as litigants in person. A second board meeting was held in December 2009 but JB has neither explained what was discussed nor disclosed the minutes of that meeting even though the litigation was discussed. The liquidation decision was, however, confirmed at the subsequent board meeting held on 25 January 2010. The minutes summarise the advice received from Marriott and Harrison in these words:

"JB reported that he had now received more legal advice re GAC claim. HML are now being advised that the legal costs could now escalated from the £5k expected at the start of the process to over £80k. The claim itself now stands at £45k. Our legal advisers have stated that our case is quite good but when pressed will only indicate a 50/50 probability success level.

As agreed at our Dec Board meeting CR approached GAC to offer a settlement package of £20k. This was refused and we were formally advised by GA-C's legal advisors that the best they would accept was £45k plus £20k costs.

Our advisors will not proceed with the claim without payment of their last invoice plus an advance of £20k which the company is NOT in a position to support.

The board agreed to include a provision in the 2009 accounts of £50k for this claim."

95. Invoices and payment. JB disclosed a copy of HML's account with Marriott Harrison. This showed that between 14 August 2008 and 18 December 2009, a total of £24,439.76 had been invoiced and £17,493.76 had been paid. It would appear that Marriott Harrison invoiced all three defendants and that JB arranged for the total sum invoiced to be paid by HML. At the time when Marriott Harrison asked for payment of outstanding invoiced fees in the email dated 5 November 2009, there were two outstanding invoices totalling £2,991.00 which had been sent out on 24 August 2009 and 25 September 2009. JB arranged for HML to pay both those invoices, a total payment of £2,991.00, on the same day. Marriott Harrison then invoiced the three defendants £6,946.00 on 18 December 2009 and that sum remained outstanding at the time of the board meeting at which JB advised the other two directors present that it, and a further £20,000 on account of future work, would have to be paid if Marriott Harrison was to undertake any further work for the defendants.
96. It would seem from these figures that in January 2010, Marriott Harrison had incurred about £24.5k in costs and were estimating a further £20k if they continued to act and the case went to trial. This total estimate of about £45k squares neatly with the estimate given by the firm in April 2009 for the estimated total costs of the case going to trial. On the basis of the disclosed documents, therefore, the suggested estimate of a further £50,000 liability to Marriott Harrison given to his fellow directors by JB at the board meeting held on 24 January 2010 was both inaccurate and not supported by the figures in his possession. Moreover, it is also clear that HML had paid and accepted responsibility for all of Marriott Harrison's invoiced legal costs incurred by JB, CNR and HML at JB's instigation. This shows that all three defendants were conducting the defence case in the litigation jointly and that JB and CNR's personal costs related to their part of that jointly presented defence were being paid by HML.
97. JB and CNR's case – legal advice and expenditure. JB and CNR asserted forcefully in their respective witness statements prepared for the costs hearing that Marriott Harrison advised that there was no reason why the New Years Day settlement agreement would not be proved to have been reached and that it would be upheld, that the defendants' defences to the individual claims had merit and that pursuing their defences was the only logical thing for the defendants to do. No other advice, save for that evidenced in the disclosed emails, has been disclosed and the summary of the advice that JB and CNR shows that this advice was not given to them. I have summarised the only advice that they were given which was to the effect that the case was largely about costs, that their case had a 50/50 chance of success at best, that they should settle the litigation on reasonable terms that reflected their poor prospects of success and that they and HML were each at significant risk of having to pay all their own costs and all those of GA-C. It would also appear that Marriott Harrison advised them that they were ill-advised to refuse GA-C's offer set out in Wilmot's sealed offer of 30 March 2009.
98. It would also appear that JB overstated the overall costs liability that they would incur with Marriott Harrison by at least £50,000 at the board meeting in January 2010 and that HML had been instructed by both of them to pay the entirety of the firm's costs including their share of those costs and to pursue a joint defence on behalf of all three defendants. By the date of the liquidation, it would appear that only approximately £7,000 of the sums Marriott Harrison had invoiced the defendants remained unpaid.

(8) Settlement offers and discussions

99. A number of offers of settlement were made by or on behalf of GA-C and by the defendants between New Years' Day 2008 and 9 April 2010 which it is said by JB and CNR show how reasonable they had been throughout the history of this dispute in attempting to settle and that the only reason why a settlement was not achieved was due to GA-C's unreasonable intransigence and in his repeated change of position.
100. The first settlement offer was made by GA-C to JB on New Years Day. This was reiterated on the telephone on 21 January 2009. I have already dealt with these offers and the subsequent lengthy and tortuous history of the negotiations relating to this offer and to JB's counter-offer. These negotiations show that JB was being unreasonable in attempting to cajole GA-C into a wholly unreasonable and unfavourable settlement from his point of view.
101. On 11 July 2008, Wilmot made a further offer to settle the tools and consultancy fees claims with a concomitant payment of the engine and debtors' list claims in full. I have already dealt with the unreasonable and totally unyielding way that JB rejected that offer.
102. On 13 August 2008, Marriott Harrison attempted to revive the defendants' suggested compromise that they contended had been made on New Years' day 2008 which JB had again offered in March 2008. This was as a response to the proceedings that had just been started and, understandably and reasonably, this offer was rejected by GA-C and his rejection was communicated to Marriott Harrison by Wilmot's letter dated 28 August 2008.
103. Despite that rejection, JB sought to achieve a binding settlement agreement by sending GA-C a cheque for £5,000, being the second of the two instalments he contended made up the payment of the settlement for £10,000 that had allegedly been reached on New Years' Day 2008. Wilmot returned this cheque to Marriott Harrison on 3 October 2008 with the understandable and reasonable explanation that the cheque could only have been accepted had it been part of the compromise agreement which had either never take place or, if there had been a settlement agreement, it had been repudiated by the defendants and that repudiation had been accepted by GA-C.
104. The parties then entered into direct negotiations. GA-C met with JB and CNR and in the course of those negotiations, JB and CNR reiterated to GA-C that HML was still experiencing cash flow difficulties, a suggestion that JB had made previously in earlier negotiations in order to seek more generous settlement and payment terms from GA-C. However, since JB and CNR were not prepared to improve on the offer previously made by JB to settle all claims for £10,000, the negotiations got nowhere and GA-C's proposal that he might consider a further concession was withdrawn. The breakdown of this phase of negotiations was communicated by Wilmot to Marriott Harrison in a letter dated 19 November 2008 although the parties had a further and still unfruitful meeting on 26 November 2008.
105. JB attempted to re-open negotiations in January 2009. He made a further offer to GA-C which was not significantly different from his previous offers and this was rejected as communicated by Wilmot to Marriott Harrison in a letter dated 12 February 2009. This letter also suggested that the parties should engage in a formal mediation and that the forthcoming CMC should be adjourned to permit a mediation exercise to take place. This suggestion led to a yet further approach from JB to GA-C in the course of which GA-C offered to accept £30,000 to consist of £23,000 in cash and the delivery up of his tools worth £7,000. The offer was accepted by JB soon after Wilmot's letter dated 12 February 2009 had been sent. GA-C agreed to this compromise, which was subject to contract, was on the basis that the defendants would pay GA-C the outstanding £23,000 promptly but no payment was then made. In consequence, on 30 March 2009, Wilmot informed Marriott Harrison that the offer was being formally repeated in the letter which was stated to be a sealed offer without prejudice save as to costs and was open for acceptance until 4.00 pm on 14 April 2009. JB and CNR contended in their witness statements that they had never accepted an offer in these terms in early February 2009 but I am satisfied that they did on the basis of the evidence adduced at the costs hearing and that this denial is both untrue and further evidence of their unreasonable conduct. Corroboration that this informal agreement had been reached was provided by Marriott Harrison's email dated 24 November 2009 which clearly referred to this agreement as being one which had enabled the parties to come very close to a binding settlement and had not achieved this merely because of JB and CNR's reluctance to return GA-C's tools to him^[3].
106. Wilmot also informed Marriott Harrison that GA-C remained willing to mediate but he was not prepared to mediate until after the exchange of witness statements since he was not at that time satisfied as to JB and CNR's genuine willingness and desire to achieve a reasonable settlement given his experience of their previous history of negotiations in this dispute. That position would appear to be a reasonable one given what can be seen to have been a history of prevarication and unreasonable negotiating positions hitherto adopted by JB and CNR.
107. JB and CNR responded to GA-C's sealed offer with one of their own which was communicated by Marriott Harrison on 14 April 2009. This marginally improved on JB's oft repeated offer and purported settlement figure by offering £15,000 in full and final settlement. This offer was not acceptable to GA-C.
108. Despite Wilmot's indication to Marriott Harrison that no negotiations should take place pending the proposed mediation that would follow the exchange of witness statements, JB again approached GA-C by by-passing the solicitors in early November 2009, no doubt due to his concern at realising how precarious the defendants' position had become due to the absence of supporting evidence for the suggested settlement agreement and the weakness of this element of their defence, the weakness of their substantive defence to the various claims as identified to them by Marriott Harrison, the huge risk as to costs that they now were facing and the advised need to settle that Marriott Harrison had communicated to them. This led to Wilmot reprimanding him for this informal approach in a letter to Marriott Harrison dated 10 November 2009, a letter which asked Marriott Harrison to inform JB to ensure that the defendants did not make any more informal direct approaches to GA-C and that all approaches should be routed through Wilmot. This did not deter JB since, as the minutes of the board meeting held on 25 January 2010 show, CNR made a yet further approach to GA-C in December following a discussion at the November board meeting which agreed to such an approach being made. On this occasion, CNR offered to settle all disputes for £20,000. This offer was rejected as being a further unreasonable offer.
109. Following that offer, and with the trial approaching, Wilmot sent to Marriott Harrison the following further sealed offer dated 18 December 2009:

"We refer to the discussion between our client and Mr Randall of your clients. We understand that Mr Brennan has now departed.

Our client made it clear to Mr Randall that he was prepared to stop the proceedings provided a suitable offer was forthcoming which effectively would settle the claim and costs although there would be nothing added for interest. Your client is going to lose this case and, as we understand it, does not have the funds in any event to continue to defend it.

Our client's proposal is therefore that he will accept £65,000 in full and final settlement of the claim together with a release by the company of his obligations under any restrictive covenant restricting his activities. In return our client will use his best endeavours to give every assistance to your clients in their future work and they will have the benefit therefore of his considerable goodwill the lack of which we understand has had a very deleterious effect on your client's business."

This letter and the offer it contained was not even responded to and that silence was taken, with good reason, to amount to a contemptuous rejection of the offer by the defendants.

110. Finally, in a letter dated 9 April 2010, CNR, acting as a litigant in person, wrote a without prejudice letter to Wilmot on his and JB's behalf. The letter first contained a lengthy, brazen and tendentious denial of liability for the engine claim and for GA-C's costs against HML. This denial included a statement that the witness statements and documentary evidence showed that GA-C's claim against them was bound to fail. The letter then continued with this without prejudice offer:

"In order to assist your clients in bringing this matter to an end at this stage, and before they incur even greater costs than they have already done so, particularly the costs of a trial, we are prepared to offer to settle this matter at this stage, with no admission of liability, on the basis that each party pays his or its own costs. You will appreciate that were your clients to withdraw their claims against us even at this stage, we ourselves would have a claim against them for the costs of defending the engine claim against us as individual defendants. In the light of our contentions as to your clients' lack of evidence as set out above, we consider this offer to be more than reasonable in the circumstances.

Should your clients refuse our offer, then we will proceed to defend the claims to trial and will claim the entirety of our costs incurred in these proceedings against us, including the trial costs."

Not surprisingly, GA-C rejected this tendentious and unreasonable offer by return in Wilmot's letter dated 12 April 2010 which stated that "our client declines your offer".

111. This long history of negotiations shows that both JB and CNR, knowing how ill GA-C was, made repeated attempts to him to pressurise him into accepting a wholly disproportionate and unreasonable settlement in personal and unwarranted direct approaches to him. These settlement approaches were made by both men despite their knowing throughout that they had never achieved a New Years' Day settlement, had no defences to GA-C's substantive claims and had no meritorious cross-claims to set off against the claims. In the course of these attempts to settle, they rejected reasonable settlement offers made by GA-C on at least four occasions, in January and July 2008 and February and December 2009. Overall, therefore, their conduct and approach to settlement was wholly unreasonable throughout.

(9) HRL's voluntary liquidation

112. HML's management accounts, at the end of October 2009, showed that the company's net profit in the ten months to date was £35,603.06. In the early months of November, JB and CNR learnt that at least another £50,000 was needed to enable them to defend GA-C's action to trial, that their prospects of success were limited and that all three defendants were at risk at having to pay GA-C's costs that might total up to £100,000. Furthermore, settlement now seemed unlikely at a level that was acceptable to them. It was in those circumstances that the board met on 20 November 2009 and apparently decided that HML might not have sufficient funds to meet its obligations to all creditors and that liquidation should be considered.
113. HML consulted a firm of accountants, Carter Backer Winter LLP, who advised that AMCO, insolvency specialists, should be consulted for advice and to prepare a valuation of HML as a going concern and for the purposes of a fire sale. The November management accounts were prepared on 6 December and showed that the net profit for the first eleven months was £30,879.33. At the December board meeting held in mid-December, at which it is to be presumed the November management accounts were available, CNR was instructed to attempt to settle the case for no more than £20,000.
114. During December, HML invoiced all its work in progress so that, when the management accounts for December and for the year ending 31 December 2009 were prepared all work in progress had been invoiced and the work in progress was shown as nil. The management accounts prepared on 12 January 2009 showed that, when the work in progress had been reduced to nil, the net loss for the year was £29,630.00.
115. AMCO's valuation report was dated 5 January 2010 and this showed that earnings for 2009 were predicted to be £33,687, that the extrapolated results for 2009 appeared to be in range and that the motor operation would just about break even and the retained profit was generated by lettings. The report produced a forced sale value of £11,440 and a going concern value of £25,745. The report indicated that there was a risk in the future of losses being incurred by the repair facility as a result of a loss of goodwill as a result of the takeover and the economic down turn. What is clear is that, as of 5 January 2010, based on the most recent year-end management accounts and the AMCO valuation, HML was not insolvent and was not trading whilst insolvent.
116. A second set of year-end management accounts was then prepared by HML's accountants, Pink Accounting. This showed an overall loss of £291,000. The difference between the two sets of accounts for 2009, being the accounts prepared on 12 January 2010 and those prepared some days later is largely explained by three items:

(1) Legal fees had increased by £50,000 from £21,400 to £71,400.

(2) Bad debts and depreciation had increased from £52,000 to £105,000.

(3) The expenses for marketing had increased from £500 to £53,000.

(4) Sales had reduced by £30,000, largely the result of a significant reduction in parts sales for sports cars.

(5) Serviced office direct costs had increased by £16,000.

117. The board then met on 25 January 2010. The board considered that the trading loss for December 2009 of £10,000 was likely to be repeated in January 2010 and that there would be insufficient cash to pay PAYE and VAT as planned or the next quarter's rent. Furthermore, Thamesview Autos Ltd, a company that HHL had acquired in June 2009 and which traded in lower value cars, needed £30,000 from HML to pay for new MOT equipment and, moreover, was still trading at a loss. What tipped the balance was the outstanding GA-C legal claim which had added £50,000 to HML's losses as a result of unpaid legal costs with a potential liability of £45,000 and costs.
118. In the light of that position, JB advised that he had taken professional advice from AMCO to the effect that HML had little option but to start the winding up process so that the maximum amount possible could be raised to pay creditors. This advice was not otherwise disclosed to the board and was not disclosed by JB in this costs application. It was minuted as having been adopted by the board and a winding up resolution was passed.
119. It is clear that, at the meeting, the alternative to winding up was not considered. In particular, no consideration was given to avoiding winding up by achieving a significant reduction in HML's liability for both principal and costs in the GA-C litigation by settling for £65,000 as suggested by Wilmot and negotiating instalment payment terms with GA-C and Marriott and Harrison.
120. The board, moreover, did not consider why the second set of December management accounts showed such a dramatic downturn in HML's cash flow compared with the first set prepared only a few days earlier. Furthermore, the board did not consider possible ways of improving cash flow as an alternative to liquidation. Obvious ways of achieving such an improvement that could have been considered were for HHL to loan HML some of its liquid assets which were shown as standing at about £130,000 in HHL's accounts, for HML to reduce its expenditure by reducing its subsidy being provided to both Thamesview Autos Ltd and to CNR's sports car racing activities and for HML to improve its sales capability given that this had been run down through neglect and poor management since the purchase of HML from GA-C.
121. Following the decision to place HML in voluntary liquidation, HHL and Thamesview Autos Ltd bought up HML's assets and goodwill for the sum recommended by AMCO as its going-concern valuation and continued to trade in vintage Rolls-Royce and other prestige marques in the same way as HML had been trading and as if there had been no liquidation of HML. This was possible because HHL was able to acquire both HML's assets and goodwill and was entitled to trade using HML's name since it had already been trading for more than one year using the Hofmann name.
122. In view of the history of HML's liquidation that I have now set out, it would seem that JB was correct in informing Marriott and Harrison on 23 November 209 to the effect that the board of HML considered that HML should be wound up so that it could avoid its outstanding liabilities arising from the GA-C litigation. Moreover, JB and CNR have not displaced the obvious inference arising from the disclosed materials that I have summarised that JB and CNR's motive for winding HML up was their wish that HML should shed its outstanding liabilities arising from the GA-C litigation. This inference is reinforced when the overall result of this liquidation is considered. This was that HML was able to sell its assets and goodwill to HHL for a relatively low figure and JB and CNR were able to continue to trade as before having shed HML's liabilities arising from GA-C's unsatisfied claims.

(10) JB and CNR's financial involvement in the litigation

123. It would appear that both JB and CNR gained a direct financial advantage from their promotion of HML's unjustified defence of GA-C's claims. Firstly, they arranged for their legal costs to be underwritten by HML in apparent breach of their duties as directors of HML. Secondly, this action enabled HML to avoid paying GA-C's claims totalling at least £45,000 for which HML had no defence. Thirdly, HML was able to divert this sum to other uses. These advantages accrued to both JB and CNR personally since they were the sole shareholders in HHL which, in turn, owned the entirety of HML's issued share capital.
124. JB and CNR maintained that they had not obtained any financial advantage from their promotion of HML's defence of GA-C's claims because each had foregone significant salary entitlement from HML. However, they did not adduce any evidence to show that HML was carrying this alleged indebtedness in its accounts or that their contracts of employment entitled them to the sums allegedly outstanding. Moreover, it was not shown what link there was between HML avoiding paying GA-C's and avoiding paying either of them the unpaid salary that they referred to. I consider that JB and CNR failed to prove that HML owed them outstanding salary and that, in any event, any unpaid salary is irrelevant to a consideration of their liability to pay GA-C's costs incurred in claiming from HML.

GA-C's Costs Claims Against JB and CNR

(1) General

125. Introduction. There are three claims for costs:

(1) GA-C's claims his costs of the entire action from JB and from CNR or, failing that, his costs of pursuing the engine claim from each of them separately;

(2) GA-C claims costs on an indemnity basis; and

(3) GA-C seeks a summary assessment of such costs as he is awarded.

126. Basis of claim. GA-C's claim for costs against JB and CNR is made on two alternative bases:

(1) As parties in relation to their claim for the costs of pursuing the engine claim and as non-parties in relation to the claims made against HML pursuant to section 51(3) of the Supreme Court Act and CPR 48.2; and

(2) As parties to the action pursuant to CPR 44.3.

127. Since JB and CNR were joined from the outset as parties, were jointly represented with HML, controlled the defences being pursued by all three parties and presented defences which relied principally on the same defence as that put forward by HML, it is clear that GA-C's claim for them to pay HML's costs is one brought against parties to the action pursuant to CPR 44.3^[4].
128. However, Mr Wilcox initially submitted that GA-C was claiming his costs from JB and CNR of pursuing HML as non-parties and under section 51(3) of the Supreme Court Act. He did, however, make it clear during the course of his oral submissions that he was also relying on CPR 44.3. Moreover, Mr Evans contended that CPR 44.3 was not applicable since the relevant claims were being made against non-parties to those claims. He also mounted a lengthy and sustained submission, with extensive citation of eight authorities, that non-party costs orders should not be made against JB and CNR on the facts of this case. I will, therefore, first determine the costs application under CPR 44.3 and then consider whether the same or a different costs order would be made if the applicable basis of claiming costs from JB and CNR was as non-parties.

(2) CPR 44.3

129. Provisions of the CPR 44.3. The applicable CPR are as follows:

1. CPR - Court's discretion and circumstances to be taken into account when exercising its discretion as to costs

CPR 44.3

(1) The court has discretion as to –

(a) whether costs are payable by one party to another;

(b) the amount of those costs; and

(c) when they are to be paid.

(2) If the court decides to make an order about costs –

(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but

(b) the court may make a different order.

(3) The general rule does not apply to the following proceedings –

(a) proceedings in the Court of Appeal on an application or appeal made in connection with proceedings in the Family Division; or

(b) proceedings in the Court of Appeal from a judgment, direction, decision or order given or made in probate proceedings or family proceedings.

(4) In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including –

(a) the conduct of all the parties;

(b) whether a party has succeeded on part of his case, even if he has not been wholly successful; and

(c) any payment into court or admissible offer to settle made by a party which is drawn to the court's attention, and which is not an offer to which costs consequences under Part 36 apply.

(5) The conduct of the parties includes –

(a) conduct before, as well as during, the proceedings and in particular the extent to which the parties followed the Practice Direction (Pre-Action Conduct) or any relevant pre-action protocol;

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c) the manner in which a party has pursued or defended his case or a particular allegation or issue; and

(d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.

(6) The orders which the court may make under this rule include an order that a party must pay –

(a) a proportion of another party's costs;

(b) a stated amount in respect of another party's costs;

(c) costs from or until a certain date only;

(d) costs incurred before proceedings have begun;

(e) costs relating to particular steps taken in the proceedings;

(f) costs relating only to a distinct part of the proceedings; and

(g) interest on costs from or until a certain date, including a date before judgment.

(7) Where the court would otherwise consider making an order under paragraph (6)(f), it must instead, if practicable, make an order under paragraph (6)(a) or (c).

(8) Where the court has ordered a party to pay costs, it may order an amount to be paid on account before the costs are assessed.

(9) Where a party entitled to costs is also liable to pay costs the court may assess the costs which that party is liable to pay and either –

(a) set off the amount assessed against the amount the party is entitled to be paid and direct him to pay any balance; or

(b) delay the issue of a certificate for the costs to which the party is entitled until he has paid the amount which he is liable to pay.

2. Costs Practice Direction – Basis of Exercising Discretion under CPR 44.3

SECTION 8 COURT'S DISCRETION AND CIRCUMSTANCES TO BE TAKEN INTO ACCOUNT WHEN EXERCISING ITS DISCRETION AS TO COSTS: RULE 44.3

8.4

In deciding what order to make about costs the court is required to have regard to all the circumstances including any payment into court or admissible offer to settle made by a party which is drawn to the court's attention, and which is not an offer to which costs consequences under Part 36 apply.

3. CPR - Procedure for assessing costs

CPR 44.7

Where the court orders a party to pay costs to another party (other than fixed costs) it may either –

(a) make a summary assessment of the costs; or

(b) order detailed assessment of the costs by a costs officer,

unless any rule, practice direction or other enactment provides otherwise.

(The Costs Practice Direction sets out the factors which will affect the court's decision under this rule)

4. Costs Practice Direction - Summary Assessment

SECTION 13 SUMMARY ASSESSMENT: GENERAL PROVISIONS

13.1

Whenever a court makes an order about costs which does not provide for fixed costs to be paid the court should consider whether to make a summary assessment of costs.

13.2

The general rule is that the court should make a summary assessment of the costs:

(1) at the conclusion of the trial of a case which has been dealt with on the fast track, in which case the order will deal with the costs of the whole claim, and

(2) at the conclusion of any other hearing, which has lasted not more than one day, in which case the order will deal with the costs of the application or matter to which the hearing related. If this hearing disposes of the claim, the order may deal with the costs of the whole claim;

(3) in hearings in the Court of Appeal to which Paragraph 14 of Practice Direction 52 applies;

unless there is good reason not to do so e.g. where the paying party shows substantial grounds for disputing the sum claimed for costs that cannot be dealt with summarily or there is insufficient time to carry out a summary assessment.

(3) CPR 44.3

130. Conduct of JB and CNR. It is only necessary to summarise the conduct of JB and CNR as having been reprehensible. Since it is clear that JB and CNR agreed with and endorsed the relevant reprehensible conduct of the other, each is subject to the same adverse findings relating to the other's conduct. In particular, taking the matters referred to in CPR44.3 in turn:

(1) JB and CNR's conduct before, as well as during, the proceedings and in particular the extent to which the parties followed the Practice Direction (Pre-Action Conduct) or any relevant pre-action protocol.

In particular, the following general matters are relevant in showing their unreasonable conduct:

(a) JB arranged that GA-C would instruct a solicitor to act for him in the SPA and SA transactions that would take his instructions from JB and then instructed that solicitor to change the proposed terms in a way that was unfavourable to GA-C without discussing or explaining the changes with GA-C (paragraphs 5 – 12).

(b) JB and CNR never intended to retain GA-C as a consultant and intended from the outset to terminate the SA at no additional cost to themselves (paragraphs 13 – 17).

(c) JB and CNR terminated the SA without cause or explanation and subsequently suggested reasons adverse to GA-C for taking this step which were untrue and which they never believed were true (paragraphs 13 – 17).

(d) JB and CNR dishonestly appropriated GA-C's engine knowing that he owned it and wished to sell it to his long-standing former customer and ensured that the sale price was paid to HML and then concocted dishonest explanations as to why the engine had belonged to HML and as to why they were not liable to GA-C in conversion (paragraphs 18 – 22).

(e) JB and CNR contested the tool hire claim knowing that HML had no defence and continued to contest it after JB agreed with JD the precise quantification of the claim (paragraphs 23 – 25).

(f) JB and CNR put forward no grounds for HML to defend GA-C's claim for unpaid SA payments and displayed a contemptuous intention of ensuring that HML would never pay this debt (paragraphs 26 – 29).

(g) JB and CNR showed a contemptuous and dishonest intention of ensuring that GA-C did not recover any outstanding aged debt which he was entitled to and which it was HML's obligation to chase and to pay to GA-C. They were unable to prevent payment of monies in the escrow account since these were outside their control but debts that remained outstanding at the end of the second month were collected by them and dishonestly retained by them (paragraphs 30 – 36).

(h) JB concocted alleged breach of warranty cross-claims which never had any substance or legal basis and which were not pursued in the proceedings as a means of attempting to persuade GA-C to agree to an unfavourable compromise (paragraphs 37 – 39).

(i) JB and CNR attempted to persuade GA-C to agree to a wholly unfavourable settlement agreement on a number of occasions in a manner that was reprehensible. Throughout the history of the litigation, neither JB nor CNR had any reasonable belief that they had reached a legally binding settlement at any point or that the settlement figures that they put forward represented a reasonable or fair basis for reaching a concluded settlement agreement (paragraphs 40 – 67).

(j) JB and CNR conducted the proceedings in a wholly unreasonable manner (paragraphs 68 – 95).

(k) JB and CNR's personal defence was paid for by HML and all three defendants used the same legal team whilst solicitors were instructed (paragraphs 95 – 96).

(l) JB and CNR did not pursue the defendants' defences in reliance of legal advice that the defence being advanced was reasonable. The only legal advice that they received (which they disclosed and they disclosed no other legal advice) was to the effect that the case was largely about costs, that their case had a 50/50 chance of success at best and it should be settled on reasonable terms reflecting their poor prospects of success (paragraphs 97 - 98).

(m) JB and CNR were advised by their solicitor that each was at significant risk of having to pay all their own costs and all those of GA-C (paragraph 97).

(n) JB and CNR conducted settlement negotiations unreasonably and declined reasonable offers of settlement (paragraphs 99 – 111).

(o) JB and CNR never obtained advice from an insolvency practitioner to the effect that HNR could not pay its debts. The only advice was valuation advice as to the value of HRL as a going concern (paragraph 115).

(p) JB and CNR appeared to place HML into voluntary liquidation when it was not insolvent without considering ways of paying HML's liability to GA-C and were able to take advantage of rules allowing HML's business to be transferred to HHL and carried on in HML's name (paragraphs 112 – 122).

(q) JB and CNR's motive for winding HML up was their wish that HML should shed its outstanding liabilities arising from the GA-C litigation so that GA-C would recover nothing (paragraph 122).

(r) JB and CNR obtained a direct financial advantage in promoting HML's defence (paragraphs 123 – 124).

(2) Whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue.

It was wholly unreasonable for JB and CNR to raise, pursue and contest any defence of GA-C's claims on their behalf and on HML's behalf.

(3) The manner in which a party has pursued or defended his case or a particular allegation or issue.

JB and CNR were solely responsible for maintaining their defences and that of HML and these were pursued in a wholly unreasonable manner.

(4) Whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.

GA-C has succeeded in whole, has not exaggerated his claim and, indeed, did not claim all that he was entitled to.

131. Further matters relating to JB and CNR's conduct.

(1) Company directors. JB and CNR, as company directors, exceeded their authority in maintaining at HML's expense unmeritorious defences on their and HML's behalf. These defences were undertaken for an ulterior motive of harming GA-C rather than for any commercial motive in the best interests of HML.

(2) Control of the litigation. JB and CNR had exclusive control of HML's part in the litigation.

(3) Financing the litigation and financial benefit from the litigation. HML financed JB and CNR's defences and their ill-motivated desire to harm GA-C by arranging for HML's unmeritorious defence of the claims brought against it.

132. Settlement offers and negotiations by GA-C and by JB and CNR. The applicable rule reads:

Any payment into court or admissible offer to settle made by a party which is drawn to the court's attention, and which is not an offer to which costs consequences under Part 36 apply.

JB and CNR's conduct throughout in relation to settlement offers made to them and in those made by them and in the negotiations generally was unreasonable throughout.

133. Appropriate Costs Order. The appropriate orders are to be chosen from the following:

"(6) The orders which the court may make under this rule include an order that a party must pay –

(a) a proportion of another party's costs;

(b) a stated amount in respect of another party's costs;

(c) costs from or until a certain date only;

(d) costs incurred before proceedings have begun;

(e) costs relating to particular steps taken in the proceedings;

(f) costs relating only to a distinct part of the proceedings; …

(7) Where the court would otherwise consider making an order under paragraph (6)(f), it must instead, if practicable, make an order under paragraph (6)(a) or (c).

The appropriate order is that JB and CNR should be jointly and severally liable for the entirety of GA-C's costs of the entire action.

134. Indemnity or standard basis. JB and CNR should be liable for GA-C's costs on an indemnity basis given the unreasonable manner in which the litigation was pursued and defended by them.
135. Summary or detailed assessment. The costs should be assessed summarily based on the schedule of costs provided by GA-C's solicitors. The court will undertake that assessment at the handing down hearing if the parties cannot agree upon a figure in advance.
136. Interest. Rule 44.3 permits the court to award interest as follows:

"(6)(g) interest on costs from or until a certain date, including a date before judgment."

The exceptional nature of this case is such that interest should be awarded on those costs that GA-C has already paid to his solicitors from the date that the solicitors invoiced him for those costs. This order is provided for in CPR 44.3.14, 2010 White Book).

(3) Non-party costs order

137. Applicable principles for making order. It is clear from the authorities cited during the hearing and in the subsequent written submissions that the exceptional nature of this case is such that it falls within the principles permitting a third party costs order to be made against JB and CNR had they been properly considered to be only third parties for the purposes of HML's costs.
138. Appropriate order. The same costs order as is ordered under CPR 44.3 should be made as a third party costs order.

Other Orders

(1) Order, interest and costs in engine claim

139. Damages order. Judgment should be entered for £10,000 against JB and CNR jointly and severally in the engine claim.
140. Interest order. Interest should be awarded on £10,000 from the date of the payment for the engine by the customer. Given the unmeritorious way that that sum was been withheld from GA-C interest should be awarded at 5% from that date notwithstanding the recent low base rates that have prevailed.
141. Costs order. No separate costs order is required since GA-C's costs from JB and CNR will be covered by the general costs order.

(2) Order, interest and costs against HML

142. Judgment, interest and costs should be awarded against HML.

(3) ACC's costs

143. Costs order. No separate order for ACC's costs since none were incurred that are not covered by GA-C's costs.

(4) Summary assessment

144. No additional summary assessment is needed in addition to the one ordered in paragraph 132 above.

Summary and Conclusion

145. GA-C should recover all his costs from all three defendants with appropriate consequential orders.
146. At the handing down hearing, the parties should provide a draft order to give effect to this judgment. Any necessary summary assessment will take place at the same time.

HH Judge Anthony Thornton QC

Note 1    See top paragraph on page 7 of the Amco valuation report dated January 2010.    [Back]

Note 2    See paragraph 35 above.    [Back]

Note 3    See paragraph 91 above.    [Back]

Note 4    See, further, paragraph 65 above.    [Back]