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

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
IN THE MATTER OF THE EVIDENCE
(PROCEEDINGS IN OTHER JURISDICTIONS) ACT 1975
and
IN THE MATTER OF A CIVIL PROCEEDING NOW PENDING BEFORE
THE SUPREME COURT OF THE STATE OF NEW YORK (CASE 603742/09E)

		23 November 2011

Mr Justice Eady :

1. This is an unusual case, in which permission has been given to appeal a Master's decision on costs. It is clear that in the ordinary way an appellate tribunal will not interfere with a judge's decision on costs unless, for example, it is possible to detect an error of law or it can be shown that the decision was irrational: see e.g. Phonographic Performance Ltd v AEI Rediffusion Music Ltd [1999] 1 WLR 1507, 1523; Roache v News Group Newspapers Ltd [1998] EMLR 161, 172.
2. The order in question was made by the Senior Master on 9 March 2011. He refused an application by Mr Maitland Hudson (the Appellant) for his costs of an earlier application made by him on 4 October 2010 ("the October application"). Indeed, he granted the Respondents their costs of the October application as from 15 October 2010 and, what is more, on the indemnity basis.
3. I turn to the background. There are two actions pending in the Supreme Court of the State of New York concerning the ownership of a Ukrainian television station. The plaintiff in those proceedings is New Media Holding Company LLC (the First Respondent in the appeal now before me), which seeks relief against Konstantin Kagalovsky and others. The Appellant is one of the lawyers who have acted regularly for Mr Kagalovsky (and also Iota LP, another of the New York defendants). On 8 September 2010 New Media Holding Company ("NMHC") applied for a letter of request from the court in New York for issue to the Queen's Bench Division of the High Court to secure the Appellant's attendance to give evidence in England before an examiner.
4. It is clear that the Appellant having offered to give a deposition voluntarily in New York was, therefore, of the view that the application for a letter of request was unnecessary. Nonetheless, it was issued by the New York court and the Senior Master gave effect to it by an order of 29 September 2010. That was pursuant to an application made without notice to the Appellant.
5. On 4 October last year the Appellant made the application to which I have already referred, and the costs of which now form the subject-matter of the present appeal, with a view to having the Senior Master's order of 29 September set aside. It was contended on his behalf, inter alia, that it was an abuse of process to seek to compel him to give evidence in England when he had already volunteered to be deposed in New York. The Appellant also relied upon allegations of non-disclosure prior to the obtaining of the 29 September order. Be that as it may, the order was issued on 1 October 2010 and served on the Appellant in New York the same day.
6. The reason for NHMC's original application was that he was a material witness to events which took place in 2009 and are central to the issues in the New York proceedings. It seems that its legal team was not content with an offer to be deposed in New York, not least because of an apprehension that the Appellant might refuse to answer important questions on privilege grounds and thus render the exercise largely unproductive. The lawyers were under the impression at that stage that if the Appellant were to give evidence in England any issue of privilege could be resolved forthwith by the English court. They may have been under a misapprehension, but that was one of the considerations which led them to continue with the letter of request procedure.
7. The Appellant's October application was fixed to be heard by the Master on 15 October 2010 but an oral agreement was reached the day before, and confirmed in email exchanges, on the following terms:

i) The Appellant's application should be dismissed.

ii) There should be no order as to the costs of his application.

iii) In consequence, the original order of the Senior Master, giving effect to the letter of request from New York, would stand, save that

a) the date for the examination of the Appellant would be amended and an appointment fixed for 1 November 2010 at 9.30 a.m. and

b) the date for production of documents would be amended to 27 October 2010 at 2 p.m.

8. There is no challenge to the decision of the Senior Master on 9 March of this year to the effect that the settlement agreement of 14 October 2010 had been a binding legal agreement, which had the effect of disposing of the October application, leaving the 29 September order in place (subject to the amendment of the dates).
9. The Respondents argue that the settlement agreement has the effect of rendering the Appellant's first ground of appeal unarguable. That is to the effect that the learned Master erred in failing to set aside the agreement to enter into a consent order on 14 October 2010 on the ground that there was a material change in circumstances. It is difficult to see how he could have done so. There are very limited circumstances in which the court has the power to set aside an agreement and none of them was identified, let alone argued before the Master prior to the making of his order of 9 March 2011. He was simply proceeding on the basis of a valid compromise agreement, which meant that the Appellant's persistence in seeking his costs led to a wasted hearing on 9 March and, of course, wasted costs in preparing to deal with it. It is difficult to identify his error.
10. The second ground of appeal is that he erred, in consequence, by not awarding the Appellant his costs of the October application and by granting the Respondents their costs. The third ground is an alternative, to the effect that even if the Respondents were to be awarded their costs, it should not have been on the indemnity basis.
11. Mr Nathan QC, for the Respondents, has invited me to consider the costs incurred in two distinct compartments. First, there were those incurred up to the conclusion of the compromise agreement on 14 October 2010. Thereafter, virtually nothing happened until it became necessary to address the pursuit of the Appellant's application for costs which came before the Senior Master on 9 March.
12. By 24 February 2011, when the Appellant was duly deposed in New York, it had become clear in the Respondents' submission that both the Master's order of 29 September (giving effect to the letter of request) and the Appellant's October application to set it aside had become "moot". All that remained was to set aside the Master's order of 29 September, which would not require a hearing at all and could be achieved by submitting a joint letter to the court.
13. When the matter came before the Senior Master, he began by addressing the question of whether there had been a binding compromise agreement on 14 October including disposal on terms that there was to be "no order as to costs". If there was, there was no apparent reason to go behind it and award the Appellant his costs – let alone on the indemnity basis. It would follow, also, that the Respondents' costs after 14 October had been incurred to no useful purpose.
14. The Senior Master gave judgment on the compromise agreement in terms which made clear that he thought the Appellant's argument on that issue fanciful. What emerges from the transcript is that, when matters took this turn, Mr Tilley (who was representing the Appellant on that occasion) adopted an ingenious "backs to the wall" argument and invited the Master (1) to pretend that the compromise agreement of 14 October had been incorporated in a consent order and (2) to set aside that consent order by reason of supposedly changed circumstances. The Master declined to do so.
15. Mr Tilley's argument, for all its ingenuity, was flawed for a number of reasons. In particular, there was no consent order. The reason for that, as it happened, was that the Appellant had, back in October, declined to permit one to be signed. There is a limited power in the CPR to set a side a consent order in certain circumstances. Exactly how limited the power is has been a matter of dispute in argument before me, but it hardly matters since no such order came into existence.
16. Reference was made, for example, to a note in the White Book at 40.6.3 which, it was submitted, gives a misleading impression of the extent to which a consent order may be set aside because of "a material or unforeseen change in circumstances". This appears to be based on a case in the Family Division about financial provision: S v S [2003] Fam 1.
17. I was invited by Mr Nathan to draw to the attention of the editors the proposition that this note is too widely expressed and that in this context the case of S v S will not bear the weight put upon it. It is said to be inconsistent not only with the decision of Ramsey J in Community Care North East v Durham County Council [2010] EWHC 959 (QB) at [34] but also, perhaps even more significantly, with that of the House of Lords in Sirius International Insurance v FAI General Insurance Ltd [2004] 1 WLR 321.
18. The nub of Mr Nathan's submission is that special factors apply to consent orders made in the Family Division in the context of financial provision, since they depend not so much upon contractual arrangements between the parties but, ultimately, upon the approval of the court. In such circumstances, it may from time to time be appropriate to vary such orders in the light of unforeseen changes. But that is a particular situation which would not justify the acknowledgment of a wider power in the court to vary consent orders in other types of litigation. Mr Nathan argues that the court only has the power, more generally, to vary consent orders in the exercise of its case management powers under CPR 3.1. Although I have attempted briefly to summarise his careful arguments, which are indeed persuasive, I have already indicated that it is not necessary for the purposes of the present appeal for my judgment to range so widely, since no consent order was actually made.
19. Although it was faintly argued that the agreement itself had been conditional upon the signing of a consent order, this again owes more to ingenuity than evidential support.
20. Following the first ruling of 9 March, the Senior Master was confronted with a decision as to where the costs should lie. There was clearly a wide area of discretion involved. There were a number of factors he was entitled to take into account, including the ruling he had just given on the binding nature of the 14 October agreement. There were also aspects of the Appellant's conduct thereafter which he could also quite properly consider. There was his insistence on involving everyone in a court hearing on 9 March; his application for the costs of the October application; the fact that he wanted them on the indemnity basis; and his application for costs against the Second Respondent firm (NMHC's lawyers). As to this last matter Mr Ullstein QC, for the Appellant, submits that it had been lying fallow for a long time and that, although it was only finally abandoned on the day before the March hearing, this was merely giving it a formal quietus; everyone had known it was not being persisted in for some months.
21. The Master was surely entitled to give weight to the (now uncontroversial) finding that the costs issue had been disposed of by agreement on 14 October 2010 and, irrespective of that, to the Appellant's persistence in seeking the costs of his October application in any event. The New York court had decided that a letter of request should be issued and the English court had to address it appropriately. It was hardly for the Master to determine that there had been an abuse of process in issuing the letter of request in the teeth of the Appellant's having offered voluntarily to be deposed in New York – however frustrating the Appellant may have found that. There is therefore no need to enter into the dispute about the wasted costs order sought against the Second Respondents. The Senior Master had enough material to justify his decision on costs even without that. He was entitled to conclude that the Appellant's conduct had been "out of the norm", which everyone agrees is the right test to apply.
22. The principal argument that the Appellant advanced in support of his appeal was that he should properly be regarded as the "real winner" because the letter of request regime was ultimately abandoned and his stance on the October application had been duly vindicated. He should be regarded as in effect the successful party for costs purposes. Yet there is no reason to suppose that the English court would necessarily have set aside the 29 September order in accordance with his October application.
23. The fact that, ultimately, the New York court was prepared to take the Appellant's deposition in New York does not entail ipso facto that he was right to apply for the English order of 29 September to be set aside (made, as it was, in the light of the circumstances then confronting the court).
24. There are a number of difficulties about the Appellant's line of argument. First, it involves making certain assumptions about the New York proceedings. It is hard to understand how one could characterise the Appellant's stance, in issuing his October application, as having been vindicated, or as having been judged overall "successful", without investigating and coming to a conclusion on the soundness of the New York court's decision to issue a letter of request and/or as to the appropriate forum for his deposition to be taken. Such investigations would not be appropriate; nor is the English court equipped to carry them out.
25. Secondly, how could (or why should) the court go behind the binding compromise agreement of 14 October which inter alia disposed of the costs of the October application by agreement? That decision was reached notwithstanding the risks or uncertainties as to where the Appellant might ultimately be deposed. Even if an agreement could be set aside by reason only of changed circumstances, the eventual outcome (i.e. his being deposed in New York) cannot be classified as a "change of circumstances". There is no reason why there should have been any mutual understanding between the parties to the 14 October agreement that it was predicated upon a hearing to take place before an examiner in England.
26. Thirdly, the 14 October agreement was not embodied in a consent order.
27. Fourthly, even if it had been, there were no circumstances such as to justify the exercise of the court's residual power to set aside a consent order. This would appear to derive from CPR 3.1(6), which is included in a section of the CPR devoted to case management. A typical exercise of the court's power to vary a consent order would be to extend dates agreed for disclosure of documents (say) or exchange of witness statements. The variation sought here has nothing to do with case management. Although Mr Ullstein contends for a wider power, he was unable to cite any authority that would justify the drastic step of setting aside the hypothetical, or notional, consent order contemplated in this case. (I am putting aside, for the moment, the basic fact that there was no such order.)
28. Fifthly, in the absence of a consent order, there would be no legal basis on which the Senior Master, or any other court, would have the power to set aside a contract freely entered into between the parties. There is no question, for example, of fraud or misrepresentation; nor has there been any claim for relief on any such grounds.
29. In these circumstances, I would accept Mr Nathan's primary argument that the first ground of appeal cannot succeed. Since the second ground is linked to it (see paragraph 9 above), that is similarly doomed. The Senior Master was entitled to award the Respondents their costs. As for the decision to do so on the indemnity basis, I see no reason to overturn that either. As I have already indicated, the background is unusual and the Master was entitled to conclude that the Appellant's conduct fell outside the norm in civil litigation.
30. Mr Nathan focussed in more detail upon the following aspects of the Appellant's behaviour, submitting that any or all of which would justify such a conclusion:

i) persisting until 9 March in the argument that there had been no binding agreement on 14 October, despite the fact that his solicitor's witness statement of 19 October made it clear that there was;

ii) rejecting an offer on 2 March from the Second Respondents that the Senior Master's original order be set aside and the October application formally dismissed with no order as to costs;

iii) furthermore, insisting that unless his counter-offer was accepted within 24 hours he would pursue a claim for indemnity costs, as indeed he did on 9 March.

It is not surprising that the Senior Master decided that the court's time (and that of the Respondents) had been wasted by having to deal with the 9 March hearing. In order to award costs on the indemnity basis, it is unnecessary to arrive at the conclusion that a party's conduct merits the label "improper". The court's function on an appeal of this kind is to review the decision rather than to make an independent determination. I am quite unable to find anything in the Senior Master's judgment to suggest that he took into account anything irrelevant, or vice versa, or that he in any way misdirected himself as a matter of law.

31. In so far as it is necessary for me to distinguish between the costs incurred in their two "compartments" (i.e. up to 14 October 2010 and thereafter), I would observe that the Senior Master was entitled to take the view that the original October application was itself without merit. It is not for the English court, either then or now, to go behind the letter of request and to characterise its grant as an abuse of process. Correspondingly, it had been appropriate for the Senior Master to give effect to it. There is accordingly no reason to treat the costs differently by reference to the two stages at which they were incurred.