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
		21 March 2014

SIR DAVID EADY:

1. The background to the case is undoubtedly an unhappy one involving a breakdown in relationships between family members. The application now before the court dated 5 February 2014 is for an order that Mr Michael Loizakos, who has appeared in front of me today in person, should be added to these proceedings for the purposes of costs only, pursuant to what is now CPR 46(2)(i) and (ii). Secondly, the court is invited to exercise its discretion, pursuant to section 51 of the Senior Courts Act 1981 and to direct that Mr Loizakos should pay the defendants' costs of defending the claim brought by the claimant company, Xhosa Office Rentals Ltd.
2. The application is supported by evidence in a witness statement from the defendants' solicitor. It is a central fact in the case and in the present application that Mr Loizakos was the ultimate beneficial owner of all the voting shares in the claimant company and was the main director of that company. That is borne out in his own affidavit dated 2 May 2012 at, in particular, paragraph 8.
3. All the evidence relied upon by the claimant company in these proceedings was derived from and provided by Mr Loizakos, and the proceedings have indeed, in large measure, been funded by him.
4. It is the defendant's case on this application that the proceedings were brought, in essence, for the personal benefit of Mr Loizakos, and that the claimant company is no more than effectively an extension of him. The claim was characterised as weak or barely arguable by judges on two earlier occasions. Mr David Donaldson QC, sitting as a High Court judge on 17 July 2012, in a judgment for which there is no neutral citation number, and by Underhill J, as he then was, on 21 November 2012: [2012] EWHC 3673 (QB). It was pursued nonetheless at the behest of Mr Loizakos, only coming to an end when he failed to comply with an order for security for costs. The case was then struck out by the Master on 16 January 2013. It is to be noted that when the matter came before Underhill J, counsel who was at that stage representing Mr Loizakos effectively conceded that he was so intimately connected with it (and he was himself taking instructions from Mr Loizakos on that occasion) that if a costs order were to be made against the company at the end of the litigation it was very likely that the court would be prepared to make an Aiden Shipping order against Mr Loizakos himself.
5. There is no need for me now to go into the background history or the circumstances leading to the present application. It is now, I am afraid, effectively water under the bridge. A number of points have been made by Mr Loizakos this morning in the course of his courteous and thoughtful submissions to me about the merits of the underlying litigation, but that stage is really passed and it is not for me to enter into the merits of the case at this stage. The issues were clearly summarised in both earlier judgments to which I have referred. Suffice it to say that the claim by the company was brought against Mr Loizakos' uncle and aunt and a company with which they are associated. It was brought upon an alleged contract which was very much the subject of dispute in the pleadings. As I say, I cannot go into the merits of that, but it was very much part of Mr Loizakos' submissions before me this morning that he would like me to bear in mind that, in relation to other unsigned contracts, the parties had proceeded on the understanding that they were effective and that the parties apparently trusted one another at that time. As I say, that is effectively now past history.
6. There were also employment proceedings brought by Mr Loizakos which have been mentioned in the course of the evidence before the court. They were also struck out on 8 May 2013 and, subsequently, there were further proceedings brought by the second and third defendants seeking injunctions against Mr Loizakos in relation to passing himself off as being connected with their business and seeking to transfer a variety of internet domain names which it was alleged he had wrongfully purchased and registered. Haddon-Cave J granted interim relief on 24 September 2013 and that was continued by His Honour Judge Seymour QC, sitting as judge of the High Court, on 3 October of last year. Mr Loizakos was again ordered to pay the costs of the defendants' applications which were summarily assessed in the sum of £35,000. I mention again at this point that Mr Loizakos has made submissions before me this morning about the internet domain names and whether or not he behaved wrongfully in relation to them. He strongly submits that he did not. However, again I have to emphasise that that is a matter which is not before me today.
7. Following the conclusion of these proceedings which are before me, the defendants' costs were assessed in the sum of £308,046.54. Both the claimant company and Mr Loizakos were notified of this assessment.
8. The jurisdiction which I am invited to exercise has received attention from a number of courts in the past. There have been very helpful submissions made about it by Mr Spearman QC this morning and in the course of his skeleton argument. Section 51(1) of the Senior Courts Act 1981 provides that the costs of and incidental to all proceedings in the High Court shall be in the discretion of the court. It is also provided that the court shall have full power to determine by whom and to what extent the costs are to be paid. Until the decision of the House of Lords in the case of Aiden Shipping Company Ltd v Interbulk Ltd [1986] AC 965, it had not been appreciated by the courts or litigants that the wording empowered the court to order a non-party to pay the costs of litigation. That was recognised at that stage and it was, in a sense, revolutionary and had a considerable impact on subsequent litigation. It is now provided in the CPR that, where the court is considering whether to exercise its power under section 51 of the Senior Courts Act 1981 to make a costs order in favour of or against a person who is not a party to proceedings, (a) that person must be added as a party to the proceedings for the purposes of costs only, and (b) he must be given a reasonable opportunity to attend a hearing at which the court will consider the matter further.
9. A number of cases have been drawn to my attention of which copies have been supplied by Mr Spearman. I mention that I have taken into account those authorities. They include Symphony Group Plc v Hodgson [1994] 1 QB 179; Locabail UK Ltd v Mayfield Properties Ltd [1999] EWHC 261 (Ch), a decision of Collins J, as he then was; In the Estate of Kevin Palmer (Deceased) [2008] EWCA Civ 46; and Fulton Motors Ltd v Toyota GB Ltd (Costs) [2000] CP Reports 24.
10. It is clear from those authorities that the court's power should be sparingly exercised. (Perhaps unhelpfully, the word "exceptionally" has been introduced into the jurisprudence. That always makes one, of course, pause for thought). There is considerable guidance to be found in those cases as to the circumstances in which the court may make the order, although it is important to remember always that each case, particularly in relation to costs and the conduct of litigation, turns upon its own facts.
11. In this case, the difficulty has been to understand why the defendants should be left out of pocket, to the considerable extent I have noted above, and why they should not be reimbursed by the person who is so obviously the moving spirit behind the litigation. The reasons advanced by Mr Spearman in this case so as to justify making what is, generally speaking, an exceptional order having regard to the general run of litigation are, in my judgment, cogent and compelling. They are as follows.
12. As I have said, Mr Loizakos was the claimant in the proceedings in all but name. He funded the claim after the company ran out of funds at an early stage. He effectively determined not only that the claim should, in the first instance, be brought, but also that it should be pursued – not least after the two judges to whom I referred made the remarks they did about the weakness of the merits. He has also been, of course, personally responsible for the manner in which the litigation was conducted. As I have already pointed out, the only evidence relied upon by the claimant company was that of Mr Loizakos. He alone stood to benefit if the claimant succeeded and so, therefore, it was his interests that undoubtedly underlay the litigation.
13. The claim against the first defendant was described as being weak at best for the reasons summarised by Mr David Donaldson QC in his July 2012 judgment. He held that the case did not meet the test of a good arguable case, although it was just about arguable. Underhill J referred to it as a claim which only just scraped over the threshold of arguability and endorsed completely what had been said earlier by Mr Donaldson. As for the claim against the second and third defendants, this was viewed as being weaker still. That claim was abandoned so far as concerned the interim freezing injunction the day before the hearing before Mr Donaldson. Underhill J said this in paragraph 9 of his judgment in November 2012:

"I would only add that I regard the case against Mr and Mrs Horstmann personally as particularly weak for the reasons pleaded at paragraph 3(6) of the defence and amplified… in the course of submissions. Indeed, this part of the claim… [he added] … might well be demurrable absent further particularisation."

14. As I have already recorded at the beginning of this judgment, the claim ultimately failed in its entirety. That did not occur because of any decision on the merits, of course, nor because of any decision by Mr Loizakos to change course, but instead purely by reason of his default in providing for security for costs, as ordered by Underhill J. By that stage, considerable trouble, stress, anxiety and expense had been occasioned to the defendants including, in particular, of course, the second and third defendants, the aunt and uncle. This was exacerbated by the manner in which the claim was conducted under the guidance and control, effectively, of Mr Loizakos.
15. As I noted a moment ago, the claim for the freezing injunction was abandoned very late in the day. The initial hearing of the application for security, which came before MacKay J in September 2012, had to be adjourned because of evidence served late by Mr Loizakos. Again, he served his evidence late for the hearing which actually eventuated before Underhill J. This led him to comment on that occasion that it did not suggest that Mr Loizakos was taking a very responsible attitude in those proceedings.
16. At least following the outcome of the application for security, Mr Loizakos must have appreciated that there would be an attempt to obtain the costs from him personally. He has told me this morning that he is without funds to any great extent and would be unable to meet the order. That is of course a separate point and it is necessary for me to remember, in this context, that the issue of security was very fully canvassed before Underhill J, and on that occasion he ordered that there should be a further charge against Mr Loizakos' property and a further payment by him in the sum of £30,000. That again is water under the bridge.
17. In the exercise of the court's discretion, therefore, Mr Spearman submits that I should take the conduct of that litigation and also, to some extent, the subsequent litigation into account. As I have said, the reasons which I have just summarised as advanced by Mr Spearman on behalf of the defendant seem to me to be compelling and indeed unanswerable. In those circumstances, I will grant the relief sought.
18. I think the fairest thing that I can do in the circumstances is to say that there should be a detailed assessment of the costs with a payment on account of £20,000 payable within 28 days.