Jersey Unreported Judgments

Companies - costs judgment.

[2012]JRC114

Royal Court

(Samedi)

8 June 2012

Before     :

J. A. Clyde-Smith, Esq., Commissioner, sitting alone.

 

Advocate S. J. Young for the Representor.

Advocate J. D. Kelleher for the First, Second and Third Respondents.

judgment

the commissioner:

1.        This judgment is concerned with costs arising out of the representor's unsuccessful application under Article 141(1) of the Companies (Jersey) Law 1991.  The judgment of the Court is dated 14^th May, 2012, (JRC 097).  I will refer to the representor as "Prestigic", the first respondent as "JTC" and the second respondent as "the Company" and generally use the definitions contained in the judgment. 

2.        Mr Kelleher applies for the costs of JTC, the Company and the Green Light Property Fund Limited ("Green Light") on an indemnity basis. 

3.        I had regard to the general principles that should guide the Court in the exercise of its discretion in relation to costs as set out in Watkins-v-Egglishaw [2002] JLR 1. 

4.        The circumstances in which it may be appropriate to award costs on the indemnity basis have been considered on a number of occasions by the Court of Appeal.  In Dixon-v-Jefferson Seal Ltd [1998] JLR 47, Collins JA, with whom Harman and Southwell JJ.A agreed, concluded that there had to be "some special or unusual feature in the case" to justify such an award (Page 59).  In Marett-v-Marett [2008] JLR 384, Plemming JA, Sumption and Nutting JJ.A concurring, said this:-

"A court may make an indemnity costs order only where there has been some culpability, some abuse of process such as deceit, underhanded or unreasonable behaviour, abuse of court procedures, or the submission of voluminous and unnecessary evidence.  There are many examples in decided cases of the application of these broad principles (see Dixon-v-Jefferson Seal Ltd. (1998) JLR at 52-53); Maçon-v-Quérée (née Coligny); and Jones (née Ludlow)-v-Jones (No. 2), noting the reference to "some special or unusual feature" to justify the award of indemnity costs).  There are also examples of cases where the court has made an indemnity order, even in the absence of culpability or abuse ... relying on the court's general discretion, in England and Wales, under the CPR, r. 44.3" (Paragraph 73). 

5.        In Leeds United Association Football Club Limited and Another-v-The Phone-In Trading Post Limited t/a Admatch [2011] JCA 110, at paragraph 11, the Court of Appeal pointed out that the limitation placed on the exercise of the Court's discretion by the use of the word "only" in the first sentence of the foregoing passage must be regarded as an error.  

6.        When these proceedings were commenced by Prestigic by way of representation, they comprised a personal claim in which Prestigic sought rescission of the contract with the Company by which it had become a shareholder investing some £600,000 as well as seeking, as a shareholder, an order under Article 141 of the Companies Law; positions which are incompatible.  At a directions hearing on 4^th July, 2011, the Bailiff required Prestigic to elect whether it wanted to proceed with the claim for rescission, which it should do by way of Order of Justice, or to seek relief under Article 141.  Prestigic elected to proceed with the latter. 

7.        Advocate Damien James represented JTC at the next directions hearing on 25th August, 2011.  Mr Young, for Prestigic, apparently agreed with Mr James that JTC should play no further part in the proceedings but Prestigic was not prepared, apparently on his advice, to release JTC which has remained a party ever since.  Bearing in mind that JTC was the prospective defendant in the civil proceedings which Prestigic sought authority to bring in the name of the Company pursuant to Article 143(c) of the Companies Law, there could be no basis for its involvement and retention as a respondent to the application.  It cannot have and did not have any part to play in the decision whether it should be actioned by the Company.  

8.        Bearing in mind the confused nature of the original representation and the election made by Prestigic, I can only regard JTC's involvement and retention as a party as unreasonable and unjustified and in my view, it should have its costs on an indemnity basis. 

9.        Turning to the costs of the Company, Mr Kelleher's central submission was the unreasonable conduct of Prestigic as a 2.84% shareholder in bringing and pursuing this application against the wishes of the overwhelming majority of its fellow shareholders:-

(i)        Without any evidence that those shareholders were acting unfairly. 

(ii)       Relying solely on the Privy Council decision in Gamlestaden Fastigheter AB-v-Baltic Partners Limited, Boleat, De Figueiredo and Bailey [2007] JLR 393, which did not assist on the criteria the Court should apply in the granting of an application under Article 141 (see paragraphs 34 and 35 of the judgment). 

(iii)      When it conceded that it did not come within any of the exceptions to the rule in Foss-v-Harbottle (see paragraph 44 of the judgment).  

10.      Mr Kelleher submitted that the costs of the application were out of all proportion to the "reflected loss" to Prestigic which were at stake in the matter.  In relation to the payments, Prestigic complained that £1,492,050 was wrongly paid away.  The "reflected loss" of value of Prestigic's shareholding calculated on the basis of the notional diminution of its shareholding due to the payments was £43,374.  The total fees stated to have been charged by JTC to the Company since September 2006 as set out in Philip Burgin's first affidavit of 12^th November, 2011, were £425,543.  2.84% of that figure is £12,085.  The maximum total reflected loss to Prestigic was therefore £54,459.  This very much represents a high water mark, as it assumes that none of the fees had been properly charged.  This has to be set against the fees incurred by the parties in the application, which, from the information provided to me, would not be less than £300,000.  This led Mr Kelleher to question whether the true motive of Prestigic was to use the application in order to bring pressure upon the Company and the other shareholders to buy out its shareholding. 

11.      Mr Kelleher also argued that Prestigic had acted unreasonably in refusing to negotiate.  I accept that an unreasonable failure to engage in mediation is a factor to be taken into account by the Court in considering costs.  There are two Jersey cases, Bespoke Investments Ltd-v-Lincoln Nominees Ltd [2005] JRC 098 and Manley-v-Bell [2007] JRC 025 in which the court's jurisdiction to penalise a party in costs for unreasonably refusing to mediate has been considered.  Bespoke Investments followed the decision of the English Court of Appeal in Halsey-v-Milton Keynes General NHS Trust [2004] EWCA Civ 756.  In all three cases, the issue under consideration was whether the overall successful party should be penalised in costs for refusing to mediate.  In both Jersey cases, the Court concluded that, on the facts of the respective cases, the overall successful party should not be penalised for refusing to mediate because in the circumstances of those cases the refusal was not unreasonable.  However it is clear that in appropriate circumstances the Court has the power to penalise where the refusal was unreasonable. 

12.      There is no Jersey authority where penalising the unsuccessful party for refusing to mediate has been considered, but I accept that there is no reason in principle why the jurisdiction should not extend thereto.  

13.      The invitations to mediate were made by the Company in December 2011 and January 2012 very close to the hearing of this matter on 6^th February, 2012.  Bearing in mind the result of the EGM on 12^th October, 2011, it seems to me there could have been no mediation over whether the proceedings should be brought in the name of the Company against JTC.  The only matter that could have been mediated would have been the purchase of Prestigic's shares.  In this respect, Prestigic was seeking some £1,000,000 (representing its original investment of £600,000 and interest on that sum).  The Company had offered to pay the market value of the shares at that time.  Mr Young expressed the view that the market value may well have been nil.  Having set out in writing the consideration it was seeking to achieve, I do not interpret Prestigic as refusing to mediate.  The door was left open, but in reality (and taking into account the financial position of the Company) the difference between the parties was too great for mediation to have had any real prospect of success.  I have not therefore taken this aspect into account. 

14.      At paragraph 23 of the amended representation, Prestigic asserted that at the AGM held on 14^th March, 2011, the members who voted against the propositions put forward by Adrian Goldsmith of Prestigic were allied with Wharf Land and/or Mr Maggs.  That assertion was contained in the affidavit of Mr Goldsmith on 9^th June, 2011, and was maintained in the skeleton argument filed by Mr Young on 2^nd December, 2011.  It is reasonable for Mr Kelleher to assert and for me to assume that there can have been no evidence to support the allegation that the shareholders were not acting independently because these allegations were not pursued at the hearing (see paragraph 28 of the judgment). 

15.      Mr Kelleher pointed out finally that if no order for costs was made, then it will be the general body of the shareholders of the Company who in reality will suffer the financial cost of defending the application, not JTC. 

16.      Mr Young pointed out the unsatisfactory nature of the situation in relation to the payments, which the Court accepted was of legitimate concern (see paragraph 51 of the judgment).  In his skeleton argument on costs, he raised for the first time the possibility that the making of such payments constituted a breach of Part 3 of the Money Laundering (Jersey) Order 2008 in that the Company did not, and still does not know to whom some of the payments were made and for what reasons.  Mr Kelleher had not had time to consider this fully, but his instructions were that no such breach had taken place.  In any event, Mr Young asked me to look at the full history of the matter and the long period of time over which Prestigic had sought a proper explanation.  The purpose of the application was for the monies wrongly paid to third parties to be repaid to the Company to be used towards the development.  That background and the concerns in relation to the payments were a factor, he said, to be taken into account on the issue of costs.  

17.      In the light of the authorities cited by Mr Kelleher at the main hearing, Prestigic had argued that the making of these payments and the other matters complained of constituted mismanagement as opposed to misconduct, and Mr Young said there was a reasonable prospect of the Court so finding.  

18.      Finally by making these payments, Mr Young submitted that the Company had brought these proceedings upon itself.  After years of fruitless questioning, Prestigic was left with no alternative other than to pursue an Article 141 application.  

Decision

19.      Applying the general principles in Watkins, I have no doubt that the Company was the successful party and that costs should follow the event.  The issue is whether I should award indemnity costs. 

20.       At the AGM held on 14^th March, 2011, Prestigic had put resolutions to the shareholders directing the directors to make inquiries with Wharf Land in relation to the payments and appointing Kingston Smith as auditors to audit the accounts and investigate the payments, all of which were rejected by 83.89% of the shareholders present in person or by proxy (see paragraph 22 of the judgment), so that at that stage, Prestigic knew that the overwhelming majority of shareholders did not want the matter investigated.  Notwithstanding that very clear indication, it issued the representation.  It was made clear by the Court that the views of the shareholders on whether proceedings should be issued in the name of the Company were important and when giving directions on 25^th August, 2011, the Court delayed the filing of evidence by the Company to enable an EGM to take place on 12^th October, 2011.  The results of that EGM are set out at paragraph 27 of the judgment.  The overwhelming majority of shareholders resolved that it was not in the interests of the Company for the action against JTC to be pursued and indeed the actions of the directors were ratified. 

21.      Thus, as at the 12^th October, 2011, Prestigic knew firstly that the overwhelming majority of its fellow shareholders did not want the matter pursued and secondly, that it had no evidence that they were acting unfairly in so resolving. 

22.      That being the case, whilst Prestigic could show prejudice, it had no means of showing unfairness.  Whatever Prestigic's complaints about the directors, at that stage it was an issue between the shareholders.  There can have been no prospect of the Court authorising Prestigic to bring proceedings in the name of the Company that the overwhelming majority of shareholders in the Company, acting independently and in their commercial interests, did not want to be brought.  To do so would be to turn the principle of majority rule on its head.  In my view, to press on with the application after the October EGM in the absence of any evidence that the other shareholders were acting unfairly in any way was an abuse of process (see paragraph 51 of the judgement) and so unreasonable as to justify indemnity costs being awarded as from that date. 

23.      Turning finally to Green Light, it has apparently incurred costs of some £2,500.  It is the only one of the investors to seek costs.  Having been convened to the application, it apparently sought legal advice and incurred costs in the preparation of an affidavit that was filed in the proceedings.  It seems to me right that in terms of costs the same principles that apply to the Company should apply to the other respondents convened. 

24.      Accordingly, I make the following orders:-

(i)        Prestigic shall pay the costs of JTC of and incidental to the application on an indemnity basis. 

(ii)       Prestigic shall pay the costs of the Company and Green Light of and incidental to the application up to and including 12^th October, 2011, on the standard basis. 

(iii)      Prestigic shall pay the costs of the Company and Green Light of and incidental to the application from 12^th October, 2011, including the costs of this hearing on the indemnity basis.  

Authorities

Companies (Jersey) Law 1991.

Watkins-v-Egglishaw [2002] JLR 1.

Dixon-v-Jefferson Seal Ltd [1998] JLR 47.

Marett-v-Marett [2008] JLR 384.

Leeds United Association Football Club Limited and Another-v-The Phone-In Trading Post Limited t/a Admatch [2011] JCA 110.

Gamlestaden Fastigheter AB-v-Baltic Partners Limited, Boleat, De Figueiredo and Bailey [2007] JLR 393.

Foss-v-Harbottle [1843) 2 Hare 461.

Bespoke Investments Ltd-v-Lincoln Nominees Ltd [2005] JRC 098.

Manley-v-Bell [2007] JRC 025.

Halsey-v-Milton Keynes General NHS Trust [2004] EWCA Civ 756.

Money Laundering (Jersey) Order 2008.