Jersey Unreported Judgments

Companies - Costs.

[2020]JRC166

Royal Court

(Samedi)

18 August 2020

Before     :

Advocate Adam Justin Clarke., Judicial Greffier.

 

Advocate M. P. Cushing for the Representors.

Advocate J. S. Dickinson for the Respondent.

Advocate P. D. James for the Interveners.

CONTENTS

		Paras
1.	Introduction	1
2.	Background	2-17
3.	Representors' submissions	18-26
4.	Oak's submissions	27-39
5.	Interveners' submissions	40-44
6.	Representors' replies	45-47
7.	Decision	48-64

judgment

the Judicial greffier:

Introduction

1.        This judgment represents my written reasons for my decision on costs in this matter.

Background

2.        The Representors are shareholders in the Respondent, Oak Corporate Finance Limited ("Oak") which is a Jersey incorporated limited liability company.  Oak acts as a realisation advisor in relation to certain investments held by Quadriga Capital Private Equity Fund II LP and Quadriga Capital Private Equity Fund II CV ("Quadriga Fund II") and, pursuant to the terms of a Realisation Advisory Agreement, Oak received fees in return for the advice provided. 

3.        At the time of Oak's incorporation in 1999, the shareholders of Oak were key employees within the Quadriga Capital Group.  Those shareholders were recompensed for their interest in Oak by the distribution of dividends, funded by the fees earned by Oak for its advisory role.  At all times, Oak was not part of the Quadriga Capital Group and remained an independent company. 

4.        The Representors, whilst no longer employees of Quadriga Capital Group, remain shareholders of Oak and continue to retain an expectation of receiving dividends from Oak from funds earned for the advice it provides to the Quadriga Fund II. Prior to the changes to the shareholding structure (which is detailed later in this judgment and referred to as "the Share Issue") the Representors held shares in Oak in the proportions set out in the first column below. After the Share Issue, the Representors held shares in the proportions set out in the second column below: 

	% of shares held prior to the Share Issue	% of shares held after the Share Issue
Christophe and Petra Weise	25.5%	0.003%
Helmut Fortunato	2.5%	0.0003%
Reinhard Kohleick	2.5%	0.0003%

5.        The reasons for the Share Issue date back to 2016.  At that time a criminal tax investigation was launched in Germany.  This investigation focused on the activities of eight persons connected with or previously connected with the Quadriga Capital Group and related to suspected non-payment of German corporation tax, trade tax and sales tax by the Quadriga Capital Group in connection with its operations between 2009 and 2015. 

6.        On 16^th June, 2017, the Oak shareholders were informed by letter that Oak was also the subject of an investigation by the German tax authorities, that the tax authorities were intending to challenge Oak on its stated position that it did not carry out business from Germany, that the directors had been advised that there were some issues that might bring Oak's tax status as "non-German" into question and that they considered it prudent to enter into a Settlement Agreement with the German tax authorities.  That settlement required Oak to pay EUR 14.4 million and certain shareholders to pay additional sums. 

7.        By the same letter the directors proposed how Oak might fund that settlement.  The shareholders were invited to enter into a written resolution that sought to increase the share capital of the company.  The shareholders would then subscribe for further shares in Oak and in the process provide additional funds to Oak which in turn would allow the company to fund the settlement.  In order to amend the authorised share capital of Oak, it was necessary to amend the Memorandum of Association of Oak by way of special resolution of the shareholders. 

8.        Despite the Representors declining to sign a written resolution or subscribe for any further shares in Oak, the company filed with the Jersey Financial Services Commission a document entitled "Special Resolution" which purported to increase the share capital of Oak by the creation of 2,826,471,765 new ordinary shares, each with a nominal value of EUR 0.0051. By Article 63(a) of Oak's Articles of Association (the "Articles"), resolutions in writing must be signed by or on behalf of each shareholder in order to be deemed valid. 

9.        The purported effect of the Special Resolution was to increase the authorised share capital from the pre-resolution number of 300,000 to a post-resolution number of 2,826,471,765.  The annual returns filed by Oak for the period to 1^st January, 2019, showed that in the period since the Special Resolution, Oak had issued a further 2,406,316,187 shares to existing shareholders excluding the Representors.  The effect of these increases in authorised share capital, where the Representors did not subscribe for the shares, is that their respective shareholdings diminished to the proportions set out in the table in paragraph 4 above.  The Representors argue this is to their detriment as it affects their entitlement to the amount of dividends that may be issued and reduces the effectiveness of their voting rights in Oak. 

10.      On 8^th August, 2017, a Settlement Agreement was reached with the German Tax authorities. 

11.      On 4^th October, 2019, the Representation was issued seeking:

(i)        That the share register be rectified to restore the register to the position prior to the purported increase in the authorised share capital of the company and the purported issue and allotment of further shares;

(ii)       Damages for the loss of any dividends paid by Oak based on the shareholdings recorded on the current register of members; and

(iii)      Costs.

12.      The Interveners gave notice of their intention to apply to intervene in the proceedings (and seek further orders) by Summons, which intervention was consented to by the parties and enshrined in an Act of Court dated 9^th January, 2020. 

13.      The Representors issued a summons for directions (the "Summons") and a date was fixed on 10^th December, 2019, for the matter to be heard on 14^th January, 2020. 

14.      On 19^th December, 2019, Oak gave notice of an Extraordinary General Meeting ("EGM") of the company in response to a requisition by members made on 15^th November, 2019.  The purpose of the EGM was for the company to consider the following resolutions:

"To approve, confirm and ratify the share issue that took place in 2017, and

In the event that such an approval, confirmation and ratification was not effective, to increase the authorised share capital of the company by the creation of almost 2.8 billion ordinary shares."

15.      The EGM was called for 2:30pm on 13^th January, 2020, the afternoon immediately preceding the date upon which the Representors' Summons had been fixed to be heard.  

16.      The resolutions were subsequently passed at the EGM on 13^th January, 2020, by the necessary majority of the members of Oak having regard both to the shareholdings as they stood in 2017 (i.e. before the Share Issue) and as they stood at the time of the EGM.  

17.      In response to the passing of the resolutions, the Representors' Advocate contacted the Court on 13^th January, 2020, to inform the Court that the Representors would not be pursuing the substantive relief sought in the Representation.  As all parties had indicated a desire to apply for costs following the withdrawal of the Representation, a date was fixed for the hearing of the costs applications. 

Representors' submissions:

18.      The Representors' position was that the costs of and incidental to these proceedings ought to be paid by Oak because the proceedings were required to be brought to rectify the share register directly as a result of breaches of both the Companies (Jersey) Law (1991) ("the Companies Law") and the Articles of the company. Oak had failed to acknowledge that the purported written resolution in 2017 effecting the Share Issue was defective and void.  As a result, Oak failed to recognise that the share register was incorrect and required rectification.  

19.      Advocate Cushing's submissions were admirably straightforward. Article 47(1) of the Companies Law specifically provided for a member of a company to apply to the Court for the rectification of the share register where, in that member's opinion, the said register was factually inaccurate. That is the only method available to the shareholder in these circumstances. 

20.      The Articles require that a written resolution shall be signed by each member of the company.  As the written resolution purporting to increase the share capital had not been signed by the Representors, it was invalid and the changes to the share register were without authority and incorrect.  It followed that the Representors were entitled to petition the Court for the share register to be corrected under the provisions of Article 47(1) of the Companies Law.

21.      In the submission of Advocate Cushing, this was considerably more than just a technical fault.  He argued that the Articles are there to protect the rights of shareholders, particularly minority shareholders.  The Articles cannot be ignored for the sake of convenience. Oak got it wrong in the manner in which they sought to amend the share capital and this Representation was appropriately brought.  Notwithstanding that the Representation was filed on 11^th October, 2020, Oak did not write to its shareholders, to convene the EGM at which the resolutions to ratify the increase in share capital were tabled, until 19^th December, 2019: over two months after the Representation was issued.  This delay was unreasonable. 

22.      The Representors contend that, as the Representation was correctly brought, and the invalidity of the written resolutions facilitating the Share Issue was not rectified until the day before the Summons was due to be heard, the costs of and incidental to the Representation should be borne by Oak. 

23.      The Court was reminded of the well-known principles established in Watkins v Egglishaw [2002] JLR1 which govern the manner in which the Court should exercise its discretion on the issue of costs.  Advocate Cushing submitted that the overriding duty of the Court was to do justice between the parties and in this case that was achieved by ordering costs against Oak.  In the present circumstances, his clients' actions had been vindicated by Oak ultimately having to call the EGM to ratify the failings of the original written resolution.  It would be entirely unfair for the Representors to now be penalised in costs for advancing the only avenue available to them to rectify the inaccurate share register in Oak - especially so when Oak had failed to acknowledge that the purported written resolution in 2017 was defective or void. 

24.      In anticipation of the arguments being brought by the Respondents that the Representation did not dispose of the real dispute between the parties or that the factual matrix was too complex to have been dealt with by an Article 47 Representation, Advocate Cushing submitted that:

(i)        Whilst it was correct that his clients were of the view that Oak had acted in a manner which was unfairly prejudicial to their interests, and that they may, either together or individually, choose to commence proceedings against Oak under that head, that was not a bar to them having brought this Representation.  They were entitled to bring these proceedings to ensure that the register of members correctly recorded their shareholdings, irrespective of whether unfair prejudice had taken place; and 

(ii)       The facts of this application are simple and clear.  There is no argument as to matters of law and fact. Oak relied upon a written resolution that did not comply with Oak's Articles and was therefore invalid. In the view of the Representors, the share capital was increased without authority and the register of members was incorrectly altered and, at the time of the application, it was recording incorrect information about the company's shareholders and their interests.  

25.      Advocate Cushing also addressed the assertion that his clients had failed to comply with Practice Direction RC17/01 (which regulates Pre-Action Communications between litigating parties).  He submitted that by letters between 10^th September, 2019 and 4^th October 2019, his clients had set out their position in accordance with the Practice Direction.  The difficulty for the Representors was that Oak did not wish to accept that there was a defect in the written resolution.  He submitted that the purpose of the Practice Direction was to exchange information between the parties prior to the institution of proceedings so that potential settlements of the dispute could be discussed.  Where Oak refused to accept that there was a fundamental defect in the written resolution and the increase in share capital, the Representors were left with no option other than to issue the Representation to rectify the register of members.  To have engaged in further correspondence at that stage would have been pointless and would have increased costs. 

26.      As a final point, Advocate Cushing was critical of Oak in respect to the timing of the EGM.  In his clients' view, it was not a coincidence that the date for the meeting had been set on the eve of the hearing of the Summons before the Court. Given that the Representation had been presented to the Royal Court on 11^th October, 2019, and served on the Respondents shortly thereafter, to have not given notice to the shareholders of the EGM until 19^th December, 2019, was clearly tactical and intended to increase pressure and costs for the Representors and should be recognised in any costs award. 

Oak's submissions:

27.      On behalf of Oak, Advocate Dickinson characterised the situation differently, emphasising that it had been the Representors who had written to the Court to withdraw the substance of their claim on the eve of the case management hearing, leaving only the issue of the costs to be determined.  He reminded the Court that in the case of Flynn v Reid [2012] (2) JLR 226 the Court of Appeal had stated that:

"In my view, costs awards should be based on two major considerations: the merits of the case (as adjudicated upon by the court) and the conduct of the parties in the litigation as appraised by the court)."

28.      Having identified those two headings (merits and conduct), Advocate Dickinson took the court through the salient correspondence between the parties in the run up to and post the filing of the Representation and argued that a close analysis of the same identified the two substantive problems with the application; first, that the real focus of the complaint by the Representors was one of unfair prejudice and not rectification of Oak's share register and second, that the Representors had failed to engage appropriately with Oak prior to and post the filing of the Representation. 

29.      As early as 30^th August, 2019, Oak's lawyers had written to Advocate Cushing seeking confirmation that an appropriate Letter before Action would be provided in compliance with Practice Direction RC 17/01.  In response, Advocate Cushing wrote to Oak's lawyers on 10^th September, 2019, under the heading "Claim Letter".  Advocate Dickinson argued that the composition of the letter was telling in that the majority of the contents were directed to a threat of unfair prejudice proceedings as opposed to a rectification of the share register application.  It was telling, he submitted, because it accurately reflected the actual position of the Representors: that their fundamental issue with Oak was that its actions in dealing with the tax issues in Germany and the amendments to the share register, had unfairly prejudiced their minority shareholding. 

30.      Advocate Dickinson advanced eight arguments why his clients viewed the behaviour of the Representors to have been unreasonable. 

31.      First, he submitted that, notwithstanding the correspondence on the topic of the pre-action protocol, the Representors failed to comply with the Practice Direction.  The Court was taken to the letter from Advocate Cushing dated 25^th September, 2019, addressed to Oak's lawyers wherein the Representors declined to set out (at that stage) the precise terms of the prayer for relief that it intended to seek against Oak.  It did, however, state that the Representors considered that the validity of the purported special resolution remained an issue and that they intended, separately from the unfair prejudice action, to issue a Representation for the rectification of the share register.  In the view of Advocate Dickinson, that did not comply with the Practice Direction.  It did not allow his clients to respond to the allegations that existed in the letter before action prior to the filing of the Representation. 

32.      Second, Advocate Dickinson argued that the issuing of the Representation during the period when his clients should have been focusing their attention on complying with the pre-action protocol in respect of the allegations of unfair prejudice was equally unreasonable. 

33.      Third, the claim for the rectification of the share register was unnecessary and would serve no purpose.  By letter dated 2^nd October, 2019, Oak set out that there were two natural results that would flow from such a Representation.  First, should the resolution be deemed void, the shareholders who had acquired shares in order to fund the tax settlement in Germany, would immediately become creditors of Oak.  As the sums then owing to these shareholders would dwarf the sums available to Oak, the Representors would receive nothing and Oak would be insolvent.  Second, an EGM could be requisitioned in order to confirm the Share Issue which would result in the shareholdings of the Representors remaining the same.  Advocate Dickinson submitted that the warning about the efficacy of the Article 47 proceedings was therefore put to the Representors as early as 2nd October, 2019.  He submitted that such warnings had gone unheeded by the Representors and, in light of the chronology of the case now available to the Court, the warning had been entirely vindicated. 

34.      Fourth, even after the Representation had been issued and Oak and the Interveners had repeatedly warned the Representors that the application was misconceived, they pursued the Representation.  The net result was that considerable cost was incurred by the Respondent and Interveners in preparing for the hearing - all of which could have been avoided.  

35.      Fifth, issuing proceedings just for the rectification of the share register was procedurally incorrect and therefore an abuse of process (because the summary nature of the application was never suitable for dealing with the complex detail in the Representor's substantive complaint, namely that they had been subject to unfair prejudice) and as a result it would lead to the same factual matrix having to be considered in two separate sets of proceedings.  This was particularly so in circumstances where the Representors had, in Advocate Dickinson's view, acknowledged that the Representation would not in fact resolve the issues arising. 

36.      Sixth, Advocate Dickinson argued that a review of the case demonstrated that the position being taken by the Representors on the topic of costs was both incongruous and unreasonable.  The Court was taken to correspondence from the Representors' lawyer wherein he was critical of the position taken by Oak.  The criticism included assertions that resolutions to approve, confirm and ratify the Share Issue at the EGM called in January 2020 would be of no effect and that the decision by Oak to apply a different threshold to the passing of the resolution to that required under the Companies (Jersey) Law 1991 amounted to a material breach of proper corporate governance.  By letter dated 7^th January 2020 Advocate Dickinson confirmed that Oak would arrange for the voting on the resolutions to be tested as against both the shareholdings as it stood in 2020 and as it had stood in 2017 prior to the Share Issue. 

37.      Advocate Dickinson submitted that, notwithstanding the views expressed in the correspondence, the Representors had altered their stance and were now of the view that the resolutions passed in January 2020 were valid but were seeking to use the passing of the resolutions to legitimise the abandonment of their substantive claims under the Representation and seek costs from Oak.  He argued that the Representors cannot on the one hand argue that the resolutions are a waste of time and would never be valid and then shortly thereafter use their validity as a ground for claiming costs. 

38.      Seventh, it is asserted that when considering the issue of indemnity costs, the court should have regard to principles of fairness. Simply put, Advocate Dickinson argues that the Representors had issued a misconceived Representation during the period for communications under the pre-action protocol, been warned to withdraw the same, initially declined to accept that the resolutions at the EGM would be valid but then when the resolutions were passed they finally withdrew the Representation on the eve of the hearing. He submitted that these were all justifications for indemnity costs. 

39.      Eighth, Advocate Dickinson advanced that it had been unreasonable for the Representors to threaten Oak with unfair prejudice proceedings for three reasons.  First, fair offers to acquire the shares of Mr Fortunato and Dr Kohleick had been made in a manner which would have prevented them from being impacted by the Share Issue.  They elected not to accept those offers for their own reasons but, in the view of Oak, that would preclude them from bringing unfair prejudice proceedings after the event.  Second, there were several factual barriers that needed to be overcome before a Court would entertain an application for unfair prejudice and third, Mr Weise had been a defendant to the criminal investigation by the German authorities but had been content to allow seven other shareholders to shoulder the burden of paying Oak's settlement liability. 

Interveners' submissions

40.      Advocate James for the Interveners was broadly in support of the position advanced by the Respondent.  He asserted that the proceedings ought never to have been brought and that it had been unreasonable to have done so. 

41.      He reiterated that the real dispute between the parties was one of the alleged unfair prejudice that had been complained of in the Letter before Action from the Representors.  The issuing of the Representation solely to seek the rectification of the share register to highlight a technical error in respect of a written resolution in 2017 (which was ultimately validated by the resolutions at the EGM in January 2020) was a clear breach of the intentions of the overriding objective.  He invited the Court to send a message to litigants who chose to litigate in a piecemeal manner and not to engage in a meaningful and purposeful discussion.  Advocate James argued that this was a prime example of litigation behaviour that merited indemnity costs. 

42.      On the issue of the timing of the EGM, Advocate James asserted that the date of the EGM (being the eve of the hearing before this court) was irrelevant.  It was irrelevant because the Representors were not prepared to accept the validity of the passing of the resolutions (or so they had stated in their correspondence) so even if those resolutions had been passed several weeks earlier, there is no certainty that this would have led to the Representors withdrawing the Representation any sooner. 

43.      Advocate James submitted that the Representors had failed to grasp the matters at hand and deal with them sensibly and efficiently.  By insisting on separating the issues of rectification of the share register and unfair prejudice, the Representors had added to the costs incurred by the parties and invited duplication of work for both the parties and the Court. 

44.      These were behaviours that in the estimation of the Interveners took this matter out of the norm and into the realms of indemnity costs. 

Representors' replies

45.      In response Advocate Cushing asserted that characterising the application to rectify the share register as "academic" was unjustified.  As he had pointed out in correspondence, an inaccurate share register affected his clients' voting rights and dividend rights.  A shareholder is entitled to expect the company to act in accordance with the rules set out in the Companies Law and in the Articles. In this case, Oak had not and this meant that his clients had been affected.  Their only recourse was to ask for the assistance of the court. 

46.      The assertion that the factual matrix is too complex for an Article 47 application was not correct.  The facts behind the error in the share register are not complicated. Oak sought to rely upon a written resolution to effect an issue of shares.  The Articles required that all the shareholders should sign the written resolution for it to be effective.  That had not happened and therefore the resolution was not effective and the alterations to the share register were incorrect and required rectification.  That does not require detailed examination of a complicated factual matrix. 

47.      Finally, Advocate Cushing asserted that his clients were left with the position that if they did not issue the Representation, the error in the share register would not have been rectified.  In their view, had the directors of Oak not been pushed into calling the EGM as a result of the Representation, nothing would have changed and his clients' rights and interests would have continued to have been detrimentally affected.  The fault lies with Oak and the costs of the Representation should be paid by the company. 

Decision:

48.      The principles by which the Royal Court has dealt with applications for costs is well-known and the leading cases constitute a well-worn legal path.  The leading cases of Watkins v Egglishaw [2002] JLR 1 and Flynn v Reid [2012](2) JLR 226 have provided guidance on the manner in which the Court should exercise that discretion and I start from the principles set out by Commissioner Page in Watkins at paragraph 8:

"8.      The principles that should guide the court in the exercise of its discretion in this area appear to me, therefore, to be as follows, stating them as shortly and simply as possible:

(1)       The court's overriding objective in considering costs is, as in everything else, to do justice between the parties.

(2)       In many cases, that objective will be fulfilled by making an award of costs in favour of the 'winning' party, where a 'winner' is readily apparent.  In any event, the 'follow the event' rule can still be a useful starting point. 

(3)       It is a mistake, however, to strain overmuch to try to label one party as the 'winner' and one as the 'loser' when the complexity or other circumstances of the litigation do not readily lend themselves to analysis in these terms.

(4)       The discretion as laid down in Article 2 of the Civil Proceedings (Jersey) Law, 1956 is a wide one and ought not to be treated as fettered by any particular supposed rule or practice other than that the discretion should be exercised judicially and broadly in accordance with the guiding principles referred to in In re Elgindata (No.2) and A.E.I. -v- Phonographic Performance. 

(5)       It is, accordingly open to the court to have regard to any and all considerations that may have any bearing on the overriding objective of doing justice.  Its task is to take an overview of the case as a whole (per Lightman J. in BCCI -v- Ali and Ors. (No.4) (1999) NLJ 1734).  The new Civil Procedure Rules governing civil litigation in the English courts provide that the court "must  have regard to all the circumstances" and then go on to spell out certain matters that such circumstances include, the "conduct of the parties" being one, and "whether a party has succeeded on part of his case, even if he has not been wholly successful" another (CPR paragraph 44.3); but, to a large extent, the particular matters mentioned do no more than state the obvious and, it is unnecessary to import them verbatim, in any formal way, into the practice of the Royal Court.

(6)       It is implicit in this that, even though a party would otherwise be regarded as having been "successful", justice may require that costs should not automatically follow the event."

49.      I am therefore reminded that the principal consideration in dealing with the issue of costs is that the Court must seek to do justice between the parties.  That is achieved by having regard to the manner in which the parties have conducted the litigation and the merits of the claim. 

50.      Fundamentally, the Representors are unhappy with the manner in which their interests (by way of shareholdings) in Oak were substantially reduced.  They take issue with the tax settlement that Oak reached with the German authorities.  They particularly take issue with the written resolution which was not signed by all the shareholders in accordance with the Articles.  That written resolution led to the issue of a considerable number of new shares that both raised the necessary funds to satisfy the tax settlement liability but also greatly diminished the proportion of the Representors' shareholdings. In the submission of the Representors, this reduced their potential return on dividends and impacted on their voting rights. 

51.      As a result of this displeasure, they instructed Advocate Cushing to write to Oak detailing the nature of their claim in the Letter before Action dated 10^th September, 2019.  During the course of the hearing, Oak and the Interveners submitted that the real focus of the Representors' complaint was that the events had been acts causing them unfair prejudice.  A review of the Letter before Action leads me to agree with that submission given the substantial focus given to the topic.  It was not until the subsequent letter of 25^th September, 2019, that Advocate Cushing first raised the potential for a separate set of proceedings aimed specifically at rectifying the share register, by which stage Oak had already commenced work on responding to the Letter before Action in accordance with the Practice Direction. 

52.      As early as 2^nd October, 2019, Oak's lawyers had written to the Representors to suggest that the Representation was practically flawed because negating the Share Issue would create substantial creditors in the form of the shareholders who had subscribed to the new shares and because an EGM could be requisitioned to confirm the Share Issue.  Moreover, that letter placed the Representors on notice as regards the costs of Oak in respect of the Representation.  Ultimately, that EGM was requisitioned by shareholders of Oak who were not party to these proceedings and resolutions were passed which purported to approve, confirm and ratify the Share Issue or, if that approval and ratification was ineffective, to approve afresh the increase in the share capital of the company, and which led to the Representors withdrawing their Representation.  On the face of it, there was a clear and early warning of the ineffectiveness of the Representation and the costs that would be incurred in pursuing it. 

53.      By way of balance, it could also be suggested that the Representation did serve a purpose.  It is arguable that had the Representation not been issued, then no confirmatory resolution would have been passed and the share register would have continued to reflect the purported effect of the procedurally incorrect written resolution - in essence, the Representors forced the hand of Oak.

54.      In addition, I am uncomfortable with the length of time it took Oak to arrange the EGM and, as a result, the date upon which the EGM took place (namely on the eve of the intended hearing before the Court). Oak raised the issue of the potential EGM in correspondence on 2^nd October, 2019, and the letter from the directors to the shareholders is dated 19^th December, 2019.  The requirement to provide appropriate notice of the meeting meant that it did not take place until 13^th January, 2020 (the eve of the hearing).  Irrespective of Oak's views regarding the necessity for the Representation, it accepted that something had to be done to remedy the procedural irregularities that had occurred when the written resolution was filed and the Share Issue took place. 

55.      The Court's duty is to determine whether either party should be entitled to an award of costs given the circumstances.  On balance, I have concluded that the Representors should pay the costs of Oak and the Interveners. I have reached this decision for the following reasons:

(a)       I am content that I am able to characterise the Respondent and the Interveners as "winners" within the limited scope of the Article 47 Representation.  The Representation sought specific remedies including damages for the loss of any dividends paid by Oak based on the shareholdings recorded on register of member at the time. The Representors failed to achieve any of the requested orders in the prayer of the Representation because they chose to withdraw the claim following the EGM. In my view, those contesting the Representation were successful. 

(b)       As the Representors were at pains to point out, the facts of this application were not complex.  This was a complaint that Oak had wrongly relied upon a written resolution which had been executed contrary to the Articles and which had resulted in the share register being incorrect.  The Representors wished to separate this from any subsequent claim for unfair prejudice and have the share register rectified.  Oak advised them that this was unnecessary and how it would be remedied.  The Representors were invited to withdraw which they did not do until the eleventh hour.  They were unsuccessful in the action and their refusal to withdraw at an earlier stage has led to costs being incurred by Oak and the Interveners. 

(c)       I do not believe that the Representors fully complied with the provisions of Practice Direction RC 17/01 which was intended to encourage the exchange of material information about a possible claim (i.e. to allow a party to know what is being alleged against them) and, importantly, to allow the parties an opportunity to settle a claim before the commencement of proceedings.  The Letter before Action on 10^th September, 2019, did not make clear that an Article 47 rectification claim was being prepared.  It was not until the letter of 25^th September, 2019, that the Representors raised this as a possibility.  The Representation was dated 4^th October, 2019.  This did not provide the appropriate time for Oak to respond as envisaged by the Practice Direction.  Moreover, the Representation was dated two days after the letter from Oak warning that such an application would be nugatory in the circumstances.  Paragraph 23 of that Practice Direction allows the Court to have regard to how far any party have taken reasonable steps to comply with its terms and to take account of non-compliance when considering costs. I propose to do just that.  

(d)       The Representors had been clear in their correspondence of 30^th December, 2019, that they did not accept that a legal basis existed for the shareholders to approve, confirm and ratify the Share Issue by means of a special resolution at the EGM.  Therefore, any criticism that the Court has for the delay in the requisition of the EGM must be considerably mitigated. 

56.      Having concluded where the costs should lie, I am now required to consider two further matters.  First, whether it is appropriate that the award of costs should be on the standard or indemnity basis and second, whether or not it is appropriate that I should order interim costs on account and in what sum. 

57.      I was referred by Advocate Dickinson for Oak to the case of Dick v Dick (Naranjo) [1990] JLR Notes-2c and specifically to the words of Sir Godfrey Le Quesne QC presiding as the President of the Court of Appeal where he stated:

"Mr Scholfield has explained to us the circumstances which led the Appellant to take this decision. We appreciate those circumstances but it appears to us that if for reasons of his own, whether good or bad, a party who has instituted proceedings subsequently decides to drop them before they come to court, it is fair that he should pay for that conduct the price of compensating the other party by way of indemnity costs." [Emphasis Added]

58.      In Pell Frischmann Engineering Limited v Bow Valley Iran Limited and Others [2007] JLR 479, Commissioner Page (at paragraph 25) stated:

"25     At the risk of oversimplifying matters, the result of these English authorities may be said to be this: that the circumstances in which an award of indemnity costs may, as a matter of discretion, be ordered are less restrictive than they used to be; there must, ex hypothesi, still be something to take the case out of the ordinary, but the range of potentially relevant considerations, as described by Millett, J. (later Lord Millett) in Macmillan Inc. v. Bishopsgate Inv. Trust (11), is considerable and need not involve any finding of a lack of moral probity; the test, in a word, is unreasonableness; the purpose of such an award is to achieve a fairer result for the party in whose favour it is made than would be the case if he were only able to recover costs on the standard basis; in the end, it is a question of what would be fair and reasonable in all the circumstances." [Emphasis Added]

59.      How then should the Court characterise the litigation conduct of the Representors - was that conduct "unreasonable" in the circumstances?  For the reasons set out in the paragraphs above, I have concluded that the litigation conduct of the Representors reached the level of "unreasonable" when they failed to heed the warning issued by Oak in the letter dated 2^nd October, 2019, went ahead with the filing of a Representation seeking relief based on Article 47 of the Companies Law separate to any unfair prejudice proceedings and caused Oak and the Interveners to incur costs in respect of proceedings which were ultimately withdrawn.  I therefore order that the Representors should pay the costs of and incidental to these proceedings for both Oak and the Interveners on the standard basis up to 2^nd October, 2019, and thereafter on the indemnity basis.  I pause to clarify that those costs should not include any costs incurred in relation to the requisition and completion of the EGM on 13^th January, 2020, as these were costs that Oak was required to incur to remedy the procedural errors that had taken place in 2017. 

60.      Turning to the issue of an interim award of costs, both Oak and the Interveners seek interim payments in the sum of 50% of costs they have declared in their respective Schedules or Statements of Costs. 

61.      I had regard to the case of Centre Trustees (C.I.) Limited and Another v J. Van Rooyen and Others [2009] JRC133 where Commissioner Clyde-Smith established that the Royal Court has the inherent jurisdiction to award interim payments on account of costs and to Marange Investments (Proprietary) Investments Limited v La Generale des Carrieres et des Mines SARL [2013] JRC 119A where the Royal Court (at paragraph 44) determined that in assessing payments on account:

"The Court should not, therefore, seek to conduct a taxation or detailed view of the successful party's costs but adopt "a rough and ready" approach, in order to arrive at a figure which the successful party "will almost certainly collect"."

62.      For Oak, Advocate Dickinson argues for 50% of the costs from 25^th September, 2019, in the alternative sums of £36,113.10 (indemnity basis) or £30,639.25 (standard basis).  Given that I have ordered that a small part of that time should be on the standard basis and that costs (if any are claimed) regarding the EGM should be excluded, it would be right to approach this interim award with appropriate caution.  For that reason, I have concluded that the sum of £25,000 (being approximately 35% of the sum claimed) should be paid on account. 

63.      Advocate James for the Interveners argues for £28,994.35 being 50% of the costs on an indemnity basis between 16 October 2019 and 14^th January, 2020.  Applying the same caution for the reasons set out in paragraph 62, I order that the Representors should pay £20,000 (being approximately 35% of the sum claimed).  

64.      Both of these interim payments are to be made within 14 days of the Act of Court issued pursuant to this judgment. 

Authorities

Companies (Jersey) Law (1991)

Watkins v Egglishaw [2002] JLR1

Flynn v Reid [2012] (2) JLR 226

Dick v Dick (Naranjo) [1990] JLR Notes-2c

Pell Frischmann Engineering Limited v Bow Valley Iran Limited and Others [2007] JLR 479

BCCI -v- Ali and Ors. (No.4) (1999) NLJ 1734

Centre Trustees (C.I.) Limited and Another v J. Van Rooyen and Others [2009] JRC133

Marange Investments (Proprietary) Investments Limited v La Generale des Carrieres et des Mines SARL [2013] JRC 119A