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The General Rule that Costs Follow the Event.

View profile for Claire Winn
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Recovery of Only a Fraction of the Pleaded Damages is Not Sufficient to Depart from this Principle

Background

The matter of Global Energy Horizons Corporation v Gray [2021] EWCA Civ 123 concerned a claim for damages due to breach of fiduciary duties owed to the Claimant by the Defendant. The proceedings were substantial, involving no less than three trials, several substantial interlocutory applications and over 9 years of litigation. There were three stages of proceedings; liability proceedings, the enquiry proceedings and the valuation proceedings.

The enquiry hearing took place on July 2015 and it was found that the Defendant had placed himself in a position of conflict between his duties to the Claimant and his personal interests. Consequently he was found to be accountable to the Claimant for relevant profits and benefits that he had already received and might receive in the future. Following this hearing, Asplin J reserved the costs of the enquiry phase and provided directions for further evidence to be filed in respect of the valuation hearing. The costs were reserved on the basis that Asplin J had been unable to arrive at a valuation of the business assets and, as these were fundamental to the claim, this would be relevant to any order made in respect of costs.

Decision at First Instance

The costs of the enquiry were considered by Arnold J in October 2019 following conclusion of the valuation proceedings. He noted that the starting point for considering the costs was as per CPR r. 44.2(2)(a), being that the unsuccessful party will be ordered to pay the costs of the successful party. The Claimant submitted that it was the successful party on the basis that it had recovered over £3.6 million in damages however the Defendant relied on the fact that, at it’s highest, the Claimant’s claim was valued at over £227.8 million. Therefore the Claimant only recovered around 1.6% of this sum. Arnold J dismissed the headline submissions and concluded that he was required to adopt a more granular approach.

Arnold J considered the five separate claims that had been brought by the Claimant. He noted that of these five claims, two had been abandoned before trial and, whilst the remaining three claims had been successful, one was found to be of nil value, one had resulted in a 7% recovery of the total claimed and one had resulted in a recovery of £3 million out of £5.1 million claimed. Arnold J concluded that neither party had been successful and, as a result, it was a “score draw”, meaning both parties should bear their own costs.

Arnold J thereafter considered the other factors of CPR 44.2(4) along with submissions put forward by both parties. The Defendant referred to three separate offers that had been made during proceedings in addition to alleged complaints of misconduct against the Claimant and its expert. The Claimant referred to various comments provided within the liability and the enquiry judgements which related to the Defendant’s conduct in addition to the fact that the Claimant had no choice but to pursue the action on the basis that the Defendant was a defaulting fiduciary who had made no satisfactory monetary offer. However Arnold J confirmed that these factors did not affect his initial assessment and concluded that the right order was for both parties to bear their own costs.

Appeal

The Claimant appealed this decision and the appeal was heard in December 2020 with judgment being handed down on 5 February 2021.

The Court considered various factors in deciding whether the appeal should succeed. The Court initially considered the judgment of Day v Day [2006] EWCA Civ 415 where no order for costs was made on the basis that neither side in a bitter family dispute had won what they had claimed. The general rule noted within this case is that an appellate court should not interfere with a decision simply because they may have exercised their discretion differently. The Court also referred to the judgment of Chadwick LJ in Johnsey Estates v Secretary of State for the Environment [2001] EWCA

Civ 53, which states that an appellate court must recognise the advantage that the trial judge attains as a result of his or her 'feel' for the case. The Court concluded that the principle in Day did not necessarily apply to this case as Arnold J did not in fact preside over the enquiry hearing.

The Court concluded that the appeal should be allowed and that the issue should not be approached on the basis that neither party were successful. It was noted that, despite the fact that the Claimant had only recovered a fraction of the amount claimed, it had indeed been successful. It was also noted that, were a Defendant is faced with an exorbitant claim to which he intends to defence vigorously but it is likely there will be some finding of liability, the Defendant has the option to protect his position by way of Part 36. The Defendant chose not to make an offer on this basis. The pleaded value of the Claimant’s claim was also considered and it was noted that, whilst the basis of the Claimant’s quantum calculations were not known, it was not possible to infer from the outcome of the valuation hearing that the valuation of the business assets were the result of a deliberate exaggeration. With this in mind, the Court concluded that it would be wrong to punish the Claimant by depriving it of its costs. The Court ordered that the costs of the enquiry trial phase should be paid by the Defendant.

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