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The hurdles an Appellant faces in challenging an order for Costs

View profile for Lucy Hodgkins
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TMO Renewables Ltd v Yeo & Ors [2022] EWCA Civ 1409

Background & Issue

This case arises from a claim in which the Defendants were found to have acted in breach of fiduciary duties owed to the Claimant company (TMO Renewables Ltd) and had done so in bad faith. It was found that the Defendants had manipulated a vote at a General Meeting of the Claimant company in order to defeat a potential shareholder resolution which would alter control of the board of directors. However, this breach did not cause the Claimants loss as the Company was already insolvent and would have gone into administration either way. Therefore, the claim against the Defendants was dismissed and the Claimant was ordered to pay 30% of the Defendants’ costs to be assessed on the standard basis.

The Fourth Defendant sought to appeal against the Judge’s costs order. He submitted that, as the successful party, he should be awarded all of his costs. He also claimed that, on the basis that he achieved a better outcome than an offer to settle made at the outset, those costs should be assessed on the indemnity basis.

When appealing an order for costs, the standard that an Appellant must meet is known to be a high hurdle. Males LJ noted the decision of F & C Alternative Investments (Holdings) Ltd v Barthelemy (No. 3) [2012] EWCA Civ 843, where Lord Justice Davis noted that the ultimate test for the purpose of considering an appeal is whether the decision made was fundamentally wrong or did not take into account all of the relevant issues. In this case, both of these points were considered, but ultimately dismissed on the basis that the bar had not been met in respect of either of these tests.

 

Awarding costs in full

The well-known principle of “costs follow the event” is set out in CPR 44.2 and provides that the unsuccessful party will be ordered to pay the costs of the successful party. However, the Courts discretion is wide, and a different order can be made, generally in response to the contents of the claim itself. The overriding objective in any claim is of course that the Court must deal with cases justly.

When deciding to depart from the general rule, the court must have regard to all the circumstances of the case as set out in CPR 44.2(4). This includes consideration of the conduct of the parties and any admissible offer to settle which is not an offer to which cost consequences under part 36 apply.

 

Conduct of the Parties

The Court recognised the fact that the Defendants had each individually pursued a case on liability which they knew to be false and it would not be fair or just for any of the Defendants to recover costs they spent advancing a dishonest case. In regard to this dishonesty, the Defendants were deprived of 40% of their costs. The Court found that the finding of dishonestly did not displace the general rule, as submitted by the Claimant.

The Court also considered the conduct of the Claimant and whether this neutralised the effect of the Defendants and gave way for a order for costs in favour of the Claimant. The Claimant had failed to engage with the Defendants on flaws in its case and failed to accept any admissible offers to settle. The Fourth Defendant had made two offers to settle. The first to pay solely £100,000 in full and final settlement and the second to settle jointly with all other Defendants for £515,000 inclusive. Both of these offers were rejected.

The Court accepted that, even though the offers to settle were not made under CPR Part 36 and so did not carry cost consequences, some weight should be given to them. Nevertheless, it was found not to be in the interest of justice to neutralise the effects of the parties conduct upon each other, and the Costs ordered for the Defendants would remain reduced.

In addition, the Defendants were deprived of a further 30% of their costs to reflect the costs incurred by the Claimants in dealing with issues caused by the Defendants’ dishonesty at trial. The judge concluded that, whilst an inevitably imprecise measure, she considered this to be a fair and proportionate additional reduction due to the gravity of the Defendants’ misconduct. The Claimant was awarded no order for costs, on the basis of their conduct and the overriding fact that they were the unsuccessful party in the claim.

Standing back, the judge considered that an order in favour of the Defendants for 30% of their costs was reasonable in all the circumstances of the case.

 

The Appeal

The Appellant submitted that the Claimant’s conduct in failing to engage was not given sufficient weight however this was found to be untenable; the judge considered the comments of the trial judge and concluded that she had fully considered the Claimant’s conduct and explained how the conduct impacted her decision. He concluded that there was no scope for an appellate Court to intervene and therefore no costs order was made in favour of the Claimant to reflect its conduct.

It was also submitted that the Court had double counted the reduction and applied both reductions to reflect the poor conduct of the Defendants. The Court of Appeal held that this had been misconstrued by the Fourth Defendant and referred to the approach set out in Bank of Tokyo-Mitsubishi UFJ Ltd v Baskan Gida Sanayi Ve Pazarlama AS [2010] 5 Costs LR 657; this provided that costs could be disallowed due to advancing a dishonest case however an additional penalty could also be imposed to reflect the Courts disapproval of this conduct.

It was also submitted that there was no dishonesty on behalf of the Fourth Defendant and that he simply relied on the version of events put forward by the other Defendants. It was also submitted that he was an elderly gentleman and therefore, much of what had been perceived as dishonesty was realistically down to confusion and memory. On consideration of the facts however it was concluded that this was not the case as the Fourth Defendant was much more lucid than it was suggested. The trial judge concluded that, had the Fourth Defendant not known the that the facts as pleaded by the other Defendants were true, he should not have pleaded his case as such, especially in the face of the evidence to the contrary. The trial judge was therefore correct to find that the Fourth Defendant had advanced a dishonest case.

In relation to the offers to settle, the argument that the Claimants failure to accept any reasonable offer should be considered was dismissed. It was held to not be enough to state that the acceptance of the Fourth Defendants offer would have avoided the need for proceedings to commence. The offers came with unnecessary ‘strings attached’ and although offers to settle will be considered when making costs orders, they will not invite an overriding decision that Costs automatically be assessed on the indemnity basis. There was found to be no error in principle regarding the decision to assess costs on the standard basis and the submission for indemnity costs was deemed to be hopeless.

 

Commentary

This appeal illustrates the hurdles that an Appellant faces when appealing a costs order. CPR 44.2 makes it clear that any orders with regards to costs are within the Judge’s discretion. Therefore, in order to be successful on appeal, a party must be confident that the approach taken with regards to consideration of the costs was flawed; it will not be sufficient to submit that the judge simply arrived at the wrong decision, Due to this, appeals of costs decisions are seldom brought.

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