Montpelier Business Reorganisation Ltd v Jones & Ors, Court of Appeal - Queen's Bench Division, September 12, 2017, [2017] EWHC 2273 (QB)

Issuing Organization:Queen's Bench Division
Actores:Montpelier Business Reorganisation Ltd v Jones & Ors
Resolution Date:September 12, 2017
 
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Case No: 2 LS 40452

Neutral Citation Number: [2017] EWHC 2273 (QB)

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION

LEEDS DISTRICT REGISTRY

MERCANTILE COURT

The Court House

Oxford Row

Leeds LS1 3BG

12 September 2017

Before :

His Honour Judge Saffman sitting as a Judge of the High Court

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Between :

Defendants

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Miss C Toman (instructed by Shulmans) for the 4th defendant

Mr S Fennell (instructed by Lupton Fawcett Dennison Till) for the 6th and 7th defendants

No other party appeared or was represented

Hearing date: 1 August 2017

Date draft circulated to the Parties 9 August 2017

Date handed down 12 September 2017

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I direct that, pursuant to CPR PD 39A para 6.1, no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

JUDGMENTIntroduction

  1. On 5 July 2016, I handed down judgment in this claim and counterclaim. I do not intend to set out in this judgment the facts, issues and determinations that I made in the course of my earlier judgment save in the very briefest form. It is reported at 2016 EWHC 977 should anyone care to read it.

  2. Suffice it to say that the dispute between the parties concerned an Asset Purchase Agreement and a Management Services Agreement entered into between the claimant and the 1st to 5th defendants. By the Asset Purchase Agreement the claimant agreed to purchase the business and assets of the 1st and 2nd defendants. The claim arose because the claimant asserted that the defendants were in breach of the agreements with the result that the claimant was absolved from liability to make a payment of £250,000 being the final part of the sale price of £500,000 and, in addition, that the breaches gave rise to a liability on the part of the defendants to pay damages of in excess of £1million. The defendants denied breach of contract and asserted that, albeit that it was accepted that monies were due to the claimant pursuant to the agreements, those monies were considerably less than the £250,000 owed by the claimant to the defendants. It was not disputed that, in the circumstances, the claimant was entitled to set off monies due to it but there was still the balance due to the defendants.

  3. I rejected the claimant's assertion that they were absolved from the obligation to pay the sum of £250,000. I found that they were liable to the defendants for that sum less such sums as they were entitled to set off from it which I found to be £198,906.72. I determined that, in the result, the defendants were entitled to £51,093.28, plus interest less a nominal sum which I set at £93.28, to reflect some breaches of the agreements by at least one of the defendants but which had not resulted in any loss to the claimant or gain to the defendants. The claimant's claim for in excess of £1million was therefore rejected.

  4. The judgment clearly favoured the defendants and thus those defendants who had taken an active part in the litigation namely the 3rd, 4th and 5th defendants were awarded their costs together with a payment on account of costs. The payment on account was £7000 to each of the 3rd and 5th defendants on the basis that they had not incurred legal fees but had acted in person and £100,000 in favour of the 4th defendant who had been legally represented throughout.

  5. Neither the damages nor the costs on account have been paid by the claimant nor will they be since the claimant is insolvent. Because even at the time of handing down the judgment and considerably before then, it was clear, by virtue of its insolvency, that the claimant would be unable to discharge the costs order, Mr Hugh Jory QC counsel for the 4th defendant made an application for the 6th , 7th and 8th defendants to be joined into these proceedings in order for the court to consider whether it was appropriate to make a non-party costs order against them. I acceded to that request and indeed the order that I made that day sets out briefly why I did so.

  6. It records as a recital that Mr Philip Nuttall, a director of the claimant and of the 6th defendant had given evidence at the trial that the 6th and 7th defendant had assisted in the funding of the action by the claimant and it further recited that Mr Edward Watkin Gittins a director of the 7th defendant had given evidence that the 8th defendant had also assisted in the funding of the action. The order also recited that the 7th defendant was a 50% shareholder in the claimant and that the 8th defendant was the 7th defendant's parent company and that both therefore stood to gain from any successful recovery by the claimant in the action.

  7. Subsequently, on 8 May 2017, an order was made which gave directions in relation to the service and filing of evidence leading to the hearing on 1 August 2017 of the 4th defendant's application for a non-party costs order against the 6th and 7th defendants. Evidence has been exchanged in accordance with the order of 8 May. On 1st August I heard very helpful oral argument from Miss Cristin Toman, counsel on behalf of the 4th defendant and from Mr Steven Fennell, counsel behalf of the 6th and 7th defendants and of course I have their helpful skeleton arguments.

  8. The claim against the 8th defendant for a non-party costs order was stayed on 8 May 2017 at the request of the 4th defendant. It should be emphasised that that request was made not because the 4th defendant was not confident that his claim against the 8th defendant was justified but rather on the basis that it would be inappropriate at this stage to pursue it on pragmatic grounds.

  9. In my judgment of July 2016 I set out the dramatis personae but for ease of reference it is wise to do so again. In doing so and hereafter and to avoid confusion I shall refer to the defendants not by reference to the order in which they appear in the title of the pleadings but rather by an abbreviation of their names. Thus the 4th defendant shall be called ``Mr Armitage'', the 6th defendant shall be called ``MP Leeds'', the 7th defendant shall be called ``MPL'' and the 8th defendant shall be called ``the LLC''

    a. The shares in the claimant are held as to 50% by MPL and 50% by Messrs Jones, Padgett and Armitage. Mr Armitage therefore is a minority shareholder in the claimant. Mr Philip Nuttall was the sole director of the claimant company for the duration of the proceedings although initially, and before the parties fell out, Messrs Padgett, Jones and Armitage were also directors.

    b. MP Leeds is a subsidiary of MPL. 80% of the shares in MP Leeds are held by MPL and 20% by Mr Nuttall who is one of its directors.

    c. Mr Gittins is the sole director and majority shareholder of MPL. By virtue of this he and MPL have a direct interest in MP Leeds and the claimant.

    d. The LLC is the ultimate parent company of MPL. As I understand it, Mr Gittins is the majority shareholder in the LLC.

    The Law

  10. The jurisdiction of the court to make an order that the costs of any litigation be borne by someone who was not a party to that litigation is derived from section 51 Senior Courts Act 1981 which provides so far as it is relevant as follows:

    Subject to the provisions of this or any other enactment and to rules of court the costs of and incidental to all proceedings in -

    .... (b) the High Court

    shall be in the discretion of the court......

    (3) The court shall have full power to determine by whom and to what extent the costs are to be paid.

  11. It is common ground that, although the section does not say so in terms, it bestows upon the court the jurisdiction to make, in appropriate cases, an order that the costs of litigation be borne by a person who was not a party to the litigation.

  12. The procedure to be adopted in an application for a non-party costs order should be summary in nature with the judge making an order based on the evidence given and the facts found at trial, together with his assessment of the behaviour of those involved in the proceedings. The authority of that proposition is Deutsche Bank v Sebastian Holdings [2016] EWCA Civ 23 at paragraph 17.

  13. The principles by which a court must be guided when considering whether to make a non-party costs order have been considered by the courts on a number of occasions but a codification of the principles is perhaps best set out by Lord Browne in the Privy Council case of Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UK PC 39 paragraphs 25 to 29:

  14. A number of the decided cases have sought to catalogue the main principles governing the proper exercise of this discretion and their Lordships rather than undertake an exhaustive further survey of the many relevant cases, would seek to summarise the position as follows.

    1 ) Although costs orders against non-parties are to be regarded as "exceptional", exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such "exceptional" case is whether in all the circumstances it is just to make the order. It must be recognised that this is inevitably to some extent a fact-specific jurisdiction and that there will often be a number of different considerations in play, some militating in favour of an order, some against.

    2 ) Generally speaking the discretion will not be exercised against "pure funders", described in paragraph 40 of Hamilton v Al Fayed as "those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course". In their case the court's usual approach is to give priority to the public interest in the funded party getting access to justice over that of the successful unfunded party recovering his costs and so not having to bear the expense of vindicating his rights.

    3 ) Where, however, the non-party not merely funds...

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