In the matter of Andrews v Retro Computers Ltd [2019] EWHC B2 (Costs) Deputy Master Friston provided guidance on the application of CPR 44.11(1)(b) and the Court’s power to disallow costs on the basis of unreasonable or improper conduct.
Overview
The comments of Deputy Master Friston suggest that the application of CPR 44.11 is intended for consideration when making an order for payment of costs rather than when considering the level of costs on assessment. Therefore where a paying party seeks to raise conduct as an issue, particularly where conduct has already been considered, it may be more fruitful to raise conduct as a general issue under CPR 44.4. In any event, it would clearly not have been appropriate to expect the costs judge to consider an issue that had already been decided at the final hearing. In this instance, given that the Defendants were clearly unhappy with the basis of the Order itself, perhaps the appropriate route would have been for the Defendants to appeal the Order of Proudman J.
Background
Paul Andrews, Christopher Smith (the Claimants) and Mr David Levy (the Second Defendant) acted as directors of Retro Computers Limited (the First Defendant). The company had successfully produced a crowdfunded games console, known as the Vega, and ventured to produce a further console, ZX Spectrum Vega+, also through crowdfunding. Ms Suzanne Martin (the Third Defendant) was appointed as a public relations consultant. A disagreement ensued regarding the amount the directors should be paid and also whether the consultancy with the Third Defendant should be terminated. The Claimants subsequently resigned as directors but remained share-holders.
The relationship significantly deteriorated and the Defendants alleged that the Claimants misappropriated funds from the First Defendant. The Defendants demanded repayment and issued a notice of intended forfeiture of shares in the event that the funds were not paid. In November 2016 the Claimant applied for injunctive relief, which included allegations of harassment and intimidation.
The matter proceeded to a final hearing and Proudman J would not declare the shares of the Claimants to be forfeited. Costs were reserved until a final hearing on 9 February 2017 where the Defendants were ordered to pay the costs generally, subject to a few areas where the Claimants were required to pay costs (which involved conduct issues). Deputy Master Friston provisionally assessed the Claimant’s costs in June 2018 at £38,392.80 (inclusive of VAT, but exclusive of interest). The Defendant’s costs are yet to be assessed.
Defendants’ Allegations
The Defendants were not content with the assessment as they submitted that the behaviour of the Claimants amounted to unreasonable behaviour within the meaning of CPR, r 44.11(1)(b), and that as a result, some or all of the Claimants’ costs ought to be disallowed. The Defendant served Particulars which detailed allegations that the First Claimant had lied within witness evidence, concealed evidence, intercepted confidential emails, misappropriated revenue from the First Defendant and had prevented the First Defendant from pursuing its business effectively. This matter was again put before Deputy Master Friston.
Standard of Conduct and Sanctions
CPR 44.11
(1) The court may make an order under this rule where –
(a) a party or that party’s legal representative, in connection with a summary or detailed assessment, fails to comply with a rule, practice direction or court order; or
(b) it appears to the court that the conduct of a party or that party’s legal representative, before or during the proceedings or in the assessment proceedings, was unreasonable or improper.
(2) Where paragraph (1) applies, the court may –
(a) disallow all or part of the costs which are being assessed; or
(b) order the party at fault or that party’s legal representative to pay costs which that party or legal representative has caused any other party to incur.
Findings of Deputy Master Friston
Deputy Master Friston considered various definitions of unreasonable and improper behaviour, including comments within Ridehalgh v Horsefield [1994] Ch 205 and Lahey v Pirelli Tyres Ltd [2007] EWCA Civ 91. He then turned to consider the application of CPR 44.11 specifically and the comments of Dyson LJ in Lahey:
“The short answer to the defendant’s submission [that the cost should be reduced by a percentage] is that the costs judge has no power to vary the costs order that is deemed to have been made. In our judgment, this is a complete answer to [the paying party’s] submissions, whether based on [the-then equivalents of CPR, r 44.3 and 44.4 or 44.11]. It follows that the costs judge has no jurisdiction to make an order of the kind contended for by the defendant in this case.”
He however noted that these comments were made at a time when the provisions of CPR 44.11 were limited to conduct within the claim itself rather than during the assessment of costs and turned to consider the comments of Hickinbottom LJ in the matter of Gempride v Bamrah [2018] EWCA Civ 1367:
“The jurisdiction is not compensatory: it is not necessary to show that the applicant has suffered any loss as a result of the misconduct. It is a jurisdiction intended to mark the court’s disapproval of the failure of a party or of a legal representative to comply with his duty to the court by way of an appropriate and proportionate sanction.”
He noted that there was some level of tension between the comments of Dyson LJ and Hickinbottom LJ as Gempride implies that a costs judge has the ability to reduce costs in a way that is discretionary (as opposed to as a matter of assessment). He considered the changes to the overriding objective in 2013 and commented that the principle in Lahey was more likely to be enduring; allowing the parties to lengthen detailed assessment proceedings by considering conduct where an issues based costs order had already been decided on the basis of conduct would be allowing a second bite of the cherry and therefore in contention with the overriding objective. He went on to conclude that further considering any conduct issues would be akin to a type of double jeopardy.
He also considered the allegations made by the Defendant and noted that, in any event, he either did not have enough evidence to uphold the allegations or that the allegations were outside the realms of the claim itself.
The application of the Defendant was dismissed and the Claimant’s costs remained assessed in the sum of £38,392.80 (inclusive of VAT, but exclusive of interest).
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