CLAIMANT DISCONTINUES – BUT NO ORDER FOR COSTS: THE PRINCIPLES CONSIDERED

In Sheinberg v Abdon & Ors [2019] EWHC 3220 (Ch) Master Clark decided that there should be no order for costs after a claimant discontinued his case. The conduct of the defendants was a highly relevant factor.

“The amount involved is about £55,000, although not all of that is in dispute. The parties’ combined costs of the claim are over £37,000”

THE CASE

The action was between owners of leasehold flats in London and in relation to the management of those flats.

“The claim arises out of a long-running and ill-tempered dispute between the parties as to how the affairs of the company should be managed, and in particular, the cost of refurbishment in 2014-2016 of the communal areas of the property, and the consequent treatment of the cost of that refurbishment in the company’s statutory accounts. The amount involved is about £55,000, although not all of that is in dispute. The parties’ combined costs of the claim are over £37,000”

DISCONTINUANCE

The claimant issued proceedings and certain steps were taken by the defendants. The claimant then discontinued.

LIABILITY FOR COSTS

The Master considered the relevant principles.
Discontinuance: relevant legal principles
    1. There was no dispute as to the applicable legal principles. CPR 38.6 provides that:
“Unless the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant against whom the claimant discontinues incurred on or before the date on which notice of discontinuance was served on the defendant.”
    1. Also relevant is CPR 44.2 which sets out the considerations the court is to take into account when making an order about costs. CPR 44.2(4) provides that the court will have regard to all of the circumstances including the conduct of all the parties. The context for the court’s consideration of all of the circumstances under CPR 44.2 is the determination of whether there is a good reason to depart from the presumption laid down by CPR 38.6: see Nelson’s Yard Management Co v Eziefula [2013] EWCA Civ 235 at paragraph 15 (Moore-Bick LJ).
    2. CPR 44.2(5) provides that the conduct of the parties includes:
(1) conduct before, as well as during, the proceedings and in particular the extent to which the parties followed the Practice Direction on Pre-Action Conduct or any relevant pre-action protocol;
(2) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; and
(3) the manner in which a party has pursued or defended its case or a particular allegation or issue.
    1. The principles applicable to the exercise of the court’s discretion under CPR 38.6 were summarised by the Court of Appeal in Brookes v HSBC Bank plc [2011] EWCA Civ 354 (para 6):
“(1) when a claimant discontinues the proceedings, there is a presumption by reason of CPR 38.6 that the defendant should recover his costs; the burden is on the claimant to show a good reason for departing from that position;
(2) the fact that the claimant would or might well have succeeded at trial is not itself a sufficient reason for doing so;
(3) however, if it is plain that the claim would have failed, that is an additional factor in favour of applying the presumption;
(4) the mere fact that the claimant’s decision to discontinue may have been motivated by practical, pragmatic or financial reasons as opposed to a lack of confidence in the merits of the case will not suffice to displace the presumption;
(5) if the claimant is to succeed in displacing the presumption, he will usually need to show a change of circumstances to which he has not himself contributed;
(6) however, no change in circumstances is likely to suffice unless it has been brought about by some form of unreasonable conduct on the part of the defendant which in all the circumstances provides a good reason for departing from the rule.”
    1. The court observed in Brookes (at [10] that:
“[i]t is clear, therefore, from the terms of the rule itself and from the authorities that a claimant who seeks to persuade the court to depart from the normal position must provide cogent reasons for doing so and is unlikely to satisfy that requirement save in unusual circumstances.”.
    1. The 6 point summary from Brookes was adopted and approved by the Court of Appeal in Nelson’s Yard. There, it was reiterated that it is not the function of the court considering costs to determine whether the claim would have succeeded, although the court is permitted to consider whether the unreasonableness of the defendant’s conduct provides a good reason to depart from the default rule. The court may take account of matters relating to conduct where it does not have to resolve disputed questions as to the merits of the substantive claim.
    2. In Nelson’s Yard, the defendant had failed to respond to pre-action correspondence relating to excavation work he was carrying out close to the claimants’ property. The claimants subsequently commenced proceedings for (among other things) injunctive relief to restrain development and to permit inspection of the foundations of the claimants’ property. The defendant then allowed the claimants’ surveyor to inspect and proceedings were subsequently discontinued. On costs, the court took account of “the reasonable perception by the claimants that their property was at risk of collapsing, coupled with the failure of the defendant to respond to pre-action correspondence, and his subsequent conduct giving the claimants in substance what they had requested” (paragraph 40). The claimants were awarded their costs up to service of the defence, and thereafter there was no order for costs.
Discussion and conclusion
    1. In my judgment the defendants have behaved sufficiently unreasonably to justify departing from the general rule that the discontinuing claimant pays the costs of the claim. The specific aspects in which they have done so are as follows.
    2. First, in my judgment, the defendants acted unreasonably in July 2018:
(1) in refusing to attend a general meeting, unless the claimant removed his resolution to appoint his wife as a director from the agenda; and
(2) in proposing that the claimant and his wife be entitled to hold only one share, instead of the two shares currently held by them; the effect of this proposal, if implemented, would have been to disenfranchise the claimant and his wife in the governance of the company, notwithstanding the fact that they owned 2 flats and paid 42% of the service charge.
The defendants’ counsel submitted that this conduct was “historic”, and not directly related to the matters with which the claim is concerned. I do not accept that. The claim form refers in general terms to the resolution of “the issues pertaining to the company’s accounts and ongoing corporate governance“. These issues were live between the parties in July 2018, and remained live until resolved at the general meeting on 12 June 2019.
    1. Secondly, the defendants again unreasonably refused to attend a general meeting by their solicitors’ letter dated 4 April 2019, in which they declined to agree to a meeting “at this stage”. Their counsel submitted that this was not a refusal, because the pre-condition for the meeting, namely the filing of estimated accounts, had not occurred at that point. However, the letter did not agree to a meeting or put forward any specific proposal as to when a meeting could take place. Furthermore, the defendants’ own evidence was that they did not wish to attend a meeting: they were “genuinely anxious at the thought of attending another meeting with [the claimant] present” and believed that such a meeting “could destroy the progress as well as causing personal distress”. This is consistent with their long-standing reluctance to attend a meeting: over a 3 year period, the defendants have never made an unconditional offer for a general meeting of the company. Their attitude to attending meetings was in my judgment, unreasonable, in that the governance of the company required meetings to be held, irrespective of the defendants’ personal feelings about them.
    2. Thirdly, I consider that that the defendants acted unreasonably by:
(1) failing to engage at all with the claimant’s proposals in respect of the Original Feeder Documents set out in WG’s letter dated 5 March 2019, and responding in their solicitors’ letter of 8 March 2019 with generalised derogatory comments;
(2) in their solicitors’ letter dated 20 March 2019, taking an unreasonably narrow approach (later abandoned) to the basis on which estimated accounts could be submitted;
(3) delaying until 4 April 2019 in accepting that estimated accounts could be filed, when this should have been apparent from the Companies Registrar’s letter of 14 September 2018;
(4) putting forward on 4 April 2019 the New Feeder Documents: this was 7 months after the Original Feeder Documents had been put forward and 6 months after the original deadline for the 2017 accounts had passed, so that filing the estimated accounts had become a matter of urgency;
(5) in their solicitors’ letter of 4 April 2019 opposing the claimant’s proposal for a meeting, without putting forward any mechanism for the resolution of the outstanding issues between the parties.
  1. The defendants’ counsel submitted that the claim was misconceived, because the defendants were always willing to attend a general meeting; and that there was, therefore, no causal link between the proceedings having been issued and the meeting taking place. For the reasons given above, I reject that submission.
  2. The defendants’ counsel also submitted that the claimant’s own conduct meant that the general rule applicable to a discontinuing claimant was not displaced. He submitted first, that the claim was brought with improper haste, because the claimant had not written a letter before claim setting out the basis of his claim.
  3. I do not accept that submission. The issue of whether there should be a general meeting had been live between the parties since July 2018. It was raised again in WG’s letter of 25 March 2019, which referred to seeking assistance from the court with resolving the issues in dispute concerning the company. WG’s letter of 2 April 2019 again made it clear that he was seeking a general meeting, and warned of an application for “injunctive relief”. The fact that the claimant’s solicitor did not write a letter specifically referring to s.306 of the Companies Act 2006 does not in my judgment render his proceedings “precipitate” as alleged by the defendants.
  4. The defendants also criticised the claimant for not taking any procedural steps to obtain an urgent hearing for the relief sought in para (1) of his claim form; but since this is now conceded to be misconceived, this is subsumed within the total failure of that part of the claim.
  5. Similarly, the defendants criticised the claimant for bringing his claim by Part 8 claim form when it involved substantial questions of fact. However, in my judgment this criticism applies only to para (1) of the claim form. The relief sought in para (2) does not involve any significant questions of fact and is entirely suitable to be brought by Part 8 claim.
  6. Finally, the defendants relied upon their open offer and without prejudice save as to costs (“wpsatc”) offer, both dated 3 May 2019. However, neither of these offers provided a binding means by which the parties could resolve the various issues between them, and did not therefore provide an adequate substitute for the meeting sought by the claimant.
  7. However, my criticisms of the defendants do not, in my judgment, justify an order that the defendants pay the claimant’s costs for the following reasons. First, as noted, the claim under para (1) of the claim form was bound to fail. Secondly, I take into account that what was achieved at the general meeting was in substance what had been proposed by the defendants in correspondence, albeit that the effect of its being decided at the general meeting was that it was a binding decision by the company.
  8. Taking all the above circumstances into account therefore, I consider that the appropriate order is no order as to costs.