COSTS BITES 53: POSSIBILITY OF AN APPEAL AND INABILITY TO RELY ON COSTS BUDGET ARE NOT GROUNDS FOR REFUSING AN INTERIM ORDER FOR COSTS

In Isaac v Tan & Anor (Re Costs) [2022] EWHC 3478 (Ch) Mr Justice Adam Johnson considered issues of costs following an unsuccessful unfair prejudice application relating to the shares of Cardiff City Football Club.  He held that the application had failed and the petitioner should pay the costs.  The fact that there was a possibility of an appeal, and that the costs budget was not an accurate guide to the recoverable costs, did not amount to good reasons to refuse an interim payment.  It is a reminder of the principle that there have to be good reasons not to make an order for an interim payment on costs.   There is a high bar.

 

“... these arguments come down to the question whether there is good reason not to make an interim payment on account. Unless there is good reason not to, then CPR 44.2(8) requires an Interim Order or interim payment to be made.”

 

THE CASE

The petitioner issued proceedings seeking a finding of unfair prejudice and an order that his shares in Cardiff Football Club be purchased.  The judge found that the allegations of unfair prejudice were not made out.

THE ARGUMENTS OVER COSTS

The respondents sought their costs. This was resisted by the petitioner arguing that points had been found against the respondents. The petitioner argued each party should bear their own costs.

In relation to an interim payment on account of costs the petitioner resisted any order for an interim payment.  Firstly because the costs budget in the case did not provide an accurate guide, the hearing having proceeded on two discrete issue. Secondly because there were good grounds for an appeal.

THE JUDGMENT ON COSTS

The judge held that the petitioner was the unsuccessful party. The action had failed and he had to pay the costs.  Whilst there was uncertainty as to costs this did not prevent an interim payment on costs being made, albeit caution had to be exercised. The possibility of an appeal did not constitute good grounds for refusing to make an interim costs order.

Incidence of Costs/Issues-based Costs Order
    1. I propose to deal with matters in the following way.
    1. To begin with and taking Mr Rudall’s last point first, I think it irrelevant in determining the incidence of costs that there may be an appeal. That may be relevant to the question of whether any costs Order should be stayed pending appeal, but in my judgment it has no bearing on whether an order should be made and on the appropriate form of order.
    1. Further, turning to the matters determined in my judgment following the trial, it does seem to me appropriate to regard the Respondents as the successful parties overall. That is because the substance of the relief sought by Mr Isaac was a finding of unfair prejudice and an order for the acquisition of his shares. The result of the trial was a finding that there was no unfair prejudice and that there should be no Order for Mr Tan to buy out Mr Isaac’s shareholding.
    1. I do not think it alters this overall conclusion to say that I made findings that Mr Tan was motivated by a degree of personal animosity towards Mr Isaac. I likewise held that that personal animosity was of no real legal significance. Neither do I consider it makes a difference that Mr Isaac had a measure of success on the valuation question. For one thing, given my findings on unfair prejudice, the point was moot. For another, I think it wrong to describe Mr Isaac as the winner on the valuation question given that his own valuation figure was in the region of £2,900,000 or £1,600,000 after application of a minority discount. In other words, the valuation finally arrived at was much lower than that contended for by Mr Isaac, and in terms of the relative levels of success of the parties was rather closer to the nil valuation figure put forward by the Respondents than to Mr Isaac’s claimed value.
    1. It frequently happens in hard-fought litigation that one party, even if unsuccessful overall, nonetheless succeeds on one or more issues in the overall mix, but that does not mean that one should depart from the usual approach of seeking to assess who is the overall victor. It is a question of fact and degree in each case and in this case, for the reasons I have given, I consider that the Respondents were successful overall on the issues tried before me. I therefore conclude that they should be entitled to an order for their costs to be subject to detailed assessment if not agreed.
Payment on Account
    1. Moving on, the question of interim payment on account is of course a different one. As to this CPR 44.2(8) provides:

“Where the court orders a party to pay costs subject to detailed assessment, it will order that party to pay a reasonable sum on account of costs, unless there is good reason not to do so.”

    1. As I have explained, the Respondents in this case say it is possible to identify what is a reasonable amount by reference to the costs identified in the budgeting process, i.e. 70% of the costs actually incurred up to June 2020 and 90% of the budgeted costs thereafter.
    1. Mr Rudall, however, says that the figures relied on by the Respondents provide an unreliable benchmark for assessing a reasonable sum on account of the costs awarded. That is because the costs in question are the costs of the issues resolved at the trial and those are narrower than the issues which were in play during the costs budgeting phase in June 2020. That follows because in April 2021, the defence was amended in a manner designed to limit the issues and, in the end, the only live issues at trial were the two which I resolved. Thus, if one were to use the figures from the costs budgeting phase as the benchmark, one would be using figures put together to address a very different size and shape of case than the one on which the Respondents have in fact been successful.
    1. In response, Ms Betts argues that although the scope of the trial was eventually narrowed, that was no thanks to Mr Isaac, who despite the concessions made in the defence in April 2021 continued to press for resolution of a broader set of issues. She also made the point that neither side had applied to vary their costs budgets as they could have done, including so as to revise the figures downwards. She also suggested it might be useful as a kind of thought experiment to imagine what application for an interim payment would have been made in circumstances in which there was no costs budget. Here, according to the Respondents’ solicitor’s evidence, the costs incurred are very large and something in the region of £900,000.
    1. Standing back, I think these arguments come down to the question whether there is good reason not to make an interim payment on account. Unless there is good reason not to, then CPR 44.2(8) requires an Interim Order or interim payment to be made.
    1. In my opinion, and having reflected on the submissions made by the parties, the reasons advanced by Mr Rudall do not amount to a good reason not to make any order at all for an interim payment. It seems to me that what Mr Rudall is really saying is that arguably the figures relied on at the costs budgeting stage may not in this case provide the reliable benchmark for assessing likely recoverable costs which they normally would, because the shape of the case changed and became narrower after the budgeting exercise was completed. Thus, one cannot safely assume (as one otherwise would) that the budgeted figure represents a highly reliable estimate of the likely recovery on detailed assessment.
    1. I see there is force in that point but it seems to me the proper answer to it is not to refuse to make any order at all but instead to exercise a greater degree of caution than one otherwise might in benchmarking the amount of the interim payment against the amount in the budget. To put it another way, there is greater uncertainty in this case than in the usual run of cases and so it is appropriate to be particularly conservative in making deductions from the figures claimed.
  1. In the circumstances, what I propose is to order a payment on account corresponding to 50%, not 70%, of the costs incurred prior to the budgeting phase and 60%, not 90%, of the amount in the budget approved in June 2020. In each case, as in the Respondents’ original calculation, there should be added an allowance of 3% for the costs of costs management itself. I consider that this approach accommodates sufficiently the argument made by Mr Rudall and those made by Ms Betts which I have referred to. In particular it acknowledges the fact that despite the continuing uncertainty about the scope of the live issues in the case, the budgeted figures must be assumed to have had ongoing significance to the parties since no one applied to vary them. I do not think it helpful in the circumstances to speculate on what form of interim payment might have been appropriate had there been no costs budgeting in this case for the simple reason that there was costs budgeting.