Goodwood Recoveries Ltd v Breen
| Jurisdiction | England & Wales |
| Judge | Lord Justice May,Lord Justice Rix |
| Judgment Date | 19 April 2005 |
| Neutral Citation | [2005] EWCA Civ 414 |
| Docket Number | Case No: B2/2004/1175 |
| Court | Court of Appeal (Civil Division) |
| Date | 19 April 2005 |
[2005] EWCA Civ 414
Lord Justice May and
Lord Justice Rix
Case No: B2/2004/1175
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON CIVIL JUSTICE CENTRE
MR RECORDER WOODS
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Thomas Graham (instructed by Messrs Stitt & Co) for the Respondent
Mr Nicholas Bacon (instructed by Messrs Butcher Burns) for the Appellant
Introduction
This appeal concerns a costs order made by a trial judge against a third party under the general power now contained in subsection (3) of the reformulated section 51 of the Supreme Court Act 1981: see Aiden Shipping Co Ltd v. Interbulk Ltd (The Vimeira) [1986] 1 AC 965, where it was subsection (1) of the earlier form of section 51 which was in issue. I shall refer to section 51(3).
The costs order was made against the appellant, Mr Michael Slater, in circumstances where the judge described him as playing the parts of director, shareholder, company secretary, solicitor and investigator and only witness for the claimant. The claim which has given rise to the litigation and to the costs in question was purchased by Mr Slater's company and pursued by him in the name of his company (which he owned together with his wife). The judge had harsh things to say of Mr Slater's conduct in the course of the proceedings, finding that he had been dishonest in failing to disclose a key document, had lied in his evidence, and had attempted by means of an "intimidating and grossly improper letter" to persuade a witness from coming from overseas to give evidence at trial in favour of the defendant. The judge found that he had personally conducted the litigation as he thought fit both before and after the purported sale of the claimant company to another party. However, the judge did not find that he had funded the litigation, other than, it has to be said, arranging on his company's behalf a conditional fee arrangement with the firm of solicitors to which he was himself a consultant and in whose name he conducted the litigation himself. The judge suspended his judgment as to whether Mr Slater did or did not have a bona fide belief in the claim.
Against this unpromising background, none of which is disputed, Mr Nicholas Bacon has submitted on Mr Slater's behalf that the judge was not entitled to make him liable for the whole of the costs of the unsuccessful action, on the twin grounds that (1) it requires exceptional conduct to render a director liable for his company's litigation costs; and (2) such improper conduct as may exceptionally justify an order for costs against a director must be the effective cause of the incurring of the costs in question. Mr Bacon submits that in the present case it is critical that the judge did not make a finding of initial bad faith against Mr Slater; and that the conduct during the course of the litigation which was the subject of judicial criticism did not cause any costs other than the costs of an adjournment during the trial, for which the claimant's solicitors had already accepted financial responsibility.
On behalf of the defendant at trial and respondent to this appeal, Mr William Breen, it is submitted that the judge's order was justified; and, by a respondent's notice, that the judge should in any event have found that Mr Slater never had any bona fide belief in the claim.
Before returning to the parties' competing submissions and to the authorities which bear on them, I shall have to set out the factual background to them. This falls into four parts: the background to the claim against Mr Breen; Mr Slater's interest in it; the merits of the litigation against Mr Breen; Mr Slater's conduct of that litigation.
The background to the claim against Mr Breen
Back in the 1990s Mr Breen carried on business as a civil engineering and groundwork contractor through his company, W P Breen Ltd ("Breen Ltd"). He used to hire plant and machinery from Macloy Groundworks Ltd ("Macloy Ltd"), where a Mr Molloy was a director and a Mr McHale also played a major role.
In the latter part of 1998 both Breen Ltd and Macloy Ltd were facing financial difficulties. Macloy Ltd engaged a firm of solicitors, Butcher Burns, who had been introduced to them by their accountants and were not the solicitors who ordinarily acted for them, to obtain payment from Breen Ltd. Mr Slater was a consultant solicitor with Butcher Burns. After Breen Ltd had managed to pay off £20,000 of a larger debt, Mr Breen was prevailed upon by Butcher Burns (although not on this occasion acting through Mr Slater) to give a personal guarantee on 16 October 1998 for the then outstanding debt, inclusive of Butcher Burns' alleged fees, in the sum of £16,700.
On 15 December 1998 the Inland Revenue presented a winding up petition against Macloy Ltd. On 18 December 1998 Butcher Burns, on this occasion acting through Mr Slater, issued a bankruptcy petition against Mr Breen in respect of his guarantee.
On 10 February 1999 this bankruptcy petition was adjourned to 12 March 1999 and on that day it was dismissed with no order as to costs. It subsequently became an issue in the litigation between Mr Slater's company and Mr Breen as to why this happened. The judge found, and there is no appeal from that finding, that it was because at a meeting between 10 and 17 February 1999 between Mr Breen and Mr McHale (for the earlier part of which Mr Molloy had also been present) Mr Breen had come to terms with Macloy Ltd by paying them a sum of money in cash which was accepted in full discharge of his guarantee. On 17 February 1999 Macloy Ltd went into winding up.
On 24 February 1999 Mr Slater wrote a letter, bearing his initials, for Butcher Burns, to the Canterbury County Court thanking them for the order concerning the 10 February adjournment. The letter stated:
"Please note that it has been agreed that the Petition will be withdrawn and accordingly please refer this matter to a District Judge so that the Petition can be dismissed forthwith with no order as to costs."
That letter, which I shall refer to as the "24 February letter", did not state why it had been agreed that the petition would be withdrawn, but it was in fact because, as stated above, the parties had come to terms.
On the previous day, the Insolvency Service had written to Butcher Burns concerning the winding up order that had been made against Macloy Ltd on 17 February 1999, asking them for details of all matters in which they had acted as the company's solicitors over the last three years. Mr Slater handled the letter in reply on behalf of Butcher Burns: it was dated 8 March 1999 and read as follows:
"We acted for the Company between September 1998 and February 1999 in one matter only, namely proceedings against a debtor, W P Breen Limited and a director of this company, Mr W P Breen.
The debt was some £34,000 odd. Following legal action the sum of £20,000 was paid by the debtor directly to the company. Mr Breen personally guaranteed the outstanding balance plus costs. The balance due, £16,700 was not paid and we then issued bankruptcy proceedings against Mr Breen. Apparently terms were negotiated for the petition to be withdrawn but we had no involvement in these discussions and we do not know what terms were agreed.
For your information we are a creditor of the company in respect of unpaid fees of about £1,000…"
I shall refer to this letter as the "8 March letter". It is entirely consistent with Mr Slater being informed of the fact that Macloy Ltd and Mr Breen had come to terms, and with the instructions upon which he had acted in his letter to the court of 24 February having come from his clients.
There the matter rested, for almost three years.
Mr Slater's interest in the claim
On 28 January 2002 a company known as Nicholson Slater Limited (the "claimant") took an assignment by deed from the Official Receiver for Macloy Ltd of a debt of £16,700 plus accrued interest, said to be outstanding to Macloy Ltd from Breen Ltd and Mr Breen personally. The claimant paid the Official Receiver £1,000 for the assignment.
The claimant was a debt recovery company. Mr Slater and his wife were the sole directors and shareholders in it. Nicholson was Mrs Slater's maiden name. Mr Slater was also the company secretary. The company operated from their home. Butcher Burns were the claimant's solicitors, and Mr Slater acted in this matter for Butcher Burns as solicitor.
On 6 February 2002 Butcher Burns served a statutory demand on Mr Breen for £21,169 inclusive of interest. The statutory demand stated that any communication should be addressed to Mr Slater of Butcher Burns. On 15 February 2002 Mr Breen's solicitors wrote to Butcher Burns to confirm that Mr Breen made payment to Macloy Ltd in full and final settlement of any debt. On 26 February 2002 Mr Breen made a witness statement in relation to the statutory demand to similar effect. He annexed a letter from Mr Malloy dated 22 February 2002 that the debt "has been settled in full. Agreement on contra charges." On 26 May 2002 Mr McHale also made a witness statement evidencing the settlement.
On 10 April 2002 Butcher Burns presented a bankruptcy petition against Mr Breen, which was withdrawn on 28 June 2002. On 2 October 2002 Butcher Burns wrote a letter before action to Mr Breen at the end of which they informed him that on 27 September 2002 Butcher Burns had entered into a conditional fee...
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