John McKeown v Diana Langer
| Jurisdiction | England & Wales |
| Judge | Lord Justice Green,Lord Justice Nugee,Lord Justice Lewison |
| Judgment Date | 26 November 2021 |
| Neutral Citation | [2021] EWCA Civ 1792 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2021/0348 |
[2021] EWCA Civ 1792
Lord Justice Lewison
Lord Justice Green
and
Lord Justice Nugee
Case No: A3/2021/0348
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM The High Court of Justice
Business & Property Courts of England & Wales
Insolvency & Companies List (ChD)
Mr Nicholas Thompsell (sitting as a Deputy Judge of the High Court)
[2021] EWHC 451 (Ch)
Royal Courts of Justice
Strand, London, WC2A 2LL
Jamie Carpenter QC & Maxwell Myers (instructed by Brook Martin & Co Solicitors) for the Appellant
Anna Lintner (instructed by Russells) for the Respondent
Hearing date: Wednesday 20 October 2021
Approved Judgment
A. Introduction: The Issue
A narrow issue arises for determination upon this appeal. In litigation where there are split issues (such as liability preceding quantum), where no offer to settle the litigation under CPR Part 36 has been made, and where one party makes a without prejudice save as to costs offer covering the entirety of the litigation (“ a Calderbank offer”) how might the discretion as to costs under CPR 44.2 be exercised? In particular, where the judge is aware of the existence of the Calderbank offer but unaware of the date it was made, or as to its terms, is the judge, in effect, bound to treat such an offer as equivalent to an offer under CPR 36 and defer a ruling on costs until the conclusion of all stages of the litigation?
B. The facts
Procedural history
The facts of the underlying litigation may be shortly summarised. On 2 nd April 2019, the respondent brought a petition for unfair prejudice pursuant to Section 994 Companies Act 2006. She is a minority shareholder in a company engaged in providing lap dancing and entertainment services and which owns a number of establishments in the centre of London. By a case management order dated 11 th December 2019, it was ordered that there be a split trial of the petition with liability to precede valuation. The first stage trial (“ the liability trial”) was heard over the course of 9 days between 19 th – 30 th November 2020. The issues to be determined were as follows. First, whether the appellant, as majority shareholder in The Stratos Club Limited (“ the Company”), had unfairly prejudiced the respondent's interests as a minority (25%) shareholder in the Company. Secondly, if so, what was the appropriate form of relief. Thirdly, if relief was ordered and was that the majority should purchase the respondent's shares in the Company at a price to be determined, the appropriate basis and mechanism for the valuation of those shares.
Judgment was given on 21 st December 2020 ( [2020] EWHC 3485 (Ch)) (“ the liability judgment”). The judge found that the appellant had unfairly prejudiced the interests of the respondent: (i) by causing the Company to sell the business and assets of the “Soho Club” to a company owned by the appellant for the sum of £10,000 in circumstances where the true value of the club was in excess of £800,000; (ii) by acquiring the “Euston Club” for himself in circumstances where the Company required new premises from which to trade the “Marylebone Club”; (iii) by transferring the business and assets of the “Marylebone Club” to companies owned by the appellant at an undervalue; (iv) by using the assets of the Company to make excessive payments of salary and rent to family and friends; (v) by using assets of the Company to pay the appellant an excessive salary; (vi) by using the assets of the Company to pay invoices relating to the legal costs of the appellant in the present proceedings; and (vii), in the maladministration of the respondent's shareholder loan account.
On 27 th January 2021, the judge ordered relief in the form of a share purchase order pursuant to which the appellant was ordered to acquire the respondent's shares in the Company. Further, the appellant was ordered to assume the liability to repay the respondent's shareholders' loan account with the consequence that the appellant was precluded from continuing oppressively to threaten legal action against the respondent to seek repayment of the loan account.
Permission to appeal against this judgment was refused by Newey LJ on 3 rd May 2021.
On 4 th February 2021, the judge gave judgment in relation to the costs of the liability trial (“ the costs judgment” — [2021] EWHC 451 (Ch)). He ordered the appellant to pay the respondent's costs of the proceedings up to and including and consequential upon the liability trial including in relation to the hearing for costs. He also ordered that the respondent's costs incurred in relation to disclosure, expert evidence, pre-trial review, trial preparation and trial phases of the respondent's cost budget be assessed upon an indemnity basis by reason of the unreasonable conduct of the appellant leading up to and during the trial. Finally, the appellant was ordered to make a payment of £450,000 on account of the respondent's costs.
By an order dated 25 th February 2021 the judge ordered the appellant to make an interim payment on account of the sum that he was likely to be ordered to pay for the respondent's shares in the sum of £200,000. The judge further ordered the appellant to pay the respondent's costs of the interim payment application in a sum exceeding £35,000.
The offers to settle
Various offers to settle were made during the course of the proceedings.
First, on 23 rd August 2018, prior to issue of the petition, the respondent made an offer to the appellant that he purchase the respondent's shares in the Company at a price to be determined by an independent expert ( an “ O'Neill offer”) following the guidance given in ( O'Neill v Phillips [1999] 1 WLR 1092 (“ O'Neill”). The offer specified the assumptions which were to govern the purchase. In the light of the liability judgment the proposed buy-out terms were more favourable to the appellant than those ordered by the judge. The offer was rejected. On 2 nd April 2019, the same offer was repeated. Again, it was rejected. It is pointed out by Ms Lintner, counsel for the respondent, that both these open offers were rejected by the appellant notwithstanding the repeated assertion, included in written submissions before this court, that the respondent's shares were valueless. Neither of these offers is referred to in the costs judgment.
Secondly, on a date which was not specified to the judge or recorded in the costs judgment, the appellant made an open offer to acquire the respondent's shares for £25,000. The judge took this into account when determining costs.
Thirdly, a global Calderbank offer was made. The judge recorded that he was aware that an offer had been made but that he had not been told who had made the offer or what its terms were or when it had been made. The judge was told that this was not an offer under CPR Part 36. This court was informed that the offer was in fact made on 27 th May 2020 which is substantially after the petition was first issued and subsequent to a great deal of the preparatory work for trial having been undertaken. The judge recorded that the respondent proposed that the correspondence concerning the offer, insofar as it bore upon the liability trial, be placed before the court suitably redacted. Counsel for the appellant however resisted this approach, even upon a redacted basis, arguing that the redaction might leave the court with a misleading impression. He insisted that he was entitled not to place the offer before the court (citing Nea Karteria Maritime Co v Atlantic and Great Lakes Steamship Corp [1981] Comm LR 132). The appellant nonetheless contended that the court should still take the “ existence at large of this correspondence and this offer” into account in deciding whether to award costs at this stage and that it should be treated as equivalent to a CPR Part 36 offer. The argument was advanced upon the basis that it was well-established under CPR Part 36 that the existence of an offer in the case of a split hearing displaced the normal presumption that costs would be awarded at the end of the first stage. As explained below the judge rejected this analysis.
The appellant made no CPR Part 36 offer in relation to either the liability issues or the proceedings as a whole, nor did the appellant make an O'Neill offer.
The costs judgment
As observed, the respondent sought orders under CPR 44.2 that the appellant pay the respondent's costs and the Judge agreed.
CPR Rule 44.2 (1)-(5) is in the following terms:
“ Court's discretion as to costs 44.2
(1) The court has discretion as to –
(a) whether costs are payable by one party to another;
(b) the amount of those costs; and
(c) when they are to be paid.
(2) If the court decides to make an order about costs –
(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but
(b) the court may make a different order.
(3) The general rule does not apply to the following proceedings –
(a) proceedings in the Court of Appeal on an application or appeal made in connection with proceedings in the Family Division; or
(b) proceedings in the Court of Appeal from a judgment, direction, decision or order given or made in probate proceedings or family proceedings.
(4) In deciding what order (if any) to make about costs, the court will have regard to all the circumstances, including –
(a) the conduct of all the parties;
(b) whether a party has succeeded on part of its case, even if that party has not been wholly successful; and
(c) any admissible offer to settle made by a party which is drawn to the court's attention, and which is not an offer to which costs consequences under Part 36 apply.
(5) The conduct of the parties includes –
(a) conduct before, as well as during, the proceedings and...
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