Kings Security Systems Ltd v Anthony Douglas King

JurisdictionEngland & Wales
JudgeAndrew Lenon
Judgment Date19 March 2021
Neutral Citation[2021] EWHC 653 (Ch)
Date19 March 2021
Docket NumberCase No HC 2017-2379
CourtChancery Division

[2021] EWHC 653 (Ch)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

BUSINESS LIST (ChD)

Royal Courts of Justice

Rolls Building, Fetter Lane, London EC4A 1NL

Before:

Andrew Lenon Q.C. (sitting as a Deputy Judge of the Chancery Division)

Case No HC 2017-2379

Between:
Kings Security Systems Limited
Claimant
and
(1) Anthony Douglas King
(2) Stephen John James Evans
Defendants

Paul Downes QC and Joseph Sullivan (instructed by Teacher Stern LLP) for the Claimant.

Christopher Newman (instructed by Walker Morris LLP) for the First Defendant

JUDGMENT ON CONSEQUENTIAL MATTERS

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

1

This judgment follows a hearing by CVP on 3 March 2021 to deal with consequential matters arising out of my judgment dated 18 February 2021 (“the Judgment”).

2

The main issues to be determined concern the costs of the proceedings. Before addressing those issues, I will deal with three preliminary matters raised on behalf of Mr King.

Counter-restitution

3

First, Mr Newman submitted that I should not make any decision on costs until I have resolved an issue of counter-restitution arising out of my finding that the Settlement Agreement between Mr King and KSSL had been validly rescinded by KSSL.

4

He referred to the principle that a party rescinding a contract must make counter-restitution of benefits received under the transaction so as to restore the parties to their original position. He submitted that the principle should be applied in this case in the following way:

4.1 But for the Settlement Agreement, Mr King would have been entitled to be paid his salary for a period of five months, comprising two months during which KSSL would have been required to carry out a fair, reasonable and lawful investigation into Mr King's conduct and a further three months being the notice period under his contract of employment;

4.2 KSSL had benefited from the Settlement Agreement by being relieved of the obligation to pay Mr King's salary during this five-month period and should now be required to make counter-restitution to Mr King of the amount of the unpaid salary.

5

Mr Newman submitted that no costs order should be made until this issue of counter-restitution is fairly resolved as it could reduce the value of KSSL's recovery to zero or result in a net payment to Mr King and so potentially determine who was ultimately the successful party in the proceedings.

6

The argument based on the need to make counter-restitution of Mr King's unpaid salary was raised explicitly for the first time in Mr Newman's skeleton argument served late on the day before the hearing on consequential matters. I consider that, if this argument was to be relied upon by Mr King in these proceedings, it should have been pleaded in Mr King's Defence and Counterclaim by way of set off against KSSL's monetary claim and/or as a defence to KSSL's rescission claim. The argument raises a factual issue as to the period required to investigate Mr King's conduct which should have been the subject of disclosure and witness evidence. It is too late to raise the argument now. I am not prepared to defer the determination of issues of costs pending resolution of the issues which it raises.

7

For the sake of completeness, I would add that, had the counter-restitution argument been raised in time to be dealt with at the trial, KSSL would have resisted the argument on the basis that, as at the date of the Settlement Agreement, KSSL had a right to dismiss Mr King for his misconduct in connection with the Range Rover transaction; KSSL was unaware of that right of dismissal because of Mr King's wrongful failure to disclose his own wrongdoing. Mr King's claim for loss of salary would therefore have been met with a defence of circuity of action, leaving no scope for the principle of counter-restitution to apply.

Quantum of damages

8

The second matter raised by Mr Newman concerns the amount of damages to which KSSL is entitled. Mr Newman contends that the amount of the lost profit share as found in the Judgment (£40,666.47) is wrong on the basis that part of this sum comprises profit share said to be due in relation to 2015 but which is in fact unknown.

9

As Mr Downes pointed out, the figure of £40,666.47 was supported by Mr Forsyth's witness statement and accepted by Mr King in cross-examination. Given my finding at paragraph 201 of the Judgment that KSSL lost profit share in the sum of £40,466.47, a challenge to that figure would have to be pursued by way of an appeal.

Interest start date

10

The third preliminary matter concerns the dates from which interest should run. I accept Mr Newman's submission that interest should run from the date on which the profit share would have been received by KSSL which I will take as being 1 May in each of 2015, 2016 and 2017.

Liability for costs

11

I now turn to the costs. To put the discussion which follows into context, KSSL has incurred costs of over £2 million in pursuing proceedings in which, after succeeding on all the issues except for one minor head of damages and defeating the Counterclaim, it obtained a judgment for £45,666.47 plus interest.

12

The first issue to determine is whether I should make any costs order at all. The normal order, pursuant to CPR 44.2(2)(a) would be that Mr King should pay KSSL's costs on the basis that he was the unsuccessful party. Mr Newman submitted that, in accordance with CPR 44.2(4)(a), I should take into account what he contends was the unreasonableness of KSSL's conduct and make no order.

13

CPR 44.2(4) provides that 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.

14

The “conduct of the parties” to which the court will have regard in deciding what costs order, if any, to make, is defined in CPR 44.2(5) as including:

(a) conduct before, as well as during, the proceedings and in particular the extent to which the parties followed the Practice Direction – Pre-Action Conduct or any relevant pre-action protocol;

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c) the manner in which a party has pursued or defended its case or a particular allegation or issue; and

(d) whether a claimant who has succeeded in the claim, in whole or in part, exaggerated its claim.

15

The conduct relied upon by Mr Newman in resisting a costs order against Mr King was (i) KSSL's failure to accept the offer of compensation of £65,000 from TCH (referred to at paragraph 127 of the Judgment) and (ii) KSSL's failure to set off the £70,000 payable to Mr King under the Settlement Agreement against its damages claim. Mr Newman submitted that KSSL's conduct in failing to pursue these alternative routes to compensation and instead pursuing Mr King through court proceedings was unreasonable and oppressive. He submitted that KSSL had made the case impossible to settle from the start by incurring hundreds of thousands of pounds in costs before the case was even mentioned to Mr King. Had KSSL pursued the alternative routes to compensation, according to Mr Newman, the claim and the counterclaim would not have happened.

16

Taking first KSSL's failure to accept TCH's offer of compensation, Mr Downes submitted that this was not unreasonable conduct for the following reasons:

16.1 The Judgment held (at paragraph 199) that, in accordance with the principle established in The Liverpool (No 2) [1963] P 64, KSSL was free to sue Mr King rather than accept an offer of compensation from TCH as a joint wrongdoer, without regard to the doctrine of mitigation. Exercising its right to sue Mr King in accordance with this principle was not unreasonable and was not the kind of conduct contemplated by CPR 44.2(5).

16.2 In any event, TCH's offer would not have been as beneficial as the Judgment under which it was awarded damages and rescission of the Settlement Agreement. Accepting the offer would have left a significant shortfall.

17

As to first of these contentions, it does not, in my view, follow from the principle established in The Liverpool (No 2) that the conduct of a claimant in suing one joint tortfeasor rather than accepting an offer of compensation from another is necessarily to be treated as reasonable for costs purposes. The issue of costs did not arise in The Liverpool (No 2). I consider that the pursuit of court proceedings for the purpose of recovering compensation which could have been recovered from another party without the need for court proceedings might well be contrary to the overriding objective of enabling the court to deal with cases justly and at proportionate cost. Such conduct would, on the face of it, lead to additional expense and to the unnecessary use of the court's resources to the prejudice of other court users. Interpreting CPR 44.2(5) so as to give effect to the overriding objective, I consider that such conduct might well constitute unreasonable conduct which the court could take into account in deciding what costs order to make.

18

In the circumstances of this case, however, I am not satisfied that it was unreasonable for KSSL to pursue Mr King, despite the offer of compensation...

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