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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Northstar Systems Ltd & Ors v Fielding & Ors  EWCA Civ 1660 (06 December 2006)
Cite as:  EWCA Civ 1660,  2 All ER 983,  CP Rep 12,  2 Costs LR 264
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM The Chancery Division of the High Court
Mr Justice Lewison
Strand, London, WC2A 2LL
B e f o r e :
Vice-President of the Court of Appeal, Civil Division
LORD JUSTICE JACOB
| Northstar Systems Ltd
Seaquest Systems Limited
Ultraframe (UK) Ltd
|- and -
|Fielding & Ors
WordWave International Ltd
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No: 020 7421 4040 Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
(instructed by Eversheds) for the Appellants
Richard Snowden QC , Iain Purvis QC and Kathryn Pickard (instructed by Addleshaw Goddard)) for the Burnden Defendants
Giles Maynard-Connor (instructed by Robinsons Solicitors) for Mr Naden
Mr Stancliffe, Solicitor Advocate, (instructed by Greenhalgh Solicitors) for Mr Clayton
Crown Copyright ©
Lord Justice Waller :
"It is well worthy of consideration by the Court of Appeal whether, where an ultimately successful party has, on the way to success, lied and sought to maintain forgeries and in other ways been thoroughly dishonest and moreover has greatly lengthened the trial in having these matters exposed, the usual rules as to costs are displaced – that given those circumstances the general rule ought to be no order for costs. It is true that a witness for Ultraframe, a Mr Birkett, was also held to be a liar, but it may well be that this is irrelevant – he was essentially just a witness rather than a party.
Moreover there is real room for argument that the judge's order ought fully to have reflected the costs of such exposure and that the present order does not do so. So permission to appeal is granted in respect of the costs of the main action. Whether that permission should extend to the costs of other actions remains to be decided."
The actions and their history
1. Two Leeds actions
(a) An action for the shares brought against Messrs Birkett, Clayton and Naden, launched by the trustee in bankruptcy on 12th November 1998
(b) A second action for the shares brought against Mr Fielding, Northstar and Seaquest, launched by the trustees in bankruptcy on 1st December 1998.
(c) Those actions claimed equitable compensation or damages for dishonest participation in a breach of trust and/or damages for conspiracy and also made a claim to the IPRs
2. The two Leeds actions were consolidated on 29th January 1999. The claims in the Leeds actions, the IPRs and other property were assigned to Ultraframe by the trustees in bankruptcy on 31 March 1999. Ultraframe was thus substituted as claimant in the Leeds consolidated actions on 10th May 1999.
3. There was an application for summary judgment in the Leeds actions and by a judgment dated 25th February 2000 His Honour Judge Behrens was able to deal with the case on the basis as it had been put forward by Clayton and Fielding and held on that basis that Ultraframe had established its rights to the shares via the trustees in bankruptcy. He commented on the fact that Ultraframe had endeavoured to prove as against Clayton, Fielding and Naden a criminal conspiracy, but held that it was inappropriate to seek to do so on a summary basis and commented on how that had greatly increased the cost of that application and he made an order that each party should bear its own costs of the application. The result was that there were still issues remaining in the Leeds action, which was transferred to London on 8th July 2003.
4. The London Action. Ultraframe commenced an action in London on 15th March 2001 seeking to establish its rights to the IPRs by virtue of the assignment by Mr Davies' trustees in bankruptcy, despite the fact that they had, by this stage, established the rights to the shares in Northstar and Seaquest.
5. Fielding, on 12th July 2001, applied to strike out the remainder of the Leeds action and Ultraframe countered with an application to discontinue the Leeds action with costs, but both applications were dismissed by HHJ Langan on 8th August 2001.
6. The preliminary issue tried by Laddie J. On 31st October 2001 HHJ Behrens gave directions for the trial of preliminary issues in both the Leeds consolidated action and the London action. The preliminary issues were concerned with the IPRs and sought to resolve (1) whether the design rights subsisted, (2) the ownership of any such design rights as were held to subsist and (3) the extent to which components marketed by Northstar, Seaquest and the Burnden Group were infringing copies of the said designs. Ultraframe won on the subsistence and infringement issues but lost on title to sue. The London action was therefore dismissed. Laddie J reserved the costs of the preliminary issues and the London action to the judge who ultimately tried out the remaining disputes, doing so on the basis that:-
"It is possible though by no means certain that the court may come to the conclusion that the defendants have acted so badly that it would be unjust to make Ultraframe pay their costs even of the issues they have won on the hearing of these preliminary issues."
7. The Court of Appeal dismissed an appeal against the judgment of Laddie J, including the costs order, on 12th December 2003. Longmore LJ, with whose judgment the other members of the court agreed, stated in relation to Laddie J's costs order that "the order made by Laddie J was legitimately within the wide discretion vested in a judge who makes orders in relation to costs." He also said:- "The Judge did not say that it would be relevant to consider the defendant's conduct, only that it might be; that is a consideration which the judge was entitled to have in mind."
8. The new action. On 27th November 2002 Northstar and Seaquest began yet another action called 'The New Action'. That was the principal action tried by Lewison J, which lasted the ninety-nine days. In that action Northstar and Sequest claimed against Mr and Mrs Fielding, the Burnden Group plc, Mr Naden and Mr Clayton, called for ease the Burnden defendants. This was a claim that the business of Northstar and Seaquest had been stolen and the main subject of attack was a debenture over Seaquest, dated 6th November 1998 and a debenture over Northstar, dated 17th November 1998, entered into, according to Mr Fielding, after he had made loans to both companies. An attack was also made on a licence relied on by the Burnden Group, granted by Seaquest to a member of the Burnden Group and then to The Burnden Group plc, on which the Burnden Group relied for having the rights to the IPRs.
9. A yet further new action was commenced, this time by Northstar and Seaquest, held by Laddie J on the preliminary issues that he tried to have been the owner of most of the IPRs. Thus, in this way, Ultraframe were seeking to cure the title to sue deficiency. That action was launched on 19th March 2003.
10. There was also an action launched on 4th August 2004 by The Burnden Group plc as assignee of a company, Quickfit Conservatories Limited (QCL). This claim was brought as an assignee of QCL and claimed that the business of Northstar and Seaquest had been created as a result of Mr Davies' dishonest misappropriation of assets belonging to QCL. The Burnden Group plc was largely unsuccessful in this action.
11. The main trial commenced on 11th November 2004. Lewison J ruled on certain preliminary issues before him by a judgment delivered on 15th November 2004. He ruled that the remainder of the Leeds actions should be struck out but only " . . . on condition that the defendants in the Leeds consolidated action agree that when costs of the action come to be decided Ultraframe are to be at liberty to rely on any relevant findings of fact made in the new action."
The result of the trial
"1836. A theme that recurred during Mr Hochhauser's closing address was that I must look at the big picture, and not dissect the issues one by one. It is, I think, appropriate for me to explain what I think the big picture is.
1837. For as long as Mr Davies was in charge of Northstar it was a poorly and corruptly run company. It was under attack by Ultraframe and wobbling constantly on the brink of insolvency. Even if Mr Davies had not been corrupt, Northstar would probably still have been overwhelmed by the fight against Ultraframe.
1838. Following Mr Davies' bankruptcy, there was an attempt to protect the "system" against Ultraframe by assigning the intellectual property rights to Seaquest; but Seaquest soon came under attack itself. Mr Birkett and Mr Clayton (with Mr Naden's compliance) engaged in a dishonest deception to attempt to save Mr Davies' interest in Northstar and Seaquest from being taken by the trustees in bankruptcy. But the dishonest scheme failed (except that some money, which Northstar owed Mr Davies, has been siphoned out of the company to him, when it should have gone to the trustees).
1839. Neither Northstar's components business nor its fabrication business was particularly profitable. Seaquest had a potentially valuable asset in the shape of its intellectual property rights; but it would have taken considerable investment in new tools and better design to turn it into a market leader. Seaquest did not have the resources to enable it to do that. Both companies were in constant need of money.
1840. Mr Fielding was willing to provide the money; and he did. But even that was not enough to save Northstar or Seaquest from insolvency. Mr Fielding also did a later deal with Mr Davies in which he bought him out of Northstar and Seaquest. When the deal was attacked by the trustees he dishonestly attempted to falsify a claim to ownership of the shares in both companies. But that claim was unsuccessful too.
1841. The dishonest claim to the shares was separate from the monies that Mr Fielding made available to Northstar and Seaquest.
1842. Mr Fielding and his companies have built a successful series of businesses, most of which have nothing to do with the former businesses of Northstar or Seaquest. They do, however, continue to supply components to be used in fabrication; but that was only a small part of Northstar's turnover; and in any event, Northstar could not have continued both as supplier of components and as fabricator of roofs in competition with the dealers to whom it supplied components. There was no long term prospect of that business continuing in Northstar's hands. It is true that, at least until Glassex 2001, Mr Fielding's companies reproduced designs in which Seaquest was entitled to design right, but it did so under the terms of a licence granted for full consideration. It also modified and improved those designs, and added new products to its rebranded system. Far from exploiting any goodwill belonging to Northstar or Seaquest, they made a concerted effort to relaunch the system. In consequence of huge investment and substantial redesign, the system as it exists today is capable of at least challenging the market leaders, which Seaquest's system could not do. Although the system has evolved, the result of the evolution is that a different animal has emerged.
1843. This is not, of course, the big picture that Mr Hochhauser painted; but it is the one that I see."
The judge's ruling on costs
"Mr Hochhauser submits that Ultraframe succeeded on many of what he called the primary issues of fact. That is true, so far as those allegations related to the fraudulent conspiracy relating to the shares. Those factual allegations had no legal, as opposed to evidential, relevance to the remedies claimed in the actions I tried. Nevertheless, the rule requires me to consider the extent to which one party succeeded, not only on issues but also on allegations.
The fact that the allegations had, in my view, no legal relevance to the claims I tried is a factor which I have in mind but it is not determinative, especially in the light of the progress of the Leeds consolidated action.
When I struck out the Leeds consolidated action, I did so on the basis that findings at trial could be relied on in dealing with the costs of the Leeds consolidated action. The costs incurred by the claimants in the Leeds consolidated action up to the summary judgment application and excluding the costs of that application are of the order of £250,000.
According to Mr Clavell-Bate, over 50 per cent of the claimant's costs were incurred in establishing the fraudulent conspiracy relating to the shares which had been alleged in the Leeds consolidated action. That effectively means that the claimants incurred costs of some £2.5 million in order to prove a conspiracy in respect of which it had suffered no loss and in practical terms in relation to which the only real issue is the incidence of, at most, £250,000 worth of costs incurred.
I regard that as a disproportionate expenditure on costs for this limited result.
Even so, Ultraframe's success on the pleaded issue must, I think, be reflected in the overall costs order. At this stage in my thinking, I would be inclined to say that Ultraframe should have 10 per cent of the overall costs to reflect a proportionate approach to the proof of the conspiracy. 10 per cent of the overall costs would represent the costs of the Leeds consolidated action and the same amount again expended to recover them.
That mathematically would result in a deduction from any order in the Burnden defendants' favour of 20 per cent to avoid double-counting. I would also make a small reduction to reflect Ultraframe's limited success in relation to management charges and Ultraframe's success in the Burnden action and the new IP counterclaims. At this stage, therefore, I would be inclined to make an order that Ultraframe pay the Burnden defendants 70 per cent of the costs of the action, including the Leeds consolidated action, that were heard before me."
"In my judgment, it was unreasonable for Ultraframe to have pursued these actions after January 2004. At this stage in my thinking, I would have been inclined to award the Burnden defendants all their costs incurred after the end of January 2004."
Criticisms by Ultraframe of other Part 36 offers have no relevance.
"Mr Naden did not, in my judgment, make an offer which Ultraframe unreasonably refused. He was, however, part of the conspiracy pleaded in the Leeds consolidated action, and he was also found liable in respect of management charges. At this stage in my thinking, I would be inclined to award him 75 per cent of his costs.
The claim against Mr Clayton failed in its entirety. He too was part of the conspiracy pleaded in the Leeds consolidated action. At this stage in my thinking, I would be inclined to award him 80 per cent of his costs."
"A striking feature of the litigation is that the Northstar supply agreement and the Seaquest supply agreement, on which so much time was spent at trial, are not documents on which Mr Fielding relied in support of his claim to the shares or in support of his claim to have lent money to Northstar or Seaquest. Other documents which I found to have been fabricated were relied on in support of the claim for the shares but the issue of share ownership had, of course, already been determined by His Honour Judge Behrens. This is not, therefore, a case like Blackledge or Molloy where the falsity went to the heart of the Court's process that the fraudster himself was asking the Court to invoke on his behalf.
It is also fair to say that it is a case in which some of the evidence adduced by Ultraframe, that is to say the evidence of Mr Birkett, was also false and fabricated.
Having said all that, the defendants persisted in the defence of the impugned documents and in the face of a notice requiring the documents to be proved. The Court must take a serious view of what has been found to be a fraudulent conspiracy involving the fabrication of documents and persisted in throughout the course of this lengthy trial.
I do not consider that this is a case in which I should refuse to make any order at all. It is noticeable that in the Barnes case the successful claimant was awarded a proportion of its costs, despite the fact that a finding of dishonesty was made against one of its directors.
I do, however, consider that a very substantial reduction from the costs order that I would otherwise have made is warranted.
In looking at the size of the reduction, I must, I think, have in mind the effect in pounds and pence which a reduction would have. 10 per cent of the Burnden defendants' costs amounts to over £500,000. In my judgment, the appropriate reduction to make is 25 per cent, which in cash terms amounts to something over £1 million of the costs, including the costs of the preliminary issues and the London action. The same reduction is appropriate both for the costs I would otherwise have awarded to Mr Naden and Mr Clayton but, for the reasons I have given, namely, that the dishonesty did not affect the issues tried in the London action or the preliminary issues, the reduction would not apply to that.
The upshot, therefore, is that I would order Ultraframe to pay 80 per cent of the Burnden defendants' costs in the London action and the preliminary issues, 45 per cent of the Burnden defendants' costs of the remaining actions up to the end of January 2004 and 75 per cent of their costs thereafter and 50 per cent of Mr Naden's costs and 55 per cent of Mr Clayton's costs."
The application to commit for contempt
"I have also reduced the amount which the successful defendants have been entitled to recover by way of costs by what I regard – although Ultraframe dispute this – as a significant amount. One of the options open to a Court, if a contempt is proved, is to fine a contemnor and in substance that is what I have done."
The application to reconsider
"My judgment on costs was a discretionary decision; and (apart from the preliminary issues) treated issues of costs in the round. The overall effect of my ruling is that although the Burnden Defendants were overall winners in the litigation, I have reduced the costs award in their favour substantially. I did so by an overall deduction (or "end allowance") which applied to all the costs, including those costs on issues which were untainted by any findings of dishonesty; and to costs incurred after the making of Part 36 offers. Depending on what figures for costs one adopts, the overall deduction is in the region of £2.5 million, which is roughly equivalent to all the costs expended by them on the share conspiracy allegations. "
The scope of the appeal
". . . the appellate court should only interfere when they consider the judge at first instance has not merely preferred an imperfect solution which is different from an alternative imperfect solution which the Court of Appeal might or would have adopted, but has exceeded the generous ambit within which a reasonable disagreement is possible."
"Before the court can interfere it must be shown that the judge has either erred in principle in his approach or has left out of account or has taken into account some feature that he should, or should not, have considered, or that his decision was wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale."
Aaron v Shelton
"On the basis of the principles which I have set out Mr Aaron is not here entitled to raise on the assessment the issues of Mr Shelton's conduct which he refers to in his points of dispute. If he wanted to rely on these matters, he should not have consented to an order for costs in the terms which he did. He should have raised them before Cresswell J.
On the particular facts, however, the position is even more plain. For, as I have set out, the issues which Mr Aaron seeks to raise as to conduct were at the heart of his action. He consented to the dismissal of that action. Just as it would be an abuse of the court's process to start a second action raising those issues, so is it an abuse to seek to raise them on the assessment of costs. Although I have thought it right to deal with the matter of general principle, which is how it was approached in Mr Aaron's submissions, this provides a short and clear ground on which the first ruling of Master Simons should be upheld."
"20. In my judgment, where a party wishes to raise in relation to costs a matter concerning the conduct of his opposing party (either before the litigation or during it), it is his duty to raise it before the judge making the costs order where it is appropriate to do so. One situation where it will be appropriate is where the judge making the costs order is in a position to deal with the matter by reason of his involvement in the case. So I would hold that, where a party faces the making of an order that he pay the costs of an action because he is the 'unsuccessful party' as referred to in CPR 44.3(2), but he considers that he should not be liable to pay the whole of those costs and an order should be made exercising one or more of the court's powers in relation to costs set out in CPR 44.3(6), he should make an application to that effect to the judge who is considering what orders as to costs should be made, that is, the trial judge in the case of a trial. If he does not do so, it is not open to him when the costs come to be assessed to raise the same matter under CPR 44.5(3) as a ground for the reduction of the costs which he would otherwise have to pay. If he is uncertain whether a matter he wishes to raise fails within that category, he should raise the matter before the judge. The judge can then consider whether he should deal with it or specifically direct that it should be considered by the costs judge on assessment. Where a costs order is made by consent, the paying party can seek to include in the consent order a provision which takes account of the matter he wishes to raise by providing that he is not to pay the whole of the costs or which specifically refers the matter in question to the costs judge for determination. Otherwise a party who thinks he has achieved an order which will get him his costs subject to the reasonableness of the amount, may on the assessment face an argument intended to deprive him of what he justifiably thought he had obtained. Where the consent order is made during a trial and by it the paying party, if claimant, abandons his claim, or, if defendant, concedes the claim, the position is particularly clear. A paying party who does not protect himself in these ways, runs the risk that the costs judge will decide that the matter in question was one which it was appropriate to raise before the judge making the costs order, and which should not be raised before him, as happened here.
21. The rationale is that it is an abuse of the court's process to raise an issue before the costs judge which was not but should have been raised before the judge making the order for payment of costs. An analogy can be found in the principle that, if a party could properly have raised an issue in proceedings but does not, he will not be permitted to do so subsequently. . . . . .
22. I do not think that there is any conflict here with the mandatory provisions of CPR 44.5(3)(a). For by CPR 44.5(2) the court must have regard to the order for costs, and I would include with that the circumstances in which the order was made. Further, in the operation of CPR 44.5 as with any other rule it is permissible for the court, and the court's duty is, to avoid abuse, that is the misuse, of its process. Nor do I think that there is any conflict with the concept that by the consent order the parties have agreed that the costs should be assessed in accordance with the CPR. The assessment will be carried out in accordance with the CPR as the rules apply to the situation which has arisen. That was an alternative way in which Mr Aaron put his case."
"He did not, however, have regard to the fact that there was a direct connection between Mr Fielding's dishonesty and the Preliminary Issue since, but for Mr Fielding having "orchestrated an illegal conspiracy to gain and keep control of Northstar and Seaquest" there would have been no Preliminary Issue. Ultraframe would have been controlling Seaquest, not Mr Fielding. Seaquest would not have granted a licence to BCP and Seaquest would have had no debt to Mr Fielding. Consequently whether the design rights were owned by Seaquest or its shareholder (Ultraframe) should have been wholly academic. The costs of the Preliminary Issue were, therefore, directly attributable to Mr Fielding's dishonesty."
"Even if this argument were admissible, not having been put to the Judge, it is hopeless for three reasons. Primarily because the statement that "the London action would not have been necessary" makes no sense. The London Action was never "necessary" – it should never have been brought because it was always bound to fail. Secondly, the complaint that the licence would never have been granted had it not been for the conspiracy to claim ownership of Northstar and Seaquest is a matter which was never pleaded or proved. If there was any merit in the allegation, it ought to have been made in the Leeds Action as the basis of a claim for damages or an account of profits. But it was not. Thirdly, the London Action was brought after Ultraframe had obtained the shares in Northstar and Seaquest by way of summary judgment in the Leeds Action. They had the choice at that time either to proceed in their own name (claiming ownership through Davies) or in the name of Northstar/Seaquest. They took the former route, in their own interests, and failed. Burnden cannot be held responsible for this."
Lord Justice Jacob: I agree.