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England and Wales High Court (Commercial Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Horn & Ors v Knott & Ors [2023] EWHC 1351 (Comm) (07 June 2023) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2023/1351.html Cite as: [2023] EWHC 1351 (Comm) |
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (KBD)
B e f o r e :
____________________
(1) GRAHAM HORN (2) ANUPE DHORAJIWALA (3) RAJEN SHAH |
Applicants |
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- and - |
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(1) CHARLES JOSEPH KNOTT (2) JAMES EDWARD HOOGEWERF (3) MICHAEL MURPHY (4) DANIEL FLETCHER (5) JONATHAN GODSON (6) THE GODSON CONSULTING LLC 401K PLAN (7) THE LAWLER NOBLE 401K PLAN (8) THE IDEA GUY LLC 401K PLAN (9) THE WATTS STREET CAPITAL 401K PLAN (10) ERIS INVESTMENTS LIMITED (11) MANKASH JAIN (12) OBERIX INTERNATIONAL CORPORATION (13) DOUBLE TWO HOLDINGS LIMITED (14) DOUBLE TWO INVESTMENTS LTD |
Respondents |
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Ian Bergson (instructed by Reed Smith LLP) for Mr Knott and Mr Hoogewerf
Mr Fletcher in person
Mr Godson in person and on behalf of the 6th to 9th respondents
Mr Jain in person and on behalf of the 10th and 12th to 14th respondents
Mr Murphy did not appear and was not represented
Hearing date: 28 April 2023
Further written submissions: 10, 19 and 24 May 2023
Draft Judgment Circulated: 24 May 2023
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Crown Copyright ©
This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 07 June 2023 at 10:30am.
The Honourable Mr Justice Foxton:
Introduction
i) A group of defendants represented by Meaby & Co Solicitors LLP known as the Sanjay Shah Defendants. I am told that there were 28 defendants in this group before Mr Justice Andrew Baker, and either 27 or 28 before the Court of Appeal, although I have not determined this issue.
ii) A group of defendants represented by DWF Law LLP known as the DWF Defendants comprising the three applicants.
iii) The first and second respondents, represented by Reed Smith LLP, who I shall refer to as the Reed Smith Defendants.
iv) The third respondent, Mr Murphy, who was represented by Simons Muirhead & Burton LLP (SMB) before the Court of Appeal, but who from March 2022 has acted in person.
v) The fourth respondent, Mr Fletcher, who acted in person before Andrew Baker J and was represented before the Court of Appeal by SMB.
vi) The fifth to ninth respondents, known as the Godson Defendants, who acted through Mr Godson before Andrew Baker J and were represented by SMB the Court of Appeal.
vii) The tenth to fourteenth respondents, known as the Jain Defendants, who acted through Mr Jain before Andrew Baker J and were represented by SMB before the Court of Appeal.
i) in respect of the costs before Mr Justice Andrew Baker, against the Sanjay Shah Defendants, the DWF Defendants, the Reed Smith Defendants, the Godson Defendants, the Jain Defendants and Mr Fletcher, in respect of which an interim payment on account of £600,000 was ordered;
ii) in respect of the costs of the appeal, against the Sanjay Shah Defendants, the DWF Defendants, the Reed Smith Defendants, the Godson Defendants, the Jain Defendants, Mr Fletcher and Mr Murphy, in respect of which an interim payment on account of £1,600,000 was ordered.
No ruling was reached and no order for costs made in respect of the arguments on the other ground raised in the appeal ("Ground 2").
i) In relation to the costs before Andrew Baker J, of £150,000 (i.e., 25%) from each of (i) the Reed Smith Defendants jointly; and (ii) Mr Fletcher, the Godson Defendants and the Jain Defendants jointly (but not from Mr Murphy), with the result that the DWF Defendants would remain responsible for 30% of the interim payment.
ii) In relation to the appeal costs of £400,000 (i.e., 25%) from each of (i) the Reed Smith Defendants jointly; (ii) Mr Fletcher, the Godson Defendants and the Jain Defendants and Mr Murphy jointly with the result that the DWF Defendants would remain responsible for 25% of the interim payment.
i) they should together only be liable for 15% of the costs before Andrew Baker J and of the appeal (a position later revised, in circumstances which I explain below, to a contention that they should each be severally liable for 2.27%); and
ii) there should be a stay of execution until the conclusion of the proceedings, alternatively until the Supreme Court has determined the appeal from the decision of the Court of Appeal on the Revenue Rule issue, which is due to be heard in July 2023.
The basis of the jurisdiction to order contribution
i) The court can, at the time it makes a joint and several costs order, fix the respective percentages for which the respondents should be liable in contribution proceedings, although no such order was made in this case.
ii) The costs jurisdiction may be used to apportion liability for a costs order made in the main proceedings as between the defendant and a third party in contribution proceedings (and see also Mouchel Ltd v Van Oord (UK) Ltd (No 2) [2011] EWHC 1516 (TCC), [23] and [29]). I was referred to a number of cases in which this had been done, although in none of them had the point been argued (R v Independent Television Commission ex parte Virgin Television Ltd 26 January 1996, p.31; R (Elmbridge BC) v Secretary of State for the Environment, Transport and the Regions 10 November 2000, [192] and Venture Finance plc v Mead [2006] 3 Costs LR 389, [27]).
iii) It is clear that the court's jurisdiction to make costs orders does not simply extend to making primary costs orders, but also to make orders intended to address what might be termed "secondary" liability, whereby a party ordered to pay costs to party B can obtain an order against another party requiring reimbursement. This is the effect of costs orders of the kind considered in Bullock v London & General Omnibus Co [1907] 1 KB 624 and Sanderson v Blyth Theatre [1903] 2 KB 533. Similarly, where one of three claimants pursued a case to trial, the others settling, the Court of Appeal treated the issue of whether the settling claimants should be ordered to make a contribution to that costs liability as raising an issue to be determined under CPR 44.2 in Dufoo v Tolaini [2014] EWCA Civ 1536.
iv) In In Parkman Consulting Engineers v Cumbrian Industrials Ltd [2001] EWCA Civ 1621, [115], the Court of Appeal observed that the power of the court under s.51 of the Senior Courts Act 1981 extended to ordering a contribution by a non-settling party to a settlement payment made on account of costs.
i) The court's procedural power to make costs orders confers a wide discretion, and, at least in principle, there are a broad range of factors which may be relevant to the exercise of the discretion.
ii) A claim for contribution at common law is a legal right, and, to the extent that it is necessary to invoke equity's jurisdiction to order contribution (which, in respect of a claim for contribution between joint debtors, will be rare), any discretion is a weak one, heavily circumscribed by well-established principles. In particular, as explained below, there is a considerable body of authority to the effect that contribution is to be ordered to ensure that the shared liability is borne by those liable in equal shares.
iii) The duty to contribute at common law is "always several" (Professor Glanville Williams, Joint Obligations (1949), [90]) whereas it is open to the court under its costs jurisdiction to make joint and several orders.
"Several principles emerge from the cases in which the courts have decided how much of the burden of paying a third party should ultimately be borne by the defendant. First, where the claimant and the defendant's relationship is governed by a contract that allocates responsibility for paying the third party, effect is usually given to this allocation. Secondly, where there is no contractual allocation, the courts have adopted a default rule of equal apportionment. But, thirdly, this rule may be departed from, and an unequal apportionment made, where the causative potency of the parties' actions was unequal. Fourthly, the same result follows where the moral blameworthiness of the parties' actions was unequal. Fifthly, the same result follows where one party gains a larger benefit than the other from the transactions which gave rise to their respective liabilities. After some comments on the apportionment process, we consider each principle in turn and assess their relative weight."
"Where there is no contract allocating responsibility between the parties, the courts apply a default rule that they are equally responsible for paying the third party. The courts then ask whether they should depart from this rule, and make an unequal apportionment in accordance with one or more of the three rules discussed in the next three sections. It can happen that a court arrives back at an equal apportionment after applying these further rules. But the point to note here is that a court will always apportion liability equally where none of these other rules applies, or if it possesses insufficient information to apply any of them clearly."
i) what mattered was the number of defendants who were parties to the joint and several order, rather than the number of firms of solicitors representing them; and
ii) it was possible to obtain contribution on the basis of a joint and several order against a group of defendants (such that the consequences of one of those defendants being unable to pay would be allocated among the members of the group, rather than all of those liable under the joint and several costs order), or whether only several orders could be obtained.
i) The DWF Defendants served submissions, and over 280 pages of further authorities, in which the claim for contribution was advanced by reference to s.51 and by reference to the doctrine of unjust enrichment (and a modest 3 pages in reply).
ii) The Reed Smith Defendants served submissions, and over 400 pages of further authorities, in which they argued that contribution could only be sought at common law, which required a division by reference to the number of parties who were liable to the order, regardless of their ownership or litigation allegiance.
The ability of litigating parties to change positions in respect of a particular argument in the course of the same hearing is one of the occasional fascinations of litigation. However, the result has been that the argument has effectively been conducted in lengthy post-hearing submissions, rather than at the hearing as it should have been. The product of comprehensive legal research is always more welcome before the hearing, than afterwards, not least because it will then reach the court at a point when time has been allocated to read for the hearing.
"The claim certainly has its foundations in the clearest principles of natural justice; for, as all are equally bound and are equally relieved, it seems but just that in such a case all should contribute in proportion towards the benefit obtained by all …. And the doctrine has an equal foundation in morals, since no one ought to profit by another man's loss where he himself has incurred a like responsibility. Any other rule would put it in the power of the creditor to select his own victim and, upon motives of mere caprice or favouritism, to make a common burden a most gross personal oppression. It would be against equity for the credit to exact or receive payment from one, and to permit, or by his conduct to cause, the other debtors to be exempt from payment … It can be no matter of surprise, therefore, to find that courts of equity, at a very early period, adopted and acted upon this salutary doctrine, as equally well-founded in equity and morality."
i) The editors of Meagher, Gummow & Lehane, [10-085] state that "the fact that parties are equally liable for co-ordinate obligations also underlines the inability to apportion between them other than equally (contrary to cases of contribution between tortfeasors pursuant to statute)".
ii) In Leigh-Mardon Pty Ltd v Wawn (1995) 17 ACSR 741, 751-2, Hodgson J in the Supreme Court of New South Wales Equity Division, rejected the contention that there was a "general discretion to adjust contributions by reason of some perceived difference in responsibility for the incurring of the debt".
i) Substantive private law does not generally ignore differences in legal personality.
ii) It was open to SKAT to recover the entirety of the interim payments from any one of the respondents (including a corporate vehicle). In that eventuality, every other party with joint and several liability (including those in the same litigating group) would have benefited from that fact, and all of those parties (including those in the same litigating group) could be made subject to a claim for contribution by the payer. Any other approach would have the potential to disadvantage creditors of a particular respondent, for whom issues of common beneficial ownership or litigation strategy are of no obvious significance.
iii) The Law Commission in Law Com No 79, "Law of Contract: Report on Contribution", considered and rejected the argument that there should be a statutory power to redistribute liability for joint debts (see [9], [15], [27]-[29] and [80(a)]). At [29], they observed:
"It has been argued that the existing rules can work unfairly in contribution proceedings between persons jointly liable for the same debt … It has been argued that this can lead to injustice and that the courts should therefore be given an overriding discretion in contribution proceedings to redistribute the burden of the debt in whatever way the justice of the case may require … Our conclusion, so far as joint debts are concerned, is that it is more important that the rules should be reasonably certain than that the court should have a wide discretion to redistribute the burden of each and every joint debt according to the general merits of the particular case. We accordingly make no recommendation for changing the existing law of contribution as it applies to joint debts."
The Law Commission having considered, and decided against, reforming the law in a particular direction, and Parliament having passed legislation to give effect to their recommendations, it would be a bold thing for the courts to develop the common law to the same end.
i) The debt created by an order for costs does not arise from a private law obligation, whether voluntarily assumed or one arising under the general law, but follows from the exercise of a procedural discretion by the court as part of its management of court process. It is not therefore possible, as it is in the case of contractual debts, for the parties to agree the levels of contribution ex ante (one factor which led the Law Commission in Report No 79, [29], to oppose any statutory discretion to redistribute liability for joint debts).
ii) The court's costs jurisdiction is not simply a compensatory mechanism, but gives effect to important policy considerations concerning the conduct of litigation, and access to justice. Many of those considerations are in play when the court is deciding the respective contributions of two unsuccessful parties to a costs order, just as they are when deciding what costs orders should be made as between opposing parties.
iii) It would be very surprising if the applicable jurisdiction depended on whether the court's determination was undertaken at the same time as the costs order was imposed ([9(i)] above) or on a subsequent application. The claim for contribution is likely to require the court to consider the course of the proceedings in which the costs liability was imposed, and therefore raise issues of the kind which frequently arise in the exercise of the court's costs jurisdiction.
What factors are relevant when determining the appropriate level of contribution?
i) Clearly the court cannot determine the issue of contribution between the joint and several respondents on a basis which would be inconsistent with the reasons why the joint and several costs order had been imposed.
ii) Costs determinations must be assessed on a pragmatic basis, and it will frequently be necessary to make costs determinations when the final outcome of the proceedings, and therefore the ultimate economic significance to particular parties of success or failure on a particular point, are not known.
iii) The fact that a party does not have means to pay a costs order is not a reason not to impose one, albeit a party may be able to raise its inability to pay the costs order at the present time in support of a claim for a stay of execution: Bank St Petersburg PJSC v Arkhangelsky [2018] EWHC 2817 (Ch), [41]-[42].
The appropriate level of contribution in this case
"A feature in the case … is the wide variety of different defendants or defendant groups in the case, the wide variety of types of claim that SKAT makes against different defendants and defendant groups, the vastly different orders of magnitude involved, in some cases, in the sums being claimed by SKAT against certain defendants in comparison to the sums claimed against certain other defendants".
i) It is the Sanjay Shah Defendants who have the central role in the litigation, SKAT alleging that (in effect) Mr Shah conceived and co-ordinated the fraud of which it claims to be a victim, with varying degrees of involvement by other parties. It is clear from the statements of case that different defendants are alleged to have realised different levels of benefits from different types of involvement in the various schemes alleged, but I have been unable to find any sufficiently clear statements of the position which would allow me to distinguish between the various respondents to the joint and several costs order on that basis. However, as the Sanjay Shah Defendants put the matter in their skeleton argument at the consequentials hearing before Andrew Baker J:
"The Sanjay Shah Defendants were the primary defendants to the claims, and it was thus reasonable for them to be closely engaged with every application, hearing and item of correspondence".
ii) The DWF Defendants have adopted a leading role in the litigation. As they acknowledged in their skeleton argument for the consequentials hearing before Andrew Baker J:
"While having no wish to do so, the DWF Defendants have taken a leading role in addressing SKAT's allegations in these proceedings, and in doing so shouldered a disproportionate burden since the January 2020 CMC in defending these claims".
Implicit in that submission is that the role taken by the other respondents was a lesser one.
i) £9m to the Sanjay Shah Defendants.
ii) £5m to the DWF Defendants.
iii) £3.25m to the Reed Smith Defendants.
iv) Sums of £950,000 to £1m to each of the Godson Defendants, the Jain Defendants, Mr Fletcher and Mr Murphy.
i) The DWF and Sanjay Shah Defendants served the lead submissions on the Revenue Rule issue (with total submissions of 100 pages and 88 pages respectively). The Reed Smith Defendants served total submissions of 60 pages, but a significant part of this addressed SKAT's "Ground 2" argument that the Brussels Regulation precluded the operation of the Revenue Rule. The Godson Defendants served total submissions of 46 pages. The Jain Defendants and Mr Fletcher each served separate submissions of 3 pages adopting Mr Godson's submissions. Mr Murphy did not participate at the trial.
ii) At the hearing, and in relation to both Ground 1 and Ground 2, the DWF Defendants made submissions over 135 pages of transcript, the Sanjay Shah Defendants over 100 pages, the Reed Smith Defendants over 87 pages, Mr Fletcher as a litigant in person over 16 pages, Mr Jain as a litigant in person over 11 pages and Mr Godson as a litigant in person over 9 pages. Mr Murphy did not make submissions.
i) The Sanjay Shah Defendants were designated the 'Lead Respondent', with their skeleton argument of some 30 pages filed first, and a supplemental skeleton argument of 10 pages. The DWF and Reed Smith Defendants served a joint skeleton argument of 21 pages on the Revenue Rule issue. The Godson and Jain Defendants, Mr Fletcher and Mr Murphy served a joint skeleton argument of 12 pages addressed to Ground 2 only.
ii) The oral submissions of the Sanjay Shah Defendants and the DWF Defendants were around 150 minutes and 90 minutes respectively, with the Reed Smith Defendants making short oral submissions for 30 minutes on the morning of Day 3 of the appeal. Counsel for the Godson and Jain Defendants, Mr Murphy and Mr Fletcher addressed the court for 45 minutes.
i) An allocation of 45.1% to the Sanjay Shah Defendants is appropriate. In circumstances in which they litigated as a single unit, I am satisfied that this should be joint and several as between all of the Sanjay Shah Defendants.
ii) An allocation of 30% to the DWF Defendants, on a joint and several basis for the same reason.
iii) An allocation of 15% to the Reed Smith Defendants, on a joint and several basis.
iv) An allocation of 3.33% each, but severally, to the Godson Defendants (who are jointly and severally liable for their 3.33%), to the Jain Defendants (who are jointly and severally liable for their 3.33%) and Mr Fletcher.
i) An allocation of 44% to the Sanjay Shah Defendants on a joint and several basis is appropriate.
ii) An allocation of 28.33% to the DWF Defendants on a joint and several basis.
iii) An allocation of 14.33% to the Reed Smith Defendants on a joint and several basis.
iv) An allocation of 13.33% for the Godson Defendants, the Jain Defendants, Mr Fletcher and (subject to [42] below) Mr Murphy, on a joint and several basis, since they acted before the Court of Appeal as a single litigating unit.