[2011]JCA110

COURT OF APPEAL

9^th June 2011

Before     :

Dame Heather Steel, D.B.E., President; M. S. Jones Esq., Q.C., and; Sir Hugh Bennett.

 

Costs decision.

Mr R Weston, Director of The Phone-In Trading Post Ltd.

Advocate P. Sinel for the Respondents.

JUDGMENT

JONES JA:

 

Introduction

1.        On 22nd March of this year, we refused the defendant's application for leave to appeal a decision of the Royal Court, given on 19th January 2011, in terms of which the defendant was given until 23rd February to comply with certain orders of the court, failing which its answer would be struck out and the plaintiffs would be entitled to judgment. In their written contentions in response to the application for leave to appeal, the plaintiffs had applied for indemnity costs to be awarded against Mr and Mrs Weston, the defendant's director and his wife, in the event of the defendant's leave application being unsuccessful. We deferred consideration of the costs application, to give the defendant and any other interested party an opportunity to make a written response.

Costs Against a Non-Party

2.        In terms of Article 16 of the Court of Appeal (Jersey) Law 1961, this court has "full power to determine by whom and to what extent the costs are to be paid".

3.        The general principles by which the court will be guided in deciding whether or not to exercise its discretion to make an order for costs against a non-party were recently enunciated by this court in Planning and Environment Minister v Yates [2008] JLR 486. At paragraph 74, McNeill J.A., who delivered the judgment of the court, said this:-

"(i) Costs orders against non-parties will be exceptional in the sense of having considerations outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The exceptional considerations will be fact-specific and the ultimate consideration will be that of justice as between the litigant seeking the order and the person against whom the order is sought.

"(ii) Generally speaking, the discretion will not be exercised against "pure funders," namely persons with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course.

"(iii) Ordinarily, a non-party will not be made liable for costs if those costs would in any event have been incurred even without such non-party's involvement in the proceedings.

"(iv) Difficult cases will arise where non-parties fund litigation designed to advance the funder's own financial interests.

"(v) Where a non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, that non-party should be liable for the costs if the claim, defence or appeal fails.

"But the position of an individual director who participates in or funds litigation will require careful consideration.

"(vi) The guiding considerations are reason and justice.

"(vii) Ordinarily, a non-party, non-funder, with no personal interest in the litigation and who does not stand to benefit from it will not be liable for the costs incurred by an unsuccessful party without a full hearing of the merits upon which it is contended that potential liability arises."

4.        In advising the need for careful consideration in cases where an individual director participates in or funds litigation by his or her company, McNeill J.A. had in mind that, when deciding whether or not to exercise its discretion to award costs against the director personally, the court should determine what lay behind his or her involvement. Where a director "promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, he should be liable for the costs if his claim or defence or appeal fails." If, however, he "can realistically be regarded as acting rather in the interests of the company (and more especially its shareholders and creditors) than in his own interests", it is likely that a costs order will not be made against him. (See Dymocks Franchise Systems (NSW) Pty. Ltd. v. Todd W.L.R. 2807, per Lord Brown of Eaton-under-Heywood, at paragraph 29)

5.        In opposing the plaintiffs' application for an award of costs against Mr and Mrs Weston, the defendant submits, among other things, that it is a "standalone" defendant which has been defending these proceedings, "not only for the benefit of itself and its shareholder (Mr Weston)", but also for certain creditors. It argues that it has also been protecting the interests of an associated company and its shareholders and "other family shareholders of the Jersey companies in which Mr Weston is (and ALWAYS has been) a minority shareholder and Mr Weston's family and estate in the event of his death". (Original emphasis)

Non-party Costs - Discussion

6.        The Royal Court has found, contrary to the defendant's assertions, "that the defendant has no real interest of its own in defending the action. It has no assets which could be taken in the event of a judgment against it. It is a dormant company. The sole interest in defending the case lies with Mr Weston and one or more of his other companies". (Judgment of the Royal Court 19th January 2011, paragraph 43(i)) In its written submissions, the defendant itself tells us that it "was an impecunious shell company for several years before the business dealings with the first plaintiff took place in mid-2004. So the plaintiffs always knew of the dormant, asset-less nature of the defendant company right from the start." In the whole circumstances, we reject the assertion that the defence to these proceedings was maintained for the benefit of the defendant and Mr Weston, in his capacity as shareholder rather than as an individual. Further, the fact that other third parties may have an interest in the outcome of these proceedings does not avail Mr Weston in the defendant's opposition to the costs application. It is his efforts which have made a defence possible. The decision to make the application for leave to appeal was taken by Mr Weston. He prepared and filed the necessary papers and represented the defendant at the hearing before us. It is his actings, not those of other third parties, which have caused the plaintiffs to incur costs in opposing the application for leave to appeal.

7.        We have carefully considered all of the arguments put forwards by the defendant in its written submissions in opposition to the plaintiffs' application for an award of costs against Mr Weston. In our view, however, having regard to all of the relevant circumstances, it is both just and reasonable that Mr Weston should be found personally liable for the costs of and incidental to the application for leave to appeal, and we so find.

8.        We are told by the defendant that Mrs Weston is not a director of the company and is not, nor ever has been, a beneficial shareholder in the company. It is true that she has appeared before the Royal Court to represent the defendant, but that was because Mr Weston was unwell and unable to appear. The plaintiffs have advanced no factual basis on which it could properly be held that she funded or controlled the action.  For these reasons we decline to make a costs order against Mrs Weston.

9.        In its written submissions, the defendant argues that the plaintiffs' contentions in opposition to the application for leave to appeal went far beyond what was required, and that they filed a number of documents that were not required. There may be force in these criticisms, but these are matters which maybe explored at taxation, and not by us in determining this application.

Indemnity Costs

10.      In Dixon v. Jefferson Seal Ltd. [1998] JLR 47, Collins J.A. reviewed the relevant authorities, with a view to determining the circumstances in which it may be appropriate to award costs on the indemnity basis. Adopting the words of Brandon L.J. in Preston v. Preston, (1982) Fam. 17, the judge, with whom Harman and Southwell, JJ.A. agreed, concluded that there had to be "some special or unusual feature in the case" to justify the court in exercising its discretion in that way. In Marett v. Marett [2008] JLR 384, Pleming J.A., Sumption and Nutting, JJ.A. concurring, said this:-

"A court may make an indemnity costs order only where there has been some culpability, some abuse of process such as deceit, underhanded or unreasonable behaviour, abuse of court procedures, or the submission of voluminous and unnecessary evidence. There are many examples in decided cases of the application of these broad principles (see Dixon v. Jefferson Steel Ltd. (6) (1998 JLR at 52-53); Maçon v. Quérée (née Colligny) (20); and Jones (née Ludlow) v Jones (No.2) (11), noting the reference to "some special or unusual feature" to justify the award of indemnity costs). There are also examples of cases where the court has made an indemnity order, even in the absence of culpability or abuse under the CPR, r.44.3." (Paragraph 73)

11.      In our view, having regard to the terms of the whole passage which we have just quoted and, in particular, to the reference to "some special or unusual feature" being sufficient to justify the award of indemnity costs, and to examples of cases where indemnity orders were made in the absence of culpability or abuse, the limitation placed on the exercise of the court's discretion by the use of the word "only" in the first sentence must be regarded as a mistake.

12.      In their written contentions, the plaintiffs point to a number of features which, they argue, are sufficiently special or unusual to justify an award of indemnity costs. These are:-

"1 The Appellant has refused since the certified taxed costs order of the Judicial Greffe dated 19 January 2010 to pay costs, putting it in deliberate breach of the said order. This factor has been aggravated further as the directors/shareholders of the Appellant have refused to wind it up.

"2 The Appellant has no real interest in defending this case, and the defence is for the sole benefit of its directors, Mr Weston (sic) … …

"3 The Appellant was ordered on 17 December 2009 to produce an Answer to the plaintiffs' Amended Particulars of Claim by 1 February 2010 and to produce its Affidavit of Discovery by 15 February 2010. The Appellant has refused to comply with the said Order and nearly one year has passed for compliance of same.

"4 The Appellant has, despite an unless order of 19 January 2011, deliberately chosen to further ignore the orders of the Court.

"5 The Appellant is a corporate entity and could have appointed a lawyer to act on its behalf to ensure compliance with Court Orders."

13.      Further, by letter, dated 4th May 2011, those representing the plaintiffs, Messrs Sinels, Advocates, raised a further matter which, it was contended, was relevant to the costs application. That matter was "an event" which, it was said, showed Mr and Mrs Weston's conduct "in an enhanced light". The event referred to was the defendant's opposition to the plaintiffs' application for judgment, on various grounds which were advanced by Mr Weston at hearings before the Royal Court which were held on 1st and 27th April 2011. The particular conduct that we were asked to consider was Mr Weston's assertion that this court had refused to grant leave to appeal on 22nd March, without having read "the correct Notice of Appeal", and without having decided on the defendant's application for an extension of time for compliance with the Royal Court's orders of 19th January.

Indemnity Costs - Discussion

14.      The precise terms of the plaintiffs' costs application are as follows:-

"For the above reasons the Respondents respectfully ask this Court to make an order for the Respondents' costs of and incidental to this appeal on the indemnity basis against Mr and Mrs Weston as non parties or in the alternative against the Appellant."

15.      What we were asked to determine at the hearting on 22nd March was, as we have noted, an application for leave to appeal, not an appeal, as the plaintiffs appear to recognise elsewhere in their written contentions. Having decided to award the plaintiffs' costs of and incidental to that application against Mr Weston, the question for us in determining the matter of indemnity costs is whether there was anything about Mr Weston's conduct in making and presenting the application for leave to appeal that could be said to have been a special or unusual feature of the case, sufficient to justify an award of indemnity costs against him. Of the matters relied on by the plaintiffs, some pre-date and others post-date the application for leave to appeal with which we are concerned. We have regard to them, however, because we accept that the conduct throughout a litigation of a person against whom an award for indemnity costs is being sought may be relevant to inform the court as to the character of his conduct in a particular chapter of the proceedings.

16.      Those matters which are directly relevant to the making of the application for leave to appeal are the absence of any interest in the defendant to defend the action and the decision not to appoint lawyers to act on its behalf. The first of these is the basis on which we have held that a costs order should be made against Mr Weston, and does not, in our judgment, justify ordering these costs to be paid on the indemnity basis. The second is a decision which it was open to the defendant to make. That decision has had consequences, in that, had the defendant chosen to instruct solicitors, the circumstances which gave rise to the making of the unless orders and their breach might not have arisen. In our opinion, however, the exercise by the defendant of its right to defend itself without appointing a lawyer does not justify ordering costs to be paid on the indemnity basis.

17.      The other matters referred to in the plaintiffs' written contentions go to the defendant's failure to comply with orders of the court. It is these failures which led to the making of the unless orders and the striking out of the defendant's answer. We do not consider that they are features which, additionally, justify ordering that an award of indemnity costs be made against Mr Weston.

18.      Finally, we do not regard what has happened in the Royal Court since 22nd March as casting light on Mr Weston's conduct in the application for leave to appeal such as to justify an award of indemnity costs in respect of those proceedings.

19.      One further matter, which does not go to the merits of the costs application, but which arises from the terms of the defendant's submissions in opposition to it, falls to be addressed. In these submissions, the defendant expresses concern at what it describes as "the confusion that took up the first quarter of the relatively short hearing on 22nd March 2011 and appears to have resulted in the summary decision to refuse leave mainly resulting from the content of a superseded Notice of Appeal which had been replaced by a supplementary notice that was very different in content from the one it superseded".

20.      It should be understood that it is the practice of the members of this court, prior to the hearing of appeals and applications for leave to appeal, to read and consider all of the documents that have been lodged by parties. In this case, these documents included three "Notices of Appeal" which had been filed by the defendant . One was headed "Notice of Appeal", another "Supplementary Notice of Appeal" and the third "Revised / Second Supplementary Notice of Appeal". None expressly bore to supersede any other. Consequently, they were all read and considered by the court in preparation for the hearing on 22nd March. At the start of that hearing, Mr Weston explained that each subsequent Notice of Appeal had superseded the previous one. A difficulty then arose in locating the final version so that it could be referred to in the course of Mr Weston's submissions, because the Notice which was prepared first in time erroneously bore the latest date, 18th March 2011. When that matter was clarified, it should have been obvious to Mr Weston that we had, and were following, the text of the Second Supplementary Notice of Appeal, as he referred to it. At page 7 of the transcript of the hearing, for example, Mr Weston was asked, "So the latest Notice of Appeal then that we should be looking at is the one that's dated the 7th of March?", and he confirmed that we should, reading out its heading, and adding that there was "little point in looking at the first and second". At page 20 of the transcript, it can be seen that Mr Weston referred to what he described as "the first material change (of circumstances)" which is to be found on page 8 of the Second Supplementary Notice. When he referred to the second material change he was advised that the court had read it. Finally, when the court reconvened after an adjournment, Mr Weston was told that the court had had the written material for some time and that its members had all considered it and digested it. If Mr Weston has misunderstood the position, he should now be assured that the court's decision to refuse the defendant's application for leave to appeal did not result "from the content of a superseded Notice of Appeal".

Authorities

Court of Appeal (Jersey) Law 1961.

Planning and Environment Minister v Yates [2008] JLR 486.

Dymocks Franchise Systems (NSW) Pty. Ltd. v. Todd W.L.R. 2807.

Leeds v Admatch [2011] JRC 016A.

Dixon v. Jefferson Seal Ltd. [1998] JLR 47.

Preston v. Preston, (1982) Fam. 17.

Marett v. Marett [2008] JLR 384.