Costs News

18 February 2021
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Parties facing “exorbitant” claims should protect themselves with part 36 offer

A party defending an “exorbitant” claim where they could end up being ordered to pay a much smaller amount should protect themselves with a part 36 offer, the Court of Appeal has ruled.

It overturned a decision by Mr Justice Arnold to make no order for costs in a case where he said "the overall result was that both parties lost heavily", meaning it was “a score draw”.

The case of Global Energy Horizons Corporation v Gray [2021] EWCA Civ 123 has been going for 10 years, concerning an alleged breach of fiduciary duties by the defendant Robert Gray. GEHC – an environmental technology consultancy – was successful at the 12-day liability trial and, in 2015, Mrs Justice Asplin held a 21-day enquiry into the profits he had made (the ‘enquiry hearing’). She ordered him to pay $3m and £1.7m, and ordered a valuation hearing before Arnold J in 2019, at which after five days he found the interests in question had no value.

At the end of last year, the Court of Appeal heard a six-day appeal over aspects of Asplin J’s order, which essentially failed.

Asplin J had reserved the costs of the enquiry hearing to Arnold J, who made no order for costs, having decided that neither party could be said to have been successful. At its highest, GEHC had claimed £228m.

The Court of Appeal said this approach was wrong. “GEHC won because it obtained an order that Mr Gray pay it over £3m. That is a significant sum of money, albeit it is much less than GEHC was hoping for.

“Where a defendant is faced with an exorbitant claim which he wishes to defend vigorously but where he is vulnerable to a finding that he is liable for a much smaller amount, there is a clear process provided by CPR part 36 which he can follow to protect his position.”

The court cited the comments of Lord Justice Ward in Widlake v BAA Ltd [2010] 3 Costs LR 353, in which he sounded a note of caution to judges too ready to punish a claimant for exaggerating their claim: “Defendants are, therefore, used to having to cope with false or exaggerated claims. Defendants have a means of protecting themselves. Part 36 is that shield.”

The appeal court said it did not know the basis for GEHC's original valuation of its claim and this was not a case “where a claimant needs to be punished for dishonesty by being deprived of its costs”.

The judges – Lord Justice David Richards, Lord Justice Henderson and Lady Justice Rose – also found that Arnold J was wrong to dismiss the point made by GEHC that it had been necessary to pursue its claims against Mr Gray as a defaulting fiduciary, “given that he had put forward a thoroughly dishonest account which had been rejected as such by Asplin J”.

They explained: “We consider that this factor should have weighed much more heavily in favour of awarding GEHC its costs. That was an error of principle rather than simply a decision within the judge's discretion as to what weight to give to that factor.”

The shape of the proceedings would have been “very different and much less costly” if Mr Gray had fairly and properly described his dealings with various business assets. “In so far as that part of the enquiry hearing was, as Arnold J described it, ‘an entire waste of money’, it was a waste that was caused by Mr Gray's conduct, not by GEHC's.”

The court replaced Arnold J’s order with one that Mr Gray pay GEHC’s costs, except for those of two experts on an issue Mr Gray won.

Andrew de Mestre QC and James Knott (instructed by Eversheds Sutherland) for the appellant. Edward Levey QC and Philip Ahlquist (instructed by Enyo Law) for the respondent.

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