The High Court was wrong to declare minority shareholders the winners of an unfair prejudice case and thus entitled to their costs. Despite being successful in their application for relief, the value of their shares was held to be zero. Furthermore, the High Court judge was wrong to disregard six without-prejudice offers that the petitioners had rejected.
The litigation concerned the affairs of the fifth appellant, Addbins Limited (“Addbins”). The other parties were all shareholders in Addbins. Mr Griffin was until May 2013 also the chairman of Addison Lee plc (“ADL”), the well-known private hire company. The other individual appellants were also associated with ADL.
In short, Addbins was established to exploit an opportunity which the smoking ban introduced in the summer of 2007 was thought to have created. One of the petitioners and two other individuals came up with the idea of installing bins for the disposal of cigarette butts outside premises such as pubs, restaurants and clubs, where people would be smoking. The bins would be supplied free of charge, but they would carry advertisements for which the company would be paid by the advertisers.
Mr Griffin and the second, third and fourth appellants all became directors of the company as well as lending it £25,000 each. In practice, Mr Griffin was the dominant figure. The trial judge, Mr Edward Bartley-Jones observed that he “was an extremely powerful personality and the bins … were his venture and his alone“.
Addbins failed to achieve the commercial success it was hoped. In default, therefore, the bins were utilised throughout London to carry adverts for ADL.
Until June 2008, Addbins invoiced ADL for advertising on the bins at the rate of £5 per bin per week. Thereafter that fell to £1 per bin per week until August 2008 and then it reduced, again, to 0.50p per bin per week until March 2011. Thereafter, Addbins did not invoice, and ADL did not pay, for its use of the bins.
On 7 August 2014, the petitioners presented a petition under section 994 of the Companies Act 2006 on the basis that Addbins’ affairs had been, and were being, conducted in a manner that was unfairly prejudicial to their interests.
The petition came before Mr Bartley Jones in July 2015. The trial, which was “broadly on liability only” lasted five days and Mr Bartley Jones gave judgment on 3 November. He found that the affairs of Addbins had been conducted in a manner which was unfairly prejudicial to the interests of the petitioners and made an order requiring Mr Griffin to “purchase the Petitioners’ shares, without minority discount, with a valuation date of 12 February 2015 at a valuation to be determined at a further hearing”.
Mr Bartley Jones observed, however:
“the net effect of what I have found and directed … is likely to be that the sums in issue between the Petitioners and Mr Griffin are modest and that the sums payable by Mr Griffin for the Petitioners’ shares are sums very substantially less than the sums for which the Petitioners have contended. As it seems to me the Petitioners had grossly unrealistic expectations (1) as to the viability of the business of the Company and (2) the sums which ADL ought to have paid for advertising on the bins. I very much hope that, with a view to saving unnecessary further costs, the Petitioners will abandon those unrealistic expectations and, conversely, that Mr Griffin will abandon his previous attitude of arrogance and intransigence.”
There was a further hearing before Mr Bartley Jones in September 2016 to determine the value of the petitioners’ shares. However, Mr Bartley Jones died in April 2017. As he had not yet given judgment, the valuation issue had to be re-heard before Judge Matthews in October 2017.
Following a three-day hearing, Judge Matthews gave judgment on 19 October, concluding that:
“the shares in the company as at 28 February 2015 were worthless, or practically so, and therefore there is no value to be ascribed as the price for the purchase of the 13% represented by the petitioners’ shares by [Mr Griffin]”
As to costs, Judge Matthews ordered that Mr Griffin should bear the petitioners’ costs of the petition and that there should be no order for costs as between the petitioners and the second to sixth appellants. He directed Mr Griffin to make a payment on account of £150,000.
Judge Matthews explained that he considered the petitioners to be the successful parties. In that connection, he said this:
“[The petitioners] brought the claim to establish, and did establish, that there had been unfairly prejudicial conduct. As the judge put it, ‘the grossest possible breach of [Mr Griffin’s] duty to act in good faith in the best interests of the company’. They were awarded the standard relief, namely a share purchase order. The fact that the value of the shares turned out to be zero does not mean that they were the unsuccessful party. I note what the [appellants] say about nominal damages, but in my judgment cases on nominal damages are different to cases where the value of shares to be purchased is lower than the petitioners thought. Accordingly, if I were simply applying the general rule, I would award costs to the petitioners.”
The appellants relied on a number of offers that they had made to the petitioners in support of their contention that the general rule should not be followed and also argued that the claim was clearly exaggerated.
The petitioners said that conduct of the appellants fell to be taken into account as well, as to which Judge Matthews said:
“But the petitioners say that the conduct of the [appellants] must also be taken into account. [Mr Griffin] was held by the trial judge to have treated the petitioners and the litigation process with ‘supreme self-confidence and utter arrogance’, ‘utter contempt’, and ‘arrogance and intransigence’. They say that [Mr Griffin’s] conduct made the proceedings far more expensive and made it difficult to reach any kind of agreement. I do not think I can put much weight on these other matters, apart from the judge’s comments on [Mr Griffin’s] behaviour, which are the result of an adjudication on the evidence.”
In conclusion, Judge Matthews said this (in paragraph 15 of his judgment):
“Looking at the matter in the round, I do not consider that any good reason has been shown for not applying the general rule. In particular, the conduct of [Mr Griffin] far outweighed any shortcomings in the conduct of this claim by the petitioners. The judge in the liability judgment made clear what he thought of [Mr Griffin]. So far as the without prejudice offers are concerned, I have taken them all into account, and accept that there were good reasons in each case why the petitioners should not accept them, quite apart from their overoptimistic attitude towards this litigation. (But I make plain that I do not rely on any non-disclosure in this regard, as I cannot decide that in this summary way.) In the result, therefore, I order [Mr Griffin] to pay the costs of the petitioners of this claim, to be assessed on the standard basis if not agreed.”
The Appellants’ Position
The appellants submitted that Judge Matthews should have found that the appellants were the “successful” parties overall; that he did not take proper account of the fact that the appellants had succeeded on almost all the issues in the case; that he disregarded offers made by the appellants that had been dramatically beaten; and that he wrongly attached significance to comments about Mr Griffin that Mr Bartley Jones had made. The Court ought, they argued, to order the petitioners to pay the appellants’ costs.
The Petitioners’ Position
The Petitioners maintained that the appeal should be dismissed, relying appellate courts’ reluctance to interfere with a Judge’s exercise of his discretion as to costs. Judge Matthews was right (or at least entitled) they said to conclude that the petitioners were the “successful” parties and the appellants’ offers were not important. Further, conduct on the part of Mr Griffin was of relevance, as was the extent to which the petitioners won on individual points.
LORD JUSTICE NEWEY:
23. Sir Murray Stuart-Smith said this about costs appeals in Adamson v Halifax plc  EWCA Civ 1134,  1 WLR 60 (at paragraph 16):
“Costs are in the discretion of the trial judge and this court will only interfere with the exercise of that discretion on well-defined principles. As I said in Roache v News Group Newspapers Ltd  EMLR, 161, 172:
‘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 taken into account, some feature that he should, or should not, have considered, or that his decision is wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale.’
That statement was approved in AEI Rediffusion Music Ltd v Phonographic Performance Ltd  1 WLR 1507, 1523, per Lord Woolf MR. Although that decision was before the CPR came into force, it is clear that the court applied the same principle in relation to interfering with the trial judge’s discretion.”
24. Waller LJ stressed the limited circumstances in which an appeal against a costs order will be allowed in Straker v Tudor Rose  EWCA Civ 368,  2 Costs LR 205. He said (in paragraph 2):
“It is well known that this court will be loath to interfere with the discretion exercised by a judge in any area but so far as costs are concerned that principle has a special significance. The judge has the feel of a case after a trial which the Court of Appeal cannot hope to replicate and the judge must have gone seriously wrong if this court is to interfere.”
25. The force of the point made in this quotation is reduced somewhat in the present case by the fact that the original trial was before Mr Bartley Jones, not Judge Matthews. On the other hand, the valuation hearing, which itself lasted three days, was of course conducted by Judge Matthews.
26. The other comment I would make at this stage is that I do not think that the identification of the “successful party” within the meaning of CPR 44.2(a) is itself properly to be seen as a matter of discretion. The fact that a party has been “successful” is a matter to be taken into account in the exercise of the Court’s discretion as to costs, but deciding who the “successful party” is must, as it seems to me, be an evaluative exercise rather than a discretionary one.
Were the petitioners the “successful” parties?
27. In Roache v News Group Newspapers Ltd, Bingham MR said as regards the proper approach to costs orders (at 168):
“The judge must look closely at the facts of the particular case before him and ask: who, as a matter of substance and reality, has won? Has the plaintiff won anything of value which he could not have won without fighting the action through to a finish? Has the defendant substantially denied the plaintiff the prize which the plaintiff fought the action to win?”
29. In determining who the successful party is, it can be helpful to look to which of the parties has had to make a payment. In Day v Day  EWCA Civ 415,  CP Rep 35, which involved a dispute about the beneficial ownership of the proceeds of sale of a house, Ward LJ said (at paragraph 17):
“I would go further and say that in a case like this, the question of who is the unsuccessful party can easily be determined by deciding who has to write the cheque at the end of the case….”
This passage was very recently quoted with approval by Hickinbottom LJ in Atlasjet Havacilik Anonim Sirketi v Kupeli  EWCA Civ 1264 (at paragraph 10), while also noting (in paragraph 14) that there are “limits to which ‘the payer of the cheque’ must be considered the unsuccessful party in the litigation“.
30. Mr Sinclair submitted that the position of the petitioners in the present case is akin to that of a party who has sued for breach of contract, but recovered only nominal damages. In a case of that kind, Mr Sinclair said, the claimant is to be considered the unsuccessful party. He cited in support Hyde Park Residence Ltd v Yelland  RPC 655, in which Jacob J said (at 670):
“It seems to me that the whole question of nominal damages is at the end of this century far too legalistic. A plaintiff who recovers only nominal damages has in reality lost and in reality the defendant has established a complete defence.”
31. Judge Matthews commented that Hyde Park Residence Ltd v Yelland “was not a costs case, and the context was completely different”. The principle has now, however, been applied in relation to costs, in Marathon Asset Management LLP v Seddon  EWHC 479 (Comm),  2 Costs LR 255, where Leggatt J said:
“3 In a commercial case such as this a judgment for only nominal damages is a defeat. The position was trenchantly put by Jacob J in Hyde Park Residence Ltd v Yelland  RPC 655 at 670, when he said:
‘It seems to me that the whole question of nominal damages is at the end of this century far too legalistic. A plaintiff who recovers only nominal damages has in reality lost and in reality the defendant has established a complete defence.’
This is not a case where it can be said that money was not the object and that the claim was brought in order to establish or protect some legal right. Marathon’s sole purpose in pursuing a claim for misuse of confidential information after the files containing the information had been handed back was to seek to recover substantial damages. That attempt failed….
4 I therefore approach the question of costs on the footing that the defendants are the successful parties….”
A similar message emerges from, for example, Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd  1 All ER 873 (Devlin J).
32. For his part, Mr Grant relied on the decision of the Court of Appeal in In re Elgindata (No 2)  1 WLR 1207. That case, like the present one, involved unfair prejudice proceedings. Warner J had found unfair prejudice to have been proved and ordered one of the respondents (a Mr Purslow) to buy the petitioners’ shares, but had nonetheless concluded that the petitioners should pay three-quarters of Mr Purslow’s costs, on the basis that their case had “for the most part failed”. By the time the case reached the Court of Appeal, the price to be paid for the petitioners’ shares had been fixed by agreement at no more than £24,600.
33. The Court of Appeal substituted an order for half of the petitioners’ costs to be borne by Mr Purslow. Nourse LJ said (at 1213) that Mr Purslow’s submissions:
“ignored the import of the petitioners’ success in the proceedings, a success which consisted in establishing a right to have their shares purchased by Mr. Purslow, a right which he had at all times denied them and in order to establish which they had to go to judgment”.
He also said this (at 1215):
“There has been some debate in argument as to what was the ‘event’ of the proceedings for the purposes of Ord. 62, r. 3(3), and what were the issues in it. For my part I agree with [counsel for the petitioners] that the event was the judge’s order that Mr. Purslow should purchase the shares of the petitioners. Moreover, I would say that there were at the most the three issues or questions identified by the judge at the beginning of his judgment. [Counsel for Mr Purslow] sought to treat the four categories of complaints of unfairly prejudicial conduct as separate issues and even to go further and sub-divide them into the individual allegations made in the petition. I wholly reject that approach. But, however you look at the case, it was not one in which there was any justification for separating out part of the subject matter and making a special order for costs in respect of that part.”
34. Mr Grant stressed the words: “the event was the judge’s order that Mr. Purslow should purchase the shares of the petitioners”. Judge Matthews’ decision in the present case was, he argued, in line with that approach.
35. To my mind, however, Judge Matthews was plainly mistaken in thinking that the petitioners were the successful parties. The petitioners brought the proceedings with a view to obtaining a substantial sum for their shares, and they wholly failed in that objective. It is true that they established unfairly prejudicial conduct and obtained an order for their shares to be purchased, but (in contrast with the nominal damages cases) the appellants were not ordered to make even a nominal payment.
It is plain that, “as a matter of substance and reality”, the appellants won and “substantially denied the [petitioners] the prize which the [petitioners] fought the action to win” (to adapt Bingham MR’s words). The point of alleging unfairly prejudicial conduct was not to establish the point for its own sake, but to enable the petitioners to realise their shares for more than a nominal amount. In the event, the appellants have not had to pay anything and the petitioners still have their shares.
Nor would I wish to encourage shareholders to present unfair prejudice petitions for uncommercial reasons. In Re a Company (No 004415 of 1996)  1 BCLC 479, Scott V-C noted (at 493) that there had been “a tendency in some past [unfair prejudice] cases for the litigation to become a Chancery version of a bitterly contested divorce with grievances from the history of the marriage dredged up and hurled about the court in an attempt to blacken the opposing party“. That tendency could be fed if petitioners who had been denied any financially-worthwhile relief were nevertheless seen as the successful parties for costs purposes.
36. With regard to In re Elgindata (No 2), the petitioners there had succeeded in obtaining an order under which their shares were to be bought for a significant sum. Nourse LJ will not have had in mind a case such as the present one, where the petitioners were to be paid nothing at all. When he said that “the event was the judge’s order that Mr. Purslow should purchase the shares of the petitioners“, he was not saying that such an order should be treated as the “event” regardless of whether there was to be any payment for the shares, but rather that it was not appropriate to look at particular complaints individually.
37. Mr Grant’s fall-back position was that a distinction should be drawn between, on the one hand, the trial before Mr Bartley Jones and, on the other, the valuation hearings. The petitioners should at least, he suggested, be recognised as the “successful party” as regards the original trial.
38. On balance, however, it seems to me right to look at the proceedings as a whole rather than in stages. In Kastor Navigation Co Ltd v Axa Global Risks (UK) Ltd  EWCA Civ 277,  2 Lloyd’s Rep 119, Rix LJ (giving the judgment of the Court of Appeal) said (at paragraph 143) that the words “successful party” mean “successful party in the litigation”, not “successful party on any particular issue”. There can nonetheless be circumstances in which it is appropriate to order a defendant who has lost on liability to pay the claimant’s costs to date even in advance of an enquiry as to damages. Falconer J made an order of that kind in Colgate Palmolive Ltd v Markwell Finance Ltd  RPC 197, where the claimants had proved trade mark infringement and passing off. Falconer J said (at 200):
“It is a well-settled principle, supported by an abundance of authority that, in respect of property rights, in particular intellectual property rights such as patents, copyrights, trade marks and the right to protect goodwill against passing off, a person whose right has been infringed is entitled to come to court to have his right pronounced upon and vindicated and to an injunction against the infringer…. As to costs in such a case the general rule has been that the plaintiff is entitled to his costs of obtaining the injunction…, and that even if damages awarded do not exceed any payment in.
The usual procedure in the Chancery Division in such a case is, of course, for the plaintiff to establish his right and his entitlement to an injunction against the defendant who has infringed that right in the trial of the action, leaving any claim as to damages to be dealt with in an enquiry as to damages (unless the court thinks an enquiry unnecessary as, for instance, where the damages are nominal), the costs of the action being dealt with in the order made upon judgment in the action and the costs of the enquiry being reserved to the enquiry so that the plaintiff prosecutes the enquiry at his own risk—see, e.g., the order made by Sargant J. in Spalding v. Gamage, 30 R.P.C. 388 at 400, restored by the House of Lords (loc.cit.).”
39. The present case was not, however, about establishing property rights. The trial before Mr Bartley Jones was rather a staging post on the road, it was hoped, to an order under which the petitioners would receive financial relief. Moreover, Mr Bartley Jones declined to make an order for costs in the petitioners’ favour when he gave judgment, but rather reserved the costs to date. On top of that, I accept Mr Sinclair’s submission that findings made by Mr Bartley Jones were important for the valuation issue as well as those relating to unfair prejudice. That is clearly so as regards, for example, Mr Bartley Jones’ emphatic rejection of the £2 per bin per week rate that the petitioners had put forward. The significance of the original trial can also be seen in the fact that, while the petitioners’ accountancy expert concluded in a report dated 4 May 2015 that, without a minority discount, the petitioners’ shares were worth between £1,907,000 and £3,659,000, the petitioners claimed no more than £205,033 in amended points of claim served in December 2015 for the purposes of the valuation hearing.
40. In all the circumstances, it appears to me that Judge Matthews ought to have concluded that it was the appellants, not the petitioners, who were the successful parties.
41. The appellants made, among others, these offers to the petitioners:
|17 May 2013
||This offer was not limited to the shares held by the petitioners, but included those of a Mr Giles, who had 7% of Addbins’ issued shares
|13 June 2013
||This offer, too, extended to Mr Giles’ shares
|23 October 2013
|21 August 2014
||The petition had been issued on 7 August 2014
|26 January 2015
|5 February 2015
||A costs budget dated 13 April 2015 put the petitioners’ incurred costs at £116,013.40, including pre-action costs totalling £13,750
42. For their part, the petitioners offered to accept £1,439,100 for their shares on 22 August 2013 and £3,055,700 plus costs on 14 October 2014.
43. As already mentioned, Judge Matthews accepted (in paragraph 15 of his judgment) that there were good reasons in each case why the petitioners should not accept the offers made to them by the appellants. A little earlier (in paragraph 12), he had said this:
“The petitioners say they had good reasons for rejecting each of the offers made. None of them included payment of the petitioners’ costs to date. Second, they were made (they say) in the context of repeated nondisclosure. The two earliest offers required the petitioners to procure the sale of the shares held by Matthew Giles, which was not within their power. The offers made just before the trial required the petitioners to become majority shareholders in the company.”
44. Mr Sinclair argued that Judge Matthews was wrong to disregard the appellants’ offers. With respect, I agree. It is abundantly obvious that the petitioners would have been better off accepting any of the offers than pursuing the proceedings. It is true that the offers did not make separate provision for costs, but even in April 2015 the petitioners’ costs came to much less than the £400,000 offered in early 2015; on 21 August 2014, when the £275,000 offer was made, the costs will not have been greatly in excess of the £13,750 pre-action figure; and there can have been hardly any costs in October 2013, when the petitioners were offered £175,000. Further, while the first two offers extended to Mr Giles’ shares, the others did not, and none of the offers shown in the table required the petitioners to become majority shareholders in Addbins.
45. Mr Grant observed that some of offers were stated to be open for seven days or less, but (a) that was not true in every case, (b) there is no evidence that that is why they were rejected and (c) there were multiple offers over an extended period. Mr Grant also pointed out that the offers were not made under Part 36 of the CPR, but CPR 44.2(4)(c) requires the Court to have regard to “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 the costs consequences under Part 36 apply” (emphasis added). Mr Grant said, too, that the petitioners had had to assess the offers without adequate disclosure, but (a) Judge Matthews understandably considered that he was not in a position to decide that there had been non-disclosure and the respondents’ notice did not challenge that conclusion, and (b) the petitioners’ over-optimism appears to have been attributable principally to their inflated assessment of the value per bin per week and, in particular, the suggestion that a £2 figure had been agreed, an issue on which the petitioners will have been as well placed as the appellants to form a view. Mr Grant noted, too, that the offers all pre-dated the valuation date fixed by Mr Bartley Jones (viz. 12 February 2015), but there can be no question of the Court ignoring offers made in advance of a valuation date, especially since that date will often be that on which the Court makes an order for the shares to be purchased (see Profinance Trust SA v Gladstone  1 WLR 1024, at paragraphs 60-61). Further, it can be inferred from Judge Matthews’ valuation judgment that the petitioners’ shares cannot have been worth much, and certainly nothing approaching the amounts offered, at the date of any of the offers.
46. It seems to me, therefore, that Judge Matthews ought to have had regard to the offers made by the appellants and that they in fact tend to confirm that the petitioners should have been ordered to pay the appellants’ costs.
47. CPR 44.2(4) provides for the Court, in deciding what order to make about costs, to have regard not only to offers, but to “the conduct of all the parties” and “whether a party has succeeded on part of its case, even if that party has not been wholly successful“. In the present case, Judge Matthews considered that “the conduct of [Mr Griffin] far outweighed any shortcomings in the conduct of this claim by the petitioners“. Even so, I do not think that any great weight can be attached to Mr Griffin’s conduct in the costs context. Mr Bartley Jones spoke of Mr Griffin’s arrogance, intransigence and “utter contempt” for the petitioners, but litigants are not normally penalised in costs for such attitudes unless they have resulted in the proceedings being conducted in an inappropriate way. It is significant that CPR 44.2(5), expanding on the “conduct of the parties”, refers to matters relating to the way in which the litigation has been handled.
48. Turning to “whether a party has succeeded on part of its case, even if that party has not been wholly successful”, it is fair to regard the petitioners as having enjoyed some success. After all, they established breach of fiduciary duty and unfair prejudice and obtained an order for their shares to be purchased. But, therefore, for the offers that the appellants made, I would not have thought it appropriate to order the petitioners to pay all the appellants’ costs despite regarding the appellants as the successful parties. As it seems to me, however, the petitioners’ refusal of the various offers means that the petitioners (as the “unsuccessful” parties) should bear all the costs of the appellants (as the “successful” parties) notwithstanding their partial success before Mr Bartley Jones.
49. In short, the fact that the appellants are to be regarded as the “successful” parties points to the petitioners being ordered to pay their costs, and so too do the offers that the appellants made, and there is nothing of sufficient weight to put into the scales on the other side to produce a different outcome.
50. I would allow the appeal and order the petitioners to pay the appellants’ costs of the proceedings, to be assessed on the standard basis if not agreed.
Lord Justice Henderson:
51. I agree.