“FOR THOSE WHO BELIEVE THAT MOST CIVIL LITIGATION DOES NOT END UP BEING ABOUT THE COSTS… LOOK AWAY NOW”: COURT OF APPEAL ON NON-PARTY COSTS ORDERS

July 13, 2021 · by · in Appeals, Costs

In  Goknur Gida Maddeleri Enerji Imalet Ithalat Ihracat Ticaret Ve Sanayi AS v Aytacli [2021] EWCA Civ 1037 the Court of Appeal upheld a judge’s decision not to make a non-party order against a director of a litigant company.  The judgment starts with the words, “For those who believe that most civil litigation does not end up being about the costs that were incurred in pursuing that same litigation in the first place, look away now.”  This another tranche of “disastrous” litigation that was about the quality of orange juice…

 

“it is perhaps an indication of the bitterness which this litigation engendered, and the concerns of the solicitors at the time, that the parties spent more money arguing about costs rather than resolving the substantive issues between them.”

THE CASE

The underlying litigation related to the quality of orange juice. Goknur (the appellant) rejected stock provided by Organic Village, it then issued proceedings and Organic Village counterclaimed.

DISASTROUS LITIGATION

    1. The subsequent litigation has proved nothing short of a disaster for both Goknur and Organic Village. Goknur repeatedly failed to comply with orders made by Master Kay QC, who was managing the litigation. They made at least three unsuccessful attempts to appeal interlocutory orders that he had made. On 14 July 2017, Master Kay QC ordered that, unless by 24 July 2017, Goknur complied with a previous adverse costs order, their claim would be struck out. Goknur did not comply with the order, and their claim was struck out in consequence. Goknur was ordered to pay Organic Village’s costs of the claim.
  1. It appears that there was a three day hearing before Master Kay QC, spread between April, May and June 2018, relating to various issues between the parties as to costs. It is not at all clear how or why this was appropriate, when the merits of Organic Village’s counterclaim had yet to be determined: it is perhaps an indication of the bitterness which this litigation engendered, and the concerns of the solicitors at the time, that the parties spent more money arguing about costs rather than resolving the substantive issues between them. At the costs hearing, there was a dispute about the amount of the payment on account of costs to be made by Goknur to Organic Village following the striking out of Goknur’s claim. It was said that Organic Village’s total costs of defending the claim, as advanced by their then solicitors Hugh-Jones LLP, amounted to £269,196.30.

COSTS ORDERS

A costs order was made against Organic Village, relating to the counterclaim which went to trial. That costs order was never paid.  Organic Village had been balance sheet insolvent for most of the litigation.

THE APPLICATION FOR COSTS AGAINST ORGANIC VILLAGE’S DIRECTOR

Organic Village had received an interim payment for costs. However they had never issued assessment proceedings.  There was consequently an order that the interim payment be repaid and the costs order disallowed.

No payments were made and Goknur made an application for a non-party costs order against a director of Organic Village.

That application was refused by the deputy High Court judge.

a) Mr Aytacli controlled Organic Village and the conduct of the litigation with Goknur ([43]);

b) By providing security for Organic Village’s indebtedness to its solicitors, Mr Aytacli funded the conduct of the litigation by Organic Village ([44])[2];

c) It was not correct to conclude that proceedings were pursued solely or substantially for Mr Aytacli’s own financial benefit ([44]);

d) There was no additional factor, such as bad faith or impropriety, to justify the making of a non-party costs order ([46]);

e) In all the circumstances of the case, it would be an unjust outcome to make Mr Aytacli personally liable for the costs ([48]-[51]).

GOKNUR’S UNSUCCESSFUL APPEAL

Goknur appealed, unsuccessfully, to the Court of Appeal.  Lord Justice Coulson carried out a detailed analysis of the tests under s.51 of the Senior Courts Act 1981 and considered an argument that the fact that an interim payment on costs was to be repaid was irrelevant.

    1. I disagree with those submissions. The £185,300 now sought against Mr Aytacli by way of s.51 had originally been paid to Organic Village by Goknur on account of costs. The law is that a payment on account of costs must be set at a level which the judge thinks is the minimum that the receiving party will recover on a detailed assessment: see Mars UK Ltd v Teknowledge Ltd [1999] 2 Costs LR 44. The level often used as a rule of thumb is 70% of the total, and that was the percentage used by both Master Kay QC and Foskett J here[6]. Organic Village’s total costs of defending the claim were £269,196. That figure was also endorsed by Master Kay QC and Foskett J. 70% of that is £188,437.20. That is therefore slightly more than Organic Village were actually paid by Goknur.
    1. Accordingly, on the maths, I consider that the sum of £185,300 was the minimum due from Goknur to Organic Village by way of the costs of the claim. The judge was therefore right to find that, all other things being equal, no sums referable to the costs of the claim would have been repayable to Goknur.
    1. Organic Village are only liable to pay this sum into court (or even back to Goknur) because, in the event, all other things were not equal; their liability to repay the costs is a simple function of the fact that they no longer have the funds to undertake a detailed assessment of costs. Although Mr Benson baulked at that conclusion, it seems to me to be the only inference to draw from the documents. Whilst it is true that Hugh-Jones were obliged to undertake a detailed assessment of Organic Village’s costs in accordance with the terms of the CFA, the fact remains that they did not do so because they terminated the CFA. On their case, they were owed almost half a million pounds by Organic Village in respect of costs and so were entitled to terminate.
    1. Merely because Goknur have the resources to pursue this litigation still further, whilst Organic Village do not, cannot change the underlying reality of this case, which is that, in respect of the costs of the claim, Goknur were liable to Organic Village on the merits, not the other way round. That was not an irrelevant consideration. On the contrary, it would make it absurdly unjust now to make a s.51 costs order against Mr Aytacli in respect of the £185,300.
    1. Mr Benson submitted that the judge was wrong to conclude that, had there been a detailed assessment of costs, a further sum (over and above the £185,300) would have been due from Goknur to Organic Village by way of the costs of the claim,. For the purposes of the argument, I am prepared to accept that submission. But it does not affect my conclusion that, because the £185,300 was due and payable to Organic Village on the merits, it cannot form part of any s.51 order against Mr Aytacli.
    1. As to the other part of the s.51 order sought, namely the £64,305.43 in respect of 25% of Goknur’s costs of the counterclaim, I acknowledge that the same argument does not apply. But it would not be just to make a s.51 order in that amount against Mr Aytacli personally because of the judge’s conclusions as to benefit (Section 5 above) and the absence of bad faith and impropriety (Section 6 above), both of which I endorse.

 

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