Michael Gerson (Leasing) Limited v John L Green (Machine Tool Merchants) Limited & Ors

An appellant challenging a discretionary costs order faces a high hurdle. Permission may nevertheless be granted where a material factual misunderstanding may have influenced the allocation of costs, particularly where the resulting order appears inconsistent with the judge’s own conclusion that more than one party was responsible for the proceedings. Permission to appeal does not necessarily require a full hearing. Costs appeals may generate satellite litigation, making alternative dispute resolution an appropriate means of resolving the dispute.

The claimant finance company pursued claims arising from the purported sale and leasing of a machine press. It initially alleged deception against the first to fifth defendants, but later pursued an alternative claim against the sixth defendant for conversion. The alternative claim succeeded, leaving the first to fifth defendants entitled to costs.

The High Court judge held that both the claimant and the sixth defendant had acted unreasonably, but ordered the claimant to pay the individual defendants’ indemnity costs without an indemnity from the sixth defendant. The claimant sought permission to appeal against that costs decision, arguing that the judge had misunderstood a concession about the value of the claims and had failed to reflect his finding that both parties bore responsibility.

1. Permission granted. Lord Justice Carnwath held that an appellant faces a high hurdle when challenging a judge’s discretion on costs. However, the claimant had shown an arguable case that the decision was flawed.
2. The judge appeared to have treated the claimant’s claims against the individual defendants as substantially overstated and as not exceeding approximately £3,500 or the small claims limit. The material before the Court suggested that no such concession had been made. If that understanding was mistaken, it substantially undermined the basis on which the judge distinguished the individual defendants from the corporate defendants.
3. The judge’s reasoning also appeared to recognise responsibility on the part of both the claimant and the sixth defendant for the way the proceedings developed. The order making the claimant responsible for all the individual defendants’ costs, without any corresponding indemnity from the sixth defendant, did not obviously reflect that reasoning. This provided a further arguable ground of challenge.
4. The grant of permission should not be assumed to require a full-scale hearing. The Court was concerned to avoid satellite litigation concerning costs and considered that alternative dispute resolution was particularly suitable.

Lord Justice Waller agreed. Permission to appeal was allowed. The application to adduce fresh evidence was adjourned to the appeal hearing, which was directed to be heard before two Lords Justices or a Lord Justice and a High Court judge, with a half-day time estimate.

• High Court (Chancery Division): A deputy judge of the High Court made the disputed costs orders following the underlying trial.
• Court of Appeal (Civil Division): In [2002] EWCA Civ 1397, Lord Justice Carnwath, with Lord Justice Waller agreeing, granted permission to appeal. The fresh-evidence application was adjourned to the appeal hearing.