Walker v Walker

Under rule 38.6(1) of the Civil Procedure Rules 1998, a discontinuing claimant normally pays the defendant’s costs incurred before service of the notice of discontinuance. The claimant bears the burden of showing a good reason for another order.

A late recognition that a claim lacks commercial value is not such a reason where the claim’s prospects, likely expense and the defendant’s available assets have not materially changed since proceedings began. The normal costs rule does not depend on discontinuance being equivalent to defeat or an acknowledgment of likely defeat.

A company liquidator commenced misfeasance, fraudulent trading and wrongful trading proceedings against two former directors. Although the liquidator maintained that the claims had good prospects of success, he later sought permission to discontinue because the recoverable assets were unlikely to meet the litigation and liquidation costs.

The High Court permitted discontinuance without ordering the liquidator to pay the defendants’ costs. The surviving director appealed. The central issue was whether there was a good reason under rule 38.6(1) of the Civil Procedure Rules 1998 to depart from the normal order that a discontinuing claimant pays the defendant’s costs.

1. Appeal allowed unanimously. Rule 38.6(1) of the Civil Procedure Rules 1998 establishes the normal order that a discontinuing claimant pays the defendant’s costs incurred before service of the notice of discontinuance. A claimant seeking another order must persuade the court that there is a good reason to depart from that position.

2. Chadwick LJ held that the relevant commercial circumstances had not materially changed. When the proceedings began, the liquidator knew the approximate value of the defendants’ assets. It was also foreseeable that serious allegations involving dishonesty would be vigorously defended, that defence costs might be paid from assets covered by the freezing injunctions, and that disqualification proceedings might follow. The liquidator had merely re-evaluated factors which existed from the outset.

3. The pre-CPR decision in JT Stratford & Son Ltd v Lindley and Others [1969] 1 WLR 1547 was distinguishable. It concerned the differently worded former rule, an academic underlying dispute, and parties capable of continuing the costs contest. Britannia Life Association of Scotland v Wallace Duncan Smith afforded little assistance because it concerned the former rule and the full factors considered at first instance were unknown. The approach in RTZ Pension Property Trust Ltd v ARC Property Developers Ltd [1999] 1 AER 532 could not confine the present rule to discontinuances equivalent to an acknowledgment of defeat.

4. Everton v WPBSA Promotions Ltd was distinguished. There, a supervening bankruptcy caused by the defendant’s independent conduct had rendered the claim worthless. Here, there had been no equivalent supervening change.

5. The judge had omitted the material question whether the circumstances underlying the decision to litigate had changed. That omission flawed the exercise of discretion and entitled the Court of Appeal to exercise the discretion afresh. There was no good reason to depart from the normal rule. The liquidator was ordered to pay the defendants’ costs down to service of the notice of discontinuance, with an interim payment of £25,000 subject to production of receipts and liberty to apply.

1. Court of Appeal (Civil Division): Allowed the surviving director’s appeal and set aside the High Court’s direction that there be no order as to costs. It substituted the usual order requiring the liquidator to pay the defendants’ costs incurred before service of the notice of discontinuance.

2. High Court, Chancery Division: Lawrence Collins J permitted the liquidator to discontinue the misfeasance proceedings without an order as to costs.