Airey v Cordell & Ors

Where a derivative-action permission application is justified at the time it is decided, the claimant may recover the costs incurred up to that decision. A subsequent compromise does not automatically justify treating the compromise as reflecting the outcome the court would have ordered. Costs incurred after the permission decision may be withheld where the parties settle before the court determines the issue. The costs of the underlying action should not be determined without detailed consideration of its merits where factual disputes remain and the action has settled. The court may allocate those costs between defendants and order an interim payment on account.

The claimant sought permission to continue proceedings as a derivative action against individual defendants and corporate defendants. In an earlier judgment dated 24 August 2006, the court considered the application justified but allowed the defendants further time to make a reasonable offer. Before the resumed hearing concluded, the parties reached an agreement and a consent order was made. Costs remained disputed. The court therefore determined the appropriate allocation of the costs of the permission application and the underlying action, together with the claimant’s request for payments on account.

1. The claimant was entitled to the costs of the application for permission to continue the proceedings as a derivative action up to and including 24 August 2006. The application had been justified, and the court had been satisfied that the action should continue absent a reasonable offer from the defendants.
2. The compromise reached at the resumed hearing did not justify assuming that it represented the order the court would have made. Accordingly, the claimant was not awarded the costs of the application incurred after 24 August 2006. There was no basis for awarding the defendants their costs of that application.
3. The court declined to determine the merits of the settled underlying action for costs purposes. Detailed submissions would have been required, and factual disputes remained. It was nevertheless satisfied that the claimant had been justified in commencing the proceedings and that, on the material previously before the court, the claim would have been permitted to continue as a derivative claim.
4. The first, second and third defendants were ordered to pay the claimant’s costs of the permission application up to 24 August 2006, assessed on the standard basis if not agreed. The fifth and sixth defendants were ordered to pay the claimant’s costs of the action, including the application costs except to the extent recovered from the first to third defendants.
5. An interim payment of £50,000 was ordered on account of the costs of the application and £10,000 on account of the remaining costs of the action, payable by 6 April 2007.

The judgment followed an earlier judgment of the same court on 24 August 2006 concerning the claimant’s application to continue the proceedings as a derivative action. The parties subsequently reached agreement on the substantive order, leaving costs for determination.