Re Neath Rugby (No.2)

The Court of Appeal treated the Cuddys' cross-petition as in substance a counterclaim and applied the normal practice for counterclaims when making costs orders. The court permitted the amendments to the cross-petition only on the basis that they did not enlarge the factual scope of the trial. To avoid a detailed and expensive assessment of additional costs caused by the cross-petition, the court made an approximate set-off by deducting specified proportions of costs and allocating liabilities by reference to dates. The court held that the Cuddys were substantially successful on the petition but unsuccessful on the cross-petition and ordered a split of costs accordingly, including that Mr Hawkes pay 80 per cent of the Cuddys' costs of the appeal and an interim payment on account; no interim payment was ordered in relation to the costs below.

This appeal concerned costs arising in proceedings under Part 30 of the Companies Act 2006 in relation to Neath Rugby Ltd. The parties were the petitioner, Mr Frederick Geraint Hawkes, and respondents Simone Francesca Cuddy, Michael Cuddy, Neath Rugby Limited and Neath-Swansea Ospreys Limited. The appeals came from two Chancery Division decisions of Mr Justice Lewison ([2007] EWHC 2999 (Ch) and [2008] EWHC 210 (Ch)).

The principal procedural issue before the Court of Appeal was the correct approach to costs where a respondent's cross-petition is in substance a counterclaim and amendments to that cross-petition had been permitted on the basis that they did not enlarge the factual scope of the trial. The court asked whether costs should follow the usual practice for counterclaims and, because measuring the exact additional costs caused by the cross-petition would be difficult and expensive, whether an approximate set-off by percentage apportionment was appropriate.

The court framed and decided the following issues: (i) whether the cross-petition should be treated as a counterclaim for costs purposes; (ii) whether permission to amend had altered the factual scope of the trial; (iii) how to allocate costs between the parties and across relevant time periods; and (iv) whether to order interim payments on account of costs.

The court concluded that the cross-petition was in substance a counterclaim and that the amendments had not enlarged the factual scope of the trial. Applying normal practice for counterclaims, and to avoid burdensome detailed assessment, the court made an approximate allocation and set-off of costs. The resulting orders provided that there was no order for costs on the petition until 23 July 2007; from 23 July 2007 to 23 October 2007 Mr Hawkes was to pay 90% of the Cuddys' costs on the petition while the Cuddys were to pay Mr Hawkes' costs on the cross-petition to 23 October 2007; after 23 October 2007 the parties' liabilities were set off and Mr Hawkes was ordered to pay 70% of the Cuddys' aggregate costs for that period. For the appeal, because the Cuddys were substantially successful on the petition but not on the cross-petition, Mr Hawkes was ordered to pay 80% of their costs of the appeal and to make an interim payment on account; no interim payment was ordered in respect of the costs below.

The court gave reasons for adopting an approximate percentage set-off to reflect both parties' costs on the cross-petition and to take account of the judge's earlier order.

Appeal allowed in part. The Court of Appeal held that the Cuddys' cross-petition was in substance a counterclaim, that the amendments had not enlarged the factual scope of the trial, and that costs should be allocated by an approximate set-off approach to avoid costly detailed assessment. The court ordered specific apportionments: no costs order on the petition until 23 July 2007; from 23 July to 23 October 2007 Mr Hawkes to pay 90% of the Cuddys' costs on the petition and the Cuddys to pay Mr Hawkes' costs on the cross-petition to that date; after 23 October 2007 the parties' liabilities were set off with Mr Hawkes paying 70% of the Cuddys' aggregate costs for that later period. The court also ordered that Mr Hawkes pay 80% of the Cuddys' costs of the appeal and make an interim payment on account, with no interim payment ordered for costs below.

Appeal from the Chancery Division (Mr Justice Lewison) decisions [2007] EWHC 2999 (Ch) and [2008] EWHC 210 (Ch) to the Court of Appeal; final judgment reported at [2009] EWCA Civ 261.