El Bishlawi & Anor v Minrealm Ltd & Ors (Rev 1)

The Court of Appeal considered the proper approach to costs where an unfair prejudice petition under Companies Act 1985 s459 (and, after 1 October 2007, Companies Act 2006 s994) was settled on the second day of an eight-day trial, leaving only costs in issue. The court applied the established principles derived from R (Boxall) and subsequent authorities: a judge should attempt a proportionate analysis of likely outcomes and should not too readily fall back on "no order as to costs" when the substantive relief granted by consent demonstrates that the petition was well founded.

The court accepted the trial judge's finding that the appellants had a strong case that no binding contract for the sale of their shares had been made, and noted that the consent order effected the principal relief sought (a share buy-out under Companies Act 2006 s996). The court concluded that continued litigation after 2007 produced no additional substantive relief and therefore it was appropriate to order costs in favour of the appellants to the end of 2007, with no order thereafter.

Background and parties: The dispute concerned rival shareholders and directors of Minrealm Limited and Minrealm VAT Refunds Limited. The appellants (the minority shareholders/directors) presented petitions under Companies Act 1985 s459 (and thereafter Companies Act 2006 s994) alleging exclusion from management and diversion of company assets by the majority directors (respondents). There was also a later petition to wind up Minrealm which was refused by Morgan J and ultimately considered with the consolidated petition.

Relief sought: The consolidated petition asked for orders to regulate conduct of company affairs, to prevent transfers of assets to certain persons, to authorise proceedings to recover assets, for a purchase of shares at fair value, and for accounts. At trial the parties agreed a consent order providing for the purchase by the majority directors of the minority’s shares at an undiscounted valuation as at 30 September 2005 with interest, and dismissal of the winding up petition with no order as to costs.

Procedural posture: The case reached a scheduled eight-day trial before Sir Edward Evans-Lombe in November 2009 but, by the second day, substantive relief was settled by consent leaving only costs in issue. The trial judge ordered no order as to costs. The appellants obtained permission to appeal that costs decision.

Issues for the court: (i) Whether the trial judge erred in principle in making no order as to costs after substantive relief by consent; (ii) how the principles from R (Boxall) and subsequent authorities on costs where proceedings are resolved without a full hearing should be applied; (iii) whether the existence of offers in earlier pleadings and correspondence affected entitlement to costs.

Reasoning: The Court of Appeal held that the judge had erred in relying on a fall-back "no order" position. The statutory basis for the consent share purchase (Companies Act 2006 s996) and the judge’s own finding that the appellants "probably have a strong case" that no binding contract for sale existed provided a sound starting point for entitlement to costs. The court also weighed that earlier pleadings had offered a buy-out on substantially similar terms and that little, if anything, of substantive value was achieved by continued litigation after the end of 2007. Balancing proportionality and the conduct and offers of the parties, the court ordered that the appellants recover their costs to the end of 2007 but made no order for costs thereafter.

Appeal allowed. The Court of Appeal found that the trial judge erred in principle by adopting a fallback position of no order as to costs despite a consent order granting substantive relief under the Companies Act and his own conclusion that the appellants probably had a strong case. The court substituted its discretion and ordered that the appellants recover their costs up to the end of 2007, with no order as to costs thereafter, because later litigation produced no substantive advantage and earlier offers had made the outcome essentially achievable in 2007.

On appeal from the Chancery Division, Companies Unit (Sir Edward Evans-Lombe). The consolidated unfair prejudice petitions were originally brought under Companies Act 1985 s459 and continued under Companies Act 2006 s994. A winding up petition was made and refused by Morgan J and adjourned pending the section 459/994 proceedings. The substantive dispute was settled by consent at trial (November 2009); the present appeal, with permission, challenges the trial judge's costs decision. Neutral citation of this appeal: [2010] EWCA Civ 780.