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

When substantive civil proceedings settle but costs remain disputed, the court should make a reasonable and proportionate assessment of the likely outcome, taking account of the parties’ conduct and settlement offers. It need not conduct a full trial or require certainty of success. No order as to costs is a fallback for cases where a fair assessment is genuinely impossible, not a routine consequence of settlement. Where a consent order provides substantive relief under section 996 of the Companies Act 2006, and the court’s preliminary view is that the petition is strong, that is a sound starting point for awarding costs. An earlier offer substantially matching the eventual relief may limit recovery: costs may be awarded up to the point when settlement should have occurred, with no order thereafter.

The appellants, shareholders and directors, brought unfair-prejudice petitions concerning two companies. The proceedings began under section 459 of the Companies Act 1985 and continued under section 994 of the Companies Act 2006. They alleged exclusion from management and diversion of company assets. The respondents relied principally on an alleged agreement to purchase the appellants’ shares.

Substantive relief was agreed on the second day of an estimated eight-day trial. The appellants’ shares were to be purchased at an undiscounted going-concern valuation, and a winding-up petition was dismissed by consent. The judge made no order as to the costs of the consolidated petition. The central issue was whether that costs decision involved an erroneous approach to the likely merits, the statutory relief obtained and the parties’ earlier settlement offers.

Appeal allowed. The Court of Appeal, in the judgment of Lord Justice Etherton with which Lord Justice Thorpe and Mr Justice Hedley agreed, set aside the order that there be no order as to costs and substituted an order reflecting the point at which the litigation should have settled.

1. Costs after settlement. The principles summarised in the 2009 White Book and derived from R (Boxall) v Waltham Forest London Borough Council [2001] 4 CCLR 258 were applicable. The court has power to make a costs order where substantive proceedings end without trial but costs remain disputed. It should make a reasonable and proportionate attempt to assess the likely outcome, having regard to the circumstances, costs and conduct. The fallback of no order as to costs is appropriate only where a fair assessment is genuinely impossible. The judge must not adopt that outcome too readily. Those principles applied to ordinary civil litigation as well as judicial review, as confirmed in R (Scott) v London Borough of Hackney [2009] EWCA Civ 217.
2. Substantive relief. Section 996 of the Companies Act 2006 permits relief only where the court is satisfied that the petition is well founded, and includes an order for the purchase of shares. The consent order was therefore substantive relief, not merely a procedural disposal. It gave the appellants a sound starting basis for claiming their costs. The appellants did not have to establish that success at trial was certain.
3. Assessment of likely success. It was unnecessary and disproportionate to try the merits in detail. The Court accepted the judge’s preliminary view that the appellants had a strong case that no binding share-sale contract existed. The suggested alternative grounds for exclusion, including competition, were unsupported and were bound, or almost bound, to fail. The possibility that the respondents might succeed was insufficient to justify no order as to costs.
4. Settlement offers and final order. The respondents’ 2007 offer substantially matched the relief eventually agreed. The absence of an express provision for interest or an undiscounted valuation did not materially alter that conclusion. Litigation after the end of 2007 achieved no substantive relief and continued only because of the costs dispute. The appellants were not unreasonable in pursuing unfair-prejudice petitions rather than winding-up petitions. They were awarded their costs up to the end of 2007, with no order as to costs thereafter.

• Court of Appeal (Civil Division): Allowed the appeal, set aside the costs order and ordered that the appellants have their costs to the end of 2007, with no order as to costs thereafter.
• Chancery Division, Companies Unit: After the substantive proceedings settled on the second day of trial, Sir Edward Evans-Lombe ordered no order as to the costs of the consolidated petition.