Lee v Futurist Developments Ltd

A court has no jurisdiction to make an order depriving a party of substantive costs rights merely because a judgment debt remains unpaid, absent a proper jurisdictional basis. An equitable set-off between damages and costs requires a sufficiently close connection between the liabilities such that enforcement without set-off would be manifestly unjust. A general power to vary or revoke an order must be exercised with circumspection and normally requires a material change of circumstances or that the original decision was based on misleading information. A stay of execution is inappropriate where the prospective costs recovery is unlikely to approach the judgment debt.

The judgment concerned applications arising after an earlier trial judgment in favour of Jennifer Jean Lee and against Futurist Developments Ltd, together with a judgment for Futurist against Derek Lee for damages and interest. Futurist obtained an unless order purporting to prevent Mr Lee from enforcing or challenging costs orders unless he paid the judgment debt. A separate district judge stayed execution of a writ of fi fa.

Futurist applied to set aside or discharge those orders, dismiss Mr Lee’s application for a stay of execution, and vacate the listed hearings. The central issues were the jurisdiction to make the unless order, the availability of equitable or discretionary set-off between Mr Lee’s costs entitlement and his liability in damages, and whether execution should be stayed.

1. Unless order. The order made by Deputy District Judge Berkson was set aside. It purported to deprive Mr Lee of substantive rights under existing costs orders if he failed to pay the judgment debt, but no jurisdiction to make such an order had been identified. The order was also procedurally defective because it was made without notice and did not contain the statement required by CPR 23.9(3) concerning an application to set it aside or vary.
2. Set-off. The court considered the equitable set-off test stated in Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1978] QB 927, namely whether the cross-claim was so closely connected with the claim that enforcement without taking it into account would be manifestly unjust. The reasoning in Fearns v Anglo-Dutch Paint and Chemical Company Limited [2010] EWHC 2366 (Ch) concerning a possible broader discretion to set off costs against damages was also considered.
3. There was no sufficiently close connection between Futurist’s damages award for breach of fiduciary duty and the issues-based costs awarded to Mr Lee on other issues. It would not be unjust, still less manifestly unjust, for Futurist to enforce the damages judgment without that set-off. Any power to vary the earlier order under CPR 3.1(7) had to be exercised with circumspection, and the circumstances did not justify doing so.
4. The stay of execution of the judgment debt was refused. The likely recovery on detailed assessment, after allowance for Mrs Lee’s separate costs and Futurist’s costs, was unlikely to approach the judgment debt. The return hearings on 22 February and 29 March 2011 were vacated. Futurist was awarded two-thirds of its costs, summarily assessed at £6,781.32.

First-instance judgment. The judgment records the earlier trial judgment as [2010] EWHC 2764 (Ch), but this hearing concerned subsequent enforcement and costs applications.