Brent London Borough Council v Davies & Ors

A claim based on unconscionable receipt is founded on the defendant’s actual receipt of property. Where PAYE and national insurance are paid directly to HMRC by the payer, the recipient is accountable only for the net sum actually received. The court may adjust pre-judgment interest for unreasonable delay, assessing the delay realistically and considering all the circumstances, including whether the defendant had use of the money and whether the delay produced a limitation benefit. Costs are determined by the substance and reality of the litigation. A claimant who recovers a small fraction of the sum claimed may not be the successful party, and there may be no overall winner. Unreasonable mediation conduct does not automatically attract a costs penalty; it forms part of the wider costs discretion.

This was a consequential judgment following the main judgment in the action, delivered on 17 August 2018. The claimant had established liability against certain defendants for unconscionable receipt, breach of fiduciary duty and misfeasance in public office, but the parties disputed the sums recoverable, the period for pre-judgment interest and the appropriate costs orders.

The court determined the net or gross treatment of PAYE and national insurance deductions, the effect of delay in commencing proceedings, the identity of the successful parties for costs purposes, payment on account of costs, and the first defendant’s application for permission to appeal and a stay.

1. Net or gross issue. The court held that actual receipt of property is fundamental to a claim in unconscionable receipt. Amounts paid directly by the school to HMRC as PAYE and national insurance contributions were not received by the second to fourth defendants. Only the net sums actually received were recoverable on that cause of action. The position differed for the first defendant because his liability for the same sums under breach of fiduciary duty was for the gross amounts.
2. Interest. The principles stated in Claymore Services Ltd v Nautilus Properties Ltd [2007] EWHC 805 were applied. The claimant’s delay was unreasonable for approximately two years, but the court considered the modest interest rate, the defendants’ use of money they should never have received, and the limitation advantage produced by the delay. Interest therefore ran for the whole period against the second to fourth defendants. For the fifth and sixth defendants, who received nothing and gained no limitation advantage, interest was excluded for the two years immediately before proceedings.
3. Costs. The court rejected an automatic approach based on the claimant’s recovery and applied the substance and reality test. There was no overall successful party as between the claimant and the second and third defendants, although they were on balance more successful and were awarded 25% of their costs. The first defendant was ordered to pay 75% of the claimant’s costs, and the fifth and sixth defendants 65%.
4. Mediation and other orders. An unreasonable failure to mediate does not automatically produce a costs sanction. It is one aspect of conduct in the wider balancing exercise. The claimant’s conduct did not justify an additional order. The second defendant was awarded £114,367 on account of costs, set off against his liability for principal and interest. Permission to appeal was refused. A stay of execution was granted pending the first defendant’s application to the Court of Appeal for permission, subject to the stay falling away if that application was not prosecuted.

First-instance consequential judgment following the court’s main judgment of 17 August 2018. The judgment does not state a citation for that earlier decision.