Malmsten v Bohinc

On an appeal from a detailed costs assessment, the appellate court reviews the decision rather than conducting a rehearing. Intervention is justified for an error of principle, a failure to consider a relevant factor, or a decision outside the proper discretionary range.

Where an order awards the costs “of and incidental to” an application, recoverable incidental costs are subordinate to, and connected with, that application. Separate advice and work on wider company matters are not recoverable merely because they were undertaken at the same time.

Under the post-2013 CPR regime, costs are first assessed for reasonableness and then subjected to a separate, global proportionality assessment. VAT and the costs of the detailed assessment itself are excluded from that assessment.

The appellant, Ernst Malmsten, and the respondent, Lara Bohinc, were the two shareholders and directors of a company. Following a dispute, Ms Bohinc obtained an order under section 306 of the Companies Act 2006 requiring a shareholders’ meeting to proceed with a quorum of one.

The Registrar ordered Mr Malmsten to pay the costs of and incidental to the application, to be assessed if not agreed. On detailed assessment, Master Whalan allowed £47,500 net of VAT for the application. Mr Malmsten appealed on grounds including the scope of the costs order, the treatment of individual cost items, and proportionality.

The central issues were whether costs relating to wider company advice were recoverable, the proper approach to proportionality under CPR 44, and whether the Master’s assessment fell outside the permissible appellate margin.

1. Appeal allowed in part. Grounds 1, 2 and 7 succeeded. Grounds 3, 4, 5 and 6 failed.
2. An appeal from a detailed costs assessment is a review, not a rehearing. The appellate court should not conduct a line-by-line reassessment unless there is a material error of principle or a decision outside the proper discretionary range. The Master nevertheless erred in principle by failing to give effect to the order for the costs “of and incidental to” the section 306 application: paras [30]-[32], [42], [44]-[46].
3. The words “and incidental to” are words of extension, but they concern subordinate costs connected with the relevant proceedings. Work undertaken on wider advice concerning the company, including possible administration, removal of a director and written resolutions, was not work on the section 306 application and was not incidental to it. The Master should have distinguished and disallowed that work: paras [34]-[41].
4. The post-2013 proportionality regime under CPR 44 requires a two-stage process. Costs are first assessed for reasonableness. The court must then stand back and decide whether the resulting total bears a reasonable relationship to the matters identified in CPR 44.3(5). Necessary or reasonably incurred costs remain subject to that final control: paras [47]-[58].
5. VAT and the costs of drawing the bill are excluded from the proportionality assessment. They do not measure the relationship between the costs of the litigation and the application that generated them: paras [59]-[62].
6. Mr Malmsten’s resistance to the application could justify the incidence of costs, but did not by itself justify the amount claimed. Given the narrow and straightforward nature of the application, the Master needed to identify how that conduct generated additional costs. His failure to make a proportionality reduction was therefore an error of law: paras [63]-[65].
7. The matter was not remitted. The court reduced the recoverable costs of the application from £47,500 to £15,000 plus VAT, while leaving the costs of the detailed assessment for further consideration: paras [66]-[70].

• High Court (Chancery Division): On appeal from Master Whalan’s order dated 11 October 2018, the appeal succeeded on Grounds 1, 2 and 7. The recoverable costs were reduced to £15,000 plus VAT.