Sheinberg v Abdon & Ors

The court considered whether to exercise its discretion under CPR 38.6 to disapply the default rule that a discontinuing claimant must pay the defendant's costs. The claim arose from a dispute between shareholders and directors of a small freehold/management company about the preparation and filing of the 2017 statutory accounts and wider corporate governance issues (including the use of feeder documents and the convening of a general meeting). The court applied the principles in Brookes v HSBC Bank plc and Nelson's Yard Management Co v Eziefula, taking account of CPR 44.2 factors and section 306 Companies Act 2006 as relevant to the relief sought.

The master found that the defendants had acted unreasonably in several respects (including refusing to attend or agree dates for a general meeting, late promotion of the New Feeder Documents, delay and lack of engagement over the claimant's proposed basis for estimated accounts, and earlier attempts to disenfranchise the claimant). Despite that misconduct, the court concluded that the claimant had advanced a part of his claim (the urgent injunctive relief in paragraph 1 of the claim form) that was bound to fail and that the general meeting ultimately produced substantially what the defendants had proposed. For those reasons the court declined to award the claimant his costs and ordered no order as to costs.

This was a first instance costs application following discontinuance by the claimant of part of his Part 8 claim against the second and third defendants. The claimant (a shareholder and director of the freehold/management company for 50 Westbourne Gardens) sought two forms of relief: (1) an immediate order requiring defendants to instruct accountants in specified terms (an injunctive-type remedy); and (2) directions under section 306 Companies Act 2006 for the holding of a general meeting to resolve outstanding disputes about the 2017 statutory accounts and corporate governance.

The conduct leading to litigation included late provision of feeder documents for the 2017 accounts, a refusal by the company's then accountants to continue, delay in filing accounts with Companies House, and correspondence in which the parties proposed different feeder documents (the "Original Feeder Documents" and later the "New Feeder Documents"). Companies House threatened prosecution for late filing. The parties exchanged settlement offers and agreed a stay; a general meeting took place on 12 June 2019 at which estimated accounts were to be prepared on the basis of the New Feeder Documents, Wilton Group were appointed, and other governance steps were taken.

The issue before Master Clark was whether to displace the CPR 38.6 presumption that a discontinuing claimant pays the defendant's costs. The court framed the issues as: (i) whether the defendants’ conduct provided a good reason to depart from the presumption; and (ii) whether any conduct by the claimant undermined his entitlement to such relief. The court applied the six-point summary from Brookes v HSBC and the approach in Nelson's Yard, and considered CPR 44.2 factors, including pre-action conduct.

The master found multiple instances of unreasonable conduct by the defendants: precluding a general meeting in July 2018 unless the claimant removed a director appointment resolution and accepting a proposal to reduce the claimant's and his wife's shareholding entitlement; refusing to agree to or propose dates for a meeting in April 2019; late and obstructive engagement with the claimant's proposed feeder documents and positions on filing estimated accounts; and delay in accepting that estimated accounts could be filed. The court rejected criticisms of the claimant's haste and his use of Part 8 procedure for the section 306 relief, and accepted that paragraph (1) of the claim form (the immediate order) was misconceived and bound to fail.

Balancing the conduct, the court concluded that although the defendants had behaved unreasonably (providing some basis to depart from the CPR 38.6 presumption), other factors (notably that paragraph (1) of the claim was bound to fail and that the general meeting produced substantially what the defendants had proposed) meant that the appropriate order was no order as to costs.

First instance: The court exercised its discretion under CPR 38.6 and ordered no order as to costs. Rationale: the defendants had acted unreasonably in several respects (refusing or delaying attendance at general meetings, late promotion of new feeder documents, failure to engage with the claimant's proposed basis for estimated accounts), which warranted departing from the usual presumption; however the claimant had advanced a head of claim that was bound to fail and the general meeting ultimately produced substantially what the defendants had proposed, so the master concluded that no order as to costs was appropriate.