Patel v Barlows & Ors (No. 2)

The court has a broad discretion on costs. An order requiring one defendant to pay costs incurred by a claimant in proceedings against another defendant may be made where it is just, even though the claims are not pleaded in the alternative. The order is compensatory and depends on the facts, including the claimant’s reasonableness, the relationship between the claims and the potential injustice to the defendants.

Indemnity costs may be ordered where conduct takes the case out of the norm. A payment on account should be assessed broadly by reference to the likely recoverable costs; a 90% figure is not mandatory. An office-holder may be denied recoupment from an insolvent estate where conduct falls materially below the standard expected of a reasonable insolvency practitioner.

This was a consequential judgment following the court’s main judgment in [2020] EWHC 2753 (Ch). The court determined the form of orders for accounts and inquiries, the possibility of fresh proceedings, interest on a payment made on account, costs between the parties, indemnity costs, mediation, the second claimant’s costs, payment on account, recoupment of the trustees’ costs from the bankrupt’s estate and permission to appeal.

The central issues were whether the second defendants should pay costs incurred in the claim against Barlows, whether costs should be assessed on the indemnity basis, whether the claimants’ approach to mediation justified a costs sanction, and whether the trustees could recover their costs from the bankruptcy estate.

1. The court refused to include a provision authorising the claimants to bring fresh proceedings. The main judgment had not determined whether any future claim would constitute an abuse of process under Henderson v Henderson (1843) 3 Hare 100. The second defendants remained entitled to raise that issue.

2. In the absence of agreement between partners, interest was not payable on a return of capital. The payment to the first claimant was therefore limited to the amount of the advance, with any claim to interest capable of being addressed when the partnership account was taken or in separate proceedings.

3. The general rule under Civil Procedure Rules 1998, rule 44.2(2)(a), was that the unsuccessful party should pay the successful party’s costs. The court declined to depart from that rule. It ordered the second defendants to pay the claimants’ costs, including the costs of the discontinued claim against Barlows.

4. The discretion to make that additional costs order was broad and fact-sensitive. The principles summarised in Woodland v Swimming Teachers’ Association [2018] 3 Costs LR 469, based on Irvine v Commissioner of Police [2005] EWCA Civ 129, did not confine the jurisdiction to alternative claims. The order was justified because joining both sets of defendants was reasonable and necessary, the claims were inextricably linked, and refusing the order would leave the claimants uncompensated for costs reasonably incurred.

5. The claimants were entitled to indemnity costs. The second defendants’ conduct, including the manner in which they conducted the litigation and the deficiencies in the evidence given by Mr Stanley, took the case out of the norm within the meaning of rules 44.2 and 44.3. The court also rejected the suggested mediation criticism. The claimants had not unreasonably refused mediation, and the relevant factors identified in Northrop Grumman Mission Systems Europe Ltd v BAE Systems (Al Diriyah C41) Ltd [2014] EWHC 3148 (TCC) supported that conclusion.

6. A payment on account should be a reasonable sum reflecting the likely recoverable costs. The court should examine the budget on a broad-brush basis and exclude plainly unincurred items. The 90% figure discussed in Thomas Pink Ltd v Victoria’s Secret UK Ltd [2015] 3 Costs LR 463 was not fixed. The court ordered payment on account of £100,000.

7. The second defendants were not entitled to recoup their costs from the free assets in the bankruptcy. Applying the approach in Re Capitol Films Ltd (In Administration) [2010] EWHC 3223 (Ch) and Nutting v Khaliq [2012] EWCA Civ 1726, the court concluded that their conduct fell well below the standards expected of insolvency practitioners and made recoupment unjust.

8. Permission to appeal was refused. The proposed appeal principally challenged factual findings and discretionary decisions, and had no real prospect of success or other compelling reason for an appeal.

The judgment was a first-instance consequential decision following the court’s main judgment in [2020] EWHC 2753 (Ch). Permission to appeal was refused.