Global Energy Horizons Corporation v Gray

A claimant who obtains a substantial monetary award is ordinarily the successful party for costs purposes, even if it recovers only a small fraction of its original claim. The court must assess success realistically and consider whether the defendant could have protected its position through an offer under Part 36.

Conduct remains material. A defaulting fiduciary’s dishonest account may weigh strongly in favour of awarding the claimant its costs where that conduct made extensive proceedings necessary. An appellate court may interfere with a costs discretion where the judge commits an error of principle, including by materially undervaluing such conduct. The resulting order may nevertheless exclude costs attributable to a discrete issue on which the defendant ultimately succeeded.

This was a further judgment concerning the costs grounds left unresolved when the Court of Appeal delivered its main judgment in [2020] EWCA Civ 1668. The remaining issue concerned Arnold J’s order, following his decision in [2019] EWHC 2603 (Ch), that there should be no order for the costs of an earlier enquiry into the profits for which Mr Gray was accountable as a fiduciary.

Arnold J had regarded the outcome as a score draw because Global Energy Horizons Corporation recovered over £3 million but only a small fraction of its original claim. The company contended that it was the successful party and that Mr Gray’s dishonest account had made the enquiry necessary and unnecessarily costly. The central question was whether the no-order-as-to-costs decision involved an error of principle and, if so, what costs order should replace it.

1. Appeal allowed on the costs ground. In a joint judgment, the court set aside the order that there be no order as to the costs of the Enquiry Phase. Global Energy Horizons Corporation was the clear winner because it recovered a substantial monetary sum and established that Mr Gray’s fiduciary account was false in serious respects.

2. An appellate court does not interfere with a costs discretion merely because it would have exercised the discretion differently. Intervention is justified where the judge erred in principle, considered an irrelevant matter, omitted a relevant matter, or reached a plainly wrong conclusion. The usual respect for the trial judge’s feel for the case carried less weight because Arnold J had not presided over the Enquiry Hearing.

3. The judge adopted the wrong approach by treating neither party as successful. Recovery of only a small proportion of an initially ambitious claim did not prevent the company from being the successful party. A defendant exposed to some liability could use Part 36 to protect his position. There was no basis for finding that the company’s valuation had been dishonest or reprehensibly exaggerated.

4. The judge also erred in principle by failing to give sufficient weight to Mr Gray’s conduct. As a fiduciary, he was obliged to provide a true account but instead advanced a false case about his interests in the relevant assets. That conduct materially altered the shape and expense of the proceedings. The company’s costly efforts to disprove the account were vindicated.

5. The settlement offer made by a non-party did not justify a different allocation because its scope was unclear. Nor did the company’s funding arrangements affect the costs issue.

6. The court substituted an order requiring Mr Gray to pay the company’s costs of the Enquiry Trial Phase. As Mr Gray ultimately succeeded on the discrete valuation issue, the recoverable costs excluded the professional fees and disbursements of the company’s valuation and viability experts. Paragraph 6 of the order dated 4 October 2019 was varied accordingly.

• Court of Appeal (Civil Division): By this supplemental judgment, [2021] EWCA Civ 123, the court upheld Ground 6, set aside the no-order-as-to-costs direction and substituted an order requiring Mr Gray to pay the company’s Enquiry Trial Phase costs, subject to specified expert-cost exclusions.
• Court of Appeal (Civil Division): The court had delivered its main judgment in the appeal on 9 December 2020, [2020] EWCA Civ 1668, while leaving certain costs grounds for later determination.
• High Court of Justice, Business and Property Courts: Arnold J’s ruling and order, [2019] EWHC 2603 (Ch), directed that there should be no order as to the costs of the Enquiry Hearing. That direction was set aside and replaced by the Court of Appeal.