TMO Renewables Limited (in liquidation) v Timothy Stephen Kenneth Yeo & Ors

A trial judge’s broad discretion over costs under the Civil Procedure Rules 1998 is not displaced merely because a successful party acted dishonestly or beat a settlement offer. The court must consider all the circumstances, including misconduct, overall success, admissible non-Part 36 offers and the effect of the misconduct on costs. It may disallow costs incurred in advancing a dishonest case and make a further proportionate deduction to mark disapproval and reflect the costs consequences. Dishonesty does not automatically require indemnity costs or an order against the successful party. Appellate intervention is limited to recognised errors of principle or plainly unsustainable decisions.

The claimant sued five defendants alleging breaches of fiduciary duty connected with the issue of shares and the conduct of an extraordinary general meeting. Mrs Justice Joanna Smith found serious dishonest breaches but concluded that they caused no loss, dismissed the claim and ordered the claimant to pay 30% of the defendants’ costs in [2021] EWHC 2773 (Ch); the merits judgment was [2021] EWHC 2033 (Ch).

The claimant’s application for permission to appeal on the merits was refused. The third and fifth defendants’ costs appeal was compromised. The fourth defendant appealed, seeking all his costs on the indemnity basis and arguing that the judge had failed to give proper weight to his settlement offers, the claimant’s conduct and the differences between the defendants. The central issue was whether the costs order involved an error of principle.

The Court of Appeal unanimously dismissed the appeal. Lord Justice Males gave the leading judgment. Lady Justice Elisabeth Laing agreed, and Lady Justice Asplin agreed for the reasons given and endorsed the observations on mediation.

1. The appellate threshold is high. Costs decisions are matters of discretion and evaluation. Intervention is justified only where the decision is wrong in principle, rests on an irrelevant consideration, omits a relevant consideration or is plainly unsustainable. The trial judge’s detailed knowledge of the case is especially important after a lengthy trial. The court applied the approach stated in F & C Alternative Investments (Holdings) Ltd v Barthelemy (No. 3) [2012] EWCA Civ 843.
2. Under the Civil Procedure Rules 1998 r 44.2, the rule that costs follow the event is a starting point. It may be displaced after consideration of all the circumstances, including the conduct of the parties, partial success and admissible settlement offers outside Part 36.
3. Dishonest conduct by a successful party is not an automatic answer to the costs question. The court may disallow costs spent advancing the dishonest case, award costs attributable to proving the dishonesty, or make a further proportionate deduction. The additional deduction marks disapproval and reflects the cost consequences of the misconduct; it is not punishment. The judge must avoid double counting.
4. The judge was entitled to find that all defendants, including Mr McBraida, had advanced a positive liability case which they knew to be false. His poor recollection and generally helpful oral evidence did not require a different conclusion. The judge had considered the claimant’s conduct and both offers to settle. The early offer was conditional and Mr McBraida had also advanced an undervalue allegation, so the judge was entitled not to distinguish him from the other defendants.
5. There was no error in principle in making a proportionate overall order, refusing indemnity costs, or sweeping the costs reserved at the pre-trial reviews into that order. The order requiring the claimant to pay 30% of the defendants’ costs was therefore upheld.

In an obiter postscript, the court considered the dispute particularly suitable for mediation and urged parties and advisers to approach negotiated resolution positively.

• Court of Appeal (Civil Division): In [2022] EWCA Civ 1409, the fourth defendant’s costs appeal was unanimously dismissed.
• High Court of Justice, Business and Property Courts, Chancery Division: Mrs Justice Joanna Smith dismissed the claim on the merits in [2021] EWHC 2033 (Ch) and ordered the claimant to pay 30% of the defendants’ costs in [2021] EWHC 2773 (Ch).