Maggie Otto & Ors v Inner Mongolia Happy Lamb & Ors (costs decision)

This judgment concerns costs arising from an interlocutory application by the petitioners for an interim injunction seeking to restrain the sixth respondent company from using its funds to pay the legal costs of the first five respondents in a petition under Part 30 of the Companies Act 2006 alleging unfairly prejudicial conduct. The court held that the petitioners were entitled to withdraw the interim application by the court's case management power under CPR rule 3.1(2)(m) and that such withdrawal was not a discontinuance within CPR Part 38. On the merits of the costs dispute the court found the petitioners acted reasonably in issuing the application in light of bank statements showing significant payments to solicitors and correspondence that did not satisfactorily explain them, whereas the represented respondents failed to explain the position promptly and failed to comply with directions. For that reason the court ordered that the represented respondents pay the petitioners' costs of and occasioned by the application, to be summarily assessed.

Background and nature of the claim:

• The substantive litigation is a petition presented under Part 30 of the Companies Act 2006 alleging conduct unfairly prejudicial to the petitioners as members. The petition was presented on 21 September 2022 and a defence filed on 2 November 2022. Trial was listed for March 2024.
• The interlocutory matter concerned an application dated 18 October 2023 for an interim injunction to restrain the sixth respondent company from using company funds to pay the legal fees of the first five respondents.

Procedural posture and evidence:

• The petitioners relied on bank statements and correspondence suggesting substantial payments from the sixth respondent to solicitors and sought the injunction. The respondents initially did not file evidence in time; one unrepresented respondent filed evidence accepting company payments; the represented respondents later served witness statements (including from the sixth respondent's sole director) claiming the sums were repayments of directors' loans and therefore not company funds.

Issues framed:

• Whether the petitioners' abandonment of the interim application amounted to a discontinuance within CPR Part 38 and thus engaged the costs consequences of that Part.
• Whether the court had power to permit withdrawal of the interlocutory application and, if so, on what terms.
• Which party should bear the costs of and occasioned by the interlocutory application in light of the general costs rule and the conduct of the parties.

Court's reasoning and decision:

• The court concluded that an interim application in aid of existing proceedings is not a separate 'claim' for the purposes of Part 38; withdrawing it is not a discontinuance under Part 38. Instead CPR rule 3.1(2)(m) empowers the court to permit withdrawal and to impose terms.
• Generally costs follow the unsuccessful party, but the court may depart from the general rule having regard to conduct. The court analysed the parties' conduct: the petitioners' decision to apply was reasonable given the bank statements and the respondents' correspondence; the represented respondents failed to explain the payments when asked, did not comply promptly with directions and filed key evidence only on the morning of the hearing.
• For those reasons the court exercised its discretion to order that the represented respondents pay the petitioners' costs of and occasioned by the interim application, to be summarily assessed, and gave directions for submissions on the costs schedule.

The court permitted the petitioners to withdraw the interlocutory application under CPR rule 3.1(2)(m), held that such withdrawal was not a discontinuance under CPR Part 38, and concluded that the represented respondents' conduct justified departing from the usual rule about costs. The court ordered that the represented respondents pay the petitioners' costs of and occasioned by the application, to be summarily assessed, and gave directions for that assessment.