Dale Heathcote & Anor v Asertis Limited

The Court of Appeal considered whether the trial judge had erred in his exercise of discretion in ordering that the defendants pay 75% of the claimant’s costs after a three day trial in which two separate claims were tried together. The principal legal principles were the court’s wide discretion as to costs under CPR rule 44.2 and the established practice of approaching costs either globally or by reference to separate claims or issues where appropriate.

The substantive merits were: (a) a "rewards claim" brought against Mr Heathcote alone challenging payments made under an employee benefit trust as unlawful remuneration, transactions at an undervalue (section 423), or breaches of duties to creditors, and (b) a "payment claim" against Mr Heathcote and Upholstery under section 239 of the Insolvency Act 1986 for a preferential payment of £65,000. The trial judge held the rewards claim failed (except that an overpayment of £7,800 was identified and repaid) and the payment claim succeeded.

The judge treated the proceedings globally for costs, identified the claimant Asertis as overall successful, and ordered the defendants to pay 75% of the claimant’s costs. On appeal the Court of Appeal held there was no error of law in the judge’s approach because both parties had asked him to deal with costs on a global basis and invited a global exercise of discretion; the judge therefore did not act beyond the permissible bounds of his discretion.

The claimant, Asertis Ltd (a litigation funder and assignee of Servico Build Tec Ltd), issued proceedings using a single claim form to bring two distinct claims arising out of the affairs of Build Tec, of which Mr Heathcote was the sole active director.

• The rewards claim (against Mr Heathcote alone) alleged that sums paid via an employee benefit trust (the EBT) benefitted Mr Heathcote and were not justifiable as remuneration, were transactions at an undervalue (section 423), or were made in breach of duties to creditors. The pleaded sum was £520,000. The judge analysed the structure of the arrangement and concluded that the payments were lawful remuneration (albeit not taxable remuneration), not at an undervalue for the purposes relied on and, on the evidence, the duty to creditors was not engaged. An accounting error produced an overpayment of £7,800 which was repaid before trial.
• The payment claim (against Mr Heathcote and Servico Contract Upholstery Ltd) concerned a £65,000 payment by Build Tec to Upholstery alleged to be a preference under section 239 Insolvency Act 1986. The judge upheld that claim and ordered recovery.

Following judgment on liability the judge held a consequentials hearing on relief and costs. The judge concluded that Asertis had succeeded overall (recovering judgment for £65,000 on the payment claim and £7,800 on the rewards claim) and that the claimant’s conduct in pursuing the rewards claim was not unreasonable. He therefore exercised his discretion under CPR rule 44.2 to order that the defendants pay 75% of the claimant’s costs on the standard basis.

On appeal the appellants argued the judge had erred by treating two separate claims as one for costs purposes and by making Upholstery liable for costs of a claim not brought against it. The respondent argued both sides had invited a global approach. The Court of Appeal reviewed authority on global versus issue- or claim-based costs orders and held that the judge had wide discretion and had not erred because the parties had presented the costs issue on a global basis and asked him to decide costs in the round. The appeal was dismissed.

The court’s reasoning emphasised (i) the need to identify the successful party as an anterior step when appropriate, (ii) that a global approach is common and permissible, and (iii) that an appellate court’s role is to review whether the judge made a significant error within the evidential and submission context before him.

Appeal dismissed. The Court of Appeal held that the trial judge did not exceed the permissible bounds of his discretion in making a single global costs order (awarding the claimant 75% of its costs) because both parties had invited him to decide costs on a global basis; the judge had the wide discretion accorded by CPR rule 44.2 and no legal error was shown in his identification of the successful party or in his exercise of the costs discretion.

Appeal from His Honour Judge Stephen Davies sitting in the High Court, Business & Property Courts in Manchester, Insolvency and Companies List (Ch D) ([2022] EWHC 2498 (Ch)) to the Court of Appeal ([2024] EWCA Civ 242).