Krishna Holdco Limited & Ors v Gowrie Holdings Limited & Ors

When deciding whether to approve costs budgeting for a company joined to unfair prejudice proceedings, the court should be cautious if approval could indirectly endorse management expenditure. The court should consider whether the proposed expenditure is supported by cogent evidence and is genuinely appropriate in the company’s interests. Caution is especially warranted where the company’s role, likely expenditure and prospect of recovering costs remain uncertain. A zero budget should not be imposed crudely if future recovery may become appropriate. The sensible course may be to leave costs at large and assess any actual costs later, when the parties and court have better information.

Krishna Holdco Limited brought unfair prejudice proceedings in which Laxmi BNS Holdings Limited was joined as the eighth respondent. The substantive dispute was principally between Krishna and the first to seventh respondents, while Laxmi BNS’s role was to remain bound by the outcome and monitor the proceedings.

Laxmi BNS proposed a costs budget of approximately £459,000. Krishna accepted that costs budgeting should apply in principle but proposed a budget of zero. The issue was whether Laxmi BNS should be subject to ongoing costs budgeting, or whether its costs should remain at large.

1. Costs budgeting not imposed. Laxmi BNS was not made subject to costs budgeting. Its costs were left at large.
2. The court applied the cautious approach identified in Re a Company (No 1126 of 1992) [1993] BCC 325. Although that authority concerned advance approval of company expenditure rather than costs budgeting, approval could indirectly make a later challenge to management expenditure more difficult.
3. The relevant inquiry was not confined to the amount of proposed expenditure. The court had to consider whether the proposed expenditure was truly appropriate and supported by cogent evidence. Laxmi BNS’s own case showed uncertainty about its proper role, the work it would need to undertake and the costs it would incur. That made approval inappropriate.
4. There was also substantial uncertainty about whether Laxmi BNS would ever recover costs from another party. A costs budget operates as a benchmark for future assessment, so budgeting would have little practical point where recovery was speculative.
5. A zero budget was also rejected. It might unnecessarily prejudice future recovery if circumstances changed and could create later disputes about whether there was good reason to depart from the budget.
6. The appropriate course was to allow Laxmi BNS’s management to incur such monitoring costs as it considered appropriate and to leave any future costs order and assessment to be determined on the basis of costs actually incurred and the circumstances then prevailing.

Not stated in the judgment.