B e f o r e :
THE HONOURABLE MR. JUSTICE MARCUS SMITH
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SIGNIA WEALTH LIMITED
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Claimant
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(1) VECTOR TRUSTEES LIMITED
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(as trustee of the Cap Ferret Trust)
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(2) MS. NATHALIE DAURIAC-STOEBE
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Defendants
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NEW STREET TRUST LIMITED
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(as trustee of the Cap Ferret Trust)
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Third Party
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GRECCO LIMITED
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Fourth Party
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MR. JOHN CAUDWELL
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Fifth Party
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Mr. Edward Brown (instructed by Mishcon de Reya LLP) for the Claimant, Fourth Party and Fifth Party
Mr. Thomas Plewman, Q.C. (instructed by Grosvenor Law) for the Defendants and the Third Party
Hearing date: 2 July 2018
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HTML VERSION OF JUDGMENT APPROVED
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Crown Copyright ©
Mr. Justice Marcus Smith:
- My judgment in these proceedings (the "Judgment") was handed down on 8 May 2018. This was a "bare" handing down of the Judgment, and I adjourned all consequential matters to a later hearing, which took place on 2 July 2018. This ruling deals with the question of costs.
- This ruling takes the Judgment as read, and adopts the terms and abbreviations used in the Judgment, as set out in Annex 1 thereto.
- The proceedings that culminated in the Judgment had an unusual commencement. By a Claim Form ET1 dated 1 June 2015, Ms. Dauriac commenced proceedings in the Employment Tribunal against Signia. The "Rider" to Claim Form ET1 set out in some detail Ms. Dauriac's claim against Signia, which was for constructive dismissal. The essence of Ms. Dauriac's claim before the Employment Tribunal is set out in paragraphs 521ff of the Judgment. These issues were, essentially, common between these proceedings and the Employment Tribunal proceedings. Ms. Dauriac contended that her constructive dismissal arose because of concerns she raised with Mr. Caudwell and Mr. Canfield regarding two invoices issued by Signia, which she considered to be "shams", done in order for Mr. Caudwell to avoid paying tax. The investigation into her expenses, she contended, was a reaction to her raising of these concerns, and a device to drive her out of Signia.
- On 23 July 2015, these proceedings were commenced. They sought, by way of relief, a number of declarations, in particular:[1]
(1) That Ms. Dauriac had resigned and not been constructively dismissed.
(2) That Ms. Dauriac had been guilty of gross misconduct and that Signia had had the right summarily to dismiss Ms. Dauriac.
(3) That Ms. Dauriac was a Bad Leaver within the meaning of the Articles.
(4) That the Dauriac Shares had lawfully been transferred pursuant to the Articles.
- It will readily be seen, and as I have already noted, that these declarations traversed the points in issue in the Employment Tribunal, albeit that the central issue in those proceedings (compensation for her dismissal) was not before me. Instead, the sole monetary issue before me was the question of whether the Dauriac Shares had properly been transferred for £2, a point that was made more stark by Ms. Dauriac's response in these proceedings, which was to contend that the Dauriac Shares were worth of the order of £20 million.
- In the event, the conclusions that I reached in the Judgment represented something of a mixed outcome for both parties.[2] Ms Dauriac's whistleblowing allegation failed, and I found that there was substance to the investigation into her expenses. However, that investigation – in a rush to judgment – gave rise to a repudiatory breach on the part of Signia, which Ms. Dauriac accepted, resulting in her constructive dismissal. Because of her own breach of contract (arising out of her wrongly claimed expenses, and her dishonest cover-up of those expenses) Ms. Dauriac was nevertheless a Bad Leaver. The process of valuing the Dauriac Shares was not compliant with the Articles. The valuation exercise I conducted resulted in a valuation falling far short of the amount claimed by Ms. Dauriac, but well in excess (I valued the shares at around £500,000) of the £2 paid to Ms. Dauriac.
- In these circumstances, with one exception, both parties seek their costs. The exception is the "similar fact" or "Pure Jatomi" issue considered in Section H of the Judgment. For the reasons I gave in Section H of the Judgment, I derived no assistance from the "similar fact" case, and Ms. Dauriac conceded that she should be liable for the costs of this discrete issue.
- I consider this concession to be entirely appropriate. The issue was in substance a very distinct one from the other issues that arose in the case (which were much more intertwined), such that it will be relatively straightforward to identify these costs on a detailed assessment. This is all the more so because the issue was introduced by way of amendment and had its own costs budget. I regard an issue-based cost order in this limited regard to be entirely appropriate.
- The only dispute between the parties was whether costs in relation to this issue should be awarded on the standard or on the indemnity basis. I consider that it is appropriate to order costs on the standard basis. The "similar fact" case was inserted into the proceedings by amendment, which amendment was unsuccessfully resisted by Mr. Caudwell. The amendment was proper, and all that Ms. Dauriac did was pursue – aggressively, but properly – the case that was pleaded on her behalf. Whilst she lost decisively on the issue, and I found the witnesses (who were third parties) called by Ms. Dauriac not to be credible, and in one case dishonest, I do not consider that Ms. Dauriac's conduct can rightly be characterized as being such as to take the situation away from the norm within the sense of Excelsior Commercial and Industrial Holdings v. Salisbury Ham Johnson [2002] EWCA Civ 879.[3]
- So far as the rest of the costs (apart from the "similar fact" case) are concerned, Ms. Dauriac contended that the usual rule that costs follow the event should be observed and that, as the successful party, Ms. Dauriac should have her costs. It was accepted on her behalf that since Ms. Dauriac had, in a number of respects, lost, a discount should be applied: but that this should be no more than 25%.
- Mr. Caudwell contended that an issue-based costs order should be made. It was contended that (in addition to the "similar fact" issue described above) the case involved two issues:
(1) The issue of Ms. Dauriac's departure from Signia, i.e. whether she resigned or was constructively dismissed and the sort of Leaver she was (the "Dismissal Issue").
(2) The quantification of the value of the Dauriac Shares (the "Valuation Issue").
- In respect of the Dismissal Issue, Mr. Caudwell sought his costs on an indemnity basis. In respect of the Valuation Issue, Mr. Caudwell contended for no order as to costs.
- The parties were substantially agreed as to the relevant principles, which are clearly stated in Multiplex Constructions (UK) Ltd v. Cleveland Bridge UK Ltd (No. 7) [2008] EWHC 2280 (TCC) at [72]:
(1) In commercial litigation, where each party has claims and asserts that a balance is owing in its own favour, the party which ends up receiving payment should generally be characterized as the overall winner of the entire action.
(2) In considering how to exercise its discretion the court should take as its starting point the general rule that the successful party is entitled to an order for costs.
(3) The judge must then consider what departures are required from that starting point, having regard to all the circumstances of the case.
(4) Where the circumstances of the case require an issue-based costs order, that is what the judge should make. However, the judge should hesitate before doing so, because of the practical difficulties which this causes and because of the steer given by Rule 44.3(7).
(5) In many cases, the judge can and should reflect the relative success of the parties on different issues by making a proportionate costs order.
(6) In considering the circumstances of the case, the judge will have regard not only to any Part 36 offers made but also to each party's approach to negotiations (insofar as admissible) and general conduct of the litigation.
(7) In assessing a proportionate costs order, the judge should consider what costs are referable to each issue and what costs are common to several issues. It will often be reasonable for the overall winner to recover not only the costs specific to the issues which he/she has won, but also the common costs.
- In this case, it seems to me clear that Ms. Dauriac is the winner, albeit that her victory has its pyrrhic elements. Had proceedings continued in the Employment Tribunal, instead of being stayed in favour of these proceedings, Ms. Dauriac would have succeeded in establishing her constructive dismissal: but any damages she would have been awarded would have had to reflect Signia's unexercised right to dismiss her summarily.
- The effect of the commencement of these proceedings was to transfer the focus from damages for constructive dismissal of Ms. Dauriac to the question of the value of the Dauriac Shares and whether these had been undervalued by reason of a defective application of the process laid down in the Articles. I do not accept that Ms. Dauriac can be criticized for continuing to litigate the Dismissal Issue in these proceedings. The Dismissal Issue lay at the heart of the Employment Tribunal proceedings, which Ms. Dauriac commenced, and which were common to both sets of proceedings. She could not, in my judgment, have abandoned the Dismissal Issue in these proceedings without abandoning the Employment Tribunal proceedings.
- Thus, the essence of the Employment Tribunal proceedings was damages for constructive dismissal and the essence of these proceedings was the value of the Dauriac Shares, with the Dismissal Issue a necessary part of both.
- Ms. Dauriac has recovered substantially more for her shares than the nominal value attributed to them. So far as the essence of these proceedings is concerned, she has won. Prima facie, she is entitled to her costs.
- The next question is whether I should make an issue-based costs order. As was noted in Multiplex, I should hesitate before doing so, because of the practical difficulties that such an order entails. In this case, I consider that there are more than practical difficulties (although these certainly exist) to the making of an issue-based costs order. The Dismissal Issue did not have a clear-cut winner: Ms. Dauriac established constructive dismissal by Signia; but Mr. Caudwell established the right in Signia to dismiss Ms. Dauriac summarily. Both of these findings arose out of the same detailed factual narrative (regarding the expenses investigation) that I had to consider during the course of the trial and the Judgment.
- As regards the Valuation Issue, Ms. Dauriac was clearly the winner, albeit that I did not accept the evidence of her expert, and Ms. Dauriac did not recover anything like the value she attributed to the Dauriac Shares.
- The fact that each issue involves winners and losers on those sides strongly points in favour of the normal rule of costs following the event, but subject to a proportionate deduction.[4] I also bear in mind that Mr. Caudwell could easily have protected himself from this outcome by making a Part 36 offer.
- Accordingly, I find that Ms. Dauriac is entitled to her costs, but with a significant deduction. I consider that the 25% deduction suggested by Ms. Dauriac does not reflect the relative success of the parties. I consider that the applicable discount should be 45% to reflect that Ms. Dauriac was the substantial loser on the "Bad Leaver" issue and the fact that she succeeded in her claim despite and not because of her expert.
- Accordingly, I find that:
(1) Ms. Dauriac should pay Mr. Caudwell's costs of the "similar fact" issue on the standard basis, to be subject to a detailed assessment if not agreed.
(2) Mr. Caudwell should pay 55% of Ms. Dauriac's costs in relation to all matters, save the "similar fact" issue on the standard basis, to be subject to a detailed assessment if not agreed.
(3) There should be a set-off of these costs amounts, but – subject to such set-off – Mr. Caudwell and Ms. Dauriac should agree an amount by way of interim payment of costs to Ms. Dauriac. Failing agreement, that issue must come back to me to be determined.
