SHAREHOLDERS REMEDIES [1997] EWLC 246(2) (24 October 1997)

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Introduction

2.1 In the consultation paper, we highlighted the major problems of the length and cost of proceedings brought under section 459. (1) The wording of section 459 is extremely wide and this allows conduct going back over many years to be raised by the parties. This results in complex, often historical, factual investigations and, therefore, costly and cumbersome litigation. Prolific or weak allegations are often made by the parties to lend ballast to what are essentially their main grievances. We quoted the observation of Harman J in Re Unisoft Group Ltd (No 3) (2)that "[p]etitions under section 459 have become notorious to the judges of this court - and I think also to the Bar - for their length, their unpredictability of management, and the enormous and appalling costs which are incurred upon them ...".

2.2 The essence of the remedy under section 459 is that it gives the court a wide discretion to remedy conduct which may fall short of actual illegality. (3) Our provisional view, which was supported by respondents, (4) was that the very general wording of the section should remain as it now stands. However, the conduct of such proceedings should be carefully controlled. The best way to do this was by effective case management by the courts. This approach to section 459 proceedings received widespread support on consultation. (5) Accordingly, we consider that the problems of the excessive length and cost of many proceedings brought under section 459 should be dealt with primarily by active case management by the courts.

2.3 Although the effective use of case management techniques is particularly relevant to proceedings under section 459, our proposals in this respect are equally applicable to all shareholder proceedings, and in particular to the new derivative action which we consider in Part 6 below. There are several powers, however, which we referred to in the consultation paper, which are only relevant to derivative proceedings. These are considered along with the other details of the provisions for a new derivative action (in Part 6).

2.4 We considered the issue of case management in the context of the wider review of civil procedure conducted by Lord Woolf. In his final report published in July 1996 (the Woolf Report), Lord Woolf made a number of proposals for the management of proceedings which we considered would assist in dealing with the difficulties of length, cost and factual complexity arising in proceedings under section 459. (6) Our proposals for case management were therefore modelled on the Woolf reforms, although we also proposed the greater use of some existing powers which the courts already have. This approach to more active case management of proceedings is also in line with recent decisions of the courts which emphasise the obligations of the parties and their legal advisers to co-operate in limiting the time and scope of evidence and argument. (7)

2.5 The case management powers considered in this part are discussed under the following heads: preliminary issues; security for costs; power to dismiss claim or part of claim or defence which has no realistic prospect of success; adjournment to facilitate ADR; determination of how facts are to be proved; exclusion of issues from determination; costs sanctions; and implementation of recommendations for case management. We also discuss briefly pre-action protocols.

2.6 So far as section 459 proceedings are concerned, specific procedural rules are contained in the Companies (Unfair Prejudice Applications) Proceedings Rules 1986 ("the 1986 Rules"). (8) These are made in England and Wales by the Lord Chancellor with the concurrence of the Secretary of State, following consultation with the Insolvency Rules Committee. (9) Rule 2(2) provides that the rules of the High Court and County Court (as appropriate) apply where they are not inconsistent with express provisions in the Rules. We assume that if the draft Civil Proceedings Rules are adopted, Rule 2(2) will be updated to refer to those rules instead of the existing High Court and County Court Rules. (10) In those circumstances any of the changes discussed in this Part applying to High Court and County Court actions generally are likely to apply to the unfair prejudice proceedings automatically.

Preliminary issues

2.7 Under the current law, the court may direct that preliminary issues be heard or that some issues be tried before others. (11) The Draft Civil Proceedings Rules draw particular attention to these powers as a means by which the courts should actively manage cases. (12)

2.8 We gave examples of when this power could be used to manage cases under section 459. (13) We pointed out that in some cases the real issue between the parties is not whether unfairly prejudicial conduct occurred, but the value at which shares should be sold or purchased. We suggested that it may save time and costs if the value of the shares is determined first, on the basis of stated assumptions agreed between the parties and accepted for that purpose by the court, that certain unfairly prejudicial conduct had occurred. The effect of deciding valuation issues at an early stage may be to demonstrate to the parties whether or not it is worth pursuing litigation at all and thus dispose of the case before they incur large legal costs. (14)

2.9 It may be that in most cases it is in fact more appropriate for issues relating to valuation to be determined after those relating to the conduct have been decided. Several respondents commented on the fact that costs are often wasted by parties in preparing valuations at too early a stage in the proceedings. This is for two reasons: first, parties often have to prepare several valuations on alternative assumed bases because they do not know the terms on which any purchase order will be made; (15) secondly, if it transpires that the conduct has not been unfairly prejudicial, or that the court is unwilling for other reasons to make a purchase order, the costs of any valuation will have been unnecessary. (16) The correct approach for the court to take will of course depend on the circumstances of the particular case.

2.10 Our provisional view that greater use should be made of this power was supported by the vast majority of respondents. A few respondents urged caution, pointing out that directing the trial of a preliminary issue may not shorten proceedings, and might in fact have the reverse effect. There will clearly be cases where it will not be appropriate for court to direct the trial of a preliminary issue, or to direct that some issues be tried before others. As now, great care will be needed to ensure that trial of preliminary issues will shorten the proceedings. (17) But we do not consider that this detracts from the general proposition that the courts should, in appropriate cases (for example where there is a self-contained issue as to whether some impropriety occurred), make greater use of their powers in this regard. We therefore recommend that greater use should be made of the power to direct that preliminary issues be heard, or that some issues be tried before others.

Security for costs

2.11 We raised the question of whether the jurisdiction to order security for costs should be extended so that the court could make an order whenever it thinks fit. Currently the grounds for making such an order are limited to the following situations: the plaintiff is ordinarily resident outside the jurisdiction; (18) the plaintiff sues for the benefit of another and there is reason to believe he will be unable to pay the costs of the defendant; the plaintiffs address is not given or is given incorrectly in the originating process; or that he has changed his address in the course of litigation with a view to evading the consequences of it. (19) The purpose of this extension would be to discourage nuisance litigation.

2.12 Our provisional view was that such an additional power would be unfounded in principle and might discourage meritorious litigation. The vast majority of respondents agreed with this view and we therefore consider that there should be no change to the courts existing power to order security for costs.

Power to dismiss claim or part of claim or defence which has no realistic prospect of success

2.13 We recommended provisionally that the court should have the power to dismiss any claim or any part of the claim or any defence thereto which, in the opinion of the court, has no realistic prospect of success. This is a key feature of the proposals put forward in the Woolf Report (20) and we considered that it was central to the effective streamlining of shareholder litigation. The proposed new power is set out in Part 14 of the Draft Civil Proceedings Rules. (21) This new power would take the place of the provisions for summary judgment and striking out. (22)

2.14 As we have indicated above, (23) we drew attention in the consultation paper to the fact that the tendency of parties to make prolific or weak allegations is a particular problem in section 459 cases. We also noted that a large number of the reported cases are applications by the respondents to strike out the petition under RSC O 18, r 19(1) and/or under the inherent jurisdiction of the court. (24) But strike out applications are not ideally suited to deal with this problem. They are made on the basis that the factual allegations made by the petitioner are presumed to be true. The court cannot make any findings of fact, and the proceedings cannot be struck out merely because the case is weak. (25) Although the courts will, in appropriate cases in proceedings under section 459, consider the evidence to see whether the facts alleged, if proved, would constitute unfairly prejudicial conduct. (26)

2.15 The new power will give the courts a much greater ability to refine claims under the section so as to remove those parts based on trivial or otherwise weak allegations and so shorten and reduce the length and cost of such claims. For example, if the applicant alleges that a company was formed on the basis that there is a relationship of mutual trust and confidence between the shareholders (so as to give rise to a claim that the court should give effect to legitimate expectations not found in the company's articles), (27) the court will be able to examine the evidential basis for the allegations and see whether the allegations stand any real chance of being proved. For this purpose, it may permit oral evidence to be called. This would be an improvement in the present situation because in some cases, allegations of this nature are made on the basis of minimal evidence, but they cannot be struck out before trial because it is only then that the evidence can be tested by witnesses giving evidence and being cross-examined. The allegations may be fact-intensive and require a complex and expensive investigation of events occurring many years previously.

2.16 The new power may also assist applicants with a good case in obtaining relief more quickly. In such cases, it may be possible for the applicant to show that the defence (or the relevant part of it) has no realistic prospect of success and invite the court to grant relief without the need for a full trial. (28)

2.17 In the context of the new derivative action, this power is relevant to the question of the imposition of a threshold test in relation to the merits of the action at the leave stage. (29)

2.18 The vast majority of respondents agreed with the provisional view that in shareholder proceedings the court should have this new power. Accordingly we recommend that in shareholder proceedings the court should have the power to dismiss any claim or part of a claim or defence thereto which, in the opinion of the court, has no realistic prospect of success at full trial.~(30)~

Adjournment to facilitate ADR

2.19 There already exists a power to adjourn proceedings at any stage to enable the parties to make use of mechanisms for alternative dispute resolution ("ADR") for disposing of the case or any issue in it. RSC, O 35, r 3 gives the High Court a general power of adjournment. (31) In addition, a number of practice directions in various divisions of the High Court have addressed more specifically the question of ADR. (32) We suggested in the consultation paper that an express reference to the power to adjourn to enable parties to make use of ADR in the rules relating to shareholder remedies would serve to encourage parties to consider other means for resolving disputes and issues between them. The vast majority of respondents agreed that this would be helpful. (33) We agree. There are often grievances between the parties which go beyond the pleaded allegations and for which ADR is suitable.

2.20 The 1996 Commercial Court Practice Statement (34) makes more detailed provision, inter alia, as follows:

If it should appear to the judge that the action before him or any of the issues arising in it are particularly appropriate for an attempt at settlement by ADR techniques but that the parties have not previously attempted settlement by such means, he may invite the parties to take positive steps to set in motion ADR procedures. The judge may, if he considers it appropriate, adjourn the proceedings then before him for a specified period of time to encourage and enable the parties to take such steps. He may for this purpose extend the time for compliance by the parties or either of them with any requirement under the Rules of the Supreme Court or previous interlocutory orders in the proceedings.

Should the parties be unable to resolve their differences by ADR or otherwise within the period of any such adjournment as may be ordered, they may restore the summons for directions or other summons for the purpose of reporting back to the judge what progress has been made by way of ADR (such report to cover only the process adopted and its outcome, not the substantive contact between the parties and their advisers) and whether further time is required for the purposes of ADR and, where efforts towards settlement by means of ADR have proved fruitless, for the purpose of obtaining further interlocutory directions in the proceedings.

2.21 The 1996 Commercial Court Practice Statement also encourages the use of early neutral evaluation either by a judge or another independent person. A similar practice could also be considered for inclusion in the rules for unfair prejudice proceedings. (35)

2.22 The Draft Civil Proceedings Rules make reference in general terms to the courts duty to encourage parties to use ADR procedure if the court considers that appropriate and to facilitate the use of such procedure. (36) ADR is not widely used at present, and if we are right in our view that many shareholder disputes are apt for resolution in this way, we consider it would be advantageous, at least while ADR remains comparatively unknown, to have an express reference to it in the 1986 Rules. Furthermore, if this course is taken, we consider that detailed provisions along the lines of the 1996 Commercial Court Practice Statement quoted in paragraph 2.20 above (which include provisions for reporting back to the court as to the outcome), are more likely to yield results. Accordingly, we recommend that the Lord Chancellor consider changes to the 1986 Rules (governing unfair prejudice proceedings) so as to include an express reference to the power to adjourn at any stage to enable the parties to make use of mechanisms for ADR for disposing of the case or any issue in it, together with provisions for reporting back to the court as to the outcome along the lines of the 1996 Commercial Court Practice Statement.

2.23 As for other proceedings (including derivative proceedings) we consider that the court should have the same power in relation to ADR in as it has in other litigation. We do not therefore recommend any specific rule for this purpose. The question of early neutral evaluation (37) should be kept under review. (38)

Determination of how facts are to be proved

2.24 The court already has flexible powers under the current rules as to the nature of the evidence to be put before it. (39) However, the Civil Procedure Act 1997 specifically provides that the new rules of court may modify the rules of evidence. (40) The Draft Civil Proceedings Rules give the court additional powers relating to, for example, the use of video evidence (41) and witness statements. (42) Rule 28.1 imposes a duty on the court to control the evidence by deciding (a) the issues on which it requires evidence, (b) the nature of the evidence which it requires, and (c) the way in which any matter is to be proved. Our provisional view was that there could be substantial savings in time and costs if, on each occasion the case is reviewed, the court considered making directions as to how facts should be proved. (43) For example, the court may dispense with a witness being called if he has given a witness statement to one of the parties on which the other parties do not wish to cross-examine him. By way of further example, the court might in an appropriate case direct that expert evidence be given by means of a written report. In both these ways, costly time in court would be saved. This view received widespread support on consultation and accordingly, we recommend that the courts power to determine how facts are to be proved should be used pro-actively by the court.

Exclusion of issues from determination

2.25 Currently the court cannot exclude evidence, provided it is legally relevant and admissible, and the rules of court applicable to its admissibility have been complied with. (44) However, Rule 5.1 provides that the court may "... exclude an issue from determination if it can do substantive justice between the parties on the other issues and determining it would therefore serve no worthwhile purpose".

2.26 We have already mentioned on several occasions the excessively large number of allegations frequently raised in section 459 proceedings on which the parties seek to adduce evidence. We canvassed in argument in the consultation paper the possibility of a power which would enable the court to exclude evidence where it was satisfied that it would not have a bearing on the issues that needed to be decided. (45) However, we concluded, provisionally, that the proposed power to exclude issues contained in Rule 5.1 of the Draft Civil Proceedings Rules would be sufficient for these purposes.

2.27 The vast majority of respondents agreed with the provisional view and accordingly we consider that the power to exclude issues as proposed in the Draft Civil Procedure Rules is sufficient for the purposes of enabling the court to exclude issues in appropriate circumstances in shareholder proceedings. This power would enable the court to avoid the necessity of evidence being called on an issue which the court is satisfied would not on any basis be determinative of the case before it. This might arise, for instance, if the applicant alleged that a respondent shareholder/director had acted in breach of duty, and there was other unchallenged evidence which would result in the court relieving him of his breach of duty under section 727 of the Companies Act 1985. (46) We recommend that in shareholder proceedings the court should have the power to exclude an issue from determination if it can do substantive justice between the parties on the other issues and determining it would therefore serve no worthwhile purpose.~(47)~

Costs sanctions

2.28 This is not an issue on which we made any specific recommendation in the consultation paper. However, the power of the court to penalise parties in costs is clearly an important weapon in the courts armoury in seeking to manage cases effectively.

2.29 A number of respondents drew attention to the decision of the Court of Appeal in Re Elgindata (No 2) (48) in which they considered the court had made some unhelpful comments on the flexibility of the courts discretion in this regard. They considered that this decision restricted the courts ability to use costs sanctions to encourage parties to focus their claims in proceedings under section 459 and to leave out irrelevant or weak allegations. There are two aspects to this.

2.30 First, the Court of Appeal held that the court could not order a successful party to pay the costs of an unsuccessful party in respect of an issue which had failed, unless that issue had been unreasonably or improperly raised by the successful party. The only sanction was to disallow part of the successful partys costs. This ruling was based on RSC, O 62, r 10. (49) We agree with the suggestion put forward by several respondents that it would help to deter parties from litigating issues which are likely to fail if the court could also order costs against the successful party in respect of issues on which he had failed, without the need to show that those issues had been raised unreasonably or improperly. We consider that Re Elgindata (No 2) should be reversed in this respect.

2.31 Secondly, the Court of Appeal disapproved of the approach of the trial judge in treating different categories of complaints of unfairly prejudicial conduct as separate issues for the purposes of awarding costs, and in disallowing costs in respect of those which he regarded as "thin". (50) As we have indicated, the proliferation of weak or insubstantial allegations relating to the conduct of parties is a particular problem in section 459 cases. In future, many of these should be weeded out by active case management during the course of proceedings. But this is not always possible, and we consider that the costs orders available to the trial judge should be as flexible as possible to deal with this.

2.32 Both these criticisms of the decision in Re Elgindata (No 2) appear to be consistent with the approach taken by Lord Woolf (51) in respect of costs and new draft rules recently circulated by the Lord Chancellors Department for consultation appear to address these concerns. (52) Accordingly, we recommend that, in proceedings under section 459, the court should have greater flexibility than at present to make costs orders to reflect the manner in which the successful party has conducted the proceedings and the outcome of individual issues.

Implementation of recommendations for case management

2.33 The recommendations made at paragraphs 2.10 (preliminary issues) and 2.24 (in part) (determination of how facts are to be proved) involve the use of existing powers and we do not propose that there should be any new provisions to implement them. Rather, these recommendations go to the approach which we consider courts should take in future to shareholder proceedings.

2.34 The recommendations made at paragraphs 2.18 (power to dismiss claim or part of claim or defence which has no realistic prospect of success), 2.24 (in so far as use can be made of increased powers in relation to evidence in the Civil Procedure Act 1997), 2.27 (exclusion of issues from determination) and 2.32 (costs sanctions) will require the introduction of new rules of court. However, these matters are being addressed in the context of the implementation of the Woolf Report and we do not consider that it is necessary or appropriate to introduce any separate provisions to deal solely with shareholder proceedings. Accordingly, no draft provisions in respect of these matters are contained in this report.

2.35 As regards ADR, we recommend so far as section 459 proceedings are concerned, that the inclusion of an express provision in the 1986 Rules should be considered. With respect to other proceedings, we consider that the implementation of the Woolf proposals will give sufficient impetus to this approach and that no additional provision should be made in the new rule for derivative actions.

Pre-action protocols

2.36 The Woolf Report recommended the development of pre-action protocols to encourage well informed settlements and, if pre-action settlement is not achievable, to lay the ground for expeditious conduct of proceedings. (53) The Lord Chancellors Department has recently set out in its working paper on Judicial Case Management (54) its proposals for the manner in which the courts will utilise them in practice. The consultation document sets out the items which should be contained in any pre-action protocol. These include: a clear statement of the area of litigation and litigants which the protocol aims to cover; standard form communications (eg letters before action and letters instructing experts); timetable for communications; reference to other methods of pursuing complaints; arrangements regarding experts reports; and arrangements regarding pre-action disclosure. It is envisaged that pre-action protocols may be embodied in practice directions and may influence the exercise of the courts discretion after proceedings have begun on matters such as costs and requests for extensions of time. (55)

2.37 We believe that consideration should be given to the introduction of pre-action protocols in relation to proceedings under section 459. We set out below one particular area in which we consider that the development of a pre-action protocol would be desirable (namely the service of a "buy out" notice where a party is proposing to rely on the presumption we are recommending in relation to share purchase orders). (56)

Conclusion

2.38 To summarise, we consider that the most effective way to deal with the problems of the excessive length and cost of many proceedings under section 459 is by active case management by the courts. We consider that the new powers contained in the Draft Civil Proceedings Rules relating to the dismissal of claims which have no realistic prospect of success (rule 14.2) and the exclusion of issues from determination (rule 5.1) will in future give the courts much greater ability to manage claims under the section, but that the courts can and should use their existing powers to manage cases more actively where possible.

(1)See Consultation Paper No 142, paras 11.1-11.3, 11.10-11.11, and 14.5. See also para 1.6 above.

(3) See Report of the Company Law Committee (1962) Cmnd 1749, para 203. See also Consultation Paper No 142, paras 7.8 and 20.17.

(5) For an alternative view on the effectiveness of case management in general, however, see Professor Michael Zander, "Consistency in the exercise of discretionary power" (1996) 146 NLJ 1590.

(6) The courts in Scotland have undertaken their own review of civil procedure. Scottish courts are able to adopt procedures to improve the handling of shareholder proceedings by case management or otherwise. See Consultation Paper No 142, para 11.4, n 15.

(7) See, in particular, the case of Ashmore v Lloyds [1992] 1 WLR 446, 453 where Lord Templeman explained: "The parties and particularly their legal advisers in any litigation are under a duty to co-operate with the court by chronological, brief and consistent pleadings which define the issues and leave the judge to draw his own conclusions about the merits when he hears the case. It is the duty of counsel to assist the judge by simplification and concentration and not to advance a multitude of ingenious arguments in the hope that out of 10 bad points the judge will be capable of fashioning a winner. In nearly all cases the correct procedure works perfectly well. But there has been a tendency in some cases for legal advisers, pressed by their clients, to make every point conceivable and inconceivable without judgment or discrimination. In Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1991] 2 AC 249, 280, I warned against proceedings in which all or some of the litigants indulge in over-elaboration causing difficulties to judges at all levels in the achievement of a just result. I also said that the appellate court should be reluctant to entertain complaints about a judge who controls the conduct of proceedings and limits the time and scope of evidence and argument." See also Practice Direction (Civil Litigation: Case Management) [1995] 1 WLR 262 and Practice Direction (Chancery Division: Procedure and Case Management) [1995] 1 WLR 785, introducing the Chancery Guide.

(9) Section 461(6) of the Companies Act 1985 applies the rule-making powers of s 411 of the Insolvency Act 1986 to petitions under s 459. These are made, in relation to England and Wales, by the Lord Chancellor with the concurrence of the Secretary of State. By virtue of s 413 of the Insolvency Act 1986, the Insolvency Rules Committee must also be consulted before rules are made under s 411.

(10) The Lord Chancellor has power under s 4(1) of the Civil Procedure Act 1997 to amend any enactment to the extent he considers it necessary or desirable in consequence of the Civil Procedure Rules.

(14) But see Re Bird Precision Bellows Ltd [1986] Ch 658 where the parties sought, in a consent order, to focus solely on the valuation of the shares. Oliver LJ said that "[u]nless unfair prejudice was proved, the court was simply being asked to undertake a sort of arbitration in vacuo, which it had no jurisdiction to do"; ibid, at p 672.

(15) In particular the basis of valuation, the date on which the valuation is to be made, and any adjustment which may be ordered to take account of misappropriation of assets or mismanagement; see Consultation Paper No 142, paras 10.13-10.22.

(16) See Quinlan v Essex Hinge Co Ltd [1996] 2 BCLC 417 where the court directed the issues should be determined in the following order: (1) whether or not there has been unfair prejudice; (2) what remedy is to be ordered; (3) if the remedy is purchase of shares, (i) the basis of valuation, (ii) the date of valuation, and (iii) any adjustments to be made in valuation.

(17) At least if they are decided in one way; see Carl Zeiss Stiftung v Herbert Smith & Co [1969] 1 Ch 93.

(18) On the question of plaintiffs resident in another state of the European Union, see Fitzgerald v Williams [1996] 2 All ER 171 and Chequepoint SARL v McClelland [1997] QB 51. See also Supreme Court Practice (1997) vol 1, paras 23/1-3/3A.

(19) RSC O 23, r 1. Where the plaintiff is a limited company, the provisions of s 726 of the Companies Act 1985 also come into play (ie it appears by credible testimony that there is reason to believe that the company will be unable to pay the defendants costs if successful in his defence). Neither the Woolf Report nor the Draft Civil Proceedings Rules directly addressed the issue of security for costs. The Lord Chancellors Department is currently reviewing the position in the context of its continuing work in implementing the Woolf proposals.

(20) Woolf Report, ch 12, paras 31-36 and Recommendations 132-133. Woolf Interim Report, ch 6, paras 17-21.

(21) See Appendix I. In making our recommendation at para 2.18 below, we assume that the new power will be introduced for all proceedings.

(25) See AG of Duchy of Lancaster v L & N W Railway [1892] 3 Ch 278 and Wenlock v Moloney [1965] 1 WLR 1238. See also Supreme Court Practice (1997) vol 1, para 18/19/6.

(26) See Re Saul D Harrison & Sons plc [1995] 1 BCLC 14; and see Consultation Paper No 142, para 11.24.

(28) This may be particularly relevant if the presumptions recommended in Part 3 are introduced. Note that at present it is not possible to obtain summary judgment in proceedings under s 459 as RSC, O 14 is only available in actions begun by writ.

(32) See Practice Statement (Commercial Cases: Alternative Dispute Resolution) [1994] 1 WLR 14 and Practice Statement (Commercial Cases: Alternative Dispute Resolution) (No 2) [1996] 1 WLR 1024; and see also Practice Direction (Civil Litigation: Case Management) [1995] 1 WLR 262 and Practice Direction (Chancery Division: Procedure and Case Management) [1995] 1 WLR 785.

(33) For instance, the Chancery Bar Association said in their response: "Many unfair prejudice petitions are in our view good candidates for ADR".

(34) Practice Statement (Commercial Cases: Alternative Dispute Resolution) (No 2) [1996] 1 WLR 1024.

(35) We have been informed by Mr Justice Colman, Judge in Charge of the Commercial List, that as at June 1997 orders for early neutral evaluation had been made in two cases. We think that it is thus to early for us to form a view as to whether early neutral evaluation would be beneficial in shareholder disputes.

(36) Draft Civil Proceedings Rules, Rule 1.3(c). In addition, the LCD Working Paper on Judicial Case Management proposes an automatic stay for mediation in certain cases prior to allocation of the case to a track; ibid, at paras 2.96-2.98. There are of course advantages in promoting ADR at later stages in the proceedings.

(39) See, for example, for powers relating to the use of affidavit evidence, RSC, O 38, r 2; CCR, O 20, r 6; as to witness statements, RSC, O 38, r 2A; CCR, O 20, r 12A; and as to evidence of particular facts and how they may be proved, RSC, O 38, r 3; CCR, O 20, r 8.

(43) We stressed that the proposal was not intended to change the procedural rules relating to hearsay evidence in civil proceedings; see Consultation Paper No 142, para 17.18.

(44) Hollington v Hewthorn [1943] 2 All ER 35, 39 per Goddard LJ; and see Cross & Tapper on Evidence (1996) p 56, and Adrian Keane, The Modern Law of Evidence (4th ed 1996) p 18. But note the comments of Hoffmann LJ in Vernon v Bosley, The Times 8 April 1994 that although a trial judge had no discretion to exclude admissible evidence, his ruling on admissibility could involve a balancing of the degree of relevance of the evidence against other considerations that was in practice indistinguishable from the exercise of discretion.

(48) [1993] BCLC 119. See also the case of Rostron v Elliot 7 June 1996 (unreported, Court of Appeal).

(49) This provides as follows: "(1) Where it appears to the Court in any proceedings that anything has been done, or that any omission has been made, unreasonably or improperly by or on behalf of any party, the Court may order that the costs of that party in respect of the act or omission, as the case may be, shall not be allowed and that any costs occasioned by it to any other party shall be paid by him to that other party." The Court of Appeal considered that it was implicit in the principles derived from this rule that a successful party who neither improperly nor unreasonably raises issues or makes allegations on which he fails ought not to be ordered to pay any part of the unsuccessful partys costs; [1993] BCLC 119, 125.

(50) Nourse LJ commented: "[Counsel for the respondents] sought to treat the four categories of complaints of unfairly prejudicial conduct as separate issues and even to go further and sub-divide them into the individual allegations made in the petition. I wholly reject that approach"; [1993] BCLC 119, 126. Beldam LJ also stated: "In my view it is only if it is possible so to isolate an issue in the case that it can properly be said that it is unnecessarily pursued as having no bearing on the real questions in the suit that it would be proper to deprive the successful party of all costs of that issue. Otherwise a more general assessment should be made." He went on to give the following example: "The complaint of lack of consultation, though thin, was neither immaterial nor could it be said to be irrelevant. It may have been exaggerated, but that in itself is no ground for depriving the party making the allegation of all the costs"; ibid, at p 129.

(51) See, in particular, Woolf Interim Report, ch 25, para 24 and Recommendation 121; Woolf Report, ch 7, paras 8 and 24, and Recommendations 61 and 62. Lord Woolf recommends that: "Courts, in making orders for costs, should pay greater regard than they do at present to the manner in which the successful party has conducted the proceedings and the outcome of individual issues"; Woolf Report, Recommendation 61. He also comments that: "Orders for costs should reflect not only whether the general outcome of the proceedings is favourable to the party seeking an order in his favour but also how the proceedings have been conducted on his behalf. ... Judges must therefore be prepared to make more detailed orders than they are accustomed to do now. The general order in favour of one party or another will less frequently be appropriate"; Woolf Report, ch 7, para 24.

(52) See Lord Chancellors Department, Access to Justice, Civil Procedure Rules about Costs, Consultation Paper (August 1997), Draft Rule C 1.7. Unlike the current rules, it contains a detailed list of matters which might be relevant when the court is deciding whether to depart from the general rule that it must order the unsuccessful party to pay the costs of the successful party. This is intended to encourage the court to be more ready to depart from the general rule in any particular case. The conduct of the parties will be relevant, including pre-commencement conduct. The proposed rule also enables the court to have regard to whether a party has succeeded on a particular issue, and whether it was reasonable for a party to pursue a particular issue. This is intended to widen the limits on the courts powers arising from Re Elgindata (No 2). Ibid¸ Part C1, para 14.

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