Heathcote & Anor v Asertis Ltd

Factual and Procedural Background

The underlying action was initiated by Company A, a litigation funder, as assignee of Company B. The proceedings combined two separate claims into a single claim form pursuant to procedural rules, allowing convenient disposal together. Both claims arose from the affairs of Company B, where an individual referred to as Defendant 1 was the sole active director.

The first claim ("the rewards claim") was brought solely against Defendant 1. It alleged that payments made under an employee benefit trust tax avoidance scheme ("the EBT") unjustifiably benefited Defendant 1, either by breaching his duties to Company B as director, constituting transactions at an undervalue defrauding creditors, or breaching duties to creditors. The amount claimed was £520,000. The claim challenged the EBT as a whole without detailed analysis of individual transactions.

The judge described the mechanism of the rewards as involving Company B contracting for gold to be provided by a third party to Defendant 1, with subsequent steps resulting in Defendant 1 effectively benefiting to the value of the reward.

The second claim ("the payment claim") was brought against Defendant 1 and Company C, a company connected to Company B. It concerned a £65,000 payment from Company B to Company C, alleged to be a preference under section 239 of the Insolvency Act 1986, which both defendants were liable to repay.

After consideration, the judge held that the rewards claim failed on all grounds: the payments were lawful remuneration, not at undervalue nor made with intent to defraud creditors, and Company B was not insolvent at the relevant time. However, the payment claim succeeded against both defendants.

A minor overpayment of £7,800 to Defendant 1 was identified and repaid before trial, leading the judge not to adjudicate on that aspect.

Following the substantive judgment, a further hearing was held to determine costs and the form of order. The judge awarded Company A judgment for the £7,800 repayment with interest against Defendant 1 and ordered that the defendants pay 75% of Company A’s costs on a standard basis, after considering various factors including conduct and offers to settle.

The appeal challenged whether the judge erred in making the costs order, particularly as Company C was ordered to pay costs relating to the rewards claim, which was not advanced against it, and whether the judge improperly treated two separate claims as one for costs purposes.

Legal Issues Presented

1. Whether the trial judge exceeded his discretion in making a costs order that treated two separate claims as one for costs purposes.
2. Whether it was appropriate to hold Company C liable for costs of a claim not advanced against it.
3. The proper approach to identifying the successful party for costs when multiple claims and defendants are involved.
4. The extent of the court’s discretion under CPR rule 44.2 in awarding costs where partial success occurs.

Arguments of the Parties

Appellant's Arguments

• The judge erred by treating the two claims—the rewards claim and the payment claim—as a single claim for costs purposes, despite acknowledging they were separate claims.
• Company C was wrongly ordered to pay costs for the rewards claim, which was never brought against it.
• The identification of the successful party is a necessary preliminary step before exercising discretion on costs; the judge failed to properly identify the successful party for each claim.
• The judge’s global approach to costs was incorrect given the distinct nature of the claims and defendants.

Respondents' Arguments

• The judge correctly exercised his discretion by considering the proceedings as a whole, as invited by both parties.
• Both parties had treated the claims as a unified package throughout, including a single costs budget.
• The defendants did not request the judge to separate the claims for costs purposes at trial.
• The judge was entitled to regard Company A as the successful party overall, having succeeded on the payment claim and recovered judgment on part of the rewards claim.

Table of Precedents Cited

Court's Reasoning and Analysis

The court recognized that the two claims—rewards and payment—were distinct and involved different parties. The rewards claim was solely against Defendant 1, while the payment claim was against both Defendant 1 and Company C. The judge acknowledged this separation in the substantive judgment but treated the claims as a single unit for costs purposes, ordering both defendants to pay 75% of Company A’s costs relating to both claims.

However, the court emphasized that the judge’s discretion in costs matters is wide and that identifying the successful party is a preliminary step before exercising that discretion. Despite this, the judge was not invited by either party to consider the costs separately for each claim. Both parties had treated the proceedings as a unified whole, including a single costs budget and no request for an issue-based costs order.

The court referred to established authorities confirming that an appellate court should not find error in a judge’s exercise of discretion when the judge was not asked to consider a particular approach and when the parties agreed on the approach taken. The court further distinguished the present case from authorities where separate claims or multiple claimants had distinct interests requiring separate costs consideration, noting that the parties here treated the claims globally.

Accordingly, the court concluded that the judge did not err in the exercise of his discretion by making a global costs order, despite the theoretical possibility of separate costs orders for the distinct claims.

Holding and Implications

The court dismissed the appeal.

The consequence of this decision is that the costs order made by the trial judge, requiring both defendants to pay 75% of the claimant’s costs on a global basis, stands. The court did not set new precedent on the principles relating to costs orders in multi-claim, multi-defendant cases but reaffirmed that the exercise of judicial discretion in costs is to be respected when parties have not invited a different approach. The ruling underscores the importance of parties clearly framing costs issues at trial if they seek separate treatment of distinct claims or parties.