Summary of Judgment — Court of Appeal (Civil Division)

Factual and Procedural Background

This is an appeal concerning costs following a 15-day trial of three related actions heard together before Judge Hutton in the Business and Property Courts.

• Partnership Claim: Brought by Respondent 1 alleging that he and Appellant 1 formed a partnership to develop a building ("The Property"). The claim targeted various interests in The Property, including interests held by Respondent 2 and Respondent 3. Company A (a corporate defendant in the Partnership proceedings) brought a Part 20 claim against Respondent 2 and Respondent 3 seeking declarations that certain leases were held on trust for Company A.
• Arbitration Claim: Brought by Respondent 2 against Appellant 1 (and alternatively against Company C). It is not central to this appeal; it failed against Appellant 1 but succeeded against Company C.
• Possession Claim: Brought by Respondent 2 for possession of two flats in The Property.
• Trial outcome (broadly): the Partnership Claim failed; Company A's Part 20 Claim succeeded (the judge found certain leases were held on trust for Company A); the Possession Claim failed as a consequence.
• Costs: Judge Hutton gave an extempore costs judgment making no order for costs on the Partnership Claim or the Part 20 Claim; the present appeal challenges those parts of her costs order.
• Procedural note: Respondent 1 was adjudicated bankrupt after trial; the Official Receiver (who later took a neutral stance) was involved in procedural steps discussed by the court.

Legal Issues Presented

1. Whether the trial judge erred in exercising her discretion under CPR Part 44 in making no order for costs in respect of the Partnership Claim and the Part 20 Claim given findings of dishonest evidence by the parties.
2. Whether the judge properly took into account the relevance of each party's dishonesty (including that of Respondent 1 and Appellant 1) to the separate claims tried together.
3. Whether the costs orders made for the Part 20 Claim were consistent with the costs order made for the Possession Claim.

Arguments of the Parties

Appellants' Arguments

• The trial judge erred in principle by declining to award costs to the successful Ward parties (Appellant 1 and Company A) for the Partnership Claim and the Part 20 Claim.
• The judge failed to give proper weight to Respondent 1's dishonesty and paid only lip service to the ordinary rule that costs follow the event.
• The judge's approach produced an inconsistent and one-sided outcome, leaving the Ward parties unable to recover costs they reasonably incurred, including costs of exposing Respondent 1's dishonesty.

Respondents' Arguments

• The judge's decision to make no order for costs in respect of the Partnership Claim and the Part 20 Claim fell within the wide discretion conferred by CPR Part 44 and was not wrong in principle.
• Given the complexity of the trial and findings of dishonesty on both sides, a no-order outcome for costs was arguable as an appropriate exercise of judicial discretion.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by emphasising the wide discretion afforded to trial judges on costs but noted appellate interference is available if the decision was wrong in principle. The scope of the appeal was limited to whether Judge Hutton was wrong to exercise her discretion as she did in light of her factual findings.

Key analytical steps:

• The court accepted that Respondent 1's dishonesty (found in the main judgment) infected all three claims and that, as a matter of principle, costs of advancing a dishonest case are not recoverable on assessment.
• The court found that Judge Hutton departed too readily from the starting point that costs follow the event and that she failed to take adequate account of the costs incurred by the Ward parties (Appellant 1 and Company A) in exposing Respondent 1's dishonest evidence.
• The court concluded that Judge Hutton had been one-sided: she disallowed recovery by the Ward parties of costs incurred in advancing parts of their case that were dishonest (the Ebonair issue) but did not direct any financial penalty against Respondent 1 or otherwise ensure he bore costs reasonably attributable to his dishonest conduct.
• The court analysed relevance: Judge Hutton had overstated the legal relevance of Appellant 1's dishonesty on the Part 20 and Possession claims. The court held that who ultimately owned Company A was irrelevant to whether Respondent 2 or Respondent 3 held leases on trust for that corporate claimant; by contrast, Respondent 1's dishonest trust deeds were directly relevant to the Part 20 and Possession claims.
• The court noted an inconsistency in Judge Hutton's orders: she made no order on the Part 20 Claim but ordered Respondent 2 to pay costs of the Possession Claim despite the two claims standing or falling together.
• Because the judge had erred in principle, the Court of Appeal exercised its discretion afresh as to costs, applying authorities (including Hutchinson, Ahuja and Summers) to strike an appropriate balance between disallowing costs attributable to dishonesty and ensuring successful parties are not left bearing costs caused by a dishonest opponent.

Holding and Implications

CORE RULING: The appeal was allowed in part. The Court of Appeal concluded that Judge Hutton erred in principle in her costs orders for the Partnership Claim and the Part 20 Claim and remade costs orders.

Direct orders and consequences (as stated in the judgment):

• Part 20 Claim: Respondent 2 and Respondent 3 are ordered to pay Company A's costs of the Part 20 Claim, to be assessed on the standard basis if not agreed.
• Partnership Claim: Respondent 1 is ordered to pay 50% of the Ward parties' (Appellant 1 and Company A) costs of the Partnership Claim, to be assessed on the standard basis if not agreed; the court directed that there should be no further deduction by the costs judge solely or mainly on the ground of the Ward parties' dishonesty in relation to the Company A ownership issue.
• Possession Claim: the judgment records that Judge Hutton had ordered the unsuccessful claimant (Respondent 2) to pay the costs of the successful defendants in the Possession Claim; the Court of Appeal identified inconsistency between that order and the no-order outcome on the Part 20 Claim and remade costs orders as above for consistency.

Implications: The decision alters the costs outcomes between the parties described above and clarifies that, when multiple related claims are tried together, a judge must evaluate the relevance of each party's dishonesty to each separate claim before departing from the usual rule that costs follow the event. The judgment does not purport to create a new general principle beyond the application of established authorities; its immediate effect is confined to the parties' costs liabilities as ordered.