Case No. CR-2022-BRS-000042

On 9 May 2022 I heard the claimant company’s application (by notice dated 20 April 2022) for an injunction to restrain presentation of a winding-up petition. On 13 May 2022, I handed down judgment in this matter, giving my reasons for striking out the application. This was on the basis that one of the only two directors of the company, Mr Mark Steventon-Smith, had no authority on his own to make or give instructions to make the application on the company’s behalf: see [2022] EWHC 1110 (Ch). I invited written submissions on consequential matters, and received those from both sides on 13 May 2022 (primary submissions) and 16 May 2022 (responsive submissions).

A primary submission from the respondent was that the applicant’s solicitors, Neath Raisbeck Golding Law (“NRG”), should show cause why they should not be ordered to be jointly liable with the company (and Mr Steventon-Smith) for the wasted costs of the application of 20 April 2022. The responsive submission of the applicant suggested that the solicitors should file their evidence by the 30 May 2022, and that the respondent should file any evidence in answer by 7 June 2022. I therefore gave directions (albeit with slightly different dates), and duly received such written evidence. Having considered it, I decided that the most appropriate way to deal with the wasted costs issue was to invite written submissions from the parties and from NRG on that issue. So that matter will be dealt with in a separate judgment. The present ruling deals with all the other costs-related issues. The delay in producing it was due to other more urgent work which in the circumstances had to take priority. Nevertheless, I am sorry for the delay.

The successful respondent seeks two costs orders. The first is an order that the applicant company and Mr Steventon-Smith jointly and severally pay the respondent’s costs. The basis for this form of order is said to be either (i) the applicant is liable to pay the respondent’s costs under the general rule in CPR rule 44.2(2)(a), and Mr Steventon-Smith is liable to indemnify the applicant, so he should pay the respondent directly, or (ii) Mr Steventon-Smith should be made liable for the costs as a non-party, because he is the real party to the litigation. The second order sought is one that the applicant’s solicitors NRG should be jointly liable to pay the wasted costs of the application.

So far as concerns the quantum of costs, the respondent has submitted both an original and an updated costs schedule. The second schedule covers the additional work undertaken between the filing of the original schedule and the hearing itself, as well as additional work undertaken following the hearing, including the primary written submissions. The original schedule gives a total of £3425 plus VAT of £685, making £4110, and the updated a figure of £4065, plus VAT of £813, making £4878. The total of the two schedules therefore is £8988, including VAT.

The applicant accepts that the application has been struck out by the court, and that costs should follow the event. However, the applicant challenges the updated costs schedule on the grounds that it was filed and served after the hearing, instead of 24 hours before. It also challenges the quantum of the costs sought. I will come back to these challenges. In addition, by its responsive submissions, the applicant argues that it is not an appropriate case for Mr Steventon-Smith to be made liable as a non-party, both on procedural and on merits grounds. The applicant says that Mr Steventon-Smith has not been added as a party to the proceedings pursuant to CPR rule 46.2, and that the applicant company, rather than he, was the real party to the litigation. Mr Steventon-Smith himself has not filed or served any written submissions.

The respondent by its responsive submissions says that, since both costs schedules have been filed with sufficient time for the applicant to respond to them, there is no prejudice to it, and therefore both schedules should be taken into account. It also asks for its costs to be assessed on the indemnity rather than standard basis. In any event, however, the court should not feel bound to apply the costs guideline hourly rates. It also says that Mr Steventon-Smith was forewarned of an application under rule 46.2 in the respondent’s skeleton argument for 9 May 2022, and indeed filed a witness statement after that skeleton was filed. Accordingly it says that no further period should be given to enable Mr Steventon-Smith to file written submissions.

I deal first with the basis of assessment of costs. The respondent seeks an award of costs on the indemnity basis, by reason of what are called “the principles outlined in Smith v Butler [2012] EWCA Civ 314 [40]-[47]”. I discussed this case in my substantive judgment on this application. There I said this about it:

In Smith v Butler, Arden LJ said:

On the question of the liability of the director to pay the company’s costs on the indemnity basis, what Arden LJ said represented the view of the Court of Appeal, and is accordingly binding upon me sitting here. Like her, I can see nothing that I could take into account under section 1157 of the 2006 Act in relation to this case but not under the court’s discretion to make an order as to costs. I therefore proceed on the basis that Mr Steventon-Smith, as a matter between him and the applicant, must indemnify the applicant company for the costs which it must pay to the respondent. But that does not mean of course that the applicant company must pay the respondent’s costs on the indemnity basis. That is a question arising as between the applicant and the respondent. Mr Steventon-Smith’s conduct vis-à-vis the applicant is another matter entirely.

The respondent does not advance any other basis for seeking its costs on the indemnity basis against the applicant. There is nothing therefore to show that the applicant’s behaviour was “out of the norm”, as it is usually put: Hosking v Apax Partners Ltd [2019] 1 WLR 3347, [42], [43]. In at least a half of all cases before the court, a party puts forward submissions with which a judge disagrees, but obviously that by itself is not “conduct out of the norm” for this purpose. Accordingly, I see no justification for the award of costs against the applicant on the indemnity basis, and I decline so to order.

I turn therefore to the question of assessment. This was an application which lasted less than one day. Therefore the general rule is that the court should assess the costs summarily: CPR rule 44.6, PD 44 para 9.2. No good reason not to do so was suggested to me, and I can see none. I will therefore assess them summarily. The applicant objects that the updated costs schedule was not served in accordance with CPR PD 44 para 9.5(4)(b). It was served on 13 May 2022. I agree that it was not served in time. But costs statements are short, and the substance of them can be taken on board in a matter of minutes. There are plenty of cases in the books where the court has proceeded with a summary assessment of costs based on assessment delivered to the other side only a short time before the hearing. The reality in this case is the applicant has had sufficient time to consider and take instructions on the contents of the updated costs schedule, and will suffer no prejudice as a result. I will therefore take into account both the original and the updated schedules.

The first objection taken by the applicant is that the respondent’s solicitor is a grade A fee-earner, practising in Bristol, in national band 1 of the costs guideline hourly rates, and the relevant rate is therefore £261. However, he has apparently charged at the rate of £350, £89 more. Secondly it is complained that there was no delegation to a less expensive fee-earner for those parts of the work which could properly be done by such a fee-earner. No objection is taken to counsel’s fees, either in the first or the updated costs schedules. The respondent contends that the hourly rate of £350 for the respondent solicitor should be allowed by the court, and that there has been no attempt to identify work which could have been more properly incurred by a lower level of fee-earner.

In my judgment, both criticisms of the respondent’s costs schedules by the applicant have some force. The new costs guideline hourly rates came into force in October 2021. They are of course merely guidelines, but they represent a consensus view of what average work should cost in particular areas of the country (so taking into account regional variations) and the experience and expertise of the relevant fee-earner. I see nothing in the present case to suggest that the work done here was above average either in difficulty, or in complexity, or in novelty, or in importance to the client, or in some other way. This was, if I may respectfully say so, typical business work. A figure slightly above the guideline, so to say, within touching distance of it, would not be too high. A figure £89 (34%) above the guideline in my opinion is too high.

Secondly, I am unhappy with the notion that everything here has been done by a single grade A fee-earner. One of the important skills of a solicitor is to know how to delegate less important work to less expensive fee-earners. Sometimes it is said that, well, there was no one else to delegate to (I do not know whether that is the case here). The answer to that plea, of course, is that, as between himself and his solicitor, the client is quite entitled to insist on the grade A fee-earner doing everything. On the other hand, as between him and his opponent, he or she is not necessarily entitled to require the opponent to pay for it. At that stage the question is instead whether the costs are reasonably incurred and reasonable in amount. And reasonableness takes account of potential delegation. Moreover, it is not for the paying party to have to identify work which could have been done by a more junior fee-earner. In my former experience over 30 years as a practising commercial litigation solicitor, there were no litigation cases that I was involved in in which no work whatsoever could have been delegated to a more junior lawyer. In the present case, for whatever reason, it seems that it has simply not been considered. For example (and it is only an obvious example), there was no need for the grade A fee-earner to attend at the hearing and sit behind experienced counsel, who did all the advocacy. A grade C or D fee-earner would have been fine.

For both these reasons, therefore, I consider that the quantum of costs claimed by the respondent is too high. At the same time, a summary assessment of costs is not a “line by line” exercise, but much more “broadbrush”: see eg Football Association Premier League v The Lord Chancellor [2021] EWHC 1001 (QB), [20]. As I have said, the total sought by the respondent is £8988, including VAT. Looking at the matter in the round, and reducing the solicitors’ costs for both excessive rates and failure to delegate, I will award a total of £6600, plus VAT of £1320, making a total of £7920.

I now turn to the question of Mr Steventon-Smith’s liability for those costs. As I have already said, Mr Steventon-Smith is liable to indemnify the applicant in respect of the respondent’s costs, and so the respondent says that he should pay the respondent directly. No authority was cited to me for making an order on this basis (as opposed to making a non-party costs order). It has something of the flavour of a “cut-through” order, where a claimant sues two defendants not knowing which is liable, and succeeds against only one. The unsuccessful defendant may be ordered to pay the costs of the successful defendant directly: see Sanderson v Blyth Theatre Co [1903] 2 KB 533, CA. But the situation here is different, because Mr Steventon-Smith is not a party, and therefore the ordinary discretion of the court on costs as between the parties does not apply.

Another analogy is with the right of the creditor of a trustee to be subrogated to the right of indemnity out of the trust fund which the trustee usually enjoys: see Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd [2019] AC 271, [59] (vi). But it is not necessary for me to consider this point further, as on the facts of the present case it cannot apply anyway. This is because in my judgment on the application I found (at [53], [54]) that the company’s directors knew or should have known that the company was or was likely to become insolvent. In those circumstances the respondent should not be entitled to priority over the general creditors in relation to one asset of the company, namely, the right to be indemnified by Mr Steventon-Smith.

The alternative basis for making Mr Steventon-Smith liable for the respondent’s costs is under the non-party costs jurisdiction, on the basis that he is the “real” party to the litigation. This jurisdiction arises under section 51 of the Senior Courts Act 1981, and CPR rule 46.2. Since the decision of the House of Lords in Aiden Shipping Co v Interbulk [1986] AC 965, section 51 has been consistently interpreted by the courts as conferring power to award costs against non-parties in appropriate cases.

So far as material, the latter rule provides:

In Housemaker Services Ltd v Cole [2017] EWHC 924 (Ch), I said:

This decision, as well as many others, was considered in the recent decision of the Court of Appeal in Goknur Gida Maddeleri Enerji Imalet Ithalat Ihracat Ticaret ve Sanayi As v Aytacli [2021] 4 WLR 101. There Coulson LJ (with whom Lewison and Dingemans LJJ agreed) summarised the position as follows:

The respondent submits that an order should be made against Mr Steventon-Smith for four reasons. First, the unauthorised application by the company was caused by him, and he can fairly be described as the “real” party to the litigation. Second, the company appears to be insolvent, and it would be unjust to allow him to hide behind a corporate identity. Third, the application cannot have been for the benefit of the company, because the Sequana trigger has occurred and therefore directors’ actions must be carried on in the interests of the creditors. Fourth, it was improper of Mr Steventon-Smith to bring this application without first obtaining proper authority and indeed not even attempting to consult with his co-director before doing so.

I accept that Mr Steventon-Smith gave the instructions for the litigation, and therefore controlled it. There is, however, nothing to show that Mr Steventon-Smith would benefit personally from this application, except in the obvious sense that he is a shareholder in the company. Nor is there anything to suggest that he was acting in bad faith in instructing the solicitors to issue the application. His evidence was that the alleged debt was disputed on substantial grounds. And it is clear that he considered that he did have the authority to instruct the solicitors. That is a belief which I have held to be wrong in law. But a mistake as to the legal position does not of itself amount to impropriety for the purposes of this jurisdiction. So, in my judgment the merits of this non-party costs application are not strong enough to justify my making an order against Mr Steventon-Smith under section 51. The “real” party was the company.

But, in any event, there is a procedural problem. This is that, under CPR rule 46.2 (set out above), Mr Steventon-Smith would have to be joined to proceedings and be given a reasonable opportunity to attend a hearing where the matter would be considered. No application has been made for him to be joined, and so far he has not been. That step would have to be taken before any order could be made anyway. I am not so concerned about the opportunity to attend the hearing, because in this context a “hearing” includes the exchange of written submissions taking the place of oral argument, and Mr Steventon-Smith has undoubtedly had the opportunity to take part in that exercise (as the applicant’s submissions in reply accept). If I had thought there was any merit in the application for a non-party costs order, I would have invited an application to join Mr Steventon-Smith. However, in the circumstances there is no need to do so.

For the reasons given above, I will order the applicant to pay the respondent’s costs of the application, summarily assessed on the standard basis at £7920 (including VAT), by 4 pm on 29 June 2022. I will not however order that Mr Steventon-Smith be jointly liable with the applicant for those costs.