Von Westenholz & Ors v Gregson & Anor [2022] EWHC 3374 (Ch)

Judgment handed down on 23 December 2022 by Robin Vos (sitting as Deputy Judge of the High Court).

This was a complex case with many factors to consider. The findings as to costs and the Part 36 offers are of particular note to all aspects of litigation.

Background to the underlying claim

The late Mr Sanders intended to purchase 80,000 shares in a group of companies (the ASL Group) run by his son-in-law, Mark Von Westenholz. Mr Sanders had intended that his family members would be the beneficiaries receiving income from those shares, but that did not come to fruition and the shares remained solely in Mr Westenholz's name.

Meanwhile, Mr Westenholz withdrew circa £2 million from the ASL Group without appropriate authorisation. In 2017, dividends amounting to £400,000 were due to be paid in respect of the 80,000 shares. However, the funds were held by the ASL Group in view of the monies owed by Mr Westenholz.

The claimants were the intended beneficiaries of the shares. They brought a claim against the non-executive directors of the ASL Group seeking equitable compensation equal to the value of the withheld dividends, £400,000.

There were eight causes of action. Ultimately six out of the eight causes of action failed yet, the claimants were awarded the full £400,000.

Costs and the Part 36 offers

As ever, the substantive judgment was far from the end of the tale. The parties could not agree the basis for costs and sought further judgment on the issue of costs.

The claimants submitted the defendants' conduct had been unreasonable, not least due to their refusal to mediate, and sought costs on an indemnity basis. Conversely the defendants sought a 50% reduction in the claimants' costs given the failure of most of their pleaded causes of action.

The claimants also relied on the usual consequences of Part 36 having made two offers, both ostensibly under Part 36, which were lower than the final award. The first offer was made pre-proceedings in October 2018 for £150,000. Crucially this offer was only stated to be on behalf of Mr Sanders, not the other claimants, and detailed the proposed defendants as ASL, the ASLG and the two non-executive directors notwithstanding that the proceedings were ultimately only directed at the non-executive directors. The defendants argued the first offer should be disregarded as not relating to the claim or potential claim.

The second offer by the claimants was for £120,000 in July 2020. The defendants argued this offer was irrelevant as, at that stage, only one of the successful causes had been pleaded.

So what did Vos J find? Were the defendants unreasonable in their pursuit of a defence? No. The defendants had refused to engage in mediation and were misleading about their knowledge of the claimants' interest in the shares. However, the defendants' conduct was not so out of the ordinary to justify an award of costs on the indemnity basis. This was quite a fact specific finding and allegations of dishonesty and malice against the defendants certainly coloured the landscape of whether mediation was appropriate.

Did the claimants overstate their case? Yes. Not in relation to the statement of value but in the pleadings. The causes of action pleaded were not selective and there was significant overlap between them. It was though, perhaps, the failed pleadings of malice and dishonesty that aided the defendants' success on this point of costs and increased the costs of the claim as a whole. Vos J found the proposed 50% reduction too high in view of the claimants' overall success but held a 25% reduction to be fair and proportionate. Could the first offer come to the claimants' rescue in providing indemnity costs for the majority of the claim? No. Vos J stated: "I accept the Defendants' points in relation to the 2018 Part 36 offer. The offer was made on behalf of different parties to a potentially different claim. It cannot be said to be an offer to settle the claim that was made in the current proceedings."

Was the failure to plead one of the two successful causes of action sufficient to displace the usual consequences of Part 36? No (but..). Vos J concluded the claim had succeeded on the pleaded claim because one of the successful causes of action had been pleaded at the time of the offer. In fact, success on that one cause of action alone would have been sufficient to support the final award. As such, the usual consequences should apply. It did however, in his view, justify a reduction to the additional interest to be applied both to costs and damages.

Finally, it was held it would not be unjust to award the claimants the additional damages sought of 10% of the award pursuant to Rule 36.17 on the basis it was a properly construed Part 36 offer that related to the claim as pleaded. The claimant had beaten the offer and the defendants had all the information available to them to assess the offer. Key Points to take away

  • Poorly particularised pleadings in an otherwise successful claim may well lead to a reduction in costs awarded.
  • Refusal to mediate is not always fatal in respect of costs, particularly in cases where there are allegations of dishonesty, though such decisions should certainly not be taken lightly.
  • When a Part 36 offer is received, it must be considered not only at the time but throughout the life of the claim. It is also critical to consider the offer not only through the isolated lens of the pleaded claim but in the wider context of the potential claim. In this case, whilst some account was taken of the second Part 36 offer not being reflective of both of the successful causes of action, it was not significant and, in practical terms, the failure to accept the offer was extremely costly to the defendants.
  • If an offer is not accepted (particularly pre-proceedings), and is, later, beaten, notwithstanding the point above, careful consideration should be given as to whether the offer can be said to relate to the claim or potential claim and whether it meets the strict criteria to constitute a Part 36 offer. If not, whilst the court retains discretion as to costs, the additional interest on damages, interest on costs and additional damages payment specific to Part 36 may not apply.