In a recent unfair prejudice petition (Ashdown and Ors -v- Griffin and Ors ) concerning a company known as Advertising Bins Ltd (AdBins), the Court of Appeal was required to consider the meaning of success when deciding what order to make on costs.
AdBins was established in 2007 to install cigarette bins outside pubs and restaurants. The idea was that the bins would be installed free of charge but revenue would be generated by advertisements on the bins. AdBins only managed to secure one main client, Addison Lee Plc (ADL). A number of the shareholders and a director of AdBins were associated with ADL. AdBins’ charges to ADL decreased over time to such an extent that, by March 2011, AdBins was providing advertising to ADL free of charge. Needless to say, the business failed.
Three shareholders of AdBins commenced proceedings alleging unfair prejudice. The main respondent was the controlling director, Mr Griffin. The petitioning shareholders asserted that AdBins’ affairs had been, and were being, conducted in a manner that was unfairly prejudicial to their interests. Firstly, the respondents had allowed AdBins to provide free or heavily discounted advertising space to ADL in breach of the fiduciary duties they owed to AdBins. Secondly, the respondents had deliberately not sought out other advertisers for the bins to ensure bins were available for ADL.
The High Court upheld the petitioners’ first head of complaint. The controlling director had abandoned the interests of AdBins in favour of ADL. The Court ordered a buy out of the company shares without a minority discount. On paper, that was a great result for the petitioners.
However, the sums in issue were modest. The Court considered the petitioning shareholders had ‘grossly unrealistic expectations (1) as to the viability of the business of [AdBins] and (2) the sums which ADL ought to have paid for advertising on the bins’. Following a hearing on quantum, it followed that ‘the shares in [AdBins] were worthless, or practically so, and therefore there is no value to be ascribed as the price for the purchase of the shares by the respondents’. Therefore, whilst the petitioners had won on paper, in reality the shares they were fighting about were not worth the paper they were written on.
The decision of the High Court on costs
The parties were left to argue about who should pay the costs of the litigation. The general rule on costs is that the losing party will usually be ordered to pay the costs of the successful party; however, the Court has an overarching discretion to make a different order. When deciding what order to make about costs, the Court will have regard to all the circumstances including the conduct of the parties, whether a party has succeeded on part of its case and any admissible offers to settle (CPR 44.2).
The Court of first instance ordered Mr Griffin to pay the petitioners’ costs and all other parties were to bear their own costs. The petitioners were successful in their petition for relief; the value of the shares did not negate the petitioners’ success. Further, whilst Mr Griffin had made without prejudice offers to settle the claim, the petitioning shareholders had good reason to turn those down. Moreover, the trial judge (who sadly died before giving a ruling on costs) had been critical of Mr Griffin’s conduct and that ‘conduct…far outweighed any shortcomings in conduct of this claim by the petitioners’. As such, the usual costs order was to follow. Mr Griffin was ordered to make a payment on account of costs in the sum of £150,000.
Decision on appeal
Mr Griffin appealed the issue of costs to the Court of Appeal. Generally, costs awards are at the discretion of the trial judge and appellant courts will only interfere in defined circumstances, including where the judge has erred in principle in his approach, or has ignored some factor he should have considered, or the decision is wholly wrong because he did not balance the numerous relevant factors fairly.
However, the Court of Appeal overturned the decision of the High Court judge holding that, whilst the petitioning shareholders obtained the relief they sought, the value of the shares was zero and, as such, they were not successful. Lord Justice Newey stated that the judge at first instance ‘was plainly mistaken in thinking that the petitioners were the successful parties’. He reasoned that the petitioners commenced the petition in the expectation of obtaining a substantial sum for their shares and, in that, they failed; they were denied the prize they fought the action to win.
Moreover, the Court of Appeal gave greater weight to six without prejudice offers rejected by the petitioning creditors. At one stage, the respondents had offered to pay in excess of £500,000 including costs to the petitioners to settle the claim. Lord Justice Newey pointed out that clearly the petitioners would have been better off accepting any of the six offers put forward before the trial.
Finally, the Court of Appeal considered that great weight could not be attached to Mr Griffin’s conduct in the costs context. Whilst he may have expressed arrogance, intransigence and ‘utter contempt’ for the petitioners, litigants are not normally penalised in costs for such attitudes unless they have resulted in the proceedings being conducted in an inappropriate way.
Taking all of those points into consideration, the Court of Appeal ordered the petitioners to pay all of the costs, to be assessed on the standard basis if not agreed.
Having been granted the relief they sought, it would have been easy for the petitioners to assume that they would be awarded their costs. The Court of Appeal’s decision emphasises the discretion of the Court to take a wider view on costs and consider the objectives of the parties in the litigation. Parties to litigation should consider the likely output of a claim and take a reasonable and realistic view on their end position to avoid a pyrrhic victory. All settlement offers should be considered carefully and parties should engage in meaningful settlement discussions as appropriate.