Introduction
The High Court has recently considered again the question of costs orders to be made in complex litigation. In Kelly v Kelly & Charles Kelly Limited,1 the court considered the general principles involved, particularly focusing on the decision in ACC Bank plc v Johnston,2 in which the court had revisited the principles approved in other authorities.3 It is clear from the application of those principles in this case that they represent the orthodoxy of Irish law on costs in complex litigation. Accordingly, an understanding of those principles is important for any party to such litigation, not least because they should be relevant to decision making with regard to the conduct of the litigation.
Background
The matter before the court was a Section 205 petition, in
which the petitioner sought relief on the grounds that the powers
of the directors of a company of which he was a member were being
exercised in a manner oppressive to him. The proceedings took the
form of a number of hearings in which particular elements of the
claim were addressed. The court noted that the petitioner had to
establish that:
- he was a member of the company;
- the directors' powers were being exercised in a manner oppressive to him; and
- to bring an end to the matters complained of, the court should make the order as sought.
Three principles
The court identified that the overriding principle from
Johnston is that costs follow the event, but that
difficulties can arise in determining what the 'event' is
for the purpose of an award of costs. The court cited from
Johnston in recording that:
"There is a very great difference between the different
elements that go to make up a cause of action, on one hand, and a
series of entirely separate causes of action, potentially dependent
on different facts, on the other hand."
In Kelly, the court's consideration of the event
necessarily involved this scenario. In such a case, the court
acknowledged that there were various ways in which a party can
narrow the scope of the issues before the court (eg, making a
lodgement or sending a Calderbank – a 'without
prejudice save as to costs' – letter) that can bear
on determining the event.
The first respondent sought to argue that the petitioner could have
done more to mitigate costs. The court felt it necessary to address
only one aspect of that argument, which was a reference to the
first respondent's proposal for determining the price to be
paid for his shares. This came at a time when the court had already
appointed an independent accountant to do so, and since by that
point the petitioner had already won, it could have no bearing on
costs.
The court acknowledged that the second principle was that the party
which wins the event should get its full costs. On the facts before
it, the court held that:
"it is undoubtedly the case that the petitioner had to
come to court to get the remedy which was necessary to bring an end
to the oppression which was established on the facts and, indeed,
to safeguard the Company, not only for the benefit of its members,
but also for the benefit of the other stakeholders, such as its
creditors and its employees."
It also noted that the petitioner had laid particular emphasis on
the third principle from Johnston, with a view to
outlining why it was not applicable in Kelly. In
Johnston, the court had opined that:
"The third principle is that the court should consider
departing from awarding costs to the party who wins the event where
it is clear that that party, although generally victorious,
materially added to the costs of the proceedings by raising
additional grounds or arguments which the court found to be
unmeritorious...it is important to emphasise that the exercise is
not one of narrowly looking at the amount of time spent on each
point, but rather taking a broad view as to whether it can be
fairly said that the costs of the proceedings as a whole were
materially increased."
The court then addressed this principle to each of the individual
modules in the proceedings, noting that the first module related to
the determination of whether the petitioner was a member of the
company and therefore had standing to bring the application under
Section 205 of the Companies Act 1963. In light of what had
happened at the hearing, this module would have been necessary to
establish the petitioner's beneficial interest in the shares of
the company and procure rectification of the register. Accordingly,
the third principle was inapplicable and, in awarding the
petitioner the costs of that module, the court was critical of the
first respondent for not conceding the petitioner's status as a
member of the company.
The second module dealt with the substantive issue of oppression.
This module, heard over seven days, focused on allegations and
counter allegations mage by the petitioner and first respondent
against each other, which the court felt addressed only minimally
the appropriate remedy. Although the court found that the
petitioner shared some responsibility for the breakdown of the
relationship, it also found that the petitioner had to pursue the
course that he had. On that basis, he was awarded his costs of that
module. In addition, the third module dealt with the valuation of
the first respondent's shareholding in the company, which was a
"necessary consequence" of the finding at the end of the
second module. Therefore, since the third principle did not apply,
the petitioner was also entitled to his costs of that module.
Finally, in addressing the observation from Johnston that
other factors - such as a change in the nature of the claim made or
defence raised - manifested by a change in the pleadings may be
relevant to the award of costs, the court concluded that neither
the amendment to the petition nor inclusion of an additional relief
served to increase the costs of the proceedings. On that basis,
there was no reason to revise the ruling on costs in favour of the
petitioner.
Comment
The decision represents a useful restatement of the principles applicable to award of costs in complex litigation. Although a party which is generally successful can expect to recover its costs, there are grounds on which a court can depart from that by reference to how an overall successful party dealt with discrete issues and progressed the litigation generally. Such potential for departures from the usual order should mean that parties think twice before raising weak arguments or adopting approaches that may be unjustifiable.
Footnotes
1. [2012] IEHC 335.
2. [2011] IEHC 500.
3. Such as Veolia Water UK plc v Fingal County Council (No 2) [2007] 2 IR 81 (Judge Clarke); Mennolly Homes Ltd v Appeal Commissions [2010] IEHC 56 (Judge Charleton); Kavanagh v Ireland [2007] IEHC 389 (Judge Smyth); and McAleenan v AIG (Europe) Ltd [2010] IEHC 279 (Judge Finlay Geoghegan).
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