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18 September 2012
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.
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:
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.
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.
(3) Such as Veolia Water UK plc v Fingal County Council (No 2)  2 IR 81 (Judge Clarke); Mennolly Homes Ltd v Appeal Commissions  IEHC 56 (Judge Charleton); Kavanagh v Ireland  IEHC 389 (Judge Smyth); and McAleenan v AIG (Europe) Ltd  IEHC 279 (Judge Finlay Geoghegan).
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