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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Michael Gerson (Leasing) Ltd v John L Green (Machine Tool Merchants) Ltd & Ors [2002] EWCA Civ 1397 (20 September 2002) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2002/1397.html Cite as: [2002] EWCA Civ 1397

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IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION
(MR M KALLIPETIS QC,
SITTING AS A DEPUTY JUDGE OF THE HIGH COURT)

		Royal Courts of Justice Strand London, WC2 Friday, 20 September 2002

1. LORD JUSTICE CARNWATH: This is a proposed appeal against the judge's decision on costs only, and it is rightly recognised that an appellant has a high hurdle when seeking to challenge the discretion of the judge in such a matter.
2. The background is complex and I do not need to go into it in much detail. Gerson, the applicant, is a finance company. In 1996 the first defendant, Green, purported to sell a punch press to Gerson and the fifth defendant, RFR, entered into a leasing agreement with Gerson. The other defendants, other than the sixth defendant, are individuals associated with Green or RFR. The second defendant, Mr Hunter, is a managing director of Green, and the third and fourth defendants, Mr Brunskill and Mr Rider, were directors of RFR. In 1998 the sixth defendant, EFT (now called British Linen Asset Finance) came on the scene, asserted title to the press and sold it to a third party. In June 1998 Gerson began an action against the first to fifth defendants on the basis that EFT was correct in asserting title, and that therefore there had been a total failure of consideration on the purported sale from Green. It also alleged that the other defendants were guilty of deceit.
3. By the end of 1999, however, there was an alternative claim which took the opposite position, that Gerson did in fact obtain good title. That brought in EFT as sixth defendant and Gerson sought damages against EFT for conversion. Then on the first day of the trial the following year, counsel for Gerson indicated that he considered the second basis to be the correct one. With the consent of the other defendants it was agreed to proceed on that first. That line of attack against the sixth defendant was upheld by the judge. Accordingly the alternative basis did not arise and so the first to fifth defendants were out of the firing line altogether.
4. There followed discussion about costs, and the judge gave a separate judgment. There was no great difficulty as between Gerson and EFT because EFT had lost, and so as between them Gerson was entitled to its costs. The problem arose in relation to the other defendants, who were clearly entitled to costs from someone. But there arose the question of the allocation of responsibility as between Gerson and EFT for bringing them into the action. The judge's position was made more difficult by the fact that in the circumstances there had not really been a live issue in the trial as to their degree of responsibility, if any, for being brought into the action.
5. In the result the judge clearly thought that both Gerson and EFT bore some responsibility for the way the matter had proceeded. He said:

"I have considered the respective arguments . . . and in my judgment both Gerson and EFT acted unreasonably in these proceedings. Gerson jumped to a conclusion of dishonesty once it discovered that in fact it had been deceived into a refinancing transaction as far as the Press was concerned rather than financing a fresh purchase, and I am satisfied that Gerson formed an adverse view of the circumstances surrounding the issuing of the invoice from Green to RFR and Gerson. Those suspicions were not dampened but, if anything, fuelled by all the information Gerson received from EFT."

6. So although EFT had ultimately lost, he considered that Gerson bore some responsibility for the way the matter had proceeded against the first to fifth defendants.
7. In the orders he made the judge distinguished between the corporate defendants, Green and RTR (although RTR had not really incurred any significant costs and was by then in administration) and on the other hand the individual defendants. EFT was ordered to pay Gerson's costs against Green and RTR and to indemnify Gerson against its liability for Green's costs. On the other hand, as far as the individual defendants were concerned, Gerson was ordered to pay those costs on an indemnity basis and there was no corresponding indemnity from EFT.
8. When one looks at the judge's reasoning, his consideration of the individual defendants has to be seen against the background of what he said about the position of Green. He said this:

"Green was the vehicle used to transform what was in effect a refinancing operation into an apparent sale and delivery of an additional machine to RFR. I am satisfied that there was no fraud but the commercial purpose of using a third party supplier has never been satisfactorily explained and, as I have already found, Gerson were misled into believing that they were financing a new acquisition by RFR and not a refinancing exercise, for which different criteria would have applied."

9. That led him to refuse Green's application for costs on an indemnity basis. It also shows that he clearly thought there was some foundation to Gerson's original complaint that it had been deceived in relation to the transaction.
10. When he came to deal with the individual defendants' claims for indemnity costs, he took into account in particular his understanding that there had been a concession that the claims against them should have reflected credit for certain items and were therefore overstated, and indeed should not have amounted to more than the £3,500 or the small claims limit. It seems to me that this was an important factor in his consideration of the individual claims and a reason for distinguishing them from the corporate defendants, because I think he took the view that it really was unjustifiable to bring them in for such relatively limited amounts.
11. Mr McLaren has referred us a passage in the written submissions made by counsel who appeared for Gerson at the hearing. It appears that the judge's understanding that there had been a concession to that effect was mistaken (certainly as far as appears on the material before us), because in that passage counsel is recorded as saying that it is not accepted that the claims are substantially overstated, although certain matters should have been credited; on the contrary, if it had been necessary for the trial to proceed, there would have been claims for loss of profits amounting to over £50,000.
12. If that is correct (and obviously there may be arguments about it if permission to appeal is granted) then it does seem to me to undermine substantially the basis on which the judge distinguished the individual defendants from the corporate defendant. When one comes to the judge's actual reasoning for the award which is under attack, it is relatively limited. In paragraph 33 of his judgment he says:

"I turn finally to the question of what costs orders I should make between Gerson and EFT."

13. And he says:

"Whilst I can see the force of some of the arguments by Miss Godfrey that her clients ought not to be liable for Gerson's costs prior to them joining the action, the fact is, as I have already observed, their conduct and indeed their defence did lead Gerson to confirm the view that it had formed already that somebody had been acting dishonestly. From the letters I have quoted Mr Michael Gerson personally had formed a fairly unfavourable view of the directors and clearly it seems to me he suspected fraud had been committed. The fact that the action against the individual directors was pursued in spite of the documents that were disclosed eventually by EFT is a matter which I take into account as well. In all the circumstances I think that the following orders are just".

14. He then sets out the orders, which include the order that Gerson should be responsible for all the costs of the individual defendants without any indemnity from EFT.
15. Looking at that paragraph, it appears to be saying that both are responsible, and one would perhaps have expected that to be reflected in some shared liability. That is the basis of Mr McLaren's attack. He says that making his clients liable for all those costs simply does not reflect the tenor of the judgment. As I have said, the judge's understanding of the point about the amount of the claim seems to have been a major factor which led him to distinguish the individual defendants. If he was mistaken as to that then it does seem to me that there are grounds on which it is reasonably arguable that his decision was flawed. Accordingly I would grant permission to appeal.
16. I should add, however, that one is concerned on a matter of this kind that one may be giving rise to satellite ligation as to costs. Although Mr McLaren on behalf of his clients seeks to confine the discussion to a very limited point, once the appeal is launched then there may be room for EFT to raise other issues by way of cross appeal; and indeed there may be issues as to the position of the individual defendants. Certainly, as my Lord said in discussion, this seems to be a case where the grant of permission should not be taken as necessarily leading to a full-scale hearing. The Court of Appeal has a scheme for alternative dispute resolution, and this seems to me to be eminently a case where that should be looked to as a way to try and reach some sensible result on the allocation of costs.
17. LORD JUSTICE WALLER: I entirely agree.
ORDER: Application for permission to appeal allowed, the appeal to be heard before two Lords Justices or a Lord Justice and a High Court Judge with a time estimate of half a day. Application to adduce fresh evidence adjourned to the hearing of the appeal. (Order not part of approved judgment)