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Background

Lieven J was concerned with an application made by Paul Crowther (“H”) that Caroline Crowther (“W”) pay his costs of a preliminary issues hearing, on an indemnity basis.

The Crowthers had been engaged in ‘highly acrimonious and litigious’ financial remedy proceedings since late 2019 [2]. In September 2019, each of them issued a petition for divorce, and W made her application for a financial remedy. In December 2019, W made an urgent ex parte application for a freezing injunction against H and the second to the sixth respondents, “the Castle parties” (Mr Steven Knight, and four companies).

The Crowthers had run a successful shipping business together. W alleged that she and H were the beneficial owners of five ships worth c. £7-10m, and that although the legal title to the ships was held by various iterations of the Castle parties, that was merely for ‘tax purposes’. She said there was evidence that H and Mr Knight were conspiring to defraud her by reducing H’s apparent financial position by transferring assets away from H, and by various devices involving ending contracts with companies controlled by H and moving those contracts to new companies. In her application for a freezing order, which was granted by Lieven J, W argued that without a freezing order, the assets of the marriage would be taken offshore and that it would be impossible for W to access them in any matrimonial finance award.

In February 2020, the Castle parties issued proceedings in the Admiralty Division, asserting legal and beneficial ownership of four of the ships, and related relief. They also asserted that companies controlled by the Crowthers owed Mr Knight c. £5m.

Mr Knight said that the Crowthers’ business was in considerable financial difficulty in 2012, and that a deal had been struck by which ownership was transferred to companies controlled by him as a way of restructuring the Crowthers’ finances. He said the £5m owed by the Crowthers was for unpaid charter fees. H immediately conceded the Castle claims in the Admiralty proceedings, and entirely supported Mr Knight’s version of events.

In March 2020, Holman J discharged the freezing order in respect of the ships. W appealed to the Court of Appeal, and a stay was granted. The appeal was allowed on the grounds that the hearing before Holman J had not been fair, and the Court of Appeal reinstated the freezing order.

In July 2020, the Admiralty claim was transferred to the Family Division upon an application by W. H and the Castle parties resisted the transfer. Both matters came before Lieven J, and a trial of preliminary issues as to the Crowthers’ debts, and the beneficial ownership of the ships and various funds, was ordered.

W’s case on fraud

W had filed a Defence and Counterclaim to the Admiralty proceedings, in which she pleaded fraud and conspiracy against H and Mr Knight. In her Counterclaim, she sought declarations as to sham, conspiracy and fraud against H and the Castle parties. She filed a large number of witness statements which set out her case that H and Mr Knight had entered into a conspiracy, initially to defraud HMRC of tax revenue, and then to defraud her in relation to the matrimonial proceedings. H and the Castle parties denied these allegations.

The trial

In preparation for the trial there was a very extensive disclosure exercise in which thousands of documents were disclosed. There were a number of applications to the court relating to alleged failures to disclose relevant material, and (by the Crowthers) for funds to be released from the proceeds of sale of the former matrimonial home in order to fund legal fees. In total, W had spent in the region of £900,000 on legal fees.

The preliminary issues trial was due to start on 10 December 2020. However, on 3 December 2020, the court received an email from W’s counsel which said that W and the second to sixth respondents had settled, and that they wished to vacate the hearing. The agreement was that both the preliminary issues trial in the matrimonial proceedings, and the Admiralty Court proceedings, would be discontinued.

The settlement

The settlement was set out in a consent order, with the terms in a confidential Tomlin order. However, the hearing on 10 December 2020 was in open court, and the parties openly referred to the broad terms of the agreement. Lieven J felt it was therefore ‘both appropriate and necessary’ that they were set out in her judgment [17].

After Lieven J had circulated her judgment in draft form, counsel for the second to sixth respondents submitted a document arguing that the amount his clients had agreed to pay W should not be disclosed, because the figure was in a Tomlin order and was confidential. It was argued that it should be kept confidential because of the reputational damage to Mr Knight from the allegations that had been made by W, and because the settlement sum was commercially sensitive. Lieven J was not persuaded by either point and thought the settlement figure was relevant to the judgment, and that if it was not included in the judgment, the overall context of the litigation and how the preliminary issues came to an end was much less clear. In the absence of evidence of genuine commercial sensitivity, the need to give a full and transparent judgment overrode Mr Knight’s arguments.

The Castle parties were to pay W £750,000 in instalments (with the first tranche of £80,000 to be paid on 24 December 2020), and release the limited liability partnership owned by H and W from £5,632,639 of unpaid charter income and W of over £1m of other alleged loans. W was to discontinue all claims against the Castle parties on a no admissions basis, and there was to be no order for costs.

H was not a party to the agreement, and at the start of the trial on 10 December 2020 it was unclear where this left W’s allegations in respect of H. However, at the hearing W accepted that all her claims of beneficial interest against H would also have to be discontinued, as would any allegations of sham, fraud or conspiracy.

Counsel for the Castle parties stated that his clients were not pursuing any of the alleged debts against H personally, and that the company from which the unpaid charter income was allegedly owed was now in liquidation. Lieven J understood that H was not going to argue at the financial remedy proceedings that he had a large outstanding debt to the Castle parties which should be taken into account in any matrimonial finance award.

H’s application for costs

In the light of these events, H applied for his costs of and occasioned by the preliminary issues advanced by W, on an indemnity basis.

H argued that:

· When considering the approach to costs, particularly where there are allegations of fraud, there should be a consistent approach across the different Divisions of the High Court.

· CPR r. 38.6 provides that where proceedings are partly discontinued, the claimant is liable for the costs relating to the discontinued part. The presumption that the party who has discontinued should pay the other party’s costs is only rebutted in very narrow circumstances, which did not arise in this case. The discontinuance principles apply where proceedings are settled against one party but discontinued against the other.

· The principles should be applied particularly rigorously in circumstances where W had alleged sham, conspiracy and fraud.

· W’s decision to discontinue had deprived H of the ability to vindicate his position and clear his name of the allegations of fraud.

W argued that:

· The appropriate order was for costs to be reserved to the end of the financial remedy proceedings.

· Family Division proceedings should be considered differently from those in other Divisions with respect to costs, because the court is ultimately concerned with the fair distribution of the matrimonial assets, and has an inquisitorial role which can only be properly exercised once all the evidence has been heard.

· If a costs order was made at this stage, a costs judge would not be able to determine what items were or were not referable to the preliminary issues. H had not provided any detailed breakdown of the costs he was seeking, which would leave the costs judge with an almost impossible task. H’s costs were unparticularised and it was not possible for W to respond in any detail.

· Much of the disclosure relevant to the preliminary issues would remain relevant at the final hearing.

· Were a costs order to be made at this stage, the effect would be to reduce W’s assets and increase those of H, therefore not changing the eventual equation.

· CPR r. 38.6 did not apply because FPR r. 28.2 specifically applies certain parts of CPR r. 44, but does not apply CPR r. 38.6.

· H’s litigation conduct had been poor.

· H had made frequent unwarranted applications, including for money to fund his litigation costs.

· On a number of occasions Lieven J had expressed considerable scepticism about H’s alleged impecuniosity given the lifestyle he appeared to have adopted throughout the litigation. On 15 October 2020, Lieven J had found H to be guilty of material non-disclosure in respect of money he had received from one of Mr Knight’s companies, but which he had failed to disclose to the court whilst pleading impecuniosity.

· H had applied on more than one occasion for the preliminary issues to be stayed in an effort to delay the trial.

Conclusions of Lieven J

Lieven J thought that ‘Mrs Crowther’s conduct of this litigation has been fairly extraordinary’ [45]. For a year, she had argued ‘in the strongest possible terms’ that she had been a victim of a conspiracy to defraud her of millions of pounds of matrimonial assets [45]. She had made allegations which were ‘extremely damaging to the reputation of Mr Crowther (and indeed Mr Knight)’ [46]. However, five working days before the preliminary issues trial was due to start, she told the court that she had settled the case with the Castle parties and was no longer pursuing any case against them, or making any allegations against them. She accepted that this meant that the discontinuance of the preliminary issues had to apply to H as well as the Castle parties, and that she could not continue to allege fraud and conspiracy against H.

On the face of it, Lieven J thought that ‘this situation is grossly unfair to Mr Crowther’ [47]. He had faced a barrage of allegations from W, and hugely complex litigation. He had been put not only to enormous expense, but also to massive personal inconvenience. Additionally, his reputation ‘must also have been greatly damaged by these allegations, particularly as they have been widely publicised’ [47]. By deciding not to pursue her allegations, W had prevented H from having the chance to clear his name.

The analysis under the FPR was clear. Under FPR r. 28.1 the court may make such orders as to costs as it thinks just, and FPR r. 28.3 did not apply because the trial of a preliminary issue does not constitute financial remedy proceedings, so costs would normally follow the event. Under CPR r. 38.6 the presumption is that the party who discontinues is liable for costs, but that rule did not apply because it was not referred to in FPR r. 28.2.

Nonetheless, Lieven J considered that the principle in CPR r. 38.6 was ‘highly relevant to my determination’ [49]. She said that ‘[i]f a party decides to discontinue an action or part of an action, then they should generally be expected to pay the costs. This is merely a reflection of the obvious position that if one party necessitates the other party to incur costs and then does not pursue the point, they would normally expect to be liable for the wasted costs incurred’ [49].

This proposition was ‘strongly reinforced’ by the fact that the allegations which W had withdrawn were those of fraud and conspiracy [50]. Where a party pleads fraud, and then withdraws that claim, ‘the argument that they should pay the other party’s costs must be even stronger than in the withdrawal of other types of claim’ [51].

Although Lieven J referred to the fact that she had been heavily critical of H’s conduct in a number of hearings, she thought that ‘on the basis that the allegations made against him are not now being pursued, much of that conduct may be more understandable’ [52].

Ultimately, however, Lieven J thought that H’s litigation conduct was ‘largely irrelevant to the issue before me’ [53]. If there were parts of the litigation where H had behaved unreasonably and run up unreasonable costs unnecessarily, then that was a matter which could be considered by the costs draughtsman, and ultimately the costs judge. Lieven J said that it ‘does need to be remembered that a large part of Mr Crowther’s poor litigation conduct related to allegations of fraud which are not now being proceeded with’ [53].

In response to W’s arguments, Lieven J said the following:

· It was not the case that material parts of the disclosure carried out for the preliminary issues trial remained relevant to the financial remedy proceedings. The preliminary issue concerned the beneficial ownership of the ships, which was an issue that was no longer being proceeded with.

· It was appropriate to deal with the costs of the preliminary issues now, because they were a discrete issue about discrete assets from the rest of the case, and had been deliberately ‘hived off’ to be dealt with separately.

· It would not be ‘very difficult, if not impossible’ for the costs draughtsman and costs judge to differentiate what had been spent on the preliminary issues and what was referable to the wider matrimonial dispute. The preliminary issues concerned separate assets and a separate dispute, namely that involving the Castle parties. It would be for the costs process to fix what sums were referable to the preliminary issues.

· An exceptionalism for financial remedies litigation does not and should not exist. The basic principles of proper litigation conduct should apply, and be enforced, in the financial remedies jurisdiction as in any other. If a party chooses to plead fraud, and then withdraws that allegation at the eleventh hour, then they must expect to pay for the consequences of those decisions.

· The fact that the FDR might be delayed and settlement might be made more difficult was not a reason not to make a costs order.

There was no reason why the established principle that a party who pleads fraud unsuccessfully can expect to pay indemnity costs should not apply in this case. W was therefore ordered to pay H’s costs of, and occasioned by, the preliminary issues on an indemnity basis.

H sought £80,000 to be paid on account under CPR r. 44.2(8). There was no prospect of H recovering less than that amount on a detailed assessment, and it was appropriate that H should be able to recover this part of his costs at this stage. Lieven J therefore ordered W to make a payment on account in the sum of £80,000.

Henrietta Boyle, Barrister at 1 Hare Court

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