“That the Claimants do pay the First Defendant’s costs of responding to a letter of claim dated30 June 2021 on the indemnity basis because the allegations made in that letter of claim were baseless and abandoned when challenged. Further or alternatively the First Defendant seeks its costs as identified by and underCPR r.38.6 (1) and (2), the Claimant having discontinued various claims advanced against it, and seeks an order under r.28.6(2)(b) that those costs be assessed forthwith; and there be a payment on account of those costs in such amount as this court thinks fit. Further the First Defendant seeks its costs on the indemnity basis.”
“Several directors of the First Claimant company (C1) unlawfully and in breach of duty caused C1 loss by (1) disposing of its business and most assets for an undervalue to their personal companies, (2) disposing of its shares in another company for£100 and (3) giving a debenture to another personal company to secure a supposed claim against C1. The First Defendant firm (D1) were C1’s accountants and business advisers, but in practice assisted the malfeasant directors. The Second Defendant firm (D2) acted for the malfeasant directors’ companies during (1) above making false representations to C1’s shareholders to secure consent to the disposition, and acted for C1 during (2) and (3) above, but in practise assisted the malfeasant directors. The facts have been set out in much more detail under the Pre-action Protocol. Without prejudice to C1's right to rely (in their Particulars of Claim when these fall to be filed) on all such causes of action in law as arise from the facts briefly summarised above, Cs intend to claim in (i) deceit(ii) breach of contract, (iii) negligence, (iv) breach of fiduciary duty (v) dishonest assistance in breach of fiduciary duty and (vi) unlawful means conspiracy. The Second to Eighth Claimants sue as shareholders in C1 because D2 has contended that the representations were made to the shareholders and that C1 itself therefore has no cause of action.”
“1. Damages and/or equitable compensation with interest; 2. Contribution pursuant tosection1 of the Civil Liability (Contribution) Act 1978 . 3. Further or other relief. 4. Costs.”
“(1) Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in - (a) The civil division of the Court of Appeal; (b) the High Court, and (ba) the family court; (c) the county court shall be in the discretion of the court.” shall be in the discretion of the court.”
“(1) The rules in this Part set out the procedure by which a claimant may discontinue all or part of a claim. (2) A claimant who— (a) claims more than one remedy; and (b) subsequently abandons his claim to one or more of the remedies but continues with his claim for the other remedies, is not treated as discontinuing all or part of a claim for the purposes of this Part. (The procedure for amending a statement of case, set out in Part 17, applies where a claimant abandons a claim for a particular remedy but wishes to continue with his claim for other remedies.)”
“(1) To discontinue a claim or part of a claim, a claimant must— (a) file a notice of discontinuance; and (b) serve a copy of it on every other party to the proceedings.”
“A “claim” is not defined, but it is clear that a claim is to be distinguished from a remedy (Galazi v Christoforou[2019] EWHC 670 (Ch) ). If the claimant abandons a remedy, but continues the claim for other remedies, it is not treated as discontinuing all or part of the claim—r.38.1(2). For a discussion as to whether the word “claim” in r.38.2 means the entire action outlined in the claim form, or only a cause of action, see Kazakhstan Kagazy Plc v Zhunus[2016] EWHC 2363 (Comm) ; [2017] 1 W.L.R. 467. Leggatt J stated that the repeated references to “all or part of a claim” made the latter unlikely. Causes of action are not susceptible to partition in a way that would make discontinuance an appropriate procedure. The appropriate way of discontinuing a cause of action is simply to amend the statement of case. In his judgment, the word “claim” had to refer to the entire action or, at the very least, to all causes of action asserted by a particular claimant against a particular defendant. On the other hand, in Galazi v Christoforou, Chief Master Marsh held that the abandonment of an entire cause of action may amount to a partial discontinuance. He stated: “With great respect to Leggatt J, it seems to me that the analysis in Kazakhstan Kagazy Plc v Zhunus does not consider rule 38 as a whole and does not give sufficient weight to rules 38.2(1) and (3). Part 38 is explicit in saying that a claimant may discontinue part of a claim against one defendant. The later use of the word ‘proceedings’ in rule 38.5(2) must be treated as a synonym for claim. The rule does not otherwise make sense. A claim is more than particular relief but may be less than the entire claim against a party.”
“It is not entirely clear from rr.38.3(1) and 38.5(1) whether a notice of discontinuance is required where the court’s permission to discontinue must be obtained. On its face, r.38.3 requires the filing and service of a notice for a discontinuance to take place, whatever the circumstances may be. This is reinforced by r.38.5 which specifies that discontinuance takes effect on service of the notice on the relevant defendant or defendants, and by the fact that there is a prescribed Form N279 and mandatory requirements (see r.38.3). The terms of the rule are explicit and it is hard to avoid the conclusion that the filing and service of a notice of discontinuance is required in every case. Obtaining the court’s permission, where it is required, is a preliminary step to discontinuance which takes place by filing and service of the notice. Unless and until notice has been filed and served there has not been a discontinuance. However, it may well be, in practice, that the court often implicitly waives the requirement for a notice and deals with costs and any other issues that arise on the permission hearing. In Galazi v Christoforou Chief Master Marsh held that this was a sensible pragmatic approach, albeit not one which can be found in the existing rule; and a similar approach seems to have been taken in Pycom Ltd v Campora [2022] 7 WLUK 114. The CPRC have, with effect from1 October 2022 , amended r.38.3 to add a new subrule (5) requiring a notice of discontinuance to be in the Form N279, unless the court otherwise permits, in order to emphasise the need for a specific judicial decision and direction.”
“This is a Letter of Claim under the Pre-Action Protocol for Professional Negligence (which, in spite of its title, is not confined to claims in negligence) and generally under the Practice Direction – Pre-action Conduct and Protocols.”
“The Company’s claim concerns the conduct of Neil Heyes, a member of Rayner Essex LLP(‘Rayner Essex’), during the period July 2015 to1 April 2016 , and his actions in assistingand working with the then directors of the Company to cause the Company to dispose ofassets to entities owned by those directors for several million pounds less than they wereworth. As we explain in this letter, Mr Heyes, for whose actions Rayner Essex are liable, wasinstrumental in devising a transaction that was to the manifest disadvantage of the Company, and in securing the consent of the Company’s shareholders to that transaction by dishonestmeans. A more comprehensive breach of Rayner Essex’s contractual, tortious and equitable duties to the Company is hard to conceive of…….”
‘A. The Transaction and events connected with it’
‘B. The breaches of fiduciary duty in connection with the Transaction’, in which the First Claim, and the Judgment of Mr Justice Trower, are referred to, and it is stated that Mr Heyes gave evidence on behalf of the defendants in that Claim. From the middle of page 5, there is a section headed: ‘C. The role of Mr Heyes of Rayner Essex’
“As part of that strategy the Director Defendants made a deliberate decisionnot to tell the other shareholders that they had initiated the termination of therelationship with Barclays and to give the impression that it was Barclays which hadpushed for that result.”
“Mr Heyes was fully signed up to this dishonest strategy….”
“Mr Heyes’s dishonesty did not end with his role in misleading the shareholders…..”
“Given that Mr Heyes was Gisby Harrison’s main source of information about the Transaction (and they were in constant touch), and given Mr Heyes’s willingness to put out falsehoods about the attitude of Barclays (or at the very least to stay quiet while lies were told)(see above) the reasonable inference is that the source, or a significant source for Mr Moffat’s and Mr Wilson-Smith’s misleading claims was Mr Heyes.”
‘A. Dishonestly assisting breaches of fiduciary duty.’
“It is plain that Rayner Essex, through Mr Heyes, assisted the Director Defendants significantly with their breaches of fiduciary duty …….. Mr Heyes’s conduct was, moreover, shot through with dishonesty…….”
“……As you are aware, we have corresponded with you on a number of occasions in the last six months since receipt of your Letter. In doing so we have tried tounderstand more clearly your client’s claims. Unfortunately, the responses that you have sent havefailed to elucidate your client’s claim with the result we reserve the right to supplement what is saidin this letter if or when further information is forthcoming.In this letter, unless otherwise stated, we adopt the definitions contained in the Letter of Claim.……….Neil Heyes is an accountant who qualified in 1998. He is a Fellow of the Institute of CharteredAccountants of England and Wales. He has had an unblemished professional career. Hejoined Rayner Essex in 1995 as a trainee, becoming a partner in 2014……..This Letter of Response demonstrates that there is no claim against Rayner Essex because, inter alia:The claim amounts to an abuse of process. If proceedings are issued Rayner Essexwill apply to strike out on that basis.The claim is in any event fundamentally misconceived. The entire claim is apparentlypremised on three assumptions, each of which are untenable on the facts:(a) Mr Heyes was not "intimately involved in the design" of the Transaction. The Transaction was devised by the directors of SML prior to Rayner Essex’s retainer.(b) There is no evidence to show that Mr Heyes and/or Rayner Essex acteddishonestly. This is a remarkable allegation to make against a professionalman. It is made all the more remarkable in circumstances where the DirectorDefendants themselves have not been found to have acted dishonestly. Therecan be no claim in dishonest assistance nor unlawful conspiracy. The latterallegation is even more confused by the fact that you have failed to identifyand/or sue Mr Heyes' alleged co-conspirators (again, we are not aware thatthe Director Defendants were held to have conspired to defraud SML or itsshareholders).(c) Mr Heyes was not a director of SML. This allegation is a transparent attemptto crow-bar a further defendant into the underlying judgment. Mr Heyes actedin accordance with Rayner Essex's retainer and as a competent accountant.To the extent that there is a degree of overlap in the functions of a companyaccountant and a finance director, this is patently not sufficient to convert theformer into the latter as a matter of law. In any event simply occupying the roleof a “finance director” (which Mr Heyes was not) does not turn someone intoa director as that word is understood by the law.2.2 As a final observation, the Letter of Claim fails entirely to consider the scope of RaynerEssex's retainer either in the context of the allegations that Mr Heyes was a director or in theanemic allegation of breach of duty. For the avoidance of doubt, Rayner Essex will rely onthe terms and scope of that retainer in any future proceedings.”
“Your letter (at p.14) devotes precisely 8 lines to the claim in negligence/breach of contractagainst Rayner Essex. The case is wholly undeveloped. It is plain that it is a makeweightwhich has simply been thrown into the mix and which your client is not (for obvious reasons)seriously pursuing. We will say no more about it other than to reserve our client's position in the event this claim is properly particularized in future.”
“We enclose the Claim Form as amended on20th April 2022 together with draft Particulars of Claim. Please note that the Claim Form and draft Particulars of Claim are sent to you at this stage for information only not by way of service. Please further note that the Claimants may revise the draft Particulars of Claim before service. ………… You will note that the Claimants’ claim against your Client is framed in terms of breach of contract, negligence and breach of fiduciary duty and that it is not now proposed to allege deceit, dishonest assistance in breach of fiduciary duty or unlawful means conspiracy. This disposes of many of the objections that you have raised in pre-action correspondence…..”
“…[The Defendants]rely on the decision of Chief Master Marsh in Galazi v Christoforou … In that case proceedings had been brought on a number of bases against a number of defendants. The claimants amended to delete various of the claims and the defendants submitted that the case fell within Rule 38 of the CPR. Chief Master Marsh concluded that there was indeed a discontinuance within Rule 38. He concluded that it was possible for that rule to apply to some claims within a set of proceedings, even though other claims continued. He considered the obiter comments of Leggatt J in Kazakhstan Kagazy Plc v. Zhunus …, where the judge had concluded that the word "claim" in Rule 38 did not mean a single cause of action and that the word "claim" in the rule must refer either to the entire action of, at its narrowest, all causes of action asserted by a particular claimant against a particular defendant. Chief Master Marsh came to the conclusion that that was not correct and that on a fuller and more extensive analysis of the wording of the rule, concluded that the deletion of a particular cause of action within a claim was capable of falling within Part 38. I conclude that the reasoning of Chief Master Marsh on this point is to be preferred …”
“Unless the Court orders otherwise”
"(1) when a claimant discontinues the proceedings, there is a presumption by reason of CPR38.6 that the defendant should recover his costs; the burden is on the claimant to show a good reason for departing from that position. (2) the fact that the claimant would or might well have succeeded at trial is not itself a sufficient reason for doing so. (3) however, if it is plain that the claim would have failed, that is an additional factor in favour of applying the presumption. (4) the mere fact that the claimant's decision to discontinue may have been motivated by practical, pragmatic or financial reasons as opposed to lack of confidence in the merits of case will not suffice to displace the presumption. (5) if the claimant is to succeed in displacing the presumption he will usually need to show a change of circumstances to which he has not himself contributed. (6) however, no change in circumstances is likely to suffice unless it has been brought about by some form of unreasonable conduct on the part of the defendant which in all the circumstances provides a good reason for departing from the rule."
“Where a claimant had discontinued his claim in fraud underCPR Part 38 , it was appropriate to order costs on theindemnity basis. Whilst the court retained a completediscretion whether to award costs on the standard orindemnity basis, the general approach in cases in whichallegations of fraud were made and the case had failed wasthat the claimant would be ordered to pay indemnity basiscosts. It followed that as the claimant had abandoned hiscase instead of taking it to trial, an order that he should paythe defendant’s costs on the indemnity basis was appropriate.”
“……………………………………………………………….. The general provision in relation to cases in which allegations of fraud are made is that, if theyproceed to trial and if the case fails, then in the ordinary course ofevents the claimants will be ordered to pay costs on an indemnitybasis. Of course the court retains a complete discretion in the matterand there may well be factors which indicate that notwithstanding thefailure of the claim in fraud indemnity costs are not appropriate, butthe general approach of the court is to adopt the course that I haveindicated.17. The underlying rationale of that approach is that the seriousnessof allegations of fraud are such that where they fail they should bemarked with an order for indemnity costs because, in effect, thedefendant has no choice but to come to court to defend his position.18. In circumstances where, instead of the matter proceeding to trialand failing, the claimant serves a notice of discontinuance, therebyabandoning the case in fraud, it is in my judgment appropriate for thecourt to approach the question of costs in the same way.19. The defendant has been put in this case to considerable expensein defending to date the allegations made. As I mentioned earlier adefence was served, applications were made to strike out theparticulars of claim and the applications to amend were resisted incircumstances where the amendments would maintain the allegations of fraud.”
“There is a danger of seeking to substitute for the overall requirement, that the court must make such order as it thinks just in accordance with the overriding objective, some other gloss or formulation.”
“It seems to me in the light of these authorities that the failure of a case of fraud or dishonesty is a factor that the court may take into account in deciding on the basis of assessment but there is no automatic […] rule that the making of such allegations which fail at trial will justify an order for indemnity costs or even operate as a starting point in the sense that the paying party is then required to explain why indemnity costs are not appropriate. It is also right to recall that the default position is that standard costs are to be paid unless the court orders otherwise.”
“I find this case to be close to the dividing line between indemnity and standard costs. I have accepted the submission of the claimants that the bringing of a failed case in dishonesty does not of itself justify an award of indemnity costs. On the other hand, I have decided that the case was a speculative one in a number of respects.”
“….the failure of a case of fraud or dishonesty is a factor that the court may take into account in deciding on the basis of assessment but there is no automatic […] rule that the making of such allegations which fail at trial will justify an order for indemnity costs or even operate as a starting point in the sense that the paying party is then required to explain why indemnity costs are not appropriate.”
“the First Defendant’s costs relating to the part of the proceedings which was discontinued by the Claimant when it amended its claim form on20 April 2022 to delete various causes of action”