Equitas Ltd & Anor v Horace Holman & Company Ltd & Anor [2008] EWHC 2287 (Comm)

[2008] EWHC 2287 (Comm)Case No 2002-1103
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 03/10/2008
Before
MR JUSTICE ANDREW SMITH
Between
(1) Equitas LtdClaimant(2) Additional Underwriting Agencies (No. 9) LtdClaimant(1) Horace Holman & Company LimitedDefendant(2) Arwyn Morgan PowellDefendant
Neil Calver QC and Stephen Midwinter(instructed by Davies Arnold Cooper LLP) for ClaimantStephen Davies QC (instructed by Hunt & Morgan) for DefendantHearing Hearing dates: 29 & 30 July 2008
JudgmentTHE HON. MR JUSTICE ANDREW SMITH :Introduction
[1]This matter was before me for a four-day hearing which concluded on 5 February 2007 (the “2007 hearing”), and I gave my judgment on 26 April 2007 (the “April judgment”). I concluded that Equitas Ltd. (“Equitas”) was entitled to judgment against Horace Holman & Co. Ltd. (“Horace Holman”) in the sums of some US$34.600 and £3,000, and ordered on 30 April 2007 that those sums be paid within 14 days. I also concluded that Horace Holman should pay Equitas its costs of the proceedings except for half of the costs that Equitas incurred between 1 March 2004 and 28 February 2006. I ordered that those costs be assessed on a standard basis, and that Horace Holman make an interim payment of £200,000 on account within 21 days.[2]Horace Holman has paid nothing to Equitas by way of judgment sum or costs. On 12 June 2007 Equitas’ solicitors, Davies Arnold Cooper LLP (“DAC”), were sent a notice dated 11 June 2007 from Mr. Paul Harding of PriceWaterhouseCoopers that Horace Holman had been put into creditors’ voluntary liquidation and that he had been appointed liquidator.[3]On 15 October 2007 Equitas made an application that Mr. Arwyn Powell should be added as a party to the proceedings for the purpose of costs only and pay the costs award made in favour of Equitas against Horace Holman (or that there be a hearing of that issue). Mr. Powell was added as second defendant in these proceedings by an order made by consent on 20 November 2007.[4]Section 51 of the Supreme Court Act 1981 (the “1981 Act”) provides jurisdiction for the court to make an order that the costs of proceedings be paid by a person who is not a party to the claims made in them (a “NPCO”, or non-party costs order). It is in the following terms: “(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) …(b) the High Court; …(c) … shall be in the discretion of the court… .

(a) … (b) the High Court; … (c) …

[5]The grounds of Equitas’ application are stated to be these:
“[Mr. Powell], director of the defendant, is the “real party” controlling and/or funding the defendant of the proceedings, for his own personal interest and the court should therefore exercise its discretion pursuant to CPR Part 48 rule 48.2 ... ”
This wording reflects what Rix LJ said in Greenwood Recoveries Ltd v Breen, [2005] EWCA Civ 414, [2006] 1 WLR 2723 at para 59:
“Where a non-party director can be described as the “real party” seeking his own benefit, controlling and/or funding the litigation, then even where he acted in good faith and without impropriety, justice may well demand that he be liable in costs on a fact-sensitive and objective assessment of the circumstances.”
[6]Since making its original application Equitas has limited the costs that it seeks from Mr. Powell: it now seeks an order that Mr. Powell should only bear the costs of the action from 30 March 2006. (I am told that they amount to some £300,000, but that is what Equitas claim and it has not been subject to an assessment.) On 30 March 2006 Horace Holman rejected an offer made by Equitas in a letter dated 21 March 2006 to settle on the basis that Equitas would not pursue its claims against Horace Holman and neither party sought costs (the “Settlement Offer”). Horace Holman made a counter-offer to settle upon Equitas paying it £85,000, but that was not accepted by Equitas.[7]The application against Mr. Powell came before me for hearing on 29 July 2008. Before the hearing, by letter dated 11 February 2008, his solicitors, Messrs Hunt & Morgan, asked me to recuse myself from hearing the application against Mr. Powell. DAC wrote that I should not recuse myself, and in the circumstances I did not consider it right to do so without an oral hearing. At the hearing on 29 July 2008 Mr. Stephen Davies QC on behalf of Mr. Powell renewed the application. The grounds were apparent (not actual) bias in view of the way that I had conducted the 2007 hearing. Having heard argument, I declined to recuse myself and said that I would give reasons for my decision in this judgment.

The proceedings

[8]I can explain the nature of these proceedings by setting out paragraph 2 and 3 of my April judgment. “2. The first claimants, Equitas Limited (“Equitas”), are the assignee of the rights of most of the members of Lloyd’s syndicates for the years 1992 and earlier years in respect of their contracts of reinsurance and retrocessions for all their non-life business, having been assigned those rights in September 1996 as part of the settlement of much of the Lloyd’s litigation. The second claimants, Additional Underwriters Agencies (No 9) Limited (“AUA") were joined in the proceedings to represent Lloyd’s Names who did not accept the settlement offer made in 1996. AUA took no active part in these proceedings and I need not make further reference to them. The defendants, Horace Holman & Company Limited (“Horace Holman”), are a Lloyd’s broker, who have been in run off since about 27 January 2003. The claim arises from outwards contracts of reinsurance or retrocession which were written to protect Lloyd’s syndicates for 1992 and earlier years and which Horace Holman were administering. 3. These proceedings were brought on 17 October 2002. Equitas sought damages for breach of contractual, tortious and fiduciary duties in that, it is alleged, Horace Holman had failed i) to deliver to Equitas “hard copies of ledgers and other accounting documentation showing balances currently due from or to the Syndicates under the Outward Protections” (as the reinsurance and retrocessions placed through Horace Holman to protect the 1992 and earlier business of the Syndicates were called); and ii) to provide to Equitas a detailed account of all funds currently held by Horace Holman that were due and payable to the Syndicates or to Equitas as the Syndicates’ assignee under the Outwards Protections, including an account of when all such funds were first received by Horace Holman on behalf of the Syndicates or Equitas. As well as damages Equitas claimed an order for deliver up of “all documentation held by [Horace Holman] relating to the placement and subsequent administration of the Outwards Protections including hard copies of ledgers or other accounting documents showing balances currently due per reinsurer from or to the Syndicates under the Outward Protections”; and an account and payment of money found to be due on taking an account.” i) to deliver to Equitas “hard copies of ledgers and other accounting documentation showing balances currently due from or to the Syndicates under the Outward Protections” (as the reinsurance and retrocessions placed through Horace Holman to protect the 1992 and earlier business of the Syndicates were called); and ii) to provide to Equitas a detailed account of all funds currently held by Horace Holman that were due and payable to the Syndicates or to Equitas as the Syndicates’ assignee under the Outwards Protections, including an account of when all such funds were first received by Horace Holman on behalf of the Syndicates or Equitas.[9]As I said in my April judgment, by the time of the 2007 hearing the main issue between the parties was “who should bear the costs of these proceedings, which have proved to be largely fruitless but which the claimants say they were justified in bringing and pursuing”. Equitas no longer sought an order for an account or for delivery up of documents. This was, as it was explained to me, because, although Equitas considered that it was entitled to such as order, it had concluded that, in view of the state of Horace Holman’s records, there would be little point in pursuing that claim. It pursued a claim for relatively small sums which it asserted Horace Holman was holding as agents: US$95,848.59, £3,018.56 and Can $508.[10]The hearing was therefore essentially about who should pay the costs of the litigation. These include both lawyers’ costs and accountants’ costs that had been incurred in examining accounting information that Horace Holman had provided. Among this information was a document referred to as the “composite account”, which had been served by Horace Holman on 28 February 2003 pursuant to an order made by Langley J on 30 January 2003 that it provide “a detailed account of all funds currently held by [it] that were due and payable to the Syndicate or to Equitas as the Syndicate assignee under the Outwards Protection…”. The accountants’ work also involved various exercises designed to test Horace Holman’s records, including a so-called “LRC/LORS” exercise” and two “River Thames” exercises, which I describe in my April judgment.[11]Often when there is a dispute about only costs, the matter is determined on a summary basis without an extended trial involving cross-examination: Coyne v DRC Distribution Ltd; re Olva, [2008] EWCA Civ. 488. The procedure adopted in this case was laid down in an order made at a case management conference before Langley J on 21 July 2006. On that occasion Equitas applied to amend its particulars of claim to seek damages in respect of legal and accounting fees that it had incurred. The objection was raised by Horace Holman that, if such fees were recoverable at all, they were recoverable by way of costs and it was on that basis that Equitas was content not to press its application to seek such fees as damages. Langley J gave directions for the matter to proceed to trial after service of statements of witnesses of fact and expert accountants’ reports. The matter was set down for a hearing of 4 or 5 days.

The 2007 hearing

[12]It seemed to me from the papers that I read before the 2007 hearing that a number of matters should be raised before evidence was heard. First, Horace Holman’s position, as stated in its written submissions, was that costs should follow the event. However, on any view the application of this principle would lead to Horace Holman bearing at least the costs of the early stages of the proceedings. There was no dispute that Horace Holman owed a duty to account, and, as I understood its position, it claimed to have fulfilled its duty only after the proceedings were brought either by providing the “composite account” at the end of February 2003, or by providing that account and then in June 2003 making a payment of US$91,038.67 that it acknowledged to be due to Equitas. Nevertheless, Horace Holman maintained that all its costs should be paid by Equitas, and this was inconsistent with a straightforward application of the principle that costs follow the event.[13]Secondly, it appeared from the papers that the litigation had been characterised by immoderate allegations made by each side against the other. One such allegation was in paragraphs 70 et seq of the defence, that Equitas’ treatment of Horace Holman reflected a general strategy of pursuing brokers with reckless claims and extracting what it could without going to trial.The basis for this allegation was unclear, but, on the face of it, it was one of serious impropriety which would take some time to explore. It was supported by a witness statement of Mr Powell that Horace Holman had served.[14]Thirdly, the long witness statements served on behalf of Horace Holman following the order of Langley J at the case management conference included extended passages directed to whether expenditure incurred at different stages of the proceedings had been necessary or reasonable in amount or resulted from unreasonable intransigence on behalf of the part of one or other of the parties. It was unclear how these passages were relevant to issues which I had to decide. My concern about this was confirmed when towards the beginning of the hearing Mr. Robert Anderson QC, who represented Horace Holman, told me that he was “not entirely clear why the court is having to hear all this evidence either”.[15]A fourth and linked concern was that the parties appeared not to have clearly distinguished what questions relating to costs were to be decided by me and what were to be decided upon a later detailed assessment before a costs judge. There was the prospect that, after a hearing of several days at which I had heard evidence about whether the proceedings were conducted reasonably, the parties would need another hearing before a costs judge about whether the amounts spent were reasonable and proportionate. The problem was essentially that identified by Waller LJ in Northstar Systems Ltd v Fielding, [2006] EWCA Civ 1660 at para 34.[16]The fifth troubling feature of the case apparent upon reading the papers was that most directly related to this application: that, if Horace Holman was ordered to pay costs to Equitas, an application for an NPCO might be made against Mr. Powell. By the time of the hearing Equitas’ main aim in the litigation was to recover its costs. Mr. Powell was the owner and the sole and managing director of Horace Holman and its holding company, and a director of all the companies in the Group. It was clear that he was making the major decisions about how Horace Holman conducted the litigation, and Equitas was criticising the way in which it had been and was being conducted. Horace Holman was insolvent and was in run-off, and therefore there was clearly a risk that it would not meet any order against it. Mr. Anderson said towards the beginning of the hearing, “Mr. Powell, it is his hand in his pocket at the end of the day that is probably financing a lot of this”, although he added that he was without formal instructions about that.[17]Mr Powell was to be called as a witness by Horace Holman. His witness statement ran to 244 paragraphs and in paragraph 242.5 he said this:
“I have also dealt with this litigation as a matter of the utmost seriousness because of the impact it might have on my professional reputation. … I am a qualified Chartered Accountant and have spent much of my career acting as Finance Director or Managing Director. I continue to hold various directorships. Equitas has alleged that Horace Holman has, under my stewardship, maintained “lamentably poor” records and systems and in particular has withheld sums of money which it collected as Equitas’ agent. As the owner and sole director of Horace Holman and its holding company during the relevant period, my professional reputation is married to that of the company. It is crucial for the sake of any future employment or business opportunities at my level that my reputation for financial probity is not sullied and I have therefore had to ensure that each and every allegation raised by Equitas in this litigation has been investigated fully and responded to in detail.”
It seemed to me at least a realistic possibility that Equitas might rely upon this evidence if it applied for an NPCO against Mr. Powell.[18]However, as far as appeared from what I had read before the 2007 hearing, Mr. Powell had not been given any indication that an application might be made against him, and as far as I knew he had not had any advice about his position. He was not to be represented, but he was to be cross-examined. Moreover, because of the nature of the hearing, the focus of his evidence was not to be about a distinct matter going to the merits of a substantial claim but about the conduct of the proceedings. That is to say, his evidence would be closely connected with a likely focus of any application for costs against him.[19]Therefore I thought that some case management was required before evidence was heard, and I raised a number of matters with counsel at the start of the 2007 hearing. In response to my questions on the first morning, Mr. Anderson made it clear that(i) he accepted that Horace Holman did not have a formal defence to the claim until it made the payment of June 2003, and(ii) that notwithstanding paragraphs 70 et seq of the defence Horace Holman did not rely upon any general strategy adopted by Equitas and did not rely upon how it treated brokers other than itself.[20]As for the fourth of the matters to which I have referred, the parties, after a short adjournment to consider their positions, asked me only to decide who should bear the costs. There was no suggestion by either party that costs should be assessed other than on the standard basis, and the parties agreed that I should not be concerned about whether costs were reasonably incurred and reasonable in amount or proportionate to the matters in issue. Accordingly, I said this in my April judgment with a view to avoiding the sort of difficulty that arose in Northstar Systems Ltd. v Fielding (cit sup). “I have referred to the fact that the parties do not ask me to make any determination as to whether costs incurred were reasonable or proportionate and envisage that that, if necessary, would be determined upon an assessment. Nothing in my judgment is intended to preclude Horace Holman from arguing upon an assessment either in respect of costs incurred during the period from 1 March 2004 to 28 February 2006 or in respect of other costs that any particular part of Equitas’s costs was not proportionately and reasonably incurred or that it was unreasonable and disproportionate in amount.”[21]As for the fifth issue, I raised it in these terms before the short adjournment during which the parties were to consider quite what issues I was to decide: “Mr. ANDERSON: It may be that parties need to take stock and perhaps my Lord ought to rise for five minutes. Mr. JUSTICE ANDREW SMITH: It does seem to me that one way would be for the parties – either the parties – in a perfect world one would dream that the parties would see sense and stop throwing good money after bad, but that, I am afraid, is – Mr. ANDERSON: Time has passed, I fear. That ship may have sailed. Mr. JUSTICE ANDREW SMITH: It might have done. One lives in hope. Leaving that aside –although I am bound to say I was troubled – I was dithering as to whether to make this observation, but I will – I was troubled by the last paragraph of Mr. Powell’s witness statement, where he suggests that concern about his future employment prospects have been dictating in some degree, or at least have been a consideration in his mind in determining how he discharges his duty as a director. I was concerned about that because it does raise questions as to whether it should only be the defendant who should be bearing the costs. It may be he will explain that paragraph in due course. But it did strike me as – there was a question as to whether interests and duties as a director were conflicting”.[22]Mr. Anderson responded with regard to paragraph 242.5 of Mr. Powell’s witness statement:
“I may need to revisit that passage. I think my learned friend and I are probably agreed about this much: Mr. Powell’s witness statement is really rather long. I will have to remind myself of that passage.”
[23]Shortly afterwards, I had this exchange with Mr. Neil Calver QC, who represented Equitas:
“MR CALVER: … We are very concerned, firstly the point that your Lordship makes about Mr. Powell’s witness statement, the last paragraph. Obviously I was going to cross-examine Mr. Powell about that, because we are very concerned that the indication in that statement is that the reason that the company has been continuing to pursue this litigation and spending its money on this litigation is to vindicate Mr. Powell’s own personal reputation and not to harm his own employment opportunities and - - MR. JUSTICE ANDREW SMITH: I raised it in mild terms, because it did seem to me that it might be a question of evidence at some point, but since it had not been alluded to in the opening, it seemed quite wrong that he should be bounced with it. MR CALVER: Yes, and my Lord the reason I mentioned it – obviously I will cross-examine Mr. Powell about it, but we do wish to say – MR. JUSTICE ANDREW SMITH: But my concern was partly because, of course, Mr. Powell personally is not represented here. Mr. CALVER: Yes, and it goes to the question as to who should pay the costs of Equitas in the event that your Lordship makes an order in whole or in part for the payment of Equitas. Mr. JUSTICE ANDREW SMITH: Well, there is no application for anyone - - as I understand it, I have seen nothing to suggest that anyone other than Horace Holman should do so. MR CALVER: No, but Mr. Powell has not given his evidence yet. So I mention it out of fairness, that, as your Lordship says, it is something that is on our minds as well. MR. JUSTICE ANDREW SMITH: If an application of that kind were to be made on the basis of what is in the witness statement, then notice should be given. MR ANDERSON: Yes. MR. JUSTICE ANDREW SMITH: That is not to say that if things develop further in oral evidence you would not be justified in making an application at a later stage, but it seems to me that, if you are relying upon the substance of what is in the witness statement in support of it, then it is quite wrong that Mr. Powell, unrepresented as he is, should not have notice of it.”
[24]The hearing proceeded. The first witness called to give evidence on behalf of Horace Holman was Mr. Desmond Whittle, its IBA (Insurance Broking Accounts) manager. He gave evidence on the second day of the hearing. Mr. Davies complained in his written submissions that, when Mr. Whittle was cross-examined, part of the questioning was directed not to the issues between Equitas and Horace Holman but to supporting an application for costs that might be brought against Mr. Powell. He said that that complaint would be developed in oral argument, but it was not. I take it to have been abandoned, but in any case, having read a transcript of the cross-examination of Mr. Whittle, I am unable to accept that there is anything in the complaint.

Mr. Powell’s evidence at the 2007 hearing

[25]On the third day of the 2007 hearing, Mr. Powell gave evidence. In his witness statement dated 22 November 2006 he had explained his position in the group of companies that included Horace Holman, and Horace Holman’s case that Equitas had been unreasonable in its conduct of the proceedings. He referred (at para 235) to the “strategy” of Equitas to which the Defence at paras 70 et seq were directed, and said this:
“… Equitas’ strategy … has been applied in an oppressive manner. In particular, Equitas has refused to participate in any joint reconciliation, which … may have an impact on the unexplained difference in the theoretical LPC/LORS exercise. Indeed, its non-cooperation has gone further than this: it has withheld key information about the first River Thames exercise and its knowledge of payments amounting to US$91,058.67 and £1,419.07. It frequently sought to impose short, unreasonable deadlines …, and given very little notice of radical amendments to its case or applications it intended to make …. Its solicitors have written in tendentious and factually incorrect terms, forcing Horace Holman to instruct its solicitors to respond in detail to correct the position for the record, and it has required Horace Holman to carry out Equitas’ reconciliation exercises under threat of litigation. It has also acted unreasonably in negotiations: for example, I refer to its rejection of my offer in September 2003 to work together on the LPC/LORS reconciliation exercise so as to ensure that as many errors had been eliminated as possible and therefore establish a sound footing for settlement negotiations, and latterly their refusal to contemplate making any payment towards Horace Holman’s costs – which in June 2006 were comparatively modest – notwithstanding the effective withdrawal of the major elements of their claim. I now see from the costs schedules which have been exchanged that, as at 14 July 2006, that Equitas’ costs are almost three times more than Horace Holman’s.”
[26]The witness statement (at para 242) also referred to Equitas’ pleading in its Reply that stated that “Horace Holman’s approach to the litigation was “vastly disproportionate” and that it “unnecessarily complicates the issues”. It was in the context of responding to this point that Mr. Powell included in his statement paragraph 242.5 to which I have referred. He set out other reasons that he had “taken [the litigation] extremely seriously”. With regard to Horace Holman’s rejection of Equitas’ offer in March 2006 to settle the litigation, Mr. Powell said: “Whilst Equitas may in March 2006 have been prepared to “drop hands” and walk away from the litigation, and may not consider a claim with a total value of nearly £370,000 … sufficiently large to justify a close analysis of the underlying facts and merits, I do”.[27]Thus Mr. Powell’s witness statement contained evidence directed to the parties’ conduct of the litigation. The court must have regard to the parties’ conduct when deciding what order to make as to costs (CPR 44.3(4)), and conduct includes (CPR 44.3(5)) “(a) conduct before, as well as during, the proceedings, …; (b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; (c) the manner in which a party has pursued or defended his case or a particular allegation or issue; …”.[28]When he was called to give evidence, Mr. Powell confirmed the contents of his witness statement. Equitas was entitled to cross-examine him upon it and indeed as to his credit. As I understood at the time and as was the case, Equitas had not given Mr. Powell notice that he might face an application that he personally pay costs.[29]At the start of his cross-examination, Mr. Powell was asked some questions about his interest in Horace Holman and other group companies, and, having been referred to paragraph 242.5 of his statement, he agreed that he saw Horace Holman as “his” company “within the group structure”. He said that he and Mr. Whittle were the only employees on Horace Holman’s payroll, and there was also a part-time consultant. Mr. Calver then sought to ask about Horace Holman’s financial position by reference to its published accounts. Mr. Anderson intervened and this exchange followed:
“Mr. ANDERSON: My Lord, if it is a convenient moment, I do obviously hesitate to interrupt my learned friend’s cross-examination, and no doubt it will rapidly become apparent what this is going to, but if this is cross-examination in any way aimed at a potential, as yet unmade application for costs against Mr. Powell personally, then I will be objecting to that line of cross-examination, given that he has not been put on notice of any such claim, has not had an opportunity. My Lord, the authorities, which I do not think we have in court because there has not been such a claim mooted, make it very clear that if any such allegation is to be made it should be made at a very early stage. There is Court of Appeal authority to that effect. Mr. Powell is obviously giving evidence in order to assist your Lordship on the matters which are actually in issue in these proceedings. If this is going to be used as some form of roving enquiry that might justify some application somewhere further down the line, then in my respectful submission, my Lord should treat it with a degree of scepticism, if not actually stop it. As yet, I do not know where my learned friend is going. I thought it proper to lay down the marker. Mr. JUSTICE ANDREW SMITH: There has been no notice given. I was holding back and seeing whether it was relevant to anything else, but there is no application, and, therefore, Mr. Calver knows that he is to confine his cross-examination to the issues that are before the court on the application before the court. Mr. ANDERSON: My Lord, then I need not have risen. My Lord was already ahead of me. I apologise. Mr. JUSTICE ANDREW SMITH: Presumably this cross-examination is going to the application before the court. Mr. CALVER: My Lord, absolutely.”
Mr. CALVER: My Lord, absolutely.”[30]When asked about Horace Holman’s financial position, Mr. Powell identified as a “very large creditor” another group company called Camomile Management Services Limited (“Camomile”). He said that Horace Holman had been insolvent and had “decided to continue its run-off by agreement with Lloyd’s on a conditional letter of support from a sister company” and that he believed that DAC had been made aware of this. There was then this exchange:
“Mr. JUSTICE ANDREW SMITH: Does that go to my decision as to whether the order should be made? Mr. CALVER: I am happy to leave that there. Mr. JUSTICE ANDREW SMITH: To which point in your written opening does this cross-examination go? Mr. CALVER: Can I continue to develop the line? Your Lordship will I hope then see where we are going on this. It does to the question of the incurring of costs in the litigation and why the level of costs that has been incurred has been incurred. So, if I can just develop it a little further -- Mr. JUSTICE ANDREW SMITH: It goes to the level of costs incurred by both sides? Mr. CALVER: Yes. Mr. JUSTICE ANDREW SMITH: Right. Mr. CALVER: I do not have a lot more -- Mr. JUSTICE ANDREW SMITH: I am not dealing with the level of costs. Anyway, you carry on. Mr. CALVER: I mean the level, my Lord, in the sense that – Mr. JUSTICE ANDREW SMITH: I want to understand quite where this comes in at some point. Mr. CALVER: What I mean by “level” is I mean costs which have been unnecessarily increased. Perhaps I can just – there is not much more. Mr. JUSTICE ANDREW SMITH: You complete it.”
Mr. JUSTICE ANDREW SMITH: To which point in your written opening does this cross-examination go? So, if I can just develop it a little further -- Mr. JUSTICE ANDREW SMITH: It goes to the level of costs incurred by both sides? Mr. CALVER: I do not have a lot more -- Mr. CALVER: I mean the level, my Lord, in the sense that – Mr. JUSTICE ANDREW SMITH: You complete it.”

Mr. CALVER: I mean the level, my Lord, in the sense that –

[31]Mr Calver asked further questions, in reply to which Mr. Powell accepted that he could not recall whether Equitas had made an allegation about his financial probity. Mr. Calver then put this to Mr. Powell:
“Q. What I am going to suggest to you, Mr. Powell, is that this, what I suggest is a skewed view of the purpose of this litigation on your part has led to the costs of it escalating unnecessarily and the settlement of the parties’ differences becoming impossible. That is what I am going to now suggest to you by reference to various things. Do you agree?” “A. No not at all. I have tried several times to agree with Equitas what the situation was, but, you know, the bottom line is that from the start of this litigation Equitas took the view that our company had collected money and not paid on, and when four queries were put to us, we looked at them, reconciled them, and paid them.”
[32]When Mr. Calver asked about a passage of Mr. Powell’s witness statement going to the pleaded but abandoned allegation about Equitas’ strategy against other brokers, I again intervened. Mr. Calver wished to ask about it as a matter going to credit, and I allowed the question.[33]I have set out these exchanges at some length because Mr. Davies complained that this part of the cross-examination was “devoted to creating the evidential building blocks for making a case against Mr. Powell personally”, and that this amounted to “a transparent strategy to violate Mr. Powell’s rights to immunity”. He contended in his written submissions that Mr Calver was cross-examining in pursuit of Equitas’ intention “not to serve formal notice but to cross-examine disingenuously to see what they could obtain from Mr. Powell to enable them to sue him”, and that Mr. Calver’s assurance about his cross-examination was “disingenuous”. However, in his oral submissions Mr. Davies did not submit that Mr. Calver’s conduct of the cross-examination was insincere or dishonest. He first said in the context of the recusal application that what Mr. Calver said had been “an astonishing answer” but that it was “not relevant” whether Mr. Calver “subjectively thought much about it and whether he was honest or dishonest”. When it came to oral submissions on the NPCO application itself, Mr. Davies said that no allegation was made that Mr. Calver had been disingenuous.Lest there be any doubt about it, I should state that to my mind there is no basis at all for an allegation that Mr. Calver, or DAC, or Equitas through them or otherwise, was “disingenuous” or that any of them otherwise behaved improperly in the conduct of these proceedings. With regard to the cross-examination of Mr. Powell, I accepted Mr. Calver’s assurance that he saw his questions as legitimately testing the evidence given by Mr. Powell and testing his credit. While the questions did not go to the heart of what I had to decide between Equitas and Horace Holman, I remain of the view that the questioning was proper and that I could not properly have disallowed it.[34]In my April judgment I said of all the witnesses of fact (including Mr. Powell and Mr. Whittle), “I consider that all these witnesses were honest and seeking to give truthful evidence. The differences between their accounts as to the primary facts were not significant.”

The NPCO application: the authorities

[35]The starting point of Equitas’ argument is Dymocks Finance Systems v Todd, [2004] UKPC 39, [2004] WLR 2807. Giving the advice of the Privy Council, Lord Brown said this (at para 25):
“(1) Although costs orders against non-parties are to be regarded as “exceptional”, exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit at their own expense. … (2) Generally speaking the discretion will not be exercised against “pure funders”, described in para 40 of Hamilton v Al Fayed (2) [2003] QB 1175, 1194 as “those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course”. … (3) Where, however, the non-party not merely funds proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party’s costs. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is “the real party” to the litigation, a concept repeatedly invoked throughout the jurisprudence … nor indeed is it necessary that the non-party by “the only real party” to the litigation… provided that he is “a real party in … very important and critical respects” (see Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation [2001] HCA 26 at [37], (2001) 179 ALR 406…) (4) The most difficult cases are those in which non-parties fund receivers or liquidators (or, indeed, financially insecure companies generally) in litigation designed to advance the funder’s own financial interest….”
Lord Brown said that “generally speaking, where a non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, he should be liable for the costs if his claim or defence or appeal fails” (para 29); and that the court may make an order notwithstanding the non-party acts upon legal advice (para 33).[36]The jurisdiction under section 51 of the 1981 Act is not fettered by rules as to when it may or may not be exercised. It is not confined to cases where the non-party funded the litigation, nor to cases in which he supported a claimant in the hope of benefiting from a monetary judgment. In Sims v Hawkins, [2007] EWCA 1175 the complaint against Mr. and Mrs Hawkins was (at para 28) that they were:
“anxious to proceed to trial in order to recover their substantial investment in funding the costs of the company’s defence. Whatever their initial motive for funding the company, there came a point when they were intent on continuing the trial in order to get their money back.”
The judge concluded that the continued funding of the defence was in their own interest rather than the interests of the company, and the appeal against his decision was dismissed.[37]In Symphony Group plc v Hodgson, [1994] QB 179 at pp.192H-193H, Balcombe LJ said this about the proper procedure for making and determining an application for a NPCO:
“(1) An order for the payment of costs by a non-party will always be exceptional: … (2) It will be even more exceptional for an order for the payment of costs to be made against a non-party, where the applicant has a cause of action against the non-party and could have joined him as a party to the original proceedings… (3) Even if the applicant can provide a good reason for not joining the non-party against whom he has a valid cause of action, he should warn the non-party at the earliest opportunity of the possibility that he may seek to apply for costs against him. At the very least this will give the non-party an opportunity to apply to be joined as a party to the action …. Principles (2) and (3) require no further justification on my part; they are an obvious application of the basic principles of natural justice. (4) An application for payment of costs by a non-party should normally be determined by the trial judge: see Bahai v Rashidian, [1985] 1 W.L.R. 1337. (5) The fact that the trial judge may in the course of his judgment in the action have expressed views on the conduct of the non-party constitutes neither bias nor the appearance of bias. Bias is the antithesis of the proper exercise of a judicial function: see Bahai v Rashidian, [1985] 1 W.L.R. 1337, 1342H, 1346F. (6) The procedure for the determination of costs is a summary procedure, not necessarily subject to all the rules that would apply in an action…. (7) Again, the normal rule is that witnesses in either civil or criminal proceedings enjoy immunity from any form of civil action in respect of evidence given during those proceedings. One reason for this immunity is so that witnesses may give their evidence fearlessly: … In so far as the evidence of a witness in proceedings may lead to an application for the costs of those proceedings against him or his company, it introduces yet another exception to a valuable general principle….”
[38]It is to be observed that in stating his third principle Balcombe LJ referred to the requirement for a warning being triggered by the possibility that a party might apply for a NPCO. Although in Dymocks Franchise Systems (NSW) Pty Ltd v Todd, (loc cit) Lord Brown recited the non-party’s contention that a warning of the “intention” to make an application should have been given, in Sims v Hawkins, (loc cit) at para 52,Rix LJ adopted Balcombe LJ’s formulation, as did Lewison J in Brampton Manor (Leisure) v McLean, [2007] EWHC 3340 (Ch). Mr. Calver did not dispute that the requirement for a warning arises when there is the possibility of an application for a NPCO. But the court does not always refuse to make a NPCO because the non-party was not given early notice or warning. This is clear from the Dymocks Franchise Systems case, loc cit at para 31, in which it was said that the failure so to warn was “no more than a material consideration” and that it could not have “made any difference to the course of proceedings here”. Like the rest of the enquiry, the importance of a warning in any particular case is fact-sensitive.

Equitas’ application for a NPCO

[39]Mr Murrin set out the basis of Equitas’ application in a witness statement dated 15 October 2007, which reads as follows (at para 19):
“The Claimants seek to join Mr. Powell to the proceedings and an order that he be jointly and severally liable to discharge the costs awarded against the Company on the principal ground that he, as the sole owner and a director of the Defendant, is the real party to this litigation. He has controlled and, through Camomile, has funded the Company’s defence. He has done so to secure his own personal interests. He has also seen to it … that the Claimants are unable to execute their judgment. As such, this case is outside the ordinary run cases in which parties pursue or defend claims for their own benefit and at their own expense. … .”
[40]Mr. Davies criticised the way in which Equitas presented its application on the basis that there was no “concise statement of the grounds and essential allegations of fact” relied on: see Vaughan v Jones [2008] EWHC 2123 (Ch.). However, the application notice stated that Equitas relied upon Mr. Murrin’s statement, and this paragraph concisely encapsulated the basis of the application and subsequent paragraphs state the essential allegations of fact. I reject this criticism.[41]I have said that Equitas has limited its application in that it now asks only that Mr Powell pay costs incurred since Horace Holman rejected the Settlement Offer. In his submissions Mr Calver made two other concessions: i) Mr Murrin’s statement pointed out that Horace Holman’s accounts for the trading periods to 30 April 2006 and 30 April 2007 and of those for Camomile to 30 April 2006 were not filed until 30 May 2007. It was suggested that this reflected a plan to defeat any judgment obtained by Equitas. Mr Calver made it clear that no impropriety was alleged against Mr. Powell on the basis that the returns were filed late. ii) In support of Equitas’ allegations, Mr. Murrin cited in support of the application answers given by Mr. Powell in the course of his cross-examination. Mr Calver did not rely upon Mr Powell’s oral evidence.[42]Mr Powell made a long statement in reply to Mr. Murrin’s evidence. In it he gave the following evidence, which I accept: i) After my intervention on the first day of the 2007 hearing, he had expected that before giving evidence he might receive notice of an application for a NPCO. When he did not, he assumed that nothing had happened that in the view of Equitas’ advisors gave grounds for an application against him. ii) If before trial he had realised that an application for a NPCO might be made against him, having taken legal advice, he would have had Horace Holman compromise the litigation immediately or, failing that, have had Horace Holman put into liquidation.[43]With regard to the response to the Settlement Offer, Mr. Powell described as “utter nonsense” the allegation that it was rejected in order that he might establish his financial probity and enhance his future employment or business opportunities. On 28 March 2006, Mr. Powell was present when counsel advised that Equitas would not recover any costs from Horace Holman and might have to pay costs to Horace Holman. Mr. Powell said that he considered Horace Holman had a complete and bona fide defence to the claims made by Equitas, but they had been defended only so as not to jeopardise the planned run-off. He also said that with the benefit of hindsight he recognised that, had he been served with a notice of an intention to apply for a NPCO against him, he would have had Horace Holman accept the Settlement Offer. In a later witness statement he observed that:
“A judgment which dismissed Equitas’ claim with no order for costs to either party would have left [Horace Holman] in exactly the same position as it had been pre-judgement. It would have continued to handle the remaining run-off items on a part-type basis – with [Camomile] funding the costs as previously. Any costs order in favour of [Horace Holman] would have allowed [Horace Holman] to continue in the same way except it would have been able to self-fund a proportion of the remaining run-costs – funding from [Camomile] would have been required again when any judgement award was fully expended. Depending on the relative size of the award and the residual run-off costs, a final balance may have become available to reduce [Camomile’s] inter-company creditor position”
.

Horace Holman’s liquidation

[44]Mr. Powell’s evidence, which I accept, was that Camomile provided support for Horace Holman in order that it might avoid insolvent liquidation and pay its creditors. He said this:
“The purpose of the funding provided by [Camomile] was to achieve the run-off in the following circumstances. In late 2002/early 2003, we decided to handle the run-off ourselves. For good business reasons (which had nothing to do with me personally and everything to do with the company and its best interests) we wanted to attempt to avoid that process being carried out within a formal liquidation. Put bluntly, we correctly concluded that a liquidation would adversely affect realisations very considerably. This was confirmed by the specialist advice we received… . A successful run-off could only be achieved with funding/support from [Camomile]. The plan was for [Horace Holman] to continue trading solely for the purpose of achieving a successful run-off and payment of creditors. At the end of the process, the only creditor would be [Camomile]. We prudently projected that the overall indebtedness of [Horace Holman] to [Camomile] at the end of the process would be in the order of £2million. … . “This was not a decision taken lightly. We consulted the Regulator, [the General Insurance Standards Council], and also Lloyd’s. The Regulator and Lloyd’s each expressed concern at the time. After due consideration, we were informed that they favoured avoidance of formal liquidation, making funds available for the run-off. During that consultation process, the reputation of [Horace Holman] as a Lloyd’s broker was also discussed. It was agreed that it was a factor and that it would be better, if affordable, for [Horace Holman] to run-off all its obligations to the Market where possible. We explained that there was not a bottomless pit and that [Camomile] could only offer conditional support and that there were some potentially large problems that could emerge from litigation… . As far as Equitas was concerned, Lloyd’s made it clear that they were aware of the initiative taken on its behalf … . The aim of completing the run-off and avoiding liquidation was almost achieved and would have been achieved were it not for the prolonged litigation of Equitas and the failure to reach a settlement in line with the debt claim or compromise thereof.”
I should explain that when Mr. Powell spoke of the aim being “almost achieved” he meant, as I understand it, that whereas the strategy was successful in having Horace Holman meet its obligations to the market, the liquidation of Horace Holman was not avoided.[45]This strategy was adopted in accordance with the advice of Messrs Begbies Traynor, who are reputable and experienced insolvency practitioners. As a result of it, between February 2004 and April 2007 Horace Holman made payments of over £2 million to market creditors.[46]Mr Murrin referred in his evidence to Mr Powell’s report to a meeting of the creditors of Horace Holman on 21 June 2008. The report explained that Horace Holman’s run-off was “continued through the conditional support of a group company”, and said, “The group support for the day to day management was provided after consultation with financial advisors and insolvency practitioners due to concerns regarding a number of disputes and in particular two High Court writs. The company defended the actions however an adverse judgment was handed down in April 2007.” (The “adverse judgment” was of course my judgment in these proceedings. The other High Court writ is irrelevant for present purposes.) Mr Murrin commented that, “The connection between the judgment and [Camomile’s] withdrawal of support is clear”.[47]Mr. Murrin observed that Horace Holman had only two creditors, Equitas and Camomile, which was said to have a claim of £1,452,673. He said that it “would appear that Mr Powell has deliberately taken steps to ensure that [Equitas gets] nothing”, and that “It seems that as a direct response to the judgment, Mr Powell has put into effect what appears to be a carefully prepared plan, in the event of [Horace Holman] being found liable in these proceedings, to prevent [Equitas] from enforcing the judgment obtained in these proceedings”. In support of the contention that there was a long-standing plan to place Horace Holman into liquidation if Equitas succeeded in the litigation, Mr Murrin also referred to correspondence between the parties before the trial. In particular, in a letter dated 15 December 2003, Farrer & Co, Horace Holman’s solicitors, wrote:
“If Equitas continue to litigate, the costs will escalate to a level outside the support and the (sic) there is a significant possibility that our client will go into liquidation. Obviously, if this occurred the liquidator would only entertain claims based upon a conventional proof of debt and would not have the expertise or time (bearing in mind his costs) to discuss the merits of the use of sample balances.”
In the same letter, Farrer & Co stated, “Our client is no longer able to trade solvently and continues to handle its run-off only under a conditional letter of support from a group company”. In the letter of 30 March 2006 in which Horace Holman rejected the Settlement Offer and made its counter-offer, Farrer & Co wrote, “No doubt this continuing expense, which they have no prospect of recovering, will be a factor in response to this letter”.[48]I accept that Mr. Powell and Horace Holman believed genuinely, on the basis of legal advice and reasonably (albeit, as it turned out, mistakenly) that Horace Holman would successfully defeat the claim by Equitas and might recover costs. Specifically, before rejecting the Settlement Offer and making its counter-offer, Horace Holman was advised that the best result that Equitas could obtain was that each party should bear its own costs, and Mr. Powell and through him Horace Holman relied upon that advice. I reject the allegation that the liquidation of Horace Holman was part of a prepared plan to ensure that if Equitas obtained a judgment it could not be enforced. It was a response to a result of the litigation that Mr Powell and Horace Holman simply had not anticipated.

Control

[49]Equitas argued that a NPCO should be made against Mr. Powell because(i) he controlled Horace Holman and its conduct of the proceedings;(ii) he effectively funded the pursuit of the proceedings;(iii) he stood to benefit from them; and(iv) he caused Horace Holman to pursue the proceedings at least partly to protect his personal position and reputation, which was an improper use of his position as a director.[50]There is no dispute that Mr Powell controlled and indirectly owned Horace Holman. (More specifically, Horace Holman was owned by Mr. Powell and Horace Holman Group Ltd, which in turn was owned by Camomile Holdings Ltd, which in turn was owned by Mr. Powell.) It is also common ground that by December 2003 Horace Holman was insolvent, as Farrer & Co explained in their letter dated 15 December 2003.[51]Mr. Powell accepts that he was the “individual with primary responsibility for instructing Farrers”. He took a close interest in the litigation. Farrer & Co wrote in their letter of 15 December 2003 that Horace Holman’s legal costs had been “kept low by the huge amount of work undertaken by our client itself”, that is to say, by work done by Mr. Powell. He drafted his long witness statement and other documents, including argumentative letters. Given Mr. Powell’s position in Horace Holman, it was his responsibility to deal with the claim brought by Equitas. In itself this does not mean that he was “the real party” or “a real party” to the proceedings, and would not justify making a NPCO. On the face of it, it seems likely that the litigation was the more protracted and expensive because of the manner in which Mr Powell conducted it for Horace Holman, but that is not put forward as a ground of Equitas’ application, and in any case I am not in a position to reach any firm conclusion about where the responsibility for this lies or to apportion it.

Funding

[52]Mr Powell controlled and indirectly owned Camomile as well as Horace Holman, and arranged for Camomile to provide finance for Horace Holman’s defence of the claim brought by Equitas. Mr Calver submitted that therefore effectively Mr Powell was funding Horace Holman’s conduct of the litigation. Mr Davies disputed this, essentially, as I see it, on two grounds.[53]First, he submitted that it oversimplifies and so distorts the true position to characterise Camomile’s support for Horace Holman as support for the defence of the litigation. Mr Powell, after taking advice and in consultation with the regulatory authorities, developed a responsible scheme to manage Horace Holman’s financial difficulties so as to protect the interests of its creditors. The strategy depended on Camomile’s support. When Equitas pursued its claim, Camomile was therefore involved in funding the defence of the proceedings. It believed that Equitas’ claim would be unsuccessful, and that there would be no order for costs against Horace Holman. More importantly, it did not support the defence of the proceedings as an end in itself but because otherwise the strategy to avoid Horace Holman’s liquidation would have to be abandoned, leaving its creditors unpaid.[54]Secondly, Mr Davies criticised the submission that, because of Camomile’s support for Horace Holman, Mr Powell himself was effectively funding the defence of the litigation. This, it is said, would involve piercing the corporate veil and there is no justification for doing so because there are no “special circumstances … indicating that [Camomile] is a mere facade concealing the true facts”: see Woolfson v Strathclyde Regional Council, [1978] SC (HL) 90 at p.96.[55]I accept that for both these reasons Mr Powell is in a very different position from one who has “funded” litigation, or arranged funding for litigation, in the way contemplated in the authorities dealing with applications of this kind.

Financial benefit

[56]Mr Murrin said in his witness statement that Mr. Powell had a significant financial interest in the litigation “in his capacity as creditor”, because Camomile was the largest creditor of Horace Holman and, if Horace Holman had recovered the costs, Camomile’s investment in the litigation would be recovered. Horace Holman was insolvent and had no interest in defending the proceedings, and that it should have been put into liquidation “much earlier”. By delaying Mr Powell was able to carry out “his own liquidation but outside the statutory scheme and not on a pro-rata basis”.[57]Equitas contended that Mr Powell stood to benefit from the litigation because, if Horace Holman recovered its costs, Camomile would recover some part of what it had laid out, and as Camomile’s only shareholder Mr Powell too would benefit. In particular, Mr Calver argued that it was only Mr Powell who stood to gain from the decision in March 2006 not to accept the Settlement Offer. He relied upon Mr Powell’s evidence that Horace Holman’s run-off strategy would not be affected by a judgment dismissing Equitas’ claim with no order for costs to either party, and said that a settlement on the terms proposed by Equitas would have been to like effect.[58]Horace Holman rejected the Settlement Offer in the hope of recovering some of its costs from Equitas, and it would, of course, have been to Camomile’s benefit if it had done so, in that less financial support from Camomile would have been needed for run-off strategy. Camomile would have benefited because it was supporting the run-off generally, not because it was funding the defence of the litigation specifically. I cannot regard this potential benefit to Camomile as tantamount to a financial benefit to Mr Powell or accept that Camomile is to be regarded as effectively a conduit for routing financial benefits to him. Further, the fact that Camomile would have continued to support the run-off strategy was in itself no good reason for Horace Holman to accept what it believed to be an unfavourable settlement offer. On the contrary, it was right that Horace Holman should consider the position of Camomile, its creditor.

Personal reputation

[59]Mr Murrin, citing paragraph 242.5 of Mr Powell’s witness statement, said, “Mr. Powell was determined to defend the proceedings to trial in order to establish his own financial probity for the purpose of his “future employment or business opportunities”. He also referred to this answer given by Mr. Powell in cross-examination when asked why he said that the Settlement Offer “effectively indicated that [Equitas] rightly lacked faith in their claim”:
“Well, because we had negotiated with them for a number of years by now, this was well into 2006, and, as you can see, we put forward requests for information to continue commercial negotiations in 2003. Nothing was forthcoming. So as far as we were concerned, Equitas tried various other issues and they seemed to drop various items from their case. That was my opinion.”
[60]Equitas argued that Mr Powell had Horace Holman reject the Settlement Offer out of concern for his personal interests. As I have said, in his witness statement served in opposition to the NPCO application, Mr Powell denied this, but Equitas argued that this is inconsistent with what he had said previously.[61]I reject the criticism, and Equitas’ argument. There is no inconsistency in Mr Powell’s evidence given the context of paragraph 242.5 of the statement of November 2006. Mr Powell was not there concerned with why Horace Holman was defending, or continuing to defend, the proceedings, but was explaining the manner in which the defence was being conducted: why he (and through him Horace Holman) was taking a “very detailed” approach to answering the case, and why that was not, as Mr Powell saw it, “disproportionate”. It is not important for present purposes whether or not Mr Powell was justified in adopting that approach: what matters is that this paragraph is not about why Horace Holman rejected the Settlement Offer. As I have said, in its application for a NPCO Equitas did not complain that Horace Holman conducted the litigation extravagantly and paragraph 242.5 of the witness statement does not go to any of the grounds for the application.[62]In any case paragraph 242.5 should not be given undue importance. It explained one of five reasons that Horace Holman was conducting the defence of the proceedings as it was. There is no evidence that otherwise the litigation would have been conducted differently.[63]I therefore do not consider that Equitas has made out a sufficient case for a NPCO against Mr Powell and reject the application.

Warning

[64]There is a further consideration that weighs heavily against making an order against Mr. Powell in this case. I made clear at the 2007 hearing that proper warning of any potential application should be given to Mr Powell. Equitas has not said in its evidence when it first considered making an application, and it relies in support of it upon matters that were apparent or properly foreseeable by the time of the 2007 hearing. There is no proper reason that Mr Powell was not warned before the hearing or at any rate before he gave evidence.[65]In reply to the criticism that Mr. Powell was not given proper warning of this application, Equitas made three points. First, it said that it needed to apply for a NPCO only because of Horace Holman’s liquidation. It was, however, always known that Horace Holman was insolvent, and it was clear that it might not by able to pay any order for costs, whether or not it was actually in liquidation. I canvassed that matter because it was apparent that Horace Holman might not pay costs ordered against it and a warning is required of the possibility of an application. The requirement to warn does not arise only once a decision to make an application has been made. In the absence of evidence to the contrary, I infer that Equitas was considering that possibility by the time of the 2007 hearing.[66]Secondly, it was said that notice was given once Equitas knew of the extent of Mr. Powell’s involvement with Horace Holman and the litigation. I am not persuaded by this. Although the precise structure of the group might not have been known to Equitas before returns were filed in May 2007, it was always clear that Mr. Powell controlled Horace Holman and the group.[67]Thirdly, it was said that failure to give notice is “only a factor” in deciding whether to make a NPCO: Sims v Hawkins [2007] EWCA Civ.1175. This is so, but it can be a “highly material factor” (per Lewison J in Brampton Manor (Leisure) v McLean EWHC 3340 (Ch) at para 26.) Although in Dymocks Franchise Systems (loc cit) Lord Brown observed that on the facts of that case the absence of a warning was inconsequential, I do not understand him to suggest that the failure to warn is relevant only if specific prejudice to the non-party is identified. I acceptMr. Powell’s evidence that, had he received proper notice from Equitas, he would have caused Horace Holman to settle or to be liquidated immediately: that he would, if served with notice, have taken legal advice and “one way or another the proceedings would have come to an end”. As it was, he took no legal advice before giving evidence.[68]I consider that the failure to warn is an important consideration in this case. This is not only because of the exchanges at the 2007 hearing. In this case there was a particular reason that Mr. Powell should have had proper notice: he was to be cross-examined about the conduct of the proceedings, that is to say his cross-examination was likely to be particularly relevant to any application for a NPCO.

Conclusion on NPCO application

[69]Mr. Powell was not acting for his own benefit in relation to the litigation and was not funding it. He exercised control over it in his capacity as the director of Horace Holman. I would therefore have refused Equitas’ application in any event, but I also regard the fact that Equitas did not give proper warning to Mr. Powell as another reason for doing so. Recusal[70]I come back to my decision not to recuse myself from hearing this application. The general rule is that an application for a NPCO should be made to the trial judge, notwithstanding he has expressed a view about the conduct of the non-party. Unless the trial judge is precluded from hearing the application for some compelling reason, it is his duty to do so: see Bahai v Rashidian, loc cit at p.1342G per Sir John Donaldson MR and at p.1347A per Balcombe LJ. This does not, of course, override the principle of natural justice that no hearing or decision should be tainted by apparent bias (or indeed actual bias), and Mr. Davies cited the observation of Mummery LJ in AWG Group Ltd v Morrison, [2006] 1 WLR 1163 (at p.1167) that on questions of recusal, “Prudence naturally leans on the side of being safe rather than sorry”. However, a trial judge should not decline to hear an application for a NPCO without good reason.[71]There was no dispute about the governing legal principles about apparent bias. They can be stated by citing three authorities: i) “The question is whether the fair-minded and informed observer having considered the facts, would conclude that there was a real possibility that the tribunal was biased”: Porter v Magill [2001] UKHL 67, [2002] 2 AC 357 at para 103 per Lord Hope. ii) Bias includes “an inclination or pre-disposition to decide the issue only one way, whatever the strength of the contrary argument. A doubt as to as to whether this is the case is enough, so long as it can be justified objectively.”: Davidson v Scottish Ministers [2004] UKHL 34 at para 47 per Lord Hope. iii) “The test for apparent bias involves a two stage process. First the Court must ascertain all the circumstances which have a bearing on the suggestion that the tribunal was biased. Secondly it must ask itself whether those circumstances would lead a fair-minded and informed observer to conclude that there “Was a real possibility that the tribunal was biased … The relevant circumstances are those apparent to the court upon investigation; they are not restricted to the circumstances available to the hypothetical observer at the original hearing…”: Flaherty v National Greyhound Racing Club Ltd., [2005] EWCA 1117 at para 27, per Scott Baker LJ.[72]Mr. Powell put forward three reasons that I should recuse myself. Although I consider them separately, I recognise that the application was made on the basis of their cumulative effect.

My intervention about a NPCO application

[73]First, it is said that I should not have mentioned on the first day of the hearing the possibility that an application for a NPCO might be made. Mr. Davies submitted that, unless a party raises the question, it is always wrong for the judge to mention the possibility of an application for a NPCO; and that this is so, even if the judge foresees that the witness might be cross-examined with a view to reinforcing such an application without having any warning or advice. I am unable to accept that a judge is under any such restriction in the management of a hearing. The question whether a warning is appropriate depends on the facts of the particular case, and I reject the proposition that a judge should never raise it.[74]Mr. Davies makes a further point relating to this particular case: that but for my intervention, Equitas would never have applied for an NPCO. Any competent and experienced legal adviser – and Equitas were so advised – would have considered whether there were grounds for such an application, and would have considered whether paragraph 242.5 of Mr. Powell’s statement might be relevant upon such an application. Mr. Calver said on the first day of the 2007 hearing that he had the point in mind, and I accept that.[75]In support of this limb of the application, Mr. Davies made three further points: first that I raised this matter immediately after expressing the hope that the parties might reach an agreement that would avoid further costs (or “throwing good money after bad”, as I put it). My concern about Mr. Powell’s position was a separate matter, but even if I gave the impression that the two points were connected, I cannot accept that it was wrong for Mr Powell to be aware of the possibility of an application.[76]Secondly, Mr. Davies said that, in the course of the exchanges, I indicated that I expected Mr. Powell to give oral evidence about paragraph 242.5 of his witness statement. I am unable to accept that that is a natural understanding of what I said. I simply recognised that the question whether Equitas might apply for a NPCO could be affected by oral evidence at the hearing.[77]Thirdly, it was said that in suggesting that paragraph 242.5 of Mr. Powell’s witness statement (and indeed his cross-examination) might be deployed on a NPCO application, I failed to recognise the immunity that Mr. Powell had as a witness. I reject Mr Davies’ submissions about witness immunity, for reasons that I give later in this judgment.[78]It seems to me that, looking at the exchanges as a whole, the fair-minded and informed observer would consider that my purpose was to protect Mr. Powell. Indeed, in their initial response dated 21 June 2007 to the letter from DAC dated 14 June 2007 giving notice of the NPCO application, Mr. Powell’s solicitors, Messrs Hunt & Morgan, wrote:
“Having reviewed the transcript of the proceedings it appears to us that the judge was concerned … that counsel for the claimant might use the cross-examination to promote a belated application for a non-party costs order without giving Mr. Powell the opportunity of obtaining separate legal representation or independent advice. … It would of course be quite improper to suggest that the judge was seeking to encourage such a prospective application where no indication of any such application had been made and no notice had been given to Mr. Powell. … would you please confirm that it is your understanding that the judge did not encourage or promote the prospect of such an application and that our interpretation of the comments made by the judge is accurate. We consider that any other interpretation would be an extremely unfair representation of the conduct of the trial judge”
. They continued:
“We … can only express our surprise that you are pursuing the comments which Mr. Powell made with regard to his reputation where the Trial Judge clearly attempted to protect Mr. Powell’s position in circumstances where he had no notice of the true purpose of the cross-examination”
.

Mr. Whittle’s cross-examination

[79]The second point in support of the application that I recuse myself was that I should not have allowed Mr. Whittle to be cross-examined as he was. I have explained that Mr. Davies did not develop the point, and I see nothing in it.

Mr. Powell’s cross-examination and witness immunity

[80]Thirdly, it is said that I should have protected Mr. Powell from Mr. Calver’s questioning because it violated the immunity that he enjoyed as a witness. I reject that submission: there was to my mind no proper basis for disallowing the questioning, whether or not it served a collateral purpose of a contemplated application for an NPCO, or indeed whether or not that was or objectively appeared to be its main purpose. In Symphony Group plc v Hodgson, cit sup, Staughton LJ said this at p 196 E:
“… I take the view that at least part of the cross-examination of Mr. Bramley was directed, objectively speaking, not at the pleaded issues in the trial but at securing admissions which would justify an order under section 51. That is not to say that the questions should never have been asked, or should have been disallowed by the deputy judge if objection had been taken; they may well have also been relevant to Mr. Bramley’s credibility. But objectively speaking, as I say, their main function now appears to have been to establish a case under section 51.”
[81]Mr Davies made no complaint that at the 2007 hearing Horace Holman was permitted to adduce in evidence Mr Powell’s statement including paragraph 242.5. If Horace Holman adduced the evidence, Equitas was entitled to challenge it. If any question of witness immunity arises, it would not protect Mr Powell from being cross-examined in the 2007 hearing. It would protect him from subsequent use of the evidence for a precluded purpose, and Mr Calver has not sought to rely on any oral evidence given by Mr Powell.[82]However, I do not consider that any question of witness immunity does arise. It is well established that a person is not exposed to civil liability on the basis that he is guilty of wrongdoing in giving evidence, and that immunity covers not only actual evidence but also statements made in preparation for giving evidence, such as a proof for trial or a witness statement for use in civil proceedings: see Marrinan v Vibart, [1963] 1 QB 234 at p.238. The witness is protected against allegations that in giving evidence he committed a tortious act. Mr. Davies sought to extend this principle and submitted that it prevents any evidence of a witness being used subsequently to establish that he is liable for wrongdoing and that a witness enjoys such protection not only in respect of liability for damages but also liability for a NPCO.[83]I do not accept that a witness’ immunity prevents his evidence being used to establish liability for damages or for costs under section 51. If Mr. Davies’ submission is correct, the Court of Appeal failed to recognise the application of the principle in In re North West Holdings plc, [2001] EWCA 67 (see paras 32 and 36), in Petromec Inc v Petroleo Brasileiro SA Petrobras, [2006] EWCA Civ 1038 (see para 6) and in Goodwood Recoveries Ltd v Breen, [2005] EWCA (Civ) 414, [2006] 1 WLR 2723 (see para 35). Mr. Davies acknowledged that in each of these cases the Court of Appeal referred to the evidence of the non-party, but submitted that, no point about witness immunity being raised, the court overlooked the principle.[84]In support of his argument Mr. Davies cited the judgment of Arden LJ in Oriakhel v Vickers, [2008] EWCA 748. This case was about whether a costs order should be made against a witness who had given false evidence in support of a fraudulent claim. Arden LJ, with whose judgment Sir Anthony Clarke MR and Jacobs LJ agreed, observed (at para 35) that in Symphony Group PLC v Hodgson, (loc cit), Balcombe LJ left open whether costs could be awarded against a witness who enjoyed witness immunity. She too left open the precise limits of witness immunity in this area, but considered this a reason that the court should not make a NPCO. That observation was made in the context of an application for a NPCO against a respondent because he had given evidence. I cannot accept that Arden LJ was suggesting that evidence given by a witness could not be used upon a subsequent application for a NPCO against him. Conclusion on

Recusal

[85]I therefore reject the three arguments of Mr. Powell that I should recuse myself. However, let it be assumed that I erred in the management of the 2007 hearing by raising the question of an application for an NPCO or in not disallowing some of Mr. Calver’s questions. I am nevertheless unable to accept that that would suggest to a fair-minded and informed observer that I would be biased in determining an application for a NPCO or would not determine it in accordance with my assessment of the facts and my understanding of the relevant legal principles. I therefore declined to recuse myself, and considered it my duty to hear and determine Equitas’ application against Mr. Powell.

Cited in 5 later judgments