Crowther v Crowther & Ors [2020] EWHC 3555 (Fam)

Litigation on a lee shore: Crowther v Crowther & Ors [2020] EWHC 3555 (Fam)

Facts

The Husband (‘H’) sought a costs order on the indemnity basis against his Wife (‘W’) in respect of preliminary issue proceedings which W had vacated shortly before the hearing.

The parties had been engaged in long running and acrimonious litigation. They had owned a shipping company together. After making an application for financial remedies in September 2019, W applied for a freezing injunction in December 2019 in respect of 5 ships worth between £7-10m which were owned by third parties (‘the Castle parties’).

W contended that she and H were the beneficial owners of these ships, pursuant to a transfer of legal ownership in 2012 which W characterised as a sham undertaken with the aim of evading tax. W alleged that H and another third party (‘Mr Knight’), who had helped effect the transaction, were conspiring to defraud her by transferring assets away from H in order to frustrate her claim.

Lieven J granted the freezing order and gave a return date in March 2020. In February the Castle parties issued proceedings in the Admiralty Division asserting legal and beneficial ownership of the vessels and alleging various debts owed to them by H and W. At the return date for the injunction in the Family Division Holman J discharged the freezing order. W appealed this and had her appeal allowed. In July 2020 the Admiralty claim was transferred to the Family Division.

Lieven J ordered a preliminary issues hearing in these consolidated proceedings to determine the ownership of the vessels and the status of the various subsidiary assets and debts asserted by the parties. As part of the preparation for the preliminary issue hearing W filed a large number of witness statements and embarked on an extensive disclosure exercise. This included a number of applications to the court to seek further disclosure.

The preliminary issues hearing was set down to start on 10 December 2020. One week before the hearing W’s counsel emailed the court to disclose that W had come to a settlement with the other parties (except H) and wished to vacate the hearing. H appeared not to have been aware of this settlement until this time, which amounted to a payment by the other parties to W of £750,000 and the release of W from alleged debts of c. £6.6m. In return W would discontinue the proceedings on a no admission basis. There was to be no order as to costs.

H applied for his costs for the preliminary issue proceedings on the indemnity basis. H argued that CPR r.38.6, which specifically relates to discontinuance, should be applied, such that there should be a strong presumption that the party who discontinues the case shall pay the other party’s costs. This was advanced robustly on the basis that H had faced serious accusations such as of tax evasion and had been deprived of the opportunity to vindicate himself as a result of W’s discontinuance. H argued that the Family Division should apply this rule rigidly, especially in circumstances where there had been specific allegations of fraud.

W argued that costs awards should be considered differently in the Family Division, and that notwithstanding the application of the CPR in this case, a presumption in favour of costs orders could be displaced more easily than in other divisions. W also argued that H was guilty of poor litigation conduct. W adopted a fall-back position that costs should, in any event, be reserved until the end of the overall proceedings.

Issues

Held

Lieven J described W’s conduct of the litigation as having been ‘fairly extraordinary’. W was found to have spent c. £900,000 in legal fees arguing that she was the victim in a conspiracy to defraud her. She had made numerous applications and sought reams of disclosure. Moreover, W was found to have made very serious allegations against H and others. However, at the eleventh hour she had seemingly dropped her case against the other parties, leaving H unable to effectively clear his name.

Since this was a preliminary issues hearing (and therefore not a ‘financial remedy proceeding’), the normal ‘no order’ principle did not apply. W conceded that costs therefore should follow the event, and that the CPR should be applied as allowed for in FPR r.28.2.

Lieven J found that the presumption relating to discontinuance under CPR r.38.6 did not apply, per se, since it is not referred to in FPR r.28.2. However, it was still relevant to the exercise of the court’s discretion. The judge found that a party who causes another party to incur costs and then chooses to withdraw should usually be liable for the wasted costs.

Moreover, Lieven J held that the Family Division needed to be consistent with the other Divisions of the High Court in relation to allegations of fraud, conspiracy and sham. Consequently, parties who make such serious and potentially reputation-damaging allegations would be under greater threat of costs awards if they chose to discontinue proceedings.

Lieven J was unpersuaded that H’s litigation conduct should affect her exercise of discretion in this case, even though she had previously been highly critical of it.

The judge was also unconvinced by W’s submission that costs should be reserved on the basis that it would be too difficult to separate out the various items referable to the preliminary issues. Lieven J held that it was not appropriate to reserve the costs; the preliminary issues had been deliberately ‘hived off’ from the rest of the proceedings, and this should be so for the costs as well. The judge accordingly held that W should pay H £80,000 on account, representing costs for the preliminary issue proceedings on the indemnity basis.

In a postscript to the judgment, in response to submissions from the Castle parties asking the court not to disclose details of the settlement reached with W, Lieven J held that they should remain in the public judgment on the basis that they provided important context for the decision.