Party that failed to pay costs in one action cannot be disbarred from defending another

There is no power in principle to debar a party from defending one action by reason of non-payment of a costs award in another, closely related, action, the High Court has ruled.

But Mr Justice Zacaroli decided to disbar a property investor from defending two other claims brought by his former father-in-law unless he paid a costs order.

Tonstate Group v Wojakovski and others [2020] EWHC 1004 (Ch) concerned a property investment group. Edward Wojakovski was formerly married to Arthur Matyas’s daughter. The entire group is “effectively deadlocked”, the judge said, as a result of the current dispute between the pair, who own the group 50/50.

It was common ground that both men had, for some years, been extracting funds from the Tonstate Group without lawful authorisation. Mr Wojakovski contends that he did so with Mr Matyas’ knowledge and consent, which Mr Matyas denies.

There are three closely related actions: a derivative action, in which the claimants seek the return of money wrongfully extracted from them by Mr Wojakovski; a ‘shares claim’, in which Mr and Mrs Matyas seek the rescission of transfers of shares in Tonstate made by them to Mr Wojakovski; and an unfair prejudice petition, in which Mr Wojakovski seeks various orders against Mr and Mrs Matyas and other entities in the Tonstate Group.

Zacaroli J said that in the light of Mr Wojakovzki’s admission that all of the extractions were made “for the purpose of defrauding the revenue”, he concluded in the main action last November that even if all the Tonstate shareholders consented to the extractions, Mr Wojakovski’s defence was bound to fail.

He granted judgment against Mr Wojakovski for £13m and ordered an account against him. These orders were temporarily stayed.

In a subsequent case management conference, Mr Wojakovski was ordered to pay £61,000 in costs for an earlier CMC and £135,000 in security for costs to pursue the petition. None of these sums have been paid.

The Matyases applied for Mr Wojakovski to be debarred from further participation in the litigation unless he paid the costs order. Though Mr Wojakovski had argued that he did not have any money, the judge found that he had “manifestly failed to provide” full and frank disclosure of his financial position.

He concluded that Mr Wojakovski has failed to discharge the burden of establishing that the effect of a debarring order would be to deny him access to justice and/or amount to a breach of his rights to a fair trial under article 6 of the European Convention of Human Rights.

This meant the “default position” was that he should be allowed to continue to contest the proceedings only on the condition that he paid the costs order. “Upon considering all the circumstances, I find no reason to depart from that default position.”

But Mr Wojakovski’s counsel, Mo Haque QC, argued that he could not be debarred from defending the shares claim because the costs order was made in relation to the other two actions and there was no power to debar a party from defending one action by reason of non-payment of a costs award in another action.

The judge said: “Neither party was able to locate any authority on this point but, as a matter of principle, it seems to me that Mr Haque’s general proposition is correct.”

The judge accepted that the order was only made in relation to the other two actions, but the claimants argued that it was artificial to treat the three actions as being separate – Zacaroli J acknowledged they were being case managed together “in order to reflect the reality that they are primarily concerned with an overarching dispute between Mr and Mrs Matyas and Mr Wojakovski”.

But he was not persuaded that it justified a debarring order in relation to the shares claim. There was “an important distinction” between that and the other claims; the latter concerned with the dealings by the two men in the assets of Tonstate Group, while the shares claim sought to deprive Mr Wojakovski of shares he has held for a number of years.

His defaults related principally to the other actions, while it was “undoubtedly the case that Mr Wojakovski’s current financial difficulties are caused in part by the fact that he does not have any clear-cut claim to 50% of the shares in TGL while the shares claim is unresolved. Those shares are worth (as Mr Matyas himself accepts) a substantial sum.

“In all the circumstances, I consider that it would not be proportionate to debar Mr Wojakovski from defending the shares claim.” The judge also gave him a final 14 days to pay the costs before being debarred from defending the other two claims.

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Costs News
Published date
13 May 2020

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