Shareholders who won Pyrrhic victory “were not the winners” for costs purposes

The High Court was wrong to declare minority shareholders the winners of an unfair prejudice case and thus entitled to their costs because, although they were successful in their application for relief, the value of their shares was held to be zero, the Court of Appeal has ruled.

It also said His Honour Judge Paul Matthews, sitting as a High Court judge, was wrong to disregard six without-prejudice offers that the petitioners had rejected.

Ashdown and Ors v Griffin and Ors [2018] EWCA Civ 1793 involved an unfair prejudice petition under section 994 of the Companies Act 2006 brought by three minority shareholders of Addbins Ltd, which sought to take advantage of the 2007 public smoking ban by supplying pubs, restaurants and clubs with free outdoor bins for cigarette butts and then sell advertising on the bins.

In the event, there was little interest from advertisers and the bins were instead used to advertise private hire company Addison Lee, with which the respondent shareholders were involved, particularly John Griffin, its chairman until 2013 and the lead figure on Addbins’ board.

Until June 2008, Addbins invoiced Addison Lee for advertising on the bins at the rate of £5 per bin per week. It soon fell to £1 and then to 50p. From March 2011, Addison Lee did not pay at all.

The petition was presented in 2014. Mr Edward Bartley Jones QC, sitting as a deputy High Court judge, found that Mr Griffin abandoned the best interests of Addbins in favour of the best interests of Addison Lee. “This seems to me to be the grossest possible breach of his duty to act in good faith in the best interests of the company,” the judge said.

He made an order that Mr Griffin purchase the petitioners’ shares, without minority discount, with a valuation date of 12 February 2015, which was the date Addison Lee stopped advertising on the bins. There was a valuation hearing but the judge died before giving his ruling, and so HHJ Matthews reheard it and found that, by that date, the shares were worthless.

On the costs of the whole proceedings, HHJ Matthews ruled that Mr Griffin alone should pay the petitioners’ costs and ordered him to make a payment on account of costs of £150,000. “The fact that the value of the shares turned out to be zero does not mean that [the petitioners] were the unsuccessful party,” he said.

He added that the petitioners had good reasons for turning down the without-prejudice offers – “quite apart from their over-optimistic attitude” of the value of their shares, which they said ran into the millions – and any shortcomings in their conduct was “far outweighed” by those of Mr Griffin, who the trial judge had strongly criticised.

On appeal against the costs order by the respondents, however, Lord Justice Newey said that “Judge Matthews was plainly mistaken in thinking that the petitioners were the successful parties”.

He explained: “The petitioners brought the proceedings with a view to obtaining a substantial sum for their shares, and they wholly failed in that objective. It is true that they established unfairly prejudicial conduct and obtained an order for their shares to be purchased, but (in contrast with the nominal damages cases) the appellants were not ordered to make even a nominal payment.

“It is plain that, ‘as a matter of substance and reality’, the appellants won and ‘substantially denied the [petitioners] the prize which the [petitioners] fought the action to win’ (to adapt Bingham MR’s words). The point of alleging unfairly prejudicial conduct was not to establish the point for its own sake, but to enable the petitioners to realise their shares for more than a nominal amount.”

Newey LJ also rejected the argument that the petitioners should at least be recognised as the successful party in the original trial. “It seems to me right to look at the proceedings as a whole rather than in stages,” he said.

The respondents made six offers – reaching £400,000, including costs of around £130,000 – in February 2015, all of which were rejected. The petitioners offered to accept £1.4m for their shares in August 2013 and £3m plus costs in October 2014.

Newey LJ said Judge Matthews was wrong to disregard the respondents’ offers. “It is abundantly obvious that the petitioners would have been better off accepting any of the offers than pursuing the proceedings.”

It did not matter that there were not part 36 offers, as CPR 44.2(4)(c) requires the court to have regard to “any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which the costs consequences under part 36 apply”. He added that the offers “in fact tend to confirm that the petitioners should have been ordered to pay the appellants’ costs”.

Mr Griffin’s attitude towards the litigation as a whole, he continued, had not actually affected the way it was run and so was not relevant.

Newey LJ recognised that the petitioners had “enjoyed some success” in the litigation, and but for the offers that the appellants made, “I would not have thought it appropriate to order the petitioners to pay all the appellants’ costs despite regarding the appellants as the successful parties”. As a result, he ordered that the pay all the costs, to be assessed on the standard basis if not agreed.

Paul Sinclair QC (instructed by Joelson JD LLP) for the appellants; Thomas Grant QC and Ted Loveday (instructed by Lee Bolton Monier-Williams) for the petitioners.

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Costs News
Published date
30 Aug 2018

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