Andrew Sutcliffe KC and George McPherson succeed in Court of Appeal on costs appeal addressing consequences of successful party running a dishonest case

On 28 October 2022 the Court of Appeal handed down judgment in the costs appeal in the TMO Renewables case. The judgment reaffirms the principles relevant to the award of costs, where a successful party is found to have run a dishonest case.

In the main action, TMO claimed equitable compensation of around US$50m for losses caused to the company by the manipulation of an EGM vote by its former directors, in breach of fiduciary duty and in bad faith. TMO’s case was that the manipulation of the vote prevented a different set of directors from assuming control of the company and taking it in a new and profitable direction (instead of going into administration, as in fact happened). Joanna Smith J accepted TMO’s case on liability but held that the claim failed as a matter of causation and proof of loss. A copy of the main judgment is here.

In her subsequent costs judgment, the Judge went on to hold that the liability defence had not only failed but unusually all the defendant directors had ‘deliberately pursued a case on liability that they knew to be false’. The Judge made an order which awarded the defendants 30% of their costs. This took into account (1) the failure of the defendants’ case on liability (2) the running of a dishonest defence (3) criticisms of TMO’s conduct and (4) Calderbank offers made by the defendants. The Judge rejected D4’s argument that he should be awarded all of his costs on the indemnity basis. A copy of the first instance costs judgment is here.

D4 was granted permission to appeal. He sought to persuade the Court of Appeal that the Judge’s award was wrong (and he should be awarded all of his costs on the indemnity basis) principally because (1) D4 had not run a dishonest defence (2) the Judge’s ‘dishonesty discount’ involved double-counting and (3) D4 had made a pre-action Calderbank offer.

The Court of Appeal rejected all of these points and dismissed D4’s appeal. In particular Males LJ  endorsed the principles set out by Briggs J (as he then was) in Bank of Tokyo-Mitsubishi Ufi Ltd v Baskn Gida Sanayi Va Pazalarma AS [2009] EHWC 1696 as to the costs consequences of running a dishonest case and upheld the Judge’s application of those principles on the facts (paragraphs 8, 29-31).

Andrew Sutcliffe KC and George McPherson, instructed by Lee Dunnill and Zoe May of Hewlett Swanson Limited, acted for TMO.

A copy of the judgment may be found here.

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