The Court of Appeal (David Richards, Henderson and Rose LJJ) has handed down its judgment on a costs appeal in the long-running case of Global Energy Horizons Corporation v Robert Gray. Having successfully represented GEHC at a trial before Asplin J in 2015 (led by Orlando Fraser QC), Andrew de Mestre QC and James Knott represented GEHC in the hearing of its appeal. The costs judgment follows from the substantial judgment on the merits given in favour of GEHC by the Court of Appeal in December 2020.
The 2015 trial (referred to as the “Enquiry Trial”) concerned an enquiry into an account of profits given by Mr Gray following an earlier decision by Vos J that Mr Gray was obliged to account to GEHC, having wrongfully taken advantage of a maturing business opportunity belonging to GEHC. It was Mr Gray’s case at the Enquiry Trial that he had received no benefits for which he had to account. GEHC did not believe him and sought to falsify his account. Having heard submissions and witness evidence over five weeks, Asplin J produced a lengthy and detailed judgment in which she largely upheld GEHC’s falsification of Mr Gray’s account, found that Mr Gray had failed to account properly or at all and awarded GEHC monetary sums of over £3 million plus interest. In respect of two business assets she found Mr Gray to have received, she was unable to value them on the evidence before her and therefore ordered a further hearing to take place to determine their value (the “Valuation Hearing”). She reserved the costs of the Enquiry Trial pending the Valuation Hearing.
The Valuation Hearing took place before Arnold J in 2019 (Asplin J having by that stage been elevated to the Court of Appeal), at which the judge held that the two assets in question had no value at the relevant time. At a consequentials hearing following his judgment it therefore fell to Arnold J to deal with the costs of (i) the Enquiry Trial and (ii) the Valuation Hearing. Dealing with them separately, he ordered GEHC to pay Mr Gray’s costs of the Valuation Hearing but made no order as to costs of the Enquiry Trial, on the basis that – so he held – both parties had “lost heavily”. GEHC appealed his decision to make no order as to costs in respect of the Enquiry Trial.
The Court of Appeal unanimously upheld GEHC’s appeal, set aside Arnold J’s costs order and – exercising the discretion afresh – awarded GEHC all of its costs of the Enquiry Trial save for disbursements paid to two of its expert witnesses in respect of valuation evidence. The Court of Appeal noted that it was an unusual case in that the judge who had made the costs order – Arnold J – had not been the trial judge and therefore did not enjoy the usual advantage of a first instance judge over the Court of Appeal of having seen and heard the witnesses. In any event the Court held that Arnold J had erred in principle by deciding – as a starting point – that neither side had been successful. The Court considered that GEHC had been the successful party, both because it had been awarded a substantial sum of money at the end of the day and because GEHC had succeeded in falsifying Mr Gray’s account. In this latter regard, as the Court noted:
“Asplin J held and as we have confirmed in the Main Judgment, [Mr Gray] and the witnesses he called presented a false case to the court denying the existence of the 2010 agreement and claiming also that he had divested himself of any interest in the Business Assets. We agree with Mr de Mestre that GEHC’s falsification of Mr Gray’s account was fully vindicated by the Enquiry Judgment because the account was indeed false. The shape of the proceedings would have been very different and much less costly if Mr Gray had fairly and properly described his dealings with the Business Assets. In so far as that part of the Enquiry Hearing was, as Arnold J described it, “an entire waste of money” it was a waste that was caused by Mr Gray’s conduct not by GEHC’s.”
The Court of Appeal’s judgment is also notable for emphasising the importance of the ability of a defendant to protect themselves from adverse costs consequences through the use of an appropriate Part 36 offer or a payment into court. As the Court observed:
“GEHC won because it obtained an order that Mr Gray pay it over £3 million. That is a significant sum of money albeit it is much less than GEHC was hoping for. Where a defendant is faced with an exorbitant claim which he wishes to defend vigorously but where he is vulnerable to a finding that he is liable for a much smaller amount, there is a clear process provided by CPR Part 36 which he can follow to protect his position. Mr Levey submitted that there was nothing that Mr Gray could have done to stop the juggernaut of GEHC’s attack on him. We do not accept that a trial of the complexity of the Enquiry Hearing was inevitable, but in any event, if Mr Gray had made an early payment into court of a proportion of the management fees and the Klamath Falls settlement monies he would be in a much stronger position now to dispute his liability to pay GEHC’s costs.”
A copy of the judgment is available here.