Summary

It was appropriate to order the claimants to pay the costs of two applications under the Arbitration Act 1996 s.68 which they had discontinued. Further, those costs should be paid on the indemnity basis, the claimants' conduct having taken the case out of the norm.

Facts

The court ruled on the parties' liability for costs in respect of two discontinued applications under the Arbitration Act 1996 s.68.

The arbitration concerned a shareholders' dispute in respect of the second defendant, a Maltese company. The first defendant was a minority shareholder in the company. In the arbitration, it sought an order requiring the claimant companies, which were majority shareholders, to buy out its shares on the basis of their allegedly oppressive and unfairly prejudicial conduct towards it. On 21 March 2018, the arbitral tribunal issued its award on liability, finding substantively for the first defendant and requiring the claimants to acquire its shares in the second defendant at a price to be determined. The hearing on valuation took place on 10 and 11 April 2018. On 18 April 2018, the claimants issued an application under s.68 challenging the liability award. They relied on bias on the tribunal chair's part (in the form of his alleged connections with, among others, the QC and solicitor acting for the first defendant) and the assertion that the tribunal had referred to documents that had not been admitted in accordance with the agreed procedure. On 20 June 2018, the first defendant issued an application for security for costs. On 16 July 2018, the tribunal issued its second award, ordering the claimants to buy the first defendant's shares for $67,159,546. That involved a process by which the share certificate was to be exchanged for the amount of the purchase price. That was supposed to happen by mid-August 2018. However, by the end of August the purchase price had not been paid. The claimants alleged that the first defendant had failed to comply with its obligation to hand over the share-transfer documents in escrow by the deadline of 13 August 2018. They described the share certificate which they eventually saw as a forgery. Meanwhile, on 8 August 2018 the claimants issued an application under s.68 challenging the second award. Again, they relied on bias on the chair's part. On 10 September 2018, notices of discontinuance of the s.68 applications were served. The claimants' case was that they discontinued because there was no need to continue with the applications, as the awards had become unenforceable, the prescribed mechanism having failed because of the first defendant's failure to deliver the share certificate. The first defendant's application for security for costs came before the court on 12 September 2018, but it was adjourned.

Held

Liability for costs of s.68 applications - The burden was on the party discontinuing to show a good reason for departing from the usual rule that it should pay the costs, and that burden was a high one. If that party was to succeed in avoiding liability for costs, it would usually need to show a change of circumstances to which it had not itself contributed brought about by some form of unreasonable conduct on the part of the other party, Teasdale v HSBC Bank Plc [2011] EWCA Civ 354 followed. There would be cases in which a change of circumstances and unreasonable conduct could be demonstrated without an extensive examination of the facts. However, that was not possible here. Virtually every aspect of the claimants' submissions was disputed by the first defendant and vice versa. The facts were in dispute. This was not a dispute which could be resolved on a costs application, and it would be wrong in principle for the court to embark on such an exercise. There could be no question of making an order that the first defendant should pay the costs or of making no order as to costs. The claimants should pay the costs of the s.68 applications because that was the rule which applied when claims were brought and subsequently discontinued. That included the costs of the hearing on 12 September 2018 and the instant hearing (see paras 27-31 of judgment).

Basis on which costs to be paid - This was a very weak case of bias and non-disclosure. Advancing such a case under s.68 might well in itself justify the court awarding indemnity costs. Here, however, there was an additional consideration, in that the s.68 applications were discontinued shortly before the hearing of the first defendant's application for security for costs. There was no doubt that security for costs would have been ordered, almost certainly in a substantial amount. That combination of factors took the case out of the norm. The first defendant was entitled to an order for costs on the indemnity basis. That would include the costs of the hearing on 12 September 2018 and the instant hearing (para.59).

Costs determined.