Case No: A2/2005/2724 and 2725

Neutral Citation Number: [2006] EWCA Civ 1660
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM The Chancery Division of the High Court
Mr Justice Lewison
HC02CO3545
Royal Courts of Justice
Strand, London, WC2A 2LL

Wednesday 06th December 2006
Before :

LORD JUSTICE WALLER
Vice-President of the Court of Appeal, Civil Division
and
LORD JUSTICE JACOB
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Between :

	Northstar Systems Ltd
Seaquest Systems Limited
Ultraframe (UK) Ltd	Appellants	
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	Fielding & Ors	Respondents	

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 (Transcript of the Handed Down Judgment of
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Andrew Hochhauser QC, Martin Griffiths QC, Christopher Parker, Adrian Speck and Henry Ward 
 (instructed by Eversheds) for the Appellants

Richard Snowden QC , Iain Purvis QC and Kathryn Pickard (instructed by Addleshaw Goddard)) for the Burnden Defendants
Giles Maynard-Connor (instructed by Robinsons Solicitors) for Mr Naden
Mr Stancliffe, Solicitor Advocate, (instructed by Greenhalgh Solicitors) for Mr Clayton

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Judgment
Lord Justice Waller : 

1.	On 8th August 2006 we dealt with five applications for permission to appeal on behalf of the appellants (Ultraframe).  As we said then, they all concerned judgments of Lewison J given in a dispute conducted by both sides as if it were “a State trial”.  The trial before him took over ninety-nine days between 11th November 2004 and 7th October 2005.  He decided certain preliminary issues by a judgment delivered on 15th November 2004.  He handed down his main judgment on 27th July 2005, that judgment running to 1,929 paragraphs, covering 487 pages. In the main judgment he found the respondents to this appeal guilty of serious dishonesty but also made findings by reference to which later he would say that the respondents and not Ultraframe were “the winners”. He then delivered, after detailed submissions, a costs judgment on 7th October 2005. He ordered Ultraframe to pay costs (the detail will appear below) but making, so far as certain costs were concerned, a reduction to reflect the dishonesty he had found. He was asked to reconsider that judgment and delivered a supplemental judgment on costs on 11th November 2005 refusing to change his order.  We refused all applications for permission to appeal save in relation to the appeal on costs.  What we said was:-
“It is well worthy of consideration by the Court of Appeal whether, where an ultimately successful party has, on the way to success, lied and sought to maintain forgeries and in other ways been thoroughly dishonest and moreover has greatly lengthened the trial in having these matters exposed, the usual rules as to costs are displaced – that given those circumstances the general rule ought to be no order for costs.  It is true that a witness for Ultraframe, a Mr Birkett, was also held to be a liar, but it may well be that this is irrelevant – he was essentially just a witness rather than a party.
Moreover there is real room for argument that the judge’s order ought fully to have reflected the costs of such exposure and that the present order does not do so.  So permission to appeal is granted in respect of the costs of the main action.  Whether that permission should extend to the costs of other actions remains to be decided.”
The actions and their history
2.	The actions are described in the main judgment, paragraphs 63 – 102 and in the preliminary issue judgment, paragraphs 12 – 56.  I will attempt a brief summary for the purpose of understanding the costs orders ultimately made by the judge.  The starting point is that a Mr Howard Davies produced some designs for the manufacture of conservatory roofs.  Howard Davies went bankrupt on 22nd December 1997.  Mr Davies’ trustee in bankruptcy was concerned to recover (a) the intellectual property rights in the Quickfit conservatory roof system (the IPRs) and (b) the shares in three companies, Northstar Systems Limited, Seaquest Systems Limited and Amberbale Limited, all companies which the trusteess in bankruptcy suggested Mr Davies and others had dishonestly used to capture the IPRs.  Arising out of the above were the following:-
1.  Two Leeds actions
(a) An action for the shares brought against Messrs Birkett, Clayton and Naden, launched by the trustee in bankruptcy on 12th November 1998
(b) A second action for the shares brought against Mr Fielding, Northstar and Seaquest, launched by the trustees in bankruptcy on 1st December 1998.
(c) Those actions claimed equitable compensation or damages for dishonest participation in a breach of trust and/or damages for conspiracy and also made a claim to the IPRs
2.  The two Leeds actions were consolidated on 29th January 1999.  The claims in the Leeds actions, the IPRs and other property were assigned to Ultraframe by the trustees in bankruptcy on 31 March 1999.  Ultraframe was thus substituted as claimant in the Leeds consolidated actions on 10th May 1999.
3.  There was an application for summary judgment in the Leeds actions and by a judgment dated 25th February 2000 His Honour Judge Behrens was able to deal with the case on the basis as it had been put forward by Clayton and Fielding and held on that basis that Ultraframe had established its rights to the shares via the trustees in bankruptcy.  He commented on the fact that Ultraframe had endeavoured to prove as against Clayton, Fielding and Naden a criminal conspiracy, but held that it was inappropriate to seek to do so on a summary basis and commented on how that had greatly increased the cost of that application and he made an order that each party should bear its own costs of the application.  The result was that there were still issues remaining in the Leeds action, which was transferred to London on 8th July 2003.
4.  The London Action.  Ultraframe commenced an action in London on 15th March 2001 seeking to establish its rights to the IPRs by virtue of the assignment by Mr Davies’ trustees in bankruptcy, despite the fact that they had, by this stage, established the rights to the shares in Northstar and Seaquest.
5.  Fielding, on 12th July 2001, applied to strike out the remainder of the Leeds action and Ultraframe countered with an application to discontinue the Leeds action with costs, but both applications were dismissed by HHJ Langan on 8th August 2001.
6.  The preliminary issue tried by Laddie J.  On 31st October 2001 HHJ Behrens gave directions for the trial of preliminary issues in both the Leeds consolidated action and the London action.  The preliminary issues were concerned with the IPRs and sought to resolve (1) whether the design rights subsisted, (2) the ownership of any such design rights as were held to subsist and (3) the extent to which components marketed by Northstar, Seaquest and the Burnden Group were infringing copies of the said designs.  Ultraframe won on the subsistence and infringement issues but lost on title to sue.  The London action was therefore dismissed.  Laddie J reserved the costs of the preliminary issues and the London action to the judge who ultimately tried out the remaining disputes, doing so on the basis that:-  
“It is possible though by no means certain that the court may come to the conclusion that the defendants have acted so badly that it would be unjust to make Ultraframe pay their costs even of the issues they have won on the hearing of these preliminary issues.”
7.  The Court of Appeal dismissed an appeal against the judgment of Laddie J, including the costs order, on 12th December 2003.  Longmore LJ, with whose judgment the other members of the court agreed, stated in relation to Laddie J’s costs order that “the order made by Laddie J was legitimately within the wide discretion vested in a judge who makes orders in relation to costs.”  He also said:- “The Judge did not say that it would be relevant to consider the defendant’s conduct, only that it might be; that is a consideration which the judge was entitled to have in mind.”
8.  The new action.  On 27th November 2002 Northstar and Seaquest began yet another action called ‘The New Action’.  That was the principal action tried by Lewison J, which lasted the ninety-nine days.  In that action Northstar and Sequest claimed against Mr and Mrs Fielding, the Burnden Group plc, Mr Naden and Mr Clayton, called for ease the Burnden defendants.  This was a claim that the business of Northstar and Seaquest had been stolen and the main subject of attack was a debenture over Seaquest, dated 6th November 1998 and a debenture over Northstar,  dated 17th November 1998, entered into, according to Mr Fielding, after he had made loans to both companies.  An attack was also made on a licence relied on by the Burnden Group, granted by Seaquest to a member of the Burnden Group and then to The Burnden Group plc, on which the Burnden Group relied for having the rights to the IPRs.
9.  A yet further new action was commenced, this time by Northstar and Seaquest, held by Laddie J on the preliminary issues that he tried to have been the owner of most of the IPRs.  Thus, in this way, Ultraframe were seeking to cure the title to sue deficiency.  That action was launched on 19th March 2003.
10.  There was also an action launched on 4th August 2004 by The Burnden Group plc as assignee of a company, Quickfit Conservatories Limited (QCL).  This claim was brought as an assignee of QCL and claimed that the business of Northstar and Seaquest had been created as a result of Mr Davies’ dishonest misappropriation of assets belonging to QCL.  The Burnden Group plc was largely unsuccessful in this action.
11.  The main trial commenced on 11th November 2004.  Lewison J ruled on certain preliminary issues before him by a judgment delivered on 15th November 2004.  He ruled that the remainder of the Leeds actions should be struck out but only “ . . . on condition that the defendants in the Leeds consolidated action agree that when costs of the action come to be decided Ultraframe are to be at liberty to rely on any relevant findings of fact made in the new action.” 
The result of the trial
3.	As already indicated the judgment was 1,929 paragraphs long.  It is difficult in a summary to do justice to the findings and industry of the judge.  He found serious dishonesty in the case of Mr Fielding, Mr Clayton and Mr Naden.  Thus, he found that they had forged and invented documents.  But he found that the Northstar debenture was a genuine transaction and the Seaquest debenture was a genuine transaction.  Furthermore, he found that the IPR licence agreement could not be impugned and so he held that there was no basis on which Northstar or Seaquest were entitled to trace profits into the assets of the Burnden companies.
4.	It is, I think, worth setting out the big picture as described by the judge:-  
“1836. A theme that recurred during Mr Hochhauser’s closing address was that I must look at the big picture, and not dissect the issues one by one. It is, I think, appropriate for me to explain what I think the big picture is.
1837. For as long as Mr Davies was in charge of Northstar it was a poorly and corruptly run company. It was under attack by Ultraframe and wobbling constantly on the brink of insolvency. Even if Mr Davies had not been corrupt, Northstar would probably still have been overwhelmed by the fight against Ultraframe. 
1838. Following Mr Davies’ bankruptcy, there was an attempt to protect the “system” against Ultraframe by assigning the intellectual property rights to Seaquest; but Seaquest soon came under attack itself. Mr Birkett and Mr Clayton (with Mr Naden’s compliance) engaged in a dishonest deception to attempt to save Mr Davies’ interest in Northstar and Seaquest from being taken by the trustees in bankruptcy. But the dishonest scheme failed (except that some money, which Northstar owed Mr Davies, has been siphoned out of the company to him, when it should have gone to the trustees). 
1839. Neither Northstar’s components business nor its fabrication business was particularly profitable. Seaquest had a potentially valuable asset in the shape of its intellectual property rights; but it would have taken considerable investment in new tools and better design to turn it into a market leader. Seaquest did not have the resources to enable it to do that. Both companies were in constant need of money.
1840. Mr Fielding was willing to provide the money; and he did. But even that was not enough to save Northstar or Seaquest from insolvency. Mr Fielding also did a later deal with Mr Davies in which he bought him out of Northstar and Seaquest. When the deal was attacked by the trustees he dishonestly attempted to falsify a claim to ownership of the shares in both companies. But that claim was unsuccessful too.
1841. The dishonest claim to the shares was separate from the monies that Mr Fielding made available to Northstar and Seaquest. 
1842. Mr Fielding and his companies have built a successful series of businesses, most of which have nothing to do with the former businesses of Northstar or Seaquest. They do, however, continue to supply components to be used in fabrication; but that was only a small part of Northstar’s turnover; and in any event, Northstar could not have continued both as supplier of components and as fabricator of roofs in competition with the dealers to whom it supplied components. There was no long term prospect of that business continuing in Northstar’s hands. It is true that, at least until Glassex 2001, Mr Fielding’s companies reproduced designs in which Seaquest was entitled to design right, but it did so under the terms of a licence granted for full consideration. It also modified and improved those designs, and added new products to its rebranded system. Far from exploiting any goodwill belonging to Northstar or Seaquest, they made a concerted effort to relaunch the system. In consequence of huge investment and substantial redesign, the system as it exists today is capable of at least challenging the market leaders, which Seaquest’s system could not do. Although the system has evolved, the result of the evolution is that a different animal has emerged.
1843. This is not, of course, the big picture that Mr Hochhauser painted; but it is the one that I see.”
The judge’s ruling on costs 
5.	The judge had detailed written submissions.  The judge in his ruling identified the costs he had to deal with and then directed himself by reference to Part 44.3, recognising the court’s discretion as to the party who should pay and the amount; the general rule that the unsuccessful party will pay; the obligation to take into account all the circumstances including (a) conduct (b) success in part even if not wholly successful and (c) Part 36 offers, payments in and admissible offers to settle. He recited sub-rule 5 dealing with the type of conduct e.g. whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue. He did not, it is fair to say, at least expressly, consider what, after any ruling he made, would be the position on assessment. If he had, that would have taken him to CPR 44.5 which defines factors to be taken into account in deciding the amount of costs. The rule recognises that at the assessment stage costs which have been “unreasonably incurred” should be disallowed; it recognises that at the assessment stage the court must have regard to conduct. It is the fitting together of these two provisions, which is perhaps not all that clear from the rules, with which Aaron v Shelton [2004] EWHC 1162 was concerned, and in respect of which all respondents have made a concession before us. I will return to that aspect below.
6.	The first question he then addressed was whether he should deal with all actions globally or deal with the actions individually. He identified features of the London Action (by which he was clearly dealing with the London action and the Preliminary issue which was of course Preliminary in the Leeds action as well as the London Action) which made it appropriate to separate it out and deal with it separately from the remaining actions. If and in so far as Mr Griffiths’ submissions were suggesting that the judge was not entitled to deal with the Preliminary Issue costs separately, in contradistinction to the criticism that, even in dealing with them separately, the misconduct should have lead to a different assessment, I reject that submission. Neither Laddie J’s judgment nor the Court of Appeal’s judgment dismissing the appeal against Laddie J’s judgment suggested that the trial judge should be compelled to look at matters globally. They indeed very much left it to the trial judge to make his own assessment at the end of the trial.
7.	The judge then addressed the question whether in the light of his findings of dishonesty against Messrs Fielding, Naden and Clayton, he should distinguish for the purposes of costs between those individuals on the one hand and the other Burnden defendants and concluded he should not do so and no criticism is made of that ruling.
8.	He then went through the stages that he suggested rule 44.3 requires. The starting point he suggested was to decide who the winner was. His answer was in the round that it was the defendants. In the London Action and the Preliminary issues his view was the title to sue was the most important aspect, although he recognised some success for Ultraframe on subsistence and infringement and would have ordered Ultraframe to pay 80% of the Burnden Defendants’ costs. On the remaining actions he identified areas where Ultraframe succeeded but he said this in a key passage:-
“Mr Hochhauser submits that Ultraframe succeeded on many of what he called the primary issues of fact.  That is true, so far as those allegations related to the fraudulent conspiracy relating to the shares.  Those factual allegations had no legal, as opposed to evidential, relevance to the remedies claimed in the actions I tried.  Nevertheless, the rule requires me to consider the extent to which one party succeeded, not only on issues but also on allegations. 
The fact that the allegations had, in my view, no legal relevance to the claims I tried is a factor which I have in mind but it is not determinative, especially in the light of the progress of the Leeds consolidated action.
When I struck out the Leeds consolidated action, I did so on the basis that findings at trial could be relied on in dealing with the costs of the Leeds consolidated action.  The costs incurred by the claimants in the Leeds consolidated action up to the summary judgment application and excluding the costs of that application are of the order of £250,000.
According to Mr Clavell-Bate, over 50 per cent of the claimant’s costs were incurred in establishing the fraudulent conspiracy relating to the shares which had been alleged in the Leeds consolidated action.  That effectively means that the claimants incurred costs of some £2.5 million in order to prove a conspiracy in respect of which it had suffered no loss and in practical terms in relation to which the only real issue is the incidence of, at most, £250,000 worth of costs incurred.
I regard that as a disproportionate expenditure on costs for this limited result.
Even so, Ultraframe’s success on the pleaded issue must, I think, be reflected in the overall costs order.  At this stage in my thinking, I would be inclined to say that Ultraframe should have 10 per cent of the overall costs to reflect a proportionate approach to the proof of the conspiracy.  10 per cent of the overall costs would represent the costs of the Leeds consolidated action and the same amount again expended to recover them.
That mathematically would result in a deduction from any order in the Burnden defendants’ favour of 20 per cent to avoid double-counting.  I would also make a small reduction to reflect Ultraframe’s limited success in relation to management charges and Ultraframe’s success in the Burnden action and the new IP counterclaims.  At this stage, therefore, I would be inclined to make an order that Ultraframe pay the Burnden defendants 70 per cent of the costs of the action, including the Leeds consolidated action, that were heard before me.”
9.	It is important to note that in assessing the deduction calculated at this stage of his reasoning the judge was holding that the costs incurred by Ultraframe in proving the conspiracy from which they had suffered no loss, and in relation to which the only real issue was whether they should recover £250,000 incurred in the Leeds actions, was disproportionate. It was on that basis that the judge made an order which he thought would be capping the costs that Ultraframe would be entitled to recover at £250,000.
10.	He then considered the effect of the Part 36 offers and payments in. What he ultimately relied on is a final payment on 16th January 2004 of £250,000 bringing the sum in court up to £500,000, and concluded:-
“In my judgment, it was unreasonable for Ultraframe to have pursued these actions after January 2004.  At this stage in my thinking, I would have been inclined to award the Burnden defendants all their costs incurred after the end of January 2004.”
Criticisms by Ultraframe of other Part 36 offers have no relevance.
11.	He then dealt with Mr Naden and Mr Clayton separately and said this:- 
“Mr Naden did not, in my judgment, make an offer which Ultraframe unreasonably refused.  He was, however, part of the conspiracy pleaded in the Leeds consolidated action, and he was also found liable in respect of management charges.  At this stage in my thinking, I would be inclined to award him 75 per cent of his costs.
The claim against Mr Clayton failed in its entirety.  He too was part of the conspiracy pleaded in the Leeds consolidated action.  At this stage in my thinking, I would be inclined to award him 80 per cent of his costs.”
12.	Finally he comes to express a view as to what effect his finding of dishonesty against Mr Fielding, Mr Clayton and Mr Naden should have on the calculation he had performed up until that stage. He referred to the authorities such as the powerful dictum of Chadwick LJ in Arrow Nominees Inc v Blackledge [2000] 2 BCLC 167 as to the effect of “false documentary material on a trial being pernicious”; to Molloy v Shell [2001] EWCA Civ 1272 and the dictum of Laws LJ when referring to the dishonest claimant’s approach being “nothing short of cynical and a dishonest abuse of the court’s process” and to Laws LJ expressing the view that he had “entertained serious qualms as to whether faced with manipulation of the civil justice system on so grand a scale, the court should, once it knows the facts, entertain the case at all, except to make the dishonest claimant pay the costs”. The judge then continued:-
“A striking feature of the litigation is that the Northstar supply agreement and the Seaquest supply agreement, on which so much time was spent at trial, are not documents on which Mr Fielding relied in support of his claim to the shares or in support of his claim to have lent money to Northstar or Seaquest.  Other documents which I found to have been fabricated were relied on in support of the claim for the shares but the issue of share ownership had, of course, already been determined by His Honour Judge Behrens.  This is not, therefore, a case like Blackledge or Molloy where the falsity went to the heart of the Court’s process that the fraudster himself was asking the Court to invoke on his behalf.
It is also fair to say that it is a case in which some of the evidence adduced by Ultraframe, that is to say the evidence of Mr Birkett, was also false and fabricated.
Having said all that, the defendants persisted in the defence of the impugned documents and in the face of a notice requiring the documents to be proved.  The Court must take a serious view of what has been found to be a fraudulent conspiracy involving the fabrication of documents and persisted in throughout the course of this lengthy trial.
I do not consider that this is a case in which I should refuse to make any order at all.  It is noticeable that in the Barnes case the successful claimant was awarded a proportion of its costs, despite the fact that a finding of dishonesty was made against one of its directors.
I do, however, consider that a very substantial reduction from the costs order that I would otherwise have made is warranted.
In looking at the size of the reduction, I must, I think, have in mind the effect in pounds and pence which a reduction would have.  10 per cent of the Burnden defendants’ costs amounts to over £500,000.  In my judgment, the appropriate reduction to make is 25 per cent, which in cash terms amounts to something over £1 million of the costs, including the costs of the preliminary issues and the London action.  The same reduction is appropriate both for the costs I would otherwise have awarded to Mr Naden and Mr Clayton but, for the reasons I have given, namely, that the dishonesty did not affect the issues tried in the London action or the preliminary issues, the reduction would not apply to that.
The upshot, therefore, is that I would order Ultraframe to pay 80 per cent of the Burnden defendants’ costs in the London action and the preliminary issues, 45 per cent of the Burnden defendants’ costs of the remaining actions up to the end of January 2004 and 75 per cent of their costs thereafter and 50 per cent of Mr Naden’s costs and 55 per cent of Mr Clayton’s costs.”
The application to commit for contempt
13.	It is right to mention this application to gain some insight into what the judge thought he had done in making his costs order. One reason he gave for not allowing Ultraframe to apply to commit Mr Fielding, Mr Clayton and Mr Naden for contempt he expressed in the following way:- 
“I have also reduced the amount which the successful defendants have been entitled to recover by way of costs by what I regard – although Ultraframe dispute this – as a significant amount.  One of the options open to a Court, if a contempt is proved, is to fine a contemnor and in substance that is what I have done.”
14.	The judge thus thought that he had in effect fined the Burnden defendants in making the order he had.
The application to reconsider
15.	Ultraframe made an application to the judge to reconsider his costs order. The basis of this application made on paper prior to the judge finalising the form of order was as follows.  Because the judge had by his deduction of  20 % made at the stage of his reasoning that Ultraframe’s costs in proving the conspiracy were disproportionate, capped Ultraframe’s recovery to £250,000, unless the judge ordered that the Burnden defendants should not be entitled to recover their costs of fighting the conspiracy issue, the effect of the judge’s order would be that Ultraframe would be paying the defendants’ costs for the costs incurred by the Burnden defendants in making their dishonest case. In other words it was being said (although not articulated) that unless the judge varied his order, Ultraframe would be precluded on the assessment of costs from taking the point that the Burnden defendants had incurred costs unreasonably in so far as they were claiming the costs of establishing the case the judge had found to be dishonest. On this basis Ultraframe argued that the judge should take the view that the Burnden defendants had incurred the same amount of costs on fighting the conspiracy issue as Ultraframe said they had i.e. some £2.5 million, and argued that because the Burnden defendants were saying their overall costs were over £5 million, the appropriate discount to have applied in place of the 10% was 60% i.e. 10% and 50% being the costs incurred by the Burnden defendants in fighting the conspiracy issue.
16.	The Burnden Defendants responded, arguing the judge should not vary his order. They did not, it is fair to say, make the point which now follows from the concessions made that they could not recover costs unreasonably incurred in fighting the conspiracy and forgery issues. The point they made was that it was not right to assume that 50% of their costs had been incurred on fighting those issues and the judge’s order made due allowance for the disproportionate way in which Ultraframe had acted.
17.	The judge refused to vary his order. The key paragraph of his ruling said this:-
“My judgment on costs was a discretionary decision; and (apart from the preliminary issues) treated issues of costs in the round.  The overall effect of my ruling is that although the Burnden Defendants were overall winners in the litigation, I have reduced the costs award in their favour substantially.  I did so by an overall deduction (or “end allowance”) which applied to all the costs, including those costs on issues which were untainted by any findings of dishonesty; and to costs incurred after the making of Part 36 offers.  Depending on what figures for costs one adopts, the overall deduction is in the region of £2.5 million, which is roughly equivalent to all the costs expended by them on the share conspiracy allegations. ”
18.	That paragraph makes clear that the judge did not apply his mind to the question as to what would happen on the assessment if, for example, the Burnden defendants sought to recover the costs of seeking to prove that the documents were not forgeries when the judge had found that they were.
The scope of the appeal
19.	The first issue relates to the scope of the appeal.  This became somewhat academic, since full arguments were addressed in relation to all costs orders made by Lewison J by his judgment dated 7th October 2005.  Indeed, as it seems to me, it would be difficult to consider any appeal on costs in this case without having regard to all the orders that he made at the same time.
20.	As to our suggestion that there might be some “general rule”, where an ultimately successful party had lied and sought to maintain forgeries, or in other ways acted thoroughly dishonestly, that there should be no order as to costs, it soon became apparent that the appellants, represented by Mr Hochhauser QC and Mr Griffiths QC, would not contend for any “rule”.  They recognised that the judge’s order for costs was a matter for his discretion and that the Court of Appeal would only interfere in the well-defined circumstances laid down many times by the Court of Appeal.  Brooke LJ in Tanfern Ltd v Cameron Macdonald [2000] 1 WLR 1311 para 32, adopting Lord Fraser in G v G  (Minors: Custody Appeal) [1985] 1 WLR 647 at 652 put it this way:-
“. . . the appellate court should only interfere when they consider the judge at first instance has not merely preferred an imperfect solution which is different from an alternative imperfect solution which the Court of Appeal might or would have adopted, but has exceeded the generous ambit within which a reasonable disagreement is possible.”
21.	Lord Woolf MR in AEI Rediffusion Music Ltd v Phonographic Performers Ltd [1999] 1 WLR 1507 at 1523 put it this way:-
“Before the court can interfere it must be shown that the judge has either erred in principle in his approach or has left out of account or has taken into account some feature that he should, or should not, have considered, or that his decision was wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale.”
22.	The main thrust of the appellants’ arguments came to this.  First, Mr Griffiths dealt with the costs of the Preliminary issue tried by Laddie J which the judge ordered Ultraframe to pay without any discount in relation to the dishonesty he had found established.  Mr Griffiths argued that these costs had been left by previous courts to the trial judge on the basis that he might make no order for costs against Ultraframe because of the conduct he might well find proved.   Mr Griffiths argued that the judge failed to ask himself the question whether the misconduct was something which should be reflected in the order he was making and, having failed to do so, failed to make any discount. 
23.	Second, Mr Hochhauser QC’s argument was that it was possible to see that the judge had gone wrong in principle because the effect of the order made by the judge was that Ultraframe would end up paying for the costs that it had incurred in exposing the fraudulent conduct, and be at risk of paying some of the costs incurred by those who had acted dishonestly in seeking to uphold their conduct as honest. 
24.	Before oral submissions commenced we thought it right to refer the parties to a decision of Jack J, sitting with Master Campbell and Mr Gregory Cox, a solicitor, as assessors, called Aaron v Shelton [2004] EWHC 1162.  That authority seemed to indicate that if a paying party were going to rely on the conduct or misconduct of the non-paying party in order to seek a reduction in the costs to be paid, the time to raise that factor was at the end of the trial and not before the costs judge at the time of assessment.  We raised, particularly with counsel representing the respondents whether they would seek to argue that they could recover the costs of attempting to establish as honest that which was ultimately found to be dishonest.  They were given time to consider the matter in the light of Aaron v Shelton.  They ultimately submitted that that case was distinguishable and conceded that their clients, when it came to the assessment of costs, would not be entitled to recover “as reasonable” those costs incurred in seeking to establish as honest factors found by the judge to be dishonest. This was an important concession and one to which I will have to return, but as a concession it provided an answer to one aspect of Mr Hochhauser’s argument.  On the basis of this concession there could be no way in which those found by the judge to be dishonest could recover on assessment any costs incurred in fighting the aspects of the case which the judge had found to be dishonest.
25.	With the concession the issues thus came down to this.  First, was the judge wrong not to make any deduction for the dishonesty in relation to the costs with which Mr Griffiths dealt in his arguments?  Second, did the percentage, by reference to which the judge reduced the costs payable by Ultraframe to the respondents, properly reflect the costs properly incurred by Ultraframe in establishing the dishonesty found by the judge?
Discussion  
26.	The costs order in this case was carefully crafted and made by a judge who had conducted a trial for over 90 days, and written a detailed judgment dealing with every point with the greatest of care. He was well aware that he had found serious charges of dishonesty proved. Lengthy submissions as to the wickedness of the defendants found by the judge supported by arguments reaching high degrees of indignation are really not to the point in seeking to persuade a court of appeal to interfere with the judge’s order. Furthermore a detailed analysis, which seeks to suggest that the dishonesty was more central to Ultraframe’s case or to the defence of the Burnden defendants than the judge had held after full argument before him, really cannot stand a realistic prospect of success before an appellate court without the depth of knowledge of the way the trial went. If the costs order is to be upset it must be because it can be shown that the exercise was flawed, either because on the face of the reasoning it can be seen that the judge was misdirecting himself, or because the result manifestly reaches either a result that the judge cannot have intended, or a result which, if he did intend it, plainly produces an injustice and falls outside the generous ambit within which reasonable disagreement is possible.
27.	The short submissions made to the judge in seeking to persuade him to change his order make the main point on which in my view ultimately the appeal turns. I accept that Mr Griffiths also had a point on the cost orders relating to the Preliminary Issue and London Action which needs dealing with, i.e. did the judge, in not making any deduction in relation to those costs for the dishonest conduct established by Ultraframe, overlook the consequences that the dishonesty might have had on whether the London Action or the Preliminary Issue would ever have been fought at all?  But the key issue relates to the effect of the judge’s order – does it allow the Burnden defendants to recover costs of seeking to maintain a dishonest case? In principle one would have thought a court would shrink from allowing such a recovery. Does the order make proper allowance in making Ultraframe pay a percentage of the Burnden Defendants’ cost for the costs incurred by Ultraframe in establishing the dishonesty they ultimately proved? Again, one can see an argument that the court should contemplate recovery of costs reasonably and proportionately incurred to defeat a dishonest aspect of even a winning  party’s case, either by some order to that effect or by virtue of a reduction in the costs otherwise properly payable by the losing party. Indeed express powers are given to the court by CPR 44.14 “Court’s powers in relation to misconduct” which clearly has both aspects in mind.
28.	It is unfortunate that, in considering what was the appropriate order to make which paid proper regard to the dishonesty established, proper consideration was not given to the question as to what would happen on any assessment of the costs payable by Ultraframe, the paying party.  That is the matter which we raised at the commencement of the hearing of the appeal and which produced a material concession from all the respondents. That is a concession which it seems to me it was right to make on the order made in this case, but some consideration of the effect of Aaron v Shelton is called for since I am troubled as to the breadth of the principle as expressed by Jack J in his judgment, and as to how what Jack J said may be interpreted by others.
Aaron v Shelton
29.	The facts of Aaron v Shelton, can I think be summarised in this way. A and S had been involved in a number of pieces of litigation. A’s conduct had been the subject of much criticism and indeed in one action an order for indemnity costs had been made against him. In the action with which Jack J’s decision was concerned, A had brought proceedings against S in which the gist of the claim was that S had acted improperly in signing a consent form. That action came on for trial and after four days, as the result of a document produced by A, A consented to his action being dismissed with A prepared to pay S’ costs on an indemnity basis. Thus A had (i) consented to the dismissal of the action thereby abandoning his attempt to establish S’ misconduct, and (ii) consented to an order for costs against himself without raising the question of the misconduct of S of which by that stage of the trial, the judge would have been in a position to take a view. On the assessment A sought to raise S’ misconduct in order to argue that costs incurred by S were unreasonably incurred.
30.	Jack J, sitting with assessors, in his judgment set out certain principles which he suggested should apply where a paying party wished to raise issues as to the other party’s conduct, and I will turn to that paragraph below, but the nub of his decision in that case is contained in paragraphs 24 and 25 in these terms:- 
“On the basis of the principles which I have set out Mr Aaron is not here entitled to raise on the assessment the issues of Mr Shelton’s conduct which he refers to in his points of dispute.  If he wanted to rely on these matters, he should not have consented to an order for costs in the terms which he did.  He should have raised them before Cresswell J.
On the particular facts, however, the position is even more plain.  For, as I have set out, the issues which Mr Aaron seeks to raise as to conduct were at the heart of his action.  He consented to the dismissal of that action.  Just as it would be an abuse of the court’s process to start a second action raising those issues, so is it an abuse to seek to raise them on the assessment of costs.  Although I have thought it right to deal with the matter of general principle, which is how it was approached in Mr Aaron’s submissions, this provides a short and clear ground on which the first ruling of Master Simons should be upheld.”
31.	I say straight away, the decision in that case is clearly right and no difficulty is created by it.
32.	His statement of principle could, however, be said to go further than the decision in the case required and in my view with respect it is in fact too broadly stated. He stated the principle in this way:- 
“20. In my judgment, where a party wishes to raise in relation to costs a matter concerning the conduct of his opposing party (either before the litigation or during it), it is his duty to raise it before the judge making the costs order where it is appropriate to do so. One situation where it will be appropriate is where the judge making the costs order is in a position to deal with the matter by reason of his involvement in the case. So I would hold that, where a party faces the making of an order that he pay the costs of an action because he is the ‘unsuccessful party’ as referred to in CPR 44.3(2), but he considers that he should not be liable to pay the whole of those costs and an order should be made exercising one or more of the court’s powers in relation to costs set out in CPR 44.3(6), he should make an application to that effect to the judge who is considering what orders as to costs should be made, that is, the trial judge in the case of a trial. If he does not do so, it is not open to him when the costs come to be assessed to raise the same matter under CPR 44.5(3) as a ground for the reduction of the costs which he would otherwise have to pay. If he is uncertain whether a matter he wishes to raise fails within that category, he should raise the matter before the judge. The judge can then consider whether he should deal with it or specifically direct that it should be considered by the costs judge on assessment. Where a costs order is made by consent, the paying party can seek to include in the consent order a provision which takes account of the matter he wishes to raise by providing that he is not to pay the whole of the costs or which specifically refers the matter in question to the costs judge for determination.  Otherwise a party who thinks he has achieved an order which will get him his costs subject to the reasonableness of the amount, may on the assessment face an argument intended to deprive him of what he justifiably thought he had obtained. Where the consent order is made during a trial and by it the paying party, if claimant, abandons his claim, or, if defendant, concedes the claim, the position is particularly clear. A paying party who does not protect himself in these ways, runs the risk that the costs judge will decide that the matter in question was one which it was appropriate to raise before the judge making the costs order, and which should not be raised before him, as happened here.
21. The rationale is that it is an abuse of the court’s process to raise an issue before the costs judge which was not but should have been raised before the judge making the order for payment of costs. An analogy can be found in the principle that, if a party could properly have raised an issue in proceedings but does not, he will not be permitted to do so subsequently.  . . . . .
22. I do not think that there is any conflict here with the mandatory provisions of CPR 44.5(3)(a). For by CPR 44.5(2) the court must have regard to the order for costs, and I would include with that the circumstances in which the order was made. Further, in the operation of CPR 44.5 as with any other rule it is permissible for the court, and the court’s duty is, to avoid abuse, that is the misuse, of its process. Nor do I think that there is any conflict with the concept that by the consent order the parties have agreed that the costs should be assessed in accordance with the CPR. The assessment will be carried out in accordance with the CPR as the rules apply to the situation which has arisen. That was an alternative way in which Mr Aaron put his case.”
33.	In the case he was dealing with there had been no decision by the court that S had been guilty of misconduct. Indeed by adopting the consent order A accepted the converse. But take a case where dishonesty has been found as in the instant case.  Would the fact that the paying party had not sought an order from the judge reflecting that misconduct deprive that party of referring on the assessment to the holding of the judge that a forgery had been committed when considering whether the costs incurred by the dishonest party were reasonable? I cannot think that it should. What then is the position if a paying party has a finding of dishonesty of the winning party in his favour, and raises that factor as a ground for a reduction of the costs at the end of the trial? Clearly there is no problem if the judge’s order makes “no order as to costs”, but if the judge orders a reduction by say 20% without more, what would be the natural construction of that order? My view is that the natural construction of such an order, unless the contrary is expressly stated, is that the party guilty of dishonesty should not be entitled to say on assessment, “my costs incurred in seeking to make a dishonest case can be taken as reasonably incurred because the judge has made a reduction”. If the dishonest party was entitled to succeed on such an argument, he will hardly suffer any penalty at all. 
34.	It seems to me that consideration of a party’s conduct should normally take place both at the stage when the judge is considering what order for costs he should make, and then during assessment. But the court will want to ensure that dishonesty is penalised but that the party is not placed in double jeopardy. Ultimately, the question is one of the proper construction of the order made by the judge.  Thus it will be important for the judge, who is asked to take dishonesty into account at the end of a trial when considering the order as to costs, to consider what is likely to occur on assessment. Where dishonest conduct is being reflected in an order made by the trial judge, it must be wise for the future for judges to make clear whether they are making the order on the basis that, on the assessment, the paying party will still be entitled to raise the dishonesty in arguing that costs incurred in supporting the particular dishonesty were unreasonably incurred. Judges may also want to consider whether to make an order under rule 44.14 and it would be wise to do that before considering precisely what order to make in relation to the costs of a trial generally.
35.	In the instant case, although there are some indications that the parties and the judge did not have in mind that Ultraframe could take points on misconduct at the assessment stage, my view is that the judge, if asked, would have thought that such costs should not be recoverable. I say that because he thought he was imposing a penalty on the Burnden defendants. In my view the concession made by Mr Snowden QC and the others was rightly and sensibly made.
36.	Once one reaches the position that the Burnden defendants will not be able to recover the costs of making a dishonest case, one plank, indeed the very plank identified by Mr Hochhauser when he returned to the judge to seek a variation of his order, is removed. The only point that remains to him is the question whether the order, as properly understood, properly reflects the fact that Ultraframe incurred costs establishing the dishonest conduct. On that question the judge took the view that Ultraframe’s expenditure was disproportionate. He would only have allowed expenditure of £250,000, as compared with £2.5 million Ultraframe say that they incurred. The effect of the judge’s order, as now properly understood, is likely to lead to the costs, which the Burnden defendants would otherwise have been entitled to, being reduced by significantly more than £250,000. There is no general rule that a losing party who can establish dishonesty must receive all his costs of establishing that dishonesty, however disproportionate they may be.  Indeed, cases in which no order for costs has been made demonstrate there is no such rule. Proportionality and the conduct of the paying party in attacking that dishonesty is clearly something to which a trial judge is entitled to have regard. In my view once the proper construction of the order is understood and the concession is made, which prevents the Burnden Defendants recovering their costs of fighting a dishonest case, the judge’s order cannot be attacked on the basis that Ultraframe do not receive proper credit for the costs they incurred in establishing the dishonesty.
37.	That leaves Mr Griffiths’ arguments on the Preliminary Issue and London Action order. I left those arguments until last because, although in my view quite properly the judge was entitled to look at these costs separately, he was also, as he recognised, dealing with the dispute between these parties as a whole and in particular as to the effect that the dishonesty should have on his thinking on costs. I would grant permission to appeal; it is unrealistic not to, considering we are ultimately concerned with the exercise the judge conducted as a whole.  But I would reject Mr Griffiths’ argument.
38.	The main plank of Mr Griffiths’ submission was that, but for the dishonesty, the preliminary issues would never have been fought. He put the matter this way in his skeleton:-
“He did not, however, have regard to the fact that there was a direct connection between Mr Fielding’s dishonesty and the Preliminary Issue since, but for Mr Fielding having “orchestrated an illegal conspiracy to gain and keep control of Northstar and Seaquest” there would have been no Preliminary Issue.  Ultraframe would have been controlling Seaquest, not Mr Fielding.  Seaquest would not have granted a licence to BCP and Seaquest would have had no debt to Mr Fielding.  Consequently whether the design rights were owned by Seaquest or its shareholder (Ultraframe) should have been wholly academic.  The costs of the Preliminary Issue were, therefore, directly attributable to Mr Fielding’s dishonesty.”
39.	The answer given by Mr Purvis QC, taken from the Burnden Defendants’ skeleton is as follows:-
“Even if this argument were admissible, not having been put to the Judge, it is hopeless for three reasons.  Primarily because the statement that “the London action would not have been necessary” makes no sense.  The London Action was never “necessary” – it should never have been brought because it was always bound to fail.  Secondly, the complaint that the licence would never have been granted had it not been for the conspiracy to claim ownership of Northstar and Seaquest is a matter which was never pleaded or proved.  If there was any merit in the allegation, it ought to have been made in the Leeds Action as the basis of a claim for damages or an account of profits.  But it was not.  Thirdly, the London Action was brought after Ultraframe had obtained the shares in Northstar and Seaquest by way of summary judgment in the Leeds Action.  They had the choice at that time either to proceed in their own name (claiming ownership through Davies) or in the name of Northstar/Seaquest.  They took the former route, in their own interests, and failed.  Burnden cannot be held responsible for this.”
40.	It seems to me that the judge, in considering the order he was to make on costs, well recognised the relevance of the allegations of dishonesty to the litigation as a whole. In that context he expressly posed to himself the question whether the deduction he was proposing in relation to the costs of the remaining actions should be applied to the costs of the Preliminary Issue and the London Action, and ruled they should not. That was well within his discretion and I am not persuaded that he misdirected himself in any way.
41.	Accordingly I would dismiss the appeal against the order for costs made by the judge.
42.	There are some remaining matters.  Although we have written submissions on the costs of permission application and the costs of an application to vary a guarantee, I am of the view that these matters should be dealt with in the context of whatever costs orders are made following the dismissal of the appeal. Short submissions on that in writing are required.  That will enable a view to be taken as to the appropriate order as to costs on all outstanding matters.
Lord Justice Jacob:	I agree.