CPR 38 | Discontinuance | Default Rule Disapplied

Background

• In March 1999, the defendants, as trustees of the Benjamin Family Settlement trust (the Trust), settled shares representing the entire shareholding in the family business Benjamin Pharmacy Ltd (BPL) on discretionary trusts for the benefit of the claimant, his brother Benny, and their issue.
• On 9 November 2017, by a Deed of Appointment (DOA), the defendants appointed the entire Trust Fund irrevocably to Benny absolutely. The shares in BPL were also transferred to Benny’s ownership on the same date.
• In March 2021, the claimant requested a copy of BPL’s register of members from BPL’s accountants. He received a copy showing Benny had been the sole shareholder of BPL since November 2017.
• Between March – September 2022, the claimant, through his solicitors, requested further information about the Trust from the defendants.
• No substantive responses were received.
• On 1 September 2022, the claimant issued and served a Part 8 Claim seeking disclosure of Trust documents and information, not having received substantive responses to his earlier correspondence.
• On 23 September 2022, the defendants raised the issue of lack of capacity for the first time.
• A litigation friend was appointed for the defendants in December 2022.
• On 7 December 2022, the litigation friend provided the disclosure requested, including the DOA. This showed the Trust assets comprising the shares in BPL had been appointed to Benny.
• On 20 January 2023 , the claimant acknowledged there was no longer any benefit in pursuing the claim.
• On 5 July 2023, upon reviewing the disclosure provided, the claimant concluded his original aim of obtaining disclosure and information about the Trust and BPL shares had been achieved. He filed a notice of discontinuance of the entire claim.
• The claimant then made an application for an order departing from the default rule on discontinuance that he would be liable for the defendants’ costs.

The Claimant’s Position

• The claimant achieved substantially what he sought through the proceedings by obtaining disclosure and information about the Trust in December 2022.
• The defendants failed to substantively respond to several pre-action letters requesting disclosure over a 6 month period, which was unreasonable conduct.
• The eventual provision of disclosure amounted to a change of circumstances caused by the defendants’ unreasonable behaviour, justifying departure from the default costs rule.
• Indemnity costs should be awarded up to January 2023 given the litigation behaviour was “outside the norm”. Standard costs should apply thereafter.
• Lack of capacity cannot be inferred without evidence. The defendants cannot rely on unproven incapacity to avoid the costs consequences flowing from their unreasonable failure to engage pre-action.

The Defendant’s Position

• The claimant already knew since 2021 that the shares had been transferred so the proceedings achieved nothing new.
• Failure to respond to letters was due to incapacity, not unreasonable behaviour. The defendants cannot be penalised for conduct arising from their incapacity.
• It should have been obvious to the claimant since 2014/2019 that his mother at least likely lacked litigation capacity.
• As protected parties, steps taken before a litigation friend is appointed have no effect. So no reliance can be placed on pre-action correspondence.
• If disclosure was ordered, it would likely have been at claimant’s cost as the Trust has no assets. So the defendants should not pay costs.

Decision

Disapplying the default costs rule:

The judge provided several reasons for disapplying the default rule that a claimant who discontinues a claim is liable for the defendant’s costs:

• The disclosure provided in December 2022 meant the claimant achieved the original aim of his claim, so discontinuance should not be treated as a failure or admission the claim should not have been brought.
• The failure to provide disclosure sooner despite pre-action requests amounted to unreasonable conduct by the defendants. This justified departing from the default rule, in line with case law principles on what constitutes “unreasonable conduct”.
• Viewed overall, the claimant’s discontinuance did not equate to an admission the proceedings should not have commenced, particularly given he was seeking trust information trustees should provide to beneficiaries.
• The bar for displacing the default rule is high, but was met in this case based on the defendants’ unreasonable behaviour and the need to view the matter in context rather than apply a blanket rule.

“I conclude that the hurdle is reached in this case and the circumstances are such as to justify disapplying the default rule, even apart from Mr Slavin’s position that the default rule is not appropriate.” [54]

Defendants’ unreasonable behaviour before 23 September 2022:

The judge found that:

• Apart from possible lack of capacity, there was no good reason given by the defendants for failing to provide the requested trust disclosure in response to the claimant’s pre-action correspondence sent between March and 22 September 2022.
• The defendants first raised the issue of capacity on 23 September 2022.
• If capacity is put to one side, there was nothing that justified the defendants’ behaviour in refusing to substantively engage with the claimant’s letters requesting information sent prior to 23 September 2022.
• The failure to provide disclosure earlier necessitated the claimant issuing and serving proceedings on 1 September 2022 in order to obtain the information sought.
• The defendants’ behaviour prior to 23 September 2022 in this regard was unreasonable and largely unjustified based on the evidence and explanations put forward.

“There is no explanation, apart from the defendants’ possible lack of capacity, that amounts to a good reason for the defendants to have refused to provide disclosure and information at an earlier stage, so as to avoid the litigation being commenced and proceedings being served. Capacity apart there is nothing that justifies the behaviour of the defendants prior to 23 September 2022.” [55]

Costs orders made:

“I will order that the defendants pay the claimant’s costs of the proceedings to 23 September 2022 on the indemnity basis. Thereafter to 20 January 2023 the defendants will be ordered to pay the claimant’s costs on the standard basis. Since the costs of the proceedings after 20 January 2023 have been incurred in endeavouring to agree the costs of those proceedings those should also be the claimant’s, paid by the defendants, on the standard basis.” [63]

Administrative costs of DOA:

“As I understand the claimant’s position, he is still willing to pay what are likely to be the minor administrative costs, if any, of producing a copy of the DOA. The costs of providing the other trust information should on the principles referred to in paragraph 16 of this judgment be borne by the Trust.” [64]