Background
The underlying dispute arose from dealings between mortgage broker Anthony Donnellan and property developer Alan Ward dating to 2007, centred on Creative House, a Battersea building held through Panamanian company Ebonair Investment SA. After a 15-day trial, Deputy High Court Judge Louise Hutton KC dismissed Donnellan’s claim that he and Ward had formed a partnership (or joint venture) in 2012 entitling him to a 25% interest in Creative House and future projects. The judge also upheld Ebonair’s Part 20 Claim, finding that nominees Ricky Keane and Bobi Howard held their flat leases on trust for Ebonair rather than for any alleged partnership. A related possession claim brought by Keane likewise failed.
The trial judge was highly critical of the honesty of both principal parties. She found that Donnellan had fabricated evidence of key meetings said to have given rise to the partnership, executed dishonest trust deeds, and made false assertions to bolster his case. Ward, though ultimately successful, was also found to have given dishonest evidence: he had created backdated documents to conceal his beneficial interest in Ebonair from his own trustees in bankruptcy, and had advanced a sham defence denying any interest in that company. The judge found that Ward held at least a significant beneficial interest in Ebonair, rejecting his denial—though she declined to find he was its sole owner.
At the costs hearing the judge declined to award Ward, Luxap Limited, and Ebonair (the winning parties) any costs of the Partnership Claim or the Part 20 Claim, reasoning that Ward’s “very substantial dishonesty” in advancing his Ebonair defence had so substantially increased the costs of the litigation that it would be wrong for him to benefit from it. She made no order for costs on those claims, directing each side to bear its own. The Ward parties appealed to the Court of Appeal, arguing the judge failed to weigh Donnellan’s own extensive dishonesty adequately and improperly displaced the fundamental principle that costs follow the event.
The Court’s Holding
Lewison LJ (with Arnold LJ and Falk LJ) examined the scope of appellate review of costs discretion, confirming the high threshold: an appellate court may only intervene where the decision is wrong in principle, takes irrelevant matters into account, ignores relevant matters, or is plainly unsustainable. The court then reviewed the legal principles governing costs where a successful party has behaved dishonestly, drawing on Northstar Systems Ltd v Fielding, Bank of Tokyo-Mitsubishi UFJ Ltd v Baskan Gida, and Hutchinson v Neale. Those authorities establish that dishonesty does not automatically override the starting point that costs follow the event; rather, a court must evaluate the nature, degree, and effect of the misconduct and calibrate the sanction proportionately, so that the dishonest successful party does not gain—but also so that the honest unsuccessful party does not lose—as a result of that wrongdoing.
The court emphasised a critical distinction between the present case and Intrigue Shipping Inc v Nikitin (where a no-costs order was upheld when the successful party had also failed on its primary case, which accounted for most of the cost and effort). Here, by contrast, the Ward parties succeeded on the entirety of their substantive case. Although Ward lost on the Ebonair issue—his false claim to have no interest in that company—that was one defensive plank, not the whole of the litigation. The court scrutinised whether the judge had given adequate weight to the depth and primacy of Donnellan’s own dishonesty: his fabrication of the very meetings and conversations on which his partnership claim depended went to the root of the proceedings he had brought.
Applying the framework from Ahuja Investments Ltd v Victory Game Ltd [2021] EWHC 2730 (Ch) to circumstances where dishonesty appeared on both sides, the court assessed whether the judge’s blunt no-costs order properly balanced all relevant conduct or impermissibly punished the winning party beyond what proportionality required. The Court of Appeal’s analysis pointed firmly to the conclusion that the trial judge had erred in treating Ward’s misconduct on the Ebonair issue as sufficient, without more, to deprive the successful appellants of any costs recovery at all, given the centrality of Donnellan’s own fabrications to the proceedings.
Key Takeaways
- A finding of serious dishonesty against a successful party does not automatically override the starting point that costs follow the event; courts must assess the nature, degree, and effect of the misconduct and apply a proportionate, targeted response.
- Where both parties are found to have behaved dishonestly, the court must weigh the dishonesty on each side: depriving a wholly successful party of all costs requires a stronger justification than the mere fact that they too were found to have misled the court on a particular issue.
- A successful party’s dishonesty that relates to a subsidiary defensive issue (here, the beneficial ownership of a holding company) is materially different from an unsuccessful claimant’s fabrication of the very factual foundation of the claim they brought.
- On the assessment of costs, a winning party will in any event be unable to recover costs attributable to advancing a dishonest case, since such costs are not reasonably incurred—a point courts should bear in mind when calibrating the overall order.
- Costs appeals face a very high threshold, but this court confirmed—consistent with SCT Finance v Bolton and F & C Alternative Investments v Barthelemy—that intervention remains available where a costs decision is wrong in principle or plainly unsustainable.
Why It Matters
This decision offers important guidance for litigators and judges on how courts should handle costs when both sides are found to have given dishonest evidence. It reaffirms that a blanket no-costs order is an exceptional sanction that requires proportionate justification; a successful party’s misconduct on a discrete issue will not ordinarily forfeit their entitlement to costs across the whole action. Practitioners advising clients in hard-fought commercial disputes—where accusations of dishonesty are traded on both sides—should note that courts will look carefully at the centrality of each party’s wrongdoing to the issues actually litigated and resolved.
The case also carries procedural significance: the adjournment necessitated by the mid-appeal bankruptcy of the principal defendant illustrates how insolvency can disrupt appellate proceedings and shift control of litigation decisions from the bankrupt to the Official Receiver, with potentially significant consequences for all parties, including solvent co-respondents with independent interests in the outcome.