In Parish -v- The Danwood Group Ltd  EWHC 940(QB) HH Judge Behrens (sitting as a judge of the High Court) considered various issues relating to the costs budget at the end of a trial.
The claimants were unsuccessful in a claim for deceit and/or misrepresentation. Various submissions were made at teh end of the case in relation to the costs of experts and costs outside the costs budget.
- An expert had been instructed outside the terms of a court order. The (successful) defendants were not allowed the costs of the expert and the claimant was allowed to set off additional costs caused by that expert.
- The court refused applications to increase various items of the costs budget.
- The costs of an (unsuccessful) pre-trial application by the claimant were awarded to the claimant.
9.3 Value of the shares
The experts’ reports shall be restricted to determining the value of the C shares as at 31st October 2008, 9th August 2009, and the date of the report.
- In the light of the nature of the Claimants’ allegations it is not difficult to see why the order was couched in these terms.
- The Claimants’ report dated 19 December 2014 was provided by Mr Clements a partner in Grant Thornton. He valued the C shares on the 3 days at £nil, £0.05 and £0.01. The basis of his valuation is at paragraphs 4.1 to 4.10. In summary as the C shares had not been issued at 31st October 2008 they were of no value; he noted that the C shares had been issued at £0.05 in March 2008 and thought it right to take that value as the value on 9thAugust 2009. The value at the date of the report was taken to be their nominal value.
- The Defendant’s report dated 7 January 2015 was provided by Mr Plaha, a partner in BDO. He was instructed to estimate the prospective value of the C shares based on the information available to the Directors on 31st October 2008 and 9th August 2009. It is not necessary to analyse his report in detail. It is to be noted that he had to make a number of assumptions (some of which he set out in paragraphs 1.12 and 6.1). One of the assumptions was that the exit date was 30th September 2013.
- In paragraph 7.1 of his report Mr Plaha concluded that the value of the C shares at the exit date depended on the assumptions he had made with regard to turnover, EBITDA, multiple, debt and interpretation of the Articles. He then produced a table with 28 different valuations varying from £0.75 to £36.38 per share.
- On the first day of the trial Mr Latimer objected to this report both because it was late and second because it was not in accordance with Judge Kaye’s order.
- Mr Sinclair’s advocacy persuaded me that a prospective valuation might be relevant. I accordingly permitted the Defendant to rely on the report. This led to a further detailed report from Mr Clements.
- When the experts gave evidence there was no cross-examination on Mr Clements’ first report. The cross-examination focussed on the assumptions made by Mr Plaha with particular reference to the spreadsheet relied on by Mr Coles when he wrote his letter.
- Mr Latimer was critical of Mr Coles’ spreadsheet because it omitted the cost of acquisitions and is hard to reconcile with other spreadsheets relied on by Mr Coles. He suggested that Mr Coles’ spreadsheet used the wrong figure for EBITDA. He also drew attention to the extreme difficulty (which Mr Plaha acknowledged) of forecasting a share value 4 years ahead. In paragraph 89 of his closing submissions Mr Latimer submitted that the attempt by Mr Plaha to produce a prospective valuation failed because
1. Danwood was trying to do the impossible and project figures 4 years into the future when 12 months would be regarded as fairly long range;
2. Danwood was not generating the cash to make the projected acquisitions;
3. Danwood’s own expert witness quite properly admitted the limitations of the exercise he had been asked to undertake.
- In his closing submissions Mr Sinclair accepted that the market value of the shares were those suggested by Mr Clements. He submitted that the only relevance of the “hope” or “projected” value of the shares was in support of the contention that the prediction of the future value was honestly made. He submitted that it was not part of the Claimants’ case that if the representations were predictions as to the future they were not honestly made.
- In paragraph 76 of his closing submissions Mr Sinclair sought to answer the criticisms of Mr Coles spreadsheet. It is not necessary for me to deal with the points in detail. He pointed out that there is no pleaded case that the estimate was made negligently.
- I agree with Mr Sinclair that there is nothing in the expert evidence to undermine the conclusion I have already expressed that the representations made by Mr Daniels and Mr Coles were made honestly.
- In the circumstances I accept the evidence of Mr Clements as to the value of the C shares on the first two dates in his report. I am not able to form any realistic view as to the prospective value of the shares on either of the dates.
- I have dealt with this issue in more detail than I would otherwise have done because there is an issue over the costs of Danwood’s expert Mr Plaha. I have been asked to approve a significant increase in the sums mentioned in the original costs budget. I have no hesitation in refusing this application. Having now understood the pleaded issues (see section 5 above) and the nature of Judge Kaye’s order I am quite satisfied that the instructions to Mr Plaha went beyond what Judge Kaye had authorised. Furthermore the end result was of limited assistance. My provisional view is that none of the costs of Mr Plaha should be allowed and that the Claimants should be entitled to set off against the costs they will inevitably be ordered to pay the costs of Mr Clements’ second report and of his attendance at the trial.
10 Costs budgeting
- I propose to deal with the costs budgeting issues quite shortly. Danwood seek to increase their cost budget in respect of 3 matters
- Danwood seeks to increase its budget in relation to disclosure by £8,938. The approved budget is £43,976.30. The increase is said to be due very largely to 62.3 hours of paralegal time (£6,230) and 7.3 hours of fee earner time (£1,898) above what had been anticipated due to the fact that the Claimants gave a very substantial volume of disclosure and due to the need to deal with the Claimants’ requests for additional disclosure.
- Shortly before the trial the Claimants made a wide ranging request for significant additional disclosure. This was followed by a heavily contested application for specific disclosure which was refused by HH Judge Bird. Judge Bird reserved the question of costs until trial. I can see no reason why the costs of that application should not follow the event. Thus Danwood will be entitled to the costs of that application. Those costs will include dealing with the application which will have to be assessed in due course by the costs judge if they are not agreed. In those circumstances it is not appropriate for me to increase the costs budget in respect of the application.
- Mr Latimer submitted that the Claimants’ disclosure was limited (running to about 300 documents) and was in accordance with their Disclosure Report.
- In those circumstances I am not satisfied it is appropriate to increase the budget in relation to Disclosure.
- The approved witness statement budget was £47,071. This was based on an assumed four witness statements. In fact, five witness statements were exchanged. Danwood therefore seeks and additional £10,000 in respect of costs incurred by two fee earners on the case.
- In answer to this Mr Latimer pointed out that the witness statements were not long and that there had not been any significant development in the litigation compared with the position as it existed in June 2014.
- I agree with Mr Latimer’s submissions. I see no reason to increase the costs budget in relation to the witness statements.
- The approved expert report budget for Danwood was £20,000. This budget was set before the expert had been identified. According to the expert, the fees are now going to be a total of £69,864 and therefore an increase of £49,864 is sought by Danwood.
- I have dealt with the expert’s costs in section 9.3 above. The increased costs were in my view incurred because the instructions to the expert went beyond what was permitted by Judge Kaye’s order. The application is refused.
- For the reasons set out above the claim fails and will be dismissed.
- I cannot leave this case without thanking the legal representatives on both sides for the assistance they have given me in the presentation of the case, the clear and helpful skeleton arguments and closing submissions and by completing the case, or at least the evidence, within the allotted time.