Where the claimant sought to set aside a settlement agreement on the basis that it was arrived at by fraud, the judge was wrong to order a stay of proceedings and award costs against the claimant, the correct order was no order as to costs. However, as the defendants had issued new proceedings to enforce the settlement agreement, the best procedure was to refuse to lift the stay but to allow the new proceedings to continue.Claimant's appeal from the order of Jacob J sitting in the Chancery Division and made on 25 November 2002 that proceedings be stayed and costs in the sum of ?4,000 be paid by the claimant. The claimant ('C') was a company formed in 1991 to help foreign companies market computer software in Japan. The defendants ('D') were helped by C from 1995 until 1996 when their help was dispensed with. A dispute arose as to the amount owed by the defendants and proceedings were issued. On 25 May 2002 Jacobs J gave a judgment on liability in favour of C to the extent they were entitled to reasonable remuneration which had to be assessed taking into account the profitability of the work performed by C. The proceedings were stayed by consent, for the parties to seek mediation. In August, following successful mediation, a settlement agreement was reached. The agreement provided for payment of a sum of money by D and included an "entire agreement clause" whereby external issues would not be relied on other than in the case of fraud. Before payment was made C contended the settlement had been arrived at by fraud in that an "account trick" hid profits which had been relevant to the mediation. C made an application to set aside the agreement which, was amended to an application for case management directions. D made an application to dismiss C's application. On 25 November 2002 Jacobs J held that, having regard to the agreement clause, C had to establish fraud and start a separate action. He ordered a stay and awarded costs to D. Permission to appeal was granted by Aldous LJ on 20 March 2003. C wrote to D and suggested matters could be taken forward by a consent order lifting the stay. D refused to accept that offer and informed C that they intended to issue fresh proceedings to get a declaration that the agreement was enforceable which, C could defend in any way he wished. On 21 April 2003 fresh proceedings were issued by D. C appealed the orders and contended the judge was wrong to order a stay and wrong to order costs. D conceded that it was open to the judge to order that issues be dealt with in existing proceedings but it was more appropriate to decide the issues in new proceedings given the complex issues involving fraud.HELD: (1) The appropriateness of costs was dependant on whether the issues could be dealt with in the existing proceedings. As it was conceded that the judge could have dealt with the issues in the existing proceedings he therefore proceeded on an erroneous basis. The judge was not exercising discretion as to how best to deal with the matter but took the view as a matter of law. Therefore costs should not have been awarded against C. (2) The appropriate order was no order for costs. Neither side won as C sought case management directions on the basis the existing proceedings continued and D sought to stop the proceedings altogether. (3) It was difficult for the court to make a clear choice as to how matters should proceed. There was force in the view that as the judge took the wrong turning the court should put the matter back on the correct turning as if the judge had got the law correct. On the other hand new proceedings had been commenced and the circumstances in which they began were wholly understandable. (4) The correct procedure was not to lift the stay but to allow the proceedings issued by D to continue with all the issues C wished to take to be allowed. (5) Pill LJ dissented and held there was no need for two actions dealing with the same matter.Appeal allowed in part.

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