COSTS: INDEMNITY COSTS; IMMEDIATE ASSESSMENT OF COSTS; SET OFF & POTENTIAL INSOLVENCY: A HIGH COURT DECISION

In Rawlinson & Hunter Trustees SA -v- ITG [2015] EWHC 1924 (Ch) Mr Justice Morgan considered issues relating to indemnity costs and whether assessment of costs ordered on an interlocutory hearing should take place forthwith.

KEY POINTS

  • Although the conduct of the unsuccessful party (the claimant)  was unusual its behaviour was not such as to warrant an award of indemnity costs.
  • The respondent should respond to the applicatio proportionately and it was important that assessment take place with proportionality in mind.
  • Normally  the judge would have ordered an immediate assessment of costs since the application effectively disposed of one issue.
  • However there were issues in relation to the solvency of the defendant. Immediate assessment would prevent the claimant from being able to set off costs at a later date.
  • Because of the important issue of the potential loss of an effective right of set off the judge declined to order immediate assessment or an interim payment in relation to those costs.

THE JUDGMENT

MR JUSTICE MORGAN:
  1. On 10 June 2015, I handed down a judgment in this case: see [2015] EWHC 1664 (Ch). I held that an application made by the Claimant was an abuse of process and I dismissed it.
  2. Following judgment, the parties discussed the order which should now be made by the court and I was provided with a draft order which disclosed that the parties were divided on two points. In the course of the later submissions, a third point of difference emerged.
  3. In relation to costs, the Claimant accepts that it should be ordered to pay the Defendants’ costs of and occasioned by the application. The Claimant says that those costs should be assessed on the standard basis; the Defendants say that those costs should be assessed on the indemnity basis. This is the first point that I am now asked to decide.
  4. The second difference between the parties is that the Defendants seek an order under CPR r. 47.1 providing for the Defendants’ costs of the application to be assessed immediately rather than at the conclusion of the proceedings in which the application was made. The Claimant says that such an order would be inappropriate. This is the second point that I am asked to decide.
  5. The third point arises because the Defendants contend that if I do not make an order for the immediate assessment of their costs, then I should make an order for a payment on account of those costs, under CPR r. 44.2(8). The Claimant does not agree.
  6. The principles to be applied on the issue as to whether the Defendants’ costs should be assessed on the standard basis or on the indemnity basis are well known and are not in dispute. There are two differences between an assessment on the standard basis and an assessment on the indemnity basis. In summary, in the case of an assessment on the indemnity basis, the onus of persuasion which arises on an assessment of the reasonableness of the costs is reversed and the paying party does not have the benefit of the costs being restricted by reference to proportionality. The court may order an assessment on the indemnity basis where it is persuaded that the case is out of the norm. Where it is said that one party has behaved unreasonably in its conduct of the case, the relevant conduct must be unreasonable to a high degree.
  7. The Defendants rely on five matters in support of their submission that there were features of the application which were out of the norm. In summary, the five matters are:
(1) the application was an abuse of process; the Claimant had been warned by the Defendants before the application was made that any such application would be an abuse of process and would expose the Claimant to costs sanctions;
(2) the Claimant’s contention that the application was justified by the discovery of new material was disingenuous;
(3) the Claimant applied to join ITG Limited in its personal capacity and then simply abandoned that part of the application;
(4) the Claimant improperly sought to deploy the opinion of leading counsel (not Mr Hollander QC) on the question whether Mr Clifford (whose involvement is described in my earlier judgment) was a reliable and credible witness;
(5) the way that the Claimant had dealt with its evidence on a point about the power of the Guernsey court to order specific performance caused the Defendants to incur additional and, in the end, unnecessary expense.
  1. In response, the Claimant makes a number of points:
(1) the Claimant considered that the application was justified by the availability of new material;
(2) the Defendants resisted the application on the basis that the Claimant was subject to an issue estoppel which prevented the Claimant making the application; the Claimant submitted that the Defendants’ argument as to issue estoppel failed but it took up time and resulted in additional costs; a similar point was made in relation to alleged arguments from the Defendants as to the right test to apply in respect of abuse of process;
(3) the application was not a mere attempt to re-run an earlier application in respect of which the Claimant had failed;
(4) the application was conducted in a straightforward manner and concluded with a day’s hearing;
(5) the matters relied upon by the Defendants did not take the case out of the norm or amount to unreasonable conduct;
(6) one of the Claimant’s witnesses, Robert Tchenguiz had very strong views on various points.
  1. The Defendants replied in detail to the Claimant’s points. I bear the replies in mind but I need not summarise them in this judgment.
  2. I consider that most of the matters relied upon by the Defendants are accurately described. Some of those matters, whether considered individually or even in conjunction with the other matters, do not really advance the argument that the case is out of the norm or that the Claimant’s conduct was unreasonable to a high degree. I have in mind the matters referred to in (3) and (5) of paragraph 7 above. Conversely, the fact that the application was an abuse of process, that the suggested justification for it was disingenuous and the distinctly odd behaviour in relation to the opinion of leading counsel merit further reflection. I also consider that the Claimant’s explanation for its behaviour that Mr Tchenguiz had very strong views on various points did not improve the Claimant’s arguments on the present issue.
  3. Having reflected on the points made by each side, my conclusion is that this case is not out of the norm to a sufficient extent, and/or the Claimant’s conduct was not unreasonable to a sufficiently high degree, so as to justify me in depriving the Claimant of the two benefits which they would receive on an assessment on the standard basis, as compared with an assessment on the indemnity basis. In particular, notwithstanding the matters now relied upon by the Defendants, the application was throughout an application which the Defendants ought to have responded to in a proportionate way and their costs should be subject to the restriction of proportionality. Having made that comment, for the avoidance of doubt, I emphasise that I am not suggesting that the Defendants did not act at all times in a proportionate way. It will be for the costs judge to form his own assessment of that matter, if it is raised on the detailed assessment.
  4. Accordingly, I will order the Claimant to pay the Defendants’ costs of the application, such costs to be the subject of a detailed assessment on the standard basis.
  5. The second issue is whether the Defendants’ costs of the application are to be the subject of a detailed assessment at the end of the current proceedings or whether I should order them to be assessed immediately, no doubt with a view to them being paid to the Defendants without delay following that assessment.
  6. CPR r. 47.1 provides that the default position is that the costs of any part of proceedings are not to be the subject of a detailed assessment until the conclusion of the proceedings but the court has power to override that default position and order an immediate assessment.
  7. In my earlier judgment I referred to the two claims (the contract claim and the estoppel claim) which the Claimant wished to introduce by way of re-amendment of the existing claim. Having refused to grant the Claimant permission to re-amend, the existing claim therefore continues in its current form. In that form, the Claimant claims two heads of relief under a loan agreement of 21 May 2009 which was novated to the Claimant on 9 April 2010 (so that the Claimant now has the benefit of the loan agreement as against the Defendants). The first head of relief claimed is repayment of a loan of £6 million and the second head of relief is an order that, based on an argument as to the effect of an express contractual term in the loan agreement, the Defendants provide a particular form of security for the loan. I have not seen a Defence to this claim, if there is one. It may be that the claim to repayment is not disputed but the claim to a form of security is.
  8. If there was no question as to the solvency of the Defendants, I consider that this would probably be an appropriate case in which to order an immediate detailed assessment of the Defendants’ costs of the application which I dismissed. I say that because the effect of dismissing the application is that the Claimant’s case in relation to the contract claim and the estoppel claim is now at an end, so far as this jurisdiction is concerned, and I would expect that the Defendants’ costs of the application can be easily separated out from any costs which the Defendants may or may have incurred in relation to the continuing claim based on the loan agreement.
  9. However, I was referred to evidence which was before me for the purposes of the original application which indicated that the Tchenguiz Discretionary Trust (“the TDT”) is insolvent. Accordingly, if the Defendants are liable, for example, under a future order for costs in the current proceedings and that liability is only up to the extent of the assets of the TDT, then the Claimant may not receive all, or perhaps even any, of the costs ordered in its favour.
  10. The Defendants did not refer to the question of their solvency when making their submissions under rule 47.1. The Claimant did raise this question and submitted that if at the conclusion of the proceedings, the Claimant obtained an order for costs against the Defendants, which the Defendants were not in a position to pay, then the Claimant would wish to set off its entitlement under that order against the order for costs against the Claimant which I am making at this stage. It may be that the Claimant was intending to submit that it could also set off against the costs which it has been ordered to pay any sum which is found to be due to it under the loan agreement; the written submissions are not wholly clear on that point.
  11. The Defendants replied to the Claimant’s submissions which referred to the possibility of a future right of set off. It was said that I could not judge at this stage whether the Claimant would ultimately succeed in its claim. I can say at this stage that I will not attempt to form an assessment of that question. The Defendants then addressed the suggested future set off. The Defendants approached this on the basis that the Claimant would claim to set off not only future orders for costs in the Claimant’s favour but also sums found due under the loan agreement. It was said that the Claimant could not set off in equity any sums due under the loan agreement. It was also said that it was not part of the policy of the CPR to defer costs liabilities to bring about the possibility of a future set off. It was also said that that if the Claimant could set off its claim to payment under the loan agreement (described by the Defendants as unsecured) against the order for costs, that would wrongly give the Claimant (to an extent) security for the unsecured loan.
  12. The parties did not cite any part of the CPR apart from r. 47.1 and did not cite any authority. In fact, I consider that CPR r. 44.12 is relevant and that there are relevant authorities which assist me in resolving these arguments.
  13. CPR r.44.12 provides for the set off of one set of costs against another. Thus if in due course the Claimant were to obtain an order for costs in its favour, the court could permit the set off of the two sets of costs. It was held in R (Burkett) v London Borough of Hammersmith and Fulham [2005] 1 Costs LR 104, that the process of set off in question is not equitable set off and is not therefore subject to the equitable rules for such set off: see at [47].
  14. Accordingly, if I decline to order immediate assessment of the costs to be paid by the Claimant to the Defendants, and if the Claimant later obtains an order for costs against the Defendants, then the possibility of a set off of costs remains. Conversely, if I order immediate assessment of the costs to be paid by the Claimant to the Defendants and the Claimant is then called upon to pay the assessed costs, it might come about that the Claimant is not able to enforce against the Defendant trustees of the insolvent TDT an order for costs which might subsequently be made in favour of the Claimant.
  15. The relevance of these considerations to the exercise of the power under CPR r. 47.1 was considered by Robert Walker LJ in Hicks v Russell Jones & Walker [2001] C.P. Rep. 25. He held in a somewhat comparable case that he should not depart from the default position under CPR r. 47.1 and order immediate assessment because the effect might be to deprive a party of the possibility of a future set off of costs resulting in non-recovery of future orders for costs in that party’s favour. It was considered that such a result might work a substantial injustice.
  16. Although the authorities were not cited to me, they are referred to in the appropriate parts of the White Book and I do not think it is necessary to invite further submissions on them. I intend to follow the lead given by Hicks v Russell Jones & Walker. I will not alter the default position under CPR r. 47.1. In view of this conclusion, I need not consider whether the Claimant could set off any sums due to it under the loan agreement against its liability under an order for costs.
  17. The third point relates to the Defendants’ application for an order that the Claimant makes a payment on account of costs under CPR 44.2(8). However, I consider that the reasons I have given for not permitting immediate assessment also apply in this context and persuade me that I should not in this case make an order for payment on account.

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