Costs—Assessment—Conduct of parties

The Chancery Division has given guidance on the effect of conduct during a hearing on costs.

John Wardell QC and Alexander Winter (instructed by Forsters LLP) for the claimants. Nicholas Strauss QC, James Goldsmith and Alexander Polley (instructed by Barlow Lyde & Gilbert LLP) for the Ferrero defendants. Raymond Werbicki (instructed by Steptoe & Johnson) for the 12th defendant.

The claimant banks brought proceedings against a number of defendants for, inter alia, conspiracy, including fraudulent conspiracy. A group of defendants known as the “Ferrero defendants” (Ferrero) were entirely successful in defending the claims against them.

Nevertheless, Ferrero had advanced a case in relation to important aspects of the claim which it knew to be false, and supported that case by deliberately untruthful evidence from its three main witnesses.

It was held in the main judgment that the combined effect of those lies was to reveal that Ferrero had taken a corporate decision at a high level to present and pursue, to the end of trial, a false case about important aspects of the underlying facts, and about one central issue of fact. The instant hearing concerned costs.

Ferrero maintained that its defence had been not only to resist a substantial financial claim but also to protect its good name and business reputation from allegations of dishonest conspiracy. Further, Ferrero claimed that large parts of the case advanced by the banks, including allegations of fraudulent conspiracy, had been unreasonably brought and pursued, so that Ferrero should obtain an order for costs on an indemnity basis.

The banks contended that it was reasonable for them to pursue those claims because of the misconduct, including lies, of Ferrero both prior to the commencement of, and during, the litigation. Ferrero submitted that its pre-action conduct had had no causative effect on the bringing of the banks’ claim, and that its conduct during the litigation had had limited causative effect in terms of increased cost.

Briggs J:

His lordship considered, inter alia, Royal Brunei Airlines Sdn Bhd v Tan [1995] 3 All ER 97 Molloy v Shell UK Ltd [2001] All ER (D) 79 (Jul) A L Barnes Ltd v Time Talk (UK) Ltd [2003] All ER (D) 391 (Mar) and Ultraframe (UK) Ltd v Fielding [2006] All ER (D) 81 (Dec).

The principles from those cases were:

(i) there was no general principle that where an otherwise successful party had put forward a dishonest case in relation to an issue in the litigation, the general rule that costs would follow the event was thereby wholly displaced.

(ii) The court’s powers in relation to the putting forward of a dishonest case included:
(a) disallowance of that party’s costs in advancing that case;
(b) an order that he pay the other party’s costs attributable to proving that dishonesty; and
(c) the imposition of an additional penalty which, while it should be proportionate to the gravity of the misconduct, might in an appropriate case, extend to a disallowance of the whole of the successful party’s costs, or an order that he pay all or part of the unsuccessful party’s costs.

(iii) In framing an appropriate response to such misconduct, the trial judge should constantly bear in mind the effect of his order upon the process of detailed assessment which would follow, in the absence of agreement, in particular to avoid unintended double jeopardy.

(iv) There was no general rule that a losing party who could establish dishonesty would not receive all his costs of establishing that dishonesty, however disproportionate they might have been.

If there ever was a strict rule that pre-action conduct was relevant to costs only if causative of the bringing of an unsuccessful claim, or of increased expense in the subsequent litigation, such a rule had not survived the introduction of the CPR.

The question whether a particular piece of undesirable pre-action conduct had in fact caused the bringing of an unsuccessful claim, or increased expense in the subsequent litigation, was plainly of primary relevance in the court’s decision as to what extent, if at all, to penalise a party for inappropriate pre-action conduct when making, or refusing, an order for costs.

His lordship also considered Three Rivers District Council v Bank of England [2006] All ER (D) 175 (Apr), National Westminster Bank plc v Rabobank Nederland [2007] All ER (D) 331 (Jul) and JP Morgan Chase Bank v Springwell Navigation Corpn [2009] All ER (D) 37 (Mar). Those cases established that:

(i) The court’s discretion to grant indemnity costs was not limited by any hard rules of exclusion.

(ii) Nonetheless, the primary considerations relevant to the award of indemnity costs were, first, whether the conduct of the party against whom the order was sought was such as to take the case out of the norm, and secondly, whether that party’s conduct could properly be categorised as either deliberate misconduct, or conduct which was unreasonable to a serious degree.

(iii) The bringing of a case alleging dishonesty might qualify for indemnity costs if, on the material, it could be properly categorised as speculative, weak, opportunistic or thin, if it was advanced on the basis of a constantly changing case, and if it was pursued on a very large scale without apology to the bitter end, including by hostile cross-examination, without constant regard to its merits. Some combination of these factors might justify the view that the litigation had been unreasonably pursued.

It followed that it was not enough for a party to assert simply that it had successfully fought allegations of the utmost gravity, regardless of the circumstances in which those allegations had been made.

His lordship added that when asked to make an out of the ordinary costs order in consequence of the alleged misconduct of the party against whom the application was made, the court should exercise common sense and justice and consider the conduct of the party making the application.
His lordship dealt with the remainder of the case on the facts.