Approved Supplemental Judgment
Mr Justice Hildyard :
- Further to my main judgment in these proceedings, which was handed down on 25 February 2013, I now deal with consequential issues arising, including issues as to (a) the remedies appropriate; (b) the appropriate rate of interest; (c) who should bear the costs; (d) whether orders should be made for payments on account, and if so what orders; and (e) an application by the Defendant Firm for permission to appeal. I adopt the same definitions as in my main judgment.
(a) Remedies
- There is no dispute between the parties that on the basis of my main judgment the Claimants are entitled to equitable compensation of some £2,280,000 in aggregate, divided between them in proportion to the monies they paid into the Defendant Firm's client account on dates set out in Schedule 1 to the Particulars of Claim. The Defendant Firm has made clear that the apportionment should be the responsibility of the Claimants' solicitors: and that is accepted by them.
- However, as indicated in the postscript to my main judgment (at paragraph 807), there is (or was) a dispute as to whether the Claimants should also be entitled to compensation in respect of the costs (amounting to some £94,715) that they incurred in seeking an administration order in respect of AFL; and I invited and heard further argument on the issue.
- The Claimants, relying also on paragraph 690 of my main judgment, where I described the application made as "understandable", in view of the conduct of Ms Cummings and Mr Cummings in wresting control of AFL away from Legis to themselves, contended that such expenses were incurred as a reasonable attempt to mitigate their losses, and should be reimbursed to restore the Claimants to the position they would have been in if the breaches had not been perpetrated.
- The Defendant Firm, on the other hand, contended that such expenses are irrecoverable in the form of equitable compensation. In summary, the Defendant Firm submits that:
(1) The Administration Application was predicated on the 7th and 9th Claimants being creditors of AFL; they would otherwise have had no locus. The Court has found in this action that they were not creditors of AFL, having not entered into any loan or (seemingly) any other relationship with AFL. It follows that their application was made on a false premise, and a fortiori cannot have been reasonable.
(2) If it had been reasonable for the 7th and 9th Claimants to pursue the Administration Application they would have been entitled to claim those costs as part of the costs of the administration. The administrators considered the costs were not claimable because those Claimants' application was procedurally defective. In these circumstances, there is no justification for the Claimants to be able to recover such unreasonable costs from the Defendant Firm.
- The Claimants' answer to these points was that
(1) The relevant Claimants did have standing on the basis of claims for unjust enrichment and dishonest assistance; and in any case, AFL's directors (Ms Cummings and Mr Cummings) could not have objected on that ground, since it was their case that the Claimants had indeed made immediate loans to AFL.
(2) Although in the event not pursued, because RBS appointed its own administrators as it was entitled to do under its security documentation, the application was made in a form sufficient, or at least in a form that could have been saved by amendment if not entirely compliant.
- In the course of argument I indicated my provisional view that the relevant Claimants had sufficient standing (see Schedule B1 para.12(3) of the Insolvency Act 1986) and that the fact of a dispute as to the claim on which that standing was based did not necessarily preclude the application: the Companies Court is not as strict in its attitude to contested debts in the context of administration as in the context of winding-up: see Hammonds v Pro-Fit USA Ltd [2008] 2 BCLC 159 (Warren J).
- However, I expressed concerns as to (a) whether the application was made in proper form; (b) whether the present evidence was such as to show that a sufficient basis was put forward as to how the purpose of administration was likely to be achieved; (c) whether there had been any sufficiently detailed analysis of the financial position, and any explanation of how trading whilst in administration was to be funded; and thus (d) whether the application was such as might reasonably have succeeded. I invited further written submissions to address these concerns.
- In the event, whilst not accepting that these concerns could not be answered, the Claimants have decided not to pursue this claim; and in the circumstances I need say no more about it.
(b) Interest on principal sums
- The Claimants claim interest in relation to the principal sums of £2,280,000, as follows:
(a) From the dates of receipt by the First Defendant of those monies (as set out in Schedule 1 to the Particulars of Claim) to 12 December 2007 (inclusive) at the rate earned by the First Defendant on its client account, namely 3.82%.
(b) From 13 December 2007 to the date of this order (inclusive) at Bank of England base rate ("base rate") plus 5%.
(i) Whether any interest payable in the circumstances
- The Defendant Firm contends that neither claim for interest is justified. It made two overarching submissions, advanced as applicable to both claims:
(1) First, it is stressed on its behalf that the function of interest is to compensate claimants for being kept out of money which ought to have been paid to them (or, in the context of legal costs, for which they are out of pocket): it is not to compensate them for damage done, and it is not to be awarded at a rate that would be penal: see generally the White Book at 7.0.16.
(2) Secondly, it originally contended that in the particular circumstances, no interest should be awarded to the Claimants at all (alternatively it should be awarded only up to March 2010) because in the particular factual circumstances the Claimants have not, on analysis, lost anything by having been kept out of their money and thus interest is not required so as to effect restitutio in integrum. The basis for this contention was that the Claimants in fact made use of their claims against the Defendant Firm by contracting with each other and with Albemarle Fairoaks Airports Limited ("AFAL") to use the proceeds to subscribe for shares and loan notes in AFAL.
- I can dispose fairly briefly of these two overarching points:
(1) I did not understand the first to be contested, as a matter of general principle.
(2) As to the second, it was based on a misunderstanding by the Defendant Firm and was, after it had been explained, and then queried, withdrawn.
(ii) What rate of interest on the judgment sums would be appropriate?
- I turn to consider the two different interest rates contended for on behalf of the Claimants.
- As to the first period for which interest on the judgment sum is claimed, from the date of receipt of funds (the earliest was 21 August 2007) until 13 December 2007, the Claimants seek interest at the rate at which interest was earned by the First Defendant on its client account. If the Claimants are right, this would give them an award of around £24,000 for this short period.
- The basis of the Claimants' claim may be summarised as follows:
(1) The First Defendant should have returned the money at the latest by 13 December 2007 when Mr Dickinson told the First Defendant and RBS that the monies "simply do not belong" to AFL (Judgment para 580(2)) and the First Defendant was "on clear notice of a lack of authority by AFL and proprietary claim by the Claimants" (Judgment para 580(4)). An earlier date is arguable (and certainly on one view the date of an account is the date of breach of trust, which was paying the money away in August, September and October 2007) but the Claimants propose 13 December 2007 as the date on which the money would definitely have been returned to them but for the breach.
(2) As for interest before that date, the Claimants say that, either as an account of profits, or as interest under the discretionary statutory power, the appropriate rate is the rate that the Defendant Firm earned on its client account. The Defendant Firm would have been bound to pay that interest to the Claimants when returning their money. (Of course, the Defendant Firm in fact earned less interest than this, but only because it paid the money away before 13 December 2007.)
(3) It seems that the rate applicable on the Defendant Firm's Lloyds TSB client account is 3.82% per annum compounded monthly for all of the period August to December 2007 for a balance over £1m. Although each Claimant sent in a different sum, the money was all held on one ledger, and indeed all ledgers are simply separate accounting divisions with the money held in one physical bank account. Accordingly, 3.82% is what the First Defendant in fact earned on its client account on the Claimants' money until it was paid away, and would have earned and had to return to the Claimants if it had not breached the trust.
- The Defendant Firm rejects this analysis, and indeed the Claimants' approach in distinguishing between these two periods. It is submitted on its behalf:
(1) that since the Defendant Firm almost immediately paid to RBS the monies received into its client account there is no warrant for distinguishing between the periods before and after December; and in any event;
(2) that since the claim is compensatory and not for an account, the amount that might have been earned on client account is irrelevant, and the claim on that basis is contrary to principle; and
(3) that (also in any event), the rate claimed is unsupportable, since calibrated to the interest payable on deposits in excess of £1 million; and if the premise on which interests is claimed, that is that the Claimants should have received back their money, is followed through, the appropriate rate is that which might have been available to individual deposits equal to each separate Claimant's money claim.
- I am not myself persuaded by either analysis. In my judgment, in respect of the first period, the Claimants should be entitled to no more than they would reasonably have expected to be paid had the Defendant Firm returned their monies once obliged to do so.
- It not being disputed that the Claimants made early payment on the basis of being guaranteed a right to subscribe, but in the meantime of being paid 1% above base rate, it seems to me that that is the right rate to apply. The fact that, on the views I have formed, as expressed in my main judgment, no contract eventuated does not mean that that is not the fair and appropriate rate, if it conformed with the expectations of the Claimants, as to my mind it does: and see Way v Latilla [1937] 3 All ER 759.
- Accordingly, for the first period, I consider that the interest rate should be 1% above base rate. Very different considerations would apply of course had the Defendant Firm retained the monies.
- I turn to consider the second period. Much more rides on this. Even on the basis of simple interest, Mr Sutcliffe QC said some £750,000 interest would be payable if the rate for which he contends is ordered.
- The Claimants, in contending that a rate of 5% over base rate is indeed the appropriate rate, rely on the following propositions as being the appropriate guide to the Court in exercising what is undoubtedly its broad discretion:
(1) The purpose of an award of interest is to achieve restitutio in integrum. The enquiry does not focus on assessing the profit to the defendant of the use of the money. It is directed to an estimation of the cost to the claimant of being deprived of the money which he should have had (per Steyn J in Banque Keyser Ullman SA v Skandia (UK) Insurance Co Ltd & Others [Transcript 11 December 1987]).
(2) However, the Court adopts a broad brush. For practical reasons it will not make an enquiry into the claimant's actual loss; nor will it enquire or speculate as to what the claimant would have done with the money had he not been deprived of it. The Court almost invariably adopts as its measure what it would have cost a person in broadly the same position as the claimant to borrow the money of which he was deprived. Thus, to quote Steyn J in Banque Keyser Ullman again, the aim is to establish the rate(s) at which "a person in the position of the claimant would have had to pay to borrow the money" over the period for which interest is awarded.
(3) The way this is applied was explained in more detail in an oft-quoted and applied approach of Forbes J in Tate & Lyle Food and Distribution Ltd v Greater London Council [1982] 1 WLR 149 at 154:
"I feel satisfied that in commercial cases the interest is intended to reflect the rate at which the plaintiff would have had to borrow money to supply the place of that which was withheld. I am also satisfied that one should not look at any special position in which the plaintiff may have been; one should disregard, for instance, the fact that a particular plaintiff, because of his personal situation, could only borrow money at a very high rate or, on the other hand, was able to borrow at specially favourable rates. The correct thing to do is to take the rate at which plaintiffs in general could borrow money. This does not, however, to my mind, mean that you exclude entirely all attributes of the plaintiff other than that he is a plaintiff. There is evidence here that large public companies of the size and prestige of these plaintiffs could expect to borrow at 1% over MLR [minimum lending rate], while for smaller and less prestigious concerns the rate might be as high as 3% over MLR. I think it would always be right to look at the rate at which plaintiffs with the general attributes of the actual plaintiff in the case (though not, of course, with any special or peculiar attribute) could borrow money as a guide to the appropriate interest rate."
(4) Thus, the parties may demonstrate that an entity with the claimant's general attributes, following "categorisation of the plaintiff in an objective sense" (Steyn J in Banque Keyser Ullman), could at the relevant time borrow on the markets at a particular rate. Specific features of the claimant (for example in relation to personal creditworthiness) will be disregarded in order to save time and money at trial, and so there is no need to seek to measure the "actual loss" of the actual claimants (Steyn J in Banque Keyser Ullman).
(5) Until recently, the presumption in the Commercial Court, often adopted in business disputes, was that the rate of interest should be 1% above base rate. However, in the present financial circumstances, where the spread between base rate and the actual cost of borrowing is much greater than in the past, that presumption has largely fallen away: and the latest Commercial Court Guide indicates that there is no longer such a presumption; and see Sycamore Bidco Ltd v Breslin [2013] EWHC 174 (Ch) per Mann J at para 51.
(6) Moreover, there is also a consistent line of authority supporting rates above the Commercial Court rate where the claimant is a small business or (as in this case) a group of individuals. Thus:
(a) In Jaura v Ahmed [2002] EWCA Civ 210, the "real costs of borrowing incurred by… small businessmen" were fixed at 3% over base, Rix LJ observing (at paragraph 26) that "The law should be prepared to recognise, as I suspect evidence might well reveal, that the borrowing costs generally incurred by them are well removed from the conventional rate of 1% above base (and sometimes even less) available to first class borrowers". Rix LJ strongly suspected that this did insufficient justice and that a higher rate of 4.5% above base rate might well be more typical of the rates available to small businessmen (paragraph 25), but did not think that the Court in that case had sufficient evidence of that to impose the higher rate.
(b) In Lindsay v O'Loughnane [2010] EWHC 529 (QB), Flaux J had no specific evidence and awarded an individual base rate plus 2%, observing (at paragraph 143) that he accepted
"the general proposition that the rate at which individuals can borrow money has been rather higher than base plus 1% in the last few years. In the absence of specific evidence I am not prepared to go as high as 4% over base which was Mr Maclean's upper limit, being the rate imposed by FX on its customers for late payment under clause 5.8 of the Terms and Conditions. However, I will award interest at 2% over base rate."
(c) In Attrill v Dresdner Kleinwort [2012] EWHC 1468 (QB), Owen J awarded individuals interest at 5% over base rate for the period January 2009 to the date of payment as a reasonable rate to reflect the cost of unsecured borrowing to an individual (paragraph 3). Evidence was led of Bank of England tables showing the interest rates on secured and unsecured loans (see paragraph 3).
(d) The authorities were recently summarised by Mann J in Sycamore Bidco Ltd v Breslin [2013] EWHC 174 (Ch) at paras 44 to 57. There the judge awarded a newco set up to acquire a business base rate plus 3%, stepping down to base rate plus 2.5% in light of slightly less restrictive credit conditions than those prevailing in the immediate aftermath of the "credit crunch".
- In support of the rate of 5% above base rate, and to give the Court some evidence as to interest rates in the market, the Claimants have filed the Second Witness Statement of Joy Barnett dated 21 February 2013. This short statement has been prepared from publicly available information and supports the Claimants' submission that an individual seeking to borrow a six figure sum for five years (or even for a shorter time) would, if needing an unsecured personal loan or authorised overdraft, end up paying sums significantly in excess of base rate plus 5%.
- The Claimants submit that this provides the evidence that was lacking in some of the above cases, and enables the Court to form a view of the rate that a borrower with the general attributes of the Claimants would pay. The Claimants also rely on Attrill, which they suggest is the closest case factually to the present case, where base rate plus 5% was awarded for 2009 to 2012.
- The Defendant Firm chose not to put in any evidence on interest rates. Its argument was broader based: it was contended on its behalf that the rates of interest proposed by the Claimants are inappropriate where it is not suggested that there has been any borrowing by the Claimants.
- It was submitted by Mr Croxford QC on the Defendant Firm's behalf that, there being no real suggestion that any of the Claimants had had to borrow to replace the money subscribed, this case is unlike most commercial claims by businesses in which a degree of borrowing to fund the business is the norm. It is that norm which is reflected in the leading reported decisions on interest. To award interest at the rates suggested would be to provide a "windfall profit" to the Claimants.
- Mr Croxford submitted that, whatever the more usual approach, in the particular circumstances, it would be more appropriate to apply an "investment rate", usually such rate as would be earned on deposit (except in the case of personal injury claims, where the "special account rate", now only 0.5%, is usually applied: see White Book at 7.0.17(f)).
- Acknowledging that such rates have been unusually low over the period, he suggested that a more appropriate rate would be the rate on the Defendant Firm's client account, or not more than 1% above base. That was also consistent with the alternative approach of keeping to the old commercial yardstick of 1% over base rate.
- Further, Counsel for the Defendant Firm emphasised that the Court of course has a discretion not only as to the rate but also as to the period for which interest should run. They submitted that the conduct of the Claimants (as described under the heading "Conduct" below) must be taken into account in the exercise of this discretion.
- As to that, they maintained that these claims and this action have taken far too long to get on to trial. They urged that in the circumstances the delays in bringing and then prosecuting the claims is such that it would be wrong to say that the Defendant Firm has deprived the Claimants of the use of their money. For a large part of the period since late 2007 the Claimants' own acts have delayed prosecuting their claims and thus deprived them of the use of such money. They drew my attention to the fact that the claims were intimated in correspondence as early as 25 September 2009 when a letter before action was sent. A further "Pre-Action Protocol" was sent on 18 May 2010. Thereafter, much time was expended by what they presented as the Claimants' repeated failure to identify their claims with precision and to prosecute them with reasonable despatch. They submitted in these circumstances that if any interest is to be allowed then it should be for no more than 3 years.
- In my judgment, I have to decide the following issues in this context:
(1) whether to achieve restitutio in integrum, which I take all parties to accept is the objective, I should seek to assess the cost of borrowing money (as the Claimants contend) or the rate that the Claimants might have earned if they had had the money, that is "the investment rate" (as the Defendant Firm contends);
(2) what, according to the approach selected, is to be taken to be the proxy rate to cover all of the Claimants, given that in reality each will be in a different financial position;
(3) whether interest is to be awarded for the whole of the period from 13 December 2007 until judgment or for a lesser period on the basis that the Claimants should not be entitled to interest if the delay was of their own making.
- As to (1), it seems to me that the Court's overall approach in the authorities cited to me is to distinguish between (a) cases relating to money lost in or in relation to the conduct of a business where the general assumption would be that money lost or detained would have to be replaced by money borrowed to maintain that business and (b) cases where any award is an accretion to the funds of the claimant, rather than replacement of monies which the claimant had previously had and put to use.
- In cases of type (a), the Court seeks to identify an appropriate interest rate, adopting a broad brush to establish a rate approximating to the cost that a claimant in that line of business or activity would have incurred in borrowing money to replace the money lost or detained. In cases of type (b), of which the paradigm may be personal injury cases, the Court seeks to identify an appropriate rate to represent a minimum return to put the claimant in the position he or she would have been if the money had been placed on deposit at the date of the event that gave rise to the claim.
- This case does not really fit easily into either category. It seems to me an example of a third type of case, which is where the claimant is not running a business that depends upon credit, and where the loss of the money is likely to deprive the claimant of other opportunities, but where any ordinary presumption of the need for credit is weak or non-existent.
- In cases of this third type, in my view, neither a minimum investment basis nor a proxy borrowing cost basis, is really a logical proxy. Thus, it is unlikely that any of the Claimants in this case, being sophisticated investors, would have left money on bank deposit at such low rates of return; but it is also unlikely that any of them would have borrowed at (say) 5% over base rate to make further investments: even someone with an unusual appetite for geared investment would be likely to be put off. Further, neither reflects the larger reality that in this case the Claimants' real loss is the opportunity denied for further investment: and that is not measurable.
- Attrill may also have been a case of the third type. The claimants in that case were individuals who recovered from their employers damages for breach of contract for the difference between sums contractually due to them as bonus and the sums actually paid to them. There is nothing to suggest that any of the claimants had actually needed to borrow, nor that any of them were in business where there is the presumption of the need for credit. Indeed, Owen J relied on the fact that it was not a commercial case, nor akin to one, in departing from the old commercial rate of 1% above base rate: see paragraph 4.
- However, I have concluded that in this case, neither the investment rate nor the unsecured borrowing rate really provides a fair answer; and that the appropriate rate is such rate as is reasonable to assume that persons in the position of the Claimants would have had to pay for monies for geared investment. I have no direct evidence of applicable rates in such a context: and I suspect there are fairly broad variations according to personal circumstances.
- That brings me to issue (2) in paragraph 30 above: what rate would be fair across the board. Again, a broad brush is required: in assessing any special rate the Court disclaims the task of determining what each claimant's financial position is and at what rate that claimant could have borrowed money. It seeks to assess a reasonably representative or proxy rate which can without apparent injustice be applied across the class of claimants.
- The fashioning and calculation of a representative or proxy rate is more art than science; and it is more in the nature of "one size fits all" than "made to measure". It is an exercise of discretion rather than of settled rules. The Court must do its best to fashion a proxy which suits the nature of the case and the claimants as a whole, though it does not and cannot reflect the individual financial position of each claimant.
- To my mind, three special features need to be taken into account in fixing a proxy interest rate for the Claimants as a whole: first, these were speculative off-market investments (albeit that the Albemarle schemes had a good track record) such as to interest and be available only to sophisticated investors. Secondly, I infer from the fact that there was no evidence provided that any had been forced to borrow (although there was some suggestion made by Counsel on his feet and late in the day that Mrs Challinor had had to take out a mortgage), that many and perhaps most of the Claimants invested out of disposable funds. Thirdly, the period in question was one of historically low rates for both savers and borrowers, but with savers typically being offered very little return above base rate and borrowers (especially in the case of unsecured borrowing being required to pay considerably in excess of base rate).
- I would expect rates lower than unsecured lending rates to have been available to borrowers where (a) there is evidence that the (presumed) borrowers plainly had surplus available assets (whether in the form of credit balances or other investments) other than their homes to offer as security, and/or (b) the nature of the activity that has given rise to the loss is such as would not ordinarily be undertaken by persons without such surplus assets available to provide as comfort during the currency of investment, and (c) the borrowing would not be to fund trading activities but to enable and fund a geared investment strategy.
- In this case, in my view, although the Claimants are for the most part individuals, they should be taken to be sophisticated investors, borrowing (if at all) to fund a geared investment strategy of a fairly speculative nature, able to borrow and in good standing, and owning other realisable investments which might provide comfort but which would not be likely to be acceptable as security.
- In such circumstances, as it seems to me, a fair proxy rate would be one slightly higher than that available to borrowers offering real property with a substantial LTV ratio, but lower than unsecured lending in the ordinary course. It should, however, approximately, reflect the more general reality that the borrowing costs might have been offset or even exceeded by investment gain. Further, and like the old Commercial Court standard rate, it should be blended (and in the present circumstances slightly reduced) to take into account the likelihood that at least some of the Claimants would never in fact have had to borrow at all. As to that last point, it is relevant to bear in mind that the old standard commercial rate was a pragmatic blend: see Colin Baker v Black Sea and Baltic General Insurance Co Ltd [1996] LRLR 353, where Otton LJ explained (at 365):
"The practice whereby interest is normally awarded at 1 per cent over base rate amounts to a presumption which can be displaced if its application would be substantially unfair to either party. That rate represents something of a compromise (albeit weighted in favour of the plaintiff) between what a [plaintiff kept out of his money might have earned on it and what he might have had to pay by way of interest…"
- The evidence provided to me (which, as indicated previously, was primarily directed at unsecured borrowing rates) appears, put very summarily, to indicate that
(1) a rate of 6% over base rate for unsecured personal lending would be conservative: although that is the rate suggested by the Bank of England for both 2010 and 2013, RBS figures (for example) suggest 10.5% over base rate for 2010 and 7.4% above base rate for 2013;
(2) average rates for secured lending (normally mortgage borrowing with real property as collateral) over the period since the reduction of base rate to 0.5% have averaged some 4% over base rate, though I suspect that, especially for those offering a substantial deposit, they may materially have decreased lately;
(3) lending criteria remain restrictive: any gradual easing as supply increases and demand remains weak may over time be reflected in lower rates for larger businesses but has not benefited and does not appear likely for the present to benefit personal unsecured borrowers;
(4) rates on deposits of less than 3%.
- None of these figures is itself a suitable proxy. As already indicated, I do not have evidence as to borrowing rates for geared investment where existing investments or deposits may be available as collateral; and of course any blend of borrowing and saving rates involves a broad and unscientific assessment.
- But taking these sometimes conflicting considerations into account, and subject to the third issue, I consider that the appropriate rate to compensate the claimants for being kept out of their money is 3% above base rate over the period from December 2007.
- This is rather lower than the rate considered by Owen J in the recent case of Attrill & Others to be the cost of borrowing by individuals, but broadly in line with that considered by Mann J in Sycamore v Breslin to be appropriate in the case of unsecured borrowing by a relatively small company to fund its cash flow needs. It is intended to reflect my assessment of (a) the general characteristics of the Claimants as appears likely from the nature of the activity in which they were all engaged, (b) the likelihood that they were as a class in a marginally better position than most to obtain credit in light of their likely standing and financial sophistication, and (c) an element of blending between rates available to borrowers and savers. It is, in a sense, intended to represent a pragmatically enhanced version of the old Commercial Court rate, taking into account the present unusual financial and economic circumstances.
- The third issue identified in paragraph 30 above is whether any part of those periods should be disallowed, or the rate in any such periods reduced, to reflect unreasonable delay on the part of the Claimants in commencing or prosecuting the proceedings: and see Claymore Services Limited v Nautilus Properties Limited [2007] EWHC 805 (TCC) at paragraph 55.
- In this context, and as is reflected in the passage quoted above, delay is not to be characterised as unreasonable unless it can be seen that the claimant has neglected or declined to pursue his claim for a significant period. The delay must truly be exceptional and inexcusable, having made allowance for the fact that delays and lulls do occur in litigation; an example would be where an action has inexcusably been allowed to go to sleep for years: see per Colman J in Athenian Harmony (No 2) [1998] 2 Lloyd's Rep 425 at 427, in a passage also quoted in Claymore (at paragraph 52).
- In my judgment, the delays in this case are not such as to warrant any reduction in the periods during which interest is to be paid, nor of the rate which I have determined should be taken as the proxy interest rate for the second period in question.
- Accordingly, the rate I have concluded to be appropriate is to be applied over the entire period after 13 December 2007.
(c) Liability for costs
- I turn to the issue of costs, which is inevitably complicated by the fact that the proceedings involved (a) contingent claims by the Claimants against Mr Egan added at the commencement of trial, which proved unnecessary but which I would have dismissed and (b) Part 20 claims by the Defendant Firm against Mr Egan, which failed.
- All parties joined to remind me that although the Court has a discretion, it is not at large, and the Court must have regard to all the circumstances of the case, including the conduct of the parties, and whether a party has succeeded on part of his case, even if he has not been wholly successful: CPR 44.3.(4)(a).
- Further, CPR 44.3(5) explains that the conduct of the parties includes:
(a) conduct before as well as during the proceedings, and in particular the extent to which the parties followed the Practice Direction (Pre-Action Conduct);
(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;
(c) the manner in which the party has pursued or defended his case or a particular allegation or issue;
(d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.
- For reasons that will become obvious, the Defendant Firm also especially reminded me of CPR 44.3(6), which describes the various Costs Orders that the Court may make, including an Order that a party must pay a proportion of another party's costs (CPR 44.3(6)(a)). Counsel for the Defendant Firm cited cases as follows:
(1) "In many cases the judge can and should reflect the relative success of the parties on different issues by making a proportionate costs order" per Jackson J (as he then was) in Multiplex Constructions (UK) Limited v Cleveland Bridge UK Ltd & anor [2008] EWHC 2280 (TCC);
(2) "A proportionate costs order may be appropriate to reflect the extent to which a successful party has not been selective in the points they have taken and so should not recover all of their costs. An example of this situation is a case where an issue-based approach might otherwise be appropriate. It is clear that in such a case the Court should avoid ordering, for instance, that each party should have the costs of certain issues, but if practicable should make a proportionate costs order or, alternatively, one which gives one party the costs from or until a particular date." BSkyB Limited v HP Enterprise Ltd [2010] EWHC 862 (TCC).
- I have sought to keep this guidance well in mind at each stage.
(i) Costs of Second Defendant in the main claim
- I shall start with the position as regards Mr Egan, which is in some senses easier.
- His contention is simple: the claims against him failed, so he was wholly successful, and accordingly someone must pay his costs.
- It is submitted on his behalf that:
(1) the Defendant Firm should pay all his costs up to 14 May 2012 (that is until his joinder as Second Defendant by the Claimants) and 90% of his costs thereafter, in each case on the standard basis and to be subject to detailed assessment if not agreed;
(2) the Claimants should pay the remaining 10% of his costs after 14 May 2012, being his estimate of the costs referable to the claim against him by them, again on the standard basis and to be subject to detailed assessment if not agreed;
(3) interest should be payable at 4% from the dates when the relevant costs were in fact paid until the date of this Order;
(4) the Defendant Firm should pay him £200,000 on account of costs, and the Claimants should pay him £10,000 on account of costs, to be split (in the case of the Claimants) pro rata among the Claimants according to the investment amounts set out in the Order.
- The Defendant Firm rejects any suggestion that it should pay any part of Mr Egan's costs for any period, and that he should bear his own costs.
- It is submitted on behalf of the Defendant Firm that:
(1) Mr Egan brought this claim, and the Claimants' claim, upon himself.
(2) If he had addressed the true facts as he genuinely recalled them (doubtless with the assistance of the documents which have always been available to him) from the start it is very likely he would not have been joined at all: after his late changes of story (essentially a change of 180 degrees) he effectively supported the Defendant Firm's factual account.
(3) His change of heart doubtless reflected the proximity of the Court door and the appropriate efforts of those advising him to address the details of the facts and his role in those facts as evidenced (albeit very belatedly) by the disclosed documents (most of which had been in his possession and control throughout).
(4) A letter before action was sent to him on 12 March 2010. In that letter he was asked expressly to provide an explanation of what he told the Claimants when he solicited investment. He conspicuously failed to answer that very simple question. Had he done so and said, in effect, what he finally said in his witness statement dated 10 May 2012, then it is almost inconceivable that the Defendant Firm would have joined him in these proceedings. He would rather have played the role of being an obviously significant witness of fact; any "claim over" for contribution or indemnity would have awaited the outcome of the Claimants' claim.
(5) His costs are therefore all of his own making.
- For once the Claimants concur with the Defendant Firm in this respect: that Mr Egan conducted the litigation in what they describe as a remarkable and unreasonable way.
- They too contend that Mr Egan brought their claim on himself, and his conduct led to disruption and additional cost: they maintain that his volte-face at the start of trial caused huge disruption and is what prompted the Claimants to join him as Defendant. He had put forward an apparently inconsistent case. Had his case been consistent all along, the Claimants would have been able to explore it and consider it and may well not have joined him. They submit that:
(1) In the circumstances, although successful, Mr Egan should not have any costs of the main claim against the Claimants. It was reasonably brought as a result of exceptional behaviour of Mr Egan in giving inconsistent accounts and adopting inconsistent positions. In support, Counsel for the Claimants cited various passages in my main judgment, and especially paras 18-19, 296-7, 327, 422-3, 447 and 761-2. It is submitted that any costs the Claimants caused Mr Egan by their failed claim are offset by the costs Mr Egan caused the Claimants by his unreasonable behaviour.
(2) Had Mr Egan given the Claimants proper warning of his volte-face, they would have had time to consider joining ECSL (which, despite being in liquidation, would presumably have been insured against such a claim) (Judgment para 725). As is clear from the reasoning in the judgment, a claim against ECSL is likely to have succeeded and there would then have been no failed claim against Mr Egan.
(3) In any event, even if the Claimants were liable to pay any of Mr Egan's costs, the suggested proportion of 10% is too large. The trial lasted 20 days within about 6 weeks (including non-sitting days). Any estimate must be rough, and the Claimants agree that an issue-based division would be entirely unworkable, but it is wrong to suggest that the Claimants' joinder of Mr Egan cost two full days of court time and an additional day or two of non-sitting time. If (contrary to the Claimants' submission) costs were to be awarded, 5% would be a generous amount and in the circumstances it would not be appropriate to order any payment on account.
- In my judgment, it would not, in all the circumstances, be fair to order the Claimants to pay any part of the costs incurred by Mr Egan in defending the claims they brought against him only after the rather extraordinary turn of events culminating on 14 May 2012; and there should be no order for costs as between the Claimants and Mr Egan.
- I appreciate, of course, that (a) Mr Egan was the successful party in the sense that the Claimants' contingent claims against him (i) were, on the basis of the Claimants' success against the Defendant Firm, unnecessary and (ii) would otherwise have failed; and that (b) normally, costs would follow the event. However, I broadly accept the Claimants' submission that the sudden and substantial re-casting of his case invited and made both inevitable and entirely understandable a contingent claim against him. To have waited upon the result, and then bring separate proceedings against him only if necessary, was an alternative: but it could have led to substantial additional costs and difficulties (especially in light of the Part 20 Claim already proceeding). It is also unsurprising that the Claimants wished to have the certain opportunity to cross-examine Mr Egan in light of his change of story.
- Further, I consider that Mr Egan's changes of stance, and unreliability, are matters that, in all the circumstances, and especially in light of my criticisms of his conduct, would make it unfair to require the Claimants to pay his costs of a turn of events substantially forced upon them.
(ii) Costs in the Part 20 Claim
- Turning to the position as between the Defendant Firm and Mr Egan, in my judgment the Defendant Firm should pay the costs of the Part 20 Claim. It was always central to the Defendant Firm's case that Mrs Bellis had relied, and been entirely justified in relying, on Mr Egan and his alleged authority on the part of both AFL and the Claimants. Although their respective interests were aligned, in the end, on the issue of contractual escrow, they were in conflict on almost all other points. I do not accept that it is likely that the Part 20 Claim would have been held over. In this context, there is no reason to depart from, indeed there is in my view every reason to adhere to, the usual rule that costs follow the event. I bear in mind also the nature of the claims made by the Defendant Firm, which included dishonest assistance.
- For the avoidance of doubt, however, I do not consider it fair or appropriate to require the Defendant Firm to pay Mr Egan's costs of his defence in the Main Action: they will lie as they fall.
- Also for the avoidance of doubt, the basis of assessment shall in each case be the standard basis, to be the subject of detailed assessment if not agreed: I was not invited to make any other order. I deal under a separate heading with questions as to whether there should be payments on account of costs and if so, in what amounts and within what time period.
(iii) Costs as between the Claimants and the Defendant Firm
- Turning to the position as between the Claimants and the Defendant Firm, the Defendant Firm accepts that, as the paying party, it is prima facie liable to pay in full the Claimants' costs in the proceedings between them: see, for example, per Jackson J (as he then was) in Multiplex Constructions (UK) Limited v Cleveland Bridge UK Limited and Another [2008] EWHC 2280 (TCC) at para 72. But the Court may need to consider whether, and if so what, departures are required from that starting point, having regard to all the circumstances of the case: ibid.
- Apart from issues of quantum, and the amount of any payment on account, the only real question in this context is whether (as the Defendant Firm submits) a proportionate costs order is appropriate.
- Detailed submissions were put forward, in writing and orally, on this issue: the Defendant Firm's written submissions on the point extended to some 11 pages. What might be called the "punch line" of the Defendant Firm's submissions was summarised in correspondence prior to the hearing after judgment as being that the Claimants should be disallowed 40-50% of their costs "because of the grossly inefficient/incompetent way the case was handled by the Claimants." That was accompanied by a warning that the Defendant Firm would also seek an order that the Claimants pay some of its costs.
- The Defendant Firm's extensive submissions tended to veer between an issue-based approach (that is, that the Claimants had resiled from or changed its case or failed on particular issues) and a pure percentage-based approach (that is a broad percentage assessment on the basis of disproportion or unreasonableness).
- There is an obvious difference between, on the one hand, identifying issues on which the otherwise successful party failed and assessing the proportion of costs referable to that failure in percentage terms, and on the other hand, scaling down across the board on grounds of disproportion or by reference to the misconduct of a party or his failure to abide by the rules (such as disclosure).
- The latter raises obvious but intractable questions as to the interplay between the role of the Judge at trial and the role of the Costs Judge upon detailed assessment: and see per Waller LJ in Northstar Systems Ltd v Fielding [2006] EWCA Civ 1660. Proportionality as such will be a matter for detailed assessment; and to take the same matters claimed to be disproportionate into account twice would obviously be wrong: see SCT Finance Limited v John Bolton [2002] EWCA Civ 56 (especially at paragraph 36). Likewise, the costs of abandoned issues: and see CPR 44.3.11. Nevertheless, misconduct in or in connection with the proceedings may result in disallowance of costs: see CPR 44.14 and (again) Northstar Systems (supra). Careful wording of the order is necessary to avoid double jeopardy; but even then, as it seems to me, tensions remain.
- With somewhat faint lines between the two approaches, the Defendant Firm relied on the following factors as justifying a proportionate costs order:
(1) the Claimants' failure to advance a consistent case, demonstrated by the numerous iterations in their pleadings, and consequential upon a failure to "undertake a reasonable analysis at the outset";
(2) the contention that the "costs…massively increased by the unnecessary complexity which the Claimants…introduced – all because they did not understand what their case actually was or take care to formulate a coherent claim";
(3) what the Defendant Firm depicted as "grossly unsatisfactory" disclosure and
(4) the "deeply inefficient manner in which this litigation was conducted";
(5) factual issues initially advanced but then simply abandoned or not pursued, including
(a) the provenance and bona fides of the Engagement Letter;
(b) Mrs Bellis's initially alleged involvement in the due diligence exercise for the acquisition of Egan Lawson;
(c) a suggestion that the COBO consent obtained in September 2007 was not authentic;
(d) an allegation that the RBS Equity Bridge was negotiated by Mrs Bellis and Mr Pearson;
(e) an assumption that all Albemarle investment schemes contained like escrow conditions;
(f) an assumption that there was a Fairoaks Information Memorandum of which Mrs Bellis was aware;
(6) issues on which the Claimants lost, including
(a) the alleged conversation between Mr Wallis and Mrs Bellis;
(b) the formulation of the main claim as based on a contractual escrow;
(c) the allegation that Mrs Bellis had seen and knew the terms of the Teaser.
- The Claimants, for their part, and understandably, reject the allegation of gross incompetence as not only unparticularised but also entirely unwarranted. Their Counsel countered that they might well have sought, and had some prospect of obtaining, an order for indemnity costs, given the conclusions I reached as to the conduct of Mrs Bellis, a professional solicitor and an officer of the Court.
- Counsel for the Claimants also pointed out that the matter had been hard fought after the main procedural steps took place in the months before trial, "compressed somewhat by the distraction of in autumn 2012 of the expedited summary judgment application" (a reverse application brought by the Defendant Firm, which it lost). They contend that there were gross inadequacies in the Defendant Firm's disclosure such that I directed it to make a witness statement to explain why it had been deficient. Further, they contend that the First Defendant's decision not to call Mr Bellis, or Ms Cummings, or Mr Pearson, or anyone else at Erinaceous was part of a strategy of controlling "the information available to the court as to what went on behind the Erinaceous curtain." They suggest that the Defendant Firm adopted an intransigent and "obstacle-imposing attitude" throughout which deflected the Claimants and greatly added to the costs.
- In relation to items (1) to (4) in paragraph 75 above, which raise issues of conduct and disproportionality, I certainly do not accept the Defendant Firm's serious and unparticularised allegation of gross incompetence (which, in my view, should not have been made). I accept that this was hard fought litigation with little quarter given on any side. I accept also that on all sides the disclosure process was far from perfect, and indeed such as to attract concern.
- Even so, I have a certain sympathy with the view that the Claimants' case did for some time, and even during the hearing, wander around near the point without really grappling with it, and became enmeshed in a changing contractual analysis that was always in difficulties given the lack of communication between the relevant parties. I think there were inefficiencies in the manner the case was put forward, as the variety of amendments demonstrates, and as Counsel for the Claimants' acknowledgment that the "litigation was not streamlined" in part acknowledges.
- However, whilst I would expect pruning of the costs upon detailed assessment, I do not, in the round, consider that these inefficiencies require a percentage reduction to be made. Put shortly:
(1) The inefficiencies largely related to legal characterisation, and I doubt that they substantially affected the length of the trial (save as indicated in paragraph 82 below);
(2) Deficiencies in disclosure cannot easily or (to my mind) satisfactorily be translated into costs;
(3) I do not think that this is a case for the application of CPR 44.14 at this stage;
(4) Issues of proportionality as such are better left to the Costs Judge.
- As to (5) in paragraph 75 above (issues advanced but not pursued), again I would expect that to be more appropriately dealt with as part of detailed assessment.
- However, as to (6) in paragraph 75 above (issues on which the Claimants failed), I do think that some account should be taken and a proportionate reduction made in respect of various issues advanced by the Claimants on which they failed. I would identify the following:
(1) the issue as to the alleged conversation between Mr Wallis and Mrs Bellis, which was a discrete but central issue;
(2) the repeated but inconsistent attempts on behalf of the Claimants to dress the main basis of their Main Claim in the clothes of contract, however ill-fitting.
- An exact time-based analysis is not feasible or practical: but I consider that a reduction of 10% in the costs payable by the Defendant Firm to the Claimants would achieve a broad fairness: so that in the round the Defendant Firm must pay 90% of the Claimants' costs in the main claims. For the avoidance of doubt, since the Defendant Firm did seek such an order, I do not consider that any part of the Defendant Firm's costs should be paid by the Claimants (leaving aside any existing orders in respect of amendments).
(iv) Should these costs include costs of the Claimants' claims against Mr Egan?
- The remaining question in relation to the costs referable to the claims against Mr Egan is whether the Defendant Firm should also be required to pay the Claimants' costs of their own claims against Mr Egan, if and insofar as distinguishable. In my judgment, distinguishing the costs is difficult and necessarily imprecise. The question is whether substantial time was spent by the Claimants in the course of trial which would not have been expended had the Claimants not also joined Mr Egan and which it would be unfair to require the Defendant Firm to pay.
- Since, in my view, extended cross-examination of Mr Egan was inevitable after his volte-face, this really comes down to whether the costs of legal submissions in respect of the Claimants' claim against him should in fairness be stripped out from the other costs of the action as between the Claimants and the Defendant Firm. I have concluded that such costs (so far as incurred by the Claimants) after 14 May 2012 should all be included as part of the costs of the proceedings between the Claimants and the Defendant Firm, as part of the continuum of events in consequence of the latter's failure to retain the monies paid into its client account.
(d) What rate of interest on costs would be appropriate, and from when?
- The Claimants seek an order for interest on their costs under CPR 44.3(6)(g). So too does Mr Egan (in respect of his costs). That rule empowers the Court also to order interest on costs to run from a date before judgment. The Claimants seek the same rate of interest on costs as the rate awarded on the principal sums, and for the same reasons; thus, they had originally proposed 5% above base rate. Mr Egan has sought a flat rate of 4% (equivalent in the period in question to 3.5% above base rate).
- The Defendant Firm submits that no such orders for interest on costs are appropriate, given the accumulated delays; and if nevertheless interest on costs is ordered it should be at no more than 1% above base rate, and should not in any event start to run until the date that the respective bills have actually been paid.
- In my judgment, there is no sufficient reason to deprive the Claimants and Mr Egan respectively of interest on their costs to compensate them for being out of pocket in respect of them. Implicit also in that, however, is that I accept the Defendant Firm's submission that, when seeking to measure the extent to which the party concerned has been out of pocket, the start date should be when the relevant invoices were actually paid. The appropriate time for interest to stop is when interest on costs is replaced by judgment interest: see CPR Note 44.3.14 (White Book page 1325) and Douglas v Hello Ltd [2004] EWHC 63 (Ch). This was not disputed by either the Claimants or Mr Egan.
- The remaining question is as to the appropriate rate of interest in this context. No evidence has been provided as to whether interest has been charged on invoices rendered, though that might prima facie be the most logical starting point.
- In the absence of such evidence, it seems to me that broadly the same considerations apply as those I have sought to identify in considering the appropriate rate in respect of the principal judgment sums. However, and given also Mr Egan's slightly higher suggested rate of 4%, I have considered whether, though adopting the same considerations, that slightly higher rate of interest is appropriate for interest on costs.
- The Claimants and Mr Egan (who was also an investor) had to incur legal costs, not in respect of a geared investment strategy for which they might have been expected to offer collateral, but in consequence of legal fees in legal proceedings. Further, my assumption that some at least of the Claimants would have been savers, not borrowers, may be less justified in the context of these unwelcome and (when the investments were made) unexpected costs.
- However, I have concluded that to apply the slightly higher rate of 4% would suggest a greater difference between the two contexts than in reality is either justified or significant, and to pretend more precision than is achievable: in other words, it would be to adopt too fine a brush. Accordingly, the rate of interest on unpaid costs in the relevant period should, in my judgment, be 3% above base rate.
(e) Payment on account of costs under CPR 44.3(8)
- The Claimants seek payments on account of costs to reduce the amount by which they will be out of pocket until the date of the judgment on the detailed assessment (if there is no prior agreement).
- The Claimants' costs statement prepared for the detailed assessment reveals the total sum claimed to be £1,594,278.62 plus VAT (£1,843,510.18).
- A further £457,350 (£381,125 excluding VAT) is claimed, which comprises counsel's uplift and success fees, which are not yet payable and only become payable under Counsel's 50% CFAs if the Defendant Firm fails in its appeal. (This follows the standard definition of success in the 2010 Chancery Bar Association Conditions.)
- The Claimants seek a payment on account of £1 million, which is 54% of £1,843,510.18.
- The Claimants also seek a conditional order for a payment on account of £300,000 in respect of the £457,350 payable only if the Defendant Firm is refused permission by the Court of Appeal or the time for applying lapses.
- In support of the reasonableness of these fees/these payments the Claimants advance the following points:
(1) The Claimants' main bill of some £1.8m includes an ATE premium of around £328,000 and Counsel's costs (usually largely left intact on assessment) of around £250,000. The further £457,350 is all Counsel's fees and uplift.
(2) I have not been provided with any details of the Defendant Firm's costs. However on 11 May 2012, the second day of trial, the Defendant Firms' solicitors wrote to the Claimants to notify them that they expected their costs to the end of trial to be £1m, net of VAT, and net of uplifted hourly rates and the success fee. (The Defendant Firm's solicitors entered into a CFA on 10 May 2012.) This compares favourably with the Claimants' bill which is also approximately £1m net of VAT and uplifted hourly rates and success fee. (It also compares favourably with the costs of Mr Egan of £353,501.28 net of VAT, given that he only joined the dispute fairly late and had only junior counsel.)
(3) The Claimants contend that it is hard to see how the uplift could be attacked, given that the Defendant Firm sought summary judgment against the Claimants and the Defendant Firm's own solicitors entered into CFAs.
(4) The Claimants only seek by way of payment on account 54% of their fees, and no account has been taken of interest up to the date of judgment that will be payable on top of those costs, and the substantial interest that will be payable from the date of judgment to the date of the payment following detailed assessment or agreement.
(5) This is therefore a conservative estimate of what will be recovered on detailed assessment.
- The Defendant Firm, on the other hand, submits that the Statement of Costs on which the Claimants base their claim for a payment into account is not an appropriate basis on which to proceed; and also that the amount sought needs to be reduced to reflect (a) costs thrown away by repeated amendments of the Claimants' case; (b) excessive charges in the Statement of Costs itself; and (c) the proportionate costs order and consequent reduction of the costs payable. The Defendant Firm opposes any order for payment on account of success fees.
- As to (a) in paragraph 96 above, obviously costs thrown away and payable by the Claimants to the Defendant Firm need to be set off: I am not clear about the amount involved.
- As to (b) in paragraph 96 above, detailed submissions were made in writing and orally, and at my request the overall effect on the Statement of Costs provided by the Claimants was summarised in a schedule produced on behalf of the Defendant Firm. Minute consideration of individual entries is obviously not appropriate: that is a matter for the Costs Judge. The main points advanced on behalf of the Defendant Firm in this context were these:
(1) the hourly rates of charge, especially for Grade A fee-earners, is excessive; they appear to be calibrated by reference to London rates, whereas the succession of firms acting for the Claimants were each based in Manchester, and Manchester rates are the correct comparator, with some uplift to reflect the complexity of the case;
(2) the amount of work undertaken and charged by Grade A fee-earners (over 3,000 hours) is excessive, especially given that leading and junior Counsel were also instructed: there should have been greater delegation of work to Grade C fee-earners;
(3) it is surprising that approximately 75% of the time claimed for Grade A fee earners post-dates the Conditional Fee Agreement dated 19 January 2012, even though pleadings and disclosure had been dealt with by then;
(4) some duplication of effort between Grade A fee-earners and Counsel seems likely, especially given the fact that much of the trial preparation followed after the application for summary judgment, and in a compressed period shortly before trial, when it might be expected that Counsel had become routinely or more consistently involved;
(5) some items are charged, elements of which may not be recoverable, such as
(a) partnership supervisory costs already included in the profit element;
(b) costs of a solicitor and client nature (such as meeting the demands of a client other than those reasonably necessary to prosecute the claim);
(c) costs which are not recoverable under orders made by the Court.
- In a summary provided by Mr Croxford, the Defendant Firm reaches a combined total of claimable costs, without including any success fee at this stage, and before taking into account any proportionate costs order, of some £1,180,094 including VAT. This compares with those claimed by the Claimants on the same basis of £1,468,469 including VAT. That materially reduced figure (in comparison to the figure suggested by the Claimants, which they maintained was conservative) obviously reflects a very strenuous pruning process.
- Based on those figures, the Defendant Firm suggests that any payment on account should not exceed 60% of £1,180,094, being £708,056; and that this should be reduced further by 10% to reflect the proportionate costs order I have concluded is appropriate, resulting in some £638,000 odd.
- These figures suggest an accuracy belied by the process in fact applicable. Such accuracy is illusory at this stage: this is not a detailed assessment. My task is, taking into account the Defendant Firm's observations, to determine a figure which I am satisfied should not be greater than the costs ultimately payable and which in all the circumstances is fair and just.
- I have concluded that, in all the circumstances, I should order a payment on account by the Defendant Firm to the Claimants of £750,000 inclusive of VAT, adopting a conservative approach but taking some account of the fact that the figure ultimately payable will almost certainly lie somewhere between the figures advanced by the parties respectively, and also that interest will be payable on the costs ordered to be paid.
- I have not been told very much at all about the rationale or terms of the conditional fee arrangements entered into by Counsel for the Claimants, apart from the fact that the agreed uplift is 100%. I do not presently feel sufficiently equipped at present to make a conditional order for payment on account of a success fee of £457,350 payable (to Counsel) if the Defendant Firm is refused permission to appeal by the Court of Appeal or the time for such an application lapses. Rather than preclude such an order altogether, I propose to give the Claimants liberty to apply for such an order once it is clear whether permission to appeal has been sought and given, and after such further evidence as is appropriate to equip me to make an informed decision has been made available. If the parties agree, it may be that such an application could be decided on the papers, but that too can better be determined if and when the question arises.
- As to the position with respect to Mr Egan, his costs have been estimated in the sum of approximately £424,201 (including VAT but excluding interest). He has sought a payment on account of his costs from the Claimant of £10,000 and from the Defendant Firm of £200,000. Having refused his application for costs against the Claimants, the only issue is whether to order a payment on account to him by the Defendant Firm and if so in what amount.
- I do not think there are any sufficient grounds for departing from the usual predisposition to make an order for interim costs; so the real question is quantum.
- On behalf of the Defendant Firm it is submitted as against Mr Egan's claim for a payment on account of costs that:
(1) a substantial proportion of his costs will have been generated by his various changes of story and consequent corrective witness statements and pleadings;
(2) he was already involved in the disclosure exercise before being joined and he would have needed to duplicate that exercise;
(3) if any interim payment is to be made it should not exceed 2/3 of the likely recoverable costs (i.e. 2/3 of 60-70% of the total figure): say £160,000.
- Again, all I have and all I can wield is a broad brush. I consider that in all the circumstances, and taking into account interest, I should order the Defendant Firm to make a payment on account of £175,000 inclusive of VAT.
(e) Permission to appeal
(i) The Main Claims against the Defendant Firm
- Finally, the question arises whether I should give the Defendant Firm permission to appeal my decisions in the proceedings.
- I found this a difficult case. I have eventually found for the Claimants on a basis that was at best lightly pleaded; and I have dismissed the claims against Mr Egan notwithstanding serious concerns as to his conduct. That, a recognition that matters, both of specific conclusion and overall impression, may look different on appeal, and my appreciation of the serious consequences for the Defendant Firm, might tell in favour of granting permission.
- However, I have eventually decided that I should not give permission. In such circumstances I consider that it may be helpful for me to give somewhat more detailed reasons for this conclusion in case the Court of Appeal is invited to consider the matter, and in light of the length of the record and the judgment that they would be asked to consider.
- Overall the essential reason is this: I regard the case as decided on its own particular facts, and I do not consider that in any respect I am substantially departing from established principles or fashioning new ones. I have come to my factual conclusions having had the benefit of some 13 days of cross-examination and having considered with care the content of many files of documentary evidence. Whilst many of the facts were not contested, important issues of fact remained in dispute and on which ultimately the case turned.
- On behalf of the Defendant Firm it has been submitted that the "big point", the point most worthy of an appeal, is that I found a new form of Quistclose trust or resulting trust "seemingly based on a duty said to arise as matter of law and [which] applies to all solicitors who receive monies from third parties". Understandably, it is said that such an approach would constitute a new development in the law and would potentially have profound implications for the Solicitors' profession as a whole. This is not, however, a fair depiction of my approach.
- As I hope is already clear from my main judgment, the first basis on which I found a resulting trust in this case was not the mere fact of receipt into the Defendant Firm's client account: it depended on the particular factual circumstances. These included there being no obvious explanation, if the monies were intended immediately to belong to AFL, for directing payment into that client account rather than AFL's own bank account and the combination of other facts and matters that I have summarised in paragraphs 560 to 568A of my main judgment.
- In concluding that a breach of trust had occurred when the monies were paid out of the Defendant Firm's client account, I relied on what I considered to be settled principles of trust law, including the primary duty of a trustee to establish the terms of the trust and the identity of its beneficiaries (see paragraphs 572 to 578).
- As I hope is also clear, I went on to consider whether it was necessary to show both the existence of a fiduciary duty more extensive than the mere duty to account, and that Mrs Bellis's conscience was affected, and if so whether both had been shown; and I concluded that, on the facts and to the extent necessary, both had been shown: see paragraphs 579 to 581 of my main judgment. In retrospect, I should perhaps have made clear that my conclusions in paragraphs 665, when dealing with the Claimants' second alternative claim in restitution, that Mrs Bellis failed to act in a commercially acceptable way (and the test of absence of good faith in the Niru Battery case) also apply in the earlier context of the primary claim based on resulting trust.
- Furthermore, even if for whatever reason I am wrong as to the primary basis of claim, my decision does not rest on that basis of claim alone. I concluded that the Claimants' first alternative claim, based on the Defendant Firm's lack of authority to receive the funds paid into its client account, was also made out. The basis on which I so concluded is set out in paragraphs 599 to 623 of my main judgment, with the consequences described in paragraphs 624 to 634 (stressing in that last paragraph the unusualness of the combination of facts in the case).
- My conclusion that the Engagement Letter provided no authority was primarily based on a factual analysis that led to the conclusion that Mr Cummings was not the beneficial owner of the shares in AFL when he purported to sign as such.
- Counsel for the Defendant Firm suggested that the fact that I had described as an "interesting question" whether a sole beneficial owner of shares may bind a company also justified an appeal; but I dealt with that only for comprehensiveness: on my conclusions on the facts it did not strictly arise, see paragraphs 617 to 623. I then rejected the defences of ratification and estoppel on what I regard as well established legal and factual grounds.
- Counsel for the Defendant Firm suggested that an appeal should be permitted on the basis that my findings are irreconcilable with Westdeutsche: but I do not understand why that should be so.
- Counsel also suggested that my approach to another interesting question as to the boundaries between "mistake" and "misprediction", by reference to Dextra Bank & Trust Co v Bank of Jamaica [2002] 1 All ER (Comm) 193 (PC), was unsafe; I was not persuaded that the causative reason for the payment by the Claimants was misprediction. As it seems to me that is primarily a question of legal characterisation on the basis of the facts as found (see paragraph 662 of my main judgment): it does not justify an appeal. However, if wrong on that, I also accepted the case based on total failure of consideration: ibid. essentially on the facts.
- Counsel for the Defendant Firm suggested further that, in any event, my approach to the defence of "change of position" was arguably flawed on the basis that I had accepted that something less than actual bad faith might preclude reliance on it. Given that the authorities on which I relied were each decided at first instance, and the question as to the test for good faith/bad faith has proved a difficult one, that might be a basis of appeal, if I considered that the authorities were still open to real doubt: but I do not, and any question whether they should be reviewed seems to me best left to the Court of Appeal to decide. In any event, since this arises in the context of the third way the Claimants put their case, and I have found in their favour on the other two, I do not consider that this matter provides a sufficient reason for me to give permission to appeal.
- In summary, I have concluded, after anxious consideration, that though there arose a multiplicity of issues, many of (to my mind) real complexity, my decision has ultimately been based on the application, in the context of each of the three bases of claim advanced by the Claimants (on two of which I found for the Claimants, and on the third of which I was disposed to do so), of what I regard as settled principles to findings of fact made with the benefit of seeing and hearing the witnesses: and that accordingly I should not give the Defendant Firm permission to appeal.
(ii) Application for permission to appeal dismissal of Part 20 Claim
- Lastly, the Defendant Firm seeks permission to appeal the dismissal of its Part 20 Claim, on the bases that (a) on the facts as found I ought to have concluded that Mr Egan dishonestly assisted in the breach of trust by Mrs Bellis; (b) my finding that Mr Egan was not in a fiduciary relationship with the Investors is open to challenge; and (c) my approach to the claim for "procuring wrongdoing by ECS" is also flawed.
- However, whilst I acknowledge that it was not without hesitation and concern as to Mr Egan's conduct that I reached my conclusions, I do not think that any raises an issue which has a real prospect of success or some other compelling reason for appeal.
- As to (a) (and the issue of dishonest assistance), I sought to set out in my main judgment the reasons for my conclusion that Mr Egan was not dishonest in terms of the "combined test" now (as it seems to me) to be applied in the context of accessory liability (see paragraphs 766 to 772): and I note that in Starglade Properties Ltd v Roland Nash [2010] EWCA Civ 1314 (on which Counsel for the Defendant Firm especially relied in seeking permission to appeal on this point) the Chancellor (Sir Andrew Morritt), with whom Hughes and Leveson LJJ agreed) said (at paragraph 32:
"Ultimately, in civil proceedings, it is for the court to determine what that standard [of honest behaviour] is and to apply it to the facts of the case."
That is what I have sought to do.
- I should perhaps clarify in this regard, since Counsel raised the matter in oral submissions, that I see no inconsistency between my approach to the standard to be applied in the context of accessory liability and the slightly lesser standard I have applied in the context of determining (i) whether the defence of change of position is available in the context of a restitutionary claim (see paragraphs 664 to 665 of my main judgment) and (ii) the combined test of honesty and reasonableness prescribed by section 61 of the Trustee Act 1925 (see paragraphs 669 to 671 of my main judgment).
- As to (b) (and my finding that Mr Egan was not in a fiduciary relationship with the Investors), I have sought in paragraph 786 of my main judgment to explain my reasoning for my conclusion that, on the facts, Mr Egan did not personally undertake obligations such as to characterise him as owing fiduciary duties such as it was submitted by the Defendant Firm he did. There were a number of matters that did cause me pause for thought, which I have set out in paragraphs 778 to 785; but once again I consider my eventual conclusion to have been based on the application of well known principles to the particular facts as found.
- As to (c) (and the claim that Mr Egan procured wrongdoing by ECS), I consider that again my conclusion in the Part 20 Claim was based on the application of well established principles to the facts as found (see paragraphs 788 to 791 of my main judgment).
- For all these reasons I also refuse permission to appeal my dismissal of the Part 20 Claim.
Applications for stay etc.
- Finally, I was invited to grant (a) a stay of the detailed assessment proceedings pending the outcome of any application for permission to the Court of Appeal, and (b) a moratorium on interest accruing on the costs liability. I grant that limited stay. The moratorium sought was not pressed: it would have a conclusory effect, and I refuse to grant it.
- I would invite Counsel to agree a draft minute of order to reflect this judgment and my main judgment so that I may consider it. If a draft cannot be agreed, or if there remain or arise points that need further consideration, a further short hearing may be necessary after delivery of this judgment.
