Jersey Unreported Judgments

Security for costs applications - decision.

[2020]JRC132

Royal Court

(Samedi)

6 July 2020

Before     :

Advocate Matthew John Thompson, Master of the Royal Court.

 

Advocate R. O. B. Gardner for the Plaintiff.

Advocate N. M. C. Santos-Costa for the First Defendant

Advocate J. J. McCormick for the Second to Fourth Defendants

CONTENTS

		Paras
1.	Introduction	1
2.	Background	2-5
3.	Discussion and Decision	6-35

 

judgment

the master:

Introduction

1.        This judgment is my decision in relation to security for costs applications by the first defendant represented by Collas Crill and the second to fourth defendants represented by Carey Olsen. 

Background

2.        The background to the present proceedings is that the plaintiff was the former general partner of a Jersey Incorporated Limited partnership described as a Property Investment Fund ("the Fund").  The plaintiff ceased to be the general partner on 13^th September, 2008, but thereafter acted as the funds asset manager.  On 23^rd December, 2016, the plaintiff was dissolved pursuant to the summary winding-up procedure in the Companies (Jersey) Law 1991.

3.        On 28^th May, 2017, the plaintiff was reinstated so that certain unlimited and general partners of the Fund could bring proceedings against it.  This led to the plaintiff being wound up on the basis of a creditors winding-up with joint liquidators being appointed. 

4.        The present proceedings were issued by the plaintiff on 12^th June, 2019, alleging breaches of duty owed to the plaintiff.  The pleadings are lengthy but in summary, the dispute concerns investments made by the plaintiff in two properties described in the order of justice as the Gardeners Property and the Tring Property.  Underpinning the allegations of breach of duty is that both properties are said to have been acquired at a price significantly in excess of their true market value.  The allegations against the first defendant in summary concern him failing to act in good faith and/or in breach of duty in a number of respects based on him being aware that the price to be paid was well above the market value.  The allegations against the remaining defendants concern failures to make appropriate enquiries as directors.  The second to fourth defendants have also issued third party proceedings against the first defendant seeking a contribution or indemnity from him if they are found to have acted in breach of duty.  The pleadings also make certain claims in respect of the overpayments of management, directors', and consultancy fees based on the alleged overvaluations and recovery of fees paid to the first defendant. 

5.        Subject to appropriate expert evidence being produced, the overvaluation in respect of the Gardeners Property is said to be in the region £5 million and the overvaluation in respect of the Tring Property is in the region of £2.5 million plus interest in both cases.  There are therefore significant sums at stake in relation to the litigation. 

Discussion and Decision

6.        In relation to the application for security for costs the plaintiff accepted in principle it should provide security for costs.  The arguments therefore focused on the quantum of security sought, whether the second to fourth defendants could claim security for costs in relation to the third party proceedings and whether I should order security up to a certain period of time only or to trial and, if the latter, whether the security should be in tranches. 

7.        I was provided with detailed schedules of costs by both sets of defendants accompanied by skeleton arguments/written submissions from all parties.  All parties accepted I could deal with this matter on the papers.   

8.        It is firstly right to deal with certain of the plaintiff's criticisms of the defendants.  In relation to the first defendant, the plaintiff contends he should not profit from his own wrongdoing.  However, this is an argument more addressed to the principle of whether or not security for costs should be provided.  Yet the plaintiff has conceded that principle by agreeing that security should be provided but leaving it to me to determine the quantum of that security.  Otherwise, I am of the view that I do not have sufficient information to assess the merits in deciding what security to order. 

9.        The second issue raised by the plaintiff concerns a criticism that the defendants have incurred unnecessary costs in this case because as they acted as directors of the plaintiff in relation to the previous proceedings, incurred significant costs in defending those proceedings and caused the insolvency of the plaintiff.  In light of the costs already incurred in the previous proceedings and by incurring the costs they are now incurring the second to fourth defendants are seeking to stifle the present claims.  However there was no evidence before me that the liquidators could not afford to put up the security asked for and so I am not satisfied that the claim would probably be stifled by a significant order for security.  

10.      As with the first defendant in part this is an argument about the merits of the plaintiff's claim and this contention may well be an issue that is explored in cross-examination.  However, as with the first defendant, insofar as this argument is seeking to contend that I should not allow security for costs at all, this is an argument which primarily goes to the principle of whether or not security for costs should be provided.  To that extent it is not relevant. 

11.      That is not to say that this submission does not have some force in looking at the amount of costs incurred by the second to fourth defendants to date.  This is because the plaintiff is entitled to contend that the work carried out and claimed for is a repetition of work previously carried out in the previous proceedings and will not therefore be recoverable in the present proceedings because it might not be recoverable on a taxation.  I consider that this is correct as a matter of principle which I should have regard to insofar as I am able to do so. 

12.      However, while I accept the argument raised is an issue that could well arise on any taxation, I do not have before me any information as to what costs were incurred by the plaintiff in defending the previous proceedings which are a duplication of or overlap with costs incurred or to be incurred by the second to fourth defendants.  I cannot therefore reach any significant conclusion on whether or not there has been any duplication or unnecessary costs incurred in relation to the present proceedings by the second to fourth defendants. 

13.      I next deal with the amount of costs claimed.  In expressing the views set out in this judgment, given that this is a case of reasonably high values for the types of cases that appear before the Royal Court, I have taken a broad brush approach to the amount of costs claimed, based on the information provided to me and using the headings provided in the schedules provided by the two firms representing the two sets of defendants.  I have also assumed that some of the costs claimed by the defendants will ultimately not be recoverable on a taxation.  

14.      In respect of both defendants I consider that a Factor 'B' mark-up of 50% is appropriate because of the relatively high value of the claim and because there are some reasonably complex legal arguments about the duties that apply and whether or not those duties have been breached.  Equally I have not lost sight of the fact that ultimately underpinning the dispute and despite the length of the pleadings, the central issue is that two properties were acquired at an overvalue.  The more complex issue is what the directors involved knew when they approved various decisions, why they made the decisions they did and in making those decisions whether they acted in breach of duty as alleged. 

15.      I start by reference to the costs of Collas Crill for the first defendant.  I accept it is appropriate for counsel to have been involved and that Collas Crill had to start matters afresh. 

16.      I firstly refer to other staff involved for whom security is sought.  It is not clear to me who these other staff are or the extent of their involvement.  I have not therefore allowed anything in respect of these costs claimed given the costs also claimed for qualified staff of less than 5 years PQE. 

17.      In relation to pleadings, given the involvement of counsel, in the round I consider a further £40,000 on top of the £20,000 fee for counsel is an appropriate estimate for the pleadings and the steps necessary to produce a pleading in this matter which are reasonably lengthy and complex. 

18.      In relation to the directions hearings, the disbursements of £5,000 and £3,000 have not been explained to me.  If these are counsel's fees, I do not consider they are justified for directions hearings without more information.  Ordinarily I would only allow modest figures for directions hearings but I consider this heading covers costs in relation to the current application before the Royal Court in relation to discovery from the former limited and general partners who brought the previous proceedings.  I will therefore allow the sum of £25,000 for directions including the argument before the Royal Court. 

19.      In respect of discovery, given there are three sets of protagonists involved, an analysis of what was being said to the different directors at different times will be required.  I therefore consider that £50,000 is a reasonable figure plus a disbursement of £25,000 for an e-Discovery expert for providing and analysing discovery. The first defendant was not a party to the previous proceedings and so will have to approach discovery from scratch. 

20.      For the costs claimed for expert evidence, expert evidence will be required about the value of the two properties at various dates.  I am however surprised at the level fees claimed for expert evidence for valuations of two properties in the United Kingdom.  I have therefore allowed £30,000 with liberty to apply if the actual cost is significantly higher.  In terms of instructing experts I consider a figure of £20,000 is more than reasonable for the time spent instructing experts and dealing with and arranging meetings of experts. 

21.      For witness statements, I do not consider that the partner involved will spend further 100 hours in drafting witness statements when the qualified person is going to spend 140 hours.  This is in total six weeks work in drafting witness statements based on a 40 hour week.  The disbursement cost for this heading I have assumed are counsel's fees.  The involvement of counsel means that less time will be recoverable for the Jersey law firm involved.  I will therefore allow £50,000 to include counsels' fees. 

22.      I agree a stay for ADR is sensible.  Bearing in mind the time taken to prepare for such a settlement discussions I consider a fee of £25,000 plus £10,000 for the costs of ADR is appropriate.  The amount of time to prepare for a mediation should not be underestimated. 

23.      For trial I consider that an estimate of a week is an appropriate length of time for the matters in dispute.  I also do not consider that the time claimed for preparation for a pre-trial review which normally lasts an hour is justified.  I have therefore allowed £110,000 for the pre-trial review, trial preparations and trial. 

24.      In summary this produces the following figures for the first defendant:-

(i)        Pleadings (including initial advice and taking instructions) - £60,000;

(ii)       Directions - £25,000;

(iii)      Discovery - £75,000;

(iv)      Expert evidence - £50,000;

(v)       Witnesses of fact - £50,000;

(vi)      Mediation (ADR) - £35,000; and

(vii)     PTR and Trial - £110,000.

(viii)    Total £405,000

25.      For the second to fourth defendants, I consider that there are no material difference between the first defendant and the second to fourth defendants in terms of the time likely to be taken.  I therefore consider that I should allow the same sums for each of the stages as for the first defendant.  I have noted that the cost of the second to fourth defendants' e-Discovery provider is £40,000.  This figure does not seem to me to be unreasonable and therefore I will allow the second defendant to claim this sum. However the second to fourth defendants are not starting the discovery process afresh and so the discovery costs of their legal advisers should be lower than the first defendant.  In the round the same figure of £75,000 is therefore a fair figure for discovery for the second to fourth defendants. 

26.      In respect of security sought by the second to fourth defendants for its third party claim against the first defendant, the present claim is not about  an innocent defendant caught up between the plaintiff and a third party (c.f. Memon v Bank of Scotland 1999/1 unreported).  Whether security for the third party claim should be provided by the plaintiff therefore requires an analysis of the possible outcomes at trial.  Obviously if the plaintiff's claim succeeds in its entirety then it will be entitled to a return of any money put up by way of security for costs.  The next possibility is that the plaintiff's claim succeeds against the first defendant but not against the second to fourth defendants.  In that case the first defendant will ordinarily be required to pay the plaintiff's costs of the proceedings against the first defendant, but the plaintiff would face an adverse costs order against the second to fourth defendants.  Following Coutts v Frith [2003] JRC 176 this would include the costs of the third party proceedings.  At this stage there is nothing in the pleadings which indicates that those proceedings are not unreasonably brought. 

27.      The third option is that both sets of defendants are successful.  In such circumstances, both sets of defendants would claim all their costs incurred in defending the claim including in the first defendant's case defending the third party proceedings and the second to fourth defendants case issuing those proceedings. 

28.      However, primarily the third party claim is a pleading issue, which is already covered by the costs incurred.  The evidential issues to be explored are the same in respect of the plaintiff's claim and the third party claim as summarised at paragraph 14 above. 

29.      Where the above analysis also leads to is that in requiring the plaintiff to pay security for costs, I consider that the plaintiff should make two separate payments: one for the benefit of the first defendant and one for the benefit of the second to fourth defendants. 

30.      Finally, the issue arises whether I should simply order security for costs to be paid up to and including discovery, whether I should order the entire amount of security to be paid or whether I should order the entire amount to be paid in tranches. 

31.      Dealing with payment of the entire amount, I consider that such an order is too oppressive at this stage because it is not yet known whether the case will go to trial.  The costs of going to trial are also significant and they could be higher or lower than the five days I have estimated depending on how the evidence emerges. 

32.      In this case I consider that discovery, witness statements and expert evidence are all going to be significant.  While there is always a possibility of a case settling, in this case I consider that for there to be a realistic chance of a negotiated settlement, the parties will need to have gone through a discovery exercise, seen each other's witness statements and have exchanged expert evidence.  In this case all these different categories of evidence are important and without one aspect of the evidence needed, I do not consider that the parties will be in a realistic position to reach a settlement, if a settlement is possible.  Where I am clear is that they should attempt to do so albeit this is unlikely to be until after the different facets of the evidence required have been produced. 

33.      What this leads to is that at this stage I consider I should order security for costs to be provided in two tranches.  The first tranche is for existing work on pleadings and future work on discovery which is to be provided within 28 days of this decision being handed down.  This is the figure of £160,000 for each set of defendants.

34.      I also consider that a second tranche of security should be provided to cover witness statements, expert evidence and mediation.  The figure I have allowed for both sets of defendants for these stages is £135,000.  I consider that this tranche should be provided three months after discovery is provided by the parties. 

35.      In respect of security for costs for the trial, preparation and any pre-trial review, based on the information currently before me, I consider the appropriate figure is £110,000.  However, at this stage I consider that the directions required are for discovery, exchange of witness statements and expert evidence.  I therefore consider that the timing of a payment of security for costs for trial itself should be dealt with at a directions hearing of this matter following any unsuccessful mediation.  At that hearing, if the parties accept the trial estimate of 5 days, then I will order security for costs of £110,000 for each set of defendants.  If more security is required because the estimate of the length of trial has changed, I will hear argument on that issue at that time. 

Authorities

Companies (Jersey) Law 1991

Memon v Bank of Scotland 1999/1 unreported

Coutts v Frith [2003] JRC 176