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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Shaina Investment Corp v Standard Bank London Ltd [2001] EWHC 472 (Ch) (02 November 2001) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2001/472.html Cite as: [2001] EWHC 472 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		2nd November 2001

1. On the 10th of July 2001 I heard extensive argument and I received detailed submissions from Mr Auld Q.C. on behalf of the Defendant ("SBLL") and Mr Mallin on behalf of the Claimants ("Shaina"). In view of the lateness of the hour by the time argument had finished, rather than to ask the parties to return on another day and incur yet further costs, I informed the parties of my decision and indicated my intention to let them have at a later date written reasons for my decision not to award the Defendant costs on an indemnity basis. All the other matters were decided during the course of argument or by consent between the parties, save for those applications which SBLL decided not to pursue for the moment.
2. This action was brought by Shaina against SBLL arising out of a Trading Account Facility Agreement between them ("the TAF Agreement") whereby SBLL agreed to maintain an account for Shaina's trading in certain types of bonds. It is not necessary for the purposes of this decision to recite the detail of the contractual clauses of the TAF Agreement. or indeed the basis of the claim. In essence, Shaina claimed that SBLL closing out Shaina's debt position in a rapidly falling market, was wrong in spite of SBLL's contractual right to do so, because of an alleged oral variation of the TAF Agreement agreed by a member of SBLL's staff on the telephone on the 28th October 1997. Shaina claimed losses in excess of US $1.4 million plus interest and costs.
3. I have read the TAF Agreement and the pleadings both in their original and in their amended form, and I have also read the telephone transcripts of the conversations on the 28th October 1997. Mr Auld on behalf of SBLL basis the application for indemnity costs on what he argues is a change in the approach to awarding indemnity costs brought about by the CPR.
4. In a very helpful annexe to his skeleton, Mr Auld includes extracts from 11 cases over the years 1980 to 1995 containing the various adjectives used by different courts to explain their approach when awarding indemnity costs. In summary under the old rules of procedure indemnity costs would be awarded against a party who had acted: (i) in a grossly unreasonable way, such as an abuse of the process of the Court; (ii) in a manner which amounted to an abuse of the process of the Court; or (iii) in a manner involving deliberate dishonesty. Any of these three criteria satisfy the requirement for an order for indemnity costs under what Mr Auld describes as the `old regime.'
5. Under the CPR the general rules about costs have undergone a sea change and the Court now has a far greater discretion in the orders it may makes in respect of costs. The overriding objective is to do justice between the parties. The particular rule which with I am concerned is rule 44(4) which reads as follows

Basis of Assessment

44.4 (i)Where the Court is to assess the amounts of costs (whether by summary

or detailed assessment) it will assess those costs -

(a) on the standard basis; or

(b) on the indemnity basis,

but the Court will not in either case allow costs which have been unreasonably incurred or unreasonable in amount. "

6. Although this rule contains the identical terms for the standard basis and the indemnity basis, the commentary in the Spring Edition of the Civil Procedure 2001 makes it clear that the meaning of those terms is entirely different. The basic principle which applies to all costs orders is that no party will be awarded costs which it has not incurred. Further, the overriding tests to be applied in each case is whether or not the costs have been reasonably incurred or are unreasonable in amount. However, on the standard basis the additional test of proportionality is imposed and the Court will only allow costs that are proportionate to the matters in issue. Rule 44.5 sets out the facts which the Court must take into account in deciding the amount of costs. However, where the assessment is on the indemnity basis, proportionality is not mentioned in the rules.
7. Mr Auld's argument is that the new rule introduces yet further changes namely that the basis for awarding indemnity costs is no longer to be punitive and relies in particular upon the decision of the Court of Appeal in Burridge v Stafford & another [2000] 1 WLR 97. In particular Mr Auld has directed me to paragraphs 21 and 22 of the judgment of the Lord Woolf MR which makes it clear that the basis of an award of indemnity costs is compensatory and not penal. Referring to the decision of Willis v Redbridge Health Authority [1996] 1 WLR 1228, at page 1232F, Lord Woolf emphasised that the only distinction between a party and party order for costs and an indemnity order for costs, prior to the coming into force of the Civil Procedure Rules 1998, was as to the party upon whom the onus rested to show whether the amount of costs which was reasonable:

"In the case of an indemnity order the onus was on the paying party to show the item was unreasonable: RSC Ord 62, r 12. In case of both forms of order the result was intended to be compensatory. There was no question of a plaintiff receiving more costs than had been incurred. Under the Civil Procedure Rules 1998 the distinction between standard orders and indemnity order is greater because, in assessing standard costs, the principle of proportionality applies, whereas it does not apply in the case of indemnity orders. There is, therefore, no substance in Mr Wadsley's penal point. The short answer to this aspect of the appeal is that a wholly unmeritorious application was made at a very late stage for an adjournment. It was dismissed. Such an application justified the making of an indemnity order for costs. "

8. In paragraph 22 of his Judgment the Master of the Rolls said:

"Putting to one side the fact that Mrs Stafford was legally aided, I can see no objection to the Deputy Judge making an indemnity costs order in relation to the proceedings as a whole. The defence was a "try on ". A defence of that sort fully justified an indemnity order for costs being made. "

9. I was also referred to the decision of the Court of Appeal in Petrograde Inc v Texaco Limited reported in the Times of the 24th May 2000. I have been supplied with a transcript of the judgments and in particular I was referred to the judgment of Lord Woolf MR at paragraphs 53 to 55 and paragraphs 61 to 65 inclusive. As Lord Woolf made clear that case was "of particular significance" because "it is the first opportunity which this Court has had to consider the general approach to be adopted by a Court where a Defendant is ordered to pay a sum in excess of the Claimant's offer under Part 36." It is quite clear that that case was concerned with the new powers given to a Court to award enhanced interest and costs on an indemnity basis where a claimant has made a Part 36 offer which is lower than the amount of judgment in his favour.
10. In paragraphs 61 to 65 Lord Woolf refers to the principles which a Court should apply when considering whether or not to award enhanced interests and interest and indemnity costs in such a situation. In particular Lord Woolf said this

"62. However, it will be wrong to regard the rule as producing penal consequences. An order for indemnity costs does not enable a claimant to receive more costs than he has incurred. Its practical effect is to avoid his costs being assessed at a lesser figure. When assessing costs on the standard basis the Court will only allow costs 'which are proportionate to the matters in issue' and 'resolve any doubt which it may have as to whether costs were reasonably incurred or reasonably proportionate in amount in favour of the failing party'. On the other hand, whether costs are assessed on an indemnity basis, the issue of proportionality does not have to be considered. The Court only considers whether the costs were unreasonably incurred or for an unreasonable amount. The Court will then resolve any doubt in favour of the receiving party. Even on an indemnity basis however, the receiving party is restricted to recovering only the amount of costs which have been incurred (see Part 44.4 and Part 44.5).

63.The ability of the Court to award costs on an indemnity basis and interest at an enhanced rate should not be regarded as penal because orders for costs, even when made on an indemnity basis, never actually compensate a Claimant for having to come to Court to bring proceedings. The very process of being involved in Court proceedings inevitably has an impact on an claimant, whether he is a private individual or a multi national corporation. A Claimant would be better off had he not become involved in Court proceedings. Part of the culture of the CPR is to encourage parties to avoid proceedings unless it is unreasonable for them to do otherwise. In the case of an individual proceedings necessarily involve inconvenience and frequently involve anxiety and distress. These are not taken into account when assessing costs on the normal basis. In the case of a corporation, the corporation's senior officials and other staff inevitably will be diverted from their normal duties as a consequence of the proceedings. The disruption this causes to a corporation is not recoverable under an order for costs.

64. The power to order indemnity costs or higher rate interest is a means of achieving a further result for a claimant. If a defendant involves a claimant in proceedings after an offer has been made, and in the event, the result is no more favourable to the defendant than that which would have been achieved if the claimant's offer had been accepted without the need for those proceedings, the message of Part 36. 21 is that prima facie, it is just to make an indemnity order for costs and for interest at an enhanced rate to be awarded. "

11. The Court of Appeal in Petrograde was dealing with the new powers of the Court in relation to Part 36 offers which are not accepted and the passages to which I have referred do not, in my respectful opinion, seek to change the emphasis of the court's powers and discretion under Part 44. I was referred by Mr Mallin to the commentary on Part 44 in the Spring 2001 Civil Procedure and in particular Part 44.4.2. The commentators there refer to the several decisions where the court made an order for costs on an indemnity basis. In most of those cases the court was concerned with some aspect of the paying party's conduct of the litigation which merited the disapproval of the Court, and which was marked by the award of indemnity costs as opposed to the usual order of standard basis. The Court of Appeal reviewed some of those decisions including Munkenbeck & Marshall v McAlpine 44 Construction Law Reports 30, and Raja v Rubin (The Times April 14th 1999 , and Baron v Lovell (The Times 14th September 1999).
12. From the cases referred to in the commentary to Part 44.4.2, it seems to me that the following principles still apply when the Court is considering the basis of assessment under Part 44.4:

(i) the Court has a discretion to award costs on an indemnity basis;

(ii) it is not possible to define the exact circumstances in which an indemnity

costs order might be ordered; in each case it is a matter for the individual

discretion of the judge on the facts before him;

(iii) where the conduct of the litigation was deserving of moral condemnation

an order for indemnity costs was appropriate;

(iv) where a party has continued with litigation in circumstances where the

Court concluded that to do so was unreasonable conduct of litigation it was

appropriate to make an order for an indemnity costs after a particular date

or in relation to particular issues;

(v) where cross-examination of a party took the form of a totally uncalled for

personal attack the Court could make an order in favour of the other party

for that portion of the trial;

(vi) where a party to litigation acted in a way that could be described as

disgraceful or deserving of moral condemnation an order for costs in the

indemnity basis could be made;

(vii) where a party had not acted improperly it will be wrong to make an order

for costs on an indemnity basis; the proper order should be on the standard

basis;

(viii) where a party has acted unreasonably in breach of a Court order it might be

appropriate to make an order for costs on an indemnity basis against that

party;

(ix) where a claim was considered by the Court not to be bona fides it will be

appropriate to make an order for costs against that party on the indemnity

basis.

13. The above list is by no means intended to be exhaustive but it is merely a summary of the principles that can be gleaned from the cases referred to in the commentary at 44.4.2.
14. In my judgment, therefore, when the Court is considering what is the appropriate basis for an award of costs under Part 44, the usual order would be to award costs on a standard basis unless there is some element of a party's conduct of the case which deserves some mark of disapproval which is achieved by awarding costs against that party on an indemnity basis.
15. In my judgment the Court achieves justice between the parties by applying the principles I set out above to a situation where one party is asking for an award for costs on an indemnity basis. It would not be just to penalise a party for running litigation which he has lost. Furthermore the fact that the Claimant in this case discontinued does not of itself give rise to costs other than on a standard basis: see CPR 44.12(1)(d). Mr Auld argues that this case was hopeless from the start and it is pertinent to point out that in paragraph 1.2 of the original defence it was pleaded that the Defence was entered by Standard Bank without prejudice to its contention

(i) that the Statement of Claim discloses no reasonable cause of action against it and

(ii) in any event the Statement of Claim is inadequately particularised and Standard Bank reserve the right in respect of the former to apply to strike out any part or parts thereof and in respect of the latter to plead further upon receipt of full and proper particulars.

16. This is the chronology of the litigation:

11.8.1998 Statement of Claim

23.9.1998 Defence

17.12.1998 Reply

30.12.1998 Further and Better Particulars of the Statement of Claim

28.7.2000 Particulars of Claim: "New" Case

15.9.2000 New Defence

18.10.2000 New Reply

11.5.2001 Order of Lawrence Collins J. vacating the trial date and allowing

an appeal from Master Bowman

17. This is the chronology of the applications for security for costs:

15.12.1999 Claimant's solicitors offer security for costs in the amount of £22,000

Ensuing correspondence between the parties concerning the

quantum of security until

16.8.2000 Claimant offers £100,000

10.10.2000 Case set down with a trial window for the 14th May 2001

13.10.2000 Defendant accepts the Claimant's offer of security subject to

seeking further security for trial

1.3.2001 Defendant sought further security

20.3.2001 Defendant sent a reminder. Claimant replied "we are taking

instructions".

2.4.2001 Defendant requested £200,000 security for costs

12.4.2001 Application by the Defendant for security on the basis that the Claimant was registered in Liberia with no place or business or assets within the jurisdiction

24.4.2001 Order by Master Bowman for additional security on the basis that the order was to cover "the additional enforcement difficulties of enforcement abroad" relying upon the decision of the Court of Appeal in Nasser v United Bank of Kuwait 11th April 2001

11.5. 2001 Lawrence Collins J. allowed an appeal from Master Bowman and ordered security in the sum of £200,000 to be topped up from the £100,000 already supplied.

18. In the course of his judgment Lawrence Collins J. made the following observations which are of assistance

"In this case, I am satisfied that it would be just and appropriate to order security for the following reasons:

(i) The claimant has accepted, in principle, that it is liable to put up security.

(ii) The Bank is entitled to security not solely because of the Claimant's foreign residence, but also because there is evidence of its impecuniosity in a broad

sense; and also because it is self-evident that it would be difficult, if not impossible, to enforce the judgment against a Liberian corporation with no apparent assets, and no place of real business, and no real

management.

(iii) The fact that the application notice referred only to foreign residence and the agreement concerning securities should not prevent the Court from taking all relevant matters into account.

(iv) The Bank cannot be criticised for not applying until April, because security had been agreed in principle; it had been seeking top-up security since early

March, and reasonably considered the only question would be one of quantum. "

19. Lawrence Collins J ordered that the trial date be vacated. Thereafter the Claimant served notice of discontinuance under the CPR 38.6.
20. Mr Mallin argued that, in spite of the pleading in the original defence, no application was made at any stage throughout this litigation to strike out the whole or part of this claim on the grounds that it was without merit or unsustainable or showed no cause of action. However, Mr Auld pointed out that such an application would have taken some considerable time, at no little cost, and in any event would not have dealt with some of the aspects of the claim, notably the question of past trading. In today's climate, a strike out application should only be brought if it will dispose of an action or a substantial issue and within a reasonable time. I consider that Mr Mallin's argument has some force in respect of the original basis on which the claim was brought, but once the revised claim was served, the action was dealt with under the CPR and the trial window was fixed in October 2000, and thereafter it would have been extremely difficult to have launched a Part 8 or, more probably, a Part 24 application within the time frame before trial. Mr Auld puts his argument quite bluntly in these terms: "Shaina's claim was hopeless, both in its original and its subsequent form." Mr Auld's skeleton argument paragraph 12 sub-paragraphs (i) to (ix) summarises the criticisms of Shaina's case, and Appendix 2 to his skeleton sets out a detailed attack upon the lack of merit of Shaina's claim in support of SBBL's argument that Shaina's case `was wholly misconceived and disingenuous'. In essence his complaint is that the Bank's conduct was perfectly proper under the terms of the TAF Agreement, and the transcript of the telephone conversations of the 28th October 1997, demonstrate that no variation to those terms was agreed by the employee concerned, and the case put forward upon the basis of those telephone conversations is unsustainable.
21. Mr Mallin pointed out that in spite of repeated requests, the tapes of those telephone conversations were not disclosed to Shaina until an order was made in June 2000 shortly before the new Statement of Claim was served. Apparently, according to Mr Auld, SBBI refused to disclose the tapes because it was feared that they would be used to bolster a bogus claim. Mr Auld argued that the Bank was perfectly justified in not handing over the tapes because it did not wish to give the Claimant an opportunity to advance a bogus claim.
22. It is not for me to judge the wisdom or otherwise at this stage for not handing over the tapes at an earlier stage in the proceedings. It is sufficient for my purposes to observe that this action was begun in August of 1998; the original pleadings had been closed by the end of 1998; it was not until July 2000 that the new case was pleaded by the Claimants and the new set of pleadings were closed by October of 2000; and yet in all that time no application was made by the Defendant to strike out the claim on the basis that as Mr Auld now describes it was utterly hopeless, misconceived and "put forward on the wholly implausible argument that Shaina was given 1 hour in a fast falling market to decide in his own discretion what he wished to do and in blazing contradiction of the Bank's express contractual rights. On its face, this case is completely implausible". If in fact, on the basis of the telephone transcripts alone, it was perfectly obvious that no variation was agreed such that Shaina's claim was obviously `hopeless or misconceived', it is difficult to understand why application was not made at an earlier stage to strike out the original Statement of Claim. However, as I made clear in the course of argument, the cost of such an application, and the fact that it may not have resolved all the issues may well have militated against making it. Once the new Particulars of Claim were served, the time frame set by the CPR, made such a course even more difficult.
23. I propose therefore to disregard the `strike out' argument when considering each of the complaints made by Mr Auld in respect of the Claimant's case and the answers to each by Mr Mallin. I need not rehearse them all again; they are set out in full in their respective skeletons, and I was taken through them in great detail by both counsel. In essence the `one hour' case depends upon the telephone conversations of the 28th October 1997 and the past dealings between Shaina and SBBL. Mr Mallin relies upon the actual transcript in support of the pleaded case in paragraphs 9.2 and 9.4 of the Amended Particulars of Claim. In my judgment the terms of that conversation and the words used are not sufficiently clear to enable me at this stage, without hearing the witnesses' respective evidence about that conversation and any past dealings between them, to concur with Mr Auld's argument. As I observed during the course of argument, on the face of it this is a thin case, and it may well be that had there been a trial, the court may have concluded that the case was indeed so hopeless that it should never have been brought, and indemnity costs was an appropriate order to make in the circumstances.
24. However, I consider that there is sufficient merit in the arguments advanced by Mr Mallin in answer to Mr Auld's trenchant criticisms of Shaina's case to enable me to conclude in my judgment that this is not a case where I consider that the Claimant's conduct of the litigation merits an order for costs against it on an indemnity basis. Advancing a case which is difficult, unlikely to succeed or which in fact fails is not a sufficient reason for such an award. In my judgment I must be satisfied that there was some aspect of the conduct of the litigation by Shaina which would justify the exercise of my discretion to award costs on an indemnity basis. Having heard full argument, I am not satisfied that it would be just to award costs on anything other than the standard basis, and, as I have already informed the parties, I reject SBBL's application.
25. All the other applications before me were dealt with at the time and I would be grateful if counsel would be kind enough to draw up an order giving effect to the judgment I have made.
26. This judgment was circulated to the parties in draft on the 29th August 2001 with a request that any corrections or typographical errors be notified to my Clerk by close of business on the 5th September. I have received none. This is the first date convenient to counsel when this judgment could be handed down and I direct that no further transcription or electronic recording need be made.

2nd November 2001 Michel Kallipetis QC