“27. In my judgment, the judge here was wrong to constrain himself in the way that he did. He was, I think, implicitly guided by pre-CPR authorities which are no longer apt for the new procedural code in this respect. Under the CPR, it is not, in my view, correct that costs are only awarded on an indemnity basis if there has been some sort of moral lack of probity or conduct deserving moral condemnation on the part of the paying party. The court has a wide discretion under Rule 44.3 which is not constrained, in my judgment, by authorities decided under the rules which preceded the introduction of the CPR. The discretion has to be exercised judicially, in all the circumstances, having regard to the matters referred to in Rule 44.3(4) and Rule 44.3(5). The discretion as to the amount of costs referred to in Rule 44.3(1)(b) includes a discretion to decide whether some or all of the costs awarded should be on a standard or indemnity basis. Rule 44.4 describes the way in which an assessment on each basis is to operate, but does not prescribe the circumstances in which orders on one or the other of the bases is to be made. 28. As the very word ‘standard’ implies, this will be the normal basis of assessment where the circumstances do not justify an award on an indemnity basis. If costs are awarded on an indemnity basis, in many cases there will be some implicit expression of disapproval of the way in which the litigation has been conducted, But I do not think that this will necessarily be so in every case. What is, however, relevant to the present appeal is that litigation can readily be conducted in a way which is unreasonable and which justifies an award of costs on an indemnity basis, where the conduct could not properly be regarded as lacking moral probity or deserving moral condemnation. 29. The circumstances referred to in Rule 44.3(4) include any payment into court or admissible offer to settle which each of the parties may have made. But it seems to me that in the present appeal the letter of1st September 1999 by itself, although relevant, may not take the case for indemnity costs very far. I do not see that there is much to be made of an analogy for defendants with Rule 36.21. That rule applies to claimants. There is no equivalent rule for defendants who must, in my view, look elsewhere for means of putting themselves in the strongest possible position as to costs.”
“I for my part, understand the Court there to have been deciding no more than that conduct, albeit falling short of misconduct deserving of moral condemnation, can be so unreasonable as to justify an order for indemnity costs. With that I respectfully agree. To my mind, however, such conduct would need to be unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight.” iii) However, as Mr. Mark Hapgood QC, leading counsel for Chase, pointed out, in Excelsior Commercial & Industrial Holdings Limited v Salisbury Hammer Aspden & Johnson & Another[2002] EWCA Civ 87 , Lord Woolf, CJ, having referred to Kiam, said as follows, at paragraphs 31 and 32: “31. In the context of that case I see that those paragraphs set out the need for there to be something more than merely a non–acceptance of a payment into court, or an offer of payment, by a defendant before it is appropriate to make an indemnity order for costs. Insofar as that is the intent of those paragraphs, I have no difficulty with them. However, I would point out the obvious fact that the circumstances with which the courts may be concerned where there is a payment into court may vary considerably. An indemnity order may be justified not only because of the conduct of the parties, but also because of other particular circumstances of the litigation. I give as an example a situation where a party is involved in proceedings as a test case although, so far as that party is concerned, he has no other interest than the issue that arises in that case, but is drawn into expensive litigation. If he is successful, a court may well say that an indemnity order was appropriate, although it could not be suggested that anyone's conduct in the case had been unreasonable. Equally there may be situations where the nature of the litigation means that the parties could not be expected to conduct the litigation in a proportionate manner. Again the conduct would not be unreasonable and it seems to me that the court would be entitled to take into account that sort of situation in deciding that an indemnity order was appropriate. 32. I take those two examples only for the purpose of illustrating the fact that there is an infinite variety of situations which can come before the courts and which justify the making of an indemnity order. It is because of that that I do not respond to Mr. Davidson's submission that this court should give assistance to lower courts as to the circumstances where indemnity orders should be made and circumstances when they should not. In my judgment it is dangerous for the court to try and add to the requirements of the CPR which are not spelt out in the relevant parts of the CPR. This court can do no more than draw attention to the width of the discretion of the trial judge and re–emphasise the point that has already been made that, before an indemnity order can be made, there must be some conduct or some circumstance which takes the case out of the norm. That is the critical requirement.”
“If a party embarks on or brings upon itself and pursues litigation of the magnitude of this litigation in such circumstances and suffers a resounding defeat, involving the rejection of much of the evidence adduced in support of its case, in my judgment that provides a proper basis on which it is appropriate to award costs on an indemnity basis. Judged by the same standards, I think [the defendant] should now recover the costs it has incurred in consequence unless of course [the claimant] can show that they were unreasonable.” v) In Three Rivers v BCCI SA[2006] EWHC 816 at paragraph 25 , Tomlinson J noted that the discretion to award indemnity costs is extremely wide but there must be “some conduct or some circumstance which takes the case out of the norm.”
“I have already referred to the guidance given by Lord Woolf in the Excelsior case as to the circumstances in which an indemnity order may be appropriate – where there is some conduct or some circumstance which takes the case out of the norm. I agree with the Bank that the authorities, including IPC Media Ltd v. Highbury Leisure Publishing Ltd[2005] EWHC 283 (Ch) (Laddie J), Cambridge Antibody Technology Ltd v. Abbot Biotechnology Ltd[2005] EWHC 357 (Ch) (Laddie J), Amoco (UK) Exploration Co v. British American Offshore Ltd[2002] BLR 135 (Langley J) and Cepheus Shipping Corporation v Guardian Royal Exchange Plc [1995] 1 LL Rep. 647 (Mance J) demonstrate that the following principles should guide the Court’s determination whether the Claimants should be required to pay the Bank’s costs of the action on an indemnity basis: - (1) The court should have regard to all the circumstances of the case and the discretion to award indemnity costs is extremely wide. (2) The critical requirement before an indemnity order can be made in the successful defendant’s favour is that there must be some conduct or some circumstance which takes the case out of the norm. (3) Insofar as the conduct of the unsuccessful claimant is relied on as a ground for ordering indemnity costs, the test is not conduct attracting moral condemnation, which is an a fortiori ground, but rather unreasonableness. (4) The court can and should have regard to the conduct of an unsuccessful claimant during the proceedings, both before and during the trial, as well as whether it was reasonable for the claimant to raise and pursue particular allegations and the manner in which the claimant pursued its case and its allegations. (5) Where a claim is speculative, weak, opportunistic or thin, a claimant who chooses to pursue it is taking a high risk and can expect to pay indemnity costs if it fails. (6) A fortiori, where the claim includes allegations of dishonesty, let alone allegations of conduct meriting an award to the claimant of exemplary damages, and those allegations are pursued aggressively inter alia by hostile cross examination. (7) Where the unsuccessful allegations are the subject of extensive publicity, especially where it has been courted by the unsuccessful claimant, that is a further ground. (8) The following circumstances take a case out of the norm and justify an order for indemnity costs, particularly when taken in combination with the fact that a defendant has discontinued only at a very late stage in proceedings; (a) Where the claimant advances and aggressively pursues serious and wide ranging allegations of dishonesty or impropriety over an extended period of time; (b) Where the claimant advances and aggressively pursues such allegations, despite the lack of any foundation in the documentary evidence for those allegations, and maintains the allegations, without apology, to the bitter end; (c) Where the claimant actively seeks to court publicity for its serious allegations both before and during the trial in the international, national and local media; (d) Where the claimant, by its conduct, turns a case into an unprecedented factual enquiry by the pursuit of an unjustified case; (e) Where the claimant pursues a claim which is, to put it most charitably, thin and, in some respects, far-fetched; (f) Where the claimant pursues a claim which is irreconcilable with the contemporaneous documents; (g) Where a claimant commences and pursues large-scale and expensive litigation in circumstances calculated to exert commercial pressure on a defendant, and during the course of the trial of the action, the claimant resorts to advancing a constantly changing case in order to justify the allegations which it has made, only then to suffer a resounding defeat.” (a) Where the claimant advances and aggressively pursues serious and wide ranging allegations of dishonesty or impropriety over an extended period of time; (b) Where the claimant advances and aggressively pursues such allegations, despite the lack of any foundation in the documentary evidence for those allegations, and maintains the allegations, without apology, to the bitter end; (c) Where the claimant actively seeks to court publicity for its serious allegations both before and during the trial in the international, national and local media; (d) Where the claimant, by its conduct, turns a case into an unprecedented factual enquiry by the pursuit of an unjustified case; (e) Where the claimant pursues a claim which is, to put it most charitably, thin and, in some respects, far-fetched; (f) Where the claimant pursues a claim which is irreconcilable with the contemporaneous documents; (g) Where a claimant commences and pursues large-scale and expensive litigation in circumstances calculated to exert commercial pressure on a defendant, and during the course of the trial of the action, the claimant resorts to advancing a constantly changing case in order to justify the allegations which it has made, only then to suffer a resounding defeat.” vi) A full review of all the cases and the relevant principles is contained in National Westminster Bank v Rabobank[2007] EWHC 1742 , where Sir Anthony Colman awarded indemnity costs following a lengthy trial in which allegations of fraud were made against five senior officials of National Westminster Bank. He identified the concept of unreasonableness as the “frontier to be crossed” before an order for indemnity costs was justifiable Nat West v Rabobank at paragraph 15 . He held that that test was satisfied in a case in which such serious allegations had been made and pursued without evidential basis. He concluded that the underlying foundation of the core allegation in that case was so improbable as to be far-fetched At paragraph 33 . Mr. Hapgood pointed to paragraph 44, which, he contended, had a resonance with the present case: “ … if there were to be constructed an edifice of fraudulent misrepresentation involving allegations of personal dishonesty against senior bankers with impeccable records employed by one of the leading banks in the field of corporate workout, the available evidence had to be at least potentially compelling in order to satisfy the requisite standard of proof. In order to load-test allegations of dishonesty motive is often crucial. Had the extremely tenuous evidence in this case been properly load-tested as it should have been, the extreme improbability of any motive would have been identified. The prosecution of the allegations of fraud can thus be regarded as highly speculative even if not doomed from the outset. That notwithstanding, they were vigorously pursued throughout a long trial by means of extensive cross-examination of witnesses who were accused of very serious dishonesty.” vii) Mr. Hapgood submitted that Rabobank, and the other cases referred to, showed that indemnity costs will be appropriate where a party pursues large scale litigation, particularly involving allegations of dishonesty, without facing up to the reality of the evidence. That, submitted Mr. Hapgood, is not normal litigation. He pointed to paragraph 45, where Sir Anthony Colman considered that the procedural history of the claims: “… evidences a party casting around for a viable basis on which to claim in the face of very slender evidence and demonstrating considerable reluctance to give up points which had already been shown to be untenable. I have no doubt that these vain fluctuations in claim increased the overall costs by comparison with what could be normally expected even of a relatively heavy commercial case which had been pursued on a consistent basis.”
“Where one is dealing with the losing party's conduct, the minimum nature of that conduct required to engage the court's discretion would seem, except in very rare cases, to be a significant level of unreasonableness or otherwise inappropriate conduct in its widest sense in relation to that party's pre-litigation dealings with the winning party or in relation to the commencement or conduct of the litigation itself. It is important to distinguish in Tomlinson J's formulation of relevant considerations between that underlying concept and his identification of examples of more specific patterns of conduct capable of rendering a party's overall conduct relevantly unreasonable or inappropriate. Grounds (4) to (8) inclusive are specific examples of conduct which, taken alone, or in combination, may in all the surrounding circumstances often be capable of giving rise to a conclusion that the losing party's conduct has been so unreasonable or inappropriate overall as to justify an order which gives him a more effective costs indemnity than would be the case under the standard order. But in each case in which the costs of the whole litigation are under consideration, the conduct adversely criticised must be looked at in the context of the entire litigation and a view taken as to whether the level of unreasonableness or inappropriateness is in all the circumstances high enough to engage such an order.” ix) In IPC Media Ltd v Highbury Leisure Publishing[2005] EWHC 283 at paragraph 26. , Laddie J made an order for indemnity costs in an “extraordinarily expensive action”, on the basis that it would be: “… contrary to the interests of justice if the defendants were not properly and fully compensated for the cost it has incurred in fending off a thin and, in some respects, far-fetched claim brought by the claimant.” x) Another useful summary is that of Christopher Clarke J in Balmoral Group Limited v Borealis (UK) Limited[2006] EWHC 2531 (Comm) where, having adopted Tomlinson J’s summary, he said this: “The discretion is a wide one to be determined in the light of all the circumstances of the case. To award costs against an unsuccessful party on an indemnity scale is a departure from the norm. There must, therefore, be something – whether it be the conduct of the claimant or the circumstances of the case – which takes the case outside the norm. It is not necessary that the claimant should be guilty of dishonesty or moral blame. Unreasonableness in the conduct of the proceedings and the raising of particular allegations, or in the manner of raising them may suffice. So may the pursuit of a speculative claim involving a high risk of failure or the making of allegations of dishonesty that turn out to be misconceived, or the conduct of an extensive publicity campaign designed to drive the other party to settlement. The making of a grossly exaggerated claim may also be a ground for indemnity costs.”
“The approach in the CPR is a relatively simple one: namely, if one party has made a real effort to find a reasonable solution to the proceedings and the other party has resisted that sensible approach, then the latter puts himself at risk that the order for cost may be on an indemnity basis. What would be a reasonable solution will depend on all the circumstances of the case …”
“Verify that the client is purchasing all DCCM paper on an Execution Only basis and is not looking to Chase for advice” was not correct. VM must have known that. As he acknowledged, it involved “stretching” the truth because “… the customers … all of them were relying on Chase for advice”
“MRS JUSTICE GLOSTER: I mean, on any basis the evidence that you took me to of Mr. Sheehan's description of how he got the Polemises to sign documents, it is a pretty shoddy way to approach getting a client to sign something.” “MRS JUSTICE GLOSTER: It is not very attractive, Mr. Hapgood, Mr. Sheehan taking the documents down and bragging afterwards that he knows that Mr. Polemis never reads them. You may say that has no legal consequence whatsoever, but it is not the way that a responsible bank should go about the signing of documents, is it? MR. HAPGOOD: I’m not sure he’s bragging. I think in a sense he is just amused by it. MRS JUSTICE GLOSTER: We needn’t go into all the characterisation of that, but it is not an attractive way for a bank who is getting somebody to sign up to something to go along and know that the chap is not even looking at it. MR. HAPGOOD: What else does one do? MRS JUSTICE GLOSTER: On can, for example, say: you should take is [as] an important document, you should take some advice and look at this paragraph and look at that paragraph. You may say none of that matters, but speaking for myself I find it an unattractive way for a responsible bank to get a client to sign something which contains, on any basis, onerous stuff.” b) Mr. Brindle referred to a similar exchange focusing on both JA’s conduct in selling AP investment and FS’s conduct in getting documents signed iii) Although the court exonerated Chase of negligence, it did so with “hesitation” in the case of the Private Bank (see paragraph 632 of the first judgment). The following comments made by the court reflect those concerns: “MRS JUSTICE GLOSTER: What could be said against you is that the bank, with this very lengthy close relationship with the family and in circumstances where they are making substantial profits, never actually applied their mind, despite have a relationship with Mr. Polemis at a high level, to saying: well, actually this is the advice that this, okay, sophisticated in one sense of being a sophisticated businessman, but somebody needs to give his family some serious advice about not having all their eggs in one basket. It is the absence of any kind of real world life that anybody in a professional relationship with these client might just strike one – and I’m not saying necessarily Mr. Atkinson, because I take your point that he was a salesman. MR. HAPGOOD: Yes. MRS JUSTICE GLOSTER: You may say, well, that is not an approach that is consistent with the pleadings or the contractual framework, et cetera, et cetera, but that factually is the discomfort that I think you have in your case.” “MRS JUSTICE GLOSTER: I think that is what I find surprising. Again, I’m not putting any legal pegs on this, but I find it surprising if they were trying to encourage him into diversification that someone at a senior level doesn’t record in writing the, at least potentially, very great risks of having so much money in emerging markets. MR. HAPGOOD: Yes. MRS JUSTICE GLOSTER: And particularly concentrated in the way they were. That is I think what I’m looking for and haven’t found. … MRS JUSTICE GLOSTER: It is a shock horror point and I find it – it is a shock horror point, isn’t it, in one sense, and I find it surprising that the bank didn’t think: well, we must record in writing, whether the client reads it or not, but this is a corporate client who is horrifically concentrated in one asset class. MR. HAPGOOD: Yes, absolutely. MRS JUSTICE GLOSTER: If we are going round giving him a bit of advice about diversification, we should spell out the dangers of being concentrated in the way that he is.” iv) Important aspects of Chase’s case were unrealistic and unsupported even by Chase’s own evidence. a) Chase denied to the very end that JA gave investment advice to Springwell. This was a fundamental aspect of Chase’s case but one that was hopeless and clearly rejected by the court. It was unsupported by many of Chase’s witnesses. The fact that Chase took and maintained this position throughout the litigation resulted in very significant additional costs. It resulted in substantial costs at the pleading stage. It resulted in substantial costs at the witness statement and expert report stages. It resulted in the cross-examination of many of Chase’s witnesses (including JA) as to whether or not advice was being given. b) Similar points can be made as to Chase’s pleaded case that JA was an execution-only salesman. Indeed, the position was a fortiori here, because, as it turned out in cross-examination, not even JA thought he was an execution only salesman. Again, the fact that Chase took and maintained this position throughout the litigation resulted in very significant additional costs. c) Chase pleaded to the role of the Private Bank in a Part 18 Response of October 2005. According to that pleading: “The Private Bank assumed responsibility for the client relationship, which meant that (i) Springwell’s bank accounts were held at the Private Bank; (ii) the Private Bank was responsible for day-to-day administration of Springwell’s banking affairs; (iii) the Private Bank was responsible, within Chase, for the collection of information on Springwell from other departments … and (iv) the Private Bank was responsible for the provision of credit to Springwell.”