Deutsche Bank (Suisse) SA v Khan & Ors [2013] EWHC 1020 (Comm)

[2013] EWHC 1020 (Comm)

Case No 2011-403, 2011-1110, 2011-1109,2011-1111,2011-1107,2011-1105,2011-1108,2011-1106

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Venue Royal Courts of Justice, Rolls Building, London, EC2A 1NL

Date 25/04/2013

Before

MR JUSTICE HAMBLEN

Between

Deutsche Bank (Suisse) SAClaimant

Gulzar Ahmed Khan & OthersDefendants

Michael Pryor (instructed by Simmons & Simmons LLP) for Claimant

Nigel Jones QC and Emily Betts (instructed by Richard Slade & Co) for Defendants

Hearing Hearing date: Friday 19 April 2013

Judgment

[1]The various orders which the Claimant seeks consequential upon my judgment are set out in the draft order before the court. I shall address the issues raised under the headings below.

The Money Judgment

[2]The money judgment sought is set out in paragraphs 1-3 of the draft order, and is based on a schedule updated and certified by the Claimant on 12 April 2013. No issue is taken as to the details of the amounts there set out and I accordingly make an order in the terms requested.

The Counterclaims

[3]The order includes dismissal of various of the counterclaims which were dealt with at the trial together with the stay on agreed terms in relation to the outstanding counterclaims. I make the order in the terms requested in paragraphs 5 and 14 of the draft order with the amendment suggested by the Defendants. Costs

[4]A number of costs issues arise and in particular:(1) Whether the Defendants are liable for costs on a joint and several basis.

(2) Whether the Claimant is entitled to costs on an indemnity basis.

(3) The terms of any payment on account of costs. (1). Whether the Defendants are liable for costs on a joint and several basis.

[5]The first ground upon which the Claimant contends that costs should be on a joint and several basis is clause 16 of the Facility Agreement which provides that:

“The Borrowers hereby undertake to indemnify the Bank forthwith upon demand from and against all costs, fees, charges, taxes, expenses, liabilities and other amounts which the Bank may incur, sustain or pay in connection with the preparation, negotiation, registration, implementation or enforcement of this Agreement and/or the Security Documents and/or in connection with the preservation or protection of the Bank’s rights hereunder or there under and/or in connection with any consent or approval of the Bank required or requested under the provisions of the Agreement or any of the Security Documents and including (in particular but without limiting the generality of the foregoing) the fees and expenses of the Bank’s solicitors and VAT thereon and of the Bank’s surveyors and VAT thereon.”

[6]The Claimant contends that the reference in clause 16 to the “Borrowers” is in clear distinction to elsewhere in the Facility Agreement where each “Borrower” is referred to. The Claimant submits that the reference being made is to all the parties to the Facility Agreement and that they are all liable in relation to the costs there referred to.

[7]The Defendants contend that on the proper construction of clause 16 each Borrower is liable for any costs properly recoverable only in respect of its tranche and not in respect of all the other loans. It submits that the reference to “this Agreement” in clause 16 is to the series of loans to each Borrower and is in fact, eight distinct Agreements. It points out that the Claimant has accepted this analysis in relation to the individual loans in these proceedings. It emphasises that if there had only been a default by one Borrower under one loan, one would not expect costs of enforcement in relation to that Borrower and that loan to be recoverable against all the other Borrowers.

[8]I agree with the Claimant that the Facility Agreement does distinguish between the obligations of each Borrower and the obligations of the Borrowers collectively.

[9]Clause 16 appears to be addressing general charges which can be recoverable against all the Borrowers. For example, it includes costs concerned with the preparation, negotiation, and registration of the Agreement. Those will be general costs which one can well understand should be recoverable generally, rather than on some unspecified pro-rated basis. Equally, in relation to enforcement, and bearing in mind that any event of default means that the entire Facility loan becomes repayable, it is understandable that costs of enforcement should be recoverable generally rather than on a loan by loan/Borrower by Borrower basis.

[10]In my judgment, the natural reading of this clause is that the “Borrowers” means just that, namely all the Borrowers, not each individual Borrower. That is also supported, for example, by the similar reference to “Borrowers” in clause 15 where they have to bear the cost of a valuation “of the Properties”. That again would appear to be referring to a general, shared liability rather than a Borrower by Borrower or pro-rated liability.

[11]I therefore accept the Claimant’s case that under the contract the Defendants’ liability for costs is joint and several.

[12]The Claimant further submits that joint and several liability should be imposed under the CPR in any event. It points out that in substance the role of the first to twelfth Defendants in advancing the defence and counterclaims is indistinguishable, so that they should be treated as advancing the various cases individually and as part of the team of Defendants of which they are constituents. In this regard the Claimant points to various parts of the pleadings which make it clear that the case being advanced is on behalf of all the Defendants together, that is the Khan Family and the corporate borrowers. I accept that on the pleadings the position in relation to all the main causes of action is that a common case was being made on behalf of all Defendants, without distinction between them.

[13]The Claimant further points out that the aspects of the case which generated the greatest amount of work and the largest volume of disclosure, were those which were being advanced expressly by both the Khan Family and the corporate borrowers and in particular: pre-Facility misrepresentation; inducement of the First Supplemental Agreement; consumer protection legislation and Breach of Contract.

[14]The Defendants stress that these pleadings were drafted at a time when the entire claim was being made against all the Defendants, and that it was only about ten days before the trial that the Claimant finally abandoned its claim against the Khan Family that they were jointly liable in respect of the loans under the Facility Agreement. That meant that the claim they were facing went from one of about £50,000,000 to one of less than £50,000. In those circumstances, it is submitted it would be quite wrong for the Khan Family to be liable for all the costs of the claims, notwithstanding the common front presented in the proceedings. It is submitted, that where a party only recovers a very small amount relative to the costs incurred, that party should pay the other’s costs or at most there should be no order as to costs. In this connection I was referred to the cases of Hooper v Biddle & Co

[2006] EWHC 2995

and also Painting v Oxford University [2005] EWCA Civ161.

[15]It is correct that there was a major change in relation to the monetary claims being made against the Khan Family shortly before the trial. However, the reality of this litigation throughout has been that the real party interested in the proceedings is the Khan Family, whether the claims were being made against them individually or against the corporate SPVs which they own and control. The way in which the case was run, both in the pleadings and at the trial, was on the basis that effectively all the Defendants were in it together and were presenting a common front in relation to virtually all issues.

[16]Further, although the ultimate claim against the Khan Family was for a small amount, at no stage did they seek to protect their position or extricate themselves from the proceedings by making an offer to cover the amount due, either before or after the claim was reduced in amount.

[17]In all the circumstances, in my judgment this was a collectively run case and it is appropriate to make a costs order that reflects that, which means a joint and several order. For similar reasons it would not be appropriate to exercise any discretion to disallow costs and override the contractual agreement that costs should be on a joint and several basis, even if I was otherwise minded to do so.

[18]I accordingly accept the Claimant’s case that the appropriate costs order in this case is a joint and several costs order. (2) Whether the Claimant is entitled to costs on an indemnity basis.

[19]The next issue concerns the basis of assessment and whether it should be on an indemnity basis or a standard basis. Again, the starting point is the contract itself. The Claimant stresses that clause 16 refers to an indemnity being provided in respect of “all costs”. It submits that, although there are differing authorities, the clear preponderance of authority supports the proposition that a clause in a mortgage or like document which refers to the right to recover “all costs” entitles the recipient to costs on the indemnity rather than the standard basis.

[20]In this connection I was referred to Fisher and Lightwood’s Law of Mortgage 13th edition at paragraph 55.10. The relevant cases are discussed in footnote 2 to that paragraph. The opinion there expressed is that “the better view is that “all costs” should entitle the recipient to an assessment on the indemnity basis”. It is pointed out that this view is supported by the decision of Walton J in Bank of Baroda v Panessar

[1987] Ch 335

; Glidewell J in Drummond v S & U Stores Ltd

[1981] 1 EGLR 42

; Vinelott J in Gomba Holdings UK Ltd v Minories Finance Ltd (No 2)

[1992] BCLC 851

; and by the Court of Appeal decision in Fairview Investments Ltd v Sharma (14 October 1999 unreported) in which Chadwick LJ stated as follows in the context of a similar provision in a lease: “The lessor should have it costs of and incidental to the litigation; and those costs should be assessed on an indemnity basis. The indemnity basis is appropriate because the opening words … require the lessee to pay “all” expenses. The word “all” does not enable or entitle the lessor to recover costs and expenses which are unreasonably incurred or which are unreasonable in amount … But to enable the lessor to recover the costs which can properly be recovered [an assessment] on the indemnity basis is appropriate”.

[21]I was also referred to the Court of Appeal decision in Allied Industrial Estate Ltd v W B Estates Ltd and W B Industries plc [1992] WL 12678292. In that case Lloyd LJ said as follows at p7:

“I have in the end been persuaded by Mr Morison that all costs and expenses means actual costs and expenses save in so far they can be shown to be unreasonable in amount. In other words, that all costs bears the same meaning as all costs recoverable on the indemnity basis of taxation under Order 62 rule 12(2). To my mind, that construction lies more comfortably with the introductory words of clause 16 whereby the second defendants undertook to keep the plaintiffs indemnified from all costs and expenses.”

[22]The only authority to the contrary is the case of Re Adelphi Hotel (Brighton) Ltd

[1953] 1WLR 955

, a decision of Vaisey J. That case has not been followed in other cases such as Drummond v SU Stores and was doubted by Vinelott J in the Gomba Holdings case.

[23]In my judgment the clear weight of authority supports the proposition that the reference to “all costs” in an agreement such as the Facility Agreement means all costs unless they are unreasonable in amount or have been unreasonably incurred, which is the equivalent to costs on the indemnity basis. Such a construction is also consistent with the wide and unqualified nature of the words used. The Defendants had a further point that even if that was so, the burden of proof would still remain on the Claimant to prove that the costs were not unreasonable. I reject that contention. In my judgment the burden would be on the party who was alleging that costs were unreasonable in amount or were unreasonably incurred. It would not be incumbent on the recipient to seek to prove a negative. The contractual bargain therefore was that costs should be recovered on the equivalent of the indemnity basis. That being so, it is an appropriate case so to exercise my discretion under the CPR.

[24]I accordingly accept the Claimant’s case that costs should be assessed on an indemnity basis.

[25]The Claimant had a further argument that in any event costs in this case should be assessed on the indemnity basis because of the unreasonable conduct of the litigation by the Defendants. They set out in Annex 2 to their skeleton argument detailed reasons why it is so submitted. However, there was no time at the hearing for these points to be developed or for the Defendants to have the opportunity to respond to them.In the circumstances, and bearing in mind that I have already awarded the Claimant indemnity costs on a contractual basis, I do not propose to deal with that issue. If it hereafter becomes relevant and necessary to do so then the Claimant can restore its application, but I make no ruling upon it now.

[26]There was also an application indicated whereby the Claimant would seek to obtain a disclosure order for the purpose of seeking a costs order against funders of the litigation. In my judgment the proper grounds for such an application have not been laid and it would not be appropriate to seek to deal with it at this stage. Again, if it becomes appropriate for the Claimant to raise this application at a later stage then it may seek to do so, but I do not propose to address it now. (3). Payment on account of

Costs

[27]The Claimant submits that the appropriate payment on account is £2,743,000 which represents two thirds of the Claimant’s total costs of £ 5,148,294.62 discounted by 80%. The Defendants submit that a much lower sum would be appropriate and that the costs claimed here are out of proportion to the length and complexity of the proceedings. Subject to timing it is not in dispute that it is appropriate to make an order for interim payment. The issue is as to the amount.

[28]In the exercise of my discretion and in the light of my knowledge of the case and its conduct, I consider that in all the circumstances the appropriate sum for payment on account in this case is the sum of £2,100,000.

Octavia

[29]It is accepted that Octavia should pay the costs of its counterclaim. The Claimant submitted that this should be on an indemnity basis on grounds relating to the conduct of the proceedings. However, as already stated, I do not propose to rule upon that issue at this stage.

Time for commencing detailed assessment

[30]The Claimant seeks an extension of three months for the commencement of detailed assessment. The exercise will be expensive and time consuming and it is important that there should be a proper opportunity for discussion between the parties. The extension is not opposed and I grant it.

Interest on costs

[31]It is common ground that interest on costs is payable as from the date of the payment of those costs. There was issue as to the rate of interest payable. The Defendants submitted that it should be no more than the actual cost of funding. In my judgment it should be the generally applicable rule in commercial cases of base rate plus 1%.

Payment out of court of £75,000

[32]It is not disputed that it is appropriate for the order to include payment out of this sum.

Use of documents

[33]The Claimant seeks permission to use documents disclosed in these proceedings in proposed proceedings against Montagu Evans in relation to various valuations it provided in the course of the transaction which the Claimant contends were negligent over-valuations causing the Claimant loss. The order seeks blanket permission to use those documents. However, I agree with the Defendants that at this stage it would only be appropriate to give permission in relation to identified documents. If that is done then permission is likely to be given.

Order for possession

[34]The Claimant seeks an order for possession in relation to the various properties to enforce its charges. Notification has been given to the relevant parties and it is submitted that the court can be satisfied that there is no occupier or other third party who may have an adverse right. The Claimant submits that there are no grounds for suspending an order for possession. It further submits that the period to be allowed should be a short one. In this connection the Claimant contends that the Defendants have been in deliberate breach of their obligations not to allow tenants or occupiers into the properties without consent during the course of the proceedings and that their recent conduct demonstrates it is important that possession orders should be made without delay and not suspended or stayed. This is a reference to the fact that there is evidence of attempts being made on behalf of the Defendants to find tenants for the properties, even after the judgment was given and, moreover, at discounted rates for early occupancy.

[35]The Defendants object to any order for possession. The first point made is that there is as yet no clear statement of the redemption amount and they are entitled to have a proper redemption figure for each property, so they can have the opportunity of redeeming the charges. In the light of this judgment, and the clarification of its case made by the Claimant during the course of the argument, clear redemption figures can be given. Those would be on the basis of liability for costs being joint and several and the redemption amount including 80% of the Claimant’s costs.

[36]Until the morning of the hearing there was no evidence to suggest the absence of these redemption statements was preventing the Defendants from being able to redeem the charges. However, shortly before the hearing evidence was put in of attempts being made to procure loans that would enable the charges in respect of the Knightsbridge properties to be discharged. It is right to point out that the arrangements described in the documents appear to be at a preliminary stage and to raise a number of questions. But, on the face of the documents there is evidence of genuine efforts being made which have some prospect of leading to redemption of the charges.

[37]In the circumstances the Defendants submit that they should be allowed a realistic period to take those negotiations further. This was resisted by the Claimant who submits that there has been a long history of delay and prevarication on behalf of the Defendants throughout these proceedings and that the effect of granting further time would simply be further delay and prevarication. The Claimant’s position is that possession should be ordered to be given within 21 days. The Defendants’ position is that they should be allowed a period of three months.

[38]In my judgment it is important that there is a relatively short deadline. This would serve to concentrate the minds of the Defendants and those acting for them. It would also assist in ensuring that any serious negotiations are brought to fruition quickly. In all circumstances, particularly given the history of this matter, I am not prepared to grant the three month period which the Defendants seek. However, I am prepared to allow a further two months to be given from the date of this judgment. I also agree with the Defendants that the timing of the payment on account of costs should be tied with the timing of the possession order. I therefore order that that payment should be made within the same two month period.

[39]Finally, if I am going to grant the Defendants this indulgence, I accept the Claimant’s contention that it is important that the position in relation to properties is protected in the meantime. I therefore propose to make the order sought prohibiting any person from being allowed to enter into any lease or other arrangements in respect of the properties during the intervening period, as set out in the draft order. Subsequent to the hearing the Claimant sought to expand that order to cover the provision of information. I shall hear the parties as to the appropriateness of so doing.

Conclusion

[40]It is to be hoped that the guidance given in relation to the various issues addressed above will enable the parties to formulate a final agreed order.