Factual and Procedural Background
This judgment follows a trial concluded on 11th June 2009, with certain matters arising from the main judgment adjourned for further hearing over three days starting 29th June 2009. This judgment addresses one such matter, namely costs, assuming prior familiarity with the case and its definitions as set out in the main judgment.
Legal Issues Presented
- What principles govern costs orders where a party deliberately pursues a case known to be false on a central issue?
- Does such conduct by a successful party displace the general rule that the unsuccessful party pays costs?
- Is pre-action conduct relevant to costs only if it causes the bringing of an unsuccessful claim or increased litigation costs?
- Does the award of indemnity costs depend on a conclusion that serious allegations were pursued unreasonably?
Arguments of the Parties
Appellant's Arguments (Ferrero)
- Ferrero contends that large parts of the opposing party’s claims, including allegations of fraudulent conspiracy, were unreasonably brought and pursued.
- Ferrero seeks indemnity costs on the basis that the opposing party’s conduct was unreasonable and extravagant.
- Ferrero argues its pre-action conduct did not causatively lead to the claim or increased costs.
Appellee's Arguments (Banks)
- The Banks assert it was reasonable to pursue claims due to Ferrero’s misconduct, including deliberate falsehoods during litigation.
- The Banks argue Ferrero’s pre-action conduct was dishonest and contributed to the bringing of claims.
- The Banks seek costs against Ferrero on an indemnity basis.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Molloy v. Shell UK Limited [2001] EWCA Civ 1272 |
Dishonest litigant conduct may justify disallowance of costs or striking out the claim as abuse of process. |
Confirmed that deliberate falsehood by a party can lead to costs penalties; however, full displacement of costs rule is rare. |
| A L Barnes Limited v. Time Talk (UK) Limited [2003] EWCA Civ 402 |
Dishonesty at the less serious end of the spectrum can justify partial disallowance of costs. |
Used to illustrate that dishonesty affects costs orders but does not always displace the successful party’s entitlement. |
| Ultraframe (UK) Limited & others v. Fielding and others [2006] EWCA Civ 1660 |
Dishonest conduct during litigation can justify cost penalties beyond disallowance, including additional penalties. |
Affirmed that dishonest false cases can attract penalties but not necessarily full costs disallowance; proportionality and double jeopardy considered. |
| Ritter v. Godfrey [1920] 2 KB 47 |
Costs consequences for pre-action conduct causing unnecessary litigation or expense. |
Discussed relevance of pre-action conduct to costs; later refined by higher authority. |
| Donald Campbell and Company Limited v. Pollak [1927] AC 732 |
Judicial discretion in costs orders; conduct causing unsuccessful claim or increased expense is relevant. |
Confirmed that causative conduct is key to costs consequences; informs CPR interpretation. |
| Groupama Insurance Company Limited v. Overseas Partners Re Limited [2003] EWCA Civ 1846 |
Confirmed continuing validity of pre-CPR principles on pre-action conduct and costs; broad conduct relevant. |
Clarified that pre-action conduct is relevant to costs regardless of causation limitations suggested previously. |
| Phonographic Performance Ltd v. AEI Rediffusion Music Ltd [1999] 1 WLR 1507 |
Costs regime encourages selective litigation and separate costs orders reflecting different issues. |
Supports court’s discretion to depart from "follow the event" principle in costs orders. |
| Three Rivers District Council v. Bank of Credit and Commerce International SA [2006] EWHC 816 |
Factors for awarding indemnity costs include deliberate misconduct or serious unreasonableness. |
Used to establish principles on indemnity costs and unreasonable conduct. |
| National Westminster Bank Plc v. Rabobank Nederland [2007] EWHC 1742 |
Similar principles on indemnity costs and conduct. |
Supports discretionary nature of indemnity costs based on conduct. |
| JP Morgan Chase Bank v. Springwell Navigation Corporation [2008] EWHC 2848 |
Indemnity costs may be awarded for speculative, opportunistic, or weak allegations pursued unreasonably. |
Informs court’s assessment of unreasonableness for indemnity costs. |
| Weill v. Mean Fiddler Holdings Limited [2003] EWCA Civ 1058 |
Test for reserving costs pending assessment of damages where costs outcome may be affected. |
Applied to reserve costs between parties pending quantum assessment. |
Court's Reasoning and Analysis
The court began by outlining the legal framework governing costs under CPR Part 44, emphasizing judicial discretion and the overriding objective of dealing justly with cases. The court considered the seriousness of deliberate falsehoods in litigation, drawing on authorities that show dishonest conduct can justify cost penalties beyond the usual "costs follow the event" rule, but does not necessarily displace it entirely except in cases of abuse of process.
The court analyzed the parties’ conduct, concluding that the Defendant (Ferrero) deliberately pursued a false case on central issues, supported by untruthful evidence from senior employees, constituting serious misconduct and abuse of process. However, this misconduct did not amount to an abuse so grave as to justify striking out the entire defense or fully displacing the usual costs rule.
Regarding pre-action conduct, the court rejected the notion that such conduct is only relevant if it causatively leads to the claim or increased costs, holding that the CPR’s language requires regard to all conduct before and during proceedings. Nonetheless, causation remains a relevant factor in determining the extent of costs penalties.
The court found no evidence of dishonesty by Ferrero before the claim commenced, though it acknowledged Ferrero’s lack of cooperation and aggressive pre-action conduct. These factors were weighed but mitigated by considerations including the foreign business context and ongoing related proceedings in Italy.
On the Banks’ conduct, the court identified that parts of their claims were unreasonable, speculative, and overblown, particularly claims predating 25th January 2002, which significantly increased costs and complexity.
Balancing these findings, the court concluded that Ferrero’s dishonest conduct outweighed the Banks’ unreasonable conduct, justifying substantial costs penalties against Ferrero, including disallowance of costs related to its false case and an additional penalty. The court rejected indemnity costs for Ferrero, partly due to proportionality concerns and the large scale of litigation.
The court constructed a costs order reflecting these considerations, disallowing 30% of Ferrero’s costs, resulting in the Banks paying 70% of Ferrero’s costs on a standard basis, with agreed specific deductions for late disclosure issues.
Finally, the court reserved costs between the Banks and a third party (Mr. Abidali) pending further hearing on quantum, applying established principles for reserving costs where outcomes may affect entitlement.
Holding and Implications
The court ordered that the Banks pay 70% of Ferrero’s costs, to be assessed on the standard basis, with specific agreed deductions.
The court reserved the question of costs between the Banks and Mr. Abidali pending a further hearing on quantum.
This decision reflects a nuanced application of CPR Part 44, balancing serious misconduct by a successful party with unreasonable conduct by the opposing party. The court emphasized proportionality and the avoidance of double jeopardy in costs assessment. No new precedent was established; rather, the ruling applies established principles to the complex facts of this case, demonstrating the court’s discretion in tailoring costs orders to the conduct and circumstances of the parties.