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Cite as: [1997] EWCA Civ 1096, [1997] 8 Med LR 319

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MALHOTRA v. DHAWAN [1997] EWCA Civ 1096 (26th February, 1997)

IN THE SUPREME COURT OF JUDICATURE FC3 97/5380/B

IN THE COURT OF APPEAL (CIVIL DIVISION) CHANF 95/1305/B

ON APPEAL FROM THE HIGH COURT OF JUSTICE, CHANCERY DIVISION

(MR. JUSTICE RATTEE )

(Application and Appeal )

Royal Courts of Justice

Strand

London WC2

Wednesday 26 February 1997

B e f o r e:

LORD JUSTICE SAVILLE

LORD JUSTICE MORRITT

SIR PATRICK RUSSELL

MALHOTRA

Plaintiff/Appellant

- v -

DHAWAN

Defendant/Respondent

(Computer Aided Transcript of the Palantype Notes of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 831 3183

Official Shorthand Writers to the Court)

MR. R MATTHEW QC & MR. M WATSON-GANDY (Instructed by Messrs. Lloyds & Associates, London SW7 3AH) appeared on behalf of the Appellant

MR. N STEWARD QC (Instructed by Messrs. Payne Hicks Beach, London WC2A 3QG) appeared on behalf of the Respondent

J U D G M E N T

(As approved by the Court )

©Crown Copyright

Wednesday 26 February 1997

LORD JUSTICE SAVILLE: I shall ask Lord Justice Morritt to give the first judgment.

LORD JUSTICE MORRITT: This is the appeal of the Plaintiff, Mr. Malhotra, from the order of Rattee J made on 26 June 1995. By that order he ordered the Defendant, Mr. Dhawan, to pay to Mr. Malhotra the sum of £734 with interest agreed at £1,543. He ordered Mr. Dhawan to pay Mr. Malhotra's costs down to 1 March 1993, but he ordered Mr. Malhotra to pay Mr. Dhawan's costs on an indemnity basis from and after 1 March 1993.

Mr. Malhotra contends that the sum for which judgment is entered in his favour should be increased to £21,277 with interest, and that Mr. Dhawan should pay all his costs of the proceedings in the court below, not only those up to 1 March 1993

Mr. Malhotra is a qualified accountant. The Defendant, Mr. Dhawan, is also an accountant but at the material times did not have any professional qualification. At those times Mr. Dhawan was the principal of a firm carrying on the business of accountancy called Dawn and Co.

Between 1 January 1978 and 12 October 1979 Mr. Malhotra carried out certain accountancy work for Dawn and Co. with a view to becoming a partner in that firm. It was agreed that he would be remunerated with half the firm's net profits for the period of his association with it. On the latter date Mr. Malhotra left Dawn & Co at the request of Mr. Dhawan.

In December 1979, as subsequently found by Rattee J, Mr. Malhotra wrote to Mr. Dhawan claiming remuneration in respect of work in progress for 17 named clients. In some cases he put a figure on the value of such work.

The disputes between the parties were not resolved by agreement then or indeed thereafter, and on 29 June 1980 Mr. Malhotra issued a specially endorsed writ claiming that there was a partnership between him and Mr. Dhawan to carry on the accountancy business in the name of Dawn and Co. In that capacity he sought an account of the profits due to him for the period from 1 January 1978 to 14 October 1979.

Mr. Dhawan's defence was not served until 20 October 1983, but in it he averred that Mr. Malhotra was an employee not a partner. He accepted that, as such, he was entitled to "one half of the net profits of the said firm" and to an account to ascertain how much that was.

In March 1984 Mr. Dhawan moved offices and, as subsequently accepted by Rattee J, in connection with that move he destroyed the client files relating to those clients for whom he no longer acted.

In March 1985 Mr. Malhotra amended his Statement of Claim so as to contend that if, contrary to his primary submission, he was an employee of Mr. Dhawan, he was nevertheless entitled to remuneration equal to one half of the profits of the business of Dawn and Co., and Mr. Dhawan had failed properly to account for that sum or to pay it to him.

In due course, in February 1986, Mr. Dhawan put in an amended defence but he did not seek to withdraw his admission that Mr. Malhotra was an employee and as such entitled to half the net profits of the firm for the relevant period.

On 10 July 1989 the Court of Appeal reversed the order of His Honour Judge Finlay QC on a preliminary issue. He had declared that there was a partnership between Mr. Malhotra and Mr. Dhawan. The Court of Appeal disagreed and established that the relationship was that of employer and employee. On that footing they declared that Mr. Malhotra was entitled to remuneration equal to a share of the profits for the relevant period and ordered that "an account be taken of the net profits of the business of Dawn and Co. for the period 1 January 1978 to 12 October 1979".

Thereafter directions were given as to the taking of the account by Mr. Michael Lyndon-Stanford QC sitting as a Deputy Judge of the Chancery Division on 21 December 1992, Master Winegarten on 30 March 1994 and by Rattee J on 17 May 1995.

In the meantime, the solicitors for Mr. Dhawan sent Calderbank letters. The second was dated 1 March 1993 and offered to Mr. Malhotra the sum of £10,000, together with the costs of taking the account, in full and final settlement of his claim. The third letter (the second relevant one) was dated 25 March 1993 and increased the offer from £10,000 to £16,000.

Ultimately the taking of the account started before Rattee J on 18 May 1995 and lasted for five days. The judge was required to deal with some 60 different claims for the allowance of further credits to Mr. Malhotra or the charging of further debits to Mr. Dhawan.

He handed down his reserved judgment on 26 June 1995. So far as relevant his conclusions were as follows. First, as I have already indicated, he determined that in March 1984, when moving his offices, Mr. Dhawan destroyed the files of Dawn and Co. relating to former clients for whom he no longer acted. Second, he concluded that such destruction was not deliberate for the purpose of destroying evidence relevant to the claim of Mr. Malhotra. Third, he decided that in consequence of those two conclusions the Court should not be slow to make such inferences or assumptions against Mr. Dhawan's interests as were consistent with other available evidence; so that fourth, the undated letter which he decided had been written in December 1979 by Mr. Malhotra, should be accepted as indicating that some work was in progress for a client specified on the list at the end of the relevant period.

The final result of his judgment was that in four cases out of sixty he determined that further credit should be given to Mr. Malhotra.

After further argument he then dealt with the question of costs. He decided that Mr. Malhotra should pay Mr. Dhawan's costs from the date of the second Calderbank letter (1 March 1993) and that those costs should be taxed on an indemnity basis.

On this appeal Mr. Malhotra raises two issues of principle. The first is whether Rattee J dealt correctly with the consequence of the destruction by Mr. Dhawan of the client files in March 1984, and in that connection he contended initially that Rattee J was wrong on some 25 points of detail.

The second point of principle was whether Rattee was right in respect of the costs, first in recognising the letter of 1 March 1993 as an effective Calderbank letter for the purposes of costs, and secondly, whether he was right, having made such an order, in ordering that the costs should be taxed on an indemnity basis.

I propose to deal first with the questions arising from the judge's treatment of the consequences of the destruction of the client files.

For Mr. Malhotra reliance was placed on the broad principle expressed in the Latin maxim omnia praesumuntur contra spoliatorem. However, it was accepted that the true principle was not as extensive as the maxim would suggest for not everything is to be presumed against the destroyer. Thus the limits to the presumption must be ascertained from the cases in which it has been discussed.

The first is the well-known case of Armory v Delamirie (1722) 1 Stra 505. In that case a jeweller to whom a chimney sweep had taken a jewel he had found, took the jewel out of the socket and refused to return it. The chimney sweep sued him in trover. On the measure of damages Pratt CJ ruled that:

"unless the defendant did produce the jewel, and shew it not to be of the finest water, they [the jury] should presume the strongest against him, and make the value of the best jewels the measure of their damages: ..."

More recently the principle has been stated by Staughton J, as he then was, in Indian Oil Corporation v Greenstone Shipping SA [1988] 1 QB 345 at 363 as

"If the wrongdoer prevents the innocent party proving how much of his property has been taken, then the wrongdoer is liable to the greatest extent possible in the circumstances."

The authority on which Rattee J founded his judgment is Gray v Haig & Son (1855) 20 Beav. 219. In that case Gray was the agent for Haig & Son, the well-known distillers, to sell whisky on their behalf in return for a commission on such sales. On the termination of the agency a dispute arose as to the amount of the commission due to Gray and an account was ordered. It was then discovered that Gray had destroyed his books, which were essential to the taking of the account, after the dispute had arisen. At page 226 the Master of the Rolls said:

"In a case before me this year, one partner, several years before the institution of the suit, and upwards of twenty years after the closing of the partnership business, and when the accounts had been settled between him and his partners by arbitration, and never afterwards opened or disputed, had destroyed the books which contained the accounts of that partnership, I treated lightly the circumstance of that destruction, and did not suffer it to prejudice his case. But the case is very different when the transactions to which they relate are recent, where the accounts arising from them have not been finally adjusted, or the balance ascertained or paid, and still more when that destruction takes place by the person who has actually filed a bill to have the accounts taken of those very transactions to which these books relate. In such a case some very cogent reason must be given to satisfy the Court that the destruction was proper or justifiable, and, in the absence of any such reason, which is the fact here, I am compelled to act on the principle laid down in the well-known case of Armory v Delamirie , and presume, as against the person who destroyed the evidence, every thing most unfavourable to him, which is consistent with the rest of the facts, which are either admitted or proved."

Later, at page 229, he added:

"But in all cases of contradictory evidence, whether between a witness and a Defendant, or between two witnesses who give evidence in direct contradiction to each other, with regard to a matter equally within the knowledge and cognizance of both, it is the duty of the judicial tribunal to search for facts which may corroborate or invalidate the testimony of either witness. In this case there were books containing the account of the transactions, which would have afforded clear and distinct evidence to enable the Court to judge which of the two was to be believed. This evidence Mr. Gray has himself removed, and removed, as I consider proved by his own evidence, after the contest relating to these accounts had arisen between himself and Haig & Son. He must suffer the necessary consequence of the absence of that evidence so occasioned; and I consider myself bound to believe that these books, if now forthcoming, would prove the truth of the statements contained in Rikey's evidence."

In the instant case the principle adopted by the judge was expressed by him in the following terms:

"The difficulties in ascertaining the truth about the items in dispute are, of course, greatly increased by the intolerable length of time it has taken for these proceedings to come to trial. They are made even greater by the fact that unfortunately the Defendant has destroyed the files kept for the purpose of his accountancy practice in respect of some of the former clients work for whom is now in dispute in these proceedings. According to the Defendant, whose evidence on this point I accept, when he moved offices in March 1984 he destroyed the files relating to the former clients for whom he no longer acted. He says he did not appreciate that they might be relevant to these proceedings then pending. It is clearly very regrettable that he did destroy these files, although I am not persuaded that he did so for the deliberate purpose of destroying evidence relevant to the Plaintiff's claim. I accept the submission made by counsel for the Plaintiff that in such a situation, where one party is responsible for the unavailability of relevant evidence, the Court should not be slow to make such inferences or assumptions against that party's interests as are consistent with other available evidence. (see for instance Gray v Haig (1855) 20 Beav. 219)"

At page 6, the Judge indicated that

"... in the case of clients whose files have been destroyed by the Defendant so that the best evidence is not available, the Plaintiff's nearly contemporaneous letter should (where it is not inconsistent with other reliable evidence other than the Defendant's own contention) be accepted at its face value and treated as evidence that, in respect of the clients listed in the letter, some work was in progress at the end of the relevant period. In respect of these clients the Defendant had notice that the Plaintiff was making a claim in respect of the work in progress before he destroyed the files. However, the Plaintiff's December 1979 letter does not amount to evidence that any particular work in progress was completed at the end of the relevant period for the letter does not claim that it was. I did not find it convincing the Plaintiff's oral evidence to me that in respect of all of the clients listed in the letter the relevant work was actually completed by the relevant date, and it his to be noted that in an affidavit sworn by the Plaintiff on 30 April 1991 to which he exhibited a copy of the letter he does not suggest that the work in progress had actually been completed before he left the Defendant's employment.

I should say in this connection that I find the Plaintiff generally an unsatisfactory witness and I find difficulty in relying on his evidence except where supported by some corroboration."

In his Notice of Appeal Mr. Malhotra claimed that the judge was wrong to have concluded that Mr. Dhawan did not destroy the files for the deliberate purpose of destroying evidence relevant to his claim. That contention was abandoned at the hearing. Further, counsel for Mr. Malhotra accepted that Rattee J had extracted the correct principle from Gray v Haig & Son . Accordingly, the only issue on this appeal was whether the principle had been properly applied to the facts of the case. However, before considering that issue it may be helpful to indicate some of the limits on the application of the principle.

First, if it is found that the destruction of the evidence was carried out deliberately so to as hinder the proof of the plaintiff's claim, then such finding will obviously reflect on the credibility of the destroyer. In such circumstances it would enable the Court to disregard the evidence of the destroyer in the application of the principle. But that is not this case.

Second, if the Court has difficulty in deciding which party's evidence to accept, then it would be legitimate to resolve that doubt by the application of the presumption. But, thirdly, if the judge forms a clear view, having borne in mind all the difficulties which may arise from the unavailability of material documents, as to which side is telling the truth, I do not accept that the application of the presumption can require the judge to accept evidence he does not believe or to reject evidence he finds to be truthful.

Thus in my view the judge's careful expression of the principle in terms of drawing such inferences as are consistent with the other available evidence is correct, not least because it recognises the three considerations to which I have referred. Further, his finding that Mr. Malhotra was generally an unsatisfactory witness whose uncorroborated evidence could not be relied on is of obvious importance.

As I have already indicated, Rattee J had to deal with 60 separate items of account largely consisting of fees received from or work in progress existing at the end of the relevant period for individual clients. In four cases he found for Mr. Malhotra. Of the remainder, on this appeal, Mr. Malhotra originally challenged 25. A number of these were abandoned when the appeal was opened. In the course of the opening of the appeal by counsel for Mr. Malhotra we invited him to address the Court on the principles to be applied and then to select what in his view were the best three examples available to him to show that Rattee J had failed properly to apply those principles. I propose now to consider those three examples.

But before turning to the details, it is necessary to consider what was destroyed by Mr. Dhawan and what contemporary documentary evidence remained. The evidence destroyed was the file maintained by Dawn and Co. for each of a number of clients for whom Mr. Dhawan no longer acted. But the primary accounting records of Dawn and Co. remained and formed part of the evidence before Rattee J. Thus there was available to him the firm's ledger completed contemporaneously in Mr. Dhawan's own hand, the client account cards on which, again in Mr. Dhawan's own hand, the relevant debits and credits for each client were recorded, and cashbooks and bank statements and a fee day book as well as many other accounting records.

The first example selected by counsel for Mr. Malhotra concerned Gamma Windows and Omnichoron Protein Ltd. These two companies had a common director and were both clients of Dawn and Co. Although there were files for each of them, the ledger account in the books of Dawn and Co. in the name of Omnichoron dealt with both. That account showed the debit entries to have been cleared in full by corresponding credit entries before 3 September 1979. On that date there was a credit entry for £500 paid in at the bank.

In the letter from Mr. Malhotra, which the judge found to have been written in December 1979, he claimed that sum of £500 as payment for work in progress during the relevant period so that it should be brought into the account. In his oral evidence Mr. Malhotra accepted that there was no invoice for that amount but said that it had been given by the director of the company after Dawn and Co. had done some work.

The expert witness for Mr. Dhawan had analysed the wages sheets for two other employees of Dawn and Co. and had come to the conclusion that no work had been done for this client before February 1980. The files for both clients were destroyed; one reason that was given was that the clients had gone into liquidation.

In his judgment Rattee J said, with regard to the sum of £500:

"I accept the Defendant's evidence that the receipt of £500 was a payment by the client in advance on a running account for fees and that it is not referable to any particular work done in the relevant period."

It was contended that this finding was not open to the judge if the presumption relied upon by Mr. Malhotra had been properly applied. It was submitted that because the file, had it not been destroyed, would have demonstrated conclusively whether the payment was for work already done or in advance and in anticipation of work to be done in the future, it must be presumed that the payment was, as Mr. Malhotra suggested, for work done during the relevant period.

I do not accept this submission. As the judge pointed out, the presumption is applied by drawing inferences or making assumptions contrary to the interest of the party responsible for the destruction of the relevant documents. But as he also pointed out, such inference or assumption must be consistent with the other evidence and with other facts proved or admitted. In this instance, the inference the Court is asked to draw would be inconsistent with the other evidence. It is common ground that there was no invoice for the sum paid. As a corollary there was at the time of payment no debit entry in the ledger account to which it could be related. On the face of that account it was maintained as a running account from the receipt of this payment until it was closed in the beginning of 1981. Moreover, there was no support for the inference to be derived from the wages sheets, for they did not show any work undertaken for these clients until after the relevant period.

This is not a case in which all the relevant documentary evidence was destroyed. The ledger, the fees book and the wages sheet survived. The inference would be contrary to each of those sources and would, in my judgment, be impermissible on that account.

The second example selected related to Internationale Handelanstalt and the Peracha Group. The Peracha Group of companies were clients of Mr. Malhotra at the time he joined Dawn and Co. He made no claim for these companies in respect of work in progress or to fees paid but undeclared in his letter of December 1979. His claim was first intimated in May 1991 when he sought specific discovery of the fee account for International Handel Anstalt. The claim, as recorded by Rattee J was:

"... for two sums of alleged undeclared fees; (a) one of £2,500 which the plaintiff says he received from the client for work done by him personally for the client before the relevant period and then passed on to the defendant; and (b) one of £1,795 allegedly paid into a bank account in the name of one Tandon, a relative of the defendant, who was resident abroad and over whose account the defendant had signing power. The plaintiff asserts that in fact the accountant was beneficially owned by the defendant and used as a vehicle to defraud the plaintiff Joe of fees a share of which was due to him."

The files relevant to this client were destroyed in March 1984. The evidence included an affidavit of Mr. Peracha who, at the material time, was on the board of all the companies in the Peracha Group which were registered in England. However, in cross-examination it was revealed that Mr. Peracha had no personal knowledge of the relevant matters. No doubt it was for this reason that the judge did not refer to his evidence.

In regard to the sum of £2,500 Mr. Malhotra claimed that he had done work for the group before he joined Mr. Dhawan. He claimed to have brought with him this work in progress so that when the sum claimed was paid to him, he was bound to and did pay it on to Mr. Dhawan. The method of payment was said by him to be the receipt of countersigned but blank travellers cheques which were given to him and by him to Mr. Dhawan. Mr. Dhawan denied receipt and there was nothing in any of the books of account to gainsay his evidence.

The conclusion of Rattee J was that the evidence of Mr. Malhotra was unacceptable and he was not satisfied that Mr. Malhotra ever gave to Mr. Dhawan the £2,500 he had received from his client. Given that the issue was the simple question of whether the travellers cheques were ever handed over, I am unable to see how any presumption arising from the destruction of the files relating to the client could have assisted in the resolution of this dispute so as to justify an inference in favour of Mr. Malhotra. In any event, the presumption cannot be used to convert evidence found by the judge to be unacceptable into evidence which is credible.

The sum of £1,795 was credited, as a foreign credit, to the account of Mr. Tandon, on which Mr. Dhawan was an authorised signatory, on 19 May 1978. This was said to be equivalent to £1,805 in US dollars less the conversion charge. The relevance of the sum of £1,805 is that it appears on a memorandum prepared by Mr. Malhotra as being a sum to be received in the equivalent amount of US dollars from the Peracha Group for work done between 16 March and 15 May 1978. But there was no fee note for that sum; instead there was a fee note for £1,512 which was paid on 26 June 1978 and duly accounted for in the books of Dawn Co. as being for fees. On 17 September 1979 the sum of £2,000 was paid out of the Tandon account to that of Dawn Co. in whose ledger it was credited to the account of Mr. Dhawan and not for fees.

Mr. Malhotra contended that the receipt of £1,795 was on account of fees for work done during the relevant period. This was denied by Mr. Dhawan. Mr. Dhawan said that the subsequent receipt of £2,000 was in respect of a ticket he had bought for Mr. Tandon and was part of the personal dealings he had with that individual.

Once again the judge found the evidence of Mr. Malhotra to be unacceptable. Instead he accepted the evidence of Mr. Dhawan that the account in the name of Mr. Tandon was one in which Mr. Dhawan had no beneficial interest. For my part I do not see how the files for the Peracha Group could have assisted on the issue of who was the beneficial owner of the Tandon account. The judge was fully entitled to believe the evidence of Mr. Dhawan and to reject that of Mr. Malhotra.

The third example selected by counsel for Mr. Malhotra was that of Indira Restaurants. In the case of this client also the files had been destroyed in March 1984 and no claim had been made by Mr. Malhotra in his letter of December 1979. The claim was first intimated in May 1991 when an order for discovery was sought in respect of fee notes applicable to this client. The claim subsequently pursued was in respect of two sums. The first was £476 received on 2 October 1978, the second was £2,000 received on 25 May 1979.

The documentary evidence included the ledger of Dawn and Co., the client account card for Indira Restaurants, diary entries for May, June and July 1978 showing four visits to Indira Restaurants in those months and a fee note from solicitors rendered to Mr. Dhawan on 3 April 1979 indicating that the solicitors had advised Mr. Dhawan in relation to Indira Restaurants.

Mr. Malhotra claimed that the work had been done for Indira Restaurants in respect of the 1978 account during the relevant period and that the sums claimed were the fees earned in respect of such work. Mr. Dhawan claimed that the sums claimed were repayment of sums owing to a Mr. Dutt, a relative of his. The judge's conclusion was:

"Unfortunately this is another client whose files the Defendant destroyed, but I accept his evidence that it was not a client for whom the Defendant acted in the relevant period so that there is no reason why its files should have been preserved for the purpose of this action. I accept accordingly that no part of the sums concerned represented fees for work done in the relevant period. The Plaintiff therefore fails in his claim under this head."

Mr. Malhotra claims that this conclusion was not one open to the judge had he been properly applying the presumption. I do not agree. To my mind the judge's conclusion was plainly warranted by the contemporary documentary evidence before him which the application of the presumption could not alter.

Both the client account card and the ledger were completed by Mr. Dhawan in his own handwriting at a time before he and Mr. Malhotra parted company. The former shows that no work was done for this client on the 1978 accounts. Further, the ledger shows that the sum of £476.40 received on 2 October 1978 was part of a cheque banked that day for £1,200. In the ledger £476.40 was credited to the column appropriate to Mr. Dhawan's personal account, and the balance of £723.60 was entered in the fees column. That balance also appeared in the client account card and discharged the then unpaid balance in full. The only subsequent debit entry is unrelated to any work done by Dawn & Co.

In the case of the £2,000 received on 25 May 1979, the credit entry in the ledger is in the column appropriate to the account of Mr. Dhawan and not the fees column. Thus the evidence of Mr. Dhawan was wholly consistent with the contemporary internal accounting documents. For my part I can attribute no weight to the diary entries for they do not specify the purpose of the visits, or the solicitor's fee note for that contains no evidence at all that work was done by Dawn & Co. on the 1978 accounts. Once again, to apply the presumption in the manner contended for by Mr. Malhotra would be contrary to, not consistent with, the other documentary evidence.

At the conclusion of the submissions of counsel for Mr Malhotra on the three examples selected by him, we indicated that we did not consider that any of them showed that Rattee J had not properly applied the relevant principle. We then rose to afford counsel the opportunity to obtain instructions from his client as to the further conduct of the appeal. On our return, counsel for Mr. Malhotra indicated that his client accepted the inevitable consequence and abandoned his appeal in respect of such of the remaining 22 issues as had not already been abandoned. In the result therefore it is unnecessary to deal with the remainder and I can pass to the appeal concerning the costs.

The second issue of principle raised by Mr. Malhotra was the judge's order for costs. Having credited to the account the additional amounts claimed by Mr. Malhotra for which the judge had found in his favour, in all some £4,039, and having debited it with the sums already paid to Mr. Malhotra when he was working for Mr. Dhawan, there was a balance in favour of Mr. Malhotra of £734.

As I have already indicated, on 1 March 1993 the solicitors for Mr. Dhawan had written a Calderbank letter to those acting for Mr. Malhotra offering the sum of £10,000 and the costs of the account proceedings save where specific orders had already been made. That offer was open for acceptance within the next 21 days. The response of Mr. Malhotra was to reply on 3 March seeking the sum of £60,000 with costs and disbursements but without any set off in respect of specific costs orders made against him. Rattee J described this response as "ridiculous". In the light of the arguments addressed to him, he concluded:

"I think it would be appropriate to order that the costs of the plaintiff should be paid by the defendant up to and including 1 March 1993; the defendant's costs thereafter shall be paid by the plaintiff. It seems to me that, having regard to the offers that were made and having regard to the general attitude of the plaintiff in the conduct of his claim, in particular the point to which I drew attention in my judgment, he clearly was not particularly interested in tying to ascertain the true position in order to try and assess the reality of his claim because he did not even take the trouble to consider the defendant's expert's report in any detail. It seems to me that the appropriate course, as I have indicated, is that the plaintiff will have to pay the costs as from the date on which the offer of £10,000 in full settlement was made."

Counsel for Mr. Dhawan then sought an order that the costs incurred on or after 1 March 1993 should be taxed on an indemnity basis due to the manner in which Mr. Malhotra had pursued his claim. In this respect the Judge concluded:

"I think that the costs to be paid by the plaintiff should be paid on an indemnity basis. It seems to me the way in which he pursued the vast majority of the issues which I was asked to decide indicated that he was really more concerned with pursuing a litigation at any cost rather than taking a reasonable view as to the merit of the claim he was making and I do not see that the Defendant should be in a position in that situation of being left to bear part of the costs."

It is submitted that the judge erred in both respects. It is said that he should not have taken account of the Calderbank letter so as to order Mr. Malhotra to pay Mr. Dhawan's costs from 1 March 1993. Further, it is objected that in the circumstances the order for taxation on an indemnity basis was unwarranted.

So far as the Calderbank letter is concerned, the relevant rules are RSC Ord.22 r.14 and Ord.62 r.9(1)(d). The former provides:

(1) A party to proceedings may at any time make a written offer to any other party to those proceedings which is expressed to be 'without prejudice save as to costs' and which relates to any issue in the proceedings.

(2) Where an offer is made under paragraph (1), the fact that such an offer has been made shall not be communicated to the Court until the question of costs falls to be decided."

The latter provides:

(1) The Court in exercising its discretion as to costs, shall take into account -

(d) any written offer made under Order 22, rule 14, provided that except in a case to which paragraph (2) applies, the Court shall not take such an offer into account if, at the time it is made, the party making it could have protected his position as to costs by means of a payment into court under Order 22."

Thus it is plain that unless Mr. Dhawan could have paid money into court under RSC Ord.22, Rattee J was entitled to take account of the Calderbank letter. Such a payment in may only be made in an "action for a debt or damages". In my view, and notwithstanding counsel's argument to the contrary, it is plain from the writ, amended statement of claim, the order of the Court of Appeal directing the taking of the account and the decision of Fry J in Nichols v Evens (1883) 22 Ch.611 that this was always an action for an account and never was an action for a debt or damages. Given that Rattee J was entitled to take the Calderbank letter into account in my judgment it is impossible to contend that he erred in principle in ordering Mr. Malhotra to pay the costs from 1 March 1993.

The power to award indemnity costs is contained in RSC Ord.62 r.3(4). The power exists where "it appears to the court to be appropriate to order costs to be taxed on the indemnity basis". The normal order in hostile litigation is for costs to be taxed on a standard basis as shown by the decision of Brightman J (as he then was) in Bartlett v Barclays Bank Trust Co. Ltd [1980] Ch.515, 547, and Beldam LJ in Willis v Redbridge Health Authority [1996] 1 WLR 1228, 1232.

It is accepted that the litigation was hard fought on both sides but it is contended that Mr. Malhotra did not act unreasonably. In addition it is submitted that the judge failed to take account of the fact that Mr. Dhawan was responsible for some of the delay and extra costs involved because of his destruction of the client files. However, it is not disputed that if the judge's assessment of the position as indicated in the extracts of his judgments which I have quoted was accurate, then he was entitled to make the order he did.

In my view, the judge's assessment of the position was not shown to be inaccurate. First, the judge was in the best position to make the assessment, having seen the parties in the witness box. Second, it is remarkable, as the judge observed, that neither Mr. Malhotra nor his expert should have given proper consideration to the report of the expert for Mr. Dhawan even if, as we were told, that the report was thought to be incomplete. The question of delay does not enter into this aspect of the case for the order only affects costs incurred after 1 March 1993. Further, there is nothing to indicate that the taking of the account was prolonged by the destruction of the documents because, for the reasons given in rejecting the first point of principle, either the presumption was applied or it is not shown that the missing documents would have made any difference.

For all these reasons in my view the judge was right and this appeal should be dismissed.

SIR PATRICK RUSSELL: I agree.

LORD JUSTICE SAVILLE: I also agree.

Appeal dismissed. Costs on the standard basis to be taxed if not approved.