England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
MR JUSTICE CRESSWELL

		Royal Courts of Justice Strand, London, WC2A 2LL Tuesday 6th February 2001

These are the rulings of the Court prepared by Sir Anthony Evans.

History of proceedings

1. SCB claimed damages for fraudulent misrepresentation from the two appellants (and from two other defendants who are not parties to the appeal).

2. SCB obtained summary judgment against SCB (Clarke J. [1995] 2 Lloyd's Rep. 365).
3. Leave to appeal was refused and an assessment of damages followed. Documents were disclosed by SCB which led to a further application for leave to appeal from the judgment of Clarke J.
4. The appeal was successful and PNSC was given leave to defend ( [1998] 1 Lloyd's Rep. 656).
5. The action was heard by Cresswell J. PNSC admitted that its conduct (in issuing falsely ante-dated bills of lading) was fraudulent. Its primary defence was that SCB too had acted fraudulently towards Incomin, the issuing bank, and that SCB's fraud was such as to defeat its claim as a matter of law. Mr Mehra disputed that he had acted fraudulently and denied that he was personally liable for any fraudulent representation made by his company, Oakprime (another defendant).
6. Cresswell J. gave judgement against both defendants. He found that SCB had not made any fraudulent misrepresentation (to Incomin) and that in any event the defence ex turpi causa was not available to PNSC or Mr Mehra. He held that Mr Mehra had acted fraudulently and was liable for misrepresentations made by Oakprime. Cresswell J. also gave judgement in contribution proceedings between the defendants.
7. The Court of Appeal reversed the judge's finding of fact. It found that SCB made a false representation to Incomin and that this contributed towards the loss for which it sought to recover damages from PNSC and the other defendant. The Court of Appeal also held, however, that the defence ex turpi causa was not available to the defendants. The Court raised the possibility that the defendants might be entitled to claim to reduce the amount of damages where the claimant's loss was partly caused by its own deceitful conduct towards Incomin. After further argument at a later hearing, this plea was held (by a majority) not to be available to the defendants under the Contributory Negligence Act 1945. PNSC's appeal was dismissed.
8. The Court of Appeal held that Mr Mehra was not liable for damage caused by the misrepresentation made by him on behalf of Oakprime.
9. Damages awarded to SCB were assessed as U.S.1,169,594.57 (inclusive of interest) after a hearing before Toulson J. in January/February 1999. An appeal against this judgement was heard by the Court of Appeal (differently constituted) in October 2000.

Costs Orders made by Cresswell J.

10. A Costs hearing took place on 8 June 1998. Cresswell J. ordered PNSC (and the second defendants) to pay SCB's costs "in this matter" on the standard basis. He refused an application by SCB for indemnity costs, but he directed the Taxing Master to pay "particular regard to the seriousness of the allegation" made by the defendants against SCB.
11. Mr Mehra was legally aided from 16 September 1997.[A costs order was made against him in favour of SCB in appropriate terms.]

Costs applications to the Court of Appeal

12. SCB claims its costs of the appeal from PNSC. It further claims costs on an indemnity basis.
13. SCB contends that Mr Mehra ought to be deprived of his costs of the action and of the appeal on the grounds of his conduct up to and including the trial.
14. PNSC accepts that SCB is entitled to recover its costs of the second stage of the appeal hearing when the issue of apportioning damages was decided against the defendants. PNSC claims, however, that the costs of the first stage of the appeal and of the trial which SCB may be entitled to recover against PNSC should be reduced by two-thirds, to take account of the Court of Appeal's finding that SCB acted deceitfully towards Incomin. Much of the evidence and submissions was taken up with that factual issue, it is submitted, which SCB could and should have admitted on the basis of the evidence given by its own witnesses. PNSC further relies on the fact that SCB claimed damages on the basis of a fraudulent misrepresentation which does not require proof of dishonest intent ( Brown Jenkinson v. Percy Dalton) yet resisted PNSC's allegation that SCB's own representation to Incomin on the same basis was fraudulent also.

Moreover, SCB relied in its pleadings on the normal practices of its employees, then resisted a request for further and better particulars on the ground that no practice existed or was relied on, yet asserted at the trial, through its witnesses, that that was indeed the nature of their defence.

15. SCB responds that the factual issue as regards its own employees is not a proper ground for reducing the amount of costs (of the trial and of the first stage of the appeal hearing) that it is entitled to recover. If PNSC had accepted from the outset that its defence would fail as a matter of law, then none of the costs would have been incurred. Further, the factual witnesses were necessary to deal with PNSC's further allegation that they were "suborned" by Mr Mehra, which

was rejected by the judge.

16. SCB relies on Mr Mehra's deceitful conduct and his central role in the bill of lading fraud as grounds for depriving him of his costs. By his conduct, he brought the litigation on his own head. His denial of fraudulent misconduct persisted at he trial and was decisively rejected by the judge. The response on behalf of Mr Mehra is that little time was taken at the trial, and none on the appeal, on the issue of his personal knowledge, that having succeeded in his defence to the claim based on fraudulent conduct he should not be penalised indirectly by being deprived of his costs, and that as he is legally aided the burden of any such penalty would fall on the Legal Aid Fund, not on him. SCB contends that the fact that Mr Mehra is legally aided is irrelevant as a matter of law. Mr Mehra relies also on the fact that SCB maintained its claim against him, despite his obvious lack of assets, purely because of the significant amount of costs which were at stake.
17. All parties are agreed that the Civil Procedure Rules and authorities decided under them apply.
18. A supplementary issue arises with regard to the costs of the Costs Hearing before Cresswell J. The judge's order was 'costs in cause'. This was unjust, PNSC contends, because SCB's application(for indemnity costs) failed, yet the effect of the order was to make PNSC liable for the costs. SCB responds that the application succeeded to the extent that the judge gave the special direction quoted above (paragraph 10 above).

RULINGS

(1) SCB shall recover from PNSC two-thirds of its costs of the trial, incurred against PNSC, and two-thirds of its costs of the first appeal hearing, and the whole of its costs of the second appeal hearing. We accept PNSC's submission that the order should reflect in this way the Court of Appeal's finding that the conduct of SCB employees was deceitful towards Incomin.

(2) Such costs shall be subject to detailed assessment on the standard basis. We reject

SCB's application for indemnity costs.

(3) SCB and PNSC shall each bear their own costs of the Costs hearing before Cresswell J.

(4) Mr Mehra shall recover the whole of his costs of the appeal hearings from SCB. He

shall recover three-quarters of his costs of the trial, incurred towards SCB, from SCB. We make this reduction because there was a factual issue as to the nature and extent of his involvement, on which he failed, and by parity of reasoning with (1) above a special order is appropriate.

(5) We make no order as to the costs of any contribution proceedings. These formed no part of the appeals before us nor can we assess the consequences in this respect, if there are any, of our finding that Mr Mehra is not liable to SCB.

QUANTUM HEARING AND APPEAL

Certain applications are made to us by reference to an offer letter written by SCB's solicitors on 31 March 1999, but these are dependent upon the outcome of the appeal from the judgment of Toulson J., about which we have no information. We therefore make no ruling on these applications, save that SCB and PNSC shall have liberty to apply, to vary this Order, if so advised, within twenty one days after judgment is given by the Court of Appeal.

ORDER: Ruling on costs as per Judgment (Order does not form part of approved Judgment)