England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
DIVISIONAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		15/11/2012

Mr Justice Silber:

This is the judgment of the court.

The claims for costs on an indemnity basis

1. By an order dated 31 July 2012, in claim numbered CO/4236/2001 ("the VT action") in which the claimants were Rawlinson & Hunter Trustees S.A. and other corporate entities ("RH") while Vincent Tchenguiz ("VT") was the Interested Party, the Court made various orders against the Director of the Serious Fraud Office ("the Director"). Among other matters, the Court:-

(a) Quashed the search warrant issued by HHJ Worsley QC made on 7 March 2011 to enter and search the premises of Consensus Business Group Limited, 35 Park Lane, London W1K 1RV;

(b) Declared the entries, searches and seizures conducted pursuant to the warrant to be unlawful on the grounds set out in the judgment;

(c) Ordered the Director to destroy permanently all copies (in whatever form or media stored) of materials obtained in the course of the searches made pursuant to the warrant;

(d) Quashed by consent the search warrant issued by HHJ Worsley QC on 7 March 2011 to enter and search the home of VT; and

(e) Ordered the applications by the claimants and VT for orders that the Director pay their costs on an indemnity basis be made in writing and to be responded to by the SFO in writing.

2. The Court also on 31 July 2012 made orders in claim numbered CO/4468/2011 ("the RT action") in which Robert Tchenguiz ("RT") and R20 Limited were the claimants and the Director was one of the defendants. Among other matters, the court made orders against the Director in which it :-

(a) Quashed the search warrants executed on 9 March 2011 at the claimants' home and business premises and declared the entries, searches and seizures conducted pursuant to the warrants to be unlawful;

(b) Declared the entries, searches and seizures conducted pursuant to the warrant to be unlawful on the grounds set out in the judgment; and

(c) Ordered that the claimants' application for indemnity costs be made in writing and responded to by the Director in writing.

3. Written submissions have been received from the claimants in each action and VT in support of their claims for orders that the Director should pay costs on an indemnity basis, although in the RT action, the claimants accept that they can only recover 80% of their costs because part of their costs was incurred in their unsuccessful claim against the Commissioner of the City of London Police.
4. In response, the Director has served an amended written submission to which RT has responded. The Director contends that in the VT action, he should pay one set of costs (namely either that of RH or VT) with such costs to be assessed on a standard basis. In the RT action, he contends that the relevant part of the claimants' costs should also be assessed on a standard basis.

The issues and the applicable principles

5. Thus there are three issues which the Court is now required to resolve in the light of the conclusions in the judgment namely:-

(a) whether the claimants' costs in the VT claim ought to be assessed on a standard or on an indemnity basis;

(b) whether VT in the VT claim is entitled to a separate award of costs and, if so, on what basis they should be assessed; and

(c) Whether the costs agreed as payable in respect of the claimant in the RT claim (namely 80% of the claimant's costs to be paid by the Director) ought to be assessed on a standard or on an indemnity basis.

6. There is no dispute concerning the relevant principles which have to be applied in determining whether costs should be ordered on a standard or an indemnity basis and it is worth stressing that:-

a) The Court enjoys a "wide and generous discretion" as to the award of costs: Excelsior Commercial and Industrial Holdings Ltd v Salisbury Ham Johnson and Others [2002] EWCA Civ 879 per Lord Woolf at [12] commenting on Part 44.3, CPR;

b) the Court of Appeal has declined to give guidance on the making of costs orders on an indemnity basis: ibid, and Part 44.4, CPR, White Book at pp1334-1343; and

c) an award of costs on an indemnity basis will only be appropriate where there is "some conduct or […] some circumstance which takes the case out of the norm": Excelsior at [19], and "all relevant circumstances must be taken into account (at [29]); (see also Catalyst Investment Group v Lewisham [2009] EWHC 16 (Ch) at [18]). As the White Book commentary states, "the minimum nature of the conduct required is, except in very rare cases, that there has been a significant level of unreasonableness or otherwise inappropriate conduct in its wider sense […]" (at p1338).

d) The abandonment of issues ought not to be discouraged by the award of indemnity costs where a concession is made: see the observations of Barling J in Catalyst Investment Group v Lewisham [2009] EWHC 16 (Ch).

The claimants' costs in the RT action – Standard or an Indemnity Basis

7. The case for the RT interests is that:

i) prior to the renewed permission application, the Director did not accept that the claimant had an arguable case that the warrants should be quashed, notwithstanding the overwhelming evidence that the information relied on by the Director materially misstated the position and that his staff had failed to draw the judge's attention to the cogent points which weighed strongly against the granting of the warrants;

ii) even after the grant of permission, the obvious serious and numerous inaccuracies in the information used for the purpose of obtaining the search warrants were not appreciated and accepted. The effect of these inaccuracies was that the claimants suffered serious and completely foreseeable damage.

8. Liability is disputed on the basis that permission on the legality of the warrants was conceded and a rolled-up hearing for the remainder of the grounds was agreed. Nothing was done which constituted irrational or unreasonable behaviour so as to justify an award of indemnity costs.
9. Our starting point is that that the conduct of the former Director has to be considered against the background of the duty that there was imposed on him. That duty was the heavy and critically important duty of ensuring that the Information presented before Judge Worsley QC in support of the application for the warrants contained accurate and comprehensive material which itself was the product of a very careful and well-balanced investigation. All these matters must have been apparent to the former Director.
10. In this case, for the reasons explained in our judgment, the former Director wholly failed to discharge this duty in circumstances in which the claimants' reputations were bound to be seriously damaged by the issue and the execution of the warrants, given the very public manner in which this was done. As we set out in paragraph 85 of the judgment, the former Director, in answer to criticism, relied on the fact that the judge would have granted the warrants only if absolutely satisfied that it was the right thing to do. That made even clearer the importance of the duty.
11. These serious errors were not accepted and the proceedings contested. By the time of the hearing the former Director had left office, but by then the die had been cast. Although a number of concessions were then made and the conduct of the hearing was, on the part of the Director and those representing him, exemplary in its analytical approach, the position in which RT had been placed by the errors made was such that the subsequent conduct was insufficient to mitigate what had happened before.
12. Even after taking account of the points made by the Director, we have concluded for the reasons set out in the judgment that this was an exceptional case and that the conduct of the former Director in Lord Woolf's words in Excelsior takes this case "truly out of the norm". This was essentially the result of the unacceptable approach of the former Director to his vitally important duties of disclosure on the applications for search warrants in this case and then to his subsequent failure to appreciate these very significant failures until a very late stage of the proceedings.
13. We therefore consider that it is appropriate to order that the Director should pay the claimants in the RT action 80% of their costs on an indemnity basis and that such costs be assessed if not agreed. However, we limit the order to the extent that the costs of counsel are to be awarded on the basis of only one leading counsel, as in our judgment this was a case where the employment of more than one leading counsel was not reasonable.

The claimants' costs in the VT action: Standard or an Indemnity basis?

14. The submissions of the claimants and those of the Director in the VT action on this issue are not different in any material manner from those put forward in the RT action. Therefore our decision must be the same and so we order that the Director pays the claimants in the VT action their costs on an indemnity basis such costs to be assessed if not agreed, subject to the reservation we make at paragraph 21.
15. In reaching our conclusions, we should add that we have considered two specific submissions made by the Director. The first was that the heart of the VT claim was conceded by the SFO in December 2011 and an offer was made to pay their costs if they withdrew. That not only still left other contentions which were rejected in the judgment, but more importantly did not address the principal point made, namely that in the light of the very public way the former Director had chosen to act, the claimants and VT were entitled publicly to set out the errors made by the SFO in so acting: see paragraph 201 of our judgment. The second point is that the claimants had indicated in January 2012 that they would not seek indemnity costs in the absence of a finding of bad faith, but they were entitled to change their mind in the light of the subsequent conduct of the former Director, as was made clear in their opening submission.

VT's costs in the VT action: Are they payable and if so, on what basis?

16. VT was the Interested Party in this claim. The Director therefore contends that he should not pay any of his costs (if as is the case), he has been ordered to pay the costs of the claimants in this matter. The reasoning behind that submission is that the general rule is that an unsuccessful party should only pay one set of costs, especially as the submissions of VT as the Interested Party in the VT claim could also have been made by the claimants because their interests were the same.
17. It is clear from the speech of Lord Lloyd (with which other members of the Appellate Committee agreed) in Bolton MDC v Secretary of State for the Environment(Costs) [1995] 1 WLR 1176 at 1178-9, first that there are no rules on issues relating to costs, second that costs are always in the discretion of the court, third that a second set of costs could be awarded even where the issues were capable of being covered by one counsel and fourth that a second set of costs is more likely to be awarded at first instance than on appeal.
18. We accept that all the issues were capable of being covered by one team of counsel and solicitors; there was no conflict of interest. However, RH was an international firm with its own reputation completely independent of VT. VT himself was a key suspect in a criminal investigation until after the hearing in this case; he had been arrested in a great deal of publicity before being detained and bailed. That distinct interest, in our judgment, together with the great complexity of the case, not only justified but required separate representation. The way that separate representation was deployed is so evident in our judgment that it is unnecessary to set it out again; separate and distinct points imparted to VT were thoroughly and painstakingly explained. In those circumstances, we consider it just that a separate costs order be made in favour of VT.
19. This then requires consideration of the issue of the basis on which they should be assessed. The Director contends that if costs are awarded in favour of VT, they should be on a standard basis while VT submits that they should be on an indemnity basis.
20. It is noteworthy that the Director did not concede until the day before the substantial hearing that documents should not have been retained under the "here and now" notice and even then he did not concede the very serious grounds of unlawfulness. We have concluded that in the light of these factors and the others set out above, as well as those set out in the judgment, that it is appropriate to order that the Director should pay VT's costs on an indemnity basis.
21. However, in the light of the close identity of interests between RH and VT and the way the work was split, we expressly qualify the order in respect of VT and RH so that (1) costs can only be recovered for one leading counsel for RH and for one leading counsel for VT and (2) solicitors' costs are recoverable by only one solicitor out of those representing VT and RH where there has been duplication of preparatory work. We make no other observations.