QUEENS BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| NATIONAL WESTMINSTER BANK PLC
|- and -
| RABOBANK NEDERLAND
(instructed by Travers Smith) for the Claimants
Mr Jeffrey Chapman and Mr. Simon Atrill
(instructed by Morgan Lewis) for the Defendants
Hearing dates: 27 September 2007
Crown Copyright ©
a. Whereas the damages for breach of the anti-suit clause in the DOT (clause 21.3) are to be assessed by a Costs Judge, whether that assessment is to be on the basis that NWB is entitled to recover all costs which it incurred in defending the relevant causes of action in the CC Proceedings in California except those costs which were unreasonably incurred or unreasonable in amount, the burden of proof of unreasonableness resting on Rabobank, or on the basis that the standard basis of assessment should apply, as defined by CPR 44.4(2), namely that the recoverable damages are confined to the costs reasonably and proportionately incurred and in a reasonable and proportionate amount, the burden of proof resting on NWB.
b. Whether Rabobank should pay the costs of NWB's claim for breach of the anti-suit clause on the standard basis or on the indemnity basis.
c. At what rate and for what period interest on damages payable by Rabobank for such breach should be calculated.
"Accordingly, if NWB can establish that the bringing or attempted bringing by Rabobank in the CC Proceedings of claims in respect of NWB's acts or omissions in its capacity as Agent under the Credit Facility has caused loss or damage to NWB, it is in principle entitled to deploy a claim for damages for breach of clause 21.3(b) in order to obtain an indemnity even if that loss is the incurring of legal costs. The fact that at some future stage, if any, the Californian courts might make an order for costs relating to such part of the CC Proceedings as have been stayed is nihil ad rem. Recoverability of damages works on the indemnity principle to the effect that NWB is entitled to treat as its recoverable loss whatever it has reasonably incurred as a present liability to its Californian and English legal advisers, regardless of any possibility of a costs order in its favour at some time in the future. There would obviously be no question of double recovery."
Issue (i) : the Basis of Assessment of Damages for Breach of Clause 21.3 of the DOT
There can be no question but that the procedural consequence of conduct by a party to an arbitration or jurisdiction agreement which amounts to a breach of it and causes the opposite party reasonably to incur legal costs ought to be that the innocent party recovers by a costs order and/or by an award of damages the whole, and not merely part, of its reasonable legal costs. Against that background, it is necessary to ask whether there is any sustainable policy consideration which would require that unless there were some special circumstances, excluding the fact that it was an arbitration or jurisdiction agreement that had been broken, the successful party should have to forgo part of its costs or alternatively to bring a separate claim for damages to cover any shortfall on assessment of costs. The relevant considerations point very strongly indeed against either result. To forgo part of the loss would be unjust. To be placed in a position where the balance of the recoverable damages could not be quantified until after the costs had been formally assessed would involve delay in obtaining compensation properly due and a formalistic and cumbersome procedure which would in itself involve more costs and judicial time. Where the defendant who had been improperly impleaded in the English courts was outside the jurisdiction, no claim for damages could be brought in the English courts without submitting to the jurisdiction.
(i) In a civil action an order that a losing party should pay party and party costs is deemed in the manner of a presumption fully to compensate the winning party for the whole of his costs in spite of the fact that it may not actually do so.
(ii) If the court deprives the successful party of the whole or part of his costs, that is because he deserves not to be compensated because he has needlessly incurred such expenditure and therefore to that extent caused his own loss.
(iii) When at the close of a civil trial the court determines that the successful party should recover the whole or part or no part of his costs and whether or not on a party and party basis, its order is an adjudication upon the issue as to the loss suffered by the successful party by reason of legal costs and expenses.
(iv) The conceptual basis of the rule preventing subsequent claims for damages being deployed to make good unrecovered costs is expressed by Devlin L.J. at page 329:To be effective as an interposition, there must be a sort of res judicata, a decision in the first case in which costs are awarded on the very point that is in issue in the second case, that is, the quantification of the damage. In a civil case the judicial discretion is directed to quantifying the damage according to the conventional measure.In a criminal case, it is not: and the decision contained in a criminal award need not represent a decision on quantification at all.The practical need for such a rule was that in its absence "every successful plaintiff might bring a second action against the same defendant in order to recover from him as damages resulting from his original wrongdoing the costs he failed to obtain on taxation.
(v) By contrast, in a criminal case the discretionary order that the prosecution should pay costs was not necessarily intended to achieve a full indemnity, whether actually or on a conventional basis, for, unlike an order for costs in a civil action, the discretion was not required to be exercised so as to achieve complete, or conventionally complete, compensation. As Devlin L.J. put it at page 329 "the decision contained in a criminal award need not represent a decision on quantification at all."
(vi) Because the issue in the second case was not the same as the issue in the first case, since the issue in the first case was not that of the quantification of the damage attributable to incurred legal costs, the rule applicable to civil cases did not apply with regard to costs awards in criminal cases
The Taxing Master would have to be told on what basis to assess the costs. There are only two candidates, standard basis and indemnity basis. The standard basis formula, as set out in 62, r. 12 (1), corresponds closely, in my opinion, to the yardstick that would have to be applied to a contractual or tortious damages claim. This, too, was the opinion of Mr Justice Steyn.
For these reasons I do not accept Mr Clarke's anomaly argument. Whether B and C are sued in a conjoined action or are separately sued, A's ability to recover from B the costs incurred in unsuccessfully suing C would require those costs to be subjected to a process of assessment, in other words, a taxation. The basis on which the assessment or taxation would be conducted would, in the ordinary case, be the standard basis.
Thus, the effect of both judgments is that, at least under the costs regime which immediately preceded the introduction of the CPR, the quantification of costs recoverable from a co-defendant sued in the alternative and held liable to the plaintiff when such costs were those of unsuccessfully suing another co-defendant would not be in excess of those recoverable on a standard basis. If the other party were sued in a separate action for damages, the measure of damages would normally be costs measured on a standard basis and not on an indemnity basis.
Because Steyn J had not given leave to appeal, the effect of s.18(1) of the Supreme Court Act 1981 was that the Court of Appeal had no power to review his decision on costs and its views were therefore obiter. Indeed, the Court's views with regard to what would be recoverable in a separate action are doubly obiter because that was not the case in The Tiburon.
(i) Ordinary principles relating to mitigation of loss should apply to the claim in respect of legal costs.
(ii) When Berry was decided there was a considerable potential disparity between costs recoverable on a party and party basis and costs recoverable on a solicitor and own client basis and the policy considerations which at that time prevented a separate claim in damages for the shortfall in costs recoverable against a party to the same proceedings did not apply to such a claim for damages against a non-party.
(iii) With the introduction in 1986 of new costs rules that potential disparity between what had become the standard basis and the indemnity basis had been in effect abolished and the only remaining distinction between those two bases of assessment was the reversal of the burden of proof as to whether the costs were reasonably incurred and in a reasonable amount, the burden of proof of unreasonableness resting on the paying party for the purposes of the indemnity basis.
(iv) Following The Tiburon, supra, and Lonrho plc v Fayed (No. 5)  1 WLR 1489, there was no reason based on any disparity between that which was recoverable as between the standard basis and the indemnity basis to maintain any distinction between the basis of assessment of what was recoverable against a non-party by way of damages and that which was recoverable against a party to the same proceedings by way of a costs order: in both cases it should be prima facie on the standard basis. At page 691 Carnworth J observed:The expenditure on the professional fees of solicitors and accountants was, as I have held, expenditure incurred by the plaintiffs in reasonably mitigating their loss. Prima facie therefore, it is claimable under the ordinary rules relating to mitigation. However, litigation costs have traditionally been subject to special rules for policy reasons. Prior to the change in the taxation rules there was an established distinction between such costs incurred in proceedings between the same parties, and those incurred in proceedings against third parties. This was anomalous, given that similar policy considerations applied in each case. The most recent cases show that the position must be reconsidered in the light of the changes to the taxation rules. This enables the anomaly to be resolved. Under the new dispensation, taxation on the standard basis is to be regarded as equivalent to the solicitor and client basis referred to by McGregor. Accordingly, where costs on the standard basis have been recovered from the defendant in other proceedings, there is no basis for an additional claim by way of damages.
This reasoning has been followed by several judges of the Chancery Division with varying degrees of enthusiasm, even following the introduction of the CPR costs rules which brought for the first time the component of proportionality into the assessment of costs on a standard basis by CPR 44(4)(1) and (2): see in particular: Pearce v European Reinsurance  EWHC 1493 (Hart J), Mahme Trust v Lloyd's TSB  EWHC 1321, Redbus LMDS ltd v Jeffrey Green and Russell  EWHC 1321 and Dadourian Group International Inc. v Paul Simms (Unrep;) 8.3.2007 (Warren J.)
(2) Where the amount of costs is to be assessed on the standard basis, the court will-
(a) only allow costs which are proportionate to the matters in issue; and
(b) resolve any doubt which it may have as to whether costs were reasonably incurred or reasonable and proportionate in amount in favour of the paying party.
(Factors which the court may take into account are set out in rule 44.5)
(3) Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party.
It is provided by CPR 44.5:-
1) The court is to have regard to all the circumstances in 44.5 deciding whether costs were-
(a) if it is assessing costs on the standard basis-
(i) proportionately and reasonably incurred; or
(ii) were proportionate and reasonable in amount, or
(b) if it is assessing costs on the indemnity basis-
(i) unreasonably incurred; or
(ii) unreasonable in amount.
(2) In particular the court must give effect to any orders which have already been made.
(3) The court must also have regard to-
(a) the conduct of all the parties, including in particular-
(i) conduct before, as well as during, the proceedings; and
(ii) the efforts made, if any, before and during the proceedings in order to try to resolve the dispute;
(b) the amount or value of any money or property involved;
(c) the importance of the matter to all the parties;
(d) the particular complexity of the matter or the difficulty or novelty of the questions raised;
(e) the skill, effort, specialised knowledge and responsibility involved;
(f) the time spent on the case; and
(g) the place where and the circumstances in which work or any part of it was done.
With regard to the test to be applied for proportionality on the standard basis of assessment it was stated by the Court of Appeal in Home Office v Lownds  2 WLR 2450 at paragraph 31 of the judgment given by Lord Woolf:
". . . what is required is a two stage approach. There has to be a global approach and an item by item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations which Part 44.5(3) states are relevant. If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the costs for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item was reasonable. If, because of lack of planning or due to other causes, the global costs are disproportionately high, then the requirement that the costs should be proportionate means that no more should be payable than would have been payable if the litigation had been conducted in a proportionate manner. This in turn means that reasonable costs will only be recovered for the items which were necessary if the litigation had been conducted in a proportionate manner."
At paragraph 36 the Court of Appeal stated
"In considering that question the Costs Judge will have regard to whether the appropriate level of fee earner or counsel has been deployed, whether offers to settle have been made, whether unnecessary experts had been instructed and the other matters set out in Part 44.,5(3). Once the decision is reached as to proportionality of costs as a whole, the Judge will be able to proceed to consider the costs, item by item, applying the appropriate test to each item.
It is thus clear from CPR 44.5(1) and from the passages cited that the concept of costs proportionately incurred and proportionate in amount is distinct from the concept of costs reasonably incurred and reasonable in amount. It is an inescapable consequence of this dichotomy that costs reasonably incurred and reasonable in amount may not be proportionately incurred or proportionate in amount. The application of the criteria in CPR 44.5(3) could thus have the effect of reducing the amount of costs ultimately recoverable below the level of costs reasonably incurred in the other proceedings and reasonable in amount.
Exclusive jurisdiction clauses arise because the parties agree to litigate in one jurisdiction. It may be that one of the considerations which led to the adoption of the exclusive jurisdiction clause in question was the costs regime in the nominated jurisdiction. We see no policy reason connected with either party for allowing one party to the contract to escape from liability for the damages which he has caused to the other by attempting to sue in a country where a different costs regime prevails.
There remains the question whether there is a policy reason for the benefit of society at large which argues in favour of applying the usual rule in cases where the costs sought to be recovered as damages represent the cost of litigation abroad in breach of an exclusive jurisdiction clause. In the present case we can see none unless it be a desire to keep down litigation purely involving costs-often referred to as parasitic litigation. A rationale behind the reluctance to facilitate parasitic litigation is that the state's legal resources should be devoted to central rather than parasitic questions. While this seems attractive, one must note that the amount of costs (or damages in the form of costs) at stake can be very much more than many a sum which otherwise is allowed to be recovered as damages.
The judgment concludes at paragraph 34:
In circumstances such as the present we do not consider that the public interest requires that the claimants should be deprived of its reasonable expenses in litigating at the instance of the defendant in a jurisdiction which the defendant chose in breach of an exclusive jurisdiction clause.
Given that a claim for damages for breach of the exclusive jurisdiction clause was not precluded by considerations of public policy, might such considerations confine that which was recoverable for such breach to costs of the California Proceedings assessed on the standard basis in accordance with CPR 44.4(2)?
In the 17th Edition of McGregor on Damages at paragraph 7-017-018 the reasoning of Carnwath J in British Racing Drivers' Club is criticised as inconsistent with authorities going back to Hammond & Co v. Bussey (1887) 20 QBD79 to the effect that under the second limb of Hadley v Baxendale a defendant whose breach of contract has caused a claimant reasonably to incur the costs of bringing, unsuccessfully, a claim against a third party can be sued in damages in respect of all such costs. Reference is first made to the judgment of Waller L.J. in Penn v. Bristol and West Building Society  1 WLR 1356:
"A party cannot claim by way of damages for those parts of the costs incurred which he will not recover on taxation against his opponent either in the same action or in a separate action. On the other hand, if, in a separate action, a party is seeking damages which include fighting an action against a third party, the damages for incurring costs will be assessed in the same way as any other damages at common law."
The learned author continues:
"The law has held a claimant entitled to be made whole in respect of the entire range of reasonable costs. Incurred by him in the third party claim to the extent that these costs exceed the assessed costs paid to him by the third party; the fact that the shortfall has been narrowed by the arrival of a more generous approach to the assessment of costs should not deprive the claimant of the remaining shortfall…." This is particularly so when, as Evans L.J. accepted in Lonrho v Fayed (No. 5), "the difference between costs actually charged and those recoverable on taxation, even on an indemnity basis, may still remain large in certain types of litigation". To speak, as Carnwath J. does , of the distinction between costs incurred in proceedings between the same parties and costs incurred in proceedings with third parties as anomalous is misconceived and flies in the face of over a century of authorities."
Issue (ii) : the Basis of Assessment of the Costs of NWB's Claim
 In my judgment, provided that it can be established by a successful application for a stay or an anti-suit injunction as a remedy for breach of an arbitration or jurisdiction clause that the breach has caused the innocent party reasonably to incur legal costs, those costs should normally be recoverable on an indemnity basis.
The conduct of a party who deliberately ignores an arbitration or a jurisdiction clause so as to derive from its own breach of contract an unjustifiable procedural advantage is in substance acting in a manner which not only constitutes a breach of contract but which misuses the judicial facilities offered by the English courts or a foreign court. In the ordinary way it can therefore normally be characterised as so serious a departure from 'the norm' as to require judicial discouragement by more stringent means than an order for costs on the standard basis. However, although an order for indemnity costs will usually be appropriate in such cases, there may be exceptional cases where such an order should not be made. Although the requirement that the successful party should establish that the claimed costs were caused to be reasonably incurred (subject to the reversed evidential burden of proof in 44.4(2)(b)) by the breach of the jurisdiction clause or arbitration clause will normally cater for those cases where the true cause of the expenditure on costs is the conduct of the successful party, there may be other cases in which an order for indemnity costs would not be appropriate. Without wishing to confine this flexibility in any way, it is not difficult to envisage that departure from the normal approach might be justified in a case where conduct on the part of the successful party has led the party in breach to believe that the chosen forum can be ignored. Further there may be cases in which the general conduct of the successful party, although not breaking the chain of causation, would nevertheless justify its being deprived of an order for indemnity basis costs. In such cases the need to reflect judicial disapproval of such conduct might justify an order for costs on the standard basis.
either because breach of such a clause did not as a matter of principle give rise to a secondary obligation to pay damages or because there were some supervening public policy dimension which would exclude any such remedy.
The Rate of Interest on NWB's Damages
The Claim against Utrecht-America Finance Co.
The Purchaser acknowledges that:
(d) the Seller may be in possession of material non-public information relating to the Transfer Assets and which may affect the Purchase Price which the Seller shall be under no obligation to disclose to the Purchaser and the Purchaser hereby acknowledges and agrees that the Seller shall have no liability to the Purchaser. And the Purchaser shall bring no action against the Seller in relation to the non-disclosure of such information, provided that nothing in this sub-clause (d) shall affect the rights of the Purchaser in relation to the Seller's Warranties;
The Purchaser shall indemnify and keep indemnified, and shall defend and hold the Seller and any Affiliate of the Seller and their officers, directors, employees and agents harmless from and against any liability, claim, cost, loss, damage or expenses (including, without limitation, reasonable legal fees and disbursements) or judgments which they (or any of them) incur or suffer as a result of
(a) the breach of any of the Purchaser Warranties by the Purchaser; or
(b) the failure by the Purchaser to perform any of the Novated Obligations.
"Purchaser Warranties" in the latter provision is defined in clause 1 as
The warranties, representations and indemnities made by, and the covenants and agreements of, the Purchaser in this Deed.
In proceedings brought by NWB in this court before Mr Peter Gross QC, then sitting as a Deputy Judge of the High Court, the following declaratory orders were made against Utrecht.
1. That the Ninth, Tenth, Twelfth and Fourteenth causes of action pleaded in the Complaint filed by the Defendant in the Superior Court of California on 28th October, 1999 ("the Complaint") (to the extent that, in relation to the Fourteenth cause of action, it relates to non-disclosure of material non-public information relating to the agreement dated 21st March, 1996 between, inter alia, the Claimant, Rabobank Nederland and Yorkshire Food Group Plc ("the Credit Agreement") and the other assets transferred pursuant to the deed dated 15th October, 1997 between, inter alia, the Claimant and the Defendant ("the Take Out Agreement")) have been brought by the Defendant in breach of clause 8(2)(d) of the Take Out Agreement.
2. That the Defendant is liable to indemnify the Claimant in respect of all costs and expenses (excluding the costs of these proceedings, which are dealt with in paragraph 10 below) incurred and to be incurred by the Claimant in defence of the causes of action in the Complaint identified in paragraph 1 above.