Jersey Unreported Judgments

Companies - costs judgment.

[2013]JRC038

Royal Court

(Samedi)

19 February 2013

Advocate M. L. Preston for Mr Pirrwitz.

Advocate D. P. Le Maistre for AI Airports International Limited and PI Power International Limited.

Advocate J. M. P. Gleeson for Mr Vilsmeier.

judgment

the deputy bailiff:

1.        The Court sat on 24^th January, 2013, to hand down judgment in the action brought by the plaintiff ("Mr Pirrwitz") against the defendants ("AI" and "PI" respectively) and received a schedule of interest agreed to be included within the judgment.  A stay on the execution of the judgment was agreed on terms.  There was thereafter argument on the question of costs and I made the following orders:-

(i)        AI and PI respectively were to pay the costs of Mr Vilsmeier in defending the AI and PI third party claims, to be assessed on a standard basis. 

(ii)       AI was to pay the costs incurred by Mr Pirrwitz of an incidental to defending the counter-claim, to be assessed on an indemnity basis. 

(iii)      AI and PI were to pay the costs of Mr Pirrwitz of an incidental to his claim against each company respectively on the standard basis. 

2.        I was asked to deliver reasons for these decisions and those reasons are as follows. 

The Third Party Costs

3.        Advocate Gleeson, on behalf of Mr Vilsmeier sought an order for standard costs only.  This was not opposed.  I considered it was right to make that order, on the basis that there was nothing to displace the presumption that justice was normally best served by making an order that costs follow the event.  Mr Vilsmeier had been put to expense by being convened as a third party to the present proceedings and to defending the claim for an indemnity against any or part of the damages which might be awarded to Mr Pirrwitz, and I consider he is entitled to an award of costs on the standard basis. 

4.        It has not always been clear from the approach of the parties as to whether much distinction has been drawn between the position of AI and the position of PI.  However it seemed to be agreed by counsel that it was possible that costs were incurred in relation to the AI claim which were not incurred in relation to the PI claim, and for that reason the order has been framed as it has. 

The Claim for Indemnity Costs in Respect of the Counter-Claim

5.        Advocate Preston, in making his claim for indemnity costs in relation to the costs of defending the counter-claim said that he had made it plain at the outset of the hearing that Mr Pirrwitz considered the counter-claim to be a cynical tactic, introduced in the first instance for the purposes of securing a postponement of the trial date, and also for putting Mr Pirrwitz under litigation pressure.  It was submitted by Advocate Preston that the counter-claim coloured the conduct of the claim itself.  Mr Shinehouse, it was said, directed the activities of both AI and PI and was therefore responsible for this particular tactic.  Reliance was placed on the fact that the Court indicated in its judgment that in its view this was a claim which should never have been made. 

6.        In response, Advocate Le Maistre did not oppose an order for standard costs.  However he resisted, in relation to the counter-claim, an award of indemnity costs.  He submitted the counter-claim was not brought for tactical reasons and the plaintiff Mr Pirrwitz had indeed consented to the amendment and to leave being given to amend, shortly before trial.  There had been no application for a strike out, and there was no basis for an indemnity costs order as there was nothing in this case which took it out of the norm. 

7.        The principles or guidelines to be considered when deciding whether or not to award costs on an indemnity basis are well settled.  They were set out at some length in Pell Frischmann Engineering Limited-v-Bow Valley Energy Limited [2007] JLR 479, where at paragraphs 25 and 27, the Court said this:-

"25     At the risk of oversimplifying matters, the result of these English authorities may be said to be this: that the circumstances in which an award of indemnity costs may, as a matter of discretion, be ordered are less restrictive than they used to be; there must, ex hypothesi, still be something to take the case out of the ordinary, but the range of potentially relevant considerations, as described by Millett, J. (later Lord Millett) in Macmillan Inc. v. Bishopsgate Inv. Trust (11), is considerable and need not involve any finding of a lack of moral probity; the test, in a word, is unreasonableness; the purpose of such an award is to achieve a fairer result for the party in whose favour it is made than would be the case if he were only able to recover costs on the standard basis; in the end, it is a question of what would be fair and reasonable in all the circumstances.

27       In this jurisdiction, the Court of Appeal in Jefferson Seal (6) (in 1998) was plainly minded to follow the practice of the English courts as reflected in the cases referred to by Collins, J.A.; and, while Jersey has not adopted anything equivalent to the English Civil Procedure Rules which feature strongly in the post-1998 cases, I can think of no reason why the general approach adopted in those cases should not be followed in the Royal Court and every reason why it should be."

8.        The Court of Appeal commented on these extracts from Pell Frischmann in P-S-v-C [2010] JCA 225, where Beloff, JA delivering the judgment of the Court said this:-

"8       Although the Court of Appeal later overturned the learned Commissioner's application of those principles to the facts of that case, the court did not dissent from the paragraphs set out above.  The Commissioner's summary is entirely consistent with the English case-law, such as Excelsior Commercial & Industrial Holdings Limited-v-Salisbury Hammer Aspden & Johnson (a firm) and another [2002] EWCA Civ 879, where the Court of Appeal in England and Wales Lord Woolf LCJ at [32] "there is an infinite variety of situations which can come before the courts and which justify the making of an indemnity order", and from a dissenting speech in Fourie-v-Le Roux [2007] UKHL 1, [2007] 1 WLR 320, Lord Hope at [10] - "But, as the judgments that were given in [Reid Minty v Taylor [2002] 1 WLR 2800] show, the award of costs on [an indemnity] basis will not be justified unless the conduct of the paying party can be said in some respect to have been unreasonable: see per May LJ, para 32, per Kay LJ, para 37."

9.        In the case of P-S-v-C, it was contended by the appellant that the indemnity costs order now is so draconian in its nature that the same should only be considered by the Court where the actions or intentions of the paying party were malicious or vexatious.  That submission was rejected in the Court of Appeal.  The approach taken was as follows:-

"12     We therefore approach the costs contentions on the understanding that in order for an indemnity award to be made there must be something to take the case out of the ordinary and a degree of unreasonableness (of which abuse of process is but an example) but recognizing that there is an "infinite variety" of circumstances where it may be right and proper for the court to make such an award."

10.      I have applied these principles both in granting the claim for indemnity costs in relation to the defence of the counter-claim and in refusing the claim for indemnity costs in relation to the claim of Mr Pirrwitz itself.  

11.      The reasons for making an award of indemnity costs in relation to the defence of the counter-claim are as follows:-

(i)        As indicated in the Court's judgment, in our view this counter-claim should never have been made.  Another way of putting that is that it was a wholly unreasonable claim.  Mr Pirrwitz was appointed a director of this public company in July 2008 in circumstances where the company had no employees, and its manager, with whom a fractious relationship was developing at the instance of those who put Mr Pirrwitz in place as a director, had the corporate records.  As a director, Mr Pirrwitz, with his co-directors, owed duties to all the shareholders, and yet was clearly given a mandate for cutting ties with the Meinl Group and returning cash to shareholders.  It was clear that an enormous amount of work was involved.  The new board had to set up its own internal structures in order to deal with the work needed to be done. 

(ii)       The reasons for rejecting the counter-claim are set out in detail at paragraphs 140 to 162 of the judgment.  In my view, they were independently solid alternative bases for rejecting the claim.  Together, they show that it was unreasonable to bring this claim.  In addition, the fact that Italian law experts could not agree as to the meaning of the expression "sopravenienza passivo" shows that if enquiry had been made by AI/Mr Pirrwitz at the time, either inconclusive or heavily caveated advice would have been received as to whether a claim against SOGEAP should have been brought under the investment agreement.  That emphasises how shaky was a claim in negligence against Mr Pirrwitz for breach of his duty as a director. 

(iii)      Furthermore, it is to be emphasised that the information available to Mr Pirrwitz in relation to the SOGEAP claim was also available to at least two other directors of AI.  The legal due diligence report on Parma Airport, which with its appendices ran to 178 pages contained a reference in passing to the indemnification rights and a further reference some 45 pages later to the Lodo Perroni award, without any cross reference between the two.  That due diligence report was available to other members of the board apart from Mr Pirrwitz.  I do not accept the assertion of Mr Shinehouse that Mr Pirrwitz had responsibility for the SOGEAP asset at the relevant time, nor do I accept that it was reasonable to lay all the responsibility upon him, if there had been any such responsibility, rather than upon all directors with the same knowledge, simply because he was a lawyer by training. 

(iv)      The company continued with the counter-claim despite the clearest warnings being given to it during the course of the hearing that the Court was unimpressed with this basis of claim.  Italian lawyers came, entirely unnecessarily, to the Court to give evidence.  In my judgment, the bringing of the counter-claim was oppressive, and unreasonable, and I therefore considered it was appropriate to mark that conclusion by making an award of indemnity costs. 

(v)       I do not have to reach a conclusion as to whether the counter-claim was or was not brought for tactical reasons but it is clearly a possible inference to draw from the facts of the case.  However, I do consider that the submissions of Mr Le Maistre that the fact that Mr Pirrwitz consented to the amendments and to leave being given to that amendment just before trial and failed to bring any strikeout application, do not carry any weight.  Mr Pirrwitz, being properly advised as to whether or not leave to amend was likely to be given, acted reasonably in not opposing the granting of that leave.  It would require a full examination of the facts to establish how unreasonable the counter-claim was, and the Court, when deciding an application for leave to amend, would not carry out such examination at that time.  Similarly, the fact that there was no strike out application is irrelevant to that matter.  The claim failed on its facts, which would not have been a suitable basis for an application to strike. 

The Costs of Mr Pirrwitz' Claim

12.      Advocate Preston contended that the conduct of the counter-claim should colour the court's view of the conduct of the claim itself.  He said that in this case, which was based not only on the documentary evidence but also the oral evidence of the witnesses, the Court had been very kind to Messrs Boleat and Baird, who were wholly unsatisfactory witnesses.  He said that a Calderbank offer had been made by AI and PI of €300,000, and Mr Pirrwitz had earlier indicated he would settle at €1m.  Following that Calderbank offer, Mr Preston had indicated that Mr Pirrwitz would accept €800,000.  In fact he had been successful and had beaten the offer by a considerable margin.  This should be taken into account as AI and PI had refused to negotiate.  In this connection Mr Preston relied on the Court of Appeal's decision in Flynn-v-Reid [2012] JCA 169, where the Court said this:-

"19.    First and most significantly, there were various Calderbank offers.  It is a clear policy of the Court to encourage the parties to settle.  Where parties reject Calderbank offers which the Court's decision shows they should have accepted, the costs order should reflect this.  I therefore cannot agree with what the Deputy Bailiff said in his ex tempore costs judgment to the effect that this was "of little relevance".  On the contrary in my view it was highly relevant..."

13.      Mr Preston then contended that Mr Pirrwitz had lost money from his own business by giving up his time in coming to Jersey to instruct lawyers, and to be ready for trial.  In the round, the attitude of the defendants was such that an award of indemnity costs should be made and this was an appropriate sanction. 

14.      Mr Le Maistre contended that the defences put up by AI and PI were reasonable, and were properly arguable.  The case was in fact decided on the respective credibility of witnesses, and indeed there was further support for his clients' defence of the claims in the expert evidence of Mr Davis.  In my view, this objection to this ground on which indemnity costs were claimed is entirely fair.  As was said in the Pell Frischmann case, there must be something to take the case out of the ordinary before an award of indemnity costs is made - if it were otherwise, success in a case would inevitably lead to an award of indemnity costs. 

15.      As to the Calderbank point, I note that the decision in Flynn-v-Reid does not assist Mr Pirrwitz.  The extract from the Court of Appeal's judgment in that case, to which Mr Preston referred me, emphasised that in a non-matrimonial case at least, a Calderbank offer was highly relevant to issues of costs.  The ex tempore judgment when the various costs orders appealed against were made in the Court below, showed that I took into account that although that was not a matrimonial case, the parties treated themselves as a couple, and there was some attraction in the Court treating them in the way they wanted to treat themselves.  The Court of Appeal considered that that approach was wrong.  This is quite a different point from the question of indemnity costs.  It is perfectly clear that in an ordinary civil case - other than a matrimonial case - Calderbank offers are very relevant.  However, they are not necessarily relevant to the basis on which the costs should be assessed, and indeed in Flynn-v-Reid itself, the Court of Appeal, in awarding costs to the appellant, did so on the standard basis, notwithstanding that the plaintiff beat the Calderbank offer by a considerable margin. 

16.      I do not think that the fact that Mr Pirrwitz has beaten the Calderbank offer by a considerable margin here is particularly relevant to the issue of indemnity costs for an additional reason.  The way the case was run by both the plaintiff and the defendants suggested that there was not much middle ground.  Mr Pirrwitz made his claim in contract on the basis that the exit payments were agreed and due.  AI and PI contended that the exit payments were not agreed, or, if they were agreed, were agreed in breach of duty and/or were unreasonable, and for all the other reasons set out in the judgment.  A Calderbank offer was bound to represent an assessment of a commercial basis for settlement.  This offer represented some 25% of Mr Pirrwitz' claim.  Clearly that represented the assessment of AI and PI as to the merits of the claim.  It was a wrong assessment as the Court's judgment shows.  That does not however in my judgment take it into the category of case where an indemnity costs order ought to be made. 

17.      As to the last of Mr Preston's contentions that Mr Pirrwitz has lost money from his own business by giving up his time and coming to Jersey to instruct lawyers and to prepare for trial, in my view that is not of itself a sufficient reason for converting an award of costs on the standard basis into an award on an indemnity basis.  If it were, the same contentions could presumably be made in almost every case where the plaintiff was in business.  I would not be prepared to go so far. 

Nonetheless, Mr Pirrwitz has been successful.  Mr Le Maistre did not oppose standard costs and I considered that an award of costs of and incidental to the claim on a standard basis was the appropriate order to make. 

Authorities

Pell Frischmann Engineering Limited-v-Bow Valley Energy Limited [2007] JLR 479.

P-S-v-C [2010] JCA 225.

Flynn-v-Reid [2012] JCA 169.