Jersey Unreported Judgments

Costs judgment

[2016]JRC078

Royal Court

(Samedi)

6 April 2016

Before     :		J. A. Clyde-Smith, Esq., Commissioner, sitting alone.
Between	Her Majesty's Attorney General		Applicant
And	Arne Rosenlund		First Respondent
And	FNB International Trustees Limited		Second Respondent

Advocate A. J. Belhomme, Crown Advocate for the Attorney General.

Advocate J. Harvey-Hills for the First Respondent.

Advocate A. Kistler for the Second Respondent.

judgment

the commissioner:

1.        On 15^th March, 2016, the respondents succeeded in an application to strike out the Attorney General's amended application for a saisie judiciaire over the realisable property of the first respondent and this for the reasons set out in the Court's judgment of that date AG-v-Rosenlund and FNB International Trustees Limited [2016] JRC 062.  Following the handing down of that judgment, I heard arguments as to costs. 

2.        The procedural background can be summarised in this way:-

(i)        On 4^th February, 2014, the Attorney General filed a representation seeking a saisie judiciaire in respect of the realisable property of the first respondent situated in Jersey, pursuant to Article 16 of the Proceeds of Crime (Jersey) Law 1999 as modified and included in the Second Schedule to the Proceeds of Crime (Enforcement of Confiscation Orders)(Jersey) Regulations 2008 ("the Modified Law"). 

(ii)       On 13^th February, 2014, the matter was adjourned sine die pending the outcome of the decision in the case of Tantular and Others v AG [2014] JRC 128.  In that case, the Attorney General had sought to argue that the settlor, who had been charged with fraud and money laundering offences and who was a beneficiary of the trust, was "beneficially entitled", as a beneficiary, to the assets of the trust, so that all of the trust assets were realisable pursuant to the saisie judiciaire.  That argument was rejected by the Court. 

(iii)      Following the judgment in Tantular, Advocate Temple, acting for the first respondent, wrote to the Attorney General on 16^th June, 2014, asking for confirmation that the proceedings against the respondents would be discontinued on the grounds that (1) as a beneficiary of the Mingo Trust, the first respondent had no entitlement to the trust assets, and (2) the Mingo Trust had been established in 1988, with any settlement of assets into it long pre-dating the first respondent's criminal conduct. 

(iv)      Crown Advocate Belhomme responded on behalf of the Attorney General on 4^th July, 2014, saying that there was clear evidence of substantial gifts into the Mingo Trust by the first respondent which post-dated the commencement of his criminal conduct and that accordingly, the Attorney General would be pursuing the application for the saisie judiciaire. 

(v)       Pursuant to directions made by the Court, the second respondent disclosed copies of the accounts of the Mingo Trust and its underlying companies from 1997 (when the first respondent's criminal conduct commenced) which showed that minimal funds had in fact been added, or arguably added, by way of gift to the Mingo Trust or its underlying companies. 

(vi)      On 23^rd January, 2015, the Attorney General filed a skeleton argument in which he appeared to argue, for the first time, that the change of trustee of the Mingo Trust that had taken place on 12^th November, 2008, constituted an indirect gift by the first respondent of the assets of the Mingo Trust to the second respondent, which was caught by the Modified Law. 

(vii)     On 13^th April, 2015, the Court ordered the hearing of a preliminary issue of law and expressed its reservation as to the Attorney General's claim:-

"If the Attorney General succeeds in the preliminary issue and the case proceeds, then I will, at that stage, require the Attorney General to clarify the arguments he will be advancing under paragraphs 41 and 42 of his skeleton argument, which at the moment are not clear to me. I do not believe it is being argued that a change of trustee of a validly created discretionary trust, in which the relevant powers have been exercised properly, will constitute an indirect gift for the purposes of the Modified Law by one of the members of the discretionary class.  The Court will therefore need to be clear, firstly as to the facts that the Attorney General seeks to prove in relation to the Trust and secondly, why in law those facts, if proved, render the change of trustee an indirect gift by the defendant for the purposes of the Modified Law". (My emphasis)

(viii)    The preliminary legal issue was heard on 2^nd July, 2015, and determined in the Attorney General's favour for the reasons set out in the Court's judgment of 9^th September, 2015, (AG-v-Rosenlund and FNB International Trustees Ltd 2015 JRC 186). 

(ix)      On 30^th July, 2015, the Court ordered that the costs of the hearing of the preliminary issue be left over for determination by the trial judge and directed the Attorney General to provide clarification of the grounds of his application. 

(x)       The Attorney General filed an amended skeleton argument on 12^th October, 2015, from which it was clear that his case was and remained that the change of trustee constituted an indirect gift caught by the Modified Law. 

(xi)      On 11^th January, 2016, the respondents issued a summons to strike out the Attorney General's claim which was heard on 22^nd February, 2016, but during which time work continued in preparation for the main hearing fixed for the seven days commencing 25^th May, 2016. 

Application

3.        The respondents sought the following orders against the Attorney General:-

(i)        An order in their favour for the costs incurred in these proceedings up to the second respondent's disclosure on either 1^st  October, 2014, or 3^rd December, 2014, to be taxed on the standard basis, from which date it was evident that financial contributions made to the Mingo Trust after the commencement of criminality were de minimis. 

(ii)       An order in their favour for costs incurred from either 1st October 2014 or 3rd December 2014 to date to be taxed on the indemnity basis.

4.        The respondents also sought an interim payment on account of their costs. 

5.        Crown Advocate Belhomme, for the Attorney General, resisted any such orders, submitting that there should be no order as to costs, but if any order was made, it should be on the standard basis and capped. 

Legal Principles

6.        Crown Advocate Belhomme submitted that ordinarily no order should be made against the Attorney General, who was carrying out an important public function, absent dishonesty or lack of good faith, and this on the basis of two authorities:-

(i)        The decision of the High Court in Baxendale-Walker v The Law Society [2006] (5) Costs LR 696, a case involving disciplinary proceedings brought by the Law Society and in which Moses LJ (whose judgment was approved by the English Court of Appeal in Baxendale-Walker v The Law Society [2007] EWCA Civ 233) said this:-

"The principles, in relation to an award of costs against a disciplinary body were not in dispute.  A regulator brings proceedings in the public interest in the exercise of a public function which it is required to perform.  In those circumstances the principles applicable to an award of costs differ from those in relation to private civil litigation.  Absent dishonesty or a lack of good faith, a costs order should not be made against such a regulator unless there is good reason to do so.  That reason must be more than that the other party has succeeded.  In considering an award of costs against a public regulator the court must consider on the one hand the financial prejudice to the particular complainant, weighed against the need to encourage public bodies to exercise their public function of making reasonable and sound decisions without fear of exposure to undue financial prejudice, if the decision is successfully challenged."

(ii)       The Family Law case of The Minister for Health and Social Services v A [2015] JRC 222, in which Bailhache, Bailiff, cited with approval a passage from the judgment of Lord Phillips in Re T (Costs: Care Proceedings: Serious Allegations not proved) [2012] UKSC 36, a decision of the Supreme Court, in which he approved the general practice of not awarding costs against any party, including a local authority, in the absence of reprehensible behaviour or an unreasonable stance.  Crown Advocate Belhomme drew this particular passage to my attention:-

"In the context of care proceedings, it is not right to treat a local authority as in the same position as a civil litigant who raises an issue that is ultimately determined against him.  The Children Act 1989 imposes duties on the local authority in respect of the care of children.  If the local authority receives information that a child has been subjected to or is likely to be subjected to serious harm it has a duty to investigate the report and, where there are reasonable grounds for believing that it may be well founded, to instigate care proceedings.  In this respect the role of a local authority has much in common with the role of a prosecuting authority in criminal proceedings.  It is for the Court, and not the local authority, to decide whether the allegations are well founded.  It is a serious misfortune to be the subject of unjustified allegations in relation to misconduct to a child, but where it is reasonable that these should be investigated by a court, justice does not demand that the local authority responsible for placing the allegations before the court should ultimately be responsible for the legal costs of the persons against whom the allegations are made."

7.        Special considerations have long applied to the costs regime in Family Law cases and indeed, all of the cases cited in The Minister v A were Family Law cases.  Whilst I can see the analogy between the position of the Minister for Health and the Attorney General, the question of costs involving public bodies carrying out a range of public functions has been carefully analysed by Page, Commissioner, in Jersey Financial Services Commission v A P Black (Jersey) Limited [2007] JLR 1, in which he considered a number of English and Jersey authorities.  Without setting out his detailed analysis, he reached this conclusion at paragraph 35:-

"In these sparsely-charted waters, it is therefore with some hesitation that I express the following conclusions, particularly in circumstances where only one of the parties before me was legally represented at the hearing itself and the issue is of some general importance.

(i)        On any view, the idea that bodies engaged in performing public-interest functions must in all cases 'take [their]chance on costs, just like any other litigant in these courts,' as espoused by the members of the English Court of Appeal in Southbourne ([1993] 1 WLR at 250), is at odds with the trend of thinking in the later cases discussed above and would appear to be difficult to reconcile with the decision of the Deputy Bailiff in this court in Ani (1).  Its rigidity would, in any event, sit uneasily with the general approach of the Royal Court to the exercise of discretion in matters of costs and is not one that I would want to follow unless constrained to do so (which I am not).

(ii)       The fact that the unsuccessful or discontinuing party has been engaged in the proceedings in furtherance of its public-interest functions must, to my mind, be a relevant factor on the issue of costs. But the matter is best dealt with simply on that basis - as one element relevant to the court's exercise of discretion in any particular case - rather than treating that body's status as automatically giving rise to a hard-and-fast special rule, or, for that matter, even a prima facie rule.  I say this because, in terms of principle, the justice of the matter can be argued with equal force both ways, as the conflicting English decisions show, and it is quite wrong to be prescriptive on the issue.

(iii)      The approach adopted by Lord Bingham in Bradford (3), understood in the way that I have suggested, is in my view the proper and fair one and is moreover in keeping with the governing principles in relation to the award of costs in the Royal Court, as summarized in Watkins v Egglishaw (11) [2002] JLR 1 at para. 7)."

8.        Page, Commissioner, revisited the matter in Volaw Trust and Corporate Services Limited and Larsen v Comptroller of Taxes [2013] (2) JLR 203 where it was argued that Jersey Financial Services Commission v Black had been wrongly decided, and where again, after careful analysis, he saw no reason to revise the approach adumbrated in Jersey Financial Services Commission v Black as appropriate to questions of costs where a public body performing a public function is concerned.  

9.        In Tantular v Attorney General costs were awarded against the Attorney General on the standard basis ([2014] JRC 251A), the Court exercising its discretion as to costs on the ordinary principles applicable to civil litigation.  The position of the Attorney General carrying out a public function was not raised, nor were the authorities of Jersey Financial Services Commission v Black and Volaw v Comptroller of Taxes referred to the Court.  Crown Advocate Belhomme confirmed that none of the arguments put to me on this case were put to that Court. 

10.      Similarly, in the case of In re Kaplan [2009] JLR Note 28, the defendant was awarded half of his costs on the standard basis following his successful application to discharge a saisie judiciaire against him, but again the Court had not been referred to the decision in Jersey Financial Services Commission v Black. 

11.      In my view, Jersey Financial Services Commission v Black is the only case in which the principles to be applied in the case of a public body performing a public function have been considered and analysed and those are the principles which I should follow.

12.      Crown Advocate Belhomme suggested that the role of the Attorney General could be distinguished from the role of the other public bodies reviewed by Page, Commissioner, public bodies which included a licensing authority, the Secretary of State (seeking a disqualification of a company director), the Law Society and the Commissioner of Police (applying for confiscation orders).  He produced no authority to support such a proposition and I see no reason to distinguish the Attorney General in this way, but I accept it is appropriate to have regard to the particular public function that the public body is performing for the purpose of considering the weight to be given to that particular factor in relation to costs. 

Submissions

13.      In acceding to the strike out application, I concluded that it was plain and obvious that the claim of the Attorney General as formulated from 23^rd January, 2015, could not succeed and the respondents have a strong argument therefore in submitting that the Attorney General's conduct of this litigation was unreasonable from that point.  In the recent case of Macfirbhisigh and Ching v CI Trustees and Executors Limited and Others [2016] JRC 002A, Hunt, Commissioner, had regard to a passage from the decision of Mr Stephen Jourden QC in Richmond Pharmacology Limited v Chester Overseas Limited [2014] EWHC 3418 (Ch) and Advocate Kistler drew my attention to this part:-

"(f)      The pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, provided that the claim was at least arguable.  However, the pursuit of a hopeless claim (or a claim which the party pursuing it should have realised was hopeless) may lead to such an order.  In Wates Construction Ltd v HGP Greentree Alchurch Evans Ltd [2006] BLR 45 at [27] Coulson QC said: ' I consider that to maintain a claim that you know, or ought to know, is doomed to fail on the facts and on the law, is conduct that is so unreasonable as to justify an order for indemnity costs.'"

14.      Both Advocate Kistler and Advocate Harvey-Hills submitted that once the Attorney General knew in late 2014 that no material gifts had been made into the Mingo Trust after the first respondent's criminal conduct had commenced, the application for the saisie judiciaire should have been withdrawn.  The claim that was then pursued was doomed to fail and this justified an order for indemnity costs.  The total costs incurred by the respondents in this matter (all of which is payable out of the trust fund of the Mingo Trust) comes to nearly £400,000 and it was wrong for the beneficiaries to suffer all of that loss when it was in substantial part caused by the unreasonable conduct of the Attorney General. 

15.      As to the preliminary issue, although the Attorney General had succeeded, the Court had found in its judgment of 16^th September, 2015, (AG-v-Rosenlund and FNB International Trustees Ltd 2015 JRC 190 at paragraph 24) that it formed part of the final hearing and the issue of costs should be left over to the trial judge, so that the conduct of the parties and the outcome can be looked at in the round in order for a fair order in relation to costs to be made. 

16.      The respondents submit that if the preliminary issue had not been taken in advance, then the Attorney General's claim would still have failed, for the reasons set out in the strike out application, and that particular legal issue would not have attracted a separate issue based costs order. 

17.      Crown Advocate Belhomme made the following submissions:-

(i)        The Attorney General received a request from a friendly foreign state, Denmark, for the enforcement of a confiscation order in respect of the first respondent, who had been convicted of tax fraud. 

(ii)       In the light of the Island's international obligations, it was incumbent upon the Attorney General to assist in that request and therefore to present the application. 

(iii)      The evidence, admittedly untested, suggested that the first respondent had engaged in conduct designed to defeat the Danish confiscation order, namely by requesting the retirement of the then current trustee and the appointment of a trustee in Guernsey.  By so conducting himself, the first respondent had brought this litigation upon himself. 

(iv)      The strike out application should have been brought much earlier following the Attorney General nailing his colours to the mast on the 23^rd January, 2015. 

(v)       By providing mutual assistance in this way, the Attorney General should not be exposed to the risk of debilitating costs orders.  In the present climate the Attorney General's court and case costs budget has been reduced.  Substantial adverse costs orders might impair the Attorney General's ability to prosecute cases including fraud and money laundering.  It was not suggested that the budget reductions had actually impaired the Attorney General's ability to carry out his functions, including his ability to prosecute financial crime. 

(vi)      There was no separate budget to meet adverse costs orders of this kind.  Furthermore, there was no indemnity from the Danish government as that would run contrary to established principles in mutual assistance cases.  Article 20 of the European Convention on Mutual Assistance in Criminal Matters 1959 provided that the execution of requests for mutual assistance will not entail refunding of expenses, except those incurred by the attendance of experts.  The letter of request had been sent pursuant to the European Convention on Mutual Assistance in Criminal Matters, 1959.  This was in contrast of to the position of say the Comptroller of Income Tax under the Taxation Exchange of Information legislation.  The decision to award costs against the Attorney General in Tantular had caused him to reflect because high costs orders might affect his ability to perform his functions.  Put starkly, it may affect his ability to defend applications such as this. 

(vii)     It was essential to consider the proportionality of the orders being sought by the respondents.  £400,000 was an enormous figure simply for an application for a saisie judiciaire. 

Decision

18.      In discussion I raised with counsel whether it was possible that the trust fund of the Mingo Trust, or part of it, might represent the proceeds of crime, in that it was the assets within the Mingo Trust that the first respondent had failed to disclose and upon which, under Danish law, he was taxable.  If that was the case, it might be thought that the beneficiaries of the Mingo Trust, the first respondent and his family, had to some extent benefited from his tax fraud and that this should be taken into account in considering the financial prejudice to them if no order for costs is made in favour of the respondents. 

19.      However, as Advocate Kistler and Advocate Harvey Hills pointed out, none of the facts set out in the Attorney General's case, which for the purposes of the strike out application the Court had to assume were correct, had been tested in evidence and were very much in dispute.  There is, therefore, no principled basis upon which I could make such an assumption to the prejudice of the respondents.  

20.      I can and do, however, take into account that the first respondent has been convicted of tax fraud before the Danish courts and all avenues of appeal available to him there have been exhausted.  

21.      In Jersey Financial Services Commission v Black, the Court, in declining to make costs orders against the Jersey Financial Services Commission, gave considerable weight to the need to encourage public authorities to make and stand by honest, reasonable and apparently sound administrative decisions made in the public interests without the fear of exposure to undue financial prejudice if the decision were to be successfully challenged.  In the same way, in my view, considerable weight has to be given to decisions made by the Attorney General in the public interest to apply for a saisie judiciaire at the request of a foreign friendly state seeking assistance under the European Convention on Mutual Assistance in Criminal Matters. 

22.      I can see no possible criticism of the Attorney General for making the application for the saisie judiciaire in response to that request and in pursuing it up until the point when the disclosure made by the second respondent showed that there had been no material gifts into the Mingo Trust after the first respondent's criminal conduct had commenced, and there should be no financial prejudice for his having done so. 

23.      The respondents have, of course, incurred costs in that process but that does not weigh heavily in the balance when set against the important public function being undertaken by the Attorney General.  Accordingly, in all the circumstances of this case and in the exercise of my discretion, I decline to make any order for costs up until the filing of the Attorney General's skeleton argument on 23^rd January, 2015, shortly following the disclosure made by the second respondent (and allowing time for such disclosure to be absorbed and considered). 

24.      From that point, the position is more difficult, in that the Attorney General was pursuing a claim that I have found had no possibility of success.  I do not think there can be any criticism of the respondents for not pursuing their strike out application earlier.  They were under no obligation to do so and in fairness to the second respondent, it did argue that the issue of whether a change of trustees was capable of constituting an indirect gift for the purposes of the Modified Law should be taken in advance.  As Advocate Kistler not unreasonably pointed out, it cannot be in the public interest for hopeless cases to be advanced by public bodies at the cost of the respondent parties concerned, or for such conduct to be encouraged. 

25.      In the context of ordinary civil litigation, I would have considered the advancing of a hopeless case as crossing the threshold for indemnity costs as suggested in that extract from the case of Richmond Pharmacology Limited v Chester Overseas Limited, but in the context of the Attorney General, a public body carrying out an important public function, that factor weighs heavily enough in the balance to limit the order against the Attorney General to standard costs.  Those costs will include the preliminary issue argument which took place after 23^rd January, 2015, because although the Attorney General succeeded on that issue, it was being argued at a time when the Attorney General was pursuing a claim that I have found had no possibility of succeeding. 

26.      In conclusion, I therefore order the Attorney General to pay the costs of the respondents from 23^rd January, 2015, up to and including the strike out application (and for the avoidance of doubt, including the costs of the preliminary issue) and this hearing on costs on the standard basis to be taxed if not agreed. 

27.      I can understand the concern in relation to the Attorney General's budget and the effect an adverse costs order may have upon it, but if justice dictates that an order for costs be made, and it does in this case to the extent indicated above, then I do not think that budgetary concerns are a ground for denying such justice to the respondents. 

28.      Crown Advocate Belhomme asks for any costs order to be capped to a sum which is proportionate to the issues involved.  I note that in Jersey Financial Services Commission v Black one of the costs orders made was summarily fixed at £60,000 (subject to the Court being satisfied that this was less than that which would be recovered on taxation) on the basis that this was the only asset of the defendants available in Jersey against which a costs order could be enforced. 

29.      The case before me involves evidence over many years of the history of the Mingo Trust as well as raising issues of law and the final hearing was estimated to last seven days.  I simply have insufficient information to take a view as to whether the quantum of the costs claimed by the respondents is disproportionate.  I must leave the issue of quantum to the process of taxation. 

Payment on account

30.      The power of the Court to order an interim payment on account of a costs order is now settled and the approach of the Court is set out in the Court of Appeal judgment in Crociani & Ors v Crociani & Ors [2014] JCA 095, the underlying principle being set out in paragraph 16 of the judgment of the Hon. Michael Beloff QC:-

"16     In my view, the achievement of justice, to which all exercises of discretion and procedural rules aspire, will usually require that a party, who is, pursuant to a court order, entitled to its costs, should be paid on account a percentage of the amount he is likely to recover on taxation, calculated on a conservative basis to avoid any real risk of over payment."

31.      The second respondent has produced a summary of the costs it has incurred with Carey Olsen at their usual charge-out rates from 3^rd December, 2014, to date which totals approximately £124,000. 

32.      The first respondent has produced a summary of the costs he has incurred with Mourant Ozannes at their usual charge out rates from 11^th December, 2014, to the 4^th March, 2016, which totals approximately £193,000. 

33.      What I do not have is a summary of both respondents' costs from 23^rd January, 2015, to date on the standard basis.  I therefore invite the respondents to file further such summaries and subject to seeing the same and hearing any comments that Crown Advocate Belhomme may have on behalf of the Attorney General, it would be my intention to order an interim payment of 40% of the amount claimed on the standard basis to be payable within 28 days of this judgment being handed down.  

Authorities

AG-v-Rosenlund and FNB International Trustees Limited [2016] JRC 062.

Proceeds of Crime (Jersey) Law 1999.

Proceeds of Crime (Enforcement of Confiscation Orders)(Jersey) Regulations 2008.

Tantular and Others v the AG [2014] JRC 128.

AG-v-Rosenlund and FNB Intenational Trustees Ltd [2015] JRC 186.

Baxendale-Walker v The Law Society [2006] (5) Costs LR 696.

Baxendale-Walker v The Law Society [2007] EWCA Civ 233.

The Minister for Health and Social Services v A [2015] JRC 222.

Re T (Costs: Care Proceedings: Serious Allegations not proved) [2012] UKSC 36.

Jersey Financial Services Commission v A P Black (Jersey) Limited [2007] JLR 1.

Volaw Trust and Corporate Services Limited and Larsen v Comptroller of Taxes [2013] (2) JLR 203.

In re Kaplan [2009] JLR Note 28.

Macfirbhisigh and Ching v CI Trustees and Executors Limited and Others [2016] JRC 002A.

Richmond Pharmacology Limited v Chester Overseas Limited [2014] EWHC 3418 (Ch

AG-v-Rosenlund and FNB International Trustees Ltd [2015] JRC 190.

European Convention on Mutual Assistance in Criminal Matters 1959.

Crociani & Ors v Crociani & Ors [2014] JCA 095.