Jersey Unreported Judgments

Costs

[2023]JRC258

Royal Court

(Samedi)

29 December 2023

Before     :

Sir William Bailhache, Commissioner, sitting as a single judge

 

Advocate K. O. Dixon for the Plaintiff.

Advocate D. A. Corbel for the Defendants.

judgment

the commissioner:

Introduction

1.        On 18 May 2023, the Court gave a preliminary judgment (Forward Group Limited v Balfour Investments Limited and Ors [2023] JRC 077) in relation to the claim by the Plaintiff against the Defendants.  A subsequent judgment (Forward Group Limited v Balfour Investments Limited and Ors [2023] JRC 177) was handed down on 30 September 2023, after receipt of written submissions, which quantified the amount in total due by the Defendants to the Plaintiff in the sum of £95,859.75.

2.        Different claims for outstanding fees were made against the 1^st to 19^th Defendants together with interest at the rate of 2% over the base rate published by the Bank of England, alternatively at the Court rate, calculated per month on the fees due by each of the Defendants respectively for the period from the date on which each of the outstanding invoices respectively fell due until date of payment thereof (after as well as before judgment); and the costs of the action on an indemnity basis or on such other basis as the Court might think fit.  The sum claimed in the Amended Particulars of Claim against the 17^th and 20^th Defendants was £112,019.29, together with interest as set out above, and as against the 20^th Defendant only damages in the sum equal to the time spent by the Plaintiff in pursuing its unpaid debts against the Defendants or any of them at the Plaintiff's prevailing charge rates for the period from the date on which each outstanding invoice fell due for payment respectively to the date of judgment.

3.        The sum awarded by the Court covered all claims other than the claim for costs and I sat on 11 December 2023 to hear an application by the Plaintiff for those costs.  I was informed by Advocate Dixon that the award with interest to 28 October 2023 amounted to £103,805.52 and that sum was paid on that day.

The parties' positions

4.        The Plaintiff's claim as set out in its skeleton argument was that it was entitled to claim its costs on a full indemnity because:

(i)        it had a contractual right to recover its costs on that basis;

(ii)       indemnity costs were justified by the Defendants' position in relation to the various Calderbank offers which had been made by the parties during the course of the litigation; and/or

(iii)      by reason of the Defendants' conduct throughout the course of the litigation generally.

5.        In oral submission, Advocate Dixon concentrated his fire on the contractual position and the Calderbank letters.

6.        In this case, the estimated costs (the costs incurred to 31 October 2023) were set out in a costs schedule attached in Appendix 1.  The total costs claimed on an indemnity basis were £173,899.75 plus disbursements of £7,880.00.  The Plaintiff sought a payment on account of just over 50% of those costs, in the sum of £87,000.00 plus its disbursements (£7,880.00) - i.e. a total of £94,880.00 - or such other such as the Court thought just on the basis that the Plaintiff would "almost certainly collect" a sum in excess of £87,000.00 plus its disbursements after the completion of the taxation process.  I was informed by Advocate Dixon that on a taxed scale, the Plaintiff's costs were in the region of £142,740.

7.        The Defendants' position was that:

(i)        in circumstances where the disputed debt was not the awarded judgment debt, a defendant, "recalcitrant" or otherwise, should not be penalised by the imposition of costs at the indemnity rate, which is typically applied (where there is no contractual entitlement) to mark the Court's displeasure with a paying party, or some other conduct worthy of such a punitive award.  There was a full discretion as to costs in the Civil Proceedings (Jersey) Law 1956 and the Court should exercise it in favour of the Defendants having regard to the justice of the case.  In particular, the point was made that where a claim is for services rendered, it is not necessarily easy to establish whether the claim is or is not justified and a prior agreement to pay indemnity costs works unfairly in the case of an only partially successful plaintiff, which might encourage the litigious plaintiff not to settle or even enter compromise negotiations.

(ii)       as to the Calderbank correspondence, the Plaintiff had made a number of costs inclusive offers to settle, which had been impossible to assess because it refused to distinguish the amount of the claim settlement from the amount of costs.  Furthermore, the Calderbank offer at 14 December 2022 had been within £1,000 or so of the final award and thus "not so very far" (see Pell Frischmann Engineering v Bow Valley Iran Limited [2007] JLR 479) from the final award.

(iii)      In the circumstances, there was good reason to depart from the indemnity costs provision which had been agreed.

Discussion

8.        I first deal with what the costs order would have been, had there been no previously agreed contractual arrangements.  In my judgment, there is nothing in the conduct of this case by the Defendant which would have justified an award of indemnity costs.  It is correct, as Advocate Dixon submitted, that Mr Halabi accepted in his evidence that at one stage the sum of some £58,000 "could be deemed as payable" but nonetheless did not pay even that amount.  It is also correct that in his evidence that Mr Halabi made a concession as to his responsibility with the Seventeenth Defendant for the fees due by all the Defendants, which meant that part of the pleaded case was surrendered.  I do not consider that either of these points fall outside the scope of ordinary contested litigation.

9.        Advocate Dixon also contends that the Defendants could have set out in more detail their opposition to the Plaintiff's claims.  I do not find there is anything in this argument.  Indeed, the Court itself did not find it easy to assess the Plaintiff's claims, hence the invitation to the parties at [98] of the May judgment for further submissions.  It is said that in an open letter on 23 November 2021, the Plaintiff clearly set out its position and while that is to some extent true, the letter does not provide the type of detail that the Court considered necessary for the purposes of giving judgment, so it is hardly surprising that the Defendants did not immediately make payment of what was claimed.

10.     As to the Calderbank correspondence, I think there is nothing in that which would have led me to award indemnity costs.  The letters which suggested an all-inclusive-of-costs settlement figure are distinctively unhelpful.  It was said that this enabled the paying party to assess the overall cost of settlement more easily, but the downside of the approach is that while the paying party would know how much he was paying, he would not know why he was paying it.  It is unlikely that any party properly advised would settle on that basis unless the proposed settlement figure represented an outcome not to be lost, and this one certainly did not.

11.     Indeed, the Calderbank correspondence works more to the benefit of the Defendants because, as Advocate Corbel submitted, the offer in December 2022 was not far off the ultimate court award, although it did not beat it.  Of course that would not affect the award of costs up to that date.

12.     The present application therefore really turns on what the court's approach should be to costs where there has been a prior agreement to pay indemnity costs in respect of Court action to recover the monies claimed to be due.  In my judgment, this is not necessarily a straightforward question, despite the various authorities put before me.

13.     It is said by the Plaintiff that the Court held in Tygres Investments Ltd v Jersey Home Loans Ltd and Others [2016] JCA 173 that, subject to its statutory discretion as to costs to rule otherwise, "[w]here there is a contractual right on a party to be indemnified in respect of costs, that extends to all costs other than those which have been unreasonably incurred or which are unreasonable in amount. It does not however include costs unreasonably incurred or unreasonable in amount. As was stated in Gomba, the effect of such a contractual right is equivalent to a right to taxation on the indemnity basis".

14.     This is not an accurate summary of Birt JA's decision in that case.  The proviso in question was not the statutory discretion but the fact that the judge had heard no contested argument on the applicability of the contractual provision.  The true import of Sir Michael's judgment is to be found in the whole of [28] which puts the approach to be taken in a more balanced way.  As Advocate Corbel put it, the Court has a full discretion and that includes having regard to a pre-agreed contractual provision for indemnity costs; but the nature of the discretion implies that if there is good reason to depart from the contractually agreed position, the Court should not hesitate to do so.  Indeed, that is also the conclusion reached by Master Thompson in Waterfront (LC) Limited v Cine-UK Limited [2022] JRC 233 at [38], and applied by him as Commissioner in Oleg Sheyko v Consolidated Minerals Limited [2023] JRC 099 at [12].

15.     The Tygres decision, which is the cornerstone for the later Jersey cases, draws on the approach of the English and New Zealand courts with the decisions in Gomba Holdings (UK) Limited v Minories Finance Limited (No. 2) [1993] Ch 171; Bank of Baroda v Panessar [1987] Ch 335; ANZ Banking Group (New Zealand) Limited v Gibson [1981] 2 NZLR 513; and Seavision Investment SA v Evennett [1992] 2 Lloyd's Rep 26.  It is striking that those decisions are all now of some vintage; and I have not been provided with any more recent cases where the points have been argued.  I have assumed in those circumstances that the approach set out in them reflects current practice in those jurisdictions.

16.     For myself, I find the reasoning in these decisions to be compelling as far as they go, but in my judgment, there are a number of distinctions to be drawn which should be explained.

17.     The first is that there have been developments in Jersey since Tygres in that the Royal Court, for its own policy reasons has adopted the following as part of the Royal Court Rules 2004:

"1/6    The Overriding Objective

(1)      The overriding objective of the Court in proceedings is to deal with cases justly and at proportionate cost.

(2)      Dealing with a case justly and at proportionate cost includes, so far as is practicable -

(a)   ensuring that the parties are on an equal footing;

(b)   saving expense;

(c)   dealing with the case in ways which are proportionate -

(i)  to the amount of money involved,

(ii)             to the importance of the case,

(iii)            to the complexity of the issues, and

(iv)            to the financial position of each party;

(d)     ensuring that it is dealt with expeditiously and fairly;

(e)     allotting to it an appropriate share of the court's resources, while taking into account the need to allot resources to other cases; and

(f)      enforcing compliance with rules, practice directions and orders.

(5)       The Court must further the overriding objective by actively managing cases.

(6)       Active case management includes -

...

(f)      helping the parties to settle the whole or part of the case;

...."

18.     The overriding objective was introduced in the knowledge that the cost of litigation was becoming beyond the reach of all but a few and there was a need to introduce changes to improve access to justice.  For the avoidance of doubt, the need to ensure the parties are placed on an equal footing does not mean that the Court steps in to save a party from his own contractual mistakes, as we made plain in our earlier judgments in this case.  Dealing with a case justly requires the Court to have regard to the legal basis of the claim, albeit that the Court retains its discretion as to the remedy it provides.  However, dealing with the case justly and in particular helping the parties to settle the case does mean that these are features of the exercise of discretion notwithstanding the contractually agreed provisions on indemnity costs.

19.     Secondly, the long-established rules around Calderbank offers are there to facilitate settlement of cases by providing pressure points on the parties to approach the litigation sensibly and reasonably, having regard to litigation risk.  Pre-agreed indemnity costs, absent some active court management through its costs orders, would act as an impediment to settlement because the party with the benefit of such an agreement would have no reason to settle but instead could sit back and take every unreasonable point until his opponent surrendered.

20.     Thirdly, I do not myself share the view that the party with the benefit of a contractually agreed provision could sue in contract after the case had finished for the balance of costs the Court had not ordered.  In my judgment, that would be an abuse of the Court's process because the Court would already have taken into account the contractual provision before reaching its conclusion. There would be an issue estoppel preventing the contractual argument coming forward again.

21.     Fourthly, there is in my judgment a distinction between cases where there are rent arrears or monies due in repayment of a loan, whether secured or not, and cases where the underlying claim is for remuneration for services provided, especially when the cost is calculated on a time basis.  Article 29 of the Goods and Services (Jersey) Law 2009 shows that there is an implied warranty that the services must be provided in a reasonable time.  There is obvious scope for argument in such circumstances, and while the justice of an indemnity costs provision can be readily supported in a clear cut claim for monies due, the position is not so obvious where there is a genuine dispute.

22.     Finally, it is not at all obvious to me that where a party is only partially successful - such that his opponent has been found by the Court to be justified in resisting the entirety of the claim brought - he should nonetheless be entitled to rely on a prior agreement that the other party should pay all his costs, let alone on an indemnity basis.  This is typically the area where the Court customarily exercises its discretion in costs matters in relation to a process it understands better than most - litigation.

23.     In my judgment, the existence of a pre-agreed indemnity costs provision is a factor to be taken into account by the Court when making a costs order; not a starting point and not a provision to be ignored, but nonetheless only one factor in all the factors which go to the making of a costs order.

Decision

24.     In many cases, a plaintiff failing to accept a Calderbank offer which came as close to the offer made by the Defendants on 14 December 2022 could expect an award of costs up to that point, but would find himself facing an adverse costs order in respect of the costs incurred thereafter.  In the circumstances of this case, I do not consider this would be a fair outcome for two reasons. First of all, as I indicated earlier, it is clear from the entire picture of the parties' dealings that Mr Halabi often seeks to negotiate downwards what might otherwise be seen as a clear liability.  That makes his Calderbank offer intrinsically less valuable when assessing the merits of his conduct because it carries less ethical credibility.  Secondly, he agreed to pay indemnity costs.  That is a card which in my judgment in the circumstances of this case can only be played once, but it can be appropriately played here.  For these reasons, I consider that the failure to offer the amount actually awarded means that the Plaintiff should have its costs in principle of and incidental to the claims up to that date, even though many of its more extravagant claims subsequently failed, and should not be exposed to the Defendants' full claims for costs thereafter.

25.     It is also clear that the Defendants won most of the argument after the handing down of the May judgment.  They might in other circumstances have anticipated an award of costs in their favour in respect of this part of the argument.  I consider the best way of dealing with this is by rough and ready assessment to net off the costs in question.

26.     In my judgment, the fair solution is to award the Plaintiff its costs of and incidental to the proceedings for the period up to and including 18 May 2023.  As to the costs incurred thereafter, I accept there is something in the submissions of the Plaintiff, and the Defendants should not have all their costs.  I award the Defendants 50% of their costs for the period from 19 May up to and including the date of the costs hearing.  In both cases, the costs will be in such sum as may be agreed, or failing agreement, as taxed on the standard basis.

The interim award

27.     At the conclusion of the hearing, I ordered a payment on account of £70,000 to be made within three weeks, with interest at the Court rate until payment if the costs award was not paid by the end of that period.  The reasons for that award were that:

(i)        the Plaintiff was entitled to a costs award and had had to fund the litigation over a period of some twenty months.

(ii)       the Defendants - especially the Twentieth Defendant - had shown a proclivity to negotiate on whatever amount he knew to be due in the hope of improving his position and it was likely that there would be protracted and costly argument and delay before any sum was actually paid; and

(iii)      by an award close to what the parties could consider would reflect a final amount which might be achieved on taxation, it was possible that the arguments might generally be brought to an end.  If that turned out not to be the case, and I had awarded a sum in excess of what was recoverable by the Plaintiff, the fact remained that it was an interim award and the Plaintiff, as a registered financial services provider, could be expected to repay any excess, failing which its registration would be at risk. 

28.     The amount of the interim award was a rough and ready estimate, not based on 50% of the amount claimed on a taxed basis, but as a sum which reflected the bulk of the value of the legal work done proportionate in the circumstances of this case to the claim for approximately £113,000, the need for proportionality being established as a taxation principle by Pearce v Treasurer of the States [2016] (1) JLR 435 at [22] et seq.  I put to Advocate Dixon in the course of his submissions that it was concerning that the amount of costs incurred exceeded the amount of the claim.  He accepted this as something very unfortunate but without any solution. In my judgment, the solution is straightforward.  Unless the client has in full knowledge of the facts agreed with his lawyer a scale of charging disproportionate to the value of the case (in which case it would be the client's choice but not one to be imposed by the taxation process on the paying party), it is the lawyer's responsibility to ensure that the costs which are charged do not make access to justice available only to those who can afford the playground of the wealthy.  That is indeed a central precept of the Overriding Objective, now enshrined in the Royal Court Rules 2004 as amended.  Thus, the lawyer should have close regard to the amount claimed when settling the basis of claim, the number of fee earners set to work in the litigation, the hourly charge out rate which is to be applied and the extent to which argument is carried out in fruitless correspondence.

29.     This was a classic case where the nature of the contractual claims was far more complicated than it should have been; the description of the work done, which formed the basis of the claim, was far from certain despite the line by line entries in timesheets; there was confusion between what fell within the annual charge and the work which could be charged separately; and what appears to be the confidence felt by the Plaintiff and its advisers in what was an overbearing contract for the supply of services, admittedly with an experienced businessman who should have known better than to sign it, all came together to make the overall costs out of proportion to the amount which was claimed, and certainly the amount which was due.

30.     It is open to the parties now to go headlong into a taxation of costs awarded by this judgment, which may have the effect of more being due by the Defendants, or some being due by reimbursement from the Plaintiff.  I very much hope that the parties and their lawyers may take time out to reflect on these remarks before going forward with more dispute, more time with professionals and thus more costs, the risks of which seem to me to be pretty evenly balanced at this stage.  In that reflection, there may also be scope for the Plaintiff and its lawyers to review the arrangements between themselves as well as the sums due to the other side in the litigation, if indeed they have not done so already.  In this, I do not place much store by the fact, for example, that there were six different advocates, three associates and three paralegals engaged in this claim over a twenty month period, because it is correct that the majority of the hours billed were spent by one advocate and two associates, although there must have been a small amount of duplication there.  However, a total of 180 hours of an advocate's time, 60 hours of associate time and 151 hours of paralegal time, speaks for itself in the context of this claim.  At the hourly rates which the scales of costs contemplate, clients are entitled to expect discipline and rigour in their lawyers' expenditure of time; because, as we said at [34] of our September judgment in relation to the main claim, it may be important in terms of the service offered not to confuse time spent with value.  Advocates' charge out rates at close to £700 per hour and Associates' charge out rates at £350 to £500 per hour emphasise that at those rates, the paying party is entitled to expect clearly focussed, well informed and knowledgeable advice, tailored to the value of the dispute.

Authorities

Forward Group Limited v Balfour Investments Limited and Ors [2023] JRC 077. 

Forward Group Limited v Balfour Investments Limited and Ors [2023] JRC 177. 

Civil Proceedings (Jersey) Law 1956. 

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

Tygres Investments Ltd v Jersey Home Loans Ltd and Others [2016] JCA 173. 

Waterfront (LC) Limited v Cine-UK Limited [2022] JRC 233. 

Oleg Sheyko v Consolidated Minerals Limited [2023] JRC 099. 

Gomba Holdings (UK) Limited v Minories Finance Limited (No. 2) [1993] Ch 171

Bank of Baroda v Panessar [1987] Ch 335. 

Banking Group (New Zealand) Limited v Gibson [1981] 2 NZLR 513. 

Seavision Investment SA v Evennett [1992] 2 Lloyd's Rep 26. 

Royal Court Rules 2004. 

Goods and Services (Jersey) Law 2009. 

Pearce v Treasurer of the States [2016] (1) JLR 435.