Neutral Citation Number: [2013] EWCA Civ 472
Case No: A3/2012/1463 + 1474
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN’S BENCH DIVISION
COMMERCIAL COURT
MR JUSTICE BURTON
[2012] EWHC 1278 (Comm)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 30/04/2013
Before :

LORD JUSTICE MAURICE KAY
LORD  TOULSON
and
LORD JUSTICE AIKENS
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Between :

	The Royal Bank of Scotland Plc	Appellant	
	- and -		
	(1) Highland Financial Partners LP
(2) HFP CDO Construction Corp.
(3) Highland CDO Opportunity Master Fund LP
(4) Highland Capital Management Europe, Limited
(5) Scott Law Group LLC	Respondent	

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(Transcript of the Handed Down Judgment of
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Mr John Nicholls QC & Ms. Louise Hutton (instructed by Linklaters LLP) for the Appellant
Mr Stephen Auld QC, Mr Benjamin Strong & Mr Laurence Emmett  (instructed by Cooke, Young &  Keidan LLP) for the Respondents (1) to (3) 
Mr Graham Dunning QC and Mr Jeremy Brier  (instructed by DaySparkes) for the Respondent (5)

Hearing dates : 27-29 November 2012
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Judgment

Lord Justice Aikens : 
1.	This is the judgment of the court.  We shall use the same abbreviations as we used in the principal judgment on this appeal by RBS and cross-appeal by Highland ([2013] EWCA Civ 328),  which we handed down on 12 April 2013.     We dismissed RBS’ appeal from Burton J’s refusal to grant it an anti-suit injunction against Highland and Scott Law.  We held that Burton J had been correct to conclude that RBS were not entitled to one because it did not come to court with “clean hands”.    However,  we rejected the submission of Scott Law (raised in a respondent’s notice) that an additional reason for refusing an anti-suit injunction was the misconduct of Mr Hall.   We confirmed the judge’s conclusion that Mr Hall was not guilty of any dishonesty.     On the other hand,  we allowed Highland’s cross-appeal,  holding that Burton J was incorrect on the question of whether RBS had obtained the Liability judgment by fraud.   We concluded that it did.

2.	RBS accepts,  therefore,  that its appeal must be dismissed and the Highland cross-appeal must be allowed.    As a result of our decision on Highland’s cross-appeal,  it  is agreed that there are certain consequential orders that must follow:   (i) paragraph 7 of the order of Burton J dated 25 May 2012 must be set aside,  (ii)  the order of Burton J dated 10 February 2010 (“the Liability order”) must be set aside;   (iii)   RBS must repay to Highland within 21 days of this judgment (and consequential order) the sum of £100,000 (plus interest) that Burton J had ordered Highland to pay RBS in relation to costs concerning the Liability hearing and judgment.  The rate of interest is in dispute;   (iv) the order of the Court of Appeal dated 23 July 2010 (the Liability appeal order) must be set aside;   (v)  RBS must repay to Highland within 21 days of this judgment (and consequential order) the sum of £40,000 (plus interest) paid to RBS in relation to costs of the Liability appeal. Again the rate of interest is in dispute;  (vi)  in general,  RBS  accepts that it should pay interest on any costs it is ordered to pay,  although the timing and rate are in dispute.

3.	Unfortunately,  this leaves a great many issues still in dispute between RBS,  Highland and Scott Law.   These issues are:  (1)  which party should bear the costs of the proceedings before Burton J;   (2)  how the costs of RBS’ appeal and Highland’s cross-appeal should be dealt with;   (3)  whether RBS should have to pay costs ordered against it on the standard or the indemnity basis;   (4)  what rate of interest should apply to any costs orders made against RBS;   (5) whether RBS should have permission to appeal to the Supreme Court on the question of the anti-suit injunction;   (6) whether, if this court does not grant RBS permission to appeal,  it should grant it interim injunctive relief whilst it seeks permission to appeal from the Supreme Court itself.

4.	We will deal first with the question of costs,  both before Burton J and on appeal.  We will then deal with issues of permission to appeal and whether there should be any interim relief. 

(A)	Costs:  (1)  The submissions of RBS on costs as between RBS and Highland in relation both to the proceedings before Burton J and this court.

5.	Burton J had made an order for costs against Highland after the Liability judgment in the sum of £100,000.   After the Quantum judgment,  he ordered “no order for costs” in the light of his conclusions concerning the misconduct of RBS,  even though it had awarded the equivalent of €21 million.   After the May 2012 judgment,  Burton J dealt separately with the costs of the 2009 application and the 2011 claim and ordered that RBS should pay 50% of the Highland defendants’ costs of the 2009 application (for the anti-suit injunction) and of the 2011 claim.    RBS accepts that it must pay Highland’s costs of the 2009 claim that relate to the Liability hearing and judgment and the appeal from that judgment,  the Quantum judgment  and the anti-suit application in the 2009 claim that was heard in the 2012 trial.  In relation to the 2011 claim,  RBS submits that there should be no change to the costs order made at the 2012 trial concerning Highland’s costs of that claim.   RBS accepts that it must pay Highland’s costs of the Liability hearing and judgment and appeal,  but submits that,  in respect of all other costs that RBS  has to pay in relation to proceedings before Burton J they should be on the standard basis.    

6.	RBS did not appeal the 2009 claim.  In relation to the appeal on the 2011 claims,  RBS accepts that it must pay Highland’s costs of the appeal,  but it argues that those costs should be paid on the standard basis.

Costs:  (2) The submissions of RBS on the costs as between it and Scott Law in the proceedings before Burton J and this court.

7.	RBS accepts that because this court is setting aside Burton J’s Liability and Quantum orders,  RBS must pay Scott Law’s costs of the anti-suit application in the 2009 action and Burton J’s orders on those aspects must be varied accordingly.   RBS submits that although it must accept that Scott Law won on RBS’ appeal concerning the anti-suit injunction,  Scott Law lost on a number of issues (viz. the applicability of the exclusive jurisdiction clause,  whether it applied to the claims against SG and Mr Hall) and it failed in its attempt to reverse Burton J’s findings on the conduct of Mr Hall in relation to the email of 6 November 2008 and subsequently.      Further,  RBS notes that Scott Law did not have any cross-appeal from Burton J’s order of 25 May 2012 and it was not a party to Highland’s cross-appeal.   Moreover,  on RBS’ appeal, Scott Law did not take any points that were not or could not have been taken by Highland,  yet Scott Law’s lawyers were present throughout the appeal and there was substantial overlap of the material presented by Highland and Scott Law in their written material before this court,  even if not in oral argument.   Accordingly,   RBS submits that:  (i)  Burton J’s order as to Scott Law’s costs of the 2011 claim should not be varied;   and (ii)  there should be no order as to the costs of the appeal as between RBS and Scott Law.

	Costs:   (3)  The submissions of Highland 

8.	Highland submits that it should have all the costs of the 2009 claim,  including those of the Quantum trial,  on an indemnity basis.    As for the 2011 claim,  Highland submits that it has won on both the anti-suit injunction claim of RBS and on Highland’s counter-claim to set aside the Liability judgment for fraud.  Therefore Highland submits it should have all the costs of the 2011 claim and the counter-claim.    Moreover,  costs should be awarded on an indemnity basis because this court has found that RBS obtained the Liability judgment by fraud and the reason for refusing the anti-suit injunction was because of the serious misconduct of RBS through SG,  in particular his lying at the 2012 trial.

Costs:   (4)   the submissions of Scott Law

9.	Scott Law submits that it should be awarded 100% of its costs, both before Burton J and on appeal,    because RBS has lost on the two principal issues,  viz.  the anti-suit injunction and the issue of whether the Liability judgment was obtained by fraud.    As the Highland/Scott Law parties were successful in defeating RBS’ claim for an anti-suit injunction,   there should be no reduction in the proportion of costs awarded just because they did not win on a number of subsidiary issues.   Further,  given the findings of RBS’ misconduct through SG,   this is an appropriate case to award Scott Law its costs on an indemnity basis.   If there are any issues concerning duplication of costs by the separate representation of Highland and Scott Law on the anti-suit injunction issue,  they should be resolved at a detailed assessment by the costs judge. 

Costs:  (5)  Our conclusions

10.	The general rule for costs is that the unsuccessful party will be ordered to pay the costs of the successful party:   CPR Pt 44.3(a).    The question is:  who has been successful in the litigation as a whole:  Kastor Navigation Company Ltd v AGF MAT [2004] EWCA Civ 277,  para 143 per Rix LJ.  Answering that question is a matter for the exercise of common sense:   Bank of Credit and Commerce International SA v Ali (No 3) [1999] NLJ 1734 per Lightman J.   The court will only depart from that general rule if that course is required in all the circumstances of the case: CPR Pt 44.3(2)(b);  Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd [2008] EWHC 2280 (TCC) per Jackson J.       If the court decides to depart from the general rule, it must have regard to all the circumstances:   CPR Pt 44.3(4).  Amongst those factors is the conduct of the parties (at all stages) and whether a party has succeeded in part of its claim.     The court has a wide discretion as to whether it orders costs to be paid on the standard or the indemnity basis.   However,  it is accepted that the critical requirement before an indemnity costs order can be made in a party’s favour is that there has been some conduct of the other party or some other circumstance which takes the case “out of the norm”:   Three Rivers District Council v The Governor and Company of the Bank of England (No 6) [2006] EWHC 816 (Comm) per Tomlinson J at para 25.   Typically,  indemnity costs are reserved for cases where the court may particularly wish to indicate its disapproval of the conduct in the litigation of the party against which such an order is made:   Reid Minty v Gordon Taylor [2001] EWCA Civ 1723. 
  
11.	We have no doubt that in this case the successful parties are Highland and Scott Law.   They have successfully resisted RBS’ claim for an anti-suit injunction in the 2009 claim (before Burton J) and in the 2011 claim both before Burton J and on appeal.  Highland has been successful before us on its counter-claim to set aside the Liability judgment.  In our view the general rule as to costs should apply:  the unsuccessful party should pay those of the successful parties.     Highland and Scott Law have not been only partially successful and we conclude that there is nothing in their conduct which requires that we should depart from the general rule. 

12.	As far as the costs of Highland are concerned,   we deal first with the 2009 claim.  As Highland has been successful (in the 2011 counter-claim) in setting aside the Liability judgment,  we have held that it follows that, in the 2009 claim,  not only must the appeal judgment on Liability also be set aside,  but so also must the Quantum judgment.    The basis for an anti-suit injunction put forward in the 2009 claim (the action of Highland/Scott Law was vexatious and oppressive) failed before Burton J and was not appealed.   So, in our judgment,   Highland is entitled to its costs of all the 2009 claim.   
 
13.	As for the 2011 claim,  Highland has successfully resisted RBS’ claim for an anti-suit injunction.  Highland has not won on all points,  but in our view that is insufficient reason to depart from the general rule that the successful party should have its costs.    Those other issues were short points of construction or law.  The major battles were over the issues of RBS’ conduct and “clean hands”.     Highland has also won on its claim that the Liability judgment in the 2009 claim should be set aside for fraud.    Having won both of  the major issues in the 2011 claim,   it is entitled to costs as the successful party.   As already noted,  we conclude that there is nothing in Highland’s conduct or any other aspects of the case which necessitates this case being taken out of the general rule as to costs.   

14.	Given the judge’s findings against RBS on the misconduct of SG,  not only in 2008/9 but also in the Quantum and 2012 trials,  we have no hesitation in saying that the conduct of RBS (through SG) takes this case out of the norm.    This court should mark its disapproval of the conduct of SG,  for which we have decided that RBS must be held responsible,  by ordering that all Highland’s costs be paid on an indemnity basis.   

15.	As for the costs of Scott Law,   it is also the successful party in relation to the two claims against it in,  respectively,  the 2009 claim (by addition) and the 2011 claim.     If (as Scott Law suggests)  Burton J’s reason for only awarding it 50% of its costs below was the fact that the defendants lost on the issue of setting aside the Liability judgment for fraud,  that reason no longer exists.   As with Highland,  the fact that Scott Law lost on other subsidiary issues both below and on appeal does not detract from the fact that it was,  overall,  the successful party.     We would therefore have been inclined to give Scott Law 100% of its costs below and on appeal,  but for one matter:  its appeal of the judge’s conclusion on the conduct of Mr Hall.     Scott Law pursued its appeal on this matter despite the judge’s findings of fact and his finding on the credibility of Mr Hall,  a high-ranking in-house lawyer for RBS.     We think that this conduct by Scott Law and the fact that this aspect of its case was rejected on appeal should be acknowledged by saying that Scott Law will have 100% of its costs save for  £10,000,  to mark its failure in relation to the allegations against Mr Hall.    Scott Law’s costs will be on the indemnity basis for the same reasons as given above in relation to Highland.  

16.	We will not make any ruling on the allegation that there was duplication of costs as between Highland and Scott Law.   Plainly,  both cannot recover costs for the same work and if there was duplication,  there will have to be an adjustment between the two parties.   This is a matter for the costs judge to decide upon if the parties cannot agree a sensible compromise. 
17.	Next we consider the question of interest on costs.    RBS accepts generally that it must pay interest,  but there is a dispute about the rate and the timing.   In our view,  the right approach is to award Highland and Scott Law interest on costs to be paid by RBS to compensate those parties for not having the use of money that they have parted with either to RBS (costs on the Liability judgment and appeal therefrom) or to their own lawyers.    This should be at a reasonable commercial rate of interest,  bearing in mind that Highland is a commercial entity that is doubtless able to borrow money at reasonable rates and we think that Scott Law,  as assignee,  must be put in the same category.   In our judgment a reasonable commercial rate,  in today’s era of very low base rates,  is 2.5% over base.  
 
18.	Therefore,   in relation to the sums paid by Highland to RBS on account of costs in relation to the Liability judgment and the appeal on that issue,   RBS must pay interest on those sums  at 2.5% over base for the whole period from the date when those sums were paid over by Highland to RBS and until 21 days after the order that will be made when this judgment is handed down.   The court has the power to make an order that this rate of interest on costs runs on even after the date when this judgment is handed down under CPR Pt 40.8(1)(b) and CPR Pt 44.3(6)(g).  If there is any failure to pay the sum thereafter then the rate of interest to be paid must be at the Judgment Act rate,  which is currently at the anomalously high rate of 8%.    
 
19.	As for sums disbursed by Highland and Scott Law to their lawyers,  RBS will pay interest on such sums at the rate of 2.5% over base rate from the date on which any such payments were actually made until 21 days after agreement on the costs due or any order following  a detailed assessment.    This is subject to what we say below on a payment on account of costs by RBS.  

20.	Lastly on the costs issue we consider the question of a payment of costs on account,  it being accepted on all sides that if costs figures cannot be agreed then there will have to be a detailed assessment.    RBS accepts the principle that it must pay some amount on account.   However,  the parties are not agreed on:   (i)  the likely overall sums in costs that Highland and Scott Law can claim to have incurred;   (ii) the percentage of those sums to be taken on which to base a payment on account.  
     
21.	Highland has estimated that the total costs of both actions since June 2009 is about £2,956,000.    Scott Law has estimated its total costs at  £1,457,208.     This court cannot analyse those figures,  but it does note that the costs of RBS are said to be considerably higher than both those figures.     We are therefore going to take a conservative view of the “starting figures” for costs as being £2.6 million for Highland and £1.2 million for Scott Law.   Having concluded that costs must be on an indemnity basis,  we think that it is just that Highland and Scott Law should receive on account 70% of those “starting figures”.   We calculate these figures to be:   £1.82 million and £840,000 respectively for Highland and Scott Law.   The 70% figure takes account of the fact that,  ultimately,  RBS will have to pay interest on the costs agreed or awarded in a detailed assessment.     It is agreed that RBS should have 21 days from the date of the order accompanying this judgment in which to pay the costs on account figures.  Obviously,  to the extent that RBS pays sums on account of costs in accordance with this paragraph, no interest will be payable on such sums paid on account.   If RBS fails to pay the costs on account calculated in accordance with this paragraph within 21 days of the order accompanying this judgment,   Judgment Act  interest at 8% will become payable thereafter.

(B)	Permission to appeal.

22.	RBS has sought permission to appeal our judgment on the anti-suit injunction issue,  but not on our judgment on the cross-appeal.   We refuse permission.   In our judgment no arguable point of general public importance on the law arises.   The parties were agreed as to the principles to be applied;  the argument was on the application of those principles to the facts of this case.  This case was,  on any view,  a most unusual one and the facts are,  to a striking degree,  “one off”.  
    
(C)	Interim Relief for RBS

23.	When the principal judgment was handed down,  we made an order granting RBS interim relief to continue the injunctions that had originally been granted it its favour by Burton J.    RBS submits that this interim relief should continue until (at least) its application for permission to appeal has been determined by the Supreme Court.    We have concluded that we should not grant such relief.  The position now is that RBS has no judgment of the English court in its favour and two courts have held that it is not entitled to an injunction to enforce the exclusive jurisdiction clause in the FLD.   This court has held that this situation has been brought about by the misconduct of SG,  which is attributable to RBS.    In those circumstances it seems to us that although this court has jurisdiction to grant the interim relief sought,   there is no basis on which we can properly grant it to RBS.    The lack of “clean hands” principle must continue to apply and in our judgment there is no powerful reason to give RBS the benefit of interim relief in these circumstances.  

(D)	Disposal

24.	The parties should prepare a draft agreed order in the light of the conclusions we have set out above.   If there are still any matters that are not agreed,  then RBS should prepare a draft in which it sets out what it understands are the consequences of this judgment and Highland and Scott Law should add,  in italics underlined,  or using “cross through” what they submit is the correct order to be made.