Case No. HC09C00581
Neutral Citation Number: [2011] EWHC 452 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Date: Friday, 18th February 2011

Before:

MR. JUSTICE MORGAN
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B E T W E E N :

RYBAK & Ors.	Claimants

	-  and  -	

	LANGBAR INTERNATIONAL LIMITED	Defendant
	
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MR. G. MANSFIELD QC (instructed by Barlow Lyde & Gilbert) appeared on behalf of Withers LLP.

MR. A. PETO. QC and MR. R. MARVEN (instructed by Jones Day) appeared on behalf of the Defendant.

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J U D G M E N T

NB  Transcript prepared without the aid of documents for checking quotes etc. 

MR. JUSTICE MORGAN:

1.	I am now asked to deal with the costs of the application made by Langar by application notice dated 14th October 2010.  That matter was argued over the last two days and yesterday I gave my reasons for dismissing the application.  Following that decision, Withers, who succeeded, have applied for their costs and have applied for a direction that those costs be assessed on the indemnity basis.  Langbar, whose application failed, accepts that it must pay the costs of Withers, but they say there is no proper reason for those costs being assessed on the indemnity basis; they should be assessed on the standard basis.  It is accepted that there should be an order for costs in favour of Withers.  I will make that order and that order would include the costs reserved on a recent hearing when directions were given.  So the principal matter I have to decide is the basis of assessment of the costs I have just ordered.

2.	My attention has been drawn to a large number of the features of the matter and events in the history.  To make my reasons intelligible, I will refer, albeit very briefly, to the matters which are stressed in this regard.  Before the application was made, solicitors acting for Langbar wrote on 11th August 2010 to Withers.  That was a detailed letter setting out Langbar’s solicitors’ analysis of the relevant facts, concluding that Withers were obliged to pay the costs said to be wasted costs incurred by Langbar.  In that letter Langbar’s solicitors relied upon the fact that Withers had seen an email from Mr. Rybak of 6th August 2008.  Langbar’s solicitors wrote:

“Withers have permitted highly misleading and inaccurate evidence to be advanced at three separate hearings before the court.” 

	Langbar’s solicitors stated that:

“Withers’ conduct in allowing highly material information to be withheld and the court to be misled was quite plainly unjustifiable.”

	I regard that allegation against a solicitor as being a very serious allegation to make.  I need not go through the exchanges between 11th August 2010 and the issue of the application, on 14th October 2010.

3.	The application was for an award of indemnity costs against Withers.  Withers’ conduct was said to be improper, unreasonable and/or negligent conduct.  The amount claimed, by way of wasted costs, exceeded £1 million so that it appears, not only was the allegation of wrongdoing a very serious allegation, the monetary consequences were also considerable.

4.	The application notice was supported by a witness statement from Mr. Richards, a solicitor at Jones Day, solicitors for Langbar.  He referred to Withers having knowledge of certain matters and, despite this knowledge, Withers proceeded with three applications to the court where the evidence was concealed, it was said, and highly misleading evidence was submitted to the court.  Later in his witness statement Mr. Richards made statements very much in line with the letter of 11th August, to which I have referred.  It said that Withers permitted highly misleading and inaccurate evidence to be advanced at three hearings.  It was also said that Withers’ conduct amounted to allowing highly material information to be withheld and the court to be misled on a number of occasions.

5.	Inevitably, Withers had to treat these matters very seriously.  They instructed other solicitors to represent them in resisting the application for a wasted costs order.  It took some time for Withers to prepare and finalise the evidence in response.  The evidence in response came by three witness statements which were signed either on 26th November 2010 or a little later.  These were the witness statements of Mr. Wass, Mr. Ford and Mr. Katsivelis.  Mr. Wass’s witness statement in particular is very detailed, and there were exhibited to these witness statements a substantial number of documents, including privileged documents because Mr. Rybak, or the Rybak parties, had waived privilege.  The witness statements go into the matter, I would say, thoroughly.

6.	On an application of this kind, in my judgment, it should have been seen at once that these witness statements were going to be accepted by the court as the factual basis for the determination of the application for wasted costs.  Indeed, in the judgment I gave yesterday I accepted the facts, as they are set out.  I recorded that in the end no-one had submitted to me that I should not accept the facts as they are set out, and on those facts I regarded it as a fairly straightforward case where the wrongdoing which had been alleged had not been established, and I dismissed the application for a wasted costs order.

7.	That is not how Langbar itself and its advisors, Jones Day, saw the matter.  Having taken time to consider the witness statements, they wrote on 3rd December 2010 a letter of some 12 or 13 pages, asserting that there were gaps and inconsistencies in the evidence served by Withers.

8.	My attention has also been drawn to a follow-up letter from Jones Day for Langbar on 8th December 2010 which is written in very strong language indeed.  It was suggested that Withers had refused to take an opportunity provided to them to remedy the omissions in their evidence.  It was alleged that Withers were hiding behind the summary nature of the proceedings.  They were using the summary nature of the proceedings as an excuse for putting partial and incomplete evidence before the court.  Their behaviour was, in short, unacceptable.  It was then said that Withers, through representations and correspondence and during various hearings, had misled both Langbar and the court and much else in a similar vein.  That was 8th December 2010.

9.	The next day, leading counsel for Langbar signed a skeleton argument in support of the application for a wasted costs order.  The case against Withers was summarised, and I refer to paras.14-17.  The case was put in those paragraphs fairly high against Withers.  It was said Withers were at fault and seriously so in failing repeatedly during protracted and expensive litigation to disclose highly material matters.  There were repeated occasions in which Withers ought to have identified and disclosed those matters; instead, false statements were repeatedly permitted or suffered to be made in evidence and in submissions which were wholly inconsistent with the disclosure that ought to have been given.  In particular, it was said that, contrary to information in their possession, Withers permitted misleading representations to be made to Langbar in correspondence, produced misleading evidence and submissions to the court on three occasions.  That is strong stuff.

10.	Mr. Peto Queen’s Counsel, whose skeleton this was, however, sought to draw the sting for today’s purposes by taking me to paragraph 84 of the skeleton, where he wrote:

“It is clear that Withers have been ‘negligent’ in the sense that term is to be understood in a wasted costs context.”

	He continued:

“Withers repeatedly allowed the court and Langbar to be misled and failed to disclose highly material matters.”

11.	In the course of the argument this morning I was helped by counsel in their submissions as to the differences between a standard basis assessment and an indemnity basis assessment.  There are, as is well known, two differences between these two bases of assessment.  The first is as to the party who bears the relevant burden of persuasion in a case of doubt as to whether costs are reasonably incurred or reasonable in amount.  The second difference is that with the standard basis of assessment the paying party has the benefit of the limitation that only costs which were proportionate to the matters in issue are recoverable, and this limitation is reinforced by the direction that any doubt on that score is resolved in favour of the paying party.

12.	Before looking in any further detail at the principles which should apply and should govern my decision as to the choice between the bases of assessment, I should say that it is far from clear to me that these two differences matter on the facts of this particular case.  One difficulty in forming that assessment is that, in my position as a trial judge only occasionally hearing appeals from costs judges, one has limited experience of the practical operation of these points.  It is no disrespect, far from it, to counsel engaged before me to say that they equally did not have direct, hands-on experience of these matters so that they could not help very much in their submissions.  To some extent, I am in the dark as to how these two points are likely to play out in practice.

13.	I will, however, make these comments.  The first is that I am very doubtful whether the burden of persuasion point ought to matter very much.  As to proportionality, my reaction to that point is that this is not a case in which a costs judge, even if assessing costs on the standard basis, should make a reduction, and certainly a significant reduction, to reflect arguments as to proportionality.  The claim for wasted costs was for a sum in excess of £1 million.  The claim was put high, alleging serious wrongdoing by Withers.  Withers are a reputable firm of solicitors.  Their reputation, naturally, is a matter of great importance to them.  In addition, behind the reputation of the firm, there is the reputation of the individual solicitors.  My reaction is that when a professional man is accused of the things that these professional men were accused of they should be allowed to recover reasonable costs reasonably incurred and should not have some part of those costs taken away on the grounds that their reaction to incur reasonable costs was somehow disproportionate to the matters at stake.  The matters at stake here were grave and serious and justified the expenditure of reasonable costs reasonably incurred.

14.	It may be that I should stop the judgment at that point and simply say that I see no reason why the paying party should have the benefit of these two limitations which come with the standard basis assessment and go straight to the conclusion that as the matter is one for my discretion I would wish to exercise it by making an order of indemnity costs.  However, although it is a discretion, the discretion I am to exercise must be a judicial discretion and I must have regard to such guidance as there is in the cases as to how I should exercise it.  My hands are not tied too tight because it has been made clear in a large number of cases, particularly at the Court of Appeal level, that the court should not lay down rigid rules as to how this discretion is to be exercised.  Notwithstanding that encouraging position, I think I should address the matter in the conventional way in which it is addressed.  In the conventional way the court has regard, in many cases, to the conduct of the paying party.  Sometimes the conduct is criticised because the paying party has conducted the litigation in an inappropriate way and the detailed conduct has caused the receiving party’s costs to be all the greater and it is felt that the indemnity basis should be awarded.

15.	Another type of case where, applying conventional principles, a court awards indemnity costs is a case of the following kind:  a case that is speculative, weak, opportunistic or thin, particularly involving an allegation of dishonesty, particularly one which is pursued aggressively.

16.	I have heard detailed submissions from counsel on those points.  The claim here was pursued very forcefully.  Whether it is right to say it was aggressive very much depends on one’s reaction to how litigation is usually conducted.  So far as allegations of dishonesty go, it may be that the allegations did not in terms involve dishonesty, but an allegation of dishonesty against a litigant and an allegation of serious professional wrongdoing against a solicitor have this in common:  they are both very grave allegations, and the party on the receiving end is entitled to defend himself by incurring reasonable costs in a reasonable way.

17.	As to whether the claim here was speculative, weak, opportunistic or thin, it is debatable whether those adjectives applied in August 2010 or October 2010.  Mr. Peto has gone some way to explain why Langbar thought that they had worthwhile prospects of making this application.  In the event, my own reaction to it when I heard it argued in the last two days was that it was one where I could form a very clear judgment that it should fail.  Mr. Peto says other judges may have taken a different view, may have regarded it as more arguable; possibly it may have succeeded.  I think I have to act on my assessment and be consistent with that assessment, which was that when Withers put in their evidence it was reasonably plain to an objective observer that the wasted costs order would not be made.  Although that should have been apparent to an objective observer, I have recited already that Langbar did not withdraw their application at that stage.  Indeed, they redoubled their efforts:  they wrote the letters to Withers on the 3rd December 2010, they put in further witness statements, and they argued the case over a day and a half of oral argument.

18.	It seems to me that in those circumstances, applying a conventional approach, that there is a choice for to make.  I either award Withers indemnity costs throughout or I award standard basis costs up to, say, 3rd December and indemnity costs thereafter.  My own reaction to that is that to split the costs by reference to 3rd December is actually illogical.  A lot of the costs which Withers have incurred were incurred in preparing the evidence which they served at the end of November.  That was when they had to use very great care and incurred substantial costs no doubt in going through the file, seeing every point that had been made against them in the lengthy list of allegations in play and dealing with the matter.  It seems to me that to bring in a curb of proportionality in the period up to 3rd December but to remove the curb of proportionality in the period after 3rd December is actually the wrong way around.

19.	Standing back, I have a discretion.  The Court of Appeal says my hands are not tied.  The nature of the allegations and the outcome and the way in which the allegations were advanced convince me that I should award indemnity costs, if I am free to do so.  Having regard to the normal considerations deployed in the authorities and having debated them, I do not find there anything that prevents me giving effect to the way I have identified I would wish to exercise my discretion.

20.	I ought to say one final point.  The authorities to which my attention has been drawn, in particular Ridehalgh v Horsefield [1994] Ch 205, Medcalf v Mardell [2003] 1 AC 120 and Hedrich v Standard Bank London Limited [2009] PNLR at p.27, give very clear, strong warning against an over-ready resort being had to applications for wasted costs against solicitors and other legal representatives.  I do not believe that those warnings were sufficiently heeded by Langbar in this case.

21.	I am very far from saying that every applicant who makes a wasted costs application which fails should pay costs on an indemnity basis.  I can see that there will be cases where the legal representative escapes having an order made against him because the court gives the legal representative the benefit of the doubt, and perhaps in such a case a lucky escape of that kind should not result in the unsuccessful applicant paying indemnity costs.  That is not this case.  I do not think that Withers have had a lucky escape.  I was convinced that Withers have not done anything which could be criticised in a way which would remotely attract the jurisdiction to award indemnity costs.

22.	I have attempted to explain my reasons at a little length, following the detailed argument I invited. It is important that the court should express its views on these matters, and I have now done so.

23.	That leaves only the question of what payment should be made by Langbar on account of Withers’ recoverable costs.  I have been shown a limited amount of information about that.  The figure which is identified for the costs, which will go forward to detailed assessment, is £234,000, rounding it up.  I bear in mind the basis of assessment I have selected.  I bear in mind the limited amount of information.  It seems to me that the right payment on account is £120,000 and, unless there is an application made to me, that should be paid within 14 days of today.

MR. PETO:  My Lord, I am instructed to ask for 21 since I think there is an offshore account involved.  It may take a little more time to raise the money.

MR. JUSTICE MORGAN:  I will say 21.

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