Farol Holdings Ltd v Clydesdale Bank Plc

Hearing date: 23 April 2024

On 19 March 2024 I handed down judgment in this action (the “Judgment”). In an order of the same date, agreed between the parties, the claimants were ordered to pay the defendants' costs, and the hand-down hearing was adjourned in order to consider other consequential matters.

This further ruling addresses the following matters:

1) Whether the costs payable by the claimants should be on the standard or indemnity basis;

2) What interim payment should be paid by the claimants on account of costs;

3) From what date interest should run on costs at the Judgments Act rate;

4) The issue left undecided (see §227 of the Judgment) as to NAB's liability in misrepresentation in respect of the Break Costs Representations (if it is later found that any of them were false); and

5) Permission to appeal.

(1) Costs: standard or indemnity basis.

As the claimants point out, an award of costs on an indemnity basis is different from a standard basis costs order for three reasons: costs management orders are disapplied; there is no proportionality requirement; and the burden of proof on the question of reasonableness is reversed. The first point is irrelevant in this case: proportionality is likely to play a lesser role given that (as the parties were agreed) it is to be assessed in the context not merely of the four claims addressed at trial, but in the context of over 900 further claims that have been stayed pending the outcome of the four claims. The third difference is the key one.

The parties are agreed on the test to be applied, which I take from Three Rivers DC v The Governor and Company of the Bank of England [2006] EWHC 816 (Comm), per Tomlinson J at §25:

“(1) The court should have regard to all the circumstances of the case and the discretion to award indemnity costs is extremely wide.

(2) The critical requirement before an indemnity order can be made in the successful defendant's favour is that there must be some conduct or some circumstance which takes the case out of the norm.

(3) Insofar as the conduct of the unsuccessful claimant is relied on as a ground for ordering indemnity costs, the test is not conduct attracting moral condemnation, which is an a fortiori ground, but rather unreasonableness.

(4) The court can and should have regard to the conduct of an unsuccessful claimant during the proceedings, both before and during the trial, as well as whether it was reasonable for the claimant to raise and pursue particular allegations and the manner in which the claimant pursued its case and its allegations.

(5) Where a claim is speculative, weak, opportunistic or thin, a claimant who chooses to pursue it is taking a high risk and can expect to pay indemnity costs if it fails.

(6) A fortiori, where the claim includes allegations of dishonesty, let alone allegations of conduct meriting an award to the claimant of exemplary damages, and those allegations are pursued aggressively inter alia by hostile cross examination.

(7) Where the unsuccessful allegations are the subject of extensive publicity, especially where it has been courted by the unsuccessful claimant, that is a further ground.

(8) The following circumstances take a case out of the norm and justify an order for indemnity costs, particularly when taken in combination with the fact that a defendant has discontinued only at a very late stage in proceedings;

(a) Where the claimant advances and aggressively pursues serious and wide ranging allegations of dishonesty or impropriety over an extended period of time;

(b) Where the claimant advances and aggressively pursues such allegations, despite the lack of any foundation in the documentary evidence for those allegations, and maintains the allegations, without apology, to the bitter end;

(c) Where the claimant actively seeks to court publicity for its serious allegations both before and during the trial in the international, national and local media;

(d) Where the claimant, by its conduct, turns a case into an unprecedented factual enquiry by the pursuit of an unjustified case;

(e) Where the claimant pursues a claim which is, to put it most charitably, thin and, in some respects, far-fetched;

(f) Where the claimant pursues a claim which is irreconcilable with the contemporaneous documents;

(g) Where a claimant commences and pursues large-scale and expensive litigation in circumstances calculated to exert commercial pressure on a defendant, and during the course of the trial of the action, the claimant resorts to advancing a constantly changing case in order to justify the allegations which it has made, only then to suffer a resounding defeat.”

The claimants referred me to Sir Anthony Colman's comment on this in National Westminster Bank v Rabobank Nederland [2007] EWHC 1742 (Comm), at §28:

“Where one is dealing with the losing party's conduct, the minimum nature of that conduct required to engage the court's discretion would seem, except in very rare cases, to be a significant level of unreasonableness or otherwise inappropriate conduct in its widest sense in relation to that party's pre-litigation dealings with the winning party or in relation to the commencement or conduct of the litigation itself. It is important to distinguish in Tomlinson J's formulation of relevant considerations between that underlying concept and his identification of examples of more specific patterns of conduct capable of rendering a party's overall conduct relevantly unreasonable or inappropriate. Grounds (4) to (8) inclusive are specific examples of conduct which, taken alone, or in combination, may in all the surrounding circumstances often be capable of giving rise to a conclusion that the losing party's conduct has been so unreasonable or inappropriate overall as to justify an order which gives him a more effective costs indemnity than would be the case under the standard order. But in each case in which the costs of the whole litigation are under consideration, the conduct adversely criticised must be looked at in the context of the entire litigation and a view taken as to whether the level of unreasonableness or inappropriateness is in all the circumstances high enough to engage such an order.”

In considering the approach in this case, an important feature is that the claimants put fraud at the front and centre of their case, both in respect of the break costs claims and the fixed rate claims.

Mr Onslow KC, for the claimants, strongly resisted an award of indemnity costs, on the over-arching basis that all the allegations that were made and pursued to trial were properly made and pursued. He supported this with five points. First, he warned against the use of hindsight: the claimants' conduct of the litigation at each stage must be considered in light of matters as they then stood. Second, matters should not be looked at through the findings in the Judgment. Third, while speculative claims may attract indemnity costs, when the extensive submissions made by the claimants – particularly in their oral and written closing submissions at trial – are considered, it is clear that the allegations were supported by available material. Fourth, the claims were pleaded by experienced and responsible counsel. Fifth, there were numerous aspects to the case other than the claim in fraud (and the claims that there were no contractually binding CNHs, another aspect of the claim relied on by the defendants in seeking indemnity costs), on some of which the claimants were successful.

I accept that the case was advanced by experienced and responsible counsel. I also accept that they adopted a measured approach throughout the trial, and I do not suggest (nor did the defendants) that there was anything improper in the claimants' legal representatives' behaviour in pleading and pursuing the claims in deceit.

That is not an answer, however, to the claim for indemnity costs. For reasons which are set out at length in the Judgment, I consider that the allegations of deceit were weak and subject to inherent flaws, but were nevertheless pursued to the bitter end.

The allegation of fraud at the heart of the break costs claims was one which I described in the Judgment as facing insurmountable hurdles, requiring inherently improbable conclusions to be made against four senior executives with otherwise good reputations and no obvious (or suggested) motive for deceiving customers. I found that there was no evidence that any of them ever had cause to consider the true interpretation of clause 8.2 (save in one minor respect which led nowhere): see §247–253.

As I noted at §258 of the Judgment, those allegations were pursued on a basis which was acknowledged – at an earlier stage in the litigation – to be one which was not sustainable: namely that the four senior executives had known that the construction of clause 8.2 on which the Banks relied to charge break costs was wrong, or at least arguably wrong, and nevertheless pressed on regardless. As I found in the...