A v B [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Colman J. |
| Judgment Date | 23 January 2007 |
| Date | 23 January 2007 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench Division (Commercial Court).
Colman J.
Clare Stanley and Marcus Staff (instructed by Weil Gotshal & Manges) for the claimant.
Graham Dunning QC and James Collins (instructed by Allen & Overy) for the first defendant.
Nicholas Lavender (instructed by Lewis Silkin) for the second defendant.
Shane Doyle QC (instructed by Masseys) for the third and fourth defendants.
The following cases were referred to in the judgment:
ABCI v Banque Franco-TunisienneUNK[2003] 2 Ll Rep 146.
Berry v British Transport CommissionELR[1962] 1 QB 306.
Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hamer Aspden & JohnsonUNK[2002] EWCA Civ 879.
Kyrgyz Mobil Tel Ltd v Fellowes International Holdings Ltd (No. 2)UNK[2005] EWHC 1314 (Comm).
Petrotrade Inc v Texaco LtdWLR[2002] 1 WLR 947.
Reid Minty (a firm) v TaylorWLR[2002] 1 WLR 2800; [2002] 2 All ER 150.
Union Discount Ltd v ZollerUNK[2001] EWCA Civ 1755; [2002] CLC 314.
Arbitration Stay of proceedings Setting aside service out of jurisdiction Indemnity costs Whether costs should be awarded on indemnity basis where proceedings brought in breach of arbitration agreement English proceedings misuse of court and claimant's conduct justified indemnity costs order Indemnity costs order to mark court's disapproval and to compensate for breach of contract Indemnity costs order to cover all costs even though some issues had been left undecided Defendants' conduct not such as to deprive them of indemnity costs order which would otherwise be made.
This was an application by the defendants for costs on an indemnity basis.
The court had ordered that proceedings brought by the claimant (A) against the first defendant (B) should be stayed in favour of arbitration in Switzerland and that an order previously made giving permission to issue and serve proceedings outside the jurisdiction on the second, third and fourth defendants (C, D and Company E) should be set aside: [2006] EWHC 2006 (Comm); [2007] 2 CLC 157
B submitted that where proceedings were brought in the English courts in breach of an arbitration agreement costs should be awarded on an indemnity basis. That was because the damages which flowed from the breach of that agreement were normally all the costs reasonably incurred by the party entitled to a stay of the proceedings.
Held, making costs orders on the indemnity basis:
1. If a costs order in favour of a successful applicant for a stay or for an anti-suit injunction directed to giving effect to an arbitration agreement or an English jurisdiction clause was confined to costs on the standard basis, there would necessarily be a part of the successful applicant's costs of the application which it had properly incurred but could not recover by such an order because of the restrictive process of assessment. That unindemnified portion of costs would then be loss which could only be recovered as damages for breach of the jurisdiction or arbitration agreement, if such a damages claim were permissible. That would give rise to a fundamentally unjust situation. The solution was to allow costs to be recovered on an indemnity basis provided that it could be established by a successful application for a stay or an anti-suit injunction as aremedy for breach of an arbitration or jurisdiction clause that the breach had caused the innocent party reasonably to incur legal costs. The conduct of a party who deliberately ignored an arbitration or a jurisdiction clause so as to derive from its own breach of contract an unjustifiable procedural advantage was in substance acting in a manner which not only constituted a breach of contract but which misused the judicial facilities offered by the English courts or a foreign court. It could therefore normally be characterised as so serious a departure from the norm as to require judicial discouragement by more stringent means than an order for costs on the standard basis. Although an order for indemnity costs would usually be appropriate in such cases, there might be exceptional cases where such an order should not be made.
2. The parties to the arbitration agreement were under an obligation to refer to the Swiss courts any issue between them going to the supervisory jurisdiction in relation to the arbitration, including the arbitrator's decisions on his own jurisdiction. Just as breach of an arbitration or jurisdiction agreement could properly be reflected in an award of damages, so breach of the jurisdiction agreement vesting supervisory jurisdiction in the courts of the seat of the arbitration could be remediable in damages and upon an application in which one party ignored that agreement and was unsuccessful in so doing by an order for costs against that party on an indemnity basis. Although B was sued within the jurisdiction for relief directed to and based upon the alleged invalidity or voidability of the arbitration agreement as well as for relief against him personally, C, D and Company E all had to be served outside the jurisdiction on the basis that there were adequate connecting factors under CPR 6.20. However, the relief claimed against C and D necessarily involved challenging the validity of the arbitration agreement in the English courts. Just as it was a breach of contract for A to invoke the jurisdiction of the English courts for that purpose as against B, so also was it a breach of contract to invoke that jurisdiction for the same purpose as against C and D. It made no difference in principle to the approach to costs that the proceedings between A and those two defendants were in form applications to set aside service outside the jurisdiction rather than for a stay of proceedings effectively commenced by service within the jurisdiction.
3. Justice required that the costs order should compensate B as fully as possible for the costs incurred. He was entitled to an order for costs on an indemnity basis. The justice of the case also required an order for interim payment. The conduct of C and D was not such as to displace the order for indemnity costs which the court would otherwise make. The commencement of the English proceedings was motivated at least in part by considerations which made it a misuse of the court in circumstances where the arbitration together with the Swiss courts and the Bahamian courts provided what was obviously the proper and cost-efficient way of achieving determination of the disputes. In totality therefore A's conduct would justify an indemnity costs order. It was appropriate to make an indemnity costs order covering the whole range of costseven though three issues on which considerable time and effort had been spent in preparation and presentation had been left undecided on the application to set aside service out of the jurisdiction. The fundamental defect in A's conduct which led to all those points being taken was his improper invocation of the jurisdiction of the court in breach of the arbitration agreement. Given that the rationale of an indemnity costs order being attracted by breach of a jurisdiction clause was both an expression of judicial disapproval of deliberate misuse of the English courts and an attempt to provide compensation at an appropriate level for a breach of contract, in a case such as the present it was open to the court to make an indemnity costs order covering all the costs unless the case was an exceptional one in which for example the innocent party's own conduct displaced such an order. There was in the points raised on behalf of A nothing which would justify that course. It followed that C was entitled to costs on an indemnity basis. C was also entitled to an interim payment.
4. An order for indemnity costs was equally appropriate in the case of D as a party to the arbitration agreement. Company E was not a party to the arbitration agreement but in the special circumstances an order for costs on an indemnity basis would also be appropriate in the case of Company E.
Colman J:
1. By a judgment dated 28 July 2006 this court ordered that proceedings brought by A against B should be stayed and that an order previously made giving permission to issue and serve proceedings outside the jurisdiction on C, D and Company E should be set aside. For the background to this dispute and for the nature of the claims advanced by A against the four defendants concerned reference should be made to my judgment [2006] EWHC 2006 (Comm); [2007] 2 CLC 157.
2. All the defendants now apply for costs against A on an indemnity basis, for a payment on account, for an order for the payment of interest on the costs at 8 per cent from 9 May 2006 and an order debarring A from participating in the detailed assessment of the various defendants' costs if he fails to make an interim payment on account of costs by a specified date.
3. The basis of these applications for indemnity costs as distinct from costs on the standard basis is as follows.
4. As to B, it is submitted by Mr Graham Dunning QC that where proceedings are brought in the English courts in breach of an arbitration agreement costs should be awarded on an indemnity basis. This is because the damages which flow from the breach of that agreement are normally all the costs reasonably incurred by the party entitled to a stay of the proceedings. The damages recoverable for such a breach would not be calculated by reference to those principles of costs assessment under CPR 44.4(2) involving recovery only of such costs as were proportionate to the matters in issue and subject to a rule that any doubt which the court might have as to whether costs were reasonably incurred or reasonable and proportionate in amount should be resolved in favour of the paying party. Accordingly, the costs of the application to stay and thereby to obtain a remedy for the breach of the arbitration agreement should not be similarly limited but should instead be assessed simply on the basis of what costs were reasonably...
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