PERMISSION TO AMEND GIVEN TO PLEAD COSTS PAID IN PREVIOUS ACTION AS DAMAGES: GAMBLING ON GETTING A SECOND CHANCE

In Playboy Club London Ltd v Banca Nazionale Del Lavora SPA [2019] EWHC 303 (Comm) the High Court granted the claimant permission to amend to include, as a claim for damages, the costs of a previous action.

I have come to the conclusion that the argument of principle, novel as it is, should not be decided in the absence of findings on all the disputes of fact in this case. Since the nature of the claim is unprecedented, it may be difficult to establish, but I think that the prospects of the Claimant succeeding are more than merely fanciful”

THE CASE

The claimant casino had advanced money to a gambler. The defendant bank had provided a credit reference which proved to be inaccurate. The gambler could not repay the money. The claimant sued the defendant bank in negligence. That action failed, the Supreme Court holding that the reference was not provided directly to the bank.

THE SECOND ACTION

The claimant issued a second action against the bank based on the same facts, this time the action was based on deceit rather than negligence.  The Court of Appeal held that this second action should not be struck out.  The bank’s application for permission to appeal to the Supreme Court was refused.

THE CLAIMANT’S PROPOSED AMENDMENT

The judge,  Martin Griffiths QC sitting as a High Court judge, set out the proposed amendment.

    1. The Club’s application to me is for permission to add the following paragraphs 32A and 32B to the Amended Particulars of Claim:-
“32A. The Claimant has suffered further loss and damage as a result of the Bank’s deceit as follows:
a. Although the Claimant’s claim in the Negligence Proceedings was ultimately unsuccessful on a point of law as determined by the Supreme Court, at all relevant times that claim had at least a reasonable prospect of success (as demonstrated by the facts that the claim succeeded at trial and permission to appeal was granted by the Supreme Court) and the Claimant acted reasonably in bringing the claim and pursuing the appeal to the Supreme Court.
b. The Claimant acted reasonably in not bringing a claim in deceit as part of its original action in the Negligence Proceedings.
c. In the Negligence Proceedings:

(i) the Claimant incurred costs in the total sum of £556,436.36 (inclusive of VAT); and

(ii) the Claimant has paid to the Bank the sum of £295,000 pursuant to costs orders made in those proceedings.

These costs are referred to as the “Total Costs Exposure”.

d. The Total Costs Exposure are sums that were reasonably incurred by the Claimant in mitigation of its loss and/or is itself loss and damage caused by the Bank’s deceit. The Claimant’s primary case is that the costs which it incurred in the Negligence Proceedings are recoverable in full; alternatively those costs fall to be assessed on an indemnity basis.

32B. The Claimant is accordingly entitled to and claims damages in a sum equivalent to the Total Costs Exposure, namely the sum of £851,436.36, or such other sum as may be assessed. The Claimant will provide an updated schedule of loss in advance of trial.”

THE  TEST FOR THE AMENDMENT

The issue was whether the proposed amendment had “no real prospect of success”.

“If the Court can see that an amendment has no real prospect of success, it will not flinch from disallowing the amendment, because a claim with no real prospect of success should not be allowed to proceed. Some analysis and evaluation of the case raised by the amendment objected to, whether it be a question of fact or a matter of law, must, therefore, be attempted, to see if it leads (without an unduly prolonged or difficult enquiry, bearing in mind that the procedure is a summary one) to the conclusion that the amendment has no real prospect of success. But if the Court is not persuaded that the amendment has no real prospect of success, the ultimate decision maker should not be encumbered with a preliminary view on the point raised by the amendment, nothing like a probability of success being required for these purposes. If some judge might reasonably uphold the claim, I will allow the amendment and leave the decision until trial. If on the other hand there is no real prospect of success, I will not.”

 

AMENDMENT ALLOWED

The judge allowed the proposed amendment.
    1. I am not convinced that no reasonable judge could find in the Claimant’s favour on the issues of causation, remoteness or mitigation. I think the Claimant has a more than merely fanciful prospect of success. I also think there is force in the point that the question is one of mixed fact and law, with fact perhaps to the fore. Although the primary facts in terms of the way in which the Original Action and the New Action were conceived and pursued appear fairly straightforward, experience shows that a trial can often produce unexpected insights. Even secondary facts – such as whether a course of conduct was reasonable, in the light of the primary facts – are commonly sensitive to the precise emphasis, as well as the precise components, of the primary facts as they emerge from witnesses and documents and submissions at trial. It is for this reason that a judge will often find that his first impression of a case, when reading into it, is not the same as his final conclusion. In those circumstances, I think that it would be wrong to decide the question, one way or the other, in the absence of the fact finding process which will take place at trial. This will also avoid any appeal process being conducted in the absence of a full investigation, testing and finding of primary facts.
Costs as damages
    1. That brings me, however, to a more fundamental objection, which is that (it is said) costs as damages on the facts of this case are irrecoverable as a matter of principle. In particular, it is said, on behalf of the Bank, that there is no case in which the costs (a) of a previous legal action (b) between the same parties (c) in which the claiming party was unsuccessful and had costs awarded against it, have ever been awarded to the claiming party as damages in (a) a subsequent legal action (b) between the same parties (c) so as, effectively, to reverse the costs award previously made.
    2. The Club concedes that the claim is without direct precedent, but does not agree that this is because such a claim is unsustainable as a matter of principle. The Club says that, just because such a case has not been reported before, does not mean that it may not succeed now.
    3. As the procedural chronology I have outlined shows, when costs were awarded against the Club, in the Court of Appeal and in the Supreme Court in the Original Action, it was already known that there was an outstanding claim of deceit in the New Action, which was launched before the hearing of the Original Action in the Court of Appeal. It was not suggested that the costs of the Original Action should not follow the event of the Original Action, as costs usually do, or that they should await the outcome of the New Action or that they should be costs in the New Action.
    4. The question is whether there is something fundamentally inadmissible about the claim for costs as damages in the circumstances of the present case, so that it has no real prospect of success, and an amendment to run the claim should not be allowed.
    5. Both sides sought to shed light on this question by reference to previous authorities containing some but not all of the elements which I have identified as (a), (b) and (c) in paragraph 27 above, in an effort to identify points of principle which might be applied to the present, unprecedented case, in which all three of these elements feature together.
    6. In Dadourian Group International v Simms [2009] 1 Lloyd’s Rep 601, the Claimant (DGI) sued three individuals for deceit and won. Part of the damages successfully claimed by DGI consisted of costs incurred by DGI in earlier proceedings in New York and in an arbitration, in both of which DGI had been the successful Defendant or Respondent or Counterclaimant in actions brought by a different party (albeit a party to which the three individuals had a connection). The costs had been awarded in DGI’s favour in the original actions and on an indemnity basis, but the unsuccessful party proved unable to pay. The damages were awarded to DGI in the new action by Warren J and upheld by the Court of Appeal.
    7. Dadourian was a successful claim for costs as damages – element (a). The parties in the original actions were not the same as the parties in the new action, which means that element (b) was lacking. As to whether DGI had been successful in the earlier actions in which they were incurred – element (c) – the judgment of Warren J took a broad view, stating “all the costs of DGI in the litigation and the arbitration were incurred in fighting claims (either as claimant or defendant) on which it was wholly successful before the arbitrators” (judgment of Warren J para 760, quoted in para 119 of the judgment of the Court of Appeal), although in respect of elements of the procedural history DGI had not been successful. For example, DGI made an unsuccessful attempt to remove the arbitrator, but DGI nevertheless recovered the costs of the attempt as damages in the new action.
    8. The Court of Appeal in Dadourian approached the issue as a factual question of causation, remoteness and mitigation, applying the criteria established in the cases of Smith New Court and Doyle v Olby which I have discussed. The “real question” was said to be whether DGI “acted reasonably” (Court of Appeal judgment para 144). The Court of Appeal said that Warren J was “fully entitled” to decide as he did, emphasising that it was “essentially a question of fact” (Court of Appeal judgment para 145). The Court of Appeal noted that the trial proceeded on an “all or nothing” basis, with no attempt to distinguish some costs as recoverable and others as not recoverable (Court of Appeal judgment para 147). This, to my mind, reduces the significance, if any, of the recovered costs including an element of costs for an unsuccessful application (for the removal of the arbitrator).
    9. The factual basis of Dadourian is not on all fours with the present case; and, moreover, Dadourian was decided at first instance, and upheld on appeal, as a question of fact. I do not find that it shows whether the present claim for costs as damages is either sustainable or unsustainable as a matter of principle.
    10. In Berry v British Transport Commission [1962] QB 306, Ms Berry was the defendant in a private prosecution by the British Transport Commission after she had pulled a communication cord during a train journey. She was convicted by magistrates but successfully appealed to quarter sessions, where her conviction was quashed and a costs order was made in her favour. She then brought a civil action for malicious prosecution in which she claimed damages which included (although they were not limited to) her costs of the criminal proceedings. Since she had been awarded costs on her successful criminal appeal, the claim for costs as damages in the civil action was for the difference between the amount of costs awarded in the criminal appeal (15 guineas) and the actual costs she had incurred (the difference being just over 61 guineas).
    11. The trial judge, Diplock J, upheld a defence that the statement of claim disclosed “no damage of which the plaintiff is entitled to complain in law” ([1962] QB 306, 315) and dismissed the claim, but the Court of Appeal, consisting of Ormerod, Devlin and Danckwerts LJJ, allowed an appeal and said that the costs were recoverable as damages. In doing so, the Court of Appeal referred to and accepted a longstanding principle “that costs incurred in excess of the sum allowed on taxation cannot be recovered as damages” (per Ormerod LJ at 317, citing Quartz Hill Consolidated Gold Mining Co v Eyre (1883) 11 QBD 674; per Devlin LJ at 320) because to allow that would be “to permit a double adjudication on the same point” (per Devlin LJ at 322, albeit that Devlin LJ expressed doubt about the soundness of the rule). The Court of Appeal held that this principle did not apply when the original action was a criminal case, because it was not usual for costs to be awarded on a full compensatory basis in criminal cases (per Ormerod LJ at 317). Devlin LJ also pointed to the exceptions made to the rule in civil cases, including cases in which damages were claimed as costs in a tort action against a third party, who was not party to the original action in which the costs were incurred (per Devlin LJ at 321).
    12. Berry was, therefore, a case quite far removed from the facts of the present case. It was decided on the basis that the original action was a criminal case, which is not the position here, and the party claiming costs as damages had been successful in the original action, so that element (c) of the present case was not present.
    13. Devlin LJ observed in Berry (at 331) that:-
“In the ordinary case the question of whether a plaintiff has done what is reasonable in minimising his damage is one of fact and not of law. If the defendants want to raise it, they must do so at the trial and not on demurrer.”
  1. Mr Salzedo QC for the Club argued that these and other cases, and the discussion in Chapter 21 of McGregor on Damages (20th edition, 2017), are consistent with his claim that the proposed amendment can form a new exception, or an exception consistent with established exceptions, to the general rule that, when costs have been awarded in a civil action between particular parties, a later action between the same parties cannot claim further costs between them as damages. He accepted that no reported case incorporates every one of elements (a), (b) and (c) present in the case before me, and the discussion in McGregor does not consider the precise situation in the present case either.
  2. He emphasised that the claim in the New Action (deceit) is different from the claim in the Original Action (negligence), although both actions arose out of the same credit reference. He said that, provided he could overcome the hurdle of showing that the Club acted reasonably, the fact that it was ultimately unsuccessful in the Original Action should not bar it from arguing that the Original Action flowed directly from the alleged deceit, and the failure of that action should not preclude a claim for the costs of that action as actual damages directly flowing from the alleged deceit, and (putting it another way), the Club’s attempt to recover the underlying losses (that is, the losses caused by giving Mr Barakat credit on the strength of the Bank’s credit reference) in the Original Action for negligence should (or might at trial) be found to be a reasonable initial attempt at mitigation, although it failed.
  3. I have come to the conclusion that the argument of principle, novel as it is, should not be decided in the absence of findings on all the disputes of fact in this case. Since the nature of the claim is unprecedented, it may be difficult to establish, but I think that the prospects of the Claimant succeeding are more than merely fanciful. Obviously, it will be harder for it to do so than if a clear and directly comparable precedent did exist. But that is not to say it cannot be done. It may be that a case like this one will be allowed to succeed in some circumstances and not in others, so that (as Devlin LJ said in Berry) the point should be decided at trial and not by refusing permission to amend so that it cannot be argued at all.
  4. I will, therefore, grant the permission to amend.