COST BITES 25: DEFENDANTS’ CONDUCT LEADS TO COSTS BEING AWARD ON THE INDEMNITY BASIS

Those who write “robust” letters of response to a letter before action may benefit from reading the judgment of Mr Justice Andrew Baker in Pisante & Ors v Logothetis & Ors [2022] EWHC 2575 (Comm).  The judge held that costs should be awarded on an indemnity basis, not because the claimant was successful in a fraud case, but because of the way in which the defendants had conducted the action. This included the letter of response to the claimants’ claim.

“To respond to a serious letter before action in the intemperate and intimidatory manner the defendants chose in this case is to invite the reasonable response on the claimants’ side that there is far more at stake than the merits and the financial relief to be sought through the causes of action pleaded. It is the mildest of responses by the court, and a just consequence, that defendants who so sought to bully the claimants as to the merits of their claim should be required as fully as the costs rules will permit to indemnify the claimants in respect of their costs after they have made the claim good.”

THE CASE

The judge had earlier given judgment in the action, finding for the claimants. He left open the question of whether costs should be awarded on the indemnity basis. The claimants made an application for costs on the indemnity basis.  The judge rejected as impractical the submission that 70% of the claimants’ costs should be awarded on the indemnity basis, rather the indemnity basis was awarded from the date on which disclosure was complete.

THE JUDGMENT ON COSTS

1. 1. The January Order provided that Libra and Mr Logothetis were liable for the claimants’ costs of the proceedings (save for the claim relating to the Piraeus Bank shares), to be assessed if not agreed on the standard basis but with liberty to the claimants to apply for the assessment to be on the indemnity basis. In what follows, all references to costs are to the costs covered by that order, i.e. excluding the costs of the Piraeus Bank shares claim.

1. 1. The claimants now apply pursuant to that liberty, proposing that:

(1) the court should recognise a presumptive rule that where fraud is proved, the claimant’s costs should be assessed on an indemnity basis;

(2) alternatively, there was unreasonable behaviour going ‘beyond the norm’ in the conduct of the defence, making it just to order costs on an indemnity basis; but

(3) the court should not order that all costs be assessed on that basis, to acknowledge that there were aspects of the litigation in respect of which it would not be right to criticise the conduct of the defence as unreasonable.

1. 1. By reference to that last consideration, the claimants’ application proposed, arbitrarily and unworkably, that there be an order for 75% of their costs to be assessed on the indemnity basis. As must always be borne in mind, the purpose and effect of an order that costs be assessed on the indemnity basis is only that: (a) it becomes the paying party’s burden to show that costs were incurred unreasonably or in unreasonable amount, rather than the receiving party’s burden to prove reasonableness; (b) there is no added requirement that costs be proportionate as well as reasonable in order to be recoverable. The question to which 75% of the claimants’ costs bill a costs judge on assessment was supposed to disapply proportionality and put the burden of disproving reasonableness on Libra and Mr Logothetis did not receive any meaningful answer in argument.

1. 1. In reply, having reflected upon that difficulty, Mr Béar KC proposed instead that the court should order assessment on the indemnity basis in respect of costs incurred on or after (i) 1 June 2020, alternatively (ii) 1 February 2021. The logic behind the first of those, I was told, was that it was the date prior to which c.25% of the claimants’ costs had been incurred, so it fitted the original thought that they should have 75% of their costs on the indemnity basis. It is thus as arbitrary as the 75% and for that reason alone I would not adopt it. The logic behind the second of those was that it could be said that by 1 February 2021, disclosure was substantially complete, following which the available evidence was materially all ‘on the table’ (including, from the defendants’ perspective, the redacted content of the emails they disclosed in redacted form). In fact, on the detailed procedural chronology appended to Mr Allen KC’s skeleton argument, there were significant rounds of disclosure on 5 February 2021 (both sides), 16 February 2021 (claimants) and 1 March 2021 (defendants). I would take 1 March 2021, therefore, rather than 1 February 2021, as the date from which it should be said that disclosure was substantially complete.

1. 1. I do not regard it as appropriate to say that there is some presumption that successful fraud claimants should have their costs on the indemnity basis. The fact that the allegation successfully made was of dishonest wrongdoing does not, without more, make it more appropriate than in any other kind of case that a claimant’s costs should be recoverable though incurred disproportionately or that the claimant should not have to show that its costs were reasonably incurred and reasonable in amount. The considerations applicable to a defendant who has successfully fought off a fraud allegation, in which there is authority coming close to creating a presumption, are not the same.

1. However, I agree with the claimants that the conduct of the defence in this case involved significant unreasonable behaviour that went beyond the norm, from the outset and from time to time throughout. I do not think it would be fair, given the way the application was put forward and evolved, to consider ordering assessment on the indemnity basis except by reference to the least onerous of the options proposed by the claimants, i.e. indemnity basis from when disclosure was substantially complete. Therefore, the order will be that the assessment of the claimants’ costs is to be on the indemnity basis for costs incurred on or after 1 March 2021 (and on the standard basis for costs incurred prior to that date).

1. 1. The conduct in the defence that was unreasonable and which, taken in the round, takes this case outside the norm, was the following:

(1) There was contemporaneous documentary evidence indicating strongly that Mr Pisante had been misled by a false description of the KKR deal to him by Mr Logothetis as involving an investment by Lomar of cash as well as ships. The response was to concoct a strained meaning and to give evidence claiming it to be what Mr Logothetis would have meant, in a contrived attempt to create plausible deniability.

(2) The improper redaction of highly material evidence during disclosure.

(3) Other important instances of seeking to mislead the court or not being candid with the court (see the main judgment at [63], [65] and [87]), and the inappropriate, highly confrontational approach to the litigation and the court of Mr Attlee (ibid at [202]). The last might have been less troubling, as regards the conduct of the case as a whole, if Mr Attlee had been but a rogue factual witness called by the losing side. He was more than that, however, having plainly had a significant role in the conduct of the litigation generally.

(4) The defendants responded to a serious and measured letter before action in wholly inappropriate, polemic terms, calculated to intimidate. They included the baseless suggestion that Mr Pisante was threatening spurious claims that were “nothing more than a thinly veiled attempt to coerce Mr Logothetis to settle … with the threat of negative publicity“. It was said to be “obviously vexatious, scurrilous and ill-founded” to make claims against Mr Logothetis personally. It was suggested that complaints of professional misconduct would lie and would be pursued against the claimants’ solicitors and counsel, and that costs would be sought against them personally, if the intimated claims were pursued.

1. 1. In relation to the last of those elements, Mr Allen KC sought to excuse the defendants’ response on the basis that the ‘cash and ships’ misrepresentation upon which the deceit claim succeeded was not in the case until the first day of trial. That was not my conclusion. I allowed a clarificatory amendment in relation to that key element of the case in the final round of amendments effected at the start of the trial, and that is not the same thing at all (main judgment at [205]ff again, for present purposes especially [209]).

1. 1. To respond to a serious letter before action in the intemperate and intimidatory manner the defendants chose in this case is to invite the reasonable response on the claimants’ side that there is far more at stake than the merits and the financial relief to be sought through the causes of action pleaded. It is the mildest of responses by the court, and a just consequence, that defendants who so sought to bully the claimants as to the merits of their claim should be required as fully as the costs rules will permit to indemnify the claimants in respect of their costs after they have made the claim good.

1. One further point arose on the claimants’ costs entitlement under the January Order. They seek a further payment on account, on the contingent basis that if Swindon now recovers additional primary relief (as it will do pursuant to the first main section of this judgment), that may entitle the claimants’ solicitors to greater fees on the terms agreed for the conduct of the case. The payment on account ordered in January was fixed without reference to that factor, on the basis that it would be open to the claimants to seek a further payment on account if it came into play. I shall deal with that separately, if there is no agreement about it in the light of this judgment. If there is to be any further payment on account, it may be appropriate to bear in mind also the extent to which costs are now to be assessed on the indemnity basis.