Sinclair Roche & Temperley (a firm) v Somatra Ltd

This is the judgment of the court to which all the members of the court have contributed.

On 28th May 1991 the VLCC, ABT Summer, was lost in the South Atlantic at a position 900 miles off the coast of Angola when on a voyage between Fujairah and Western Europe. The immediate cause of that loss was a large explosion on board. 5 crew lost their lives.

This was a sad blow to the vessel’s owners Somatra Ltd and to Mr Alireza, a Saudi Arabian business man who ultimately controlled that company. The vessel was mortgaged to Banque Indosuez (“the Bank”) and a large part of that loan was outstanding. The vessel was, however, insured for $40.5 million, including lost freight and disbursements, which was considerably more than the outstanding amount of the loan. The proceeds of any insurance policy had, however, been assigned to the Bank and it was in the interests of both Somatra and the Bank to make a claim for total loss of the vessel against insurers. A number of different insurers were on risk. The lead insurer was Arab Insurance Group (“Arig”); other Middle Eastern insurers could be expected to follow Arig’s lead; a smaller overall proportion was insured in London at Lloyd’s and elsewhere. The contract of insurance was governed by Norwegian law; important provisions of Norwegian law were (1) that the insurers would not be liable if the vessel was unseaworthy at the time of the loss and owners knew or ought to have known of that unseaworthiness and (2) that, if loss was caused partly by such unseaworthiness and partly by a cause for which insurers were liable (such as crew negligence), the loss was to be apportioned.

Somatra instructed both English solicitors and Norwegian lawyers. Their English solicitors were Watson Farley Williams (“WFW”) who submitted a claim to insurers in August 1991. Arig refused to pay the claim saying, amongst other things, that the vessel was unseaworthy and that owners either knew or ought to have known of that unseaworthiness. The claim was also being processed by Somatra’s Norwegian lawyer, Mr Haakon Stang Lund and, when it became clear that insurers would not agree to Norwegian jurisdiction but only to English jurisdiction, Mr Stang Lund instructed WFW to issue proceedings in England. On 27th February 1992 WFW served Points of Claim asserting that underwriters were obliged to pay for the total loss of the vessel. Mr Alireza thought WFW were giving Somatra over-pessimistic advice about the prospects of recovery and partly for that reason and partly because he came to feel that WFW’s first loyalty was to the Bank who were also their clients, he decided in May 1992 to terminate WFW’s retainer and instruct Messrs Sinclair Roche & Temperley (“SRT”) in relation to Somatra’s claims. At about the same time insurers’ solicitors, Holman Fenwick & Willan (“Holmans”) and Ince & Co served Points of Defence; therefore the question of a Reply was a matter to which SRT had to give their early attention.

SRT are the defendants in the present action. Somatra complain (and the judge has found) that SRT were in breach of duty as solicitors in a number of respects in the way in which they advised Somatra and conducted the proceedings. Mr Harvey Williams was the relevant partner in SRT at the material time, assisted by a junior solicitor, Mr Atkinson. Somatra say that, as a result of SRT’s breaches of duty, they lost confidence in SRT shortly before the trial was to begin in April 1994 and that they were forced to take over negotiations with insurers on the eve of trial. A settlement was agreed at two-thirds of Somatra’s full claim but Somatra say they lost the ability to settle at 75% of that value.

The judge accepted a number of allegations of breach of duty on the part of SRT and awarded the difference between the settlement and 75% of the value of the claim, which is the figure at which he decided that the claim would have been settled but for SRT’s breach of duty.

SRT appeal. They now accept the judge’s decision in relation to breach except for one particular breach of duty but contend that Somatra suffered no loss because the two-thirds settlement was what the case would have settled for, in any event. Somatra oppose the appeal and have not pursued an original cross-appeal to the effect that they would have won the action against the insurers and would be entitled to recover the difference between the two-thirds settlement they achieved and the full value of their claim.

The judge has helpfully made findings about the issues that arose in the original action and has held that, if it had gone to trial, Somatra would indeed have won. He concluded, however, that, if there had been no breach of duty, the case would have settled for 75% and it is for that reason he awarded the difference between two-thirds and three-quarters of the claim.

The judge found several relevant breaches of duty. Only one of these findings of breach of duty is the subject of the appeal to this court. But it is relevant to make brief reference to the now admitted breaches in order to put the challenged finding into its proper context.

Breaches of Duty as found by the Judge and not now challenged

Failure to obtain expert evidence in relation to ship management

The timing of events as they unfolded during the critical six weeks before the date fixed for trial of the original action is necessary in order to understand the parties’ arguments on the appeal. By early March underwriters were thinking of a possible settlement. Mr Domingo represented Arig; he was aware of the possibility that Somatra might recover the full amount of the claim together with costs; even if they avoided that, apportionment between insured and uninsured causes of the loss might still mean that underwriters would have to pay a substantial sum; there was no money in court. He was, nevertheless, aware that Holmans, the solicitors on the record, believed underwriters had a strong case. Mr Arditti of Ince & Co, who were advising some of the London underwriters, had said to Mr Domingo that underwriters whom he represented did not wish to go to trial. Thereafter the following events occurred.

1st March WFW told SRT that the Bank had instructed Mr David Steel QC to advise about the case.

The judge concluded after his analysis of the documents and the oral evidence given before him that, despite indications to the contrary in the Arditti letters, Mr Domingo had authority to settle the case at 75% if he had to, that but for SRT’s breaches of duty, any offer of two-thirds would have been rejected, and the case would have continued until an offer of 75% had been forthcoming from underwriters when the case would have settled. He held that the breaches of duty which he had found were an effective cause of the lower settlement and he, accordingly, awarded Somatra the difference between the two-thirds settlement they obtained and the three-quarters settlement which they would have obtained in the absence of any breach of duty.

SRT considered that the judgment delivered on 30th July 2002 contained inadequate reasoning in various respects and on 15th October 2002 the judge decided to expand his reasons in four respects only, three of which related to issues of causation and Mr Domingo’s evidence with which we shall have to deal in due course.

On any view this was an important meeting since one of its main purposes was for Somatra to display the strength of its case to underwriters and respond to points which underwriters thought required an answer. It was not a negotiating meeting as such or even a meeting at which any final conclusions on settlement (or anything else for that matter) were expected to be resolved. But it was an important element in the run-up to the trial. The judge decided that during the meeting Mr Williams behaved in a way which was odd and damaging to his clients’ interest. He accepted the account given by Mr Hamilton in the course of his cross-examination which included the following features:-

(1)

Mr Williams was not as familiar with the details of the case as his assistant, Mr Atkinson, was;

(2)

when Mr Atkinson tried to deal with specific points, with which Mr Williams himself could not deal, he stopped Mr Atkinson from speaking;

(3)

when Mr Stang Lund was debating issues of Norwegian law with the underwriters’ expert Professor Brackhus, Mr Williams interrupted and when the interruption was ineffective sat in his seat making faces (grimaces) and fiddling with his pencils, distracting attention from what Mr Stang Lund had to say;

(4)

underwriters’ representatives derived comfort from the evident distress displayed by Mr Williams;

(5)

Mr Williams was himself disappointed, demoralised and chagrined by his performance at the meeting and, after the meeting, said Somatra would be lucky to get 30% from underwriters without intending the remark to be treated as a serious prediction.

Mr Fenwick QC for SRT submitted that these findings were insufficient to justify a conclusion of breach of duty in relation to Mr Williams’ conduct at the meeting, even though he was the leader of the team. He said further that just because a meeting with the opposite side in a case goes badly does not mean that the meeting is negligently conducted.

We agree with the second of the above submissions. But that does not conclude the matter. The meeting has to be considered in the context of the events we have rehearsed in the time table above. That context shows how important the meeting was and that one of the most important things was to answer underwriters’ questions about the possibly weak points in Somatra’s case. Underwriters had what they saw as legitimate queries about aspects of the case which did require an answer. It would not usually be negligent for a solicitor in these circumstances not to know the answers to all such queries himself. But it is, in our judgment, a breach of duty to prevent those who do have the answers from giving those answers or publicly to undermine the answers that they are able to give.

We consider that the judge’s conclusion in relation to breach of duty at this meeting was justified by the underlying findings of fact he expressly made in his judgment. We also bear in mind that, in a lengthy case, a judge cannot be expected to itemise every factual consideration which has contributed to his conclusion in respect of each one of a number of alleged breaches of duty.

We would add that even if we had been persuaded to reverse the judge on this breach of duty, that would not in our judgment have been sufficient to reverse the global finding that, as a result of such breaches as there were, Somatra lost trust and confidence in SRT. It is noteworthy that Mr Alireza had explored the possibility of other solicitors taking over the case well before 29th March. In our judgment the now unchallenged breaches of duty together relevantly contributed to the loss of trust and confidence.

SRT attack the judge’s findings of causation, foreseeability and loss. These issues are closely linked but largely dependant upon two of the judge’s findings of fact. First, that, but for SRT’s breach of duty, Somatra would not have settled for two thirds; and second that Mr Domingo had underwriters authority to settle for up to 75% which he would have offered and Somatra would have accepted.

SRT argue, as a question of causation, that the judge should have concluded that Somatra would have settled for two thirds in any event. Mr. Alireza was always prepared to accept a realistic offer and all the advice which he had received showed that this was such an offer. SRT’s breach of duty did not therefore cause any loss. If SRT are right about this the appeal must be allowed. No question of what, if any, increased offer might have been made arises.

If however the breach of duty caused Somatra to accept two thirds SRT argue, as a question of loss, that the second of the judge’s findings was wrong. The judge should have found that Mr Domingo did not have authority to offer 75% and no such offer would have been made.

The appeal therefore focussed on the following passages in the judgment so far as Mr Domingo’s evidence was concerned:

223

I have had the benefit of being able to assess Mr Domingo’s credibility as a witness. He was convincing and plausible. I readily accept what he told me. In my view it is clear, on his evidence that he had authority from his principals to settle at 75%, and he had received approval to do so from the following market. That did not mean that he would immediately offer 75% but it was a figure that underwriters would rather pay than fight the action and take the risk they would have to pay in full.

In his supplemental judgment he added:

I was sceptical about this aspect of the case until Mr Domingo came to court. He was a most impressive witness, and, right or wrong, I believed him and was of the view that the attempts to undermine his evidence through the Arditti letters misfired, because Mr Domingo dealt with the points put to him in cross examination.

And then on causation:

259

had Somatra retained trust and confidence in their lawyers, then either at the door of the court or before, Mr Domingo would have come up with an offer of 75% of the full claim plus interest on behalf of all insurers. And if that offer had been made, I am of the view that it is more likely than not that Mr Alireza would have considered it to be a substantial and acceptable offer.

263

It seems to me that if a solicitor behaves as Mr Williams has done over a longish period and reduced the client to shop around to see if he can be replaced he is not in a position to criticise the client for trying to extricate himself from a mess. This was not a settlement that Mr Alireza wanted; he did not think he had achieved what he had set out to achieve; he felt that he had been forced into a position where he had to cut his losses. This part of the case is the most difficult but I have come to the clear conclusion that had SRT not been negligent the case would have proceeded until the insurers themselves made the offer that Mr Domingo had authority to make. That was the sequence of events which Somatra had contemplated: a realistic offer from the other side.

In the supplementary judgment the judge said:

Mr Alireza was carefully questioned about the reasons why he entered into the settlement. It was the thrust of the defendants case that he achieved at least as much as his advisors, including Mr Hamilton and Mr Stang Lund were recommending. I had the advantage of listening to the evidence of Mr Alireza and what he said appears from the following passages of his cross examination.

The judge then quoted a long passage from this cross examination and continued:

I accepted that evidence. It seemed to me obvious that the breaches which I had found were capable of being regarded as an effective cause of the settlement at less than 75%, even if there were other matters which would or might have influenced Mr Alireza’s actions which did not amount to a breach of duty. It will be a rare case where a client has sound reason to distrust his legal advisors.

This was reinforced by Mr Alireza’s witness statement in which he said:

There is no doubt in my mind that I would have achieved a higher recovery if it had not been for SRT. Here I was with a total lack of support and I managed to negotiate a 66.6% settlement. Imagine what I could have done with my lawyers behind me. I salvaged what I could, but I was convinced and am still convinced that we could have achieved much more.

If I had not lost confidence in SRT and so knew that I could take the case to trial if the underwriters did not settle at my level, there is no way I would have agreed to a settlement at 66.6%. I would have been happy to take the case to court, and would have done so unless a very high settlement could have been agreed. I would not have been desperate to do a deal with underwriters.

Essentially SRT’s submission is that the judge should not have accepted Mr Domingo’s evidence because it could not be properly tested other than by reference to the Arditti letters which contradicted it. Nor should he have accepted Mr Alireza’s evidence that he would not have settled for two thirds in the light of the advice he received and the minutes of the internal meeting of 31st March. A further complaint is made that the judge did not give adequate reasons for the findings he made in the passages which we have quoted.

It is convenient to consider the judge’s two central findings of fact first. In doing so we bear in mind that they are findings of primary fact. It is not necessary to restate this court’s approach to such a case. It has recently been elaborated in the judgment of Clarke L.J. in Assicurazioni Generali SpA v Arab Insurance Group [2002] EWCA Civ. 1642; (2003) 1 WLR 577 paras. 12, 14, 15, 19 and 22. Mr Fenwick Q.C. for SRT argued that the “plainly wrong” test does not apply where the judge has failed to test the oral evidence against the contemporaneous documents or where relevant evidence is particularly within the knowledge of only one party. We do not think that either of these considerations affect the test we have to apply. If a judge has obviously failed to test the evidence of a witness against contemporaneous documents which contradict it, this court may be persuaded that his acceptance of the evidence was plainly wrong. Likewise, if the judge does not approach with caution the evidence of a witness which cannot be tested. But there is no reason why this court should apply a different test to its evaluation of the judge’s findings of primary facts in such circumstances.

SRT have also argued that Somatra’s decision to settle was caused by matters which the judge held not to be breaches and/or that it was not a foreseeable consequence or reasonable response to the breaches which were found. We consider these points to be peripheral and will deal with them later in the judgment. Finally we will deal with SRT’s criticism of the way in which the judge dealt with Somatra’s prospects of success in the original action and explain why we did not think it was necessary to hear argument about his conclusion that Somatra would have won.

We deal with this issue first because that is how the appeal has been argued and because some of SRT’s submissions on causation were premised on a rejection of Mr Domingo’s evidence.

Mr Domingo is a British citizen who trained but did not qualify as an English solicitor. In 1994 he was employed as Arig’s general counsel and senior claims manager. He had experience of dealing as leader with hull claims of the present kind. He said that following a discussion with Mr Mustafa about the circumstances surrounding the settlement he was asked to make a statement confirming what he had said. He had felt a moral obligation to do so and some time before he left Arig at the end of 1998, with his settlement file in front of him, he prepared a statement which formed the basis of his first statement in these proceedings which is dated December 1999. He had obtained the permission of his superior to make this statement but, as he admitted in cross examination he had not specifically sought or considered seeking permission to waive Arig’s privilege and had not obtained any permission from the following market.

Mr Domingo’s statement confirmed the events of 27th, 28th and 29th March and 4th April which we have outlined in para. 12. He referred to his contemporaneous note of the meeting with Mr Alireza and Mr Mustafa during the evening of 29th March which said:

Owners not prepared to go for 50:50. Owners say 75% including interest. U.S. $45m. acceptable. (Domingo) to put to market. Revert to (Alireza) no later than 7/4.

He said that when he circulated the market on 4th April, he was confident from his discussions with the opinion formers that he would obtain authority to settle for up to 75%. He described his five page fax, which he had disclosed to Mr Mustafa, as a recommendation for settlement up to this amount. The fax did not contain a recommendation in terms but under the heading “Summary of Leaders Views” it said:

In all the circumstances this is a case which has too many uncertainties and therefore the risk that the court might find substantially in favour of the assured is high. In such an event underwriters may have to pay up to $60m. plus costs on both sides of about $10m.

Mr Domingo invited underwriters or their representatives to whom the fax was addressed to contact him to advise whether in all the circumstances they would agree to a U.S. $45m. settlement by close of business on 6th April.

In his statement Mr Domingo said that he knew that there were uncertainties and risks in the underwriters’ case. At the meeting on 29th March underwriters’ expert on Norwegian law had told him that the best result they could hope for under Norwegian law was 50% on apportionment. He therefore wanted to avoid a trial if there was a chance of settlement. But he saw the question of settlement as a matter which was not based purely on legal opinions. He approached the matter as a form of risk management and risk assessment.

Mr Domingo said that by the time the case settled on 7th April he was confident that he had obtained a mandate from the market to settle for up to 75%. In his statement he quoted from a fax of 4th April which he had received from underwriters’ representative on the Chapman slip (Mr Searle) (with about 25% of the risk) saying:

We fully support you in your present actions both in terms of settlement negotiations and in the possibility of continuing the trial as necessary.

Mr Domingo also said that on 7th April SAICO (with 10% of the risk) told him that they favoured settlement at $45m.

Between 4th and 7th April he had many conversations with underwriters. He also spoke to Mr Mustafa, which included a conversation on 5th April in which he accepted he must have told Mr Mustafa that underwriters were reluctant to go above 50%. He said that despite his mandate it had always been his intention to try and persuade Somatra to settle for less than 75% although he believed that he would be unable to do so. It was he who arranged for Mr Arditti to meet Mr Alireza on 7th April. He did so on the understanding that Mr Arditti just wanted to meet Mr Alireza and would not be negotiating with him. He was surprised to learn of the settlement.

In the course of these proceedings attempts were made to obtain the entire files of Holmans, Arig and the Lloyds claims office in relation to the original action. Hull underwriters claimed privilege for these documents but said that they were prepared to produce what became known as the Arditti letters to which we have already referred. SRT’s summons to produce documents was compromised by the production of these three documents on terms that no further claims for documents would be made. So the only privileged documents before the judge were Mr Wilson’s reports to the market of 7th and 8th April and Mr Domingo’s faxes of 4th and 11th April. Mr Domingo was extensively cross examined about these documents. Later in the trial the judge allowed SRT to put in a statement from Mr Wilson to the effect that he honestly believed the contents of his two reports. Because his former clients maintained privilege he was not able to say anything more than this and his statement was not challenged by Somatra.

Mr Wilson’s report of 7th April was made to obtain the market’s instructions about settlement at two thirds. But the report records that:

Both Mr Domingo and ourselves were available to discuss relevant aspects of his (fax) and various discussions duly took place. By the middle of today, everyone except Inces (for their clients) had kindly communicated their views. Whilst there were variations in the strength of the view about various aspects, there has been unanimity that the 75% settlement level is unacceptable - excepting SAICO who do not expressly reject 75% considering that the case should be settled on the best possible terms. We should mention that we also obtained leading counsel’s opinion on whether the market should accept or reject the plaintiffs offer to take 75%. His clear advice was that it should be rejected.

Mr Domingo said that the report did not accurately reflect his discussions with underwriters. He explained that the misunderstanding may have arisen because no one wanted to pay 75%. The idea was to negotiate between 50% to 75%. He was not seeking approval for one number. He clearly recalled that when he received the report he was minded to get back to Mr Wilson and say it was inaccurate but did not do so because by then they had a settlement.

Mr Wilson’s report of 8th April records a telephone call with Mr Domingo that day in which he says he is to discuss the case with his management “this Sunday”. It continued:

We understand that, in the meantime, it is open which way you/your management decides. You, (as well as HFW and leading counsel) feel that a settlement at two thirds is more than underwriters should have had to pay to satisfy this claim whether by settlement or judgment. Giving the fullest weight to any preference for settlement, 50% should have been sufficient.

Mr Domingo said that again this report did not represent his view. Although he would have had to get formal management approval for the settlement he already had their authority to go to 75% so there would be no problem. He had been upset about the way the settlement had been reached and he did not correct the report because by that stage he just wanted to get shot of the claim. He and Mr Wilson had always disagreed about whether the claim had been settled for too much.

Mr Domingo’s fax of 11th April recommended the settlement to the following market. He said that Arig were agreeable to the settlement bearing in mind the uncertainties to which he had referred in his fax of 4th April. He continued:

Whilst reasonable confidence had been expressed that this claim, at trial, would have been settled at between 25 – 50% (plus interest), given the uncertainties and the nervousness about a trial by at least part of the market, settlement at the level indicated is not an unreasonable settlement.

In his evidence he denied that this showed that he was reluctant to settle for two thirds. He said that his fax was expressed in this way because he was dealing on the one hand with solicitors who thought the case should not be settled and on the other with underwriters who were saying it was best to try and get a settlement so they knew where they stood.

The judge dealt with the Arditti letters in the first part of para. 223 of his judgment before the passage which we have quoted in para. 23. The documents had first been produced by Mr Arditti writing “Dear Sirs” to his own firm who were by then acting for SRT in these proceedings. The judge referred to this as an “extraordinary development”. He continued:

…. the letters … purported to show that Mr Wilson of HFW was saying at the time that the underwriters were not willing to pay 75% and the settlement at that level was “unacceptable”. Mr Domingo was then questioned about this and asked to explain how he was saying that he had obtained the consent of the following market. Mr Domingo said that the information which he had received had come to him first hand from senior figures in the insurance world who represented the following market. He had received a positive response. To that extent the Arditti letters were wrong. Mr Wilson was required to attend but was greatly circumscribed in what he felt able to say, other than when he wrote the letters he believed their contents to be true. It is not for the court to speculate about how the letters came to be written, nor how they came to be produced to the court.

Mr Fenwick submits that the judge could not and should not have accepted Mr Domingo’s evidence that he had authority to settle for up to 75% in the face of Mr Wilson’s reports. He contends that the judge appears to have doubted the authenticity of the documents because of the way they came to be produced. There was no justification for this. Mr Wilson confirmed their authenticity. The judge should have engaged with their contents so as to test Mr Domingo’s evidence, but failed to do so or at least to explain properly why, if he had done so, he nevertheless accepted his evidence. At the very least the judge should have taken the view that he could not rely on either Mr Domingo’s evidence or the contents of the reports. Neither could be properly tested against all the contemporaneous documents for which the claim to privilege was maintained. Mr Domingo’s statement which breached privilege and made a few selected references to documents in the file was not to be preferred to the documents selected by Mr Arditti and produced by Mr Wilson, neither of whom could be expected to produce documents which painted a false picture. Underlying the judge’s conclusion about this was his belief that Somatra would have won if their claim had gone to trial. This was irrelevant to the issue of fact he had to decide.

Standing back from the detail for the moment we do not think it is at all improbable that Hull underwriters agreed to settle for up to 75%, although this was more than their legal advisers said they should have to pay. This was a very large claim and there was an obvious risk that they might lose altogether. As Mr Domingo said underwriters will be concerned with risk management. In other words they will be concerned to settle within their reserves. The certainty of being able to do so is often preferable to the hazards of litigation however confident the legal advice. If proof was needed of this, the market readily agreed to settle at two thirds despite legal advice that this also was too much.

Secondly there obviously was scope for misunderstanding between Mr Domingo, others in the market and Holmans. There were many discussions between the interested parties between the 4th and 7th April which Mr Domingo had invited the market to have with him and which he said had taken place with a number of people at various levels within the organisations concerned. It is not clear from Mr Wilson’s report of 7th April how much, if at all, Holmans were directly involved in these discussions or whether they were relying on Mr Domingo to report on what would obviously be a rapidly changing scene. In answer to the point that he had claimed that no one refused to go above 50% Mr Domingo explained that the market was not antiseptic (by which he meant static). There were lots of discussions. He might have spoken to someone junior who would say they did not want to go above a certain level but then he would escalate it up to somebody who was more senior within the organisation and so on until he got a decision.

Thirdly SRT’s case was that Mr Domingo was lying, although this was not put to him fairly and squarely by leading counsel (not Mr Fenwick) at the trial. No such inhibition was shown by SRT in their skeleton argument for the purpose of this appeal where it is alleged that he had “minted” his story to help Somatra. But there is nothing to suggest that Mr Domingo had any motive to lie under oath. He had no interest in the litigation. He was an independent witness now employed and living in England as the President and Chief Executive Officer of a Bahraini Leisure Company.

Turning to the detail, we do not think that Mr Domingo’s faxes of 4th and 11th April are inconsistent with his evidence. In the fax of 4th April, although he did not use the word “recommendation”, he was clearly seeking approval from the following market for authority to settle at a figure of up $45m. We also think his explanation for the fax of 11th April is plausible.

Mr Wilson’s reports of 7th and 8th April cannot be fully squared with Mr Domingo’s evidence although they may partly be explained by a misunderstanding of where the market had got to by the 7th April. Whilst we think the judge might have dealt with the difficulties which these documents created in greater detail he obviously did not overlook them when he came to evaluate Mr Domingo’s evidence about which he said he had been sceptical until Mr Domingo came to court.

We do not read the judge’s judgment as saying any more than that the way in which the Arditti letters were produced, and because they were a selection, was unsatisfactory because it prevented him from seeing the full picture. At the end of the day he had to reach a conclusion on such evidence as was before him. Judges often have to do this. They must do their best with what they have. They may feel unable to reach any conclusion, but if they think they can they must do so. This is what the judge did here. Having heard Mr Domingo cross examined for most of a day he decided that he could accept his evidence. Mr Wilson’s reports did not compel him to reject it; nor did they compel the conclusion that he could not decide.

We do not accept that the judge’s decision was driven by his belief that Somatra would have won the action. SRT would have had to demonstrate clearly that the judge had taken such an extraordinary approach. They have not done so.

At the end of the day the question is whether it has been shown that the judge’s conclusion was plainly wrong. We do not think it has been for the reasons we have given. In a case such as this where a finding of primary fact is challenged, an appellate court might say that it would not or probably would not have reached the same conclusion itself, but nevertheless the finding was one which was open to the judge. But that is not this case. We are quite unable to say whether we would or might have reached a different conclusion for the simple reason we have not seen or heard Mr Domingo giving the evidence which so clearly impressed and persuaded the judge.

The attack on the judge’s finding that but for SRT’s breaches of duty Somatra would not have settled for two thirds is premised on the fact that Mr Alireza was always prepared to settle at a discount from the full value of his claim provided the discount could be justified. In other words he would not have taken the claim to trial come what may. Without reviewing the evidence in detail we think this premise is justified, but we do not think it sheds much light on what was in Mr Alireza’s mind in the week or so before the 7th April when he accepted Mr Arditti’s offer.

By the time of the meeting on the 29th March Mr Williams, “the captain of the team” as the judge described him, had disobeyed Mr Alireza’s instructions, lied to him and caused him to doubt SRT’s competence to take the case to trial. Mr Alireza had discovered that it was now too late to change solicitors. The loan from the Bank had been called in the wake of the consultation with Mr Steel and was due to be repaid on the 8th April. The trial was due to start three days later. The first meeting on 29th March at which Somatra had been expected to persuade underwriters of the strength of their case had been a disaster due as the judge found, rightly we think, to a further breach of duty by Mr Williams. He had not helped matters either by saying TO Mr Hamilton and Mr Mustafa after the meeting that Somatra would be lucky to get 30%.

Later that day Mr Alireza and Mr Mustafa had a private meeting with Mr Domingo from which other members of the team were excluded which lasted the whole evening. There can be no doubt that at this meeting Mr Alireza said he would accept 75% and Mr Domingo said he would put this to the market. Mr Alireza’s evidence was that he was left with the impression that Mr Domingo would recommend and would be able to deliver an offer of 75% when he came back on 7th April. Mr Mustafa went further and said that Mr Domingo had actually agreed to recommend 75%. SRT say that this evidence was untrue. Neither man had any expectation of receiving an offer of 75% as the later contemporaneous documents show and, to the extent that Mr Domingo’s evidence lent colour to what they said, it was also untrue.

We have outlined the relevant events in para. 12. On 30th March Mr Rokison advised that Somatra should take 60% if offered and give serious consideration to an offer of 50%. The consultation had been held at the request of the Bank and Mr Alireza did not attend although he was told what had happened by Mr Hamilton.

SRT rely heavily on Mr Hamilton’s note of the internal meeting which took place the following day. A number of issues were discussed at the meeting including settlement. It was agreed that Mr Williams should play no further part in settlement discussions or in the relationship with the Bank, but would be directed to devote his entire attention to the preparation of the case for trial. We have already quoted in para. 12 the relevant parts of the note which reported that an offer of $31m. (about 50%) was expected on 7th April, that a higher offer should be sought which might possibly be $35m. or slightly more (about 60%), but that if the figure of $31m. could not be improved serious consideration should be given to accepting it. This therefore accorded with the advice given by Somatra’s English lawyers.

Mr Alireza and Mr Mustafa’s evidence was that they did not tell those present at this meeting that the previous evening Mr Domingo had agreed to put 75% to the market. Their evidence was that they wanted to keep this secret and Mr Hamilton and Mr Berg said they were not told anything about it. Mr Alireza said they did not want this information to get back to Mr Williams because they had lost all confidence in his handling of the case, including any settlement negotiations. He said in cross examination:

The situation was extremely sensitive. I knew the bank was on our necks. We were basically led to the slaughter house, with that route. The 30% figure was running along the corridors. I felt it was best that I preserve that with Mr Domingo and Mr Mustafa.

He also said in answer to the judge that he did not entirely trust Mr Jennings who was present at the meeting. Mr Mustafa’s evidence was to the same effect. He said:

We wanted to keep it secret because we did not know where this whole thing was heading. People were talking to each other and we were scared. We were scared of our own shadow at that time you know.

It was of course suggested to Mr Alireza and Mr Mustafa that the true explanation for the note of the meeting was that they had no expectation of receiving an offer of 75%. They were also asked what was the point of the discussion and decision to settle at 50 – 60%. Mr Alireza said that the meeting was largely cosmetic so far as he was concerned. He had to protect his position at that time in terms of confidentiality.

On 1st April Mr Hamilton wrote to Mr Alireza advising that he and Mr Mustafa should follow up with Mr Domingo although it appeared unlikely to him that Mr Domingo would propose a figure in excess of $31m. He believed however that there was a reasonable chance that this figure could be improved upon as the trial approached. On the same day Mr Alireza received Mr Williams’ advice on the merits which concluded by advising that any offer which produced $31m. or more should be considered very seriously.

Further Somatra internal meetings took place on 4th and 5th April. At the earlier of these meetings Mr Hamilton’s note shows that factors to be considered in evaluating any settlement proposal were discussed.

On 6th April Mr Stang Lund advised that Somatra would most likely have succeeded in full before a Norwegian court, but if the case went to apportionment they would be awarded 75% of their claim. He had earlier advised that an English court, applying Norwegian law, might apportion anything between 25 – 75% to owners and so he recommended settlement at 50% or more.

On 6th April Mr Hamilton prepared a memorandum of advice for Mr Alireza in which he concluded that any settlement of 50% or higher could be justified, but on a legal analysis alone he would recommend settlement at 65% or higher. The document has manuscript amendments to it and Mr Hamilton’s unchallenged evidence at trial was that it “was never sent or given to the clients and never went beyond a marked draft” because it was overtaken by the settlement. Mr Alireza confirmed that he had not received a copy of the memorandum at the time and could not recall having any detailed discussion of the merits of the claim with Mr Hamilton on the 6th or 7th April. On 21st March Mr Hamilton had said that his best judgment was that a reasonable settlement figure would lie somewhere between 65% and 85%.

In para. 24 we have quoted what Mr Alireza said in his statement about why he agreed to settle for two thirds on 7th April. In the passage from his cross examination about this quoted by the judge in his supplementary judgment he said that he felt that Mr Arditti was Mr Domingo’s emissary and was there to talk on behalf of the market. He was asked why he had not taken time to consult with Mr Domingo or anyone else before accepting Mr Arditti’s offer and replied:

In hindsight …. We have all perfect vision but at that moment I had to think on my feet and as I said, I had great fears what further damage could be done to my case and I wanted to close the deal then and there. My options were limited …..

The cross examination continued:

Q The reality Mr Alireza I suggest is this: that as the result of all the advice that you had received you would have taken a figure a lot less than sixty six and two thirds and this was a magnificent and unexpected bonus for you and you leapt at it?

A That is not true.

Q It is far more than you were expecting?

A That is not true, absolutely not. In fact Mr Domingo was genuine at 75%. He was working it and I had a clock that was running against me. …

Q You never suggested to anyone did you that you thought that you could have got more if you had gone to trial or held out for a settlement?

A I think it was obvious, … that if one had a team captain that was of assistance to him during his difficult moments one would have achieved a much higher settlement.

We have already quoted the passages in which the judge dealt with causation in para. 24. In his main judgment the judge simply recited as part of the chronology the advice which Somatra received from Mr Stang Lund and Mr Rokison and the relevant part of Mr Hamilton’s note of the internal meeting on 31st March. In his supplemental judgment he dealt with the meeting as follows:

[Counsel for SRT] says that the note made of this meeting shows that Mr Alireza and his team were quite prepared to settle for what they achieved. Again, the circumstances in which this meeting took place and was recorded was dealt with in evidence by Mr Mustafa. He made it clear that the conversations which had been held with Mr Domingo were regarded by him and Mr Alireza as confidential and that it was not commercially sensible to mention them to other members of the team.

The judge then quoted part of Mr Mustafa’s evidence about this which we have quoted in para. 51 and continued:

This was a quite understandable position for him to take. As Mr Domingo explained there were various levels at which talks were going on. I was not prepared to conclude that this meeting threw doubt upon the evidence in relation to Mr Domingo and his discussions with Mr Mustafa and Mr Alireza. I can well understand the need for confidentiality at what must have been seen as a “delicate moment” in the negotiation process. Revealing in advance what Mr Domingo’s position was going to be might well have had serious adverse consequences.

Mr Fenwick submits that the judge should not have accepted Mr Alireza’s evidence on causation. He had no expectation of receiving an offer of 75% as the note of the meeting of 31st March shows. His reasons for saying that he wanted to keep his expectation secret do not withstand scrutiny. There was no good reason for keeping this information from his own team and what harm would it have done if the pessimistic Mr Williams discovered what had happened? Why should Mr Alireza, Somatra’s principal, engage in anything other than a serious discussion about settlement? The explanation that the meeting was cosmetic is incredible. The minute shows that he was only expecting an offer of 50% and that he would settle for a good deal less than two thirds. But even if Mr Alireza did expect an offer of 75%, during his meeting with Mr Arditti, who he thought was Mr Domingo’s emissary, he realised that he would not get it. The evidence shows Mr Alireza gathering in all the advice available to him in the days before April 7th to enable him to decide what was a justified discount from the full value of his claim and what would be a realistic offer. This advice pointed unequivocally to the fact that the best he could hope for was 65%. The offer of two thirds was more than realistic. It was generous and that is why Mr Alireza accepted it. His acceptance had nothing to do with his loss of trust and confidence in SRT and there is nothing in the contemporaneous documents to suggest that it did. The judge did not deal at all with these arguments in his main judgment. The fact that he only did so in his supplemental judgment does not inspire confidence in the conclusion which he reached.

The starting point for our consideration of these submissions is the judge’s unchallenged conclusions in para. 257 of his judgment that:

Turning however to the detail, as we have already said there is no doubt that at the meeting on 29th March Mr Domingo did say he would put 75% to the market. Whether he said or gave the impression that he would recommend it does not matter. The mere fact that he was going to put it to the market shows that he thought it was worthy of consideration. And yet there is no mention of this in the minute of the meeting on 31st March and none of those who attended said they were aware of it at any material time. This strongly supports Mr Alireza and Mr Mustafa’s evidence that there was something they were keeping secret from other members of their team. Mr Hamilton and Mr Stang Lund had been deliberately excluded from the meeting with Mr Domingo. The expectation that $31m. would be offered may have come from Mr Hamilton whose letter the following day showed that it was his belief that this is what would be offered. This does not explain why Mr Alireza allowed the discussion about settlement to proceed although perhaps if he had said he did not want to discuss it, he might have been asked why and so put the confidentiality of what had been said at his meeting with Mr Domingo at risk.

So we think the judge was perfectly entitled to accept Mr Alireza and Mr Mustafa’s evidence that they chose to keep what had happened at the meeting with Mr Domingo secret. It is the fact that they did so that matters rather than their reasons for doing so which with hindsight may not seem very compelling. But they were aware of the fact that Mr Williams regarded the conduct of settlement negotiations as his prerogative – at an earlier stage he asked for but was not given authority to conduct such negotiations on his own. Although they were hands-on clients they had no previous experience of English litigation.

These conclusions take away the main plank of SRT’s argument but they do not deal with the impact of the advice which Somatra was receiving in the days before the settlement.

Mr Symons Q.C. for Somatra submitted that this advice could have had little or no impact on Mr Alireza after the meeting with Mr Domingo on 29th March because he was expecting a better offer than he was being advised to accept.

It was in response to this argument that Mr Fenwick made the point that any belief that he could expect an offer of 75% must have been dispelled once Mr Alireza had met Mr Arditti, and so by the time he accepted Mr Arditti’s offer he was only acting in accordance with his advice. This is not how the case was put before the judge or in the skeleton argument prepared by trial counsel for the purposes of this appeal which asserted that Mr Alireza’s evidence that he believed Mr Arditti to be Mr Domingo’s emissary was incredible and submitted that this showed that Mr Alireza could not have been expecting an offer of 75% from Mr Domingo.

Mr Symons is obviously right that if Mr Alireza was expecting a better offer than he was being advised to accept, this would have diminished the effect of the advice. Of course Mr Alireza must have realised when he met Mr Arditti that he was not going to get an offer at that stage of 75%, but it does not follow that he would have accepted an offer of two thirds in any event because of the advice he had previously received. In the passages from his cross examination which we have quoted he explained why he accepted the offer: he feared further damage to his case; his options were limited; he had to think on his feet and opted to close a deal then and there.

There is also another aspect of this. The history of this dispute shows that Mr Alireza was very much his own man. When Mr Williams and Mr Gruder advised him to settle for 50% in early March he wrote back (what the judge described as a long and perceptive letter) saying he disagreed with this advice. His assessment of the underwriters’ evidence which had recently been disclosed led him to believe that Somatra should not significantly discount the claim. He did not accept Mr Rokison’s advice either. Mr Rokison had not met any of the experts and Mr Alireza felt he had not done enough preparation. He found Mr Williams’s advice illogical because it remained his advice to settle at 50%, although by April one of his major reasons for discounting the claim had disappeared. It seems to us therefore that SRT have overstated the impact of the advice upon Mr Alireza.

Although it can be said to be unfortunate that the judge did not deal with the arguments based upon the note of 31st March meeting and the advice in his main judgment, it is entirely understandable since he had to resolve many issues arising from nearly 850 pages of closing written submissions put in at the end of a thirty six day trial.

But as with the first central issue on this appeal the question for us at the end of the day is whether the judge’s conclusion that Mr Alireza would not have settled for two thirds but for the breaches was plainly wrong. We do not think it was. Given the position Mr Alireza was put in by the breaches one can readily understand why he felt forced to settle for less than he would have done if he had not lost trust and confidence in SRT. That is what he said had happened and the judge accepted it after hearing Mr Alireza being cross examined for five days.

In their skeleton argument SRT submitted that non-breach matters were the real cause of the loss of trust and confidence: the fear that Mr Williams was trying to settle the case without instructions, the continued presence of Mr Smallwood in the WFW team acting for the Bank although he had originally been acting for Somatra in the original action and Mr Alireza’s fear that Mr Williams’ 30% assessment would be disclosed.

There is nothing in these submissions, which it is fair to say Mr Fenwick did not press strongly. In the passage from his supplemental judgment which we have quoted in para. 22. the judge found that the breaches were the effective cause of the settlement at less than 75%, even if there were other matters which would or might have influenced Mr Alireza’s actions which did not amount to breach of duty. Given the nature of the breaches which the judge found, this conclusion cannot be faulted.

Next, it was submitted that it was not foreseeable that the breaches might cause Mr Alireza to settle for less than he would otherwise have done. It was only foreseeable that Mr Williams would be removed from the case and that Somatra would take advice as to the best way forward from other lawyers involved in the case (particularly leading and junior counsel) and other solicitors which might have resulted in an adjournment. It was not foreseeable that Mr Alireza would be panicked into making unreasonable decisions. The same points are made to support an argument that settlement at an undervalue was not a reasonable response to the breaches and so broke the chain of causation.

These arguments depend, as Mr Fenwick accepted, on whether in truth Mr Alireza panicked in the sense that this word is normally used. He accepted that it was foreseeable that a client who has lost trust and confidence in his solicitors shortly before trial might settle for less than he would otherwise have got, but submitted that it was not foreseeable that he would panic. Mr Alireza did not say he was panicked. We have already referred to his evidence about why he settled. “Panicked” was the judge’s word. Whether it aptly described Mr Alireza’s state of mind or not, in the predicament in which he had been placed by SRT’s breaches it was obviously foreseeable that Mr Alireza might settle for less than he would otherwise have done. For these reasons we think the judge’s conclusion that “Mr Alireza’s decision to settle the case as he did was both a foreseeable response to the breaches and a reasonable response” (para 258) is unassailable.

The judge prefaced his findings about the original action which he delivered after but as an appendix to his main judgment by saying:

Because I do not consider that the underlying action brought by Somatra against the underwriters would have gone to court but would have been compromised, this part of the judgment is unnecessary to my decision.

The issues which he had resolved and we have already considered were:

We were referred to the cases on loss of a chance from which Mr Fenwick extracted the following propositions:

Mr Fenwick submitted that the judge did try the original action as the appendix to his judgment shows. We are not persuaded that he did, but for present purposes it is not necessary to decide whether he did or not or what a judge should do when assessing prospects of success in a case like this which was effectively ready for trial at the time it settled and much of the evidence which would have been called at trial was available.

In para. 259 of his judgment the judge said in terms that his task was to assess the value of the chance which Somatra had lost as a result of the breaches (proposition (1)). The relevant chance was that of being offered a satisfactory compromise. He decided on a balance of probability that if 75% had been offered Mr Alireza would have accepted it (proposition (2)). Finally he decided that Mr Domingo would have offered 75% (proposition (3)). This conclusion was unqualified as one would expect in a case where the judge accepted the evidence of the offeror that this is what he would have done. Normally in such a case there will be no evidence as to whether the original defendant would have made an offer and if so how much. This is therefore an unusual case and one in which, given the judge’s clear, and in our view correct, finding that Mr Domingo had the authority of the market to offer 75% of the claim and would have made that offer to settle the claim, it would not be right to discount the value of the prospective offer on the basis that it might not have been made. Whether one labels this a certainty or a virtual certainty does not really matter. What matters is the clear finding that such an offer would have been made. It therefore must follow that Somatra were entitled to recover the difference between two thirds and 75% of the claim.

In these circumstances no question of valuing the loss of the chance of winning the original action arises and that is why we decided not to hear any argument about this. Had there been less than a 100% chance of settlement at 75% it would have been necessary to go on to consider the value of the loss of the chance of winning the action which, even on the most pessimistic view of Somatra’s prospects, would have been substantial and might well have been worth more than the amount awarded.

At the end of the case the Judge made the following order in relation to costs:-

The Defendant pay the costs of the action (including all costs of the counterclaim) and the post-judgment applications to the Claimant and the Second and Third Defendants to Counterclaim, such costs to be subject to detailed assessment if not agreed and thereafter paid within 28 days. The said detailed assessment shall be on the indemnity basis save in respect of:

(i)

that portion of the action dealing with the assessment of the merits of the underlying action; and

(ii)

the post-judgment applications;

both of which shall be on the standard basis.

The appellants appeal against the basis of taxation specified in this order. That appeal is of course maintained even if, as has proved to be the case, the appellants lose the substantive appeal. In the context of the present case we proceed on the basis that the different approach adopted by the Court when taxing on the indemnity basis from that which it would adopt on the standard basis may well result in the appellants being held liable to pay a significantly higher sum to the respondents. No doubt this, coupled with the fact that this Court would have to hear the substantive appeal in any case, was a feature which led to this Court giving permission to appeal on this point.

The relevant provisions in the Civil Procedure Rules are to be found in Rule 44.3 and 44.4. The following in particular are relevant:-

44.3

(4) In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including-

(a)

the conduct of all the parties; …

44.3

(5) The conduct of the parties includes-

(a)

conduct before, as well as during, the proceedings, and in particular the extent to which the parties followed any relevant pre-action protocol;

(b)

whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c)

the manner in which a party has pursued or defended his case or a particular allegation or issue; …

44.4

(1) Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs-

(a)

on the standard basis; or

(b)

on the indemnity basis,

but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.

(2)

Where the amount of costs is to be assessed on the standard basis, the court will-

(a)

only allow costs which are proportionate to the matters in issue; and

(b)

resolve any doubt which it may have as to whether costs were reasonably incurred or reasonable and proportionate in amount in favour of the paying party.

(3)

Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party.

What can be seen from the foregoing is that the beneficiary of an order for costs to be paid on the indemnity basis will still only be paid costs which he has incurred reasonably. However, there is no requirement of proportionality and in cases of doubt it is for the payer to show that costs were not incurred reasonably. This contrasts with the standard basis where there is a requirement of proportionality and it is for the beneficiary to show that the costs were incurred reasonably – see Lownds v Home Office [2002] EWCA Civ 365, [2002] 1 WLR 2450.

Extensive case law was referred to in submissions before the Judge and yet more before us. As this Court pointed out in ABCI v Banque Franco-Tunisienne [2003] EWCA Civ 205:-

The thinking behind the CPR was that they would speak for themselves and that courts would not have to refer to an ever increasing body of authority in order to apply them.

For this reason, we do not propose to embark upon an exhaustive analysis of the cases.

The position of this Court in relation to an appeal against the basis of taxation is that it will only interfere with the way the Judge exercised his discretion if it is satisfied that he misdirected himself or was otherwise plainly wrong.

The Judge said this:-

7.

In relation to costs, Mr Symons QC asked for indemnity costs on the issue of liability [that is, not including the portion of the trial dealing with what was called the original action to which the appendix relates]. The basis of his application was that the way SRT chose to conduct their case was not simply to defend their case on negligence but to go much further: ridiculing their former clients in their opening and thereafter, accusing Mr Alireza and Mr Domingo of dishonesty and the former of being childish, accusing Mr Hamilton of improper conduct, running a case which his own clients must have known to be false in relation to the instructions to Professor Bull and the invitation to the meeting with Mr Steel QC; seeking to blame their former clients for what happened and more generally arguing every point ad nauseam. Mr Cran QC submits that he was entitled to challenge the good faith of both Mr Alireza and Mr Domingo since that was an important part of his clients’ defence on the issue of causation and loss; he also points out that SRT succeeded on a number of the allegations made against them.

8.

The principles on which an order for indemnity costs may be made are well known [see CPR 44.3 & 4]. There is, I think, a difference between fighting a case firmly and properly and fighting a case on the basis of a wholesale attack on the integrity of the defendants’ former clients, without justification. It is a feature of this case that two people in a well known and respected firm of solicitors gave unreliable evidence to support their firm’s defence. Indeed, in part their evidence was incredible and I draw attention in particular to paragraphs 95,97-99,206,227-8,238,257 of the judgment. This is a case where during their retainer and thereafter during this litigation the solicitors have made a wholesale attack on their former clients’ integrity, and the integrity of their US attorney, without justification. Their position is that the Court of Appeal will inevitably conclude that Mr Alireza has been mendacious in his evidence. This method of fighting the case [the conduct of the case] was unreasonable, I think, and totally uncalled for, and makes it one where an order for indemnity costs is appropriate. The case could have been contested on a quite different basis, which maintained proper respect for their former clients. It seems to me that I cannot separate out the issues on which SRT succeeded: the whole case was part of a piece and the order for costs should reflect that, and for this reason, and because of the very nature of the defence, I refuse to split the liability issue and award costs to SRT of those issues on which they won. In truth, they lost the action comprehensively. I therefore direct that Somatra’s costs of the liability issues as between SRT and Somatra should be on an indemnity basis. I reject Mr Cran’s suggestion that Somatra conducted themselves deplorably after the settlement or that that should cause me to reject an indemnity basis.

9.

Although it was SRT who indicated, in interlocutory proceedings, that there would have to be a virtual re-run of the whole original action, I think that there was nothing in particular about the way the re-run was dealt with on both sides which would justify any other order for costs than a standard basis.

It is clear that significant influences on the Judge’s decisions were the following findings which he made in the course of his judgment:-

97.

[Mr Williams] accepted that he had been dishonest in trying to cover the matter up, and accepted that if he treated his clients in that way, and he was found out, then his clients would lose trust and confidence in him. This was a serious matter and was viewed as such by Mr Alireza. He was entitled to expect better from his own lawyers. Mr Williams accepts that it was as a direct result of this incident that Mr Hamilton … was retained by Mr Alireza …

206.

[Mr Williams’] various different accounts in his witness statements and his manner and demeanour when cross-examined made his denials in the witness box both painful to observe and unconvincing.

227.

Mr Williams was not truthful with his clients and was not prepared to deal with them with the respect they deserved. He greatly misjudged them and distrusted them without any reason at all. …

228.

It is not pleasant to have to conclude that a solicitor has deceived his clients; but that is the conclusion I have reached… Another unattractive feature of his evidence was a tendency to blame others for what he knew were his own shortcomings.

229.

Mr Atkinson was also … an unsatisfactory witness. … His suggestion that he made mental notes was unconvincing. … He accepted that he was almost wholly responsible for the report prepared by SRT on the conference with Mr Steel Q.C. … [He] sought to pretend that SRT did not know why BIS thought it worthwhile instructing their own counsel. Mr Atkinson knew quite well why Mr Steel had been instructed by the Bank. … it was no doubt thought that the truth would be inconvenient. … Mr Atkinson’s suggestion … represented an attempt to damage the case against Somatra without regard to the truth.

238.

[Mr Williams] wrote to Mr Rokison asking for a conference and saying that he understood that he had virtually no time free until early March 1994. Mr Williams … lied to his clients about the availability at a meeting with them on 22 December 1993 when he said that he was “endeavouring to schedule the necessary time after the first of the year.” The plain impression created was that he was trying to get time from the leader and that he knew nothing to suggest that time would not be available. … In a fax to Mr Hamilton towards the end of January 1994 he revealed that Mr Rokison’s involvement was transitory but implied that he was going to start preparing for trial “from now”. The brief fee was structured in tranches but the clients were not told that 2 tranches would have become due and payable before Mr Rokison was actually available to do any work on the case.

The appellants’ written submissions run to some 27 paragraphs. It is convenient to deal first with two submissions of principle.

The appellants draw attention to what they say is a fact, and we have no reason to doubt, that the Defence case is financed and run by SRT’s professional indemnity underwriters, not by SRT or its partners and that in those circumstances “the directing mind of the litigation” was not Mr Williams. They say, and again we have no reason to doubt, that “the representatives of those underwriters, and counsel and their instructing solicitors, bona fide ran SRT’s defence on the issue of liability on the strength of the witness statements and their instructions from their insured/clients”.

In our judgment this submission of principle is misconceived. The order for costs was not made against the legal representatives of the appellants. Power to do so exists under CPR 44.14 but this was not the power which the judge was exercising. It was SRT who were a party to the action and it was against them that the order was made. The reason for making the order was the behaviour of Mr Williams who was one of their partners at the time and (perhaps) of Mr Atkinson. SRT are responsible for what they did, both whilst the retainer was still in existence and during the course of the action. If those two gentlemen misled not only their erstwhile client but also their own legal advisers when they were sued for breach of contract by the client then SRT must still bear the consequence. If SRT had acted for themselves in defending this litigation they would have been liable to such an order as was made. They cannot now shrug off the consequences of their actions because someone else is financing the defence and they have instructed another firm of solicitors to act on SRT’s behalf.

The appellants submit that it is not legitimate for an award of costs to reflect the Court’s disapproval of Mr Williams’ conduct of his retainer before the case started. They accept that the opening words of CPR 44.3(5)(a) indicate that some pre-action conduct – such as failure to follow pre-action protocols - may be relevant but submit that the conduct in question must be related to the action in which the order for costs is made.

We do not accept that the words of the Rule should be confined in the way suggested although we would accept that there must be a link between the pre-action conduct and the matters which are the subject of the action. We regard it as permissible, for instance, for a judge whom has found against defendants in an action based on their fraud practiced on the Claimants, to take that fraud into account when deciding the basis of taxation. We are however far from saying that a successful fraud action should usually be accompanied by a special order as to costs. These are matters for the judge’s discretion and before he exercises it in such a way as to order a departure from the standard basis of taxation there must be something to take the case out of the usual run of cases.

Conduct of the type found in the present case is fortunately highly unusual. It does not appear that the Judge’s order for costs was based largely on the defendants’ conduct prior to the litigation. It was primarily based on the fact, as the Judge found, that Mr Williams had repeatedly lied to the Court and repeatedly made, and instigated the making by those acting for the defendants in this action, unfounded allegations against the integrity of his own client. While he did refer to conduct during the retainer we do not regard those references as vitiating the order which he made.

In relation to a number of matters, the appellants while accepting that Mr Williams had indeed lied to his own clients, submitted that the lies were “told to cover up a mistake”, “attempts to lessen his culpability”, “were relatively innocuous” and so on. How significant lies are is a matter for the trial Judge and we are not persuaded that his assessment involved him in any error of law.

The appellants submit that the main issue in the case was one of causation and that, although they lost on this issue their conduct in relation to this issue was not such as to justify an unusual order as to costs. In those circumstances, it is submitted, the judge ought to have made the indemnity costs basis applicable to only part of the costs of the litigation. The judge expressly considered this possibility and rejected it. He was entitled so to do in the exercise of his discretion. It might have been different if the relevant allegations of breach had been admitted but they were not.

We consider that in making the order which he did make the Judge acted within the scope of his discretion and we dismiss the appeal on this ground.

The final result is that this appeal will be dismissed.