Benedetti & Anor v Sawiris & Ors

On 15^th June 2009 I handed down my judgment in this action and adjourned for further argument all remaining issues about the form of the judgment, interest, costs and permission to appeal. Predictably there has been very little common ground about the form of order which I should make and I therefore set out in this judgment my decision on the various issues which have arisen.

I have awarded Mr Benedetti the sum of €75.1 million as a quantum meruit for the services which he has provided. As explained in paragraphs 567 to 571 of my judgment, this is based on what Mr Benedetti would have been paid for his work under the October agreement. Had the agreement been entered into, the payment would have been made by Weather II to ITM as in the case of the brokerage fee.

The Defendants all submit that their liability should be several and not joint or joint and several. They each contend that they did not receive the benefit of Mr Benedetti’s services as partners and that, in the case of a payment by way of quantum meruit, liability should be determined by reference to the extent to which they each benefited from those services and were thereby unjustly enriched. They are not, however, agreed as to the basis on which liability for the €75.1 million should be apportioned. Mr Hill (for Mr Sawiris and Cylo) suggested that an appropriate method of apportioning liability would be by reference to the shareholdings of each of the Defendants in Weather II. On this basis, their liability for the judgment sum would be:

Mr Beltrami, on the other hand, submits that this would not adequately reflect the fact that his clients were, so to speak, late entrants on the scene and that most of Mr Benedetti’s work was done at the behest of Mr Sawiris. He therefore suggests some kind of time-based apportionment to take account of this.

If the right order is that the Defendants should have only several liability for the €75.1 million, it seems to me that the correct method of apportionment is that suggested by Mr Hill. The rationale for several liability is that it should be proportionate to and limited by the benefits which each of the Defendants has received. The end product of Mr Benedetti’s services was the acquisition of Wind through Weather II. The economic benefit to the Defendants is represented by their shareholdings in that company.

I am not, however, convinced that an order that the Defendants should only be liable for parts of the judgment sum is appropriate in this case. Although their shareholdings in Weather II differ in size, they each benefited from the totality of the services which Mr Benedetti rendered and which they accepted. It seems to me unrealistic to impose that liability on the Defendants only in the proportions in which they actually took shares in the company. Mr Beltrami’s argument that his clients should be liable for a smaller percentage of the judgment than Mr Sawiris and Cylo in effect recognises the anomalous result which this would produce. The judgment will therefore be against all four Defendants jointly.

Mr Benedetti seeks interest on the judgment sum from the date of the first closing (12^th August 2005) at 3% above Euribor compounded with monthly rests. On his solicitors’ calculation this would add about €20 million to the amount of the judgment. The Defendants say that interest should not, on any view, run from before 31^st December 2007 when the €75.1 million would have become payable under the terms of the October agreement but that the correct order is that Mr Benedetti should not be entitled to interest for any period before the date of the judgment on account of his refusal to accept what was offered in the October agreement and his failure to recover anything more in these proceedings.

Some of the dispute centres on the legal basis for the award of interest. If it is made under s.35A of the Supreme Court Act 1981 the Court has a discretion as to whether to award interest at all and for what period and can only award simple interest. But Mr Twigger says that his client is entitled to interest at the rate claimed on the principles set out by the House of Lords in Sempra Metals Limited v IRC [2008] 1 AC 561.

That case concerned the liability of the Inland Revenue for interest on advance corporation tax which the ECJ held had been wrongly paid. The tax was recoverable on a restitutionary basis. The majority (Lord Nicholls, Lord Hope and Lord Walker) thought that the Revenue’s enrichment from the early and incorrect payment of the tax was represented by the value of the opportunity to turn the money to account during the period of enrichment and not by what the Revenue actually did with the money. This could be compensated for, they held, by the award of compound interest at a rate equal to what it would have cost the government to borrow the money at the relevant time.

The present case is not, however, concerned with the calculation of the unjust enrichment caused by the payment of money to which the defendant was not entitled. I have assessed the value to be put on Mr Benedetti’s services (and therefore the measure of unjust enrichment enjoyed by the Defendants) in the sum of €75.1 million. I am no longer concerned on this application with what Lord Nicholls described in paragraph 114 of his speech as the anterior stage. Although compound interest was sought in the amended Particulars of Claim on a restitutionary basis, I have not made such an award. Consistently with my determination that the value of Mr Benedetti’s services should be assessed by reference to the terms of the October agreement, I can see no basis for awarding Mr Benedetti anything before 31^st December 2007. But Mr Benedetti also made it clear in his Reply (paragraph 32.4) and in his evidence that he was not prepared to accept the offer of €75.1 million. It seems to me that he cannot consistently with this say that he should be compensated on a restitutionary basis for being kept out of his money.

I am therefore only concerned on this application with an award of interest on the judgment sum under s.35A of the Supreme Court Act 1981. On this basis, no question of compound interest arises and I see no reason to adopt anything but a normal commercial rate of 1% above Euribor. There is, however, the issue of when interest should run from. I consider that it should run only from the date of the judgment. For the reasons set out above in relation to the restitutionary claim for interest, I can see no justification for requiring the Defendants to pay interest on a sum which Mr Benedetti has always refused to accept. These proceedings have been conducted on the basis that, even as a quantum meruit, he should receive a substantial shareholding in Weather II. Although the Defendants hardened their position about a monetary payment in the solicitors’ correspondence prior to trial, it is clear from Mr Benedetti’s evidence that he would not have accepted the €75.1 million at any time up to judgment had the offer been repeated. The delay in receiving that money is entirely of his own making.

Both sides seek their costs. Mr Twigger says that Mr Benedetti is the successful party in the litigation because he has ultimately recovered €75.1 million. Any reduction in his costs on account of the issues on which he failed should therefore be modest. He referred me to the decision of the Court of Appeal in A.L. Barnes Ltd v Time Talk (UK) Ltd [2003] EWCA Civ 402. In that case the claimants successfully sued the defendant for fitting out its stores. The defendant alleged that it had been overcharged and that the claimant was seeking to recover excessive payments for the work of a project manager. It also counterclaimed on the same basis for the recovery of fees already paid. The trial judge found for the claimant on its claim (after disallowing project management fees) in the sum of £216,968.11 and for the defendant on its counterclaim in the sum of £87,003.72. Although the claimant, after set-off, had recovered a substantial balance, the judge ordered the claimant to pay 50% of the defendant’s costs.

The Court of Appeal held that this was an error of principle based on the judge’s failure to identify the claimant as the successful party in the litigation. At paragraph 30 of the judgment, Longmore LJ said this:-

“For these two reasons the exercise of discretion by the judge was vitiated by an error of principle. If he had asked himself who was the successful party, before segregation of the effective costs of proving the quantum meruit claim, he would in my judgment have had to answer that it was the claimants who recovered more than the defendants had ever offered and thus it must be the claimants who were the successful party. The question would then be what proportion, if any, of their costs should they recover. That question is now for this court. The judge was, of course, correct to be influenced by the fact that most of the time spent in court was spent on an issue on which the claimants failed and that that issue was whether one of the claimants' employees had acted dishonestly, albeit at “the least serious end of the spectrum”. Bearing that matter in mind, I would hold that the claimants’ success should be reflected by the recovery of a small proportion of their costs. I would fix that proportion at 25% and would accordingly allow the cross-appeal to that extent.”

It is, I think, important to note that neither the judge nor the Court of Appeal in A.L. Barnes was asked to consider making an issue-based costs order. In an ordinary case of a monetary claim and counterclaim the ultimate financial result will often be the most accurate guide as to which party should recover its costs and in what amount. But I reject any suggestion that the Court of Appeal was laying down a principle to the effect that a financially successful claimant should never be deprived of its own costs or ordered to pay the defendant’s costs. Each case has to be looked at on its own facts having regard to the provisions of CPR 44.3.

Although the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, the Court may make a different order: see CPR 44.3(2). It is important in this connection to emphasise the terms of CPR 44.3(4) which provide that, in deciding what order to make about costs, the Court must have regard to all the circumstances including the conduct of the parties and whether a party has succeeded on part of his case, even if he has not been wholly successful.

So in Painting v University of Oxford [2005] EWCA Civ 161 the claimant was ordered to pay the defendant’s costs even though the claimant had recovered more than the sum paid into court in a personal injury action. This was because the action was taken up with the issue of whether the claimant was exaggerating her injuries on which the defendant succeeded.

A similar approach can be found in the cases in which an issue-based costs order has been made. In Summit Property Ltd v Pitmans [2001] EWCA Civ 2020, Longmore LJ said this:

“[16] In my judgment, it is also no longer necessary for a party to have acted unreasonably or improperly before he can be required to pay the costs of the other party of a particular issue on which he (the first party) has failed. That is the substance of what the Master of the Rolls was there saying. That that must be so is shown partly by the earlier citation at pages 1522H-1523B but, more importantly, by the only other case to which, for my part, I would have thought it was necessary for this court to be referred, namely the case of Johnsey Estates (1990) Limited v Secretary of State for the Environment [2001] EWCA Civ 6535, judgment given on 11 April 2001. In that case Chadwick LJ, giving the judgment of the court with which the other members of the court agreed, set out the principles in paras 21 and 22 as follows:

“21.

The principles applicable in the present case may, I think, be summarised as follows: (i) costs cannot be recovered except under an order of the court; (ii) the question whether to make any order as to costs – and, if so, what order – is a matter entrusted to the discretion of the trial judge; (iii) the starting point for the exercise of discretion is that costs should follow the event; nevertheless, (iv) the judge may make different orders for costs in relation to discrete issues – and, in particular, should consider doing so where a party has been successful on one issue but unsuccessful on another issue and, in that event, may make an order for costs against the party who has been generally successful in the litigation; and (v) the judge may deprive a party of costs on an issue on which he has been successful if satisfied that the party has acted unreasonably in relation to that issue; (vi) an appellate court should not interfere with the judge's exercise of discretion merely because it takes the view that it would have exercised that discretion differently.

22.

The last of those principles requires an appellate court to exercise a degree of self restraint. It must recognise the advantage which the trial judge enjoys as a result of his feel for the case which he has tried. Indeed, as it seems to me, it is not for an appellate court even to consider whether it would have exercised the discretion differently unless it has first reached the conclusion that the judge's exercise of his discretion is flawed. That is to say, that he has erred in principle, taken into account matters which should have been left out of account, left out of account matters which should have been taken into account; or reached a conclusion which is so plainly wrong that it can be described as perverse.”

[17] It is thus a matter of ordinary common sense that if it is appropriate to consider costs on an issue basis at all, it may be appropriate, in a suitably exceptional case, to make an order which not only deprives a successful party of his costs of a particular issue but also an order which requires him to pay the otherwise unsuccessful party's costs of that issue, without it being necessary for the court to decide that allegations have been made improperly or unreasonably.”

It seems to me that the present action is not what, on any view, could be described as an ordinary commercial dispute about money. Although it has resulted in a monetary award in favour of the Claimant, that was not his primary claim and his attempt to secure a shareholding in Weather II was based upon a series of complicated arguments which failed both on the facts and the law. I consider that the only fair and proportionate way in which to approach the question of costs is to look not merely at the end result, but also at how it was reached.

The reality of the case is that Mr Benedetti has failed on his claims in contract and in equity and has succeeded only on the claim for a quantum meruit. Even in respect of this, he has failed to persuade me that he should be entitled to a shareholding in Weather II which was his primary case. I also preferred the evidence of Mr Sottile to that of Mr Reynolds on the question of what was the appropriate level of remuneration in the market for services of the type performed by Mr Benedetti and would have applied the €36.3 million figure but for the evidence of the post-transaction negotiations. The €75.1 million had (as mentioned earlier) been rejected by Mr Benedetti and was only relied on by Mr Vos in his closing submissions very much as a last resort.

It is, of course, true that Mr Benedetti succeeded on some of the discrete factual issues such as whether there had been a meeting with Mr Sawiris in Cannes in April 2003 and whether he and Mr Sawiris had expressly agreed to rescind the Acquisition Agreement. But these were minor successes, none of which really affected the outcome of the case. If therefore I were to approach the question of costs simply in terms of the parties’ relative levels of success on the issues in the action, the right order would, I think, be that Mr Benedetti should pay most, if not all, of the Defendants’ costs.

There is, however, a more fundamental reason why an order that Mr Benedetti should recover his costs would not be right. He has succeeded in recovering no more than he would have received had he signed the October agreement. The litigation and all of the costs are directly attributable to his rejection of what he was offered in October 2006. It is quite true that once the litigation was threatened and commenced in 2007 the Defendants’ own position hardened and the €75.1 million was offered only on terms that credit should be given for the brokerage fee. But that does not change the fact that Mr Benedetti was offered and could have accepted in 2006 exactly what he has now been awarded in the action. The costs of the litigation were wholly avoidable and Mr Benedetti’s conduct prior to the action is a factor which I am required to take into account in determining what costs order to make.

He will therefore be ordered to pay the costs of the Defendants. Although they were only incurred as a result of his refusal to accept the terms of the October agreement, I will direct that they be assessed on the standard basis.

An issue was raised by Mr Twigger about the possible duplication of costs attributable to the separate representation of the Defendants. That seems to me to be something which is best left to the Costs Judge to determine on the detailed assessment.

The Court has a discretion to order interest on costs under CPR 44.3(6)(g). Both sides accepted that an order for the payment of interest at 1% above the appropriate base rate should be made in this case. I will therefore order interest to be paid on the Defendants’ costs at that rate from the date of payment of the costs until judgment and thereafter at the judgment rate.

Again there was really no resistance on either side to an interim payment. I will therefore order Mr Benedetti to make an interim payment equal to 40% of each of the Defendants’ costs.

Mr Hill and Mr Beltrami, I think, accepted that an order in favour of their clients should be met by being set-off against their liability for the judgment sum. Since it is agreed that I should stay payment of the judgment pending an appeal on terms that the Defendants should provide a bank guarantee in that sum, I will order that the interim payment will be satisfied by the reduction of the amount of the guarantee by the relevant sum. If a single guarantee is to be given in respect of all of the Defendants, the reduction should be 40% of the combined costs of both sets of Defendants.

Both sides seek permission to appeal. All the Defendants wish to challenge my decision that the amount of the quantum meruit can be calculated by reference to the post-transaction negotiations. April and OSH also wish to appeal against my determination that they are liable for the quantum meruit on the basis that they freely accepted the benefit of the services. Without commenting further on the merits of such an appeal, I am satisfied that both points meet the threshold test under CPR 52.3(6).

Mr Benedetti wishes to appeal against my rejection of his quantum meruit claim for a shareholding in Weather II. He does not seek permission to appeal against my rejection of his contractual and equitable claims. Although as part of his argument on the quantum meruit issue he will seek to persuade the Court of Appeal that I was wrong in my construction of the Acquisition Agreement, he does not intend to challenge my finding that there was no implied variation of the agreement to substitute Weather II for Rain.

The Defendants say that the Claimants’ appeal will involve a challenge to a number of findings of fact which will have no real prospect of success. I am bound to say that I regard the prospects of success on this appeal as highly marginal but, given that there will be an appeal by the Defendants, it seems to me that it would be a more effective use of court time for me to give the Claimants permission to appeal against my rejection of the quantum meruit claim for a shareholding in Weather II and leave these points to be determined on a full appeal.

It is agreed that there should be a stay of my judgment pending an appeal on terms that a bank guarantee is provided for the judgment sum less the reduction for costs mentioned earlier. I will therefore order a stay on terms that the guarantee should be provided within six weeks of this order. It is not necessary to make this a condition of my grant of permission to appeal. I will also extend both sides’ time for filing their notices of appeal until 1^st October 2009. Both sides will have liberty to apply.