Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
MR JUSTICE NORRIS
Between :
(1) Major Dhillon (2) Bachmann Trust Company Limited | Claimants |
- and - | |
(1) Javed Siddiqui (2) Peter Ramsey (3) Marlborough House Associates Limited (4) Charterhouse (Accountants) (5) Haines Watts Limited (6) Haines Watts (A Firm) (7) Foxborough Consulting | Defendants |
Richard Lord QC (instructed by Blandy & Blandy) for the Claimants
T.J.B. Dumont (instructed by Plexus Law) for the First to Fourth Defendants
Simon Howarth (instructed by CMS Cameron McKenna) for the Fifth to Seventh Defendants
Hearing date: 23 April 2010
Judgment
Mr Justice Norris :
The claimant was the founder and proprietor of Electro Controls Limited (“Electro”). In 1997 he retained Haines Watts (in which the Advisers were partners) as accountants to his company and as his personal tax advisers. In 1998 under their advice he moved his company off shore. Electro became a wholly owned subsidiary of Hosta Limited (a Guernsey company): and the shares in Hosta became owned by Montilla (a Guernsey trust of which the claimant was the principal beneficiary).
During May 1999 the First and Second Defendants (“the Advisers”) left Haines Watts and formed Marlborough House Associates Limited (“Marlborough”) which eventually became part of Charterhouse Accountants (“Charterhouse”). The precise date upon which the Advisers left Haines Watts and joined Marlborough, and the precise date on which the claimant was told that they had done so (and instructed Marlborough in place of Haines Watts in relation to part of his affairs), was in issue in the action.
It may now be taken as beyond controversy that on 6 May 1999 one or both of the Advisers advised the claimant that Electro should declare a £500,000 dividend in favour of Hosta. It is not in dispute that the claimant did so and that Hosta retained the dividend so paid until 2005. The declaration and retention of the dividend had significant consequences for the claimant and for Electro/Hosta. So far as the claimant was concerned the declaration of the dividend (which involved a transfer of assets from the UK to Guernsey) fell foul of the anti-avoidance provisions in section 739 ICTA 1988, and the claimant became personally liable to pay tax on it at his highest marginal rate on the footing that it was part of his income. I will call this “the personal tax claim”. So far as Electro/Hosta was concerned, because Hosta retained the dividend undistributed it fell outside the circumstances delineated in the Revenue’s Statement of Practice 5/94 and Electro and Hosta became “associated companies” for the purposes of UK tax. I will call this “the corporation tax claim”. The consequences of the declaration and retention of the dividend were not noticed or advised upon by the Advisers, Marlborough or Charterhouse: or by Haines Watts (who resumed some responsibility in 2002).
It is also beyond dispute that on 7 September 1999 the First Defendant made a note for the Second Defendant in relation to the dividend paid by Electro to Hosta that “there could be section 739 implications…please discuss”. No action was, however, taken. In the result the claimant became exposed to a liability for £125,000 income tax under the personal tax claim as soon as the circumstances were disclosed in his personal tax return or Electro’s corporation tax return.
The circumstances were not disclosed in either the claimant’s or Electro’s returns. It is the claimant’s evidence (but would need to be established at trial) that the possibility of the corporation tax claim came to his attention in the autumn of 2003 which caused him to investigate how this had come about. This led to the claimant’s enquiring of Haines Watt as to the possible effects of section 739 ICTA 1988 (to which the documents in the claimant’s possession made reference). The claimant says that in June 2004 he was informed by Haines Watts of the personal tax liability, and that the possibility that interest and penalties (up to 100% of the tax not paid) being demanded also existed. Haines Watts put the blame on the Advisers (even though they acknowledged that they had reassumed liability for the claimant’s tax affairs in August 2002). They acknowledged in correspondence that the issue “did fall off our radar”, only re-emerging when a potential sale of Electro’s business was raised. Electro’s business was sold in May 2005 (when Montilla sold its holding of Hosta shares). By then the claimant had made a formal complaint against Haines Watts, both in respect of the advice relating to the declaration of the £500,000 dividend and in relation to the failure of Haines Watts to disclose the potential liability to which he was exposed when they reassumed responsibility for his personal tax affairs in August 2002.
The original advice had been given in May 1999. The expiry of the limitation period in contract was fast approaching: so on 5 May 2005 the claimant began the present proceedings against the Advisers (and Marlborough and Charterhouse); and also against Haines Watts (in its various incarnations). The proceedings included (but were not limited to) the personal tax claim and the corporation tax claim. The Particulars of Claim allege that the claimant was liable to pay UK income tax, interest and penalties in relation to the dividend paid by Electro to Hosta which were estimated to be about £200,000. The figure was estimated because at the date when proceedings were commenced the claimant had not disclosed to the Revenue the circumstances drawn to his attention by Haines Watts in July 2004.
The Defence of the Advisers was somewhat startling. They did not admit that either of them had met the claimant on 6 May 1999 and they both denied that they had advised Electro at any time that it should pay a dividend to Hosta of £500,000. They said it was to be inferred that the claimant had wished to extract £500,000 from Electro (though they proffered no explanation as to why the dividend thereafter remained with Hosta until the sale of the Hosta shares). They asserted that the claimant did not ask about the taxation treatment of the dividend to Hosta until 7 September 1999, on which occasion the First Defendant stated that “there could be section 739 implications”; but that the conclusion reached after consideration was that there were no such implications. (It should be said that the view that there were no section 739 implications has not been regarded as sustainable by anyone in the proceedings).
The Defence of the Haines Watts defendants was that the Advisers had ceased to be partners with effect from 30 April 1999, that the Haines Watts defendants were not involved in the alleged or any advice relating to the dividend, and it was denied that the Advisers acted (either actually or ostensibly) on behalf of the Haines Watts defendants. (The allegation that the Advisers were the actual or ostensible agents of Haines Watts was only introduced in November 2006). It was admitted that when Haines Watts took over in August 2002 as the claimant’s personal tax advisers it was drawn to their attention that the £500,000 dividend had not been disclosed in the claimant’s tax returns.
Once issue was joined on the pleadings on 17 March 2006 the Advisers made an offer to settle “without prejudice save as to costs”. They offered to pay £25,000 inclusive of interest but exclusive of costs together with 50% of the claimant’s costs (assessed if not agreed) in full and final settlement of the claimant’s claims against them and of the claims as between the two groups of defendants. The offer was not accepted by the claimant or (so far as I can see) by the Haines Watts defendants.
During 2006 the tax consequences of the sale of the Hosta shares were being worked out for the claimant by Haines Watts. The claimant drew attention to the £500,000 dividend in the course of providing information in relation to his 2006 personal tax return: and in September 2006 Haines Watts agreed to prepare the relevant tax return disclosures in relation to those amounts. But this did not lead to any disclosure under section 739 ICTA 1988. Accordingly, it fell to the defendant on 28 December 2006 to write the Revenue. He informed the Revenue that he had received contradictory advice as to whether his 2000 income tax return should have reflected the £500,000 dividend, and he wished to have the uncertainty resolved. He therefore disclosed the relevant facts so that the Revenue might form a view.
On 7 February 2007 the Revenue responded in these terms:-
“Based solely on the information provided in your letter I can confirm that I do not intend to pursue liability under section 739 ICTA 1988 on the dividend paid by [Electro] to [Hosta] during the year to 5 April 2000. I must emphasise that this applies only to this single transaction”.
The claimant’s expert tax accountant commented upon this outcome in these terms:-
“I find it astounding that an Inspector of Taxes wrote to Mr Dhillon saying that she did not intend to pursue the liability under section 739. In my experience the Revenue are aggressive in pursuit of tax arising under this anti avoidance legislation and the decision of this individual Inspector is in breach of the Revenue’s internal guidelines in respect of such tax, which is to refer decisions to the specialist tax unit at FICO (Bootle). My astonishment is greater in that no explanation is given for this statement of intention. I have never known HMRC to give such a concession in similar circumstances and their response seems to indicate a certain level of incompetence”.
The expert then considered the statutory framework and the decided cases and concluded:-
“I believe that there is a real risk that the agreement given by the Inspector…in her letter of 7 February 2007 could be overturned. Overall on the basis of my knowledge and experience, I consider that it is more likely than not that the Revenue will not seek to change their stated position, but there is nevertheless a real risk that they could seek to resile from it. This could be brought about in the short to medium term…”.
A different expert was subsequently asked to review the position. He commented as follows:-
“The 7 February 2007 letter…does not suggest that there is no such liability, merely that [the Inspector] does not intend to pursue it. This response appears to be an instance where an Inspector is exercising a discretion which, in law, she probably did not possess…in my opinion the Revenue are not bound by the Inspector’s letter of 7 February 2007 stating that she did not intend to pursue the liability under section 739”.
This expert expressed his agreement with the view that the risk that the Revenue would demand tax “was low but real”. He also considered the views expressed by the experts for the Advisers and for the Haines Watts defendants. He commented that they appeared to rely on nothing more than the passage of time and the unlikely possibility of the papers not being reviewed again, which he described as “hope and nothing more and should not be relied upon in this matter”. His report of 21 July 2009 drew attention for the first time to changes in the procedure for raising “discovery assessments” which would come into effect on 31 March 2010 (when the relevant sections of the Finance Act 2008 were implemented). This led him to the view that the possibility of making a “discovery assessment” after 31 March 2010 would almost certainly be time-barred.
The expert evidence appears united in the opinion that the attitude taken by HMRC on 7 February 2007 was an aberration. There was a suggestion that the claimant suppressed the existence of this letter in order to obtain an advantage at a mediation and in any subsequent possible negotiations: but the allegation was rightly not pursued, and instead complaint was made at the length of time that the claimant took to consider with his legal advisers the impact of the letter upon the conduct of the existing proceedings. Communication was eventually made by a letter dated 16 April 2007, the claimant disclosing the full terms of the Revenue’s response, indicating that the claimant intended to amend his claim to seek an indemnity in respect of any tax liability which might arise, and inviting the Advisers and the Haines Watts defendants to provide such an indemnity. This proposal was immediately rejected out of hand by the Advisers (because their insurers wished to close their book and bring the period of exposure to a claim to an end). Accordingly the proceedings were amended to seek an indemnity in place of damages: and they continued.
The Advisers sought to strike out the personal tax claim. The central issue was whether HMRC was bound by the position adopted in the letter of 7 February 2007. The Advisers succeeded before the Master but the matter was ultimately determined by Mr Richard Sheldon QC (sitting as a Deputy Judge of the Chancery Division) on 10 December 2007. He held that it was inappropriate to grant summary judgment in favour of the defendants because there was a realistic risk that the Revenue may be able to resile from the position stated in the letter of 7 February 2007 (and so assess the claimant for tax in relation to the dividend payment) and that accordingly there was a real prospect that the claimant may be able to establish at trial that he was entitled to the indemnity sought (even though the defendants might successfully argue at trial that the risk was so fanciful that the indemnity was academic or hypothetical). But Mr Sheldon QC felt that because the claimant himself acknowledged that the risk of an assessment was “fairly unlikely” and was a risk to which he was exposed only in “the short to medium term” there was much to be said for adjourning the personal tax claim with a view to it coming on for trial if and when the Revenue did make an assessment. That was the course adopted: and the other claims (in particular the corporation tax dividend claim) proceeded to trial separately.
That trial was held before Mr Livesey QC (sitting as a Deputy Judge of the Chancery Division) and concluded with a judgment dated 13 August 2008. The judgment was directed to the legal questions arising on the claimant’s corporation tax claim, but since this arose in the same factual context as the personal tax claim the judge had to consider all the essential underlying facts. He found that there was a meeting on 6 May 1999 at which advice was given to the claimant by either or both of the Advisers, both acting at the time as partners of Marlborough. He held that they were negligent in the advice they gave relating to the £500,000 dividend as regards the corporation tax claim. He held that both of the Advisers “ought to have known that the dividend when paid to Hosta should have been passed directly to [Montilla] if adverse tax consequences were to be avoided”. But I think it fair to confine that observation to the corporation tax claim: although he did express the view that it was “surprising” that no action had been taken on the query relating to section 739 at the meeting on 7 September 1999.
Notwithstanding those findings and holdings (a) the Advisers continued vehemently to deny that they had given any advice on 6 May 1999 and (b) the claimant continued to run a case against the Haines Watts defendants that they were liable as principals for the advice given by the Advisers (the argument being that Haines Watts was at that stage still holding them out as partners).
The conclusion of the major part of the case left outstanding the personal tax claim which had been stood over by the order of Mr Richard Sheldon QC. The Advisers decided to revive this. On 17 April 2009 they issued an application that the stay be lifted so that the court could decide when “the short to medium risk of HMRC seeking tax on the dividend has passed” and for consequential directions to be made. In their evidence in support of the Application Notice the Advisers stated that they did not seek dismissal of the personal tax claim, but only that the court should decide what was to happen to the personal tax claim in the event that the parties could not reach an agreed disposal. This issue came before His Honour Judge Pelling QC sitting as a judge of the Chancery Division on 5 June 2009. The Advisers indicated that, notwithstanding the terms of their Application Notice dated 17 April 2009, they in fact intended to make applications (a) to strike out the personal tax claim or alternatively (b) to be granted summary judgment dismissing the claim. The Haines Watts defendants decided to climb aboard this bandwagon. Judge Pelling QC understandably regarded it as unfair that a respondent to an application for the lifting of a stay and the giving of directions should in fact be faced with applications for the summary termination of his claim: so he adjourned the application, giving the Advisers permission to amend their Application Notice and the Haines Watts defendants permission to issue an Application Notice identifying the relief they respectively sought. He reserved the costs of the hearing before him.
The adjourned hearings came before Mr Justice Vos on 29 October 2009. An order was made by consent that the applications be adjourned yet further to a date after 1 April 2010. This had been a course suggested by the Advisers in a letter of 9 October 2009 as an appropriate step to (avoid the costs of all parties turning up at a hearing in October to discuss issues which, within six months, would be certain one way or the other). The claimants’ advisors did not accept this suggestion because they wanted to be sure that at any such adjourned hearing the court should have evidence which would enable it to decide questions of costs. At the hearing before Mr Justice Vos it was agreed that at the further adjourned hearing all remaining matters of costs would be determined and:-
“That for the purposes of any issue on costs the parties shall be entitled to deploy at the hearing all such evidence by way of documentary material (including by way of documents, statements or reports etc) as they see fit to enable the judge to exercise his discretion but without there being oral evidence at the hearing”.
Provision was made for the identification of that material and for the submission of further evidence. By agreement Mr Justice Vos reserved the costs of and occasioned by the hearing before him.
The claimant submitted further evidence updating the position as to the current risk of a review of the letter of 7 February 2007 in the light of continuing enquiries by HMRC into other aspects of his tax affairs. The expert opinion stated was:-
“If no assessment is forthcoming on the dividend matter, which did not form part of the original planning, by 5 April 2010 then HM Revenue and Customs will be out of time to levy any charge in relation to that particular matter. This will be irrespective of the position with regard to the enquiry into the original planning”.
The adjourned hearing is now before me. The issues for my decision are:-
(a) How the personal tax claim should be disposed of in the light of the latest expert evidence:
(b) What costs consequences follow from that disposal:
(c) What order should be made in respect of the costs reserved by his HHJ Pelling QC:
(d) What order should be made in respect of the costs reserved by Mr Justice Vos.
22. The disposal of the personal tax claim is substantively easy but procedurally not so. The only subsisting claim is to an indemnity and it is now established that an assessment cannot be raised. It is agreed that as at 1 April 2010 the claim is certainly academic. It must therefore be disposed of. The only means of disposal formally before me are the two applications to strike out (or grant summary judgment in relation to) the personal tax claim. In fact by agreement Mr Richard Lord QC made an informal application to discontinue the personal tax claim. Since that is the way the case was presented I will give permission to discontinue the personal tax claim.
23. The real issue argued was what costs consequences should follow from that disposal. I identified three issues for decision namely:-
(a) What approach ought to be adopted?
(b) To what material should that approach be applied?
(c) What is the result of applying that approach to that material?
24. For the Advisers, Marlborough and Charterhouse Mr Dumont argued that since the claimant had applied to discontinue then the provisions of CPR 38.6(1) applied and (unless the court otherwise ordered) the claimant must pay the costs of these defendants. Founding himself upon RGB Resources Plc v Rastogi[2005] EWHC 994 (Ch) he submitted:-
(a) That it was no part of my function to attempt to reach a decision on whether the claim would have succeeded:
(b) That the burden lay upon the claimant to persuade me to adopt some course other than that provided for in CPR 38.6(1):
(c) That the test to be applied was not one of simply looking at the action as it is and seeing what would be the fair and just thing to do in the circumstances as they are before me:
(d) That justice would normally lead to the conclusion that a defendant who defends himself against a claimant who changes his mind in the course of the action for no good reason other than a re-evaluation of the factors which have otherwise remained unchanged should be compensated in costs:
(e) That it is not the law that the claimant will only be required to pay a defendant’s costs if he is in effect surrendering and acknowledging defeat.
I accept those guidelines (though I would emphasise that they were given in a case in which there was no significant change in circumstances and in which it could be said that the decision not to pursue the action was one which could and should have been made at the time when the proceedings were about to be commenced). For the Haines Watts defendants, Mr Howarth adopted this argument. (I should record that I have also read Teasdale v HSBC[2010] EWHC (QB) 612).
25. I put to counsel (and it was accepted) that in discontinuance cases there was also a line of authority which suggested that where the claim sought to be discontinued had become academic by some act on the part of a defendant or of an independent third party (so that there was a change of circumstances not brought about by the discontinuing party which rendered pursuit of the action without point) then a proper order might well be to make no order as to costs. I had in mind the line of cases considered in Jass v Blackburne [2003] EWHC 2963.
26. I do not intend to accept Mr Dumont’s formalistic approach. This is a case which has been judicially managed (with the agreement of all parties) so as to secure that time and money was not wasted in examining whether and if so how the claimant should be compensated in respect of a risk that might not eventuate. It is now clear that it will not. Everyone agrees that the case must be brought to an end. The precise procedural mechanics should not dominate a consideration of what is the just order for costs. I therefore intend to approach the question of costs by reference to the general considerations set out in CPR 44.3 (and not within the constraints imposed by CPR 38.6 and the guidelines set out in RBG Resources if these are more restrictive). The guidelines are, however, illuminating in relation to the questions which have to be decided in exercising the general discretion about costs.
27. As the opening words to CPR 44.3(2) indicate, the first question is whether I should make an order about costs. The personal tax claim has not been tried. In BCT Software Solutions v Brewer[2003] EWCA Civ 939 attention was drawn to the need for there to be a proper basis of agreed or determined fact (direct or inferential) within the statements of case, the material in the action or the correspondence for there to be any exercise of discretion in relation to costs. There is no scope for resolving disputed questions of fact. In the instant case I consider there is sufficient material upon which properly to exercise the discretion as to costs, and that I do not have to dispose of the matter by simply saying “no order as to costs” without further enquiry.
28. By CPR 44.3(2)(a) general rule is that the unsuccessful party will be ordered to pay the costs of the successful party. The personal tax claim is being concluded as against the Advisers and as against the Haines Watts defendants without any compensation being awarded in favour of the claimant. The defendants may therefore be regarded as the successful parties.
29. I do, of course, have power to make a different order by reference to the considerations set out in CPR 44.3 (4) and (5). I consider there is sufficient material to enable me to make a different order in relation to the case against the Advisers: but insufficient material to enable me to do so in relation to the Haines Watts defendants.
30. So far as the Advisers are concerned the following considerations weigh in the exercise of the discretion:-
(a) As soon as the proceedings commenced the Advisers made a “nuisance value” offer that needed to be accepted by Haines Watts as well as the claimant. It was not accepted by either. Save insofar as it may have affected the costs orders made by Mr Livesey QC (he ordered the claimant to pay 85% of the Advisors costs up to April 2008 and 100% thereafter) the court has never made any findings as to whether the offer matched what was recoverable plus costs.
(b) The basis of the defence was that the Advisers had not attended a meeting and not given advice about the Electro dividend: it has been judicially established that the contrary is the case.
(c) Part of the Adviser’s defence is that there were no section 739 implications for the claimant: this is not a position supported in the expert evidence and not an argument that anyone has sought to sustain.
(d) It cannot really be regarded as in dispute that it was negligent not to address with the claimant the implications of section 739: that is the opinion of the claimant’s expert and of Haines Watts’ expert and there is no clear rebuttal from the Advisers’ expert.
(e) Once the issue over the existence of a meeting and advice about the dividend was determined then the case against the Advisers would essentially be about proof of loss.
(f) At the hearing before me Mister Dumont ran an argument ( not pleaded, not foreshadowed in the evidence and not addressed in any expert report) that no loss could ever have been proved because if the claimant had had to pay income tax under section 739 at his highest marginal rate it would have meant that he could thereafter have received the money without any further tax liability (which other tax liability he would otherwise have had to bear). I decline to accept this submission, partly because of its lateness, and partly because it assumes that a £500,000 dividend would have been declared and paid to a company not under the claimant’s control and he would have accepted the personal tax liability of £125,000 if the implications of section 739 had been drawn to his attention (rather than, for example, leave the cash in Electro and have its value reflected in a CGT-free sale of the Hosta shares). None of this has been explored. The personal liability under section 739 has been treated on all sides as a loss.
(g) All sensible predictions about loss were set at nought by HMRC’s astounding letter of 7 February 2007: this rendered debate about an award of damages academic.
(h) The claimant chose to amend the action so as to seek an indemnity: it was decided by the court that the risk that HMRC might resile from the position adopted in the letter of 7 February 2007 was real (in the sense of not being fanciful), but the measure of the risk (and in particular whether it warranted an order for indemnity) was never decided, because under its case management powers the court adjourned that question until after the end of the exposure period. From the time of the decision to adjourn the case for that short to medium term the measurement of the risk became academic. It would never fall to be determined.
(i) Where the court has used its case management powers to avoid the necessity of determining an issue then care must be taken that the order does not operate unfairly as regards costs upon any party affected by it.
(j) Following the determination by Mr Livesey QC of the key facts, and notwithstanding that the only claim was then for an indemnity, the Advisers made no further offer, and they refused a request for an indemnity. The offer of an indemnity would (subject to questions about costs) undoubtedly have put an end to the action there and then: and it would have exposed the Advisers to no greater risk or inconvenience than the course actually adopted of keeping the proceedings in being, but stayed, until such time as the risk period came to an end. The reason why no offer was made is that the Advisors continued vehemently to deny that they had attended any meeting or given any advice, notwithstanding the findings made by Mr Livesey QC.
31. I am directed by CPR 44.3(4) and (5) to take into account all the circumstances of the case including the conduct there identified. I have sought to do so and to pay particular attention to the matters identified in the preceding paragraph. I have also taken into account the direction in CPR 44.3(6)(c). My decision is that the Advisers, Marlborough and Charterhouse (I was not invited to draw any distinction between) shall pay the claimant’s costs of the action - which have not already been the subject of orders by Mr Livesey QC - down to (but including) 30 April 2007: and that thereafter there shall be no order as to costs. Those costs will be the subject of a detailed assessment on the standard basis in default of agreement. Unusually, there is sufficient found fact (despite the Advisers’ vehement denials) or incontrovertible evidence to know how the action lay as at 7 February 2007: subject to proof of loss it was well founded. On that date it was transformed by the wholly unpredicted and unpredictable act of HMRC. Allowing a proper period for consideration of the implications of the key letter, by the end of April 2007 the position needed to be radically reassessed. The court decided that the case could not (even in the light of HMRC’s letter) be determined in a summary way. The claimant decided the risk of loss was high enough to pursue an indemnity. The Advisers decided either that the risk of loss was high enough to resist an indemnity (or that the risk was low but the inconvenience was high enough to resist an indemnity). The court decided that the risk of HMRC seeking payment should not be assessed. The level of risk was never determined, was a matter of dispute between the experts, and is now academic. The cases on discontinuance after a case becomes academic by reason of the act of a third party provide guidance for (though do not determine) the appropriate order for that part of this case.
32. The case against Haines Watts stands rather differently. The claimant’s case never was that Haines Watts had given the relevant advice. It was (by amendment made in November 2006) that the Advisers had given the advice and that Haines Watts were liable for it: see paragraphs 8, 11 and 12 of the RAPoC. The liability of Haines Watts was therefore always in a sense secondary. It was not possible for Haines Watts to be liable in circumstances where the Advisers were not liable.
33. Mr Livesey QC decided that at the time the advice was given the Advisers were agents for Marlborough. The claimant nonetheless decided to continue to assert that Haines Watts were liable (on the basis that although it had been determined that the Advisers were in fact agents of Marlborough, the claimant believed they were being held out as agents of Haines Watts so that they also were liable). This key factual issue, upon which any liability on the part of Haines Watts depends, has never been determined. It is no part of my function to attempt to do so.
34. The claimant made his decision to pursue an indemnity from Haines Watts (in addition to that sought from the Advisers) even though the Advisers themselves had never asserted that they were the actual or ostensible agents of Haines Watts. He did so even though he was also pursuing a claim for indemnity from the Advisers themselves. He continued to do so even after the question of measuring whether the degree of risk of loss was sufficient to support an order for indemnity itself became academic because of case management orders. His practical justification for doing so must have been that he wished to cover the risk that the Advisers’ professional indemnity insurers would not pay up, or because he thought the Haines Watts insurers would offer an indemnity in circumstances where the Advisers’ insurers would not . But he continued to press his claim against Haines Watts even after the Advisers agreed that they would indemnify Haines Watts against any liability in the action.
35. What is there in this that is sufficient to displace the general rule? There is most certainly insufficient to say that the Claimant should have his costs against Haines Watts. Mr Lord QC says that it was reasonable to pursue the claim. But even if that is so, it was equally reasonable for Haines Watts to resist it: so why should they pay for reasonably and successfully resisting the claim?
36. Whether there is sufficient to say that “no order for costs” is appropriate is a different question. In a sense the HMRC letter and the court case management directions made a resolution of the issues against Haines Watts also academic. But that mere fact makes their retention in the action even less understandable. Mr Lord QC submits that the claimant is entitled to proceed against anyone liable to him, and is not obliged to proceed only against those primarily liable. That is undoubtedly true. But it does not follow that he is entitled to do so without risk as to costs if he fails to bring home the action against them, and I do not think the Court should do anything to encourage litigants to pursue multiple parties to cater for remote contingencies. Mr Lord QC cannot point to anything amongst the settled facts that is relevant to the matters in CPR 44.3 which persuades me to displace the general rule.
37. The Claimant will therefore pay the Haines Watts Defendants’ costs of the action against them which have not already been the subject of orders by Mr Livesey QC (save for the costs of the hearings before HHJ Pelling QC and before Mr Justice Vos, with which I deal separately).
38. It remains to deal with the reserved costs of those hearings. I intend to spare the parties the expense of further assessments of costs and to do broad justice by making no order as to costs in relation to either hearing.
39. As regards the hearing before HHJ Pelling QC my view would be that the Advisers, Marlborough, Charterhouse and Haines Watts should pay the claimant’s costs, because they sought to use it to bring a summary end to the proceedings (which was contrary to the position stated in evidence by the Advisers, and was relief for which Haines Watts had made no application). An effective hearing was impossible. As regards the hearing before Mr Justice Vos my view would be that the claimant should pay the costs of the Advisers, Marlborough, Charterhouse and Haines Watts incurred after 9 October 2009 (when the adjournment was mooted by the defendants). An effective hearing was not a realistic expectation given the imminent expiry of the “risk period”. Fully recognising that the costs payable to the claimant under the first may not be in the same amount as the costs payable by him under the second, I think it wholly disproportionate to conduct two detailed assessments to establish the difference.
Mr Justice Norris……………………………………………………….…16 June 2010