F&C Alternative Investments (Holdings) Ltd v Barthelemy & Anor

This is the ruling on costs and other matters following the judgment on liability handed down on 14 July 2011: [2011] EWHC 1731 (Ch) (“the judgment”). In this ruling, I use the same terms as are used in the judgment.

The parties have decided not to appeal. I made an order dated 4 October 2011 dealing with various matters, the main part of which provided for payment of the price to each of the Defendants for the purchase of their respective interests in the LLP pursuant to the First Put Option Notices served on 25 February 2009, which I held in the judgment to be valid notices. The parties were agreed as to the amount of the price payable, namely £3,914,359.20 to each Defendant. Those sums were paid to the Defendants on 7 October 2011.

The issues which I have to determine at this stage are (i) what costs orders should be made; (ii) what interest should be paid in relation to the principal sums payable to the Defendants under the First Put Option Notices; and (iii) what interest should be paid to the Defendants in respect of payments they have had to make to meet their legal expenses in the course of the proceedings. I address those issues in turn below.

The question of the costs orders to be made in this case is no small matter, given the very high cost to both sides of contesting bitterly fought litigation, including through a trial lasting some 95 days. In this ruling, for convenience, I refer to proposals for costs orders to be made against F&C, but it should be noted that if costs orders are to be made against F&C entities the parties invited me to adjourn consideration of whether orders should be made against F&C plc while discussions continued regarding possible assurances given by F&C plc regarding payment of costs by any other F&C entity.

In devising suitable costs orders which meet the justice and merits of a particular case in exercise of its discretion under CPR Part 44 there is considerable value in attempting to keep things as simple as is reasonably possible, in order to minimise the detail and complexity (and hence the time and cost) involved both in arguing about what costs orders should be made and, once made, of arguing about how they should be implemented. In this case, in my judgment, it is not appropriate to engage in a finely detailed analysis of the issues and sub-issues on which parties may have succeeded or failed. That is particularly so since, by reason of the broad and relatively indeterminate legal standards provided by the obligation of utmost good faith in clause 13.6 of the Agreement and the concept of unfair prejudice in section 994 of the Companies Act 2006, there was a plethora of issues and sub-issues raised by both sides which had to be gone into in the course of arriving at an overall judgment of who was more in the wrong and who more in the right and so deserving of relief from the court. A fairly broad brush approach is more likely to meet the overall justice of the case while keeping the cost of arriving at a fair result within proportionate and reasonable limits. In adopting this approach I am proceeding in line with the guidance in a range of authorities which caution against overly finely detailed analysis when deciding questions regarding costs orders: see e.g. Re Southern Counties Fresh Foods Ltd [2011] EWHC 1370 (Ch).

In doing so, I reject a substantial part of the submissions made by Miss Newman QC for F&C, which I consider involved an excessively finely detailed sub-division of issues and sub-issues in the proceedings, parcelling up the case into a list of some 34 issues and then suggesting that in relation to a significant number of them (24) F&C had won and the Defendants had lost, in order to propose that I make substantial costs orders in favour of F&C against the Defendants. F&C’s list was highly tendentious in a number of respects. To take two, by way of illustration: (a) the list tended to separate out minor issues on which F&C had enjoyed a degree of success (e.g. “Alleged breach of contract in respect of Forex hedging”, which featured hardly at all in the proceedings) and appeared to give them the same status as major issues (which could in theory have been broken down into a longer list of sub-issues) on which F&C had clearly lost (e.g. “Mr Mackay’s investigation and report”, which took up a great deal of time at the trial and constituted a major chapter both in submissions and the judgment); and (b) F&C claimed to have won on issues where it was strongly arguable that the Defendants had in fact won (e.g. on the item listed as “21 January 2009 meeting”, which was the acrimonious meeting which finished with Mr Ribeiro withdrawing matters properly for the ManCom and referring them to a Members Meeting, thus subverting the governance structures within the LLP in a way which formed part of the serious breach of the Agreement which I found provided a ground for concluding that the First Put Option Notice was valid: see paras. [639]-[668] and [726]-[729] of the judgment).

To my mind, F&C’s suggestion that there should be a more finely detailed approach to costs based on its list or a similar list exercise reinforced the wisdom of eschewing such an approach. The arguments required fully to debate the characterisation of the issues to be listed and then to debate who had won or lost on each issue would have been very prolonged indeed, and would have involved time and expense out of all proportion to what was required to produce a just outcome at the costs stage.

In another part of her submissions, Miss Newman took a different tack, so as to suggest that costs orders in favour of the Defendants should be limited to the narrowest of the issues required to resolve F&C’s original claim for a declaration by which the Part 7 proceedings were commenced - essentially, whether Mr Ribeiro had or had not made a mistake in causing the non-payment of advance drawings to the Defendants by the LLP on 25 February 2009, which was the event which immediately led to them serving the First Put Option Notices. F&C’s proposal here was that any element of a costs order in favour of the Defendants should be very modest because, it was suggested, such a narrow issue could have been resolved in a much shorter trial and it was unnecessary for the Defendants to have broadened the dispute beyond that in order to secure the relief which they did ultimately obtain from the court.

I reject that submission as well. In my view it would be utterly unrealistic, having regard to what was in issue between the parties and what was at stake in the litigation, to adopt such a narrow approach.

The issue of the claim by F&C on 6 March 2009 (para. [767] of the judgment) has the hallmarks of being a tactical device intended to put pressure on the Defendants if they did not come to heel, by sucking them into expensive and difficult litigation against a large, well-funded financial group: cf paras. [705] and [774]-[775] of the judgment. The issue of the claim was not preceded by a letter before claim as it should have been, in an effort to clarify the issues between the parties and see if there might be some way forward which did not require resort to litigation. The declaration sought by F&C was bound to provoke the Defendants, as it did, into counterclaiming that the First Put Option Notice was validly served and pleading a range of alleged breaches of the Agreement by F&C in support of that contention. F&C had no intention of accepting that the First Put Option was validly served, so it was in practice inevitable that the litigation which F&C began would draw the Defendants into pleading all breaches of the Agreement which they properly could in support of their claim that the First Put Option Notice was valid.

As events developed, and the Second and Third Put Option Notices came to be served, the parties were bound to be drawn into arguing about their validity as well, and since F&C disputed their validity the Defendants were drawn into pleading every breach of the Agreement which they properly could in support of their claims in relation to those notices.

At the same time, since F&C throughout disputed the validity of the First Put Option Notices (and in due course the validity of the other notices as well), it was clearly foreseeable that the Defendants would feel driven to take other proceedings – against the risk, which F&C sought to create and broaden, that they might lose in the Part 7 proceedings - to protect their position in relation to what was happening to them and the disputes about the governance of the LLP, as F&C sought to take greater control over it than allowed for under the Agreement. It was therefore foreseeable that, arising from F&C’s conduct and its decision to opt for litigation as a means of resolving the situation, an unfair prejudice petition would be issued by the Defendants under section 994. To a very large extent the allegations in the Petition covered the same ground as the Defendants’ counterclaim in the Part 7 proceedings, not least because of the similarity of the tests for and factors relevant to argument about unfair prejudice under section 994 and the obligation of utmost good faith in clause 13.6 of the Agreement. In my judgment, it is not sensible or feasible to treat the Part 7 proceedings and the Petition as anything other than a composite whole.

Miss Newman also sought to suggest that I should separate out the Petition and costs associated with it for the separate reason that F&C, by reference to guidance given by the House of Lords in O’Neill v Phillips [1999] 1 WLR 1092, had by a letter dated 21 July 2009 made an open offer to buy out the Defendants’ interests in the LLP at a price to be calculated by reference to a valuation of the LLP to be performed by an expert. She submitted that the Defendants ought to have accepted this offer, so that the costs of contesting the Petition could have been avoided.

I do not accept this submission. F&C’s proposal was that the valuation of the LLP for working out the price to be paid for the Defendants’ interests was to be as at 31 December 2008, at about the darkest time in terms of the general economic outlook and for evaluating the financial prospects for businesses such as the LLP’s, whereas by June and July 2009 - when the Petition was issued and F&C’s offer was made - the economic and financial outlook appeared to have brightened significantly. Therefore, the Defendants could reasonably assess that the offer did not properly reflect the value of their interests in the LLP at the relevant time. Also, the offer was expressed to be open for acceptance only until 12 August 2009, before disclosure was due to be given by F&C (which would have enabled the Defendants better to assess the merits of the contentions they had made or might make against F&C and could materially have improved their prospects in the litigation – as in fact it did). At the same time, the offer included as a condition that the Defendants should accept the purchase price to be paid “in full and final settlement of all claims which they have or may have against [Holdings], against the LLP, against any subsidiary or entity within the F&C Group and against any and all individual employees and/or directors of any subsidiary or entity within the F&C Group, save for the claims already pleaded in the Part 7 Claim and/or in the Petition.” In this way the offer sought to confine the Defendants to relying in the litigation to those matters already pleaded, precluding them from pleading new matters which might arise out of the disclosure to be given by F&C. These features constituted further reasons why F&C’s offer was unsatisfactory from the Defendants’ point of view. In my opinion, the Defendants acted reasonably in declining to accept the offer.

In my assessment, the Cross-Petition also falls to be treated as part of the same composite set of proceedings as the Part 7 proceedings and the Petition. Once F&C chose to make an issue of the treatment of IT matters in relation to the LLP, leading to the Mackay investigation and report, which in turn were used by F&C as the lever to oust the Defendants from the day-to-day management and control of the LLP, it was inevitable that those issues would be brought into the Part 7 proceedings and the Petition. The Cross-Petition covered the same ground from the other direction, namely F&C for its part seeking to rely upon the Defendants’ behaviour in relation to IT matters and Mr Mackay’s investigation and report to argue that the Defendants had acted in an unfairly prejudicial manner in the management of the LLP contrary to the interests of F&C, such that these matters should provide grounds for relief in favour of F&C rather than in favour of the Defendants.

It is frequently a feature of litigation (particularly of complex, hard fought commercial litigation such as in this case) that arguments or factual disputes may be relevant to a number of underlying issues which have to be addressed in the proceedings. It is also frequently the case that a party may rely on a number of grounds to support his claim that he was entitled to take some particular action, and succeed in showing his entitlement so to act (i.e. on one or more of the grounds advanced as justification for the action) while at the same time losing the argument that certain other grounds relied on by him provided a proper basis to justify the action taken. These are both features of the present case.

In broad and very summary terms, the principal parameters of the present litigation were these:

It is clear from this sketch that, in relation to the claims on which they were successful ((A) and (C)), the Defendants pleaded and sought to rely on a range of matters, on some of which they succeeded and on others of which they lost (in particular, the liquidation case and the mis-selling case). It can also be said that they relied on a wide range of matters which were common both to claims on which they succeeded ((A), (C) and (E)) and to claims on which they failed ((B) and (D)).

In exercising its discretion as to costs, a court will be cautious before concluding that an award of costs in favour of the party who has won overall should be limited in either of these cases. This is a function of the general approach that courts should avoid an unduly finely detailed division of issues and sub-issues when deciding what costs orders to make.

The general rule is that the unsuccessful party will be ordered to pay the costs of the successful party: CPR Part 44.3(2)(a). Often it will be appropriate that the winner should get an order that the loser should pay his costs even where there have been issues on which the overall winner has lost: see e.g. Actavis v Merck [2007] EWHC 1625 (Pat), at [25]; Fleming v Chief Constable of Sussex Police Force [2004] EWCA Civ 643; [2005] 1 Costs LR 1, at [43]; HLB Kidsons v Lloyds Underwriters [2007] EWHC 2699 (Comm); [2008] 3 Costs LR 427, at [11]. In commercial litigation, the starting point in working out who the winner is for the purposes of making costs orders will usually be to look at what money has been ordered to be paid: see Fiona Trust & Holding Corporation v Privalov [2011] EWHC 664 (Comm) at [36] per Andrew Smith J (“At least in commercial litigation, the party ‘who ends up receiving payment’ is generally characterised as ‘the overall winner of the entire action’, citing Multiplex Constructions (UK) v Cleveland Bridge [2008] EWHC 2280 (TCC); [2009] 1 Costs LR 55 at [72] per Jackson J).

Parties should be afforded a reasonable degree of latitude in formulating claims, including pleading alternative bases for the same basic claim. That is a normal and reasonable way to conduct litigation (where the parties are operating under conditions of uncertainty about how the court might ultimately react to the arguments and evidence to be heard in support of the claim) and may be a good way of ensuring that the court has before it the full circumstances of the case so that it is in a position to get to the true heart of the dispute and arrive at what it regards as the just outcome. Therefore, where that is done and the party proceeding in that way has won on his claim and has acted reasonably, it will often be appropriate for a simple costs order to be made in his favour.

Similarly, where costs have been incurred on issues which are common to a claim which has succeeded and to a claim which has failed, it will often be appropriate simply to make a costs order in favour of the winning party which covers those common issues: Multiplex Constructions (UK) v Cleveland Bridge at [72(viii)]; Antonelli v Allen, unrep., Neuberger J, 29 November 2000.

In the present case, however, I consider that it is just and appropriate that the order for costs should both reflect the success of the Defendants on (A), (C) and (E) above, but also their failure on (B) and (D) above (in particular, their failure on the liquidation case and the mis-selling case), for the following reasons:

In reaching my conclusion as to the proper form of costs order, I have considered and rejected a submission of Mr Thompson for the Defendants to the effect that, since the Defendants made an offer on 24 December 2009 (and on other occasions) to settle the whole proceedings at a level which F&C should have accepted, F&C should be held responsible for the whole costs of the litigation after that, including the costs in relation to the mis-selling case and the liquidation case. In my view that is not appropriate. I think certain costs consequences should follow from F&C’s failure to accept the offers made by the Defendants (see paras. [31]ff below), but since F&C did not accept the offers and the litigation continued it remained incumbent on the Defendants to consider what claims to pursue, and it was their choice to continue to pursue the mis-selling case and the liquidation case and the wider financial claims based on them referred to at (B) and (D) above. In my view, it is just and appropriate that the Defendants’ failure in relation to this should be taken into account in the costs order to be made.

Having reached the conclusion that the Defendants’ failure in relation to the mis-selling case and the liquidation case should be taken into account in formulating the costs order, along with their success on other parts of their claims, the question arises as to the best way to achieve that in crafting a costs order in this case. In my judgment, the best solution here is to proceed by making a costs order in favour of the Defendants, and to take account of their failure on the mis-selling case and the liquidation case by disallowing a proportion of their costs. The amount of the disallowance should be set at a level to reflect in a broadly fair manner the fact that there would have been a significant element of recovery by F&C of its own costs if, instead, a separate costs order were made in its favour in relation to these distinct issues.

In my view, the considerable merit of proceeding in the way I prefer (rather than making one costs order in favour of the Defendants and another costs order in favour of F&C, to be set off against each other) is that it will considerably simplify and shorten the argument required to arrive at the final costs outcome in these very lengthy and involved proceedings. I consider that it will produce justice between the parties, in what on any approach has to be a broad evaluative exercise. This approach is in line with the guidance given by the Court of Appeal in National Westminster Bank v Kotonou [2007] EWCA Civ. 223 at [22] and by Jackson J in Multiplex Constructions (UK) v Cleveland Bridge at [72(iv)] and [72(v)] and with the frequent practice of the courts in responding to cases in which there has been partial victory and partial failure in proceedings (see e.g. Re Southern Counties Fresh Foods Ltd at [101] and [104]; Fiona Trust and Holding Corporation v Privalov at [46]).

In my assessment, the appropriate order in this case is that F&C be ordered to pay 70% of the Defendants’ costs of the Part 7 proceedings, the Petition and the Cross-Petition (i.e. treating all these proceedings as a composite whole). The 30% disallowance of the Defendants’ costs is arrived at on the basis of my assessment that about 15% of the proceedings were taken up with a distinct focus on the mis-selling case and the liquidation case at a level discrete from the remainder of the Defendants’ claims on which they won (the larger part of that 15% being referable to the liquidation case), and on the footing that I consider that increasing that figure to 30% is appropriate to make due allowance for an element of F&C’s costs referable to those issues. In my opinion, a disallowance of the Defendants’ costs at this level achieves broad justice between the parties while at the same time producing a relatively simple, practical order which can in due course be applied by the parties and the costs judge with a minimum of time, effort and expense.

The further issue which arises in relation to the costs order is whether it should be made on the standard basis or the indemnity basis. Mr Thompson for the Defendants submitted that it should be made on the indemnity basis on the grounds that they had made repeated offers to settle the proceedings at the same level of payment by F&C in fact achieved by them in the proceedings (or at a lesser level, more generous to F&C), which F&C had declined to accept, and also on the grounds that F&C (acting in particular by Mr Ribeiro) should have appreciated that they had no good defence to the Defendants’ claim for the price under the Put Option Notices nor any good case on the Cross-Petition and had therefore acted irresponsibly in continuing to contest that claim of the Defendants and in pursuing its case on the Cross-Petition.

I deal first with these latter points. I do not accept this submission by Mr Thompson. So far as concerns the Defendants’ claim in relation to the First Put Option Notices, it is true that I found that Mr Ribeiro had no serious faith in the view that he was entitled to stop the payment of advance drawings to the Defendants on 25 February 2009 (paras. [705], [723] and [735] of the judgment); but in my view that still left a good deal of scope for argument by F&C about whether what was done was sufficiently grave in the overall context of the case and had sufficiently serious adverse effects to lead to the result that the First Put Option Notice was valid. I do not consider that F&C acted unreasonably or irresponsibly in contesting that issue in the course of the proceedings. Moreover, the issue overlapped with the liquidation case, on which the Defendants lost. Their case was that Mr Ribeiro acted as he did as part of the plan allegedly conceived by F&C to close the LLP. It was necessary to go into the reasons for Mr Ribeiro’s actions in this regard in assessing the liquidation case and the Defendants’ claims for more substantial monetary relief on which they ultimately lost ((B) and (D) above). In those circumstances, it would not be fair or appropriate to order F&C to pay the Defendants’ costs on an indemnity basis by reference to this submission of Mr Thompson.

I also reject the suggestion that F&C acted unreasonably or irresponsibly in pursuing its case in the Cross-Petition. The position in relation to IT matters (and the Mackay investigation into those matters) was complex and confused, and the Defendants were open to legitimate criticism as to their conduct.

I think there is considerably more force in Mr Thompson’s other submission, referring to the offers of settlement made by the Defendants. To assess this submission it is necessary to refer to relevant provisions in the Civil Procedure Rules and to set out the history of the offers of settlement made by the Defendants from time to time.

CPR Part 36 makes provision for offers of settlement to be made which can have the effect of transferring the risk (or part of the risk) of costs liability in relation to litigation from one party to another. CPR Part 36.2 provides in relevant part as follows:

“Form and content of a Part 36 offer

36.2-(1) An offer to settle which is made in accordance with this rule is called a Part 36 offer.

(2)

A Part 36 offer must-

(a)

be in writing;

(b)

state on its face that it is intended to have the consequences of Section I of Part 36;

(c)

specify a period of not less than 21 days within which the defendant will be liable for the claimant’s costs in accordance with rule 36.10 if the offer is accepted;

(d)

state whether it relates to the whole of the claim or to part of it or to an issue that arises in it and if so to which part or issue; and

(e)

state whether it takes into account any counterclaim.

(Rule 36.7 makes provision for when a Part 36 offer is made.)

(3)

Rule 36.2(2)(c) does not apply if the offer is made less than 21 days before the start of the trial. …”

CPR Part 36.10 provides as follows:

“Costs consequences of acceptance of a Part 36 offer

36.10-(1) Subject to paragraph (2) and paragraph (4)(a), where a Part 36 offer is accepted within the relevant period the claimant will be entitled to the costs of the proceedings up to the date on which notice of acceptance was served on the offeror.

(2)

Where-

(a)

a defendant’s Part 36 offer relates to part only of the claim; and

(b)

at the time of serving notice of acceptance within the relevant period the claimant abandons the balance of the claim,

the claimant will be entitled to the costs of the proceedings up to the date of serving notice of acceptance unless the court orders otherwise.

(3)

Costs under paragraphs (1) and (2) of this rule will be assessed on the standard basis if the amount of costs is not agreed. (Rule 44.4(2) explains the standard basis for assessment of costs.) (Rule 44.12 contains provisions about when a costs order is deemed to have been made and applying for an order under section 194(3) of the Legal Services Act 2007.)

(4)

Where-

(a)

a Part 36 offer that was made less than 21 days before the start of trial is accepted; or

(b)

a Part 36 offer is accepted after expiry of the relevant period,

if the parties do not agree the liability for costs, the court will make an order as to costs.

(5)

Where paragraph (4)(b) applies, unless the court orders otherwise-

(a)

the claimant will be entitled to the costs of the proceedings up to the date on which the relevant period expired; and

(b)

the offeree will be liable for the offeror’s costs for the period from the date of expiry of the relevant period to the date of acceptance.

(6)

The claimant’s costs include any costs incurred in dealing with the defendant’s counterclaim if the Part 36 offer states that it takes into account the counterclaim.”

CPR Part 36.14 provides as follows:

“Costs consequences following judgment

36.14-(1) This rule applies where upon judgment being entered-

(a)

a claimant fails to obtain a judgment more advantageous than a defendant’s Part 36 offer; or

(b)

judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer.

(2)

Subject to paragraph (6), where rule 36.14(1)(a) applies, the court will, unless it considers it unjust to do so, order that the defendant is entitled to-

(a)

his costs from the date on which the relevant period expired; and

(b)

interest on those costs.

(3)

Subject to paragraph (6), where rule 36.14(1)(b) applies, the court will, unless it considers it unjust to do so, order that the claimant is entitled to-

(a)

interest on the whole or part of any sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;

(b)

his costs on the indemnity basis from the date on which the relevant period expired; and

(c)

interest on those costs at a rate not exceeding 10% above base rate.

(4)

In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3) above, the court will take into account all the circumstances of the case including-

(a)

the terms of any Part 36 offer;

(b)

the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;

(c)

the information available to the parties at the time when the Part 36 offer was made; and

(d)

the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated.

(5)

Where the court awards interest under this rule and also awards interest on the same sum and for the same period under any other power, the total rate of interest may not exceed 10% above base rate.

(6)

Paragraphs (2) and (3) of this rule do not apply to a Part 36 offer-

(a)

that has been withdrawn;

(b)

that has been changed so that its terms are less advantageous to the offeree, and the offeree has beaten the less advantageous offer;

(c)

made less than 21 days before trial, unless the court has abridged the relevant period.

(Rule 44.3 requires the court to consider an offer to settle that does not have the costs consequences set out in this Section in deciding what order to make about costs)”

CPR Part 44 sets out the general costs framework which governs litigation in the High Court. It allows a considerable degree of discretion to the court to exercise its own best judgment in light of general principles: see CPR Part 44.3. Part 44.3(4) provides as follows:

“(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;

(b)

whether a party has succeeded on part of his case, even if he has not been wholly successful; and

(c)

any payment into court or admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply. ”

By a letter dated 24 December 2009, JGR for the Defendants wrote to Norton Rose for F&C on a “Without prejudice save as to costs” basis setting out an offer by the Defendants to settle the proceedings. The offer to settle was on the terms that F&C should purchase their respective interests in the LLP at a price calculated according to the Put Option formula, by reference to a multiplier of 6 times average profits in 2007 and 2008 (despite an infelicity in the way in which the letter was expressed, it was clear from its terms as a whole and the calculation appended to it that a price of £2,935,769.40 for each of the Defendants’ respective 20% interests was proposed, amounting to a price of £5,871,538.80 for their total 40% interest). The use of a multiplier of 6 was more generous to F&C than the multiplier of 8 which was contained in the Put Option formula where paragraph 1.7 of the Fourth Schedule applied (i.e. in a case of serious breach of the Agreement by F&C), as in the proceedings the Defendants claimed it did. The reference to an average of the profits in 2007 and 2008 was fair, since under the Put Option formula the Defendants were entitled to use an average of the two most profitable years out of a period of four years which included 2007 and 2008.

The offer included a provision that F&C should be liable for the Defendants’ costs of the Petition and the Part 7 proceedings on the standard basis. The offer at the multiplier of 6 was expressed to be available for acceptance by F&C up to 4 pm on 15 January 2010. Thereafter, the letter stated that the offer would remain open for acceptance, but at a price calculated by using a multiplier of 8 (i.e. the same multiplier as provided for by paragraph 1.7 of the Fourth Schedule), until such time as it was withdrawn by notice in writing.

In the letter, JGR explained why a formal CPR Part 36 offer was not being made, but that the offer had been fashioned to operate by analogy with a Part 36 offer, and that it would be drawn to the attention of the court on the question of costs in accordance with CPR Part 44.3, as follows:

“Unfortunately, this Offer to settle has to be made outside the terms of Part 36. It is clearly necessary that both sets of proceedings be settled in tandem, including both Claim and Counterclaim in the Part 7 proceedings. The fact that formally (although not in substance) your client is in the position of claimant in the Part 7 proceedings, would have the result, were the offer to be made under part 36, that a rigid application of CPR 36.10 would render our clients liable for the costs of the Part 7 proceedings in the event that the offer was accepted by your client. That would be a nonsensical result, given the fact that in substance our client is in the position of claimant in the Part 7 proceedings and if your client were to accept the offer, it would be making a substantial payment to our clients in respect of their Counterclaim, albeit not the full sum claimed, so that in substance the right costs consequence of that would be that your client should pay our clients’ costs of the Part 7 proceedings. However, regardless of that absurdity on the facts of the present case, that seems to us to be at least arguably the effect of the rules. Consequently, for that reason and for that reason alone, this offer is made outside the scope of Part 36. However, we shall naturally be drawing this offer to the attention of the Court and relying upon it on the question of costs in both sets of proceedings in accordance with CPR 44.3.”

Mr Thompson submitted that in practice, for the reasons explained in the letter, it was not fair or appropriate to expect the Defendants to frame their offer to settle as a formal CPR Part 36 offer. For them to do so would, by virtue of CPR Part 36.10, have rendered them liable for the whole of F&C’s costs up to the time the offer was made, which would have been contrary to the justice of the case, where the Defendants maintained (and successfully vindicated their claim at trial) that their Put Option Notices were valid and that F&C was wrong to reject them. He submitted that there was a glitch in the wording of CPR Part 36.10 when it came to apply it to a case such as the present, in which in the Part 7 proceedings (especially when they were taken together with the Petition) the Defendants were in truth and as a matter of substance the claimants and F&C the defendant, but where formally, for essentially tactical reasons, F&C had launched the proceedings and hence was formally the claimant in respect of those proceedings. To take account of that awkwardness in the drafting of the rule, Mr Thompson said that the proper course was for the Defendants to make an offer to settle which mimicked with appropriate adjustment the operation of CPR Part 36, to explain to the other party (as they did) why such an offer outside CPR Part 36 was being made and to indicate that at the end of the proceedings the court would be invited to exercise its discretion with regard to costs in the same way as if it had been an offer made within CPR Part 36.

I accept this submission. Those advising the Defendants had properly identified a glitch in the operation of CPR Part 36, as it would have applied in the circumstances of this case had the Defendants made a formal Part 36 offer, in that that would (if accepted) have led to the unjust result that they would have to pay F&C’s costs, rather than the other way round. In light of that glitch, I consider that the Defendants proceeded in a sensible and proper way in fashioning the form of offer which they put forward in this letter and in explaining why they were proceeding in that way. F&C was put on clear notice that the Defendants would contend that their offer should be given similar effect as a true Part 36 offer, had CPR Part 36 been expressed in a way which allowed for the Defendants to do that without exposing themselves to an inappropriate costs liability.

The offers contained in the letter of 24 December 2009 were not accepted by F&C. It made its own counter-proposal of settlement, but at a very much lower price which did not come anywhere near reflecting the true extent of the Defendants’ rights in respect of the Put Option Notices.

The Defendants’ offer of settlement at a price reflecting a multiplier of 8 contained in the letter of 24 December 2009 remained open for acceptance by F&C until, by letter dated 21 May 2010 from JGR to Norton Rose, it was withdrawn and immediately replaced by another offer. This was shortly before the commencement of the trial hearing before me, on 14 June 2010. As set out in JGR’s letter of 21 May 2010, the new offer was reformulated to cover the Cross-Petition as well as the Petition and the Part 7 proceedings, but otherwise was on essentially the same terms as before (using a multiplier of 8), save that a new requirement had been added that F&C should write to the FSA “to inform the FSA that the complaints made against Mr Barthelemy and Mr Culligan were made in the context of a commercial dispute which has now been settled (the precise wording used to be approved by our clients, approval not to be unreasonably withheld)”.

Miss Newman submitted that this additional requirement meant that the offer in the letter of 21 May 2010 was not truly an offer capable of acceptance. I reject that submission: although the form of the wording to be used was not specified, the offer set out in sufficiently determinate terms the gist of what was to be said and provided that the Defendants’ approval could not be unreasonably withheld, so the offer was not an ineffective proposal to enter into an agreement to agree (rather than an offer capable of creating, upon acceptance, a binding contract) as Miss Newman suggested.

Miss Newman also suggested that F&C could not reasonably be expected to accept the offer containing the new requirement, because that was a matter falling outside the relief which the court could order in the proceedings and also because F&C could not properly accept an obligation to write to the FSA in these terms. I do not accept either of these points. The remedial discretion available to the court under section 996 of the Companies Act 2006 in respect of proceedings under section 994 is very wide, and could have included an order that F&C write to the FSA to undo the effect of its unfairly prejudicial behaviour in pursuing the Mackay investigation and then acting on the Mackay report (including by sending notices to the FSA). In any event, if the claims proceeded to trial and the Defendants won, they would have had the benefit of a full judgment in their favour to show to the FSA, and the proposal that the claims be settled on condition that a letter be sent to the FSA in the modest and accurate terms proposed in the letter of 21 May 2010 seems to me to be a reasonable proposal at settlement stage to achieve a similar effect. There would have been nothing improper in F&C writing to the FSA in such terms.

F&C declined to accept this offer as well. Therefore the trial commenced. It continued until mid-August 2010, at which point the hearing was adjourned to resume in late October 2010. By a further letter from JGR dated 7 September 2010, the Defendants withdrew their offer of 21 May 2010.

However, by letter from JGR dated 22 October 2010 (shortly before the trial resumed), the Defendants made a further offer of settlement. The multiplier offered this time was 6 (i.e. considerably more generous than the multiplier of 8 provided for in paragraph 1.7 of the Fourth Schedule and referred to in the letters of 24 December 2009 and 21 May 2010). In this letter there was no requirement that F&C should agree to make an approach to the FSA, although it included a different further requirement that “all data and systems of the LLP be transferred” to the Defendants. In my view, given the parlous state of the LLP at this point and the use of a multiplier of 6 rather than 8, this offer was again a fair commercial offer by the Defendants to settle the proceedings at a level at or below the level of relief which they ultimately succeeded in obtaining after trial. The offer was expressed to be open for acceptance only until 10 am on 25 October 2010, when the trial was to resume.

Again, F&C declined to accept this offer. The trial resumed and continued until the Christmas vacation, when it was adjourned until mid-January 2011. By letter from JGR dated 21 January 2011 (shortly before the expert witnesses were due to be called to give evidence), the Defendants made another offer of settlement, on terms similar to those in the letter of 22 October 2010. This offer was expressed to be open for acceptance until 4.15 pm on 28 January 2011.

Again, F&C declined to accept this offer. The trial proceeded through to its conclusion. The Defendants secured an outcome as good as or better than that referred to in their various settlement offers – i.e. an order that F&C purchase their interests in the LLP pursuant to the First Put Option Notice, at a price calculated by reference to the profits of the LLP for 2007 and 2008 and by reference to a multiplier of 8.

I accept Mr Thompson’s submission that there was a good and legitimate reason why the Defendants should not have been expected to make a formal CPR Part 36 offer in the context of this case. I also accept his submission that, where that is the case and where a party makes an offer of settlement which seeks to comply with the requirements of CPR Part 36 while adjusting for the infelicity in the wording of CPR Part 36.10, while explaining why the offer is made outside CPR Part 36 and that the court will be invited to exercise its discretion on costs by analogy with CPR Part 36, it may often be appropriate for the court to do just that.

Authority supports the proposition that the court may look to CPR Part 36 for guidance as to how to exercise its general discretion as to costs contained in CPR Part 44.3 where the circumstances in which an offer of settlement has been made are sufficiently analogous to the sort of situation in which CPR Part 36 applies: Multiplex Constructions (UK) v Cleveland Bridge, at [67]-[72] (referring in this regard to Carver v BAA plc [2008] EWCA Civ 412 at [28]-[32]); Fitzroy Robinson Ltd v Mentmore Towers Ltd [2010] EWHC 98 (TCC), at [24]-[26]; and Huntley v Simmonds [2009] EWHC 406 (QB). The same public interest in encouraging settlement on reasonable terms which underlies CPR Part 36 may be found to exist in other cases in a sufficiently powerful form as to suggest that the same or similar costs consequences should follow. In my view, that is the position here in relation to the settlement offers made by the Defendants.

I would add that I think the desirability of operating the costs regime in such a way as to create proper incentives to settlement is especially strong in relation to the sort of sprawling litigation which was involved in this case and which, notoriously, tends to arise in relation to unfair prejudice claims under section 994 (since the provision is worded in a very general fashion and does not supply a clear criterion of relevance - or irrelevance - of matters which can be raised under it, areas of dispute tend to proliferate as parties seek to bring in a wide range of matters which they say bear on the fairness or otherwise of the behaviour of the other side). Given the complexity of the dispute in a case such as this and the substantial amount of time, effort and cost on both sides (and on the part of the courts) likely to be required to resolve it, it is especially important that the costs rules should be operated in a way which makes it very clear that powerful incentives exist for parties to seek to settle the dispute on reasonable terms at an early stage, and which gives clear and predictable signals about what penalties may be imposed in terms of the distribution of the financial burdens and risks of the dispute resolution process if reasonable offers of settlement are rejected.

The offers made by the Defendants were available for acceptance by F&C over long periods in the lead up to and during the course of the trial. F&C had more than adequate time to consider its reaction to these offers. Certain of the offers were markedly more generous to F&C than the order eventually to be made in the Defendants’ favour. For these reasons, I consider that it is appropriate to give considerable weight when exercising my discretion under CPR Part 44.3 (in particular under CPR Part 44.3(4)(c)) to the settlement offers made by the Defendants. I also consider, in line with Mr Thompson’s submissions, that it is appropriate to have regard to CPR Part 36 as an analogy which can provide guidance as to the order to be made. The provisions of CPR Part 36 give practical expression to the degree of incentive which is regarded as being in the public interest to apply to encourage settlement.

However, each of the offers was withdrawn after a period. Therefore, even if they had formally been offers made under CPR Part 36, the presumption in Part 36.14(2) and (3) in favour of making an order for indemnity costs (unless it is unjust to do so) would not have applied. Instead, if the offers had formally been made under CPR Part 36, the general discretion as to costs in CPR Part 44.3 would have applied (as the words at the end of CPR Part 36.14(6) make clear). But in exercising that discretion in the context of a formal Part 36 offer which is withdrawn, it is open to the court in a suitable case to assess that in the particular circumstances there is a strong analogy to be drawn with the central case covered by CPR Part 36.10(2) and (3), in which case it may be appropriate to look for guidance to those provisions in framing the relevant costs order - just as the court may find that to be an appropriate approach where for some other reason an offer does not comply with Part 36, as in Fitzroy Robinson Ltd v Mentmore Towers Ltd, at [24]-[26], for example.

In this case, I consider that the analogy with the CPR Part 36 regime is strong. Sensible offers were made at a relatively early stage by the Defendants, and maintained throughout the critical period until we were deeply into the trial by mid-August 2010. They were revived at significant later points in the proceedings, with a view to avoiding further costs and on a basis generous to F&C. Whilst F&C was not obliged to accept any of these offers, in my judgment by failing to do so, failing to make any reasonable counter-proposals by reference to the Put Option case which was the Defendants’ primary case and choosing instead to continue to litigate against the Defendants regarding the validity of the Put Option Notices, F&C ought fairly to be regarded as having taken upon itself the risk of bearing the considerable costs involved in litigating that and related issues if it were proved at trial the Put Option Notices were valid.

In my opinion, therefore, the appropriate basis for the assessment of the Defendants’ costs in this case is the standard basis for costs incurred in the period up to 15 January 2010 (which allows for a reasonable period within which F&C could consider the Defendants’ offer of 24 December 2009 and would correspond to the starting point for this – expiry of the 21 day “relevant period” from first making an offer- if CPR Part 36 had in fact applied), and the indemnity basis for costs incurred in the period from 16 January 2010.

In this regard, there are three subsidiary points which deserve mention:

The Defendants claim interest on the sums payable to the Defendants pursuant to the First Put Option Notices under section 35A of the Senior Courts Act 1981. In my judgment, F&C should pay interest on those sums from 26 February 2009 until 7 October 2011 (when they were in fact paid by F&C to the Defendants). The date of 26 February 2009 is the appropriate starting point because (i) upon service of the First Put Option Notices, under paragraph 1.7 of the Fourth Schedule, the Defendants immediately became entitled to payment of the price for their respective interests in the LLP; but (ii) the notices were only served after banking hours on 25 February 2009 so there was no possibility of the Defendants earning any interest on the sums paid (or avoiding having to pay interest on any borrowings of their own which might be repaid out of the monies received) for that day. As to (i), Miss Newman submitted that a later start date should be chosen to allow for a reasonable time for F&C to arrange for payment of such a sum. However, I consider that the appropriate starting point should be the time at which the entitlement to receive the money arose.

The more significant issue under this heading is the rate at which interest should be paid in relation to the principal sums which have now been paid to the Defendants. In commercial litigation, at least insofar as it is between good-sized business organisations, the court usually exercises its discretion under CPR Part 44 to award interest on principal sums at the rate of 1% above base rate. Good reason has to be shown to depart from that basic approach. Miss Newman submitted that the rate of interest should be fixed at 1% above base rate in this case, and that there was no sufficient reason to depart from that.

For most of the period which would be covered by an award of interest, the Bank of England base rate has been at what is historically an exceptionally low level of 0.5%, as part of the Bank’s reaction to the financial crisis in late 2008 with which the decline in the fortunes of the LLP was bound up. The Defendants adduced evidence to show that this was dramatically lower than the ordinary base rate, which before the crisis was at a level of about 5% for an extended period. Their evidence also showed, by reference to figures published by the Bank of England for interest charged by banks on sterling personal loans of £5000 to households, that the very low base rate has not converted into dramatically lower interest rates for borrowing by ordinary households (which ran at rates of about 9%-12% for the period before the crisis, and at rates of about 9%-15% since then).

The general purpose to be served in awarding interest “is fairly to compensate the recipient of interest for being deprived of money which he should have had: see Banque Keyser Ullman SA v Skandia UK Insurance Co. Ltd and ors. (unreported, 11 December 1987) per Steyn J” (see Fiona Trust & Holding Corporation v Privalov at [13] per Andrew Smith J). But the application of the compensatory principle is tempered by practical considerations, in the interest of producing a simple rule which is easy to apply. The conventional rate of 1% above base rate has been adopted for pragmatic reasons, on the basis that it provides a broadly fair result even though it may be somewhat less than what all claimants would have to pay if they were borrowers and significantly more than they could earn as lenders: Baker v Black Sea and Baltic General Insurance Company Ltd [1996] LRLR 353, 360; Fiona Trust & Holding Corporation v Privalov at [14]-[16] and [31] per Andrew Smith J. The adoption of a standard conventional approach along these lines has the very considerable merits of predictability (which is likely to assist parties in attempting to settle disputes) and simplicity (so avoiding the need for time consuming and costly investigation of and argument about the individual circumstances of particular businesses, calling for evidence about the rates of interest which might in fact have been available to them in the market and about what they might actually have done with the money had it been paid to them on time).

Obviously, any departure from the standard approach to deciding upon a rate of interest to be awarded under section 35A in order to take better account of the actual position of the claimant and the actual loss suffered by him through having been kept out of his money potentially puts in jeopardy the benefits associated with adoption of a simple standardised approach. Therefore the court should be relatively slow in commercial litigation to depart from use of the standard rate of 1% above base rate.

However, the tension inherent in adoption of the standard approach with the ability of the court to achieve proper compensation in the individual case may in some circumstances become so acute that the court feels that the balance tips in favour of a departure from the standard approach and towards adoption of a measure which more accurately reflects the true loss to the claimant. In these cases, the pressure of the disparity between the result the conventional approach leads to and the actual loss suffered by a claimant in terms of interest costs from having been kept out of his money is so great that some adjustment in favour of the claimant is required as a matter of fairness. That is to say, in such cases the departure from the general compensatory objective to be pursued is so great as to outweigh the practical considerations in favour of adopting the usual conventional approach.

The decision of the Court of Appeal in Jaura v Ahmed [2002] EWCA Civ 20 is a case in which the court was persuaded to depart from the usual conventional award of 1% above base rate, but in a way which still sought to preserve the benefits of using a relatively standardised approach. The case concerned a claimant who was a small businessman. Small businessmen cannot usually borrow at such good rates as larger businesses. At [18]-[26], Rix LJ, for the court, recognised that interest rates charged to small businessmen generally run at a significantly higher rate than interest rates for larger businesses, and ordered interest to be paid at a rate 3% above base rate to reflect this. The rate was chosen as being typical of the rate for the class of small businessmen, rather than as being the actual rate which was charged to the claimant: see [25] (see also Fiona Trust & Holding Corporation v Privalov at [16] for discussion of the adjusted, category-based approach to be applied). The general compensatory purpose of an award of damages was thus honoured more fully than would have been the case had the conventional rate of 1% over base rate been applied, but at the same time pragmatic considerations still had a role to play. In my view, the judgment shows that the courts will recognise a broad general category of small businessmen in relation to whom interest will be payable at a more or less conventional rate of about 3% above base rate. It is a relatively simple matter, which need not take up a lot of time and cost, to debate whether a claimant falls into this general category so as to get the benefit of this better rate.

In some cases, the courts may be persuaded to go further in analysing in detail the actual borrowing rates available to or in fact paid by a claimant: see Fiona Trust & Holding Corporation v Privalov at [25]. This may be appropriate where the time, cost and effort involved in investigating these matters is assessed to be proportionate and necessary to meet the justice of the particular case because of some special feature it has. The circumstances in which that should occur need to be tightly controlled, since otherwise parties will be tempted to try to introduce evidence and argument about such matters in a way that would be destructive of the very important benefits associated with adopting a standardised approach in the first place.

In the present case the Defendants put forward three reasons why I should order a rate of interest considerably higher than 1% above base rate:

In my judgment, the appropriate rate of interest is 3% above base rate up to 15 January 2010, and 10% above base rate from 16 January 2010.

As regards the first period, I consider it is appropriate to apply the conventional rate of interest for small businessmen as used by the Court of Appeal in Jaura v Ahmed. I am not persuaded that sufficient grounds have been made out by the Defendants to depart from that conventional approach in the circumstances of this case. There was no evidence before me that the Defendants had in fact been borrowing money at higher rates to support any business ventures by them or had lost the opportunity to place the sums they should have received on deposit at a higher rate of interest, and no good grounds were put forward to convince me that fairness required any more elaborate investigation or generous award than that which is given by application of the adjusted standardised approach applied in Jaura v Ahmed.

As regards the second period, for the same reasons I have given at paras. [50]-[55] above for applying CPR Part 36.14(3)(b) by analogy to order costs to be assessed on the indemnity basis, I consider that it is appropriate to apply CPR Part 36.14(3)(a) by analogy so far as concerns the award of interest on principal. I also think that ordering interest to be paid at 10% above base rate would provide a suitable incentive to settlement in circumstances such as those in this case. I do not accept Mr Thompson’s submission that I should award interest at a still higher rate, for two reasons: (a) CPR Part 36.14(3)(a) provides for an award of interest “at a rate not exceeding 10% above base rate”, so the analogy sets a cap on the enhanced interest rate at 10% above base rate and there is no injustice involved in applying that rate; and (b) the incentive effect referred to in Montlake v Lambert Smith Hampton Group Ltd is not something to be subjected to precise calculation, and in any event operates by reference to the position of the paying party rather than the claimant (the incentive arises from the paying party facing the prospect of paying a higher rate of interest than he could derive from the money himself) – and on the evidence before me there was no sound basis for concluding that interest at 10% above base rate would not have a suitable incentive effect in a case of this kind.

F&C submitted that any interest payable in respect of the principal sums found to be due to the Defendants should be reduced by the amounts received by the Defendants from the LLP in respect of advanced drawings payments of £12,500 to each of them per month for the period after 25 February 2009, when the First Put Option Notices were served, until October 2011, when F&C eventually purchased their respective interests in the LLP. F&C submitted that this would be appropriate, because if the Defendants’ interests in the LLP had been bought out pursuant to their First Put Option Notices, as the court found they should have been, the Defendants would not have received any of these payments of advanced drawings. The Defendants would, on that scenario, have received the price under the Put Option at the time and they are to be paid interest to compensate them because that did not in fact happen. Therefore, so Miss Newman submitted, the amount of the advanced drawings received by the Defendants should be set off against or taken into account when calculating the interest payable on the principal sums paid to the Defendants.

I do not accept this submission. In my judgment, the advanced drawings paid to the Defendants are properly to be treated as distinct from the payment of principal under the First Put Option Notices and any interest thereon:

The proceedings lasted a long time and the Defendants had to make a number of substantial payments to their lawyers over that period (eventually, they had to have resort to a conditional fee agreement to cover the latter stages of the trial). For these costs payments, I consider that it is fair that interest should be ordered in respect of those payments in the exercise of the court’s discretion under CPR Part 44.3(6)(g), running from the times when the payments are made: compare Douglas v Hello! Ltd [2004] EWHC 63 (Ch); Bim Kemi AB v Blackburn Chemicals Ltd [2003] EWCA Civ 889 at [18(c)]. Such interest runs up to the time when a costs order is made, from which time the judgment interest rate operates: see Schlumberger Holdings v Electromagnetic GO Services [2009] EWHC 773 (Pat).

Again, an issue arises as to what interest rate should be applied. The Defendants say that the costs involved in the litigation were so high that a point soon arrived at which they had to borrow money from bridging finance providers at a very high rate of interest to fund their on-going legal bills. They both filed witness statements to explain this. Mr Culligan’s evidence was that he took out a bridging loan of £700,000 on 25 June 2010, repayable in December 2010, at an effective rate of interest (taking into account both the fees to take out the loan and the nominal interest paid) of 47.4% p.a.. On 3 August 2010, to fund the litigation, he had to borrow more money (£585,000) from another bridging finance provider, again repayable in December 2010, at an effective rate of interest of 45.9% p.a.. On 21 December 2010 he repaid these loans by use of the proceeds of another loan, supported by a second charge on his house, of £1,742,000. This further loan was for a set period of one year, with all interest required to be paid up-front. The effective rate of interest (taking into account the nominal interest paid and all fees) is 24.1%. I am satisfied on the evidence that Mr Culligan did take out the loans at these rates and used them to pay his legal bills in relation to the litigation. There is no reason to doubt that he sought the best interest rates he could in the market and acted reasonably in taking out these loans.

Although Mr Barthelemy was able to fund his legal expenses to an extent from other sources, a similar pattern of borrowing at high effective rates of interest also appears from his evidence as well. On 16 June 2010 he and his wife borrowed £450,000 against a first charge on an investment property owned by them at an effective rate of interest of about 35% p.a.. This was repaid using the proceeds of a further loan of £525,000 taken out by them on 17 December 2010, again secured on the property. The effective rate of interest on this loan is about 20% p.a.. Again, I am satisfied on the evidence that Mr Barthelemy did take out the loans at these rates and used them (with other funds) to pay his legal bills. Again, there is no reason to doubt that he sought the best interest rates he could in the market and acted reasonably in taking out these loans.

The Defendants seek an order that in respect of costs paid by the Defendants prior to 25 June 2010, interest should be paid for the period up to 15 January 2010 at the rate of 13% p.a. (i.e. the approximate actual rate charged to small businessmen for borrowing: see para. [59] above) and from 16 January 2010 at the rate of 20% p.a. (i.e. at 13% plus an uplift to correspond, as Mr Thompson argued, with the proper effect of an order for enhanced interest under CPR Part 36.14.3(c)). In respect of costs paid by the Defendants in the period after 25 June 2010, the Defendants seek an order that the rate of interest in the period up to and including 21 December 2010 should be 40% p.a. and that for the period after 21 December 2010 the rate should be 24% or 25% p.a..

In my judgment, for the period up to 15 January 2010 (i.e. for the period until 21 days after the Defendants’ offer of 24 December 2009 to settle the case on reasonable terms) the applicable rate of interest in respect of costs should be at the same conventional rate as is applicable in relation to the principal sums due to them – 3% above base rate. The same reasons apply as in relation to the interest payable on the principal referable to this period. The Defendants have not shown that there are sufficient grounds such that justice requires a departure from the usual conventional interest rate.

I consider that the interest rate in respect of costs for the period from 16 January 2010 to 24 June 2010 should be 10% above base rate, by analogy with CPR Part 36.14(3)(c). This is for reasons similar to those relevant to the application of this rate in relation to principal in the period from 16 January 2010. The Defendants have not shown that there are sufficient grounds such that justice requires a departure from an interest rate at this level in this period.

I think that the position after 25 June 2010 (taking that as a convenient single date for use in relation to both the Defendants) is different. From that time there is evidence that the Defendants suffered particularly high losses as a result of the litigation, in the form of interest charges on bridging loans. In my view, this is a period in which the divergence between application of a conventional approach (even at a rate of 10% above base rate) and the underlying purpose of an award of interest to compensate individuals for losses actually suffered by them because of monies they have had to pay out is particularly acute, such that justice requires a different approach.

I reach that view on the basis of a combination of four factors, which in my opinion take the case outside the range of cases within which a conventional approach not directly tailored to the particular circumstances of the individual case is appropriate: (a) the very high costs which the Defendants as private individuals had to fund in order to keep their claim alive and prosecute it effectively, under circumstances of particularly complex and burdensome attritional litigation; (b) the very substantial difference between the interest the Defendants themselves have had to pay on the monies borrowed to fund the litigation and the rate which they would recover if confined to a conventional rate of interest; (c) the fact that they did in fact take out loans at these high effective rates of interest, and acted reasonably in doing so, specifically in order to fund their on-going legal costs (one is not, therefore, engaged in a notional exercise regarding what might have been done if a sum of money had been paid by a defendant to a claimant at some point in time); and (d) the fact that costs have been ordered to be paid by F&C on the indemnity basis in that period. In my judgment, these factors in combination mean that it would not be appropriate to confine the Defendants even to the enhanced rate of interest applicable by analogy with CPR Part 36.14(3), and that instead the justice of the case is that they should be paid interest at the actual effective rate they themselves have had to bear.

In this regard I particularly emphasise the importance for my reasoning of factor (d) (award of costs on an indemnity basis). In my view, where a party has acted in the course of litigation in a way that attracts an order of costs against them to be assessed on an indemnity basis, that is a good indicator that that party is to be taken to have assumed to a particularly extensive degree the risk of continuing with the litigation in question. The court should, therefore, be the more ready to give greater and more precise effect to the underlying principle of compensation which an award of interest is intended to serve. In this regard, a very loose comparison may be drawn with the position in terms of recovery where a party is liable for one of the more serious intentional torts, such as deceit, where the wrongdoer may, by acting in a manner attracting particular disapproval from the court, be taken to have assumed to a greater extent than would otherwise be the case responsibility for the losses suffered by the innocent party: see Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254 and 4Eng Ltd v Harper and Smith [2009] EWHC 2633 (Ch) at [14(3)]. Moreover, using an award of indemnity costs as a marker is attractive because the standards to be applied are well-known and there will already have been argument about that issue in a suitable case. CPR Part 36.14(3) also suggests that it may be appropriate to link indemnity costs with a special approach to questions of interest on costs.

In addition, a focus on the award of indemnity costs as being a particularly important factor in deciding to move beyond a simple conventional approach to the assessment of damages gives greater scope for the court to manage potentially burdensome sub-trials focused on an examination of what parties actually did. If there is to be serious argument about what rate of interest was actually paid by a claimant to fund on-going legal expenses, with a need for evidence and possibly extensive submissions, it would be possible to divide up a hearing to examine first whether there should be an order for indemnity costs, and only if there was would parties need to proceed to a more detailed examination of the detailed facts of the case. In this way, even while being prepared to rectify an injustice to a claimant, the court can still seek to adopt an approach which continues to afford some of the benefits of a more convention-based approach.

In my judgment, therefore, in relation to interest on costs paid by the Defendants in the period after 25 June 2010, the interest rate to be ordered in relation to the period up to and including 21 December 2010 should be 40% p.a. (as a rough average of the rates borne in that period by the two Defendants: see paras. [73] and [74] above); and in relation to the period after 21 December 2010 should be 22% (again as a rough average of the rates borne by the Defendants in that period). I think an order in these terms will be broadly just between the parties while at the same time being reasonably simple and straightforward to apply with minimal cost and effort. I do not think that further investigation of the precise facts (such as which of the Defendants paid what proportion of each costs payment, and funded from what sources) would be appropriate or justified in the circumstances of this case.