Sycamore Bidco Ltd v Breslin & Anor

This is the third post-judgment hearing in this matter, and it deals with costs, interim payments, permission to appeal, and issues as to outstanding inquiries and the costs of the LTIPs claim. Previous hearings dealt with the finalisation of the damages claim and interest. It is necessary to deal with costs separately because there have been two Part 36 offers in this case (made by the claimant) and they rendered it impossible to deal with costs before the other matters had been determined, because those other matters affected the question of whether or not the offers were beaten.

Dealing with these outstanding issues, and particularly costs, has become a difficult, costly and time-consuming matter. That is because the parties (and particularly the defendants) have raised a very significant number of points arising out of the conduct of the proceedings which go to both the incidence of costs as a whole and the proper effect of the Part 36 offers. The motivation behind all those points is the level of costs in these proceedings. Sycamore is seeking all its costs of the proceedings. A conditional fee agreement (“CFA”) was in force so as to govern the costs since 11 May 2011, though the agreement was apparently entered into only in November (when notice of it was given) and its effect backdated. Sycamore’s base costs are in the order of £3.9m. Sycamore has declined to disclose the amount of the uplift, or any other relevant details of the CFA, but its solicitors have said that they consider it unlikely that the uplift would be more than £1m. They have not bound their client to that figure. The defendants fear that it may turn out to be more than that, and that they are at risk of having to pay £5m or £6m in costs. The damages claim that I ordered was a figure of £5.25m, and interest on that adds another £1m or so, so it can be seen that the costs are, at the very least, a very large proportion of the amount claimed, and may exceed it. That means that the costs assume an even larger significance in this litigation than they normally do, and explains the vigour and detail of the assault on Sycamore’s claim for costs. I asked the parties what their approximate figures were for their costs of arguing the points taken at the hearing before me, and the aggregate costs were said to be in the region of £100,000. That seems like a very large figure to spend on what are essentially ancillary matters, but I suppose that the amount of the costs at stake has raised costs questions above the level of the ancillary.

The claimant made two Part 36 offers:

Against that background the following principal issues arise:

It will be convenient to take the issues in that order. In particular, it is right that issue (a) should be taken before issue (b). Miss Newman accepted that it was in accordance with principle that I could deal with a disallowance of costs on the sort of grounds relied on by the defendants before then turning to the effect of the Part 36 offers, so that the consequences of those offers bite only on such costs as the claimant was entitled to, though she said that actual point was left open in a Court of Appeal decision. It seems to me that she must be right in her stance. She did not claim that her Part 36 offer was capable of trumping any decision which disallowed costs, and that seems to me to be right in principle.

At one level, since both of the claimant’s Part 36 offers came in under the award of damages and interest, I can by and large look at the effect of the early offer and ignore the later.

Miss Newman’s starting point was a straightforward one. Her clients had succeeded, they had obtained a large sum of damages and there was no reason why the costs which would normally follow pursuant to the prima facie rule in CPR rule 44.3(2)(a) should not do so. The burden was on Mr Neish to demonstrate why any costs should be disallowed, and he had not satisfied that burden.

Mr Neish, for the defendants, submitted that the claimant should not have all its costs. There should be a significant disallowance of costs, to the tune of 60% (allowing it 40%), to reflect the very significant issues on which Sycamore had fought and lost. It had run a misrepresentation case which failed, because there was no representation; it had run a breach of warranty case in relation to the AXA payment which failed, because the failure to allocate that payment properly in the accounts was not material; it ran a warranty case based on the improper taking of commissions which failed as a breach of warranty, and was never going to sound in damages anyway; it ran the Bank of New York point on which it failed; it ran the Rotch Properties claim which failed badly. These points were not merely odd points which happened to fail on the way to an overall victory. They were all points which took up significant, or even very significant, time at the trial, significant space in witness statements and involved a large amount of disclosure. If they had not been run the action would have been shorter and simpler, with far less material deployed. His instructing solicitor, Mr Isaacs, put in an analysis of the time said to have been taken at trial on the points on which Sycamore respectively won and lost. In addition, though it did not figure in Mr Isaacs’ calculation, Mr Neish pointed out that even in relation to the Liberata payment, an overall issue on which Sycamore won, it lost a lot of the sub-points on the way – for example, the appropriation point and the suggestion that the payment was somehow “hidden”. Those failed sub-points also took up significant time at the trial.

Furthermore, Mr Neish said that I should make a reduction to reflect the Court’s disapproval of the fact that Sycamore ran cases based on dishonesty against Mr Brooks, the defendants themselves (or at least Mr Breslin) and PwC (their corporate advisers). Sycamore itself had advanced a case which I was said to have found to have been less than frank.

Miss Newman’s response to this was, in essence, that Mr Neish’s case that the trial and proceedings as a whole had been lengthened and made more expensive by the inclusion of claims on which she failed was vastly over-stated. A lot of the allegedly excessive documentation was required by the defendants, not by Sycamore. The court made no findings on a lot of the points that would have arisen if the misrepresentation claim had succeeded, because it deliberately did not embark on them having found that there was no representation, so the claimant cannot be taken to have lost on those issues. She went on to point to various issues which she says were raised unreasonably by the defendants, including the allegation that Dunedin had knowledge of the Liberata compensation and its source, and she said that the defendants required a lot of disclosure which turned out to be pointless.

The principles on which I should determine this dispute were not themselves disputed. Many are set out in the judgment of Jackson J in Multiplex v Cleveland Bridge [2009] Costs LR 55:

“(i)

In commercial litigation where each party has claims and asserts that a balance is owing in its own favour, the party which ends up receiving payment should generally be characterised as the overall winner of the entire action.

(ii)

In considering how to exercise its discretion the court should take as its starting point the general rule that the successful party is entitled to an order for costs.

(iii)

The judge must then consider what departures are required from that starting point, having regard to all the circumstances of the case.

(iv)

Where the circumstances of the case require an issue-based costs order, that is what the judge should make. However, the judge should hesitate before doing so, because of the practical difficulties which this causes and because of the steer given by Rule 44.3(7).

(v)

In many cases the judge can and should reflect the relative success of the parties on different issues by making a proportionate costs order.

(vi)

In considering the circumstances of the case the judge will have regard not only to any Part 36 offers made but also to each party’s approach to negotiations (insofar as admissible) and general conduct of the litigation.

… (viii) In assessing a proportionate costs order the judge should consider what costs are referable to each issue and what costs are common to several issues. It will often be reasonable for the overall winner to recover not only the costs specific to the issues which he has won but also the common costs.”

In addition:

Having considered these matters I consider that there is much in what Mr Neish has submitted on this point, and that this is a case in which the matters on which Sycamore fought and lost are significant enough, and were costly enough, and which are significantly severable, to take the case out of the class of normal cases in which some issues are lost without reflecting that in costs and to move it into the realms of cases in which it is appropriate to make a costs deduction from the totality of Sycamore’s costs to which it would otherwise be entitled. In particular the following points apply.

The biggest point conceptually and in terms of money on which Sycamore failed was the misrepresentation claim. Under this head Sycamore sought damages in excess of £17m on a “no transaction” basis. It was presented in the letter before action, in the pleadings, in the expert’s reports and elsewhere as the primary claim. Logically, it was – it was bigger than the warranty claim. One would not expect Sycamore to claim £7m or so on the warranty (subject to an overall limit under the SPA) or alternatively £17m on the misrepresentation claim. It had no less a prominence in the whole of the action. The conduct of the business after the purchase was relied on, and valuation evidence as at the date of the trial was adduced (which involved a consideration of the conduct of that business after the purchase). A significant part of Mr Hine’s valuation report was given over to the damages that would have been payable had the misrepresentation been established. Extra witness statements were put in dealing with post-purchase events. The letter before action did not take a misrepresentation point, but it did refer to a “no transaction” basis of claim (though the amounts claimed were not formulated in the way in which the claim was run). When I suggested during the trial that the question of whether there was a representation at all be taken as a preliminary point in the trial, Sycamore resisted that notion, and said it would be appropriate to deal with the point at the end of the trial, along with all other points. The prize was also potentially big in that if it were won it would have allowed the claimant to make a recovery free from the financial limits contained in the SPA. The SPA limited the amount recoverable under the warranties to £6m (see clause 8.2). The misrepresentation claim, if good, would apparently have been free from that limitation. It must have given rise to considerable worry on the part of the defendants.

While the making or non-making of the representations was not a costly point which took long to argue (it simply depended on whether the warranties were also representations), its consequences at the trial, and for the conduct of the proceedings, were significant. A very significant amount of evidence was prepared, given and cross-examined on; many documents (hundreds) had to be disclosed and studied. True it is that some of the documents (for example some Key Performance Indicator reports) were produced at the request of the defendants and the claimant did not think that they would assist or be particularly relevant, but even those were sought because the defendants, faced with the large claim, wished to resist it strongly.

In my view the misrepresentation claim was a significant enough “loss” to justify its being treated as a separate issue whose loss should be reflected in an issue-based costs order (transformed if appropriate into a percentage costs order) and not to leave it to lie as one of those losses that should be taken on the chin. The claimant went for the big prize, spent a lot of money and time on it, and caused the defendants to spend a lot of money and time on it. The defendants should not have to pay for that privilege. It matters not that I made no findings on what the consequences would have been had the representation been established. I made no findings because the points were irrelevant once there had been a finding against the representation; but the costs in relation to these irrelevant points were still incurred, and the claimant’s claim was the cause of their being incurred.

Next Mr Neish pointed to one of the lesser claims on which Sycamore is said to have failed which also contributed significantly to the costs of the matter. The commission rebate claim was relied on as both a breach of warranty and as a misrepresentation. As a breach of warranty the amount involved (over the 6 transactions) was not suggested by Mr Hine to be material for the purposes of the warranty, though he said it was material because of the nature of the breach. I ruled against Sycamore on that latter point, and held on that basis there was no breach of warranty. Mr Neish said that this was a loss on another issue which had caused the expenditure of a significant amount of costs. He went further and sought to ally this expenditure with the expenditure on the misrepresentation claim. He said that even if there had been a breach of warranty, it would not have sounded in any greater damages. Mr Hine did not suggest that it did. The real significance of this claim was said by Mr Neish to be that it was said to be a misrepresentation, in which context it had a greater significance because it enabled Sycamore to say that if it had known that that sort of thing was going on, then it would not have bought the company. That was doubtless why such a lot of effort was devoted to such a relatively small amount. It was also a vehicle for considering the probity of Mr Brooks, which is likely to be another reason why it was run. As a point it ultimately failed, and the time and resources involved in running it make it not just another failed issue.

Then Mr Neish pointed to the other two failed heads of claim (Bank of New York and Rotch Properties), which took less time but which still failed and were of a piece with the commissions claims.

These commission- and rebate-related claims are more troubling. It is true that, as claims, the claimant failed on them. Prima facie there is much to be said for the view that they were really there for the misrepresentation claim because they would not of themselves have added anything to the value of the warranty claim. Mr Hine’s view was that the amount of the rebate claims was not material for the purposes of the warranty. The claims did indeed fail, each for their separate reasons. Had the matter stopped there it would, I find, have been appropriate to treat these as time consuming and costs consuming claims which had failed to such a degree as to justify their attracting an issue-based deduction.

However, it is not quite as simple as that. As Miss Newman pointed out, these matters were not totally irrelevant to the action even though specific causes of action based on them failed. When it came to ascertaining the value of the company for the purposes of working out the value of what Sycamore actually got, Mr Hine treated the rebate sums as deducted from turnover in 2007 on the footing that they ought not to have been included in turnover, and did his calculation on that basis. His calculation seems to proceed from a perceived need to include accurate figures whether or not they could have been the subject of a warranty claim. Mr Cottle did not accept the detail, because he did not accept that there was sufficient evidence the sums ought to have been excluded from the true turnover, but the nature of his approach did not suggest that he challenged Mr Hine’s approach if there was evidence that they were wrongly included. My judgment on quantum reflected Mr Hine’s approach in that it started from his technique and his initial figures. Based on that, Miss Newman said that the commission issue had a significance beyond misrepresentation and breach of warranty (on which she failed) so there was no justification for treating it as an issue in which she lost completely. She pointed to the fact that the effect of taking rebate issue sums (£21,000) out of the turnover for 2007 would have had a significant effect on the perception of growth which Dunedin had, even if it did not arise from a technical breach of warranty. It would have depressed growth forecasts and therefore depressed the value of the company at the time, though of course not as much as the Liberata sums or the AXA sums.

I think that there needs to be a clear focus on reality on this point. Miss Newman is right to say that Mr Hine’s approach to quantum on the breach of warranty point (and my judgment) proceed on the footing that one needs to identify the true value of the company in order to work out the correct amount of damages for breach of warranty. (Footnote: ¹) However, in my view that is not why the commission and rebate points (and particularly the rebate points) were run. They were run because it was perceived that they gave rise to a valuable claim for breach of warranty. That is plain from the letter before action, and runs throughout the evidence. As reflected in my judgment, Dunedin and Sycamore believed that they had been misled about the business, and the commission and rebate issues figured heavily in that. Dunedin invested a lot of time and effort in seeking to prove its case about that. The evidence of some witnesses went solely to the point, and Mr Brooks was cross-examined heavily about the propriety of what he did. It was a very important part of the claimant’s case, both in terms of what was said to be a breach in technical terms (whether there was a breach of warranty in terms of money improperly accounted for) and in terms of its alleged nature (part of a pattern of serious misfeasance on the part of Mr Brooks). I do not believe that the same time and effort would have been devoted to the point if it was viewed as a possible investigation of a corner of turnover, divorced from being a warranty claim and divorced from the attack on Mr Brooks in support of which it was invoked. While not quite of the same character as the Rotch Property claim (as to which I made observations in my main judgment) it nevertheless has many of the same hallmarks. In the circumstances, and despite the fact that the point ended up having some significance to quantum (a significance which was not focused on at the trial) I consider it right to treat it as a significant point on which Sycamore fought and lost and which, like the misrepresentation claim, should be the source of an adjustment of the costs to which Sycamore, as winner, would otherwise be entitled.

I now turn to Mr Neish’s point about the failure of the dishonesty case advanced against Mr Brooks (and, he said, against the defendants and PwC) and the “less than frank” aspects of the claimant’s evidence. He said that not only did the allegations fail; they were also unreasonable and irrational. They raised the temperature of the litigation and were improper and scandalous. He invites me to mark the court’s disapproval with some adverse costs consequences. This, he says, was done by Briggs J in Lilleyman v Lilleyman (No 2) [2012] 1 WLR 2801, and by HHJ Purle QC in Walsh v Singh [2010] EWHC 1167 (Ch).

I acknowledge that the court can make a deduction from costs that would otherwise follow the event if the conduct of the receiving party merits it, as those cases demonstrate. However, those cases are about a different sort of conduct. They seem to relate to the manner in which the whole case was conducted, and (in the case of Walsh v Singh) the tactics involved (including the deployment in that case of privileged material). The latter case is particularly striking. In my view the allegations in this case are not of the same order. They do not demonstrate a “no holds barred” approach to the case. The case before me demonstrates a very high degree of a “no stone unturned” approach, but that is a little different. Such an approach can justify a deduction in respect of the costs relating to excessively turned stones (and, as will already have appeared, I shall make such a deduction). But it was not a “no holds barred” case. The allegations against Mr Brooks were, conceptually speaking, a justifiable part of the case – they were potentially relevant to the decisions of fact and law that I had to make. They failed, but they were, in that context, just part of a failed case. They were not so unjustified on the facts as falling into the category of cases which justify an expression of the court’s disapproval. The motivation of Mr Derry, Mr Middleton and Mr Gogel was said to have been a perception that they had been misled into buying this company, but if that was their motivation then that remains a fact. I do not regard their references to this motivation as being wrongful or gratuitous even if they turn out to be unjustified.

At the end of the day the question of whether to make a deduction because of failings of this nature is a question of judgment. The question is not answered by categorising the case as a “no holds barred” case, or as some other type of case, or as looking like (or not looking like) another decided case. In my view the conduct of the case and the expressions of view in the evidence are not such as to merit a departure from the prima facie rule that the loser pays. The allegations turned out to be incorrectly made, but that, of itself, does not justify a costs deduction. Nor does the time and effort taken in relation to those points (some of which would be subsumed in the costs of the rebate and commissions issues anyway, and therefore attract a deduction for that reason) require any deduction. It happens in many cases that serious allegations are made and fail, while the case of the party making them succeeds. They do not generally attract a less advantageous costs order. The conduct must be particularly bad for the court to mark its disapproval in that way, and in my view this case is not bad enough.

In his witness statement provided in support of the defendants’ case that there should be a deduction for points on which the claimant failed, Mr Isaacs drew attention to other issues on which Sycamore lost, such as various issues relating to the allocation of the Liberata payment as between GAS and GCSL. I do not regard any such issues as being of sufficient significance to justify an issue-based approach in relation to them.

That means that deductions fall to be made for the larger “failed points” only, and I need to determine the amount of that deduction.

Mr Isaacs prepared a short analysis of the trial in which he sought to demonstrate the days, or substantial parts of days, devoted to evidence on which the claimant and defendants respectively won and lost. His estimate was that 50% of the trial time was devoted to the points on which the claimant won. The claimant responded to that analysis (very belatedly) with a more detailed breakdown, to which Mr Neish further responded with comments which analysed the trial giving rise to a broad brush 50/50 split in terms of days or portions of days spent on “won” and “lost” issues, though that includes some of the sub-issues as “lost” issues where I have indicated I would not regard them as lost issues attracting a deduction. Mr Neish also pointed to the large number of documents in the bundles which related only to “lost” issues (including a large run of chronological bundles which dealt exclusively with the post-completion matters, and to further sets which again related exclusively to post-completion matters).

Having indicated that I would be minded to make an issue-based costs order in respect of the major issues on which the claimant lost, I am required by CPR 44.3(7) to consider making a proportionate order instead. I shall do so. Having said that, it is a difficult exercise. Assessing the court time involved in the various issues is a quasi-scientific way of starting on the activity, but it is less than wholly satisfactory because it is not necessarily a guide as to the pre-trial costs which, in this case, would be very significant. As more than one judge has said, the exercise has to be a broad brush one. Quasi-scientific exercises such as that carried out by the parties in relation to the trial timetable are only a starting point. The claimant has won a substantial sum, but missed its main prize and failed on claims that were not merely relatively small add-ons. They were perceived as major prizes, and they were not won. Applying the broad brush as well as I can, I do not find that as much as 50% of the activities were related to those lost prizes, but I do think that a discount approaching that figure is appropriate. I shall order that the claimant receives 60% of its costs. If it is disappointed at the loss of 40% of its costs, then the fault lies with the claimant in going for broke on its primary claim and devoting large amounts of time and effort to relatively minor financial elements. This apportioning of costs applies to the costs incurred both before and after the Part 36 offer, to whose additional effects I will in due course turn.

For the purposes of pursuing its claim, the claimant sought documents from Rees Pollock because it perceived that the circumstances in which the audited accounts were signed off with the disputed sums in turnover were relevant. The defence actually pleaded that, in the course of their audit, Rees Pollock, on the basis of a misunderstanding as to the nature of the £260,000, reclassified it as administration expenses but then reinstated it as income. There is no doubt that the events surrounding the Rees Pollock audit certificate were relevant and, to a degree, in issue.

In that context Sycamore sought to see documents on Rees Pollock’s file. Rees Pollock provided some, but others which Sycamore sought were not provided. Accordingly, Sycamore made an application for third-party disclosure against Rees Pollock. On 7^th March 2012 Warren J made an order for disclosure of categories of documents sought by Sycamore. The defendants were invited to support the application but declined to do so and declined to part-fund it. According to the evidence of Miss Caswell (Sycamore’s solicitor), three solicitors from PwC Legal (acting for the defendants) attended the hearing. Warren J reserved the costs of and occasioned by the application as between Sycamore and the defendants.

Sycamore seeks to make those reserved costs part of the costs to which it is entitled as the winner of this action. The defendants seek a specific order excluding those costs from such costs as Sycamore might otherwise be entitled to.

In support of its case, Sycamore says it was relevant to consider how it was that Rees Pollock reached its decision to certify the accounts with the Liberata sum as part of turnover, and to consider why that firm changed its opinion. It points to the pleading in relation to Rees Pollock to which I have referred. When it became apparent that no person was going to be called from Rees Pollock to give evidence, it became even more appropriate to ascertain relevant events, so far as possible, from Rees Pollock’s documents. Since Rees Pollock had refused to provide all of them voluntarily and without an order, it became necessary and appropriate to make the application that was made. Sycamore submitted that the exercise did indeed reveal documents that were of some real relevance to the proceedings because they went to the views of Rees Pollock, and one of them went to the apparent views of the directors when considering the 2006 accounts (see paragraph 71 of my main judgment).

The defendants submitted that the exercise of getting the Rees Pollock papers was pointless. They point out that they did not rely on anything other than the certification by Rees Pollock of the accounts, so from their point of view there was no need to get the Rees Pollock papers. Accordingly they were not prepared to join in, or part-fund, the application. In any event, it is said that Sycamore failed to establish anything of assistance or relevance from getting the papers. What Sycamore were really hoping for was some support for their case (run at the trial) that Mr Brooks somehow put pressure on Rees Pollock to certify the accounts with the Liberata sum restored to turnover. That was an aspect of the case on which the claimant failed at trial.

It seems to me that whether or not the defendants wanted to see the Rees Pollock papers is not particularly relevant to this question. The question is whether the costs were costs reasonably incurred in pursuit of the claim. I think that it is right to say that the claimant was hoping for some support for its case that Rees Pollock were pressurised by Mr Brooks, and that that evidence did not exist, but since the defendants were positively relying on the auditors’ certificate, and since there had been an apparent change of mind, it seems to me that, at the least, Sycamore were entitled to investigate how that came about. As a result of the exercise they did obtain some relevant and useful documentation, even though it did not in the end support their case to the full. I think that the costs were reasonably incurred in the pursuit of Sycamore’s claim and there is no particular reason in principle for disallowing them as part of the costs to which they have become entitled as the winner. However, when it comes to assessment, the costs judge will want to pay particular attention to this item because I was told that Sycamore’s costs are put at around £39,000 (exclusive of Rees Pollock’s costs). That seems a very large amount to have spent on the exercise, though I make no finding about that. The extent to which it is allowed will be a matter for the costs judge.

In the circumstances I do not accede to Mr Neish’s application that these costs be disallowed, and, pursuant to the reservation of the costs by Warren J, I hold that they should be costs in the case.

During the course of the trial (on 29^th May) Mr Neish made an application for disclosure of various documents, which I granted in large measure. When the disclosure exercise was done Miss Newman submitted (on 14^th June) that it had been a waste of time and invited me to deal with the costs of the exercise (put at £3,000) by giving them to the claimant in any event. I declined to deal with them at that stage and indicated that they would be dealt with after the end of the trial, so far as necessary. Miss Newman now invites me to deal with them if the costs of the claim are not to be borne by the defendants in any event and renews her submission based on the uselessness of the documents. Mr Neish says that the application was not unreasonable and that no costs were incurred in dealing with it (it took an insignificant part of the trial) or in complying with it (no useful documents were produced). The latter of those points is clearly wrong – there must have been some costs incurred in a search. He also says that there is no need for a separate order anyway.

The parties virtually agree on how to deal with this matter. I have given the general costs to the claimant and Mr Neish does not invite me to deal with them separately, so the only question is whether they should be treated as costs in the case or costs which the claimant should have in any event free from the percentage deduction which I have ordered. In my view they should be treated as costs in the case. There is no reason for distinguishing them from the vast raft of other costs which the claimant is entitled to put into the pot of overall recovery, notwithstanding the apparent lack of fruits of the exercise. I shall therefore order that they be costs in the case.

In his skeleton argument Mr Neish submitted that no order for costs should be made against Mr Dawson because no extra costs were incurred in pursuing him over and above those costs incurred in pursuing Mr Breslin. Alternatively the costs ordered against him should be in the same proportion as his proportion of the overall liability. Otherwise he would now be liable for millions of pounds of costs when the debt against him was less than £300,000, which would be “ludicrously disproportionate and unjust”.

Mr Neish’s first point is true but irrelevant. One might just as well say that no extra costs were incurred in suing Mr Breslin over those that would have been incurred in suing Mr Dawson. The fact is that both were sued, and it was not unreasonable to sue both. They did not seek to have separate representation, and both apparently joined fully in the defence to the claim. Mr Dawson made no apparent attempt to distance himself from Mr Breslin in any relevant way in the conduct of the proceedings. In other words, despite the different caps on their liabilities, they conducted themselves as joint defendants. They are both equally responsible for the costs having been incurred, and it is immaterial to say that the costs incurred against one were no greater than the costs against the other.

So far as the second is concerned, it would not be wrong to decline to apportion costs as between the two defendants. As just pointed out, they acted as joint defendants despite the fact that, in monetary terms, the significance of the action differed substantially as between the two of them. Mr Dawson could have taken various steps to protect himself from the consequences of that. He could, for example, have taken an indemnity from Mr Breslin (and for all I know he did); or he could have sought separate advice and tried to come to some form of accommodation with the claimant to the effect that he would stand aside and be bound by the result obtained in pursuing Mr Breslin alone. The claimant may or may not have accepted that latter alternative – we will never know, though I suspect that the misrepresentation claim would have posed difficulties to that course. But the point is that those possibilities demonstrate that, in the circumstances, is it not necessarily unjust to require him to be liable for the whole of the costs notwithstanding his limited financial liability. If there is a disproportionality it operates as between Mr Breslin and Mr Dawson, but that is not something that I can rule on.

I therefore decline to distinguish between the defendants in terms of the costs order that I make.

In his witness statement Mr Isaacs raised other points said to demonstrate how it was that the claimant had made the action unnecessarily costly. He pointed to correspondence relating to security for costs, disclosure from PwC and what he said were excessive trial bundles. At the hearing Mr Neish did not press these particular points (save insofar as trial bundles reflected lost issues), and I do not consider that these particular matters require any further adjustments to costs, or special orders, beyond those made above.

Subject to one point that arises in relation to Mr Dawson, the claimant has done better than its Part 36 offers. The consequences of that are set out in CPR 36.14(3):

“(3)

Subject to paragraph (6), where rule 36.14(1)(b) applies, [i.e. the claimant betters its own offer] 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.”

The damages sum that I awarded was £5.25m exclusive of interest. The initial offer was £5.5m inclusive of interest. The award of interest on the damages sum in this case is just over £1m, so the claimant has recovered more than its offer. That prima facie triggers the consequences of Part 36. I can, for most purposes, ignore the later Part 36 offer because, being lower, it was beaten even more clearly by the claimant.

However, Mr Neish takes the point that the Part 36 offer has not been beaten in relation to Mr Dawson. Under the provisions of the SPA Mr Dawson is liable only for a portion of the damages, which can now be calculated as being £277,725. If one attributes the interest to him pro rata, that produces an interest figure of £53,785, making an aggregate of roughly £330,000. That is what will be recovered from him, and the claimant’s offer is vastly in excess of that. Accordingly, Mr Neish submits that the claimant has not bettered its offer in relation to Mr Dawson, and the Part 36 consequences should not apply to him.

At first sight this is might be thought to be a highly technical point and not to reflect reality. The two defendants had not distinguished between themselves in defending this case, other than a pleading of the limits on their respective liabilities under the warranties (which was “noted” in the Reply). It could have been avoided by the Part 36 offer splitting out the two separate liabilities and expressing itself as being two separate offers. If that had been done it would have shown a figure for Mr Dawson which the claimant would then have beaten in respect of his apportioned aggregate of judgment sum and interest.

On further consideration, however, it seems to me to have merit. The consequences of failing to beat an offer are serious, particularly for a defendant. It behoves a claimant to make the offer clear, so that the defendant can act on it in a properly considered way. If it is accepted, the defendant becomes liable for all the costs (if that is a term of the offer). It might still be possible to overlook some purely technical and non-misleading defects (Huntley v Simmonds [2009] EWHC 406) but only where it is fair to do so. And one still has to look carefully at the terms of the offer.

The offer in the present case was an offer:

“to settle the whole of the claim against your clients on the following terms:

Your clients to pay our client within 14 days of accepting this Offer, the sum of £5.5m …”

It was an offer made to both of them to settle at £5.5m. It would have been open to one or other of them to accept it, and if either of them had, they would have had to pay the whole of the sum. As such, it was an offer to Mr Dawson (as well as Mr Breslin) to settle at £5.5m. Mr Dawson’s liability in the action is much less than that because of the warranty cap. Had he been liable for misrepresentation he would have been (or so the claimants were saying) liable for much more.

It is therefore realistic to view the offer as being one to Mr Dawson to settle for £5.5m. This conclusion cannot be avoided by viewing the offer as an offer to each to settle for their apportioned parts of the £5.5m along the lines of the warranty cap. If the claim had been confined to the warranty claim it might have been appropriate so to view it, notwithstanding its express terms (see Huntley), but the claim was not so confined. It included the misrepresentation claim, with its bigger damages and no cap, which was persisted in to the end of the trial. So it does not seem to me to be appropriate to view it as an offer to each to settle on the basis of an apportioned liability aggregating to £5.5m.

That being the case, it is the fact that Mr Dawson has been found liable for a sum less than £5.5m as a matter of fact, so the consequences of CPR 36 should not apply to him. This conclusion arises from the fact that the offer was expressed as an all-in sum, and from the fact that there was a concurrent claim based on misrepresentation. The failure to express the offer as two separate offers, one to each defendant, may well have been deliberate for all I know. It may be that an offer to settle at around £290,000 (which would have been Mr Dawson’s apportioned part of the £5.5m) plus the whole of the costs would be one which, as a offer, the claimant would have perceived as being not attractive from anyone’s point of view (because of the costs). But that is speculation. What is important is the terms of the offer, in its context, objectively viewed. In my view it was an offer to Mr Dawson to settle for £5.5m, and he has got away with less than that.

It follows that the Part 36 consequences do not attach to him.

I turn now to Mr Breslin. Mr Neish concedes that on any footing Mr Breslin has been found liable for more than the sum offered, and accordingly prima facie the consequences apply. However, he says that in the circumstances it would be unjust that they should apply. He says that for the following reasons.

First, he points to authority in support of a proposition that the policy behind CPR 36 is to provide parties with a motivation to behave reasonably and to encourage them to conduct themselves reasonably in relation to a settlement. Unreasonable conduct risks unpleasant monetary consequences. He relies on Socimer International Bank Ltd (in Liquidation) v Standard Bank London Ltd [2006] EWHC 2896 (Comm) at para 30 and HMRC v Blue Sphere Global Ltd [2010] EWCA Civ 1448 at para 12. Mr Breslin is said not to have behaved unreasonably because he had not unreasonably refused to negotiate; the claimant did not quantify its claim until late in the action; by the time quantum became clear enough he could not have negotiated a settlement without paying all the costs (which would have been unfair); by the time of the offer the matter was effectively unsettlable because of the costs; Mr Breslin was reasonably entitled to rely on the evidence of witnesses other than himself, namely Mr Brooks and the expert evidence of Mr Cottle, both of which (if accepted) would have meant there was no liability on the warranties; it was not an unreasonable view that he would have been worse off taking the settlement than fighting to the end; the allegations of dishonesty raised the temperature and made the case harder to settle; invoking the full consequences of Part 36 would mean that Mr Breslin would not be able to challenge what he views as the worst excesses of Sycamore’s costs; the CFA already creates serious difficulties for Mr Breslin because of his liability to pay the uplift; he has already been ordered to pay interest in excess of 1% over base rate; and Mr Breslin could not have predicted the result of the exercise of judicial judgment which took the damages to £5.25m. These matters require a little elaboration, taking them in a different order from that elaborated.

So far as negotiating is concerned, Mr Neish took me to various recorded exchanges between the two solicitors. On 1st March 2011 the defendants had made a Part 36 offer to settle on paying £75,000. Following on this there were some telephone discussions between the two solicitors in which Mr Isaacs for the defendants professed a willingness to negotiate but said he could not do so in the absence of a quantified claim which had not yet been put forward. He was pressing for some indication of the level of claim. At this point (in the first half of 2011) the claimant had still not put a figure on its claim, and some Further Information provided by Sycamore had said that details of the amount of the claim would be apparent from its expert’s report (not due until much later in the year and in fact provided on 22^nd December). During this time the most that Miss Caswell, for Sycamore, said about the amount was that the top end of the claim might be worth around £14m. She was told that dropping such a claim into a proposed mediation would not lead to the mediation having much chance of success. Mr Isaacs pointed out what he said were the difficulties in negotiating when there was no clarity as to the size the claim.

While there should be a limited degree of sympathy for Mr Isaacs’ and Mr Breslin’s position in relation to this, it is only limited. It seems to me that the parties were, to a certain degree, shadow-boxing. Neither wanted to make the first offer. The defendants could have formed a view as to the value of the claim for negotiating purposes, and indeed would have had to have done so had the claimant articulated a figure. They could therefore have, at least to that extent, negotiated. I accept that the detail of the negotiation that I have seen (apparently conducted without prejudice, but placed before me without any objection) demonstrates a willingness to negotiate on the part of the defendants – their mind was not ostensibly set against it – but if they had been really anxious to settle at this stage then I think they would have gone further.

I accept that one of the effects of this failure to reach agreement was that Sycamore’s costs were running up and, by the time the claim was quantified, Sycamore had entered into a CFA, whose uplift was likely to get in the way of settlement. However, that is what happens when litigation does not settle, and does not take this case out of the ordinary.

It is undoubtedly the case that the claim was finally quantified relatively late, but again that is not unusual. Had the defendants really felt disadvantaged by that, then they could have challenged the refusal to give a figure in the Further Information so that they knew what they were facing.

It is also true that by the time of the claimant’s first Part 36 offer, the costs would have been very substantial. Mr Neish’s case is that by this time the costs had made the case unsettlable, particularly in the light of the CFA which, Mr Neish submitted, must have been entered into for commercial rather than “access to justice” reasons. However, they did not necessarily make the case unsettlable. First, if one imagines a situation in which the defendants lost, it would still be likely to have been cheaper to have settled then than to have fought and lost. I do not know how Mr Breslin can have calculated (if he did) that he would be worse off taking the settlement than if he fought on and lost. I accept that on other facts the point may be relevant (see McPhilemy v Times Newpapers (No 2) [2001] 4 All ER 861 at 869e), but it cannot apply on the facts here. Second, if the defendants had been attracted to the offer of £5.5m but felt it was unfair that they should pay all the costs (perhaps because the costs reflected the pursuit of a misrepresentation claim) it would have been open to the defendants to make their own Part 36 counter-offer which offered the sum claimed but less than the whole of the costs. They did not do so. They are not to be penalised for that alone, but the failure to make such a counter-offer probably reflects more closely the strategic view of the defendants as to their chances of success than the view they would like to settle at the sum alleged but could not stomach the costs.

So far as the reasonable reliance on witnesses and expert witnesses is concerned, Mr Neish started from the position of Mr Breslin and Mr Dawson as being parties who had little or no relevant personal knowledge of the facts giving rise to the claim and giving rise to any damages. In those circumstances they were reliant principally on the evidence of Mr Brooks as to the facts and Mr Cottle as to accountancy matters and quantum. Mr Brooks had provided evidence, so far as he could, of how it was that the Liberata sum came to be treated as turnover. Mr Cottle’s report caused him to revisit that question, and he made certain further suggestions as to how it might be that the sum reflected lost fees (rather than a lost opportunity to earn fees). These suggestions were countered by further disclosure from the claimant which undermined Mr Brooks’ factual hypotheses. The last of these disclosures did not take place until 16^th April, so it was not until 7 days after that date (Mr Neish suggested) that it would have become apparent that this part of Mr Brooks’ evidence could not be sustained. Mr Breslin was entitled to rely on Mr Brooks up to this point because he himself had no means of knowing what the true facts were.

Mr Breslin may have been reasonable in relying on Mr Brooks, and I shall assume for these purposes that he could not have understood that Mr Brooks’ evidence was undermined until the end of April 2012. However, that is not a compelling factor which makes it unjust to force the Part 36 consequences on him, if indeed it is a factor at all. In a large number of cases a party is forced to rely on the evidence of someone other than the party itself in order to make or resist a claim. In doing so it inevitably takes the risk of that party’s evidence not being accepted. If it is not accepted then the fact of that reliance cannot be something that makes it unjust that normal costs consequences should flow from the loss. By the same token, it does not seem to me that it makes it unjust to apply the rigours of Part 36. The risk is the same, with the same kind of consequences (albeit more extravagant). Furthermore, in the present case Mr Breslin took the risk of Mr Brooks’ reliability in another sense. Since he was not in day today control of the business at the date of the SPA, yet gave the warranties that he gave, he took the risk that those to whom he had entrusted that control would somehow get it wrong. Although this is different from assuming the risks of litigation, it is part and parcel of the same picture – reliance on Mr Brooks (and indeed others) was something that Mr Breslin risked when he entered into the warranties and then had to defend his position in these proceedings. That reliance was entirely reasonable, if not inevitable, but that does not make it unjust to visit upon him the normal consequences of Part 36.

So far as reliance on Mr Cottle is concerned, I accept that reliance on his view was reasonable. It was also a reasonable view that Mr Cottle’s views on materiality would have to be found beyond the scope of the reasonable for the Liberata £260,000 to be held to be material, and it might even be reasonable to have taken the view that that was unlikely (though I have found it to be wrong). But again, that does not make it unjust to apply the Part 36 consequences to the first (or second, if relevant) offer. It is another example of what happens in litigation all the time – a party relies on third party witnesses and is vulnerable if that evidence is not accepted. If reliance on disbelieved witnesses were a factor going to the injustice in the present case, it would be a very large numbers of other cases, and that would emasculate Part 36 offers as an inducement to reasonable settlements. The fact is that such reliance is one of the risks of litigation, and no more (for these purposes).

I do not accept that the allegations of dishonesty have got anything to do with this point. They may have raised the temperature, but the decision whether to accept a settlement should be taken as a hard-nosed decision on the merits of settlement, not infected by offence to amour propre, whether on behalf of himself or on behalf of others.

The assertion that Mr Breslin could not have known of the judgmental factors that would go into my assessment of damages is a hopeless point. Any litigant has to form a view of the likelihood of a range of remedies. Where damages (or any other issue) depend on judgmental factors, a party is expected to take a view on what is likely to happen. If he or she gets it wrong then they pay the price in terms of liabilities in the litigation, and it is one of the judgments that has to be made in making or assessing Part 36 offers. The litigant takes the risk of his/her own judgment differing from the judge’s. Logically, were it otherwise, and since every disputed case involves an element of judgment, every litigant could assert that he/she could not tell which way the case would go, so litigation (and the rejection of Part 36 offers) was reasonable and should be free of costs consequences. That cannot be the case. Mr Breslin could not predict with certainty what damages figure would be ordered if he lost on liability, but as in any other litigation he has to make some sort of assessment.

The extra burdens imposed on Mr Breslin in the form of the CFA uplift and the interest on the judgment debt are completely irrelevant to the question of the justice (or injustice) of applying the Part 36 consequences. Indeed, the fact of interest on the judgment debt is one of the factors which gives rise to the fact that the offer was beaten; it would be odd if that same factor made it unjust to apply the consequences. Both factors are a fact of litigation life, and flow from the normal costs and interest principles. They do not contribute to the injustice of the Part 36 consequences. Those consequences are harsh, and deliberately so, in order to provide an incentive to reasonable behaviour. The cumulative burden is heavy, but since it is provided by rules and principles it cannot be said to be unjust as a result.

All this means that the factors relied on by Mr Neish as making the imposition of the Part 36 requirements on Mr Breslin unjust do not make that case. Indeed, I fear that they do not even start to make that case. It follows that the disadvantages of CPR 36.14 will be imposed on Mr Breslin, save for one aspect. The claimant has limited its claim to interest on costs and damages under Part 36.14 to 8% rather than the possible maximum of 10%. I shall so order.

There remains one other point. Mr Neish said that the Part 36 sanctions should not apply in respect of any period prior to 23^rd April 2012, which is 7 days after the defendants received some disclosure which demonstrated (or, the claimant might say, further demonstrated) the weaknesses of Mr Brooks’ attempts to attribute the Liberata payment to actual lost fees. This would probably be a significant shift of date (from 8^th March, the end of the 21 day period from the first offer) because it would probably exclude brief fees from the effect of the Part 36 offer. I do not consider it right to dissect matters in that way. To do so would be to give too significant an effect to this disclosure. The disclosure was a response to a developing defence case. It was not something which came out of the blue and which demonstrated, for the first time, a riposte which was nothing to do with what had gone on before and which rendered an otherwise apparently defendable claim undefendable, arising out of factors of which the defendants and their witnesses can have had no knowledge at all. If it had been such a disclosure then the defendants might have had some sort of case for postponing the date, though even then the point is not without its difficulties. But it was not. I therefore reject this submission.

The defendants do not dispute that they should be liable for interest on costs, but they take issue with the claimant on rate, proportion, principle (in the sense that they challenge the payment of interest on the uplift) and the date on which Judgments Act interest on costs should start.

As to rate, Sycamore seeks interest at the rate of 5% above base rate. It does so on the basis that this is fair, reasonable and proportionate as between the parties, and has put in some evidence which seeks to demonstrate that the litigation was funded by borrowing at that rate. The evidence shows that there is a facility in place under which Enrich Holdings Ltd borrows at that rate from various Dunedin or Dunedin-related entities, and that funds thus borrowed make their way down a chain to Sycamore, with a series of inter-company (intra-group) borrowings created on the way. Thus it is sought to say that Sycamore is borrowing at 5% in order to pay the costs. It is not clear from this evidence whether Sycamore has borrowed the entirety of its costs from that source. At all events, it is based on that borrowing rate that Sycamore claims 5% by way of interest on costs.

The defendants submit that any such interest should be at the same rate as interest on the judgment debt, on which I have already ruled. They say there is no reason for departing from that, and it would be in line with other cases which are said to apply the same principles to interest on costs as apply to interest on damages (albeit that the question of rate was not discussed in them) – Nova Productions Ltd v Mazooma Games [2006] RPC 15 at para 17; ADS Aerospace v EMS [2012] EWHC 2904 (TCC) at para 10.

In F&C Alternative Investments v Barthelemy [2012] 4 All ER 1096 at para 98, Davis LJ said, in relation to interest on costs:

“(4)

In the context of awards of interest on judgment sums, the court ordinarily does not have regard to, or at least is not bound by, the rate at which a particular recipient in his particular circumstances might have borrowed funds: rather the court ordinarily focuses on the relevant class of person (if I can put it that way)… [T]he approach [in a prior case] underscores the need for a general appraisal, having regard to what is fair, reasonable and proportionate as between both paying party and receiving party. Certainly such matters are not to be decided by some kind of automatic application of an egg-shell skull rule. Indeed, in his written submissions Mr Thompson fairly accepted that the approach of the court in exercising its discretion in relation to interest on costs should be similar to that in relation to interest on principal – albeit subject, as he submitted, to the court being ‘more prepared to take account, if relevant’ of the rate at which the receiving party had actually had to borrow money to fund the litigation.”

I accept and apply what are described as the submissions of Mr Thompson, which were clearly adopted by Davis LJ. It seems to me that, on the facts of this case, the first thing to do is to grant interest at the same rate as I have found to be applicable to the damages claim. There is no reason for departing from that in this case. The only case for doing so is one based on some related-party lending which may have been entered into for a variety of reasons, not all of which may reflect a market rate. I do not see why it is fair that the defendants should have to pay that rate under those circumstances.

It follows that I accept Mr Neish’s submissions on rate of interest. The rate will be the same rate as I have specified should be payable on the damages, that is to say 3% above base rate from time to time until 5^th February 2009, and 2.5% from that date. That is, of course, subject to the higher rate of interest which flows from Part 36 in relation to the period to which that applies (from 8^th March 2012).

Mr Neish submitted that interest on costs should only run on base costs, and not on the CFA uplift. Miss Newman accepted that position, and I therefore do not need to rule on the point.

There turned out to be no dispute about this. The claimant does not claim interest on costs from any date earlier than the date of any actual payment of costs or disbursements by Sycamore, and the defendants accept that as the relevant principle.

If nothing is said about this, then interest on costs will be at the Judgments Act rate from the date of the costs order. In the present climate that is a significant benefit to the claimant. Mr Neish submitted that this date should be postponed by 6 months because there were bound to be significant issues about reasonableness and proportionality bearing in mind the scale of the costs sought – without the uplift the costs of the claimant are said to be in the region of £3.9m.

This point has been raised in a number of cases. It has been held that there is jurisdiction to make such an order for the reasons relied on by Mr Neish, but such an order should not be routinely made – see the summary of the cases in Standard Chartered Bank v Ceylon Petroleum Corp [2011] EWHC 2094 (Comm). In Fiona Trust v Privalov [2011] EWHC 1312 (Comm) Andrew Smith J held that in order to make a case for postponement:

“Typically the applicant would have to show that particular features of the case mean that the application of the general rule would be so unfair to him that justice requires departure from it. This might be because a large amount of costs is likely to be outstanding for a particularly long period and the applicant cannot be expected to avoid this by assessing what costs he will have to pay and making (or tendering) a substantial payment on account. I agree with the claimants that, if such unfairness is shown, the fact that the Judgments Act interest rate encourages the paying party to reach a compromise would not be a proper reason to refuse an order.”

The costs bill in this case is large, particularly bearing in mind the proportion that the costs apparently bear to the damages awarded. I think that this is a case in which there will be sufficiently serious questions of proportionality and reasonableness as to justify the exercise of the discretion which Mr Neish invites me to exercise, and I shall do so and specify a period of four (not six) months for the postponement of the Judgments Act rate on the costs save for the interim payment referred to below, on which Judgments Act interest will run from the date of the order for its payment. This will actually make no difference to the costs payable by Mr Breslin after the Part 36 offer, because costs caught by the consequences of that are attracting interest at 8% (the equivalent of the Judgments Act rate) anyway, pursuant to my decision above.

By the time of the hearing Mr Neish did not dispute that a payment on account of costs should be made. His skeleton argument submitted that a payment should not be ordered in order to signify the court’s disapproval of a failure by the claimant to provide a schedule of costs when asked. He did not press that point at the hearing (and rightly so, in my view). He confined his submissions at the hearing to short submissions to the effect that the payment should not be more than 50% of base costs. Miss Newman submitted that 60% was an appropriate figure.

I have already disallowed a percentage of costs across the board, so my determination of an amount must bear that in mind. On the other hand, a significant part of the costs will, so far as Mr Breslin is concerned, be taxed on the indemnity basis. Miss Newman also invited me to bear in mind that there was a success fee payable under the CFA, though she did not invite me to calculate a figure by reference to that. Since the claimant has chosen not to disclose that fee other than to indicate that it will probably not exceed £1m I shall not take it into account at all. I have firmly in mind the need to bear in mind the likely irreducible minimum of the costs.

Bearing in mind these factors, I consider that the proper figure to award for an interim payment is £1.5m.

Mr Neish seeks permission to appeal and has prepared draft grounds of appeal along with a detailed section of his overall skeleton argument for this hearing devoted to his point. I am satisfied that on the basis of this skeleton argument there are points which are fit for an appeal because they represent something with a real prospect of success (within the meaning of the rule), and the justifiability of the appeal is reinforced by the consequences on the defendants (and particularly Mr Breslin) of the particular breaches of warranty alleged. I therefore grant permission in relation to those grounds.

On behalf of the defendants, Mr Neish seeks a stay of all directions for payment pending appeal. He relies on an averment that the state of Sycamore’s finances is such that there is a risk of injustice if his clients are required to satisfy their financial obligations and were it to be found on appeal that they were not liable, because there is a real risk that Sycamore would not be able to repay. So far as the financial position of his clients is concerned, he relied on evidence from both of them as to what their liquid or liquidatable assets are and says that it would be unfair to require them (and particularly Mr Breslin) to liquidate assets at a potentially disadvantageous time and on potentially disadvantageous terms when an appeal is pending. He couples submissions with an offer on the part of each defendant to place their liquid funds (basically their respective shares in houses which have been or are to be sold) in some form of escrow account combined with undertakings not to dispose of significant assets and (in the case of Mr Breslin) to keep the claimant informed of progress of disposals and in particular of progress in realising a substantial asset in the form of shares in a Tanzanian bank.

In her skeleton argument Miss Newman’s primary stance was to oppose a stay. However, at the hearing she appeared to modify that stance and said her clients opposed a stay in the absence of agreement on the escrow account. She said that her clients were not satisfied with the information that Mr Breslin had given as to his assets generally or what his intentions were, and in particular made a point about a trust of which Mr Breslin and his wife were trustees under which Mr Breslin was a potential beneficiary and a failure of Mr Breslin to ask his wife to confer on him a benefit sufficient to satisfy the judgment. She has unspecified concerns about the proposed escrow arrangements. One of her points related to Mr Breslin’s cars. He has two valuable Porsche cars and has given an undertaking not to dispose of them. She complained that he had not given an undertaking that he would not charge them. It seems to me that taking such a point does not demonstrate a particularly constructive and sensible approach to negotiations in this sort of area. Looking at that point, and the approach in correspondence of Addleshaw Goddard to monies flowing from the sale of houses, I could begin to see why there might be difficulties in agreeing escrow arrangements with them when one would have thought that, in the circumstances, such arrangements ought to be straightforward and easily agreeable.

I am satisfied that Sycamore’s financial state is such that there is a real risk that it would not be able to repay any substantial sums paid to it were there a successful appeal, and I am also satisfied that it would be unjust on both Mr Breslin and Mr Dawson to require them to realise more assets than they can currently sensibly realise (or, in the case of Mr Dawson, has already realised in the form of his jointly-owned house). I consider that both gentlemen have offered adequate and fair protection to the claimant in the form of their undertaking to deposit cash realisations, and other undertakings to prevent dissipation and to keep Sycamore informed of property realisations. If I am satisfied that further information is necessary or appropriate to safeguard the position of Sycamore, I will order it, and to that end I will consider specific requests for that information on the handing down of this judgment. The tone of the correspondence about this so far is such that I am not prepared to make a general order for the provision of information. Such an order is likely to escalate costs even further. For their part the defendants will have to undertake to pursue the appeal with due diligence and (in the case of Mr Breslin) to keep Sycamore informed of all material developments in the sale of his three principal assets (his house, a Singapore flat and his bank shares). The escrow moneys will abide the event of the appeal, as will the cost of the escrow arrangements. If there are still outstanding difficulties about the detailed terms of the escrow I will again rule on them on the occasion of the handing down of this judgment. Any disputes must be clearly articulated in advance so that I can rule once and for all on the terms of the escrow arrangements.

On that basis I will order a stay of enforcement pending appeal.

Clause 8.14 of the SPA provides:

“If any payment made by the Sellers or the Warrantors (as applicable) to the Buyer for breach of the Warranties, under clause 6.3, clause 15.4 or under this clause 8.14 is, or would, but for the availability of Accounts Relief or Post Completion Relief, be subject to Taxation in the hands of the Buyer, the Sellers or the Warrantors (as applicable) shall pay to the Buyer such additional sum or sums as shall be necessary to place the Buyer in the same position (after payment of such Taxation) as it would have been in had the payment not been subject to Taxation …”

The claimant’s skeleton argument hoped for agreement as to how this would operate in the circumstances, in the absence of which the claimant would seek an order for an enquiry from me. There was no agreement, so Miss Newman pressed her claim, saying that there would have to be an inquiry at some point, and making an order now, and if necessary postponing it, would save a future application to the court. Mr Neish, on behalf of the defendants, resisted an enquiry at this stage. He submitted that the existence of any claim depended first on his appeal failing, and even then it would depend on a determination that, in the circumstances, the damages were subject to tax. He pointed out that clause 3.2 of the SPA provided that any sums paid in respect of warranties would be treated as a reduction in consideration, and that would go to the question of whether tax was properly payable. All these factors made an enquiry at this stage premature.

I agree with Mr Neish. The existence of the appeal means that the enquiry would be premature, and in any event I do not think that it has been demonstrated that it would be possible to have an enquiry as to the sums payable under this provision in advance of a determination, involving the tax authorities, as to whether or not the sums are taxable. That, too, would make an enquiry premature. An enquiry might never be necessary, because of a successful appeal, success in dealing with the tax authorities or agreement between the parties. If it becomes necessary to have one, there is no point in making some sort of generalised order at this stage and then staying it. There would in any event have to be a further directions hearing before any final determination. In the circumstances, I shall not order one.

I next have to deal with a couple of aspects of the LTIPs claim. The first would have been costs, had it not been accepted by both parties that Sycamore should pay the costs of this claim. I shall so order.

The LTIPs claimants then claim an interim payment. The only material presented at the hearing in support of this claim is a one line statement of Mr Isaacs in his witness statement to the effect that the costs “are around £90,000 (+VAT)”. One would normally expect more evidence in support of such an application than that. (Footnote: ²)

Miss Newman says that no award should be made. She says that £90,000 is a surprising amount for such a relatively small claim (in terms of issues involved and the material necessary to deal with it). At one level she is right, but in the context of this litigation it is impossible to be surprised at such a sum. Mr Neish invites me to award £75,000.

I have seriously contemplated awarding nothing under this head, on the basis that the evidence is simply insufficient. However, in the context of this overall litigation I think that that would be unjust, and I propose to make an order. Having said that, the absence of any schedule means that I must be particularly careful not to award more than I can be confident would be an irreducible minimum. I shall award £40,000 by way of interim payment.

There is no dispute about the entitlement to interest. Sycamore accepts that the LTIPs claimants are entitled to interest on the outstanding claim for the period during which it was outstanding, allowing for the fact that there was apparently an interim payment of £250,000 made by Sycamore on 8^th December 2011. I did not detect any dispute about this aspect of the matter.

There is, however, a dispute about the rate of interest. The LTIPs claimants (which include the trustees as well as Mr Breslin and Mr Dawson) claim interest at 5% above base rate, saying that they were individuals and that this was held to be the appropriate rate for individuals in Attrill v Dresdner Bank [2012] EWHC 1468 (QB), Miss Newman argued for a rate of 2.5%. Thus were their roles reversed – see my previous ruling on interest on Sycamore’s claim.

As my previous judgment on interest demonstrates, to a degree the correct rate of interest depends on some evidence. Mr Neish has produced no evidence to support his proposition that 5% above base rate was the rate applicable to borrowings by the class of the claimants in the LTIPs action. Looking at the matter in the round, as a matter of discretion it is my view that the LTIPs claimant should receive interest at the same rate as Mr Breslin and Mr Dawson have to pay interest on their damages. The LTIPs claimants are, of course, not commercial entities, but this is a commercial claim and, bearing in mind the closeness with which this claim is linked to the warranty claim, it seems to me to be right to equate the rates of interest.

The last point is interest on the costs of this claim. There was no extensive argument on this. Miss Newman suggested that the total quantum was such as to mean that interest should not be awarded. I disagree with that, even though the interest may be relatively slight. Again, the just course is to allow interest on costs at the same rate as the interest on the claim.

The parties agree that it is appropriate to set off the claims of Mr Breslin and Mr Dawson under the LTIPs claim against their liabilities in the main action. This is a set-off of judgments; the LTIPs claim was brought in a separate action, not in a counterclaim.

There remains, however, a question as to how to allocate an interim payment of £250,000 ordered by the court. Miss Newman submits that it should be allocated to the claim of the trustees only, and that no part should be allocated to Mr Breslin and Mr Dawson. She says that this would be fair to the claimant bearing in mind the substantial liabilities of Mr Breslin and Mr Dawson in the main claim and the risk of that judgment being unsatisfied. I do not agree. The effect of what she seeks is that the trustees would be treated as being paid in full (because their share is less than £250,000), Mr Breslin and Mr Dawson would have the balance, and they would offset the rest of their claim against their liability to damages. If I did not make that order then the trustees would receive another £52,000 odd, and Mr Breslin and Mr Dawson would take £82,000 of the interim payment and set off an aggregate of £27,000.

I shall not accede to Miss Newman’s submissions. Apart from anything else, it is not clear to me that I can do so as a matter of law. The order for an interim payment is that it be paid to “the Claimants” (i.e. all of them). Mr Breslin and Mr Dawson have their own accrued rights in relation to that payment, and it seems to me that they would be entitled to a pro rata share of it. If I were to make the order sought by Miss Newman it would effectively be an order that they pay sums to the trustees. I might just have jurisdiction to do that by varying the order under CPR 25.8(2), but that is not clear, and it is clear to me that even if I could do so it would not be right to do it. On analysis, the LTIPs claim ought to have been paid a long time ago (see my judgment on the point, and on the absence of set-off referred to in paragraph 487). The interim payment was a sum paid late in circumstances in which the sum paid should have been the whole of the claim. It would seem to be quite wrong now to start depriving Mr Breslin and Mr Dawson of their accrued rights to that payment and to adjust the apportionment of the interim payment to achieve that. I shall therefore make no order in relation to it.