HASSAN ALI MAKKI v BANK OF BEIRUT S.A.L.

On 13 April 2022, I handed down my substantive judgment in respect of Mr Makki’s application under rule 10.4 of the Insolvency (England and Wales) Rules 2016 for an order setting aside a statutory demand dated 10 June 2021 and served on him by the Respondent, the Bank of Beirut S.A.L. In essence, for the reasons given, I decided that the demand should be set aside under rule 10.5(5)(a) because there is a “genuine triable issue” in respect of the claim being pursued against the Bank by Mr Makki in Lebanon. This is my further judgment in respect of various consequential matters, in particular:

Unless otherwise stated, I will continue to use the terms defined in my previous judgment; the two are to be read together.

Since my judgment was handed down, the parties have taken a number of steps giving rise to further disputes between them, and that affect the issues before me.

First, as follows, Mr Makki claims to have discharged the Makki Debt; the Bank disputes that claim.

Second, the Bank has issued an application (“the Set-Off Application”) for an order under CPR 44.12(1), which provides: “Where a party entitled to costs is also liable to pay costs, the court may assess the costs which that party is liable to pay and either: (a) set off the amount assessed against the amount the party is entitled to be paid and direct that party to pay any balance; or (b) delay the issue of a certificate for the costs to which the party is entitled until the party has paid the amount which that party is liable to pay”.

By that Application, the Bank seeks an order for the set off of any costs liability of the Bank to Mr Makki in the present proceedings, against the Makki Debt (in other words, Mr Makki’s liability to the Bank pursuant to the costs order made by Southwark Crown Court on 5 March 2021, under s.19 of the Prosecution of Offences Act 1985). In summary, the Bank submits that it would be wrong for it to have to pay any costs to Mr Makki now, in circumstances where Mr Makki has not himself paid the Makki Debt.

Plainly, the Bank’s Set-Off Application and Mr Makki’s claim to have discharged the Makki Debt, are very closely connected. Accordingly, it was agreed by the parties (a sensible agreement, that I was content to endorse, and if necessary, to order):

It was also agreed that any costs awarded in favour of Mr Makki should be subject to detailed rather than summary assessment, and again, for the following reasons I was willing to agree.

The first reason is (as Dr Mokal described it) the “practical impossibility of signing off on the bulk of Mr Makki’s costs”.

The second reason is that Mr Makki’s costs exceed £100,000. They are too substantial to be dealt with summarily (as was the case in, for example, Les Abassadeurs Club Ltd v Albluewi [2020] 4 WLR 88 (QB)). In that regard, Mr Robins submitted that Mr Makki’s costs (or at least, the aggregate sum of the three costs statements) were “extraordinarily large”, that they give rise (on the Bank’s case) to a large number of issues, and that as a result, a detailed assessment is appropriate.

In the circumstances, I agree that summary assessment is inappropriate, and I am willing to order a detailed assessment.

Broadly, in my previous judgment, at [3], I identified four issues.

Mr Makki was successful in respect of each issue, and accordingly, Dr Riz Mokal (who again appeared before me on behalf of Mr Makki) submitted that the Court should follow the “general rule”, as set out in CPR 44.2(2), and order the Bank to pay Mr Makki’s costs.

Of course, the Court has a discretion in respect of costs, and although Mr Robins accepted that Mr Makki was the successful party, he submitted on the Bank’s behalf that there are nonetheless good reasons in the present case to depart from the general rule. In essence, his argument was that as a result of Mr Makki’s claim to have discharged the Makki Debt, as explained above, the third and fourth issues identified at [8] above, “have now become moot”, and that Mr Makki’s arguments on those issues “have now effectively been abandoned by [his] change of position”. Mr Robins therefore submitted that costs incurred by Mr Makki in respect of the third and fourth issues were thrown away, and the Bank ought not to be ordered to pay them. He suggested that Mr Makki’s costs should be reduced by 80%. As he put it, “if Mr Makki had adopted from the outset the position that he had paid the Crown Court Costs Order, the principal issue raised by the Set Aside Application would have been entirely different, i.e., as to whether the delivery of the six banker’s cheques to the Bank constituted payment of the Crown Court Costs Order. The third and fourth issues identified in paragraph 3 of the Judgment would not have arisen for decision at all.”

In this regard, I do not accept Mr Robins’ submissions, to any extent. It may be right to say that different issues would have arisen had Mr Makki sought to discharge the Makki Debt before the hearing of his application, and it may (or may not) be right to say that his subsequent claim to have done so by delivery of endorsed Bobsal Cheques is inconsistent with the way in which he puts his case in the Lebanese Proceedings (a point which I should say, was wholly disputed by Dr Mokal). In my judgment however, none of that is remotely relevant: there were four issues before me; each was fully argued; in respect of each, I decided in favour of Mr Makki. There was no application for permission to appeal, and it was not suggested that any submissions in the present proceedings were improperly advanced on Mr Makki’s behalf; I am not asked to revisit any of the issues I decided. Neither the (hypothetical) possibility that the application would have proceeded differently had Mr Makki previously sought to pay the Makki Debt (on which the Demand was based) nor the possibility that his claim now to have done so is somehow inconsistent with his continuing case in Lebanon, has any bearing on what was in fact argued before me, and what I decided; the history cannot be re-written. In the circumstances, Mr Makki was entirely successful, and I will order the Bank to pay his costs.

Mr Makki sought an order that his costs be assessed on the indemnity rather than the standard basis; the Bank disagreed.

As to the relevant legal principles in this respect, there was no difference of any substance between the parties’ submissions.

Indemnity costs will be awarded where there is “something in the conduct of the action or the circumstances of the case which takes the case out of the norm in a way which justifies an order for indemnity costs”: Excelsior Commercial and Industrial Holdings Ltd v Aspden [2002] CP Rep 67, at [39] per Waller LJ.

The indemnity basis differs from the standard basis in two respects. In Excelsior Commercial and Industrial Holdings Ltd, Lord Woolf LCJ said at [15]:

The key question is whether there are grounds to justify the different approach entailed by an order for indemnity costs, and in particular, that justify preventing the paying party from taking points on proportionality (meaning that, necessarily, the paying party is exposed to the risk of paying costs in a sum disproportionate to the case).

By way of example, indemnity costs have been awarded:

In my judgment, with those principles in mind, this is a case in which assessment of Mr Makki’s costs on the indemnity basis is appropriate. My reasons are as follows.

The courts have long emphasised (as it was put in In Re Kirkman-Moeller [2005] BPIR 1136 at [10]-[11], by Lindsay J) that prospective insolvency proceedings are “… a particular area where it is especially familiar to parties that to go ahead … without a judgment or without a truly clear debt is a risky matter. It is perhaps more emphasised in the context of company winding up petitions than it is in the similar (but not wholly similar) proceedings in bankruptcy, but the notion is a familiar one and, as I have mentioned, Mr. Registrar Nicholls warned of that risk, quite rightly, in June 2004.” Unfounded allegations of insolvency are particularly likely to cause prejudice to those against whom they are made.

Furthermore, it is an abuse of what is a class remedy, to use or attempt to use insolvency proceedings to enforce a debt. As was said by CICCJ Briggs in Go Capital Ltd v Phull [2020] BPIR 819, 831-2, at [50]:

The central issue of substance in the present case was whether or not Mr Makki’s claim against the Bank, currently the subject of the Lebanese Proceedings, raises a “genuine triable issue”. I remind myself that having discontinued the Private Prosecution (and as further set out at [53] of my previous judgment) Mr Makki began those Proceedings on 1 March 2021, and that a precautionary seizure of certain of the Bank’s assets was ordered by the competent Beirut court on 24 March 2021, before service of the Bank’s Demand. Even before then, the Bank was aware (as it said in its correspondence with the CPS in November 2020) that similar issues to those raised by Mr Makki were being litigated in Lebanon. On 30 November 2021, having heard submissions from both parties, Head Judge Anani of the Beirut Court’s Enforcement Division rejected the Bank’s appeal against the precautionary seizure, and delivered what appears to have been a fully reasoned judgment in favour of Mr Makki.

To succeed on Mr Makki’s application, the Bank would have had to persuade me that despite the fact and progress of the Lebanese Proceedings, Mr Makki’s claim does not raise a “genuine triable issue”. Accordingly, before me on 3 March 2022, Mr Heylin (then appearing for the Bank) submitted that the “summary procedure” before Judge Anani did not “really delve into the merits and should be approached with extreme caution”. He submitted that the decision is “essentially meaningless” because the matter will ultimately be determined on appeal by the Lebanese Court of Cassation. However, in the absence of any (permitted) expert evidence of Lebanese law, and in the context of prospective bankruptcy proceedings (and the comparatively summary procedure appropriate to such proceedings) this was, in my judgment, a wholly unrealistic and high-risk endeavour: in my view, the Bank’s Demand was more in the nature of an attempted debt enforcement in the sense referred to above by CICCJ Briggs. Moreover, I remind myself that there having been no permission to rely on expert evidence, much of Mr Airut’s detailed evidence (which Mr Makki and his advisors nonetheless had to consider and react to) was inadmissible, as set out at [56] and [57] of my previous judgment.

In response, whilst of course accepting that the Bank had lost in respect of the issue concerning Mr Makki’s cross claim, Mr Robins submitted that its loss was no more or less than an ordinary feature of ordinary litigation, in which the mere fact of defeat does not (as in principle I accept) justify an award of indemnity costs. I do not accept that characterisation of the outcome or the proceedings – in the circumstances set out in my previous judgment at [68], and as I have said above, the Bank’s case that Mr Makki’s claim in Lebanon is without substance was hopeless, and in the context of a prospective bankruptcy petition, ought not to have made and persisted in. That it was, is sufficient to justify the award of indemnity costs.

Finally in this respect, I should add that Mr Makki also relied on the fact of the Bank having referred (in connection with his evidence about the date on which the Demand came to his attention) to his previous conviction for contempt of court in 2005 (discharged 8 years ago, in 2014) and having described him (in consequence of that conviction and his conduct in respect of it) as, amongst other things, “Mr Makki thefraudster” and a “man willing to lie and cheat in proceedings to obtain his desired result”.

Although the events referred to by the Bank took place some years ago, in a different context, and although I held that in the absence of cross-examination I was not willing to disbelieve Mr Makki’s evidence, I do not, on balance, consider this to be a circumstance justifying or adding weight to Mr Makki’s claim to indemnity costs. There was an issue concerning the date of service (and therefore the weight to attach to Mr Makki’s evidence) and the events relied on by the Bank did take place. Whilst ultimately therefore I attached no real significance to Mr Makki’s 2005 conviction, the Bank’s reference to it is not something in its conduct of the application which takes the case out of the norm such as to justify an order for indemnity costs.

Finally, pursuant to CPR 44.2(8), Mr Makki sought an order for payment of a reasonable sum on account of his costs (which I have now decided he should be awarded, without reduction, on the indemnity basis).

As explained in The White Book 2022, Vol.1, at [44.2.12]:

In this respect, Mr Makki submitted that the Bank should be ordered (albeit subject to the agreed stay explained above, pending the outcome of the Set-Off Application) to make a payment of £103,662, being 50% of the total presumptive figure of £207,324 (comprising the sums above at [9]).

In response, Mr Robins submitted that (even leaving aside the agreed stay) there is “good reason” (within the meaning of CPR 44.2(8)) not to order payment of a sum on account of Mr Makki’s costs (and certainly not in the sum sought) essentially for two reasons:

As to the first of those arguments, Mr Robins cited the decision of O’Farrell J in Royal Parks Ltd v Bluebird Boats Ltd [2021] EWHC 3040 (TCC). In that case, previously, there had been separate judicial review proceedings between the same parties, in which a costs order had been made in favour of the Defendant. In the subsequent TCC proceedings before O’Farrell J, a costs order was made in favour of the Claimant. The Claimant applied for a payment on account pending detailed assessment. The Judge said that the court had two options, it “must either ignore the judicial review costs order completely, or carry out some form of rough calculation to assess what the position might look like following an assumed netting off process”. She held that the second option was correct, because it would be wrong to ignore the judicial review costs order: “If the court were to ignore the judicial review costs order, the claimants would be entitled to seek a much larger sum on account in these proceedings than has been sought. For reasons of fairness, the claimants have accepted that the sum on account should be based on the net position. The court agrees”.

On this basis, Mr Robins submitted that as a matter of principle I should look at the position on a net basis, but that as matters stand, because I cannot be satisfied that any net sum will ultimately be payable to Mr Makki, there is good reason for declining to award an interim payment.

I do not accept that argument. In the Royal Parks Ltd case, there were two costs orders, neither of which had been satisfied, by reference to which the Judge was able to conduct an approximate “netting off process”. By contrast, in the present case, Mr Makki claims to have discharged the Makki Debt altogether – in that respect, he claims to owe the Bank nothing. Whether he is right about that will be decided in due course on the Bank’s Set-Off Application. This is not therefore a case in which I can currently conduct any process of “netting off”, even approximately, but it is a case in which that process will in due course take place.

In my judgment, in the circumstances, and subject to what is said below, the proportionate and most convenient course is not to refuse to make any order at all, but is to make an award of interim costs in a certain sum (as the Judge who heard and determined Mr Makki’s application, and has closest connection with it) subject to the agreed stay. On the determination of the Bank’s Set-Off Application, if Mr Makki succeeds, the stay can be lifted; if he fails and the Bank succeeds, it can be continued; in any event, it can be varied. The court hearing the Set-Off Application would nonetheless be relieved of the task of determining a reasonable sum under CPR 44.2(8).

This however leads to the question of deciding the appropriate, reasonable sum, and to Mr Robins’ second submission, set out in summary at [33] above.

As to that, in summary, Dr Mokal made a number of submissions.

First, he drew a distinction between the assessment of costs and the making of a costs order on the one hand, and requiring the paying party to make payment pursuant to the costs order on the other. He said, and I agree, that the indemnity principle is not breached upon either assessment or the making of a costs order, so long as payment under that order only occurs in compliance with the indemnity principle.

Thus, for example, the court may summarily assess the costs of an interim application in favour of a party which has a conditional fee agreement with its solicitors, notwithstanding that its liability to pay has not yet arisen (where, for example, success is defined as obtaining an award of damages, rather than success at an interim hearing). In those circumstances, Cook on Costs at [27.9] suggests that the correct (“uncomplicated and proportionate”) procedure is to assess costs but order that they be paid only on receipt of a written notice confirming that the liability has arisen, thus ensuring that the indemnity principle is not breached.

Similarly, in the context of a detailed assessment, Cook states, at [29.20], that “If, as sometimes occurs, the bill certificates are not signed prior to a detailed assessment hearing taking place, the court will at the very least, not allow a final costs certificate to be produced until the certificates have been signed. This will prevent any enforcement of the sums allowed on assessment.”

Second, Dr Mokal submitted that although a failure to produce a duly signed costs statement is a breach of paragraph 9.5 of PD 44, the court must (under paragraph 9.6) in order to decide what order to make as a result of that failure, first determine whether there is a reasonable excuse for its occurrence. In any event, he submitted, and I agree:

He also submitted that Mr Makki does have a reasonable excuse for his failure to serve compliant costs statements because of his dispute with Cadwalader.

In the circumstances, he argued that ultimately, the critical point is whether or not the court has an adequate basis (such as an unsigned statement, or copies of invoices for example) on which to make an assessment of the likely amount of Mr Makki’s recovery in respect of Cadwalader’s alleged costs, in order to fix and award payment of a “reasonable sum” under CPR 44.2(8); that it would be disproportionate to refuse to make an award because of his (excusable) non-compliance with paragraph 9.5 of PD 44; and that I should therefore proceed to fix a sum on the assumption that the detailed but unsigned costs statements are substantially correct, whilst at the same time ordering (in addition to the agreed stay) that payment not be made until receipt by the Bank’s solicitors of written notice, duly signed by a solicitor, confirming that Mr Makki has a liability to Cadwalader of at least £x under the terms of his fee arrangement with Cadwalader, and that the indemnity principle is not breached. He submitted that I should only attribute a value of zero to Cadwalader’s costs (and therefore make no award) if I estimate that to be the likely level of Mr Makki’s recovery in relation to such costs, but that there is nothing in the evidence to support that outcome.

Whilst, as I have said, I do not disagree with the substance of Dr Mokal’s submissions about the relevant principles, and whilst I also agree that Mr Makki appears to have had a reasonable excuse for his failure to produce compliant costs statements, I do not agree with his suggested conclusion. In the present case, in the absence of compliant statements, I am not willing to fix and award a sum on account of the costs, if any, that Mr Makki might be or come to be liable to pay Cadwalader.

As explained above, I have been told nothing about the nature or scope of the dispute between Mr Makki and Cadwalader. I have no means of assessing how or when it might be resolved, or on what terms. I therefore have no reliable evidence of either the ultimate amount of Mr Makki’s liability to Cadwalader, or its composition. It might transpire that Mr Makki is not liable to pay anything, or is liable in the full sum included in the unsigned statements, or in some other sum/s. The composition of his ultimate liability might differ from that of the sums stated in the unsigned statements.

As noted above, it was in part for these reasons that Dr Mokal himself submitted that a detailed assessment of costs in this case would be appropriate – the “practical impossibility” of producing signed costs statements making summary assessment unsuitable. For the same reasons, it seems to me that this is not a case in which it is possible to fix the amount of an interim award - there is “good reason” not to do so. Neither do I accept Dr Mokal’s suggested solution - that the court should fix a sum but make payment subject to future production of a statement that Mr Makki is liable to pay “at least £x” – since apart from anything else, the composition of the ultimate £x on the one hand, and of the aggregate sum of the unsigned statements on the other, might be quite different. That suggested solution would deprive the Bank of the opportunity to make submissions about the recoverability of the £x; potentially, it would be to fix a sum on one basis (without reliable evidence), and justify its payment on a different (but presently unknown) basis. It would also be somewhat crude in that a liability to Cadwalader of marginally less than £x, would extinguish completely the Bank’s liability to make payment on account.

Having said that, I am willing to award (subject to the stay) a sum on account of the costs due from Mr Makki to Mishcon de Reya. In that regard I have a signed statement in the sum of £44,217, and I am told of costs subsequent to the hearing before me, in the sum of £5,570. Taking account of the submissions made by Mr Robins in his skeleton argument in respect of the solicitors’ claimed hourly rates and the significant time spent on attendances, but without taking account of issues of proportionality, it seems to me that a reasonable sum would be £25,000.

Furthermore, in respect of the periods during which Mr Makki was represented by Cadwalader, and without making any order in this respect, I do not intend to preclude Mr Makki, if he is otherwise able to do so, from making a future application for payment of a sum on account.

In summary therefore, I will order, in addition to setting aside the Demand:

I would ask that a minute be produced, and if possible agreed.