National Westminster Bank Plc v Rabobank Nederland

There are three outstanding issues following the trial of these proceedings:

NWB also invite this court to determine for the purpose of the proceedings brought by NWB against Utrecht-America Finance Co. Claim N^o 2000/Folio 63 the basis on which the damages ordered by Mr. Peter Gross Q.C. on 27 November 2000 to be paid by Rabobank should be assessed

In the main judgment I said this at para. 440:

“Accordingly, if NWB can establish that the bringing or attempted bringing by Rabobank in the CC Proceedings of claims in respect of NWB’s acts or omissions in its capacity as Agent under the Credit Facility has caused loss or damage to NWB, it is in principle entitled to deploy a claim for damages for breach of clause 21.3(b) in order to obtain an indemnity even if that loss is the incurring of legal costs. The fact that at some future stage, if any, the Californian courts might make an order for costs relating to such part of the CC Proceedings as have been stayed is nihil ad rem. Recoverability of damages works on the indemnity principle to the effect that NWB is entitled to treat as its recoverable loss whatever it has reasonably incurred as a present liability to its Californian and English legal advisers, regardless of any possibility of a costs order in its favour at some time in the future. There would obviously be no question of double recovery.”

It is submitted on behalf of NWB that this assessment should be done on a basis which corresponds to the indemnity basis under CPR 44.4, namely that only those costs will be allowed which have not been unreasonably incurred and are not unreasonable in amount, the burden of proof of unreasonableness resting on the party in breach.

NWB say that this would accurately reflect the long-standing and fundamental principle of the law of damages that the only bar on the recovery of incurred expenditure upon such legal costs should be that they were so extravagant as to represent a failure to mitigate, the burden of proof resting on the party in breach.

In support of this submission NWB relies by way of analogy on Gomba Holdings v Minories Finance [1993] Ch 171 in which it was held that where under a mortgage deed, a guarantee and a debenture as against the mortgagee was entitled as against the mortgagor to a “full indemnity” in respect of legal costs which it had incurred, it was entitled on a taxation of its costs to have them taxed on an indemnity basis and not on a standard basis, the burden of proof that such costs had been unreasonably incurred or were unreasonable in amount to rest on the mortgagor as indemnifying party. I would add that the Court of Appeal held that, at least in the field of mortgages, where there was a contractual right to recover legal litigation costs by way of indemnity any taxation of such costs should normally be on a basis which corresponded with that contractual entitlement, that is to say, it should normally be on an indemnity basis.

NWB also relies on the judgment of Pearson J in Butterworth v Kingsway Motors [1954] 1 WLR 1286 where the plaintiff purchaser of a car from a motor dealer who sold it in breach of the condition of good title was held entitled on a claim against the dealer, for breach of contract to recover the price and where the dealer having joined its vendor as third party, was held entitled to recover from that party, as part of the damages for breach of the condition of good title, the costs of resisting the plaintiff’s claim and the costs payable to the plaintiff in consequence of doing so. Pearson J, following Hammond v Bussey (1887) 20 QBD 79 and Agius v Great Western Colliery Co. [1899] 1 QB 413, held that such costs should be taxed on a solicitor and client basis. That basis, as distinct from the party and party basis, was the contemporaneous equivalent of the indemnity basis.

NWB further relies on the judgment of this court in A v B No. 2 [2007] 1 Lloyd’s Rep 358 in which I held that, where one party to an arbitration agreement which provided for a Swiss arbitration had unsuccessfully attempted to invoke the supervisory jurisdiction of the English courts, the other (successful) party was entitled to recover its costs of the proceedings in the English courts on an indemnity basis, that being such as to reflect the measure of damages which that party could recover in proceedings for breach of the arbitration agreement. At paragraph (10) – (11) of that judgment I said:

It is submitted on behalf of Rabobank that since by well-established principle, if A sues B for damages in respect of the costs of A’s earlier unsuccessful proceedings in England against C, such costs will be taxed and recoverable on the standard basis and not on the indemnity basis. Those authorities relied on by Mr Chapman commence with the decision of the Court of Appeal in The Tiburon [1992] 2 Lloyd’s Rep. 26, which applied to the measure of damages the reasoning of the earlier decision of that court in Berry v British Transport Commission [1962] 1 QB 306, and continue before the introduction of CPR 44.4(1) and (2), with the decision of Carnworth J in British Racing Drivers’ Club Ltd v Hextall Erskine & Co [1996] 3 All ER 667, followed, after that rule change, by Pearce v. European Reinsurance [2005] EWHC 1493 (Hart J), Mahme Trust v Lloyd’s TSB [2006] 1321 (Evans Lombe J), Redbus LMDS Ltd v. Jeffrey Green and Russell [2006] EWHC 1321 (HHJ Behrens) and Dadourian Group International Inc. v Paul Simms (Unrep.) 8.3.2007 (Warren J).

On that foundation it is then argued that in principle if A sues B in England for damages in respect of the costs of A’s defence of proceedings in a foreign jurisdiction against A, those costs should be assessed for the purpose of the calculation of A’s damages on the standard basis.

In order to resolve this issue it is necessary to identify the grounds for, and scope of, the decisions in some of those authorities.

In Berry v British Transport Commission [1962] 1 QB 306 the plaintiff had been prosecuted for improperly using the communication cord on board a train and had been convicted before magistrates. She successfully appealed and the court made an order that the prosecution should pay a specified amount towards her costs. That sum being much less than the costs that she had actually incurred, she commenced proceedings for malicious prosecution, claiming as special damages the shortfall between the amount awarded in the criminal trial and the actual amount of costs incurred. The defendant Commission argued that because in a civil case it was not open to a successful party, who had not recovered all his actually-incurred costs by a costs order, then to bring proceedings to recover the shortfall as damages, so by analogy, following a costs order in a criminal trial, it should not be open to the plaintiff to recover the shortfall as damages.

The Court of Appeal reversed Diplock J and decided that the rule in civil cases should not be extended to criminal costs. The main judgment was given by Devlin L.J. with whom Ormerod and Danckwerts LJJ agreed. Although the judgment is long and typically closely-reasoned, its essential case can be summarised thus.

In The Tiburon [1992] 2 Lloyd’s Rep. 26 the relevant issue was the correct basis upon which an assured who had sued underwriters and brokers in the same proceedings in the alternative, but who had failed against the underwriters but succeeded against the brokers, was entitled to recover from the brokers the costs of the failed claim against the underwriters. It was argued that, in as much as the loss of such costs was recoverable as damages from the brokers, the correct measure of damages was an amount equivalent to costs on an indemnity basis and not to costs on the standard basis. It was held that the effect of Section 51 of the Supreme Court Act 1981 and of the then applicable Rules (RSC 0.62r. 3 and 12) was that recovery was confined to costs on what was then the standard basis, that is to say a “reasonable amount in respect of all costs reasonably incurred”, any doubt to be resolved in favour of the paying party, that is with the burden of proof of reasonableness on the receiving party. According to the judgment of Parker L.J. this was equivalent to the previous common fund basis and its predecessor, the solicitor and client basis. The “only difference” between the standard basis, as it then was, and the indemnity basis at that time was that the burden of proof switched to the paying party under the indemnity basis : see Parker LJ at pages 33-34. It was said that the prima facie approach in such cases should be that the costs were awarded on the standard basis which would be “the same basis as would have prevailed had he claimed them as damages against the other defendant in a separate action.” The reference at page 33R of the judgment of Parker L.J. to the judgment of Devlin LJ in Berry v. British Transport Commission, indicates that he assumed that the problem of the shortfall between costs reasonably incurred, and costs awarded on the old party and party basis had been largely, if not wholly, solved ─ “alleviated” ─ by the statutory replacement of the party and party basis by the standard basis.

Scott L.J. dealt specifically with the argument advanced on behalf of the assured that the amount recoverable on the standard basis would be less than the amount recoverable on the basis of damages. At page 35 he observed:

Clearly, as appears from the passage from Scott LJ cited above, this analysis proceeds on the assumption that if and to the extent that the receiving party has spent more on costs than would be recoverable upon application of the standard basis, there would have been a failure to mitigate and recovery of that shortfall as damages would have been impossible.

The relevant issue in British Racing Drivers’ Club Ltd v. Hextall Erskine & Co. [1996] 3 All ER 667 was on what basis damages claimed by the plaintiffs against their solicitors for breach of professional duty should be assessed. The head of damage in question was the legal fees and expenses incurred by the plaintiffs in pursuing and then settling litigation with third parties. The question which had to be decided was whether, as was submitted by the plaintiffs, such fees and expenses should be taxed on an indemnity basis or, as the defendant solicitors argued, in reliance on The Tiburon [1992] 2 Lloyd’s Rep. 26, on the standard basis. Carnwath J held that such costs should be taxed on the standard basis. His reasoning (at pages 685 to 692) can be summarised as follows:

There are thus to be found in the authorities several distinct grounds for confining a claimant’s compensation in damages for costs incurred in separate English proceedings to the standard basis. Firstly, that basis would normally lead to recovery of an amount approximately equal to what would have been recovered on an assessment of damages, applying only the principles of causation, remoteness, and mitigation. Secondly, there no longer existed the “anomalous” position which prevailed before the introduction of standard costs, whereby there might be room for an additional damages claim for unrecovered costs if one party entitled to damages had recovered costs in other proceedings only on the party and party basis, for, if the costs in the other action were awarded on the standard basis, that would leave nothing to be recovered in a subsequent action for damages. It would thus be an abuse of process subsequently to pursue an action for damages to recover further costs on an indemnity basis.

Whereas this reasoning ─ to be found in Lonrho plc v. Fayed (N^o.5), supra, and British Racing Drivers’ Club, supra, ─ is understandable on the basis of the costs regime which applied prior to the CPR and in particular CPR 44.4, the introduction of the component of proportionality into the definition of the standard basis calls into question the perpetuation of the conceptual basis of decisions such as British Racing Drivers’ Club, supra, and those which followed it. It is provided by CPR 44.4(2) and (3) as follows:

The important point here is that where, as in the present case, the innocent party has incurred the expenditure of legal costs for the purpose of stifling a claim brought against it in another jurisdiction in breach of a promise not to sue, that party will have incurred loss of a kind reasonably foreseeable and therefore prima facie recoverable as damages for breach of contract. If and to the extent that its expenditure on the pursuit of or defence to those proceedings does not exceed what in all the circumstances is reasonable that would ordinarily be its recoverable loss. To the extent that its costs exceed that amount it ought in principle to be precluded from recovering them simply because to that extent the expenditure was not caused by the breach of contract but by the innocent party’s profligate expenditure and failure to mitigate its loss.

This methodology for the compensation to be ordered where there has been a breach of an agreement to arbitrate, or indeed an English or other jurisdiction clause, has, in my experience, been common currency in the Commercial Court at least since Mantovani v. Carapelli SpA [1978] 2 Lloyd’s Rep 63 and [1980] 1 Lloyd’s Rep 375. Until Union Discount v Zoller [2002] 1 WLR 1517 it has, as far as I am aware, never been suggested that such a claim was precluded by public policy considerations analogous to those which underlay the approach of the Court of Appeal in Berry, Supra.

In Union Discount Co. Ltd v Zoller the defendant had brought proceedings in New York in breach of an exclusive English jurisdiction clause. The claimant successfully applied to the New York court for the claim to be struck out. In the claimant’s English proceedings on the contract in question the claimant claimed as damages for breach of the jurisdiction agreement the costs of the New York strike out application. It had not applied for such costs in New York because in that jurisdiction such costs would not have been awarded. The claim for such damages in the English court was struck out, but the Court of Appeal reversed that decision. There were several bases for this decision. First, by reference to the reasoning in Berry v British Transport Commission, Supra, the claimant’s action for damages was not contrary to public policy on grounds of comity. Secondly, there were not to be two adjudications on the same point, for the claim for damages for breach of the jurisdiction clause was a cause of action independent of the claim to strike out the New York proceedings. Thirdly, there was and could not have been an adjudication on costs in the New York proceedings. Fourthly, there was no policy reason with regard to foreign proceedings for achieving a uniform rule as to recovery of costs, particularly having regard to the fact that the choice of the English courts might have been influenced by the availability of a more generous regime for the recovery of them than in other jurisdictions. The claimant should therefore not be deprived of claiming as damages its reasonable expenses in the New York proceedings.

Whereas, this decision was not concerned with the basis of assessment of such damages as might be recoverable in such English proceedings, it is implicit in the reasoning that in a case such as that, where there is a demonstrable disparity between what, if anything, has been or will be recoverable in respect of costs in the foreign jurisdiction and what would be recoverable as damages here, there is no policy reason for preventing proceedings in the English courts to recover as damages any such shortfall. In Union Discount Co. Ltd v. Zoller, Supra, having rejected at paragraph 25 a submission that the claim was res judicata on the ground that there was a different cause of action in the English proceedings from the New York proceedings and no adjudication on costs, Schiemann L.J. stated in relation to an argument that since the decision in Berry there had been a presumption that the party which had won the earlier proceedings was precluded from claiming more costs than he had already been awarded ─ even by a foreign court, at paragraphs 31-32:

In this connection, it must not be forgotten that the Californian Court had no power to award as costs more than very limited items of expenditure. These are listed in section 1032.5 of the Code of Civil Procedure and reproduced by Rabobank’s expert witness, Mr Richard Pearl, in paragraph 3.9 of his report. From this list it appears that substantial areas of costs which would be recoverable under an English costs order are not included in the categories recoverable in California. The evidence suggests that such shortfall is a very substantial amount. It would be deeply unjust if the whole of the shortfall, were not recoverable, provided it was reasonably incurred and in a reasonable amount. Moreover, the Californian proceedings, albeit not brought in breach of an exclusive jurisdiction clause, were brought in breach of an overall anti-suit clause applicable to claims of that nature as fully in California as in any other jurisdiction, including the English Courts. In submitting that in calculating the recoverable damages for the breach in suing in California the English courts should superimpose their own costs rules, including principles of proportionality, as distinct from applying simply a test of reasonably incurred and in a reasonable amount, Rabobank is in substance seeking to extend CPR Overriding Objective and proportionality principles to the conduct of litigation caused by its own breach of contract in a foreign jurisdiction to which the CPR is wholly inapplicable. Not only would this impose an extremely difficult burden on the Costs Judge and probably add significantly to the costs of an assessment, but it would also in effect impose on NWB ex post facto a set of principles for the conduct of Californian litigation which, at the time when the costs were incurred, it could not have assumed would have any bearing whatever on its decision-taking as to how the proceedings should be conducted or how much should he spent on them.

Further, whatever may be the position where, as in British Racing Drivers’ Club, supra, the former proceedings were brought in the English Courts and therefore within the CPR costs regime, I have no doubt that the reasoning in that and the post-CPR judgments, even if it can be supported on public policy grounds, which I seriously doubt, should have no application to a case such as this where the former proceedings were in a foreign jurisdiction with a costs regime under which the winning party was unable to recover all such costs on a basis equivalent to that which would have been applied to a damages claim : that is to say on the basis that the winning party would be entitled to recover all costs reasonably incurred and in a reasonable amount. If the winning party can formulate a claim for the whole or part of such costs in the English Courts as a claim for damages for breach of a separate cause of action (such as breach of a jurisdiction or anti-suit clause as here) there is, in my judgment, no reason as a matter of public policy or otherwise, why he may not recover them subject to ordinary damages rules. Under those rules the burden of proof of failure to mitigate rests on the party in breach just as the burden of proof of unreasonableness rests on the paying party under the indemnity basis of costs assessment.

The component of proportionality in the standard costs basis of assessment clearly introduces discretionary elements of assessment which are to be super-imposed on the reasonableness tests and therefore may be extraneous to the failure to mitigate tests. They operate to reduce recoverable costs by reference to CPR policy considerations which are not necessarily relevant to the failure to mitigate tests. The introduction of this component, in my judgment, displaces the basis of the argument in The Tiburon, supra, Lonrho v Fayed (N^o 5), supra, and British Racing Drivers’ Club, supra, that there was substantial equivalence between the standard basis and the indemnity basis of assessment.

For these reasons I conclude that the costs of the CC Proceedings should be assessed for the purpose of calculating damages on the indemnity basis and not on the standard basis.

It is submitted on behalf of NWB that the costs should be recovered on the indemnity basis and not on the standard basis. That submission rests on the reasoning in my judgment in A v B (N^o 2) [2007] 1 All ER (Comm) 633. It is submitted that just as the appropriate costs order in that case, where there had been a breach of an agreement to arbitrate in Switzerland by commencing proceedings in the English courts, was that the party in breach should pay the costs of an application to stay those proceedings to be assessed on an indemnity basis, so in the present case, there having been a successful claim for breach of clause 21.3(b) of the DoT (see paragraph 451 of the main judgment) the costs of NWB’s claim for damages in these proceedings ought to be payable by Rabobank on an indemnity basis. The substance of this Submission is that breach of clause 21.3(b) ─ the anti-suit clause ─ is analogous to breach of an arbitration clause or of an exclusive jurisdiction clause. Therefore, the costs of a claim such as that of NWB, upon which, it was determined that Rabobank was in breach, should be assessed on that basis which most closely reflected Rabobank’s liability in damages, namely the indemnity basis.

On behalf of Rabobank it is submitted that A v B (N^o 2) has no application to the facts of this case. In particular it is argued that the facts in A v B made it a one-off case and that the conclusion that costs of the application should be assessed on an indemnity basis was founded on an “improper invocation of the jurisdiction” of the English court in breach of the arbitration agreement. Rabobank draws attention to paragraphs 53 and 54 of the judgment for the purpose of showing that the indemnity costs order in that case was founded on considerations distinct from the breach of the arbitration agreement, namely other unacceptable features of A’s conduct in relation to the arbitrator and the arbitration aimed at forcing the arbitrator to resign. It is argued that it was with regard to this improper and aggravating conduct as distinct from mere breach of the arbitration agreement that the indemnity costs order was made.

It is further argued that there was nothing in Rabobank’s conduct of its defence to NWB’s claim which could be regarded as abusive. In particular it was entitled to make submissions about the proper construction of clause 21.3 of the DOT, whether particular causes of action in the CC Proceedings fell within that provision and about the effect of the decision in Union Discount Co. Ltd v Zoller, supra. Further, Rabobank was entitled to rely by way of defence on its claims for non-disclosure and misrepresentation in the counterclaim.

The substance of the reasoning in A v B (No. 2), supra was that, in the face of a Swiss arbitration clause, A had deliberately invoked the jurisdiction of the English Court for the purpose of his claims against all the defendants, including the arbitrator, notwithstanding that those claims were largely covered by the arbitration agreement or were subject to the exclusive jurisdiction of the Swiss courts, the seat of the arbitration being in Switzerland. A was the only defendant within the jurisdiction and had applied for a stay of the proceedings. The other defendants, C, D and E, applied to set aside orders giving permission to serve upon them outside the jurisdiction.

As against A it was decided that the stay applied for by B should be granted. Having referred to Union Discount Co. Ltd v Zoller, supra, Berry v British Transport Commission, supra and the decision of Cooke J in Kyrgyz Mobil Tel Ltd v Fellowes International [2005] EWHC 1329 (QB), I concluded that for the reasons expressed in paragraphs (9) and (10) of that judgment (the latter is set out in paragraph (10) above) B was entitled to recover costs of the English proceedings assessed on the indemnity basis, At paragraph (11) I said:

Having considered the judgments in Petrotrade Inc v Texaco Ltd. [2002] 1 WLR 947, Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer, Aspden & Johnson [2002] EWCA civ 879, Reid Minty v Taylor [2002] 1 WLR 2800 and ABCI v Banque Franco-Tunisienne [2003] 2 Lloyd’s Rep. 146, I concluded as follows at paragraph (15):

It is to be observed that those considerations referred to in paragraphs (53) and (54) of the judgment in A v B (No. 2) and relied on by Rabobank to distinguish the present case from that case played no part in the conclusion arrived at earlier in the judgment with regard to B’s entitlement to indemnity costs. As appears from paragraphs (43) and (44) those considerations were dealt with in relation to costs recoverable by C and D, both of whom had applied to set aside service and whose application had succeeded on the basis of this court having declined jurisdiction as a matter of its discretion but without deciding three other grounds for setting aside service, and with regard to submissions made by counsel for C who had raised eight matters which, taken together, he submitted would justify an order for indemnity costs “as a mark of this court’s disapproval of A’s conduct”, apart from A’s unjustifiable attempt to litigate in the English courts issues which fell within the jurisdiction of the arbitrator. The acceptance by the court of the substance of these submissions for the purpose of deciding what costs order should be made in favour of C and D in respect of all the costs of this application to set aside service (including costs referable to other undecided issues) was therefore not the consequence of the introduction into the principles or reasoning which had resulted in the indemnity costs order in favour of B of additional considerations of the kind raised in paragraph (53) or (54) of the documents.

It remains to be said that there is, in my judgment, no material distinction between the appropriate approach to costs when there has been breach of an anti-suit provision, such as that in clause 21.3(b) of the DoT, and where there has been breach of an exclusive jurisdiction clause or of an arbitration agreement. In the former case there has equally been an impermissible invocation of the jurisdiction of the court for a purpose precluded by the express terms of the contract. That the consequence of giving effect to an anti-suit clause is wholly to preclude claims for breach of contract, whereas the consequence of giving effect to an arbitration or jurisdiction clause is to confine claims to a particular tribunal is not a distinction which can justify a difference in remedy for breach. If, in the case of an anti-suit clause, the innocent party were to be precluded from recovering as damages all the costs reasonably expended in defending the claim, that could only be for one of two reasons:

There is, in my judgment, firstly no logical basis upon which the blanket exclusionary effect of an anti-suit clause can be said to relieve the party who ignores it from an obligation to pay damages. Ignoring it is no less a breach of an express contractual obligation than ignoring a jurisdiction clause or an arbitration clause. Secondly, those public policy considerations which preclude damages claims on the basis of a cause of action identical to that underlying the substantive claim with respect to which there has already been a costs order on the standard basis of assessment are not engaged where there has never been any previous compensatory order of the English or any other court directed to compensating NWB in respect of the same cause of action. It has sustained both the costs of the Californian Proceedings and the costs of these proceedings. Its damages claim is properly brought in respect of the former and its costs claim is properly pursued to recover the costs of enforcing its damages claim. For these latter costs it is, in my judgment, entitled to be indemnified, provided they were reasonably incurred and reasonable in amount. The duplication of claims for the same causes of action identified by Devlin L.J. in Berry as the basis for the public policy dimension there under consideration is wholly absent from this case.

I would only add that the arguability of Rabobank’s submissions on the issue as to the proper construction of clause 21.3(b) of the DoT and as to whether it had been in breach of the provision is irrelevant. It having been determined in the main judgment that those submissions were wrong, Rabobank’s breach of them is no less an impermissible misuse of the Californian courts and therefore conduct out of the norm than if its submissions on construction had been totally untenable.

Further, the substantiability of Rabobank’s case on the counterclaim cannot displace its basic entitlement to be compensated for breach of the anti-suit clause. Even if there had been real substance in Rabobank’s countervailing causes of action for misrepresentation, whether fraudulent or negligent, there would have been no less a breach of clause 21.3(b) and no less an extant secondary obligation to Rabobank to pay damages. Only if Rabobank’s counterclaim had succeeded might it be able to argue that the effect of a set-off of its counterclaim by way of equitable defence would make it inappropriate for this court to make an order for costs on an indemnity basis. As it is, Rabobank’s counterclaim failed and it has no defence on that basis to NWB’s damages claim for breach of clause 21.3(b).

Accordingly, NWB is entitled to the costs of its claim to be assessed on the indemnity basis.

The issue is whether interest should be awarded at Base Rate plus 1 per cent simple, as NWB contends, or at 6 months LIBOR plus 0.05 per cent to 0.15 per cent, as Rabobank contends.

The essence of the dispute is that Rabobank maintains that if NWB’s interest were to be calculated at Base plus 1 per cent, it would be over-compensated by being awarded substantially more than the cost of borrowing that it had sustained in funding the costs of the Californian proceedings. This argument – developed in a witness statement by Johan Egbert Eikelaar – rests on the allegation that a bank of the size and standing of NWB could have borrowed at the relevant time at a rate of 6 months LIBOR plus 0.05 ─ 0.15 per cent, and therefore more cheaply than Base plus 1 per cent.

NWB has not adduced evidence as to the rate of interest at which it borrowed from time to time since it settled its costs and other bills in relation to the California proceedings. Rabobank relies on this to support its submission that NWB was indeed able to borrow more cheaply than Base plus 1 per cent. However, NWB has relied on a witness statement of Alexander Wilson which is significant in two respects. First it accepts that NWB could borrow at LIBOR plus 0.05 to 0.15 per cent. Secondly, it demonstrates that in reality NWB would have had to borrow at a rate of interest compounded throughout the relevant period and that if one compares the conventional rate of Base plus 1 per cent simple interest with a compounded LIBOR rate, NWB would not receive a windfall.

It is not necessary for present purposes to set out in this judgment the complex calculations which lead to this conclusion. Suffice it to say that I am not persuaded that an award of interest at the conventional Commercial Court rate of Base plus 1 per cent simple would operate unfairly by giving NWB a profit. In this connection it is nothing to the point that NWB has not adduced evidence of its actual cost of borrowing. It may never have borrowed any amount specifically designated for the costs in question and may never have sustained borrowing costs. An award of interest under section 35A of the Supreme Court Act 1981 is intended to provide a conventional means of compensation for the innocent party being kept out of its debt or damages. The cost of borrowing is simply used as a convenient reference measure to identify an appropriate market rate for the use of the court. The concept is that in the majority of cases its application will identity a rate reasonably close to what the innocent party has lost either by reason of being obliged to borrow in the market or prevented from lending in the market.

Accordingly, I shall order that NWB shall be entitled to interest under section 35A, from the date or dates when it paid its lawyers’ costs of the Californian Proceedings or other expenses directly referable to the conduct of the defence to those proceedings to the date of the order assessing NWB’s damages in this case, at Base plus 1 per cent simple.

NWB further invites the Court to make an order relating to the manner in which the damages recovered by NWB against Utrecht-America Finance Co. (“Utrecht”) in Claim N^o 2000/Folio 63 should be calculated. Rabobank does not object to this court now determining the issue that has arisen.

The background is as follows. Utrecht was a claimant in the Superior Court of California commenced on 28^th October 1999. Utrecht was also a party to the DoT and was bound by the following provisions.

NWB submit that the indemnity referred to in paragraph 2 of that order should be on the basis of indemnity costs of the California Proceedings, that is to say there should be recovery of all costs reasonably incurred and to the extent of a reasonable amount. Rabobank argues that, essentially for the same reasons as it relies on in relation to the claim for damages against Rabobank, the costs of the California Proceedings should be recoverable from Utrecht, but only on the standard basis.

A further argument is advanced in the alternative on behalf of NWB, namely that the order for an indemnity made by Mr Gross QC reflects the provisions of clause 9.2 of the DoT because Utrecht acted in breach of clause 8.2(d) set out above and thereby became contractually liable to “indemnify” NWB under the provisions of clause 9.2, there having been breach of a Purchaser Warranty.

For the reasons set out earlier in this judgment with regard to the basis of calculation of NWB’s claim for damages against Rabobank in respect of its breach of clause 21.3 of the DoT, I hold that the correct basis of calculation is that the costs incurred in relation to the California proceedings should be assessed on the indemnity basis and not on the standard basis. The breach of clause 8.2(d) is not materially different from the breach of clause 21.3. It has no characteristics which call for different treatment from the latter. The measure of damages is the loss reasonably foreseeably caused by the defence of Utrecht’s improperly commenced claim. Such loss must include all NWB’s costs and legal expenses referable to defending and arresting the pursuit of that claim, provided the costs were reasonably incurred and in a reasonable amount.

Paragraph 2 of the Order of Mr Gross QC refers to a liability “to indemnify” which on the proper construction of that Order is clearly attributable to the breach of clause 8(2)(d) referred to in paragraph 1 of the Order. Accordingly, the damages which fall to be assessed by this Court and which are to indemnify NWB are those for breach of that clause. It is the basis of assessment of those damages alone which falls to be determined by this court. The further obligation to indemnify in respect of breach of Purchaser Warranties was thus not in play for the purposes of this particular order.

The submission on behalf of Utrecht that, because Mr Gross QC ordered that Utrecht should pay the costs of the application to be assessed only on the standard basis, it is appropriate to make a similar order with regard to the assessment of damages for breach of clause 8.2(d) is, in my judgment misconceived. It does not appear that NWB asked for its costs on an indemnity basis. That is not entirely surprising, for the hearing long pre-dated the extensive discussion as to the availability of damages based on indemnity costs and indemnity costs orders in such cases as Union Discount v Zoller, supra, and A v B (N^o 2), supra. I am not persuaded that the attention of the court was ever directed to the issue and I do not consider that the apparent inconsistency between the basis of assessment of the damages which I propose and the previous costs order should affect the basis of assessment now ordered.