HSBC Bank Plc v 5th Avenue Partners Ltd & Ors

MR JUSTICE WALKER:

In this judgment I deal with the second stage of issues as to costs consequence on my order of 7th December 2007. I adopt the short forms used in my judgment of that date and in my judgment yesterday on the first stage of costs issues.

The first stage of costs issues concerned the primary cost orders that should be made identifying what costs were to be assessed and paid and on what basis. It was envisaged yesterday that the second stage would deal with issues of apportionment between defendants, a claim by HSBC against Mr Brown and certain other defendants as to costs, and claims by HSBC against the SLM defendants for interim payments on account of costs.

In the event, however, only the last of these was fully argued, and I shall accordingly confine stage 2 to the question of interim payment. I indicated that HSBC's costs claim against Mr Brown and others could be dealt with by written submissions. That indication is of course subject to review when I have seen the written submissions. It seems there may also be a costs claim by one or more of the SLM Investors of a similar nature, and, as at present advised, I would be willing to deal with that by way of written submissions. I think it would be convenient to deal with those matters together, and so, for present purposes, I shall designate them as stage 3 of the costs issues. I envisage that any such written submissions should be filed on the court and served on other parties within seven days, and that within the same timescale I should be advised by the SLM Investors how they propose that the question of apportionment as between themselves is to be resolved.

Returning to stage 2, in principle, it is right to make an interim payment order for an amount that HSBC "will almost certainly collect". When Mr McQuater opened his case, I queried whether the evidence which had been submitted for the interim payment application enabled the identification of an amount for an interim payment today in the light of the way in which I had formulated my ruling on stage 1. I pointed out that HSBC had the burden of proof and would bear the risk if the way in which the evidence had been formulated led to difficulties in showing the amount of such sums as would be recoverable. Mr McQuater took instructions on whether to seek an adjournment to file further evidence. After consideration, those instructions were to proceed.

In my view, those instructions immediately confronted Mr McQuater with major difficulties. HSBC's evidence simply gave an overview of hours worked by the team at Allen & Overy by reference to three periods of time, and a breakdown of disbursements on counsel's fees and other fees.

That evidence had been prepared on the assumption that HSBC would secure an order expressed in broad terms that the SLM Investors should pay "HSBC's costs of the action". Four specific matters flowed from from this assumption. First, it was envisaged that such an order would make the SLM Investors jointly liable for the recovery costs as part of the "costs of the action", and no attempt was made to quantify the recovery costs separately. Second, it was also envisaged that under such an order there would be no need to identify particular parts of HSBC's costs that were attributable only to proceedings concerning Mr Mann, Mr So and Mrs Lu and Mr Edwards alone. Third, the evidence for the interim payment application took no account of the possibility that I might rule that costs of and attributable to Mr Leonard's written and oral evidence would not be recoverable. Fourth, the evidence for the interim payment application took no account of the possibility that I might rule that costs of HSBC's deceit claim against Mr Mann would not be recoverable.

Because of this assumption, the evidence made no attempt to identify the quantum of costs which related to those four specific matters. The assumption was wrong, and the result is that while I have evidence about HSBC's overall costs, I have no concrete evidence as to how much of those overall costs relate to the disallowed matters.

Moreover, the evidence for the interim payment proceeded upon a second assumption. This concerned the interpretation of Cooke J's order as to the costs of the adjournment. It assumed that the order would, in the events which have happened, have the effect that Mr Mann must pay HSBC's costs of the adjournment. However, for reasons given in my judgment on the first stage of costs issues, I am in no position to say that the costs of the adjournment will constitute a sum that HSBC "will almost certainly collect" from Mr Mann. The evidence for the interim payment gives no specific information about what the costs of the adjournment actually were.

HSBC's evidence seems to me to involve a third assumption. It proceeds on the footing that all interlocutory matters resulted in an order which either expressly or by operation of the Civil Procedure Rules awarded HSBC its costs. The information supplied to me as to what happened at such interlocutory proceedings, however, is by no means complete.

In these circumstances Mr Milligan on behalf of Mr So submitted that HSBC's application should be dismissed on the basis that Mr McQuater could not identify recoverable costs with the requisite certainty. I think that would be too extreme a reaction. There are aspects on which HSBC is not entitled to costs. Those aspects took up some time at trial and involved some preparation. I can say now, however, with the requisite certainty that there must be substantial amounts of costs that will have to be paid by the SLM Investors to HSBC. Assessment of an interim payment is often an exercise which has to be rough and ready. The matters I have identified earlier will mean that in this case it will be much more rough and ready than is usual. In that regard, as I pointed out to Mr McQuater, it must be HSBC which bears the risk. In all cases where I have any doubt I shall err in favour of the SLM Investors.

I turn to the claim for solicitors' costs. At this stage, I examine these without making any allowance for likely reductions at the assessment stage. HSBC do not now make any claim for Part I. Accordingly, on solicitors' costs I am concerned only with Parts II and III.

Part II covers the period 1st January 2006 to 22nd September 2006. The solicitors' costs claimed for this period amount to £2.6 million. Mr McQuater accepts that some of those costs would relate to the asset tracing exercise, but says most would relate to the action proper. The SLM Investors served their claims in January 2006. There were then substantial statements of case on both sides and disclosure in June of 2006, followed by witness statements in August 2006. Mr McQuater suggested I should work on the basis that 50 per cent was not attributable to the asset recovery costs and I should then proceed to make at a later stage global discounts for deductions in relation to matters other than the asset recovery costs. In that regard, he also relied on a global figure identified by Mr Bechelet in a witness statement made on behalf of Mr Mann. I do not think reliance can be placed on Mr Bechelet's figure as it was not designed to take account of the actual terms of the costs order which I have now made. I think it preferable to try to allow for all relevant types of deduction at each stage. This was the method advanced by Mr Vineall whose submissions on quantum were adopted by Mr Milligan.

Mr Vineall, adopting that approach, would only accept 15 per cent of Part II as recoverable from the SLM Investors. However, I am satisfied with the requisite certainty that a higher figure should be allowed for part II. I shall go through Mr Vineall's figures and explain why.

Mr Vineall first submitted that a deduction of 15 per cent for significant asset recovery costs should be made. I agree. That deduction amounts to £390,000. When deducted, on my arithmetic, that leaves a figure of £2.210 million.

Mr Vineall suggested that a deduction for costs in relation to Mr Edwards of 20 per cent should be made. I think that is plainly too high. I consider 10 per cent would be ample. I therefore deduct a further £221,000. When I say "10 per cent" I mean 10 per cent of the balance. I therefore deduct a further figure of £221,000 leaving a figure of £1.989 million.

Mr Vineall then said there should be a deduction for costs against other defendants. He suggested 15 per cent of the whole. In my view, 15 per cent of the balance will be ample, and that will be sufficient also to allow for interlocutory orders that were not in favour of HSBC. I therefore deduct a further £300,000 arriving at a figure of £1.689 million.

Mr Vineall then suggested that 15 per cent of the whole should be allowed for costs thrown away by the adjournment. I think that 15 per cent of the balance will be ample. I therefore deduct £250,000 leaving a figure of £1.439 million.

Mr Vineall suggested that the costs of the deceit claim against Mr Mann warranted a deduction of a further 15 per cent. I consider that 15 per cent of the remaining balance will suffice. That gives a deduction of £225,000 leading to a figure of £1.214 million.

Mr Vineall suggested that 5 per cent should be deducted for Mr Leonard's costs. I consider that a deduction of £70,000 in Part II will suffice in that regard.

On my arithmetic, which I am sure the parties will check later, that comes to a figure of £1.144 million, which I treat as a figure of £1.1 million for the purposes of Part II.

Part III covers the period 23rd September 2006 to 15th December 2007 and amounts to £1.6 million-odd. Mr McQuater said that at this stage the asset tracing exercise was over and the full £1.6 million should be allowed.

Adopting the method indicated earlier, Mr Vineall arrived at a figure of £644,000. I think this is too low. Mr Vineall's first deduction was for costs against other defendants. He deducted 10 per cent. I consider that that will suffice also to allow for the costs of interlocutory orders not in favour of HSBC. Accordingly, after deduction of £160,000, the balance will be £1.440 million.

The next deduction was for costs occasioned by the adjournment. Mr Vineall suggested 20 per cent of the whole. I consider that 20 per cent of the balance will suffice. I deduct 288,000 leaving a figure of 1.252 million.

Mr Vineall then suggested for Mr Mann's deceit claim a deduction of a further 20 per cent of the whole. I consider that 20 per cent of the balance will suffice, and that leads to a deduction of 252,000 leaving a balance of 1 million.

The last deduction suggested by Mr Vineall was for the costs attributable to Mr Leonard and he suggested 10 per cent of the whole. I consider 10 per cent of the balance will suffice. That leads to a deduction of £100,000 and thus my figure for Part III is £900,000.

Part IV begins with counsel's fees. These totalled £1.6 million. Mr McQuater suggested a discount of £250,000 for the asset tracing exercise. Mr Vineall, on the basis indicated earlier, would allow only £587,000. I consider that a higher figure should be allowed. The fees for trial counsel totalled £730,000. For the purposes of today, I make the deduction suggested by Mr Vineall of 30 per cent for the deceit claim and matters attributable to Mr Leonard, both of these being taken together. That, on my calculation, leaves a balance of £511,000, which will almost certainly be recoverable in relation to trial counsel's fees.

The fees for counsel previously instructed total £891,000. Mr Vineall suggested that one could only have the requisite certainty that £75,000 of this would be recoverable from the SLM Investors. In an action as substantial as the present I am sure that this is too low and that I can say with the requisite certainty that £100,000 should be allowed. Thus I arrive at a total figure for counsel's fees of £611,000.

Part IV also deals with other disbursements. These total £1.1 million. Mr McQuater suggested that £800,000 could be deducted for asset recovery disbursements. Mr Vineall submitted that no more than £84,000 could be said with the requisite certainty to be recoverable.

The evidence gives me the names of those to whom disbursements were paid, but I can only guess at what their work involved. I am not prepared to differ from Mr Vineall in this regard.

Thus my figures before one comes to the assessment process are:

Mr Vineall suggested that this might be reduced by as much as 40 per cent during the assessment process. I accept this and accordingly I am left with a figure of £1.6 million as a minimum of costs almost certainly recoverable from the SLM Investors as a whole.

The next task is to work out how much should be paid by Mr So and Mrs Lu on the one hand and by Mr Mann on the other. Some of the £1.6 million will be payable by Mr Mann alone. As regards Mr So and Mrs Lu, some of the £1.6 million will be payable by them alone and there will be costs of the adjournment on top.

I have considered but rejected an attempt to identify at the present stage a common sum which should be payable jointly. I think an order of that kind at the present stage would be overly complex.

Looking at the matter in the round, I consider that I can say with the requisite degree of confidence that £800,000 will be recoverable from Mr Mann, that £800,000 will be recoverable from Mr So and Mrs Lu, and that as far as HSBC is concerned, payment of those two sums will not involve any double recovery. Accordingly I shall order interim payments in those amounts.