Palmali Shipping SA v Litasco SA (Costs)

The first issue I have to determine concerns the basis of assessment of the costs of the 2017 claim. As will be apparent from the judgment, the defendants were successful and the defendant was successful on the basis of some very serious adverse findings made against Mr Mansimov personally in relation to the evidence he gave and what he had said in his witness statements at an earlier stage, and generally in relation to the issues that arose.

The successful defendants submit that the appropriate order to make, so far as costs are concerned, is for an order that the costs that it is otherwise entitled to should be assessed from beginning to last on the indemnity basis because, so it is submitted on behalf of the defendant, the circumstances, when viewed in the aggregate and by reference to certain specific points relied upon by the defendant individually, take this case outside the norm within the meaning of that phrase identified by the Court of Appeal in Excelsior Commercial and Industrial Holdings Limited v Salisbury Hammer Aspden & Johnson (a firm) [2002] EWCA Civ 879) at paragraph 38.

The points which are relied upon by the claimant as together leading to the conclusion that costs ought to be ordered on the indemnity basis are essentially three in number.

The first is that the claim was advanced on a knowingly false basis. The second concerns the quality of the evidence of Mr Mansimov, the principal witness called on behalf of the claimant. The third concerns the effect of two offers that were made to settle at earlier stages in the proceedings.

So far as the first of these points are concerned -- and again I summarise the points shortly in the interests of time -- the submission which is made on behalf of the claimant is that Mr Mansimov knew full well the nature of the relationship with the then chief executive officer of the defendant and/or his daughter, and in those circumstances knew that there was likely to be, at a factual level, such a conflict of interest that would undermine the effect of the COA as a binding agreement.

In relation to that, Mr Eaton KC, on behalf of the defendant, submits that that is an unduly aggressive way of viewing the facts because, although on the findings that I have made Mr Mansimov clearly knew of the true nature of the relationship between him and his old friend, the chief executive officer of the defendant, that did not lead to the conclusion that the contract was void for want of authority, because that depended upon a Swiss law proposition which surfaced only after the commencement of the proceedings. In effect, he submits, only if Mr Mansimov was fully aware of the Swiss law propositions that were relied upon by the defendant, as well as the factual knowledge to which Mr Morrison KC, on behalf of the claimant, alludes, could this point even arguably arise.

He makes the point that the ultimate question as a matter of Swiss law was whether the conflict that existed at a factual level was so serious as to merit, as a matter of Swiss law, the conclusion that the contract should be treated as void. He makes essentially the same point in relation to the Swiss law best interests defence as well, emphasising, unsurprisingly, the point that to succeed on such a defence is a relatively rare event, and again involves not so much the factual knowledge alone that Mr Mansimov had, but the application of that factual knowledge to the legal principles that arise.

In my judgment, there is force in the point Mr Eaton makes, down to the date at which Swiss law became a material consideration in this case, because at that date there could be no doubt that either Mr Mansimov knew what the Swiss law was or could reasonably have obtained competent Swiss law advice as to what the law was and how the application of Swiss law to the facts which he knew would play out.

The Swiss law issues were, I understand, pleaded some time in February 2020. There will be an exact date. I am prepared to accept the proposition that Mr Mansimov could not know or could not reasonably be expected to understand the point for a reasonable period after the Swiss law defences became live, and it seems to me that 28 days is more than sufficient time to consider how the Swiss law that was relied upon by the defendants applied to the facts as they were known to Mr Mansimov.

Once that information came together, then in my judgment there was sufficient to justify the imposition of an indemnity costs assessment after and from that date, subject to the further points that arise and to which I turn in a moment.

In my judgment therefore, looking simply at the point I am now considering, it would be appropriate to require Palmali to pay costs to be assessed on the indemnity basis from the period 28 days after the Swiss law defences were first deployed.

The second point which arises concerns the way in which Mr Mansimov gave his evidence in relation to the issues that arose. This costs judgment is not the time for me to attempt to reprise the extensive findings I made concerning Mr Mansimov. Regrettably, the conclusions that I was driven to were that Mr Mansimov gave untrue evidence in a number of material respects. The purpose of giving the false evidence was to divert attention from the real issues that arose and the real conclusions that should be reached. There is no doubt at all that the behaviour of Mr Mansimov throughout this trial was very substantially outside the norm and there is no doubt either that his behaviour significantly extended the length of the trial and his false evidence in relation to the true situation added materially to the costs of preparing for trial, gathering evidence, and extended the trial length as well.

The point which Mr Eaton makes in relation to that is that however badly Mr Mansimov behaved or at any rate I concluded he had behaved, that should not lead to the conclusion that there should be an order for indemnity costs for the whole of this claim.

With some hesitation, I am prepared to agree with that, and to conclude that, were it material, to the extent indemnity costs should be attributed to the behaviour of Mr Mansimov, it would have covered the costs relevant for the preparation for trial and the trial itself, because that is where most of the costs were increased as a result of Mr Mansimov's conduct. However, that is swallowed in the greater period I have concluded should apply by reference to the deployment of the Swiss law defence.

The final issue which arises concerns the offers that were made by the defendant in order to resolve this litigation at an earlier stage.

The facts are these: on 21 December 2021 the defendant made what purported to be a Part 36 offer to pay Palmali $10 million to settle both Palmali's claims and the defendant's counterclaim. The practical value of that offer was of the order of $25 million once account was taken of the effect in relation to, in particular, the counterclaim. That offer was rejected, and rejected in terms which Mr Morrison on behalf of the defendant maintained was, on any view, high-handed and had no real regard to the intrinsic merits of the case.

On 9 July 2024, a further Part 36 offer was made by the defendant, this time of $30 million, to settle both Palmali's claims and the counterclaim, which had a practical value of about $50 million. The offer remained open, in the case of the 2021 offer, until 1 November 2024 and, in relation to the July 2024 offer, until 4 November 2024, when they were respectively withdrawn.

The submissions which Mr Eaton makes in relation to these offers, in summary, are this: first, forensically he observes that the offers that were made were not consistent with the notion that the claims were so lacking in merit that they were bound to fail and justify an indemnity costs order; but secondly, and in any event, they weren't Part 36 offers that were available to be relied upon because they were withdrawn and, in any event, were defendant's offers, not claimant's offers.

So far as the first of these points, Mr Morrison responded, and in this regard I accept Mr Morrison's submission, that the offers were made at times when other parts of the case were still under investigation and that in those circumstances the offers reflected a serious attempt by the defendants to settle this dispute before ever a trial took place for the purposes of ensuring that the haemorrhage of costs which is attributable to this claim could be brought to an end.

He also draws attention to the fact that the further investigations that he referred to were completed, and he then says that the offers were withdrawn in November 2024. As I understood his submission, however, he was careful not to link the withdrawal of the offer with the completion of those investigations, though he drew attention to the coincidence of the completion of the investigation and the withdrawal of the offer.

I accept that views as to the merits of a claim such as this are likely to change over time. I accept that it is conceivable that the views of the defendants hardened as they further investigated the merits of the claim, interrogated in detail the disclosure that had been given, and prepared for trial when inevitably the analysis of the detail becomes much more acute.

Thus, the forensic point which Mr Eaton makes is not one which I take into account in arriving at a conclusion.

The second point that Mr Eaton makes is that the Part 36 regime is essentially one which proscribes certain outcomes where a defendant loses but does not apply the other way round.

I accept that, indeed Mr Morrison doesn't dispute it, but by the same token it's common ground that a court is fully entitled to take into account offers which are made without prejudice save as to costs for the purposes of deciding whether either of themselves the offers merit an order to be assessed on the indemnity basis or whether in aggregate with other factors that is so.

So far as that is concerned, the first of the offers was made after the Swiss law issue first became live on the pleadings. I do not take the view that one should necessarily look only at the second of the two offers, but because the first offer should, upon analysis, have been accepted because Mr Mansimov knew all the factual details concerning his relationship with the then chief executive officer of the defendant, and knew what Swiss law issues were being deployed, and was able to take competent Swiss advice as to the likely outcome having regard to the facts as they were actually known to Mr Mansimov.

In those circumstances, whilst the offers are, in my view, material to an assessment overall as to whether costs on the indemnity basis should be ordered, they do not add to the conclusions I had already provisionally reached by reference to the Swiss law issues that arose.

In the result, therefore, I conclude that Palmali must pay the costs of and occasioned by the 2017 claim on the standard basis down to 28 days after the Swiss law issues were first pleaded, but thereafter must pay them to be assessed on the indemnity basis for each of the reasons I have identified cumulatively and individually.