Bibby Financial Services & Anor v Magson & Ors

This has been an extraordinary action. The outcome was that the claims of the claimant against the first and second defendant were dismissed. The ground upon which that happened was that the guarantees upon which the claimant sued were found to have been intended to be made by deed in each case and the deeds were not delivered because of the circumstances which I explained in my judgment which was handed down on 14 October of this year.

Not the least extraordinary of the circumstances of the present action is that the fundamental issue was relatively straightforward, yet it was originally estimated that the trial would take between four or five days, and ultimately it took 18. Another unusual feature of the action, as I explained in my judgment, was that it did not clearly emerge until the service of witness statements on behalf of the claimant and the service of the skeleton argument of Mr Clive Freedman QC, who appeared on behalf of the claimant, what exactly was the basis upon which the claimant sought to pursue the first and second defendants. That was important for this reason: there were in the case of each of the two defendants two relevant guarantees, if the guarantees had been duly delivered. One was in a fixed sum of £25,000, I think, in each case, which gave rise to no difficulty in principle. The second, which was much more significant in terms of its potential practical effect, depended upon there having been breaches on the part of the company guaranteed, which was called QCFS, of breaches of the contract which had been made between it and the claimant.

What did not clearly emerge until essentially the commencement of the trial was that the case for the claimant going for the larger amount, as it were, depended upon the contention that various by this stage identified invoices which had been raised by QCFS were described as "fresh air", which was a euphemism for an allegation that they had been produced fraudulently and were not genuine invoices at all.

Whilst it was plainly unsatisfactory that it would not be clear until the commencement of the trial what was the nature of the claimant's case against the first and second defendants in relation to the amounts claimed in excess of the fixed amount of the guarantees in each case, it was also the case that it was not clear until the service of a witness statement of the first defendant, Mr Richard Magson, on 27 May of this year what was the case of Mr Magson, first of all, in relation to the circumstances in which it was said that the relevant guarantees had been signed. The second defendant, Mr Robert Scott, made clear, shortly after the witness statement of Mr Magson was served, that he agreed with it, without elaborating at that stage as to the circumstances in which the relevant documents were signed.

As I explained in my judgment, the position of Mr Scott, first of all in that witness statement, but subsequently and in particular his evidence given during cross-examination at trial, was rather surprising when viewed against the background of his pleaded statement of case. The pleaded statement of case certainly created in the mind of somebody who was simply reading it the impression that the main battleground was going to be a question of rectification of the agreements which were sued on by the claimant rather than, as proved to be the case, whether the relevant intended deeds had ever been delivered.

There were other unsatisfactory aspects of the way in which matters progressed. The question of disclosure so far as the claimant was concerned was almost, it seems, a running sore throughout the litigation between these parties, continuing up to and during the trial. It was also the case that there were difficulties on the claimant's side in relation to the production of witness statements. At one point, I think, an order was made debarring the claimant from relying upon further witness statements, but for reasons which are explained in my judgment I was persuaded that it was appropriate to permit the claimant to adduce further witness statements and that happened both immediately before, and during the course of, the trial.

The most extraordinary aspect of disclosure occurred during the trial when there was a suggestion that a Mr Brown, a witness called on behalf of the claimant but who was not an employee or former employee of the claimant, should produce possibly hundreds, or even thousands, of pages of documents in his possession, but not under the possession or control of the claimant, with a view to the decision of the court being influenced by what was to be found in those documents, whatever it was. As matters turned out, the documents never were produced and never were considered, but the fact that the question arose whether they should be produced and should be considered is another unsatisfactory aspect of the way in which the trial proceeded.

In the course of my judgment I explained that I found that Mr Magson, the first defendant, had dishonestly re-aged (I think is one of the euphemisms that was used to describe it) various invoices which had been raised by QCFS in order to mislead the claimant as to how long outstanding those invoices had been. The significance of that I explained in my judgment, but in summary it was this: that after the expiry of a fixed period of time, it was no longer possible for QCFS to take advantage of these apparently outstanding invoices as justifying a provision of funding by the claimant.

Mr Freedman has urged upon me my finding in relation to Mr Magson's conduct in relation to re-aging a number of invoices as something relevant for me to take into account in the matter with which this judgment is concerned, which is what is the appropriate order to make as to costs.

It is of course the case that by Part 44.3(4) of the Civil Procedure Rules, it is provided that in deciding what order if any to make about costs, the court must have regard to all the circumstances including: (a) the conduct of all the parties. So the matter Mr Freedman urges upon me is a right and proper matter to urge upon me and something that I must, and do, take into account. Another matter dealt with in paragraph 4 is in sub-paragraph (c), any payment into court or admissible offer to settle made by a party which is drawn to the court's attention and which is not an offer to which costs consequences under Part 36 apply. I shall return to the question of offers later in this judgment.

It is right to point out that I did not find, as against Mr Scott, that he had been guilty of dishonesty during the period of operation of QCFS. Mr Freedman reminds me that in my judgment I found that Mr Magson had given dishonest evidence, specifically because he had denied that he had been dishonest in the matter of re-aging invoices. However, it is right to say that I criticised Mr Magson's evidence considerably more widely, and it is right that I should take that into account in deciding what is the appropriate order to make as to costs. But again, it is right to say that I made no such findings in the case of Mr Scott.

However, I did make such findings in the case of Mr Darling, an important witness called on behalf of the claimant. Mr Darling was the only person who was put before me on behalf of the claimant who contended that he had personal knowledge of the circumstances in which the documents sued upon were executed. And, as I explained in my judgment, I found Mr Darling to be a profoundly unsatisfactory witness and I disbelieved his evidence.

Another unsatisfactory witness on behalf of the claimant was Mr Brown. Mr Brown had previously been an employee of QCFS and, so far as his evidence is concerned, I think the view which I expressed in my judgment is accurately summarised in the written skeleton argument of Mr Jonathan Miller, who appeared on behalf of Mr Scott before me today and at the trial, which was that Mr Brown's evidence was incredible, unreliable and demonstrably wrong.

It is also right to say that at an earlier point in this litigation it seems to have been difficult to attract the attention of Mr Scott to the need to deal with the action in any remotely sensible form. In fact, the lack of attention on the part of Mr Scott has resulted, I think, in the making of four orders for costs against him. In three cases, I think, Master Eastman made the order, and in the fourth case it was Master Leslie. Insofar as Master Leslie's order was concerned, I think the occasion upon which he made that order was when he set aside a judgment in default which had been made against Mr Scott, again, because of Mr Scott's inability or unwillingness to engage in the litigation process.

It is appropriate, I think, to come now to the offers which I have already mentioned. Mr Magson made a number of offers to the claimant and Mr David Alexander QC, who appears on behalf of Mr Magson before me and did at trial, submits, I think uncontroversially, if the claimant had accepted any one of Mr Magson's offers, it would be better off than it is likely to be following my decision on the question of liability and the order which I have yet to make in relation to costs.

By a letter of 22 February of this year, Mr Magson offered to settle the proceedings on the basis that they were dismissed with no order as to costs. On 4 March, in advance of a without prejudice meeting, Mr Magson repeated that offer. On 14 March the claimant asked for Mr Magson's offer to be extended by 14 days, which was done on 17 March. On 28 March, the claimant rejected Mr Magson's offer, but proposed that Mr Magson pay £45,000 and that proposal was rejected the following day. The last offer that was made was by a letter of 2 June 2011 when Mr Magson offered to settle the proceedings on the basis that they were dismissed with an order that the claimants pay Mr Magson's costs on the standard basis.

So far as Mr Scott is concerned, on 7 June of this year he offered what is colloquially called a drop hands settlement; a discontinuance with no order as to costs. And then on 30 June, that offer not having been accepted, he offered to accept a discontinuance of the claimant's claim on the basis that the claimants pay his costs, and that offer also was not accepted.

Mr Freedman has urged me to disregard the various offers which I have just summarised on the grounds that they have no real impact in the process by which the action came to trial. That seems to me, with all respect to Mr Freedman, not an appropriate way forward. I am bidden by Part 44.3(4)(c) to have regard to those offers. The question of weight is a matter for me to determine having had regard to them.

Where one gets at the end of this process, as it seems to me, is that serious criticisms can be made both of the claimant and of the first defendant and of the second defendant in relation to how this action has been conducted, and that is why, at the beginning of this judgment I described this action as extraordinary. It is, so far as my experience goes, unique in the court finding itself at the conclusion of a trial in which one party, more accurately two parties, the defendants having succeeded, that serious criticism can be made of how the litigation has been conducted on both sides. Serious criticism can be made of the evidence which was adduced on both sides. In the result, as it seems to me, the appropriate order as to costs is going to depend upon the rock provided by Part 44.2(2), which provides that if the court decides to make an order about costs (a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but (b) the court may make a different order.

So far as the defendants are concerned, I was urged both by Mr Alexander and by Mr Miller to take into account the legitimate criticisms which they each made of the conduct of the action on the part of the claimant by awarding the defendants respectively their costs on an indemnity basis. So far as the claimant is concerned, Mr Freedman submitted that I should take account of the legitimate criticisms which I have identified which could be made of the conduct of the action on the part of the first defendant and the second defendant by doing in principle two things: one, is depriving them of any costs, either of them, until the service of Mr Magson's witness statement on 27 May of this year. And the second is subsequently to reduce the costs which the successful defendant should be able to recover implicitly, but I think not expressly, on the standard rather than indemnity basis, by 50 per cent in the case of Mr Magson and by 25 per cent in the case of Mr Scott.

It would probably be overstating it to say that in relation to, pre-trial conduct Mr Magson and the claimant are in pari delictu, but it seems to me that they are close enough for it to make no difference in terms of the order as to costs which is appropriate.

I have not yet identified pre-trial conduct on the part of the claimant which seems to me to merit criticism and thus to be taken into account in relation to the appropriate order as to costs, but essentially that conduct is this, and it is identified in my judgment. It is that the claimant seems to have decided at an early point, virtually at the moment at which it determined to cease funding the activities of QCFS, to pursue the first and second defendant on their respective guarantees without either: (a) investigating with Mr Darling the circumstances in which the documents sued upon came to be signed; or (b) considering carefully and against the background of the evidence which was actually available whether the very serious allegations of dishonesty in the form of fabricating bogus invoices were sustainable. I have found that they were not. I have mentioned that I have found that Mr Magson caused various invoices to be re-aged, but those were genuine invoices; they were not fabricated invoices. My findings were that all of the invoices which were presented to the claimant as genuine invoices actually were genuine invoices. And yet the claimant through its executive, Mr Thompson, who seems to have been in charge of the decision what steps to take and against whom, and ultimately whether it was appropriate to take this action, seems to have had a closed mind and to have decided that the relevant invoices had all been fabricated, and essentially to have set out to prove that, in which the claimants failed.

So, taking all these matters and indeed all of the matters which are mentioned in my very lengthy judgment in which criticisms are contained on both sides into account, what I am going to do is to say that the successful first defendant and second defendant should have the whole of their costs of the action to be assessed on the standard basis.

I have been invited to order that interest be payable on the costs which I have determined the claimant should pay to the first and second defendant. Mr Freedman submitted, in my judgment rightly, that it is not appropriate for the court to exercise its discretion in favour of a party seeking interest on costs unless that party has paid costs. The general practice, certainly my general practice, is that if a party who is ordered by the court to recover costs has actually disbursed money to his legal advisers, then it is appropriate for the court to consider awarding interest on the sums paid from the dates upon which they were paid. Although Mr Freedman made that point, quite fairly, squarely and openly, Mr Alexander in his response did not draw to my attention that any amount had actually been paid by Mr Magson and in those circumstances it is not appropriate for me to award interest on costs.

A separate question is whether there should be a payment on account of costs. It is the modern practice. Mr Freedman does not suggest that I should not follow it in this case. The question is how much should the claimant be ordered to pay on account of costs. Statements of costs on behalf of the first defendant and the second defendant have been put before me. The statements of costs make it clear that the headline number in each case takes account of the fact that each includes an element in respect of the fact that each of the two defendants entered into a conditional fee agreement with his legal advisers.

So far as Mr Magson is concerned, the position is that there was a period before conditional fee agreements were entered into with his legal advisers and then a period which is covered by the conditional fee agreements. Mr Scott is in a rather different position. Mr Scott is a solicitor and a member of Key 2 Law Limited Liability Partnership. For a period, Mr Scott defended himself as a litigant-in-person. When he instructed solicitors to act on his behalf, he instructed his own firm and the statement of costs which has been put before me makes it clear that much of the work that was done by Mr Scott's firm after conditional fee agreements were entered into with the firm and with counsel was actually done by Mr Scott himself. Part of the statement of costs in the case of Mr Scott includes attendance at the hearing for 98 hours and another person from Key 2 Law, I think Cherry Holburn(?) also attended the trial for 91 hours.

That information immediately puts in one's mind this thought: to what extent was Mr Scott present at the trial in his capacity as an instructing solicitor and to what extent was he present at the trial in his capacity as a defendant? That is not something that I have to reach any conclusion about, but it is one of the factors that I think has been urged upon me by Mr Freedman as something I need to take into account in determining what is the appropriate figure in the case of Mr Scott to be paid on account of costs.

There has been some consideration at the Bar, reflected in submissions made to me, as to whether the court does or does not take into account the fact of conditional fee agreements and its possible implications in deciding what is the appropriate order to make as to sums to be paid on account of costs. I think it is appropriate to stand back and to identify the real question for the court, which I think was also identified by Jacob J in the case of Mars (UK) Limited v Techknowledge Limited in which judgment was handed down on 11 June 1999 and where the learned judge had to consider the question of the making of a payment on account of costs. The real question is that the court should be anxious to ensure, so far as it can, that the figure which is ordered to be paid on account of costs will not be found, on the taking of a detailed assessment, to be in excess of the sum which is actually due.

That is the principle which I intend to apply, and applying it to the statements of costs which I have been shown, in the case of Mr Magson I am going to say that the sum to be paid on account of costs is £500,000; in the case of Mr Scott the sum which is to be paid on account of costs is £150,000.