Danepoint Ltd v AUA

This is an application by the successful defendant, AUA, for its costs to be assessed and paid by the Claimant, Craven Hill, on an indemnity basis. My Judgment identified the four allegations of fraud made by AUA against Craven Hill. Three of those allegations concerned Craven Hill’s claim in respect of the reinstatement works; the fourth and final allegation concerned the loss of rent claim.

I found that the loss of rent claim was, indeed, fraudulent. I analysed the documents and the way in which that claim was put at paragraphs 77 - 141 of my Judgment. In relation to the reinstatement claim, it is right to say that I did not find, having considered all the evidence, that that claim was fraudulent. However, two points should be noted.

First, I did find that the allegations of fraud in respect of the reinstatement claim were understandable on the evidence, and I found that the claim itself was “a pretty sorry saga of deceit, exaggeration and ineptitude”. Furthermore, on the evidence presented to me, whilst I did not find fraud, I certainly did not have the material which would have enabled me to say that the reinstatement claim was proved in the sum claimed. Indeed, I made the point in the Judgment that there was never any detail provided by Craven Hill in respect of the actual reinstatement work carried out.

Accordingly, whilst I understand why Mr Rhys now submits on behalf of Craven Hill that his clients were vindicated in relation to three of the four fraud allegations, I am bound to say that I do not accept that analysis. My conclusion was that the reinstatement work claim was fundamentally flawed, albeit not fraudulent.

In all those circumstances, AUA now seek an order that their costs, incurred in the litigation, should be assessed and paid on an indemnity basis.

As to the principles that are applicable to applications of this sort, I rely in the main on two recent cases in the Court of Appeal: Reid Minty v Taylor[2002] 1 WLR 2800 and Kiam v MGN Ltd (2)[2002] 1 WLR 2810. In Reid Minty May LJ said:

“If costs are awarded on an indemnity basis, in many cases there will be some implicit expression of disapproval of the way in which the litigation has been conducted, But I do not think that this will necessarily be so in every case. What is, however, relevant to the present appeal is that litigation can readily be conducted in a way which is unreasonable and which justifies an award of costs on an indemnity basis, where the conduct could not properly be regarded as lacking moral probity or deserving moral condemnation.”

In Kiam Simon Brown LJ., explained that part of May LJ’s Judgment in these terms:

“I for my part, understand the Court there to have been deciding no more than that conduct, albeit falling short of misconduct deserving of moral condemnation, can be so unreasonable as to justify an order for indemnity costs. With that I respectfully agree. To my mind, however, such conduct would need to be unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight. ”

There are, so it seems to me, three issues in this application which I have to decide. The first is the question of relative success or failure, particularly in relation to the claim for reinstatement works. The second is whether the relevant conduct that the Court looks at is the conduct of the litigation only or whether the Court is entitled to look at conduct more generally and, in particular, the conduct giving rise to the allegations of fraud in the first place. The third issue is whether the conduct of the litigation by Craven Hill justifies an order in respect of indemnity costs. I deal with each of those three issues in turn.

First, as to the question of success or failure, I have no doubt that the successful party in this case was AUA. There are two separate reasons for that conclusion. First, because the claim in respect of lost rent was fraudulent, it meant that the entirely of the claim under the insurance policy failed. Accordingly, on a simple analysis, AUA were the successful party: the claim against them was dismissed. But, secondly, for the reasons I have already explained, it would be wrong to say that, just because the other part of the claim was not actually fraudulent, Craven Hill were the successful party in respect of the reinstatement costs claim. As I have already pointed out, whilst I did not find that that claim was fraudulent, I did find that it was the subject of a number of fundamental flaws and was the subject of both deceit and exaggeration. Moreover, I could not have found that that claim, as presented to AUA, and as pleaded, would have been successful in any event. Accordingly, for both these reasons, I have no doubt that AUA were the wholly successful party in this litigation.

The second issue is the question of the relevant conduct. Is the conduct that the Court looks at limited to the litigation? Mr Rhys puts this very fairly in his written submissions when he says that “the jurisdiction to award indemnity costs usually reflects misconduct in the litigation itself rather than advancing a case which fails. It is certainly not a rule that a failed claim - even where there have been findings of fraud - automatically attracts indemnity costs”. Whilst it is true that most of the cases are concerned with misconduct in litigation, there can be no doubt that, in an appropriate case, wider conduct - particularly the circumstances in which the claim came to be made in the first place - is of relevance when a Court considers whether or not to make an order that the costs of the successful party be assessed on an indemnity basis. I note that in Excelsior Commercial and Industrial Holdings Ltd v. Salisbury Hammer Aspden & Johnson[2002] EWCA Civ 879, Waller LJ., said:

“The question will always be: Is there 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?”

Accordingly, it seems to me that I can and should have regard to the conduct of Craven Hill prior to the commencement of the litigation, when they made the claim (which I have found to be fraudulent) to AUA and then continued to maintain it in solicitors’ correspondence until the commencement of the litigation. Thereafter, of course, the fraudulent claim was maintained up to my Judgment last month.

It seems to me that in the circumstances which I have set out in detail in the Judgment, Craven Hill’s conduct was wholly out of the ordinary. Theirs was plainly fraudulent conduct which alone, in my judgment, justifies an order for indemnity costs.

The third issue concerns the question of the conduct of the litigation. Let us assume, for the purposes of this debate, that I am wrong on the second issue above, and that the only real conduct that matters for the purposes of an order of this sort is the conduct of the litigation itself. Even then I am satisfied in the circumstances that the conduct of Craven Hill was such that an order that AUA’s costs be assessed on an indemnity basis is justified.

The long history of this action really divides into two parts. There is a period of in excess of two years between 2002 and 2004 when the action was in the Chancery Division. However, for a large part of that time, certainly over a year, the action was stayed on the basis of an Order of Master Bowman of the 27^th June 2003 on the ground that no cause of action was vested in the Claimant. I note that, as a consequence of that order, the Claimant was obliged to pay AUA’s costs on an indemnity basis.

Following the transfer of the action to this Court and the removal of the agreed stay earlier this year, the principal orders made by the judges dealing with this case prior to the trial were concerned with disclosure. It is apparent from a reading of my Judgment that I was extremely concerned about the way in which disclosure had been carried out by Craven Hill in this case.

Earlier this year there appeared to be a broad agreement between the solicitors that Craven Hill would provide to AUA the documents which dealt with and justified a loss of rent claim. It was plainly in Craven Hill’s interests for those documents, if they existed, to be provided to AUA as soon as possible. As I pointed out in the Judgment, these were documents which AUA had been after for some years. However, Craven Hill did not provide those documents and, on the 26^th May, an order for specific discovery was granted by the Court. Of course, the documents that were the subject of that order should have been disclosed years before. Again, Craven Hill failed to comply with that order and, therefore, on the 7^th July, there was an “unless” order. Judge Toulmin made the point at the time that he considered that Craven Hill’s disclosure was “shambolic”. Things did not improve thereafter.

All of this meant that, at the trial, what was, on its face, a perfectly simple and straightforward claim for loss of rent, was not supported by any relevant documents whatsoever. At paragraphs 120 - 122 of my Judgment, I went on to analyse in detail the documents that Craven Hill had provided to AUA during the lifetime of the litigation. These documents did not help and, in some ways, actually disproved the loss of rent claim. Furthermore, the key document, which was provided only shortly before the trial, was a document which I found to have been concocted in an inept effort, at the last minute, to support the loss of rent claim.

It, therefore, seems to me that the conduct of the litigation by Craven Hill was clearly out of the ordinary and was conduct that was unreasonable to a high degree. It, therefore, satisfies the test in Reid Mintyand Kiam v MGN (2).

For those reasons, therefore, it seems to me that the only appropriate order is for AUA’s costs to be assessed and paid on an indemnity basis.

Finally, for completeness, I should say that I have also been referred to a decision of His Honour Judge Rich QC, sitting as a Judge of the Chancery Division, in Gemini Travel Group v Osborne & Ors [2002] EWHC 2403 Ch. In that case the Judge upheld the original decision that costs should be paid by the Defendants on an indemnity basis. Judge Rich pointed out that a finding of dishonesty would not automatically give rise to an order for indemnity costs, but that if, as he found to be the case, the dishonesty was continued so that the main witness for the Defendants was deliberately untruthful and made misrepresentations, then an order for indemnity costs was justified. It seems to me that this case, whilst in some ways stronger than the case in Gemini, is not dissimilar. Accordingly, I shall make the same order for, broadly, the same reasons.

I, therefore, order that Craven Hill should pay AUA’s costs to be assessed and paid on an indemnity basis.