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ADR, Conduct and Reducing the Successful Party's Costs

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Benyatov v Credit Suisse Securities (Europe) Ltd [2022] EWHC 528 (QB).

Judgment has been handed down by Mr. Justice Freedman in a case considering the relevant principles where it is alleged that the successful party has failed to engage in ADR and that their conduct increased legal costs. The court accepted that the conduct of the successful party warranted a reduction of 10% to the costs claimed but rejected that there was an unreasonable refusal to engage in ADR.

The Defendant had been successful in a substantive action and the Claimant submitted that there should be a 65% reduction in their costs to reflect that:

i) An unreasonable refusal to engage in ADR; and

ii) Their conduct during proceedings which had increased the distress and anxiety upon the Claimant as a tactical device and required significant resources to be expanded by both the Claimant and the Court.

The Court first accepted the general principle of costs under CPR 44.2(2)(a) and (b)L that the unsuccessful party will be ordered to pay the costs of the successful party although the Court may make another Order.

Further, the Court reminded itself of CPR 44.2(4) that the Court would have regard to all of the circumstances of the case when considering what award to make regarding costs.

At paragraph 3:

“The approach of the Court should be to do justice in the particular circumstances of the case.  It is apparent that the overriding concern of the Court must be to make the Order which justice requires.”

The effect of the Claimant’s conduct in amending the defence at a late stage in the proceedings was that a further 800 pages of documentation had to be considered at a late stage.  There had been criminal proceedings and a conviction in Romania which the Defendant wished to rely upon.  Further, the Defendant would not release the number of witnesses that the Claimant had to call in relation to these allegations from their non-disclosure agreements.  This had the effect that the Claimant effectively had to cross examine the parties “blind”.  

Finally, the Claimant relied upon Flood v Times Newspapers Limited [2014] EWCA Civ 1574; that the new pleadings were formulated to ratchet up the pressure of the litigation upon the Claimant and that this constituted distress and anxiety to a higher degree.  This is a factor that is relevant when considering costs. The Judge noted the finding of Mrs. Justice Cockerill in Deutsche Bank AG (London) v Commune Di Busto Arsizio [2022] EWHC 219 (COMM) where it was held that in any litigation especially complex commercial litigation any willing party is likely to fail on some of the issues that they raise.

Further, the Defendant invited the Court to consider the Court of Appeal’s observations in Fox v Foundation Piling Limited [2011] EWCA Civ 790:

…a growing and unwelcome tendency…to depart from the starting point set out in rule [44.2(2)(a)] too far and too often.

At paragraph 16 the Court held that:

“As regards to the principles to be applied the Court is able to disapply the rule that the successful party is awarded costs in an appropriate case.  It is right that there would not be a rule if it was always or too liberally disapplied, but it is also the case that there would not be an exception if the rule was always or too rigidly enforced.  Whether it is appropriate to disapply the rule may in part depend on the nature of the point on which the Court is ruling and the Court’s view about the conduct relating to the taking of the point.”

The Court found there was no satisfactory reason not to plead the case regarding the criminal conduct of the Claimant at an earlier stage in order to defeat the issue surrounding the indemnity claim as had been previously pleaded or to defeat the claim in negligence.  No satisfactory explanation had been given for the lateness of the plea.

At paragraph 18:

This kind of conduct is not the most egregious conduct where the Court might reflect upon orders of indemnity costs or large-scale reductions out of all proportion of the time spent on the issue.  Nevertheless, it was an allegation that was bound to cause significant added distress with the possibility of the Courts of this jurisdiction finding that the Claimant has been guilt of criminal conduct and the Defendant at least ought reasonably to have known of its likely effect. This case is not comparable with the allegations made in Flood…which were of a different magnitude.

The Court also held that it was suitable to make a reduction of the costs to take into account the failure or refusal of the Defendant to procure the withdrawal of restrictions of the non-disclosure agreements from the witnesses who had not given witness statements.  Again this was not an egregious action but it was a harsh tactic and it put the Claimant at a significant disadvantage in having to call witnesses blind.  This did not allow the parties to be put on an equal footing and further the cross-examination was then spread over 2 days of Court time when it could have been undertaken in a far shorter period had witness statements been prepared.

In relation to the four submissions of the Defendant in response to the allegations of conduct these were considered at paragraph 3:

i) The additional time was not in the costs budgets and therefore there was no additional costs;

ii) Against the additional time in relation to the amended pleadings and extra witness evidence which had to be considered at trial, there was time saved by witness statements not having been prepared.  These costs should be set of against one another.  

iii) Third, the Claimant has actually had the benefit to the extent that the Court considered that some of the evidence in chief is more impactful than that of evidence given through witness statements.

iv) There was a costs order against the Claimant in respect of the witness summary application.

The Court did not find that they were are complete answer to the point about the deduction. Regarding the first point about the costs not being in the costs budget, there were time consequences for the Claimant which it had to incur which otherwise it would not have to have incurred had the Defendant not chosen that course of action and the Claimant would be entitled to be compensated for that.

In relation to the second and third points about the set-off, the Court found that it was unreasonable for the Defendant to not waive the non-disclosure agreements, it did not help for the Court to further the overriding objective insofar as the parties were then not on an equal footing.  Further resources were then expended in terms of time taken to cross examine the witnesses and to examine them in chief. Regarding the fourth point, that there was an adverse costs order against the Claimant in relation to the witness summary application, the costs incurred by the Claimant due to the conduct of the Defendant had been over and above the costs of the application.

ADR

The Court bore in mind the following points at paragraphs 31 to 34:

First, on the practice set out in Halse, it was for the Claimant to show that it was unreasonable to refuse mediation, and the Claimant has failed to discharge that burden.  

Second, it was not unreasonable for the Defendant to form the view that it had a strong defence and did not wish to offer money on top of the large sums of money which it had incurred and was continuing to incur on behalf of the Claimant before the remaining courts and the European Court of Human Rights.  This does not apply to every case where the Defendant has succeeded…

Third, the amount of the claim was so large and, in the view of the Defendant, exaggerated, that there did not seem any reasonable possibility of being able to reach a settlement.  I expressed concern at paragraph 55 of the Judgment about the evidence of the Claimant in respect of his earning potential which had led to a claim that was out of proportion to his level of earnings to date and involved a retirement age of 75.

Fourth, the offers that were made shortly before trial indicated that even at that stage there was an enormous disparity between the parties.

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