Malhotra v Dhawan

The destruction of relevant evidence does not create an automatic presumption that every disputed matter must be resolved against the destroyer. The court may draw adverse inferences only where they remain consistent with the other available evidence and proved or admitted facts. The presumption cannot require a judge to accept evidence found incredible or reject evidence found truthful. A Calderbank offer may be taken into account in costs where payment into court was unavailable; an action for an account is not an action for debt or damages for that purpose. Indemnity costs remain exceptional, but may be ordered where the first-instance judge reasonably finds that a party pursued litigation unreasonably.

Mr Malhotra claimed remuneration representing half the net profits of an accountancy business for work performed before he left the business. An earlier Court of Appeal decision established that his relationship with Mr Dhawan was one of employer and employee and directed an account.

During the account proceedings, Mr Dhawan had destroyed some client files. Rattee J awarded Mr Malhotra £734 with interest, but ordered him to pay Mr Dhawan’s costs from 1 March 1993 on an indemnity basis, following a Calderbank offer. Mr Malhotra appealed, challenging the treatment of the destroyed files, the effect of the offer, and the indemnity costs order.

Morritt LJ delivered the first judgment. Sir Patrick Russell and Saville LJ agreed.

1. Destroyed evidence. The principle associated with omnia praesumuntur contra spoliatorem, illustrated by Armory v Delamirie (1722) 1 Stra 505, Indian Oil Corporation v Greenstone Shipping SA [1988] 1 QB 345 and Gray v Haig & Son (1855) 20 Beav. 219, permits inferences adverse to the party responsible for the loss of evidence. Those inferences must remain consistent with the other available evidence.
2. The principle has limits. Deliberate destruction intended to hinder proof may affect the destroyer’s credibility. Genuine difficulty in choosing between conflicting evidence may be resolved against the destroyer. However, where the judge forms a clear view of the facts after considering the missing material, the principle cannot compel acceptance of evidence the judge rejects or rejection of evidence the judge accepts.
3. Rattee J had primary accounting records, including ledgers, client account cards, cashbooks, bank statements and fee records. His conclusions on the three representative claims were consistent with that surviving evidence. The destroyed files did not require findings in Mr Malhotra’s favour, and the remaining challenges were abandoned.
4. Costs and Calderbank offer. Under RSC Ord.22 r.14 and Ord.62 r.9(1)(d), a written offer could be considered unless the offeror could have protected its position by payment into court. Payment into court was available only in an action for debt or damages. Applying Nichols v Evens (1883) 22 Ch.611, this was an action for an account, so the judge was entitled to take the offer into account.
5. Indemnity costs. The power under RSC Ord.62 r.3(4) was properly exercised. Standard-basis costs are normal in hostile litigation, as recognised in Bartlett v Barclays Bank Trust Co. Ltd [1980] Ch.515 and Willis v Redbridge Health Authority [1996] 1 WLR 1228. The judge was best placed to assess the parties’ conduct, and his finding that Mr Malhotra had pursued most issues unreasonably was not shown to be inaccurate.

The appeal was dismissed. Costs were ordered on the standard basis, to be taxed if not agreed.

• Court of Appeal (Civil Division): On 26 February 1997, the court dismissed the appeal and ordered costs on the standard basis.
• High Court of Justice, Chancery Division: Rattee J’s order of 26 June 1995 awarded £734 with interest, allocated costs from 1 March 1993 to Mr Malhotra, and directed indemnity taxation.
• Earlier Court of Appeal stage: On 10 July 1989, the court reversed the preliminary finding of partnership, held that the relationship was employment, and ordered an account of the business profits.