RBG Resources Plc (In Liquidation) v Rastogi & Ors

On discontinuance under CPR Part 38, the normal order is that the claimant pays the defendant’s costs. The claimant bears the burden of showing a good reason to depart from that rule. The court should not determine the merits of the claim on the discontinuance application. A claimant, including a liquidator, should consider carefully the costs consequences of pursuing expensive proceedings against an impecunious defendant, particularly where serious allegations are made. Unreasonable conduct by the defendant may justify reducing the costs recovered. Liability under a cross-undertaking depends on causation, and equitable discretion may preclude recovery where enforcement would be unjust.

The claimant, a company in insolvent liquidation, alleged that Mr Jay Patel had participated in a substantial fraud. It applied for permission to discontinue the claim against him because it lacked funds to pursue the proceedings. Mr Patel consented to discontinuance but sought his costs on an indemnity basis, costs of an earlier restraint order, and damages under a cross-undaking given in connection with a freezing order.

The court also had to determine whether the claimant had shown good reason to depart from the usual costs consequence of discontinuance, applying the guidance in Walker v Walker [2005] EWCA 247.

1. The claimant was permitted to discontinue the claim against Mr Patel, but had to pay 60 per cent of his costs on the standard basis. Under CPR Part 38, the normal consequence of discontinuance is liability for the defendant’s costs. The claimant bore the burden of establishing a good reason to depart from that consequence.

2. Following the guidance in Walker v Walker [2005] EWCA 247, the court should not attempt to decide whether the discontinued claim would succeed. Nor was the relevant question simply what appeared fair at the time of the application. The claimant’s financial difficulties and the summary judgment obtained against other defendants did not justify departure because the impracticality of continuing against Mr Patel had long been foreseeable.

3. Liquidators should think carefully before commencing or continuing expensive proceedings for damages against an impecunious defendant, especially where allegations of fraud are made. If settlement negotiations fail because the defendant adopts an unreasonable position, the prudent course is to seek permission to discontinue and leave the costs consequences to the court.

4. Mr Patel’s insistence on public exoneration and an apology, together with his unnecessarily aggressive conduct, materially obstructed settlement. That conduct justified reducing his recovery by 40 per cent. The seriousness of the allegations did not justify indemnity costs.

5. No order was made for Mr Patel’s costs of the restraint proceedings. His application under the freezing-order cross-undertaking failed because the loss from spread betting was caused by his beginning to trade before the revised order and security arrangements were in place. In any event, enforcement would have been unjust.