Three Rivers District Council & Ors v The Governor & Company of the Bank of England

Indemnity costs may be ordered where the conduct or circumstances take a case out of the norm. Unreasonableness is enough; moral condemnation is not required. A claimant who aggressively pursues weak, speculative or unsupported allegations, especially grave allegations of dishonesty, takes a substantial costs risk. The risk is increased where the case repeatedly changes, is pursued to a late discontinuance, and is publicised to exert commercial pressure.

Following discontinuance, the court may still determine entitlement to indemnity costs, assist the Costs Judge, and state its conclusions where serious public allegations require a public answer.

The liquidators of BCCI SA discontinued a long-running claim alleging that the Bank of England and many of its officials had committed misfeasance in public office and had acted dishonestly in supervising BCCI. The discontinuance followed directions of the Chancellor that continuation was no longer in creditors’ interests.

The Bank then applied for indemnity costs, for exoneration of its officials, and for guidance to the Costs Judge. The liquidators agreed to pay most costs on an indemnity basis but disputed the Bank’s entitlement and did not attend the hearing. The central issues were jurisdiction after discontinuance, the proper basis for indemnity costs, and whether public vindication was justified.

1. The Bank’s application was granted. The court retained jurisdiction after discontinuance to determine whether indemnity costs were properly due, to give appropriate assistance on detailed assessment, and to state its conclusions on allegations that had been made publicly. The public interest favoured publication of the court’s conclusions rather than allowing serious accusations to be left unanswered.

2. Under CPR 44.3, the discretion as to costs was exceptionally wide. The critical question was whether conduct or another circumstance took the litigation out of the norm. A party’s unreasonable conduct could suffice; the conduct need not merit moral condemnation. Relevant matters included the reasonableness of raising and pursuing particular allegations and the manner in which the case had been conducted.

3. The liquidators’ conduct plainly satisfied that standard. They had pursued grave and wide-ranging allegations of dishonesty without a proper evidential or logical foundation, maintained inconsistent and shifting allegations, and discontinued only after an exceptionally long trial. The court also treated the public promotion of those allegations as material. These matters justified indemnity costs for the action and for the application, including costs incurred after 9 December 2005.

4. The judge did not decide whether the Bank was immune from criticism in its banking supervision, or whether it had made errors of judgment or acted negligently. Those were different questions. The relevant inquiry was whether the Bank and its officials had acted deliberately unlawfully, in bad faith, and with the state of mind required for misfeasance in public office. On the material examined, the allegations of dishonesty and impropriety against the officials were wholly without foundation. The judge therefore exonerated them in the limited but reasoned manner possible after an unfinished trial.

5. The Costs Judge could seek written answers from the trial judge on matters arising on assessment. Any such process had to be transparent and proportionate.

High Court (Commercial Court): The liquidators discontinued the substantive action after the Chancellor directed that it should not continue. The Bank then applied for indemnity costs, exoneration, and assistance for the Costs Judge. This court granted that application.