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

Discontinuance and an offer to pay indemnity costs do not necessarily end the court’s jurisdiction over costs. Disputed entitlement, outstanding application costs and the public interest in addressing widely publicised allegations may justify a reasoned judgment. Indemnity costs require conduct or circumstances taking the case out of the norm. Where conduct is relied on, unreasonableness suffices without moral condemnation. Aggressively pursuing unsupported dishonesty allegations, courting publicity and maintaining a shifting, inconsistent case may justify such an order.

Indemnity costs remain confined to costs reasonably incurred, without a proportionality requirement. Doubts on assessment fall against the paying party. Assessment must account for the burdens imposed by the opposing party’s conduct. A trial judge may assist the costs judge through a transparent procedure.

The English liquidators of Bank of Credit and Commerce International SA, a Luxembourg-incorporated bank with branches in the United Kingdom, pursued a claim against the Bank of England for misfeasance in public office. They alleged knowingly unlawful licensing and supervision, together with extensive dishonesty by Bank officials. After 256 trial days, the Chancellor of the High Court directed discontinuance because continuing the litigation was no longer in the creditors’ best interests.

The Bank applied for indemnity costs, reasoned exoneration of its officials and guidance for the costs judge. The liquidators ultimately offered indemnity costs but disputed the Bank’s entitlement, resisted costs incurred after service of its written submissions and challenged the court’s continuing jurisdiction. They did not attend the application hearing. The central questions were whether the court could and should determine the application, whether indemnity costs were justified and what assistance could properly be given on detailed assessment.

1. The application was granted. The Bank was entitled to indemnity costs of the action and the application, including application costs incurred after 9 December 2005. The offer to pay indemnity costs did not exhaust the court’s jurisdiction because entitlement remained disputed and further application costs were outstanding. Those disputes supplied a sufficient lis.

2. The public interest also justified publishing reasoned conclusions about serious allegations which the liquidators had extensively publicised. The approach in Jordan Grand Prix Ltd v Vodaphone Group [2003] 2 Lloyds Rep. 874 supported that conclusion. Discontinuance should not enable a claimant to suppress conclusions vindicating those accused. Given the incomplete trial, the explanation would address the principal themes proportionately.

3. Under CPR 44.3(4) and (5), the court considered all the circumstances, including the reasonableness of pursuing particular allegations and the manner of conducting the litigation. Applying Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson (A Firm) [2002] EWCA Civ 879, the critical requirement was conduct or circumstances taking the case out of the norm. Unreasonableness sufficed without moral condemnation. Weak or speculative claims, aggressive dishonesty allegations, exemplary damages allegations and extensive publicity could support an indemnity order.

4. The liquidators had pursued unsupported and contradictory allegations, disregarded important contemporaneous documents and repeatedly changed their case while purporting to abandon nothing. The Bank consequently had to prepare for every version. That shifting case alone justified indemnity costs. The allegations and publicity were also used to exert commercial pressure for a settlement.

5. The assessment of hopelessness required the distinction between misfeasance and negligence to be maintained. Misfeasance by omission required an identifiable step which the officer was legally obliged to take. The claim also required knowledge of probable injury or deliberate disregard of a perceived serious risk; awareness of a mere possibility was insufficient. The evidence supported the officials’ honest understanding of their supervisory responsibilities. The precise meaning of the licensing expression principal place of business and the correctness of the Bank’s statutory interpretation remained undecided. Exoneration from dishonesty did not imply freedom from criticism, negligence or errors of judgment.

6. Indemnity assessment remained confined to costs reasonably incurred, without proportionality, with doubts falling against the payer. Its purpose was a fairer result rather than punishment. Higher defence costs did not themselves establish unreasonableness. Assessment should recognise the work required to answer the allegations; matters concerning the liquidators’ disclosure remained outside the judge’s knowledge. The costs judge retained responsibility for detailed assessment. Further judicial assistance had to comply with the overriding objective and the transparency required by article 6 of the European Convention on Human Rights. Written answers to questions formulated after hearing the parties were an available procedure.

• House of Lords: The claim was considered in 2000 and again in 2001. In 2001, a majority permitted the entire action to proceed to trial, particularly influenced by the allegations concerning the period after April 1990: [2003] 2 AC 1 . That decision addressed the threshold for striking out and did not predict the claim’s eventual outcome.
• Court of Appeal: The claim had previously been considered in 1998. The court rejected an unpleaded allegation that commissioning a statutory report in March 1991 was a dishonest cover-up. No citation for that judgment is supplied.
• High Court: Clarke J heard the Bank’s initial application to strike out. The subsequent trial before Tomlinson J ended by discontinuance after 256 days, following the Chancellor’s direction on 2 November 2005. In the present judgment, the court determined the Bank’s ensuing application and awarded indemnity costs.