Zambia v Meer Care & Desai (a firm) & Ors (No. 2)

Recoveries attributable to one fraudulent transaction should ordinarily be credited against the loss from that transaction, but not against liabilities arising from separate breaches. Fiduciaries cannot generally set gains on one breach against losses from another, particularly where the breaches are dishonest. Non-fiduciary accessories are liable for compensation for loss and may obtain transaction-specific credit.

Compound interest may be awarded against fiduciaries who obtained or retained misappropriated money, while simple interest is appropriate against non-fiduciary dishonest assistants and conspirators. Interest on costs requires proof that the relevant party incurred expenditure and was out of pocket. Unreasonable refusal to mediate may justify a costs reduction. Contribution may be ordered for the whole liability where the contribution principles require it.

This was a consequential judgment following the court’s substantive judgment handed down on 4 May 2007 in claims brought by the Attorney General of Zambia on behalf of the Republic of Zambia against solicitors, partners and other defendants.

The court determined issues concerning the credit to be given for recovered assets, interest on compensation and costs, costs allocation and reductions, legal aid costs protection, possession of property, contribution, permission to appeal, stays of enforcement and interim payments. The central questions included whether recoveries from one transaction could reduce liabilities arising from other transactions, and how liability and costs should reflect the different positions of fiduciary and non-fiduciary defendants.

1. Recoveries. Fiduciary defendants were not entitled to credit for gains on one breach against losses arising from another. The principle in Bartlett v Barclays Bank Trust Co Ltd [1980] 1 Ch 515, supported by Guinness Plc v Saunders [1990] 2 WLR 324 and Crown Dilmun v Sutton [2004] 1 BCLC 468, applied. The fiduciaries were dishonest, so there was no basis for extending relief available to an honest fiduciary.
2. Non-fiduciary accessory defendants were liable for compensation for loss, but the Republic had to give credit for a realisation arising from the particular fraudulent transaction that produced it. There was no sufficient connection between separate transactions to justify cross-crediting. The approach in Komercni Banka A.S v Stone & Rolls Ltd [2003] 1 Lloyd’s Rep. 383 was applied.
3. Interest. Compound interest was appropriate against fiduciaries who obtained or retained monies through fraud. Against defendants who were not fiduciaries, and whose liability arose from dishonest assistance or limited conspiracy, interest was limited to simple interest. The court relied on Sinclair Investment Holdings SA v Versailles Trade Finance Limited & Ors [2007] EWHC 915 (Ch), President of India v La Pintada Compania Navigacion S.A. [1985] AC 104, Westdeutsche Landesbank Girozentrale v Islington Borough LBC [1996] AC 669 and Black v Davies [2005] EWCA Civ 531.
4. Interest on costs required proof that the Republic or another relevant funder had incurred expenditure and was out of pocket. It was compensatory, not punitive. No order for interest on costs was made until the funding arrangements were disclosed.
5. Costs. Fiduciaries were liable on the indemnity basis and participating non-fiduciary defendants on the standard basis. The Republic’s recoverable costs against participating defendants were reduced to 65 per cent of the costs attributable to the Zamtrop conspiracy because the claim had been over-elaborated and the trial unnecessarily lengthened. The court applied the conduct approach reflected in Kiam v MGN (No 2) [2002] 2 All ER 242.
6. The refusal to mediate with one defendant was unreasonable. Applying the reasoning in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576, the court disallowed a further 5 per cent of the relevant costs, assessed as the loss of a chance of settlement.
7. Participating defendants were entitled to 100 per cent contribution from the non-participating defendants. The court followed Dubai Aluminium v Salaam [2003] 2 AC 366. Applications for permission to appeal and stays were dealt with individually; any stay could be conditioned on charging identified assets in favour of the Republic.

This was a first-instance consequential judgment following the court’s substantive judgment handed down on 4 May 2007. No lower-court decision or appeal citation is stated.