Bank of Tokyo-Mitsubishi UFJ, Ltd & Anor v Baskan Gida Sanayi Ve Pazarlama AS & Ors

Costs are governed by the court’s broad discretion under Civil Procedure Rules 1998 Part 44 and the overriding objective. Deliberately advancing a false case may justify disallowing the costs of that case, ordering payment of costs caused by exposing the dishonesty, and imposing an additional proportionate penalty. It does not automatically displace the general rule that costs follow the event, unless the conduct amounts to an abuse of process of the whole case.

Pre-action conduct may be relevant even where it did not cause the proceedings or increase their cost, although causation remains highly material. Indemnity costs require conduct taking the case out of the norm, ordinarily involving deliberate misconduct or serious unreasonableness. Serious allegations that fail are insufficient by themselves.

This was a further hearing following the trial judgment in litigation brought by two banks against the Ferrero defendants and others. The Ferrero defendants had successfully defended the banks’ claims, but the court had found that they deliberately advanced a false case on important factual issues and that their pre-action conduct had been inadequate.

The banks sought costs against Ferrero, while Ferrero sought a substantial proportion of its costs on the indemnity basis. The court also considered whether costs between the banks and Mr Abidali should be dealt with before assessment of damages. The central issues concerned the effect of deliberate litigation misconduct, the relevance of pre-action conduct, and the circumstances justifying indemnity costs.

1. Applicable principles. Under Civil Procedure Rules 1998 Part 44.3, the court has discretion as to whether costs are payable, their amount and timing. It must consider all the circumstances, including conduct before and during proceedings, partial success and settlement offers. The overriding objective in Civil Procedure Rules 1998 Part 1.2 informs that discretion.
2. Dishonest cases. Deliberately advancing a case known to be false is relevant conduct. The court may disallow the costs of advancing it, order payment of the other party’s costs incurred in proving the dishonesty, and impose a proportionate additional penalty. The general rule that costs follow the event is not automatically displaced. Only conduct amounting to an abuse of the whole process may justify treating the party as unable to rely on ordinary success.
3. Pre-action conduct. Part 44 does not impose a strict causation requirement before pre-action conduct can affect costs. However, whether the conduct caused an unsuccessful claim or increased subsequent expenditure is of primary relevance in deciding the extent of any penalty. Conduct must be assessed in the context of the parties’ conduct as a whole.
4. Indemnity costs. The discretion is not subject to rigid exclusions. The principal questions are whether the conduct takes the case out of the norm and whether it amounts to deliberate misconduct or serious unreasonableness. Serious dishonesty allegations may justify indemnity costs where they are speculative, weak, opportunistic or thin, repeatedly changed, and pursued on a large scale without proper regard to their merits. Serious allegations which simply fail do not suffice.
5. Application. Ferrero’s deliberate false case was serious misconduct and an abuse of process in relation to that issue, but did not make its whole defence abusive because Ferrero was not part of the alleged conspiracy. Its misconduct outweighed the banks’ unreasonable aspects of pleading and pursuing their wider claims. Ferrero was therefore awarded 70% of its costs, assessed on the standard basis, subject to the agreed disclosure-related adjustments. Costs between the banks and Mr Abidali were reserved pending assessment of damages.

The judgment concerned costs following the trial judgment handed down on 11 June 2009. No lower-court or appellate decision is stated in this judgment.