F & C Alternative Investments Holding Ltd v Bartholemy

The Court of Appeal allowed the appellants' principal complaints about the trial judge's awards on costs and interest. The trial judge had awarded indemnity costs from 16 January 2010 and raised interest rates on both the judgment sum and costs after that date by analogy with the sanctions in CPR Part 36. The Court held that Part 36 is a self-contained code and that the judge was not entitled to import its consequences by analogy where no Part 36 offer had been made. The judge had not found the appellants to have acted so unreasonably as to justify indemnity costs outside Part 36, and his reliance on Part 36 to justify higher rates of interest was therefore wrong.

Accordingly the Court substituted an order that costs from 16 January 2010 be assessed on the standard basis (not indemnity) and substituted a uniform rate of interest of 3% per annum above base rate for all periods from 16 January 2010 on both the judgment sum and on costs, dismissing the respondents' cross-appeal.

Background and procedural posture. F&C Partners LLP was a limited liability partnership whose members included companies in the F&C group and the two respondents. Long-running and acrimonious disputes about management and strategy culminated in multiple linked proceedings: Part 7 proceedings (claim and counterclaim) and petitions under sections 994 to 996 of the Companies Act 2006. Sales J at first instance found that the respondents validly exercised put options and were entitled to buy-out sums; he also found some unfairly prejudicial conduct in part but rejected other complaints. In consequential hearings the judge made detailed orders on costs and interest, awarding the respondents joint and several judgment sums with interest and ordering F&C Holdings to pay 70% of the respondents' costs, but on an indemnity basis from 16 January 2010, with stepped and high rates of interest on both principal and costs. The appellants appealed only the indemnity-costs decision and the quantum of interest; the respondents cross-appealed seeking to increase the costs award and the interest rates.

Issues for the Court of Appeal.

• whether the judge was entitled to award indemnity costs from 16 January 2010 on the basis that the respondents' settlement correspondence, though expressly not made under CPR Part 36, should be treated by analogy with Part 36;
• whether the judge was entitled to the high and varying rates of interest on the judgment sum and on costs (including very high effective rates said to reflect actual borrowing costs incurred by the respondents to fund the litigation); and
• incidental issues as to the proportion of costs recoverable by the respondents.

Court's reasoning and findings. The Court emphasised that Part 36 is a self-contained code and that where an offer is not made in accordance with Part 36 it does not attract the specific costs and interest consequences set out in Part 36.1(2) and Part 36.14. The trial judge was therefore not entitled to import Part 36 consequences by analogy so as to justify an award of indemnity costs or to justify exceptionally high rates of interest simply because a party had made a non‑Part 36 settlement proposal. Outside Part 36, indemnity costs are an exceptional departure from the norm and require adequate justification, normally a degree of unreasonableness of conduct of a high order; the judge had not made the necessary findings of such unreasonableness. The judge's parallel reliance on the respondents' actual high borrowing costs and his linking of those costs to an indemnity-costs finding were also flawed: the judge had attached decisive weight to the indemnity costs finding which he should not have made, and the court must adopt a compensatory and proportionate approach to interest rather than a penal one targeted at a particular litigant's financing arrangements.

Disposition. The Court allowed the appeal on the contested costs and interest points, substituted standard costs (instead of indemnity costs) from 16 January 2010 and substituted an interest rate of 3% per annum above base rate for all periods from 16 January 2010 on both judgment and costs. The respondents' cross-appeal was dismissed.

Appeal allowed in part. The judge was wrong to treat offers not made under CPR Part 36 as attracting Part 36 consequences by analogy; indemnity costs from 16 January 2010 were not justified in the absence of established unreasonable conduct of a high order, and the escalated interest rates tied to that reasoning were unsupported. The Court substituted standard costs from 16 January 2010 and fixed interest at 3% above base rate for the relevant periods, dismissing the respondents' cross-appeal.

Appeal from the High Court of Justice (Chancery Division), Sales J, Neutral Citation [2011] EWHC 2807 (Ch); appealed to the Court of Appeal, Civil Division, Neutral Citation [2012] EWCA Civ 843.