Challinor & 20 Ors v Juliet Bellis & Co & Anor

Equitable compensation aims to restore a claimant for being deprived of money, but interest is assessed pragmatically where neither borrowing cost nor investment return provides a fair proxy. For sophisticated investors whose loss consists of a lost opportunity to make geared investments, the court may adopt a representative rate reflecting likely secured borrowing costs, financial standing, and a blend of borrowing and saving rates. The rate need not reproduce each claimant’s actual loss.

Interest may be reduced for delay only where the claimant has significantly neglected or declined to pursue the claim and the delay is exceptional and inexcusable. Costs ordinarily follow the event, but the court may make a proportionate reduction for discrete issues on which a successful claimant failed. Detailed assessment remains the proper stage for proportionality and individual costs scrutiny.

This was a supplemental first-instance judgment following the court’s main judgment, handed down on 25 February 2013. The claimants had succeeded against Juliet Bellis & Co in claims concerning monies paid into the firm’s client account and were entitled to equitable compensation of approximately £2.28 million. The court addressed consequential issues concerning additional loss, interest, costs, payments on account, and permission to appeal.

The principal questions were the appropriate interest rate and period, the allocation and reduction of costs among the claimants, the firm and Mr Egan, the amount of interim costs payments, and whether the firm should have permission to appeal the main decision and the dismissal of its Part 20 claim.

1. Equitable compensation and additional expenses. The claimants accepted equitable compensation of approximately £2.28 million. They withdrew a further claim for about £94,715 incurred in seeking an administration order, so the court made no determination on its recoverability. The judge’s provisional view was that disputed standing did not necessarily prevent an administration application under Insolvency Act 1986 Schedule B1 paragraph 12(3), but concerns remained about the application’s form and evidential basis.
2. Interest on the principal sums. The purpose of interest was compensatory, namely to achieve restitutio in integrum, rather than to award the defendant’s profit or a penalty. The case did not fit either the ordinary business-credit model or the investment-rate model. It was a third type of case involving individuals, not a credit-dependent business, whose loss was an unmeasurable opportunity to make further investments. A broad representative rate was therefore required. Having regard to the claimants’ sophistication, the speculative nature of the investments, likely access to secured credit, and the possibility that some would not have borrowed, the appropriate rate was 1% above base rate for the first period and 3% above base rate from 13 December 2007 until judgment. The court rejected a reduction for delay because the delay was not exceptional and inexcusable.
3. Costs. No order for costs was made between the claimants and Mr Egan. The Defendant Firm was ordered to pay Mr Egan’s costs of the Part 20 claim, but not his costs of defending the main claim. The firm was ordered to pay 90% of the claimants’ costs in the main claims. A percentage reduction was justified for discrete failed issues, but general inefficiency, disclosure concerns and proportionality were matters principally for detailed assessment. The claimants’ costs of their claim against Mr Egan were included because his late change of position made the additional proceedings and cross-examination understandable and part of the continuum caused by the firm’s failure.
4. Interim costs and appeal. The firm was ordered to pay the claimants £750,000 and Mr Egan £175,000 on account of costs, inclusive of VAT. The claimants had liberty to apply concerning counsel’s conditional success fee. Permission to appeal was refused on both the main claims and the dismissed Part 20 claim because the decision applied established principles to the particular facts. A limited stay of detailed assessment was granted pending any application to the Court of Appeal; a moratorium on interest was refused.