Rihan v Ernst & Young Global Ltd & Ors

Where the tax treatment of damages is uncertain, the court may gross up the award to guard against under-compensation, provided an undertaking or other mechanism prevents over-compensation once the tax position is known. The relevant tax sum may remain in court pending resolution.

Indemnity costs require conduct taking the case well outside the norm, assessed cumulatively. A party’s failure on some issues does not prevent such an order where the opposing party’s litigation conduct justifies it.

For Part 36 purposes, the comparison and the separate injustice assessment must be kept distinct. Exchange-rate fluctuations may be relevant, but enhanced consequences may still be imposed where the trial outcome gives materially greater protection than the offer.

This was a supplemental judgment following the trial judgment handed down on 17 April 2020. The claimant had succeeded in tort against four defendants and sought consequential orders concerning the judgment sum, interest, taxation of damages, costs, Part 36 offers and permission to appeal.

The principal issues were whether the damages should be grossed up for possible tax liability, how the tax element should be secured, whether the claimant should receive indemnity costs, what consequences followed from two Part 36 offers, and which proposed grounds of appeal had a real prospect of success.

1. Judgment sum and tax. Judgment was entered against all four defendants jointly and severally. The tax position was uncertain because the damages arose from a novel audit duty and the application of Taxation of Chargeable Gains Act 1992, section 51(2), had not been authoritatively determined on these facts. Following the approach in Stoke on Trent City Council v Wood Mitchell & Co Ltd and 4Eng Ltd v Harper, protection against under-compensation prevailed, subject to safeguards against over-compensation. The claimant was required to seek an HMRC ruling, while the tax element was to remain in court pending resolution.
2. Interest and calculation. Interest under section 17(1) of the Judgments Act 1838 ran from 17 April 2020. Under CPR rule 40.8, that date was the date of the main judgment; alternatively, the court directed that interest should run from that date. The parties were directed to calculate the final sterling judgment sum using the exchange rate on 17 April 2020 for the damages calculation, with specified adjustments for future earnings, tax bands and benefits.
3. Costs. Indemnity costs were awarded. The defendants’ improper pressure on the claimant, deliberate avoidance of proper records, failure to preserve relevant laptop data, unjustified attacks on his character, and unfair witness evidence cumulatively took the case well outside the norm. Privilege, witness selection and post-judgment criticism of the court did not independently justify that order.
4. Part 36. The claimant beat both offers. Although tax sums were disregarded when assessing whether the judgment was at least as advantageous in money terms, the tax protection materially enhanced the trial outcome for the separate injustice assessment. The normal consequences of the first offer therefore applied from 22 November 2018. Interest was awarded at 7 per cent on specified past losses and 6.5 per cent on costs, with an additional £75,000.
5. Permission to appeal. Permission was granted on the audit duty, breach, recoverability of damage, contributory negligence and consequential grounds. Permission was refused for freestanding factual challenges and for the claimant’s proposed appeal concerning the speculative end-of-service payment.

This was a first-instance supplemental judgment following the same court’s main judgment handed down on 17 April 2020. The judgment records that the defendants intended to appeal and that permission was granted in part, but it does not state a subsequent appellate decision.