January 16, 2017 court of first instance - Orders,Orders
Claim No: CFI-026-2009
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
BETWEEN
(1) RAFED ABDEL MOHSEN BADER AL KHORAFI
(2) AMRAH ALI ABDEL LATIF AL HAMAD
(3) ALIA MOHAMED SULAIMAN AL RIFAI
Claimants
and
(1) BANK SARASIN-ALPEN (ME) LIMITED
(2) BANK SARASIN & CO. LTD
Defendants
ORDER OF JUSTICE SIR JOHN CHADWICK ON THE APPLICABLE INTEREST RATE AND COSTS
UPON READING (i) the Order made by Deputy Chief Justice Sir John Chadwick on 28 October 2014 (but issued on 30 October 2014), (ii) the Orders made by Justice Roger Giles on 25 February 2015 and (as a single judge of the Court of Appeal) on 5 April 2015 (iii) the Order made by Justice Sir Richard Field on 21 May 2015 and (iv) the Order made by Deputy Chief Justice Sir John Chadwick on 3 November 2015 (“the November 2015 Order”)
AND UPON READING (i) the written submissions and other documents filed on behalf of the parties pursuant to paragraphs 8 and 9 of the November 2015 Order (ii) the witness statement of Christopher Butler dated 24 November 2015 and (iii) the witness statement of Salomon Sebban dated 22 December 2015
AND FOR THE REASONS set out in the Schedule to this Order
IT IS HEREBY ORDERED THAT:
1.The rate of interest from time to time charged by the Second Defendant to commercial customers in good standing shall (for the purposes of paragraph 4 of the November 2015 Order) be taken to be the rate charged by the Second Defendant in respect of regulated overdrafts arranged in the ordinary course of its business.
2. The Second Defendant shall within 28 days from this Order file with the Court and serve on the legal representatives of the Claimants a certificate signed by Salomon Sebban (or other appropriate officer) specifying (i) the rates of interest charged from time to time during the period 8 October 2008 until 2 December 2014 in respect of regulated overdrafts arranged in the ordinary course of its business and (ii) whether those rates were charged on the basis that, where the interest accrued over an indeterminate period, the amount of interest payable was compounded periodically and (if so) with what periodic rests.
3. The individual Claimants may within 28 days of receipt of such certificate apply to the Court for orders quantifying the amount of interest payable by the Defendants pursuant to paragraph 4 of the November 2012 Order.
AND IT IS FURTHER ORDERED THAT:
4. The Claimants pay, on a joint and several basis, the Defendants’ costs of their applications dated 16 December 2014 and determined by the Order dated 4 February 2015, such costs to be assessed on the standard basis if not agreed.
5. Subject to any orders as to costs already made in these proceedings:
(a) The First Defendant pay the Claimants’ costs of and incidental to the Quantum Determination (other than the Claimants’ costs of the Defendants’ applications dated 16 December 2014), such costs to be assessed if not agreed on the indemnity basis.
(b) The Second Defendant pay the Claimants’ costs of and incidental to Quantum Determination (other than (i) the Claimants’ costs of the Defendants’ applications dated 16 December 2014 and (ii) the Claimants’ costs directly and exclusively attributable to the issue of whether an award of additions damages should be made against the First Defendant), such costs to be assessed if not agreed on the standard basis.
(c) The Defendants are to be liable on a joint and several basis for the payment of costs up to the amount of the costs payable by the Second Defendant.
6. Each party liable for costs under this Order pay to the receiving party or parties interest on the costs pursuant to Rule 38.1 of the Rules of the DIFC Courts (“RDC”) in respect of costs actually paid by the receiving party or parties to its or their legal representatives, such interest to be computed at the rate of EIBOR + 1% from the date of such actual payment by the receiving party or parties to its or their legal representatives up to the date of payment by the paying party pursuant to this order. A claim for interest under this paragraph is to be supported by a certificate of the receiving party’s or parties’ legal representatives that the costs in respect of which interest is claimed have been paid by the receiving party or parties on the dates specified.
7. The Claimants’ application for an order for interim payment of costs pursuant to RDC 38.13 is stood over for further consideration upon terms that:
(a) The Claimants shall within 28 days of this Order file with the Court a revised draft statement of costs which does not include their costs in relation to the Defendants’ applications dated 16 December 2014;
(b) The Defendants may, if so advised, within 28 days of this Order file with the Court a statement of their costs in relation to those applications;
(c) The Claimants may, if so advised, within 7 days of this Order file with the Court a statement of the reasons why they seek an order in terms other than those in paragraph 1 of the Order dated 5 April 2015; and
(d) The Defendants may, if so advised, within 7 days of the receipt of such statement of reasons file with the Court a statement in response thereto.
(e) Copies of statements filed with the Court pursuant to this paragraph shall be sent by the party filing the same to the legal representatives of the other parties at the time of such filing.
8. The costs of determining the issues ordered by the November 2015 Order are reserved for further consideration.
9. Nothing in this Order shall, without further order, (i) permit the Claimants to enforce orders for payment against the assets of the First Defendant (a company in liquidation) or (ii) require the liquidator of the First Defendant to make payments out of the assets of that company.
Issued by:
Natasha Bakirci
Assistant Registrar
Date of issue: 16 January 2017
At: 3pm
SCHEDULE OF REASONS
1. Following the Quantum Determination directed by the Orders of 30 October 2014 and 4 February 2015 the Court ordered (by paragraphs 4 and 8 of the November 2015 Order):
(1) that the Defendants should pay to the individual Claimants, jointly and severally, interest on Head (A) losses (being the sums ordered to be paid by sub-paragraphs 3(a) and 5(a) of the Order of 30 October 2014) from 8 October 2008 until 11 November 2014 (or until such date, if later, on which those sums were paid into Court pursuant to the Order dated 10 November 2014 made in proceedings CFI 036/2014) at the rate from time to time charged by the Second Defendant to commercial customers in good standing, and
(2) that such rate was to be determined by the Court, if not agreed, on the papers and without a hearing, and, further, (by paragraph 9 of that Order):
(3) that the costs of and occasioned by the Quantum Determination (including the costs of the Defendants’ applications which were determined by the Order of 4 February 2015) should be determined by the Court on the papers and without a hearing.
The November 2015 Order provided that the parties might make such written submissions as to the applicable rate of interest (if not agreed) and/or as to costs as they were advised.
The applicable rate of interest
2. In making the order that it did, the Court anticipated that the Second Defendant would disclose material from which the rate of interest which it charged in respect of loans to commercial customers in good standing from time to time over the relevant period could be agreed between the parties or ascertained by the Court. The Second Defendant chose not to take that course: rather, it decided that it would, itself, determine the applicable rate.
3. With that objective in mind, the Second Defendant carried out the internal exercise described in a witness statement dated 22 December 2015 made on its behalf by Salomon Sebban, then a Managing Director and Head of Accounting and Tax. On 5 November 2015 - in response to an email sent on 11 October 2015 by Hamdan Al Shamsi Lawyers and Legal Consultants, the legal representatives instructed by the Claimants, to Clifford Chance, the legal representatives instructed by the Second Defendant, asking for “the applicable rate with verifying information” - Clifford Chance wrote:
“The Second Defendant has conducted an exercise of determining what the rate of interest from time to time charged for loans to commercial customers in good standing. The result of that exercise is that the proposed rate is 1.347%.
We consider this to be the proper rate to be applied as ordered by the DCJ. For your information, the rate was calculated adopting the following methodology:
No verifying information was provided. On the basis of the information that was provided in that email, Clifford Chance sought agreement that the rate of 1.347% per annum be applied to the Head (A) losses for the period 8 October 2008 until the date of payment.
4. The Claimants rejected that proposal. In an email sent on 12 November 2015 to Clifford Chance, Hamdan Al Shamsi wrote:
“…The Judge’s Order was that the applicable rate was to be the rate ‘from time to time charged by the Second Defendant to commercial customers in good standing’. We do not consider that the rate that you have provided is the rate that the Judge was referring to in his Order.
First, you have provided a rate calculated on loans to businesses and you have excluded loans made to consumers or private individuals. Our clients were private individuals and there was no reason to exclude them. When the Judge referred to “commercial customers” in his order, he was plainly referring to ordinary customers in contradistinction to related parties. Your interpretation of commercial customers makes no sense; there would have been no reason for the Judge to set the rate at a level that only a large business could borrow at.
Second, you have not stated that your rate is in respect of unsecured lending and we suspect that you have included rates, in your calculation, based on secured or asset backed lending. It is obvious that the Judge was referring to an unsecured rate in his Order.
Third, you have not provided the rate on a monthly basis. Obviously interest rates have changed over the period from October 2008.
Please provide, by return, the unsecured lending rate that your client charged to its customers on an arm’s length basis on monthly intervals from the period from October 2008 to date. Please also supply some evidence to support the rate advanced. In the absence of proper disclosure from your client (which your client has not yet provided), we will ask the Court to draw an adverse inference against your client; specifically that the reason why your client has not provided this information is because it is unfavourable to its case.”
5. In the absence of any response to that request, the Claimants invited the Court to determine the rate of interest applicable for the purposes of paragraph 4 of the November 2015 Order. They did so on the basis (set out in written submissions dated 24 November 2015) (i) that the material which (at the date when those submissions were filed) had been provided to them by Clifford Chance did not support the contention that the rate of interest “from time to time charged by the Second Defendant to commercial customers in good standing” was 1.347% per annum; and (ii) that the appropriate rate was 4.79% per annum above the Federal Reserve base rate.
6. In written submissions dated 22 December 2015 the Second Defendant contended for an applicable rate which was lower than that which had been proposed in Clifford Chance’s email of 5 November 2015. In support of that contention it relied on the witness statement of Mr Sebban and a Report by KPMG AG of the same date which was attached to that witness statement. It was said that those documents demonstrated that the rate actually charged to commercial customers in good standing over the period between 8 October 2008 and 2 December 2014 - the date on which (as is common ground) the sums payable in respect of the Head (A) Losses were paid into Court - was 1.291% per annum.
7. The First Defendant, in written submissions also dated 22 December 2015, adopted (without elaboration) the Second Defendant’s contention that the applicable rate was 1.291% per annum.
8. The Claimants submit that, whatever the applicable rate of interest for the purposes of that paragraph 4, the amount of interest payable should be computed by compounding interest at that rate with yearly rests. The defendants contend that there is no basis for compounding interest with annual (or any other periodic) rests.
9. In those circumstances the issues for determination by the Court (in this context) are:
(1) Whether the applicable rate for the purposes of paragraph 4 of the November 2015 Order is (as the Defendants contend) 1.291% per annum.
(2) If not, whether the applicable rate is (as the Claimants contend) 4.79% above the Federal Reserve base rate.
(3) If not, then what rate should be taken to be the applicable rate for the purposes of paragraph 4 of the November 2015 Order.
(4) Whether interest should be computed on the basis of compounding with periodic rests.
Whether the applicable rate is 1.291% per annum
10. In his witness statement Mr Sebban explained that, “in general terms”, the applicable interest rate was determined by taking an average of the interest rate on loans granted by the Second Defendant. The exercise comprised five steps:
(1) Extraction of loan transaction information for the relevant period from the Second Defendant’s databases.
(2) “Filtration of relevant data” to identify relevant loan transaction information which was within the definition of paragraph 4 of the November 2015 Order.
(3) Calculation of an average interest rate from the relevant loan transaction information.
(4) Corroboration of the average interest rate calculated by reference to various benchmarks in order to test whether the calculation methodology used was fair and accurate.
(5) Consideration of the results of that calculation methodology against the calculation methodology used by the Claimants (in their written submissions dated 24 November 2015).
Mr Sebban went on to state that “in order to ensure that the exercise carried out by the Bank constituted a complete and fair analysis”, the Second Defendant instructed KPMG AG to review the calculation methodology and the process which had been carried out under steps (1) to (3), to carry out the work in step (4) and to consider step (5).
11. In identifying “relevant loans provided…to commercial customers” the Second Defendant (and KPMG) excluded loans made to consumers or private individuals. It did so for the reasons set out in its written submissions (and at section 8.1 of the KPMG Report). In summary it was said that, for the purposes of paragraph 4 of the November 2015 Order, the phrase “commercial customers” was to be understood “in the ordinary usage and practice of the financial services industry and the customer base of the Second Defendant”; and that, so understood, (both within the financial services industry and on a literal interpretation) the phrase should be confined to “business customers and should not include consumers or private customers”.
12. The exercise carried out by the Second Defendant in relation to steps (1) to (3) was described by Mr Sebban in greater detail (so far as material) at paragraphs 3.1 and 3.3 of his witness statement:
“3.1 In October 2015, I instructed colleagues in the Bank’s IT department to extract from the Bank’s transaction data on all loan transactions granted by the Bank which were booked in Switzerland, as the relevant place of business in the circumstances of the case, made in USD, as the relevant currency, and including all categories of loan granted by the Bank apart from mortgage loans, which were excluded because they do not form part of the bank’s commercial lending business (as referred to by the Court). This is because (i) mortgage loans are different in nature to commercial loans - they are always secured by property and are generally long term loans; (ii) in accordance with the Bank’s business model mortgages are a secondary service offering for our best customers; and (iii) mortgages are predominantly offered in CHF. Overdrafts also did not form part of the data extraction…
…
3.3 In order to meet the test set out in paragraph 4 of the Quantum Order that the data should relate to loan transactions with commercial customers in good standing, the initial loan transaction data file was filtered to remove the following categories of transactions from the data file:
3.3.1 Transactions with any counterparties other than counterparties categorized as:
Under the categorisation system used by the Bank, any other categories of customer are not considered ‘commercial customers’.
3.3.2 Of the loans that were extracted applying the above criteria, loans that were to customers domiciled in Anguilla, Aruba, Commonwealth of the Bahamas, Belize, Bermuda, British Virgin Islands, Cayman Islands, Cook Islands, Curacao, Cyprus, Guernsey, Isle of Man, Jersey, Malta, Marshall Islands, Mauritius, Panama, Saint Lucia, Saint Vincent and the Grenadines, Samoa, Seychelles, St Kitts and Nevis, Turks and Caicos were removed (the ‘Excluded Jurisdictions’). My understanding of the Bank’s business is that loans to corporate legal entities in the Excluded Jurisdictions are predominantly to personal investment vehicles for private individuals. Therefore, these customers are understood and considered by the Bank to be consumer customers and not borrowers of ‘commercial’ loans.
3.3.3 …”
He concluded:
“4.2 I understand that KPMG consider the methodology used by the Bank in Steps 1 to 3 represents a reasonable approach and that the Interest Rate of 1.291% which has been calculated is corroborated by the external benchmarks referred to: KPMG Report, section 1…”
13. The Claimants’ response to the Defendants’ submissions is set out in written “reply submissions” dated 21 January 2016. It is said that “from the limited information provided by the Second Defendant”, it is clear that the rate (1.291% per annum) put forward by the Second Defendant is too low and “does not fairly reflect the rate charged by the Second Defendant to commercial customers in good standing over the relevant period”. In support of that contention it is said that the rate is based on a pool of ultra-low risk loans: that is to say loans to corporate customers (excluding loans to individuals or offshore vehicles ultimately beneficially owned by individuals) which have an average length of just 79 days, were secured and highly collateralized and relatively small in comparison to the Head (A) losses. This (it is said) has the effect of depressing the average rate; and is not what the Court had in mind when it made the November 2015 Order. In particular, it is said:
(1) That the expression “commercial customers” in paragraph 4 of the November 2015 Order is not to be given a technical meaning by reference to English Regulatory Law: that would be to exclude customers in the position of the Claimants, which was not what the Court intended.
(2) That the reference to “commercial customers in good standing” was to customers to whom the Second Defendant made loans on commercial terms in the ordinary course of its business; not to a narrow category of collateralised loans to big business.
(3) That it would be unfair and illogical if the rate that the Claimants were paid on their Head (A) losses (which were suffered in 2008) was lower than the rate at which customers in the position of the Claimants could have borrowed from the Second Defendant during the relevant period.
Accordingly, it is said, the Court must have regard to other sources in order to determine the applicable rate for the purposes of paragraph 4 of the November 2015 Order.
14. The Court accepts the Claimants’ submission that the expression “commercial customers” in paragraph 4 of the November 2015 Order is not to be given a technical meaning by reference to English Regulatory Law: the provisions under which customers were categorised in English Regulatory Law was not the context in which the November 2015 Order was made. Given the context in which that order was made - the need to quantify losses suffered by the Claimants, who were not “commercial customers” of the Second Defendant within that technical meaning - the reference to “commercial customers” should be given the meaning for which the Claimants contend: that is to say, “customers to whom the Second Defendant made loans on commercial terms in the ordinary course of its business”. It follows that the Court rejects the Defendants’ contention that the applicable rate of interest for the purposes of paragraph 4 of the November 2015 Order is 1.291% per annum.
15. At paragraph 4 of his witness statement, Mr Sebban went on to describe the process of corroboration of the average interest rate calculated “by reference to various benchmarks” to which he had referred as step (4). He said this:
“4.1 The Bank instructed KPMG to assess the calculation described in Steps 1 to 3 above against the following benchmarks to test whether the calculation was fair, accurate and complete. Each of these calculations and their results are described further below:
4.1.1 Benchmark 1: Calculate the Interest Rate by including the customers excluded in the steps set out at paragraph 3.3.1 and 3.3.2 above.
…
This calculation results in an Interest Rate of 1.365%: KPMG Report, section 5…”
At paragraph 5.1 of his witness statement Mr Sebban referred to the three points which had been made by Hamdan Al Shamsi in their email sent to Clifford Chance on 12 November 2015 “in order to consider whether the calculation methodology used by the Bank is appropriate or requires any amendment” (step (5)). In relation to the first of those points, he said this:
“5.1 …I have reviewed and considered the Bank’s calculation method by reference to these points and my conclusions are set out below:
5.1.1 The Claimants contend…that the customer data which the Bank has referred to in its calculation does not represent data on ‘commercial’ loans as required by paragraph 4 of the Quantum Order.
The criteria used by the Bank to filter data relating to ‘commercial’ loans are set out at paragraph 3.3 above. The alternative calculation carried out by KPMG which is described at paragraph 4.1.1 above includes the categories of customer referred to by the Claimants…results in an Interest Rate of 1.365%. Therefore, I believe that the customer data referred to by the Bank in its calculation does represent data on commercial loans.
…”
It can be seen that if (contrary to the Defendants’ contention) the phrase “commercial customers” were given a wider meaning - that is to say, a meaning which included private individuals such as the Claimants - it is said that (adopting the methodology described, but with that variation) the applicable rate would be 1.365% per annum.
16. In addition to the points in their written reply submissions to which reference has already been made, the Claimants submit that:
(1) The Court ordered that the Claimants should receive interest to cover the period of six years or more during which they were deprived of the use of money due to them. For the Second Defendant to calculate an average rate of interest on the basis of a pool of very short term loans fails to give proper recognition that (as Mr Sebban accepts) “the cost of borrowing will increase with the duration of the loan”.
(2) Given the period of financial volatility following the events of October 2008, it is necessary - in order to obtain a representative rate for lending over the period from October 2008 to December 2014 - to have regard to the rate of interest which the Second Defendant would have charged for lending in each month over that period and not to ignore periods where (because the availability of credit was very limited) the Second Defendant chose not to lend.
(3) The Court did not intend that the applicable rate of interest should be that which the Second Defendant charged in respect of secured loans (in relation to which it could be expected that interest would be charged at a rate substantially less than that which would have been charged in respect of unsecured loans).
(4) It can be deduced from the information which the Second Defendant has provided that the average amount of the loans in the pool on which it has based its assessment of the applicable rate is approximately US$127,000. Given that (as Mr Sebban accepts) “it is to be expected that the cost of borrowing will increase with the size of the sum borrowed”, this fails to give proper recognition to the probability that a substantially higher rate of interest would have been charged on a loan equivalent to the Head (A) losses.
(5) The methodology adopted by the Second Defendant fails to take account of fees charged to the borrower. It appears from the computation of Head (B) losses that the Second Defendant’s practice was to charge both interest and fees in respect of the loans that it made. That is a further reason why the average interest rate based on the pool of loans was low.
17. There is force in those submissions, which apply as much to the methodology which (as the Second Defendant contends) would lead to the conclusion that the applicable rate is 1.365% per annum as they do to the methodology which leads to the conclusion that the applicable rate is 1.291% per annum. In so far as the Defendants submit (in the alternative) that the applicable rate is 1.365% per annum, the Court rejects that submission.
Whether the applicable rate is 4.79% per annum above the US Federal Reserve base rate
18. The Claimants submit, in their written submissions dated 24 November 2015, that - in the absence of any “verifying information” from the Second Defendant - the best guide available as to the applicable rate was “the ordinary rate charged by the Second Defendant to the Claimants on overdraft balances”. They contend that the evidence adduced at an earlier stage in these proceedings established that interest was charged by the Second Defendant to the Second Claimant in respect of the period June to September 2009 at a rate equivalent to 4.94% per annum. They submit that an annual rate of 4.94% per annum was consistent with other market information as to rates of interest charged by financial institutions for loans in US dollars; in that (a) the Prime Bank loan rate published by the US Federal Reserve at the relevant time was 3.25% per annum and (b) the Second Defendant was not a Prime Bank “but an unrated privately owned financial institution” (so that its own funding cost could be expected to be above the Prime Bank loan rate). They pointed out that an annual rate of 4.94% per annum, as at 30 September 2009, equated to 4.79% above the then Federal Reserve base rate.
19. Mr Sebban addressed those submissions at paragraph 5.3 of his witness statement. He said this:
“5.3 I believe that this calculation is misconceived and irrelevant to the calculation of the Interest Rate for the following reasons:
5.3.2 The Second Claimant was not a customer in ‘good standing’ during the period that her account was in overdraft and therefore it is incorrect to look to the interest rate charged by the Bank to the Second Claimant during this period as a starting point;
5.3.3 The rate charged to a customer during an ‘unregulated’ or unauthorised overdraft cannot, in my view, be said to represent the Bank’s lending rate to commercial customers in good standing from time to time over the relevant period. It is only in exceptional circumstances that the Bank’s customers enter into unauthorized overdrafts and this does not represent the Bank’s general lending rate in the ordinary course of business…The interest rate that will be applied to an unauthorized overdraft is not the interest rate of a ordinary commercial loan to a customer in good standing; and
5.3.4 The US Federal Reserve’s base rate is not the appropriate base rate to refer to. The Bank’s lending from time to time to commercial customers in good standing was funded through the USD interbank money market, where the applicable base rate is USD 1-month LIBOR: see section 8.6, KPMG Report…”
20. The Court accepts the Defendants’ submission that the rate charged to a customer in respect of an “unregulated” or unauthorised overdraft cannot be said to represent the Bank’s lending rate to commercial customers in good standing: in that (i) a customer whose affairs are conducted on the basis that his account is overdrawn without authority cannot be said to be “in good standing” and (ii) the interest rate that will be applied to an unauthorised overdraft is not (and can be expected to be higher than) the interest rate that would be charged in respect to an authorised overdraft.
21. In response to that submission, the Claimants contend that, in ascertaining the applicable rate for the purposes of paragraph 4 of the November 2015 Order, the Court should take the view that the Second Claimant was a customer in good standing at the relevant time: in that she was solvent and had considerable assets (including substantial real property assets). That may have been the case; but the question whether the Second Claimant was, or was not, of good standing in the period June to September 2009 is not the relevant question: the relevant question is whether, in charging interest at the rate which it did, the Second Defendant treated her as if she were borrowing by way of unregulated or unauthorised overdraft. There is no reason to doubt Mr Sebban’s evidence that the rate of interest actually charged to the Second Claimant was the rate applicable to a borrower who was not of good standing.
22. It follows that the Court rejects the Claimants’ contention that the applicable rate of interest for the purposes of paragraph 4 of the November 2015 Order is 79% per annum above the US Federal Reserve base rate from time to time.
23. The Second Defendant contends (in its written submissions dated 22 December 2015) that, in any event, the Claimants’ assertion that the rate of interest charged to the Second Claimant in respect of the period June to September 2009 was equivalent to 4.94% per annum is incorrect. The true position, it is said, is that interest was charged was at a rate of 4.75% per annum (as appears from the KPMG Report, paragraph 8.5). In their written reply submissions, the Claimants state that, “in the interests of narrowing the dispute”, they are willing to accept “the Second Defendant’s number of 4.75% above the Federal Reserve base rate”. For completeness, the Court rejects the contention that the applicable rate of interest for the purposes of paragraph 4 of the November 2015 Order is 75% per annum above the US Federal Reserve base rate from time to time. It does so for the reason already given: that the rate charged to a customer in respect of an ‘unregulated’ or unauthorised overdraft cannot be said to represent the Bank’s lending rate to commercial customers in good standing.
What rate should be taken to be the applicable rate for the purposes of paragraph 4 of the November 2015 Order
24. Given that the Court rejects both (i) the contention of the Defendants that the applicable interest rate is 1.291% per annum (or 1.365% per annum) and (ii) the contention of the Claimants that the applicable rate is 4.79% per annum (or 4.75% per annum) above the US Federal Reserve base rate, it is necessary - in order to determine the rate applicable for the purposes of paragraph 4 of the November 201 Order - to seek assistance elsewhere in the evidence and submissions that have been filed.
25. The Court finds that assistance in paragraphs 3.1 and 5.3.2 of Mr Sebban’s witness statement. At paragraph 3.1 Mr Sebban stated that:
“3.1 Overdrafts also did not form part of the data extraction (see paragraph 5.3.2 below in this regard).”
And, at paragraph 5.3.2 - after explaining, in the extract to which reference has already been made, why the rate charged to a customer during an ‘unregulated’ or unauthorised overdraft cannot be said to represent the Bank’s lending rate to commercial customers in good standing from time to time over the relevant period - he said this:
“5.3.2 …It should be noted that ‘regulated’ or authorised overdrafts are different - these are provided as part of a credit facility. The interest rate for ‘regulated’ overdrafts as at 30 September 2009 was 2.25%.”
Mr Sebban did not explain (at paragraph 5.3.2 of his witness statement) why regulated overdrafts (as well as unregulated overdrafts) did not form part of the data extraction.
26. On the basis of the statements in Mr Sebban’s witness statement to which reference has been made, the Court is satisfied that the applicable interest rate for the purposes of paragraph 4 of the November 2015 Order is the rate charged by the Second Defendant from time to time in respect of regulated overdrafts arranged in the ordinary course of business on commercial terms. Selection of that rate avoids setting the applicable rate (i) at a figure which reflects the distortion inherent in the factors which have led to the rates proposed by the Defendants and (ii) at a figure which reflects unregulated lending outside the ordinary course of the Second Defendant’s business. The Second Defendant has not provided the information required to ascertain what rate was charged from time to time in respect of regulated overdrafts arranged in the ordinary course of business. That information should now be provided.
Should interest be computed on the basis of compounding with periodic rests
27. As already mentioned earlier in this Schedule of Reasons, the Claimants submit that, whatever the applicable rate of interest for the purposes of paragraph 4 of the November 2015 Order, the amount of interest payable should be computed by compounding interest at that rate with yearly rests. They do so on the basis that the Head (A) Losses had to be funded over a six year period. Given that the applicable rate is a rate set by reference to borrowing year by year, it is said to be necessary, in computing the total interest payable that the interest which has accrued in each year by added to (or compounded with) the principal sum at the end of each year.
28. The Defendants submit that there is no basis for computing the amount of interest payable by compounding with annual (or any other periodic) rests. In particular, it is said (a) that the November 2015 Order does not direct payment of compound interest, (b) that compound interest is not appropriate in the circumstances that the Second Defendant does not, itself, charge compound interest on loans to commercial customers in good standing and (c) that this Court should follow its normal practice (and that of the Courts of England and Wales) of awarding simple interest save in cases where the claimant can establish a loss of compound interest.
29. The Court is satisfied that there is no substance in either the first or the third of those points. The direction in paragraph 4 of the November 2012 Order is for payment of interest “at the rate from time to time charged by the Second Defendant to commercial customers in good standing”. Whether or not the interest payable is computed on the basis of compounding with yearly (or other periodic) rests turns on whether the rate determined to be applicable is a rate charged by the Second Defendant in respect of simple interest over a fixed period or a rate charged by the Second Defendant in respect of interest which will be added to (or compounded with) the principal sum from time to time over an indeterminate period. If the latter, then the effect of paragraph 4 is to direct compounding with the rests appropriate to the rate charged.
30. In relation to the second of those points, Mr Sebban said this (at paragraph 5.4 of his witness statement):
“5.4 The Claimants contend that the Interest Rate should include interest rates calculated on an annual compounding basis. I have considered this and believe that this is irrelevant to the calculation of the Interest Rate for the following reasons:
5.4.1 Compounding is not generally relevant to the interest rates charged by the Bank to customers from time to time; and
5.4.2 Compounding would be relevant if the Interest Rate was calculated on the basis of the Bank’s charges for unauthorised overdrafts, as the Claimants contend is However, I believe this is misconceived for the reasons set out at section 5.3 above.”
The Court notes that Mr Sebban’s statement that “compounding would be relevant if the Interest Rate was calculated on the basis of the Bank’s charges for unauthorised overdrafts” is consistent with the fact (as the Claimants assert) that the Second Defendant did compute the interest charged to the Second Claimant by compounding with quarterly rests. Mr Sebban does not state, in terms, whether or not compounding would be relevant in the case of interest charged on regulated overdrafts. The Court accepts that, in relation to the rate at which interest was charged by the Second Defendant on overdrafts, there was a distinction between the rate applicable to regulated overdrafts and the rate applicable to unregulated overdrafts; it can be seen that (in the present case) the difference between the rate of interest charged in respect of a regulated overdraft (2.25% per annum, as at 30 September 2009) and the rate of interest charged in respect of an unregulated overdraft (4.75% per annum) was 2.50% per annum. But the Court can see no reason in principle why there should have been a distinction between regulated and unregulated overdrafts in relation to the question whether, in computing the amount of interest payable at the applicable rate, interest which accrued over an indeterminate period should be compounded; and (in the Court’s view) it is significant that Mr Sebban has been careful not to state that there was such a distinction.
31. The Court has already indicated, earlier in this Schedule of Reasons, that the Second Defendant should provide the information required to ascertain what rate was charged from time to time in respect of regulated overdrafts arranged in the ordinary course of business. The information to be provided should include information on the question whether those rates were charged on the basis that, where the interest payable accrued over an indeterminate period, the amount payable was compounded periodically and (if so) with what periodic rests.
Costs
32. In their written submissions dated 24 November 2015 the Claimants seek the following orders as to costs:
(1) An order that the Defendants pay, on a joint and several basis, the Claimants’ costs of the proceedings from 30 October 2014, such costs to be assessed on the indemnity basis if not
(2) An order that the Defendants pay interest on costs pursuant to RDC 38.10 in respect of costs actually paid by the Claimants to their legal representatives (payment of such costs on the dates specified having being certified by the Claimants’ legal representatives) such interest to be computed at the rate of 79% above the US Federal Reserve rate from the date of such actual payment by the Claimants.
(3) An order that the Defendants pay, on a joint and several basis, the sum of US$692,485.89 to the Claimants by way of interim payment of the costs ordered to be paid.
33. The Defendants resist the orders sought by the Claimants. The Defendants submit that the appropriate orders as to costs are:
(1) An order that the Claimants pay, on a joint and several basis, the Defendants’ costs of the Defendants’ applications dated 16 December 2014 and determined by the Order dated 4 February 2015 such costs to be assessed on the standard basis if not agreed.
(2) An order that the Defendants pay, on a joint and several basis (or, as the Second Defendant submits in the alternative, on a joint and several basis up to the amount of the costs payable by the Second Defendant), 50% (or, as the Second Defendant submits, such other proportion as the Court considers appropriate) of the Claimants’ remaining costs of the Quantum Determination, such costs to be assessed on the standard basis if not
34. In those circumstances the issues for determination by the Court are these:
(1) Should there be a discrete order in relation to the costs of the Defendants’ applications dated 16 December 2014; and (if so) by whom should those costs be paid and on what basis should they be assessed.
(2) Should the Defendants be ordered to pay the whole of the Claimants’ costs of the Quantum Determination (subject to such discrete order, if any, in respect of the costs of the Defendants’ applications dated 16 December 2014); or only some proportion (and, if so, what proportion) of such costs.
(3) On what basis should such of the Claimants’ costs of the Quantum Determination as are payable by the Defendants be assessed.
(4) Should the Court make an order that the Defendants pay interest on costs actually paid by the Claimants to their legal representatives; and (if so) at what rate should interest be computed.
(5) Should the Court make an order that the Defendants make an interim payment to the Claimants on account of such of the Claimants’ costs of the Quantum Determination as are payable by the Defendants; and (if so) what should be the amount of such interim payment.
The applicable principles
35. Rule 38.6 of the Rules of the Dubai International Financial Centre Courts 2014 (“RDC”) provides that (save in cases to which RDC 38.15 and 38.16 apply) the Court has a discretion as to (i) whether costs are payable by one party to another, (ii) the amount of those costs and (iii) when they are paid. RDC 38.7 provides that, if the Court decides to make an order about costs, the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but that the Court may make a different order. RDC 38.8 requires that, in deciding what (if any) order to make about costs, the Court must have regard to all the circumstances; including the conduct of the parties and whether a party has succeeded on part of its case, even if it has not been wholly successful. RDC 38.9 provides that the conduct of the parties includes conduct before, as well as during, the proceedings; whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; the manner in which a party has defended his case on a particular allegation or issue; and whether a claimant who has succeeded in his claim in whole or in part, exaggerated his RDC 38.10, provides that the orders which a Court may make include (inter alia) an order that a party pay a proportion of another party’s costs and an order that a party pay costs relating to a distinct part of the proceedings; but, where the Court would otherwise consider making an order for payment of costs relating to a distinct part of the proceedings, it must instead, if practicable, make an order for the payment of a proportion of costs or an order for the payment of costs from or until a certain date only (RDC 38.11).
36. The parties agree that, in applying the provisions of the RDC in relation to costs, it is appropriate for the Court to have regard to the approach established by decisions in the Courts of England and Wales on the comparable provisions in the Civil Procedure Rules applicable in those courts. In particular, this Court was referred to the following (amongst other) principles derived from those decisions:
(1) The starting point is that, if there is a clear winner of the litigation, the winner is awarded
(2) However, where a winner fights and loses certain issues, an issue based costs award may be appropriate (Multiplex Constructions (UK) Ltd v Cleveland [2008] EWHC 2280 TCC at [72]).
(3) There is no requirement of exceptionality, or unreasonable conduct by the winner in pursuing the lost issues, before an issue based costs order can be made: Summit Property v Pitmans [2001] EWCA Civ 2020 at [17] and [22]; Multiplex Constructions (UK) Ltd v Cleveland [2008] EWHC 2280 TCC at [72] and F&C Alternative Investments v Barthelemy [2012] EWCA Civ 843 at [47] and [49]. There simply needs to be “reason, based on justice, for departing from the general rule set out in CPR 3(2)”: F&C Alternative Investments at [47].
(4) Where the circumstances of the case require an order expressed by reference to the costs of discrete issues, that is the order that the judge should make. But, generally, because of the practical difficulties which this causes, the judge should hesitate before making an order in that form and, where practicable, should make an order should for payment of percentage of costs recoverable or costs recoverable for a specific period of time: Multiplex Constructions at [72].
(5) The aim of the Court always in making a costs order is to “make an order that reflects the overall justice of the case”: Travellers’ Casualty v Sun Life [2006] EWHC 2885 (Comm) at [11].
(6) In applying the general rule, the question of who is the successful party must be determined by reference to the litigation as a whole: Kastor Navigation v Axa Global Risks [2004] 2 Lloyd's Rep 119 at [143].
(7) It is important to identify at the outset who is the “successful party”: Barnes v Time Talk [2003] BLR 331 at para
(8) “Success is not a technical term but a result in real life”: BCCI v Ali (No. 4) 149 NLJ
(9) The court may depart from the general rule that the loser pays the winner’s costs, but it remains appropriate to give “real weight” to the overall success of the winning party: Scholes Windows v Magnet (No. 2) [2000] ECDR 266 at
(10) The Court should consider the issues on which the parties have succeeded and failed in making its However, “[t]here is no automatic rule requiring reduction of a successful party's costs if he loses on one or more issues. In any litigation, especially complex litigation such as the present case, any winning party is likely to fail on one or more issues in the case”, HLB Kidsons v Lloyds Underwriters [2008] 3 Costs LR 427 at [11].
(11) Where issues are discrete and it was unreasonable for the successful party to take certain points, it may be appropriate to make a costs order on each issue: Travellers’ Casualty v Sun Life [2006] EWHC 2885 (Comm) at [12], where it was said that:
“If the successful claimant has lost out on a number of issues it may be inappropriate to make separate orders for costs in respect of issues upon which he has failed, unless the points were unreasonably taken. It is a fortunate litigant who wins on every point.
12. However, the simple fact that a successful party has failed on certain issues does not justify making a separate costs order on those issues: Budgen v Andrew Gardner Partnership [2002] EWCA Civ 1125 at [35], where it was said that:
“…the court can properly have regard to the fact that in almost every case even the winner is likely to fail on some issues and it should be less ready to reflect that sort of failure in the eventual costs order than the altogether more fundamental failure to make an offer sufficient to meet the winner's true entitlement”
The costs of the Defendants’ applications dated 16 December 2014
37. The circumstances in which the Defendants made their applications to the Court dated 16 December 2014 (and the outcome of those applications) are described in the Schedules of Reasons set out in the Orders made by Justice Roger Giles on 25 February 2015 and by Justice Sir Richard Field on 21 May 2015. Put shortly:
(1) Following the Order which had been made on 28 October 2014, the Claimants had filed (on 20 November 2014) a first witness statement of Hamdan Al Shamsi (“HAS 1”) and a fourth witness statement of the First Claimant, Rafed Al Khorafi (“RAK 4”). They did so on the basis that that evidence went to post-trial losses; and that, accordingly, they could rely upon it notwithstanding the terms of the Order of 28 October 2014. On the same day, the Claimants applied for permission to adduce a second witness statement of Hamdan Al-Shamsi (“HAS 2”), supported by a fourth witness statement of Gayle Hanlon. They recognised that, pursuant to the Order of 28 October 2014, permission was required to adduce the evidence in those two witness statements because that evidence went to pre-trial losses.
(2) On 16 December 2014, the Defendants applied for an order excluding (a) all the evidence filed by the Claimants on 20 November 2014 and (b) the evidence in relation to which the Claimants had sought permission to adduce.
(3) The Claimants’ application of 20 October 2014 (for permission to adduce evidence) and the Defendants’ application of 16 December 2014 (to exclude evidence) came before the Court on 12 January 2015. On 20 January 2015 the Court delivered its ruling on those applications; and effect was given to that ruling by an order issued on 4 February 2014.
(4) On the Claimants’ application the Court permitted reliance on HAS 2 (subject to conditions). On the Defendants’ applications the Court declined to exclude reliance on HAS 1(although doubting whether it was necessary or had any evidential value), but did exclude reliance on RAK 4 (on the ground that it contained no evidence relevant to the claims which were to be quantified at the Quantum Determination). The costs of the applications were reserved to the hearing of the Quantum Determination.
38. The Defendants submit, correctly, that their applications to exclude evidence were successful in relation to the witness statement RAK 4. They also submit, again correctly, that the effect of excluding that evidence was to strike out a proposed claim on behalf of the Claimants in respect of losses (estimated at US$37 million or thereabouts) said to have arisen in relation to borrowings by RAFCO (a company owned or controlled by the First Claimant) from ABK and said to have been guaranteed by the First Claimant. And they submit that their success on those applications saved the not insubstantial time and further costs that would have been incurred if that proposed claim had been allowed to progress to the hearing of the Quantum Determination. But they accept that their application to exclude evidence was not successful in relation to the witness statement HAS 1; and (in so far as relevant in this context) that they did not succeed in persuading the Court to refuse the Claimants’ application for permission to rely on witness statement HAS 2.
39. In those circumstances it is submitted on behalf of the Claimants that there is no basis for making a discrete order in respect of the costs of the Defendants’ applications of 16 December It is said that those applications sought to exclude all of the Claimants’ evidence on quantum “such that the Claimants may not rely on any of the purported evidence or the matters contained therein in support of their claims”; that, given the outcome, the Defendants cannot claim that they were successful on their applications; that there is no reason for the costs of those applications to be distinguished from the other costs of the Quantum Determination; and that those costs should follow the event (that is to say, should follow what the Claimants contend was their overall success on the Quantum Determination).
40. The Court is persuaded that it would be appropriate to make a discrete order in respect of the costs of the Defendants’ applications of 16 December 2014. In particular the Court has regard (a) to the doubts which it expressed in its ruling of 20 January 2015 as to the need for, or evidential value of, the material in HAS 1, (b) to the fact that, properly analysed, the Defendants’ applications to exclude evidence was irrelevant to the question whether the Claimants could rely on the material in HAS 2 (in that that question turned on the success or failure of the Claimants’ own application of 20 October 2014 for permission) and (c) to the requirement that, in determining how to award costs that have been reserved, the Court should take account of subsequent events. Those events included:
(1) The decision of the Claimants, on 2 March 2015, to abandon reliance on the Grant Thornton Report notwithstanding that, by the order of 4 February 2015, the Court had permitted them to do so.
(2) The fact that, in the events which happened, the Claimants did not pursue the claim for assumed costs of financing cash inflows (in relation to which they had relied on the Grant Thornton Report) at the hearing of the Quantum Determination.
(3) The fact that the Claimants succeeded in respect of only US$2.526 million in respect of CBK losses at the Quantum Determination (out of a total claim of US$7.5 million for CBK losses).
In those circumstances, the Court is satisfied that the respects in which the Defendants failed to obtain all the relief sought by their application of 16 December 2014 were of little or no significance; and that there is no reason to depart from the general rule that, as the successful applicant, the Defendants should have their costs of their applications.
The other costs of the Quantum Determination
41. It is common ground that the Defendants should pay (at the least) part of the Claimants’ remaining costs of the Quantum Determination; that is to say, the costs other than those relating to the Defendants’ applications of 16 December 2014. The dispute is as to whether (as the Claimants contend) the Defendants should pay the whole of those remaining costs; or whether (as the Defendants contend) they should pay only 50% (or some other proportion) of those remaining costs.
42. In support of their contention that the Defendants should pay the whole of their remaining costs, the Claimants submit that:
(1) They were plainly the successful party on quantum; in that the Defendants opposed the Claimants’ case on quantum “root and branch” (making a range of submissions to the effect inter alia that quantum should be set at zero) and on which the Defendants “have resoundingly lost”. In particular, they succeeded on all relevant factual matters and established an entitlement to damages under each of their heads of claim. It is significant that the Defendants have appealed every finding made by the Court.
(2) An issue based costs order would not be appropriate in the circumstances of this case: in that (a) there were no discrete issues (indeed the factual basis for all claims was the same), (b) even if it were otherwise just to make such an order (which it is not), an issue based costs order in this case would require the Court in assessing costs to investigate the case in great detail in order to ascertain whether a particular piece of work could properly be attributed to one issue or another and (c) the outcome of such an investigation would be that the relevant costs were overwhelmingly incurred in relation to issues on which the Claimants succeeded, even if also relevant to issues on which the Claimants did not
(3) The appropriate order for the Court to make is an overall order on costs: in that, although the Court must take into account that the Claimants’ success was relative and not absolute, it is not necessary or appropriate to make a deduction for every issue on which the Claimants did not succeed.
(4) The Court can take into account the Claimants’ success at trial on liability and also their success at the quantum In particular, the Court can take into account:
(a) that the Defendants contended that quantum should be set at zero; they advanced pleading points on which they were unsuccessful; they sought to advance points on causation and remoteness on which they were unsuccessful; they attempted to run points on the scope of the regulatory law and the entitlement to compensation; and the First Defendant took a number of points of objection to the Claimants’ case on multiple damages on which it was unsuccessful;
(b) that costs incurred in relation to questions of detailed quantification should be treated as the Claimants’ costs of and occasioned by the overall proceedings in which they have been successful: in that the exercise in Quantum Determination was incidental to the determination of the damages flowing from the Defendants’ breaches of duty.
(5) In all the circumstances, there is no reason to depart from the general rule that the successful party recovers its costs; and no need to make any percentage reduction in the costs to which the Claimants are entitled in order to reflect the areas where the Claimants did not succeed.
43. In support of their contention that they should pay only 50% (or some other proportion) of the Claimants’ remaining costs, the Defendants submit that:
(1) Although the Claimants claim to have been successful on the Quantum Determination - in that they were awarded US$24,583,425 in compensation against both Defendants and US$35,028,474 in additional damages against the First Defendant - it is necessary to have in mind that the amounts awarded were (a) significantly less than their pleaded claim for compensation (US$74.7 million), (b) significantly less than the (higher) unpleaded claims for compensation that they advanced prior to the determination of the Defendants’ applications of 16 December 2014, (c) over US$12 million less than the amount which they claimed in compensation by the date of the Quantum Determination (US$36.8m), and (d) significantly less than the triple damages which they had claimed against the First Defendant by way of additional damages.
(2) The difference between the amount(s) of compensation sought by the Claimants and the amount awarded reflects the reality that they lost on significant issues. In particular the Claimants lost on “the key issue” - to which all the accountancy evidence was directed) - whether losses on a no transaction basis means that the Court must reverse all the transactions between the Claimants and the Second Defendant (as the Claimants contended) or only reverse those transactions that related to the Notes (as the Defendants contended).
(3) If the Claimants had not pursued their contention that they were entitled to reverse all transactions with the Second Defendant (even those that were unrelated to the Notes) then (a) there would have been no need for the extensive accountancy evidence, (b) preparation work for the Quantum Determination would have been substantially reduced and (c) the hearing of the Quantum Determination would have been listed for 1 day and not for 2 days.
(4) By contrast, the points on which the Defendants lost - pleadings, scope of duty, causation, remoteness, availability of additional damages - raised short questions of law that did not require extensive accountancy evidence.
(5) Although the Defendants do not suggest that (subject to the outcome of their appeal) the Claimants are not the overall winners of the Quantum Determination, it would have been appropriate (in principle) to reflect the fact that the Claimants lost on significant issues (which increased the length and cost of the Quantum Determination) by making an issue-based order for costs: under which the Claimants paid the Defendants’ costs of all of the accountancy evidence (i.e. Griffins, Grant Thornton, KPMG) and the costs of the Quantum Determination to the extent it dealt with such evidence, and the Defendants paid the remaining costs of the Quantum
(6) Given the difficulties in relation to assessment to which such an order would give rise in practice, the Court should make an order for the payment of a proportion of the costs of the party who has achieved overall success.
(7) In the present case an appropriate proportionate costs order would be an order that the Claimants recover 50% of their remaining costs of the Quantum Determination; thereby reflecting the fact that approximately half of the costs of preparation and at the hearing of the Quantum Determination were attributable to issues on which the Claimants lost.
44. In response to those submissions, the Claimants submit that the Courts take a “broad brush” approach to the determination of a party’s liability for the other party’s costs, subject to the overall principle that the loser should pay the winner’s costs; that it is inevitable that a successful party will lose on some points; that the Court has to decide which is the successful party and whether that party’s success can be described as only partial, so that a deduction should be made in the overall costs recoverable; and that, in the present case the Claimants were clearly the successful parties and their success cannot be described as Further, it is said that it is unreal for the Defendants to suggest that the hearing of the Quantum Determination would have been materially shorter, or would not have involved the submission of accountancy reports, if the Claimants had not pursued those points on which they did not succeed. In particular, it is said that a significant part of the hearing was occupied with the Defendants’ cross‐examination of the First Claimant, which sought to re-open issues on which the Defendants had already failed at the trial and from which they derived no benefit.
45. The Court accepts the Claimants’ submission that they were the successful parties in the Quantum Determination; and is satisfied that, in all the circumstances of this case, there is no reason to depart from the general rule that the Defendants should pay the Claimants’ costs (other than those relating to the costs of the Defendants’ application of 16 December 2014). The Court is not persuaded that the remaining costs should be the subject of an issue based costs order; and so is not persuaded that this is a case in which it would be appropriate to make a proportionate costs order.
46. In reaching that conclusion that Court has had regard to the judgment which, following written and oral argument on the Quantum Determination was delivered on 7 October 2015. The issues before the Court on the Quantum Determination are set out in that judgment. They fall into three main groups: (i) issues upon which the Defendants relied in support of their contention that the Claimants had failed to establish any entitlement to damages under Heads (B), (C) and (D); (ii) detailed issues of quantification of the Claimants’ recoverable losses under each of those three heads; and (iii) issues relating to the existence and exercise of the Court’s power to award additional damages against the First Defendant. The Claimants were successful on all (or substantially all) of the issues in groups (i) and (iii): in that they persuaded the Court that, in principle (notwithstanding the Defendants’ contentions), they were entitled to pursue claims for damages under each of the three heads, and that this was a proper case for an order for additional damages. In relation to the detailed issues of quantification in group (ii), there was one threshold issue of principle - a difference of methodology - on which the Claimants were unsuccessful.
47. The point was explained at paragraph 92 of the judgment which the Court delivered on 7 October 2015.
“92. It can be seen from the Updated Joint Statement on Quantum (at paragraph 8) that the difference between the Claimants’ quantification under this head (US$10,578,267) and the Defendants’ quantification (US$2,886,912) is said to be attributable to a difference in methodology; in that the Claimants’ quantification has been made on what is described as a “nil transaction basis” - that is to say, by reversing all fees and interest actually charged by Bank Sarasin – but the Defendants’ quantification has been made on the basis that only those fees and interest charged in respect of the loans which funded the investment in the Notes purchased by the Claimants should be reversed.”
The Court preferred the Defendants’ approach: as it observed, the Claimants or their advisers had misunderstood that the effect of quantification on a no-transaction basis, in this case, was to reverse only those fees and interest charges in respect of loans which funded investment in the Notes. In the event, little time was spent in debating the point: the detailed issues of quantification which comprised group (ii) were argued on the basis that (as the Defendants contended) the recoverable losses were confined to those attributable to the investment in the Notes purchased by the Claimants; and did not include other fees and interest charged by the Second Defendant or other lenders. The Claimants were successful in relation to some of those issues of quantification but unsuccessful in relation to others.
48. The Court rejects the Defendants’ submissions that:
“…if the Claimants had not pursued their contention that they were entitled to reverse all transactions with the Second Defendant (even those that were unrelated to the Notes) then (a) there would have been no need for the extensive accountancy evidence, (b) preparation work for the Quantum Determination would have been substantially reduced and (c) the hearing of the Quantum Determination would have been listed for 1 day and not for 2 days”
And that:
“By contrast, the points on which the Defendants lost - pleadings, scope of duty, causation, remoteness, availability of additional damages - raised short questions of law that did not require extensive accountancy evidence.”
The Court takes the view that, in the events which happened, the mistaken approach initially adopted by the Claimants or their advisors added little to the time occupied in hearing the Quantum Determination; that the Griffins and KPMG accountancy evidence was required - and was relied upon - in connection with the argument of the detailed quantification issues on the proper basis; and that there is no reason to think that the preparation work for the Quantum Determination (once the Defendants’ application of 16 December 2014 had been determined in their favour) would have been substantially reduced if the Claimants’ mistaken approach had been recognised earlier than it was.
49. The Second Defendant has not sought, in terms, to persuade the Court that the costs which it should be ordered to pay to the Claimants should exclude the costs incurred in relation to the issues in group (iii) - issues relating to the existence and exercise of the Court’s power to award additional damages against the First Defendant - with which it was not concerned. Nevertheless, the point needs to be addressed. If the Claimants did incur separable costs in relation to the issues in that group, there is no reason why the Second Defendant should be liable for those costs.
The basis on which costs should be assessed
50. The Claimants seek orders that the costs of the Quantum Determination should be assessed (if not agreed) on the indemnity basis. They submit, first, that the costs of the Quantum Determination should be treated as “follow-on” costs in the proceedings as a whole; and that, the Court having already made an order against the First Defendant for payment of the costs of the trial on an indemnity basis, the costs of the Quantum Determination should be assessed on the same basis. Second, it is submitted that, even if the costs of the Quantum Determination fall to be considered in isolation from those of the trial, the Defendants’ approach to the issues to be determined on the Quantum Determination was not reasonable, in that (i) it was not reasonable to contend that quantum should be set at zero and the points relied on in this regard (that is the pleading points, the causation points and the remoteness points) were an attempt to re‐run issues which had already been decided and were no longer open to the Defendants in this Court; and (ii) it should have been possible to reduce the Quantum Determination to a hearing dealing with (a) a few detailed points of quantification in respect of quantum that was otherwise agreed in principle, and (b) the question of whether additional damages should be awarded.
51. The Defendants submit that the costs of the Quantum Determination which they are to pay should be assessed on the standard basis; and the Claimants’ application for indemnity costs is wholly misconceived. They refer to Practice Direction No. 5 of 2014 (issued on 12 August 2014), which gives effect to observations in the High Court of England and Wales in National Westminster Bank v Rabobank [2007] EWHC 1742 (Comm) at [28] that the minimum nature of the conduct required “to take the situation away from the norm” is (save in very rare cases) “a significant level of unreasonableness or otherwise inappropriate conduct in the wider sense in relation to that party’s pre-litigation dealings with the winning party, or in connection with the commencement or conduct of the litigation itself”. In relation to the Quantum Determination, it is said, there was no such conduct: the Defendants defended the Quantum Determination in a wholly reasonable way, and succeeded on some key issues.
52. In particular, the Defendants invite the Court to reject what they describe as the Claimants’ attempt “to piggy back onto the Court’s previous award of indemnity costs against the First Defendant”. It is said that, the Court having (contrary to the Defendants’ submissions) embarked on a split trial (that is to say, a trial of liability following by a trial of quantum), it is not appropriate to look back to the Court’s previous findings to award indemnity costs of the Quantum Determination. It is said that it cannot be correct that, because the First Defendant was ordered to pay indemnity costs of the trial of liability, it must follow that the Claimants will be entitled to indemnity costs for any subsequent application they make in these proceedings against the First Defendant: rather the Court must ask itself whether the Defendants’ defence of the Quantum Determination has been such as to take the situation away from the norm. It is said that the fact that the Court of Appeal have granted the Defendants permission to appeal on all grounds is a clear indication that the Defendants were not acting unreasonably in pursuing the points that they did pursue on the Quantum Determination.
53. The Second Defendant points out (as an additional reason why there is no basis for making an order that the costs which it is to pay should be assessed on an indemnity basis) that no previous order for costs to be assessed on that basis has been made against it in these proceedings; and that the Claimants have erred in failing to make any distinction between the position of the First Defendant and the Second Defendant in that respect.
54. In response to those submissions, the Claimants maintain their contention that they should be entitled to indemnity costs against both Defendants. It is said (i), against the First Defendant, that the Court has previously made an indemnity costs order against it and that the misconduct which justified an order of indemnity costs on liability applies equally to the First Defendant’s position on quantum; and (ii) against the Second Defendant, that, although it is true that the Court has not made any previous award of indemnity costs against it, “it is fair to say that the conduct of both Defendants on quantum was not reasonable” (for the other reasons already set out).
55. The Court is not persuaded that it would be appropriate to order that the costs payable by the Second Defendant be assessed on an indemnity basis. Notwithstanding this Court’s own views (expressed in its judgment of 7 October 2015) on the question whether it was reasonable for the Defendants to seek to reopen before it issues which had already been determined against them in the trial of liability - and which were, at the time of the Quantum Determination, the subject of a pending appeal to the Court of Appeal - the Court must recognise that, in granting permission to appeal on all grounds, the Court of Appeal (acting by a single judge) must be taken to have reached the view that the Defendants were not acting unreasonably in pursuing all the points that they did pursue on the Quantum Determination (including those which had been decided against them at the earlier hearing). In the case of the Second Defendant, there is no basis (absent unreasonable conduct in the context of the Quantum Determination) for an award of costs on the indemnity basis.
56. The position in relation to the First Defendant is different. Notwithstanding the premise that (in the light of the Court of Appeal’s decision to grant leave to appeal on all issues) there was no unreasonable conduct in the context of the Quantum Determination, there remains a basis for an award of costs on the indemnity basis. In considering whether the conduct of the First Defendant has been “such as to take the situation away from the norm” for the purposes of PD No.5 of 2014, the Court is required to address the question whether there has been “a significant level…of inappropriate conduct in its wider sense in relation to a paying party’s pre-litigation dealings with the receiving party”. In the Schedule of Reasons which formed part of the Order of 28 October 2014, the Court explained why it was appropriate to make an order for costs on an indemnity basis against the First Defendant at that stage in this litigation. The Court said this (at paragraphs 17 and 18):
“17. In my judgment of 21 August 2014, I found that the First Defendant, Bank Sarasin-Alpen (ME) Limited, had deliberately decided to act in breach of the regulatory regime applicable to those institutions providing financial services in the DIFC. It had chosen to accept these Claimants as “Clients” in circumstances in which it had no reason to think that they qualified as clients under that regime. In order to achieve that end, the First Defendant deliberately falsified documents, known as AGBC’s, to make them appear as if they had been completed by the Claimants in their own hands in circumstances in which there were employees in the employ of the First Defendant’s offices who must have known that that was not the case. The only reason for completing the schedules to those forms in the first person (so as to make it appear that they had been completed by the Claimants themselves) can have been to mislead anyone inspecting those schedules; and, in particular, any regulatory authority. That was, as I held, deliberate malpractice on the part of the First Defendant; done with intent to deceive.
18. That conduct, as it seems to me, does take this case out of the norm; it is conduct which deliberately seeks to avoid the compliance which ought to be expected of financial institutions operating within the regulatory regime. This is not a case of the First Defendant making a mistake; this is a case of the First Defendant deliberately falsifying its records in order to mislead. That, in my view, is conduct in relation to which this Court ought to mark its disapproval by making an order for costs on an indemnity basis.”
In relation to the First Defendant the Court must ask itself whether that finding of pre-litigation misconduct, made at an earlier stage in this litigation, should lead to an award of costs on an indemnity basis at this stage also. In the Court’s view, consistency of approach requires that it should do so.
57. In reaching that conclusion the Court rejects the submission that the Claimants are attempting to “piggy back onto the Court’s previous award of indemnity costs against the First Defendant”. It rejects, also, the submission that it is only concerned “to ask itself whether the [First] Defendant’s defence of the Quantum Determination has been such as to take the situation away from the norm”. The issue for the Court (in the context of the present application for indemnity costs) is not confined to the question whether the First Defendant’s conduct in relation to the defence of the Quantum Determination is “such as to take the situation out of the norm”; it includes the question whether the Defendant’s pre-litigation conduct in relation to the Claimants has that effect. And, in addressing that question, the Court has regard not simply to the fact that it made an order for indemnity costs at an earlier stage in this litigation, but to the reasons why it made that order. Those reasons were not confined to (although they included) conduct in relation to the litigation itself: they included (importantly) pre-litigation conduct which is directly relevant to the need for the Claimants to incur the costs of the Quantum Determination.
Interest on costs
58. The parties agree that interest should be paid on costs actually paid to their respective legal representatives. The only issue between the parties (in this context) is as to the applicable interest The Claimants contend that the Court should award interest on costs at the same rate as interest on Head (A) losses. The Defendants contend that interest on costs should be paid by the paying party (that is to say, by the Claimants or by the Defendants as the case may be) at the same rate as that directed in paragraph 14 of the Order of 28 October 2014 - that is to say, at a rate of EIBOR + 1% - and that there is no reason for the interest rate on the Head (A) losses to be applied to interest on costs.
59. The Court is satisfied that it is appropriate to order, pursuant to RDC 38.10, that each party liable for costs should pay to the receiving party or parties interest on the costs actually paid by the receiving party or parties to its or their legal representatives; but is not persuaded that there is any reason why the rate at which interest should be paid should differ from the rate - EIBOR + 1% - at which interest on costs was ordered to be paid under paragraph 14 of the Order of 28 October 2014.
Interim Payment on account of Costs
60. The Claimants seek an order for an interim payment on account of their costs, pursuant to RDC 38.13, for the period from 30 October 2014 (the date of the last costs order). The Rule is permissive: where the Court has ordered a party to pay costs it may order an amount to be paid on account before the costs are assessed. As this Court explained, when including an order for interim payment on account of costs in the Order of 28 October 2014, it is common practice in this Court, as in other courts exercising a commercial jurisdiction, to recognise that a party who has obtained the benefit of an order for costs in his favour should not be kept out of his money longer than is necessary; and, in particular should not be kept out of his money while the process of assessment takes its course. The guiding consideration in such a case is to seek to limit the amount of the interim payment to an amount which is not greater than that which will be obtained on assessment.
61. The Claimants’ application is supported by the witness statement of Christopher Butler, a qualified costs lawyer with some 27 years’ experience, dated 24 November 2015. Mr Butler attached to that witness statement a draft Statement of Costs in relation to work carried out in this litigation by Hamdan Al Shamsi following the November 2015 Order. The total amount of the costs incurred or to be incurred (as estimated) shown by the draft Statement of Costs, is US$1,384,971.78. The Claimants invite the Court to make an interim payment order in the amount of 50% of those costs: that is to say, in the amount of US$692,485.89.
62. The Defendants submit that, if - as they contend and this Court has ruled - the costs of their applications of 16 December 2014 should be the subject of a discrete order in their favour, then a payment on account of costs would not be appropriate at this stage. It is said that it cannot be determined, on the information available, which of the parties will be the net payer of costs (under the two costs orders) and in what amount. That is plainly correct, given (i) that, in so far as the amount of costs incurred shown by the draft Statement of Costs includes the Claimants’ own costs of the Defendants’ applications of 16 December 2014, the amount payable by the Defendants is overstated and (ii) that the Defendants have provided no statement of the costs which they have incurred in relation to their applications of 16 December 2014 and which, prima facie, they would be entitled to set off against their liability to pay the Claimants’ remaining costs of the Quantum Determination.
63. The Defendants submit, further, (a) that the Statement of Costs on which the Claimants rely has been prepared on a false basis - in that the costs payable under the November 2015 Order are limited to the costs of the Quantum Determination and do not include all from 30 October 2014 - and (b) that, if contrary to their primary contention that no order for an interim payment is appropriate at this stage, the Court is minded to order the Defendants to make an interim payment on account of costs, such payment should (consistently with earlier interim costs orders) be made into In the Court’s view, the first of those submissions is misconceived: in that it appears from Mr Butler’s witness statement that “the draft Statement of Costs incorporates only the work undertaken by Hamdan Al Shamsi during the period from October 2014 to November 2015 in respect of the Quantum Determination”.
64. Nor is it correct to assert that payment into Court would be consistent with earlier interim costs payment orders. The November 2015 Order (to which the Defendants refer), contained no such order; the Order of 28 October 2014 did contain an interim costs payment order, but did not direct payment to be made into Court; the order dated 10 November 2014 made by HE Justice Omar Al Muhairi in proceedings CFI 036/2014 (the Vannin funder litigation) was not made in the context of an application for an interim costs payment order but in circumstances where a third party funder claimed to be entitled to receive the costs paid. On the other hand, the Defendants are entitled to rely on the order made by Justice Roger Giles (as a single judge of the Court of Appeal) on 5 April 2015, when reviewing an earlier order which he had made granting permission to appeal from the Order of 28 October 2014. Paragraphs 1 and 2 of the Order of 5 April 2015 are in these terms:
“1. Subject to order 2, the Second Defendant pay into Court any further sums ordered to be paid by it by way of compensation to the Claimants or as costs under the judgment or judgments in these proceedings currently under appeal or subsequently appealed pending final determination of such appeals subject to credit for any sums paid by the First Defendant in respect of the same liability.
2. In the event that the Claimants seek an order in different terms, liberty to do so within seven days by letter not exceeding two pages stating the terms of the order sought and the reasons therefor, the Second Defendant to respond by letter not exceeding two pages within a further seven days.”
65. In those circumstances the Court takes the view that it would not be appropriate to make an order for interim payment of costs unless and until (i) the Claimants have filed a revised draft statement of costs which does not include their costs in relation to the Defendants’ applications dated 16 December 2014 and (ii) the Defendants have had the opportunity to file a statement of costs in relation to those applications; and, further, that it would not be appropriate to make an order for an interim payment to the Claimants’ legal representatives (rather than into Court pursuant to paragraph 1 of the Order of 5 April 2015) unless and until (iii) the Claimants have had the opportunity to state, in accordance with paragraph 2 of that Order, the reasons why they seek an order in terms other than those in paragraph 1 of that Order and (iv) the Defendants have had an opportunity to respond to that statement of reasons.
Costs of determining the issues reserved by the November 2015 Order
66. In the view of the Court it is sensible to reserve a decision as to the costs of determining the issues ordered by the November 2015 Order until those issues have been finally determined in the light of the further information which is to be provided pursuant to this Order; and any (short) submissions as to such costs which the parties may be advised to make.
