Summary of Judgment
The Applicant applied for an order that costs be paid on account pending detailed assessment under DIFC Courts Rules 2007 Rule 38.13.An argument by the Respondent that the application was out of time under r 40.11 and that such an order was in appropriate with the detailed assessment procedure on foot was rejected. The general principles applicable to Rule 38.13 are identified as follows: an application can be properly heard and decided by a Judge other than the trial Judge as long as the Court is sufficiently acquainted with the case; in cases where the Judge has approximately the same information as the trial Judge, an order for payment on account should generally be given to a lesser sum than the winning party will almost certainly collect; there is, however, a discretion in the exercising of which the Court must take into consideration all the relevant circumstances of the case. An order was made for an amount half-way between the Applicant's claimed amount (itself two thirds of its anticipated maximum base costs recovery) and the maximum amount of base costs recovery contended for by the Respondent. |
This summary is not part of the Judgment and should not be cited as such
Claim No: CFI 023/2009
IN THE JUDICIAL AUTHORITY OF THE DUBAI INTERNATIONAL FINANCE CENTRE
In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum Ruler of Dubai
IN THE COURT OF FIRST INSTANCE
BEFORE JUSTICE DAVID WILLIAMS QC
IN THE MATTER OF TABARAK PARTNERS LLP
AND
IN THE MATTER OF THE DIFC INSOLVENCY LAW
BETWEEN:
(1) HUSSAIN SALEH-FARID AL-AWLAQI (2) ANDREW TAMPLIN CLOUT |
Petitioners |
and (1) TABARAK PARTNERS LLP (2) KHURAM HUSSAIN (3) ZIAD NAIM BAYA'A |
Respondents |
AND BETWEEN
|
Claimant |
and (1) HUSSAIN SALEH-FARID AL-AWLAQI (2) ANDREW TAMPLIN CLOUT (3) ZIAD NAIM BAYA'A |
Defendants |
Hearing: |
12 December 2010 |
Counsel: |
Mr Kaashif Basit (by telephone) for Applicants/Petitioners Mr Al-Awlaqi and Mr A.T. Clout Mr Stephen York for Second Claimant/Respondent Mr Khuram Hussain |
Judgment: |
22 December 2010 |
JUDGMENT
INTRODUCTION — NATURE OF APPLICATION
1. On 20 May 2010 the Petitioners/First and Second Defendants Mr Al-Awlaqi and Mr A.T. Clout (hereinafter referred to as "the Applicants") filed a Bill of Costs to be assessed, if not agreed, and paid by the Second Respondent/Claimant Mr Khuram Hussain (hereinafter referred to as "the Respondent") claiming a grand total of AED 2,095,269.25.
2. By Application Notice 78/2010 dated 24 October 2010 the Applicants applied for an interim payment in respect of those costs pursuant to
Rule 38.13 of the Rules of the DIFC in the sum of AED 1,000,000.
3. The Respondent filed Points of Dispute on 31 October 2010, which objected to the costs claim on various grounds including the ground that the costs claim was "excessive, unreasonable and disproportionate". On 1 December 2010 the Applicants filed an Optional Reply to the Respondents' Points of Dispute.
4. After an exchange of correspondence, including an open offer of settlement contained in Applicants' letter dated 22 November 2010, the Applicants now limit their application for interim payment of costs to AED 500,000.
5. The Respondents oppose the application for interim payment on three principal grounds which overlap to some extent. First, such orders are rarely made and there are no sufficient reasons for making such an order here. Secondly, an order for interim payment should not be made where, as here, the Judge has an inadequate familiarity with the case. Thirdly, the structure of the DIFC Rules is such that the application is untimely and inappropriate.
BACKGROUND TO THE APPLICATION
6. The background detail is set out in the
Judgment of Justice Sir John Chadwick of 20 May 2010, the Witness Statement of Mr Basit, and in the preamble to the Applicants' detailed Bill of Costs filed on 10 October 2010. It may be summarised as follows. Messrs Al-Awlaqi, Clout, Baya'a and Hussain are members of Tabarak Partners LLP ("Tabarak"). On 17 September 2009 Mr Hussain issued a claim (CFI 23/2009) against the other three partners of Tabarak for various breaches of partnership law and the partnership agreement. Mr Hussain issued application 70/2009 dated 12 November 2009 for mandatory injunction compelling payment of his salary. A Notice of Funding was served on Mr Hussain and Mr Baya'a on 29 November 2009.
7. On 8 December 2009 the Applicants presented a petition seeking an order that Tabarak be wound up or, alternatively, that a provisional liquidator be appointed to investigate its affairs. The proceedings first came before the Court on 13 and 14 January 2010, when Justice Sir John Chadwick stayed all proceedings in CFI 23/2009 and adjourned the petition. Mr Haider was appointed provisional liquidator to investigate the financial affairs and solvency position of Tabarak.
8. Judgment on the petition was given on 20 May 2010 by Justice Sir John Chadwick who, by Order of 20 May 2010:
i. Dismissed Mr Hussain's claim CFI 23/2009
ii. Ordered that Tabarak Partners LLP (DIFC Registration No.0429) be wound up on just and equitable grounds and that Mr Shahab Haider be appointed liquidator (together with ancillary directions).
iii. Ordered that Mr Hussain pay the costs of:
1. CFI 23/2009 on the standard basis subject to detailed assessment if not agreed (including the costs of application 70/2009 but excluding the costs of application 72/2009).
2. Mr Al-Awlaqi's and Mr Clout's costs of the petition.
Permission to appeal the Order of 20 May 2010 was not sought at this time and no appeal has been pursued subsequently.
9. The Judgment of 24 May 2010 stated as follows in paragraph 4:
"The order of 24 January 2010 was made for the reasons which I gave in an oral judgment at the conclusion of a hearing on 13 and 14 January 2010. It will be convenient if I summarise those reasons in this judgment:
(1) First, it appeared to me that, on the basis (which was common ground) that the relationship between the members of the Limited Partnership had broken down irretrievably, there was a strong case that the Limited Partnership would have to be wound up unless the parties could come to an agreed arrangement that the interests of one or more of them could be bought out by the others or other.
(2) Second, that the financial position of the Limited Partnership was so uncertain, having regard to matters in dispute between the members, that there was no foundation upon which any party could make, or any other party could sensibly address, an offer the purchase of an interest in the Limited Partnership.
(3) Third, that there was a substantial cash balance in the bank account of the Limited Partnership, which needed to be protected and preserved.
(4) Fourth, that it was sensible, so far as possible, to preserve the business of the Limited Partnership until an agreed arrangement for a buyout had been reached or a winding up order made."
10. A settlement agreement controlling the distribution of Tabarak assets was executed by Mr Hussain, Mr Al-Awlaqi, Mr Clout, Mr Baya'a, Mr Haider (as Liquidator of Tabarak) and Tabarak International Incorporated on 3 October 2010. In summary, this agreement provides that the assets of Tabarak will be distributed between the partners following payment of creditors and liquidator's costs. This agreement was approved by the Court by Order dated 8 December 2010.
11. The right to any amount of monies distributed under the agreement is dependent entirely on the novation of a number of contracts in the name of Tabarak International Incorporated (formed and registered in the British Virgin Islands) with two third parties. Such novations have not yet been executed and there is no guarantee that they will be executed. Should the novations not take place Tabarak will be technically insolvent.
12. As noted above, the Applicants served a Bill of Costs on Mr Hussain which set out both the procedural history of this matter in detail and an itemisation of costs claimed. Including additional liabilities (at 100% uplift), the Applicants claimed the sum of AED 2,095,269.25.
13. On 31 October 2010, Mr Hussain served Points of Dispute suggesting that AED 387,099.25 would be appropriate as Applicants' costs. (An open letter was subsequently served on the Applicants on the 23 November 2010 offering a global costs settlement of AED 500,000, subject to certain conditions.)
14. In their Optional Reply to the Points of Dispute the Applicants made concessions and now seek to recover costs as awarded in the sum of AED 1,576,953.25 (comprising some AED 794,263.75 base costs and additional liabilities at 100%).
15. The parties have been unable to agree the quantum of costs and the Applicants now pursue this application for interim payment of those costs. Consent directions were issued on 21 November 2010 following which further affidavits were filed and Skeleton Arguments lodged with the Court.
SUBMISSIONS FOR APPLICANTS
16. In summary, the Applicants submitted as follows. First, interim payment orders are unexceptional and regularly granted in the normal course of litigation such as the present matter. Contrary to the Respondent's first submissions, the authorities do not support a claim that interim payments for costs should be granted only "in the most exceptional circumstances".
17. Secondly, contrary to the Respondent's second submission, there is no English authority for the proposition that where a Judge has not heard a matter during trial he ought not grant an application for interim payment. Dyson Ltd v Hoover Ltd (No.4) [2003] EWHC 624 (Ch) and the Court of Appeal in Blackmore v Cummings & Ors [2009] EWCA Civ 1276 make it clear that there is no such presumption. The key factor is whether the Court has sufficient information before it to make a judicial determination. The guidance in Dyson was said to be of limited relevance in the present case where I have had the benefit of full information (including a written judgment at first instance, a bill of costs, points of dispute and replies, and witness statements) and where a number of issues as to costs orders were not ventilated before the trial judge Justice Sir John Chadwick.
18. Thirdly, in deciding whether to exercise its discretion and order an interim payment of costs the Court will take all the circumstances of the case into account. Mr Hussain's statement that he has insufficient funds to settle the costs as ordered on the 20 May 2010 and the uncertainty surrounding the distribution of the assets of Tabarak weighs in the balance in favour of the Applicant's claim for an interim order. In assessing the question of interim payment the Court will endeavour to award a sum (a) that the receiving party will almost certainly be awarded at detailed assessment (so as to avoid possible over payment and claw-back); and (b) where possible a large enough sum will be ordered so as to discourage prosecution of the detailed assessment. Contrary to the Respondent's Third Submission Mars UK Ltd v Teknowledge Ltd [2000] FSR 138 is not authority for the proposition that an order for interim costs should necessarily be for less than the amount a receiving party will receive at assessment.
19. Fourthly, as to the Respondent's Fourth Submission, there is no principle of DIFC law that precludes conditional fee agreements and that the
UAE Federal civil and commercial laws are not relevant to this matter. However, the Applicants conceded that the point raised issues that would be more appropriately dealt with in the detailed assessment. As such the Applicants assumed, for the purposes of this application only, that the additional liabilities were not recoverable and sought an interim payment limited to a reasonable assessment of base costs.
20. The Applicants contended that an interim payment in the sum of AED 500,000 was appropriate in this case. This represented a discount of 1/3 on the base cost as claimed in the Reply (which had already been reduced in light of the Points of Dispute). It was submitted that this was the minimum costs award the Applicants could reasonably expect to recover — a submission which was supported by the fact that by the Respondent's own Points of Dispute AED 387,099.25 would be recoverable and by the fact that Mr Hussain has made an open conditional offer of AED 500,000 in respect of the order for costs.
21. In elaboration of their first point (paragraph 16 above), reference was made to
Rule 38.13 of the Rules of the DIFC which reads:
"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."
22. It was pointed out that this Rule is materially identical to
CPR 44.3(8)
1 It was noted that there had been a DIFC case demonstrating that interim payments under DIFC
Rule 38.13 can be awarded.
2 However, this Court notes that no reasons were given for that Order. Thus, as was suggested by both sides in their Skeleton Arguments, it is appropriate to also look to English authority for guidance on how to apply
Rule 38.13. Counsel for the Applicants said that the leading English cases on the exercise of this discretion remained
Mars and
Dyson together with the more recent Court of Appeal decision in
Blackmore.
23. On whether interim payments should normally be ordered, Applicants noted that Jacob J stated in Mars:
"The first thing to do is to consider what the general rule should be, interim payment or not. There is no guidance given in the Rules other than that the court may order a payment on account. There is no guidance in the Practice Direction. So I approach the matter as a question of principle. Where a party has won and has got an order for costs the only reason that he does not get the money straightaway is because of the need for a detailed assessment. Nobody knows how much it should be. If the detailed assessment were carried out instantly he would get the order instantly. So the successful party is entitled to the money. In principle he ought to get it as soon as possible. It does not seem to me to be a good reason for keeping him out of some of his costs that you need time to work out the total amount. A payment of some lesser amount which he will almost certainly collect is a closer approximation to justice. So I hold that where a party is successful the court should on a rough and ready basis also normally order an amount to be paid on account, the amount being a lesser sum than the likely full amount. [Emphasis added]
24. It was submitted that subsequent case law had confirmed that, while there was no presumption in favour of an interim payment to prevent a receiving party being kept out of his money, "it is simply a factor which one would expect, in the normal way, to carry significant weight with a judge": per Elias LJ in Blackmore v Cummings [2009] EWCA Civ, 10 June 2009 at [23]].
25. The judicial view that a Court should "normally" order an interim payment in respect of costs was said to be fully supported by secondary guidance on the issue:
a. 44.3.15 of the 2010 White Book states: "In general an interim order for payment of costs prior to assessment should be made, but the court has to take into account all the circumstances in the particular case …"
b. paragraph 11.27 of Cook on Costs (2010) states: "Rule 44.3(8) is aimed at deterring the paying party from seeking a detailed assessment in order to delay parting with his money. Where a detailed assessment is ordered the court will usually order a substantial payment on account".
26. It was further submitted that the Respondent's citation from the White Book at [2.4] of his skeleton in support of the contrary position was erroneous. The White Book was quoted as providing that the discretion to order interim payment " … should be used only in the most exceptional circumstances". This passage, however, referred to the discretion of make protective costs orders and has no relevance to the issues in dispute on this application.
27. As to whether only the Trial Judge could make an interim order it was argued that there was no prohibition against a non-Trial Judge granting an interim payment. Dyson Ltd v Hoover Ltd [2003] EWHC 624 (Ch) paragraph 9 had "no detailed knowledge of the nature of the arguments to be advanced, their strengths and their weaknesses, the extent of the evidence to be given, its relevancy or otherwise and the extensiveness and relevance of the disclosure given. All I have seen is the material which has been put before me for the purposes of this application". Further [at 39] Laddie J re-iterated how poor was the receiving party's evidence in Dyson. He said:
"… I have seen limited evidence served on this application, and of course I am award of the judgment in the Dyson v Hoover trial. Some flavour of the superficiality of the material with which I am faced here can be gathered from the schedule of costs which has been prepared by Dyson in support of this application. Although it is tendered in support of an application for over £1.4m it only extends to some four pages. It contains virtually no detail at all as to how costs were incurred. It just contains some global figures."
28. In Dyson Laddie J had heard "virtually nothing" of the dispute and, as he said at paragraph 151, he made it clear that a Court does have jurisdiction to order an interim payment under CPR 44.3(8) where it has not heard the proceedings. Moreover, in that case, Laddie J made it clear that Dyson was only concerned with the application of the rules in a case where an application for interim payment is brought before a judge who knows very little about what has gone on between the parties and the breadth of the dispute between them.
29. It was, therefore, submitted that Laddie J's principal concern in Dyson was not whether he was the trial Judge but rather the paucity of information on which he was being asked to base his judgment. There was no necessary link between the two. The state of the evidence in Dyson bore no relation to the evidence before the Court in the present case. The Court in the present case had the advantage of detailed evidence on the process of the various disputes through the Courts; the arguments raised before the Justice at First Instance (who himself it will be noted did not have the benefit of hearing all the arguments on the claim), fully itemised Bills and Points of Dispute, and witness evidence.
30. Additionally, in the specific context of the DIFC, the majority of Judges are not resident. It could, therefore, be extremely difficult to ensure that costs' applications were returned to trial Judges. If
Dyson was taken as authority for the proposition that a Judge who did not hear a trial cannot exercise a discretion under
Rule 38.13 the effectiveness of the Rule would be seriously undermined.
31. The Court was, therefore, invited to find that Dyson was of limited assistance in this case. However, even if the Dyson principles did apply, they did not create a presumption against the grant of an order for interim payment. At its highest, Dyson holds that no presumption operates either in favour or against the ordering of an interim payment (as is already well established) and that all circumstances need to be taken into account before exercising the discretion to make such an order. This was uncontroversial.
32. Turning to the discretionary nature of the Grant of an Interim Payment it was accepted that the Court had a discretion to grant an application for an interim payment. Jacob J had stated the position clearly in Mars, supra, as follows:
"However; the Court has a discretion. In exercising that discretion the Court must take into account all the circumstances of the particular case."
33. Relevant circumstances will vary from case to case but, by way of example, the Applicants noted that the Courts have taken the following matters into account when deciding whether to make an order:
a. A party should not be kept out of the monies which will almost certainly be demonstrated to be due longer than is necessary: Blackmore supra at [23].
b. If the costs of the interim application are not justified (eg the sums involved are small or the detailed assessment to take place soon) this will weigh against making an Order: Blackmore supra at [24].
c. Where a party is intending to appeal this will weigh against making an Order: Mars supra at page 601.
d. The financial position of each party should be taken into account: Mars supra at page 601. The Court was referred in this regard to the case of Rupert Allason and Westinel Research Limited v Random House UK Limited (unreported 27th February 2002 (ChD)) in which Laddie J stated at [12]:
"Indeed it seems to me that looked at logically if it be true that Mr Allason's resources are very limited, what the court should not be doing is forcing the receiving party to engage on a detailed assessment before receiving any money at all because that will just simply be an expenditure of further money on a process which will give no returns. In other words, if it be true that the paying party has no assets, or insufficient assets, making an order for an interim payment would have the effect of probably rendering redundant the time, effort and cost which would subsequently need to be spent on a detailed assessment."
34. In the present case it was submitted that an interim payment should be ordered for the following reasons:
a. There was no dispute that the Applicants are entitled to their costs pursuant to the
Order of 20 May 2010. (The Respondent had not brought an appeal against the
Order nor had he sought permission to appeal).
b. The costs in issue were substantial and the Applicants were being kept out of funds which they were bound to receive. The Court was invited to weight this factor heavily in the balance.
c. There was no suggestion that the Applicants would be unable to repay any overpayment in the unlikely event that they fail to recover more than the interim payment at detailed assessment.
d. In contrast, the Respondent's financial position appeared to be precarious and an Order for interim payment may avoid costs being wasted at the detailed assessment stage.
e. The Respondent had submitted that (i) he had no assets outside Tabarak and (ii) he would be in a position to satisfy any costs award once the assets of Tabarak have been divided between the partners by the Liquidator. However, the value of the assets in Tabarak to be divided at some point had not yet been ascertained and remained dependent on novations being executed. As such, neither the Applicants nor the Respondent could rely on these funds to satisfy any future costs award.
f. The Court was, therefore, invited to look at Mr Hussain's present financial position. Mr Hussain stated that he did not have funds to satisfy the Applicant's costs (although he has provided no statement of his assets and liabilities supporting this contention). Assuming, however, that his report is accurate, the guidance in Allason suggests that this weighs in favour of the Court ordering interim payment.
35. As to principles of quantification, the Court must assess the quantum of the interim payment. Again pointing to English authority the Applicants submitted that the principles controlling this assessment were set out in Mars: supra at page 601 as follows:
"So the successful party is entitled to the money. In principle he ought to get it as soon as possible. It does not seem to me to be a good reason for keeping him out of some of his costs that you need time to work out the total amount. A payment of some lesser amount which he will almost certainly collect is a closer approximation to justice. So I hold that where a party is successful the court should on a rough and ready basis also normally order an amount to be paid on account, the amount being a lesser sum than the likely full amount."
36. In other words, it was submitted that the Court should award a sum that it can be confident will be awarded to the receiving party at detailed assessment. Contrary to the Respondent's submissions it was submitted that there was no principle that deductions should generally be made from the likely recoverable costs. Rather making deductions was a useful reminder to ensure, so far as is reasonable, that receiving parties were not awarded more in interim payments than they received at assessment.
37. A secondary principle was that the award of an interim payment should be set at such a level as to discourage prosecution of detailed assessment (or at least to limit the amount in dispute) wherever possible. On this basis an award should be made as close to the likely fully recoverable sum as possible. Where this is not possible (and it was conceded it was unlikely in this case as costs matters remained outstanding) it was submitted that the Mars principles applied.
38. This approach was taken by Norris J in Les Labaratoire Servier v (1) Apotex [2008] EWHC 2563 who stated at [7]:
"It is sometimes said that in an interim award of costs, the court should seek to reach a figure which would discourage the prosecution of an assessment. The costs in this case are at such a level and the parties so experienced in litigating against one another that that is an aim that cannot be achieved. I have accordingly sought simply to settle on a fair figure which I am confident will be recovered."
39. As to the enforceability of the conditional fee agreement, the Applicants affirmed that a dispute over the recoverability of additional liabilities was not a matter for an application for an interim payment of costs. The Court was invited to ignore potential uplifts for present purposed and determine the matter on the claimed base costs of AED 794,263.75 alone.3
40. Coming finally to the quantum of the interim payment it was noted that, leaving additional liabilities out of the account, the Applicants' Bill totalled some AED 1,041,847.50. As noted earlier, concessions had been made following consideration of the Points of Dispute and the Applicants had reduced their Bill to some AED 794,263.75. The Applicants sought an interim payment in the sum of AED 500,000 against this Bill on the basis that they were sure to be ordered more than this at detailed assessment. The Court was referred to the Bill of Costs, Points of Dispute and Replies for the detailed submissions of the parties on individual items and correspondence between the legal representatives of the parties.
41. In conclusion the Applicants submitted that:
a. As the Applicants had already adjusted their costs claim down by 25% in response to the Respondent's Points of Dispute the likelihood of further significant reductions being ordered was lowered.
b. The Respondent's Points of Dispute themselves suggested that AED 387,099.25 represented the minimum that the Applicants would recover at detailed assessment.
c. The fact that the Respondent had made an open offer of AED 500,000 in respect of costs supported the Applicants' contention that they would recover that figure.
SUBMISSIONS FOR RESPONDENT
42. In summary, the submissions were, first, that following guidance provided in the English Civil Procedure Rules (the "CPR") on this issue, such orders should only be granted in the most exceptional circumstances. The Court should not make an order for an amount to be paid on account as the Respondent has sufficient funds tied up in the LLP to pay the Applicant's Bill of Costs upon the liquidation of the LLP and in any event, has insufficient funds to pay the amount on account.
43. Secondly, in conjunction or in the alternative to the above, following the decision of Dyson v Hoover supra the Court should not grant an order for an amount to be paid on account in circumstances where the Presiding Judge has not heard the issues during the trial.
44. Thirdly, in the alternative to the above, following guidance provided in Mars v Teknowledge (supra), any amount ordered to be paid on account by the Respondent should amount to a lesser sum of the amount that the Applicant was likely to collect following detailed assessment, which, as set out in the Respondent's Points of Dispute equated to AED 387,099.25. Two thirds of this amount equated to an amount of AED 285,066.16, which is what should be awarded if an order was made.
45. As to the English CPR position relating to interim costs orders. Given the limited guidance provided in the DIFC Rules upon the issue of interim orders, the guidance provided in the practice directions to the CPR relating to the issue of interim costs was of relevance. CPR Part 44.3(8) was identical to DIFC Rule 38.13, namely that:
"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."
46. The guidance from the CPR Part 44.3(8) at 44.3.15 included authorities which set out the principles that the Court of England and Wales should assess before a Court orders a party to pay an amount on account. First, it should be noted that it stated that the Court's "discretion … should be exercised only in the most exceptional circumstances". Reliance was placed on the leading authorities of the English Courts namely Mars UK Limited v Teknowledge Limited [1999] 2 Costs LR 44; and Dyson Appliances Limited v Hoover Limited (Costs: Interim Payment) [2003] EWHC 624 (Pat).
47. It was held in Dyson v Hoover that where a Judge was ignorant of the contested issues, as he was not the Trial Judge, it was not possible to make a fair and rational assessment of what the payee would inevitably recover from the Costs Judge. Laddie J said (at paragraph 40):
"In deciding how to exercise my discretion take into account not just CPR r 44.3(8) but the knowledge that the costs judge will be in a fairer position to do a fairer job of ordering an interim payment."
48. On these grounds it was submitted that as I did not have detailed knowledge of the issues, I would be unable to make a fair and rational assessment of what the Applicant would inevitably recover from the Costs Judge. Therefore, it would not be fair or rational to make an order for interim payment.
49. Moreover, whilst Jacob J in Mars v Teknowledge stated that "I start from the proposition that there should be an interim payment in general" (at page 47), he stated that the Court has a "discretion" [emphasis added] to exercise. Jacob J stated that "[i]n exercising that discretion the Court must take into account all the circumstances of the particular case", namely "dealing with the case in a way which is proportionate to the financial position of each party" referring here to the Court's overriding objective to deal with cases justly.
50. It was said to be evident that the Respondent had sufficient funds tied up in the LLP to pay the Applicant's costs once the Provisional Liquidator winds up the LLP. Consequently, it was submitted that there was no need for the Claimant to pay any amount on account on the grounds that the Applicant had sufficient security that the Claimant had the means in which to pay the Applicant's Bill of Costs. The fact that the Respondent had sufficient funds tied up in the LLP was supported by the
Affidavit of the liquidator Shabab Haider dated 24 October 2010 to Application 079/2010.
51. It was contended that the parties did not foresee any issues with the novation of the contracts referred to therein. In addition, in any event, it should be noted that the Respondent did not have sufficient means to pay the amount requested to be paid on account by the Applicant without relying on the assets he has tied up in the LLP. The guidance to CPR Part 44.3(8) (at 44.3.15) stated that "[t]he court also [has] to have regard to the financial resources of the applicant and the respondent".
52. Consequently, given the guidance provided by Mars v Teknowledge and the relevant guidance from the CPR, it was submitted that the Court's discretion to deal with the case should be used in a way which was proportionate to the Respondent's financial position in light of the Respondent having sufficient assets to pay the Applicant's Bill of Costs upon the liquidation of the LLP.
53. Next, in conjunction and in the alternative to the first submissions it was submitted that pursuant to Dyson v Hoover, the Court should not make an order for a payment to be paid on account before detailed assessment has occurred where the Judge presiding over the application hearing has not heard the submissions made during the trial. Reference was made to the following passage from Dyson where Laddie J commented at [39] – [40] that:
"I have indicated already why I think I should be very careful before exercising the discretion in favour of ordering interim payment, and I have pointed to the fact that such knowledge as I do have of these issues dividing the parties on costs is very limited … In deciding how to exercise my discretion I take into account not just CPR r 44.3(8) but the knowledge that the costs judge will be in a position to do a fairer job of ordering an interim payment under the powers that he has under CPR r 47.15. The sums of money involved in this dispute are far too large to justify shooting from the hip. It seems to me preferable for the costs judge to consider taking a more careful aim than that. For these reasons I will not make an order for interim payment." (Dyson v Hoover at paragraphs 39–40).
54. Moreover, guidance from the CPR Part 44.3(8) (at 44.3.15) stated that:
"… where the court has not heard the trial, and has not had the opportunity to assess the issue of proportionality, and has no detailed knowledge of the nature and strength of the arguments, there should be no presumption that an order for interim payment should be made (and no presumption against). The provisions concerning the making of an interim costs certificate under CPR r47.15 meant that a Costs Judge's power to order an interim payment had to be preceded by steps that put him in a position to make an accurate assessment similar to that of the judge at the end of a trial."
55. Consequently, given that the hearing in relation to CFI 023/2009 was heard by Justice Sir John Chadwick, it was submitted that since I had not heard the issues I was not in a position to assess the issue of proportionality and therefore, should refrain from making an order for payment to be made on account, in light of the directions provided by Laddie J in Dyson v Hoover.
56. Thirdly, in the alternative to the above, it was submitted that the Bill of Costs proposed by the Applicant was excessive and, therefore, the Respondent should pay a lesser sum on account. Again, due to the lack of guidance provided on such matters under the DIFC Rules, the Court was referred to the English authority of Mars v Teknowledge.
57. Whilst Jacob J stated that interim payments on account were appropriate, he was clear to indicate that any payment ordered should be "some lesser amount which he [the Applicant] will almost certainly collect [following detailed assessment]" and that this would result in a close "approximation to justice".
58. Mars v Teknowledge involved the Applicant requesting a payment on account in respect of a proposed Bill of Costs GBP 550,000. Jacob J, who had heard the issues discussed during the trial unlike Laddie J in Dyson v Hoover, found the proposed Bill of Costs, prepared by the Applicants, was excessive and suggested that the Applicant would recover only GBP 200,000. On this basis, Jacob J at page 51 ordered that an amount equating to "two thirds of the costs which, on a rough estimate … will be awarded".In reaching this decision, Jacob J took into consideration that the annual turnover of the Respondent was GBP 360,000. Consequently, he concluded that a just amount should be a payment on account by the Respondent of GBP 80,000.
59. Consequently it was submitted that the Applicant's original request for a payment of AED 1,000,000 was excessive. As set out in the Points of Dispute, there were numerous anomalies in the Applicant's Bill of Costs. It was contended that a sensible Bill of Costs, without prejudice to any submissions made before detailed assessment, would provide for an amount of AED 387,099.25 as demonstrated in the Respondent's Points of Dispute.
60. Therefore, on the basis of the guidance provided by Jacob J in Mars v Teknowledge, a just order that took into account the Respondent's financial position and the fact that the Applicant has sufficient security as the Respondent had sufficient funds tied up in the LLP to pay the Applicant's Bill of Costs upon the liquidation of the LLP would be an interim payment of no more than AED 285,066.16 to be paid on account in respect of the application from proceeds on liquidation of the LLP.
61. The Respondent noted that the Applicants had already conceded certain amounts in their Reply to the Second Respondent's Points of Dispute. This demonstrated the Applicants acknowledgement that the initial amount claimed was excessive in the circumstances.
62. Although not included in its Skeleton, the Respondent also submitted that the structure of the DIFC Rules was such that the present application was untimely and inappropriate. As to the first contention it was noted that under RDC 40.10 the party seeking costs was required to initiate detailed assessment proceedings no later than three months after the date of judgment. This had not occurred in the present case. Secondly, the application was inappropriate because under the detailed assessment procedure there was power to issue an interim costs certificate and this was the procedure that should have been pursued by the Applicants rather than making an application for an interim payment under Rule 38.14. Rule 40.36 provides as follows:
"The Court may at any time after the receiving party has filed a request for a detailed assessment hearing —
(1) issue an interim costs certificate for such sum as it considers appropriate;
(2) amend or cancel an interim certificate."
63. The submission appeared to be that if a party was proceeding down the detailed assessment route, then it should apply for an interim certificate rather than an interim payment. This was particularly apt because Justice Sir John Chadwick, who was very familiar with the case, would have been the appropriate judicial officer to consider and grant an interim costs certificate whereas an application to me for an interim payment suffered from the problem that I have insufficient familiarity with the case. In short, the current application was unsuitable and there should instead have been an application for an interim costs certificate which would have included an order to pay the costs to which the certificate related.
DISCUSSION
64. It is convenient first to dispose of the new arguments made in the oral submissions which I have set out in paragraphs 62 – 63 above. First, as to the suggestion that the current application is untimely, there is no merit in the point. Article 40.11 provides that where a party fails to commence detailed assessment proceedings within the three months period, the paying party may apply for an order requiring the receiving party to commence detailed assessment proceedings within such time as the Court may specify. Thereafter, the Court may direct that unless the receiving party commences detailed assessment proceedings within the time specified by the Court, costs will be disallowed. In the present case while the three months time limit may not have been observed, the Respondent did not make an application under
Rule 40.12 and in any event such an application would have been a waste of time in the situation where, by the time the application was made, a detailed assessment had been supplied.
65. I turn to the second objection, that an application for an interim payment is inappropriate where detailed assessment proceedings are under way because the proper remedy in that case for a party seeking payment for costs is instead an application for an interim costs certificate. Once again, I find this proposition meritless. The interim costs certificate and the interim payment procedure are separate and distinct. Moreover, there is no basis or reading into the unqualified language of Rule 38.13 that an interim payment is inappropriate where the detailed costs procedure is being followed. In this respect, I note the observations of Laddie J in Hoover Ltd (No.4) 1 WLR 1264 at page 1269. There having referred to the equivalent CPR provision he noted that only if the receiving party has failed to commence detailed assessment proceedings within the time specified by the Court, are any sanctions available. He said, at paragraph 21, having referred to the rules covering the situation where the receiving party fails to commence detailed assessment proceedings within time, that:
"… These two provisions give the Court a powerful weapon to disallow some or all of the costs if the receiving party fails to commence assessment on time and if he then breaches an order imposed at the behest of the paying party to commence within a specified period."
66. DIFC
Rule 40.13 provides that if the paying party has not made an application for an order requiring the receiving party to commence proceedings within such time as the Court may specify and the receiving party commences the proceedings later than the specified period, the Court may disallow all or any part of the interest otherwise payable to the receiving party but must not impose any other sanction except in accordance with
Rule 38.61 which allows the Court to disallow all or part of the costs that are being assessed.
67. It is notable that in this case the Respondent has not argued that the late filing should lead to a disallowance of all or any part of the costs. It opposes the application on grounds in general principle (has the Respondent anywhere raised the question of reduced interest).
68. I note also that in the Dyson case at paragraph 25, the Court considered that a one month delay in commencing the assessment procedure is insufficient to give rise to an alteration in the recoverable interest allowed. Laddie J signified at paragraph 25 that a much greater delay than one month would be necessary before an interest penalty would be appropriate.
69. Having disposed of those preliminary objections I now turn to the central issues, namely the interpretation and application of
Rule 38.13. Turning to the first proposition for Respondent that there is no presumption that an order for an interim payment should be made and that such orders should be made only in exceptional circumstances, that proposition appeared to be based on what was said by Laddie J in the
Dyson case. I uphold the Applicants' submission that the observations of Laddie J are not of a general nature. He was simply stating that in a case where the Judge sitting on the interim payment application had not been the Trial Judge
and was uninformed about the circumstances of the case, there could be no presumption that an order for interim payment should be made.
70. Passing to the question of the principles to be applied in respect of application for interim payment, I have carefully examined the three key authorities to which counsel refer, namely Mars UK Limited v Teknowledge [2000] FSR 138 and Dyson v Hoover Limited (No 4) [2003] EWHC 624 (Ch) and the judgment of the Court of Appeal in Blackmore v Cummings [2009] EWCA Civ 1276 where both these two authorities were considered. In my view the following statement of general principles can be drawn from these three cases.
71. First, if the Judge considering the interim costs application has heard the whole trial, or even if he has not done so, because of the relative simplicity of the case and its issues and the range of material placed before him, he has approximately the same degree of understanding of the issues relating to costs as he would have if he had been the Trial Judge, then the normal rule and the proper approach will be as set out by Jacob J in Mars v UK where he said:
"I now turn to the second issue, whether or not there should be an order for interim payment. The first thing to do is o consider what the general rule should be, interim payment or not. There is no guidance given in the Rules other than that the court may order a payment on account. There is no guidance in the Practice Direction. So I approach the matter as a question of principle. Where a party has won and has got an order for costs the only reason that he does not get the money straightaway is because of the need for a detailed assessment. Nobody knows how much it should be. If the detailed assessment were carried out instantly he would get the order instantly. So the successful party is entitled to the money. In principle he ought to get it as soon as possible. It does not seem to me to be a good reason for keeping him out of some of his costs that you need time to work out the total amount. A payment of some lesser amount which he will almost certainly collect is a closer approximation to justice. So I hold that where a party is successful the court should on a rough and ready basis also normally order an amount to be paid on account, the amount being a lesser sum than the likely full amount.This is likely to have practical advantages in another way. The motive for trying to prolong a detailed assessment, namely putting off the evil day when payment has to be made, will be considerably reduced when he who has to pay can only put off the evil day in respect of a considerably reduced sum. Moreover the whole point of the detailed assessment as a commercial matter may become less important with the result that there will be less detailed assessments than there used to be of taxations of costs. Thus I start from the proposition that there should be an interim payment in general. However, the court has a discretion. In exercising that discretion the court must take into account all the circumstances of the particular case. One of those is that the Defendant may wish to appeal. Another is dealing with the case in a way which is proportionate to the financial position of each party, one of the matters which one must consider in allowing the overriding objective of enabling the court to deal with the cases justly. The overriding objective applies as much to the exercise of the costs discretion as to any other discretion given under the Rules. This is a case, for example, where there is a wealthy successful party and a financially weak unsuccessful party. That is one thing that should be taken into account. Other things that might be taken into account are the likelihood of an appeal or possibly successful appeal. For example, there may be a case in which a claimant is financially weak. Even if it succeeds there might be an appeal by the defendant and the claimant needs the money to respond to the appeal. That would be a particularly good reason for ordering a payment on account."
72. In applying those principles, I must first deal with the question of whether I am sufficiently acquainted with the circumstances of the case to be in a position to make an interim costs order. I have no hesitation in saying that I am so placed. The case before Justice Sir John Chadwick was not one of great complexity as compared to the Dyson case. I have had the opportunity to study the Bill of Costs plus the Points of Dispute relating to that bill and the Applicants' Reply to those Points of Dispute. I have a good understanding of the nature of the issues which confronted Justice Sir John Chadwick. I have also been provided with an Affidavit from the Provisional Liquidator and also the Witness Statement of the Respondent as to his assets. I have also been able to consider the Second Witness Statement of Mr Basit in reply to the Affidavit of the Respondent. All of this has given me a good overall feel for the matter and, in addition, I have had splendid Skeleton Arguments on the costs issue plus oral submissions presented in the telephone conference of 12 December 2010.
RULING
73. The Application seeks the payment of AED 500,000 on the basis that having examined the Points of Dispute, the maximum that the Applicants would get for its base costs is about AED 800,000 in round terms. Therefore, the figure that is being sought is less than two-thirds of that, namely AED 500,000. On the other hand, the Respondent says that the maximum amount that will be recovered is AED 387,000 and considers that the appropriate amount to be ordered if the Court decides to make an order is AED 387,099.25. This suggestion is made notwithstanding that in an open letter, the Respondent had offered AED 500,000 in full and final settlement of the Applicants' costs.
74. Applying the principles layed down in the English authorities and particularly those specified by Justice Jacob, I propose to take order a number close to the mid point between the AED 500,000 claimed and the AED 387,000 of the Respondent. The ruling of the Court is that the draft order filed by the Claimant may be sealed but in the amount of AED 450,000.
75. As discussed with the parties at the telephone conference, I order that there should be a summary assessment of the costs of this hearing to be dealt with by the
Registrar if there is any dispute. In that regard, each party must file within seven days a summary of its costs, that is to provide the Registrar with a background to make an appropriate order.
Justice David Williams
Date: 22 December 2010
1 Rule 44.3(8) reads: "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".
2 Shereen Aldisi & 12 Others v Orion Holdings Overseas Limited, DIFC Courts Proceedings CFI 29/2009.
3 It may be noted at this point that Mr York for Respondent agreed with this point. The Court is grateful to counsel for this sensible approach. It would have been quite inappropriate to give a ruling on the CFA issue without the benefit of full argument.
