Successful defendants denied their costs as a result of their conduct
The decision in European Real Estate Debt Fund (Cayman) Ltd v Treon & Ors  EWHC 2866 (Ch) is a stark reminder to successful parties that winning does not necessarily mean an award of costs; especially where there are substantial conduct issues.
In this case, the claimant’s action was statue barred and the defendant succeeded at trial. However, Mr Justice Miles made no order as to the costs of the proceedings; partly as a result of the defendants conduct. Matters were not as simple as it may appear though and there were a number of factors to account for, some of which went in the defendants’ favour and some in the claimants.
Whilst the claim was dismissed, had it not been statute barred, the claimant would have been successful. The defendants had been found to be dishonest and were found to have deceived the claimant and there were criticisms of conduct raised by both parties. Notably, on consideration of the relevant authorities, Miles J noted that a finding of dishonest conduct was not a trump card when it came to dislodging the general rule.
Ultimately, the decision was that no order would be made as to costs. However, this was not made without detailed consideration of the merits of both parties’ cases and criticisms of their conduct.
The detail of the court’s consideration of the issues
Interestingly, both parties sought their costs of the action. The claimant sought 80% of their costs on the indemnity basis, which they considered were attributable to disproving the defence and exposing the defendants’ lies. The defendants sought their full costs to be paid by the claimant. The defendant did accept that there may be a reduction to their costs on basis of their conduct, but they submitted that any such reduction should be limited.
In considering what order to make, Miles J considered a number of key points, as follows:
1. It was accepted that the defendant was clearly the winning party and so the general rule was that they would be awarded their costs. However, the court could decide to make a different order and should give weight to the overall success of the winning party.
2. The defendants in this case were guilty of deceiving the claimant and had induced them to enter into the loan; causing them to suffer substantial losses. The fact that the defendants had not been motivated by an intention to harm meant that the judge did not go so far as to find this the most serious form of tortious wrongdoing. Here, the claimant submitted that the matter was decided as some dishonesty had been found. However Hutchinson v Neale  EWCA Civ 345 did not support this argument and showed that the court must evaluate the nature and degree of the misconduct and its effect on costs. During the course of the litigation, the defendants contested all of the issues raised in the particulars of claim but lost on many of those issues. The evidence of the first and third defendants was also, in some parts, found to have been invented, and they were poor witnesses. Whilst these findings were made it was again not found that the defendants’ fabrications had been pre mediated at the start of proceedings or that the entire defence was a ‘cynical abuse of process’. Given the serious misconduct of the defendants, Miles J found that there should be a substantial reduction to the costs which would otherwise have been awarded to them. However, there was still a further question to be asked as to whether there should be an allowance to the claimant for the underlying fraud case and uncovering the defendants’ lies.
3. There were elements of the claim on which the claimant was not successful. The defendants’ complaints about the claimant’s conduct did not carry much weight with court, but there was some value in the argument that the time delay in bringing the action had an effect on the witnesses’ (on both the claimant’s and defendants’ part) difficulties in recalling events.
4. Unhelpfully, neither party had been able to provide a compelling calculation of what time and costs should be attributed to the limitation issues. Taking a very broad brush approach, Miles J apportioned around 15% of the time and disbursements to these issues.
5. Much of the time spent at trial was spent on issues which were not affected by the defendants’ dishonesty and, though the defendants lost on those issues, they were properly arguable points.
6. Whilst it was right to account for those areas where the defendants gave false evidence, this was not a case where they should be ordered to pay all of the claimant’s costs of the underlying allegations. However, it was accepted that the claimant had to incur costs to uncover the defendants lies; they had ultimately brought a claim which was statute barred and was dismissed in full.
7. The offer made by the defendant to drop hands should be taken into account; even though it was made late in the day; on the eve of the trial.
8. There would inevitably have been common costs of the litigation; not just the costs of the trial which would have had to be taken account of in any event.
9. Although there were successes and failures on the part of both parties, Miles J did not consider it appropriate to make an issues based costs order. It was therefore necessary to balance the fact that the claimant was successful on most of the points, with the fact that the defendants were the overall winners.
Taking all of his above conclusions into account Miles J flagged the issues which he considered to be of most importance, and also noted that some of the claimant’s costs appeared high and may be disproportionate. He therefore decided that the correct order to be made was that there be no order for costs.