Parker J
210304 In The Matter of Ritchie Capital Management LLC et.al v. Lancelot Investors Fund, Ltd et.al- FSD 88 of 2019 (RPJ) – Final
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IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
FSD NO: 88 OF 2019 (RPJ)
RITCHIE CAPITAL MANAGEMENT L.L.C. et al
PLAINTIFFS
AND
DEFENDANTS
(1) LANCELOT INVESTORS FUND, LTD
(2) GENERAL ELECTRIC COMPANY
Before:
The Hon. Justice Raj Parker
Heard:
On the papers
Draft Ruling Circulated:
12 February 2021
Ruling Delivered:
4 March 2021
HEADNOTE
Indemnity costs - GCR Order 62 r.4 (11)-foreign lawyers fees GCR Order 62 r.18 (1) -
Practice Direction No 1 2001 - interim payment GCR Order 62 r.4 (7) (h) - interest on
costs GCR Order 62 r.4 (7) (g).
Costs
Introduction
1.
By its judgment and subsequent order handed down on 21 December 2020 the
court granted GE’s application to set aside the order made on 28 June 2019, giving
Ritchie leave to serve GE out of the jurisdiction and ordered that Ritchie pays GE’s
costs of and occasioned by these proceedings.
2.
This judgment follows written submissions by Ritchie and GE in response to the
application by GE by summons dated 4 January 2021 for an order that:
a) Ritchie pays GE’s costs on the indemnity basis;
b) dispensation (if required) for GE to recover fees paid to foreign lawyers
210304 In The Matter of Ritchie Capital Management LLC et.al v. Lancelot Investors Fund, Ltd et.al- FSD 88 of 2019 (RPJ) – Final
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not engaged to give an opinion on a point of foreign law;
c) Ritchie makes an interim payment on account of GE's costs; and
d) Ritchie pays interest on GE's costs.
Indemnity costs
3.
The court has discretion to order costs on the indemnity basis pursuant to GCR
Order 62 rule 4 (11) only if it is satisfied that a party has conducted the proceedings
improperly, unreasonably or negligently1. Unreasonable or improper in this
context does not mean merely wrong or misguided in hindsight2.
4.
The nature of such an order is exceptional, although the jurisdiction to make such
an order is wide and flexible, allowing the court to exercise its discretion as the
circumstances of the case may require3.
5.
The case law on the award of indemnity costs is unsurprisingly fact and case
specific.
6.
The assessment is not always divorced from the merits, as can be seen where the
court has determined that a case has been pursued which is manifestly hopeless4,
or where it must have been appreciated to be very weak and highly speculative5.
7.
The court in those cases was looking at a party conducting proceedings in the face
of the apparent hopelessness of the case, which was regarded as unreasonable or
improper in the circumstances. The focus was however on the party’s conduct,
not the intrinsic merits of the case.
8.
Examples of the conduct of proceedings falling into the exceptional type of case
where an award of indemnity costs has been made, include where ‘root and
branch’ opposition is pursued taking "every conceivable argument" especially if
the case is an inherently weak one6 and where allegations of dishonesty are made,
to avoid the "obvious injustice" of being out of pocket by being forced to defend
"ill considered and unmeritorious allegations of fraud and conspiracy".7
9.
The question for the court is whether a party has conducted the proceedings in
such a way that takes it out of the norm so that a punitive measure of taxation
should be applied8. Put another way, was the case conducted improperly,
1 Wood v James CICA (Unreported, Appeal No 1 of 2020, 30 July 2020)
2 AHAB v SAAD [2013] (2) CILR 334 per Smellie CJ § 17
3 AHAB v SAAD [2012] (2) CILR 1 §§ 9-12 per Smellie CJ
4 Bennett v AG [2010 (1) CILR 478 §§6-9 Henderson J
5 Wood supra per Field JA §80 and Three Rivers District Council v Governor and Company of the Bank of
England [2006] 5 Costs LR 715
6 Re BDO [2018] (1) CILR 187 at § 16 Parker J
7 Sagicor v Crawford [2008] CILR 482 § 7 Henderson J
8 Talent Business v China [2015] (2) CILR 113 §§ 35-41
210304 In The Matter of Ritchie Capital Management LLC et.al v. Lancelot Investors Fund, Ltd et.al- FSD 88 of 2019 (RPJ) – Final
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unreasonably, or negligently to a sufficiently high degree to merit a mark of
disapproval by the court9?
10.
Pursuing a novel claim or one which is not likely to succeed is not enough10. If that
were the case indemnity costs orders would not be exceptional.
11.
It is only if it can be properly said that the case was manifestly hopeless and should
have been appreciated to be so (not with the benefit of hindsight), or where a
party’s conduct has been sufficiently unreasonable to a high degree that such an
award would be made11.
12.
I have carefully examined the reasons GE puts forward as to why it would be
appropriate to award indemnity costs in this case and have come to the view that
it would not.
13.
My short reasons on the points advanced by GE are as follows:
Issue estoppel
14.
The issue estoppel case was not in my view manifestly hopeless. It was complex
as can be seen from the judgment and from the evidence given by two respected
and highly experienced US judges who could not agree. It was not improper or
unreasonable for Ritchie to have disputed this issue, even though it had previously
litigated its claims against GE to an adverse conclusion in the SDNY proceedings
and even though it ultimately lost the argument.
Full and frank disclosure
15.
The failures to comply with the duty of full and frank disclosure come much closer
to the circumstances in which indemnity costs could be awarded. The failures did
in the result cause GE to expend considerable time, effort and cost ascertaining
that which should have been presented by Ritchie and having to make the
application to set aside. The court recognises that the duty when applying for
permission to serve proceedings on a foreign defendant ex parte in complex cases
like this can be onerous, but there are no excuses, and it must be complied with12.
16.
However whilst these failures to comply with the duty would have resulted in
permission being set aside without more, the court came to the conclusion that
the breaches were not deliberate.
9 AHAB v SAAD supra §11
10 Sagicor supra §§25-26
11 Bennett supra §§6-9
12 Fundo Soberano de Angola v Dos Santos [2018] EWHC 2199 (Comm) § 50 Popplewell J
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17.
Notwithstanding GE’s argument that had the duty been complied with it would
not have had to incur the costs of having permission set aside, I have decided this
factor alone does not justify an award for indemnity costs.
18.
I have carefully considered whether the breaches in this regard were of a sufficient
nature and degree to fairly amount to conduct which is improper, unreasonable
or negligent, so as to justify such an award.
19.
I am not satisfied that they amount to such conduct.
20.
Had they been deliberate this would clearly require a mark of disapproval and an
award of indemnity costs would have inevitably followed.
Any one of GE’s challenges would have sufficed to set aside permission
21.
Ritchie should not be penalised for fighting on the multiple issues presented by
GE's case, even if it can now be seen that any one of the grounds of challenge
would have sufficed for the order to be set aside. Within those issues presented
by GE, although the court decided all of them in GE's favour, none of the
challenges by Ritchie can be fairly said to have been manifestly hopeless and
should have been appreciated by Ritchie so to be.
Richie’s litigation conduct was unreasonable and increased costs
22.
GE’s complaints about manner in which Ritchie litigated the dispute: taking every
conceivable point, failing to comply with procedural deadlines without
explanation, and deluging the court with vast amounts of factual and expert
evidence, in some instances without permission, are not shown to have occurred
to the satisfaction of the court so as to warrant an award of indemnity costs.
Serious allegations of dishonesty were made against GE
23.
Whilst Ritchie did exhibit material from litigation in which experts concluded that
the conduct of GE's employees amounted to fraud, these were not allegations
pursued against GE on this application, but was responsive evidence to a challenge
to Ritchie’s underlying claims.
24.
GE’s application that Ritchie pay its costs on the indemnity basis is dismissed.
Foreign lawyer legal fees dispensation
25.
By GCR Order 62 rule 18 (1) work done by foreign lawyers may be recovered on
taxation on the standard basis provided that the foreign lawyer has been
temporarily admitted as an attorney and the work was done after he/she was
admitted.
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26.
Whilst the costs of foreign lawyers are in principle recoverable, further limitations
on what may in fact be recovered are imposed by subparagraphs (2) – (7).
27.
The overriding principle is that a paying party should not be required to pay more
because the successful party has engaged a foreign lawyer than he would have
been required to pay if the successful party had employed only local attorneys
(subparagraph 7).
28.
Practice Direction No. 1/2001 ‘Guidelines relating to the Taxation of Costs’ (the
PD) is also relevant.
29.
§6.4 provides that
"Legal fees paid to foreign lawyers cannot be claimed as
disbursements unless the foreign lawyer is engaged to give an
opinion on a point of foreign law which is in issue in the
proceedings".
30.
§9.4 provides that:
“Travelling and hotel expenses paid to foreign lawyers shall not be
recoverable on taxation”.
31.
In General Shopping13 Kawaley J having reviewed the Practice Direction and
Sagicor14 said at § 24:
“Read in the light of the restrictive terms of the Practice Direction, Sagicor
(ibid) supports the following principle. If the receiving party wishes to
displace the usual rule of practice that foreign lawyers’ fees (and hotel and
travelling expenses) are only recoverable where the lawyer is giving an
opinion as to foreign law, not to mention the restrictive policies in GCR
Order 62 rule 18 (3) to (7) aimed at avoiding duplication of effort, an
application for a dispensation from the usual approach should ordinarily
be sought before the costs order is actually made.” (my emphasis)
32.
Both Sagicor and General Shopping were dealing with foreign lawyer fees in the
context of costs awarded on the indemnity, not the standard basis which will apply
in this case.
33.
I do not however take Kawaley J to have meant that there is no jurisdiction under
Order 62 rule 18 (1) for the court to allow a party to recover costs in respect of
work done by foreign lawyers. That power is clearly given by Order 62 rule 18 (1)
but may be limited by the practice in the PD.
13 Unreported 25 August 2020
14 [2008] CILR 482 Henderson J
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34.
As a matter of practice to the extent that dispensation from the usual approach is
necessary I am minded to follow Kawaley J’s lead and give it, insofar as it relates
to foreign lawyer costs.
35.
The case involved an enormous factual inquiry going back many years and was of
some United States legal complexity. I accept that it was in the circumstances
appropriate for GE to engage foreign lawyers as well as local attorneys.
36.
The case was closely connected with the United States where there had been
considerable litigation over many years concerning the same issues in different
courts. It was therefore reasonable for GE to instruct the local attorneys in the
Cayman Islands to have recourse to the knowledge of its US attorneys from the
prior litigation.
37.
Furthermore, complex US expert evidence was given and it was not unreasonable
in those circumstances for GE to be represented by local attorneys with some
additional input from US lawyers in order to evaluate the US law issues and
instruct GE's own expert and review the US law expert evidence put forward by
Ritchie’s US law expert.
Interim payment on account
38.
Under GCR Order 62 rule 4 (7) (h) where the court orders that a party must pay
costs subject to taxation, it may order that a reasonable sum on account of costs
be paid, such sum to be assessed summarily.
39.
The starting assumption is that an interim payment should be made in order that
the successful party ought to get it as soon as possible and that it is not a good
reason to delay that time is needed to work out the total amount which may be
due15. The matter is in the discretion of the court. For example, it is not
appropriate to award an interim payment in circumstances where it would stifle
an appeal16.
40.
As to the amount of any interim payment, the court should determine, not the
irreducible minimum that is likely to be ordered, but a reasonable estimate of
what is likely to be awarded. It should take a conservative approach which allows
for reduction on taxation even if the instinctive feeling of the court was that the
impugned claim was not unreasonable17.
41.
Although Ritchie is in the process of seeking leave to appeal the judgment, it does
not oppose the making of an interim payment. It accepts that its arguments as to
15 Mars v Teknowledge [1999] 2 Costs LR 598 per Jacob J and Al Sadik supra per Kawaley J § 25
16 BDO supra per Parker J §34 and §§37-38 and Al Sadik supra Kawaley J § 25
17 Al Sadik supra per Kawaley J §26-27
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the overall fees (which it says are outrageously high) incurred by GE are a question
for taxation, absent agreement.
42.
Having reviewed the evidence of Mr Burgess-Shannon and Mr Smith18, I have
come to the view that an interim payment of US$500,000 is a reasonable sum on
account of costs and should be paid within 28 days19.
43.
It will be a matter for the taxation officer as to whether Harneys' fees are
recoverable from Ritchie and I make no direction in that regard.
Interest on costs
44.
Under GCR Order 62 rule 4 (7) (g) where the court orders the paying party to pay
costs subject to taxation, it may further order the payment of interest on costs
from or until a certain date, including a date before judgment. Again this is a
matter for the discretion of the court20. The guiding principle is that the paying
party should normally provide reimbursement of costs incurred which should
include a figure for interest on costs already paid. Ritchie does not oppose the
making of an award of interest.
45.
GE seeks interest at 2.375% on all costs in these proceedings from the earlier of
the date on which those costs were paid and the date of this court’s order of 21
December 2020. This is a reasonable request in accordance with the Judgment
Debts (Rates of Interest) Rules and I grant it.
Extension of time
46.
The court is prepared to grant an extension under GCR Order 62 rule 21 (1) of the
period in which a party is required to commence proceedings for taxation until
Ritchie's application for leave (and if successful any appeal) has been finally
determined.
THE HON. RAJ PARKER
JUDGE OF THE GRAND COURT
18 Burgess-Shannon 4 and 5 and Smith 1 and 2
19 Burgess-Shannon 4 §13. Total costs incurred by GE up to the end of November 2020 which it would
expect to be recoverable on the standard basis is US$1,534,783.22. GE seeks 60% by way of interim
payment of that sum on the basis of a standard costs order.
20 Re BDO supra § 39