Henderson J
IN THE GRAND COURT OF THE CAYMAN ISLANDS HOLDEN AT GEORGE TOWN, GRAND CAYMAN CAUSE NO. 389 OF 1999 BETWEEN: COURTS OFFICE LIBRARY CVC/OPPORTUNITY EQUITY PARTNERS LTD. -AND- LUIS ROBERTO DEMARCO ALMEIDA Plaintiff Defendant Appearances: Mr. William Helfrecht of Bodden & Bodden for the Plaintiff/Successful Party Mr. Kyle Broadhurst of Broadhurst LLC. for the Defendant/Successful Party Before: Hon. Justice Henderson Heard: May 25, 2012 JUDGMENT
After the claim against him was dismissed, the Defendant ("the Successful Party") claimed the sum of $882,099.47 in costs and disbursements. (All figures in this judgment are in U.S. dollars.) After a taxation, the Taxing Officer allowed the claim for costs and disbursements in the total amount of $648,219.69. Both the 1 Paying Party and the Successful Party have asked for a review of the Taxing 2 Officer's decision. 3 4 2. The Court has jurisdiction to conduct such a review under Order 62, rule 30 of the 5 Grand Court Rules. The review is intended to be "inquisitorial in nature"; Order 6 62, rule 30(6). The Taxing Officer is not permitted to give reasons for his 7 decision: Order 62, rule 29(6). This gives to my review much of the character of 8 a hearing de novo. I have considered all of the material which was before the 9 Taxing Officer together with additional written arguments presented on the 10 review and have conducted an oral hearing. 11 12 3. The Taxing Officer spent several days examining each of the 2181 line items in 13 the Bill of Costs. On this review the parties have presented me with several issues 14 of broader application; it is my hope and expectation that, having decided these, it 15 will be unnecessary for me to provide an individual decision on each line item. 16 The parties are at liberty to apply generally for any further rulings which are 17 needed. 18 19 Background 20 21 4. The Plaintiff was the general partner of and provided investment advisory 22 services for an exempted limited partnership established in the Cayman Islands called CVC/Opportunity Equity Partners LP. The Defendant was employed by the Plaintiff and is what has been called a “deal maker” and a shareholder. In 1999, the Defendant was dismissed from his employment. The Plaintiff then issued a Writ and Statement of Claim seeking the return of $1,000,000 which it had provided to the Defendant when he joined the company. The Plaintiff said that the money was repayable upon his dismissal while the Defendant alleged that it was his to keep. Half of the money was in the form of shares in the Opportunity Fund, a Cayman Islands mutual fund. The Opportunity Fund sought and obtained an order that the Defendant’s shares be redeemed and the proceeds paid into Court. The Plaintiff obtained a Mareva Injunction which the Defendant applied to discharge. An allegation that the Plaintiff had forged certain documents regarding its beneficial ownership of the shares was advanced but not expressly decided. Expert reports concerning the alleged forgery were exchanged. The Plaintiff applied to strike out the Defendant’s application to discharge the injunction but that application was dismissed. Applications were made by both sides concerning disclosure of evidence. A number of other applications were brought and argued. Almost two years after it had issued its Writ, the Plaintiff introduced by amendment a new allegation that the Defendant had entered into an oral contract to relinquish his shares upon dismissal. At one point the Plaintiff tried unsuccessfully to have Walkers removed from the action (it was acting for the Defendant) because of an alleged conflict of interest. This brief history, which is far from exhaustive, will suffice to give the reader a taste of the atmosphere in which the litigation was conducted. Eventually the Defendant succeeded in having the action dismissed. He persuaded the Trial Judge to award him his costs on the indemnity basis. In doing so, the Court said: I have no hesitation in finding that the prosecution of this action is a gross abuse of the process of this court. The evidence put forward by the Plaintiff firstly by affidavit and then at trial was in my judgment manufactured and false in all of its material respects. It has caused the Defendant untold grief and expense and were I in a position to award punitive damages against the Plaintiff I would not hesitate to do so. In the circumstances, the least the court can do is award the costs of the action to the Defendant to be taxed and paid on a full indemnity basis. The Defendant then presented the Plaintiff with a claim for costs and disbursements in the amount of $882,099.47. There were 2,181 individual line items in the Bill of Costs. After what appears to have been a very thorough review, the Taxing Officer issued his Costs Certificate in the amount of $648,219.69, which amounts to 73% of the amount claimed. Both the Paying Party and the Successful Party now say that the approach taken by the Taxing Officer was flawed. 1 Basis of Taxation for Items Preceding 2002 2 3 10. Many of the costs and disbursements of the Successful Party were incurred prior to January 1, 2002 but some were incurred after. The significance of that date is 5 that the Grand Court (Taxation of Costs) Rules 1995 ("the Rules") which were 6 in effect prior to January 1, 2002 contain a schedule of costs which will be 7 allowed on taxation but contain no express provision for the awarding and taxing 8 of costs on the indemnity basis because of improper, unreasonable or negligent 9 conduct of the proceedings. 10 11 11. The Rules do provide in section 3: 12 "Whenever the Court makes an order for costs to be paid out of a fund on an indemnity basis, the scale contained in the schedule hereto shall have no application and all fees and disbursements shall be allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred and any doubts which the taxing officer may have as to whether the costs were reasonably incurred or were reasonable in amount shall be resolved in favour of the party entitled to be paid." (underlining added) 21 22 23 12. Notwithstanding the absence of any jurisdiction to be found in the Rules, in 24 Bonotto and others v. Boccaletti and others 2001 CILR 292, a majority of our 25 Court of Appeal (with Zacca, P, dissenting) held that this Court had jurisdiction to 26 award costs to a Successful Party on an indemnity basis in exceptional 27 circumstances arising from dishonesty or other improper conduct in the 28 proceedings. The majority judgments and in particular the remarks of Taylor, JA 1 at para. 62-3 suggest that an award of indemnity costs was available before 2 January 1, 2002 both in equity and at common law. The only criterion to guide 3 the exercise of the court's discretion would be one of reasonableness. Neither 4 party has taken issue with these propositions. Items in the Bill of Costs 5 Composite Schedule prior to item 1613 relate to work done and expenses incurred 6 before January 1, 2002. These items must be taxed under the Bonotto principle 7 with reasonableness as the standard. 8 9 13. The provision (section 3) quoted above applies only where the costs are "to be 10 paid out of a fund". When these Rules were promulgated it was not understood 11 that indemnity costs could be awarded in the Cayman Islands in other 12 circumstances; the Bonotto decision in 2001 clarified the point. In my view the 13 principle set out in section 3 of the Rules should apply equally to a taxation of 14 costs on the indemnity basis arising from improper, unreasonable or negligent 15 conduct of the proceedings. The result is that there is no criterion other than 16 reasonableness to be applied to the taxation of items 1 to 1612 in the Composite 17 Schedule; unless the claimed items are clearly unreasonable, they will be allowed. 1 Basis of Taxation for Items in 2002 and Thereafter 2 3 14. There was a change in the Rules concerning indemnity costs which took effect on 4 January 1, 2002. Since then indemnity costs are taxed on the basis set out in 5 Order 62, rule 13(3) of the Grand Court Rules which reads: 6 On a taxation on the indemnity basis all costs shall be allowed 7 except, insofar as they are of an unreasonable amount or have 8 been unreasonably incurred and any doubts which the taxing 9 officer may have as to whether the costs were reasonably incurred 10 or were reasonable in amount shall be resolved in favour of the 11 receiving party; and in these rules the term "the indemnity basis" 12 in relation to the taxation of costs shall be construed accordingly. 13 14 It is helpful to contrast that indemnity costs provision with the basis of taxation on 15 the standard basis set out in Order 62, rule 13(1) and 13(2) which read: 16 17 (1) On a taxation of costs on the standard basis there shall be 18 allowed a reasonable amount in respect of all costs reasonably 19 incurred and any doubts which the taxing officer may have as 20 to whether the costs were reasonably incurred or were 21 reasonable in amount shall be resolved in favour of the paying 22 party; and in these rules the term "the standard basis" in 23 relation to the taxation of costs shall be construed accordingly. 24 25 (2) Where the amount of costs is to be taxed on the standard basis, 26 the taxing officer will only allow costs which are not only 27 reasonable but are also proportionate to the matters in issue 28 having regards to- 29 30 (a) the amount of money involved 31 (b) the importance of the case; and 32 (c) the complexity of the issues.
The basis of taxation for both types of costs - standard and indemnity - is reasonableness. In the case of costs taxed on the standard basis, any doubt about whether the cost was incurred reasonably is resolved in favour of the paying party. In the case of taxation on the indemnity basis, the doubt is resolved in favour of the receiving (i.e. successful) party; unless it is clear that a cost or disbursement was incurred unreasonably, the taxing officer must allow its recovery. Moreover, on a taxation of costs on the standard basis proportionality must be considered. The taxing officer is directed (by Order 62, rule 13(2)) to allow only those costs which are proportionate to the matters in issue, having regard to the amount of money involved, the importance of the case, and the complexity of the issues. There is no mention at all of proportionality in Order 62, rule 13(3). Proportionality is simply not a consideration when costs are taxed on the indemnity basis. Essentially, the rule since January 1, 2002 is that the Successful Party is entitled to be reimbursed the entire cost of maintaining the action with the exception of those specific items which appear clearly to be unreasonable. My conclusion is that the basis of taxation is the same for both time periods.
I now turn to the specific objections of the parties to the Taxing Officer's decision. 4 Solomon Harris 6 19. The Defendant was represented by three separated law firms: by Solomon Harris for a brief time before the Writ was issued, then by Quin and Hampson for an equally brief time, and by Walkers for the duration of the litigation. The Plaintiff has objected to paying the costs incurred "as the result of the Defendant changing attorneys". 12 20. In response, the Defendant says that Solomon Harris and Quin and Hampson were retained by the Defendant "for different purposes". Solomon Harris was retained "specifically for the purpose of seeking to redeem the Defendant's shares..." while Quin and Hampson was retained for the litigation itself. This answer is fatal to the attempt to recover any of the costs of instructing Solomon Harris; the award of indemnity costs is meant to compensate the Defendant for the cost of the litigation, not for the cost of seeking (by some means other than litigation) the redemption of his shares. I will not include anything in the award for the services of Solomon Harris. Line items in the Walkers statements which refer to communications with Solomon Harris are excluded also because I am unable to conclude that they were for the purpose of advancing the litigation. 1 Quin & Hampson 2 3 21. It appears that Quin and Hampson became embroiled in a dispute with their client 4 at an early stage over a “missing” document. As a consequence, he instructed 5 Walkers to defend the claim. There is nothing remarkable about a change of 6 attorney, particularly at an early stage of litigation. Any further attempt at 7 enquiry into the reasonableness of Mr. Demarco’s decision to change law firms is 8 likely to be obscured by the solicitor client privilege. There can be no doubt that 9 line items 9 to 53 represent in large measure a duplication of work because of the 10 change, but I remain in doubt about whether the decision to change firms (and 11 thus the cost of the change) was reasonable. Because this is a taxation of 12 indemnity costs, I must err on the side of allowing the claim for these items, 13 which I do. 14 15 Helen Gardner 16 17 22. Walkers billed the time of Helen Gardner (formerly Helen Smith) at an hourly 18 rate of $250.00. Although Ms. Gardner has been admitted as a solicitor in 19 England and Wales, she has never been admitted to practice in the Cayman 20 Islands. She is variously described as a “legal assistant” or “paralegal” in the 21 material before me. 1 23. The subject of hourly rates is addressed in Practice Direction No. 1 of 2001 2 entitled “Guidelines Relating to the Taxation of Costs” (“the Guidelines”). The 3 Guidelines are made applicable to taxations after January 1, 2002 on both the 4 standard and indemnity basis: Guidelines, section 1.5. At a taxation on the 5 standard basis, the maximum recoverable hourly rate for someone who has not 6 been admitted as an attorney in the Cayman Islands, i.e., an articled clerk or a 7 paralegal assistant, is $110. However, section 7.4 of the Guidelines provides: 8 9 “In the case of taxations on the indemnity basis, the hourly rate or 10 scale of rates will be that agreed between the attorney and his 11 client provided that such rate or scale is not unreasonable. The 12 mere fact that the agreed rate is higher than the maximum rate(s) 13 allowable on a taxation on the standard basis shall not be 14 regarded as evidence that it is unreasonable.” 15 24. It follows that the amount recoverable for Ms. Gardner’s services after January 1, 16 2002 could depend upon the hourly rate agreed upon between Walkers and Mr. 17 Demarco. There is, however, no evidence of such an agreement. I must therefore 18 decide the question solely on the basis of reasonableness. 19 20 25. I infer that Ms. Gardner did not possess the requisite qualifications for admission 21 as an attorney in the Cayman Islands and I infer that the work she was doing was 22 the sort of work done ordinarily by a paralegal assistant. I am satisfied that an 23 hourly rate of $250.00 for such work is unreasonable; an hourly charge of 24 $110.00 for the services of a person who is doing work which does not require legal training (even though Ms. Gardner was legally trained) is sufficient and reasonable in the circumstances. 4 Disbursements and Expenses 6 26. The Paying Party has objected to a number of the claims for disbursements on the ground that they exceed the maximum rates set out in the Guidelines. The Guidelines contain provisions limiting the amounts recoverable for disbursements (section 6) and for travelling and hotel expenses (section 9). The Paying Party says that these limitations should apply equally to taxations on the indemnity and on the standard basis. The Successful Party says these provisions in the Guidelines are not intended to apply to a taxation on the indemnity basis which is an extraordinary award of costs available only after the Court has determined that the paying party has conducted the proceedings “improperly, unreasonably or negligently”; see Order 62, rule 4(11) and rule 11(2). 17 27. The starting point is the basis of taxation on the indemnity basis set out in Order 62, rule 13(3): that all costs shall be allowed unless they are clearly unreasonable. 19 The Practice Direction (like any practice direction) cannot have the effect of revoking or varying this (or any other) rule: GCR Order 1, rule 12(1)(a). 1 28. The Guidelines pronounce themselves to be “intended to be a comprehensive 2 code relating to ... the nature and amount of fees, charges, disbursements, 3 expenses or remuneration which may be allowed on taxation”; section 1.1. The 4 Guidelines also provide expressly (in section 1.5) that they apply both to taxations 5 on the standard basis and on the indemnity basis. This intention is further 6 clarified by an assertion (ibid.) that 7 “The only distinction between (sic) a taxation on[ the indemnity] basis is (a) the difference in the burden of proof and (b) the application of maximum hourly rates for attorneys fees in the case of taxations on the standard basis.” 13 29. In summary, Order 62 in its post-January 1, 2002 form contemplates the recovery 14 of all costs except those which are unreasonable. The Guidelines cannot have the 15 effect of varying that principle. The wording of the Guidelines themselves is 16 unambiguous: with the single exception of maximum hourly rates for attorneys, 17 they are intended to apply equally to both types of taxation. 19 30. The Guidelines were issued by the Chief Justice in consultation with the Attorney 20 General and two members of the Rules Committee. In general, the principle 21 underlying the Guideline provisions about disbursements and expenses is that of 22 reasonableness. Where the Guidelines set out maximum amounts which may be 23 recovered for various disbursements and expenses they are expressing a 24 consensus opinion within the legal community about what is reasonable. I 25 conclude that where the amount of a claimed disbursement or expense exceeds the maximum specified in the Guidelines the claim is presumptively unreasonable and, in the absence of a convincing explanation, may not be recovered on a taxation on the indemnity basis. This conclusion does not apply to the hourly rates of attorneys which, in any event, should not be treated as disbursements. For these reasons, I would allow the cost of disbursements and expenses throughout the entire proceeding at the lesser of the Guideline maximum and the amount claimed. Attorneys and Hourly Rates The Paying Party objects to the hourly rate of Mr. James Bailey ($300 per hour) on the ground that he was called to the Bar only in 1999 and lacked the experience to justify such a rate. Again, there is no evidence that Mr. Demarco agreed to any particular hourly rate for Mr. Bailey. On the material before me, I am uncertain whether a rate of $300 per hour for Mr. Bailey is reasonable or not, so I give the benefit of that doubt to the Successful Party. Mr. Bailey's services are to be taxed at the rate of $300 per hour. Mr. Michael Black, Q.C., a Barrister practicing in the United Kingdom, was retained by the Defendant. The Paying Party objects to any award of costs for Mr. Black's services on the ground that he is a "foreign lawyer" within the meaning of Order 62 Rule 18 of the Grand Court Rules. That Rule provides a number of constraints on the recovery of fees paid to foreign lawyers in a taxation on a standard basis (see Order 62 Rule 18 (1)). The Paying Party urges me to apply the same constraints to this taxation on the indemnity basis. I decline to do so. There is nothing in O. 62 which suggests that to be the proper course. The Paying Party must accept that the decision to retain a foreign QC was a reasonable one because the Paying Party was the first to do so: it retained Mr. Trace, Q.C. I am satisfied that the fact that Mr. Black is a foreign lawyer is no bar to the recovery of amounts paid to him in fees. Moreover, his hourly rate of $429 is clearly reasonable. Work performed by local attorneys when instructing Mr. Black is also recoverable. His work permit fee is not recoverable if paid after January 1, 2002 because that is prohibited by ss. 6.5 and 1.5 of the Guidelines; if paid before that date, it is recoverable as a reasonable expense. The Paying Party also takes issue with the employment by Walkers of what the Paying Party calls a “team” of 8 lawyers. As a Q.C., it was appropriate that Mr. Black have a junior counsel present to assist him (although there is no convention in the Cayman Islands to this effect). In addition, it was appropriate for one instructing solicitor to be present throughout the court proceedings. I would allow the Successful Party to recover the costs of the attendance in court of Mr. Black, one junior counsel, and one instructing solicitor; any additional claim for the presence of other attorneys or paralegals in the court room is disallowed as clearly unnecessary and hence unreasonable. 1 36. It does indeed appear that a total of eight attorneys at Walkers posted time to the 2 Demarco file at one time or another prior to trial. Many of these time entries have 3 been described as “excessive”, “unnecessary”, or “apparent duplication” by the 4 Paying Party. 5 6 37. A bare assertion that services were excessive or unnecessary is only of limited 7 assistance to the Paying Party given that any doubt on the reasonableness of an 8 item must be resolved against it. Unless there is clear evidence of 9 unreasonableness, these claims must be allowed. The reason is that it is 10 impossible, without a very full review of Walkers’ entire file, to conclude that a 11 bit of work actually carried out was excessive or unnecessary. For example, the 12 Paying Party objects to line items 679 and 680 on the ground that they were 13 excessive or unnecessary. Each of these is a telephone call to “Susan” at UBS by 14 an attorney preparing the case for trial; this was the fourth and fifth time on the 15 day in question that the attorney called Susan. Without an inquiry as to Susan’s 16 role and the reason for each individual call it is simply impossible to conclude that 17 the fourth and fifth calls, unlike the first three, were unreasonable, excessive or 18 unnecessary. There are hundreds of items to which similar objection is taken. 19 Our rules do not contemplate that a judge conducting a review will descend into 20 that degree of detail. That would not be a proportionate use of the resources of 21 the court. The consequence is that the Paying Party, having misconducted itself 1 in such a way as to attract an award of indemnity costs against it, must bear the 2 cost of these items. 3 4 38. Items branded as “apparent duplication” by the Paying Party have been explained 5 by the Successful Party: the brief description of the services rendered may be 6 identical in two or more line items but that does not demonstrate or even suggest 7 that the work was duplicated. I accept this explanation and find it reasonable. 8 For example, the fact that one attorney recorded (in items 683 and 685) two 9 separate entries on the same day for “meeting with Leading counsel and client” 10 does not serve to demonstrate or even suggest that he was duplicating work or 11 making duplicate time entries. He may well have met with Mr. Black in the 12 morning and again in the afternoon, making separate entries for each meeting. 13 There are many similar examples. In none of these cases am I satisfied that it 14 would be unreasonable to allow the full amount of the claimed cost. 15 16 39. There are some specific exceptions. Time cost items which pertain to the drafting 17 of statements of account to be sent to the client or discussing those statements 18 with him are a component of overhead and not recoverable. Time spent by 19 Walkers in reviewing Mr. Black’s statements of account are not recoverable for 20 the same reason. Any items described as “preparation for court” by attorneys 21 other than Mr. Black, his junior counsel and his instructing solicitor are 22 unreasonable and cannot be allowed. 23 1 40. There may be a few additional line items which are clearly unreasonable but are 2 not mentioned specifically in this ruling. As I have said, the parties are at liberty 3 to apply. 4 5 Travel Expenses and Accommodation 6 7 41. The Paying Party objects to paying for the travel expenses and accommodation of 8 Mr. Black because he is classified as a foreign lawyer under Order 62. The 9 Guidelines provide (in section 9.4) for a complete prohibition on the recovery on 10 taxation of travel and hotel expenses paid to foreign lawyers. The prohibition is 11 made applicable to taxations on the indemnity basis by the express language of 12 section 1.5 of the Guidelines. In light of this unambiguous language, I feel 13 obliged to direct that the Successful Party may not recover any travel and hotel 14 expenses paid to Mr. Black after January 1st, 2002. Before that date, the 15 prohibition in the Guidelines had no application; I consider it reasonable to pay to 16 the Successful Party anything paid to Mr. Black for travel and accommodation 17 during that prior period of time. 18 19 42. The Paying Party objects to the inclusion in the award of costs of any amount for 20 the travel and accommodation expenses of Mr. Demarco himself. I am told that 21 he testified as a witness at trial. The reasonable travel and hotel expenses of 22 witnesses residing outside the Cayman Islands are recoverable under the 23 Guidelines; sections 9.1 and 9.3. It is also entirely reasonable that such expenses 1 be recovered on a taxation on the indemnity basis, I award all such claimed items 2 to the Successful Party. 3 4 43. The Guidelines (in s. 9.3, and see s. 1.5) specify a maximum recovery of $250 per 5 day for accommodation expenses. That amount reflects a consensus opinion 6 within the legal community about what is reasonable. The Successful Party can 7 recover no more than that for the accommodation expenses of Mr. Demarco and 8 his witnesses. 9 10 44. Mr. Demarco’s Brazilian attorney travelled with him to the Cayman Islands. The 11 Successful Party says that the Brazilian attorney’s presence was necessary to 12 interpret for Mr. Demarco and to explain certain legal concepts to him. I do not 13 find this an adequate justification for paying the fees and expenses of the 14 Brazilian attorney. Interpreters are available locally. It is the task of the local 15 attorneys to give Mr. Demarco advice about the litigation. In my view it would 16 be clearly unreasonable to expect the Paying Party to finance the cost of 17 importing a qualified attorney from Brazil for this task. I will not allow the award 18 of costs to include anything for the services or travel expenses of the Brazilian 19 attorney. 20 1 Twenty percent discount 2 3 45. When billing its client in invoices rendered from March 1st, 2002 onwards, 4 Walkers advised Mr. Demarco that it was giving him a 20% discount on what 5 would otherwise have been its fees. This discount is of no significance to the 6 taxation. The starting point for the taxation must be the cost of legal services 7 actually incurred by Mr. Demarco; the amount which Walkers might have chosen 8 to bill him for its services had it not decided to render a discount is entirely 9 immaterial. It is unclear what use, if any, the Taxing Officer made of the fact of 10 the discount. 11 12 Conclusion 13 14 46. The parties are at liberty to apply for a decision on any disputed item (including 15 the effect of the discount) not disposed of by this ruling. The parties are at liberty 16 to apply for the costs of the review itself if they are unable to agree. 17 18 Dated this 9th day of July, 2012. 19 Henderson, J. 20 21 Henderson, J. 22 Judge of the Grand Court