Anchorage Capital Master Offshore Ltd v Sparkes (No 4); Bank of Communications Co Ltd v Sparkes (No 3)
[2021] NSWSC 1695
•24 December 2021
Supreme Court
New South Wales
Medium Neutral Citation: Anchorage Capital Master Offshore Ltd v Sparkes (No 4); Bank of Communications Co Ltd v Sparkes (No 3) [2021] NSWSC 1695 Hearing dates: 14 December 2021 Decision date: 24 December 2021 Jurisdiction: Equity - Commercial List Before: Ball J Decision: (1) In proceeding 2018/104383:
(a) the plaintiffs pay the defendants’ costs on the ordinary basis up until 5 March 2021 and on an indemnity basis on and from 6 March 2021;
(b) the cross-claimant pay the cross-defendants’ costs on the ordinary basis;
(2) In proceeding 2019/316305:
(a) the plaintiffs pay the defendants’ costs on the ordinary basis up until 5 March 2021 and on an indemnity basis on and from 6 March 2021;
(b) the cross-claimant pay the cross-defendants’ costs on the ordinary basis.
Catchwords: COSTS — Informal offers of compromise — Whether offers to settle were genuine offers of compromise — Whether plaintiffs had sufficient time to consider the offers
Legislation Cited: Civil Procedure Act 2005 (NSW)
Cases Cited: Anchorage Capital Master Offshore Ltd v Sparkes (No 3); Bank of Communications Co Ltd v Sparkes (No 2) [2021] NSWSC 1025
Furber v Stacey [2005] NSWCA 242
GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 688, (2003) 201 ALR 55
Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; 13 VR 435
Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358
Leichhardt Municipal Council v Green [2004] NSWCA 341
Miwa Pty Ltd v Siantan Properties Pte Ltd(No 2) [2011] NSWCA 344
Category: Costs Parties: 2018/104383 Anchorage Proceeding
Anchorage Capital Master Offshore Ltd (First Plaintiff)
ACMO Finance (Ireland) Designated Activity Company (Second Plaintiff)
Midtown Acquisitions LP (Third Plaintiff)
Deutsche Bank Aktiengesellschaft (Fourth Plaintiff)
Commonwealth Bank Australia (Fifth Plaintiff)
Delia Sparkes (First Defendant)
Vera Verawati (Second Defendant)
Hazel Hall (Third Defendant)
Jaimee Lieu (Fourth Defendant)
Robert Bakewell (Fifth Defendant | Cross Claimant)
Herbert Smith Freehills (Cross Defendants)2019/316305 BOC Proceeding
Bank of Communications (First Plaintiff)
Westpac Banking Corporation (Second Plaintiff)
Banco Bilbao Vizcaya Argentaria SA t/as Banco Bilbao Vizcaya Argentaria SA (Hong Kong Branch) (Third Plaintiff)
Delia Sparkes (First Defendant)
Robert Bakewell (Second Defendant | Cross Claimant)
Sarah Pearce (Third Defendant)
Herbert Smith Freehills (Cross Defendants)Representation: Counsel:
2018/104383 Anchorage Proceeding
AJ Bannon SC with C Colquhoun and M Jaireth (Plaintiffs)
ML Rose and ND Riordan (First Defendant)
EL Beechey (Second to Fourth Defendants)
MR Pesman SC with D Farinha (Fifth Defendant | Cross Claimant)2019/316305 BOC Proceeding
PW Collinson QC with JA Granger (Plaintiffs)
ML Rose and ND Riordan (First Defendant)
MR Pesman SC with D Farinha (Second Defendant | Cross Claimant)Solicitors:
2018/104383 Anchorage Proceeding
Gilbert + Tobin (Plaintiffs)
Norton Rose Fulbright (First Defendant)
Gadens (Second to Fourth Defendants)
Baker McKenzie (Fifth Defendant | Cross Claimant)2019/316305 BOC Proceeding
King & Wood Mallesons (Plaintiffs)
Norton Rose Fulbright (First Defendant)
Baker McKenzie (Second Defendant | Cross Claimant)
File Number(s): 2018/104383 and 2019/316305 Publication restriction: None
Judgment
Introduction
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On 17 August 2021, I delivered judgment in two proceedings arising from the collapse in April 2016 of Arrium in which I dismissed both proceedings: see Anchorage Capital Master Offshore Ltd v Sparkes (No 3); Bank of Communications Co Ltd v Sparkes (No 2) [2021] NSWSC 1025. This judgment concerns the costs of those proceedings. It assumes familiarity with my earlier judgment and uses the same abbreviations as those used in that judgment.
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There are three issues in relation to costs. First, Mr Bakewell accepts that he must pay the costs of his cross-claim against HSF (which failed). The question is whether he is entitled to recover those costs from the plaintiffs. Second, the defendants seek their costs on an indemnity basis on and from 17 February 2021 or on and from 6 March 2021 relying on informal offers of compromise they served on those dates. In addition, Ms Verawati, Ms Hall and Ms Lieu (the Signatories) seeks costs on an indemnity basis from 23 December 2020 relying on an offer of compromise made on that date. Lastly, the Anchorage Plaintiffs seek an order that their liability for Mr Bakewell’s costs exclude any costs incurred in the preparation of the evidence of the directors and Mr Edler.
HSF’s costs
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The principles applicable to the question whether the plaintiffs should be liable for HSF’s costs are not in dispute. The ultimate question is who fairly ought to bear those costs. The answer to that question depends on a number of factors, the most significant of which are (1) whether it was reasonable for Mr Bakewell to join HSF and make the claims against them that he made having regard to the claims made against him; (2) whether the claims he made against HSF failed because the claims against him failed; and (3) whether the cross-claim raised issues that were private to the parties to it: see GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 688, (2003) 201 ALR 55 at [72]-[75] per Finn J, cited with approval by Hodgson JA in Furber v Stacey [2005] NSWCA 242 at [32].
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Relevantly, the Anchorage Plaintiffs alleged that Mr Bakewell owed them a duty of care (1) in giving the Bakewell Direction — that is, the direction that I found was given to Ms Sparkes no later than 17 December 2015 to drawdown all available funds under the facility agreements and which was repeated to Ms Pearce on or about 8 February 2016; and (2) to ensure that the MAE Representation was true and accurate. It was alleged that in giving that direction and in permitting the drawdowns to occur, Mr Bakewell was negligent because he ought to have appreciated that Arrium was not in a position to make the MAE Representation. Alternative cases were put on the basis that in engaging in the same conduct, Mr Bakewell participated in the breaches of duty of the signatories to the relevant notices. The Par Lenders were alleged to have relied on the MAE Representations in rolling over or in advancing funds.
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The BOC Plaintiffs allege that, by giving the Bakewell Direction, Mr Bakewell authorised and therefore made the representations contained in the relevant Drawdown Notices. Those representations were said to be misleading and deceptive because both the MAE Representations and the Solvency Representations were false. The BOC Plaintiffs were alleged to have relied on those representations in advancing funds in response to the relevant Drawdown Notices.
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Mr Bakewell alleged against HSF that if the claims against him succeeded then (1) the Bakewell Direction was given on their advice and (2) Mr Bakewell relied on HSF in making the representations in relation to solvency.
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In my opinion, there is an insufficient connection between the claims made against Mr Bakewell and Mr Bakewell’s claims against HSF to justify making the plaintiffs responsible for HSF’s costs.
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So far as the relevant claims in the Anchorage Proceeding are concerned, if those claims had succeeded that would have been because Mr Bakewell was in some way or another liable for the MAE Representation as a result of giving the Bakewell Direction. If Mr Bakewell had had that liability, it is not clear how that liability arose because HSF advised Mr Bakewell that he should give the Bakewell Direction. It was not alleged that HSF ought to have but failed to advise Mr Bakewell that if he gave the Bakewell Direction he would assume personal responsibility for any representations contained in the Drawdown Notices. Leaving solvency aside, it was not alleged that HSF ought to have advised Mr Bakewell that the representations could not be made. Mr Bakewell’s case was simply that HSF advised him that it would be sensible to drawdown the remaining funds. It was consistent with that advice that Arrium should not do so if it could not be satisfied that it could make the representations contained in the Drawdown Notices. HSF said nothing and was not asked to give advice on that question. In my opinion, a necessary condition for the Anchorage Plaintiffs’ liability for HSF’s costs was that the matters that they alleged gave rise to Mr Bakewell’s liability to them were matters on which Mr Bakewell had sought advice from HSF. But no claim of that sort was made by Mr Bakewell. A general allegation that HSF advised Mr Bakewell to give the Bakewell Direction is not sufficient.
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So far as the BOC Plaintiffs are concerned, HSF did give advice in relation to solvency. However, the only advice relied on was advice given at the Board meeting on 18 December 2015.
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It was the BOC Plaintiffs’ case that Mr Bakewell authorised the representations made in the February Drawdown Notices and therefore made those representations himself. Assuming that case had succeeded, it appears to have been Mr Bakewell’s case that he would not have authorised the making of those representations, but for advice from HSF — or, more accurately, but for the failure of HSF to correct or update the advice it gave on solvency in December 2015. However, Mr Bakewell did not seriously seek to make out such a case; and as I pointed out in my principal judgment, there were substantial difficulties in the way of such a case: see Anchorage Capital Master Offshore Ltd v Sparkes (No 3); Bank of Communications Co Ltd v Sparkes (No 2) [2021] NSWSC 1025 at [590]ff. Again, there is an insufficient connection between any liability that Mr Bakewell might have had to the BOC Plaintiffs and any breach of duty by HSF (assuming there was one). Moreover, on the conclusions I reached, the claims against HSF would have failed even if the BOC Plaintiffs’ claims against Mr Bakewell in relation to solvency had succeeded.
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For those reasons alone, HSF’s costs must be borne by Mr Bakewell.
Indemnity costs
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Where a party that has made an informal offer of compromise does better as a result of a judgment of the court than it would have done if the offer had been accepted, the court may in the exercise of its discretion make a more favourable order for costs in favour of that party than it otherwise would have done. Generally, for the court to exercise its discretion in that way, two conditions must be satisfied. First, the offer must be a genuine offer of compromise. Second, it must have been unreasonable for the offeree not to accept it: Miwa Pty Ltd v Siantan Properties Pte Ltd(No 2) [2011] NSWCA 344 at [8] per Basten JA (with whom McColl and Campbell JJA agreed).
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Whether an offer is a genuine offer of compromise is to be answered objectively having regard to the particular circumstances of the case. In order to be a genuine offer of compromise, the offeror must give something away: Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at 368 per Giles J. However, what that something is depends on the circumstances of the case. In some cases, an offer to “walk away” may be sufficient where, for example, the costs are substantial and the offeror’s prospects of success are good: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [26], [30] per Santow JA.
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Whether it was unreasonable for the offeree not to accept the offer depends on a number of factors including the following:
(a) the stage of the proceeding at which the offer was received;
(b) the time allowed to the offeree to consider the offer;
(c) the extent of the compromise offered;
(d) the offeree's prospects of success, assessed as at the date of the offer;
(e) the clarity with which the terms of the offer were expressed;
(f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it.
See Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; 13 VR 435 at [25] (per Warren CJ, Maxwell P and Harper AJA), which was cited with approval in Miwa at [12].
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In the Anchorage Proceeding, the Signatories rely on an informal offer of compromise she made on 23 December 2020. In addition, all of the defendants in the BOC Proceeding rely on informal offers of compromise made on 12 February 2021 and on 3 March 2021. All of the defendants in the Anchorage Proceeding rely on an informal offer of compromise also made on 3 March 2021.
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It is convenient to begin by setting out some of the history of the settlement negotiations between the parties.
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There was a mediation of the two proceedings and the proceeding brought by the liquidator of Arrium (which settled) which commenced on 2 December 2020, some three months before the commencement of the trial of all three matters (on 1 March 2021). The parties and the two mediators met in formal sessions on 14, 17 and 18 December 2020 and the mediation continued informally after that date.
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As I have said, on 23 December 2020, the Signatories made an informal offer of compromise. That offer was in the following terms:
1. your clients agree to orders dismissing the proceedings as against our clients;
2. no order as to costs as between our respective clients; and
3. any extant costs orders as between our clients are vacated.
That offer was expressed to be open until 5.00 pm on 8 January 2021. There is no evidence of the amount of costs the Signatories had incurred at the time the offer was made. There is evidence that they were in the order of $600,000 in August 2019. They are likely to have been substantially more by December 2020.
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In response to that offer, the solicitors for the Anchorage parties sent an email to the solicitors for the Signatories at 5.26 pm on 8 January 2021. Relevantly, the response said:
To assist our clients to consider the possibility of a settlement with your clients, please can you confirm whether, as part of any settlement involving your clients on the terms you have proposed:
1. Your clients would be prepared to cooperate with the Anchorage Plaintiffs in respect of the Anchorage Proceedings on reasonable request including by making themselves available:
a. to give evidence in the Anchorage Proceedings as reasonably requested; and
b. to answer questions and to provide information or documents as reasonably requested.
2. Mr Bakewell would be prepared to agree to:
a. cease pleading and abandon any proportionate liability defences involving your clients;
b. call your clients as witnesses in the Anchorage Proceeding; and
c. consent to an order that each of the Anchorage Plaintiffs and Mr Bakewell may cross examine your clients.
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In response to that email, the solicitors for the Signatories agreed to keep the offer open until Thursday, 14 January 2021. They did not otherwise give the confirmation sought by the Anchorage Plaintiffs. The offer then lapsed.
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There were further formal sessions with one of the mediators on 12 and 16 February 2021 and again informal discussions continued after that time.
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On 12 February 2021, an offer was made on behalf of all of the defendants in the BOC Proceeding, the terms of which are somewhat complicated. In essence, the BOC Defendants offered to use their best endeavours to procure the payment by their insurers of $10 million inclusive of costs and GST. Under the terms of the offer, no binding agreement came into effect “unless and until counterpart deeds of settlement and release have been prepared, duly executed and exchanged amongst the parties …” The BOC Plaintiffs were also required to release each member of the Arrium Group and to release each claim they might have had to prove in the winding up of each Arrium Group company. The offer was expressed to be “open for acceptance …” until 5.00 pm on 16 February 2021.
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On 3 March 2021 (the third day of the trial), the BOC Defendants made a second offer to settle the BOC Proceeding. That offer was in the following terms:
The BoC Defendants’ offer to settle all of the BoC Plaintiffs’ claims against them on the following terms (the BoC Defendants Offer):
(a) payment by or on behalf of the BoC Defendants of the total sum of $10 million (the BoC Settlement Sum) to your clients (or as they may direct in writing) within 28 days of acceptance of the BoC Defendants Offer;
(b) the BoC Settlement Sum will be paid, and received, in full and final settlement of all claims that the BoC Plaintiffs have, may have or may claim to have against any of the BoC Defendants arising out of or in connection with their respective roles as directors, officers and/or employees of A.C.N. 004 410 833 Limited (formerly Arrium Limited) (in liquidation) or any subsidiary thereof; and
(c) your clients agreeing to the dismissal of the claims made by the BoC Plaintiffs against the BoC Defendants (without prejudice to the cross-defendant’s continuing cross-claim against the cross-defendants, HSF), with:
(i) no order as to costs as between the BoC Plaintiffs and the BoC Defendants; and
(ii) any extant costs orders as between the BoC Plaintiffs and the BoC Defendants being vacated.
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The offer was expressed to be open until 5.00 pm on 5 March 2021. Unlike the first offer, it was an offer to pay $10 million (not to use best endeavours to procure payment). It was capable of acceptance (and not conditional on a formal deed of release). The BOC Plaintiffs were not required to abandon the claims against the Arrium Group companies. The offer stated that the BOC Defendants’ legal costs on a party/party basis were “estimated to well exceed $5 million so far (after due allowance for a fair split of legal costs across the three proceedings)”.
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Also on 3 March 2021, the defendants in the Anchorage Proceeding offered to compromise that proceeding. That offer was for $10 million. The terms of it mirrored the terms offered by the BOC Plaintiffs. Again, it was expressed to be open until 5.00 pm on 5 March 2021.
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The solicitors for the BOC Plaintiffs replied to the 3 March 2021 offer on 11 March 2021. They made a counter-offer of $25 million. They did not suggest that their clients were given inadequate time in which to consider the defendants’ offer.
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On 4 May 2021, the solicitors for the Anchorage Plaintiffs made an offer to settle the proceedings on the basis that the defendants pay $50 million inclusive of costs.
The 23 December 2019 offer
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There is a question whether, having regard to the terms of the offer, it was a genuine offer of compromise or an invitation to the Anchorage Plaintiffs to capitulate. However, it is unnecessary to resolve that question, because, in my opinion, even if it was a genuine offer of compromise, it was reasonable for the plaintiffs to reject it.
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The Anchorage Plaintiffs submit that the Signatories are prevented from relying on the offer by s 30(4)(b) of the Civil Procedure Act 2005 (NSW), which provides that, subject to an irrelevant exception, “a document prepared for the purposes of, or in the course of, or as a result of, a mediation session, or any copy of such a document, is not admissible in evidence in any proceedings before any court or other body”. “Mediation session” is defined in s 30(1) to include “any steps taken in the course of making arrangements for the session or in the course of the follow-up of a session”. In my opinion, the offer did not fall within the scope of s 30(4)(b). The offer was made at a time when the mediation had been adjourned. It was not made as part of a mediation session.
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Even so, in my opinion, it was reasonable, particularly having regard to the terms of the offer, for the Anchorage Plaintiffs to wait to see what the outcome of the mediation was before deciding whether to accept an offer in those terms. The mediation would have permitted the Anchorage Plaintiffs to raise issues that were relevant to the question whether their clients should accept the offer such as those raised in their solicitors’ email dated 8 January 2021. The mediation left open the possibility that the Anchorage Plaintiffs could have reached a global settlement, which would have been very relevant to their assessment of the offer having regard to their own future legal costs. The mediation would also have permitted the Anchorage Plaintiffs to raise issues of confidentiality, which would be relevant if the claims against the other defendants were not settled at the same time.
The offer of 12 February 2021
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In my opinion, the letter dated 12 February 2021 was not an offer for the purposes of the principle. That is so for two reasons. First, it was not an offer to pay $10 million. Rather, it was an offer to use best endeavours to procure the payment of that sum by insurers. There was no guarantee that acceptance of the offer would produce any payment. Second, the offer expressly stated that it was subject to a formal agreement. Consequently, it was not an offer capable of acceptance. In substance, it was an offer to negotiate on certain terms.
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Moreover, in my opinion, it was reasonable for the Anchorage Plaintiffs to reject it because it sought to compromise more than the claim in the proceeding. In particular, it required the Anchorage Plaintiffs to give up any other claims they had against Arrium and its subsidiaries, including claims in the liquidation of Arrium Group companies.
The offers dated 3 March 2021
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Two issues arise in relation to these offers. First, it was suggested principally by the BOC Plaintiffs, that the offer made to them was not a genuine offer of compromise. Second, the BOC Plaintiffs and the Anchorage Plaintiffs submitted that it was reasonable for them not to accept the offers because they were only open for slightly more than two days.
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In my opinion, both offers were genuine offers of compromise. They were both clearly capable of acceptance and, on acceptance, gave rise to immediately binding contracts. They were genuine in the sense that they both involved the payment of significant sums of money and the giving up of any right to recover what were substantial legal costs, although there is no evidence of precisely what those costs were at the time the offers were made. The BOC Plaintiffs submit that the offer that was made to them could not be regarded as a genuine offer of compromise having regard to the size of their claim (said to be approximately $100 million) and the fact that their own legal costs at that time were approximately $4 million, with the result that what was being offered to them was effectively $6 million in respect of a $100 million claim.
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I do not accept that submission. The submission fails to consider the position from the point of view of the defendants. They had incurred three sets of legal costs. No issue is taken about the fact that they were separately represented. Their legal costs are likely to have been substantially more than $4 million, even allowing for the fact that they were incurred in connection with both proceedings. In addition, the defendants offered to pay $10 million. On any view, that was a substantial sum of money which involved giving something of real value away. Moreover, for the reasons set out in my earlier judgment, the BOC Plaintiffs’ claim was not strong and there is a real question whether the way in which they sought to calculate damages was appropriate given that their complaint was that they advanced additional funds on the basis of the alleged misrepresentations. Finally, it is relevant to observe that the BOC Plaintiffs made a counteroffer of $25 million, which undermines the suggestion than an offer of $10 million was not a genuine offer.
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Similar considerations apply to the suggestion that the offer made to the Anchorage Plaintiffs was not a genuine offer of compromise, to the extent that that submission is pressed.
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There is more force in the submission that the plaintiffs were not given sufficient time to consider the offers. However, in the context, I have concluded that they were.
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The trial had already started and the first witness was expected to give evidence on the day after the offers expired. Before the trial had started, the plaintiffs had had the benefit of extensive written submissions from the defendants and it is to be expected that the strengths and weaknesses of each party’s case would have been investigated in the context of the mediation. Consequently, the plaintiffs had ample time to consider the strengths and weaknesses of their respective cases and make a proper assessment of the reasonableness of any offer on the basis of a complete understanding of the defences raised by the defendants. As the defendants pointed out in their submissions on costs, the plaintiffs’ cases largely failed for reasons that were raised in the defendants’ written submissions.
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In circumstances where the trial had started, costs were increasing rapidly each day. Moreover, once the witnesses started giving evidence each party’s assessment of their case could change substantially, which may well have altered the attractiveness of the offers to the plaintiffs and the willingness of the defendants to continue to make them. There is some suggestion, particularly in the BOC Plaintiffs’ submissions, that the possibility of developments in the trial was a reason why the offers should have been open for a longer period of time or that it was reasonable not to accept them. I do not accept that submission. The reasonableness of the offer was to be assessed at the time that it was made. The fact that costs were increasing rapidly and that there could be developments during the trial that altered the assessment of the parties’ prospects of success explains why it was reasonable to give the plaintiffs a limited time in which to accept the offers.
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The plaintiffs were represented by well-resourced, competent and experienced legal advisers. None of the plaintiffs at the time complained that they were given insufficient time to consider the offers.
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Taking those matters into account, in my opinion, the plaintiffs should pay the defendants costs on an indemnity basis on and from 6 March 2021.
The costs of evidence relating to the directors and Mr Edler
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The directors were defendants in the proceeding brought by the liquidator, which settled, but only after each of the directors had given evidence. Mr Edler provided an affidavit in connection with that proceeding. He, too, gave evidence before the proceeding settled. The solicitors who acted for Mr Bakewell also acted for the directors in that proceeding. On 20 November 2020, the Court made an order that evidence in one of the three proceedings be evidence in the others, with the result that the evidence given by the directors became evidence in the Anchorage Proceeding (and the BOC Proceeding).
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The Anchorage Plaintiffs submit that they should not be liable for the costs of preparing the evidence of the directors and Mr Edler when that evidence had nothing to do with their case. As a general proposition, I accept that submission. However, I do not think it is necessary or desirable to make a special costs order in relation to that evidence. The solicitors and counsel who acted for Mr Bakewell and who also acted for the directors no doubt undertook a number of tasks that were not relevant to the remaining two cases. As part of any assessment, it will be necessary to identify the costs of undertaking those tasks and to exclude them from any assessment. It will also be necessary to apportion some costs between the remaining two proceedings. In my opinion, all that is best done as part of an assessment by reference to the particular work that is claimed rather than by a general order that may be unnecessary, too broad in some respects, and which undoubtedly will not catch all the costs that should be excluded.
Orders
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Accordingly, the orders of the Court are:
In proceeding 2018/104383:
the plaintiffs pay the defendants’ costs on the ordinary basis up until 5 March 2021 and on an indemnity basis on and from 6 March 2021;
the cross-claimant pay the cross-defendants’ costs on the ordinary basis;
In proceeding 2019/316305:
the plaintiffs pay the defendants’ costs on the ordinary basis up until 5 March 2021 and on an indemnity basis on and from 6 March 2021;
the cross-claimant pay the cross-defendants’ costs on the ordinary basis.
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Decision last updated: 24 December 2021
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