Lisa S.A. v Leamington Reinsurance Company Ltd and Avicola Villalobos S.A.

• Jurisdiction: Bermuda
• Judge: Kawaley, J.
• Judgment Date: 17 October 2008
• Court: Supreme Court (Bermuda)
• Date: 17 October 2008
• Docket Number: Commercial Jurisdiction 1999 No. 108 Commercial Jurisdiction 2001 No. 79

Lisa S.A.

and

Leamington Reinsurance Company Ltd. and Avicola Villalobos S.A.

Kawaley, J.

108 of 1999; 79 of 2001

Supreme Court

Practice and Procedure - Costs — Indemnity — Whether award of indemnity costs justified — Whether successful plaintiff's application for costs should be disallowed in part — Finding that there was no just reason for departing from the rule that costs should follow the event.

Appearances:

Mr. Narinder Hargun and Mr. Paul Smith Conyers Dill & Pearman, for the plaintiff.

Mr. John Riihiluoma, Appleby, for the first defendant.

Mr. Jan Woloniecki and Ms. Shade Subair, Attride-Stirling & Woloniecki, for the second defendant.

Kawaley, J.

1 The present litigation has been on foot for almost ten years. The trial lasted for three weeks and involved three categories of expert evidence. The issues of costs and interest are clearly of considerable commercial import to the parties, a fact which was reflected in the fulsome written submissions placed before the court.

2 As far as costs are concerned, two comparatively novel issues of principle were raised: (a) is there a distinction between the scope of the discretionary jurisdiction to award indemnity costs under Bermuda's pre-CPR Rules of court and under post-CPR persuasive English authorities, and (b) did the present case fall within the category of case where the 1st defendant could be ordered to pay the 2nd defendant's costs and/or that the successful 2nd defendant should not be permitted to recover its costs from the plaintiff in any event? As far as prejudgment interest is concerned, it was far from clear (in light of two conflicting Supreme court decisions) whether (a) section 10 of the Interest and Credit Charges (Regulation) Act 1975 conferred a discretion to award interest at less than the statutory rate of 7%, and (b) even if it did not, how this impacted (if at all) on the undoubted discretion to determine the period in respect of which interest should be awarded.

3 The successful plaintiff (Lisa) sought indemnity costs from the 1st defendant (Leamington) and contended that either Leamington should pay the costs of the successful 2nd defendant (AVSA) or that no order should be made for AVSA's costs due to (a) its support for Leamington's unsuccessful defence of Lisa's fraud claims, and (b) the fact that AVSA and Leamington were under common ownership. Leamington accepted that costs must follow the event, but contested the appropriateness of indemnity costs and invited the court to disallow specific aspects of Lisa's costs claim. AVSA sought its costs against Lisa on an indemnity basis on the grounds that the claim against it had been pursued in an abusive manner.

4 As far as interest is concerned, Lisa sought interest at the rate of 7% from the date that the relevant reinsurance premiums were received. Leamington contended that a more just rate was the lower rate at which monies held pursuant to a mareva injunction obtained by Lisa in or about 2000 actually earned interest. Alternatively, Leamington submitted that since the claim upon which Lisa succeeded was not effectively advanced until an application to re-amend granted in March 2006, interest should not in fact run before this later date.

FINDINGS: LISA'S CLAIM FOR INDEMNITY COSTS AGAINST LEAMINGTON

5 Lisa seeks indemnity costs on two principal grounds: (1) Leamington has been found guilty of deliberate wrongdoing, and (2) Leamington filed a false affidavit dated October 8, 1999 in support of an aborted application to discharge the ex parte mareva injunction Lisa obtained early in this litigation. Both of these grounds are unmeritorious.

6 Mr. Hargun relied a more flexible approach to indemnity costs under the English CPR regime: “The making of a costs order on the indemnity basis would be appropriate in circumstances where the facts of the case and/or the conduct of the parties was such as to take the situation away from the norm” [‘Civil Procedure’, Volume 1 (Sweet & Maxwell: London, 2006) paragraph 44.4.2]. As Mr. Riihiluoma rightly pointed out, later in the same paragraph cited by Mr. Hargun, it is made plain that “it is incorrect for a judge to be guided by the many pre CPR cases”. Although CPR has not been adopted in Bermuda, our current post-January 1, 2006 costs regime (which narrows the financial gap between indemnity and standard costs) combined with Order 1A of the Rules (the Overriding Objective) may in appropriate cases mean that the post-CPR principles may not be wholly irrelevant in the local context. But in the vast majority of cases this will occur where the application for indemnity costs is based on the way the litigation has been conducted; not on the nature of the underlying claim.

7 Where a party obtains relief in a proceeding based on perjured evidence, the relevant order may be set aside and indemnity costs awarded in respect of both the original application and the proceedings to set aside the order obtained in reliance of the perjured evidence: Fidelity Advisor Series VIII v. APP China Group Ltd. [2007] Bda LR 35 (see especially paragraphs 196–197). In the latter case, indemnity costs were awarded in the secondary proceedings in which no misconduct occurred, by necessary implication, to punish the party who deceived the court in the earlier proceedings. In this exceptional context, the cause of action relied upon is inextricably bound up with the conduct of proceedings before the court. The present case could not be further removed from the factual matrix which would justify awarding indemnity costs in proceedings brought to set aside an order procured by fraud. The false affidavit had no material impact on the aborted application in relation to which it was filed, and Lisa's claim was not in any material sense seeking relief for the misconduct of proceedings before this court.

8 Accordingly, I find that Lisa is only entitled to recover costs at the standard rate from Leamington.

FINDINGS: LEAMINGTON'S APPLICATION FOR LISA'S COSTS TO BE DISALLOWED IN PART

9 Leamington submitted that the court should either (a) disallow pre-re-amendment costs, allow 50% of the insurance expert Mr. Spragg's costs and disallow accounting expert Mr. Gardemal's costs altogether, or (b) only award Lisa 50% of its costs because it has only succeeded in financial terms to a limited extent.

Each of these points was, at first blush, potentially meritorious.

10 As far as the pre-re-amendment costs were concerned, Mr. Hargun at the costs hearing purported to confirm my belief that a formal order was actually drawn up to give effect to my February 10, 2006 Ruling by which this court, inter alia, granted Lisa leave to re-amend its Statement of Claim and awarded costs occasioned by the amendment to the defendants. Mr. Riihiluoma indicated that he did not recall any such order ever being drawn up. No such order was included in the trial bundle, and having examined the court file it is apparent that no such order was ever settled and signed. My February 10, 2006 Ruling anticipated that I would hear counsel as to costs and that a formal order giving effect to the ruling would in due course be drawn up. The Re-Amended Statement of Claim (RASC) was simply served on or about March 16, 2006 by Lisa without a formal order being drawn up and any order as to the costs of the trial of the preliminary issue and application for leave to re-amend being made. On March 8, 2006, Leamington appeared on an ex parte basis to seek leave to appeal against the February 10, 2006 Ruling. I adjourned the application to an inter partes hearing to be listed “after the final order has been drawn up.” The appeal appears to have proceeded on the basis that I granted leave, but I have been unable to locate any formal order (nor hearing notes) in this regard.

11 The Court of Appeal dismissed Leamington's appeal against my granting Lisa leave to re-amend and allowed Lisa's cross-appeal against my resolution of the preliminary issue in favour of the defendants (essentially Leamington).The November 22, 2006 Court of Appeal judgment did not deal with costs, and invited submissions on the form of order to be drawn up. The Notice of Appeal sought costs, but made no reference to the costs of the hearing before this court, which costs were still at large. No order giving effect to the Court of Appeal's 2006 judgment was included in the trial bundle. From the Court of Appeal file, it also appears that no order giving effect to the Court Of Appeal judgment was drawn up so it is unclear what order (if any) was made as to the costs of the appeal. It seems reasonable to assume, however, that the Court of Appeal made no order as to the costs before this court, because the issue of first instance costs was not raised on appeal.

12 It follows that the appropriate costs order to be made in respect of the application for the trial of the preliminary issue (in respect of which the Court of Appeal substituted “no order” for my order in favour of Leamington) is to make no order as to those costs. The usual order as regards the re-amendment application, namely that the defendants should be awarded the costs thrown away by and the costs of Lisa's application in any event is also made.

13 Should Lisa be penalized for not getting its house in order prior to March 16, 2006? The remaining costs of the action for this period are not likely to be substantial as the January 2006 hearing appears to have been the first substantial interlocutory application. The outstanding costs prior to January 1, 2006 will have to be taxed according to the old taxation regime [See rule 1593), Rule of the Supreme Court Amendment Rules 2006] according to which Lisa may be entitled to recover as little as one-third of its actual costs. It is now clear that Leamington was somewhat unfortunate to have been (implicitly) deprived by the Court of Appeal of a clear right to recover on the more...