Phoenix Global Fund Ltd and Phoenix Capital Reserve Fund Ltd v Citigroup Fund Services (Bermuda) Ltd and the Bank of Bermuda Ltd

• Jurisdiction: Bermuda
• Judgment Date: 09 December 2009
• Date: 09 December 2009
• Docket Number: Commercial Jurisdiction 2006 No. 20
• Court: Supreme Court (Bermuda)

In The Supreme Court of Bermuda

Commercial Jurisdiction 2006 No. 20

BETWEEN:

PHOENIX GLOBAL FUND LIMITED AND PHOENIX CAPITAL RESERVE FUND LIMITED

Plaintiffs

and

CITIGROUP FUND SERVICES (BERMUDA) LIMITED AND THE BANK OF BERMUDA LIMITED

Defendants

Mr V Lyon, QC and Mr L Mussenden for the Plaintiffs

Mr A Martin for the 1st Defendant

Mr N Hargun and Mr A Potts for the 2nd Defendant

The following cases were referred to in the judgment:

Gomba Holdings Ltd v Minories Finance (No. 2) [1993] Ch 171

Lisa SA v Leamington Reinsurance Co Ltd and Avicola Villalobos SA [2008] Bd LR 61

Wingate v Butterfield Trust (Bermuda) Ltd [2008] Bda LR 55

Reid Minty v Taylor [2001] EWCA Civ 1723

DeGroote v MacMillan [1993] Bda LR 66

Stevedoring Services Ltd v Burgess [2000] Bda LR 33

Abstract:

Indemnity costs - Conduct of the parties

RULING ON COSTS of BELL, J

Introduction

1. This ruling concerns an application for indemnity costs arising from a judgment which I delivered on 4 December 2009. The judgment itself was a lengthy one, dealing with any number of different issues which had arisen during the course of a trial which took place in September and October. I will in this ruling use the same abbreviations as were used in the judgment.

2. The judgment was circulated in draft prior to delivery, and hence all parties had an opportunity to consider the position in relation to costs. I will in due course refer to those findings which I made in the judgment which impact on the issue of costs, but will at this stage just set out the comments I made at paragraph 450 of the judgment, in the following terms:

"Costs

450 The position in relation to costs does of course have to be looked at in the context of my primary findings, and the reality is that the Funds have lost this action comprehensively, not just on the basis of my primary findings, but frequently on the basis of my alternative findings. In these circumstances, it seems to me that an order for costs against the Funds is inevitable, but I do recognise that there might be submissions as to the appropriate type of costs order, so that at this stage I will simply note that I will hear counsel as to costs."

3. Both the Bank and Citigroup then filed written submissions indicating their intention to seek orders that the Funds pay their respective costs of the proceedings to be taxed on the indemnity basis. For the Bank, the application was made both on the basis of the indemnities contained in the administration agreements, the custodian agreements, and the bye-laws of the Funds, as well as in the exercise of the Court's

discretion under the provisions of RSC Order 62, rule 3 (4). Citigroup's written submissions relied upon the provisions of RSC Order 62, but Mr. Martin both adopted Mr. Hargun's submissions, and referred to the Citigroup Administration Agreements, which contained provision for contractual indemnity.

4. At the conclusion of argument, I made an order that both the Bank and Citigroup should have their costs of these proceedings payable by the Funds on the indemnity basis. I indicated that at that stage I was ruling on the basis of the contractual position only, that I would give written reasons for the ruling I had made and would then make a ruling on the outstanding application, in relation to the exercise of my discretion under RSC Order 62 rule 3(4).

Exoneration and Indemnity

5. I dealt with the position in relation to Citigroup between paragraphs 399 and 402 of the judgment. The Citigroup Administration Agreements provided that Citigroup would not be liable to the Funds or their shareholders for any action or inaction on Citigroup's part, relating to any event, in the absence of bad faith, wilful misfeasance, negligence, or the reckless disregard of its duties and obligations under the agreements. There were also provisions whereby the Funds agreed to indemnify and hold harmless Citigroup and a wide class of persons defined as "Forum Indemnitees" from any and all claims, demands, actions, suits, judgments, liabilities, losses, damages, costs, charges, reasonable counsel fees and other expenses of every nature and character arising out of or in any way related to Citigroup's actions taken or failures to act with respect to the Funds, provided that they were consistent with the standard of care set forth in the agreements or based on good faith reliance on, inter alia, the written instruction of any authorised person, as defined. I did not find that there had been any bad faith, wilful misfeasance, negligence or reckless disregard by Citigroup in regard to any of its duties or obligations under the agreements. I did find that there had been reliance upon the written instructions of authorised persons. It follows that Citigroup has a contractual right to the costs which it has incurred in relation to these proceedings. Mr. Hargun relied upon the case of Gomba Holdings Ltd v Minories Finance (No. 2)[1993] Ch 171 as authority for the proposition that the court's discretion as to the basis of taxation of a mortgagee's costs, charges and expenses should normally be exercised so as to correspond with the contractual entitlement. Mr. Lyon sought to distinguish Gomba Holdings on the basis that the contractual right to indemnity on the facts of the case before me was very different than that relating to a case arising from a mortgage. But it seems to me that I need go no further than say that on the facts of the case before me there is a contractual right to costs, and I should therefore ordinarily exercise my discretion so as to reflect that contractual right. That was the basis upon which I made my order that costs should be taxed on the indemnity basis in relation to the costs of both Citigroup and the Bank.

6. I should next deal with the underlying agreements governing the Bank's position both as custodian and administrator. In relation to the Bank's acts as custodian, I dealt with the position between paragraphs 403 and 407 of the judgment. The relevant agreement provided that the Bank should not in its capacity as custodian be liable to the Funds for any act or omission in the course of or in connection with the services rendered by it in the absence of gross negligence or wilful default...