CLAIMING COSTS AS DAMAGES
This was an application by the Claimant for permission to amend its Particulars of Claim to include an additional head of damage in the form of costs incurred in a previous action (“the Original Action”) against the Defendant, which it had lost.
Relevant Background Facts
- The Claimant (“the Club”) runs a casino in London.
- In October 2010 it gave credit to a gambler, Mr Hassan Barakat, on the strength of a reference it obtained from the Defendant (“the Bank”).
- Mr Barakat’s credit proved to be worthless and the Club suffered losses.
- In the Original Action, the Club sued the Bank for negligence in providing the credit reference.
- At the trial, the Club obtained a judgment for damages against the Bank.
- However, the Court of Appeal in 2016 overturned the judgment.
- The Supreme Court in 2018 reached the same conclusion.
- Accordingly, the Club was unsuccessful in the Original Action and was ordered to pay the costs of it.
- The Club subsequently paid the Bank the sum of £295,000 in costs.
The New Action
During the trial of the Original Action, evidence emerged which emboldened the Club to make a more serious allegation against the Bank; namely, that the reference had been given, not merely negligently, but fraudulently.
As a result, the Club launched the present action (“the New Action”) as an action in deceit on 5 April 2016:
- The Bank applied to have the New Action struck out as an abuse of process, arguing that the deceit claim ought to have been brought in the Original Action if at all.
- In December 2016, that argument was successful before a Judge of the High Court.
- On appeal to the Court of Appeal, his decision was reversed, and the New Action was reinstated.
- The Court of Appeal concluded that, although it would have been possible to make a claim for deceit in the Original Action, it was understandable, and not an abuse of process, that the Club chose not to do so.
- The deceit claim (the Court of Appeal decided) would have been weak as matters stood before the trial of the Original Action, and the Club was not wrong in hesitating to raise it at that stage.
- Evidence strengthening the deceit claim emerged in the course of the trial of the Original Action, and the Club was entitled to bring it in the subsequent New Action accordingly.
- The judgment of the Court of Appeal reviving the New Action was given on 12 September 2018.
- The Supreme Court refused permission to appeal on the basis that the Bank’s application did not disclose an arguable point of law.
The Application to Amend
The Claimant sought permission to amend its Particulars of Claim to claim:
- The sum of £295,000 which it had paid to the Bank as a result of losing the Original Action; and
- Its own costs of bringing the Original Action in the sum of £556,436.66.
- Accordingly, the Club sought to recover the sum of £851,436.36 (“Total Costs Exposure”)
The basis of the claim was that:
- Although its claim in the Original Action was ultimately unsuccessful on a point of law the Club acted reasonably in bringing the claim and pursuing the appeal to the Supreme Court;
- The Claimant acted reasonably in not bringing a claim in deceit as part of the Original Action; and
- The Total Costs Exposure were sums that were reasonably incurred by the Club in mitigation of its loss and/or was itself loss and damage caused by the Bank’s deceit.
The Club’s primary case was that the costs which it incurred in the Original Action were recoverable in full; alternatively those costs fall to be assessed on an indemnity basis.
The Bank’s Position
The Bank argued that:
- whether the costs of the Original Action were being resisted as damages in the New Action on the basis of causation, or remoteness, or even if they were being claimed (as they were) as having been incurred in an attempt at mitigation of loss, the issue is one of reasonableness.
- the costs of the Original Action cannot be said to have been directly caused by, or to have flowed as a direct consequence of, the alleged deceit, and were not incurred reasonably, by way of mitigation or otherwise.
- it was questionable whether the costs awarded in the Original Action could ever be said to flow directly from the alleged deceit or whether the bringing of an action in negligence against a Bank which owed (as the Court of Appeal and the Supreme Court decided) no duty of care to the Club could be said to be reasonable.
- it would be remarkable if the Club could recover by way of damages all their actual costs, or even indemnity costs, of an action they lost, in circumstances where, had they won the action, they would only have been awarded costs on the standard basis, as they were before the judgment on liability was reversed on appeal.
there is no case in which the costs:
(a) of a previous legal action
(b) between the same parties
(c) in which the claiming party was unsuccessful and had costs awarded against it, have ever been awarded to the claiming party as damages in
(a) a subsequent legal action
(b) between the same parties
(c) so as, effectively, to reverse the costs award previously made.
The Club’s Position
The Club argued that:
- while recognising and accepting the final decisions made on the duty of care, it was not unreasonable to bring the action, given that it was successful at first instance and the Supreme Court gave permission to appeal, which suggests that the decision reached by the Court of Appeal was (until considered and confirmed by the Supreme Court) open to question.
- it was not unreasonable (until the duty of care question was definitively decided against them) to bring the action, initially, in negligence rather than deceit, as evidenced by the Court of Appeal judgment in the New Action.
Having established that the Claimant had a “more than merely fanciful prospect of success” the Judge went on:
MARTIN GRIFFITHS QC (SITTING AS A DEPUTY HIGH COURT JUDGE)
Costs as damages
29. As the procedural chronology I have outlined shows, when costs were awarded against the Club, in the Court of Appeal and in the Supreme Court in the Original Action, it was already known that there was an outstanding claim of deceit in the New Action, which was launched before the hearing of the Original Action in the Court of Appeal. It was not suggested that the costs of the Original Action should not follow the event of the Original Action, as costs usually do, or that they should await the outcome of the New Action or that they should be costs in the New Action.
30. The question is whether there is something fundamentally inadmissible about the claim for costs as damages in the circumstances of the present case, so that it has no real prospect of success, and an amendment to run the claim should not be allowed.
31. Both sides sought to shed light on this question by reference to previous authorities containing some but not all of the elements which I have identified as (a), (b) and (c) in paragraph 27 above, in an effort to identify points of principle which might be applied to the present, unprecedented case, in which all three of these elements feature together.
32. In Dadourian Group International v Simms  1 Lloyd’s Rep 601, the Claimant (DGI) sued three individuals for deceit and won. Part of the damages successfully claimed by DGI consisted of costs incurred by DGI in earlier proceedings in New York and in an arbitration, in both of which DGI had been the successful Defendant or Respondent or Counterclaimant in actions brought by a different party (albeit a party to which the three individuals had a connection). The costs had been awarded in DGI’s favour in the original actions and on an indemnity basis, but the unsuccessful party proved unable to pay. The damages were awarded to DGI in the new action by Warren J and upheld by the Court of Appeal.
33. Dadourian was a successful claim for costs as damages – element (a). The parties in the original actions were not the same as the parties in the new action, which means that element (b) was lacking. As to whether DGI had been successful in the earlier actions in which they were incurred – element (c) – the judgment of Warren J took a broad view, stating “all the costs of DGI in the litigation and the arbitration were incurred in fighting claims (either as claimant or defendant) on which it was wholly successful before the arbitrators” (judgment of Warren J para 760, quoted in para 119 of the judgment of the Court of Appeal), although in respect of elements of the procedural history DGI had not been successful. For example, DGI made an unsuccessful attempt to remove the arbitrator, but DGI nevertheless recovered the costs of the attempt as damages in the new action.
34. The Court of Appeal in Dadourian approached the issue as a factual question of causation, remoteness and mitigation, applying the criteria established in the cases of Smith New Court and Doyle v Olby which I have discussed. The “real question” was said to be whether DGI “acted reasonably” (Court of Appeal judgment para 144). The Court of Appeal said that Warren J was “fully entitled” to decide as he did, emphasising that it was “essentially a question of fact” (Court of Appeal judgment para 145). The Court of Appeal noted that the trial proceeded on an “all or nothing” basis, with no attempt to distinguish some costs as recoverable and others as not recoverable (Court of Appeal judgment para 147). This, to my mind, reduces the significance, if any, of the recovered costs including an element of costs for an unsuccessful application (for the removal of the arbitrator).
35. The factual basis of Dadourian is not on all fours with the present case; and, moreover, Dadourian was decided at first instance, and upheld on appeal, as a question of fact. I do not find that it shows whether the present claim for costs as damages is either sustainable or unsustainable as a matter of principle.
36. In Berry v British Transport Commission  QB 306, Ms Berry was the defendant in a private prosecution by the British Transport Commission after she had pulled a communication cord during a train journey. She was convicted by magistrates but successfully appealed to quarter sessions, where her conviction was quashed and a costs order was made in her favour. She then brought a civil action for malicious prosecution in which she claimed damages which included (although they were not limited to) her costs of the criminal proceedings. Since she had been awarded costs on her successful criminal appeal, the claim for costs as damages in the civil action was for the difference between the amount of costs awarded in the criminal appeal (15 guineas) and the actual costs she had incurred (the difference being just over 61 guineas).
37. The trial judge, Diplock J, upheld a defence that the statement of claim disclosed “no damage of which the plaintiff is entitled to complain in law” ( QB 306, 315) and dismissed the claim, but the Court of Appeal, consisting of Ormerod, Devlin and Danckwerts LJJ, allowed an appeal and said that the costs were recoverable as damages. In doing so, the Court of Appeal referred to and accepted a longstanding principle “that costs incurred in excess of the sum allowed on taxation cannot be recovered as damages” (per Ormerod LJ at 317, citing Quartz Hill Consolidated Gold Mining Co v Eyre (1883) 11 QBD 674; per Devlin LJ at 320) because to allow that would be “to permit a double adjudication on the same point” (per Devlin LJ at 322, albeit that Devlin LJ expressed doubt about the soundness of the rule). The Court of Appeal held that this principle did not apply when the original action was a criminal case, because it was not usual for costs to be awarded on a full compensatory basis in criminal cases (per Ormerod LJ at 317). Devlin LJ also pointed to the exceptions made to the rule in civil cases, including cases in which damages were claimed as costs in a tort action against a third party, who was not party to the original action in which the costs were incurred (per Devlin LJ at 321).
38. Berry was, therefore, a case quite far removed from the facts of the present case. It was decided on the basis that the original action was a criminal case, which is not the position here, and the party claiming costs as damages had been successful in the original action, so that element (c) of the present case was not present.
39. Devlin LJ observed in Berry (at 331) that:-
“In the ordinary case the question of whether a plaintiff has done what is reasonable in minimising his damage is one of fact and not of law. If the defendants want to raise it, they must do so at the trial and not on demurrer.”
40. Mr Salzedo QC for the Club argued that these and other cases, and the discussion in Chapter 21 of McGregor on Damages (20th edition, 2017), are consistent with his claim that the proposed amendment can form a new exception, or an exception consistent with established exceptions, to the general rule that, when costs have been awarded in a civil action between particular parties, a later action between the same parties cannot claim further costs between them as damages. He accepted that no reported case incorporates every one of elements (a), (b) and (c) present in the case before me, and the discussion in McGregor does not consider the precise situation in the present case either.
41. He emphasised that the claim in the New Action (deceit) is different from the claim in the Original Action (negligence), although both actions arose out of the same credit reference. He said that, provided he could overcome the hurdle of showing that the Club acted reasonably, the fact that it was ultimately unsuccessful in the Original Action should not bar it from arguing that the Original Action flowed directly from the alleged deceit, and the failure of that action should not preclude a claim for the costs of that action as actual damages directly flowing from the alleged deceit, and (putting it another way), the Club’s attempt to recover the underlying losses (that is, the losses caused by giving Mr Barakat credit on the strength of the Bank’s credit reference) in the Original Action for negligence should (or might at trial) be found to be a reasonable initial attempt at mitigation, although it failed.
42. I have come to the conclusion that
the argument of principle, novel as it is, should not be decided in the absence of findings on all the disputes of fact in this case. Since the nature of the claim is unprecedented, it may be difficult to establish, but I think that the prospects of the Claimant succeeding are more than merely fanciful. Obviously, it will be harder for it to do so than if a clear and directly comparable precedent did exist. But that is not to say it cannot be done.
It may be that a case like this one will be allowed to succeed in some circumstances and not in others, so that (as Devlin LJ said in Berry) the point should be decided at trial and not by refusing permission to amend so that it cannot be argued at all.
43. I will, therefore, grant the permission to amend.