CoA throws out High Court costs order against F&C Asset Management

The London-listed investment house was landed with an indemnity costs order by the High Court last year after it lost a hard-fought battle with hedge fund managers Francois Barthelemy and Anthony Culligan. The pair were in partnership with F&C, but when the financial crisis unfolded in 2008 their relationship soured.

In 2009 Barthelemy and Culligan exercised a put option that demanded F&C buy their stake. F&C challenged the validity of the claim and the battle went to the High Court.

Ruling in October last year, Mr Justice Sales found in favour of the claimants, who had instructed Erskine Chambers’ Andrew Thompson, awarding costs with legal fees believed to be around £4.5m, on top of F&C’s fees of around £1.7m.

Norton Rose senior associate Jane Park-Weir instructed Maitland Chambers’ Simon Browne QC to challenge the costs order on the grounds that Sales J had erred in his approach.

The High Court judge awarded costs on the basis that an offer of £6m was made to the defendants prior to the full trial. The appellants, in the end, were ordered to pay £4m to each of the claimants. Consequently, Sales J made a significant costs order.

However, at the appeal court Thompson contended that the £6m offer was expressly stated to be made outside Part 36 rules. This was said to be because the offer was put forward by the defendants, leaving the claimants entitled to argue their costs under CPR 36.10 if the offer was accepted.

Browne, appearing for F&C, contended at the CoA that Sales J was not entitled to have regard, by way of analogy, with Part 36 to award costs. There had been no improper conduct by F&C and therefore the judge was not entitled to award costs.

The CoA agreed. Lord Justice Davis, who gave the lead judgment, stated: “I have the greatest difficulty in seeing how the costs regime of Part 36, whether indirectly or by analogy, can properly be invoked.

He continued: “The judge thought that the failure of Part 36 to extend to the position of litigants in the position of the respondents constituted a ’glitch’ in the operation of Part 36 and called for adjustment to reflect ’the infelicity in the wording’ of Part 36. With respect, I do not regard that as a permissible approach.

“Parliament has decided what the ambit of Part 36 is to be. It is to be regarded as self-contained for these purposes and it is not for the parties or the courts to go around looking for asserted glitches or asserted omissions so as to bring a case indirectly within the reach of Part 36 when it cannot directly be so brought in.”

Lady Justice Arden and Lord Justice Davis agreed.

The legal line up:

For the appellants F & C Alternative Investments (Holdings) Limited: Maitland Chambers’ Simon Browne QC to lead Andrew Ayres of the same set instructed by Norton Rose senior associate Jane Park-Weir.

For the respondents: Erskine Chambers’ Andrew Thompson instructed by Jeffery Green Russell.

Commentary

Jane Park-Weir, senior associate at Norton Rose

“Obtaining judgment in any substantial dispute is often only round one of a bitter battle, and so parties require as much certainty as possible when it comes to considering who will bear the eventual costs and what additional interest payments will apply.

“To that end, this decision by the Court of Appeal has clarified the scope and application of CPR Part 36. It’s clear the ambit of Part 36 is not up for amendment by stealth through inventive requests for the court to to exercise its discretion.

“Where a court decides to award one party interest on its costs, the Court of Appeal has clarified the need to balance the compensatory principle of the award with the reasonableness so far as the paying party is concerned.  Expensive funding options may not be recoverable by the successful party without putting the paying party on notice, although the Court of Appeal has expressed itself willing to reappraise conventional rates of interest to take into account borrowing rates which are a significant departure from the traditional mark of base rate.

“This is welcome news, both to a party facing an unknown (and unreasonable) costs burden, as well as to those funding litigation in a difficult economy.”