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Dishonest litigators hit with costs penalty
M Price - Monday, 17 August 2009
Parties that make false claims as part of their case may
face stiff costs penalt ies even if they win, after a recent
ruling in t he UK' s High Court .
The ruling, by Mr J ustice Briggs of the court's chancery
division, relates to a fraudulent conspiracy case brought by
Bank of Tokyo-Mitsubishi UFJ against Baskan Gida, a Turkish company which
supplies nuts.
In 2003 Tokyo-Mitsubishi accused Baskan Gida of running a 20 million (23.3
million) fraud in its supply of hazelnuts to confectioner Ferrero Rocher.
Baskan Gida and 13 other defendants successfully defended the bank's claims,
and argued Tokyo-Mitsubishi should pay 90% of their costs as indemnity. But the
bank responded with another indemnity claimfor 40% of its own costs.
In a precedent-setting decision, Briggs J ordered Tokyo-Mitsubishi to pay only
70% of the defendants' costs, after the bank argued the defendants had
presented a false case using dishonest evidence fromtheir main witnesses.
For their part, the defendants argued that the bank's allegations against them
were unreasonable. They said their own conduct before the action had had
limited impact on the bank's costs and no impact on its decision to bring the
Overriding objective
In his decision Briggs J referred to civil procedure rule 44.3[2](a) on allocating
costs. The rule states that the unsuccessful party will generally be ordered to pay
the costs of the successful party.
But in this case, said Briggs J , the "overriding objective" of fairness meant it was
appropriate to limit Baskan Gida's claimfor costs.
Recalling three precedents - Molloy v Shell UK, AL Barnes v Time Talk (UK) and
Ultraframe (UK) v Fielding - the judge clarified four principles for allocating costs:
Rule 44.3[2](a) applies even if an otherwise successful litigant has
advanced a deliberately dishonest element of his case. Also, the losing
party has no automatic right to recover all of the costs incurred in proving
the winner's dishonesty. These options are, however, available to the
The impact of pre-action conduct is not limited to whether the conduct led
to the unsuccessful claim or increased the cost of litigation, although the
court may consider these factors when deciding whether to penalise the
There are no fixed rules limiting the court's discretion to grant costs as
indemnity. The court will consider whether a party has behaved
unacceptably, and whether or not this behaviour was deliberate or
seriously unreasonable.
The court must consider the conduct of the party requesting the order, as
well as the conduct of the party against which it brought the order.
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