Claimants who discontinued their case four days into a six-week trial have been ordered to pay the defendants’ costs on the indemnity basis because their conduct took it ‘out of the norm’.
Mr Justice Hildyard said he was ruling in “litigation on a grand scale”, with the defendants’ estimating that they had spent more than £11m in costs.
Hosking & Anor v Apax Partners LLP & Ors  EWHC 2732 (Ch) concerned the collapse of Hellas Telecommunications (Luxembourg) II SCA (called Hellas II in the ruling), which owned the third largest mobile telephone operator in Greece and had a stake in the fourth.
Hellas II, which moved to England to take advantage of the Insolvency Act 1986 regime, went into administration in November 2009 with debts in excess of €1.2bn. The administration process failed and the company has been in compulsory liquidation since 2011.
The joint liquidators claimed that the defendants – corporate entities and individuals connected with two global private equity houses – were responsible for a transaction allegedly at an undervalue which they contended placed intolerable financial strain on Hellas II and caused its commercial demise. They sought damages of €1bn.
Hildyard J acknowledged that discontinuance did not necessarily connote an acceptance that the case was hopeless and that a fair assessment of the merits could be difficult, if not impossible at that stage.
However, the court could consider whether, in the circumstances, “the sudden discontinuance confirms that a claim, though perhaps not susceptible to summary determination at an earlier stage, lacks or has come to lack any real vitality”.
He continued: “Further, I do not accept that the court cannot assess whether the fact of discontinuance, where no other explanation is offered and no change in the forensic landscape which might excuse a change of perception or tack is apparent, raises an inference in all the circumstances that the discontinuing party has not only recognised weaknesses such as no longer in its perception justify pursuit of the claim but that such weaknesses were always an incident of that claim.
“By the same token, there is, in my view, no reason for particular reluctance, at the stage of discontinuance, to award an indemnity basis of costs if the conduct of the parties or the circumstances of the case are by then revealed as being ‘out of the norm’.”
The fact that the CPR expressly provide for standard costs did not place a higher hurdle against indemnity costs, the judge said.
“The CPR simply caters in this context for the norm: it does not fetter the court in determining the appropriate response to cases which it is persuaded are ‘out of the norm’.
“If anything, the sudden, unexplained discontinuance of a large claim, carried on for days at trial after enormous expense, invites the question whether it was reasonable to pursue it at all, or at least, so far.”
Hildyard J noted that the claimants had sought to litigate the case in other jurisdictions before turning to England.
Concluding that indemnity costs were appropriate, he said: “In my assessment, the attempts to litigate anywhere but in the natural home for the relevant claims seem to me to indicate an appreciation of the severe difficulties of establishing the case here.
“Further, the case appears to me to have been launched and pursued with a view to a settlement which the very hostile publicity against the respondents which the way the proceedings were formulated had engendered in the USA, and the continuing echoes of that publicity in this jurisdiction, might have led the claimants to suppose might be on the cards, whatever might be the merits of the claims in law.
“The desire for a jury trial in New York, which remained even after the issue of proceedings here… reinforces my perception that the liquidators and their funders were wary of strict legal adjudication of their claims.”
There were also several other factors that took the case well ‘out of the norm’ so as to justify indemnity costs.
These included the pursuit of serious allegations of commercial impropriety, “which were suddenly abandoned only when settlement talks failed, and then without explanation and without visible change in the forensic landscape”.
The judge highlighted too “the changing nature of and inconsistencies in the case, both internally and with the expert evidence put forward”.
In deciding what payment on account of costs to order, he noted that the liquidators had after-the-event insurance, as well as third-party funding.