EEA Fund Management (Guernsey) Limited And Another v Coventry Capital US LLC: Royal Court Reiterates Cost Principles In Guernsey Proceedings – Fund Management/ REIT


Ogier successfully represented EEA Fund Management (Guernsey) Limited in this matter.

In the recent decision on EEA Fund Management (Guernsey) Limited and EEA Life Settlements Fund PCC Limited v Coventry Capital US LLC the Royal Court of Guernsey reaffirmed and applied the principles applicable to the award of legal costs payable by one party to the other when finalizing the proceedings. In this briefing, we will summarize the key principles traversed and applied by the Royal Court.

The application made by EEA Fund Management (Guernsey) Limited and EEA Life Settlements Fund PCC Limited (together referred to in this briefing as EEA) related to an order that Coventry Capital US LLC (Coventry) should pay the costs incurred by EEA as compensation. Since the main dispute between the parties was resolved by the effective capitulation of Coventry (as described below), EEA argued that it was entitled to its legal costs incurred on the basis of the indemnity. It should be noted that the basis for compensation is the award of higher costs in Guernsey law, compared to the lower tariff, called costs on recoverable (i.e. standard) basis.

Context of the request

The context of this claim for costs is relevant to the Court’s determination of the costs claimed. The procedure in Guernsey had started with Coventry making a ex parteclaim (i.e. a claim in which the party against whom relief is sought is not served or present) against the EEA for an order under the Evidence (Proceedings in other jurisdictions) (Guernsey). This is the mechanism by which the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters (18 March 1970) (the Hague Convention on Evidence) is applied and respected in Guernsey.

Coventry had obtained an order from the United States District Court asking the Royal Court of Guernsey to assist the United States court and Coventry by ordering Guernsey to issue certain subpoenas and to have evidence taken pursuant thereto. ci by the appearance of witnesses before a Commissioner appointed by the Royal Court for this purpose.

On October 11, 2019, Coventry succeeded in obtaining this
ex parte order, and corresponding subpoenas were served on October 18, 2019.

On October 31, 2019, the EEA lawyer in Guernsey wrote to the Coventry lawyer in Guernsey stating that the EEA intended to seek the quashing of the subpoenas, on a number of bases. These included raising a conflict of interest on the part of Coventry’s legal adviser, as well as indicating that the AEE had other grounds under which it intended to challenge the legal validity of the summonses .

After a number of exchanges, a key fact emerged: on November 13, 2019, the Coventry lawyer sent an email to the AEE lawyer indicating that an appeal in the American procedure (the American call) had succeeded for Coventry. Accordingly, the US court had ordered, pursuant to the US appeal, that the EEA be “obligated to disclose documents encompassing at least all the documents requested in letters rogatory“. The effect of the outcome of the US appeal was that the summonses had become unnecessary, as the documents in question would have to be produced under US proceedings anyway. It is important to note that Coventry was aware of the US call success since Nov 1. 2019.

On November 15, 2019, approximately two weeks after learning of the success of the US appeal, Coventry’s solicitor advised EEA’s solicitor that he had been instructed to withdraw the letters rogatory and seek quashing quotes. EEA’s solicitor responded the same day agreeing to the withdrawal but subject to Coventry paying EEA’s costs incurred to date on an indemnity basis. Coventry refused and insisted there should be no order as to costs. EEA therefore brought an application to the Royal Court for its costs on the basis of compensation.

AEE Basis for Claiming Compensation Costs

The EEA raised the basic principle that section 1(1) of the Royal Court (Costs and Fees) (Guernsey) Act 1969 grants wide discretion to the Court. Although the awarding of costs is within the discretion of the Court, it is an accepted principle that, in the absence of unreasonable conduct on the part of a defendant, a plaintiff who discontinues an action is liable for defendant’s costs up to the date of discontinuance.

The EEA further sought compensation costs under Rule 83 of the Royal Court Civil Rules 2007 on the grounds that there had been unreasonable behavior on the part of Coventry deviating from the standard proceedings, and also raised some authority from Jersey where costs of compensation had been awarded when plaintiffs had withdrawn the lawsuits. The EEA argued that Coventry’s conduct was out of the ordinary, due to Coventry’s failure, once the US appeal was granted on November 1, 2019, to withdraw the summons immediately (or at least stay the proceedings) , which she had not done. The EEA also argued that Coventry’s failure to trust the Royal Court during the ex parte the hearing, by not raising the pending appeal of the United States, was another ground of unreasonableness.

Essentially, Coventry not only failed to make the required full and candid disclosure in the ex parte hearing of the US appeal, but once the appeal was successful, Coventry behaved unreasonably by not withdrawing the summons and forcing the EEA to incur costs until the summons was withdrawn by the following. This unreasonable conduct took the case out of the norm and should form the basis for an award of higher costs, on an indemnity basis.

The conclusions of the Royal Court

The Royal Court held that since November 20, 2019, it issued a consent order that the witness subpoenas be quashed, Coventry had effectively capitulated and “In terms of winners or losers, … this means that the candidates [EEA]won“.

The Royal Court cited the general principle that costs will normally follow the event, meaning that the losing party must pay the winning party’s legal costs. In exercising its broad discretion, the Royal Court would seek to apply this basic principle, and the Royal Court concluded (at paragraph 37) that “this raises a presumption to make an order for costs against the respondent
[Coventry] in their favour.” The Royal Court rejected Coventry’s counter-arguments that there should be no order as to costs (each party should effectively pay its own costs), on the ground that although the discretion of the Royal Court under Rule 61 of the 2007 Rules was broad, it nevertheless remained subject to the application of the “usual cost allocation principles” (paragraph 40).

After concluding that the EEA was entitled to costs in its favour, the Royal Court proceeded to consider whether the costs of compensation (the higher tariff of costs, covering a greater part of the court costs actually incurred) or recovery costs (the lower costs on a more restrictive tariff) must be ordered.

The Royal Court quoted in paragraph 47 the applicable test for determining whether or not to award compensation costs, in accordance with the Investec Trust case, namely “is there anything in the conduct of the action by either party or in the circumstances of the case which takes the case out of the norm in a way that warrants an order for compensation, recognizing that there will usually be some degree of unreason?”

The EEA argued that “maintaining a claim that you know or ought to know will fail based on the facts and the law, is conduct so unreasonable that it warrants an order for costs.The EEA argued that Coventry failed to disclose the existence of the US appeal pending in the Royal Court when requesting ex parte for the subpoena to be issued, and that moreover Coventry, once it knew that the American appeal had been successful, was unreasonable at this stage not to withdraw the subpoenas immediately because the necessity for them- it had practically disappeared.

The Royal Court addressed the EEA’s argument in this regard, stating at paragraph 54 that it was “a missed opportunity“that Coventry had not alerted the AEE to the success of the US appeal. At paragraph 56, the Royal Court found that for Coventry at this stage”the best course of action would have been to recognize that the success of her appeal meant that the landscape in which she had obtained a letter rogatory had changed.

After a detailed weighing of the correspondence between the legal advisers during the relevant period, the Royal Court found at paragraph 58 that, given the totality of the interactions, the EEA legal advisers were also likely aware of the success of the American call. and that they could have raised this in the correspondence, which they did not. The Royal Court concluded on this basis that “the fact that they did not raise this issue in their correspondence at a time when it would still have been possible to reach a result without inter partes proceedings is, in my opinion, something that tilts the balance against the plaintiffs’ right to an order for compensation of costs as it relates to this period.”

Foreign lawyers fees

The Royal Court also dealt with the EEA’s request that certain English solicitors’ fees be recoverable in the costs order for the Guernsey claim. The basic rule applicable to court costs in Guernsey is, according to one line of authority (Ladbrokes vs Galaxy), that only the fees and disbursements of Guernsey lawyers should be recoverable in the Guernsey proceedings. An exception to this rule arises where overseas lawyers are required to deal with points of law of a novel or specialized nature (ie in Guernsey). In the present case, the Royal Court found that the work done by English solicitors did not relate to extraneous or novel matters of this nature or to Guernsey proceedings, and therefore these costs were not recoverable in Guernsey order fees.

Conclusion

EEA was successful in obtaining its application fee, on a recoverable basis. In making this order, the Royal Court applied a number of accepted principles relating to the scale of costs to be awarded. The judgment recalls the duty of all litigants to act reasonably and to withdraw from any unnecessary legal action as soon as the legitimate need for this action disappears and to make an appropriate offer of costs in the circumstances.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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