Guernsey Law Reports 2005–06 GLR 285
SHAHAM v. LLOYDS TSB OFFSHORE TREASURY LIMITED and FOOKS (as Administratrix of the Estate of RON)
ROYAL COURT (Collas, Deputy Bailiff): December 15th, 2005
Civil Procedure—interpleader relief—costs—general rule that party interpleading entitled to recover costs from disputed funds in account, but court has discretion whether to allow—may be allowed after interpleader commences, e.g. costs of making inquiries required by court or attending hearings—decision on costs before interpleader commences may be deferred until case resolved if then clear whether recoverable from disputed funds or bank’s own liability
The plaintiff brought an action to establish that she was the sole owner of funds held in an account at the bank’s Guernsey branch in the name of the deceased and his mother.
The defendant bank held an account in the names of Dr. Dan Ron and his mother, Mrs. Ron, both of whom lived abroad. Mrs. Ron died in 2002, and Dr. Ron became the sole owner of the funds in the account by survivorship. Dr. Ron and the plaintiff (who was his housekeeper and friend) came to Guernsey for the purpose of adding the plaintiff’s name to the account. A bank official asked to see Mrs. Ron’s death certificate, and the plaintiff was asked to provide a formal proof of address to meet the bank’s compliance procedures. In anticipation of receiving them, the necessary procedures to join the plaintiff to the account were completed.
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Dr. Ron died intestate in May 2003, by which time the bank had still not received either of the documents requested. Following the plaintiff’s request to have the balance of funds in the account paid to her, the bank refused to make any payment until it had obtained legal advice and stated in writing that she had no entitlement to the funds. On July 8th, 2004, the plaintiff brought the present proceedings, seeking a declaration that she was the sole owner of the balance standing to the credit of the account and an order that the balance be paid to her.
The bank applied for interpleader relief on July 14th, 2004, seeking to be paid its reasonable costs and expenses from the funds in the account. In particular, it sought recovery of the costs incurred in locating and informing the deceased’s estate of the application. The Royal Court initially declined to make such an order, though it encouraged the parties to make further enquiries as to the beneficiary under Dr. Ron’s law of domicile in the event of his intestacy. By employing agents, the bank discovered the beneficiary, who was under guardianship. An attorney administratrix was appointed in respect of his Guernsey estate and she then made a successful application for leave to intervene and be joined in these proceedings. In addition, she made an application for security for costs from the plaintiff.
In July 2005, the intervenor applied for discovery against the bank; the bank then made an application seeking that its costs and expenses in relation to discovery be paid from the funds in the account. It also sought to be removed as a party from subsequent proceedings.
The plaintiff submitted that (a) though the general rule was that an interpleader could recover costs from the disputed funds, there was authority to suggest that the court could, taking into account the bank’s unhelpful attitude prior to July 8th, 2004, use its discretion to deny it relief; (b) when she issued the proceedings, she was the only person with a claim to the account, and her entitlement was so clear cut that the bank need have had no concern that any other party might lay claim to the moneys, thus making the attitude of the bank the sole reason for issuing proceedings which were otherwise unnecessary; (c) the proceedings and the involvement of the intervenor involved unnecessary expenditure on the bank’s part, rendering it unfair that it should be able to recover its costs from the funds in the account; and (d) if the bank required legal advice to establish ownership of the account, the costs should be born as ordinary incidents of its business and it should not expect the customer to have to pay.
The bank submitted in reply that (a) there was in fact authority to suggest that the court ought to grant the application to recover costs from the account; (b) the plaintiff’s case was not so clear cut as to render proceedings unnecessary, and it should therefore be entitled to recover its expenditure in relation to the proceedings, including those relating to the discovery of the deceased’s estate’s beneficiary; and (c) although it was not entitled to recover costs and expenses from the account under the
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mandate or by contract, the court should exercise its discretion to allow the costs and expenses to be recovered in this way.
The intervenor submitted that (a) the plaintiff’s case was not so clear cut that legal proceedings should become unnecessary; and (b) the court should await the outcome of the substantive proceedings before it formed a view as to the bank’s conduct.
Held, allowing the application in part and making orders as follows:
(1) The bank’s costs and expenses incurred after July 8th, 2004 could be recovered from the funds in the account, since after that time the bank had been obliged to attend court on several occasions and to deal with procedural issues; in particular, as the court had requested, it had made enquiries in Israel as to the estate’s beneficiary. The plaintiff’s case was not so clear cut that it could be said that proceedings were unnecessary (para. 27; para. 31).
(2) The application to recover costs and expenses incurred prior to July 8th would be adjourned until the conclusion of the substantive proceedings, at which point it would be clear whether the bank should pay costs out of its own resources, or whether it could recover them from the funds in the account. Although the general rule was that a party interpleading could recover costs from the disputed funds, the court in fact had a discretion as to whether to allow them (para. 17; paras. 27–28; para. 31).
(3) If the bank wished to pay into court the funds in the account, it should do so after retaining enough to cover its costs and expenses to date. If, in due course, the amount retained were to exceed the costs and expenses recoverable, the balance should be paid into court or as the court might otherwise order (para. 31).
(4) The bank would not be required to participate as a party in any substantive application in these proceedings, but should participate in any costs hearings (para. 31).
(5) The intervenor’s application for security for costs would be dismissed on the agreement of the parties that neither would seek to enforce any costs order in the jurisdiction of the Guernsey court (para. 31).
(6) All three parties were to give discovery by way of list of documents within 28 days, the bank’s related reasonable costs and expenses to be recovered from the account (para. 31).
Cases cited:
(1) Commerzbank AG v. IMB Morgan PLC, [2005] 1 Lloyd’s Rep. 298, referred to.
(2) Elder Dempster Lines v. Zaki Ishag (The Lycaon), [1983] 2 Lloyd’s Rep. 548, followed.
A.D. Laws for the plaintiff;
C.H. Edwards for the defendant;
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N.J. Barnes for the intervenor.
1 COLLAS, DEPUTY BAILIFF: This is my judgment and order on a number of procedural matters raised in these proceedings. The judgment relates, in particular, to the application by Lloyds TSB Offshore Ltd. (“the bank”) to be paid its reasonable costs and expenses before paying into court the balance of the funds held by it in an account which was originally in the name of Dr. Dan Ron and his mother, Mrs. Ron.
Factual background
2 Dr. Ron and Mrs. Ron were nationals of Israel, and resident in that country. For a number of years, they had an account in their joint names at the bank. Mrs. Ron died on August 31st, 2002, and, by right of survivorship, Dr. Ron became the sole owner of the account.
3 On November 4th, 2002, Dr. Ron and Ms. Shaham attended a meeting in Guernsey with an officer of the bank. During that meeting, Dr. Ron requested that the account be transferred into the joint names of himself and Ms. Shaham. Paul Samman, an officer of the bank, made a file note of the meeting, which records that before removing Mrs. Ron as a party to the account, Mr. Samman requested sight of her death certificate, which Dr. Ron had not brought with him. However, in anticipation of receiving the death certificate, the documents required to add Ms. Shaham to the account were completed in Mr. Samman’s presence. The file note also records that Ms. Shaham was to produce a utility bill confirming her residential address, in order to meet the requirements of the bank’s compliance procedures. Advocate Laws, appearing for Ms. Shaham, indicated that any factual matters which might be disputed are unlikely to be of any legal significance.
4 Dr. Ron died on May 3rd, 2003. At the date of his death, the bank had not received either Mrs. Ron’s death certificate or Ms. Shaham’s utility bill. The substantive issue the court will have to determine in due course is whether, following the death of Dr. Ron, Ms. Shaham is solely entitled to the moneys in the account, or whether it is his estate which is entitled to those moneys.
5 Advocate Edwards explained that the bank had taken special notice of the account following a telephone conversation on October 15th, 2003 with an Amos Sion, who claimed to be Dr. Ron’s lawyer. Mr. Sion requested that the account be closed and 90% of the moneys in the account be distributed to Ms. Shaham, with the remaining 10% to be given to Mr. Samman, the bank officer with responsibility for the account. The conversation is deposed to in an affidavit sworn by Richard John Musty, the Island Director of the bank, on July 14th, 2004.
6 The bank regarded it as highly unusual that a bank officer be offered a
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percentage of the balance of the account and considered it might be intended as an inducement to Mr. Samman to give effect to the instructions. I was told that Mr. Sion has also now passed away.
7 There has been correspondence between lawyers acting on behalf of the bank and lawyers acting on behalf of Ms. Shaham, to which I will refer later.
Procedural history
8 Proceedings were issued by Ms. Shaham against the bank, seeking a declaration that she was the sole owner of the balance standing to the credit of the account and an order that the balance of the account be paid to her. That action first came before the court on July 16th, 2004.
9 In an application dated July 14th, 2004, the bank applied for interpleader relief and for various directions, including an order that—
“the applicant is entitled to be paid all its reasonable charges, remuneration and fees and to recover all its reasonable costs and expenses incurred in relation to matters concerning ownership and/or entitlement to the account from those moneys held in the account, and in particular those costs incurred in locating and informing the estate of Dr. Dan Ron (deceased) of this application.”
The bank offered an undertaking that upon receiving an order in the terms above, it would attempt to find the persons responsible for the administration of the estate of Dr. Ron.
10 The bank’s application was resisted by counsel for Ms. Shaham, and the then Deputy Bailiff dealing with the matter did not make any order in respect of the above, as he was unable, at that stage, to form a view as to whether it was appropriate that the costs be paid out of the customer’s money. However, he did encourage the parties to make further enquiries in Israel.
11 The bank instructed an Israeli advocate, David Osborne, who in turn instructed a private investigator. As a result of its enquiries and advice, it was established that Dr. Ron’s sister, Dafna Dotan (Ron) was the heir to Dr. Ron’s estate in the absence of a will. Mrs. Dotan was under guardianship, and there then followed a number of adjournments in the Royal Court whilst the necessary procedures were followed, which eventually led to the appointment of Advocate Fooks as attorney administrator of the Guernsey estate of Dr. Ron. By an application dated June 15th, 2005, Advocate Barnes, on behalf of Advocate Fooks, applied for leave for her to intervene and be joined as a party in these proceedings. He also applied for security for costs from Ms. Shaham and for a further order, the effect of which would have been to limit the amount of costs that could be recovered against either his client or Ms. Shaham. I will return to the costs
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issues later in this judgment. Paragraph 1 of Advocate Barnes’s application, namely that Advocate Fooks be joined as a party to these proceedings, was granted on June 17th, 2005.
12 Pursuant to directions given by the Bailiff on June 17th, 2005, Advocate Barnes (on behalf of Advocate Fooks and Dr. Ron’s estate) filed a defence to Ms. Shaham’s substantive action in July 2005. On July 11th, 2005, he lodged an application for discovery against the bank.
13 By application dated July 25th, 2005, the bank sought orders that—
(i) it provide discovery by list of documents within 28 days;
(ii) within 28 days thereafter, the balance of the account be paid into court after deducting its “reasonable costs and expenses of these proceedings and the related interpleader proceedings”; and
(iii) thereafter, it be removed as a party from these proceedings.
14 At a directions hearing on November 18th, 2005, when the matter came before me for the first time, I gave an indication of my preliminary views on the outstanding matters. Counsel indicated that agreement would not be reached on these issues and that therefore a hearing was required. The matter next came before me for hearing on Thursday, December 15th, 2005.
The bank’s application for costs
15 The principal issue for me to determine concerned the bank’s costs and expenses, which it had claimed both in its application dated July 14th, 2004 and, by inference, in its application dated July 25th, 2005.
16 The bank does not claim to have an entitlement to recover these costs and expenses under the terms of its mandate. It has no contractual right to recover costs and expenses. The bank seeks its recovery as an exercise of my judicial discretion.
17 All parties were agreed that the bank is in the position of an interpleader and that, as a matter of general principle, an interpleader should be entitled to recover its costs out of the disputed funds.
18 Advocate Edwards relied upon the decision of Collins, J. in Commerzbank AG v. IMB Morgan PLC (1).
19 The London branch of Commerzbank operated a correspondent bank account for IMB Morgan, a Nigerian stockbroker. A key feature of the operation of a correspondent account is that receipts into the account from a number of sources are all intermingled. The account relationship between Commerzbank and IMB Morgan was terminated after Commerzbank was informed that the account might have been used for money laundering and that funds in the account might include funds received
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from victims of fraudulent activity. Commerzbank had to establish who might have a proprietary right to funds in the account, so it instructed a firm of London solicitors to assist. On its advice, Commerzbank filed an application seeking relief by way of interpleader, and notice of the proceedings was served on approximately 100 potential interpleader claimants. The judgment of November 30th, 2004, to which Mr. Edwards referred me, sets out the basis upon which Collins, J. apportioned the balance of the account between the claimants. In the course of the judgment, he recites that, at an earlier hearing, he had ordered that the funds held in the account be paid into court after the deduction of Commerzbank’s costs, which he had summarily assessed. He had also directed that Commerzbank’s solicitors’ costs be paid from the account. He does not explain the legal basis of, or his reasoning for, making those costs orders. The judgment therefore does not assist me other than by giving an illustration of an order made by a judge on the particular facts of that case.
20 Advocate Laws, on behalf of Ms. Shaham, argued that the Commerzbank (1) case is not in point. He states that when Ms. Shaham issued her proceedings, the only person with a claim to the account was Ms. Shaham. Furthermore, he says that her entitlement to the money is so clear cut that the bank need have no realistic concern that any other party might have a claim to the money. He argues that there was no need to issue proceedings and no need to involve Dr. Ron’s estate. If the bank required legal advice in order to establish the ownership of the account, then it should bear the cost of obtaining that legal advice as one of the ordinary incidents of its banking business, and should not expect the customer to have to pay.
21 Advocate Laws invited me to follow the decision of Lloyd, J. in Elder Dempster Lines v. Zaki Ishag (The Lycaon) (2), from which he drew the following propositions:
(i) that the general rule is that a person granted interpleader relief recovers his costs and charges out of the fund;
(ii) that, notwithstanding the general rule, the court retains a complete discretion on the issue of costs to be applied in the particular circumstances of the case; and
(iii) that, in an appropriate case, this discretion may be exercised so as to deny the party granted interpleader relief any of his costs.
22 On the facts of the Lycaon case, Lloyd, J. said he should exercise his costs discretion in the following way ([1983] 2 Lloyd’s Rep. at 554): “If at the end of the hearing of the issue, it emerges that the need for inter pleader relief arose out of the applicant’s own default, then it may be necessary for the Court to reconsider the question of costs.”
23 When seeking to find fault with the bank’s conduct, Advocate Laws
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does not criticize any action taken—or not taken—by the bank as a result of its meeting with Dr. Ron and Ms. Shaham on November 4th, 2002. The conduct of the bank criticized by Advocate Laws is, as I have said, in taking legal advice and then issuing these proceedings. More particularly, Advocate Laws criticized the bank for not initially taking a neutral position. He criticized what he called the “attitude” of the bank, which, through its advocates, had stated in writing that Ms. Shaham had no entitlement to the money, and had refused to accept that Ms. Shaham’s arguments might be correct. He also argued that the bank incorrectly analysed the relationship between the bank and the owner of the account as a trustee relationship rather than a debtor-creditor relationship. He said the bank’s position eventually thawed when, on July 8th, 2004, its advocates wrote in a tone very different from their previous correspondence. The court proceedings commenced almost immediately thereafter.
24 On behalf of the estate of Dr. Ron, Advocate Barnes adopted a more neutral approach. He, along with Advocate Laws, encouraged me to await the outcome of the substantive hearing before taking any view as to the conduct of the bank. Of course, Advocate Barnes cannot agree with Advocate Laws’s argument that Ms. Shaham’s case is so clear cut that legal proceedings are not required.
25 Both Advocate Laws and Advocate Barnes take issue with the quantum of the expenses claimed by the bank, especially with the size of Ozannes’ bills. I am not concerned in any way with quantum. If I make a costs order in favour of the bank, it will be on the basis that the parties are to agree the costs or, failing agreement, that they will be submitted to taxation.
Conclusion
26 I adopt the general principles of English law set out in the Lycaon (2) case, and as summarized above, as being applicable under Guernsey law.
27 At this stage in the proceedings, I draw a distinction between the costs and expenses incurred by the bank before July 8th, 2004 and those incurred after July 8th, 2004, the date when the bank appears to have changed its attitude to Ms. Shaham’s claim. Ms. Shaham’s substantive proceedings were issued soon after that date. Since that time, the bank has been in the hands of the court, having to attend several adjournments that have been ordered; it has had to deal with the procedural issues raised, and, in particular, it has incurred costs and expenses in doing what has been requested (if not expressly ordered) of it by the court, especially in making enquiries in Israel that led to the identification of Mrs. Dotan as the heir to Dr. Ron’s estate. The Royal Court has not taken the view that Ms. Shaham’s case is so clear cut that proceedings are unnecessary. Quite the contrary, the Royal Court encouraged the bank to investigate and
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locate the beneficiary of Dr. Ron’s estate so that she can participate as a party in these proceedings. Consequently, I do not consider that the bank’s conduct or attitude since July 8th, 2004 has been such that it should be deprived of the costs which it would normally be entitled to recover out of the funds in the account.
28 With regard to the costs incurred by the bank prior to July 8th, 2004, I wish to retain an open mind pending the hearing of the case. That is not to be interpreted as an indication that I am minded to disallow those costs. Following the telephone call from Mr. Sion, the bank may well have had grounds for proceeding with extra care, and it is possible that it was entirely reasonable for them to take legal advice before paying out the funds to Ms. Shaham. At the conclusion of the substantive hearing, I will be in a position to decide whether the facts of this case are such that the bank should be ordered to pay those costs out of its own resources. I merely state that my preliminary thoughts are that I will need to be persuaded not only that the bank’s conduct or attitude has been incorrect, but also that unnecessary expenditure has been incurred as a result.
29 In the course of argument, Advocate Edwards confirmed that the bank is not seeking to recover any costs in respect of the time spent by the bank’s management and staff in dealing with this matter. The costs and expenses to be recovered are therefore only the disbursements that the bank has incurred in instructing lawyers, counsel and agents to act on its behalf.
30 The amount to be recovered is to be agreed between the parties, or, failing agreement, to be determined by taxation.
Orders
31 As a result of this decision and other matters agreed between the parties, I order that—
(i) the bank’s application to recoup the costs and expenses incurred by it prior to July 8th, 2004 be adjourned until the conclusion of the hearing of the substantive proceedings;
(ii) the bank shall deduct from the account the costs and expenses reasonably incurred by it on and after July 8th, 2004, the amount to be agreed between counsel, or, failing agreement, determined by taxation;
(iii) if the bank wishes to pay into court the moneys in the account, it shall do so after retaining sufficient to cover the amount claimed by it in respect of its costs and expenses to date (“the retention”). If, in due course, the amount of costs and expenses recoverable by the bank is agreed, or held, to be less than the retention, the balance of the retention shall then be paid into court, or as the court may otherwise order;
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(iv) the bank shall not participate as a party in the hearing of the substantive application in these proceedings, but it shall participate in any costs hearings;
(v) Advocate Fooks’s application for security for costs is, by agreement, dismissed, on the agreement of the parties that neither of them shall seek to enforce any costs order in the jurisdiction of the Guernsey court;
(vi) all three parties shall give discovery by way of list of documents within 28 days, and the bank shall be entitled to recover the reasonable costs and expenses incurred by it in giving discovery from the account;
(vii) a skeleton argument shall be lodged by each of Ms. Shaham and Advocate Fookes by close of business on Friday, January 13th, and each of those parties may lodge a skeleton argument in reply by close of business on January 27th. A statement of agreed facts shall be lodged by them by close of business on January 27th; and
(viii) the substantive hearing, estimated to last one day, shall take place before me, sitting alone, on February 20th or 21st, 2006, date and time to be confirmed.
Orders accordingly.
2009
Law Report
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Guernsey Law Reports 2005–06 GLR 285