4 In the present case, the defendant relies upon two bases for the exercise of the discretion to order that costs be taxed as between solicitor and client. Each of them was referred to by Sheppard J in the passage quoted above. First, it is submitted that the plaintiff imprudently or unreasonably rejected an offer of settlement. Secondly, the defendant submits that it was subjected to allegations of fraud made in circumstances where the plaintiff knew them to be false or irrelevant.
5 The plaintiff invoked three causes of action. One of these was a "Barnes v Addy" breach of trust. If the plaintiff were to succeed on this, it was necessary to prove on the balance of probabilities that the defendant knew that a third party (Mr Shane Burke, a fraudulent employee of the plaintiff) was misusing the plaintiff's funds. But no evidence of actual knowledge was either presented, or emerged, at trial. So, the defendant now submits, this is a case in which allegations of fraud were made even though the plaintiff knew them to be false or irrelevant.
6 The courts rightly take the view that fraud should never be pleaded in those circumstances. Allegations of fraud should only be made on the basis of evidence, worthy of serious consideration, which points to dishonesty in the subject of the allegation. Loose allegations of fraud are a blot on the adversarial system, and may - where, for example, they are made in terrorem - amount to an abuse of process. It is therefore important that those inclined to make such a serious allegation on an inadequate, or no, foundation be discouraged in their purpose by the prospect of having to pay costs as between solicitor and client.
7 In my opinion, different considerations apply here. As the plaintiff pitched its case, the allegations that the defendant has characterised as allegations of fraud were certainly not irrelevant. I have no doubt that they were not known to be false either. The truth is that the plaintiff never sought to prove actual fraud in the defendant; its case was that MFA ought, on the basis of what its employees allegedly knew about Mr Burke, to have inferred misconduct on his part. I did not uphold that case. On the other hand, it was not one that involved allegations that the defendant had acted dishonestly. Actual knowledge of the fraudulent nature of Mr Burke's conduct was not pleaded. It is true that, in the particulars under paragraph 20 of the plaintiff's amended statement of claim, there is a reference to "the defendant's knowing assistance in Burke's dishonest and fraudulent design". But these words are immediately preceded by the expression "The constructive trust arises from..." (my emphasis), and must be read in the context of the amended pleading as a whole. This includes the particulars of knowledge provided under paragraph 18 of the amended statement of claim. They made it sufficiently clear, in my opinion, that the plaintiff relied on constructive knowledge alone. Dishonesty in the defendant was not alleged.
8 The defendant also relies on the proposition that the plaintiff imprudently or unreasonably, or both imprudently and unreasonably, rejected the defendant's offer of settlement. In the light of my judgment, the offer might be said to have been generous. Yet the resolution of the dispute involved a journey through difficult and to some extent unexplored territory. The outcome of the claim for money had and received, in particular, was by no means clear-cut. In my opinion, the plaintiff's refusal of the defendant's Calderbank letter was not so imprudent or unreasonable as to justify a departure from the normal rule about the taxation of costs.
9 For these reasons, the defendant's application for an order that its costs be taxed as between solicitor and client is rejected. The defendant is of course entitled to judgment. In the circumstances, the appropriate order is that the plaintiff's claim be dismissed. Consistently with that, there will be judgment for the defendant with costs to be taxed on a party and party basis.