Valuable guidance on ­indemnity costs

first_img Masood Ahmed is senior law lecturer at Birmingham City University In a previous update I commented on the case of Noorani v Calver [2009] EWHC 592 (QB). This case illustrated some of the factors which the courts are likely to take into account in assessing whether to award indemnity costs. In Noorani, Mr Justice Coulson considered two important elements of the dispute which he found to be relevant when awarding the defendant’s costs on an indemnity basis. The first was the parties’ pre-trial conduct: the more unreasonable a party’s behaviour, the more likely it is that indemnity costs will be awarded against it. The second element was the nature of the claim. If it is evident from the circumstances of the case that the claim was fundamentally flawed from the outset, but that the claimant persisted with his claim, then this will justify a costs award being made on an indemnity basis (this would also be the position if the defence is found to be flawed). Coulson J recently revisited the issue of indemnity costs in D Morgan Plc v Mace & Jones (A Firm) (No. 3) [2011] EWHC 26 (TCC) in which he considered other factors, aside from those set out in Noorani, which will determine the making of an order for indemnity costs. Factors justifying indemnity costs D Morgan Plc v Mace & Jones Appropriate testcenter_img The facts can be stated briefly. The claimant brought a claim for professional negligence against the two defendants, Mace & Jones (MJ) and John Hoggett QC (JH). The claimant argued that both defendants had provided negligent planning advice to the claimant in respect of a quarry site in Cheshire and, as a result, it had suffered damages in excess of £40m. The claimant had accepted a part 36 offer from JH, but continued its claim against MJ. Coulson J subsequently dismissed four out of the five allegations of negligence made by the claimant against MJ and found that all arguments of causation had failed, as did the vast bulk of the claim for damages. The judge went on to deal with the issues of whether, among other things, MJ was entitled to indemnity costs. MJ argued that the following six matters justified an order for indemnity costs, in accordance with Civil Procedure Rules 44.3(4) and 44.4(1): (i) This was an exaggerated claim advanced on a fundamentally flawed basis; (ii) The case as to causation was also flawed; (iii) The claimant’s principal witness had given wholly unsatisfactory evidence which, among other things, involved a number of deliberate untruths; (iv) There had been a lack of proper disclosure by the claimant; (v) There had been dilatory conduct of the proceedings by the claimant; and (vi) A part 36 offer had been made by MJ in July 2010 in the sum of £1.2m (plus costs), and that offer had not been responded to, let alone accepted by, the claimant. As at the beginning of July 2010, Coulson J disagreed with points (i)-(iv) above. Those arguments did not justify an order for indemnity costs being made against the claimant. Furthermore, points (iv) and (v) were not of any real significance to the issue of the appropriate basis of costs assessment. The appropriate test for indemnity costs is set out in the case of Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson (A Firm) [2002] EWCA Civ. 879 in which the Court of Appeal reiterated that an order for indemnity costs could only be made where there was ‘some conduct or some circumstance which takes the case out of the norm’. These comments were made in the light of the appeal court case of Reid Minty (A Firm) v Taylor [2002] 2 All ER 150 and Kiam v MGN Ltd [No 2] [2002] 2 All ER 242. In Reid Minty, Lord Justice May stated that a claimant’s refusal of a defendant’s part 36 offer, which he subsequently failed to beat ‘may, subject to the court’s discretion, be determinative’ of his liability to pay indemnity costs. Furthermore, in Kiam, Lord Justice Simon Brown was of the opinion that unreasonable conduct ‘to a high degree’ was required for an order for indemnity costs. Coulson J went on to note that the circumstances of the case subsequently changed from July 2010 onwards which did justify the making of an order for indemnity costs. First, the claimant had accepted the sum of £2.6m from JH who was regarded by Coulson J as being primarily liable. Second, in late July 2010, MJ made a part 36 offer which expired in August 2010 which the claimant refused to accept. Coulson J found that this refusal to accept, when seen against the background of the real problems with maintaining the claim against MJ alone, was unreasonable ‘to a high degree’. He observed: ‘I therefore regard this case as very similar to the situation in Excelsior; while the refusal by DM of the part 36 offer, and their subsequent failure to beat it, could not on its own justify an order for indemnity costs, the refusal of the offer, when considered against the background of the speculative nature of the claim against Mace & Jones, does in my judgment warrant such a finding.’ Coulson J then turned to point (iii) above, which also justified the making of an order for indemnity costs. Coulson J found that the evidence given by the claimant’s principal witness was highly unreliable and that, on occasions, he had told deliberate untruths in order to strengthen the claimant’s case. The judge also made numerous criticisms of the detail of the evidence given. The judge held: ‘When the principal witness and owner of the unsuccessful claimant seeks to bolster his speculative claim in such an illegitimate way, his conduct is unreasonable to a high degree, and he inevitably lays the claimant open to the finding that the case was pursued outside any acceptable norm. ‘That is the finding that I make in this case.’ Both the failure to accept the part 36 offer and the wholly unreliable evidence given on behalf of the claimant justified, in the opinion of Coulson J, the making of an order for indemnity costs. Like Noorani, D Morgan Plc v Mace & Jones provides further valuable judicial guidance as to the factors which a court may take into account when deciding whether to award indemnity costs. The message from Noorani and Mace & Jones is clear – parties to litigation must act reasonably at all times (both pre-action and once proceedings have been issued). A failure by a party to do so who then later loses at trial may result in that party being punished with having to pay indemnity costs.last_img

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