COSTS AT THE END OF A CASE: INDEMNITY COSTS, PAYMENTS ON ACCOUNT AND GOING BEYOND THE COSTS BUDGET
In Barkhuysen -v- Hamilton  EWHC 3371 (QB) Mr Justice Warby considered matters relating to costs after a trial. The defendant’s conduct led to an order for indemnity costs being made. The judge also identified those areas in which the claimant could, properly, claim for items outside the costs budget.
“If the defendant had dealt with this case in a reasonable and proportionate manner the default position at this stage would be that nothing more than the budgeted costs can be recovered. But if a litigant chooses to litigate mendaciously and, despite the court’s every effort, in a disproportionate way, and if she thereby causes considerable additional costs, the litigant is in a poor position to cavil when confronted with the costs consequences.”
- The defendant’s conduct in the action was such that it was appropriate to award indemnity costs.
- The defendant had also failed to accept a reasonable offer of settlement and the indemity costs could have been awarded on that basis. In any event the normal Part 36 consequences applied.
- The judge identified those items in which in which the costs budget had been exceeded because of the defendant’s conduct.
- Despite a 10% reduction in the costs it was appropriate to make an an order for an interim payment of costs in roughly the amount of the costs budget.
- In any event the award of costs on an indemnity basis probably released the claimant from the constraints of the costs budget.
The claimant had been successful in an action against the defendant. At this later hearing the judge was considering the appropriate awards to make in relation to csots.
I tried this case in Exeter in October 2016. I handed down judgment on 10 November 2016:  EWHC 2858 (QB). I held that the defendant was liable to the claimant for damages for false imprisonment, slander and harassment. A claim for malicious prosecution and a claim for damages for three alleged slanders were unsuccessful. I dismissed the counterclaim, and entered judgment for the claimant for damages of £32,080.
At a hearing in Bristol on 16 December 2016 I dealt with matters consequential on those decisions. I granted injunctions to restrain the repetition of the same or similar wrongs. It is not necessary to set out or explain those injunctions. I also reached conclusions as to the appropriate order for costs, and as to the application of CPR 36.17. This ruling identifies the orders made, and the reasons for them.
The orders are as follows. The defendant must pay 90% of the claimant’s costs. Those costs are to be subject to detailed assessment on the indemnity basis, save for the costs of this adjourned hearing which are to be assessed on the standard basis. I express the opinion that there is good reason, upon conducting the detailed assessment, to depart from the budget in five particular respects. The claimant has “beaten” at least one Part 36 offer that he made, to settle the claim. Therefore, pursuant to CPR 36.17 the defendant must pay an additional amount of £3,280, and interest on damages and costs. Interest is claimed from the date of judgment only. I order that interest to run at the rate of 10%. I order an interim payment of £150,000 on account. I impose a stay of execution such that the date for payment of these sums is, in the first instance, 16 January 2017. The defendant has permission to apply before that time for a further stay.
Allocation. The general rule is that the unsuccessful party should pay the costs of the successful party. There can be no doubt in this case which of the parties was the successful one. I resolved virtually every factual issue in favour of the claimant. The malicious prosecution claim, and some of the claims in slander, failed on legal grounds.
The court does not reduce the costs recoverable by a successful claimant merely because he or she failed in some minor respects. If however there are some substantial issues on which the claimant failed or the defendant succeeded the court may make a different order, to reflect that degree of success. It is not common, and generally undesirable, to make an order for the recovery of the costs of a particular issue. That is impracticable in most cases, and would be in this one. If an issue-based order is to be made the best way to achieve that often is to award the claimant a proportion or percentage of his or her costs. I reached the conclusion that this was the right course to take here. My approach was to make a reduction that fairly reflected (a) the costs incurred by the claimant on issues on which he failed and (b) the costs incurred by the defendant on those issues, which would in principle be set off.
I reduced the costs to take account of the claimant’s failure on the issues I have identified, and to take account of the fact that to some extent the defendant struck some successful and significant blows in cross-examination as to credit. I made a reduction which in my judgment fairly reflects the proportion of the overall costs devoted the issues in question. I made very little allowance for the failure of the slander claims, as this resulted from my application of a rule of law (namely that the precise words used must be proved) which had not been referred to by the defendant and took up literally no time or expense at trial. I made a more substantial allowance for the defendant’s success on the malicious prosecution claim, because that generated a fairly substantial legal argument which must have taken up a significant, albeit modest, proportion of the overall costs.
As for the blows struck in cross-examination, these should not be overvalued; the claimant succeeded despite them. But time and cost were devoted to establishing to my satisfaction that he had forged his daughter’s signature on a document purporting to confer her authority on him, in relation to some land transactions. It would not be just for him to recover the costs devoted to that, or some of the other adverse findings I made against him.
Mr Samson has submitted that the right order would be to limit the claimant’s recovery to 62% on the mechanistic basis that “There were 8 causes of action … [and] the claimant failed on 3 of those causes of action”. I reject that as wholly unrealistic. Such an approach would be unjust. It would be wrong in principle. It would ignore the relative importance of the issues, the reasons why the claims failed, and the extent to which the issues on which the defendant won took up time and cost at trial and beforehand. The reality here is that the defendant has suffered a crushing defeat, mitigated by some minor successes. The costs order should fairly reflect that overall picture.
Basis of assessment The differences between standard basis costs and indemnity costs are that “Where the amount of costs is to be assessed on the indemnity basis there is no proportionality requirement but the court will resolve any doubt which it may have as to whether the costs were reasonably incurred or were reasonable in amount in favour of the receiving party”. CPR 44.3(3); “Costs & Funding Following Civil Justice Reforms” Hurst, Middleton, Mallalieu, at 7-06.
Costs will be assessed on the standard basis in the ordinary or normal case. Where the facts of the case or the conduct of the paying party are such as to take the situation out of the norm, the court may conclude that costs should be assessed on the indemnity basis: Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hamer Aspden & Johnson (Costs)  EWCA Civ 879. It is not necessary, before concluding that indemnity costs are appropriate, to find that there has been deliberate misconduct.
This case is, happily, far outside the norm for civil litigation. Most of the many reasons why it stands out as a case for indemnity costs par excellence will be readily apparent from my judgment. The following are just some of the reasons that appear from the judgment. The central allegation, which I found to be false and malicious, was that the claimant had had sex with one of the defendant’s pigs. That is an allegation in which the defendant persisted throughout the trial. Secondly, the defendant attempted to influence the course of justice in the action in her favour by threatening a witness with consequences if he gave evidence against her (see ). Thirdly, the defendant told a series of serious lies in the course of the litigation. These are too numerous to list here, but they include false allegations that the claimant drove at her, threatening her personal safety, and a false denial that she had made an accusation of paedophilia against someone else with whom she was in dispute.
All of these are ample reasons to award indemnity costs in this case, and it is on these matters that I mainly based my decision. I also had experience of the disproportionate manner in which the defendant herself conducted this litigation, when she was without Counsel, and the disproportionate manner in which she instructed her Counsel to proceed. Her conduct has been unreasonable to a high degree. The 6th witness statement of Mr Dolan provides further reasons to conclude that the defendant litigated this case in a way which is highly unreasonable, and makes it just to ensure that the claimant is fully compensated for all costs which are not shown to be clearly unreasonable in amount or unreasonably incurred.
Costs not limited Ms Marzec has sought an order to reflect various ways in which the defendant’s conduct of the action has increased the claimant’s costs beyond the budgeted amount, by generating work which (reasonably) had not been anticipated or budgeted for. I have accepted her argument so far as the following points are concerned: (1) a 2-hour PTR hearing, when the budget assumed a telephone hearing; (2) causing the 5-day trial estimate to overrun, such that closing submissions had to be put in writing, and additional work had to be done dealing with post-hearing evidence submitted by the defendant; (3) the preparation and lodging of a fifth witness statement of Mr Dolan, the claimant’s solicitor. I have also formed the view that the recoverable costs should not be limited to the budgeted figures in two further ways: (4) the trial was held in Exeter not Truro; (5) the adjourned hearing. These points may not result from unreasonable conduct on the part of the defendant, but they were reasonably not budgeted for.
CPR 36.17 An alternative basis on which indemnity costs were claimed by the claimant is that the defendant failed to accept a Part 36 offer made by him, and he obtained a judgment which was more advantageous to him than the terms of the offer. There is no doubt that these conditions are satisfied. An offer was made on 16 December 2014 to settle for £3,000 in damages, certain undertakings and an apology. That offer was clarified by letter of 5 January 2016. There was then a further offer made on 12 October 2015, on the same terms as the initial offer, but seeking damages of only £2,000.
Mr Samson has challenged the validity of the first offer, in its original and in its clarified form. His point is that it said that the offer took into account certain claims which the defendant had not then made, and which fell outside the scope of CPR 36.17. I can see some force in those arguments, however unattractive they may be. But in view of my decision on the first basis for claiming indemnity costs it is not necessary to decide the issue. It is enough to say that there is no dispute that the result achieved at trial was more advantageous than the Part 36 offer of October 2015, the validity of which is not in dispute.
“(a) interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;
(b) costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired;
(c) interest on those costs at a rate not exceeding 10% above base rate; and
(d) provided that the case has been decided and there has not been a previous order under this sub-paragraph, an additional amount …”
It is (a), (c) and (d) that fall for consideration. Ms Marzec concedes, in the light of authority, that it would be wrong in principle for the court to award pre-judgment interest on the general damages I have awarded. Those damages were assessed at the date of trial. Ms Marzec does not seek pre-judgment interest on costs, either. The contention is that I should award post-judgment interest on damages and on costs, at a rate of 10% above base rate. It is submitted that the claimant is entitled to interest on costs from the judgment date (s17 Civil Justice Act 1838; s44 Administration of Justice Act 1970) and that the rate is 8 per cent. A higher rate should be adopted to give effect to the policy of CPR 36.17, it is argued. The additional amount in this case is 10% of the damages award, namely £3,208.
Mr Samson submits that it would be unjust to make all of the orders available pursuant to r 36.17. But he has not advanced any particular reasons why that would be so. I reject his submission. CPR 36.17(5) requires the court, when considering this issue, to take into account all the circumstances of the case including five particular factors: “(a) the terms of any Part 36 offer; (b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made; (c) the information available to the parties at the time when the Part 36 offer was made; (d) the conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated; and (e) whether the offer was a genuine attempt to settle the proceedings.” Here, the terms of the October 2015 offer were clear and eminently reasonable; it was made long before trial; there was no difficulty in assessing whether it was a fair and reasonable offer; the defendant knew the true position; the claimant was open and frank so far as relevant information is concerned; and I am quite sure the offer was a genuine attempt to settle. In this last respect I place weight on the terms of a letter of 4 November 2015, which makes crystal clear the claimant’s willingness to settle. The reality here is that the defendant stubbornly maintained her case in the face of offers which were more than reasonable. The last of those is undoubtedly a valid offer. It is just that she should suffer the consequences of rejecting it.
In the alternative, Mr Samson submits that the rate of interest should be no more than compensatory. He refers me to McPhilemy v Times Newspapers Ltd (No.2)  EWCA Civ 933,  1 WLR 934, and in particular to paragraphs -. That decision was concerned with earlier provisions. I am not sure that it necessarily applies to the regime that has been in place since 2014. But even on the assumption that it does, Mr Samson’s submission ignores the fact that no interest is sought on pre-judgment costs. And his submission overlooks the point on which Ms Marzec has laid emphasis: the claimant is entitled to interest at the Judgment Act rate of 8% in any event. That therefore is a rate with statutory backing. No challenge is made to the statutory rate. The order sought is only modestly higher. I have reduced the rate to 10%, that is to say 2% above the otherwise applicable rate.
Payment on account By CPR 44.2(8) a payment on account of costs subject to a detailed assessment will be a treasonable sum’ unless there is a good reason not to do so. The claimant’s approved costs budget is £127,734. That figure, with the addition of VAT on those matters that are subject to VAT, comes to some £152,000. The estimate of the additional costs attributable to the further matters on which I have expressed a view, above, is some £27,000.
Ms Marzec initially argued for a payment on account in the amount of the budgeted costs plus VAT. That submission could not be maintained in the light of my decision to reduce her client’s recoverable costs by 10%. But I have nonetheless arrived at the figure of £150,000 as the appropriate payment on account. That is for these reasons:
(1) as Ms Marzec points out, the Court of Appeal observed in Denton v TH White Ltd  EWCA Civ 906  an order for indemnity costs based on a party’s conduct “…would free the winning party from the operation of CPR r 3.18 in relation to its costs budget.”
(2) It is estimated that the claimant’s Bill of Costs will total about £175,000 plus VAT.
(3) I am very confident that the claimant will recover on assessment a substantial proportion of the estimated additional costs of £27,000. Mr Samson has boldly submitted that on review of the information provided he could show that £20,000 of it is not additional work. However, I have seen the budget; I conducted the trial and have dealt with the subsequent hearings and applications; I have observed how the case has been conducted, and been able to assess the impact of that on the other side; and I have a good idea of how much time and money, beyond what was budgeted, must have been (reasonably) devoted to the additional matters I have referred to.
If the defendant had dealt with this case in a reasonable and proportionate manner the default position at this stage would be that nothing more than the budgeted costs can be recovered. But if a litigant chooses to litigate mendaciously and, despite the court’s every effort, in a disproportionate way, and if she thereby causes considerable additional costs, the litigant is in a poor position to cavil when confronted with the costs consequences.
I have set a date for payment which may be unrealistic, but may not. If it is, the defendant will be able to come back to court with evidence in support of a further application to stay execution and for payment in instalments. By the time the 16 January deadline arrives she should know how much she has raised, or is likely to raise, and the timing of the payments she is to receive. That will enable the court to take a fully informed decision.
- Proportionality does not affect a proportionate costs order.
- Court of Appeal overturns award of indemnity costs.
- Another case where indemnity costs ordered – for part of the claim.
- Joinder of a party for costs; indemnity costs and comments on costs outside the budget
- More on indemnity costs and the summary assessment of costs at trial.
- Costs at the end of the case: the judge can make observations about matters outside the costs budget
- When will indemnity costs be ordered? A High Court decision considered?
- No general principles apply to award of indemnity costs: Court of Appeal decision.
- Indemnity costs against funders: who pays what for when?
- No indemnity costs: Gorgeous Beauty 2
- Indemnity costs, costs budgeting and witness statements
- The risk of indemnity costs: what are you going to tell your client?
- Costs budgeting, indemnity costs and payment on account.
- Anatomy of a post-Denton application for relief from sanctions: costs, indemnity costs and everybody is at risk as to costs.
- A withdrawn Part 36 offer does not attract indemnity costs.
- Indemnity costs on appeal after Part 36 offer.
- Costs should not normally be reduced when a claimant beats their own Part 36 offer: Court of Appeal decision.
- Part 36: the costs consequences of late acceptance
- Part 36 offer did not encompass payment on account
- Fixed costs and Part 36: the judgment in the Court of Appeal.
- Lord Chancellor gets a bonus: the powerful results of a claimant’s Part 36 offer.
- Not a racing certainty: but indemnity costs follow claimant’s Part 36 offer.
- Part 36: when the normal costs penalties may not apply
- Is this a claimant’s or defendant’s offer? Another important decision on Part 36
- Clarification of a Part 36 offer has a major effect on costs.
- Costs where a claimant accepts a Part 36 offer late: two cases where the claimant came to grief
- Another case where there was an invalid Part 36 offer
- Is this a Part 36 offer I see before me? That’s an important question
- How relevant are Part 36 offers to issue based orders?
- Knowing the risks and advantages for the claimant in the new Part 36.
- The costs consequences of Part 36 offers: do they always apply? The cases in detail.
- Costs consequences of Part 36 offers: some interesting examples
- Costs, conduct, Part 36 and the “Winning Party”.
- Interest and costs when a claimant beats their own Part 36 offer.
- Costs of £7 million: Part 36 bites hard on claimants who cleared a first hurdle but fell at the second.
- Claimant beats own Part 36 offer and receives an additional £75,000 in damages.
- The dangers of a Part 36 offer: Claimant pays three times more in costs than he receives in damages.
- Another example of a successful defendant not recovering all of its costs (and of the advantages of a Part 36 offer).
- Percentage costs orders after a claimant beats their own Part 36 offer: a High Court decision.
- Very important decision on Part 36 offers, assessment of costs and additional amounts when offers not beaten.
- Increased interest and costs after claimant beats its own Part 36 offer.
- Part 36 offer does not override the need to serve the claim form.
- Part 36: Indemnity costs when a defendant accepts out of time.