COURT OF APPEAL STATES INDEMNITY COSTS SHOULD HAVE BEEN AWARDED: SHOULD HAVE BEEN MORE BULLISH IN BRADFORD…
It is unusual for the Court of Appeal to interfere with a discretionary order in relation to costs. It is even more unusual for the court to replace an order for costs on the standard basis with indemnity costs. This is what happened in Whaleys (Bradford) Ltd v Bennett& Anor  EWCA Civ 2143. The case highlights the point that the test for indemnity costs is conduct that is “out of the norm” and not conduct that is “exceptional”.
“In my view, it was unfortunate that the judge used the word “exceptional” to describe the circumstances that may justify an order for indemnity costs. The formulation repeatedly used by this court is “out of the norm”, reflecting, as Waller LJ said in Esure Services Ltd v Quarcoo  EWCA Civ 595 at , “something outside the ordinary and reasonable conduct of proceedings”. Whatever the precise linguistic analysis, “exceptional” is apt as a matter of ordinary usage to suggest a stricter test and is best avoided. Its use in this case gave rise to an arguable ground of appeal and while I am satisfied, particularly in the light of the submissions made to him, that the judge was not applying a stricter test, for the future it would be preferable if judges expressly used the test of “out of the norm” established by this court”
The claimant had been successful in an action for nuisance and damages in an action against the two defendants arising from a leaking roof. The trial judge had awarded £10,152.25 for costs and ordered costs on the indemnity basis totally £52,157.33.
After judgment the defendants did not pay. They wrote asking the claimant to abstain from taking any steps.
“Mr Sandland [of Butcher & Barlow], on behalf of the Defendants, said that was entirely reasonable request for the Defendants to make; I could not disagree more. It was arrogant and disobedient towards the Court’s Order.
The Order of His Honour Judge Davey QC was not a suggestion or an offer about how the case should move forward; it was a final judgment and was not open to Mr Sandland, on his clients’ behalf, to make that kind of request with any justification….
It was a court Order which was, in my judgment, deliberately disobeyed. I am entitled to draw the inference that the same kind of dishonesty as had been found during the judgment continued afterwards”
ATTEMPTS TO ENFORCE JUDGMENT
There were numerous attempts to get the defendants to court to attend court for an examination of means. There were attempts at avoidance and applications for adjournments. The balance of the debt was eventually paid.
THE CLAIMANT’S APPLICATION FOR COSTS
The claimant issued an application for an order that it be awarded more than the fixed costs for the three scheduled oral examination hearings.
THE DECISION OF THE CIRCUIT JUDGE
“22. In my view, having read the papers and listened to what has been said, the Defendants decided to raise complex issues at the oral examinations at the same time as failing to comply with what the examinations asked of them. They did so deliberately to avoid payment as long as they possibly could.
23. I was referred to the case of Amber Construction Services Ltd v London Interspace HG Ltd  EWHC 3042 (TCC). Mr Justice Akenhead acknowledged there that circumstances may arise in which it is appropriate for the Court to order otherwise than the fixed costs which is set out in the Civil Procedure Rules unless the circumstances demand it.
24. This is a simple procedure, which has a simple and modest table of costs to deal with such simple procedures. However, because of what happened, I am satisfied that there was a good deal more involved in these oral examinations than would ordinarily be the case, for which the defendants have only themselves to blame because of the way they decided ‘to play this’.
25. I do not regard this as an exceptional case because many debtors try to avoid paying that which is due. I have seen more sophisticated attempts to avoid judgments than this.
26. I was sorely tempted to make an order for the payment of indemnity costs, but, looked at in the round, I believe that the Claimant will be properly and adequately compensated in relation to costs by a standard award. To that extent, I am prepared to step outside the fixed costs table. That is the basis upon which I will assess costs….”
THE CLAIMANT’S APPEAL TO THE COURT OF APPEAL
Lord Justice Newey allowed the claimant’s appeal.
Guidance as to when an indemnity order might be appropriate is to be found in Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson  EWCA Civ 879,  CP Rep 67. In that case, Lord Woolf CJ said (at paragraph 32) that the “critical requirement” was that “there must be some conduct or some circumstance which takes the case out of the norm”. Likewise, Waller LJ said (at paragraph 39):
“The question will always be: is there something in the conduct of the action or the circumstances of the case which takes the case out of the norm in a way which justifies an order for indemnity costs?”
Excelsior was one of the cases considered by the Court of Appeal in Esure Services Ltd v Quarcoo  EWCA Civ 595. There, a Recorder had found the claimant to have been dishonest but declined to order him to pay costs on the indemnity basis. An appeal by the defendant was allowed. In the course of his judgment, Waller LJ said:
“25 The Recorder seems to have construed the word ‘norm’ as indicating that if the situation facing the court was one that quite often occurred that would mean that the situation was within the norm. In my view the word ‘norm’ was not intended to reflect whether what occurred was something that happened often so that in one sense it might be seen as ‘normal’ but was intended to reflect something outside the ordinary and reasonable conduct of proceedings. To bring a dishonest claim and to support a claim by dishonesty cannot be said to be the ordinary and reasonable conduct of proceedings.
26 In my view the Rules entitle a court to take account of the conduct of the parties whether that conduct occurs on many occasions or whether it is rare. So in my judgment, as I say, the Recorder has misdirected himself. That being so, it is for this court to exercise the discretion anew.
27 I have already recited the Rules and it is to the Rules that one must first go. Once one sees the type of conduct that the court must have regard to, it seems to me clear that this was a case in which the conduct of the claimant was one where the court should be inclined to mark its disapproval of the bringing of a dishonest claim and the supporting of that claim by lies, including a lie about whether he had produced a key which did not belong to the car, and which included in fact an attack on the integrity of the claims handler although that was not pursued in cross-examination. The best method by which a court can mark its disapproval when, as here, the claimant would be the paying party, is by making an order for indemnity costs. I for my part have no hesitation in saying that, where insurers establish that a claim has been brought dishonestly, they should on the whole be entitled to an order for indemnity costs not just because of the extra cost they may incur in defending such a claim — though that is considerable — but so that others are discouraged. It is both in the interests of insurers and indeed any defendants, and in the interests of the court, that persons should be discouraged from bringing dishonest claims and from supporting dishonest claims by lies.
28 In my view the appropriate order in this case was to order Mr Quarcoo to pay the costs and to pay those on an indemnity basis. I would allow the appeal against the Recorder’s order in this case and make that order.”
In a similar vein, Longmore LJ said (at paragraph 31):
“A fraudulent claim is, in my judgment, indeed out of the norm and it would be a sad day if this court were to give the impression that fraudulent claims being brought at first instance were in any way within the norm.”
In the present case, Mr Jonathan Gale, who then, as before us, appeared for Whaleys, submitted to Judge Bartfield that there were circumstances taking the case “outside the norm such that indemnity costs should be awarded”. When giving judgment, the Judge did not use the phrase “out of the norm” but rather said that he did not regard the case as “exceptional”. Mr Gale submitted that an “exceptionality” test cannot be equated with asking whether there are circumstances taking the case “out of the norm in a way which justifies an order for indemnity costs”. It seems to me, however, that a reference to whether the case is “exceptional” by a Judge considering whether or not to order indemnity costs need not show him to have adopted the wrong test. Much will depend on the context. While it must be preferable for a Judge to ask himself in terms whether the case is “out of the norm”, not whether it is “exceptional”, in the particular circumstances use of the word “exceptional” may be consistent with the Judge having applied the principles explained in the Excelsior case. In this connection, it is appropriate to remember, as we were reminded by Mr James Malam, who appeared for Mr Bennett and Mr Cubitt, that the “exigencies of daily court room life are such that reasons for judgment will always be capable of having been better expressed”, that “[t]hese reasons should be read on the assumption that, unless he has demonstrated the contrary, the judge knew how he should perform his functions and which matters he should take into account” and that “[a]n appellate court should resist the temptation to subvert the principle that they should not substitute their own discretion for that of the judge by a narrow textual analysis which enables them to claim that he misdirected himself” (to quote from Lord Hoffmann in Piglowska v Piglowski  1 WLR 1360, at 1372).
Judge Bartfield, however, said that the case before him was not “exceptional because many debtors try to avoid paying that which is due” (emphasis added) and went on to say that he had “seen more sophisticated attempts to avoid judgments”. It can thus be seen, I think, that he fell into the same sort of error as the Recorder in Esure Services Ltd v Quarcoo. As Waller LJ explained in that case, a Court can take account of the conduct of the parties “whether that conduct occurs on many occasions or whether it is rare”. As he also said, the word “norm” “was not intended to reflect whether what occurred was something that happened often so that in one sense it might be seen as ‘normal’ but was intended to reflect something outside the ordinary and reasonable conduct of proceedings”. It follows that Judge Bartfield could not properly conclude that the circumstances did not take the case “out of the norm in a way which justifies an order for indemnity costs” on the basis that “many debtors” behave in the same way as Mr Bennett and Mr Cubitt had. Even if that could be said to make the conduct “ordinary”, it would not mean that it was “reasonable”.
Mr Gale submitted to us, as to Judge Bartfield, that the indemnity basis was appropriate in this case. If ever there was a case for indemnity costs, he said, this was it. In contrast, Mr Malam argued that, while his clients should not have behaved as they did, their conduct was not quite sufficient to warrant indemnity costs.
In my view, the conduct on the part of Mr Bennett and Mr Cubitt to which Judge Bartfield referred in his judgment called for indemnity costs. Regardless of whether their behaviour could be described as “ordinary”, it was not “reasonable” and was such as to take the case “out of the norm in a way which justifies an order for indemnity costs”. Despite having the means to pay, Mr Bennett and Mr Cubitt “deliberately” sought “to avoid payment as long as they possibly could” (to quote from Judge Bartfield). They were (again in Judge Bartfield’s words) “arrogant and disobedient” towards Judge Davey QC’s order and, when required to attend for oral examination, evaded service. When orders were made for them to attend a rearranged hearing, they failed to comply with these, with the result that suspended committal orders were made. They then tried to use an application totally without merit to obtain the adjournment of a further hearing and were otherwise uncooperative, including by failing to bring with them documents relating to their means. In consequence, Whaleys were needlessly put to considerable trouble and expense. This is not “reasonable conduct of proceedings” or behaviour that the Court should in any way sanction or encourage.