APPLICATION FOR INDEMNITY COSTS REFUSED: THE JUDGE LOOKS AT THE COSTS BUDGET OF THE LOSING PARTY
We have looked many times at cases where judges have considered granting indemnity costs. This issue was considered by Mr Justice Coulson in MacInnes -v- Gross EWHC 127 (QB). One interesting aspect is that the judge looked at the losing party’s costs budget to assess whether the claim was conducted proportionally.The court also considered the impact of a refusal to engage in mediation.
The claimant’s claims against the defendant failed for a number of reasons*. The defendant made an application for indemnity costs.
(*the judgment in the main action is here)
As set out in the main Judgment, the claimant’s claims against the first defendant failed for a variety of reasons. There was no dispute that, in consequence, the claimant was obliged to pay the first defendant’s costs. The issue concerned the correct basis for the assessment of those costs: the first defendant sought costs on an indemnity basis, whilst the claimant maintained that the costs should be assessed on the standard basis.
(a) Indemnity costs are appropriate only when the conduct of a paying party is unreasonable “to a high degree. ‘Unreasonable’ in this context does not mean merely wrong or misguided in hindsight”: see Simon Browne LJ (as he then was) in Kiam v MGN Limited 1 WLR 2810.
(b) The court must therefore decide whether there is something in the conduct of the action, or the circumstances of the case in general, which takes it ‘out of the norm’ in a way which justifies an order for indemnity for costs: see Waller LJ in Excelsior Commercial and Industrial Holdings Limited v Salisbury Hammer Aspden and Johnson  EWCA Civ 869.
(c) The pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, provided the claim was at least arguable. But the pursuit of a hopeless claim (or a claim which the party pursuing it should have realised was hopeless) may well lead to such an order: see, for example, Wates Construction Limited v HGP Greentree Allchurch Evans Limited  BLR 45.
(a) This was a flawed, speculative, absurd and opportunistic claim;
(b) The amount of the claim had been grossly exaggerated, particularly given that the first defendant had offered the claimant £300,000 on two separate occasions, whilst the only offer made by the claimant was for €11 million, not including costs, shortly before trial;
(c) The claimant’s evidence was unsatisfactory and his conduct was open to criticism;
(d) The claim had been pursued in an unreasonable manner.
In response, Mr Mansfield QC said that this was not a case that could be described as being ‘out of the norm’. He said that the claimant had had a genuine belief in the rightness of his case and had litigated his claim in a reasonable and proportionate manner. Just because the claimant had lost did not mean that it was appropriate to make an order for indemnity costs. Mr Mansfield referred to the fact that, in the substantive judgment, I expressly found that, contrary to the first defendant’s submissions, the claimant had not lied to the court.
Applying the principles set out in paragraph 3 above, I have concluded that this is not a case which can be regarded as ‘out of the norm’. The claimant’s claim failed for a variety of separate reasons. But Mr Mansfield is quite right to say that, just because a claim fails, even if it fails for a number of reasons, that is not on its own sufficient reason to order indemnity costs. The claimant must have known (and will have been advised) that his claim faced a number of difficulties, but it cannot be said that he knew or should have been advised that it was hopeless or bound to fail. I consider that it was properly arguable. For example, whilst I have found that some parts of the claimant’s emails of 24 March and 7 December 2011 significantly undermined his own case, he was entitled to argue that the failure on the part of the first defendant to respond to the first at all, or to deal with some of the details in the second, were points in his favour.
Despite being invited to do so, I found that neither the claimant nor the first defendant deliberately lied to the court. In those circumstances it is difficult for the first defendant now to sustain the argument that the claimant’s evidence was “unsatisfactory”. There were a number of issues on which I found against him, and I criticised some of his answers along the way, but I regard that as part of the court’s ordinary fact-finding process. The claimant’s evidence was not such that it should be marked with an order for indemnity costs.
In relation to conduct generally, I agree with Mr Mansfield that the claimant litigated his claim in a reasonable and proportionate manner. In my view, the fact that the claimant’s approved costs budget was around £234,000, when set against a claim for €13.5 million, demonstrates the proportionate way in which the litigation was conducted.
I accept Mr Weisselberg’s criticisms that the claimant failed to engage with the offers made by the first defendant, and that the claimant’s only offer was both late and absurdly high. However, those failures have to be set against the claimant’s genuine belief in the rightness of his own claim. More importantly, they also have to be considered against the background of the solicitors’ correspondence, which made plain that, on at least two separate occasions, the first defendant, through his solicitors, refused to engage in mediation. Again, that was doubtless because he genuinely believed in the rightness of his defence. But I consider that that failure tempers any criticism that might otherwise be made of the claimant’s rejection of the first defendant’s offers and his failure to make anything like a realistic offer in return.
In the round, I am confident that this is not a case which could fairly be described as being ‘out of the norm’. It is instead a not untypical dispute between commercial men where, on an analysis of the factual evidence and the contemporaneous material, the claim failed for a variety of separate reasons. In such circumstances the first defendant is plainly entitled to his costs, but those costs should be assessed on the standard, and not on an indemnity, basis.”
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