SENSIBLE CONCESSIONS PLAY NO PART IN THE ORDERING OF INDEMNITY COSTS: ORDER MADE ON MERIT

I have written about the substantive judgment in Imperial Chemical Industries Limited -v- Merit Merrell Technology Limited [2017] EWHC 1763 (TCC) several times already.  There is a shorter judgment on costs at  Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd [2017] EWHC 2299 (TCC).   There were a number of factors in that case that justified the award of indemnity costs against the claimant. However a sensible concession made by the claimant’s counsel, late in the day, was not a factor that justified indemnity costs.

“it would be wrong, in my judgment, to penalise such a sensible concession by treating it as one of those factors. It was entirely sensible. Concessions like that during litigation are to be encouraged. The concession came at the end of the evidence and, in my judgment, it is not a point that can be relied upon … for indemnity costs and I do not take it into account at all.”

THE FACTS

The claimant had been unsuccessful at trial. The defendant had succeeded on all the issues but one.  The judge had been critical of the claimant’s conduct of the action.  The judge was considering the issue of costs.

THE JUDGMENT ON COSTS

1. 1. Mr Mort for MMT seeks an order for costs against ICI today for the liability trial. He accepts that MMT were not successful on everything because of the legal issue identified about repayment. He also accepts that no money will change hands because he candidly accepts that in the circumstances it would not be correct to make an order for payment prior round 2 taking place. However, he does submit that the correct time in this litigation to make an order for costs is now. In respect of that, he prays in aid a short passage of Nugee J very recently in the case of Merck KGaA v Merck Sharp & Dohme, who said at [6]:

“It is in general a salutary principle that those who lose discrete aspects of complex litigation should pay for the discrete applications or hearings which they lose, and should do so when they lose them rather than leaving the costs to be swept up at trial.”

I should say that Nugee J’s case relates to success on a preliminary issue whereas this case is rather different in that it was a split trial of liability and quantum. However, that is what Mr Mort relies on. He also seeks indemnity costs against ICI.

1. Mr Bowdery for ICI says that this is effectively an academic debate. Given no money will change hands in any event at this stage, and the matters which were resolved by me in the judgment were fairly intractable and needed resolving in one way or another in any event, costs should be reserved. He submits that the points raised by ICI were properly arguable. He also submits that none of the provisions for indemnity costs are engaged and that any suggestion that ICI is running this litigation cynically, or deploying its economic muscle (that is not his phrase or Mr Mort’s phrase but that is my phrase) to snuff out MMT, which is a fairly small company by comparison and is in any event now in voluntary liquidation, is in fact misplaced.

2. I have decided, taking into account all the circumstances, that the correct approach is to make an order for costs now. It is correct that no money will be changing hands at this stage; however, the parties are about to embark on the second round of this litigation and it is further to be hoped that round will not in fact go all the way up to and require a trial. Actions such as this sometimes settle at appropriate stages, but I have to proceed on the basis that round 2 will happen. Round 2 will be very much less of a factual enquiry because it has more limited issues, but depending on the application to amend that is being made immediately after I have finished this short ruling, round 2 will in fact involve more than purely dealing with numbers, or it may involve more than purely dealing with numbers, because there are some principles to be decided too.

3. Also it is the case that even if MMT do not receive any money now, they would in fact have an order in their favour, and certainty in respect of what could potentially be sizable costs on the liability trial. Merely postponing this off to the ultimate resolution of the entire action is, in my judgment, wholly unsatisfactory. Both parties need to know where they stand when that is possible and the cost of the liability trial, which went on for about two and a half weeks, are sizable and should be dealt with now if they can be. In my judgment they can be, and the correct approach is to make an order for costs today.

4. That then leads me to consider what is the correct order for costs? There is no doubt that Mr Bowdery for ICI was successful on his legal arguments in terms of the final accounting/restitutionary issue about the amount of money paid to MMT, and whether ICI could in principle recover any overpayment. However, that was a self-contained and purely legal point. In my judgment, the correct way to deal with that is in fact to make a modest discount to the recovery of costs to which MMT would otherwise be entitled. That discount is going to be five per cent.

5. I then turn to the correct way in which the remaining 95 per cent should be considered on detailed assessment; in other words, on the standard basis or on the indemnity basis? The principles upon which indemnity costs should be awarded are very well known and have been dealt with in a great number of cases, most recently in the TCC by Coulson J in a case called Elvanite but these principles were re-stated by Akenhead J in Courtwell Properties v Greencore [2014] EWHC 184 (TCC) and at [22] and [23] of that judgment Akenhead J explained the approach to indemnity costs. I am going to briefly identify the points which as far as I am concerned are applicable in this case.

6. The first is that indemnity costs are appropriate only where the conduct of the paying party is unreasonable to a high degree. Unreasonable in this context does not mean merely wrong and misguided in hindsight. That is taken from Kiam v MGN Ltd. Secondly, the court must decide whether there is something in the conduct of the action or the circumstances of the case in general which take it out of the norm, in a way which justifies an order for indemnity costs. That statement is taken from Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer. Pausing there, the phrase that is most often deployed in a short application for indemnity costs is that the circumstances in that particular case takes it out of the norm.

7. Thirdly, the pursuit of a of a weak claim will not usually, on its own, justify an order for indemnity costs, provided that 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. That is taken from Wates Construction Ltd v HGP Greentree Alchurch Evans Ltd. The fourth point is that if a claimant casts its claim disproportionately widely, requiring the defendant to meet such a claim, there is no injustice in denying the claimant the benefit of an assessment on a proportionate basis given that the claimant has forfeited its rights to the benefit of the doubt on reasonableness. That is taken from Digicel (St Lucia) Ltd v Cable and Wireless.

8. Akenhead J then added the following points of his own and the first is a quotation from Three Rivers v Governor of the Bank of England which is that the discretion to award indemnity costs is a wide one. It must be exercised taking into account all the circumstances and considering the matters complained of in the context of the overall litigation. Secondly, dishonesty or moral blame does not have to be established to justify indemnity costs. Thirdly, the conduct of experts can justify an order for indemnity costs in respect of costs generated by them. Fourthly, a failure to comply with protocol could result in indemnity costs and, fifthly, a refusal to mediate or engage in mediation or some other alternative dispute resolution process could justify an award of indemnity costs.

9. I am just going to identify those principles which, in my judgment, apply here. They are the first one, indemnity costs are appropriate only where the conduct of the paying party is unreasonable to a high degree; the second one, there is conduct of the action or the circumstances of the case in general which take it out of the norm in a way which justifies an order for indemnity costs and, thirdly, the pursuit of a weak claim. I do not say overall that ICI’s claim was weak but the claim ICI made for repudiation was exceptionally weak. Also I am going to also add another point of my own and then I am going to go to some passages in my judgment.

10. Adopting the Three Rivers’ approach, which is to take account of all the circumstances of the case, evidence emerged during the course of this trial which showed what could only be described as a wholly unreasonable attitude by people employed by AkzoNobel to the contractual obligations in respect of the claimant (its subsidiary company) to MMT and those fall into two categories. One was what I could only describe as a wholesale disregard for their contractual obligations but the second one, which, in my judgment, demonstrates turpitude on the part of the people involved, was that a supplementary agreement was notionally suggested and agreed in principle with MMT which involved a sizable payment being “agreed” to be paid to MMT from ICI. The steering committee, Steer Co, withdrew authority to make that payment to MMT but nobody told MMT that. Therefore, for a number of weeks, MMT was conducting itself in the belief that the payment was about to be made, when in fact and reality no such payment was ever going to be made, because there was no authority to make such a payment. Those involved at AkzoNobel on ICI’s behalf plainly knew that at the time and, in my judgment, that is exactly the sort of unusual factor which demonstrates that indemnity costs could potentially be justified. I am also going to identify the other factors which Mr Mort relies on and I will deal with what they are very briefly.

11. AT [42] of my judgment there is a finding, and this is demonstrated in the documents, that ICI/AkzoNobel knew just a few days before the alleged repudiation was accepted by them that there were no grounds for ICI to assert a repudiatory breach by MMT. They went ahead and behaved as they did in any event as though there were. The second item is that the breaches that were alleged as repudiatory breaches I have found were, having heard the evidence, extraordinarily thin, verging on factually non-existent, and I deal with that at [171] of my judgment. At [172] I identify that the list of repudiatory breaches read simply as if someone had trawled through the correspondence for any reference, and elevated any criticism to the status of repudiatory breach or breaches. Fourthly, this is a point that goes not only to disclosure but the way disclosure was done and what the court was told at the trial in evidence, the series of unsatisfactory explanations for either the non-involvement or involvement of the head of the Steer Co, Ms Schoelenberg. Even during the trial itself the court was simply not given a correct and frank and full explanation in circumstances where interlocutory applications had been defeated by ICI on the basis that she had not been involved in the project until February 2015. The reality was that she was involved as early as August 2014, and had in fact been the person who made the decision to accept a non-existent repudiation by MMT. That, in my judgment, is one of those unusual matters that justify indemnity costs being awarded against ICI.

12. I am also going to deal with a concession but, in my judgment, the concession does not justify indemnity costs. However, the concession was made by Mr Bowdery and is in fact relied on by Mr Mort. I want to explain what my position is on it as far as costs are concerned. There was a contractual argument between the parties whether radiography was in fact part of the contractual terms. This was a very difficult and intractable problem between the parties during the second half of 2014. That contractual argument was conceded by Mr Bowdery in his closing submissions. I do not consider that that concession of itself would justify an award of indemnity costs or is one of the number of factors that would justify it. Although I explained in my judgment that that was a retreat by ICI from a wholly unarguable position, which it undoubtedly was, it would be wrong, in my judgment, to penalise such a sensible concession by treating it as one of those factors. It was entirely sensible. Concessions like that during litigation are to be encouraged. The concession came at the end of the evidence and, in my judgment, it is not a point that can be relied upon by Mr Mort for indemnity costs and I do not take it into account at all.

13. In those circumstances, therefore, the result is that MMT are to be awarded their costs of the liability trial on an indemnity basis subject to detailed assessment, less five per cent to reflect the fact that they did not win on the final accounting/restitutionary argument.