The Court of Appeal determined that poor conduct and a failure to accept an earlier Part 36 offer were grounds on which to award indemnity costs in the case of Lejonvarn v Burgess & Anor  EWCA Civ 114.
The appellant had provided some gratuitous help to her former neighbours in re-designing the landscape of their garden. They had a falling out and the respondent neighbours subsequently brought proceedings against the appellant on the basis that she had been negligent and owed them a duty of care. Three weeks after proceedings had commenced, the appellant made a Part 36 offer in the sum of £25,000, but this was not accepted. Although at trial it was found that the appellant had been negligent, the respondents had failed on the substantive issues and the £25,000 offer was not beaten. The respondents lodged an appeal which caused their costs to spiral as they pursued their case against the appellant. The respondents were unsuccessful at the appeal and the appellant was awarded costs on the standard basis.
The appellant then proceeded to challenge the standard costs award decision and appealed on the basis that this was incorrectly ordered and indemnity basis costs should instead have been applied. At the appeal hearing Coulson LJ considered the background and undertook a thorough review of authorities relating to indemnity costs, opining that:
“No later than one month after the handing down of the judgment by the Court of Appeal…the respondents, having had time to consider the implications of the Court of Appeal judgment, should have realised that the remaining claims were so speculative/weak that they were very likely to fail, and should not be pursued any further.”
Coulson LJ further explored the respondents’ unreasonable pursuit of the case to trial, considering it to be:
“An irrational desire for punishment unlinked to the merits of the claims” and “precisely the sort of conduct which the court is likely to conclude is out of the norm”.
It was determined overall that the first appeal trial judge had incorrectly applied the test to determine indemnity costs and indemnity costs were in fact appropriate in these circumstances from a specific point in time.
The judgment in this case may be of assistance should you need to consider conduct and indemnity costs in a situation where a party beats their own Part 36 offer. Bear in mind however that it is nuanced to the specific facts of the case and the CPR is clear that entitlement to indemnity costs in these circumstances is not automatic.
The outcome of this case was also interesting from a costs management angle as Coulson LJ found that costs assessed on an indemnity basis are not constrained by an approved budget. Please see my blog for further detail.
Anna Lockyer is an Associate in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact her at firstname.lastname@example.org and 0113 288 5619, or the Clarion Costs Team on 0113 246 0622