Cut your cloth, or have your bill slashed instead – even on the indemnity basis

May 10, 2021May 10, 2021 clarioncostsLeave a comment

It is an often-misconstrued point of costs law that an indemnity costs order is a magic bullet, the Astra-Zeneca or Pfizer jab of the costs world. However, as the recent case of Louis Dreyfus Company Suisse S.A. v International Bank of St. Petersburg (Joint-Stock Company) [2021] EWHC 1039 (Comm) demonstrates, indemnity costs doesn’t mean you can spend what you like.

In theory – the rules

The bases of costs assessment rank as a book one chapter one of the costs bible foundational costs law principle. They are defined at CPR r. 44.3 (2) and (3) as follows:

(2) Where the amount of costs is to be assessed on the standard basis, the court will –

(a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and

(b) resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.

(Factors which the court may take into account are set out in rule 44.4.)

(3) Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party.

As can be seen above, the difference between how the court will treat costs on the indemnity basis as opposed to the standard basis is not monumental. In fact, the only real difference is that on the standard basis any doubt is resolved in favour of the paying party, whereas on the indemnity basis any doubt is to be resolved in favour of the receiving party.

In practice – the applicable case law

Louis Dreyfus Company Suisse S.A. v International Bank of St. Petersburg (Joint-Stock Company) [2021] EWHC 1039 (Comm) concerned an anti-suit injunction with various other connected issues also dealt with. The ASI was granted, and the Claimant also sought costs on the indemnity basis as is usual in cases such as this [1]. The schedule of costs sought totalled £292,066.00 which Mr Justice Carver described as “surprisingly large”. He considered the conduct of the proceedings and the fact that it had been relatively straight forward with three unopposed hearings. As per the test at r.44.3 the Court had to assess whether the costs were reasonably incurred or were reasonable in amount before then going on to resolve any doubt in favour of the receiving party. The Claimant was reminded of the comments of Leggat J (as was) in Kazakhstan Kagazy plc v Zhunus [2015] EWHC 404 (Comm) para 13, viz. whilst a party may wish to spare no expense in order to obtain a required result, that does not mean that the other party should be expected to foot the bill. It seems to me that that in Mr Justice Carver’s view, the resolution of doubt should not, and cannot override the earlier consideration of costs being unreasonably incurred or unreasonable in amount. In this case, the Claimants costs were reduced by nearly £100,000.00 and allowed at £200,000.00 against a schedule of £292,066.00.

In conclusion – what does this mean for you?

Essentially, the lesson is that assessment of costs on the Indemnity Basis is not a magic bullet and does not mean that the court will give you the benefit of the doubt if your costs were unreasonably incurred or are unreasonable in amount in the first place. Cut your cloth to suit the needs of the case, only incur costs commensurate with the work required in the matter at hand – and always ensure your client is aware that despite wanting a Rolls-Royce, the Court might only agree to a Morris Minor.

You can find out more about our services here or you can contact the Costs and Litigation Funding team at CivilCosts@clarionsolicitors.com.

Appellant victorious in arguing indemnity costs

March 6, 2020October 12, 2020 Anna LockyerLeave a comment

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 [2020] 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 anna.lockyer@clarionsolicitors.com and 0113 288 5619, or the Clarion Costs Team on 0113 246 0622

Court of Appeal finds approved costs budget irrelevant when indemnity basis awarded

February 7, 2020October 12, 2020 Anna Lockyer1 Comment

The Court of Appeal decision in Lejonvarn v Burgess & Anor [2020] EWCA Civ 114 has determined that an approved costs budget is irrelevant where indemnity costs are ordered.

The appellant’s case was that whilst there was an approved costs budget of £415,000, her actual costs were £724,265.63. To allow this would effectively reward her for failing to keep within the budget. Interestingly the budget was only partially costs managed and therefore was subject to change in certain phases in any event.

Lord Justice Coulson acknowledged “The figure produced by an approved cost budget mechanism (CPR r.3.12-r.3.18) is a different thing to the final assessment of costs following the trial. The former is prospective; the latter is retrospective. True it is that, in many cases, the approved costs budget will be the appropriate starting point for the final costs assessment. But that does not detract from the underlying proposition that they are different figures produced by different considerations with different purposes” and in any event “If there is an order for indemnity costs, then prima facie any approved budget becomes irrelevant”.

Although Lord Justice Coulson was not persuaded that there was an approved budget in this particular case he made it clear that costs assessed on an indemnity basis are not constrained by an approved costs budget. He even went so far as to say that his obiter comments in the cases of Elvanite and Bank of Ireland v Watts which suggested the contrary, should be disregarded.

The Fate of the ‘Court Fee only Budget’ post April 2015

January 29, 2015April 13, 2021 Andrew McAulayLeave a comment

Lawyers live in fear of having their costs budget reduced to court fees. If a budget is reduced to court fees, the only solution to minimise the impact of this is to obtain an indemnity basis costs order – approved costs budgets should not be relied upon at any indemnity basis assessment. Costs Management only applies to standard basis assessments, therefore this is the only way that a somewhat hopeless situation could potentially be rectified. At the moment, the Claimant has the advantage. The Claimant can secure an indemnity basis award by making a well-pitched Part 36 offer, the Defendant cannot. Either party can secure indemnity awards raising arguments such as conduct, however awards made on this basis are much more difficult to achieve.

The Rule Committee have identified this and have amended the rules, which will be implemented in April 2015, to address this disparity. Cases in which the offeror’s costs have been limited to court fees is now governed by CPR Part 36.23.

(1) This rule applies in any case where the offeror is treated as having filed a costs budget limited to applicable court fees, or is otherwise limited in their recovery of costs to such fees.

(Rule 3.14 provides that a litigant may be treated as having filed a budget limited to court fees for failure to file a budget.)

(2) “Costs” in rules 36.13(5)(b), 36.17(3)(a) and 36.17(4)(b) shall mean—

(a) in respect of those costs subject to any such limitation, 50% of the costs assessed without reference to the limitation; together with

(b) any other recoverable costs.

The intention of the Rule Committee is to ensure that Part 36 still works in such cases and continues to provide an incentive to make a Part 36 offer. Equally it is important that the innocent party should not regard itself as having a blank cheque to litigate the case. Sanctions must therefore be imposed for turning down a reasonable Part 36 offer.

You can find out more about our services here or you can contact the Costs and Litigation Funding team at CivilCosts@clarionsolicitors.com

Failure to Word Tomlin Order Correctly Can Result in Adverse Costs

December 17, 2014December 14, 2020 Andrew McAulayLeave a comment

We have often encountered difficulties when costs orders have not been termed correctly. One example is where a party failed to include the provision for costs to be assessed in the final Tomlin Order, and simply provided for the losing party to pay the winning costs ‘subject to agreement’. There was no reference to detailed assessment.

In order to commence detailed assessment proceedings, it is necessary to have a ‘right to detailed assessment’ (CPR 47.7). Such a right can arise only as a result either of a court order which states that costs are to be assessed, or a deemed order (for example as a result of acceptance of a CPR 36 offer, or upon notice of discontinuance under CPR 38). Importantly, where an order does not mention costs the general rule is that no party is entitled to its costs (CPR 44.10(1)).

Therefore, in the absence of the inclusion of the terms ‘subject to detailed assessment’ the court held that there was no authority for the costs to be assessed and adjourned the Detailed Assessment hearing.

The costs implications couldn’t be clearer. When concluding any claim it is vital that any Tomlin or Consent Order specifically makes reference to costs to be assessed. Costs Lawyers can assist with the terms of costs orders ensuring that these are completely watertight, and therefore avoiding the possibility of adverse costs or expensive satellite litigation.

You can contact the Clarion Costs Team on 0113 2460622, or by emailing Andrew.McAulay@clarionsolicitors.com.

What if your Precedent H Costs Budget has been reduced to court fees?

December 12, 2014April 13, 2021 Joanne ChaseLeave a comment

Will a budget which has been reduced to court fees apply if indemnity basis costs have been awarded?

Where a budget is limited to court fees, it is advisable to attempt to secure an indemnity basis costs order – costs budgets only apply to standard basis assessments. The CPR is clear regarding this (CPR Part 3.18) and there is now supporting caselaw Kellie v Wheatley & Lloyd Architects Ltd [2014] EWHC 2866 (TCC).

If your budget has been reduced to court fees, can the budget be revised?

If your budget has been reduced to court fees, this does not exclude you from seeking the further costs which may be necessary as a result of any significant developments in the litigation.