INDEMNITY COSTS FOLLOWING DISCONTINUANCE OF PROCEEDINGS

CPR 38.3 provides that a Claimant may discontinue a claim by filing and serving a Notice of Discontinuance on the other parties. Under CPR 38.6(1) it states the following:

“Unless the court orders otherwise, a Claimant who discontinues is liable for the costs which a Defendant against whom the Claimant discontinues incurred on or before the date on which the Notice of Discontinuance was served…”.

Under CPR 44.9(1), such an order is a deemed order for costs and the basis of assessment is the standard basis.

The case of Two Right Feet Limited (in liquidation) -v- National Westminster Bank PLC and others is a case where the Claimant discontinued proceedings against the Defendants and the Defendants made an application for costs to be awarded on the indemnity basis due to the following issues:

  1. failure to engage pre-action;
  2. improper and unjustified allegations;
  3. an exaggerated claim;
  4. a case which was speculative (both in facts and law);
  5. a claim which was brought without proper investigation;
  6. concerns as to the approach to disclosure; and
  7. delayed discontinuance, other delays and more minor points.

Background

On 3 March 2015, the Claimant commenced proceedings against the Defendants.  In the claim form, the Claimant alleged that the Defendants were liable for deceit and conspiracy.  The claim was first notified to the First and Second Defendants on 9 June 2015 and the claim form was served on 3 July 2015. The amounts claimed amounted to £20 million. The claims were strenuously denied by the Defendants.  On 7 October 2016 there was a case management conference where directions were set and the case was transferred into the Mercantile Court.  Disclosure followed in January 2017, but on 22 February 2017 the Claimant discontinued its claim. 

Indemnity Basis Costs Order

The Judgment provides very useful information for any party considering an application for an indemnity basis costs order as it cites the leading authorities (paragraph 36 is very useful to read in this regard).

The Judge concluded that an order for indemnity costs was appropriate and determined that the way in which the case had been advanced by the Claimant (and conducted) carried the case out of the norm, which is of course an important consideration for any court when deciding whether to award indemnity costs.

The case also highlights the importance of the receiving party (Defendants in this case) making an application. Notice of Discontinuance creates a deemed order for costs on the standard basis. Should a receiving party feel that they are entitled to indemnity basis costs then they should seek agreement with the paying party (Claimant in this case) or make an application to Court. A receiving party should not leave the matter for detailed assessment – the detailed assessment hearing is a forum to determine the quantum of costs, not to determine the basis of assessment.

This blog was prepared by Andrew McAulay who is a Partner at Clarion and the Head of the Costs and Litigation Funding team.  He can be contacted on 0113 336 3334 or at andrew.mcaulay@clarionsolicitors.com

 

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Indemnity Basis Costs Awards

The case of MacInnes v Hans Thomas Gross [2017] contains some very useful information for any law firm or litigant considering the issue of indemnity basis costs awards. Pages 2 and 3 are the relevant pages to consider in the judgment.

In the case, the First Defendant applied for an indemnity basis costs award against the Claimant, but this was rejected by The Honourable Mr Justice Coulson, and in doing so he considered a number of authorities in relation to such awards. Those very useful authorities are at paragraph 3 of the judgment and are as follows:

  1. Indemnity costs are appropriate only when the conduct of the paying party is unreasonable “to a high degree. ‘Unreasonable’ in this context does not mean merely wrong or misguided in hindsight” see Kiam v MGN Limited [2002].
  2. 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 Excelsior Commercial & Industrial Holdings Limited v Salisbury Hammer Aspden & Johnson [2002].
  3. 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. The pursuit of a hopeless claim (or a claim which a party pursuing it should have realised was hopeless) may well lead to such an order, see Wates Construction Limited v HGP Greentree Allchurch Evans Limited [2006].

The review of key authorities in the judgment is very useful and provides an excellent starting point for anyone tasked with considering whether to apply for an indemnity basis costs award.

Do remember that an indemnity basis costs award should always be sought in the appropriate cases, due to the fact that proportionality is not a consideration/factor when costs are assessed on the indemnity basis. There is also case law that supports the position that a receiving party is not restricted/held to its costs budget where costs are assessed on the indemnity basis (Slick Seating Systems [2013] and Kellie v Wheatley [2014]). CPR 3.18 also supports this.

The new test of proportionality has had a real impact (negatively for receiving parties) on some reported cases (see, for example, The new test of proportionality – 66% reduction) and therefore an indemnity basis award would provide protection for a receiving party from the new test of proportionality. Furthermore, there is a strong argument that an indemnity basis costs award escapes fixed costs (Broadhurst v Tan [2016]) and therefore applications for indemnity basis costs awards may well be on the increase given the likely extension of fixed costs for civil and commercial litigation in the not too distant future.

This blog was prepared by Andrew McAulay who is a Partner at Clarion and the Head of the Costs and Litigation Funding Team. Andrew can be contacted on 0113 336 3334 or at andrew.mcaulay@clarionsolicitors.com.