QUEEN'S BENCH DIVISION
BIRMINGHAM DISTRICT REGISTRY
B e f o r e :
| (1) INTERCITY TELECOM LIMITED
(2) MODERN OPERATIONS LIMITED
|MR SANJAY SOLANKI
The Defendant chose not to appear and was not represented.
Crown Copyright ©
JUDGE SIMON BROWN QC:
a. A confidentiality clause (clause 9):
You shall not … at any time whether during your employment or after its termination divulge to any person any of the trade secrets or confidential information relating to the Company or any Associated Company … including, without limitation, information relating to the business, finances, technical matters, dealings, transactions, customer lists, supplies, agents, distributors or customers of the Company or any Associated Company so far as they have come or may come to your knowledge during you employment … You will not use or attempt to use any such information in any manner which may injure or cause loss or may be calculated to injure or cause loss whether directly or indirectly to the Company or any Associated Company and will use your best endeavours to prevent the publication or disclosure of all matters entrusted to you…
b. A requirement to devote working hours on Company duties (clause 10):
10.1 You must devote the whole of your time attention and abilities during your hours or work for the Company to your duties. You may not, under any circumstances, whether directly or indirectly undertake any other duties of whatever kind during your hours of work for the Company.
10.2 You may not without the previous written consent of the managing director of the Company be engaged, concerned or interested, whether directly or indirectly, in any business or employment whether or not part time and whether or not similar to or in any way connected or competitive with the business of the Company or any Associated Company.
c. Restrictive covenants (clause 11):
11.1 You covenant with the Company that you will shall not without the prior written consent of the managing director of the Company during the period of 12 months following the date of termination of your employment … directly or indirectly, whether on your own account or in conjunction with or on behalf of other person, firm, company or entity:
11.1.1 in competition with the Company or any Associated Company and in respect of goods or services supplied by the Company or any Associated Company during the 12 months immediately prior to the Termination Date:
220.127.116.11 solicit interfere with or endeavour to entice away from the Company or any Associated Company the custom of any person, firm, company or other entity who was at any time during the period of 12 months immediately prior to the Termination Date a customer of the Company or any Associated Company with whom or which you had contact by virtue of your employment during the period of 12 months immediately prior to the Termination Date; or
18.104.22.168 accept business from any person, firm, company or other entity who was at any time during the period of 12 months immediately prior to the Termination Date a customer of the Company or any Associated Company with whom or which you had contact by virtue of your employment during the period of 12 months immediately prior to the Termination Date; or
22.214.171.124 solicit interfere with or endeavour to entice away from the Company or any Associated Company the custom of any person, firm, company or other entity with whom or which you had contact by virtue of your employment during the period of 12 months immediately prior to the Termination Date and who you know or ought to know is a Potential Customer; or
126.96.36.199 accept business from any person, firm, company or other entity with whom or which you had contact by virtue of your employment during the period of 12 months immediately prior to the Termination Date who you know or ought to know is a Potential Customer...
11.4 "Potential customer" means any person, firm, company or entity with whom or which the Company or any Associated Company has had contact including (but not limited to) discussions meetings or written correspondence to or from any such person, firm, company or entity regarding a prospective business relationship at any time during the 12 months prior to the Termination Date...
11.7 Whilst the restrictions in this paragraph  are considered by the parties to be reasonable in all the circumstances it is agreed that if any of the restrictions shall be held to be invalid, unlawful or unenforceable for whatever reason by any court or body of competent jurisdiction then such provision (or part thereof) shall be severed from the remaining provisions which shall continue to be valid to the fullest extent permitted by law...
12. The restrictions imposed on you by paragraphs [9, 10 and 11] are intended to be in addition to and not to derogate from or be in substitution for any duty or obligation which you may at any time have by virtue of any statute, rule or common law or equity.
d. An obligation to deliver-up materials upon termination of employment (Clause 21.7):
21.7 Immediately upon termination of your employment (or the Company's earlier request) you must return to your departmental manager:
21.7.1 all notes, documents and records, computer lists, disks or programs, diaries, customer record cards, business cards, pricing lists and technical data which may have been prepared by you or have come into your possession or control in the course of your employment or which relate directly or indirectly to the business of the Company or any Associated Company and you shall not retain any copies thereof …
a. An implied duty of good faith and fidelity;
b. An implied duty of trust and confidence;
c. A duty of confidence; and
d. Fiduciary duties by reason of seniority and close association with the Claimants' customers and potential customers.
Database rights and duties
a. Section 3A(1) of the Copyright, Designs and Patents Act 1988 ("CDPA"), as inserted by the Database Regulations gives a wide definition of 'databases' covering, for example, traditional mailing lists and lists of customers as well as telephone directories, encyclopaedias and card indexes, whether held electronically or in paper form
(1) In this Part "database" means a collection of independent works, data or other materials which—
(a) are arranged in a systematic or methodical way, and
(b) are individually accessible by electronic or other means …
b. By Regulation 3 of the Database Regulations, a database right "subsists … in a database if there has been a substantial investment in obtaining, verifying or presenting the contents of the database."
c. By Regulation 12:
i. 'Investment' includes "any investment, whether of financial, human or technical resources";
ii. 'Substantial' means "substantial in terms of quantity or quality or a combination of both".
d. By Regulation 14, where a database is made by an employee in the course of his employment, his employer is regarded as the maker of the database.
e. By Regulation 15, the maker of the database is the first owner of the database right in it.
f. By Regulation 16, it is provided that:
i. "a person infringes database right in a database if, without the consent of the owner of the right, he extracts or re-utilises all or a substantial part of the contents of the database";
ii. "the repeated and systematic extraction or re-utilisation of insubstantial parts of the contents of a database may amount to the extraction or re-utilisation of a substantial part of those contents."
g. By Regulation 23, sections 96 to 102 of the CDPA (rights and remedies of copyright owner and exclusive licensee) apply in relation to database right as they apply in relation to copyright and copyrights works.
h. Section 96(2) of the CDPA provides that "In an action for infringement of copyright all such relief by way of damages, injunctions, accounts or otherwise is available to the plaintiff as is available in respect of the infringement of any other property right."
i. By section 97(2) of the CPDA, "The court may in an action for infringement of copyright having regard to all the circumstances, and in particular to (a) the flagrancy of the infringement, and (b) any benefit accruing to the defendant by reason of the infringement, award such additional damages as the justice of the case may require."
j. Such 'additional damages' may include a punitive element: Cala Homes v Alfred McAlpine Homes  FSR 818 and Nottinghamshire Healthcare NHS Trust v News Group Newspapers Ltd  EWHC 409 (Ch);  E.M.L.R. 33.
Procedure and evidence
a. On 13th May 2014, the claim was issued, together with an application for injunctive relief.
b. On 27th May 2014, upon the Defendant giving various undertakings relating to his contractual obligations and the Claimants' data and customers, the court made an order backed with a Penal Notice and directions for a speedy trial.
c. On 10th June 2014, Mr Solanki delivered-up to the Claimants' solicitors the First Memory Stick, in apparent compliance with paragraph 3 of the Undertaking.
d. On 4th July 2014, the Defendant served a closely typed 26 page Defence consisting of 88 paragraphs essentially denying any wrongdoing, admitting he had downloaded documents onto a single USB memory stick with his solicitors solely for the purposes of a claim for unfair dismissal, and claiming that he had been wrongfully dismissed and remained unemployed. In summary, by that statement Mr Solanki:
i. "[V]ehemently denie[d] all of the false allegations made against him…"; and
ii. Said that the only documents retained following his resignation were retained "for the sole purpose of a Protected Disclosure claim…"; and
iii. Asserted that he had not taken "steps to contact [Intercity's] clients for the purposes of encouraging them to move their business across to competitors." and
iv. In particular in paragraphs 30, he swore that '"the Defendant will rebut and discredit the false allegations made against him by the First and Second Claimants with regards to any form of business activity involving ASB Utilities Limited, Salts Healthcare Limited and Phonestall.com Limited, and others"
e. On 4th September 2014, the Claimants made an application to the court seeking the enforcement of the Order of the Court of 27th May 2014.
f. On 24th September 2014, upon the Defendant admitting that two additional USB memory sticks existed but that one ('Scan Disk') contained only music files, the Court made a further Order backed by a Penal Notice, relating to ESI and disclosure.
g. On 14th November 2014, Mr Solanki swore a lengthy 5th affidavit admitting in paragraph 43, contrary to his Defence after his missing USB memory sticks had been examined, that he had assisted and referred customers and potential customers of Intercity to Phonestall.com Ltd, Business Mobile Airtime Ltd and ScanCom Distribution Ltd.
h. On 26th January 2015, the Defendant admitted two contempts of court for breaching court orders. These will be separately dealt with by way of a financial penalty in due course with the Defendant legally represented under legal aid. The contempts 'per se' do not form any part of this judgment.
a. On Saturday 11th January 2014, Mr Solanki sent himself a blank e-mail with an Excel spreadsheet containing all his commercially sensitive customer accounts, according to Mr Burke.
b. On 23rd January 2014, a Scancom mobile proposal for 4C was 'Prepared by Sanjay Solanki, Senior Business Development Consultant', according to a document on a disclosed memory stick.
c. On 26th January 2014, Mr Solanki completed his own Excel spreadsheet of hundreds of his employer's customers, their accounts and details and placed it on his own secret USB memory stick now disclosed in File D at trial.
d. On 29th January 2014 the Defendant emailed Tom Craig at EvoEnergy on behalf of Intercity. Later an email from 'firstname.lastname@example.org' requested "Thank you for your time earlier today. Please can I ask you to forward all details through to this email address at your earliest convenience" as revealed by an email on a disclosed memory stick.
e. On Saturday 1st February 2014, Mr Solanki ran 39 six month spends for 36 different accounts, including three he did not manage and should not have accessed at all, according to his CEO Mr Burke.
f. Whilst away on leave between 3-5th February 2014, there are records on a disclosed memory stick of:
i. 5th February – 'Sanjay Solanki, Senior Business Development Consultant' at Phonestall emailing internally at Phonestall regarding an EvoEnergy proposal;
ii. 5th February 2014- a Scancom slide deck concerning another customer HCL. 'Audience' is stated as including 'Sanjay Solanki, Senior Business Consultant'; and
iii. 6th February- Expenses claim in respect of a journey to Zebra Technologies, yet another customer.
g. The hard drives on the Toshiba laptop had been cleared upon their returned on 14th February 2014 and external drives E:/ and F:/ had been used. According to Mr Woolstenhulme in his witness statement of 4th September 2014, 37 connections took place between 1st February and 13th February 2014 using Hewlett Packard v165 and SanDisk Cruzer USB memory sticks.
h. On 2nd March 2014, the Defendant created a 'to do list', containing "Additional Notes: Black out all references to Phonestall"
i. On 10th June 2014, Mr Solanki delivered-up to the Claimants' solicitors the First Memory Stick, in apparent compliance with paragraph 3 of the Undertaking. In his Second Affidavit of 10th June 2014, Mr Solanki swore :
"…I have not engaged in any business activity with any of the Claimants' customers and/or potential customers since I resigned from my position as National Account Manager at Intercity …"
j. The Claimants' solicitors analysed the First Memory Stick and discovered that a number of documents which had been accessed by Mr Solanki on his laptop using an external storage devices were not present on the memory stick. It therefore appeared to them that Mr Solanki must have been in possession of additional storage devices.
k. On 4 August 2014, the Claimants' solicitors wrote to Mr Solanki and asked him to provide further information. The request for further information included requests seeking clarity regarding Mr Solanki's possession of external storage devices; the Claimants' solicitors explained that they did not accept Mr Solanki's representation that the only memory stick he had in his control was the First Memory Stick which had been held by his solicitors.
l. On 18 August 2014, Mr Solanki provided a response to the request for further information, endorsed with a statement of truth. In that response, Mr Solanki confirmed that "…the [First Memory Stick] was the original memory stick referred to at the hearing [on 27 May]." Mr Solanki went on to represent that there was only one memory stick: "…the wrongful assumption and allegation that I was using multiple storage devices is unfounded and without substance." Mr Solanki said that he had "fully complied with the Order made [on] 27 May 2014."
m. Further interrogation of Mr Solanki's laptop by the Claimants suggested that in fact three external storage devices had been used on the laptop: (i) a Hewlett Packard memory stick; (ii) a SanDisk Cruzer memory stick; and (iii) two different Blackberry telephones with an associated storage drive. None of these memory sticks matched the make or model of the First Memory Stick. The Claimants therefore suspected that Mr Solanki had failed to comply with the Undertaking, in particular the requirement to deliver-up external storage devices.
n. Mr Solanki's further information dated 18 August 2014 also explained that a document entitled "Voicemail Fraud & Other Evidence.pdf" (which contained the Claimants' confidential information because it contained printed copies of the Claimants' database) had been created on 7 June 2014 (i.e. after the Undertaking) because it was a 'rescan' of hardcopy documents that had been in his possession. Mr Solanki claimed that the original attempt to scan the documents had not worked correctly and therefore he attempted to scan them again. Mr Solanki then claimed that "hardcopies of this document are no longer in my possession and they have been disposed of responsibly." From this particular episode, it was apparent that:
i. Mr Solanki had destroyed hardcopies of documents that were in his possession, notwithstanding the Undertaking and, in particular, the obligation to deliver-up documents to the Claimants.
ii. Mr Solanki had deleted and created electronic documents on the USB stick, notwithstanding the Undertaking.
o. On 12 August 2014, disclosure was provided by the parties.
p. On 4th September 2014, the Claimants made an application to the court seeking the enforcement of the Order of the Court of 27th May 2014.
q. On 24 September 2014, Mr Solanki attended the hearing and accepted that there were further memory sticks which he had used but he claimed that that one of them (the SanDisk Memory Stick) was "simply music files, Bollywood music files…" according to the transcript of the hearing.
r. Following the hearing, Mr Solanki delivered-up the HP Memory Stick and the SanDisk Memory Stick.
s. On 8 October 2014, Mr Solanki swore a further third affidavit swearing: "the [SanDisk Memory Stick] is the device [he] use[s] to store [his] personal music and has been listened to, and edited on numerous occasions since 13 February 2014."
t. Upon initial inspection, Mr Solanki's claim appeared to be correct – the USB stick did contain just Bollywood music files. However, further review demonstrated that the date of creation of these files was 11 September 2014 at a time between 12:57pm and 12:59pm. Significantly, this post-dated the date upon which the Defendant learnt that the Claimants had discovered the existence of the additional memory sticks, i.e. 4 September 2014 when they made their application and before a court hearing.
u. The Claimants sent the memory stick to Mr Birch, a forensic analyst, for review. He discovered that the SanDisk memory stick had contained various emails that had been extracted by the Defendant during his work for the Claimants. Moreover, the memory stick was shown to have previously contained a spreadsheet with details of thousands of the Claimants' customers; that file was created on 26 January 2014 and modified on 13 March 2014. Of utmost concern to the Claimants, the database had entries highlighted as "completed" and these included a number of accounts which the Claimants had mystifyingly lost. It was therefore clear that Mr Solanki had been wrong when he said in his Third Affidavit that the SanDisk Memory Stick was the device he had used to store music. Moreover, it was apparent that Mr Solanki had been untruthful to the Court when he said that the memory stick contained mere music files. The Third Affidavit also stated that "no documents in [Mr Solanki's] possession after 14 May 2014 and covered by paragraph 3 of [the Undertaking] have been destroyed, removed, disposed of and/or edited." This was wrong too because the list of files and directories that had been stored on the SanDisk Memory Stick included files that were not on the memory stick at the time that they were delivered-up to the Claimants. Such deleted files and directories included: (i) a document relating to HCL (one of the Claimants' most biggest customers) which was last accessed in September 2014 and which was in existence prior to May 2014; and (ii) a directory entitled 'Phonestall' (last accessed on 1 June 2014) – contrary to Mr Solanki's defence claims that he didn't have "any form of business contact with ASB Utilities Limited, Salts Healthcare Limited and Phonestall.com Limited, and others" .
v. On 14 November 2014, Mr Solanki served a further fifth affidavit on the Claimants in which he admitted, contrary to his previously strong denials, that he had been involved with the Claimants' customers, saying that he only assisted and referred potential customers and customers of the Claimants after his resignation to Phonestall.com Limited, Business Mobile Airtime Limited and ScanCom Distribution Limited.
w. On 8th December 2014, Mr Birch reported that he had recovered thousands of the Claimants' customer files from the three USB memory sticks of the Defendant. These are in Trial bundle D. As all these documents belong to the Claimants and contain highly sensitive commercial information concerning their customers, I rule that they, and all copies in either electronic or paper form, must forthwith be returned to them and not used or passed onto others, pursuant to CPR 31.22.
a. Declarations as to Mr Solanki's breaches;
b. Damages for breach of contract or alternatively an account of profits (such election to be made in closing if not sooner);
c. Damages for breach of the Claimants' database rights;
d. An order that Mr Solanki deliver-up all confidential information and/or database rights belonging the Claimants;
e. An injunction to restrain Mr Solanki from acting in breach of the Claimants' database rights;
f. Interest and costs.
a. Issue 1: Was Mr Solanki constructively dismissed so as to release him from his obligations under his contract of employment? Mr Solanki has claimed that Modern Operations breached the implied term of trust and confidence and that he accepted that breach by submitting his resignation.
b. Issue 2: Did Mr Solanki breach the terms of his contract of employment–clauses 9, 10 and/or 11?
c. Issue 3: Did Mr Solanki breach a duty of confidence to the Claimants?
d. Issue 4: Did Mr Solanki breach the Claimants' database rights?
e. Issue 5: What are the appropriate remedies?
Issue 1. Dismissal or resignation?
a. On 2 February 2014, Mr Solanki sent an email to Intercity threatening legal action unless Intercity entered into a financial settlement with him:
"In order to avoid me having to proceed with legal action in pursuant of a valid claim against Intercity … I would like the business to consider providing me with a Settlement Agreement for consideration and I would also like Intercity … to consider entering into a 'pre-claim conciliation' process with ACAS if the business feels this would help to speed up the process. In order to assist I have attached the following documents for your perusal;
ACAS Code of Practise on Settlement Agreements
ACAS Settlement Agreement – A Guide
Model Settlement Agreement Template"
b. Upon receipt of this email, Intercity attempted to arrange a meeting with Mr Solanki however he said that he had to take an impromptu 3 days holiday "to provide Intercity Telecom and [himself] with some space and time to reflect accordingly." Whereas, in truth and in fact:
i. On 5 February 2014, Mr Solanki attended HCL (one of the Claimants' then most significant customers) to give a presentation on behalf of Scancom (a business apparently in competition with Intercity); and
ii. On 6 February 2014, Mr Solanki attended Zebra Technologies Europe Limited on behalf of Phonestall (another business apparently in competition with Intercity).
c. On 7 February 2014, Mr Solanki finally attended a discussion with Intercity and at that meeting he offered two possible outcomes: (1) Intercity enter into a compromise agreement so as to enable him to leave the company; or (2) Intercity face legal action. In other words, Mr Solanki was making it clear that he wanted to leave Intercity.
d. On 14 February 2014, Mr Solanki resigned with immediate effect. At the time of his resignation he alleged that he was entitled to "resign with immediate effect due to a fundamental breach of contract and a fundamental breakdown of trust." Mr Solanki's letter of resignation stated "all terms and conditions within [his] original contract of employment are now effectively null and void." i.e. his restrictive covenants.
Issue 2: Contract breaches
a. Clause 10 (whilst still employed)
i. Between 17 and 27 January 2014, Intercity received a referral for a company called 4C Associates from an existing customer, HCL. The referral was passed to Mr Solanki. However, on 23 January 2014 Mr Solanki prepared a presentation for 4C Associates on behalf of Scancom. It appears that as a result of Mr Solanki's work 4C Associated entered into a contract with Scancom for which he received a share of the profit.
ii. On 5 and 6 February 2014, Mr Solanki gave presentations to customers HCL and Zebra Technologies Europe on behalf of Scancom and Phonestall. Emails to Mr Solanki's email address at Scancom (email@example.com) show that Mr Solanki was involved in putting together a mobile tariff audit for Zebra on 12 February 2014. This e-mail address is clearly his as it is cross referenceable with his mobile phone number.
iii. On 3 February 2014, Mr Solanki was involved in a quotation made for another customer John Shepherd Lettings from Global 4 Communications.
iv. On or about 5 February 2014, Mr Solanki prepared a proposal for HCL on behalf of Scancom. Mr Solanki had also retained a copy of the proposal that had been made by Intercity to HCL and was therefore able to ensure that Scancom's proposal undercut Intercity's proposal.
e. Clause 11 – restrictive covenants
i. During the course of the covenants, there is clear evidence in the metadata on the wiped USB memory sticks that Mr Solanki solicited, interfered with and endeavoured to entice away from Intercity the custom of Intercity's customers and potential customers. In particular: Kevin Cash, 4C, Zebra Technologies, HCL, J Coffey Construction, Bethmar Limited, John Shepherd Lettings, Caledonian Modular, Pertemps People Development Group, Midland Counties Heating Services and Multi Kent Services Limited.
ii. Similarly, during the course of the covenants, Mr Solanki, acting in conjunction with Paddy Sharma, accepted business from 4C, J Coffey and Kevin Cash.
Issue 3: Breach of confidence- Clause 9 and in equity
a. The information itself must have the necessary quality of confidence about it;
b. The information must have been imparted in circumstances importing an obligation of confidence; and
c. There must be an unauthorised use (or threatened use) of that information to the detriment of the party communicating it.
Issue 4: Database breaches
a. An implied duty of trust and confidence.
b. An implied duty of good faith and fidelity.
Issue 5: What are the appropriate remedies?
"To assess what profits were lost as a result of the loss of the franchisees, it is necessary to consider what would have happened if the Defendants had acted lawfully and had not induced the franchisees to transfer their business to Anglo Dutch in June 2005. This necessarily involves a large element of conjecture. The need for such conjecture, however, is itself a consequence of the Defendants' conduct. It seems to me that, as in cases where the court has to form a view of what would have happened in hypothetical circumstances in order to evaluate a lost chance, the principle in Armory v Delamirie (1722) 1 Stra 505, 93 ER 664, [1558-1774] All ER 121 applies. In essence, this requires the court to resolve uncertainties by making assumptions generous to the Claimant where it is the Defendant's wrongdoing which has created those uncertainties: see e.g. Browning v Brachers  EWCA Civ 753,  PNLR 44 at paras 204-212; Phillips & Co v Whatley  Lloyd's IR 111, 121 at para 45. This also accords with the second of the two principles stated by Lord Wilberforce in the General Tyre & Rubber Co case which I referred to earlier."
This also accords with the second of the two principles stated by Lord Wilberforce in the General Tyre & Rubber Co case which I referred to earlier."
"Some claims for consequential loss are capable of being established with precision (for example, expenses incurred prior to the date of trial). Other forms of consequential loss are not capable of similarly precise calculation because they involve the attempted measurement of things which would or might have happened (or might not have happened) but for the defendant's wrongful conduct, as distinct from things which have happened. In such a situation the law does not require a claimant to perform the impossible, nor does it apply the balance of probability test to the measurement of the loss."
- Zebra Technologies Europe Limited (£124,795 lost gross profit)
- J Coffey (£24,124 lost gross profit)
- Kevin Cash (£12,575 lost gross profit)
- John Shepherd (£4,442)
- Pertemps People Development Grp (£56,394)
- Bethmar Limited (£19, 357)
In addition, the Claimants have lost business with 4C and EvoEnergy because Mr Solanki diverted (or attempted to divert) that business away from Intercity:
- 4C (£23,950 lost gross profit)
- EvoEnergy (£24,372 lost gross profit
a. Database rights subsist within the Claimants' database, including, for the avoidance of doubt, the content of the documents shown at:
i. pages 1-45, 46-47, 47A-47B, 251B – 251G of Trial Bundle D; and
ii. pages 59 – 60 of Trial Bundle G;
which contain extracts from the Claimants' databases.
b. The Defendant infringed the Claimants' database rights.
a. The Defendant shall not, however acting and whether by himself, his agents, his servants or otherwise, breach clause 9 of his employment contract which he signed on 2 May 2000, such clause having survived termination of the contract.
b. The Defendant shall not, however acting and whether by himself, his agents, his servants or otherwise, further infringe the Claimants' database rights. For the avoidance of any doubt, this prohibits the Defendant from extracting or re-utilising all or a substantial part of the contents of any databases acquired from the Claimants, including the content of the databases at pages 1-45, 46-47, 47A-47B, 251B – 251G of Trial Bundle D and pages 59 – 60 of Trial Bundle G and which contain extracts from the Claimants' databases.
'The applicable principles, in a case where indemnity costs are claimed on the ground that the paying party's conduct was unreasonable, so far as relevant to this claim, are as follows:
(a) As the very word 'standard' implies, the standard basis will be the normal basis of assessment where the circumstances do not justify an award on an indemnity basis. For there to be an order for assessment on the indemnity basis, there must be some conduct or some circumstance which takes the case out of the norm. That is the critical requirement.
(b) Dishonesty or moral blame does not have to be established to justify indemnity costs. But indemnity costs are appropriate only where the conduct of the paying party was unreasonable to a high degree. "Unreasonable" in this context does not mean merely wrong or misguided in hindsight.
(c) 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 costs.
(d) The discretion to award indemnity costs is a wide one and must be exercised taking into account all the circumstances and considering the matters complained of in the context of the overall litigation. Cases vary very considerably and each case is highly fact-dependent.
(e) It is important not to lose sight of the essential requirement of unreasonable or inappropriate conduct overall and not to treat examples of such which may amount to such conduct as necessarily constituting it. The essential question is whether the relevant conduct makes it just as between the parties to remove from the paying party the twofold benefit of an order on the standard basis, as compared with an order on the indemnity basis, that is to say, to enable the receiving party to recover its costs, reasonably incurred and reasonable in amount, with the benefit of the doubt being given to the receiving party and without the receiving party having to address (and persuade the court upon) the subject of proportionality.
(f) The pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, provided that the claim was at least arguable. However, the pursuit of a hopeless claim (or a claim which the party pursuing it should have realised was hopeless) may lead to such an order. In Wates Construction Ltd v HGP Greentree Alchurch Evans Ltd  BLR 45 at  HHJ Coulson QC said: "I consider that to maintain a claim that you know, or ought to know, is doomed to fail on the facts and on the law, is conduct that is so unreasonable as to justify an order for indemnity costs."
(g) If a claimant casts its claim disproportionately wide, and requires the defendant to meet such a claim, there may be no injustice in denying the claimant the benefit of an assessment on a proportionate basis or in the claimant forfeiting its normal right to the benefit of the doubt on reasonableness.
(h) The making of a grossly exaggerated claim may be a ground for indemnity costs.
(i) The rejection of reasonable attempts to settle will not normally, by itself, justify an award of indemnity costs. In Kiam v MGN Ltd (No. 2)  EWCA Civ 66,  1 WLR 2810 at , Simon Brown LJ said: "… it will be a rare case indeed where the refusal of a settlement offer will attract under Part 44 not merely an adverse order for costs, but an order on an indemnity rather than standard basis." However, if coupled with other factors, it may do so: for an example see Barr v Biffa Waste Services Ltd (Costs)  EWHC 1107 (TCC); 137 Con LR 268 (Coulson J). '
His Honour Judge Simon Brown QC
Specialist Mercantile Judge
Birmingham Civil Justice Centre