England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		02/03/2010

Mr Justice Nicol :

1. On 5^th February 2010 I gave judgment in this case. I dismissed the Claimants' claims and ordered them to pay the Defendant's costs. However, I reserved the question as to whether those costs should be assessed on the standard or indemnity basis. Submissions as to this issue were to be made in writing and I set a time-table for them to be filed and served.
2. There are two differences between the standard and the indemnity bases of assessment. Where costs are assessed on the standard basis, the court will only allow such costs as are proportionate to the matters in issue to be recovered. On the indemnity basis, proportionality plays no part. Both bases of assessment require the court to consider whether the costs were reasonably incurred and reasonable in amount, but when the assessment is on the indemnity basis any doubt is resolved in favour of the receiving party, on the standard basis any doubt is resolved in favour of the paying party – see CPR 44.4.
3. The Civil Procedure Rules give the court a discretion as to the amount of costs which are to be paid – CPR r.44.3(1)(b). That includes the basis of assessment. However, in deciding what costs order to make, regard must be had to all the circumstances of the case, including the conduct of the parties and any admissible offer to settle – CPR r.44.3(4)(a) and (c). By r.44.3(5)

"The conduct of the parties includes –

(a) conduct before, as well as during the proceedings….

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c) the manner in which a party has pursued or defended his case or a particular allegation….."

4. The Defendant submits that all or part of their costs should be assessed on the indemnity basis. They argue that this is the correct basis for the following reasons:

i) The Claimants' conduct of the litigation. The Defendant alleges that certain of the aspects of the claim were manifestly hopeless. They point in particular to (a) the human rights claim, (b) the claim alleging that the Defendant was negligent in the way that it dealt with racial tensions in the school and (c) the claim alleging that the Defendant was negligent in respect of disciplinary matters within the school.

ii) Although the Defendant made no Part 36 offers to settle, on 9^th September 2009, in response to a suggested Alternative Dispute Resolution, it said that it would be happy to attend a round table meeting. The letter continued,

"Without prejudice and subject to instructions from our client they might be prepared to allow the Claimants to discontinue their claims on the basis that we would not seek all of our costs but we do not anticipate that our clients would be prepared to go any further than this."

iii) The Claimants had made a Part 36 offer that they would be prepared to accept £615,000. This offer was made on 15^th October 2009. If the Claimants had succeeded on liability, they would have been likely to have received damages in excess of this sum. They would accordingly have prima facie been entitled to their costs on an indemnity basis pursuant to CPR r.36.14(3).

iv) The Claimants have given notice that they are funded by an ATE policy with cover of £700,000 plus premium. The terms of the policy mean that the premium is not now payable by the Claimants. It is not unjust that the ATE insurers, who would have been entitled to a very high premium if the Claimants had succeeded, should pay indemnity costs if they do not.

v) The Claimants had a collateral purpose in pursuing these proceedings: they wished to bring the Defendant to book. The Claimants have also made claims under the Criminal Injuries Compensation Scheme. The Part 36 offer by the Claimants indicated that the First Claimant would have been prepared to settle for £500,000. The Scheme would have provided sufficient compensation up to that amount.

5. The Claimants accept that they must the Defendant's costs but argue that these should be assessed on the standard basis. They submit that there was nothing in their conduct of the case which would justify indemnity costs. They dispute that any of the other points made by the Defendant is sufficient to take this case out of the norm so that the standard basis of assessment should still be used.
6. Both parties have referred me to Catalyst Investment Group Ltd v Max Lewisohn, Maximillian and Co (a firm) [2009] EWHC 3501 (Ch) where Barling J. commented at [18]:

"Beyond that [CPR r.44.3-44.5], the Court of Appeal has on more than one occasion declined to give general guidance on the exercise of the jurisdiction to order costs on an indemnity basis, and has chosen instead simply to draw attention to the words of CPR44 and to the extensive breadth of the discretion for which that rule provides. In this regard, see for example, Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer, Aspden and Johnson ( a firm) [2002] EWCA Civ 879 at [32]. However, over the years some guidance has been forthcoming. First of all, the normal order is an order for standard costs. In deciding whether to order indemnity costs, ultimately the question will always be whether there is something in the conduct of the action or in the circumstances of the case which takes the case out of the normal in a way which justifies an order for indemnity costs: see the Excelsior case also at para [39] by Waller LJ. Secondly, it is now clear that indemnity costs are not reserved for cases where there has been a lack of probity or conduct deserving of moral condemnation: see for example May LJ's remarks in Reid Minty (a firm) v Taylor [2001] EWCA Civ 1723 at [27] & [28]. Thirdly, an award of indemnity costs is not penal but compensatory, the question in all cases being, what is fair and reasonable in all the circumstances of the case: see again Reid Minty at [20], [22] & [25]."

7. I would add two further general points. First, a losing case is not to be equated with unreasonable conduct. However, there does come a point at which a claim is so hopeless that its pursuit can be properly characterised as unreasonable conduct and lead to an award of costs on an indemnity basis. Secondly, while the court is now encouraged to look more closely at costs on an issue by issue basis, it is impractical to award the costs of different issues on a different basis unless there is likely to be clarity as to which costs are properly attributable to which issue.
8. In paragraph [201] of my previous judgment I characterised the Claimants' human rights claim as 'hopeless'. In order to succeed, they would have had to show that on 11^th January 2007 the Defendant knew or ought to have known that there was a real and immediate risk that Henry Webster would be exposed to treatment which could be described as inhuman or degrading. Even accepting, as I did, that the hammer attack had the requisite degree of severity, the Claimants still had to prove that the Defendant knew or ought to have known that he was at risk, not just of being caught up in a fight, but subjected to an assault of that type of seriousness. Rightly, the Claimants did not suggest that the Defendant knew that was the case. The pleading was somewhat obscure as to whether it was alleged that the Defendant ought to have known that this was the case. Pleading aside, proof that that was so was always going to be well nigh impossible. As the Judge who conducted the criminal proceedings found, not even the hammer man's co-accused knew that he was carrying such a weapon.
9. In their submissions, the Claimants observe that the Defendant conceded at trial that it was a 'public authority' for the purposes of s.6 of the Human Rights Act 1998. However, this concession was of no consequence unless the Claimants could establish the other necessary elements of the cause of action. In my judgment they had no chance of doing so.
10. This was also a quite discrete issue in the proceedings. Treating this issue differently ought not, therefore, to cause the difficulties that I alluded to earlier. It is correct that this argument occupied a relatively small amount of the time at trial. It may be that the Defendant's costs in this regard are also relatively modest, but that does not seem to me a reason why those costs should not be assessed on the indemnity rather than the standard basis. I so order.
11. The Defendant argues that I should take the same approach to the Claimants' systemic negligence claims based on its allegedly inadequate approach to race relations and/or to discipline and behaviour. These claims were novel, but that alone cannot be a good ground for awarding indemnity costs. The claims failed and they failed for a number of different reasons. But I did not describe them as 'hopeless'. In my judgment, the pursuit of these claims did not cross the rather imprecise border that marks off unreasonable conduct. In addition, I can see force in the Claimants' argument that it would be problematic to draw a clear dividing line between evidence which went only to those claims and that which went, for instance, to the arguments concerning the omission to allocate staff to the tennis court exit or alleged negligence on 11^th January itself.
12. I found the other submissions by the Defendant as to why costs should be assessed on an indemnity basis to be unconvincing. I will give my reasons briefly:

i) The letter of 9^th September 2009 did not contain any offer - it was expressed to be subject to taking instructions. In any case, it held out no more than the possibility of some reduction in what the Defendant would accept in relation to its costs. It was, at most, a proposal that the Claimants should simply throw in the towel. The Claimants' failure to pursue that tentative possibility is no reason for now requiring them to pay costs on an indemnity basis.

ii) The Claimants' Part 36 offer would have been highly material if they had been successful. In those circumstances, they would have been in a strong position to claim that their costs should be paid on an indemnity basis (at least after the time for accepting the offer expired). I cannot see how this is of any relevance now that it is the Defendant who has succeeded at trial. Part 36 is intended to encourage parties to make offers to settle their disputes. If the party who made such an offer was more vulnerable to an order for indemnity costs if he later failed at trial, the rules would have the opposite effect.

iii) This Defendant is not alone in feeling aggrieved at the structure of ATE insurance and the terms of payment of insurance premiums. These are matters which may be considered following Lord Justice Jackson's review of Costs. They are not, though, matters which would justify me in awarding costs on an indemnity basis.

iv) Mrs Webster accepted in evidence that she wished to see the Defendant brought to book for what she considered its defaults in relation to the care of her son. There was nothing improper in her pursuing or supporting the litigation for this purpose. Claimants often have mixed motives in bringing their claims. A desire to obtain compensation can often co-exist with a wish to demonstrate that a defendant has been at fault. That is no reason to require such a claimant who is unsuccessful to pay costs on an indemnity basis. Of course, an over-zealous claimant may engage in unreasonable conduct but (with the exception of the human rights' claim) I have found that that was not the case here.

v) It is also beside the point that the Claimants may receive a substantial payment from the Criminal Injuries Compensation Scheme. That would not affect their cause of action (if it could have been established) against the school. As the Claimants point out in their submissions, no more does the existence of the CICS affect their causes of action against Henry's actual assailants.

Conclusion as to the basis of assessment

13. The Claimants must pay the Defendant's costs of defending the human rights claim on an indemnity basis. The Claimants must pay the remainder of the Defendant's costs on the standard basis. In both cases the costs are to be subject to detailed assessment if not agreed.

Payment on account of costs

14. The Defendant has sought an order under CPR r.44.3(8) that the Claimants pay £300,000 on account of their costs.
15. They observe that their pre-trial estimate of costs was £645,000. They now estimate that the actual costs will have been very much higher and probably about £750,000. They argue that payment of such a sum would also reassure them that the Claimants' ATE insurers were not proposing to renege on their obligations.
16. The Claimants urge me to treat the Defendant's costs estimates with caution. They observe that the fee that was apparently charged by the Defendant's expert was exorbitant and its other costs may also be substantially curtailed when measured against the standards of reasonableness and proportionality. They say that there is no basis for the suggestion that the ATE insurers would renege on their obligations.
17. Where a litigant has a costs order in his favour there may well be some inevitable delay while the precise amount to which he is entitled is ascertained by a detailed assessment. Yet if he is bound to receive a certain part of those costs there is no justification in making him wait even for that part. I am not in a position to calculate with any precision what amount the Defendant is almost certain to recover. However, having conducted the trial which lasted almost 6 weeks and where the Defendant was represented throughout by Leading and Junior Counsel (as well as their instructing solicitor), I can be confident that their recoverable costs will be very substantial. That justifies an order for payment on account, irrespective of the argument about the ATE insurer (In reply, the Defendant accepted that there was no evidence that this particular insurer was minded to do this).
18. In all the circumstances, I shall order the Claimants to pay £250,000 on account of costs.

Costs incurred in resolving the issues in this judgment

19. The parties have been unable to agree what order should be made regarding the costs of the issues which I have dealt with in this Judgment. The Claimants submit that they should be entitled to their costs of dealing with these issues since I have rejected, on all bar one matter, the Defendant's claim for indemnity costs. The Defendant responds that they were successful on that issue and I have ordered a payment on account of costs against the opposition of the Claimants.
20. In my judgment, the mixed outcome is best reflected by saying that there shall be no order for the costs of dealing with the issues in this Judgment.
………………………. Mr Justice Nicol