England and Wales High Court (Technology and Construction Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		08/06/2006

 


HIS HONOUR JUDGE PETER COULSON QC:

Introduction

1. Today I handed down my substantive Judgment in this case with a Neutral Citation Number [2006] EWHC 1325 (TCC). The Claimant's claims against the Defendant failed on both liability and causation. As a result, there is no argument now that the Claimant should pay the Defendant's costs. What is disputed is the basis for the assessment of those costs. The Defendant is content with the standard basis for its costs up to the 11^th April 2006, but seeks to have its costs thereafter assessed on an indemnity basis. The Claimant contends that the entirety of the Defendant's costs should be assessed on a standard basis.

Principles

2. There are a number of important principles relating to the proper exercise of the Court's discretion on costs, including its discretion to order costs to be assessed on an indemnity basis. Those are set out below.

Offers

3. The relevant principles concerning offers which are not beaten are as follows:

a) The Court should have regard to all admissible offers that have been made when considering the appropriate costs orders to make, including any such offers which do not comply with CPR Part 36. This is expressly required by CPR Part 44.3(4)(c) which provides:

"In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including...

(c) any payment into court or admissible offer to settle made by a party which is drawn to the court's attention (whether or not made in accordance with Part 36)."

b) However, in order to be treated as having the costs consequences of a Part 36 offer, an offer must meet the four requirements set out by Dyson L.J. in Trustees of Stokes Pension Fund v Western Power Distribution Power (South West) plc [2005] EWCA Civ 854 reported at [2005] 1 WLR, 3595, namely that:

i the offer was expressed in terms which left no doubt as to what was being offered, including which parts of the claim it was intended to satisfy, whether any Counterclaim had been taken into account, and what provision for interest was proposed;

ii it was open for acceptance for at least 21 days;

iii it was not a sham or non-serious offer; and

iv it was made by a Defendant who was clearly good for the money at the time the offer was made.

c) A failure to beat a CPR Part 36 or payment into Court will not on its own be sufficient to justify an order for indemnity costs: (see Excelsior Commercial & Industrial Holdings Limited v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879)

Conduct

4. The conduct of the parties is an important consideration on any application for indemnity costs. The authorities can be summarised in this way:

a) Orders for indemnity costs are no longer limited to cases where the Court wishes to express disapproval of the way in which the litigation has been conducted. An order for indemnity costs can be justified even where the conduct could not properly be regarded as lacking in moral probity or deserving moral condemnation: see May L.J. in Reid Minty v Taylor [2002] 1 WLR, 2800.

b) Notwithstanding this, it appears that any such conduct must be demonstrated to be unreasonable "to a high degree. Unreasonable in this context certainly does not mean merely wrong or misguided in hindsight": see Simon Brown L.J. in Kiam v MGM Ltd (2) [2002] 1 WLR, 2810.

c) The cases where the conduct of one of the parties has led to an order for indemnity costs demonstrate the types of conduct regarded by the court as "unreasonable to a high degree". For instance, indemnity costs have been ordered in situations where one party has used the litigation for ulterior commercial purposes (see Amoco (UK) v British American Offshore Limited [2002] B.L.R, 135) or where an inherently weak case which had no real prospect of success was maintained up to and beyond the first day of trial (see Atlantic Bar & Grill Ltd v Post House Hotels Ltd [2000] CP Rep 32).

Strength/Weakness of Unsuccessful Case

5. This is an aspect of conduct which is particularly important when considering a possible order for indemnity costs. It should be noted that:

a) The fact that, following an analysis of all the evidence at trial, a Claimant's claim is demonstrated as being weak (or a Defendant's defence is shown to be unsustainable) such that it is rejected by the Court, will not of itself justify an order for indemnity costs. In LMS International v Styrene Packaging and Insulation Limited [2006] BLR 50, I rejected the Defendant's defence on all points, but it was not a case in which I considered it was appropriate to order indemnity costs because the Defendant's case, although weak, could never have been fairly described as hopeless, and required careful legal and factual analysis.

b) On the other hand, the fact that a Claimant chooses to pursue a claim which it knows, or must reasonably ought to have known, is hopeless and doomed to fail, can justify the making of such an order. That was the reason for the order made in Atlantic Bar & Grill. It was also the order made in Wates Construction v HGP Greentree Alchurch Evans [2006] BLR 45, to cover the period from the date, some weeks before the trial, when, on all the available information, the Claimant knew (or should have known) that its claim would fail.

Relatively Extreme Cases

6. Taking all these points of principle into account, it seems to me that, whilst orders for indemnity costs are more common under the CPR than they were under the old rules, and rightly so, they are still only appropriate in relatively extreme cases. A recent example of a TCC case in which all the factors were present to justify the making of an order for indemnity costs to cover the whole of one party's costs of an action is Tonkin v UK Insurance [2006] EWHC 1185 (TCC).

Relevant Facts

7. I consider the facts relevant to the exercise of my discretion in this case as those set out below.
8. On the 31^st March 2006, the Claimant's solicitors indicated that they would accept £590,000, inclusive of costs, to settle the case. That offer appeared to allow an amount of £430,000 against the value of the claim itself, which was about half its pleaded value.
9. In response, on the 3^rd April 2006, the Defendant offered the Claimant £170,000 inclusive of interest, together with costs on the standard basis. The offer said it was capable of acceptance up to the 11^th April, just eight days later. The offer went on to say that after the 11^th April, the offer could only be accepted if the Claimant paid the costs from the 11^th April to the date of acceptance. That offer was not accepted. On the 12^th April the Claimant made a further (lower) offer in which it agreed to accept £430,000 all in, i.e., inclusive of costs. The Defendant did not accept that. The Defendant withdrew its own offer on the 21^st April 2006. The trial started on the 25^th April 2006.
10. The trial was efficiently run by both sides. Although at section L of my substantive Judgment I made certain observations as to how the evidence on both sides might have been improved, I was (and remain) keen to emphasise that those points are not to be taken as criticisms of the parties. However, to the extent that it is relevant to the exercise of my discretion on costs, I consider that the point about Dr Lavender's notes (section L1) was to the Claimant's account. The point about the duplication of expert evidence (section L2) was to both parties' account. The point about unilateral tests (section L3) was to the Defendant's account.
11. The Defendant has raised other criticisms of the Claimant: in particular, its failure to disclose earlier signed statements and the absence of certain documentary evidence. I do not consider, in the round, that those criticisms are justified and I do not think that, in any event, they are of any great significance. I accept Mr Crowley's submissions that, even to the extent that I did consider them to be of any significance, they are entirely balanced out by the late production of evidence by the Defendant, on which I allowed them to rely at the trial.

Analysis

12. I have concluded that it would not be appropriate to order any part of the Defendant's costs to be assessed on an indemnity basis in the present case. There are three reasons for that:

Reason 1: The offer of the 3^rd April.

13. The offer of the 3^rd April did not comply with the test outlined in Stoke Trustees because it was not open for 21 days. It was not, therefore, the equivalent of a Part 36 offer, and it does not have the effect of such an offer. I can and do take it into account in the overall exercise of my discretion, but I do not consider it to be of any great significance. It was made late in the day as a result, at least in part, of delays in the exchange of experts' reports and the like. Those delays were, in the round, the responsibility of both sides.
14. Furthermore, even if it had been an offer in accordance with Part 36, the Claimant's failure to beat it would still not of itself justify an order for indemnity costs. As Mr Slater Q.C. properly accepts, there has to be something more in order for the court to make such an order.

Reason 2: Conduct

15. Although I understand, and have some sympathy with, the specific points raised by Mr Slater Q.C., on behalf of the Defendant, as to conduct, I have concluded that I should reject the suggestion that there was anything in the Claimant's conduct of the case that makes it now appropriate for me to order indemnity costs. I do not believe that the types of unreasonable conduct that have been identified in those reported cases where indemnity costs have been ordered can be said to be present in this case. Indeed, I would go further and say that, in the round, the Claimant's conduct of the action was largely exemplary, subject only, perhaps, to the suggested improvements referred to in section L of my substantive Judgment. An order for indemnity costs would not, therefore, be justified.
16. For completeness, I should deal specifically with the point about the previous signed statements, because that is a matter that has arisen both during the trial and today. The position was that the Claimant had obtained a number of signed statements from witnesses, who then later produced further statements. These later statements were served; the earlier signed statements were never provided to the Defendant. I do not think it would be right to conclude, or to draw the inference, that those earlier statements must, therefore, have been adverse to the Claimant. It seems to me the Claimant was entitled to claim privilege for those documents. However, I do think the decision not to disclose them in any form was a little unusual, particularly because they came from witnesses who then produced later statements which made no reference to the earlier statements. Since those earlier statements were taken at a time that was closer to the relevant events, it is difficult not to conclude that they would have been of help to the parties and to the Court. However, I decline the invitation to draw an adverse inference against the Claimant as a result of their non-disclosure.

Reason 3: Weakness of Case

17. It is right that, after careful analysis, I concluded that the Claimant's claim could be categorised as "weak" and that is why it failed. However, as set out in my substantive Judgment, that was in large part due to the oral evidence of the witnesses called on the Claimant's behalf and, in particular, their evidence during cross-examination. Thus the real weakness of the Claimant's case only became apparent during the trial, and not before. I do not believe that it can fairly be said that, prior to the trial, the Claimant should, or even could, have known that its case was hopeless and doomed to fail. I agree with Mr Slater Q.C. that the Claimant plainly recognised that its case was not strong before the trial, because of its willingness, amongst other things, to accept £430,000 inclusive of costs, but I do not believe that, in the round, it would be fair to describe the Claimant's case as "hopeless" prior to trial.
18. There is a grave danger in these sorts of cases of viewing the trial with what is sometimes called '20/20 hindsight' and adopting the reasoning that because the claim failed it must therefore have been hopeless, and thus indemnity costs must be appropriate. I do not accept that that is a proper approach in principle. In any event, I do not think that it is applicable on the facts of the present case.

Summary

19. In all the circumstances of this case, therefore, I decline the Defendant's application that I order the costs from the 11^th April 2006 to be assessed on an indemnity basis. In my judgment, the Defendant is plainly entitled to the costs of both the claim and the Counterclaim, but those costs should be assessed on a standard basis. That is, therefore, the order that I make.
(Discussion re interim payment)
20. The amount that I will order by way of an interim payment on costs will be £165,000, to be paid by the Claimant to the Defendant within 21 days from today. The Counterclaim will also be payable at the same time.
(Further discussion re costs of today)
21. What are referred to in the estimate of costs as 'the judgment costs' are payable by the Claimant to the Defendant, but I order that they should be limited to the sum of £2,000.