QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Strand, London, WC2A 2LL
B e f o r e :
| THE MAYOR AND BURGESSES OF THE LONDON BOROUGH OF SOUTHWARK
|- and -
|IBM UK LIMITED
Jeremy Nicholson QC and Terence Bergin (instructed by Blake Lapthorn) for the Defendant
Hearing date: 17 March 2011
Crown Copyright ©
Mr Justice Akenhead:
(a) An award of costs on an indemnity basis is not intended to be penal and regard must be had to what in the circumstances is fair and reasonable: Reid Minty v Taylor  1 WLR 2800, Paragraph 20.
(b) Indemnity costs are not limited to cases in which the court wishes to express disapproval of the way in which litigation has been conducted. An order for indemnity costs can be made even when the conduct could not properly be regarded as lacking in moral probity or deserving of moral condemnation: Reid Minty, Paragraph 28.
(c) The court's discretion is wide and generous but there must be some conduct or some circumstance which takes the case out of the norm: Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (A Firm)  CP Rep 67, Paragraphs 12, 19 & 32
(d) The conduct must be unreasonable to a high degree. 'Unreasonable' in this context does not mean merely wrong or misguided in hindsight: Kiam v MGN Ltd (No2)  1 WLR 2810, Paragraph 12.
(e) The pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, but the pursuit of a hopeless claim, or a claim which the party pursuing it should have realised was hopeless, may well lead to such an order: "[T]o 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": Wates Construction Ltd v HGP Greentree Allchurch Evans Ltd  BLR 45, Paragraph 27 and Noorani v Calver  EWHC 592 (QB), Paragraph 9.
(f) There is no injustice to a claimant in denying it the benefit of an assessment on a proportionate basis when the claimant showed no interest in proportionality in casting its claim disproportionately widely and requiring the defendant to meet such a claim: Digicel (St Lucia) Ltd v Cable & Wireless plc  5 Costs LR 709, Paragraph 68.
(g) If one party has made a real effort to find a reasonable solution to the proceedings and the other party has resisted that sensible approach, then the latter puts himself at risk that the order for costs may be on an indemnity basis: Reid Minty, Paragraph 37.
(h) Rejection of a reasonable offer to settle will not of itself automatically result in an order for indemnity costs but where the successful party has behaved reasonably and the losing party has behaved unreasonably the rejection of an offer may result in such an order: Noorani, Paragraph 12.
(i) Rejection of 2 reasonable offers can of itself justify an order for indemnity costs: Franks v Sinclair (Costs)  EWHC 3656
Material Considerations in this Case
(a) Pursuit of the action by Southwark without any evidence to support its allegations.
(b) Pursuing a case consisting of wide-ranging and shifting allegations, most of which were abandoned by the end of the trial.
(c) Failing to set out any proper case in a Letter of Claim, contrary to ordinary requirements for pre-action conduct.
(d) Disposing of the system at a time when Southwark clearly intended to pursue claims, and resulting in extensive and unnecessary costs in relation to expert evidence and generally.
(e) Failing to review the merits of the action, despite repeated opportunities, indications by the Court, and suggestions from IBM that this should be done.
(f) Rejecting IBM's offer of 10 January 2011 and in terms which were themselves unreasonable.
(a) In my judgement, it would be wrong to say without qualification that Southwark pursued its claim without any evidence to support its allegations. It had some documentary evidence which, depending on the witness evidence, might have supported its case as to what Southwark's pre-contract requirements for the IBM and Orchard software were; it also had the evidence of Ms Troy which covered the period after the software was installed and the events leading to the shutting down of the project. However, by the end of 2010, it should have been beginning to become apparent to Southwark that its case was seriously weakened in the light of the witness statements which had by then been served.
(b) Although the case was put in a variety of ways, the essential case was always that the software was not fit for purpose. The over-arching contract, misrepresentation, negligence and collateral warranty arguments were other ways of supporting the complaint about unsuitability. It is true that by mid-January 2011 at the latest Southwark was aware that over half of its complaints about unsuitability were unsupported by its expert and it was or should have been aware that its case relating to the over-arching contract, misrepresentation, negligence and collateral warranty were at best very weak indeed in the light of the witness statements.
(c) I attach no importance to the complaints about Southwark's alleged failure to set out its case prior to the issue of proceedings. It broadly did set out its case in correspondence in 2008. If IBM had thought that more detailed compliance with the TCC Pre-action Protocol process would have been helpful, it could have raised that at the first Case Management Conference, but it did not.
(d) I also attach little weight to the disposal of the software systems. The complaint never was that Arcindex was badly installed. It was that it was inherently unsuitable for Southwark's purposes. It was never going to be absolutely essential that the parties or their experts examined what had been installed; the exercise was to analyse what Arcindex was capable of and then compare it with what were established to be Southwark's requirements. That said, it is somewhat surprising that the software was not retained given that it was to be the subject matter of litigation. I am certainly satisfied that there was no malicious or untoward conduct on the part of Southwark in disposing of it; I suspect that no one really thought about it at all. Certainly some time and effort was wasted by Southwark unwittingly misleading IBM's solicitors in the autumn of 2010 as to whether the system had been retained and was available for inspection.
(e) In my view there is some justification in the complaint that there was a failure effectively to review the merits of the Claim. In my view however that this relates to a period following the exchange of witness evidence before Christmas. In my view, given that the trial was pending in early February 2011, this review should have been complete no later than mid-January 2011, even allowing for the Christmas break. The very fact that substantial elements of the Claim were readily abandoned during the trial goes to show that a proper review would at the very least have led to large elements being abandoned much earlier. However, the real gap in any analysis, even assuming that one was done prior to mid-January 2011, was the failure to appreciate that there was a very real difficulty in establishing that its requirements for Arcindex were anything other than that which Arcindex could provide in any event.
(f) The offer of a "walk away" settlement on 10 January 2011 was a good one and, given the difficulties which Southwark at the very least ought to have appreciated that it faced, there is no good reason why it was not accepted.