Costs News

12 October 2017
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High Court judge cautions against "hindsight" award of indemnity costs

The court must “avoid the dangers of hindsight” when deciding whether to order indemnity costs, a High Court judge has warned.

Bank of Ireland (Governors and Company of) & Anor v Watts Group Plc [2017] EWHC 2472 (TCC) involved unsuccessful professional negligence proceedings brought over the failure of a development company to which the bank had lent money.

The question before the court was the basis of the assessment of costs, and the amount of the interim payment on account.

Mr Justice Coulson suggested that one of the reasons the defendant sought indemnity costs might be the level of costs it had incurred. A costs budget of £345,000 was approved, while it was agreed that it could recover another £39,000 for two additional interim applications that were not included within the budget – a total of £384,000. “However, it appears that Watts' actual costs are £616,000. There has been no application to amend or modify the costs budget figure.”

With one specific exception, Coulson J did not consider indemnity costs either justified or proportionate: “In my view, this was not a claim which was or should have been regarded as hopeless from the outset. On the contrary, it was a case which was supported, at least in part, by expert evidence and the detailed witness statements of those involved in the relevant events at the bank…

“Furthermore, when considering the proper basis of the assessment of costs, the court must avoid the dangers of hindsight. It must be wary of the suggestion by the successful party, in this case Watts that, in truth, the result in the case was inevitable. Amongst other things, such an approach runs the risk of unfairly denigrating the presentation of the successful party's case at trial. This case is a good example of that.”

The defendant also argued that beating its own offers was another factor pointing towards an order for indemnity costs.

The judge said: “Of course, the fact that the bank refused a number of offers which, with hindsight, they should have accepted, is a factor that the court must consider when deciding on the appropriate basis of assessment. But, unlike a successful claimant (CPR 36.17(4)(b)), the fact that Watts beat the relevant offers does not give rise to an automatic entitlement to indemnity costs. I know this misalignment is considered by some to be unjustified, but it remains the law.

“Furthermore, I accept Mr Mitchell's submission that the fact that Watts made three offers, all in significant sums, indicates that Watts and/or their insurers took this claim seriously and considered that it had a commercial value. That also supports my conclusion that this was not an obviously hopeless case. So I am not persuaded that the bank's failure to beat the offers justifies an order for indemnity costs.”

The exception, however, was the expert quantity surveyor who gave evidence on behalf of the bank and was criticised by the judge in the main ruling.

“I do not consider that his conduct means that the bank should pay the entirety of Watts' costs on an indemnity basis: they lost the case in part because of the inadequacies of his evidence, so to order indemnity costs as well would be penalising the bank twice over for the conduct of their independent expert.

“It would also be disproportionate, particularly because, as [the expert] admitted, this was the first time he had given evidence at a trial (although it was far from the first time he had advised the bank).”

The judge said there was authority for the proposition that, where a court concludes that the conduct of an expert should be marked in the costs order, it may be appropriate to order that the specific costs generated by that expert should be assessed on an indemnity basis. So he ordered that the costs of the defendant's quantity surveyor expert should be assessed on an indemnity basis, along with the costs of and occasioned by the oral evidence given by the bank’s expert at the trial.

When it came to interim payment on account of costs, Coulson J said it must be based on the £384,000 figure, rather than £616,000. “That is firstly because I have not been asked to approve an increase in the budget and… it may now be too late for such an application anyway. Secondly, other than the discrete matters… I have not ordered an assessment on the indemnity basis, so that cannot be a mechanism by which the relevant amount could be increased beyond the approved costs budget figure in any event.”

The judge did touch on whether, had he ordered indemnity costs, he could have ordered an interim payment in excess of the approved costs budget figure.

“But I repeat what I said at paragraphs 27-30 of my judgment in Elvanite: it seems to me that there are great difficulties in arguing that, because the successful party is entitled to indemnity costs, the approved costs budget figure becomes irrelevant and no longer acts as a cap. I think the approved figure should be the starting point for an assessment of costs on an indemnity basis, as well as for an assessment on the standard basis.”

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