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.”

Comments

Sue Nash   25/09/2017 at 20:56

It appears that RNB is set for a HC appeal - watch this space! Meanwhile, RIP Solicitors Journal which - sadly - has just ceased publication after 180 years

News Flash   28/09/2017 at 12:18

Another pointless case, why resist a payment on account when your paying the opponents costs in the end anyway? these types of disputes should be a thing of the past!

MB   05/10/2017 at 13:18

Why has the focus returned to the SCCO "going completely digital". Was the electronic bill not extended to all Courts!

Dragon   12/10/2017 at 13:40

Well said Jim. Too often we see clinical negligence claims settle for say £2k only to be followed by a bill for say £50k. Thankfully there are some excellent costs lawyers out there who battle those costs down, but the situation remains outrageous.

Simon Mccarthy   13/10/2017 at 13:56

Dragon - your comment overlooks the fact that it is almost invariably your clients - the Defendants - who cause those scandalous costs by intransigently, and inexplicably, refusing to come to the negotiating table until too late, when the costs have already been racked up; it is their failure to take a realistic view to claims at the outset which necessitates the costs. This faux horror is therefore hard to stomach, especially when one considers the equivalent costs being incurred by government bodies (funded by us tax payers of course) often to the tune of 4-5 times the sums you mention, and the many Defendant costs draftsmen shelling peas for their piece of the pie. Sadly, it is the same old story of 'pay peanuts get monkeys' and, unless and until government wake up and start paying competent people to deal with claims pragmatically, the UK public purse will continue to haemorrhage billions of pounds that we can ill afford. Still, as long as it keeps Defendant costs draftsmen/lawyers in business?....

Northern Costs Monkey   13/10/2017 at 14:31

Just shows how ridiculous the whole budgeting process is. The reason firms generally don’t make applications to revise their budgets is because the bar set for varying them is absurdly high. No one even knows what a “significant development” is. A load of nonsense in my opinion. The situation we have now is that firms just don’t bother revising the budgets because in all likelihood it won’t be accepted. Meaning firms can be stuck with an “approved” budget that is a couple of years out of date, was drafted before the directions were even agreed, and is no longer fit for purpose. What should happen is that budgets should be drafted after the first CMC, and there should be a rule put in place that parties are able to freely revise a previously agreed or approved budget every six months, regardless of significant developments, with the updated budget to be considered at a costs management conference listed for a later date. That after all was the whole point of budgeting, was it not? Pragmatic costs management?

Simon   16/10/2017 at 16:47

I find this whole issue completely unnecessarily. Independent Midwives had commercial insurance suitable for their needs, however to try and save money they chose to try and become self-funding and cancelled their insurance without fully understanding the risks and exposures. I cannot see why it is in the public interest to bring a JR (and why the costs should be capped) when commercial solutions were available, however the issue is that as a group they didn't want to pay the costs of commercial insurance.

Dragon 2   18/10/2017 at 08:07

Great points Simon. Fully agree. Courts are fully aware of how these matters are conducted by those representing defendant. Surely though the money for damages and costs comes out of the medical suppliers' insurers' account, not tax pot nor nursing fund. Maybe that's why there is such a drive to extend the fixed costs regime to clin neg claims. Just a thought......

Mel B   19/10/2017 at 12:05

'Like' Simon McCarthy's comment

Cath Hart   21/10/2017 at 09:32

In reply to Simon's comment (which I thought at first meant this situation could be resolved) my understanding is that professional indemnity insurance for independent midwives has been withdrawn, but even if available the premium would be in the region of 20-30k annually (reference https://www.aims.org.uk/Submissions/nmc.htm) so I would disagree that it was cancelled to "save money" - these premiums exceed many of the midwives salaries so it was simply unworkable without government assistance. When professional indemnity insurance became mandatory under the EU directive in 2014 the independent midwives did appeal to the government for funding but this was rejected due to the low number of women involved so was not thought to represent value for money for the taxpayer. (reference: https://www.gov.uk/government/news/independent-midwives-insurance-options-outlined).

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