Costs News

03 June 2020
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Unreasonable refusal to accept offers “a factor” in ordering indemnity costs

Two unsuccessful claimants’ unreasonable refusal to accept offers to settle was a factor in ordering them to pay indemnity costs, the High Court has ruled.

But His Honour Judge Matthews (pictured), sitting as a High Court judge in Bristol, said it did not follow that the starting point for an award of costs on account when indemnity costs have been awarded should be the actual costs incurred.

De Sena and Anor v Notaro and Ors [2020] EWHC 1366 (Ch) followed his decision to find for the defendants in the substantive action, which was a claim to set aside a demerger transaction relating to a family company six years earlier.

All four defendants – the company and its owner, and the accountants (Bishop Fleming) and solicitors (Davies and Partners) – sought indemnity costs.

In relation to the first two, HHJ Matthews found various reasons to support the order. It was, he said, “a weak case with very little substance to it”. He added: “At least once the defence was served, and even more so when disclosure was given, it should have been obvious that the claim would fail, both on the facts, but also on the law.” Allegations of dishonesty and serious misconduct should not have been made, he continued, while the case was poorly prepared.

The first two defendants also argued that the claimants unreasonably failed to accept any of their three offers. The first was a part 36 offer of £20,000 plus costs, made in October 2017, a fortnight after the claimants' replies to the defences. The second was without prejudice save as to costs, made in October 2019 about two weeks after the pre-trial review and a month before the trial. This was for £400,000 plus waiving the defendants' right to payment of £28,280 costs ordered at the PTR.

The third was also without prejudice save as to costs, made on 14 November 2019, after the conclusion of the first claimant's evidence. This would have required the claimants to pay the first and second defendants' costs on the standard basis, but protected them from an application for indemnity basis costs.

The judge accepted there was no rule that a failure to accept an offer of settlement should result in an award of indemnity costs. “But a refusal to accept a reasonable offer of settlement is nevertheless a factor which, added to other factors, may take the case out of the norm, and thus justify an award of indemnity costs.”

He noted the comments of Lord Justice Coulson in the recent case of Lejonvarn, that a defendant can seek indemnity costs if they can show that, in all the circumstances, the claimant's refusal to accept that offer was unreasonable such as to be ‘out of the norm’. Coulson LJ added: “Moreover, if the claimant's refusal to accept the offer comes against the background of a speculative, weak, opportunistic or thin claim, then an order for indemnity costs may very well be made.”

HHJ Matthews said it was “indeed completely 'out of the norm'” for the claimants not to accept the part 36 “at a time when the weaknesses of the claim were already apparent in the statements of case”. It was even more so by the time of the October 2019 offer, by which time the claimants had all the disclosure, witness statements and experts' reports.

“The third offer, in my judgment, just goes to show how, even when the evidence of the first claimant had simply not supported the unrealistic claims put forward, the first and second defendants were trying to give the claimants an incentive to get themselves out of the terrible position they had put themselves in. But even then the claimants did not take it.”

Ordering indemnity costs, the judge said: “If her lawyers did not do this, this is a case where they should have stood up to the client and said ‘You have no case; it is a waste of time and money to go on’. Although I have no doubt that she would have been very unhappy, it would have been, objectively speaking, a kindness to her to do so.”

HHJ Matthews went on to order indemnity costs in favour of the other two defendants as well before addressing the third defendant’s submission that an interim payment on account of costs assessed on the indemnity basis should be calculated by reference to the actual, rather than budgeted, costs figure – in its case, the actual costs of £660,000 were around twice the budgeted costs.

The judge rejected this approach: “An award of indemnity costs does not make the assessment at large. It is still necessary to show that the costs were reasonably incurred and reasonable in amount. This is not something which the court can decide at this stage of ordering a payment on account. The only investigation (and possible adjudication) so far made into the costs of the parties will have been at the costs budgeting stage. The parties will have made an effort to estimate their costs and the court will have considered the reasonableness of those costs budgets, looking at the case as it then was.

“The case at trial may be different, longer or shorter, more or less difficult, but, unless the court has been invited to approve a modified budget for either party, the court will not have been able to take any of this into account. In my judgment, therefore, the safe starting point is the costs budget as approved, together with such information as may be available as to changes in the case subsequently, and in particular in the knowledge of what happened at trial.”

John Blackmore (instructed by Tozers) for the claimants, Dov Ohrenstein (instructed by Ashfords) for the first and second defendants, Clare Dixon and Hannah Daly (instructed by Kennedys Law) for the third defendant, and Imran Benson (instructed by DAC Beachcroft) for the fourth defendant.

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