Practice and procedure – Costs – Indemnity basis – Appellant involved in garden landscaping project for respondents – Dispute arising over increasing costs of project – Respondents claiming damages – High Court dismissing claim in entirety – Appellant seeking costs on indemnity basis – Court awarding costs on standard basis – Whether judge erring in law – Appeal allowed
The respondents wished to landscape their garden. The appellant, a friend who had qualified as an architect in New York and provided architectural services in London, gratuitously provided assistance to the respondents. There was a falling-out which led the respondents to commence proceedings against the appellant for breach of contract and/or negligence. The appellant made a CPR Part 36 offer in the sum of £25,000 three weeks after the start of proceedings, which was not accepted.
Following the trial of preliminary issues, the existence of any contract was rejected, although it was found that the appellant owed the respondents a duty of care: [2016] EWHC 40 (TCC); [2016] PLSCS 21. The Court of Appeal subsequently held that, in the particular circumstances, the duty of care related only to such professional services as the appellant in fact provided; she was not liable in respect of any alleged omissions: [2017] EWCA Civ 254; [2017] PLSCS 87.
After a five-day trial, the judge concluded that the appellant had not been negligent and the claim failed in its entirety: [2018] EWHC 3166 (TCC); [2018] PLSCS 208.
The appellant’s costs were presented to the judge in the sum of £724,265, although her approved costs budget had been £415,000. She sought assessment on the indemnity basis. The judge ordered costs to be assessed on the standard basis: [2019] EWHC 369 (TCC). The appellant appealed.
Held: The appeal was allowed.
(1) Since all the respondents’ claims against the appellant had failed, they were prima facie liable to the appellant for her costs. The issue was whether those costs should be assessed on an indemnity or a standard basis. In contrast to the position of a claimant, a defendant who beat his or her own Part 36 offer, was not automatically entitled to indemnity costs. Although Part 36 had been subject to detailed consideration and amendment since first drafted, the position remained the same. While recent changes to the Civil Procedure Rules (CPR) in respect of proportionality were important, they did not give rise to any presumption in favour of a defendant. That would amount to an impermissible indirect rewrite of the CPR. But a defendant could seek an order for indemnity costs if he or she could show that, in all the circumstances, the claimant’s refusal to accept that offer was unreasonable such as to be out of the norm. Moreover, if the claimant’s refusal to accept the offer came against the background of a speculative, weak, opportunistic or thin claim, an order for indemnity costs might well be made. A claimant who chose to pursue such a claim was taking a high risk and could expect to pay indemnity costs if it failed: Reid Minty v Taylor [2001] 1 WLR 2800, Kiam v MGN Ltd (No 2) [2002] 1 WLR 2810 and Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson (A Firm) [2002] 1 WLR 2810 applied.
(2) The judge had erred in holding that the respondents’ conduct had not been such as to justify indemnity costs. That was the wrong test. He should have considered whether a reasonable claimant would have concluded that the claims were so speculative, weak or thin that they should no longer be pursued. The judge should have asked whether or not there came a time when the respondents knew or ought to have known that their claims were speculative/weak and therefore likely to fail. Had he done so, the judge would have concluded that such a time came not later than one month after the Court of Appeal judgment, ie 7 May. It was out of the norm for the respondents to continue to pursue those speculative/weak claims beyond that date. The conduct of the respondents in pursuing the claims from 7 May 2017 onwards was out of the norm such as to justify an order for indemnity costs.
When a defendant beat its own Part 36 offer, the court should always consider whether, in consequence, the claimant’s conduct in refusing that offer took the case out of the norm. Having properly recorded that the respondents’ failure to beat the appellant’s offer was an important matter in the exercise of his discretion, the judge said that he did not think that this was a case for indemnity costs. The judge did not say why that important factor did not lead him to exercise his discretion in favour of an order for indemnity costs or, alternatively, why an award on the standard basis was appropriate, notwithstanding the respondents’ rejection of the appellant’s early offer: Malmsten v Bohinc [2019] EWHC 1386 (Ch) applied.
(3) On the facts of the present case, if the appellant was confident that she had done nothing wrong, the making of an offer to settle at the outset was the sensible thing to do. It bought her costs protection if the respondents chose to reject the offer and pursue the litigation. In the particular circumstances, the respondents’ failures to accept and then to beat the appellant’s Part 36 offer was a separate and stand-alone element of their conduct which was out of the norm, separately justifying an award of indemnity costs or, in the alternative, justifying such an order, when taken together with the nature of the claims pursued by the respondents.
(4) Although the appellant had failed to keep her costs within her approved cost budget, the figure produced by an approved cost budget mechanism under CPR rules 3.12–3.18 was prospective and different to the final retrospective assessment of costs following trial. They were different figures produced by different considerations with different purposes. An order for indemnity costs meant that prima facie any approved budget became irrelevant. Therefore, the assessment of costs on an indemnity basis was not, in principle, constrained by the approved costs budget: Denton v TH White Ltd [2014] EWCA Civ 906 applied.
(Obiter) On detailed assessment, the figure for the appellant’s costs of not less than £724,000 odd was likely to be found to be unreasonable. It was difficult to comprehend how such costs had been incurred. Even on the indemnity basis from 7 May onwards, the costs finally determined on assessment were likely to be less than that figure.
Louis Flannery QC and Rupert Cohen (instructed by Stephenson Harwood LLP) appeared for the appellant; Seb Oram (instructed by Mayo Wynne Baxter Solicitors, of Eastbourne) appeared for the respondents.
Eileen O’Grady, barrister
Click here to read a transcript of Burgess and another v Lejonvarn
