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You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Kellie & Anor v Wheatley & Lloyd Architects Ltd [2014] EWHC 2886 (TCC) (27 August 2014) URL: https://www.bailii.org/ew/cases/EWHC/TCC/2014/2886.html Cite as: [2014] EWHC 2886 (TCC) |
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QUEEN'S BENCH DIVISION
CARDIFF DISTRICT REGISTRY
TECHNOLOGY AND CONSTRUCTION COURT
2 Park Street Cardiff, CF10 1ET |
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B e f o r e :
sitting as a Judge of the High Court
____________________
(1) PETER ![]() ![]() (2) KELLY ![]() ![]() |
Claimants |
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- and – |
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WHEATLEY & LLOYD ARCHITECTS LIMITED |
Defendant |
____________________
Marc Lixenberg (instructed by Beale and Co Solicitors LLP) for the Defendant
Hearing date: 11 August 2014
____________________
Crown Copyright ©
H.H. Judge Keyser Q.C.:
1) Whether the claimants should pay more than 90% of the defendant's assessed costs;
2) Whether the assessment of the defendant's costs should be on the indemnity basis;
3) Whether, in the light of my decision on the first two issues, the claimants should pay any further amount by way of interim payment.
The extent of the costs liability
"(4) In deciding what order (if any) to make about costs, the court will have regard to all the circumstances, including –
(a) the conduct of all the parties;
(b) whether a party has succeeded on part of its case, even if that party has not been wholly successful …
(5) The conduct of the parties includes –
…
(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;
(c) the manner in which a party has pursued … a particular allegation or issue; …"
"(v) In many cases the judge can and should reflect the relative success of the parties on different issues by making a proportionate costs order.
(vi) In considering the circumstances of the case the judge will have regard not only to any part 36 offers made but also to each party's approach to negotiations (insofar as admissible) and general conduct of the litigation.
…
(viii) In assessing a proportionate costs order the judge should consider what costs are referable to each issue and what costs are common to several issues. It will often be reasonable for the overall winner to recover not only the costs specific to the issues which he has won but also the common costs."
"A number of general observations can properly be made in the context of this case in relation to the fixing of the relevant percentage in the proportionate costs approach:
(a) The first step is obviously to determine which of the parties has been successful in overall terms; if one can not determine that, it may be that one needs to consider the issues-based approach.
(b) One needs to consider the overall context of the litigation, including the reasons which led to its genesis; that involves considering the conduct of the parties which led to the need for the litigation in the first place.
(c) The reasonableness, or unreasonableness, of each party taking the various points or issues upon which it lost, should be considered by the Court. The more unreasonable the position of the losing party, the more likely that, even if the court orders only standard, as opposed to indemnity, based costs, it will attach weight to this factor.
(d) Whilst one needs to have regard to the issues upon which each party has succeeded, a simple mathematical approach on the basis of the number of issues 'won' by each party will often not be an appropriate basis for fixing the percentage; thus, simply because the overall successful party has won 3 out of 5 issues, should not mean automatically that it should recover 60% of its costs. One needs to have regard to the likely amount of resources applied as well as to the impact overall of the success or failure on the various issues.
(e) Similarly, the Court should be cautious about fixing a proportion by reference to the amount of time or space applied by the judge in his or her judgement to the issues upon which each party has been successful or unsuccessful. The judge may simply have had to take up more time and space in the written judgement to address what may be more complex issues. The fact that 80% of the judgement addresses a legal issue upon which the overall successful party lost should not, at least generally, mean that it can only recover 20% of its costs.
(f) The Court needs also to have regard to the fact that the overall unsuccessful party will have incurred cost in dealing with the issues upon which it has 'won'.
(g) Where the parties have put before the court summary costs bills for assessment, the Court can have regard to the likely cost and resource which each party will have applied in relation to the issues upon which they have won or lost.
(h) Where the parties cannot put such information before the Court, and in any event, the Court must do the best that it can in fixing a proportion."
"In my judgment a proportionate costs order may be appropriate to reflect the extent to which a successful party has not been selective in the points they have taken and so should not recover all of their costs. An example of this situation is a case where an issues based approach might otherwise be appropriate. It is clear that in such a case the Court should avoid ordering, for instance, that each party should have the costs of certain issues, but if practicable should make a proportionate costs order or, alternatively, one which gives one party the costs from or until a particular date."
Basis of Assessment
Indemnity costs: general principles
"(1) Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs –
(a) on the standard basis; or
(b) on the indemnity basis,
but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.
(2) Where the amount of costs is to be assessed on the standard basis, the court will –
(a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and
(b) resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.
(3) Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party."
"6. The fact that when costs are to be assessed on an indemnity basis there is no requirement of proportionality and, in addition, that where there is any doubt, the court will resolve that doubt (as to whether costs were unreasonably incurred or were reasonable in amount) in favour of the receiving party, means that the indemnity basis of costs is considerably more favourable to the receiving party than the standard basis of costs.
7. Prior to the CPR coming into force it was already possible for a court to make an indemnity order for costs. This did no more, however, than to reverse the burden of proof in respect of disputed items of costs. The advantages of an indemnity order over a standard order are now far more significant."
See too the more extended dictum of Lord Woolf CJ, with whose judgment Waller and Laws LJJ agreed, in Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hamer Aspden & Johnson (a firm) [2002] EWCA Civ 879 at [15], cited with approval by Rix LJ, with whose judgment Tomlinson LJ and Sir Mark Waller agreed, in Epsom College v Pierse Contracting Southern Ltd (in liquidation) [2011] EWCA Civ 1449 at [73].
"When reviewing budgets, the court will not undertake a detailed assessment in advance, but rather will consider whether the budgeted costs fall within the range of reasonable and proportionate costs."
Rule 3.18 provides:
"In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –
(a) have regard to the receiving party's last approved or agreed budget for each phase of the proceedings; and
(b) not depart from such approved or agreed budget unless satisfied that there is good reason to do so."
In Henry v News Group Newspapers Ltd [2013] EWCA Civ 19, Moore-Bick LJ referred to the costs management provisions and said of them at [28]:
"Read as a whole they lay greater emphasis on the importance of the approved or agreed budget as providing a prima facie limit on the amount of recoverable costs. In those circumstances, although the court will still have the power to depart from the approved or agreed budget if it is satisfied that there is good reason to do so, and may for that purpose take into consideration all the circumstances of the case, I should expect it to place particular emphasis on the function of the budget as imposing a limit on recoverable costs. The primary function of the budget is to ensure that the costs incurred are not only reasonable but proportionate to what is at stake in the proceedings. If, as is the intention of the rule, budgets are approved by the court and revised at regular intervals, the receiving party is unlikely to persuade the court that costs incurred in excess of the budget are reasonable and proportionate to what is at stake."
"28. Prima facie, whether under PD 51G paragraph 8, or CPR 3.18, the costs management order (with its approval of the costs budget) is expressed to be relevant only to an assessment of costs on a standard basis. However, as a matter of logical analysis, it seems to me that the costs management order should also be the starting point of an assessment of costs on an indemnity basis, even if the 'good reasons' to depart from it are likely to be more numerous and extensive if the indemnity basis is applied.
29. The first reason for this is that, as set out in paragraphs 2 and 3.2 of PD 51G (paragraph 10 above), the costs budgets represent the parties' estimate of all the costs that they think that they will incur. It is not an estimate based on any particular form of costs assessment; it is just an estimate of likely costs. If it is an accurate estimate of all the costs that will be incurred, then it seems to me that it should be the relevant starting point for an assessment of costs on an indemnity basis as well as for an assessment on the standard basis.
30. Secondly, this would provide the benefits of both consistency and certainty. There is a concern that, if an order for indemnity costs allows a receiving party to ignore the costs management order, then that will encourage successful parties to argue for indemnity costs every time. That would be unfortunate, and would leave an unacceptable doubt hanging over even approved costs budgets, all the way through to judgment and beyond. A paying party will have fought the trial assuming that, even if it loses, its opponent will be unlikely to recover more than the amount recorded in the costs management order, unless there is good reason for any departure. That is the certainty that the new regime provides. Even if the paying party has to pay costs on an indemnity basis, that does not seem to me automatically to justify an abandonment of that certainty, and the encouragement of a costs free-for-all.
31. Of course, in any given case, it might be said that an award of indemnity costs – which does not require any assessment of proportionality – might be a 'good reason' to depart from the costs budget approved by the court pursuant to paragraph 8 of PD 51G. I can well see that, in particular factual circumstances, an award of indemnity costs might be a good reason to permit such a departure. But that would be fact-specific, and it would not detract from the principle of at least starting the costs assessment by reference to the approved budget."
"(1) The court should have regard to all the circumstances of the case and the discretion to award indemnity costs is extremely wide.
(2) The critical requirement before an indemnity order can be made in the successful defendant's favour is that there must be some conduct or some circumstance which takes the case out of the norm.
(3) Insofar as the conduct of the unsuccessful claimant is relied on as a ground for ordering indemnity costs, the test is not conduct attracting moral condemnation, which is an a fortiori ground, but rather unreasonableness.
(4) The court can and should have regard to the conduct of an unsuccessful claimant during the proceedings, both before and during the trial, as well as whether it was reasonable for the claimant to raise and pursue particular allegations and the manner in which the claimant pursued its case and its allegations.
(5) Where a claim is speculative, weak, opportunistic or thin, a claimant who chooses to pursue it is taking a high risk and can expect to pay indemnity costs if it fails.
(6) A fortiori, where the claim includes allegations of dishonesty, let alone allegations of conduct meriting an award to the claimant of exemplary damages, and those allegations are pursued aggressively inter alia by hostile cross examination.
(7) Where the unsuccessful allegations are the subject of extensive publicity, especially where it has been courted by the unsuccessful claimant, that is a further ground."
"22. So far as indemnity costs are concerned, there are numerous authorities which address the circumstances in which these may be ordered. A helpful if not absolutely exhaustive summary was given by Mr Justice Coulson in Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd [2013] EWHC (TCC):
'16. The principles relating to indemnity costs are rather better known. They can be summarised as follows:
(a) Indemnity costs are appropriate only where the conduct of a paying party is unreasonable "to a high degree. 'Unreasonable' in this context does not mean merely wrong or misguided in hindsight": see Simon Brown LJ (as he then was) in Kiam v MGN Ltd [2002] 1 WLR 2810.
(b) The court must therefore decide whether there is something in the conduct of the action, or the circumstances of the case in general, which takes it out of the norm in a way which justifies an order for indemnity costs: see Waller LJ in Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson [2002] EWCA (Civ) 879.
(c) The pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, provided that the claim was at least arguable. 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: see, for example, Wates Construction Ltd v HGP Greentree Alchurch Evans Ltd [2006] BLR 45.
(d) If a claimant casts its claim disproportionately wide, and requires the defendant to meet such a claim, there was no injustice in denying the claimant the benefit of an assessment on a proportionate basis given that, in such circumstances, the claimant had forfeited its rights to the benefit of the doubt on reasonableness: see Digicel (St Lucia) Ltd v Cable and Wireless PLC [2010] EWHC 888 (Ch).'
To this can be added a number of other specific and general points:
(i) The discretion to award indemnity costs is a wide one and must be exercised taking into account all the circumstances and considering the matters complained of in the context of the overall litigation (see Three Rivers DC v the Governor of the Bank of England [2006] EWHC 816 (Comm) and Digicel (as above)).
(ii) Dishonesty or moral blame does not have to be established to justify indemnity costs (Reid Minty v Taylor [2002] 1 WLR 2800).
(iii) The conduct of experts can justify an order for indemnity costs in respect of costs generated by them (see Williams v Jervis [2009] EWHC 1837 (QB)).
(iv) A failure to comply with Pre-Action Protocol requirements could result in indemnity costs being awarded.
(v) A refusal to mediate or engage in mediation or some other alternative dispute resolution process could justify an award of indemnity costs."
Indemnity costs: the application
"There is in my judgment a sound basis for concluding that Amoco conducted itself throughout the relevant events on the basis that its commercial interests took precedence over the rights and wrongs of the situation and that it was prepared to risk the outcome of litigation should BAO resist the pressures upon it and take on the challenge. BAO did take it on. It was then met with a constantly changing case as Amoco sought unsuccessfully to find a basis on which it could justify what it had done. If a party embarks on or brings upon itself and pursues litigation of the magnitude of this litigation in such circumstances and suffers a resounding defeat, involving the rejection of much of the evidence adduced in support of its case, in my judgment that provides a proper basis on which it is appropriate to award costs on an indemnity basis."
"12. I, for my part, understand the Court there to have been deciding no more than that conduct, albeit falling short of misconduct deserving of moral condemnation, can be so unreasonable as to justify an order for indemnity costs. With that I respectfully agree. To my mind, however, such conduct would need to be unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight. …
13. It follows from all this that in my judgment it will be a rare case indeed where the refusal of a settlement offer will attract under Rule 44 not merely an adverse order for costs, but an order on an indemnity rather than standard basis. Take this very case. No encouragement in the way of an expectation of indemnity costs was required for him to make his offer to accept £75,000: its object was to protect the respondent against a standard costs order were the Court, say, to reduce the damages to that level. Where, as here, one member of the Court considered the jury's award 'wholly excessive', and thought that £60,000 would have been the highest sustainable award, it seems to me quite impossible to regard the appellant's refusal to accept the £75,000 offer as unreasonable, let alone unreasonable to so pronounced a degree as to merit an award of indemnity costs. It is very important that Reid Minty should not be understood and applied for all the world as if under the CPR it is now generally appropriate to condemn in indemnity costs those who decline reasonable settlement offers."
In Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hamer Aspden & Johnson (a firm) [2002] EWCA Civ 879, Lord Woolf CJ referred to that passage and continued:
"31. In the context of that case I see that those paragraphs set out the need for there to be something more than merely a non-acceptance of a payment into court, or an offer of payment, by a defendant before it is appropriate to make an indemnity order for costs. Insofar as that is the intent of those paragraphs, I have no difficulty with them. However, I would point out the obvious fact that the circumstances with which the courts may be concerned where there is a payment into court may vary considerably. An indemnity order may be justified not only because of the conduct of the parties, but also because of other particular circumstances of the litigation. I give as an example a situation where a party is involved in proceedings as a test case although, so far as that party is concerned, he has no other interest than the issue that arises in that case, but is drawn into expensive litigation. If he is successful, a court may well say that an indemnity order was appropriate, although it could not be suggested that anyone's conduct in the case had been unreasonable. Equally there may be situations where the nature of the litigation means that the parties could not be expected to conduct the litigation in a proportionate manner. Again the conduct would not be unreasonable and it seems to me that the court would be entitled to take into account that sort of situation in deciding that an indemnity order was appropriate.
32. I take those two examples only for the purpose of illustrating the fact that there is an infinite variety of situations which can come before the courts and which justify the making of an indemnity order. It is because of that that I do not respond to Mr Davidson's submission that this court should give assistance to lower courts as to the circumstances where indemnity orders should be made and circumstances when they should not. In my judgment it is dangerous for the court to try and add to the requirements of the CPR which are not spelt out in the relevant parts of the CPR. This court can do no more than draw attention to the width of the discretion of the trial judge and re-emphasise the point that has already been made that, before an indemnity order can be made, there must be some conduct or some circumstance which takes the case out of the norm. That is the critical requirement."
Waller LJ, with whom Laws LJ agreed, referred to the facts in Kiam II and said:
"38. … [T]he point made by the judgment of Simon Brown LJ was that hindsight may show that it was unreasonable not to accept a better offer but that will not normally be sufficient for an award of costs on an indemnity basis. Simon Brown LJ was concerned to stress that where all that was relied upon is the failure to accept a reasonable offer, it will be to a high degree of unreasonableness before an award of indemnity costs should be made. But his language is not apposite to all circumstances, as my Lord has pointed out. … Certain principles have to be adhered to, as indicated by the rules. So far as relevant to this case, the first principle is that expressed by May LJ in paragraph 28 in Reid Minty (which I have read). "As the very word 'standard' implies, this would be the normal basis". From that first principle it is also possible to say that in the context of Part 36.20, or under Part 44.3 the mere fact that an offer of settlement or a Part 36 offer has been made by a defendant and then been bettered, will not necessarily lead to an order for costs on an indemnity basis.
39. The question will always be: is there something in the conduct of the action or the circumstances of the case which takes the case out of the norm in a way which justifies an order for indemnity costs?"
Finally, in Epsom College v Pierse Contracting Southern Ltd (in liquidation) [2011] EWCA Civ 1449 Rix LJ said:
"71. I would merely briefly state that I would allow the possibility that the general requirements before indemnity costs are imposed, namely that the case in question falls outside the norm, and that conduct must be unreasonable to a high degree (Reid Minty (a firm) v. Taylor [2001] EWCA Civ 1723, [2002] 1 WLR 2800, Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] CP Rep 67) can be met where there has been an unreasonable failure to accept offers of settlement, or a party has unreasonably resisted a sensible approach to finding a solution to the proceedings; even if such a case deserving of indemnity costs has been described as 'a rare case indeed' (Kiam v. MGN Ltd (No 2) [2002] 2 All ER 242, per Simon Brown LJ at [13]).
72. In this connection, the notes to Civil Procedure 2011, Vol 1, at para 44.4.3, cite Franks v. Sinclair (Costs) [2006] EWHC 3656 (Ch), [2007] WTLR 785 (David Richards J) as an example of a case where the 'claimant's refusal of two reasonable offers to settle would have been enough in itself to warrant an order on the indemnity basis'. However, that was a case where the unsuccessful claimant had indemnity costs awarded against him because he had known from the start that he had been putting forward a false case. The two offers which he had refused were the icing on the cake: they were mentioned, but it was not said that they would have been enough in themselves to have justified indemnity costs, see at [28]. On the other hand, indemnity costs have been awarded from a certain date in special circumstances where an offer which ought to have been accepted was not: see Southwark LBC v. IBM UK Ltd (Costs) [2011] EWHC 653 (TCC), [2011] NLJ 474 (Akenhead J) and Barr v. Biffa Waste Services Ltd (Costs) [2011] EWHC 1107 (TCC), [2011] 137 Con LR 268 (Coulson J)."
Those remarks were cited with approval in F & C Alternative Investments (Holdings) Ltd v Barthelemy [2012] EWCA Civ 843, [2013] 1 WLR 548, per Davis LJ, with whose judgment Tomlinson and Arden LJJ agreed, at [70].
Indemnity costs: conclusion
Payment on account of costs