De Sena and Another v Notaro and Others  Costs LR 737
This was a claim which stemmed from a corporate demerger of a family company, the Claimants’ claim was dismissed and the Defendants obtained Judgment. As with most Civil Litigation cases, costs followed the event and the Defendants were entitled to payment of their costs, however there were issues which the Claimant sought to make regarding the Defendants’ costs. The Claimants’ contentions regarding the Defendants’ costs were:
- The costs of inadmissible Expert Evidence obtained by the third Defendant be disallowed.
- Interest on the costs of the first and second Defendants’ costs should be 1% above the base rate, however no interest was payable on the costs of the third and fourth Defendants’ costs as their insurer had paid those costs.
- The costs should be on the standard basis rather than the indemnity basis
- Interim payments, the Claimants were offering 50% of pre-budget costs and 80% of budgeted costs.
Costs of Inadmissible Evidence
The Court in this matter disallowed the costs of the inadmissible evidence under CPR 44.3 (1)
“(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.”
The reason for the expert evidence being in admissible was due to the fact that the expert witness did not have the necessary experience to be deemed an expert in the subject matter, the third Defendant argued that they needed to strike a balance when choosing an Expert to ensure the expert was able to comment on the areas of expertise of the two Partners who were involved in the demerger.
HHJ Matthews confirming
“If a clinical negligence case involves allegations against both a gynaecologist and an intensivist, you probably need two experts, not one”
Standard Basis Costs or Indemnity Basis Costs?
All of the Defendants were seeking their costs on the Indemnity Basis rather than the Standard Basis, HHJ Matthews awarded Indemnity Basis costs for all Defendants.
First and Second Defendants
The first and second Defendants sought indemnity costs on the basis of 6 grounds:
- The claim against the first and second defendants was obviously hopeless;
- The nature of the claimant’s allegations against the first and second defendants included unfounded allegations of dishonesty;
- It also included unfounded allegations of serious misconduct other than dishonesty, such as bullying, harassment and intimidation.
- The claimants unreasonably failed to accept any of the first and second defendants’ offers;
- The manner in which the claimants conducted the litigation was out of the norm, unreasonable and caused unnecessary expense to the first and second defendants;
- If indemnity costs should be ordered in favour of the third and fourth defendants, then they should also be ordered in favour of the first and second defendants.
In relation to ground 6, the Court was quick to distance themselves from such a blanket approach, with HHJ Matthews confirming
“I do not consider that the fact that indemnity costs may be awarded in favour of one defendant can in itself be an argument in favour of indemnity costs for another defendant, unless at all events the claims and defences are identical, the same offers have been made, and the same behaviour from the claimants applies to the other defendant or defendants.”
In relation to the remaining 5 grounds the Court was with the first and second Defendants on the points, as such the first and second Defendant’s costs were to be assessed on the Indemnity Basis.
The grounds on which the third Defendant sought indemnity costs were:
- Allegations against the third defendant tantamount to allegations of fraud;
- Hopeless allegations maintained despite ample evidence to the contrary;
- The manner in which the litigation was conducted;
- The settlement position
The Court was with the third Defendant on the above points, as such the third Defendant’s costs were also to be assessed on the Indemnity Basis.
The grounds on which the fourth Defendant sought indemnity costs were:
- This was a weak claim which should never have been brought;
- The claimants did not comply with the pre-action protocol;
- Delays in mediation by the claimants.
- Offer of settlement.
The Court was with the Defendant on all grounds save as to ground 3, the Court was of the opinion that the delay to engage in mediation was reasonable given that the mediations was sought with the first and second Defendants in the first instance.
Payment on Account of Costs
First and Second Defendants
The first and second Defendants were successful in securing a payment on account of costs of 70% of their pre-budget costs and 90% of their budgeted costs, as opposed to the offer of 50% and 80% from the Claimants. However HHJ Matthews also recorded that
“In the present case, however, costs will be assessed on the indemnity basis, which is more generous, because there is no requirement of proportionality, and the benefit of any doubt as to whether costs were reasonably incurred or reasonable in amount is given to the receiving party. In addition, the court may more easily find good reason for the costs as assessed to exceed the budget.”
The third Defendant sought to make submissions that due to there being an Order for Indemnity Costs that an Order for a Payment on Account should be referenced against the actual costs spent rather than the budgeted costs.
The Court did not agree, HHJ Matthews confirming
“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.”
The Court was not minded to stray beyond the budget set and therefore referenced the Payment on Account against the third Defendant’s budget.
The fourth Defendant sought a Payment on Account of 90% of their budgeted costs but also 70% of the costs which exceeded the budgeted costs. In a similar vein to the above the Court did not stray beyond the costs budget and therefore used the fourth Defendant’s budget when setting the Payment on Account.
Interest on Costs
The Court then considered the relevant date to award interest from and the percentage rate to be applied. When considering this the Court referred to CPR 36.17 (1) & (3), CPR 442. (6) (g) and the case of Jones v Secretary of State for Energy and Climate Change  EWCA Civ 363.
First and Second Defendant
The Court accepted the first and second Defendants’ evidence regarding the borrowing facility for payment of their Solicitors invoices, evidence which the Claimants disputed but the Claimants did not dispute the Defendants entitlement to interest. Therefore interest was awarded from the date of payment of the invoices at 2% above the base rate when taking in to account the evidence put forward and the principle in the case of Jones of “having regard to the class of litigant to which the relevant party belongs”.
The Claimants disputed the Defendant’s entitlement to interest given that the Defendant’s costs had been paid by insurers and therefore the Defendant had no loss. The Court disregarded this, in relation to the rate of interest the Defendant did not present any evidence and as such interest was awarded at 1% above the base rate.
The Claimant advanced similar arguments in relation to the fourth Defendant, the Court awarded a rate of 1% above the base rate in line with the conclusions reached above.
The Claimant’s also submitted that the interest under the Judgment Act 1838, which runs at 8% only came into effect on a “Judgment Debt” as per s17 Judgments Act 1838. The Court agreed and as such the Judgment Interest was only to run from the Order rather than the handing down of Judgment.
Quite a few costs issues were considered in this case which act as reminders. When instructing an Expert Witness ensure they are properly qualified and experienced to report upon the subject matter. Engage in ADR, have evidence to support your allegations and do not make frivolous claims, review the merits of the case at each stage of the litigation such as upon receipt of the Defence, Disclosure etc. An Order for Indemnity Costs is a good reason to depart from the approved/agreed Costs Budget but that it is not a carte blanche to incur costs freely, costs still have to be reasonably incurred and reasonable in amount. It is possible to obtain pre-judgment interest, however be prepared with evidence to support your claims.