Cost Law

Lindsay Woolford

Costs will be assessed in the majority of cases on the standard basis where the Court will resolve any areas of doubt in favour of the Paying Party, and the Court will only allow those costs which it deems to be reasonably and proportionately incurred and proportionate to the matters in issue.

Where costs are to be assessed on the indemnity basis, any doubt will be resolved in favour of the Receiving Party, proportionality is disapplied, and the Receiving Party is not limited by any Costs Management Order. Obtaining a Costs Order on the indemnity basis can, therefore, be a great tactical advantage to the Receiving Party.

In what circumstances, then, are costs awarded on the indemnity basis? In some cases, there is an automatic entitlement to indemnity basis costs; costs payable to a Trustee or Personal Representative where the person has been a Party to Proceedings (CPR 46.3(3)) and assessments of Solicitor and Client costs (CPR 46.9(3)).

In respect of inter partes matters, most commonly an Order for costs to be paid on an indemnity basis is made when there is a failure to beat a Part 36 Offer, but it can also be done by the Court exercising its discretion.

In respect of the latter, Indemnity Basis costs are usually awarded due to the Paying Party’s conduct in the litigation per CPR 44.2(4) and (5). In general, cases warranting an indemnity basis costs order involve conduct or something in the circumstances of the case that take it ‘outside of the norm’ (see Excelsior Commercial and Industrial Holdings Ltd –v- Salisbury Hammer Aspden and Johnson (A Firm) [2002] EWCA Civ 879). Although, that is not to say that in matters where the Paying Party has acted ‘outside of the norm’ that indemnity basis costs will always be awarded, and, further it does not mean that this should always apply to all of the costs claimed in the event that indemnity basis costs are awarded. Each case will be considered in the context of the overall litigation and on the basis of its own facts.

There are some examples of case law on instances where indemnity basis costs have been awarded, although this is of course not an exhaustive list:

  • Refusal to engage in negotiations/Mediation; Garritt-Critchley –v- Ronnan [2014] EWHC 1774 (Ch)
  • Pursuing an ‘unarguable’ or ‘hopeless’ claim or Application; Dixon –v- Radley House Partnership and Another [2016] EWHC 3485 (QB) and Simmons & Simmons LLP –v- Hickox [2013] EWHC 2141 (QB)
  • Where a matter is discontinued at a late stage; Russian Airlines –v- Leeds (Trustees of the estate of Berezovsky) and others [2018] EWHC 1735 (Ch)

In the event of failure to beat a Part 36 Offer, indemnity basis costs are an automatic entitlement from the date of expiry of the relevant period of the offer if a more advantageous judgment is obtained. Note, however, the relevant Rule refers to Judgment, in Hislop v Perde [2018] EWCA Civ 1726, which dealt with fixed costs cases, the Court of Appeal confirmed the general position is that the late acceptance of a Part 36 offer may warrant an order for indemnity basis costs but it is a question of fact in each case, it is not an automatic presumption.

Therefore, tactically, an early Part 36 Offer can be extremely beneficial when having regard to the automatic cost consequences.

A recent case drawing all of these issues together is the matter of Duke of Sussex & Ors –v- MGN Ltd which involved four sample claims being brought as a result of allegations of phone hacking; two of the Claimants failed to beat Part 36 Offers and two of the Claimants’ claims failed on limitation grounds. Per the Judgment of Mr Justice Fancourt:

  • Mr Turner’s claim succeeded in part: he was awarded damages of £31,650.00, but he only succeeded on 4 out of 28 articles relied upon. He failed to beat Calderbank and Part 36 Offers made by MGN at various times.
  • Ms Sanderson’s claim failed on limitation grounds. But for that, she would have been awarded £67,500.00 in damages, but she would have failed to beat Calderbank and Part 36 offers made by MGN before her claim was issued.
  • Ms Wightman’s claim failed on limitation grounds. But for that, she would have been awarded £22,750.00 in damages. There were no Calderbank or Part 36 offers in her case.

There were two main and distinct parts to the Trial that took place; the first was the generic part of the claims (i.e. the matters which were relevant to all Claimants, such as the period during which the Defendant was carrying on unlawful and illegal activities and to what extent) and the second was the individual claims for damages of the Claimants. The issues in the generic claim were wholly distinct from the particular issues tried in the Claimant-specific claims, albeit the findings on the generic trial were directly relevant to the specific claims.

The Defendant’s position was that it should be paid the individual costs of the three claims, save for it should pay Mr Turner’s costs up to the date of the first relevant offer of settlement, as they were the successful party in two of the claims and Mr Turner had failed to beat their Part 36 offer. The Claimants position was that even where they were the losing party, they should nevertheless have the costs of the trial of the generic issues due to the Defendant’s conduct and there should be no order as to costs on the individual failed claims.

In respect of the Trial of the “generic issues” misconduct (namely, dishonesty and concealment) was found in relation to how the Defendants had gathered information, and they were, unusually, ordered to pay the costs of the unsuccessful Claimants on these issues.

As a result of this misconduct finding, the issue of whether it was unjust to make the usual costs order following a failure to beat a Part 36 offer was also considered. Mr Justice Fancourt found it would be unjust to order Ms Sanderdon and Mr Turner to pay the whole of the Defendant’s costs as:

  1. The claims were not just damages claims but also concerned with proving the illegal conduct of the Defendant and the extent of the same, and the Claimants had uncovered and proved the shockingly dishonest way that the Defendant acted for many years;
  2. The common costs of the generic issues were incurred for the benefit of all the Claimants not just the three Claimants; and
  3. Costs on both sides had been significantly increased because of the Defendant’s attempts to conceal the truth, in particular the extent of the unlawful and illegal activity. It would therefore be unjust for these claimants to pay MGN their share of MGN’s common costs of contesting the generic issues.

In respect of the individual claims, the Claimants who failed on limitation were ordered to pay the Defendant its individual costs of their claims given that the costs of the generic issues had been dealt with separately. Mr. Turner was ordered to pay the Defendant’s costs from the date of a 2022 Calderbank offer, which had stated that if it was rejected the Defendant would rely on the offer in respect of his liability for their costs, but not an earlier offer which was conditional and lapsed “almost immediately”.

 Furthermore, the conduct of each party resulted in Orders of indemnity basis costs being made (in part) against some of the Claimants and the Defendant. Per paragraph 60 of his Judgement:

“I have no doubt that indemnity basis costs are appropriate for the costs of the generic claim payable by MGN to the claimants. As I have explained at some length in my judgment, the defence that MGN ran in the proceedings was supported by dishonesty of those who were running the litigation within MGN and by some of the witnesses called by it, and was an attempt to continue to conceal the extent of the unlawful and illegal activity between 1995 and 2011. It also involved an attempt to row back from the extent of the findings of Mann J in the Gulati case, which increased the costs. Disclosure that should have been given sooner was wrongly resisted until a relatively late stage of the proceedings. It is difficult to imagine a clearer case for costs to be paid on an indemnity basis.”

 As for the individual costs against Ms Sanderson and Mr Turner, the Defendant sought an indemnity basis costs order due to the way in which the parties approached settlement of their claims and exaggeration of the claims. In respect of Ms Sanderson, the Defendant also argued that the Claimant gave misleading evidence, however the Judge acquitted her of that allegation. Mr Justice Fancourt expressed some concern about the way the claims were being conducted, particularly in respect of the drafting of the pleadings and witness statements and lack of engagement in attempting to resolve the claim. He also stated there was a serial failure to comply with the requirements of PD 57AC. As a result, he ordered that the Defendant’s recoverable costs also be assessed on the indemnity basis.

Whilst this is an unusual matter with numerous issues and complex Orders for costs, it again evidences the consequences of poor conduct and highlights that the Court will be prepared to make an indemnity basis costs order even against a party that has achieved a better outcome than a Part 36 offer that they have made.