Kiam v MGN Ltd (No 2)

An indemnity costs order under Rule 44 requires conduct which is unreasonable to a high degree. Mere error or misjudgment in hindsight is insufficient. Unlike the presumption arising when a claimant beats a Part 36 offer, an indemnity order under Rule 44 carries some stigma and is penal rather than an incentive to settle.

Refusal of a reasonable settlement offer remains relevant, but only rarely will it alone justify indemnity costs. The court must consider all the circumstances. A party should not ordinarily incur indemnity costs merely because it abandons arguments to expedite an appeal.

MGN Limited appealed from a jury's award of £105,000 in damages to Victor Kermit Kiam II. The Court of Appeal dismissed that appeal by a majority after it was argued solely on the ground that the award was excessive.

Kiam's representatives then sought indemnity costs. Before the appeal, they had offered to accept £75,000 and return £30,000 with appropriate interest. MGN had not accepted the offer. The issue in Kiam v MGN Ltd (No 2) [2002] EWCA Civ 66 was whether rejecting that offer, together with the abandonment of two appeal grounds, justified indemnity rather than standard costs under the costs discretion.

1. Disposition. The Court unanimously refused the application for indemnity costs. Simon Brown LJ delivered the judgment, with which Waller and Sedley LJJ agreed. The appeal remained dismissed by a majority, and the respondent received his appeal costs on the standard basis, subject to no order concerning the costs of the hearing on 28 January. Permission to appeal to the House of Lords was refused.

2. The presumption associated with a claimant's successful offer under Part 36 has a distinct rationale. As established in Petrotrade Inc v Texaco Limited [2001] 4 AER 853 and McPhilemy v Times Newspapers (No 2) [2001] 4 AER 861, an order under Rule 36.21(3) is generally non-penal. It incentivises claimants to make appropriate offers and defendants to accept them. Defendants already have an evident incentive to protect themselves by making settlement offers, and ordinarily recover costs on the standard basis when their payments into court are not beaten.

3. Under Rule 44, moral impropriety or conduct deserving moral condemnation is unnecessary. Nevertheless, the conduct must be unreasonable to a high degree. Conduct is not sufficiently unreasonable merely because it later proves wrong or misguided. An indemnity order in this context carries at least some stigma and is penal rather than exhortatory.

4. Reid Minty (a firm) v Taylor [2001] EWCA Civ 1723 established that litigation conduct falling short of moral impropriety may justify indemnity costs. It did not create a general practice of ordering indemnity costs whenever a reasonable settlement offer is declined. Offers and their terms are relevant to the assessment of all the circumstances, but refusal of an offer will only rarely cross the required threshold.

5. MGN's refusal was not unreasonable to the required degree. One member of the court regarded £60,000 as the highest sustainable award, below the £75,000 offer. Nor did the abandonment of two grounds at the hearing justify indemnity costs. Courts should not generally penalise a decision to streamline an appeal in the interests of its expeditious disposal.

1. Court of Appeal: In Kiam v MGN Ltd (No 2) [2002] EWCA Civ 66, the court recorded that MGN's appeal against the damages award had been dismissed by a majority. It unanimously refused the respondent's subsequent application for indemnity costs and ordered costs on the standard basis.
2. High Court, Queen's Bench Division: Before Moore-Bick J, a jury awarded the claimant £105,000 in damages. The citation of that decision is not stated in the judgment.