Excelsior Commercial & Industrial Holdings Limited v Salisbury Hammer Aspden & Johnson (a firm)

Where a claimant fails to beat a defendant’s Part 36 payment, the normal post-payment order under the Civil Procedure Rules is for costs on the standard basis. Indemnity costs remain available under the court’s general costs discretion, but some conduct or other circumstance must take the case out of the norm. Mere failure to accept a payment or reasonable settlement offer does not itself suffice. Where refusal is the sole ground, it must be unreasonable to a high degree. The broader discretion is not confined to misconduct, moral condemnation or unreasonable conduct. A judge departing from the normal basis must explain the reason sufficiently for the parties to understand the order.

Excelsior Commercial & Industrial Holdings Limited v Salisbury Hammer Aspden & Johnson (a firm) [2002] EWCA Civ 879 arose from the purchase of a company whose mill had been damaged by fire. The claimant alleged that the first defendant, a loss assessor, had misrepresented the adequacy of the insurance and that the fifth defendant, its solicitor, had failed to advise that the property was underinsured.

The High Court dismissed the claim against the first defendant. It found a breach of retainer by the fifth defendant but awarded only £2 nominal damages because the breach had neither affected the purchase nor caused loss. The two defendants had jointly paid £100,000 into court under Part 36. The judge ordered the claimant to pay their costs on the standard basis up to 8 June 2001 and on the indemnity basis thereafter.

The central issues were whether the claimant’s limited success against the fifth defendant required a different costs order and whether the circumstances justified indemnity costs after the Part 36 payment.

1. Disposition. The Court of Appeal unanimously dismissed the appeal. Lord Woolf CJ delivered the leading judgment. Waller LJ agreed and gave additional reasons; Laws LJ agreed with both judgments.

2. Partial success. The claimant’s success in establishing the fifth defendant’s breach of retainer did not require a separate issue-based costs order. Whether that issue had materially increased the evidence or costs was a practical matter on which the trial judge was best placed to decide. The reasoning in A E I Rediffusion Music Ltd v Phonographic Performance Ltd [1999] 1 WLR 1507 did not require intervention because the trial judge had accepted that the disputed retainer had not significantly affected the costs.

3. The normal basis and the governing discretion. Rules 44.3 and 44.4 of the Civil Procedure Rules confer a wide costs discretion and require consideration of all the circumstances. The absence of any reference to indemnity costs in rule 36.20, contrasted with their express inclusion in rule 36.21, means that standard-basis costs are the normal consequence when a claimant fails to beat a defendant’s Part 36 payment. Part 36 does not displace the general discretion under Part 44. An indemnity order requires conduct or another circumstance taking the case out of the norm.

4. Settlement offers and indemnity costs. The mere rejection of a payment or reasonable offer does not automatically justify indemnity costs. Kiam v MGN Ltd (No 2) [2002] 2 All ER 242 required a high degree of unreasonableness where the sole ground was refusal of an offer, but its language did not govern every possible circumstance. Consistently with Reid Minty (a firm) v Gordon Taylor [2002] 2 All ER 150, conduct need not deserve moral condemnation, and an indemnity order need not always express disapproval. Other circumstances, including the position of an involuntary participant in a test case, may justify the order without unreasonable conduct.

5. Application and order. The judge was entitled to regard the claim as speculative. The claimant’s director knew that the purchase would have proceeded despite the underinsurance and that any additional insurance recovery would have been a windfall. Waller LJ considered that the payment was the final factor taking an already exceptional case outside the norm. The selected commencement date showed that the judge relied on the litigation’s wider circumstances, rather than treating failure to beat the payment as automatically decisive. The appeal was dismissed with the costs of each defendant on the standard basis, on the submitted amounts less £750.

1. Court of Appeal (Civil Division): In Excelsior Commercial & Industrial Holdings Limited v Salisbury Hammer Aspden & Johnson (a firm) [2002] EWCA Civ 879, the court unanimously upheld the costs orders and dismissed the appeal. Before the substantive appeal, Latham LJ and Rix LJ had refused permission to advance wider challenges.
2. High Court, Queen’s Bench Division: His Honour Judge Bradbury dismissed the claim against the first defendant and awarded £2 nominal damages against the fifth defendant. He ordered the claimant to pay both defendants’ costs on the standard basis up to 8 June 2001 and on the indemnity basis thereafter. He granted limited permission to appeal the costs orders.