LMS International Ltd & Ors v Styrene Packaging and Insulation Ltd & Ors

Indemnity costs require more than success or an unsuccessful argument. The paying party’s conduct must be unreasonable to a high degree, although moral impropriety or conduct deserving moral condemnation is not essential. A refusal to mediate may justify indemnity costs only in exceptional circumstances, such as a wholly unjustified refusal or one motivated by improper commercial considerations. Deficient disclosure does not justify indemnity costs where the deficiency has no lasting significance. An attack on experts must be unfair or unreasonable, and any order should be confined to the costs it affected. A defence that is wrong or misguided in hindsight may nevertheless be bona fide and arguable.

The claimants succeeded on the liability issues against the first defendants and sought their costs on the indemnity basis under Civil Procedure Rules 1998, rule 44.4(1)(b). The first defendants accepted liability for the claimants’ costs but contended that assessment should be on the standard basis.

The claimants relied on the refusal to mediate, inadequate disclosure, the cross-examination of their experts, and the alleged lack of bona fides in the defence. The central issue was whether that conduct was sufficiently unreasonable to justify indemnity costs.

1. The claimants’ success, however resounding, did not itself justify indemnity costs. Costs were ordinarily to be assessed on the standard basis, and the court had to exercise its discretion in accordance with the relevant principles.

2. The court adopted the guidance in Reid Minty v Taylor [2002] 1 WLR 2800 and Kiam v MGN Ltd (No 2) [2002] 1 WLR 2810. Moral condemnation was unnecessary, but conduct had to be unreasonable to a high degree. In this context, unreasonableness meant more than being wrong or misguided in hindsight, and an indemnity costs order had a penal element.

3. A refusal to mediate could, in exceptional circumstances, justify indemnity costs. The relevant circumstances might include a wholly unjustified refusal or refusal motivated by purely commercial considerations. The defendants had initially agreed to mediation, but the parties had been unable to agree its form, and the later proposal was not taken up. The mediation issue therefore did not justify indemnity costs.

4. The defendants’ disclosure had been unsatisfactory and had caused additional aggravation and expense. However, by trial there was no suggestion that relevant documents were absent from the bundles. The disclosure failures therefore lacked lasting significance and did not justify indemnity costs.

5. The attack on the claimants’ experts was legitimate and reasonably explored in evidence. The cross-examination was courteous and logical and was far removed from the conduct considered in Clark v Associated Newspapers Ltd. In any event, even if the complaint had been made out, it could have affected only the costs of the relevant expert evidence, not all costs.

6. The defence was ultimately incorrect but arguable. The suggestion that it was a sham amounted to criticism based on hindsight and did not establish a lack of bona fides.

7. The application for indemnity costs was refused. The first defendants were ordered to pay the claimants’ costs of the liability issues on the standard basis, if not agreed.

Not an appellate decision. The judgment concerned the claimants’ application for indemnity costs following the court’s liability judgment.