Wates Construction Ltd. v HGP Greentree Allchurch Evans Ltd.

Indemnity costs may be ordered where litigation has been pursued to a high degree of unreasonableness, even without moral misconduct or an ulterior purpose. Late discontinuance does not, by itself, justify indemnity costs. Continuing a claim which the party knows, or ought to know, is doomed to fail on the facts and law may meet that threshold. Earlier procedural failures may not justify a further sanction where they have already attracted costs orders or were not deliberate.

Wates Construction Ltd. brought Part 20 proceedings against its architect, HGP Greentree Allchurch Evans Ltd., concerning Waitrose’s claim arising from the collapse of a retail-unit roof. On the first day of trial Wates discontinued the Part 20 claim and accepted liability for HGP’s costs under CPR 38.6.

The issue was whether HGP’s costs should be assessed on the standard basis or the indemnity basis. HGP relied particularly on Wates’ failure to discontinue after witness statements and expert discussions had made the claim untenable.

1. Applicable approach. The court applied the principles in Reid Minty v Taylor 2002 1 WLR 2800 and Kiam v MGN Limited No 2 2002 1 WLR 2810. Conduct must be unreasonable to a high degree. An indemnity-costs order under Part 44 is penal rather than merely exhortatory.
2. Earlier conduct. Failures concerning the pre-action protocol, disclosure, pleadings, payment of costs and the treatment of deviations from HGP’s design did not warrant indemnity costs. Some matters had already attracted procedural or costs consequences; others were not deliberate or were sufficiently addressed.
3. Continued pursuit of the claim. By 10 August 2005, the evidence and experts’ agreement established that the defects concerned construction and maintenance, not HGP’s design. Wates and its solicitors should therefore have recognised that the claim could not succeed and discontinued it. Continuing a claim known, or which ought to have been known, to be doomed to fail on the facts and law was so unreasonable as to justify indemnity costs, without proof of an ulterior purpose.
4. HGP’s offer of 27 September 2005 to discontinue on payment of standard-basis costs was reasonable and should have been accepted promptly. A late mediation proposal did not alter the position.
5. HGP’s costs up to 10 August 2005 were to be assessed on the standard basis. Costs incurred from 11 August 2005 onwards were to be assessed on the indemnity basis.