Danepoint Ltd v AUA

An order for costs on the indemnity basis may be made where litigation, or the circumstances in which it arose, takes the case outside the norm. The conduct must be unreasonable to a high degree; mere error, failure or misguided litigation is insufficient.

The court may consider conduct before proceedings began, particularly where a claim was fraudulently made and maintained. A finding of fraud does not automatically justify indemnity costs, but continued dishonest conduct, serious disclosure failures and the maintenance of an unsupported claim may together satisfy the test.

The successful defendant applied for its costs to be assessed and paid on the indemnity basis following dismissal of the claimant’s insurance-related claims. The court had found that the loss of rent claim was fraudulent and that the reinstatement claim, although not proved fraudulent, was fundamentally flawed and materially exaggerated.

The application raised three issues: the parties’ relative success; whether conduct before commencement of proceedings could be considered; and whether the conduct of the litigation was sufficiently unreasonable to justify indemnity costs.

1. Outcome. The defendant was the wholly successful party. The fraudulent loss of rent claim caused the insurance claim to fail, and the reinstatement claim was not shown to be recoverable in the sum claimed.
2. Applicable test. Following Reid Minty v Taylor [2002] 1 WLR 2800 and Kiam v MGN Ltd (2) [2002] 1 WLR 2810, conduct may justify indemnity costs even if it falls short of conduct deserving moral condemnation. It must, however, be unreasonable to a high degree, rather than merely wrong or misguided with hindsight.
3. Relevant conduct. The court may consider the circumstances in which the claim arose, as well as conduct during the proceedings. The claimant had made and maintained a fraudulent claim before proceedings and throughout the litigation. That conduct was wholly out of the ordinary and independently justified indemnity costs.
4. Conduct of the litigation. Even if only litigation conduct were relevant, the claimant’s disclosure failures were exceptionally serious. Documents supporting the loss of rent claim were withheld despite agreement, specific disclosure orders and an unless order. The resulting disclosure was described as shambolic, and the key late document was found to have been concocted. This conduct was unreasonable to a high degree and satisfied the applicable test.
5. A finding of dishonesty does not automatically produce an indemnity costs order. The continuing dishonesty and misrepresentations in Gemini Travel Group v Osborne & Ors [2002] EWHC 2403 (Ch) provided an analogous example. The claimant was ordered to pay the defendant’s costs, assessed on the indemnity basis.

First-instance judgment on the defendant’s application for indemnity costs. The judgment states that the underlying action had previously been in the Chancery Division and was later transferred to the Technology and Construction Court, but gives no citation for an earlier judgment.