Tonkin & Anor v UK Insurance (No 2)

Where a claimant fails to beat a Civil Procedure Rules 1998 Part 36 offer or payment into court, the usual costs consequence is that the claimant pays the defendant’s costs, unless that would be unjust. Issue-by-issue costs orders are exceptional in that situation.

Indemnity costs require conduct that is unreasonable to a high degree. A weak case, failure to beat an offer, or refusal of alternative dispute resolution is not ordinarily sufficient alone. Those matters may cumulatively justify indemnity costs when combined with persistent pursuit of an inherently weak case and other unreasonable conduct. The same principles apply to private individuals and commercial litigants.

The claimants obtained judgment for £199,262.67, and the defendant’s counterclaim was dismissed. The judgment sum, together with an earlier interim payment, produced a total recovery of £260,062.67.

The defendant had previously made a Civil Procedure Rules 1998 Part 36 offer and paid the same amount into court. The claimants failed to beat that sum. The court therefore determined the parties’ competing applications concerning the successful party, issue-based costs, indemnity costs and an interim payment on account.

1. Costs following failure to beat Part 36 offer. The defendant was the successful party because the claimants recovered less than the defendant’s offer and payment into court, and because the defendant succeeded on the important substantive issues. The usual order under Civil Procedure Rules 1998 Part 36 was that the claimants pay the defendant’s costs. Under rule 36.20(2), departure from that order required injustice. No injustice was shown.
2. Issue-based costs. The court accepted that costs may sometimes be awarded issue by issue, as recognised in Summit Property Ltd v Pitmans [2001] EWCA Civ 2020. That approach should not ordinarily be adopted where a claimant has failed to beat a Part 36 offer or payment into court. The liability issue had not affected the real dispute or the costs incurred. The same reasoning applied to the counterclaim and fraud allegations.
3. Indemnity costs. Indemnity costs were not confined to conduct involving moral condemnation. The conduct had to be unreasonable to a high degree, rather than merely wrong or misguided: see Reid Minty v Taylor [2002] 1 WLR 2800 and Kiam v MGN Ltd (No. 2) [2002] 1 WLR 2810. Failure to beat an offer or refusal of ADR was not, individually, enough, but each was relevant to the overall discretion. The claimants’ persistent pursuit of a very weak case, refusal of sensible ADR proposals, failure to make proper disclosure, aggressive conduct and excessive correspondence together made the case exceptional. The defendant’s costs were therefore to be assessed on the indemnity basis.
4. The principles applied equally to private litigants. The fact that Amoco (UK) Exploration Co v British American Offshore Ltd [2002] BLR 135 concerned a commercial party did not limit the general application of the costs principles.
5. An interim payment on account should reflect the minimum sum the successful party was likely to recover. The court ordered an interim payment of £260,062.67, set off the judgment sum, and required repayment of the earlier £60,800 interim payment. The claimants were ordered to pay the defendant’s costs of and incidental to the action.