Balmoral Group Ltd. v Borealis (UK) Ltd & Ors

Indemnity costs are exceptional. They require conduct or circumstances taking the case outside the ordinary standard-basis regime; dishonesty or moral blame is unnecessary. A claimant’s failure to beat a payment into court does not, by itself, justify indemnity costs, although it may do so when combined with other unreasonable conduct. Publicity is not automatically improper, but pressure designed to force settlement may be relevant. A grossly exaggerated claim must be assessed with its underlying merits and other circumstances. Serious deficiencies in a party’s expert evidence may justify indemnity costs. The party calling the expert cannot generally avoid responsibility by treating the expert as independent. Any order may be confined to costs caused by the particular deficiencies.

Following the loss of Balmoral’s commercial claim against Borealis concerning failed fuel tanks, the court considered the appropriate basis for costs. Borealis sought indemnity costs, relying on pre-action publicity, an allegedly grossly exaggerated claim, failure to accept a payment into court, expert-evidence deficiencies and alleged witness intimidation. Balmoral argued that its claim had a solid basis, that it had participated in mediation, and that it should not bear additional costs caused by an independent expert. The central issue was whether the conduct and circumstances took the case outside the norm and, if so, what costs should be assessed on the indemnity basis.

Disposition. Balmoral was ordered to pay limited parts of Borealis’s costs on the indemnity basis. The court made no wider indemnity-costs order.

1. The ordinary rule is that a successful party receives costs on the standard basis. Indemnity costs are a departure from that norm. The discretion is wide and must be exercised in all the circumstances, but some feature of the conduct or case must take the matter outside the norm. The order is compensatory rather than punitive.
2. Publicly stating that suspect raw material caused the tank failures was not unreasonable in the circumstances. The later threat to publicise the claim and contact regulators did not justify indemnity costs because it did not mature into an improper campaign, although improper pressure to abandon a defence could be relevant in another case.
3. The claim was grossly exaggerated, and failure to accept the £7 million payment into court or make a counter-offer was unreasonable. However, the claim was not frivolous. It had a solid basis and, if liability had been established, substantial damages would have been awarded. The payment in and the other difficulties therefore did not make continuation of the claim sufficiently unreasonable. Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer [2002] EWCA Civ 879, CAT Ltd v Abbott Biotechnology Ltd [2005] EWHC 357 and Amoco (UK) Exploration Co v British American Offshore Ltd [2002] BLR 135 were treated as materially different examples.
4. The deficiencies in the RAPRA and related expert evidence were different in kind. The reports concealed or failed to reveal important data and inconsistencies, causing unnecessary costs. Balmoral could not distance itself from its expert. Whatever the expert’s duties to the court, he remained the witness of the party calling him, and the risk of serious failings rested with that party.
5. The evidence of witness intimidation involved factual disputes that it would be disproportionate to try separately. One incident was reprehensible, but brief and limited in effect. It did not independently justify indemnity costs.
6. The indemnity order was confined to work carried out by Capcis after receipt of RAPRA’s first report dated 27 October 2005, and to the costs of both counsel and solicitors’ attendance on 23, 27 and 28 February and 1 March 2006, when Mr Clements gave evidence. The costs judge was directed not to pare down costs attributable to dealing with the relevant expert evidence.

This was a first-instance costs decision following an earlier trial in the same action. No appellate history or citation for the earlier merits judgment is stated.