Healy-Upright v Bradley & Anor

An indemnity costs order requires conduct or circumstances taking the case out of the norm. It is not justified merely because a party was wrong in fact or law, acted unreasonably in hindsight, pursued litigation that lacked commercial sense, or advanced a claim with a serious legal difficulty. The court should assess the manner in which the litigation was conducted, rather than determine the substantive merits. A later reassessment and abandonment of a hopeless or pointless claim before trial should not generally be penalised by indemnity costs.

The claimant sought declarations and orders concerning the dissolution and winding up of a partnership following the death of one partner. The defendants initially relied on an alleged oral agreement concerning the disposal of the partnership assets. After the defendants discontinued that claim, the parties agreed that the remaining issues were the appropriate basis for costs and the amount of any payment on account.

The issue was whether the defendants’ conduct in pursuing and later abandoning the alleged agreement justified costs on the indemnity basis.

1. Costs basis. The defendants were ordered to pay the claimant’s costs of the preliminary issue on the standard basis. Indemnity costs require something unusual, abnormally unreasonable, or otherwise deserving of condemnation in the conduct of the litigation or circumstances of the case.
2. The court applied the guidance in Reid Minty v Taylor [2002] 1 WLR 2800, Kiam v MGN (No 2) [2002] 2 All ER 242, and Excelsior Commercial v Industrial Holdings Limited v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879. Conduct must be unreasonable to a high degree, and the question is whether the case is taken out of the norm.
3. The inconsistencies relied on by the claimant were ordinary litigation inconsistencies which could properly have been explored at trial. The judge was not deciding the underlying facts or merits and was not persuaded that the defendants’ position was pursued in bad faith, maliciously, or for an ulterior purpose.
4. The alleged agreement may have faced a serious legal difficulty under section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. However, getting the law wrong did not itself justify indemnity costs. The possible application of section 53 of the Law of Property Act 1925 was less persuasive, and section 43 of the Partnership Act did not assist because it applied only in the absence of agreement.
5. The defendants’ late reassessment and abandonment of the claim did not warrant a penal costs order. The court should not discourage parties from abandoning hopeless or pointless claims before trial.
6. A payment on account was appropriate, but the amount required a conservative approach because the claimant’s costs summary included substantial sums not clearly attributable to the preliminary issue. Further submissions were directed on the costs of the applications and the amount payable.

First-instance proceedings. Master Price ordered the trial of preliminary issues concerning the alleged agreement and the partnership assets. Following discontinuance of that claim, the present judgment determined the costs basis and related payment-on-account issue.