JP Morgan Chase Bank & Ors v Springwell Navigation Corp

An indemnity costs order is compensatory, not punitive, and remains a departure from the norm. The court must consider all the circumstances, including the parties’ conduct, the issues pursued and any admissible settlement offer. The critical question is whether conduct or circumstances take the case outside the norm. Unreasonableness need not involve dishonesty or moral blame. In substantial commercial litigation, an indemnity order may be justified where a party advances an unusually wide, weak or speculative case, pursues unsupported allegations of impropriety, changes its case materially, or disregards the commercial reality and documentary framework of the dispute. The assessment must remain proportionate and contextual. A party may therefore receive indemnity costs for only part of the litigation or a specified proportion where the successful party also contributed to the scale or expense of the proceedings.

Following judgments determining the pre-default and post-default claims, the only outstanding costs issue was whether Springwell should pay all or part of Chase’s costs on the indemnity basis. Chase sought indemnity costs for the action and counterclaim, relying on the scale and breadth of Springwell’s claims, allegedly exaggerated evidence, abandoned or unsuccessful allegations of dishonesty and impropriety, the development of the case, and a settlement offer.

Springwell relied on the complexity and hard-fought nature of the litigation, its recovery of approximately $8 million, Chase’s own conduct, and the fact that some claims had been reasonably pursued. The central issue was whether the circumstances took the litigation outside the norm and, if so, the appropriate extent of any indemnity order.

1. Applicable principles. Under CPR 44.3 and CPR 44.4, costs are discretionary and compensatory. The court must consider all the circumstances, including conduct, partial success and admissible settlement offers. Standard-basis costs are subject to proportionality, while doubts are resolved in favour of the paying party. On the indemnity basis, proportionality does not apply and doubts are resolved in favour of the receiving party.
2. The discretion to award indemnity costs is wide, but indemnity costs remain exceptional. There must be conduct or a circumstance which takes the case outside the norm. Conduct may be sufficiently unreasonable without amounting to dishonesty or moral condemnation. The relevant conduct must be assessed in the context of the litigation as a whole.
3. Springwell’s case exceeded that threshold. It was pursued on an exceptionally broad canvas, involving a ten-year relationship, extensive allegations, substantial damages and a large factual and expert investigation. Springwell pursued allegations which could have been framed more narrowly, advanced unsubstantiated allegations, maintained serious allegations of dishonesty and impropriety, abandoned some shortly before trial, and presented witness evidence and pleadings which materially shifted from the case ultimately advanced.
4. The court also took account of the commercial context. Sophisticated financial-market relationships and trades should be recorded clearly in written contracts and documents. A party who unsuccessfully seeks to displace that contractual framework by constructing an elaborate wider relationship may reasonably expect to bear indemnity costs, since otherwise expansive misrepresentation and overarching-duty claims could become unjustified negotiating tools.
5. The settlement offer was a relevant additional circumstance under CPR 44.3(4), although it would not alone justify indemnity costs. Chase’s own conduct, its contribution to unnecessary evidential expansion, the approximately $8 million recovered by Springwell, and some reasonably pursued claims meant that a full indemnity award would be unjust.
6. Springwell was ordered to pay 65% of Chase’s costs of the action and counterclaim on the indemnity basis, excluding discrete claims on which Springwell had succeeded and for which costs had been agreed in its favour.

The judgment concerned post-judgment costs following the court’s earlier judgments on the substantive claims: the first judgment, [2008] EWHC 1186 (Comm), and the second judgment, [2008] EWHC 1793 (Comm).