Esure Services Ltd v Quarcoo

For indemnity costs, conduct outside the norm means conduct outside the ordinary and reasonable conduct of proceedings. The frequency with which particular misconduct occurs is irrelevant. The court must exercise its costs discretion by reference to the rules and all the circumstances, including the parties’ conduct. Conduct deserving moral condemnation is sufficient to justify indemnity costs in appropriate circumstances, but is not a prerequisite. Where a losing claimant has brought or maintained a dishonest claim, indemnity costs will normally be appropriate to mark the court’s disapproval and discourage dishonest litigation. This remains an exercise of discretion.

Mr Quarcoo claimed against Esure Services Ltd, his motor insurer, alleging that his BMW had been stolen. Esure refused payment, principally because it considered the claim dishonest. Investigations showed that one of the four keys supplied by Mr Quarcoo belonged to another BMW. His witness statement accused the insurer’s claims handler of substituting that key.

Recorder Baldwin QC dismissed the claim on 10 June 2008 after making findings of dishonesty. He ordered standard costs, treating the proceedings as within the norm despite those findings. He refused permission to appeal the costs order, but Rix LJ granted permission. Esure appealed against the refusal of indemnity costs. The central issue was whether the Recorder had correctly understood the requirement that conduct be outside the norm.

Mr Quarcoo was absent and unrepresented on appeal. Because he might not have received notice of the hearing date, the court addressed safeguards for a possible application to reopen the appeal.

Appeal allowed unanimously. Waller LJ gave the leading judgment, with which Longmore and Richards LJJ agreed.

1. The Recorder had misdirected himself in interpreting the requirement that a case be outside the norm. That expression concerned conduct outside the ordinary and reasonable conduct of proceedings. It did not concern how frequently the conduct occurred. Bringing a dishonest claim and supporting it by dishonesty fell outside that standard (paras 24–26, 31).

2. The starting point was the costs discretion under rule 44.3 of the CPR. The court had to consider all the circumstances, including the parties’ conduct. Reid Minty v Taylor [2002] 2 All ER 150 and Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson & Ors [2002] EWCA Civ 879 established that indemnity costs were available beyond cases involving conduct deserving moral condemnation. Those authorities preserved the ability to mark disapproval of dishonest conduct. Rule 44.4 distinguished the bases of assessment (paras 17–24).

3. Where a claim had been brought or maintained dishonestly, the court would normally mark its disapproval through its costs order. Where the dishonest claimant was already liable for costs as the losing party, an indemnity costs order was the appropriate means of doing so. Such an order also discouraged dishonest claims and their support by lies. The Recorder’s findings established that this claim was dishonest, rather than merely unproved (paras 14, 23, 27).

4. The misdirection required the court to exercise the discretion afresh. The claimant’s dishonest claim, supporting lies and allegation against the claims handler justified indemnity costs. The fact that the allegation against the claims handler had not been pursued in cross-examination did not justify the refusal. The court substituted an order that Mr Quarcoo pay Esure’s costs on the indemnity basis (paras 26–28, 30–32).

5. The court proceeded in Mr Quarcoo’s absence on the understanding that he had not wished to participate. Esure undertook to serve the order and judgment on him. If that understanding proved mistaken, he could seek to reopen the appeal upon showing good reason for his absence (para 6).

• Court of Appeal (Civil Division): In Esure Services Ltd v Quarcoo [2009] EWCA Civ 595 , the court unanimously allowed Esure’s appeal and substituted an indemnity costs order. Rix LJ had granted permission to appeal.
• Central London Civil Justice Centre: Recorder Baldwin QC dismissed Mr Quarcoo’s insurance claim on 10 June 2008. He ordered standard costs, refused indemnity costs and refused permission to appeal the costs order.