D Morgan Plc v Mace & Jones (A Firm) [No 3]

An order for indemnity costs requires conduct or circumstances taking the case outside the norm. A defendant’s Part 36 offer, and the claimant’s failure to beat it, do not by themselves justify indemnity costs. The court must assess the offer against the wider circumstances, including the speculative or fundamentally flawed nature of the claim and any unreasonable conduct of the litigation. Where the claimant’s principal witness gives highly unreliable evidence and deliberately bolsters the claim, that may amount to unreasonable conduct to a high degree. Indemnity costs may therefore be ordered from the date on which the relevant conduct or circumstances arise, rather than from the commencement of proceedings.

The claimant had succeeded on one allegation of negligence but failed on causation and recoverability, and the defendant was generally entitled to its costs. The court considered whether those limited findings warranted a reduction in costs, whether indemnity costs should be ordered, and the amount of an interim payment on account.

The defendant relied on the speculative and flawed nature of the claim, the claimant’s evidence and conduct, and an unaccepted Part 36 offer of £1.2 million. The central issue was whether those matters took the case outside the norm and, if so, from what date.

1. Costs allocation. The claimant was not entitled to a reduction in the defendant’s costs because success on one allegation did not fairly reflect the intertwined issues of liability, causation and loss. The successful allegation would not have materially affected the trial or costs even if it had been admitted.
2. Applicable test. Under CPR 44.3(4) and 44.4(1), indemnity costs require conduct or circumstances taking the case outside the norm. Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson (A Firm) [2002] EWCA Civ 879 established that a defendant’s Part 36 offer, rejected and not beaten at trial, cannot alone justify indemnity costs. The wider conduct and circumstances may nevertheless justify the order. Reid Minty (A Firm) v Taylor [2002] 2 All ER 150 and Kiam v MGN Ltd [No 2] [2002] 2 All ER 242 illustrated the need for conduct unreasonable to a high degree.
3. Application. Before 19 August 2010, the claim’s exaggerated and fundamentally flawed character approached the boundary of the norm, but did not justify indemnity costs. The claimant’s disclosure and delay were not significant for this purpose.
4. From 19 August 2010, the claimant’s refusal of the £1.2 million offer was unreasonable to a high degree when considered against the speculative claim and the claimant’s earlier settlement with the principal defendant for £2.6 million. The principal witness’s highly unreliable evidence, including deliberate untruths, independently reinforced that conclusion.
5. Indemnity costs were ordered from 19 August 2010. The parties agreed an interim payment on account of costs of £800,000, and an order was made accordingly.