Ross River Ltd & Anor v Waverly Commercial Ltd & Anor

Costs should be determined by reference to the issues decided and the outcome established, while recognising that costs follow the event is an important starting point rather than an inflexible rule. Where issues were raised but became unnecessary because of later events or disclosure, the court should not treat them as abandoned unless it can confidently assess their likely outcome. If that cannot be done, no order as to those costs may be the fairest result.

Indemnity costs remain exceptional. The case must be truly out of the norm, and the court must give substantial weight to proportionality. A claimant’s judgment should be compared with an offer at its face value, rather than discounted by reference to the claimant’s uncertain recovery from an insolvent defendant.

The judgment concerned the costs consequences of lengthy litigation in which the claimants succeeded against Waverly Commercial Ltd under a joint venture agreement and side agreement, recovering £1,043,926. Their separate claim against Mr Barnett for equitable compensation failed.

The court had to determine how costs should be allocated across successive versions of the pleadings, including issues that were raised but not decided, whether costs should be assessed on the indemnity basis, the significance of settlement offers, and the proper costs order between the claimants and Mr Barnett.

1. The claimants were entitled to 50 per cent of their costs against Waverly Commercial Ltd up to the green amendments and 100 per cent thereafter. Those costs were to be assessed on the standard basis. The court rejected the submission that the earlier undecided issues had been abandoned. Where the court can confidently assess the likely outcome of an undecided issue, it may take that assessment into account. If it cannot do so, it cannot decide the issue by reference to the event, and no order as to costs may be the fairest course: [2012] 1 WLR 2607 was applied by analogy.

2. The general principle that costs follow the event is an important starting point, but it is not exhaustive. The court was entitled to consider the changing pleadings, supervening disclosure, the parties’ respective success on determined issues, and the overall justice of the costs order.

3. Indemnity costs were refused. The standard basis is the normal basis. An indemnity order requires circumstances truly out of the norm, and there should be no rigid guidelines. Proportionality is a significant consideration because indemnity costs remove the paying party’s protection against disproportionate expenditure. The approach in Lownds v Home Office [2002] 1 WLR 2450 was applied.

4. The court rejected the argument that the claimants had failed to beat the defendants’ offers because Waverly Commercial Ltd was insolvent and the judgment might produce little practical recovery. The relevant comparison was between the amount of the judgment and the amount offered, without discounting the judgment by an uncertain liquidation dividend.

5. No order as to costs was made between the claimants and Mr Barnett. Although no equitable compensation was ordered against him, the result depended on a combination of circumstances, including the company’s properly incurred defence costs and the funds returned by Mr Barnett. The claimants had nevertheless incurred substantial expense establishing matters against him which he contested, making it inappropriate either to award him his costs or to order him to pay the claimants’ costs.

6. Reserved costs were treated consistently with the allocation above. No interim payment was ordered in respect of Mr Barnett because there was no order as to costs between him and the claimants.