Euroption Strategic Fund Ltd v Skandinaviska Enskilda Banken AB

The standard basis is the normal basis for costs assessment. Indemnity costs require conduct or circumstances taking the case outside the norm. Conduct need not involve dishonesty or moral blame, but must generally be unreasonable to a high degree. A highly speculative, grossly exaggerated or opportunistic claim, pursued at disproportionate length and expense, may justify indemnity costs. The court should assess the litigation overall rather than conduct a micro-analysis of individual issues.

This was a consequential costs judgment following the dismissal of Euroption’s €135 million claim against SEB concerning the conduct of a portfolio close-out. The parties agreed that Euroption should pay SEB’s costs, but disputed whether there should be a deduction for failure to mediate, the amount of an interim payment, the basis of assessment, and permission to appeal.

The remaining issue was whether SEB’s costs should be assessed on the standard or indemnity basis.

1. Euroption was ordered to pay SEB’s costs on the indemnity basis. The claim was speculative, involved a high risk of failure, was grossly exaggerated in both scope and quantum, and was opportunistic. It was pursued without sufficient regard to proportionality and with extensive criticism of nearly every aspect of the close-out trading.

2. The court applied the principles under section 51 of the Senior Courts Act 1981 and CPR rules 44.3, 44.4 and 44.5. On the standard basis, the receiving party bears the burden in cases of doubt and recoverable costs must be proportionate. On the indemnity basis, the paying party bears the burden and the proportionality limitation does not apply.

3. The standard basis remains the norm. The question is fact-dependent and requires something in the conduct of the action or the circumstances of the case which takes it outside the norm. Unreasonableness need not involve moral condemnation, but mere error or hindsight-based misjudgment is insufficient; the conduct must be unreasonable to a high degree.

4. The court rejected a claim-by-claim micro-analysis. Viewed as a whole, Euroption had pursued all issues through trial, including extensive and disproportionate disclosure complaints, detailed hindsight criticism of trading decisions, and a substantial settlement demand. Those features justified removing the benefit of proportionate-costs assessment.

5. The court refused a deduction for SEB’s decision not to mediate, finding that SEB had clearly offered to forego substantial costs if the claim were dismissed and had reasonably maintained that the claim lacked merit. An interim payment of £1.25 million was appropriate. Permission to appeal was refused because Euroption had no reasonable prospect of success.

The judgment followed an earlier judgment of the same court, [2012] EWHC 584 (Comm), which dismissed Euroption’s claim. Permission to appeal was refused in the present judgment.