Kellie & Anor v Wheatley & Lloyd Architects Ltd

In exercising the discretion on costs, the court must consider all the circumstances, including the parties’ conduct and their relative success on particular issues. A successful party should ordinarily recover its costs where unsuccessful points caused no identifiable additional expense or trial time.

Indemnity costs require conduct or circumstances taking the case out of the norm. Mere weakness of a claim, rejection of reasonable settlement offers, or reliance on evidence later exposed as unsatisfactory will not ordinarily suffice. The assessment basis is distinct from costs management. An approved budget, fixed with proportionality in mind, does not impose an analogous limit on costs assessed on the indemnity basis.

The claimants’ professional negligence claim against the defendant architects had been dismissed in an earlier judgment, [2014] EWHC 2212 (TCC). The court had reserved questions concerning the proportion of the defendant’s costs recoverable, the appropriate basis of assessment, and any further payment on account.

The claimants argued that two unsuccessful defences should reduce the defendant’s recovery. The defendant sought recovery of all costs on the indemnity basis and a further payment on account, relying on the weakness of the claim, the presentation of witness evidence, rejected settlement offers and the length of the trial.

1. Proportion of costs. Under rules 44.2(4), 44.2(5) and 44.2(6)(a) of the Civil Procedure Rules 1998, the court considered the parties’ overall success, the nature of the issues, their conduct, and whether the unsuccessful points caused identifiable additional cost. The no-loss and limitation defences involved specific legal submissions, but did not materially lengthen the trial or produce any identifiable increase in costs. They therefore did not justify reducing the defendant’s recovery.
2. Costs management and indemnity assessment. The court respectfully disagreed with the approach in Elvanite Full Circle Ltd v AMEC Earth & Environment (UK) Ltd, which treated an approved costs budget as the starting point for indemnity assessment. Costs management is directed to proportionality on the standard basis. Rule 3.18 does not apply analogously to indemnity assessment, where proportionality is not in issue under rule 44.3(3). The approved budget may be relevant as evidence of expected costs, but it does not create a presumption limiting reasonable costs on the indemnity basis.
3. Indemnity costs. The discretion is wide, but indemnity costs require conduct or circumstances taking the case outside the norm. Unreasonableness must be high degree; mere error, weakness viewed with hindsight, or rejection of reasonable offers is insufficient. The claim was weak and the evidence unsatisfactory, but it was arguable when pursued. The witness statement was unfortunate but not deliberately misleading or highly unreasonable. The rejected offers and alleged settlement pressure did not satisfy the test.
4. The defendant was awarded all its costs, to be assessed on the standard basis if not agreed. The claimants were ordered to pay £90,000 on account. The court declined to order a sum exceeding the approved budget merely because the trial lasted five days.

First-instance costs judgment following the dismissal of the claim in [2014] EWHC 2212 (TCC).