Arroyo & Ors v Equion Energia Ltd

Costs are determined by the overall justice of the litigation. The general rule that costs follow the event does not require an automatic reduction merely because the successful party lost on some issues. A reduction may nevertheless be justified where a distinct issue on which that party failed had a real bearing on costs.

Indemnity costs require conduct or circumstances taking the case out of the norm. The threshold is high: conduct need not merit moral condemnation, but must be unreasonable to a high degree. An indemnity order may be limited by time or to part of the litigation.

The judgment concerned consequential costs following the dismissal of lead claims in the Ocensa Pipeline Group Litigation. The claimants abandoned any appeal and accepted that they should pay costs, but sought a reduction to 60 per cent of the defendant’s costs on the standard basis. The defendant sought recovery of 100 per cent of its costs and indemnity costs.

The court considered the effect of the defendant’s failure on the dangerous activities doctrine, the parties’ success on other issues, the costs framework under the Civil Procedure Rules 1998, the parties’ conduct, expert evidence, schedules of loss and a Calderbank offer.

1. The claimants were ordered to pay the defendant’s costs, subject to a reduction reflecting the defendant’s failure on the guardianship issue under the dangerous activities doctrine. Costs incurred up to 28 August 2014 were to be assessed on the standard basis. Costs thereafter were to be assessed on the indemnity basis, except for the costs of the present hearing, which were payable on the standard basis.

2. Under CPR 44.2 the court has a broad discretion to make an order reflecting the overall justice of the case. The general rule that the unsuccessful party pays the successful party’s costs remains important. There is no automatic reduction because the winner fails on one or more issues. However, the court may make a proportionate or broad-brush reduction where the successful party lost on a distinct issue which had a real bearing on the costs incurred.

3. The issues concerning Article 5 of the 1954 Regulations, clauses 9 and 17 of the ROW Agreements, and concurrent tort and contract claims did not justify a reduction. They were reasonably pursued, essential to the litigation, and generated only modest or slight discrete costs. The guardianship issue was different: it was central, failed, and occupied approximately two trial days. The defendant’s recoverable costs were therefore reduced by four times the costs attributable to its attendance during the relevant evidence.

4. Indemnity costs require circumstances or conduct taking the case outside the norm. Mere defeat, error, or hindsight is insufficient. The court may consider conduct by parties, lawyers and experts, and may award indemnity costs for only part of the litigation. The service of the claimant’s fourth expert report, which introduced substantially new calculations in deliberate disregard of a court order shortly before trial, was the tipping point. The defective schedules of loss, misleading interdisciplinary expert presentation, failure to address the ODC pipeline properly, and the surrounding Calderbank offer reinforced the conclusion.

First-instance consequential costs judgment following the Main Judgment dated 27 July 2016, [2016] EWHC 1699 (TCC). The claimants decided not to appeal the Main Judgment and accepted that the remaining claims should be dismissed.