Two Right Feet Ltd v National Westminster Bank Plc & Ors

On discontinuance, the default costs order is assessment on the standard basis, but the court may order indemnity costs where the claimant’s conduct takes the case outside the norm. Relevant matters include speculative or weak claims, serious unjustified allegations, failure to investigate or comply with pre-action procedures, exaggerated quantum, delay, defective disclosure and other unreasonable conduct. The court assesses the overall circumstances rather than applying a fixed checklist. An adjournment will be refused where it is sought at a very late stage, without a proper explanation, evidence, proposed participation or identifiable purpose.

The claimant, a company in liquidation, discontinued proceedings against its bank and KPMG after substantial litigation concerning alleged duties of care, contractual obligations, lending decisions and serious allegations about the preparation of financial information. The discontinuance carried the usual costs order on the standard basis.

The defendants applied to vary that order so that their costs would be assessed on the indemnity basis. An after-the-event insurer, DAS, sought a late adjournment to consider whether to be joined and to respond on the claimant’s behalf. The court therefore had to decide whether to adjourn the hearing and whether the claimant’s conduct justified indemnity costs.

1. Adjournment. The application was refused. The claimant, acting through an experienced professional liquidator, and DAS had long been aware of the proposed costs applications and hearing. There was no adequate explanation for the delay, no clear indication that DAS would seek joinder, no evidence or skeleton argument, and no identified purpose for the adjournment. The court would not adjourn the matter in such circumstances.
2. Jurisdiction and default position. Under Civil Procedure Rules 1998, r 38.3 permits discontinuance and r 38.6(1) makes the discontinuing claimant liable for the defendant’s costs unless the court orders otherwise. By r 44.9(1), that liability is ordinarily treated as a standard-basis costs order. Atlantic Bar & Grill Ltd v Posthouse Hotels Ltd [2000] C.P. Rep 32 established that the power to order otherwise includes an order for indemnity costs.
3. Discretion. Under CPR 44.2, the court must consider all the circumstances, including conduct before and during proceedings, compliance with pre-action protocols, the reasonableness of allegations and issues pursued, the manner in which the case was conducted and any exaggeration of the claim. The authorities summarised in Digicel (St Lucia) Ltd v Cable & Wireless PLC [2010] 5 Costs Law Reports 709, National Westminster Bank plc v Rabobank Nederland [2008] All ER (Comm) 243 and Three Rivers DC v Bank of England [2006] EWHC 816 supported the conclusion that indemnity costs require conduct or circumstances taking the case outside the norm, rather than moral condemnation alone.
4. Application. The claim was speculative and weak in fact and law. It involved serious allegations unsupported by evidence, factual inaccuracies, an unsupported claim exceeding £20 million, inadequate investigation, failure to engage properly with pre-action procedures, delay, defective disclosure, failure to cooperate with the single-joint-expert process and unreasonable conduct after discontinuance. Taken cumulatively, these matters justified indemnity costs. The court also treated the reasoning in Singh v Singh [2014] EWHC 1770 (Ch) as materially analogous.
5. Order. The defendants’ applications were granted. The claimant was ordered to pay the defendants’ costs on the indemnity basis.