Bank of Ireland (Governors and Company of) & Anor v Watts Group Plc

Indemnity costs require conduct that is unreasonable to a high degree and takes the case out of the norm. A weak but arguable claim will not usually suffice, whereas pursuing a hopeless claim may do so. The court must avoid hindsight. A successful party’s failure to beat offers is a factor, but does not automatically justify indemnity costs. Where an expert’s conduct warrants sanction, the court may order indemnity assessment for the specific costs generated by that conduct rather than the whole action. For interim payments, the last approved costs budget is the starting point under CPR 3.18. The court should not depart from it without good reason, and should not make an arbitrary percentage reduction merely because payment is on account.

The claimants brought professional negligence proceedings against the defendant arising from the failure of a development company to which the Bank had lent money. The claim was dismissed in the earlier judgment, [2017] EWHC 1667 (TCC), and the Bank accepted liability for Watts’ costs.

The consequential hearing concerned the basis of assessment and the amount of the interim payment on account. Watts sought indemnity costs, relying on the alleged hopelessness of the claim, offers which the Bank had failed to beat, and criticisms of the Bank’s expert evidence. The Bank sought assessment on the standard basis and argued for a reduced interim payment.

1. Indemnity costs. The governing principles, summarised in Elvanite Full Circle Ltd v Amec Earth and Environmental (UK) Ltd [2013] EWHC 1643 (TCC), require conduct unreasonable to a high degree and circumstances taking the case out of the norm. A weak claim which is at least arguable will not normally justify indemnity costs, although pursuit of a hopeless claim may do so. The court must guard against hindsight.
2. The claim was not hopeless from the outset. It had expert and factual support, and the trial outcome was not inevitable. Watts’ success in beating offers was a relevant factor, but did not create an automatic entitlement to indemnity costs. The appropriate general order was therefore assessment on the standard basis.
3. The Bank’s quantity-surveying expert gave seriously inadequate evidence. Following Balmoral v Borealis [2006] EWHC 2531 (Comm) and Williams v Jervis [2009] EWHC 1837 (QB), the costs of Watts’ expert and the costs of and occasioned by the Bank expert’s oral evidence were to be assessed on the indemnity basis. Ordering indemnity costs for the whole action would penalise the Bank twice.
4. Interim payment. Under Civil Procedure Rules 1998, r 3.18, the approved costs budget was the starting point for the assessment and the interim payment. The Court of Appeal’s approach in Harrison v University Hospital Coventry and Warwick NHS Trust [2017] EWCA Civ 792 confirmed that detailed assessment does not start from scratch. The figure of £384,424 was therefore the appropriate base. A 30 per cent reduction was unjustified; a 15 per cent reduction produced an interim payment of £326,760.
5. The abandoned contributory-negligence allegations did not justify a separate costs order. They formed part of the ordinary conduct of the trial, viewed in the round.