Suez Fortune Investments Ltd & Anor v Talbot Underwriting Ltd & Ors

The court has a wide discretion to order indemnity costs. Standard-basis costs are the norm, so indemnity costs require conduct or circumstances taking the case outside the norm. Where conduct is relied on, it ordinarily must be unreasonable to a high degree. An aggregation of circumstances may nevertheless justify indemnity costs. The merits are relevant, but a weak claim does not automatically warrant indemnity costs. The court must assess all the circumstances, including the character of the claim, the objective risks of failure and the manner in which it was pursued, while respecting proportionality under the Civil Procedure Rules 1998.

Following a 52-day trial, the court dismissed the Bank’s claim for an indemnity under a war risks policy for the constructive total loss of the vessel BRILLANTE VIRTUOSO, finding that the loss resulted from the Owner’s wilful misconduct rather than an insured peril: [2019] EWHC 2599 (Comm). The Bank accepted liability for the Underwriters’ costs but disputed assessment on the indemnity basis after May 2016. The issue was whether the character of the claim, its objective weakness and risks of failure, later evidential developments, and the manner in which the Bank pursued the litigation justified departing from the standard basis.

1. Applicable approach. The discretion under CPR Part 44 is wide, but indemnity costs remain a departure from the norm. Something in the conduct or circumstances of the case must take it outside the norm. Where conduct is relied on, it must ordinarily be unreasonable to a high degree because indemnity costs remove proportionality and resolve doubt in favour of the receiving party. The circumstances may be considered cumulatively, and one factor may contribute to the overall conclusion without independently meeting that threshold.
2. Merits and objective assessment. There is no rule that the merits are relevant only in limited circumstances. They form part of the circumstances under CPR 44.2. A weak claim is not automatically enough, particularly where it was arguable and not hopeless from the outset. The court must assess the claim objectively and avoid hindsight. Here, by May 2016, the evidence contained significant improbabilities and the Owner’s claim had been struck out in circumstances indicating a real risk of deliberate dishonesty. Later evidence made the case more vulnerable, including the unexplained resurgence of the fire, damage to a drain cock and an improbable expert theory.
3. Application. The claim was honestly brought by the Bank, but was objectively based on an alleged fraudulent conspiracy and was outside the norm. The Bank continued to contest a weak and fragile case, maintained improbable factual and expert positions, and argued every material point at length. The resulting scale and manner of the litigation justified removing the standard-basis benefits.
4. Order. The Bank was ordered to pay the Underwriters’ costs on the indemnity basis from May 2016, except that costs of the section 41 illegality issue, the clause 4.3 issue and the abuse of process issue were payable on the standard basis. The Cargo Theft issue was payable on the indemnity basis.

The judgment records the earlier merits decision:

• High Court (Commercial Court) — the Bank’s substantive claim was dismissed for wilful misconduct: [2019] EWHC 2599 (Comm) . No permission to appeal was sought.
• High Court (Commercial Court) — indemnity costs were ordered from May 2016, subject to specified issues being assessed on the standard basis: [2019] EWHC 3300 (Comm) .