Burgess & Anor v Lejonvarn

Indemnity costs require conduct or circumstances taking the case out of the norm. Unreasonableness must be at a high degree; conduct that is merely wrong, hard-fought or unsuccessful is insufficient. The court assesses the litigation in its overall context and avoids hindsight. A weak but arguable claim will not ordinarily justify indemnity costs, although a hopeless claim may do so. Failure to comply with a pre-action protocol, aggressive conduct, late disclosure, pleading weaknesses, expert difficulties and rejection of a Part 36 offer do not automatically justify indemnity costs. A defendant who obtains a result better than its Part 36 offer has no automatic entitlement to indemnity costs. Costs incurred before the relevant Part 36 period remain governed by the general discretion under CPR 44.2.

This was a post-judgment hearing arising from proceedings between former friends concerning professional negligence and related claims. The defendant had succeeded at trial and had obtained an order for one half of the Court of Appeal costs, with other costs reserved. She sought indemnity costs, recovery of all pre-action costs, interest on costs already paid and a substantial payment on account.

The claimants accepted that the defendant should recover relevant costs on the standard basis and that pre-action costs were in principle payable, but disputed indemnity costs and any reduction or enhancement arising from pre-action conduct, alleged pleading and disclosure failures, expert evidence, and the defendant’s Part 36 offer.

1. Indemnity costs. The defendant’s application for indemnity costs for all or part of the proceedings was refused. The governing question was whether the conduct of the paying party or the circumstances of the case took the litigation out of the norm. Conduct had to be unreasonable to a high degree. The court had to consider all the circumstances and the litigation as a whole.
2. The claim was fact-sensitive and was not hopeless from the outset. The weaknesses in the global claim, pleading, disclosure and expert evidence were matters which had to be assessed at trial. The litigation was hard fought, but not outside the norm.
3. The parties’ pre-action conduct and mutual non-compliance with the pre-action protocol did not justify indemnity costs. The alleged non-compliance would not have avoided the costs incurred. The claim had properly raised concurrent contractual and tortious issues, including assumption of responsibility.
4. Part 36 was a comprehensive code for the specified costs consequences. The defendant’s better result than her offer was an important discretionary factor, but did not create an automatic entitlement to indemnity costs. Costs were therefore ordered on the standard basis.
5. The defendant was entitled to her pre-action costs without reduction. Interest on costs already paid was ordered at 4% above base rate from the date of payment. A payment on account of £365,000 was ordered within six weeks.

The judgment records that the Court of Appeal had ordered the defendant appellant to pay one half of the appeal costs, with the balance reserved to the trial judge. The present judgment determined the consequential costs issues.