Aircraft Purchase Fleet Ltd v Compagnia Aerea Italiana SPA

Indemnity costs may be ordered where the conduct and circumstances of a claim take it out of the norm. A claim bordering on hopeless, pursued despite the claimant’s knowledge of a fundamental difficulty, incomplete disclosure of that difficulty, and reliance on untruthful evidence may justify indemnity costs even without a finding of deliberate impropriety. The court must exercise its discretion by considering all the circumstances. A party’s substantial success on a counterclaim does not necessarily justify costs where the recovery is minimal and the opposing party succeeded on most of the arguments. The court may make no order as to those costs and may order an interim payment on account of costs.

The claimant brought a substantial commercial claim arising from alleged repudiation of an agreement concerning the purchase of Airbus aircraft. The defendant was entitled to its costs of the claim, but the parties disputed whether assessment should be on the standard or indemnity basis. The defendant relied on the claimant’s knowledge that it could not comply with its obligations, incomplete disclosure, the inherent weakness of the claim, and untruthful evidence from two witnesses.

The defendant had also obtained limited success on its counterclaim. The issues were whether the claim was sufficiently outside the norm to justify indemnity costs, what order should be made for the counterclaim’s costs, and whether an interim payment should be ordered.

1. Costs of the claim. The court exercised its discretion to order indemnity costs. The relevant question was whether the circumstances took the case out of the norm, assessed in the light of all the circumstances.
2. The decisive feature was that a claim for US$260 million had been pursued in circumstances where the claimant knew that, through its own default, it had lost the ability to sell the aircraft. The claim depended on the inference that the aircraft purchase agreement could have been reinstated, although the claimant had concealed or failed for some time to disclose the difficulties affecting that possibility.
3. The argument was inherently difficult and bordering on hopeless from the outset. The claimant pursued it to trial after those difficulties had become clear and called witnesses whose evidence was found to be untruthful. Although the court made no finding of improper steps to withhold disclosure, the combination of the borderline-hopeless claim, delayed disclosure and untruthful evidence made indemnity costs appropriate. The circumstances were comparable to the type of situation referred to in Amoco (UK) Exploration v British American Offshore Ltd [2002] BLR 135 at para 6.
4. Counterclaim. No order for costs was made. The defendant’s recovery was more than nominal, but its commercial purpose was dubious, its ultimate success was minimal, and the claimant succeeded on most of the arguments considered.
5. Interim payment. The defendant’s costs of the claim were estimated at £5 million after allowing for the counterclaim. An interim payment of £3 million was ordered.