Lejonvarn v Burgess & Anor

A successful defendant who has bettered a Part 36 offer has no automatic entitlement to indemnity costs. The court must exercise its discretion under the CPR by asking whether the claimant’s refusal of the offer, viewed in the circumstances as they developed, took the case out of the norm.

Indemnity costs may be justified where a reasonable claimant should have recognised that claims had become speculative, weak or thin and should no longer be pursued. The correct inquiry is prospective, not whether the claims can later be described as hopeless. An approved costs budget does not constrain an assessment on the indemnity basis.

The respondents brought claims in contract and negligence against the appellant, an architect who had gratuitously assisted with landscaping works at their home. The contract claim failed. A duty in tort was upheld but confined to professional services actually performed: [2017] EWCA Civ 254.

After a five-day trial, the Technology and Construction Court dismissed every remaining negligence claim. The judge nevertheless ordered the appellant’s costs to be assessed on the standard basis. The appellant appealed that costs order after having made, and bettered, a £25,000 Part 36 offer. The issues were whether the respondents’ claims and refusal of the offer justified indemnity costs, and whether an alleged costs budget prevented such an order.

1. Appeal allowed. The judge had erred in principle by treating the need for a trial to establish the lack of merit in the claims as inconsistent with indemnity costs. The correct question was whether, at some earlier point, a reasonable claimant would have concluded that the claims had become so speculative, weak or thin that they should not be pursued.

2. That test is prospective. It does not require a claimant’s case to have been hopeless from the outset, nor does it depend upon hindsight after a failed trial. A weak or speculative claim may take the litigation out of the norm when its continuing weakness should reasonably have been recognised.

3. By one month after the earlier Court of Appeal judgment, namely 7 May 2017, the respondents should have understood that their remaining design, budgeting, global and inspection claims were very likely to fail. The earlier judgment confined the duty to services actually provided. The respondents then advanced materially inconsistent cases driven by necessity rather than merit. Their continued pursuit of the claims was out of the norm.

4. A defendant who beats its own Part 36 offer is not automatically entitled to indemnity costs, and the CPR does not create a presumption in the defendant’s favour. However, the court must consider whether a reasonable claimant would at any stage have concluded that the offer was a better outcome than the likely result at trial. On these exceptional facts, the respondents’ refusal of the appellant’s early £25,000 offer, and their subsequent failure to beat it, independently supported indemnity costs from 7 May 2017.

5. Costs budgeting and detailed assessment serve different functions. A budget is prospective and is principally concerned with proportionality. An indemnity assessment is retrospective, and proportionality does not constrain it. Even if there had been a clear approved budget, it could not prevent an order for indemnity costs.

6. The appellant was awarded indemnity costs from 7 May 2017. Her costs before that date were to be assessed on the standard basis.

• Court of Appeal (Civil Division): Allowed the appellant’s appeal against the standard-basis costs order and ordered indemnity costs from 7 May 2017.
• Technology and Construction Court: Following dismissal of the substantive claims in [2018] EWHC 3166 (TCC), the judge ordered the appellant’s costs to be assessed on the standard basis.
• Court of Appeal (Civil Division): Upheld the existence of a tortious duty but confined it to professional services actually provided, in [2017] EWCA Civ 254.
• Technology and Construction Court: On preliminary issues, rejected the alleged contract but found a duty of care, in [2016] EWHC 40 (TCC).