De Sena & Anor v Notaro & Ors

Indemnity costs are exceptional and require conduct or circumstances taking the case out of the norm. A claim may justify indemnity costs where it was prospectively speculative, weak, opportunistic or thin, assessed without hindsight. Unreasonable refusal of a reasonable settlement offer is an important additional factor. The court must consider each defendant separately where the claims and defences differ.

An indemnity costs order does not make assessment at large. Costs must still have been reasonably incurred and reasonable in amount. A payment on account is an estimate, commonly informed by the approved costs budget. Pre-judgment interest on costs is assessed broadly by reference to the class of litigant and reasonable borrowing rates.

The claimants’ substantive claims had been dismissed after trial in a judgment handed down on 1 May 2020. The court then considered consequential matters concerning the basis of assessment, payments on account, timing of payment and interest on costs.

All four defendants sought indemnity costs. The claimants accepted that costs should follow the event but argued for standard-basis assessment, lower payments on account and reduced or no interest. The principal issues were whether the claims and litigation conduct were out of the norm, whether settlement offers had been unreasonably rejected, and how payments on account and interest should be calculated.

1. Costs basis. The claimants were ordered to pay each defendant’s costs on the indemnity basis. The court applied the principle that indemnity costs require circumstances taking the case out of the norm. The merits were relevant, but should be assessed prospectively rather than with hindsight. A claim need not have been dishonest or suitable for summary judgment to justify indemnity costs.
2. The claims against the first and second defendants were weak and thin from the outset. The allegations of dishonesty and serious misconduct were unsupported. The claimants unreasonably rejected successive offers, including a Part 36 offer and later offers made after disclosure and witness evidence. The litigation was also poorly prepared, including inadmissible expert evidence and an unhelpful trial bundle.
3. The claims against the third defendant involved allegations tantamount to fraud and allegations maintained without evidential support. The third defendant had also beaten its Part 36 offer. The court treated these matters, together with the conduct of the litigation, as taking the case out of the norm.
4. The claim against the fourth defendant was very weak. The claimants had failed to comply with the professional negligence pre-action protocol and had rejected a meaningful offer to discontinue at modest cost. Delay in mediation was not criticised. The combination of factors nevertheless justified indemnity costs.
5. Expert evidence. The costs of the third defendant’s inadmissible expert evidence were disallowed because they were not reasonably incurred. Permission to adduce expert evidence did not permit evidence outside the witness’s expertise or on matters for the court.
6. Payments on account. The court ordered 90% of budgeted costs for each defendant, with the first and second defendants also receiving 70% of pre-budget costs. The approved budget was the safe starting point. Indemnity assessment did not make actual costs automatically recoverable.
7. Interest. Interest was awarded on costs from payment of the relevant invoices: 2% above base rate for the first and second defendants, and 1% above base rate for the third and fourth defendants. Insurance did not prevent the third defendant recovering costs or interest. Judgment-rate interest ran from the date of the consequential order, not from the earlier hand-down of judgment.

The judgment concerned consequential costs matters following the court’s judgment of 1 May 2020, which dismissed the claimants’ claims in their entirety. No appeal history is stated.