Skatteforvaltningen (The Danish Customs And Tax Administration) v Solo Capital Partners LLP & Ors (Costs)

An indemnity costs order is justified where, viewed in the round, the litigation was out of the norm. The question is whether justice requires removal of proportionality as a constraint and reversal of the usual burden concerning the reasonableness of costs. Serious allegations of fraud or dishonesty, whose claims fail solely on a legal rule, do not automatically justify indemnity costs. They remain relevant to the way the litigation was conducted. The court may consider the scale and resources deployed, reputational risks, political or public dimensions, joinder of numerous defendants and the resulting burden on those mounting an effective defence. An indemnity order does not punish the paying party. The receiving party remains entitled only to costs reasonably incurred and reasonable in amount, but admissible costs are presumed reasonable unless the paying party shows otherwise.

Following the dismissal of all claims in the Revenue Rule Trial, the court considered consequential costs matters. The earlier judgment, [2021] EWHC 974 (Comm), held that Dicey Rule 3 required dismissal of the claims at common law and was not displaced by the Brussels-Lugano regime.

The claimant accepted liability for the defendants’ costs. The issues were whether costs should be assessed on the indemnity basis, whether there should be a reduction because the defendants had not succeeded on every sub-issue, and whether payment on account should be stayed for defendants who might be unable to repay sums if the claimant succeeded on appeal.

1. Indemnity basis. The defendants’ costs were to be assessed on the indemnity basis. The governing question under CPR 44.2 and 44.3 was whether, in the circumstances viewed in the round, justice required costs not to be constrained by proportionality and the usual burden of proof to be reversed.
2. Out of the norm. Excelsior Commercial and International Holdings Ltd [2002] EWCA Civ 879 remained the leading authority. Conduct need not be exceptional or rare to take litigation out of the norm: Esure Services Ltd v Quarcoo [2009] EWCA Civ 595. Relevant features included the serious reputational allegations, the use of documents obtained through a search and seizure order on a legally false premise, the deployment of effectively unlimited state resources, political and public statements, the joinder of many additional defendants, and the disproportionate burden imposed on defendants able to mount an effective defence.
3. Serious allegations. The approach in Clutterbuck and Paton v HSBC plc [2015] EWHC 3233 (Ch), followed in PJSC Aeroflot v Leeds [2018] EWHC 1735 (Ch), did not mean that dismissal of serious allegations on a legal ruling automatically justified indemnity costs. The allegations had not been abandoned or shown to be factually unfounded; the claims were dismissed because the law required it. Their nature nevertheless formed part of the overall assessment.
4. Effect of the order. The purpose of indemnity costs was to achieve a fairer result, not to punish. Each defendant remained entitled only to costs reasonably incurred and reasonable in amount. However, admissible costs were presumed reasonable, leaving SKAT to establish that particular costs were unreasonably incurred or unreasonable in amount.
5. Payment on account. Stays were granted only where there was reasonable concern that a defendant could not repay a substantial payment if SKAT later succeeded on appeal. The relevant sums were ordered to be paid into court, with liberty to apply.

This was a first-instance consequential costs decision following the dismissal of the claims in the Revenue Rule Trial. Permission to appeal was granted on the Brussels-Lugano issue but refused on the common-law applicability of Dicey Rule 3.