Hiren Thakkar & Ors v Ioan Mican & Anor

A claimant who defeats an allegation of fundamental dishonesty has no presumptive or default entitlement to indemnity costs. Standard-basis assessment remains the default. The receiving party must show that indemnity costs are appropriate in all the circumstances.

The discretion is broad. An indemnity order requires conduct or circumstances taking the case out of the norm. Conduct relied upon must be unreasonable to a high degree, although moral impropriety is unnecessary. A failed dishonesty allegation frequently creates a significant risk of indemnity costs, but it neither reverses the burden of proof nor fetters the court’s discretion.

An appellate court will interfere with such a costs decision only for legal error or a conclusion outside the range reasonably open to the trial judge.

The appellants succeeded in personal injury claims arising from a road traffic accident. The respondents had unsuccessfully sought permission to plead fundamental dishonesty and continued to reserve or advance dishonesty arguments at trial. The trial judge nevertheless treated the action as a straightforward dispute between conflicting accounts and awarded the appellants only standard-basis costs for the period between the attempted amendment and trial.

HHJ Backhouse refused indemnity costs on 20 April 2022. Richard Smith J dismissed the first appeal in [2023] EWHC 2313 (Ch). The appellants brought a second appeal, contending that the judge applied the wrong test, gave inadequate reasons and reached a perverse conclusion. They also argued that the failure of an allegation of fundamental dishonesty created a presumption or starting point favouring indemnity costs.

The central issue was whether such a presumption constrained the otherwise broad discretion over costs.

1. Appeal dismissed. A failed allegation of fundamental dishonesty creates no presumption, default entitlement or burden-reversing starting point in favour of indemnity costs. Standard costs remain the default. The receiving party must demonstrate why indemnity costs are appropriate in all the circumstances. Creating a contrary presumption would improperly fetter the broad costs discretion and add a rule not found in the Civil Procedure Rules 1998 (paras [28]–[32]).

2. A defendant who advances an allegation of dishonesty nevertheless runs a significant risk of indemnity costs if it fails. Such failure will often be a powerful factor because dishonest claims themselves frequently attract indemnity costs. The ultimate decision remains case-specific and discretionary (paras [28]–[29]).

3. The established threshold requires conduct or circumstances taking the case out of the norm. Where the application depends on conduct, that conduct must be unreasonable to a high degree, although moral impropriety or conduct deserving condemnation is unnecessary. Conduct may be outside the norm even if it occurs regularly in litigation (paras [19]–[20]).

4. The trial judge applied the correct test and considered all relevant circumstances. Her references to the respondents’ persistence, the duration of the allegations and their possible deterrent effect on an independent witness showed that the material considerations were addressed. In context, the terminology of exceptionality did not disclose a different legal test from the preferred expression “out of the norm” (paras [41]–[46]).

5. The reasons were adequate for a short costs decision delivered ex tempore after trial. The judge knew the case, identified the necessary high threshold and explained that it had not been met. Her view that dishonesty had never made a real difference to what remained an ordinary road traffic dispute provided an additional rational basis for refusing indemnity costs (paras [45]–[46]).

6. The decision was not perverse. The existence of matters pointing towards indemnity costs did not compel the order. The question was whether, taken together, they crossed the high threshold. The trial judge’s conclusion that they did not was reasonably open to her, even though another judge might have decided differently (paras [47]–[53]).

Asplin LJ and the Lady Chief Justice agreed. The Lady Chief Justice added that unnecessarily aggressive litigation and unwarranted allegations of misconduct or dishonesty are unacceptable; potential costs incentives do not justify them (paras [54]–[56]).

1. Court of Appeal (Civil Division): Dismissed the second appeal in [2024] EWCA Civ 552, holding that HHJ Backhouse had exercised her costs discretion within its lawful bounds and that Richard Smith J had been right to uphold her decision.
2. High Court, Chancery Division: Richard Smith J dismissed the first appeal in [2023] EWHC 2313 (Ch). He held that the trial judge had neither misdirected herself nor exceeded her discretion.
3. County Court at Mayor’s and City of London: HHJ Backhouse found for the claimants on the road traffic claims on 20 April 2022 but refused indemnity costs for the disputed pre-trial period. She ordered indemnity costs for the trial period because the claimants had bettered an offer under Part 36 of the Civil Procedure Rules 1998.