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High Court fires post-Jackson indemnity costs warning


Grant: judgment ought to act as a warning

Behaviour that appears to undermine rather than promote the possibility of settlement will be punished, lawyers have been warned following a High Court ruling on indemnity costs.

The defendant’s solicitor also said the decision of Mr Justice Akenhead in Igloo Regeneration Limited and others v Powell Williams Partnership [2013] EWHC 1859 (TCC) [2] shows how judicial thinking is evolving since implementation of the Jackson reforms.

In the substantive case, the judge ruled in favour of the defendant firm of building surveyors and engineers in a claim relating to a pre-purchase survey of a converted mill building in use as offices.

He awarded the defendants the costs of the whole action, including a substantial element on the indemnity basis. “The fact simply that one [party] loses the case, and maybe loses it on the basis of a firm judgment, does not mean, as such, that the losing party should pay costs on an indemnity basis. There must be some conduct which takes the case out of the normal run of the mill.”

There were three elements that did this: there were problems with the expert evidence; comments from the first trial judge that “should have started a red light flashing in the claimants’ minds”; and the claimants’ “absolutely extraordinary” and “unjustifiable” decision to reject an offer at a level they themselves had put forward just a matter of days before.

“They reversed back from the brink of settlement,” said Mr Justice Akenhead, adding: “In my view, having regard to the overriding objective, parties do need to consider seriously the impact of costs and the like. It is not just the court which is bound by the overriding objective, but parties [too].”

The defendant was represented by national law firm Weightmans. Mike Grant, its head of professional risk, said: “This decision is yet further evidence of how judicial thinking is evolving against the backdrop of the new costs regime. The message in this case is that a pattern of behaviour that appears to undermine rather than promote the possibility of settlement upon a reasonable and sensible basis – particularly if cracks in the expert evidence supporting the claim are emerging – will be punished.

“There were a number of factors in this case which ought to have made clear to the claimant that it had risks in establishing liability, and the costs judgment ought to act as a warning to all involved in complex litigation to adopt a continuous and rigorous review of risk – particularly where expert evidence is fundamental to the success of the claim. A party may be penalised if it does not ensure that expert evidence is presented in a logical and transparent manner.

“The decision also demonstrates that flexibility is an important element to bring to negotiations. The winner-takes-all approach may not only result in a failure to recover compensation but may, increasingly, be accompanied by an indemnity-based costs order as the judiciary expresses its disapproval of a party’s conduct and imposes financial penalties.”