Indemnity costs do not require “exceptional” circumstances, Court of Appeal stresses

Costs: Conduct should be out of the norm to attract indemnity costs

A circuit judge was wrong to conclude that defendants who tried strenuously to avoid paying the damages and interim costs that had been ordered against them should not face indemnity costs for the hearings that followed, the Court of Appeal has said.

The fact that many debtors try to get out of paying what they owe was not a reason to deny indemnity costs, the court said.

It also urged judges not to describe the test for indemnity costs as requiring exceptional circumstances – as happened in this case – as the rule requires that they be “outside the norm”, which is not as stringent.

Whaleys (Bradford) Led v Bennett& Anor [2017] EWCA Civ 2143 concerned allegations of nuisance, trespass and conversion.

At trial, the claimants were awarded damages of £10,152 and costs on the indemnity basis “on account of the defendants’ conduct and lies given in evidence”, starting with £40,000 on account.

Lord Justice Newey catalogued the defendants’ efforts to avoid paying anything, which eventually led to contempt findings and suspended committal orders. The defendants eventually paid.

The claimant asked for more than fixed costs in respect of the three scheduled oral examination hearings that had been held, and that their costs be assessed on the indemnity basis.

His Honour Judge Bartfield concluded that the fixed costs regime set out in CPR part 45 should not apply but declined to order indemnity costs.

He said: “I do not regard this as an exceptional case because many debtors try to avoid paying that which is due. I have seen more sophisticated attempts to avoid judgments than this.

“I was sorely tempted to make an order for the payment of indemnity costs, but, looked at in the round, I believe that the claimant will be properly and adequately compensated in relation to costs by a standard award.”

Newey LJ acknowledged that simply using the word “exceptional” did not necessarily show that the judge adopted the wrong test.

However, citing Lord Justice Waller in Esure Services Ltd v Quarcoo, Newey LJ said a court could take account of the conduct of the parties “whether that conduct occurs on many occasions or whether it is rare”.

Further, the word ‘norm’ “was not intended to reflect whether what occurred was something that happened often so that in one sense it might be seen as ‘normal’ but was intended to reflect something outside the ordinary and reasonable conduct of proceedings”.

Newey LJ said: “It follows that Judge Bartfield could not properly conclude that the circumstances did not take the case ‘out of the norm in a way which justifies an order for indemnity costs’ on the basis that ‘many debtors’ behave in the same way as Mr Bennett and Mr Cubitt had.

“Even if that could be said to make the conduct ‘ordinary’, it would not mean that it was ‘reasonable’.

“In the circumstances, it is evident, I think, that Judge Bartfield was not applying the correct test and having regard to the correct considerations.”

The court went on to decide that there should be an order for indemnity costs.

Newey LJ said: “Despite having the means to pay, Mr Bennett and Mr Cubitt ‘deliberately’ sought ‘to avoid payment as long as they possibly could’ (to quote from Judge Bartfield).

“They were (again in Judge Bartfield’s words) ‘arrogant and disobedient’ towards Judge Davey QC’s [original] order.”

The claimants were “needlessly put to considerable trouble and expense”, he said. “This is not ‘reasonable conduct of proceedings’ or behaviour that the court should in any way sanction or encourage.”

Lord Justice David Richards added that it was unfortunate that the judge used “exceptional”, rather than “out of the norm” to describe the circumstances that may justify an order for indemnity costs.

“Whatever the precise linguistic analysis, ‘exceptional’ is apt as a matter of ordinary usage to suggest a stricter test and is best avoided.

“Its use in this case gave rise to an arguable ground of appeal and while I am satisfied, particularly in the light of the submissions made to him, that the judge was not applying a stricter test, for the future it would be preferable if judges expressly used the test of ‘out of the norm’ established by this court.”

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