The effect on a costs award (indemnity or standard basis) where the claim is discontinued part way through Trial
Nicola Smith, Costs Consultant at PIC reports on the case of Hosking & Anor V Apax Partners LLP & Ors (2018)
The case relates to the denouement of litigation on a grand scale which was suddenly concluded by discontinuance after four days of what had been envisaged to be six weeks of evidence and submission. The issue was whether the Claimants should be liable for costs, not on the standard basis provided for in the event of discontinuance by CPR 38.6(1), but on the indemnity basis.
The case concerned the collapse of Hellas Telecommunications (Luxembourg) II SCA (called Hellas II in the ruling), which owned the third largest mobile telephone operator in Greece and had a stake in the fourth. Hellas II, which moved to England to take advantage of the Insolvency Act 1986 regime, went into administration in November 2009 with debts in excess of €1.2bn. The administration process failed, and the company has been in compulsory liquidation since 2011.
The joint liquidators claimed that the Defendants – corporate entities and individuals connected with two global private equity houses – were responsible for a transaction allegedly at an undervalue which they contended placed intolerable financial strain on Hellas II and caused its commercial demise. They sought damages of €1bn. Despite the UK jurisdiction being the “natural home” for such proceedings, the liquidators initially brought proceedings in Luxembourg and New York, unsuccessfully, before issuing in the English High Court shortly before expiry of limitation.
The Claimant discontinued the case four days into the six-week Trial. The judge awarded indemnity costs in this case, which was one in which litigation was aggressively pursued in multiple jurisdictions, with a view to obtaining a settlement. Relevant factors included
“the pursuit to the doors of the Court, and four days beyond, of serious allegations of commercial impropriety, which were suddenly abandoned only when settlement talks failed, and then without explanation and without visible change in the forensic landscape”.
The below further factors were considered to have taken the case “well out of the norm” justifying an award of costs on the indemnity basis: –
- The changing nature of and inconsistencies in the case, both internally and with the expert evidence put forward.
- The publicity attending the case, stoked up by the prior proceedings in the USA and the highly-coloured way in which the case was presented both there and, in this jurisdiction.
- The overall unfairness of preserving for the Claimants the twin benefits of the ordinary basis of assessment whilst exposing the Defendants, (having had to respond to an expensively presented case), to the twin detriments of facing a shortfall in costs recovery and being denied the chance of vindication without explanation
This means, in essence, that standard basis costs order is the norm and that only if the case is “out of the norm” may the indemnity basis be justified. The discretion is a wide one to be determined and the established test remains that set out in the case of Exelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson  EWCA Civ 879. There must be something, whether it be the conduct of the Claimant or the circumstances of the case, which takes the case outside of the norm. This may include making serious allegations which are calculated to tarnish the reputation of the Defendant, making a grossly exaggerated claim or the courting of publicity designed to drive a party to settlement.
This decision reminds Claimants that where a claim is discontinued, unless the parties have agreed otherwise, or the Court orders otherwise, the normal position will be that the Claimant will be liable for the costs incurred by the Defendant up to the date on which the notice of discontinuance was served. The Defendant’s costs will usually be assessed on the standard basis, if not agreed. However, indemnity costs can sometimes be ordered. In prior caselaw, it has generally been ordered either where it was clear beyond doubt that the Claimant had no case or where a Defendant had been deprived of any opportunity to vindicate their reputation.
If you are ever unsure on the effects of costs awards or whether there is merit in pursuing an indemnity costs award, please seek specialist advice.
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Nicola Smith / Costs Consultant / Partners in Costs