Indemnity Costs – try your luck?

Court of Appeal says no automatic entitlement to indemnity costs for failed allegations of fundamental dishonesty and can’t reverse Judge’s decision not to allow them due to wide discretion. But other Judges including them would have allowed if sitting at first hearing.

This is an exceptionally argued case highlighting many of the relevant case decisions for the wide discretion and hurdles for achieving indemnity costs awards and decisions involving allegations of fundamental dishonesty that fail.

The subject case concerns the challenge of the decision of HHJ Backhouse from 20 April 2022 refusing to award indemnity costs against the losing Defendant who suggested the claim was fundamentally dishonest and this was not the finding of the Judge at Trial.

Then an appeal decision of Richard Smith J on 24 July 2023 upholding the first decision.

The case highlights that in the matter of fundamental dishonesty, because of wide discretion different Judges presented with the same facts will come to different conclusions.

The case Judgment can be found here: Thakkar & Ors v Mican & Anor [2024] EWCA Civ 552 (20 May 2024) (bailii.org)

Hearing videos from the Court of Appeal are available here:

Part 1

Part 2

The Claimants were involved in a road traffic accident on 18 May 2017. The Claimants alleged that the First Defendant drove his van into their car. The First Defendant alleged that the Claimants drove their car from a parking space into the side of his van. The Second Defendant is the First Defendant’s insurer.

There was an independent witness Mr Patel. An investigator instructed by the Second Defendant contacted the witnesses home, he was not there. The investigator spoke with Mr Patel’s uncle who during the conversation indicated incorrectly that the Claimant may be known to Mr Patel. The Investigator warned that if the witness gave evidence in the case he might be accused of fraud.

The Investigator later spoke with the witness who confirmed that he was not known to or related to any of the parties and agreed to sign mandates to allow the Investigator to access his phone records to verify his independence. But the Investigator did not inform him of the early conversation with the uncle and accusation of fraud made. When the witness had spoken with his uncle and learned of this, he decided not to co-operate with them any longer.

Judgment Para 55 highlights that at the outset the Claimant was accusing the Defendant of “reckless” driving and within weeks describing the First Defendant’s evidence as “fabrication of the truth” and “perversion of Justice”. Indicating that they would be seeking to recover their costs from the Defendant on an indemnity basis. Commending the Trial Judge for attempts throughout to lower the temperature.

At the CCMC the Defendants sought to introduce allegations of fundamental dishonesty in an amended Defence. The Judge refused permission confirming that the case was an absolutely standard RTA where the persons involved present entirely different accounts that the Court has to decide which account is most plausible, just like those the Court is faced with day in and day out and she was baffled why the Defendant Solicitors had decided to label it as fundamentally dishonest.

Despite the observations of the Judge the Defendants’ allegations of fundamental dishonesty were maintained to Trial.

At the Trial the Judge favoured the Claimant’s version largely on the evidence of the independent witness. Finding that their recollection of the accident was the more reliable but did not make any finding that the First Defendant had lied in his account.

The Claimant applied for indemnity costs from May 2021 the date the fundamental dishonesty allegations were first made and the length of time this detrimental allegation had been hanging over the Claimant’s case.

The Judge was critical that a fundamental dishonesty allegation had been made in a claim that had none of the usual hallmarks of the fundamentally dishonest claims too frequently before the court. She was also critical of the accusation of fraud made against the witness who in public spirit had come forward to assist. But she did not think that the Defendant’s conduct met the test for an award of indemnity costs.

On appeal of the refusal to award a period of indemnity costs before Richard Smith J the Claimant’s appeal was dismissed and the decision upheld. The Trial Judge had not misdirected herself and was entitled to come to the conclusion that she did.

The further appeal made to the Court of Appeal had three grounds.

  1. The Trial Judge had misdirected herself as to the test to be applied when considering indemnity costs.
  2. The refusal to award indemnity costs was a decision that no reasonable Judge could have reached.
  3. That in commercial and Chancery cases there was a presumption that indemnity costs would be awarded when fundamental dishonesty allegations failed.

The Claimant/Appellant proposed that in cases involving failed allegations of fundamental dishonesty there should be a presumption in favour of awarding indemnity costs. Arguing that the allegations serve to increase the risk to the Claimants where if successful:

  • QOWCS ceases to apply and they can be ordered to pay the Defendant’s costs
  • The Claimant was a professional and a finding of dishonesty could end his career and affect future employment prospects.
  • Would cause his vehicle premiums to be increased
  • Increased the overall costs of the claim to respond to the allegations.

Submitted also that the test for granting an award for indemnity costs was whether the case was out of the norm, not whether the case was exceptional.

The Defendant/Respondent submitted that the claim exiting the portal and being allocated to the Multi-track was already giving the Claimant sufficient of an increase to recoverability of costs and the Court had budgeted the claim allowing additional costs for defending the point. Indemnity costs were not needed. That their conduct did not meet the threshold for indemnity costs.

Coulson LJ agreed that there was no presumption or default entitlement to indemnity costs. That the Trial Judge had discretion, exercised it within remit and had not misdirected herself in law.

Coulson LJ confirmed that other Judges of which he was one of them might have reached a different conclusion. But that was not the test upon which the Appeal was to be decided.

The Lady Chief Justice cautioned that fundamental dishonesty allegations should only be raised with proper cause and agreed they were not automatically deserving of indemnity costs. That this case was one where both sides had been far too ready to throw unnecessary and serious allegations against each other. The parties’ conduct had the unfortunate effect of increasing aggravation to an independent witness and the level of costs on both sides.

Cases relied upon in the claim:

Three Rivers DC v The Governor of the Bank of England [2006] EWHC 816 (Comm) and Excelsior Commercial & Industrial Holdings Limited v Salisbury [2002] EWCA Civ 879 regarding the wide discretion afforded to Judges in awarding indemnity costs in costs matters exercised taking into account all the circumstances of the case including, but not limited to the conduct of the paying party.

SCT Finance Ltd v Bolton [2003] 3 All ER 434 re: the heavy burden faced in establishing a Judge’s decision falls outside of the wide discretion in relation to costs.

Hislop v Perde [2018] EWCA Civ 1726 Delay accepting a Part 36 offer without explanation in a fixed costs case had served to increase costs and may in some cases be exceptional circumstances to escape fixed costs

Digicel (St Lucia) Ltd v Cable & Wireless Plc [2008] EWHC 2522 (Ch) (23 October 2008) The Claimant’s conduct in making serious allegations of wrongdoing and bad faith against the Defendant did not justify an award of indemnity costs.

Excalibur Ventures v Texas Keystone & Ors [2016] EWCA Civ 1144 speculative and opportunistic litigation full of defects, illogicalities and inherent improbabilities pursued to the bitter end. The Defendant was granted costs on the indemnity basis.

Excelsior Commercial & Industrial Holdings Limited v Salisbury [2002] EWCA Civ 879 For an award of indemnity costs in the wide discretion there must be “some conduct or … some circumstance which takes the case out of the norm”. Such justification may be the conduct of the parties.

Whaleys (Bradford) Ltd v Bennett [2017] EWCA Civ 2143 Court of Appeal changed Order to indemnity costs where incorrect test of “exceptional circumstance” was applied instead of “out of the norm”, which the Defendant’s conduct to avoid and delay payment in this case was considered to be.

Kiam v MGN Limited [2002] EWCA Civ 66 Costs on the indemnity basis were not granted where the Claimant beat an offer made during an appeal of a Jury awarded sum. Likely influenced by the fact that a damages award if determined by a minority judge would have been far less.

Summary

Lord Justice Coulson ruled that HHJ Backhouse had followed all relevant principles of law and came to a decision that a period of indemnity costs should not be awarded.

Admitted that other Judges, and Coulson LJ considered himself one of them, might have reached a different view. But because this was not the test upon which the appeal would be decided. HHJ Backhouse made a decision that was open to her to make, which was not perverse and so the Court of Appeal had to dismiss the Appeal.

This is an important case for fundamental dishonesty highlighting how wide the Court’s discretion is that whatever the first instance decision is it is not likely to be changeable. And how lucky the Defendant was that despite bringing their fundamental dishonesty allegations to Trial and failed they had come before a Judge that would allow them to avoid indemnity costs where another Judge may have gone the other way.

So, any party conduct “out of the norm” may be grounds for trying your luck for indemnity costs and whether you are successful will depend upon the Judge you get at Trial, but whatever they decide it is unlikely to be worthwhile challenging the decision.

How can PIC help?

With PIC, arguments made by the Paying Party increasing your risks for bringing the claim are great submissions for hourly rates above the summary assessment guideline rates and convincing for the reasonableness of specific items of costs. One of the number of ways your costs recovery can be maximised is by attention to these details by the Costs Draftsman preparing your Bill of Costs. Why not try one of our highly experienced Costs Consultant/Costs Negotiator teams the next time you want to recover what you deserve for a hard-fought case.

David Wilkinson, Costs Consultant

11.07.2024

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