Kerry Underwood

INDEMNITY COSTS ON DISCONTINUANCE

with 2 comments


In Two Right Feet Limited (in liquidation) v (1) National Westminster Bank Plc (2) Royal Bank of Scotland Plc (3) KPMG LLP [2017] EWHC 1745 (Ch)

the Mercantile Court, part of the High Court, ordered a discontinuing Claimant to pay the Defendants’ costs on the indemnity basis, rather than the standard basis.

Discontinuance triggers an automatic liability for costs in favour of the Defendant on the standard basis and here the Defendants sought to vary that standard order to provide for one for indemnity costs.

CPR 38.3 provides that a Claimant may discontinue a claim by filing and serving a Notice of Discontinuance on the other parties and, under CPR 38.6(1), it is provided that:

 

“Unless the court orders otherwise, the Claimant who discontinues is liable for the costs which a Defendant against whom the Claimant discontinues incurred on or before the date on which the Notice of Discontinuance was served…”

 

Under CPR 44.9(1) that is deemed to be a Costs Order on the standard basis.

In Atlantic Bar and Grill Limited v Posthouse Hotels Limited [2000] C.P.REP32

the court held that the reference in CPR 38.6 to a court ordering otherwise includes an ability for the court to order the costs be assessed on an indemnity basis, rather than the standard basis.

CPR 44.2 deals with the court’s discretion to order indemnity costs and provides, among other things that in deciding what order, if any, to make about costs:

  • the court will have regard to all the circumstances, including the conduct of the parties, which includes conduct before as well as during the proceedings; and

 

  • in particular the extent to which the parties followed the Practice Direction, Pre-Action Protocol or any other Pre-Action Protocol; and

 

  • whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; and

 

  • the manner in which a party has pursued or defended its case or a particular allegation in issue and whether a Claimant, who has succeeded in the claim in whole or in part has exaggerated its claim.

 

The court then reviewed the authorities in relation to the court’s discretion to award indemnity costs, which discretion is expressed to be extremely wide, but there must be some conduct or circumstances which take the case out of the norm.

Here the court held that various matters took the case out of the norm, including the Claimant’s failure to engage in the Pre-Action Protocol, the exaggeration of quantum, failure to comply with a court order in relation to the appointment and instruction of a single joint expert and a “thoroughly misconceived” approach to disclosure.

Comment

This is a sensible decision on the facts and is a reminder that Notice of Discontinuance does not automatically restrict the Costs Order to one on a standard basis.

In personal injury cases, where Qualified One-Way Costs Shifting applies, the court can still examine the issue of fundamental dishonesty when discontinuance has taken place, so as to determine whether QOCS should be dis-applied and the Claimant should have the automatic costs order against it enforced.

Indeed the Court can of its own motion set aside the Notice of Discontinuance to allow such an enquiry to take place.

Under Lord Justice Jackson’s proposals for fixed costs in the new Intermediate Track, there will be a costs liability once a Letter of Claim has been sent, even if proceedings are never issued, and this reinforces the point that, for all intents and purposes, the Pre-Action Protocols are now part of the court process, with potentially severe costs penalties for failing to follow those protocols.

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Written by kerryunderwood

November 15, 2017 at 9:26 am

Posted in Uncategorized

2 Responses

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  1. “Under Lord Justice Jackson’s proposals for fixed costs in the new Intermediate Track, there will be a costs liability once a Letter of Claim has been sent, even if proceedings are never issued, ”

    Hi Kerry, i was a little perplexed at one of your talks as to how this could be enforced… in pre-lit matters, you dont have to file a notice of discontinuance or the like. Where it is a non PI case, and therefore has a 6 year limitation this would be even more difficult to police.

    Tom Campo

    November 15, 2017 at 10:06 am

    • Tom

      Application to the court for notional allocation to Track and Band and then get a costs order. It may be that the rules or pre-action protocol will require proceedings to be issued within a certain time of the Letter of Claim being sent and if that is not done, then the potential defendant will be at liberty to seek costs.
      It may well be that the parties will often agree to no order for costs in return for the case not being pursued.

      Good point!

      Kerry

      kerryunderwood

      November 15, 2017 at 10:57 am


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