Judges will use indemnity costs awards to curb unreasonable behaviour

On 24 June 2013 in the TCC Mr Justice Akenhead gave judgment for the defendant firm of building surveyors and engineers in the case of Igloo Regeneration Limited and Ors v Powell Williams Partnership [2013] EWHC 1859 (TCC), a claim relating to a pre-purchase survey of a converted mill building in use as offices.

The judge awarded the defendants the costs of the whole action, including a substantial element on the enhanced indemnity basis. He also ordered an interim payment on account of costs in the sum of £250,000.

An order for indemnity costs is relatively rare - although it will be interesting to see if that remains the case in the new costs landscape. Though the claimants, to quote Mr Justice Akenhead, "failed on every aspect of liability,… failed on such issues as were relevant on contributory negligence, [had] serious gaps… in their causation case and … serious problems with their quantum case", "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."

Akenhead J based his indemnity costs decision on three main factors. First, the evidence by the claimants' "inexperienced" expert which, the judge said, undermined their case, along with problems with their quantum evidence. Second, comments by the trial judge about evidential problems (made before the case was adjourned, which came to light after Akenhead J handed down his substantive judgment and before his costs ruling), which Akenhead J said "should have started a red light flashing in the claimants' minds". And third, the fact that the claimants rejected, in a move that he described as "absolutely extraordinary" and "unjustifiable", an offer by the defendants that the claimants said they would accept the previous week; they "withdrew from any discussion about a settlement at the very sum they had put forward. They reversed back from the brink of settlement."

Promoting settlement

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 on 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.

Adverse indicators

A refusal to compromise a claim at a figure identified by a party as its settlement figure, expert evidence which is not supportive, and judicial comment raising questions about the prospects of success create a unique constellation of adverse indicators. It is hard to imagine many cases where such hallmarks would be replicated. It remains to be seen whether any one of these factors in isolation will be sufficient to take a claim out of the run of the mill category and render a party liable to an award of indemnity costs against it.

Under the April 2013 amendments to the CPR, the Overriding Objective places increased emphasis on costs proportionality. Though the specific features of the claimants' conduct in this matter may be a one-off, the indemnity costs award may represent the start of a trend as courts become stricter in their response to unreasonable behaviour.

The judgment emphasises that there is, and will continue to be, close judicial scrutiny in professional negligence litigation of the role of the expert witness and the importance of sensible attempts at resolution. All litigation is accompanied by risk. The assessment of that risk and translating it into appropriate settlement parameters is the basic and defining dynamic in professional negligence litigation. This judgment is a reminder of that fundamental principle and is a warning to all litigants who ignore this message that they may be at the receiving end of an indemnity costs order.