The judgment of Mr Justice Griffiths in this case has provided some helpful guidelines as to the basis on which costs can be awarded on an indemnity basis to a successful party. It serves as a warning to parties seeking to avoid engaging in attempts to settle a dispute by Alternative Dispute Resolution (ADR).
In this case, judgment had previously been given in favour of the Claimant and an order for damages had been agreed between the parties pursuant to CPR 36.17(4)(d). The primary outstanding point remained the basis on which costs should be awarded to the Claimant.
The Claimant argued that costs should be awarded on the indemnity basis for the following reasons:
- Damages awarded to the Claimant exceeded the Claimant’s Part 36 offer of £10,000
- The Defendant had failed to engage in any attempts to settle the claim by Alternative Dispute Resolution (ADR)
The Defendant resisted these arguments on the grounds that the Claimant’s cost budget was based on an ‘inflated valuation of the claim’. The Defendant submitted that the claimant’s cost budget was approved in March 2018 when the Statement of Case declared the value of the claim to be between £50,000 and £100,000 with a Schedule of Loss including claims for past and future loss of earnings ‘TBA’ (this heading was subsequently dropped form the Claimant’s revised schedule of loss dated 22 October 2019). The Defendant was of the view that awarding costs on the indemnity basis would not allow the judge to consider issues of proportionality.
Mr Justice Griffiths accepted the Claimant’s arguments and resolved to award costs on the indemnity basis.
He stated that issues of proportionality played no role in the assessment of indemnity costs. To award costs on an indemnity basis was the usual course of action when a defendant failed to better the claimant’s Part 36 offer at trial. Indeed, he noted that the principal purpose of awarding costs in this way is to encourage parties to make and accept Part 36 offers and to settle cases out of court.
He also did not think that the Defendant had clearly proved that the costs budget was based on an ‘inflated valuation of the claim’ or that it had been ‘materially affected’ by the loss of earnings factor.
This ruling serves as a warning to parties to engage proactively in ADR.
In this case, the Defendant had effectively refused to engage in any attempts to pursue mediation or resolve the dispute by other means outside of court proceedings. The Claimant made Part 36 offers to the Defendant on 16 March 2018, 26 February 2019 and on 2 December 2019. On 30 October 2018, Master McCloud gave directions for the parties to consider settling the dispute by ADR (including mediation). The Defendant ignored the Claimant’s earlier offers to settle and declined to accept the later Part 36 offer on the basis that it had a ‘strong defence to this claim’.
Mr Justice Griffiths ruled that the reasons given by the Defendant for its refusal to engage in ADR were ‘inadequate’ and that no defence, however strong, justified a flat rejection of attempts to settle the dispute by ADR. He pointed to the variety of types of settlements that could be offered by ADR and the positive impact ADR could have by reducing the costs in time and money lost in litigation.
Mr Justice Griffiths pointed out that it was not the fact that the defendant had lost the case that incurred the indemnity basis of costs but its conduct in failing to engage adequately with attempts to settle the dispute.
In his judgment therefore, it was fair and appropriate to order the Defendant to pay the Claimant’s costs on the standard basis until 30 November 2018 and then on the indemnity basis from 1 December 2018. The Claimant had argued in favour of having all its costs paid on the indemnity basis. However, Mr Justice Griffiths ruled that costs should be awarded on the indemnity basis from 1 December 2018, one month after the parties had been ordered by Master McCloud to consider the use of ADR and over eight months from the original Part 36 offer submitted by the Claimants (20 March 2018).
This case has gone some way to providing greater clarity on the grounds for awarding costs on an indemnity basis. Mr Justice Griffiths’ judgment indicates that the issue of proportionality is not likely to be considered as a valid counter-argument for resisting such a costs order.
This case also serves to remind parties of the importance of attempting to resolve a dispute by means of ADR. A party should exercise particular caution when considering whether to accept a Part 36 offer by the opposing party. An unwillingness to engage in attempts to settle by ADR could ultimately result in a court order requiring that party to pay its opponent’s costs on the indemnity basis.
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