HQ 9902008
Neutral Citation Number: [2002] EWHC 1433 (QB)
IN THE HIGH COURT OF JUSTICE 
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice

Tuesday, 11th June 2002
Before:
MR. JUSTICE FORBES
B E T W E E N:
________

	(1) FIRSTCITY INSURANCE GROUP LTD.
(2) FIRSTCITY INSURANCE BROKERS LTD.	
Claimants	
	- and -		
	(1) ORCHARD (sued as a firm)
(2) GEE	
Defendants	

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________
MR. W. WOOD Q.C. and MR. D. GARLAND (instructed by
Messrs. Fishers) appeared on behalf of the Claimants.
MR. F. HEAD (instructed by Messrs. Mills & Reeve, Norwich)
appeared on behalf of the First Defendant.
MR. A. ONSLOW Q.C. (instructed by Messrs. Richard Butler) appeared
on behalf of the Second Defendant.
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JUDGMENT

MR. JUSTICE FORBES: 
On 17th May 2002 I gave judgment in these proceedings. I dismissed the claim and I awarded the first defendant judgment on the counterclaim in the sum of £174,167.66. The details of the claim and the general factual circumstances, together with the reasons for my decision are set out in a very lengthy and detailed written judgment which I handed down on 17th May and to which I refer without quoting for the purposes of this particular ruling. As part of the order made on 17th May I ordered that the claimants were to pay the first and second defendants' costs of the claim and the first defendant's costs of the counterclaim, to be subject to a detailed assessment if not agreed. 

The two applications with which this judgment is concerned relate to the basis of the detailed assessment. It was left over to today for the first and second defendants to apply for orders that the basis of the detailed assessment should be on an indemnity as opposed to a standard basis. 

The applications are concerned with two different aspects of the matter. The first and most straightforward relates to the first defendant's costs of the counterclaim. On 17th December 2001 the first defendant made a Part 36 offer to settle the entire claim and counterclaim. The first defendant offered to accept a 25% reduction in its profit costs, which made up a significant part of the counterclaim. The effect of the offer was to reduce the total claim of £174,000-odd to one of £149,780 plus interest. 

The offer was stated to be open for acceptance for a period of 21 days from the date received. The operative date, therefore, for the purposes of Part 36 of the CPR was 7th January 2002. In the event, the claimants did not accept the offer. 

The first defendant now applies for the detailed assessment of its costs in respect of the counterclaim to be on an indemnity basis from 7th January 2002 pursuant to the provisions of CPR Part 36 Rule 21(3). It is not necessary, for the purposes of this judgment, to set out the relevant terms of that Rule. The claimants resist the application on the basis set out in para.21 of Mr. Wood Q.C.'s written skeleton argument. It is submitted that it would be unjust to order indemnity costs of the counterclaim from 7th January 2002 because: 

(1) the Part 36 offer was made at a very late stage in the proceedings; and 

(2) the Part 36 offer was one which contained an insignificant discount in the amount of the counterclaim; 

It may well be that the effect of such an order will be relatively small, if not insignificant. Mr. Head made it clear, in the course of his submissions on behalf of the first defendant, that the first defendant did not seek any interest enhancement under sub rule (2) of Part 36 Rule 21, nor did the first defendant seek to include in this particular application any of the costs incurred in defending the claim. 

I am satisfied that there is no proper basis for concluding that it would be unjust to order indemnity costs in respect of the costs of the counterclaim from 7th January 2002 onwards. The reasons given by Mr. Wood in para.21 of his written skeleton seem to me not only to be matters which do not raise any real suggestion that it would be unjust to order these costs to be assessed on an indemnity basis from the relevant date, but are matters which will be taken into account as part of the process of assessment to the general advantage of the claimant. 

As I have already indicated, it is likely that the overall effect of my order that the first defendant's costs of the counterclaim from 7th January 2002 onwards are to be assessed on an indemnity basis, is likely to have very little, if any, effect, on the overall costs consequences to the claimants. 

So far as concerns the costs incurred by the first defendant as the result of defending the claim, the application made by Mr. Head is that those costs should also be assessed on an indemnity basis. His application to that effect is made on the same basis and for the same reasons as the principal application with which I have had to deal today, namely the second defendant's application that the costs of defending the action should be assessed on an indemnity basis pursuant to CPR Part 44 Rule 4. 

The principal arguments put forward in support of the application that the costs of defending the claim should be assessed on an indemnity basis were put forward by Mr. Onslow Q.C. on behalf of the second defendant. It has been possible to deal with the parties' submissions within a fairly short compass of time because I have had the benefit of detailed written submissions, both from Mr. Onslow and from Mr. Wood on behalf of the claimants. 

In para.6 of Mr. Onslow's written skeleton, he has stated the relevant principles as follows: 

"The Court has a wide discretion, to be exercised in accordance with the overriding objective. The Court will order payment of all or part of a party's costs on the indemnity basis when it is satisfied that the paying party has conducted the proceedings unreasonably, or when the Court wishes to mark its disapproval of the paying party's conduct, or when (even where there are no grounds for disapproval) it is otherwise just that any doubts as to the reasonableness of the receiving party's costs should be resolved in the receiving party's favour." 

The three authorities upon which Mr. Onslow Q.C. relied for that statement of principle are Reid Minty v. Taylor [2002] All ER 150, Kiam v. MGN Ltd (No 2) [2002] 2 All ER 242 and Amec Process and Energy Ltd v. Stork Engineers & Contractors [2002] All ER (D) 48. 

Much of the statement of principle put forward by Mr. Onslow is not disputed by Mr. Wood, but part of it is. 

The disputed element is most easily identified by reference to a passage in the judgment of His Honour Judge Thornton Q.C. in Amec at p.75, where the judge set out his understanding of the relevant principles to be applied in deciding whether to make an award of costs on an indemnity basis. It is to be noted that,when giving judgment in Amec, His Honour Judge Thornton Q.C. had the benefit of the decision of the Court of Appeal in Reid Minty, but he did not have the benefit of the decision of the Court of Appeal in Kiam. The way Judge Thornton summarised the principles were as follows: 

"(1) An award of costs on an indemnity basis is neither penal nor in any way an expression of disapproval of, or a reflection about any immoral or improper conduct of the paying party. 

"(2) The court has a wide discretion as to whether or not to order costs on an indemnity basis. This discretion must be exercised judicially in circumstances where it is fair and reasonable to do so. 

"(3) Ordinarily, circumstances in which an indemnity basis of costs will be appropriate are those in which the court is implicitly expressing disapproval of the conduct of the case by the paying party or where that conduct was unreasonable." 

Mr. Wood Q.C. accepted that the law is accurately stated in those first three principle. Where he took issue with Judge Thornton was with regard to the fourth principle, which is in the following terms: 

"(4) However, in an exceptional case, indemnity costs may be awarded where such disapproval is not present. Such cases, being exceptional, are cases where it is reasonable to award costs without considering the proportionality of the expenditure involved and where the overriding objective of litigation and the justice of the case is achieved by assessing costs in a way that resolves any doubts as to the reasonableness of any particular item of costs or its amount in favour of the receiving party." 

Stated shortly, it was Mr. Wood Q.C.'s submission that the decisions of the Court of Appeal in Reid Minty and Kiam make it clear that unreasonableness of conduct on the part of the paying party is the fundamental basis for an award of indemnity costs. He also relied on an observation by Simon Brown LJ in Kiam that such unreasonableness has to be unreasonableness to a high degree (see para.12 of Simon Brown LJ's judgment in that case with which judgment both Waller and Sedley LJJ agreed). 

However that may be (and I find myself in considerable sympathy with Mr. Wood Q.C.'s submissions), I propose to approach the decision I have to make in this case on the basis of the statement of principle that is set out in Mr. Onslow's carefully prepared skeleton argument at para.6. The reason I have decided to take that course, without resolving the issue of law raised by Mr. Wood, is that my decision is not affected by the inclusion of Judge Thornton's fourth category. 

I have come to the conclusion that this is not a case in which it would be appropriate for me to order indemnity costs under CPR Part 40 (4). As Mr. Wood Q.C. submitted, this was always a difficult case. The central allegation was that set out in para.2 of my judgment, namely that each of the defendants had failed to plead or argue or give appropriate advice with regard to a particular point of construction that, it was said, would have yielded the claimants a straightforward and inexpensive victory in the underlying proceedings. That allegation has always been a central allegation in the case. It is true that the procedural history of this matter followed the lines so carefully set out in para.8 of Mr. Onslow's skeleton argument. The claimants' case did become more limited than it had been when it commenced. However, in my view, it never became so limited that to continue it became so unreasonable as to merit disapproval by this court, nor was it sufficiently unreasonable to merit an order for indemnity costs. Furthermore, having regard to Judge Thornton's fourth principle, I am satisfied that this case was not so exceptional in its nature and circumstances that indemnity costs would be an appropriate award to make to the successful defendants. Although the issues had become more limited, there remained a core issue in this case with which it was not unreasonable for the claimants to proceed if so advised. 

In my view, the case did not reach the level of lack of merit that justifies Mr. Onslow's categorisation of it as being a bluff or a gamble, in effect hoping that the defendants would cave in, rather than face the ordeal of a trial, which Mr. Onslow described as the essential thrust of this particular application. Mr. Onslow relied very heavily upon the great care and diligence with which the defendants' case was prepared, explained and pleaded. In particular, he relied on the detailed and careful witness statement prepared by and on behalf of the second defendant. I accept that that was a very helpful and very detailed witness statement. In many ways, it did become a key to the resolution of many, if not all, of such factual issues as still existed in the case. 

However, it does not seem to me that the matter ever got to the stage where the claimants were in the sort of position in which they should have looked at the overall state of affairs and said: "It is clear that we have no reasonable prospects of success in this case and we should accept the offer now made to us to drop this case without having to pay the first defendant's costs." 

I accept that this was a case which was distressing for both the first and the second defendants. I readily acknowledge that it was one in which their professional reputations were in issue. I have absolutely no hesitation in accepting that it was a very considerable embarrassment, and indeed a real ordeal, that the case should have proceeded to trial. I pay tribute to the way in which the matter was conducted by the lawyers on both sides. As both Mr. Onslow and Mr. Wood observed in the course of their submissions to me, the actual proceedings in court were characterised by courtesy and by a total lack of acrimony. That redounds to the credit not only of the lawyers, but also to the lay clients on both sides. 

At the end of the day, this is a matter in which I have to do the best I can and look at the case in the round. I am satisfied that Mr. Wood is right that there was always a core issue, namely that which I identified in para.2 of my judgment, and it was a core issue that the claimants were reasonably entitled to bring forward to trial. In the event, I resolved the matter in favour of the defendants in unambiguous terms. But, as anybody reading my judgment will have no difficulty in identifying, I did so only after having given the matter very anxious thought. Indeed, I expressly stated that to be the case in my judgment. 

Had this been such an open and shut matter, as in effect submitted by Mr. Onslow, it would not have caused me as much anxiety as it did. Accordingly, given that such was my state of mind, I use that as the touchstone for my overall feel for the case and my overall view as to whether the conduct of the matter by the claimants can properly be regarded as such as to make it appropriate for me to exercise my discretion in favour of ordering an indemnity basis for the assessment of the costs of the action. I have come to the firm conclusion that it does not. Accordingly, for those reasons, this application is dismissed. The basis of the detailed assessment of the costs of defending the claim incurred in the case of both the first and the second defendants will be a standard basis and not an indemnity basis as sought. 

LATER 

MR. JUSTICE FORBES: This is an application for a further payment on account of costs made by the second defendant in this matter. Reliance is placed upon CPR Part 44 Rule 3(8) which provides: 

"Where the court has ordered a party to pay costs it may order an amount to be paid on account before the costs are assessed." 

When I handed down judgment in this matter on 17th May, I dealt with applications for payments on account of costs made by both the first and second defendants. Those applications were made with little or no notice to the claimants and without any supporting documentation. 

Notwithstanding the absence of notice, the matter was pressed upon me and I decided to deal with the matter as best I could, because it was obvious that there would be an entitlement to costs which would be significant. I therefore approached the matter by identifying a figure for both defendants which would be safely within the compass of the sort of costs that were likely to result from the appropriate assessment in due course. In all the circumstances, I came to the conclusion that £100,000 for each of the defendants was an appropriate figure to order the claimants to make on account of the costs liability to each defendant. I am told that those payments on account have been duly made. 

The second defendant now makes a further application for a payment on account of costs on the basis that there is now before the court further information with regard to the minimum level of costs which will certainly be recovered. I have been provided with a short statement from Mr. O'Malley, who is a costs manager employed by the second defendant's solicitors, to the effect that the second defendant will recover certainly not less than £200,000 by way of costs in this matter. However, although that assertion is made, there is very little hard information as to the way in which the overall costs figure incurred by the second defendant has actually been incurred. I am told what the overall figure is. It is £590,000-odd. I am told also the amounts and dates upon which the various invoices have been submitted which go to make up that overall total. However, I am not told anything about how the various total amounts in the invoices are made up, or for whose benefit the money was paid, or indeed any detail as to how the costs have been incurred. As Mr. Garland rightly points out, the second defendant has not yet even provided a skeleton bill of costs which would enable the claimants and myself to get some view as to how the overall total costs have been incurred. 

I have come to the conclusion that this second application is, in effect, little more than a repetition of the first application. I accept that the rules do not prevent a second application (or even a third or fourth application) being made. But although there is no specific requirement that there should be a change in circumstances, it goes without saying that where a subsequent application is made which is little more than a repetition of an earlier application, then it is most unlikely that the court would be sympathetic to it. To take any other course would, as it seems to me, run counter to the overriding objective. 

I have come to the conclusion that there is very little distinction between the factual circumstances of this application and those of the first application. The only difference is that we know the total sum and we know that a costs draftsman has identified a minimum recovery figure. We know nothing about how the bill comes to be made up, or how that total expenditure has been incurred. As it seems to me, the second defendant is still, in effect, asking this court to identify a safe figure within certain pretty general parameters. That was exactly the position on the last occasion. I do not see any significant change today. 

Accordingly, I have come to the conclusion that this is an application which should be refused. If the second defendant had wished the matter to be considered with sympathy, it would, in my view, have necessitated, in the circumstances of this case, at least a skeleton bill of costs so that both the claimants and the court were in a position better to consider the way in which the overall total figure has been incurred. That was not the case. It has been put forward on a very much more limited basis. In my view, it would not be appropriate to make any further interim award. 

LATER 

MR. JUSTICE FORBES: I am satisfied that this is a case where it is appropriate that the second defendant should pay the claimants' costs of today in any event, such costs to be assessed on the standard basis if not agreed. Subject to any further submissions made by counsel, they can be set off against the costs liability incurred by the claimants to the second defendant. 

I have a copy of the court order made on 17th May. Mr. Garland, since you have been successful today, can I ask you to prepare a minute of the order made for today, for agreement with the defendants, and to lodge it with the court. My associate is still in an early stage of her experience and would be greatly assisted if you were prepared to do that. 

MR. GARLAND: Not at all, my Lord.