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Judge warns against 'hindsight' to justify indemnity costs

The High Court has rejected the chance to approve indemnity costs against a losing party after it found the bringing of the case could be justified.

The Honourable Mr Justice Coulson said a negligence case brought against a property developer was not ‘hopeless’ and was supported, at least in part, by expert evidence and detailed witness statements. The case is a sign the judiciary will reflect closely on the merits of a case, even where that case is lost, and not seek to automatically punish losing parties without good cause.

In Bank of Ireland (Governors and Company of) & Anor v Watts Group Plc, it was explained the Bank of Ireland had failed in a claim for professional negligence against the developer arising out of the collapse of a company to whom the bank had lent money.

It had been agreed the bank would pay Watts’ costs but it remained to be resolved how these costs would be assessed and the interim amount to be paid.

Watts, which had its costs budget approved at £384,000, applied for indemnity costs on the basis the bank’s claim was unreasonable, hopeless and should never have been brought.

The successful defendant had made three Part 36 offers to settle, all of which were rejected, and it said the nature of the claimant’s evidence justified fewer constraints on its costs.

But Coulson said while the case was always going to provoke questions, it would be wrong to see these challenges as insurmountable. ‘When considering the proper basis of the assessment of costs, the court must avoid the dangers of hindsight,’ said the judge. ‘It must be wary of the suggestion by the successful party, in this case Watts that, in truth, the result in the case was inevitable. Amongst other things, such an approach runs the risk of unfairly denigrating the presentation of the successful party’s case at trial.’

Coulson accepted some considered it a ‘misalignment’ that successful claimants, as opposed to successful defendants in this case, were entitled to indemnity costs automatically.

He said the fact that Watts made three offers indicated it took the claim seriously and considered it had commercial value.

But he did reflect the nature of claimant’s expert evidence, criticised by the trial judge court, in his costs order - although again he declined to use this justify the bank paying the entirety of Watts’ costs on an indemnity basis.

Coulson reduced the costs budget by 15% to leave a figure of almost £327,000. He directed this figure form the interim payment.

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