Cargiant Ltd v Hammersmith LBC [2017] EWHC 464 (TCC)

This is a useful case where the court considered the extent to which a delay in agreeing mediation might justify an order for indemnity costs. The court considered whether costs in excess of an approved costs budget had been reasonably incurred.

Although this was not a casualty claim, it highlights the limited circumstances where the courts will order indemnity costs against an opponent. The case shows that courts are reluctant to indicate that a party had reasonably incurred costs in excess of an approved costs budget.

The facts

The defendant was a local authority who made a number of costs applications after the court gave judgment in favour of the claimant. The claim was for damages for dilapidations following the expiry of a lease.

The claimant began court proceedings in May 2013 and although they obtained judgment against the defendant, they failed at trial to beat the defendant’s Part 36 offer that had been made in April 2014. It was accepted by the claimant that they should pay the defendant’s costs from the date of expiry of the Part 36 offer, being 7 May 2014. However, the defendant also sought an order for its costs up to 7 May 2014 on the basis that at trial, it had succeeded on the only real issue between the parties.

The defendant also sought indemnity costs on the basis that the claimant had delayed for 17 months before agreeing to mediate and had failed to accept its offers. Also the defendant sought an indication from the court that it had reasonably incurred certain costs in excess of its approved costs budget, along with interest to be paid on its costs and payment by the claimant on account.

The decision

In respect of the costs up until 7 May 2014, the court held that the claimant could recover their costs up until 7 May 2014 because although the court’s reasoning was closer to the defendant’s point of view, it was not the same. The court concluded that the claimant’s conduct before 7 May 2014 was not so bad as to prevent them from being able to claim for their costs for this period. However, it was held that the defendant had been more successful in its general approach so the court concluded that it was appropriate for the claimant’s costs up until 7 May 2014 to be reduced by 50%.

The court stated that an unreasonable refusal to enter into mediation could justify an award for indemnity costs but in this case there was no evidence that the claimant’s delay in entering mediation increased costs. It was made clear that a failure to accept a defendant’s Part 36 offer did not in itself justify an award for indemnity costs.

Although the defendant relied on two offers that had not been made by way of Part 36, it was held that the first pre-dated the Part 36 offer and was never given approval. Whilst in respect of the second offer, there was no evidence that this had been sufficiently worded to result in any adverse costs consequences being made against the claimant.

Further, it was held that the courts should be slow to indicate whether a party had reasonably incurred costs in excess of an approved costs budget and unless a judge had to decide an issue directly relevant to the assessment of costs, the courts should not restrain the jurisdiction of costs judges.

In respect of interest, it was agreed that both parties should receive interest on costs at 1% above base rate and that the defendant could receive a reasonable sum on account of costs. However, it was held that the defendant would have to pay the claimant’s costs in relation to the applications because the defendant had largely been unsuccessful.

What this means for you

In this case, the court made clear that indemnity costs could be appropriate where the facts of the case or the conduct of the parties were outside the norm or if there had been an unreasonable refusal to engage in mediation, which will be assessed on the specific facts of each case.

It was made clear that just because a party has been slow to engage in mediation does not mean that the other party should receive indemnity costs. This is because the timing of the mediation may be of tactical importance or, further information may have been required in order to assess the claim, such as expert medical evidence.

This case shows that the courts will not deprive a claimant of their prima facie entitlement to costs unless their conduct was particularly bad and/or an exception to the norm. As a result, in only a small number of liability admitted cases will defendants receive their costs for the period prior to when their Part 36 offer expired, and this will likely be based on the conduct of the claimant being so bad as to enable the normal rules in respect of costs to be reversed.

It should be noted that the court did exercise a level of discretion by deducting the claimant’s entitlement to costs by 50%. As a result, in these types of cases it may tactically be worthwhile for a defendant to argue that a claimant’s costs be reduced for the period prior to the expiry of their Part 36 offer, for example by 50%, as an alternative to the defendant claiming for all of its costs during this period.