Following the conclusion of a trial, the Court will make an order as to costs. There are two bases for costs assessment – standard and indemnity. Usually, the Court will make an order that a successful party’s costs be assessed on the “standard basis” where only costs which have been incurred proportionately and reasonably will be recoverable. Indemnity costs however provide a party with compensation to as full an extent as possiblefor their outlay in the litigation where the other party has been unreasonable in the conduct of the proceedings such to justify depriving it of the benefit of the standard basis by removing the receiving party’s obligation to address proportionality.

The Judgment in Richmond Pharmacology Limited v Chester Overseas Limited & Others [2014] EWHC 3418 (Ch) usefully summarises the relevant principles applied when indemnity costs are claimed:

  • There must be some conduct or circumstance which takes the case “out of the norm”
  • Dishonesty or moral blame does not have to be established. “Unreasonable conduct” does not mean merely being wrong or misguided in hindsight
  • The pursuit of a weak claim will not usually on its own justify an order for indemnity costs provided that it was at least arguable. However, the pursuit of a hopeless claim may lead to such an order
  • A grossly exaggerated claim may lead to an award of indemnity costs
  • The rejection of reasonable attempts to settle is not normally enough
  • The Court’s discretion is wide

The claim in this case was brought for loss allegedly suffered as a result of the disclosure of confidential information. It was dismissed and the Claimant was ordered to bear the costs of the proceedings.

The Judge (Stephen Jourdan QC) focused on the contentions of the Defendants that the claim had been unsustainable and pursued by the Claimant irrespective of the facts and what the Defendants said. While he found that the commencement of the claim and manner in which it was pleaded was not “out of the norm” to justify an award of indemnity costs, he did find that the Claimant ought reasonably to have narrowed its claim following the disclosure exercise which had reinforced the Defendant’s position.

The Judge found that once disclosure had been made it should have been clear to the Claimant that its claim was “unlikely to succeed and that if it did succeed, the damages recoverable would probably be modest”. Because the claim remained “grossly exaggerated”, he awarded indemnity costs for the period following disclosure. The Judge also referred to the fact that the Particulars of Claim stated “the extent of the breach will become apparent on disclosure”. Another factor was that the Claimant could have accepted a Part 36 Offer by the Defendants that remained open for acceptance until 2 months after disclosure was provided.  It is important to note that (1) the Judge did not deem the claim hopeless, even after disclosure, and (2) the Claimant did not fail on every issue at trial2.

The decision serves as an important reminder to parties and their representatives of the importance of regular review of the merits of their case and scope of alleged loss, particularly following disclosure and especially where such a review is prefigured in the pleadings.