On 6 February 2020, the Court of Appeal handed down its judgment in favour of Stephenson Harwood’s client Mrs Basia Lejonvarn on the issue of indemnity costs, concluding that Mrs Lejonvarn ought to be awarded indemnity costs because (i) the Burgesses advanced speculative/weak claims; and/or (ii) they unreasonably refused to accept a Part 36 offer which was made early in the proceedings which they subsequently failed to beat.
In what Lord Justice Coulson called an example of a construction case “with echoes of the bad old days” when construction litigation “was a byword for expense and delay, and where the costs were often out of all proportion to the sums at stake”, the long-running saga commenced in 2013, when the Burgesses decided to carry out a landscaping project in their residential garden at Highfields in north London. Mrs Lejonvarn, an American-qualified architect who was then a friend of the couple, provided them with gratuitous advice for the project. Her involvement came to an abrupt end in July 2013 when the parties fell out over the cost of the project – while Mrs Lejonvarn had discussed the budget of £130,000 with Mr Burgess at the start of the project, Mr Burgess denied that this has ever been discussed or agreed. Consequently, Mrs Lejonvarn terminated her relationship with the Burgesses and ceased to be involved with the project.
In March 2015, the Burgesses commenced an action against Mrs Lejonvarn in both contract and in tort and claimed, as damages, the difference between the actual cost to them of the project, including remedial works, and that which they alleged they were told it would broadly cost. After a myriad of interlocutory applications and hearings, in November 2018 Mr Bowdery QC handed down the main judgment rejecting every single claim put forth by the Burgesses, many for more than one reason. It was evident that the Burgesses were prima facie liable to Mrs Lejonvarn for her costs, and the question was whether those costs should be assessed on an indemnity or a standard basis. Generally speaking, a higher proportion of costs is recoverable on the indemnity basis, than on the standard basis.
Mr Bowdery QC in his costs judgment of 13 December 2018 held that costs should be assessed on a standard basis. However, the latest decision by the Court of Appeal, led by Coulson LJ, allowed the appeal and held that indemnity costs in favour of Mrs Lejonvarn would be awarded from 7 May 2017, being one month after the first Court of Appeal judgment where she appealed against Mr Nissen QC’s first instance judgment, and that costs prior to that date will be assessed on the standard basis.
The Court of Appeal considered that there were three distinct issues to be determined:
- Whether the Burgesses’ pursuit of what were said to be “speculative, weak, opportunistic or thin claims” could properly be described as out of the norm such as to warrant an order for indemnity costs;
- Whether their failures to accept and subsequently beat Mrs Lejonvarn’s Part 36 offer, made at a very early stage in the proceedings, also meant (either separately or taken cumulatively with the pursuit of these particular claims) that an order for indemnity costs was warranted; and
- The relevance, if any, of Mrs Lejonvarn’s approved costs budget.
On the first issue, the Court of Appeal found there was no need for a long and expensive trial in this case because the Burgesses should have realised, no later than one month after the first Court of Appeal judgment on 7 April 2017, that the remaining claims were so speculative/weak that they were very likely to fail, and should not be pursued any further.
On the second issue, the Court of Appeal considered that the Burgesses’ failures to accept and then to beat Mrs Lejonvarn’s Part 36 offer was a separate and stand-alone element in their conduct which was out of the norm, justifying an award of indemnity costs, because a reasonable claimant in this case would have concluded that the offer represented a better outcome than the likely outcome at trial.
Finally, on the issue of the costs budget, the Court of Appeal was not persuaded that there was a clear costs management order with an approved costs budget and, in any event, there is as a matter of principle no overlap between a costs budget and the actual costs to be assessed by reference to the indemnity basis.
A separate but important issue remains unresolved as to whether it is right for the Civil Procedure Rules to provide for significantly differing treatment as between claimants and defendants in relation to the costs consequences of beating Part 36 offers, a position that does not sit well with the courts’ obligation to ensure that parties are on equal footing and that they are fairly treated. A claimant beating its Part 36 offer gets indemnity costs automatically, an enhanced rate of interest on costs, an enhanced rate of interest on damages, and an additional sum of up to 10% of the sum awarded (with a cap of £75,000). Defendants who beat their Part 36 offer and win on all issues get… their costs on a standard basis, with no automatic entitlement to indemnity costs, which is what they would get anyway under the general rules on costs.
Stephenson Harwood partner and Mrs Lejonvarn’s Leading Counsel, Louis Flannery QC, said: “It’s been a long and arduous process. But after seven years, justice has finally been done, at a perilous cost to the claimants, who simply should have accepted the offer my client made at the outset which was £25,000 (and £25,000 more than the claimants were awarded). Instead they chose to fight every issue to the death. The vindication of Mrs Lejonvarn by the Court of Appeal in this case should hopefully provide some comfort to any professional considering a request for assistance from a friend in need, and should make those thinking of suing on the basis of gratuitously given advice think twice.”