Webster v Ridgeway Foundation School – partial awards [2010] EWHC 318 (QB) http://www.bailii.org/ew/cases/EWHC/QB/2010/318.html

Henry Webster was attacked at school in 2007. Four Asian fell ow pupils and three adults were convicted of wounding him with intent. He, together with members of his family who alleged that they suffered post-traumatic stress disorder as a result of the attack, sued the governors of the school for allowing racial tensions at the school to develop which were alleged to have caused the attack.

The judge dismissed the claims. The defendants argued that the claimants should pay their costs on the indemnity basis. He held that the defendants were entitled to indemnity costs on one part of the claim only, the human rights claim, since it was hopeless. To have succeeded on this issue, the claimants would have had to show that at the relevant date the defendants knew or ought to have known that there was a real and immediate risk that Henry Webster would be exposed to treatment which could be described as inhuman or degrading, something which the judge found was well nigh impossible. The judge refused to award indemnity costs in relation to the systemic negligence claims based on the school’s allegedly inadequate approach to race relations and discipline. Although they failed, these claims were not hopeless. He rejected other arguments relied upon by the defendants to justify an award of indemnity costs, including the following:

  • Rejection of the defendants’ offer The claimants’ failure to accept an offer which held out no more than the possibility of some reduction in what the defendants would accept in relation to their costs was not relevant. It was, at most, a proposal that the claimants should simply throw in the towel.
  • Involvement of ATE insurers The defendants argued that it would not be unjust for the claimants’ after the event (ATE) insurers to have to pay indemnity costs since they would have been entitled to a very high premium had the claim succeeded (the policy did not require the claimants to pay the premium if they lost). The judge said that the defendants were not alone in feeling aggrieved at the structure of ATE insurance, tacitly supporting Jackson LJ’s recommendations on this topic, but that this did not justify an order of indemnity costs.
  • The claimants’ motivation The defendants argued that the claimants had a collateral purpose in pursuing the proceedings, namely that of bringing the defendants to book. Mrs Webster accepted in evidence that this was true but the judge said there was nothing improper in pursuing litigation for this purpose. A desire to obtain compensation can often co-exist with a wish to demonstrate that the defendant has been at fault. It is only where an overzealous claimant engages in unreasonable conduct that indemnity costs are justified

Comment: the Jackson Report recommends reversing the effect of Lownds v Home Office which at present governs the issue of proportionality under CPR 44.4 where costs are assessed on the standard basis. Lownds requires the costs judge first to see whether the total sum claimed is disproportionate (ignoring any success fee and ATE premium). If it is proportionate, each item must be reasonably incurred and reasonable. If it is disproportionate, each item must also be necessary. Jackson LJ proposes a new test which dispenses with the necessity requirement altogether. The costs judge should assess each item of costs for reasonableness and then consider whether the total which remains is proportionate. If it is not, the total should be reduced to a proportionate sum.

The effect of the Jackson recommendation will be to make assessment on the indemnity basis even more attractive to a successful litigant than it is already. It is also one of the reforms which we can expect to bear fruit fairly soon since it does not require legislation and there must be no shortage of suitable cases in which a more robust approach to proportionality would produce a considerable costs saving to a paying party, making an appeal worth the effort (see below under In brief for the latest news about implementation of the Jackson reforms).

The following principles govern the jurisdiction to award indemnity costs:

  • there must be something about the case which takes it out of the normal;
  • there is no need for conduct deserving of moral condemnation, although where there is, an order will obviously be appropriate (see, for example, Shah v Ul-Haq and other dishonestly exaggerated claims);
  • an award of indemnity costs is not penal but compensatory and should be ordered where it is fair in the circumstances of the case.

The courts have been slow to award indemnity costs across the board but, as the present case shows, partial awards offer a flexible alternative. Examples include the costs orders made in Colour Quest Ltd v Total Downstream UK plc and J P Morgan Chase Bank v Springwell Navigation Corp. In Colour Quest, Total was held liable for the damage caused by the explosion and fire that occurred in December 2005 at the Buncefield oil storage depot in Hertfordshire. The claimants argued that they should be entitled to indemnity costs on the ground that Total unreasonably contested the issues of negligence and foreseeability. The judge awarded indemnity costs on the issue of negligence up until the date when liability on this issue was admitted. Total had denied fault for two years after the action was begun even though they knew the truth from their own internal investigation at the outset. He refused to award indemnity costs in relation to the issues of foreseeability, off-site negligence and vicarious liability. For such an order to be justified, the case would have had to be manifestly weak and perceived to be so at the time.

In J P Morgan Chase Bank v Springwell Navigation Corp Springwell claimed unsuccessfully against Chase in respect of advice given to them between 1987 to 1998 concerning the purchase of debt instruments linked to emerging markets in South East Asia and Russia. The judge rejected allegations that the bank had missold complex financial products to Springwell. Chase incurred costs of £24 million defending the claim and was awarded 65% of them on the indemnity basis. Although Springwell could have focused its claim more narrowly instead of taking every point open to them and should not have pursued various allegations of dishonesty and deceit, many of which were dropped at or shortly before trial, it was not fair for Springwell to pay all of Chase’s costs on an indemnity basis since Chase had also been guilty of widening the evidential scope of the trial.