In HLB Kidsons (A Firm) v Lloyds Underwriters & Others [2007] EWCH 2699, a dispute arose over whether the claimant firm of accountants had properly notified claims to the defendant insurers. The court determined the substantive issues and decided largely in favour of insurers by finding that there had been no valid notification to the Lloyd's Market. However, it also found for the claimant on a number of issues. This gave rise to a dispute over how costs should be awarded. In particular, there were issues as to the proportion of the underwriters' costs to be paid by the claimant and for what period, whether costs should be paid on an indemnity basis and the appropriate basis for any interest payable.

The court found that, on the facts, it was not appropriate to reduce the costs and an order that the claimant should pay insurers' costs would reflect the overall justice of the case. However, there were two discrete issues which had been raised by insurers and in relation to which both parties had incurred costs but which were not pursued at trial. The court ordered insurers to pay the claimants' costs of and incidental to these two issues and for the claimant to be relived from paying insurers' costs of such issues. In respect of the indemnity costs issue, the court concluded that there had been nothing in the conduct of the litigation of the claim that merited an award on this basis. With regard to the payment of interest, the court rejected the claimant's submission that, because of the normal practice of insurers to hold large positive cash balances and other liquid resources, an award on the conventional basis was over-generous. It found that there was no evidence that this practice existed and, even if there was, this would not be sufficient to deprive insurers of the conventional rate. This decision reiterates the fact that, whilst the general rule is that costs should follow the event, the courts are increasingly willing to make issues based costs orders which reflect the merits of the individual arguments.