[2007] EWHC 1742 (Comm)

The claimant was entitled to recover damages from the defendant in respect of the costs it incurred in defending Californian proceedings brought in breach of an anti-suit agreement between the parties. These costs should be assessed on the indemnity and not the standard basis despite previous authorities to the contrary. The judge also awarded the claimant the costs of the present proceedings on the indemnity basis.

Comment: Colman J has boldly taken the step which several first instance judges before him have refused to take, namely to depart from the Court of Appeal’s decision in British Racing Drivers' Club Ltd v Hextall Erskine & Co (1996) that the recovery of costs as damages should be assessed on the standard basis. McGregor on Damages is particularly critical of this decision. It was followed most recently in Redbus LMDS Limited v Jeffrey Green Russell where the judge considered himself bound by judicial comity to follow post-CPR first instance decisions on this point. In Redbus damages were payable by the defendant solicitors in respect of legal costs incurred by their client in litigation resulting from their negligence (Mills & Reeve acted for the defendant solicitors – see the article by Guy Hodgson in Covernote Spring 2007). The judge held that these costs should be assessed on the standard basis in part because recovery of the costs on an indemnity basis would place on the solicitors the unfair burden of establishing whether the costs were unreasonably incurred in proceedings to which they were not a party.

In the present case, Colman J concluded that the introduction of the concept of proportionality into the assessment of costs on the standard basis under the CPR fundamentally changed the position. Under the costs rules applying from 1986, the only difference between the two bases of assessment was the reversal of the burden of proof as to whether the costs were reasonable incurred and in a reasonable amount: the burden of proof of unreasonableness rests on the paying party on the indemnity basis. Under the CPR, where costs are assessed on the standard basis, costs reasonably incurred and reasonable in amount may still be disallowed if they are not proportionately incurred or proportionate in amount. Assessment of costs as damages on the standard basis under the CPR therefore penalises the claimant, particularly where, as here, the costs have been incurred in another jurisdiction with different costs rules.

Whether this decision will be confined to cases involving breaches of anti-suit, exclusive jurisdiction or arbitration agreements remains to be seen. Its logic applies generally, although the outcome is not so obviously fair in cases such as Redbus where the proceedings necessitated by the defendant’s negligence took place in England, the defendant was not party to them and the apparently proportionate costs of those proceedings have already been assessed on the standard basis.