The case of Whaleys (Bradford) Ltd v Bennett and Cubitt [2017] EWCA Civ 2143 recently considered the test to be applied for granting an order for costs to be assessed on an indemnity basis.

The judgment offers clarification of the circumstances in which the courts may depart from standard costs awards, using indemnity costs to punish a party to proceedings who has behaved poorly.

The test

The established test is that for a judge to grant an order for indemnity costs, "there must be some conduct or some circumstance which takes the case out of the norm". This requirement was established in the case of Exelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879.

The present case does not depart from this test, but confirms that "out of the norm" does not mean that the conduct or circumstance has to be a rare occurrence.

Background

Whaleys (Bradford) Ltd ("Whaleys") succeeded in bringing a claim against Bennett and Cubitt (the "Defendants"), who were ordered to pay damages and costs on an indemnity basis. The Defendants failed to pay.

In seeking to enforce the debt, Whaleys applied for the Defendants to attend court in order to answer questions regarding their means. It was the Defendants' conduct in response to this application that led to Whaleys seeking indemnity costs in relation to the application.

The Defendants' attempts to avoid payment included avoidance of service of the papers, failure to attend hearings (resulting in suspended committal orders being made against the Defendants) and the use of applications which were "totally without merit" to seek a further adjournment of the hearing.

Whaleys applied for more than the usual fixed costs, asking that their costs be assessed on an indemnity basis for the three hearings that had been scheduled.

Was the Defendants' conduct 'out of the norm'?

At first instance, Judge Barfield had concluded that this was not an "exceptional case" which would warrant an order for indemnity costs, because "many debtors try to avoid paying that which is due". Whaleys challenged Judge Barfield's decision not to order the assessment of costs on an indemnity basis.

The appeal was allowed by the Court of Appeal. Lord Justice Newey considered the case of Esure Services Ltd v Quarco [2009] EWCA Civ 595, in which Waller LJ suggested that 'out of the norm' was not intended to refer to the rarity of an occurrence, but rather "something outside the ordinary and reasonable conduct of proceedings".

The Court of Appeal found that Judge Barfield had not applied the correct test in considering whether the case was 'exceptional' and focussed on how common the Defendants' behaviour was.

Lord Justice Newey applied the 'out of the norm' test and concluded that regardless of how common the conduct was, the Defendants' deliberate attempts to avoid making the payment and expense caused to Whaleys was not "reasonable conduct of proceedings".

The Court ordered the payment of costs on an indemnity basis, and Lord Justice Richards commented that it would be preferable if judges used the 'out of the norm' test in future. This case provides a usual reminder to parties that unreasonable conduct may be met with costs sanctions.