Café de Lecq Limited -v- R.A. Rossborough (Insurance Brokers) Limited [2012]JRC154 23 August 2012

It's a balancing act....Discounting costs, indemnity costs and payments on account

In March this year, the Royal Court delivered judgment, following a five day trial, in the case of Café de Lecq Limited -v- R.A. Rossborough (Insurance Brokers) Limited [2012]JRC053 and gave clear guidance, for the first time in Jersey, as to the standard of care required of brokers when arranging insurance for their clients. All that remained to be determined between the parties thereafter were disputed issues concerning costs on which the Royal Court has now ruled.

The costs judgment (1) offers a salient lesson to all involved in litigation when it comes to pleading your case; (2) provides guidance on the circumstances in which the Court will award indemnity costs having particular regard to the encouraged use of alternative dispute resolution to settle claims out of court; and (3) reaffirms the Royal Court's jurisdiction to order a payment on account of costs.

Pleading your case

There are often a number of limbs to any given claim and a multitude of issues that may need to be considered and addressed when pleading your claim. Even if a party succeeds overall but loses on an issue, the Court may order that the successful party's costs should be discounted to reflect the fact that part of the argument was lost. Even an argument respectably raised but lost may put you at risk of having your costs discounted. A party does not have to behave unreasonably to be deprived of its costs in part. The jurisdiction of the Court to make such a discount was confirmed during an earlier interlocutory hearing in this case ([2011]JRC071) and reaffirmed in the latest costs judgment.

Notwithstanding the plaintiff's "resounding" success at trial, as noted by the Court, there were two points on which it failed which included a claim for continuing loss of profit. The Court had originally floated the idea before hearing submissions from the parties on the issue of costs that Café de Lecq should have 85% of its costs on the standard basis. The plaintiff argued that it should be entitled to recover all of its costs on the indemnity basis. The defendant contended that the plaintiff's costs should be discounted to 85% and that there should be a cross order awarding the defendant its costs on the issues on which the plaintiff failed.

There was no criticism made of the plaintiff for raising the issues on which it lost but the Court did conclude that there should be some attenuation of the unqualified costs order to which it would otherwise be entitled. The Court accepted that the original idea of 15% discount was too high and concluded that the appropriate discount should be 10% which also took account of the costs which the defendant had incurred in defending the issues.

The Court's jurisdiction to make discounted costs orders has long been established. What has become increasingly apparent in recent years however is the Court's growing willingness to discount a successful party's costs where he loses on particular issues however discrete they may be. The approach to discounting costs has typically been fairly broad brush although the Court here, interestingly, did factor in and effectively aggregate the costs that might otherwise have been awarded to the defendant. Whether the broad brush approach to discounting is right or wrong, it is clear that one must be careful when pleading the case not to include every conceivable claim or otherwise risk facing the costs consequences.

Indemnity Costs

Another word of warning given in this judgment concerned the basis on which the plaintiff's costs should be awarded. The plaintiff contended that the costs award should be on the indemnity basis having regard, amongst other things, to the failure of the defendant to engage seriously in any attempt to seek an out of court settlement by mediation or otherwise.

In May this year, the Court of Appeal in the case of Leeds United Football Club Limited -v- Weston and Levi [2012]JCA088 drew together the essential points of earlier decisions regarding awards for indemnity costs. Following that judgment, the Court has confirmed that for there to be an award for indemnity costs, there has to be "some special or unusual feature in the case" to justify such an award. The question to be addressed is whether there is something in the conduct of the action by one of the parties or the circumstances of the case which takes it "out of the norm". It is a question of what is fair and reasonable in all the circumstances.

When weighing up whether or not to award indemnity costs against the defendant, the Court took into consideration the fact that the plaintiff was not just the successful party overall at trial but succeeded "resoundingly". Previous case law on the question of whether or not a refusal to mediate could justify an award for indemnity costs has typically involved orders against successful parties. A case did emerge shortly before the costs judgment was given in this case which confirmed that the jurisdiction to award indemnity costs for refusing to mediate was not confined to any particular class of litigant, successful or unsuccessful, which the defendant had otherwise sought to argue here.

The Court took note of the defendant's approach to its defence up to and throughout the trial, an approach which the Court said appeared to have been informed by a mind set that failed to have any regard for the accumulating evidence and authority presented which made its defence untenable. These factors alone did not justify an award for indemnity costs but the defendant's refusal not only to engage in mediation but in any settlement discussions or some other form of ADR did.

The plaintiff did everything it possibly could to try and persuade the defendant to engage in mediation or some other form of ADR, offers which the defendant rejected time and again. The defendant itself took no steps to promote settlement. The furthest the defendant went was to make a drop hands offer ten days before trial by which time the costs incurred by the parties were "very substantial". The fact that the costs had become so substantial became a complicating factor. The idea of mediation is that it should take place before the level of costs becomes a hurdle. All of these points were points which the Court found to be a "powerful set of considerations".

Deciding when you have enough information to mediate is a balancing exercise but only one half of it. In deciding when to mediate parties need to be alive to the costs incurred getting to the point where you have enough information. Those costs in themselves may become an obstacle to a successful mediation, an "essential consideration" which the Court said parties must not lose sight of.

The Court found that by the time discovery had taken place and the defendant's application for security for costs had been dealt with, as the defendant had wanted, that was the time for the defendant to have responded positively to an offer of mediation. Insisting on the exchange of witness and expert evidence beforehand was, to the Court's mind, "pushing things too far". There is never an ideal time to mediate but in the present case, the Court found that 1 March 2011, which was after discovery but before the exchange of witness and expert evidence, represented a "happy medium". With all of the above in mind, the Court was satisfied that the plaintiff had discharged the burden of proving an award for indemnity costs in its favour. Looking at the litigation as a whole, the Court determined that such an award seemed to compensate the plaintiff for the legal costs of having to bring the action through to trial to the fairest extent allowed by the law.

Payment on Account of Costs

One final point for consideration by the Court was an order for payment on account of the plaintiff's costs. The Court reaffirmed the Court's inherent jurisdiction to make such an award and noted the usual practice in England to award one half of the untaxed costs. The plaintiff sought a payment of 50% on account of its untaxed costs which the Court awarded, finding that such an amount appeared fair and conservative based on the figures presented.

What this latest judgment reminds us is that with the costs of litigation being so high, a party must be seen to act reasonably or face the consequences.