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Conduct and costs: two recent Court of Appeal cases

Indemnity costs guidance

In Whaleys (Bradford) Limited v Bennett and another, the Court of Appeal gave guidance in relation to the correct test when considering indemnity costs. This was not in the context of Part 36.

Here, the defendants had been avoiding enforcement action in relation to a judgment debt and the judge awarded costs to the claimants for three scheduled oral examination hearings, but only on the standard basis.

The Court of Appeal held that the conduct of the defendants warranted indemnity costs.

Despite having the means to pay, the defendants deliberately sought to avoid payment, were arrogant and disobedient towards court orders and evaded service of the order for oral examination. They failed to comply with orders for rearranged hearings and were uncooperative.

All of this put the claimants to unnecessary and considerable trouble and expense.

The judge had used the word “exceptional” instead of the phrase “out of the norm” when considering the application. The Court of Appeal said that “exceptional” suggests a stricter test and is best avoided, and judges should use the test of whether conduct is “out of the norm”, as previously established by the Court of Appeal in Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (a firm).

This had been further explained by the Court of Appeal in Esure Services Ltd v Quarcoo, where the Court of Appeal said that a court can take account of conduct, whether it occurred frequently or was rare, and the word “norm” was not intended to reflect whether what occurred was something that happened often, so that it could be described as “normal”, but rather “something outside the ordinary and reasonable conduct of proceedings”. Thus, even ordinary conduct could be unreasonable and therefore render the party guilty of such conduct liable to an indemnity costs order against it.

Here, the judge’s failure to award indemnity costs on the basis that debtors often avoid paying debts, and that he had seen more sophisticated attempts to avoid judgments, was an error of law justifying the Court of Appeal overturning the decision.

This was a fixed costs case under CPR 45.8 which lays down fixed costs for enforcement. Here the trial judge had allowed standard costs rather than fixed costs, and, as we have seen, the Court of Appeal substituted an order for indemnity costs. The principles are the same in relation to fixed costs cases generally under CPR 45, including low value personal injury cases.

Detailed assessment: all costs of all cases disallowed due to misconduct

In GSD Law Limited v Wardman and others, the Court of Appeal upheld a District Judge’s order in detailed assessment proceedings under CPR 44.11 whereby the judge had disallowed all costs claimed by the claimant because of misconduct by their lawyers and ordered those lawyers, GSD Law Limited, to pay all of the costs of the assessment on the indemnity basis.

The court exercised its power under CPR 44.11 and rejected the solicitors’ argument that that was a summery jurisdiction akin to the wasted costs jurisdiction and therefore not suitable where there were detailed allegations of dishonest conduct.

GSD’s admitted conduct included forging a conditional fee agreement. Other conduct included claiming for work which was not done and deliberately falsifying the status of the fee earner, who had carried out work and claimed at a higher hourly rate than in the solicitor and own client retainer.

The Court of Appeal held that the guidance in relation to wasted costs matters was not relevant in relation to CPR 44.11. For applications under CPR 44.11, the court should bear in mind the overriding objective and, particularly, proportionality. It was possible to deal with applications under CPR 44.11 in the course of a pending assessment, and conduct alleged as justifying the disallowance of costs may also be relevant as to how costs of the detailed assessment proceedings should be assessed.

In contrast, a wasted costs application was a free standing one, usually made when the litigation was over. It was easier to determine unreasonable or improper conduct in relation to assessment proceedings than in relation to substantive proceedings. Furthermore, unlike wasted costs applications, no issues of privilege could arise and there was no need for any investigation into the merits of the substantive claim.

There was a strong public interest in ensuring that solicitors did not dishonestly certify costs figures. Given the seriousness of the allegations and the money at stake, it was not disproportionate to have held a three day hearing. It was also important that the profession and parties generally maintained faith in the integrity of the costs negotiation system, as otherwise all matters would end up at detailed assessment.

Underwoods Solicitors Kerry Underwood

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