AWARDING INDEMNITY COSTS
In Beattie Passive Norse Ltd & Anor v Canham Consulting Ltd (No. 2 Costs) [2021] EWHC 1414 (TCC) (“Beattie v Canham”), the court awarded indemnity costs. It is useful as an illustration of the various factors that courts will take into consideration when determining whether indemnity costs would (or would not) be awarded.
Summary of facts. In brief, Beattie Passive Norse Ltd (“Beattie”) and NPS Property Consultants Limited (“NPS”) commenced proceedings for professional negligence against the defendant, Canham Consulting Ltd (“Canham”).
There are a variety of unusual features in the case, with “three fundamental aspects of the proceedings that were unusual” ([3] – [4] Beattie v Canham):
1. The foundations constructed by the specialist sub-contractor were not those as designed by Canham, as the specialist sub-contractor was issued with drawings of an earlier, superseded design.
2. The buildings that were constructed were so defective that for reasons not connected with their foundations, they had to be demolished.
3. The party responsible for the construction had its engagement terminated by Beattie, and that company was associated with and wholly owned by Beattie.
The court in the substantive judgment awarded £2,000 in damages to Beattie based on an apportionment of the quantum experts’ best assessment of the costs of certain remedial works done to one of the two blocks before demolition, due to negligent omission by Canham from design drawings used by the specialist sub-contractor ([5] Beattie v Canham).
As the parties could not agree on consequential matters after the substantive decision was issued, the court had to decide on costs.
Indemnity costs. Canham had made two Part 36 Offers (i.e., similar to an offer to settle under Singapore’s Rules of Court). However, Canham sought indemnity costs not from the date of the offer but from the commencement of proceedings ([9] Beattie v Canham). The reasons given by Canham were that:
1. The claim advanced by the claimants ignored the factual causation issue and this issue was “disguised” by the claimants.
2. The quantum of damages, while not accurately described as nominal in strict legal terms, is “so small by comparison to the sum claimed as to be derisory”, and is below the small claims court limit.
3. The claim was advanced and supported by a structural engineering report, and the “criticisms of [the expert] in the substantive judgment are such that, alone, would justify an award of indemnity costs.”
4. The claim was brought “ultra vires” as it was not authorised by Beattie’s board of directors.
5. The claimants had refused opportunities to narrow the issues and ignored a Notice of Admit Facts.
While the civil procedure rules in England are different from Singapore’s, it is nonetheless useful to see how the court dealt with such the above issues.
The factual causation issue. Canham’s lawyers relied upon Excalibur Ventures LLC v Texas Keystone Inc and others [2013] EWHC 4278 (Comm), Three Rivers District Council & Ors v The Governor & Company of the Bank of England [2006] EWHC 816 (Comm) and European Strategic Fund Limited v Skandinaviska Enskilda Banken AB [2012] EWHC 749 (Comm) to submit that the features referred in those cases applied to the facts. As set out at [25] Beattie v Canham:
“… He maintains that this was a case where there was a lack of foundation in the documentary evidence for the claimants' claim. It involved the pursuit of an unjustified case, and one which the claimants knew to be unjustified, because they knew that Foxdown had not constructed the foundations to the latest design by Canham (called the Revision B design in the substantive judgment). He characterised it charitably as thin, if not far-fetched. It is said to be irreconcilable with the contemporary documents, not least the emails of April 2016 which made it clear that Foxdown had constructed the foundations to the earlier superseded design (further explained at [54] to [58] in the substantive judgment). Finally, Mr Higgins relies on what he submits is an extraordinarily exaggerated claim. The pleaded value was £3.7 million. Even when, belatedly, the claimants made a claimants' Part 36 offer it was in the sum of £1.7 million. Against that, one of the claimants, BPN, has recovered only £2,000. This is a very small sum indeed, and justified only a claim in the small claims court.”
Needless to say, the claimants disagreed with the above submissions.
However, the court agreed with Canham, and highlighted in particular at [29] – [31] that the claimant’s pleadings had wholly omitted to deal with the fact that the foundations were not constructed to the design Canham had produced, and that the claimants had answered a Request for Information on whether the foundations were constructed in accordance with Canham’s design by saying “Yes, as far as the details in the design could be discerned”.
The court stated that the answer was “completely factually inaccurate. This is a more polite way of saying directly untrue. … the claimants were advancing a plainly untrue case on a major and central point in the litigation. There is simply no excuse for this, and none has been proffered.”
Refusal to mediate. The claimants sought to say that Canham had unreasonably refused to mediate and criticised the mediation that was in fact adopted by the parties ([27] Beattie v Canham).
However, the court found that the refusal to mediate was not unreasonable as it “… came at a time when the claimants were advancing, and continued to advance, a factually untruthful case” and that this issue also addressed the claimants’ submission on the type of mediation adopted.
The unusual feature. Importantly, at [34] – [35], the court stated that it was unnecessary to deal with other features relied upon by Canham’s lawyers, as the case was “... plainly an exaggerated claim… it was wholly opportunistic. … That quantum case was entirely far-fetched, and wholly irreconcilable with the contemporaneous documents… the claimants brought proceedings against Canham seeking the full cost of demolition as damages, said to have been caused by the defective design of foundations, as though these inconvenient other facts could be glossed over. That was wholly unreasonable, and considerably out of the norm.”
The claimants’ expert. The court declined to find that the claimants’ expert’s conduct was such that it would be sufficient, in and of itself, to justify an award of indemnity costs ([36] Beattie v Canham). In this regard, the court stated at [37] that the claimants’ expert’s compliance with his duties to the court were “of a fair higher quality than the failures in these following cases”, before referring to the decisions of Bank of Ireland v Watts [2017] EWHC 1667 (TCC), Imperial Chemical Industries v Merit Merrell Technology Ltd [2018’ EWHC 1577 (TCC) and Dana UK Axle Ltd v Freudenberg FST Gmbh [2021] EWHC 1413 (TCC).
The ultra vires issue. The court dealt with the ultra vires issue by stating that when claims were issued without authority, it renders the claim vulnerable to being struck out as an abuse of process ([43] – [44] Beattie v Canham). However, no such application to strike out was made by Canham ([45] Beattie v Canham), and accordingly, the court declined to take the witness statements nor the challenged lack of authority into consideration ([45] – [46] Beattie v Canham).
Notice to Admit Facts. The court gave weight to how the claimants’ dealt with the Notice to Admit Facts. In doing so, the court stated at [47] that “It is not necessary to speculate about the reasons for the claimants acting as they did, but the majority (if not all) of the facts in the Notice ought to have been admitted. That is a feature, but not of itself a compelling one.”
The Part 36 Offer. As for the effects of the Part 36 Offer, the court stated at [48] at “That First Part 36 Offer was very generous, both in view of the lurking question about the foundations as constructed by Foxdown, and also in hindsight. That would justify an award of indemnity costs from 11 January 2021 alone and of itself, but cannot assist Canham in the period prior to the offer being made.”
The finding. The court held that the case “plainly sits outside the form. These features also paint the claimants in an extremely poor light indeed. The justice of the case demands not only that the claimants do not recover any of their own costs, given the true factual basis compared to their pleadings, but also that the court reflects its disapproval of the claimants pleading "facts" so directly contrary to the true situation…” ([49] Beattie v Canham).
Accordingly, the court held that “… justice of the case requires no order for costs at all, in either party's favour, up to the date of the service of the Further Information on 13 March 2020; thereafter the defendant Canham shall recover all of its costs of the proceedings from that date onwards (which encompasses the period up to the making of the First Part 36 Offer; the period when that offer was open for acceptance; and the period thereafter). I also consider that Canham's costs from 13 March 2020 onwards be assessed on an indemnity basis. This reflects the stark fact that from that date onwards, the claimants were conducting the litigation on a wholly false factual basis, something that must have been known to the directors of both the claimant companies. The claimants' pleading at Answer 22 was positively untrue. From that date onwards, this should be reflected by an award of indemnity costs, notwithstanding BPN's recovery of £2,000. …” ([51] Beattie v Canham). (emphasis added).
Conclusion. Courts do not usually award indemnity costs. Beattie v Canham is a unusual case where such an order was made. While most claimants would not start their case or continue with their case on a “wholly false factual basis”, Beattie v Canham is nonetheless useful as it makes clear that:
1. If a party starts / continues its case on a “wholly false factual basis”, the other party might not be “penalised” for refusing to engage in mediation (though it may be asked if this factor would be as relevant in Singapore’s context given Order 59 Rule 5 of the Rules of Court);
2. A plainly exaggerated claim may, in special circumstances, be “equivalent” to a plainly false claim; and
3. A party’s expert’s conduct can be used to support award of indemnity costs, though the bar necessary for such would be high, and it is unlikely that the expert’s conduct in and of itself would suffice.
This publication is not intended to be, nor should it be taken as, legal advice; it is not a substitute for specific legal advice for specific circumstances. You should not take, nor refrain from taking, actions based on this publication. Chancery Law Corporation is not responsible for, and does not accept any responsibility for, any loss or damage that may arise from any reliance based on this publication.