Overview Of Indemnity Costs
The suggestion that a party will seek indemnity costs in litigation is frequently one that sprouts in legal correspondence.
However, the Court has wide discretion over such matters and there are some notable features that need to be present usually before costs are awarded on the indemnity basis.
Unreasonable Conduct To A High Degree
In Suez Fortune Investments Ltd & Anor v Talbot Underwriting Ltd & Ors [2019] EWHC 3300 (Comm) the following was said:
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There is a long line of authority that where it is said that a party’s conduct was unreasonable it must be unreasonable to a high degree to justify an order for indemnity costs. That requirement was first stated in Kiam v MGN Ltd. (No.2) [2002] 1 WLR 2810 by Simon Brown LJ and has been repeatedly stated since; see Euroption Strategic Fund Ltd. v Skandinaviska Enskilda Banken AB [2012] EWHC 749 (Comm) at paragraph 14 per Gloster J., Elvanite Full Circle Ltd. v AMEC Earth Environmental (UK) Ltd. [2013] 4 Costs LR 612 at paragraph 16(a) per Coulson J., ICI v Merit Merrell [2017] 5 Costs LR 631 at paragraph 12 per Fraser J. and Hislop v Perde [2019] 1 WLR 201 at paragraphs 35-36 per Coulson LJ.
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The wide nature of the discretion has been expressed by Christopher Clarke J. in Balmoral v Borealis [2006] EWHC 2531 at paragraph 1 in these terms:
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The discretion is a wide one to be determined in the light of all the circumstances of the case. To award costs against an unsuccessful party on an indemnity scale is a departure from the norm. There must, therefore, be something – whether it be the conduct of the claimant or the circumstances of the case – which takes the case outside the norm. It is not necessary that the claimant should be guilty of dishonesty or moral blame. Unreasonableness in the conduct of the proceedings and the raising of particular allegations, or in the manner of raising them may suffice. So may the pursuit of a speculative claim involving a high risk of failure or the making of allegations of dishonesty that turn out to be misconceived, or the conduct of an extensive publicity campaign designed to drive the other party to settlement. The marking of a grossly exaggerated claim may also be a ground for indemnity costs.
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In Elvanite Full Circle Ltd. v AMEC Earth and Environmental (UK) Ltd [2013] 4 Costs LR 612 at paragraph 16 per Coulson J. and in ICI v Merit Merrell Technology Ltd [2017] EWHC 2299 at paragraph 10 per Fraser J. at paragraph 10) it was said that
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“the pursuit of a weak claim, will not usually on its own, justify an order for indemnity costs provided that the claim was at least arguable and not hopeless from the outset”
40. In Hosking v Apax Partners LLP [2019] 1 WLR 3347 at paragraph 42-43 EWHC 2732 Hildyard J. said at paragraph 42
“The merits of the case are relevant in determining incidence of costs: but, outside an entirely hopeless case, they have much less, if any, relevance, in determining the basis of assessment.”
Dangers Of Pleading Fraud
The dangers of pleading fraud are not simply that you cannot satisfy the Court’s fraud threshold but that you might have to abandon the fraud element of a claim and this can often have implications for indemnity costs as was pointed out in the case of Natixis S.A. v Marex Financial Ltd & Anor [2019] EWHC 3163 (Comm):
45. There is a degree of common ground as to some of the applicable principles in circumstances where Mr Weekes, who acts for Marex, recognises at paragraph 17(d) of his Skeleton Argument that:
“It has been held that the general provision in relation to cases in which allegations of fraud are made is that if they proceed to trial and the case fails, then in the ordinary course of events the claimants would be ordered to pay costs on an indemnity basis. It has been held appropriate for the court to approach the discontinuance of fraud proceedings in the same way (see eg Clutterbuck v HSBC Plc [2015] EWHC 3233 (Ch) per David Richards J at [16] and [18]). The underlying rationale of that approach is that where they fail they should be marked with an order for indemnity costs because in effect the defendant has no choice but to come to court to defend his position (ibid at [17]).”
- It is said, rightly, that the court retains a complete discretion in the matter and it is submitted there may well be factors which indicate that notwithstanding the failure of a fraud claim indemnity costs are not appropriate. The passage that is being referred to in Clutterbuck is at [15] to [18]:
“15. Mr Ramsden draws attention also to the sequence of events yesterday; the attempt to take this application out of the list having failed, within a very short period indeed the notice of discontinuance was served. It has all the appearance (and it has not been denied) that a decision had already been taken to discontinue proceedings if the attempt to take the applications out of the list failed.
16. Mr Ilyas on behalf of the claimants submits that an allegation of fraud being made in the proceedings which are then discontinued is not of itself reason to order indemnity costs. The general provision in relation to cases in which allegations of fraud are made is that, if they proceed to trial and if the case fails, then in the ordinary course of events the claimants will be ordered to pay costs on an indemnity basis. Of course the court retains a complete discretion in the matter and there may well be factors which indicate that notwithstanding the failure of the claim in fraud indemnity costs are not appropriate, but the general approach of the court is to adopt the course that I have indicated.
17. The underlying rationale of that approach is that the seriousness of allegations of fraud are such that where they fail they should be marked with an order for indemnity costs because, in effect, the defendant has no choice but to come to court to defend his position.
18. In circumstances where, instead of the matter proceeding to trial and failing, the claimant serves a notice of discontinuance, thereby abandoning the case in fraud, it is in my judgment appropriate for the court to approach the question of costs in the same way.”
- Reference is made by Mr Weekes to the decision of the Court of Appeal in Kiam v MGN [2002] EWCA Civ 66; [2002] 1 WLR 2810. In particular, reference is made to what was said by Simon Brown LJ, as he then was, at [12]:
” I for my part understand the court there to have been deciding no more than that conduct, albeit falling short of misconduct deserving of moral condemnation, can be so unreasonable as to justify an order for indemnity costs. With that I respectfully agree. To my mind, however, such conduct would need to be unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight. An indemnity costs order made under Part 44 (unlike one made under Part 36) does, I think, carry at least some stigma. It is of its nature penal rather than exhortatory.”
I consider that the starting point is indeed that costs should be on an indemnity basis.
Turning to the factual background to the fraud plea. It was made from the start and in a way which was purely inferential. I accept that fraud cases are often inferential, but in this case there was not one shred of actual evidence. There was no “smoking gun”. All that there was, was an individual in relation to whom it was submitted that his negligence was so great that an inference of fraud by one individual within an organisation should be visited upon that organisation – in short a plea of deceit, which is by its very nature a very serious allegation to make.
The reason why such an allegation was made is not difficult to discern, as Mr Thomas has pointed out, because Marex was being met, in relation to a very substantial claim, with terms and conditions which, of course, might potentially apply, and indeed I found did apply. The result was that even if Marex was successful on its negligence claim it would only recover a very small part of its losses.
I consider that are features of this case which are comparable to other cases such as Three Rivers. As Mr Thomas reminds me, there was publicity in relation to this serious allegation. The start of the trial had many members of the Press present and matters were reported in the Trade Press. I consider that it is questionable whether it was appropriate to plead fraud in the first place. Certainly it appeared from the start to be a weak inferential claim of fraud. It was pursued through to trial. It was pursued not only through to trial but through cross-examination of the witness concerned. It was then pursued in the written closing submissions.
It was only abandoned when Mr Choo Choy QC stood up to address the Court in oral closings. If, as has been submitted to me, the case in negligence was so strong, that would surely be all the more reason to pursue that claim for fraud because it would be more fuel to the fire that there was no innocent explanation for the actions of Mr Png. That clearly was not the case and the lie to that is told by the fact that having incurred all the cost and expense on both sides of pleading and running a case of fraud it was abandoned after Mr Png had given evidence and at a time when Marex was saying that the claim in negligence was very, very strong. If it had any real faith in the claim of fraud it would surely have carried it through to the end at that point, not least with a view to circumventing the standard terms and conditions.
I do not regard it as a strong case of fraud that was advanced. I consider that a very serious allegation was made in circumstances where it was questionable whether it should have been made and thereafter pursued, certainly pursued through to the bitter end in written closing submissions. I have considered carefully the factors identified by Mr Weekes, and as they are developed in his skeleton argument at paragraph 18, but I consider that this is a classic case where Marex’s conduct in pleading and pursuing the claim in fraud takes matters out of the norm, and where the starting point is also the end point.
It was a case in relation to which, ultimately there was no, or no sufficient, evidence to support or justify the claim for fraud. It was rightly withdrawn. The only pity is that it was not withdrawn at an earlier stage. In those circumstances, on established principles, and in the exercise of my discretion, I consider the appropriate order in relation to those costs is that they be on indemnity basis, and I so order. I would only add that I do not consider that the points made about the conduct of Access World in its defence of the negligence claim tells upon the application of Marex’s fraud claim (or indeed are made out on the facts of this case).
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