The case of Courtwell Properties Ltd v Greencore PF (UK) Ltd [2014] EWHC 184 (TCC) concerned an application for costs on an indemnity basis.

The parties had settled the proceedings by way of a Part 36 offer, save in respect of the issue of costs.

The usual order for costs is made on what is referred to as the “standard basis”, whereby the Court will resolve any doubt as to whether the costs were reasonably incurred or reasonable and proportionate in amount, in favour of the paying party.  The onus is thus on the receiving party to establish the costs claimed are both reasonable and proportionate.

Part 36.10 of the Civil Procedure Rules deals with the costs consequences of a Part 36 offer and provides as follows:

“(1) Subject to…paragraph 4(a)… where a Part 36 offer is accepted within the relevant period the claimant will be entitled to the cost of the proceedings up to the date on which notice of acceptance was served on the offeror…

(3) Costs under paragraphs (1) and (2) of this rule will be assessed on the standard basis if the amount of costs is not agreed.

(4) Where-

(a) a Part 36 offer that was made less than 21 days before the start of trial is accepted; or

(b) a Part 36 offer is accepted after the expiry of the relevant period,

if the parties do not agree the liability for costs, the court will make an order as to costs.”

There are occasions, however, where the court will depart from the standard basis and apply a different test, one that is more penal on the paying party. This is known as the indemnity principle. The difference is this:  Pursuant to CPR 44.3(3), any doubt as to whether the costs were reasonably incurred and reasonable in amount is resolved in favour of the receiving party. In broad terms, indemnity costs are typically ordered in circumstances where the paying party’s conduct falls below the standards the court expects of them. In making its determination however, the court will have regard to all the circumstances of the individual case.

In this case, Akenhead J refused to order indemnity costs to Courtwell Properties Ltd, adding that, had the Claimant been awarded indemnity costs, he would have been minded to reduce its costs, to reflect his “serious concerns” in respect of the costs bill.

The learned judge highlighted that where an application for indemnity costs was being pursued, the applicant should think carefully when relying on evidence likely to involve a material conflict of evidence, and avoid acting in a disproportionate manner when presenting its application.   Akenhead J noted that the summary costs bill for the Claimants’ application had totalled some £100,000.00 (inclusive of VAT) with 12 witness statements lodged, leading counsel instructed and over 550 pages of exhibited evidence being filed which necessitated over 5 hours of judicial reading time.

In concluding his judgment Akenhead J emphasised : “in cases where the parties have settled through the Part 36 procedure or otherwise but leave the judge to decide costs, particularly where indemnity costs are claimed, parties must act in a proportionate way…”

The bottom line is this, even in circumstances where a party may be entitled to indemnity costs, they should still have regard to the issues of reasonableness and proportionality, and not treat the conduct of the other party (which might merit an award of indemnity costs) as a blank cheque.

Read the judgment in full here: