Proportionality and indemnity costs

Proportionality and indemnity costs
Following a recent High Court judgment (Kellie and another v Wheatley & Lloyd Architects Ltd [2014] EWHC 2886 (TCC), [2014] All ER (D) 152 (Aug)) which also raised some interesting evidential points, Gordon Exall, a barrister at Zenith Chambers, discusses the position around indemnity costs.

Original news

The parties sought orders as to costs following trial, in which the claimants’ claim for damages for professional negligence against the defendant was dismissed (see Kellie and another v Wheatley & Lloyd Architects Ltd [2014] EWHC 2212 (TCC)). The Technology and Construction Court ordered that the claimants had to pay all of the defendant’s costs, to be subject to a detailed assessment on the standard basis if not agreed.

What issues did this case raise?

It is interesting that we are talking about the shorter supplementary judgment on issues relating to costs rather than the substantive judgment in the case itself. The case itself was a professional negligence case against a firm of architects. The claimants failed in the claim.

The judgment on costs raised a number of issues. My first view of the judgment was that it perfectly illustrated the dangers of taking one-sided or one-dimensional witness statements. However, much of the discussion of the case has focused on questions relating to costs, including:

  • the issue of when indemnity costs should be awarded
  • the effect of an award of indemnity costs on the figures set out in the costs budget
  • the situations in which a court can or should make an ‘issue based’ costs order with a reduction of the costs of a successful party who has not succeeded on certain issues

The judge held that an award of indemnity costs meant that the figures in the costs budgets were no longer relevant. The court does not have to consider issues of proportionality when awarding indemnity costs. However, costs budgets are drawn up with the issue of proportionality very much at the centre of the process.

To what extent does the judgment clarify this area of law?

There is no clarification in relation to the impact of indemnity costs on the costs budget. In fact we now have two conflicting views from High Court judges on whether indemnity costs makes a major difference to the budgeted costs. However, the central point is probably that proportionality is not taken into account when costs are awarded on an indemnity basis.

There is potentially a large departure between the budgeted costs and costs on an indemnity basis. In the case itself the budgeted costs were £91,700 and the defendant was seeking £166,469 on the indemnity basis.

Were there any other aspects of the case that were of particular interest?

It is understandable that everyone focuses on the issue of costs. However, my view is that the more important lesson in this case is in relation to witness evidence. The claimants had taken a witness statement from a planning officer. The claimants were warned by the defendant that the witness statement was one-sided, yet the claimants proceeded with the case and instructed an expert on the basis of that witness’ evidence. However, the judge observed that when the witness was called by the claimant that witness supported virtually every aspect of the defendant’s case. This had a major impact on the case. The claimant’s expert evidence relied on the evidence from that witness and was rendered useless. The case on causation was made extremely problematic (and eventually failed).

Are there steps practitioners should be taking as a result?

There are two distinct issues—costs and evidence.

The key point in relation to costs is that clients have to be warned of the risks, and possible consequences, of an indemnity costs order. Such orders are likely to be rare. However, they do occur in the rules, particularly in relation to a defendant’s failure to beat a claimant’s Part 36 offer. It is important that clients are not given the impression that the figures in the schedule are set in stone.

In relation to evidence the case highlights the dangers of not taking a full statement and of failing to analyse the evidence critically before trial. If the witness had been interviewed properly the claimants may have realised the weakness of their case.

Any further comments you would like to make?

I would focus on the care and skill needed in taking evidence from a witness and in drafting the statement. Taking a one-sided statement can lead to a wholly unrealistic view of the merits of a case.

Don’t be afraid to ask awkward questions of a witness and remember that taking a statement that is too one-sided may actually be misconduct: see Brett v Solicitors Regulatory Authority [2014] EWHC 2974 (Admin), [2014] All ER (D) 82 (Sep). The claimants in Kellie turned down an offer of settlement. If they had appreciated the weakness in their case they may have been more anxious to settle and not expose themselves to a costs bill in excess of £90,000. I am sure the evidence was collected in good faith and in an effort to support the claimants’ case. However, taking a non-critical approach to the evidence and confining it to matters that are (thought to be) helpful to a case can have a devastating effect. It deprives the claimant from being told the true prospects of success and exposes them to unnecessary risk.

Gordon Exall’s practice focuses exclusively on personal injury, clinical negligence, limitation and civil procedure. He has written a number of books and lectured frequently in these areas of law.

Interviewed by Kate Beaumont.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Subscribers to LexisPSL Dispute Resolution can find further analysis of indemnity costs and Kellie and another v Wheatley & Lloyd Architects Ltd here. In our analysis, HHJ Keyser QC considers the impact of the Jackson Reforms, ie costs management orders and costs budgeting, on the ability to recover indemnity costs. The approach taken is contrary to that previously set out in an obiter decision in Elvanite by Coulson J. For practitioners, there is a clear need for Court of Appeal authority as to the impact of the costs budgeting regime on indemnity cost orders. Also considered in this judgment were proportionate costs orders with views as to the counsels’ strategic decisions and payments on account of costs.

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