Warning: Indemnity costs to curb pursuit of hopeless claims

The Commercial Court has ordered indemnity costs in order to dissuade parties in substantial litigation from pursuing meritless claims. The judge in Deutsche Bank v SebastiaHoldings Inc. [2013] All ER (D) 118 (Nov)   had earlier warned parties to reconsider their positions, but no substantial concessions had been made. The judge also criticised the practice of parties making substantial written closing submissions in place of the traditional oral arguments where the court had the opportunity to question and challenge the arguments advanced.

Deutsche Bank obtained judgment in respect of $240m (£146m) trading losses incurred during the financial crisis. Sebastian's counterclaims for $8 billion in compensation for breach of contract and duty failed (see paras 1426, 1427 and 1588 of the judgment).

You've been warned

Mr Justice Cooke, whose judgment ran to more than 400 pages criticised the positions taken by the parties on certain issues as 'unrealistic'. He had invited the parties early in the proceedings to reconsider their positions and to apply the 'red face test' as to whether an argument should be pursued. He noted there were 'no concessions of any substance at any stage, as revealed by the extensive closing submissions which took just about every possible point, however good or bad, including many fall-back arguments' (para 39 of the judgment).

In the event, written opening submissions ran to 930 and 845 pages and closing submissions 1530 and 1336 pages.

Cooke J concluded that it may be appropriate to treat the pursuit of some of the issues as 'outside the norm' and to award indemnity costs in relation to them 'in the probably forlorn hope that it may discourage other litigants from pursuing hopeless points'. Reports in The Lawyer indicate that Sebastian has been ordered to pay indemnity costs of £51 million, being 85% of Deutsche Bank's legal bill.

The judge also expressed concern that it would be 'regrettable' if, in future substantial litigation, the practice of extensive written submissions by parties subverted the traditional approach of oral closing submissions where the court could 'question, challenge and probe' the arguments (see paragraph 1593 of the judgment).

Court details

• Court: Queen's Bench Division, Commercial Court
• Judge: Mr Justice Cooke
• Date of judgment: 8 November 2013

This article was first published on Lexis®PSL Dispute Resolution on 14 November 2013. Click here for a free 24 trial of Lexis®PSL.

Filed Under: Costs & Funding

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