August 3, 2007
A recent case has provided a useful example as to the circumstances in which the courts are prepared to penalise parties who conduct themselves in litigation in an unreasonable manner. The overriding objective of the Civil Procedure Rules (CPR) which govern civil litigation has always been to enable the court to deal with cases justly. The CPR also oblige all litigants to help the court to further this objective, in other words, in the spirit of the CPR, a certain standard of behaviour is expected.
Part 44.4 of the CPR provides the courts with the discretion to award costs on an indemnity basis, i.e. a basis which resolves any doubt as to the costs claimed in favour of the receiving party and is therefore less advantageous to the litigant having to pay those costs than the standard basis. Factors for the court to take into account when deciding the amount of costs are set out at Part 44.5. Notably, they include the conduct of the parties both before and during the litigation but it has been left to the courts to decide what type of conduct this involves.
In National Westminster Bank Plc v Rabobank Nederland (2007), the High Court granted an order for costs on the indemnity basis where it deemed that the Respondent bank had conducted its litigation unreasonably by pursuing allegations in its Defence and Counterclaim which had little prospect of success from the start.
The Facts
The Respondent had counterclaimed for fraud on the part of five senior officials of the Applicant and later amended its counterclaim to include inducing breach of fiduciary duty where the court found that the evidence was too tenuous to succeed. In particular, in relation to the claim for fraudulent misrepresentation, evidence was adduced which appeared to show that representatives of the Respondent did not in fact understand what constituted a misrepresentation by silence. Many of the pleaded allegations were revoked shortly before and during the trial, thus lengthening the proceedings, at the conclusion of which the Applicant was successful.
The Judgment
In his judgment, Sir Anthony Colman maintained that, before the court could avail itself of its discretion to grant indemnity costs against a party, there had to be a significant level of unreasonableness or otherwise inappropriate conduct. In this particular case, he found that, had the evidence been properly tested by the Respondent prior to being adduced, the delay in proceedings could have been wholly avoided. This suggested that the Respondent’s actions were a vain attempt at a defence, where it was clear that success would be unlikely at an early stage. The court also took into consideration the indignity caused to those individuals subject to the dishonesty allegations when making its decision on costs. The Judge concluded that this was a case in which the Respondent bank had crossed the frontier to become a party conducting litigation in a manner so unreasonable or so unsatisfactory as to justify an indemnity costs order. He also ordered that those costs should carry interest at Base plus one percent until the date of assessment by the Costs Judge.
Conclusion
It is clear from the judgment that indemnity costs may be appropriate where the unsuccessful party appears to have attempted to circumvent or delay the litigation process by attempting to rely on tenuous evidence in defence. However the court has maintained that the level of conduct must be sufficiently inappropriate or unreasonable before it will use its discretion to order indemnity costs. Litigants would do well to heed this message.