The case of Whaleys (Bradford) Ltd v Bennett and another [2017] EWCA Civ 2143 was an appeal by the Claimant against an order for costs to be assessed on the standard basis in relation to three scheduled oral examination hearings within enforcement proceedings. The appeal was allowed as it was held that the conduct of the Defendants was unreasonable and so out of the norm in a way which justified an order for indemnity costs and a move away from the provisions of fixed costs. This case provides guidance on the correct test when considering whether indemnity costs should be awarded, but not in the context of Part 36.
Here, the Defendants had been avoiding enforcement action in relation to a judgement debt and the first instance Judge awarded costs to the Claimants for three scheduled oral examination hearings, but only on the standard basis. The Defendants had deliberately sought to avoid payment and displayed disobedience toward Court Orders, even evading service of the Order for oral examination. There was a blanket failure to comply with the Orders relating to relisted hearings and the Defendants were noted to have been uncooperative throughout.
In the first instance the Judge had declined to award indemnity costs in the enforcement proceedings on the basis that many debtors would try and avoid paying the sums due and, as such their conduct was not ‘exceptional’.
The decision to award standard basis costs was appealed by the Claimant. On examination of the evidence presented and the detailed chronology of the Defendant’s conduct the Court of Appeal held that the conduct of the Defendants warranted indemnity costs. The Defendants’ poor conduct had put the Claimants to unnecessary and considerable trouble and additional expense as should have reasonably been required to pursue this matter.
The use of the word “exceptional” instead of the phrase “out of the norm” in the original judgement is key here – the Court of Appeal said that “exceptional” suggested a stricter test and is best avoided, and judges should use the test of whether conduct is “out of the norm”, as previously established by the Court of Appeal in Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (a firm). The term ‘norm’, used in the context ‘out of the norm’ was intended to cover something outside the ordinary and reasonable conduct of proceedings. Thus, even ordinary conduct could be unreasonable and therefore render the guilty party liable to an indemnity costs order against it.
Within the appeal judgment it was noted that the failure of the first instance Judge to award indemnity costs on the basis that debtors often avoid paying debts, and that he had seen more sophisticated attempts to avoid judgments, was an error of law justifying the Court of Appeal overturning the decision.
It should be noted that this was a fixed costs case under CPR 45.8 involving fixed costs for enforcement proceedings. Initially standard basis, as opposed to fixed costs were awarded, and this was then substituted for an order for indemnity costs. The principles are the same in relation to fixed costs cases generally under CPR 45, including low value personal injury cases and as such due attention must be taken to conduct and reasonable conduct in all proceedings to ensure there are no grounds for indemnity costs to be recovered against you. As a receiving party an awareness of poor or unreasonable conduct may, in the future, provide grounds for an indemnity costs order to be sought not just with regard to Part 36. Whilst this is not an especially frequent occurrence, being live to the possibility of securing an indemnity costs award even where an offer has not been beaten may provide a means of seeking recompense for the escalated costs that poor conduct can result in.
After all, if costs are assessed on the indemnity basis, the court will give the benefit of any doubt as to whether the costs were reasonably incurred or whether the costs were reasonable in amount in favour of the receiving party. Furthermore there is no requirement of proportionality within an indemnity costs assessment, which in many cases would present a welcome relief!