Court Of Appeal Decision Highlights Indemnity Costs Risk Where Claimant Pursues Speculative Claims And Unreasonably Refuses Part 36 Offer

In a recent judgment, overturning the High Court's decision, the Court of Appeal has ordered indemnity costs in favour of a successful defendant where the claimants should have known their claims were speculative/weak and where the defendant had made an early Part 36 offer: Lejonvarn v Burgess [2020] EWCA Civ 114.

The present case acts as a warning to claimants who pursue claims which they should have appreciated were weak or speculative. When such a claim ultimately fails, the claimant may face an award of indemnity costs, regardless of whether it may be said that the claim was “hopeless”.

The decision also confirms that, while there is no automatic entitlement to indemnity costs where a claimant fails to beat a defendant's Part 36 offer (in contrast to the position where a claimant beats its own Part 36 offer), this may be an important factor in the exercise of the court's discretion. The court commented that, in such circumstances, the court should always consider whether the claimant's conduct in refusing the offer took the case “out of the norm” so as to justify an award of indemnity costs.

Where costs are assessed on the indemnity basis, the receiving party is likely to recover a higher proportion of its costs than on the standard basis. That is because any doubt as to whether particular costs are reasonable is resolved in favour of the receiving party, and there is no requirement to show that the costs are proportionate.

Background

The defendant is an architect and was a friend and neighbour of the claimants. She provided assistance to the claimants, without charge, in relation to a garden project at their North London home. The parties fell out and, on 5 March 2015, the claimants brought proceedings against her for breach of contract and/or negligence. Three weeks later, the defendant made a Part 36 offer in the sum of £25,000, which was not accepted.

Following a trial of preliminary issues, and an appeal against the court's findings on the preliminary issues, it was established that there was no contract and that, while the defendant had owed the claimants a duty of care, that duty related only to such professional services as she had in fact provided, and not any alleged omissions. At the main trial, the judge concluded that the defendant had in fact provided very few services and had not been negligent in providing any of them, so the claim failed in its entirety.

The defendant claimed costs of £724,265 and sought assessment on...