Indemnity costs awarded after claim discontinued mid-trial

Claimants who discontinued their case four days into a six-week trial were ordered to pay the defendants’ costs on the indemnity basis after their conduct was deemed out of the norm.

Background

Hosking & Anor v Apax Partners LLP & Ors [2018] EWHC 2732 (Ch) concerned the collapse of a telecommunications company which went into administration with debts in excess of €1.2bn and, two years later, entered compulsory liquidation. The claimants were its liquidators.

The defendants were entities and individuals alleged to be responsible for a transaction at an undervalue which had placed financial strain on the company, causing its commercial downfall. The liquidators sought damages of €1bn and publicised the allegations against the defendants in an apparent attempt to force a settlement. Four days into the trial, after attempts at settlement had failed, they abandoned the claim without explanation.

The arguments

The defendants contended that the conduct of the liquidators in courting publicity for serious allegations and then suddenly abandoning the proceedings was well outside the norm and justified an order for costs on the indemnity basis. They added that the claim was always “speculative, weak, opportunistic and thin”. The claimants countered that the the court was not in a position, and should not attempt, to decide what it would have determined at the end of the remaining six weeks of trial without having heard the relevant factual and expert evidence and legal argument. That, they submitted, would not be fair or proportionate; and it would undermine the simplicity and purpose of the specific rules in the CPR on discontinuance.

The decision

Hildyard J acknowledged that discontinuance did not necessarily mean an acceptance that the case was hopeless and that a fair assessment of the merits could be difficult, if not impossible at that stage. However, the court could consider whether, in the circumstances, the sudden discontinuance confirmed that a claim lacked or had “come to lack any real vitality”.

Hildyard J concluded that ihe could and should award indemnity costs. The case was “out of the norm” (the threshold for ordering indemnity costs) for the following reasons:

(1) The pursuit to the doors of the court, and four days beyond, of serious allegations of commercial impropriety, which were suddenly abandoned only when settlement talks failed, and then without explanation and without visible change in the “forensic landscape”;

(2) The changing nature of and inconsistencies in the case, both internally and in the expert evidence put forward;

(3) The publicity attending the case, stoked up by prior proceedings in the USA and the highly coloured way in which the case was presented both there and in this jurisdiction;

(4) The overall unfairness of preserving for the claimants the benefits of the ordinary basis of assessment whilst exposing the defendants, having had to respond to an expensively presented case, to the twin detriments of a shortfall in costs recovery and being denied the chance of vindication without explanation.

Comment

Claimants should be aware that pursuing serious allegations and then abandoning them may be considered out of the norm and risks liability for indemnity costs. An appropriate litigation strategy must include keeping the evidence under review and conceding allegations that are not viable at an early stage. Any accompanying media strategy should take account of strengths and weaknesses in the evidence and avoid overstating the claimant’s case or making statements that may be unduly prejudicial to the defendant in the event that the matter does not proceed to a full trial.

The authors would like to acknowledge the assistance of Brian Ferry, costs draftsperson at CMS Sheffield, in preparing this article.