INDEMNITY COSTS AND REDUCED INTEREST ON DAMAGES BECAUSE OF DELAY: COURTS WILL STAY ON THE RAILS

There is a short interesting judgment by Mr Justice Akenhead  in Network Rail Infrastructure Ltd -v- Handy [2015] EWHC 1460 (TCC) which deals with the principles relating to indemnity costs and interest. A further interesting point is that the claimant was held to be entitled to costs for suggestions it made at the case management conference which could (if they had been adopted) reduced the costs of trial.

“…parties should not be discouraged from making sensible proposals for case management”

THE CASE

The claimant had won a trial and liability and damages were subsequently agreed. The parties could not agree costs and interest issues.

KEY POINTS

  • Although the Defendants lost heavily their behaviour was not such as to warrant the award of indemnity costs.
  • A delay by the claimant did not justify depriving the claimant of interest for that period of delay.
  • The claimant had spent some time isolating the issues and making suggestions for a trial on preliminary issues. Although these suggestions were not, ultimately, adopted by the court the claimant was entitled to recover the cost involved in that process.

THE JUDGMENT

Indemnity Costs

  1. There neither is nor could be any argument but that the Defendants, all represented through Aviva, should pay the costs of and occasioned by the proceedings. Network Rail has “won”, obtaining judgment on all issues of principle save for one minor issue (the unidentified minutes issue which accounts for less than 1% of the damages awarded).
  2. Network Rail seeks indemnity costs whilst the Defendants say that costs should be on a standard basis. The authorities over the years establish what is required in broad terms to justify an award of indemnity costs. This Court for instance in Igloo Regeneration (GP) Ltd v Powell Williams Partnership [2013] EWHC 1859 (TCC) broadly summarised the position:

“2 The authorities are now well established and I do not intend to repeat them. There is largely, if not entirely, an overlap between what both counsel are putting forward as the appropriate basis: cases such as Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (a firm) [2002] EWCA Civ 879, per Waller LJ, in which he said:

“Is there something in the conduct of the action or the circumstances of the case which takes the case out of the norm in a way which justifies an order for indemnity costs?”

3. There are also the well known cases of Kiam v MGN Ltd (No 2) [2002] 2 All ER 242, in particular the judgment of Simon Brown LJ (as he then was), Gloster J (as she then was) in Euroption Strategic Fund Ltd v Skaninaviska Enskilda Banken AB and this Court in Walter Lilly & Co Ltd v Mackay & Anr [2012] EWHC 1972 (TCC), although this was on obviously on different facts and considerations, when the Court referred to yet more authority, in particular Andrew Smith J in Fiona Trust & Holding Corporation v Yuri Privalov [2011] EWCR 664 (Comm) and The Mayor & Burgesses of the London Borough of Southwark v IBM UK Limited [2011] EWHC 653 (TCC). …. I do not intend to repeat the summary of principles and considerations to be taken into account. Obviously, the fact simply that one party loses the case, and maybe loses it on the basis of a firm judgment, does not mean, as such, that the losing party should pay costs on an indemnity basis. There must be some conduct which takes the case out of the normal run of the mill.”

  1. Reliance has also been placed on a decision of Christopher Clarke J (as he then was) in Balmoral Group Ltd v Borealis (UK) Ltd [2006] EWHC 2531 (Comm) where the Claimant, Balmoral, “lost badly” as the judge said at Paragraph 2 and the issue of indemnity costs came up. The successful defendants argued that, by reason of five factors including the character of the technical or expert evidence, indemnity costs should be ordered. It is only in relation to the expert evidence argument that any indemnity costs were ordered. The judge in his judgment on the substance of the case had been critical of the expert evidence identifying various deficiencies. In his judgment on courts he accepted that the “flaws” in the Claimant’s expert’s evidence took the case “out of the norm” saying that the experts original report was “far from transparent” (see Paragraph 18). He went on at Paragraph 20:

“I do not accept that a litigant is able to distance himself from his expert in that way. The expert, whatever his duties, is still the witness of the party calling him. Serious failings by an expert may make it just to order indemnity costs, unless the expert and the party calling him can, for these purposes, be distinguished. In my view they cannot. As between the party calling the expert and the opposing party the risk should rest with the former.”

I agree with this view. The judge went on to make an indemnity costs order on a reduced basis, primarily relating to counsel and solicitor costs for 4 specific trial days. From the substantive judgment, the trial had run for some two months.

  1. The conduct of the party against which indemnity costs are sought does not have to be lacking “in moral probity or deserving of moral condemnation” but the conduct should generally be “unreasonable to a high degree”, these quotations being from the various cases cited. What one is therefore seeking to find is whether or not, in this case, there has been conduct on the part of the Defendants which takes its conduct in or during this case out of the norm such that it can be considered as unreasonable to a high degree.
  2. Whilst it is true that there has been a firm judgment against the Defendants and sometimes in moderately robust terms, that in itself would not be grounds for deciding that costs should be on an indemnity basis. Indeed in the Balmoral case, that was not a factor. True it is that the Defendants’ expert’s evidence was to a large extent not accepted and he made significant concessions under cross-examination which undermined their case but, again, the fact that a key witness does badly should not be grounds for awarding indemnity costs unless it was clear that a party (or even the expert) was deliberately or recklessly trying to mislead the Court by putting forward an expert witness (or himself) which it knew was wrong on key issues; that is not this case. It was effective cross-examination which secured the concessions. Unlike the Balmoral case, it would be difficult to find that Mr Palmer had not been transparent; in a sense, he was too transparent not only when he gave his evidence but in the chopping and changing between his various reports (some of which was highlighted in the substantive judgment in the current case). There was one respect in which I found that Mr Palmer had exaggerated his experience by suggesting that he had undertaken a rail or public transport project when he only attended a workshop forming part of the study in question (see Paragraph 49 of the judgment). That however was not, so to speak, causative of incurring costs that would not otherwise have been incurred. A very real problem for Mr Palmer was that he was not an experienced expert (having never given expert evidence before) but that, as he frankly accepted under cross-examination, he was in effect nowhere near as experienced an expert in the field as Mr Segal and he was on “a learning curve”.
  3. I have formed the view that, whilst wrong on key issues, the Defendants at least put forward their defence on a bona fide basis on evidence which, although not particularly strong, was arguable; it became weaker as the trial went on but that is not uncommon. Even on what I called their micro-analysis basis of proceeding, it could be argued as a matter of degree that there were “big picture” points being made, albeit only demonstrable by reference to a detailed analysis of papers, formulae and figures and the like. It was a matter of degree albeit I formed the view that in the result ultimately it fell firmly within the unacceptable level of scrutiny proscribed by the Court of Appeal.
  4. I therefore find it difficult to say that there has been conduct on the part of the Defendants which takes their conduct in or during this case out of the norm such that it can be considered as unreasonable to a high degree. It may well be that, if the same or comparable points are taken by Aviva insured defendants or other insured defendants in future cases, the trial judge may well, however, then justifiably take a different view on a costs award.
  5. There is one further issue which relates to some costs which were reserved at the first CMC when Network Rail proposed some preliminary issues and some time was spent in addressing this proposal, which the Court rejected. In the broad scheme, this is a very minor point. It is clear that, in the months leading up to the first CMC in the TCC in relation to the five cases, the parties were in extensive communication about what the issues were and, to some extent at least, Network Rail’s solicitors were trying to focus on what the real issues were going to be. Network Rail’s legal team drew up initially a detailed list of issues (culled from the pleadings and the correspondence) running to 57 pages; this was distilled by them into a 9 page list which was put before the Court at the first CMC. Although no application for preliminary issues was issued, the option of having preliminary issues was raised by Network Rail’s legal team, albeit that this proposal was put forward subject to the provision of further particulars by the Defendants as the basis on which they would argue and assert that Schedule 8 was unreasonable; I ordered that this further particularisation should be provided by the Defendants. I also however made it clear that I did not see any overwhelming advantage of having preliminary issues; one of my concerns, so far as I can recall, was that, given the risk of appeals, the whole trial process might be disrupted.
  6. I do not consider that it was wrong for Network Rail to make this proposal; some imagination was deployed by Network Rail to seek to save time and money, albeit that the Court was not persuaded to order preliminary issues. It was helpful to identify the issues from the pleadings in the first place and then to distil them down to the more essential issues. It was particularly helpful to have a list of issues to enable an intelligent discussion to take place at the CMC as to how best to try the case. I consider that costs in the case is a fair order: parties should not be discouraged from making sensible proposals for case management and certain it is that, by reason of dealing with the case in full rather than by way of preliminary issues, substantial costs have been incurred and in hindsight it is at least possible that some costs and time might have been saved via the preliminary issues route or at least a version of them.

Interest

  1. Network Rail seeks interest on the damages awarded from the dates when the various monies were paid out (in respect of inspection and repair costs) and credited to the respective TOCs (in respect of the lost revenue claims). The rates claimed are 4% until 31 March 2014 and 1.5% thereafter, such rates being established by reference to Network Rail’s cost of borrowing. The Defendants do not dispute the proposed interest rates but they do say that, because there was material delay on the part of Network Rail between August 2007 and May 2009, there should be no interest for that period; this, of course, does not affect the Godley case as the incident occurred after this period of alleged delay. During the course of argument, Mr Bartlett QC accepted that there was, arguably, material delay only between August 2007 and July 2008.
  2. Jackson J (as he then was) in Claymore Services Ltd v Nautilus Properties Ltd [2007] EWHC 805 (TCC) said at paragraph 55 in relation to the impact of delay on interest, that he derived three propositions from the various authorities which he had reviewed:

“(1) Where a claimant has delayed unreasonably in commencing or prosecuting proceedings, the court may exercise its discretion either to disallow interest for a period or to reduce the rate of interest.

(2) In exercising that discretion the court must take a realistic view of delay. In the case of business disputes, litigation is for all parties an unwelcome distraction from their proper business. It is not reasonable to expect any party to take every litigious step at the first possible moment, or to concentrate on litigation to the exclusion of all else. Delay should only be characterised as unreasonable for present purposes when, after making due allowance for the circumstances, it can be seen that the claimant has neglected or declined to pursue his claim for a significant period.

(3) When determining what disallowance or reduction of interest should be made to mark a period of unreasonable delay, the court should bear in mind that the defendant has had the use of the money during that period of delay.”

  1. So far as I can ascertain, claims were notified by Network Rail relatively shortly after each of the incidents. There can be no doubt that Network Rail expended or lost the judgment sums from dates shortly after the incidents and therefore have been out of pocket ever since.
  2. The real question therefore is whether or not Network Rail’s conduct in not progressing the Handy, Ingram, RHL and Parry claims in the 11 month period now relied upon by the Defendants was sufficiently reprehensible or unreasonable as to justify the exercise of discretion to disallow interest over that period. I have formed the view that the behaviour of Network Rail was not reprehensible or unreasonable and in forming this view I take into account the following:

(a) It simply has not been established that there was anything unreasonable or reprehensible in the conduct of Network Rail in not pursuing its claims between August 2007 and July 2008. There has been no proffered analysis as to what was going on before or during this period

(b) The context, so far as can now be put together, was that there were a number of claims, not limited to the five claims in this case, which Network Rail was hoping to pursue but, given Aviva’s reluctance to accept liability at least in relation to revenue losses on any of them, the parties were considering the extent to which test cases might be selected. The reality is that the test cases selected were the Conarken case (where proceedings were issued in July 2008) and the Farrell Transport case (proceedings issued somewhat later), with both cases being transferred to the TCC by early and mid-2009 respectively. It was these two which were selected as the first “test” cases.

(c) Taking a “realistic view” of the relatively small period of delay affecting that these four cases, the context is such that such a delay was in the overall context relatively minimal; the parties were looking for appropriate test cases and in the result opted for the Conarken and Farrell Transport cases; in so doing, they were content to “park” these four potential sets of proceedings and, indeed, ultimately standstill agreements were entered into which stopped the limitation period running whilst those two test cases were tested in the TCC and later the Court of Appeal.

Conclusion

  1. Interest will run from the dates when the expenditure and losses were incurred until judgment with no “gap” for the period August 2007 to July 2008, at the (now) agreed interest rates. The Defendant will pay its own and the Claimant’s costs of the proceedings on a standard basis. The costs reserved from the first CMC shall be costs in the case and in the final result shall be borne by the Defendants given the final costs order.

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