COURT OF APPEAL OVERTURNS AWARD OF INDEMNITY COSTS

In Arcadia Group Brands Ltd -v- Visa Inc [2015] EWCA Civ 883 the Court of Appeal, dismissed an appeal on the merits,  but nevertheless overturned the judge’s order for indemnity costs.

THE CASE

The claimants were bringing actions for breaches arising out of charges for credit cards. The judge at first instance struck out those parts of the action which were more than six years prior to issue on the grounds that these were statute barred. The claimants appealed this order but were unsuccessful on appeal.

KEY POINTS

  • The judge had been wrong to order indemnity costs.
  • The weakness of a legal argument is not sufficient grounds to award indemnity costs, which are to some degree penal.
  • The situation may be different if the litigation were plainly hopeless or a party had ulterior motives. That was not the case here.

THE DECISION IN RELATION TO INDEMNITY COSTS

Costs
  1. The Judge ordered the appellants to pay the respondents’ costs of the summary applications on the indemnity basis. The Judge ordered the assessment on that basis because “it ought to have been known to any reasonable litigator that the claim in respect of the period before July 2007 was bound to fail”. He also said that his view as to the appellants’ conduct was reinforced by a letter dated 11 June 2014 from the respondents’ respective solicitors offering a ‘drop hands’ agreement on costs if the appellants discontinued their section 32(1)(b) claims. The Judge said that he considered that the appellants’ rejection of that offer was unreasonable and demonstrated the overall unreasonableness of their approach.
  2. The Judge had a wide discretion as to costs but I consider that, in awarding costs on the indemnity basis rather than the standard basis, the Judge made an error in principle. The weakness of a legal argument is not, without more, justification for an indemnity basis of costs, which is in its nature penal. The position might be different if proceedings or steps taken within them are not only based on a plainly hopeless case but are motivated by some ulterior commercial or personal purpose or otherwise for purely tactical reasons unconnected with any real belief in their merit.
  3. The appellants’ arguments on limitation have not been associated with culpable motive or improper purpose or otherwise such as to amount to an abuse. In those circumstances, the appellants’ rejection of the offer in the letter of 11 June 2014 from the respondents’ solicitors takes the matter no further.

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