Assessment of costs in exaggerated claims

Assessment of costs in exaggerated claims

Published:

Author: Paul Eccles

 

A recent High Court decision in Brit Inns v BDW Trading Ltd considered the circumstances in which a successful claimant would have to pay the majority of the defendant's costs

The facts

Claimants Brit Inns Limited instructed the defendant company BDW Trading Limited to build a new restaurant, which later flooded as a result of the defendant's work.

The claimants made a subrogated claim against the defendant for £660,000 in respect of insured losses (the main action), and also claimed £522,000 in respect of uninsured losses (the uninsured claim).

The defendant did not dispute liability, but did dispute the level of damages.

In the end, the Court awarded the claimants only £157,467 in the main claim; and £16,403 in the uninsured claim - approximately 25% and 3% of the sums claimed respectively.

Of course, both parties had racked up considerable costs in the proceedings, dwarfing the sums recovered.

The court had to consider the correct approach to costs where it was clear that the claimant, although successful, had greatly exaggerated the claim.

The decision

The court acknowledged that the claimants were the 'successful party', but went on to consider their conduct in the claim.

The court felt that the claimant and the claimants' solicitors had been intentionally unhelpful throughout the trial, and that the claimants' expert witness evidence had been fundamentally flawed. While the claims were not dishonestly or deliberately exaggerated, they were so obviously flawed the claimants should have changed their approach early on.

Had the claimants behaved themselves and acted properly throughout the litigation, the court considered, the case would have settled long before. Even though the claimants were 'successful', it would not have been appropriate for the defendants to cover the costs.

In the main claim, both parties had made Part 36 offers, but had subsequently failed to beat them (although the defendant's offers were considered far more reasonable), so the court also considered other offers made. The first offer, which was 'beaten' by the party that made it, was an offer from the defendants, which expired on 30 May 2012.

With that in mind, the court ordered the defendants to pay 60% of the claimants' costs up to 30 May 2012 (being the date on which the offer expired), and the claimants to pay all of the defendants costs from that date on.

In respect of the uninsured claim, neither party had made a Part 36 payment, although the defendant's Part 44 offer also covered the uninsured losses.

The court considered it unusual for a claim for uninsured losses not to be grouped with a subrogated claim and thought the claimants should have to pay for the 'luxury' of having a second trial, noting that an award of 3% of the damages claimed was in fact 'a failure on a grand scale'.

Somewhat shockingly, in the uninsured claim, the court ordered the claimants to pay 90% of defendant's costs.

Spiral out of control

This case highlights that when litigation 'goes wrong', costs can very quickly spiral out of control, and even dwarf the sums disputed.

In these cases, even 'winning' will not necessarily guarantee a favourable costs order.

It is essential that parties are careful to conduct themselves properly throughout the trial, by being helpful to the other party and the court where appropriate, by pleading, by ensuring that evidence submitted is carefully reviewed, and by valuing the claim critically and honestly.

It also shows the benefits that can come from making a carefully considered offer early in the process.

While in this case neither party made a successful Part 36 offer, it was the defendant's Part 44 offer which saved them from substantially higher costs.