Costs on an indemnity basis
The advantages to a successful party in having its costs assessed on an indemnity basis are that:
- It does not have to demonstrate that its costs were proportionate.
- The losing party bears the burden of showing that the winning party’s costs were unreasonable in amount or unreasonably incurred.
In adjudication cases it is now relatively common for a party seeking to enforce an adjudicator’s decision to also ask the court to award it its costs on the indemnity basis, if successful. This is on the grounds that the losing party in an adjudication should pay up straight away and the successful party should not have to go to court for payment.
In 2002, the Court of Appeal delivered three judgments considering indemnity costs:
- Reid Minty (A Firm) v Taylor.
- Kiam v MGN Ltd (No 2).
- Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (a firm).
The Court of Appeal declined to give detailed guidance of the circumstances in which the lower courts should exercise its discretion to award indemnity costs but, in Excelsior Commercial, Waller LJ said the question was:
“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 the order for indemnity costs?”
Savoye and Savoye Ltd v Spicers
Savoye and Savoye Ltd v Spicers was such a case.
Savoye obtained an order enforcing an adjudicator’s decision in its favour and sought indemnity costs of the application. Akenhead J provided a helpful summary of the test the court will apply.
Akenhead J considered whether Spicers’ conduct in resisting enforcement satisfied this test. The contract was for the installation of a conveyor system in Savoye’s factory. Spicers claimed that the adjudicator lacked jurisdiction because the contract did not concern “construction operations” as the system could not be considered as forming part of the land. Although Akenhead J held that the contract was a construction operation, for the purposes of the indemnity costs application, he found that:
“…there were substantial pieces of equipment which were not physically attached to the underlying concrete floor and, at two thirds of the fixing plates on much of the conveyor racking, there was no connection of them to the concrete floor. Based on that, it was not unreasonable let alone out of the norm for a defendant such as Spicers to seek to argue that, looked at overall, it being a matter of fact and degree, the conveyor system did not or was not to form part of the land.”
Savoye also sought to rely on the witness statement of one of Spicers’ witnesses as conduct outwith the norm. Akenhead J had found there were several statements that were “misleading or at least wrong”. However, these statements were not dishonest or consciously misleading and this did not take Spicers’ conduct outwith the norm. Indemnity costs were not ordered.
Eurocom v Siemens
Savoye and Savoye v Spicers may be contrasted with Ramsey J’s judgment on indemnity costs in Eurocom v Siemens, which is the second recent adjudication enforcement hearing to consider the issue.
In Eurocom v Siemens, it was held that Eurocom would not be granted summary judgment enforcing an adjudicator’s decision in its favour on the basis that:
- There was a very strong prima facie case of fraudulent misrepresentation through Eurocom’s representative claiming in the RICS nomination form that certain adjudicators were conflicted who were not in fact conflicted.
- There were overlaps between the adjudicator’s decision and an earlier decision under the same contract, such that the adjudicator lacked jurisdiction.
- In the event that the adjudicator’s decision had been enforced, there would have been a stay because of Eurocom’s impecuniosity.
We wrote about Ramsey J’s initial judgment at the time.
Here, therefore, in contrast to most adjudication cases considering indemnity costs, it was the party resisting enforcement – Siemens – that was seeking its costs on the indemnity basis.
Siemens applied for indemnity costs on the basis that:
- Eurocom’s representative’s conduct in filling out the nomination form with information known to be false was conduct of the case which was outwith the norm, in particular because it was lacking in moral probity or deserving of moral condemnation.
- Siemens had been questioning why Eurocom claimed there were conflicts of interest since it first had sight of the nomination form in January 2014. Eurocom had failed to answer these questions, and had instead pressed on to seek to enforce the adjudicator’s decision. Siemens claimed this was highly unreasonable conduct outwith the norm.
Conduct outwith the norm
Ramsey J held, following his own decision in BSkyB Ltd v HP Enterprise Services UK Ltd, that lack of moral probity was not required but that the court could take account of fraud or, in a summary judgment application, a finding of there being a very strong prima facie case of fraudulent misrepresentation.
He held that Eurocom’s conduct in choosing to enforce the adjudicator’s decision where there was a prima facie case of a fraudulent misrepresentation was conduct outwith the norm. However, he noted that this may not be sufficient of itself to lead to indemnity costs being awarded. Although not expressly stated, this may be because, following BskyB, in considering whether a party’s conduct is sufficiently outwith the norm to justify indemnity costs, there is a distinction between the conduct of a party and the conduct of that party’s representatives. In Eurocom, the alleged misrepresentation was by Eurocom’s representatives in the adjudication, not by Eurocom itself.
In any event, in addition to the prima facie fraudulent misrepresentation, Eurocom had failed to respond to Siemens’ questions about the alleged conflicts. It was held that this was conduct that was unreasonable to a high degree and therefore outwith the norm. Indemnity costs were therefore awarded.
This case is very rare in that it was the party who obtained an adjudicator’s decision in its favour and sought to enforce it that was ordered to pay indemnity costs. It is always tempting for a party who obtains an adjudicator’s decision to seek to enforce it, almost no matter what. However, the judgment in Eurocom is a warning to parties and their representatives that there are circumstances when it is highly unreasonable to seek to enforce.