DSN V BLACKPOOL FOOTBALL CLUB LTD (REV 1)  EWHC 670 (QB) (INDEMNITY COSTS) : FULL CASE DETAILS / THE DECISION
Following judgment for the Claimant for damages in the sum of £19,746.37, together with an additional amount of £1,974.64 pursuant to CPR 36.17(4)(d), Mr Justice Griffths was asked to determine three issues, namely:
i) Whether costs should be on the standard or indemnity basis.
ii) The amount of an interim payment on account of costs.
iii) Whether there should be permission to appeal.
Whether costs should be on the standard or indemnity basis
The Claimant’s Position
Indemnity costs were sought under CPR 36.17(4) as a result of a CPR Part 36 offer made by the Claimant to the Defendant on 2 December 2019 for payment of damages in the sum of £10,000 “in settlement of his whole claim”.
The Defendant did not accept the offer and damages and the Claimant went on to better the offer at trial.
The Defendant’s Position
The Defendant said that the Claimant’s costs budget was approved in March 2018 when the claim was valued at between £50,000 and £100,000.
This was largely due to an unquantified loss of earnings claim which did not materialise.
It was argued that an order for indemnity costs would preclude the costs judge from having regard to proportionality, and that it would be unjust to make such an order for that reason because the costs budget was based on an inflated valuation of the claim.
The judge was not persuaded.
MR JUSTICE GRIFFITHS:
11. I am not persuaded by that argument. It is correct that an order for indemnity costs means that CPR44.3(2)(a) does not apply, with the result that the requirement when costs are assessed on the standard basis that costs should be “proportionate to the matters in issue” does not apply. But that does not make me think that it would be unjust to make the order for indemnity costs which I must otherwise make under CPR 36.17(4)(b). It is an inherent feature of indemnity costs that proportionality is not a factor on assessment, and indemnity costs are the usual order for costs when a Defendant fails to beat a Claimant’s Part 36 offer. On no view will the Claimant recover, even on an indemnity basis, more than the costs he has actually incurred, and, as the Court of Appeal said in McPhilemy v The Times Newspapers Ltd (No.2)  EWCA Civ 933;  1 WLR 934; per Chadwick LJ at para 22
“The purpose for which the power to order the payment of costs on an indemnity basis is conferred, as it seems to me, is to enable the court, in a case to which CPR 36.21 applies, to address the element of perceived unfairness which arises from the fact that an award of costs on the standard basis will, almost invariably, lead to the successful claimant recovering less than the costs which he has to pay to his solicitor.”
12. See also East West Corporation v DKBS 1912 and AKTS Svenborg  EWHC 253 (Comm) per Thomas J at para 14:-
“The purpose of the award of an enhanced rate of interest or indemnity costs is to encourage parties to make offers of settlement in the ordinary sense of that word. It is to compensate the claimant who has made an offer that should have been accepted for the risk of continuing with the action and to bring home to the defendant the risks being run by not accepting it.”
13. The removal of proportionality as a consideration is part of the incentive given for the Part 36 offer to be made and accepted, and I see no injustice in the Defendant in this case paying indemnity costs, having failed to beat the Part 36 offer.
14. It follows that the Defendant must pay the Claimant’s costs on the indemnity basis from 24 December 2019 pursuant to CPR 36.17(4)(b).
150 It is not at all clear to me, in any event, that the costs budget was based on an inflated valuation of the claim, or that the costs budget was materially affected by the loss of earnings element of the claim.
Indemnity costs claimed as a result of failure to engage in Alternative Dispute Resolution
The Claimant’s Position
The Claimant sought indemnity costs on a broader basis and for a longer period because of the Defendant’s conduct and, in particular, its failure to engage in settlement discussions.
In summary, the Defendant failed and refused to engage in any discussion whatsoever about the possibility of settlement, stating that it believed it had a strong defence, and did not respond to any of three Part 36 offers (except to reject the final one).
MR JUSTICE GRIFFITHS:
28. The reasons given for refusing to engage in mediation were inadequate. They were, simply, and repeatedly, that the Defendant “continues to believe that it has a strong defence“.
No defence, however strong, by itself justifies a failure to engage in any kind of alternative dispute resolution. Experience has shown that disputes may often be resolved in a way satisfactory to all parties, including parties who find themselves able to resolve claims against them which they consider not to be well founded. Settlement allows solutions which are potentially limitless in their ingenuity and flexibility, and they do not necessarily require any admission of liability, or even a payment of money.
Even if they do involve payment of money, the amount may compare favourably (if the settlement is timely) with the irrecoverable costs, in money terms alone, of an action that has been successfully fought. The costs of an action will not always be limited to financial costs, however. A trial is likely to require a significant expenditure of time, including management time, and may take a heavy toll on witnesses even for successful parties which a settlement could spare them. As to admission of liability, a settlement can include admissions or statements which fall short of accepting legal liability, which may still be of value to the party bringing a claim. In the present case, for example, I have already in my previous judgment commented (at  EWHC 595 (QB) paras 188-189) on the opportunity missed by the Defendant at the very least to acknowledge and accept that the Claimant was sexually abused by Roper (it having no positive case to the contrary, and no evidence to support a case to the contrary). The passage in the Claimant’s witness statement which I quoted in paragraph 188 of my previous judgment shows that the Claimant was not primarily motivated by money (and the low figure of his final Part 36 offer confirmed that). He “expected the club to want to engage and to understand what had happened”. The club could have engaged with him (having received his statement, which was dated as long ago as 28 May 2019) without prejudice to what it presented at trial as its strongest defences: namely, that the claim was outside the limitation period and that the club was not vicariously liable for Roper’s sexual abuse of the Claimant, even if that abuse were to be admitted. It did not engage at all.
29. If the Defendant had been correct that it had “a strong defence”, its responses to the Claimant’s settlement overtures, and the statement made in compliance with paragraph 4 of the Order of Master McCloud would still, in my judgment, have fallen short of an acceptable level of engagement with the possibility of settlement or Alternative Dispute Resolution. As Sir Geoffrey Vos C said in OMV Petrom SA v Glencore International AG  EWCA Civ 195 at para 39:
“The parties are obliged to make reasonable efforts to settle, and to respond properly to Part 36 offers made by the other side. The regime of sanctions and rewards has been introduced to incentivise parties to behave reasonably, and if they do not, the court’s powers can be expected to be used to their disadvantage. The parties are obliged to conduct litigation collaboratively and to engage constructively in a settlement process.”
30. As it turned out, the Defendant did not have a strong defence. It lost the case. That alone would not justify an award of indemnity costs but the conduct I have set out, in my opinion, does. It is conduct which “takes the case out of the norm”: Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hamer Aspden & Johnston (Costs)  EWCA Civ 879 per Lord Woolf at para 19. It is “outside the ordinary and reasonable conduct of proceedings”: Esure Services Ltd v Quarcoo  EWCA Civ 595 per Waller LJ at para 25, see also Whaleys (Bradford) Limited v Bennett  EWCA Civ 2143 at paras 19-25. The response to paragraph 4 of Master McCloud’s Order is particularly disappointing in this respect: cf Dunnett v Railtrack plc  EWCA Civ 303  1 WLR 2434 per Brooke LJ at para 15.
31. However, in my judgment this would not justify awarding the Claimant’s costs on the indemnity basis for the whole of the proceedings. I consider that the fair and appropriate date from which indemnity costs should be awarded is 1 December 2018. That is one month after Master McCloud ordered the parties “at all stages” to “consider settling this litigation by any means of Alternative Dispute Resolution” (para 4 of the Order of 30 October 2018), and over 8 months after the Claimant’s first Part 36 offer of 20 March 2018.
32. I will order the Defendant to pay the Claimant’s costs on the standard basis until 30 November 2018 and on the indemnity basis from 1 October 2018.
The amount of an interim payment on account of costs
33. It is agreed that this is a case in which an interim payment on account of costs should be ordered. The Claimant’s approved budgeted costs were £153,583 excluding VAT and I do not see any good reason to depart from that as a starting point for the costs covered by the budget: MacInnes v Gross  4 WLR 49 per Coulson J at paras 25-27. This would be the starting point even if costs had been awarded on the standard basis throughout: CPR 3.18. In addition, the costs budget was approved when there had already been incurred costs of approximately £48,000 excluding VAT and I am told that the total incurred costs are now £164,000. Bearing in mind that I have awarded costs on the indemnity basis, and discounting the figures to allow for arguments that may arise on a detailed assessment, I will order an interim payment of £200,000 on account of costs.