Indemnity Costs And The High Risk Of Pursuing A Weak Case

BRILLANTE VIRTUOSO

Mr Justice Teare determined an application for indemnity costs following the dismissal of the second claimant bank’s US$77 million claim for an indemnity from the defendant underwriter pursuant to a war risks insurance policy for the constructive total loss of the vessel BRILLANTE VIRTUOSO by piracy.

The Court found that the owner of the vessel had arranged for a “fake” attack by pirates and for a fire to be deliberately started on board. As such, the constructive total loss of BRILLANTE VIRTUOSO had been caused by the wilful misconduct of the owner and, in those circumstances, the Bank was unable to establish that the loss was caused by an insured peril.

Slightly unusually, the Underwriters’ claim for indemnity costs was based not on the unreasonable conduct of the Bank but rather “the character of the claim, looked at objectively, its weakness, the manner in which the Bank had pursued its claim … and its effect on the Underwriters’ response to it.”

Essentially, it was the underwriters’ case that the Bank had “failed to confront the inherent improbabilities in its case” and that from May 2016 at least it had been clear that “their claim faced considerable difficulty.

Despite this, they had continued to pursue it, only abandoning certain issues late into the 52 day trial.

Mr Justice Teare observed:

“There does … seem to me to be good sense and justice in the observation by Tomlinson J. that where a claim is weak a claimant who chooses to pursue it is taking a high risk and can expect to pay indemnity costs if it fails.”

He went on to find:

“The Bank, in my judgment, decided to continue the claim in May 2016 at time when, for the reasons I have given, there was a real risk of failure. The developments thereafter in 2017 and 2018 served only to increase that risk to such an extent that the Bank, through its experts, was compelled to abandon that which had been common ground between the experts and to advance theories which had to be abandoned late in the trial. That occurred not in relation to minor matters but in relation to crucial matters which must have consumed considerable sums in costs…”

He continued:

“The Bank was entitled to pursue its claim and to argue every point but it did so in circumstances where its claim was weak and there was a high risk of failure. Such were those weaknesses that there were times during the trial that I thought that there must have been some reason of which I was unaware that justified the Bank … in pursuing this claim against the war risk underwriters. But no such reason has materialised.”

Concluding:

“I am persuaded that the character of the claim and the circumstances in which it was pursued since May 2016 were beyond the norm and justify an order that costs be paid on the indemnity basis. When I ask myself whether there is good reason why the Bank should be deprived of the twin benefits of costs on the standard basis I am persuaded that it is fair and just that it should be. The Bank chose, undeterred by the objective weakness in its case, to argue the case at length and on every point. The Underwriters had to respond at length and on every point. In the result the Bank lost on every point of substance and did so for reasons which could have been predicted at the commencement at the trial in February 2019 by an objective observer familiar with the case.”

SUEZ FORTUNE INVESTMENTS LTD & ANOR V TALBOT UNDERWRITING LTD & ORS [2019] EWHC 3300 (COMM)