Arroyo & Ors v Equion Energia Ltd [2016] EWHC 3348 (TCC) (21 December 2016)

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England and Wales High Court (Technology and Construction Court) Decisions

You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Arroyo & Ors v Equion Energia Ltd [2016] EWHC 3348 (TCC) (21 December 2016)
URL: http://www.bailii.org/ew/cases/EWHC/TCC/2016/3348.html
Cite as: [2016] EWHC 3348 (TCC), [2017] 1 Costs LO 31

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		Neutral Citation Number: [2016] EWHC 3348 (TCC)
		Case No: HT-2013-00003

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

The Rolls Building
Fetter Lane, London EC4A 1NL

21/12/2016

B e f o r e :

THE HONOURABLE MR JUSTICE STUART-SMITH
____________________

Between:

	OCENSA PIPELINE GROUP LITIGATION PEDRO EMIRO FLOREZ ARROYO & OTHERS	Claimants
	- and –
	EQUION ENERGIA LIMITED formerly known as BP EXPLORATION COMPANY (COLOMBIA) LIMITED	Defendant

____________________

Alexander Layton QC, Sudhanshu Swaroop QC, Robert Marven (instructed by Leigh Day) for the Claimants
Charles Gibson QC, Oliver Campbell QC, Nicholas Bacon QC (instructed by Freshfields Bruckhaus Deringer LLP ) for the Defendant
Hearing dates: 28th November 2016
____________________

HTML VERSION OF JUDGMENT
____________________

MR JUSTICE STUART-SMITH :

Introduction

The background for this judgment on costs is to be found in the Main Judgment delivered on 27 July 2016, [2016] EWHC 1699 (TCC) ["the Main Judgment"]. The direct result of the Main Judgment was that Lead Claims 39, 50, 54 and 74 were dismissed. After consideration of the Main Judgment the Claimants decided not to attempt to appeal any part of it and that the remaining claims in the Ocensa Litigation should also be dismissed. The Claimants also accepted that, in the light of the Defendant's success at trial, there should be an award of costs to be paid by the Claimants to the Defendant. They submit, however, that the Defendant should not be entitled to an order for the payment of 100% of its costs and that the appropriate order is that the Claimants should be ordered to pay 60% of the Defendant's costs on the standard basis. The Defendant submits that there should be no reduction in the percentage of its costs that the Claimants should be ordered to pay, and that the Claimants should be ordered to pay the Defendant's costs of the litigation on the indemnity basis.

The costs incurred in the litigation are huge by any standards. They run to tens of millions of pounds on each side and dwarf any sums that the Claimants might have hoped to recover at trial even on the most optimistic projections. In August 2013 the Defendant's incurred and estimated costs for the litigation were over £27 million. In September 2014 the Claimants' Costs Budget amounted to over £24 million. Because of developments in the litigation after those dates and the tenaciously combative conduct of the litigation on both sides, I am certain that those estimates on each side will have been exceeded. The evidence of Mr Isted, the partner at Freshfields having conduct of the litigation on behalf of the Defendant, suggests that the Defendant's incurred costs of the litigation are now in the region of £34 million. I have no up to date estimate of the Claimants' costs.

There is an ATE Policy in existence, taken out by or on behalf of the Claimants. It has a sum insured of £1.8 million, which is a small proportion of the sums incurred by the Defendant in defending the claims. Its existence provides the explanation for an agreed order that there should be an interim payment on account of the Defendant's costs in the sum of £1.8 million. As for the rest, the Claimants themselves could not possibly begin to discharge more than a tiny fraction of the Defendant's costs even if it was feasible to try to enforce an order against them, as to which I say nothing. The Court was told that the issues which it is called upon to decide are not academic, for reasons which I do not need to investigate. I accept that assurance.

The consequential issues about costs were the subject of additional evidence from Ms Srinivasan, the partner at Leigh Day having care and conduct of the litigation on behalf of the Claimants, and from Mr Isted. The main materials relied upon in support of each side's submissions are to be found in the Main Judgment, as amplified by the additional evidence from the solicitors.

Although the evidence of Mr Isted and Ms Srinivasan and the submissions made on either side identified particular passages from the Main Judgment upon which they relied, the full weight of the criticisms made by each side of the other cannot be properly gauged by cherry-picking specific references. For that reason, although I shall refer to particular passages in the Main Judgment in the course of this one, deciding how to exercise my discretion on costs in a way that is just and in accordance with established principle requires an overview of the whole scope of this enormous and exceptionally demanding litigation. As the Main Judgment makes clear, the demands imposed on both sides were exceptional by any standards of modern litigation. I make full allowance for the pressures generated by those demands at every point when deciding the issues of costs that are the subject of this consequential judgment.

Where I refer to passages in the Main Judgment I will indicate paragraph numbers as follows: MJ[x].

In summary, and for the reasons set out below, I have concluded that the appropriate and just order to make is that:

i) The Claimants shall pay the Defendant's costs subject to a reduction to reflect the Defendant's failure on the dangerous activities doctrine;

ii) The payment of the Defendant's costs shall be assessed (if not agreed) on the standard basis in respect of costs incurred until 28 August 2014 and, subject to (iii) on the indemnity basis thereafter;

iii) The costs of and occasioned by the hearing on 28 November 2016 shall be assessed (if not agreed) on the standard basis.

The Principles to be Applied

The general approach

The Claimants' application that there should be a reduction in the percentage of the Defendant's costs that they should pay and the Defendant's application for indemnity costs engage different principles, which I shall consider in turn. However, the considerations which will lead to orders I make on each application have a degree of overlap. Each application involves an exercise of discretion in accordance with established principles. Accordingly, although I shall summarise and discuss the parties' submissions on each application in turn, it will be necessary to stand back at the end of the exercise and to decide at that point what orders are right, both individually and in conjunction with each other.

Reducing the costs recoverable by a successful party

CPR 44.2, provides the framework:

"(1) The court has discretion as to –

(a) whether costs are payable by one party to another;

(b) the amount of those costs; and

(c) when they are to be paid.

(2) If the court decides to make an order about costs –

(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but

(b) the court may make a different order.

…

(4) In deciding what order (if any) to make about costs, the court will have regard to all the circumstances, including –

(a) the conduct of all the parties;

(b) whether a party has succeeded on part of its case, even if that party has not been wholly successful; and

(c) any admissible offer to settle made by a party which is drawn to the court's attention, and which is not an offer to which costs consequences under Part 36 apply.

(5) The conduct of the parties includes –

(a) conduct before, as well as during, the proceedings and in particular the extent to which the parties followed the Practice Direction – Pre-Action Conduct or any relevant pre-action protocol;

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c) the manner in which a party has pursued or defended its case or a particular allegation or issue; and

(d) whether a claimant who has succeeded in the claim, in whole or in part, exaggerated its claim.

(6) The orders which the court may make under this rule include an order that a party must pay –

(a) a proportion of another party's costs;

(b) …

(c) costs from or until a certain date only;

(d) …

(e) …

(f) costs relating only to a distinct part of the proceedings; and

(g) …

(7) Before the court considers making an order under paragraph (6)(f), it will consider whether it is practicable to make an order under paragraph (6)(a) or (c) instead.

The principles to be applied when implementing this framework and exercising the Court's discretion have been summarised on a number of occasions, and are well established. Gloster J provided a convenient summary, which I gratefully adopt, in HLB Kidsons (A Firm) v Lloyds Underwriters [2007] EWHC 2699 (Comm) at [10]-[11]:

"10 The principles applicable as to costs were not in contention. The court's discretion as to costs is a wide one. The aim always is to "make an order that reflects the overall justice of the case" (Travellers' Casualty v Sun Life [2006] EWHC 2885 (Comm) at para 11 per Clarke J. As Mr Kealey submitted, the general rule remains that costs should follow the event, i.e. that "the unsuccessful party will be ordered to pay the costs of the successful party": CPR 44.3(2) . In Kastor Navigation v Axa Global Risks [2004] 2 Lloyd's Rep 119, the Court of Appeal affirmed the general rule and noted that the question of who is the "successful party" for the purposes of the general rule must be determined by reference to the litigation as a whole; see para 143, per Rix LJ. The court may, of course, depart from the general rule, but it remains appropriate to give "real weight" to the overall success of the winning party: Scholes Windows v Magnet (No. 2) [2000] ECDR 266 at 268. As Longmore LJ said in Barnes v Time Talk [2003] BLR 331 at para 28, it is important to identify at the outset who is the "successful party". Only then is the court likely to approach costs from the right perspective. The question of who is the successful party "is a matter for the exercise of common sense": BCCI v Ali (No. 4) 149 NLJ 1222 , per Lightman J. Success, for the purposes of the CPR , is "not a technical term but a result in real life" ... BCCI v Ali (No. 4) (supra)). The matter must be looked at "in a realistic … and … commercially sensible way": Fulham Leisure Holdings v Nicholson Graham & Jones [2006] EWHC 2428 (Ch) at para 3 per Mann J.

11 There is no automatic rule requiring reduction of a successful party's costs if he loses on one or more issues. In any litigation, especially complex litigation such as the present case, any winning party is likely to fail on one or more issues in the case. As Simon Brown LJ said in Budgen v Andrew Gardner Partnership [2002] EWCA Civ 1125 at para 35: "the court can properly have regard to the fact that in almost every case even the winner is likely to fail on some issues". Likewise in Travellers' Casualty (supra), Clarke J said at para 12:

"If the successful claimant has lost out on a number of issues it may be inappropriate to make separate orders for costs in respect of issues upon which he has failed, unless the points were unreasonably taken. It is a fortunate litigant who wins on every point.""

A number of the strands in this passage appear in other cases, with matters of emphasis sometimes adjusted to meet the particular facts being considered at the time. They include:

i) The objective of making an order that reflects the overall justice of the case: see BCCI v Ali (No 4) at [7] where Lightman J said "an order in favour of the successful party is generally to be adopted as calculated to achieve [the order which justice requires]; but the court in any particular case may make a different order if on the facts of that case justice so requires; …".

ii) The fact that in almost every case even the winner is likely to fail on some issues and that there is no automatic rule requiring reduction of a successful party's costs if he loses on one or more issues. This principle is of general application: see Fox v Foundation Piling Ltd [2011] 6 Costs LR 961 at [48] per Jackson LJ in the context of a personal injury claim;

iii) While the general principle is not in doubt, there are numerous cases which show the Court examining the outcome of particular issues and adjusting the successful party's recovery of costs as a result of that examination. Although Clarke J was right to say that it may be inappropriate to make a separate order for costs in respect of issues upon which the successful party has failed "unless the points were unreasonably taken", it is established by the Court of Appeal that it is not a necessary prerequisite to the making of a separate order to show that the successful party against whom a separate order is sought acted unreasonably or improperly in taking or pursuing the points upon which he failed: see Summit Property v Pitmans [2001] EWCA Civ 2020 at [27] per Chadwick LJ, Kastor Navigation Co Ltd v AGF MAT [2005] 2 All ER (Comm) 720 at [144]-[145];

iv) As the cited passage from Kastor makes clear, Chadwick LJ at [27] of Summit was addressing a case where the Court has decided to address the question of costs "on an issue by issue basis and decides that the costs should follow the event on a particular issue". However, since that is simply one possible approach to the overall exercise of the Court's discretion, it is no surprise to find that there are cases where the successful party suffers a reduction in its recovery of costs because it has lost on one or more issues even though the Court is not approaching the whole question of costs on an issue by issue basis. Since the over-riding concern of the Court is to reach a decision that is just on the facts of the particular case, there is no principled reason for adopting black-letter rules based on whether issues on which the successful party lost were reasonably or unreasonably taken or persisted in. I would accept, however, that the reasonableness or unreasonableness of the successful party's conduct in relation to the issues on which it lost may be something to be taken into account when deciding whether to deprive it of a proportion of its costs.

As well as identifying the principles to which I have referred, it is appropriate to concentrate on how the Court has applied them in previous cases because, as Clarke J said in Travellers Casualty at [12], "the cases illustrate how [the Court's exercise of its discretion] may work out in practice." In doing so, I bear in mind the Claimants' submission that it is not necessary for any costs to be attributable (or discretely attributable) to the issue upon which the successful party has lost in order for the Court to make an order reducing the successful party's recovery of costs.

In Travellers Casualty at [12]-[14], [17], Clarke J first identified the principles as he was applying them, and then applied them to the facts of that case:

"12 … If the successful claimant has lost out on a number of issues it may be inappropriate to make separate orders for costs in respect of issues upon which he has failed, unless the points were unreasonably taken. It is a fortunate litigant who wins on every point.

13 On the other hand, if a party raises a discrete issue which involves very substantial costs, and upon which he fails, justice may require that he should bear his costs and pay those of his opponent on the issue. CPR 44.3 (4) specifically provides that:

"(4) In deciding what order (if any) to make about costs the court must have regard to all the circumstances, including:

(a) the conduct of the parties;

(b) whether a party has been successful on part of his case, even if he has not been wholly successful."

14 In this respect there is the practical problem that it may be very difficult for the costs judge to work out what costs are properly attributable to an issue. Such difficulty may well mean that the appropriate order is one under CPR44.3. (6)(a)–(c) . CPR 44 .3. (7) enjoins a court which considers making an order for payment of the costs of an issue to make an order under one of sub-paragraphs (a)–(c) of 44.3. (6) if practicable.

15 Even if, in relation to a particular issue, it is appropriate to order the overall winning party to bear some of its costs or pay the overall loser some of his, the issue in question, such as quantum, may itself have contained a number of sub issues, in respect of which the proper incidence of costs is not straightforward. One sub issue on which the overall winner lost may have had significant monetary value but taken little time to determine; another may be one which was of much lesser value but took more time. Another sub issue may be one on which the overall winner won."

Clarke J then identified eight issues on which the successful insurers had lost, and continued:

"17 With one exception I do not think that justice requires me to deprive the insurers of any part of their costs in relation to liability, or to order them to pay those of Sun Life. The exception is in relation to the estoppel issue. That was a distinct issue on which the insurers lost. It involved two witnesses giving evidence about the disputed conversations over the course of two days, much of which would have been unnecessary and inadmissible if the question was one purely of construction."

At [13], Clarke J took the raising of "a discrete issue which involves very substantial costs" as his example of when justice may require an adverse order to be made. At [14]-[15] Clarke J again linked the making of an adverse order to the ability to attribute costs to the issue that the successful party has lost. At [17], having identified the eight issues upon which the successful insurers lost on liability, he identified one as "distinct" and which involved the incurring of discrete costs, as he made clear at [18]. His brief discussion of the issues in respect of which he did not think it appropriate to make an order depriving insurers of their costs identified issues where the costs attributable to them may have been incurred in any event; or where the issue was reasonably taken though not ultimately in dispute; or where the issue was within a narrow compass. While Clarke J did not expressly say that no reduction should be made where no costs are attributable to the issue or other matter that is said to justify the order, the tenor of the passage to which I have referred is clearly weighted towards reductions for issues or other matters to which costs can be discretely attributed.

The same can be said of the judgment of Gloster J in HLB Kidsons. At [12] Gloster J rejected the submission that the case could have been determined by a trial of a discrete preliminary issue, which was the basis of a submission that the successful party should be deprived of part of its costs. She identified that the evidence in question was necessary for dealing with other issues: in other words, it was not possible to attribute separate and discrete costs to it. By contrast, at [14] she identified two issues upon which the overall-unsuccessful party had won and in respect of which it was able to demonstrate that it had incurred costs discretely attributable to the issue. At [16] she made a broad brush order based upon depriving the overall-successful party of its costs of those two issues and netting off the costs that the overall-unsuccessful party had incurred and shown to be attributable to them. The fact that Gloster J declined to deprive the overall-successful party of any costs in respect of the issues to which no costs were discretely attributable but did deprive it of costs in respect of issues to which costs were discretely attributable supports the Defendant's submission in this case that no order depriving it of a proportion of its costs should be made in respect of issues which it lost unless discrete costs can be attributed to those issues.

Tomlinson LJ adopted a similar or identical approach in Pindell v Airasia Berhad [2010] EWHC 3238 (Comm): see [12]-[13], [16]; as did Swift J in Jones v SS for Energy and Climate Change [2013] 2 Costs LR at [61].

Drawing these strands together, the discretion under CPR 44.2(1) is unfettered. The rule requires the Court to have regard to "all the circumstances", including those listed, and does not exclude from consideration circumstances to which costs cannot be discretely attributed. I would therefore not be prepared to say that the Court could never make an order depriving a party of part of its costs without being able to identify that there were (or would have been) costs discretely attributable to the circumstances on which the unsuccessful party relies. However, in general, it is unlikely to be just to deprive a successful party of part of his costs (still less to make an order which effectively requires him to pay part of the unsuccessful party's costs) by reference to an issue or other circumstances which have not affected the overall level of costs that have been incurred. Even when what is being considered is conduct, rather than the loss of one or more issues, it will generally not be just to deprive a successful party of part of its costs because of conduct which has had no adverse impact on the incidence of costs. Put another way, if what is complained about has had no impact on costs, it will require cogent reasons to justify depriving a successful party of part of its costs on the basis of the complaint. It follows that, in general, I respectfully support the approach adopted in turn by Clarke J, Gloster J, Tomlinson LJ and Swift J in looking for issues (a) upon which the successful party has lost and (b) which have had a real bearing on costs.

The authorities to which I have referred make plain that the Court has the power to make an order which not merely deprives the successful party of the costs it has incurred but also effectively makes it pay the unsuccessful party's costs: see Travellers Casualty at [13]. It must follow from the Court's general discretion to fashion an order that is just, that it may be just and appropriate to make an order which has the effect of not awarding the overall-successful party its costs but not making a further reduction by reference to the costs incurred by the overall-unsuccessful party. Such an order would be the equivalent of "no order as to costs" so that each party's costs lay where they fell. It might be appropriate where neither party has either fully succeeded or fully lost on an issue to which costs were discretely attributable on each side.

Awards of indemnity costs

CPR rr 44.3 and 44.4 provide the framework as follows:

"Basis of assessment

44.3

(1) Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs –

(a) on the standard basis; or

(b) on the indemnity basis,

but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.

…

(2) Where the amount of costs is to be assessed on the standard basis, the court will –

(a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and

(b) resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.

…

(3) Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party.

…

Factors to be taken into account in deciding the amount of costs

44.4

(1) The court will have regard to all the circumstances in deciding whether costs were –

(a) if it is assessing costs on the standard basis –

(i) proportionately and reasonably incurred; or

(ii) proportionate and reasonable in amount, or

(b) if it is assessing costs on the indemnity basis –

(i) unreasonably incurred; or

(ii) unreasonable in amount.

…"

Ever since the introduction of the CPR rules on costs, it has been appreciated that an order for costs to be paid on the indemnity basis may make a substantial difference to the amount of costs ordered in favour of the receiving party. Lord Woolf LCJ summarised the position in Excelsior Commercial & Industrial Holdings Limited v Salisbury Hammer Aspden & Johnson (A firm) and Ors [2002] EWCA Civ 879 at [15]:

"… The differences are two-fold. First, the differences are as to the onus which is on a party to establish that the costs were reasonable. In the case of a standard order, the onus is on the party in whose favour the order has been made. In the case of an indemnity order, the onus of showing the costs are not reasonable is on the party against whom the order has been made. The other important distinction between a standard order and an indemnity order is the fact that, whereas in the case of a standard order the court will only allow costs which are proportionate to the matters in issue, this requirement of proportionality does not exist in relation to an order which is made on the indemnity basis. This is a matter of real significance. On the one hand, it means that an indemnity order is one which does not have the important requirement of proportionality which is intended to reduce the amount of costs which are payable in consequence of litigation. On the other hand, an indemnity order means that a party who has such an order made in their favour is more likely to recover a sum which reflects the actual costs in the proceedings. The question of whether an order for costs on a standard or indemnity basis is made in litigation of the sort with which we are here concerned may be a matter of substantial financial significance. …"

The removal of the requirement of proportionality by an order for indemnity costs is of particular importance in a case such as the present where the sums expended are so great and submissions are made on each side that the conduct of the other has necessitated the deployment of exceptionally extensive resources to bring and defend the proceedings. As the Main Judgment documents, the claims being brought by the Claimants were technical, arising as they did from allegations that the migration of soils disturbed by the Ocensa works had damaged the Claimants' land. The number of claims being brought inevitably required the deployment of significant resources on each side, since each claim was fact sensitive; and the difficulties inherent in the litigation for both sides was increased by the fact that proceedings were being brought to trial nearly 20 years after the Ocensa pipeline had been laid. Although the sums being claimed in individual claims were, with some exceptions, relatively modest by the standards of some major litigation that passes through the English Courts, the overall sums claimed were not inconsiderable in absolute terms and would have been very substantial for the Claimants if they had managed to recover them. The sums claimed by the Schedules of Loss presented further difficulties, over and above the inherently technical nature of the cases being brought, partly because they were so unreliable and partly because they were subject to multiple and substantial changes, as documented in the Main Judgment. Part of the necessity to unravel the amounts being claimed in the Schedules of Loss was because allegations about, for example, the number of cattle lost in the mire, were an important cross-support for the Claimants' assertions that their land had suffered very severe damage. Virtually all of the difficulties in unravelling the sums claimed flowed from exaggeration of the underlying factual basis of the claim (e.g. that a certain number of cattle were lost every year between given dates) and not from the expert extrapolations or calculations of value that were superimposed upon them.

The Defendant's decision to defend the claims cannot be criticised in the light of the findings in the Main Judgment. I accept without hesitation the submission that if the litigation was to be defended it was always going to require the deployment of very substantial resources by the Defendant, in terms of lay and expert evidence and the involvement of lawyers. There can be no doubt that the Defendant's decision to defend the claims and to defend them properly and thoroughly will have imposed unwelcome extra burdens upon the Claimants, who may have been hoping for an easier passage. From the perspective of the Judge who conducted the trial the apparent scale of deployment of resources on both sides was understandable given the number and complexity of the issues to which the claims and the litigation gave rise. That is not to say that a Costs Judge on assessment would conclude that all resources deployed (on either side) were reasonable and proportionate: that is a matter for a Costs Judge on which I am not in a position to express an opinion. There were some disparities between the teams: for example, Dr Card did not have access to a support team in the same way as Dr Savigny. However, and again from the perspective of the Judge who tried the claim, neither side was under-resourced so as to give rise to an unjust inequality of arms: both sides had available and deployed appropriate levels of resource.

Because I cannot predict what a Costs Judge would conclude on assessment, I am not able to form a view about the specific differences that an order for costs on the indemnity basis instead of the standard basis would make. That is normal and it highlights the fact that the decision whether to award indemnity costs depends on criteria which are not dependent upon the scale of the difference that the basis of costs would make to the final outcome. I approach those criteria bearing in mind that removing the requirement of proportionality is always likely to be significant and that the effect of making an order for indemnity costs "may be a matter of substantial financial significance."

Although the Defendant contends for indemnity costs to be awarded in respect of the whole of its costs of the litigation, it is common ground that the Court may award indemnity costs by reference to part only of the costs of the litigation. This is because the criteria for the awarding of indemnity costs may be satisfied only in relation to a particular section of the costs or to the costs from a certain date. It is also common ground that a factor which may not be sufficient to justify an award of indemnity costs on its own may yet go into the balance with other factors when deciding whether to make an order on the indemnity basis in relation to all or part of a successful party's costs.

Both sides referred to the notes in the White Book 2016 at 44x.4.3. Those notes provide illustrations of features that have been brought into account when considering whether to make an order for indemnity costs in particular factual situations. Of more present value, the notes record (on the basis of ample authority) certain propositions and principles that are well established. First, the Court's discretion to award indemnity costs is a wide one. Second, the fact that a party has lost resoundingly does not automatically or even probably mean that the successful party should be awarded costs on an indemnity basis. Third, the Court will look for circumstances or conduct which take the case away from the norm. Fourth, it is not necessary to show deliberate misconduct: in some cases behaviour that is unreasonable to a high degree will be sufficient. Fifth, it is not only conduct on the part of the party that is relevant: conduct on the part of those he engages to act on his behalf (including lawyers and expert witnesses) may be relevant.

The high threshold that has to be passed in order to justify an order of indemnity costs was indicated by Simon Brown LJ in Kiam v MGN Ltd (No 2) CA [2007] 1 WLR 2810 at [12]: conduct falling short of misconduct deserving of moral condemnation can be so unreasonable as to justify an order for indemnity costs. However, such conduct would need to be unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight. It should be remembered that an order for indemnity costs carries at least some stigma and is of its nature penal rather than exhortatory.

A useful but not exhaustive summary of the principles and of circumstances that may influence a decision whether or not to award indemnity costs was given by Tomlinson J in Three Rivers District Council v Bank of England [2006] EWHC 816 (Comm) at [25]. As so often, both the statements of principle and the specific examples of conduct that may support the making of the order were tailored to the facts of that extraordinary litigation. Subject to that, I gratefully adopt it and set it out below:

"(1) The court should have regard to all the circumstances of the case and the discretion to award indemnity costs is extremely wide.

(2) The critical requirement before an indemnity order can be made in the successful defendant's favour is that there must be some conduct or some circumstance which takes the case out of the norm.

(3) Insofar as the conduct of the unsuccessful claimant is relied on as a ground for ordering indemnity costs, the test is not conduct attracting moral condemnation, which is an a fortiori ground, but rather unreasonableness.

(4) The court can and should have regard to the conduct of an unsuccessful claimant during the proceedings, both before and during the trial, as well as whether it was reasonable for the claimant to raise and pursue particular allegations and the manner in which the claimant pursued its case and its allegations.

(5) Where a claim is speculative, weak, opportunistic or thin, a claimant who chooses to pursue it is taking a high risk and can expect to pay indemnity costs if it fails.

(6) A fortiori, where the claim includes allegations of dishonesty, let alone allegations of conduct meriting an award to the claimant of exemplary damages, and those allegations are pursued aggressively inter alia by hostile cross examination.

(7) Where the unsuccessful allegations are the subject of extensive publicity, especially where it has been courted by the unsuccessful claimant, that is a further ground.

(8) The following circumstances take a case out of the norm and justify an order for indemnity costs, particularly when taken in combination with the fact that a defendant has discontinued only at a very late stage in proceedings:

(a) Where the claimant advances and aggressively pursues serious and wide ranging allegations of dishonesty or impropriety over an extended period of time;

(b) Where the claimant advances and aggressively pursues such allegations, despite the lack of any foundation in the documentary evidence for those allegations, and maintains the allegations, without apology, to the bitter end;

(c) Where the claimant actively seeks to court publicity for its serious allegations both before and during the trial in the international, national and local media;

(d) Where the claimant, by its conduct, turns a case into an unprecedented factual enquiry by the pursuit of an unjustified case;

(e) Where the claimant pursues a claim which is, to put it most charitably, thin and, in some respects, far-fetched;

(f) Where the claimant pursues a claim which is irreconcilable with the contemporaneous documents;

(g) Where a claimant commences and pursues large-scale and expensive litigation in circumstances calculated to exert commercial pressure on a defendant, and during the course of the trial of the action, the claimant resorts to advancing a constantly changing case in order to justify the allegations which it has made, only then to suffer a resounding defeat."

Although other authorities were cited on this application, they tend to be restatements of the principles that I have already set out above or examples of the application of those principles to particular facts. It is not necessary to cite any further authority for the purposes of this application.

Application of the principles to the facts of this litigation

The Claimants contend for a 40% reduction in award of the Defendant's costs on the basis that the Defendant lost on four issues. The figure of 40% is intended to represent, in broad terms, an order that the Defendant should not recover 20% of its own costs from the Claimants and should effectively be made responsible for 20% of the Claimants' costs by making a further reduction in the costs that the Defendant may recover from them.

The four issues on which the Claimants rely are:

i) The meaning of Article 5 of the 1954 Regulations. The Claimants submit that the Defendant put Article 5 at the forefront of its case as a complete answer to the Claimants' claims and that the Court rejected that argument at MJ[38]-[43], MJ[206]-[246] and MJ[450]-[458];

ii) The effect of Clauses 9 and 17 of the ROW Agreements, which the Defendant submitted precluded claims for compensation. The Claimants submit that the Defendant lost on this issue: see MJ[450]-[458];

iii) Whether it was open to the Claimants to proceed concurrently in tort and contract: see MJ[148]-[159]; and

iv) Whether the Defendant satisfied the requirement of guardianship for the purposes of the dangerous activities doctrine. The Defendant submitted that it did not. The Court held that it did: see MJ[476].

By the time of oral submissions the Claimants had refined their submissions so that the dangerous activities doctrine point was their primary point, with the others being of lesser weight. I will follow the order as set out above.

The Article 5 issue was a pure issue of law, on which the experts disagreed. Some costs will have been discretely attributable to it in the preparation of the experts' reports and joint statement and because each expert was cross-examined on their opinion. The respective cross-examinations were thorough but took little time in the overall scale of the trial. The positions of the respective experts are summarised at MJ[207]. In the result, while it is correct that I did not accept Professor Vallejo's opinion that Article 5, where applicable, provided a blanket defence to the Defendant, I did not accept Professor Castro's opinion either. The extent to which I accepted or rejected each expert's views is set out in the Main Judgment and will not be improved by repeating or paraphrasing it. Both experts contributed to my conclusion but neither party's submissions were entirely correct. While it is possible to characterise the Defendant's position as more extreme, the Claimants' submissions would have emasculated the effect of Article 5 as applied to the litigation almost as much as those of the Defendant would have exaggerated it. In the context of the current application, the true meaning and implications of Article 5 were properly raised before the Court by both parties and had to be ruled upon for the purposes of the four trial claims and for the wider litigation. There was nothing improper or unreasonable in the raising or conduct of the issue and the costs discretely attributable to the issue either before or during the trial were modest in the overall scale of things.

The Defendant's case was that Clauses 9 and 17 of the ROW Agreements precluded any further claims for compensation. The Claimants' case was that they should be set aside and were of no effect whatsoever: see MJ[430]. I rejected both arguments in their extreme form, holding that Clauses 9 and 17 were effective to invoke the Article 5 protection for the damage on the ROW that was within their contemplation: see MJ[458]. This conclusion was based in part on the evidence of the experts, but also on my assessment of the conduct of the Defendant as evidenced more generally: see MJ[450]-[458]. The costs discretely attributable to this issue would have been modest in the overall scale of things. There was nothing improper or unreasonable in the conduct of the issue on either side.

As appears from MJ[148], there was considerable agreement between the experts relating to whether claims could be brought concurrently in tort and contract. The area of disagreement between the experts was limited and little time was devoted to it. MJ[148]-[149] are essentially clarifying matters that did not determine the outcome of the litigation one way or another. There was nothing improper or unreasonable in the conduct of the issue on either side. The discretely attributable costs would have been slight.

The Defendant from the outset made it a central part of its case that it had no responsibility for the Ocensa pipeline and was not a guardian under the dangerous activity doctrine. Its case in opening and throughout was that "while such steps as the Defendant had taken prior to [the incorporation of Ocensa] were taken as directed by and for the benefit of the individual project partners, the steps which the Defendant took after that date were taken on behalf of Ocensa" {C4/4/478}; and that "as a matter of fact, the Defendant had no management role on the project, but rather the PCMT did" {C4/4/480}. Central to this submission was the assertion that the Defendant was not managing the contracts through the vehicle of the PCMT. This area of the Defendant's case failed: see MJ[472]-[476]. It was an issue that depended both on the interpretation of the PCMA and on the factual assertions made by the Defendant's witnesses about the nature of their role, both of which I substantially rejected. Some of their evidence I substantially accepted: in particular, their evidence contributed to my rejection of the Claimants' case on abuse of rights and dolo. But the case on the Defendant's involvement in the management of the Ocensa pipeline project generated discrete costs that reflected the importance of the issue.

By the end of the present hearing, there was a measure of agreement that the time taken by Mr Swaroop in his successful cross-examination of witnesses on this issue amounted to about two days of a 61 day trial, in other words just over 3% of the trial. A relatively small amount of time was taken in oral submissions on the issue in opening and closing. I have not been provided with any figures to enable a reliable estimate to be made either of the average daily cost of the trial or of the cost of the times when that cross-examination was taking place to either party. Furthermore, 3% of the full trial does not tell the full story. It was apparent during the trial that the parties had reached agreement about the length of time that had been allocated to each side for examination and cross-examination of witnesses. During the present application, I was told that the Claimants were allocated 6 days to cross-examine the Defendant's lay witnesses. Two points arise. The first is that the cross-examination on this issue took up about 1/3 of the entire time allocated for cross-examination of the Defendant's lay witnesses, which provides a measure of the importance attached to it. Second, the Defendant submits that, as a result of the arrangements between the parties, no incremental costs are attributable to this issue because the Claimants would have used their full allocation of time on other topics if they had not had to cross-examine on this issue. The need for the parties to concentrate on a selection of the most important aspects was acknowledged at MJ[5]. One possible reaction is to assume that Parkinson's Law would have applied because there must have been other topics that could have filled the time. I prefer to take the view that the time needed for cross-examination was determined by the issues that were contentious; and the parties showed that, with considerable skill and application, stones that needed to be turned were turned while those that did not need to be turned were usually left alone. The consequence of this view is that if this issue had not been live, the Claimants could and would have conducted the cross-examination that they needed to pursue in two days less than were in fact required. It is therefore right to consider the two days taken on this issue as incremental in time and cost.

The time expended at trial would not have been the only expenditure on the issue in the course of the litigation, but no evidence has been led or submissions made to enable even the most general assessment to be made of (a) what proportion of the Defendant's pre-trial costs would have been discretely attributable to the issue or (b) what costs the Claimants incurred in relation to the issue before trial. Taking each of these points in turn:

i) Mr Isted exhibited some historic documents about costs budgeting. Included in those documents was the statement that the Defendant incurred £1,326,743 in relation to Witness Statements (out of total costs of £14,386,718) between January 2011 and May 2013. In August 2013 the Defendant's incurred and estimated costs for witness statements from June 2013 up to and including trial and post trial work was £32,975 (out of total incurred and estimated costs of £9,021,130). I have no detail about the costs incurred before January 2011 and, while it is clear on all sides that the Defendant exceeded its estimated costs, no detailed breakdown is available from June 2013. On this material I cannot form any assessment of the overall costs incurred by the Defendant that were discretely attributable to the guardianship issue, and no submission to the contrary was made by the Claimants. There is no logical basis for an assumption that the issue generated discretely attributable costs to the tune of 3% of the Defendant's pre-trial costs, or any particular proportion of the Defendant's pre-trial costs, even applying the broadest of brushes;

ii) The Claimants made no submissions about the amount of their costs that would have been discretely attributable to this issue before trial. While it is obvious that the lawyers considered the issue before trial, there is no evidence of any or any significant expenditure on witness statements to rebut the Defendant's case and no reason to assume that any was incurred.

In summary, there is no evidence before the Court on the basis of which I can make any assessment of the amount of time or cost before trial that would have been devoted to this issue. The Claimants made no submissions that suggested a logical or rational basis for assessing what, if any, costs were discretely attributable to the issue.

I have come to the conclusion that, with one exception, it would be wrong to exercise my discretion so as to reduce the Defendant's recovery of costs on the basis of the issues on which the Claimants rely, for the following reasons.

Article 5 and Clauses 9 and 17 of the ROW Agreements: see [32]-[33] above. Neither side could claim complete victory on the meaning and effect of Article 5 or clauses 9 and 17 of the ROW Agreements. In the overall scale of things the time spent on them was modest. Limited costs were discretely attributable. The issues were essential to be resolved both for the lead cases and the wider litigation; and the conduct of both sides was equally reasonable (or otherwise) in pursuing the extreme positions on which they failed. These issues fall squarely within the general principle and observation that the winner in substantial litigation is unlikely to be wholly successful on all issues and that there is no automatic rule requiring reduction of the successful party's costs if it loses on one or more issues. In my judgment, there is nothing in relation to these issues that requires or justifies a reduction in the proportion of costs that the Defendant should recover.

Claims in tort and contract: see [34] above. For similar reasons, there is nothing in relation to these issues that requires or justifies a reduction in the proportion of costs that the Defendant should recover.

Guardianship and the dangerous activities doctrine: see [35]-[37] above. The Claimants' submissions in relation to this area of the case are more substantial than those relating to the other three issues. In the Claimants' favour are that (a) 3% of court time will have generated significant costs that are discretely attributable to the issue – in any other context than the enormous scale of costs in this litigation, the discretely attributable costs would properly be described as "very substantial" because of the very great expense of daily attendance by many highly-qualified lawyers; and (b) the Defendant lost the issue. I would also accept that the Defendant could reasonably have decided not to pursue the issue once it had gathered the evidence which is summarised in the Main Judgment. However, (c) the fact that 3% of trial time was discretely attributable to the issue does not mean that either 3% of the Defendant's overall trial costs or 3% of its litigation costs are discretely attributable to the issue; and (d) there is no evidence to enable the Court to make an assessment of the Claimants' costs of the issue, even on the broadest brush of assessments, save by identifying the costs attributable to two days' attendance at trial by those who were present for Mr Swaroop's cross-examination. My assumption, based on observation of the way in which the parties worked, is that those who were not present were gainfully employed elsewhere on other parts of the case.

It follows that I am not in a position to make even a broad brush assessment of what reduction should be made in terms of a percentage proportion or as a specific sum of money either in respect of any notional non-recovery of the Defendant's incurred costs or in respect of any further deduction to represent the Claimants' incurred costs. Furthermore, I would not extrapolate from the trial period to the pre-trial period for two reasons. First, it was both necessary and reasonable for the Defendant to incur expenditure in investigating and forming a view on the issue before trial. The issue was complicated and important and, given the scale and overall importance of the litigation and the pressures (financial and reputational) it imposed upon the Defendant, I consider it would be unjust to deprive the Defendant of the costs of investigating it. Second, there is no foundation for any assessment of the amount of discretely attributable resources that were devoted to the issue in the pre-trial period.

An inability specifically to quantify or express costs as a percentage of the whole does not prevent a separate order being made: see the approach of Clarke J in Travellers Casualty at [18] and [28]. Standing back and looking at the overall justice of the case, it is important to bear in mind the overall demands made on both sides by this litigation. Those demands have a dual relevance. For the Claimants the additional demands imposed by the Defendant's persistence with the issue would have been material; while, on the Defendant's side, the bunker mentality that was sometimes apparent on both sides may explain a reluctance to abandon an important aspect of their case, even if a dispassionate assessment should have led to the conclusion that it was going to fail.

Drawing all of these strands together, and applying the principles that I have summarised above, I do not think it would be just for the Claimants to have to bear the trial costs that were discretely attributable to the dangerous activities doctrine, even allowing for the fact that the trial had been preceded by the Defendant's Calderbank offer. The making of that offer is a factor to be taken into account, but it does not and did not give the Defendant carte blanche to run every issue without risk of a separate order being made.

I have considered whether to make an order in a form similar to that adopted by Clarke J in Travellers Casualty; but at this stage in the proceedings it seems preferable to adopt a simplified approach that meets the broad justice of the case, not least because of the absence of precise information that would permit a more specifically appropriate order. I therefore direct that the day of Mr Allison's evidence shall for the purposes of this order be taken as typical of the costs incurred over the two days of trial taken up with this issue and shall assume that the Claimants' costs of those attending the hearing during that evidence roughly matched those of the Defendant. On that basis I direct that the Defendant's recovery of its costs shall be reduced by four times the costs attributable to the attendance of those counsel and solicitors who attended trial (i.e. were present at the hearing) for the Defendant on the date and for the duration of Mr Allison's evidence, to be assessed if not agreed. In case it is not obvious, the factor of four reflects the fact that the Claimants and the Defendant each spent about two days of trial time on the issue.

I turn now to the question of indemnity costs.

The Main Judgment made findings that led to serious criticisms of the Claimants' conduct of the litigation. Perhaps inevitably, Mr Isted gathered together what he described as "key excerpts" from the Main Judgment and re-presented them as 36 pages of a Schedule to his 10^th Witness Statement. They do not make happy reading for the Claimants; but for the purposes of this Judgment I have been careful to remind myself of their context in a very long Main Judgment and to assess not just the Defendant's selection but the Main Judgment as a whole and what it says about the conduct of the litigation by the Claimants over the course of years. Both parties accept that it would be wrong simply to cherry-pick, and I do not do so; but in presenting its submissions the Defendant properly lists and addresses topics in support of its submission that there should be an order for indemnity costs.

The topics so identified by the Defendant are:

i) The Claimants' Schedules of Loss, relying in particular on MJ[407]-[412];

ii) The failure to consider the impact of the ODC pipeline, relying in particular on MJ[922];

iii) The Claimants' experts' interdisciplinary approach, relying in particular on MJ[498]-[502] and MJ[735];

iv) Dr Card's fourth and fifth reports, relying in particular on MJ[504(iv)-(viii)];

v) The Claimants' maintenance of the case in dolo, relying on the serious nature of the allegations that were made and referring in particular to MJ[58] and [465];

vi) The water quality evidence of Dr Tobon, to which the Main Judgment refers at [636]-[649], [665]-[666], and [668] in particular;

vii) The Willis Report, relying upon MJ[886]-[887];

viii) The Defendant's Calderbank offer by which it offered to drop hands on 11 April 2014.

The Schedules of Loss: in the Main Judgment I found on the basis of the materials available to me at the time that Leigh Day did not go through the Original Schedules of Loss with any Claimant before serving them on the Defendant or before incorporating them in the pleaded case: see MJ[409]; and that the Original Schedules were constructed in a way that meant that no weight could be placed upon them: see MJ[410]. I was also not satisfied that any Trial Claimant either read or had read to them so that they understood the Revised Schedules of Loss: see MJ[412]. The inadequacies that I identified continued right through to the last iterations of the Schedules, which were delivered during the trial: see MJ[412]. The Main Judgment also recorded the Claimants' successive attempts to recast and revalue their claims by introducing claims for the cost of reinstating their land and, later, to claim Wrotham Park damages: see MJ[413]-[414]. Both attempts were rejected by the Court, but were potentially of extreme importance both for their effect on the quantum of the claims and the evidence that would be required to meet them.

Ms Srinivasan's 25^th Statement states that:

i) "The [Schedules of Loss] served in June 2012 were discussed in detail with the claimants and (where appropriate) with the Experts, and we were satisfied that the [Schedules] were consistent with the instructions we had received"; and

ii) "The statements in the claimants' witness statements, that they had had the Schedule of Loss read to them, were true, without exception."

This evidence does not refer to the Original Schedules of Loss and therefore cannot affect my findings in relation to them. In the light of my finding at MJ[412], while I can accept the evidence that the Schedules of Loss were read to the Claimants, I cannot and do not accept that they were read to them so that they understood them.

The potential impact of the proposed amendments is shown on tables exhibited by Mr Isted at pages 67-68 of his exhibit JP11. He provides evidence of the effect of the various iterations of the Schedules of Loss in his 10^th Statement. I have already mentioned the significance of the various Schedules of Loss as a cross-support for the Claimants' case on the occurrence of damage to their land. As it was, the Schedules at every stage failed to achieve their purpose of enabling the Defendant to gain an understanding of the potential value of the claims being made because they were so unreliable and subject to such exaggeration: see MJ[406]. And I accept Mr Isted's evidence that the difficulties presented by the various iterations of the Schedules necessitated the allocation of greater resources than should have been necessary, often at critical junctures in the litigation process when the parties should have been concentrating on other areas of preparation: see Mr Isted's 10^th statement at [32].

The problems with the Schedules of Loss identified in the Main Judgment, on which the Defendant now relies, went well beyond the norm even when making all allowance for the difficult circumstances in which the Claimants' legal advisers had to obtain evidence and put together the Claimants' cases. My findings in the Main Judgment indicate a serial failure to obtain and present information and documents that could be relied upon for their proper purpose in the context of contested litigation. The seriousness of the failure is starkly highlighted when one remembers that each iteration was put forward to the Defendant with the intention that it should form the basis for the Defendant to settle the case.

The impact of the ODC pipeline: the Claimant takes the point that the impact of the ODC pipeline was not pleaded. That is true, but it does not meet the criticism, which is that the Claimants' experts should have considered it in any event. It is also a purely technical pleading point because it was entirely clear from Dr Savigny's report, which was exchanged in June/July 2013, that the ODC pipeline was an evidential and potentially causative feature of fundamental significance; and the trial proceeded on that basis. Nor is the criticism about the failure to recognise the importance of the ODC pipeline limited to the Claimants' experts: see MJ[922]. It is relevant to remember that the Claimants provided notes to the Court on the vulnerability of their witnesses. Time and again those notes included observations on their lack of sophistication, difficulty in providing chronological accounts and potential deference to those who they perceived to be more sophisticated. Those characteristics placed a heavy burden on those who were trying to establish the truth in order to present a well-founded claim. The burden was one which competent professionals should have recognised; and it arose because of the obvious risks of natural suggestibility, heightened by the risk of deference to those acting for them in litigation where they (the Claimants) were at no personal risk if the litigation were to prove to be ill-founded. I am not able to determine with any more precision than set out in the Main Judgment what went wrong with the construction and presentation of the Claimants' cases but I have found that the Claimants' inherent difficulties with chronological memory have on occasions been reinforced by the process of litigation: see MJ[249]; and the scale and extent to which the factual evidence was wrong, particularly in relation to the mantra that the ODC pipeline did no damage, was well beyond the norm.

The Claimants' interdisciplinary approach: the Claimants' experts' reports as a body were superficially impressive, at least to my eye. They were exchanged in and after mid-2013. A major feature of the body of evidence was the way in which it appeared to be mutually supportive with cross-references to the findings of other experts. In the event, that proved to be a misleading impression, for the reasons identified at MJ[498]-[502]. As that section of the Main Judgment makes clear, the examples there cited were only a fraction of the occasions that pervaded the Claimants' experts' reports. The culture of misplaced inter-dependence continued right through to trial, the most obvious later example being Dr Obando's quite unjustified reliance upon Dr Card's fourth report: see MJ[735].

The misleading cross-references and misleading implications of inter-dependence to which the Main Judgment refers at [498]-[502] should not have happened. As the Main Judgment indicates, responsibility must be shared between the experts, who should not have let it happen, and the lawyers who, on the evidence at trial, promoted it. In my judgment it went way beyond the norm of proper expert evidence and exerted an influence on the litigation that was corrosive of trust and highly detrimental in an area that was of central importance for the litigation.

In response, the Claimants point to the finding that "there was a pervasive though variable tendency of the experts on both sides to concentrate on the features that they thought of particular significance to the relative exclusion of others": see MJ[507]. In every type of litigation, and even with the most independent-minded of experts, that is a common observation which does not imply criticism: it reflects the fact that different training and expertise is likely to prime an expert to see things through the particular prism of his expertise. That is a state of affairs which is well recognised and can readily be accommodated when a Court (or an opposing party) is assessing the expert's evidence. It is not what went wrong with the Claimants' experts as identified in the Main Judgment and does not in any way blunt the criticisms that are made in it.

Dr Card's Fourth and Fifth Reports: see MJ[504]. The inclusion of the new calculations in Dr Card's fourth report constituted a deliberate and serious breach of the Court's order limiting the scope of additional reports. The seriousness of the breach was compounded by the timing of the fourth report, coming as it did so shortly before trial. The additional burdens upon the Defendant when confronted by what amounted to a new expert case five weeks before trial were substantial and unwarranted. The breach was further compounded by failing to provide the workings that lay behind the new calculations until 1 October 2014, the day before the trial started. Having realised that his calculations were wrong, Dr Card then tried to improve his position by providing his fifth report on Day 22, four days before he was called to give evidence. In doing so he gave an explanation for the new calculations which was seriously misleading. Finally, Leigh Day's explanation in their letter serving the report was not a fair summary of what had happened and was itself seriously misleading.

My assessment of Dr Card's conduct and its implications are at MJ[505]-[506]. Because it was not put to him that he set out to mislead the Court, I did not make a finding that he did; and I do not do so now. But, with that important qualification, the history surrounding the fourth and fifth reports, which the Claimants acknowledge to be "most regrettable", justifies serious and unequivocal condemnation: it is a history that is way beyond the norm even allowing for the fact that Dr Card was acting under remorseless pressure. The remorseless pressures of this litigation were not confined to those imposed on the Claimants in and about the preparation of Dr Card's fourth and fifth reports; and they do not begin to justify what happened.

The Claimants' allegations of dolo: the summary in Three Rivers identifies the making of allegations of dishonesty and their aggressive pursuit as features that may be brought into account when considering whether to make an order for indemnity costs. They are particular instances of conduct which may be unreasonable and (which is different) may take the case out of the norm. The allegations of dolo that were made did not include frank allegations of fraud as typically found in English law and litigation, but they did include allegations that the Defendant was guilty of cunning and deceitful conduct and a wilful assault against the rights and interests of the Claimants: see MJ[58]. They failed: see MJ[465]. The Defendant submits that they should never have been brought in the first place and should not have been maintained at trial.

I would not make separate criticism of the Claimants for initiating the case in dolo. If the more extreme evidence of the Defendant's conduct of the works had been accepted at face value, it could have led to a finding that the Defendant paid no attention to the rights and interests of Claimants when carrying out the works. That evidence was very largely rejected in the Main Judgment, which is what led to the failure of the allegations of dolo. The Main Judgment identified that the Claimants' case on contractual dolo was extremely vague. That, of itself, would not in my judgment either justify or support a finding that there should an order for indemnity costs. Nor can it be said that the case was pursued aggressively. On the contrary, it was hardly put to the Defendant's witnesses and largely remained on the stocks until relatively succinct closing submissions were made on the issue. In summary, although the allegations of dolo in this litigation were analogous to allegations of fraud as typically seen in the English courts, they did not exercise the same malign influence on the litigation as fraud allegations frequently have in other cases; and neither the raising nor the pursuit of the allegations take the case out of the norm so as to support an order for indemnity costs.

Dr Tobon's evidence about water quality: the Defendant's submissions should be seen in the context of MJ[619]-[668]. The Defendant highlights the following matters under this heading:

i) The Claimants pleaded detailed allegations in relation to water quality evidence on the basis of Dr Tobon's evidence when they knew or ought to have known that he had no expertise in the area;

ii) Dr Tobon's first report expressed opinions about water quality which were outside his expertise as the legal team knew or ought to have known;

iii) The Claimants' legal team did not draw Dr Tobon's lack of expertise to the Court's attention;

iv) Dr Tobon deliberately omitted words when citing from an academic text in the knowledge that they were unhelpful to the Claimants' case;

v) The Claimants only communicated their decision not to call Dr Penuela after the conclusion of Dr Tobon's evidence.

It is convenient to work backwards, starting with the decision not to call Dr Penuela. I accept that it was a decision made late in the day and was a decision taken in the light of what had happened to Dr Tobon's evidence in cross-examination. I also accept both (a) that it was a reasonable decision to take then and (b) that it was reasonable not to have taken it before then. Dr Penuela's evidence was dependent upon that of Dr Tobon to a substantial extent, as was apparent from a reading of his report and, from the Court's perspective, it came as no surprise that the Claimants announced their intention not to call Dr Penuela after the cross-examination of Dr Tobon. The real problem lay with the evidence of Dr Tobon, which suffered from the pervasive defects identified in the Main Judgment. The wrongful citation from the academic text was, so far as I am aware, entirely attributable to Dr Tobon: see MJ[656]-[659]. It should not have happened and is not normal for independent experts, though not unknown in the experience of the Court. It would not on its own justify or make a substantial contribution in support of making an overarching order for indemnity costs. The failure to disclose his lack of expertise is more complex because he did refer to it on two separate occasions, both of which were known to the Defendant: see MJ[624]-[626]. On reviewing my findings and some of the references identified at MJ[624]-[625] I place the failure to make clear his lack of expertise in the category of things that may go wrong even in well-ordered litigation of this size, even though they should not. It does not, in my judgment, lend substantial weight to the Defendant's application for indemnity costs, even though I accept that the Defendant incurred substantial costs in preparing to meet allegations of water quality that, in the end, lacked expert support.

The Willis Report: the Claimants persuaded the Court to admit the Willis report for the reasons given in the separate judgment at the time. It can be seen to be a borderline decision by the Court which did not in the end add usefully to the evidence at trial; and it was a decision that the Court took in the face of submissions that Mr Willis lacked relevant expertise or the ability to provide relevant evidence. It seems to me to be wrong in principle to treat the Claimants' conduct in serving a report by Mr Willis and calling him to give evidence as conduct that should tend towards an order for indemnity costs when that conduct had been sanctioned by the Court after a contested hearing. The fact that the Defendant's submissions about the value of calling Mr Willis were proved to be right does not affect the reasonableness of the Claimants' conduct in seeking the order of the Court and then complying with it.

The Defendant's Calderbank Offer: it is common ground that the Defendant's Calderbank offer could not have been expressed as a valid offer under CPR Part 36. A Calderbank offer is not to be treated as analogous to a Part 36 Offer and the costs regime of Part 36 cannot properly be invoked, whether directly or by analogy when exercising jurisdiction under CPR 44.2: see F&C Alternative Investments Ltd v Barthelemy (No 3) CA [2013] 1 WLR 548, [2012] EWCA Civ 843 at [54]-[56]. That said, it is a matter to which the Court will have regard in deciding what order (if any) to make about costs: see CPR 44.2(4)(c). I accept Mr Layton QC's submission, based upon the formulation of Mr Stephen Jourdan QC sitting as a Deputy High Court Judge in Richmond Pharmacology Ltd v Chester Overseas Ltd [2014] EWHC 3418 (Ch) at [4(i)], that the rejection of reasonable attempts to settle will not normally, by itself, justify an award of indemnity costs; but that if coupled with other factors it may do so.

On 11 April 2014 the Defendant made a "drop hands" offer to all Claimants by a Calderbank offer. The offer was made after the Court's order for limited responsive experts' reports and before service of Dr Card's fourth report. It was made during a period when both parties should have been able to assess the overall strengths and weaknesses of their cases in the light of the lay and expert evidence that had been served; and it was made in the early stages of the period when all efforts needed to be directed to bringing the case to trial in accordance with the orders of the Court.

In reply, the Claimants submit that their failure to settle on the terms of the letter was not unreasonable. They submit further that if anyone has acted unreasonably it is the Defendant in refusing to engage in early settlement discussions. It is implicit in the Claimants' non-acceptance of the April 2014 Calderbank offer and their submission that the non-acceptance was not unreasonable that the Claimants would not have accepted a drop-hands offer or similar terms if settlement discussions had in fact taken place. There is no evidence to the contrary; and there is evidence provided by the Claimants which independently supports the implication.

In a letter marked "Without Prejudice Save as to Costs" on 14 November 2013, Leigh Day wrote to Freshfields recording that Leigh Day had on a number of occasions offered to meet to discuss settlement of the claims – invitations which it said had been either ignored or rejected. Under the heading "Legal costs in this litigation and Claimants' attempts to settle" Leigh Day wrote:

"7. The Defendant has chosen to defend the case and has been the main driver for the high level of costs incurred. This decision is notwithstanding it being clear from the outset as to the Claimants' valuation of the case. …

8. Specifically, the Claimants invited the Defendant to consider early settlement of the claims in our 2^nd letter of 17 March 2010. This letter was written after your client was made aware of the level of cover under the Claimants' ATE insurance … and after the parties had exchanged their costs budget for a period of 6 months (January-July 2010), where the Claimants estimated budget was £889,610 and the Defendant's was £1,668,900. Our letter of 17 March 2010 proposing settlement talks was made with the escalation of costs much in mind.

9. Our letter of 17 March 2010 stated that taking on board the Defendant's legal costs set out in its budget served in February 2010, it appeared that the Defendant's costs up to and including trial were likely to be around £8-10 million. … We considered that whilst the Claimants' base costs were likely to be considerably less than the Defendant's legal costs, once the additional liabilities under the Claimants' conditional fee agreements and the ATE insurance were added, the Claimants' total bill of costs was likely to significantly exceed £8-10 million. Based on the cost estimate served at the time, we estimated that if your client was to lose the case at trial, it was likely to face an overall costs bill for both sides of £20-25 million. This figure has now been exceeded. Notably, we stated clearly at that date, ie some three and a half years ago: "These figures have to be seen in the context of the total value of the claims within this group action, which is likely to be but a fraction of this figure".

10. Your response of 6 May 2010 rejected our proposal for the parties to meet and indicated that high litigation costs were anticipated in rebutting the claims ….

11. Your letter of 6 May 2010 stated it was open to the Claimants to put forward an offer for consideration. Again, bearing in mind the potential for escalation of costs in the coming months, on 7 June 2010 we put forward a global figure of £10 million to settle the claim plus the Claimants' reasonable costs, subject to us obtaining instructions to accept any offer of settlement for that figure. No response to that offer has ever been made by your client.

12. It is surprising that your clients have seemingly only awoken now as to the mismatch between the level of the costs and the likely damages in the case. …"

It is apparent that the parties did in fact meet to discuss settlement, because Leigh Day wrote a further letter marked "Without Prejudice Save as to Costs" on 29 November 2013 in which they wrote:

"We refer to the ADR meeting which took place yesterday.

…

We had hoped that an agreement to meet yesterday would mark a change in attitude by your client. However, your client's stance that it would offer no more than a "drop-hands" deal plainly demonstrates that it never had any intention of entering the mediation process in good faith. It would have been quite apparent to you and your client that such an offer would never have been acceptable to the Claimants and there was no need at all to facilitate an ADR process simply to communicate such a position."

I reject the submission that the Defendant acted unreasonably in failing to engage in early settlement discussions. On the information provided by the Claimants for the purposes of this hearing it is apparent that from March 2010 (at the latest) the Claimants attempted to use the leverage of the incurred and anticipated costs of the litigation to force the Defendant to settle. This was done by overtly comparing the potential burden of costs with the relatively modest sums being claimed, repeated references to the escalation of costs being a reason for a negotiated settlement, and making clear that the Defendant had no prospect of recovering more than a small proportion of its costs from the Claimants even if successful. It is a notable feature of the letter of 14 November 2013 that it concentrates almost exclusively upon the impact of costs and the extent to which the sums being claimed were but a fraction of the probable costs, to the exclusion of any reasoned argument based on the merits of the claim. In the light of the Main Judgment, the Defendant's refusal to make an offer of £10 million (or any offer involving the payment of damages and/or costs) for Leigh Day to consider with their clients was justified. Equally, the offer of "drop hands" made on 28 November 2013 cannot properly be characterised as demonstrating a lack of good faith in entering into the mediation process. It was a reasonable offer in the light of the evidence as it then stood and in the light of the eventual outcome of the litigation. Conversely, it is Leigh Day's suggestion that the Defendant should offer to pay the Claimants millions of pounds in damages and their costs that carries an air of unreality in the light of the evidence that was available at the time and the further evidence discussed in the Main Judgment.

Other matters were raised before the hearing but were not pressed as additional reasons supporting an order for indemnity costs. Rightly so. At the hearing, the Defendant submitted that each of the factors (a)-(g) highlighted by Tomlinson J in the extract from his judgment in Three Rivers set out above at [27] above is present in this case. Most have been considered already, but some call for further comment:

i) Reference was made to courting publicity. It is not unusual in the context of major litigation for there to be press interest or for parties to do their best to get their point of view into print. Allowing for the scale of this litigation I am not satisfied that any courting of publicity took the case out of the norm;

ii) Although the trial involved a very substantial factual enquiry, which was prolonged by the need to test expert and lay evidence that proved to be ill-founded, I would not characterise what happened as being "where the Claimant, by its conduct, turns a case into an unprecedented factual enquiry by the pursuit of an unjustified case" in the sense meant by Tomlinson J;

iii) I accept that certain aspects of the case did not merely fail but were thin and far-fetched. In this category I include the case on dolo as it was presented at trial, the case on water quality because of the weaknesses in Dr Tobon's evidence, the case on pipeline project management, and the case pursued on the basis of Dr Card's fourth and fifth reports about which I have said enough in the Main Judgment and above;

iv) It was a feature of the case that there were few documents produced that were relevant to the Claimants' case. That is not a criticism of the Claimants as it is a reflection of their way of life which tends not to rely on paper records either in the case of campesinos or in the case of the more educated Snr Mesa. The additional feature that was surprising was the frequency with which contemporaneous documents that were produced did not support the claim that was being advanced. I have identified the examples in the Main Judgment and do not repeat them here. I see the occurrences as being material that should have caused those advising the Claimants to question the apparent certainty of the factual cases that were being run. On the material available to the Court at trial and now, it is not apparent that such questioning took place;

v) I have outlined above the way in which the probable burden of irrecoverable costs was used as a lever to exert commercial pressure on the Defendant to settle.

I pause to remind myself not to cherry-pick but to see the litigation as a whole and to have regard to all the circumstances of the case. To that end, I have reviewed the Main Judgment as a whole rather than relying upon memory or past impressions. I also remind myself of the high threshold that has to be passed: the mere fact that there are facts that take the case out of the norm does not automatically or even probably lead to an order for indemnity costs. In that context, and for the reasons I have given either in the Main Judgment or above, there are four facets of the material that I have outlined in this judgment which lend substance, individually and cumulatively, to a submission that costs should be awarded on an indemnity basis. The first is the various iterations of the Schedules of Loss which, for the reasons outlined in the Main Judgment and above, were beyond the norm both in the inadequacy of their preparation and construction and in their consequences for the progression of the case. The second is the service in mid-2013 of a body of expert evidence that was seriously defective as a result of the misleading presentation of an interdisciplinary approach. That defect was compounded by the failure of the experts to give proper attention to the ODC pipeline, either then or when its potential significance was apparent from the materials disclosed by the Defendant. The third is the Calderbank offer, the context for which is provided by the letters from Leigh Day that I have set out above and by its timing in the context of the litigation as a whole. The fourth is the history surrounding Dr Card's fourth and fifth reports.

Each of these facets carries weight on its own; but they are to my mind more important because they are illustrations of a piece of litigation that, having set off on the wrong foot, went out of control as trial approached. This picture is given more colour by the identification in the Main Judgment of the deleterious effect of the mantra that the ODC pipeline caused no damage; and by the instances where clearly adverse information (whether documentary or provided in interview with Claimants) was either ignored or not properly taken into account. I concluded in the Main Judgment that, by the time of his fourth report, Dr Card had "lost those qualities of objectivity and independence of mind which are essential for an expert in contested litigation and that he had become caught up in the siege-mentality which was painfully obvious on a number of occasions (on both sides) during the trial": see MJ[505]. I found that Dr Tobon "lacked the objectivity and scientific rigour that was required both by the task and the standards he would set himself and by the Court", that his work showed (unknowing) bias, and that he was prepared to include information in support of his conclusions without verifying it: see MJ[668]. As the Main Judgment makes clear, responsibility for the presentation of Dr Card's fourth and fifth reports does not rest with Dr Card alone. That indicates that the siege mentality and lack of independence of mind had penetrated the legal team as well, though I do not know precisely where responsibility lies. The fact (as I find it to be) that the siege mentality and lack of independence of mind had spread in that way demonstrates not merely that the case is beyond the norm, but that something has gone very seriously wrong.

Drawing these strands together, I reject the submission that the Claimants should be directed to pay costs on an indemnity basis throughout. But I come to the conclusion that the failings outlined here and in the Main Judgment progressively affected the proper course of the litigation so as to take the case beyond the norm to an extent that both justifies and requires the signal mark of an order of indemnity costs. For me the tipping point comes with the service of Dr Card's fourth report. Up until then it is possible to make excuses that are sufficient to avoid an order for indemnity costs; but the service of the fourth report, presenting what was essentially a new expert case in deliberate disregard of the Court's order was a very serious error of judgment which had extensive consequences in placing unfair additional burdens upon the Defendant and the trial process. With two qualifications, therefore, I direct that the Claimants shall pay the Defendant's costs on the indemnity basis from 29 August 2014. The first qualification is that stated at [45] above. The second is that the costs of and occasioned by the hearing of the present applications on 28 November 2016 shall be paid on the standard basis.

In making this order, I have not forgotten Mr Layton QC's submission that an order for indemnity costs may have a chilling effect on access to justice in cases such as this. It should not do so. If, however, it has a chilling effect on the sort of failures of which this and the Main Judgment are critical, it may possibly serve a useful purpose beyond the scope of this litigation.

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	England and Wales High Court (Technology and Construction Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Arroyo & Ors v Equion Energia Ltd [2016] EWHC 3348 (TCC) (21 December 2016) URL: http://www.bailii.org/ew/cases/EWHC/TCC/2016/3348.html Cite as: [2016] EWHC 3348 (TCC), [2017] 1 Costs LO 31