Introduction

In the latest instalment of Lejonvarn v Burgess (our previous publications on this case can be found here [1], here [2] and here [3]) the Court of Appeal ordered Mrs Lejonvarn’s costs to be assessed on the indemnity basis, rather than the standard basis, because the Court found that the Burgesses had pursued weak and speculative claims and had unreasonably refused to accept a Part 36 offer which they had failed to beat at trial.

To briefly recap the history of this long-running dispute, Mrs Lejonvarn, an architect and former neighbour and friend of Mr and Mrs Burgess, assisted them in a garden-landscaping project at their North London house.  Mrs Lejonvarn provided her services gratuitously.  However, the cost of the project overran considerably and the parties fell out.  The Burgesses sued Mrs Lejonvarn for damages of £300,000, alleging various breaches of contract and breaches of duty of care at common law.  

At a preliminary issue trial in January 2016, the judge found that while no contract had existed between the parties, Mrs Lejonvarn had owed the Burgesses a duty of care in tort, notwithstanding that she had provided her services for free.  Mrs Lejonvarn appealed this decision and in April 2017 the Court of Appeal upheld the High Court’s decision that a duty of care existed but only in relation to the services actually provided by Mrs Lejonvarn (and not anything that she had omitted to provide).  

This caused a problem for the Burgesses because some of their claims were based on what they alleged Mrs Lejonvarn had not done.  However, they heavily amended their claims to argue, in some cases, the very opposite of what they had previously argued, and continued to pursue Mrs Lejonvarn.  The Burgesses’ claims ultimately failed and the judge ordered them to pay Mrs Lejonvarn’s costs on the standard basis.  Mrs Lejonvarn appealed the judge’s decision on costs, instead seeking her costs on the indemnity basis. 

The appeal

The basis of Mrs Lejonvarn’s appeal was that the judge ought to have ordered that her costs be assessed on the indemnity basis because the Burgesses had pursued weak and speculative claims against her and had unreasonably refused to accept her Part 36 offer that the Burgesses had failed to beat at trial.

This appeal was of considerable financial consequence to Mrs Lejonvarn because she had incurred almost £750,000 in legal costs during the litigation.  The test the Courts apply in assessing costs on the indemnity basis is far more generous to a receiving party than the test for assessing costs on the standard basis which, in practice, would mean Mrs Lejonvarn receiving a substantial additional percentage of her costs from the Burgesses.

" Coulson LJ confirmed that the correct test to apply was whether the Burgesses’ claims were speculative, weak, opportunistic or thin such that their decision to pursue them was “out of the norm” conduct which would justify an award of indemnity costs. "

Coulson LJ confirmed that the correct test to apply was whether the Burgesses’ claims were speculative, weak, opportunistic or thin such that their decision to pursue them was “out of the norm” conduct which would justify an award of indemnity costs.  

The Burgesses’ claims were heavily criticised by the trial judge.  He described their approach as “scattergun” and “unhelpful” and their evidence as “argumentative and often inconsistent with contemporary documentation” and “very difficult to understand”.  The judge described the Burgesses’ claim that Mrs Lejonvarn’s design was negligent as lacking “credibility and conviction”, particularly as it had been fundamentally changed following the Court of Appeal judgment prior to which their case on design was based on a failure to produce drawings.  The judge noted that some of the claims were “on any view, hopeless” and should not have been pleaded, and said that in relation to their global claim “to claim that the appellant is liable for this global claim offends common sense and I find it wholly unsupported by the evidence”.  

Coulson LJ agreed with the comments of the trial judge and was particularly unimpressed with the Burgesses’ decision to continue with their claims after the first Court of Appeal decision.  Indeed, Coulson LJ agreed with the trial judge that an “irrational desire for punishment unlinked to the merits of the claims” was what had motivated the Burgesses and he concluded that this was “out of the norm” conduct that justified an award of indemnity costs.

Coulson LJ then went on to consider whether the Burgesses’ refusal to accept Mrs Lejonvarn’s early Part 36 offer might justify an award of indemnity costs. Unlike the position of a claimant, Part 36 of the CPR does not provide for an automatic indemnity costs award in the event that a defendant betters their own Part 36 offer at trial. 

However, the Court has separate and more general discretion under CPR 44 to determine what costs are payable and on what basis.  The fact that a defendant has beaten its Part 36 offer should be taken into account when this discretion is exercised.  In view of the speculative and weak nature of the claims, particularly after the first Court of Appeal decision, Coulson LJ concluded that the Burgesses’ failure to accept the Part 36 offer was “out of the norm” conduct that separately justified an award of indemnity costs. 

Comment 

Costs are a very important consideration in any dispute as they can be the difference between an overall “net win” and a “net loss”, particularly in lower value claims.  The prospect of incurring significant costs, which will rarely be recovered in full even in a winning scenario, and the risk of an order to pay a proportion of an opponent’s costs in a losing scenario, should always inform settlement decisions. 

Several other clear messages arise out of this judgment.  First, claimants pursuing weak and speculative claims to trial must beware that they risk being faced with an indemnity costs award.  Secondly, claimants must carefully evaluate all Part 36 offers because while there is no provision in Part 36 for a defendant to receive indemnity costs (unlike for claimants), the court may still make an award for indemnity costs.  Finally, this case serves as yet a further reminder for professionals of the dangers of providing gratuitous services.