Part 35 Civil Procedure Rules and Indemnity Costs


What is done about the costs of a party who have been successful at the end of a legal case?  The Court has a very wide discretion.  However there is a general rule; this is that “costs follow the event”. In other words, the winning party may legitimately expect to receive to be awarded a costs contribution.  It is generally contribution only.  This is a policy approach whose main aim is to prohibit or deter wealthy litigants’ ability to deploy heavy costs claims to derail a party with a genuine or deserving claim.

There are however rare occasions when a Court will be persuaded to do more than order a costs contribution.  A Judge may decide to award Indemnity Costs.  If this occurs, the party with the benefit of the Order will look to receive most of its outlay from their unsuccessful opponent.

The area is complex.  There are no hard and fast rules, which can necessarily be drawn.  Much depends upon the individual facts.  However, on examining the general principles apply when a question of Indemnity Costs arises.

“Beattie Passive Norse Limited (BT) and Anor v. Canham Consulting Limited (CCL) [2021] EWHC/1414”

BPN was a case in point.

In summary BT (& Co. – Claimant NPS) sued CCL for damages.  Their claim totalled approximately £3.7m.

3.         BT: the brief facts.

BT had constructed two blocks.  They employed a specialist sub-contractor Foxdown.  The work was done so poorly that ultimately both blocks had to be demolished. 

BT alleged that this had come about as a result of Canham’s negligent design.  In point of fact, it emerged that Canham’s design had never been used.  Rather Canham had worked on drawings issued by Foxdown, which related to an earlier and superseded design.  Those drawings had been stamped “issue for construction”.


The claims brought by NPS were dismissed.  The Court awarded BT £2,000 (in relation to its claim of £3.7m).  However, this was limited a negligent omission by Canham of Dowel Connections (from the designed drawings actually used by Foxdown).

4.         Canham and Part 36 Offers:

Before trial Canham made two offers under what is known as the “Part 36” regime.  This is a rigid code for making proposals to settle with defined costs consequences dependent upon whether for instance Part 36 Offer is rejected not effectively beaten at trial.

Canham’s first offer was to pay both Claimants £50,000 plus costs.  This was open for acceptance until 11 January 2021.  (“the First Offer”).

Canham made a second offer, on the same terms as the first.  It increased its sum to £110,000. (“the Second Offer”).

Award of Damages 2000

As the Court ordered damages was only £2,000, Canham were content to rely upon the consequences of the First Offer.

Under Part 36 and in the ordinary way of things Canham would be paid its costs from the last date available for acceptance (11 January 2021) with the Claimants being entitled to their costs to that date.  That would have been the conventional outcome.

However, this was not a conventional case and Canham did not seek a conventional Order.  Instead, Canham sought attainment of all of its costs and on the indemnity basis.  Canham gave their reasons. 

5.         Canham’s Reasons

            Canham put forward the following reasons: –

  • The foundations constructed by Foxdown were not of its design and at this primary defence had been ignored by the Claimants during the currency of the litigation and trial.
  • In comparison with the legal costs generated by the dispute the award of £2,000 was derisory and well below the Small Claims limit.
  • The criticisms of the Claimants’ expert as might justify an award of Indemnity costs.
  • The claims had been brought by BT without the authority of its Board of Directors.
  • Both Claimants had refused opportunities to narrow the debate and wholly ignored a Notice (                   facts) served by Canham which – if answered – would have served to highlight the facts that Canham had not been responsible for the design of the defective foundations.

6.         Caveat:

            This paper does not seek to explore in detail the arguments and Court’s reasoning.

With reference to earlier reported cases, the Court stated that in order to justify an award of Indemnity costs: –

“It is crystal clear that there must be something that takes the case out of the norm”.  This is the critical requirement.

The Court had paid due regard to earlier reported authorities on this question.  One of these was “Three Rivers [2006] EWHC816(Comm). In this case, the Court pointed out that if a Claimant chose to pursue speculative weak or opportunistic claims they assume the high risk and might expect to pay indemnity costs in the event of failure.

The following were cited of examples of circumstances, which would bring a case out of the norm.  This is where a Claimant: –

  • Advances and aggressively pursues serious and wide-ranging allegations of dishonesty or impropriety over an extended period of time.
  • Pursues the conduct in (a) despite lack of any evidential foundation and maintains its allegations without apology to the bitter end.
  • Actively seeks to court publicity for such allegations both prior to and during trial.
  • Turns a case into an unprecedented factual enquiry by the pursuit of unjustified claims.
  • Pursues a claim, which is charitably thin and in some respects far-fetched.
  • Pursues a claim irreconcilable with contemporaneous documents.
  • Commences and pursues large scale and expensive litigation calculated to exert commercial pressure on an opponent (and during the course of trial advances a constantly changing case to justify the allegations earlier made).  Only then to suffer a resounding defeat.

7.         Caveat: European Strategic Fund Limited v. Skandinaviska Enskilda Banken [2012] EWHC749(Comm)

            This was a case where indemnity costs were awarded having regard to the factors aforesaid.

            However the Court entered a “caveat” the fact that a Claimant losses a massive claim (and does so badly) is not of itself a reason to justify an Order for indemnity costs.  Cases may involve very large sums which founder on sharp juridical rocks and [                    ] the commercial courts.  Much depends on the circumstances on the circumstances.

8.         BT: Particular Features

            There were aspects of BT’s conduct of litigation, which were telling:-

  • They have pursued and unjustified case because they knew that the foundations have not been constructed to Canham’s latest design.
  • The Claim had been extraordinarily exaggerated: put at £3.7m with an award of £2,000 recovered.
  • The failure by BT to respond candidly and openly to Canham’s notice to admit facts.  In response to a question as to whether it was the Claimant’s case that the foundations had been constructed in accordance with Canham’s design the Judge held that the answer given (“yes, as far as details and design could be discerned”) was “BT’s failure properly to answer Canham’s request for further information as to the way in which it was putting its case “was completely factually inaccurate” which, the Court said, was a more polite way of saying directly “untrue”.

9.         Court’s Judgment

The Court concluded the justice of the case required no Order for costs at all to the date Canham’s request further information.  Thereafter was entitled to recover all of its costs of the proceedings to the point of service of the request for further information on 13 March 2020.

After that date the Court directed the Claimants to pay Canham’s costs on the indemnity basis to reflect the stark fact that from that date onwards “the Claimants were conducting the litigation on a wholly force factual basis something must have been known to the Directors of both the Claimant companies”.  The Claimants pleading (answer) was “positively untrue”.

This case continues to serves as a salutary example of the need to look closely at the terms of any Part 36 Offers put and to engage openly, promptly and without fear or favour in connection with the basis on which a claim is put, pursued and conducted through to and including trial itself.