BS&R Group Ltd v Westport Architecture

• Jurisdiction: Bermuda
• Court: Supreme Court (Bermuda)
• Judge: Mussenden J
• Judgment Date: 22 July 2024
• Docket Number: 2015: No. 152

BETWEEN:

BS&R Group Limited

Plaintiff/Defendant by Counterclaim

and

Westport Architecture

First Defendant/First Plaintiff by Counterclaim

and

C.W. Construction and Landscaping Limited

Second Defendant/Second Plaintiff by Counterclaim

RULING of Mussenden J

2015: No. 152

In The Supreme Court of Bermuda

Appearances:

Allan Doughty, MJM Limited, for the Plaintiff

Scott Pearman for First Defendant

SECOND RULING (INDEMNITY COSTS)

Restored Application for Indemnity Costs Test for indemnity costs clarified by the Court of Appeal to be “out of the norm”, rather than “exceptional circumstances”

Purpose of indemnity costs not to punish the paying party, but to give a more fair result for the party in whose favour a costs order is made

Introduction

1 A trial of this matter took place and I issued a Judgment dated 22 December 2021. I directed that unless either party filed a Form 31TC within 7 days of the date of the Judgment to be heard on costs, that costs would follow the event in favour of BS&R Group Limited (“ BS&R”) on a standard basis, to be taxed by the Registrar if not agreed.

2 BS&R did file an application to be heard on costs and applied for an award of costs on an indemnity basis. On 6 July 2022 I heard submissions on the application for indemnity costs. On 6 September 2022 I issued a Ruling (“ First Costs Ruling”) in which I found that I was not satisfied that there were exceptional circumstances to warrant an order for costs on an indemnity basis. In that First Costs Ruling, I applied the test of ‘ exceptional circumstances’ which was based on the decision of Ground J in DeGroote v MacMillan et al [1993] Bda LR 66 and Phoenix Global Fund Ltd. v Citigroup Funds Services (Bermuda) Limited & Ano [2009] Bda LR 70 (SC).

3 In St. John's Trust Company (PVT) Limited v Medlands (PTC) and Ors [2022] CA (Bda) 18 Civ (2 November 2022) the Court of Appeal for Bermuda clarified that the correct approach to indemnity costs in Bermuda is to apply the approach of the Courts of England and Wales, namely the ‘ out of the norm’ test. I granted leave to appeal to the Court of Appeal and by way of a Consent Order, dated 21 March 2023. The Court of Appeal, then allowed the appeal, on the papers, and the application for indemnity costs was restored before me, to apply the law as clarified by the Court of Appeal in the St. John's case.

Background

4 The total of the Judgment for the three construction jobs performed by BS&R (the “ Three Jobs”) was in favor of BS&R against the First Defendant Westport Architecture (a Firm) (“ WA”) in the amount of $85,780.03. The partners of WA are Mr. Frederick Stephen West (“ Mr. West”) and his son Arthur (‘Tripp’) West (“ Tripp West”). Also, I found that C.W. Construction and Landscaping Limited (“ CWC”) was not the entity that WA had contracted with for the Three Jobs.

Law on Indemnity Costs

5 The Rules of the Supreme Court (“ RSC”) Order 62 rule 12(2) sets out the following:

“ On a taxation on the indemnity basis all costs shall be allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred and any doubts which the Registrar may have as to whether the costs were reasonably incurred or were reasonable in amount shall be resolved in favour of the receiving party; and in these rules the term “the indemnity basis” in relation to the taxation of costs shall be construed accordingly.”

6 In the St. John's case, Smellie JA stated as follows:

“ 23. In Crisson, a case which involved the claimant, by reliance on misleading evidence, obtaining from the Supreme Court a freezing injunction which had “catastrophic effect on the life of Mr Crisson”, the Court of Appeal concluded at [5] that the nature and conduct of the case constituted such exceptional circumstances that the making of an indemnity costs order was warranted. The Court cited no authority for the formulation of principle which it declared, no doubt considering it unnecessary to do so: the test as formulated reflects the well-established position to be gleaned from the English case law, where the Court of Appeal has repeatedly stated that indemnity costs may be ordered when the circumstances are “out of the norm.”

24. As Waller LJ explained in Esure Services Ltd v Quarcoo [2009] EWCA Civ 595 at [25], the formulation “out of the norm” reflects “something outside the ordinary and reasonable conduct of proceedings.”

25. It is now clear also from the English case law that there is no scope for the application of some other more stringent “exceptionality” test such as proposed on behalf of SJTC in its submissions relying on specific Bermudian cases. Thus, in Whaleys (Bradford) Limited v Bennett [2017] 6 Costs LR 1241; [2017] EWCA Civ 2143, David Richards LJ (as he then was) said, in agreement with Newey LJ who gave the lead judgment (at [28]):

“ In my view it was unfortunate that the judge [below] used the word “exceptional” to describe the circumstances that may justify an order for indemnity costs. The formulation repeatedly used by this court is “out of the norm”, reflecting, as Waller LJ said in Esures Services Ltd v Quarcoo (above) at [25], “something outside the ordinary and reasonable conduct of proceedings”. Whatever the precise linguistic analysis, “exceptional” is apt as a matter of ordinary usage to suggest a stricter test and is best avoided. Its use in this case gave rise to an arguable ground of appeal and while I am satisfied, particularly in light of the submissions made to him, that the judge was not applying a stricter test, for the future it would be preferable if judges expressly used the test of “out of the norm” established by this court.”

28. It is significant that the earlier decision of this Court in American Patriot Insurance v Mutual Holdings [2012] Bda L.R. 23 appears not to have been considered in Ivanishvilli. In Mutual Holdings, having referred at [26] to the requirement for “exceptional circumstances” applied in both Phoenix Global v Citigroup and De Groote, Evans LA in delivering the judgment of the Court said:

“ In our judgment, it would be wrong to say that indemnity costs should be ordered in every case where fraud is proved, but equally wrong to suggest that they can only be ordered when the proceedings have been misconducted by the losing party. Both “the way the litigation has been conducted” and the “underlying nature of the claim” (per Kawaley J in ( Lisa SA v Leamington and Avicola [2008] Bda L.R. 61) at para 6) may be relevant in determining whether or not the circumstances are such as to make an indemnity costs order just.” [emphases added by the Court of Appeal]

29. Thus, while not expressly disapproving of the stricter exceptionality test, this Court did not adopt it, instead preferring an approach which would allow for a discretionary assessment on the case by case basis, as to whether an order for indemnity costs is justified. And while not itselfpurporting to set a test by which the discretion should be exercised, the approach of the Court there was, in my view, more consistent with an enquiry as to whether litigation has been conducted “out of the norm” than with the stricter test.

30. It follows, in my view, that we should now confirm that the latter test- that firmly approved in the English case law - is the test to be applied.”

7 In Bhagwan v Corbishley et al [2022] CA (Bda) 20 Civ, 1 December 2022, issued shortly after St. John's, in respect of considering indemnity costs, Smellie J stated as follows:

“ 33. Rather than as a mark of the Court's disapproval of a lawyer's conduct of proceedings, the focus here is upon whether the successful Respondents to the appeal should have their costs paid by the unsuccessful Appellant, on account of his or his lawyer's improper or unreasonable conduct of his appeal, on a more favourable basis so far as the onus or proofas to reasonableness is concerned. While an indemnity costs order implicitly carries the court's disapproval of the lawyer's or party's conduct of litigation, its purpose is not to punish the paying party but to give a more fair result for the party in whose favour a costs order is made - see Three Rivers District Council and Others v Bank of England [2006] EWHC 816 (Comm) at [14] per Tomlinson J citing Petrotrade Inc v Texaco Ltd (Note) [2001, [2002] 1 WLR 947, per Lord Woolf MR, at p 949 and Victor Kermit Kiam 11 v MGN Ltd [2002] EWCA Civ 66 at para 12, [2002] 2 All ER 242 per Simon Brown LJ.” [emphasis added]

8 In Bhagwan, Smellie JA made reference to the “ well known eight main indicia” identified by Tomlinson J in Three Rivers District Council and Others v Bank of England [2006] 5 Costs LR 714 (QB). Those eight indicia are as follows:

(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...