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Fraud and indemnity costs – no presumption; and polemicists beware!


In Pisante v Logothetis [2022] EWHC 2575 (Comm), Baker J had to consider whether to make an order for indemnity costs following a successful US$6.5m fraud action.

The claimants contended that there was a presumption that where fraud is proved the claimant’s costs should be assessed on an indemnity basis.   The Court rejected this.

The Court held (at [65]) that the fact that an allegation successfully made is of dishonest wrongdoing does not, without more, make it more appropriate that a claimant’s costs should be recoverable though incurred disproportionately or that the claimant should not have to show that its costs were reasonably incurred and reasonable in amount (i.e. the effect of an indemnity costs award).  The Court further held that the considerations applicable to a defendant who has successfully fought off a fraud allegation, in which there is authority coming close to creating a presumption, were not the same.

On the particular facts of Pisante, however, the Court held that indemnity costs were justified.

The Court held (at [67]) that the justifying were: (a) the strong contemporaneous evidence of fraud in response to which the defendants had given false evidence including concocting strained meanings for the wording of the relevant communications; (b) the defendants had sought to mislead the court in other respects and had adopted a highly confrontational approach to the litigation; (c) there had been deficiencies in the defendants’ disclosure (here the improper redaction of highly material evidence during disclosure); (d) the defendants’ response to the letter before action was inappropriate.

In the author’s experience, conduct of such a nature by the defendant is fairly typical in a successful fraud claim.  Hence, whilst there is no formal presumption, a successful claimant will often receive an indemnity costs award.

The final factor mentioned by the Judge in awarding indemnity costs is worth bearing in mind when drafting a pre-action letter of response.  The Judge noted (at [67(d)]):

The defendants responded to a serious and measured letter before action in wholly inappropriate, polemic terms, calculated to intimidate. They included the baseless suggestion that [the claimants] was threatening spurious claims that were “nothing more than a thinly veiled attempt to coerce [the particular defendant] to settle … with the threat of negative publicity”. It was said to be “obviously vexatious, scurrilous and ill-founded” to make claims against [the defendant] personally. It was suggested that complaints of professional misconduct would lie and would be pursued against the claimants’ solicitors and counsel, and that costs would be sought against them personally, if the intimated claims were pursued.

The Judge held (at [69]):

To respond to a serious letter before action in the intemperate and intimidatory manner the defendants chose in this case is to invite the reasonable response on the claimants’ side that there is far more at stake than the merits and the financial relief to be sought through the causes of action pleaded. It is the mildest of responses by the court, and a just consequence, that defendants who so sought to bully the claimants as to the merits of their claim should be required as fully as the costs rules will permit to indemnify the claimants in respect of their costs after they have made the claim good.

Again, it is common for a potential defendant to respond in such terms.  Further, not only does Pisante make clear that such a letter can lead to an indemnity costs award, but there must also be serious doubt that such correspondence serves any purpose.  Where a potential claimant is represented by experienced lawyers, serious thought will have been given to the professional appropriateness of making an allegation of dishonesty.  A hectoring letter of response will not lead to a claim being abandoned.

An award of indemnity costs can be a particular powerful weapon in fraud litigation.

Costs are frequently disproportionate to the amounts at stake.  It is also even more common than in most other cases for costs to balloon beyond those budgeted.  An award of indemnity costs means that proportionality is no longer a factor and, unlike with standard costs, there is no prima facie restriction of costs to those set out in the receiving party’s costs budget.   It is therefore unsurprising that successful claimants in fraud actions invariably seek an award on such a basis.

David Lascelles is a barrister specialising in commercial and corporate disputes including those involving civil fraud.  He has a particular expertise in such disputes arising in relation to share sales.

David is highly ranked in the 2023 UK editions of both Chambers & Partners and Legal 500.  He is one of only 3 junior barristers ranked both for commercial and for company litigation within the top 3 bands of both directories.   In 2022, David was also shortlisted for Commercial Junior of the Year at the Legal 500 Bar awards.

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