1. Introduction

Lejonvarn v. Burgess & Anor ([2020] EWCA Civ 114) is a landmark case adjudicated by the England and Wales Court of Appeal (Civil Division) on February 6, 2020. This case delves into the intricacies of construction litigation, particularly focusing on the awarding of indemnity costs in scenarios involving speculative, weak, opportunistic, or thin claims. The appellant, an American-qualified architect, provided pro bono services to the respondents for their North London garden project. A falling-out led the respondents to initiate legal proceedings alleging breach of contract and negligence.

2. Summary of the Judgment

The Court of Appeal upheld the initial findings that the appellant owed a duty of care limited to the professional services she provided, not any alleged omissions. The trial concluded that the appellant had not been negligent, resulting in the failure of the respondents' claims. The core of the appeal revolved around whether indemnity costs should be awarded to the appellant due to the respondents' pursuit of unmeritorious claims and their failure to accept or beat a Part 36 offer. The appellate court ultimately sided with the appellant, ordering indemnity costs from a specific date, thereby setting precedent on when such costs are justified.

3. Analysis

3.1 Precedents Cited

The judgment extensively references key cases that shape the understanding of indemnity costs:

• Reid Minty v Taylor [2001] EWCA Civ 1723: Established that defendants cannot automatically claim indemnity costs merely by inviting claimants to abandon a case.
• Kiam II v MGN (No 2) [2002] EWCA Civ 66: Clarified that indemnity costs require conduct to be unreasonable to a high degree, emphasizing that mere loss or weakness of the claimant's case does not suffice.
• Excelsior Commercial and Industrial Holdings Limited v Salisbury Hammer Aspden and Johnson (A Firm) [2002] EWCA Civ 879: Reinforced the necessity for conduct to be out of the norm before awarding indemnity costs.
• Shalaby v London North West Health Care NHS Trust [2018] 3 Costs LR 585: Confirmed the applicability of precedents in modern contexts.
• Other notable cases include Three Rivers District Council v The Governor and Company of the Bank of England [2006], which highlighted the relationship between weak claims and indemnity costs.

3.2 Legal Reasoning

The court's legal reasoning hinged on distinguishing between standard and indemnity costs. Under the Civil Procedure Rules (CPR), indemnity costs are not automatically granted but are contingent upon demonstrating that the claimant's conduct was unreasonable or out of the ordinary. The appellant made a Part 36 offer early in the proceedings, which was not accepted or beaten by the respondents. The respondents' subsequent pursuit of claims deemed speculative and weak bolstered the appellant's position for indemnity costs. The judge noted that the respondents should have recognized the futility of their claims post the Court of Appeal judgment, yet continued to pursue them, thereby acting out of the normative conduct expected in litigation.

3.3 Impact

This judgment has significant implications for future litigation, especially in construction law. It underscores the judiciary's willingness to penalize parties that persist with weak or unfounded claims and that fail to engage reasonably with settlement offers like Part 36. Consequently, litigants are now more cautious about the quality of their claims and their willingness to settle, knowing that errant behavior can lead to indemnity costs.

4. Complex Concepts Simplified

4.1 Indemnity Costs vs. Standard Costs

Standard Costs: Traditionally awarded to the successful party, covering reasonable and proportionate expenses incurred during litigation.

Indemnity Costs: Greater than standard costs, potentially covering all expenses irrespective of reasonableness, awarded in cases of conduct deemed unreasonable or outside the norm.

4.2 Part 36 Offers

A Part 36 offer is a formal settlement offer made under the Civil Procedure Rules. If not accepted and the claimant fails to obtain a better judgment, the defendant may claim costs from the date of the offer. Conversely, if the claimant beats their own offer, they may be entitled to indemnity costs.

4.3 Costs Budgeting

Costs budgeting involves setting a projected limit on legal costs for a case. It serves as a guide for both parties and the court to ensure litigation remains proportionate and expenses stay within reasonable bounds.

5. Conclusion

The Lejonvarn v. Burgess & Anor [2020] EWCA Civ 114 judgment marks a pivotal development in the realm of indemnity costs within construction litigation. By reinforcing the standards required for awarding indemnity costs—particularly in the context of weak or speculative claims and the misuse of settlement offers—the court has provided clearer guidelines for litigants and courts alike. This fosters a more accountable and efficient litigation process, discouraging the pursuit of unfounded claims and encouraging reasonable settlement practices. Consequently, parties engaging in litigation are now more mindful of their conduct and the substantiation of their claims, aligning with the broader objectives of proportionality and fairness in legal proceedings.