Kiam II v MGN Ltd.(2)

Factual and Procedural Background

The appeal arose following a jury award of £105,000 in damages to the late Plaintiff, which the Defendant, Company A, challenged on the sole ground that the award was excessive. On 28th January 2002, the Court dismissed Company A's appeal by majority. Subsequently, the successful Respondent applied for the costs of the appeal on an indemnity basis rather than the standard basis, relying on a prior settlement offer made by the Plaintiff's solicitors on 27th June 2001. This offer proposed to accept £75,000 and return £30,000 plus interest to the appellants, an offer which Company A ignored. The Court was asked to decide whether the costs of the appeal should be awarded on an indemnity basis due to the rejection of this offer.

Legal Issues Presented

1. Whether a party who rejects a reasonable settlement offer and subsequently loses should be ordered to pay costs on an indemnity basis under Rule 44(3) of the Civil Procedure Rules (CPR).
2. The applicability and interpretation of indemnity costs orders following settlement offers, particularly in light of recent Court of Appeal decisions including Reid Minty and their relationship to Rule 36 and Rule 44 of the CPR.
3. The extent to which unreasonable conduct justifies indemnity costs, and the threshold of unreasonableness required for such an order.

Arguments of the Parties

Respondent's Arguments

• The Respondent relied principally on the Court of Appeal decision in Reid Minty, submitting that the appellants' refusal to accept the reasonable settlement offer of £75,000 justified an indemnity costs order.
• Argued that the appellants’ conduct in rejecting the offer amounted to an unreasonable refusal of a sensible and reasonable solution, thus attracting indemnity costs under Rule 44(3).
• Asserted that the Respondent’s position was comparable to that of a first instance defendant who defeats a claim after making a settlement offer, as explored in Reid Minty.
• Also contended that additional costs were wasted by the appellants in preparing arguments on grounds of appeal that were abandoned, supporting the application for indemnity costs.

Appellants' Arguments

The opinion does not contain a detailed account of the appellants’ legal arguments beyond their rejection of the settlement offer and the initial ground of appeal that the damages award was excessive.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court examined the principles underlying indemnity costs orders, particularly distinguishing between Rules 36 and 44 of the CPR. It emphasized that Rule 36 is designed to incentivize claimants to make settlement offers by potentially awarding indemnity costs if the offer is beaten at trial. However, no equivalent incentive exists for defendants, who generally have other motivations to make offers, such as paying money into court to protect themselves.

The Court reviewed the recent trilogy of cases, focusing on Reid Minty, which suggested that defendants might also claim indemnity costs under Rule 44(3) when their settlement offers are rejected. However, the Court clarified that indemnity costs under Rule 44 carry a penal character and are not to be awarded lightly.

The Court further explained that indemnity costs for unreasonable conduct require conduct to be unreasonable to a high degree—beyond mere error or misjudgment. It rejected the notion that refusing a reasonable settlement offer generally results in indemnity costs, emphasizing that such orders are rare and reserved for conduct that is significantly unreasonable.

Applying these principles to the facts, the Court found that the appellants’ refusal to accept the £75,000 offer was not unreasonable to the degree necessary to justify indemnity costs, especially given that one judge considered the jury’s award excessive and would have sustained a lower figure. The Court also declined to penalize the appellants for abandoning certain grounds of appeal, recognizing the desirability of expeditious disposal of appeals.

Holding and Implications

The Court REFUSED the application for costs on an indemnity basis and ordered that the Respondent recover costs of the appeal on the standard basis. The appeal was dismissed, with costs to be taxed if not agreed, except that there was no order as to costs for the hearing on 28th January 2002. Permission to appeal to the House of Lords was refused.

The decision clarifies that indemnity costs orders under Rule 44(3) for refusal of settlement offers are exceptional and require a high threshold of unreasonableness. This preserves the incentive structure of Rule 36 for claimants without extending penal costs orders indiscriminately to defendants or appellants who reject offers. The ruling thus maintains a careful balance in the application of costs sanctions and does not establish a broad precedent for routinely awarding indemnity costs in such circumstances.