Lejonvarn v Burgess & Anor

Factual and Procedural Background

The Appellant, an American-qualified architect and former neighbour of the Respondents, provided gratuitous assistance on a major landscaping and structural garden project in North London. A falling-out led the Respondents to commence proceedings against the Appellant in the Technology and Construction Court (TCC), alleging breach of contract and/or negligence. The Appellant made an early Part 36 offer of £25,000, which was not accepted.

Following a trial of Preliminary Issues, the existence of any contract was rejected, but a duty of care was found to exist only in respect of professional services actually provided by the Appellant, excluding omissions. After further interlocutory proceedings and a substantive trial, the judge concluded that the Appellant had provided very few services and had not been negligent, resulting in the claim failing entirely.

The Appellant's costs, presented for assessment, exceeded £724,000. The Appellant sought indemnity costs, but the judge ordered assessment on the standard basis. Both parties appealed on costs, raising three issues: whether the Respondents' pursuit of the claims was out of the norm to justify indemnity costs; whether the Respondents’ failure to accept and beat the Part 36 offer warranted indemnity costs; and the relevance of the difference between the Appellant's approved costs budget and actual costs.

The factual background includes the Respondents initially obtaining a quotation of approximately £175,000 for the garden works but hesitating due to cost concerns. The Appellant became involved between March and July 2013. Disputes arose over budget figures, leading to the Appellant terminating involvement in July 2013 without claiming fees. Proceedings commenced in March 2015 without compliance with the pre-action protocol.

Throughout the litigation, the Respondents altered their claims significantly, including shifting allegations on design and budget. Multiple offers to settle were made by both parties, none accepted. The trial involved expert reports served shortly before the hearing, and a joint expert report indicating most alleged defects were not apparent before the Appellant ceased involvement.

Legal Issues Presented

1. Whether the Respondents' pursuit of speculative, weak, opportunistic, or thin claims was conduct out of the norm warranting indemnity costs.
2. Whether the Respondents' failure to accept and subsequently beat the Appellant's early Part 36 offer justified an order for indemnity costs.
3. The relevance of the difference between the Appellant's approved costs budget and her actual costs in assessing costs.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analysed whether the Respondents' conduct in pursuing the claims was out of the norm, focusing on whether the claims were speculative, weak, opportunistic, or thin at a time prior to trial. It held that by one month after the Court of Appeal judgment (7 May 2017), the Respondents ought to have realised the weakness of their claims and ceased pursuit.

The court noted that the Court of Appeal's modification of the duty of care limited the Appellant's liability to professional services actually provided, excluding omissions. The Respondents’ subsequent amendments to their case reflected necessity rather than merit, making the claims speculative or weak.

The court also found that the Respondents' rejection and failure to beat the Appellant's early Part 36 offer was a separate factor taking the case out of the norm, justifying indemnity costs from 7 May 2017 onwards. While recognizing no automatic entitlement to indemnity costs for a defendant beating its own offer, the court emphasized the importance of the refusal's reasonableness.

Regarding costs budgeting, the court distinguished between prospective approved costs budgets and retrospective costs assessments on an indemnity basis. It held that an indemnity costs order is not constrained by an approved budget, and that the higher actual costs claimed by the Appellant were subject to reasonableness scrutiny in assessment but not limited by the budget figure.

The court identified errors in the judge's approach, particularly the failure to consider whether the claims were speculative or weak prior to trial and the failure to properly address the impact of the Part 36 offer refusal on costs. It concluded that indemnity costs were appropriate from 7 May 2017, with costs before that date assessed on the standard basis.

Holding and Implications

The court ALLOWED THE APPEAL in part and ordered indemnity costs in favour of the Appellant from 7 May 2017, being one month after the Court of Appeal judgment. Costs incurred prior to that date are to be assessed on the standard basis.

The decision directly affects the parties by requiring the Respondents to pay the Appellant's costs on an indemnity basis from the specified date, reflecting the court’s finding that the Respondents' conduct was out of the norm in continuing to pursue speculative and weak claims and in unreasonably refusing the early settlement offer. No new precedent was established beyond the application of existing principles to the facts of this case.