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Should "some unreasonableness" be expected in litigation?

14 March 2018

March 2018 saw the publication of Calligo Limited v Professional Business Systems CI Ltd [2018] JRC 044; a noteworthy decision of the Deputy Bailiff arguably narrowing the Jersey test for indemnity costs.

The dispute concerned the legitimacy and legal effect of two documents, alleged to represent service contracts for the provision of IT services by Calligo in exchange for monthly payments from PBS.

It was Calligo's case that the documents, once signed, constituted a legally binding agreement. Calligo acted on the alleged agreement to its detriment.

It was PBS's case that no agreement was entered into and that the alleged contracts were in fact scoping documents and were not intended to have legal effect. Further, PBS alleged that it was not the intention of its agent to enter into a legally binding contract, and so a fundamental element of a valid contract under Jersey law, namely the requirement for consent, was absent.

The Court found for Calligo in the substantive dispute, holding that the documents formed a valid contract under Jersey law.

An application was subsequently made by Calligo for recovery of its legal costs. In doing so, the Deputy Bailiff considered the Jersey test for awarding costs on the indemnity basis.

The test for indemnity costs
The judgment cited the observations of the Court of Appeal in Hong Kong Foods Limited and Gibbons v Robin Hood Curry [2017] JRC 116 wherein Sir Michael Birt applied the principles set out in C v P-S 2010 JLR 645 as follows:

"…We do not accept that it is appropriate to impose such a restrictive approach on the discretion of the court to make an award of costs on the indemnity basis. The question will always be - is there something in the conduct of the action by one of the parties or the circumstances of the case which takes the case out of the norm in a way which justifies an order for indemnity costs, recognizing that there will usually be some degree of unreasonableness?"

Applying the principles set out above, the Deputy Bailiff held that:

"…it was unreasonable for PBS to continue to assert a defence from the moment it realised that it did not have the evidence to support it. However allowing for the fact that there is often some unreasonableness within the conduct of the parties to litigation, perhaps often the losing party, is this level of unreasonableness such that it tips the balance into an award for indemnity costs?"

Ultimately, the Court decided that the circumstances of the dispute did not tip the balance, and so an order for indemnity costs was refused.

The decision arguably narrows the circumstances in which indemnity costs will be ordered by introducing an assumption that some measure of unreasonableness between parties to litigation is inevitable, and that indemnity costs will be ordered only where that unreasonableness "tips the balance" and takes a case "out of the norm".

This contrasts with the over-riding objective, introduced in June 2017, that parties must deal with cases justly and at proportionate cost - in short, they should behave reasonably.

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