DIFC Court: Denies Indemnity Costs Despite Disruptive Conduct

• The DIFC Court refused to award indemnity costs to Qatar General Insurance & Reinsurance Company QPSC, despite acknowledging the defendant's "highly disruptive" litigation conduct.
• Justice Sapna Jhangiani, a Judge of the Court of Appeal of the DIFC Courts, found Emrgent Risk Solutions Limited's actions to be disorganised and last-minute but not indicative of dishonesty, bad faith, or abuse of process.
• The Court reiterated that indemnity costs are reserved for exceptional cases, requiring unreasonableness to a high degree, as per DIFC Practice Direction 5 of 2014.
• Costs were awarded on the standard basis, with a 65% payment on account, rather than the 85% sought by the claimant.
• This ruling highlights the high threshold for securing indemnity costs in the DIFC, even when an opponent's conduct is significantly inconvenient.

The Court's refusal to grant indemnity costs, despite acknowledging the inconvenience and misguided nature of the defendant's actions, reinforces that a higher bar exists, demanding clear evidence of dishonesty, bad faith, or an actual abuse of process.

Following a successful trial outcome, Qatar General Insurance & Reinsurance Company QPSC initiated proceedings to determine the basis of cost recovery against Emrgent Risk Solutions Limited. The core of the dispute centered on whether the claimant, having prevailed at trial, should be awarded costs on an indemnity basis rather than the standard basis. The claimant also sought an interim payment of 85% of its claimed costs and recovery of expenses from an earlier application by the defendant.

Qatar General Insurance argued that Emrgent Risk Solutions' conduct throughout the litigation process warranted a higher costs award. They cited a consistent pattern of disruptive behavior, including last-minute changes in their position, the withdrawal of key witnesses, and notifications regarding contested issues that came at the eleventh hour. Specific examples included Emrgent Risk Solutions continuing to dispute the sending of a cancellation notice despite contradictory disclosure material, only to abandon this argument on the eve of trial. Furthermore, the defendant failed to clarify whether a breach would be admitted if the notice was not sent, creating ongoing uncertainty. The claimant also pointed to the late withdrawal of a witness, which had already necessitated preparation for cross-examination, and belated declarations that certain issues were no longer contested, even after witnesses had commenced travel.

Justice Sapna Jhangiani, a Judge of the Court of Appeal of the DIFC Courts, acknowledged the validity of many of Qatar General Insurance's complaints. The judge found Emrgent Risk Solutions' conduct to be disorganised, frequently occurring at the last minute, and indeed highly disruptive to the overall proceedings. While characterizing the defendant's actions as misguided and often extremely inconvenient, the Court ultimately concluded that this behavior did not reach the necessary threshold for an indemnity costs order.

The Court determined that Emrgent Risk Solutions' conduct, despite its disruptive nature, did not demonstrate dishonesty, bad faith, abuse of process, or any other form of misconduct that would elevate the case beyond the normal scope of litigation. Consequently, the DIFC Court declined to award indemnity costs. Instead, Qatar General Insurance was granted its costs on the standard basis, with a provisional payment on account set at 65% of the claimed costs. The final amount remains subject to detailed assessment if the parties cannot reach an agreement.

The DIFC Court's decision was rooted in established principles governing indemnity costs, particularly those outlined in DIFC Practice Direction 5 of 2014. This directive stipulates that indemnity costs may be justified only when the specific facts or conduct of a case push it beyond the ordinary course of litigation. Such exceptional circumstances include deliberate misconduct, unreasonable conduct of a high degree, or an abuse of the legal process. The Court also referred to the broader Rules of the DIFC Courts, which mandate consideration of all relevant circumstances, such as the parties' conduct, the reasonableness of contesting particular issues, the manner in which a defense is presented, the complexity of the proceedings, and the significance of the matter at hand.

The Court concurred with the defendant's assertion that indemnity costs are reserved for truly exceptional cases, emphasizing that the threshold for such an award is notably high. Citing precedents like Excelsior Commercial & Industrial Holdings Ltd v. Salisbury Hammer Aspden & Johnson and Balmoral Group Ltd v. Borealis Ltd, the Court reiterated that the unreasonableness required to trigger an indemnity costs order must be of a substantial degree. It clarified that conduct which, in hindsight, might appear wrong or misguided is not sufficient on its own to meet this stringent standard.

This ruling from the DIFC Court carries significant implications for legal practitioners and litigants operating within the jurisdiction, particularly concerning expectations for cost recovery in the face of challenging litigation behavior. The decision underscores that even conduct explicitly deemed "highly disruptive," "disorganised," and "very last-minute" by the Court may not be enough to cross the high threshold for indemnity costs. The Court's refusal to grant indemnity costs, despite acknowledging the inconvenience and misguided nature of the defendant's actions, reinforces that a higher bar exists, demanding clear evidence of dishonesty, bad faith, or an actual abuse of process.

Lawyers advising clients in DIFC litigation must therefore temper expectations regarding the recovery of indemnity costs, even when an opponent's conduct is demonstrably problematic. The case of Qatar General Insurance v Emrgent Risk Solutions serves as a reminder that the DIFC Court maintains a strict interpretation of "exceptional circumstances" for such awards. This impacts strategic advice on litigation behavior, suggesting that while disruptive tactics can certainly inconvenience an opponent, they may not necessarily lead to a punitive costs order unless they involve a more fundamental breach of litigation integrity.

Lawyers litigating in the DIFC should note that even highly disruptive and inconvenient litigation conduct by an opponent may not be sufficient to secure indemnity costs. The threshold remains high, requiring evidence of dishonesty, bad faith, or abuse of process, which impacts cost recovery expectations and strategic advice to clients regarding litigation behavior.

Source: Original reporting via legal industry analysis