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Costs: Potential perils of exaggerating claims

The recent case of London Tara Hotel Ltd v Kensington Close Hotel Ltd [2011] EWHC 29 (Ch) sounds a further warning shot for claimants who grossly exaggerate their claim.

The case concerned issues of costs arising from the dismissal of the claimant's (L) substantive claim for damages for trespass against the defendant for use of a private access road, and the defendant’s (K) successful counterclaim for a declaration that it had been entitled to use the road (see [2010] All ER (D) 09 (Nov)). In the costs hearing before Roth J sitting in the Chancery Division of the High Court it was submitted by K that its costs should be awarded on the indemnity basis in respect of two periods: (i) a period during which L's claim in damages had been enormously exaggerated and, (ii) a period during which L rejected a relevant part 36 offer to settle. 

Although Roth J did not find that L had sufficiently exaggerated its claim for K to merit an award of indemnity costs, he emphasised that “in appropriate circumstances the presentation of a grossly inflated claim might constitute conduct that could justify an award of indemnity costs.” 

Roth J noted that under CPR 44.3 the power to award indemnity costs was not restricted only to cases where the conduct of a party deserved moral condemnation. Applying the dicta of the Court of Appeal in Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson [2002] EWCA Civ 879, he reaffirmed that the critical requirement was whether there was some conduct or some circumstance which took the case outside the norm in a way that such an order was justified. A gross exaggeration of a claim would constitute unreasonable conduct that took a case outside the norm.

Elizabeth Dwomoh / 1st Feb 2011


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