[2025] EWHC 2901 (Comm)

In deciding whether an order for indemnity costs is appropriate, I have kept in mind the danger of being influenced by hindsight. I have also kept in mind the difficulties insurers face with fraudulent claims although these difficulties must be counter-balanced by the financial and reputational risks to an insured if allegations of dishonesty are made, which later prove to be unfounded.

Both parties highlighted that the significance of an order for indemnity costs in this case is that it makes it more likely that the Claimant will recover a greater proportion of its unbudgeted costs. This is because if no order for indemnity costs is made, the Claimant will have to show good reason why it should recover more than its approved budgeted costs; CPR r.3.18(b). If an order for indemnity costs is made, then the approved budget becomes irrelevant; see White Book 2025 at 3.18.1 and Lejonvarn v Burgess [2020] 4 WLR 43 per Coulson LJ at [90] – [93]. However, I do not consider the effect of an order for indemnity costs on costs management to be a relevant circumstance, at least in the context of this case, for the purposes of deciding whether or not to make an order for indemnity costs.

I do consider it appropriate to make an order for indemnity costs for the following reasons.

First, the allegations of dishonesty made by the Defendant both in relation to the escape of water and in relation to statements made on behalf of the Claimant during the Defendant’s investigation of the escape are a circumstance, which takes this case out of the norm as Tomlinson J. recognised in The Three Rivers case and as Teare J. recognised in the Suez Fortune Investments Ltd case.

Second, the allegations of dishonesty made by the Defendant are at the highest level of seriousness, namely that Mr. Meenu Malhotra, Mr. Atul Malhotra and Mr. Vadheera had entered into a fraudulent conspiracy to damage the Claimant’s own property and thereafter defraud the Defendant of a payment. Allied to these allegations were necessary further allegations that each of these individuals had lied to the Defendant during the Defendant’s investigation of the loss and also lied to this court in their evidence.

Third, the witness statements of Mr. Banning and Mr. Hilder demonstrate that the Claimant has suffered financially because of the Claimant’s allegations of dishonesty and that both Mr. Meenu Malhotra and Mr. Atul Malhotra have suffered reputational harm and that the Malhotra Group’s cost of insurance has significantly increased in the period that the allegations were pending. Mr. Meenu Malhotra has been unable to obtain bank financing for developments in India and both Mr. Meenu Malhotra and Mr. Atul Malhotra have suffered in respect of their health and their business and social relations.

Fourth, the allegations of dishonesty made by the Defendant were pursued through to the end of trial without the opportunity for settlement discussions being pursued.

Fifth, the serious risks associated with the Defendant’s allegations of dishonesty were or should reasonably have been apparent from when they were first raised. In this regard:

Sixth, the Defendant’s case on motive evolved at trial with a new case being put forward based on the presence of asbestos in the Hotel and the alleged aim of constructing a sports bar. Neither aspect of this case on motive was pleaded in circumstances where it should have been. Both aspects of the Defendant’s new case required the preparation of a supplemental witness statement from Mr. Atul Malhotra and a supplemental written opening from the Claimant and both aspects failed.

Seventh, the Defendant pursued an allegation that Mr. Meenu Malhotra was not in fact celebrating his 60^th birthday on the night of 11 July 2020. The Claimant provided extensive disclosure on this issue in August 2021 and by way of extended disclosure in August 2022. The allegation was, however, only dropped some three weeks before trial after the Claimant had procured witness statements from 10 individuals to address this issue and obtain witness summons for those individuals to attend.

As I record in the judgment, there was evidence which supported the possibility that the escape of water was caused deliberately (see, for example, the judgment at [142] to [146]) and there were reasons to be careful about accepting the evidence of Mr. Meenu Malhotra, Mr. Atul Malhotra and Mr. Vadhera where it was not supported by contemporaneous documents (see the judgment at [115], [120] and [127]). The Defendant’s case was also supported by the expert evidence of Mr. Knak, whose evidence I found helpful in determining what was the cause of the escape of water (see the judgment at [136] to [142]).

Further, I accept, as did Zacaroli J. in the Farol Holdings case and as did Teare J. in the Suez Fortune Investments Ltd case, that the Defendant’s allegations were properly pleaded and pursued in an appropriate way by the Defendant and those representing it.

But, as set out in paragraphs 23 to 25 above and in the judgment (see, in particular, the discussion at [286] to [296]), there were obvious difficulties with the Defendant’s allegations of dishonesty such that the Defendant would or should have recognised that there was at least a serious risk that its case on dishonesty would fail and that as a consequence there was a significant risk that an order for indemnity costs would be made. Despite these difficulties, the Defendant was determined to pursue this case through to trial, as was apparent from the oral submissions made by Mr. Elkington KC on behalf of the Defendant.

Further, the potential consequences for the Claimant of the Defendant’s allegations were also ones which were reasonably foreseeable to the Defendant; a point emphasised by the letter from the Defendant’s then solicitors to the Claimant dated 05 March 2021.

This is not to start from any presumption that an order for indemnity costs is always appropriate. It is a recognition, however, that the making of allegations of fraud, whether by a claimant or by a defendant, is a circumstance which can take a case out of the norm and where the allegations are pursued aggressively over an extended period of time, as they were in this case, then an order for indemnity costs is likely to be made; see the Three Rivers case at [25](8). In this case, I am satisfied that looking at the circumstances of the case overall an order for indemnity costs is appropriate.