This order addresses the appropriate basis for a costs award in the DIFC Court of First Instance following the dismissal of a jurisdictional challenge, clarifying the high threshold required for indemnity costs.
What specific dispute regarding costs arose between Paramjit Kahlon and Liberty Steel Group following the dismissal of the jurisdiction challenge in CFI 070/2022?
The dispute centered on the appropriate basis for the costs award after the Court dismissed Liberty Steel Group’s application to contest the jurisdiction of the DIFC Courts. While the Claimant, Paramjit Kahlon, successfully defended the jurisdiction challenge, the parties remained at odds over whether the Defendant should pay costs on a standard basis or an indemnity basis. The Claimant contended that the Defendant’s jurisdictional challenge was an abuse of process and an unreasonable attempt to delay proceedings, thereby warranting a punitive costs order.
Conversely, the Defendant argued that the Court should reserve the decision on costs until the conclusion of the trial. The Defendant maintained that the work performed for the jurisdiction hearing would be largely duplicative of the work required for the trial, and that the evidence presented by the Claimant had not yet been tested through cross-examination. The Court was tasked with determining whether the Defendant’s conduct met the criteria for indemnity costs or if the standard principle of "costs follow the event" should apply.
In the circumstances, the unsuccessful party, being the Defendant shall be ordered to pay the Claimant’s costs incurred with respect to the Jurisdiction Application, particularly when the Claimant has succeeded on that Application.
Which judge presided over the costs application in Paramjit Kahlon v Liberty Steel Group and in which division of the DIFC Courts was this heard?
The costs application was heard by H.E. Deputy Chief Justice Ali Al Madhani, sitting in the DIFC Court of First Instance. The order was issued on 25 May 2023, following the Court's earlier decision on 24 April 2023 to dismiss the Defendant’s jurisdictional challenge.
What arguments did Paramjit Kahlon and Liberty Steel Group advance regarding the assessment of costs in CFI 070/2022?
The Claimant argued that the Defendant’s jurisdictional challenge was "hopeless" and inconsistent with DIFC law, asserting that the Defendant’s conduct constituted an abuse of process intended to cause unnecessary expense and delay. Consequently, the Claimant sought costs on an indemnity basis to penalize the Defendant for this conduct.
The Defendant, however, urged the Court to reserve the costs decision for a "later occasion." They argued that because the preparation for the jurisdiction hearing overlapped significantly with the preparation required for the upcoming trial, and because the Claimant’s evidence had not yet been subjected to cross-examination, an immediate costs order was premature.
The Defendant argued that the Court should reserve a cost order to a “later occasion”, therefore having the effect that the decision about costs is deferred, and if no later order is made, the costs will be costs in the case.
What was the precise doctrinal issue the Court had to resolve regarding the application of indemnity costs versus standard costs?
The Court had to determine whether the Defendant’s conduct in bringing a jurisdictional challenge met the "exceptionally high" threshold required to depart from the standard basis of costs assessment. The doctrinal issue involved interpreting the requirements of Practice Direction 5/2014, which dictates that indemnity costs are reserved for cases involving "deliberate misconduct," "unreasonable conduct to a high degree," or an "abuse of process." The Court had to decide if the Defendant’s attempt to challenge jurisdiction—even if ultimately unsuccessful—crossed the line from a legitimate exercise of a procedural right into the realm of inappropriate or vexatious litigation.
How did H.E. Deputy Chief Justice Ali Al Madhani apply the test for indemnity costs to the conduct of Liberty Steel Group?
The Court applied a strict interpretation of the criteria set out in Practice Direction 5/2014. Justice Al Madhani noted that while the Claimant felt the Defendant’s actions were aimed at delay, the Defendant was nonetheless entitled to bring a jurisdictional application under the relevant legislation. The Court emphasized that the threshold for indemnity costs is not easily met and requires evidence of conduct that takes the situation "away from the norm."
The conduct of the Defendant does not warrant a cause of concern, the type of “deliberate misconduct” has not been established at this stage.
The Court concluded that the Defendant’s actions did not constitute the type of "deliberate misconduct" or "unreasonable conduct to a high degree" necessary to justify an indemnity costs order. Consequently, the Court rejected the Claimant's request for indemnity costs, opting instead for the standard basis.
Which specific RDC rules and Practice Directions did the Court apply to determine the costs order in CFI 070/2022?
The Court relied primarily on RDC 38.7(1), which establishes the general rule that the unsuccessful party in an application will be ordered to pay the costs of the successful party. Furthermore, the Court referenced Practice Direction 5/2014, which provides the framework for determining whether costs should be assessed on an indemnity basis. This Practice Direction mandates that the Court consider factors such as deliberate misconduct, breach of court orders, or abuse of process when deciding whether to deviate from the standard basis of assessment.
How did the Court address the Defendant’s argument that the Claimant’s evidence remained untested at trial?
The Court acknowledged the Defendant’s point that the evidence relied upon by the Claimant had not yet been challenged through cross-examination. However, the Court determined that this did not justify reserving the costs of the jurisdiction application. The Court maintained that the jurisdictional issue was a distinct procedural event that had been resolved in the Claimant's favor, and therefore, the general principle that costs follow the event remained the most appropriate path forward.
In addition, the evidence relied on by the Claimant is yet to be challenged under cross examination at trial.
What was the final disposition and the specific order made regarding the payment of costs in CFI 070/2022?
The Court dismissed the Defendant’s request to reserve the costs decision and rejected the Claimant’s request for indemnity costs. The Court ordered the Defendant to pay the Claimant’s costs of the jurisdiction application on a standard basis. If the parties are unable to agree on the quantum of these costs, the order specifies that they shall be assessed by the Registrar.
It is on that basis that the Claimant shall be awarded their costs of the Jurisdiction Application on a standard basis, otherwise assessed by the Registrar, if not agreed.
What are the wider implications of this ruling for practitioners litigating jurisdiction challenges in the DIFC Courts?
This ruling reinforces the high threshold required to obtain indemnity costs in the DIFC Courts. Practitioners should anticipate that even if a jurisdictional challenge is unsuccessful, the Court will be reluctant to award indemnity costs unless there is clear evidence of "deliberate misconduct" or a manifest abuse of process. The decision confirms that the DIFC Courts will generally adhere to the principle that costs follow the event on a standard basis, even when the losing party’s application is perceived by the winner as a delay tactic. Litigants should be cautious in seeking indemnity costs, as the Court maintains a strict view on the necessity of meeting the exceptionally high standard threshold.
Therefore, the Court takes a strict view in awarding costs on an indemnity basis and there is an exceptionally high standard threshold for the Claimant to demonstrate to be awarded its costs on an indemnity basis. I am of the view that this threshold has not been met in this matter.
Where can I read the full judgment in Paramjit Kahlon v Liberty Steel Group [2023] DIFC CFI 070?
The full order with reasons can be accessed via the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/cfi-0702022-paramjit-kahlon-v-liberty-steel-group-ltd-1 or via the CDN link: https://littdb.sfo2.cdn.digitaloceanspaces.com/litt/AE/DIFC/judgments/court-first-instance/DIFC_CFI-070-2022_20230525.txt
Cases referred to in this judgment:
| Case | Citation | How used |
|---|---|---|
| N/A | N/A | N/A |
Legislation referenced:
- Rules of the DIFC Courts (RDC), Part 38
- RDC 38.7(1)
- Practice Direction 5/2014