Clawing back the deficit

As has been wisely observed, once a disastrous loss has been sustained at trial, the loser’s thoughts turn immediately to mitigating the extent of the loss and in the context of costs this means casting around for arguments to make an issues based costs order. 

The arguments will always be fact sensitive but it is necessary in all cases whatever the context, whether a commercial case or a personal injury one to consider

i. how the issues in the case can be properly defined,

ii. who has won or lost on those particular issues and

iii. whether those defined issues have had appreciable costs consequences.

Consideration of these factors in turn will ground the arguments which might justify a departure from the normal “winner takes all” costs order made after trial.

Turning to the law the starting point is to consider the power that that the court has to make a costs Order and the criteria contained in the rules themselves starting with CPR 44.2:

(1) The court has discretion as to –

(a) whether costs are payable by one party to another;

(b) the amount of those costs; and

(c) when they are to be paid.

(2) If the court decides to make an order about costs –

(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but

(b) the court may make a different order.

So the first question is: who was overall the successful party? Having once ascertained that, then the general rule is that the successful party is entitled to their costs. The court can make a different order, which is where the discretionary element comes into play. It is a broad based discretion, taking into account all the circumstances, but with the rule directing the court’s attention to particular factors:

(4) In deciding what order (if any) to make about costs, the court will have regard to all the circumstances, including –

(a) the conduct of all the parties;

(b) whether a party has succeeded on part of its case, even if that party has not been wholly successful; and

(c) any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply.

Conduct is further defined by rule 44.2(5) to include:

(5) The conduct of the parties includes –

(a) conduct before, as well as during, the proceedings and in particular the extent to which the parties followed the Practice Direction – Pre-Action Conduct or any relevant pre-action protocol;

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c) the manner in which a party has pursued or defended its case or a particular allegation or issue; and

(d) whether a claimant who has succeeded in the claim, in whole or in part, exaggerated its claim

The court is given a menu of options in the Civil Procedure Rules 1998. The rule in question is rule 44.2(6) to (7) which says this:

(6) The orders which the court may make under this rule include an order that a party must pay –

(a) a proportion of another party’s costs;

(b) a stated amount in respect of another party’s costs;

(c) costs from or until a certain date only;

(d) costs incurred before proceedings have begun;

(e) costs relating to particular steps taken in the proceedings;

(f) costs relating only to a distinct part of the proceedings; and

(g) interest on costs from or until a certain date, including a date before judgment.

(7) Before the court considers making an order under paragraph (6)(f), it will consider whether it is practicable to make an order under paragraph (6)(a) or (c) instead.

In Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Limited [2008] EWHC 2280 (TCC) Jackson J (as he then was) reviewed the then state of authority and set out a series of principles in step by step guide therein which indicates when it can be appropriate to make an issue based costs order. These principles have been adopted in many subsequent cases. It should also be noted that the review of authority at paragraph 72 is specifically applicable to commercial litigation:

From this review of authority I derive the following eight principles.

(i) In commercial litigation where each party has claims and asserts that a balance is owing in its own favour, the party which ends up receiving payment should generally be characterised as the overall winner of the entire action.

(ii) In considering how to exercise its discretion the court should take as its starting point the general rule that the successful party is entitled to an order for costs.

(iii) The judge must then consider what departures are required from that starting point, having regard to all the circumstances of the case.

(iv) Where the circumstances of the case require an issue-based costs order, that is what the judge should make. However, the judge should hesitate before doing so, because of the practical difficulties which this causes and because of the steer given by Rule 44.3(7).

(v) In many cases the judge can and should reflect the relative success of the parties on different issues by making a proportionate costs order.

(vi) In considering the circumstances of the case the judge will have regard not only to any Part 36 offers made but also to each party’s approach to negotiations (insofar as admissible) and general conduct of the litigation.

(vii) If (a) one party makes an order offer under Part 36 or an admissible offer within Rule 44.3(4)(c) which is nearly but not quite sufficient, and (b) the other party rejects that offer outright without any attempt to negotiate, then it might be appropriate to penalise the second party in costs.

(viii) In assessing a proportionate costs order the judge should consider what costs are referable to each issue and what costs are common to several issues. It will often be reasonable for the overall winner to recover not only the costs specific to the issues which he has won but also the common costs.

Of these principles (vii) has been rendered redundant by reforms to part 36. But the guidance is useful as it emphasises that even in a case where there is a claim and counterclaim, the overall winner should have his costs, even if a proportion (percentage) should be deducted from them, to reflect a degree of success by the losing party.

A touchstone for determining what that proportion should be, is to determine what costs are referable to each issue and what costs are common to several issues: and where costs are common to both issues, the winner should have the benefit of the common costs.

In personal injury litigation the same judge summarised the correct approach in somewhat different terms in the case of Fox v Foundation Piling Limited [2011] EWCA Civ 790. See in particular the observation at paragraph 48:

From this review of authority I draw the following conclusions. First, where one party makes a Part 36 offer and then achieves a more advantageous result than that proposed in his offer, the provisions of rule 36.14 modify the court’s general discretion in respect of costs. This is important because parties who choose to use the Part 36 mechanism in their settlement negotiations need to have a clear understanding of the legal effects of making, accepting and rejecting offers under Part 36.

Secondly, parties are quite entitled to make Calderbank offers outside the framework of Part 36. Where a party makes such an offer and then achieves a more advantageous result, the court’s discretion is wider. Nevertheless it may well be appropriate to order the party which has optimistically rejected the Calderbank offer to pay all costs since the date when that offer expired. This was what the court ordered in Stokes.

A not uncommon scenario is that both parties turn out to have been over-optimistic in their Part 36 offers. The claimant recovers more than the defendant has previously offered to pay, but less than the claimant has previously offered to accept. In such a case the claimant should normally be regarded as “the successful party” within rule 44.3 (2). The claimant has been forced to bring proceedings in order to recover the sum awarded. He has done so and his claim has been vindicated to that extent.

In that situation the starting point is that the successful party should recover its costs from the other side: see rule 44.3 (2) (a). The next stage is to consider whether any adjustment should be made to reflect issues on which the successful party has lost or other circumstances. An adjustment may be required to reflect the costs referable to a discrete issue which the successful party has lost. An adjustment may also be required to compensate the unsuccessful party for costs which it was caused to incur by reason of unreasonable conduct on the part of the successful party.

In a personal injury action the fact that the claimant has won on some issues and lost on other issues along the way is not normally a reason for depriving the claimant of part of his costs: see Goodwin v Bennett UK Limited [2008] EWCA Civ 1658. For example, the claimant may succeed on some of the pleaded particulars of negligence, but not on others. Indeed the fact that the claimant has deliberately exaggerated his claim may in certain instances not be a good reason for depriving him of part of his costs: see Morgan v UPS. A defendant who has obtained video surveillance evidence is perfectly well able to protect his position on costs by making a modest offer under Part 36.

Nevertheless in other cases (as stated above) the fact that the successful party has failed on certain issues may constitute a good reason for modifying the costs order in his favour. This is commonly achieved by awarding the successful party a specified proportion of its costs. In Widlake the facts were so extreme that the successful party was ordered to bear all of its own costs.

(emphasis added)

The policy behind making a “proportionate” costs order rather than an “issues” based costs order, has been considered in a number of cases. In the case of English v Emery Reimbold and Strick Limited [2002] 1 W.L.R. 2409 the Court of Appeal observed at paragraph 115-116:

115 We are in no position to express a view as to whether we would have made the same order as Neuberger J did in Harrison v Bloom Camillin . However, we would emphasise that the Civil Procedure Rules requires that an order which allows or disallows costs by reference to certain issues should be made  only if  other forms of order cannot be made which sufficiently reflect the justice of the case: see rule 44.3(7) , above. In our view there are good reasons for this rule. An order which allows or disallows costs of certain issues creates difficulties at the stage of the assessment of costs because the costs judge will have to master the issue in detail to understand what costs were properly incurred in dealing with it and then analyse the work done by the receiving party’s legal advisers to determine whether or not it was attributable to the issue the costs of which had been disallowed. All this adds to the costs of assessment and to the amount of time absorbed in dealing with costs on this basis. The costs incurred on assessment may thus be disproportionate to the benefit gained. In all the circumstances, contrary to what might be thought to be the case, a “percentage” order, under rule 44.3(6)(a) , made by the judge who heard the application will often produce a fairer result than an “issues based” order under rule 44.3(6)(f) . Moreover such an order is consistent with the overriding objective of the Civil Procedure Rules.

116 In general the question of what costs order is appropriate is one for the discretion of the judge and an appellate court will be slow to interfere in its exercise. But the considerations mentioned in the preceding paragraphs are ones which a judge should bear in mind when considering what form of order ought to be made in order properly to apply rule 44.3(7). These considerations will in most cases lead to the conclusion that an “issues based” order ought not to be made. Wherever practicable, therefore, the judge should endeavour to form a view as to the percentage of costs to which the winning party should be entitled or alternatively whether justice would be sufficiently done by awarding costs from or until a particular date only, as suggested by rule 44.3(6)(c) .

This is a statement of high authority: it expressly grounds the purpose of the rule in avoiding the satellite litigation posed by two sets of detailed assessment proceedings, which will be hugely expensive, and consume much court time.

In the case of Dyson Technology Ltd v Strutt [2007] EWHC 1756 (Ch) Patten J (as then was) observed as follows:-

The CPR make no special provision for dealing with costs of this type and some of the difficulties in the assessment of these costs arise directly from a common failure by judges to appreciate the complexities which can be created by orders which seek to split the responsibility for costs between the parties other than by an order for the payment of a simple percentage or proportion of the total costs bill.

These authorities are, of course, binding on this court, but the implementation of orders of this kind or indeed for any kind of division of costs in relation to specific issues can involve the parties and the costs judge in extensive further litigation in the course of the detailed assessment, during which the whole history of the action is scrutinised in order to determine which part of any expenditure related to which issue. In the present case, Master O’Hare was sensibly asked by the parties to make certain preliminary rulings as to the principles on which the division of the common costs should be approached. But I am told that this process has so far generated tens of thousands of pounds in additional costs and that the hearing of the detailed assessment has been allocated a further four days of court time. There is therefore every prospect that the length of time taken in the assessment of costs will exceed the length of the trial itself and add vastly to the costs of the litigation in general. These matters need, I think, to be borne firmly in mind by a trial judge who is asked to make a complicated order for costs. There is much to be said for the application of the general rule that costs should follow the event and for keeping to the simple formula of orders for a stated proportion of the costs or a stated amount of costs in cases where recognition of a limited degree of success by one or other party is called for.

The current authors of Cook on Costs (2018) (who themselves are two experienced costs judges) are even more damning about issues based costs Orders at paragraph 22.22 where they state:

The difficulties envisaged by Patten J are obvious to those familiar with detailed assessments. The costs judge will have to master the issue in detail to determine what costs were properly incurred in dealing with it. Invariably the costs judge will probably be without the assistance of anyone who was present at the trial to clarify precisely how the trial judge expressed his formulation of the issue and without a transcript of the judgment-particularly as more detailed assessments will be dealt with under the provisional assessment. All this adds to the cost of detailed assessment and to the amount of time absorbed in dealing with costs on this basis. The costs incurred on assessment may then not be proportionate to the benefit gained. In all the circumstances, contrary to what may seem at trial to be the case, a percentage order under CPR 44.2(6)(a) made by the judge will often produce a fairer result than a “distinct parts” order under CPR 44.2(6(f).

The law dictates that where practicable a percentage based order of costs should be made, that the potential order under sub-paragraph (f) is to all intents and purposes, an order of last resort and a judge should be mindful of the practical difficulties of such an order being made.

In summary, if part 36 protection does not exist then whether the case is a personal injury one or a commercial one, or some other variety of case altogether it is prudent to rigorously consider the issues in the case and degrees of relative success and then to argue for an issue based costs order if there are points to be made.


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