Common costs and multiple defendants

One of the issues which arises frequently in a costs case, where there are multiple defendants, is the issue of the treatment of common costs. Where there is a costs claim against two or more defendants, it is inevitable that issues of division of costs will arise. The principle of division of costs in that context is well known. The position is neatly set out in the decision of Jay J, who sat with Master Hurst as his assessor, in the case of Haynes v Department of BIS [2014] 3 Costs LR 475 where it was noted:

I have been advised by Senior Costs Judge Hurst that common or generic costs effectively fall into two categories. First, there are the non-specific costs such as court fees, medical reports and travel expenses which would have been incurred in any event, regardless of the number of other defendants. Secondly, there are the specific costs which are, in principle, capable of identification and division. For example, if there is a conference with counsel concerning the liability of all ten defendants, the total fee may be envisaged as ripe for division.

This led to his conclusion:

I have posed to myself this thought experiment in order to test the legal principles: what would the position have been had the claimant obtained deemed costs orders against one or more additional defendants? In my view, in such circumstances – at least as regards the non-specific generic costs currently under scrutiny – the claimant would be entitled to orders against each defendant on a 100% basis leaving it to those defendants to contest issues of apportionment. True it is that as a matter of convenience or pragmatism the costs judge would in most cases choose to divide those costs according to the number of defendants, on the assumption that all of them are solvent, but that does not affect the correct legal analysis.

It follows that Master Simons’ conclusion in relation to the nonspecific common or generic costs, which he did not treat as a separate category, cannot be upheld, since it is wrong in principle. The matter will need to be remitted to him to identify those common or generic costs which are non-specific in the sense that they would have been incurred in any event. The claimant is entitled to these costs on a 100% basis.

In any case where costs are payable by two or more defendants the question will have to be determined as to  which elements of those costs are (i) indivisible non specific common costs payable by both parties (ii) divisible specific common costs which will be divided between the defendants (iii) individual costs which can only be sought from a particular defendant. A particular problem can arise, where claims for common costs are maintained against a number of defendants, and the question arises as to what effect a costs settlement with one defendant has (if any) on the liability of the other defendants to pay the common costs. It may be suggested that as the settlement necessarily involved a payment in respect of common costs, it reduces the liability of the other paying parties for common costs. Such an argument is usually misconceived. 

The leading case on whether release of one party, jointly and severally liable with another party, also releases that party too from all liability is the case of Heaton and Others v Axa Equity Law Life Assurance [2002] 2 AC 329 where per Lord Bingham of Cornhill’s speech at paragraphs 1 to 9, the focus of the court must be on the settlement agreement, and it’s construction, to see whether a release of all parties was agreed and intended. That will rarely be the case: for why would the receiving party wish to make a contract of settlement letting another paying party off the hook?

Lord Bingham put the position thus:

In considering whether a sum accepted under a compromise agreement should be taken to fix the full measure of A’s loss, so as to preclude action against C in tort in respect of the same damage, and so as to restrict any action against C in contract in respect of the same damage to a claim for nominal damages, the terms of the settlement agreement between A and B must be the primary focus of attention, and the agreement must be construed in its appropriate factual context. In construing it various significant points must in my opinion be borne clearly in mind:
(1) The release of one concurrent tortfeasor does not have the effect in law of releasing another concurrent tortfeasor and the release of one contract-breaker does not have the effect in law of releasing a successive contract-breaker.
(2) An agreement made between A and B will not affect A’s rights against C unless either (a) A agrees to forgo or waive rights which he would otherwise enjoy against C, in which case his agreement is enforceable by B, or (b) the agreement falls within that limited class of contracts which either at common law or by virtue of the Contracts (Rights of Third Parties) Act 1999 is enforceable by C as a third party.
(3) The use of clear and comprehensive language to preclude the pursuit of claims and cross-claims as between A and B has little bearing on the question whether the agreement represents the full measure of A’s loss. The more inadequate the compensation agreed to be paid by B, the greater the need for B to protect himself against any possibility of further action by A to obtain a full measure of redress.
(4) While an express reservation by A of his right to sue C will fortify the inference that A is not treating the sum recovered from B as representing the full measure of his loss, the absence of such a reservation is of lesser and perhaps of no significance, since there is no need for A to reserve a right to do that which A is in the ordinary way fully entitled to do without any such reservation.
(5) If B, on compromising A’s claim, wishes to protect himself against any claim against him by C claiming contribution, he may achieve that end either (a) by obtaining an enforceable undertaking by A not to pursue any claim against C relating to the subject matter of the compromise, or (b) by obtaining an indemnity from A against any liability to which B may become subject relating to the subject matter of the compromise.

A different point but with a similar result arises, where in multi-party litigation, a settlement on a “costs inclusive” basis is made with one defendant under a Tomlin order, and a settlement with a costs order is made with another defendant. The defendant subject to the costs order will not  be able to  “carve out” of the settlement sum, an element in respect of common costs, to discount against the defendant’s liability under the costs order. Such an exercise is not required, and indeed impossible.

The starting point is that there is no need for such an exercise because the court will only allow costs under the costs Order that falls within its ambit. The court cannot award more than the indivisible common costs, divisible common costs which form part of the defendant’s share and individual costs against that defendant. Its simply a matter of proof and an exercise of judgment, as to what these amounts are.

Moreover it is clear law, that a lump sum paid in the schedule to a Tomlin Order cannot be apportioned between damages, interest and costs. In reality the settlement may incorporate extraneous elements, such as a premium the claimant pays not to go through the stress of a trial, or the defendant pays to avoid reputational damage . See further the case of Cartwright v Venduct Engineering Limited [2018] 1 WLR 6137 per Coulson LJ at paragraphs 40 to 49. It is not possible to identify “common costs” within a global settlement sum and take them into account when assessing costs liabilities of other defendants.

If defendants wish to avoid the risk of “overpaying”, then it is incumbent upon them to co-ordinate their positions on both settlement and the detailed assessment of costs.

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