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The inevitable question of costs

Benjamin Franklin once memorably wrote:

“In this world nothing can be said to be certain, except death and taxes.”

Litigation lawyers can be sure of one further thing: the issue of costs will be controversial.

The problem

Disputes lawyers will always be asked to advise clients on costs. Accurately predicting what order a court may make involves a finer judgement than one might think.

For example, a client in a recent matter was faced with a dilemma. As the trial approached, it was confident of winning on the issue that had taken up the majority of the parties’ time and cost during the litigation (more time than necessary because of the opponent’s obduracy), but less confident that this would result in it being the net “winner” at the end of the trial. If this happened, as the overall “loser” would it have to pay all of the other side’s costs? Would it perhaps recover some of its own costs?

Unfortunately for this blog, a definitive answer is not available because the parties settled. However, the example highlights what clients may perceive as an unfairness in costs awards when the claim is considered as a whole. Although you may win on a particular issue, perhaps one on which large sums were spent, you may find yourself before a judge who does not want to look beyond the general rule that the overall winner gets its costs. Others would accept this potential unfairness in return for the certainty offered by the simple “loser pays” rule. In fact, this certainty does not exist. Lawyers need to be aware of the issues so that they can advise as early as possible, applying the fine judgements that may well be necessary. They will also influence how the litigation is conducted.

General rule

As we know, the general rule on costs in CPR 44.3 is that the “loser pays”. But the rule is not absolute and the court, which may make a different order, has a far wider discretion than it may first appear (as is set out in outline in that subsection).

When the CPR was introduced, Lord Woolf encouraged a move away from the “winner takes all” position and wanted to see more partial costs orders that more accurately reflected the relative level of success achieved by each party.

Interestingly, Jackson LJ’s Review of Civil Litigation Costs, certainly in relation to complex commercial cases, does not really touch upon this issue.

Community Gateway Association Ltd v Beha Williams Norman Ltd

The case of Community Gateway Association Ltd v Beha Williams Norman Ltd involved a similar situation to that described above. The defendant was the successful party. It asked the judge for indemnity costs because it had made a Part 36 offer. The claimant countered by asking the judge to take an issues-based approach to costs and award it the costs of the issues it won.

Akenhead J’s decision highlights the uncertainties inherent in costs arguments. The judge decided that the claimant had won on three issues significant enough that he was prepared to weigh them in the balance. However, he did not think that this got even close to making it appropriate to make an issues-based costs order.

This is not surprising as he considered the defendant had “won” the case overall and the majority of issues, and on those issues that ultimately counted. He said:

“one must always bear in mind that in many cases the successful party will not be successful on every single part of the pleaded case or on the evidential issues that arise.”

One might have expected the judge to stop there, but he didn’t. He reduced the defendant’s costs by 15% because the parties had “unnecessarily expended” costs on issues the defendant lost. However, it would appear that he did this, not simply because the issues were lost, but also because of how they were litigated. The defendant abandoned one part of its case only “belatedly” and deployed an expert but then did not call him at trial.

It is worth adding that in Community Gateway, the judge appears to have followed the guidance in CPR Rule 44.3(7) in preferring a proportional over an issues based approach (the subsection requires judges, where practicable, to award percentages of a party’s costs or costs during specified periods rather than leaving the costs judge with the difficult task of identifying what costs were spent on what issues).

What does this mean?

Lord Woolf’s encouragement has not been forgotten. One cannot assume that winning will guarantee you all your costs or perhaps even make it likely. I suspect that the winner in Community Gateway probably was surprised by the reduction it suffered in the circumstances. While the general rule remains the (significant) starting point, it may very well not be the only consideration the court takes into account, particularly in complex litigation. The judge may well be prepared to look at particular issues pursued and also how they were pursued.

Clients need to be aware that even a winning result can be prejudiced by such things as bad claims or arguments being pursued, issues raised and dropped late, or disproportionate expenditure on particular issues.

Clients expect advice about costs from the outset. We need to explain to them:

  • The risks in pursuing every possible claim or argument.
  • How we can conduct the litigation in what the judge will accept as an efficient and reasonable manner and be alive to when the opponent falls down on these things so that points can be made during the litigation to be referred back to after the trial.
  • The importance of making persuasive submissions on costs when the time comes.

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