How Broad is the Court's Discretion on Costs

All litigation lawyers will advise their clients in respect of costs at the outset of proceedings. That advice will most likely be that the loser generally pays the winner’s costs. Indeed, the typical line is ‘…if you are successful in this matter, it is likely that [the other side] will be ordered to pay your reasonable and proportionate costs…’ This is, after all, enshrined in CPR 44.2(2) which says:

‘(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 another order.

The “but” in the sub rule gained some clarification and added emphasis by Fraser J in the recent case of Beattie Passive Norse Ltd and another v Canham Consultant Ltd [2021] EWHC 1116 (TCC), a construction dispute in which the Claimant, who sought damages of £3.7million against a consultant engineer, was awarded judgment for £2,000. The Claimant’s case was that designs produced by the Defendant for the construction of foundations of two blocks of housing were defective and the blocks were demolished. The buildings were also so defective for other reasons that they needed to be demolished in any event. The award of damages represented an apportionment of costs of certain very limited remedial work which had to be carried out prior to demolition.

So, the Claimant had “won” (in that it obtained a judgment in its favour) and therefore, should also be awarded a proportion of its costs, right? Well not here.

Costs of £500,000 were awarded in favour of the Defendant on the indemnity basis (the basis by which the Court assesses costs which results in a higher rate of recovery for the receiving party). The Defendant had made two Part 36 offers, the earlier and lower of which being £50,000 plus costs. A Part 36 Offer, when beaten (i.e. the Claimant fails to obtain a judgment for more than the amount of the offer), has the consequence that the Claimant is liable to pay the Defendants costs from the date of expiry of the Relevant Period (21 days after the offer is made) with interest on those costs.  Hence, it was accepted by both parties that, the defendant should be awarded its costs after the date of the Relevant Period. However, the Defendant sought an order for all of its costs from the commencement of the litigation.

In the Court’s view, the Claimant had relied heavily on a criticised expert report and had been factually inaccurate when responding to a request for information in respect of (what was) a central issue in determining liability: whether the foundations were ‘constructed in accordance with the Defendant’s design, as far as the details in the design could be discerned’.  Fraser J stated that the Claimant had been ‘…advancing a plainly untruthful case on a major central point in the litigation. There is simply no excuse for this, and none has been proffered’.  Further, the Defendant followed up its requests for information with a notice to admit facts to highlight the factors leading to the decision to demolish the two blocks, which should have demonstrated that causation presented a “very real, if not insurmountable, obstacle to any meaningful recovery in litigation”. The Claimant simply ignored this.

No order for costs, in either party’s favour, was made up to the date of service of the Claimant’s further information. Thereafter, the Defendant was awarded all of its costs of the proceedings to be assessed on the indemnity basis.

This should serve as a reminder to all litigants that the Court’s discretion when making an order for costs is wide. Further, litigants are reminded that when deciding what order to make about costs, the Court is required to have regard to all of the circumstances of the case, to include the conduct of the parties. If the Court deems a party’s conduct to be unreasonable (as was the case in Beattie) it may depart from the usual loser pays the winner’s costs rule.

Written by : Richard David, Legal Executive

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