Part 36 to the fore in this month’s costs cases round-up

Construction dispute: court should favour percentage over an issue-based order when departing from usual costs rule

Our monthly summary of key costs-related court decisions is provided by CaseCheck

Intrigue Shipping Inc & Ors v Nikitin & Ors [2013] EWCA Civ 749

Appeal against a refusal to order costs in commercial litigation where the action failed on its primary basis but succeeded on two of its four heads of claim.

Held: Although claimants who achieve a material success on a fraud claim ought ordinarily to recover at least part of their costs, dishonest conduct is a powerful consideration.

In the present case, the approach to the question of what, if any, costs order to make was unimpeachable: the judge correctly noted the general rule that costs follow success but that it was nevertheless open to the court to make a different order. The claimants’ conduct, particularly the finding of dishonest evidence, justified a departure from the general rule.

Full ruling here.

Grupo Hotelero Urvasco SA v Carey Value Added SL [2013] EWHC 1732 (Comm)

Unsuccessful claimant in a construction dispute sought an issue-based order and costs for the adjournment of an earlier trial date. In the alternative, it sought a percentage deduction of the other party’s recoverable costs.

Held: Where the court departs from the general rule that the unsuccessful party pays the costs of the successful party, it should favour a percentage over an issue-based order, unless significant costs can be discretely attributed to a distinct issue. Whether a percentage deduction is appropriate depends on the particular facts of the case and there is no automatic rule requiring reduction of a successful party’s costs if it loses on one or more issue (per HLB Kidsons v Lloyd’s Underwriters [2007] EWHC 2699 (Com)).

The amended rule as to payment on account of costs in CPR 44.2(8) creates a presumption in favour of such an order. The underlying principle remains that the successful party is entitled to payment and should not be kept out of costs. However, the order must do justice between both parties and the court should adopt a conservative approach.

In the present case, an issue-based order was not justified: it was not practicable for the costs judge to make an assessment under an issue-based order in such a complex case with substantially overlapping issues. Nor were costs for the adjournment justified as they were costs in the cause.

Although the successful party was in principle entitled to its costs, its failure to make good its cause on a substantial issue justified a deduction of 25%. The correct approach to payment on account was to proceed on the basis that the successful party was likely to recover considerably less than the costs claimed. Allowing for the 25% proportionate reduction, it was reasonable for 50% to be paid on account.

Full ruling here.

Green v Astor & Ors [2013] EWHC 1857 (Ch)

Judgment concerning an administrator’s entitlement to costs in part 64 proceedings.

Held: Where a trustee or beneficiary makes an application concerning a question of construction or of administration which is necessary for the benefit of the trust, the costs are paid out of the estate.

Where the application procedure is used in an action that strictly falls within the description of litigation, the general rule that the unsuccessful party bears the costs applies (Re Buckton [1907] 2 Ch 406). Where unreasonable conduct by a beneficiary is responsible for generating substantial costs on the part of a trustee or personal representative as regards an application to the court, it is appropriate that the burden of those costs be borne by that beneficiary and not fall on the trust or estate.

The present case was not an ordinary application for directions but had the character of hostile litigation. Applying a broad brush approach to issue-based apportionment, the administrator was liable for one of the three heads of relief (15%) and the beneficiary for the remaining two (85%). The court noted that the costs claimed were extraordinarily high and would require careful scrutiny by the costs judge.

Full ruling here.

Bellway Homes Ltd v Seymour (Civil Engineering Contractors) Ltd [2013] EWHC 1890 (TCC)

The issue of costs was to be resolved by the court following settlement of commercial litigation where the defendant had made a part 36 offer of £1.

Held: Part 36(14)(2) requires the court to take into account the justness of applying the normal costs consequences of a claimant failing to obtain a judgment more advantageous than a defendant’s part 36 offer, having regard to the non-exhaustive list of relevant factors in part 36.14(4).

What is just or unjust depends on the particular case, its facts, its history and the negotiations and offers discloseable to the court. As such, the court is entitled to draw inferences from the background facts which are unobjectionable and from the settlement actually achieved.

Summaries of applicable principles in Smith v Trafford Housing Trust [2012] EWHC 3320, Multiplex Constructions UK Ltd v Cleveland Bridge UK Ltd & Anor [2008] EWHC 2280 (TCC) and Brit Inns Ltd & Ors v BDW Trading Ltd [2012] EWHC 2489 (TCC) quoted with approval.

In the present case, although the part 36 offer was valid, a just approach required the parties to pay each other’s costs on the standard basis for relevant periods up to the time when the litigation became pointless, thereafter each paying their own costs. A proportionate recovery of 50% of the claimants’ costs was justified in all the circumstances.

The court suggested that the rule committee consider whether express provision should be made in the CPR for reference by a party to the court to permit it to accept a part 36 offer during the relevant period with the court being left to resolve issues of costs.

Full ruling here.

Wood v Gorbunova & Ors [2013] EWHC 1935 (Ch)

Judgment determining costs of an application for directions and powers of a receiver appointed by the court.

Held: Where a court appointed receiver initiates proceedings against a third party, the general rule that costs follow the event applies. Such a receiver is indemnified out of the assets of the estate where costs and expenses are reasonable and properly incurred. If a receiver litigates and is not successful, it does not necessarily mean that the costs of the litigation were not reasonable sums properly incurred.

In the present case, some of the decisions made by the receivers were sufficiently unwise to justify the right of indemnity to be partially withheld. The receivers were to pay the third parties’ costs of the application on the standard basis, fully indemnified in relation to one and indemnified to the extent of two-thirds in relation to the other. Although the receivers’ own costs were increased above a reasonable and proper amount, they were allowed to recover 85%.

Full ruling here.

Emezie v Secretary of State for the Home Department [2013] EWCA Civ 733

Appeal against a rejection of a claimant’s costs of a compromised judicial review.

Held: Where a claimant in an administrative court case has been wholly successful, whether following a contested hearing or pursuant to a settlement, all costs are recoverable unless there is some good reason to the contrary (per M v Croydon [2012] EWCA Civ 595). Boxall v Waltham Forest LBC (2001) 4 CCL Rep 258 no longer applicable.

In the present case, the judge did not refer to M v Croydon, which was applicable at the date of the order. Secretary of State ordered to pay the claimant’s costs of the judicial review proceedings and of the appeal on the standard basis.

Full ruling.

Slick Seating Systems & Ors v Adams & Ors (Rev 1) [2013] EWHC B8 (Mercantile)

Where defendants failed to engage or co-operate in costs-budgeted litigation, it was appropriate to award indemnity costs to the wholly successful claimant.

Full ruling here and Litigation Futures story here.

Mehjoo v Harben Barker & Anor [2013] EWHC 1669 (QB)

Judgment concerning entitlement to a part 36 order, as set out in CPR 36.14(3), where the claimant was awarded damages greater than the claimant’s part 36 offer but ordered to pay the defendants’ costs for an abandoned claim.

Held, inter alia: Information ‘available to the parties’ referred to in CPR 36.14(4)(c) is the information relating to the merits of the claim and not information as to what costs the maker of the offer had incurred at the date of the offer.

Deficiencies in information available to the parties, such as a failure to give details of costs, will not automatically mean that a part 36 order must not be made. Such an order will only not be made if the deficiencies are such that it would be unjust, which requires the court to examine the consequences of the alleged deficiencies and whether the party receiving the offer would have acted differently if the information had not been deficient.

In the present case, the claimant had beaten the valid offer and it was not unjust to make a part 36 order where the alleged lack of information as to the claimant’s costs had no causative effect on the defendants’ refusal to accept the offer. To avoid an issue-based assessment and to set off costs due to the defendants, a 95% reduction was justified.

Full ruling here.


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