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22 July 2021
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Normal costs consequences (and beyond?)

All civil litigation lawyers tell their clients at the outset of litigation that (a) it is an expensive business and (b) the loser generally pays for it all. This is, after all, enshrined in CPR rule 44.2: 

  1. The general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but
  2. The court may make a different order. 

That ‘but’ between the two sub-rules gained an added emphasis and some clarification by Mr. Justice Fraser in Beattie Passive Norse Ltd & Anr v Canham Consultant Ltd (No2 Costs) [2021] EWHC 1414 (TCC)

Here a bitter construction dispute with a pleaded value of £3.7m settled at trial for the princely sum of £2,000. The claimants’ 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 (not related to the foundations) that they had to be demolished in any event. The award for damages represented an apportionment of the costs of certain very limited remedial work which had been carried out prior to demolition. 

The defendant had made two part 36 offers, the earlier and lower of the two being for £50,000 plus costs of certain elements of the pleaded claim. Ordinarily one would expect, in line with CPR rule 36.17(3), for the claimant to be awarded their costs to the date of the expiry of the part 36 offer, and the defendant to be awarded their costs thereafter – a ‘normal’ costs consequence for those familiar with the workings of part 36. 

The claimants sought these ‘normal’ costs consequences. They had ‘won’ in the sense that they had achieved judgment and damages, no matter how small, and their costs should be awarded, fettered by part 36. This stance was supported, to the claimants’ mind, by the defendant’s refusal to mediate until late in the day, and then only in a format the defendant selected. Conversely the defendant sought an order for all its costs from the commencement of the litigation, to be paid on the indemnity basis. 

The judgment is a useful whistle-stop tour through the relevant principles from both the CPR and authorities as to the court’s discretion as to costs and what should be taken into account when making a ‘just’ order for costs. 

It was common ground that the defendant would have their costs from the date of the expiry of their part 36 offer. The judgment is thus interesting for how it deals with the parties’ costs prior to this date and on what basis they should be assessed. 

The claimants’ arguments regarding the defendant’s refusal to engage in mediation until late in the day were dismissed. Whilst it was accepted that an unreasonable refusal to engage in mediation could justify the court employing its discretion to depart from the general rule, the defendant’s refusal to mediate was not so. 

The court expressed its profound dissatisfaction with the claimants’ conduct. Mr Justice Fraser was particularly scathing about the claimants’ response to what was a central issue in determining liability – whether the foundations were built to the design the defendant had produced. The defence expressly stated that they were not. 

The particulars of claim “entirely omitted this important fact” and the claimants doubled down on their stance, stating in a reply to a request for information that the foundations were “constructed in accordance with the defendant’s design, as far as the details in the design could be discerned”. This was, in the court’s judgment “completely factually inaccurate. This is a more polite way of saying directly untrue… From that date on, the claimants were advancing a plainly untruthful case on a major and central point in the litigation. There is simply no excuse for this, and none has been proffered”. 

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 claimants simply ignored this. 

For costs to be awarded on the indemnity basis, it was “crystal clear that there must be something that takes the case out of the norm”. This case was certainly out of norm and the costs order of Fraser J reflected that. The claimants’ conduct in rejecting the defendant’s “very generous” part 36 offers, knowing the flaws in their case, warranted costs on the indemnity basis for the defendant form their expiry. The fact that the claimants pleaded “facts” so “directly contrary to the true situation” precluded them from recovering any costs of the action, via the court”s discretion under CPR rule 36.17(5). 

This was partially balanced with a denial of the defendant’s submissions for its costs of the entire action on the indemnity basis. Notwithstanding the tiny level of damages awarded, the defendant was still found to be negligent in some aspects and the costs order needed to reflect this. 

No order for costs at all, in either party’s favour, was made up to the date of the service of the claimants’ service of further information. Thereafter the defendant would recover all of its costs of the proceedings (that is, before the expiry of its part 36 offer) to be assessed on the indemnity basis. 

The claimant was thus punished for conducting litigation beyond this date on a wholly false factual basis. With costs for a significant portion of the litigation being awarded on the indemnity basis, the limitations provided by the defendant’s budget also became less relevant in reducing the claimants’ costs exposure. 

This should act as a stark reminder to all litigants that the court’s discretion when making the orders as to costs is wide and will be utilised to a full extent.

This article, written by Adam Grant, first appeared in  THOMSON REUTERS DISPUTE RESOLUTION BLOG on 23 July 2021

Adam Grant is a Costs Lawyer at KE Costs Lawyers and a Council Member at Association of Costs Lawyers

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