Thursday 29 March 2012 by Masood Ahmed

Even though a party may succeed in obtaining a judgment in its favour, the unsuccessful party may have succeeded in defeating some of the successful party's arguments. The questions which arise in such a scenario are: which party should be awarded its costs? If the successful party is awarded its costs, should the court take account of the fact that the unsuccessful party has succeeded in defending some aspects of the claim and therefore be awarded its costs? These were important costs issues which Mr Justice Ramsey considered in Mears Ltd v Leeds City Council [2011] EWHC 2694 (TCC).

This case concerned Mears Ltd making a number of claims that Leeds City Council (LCC) had failed to comply with various aspects of the Public Contracts Regulations 2006. Mears succeeded on one part of its claim but failed on the other parts and eventually obtained an order for damages to be assessed, but not for the procurement to be set aside. Ramsey J found in favour of Mears and concluded that it was entitled to damages from LCC with quantum to be dealt with at a separate trial. The parties requested that the costs of the proceedings be dealt with before the trial.

Mears contended that it had obtained judgment for part of its claim and therefore the courts should award its costs. LCC, on the other hand, argued that it had succeeded in striking out some of Mears's claim, that other aspects of Mears's claim had been rejected by the court and that Mears did not succeed in obtaining an order setting aside the award of the relevant contract under the procurement.

Ramsey J began by considering Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd [2008] EWHC 2280 (TCC), in which Jackson J (as he then was) set out the following general principles which are to be applied in this type of scenario:

(i) In commercial litigation where each party has claims and asserts that a balance is owing in its own favour, the party which ends up receiving payment should generally be characterised as the overall winner of the entire action.

(ii) In considering how to exercise its discretion, the court should take as its starting point the general rule that the successful party is entitled to an order for costs.

(iii) The judge must then consider what departures are required from that starting point, having regard to all the circumstances of the case.

(iv) Where the circumstances of the case require an issue-based costs order, that is what the judge should make. However, the judge should hesitate before making such an order because of the practical difficulties which this causes and because of the steer given by Civil Procedure Rule 44.3(7).

(v) In many cases the judge can and should reflect the relative success of the parties on different issues by making a proportionate costs order.

(vi) In considering the circumstances of the case the judge will have regard not only to any part 36 offers made, but also to each party's approach to negotiations (insofar as admissible) and general conduct of the litigation.

(vii) If (a) one party makes an offer under part 36 or an admissible offer within CPR 44.3(4)(c) which is nearly but not quite sufficient, and (b) the other party rejects that offer outright without any attempt to negotiate, then it might be appropriate to penalise the second party in costs.

(viii) In assessing a proportionate costs order the judge should consider what costs are referable to each issue and what costs are common to several issues. It will often be reasonable for the overall winner to recover not only the costs specific to the issues which he has won, but also the common costs.

The parties also referred the court to a number of relevant authorities including:

(i) The decision of the Upper Tribunal (Warren J and Judge Sadler) in Commissioner for HM Revenue & Customs v Marks & Spencer Plc [2010] UKUT 296, where the court made a reduction of 25% to the costs of Marks & Spencer to reflect its lack of success on certain issues but held that, on the facts, HMRC was entitled to recover 25% of its own costs to reflect its success on certain issues. The net result was an order that Marks & Spencer should receive 50% of its costs; and

(ii) The judgment of the Supreme Court in Manchester City Council v Pinnock (No. 2) [2001] UKSC 6, in which the council had succeeded in obtaining an order for possession in the county court, the Court of Appeal and in the Supreme Court, but Mr Pinnock had been successful in establishing a fundamental general principle that article 8 could be relied on by someone whose home was the subject of a possession claim. The Supreme Court ordered Mr Pinnock to pay the costs in the county court but made no order for costs on the two appeals.

In exercising his discretion, Ramsey J's starting point was CPR 44.3(2)(a), which sets out the general rule that the unsuccessful party will be ordered to pay the costs of the successful party. Therefore, applying this general principle, Mears has succeeded overall in obtaining a judgment against LCC. Ramsey J also noted that, although LCC was successful in parts of its defence, it did not succeed overall in defending the matter. Ramsey J dismissed both parties' arguments that the other's behaviour during the litigation process was unreasonable. The only issue for consideration was the success and failure of the parties on particular issues raised in the matter.

Taking into account the fact that Mears has failed on a significant issue in its claim, Ramsey J noted that this was a case in which 'a proportionate costs order is appropriate to reflect the extent to which a successful party has not been selective in the points they have taken and should not recover all of their costs'.

What factors should be taken into account when assessing whether a costs order is 'proportionate'? Ramsey J took into account the following matters. First, the fact that Mears succeeded on some of its claim meant that this carried with it the costs of those aspects of the claim and the common costs which Mears had to incur in order to pursue the proceedings. Second, Ramsey J noted that there was no simple formula to be applied in establishing the percentage based on the number of issues, pages of evidence and so on. The decision, Ramsey J argued, 'must to some extent be impressionistic based on my knowledge of the case'.

Finally, allowance should be made in arriving at the proportionate cost order for the fact that, if an approach based on issues won or lost had been adopted in a case such as this, LCC would have recovered the costs of certain issues as would Mears. Taking these factors into account and Jackson J's guidance, Ramsey J held that although Mears should be awarded its costs, a substantial discount was required in order to reflect the significant costs which relate to issues on which LCC has succeeded and Mears failed. As a result, Ramsey J applied a discount of 65% to Mears's costs.

Mears raises interesting tactical points in respect of costs in civil litigation. A party who has succeeded in some of its arguments but has, overall, failed in its case, should consider whether the successful party has, indeed, succeeded on its main arguments. If not, then the unsuccessful party should raise relevant arguments in order to pursue the judge to apply a discount to the successful party's costs.

Masood Ahmed, Birmingham City University