Factual and Procedural Background
Following a seven-day trial, the trial judge delivered judgment in favour of the claimant (the respondent), awarding damages and ordering the defendant (the appellant) to pay 75% of the claimant's costs. The respondent had made a payment into court but failed on a significant issue related to a software project (referred to as the HIS issue), which accounted for a substantial part of the trial. This failure led to the respondent being deprived of 25% of his own costs.
The appellant appealed solely against the costs order, seeking an issue-based costs order under CPR 44.3(6)(f) that the costs related to the HIS issue be paid by the respondent. The trial judge had instead made a percentage costs order under CPR 44.3(6)(a). The appellant contended that the judge should have ordered the respondent to pay the costs of the HIS issue, arguing that the respondent pursued the HIS claim unreasonably and that the judge lacked sufficient information to fairly determine a percentage order without detailed assessment.
The underlying claim arose from the respondent's loss of a chance to recover damages in prior litigation due to the appellant's negligence. A major part of the claim concerned lost profits from a computer software package (the HIS package) developed for a housing association. The trial judge found the HIS claim unsustainable due to fundamental technical and commercial failures unrelated to the respondent's injury. However, the respondent's claim for loss of earnings was allowed on the basis he would have salvaged his business but for the accident.
The appellant's solicitors had repeatedly warned the respondent that the HIS claim was speculative and invited its discontinuance, keeping separate accounts of costs incurred in defending it. Despite this, the respondent pursued the HIS claim until it was rejected at trial.
Legal Issues Presented
- Whether the trial judge erred in refusing to make an issue-based costs order under CPR 44.3(6)(f) in relation to the HIS issue, instead making a percentage costs order under CPR 44.3(6)(a).
- Whether the judge had sufficient information and jurisdiction to make a fair percentage costs order without detailed assessment by a taxing officer.
- Whether the respondent should be ordered to pay the appellant’s costs attributable to the HIS issue, reflecting the unreasonable pursuit of that issue.
- The appropriate extent of any reduction in the respondent's recoverable costs to reflect the failure on the HIS issue.
Arguments of the Parties
Appellant's Arguments
- The respondent pursued the HIS claim unreasonably and should bear the costs of that issue.
- The judge lacked sufficient information to make a percentage costs order and should have made an issue-based costs order requiring detailed assessment by a taxing officer.
- The 25% reduction of the respondent’s costs was inadequate given the substantial costs incurred on the HIS issue, which was estimated at about two-thirds of the total costs.
- The judge’s refusal to order the respondent to pay the appellant’s costs for the HIS issue was based on an erroneous view that such an order would be draconian.
- The appellant sought either an issue-based costs order or, alternatively, a greater percentage reduction than 25%.
Respondent's Arguments
- The HIS claim, although ultimately unsuccessful, was pursued in good faith, reflecting a genuine belief in its merits.
- The trial judge was best placed to assess costs and had made a reasonable broad brush assessment to reduce the respondent’s recoverable costs by 25%.
- The appellant had already benefited from a costs order related to the HIS issue and had made payments into court exceeding the award.
- There was substantial overlap between the HIS claim and other claims, complicating any precise apportionment of costs.
- The respondent contended that a smaller reduction (around 10%) would be appropriate to reflect the HIS issue.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| AEI Rediffusion Music Limited -v- Phonographic Performance Limited [1999] 1 WLR 1507 |
Judicial readiness to make separate costs orders reflecting outcomes on different issues under the CPR. |
Supported the view that courts should be more willing to make issue-based costs orders, but also recognized practical difficulties leading to preference for percentage orders. |
| English -v- Emery Reimbold [2002] 3 All ER 385 |
Interpretation of CPR 44.3(6)(a) and (f) regarding percentage versus issue-based costs orders. |
Confirmed that percentage orders often produce fairer results and are consistent with the overriding objective of the CPR; courts should avoid complex issue-based assessments where impracticable. |
| Winter -v- Winter (unreported, 10 Nov 2000) |
Shift from traditional costs orders to more detailed orders reflecting success or failure on individual issues under CPR. |
Supported the proposition that courts should make costs orders reflecting loss on particular issues, encouraging responsible conduct. |
| Johnsey Estates (1990) Limited -v- Secretary of State for the Environment EWCA Civ 535 |
Priority and clarity of Part 36 payments in costs orders. |
Referenced to emphasize the protective role of payments into court against costs liability, and the importance of clarity in costs determinations. |
| Amber -v- Stacey [2001] 1 WLR 1225 |
Clarity and certainty in costs orders through Part 36 payments. |
Used to illustrate the advantage of clear costs settlements and the role of payments into court. |
Court's Reasoning and Analysis
The court examined the trial judge’s decision to make a percentage costs order rather than an issue-based order. It acknowledged that while issue-based orders can more precisely reflect the outcome of particular issues, CPR 44.3(7) requires courts to prefer percentage or date-based orders if practicable, to avoid the complexity and expense of detailed costs assessments by a taxing officer.
The trial judge had found the HIS claim to be untenable and that it should have been abandoned, but considered it too draconian to order the respondent to pay the appellant's costs on that issue. Instead, the judge reduced the respondent's recoverable costs by 25%, reflecting the costs attributable to the HIS issue.
Lord Justice Simon Brown concluded that the judge was entitled to make a percentage order given the lack of precise information about costs attributable to the HIS issue and the absence of a request for an adjournment to obtain further evidence. The court recognized the judge’s broad brush assessment as reasonable and noted the difficulty in revising it on appeal without detailed material.
Lord Justice Mance dissented on the issue of whether the judge erred in refusing to order the respondent to pay the appellant’s costs on the HIS issue. He held that the judge misunderstood the scope of CPR 44.3(7) and the principles underlying the new rules, which aim to incentivize responsible conduct and discourage unreasonable litigation. He found that the judge’s refusal to order the respondent to bear both parties’ costs on the HIS issue was erroneous and that the respondent should bear a greater proportion of costs.
Lord Justice Mance exercised the court’s discretion to increase the reduction in the respondent’s recoverable costs from 25% to 50%, reflecting the significant costs attributable to the HIS issue. He reasoned that the appellant’s costs on the HIS issue were substantially higher than the respondent’s and that the respondent’s failure to discontinue the untenable HIS claim justified this increased reduction.
Lord Justice Latham agreed with Lord Justice Simon Brown and dismissed the appeal.
Holding and Implications
The appeal is dismissed. The court upheld the trial judge’s discretion to make a percentage costs order rather than an issue-based order under CPR 44.3(6). The appellant’s challenge to the costs order was rejected by the majority, though one judge dissented, proposing a higher reduction in the respondent’s recoverable costs.
The decision confirms that trial judges have broad discretion in costs orders and that percentage orders are often appropriate and consistent with the CPR’s overriding objective, particularly where detailed assessment of costs is impractical. The judgment underscores the importance of clear evidence and submissions on costs if parties seek issue-based orders. No new precedent was established beyond the application of existing CPR principles and case law on costs discretion.