The general rule is that costs follow the event, and the unsuccessful party will be ordered to pay the successful party’s costs. However, this is not an absolute rule, and the courts have wide discretion when it comes to making costs orders.
Where the successful party has failed on one or more issues, or abandons issues before trial, the court may exercise its discretion and depart from the general rule. In such cases, the court may consider it appropriate to make an issues-based costs order, or a percentage-based costs order.
Issues-Based Costs Orders
An issues-based costs order allocates costs between the parties based on specific issues in the proceedings. For example, where a Claimant succeeds on the main claim but fails on one or more ancillary points, the Defendant may argue that an issues-based costs order should be made, such that the Claimant cannot recover the costs associated with issue(s) on which it failed.
An issues-based costs order may be appropriate where there are distinct issues on which the successful party has failed, and where identifying the discrete costs of these issues is not unduly onerous or complicated.
Percentage-Based Costs Orders
Where an issues-based costs order is impractical or inappropriate, a percentage-based costs order may be made instead. This is a simpler approach where the court does not attribute costs to specific issues, but instead makes a blanket reduction to the successful party’s recoverable costs by awarding them a percentage of their total costs. A percentage-based order is particularly useful in cases where it would be disproportionately time-consuming or complex to separate out the costs of discrete issues, and it is often the preferred approach of the courts.
Where a percentage-based order is made, the successful party’s costs would be assessed in the usual manner, following which, there will be a figure which the court considers reasonable for the unsuccessful party to pay; this figure will then be reduced in line with the percentage-based order.
When Should an Issues-Based or Percentage-Based Order be Made?
There is a wide body of case law wherein issues-based costs orders have been considered. The core principles were neatly summarised in George Hugh Pigot v Environment Agency [2020] EWHC 1444 (Ch):
- The mere fact that the successful party was not successful on every issue does not necessarily justify an issues-based cost order. In any litigation, there are likely to be issues which involve reviewing the same, or overlapping, sets of facts, and where it is therefore difficult to disentangle the costs of one issue from another. The mere fact that the successful party has lost on one or more issues does not by itself normally make it appropriate to deprive them of their costs.
- Such an order may be appropriate if there is a discrete or distinct issue which caused additional costs to be incurred, or where the overall costs were materially increased by one or more issues on which the successful party failed.
- Where there is a discrete issue which caused additional costs to be incurred, if the issue was raised reasonably, the successful party is likely to be deprived of its costs of the issue. If the issue was raised unreasonably, the successful party may also to be ordered to pay the costs of the unsuccessful party in connection with that issue. An issue may be treated as having been raised unreasonably if it was hopeless and ought never to have been pursued.
- Where an issue-based costs order is appropriate, the court should attempt to reflect it by ordering payment of a proportion of the receiving party’s costs if that is practicable.
- An issue-based costs order should reflect the extent to which the costs were increased by the raising of the issue; costs which would have been incurred even if the issue had not been raised should be paid by the unsuccessful party.
- Before making an issue-based costs order, it is important to stand back and ask whether, applying the principles set out in CPR 44.2, it is in all the circumstances of the case the just result.
Perhaps inevitably, given the breadth of the court’s discretion and the range of circumstances that may be relevant, it is not easy to discern clear guidance from authorities as to whether a particular case merits depriving the successful party of its costs of an issue. It is apparent from the authorities that whether an issues-based order is appropriate is heavily dependent on the unique facts of each case.
In J Murphy & Sons Ltd v Johnson Precast Ltd (No.2) [2008] EWHC 3104 (TCC), the court refused to depart from the general rule and ordered that the successful party’s costs were to be paid in full, notwithstanding its failure on two arguments raised at trial. There was no difficulty in identifying the Defendant as the successful party to litigation, and the question did not arise of whether there were any discrete issues that added significantly to the length of the trial. In the circumstances, an issues-based costs order was considered to be inappropriate.
In Sycamore Bidco Ltd v Breslin [2013] EWHC 583 (Ch); [2013] 4 Costs L.O. 572, the Claimant brought proceedings against the Defendants for misrepresentation and breach of warranty regarding its purchase of shares in a company. The Claimant’s misrepresentation claim failed, but the breach of warranty claim succeeded. The court determined that the issues on which the Claimant had fought and lost were significant and costly enough to warrant departure from the general rule, therefore the Defendant was ordered to pay 60% of the Claimant’s costs.
In R. (Viridor Waste Management Ltd) v Commissioners for HM Revenue and Customs [2016] EWHC 2502 (Admin), during the course of successfully defending a claim, the Defendant had relied on a ground which the court rejected. Whilst the court held that the Claimant should be relieved of paying the Defendant’s costs of the ground on which it failed, it was determined that the ground had not been raised unreasonably, and it would not be appropriate to go further and order the Defendant to pay the Claimant’s costs of that issue.
In Bonsor v Bio Collectors Ltd [2020] EWHC 918 (QB), the court considered it appropriate to award the Claimant 90% of her costs where she had succeeded in her negligence claim but failed on one issue. The issue was a discrete one that had added sufficiently to the length of the trial so as to displace the prima facie rule that costs should follow the event.
Aderounmu v Colvin [2022] EWHC 637 (QB) concerned a preliminary issue trial regarding the limitation period of a personal injury claim. Although the Claimant had failed to show that he lacked capacity or that he had only recently acquired knowledge of the injury, the court had concluded that the limitation period should be disapplied under the Limitation Act 1980 s.33; therefore, the Claimant had been successful overall. The two failed arguments were not discrete issues and there was no justification for an issues-based costs order; the Claimant was entitled to his costs.
Shirley v Caswell [2001] 1 Costs L.R. 1 relates to a case where the Claimant abandoned various issues before trial. The first instance court ordered the Defendant to pay 60% of the Claimant’s costs, and the Claimant to pay 40% of the Defendant’s costs. On appeal, the order was adjusted to provide that the Defendant should pay all of the Claimant’s costs, and the Claimant should pay 40% of the Defendant’s costs. Whilst the appellate court accepted that the costs of issues abandoned ought, prima facie, to be disallowed against the party incurring them on an assessment, it was considered that the order of the court below risked doubly penalising the Claimant where, on assessment, the Costs Judge would disallow unreasonably incurred costs. This decision was subsequently clarified in Dooley v Parker [2002] EWCA Civ 1188, wherein, Dyson LJ held:
“…It is plain, for the reasons I have already mentioned, that there is jurisdiction to order the paying party to pay only a proportion of the receiving party’s costs. That will commonly be appropriate where the receiving party has failed on one or more issues in the case having succeeded on others. Of course, if an order is made disallowing part of a receiving party’s costs, then the costs judge must take account of that fact when making the assessment of costs and take great care to make sure that a double penalty is not imposed. There should be no difficulty about this, since the costs judge should know from the terms of the judgment of the trial judge ordering payment of a proportion of a party’s costs, that that is what the trial judge did and the reasons why he or she did it.”
The clarification in Dooley v Parker makes it clear that an issues-based order will often be appropriate where issues are abandoned before trial. At any subsequent assessment of costs, the Costs Judge is able to take the terms of the costs order into account when conducting the assessment of costs.
Strategic Considerations
An issues-based order can produce considerable costs-savings for an unsuccessful party, by removing part of their opponent’s costs before any assessment of those costs occurs. Perhaps most notably, these orders are effective even where an approved Costs Budget is in place and can limit recoverable costs to an amount lower than the approved budget.
Whilst it is open to an unsuccessful party to raise objections at the detailed assessment to the costs of failed or abandoned issues, an issues-based order removes the inherent uncertainty of detailed assessment proceedings, together with the associated costs risk. This is of particular relevance where the proceedings are subject to costs management, wherein the Costs Judge will not depart from the approved Costs Budget unless there is a good reason to do so; this is a notoriously high threshold to meet, which can be circumvented by an issues-based order.
Accordingly, when the issue of costs falls to be determined in proceedings where there has been mixed success, it is advisable for the unsuccessful party to consider the merits of seeking an issues-based order at this stage.