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Costs: he who writes the cheque pays the costs… unless it is a group action

Two recent decisions, one in the Court of Appeal and one in the High Court, considered the incidence of costs where it is less than clear who has “won”.

He who writes the cheque pays the costs

In Wall v Munday, the Chancery Division of the High Court allowed an appeal against the order of the recorder in relation to incidence of costs.

The substantive case concerned whether or not the estate was entitled to a share of the proceeds of a property that had been held by the deceased and his former wife as joint tenants.

The rival positions were:

  • Mrs Munday claimed she was entitled to “scoop” the lot as the survivor of a joint tenancy.
  • Mr Wall, on behalf of the estate, claimed that the estate was entitled to the whole sum.
  • In Wall, on behalf of the estate, claimed that the estate was entitled to the whole sum.

The recorder dismissed Mr Wall’s claim and allowed Mrs Munday’s counterclaim, the net effect being that the proceeds of the property were to be split equally between the estate and Mrs Munday.

None of those findings were challenged on appeal, and the appeal related only costs.

The recorder had ordered Mr Wall, on behalf of the estate, to pay 80% of Mrs Munday’s costs.

Mr Wall argued that he had been the true winner in the litigation as the starting point had been that the estate got nothing and the result was that the estate got 50% of the proceeds of sale, and so the net effect was that the estate gained 50% of the proceeds of sale and Mrs Munday lost 50% of the proceeds of sale.

The Chancery Division agreed and overturned the recorder’s decision and ordered Mrs Munday to pay the costs of the action. However, the Chancery Division recognised that there should be a discount from a 100% order to reflect those aspects of the case where Mr Wall had failed.

Consequently, the Chancery Division discounted the costs that Mrs Munday had to pay to Mr Wall by 40% and thus allowed the appeal on costs and substituted for the recorder’s order an order that Mrs Munday pay 60% of Mr Wall’s costs.

Thus, the Chancery Division followed the line of cases whereby the person who has to write the cheque in the litigation, in this case clearly Mrs Munday, has to pay the costs.

The court also referred to the decision of the Court of Appeal in Day v Day, where the facts were very similar to this case and where the party who had lost part of the proceeds of sale was ordered to pay the costs.

He who writes the cheque does not necessarily pay the costs

In Sirketi v Kupeli and others, the Court of Appeal took the rare step of overturning the costs order of the first instance judge and substituting its own order.

The key finding, in what is generally a lengthy and fact sensitive judgment, is that the general rule that you can determine the winner of the case, or more particularly the loser, by who writes the cheque, has no or little application in group litigation.

This case involved 838 claimants, with all claims being managed by one firm of solicitors, although there had never been a formal group litigation order. There were three categories of claimants; those claimants in Categories 2 and 3 all had their claims dismissed, and that covered 789 of the total number claimed. The Category 1 claims (49 in total) were successful.

The trial judge ordered the defendant to pay 33% of the claimants’ costs.

The defendant appealed on the ground that it had been the true winner, and not the claimants.

Here, the Court of Appeal accepted that, in an ordinary case where there was only one claim, the “who writes the cheque” test is generally determinative, although the court has a general discretion under section 51 of the Senior Courts Act 1981 and CPR 44.2.

CPR 44.2(2) itself states:

“(2) If the court decides to make an order about costs –
(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but
(b) the court may make a different order.”

As the Court of Appeal pointed out, the court has a general discretion to make no order for costs, but once it has decided to make an order then the general rule is that the loser pays. The “who writes the cheque” test is normally a way of deciding who has won and who has lost, although the court is still free to make a different order (CPR 44.2(2)(b)).

In fact, the decision of the Court of Appeal here was to substitute its own decision to make no order for costs, a choice open to it under CPR 44.2. Here, the trial judge had erred in looking at the 49 claimants who had succeeded, rather than also looking at the 789 claimants against whom the defendant had won.

In A L Barnes Limited v Timetalk (UK) Ltd, the Court of Appeal had said:

“In deciding who is the successful party the most important thing is to identify the party who is to pay money to the other. That is the surest indication of success and failure.”

In Day v Day, the Court of Appeal said:

“… in a case like this, the question of who is the unsuccessful party can easily be determined by deciding who has to write the cheque at the end of the case…”

Here, the Court of Appeal examined the case law in detail and said that there were limits to which “the payer of the cheque” must be considered the unsuccessful party in the litigation, and referred to Medway Primary Care Trust v Marcus, where a claimant in a clinical negligence case had claimed that his leg was amputated as a result of the negligence of the defendant and where, on the basis of the claimant’s case, quantum was agreed at £525,000. However, the defendant succeeded on causation and thus the claimant was awarded just £2,000 for pain and suffering.

The trial judge ordered the defendant to pay 50% of the claimant’s costs, but the majority of the Court of Appeal overturned that decision and said that the real claim had failed and therefore the defendant was the successful party.

It ordered the claimant to pay 75% of the defendant’s costs, and would have ordered the claimant to pay all of the costs but for the fact that the defendant had made no offer, either under Part 36, or by way of a Calderbank offer.

The trial judge relied heavily on the “who paid the cheque” point, stating:

“… the Claimants are the winners because at the end of the day, they will receive a cheque from the Defendant.”

The Court of Appeal said that this was too crude an approach to group litigation.

It is different to a claim for money between two individuals where the issue of who pays whom may well be a straightforward and easily identified mark of who the unsuccessful party was for the purposes of CPR 44.2(2), but in a group claim, looking at the litigation as a whole, there are other material factors.

In a group claim the defendant may be unitary, but the claimants are not and on the basis of CPR 44.2(2), as a starting point, the defendant was entitled to its costs from all of the claimants who had lost. This was particularly the case in the absence of a group litigation order.

Also, the practice of having lead claims means that the trial of those matters is designed to determine matters other than the actual claims before the court; consequently, the direction any money travels as a result of a group claim trial may not always properly reflect “success”:

“Looking at the litigation as a whole, whether a party is “successful” is an issue which has to take into account both the extent to which a party has been successful in such issues and the consequences of the trial for the balance of claims. These are, quite clearly, material considerations so far as the issue of costs as between the parties is concerned.” (Paragraph 61, Sirketi v Kupeli and others).

The Court of Appeal held that the trial judge was wrong to equate “who receives the cheque” with the successful party for the purposes of CPR 44.2(2) in the context of a complex group claim.

The trial judge was required to consider who was successful, in the context of the group litigation as a whole, and that was not truly reflected by the fact that a limited number of claimants was successful in, and as a result of, the Part 1 trial (paragraph 69).

The Court of Appeal also said that where the concept of overall success may be a necessarily ambivalent concept, as in a complex group claim trial in which opposing parties each have considerable success, a search for an overall “winner” may be a largely fruitless exercise.

It when on to say, at paragraph 77:

“In any event, it is clear from CPR rule 44.2 that, in assessing costs as between parties, the court must first determine whether to make a costs order at all. BCCI (see paragraphs 9 and 63 above) illustrates that, where the court considers success and determines that no party was successful – in the sense that “honours were even” – it might be appropriate to make no order as to costs.”

That is in fact precisely the conclusion that the Court of Appeal here reached.

The Court of Appeal went on to express its dismay “at the way in which the costs of the parties have so vastly, and so obviously, exceeded any substantive claim that the Claimants may have had.”

It also pointed out that the main issue in this litigation “has for a while in truth been the issue of costs.”

The Court of Appeal said that neither side came out of the litigation with much credit.

Underwoods Solicitors Kerry Underwood

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