The recent judgment of the High Court (Miles J) in Terracorp v Mistry and others offers comprehensive and useful guidance on the operation of discretion concerning costs and, in particular issue-based costs orders. Although a dispute concerning land, the costs decision is of much broader and general application.
Facts and judgment at first instance
The dispute itself (and this appeal) concerned covenants in the sale contracts for parcels of land, and the charges payable as a consequence. The claimant’s claim for payments was defeated and the defendants were granted the declaration sought.
The winning defendants ran a variety of defences, only some of which were successful. The paying claimant argued that, as a consequence, the six-day trial was longer than it otherwise needed to be, and that the costs overall had thereby been increased needlessly. It seemed that the judge at first instance (HHJ Johns QC) agreed:
“[The first instance judge] also said (with some justification) that a number of the defences or counterclaims were barely comprehensible, were bad in law, or were effectively abandoned at trial.”
At trial, the defendant said they should have all their costs, as the winning party. The claimant urged an issue-based costs order in which they paid 10% only of the defendant’s costs.
In considering the issue of costs, HHJ Johns QC adopted the principles in Sycamore Bidco v Breslin and these principles were adopted by the appellate court. A precis of these principles appears below:
- In commercial litigation, the party which ends up receiving payment should generally be characterised as the overall winner of the entire action.
- The court should take as its starting point the general rule that the successful party is entitled to an order for costs.
- The judge must then consider what departures are required from that starting point, having regard to all the circumstances of the case.
- The judge should hesitate before making an issue-based costs order, because of the practical difficulties which this causes and because of the steer given by Rule 44.3(7).
- In many cases the judge can and should reflect the relative success of the parties on different issues by making a proportionate costs order.
- 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.
- 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 fact that a party has not won on every issue is not, of itself, a reason for depriving that party of part of its costs.
- The reasonableness of taking a failed point can be taken into account.
- The extra costs associated with the failed points should be considered.
- One still has to stand back and look at the matter globally, and consider the extent, if any, to which it is just to deprive the successful party of costs.
HHJ Johns QC considered the criteria above and made a broad-brush order that the losing party pay 50% of the winning party’s costs.
Given the criticism made of the winning party by the first instance judge, one may have thought this was not a bad outcome, and the archetypal discretionary balanced decision with which an appellate court was highly unlikely to interfere.
And so it proved to be.
The appeal was (amongst other things) based upon the assertion (set out at paragraph 82) that:
“[…] the award of 50% of the Defendants’ costs of the trial (when the interpretation issue took up approximately 15-20% of preparation and court time) is not just, fair or proportionate as it fails to reflect the Defendants’ conduct and level of success at trial.”
The appellant’s job was made somewhat more difficult because, in giving permission, Fancourt J limited the appeal on costs to whether the 50% was unjustifiably high and therefore wrong, but determined that the defendant as correctly designated was the winning party.
As anyone who has appealed a contributory negligence finding will know, the appeal courts are loathe to interfere with percentage splits by the trial judge, as regards almost anything. As the High Court put it, at paragraph 85:
“An appellate court will only interfere with a judge’s exercise of discretion in relation to costs in limited cases. The appellate judge does not simply ask whether he or she would have reached the same decision, but, in a spirit of self-restraint, recognises the advantage the trial judge enjoys from being immersed in the case, and having a better feel for the way the case has been run.”
Further, there was some implicit criticism (at paragraphs 89 and 93) of the brevity of the explanation for adopting the 50% approach:
“The judge’s core reasoning on the exercise of his discretion was expressed concisely and would perhaps have benefited from some expansion.”
“The Claimant’s principal criticism is that the judge failed to undertake the exercise, at least expressly, of assessing what proportion of the Defendants’ costs were properly attributable to the interpretation issue. There is some force in this submission. The judge did not spell out assessment of the amount of the costs attributable to the interpretation issues.”
However, the court went on to state (at paragraph 95) that while a judge should give reasons where he makes an order out of the ordinary, “it is not enough to say that the judge has failed to give sufficient reasons”, and that the court “will only intervene where there is no obvious (or rational) explanation for the order”.
The court ultimately dismissed the appeal, holding as follows:
- The court could not conclude that the decision was not rationally open to the judge or that he erred in the exercise of discretion.
- The overall judgment shows the judge was alive to the fact that the defendant has lost on a number of issues.
- It was important to remember that the defendant won on the principal point which was “the target of the proceedings”.
- The judge was in the best position to determine how long each successful element of the case took, certainly more so than the appeal court.
- The appellant had not established that the judge’s exercise of his discretion was flawed.
This decision emphasises some well-established points for practitioners on the exercise of judicial discretion in relation to issue-based costs orders.
Firstly, the judge should be encouraged to address the criteria above when making (or rejecting) an issue-based costs order.
Secondly, the judge should identify the winner of the litigation (and, perhaps, identify the “target of the proceedings”) when considering the overall exercise of his or her discretion.
Finally, the exercise of judicial discretion is always a difficult hurdle to surmount on appeal, even more so when one is dealing with percentage attribution by a trial judge who has heard the evidence and knows the case.