If you win your litigation, you might once have expected to be awarded your costs and to be able to recover a good proportion of them. But what if the court makes an issue based costs order? What does that mean?

The Civil Procedure Rules encourage the court to consider making costs orders which reflect a more detailed analysis of success and failure and, in particular, to make costs orders in respect of certain periods, or by reference to certain issues, or by way of percentages.

In Costain Ltd v Haswell & Partners the judge stated that: “the time-honoured rubric that “costs follow the event” is no longer applied automatically in this kind of situation even though a clear winner of the litigation has emerged.” Costain provides a good example of an issue based costs order in action. There the initial claim was for £3.5m, but even before trial this figure was reduced to about £1.8m (including finance charges). At trial Costain were awarded £163,478.51 but the case had occupied the court for 14 days and the combined legal costs of the parties amounted to approximately £2.9m.

Which meant that the court’s order as to costs would affect the financial position of the parties far more than the decisions on liability and quantum since the sum recovered by Costain was small compared with the sums spent on legal costs.

In reaching his decision on costs, the judge, Richard Fernyhough QC, looked at these issues:

  • Who was the successful party? The judge was in no doubt that Costain was the successful party, despite the award being considerably less than their original claim. The award was “substantial”.
  • On what issues did Costain succeed and fail? Costain had succeeded on all but one of the liability issues and on a prolongation claim, but, on quantum, on only four of the eleven heads of claim. The judge translated this analysis into percentages:

“I estimate that the issues of liability and prolongation of the works in principle upon which Costain succeeded took up approximately 60% of the time at trial.. (and) quantum issues upon which Costain succeeded...5%... I also consider that the time taken in preparation of this case can be properly allocated in the same proportions.”

He concluded that Costain was entitled to recover 65% of its total costs from Haswell and that Haswell should recover 35% of its costs from Costain, but that was without taking into account the conduct of the parties.

  • Conduct of the parties

The judge said that Costain’s claim was initially exaggerated “...to a considerable extent...” and it was unreasonable of Costain to pursue certain claims. It was, however, not unreasonable of Costain to make the Part 36 offers that it did, in which it offered to accept sums in excess of £1m. Nor was it unreasonable for Costain to reject Haswell’s offer to “drop hands” but, in turn, it was unreasonable for Haswell to reject Costain’s offers of settlement out of hand without coming back with some form of substantive counter-offer.

Taking this conduct of the parties into account, the judge reduced Costain’s costs recovery from Haswell by 10% to 55% and reduced Haswell’s recovery from Costain by 20% of its costs to 15%. He then set 20% of Haswell’s estimated costs against 55% of Costain’s estimated costs to produce a figure (£620,000) that Haswell had to pay Costain, which was about 38.75% of Costain’s costs.

Which shows just how powerful a factor in litigation an issue based costs order can be. Enough to make claimants look even harder at the strength of their case.