In a recent High Court decision, a defendant successfully avoided certain interest rate swaps but was deprived of a favourable costs order because it had spent so much time on failed alternative arguments.


In response to an Italian bank’s claim relating to interest rate swaps, the defendant Italian local authority sought to avoid the swaps on a number of different grounds, including lack of capacity under Italian law and failure to comply with various provisions of Italian local government and financial services law. At first instance although the defendant was ultimately successful in avoiding the swaps, it lost on the majority of its arguments.

When it came to the issue of recovering legal costs, the claimant argued that the defendant had adopted a “kitchen sink” approach to the litigation and that the claimant should therefore be reimbursed 90% of its costs by the defendant; in return, the defendant should only have 10% of its costs paid by the claimant. In the claimant’s view, this would reflect the balance of issues on which the claimant had been successful. The defendant disagreed, asking for 70% of its costs.

The decision

Although the general rule is that the unsuccessful party should pay the successful party’s costs, the parties in this case had agreed that it was right, in the circumstances, to depart from this. The claimant’s primary claim had not been successful, but only two of the defendant’s many defences to the claim had succeeded. In addition, the claimant’s alternative restitutionary claim had succeeded and although the defendant’s restitutionary counterclaim had succeeded in return, its several other counterclaims had failed. In making its arguments, the defendant had also produced an onerous amount of expert evidence.

The judge accepted that a defendant is entitled to raise any arguable defence or counterclaim, and agreed that the claimant could have avoided the time and cost of the trial by conceding the points on which it had ultimately lost. However, in order to deprive it of its costs it was not necessary for the judge to find that the defendant had acted unreasonably, only that it was right to do so in the circumstances. The defendant’s position was not helped by the judge’s view that its key witness had given evidence which had been invented, incredible, inconsistent, absurd and disingenuous.

In conclusion, the Court ordered that there be no order as to costs, with the consequence that the parties each had to bear their own costs.

This case underlines once again the old adage that one should pick one’s battles wisely. A defendant may be entitled to put forward any arguable defences or counterclaims it has, but this does not mean that it should put them all forward. It must carefully weigh up the chance of success for each against the overall risk of wasting the court’s time and the consequent costs consequences.

Dexia Crediop SpA v Comune di Prato