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Damages and costs
What rules and standards govern the calculation and award of damages?
In general terms, damages are intended to be compensatory.
However, given the lack of claims that have proceeded to trial, the appropriate measure of loss and damages that may be claimed under Sections 90 and 90A of the Financial Services and Markets Act is an area of ongoing uncertainty.
In breach of contract claims, damages are intended to compensate claimants and place them in the position in which they would have been had the contract been performed without the breach occurring.
In tort claims, damages are intended to compensate claimants and place them in the same position in which they would have been had the tort not been committed.
In determining whether damages are payable, the courts will consider the questions of causation, remoteness and mitigation:
- Causation – the courts will commonly apply the ‘but for’ test to determine whether there is a causal link between the breach of contract or tort and the loss suffered by the claimant.
- Remoteness – the courts will not allow damages to be recovered where they are too remote. The courts will seek to ensure that the loss suffered was one which was in contemplation of the parties and a foreseeable consequence in the event of a breach of contract or tort occurring.
- Mitigation – the claimant has a duty to mitigate its losses and the courts will reduce the amount of damages recoverable if the claimant has not taken reasonable steps to mitigate its loss.
Given the range of factors involved and the complexity of each, expert evidence is almost always required when calculating damages.
Are damages capped?
Are punitive damages allowed?
Punitive damages are permissible, but it is extremely rare for them to be awarded. In the limited cases where they are awarded, it is typically because the courts have found that the defendant is guilty of particularly insidious behaviour or committed its wrongdoing knowing that the benefit from doing so would exceed any damages following from it.
Are any other remedies available?
In certain circumstances, the courts may order rescission (ie, the setting aside of a contract) in successful misrepresentation claims, so as to return the claimant to the position it was in prior to being induced to enter into the contract.
Who bears the costs of proceedings? Can this burden be shifted in any way?
Typically, the losing party pays the other party's costs.
However, the courts have the discretion to make other orders. For example, where one party has acted unreasonably in relation to a particular issue, the courts may order it to pay the other party's costs in relation to that issue, even where the party ordered to make the payment has won the issue in question.
Part 36 of the Civil Procedure Rules allows a party to make a special type of settlement offer without prejudice except as to costs to the other party. If such an offer is rejected, it can have significant cost implications for the party that rejected the offer in the event that the offering party equals or beats the offer that it made at trial. Among other things, the courts can order costs to be paid on an indemnity basis and interest paid at a higher rate than would have been payable otherwise.
How are costs calculated? Does interest accrue on costs?
Costs are assessed on either a standard or an indemnity basis.
The default position is for costs to be assessed on a standard basis; here, the courts will only order costs that are proportionate and have been reasonably incurred to be paid by the other side. Where there is any doubt about this, the courts will side with the party ordered to pay the costs.
In certain circumstances, the courts may assess costs on an indemnity basis, for example where a party has acted improperly. Where this occurs, the courts will deem costs recoverable if they are either reasonably incurred or reasonable in amount. Any doubt will be resolved in favour of the receiving party.
In broad terms, a successful party will expect to recover 60% to 80% of its costs.
Interest is awarded on costs from the date of the costs order. The current rate is 8%, pursuant to the Judgment Debts (Rate of Interest) Order 1993 (SI 1993/564).
What rules and procedures apply to the provision of security for costs?
An application for security for costs can be made only once litigation has commenced, but should be made as soon as possible thereafter.
The application is usually made by a defendant against a claimant, but can also be made by:
- a defendant against a third party (eg, the claimant's litigation funder);
- a claimant against a defendant where the latter has issued a counterclaim; and
- a respondent against an appellant.
Security for costs is rarely awarded as the courts are reluctant to stifle a claim. In order to obtain security for costs, a defendant must show that the claimant falls into at least one of a number of categories. Two of the most commonly used categories are:
- the claimant is a company and there is reason to believe that it will be unable to pay the defendant's costs; and
- the claimant has taken steps in relation to its assets which would make it difficult to enforce an order for costs against it.
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