We previously considered the different costs orders available to the court in our article Costs Orders Available to the Court: Ensuring the Correct Order is Obtained. One of the orders on the menu are issue-based costs orders, whereby the paying party will pay the receiving party’s costs in relation to specific issues addressed during the proceedings. They are typically sought by a losing party when the successful party has won the claim overall but has lost on one or more issues. The difficulties faced by costs judges when an issue-based costs order is made is that they will have to master the issues in detail to be able to determine what costs were properly incurred in dealing with it, and this can produce a more complicated assessment of costs.
The recent decision in George Hugh Pigot v Environment Agency [2020] EWHC 1444 (Ch) summarises the principles relevant to the making of an issue-based costs order. It highlights the desirability of percentage-based costs orders over issue-based costs orders and emphasises that issues must be discrete or stand out as being separate for an issue-based costs order to be justified.
At paragraph 6 of the judgment, the principles are summarised as follows:
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The mere fact that the successful party was not successful on every issue does not, of itself, justify an issue-based cost order. In any litigation, there are likely to be issues which involve reviewing the same, or overlapping, sets of facts, and where it is therefore difficult to disentangle the costs of one issue from another. The mere fact that the successful party has lost on one or more issues does not by itself normally make it appropriate to deprive them of their costs.
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Such an order may be appropriate if there is a discrete or distinct issue, the raising of which caused additional costs to be incurred. Such an order may also be appropriate if the overall costs were materially increased by the unreasonable raising of one or more issues on which the successful party failed.
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Where there is a discrete issue which caused additional costs to be incurred, if the issue was raised reasonably, the successful party is likely to be deprived of its costs of the issue. If the issue was raised unreasonably, the successful party is likely also to be ordered to pay the costs of the issue incurred by the unsuccessful party. An issue may be treated as having been raised unreasonably if it is hopeless and ought never to have been pursued.
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Where an issue-based costs order is appropriate, the court should attempt to reflect it by ordering payment of a proportion of the receiving party’s costs if that is practicable.
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An issue-based costs order should reflect the extent to which the costs were increased by the raising of the issue; costs which would have been incurred even if the issue had not been raised should be paid by the unsuccessful party.
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Before making an issue-based costs order, it is important to stand back and ask whether, applying the principles set out in CPR 44.2, it is in all the circumstances of the case the right result. The aim must always be to make an order that reflects the overall justice of the case.
In Pigot the claimant lost on the issue of whether the defendant was in breach of statutory duty but did succeed on liability in nuisance. It was held that the claim for breach of statutory duty was simply a different legal basis for putting the claimant’s case and it was not a discrete issue which caused additional costs to be raised. The judge also considered that the claimant did not act unreasonably in raising any of the issues considered. Overall, applying the principles set out in CPR 44.2, it was considered that an issue-based costs order would not, in all the circumstances of the case, be the right result. Accordingly, it was ordered that the costs of the claim be paid by the defendant to the claimant.
This follows Canary Wharf (BP4) T1 Ltd and Ors v European Medicines Agency and Anor [2019] EWHC 921 (Ch) in which the High Court ruled that an issue-based costs order should not be made unless there is an issue which ‘starkly’ stands out as being separate on which the successful claimant lost.
At paragraph 12 of the judgment, Mr Justice Marcus Smith stated that, increasingly, there is debate about whether the successful party, instead of simply having an order for its costs, should have those costs cut-back. He continued, at paragraph 14, to note that at point (5) on page 1358 of the 2018 edition of Civil Procedure that the courts recognise that in any litigation, especially complex commercial litigation but including personal injury litigation, any winning party is likely to fail on one or more issues in the case. This is particularly the case where the issues are significantly intertwined.
It was the judge’s prima facie view that, unless there is an issue which so starkly stands out as being separate and on which the receiving party lost, an issue-based costs order should not be made.
Insight
Pigot provides detailed guidance in relation to the making of issue-based costs orders. It emphasises that the issue(s) on which the overall successful party has lost must be distinct and cause additional costs to be incurred to justify such an order.
The decision also highlights the courts’ reluctancy to award an issue-based costs order. CPR 44.2(6) sets out seven different costs orders available for the court to make. Interestingly, these are set out in the order of desirability for the ease of any assessment of costs, and it is pertinent to note that ‘costs relating only to a distinct part of the proceedings’ places sixth in the list of seven.
The position is also made clear at CPR 44.2(7) which provides that, before the court considers making an order for costs relating only to a distinct part of the proceedings, it will consider whether it is practicable to make a percentage-based order or an order awarding costs from or until a certain date only.
This approach has been successfully applied in a number of cases, including Budgen v Andrew Gardner Partnership [2002] EWCA Civ 1125, where the trial judge ordered the defendant to pay 75% of the claimant’s costs on the basis that the claimant had lost one issue, which had taken up a substantial amount of the trial.
In many cases, the parties should be capable of making costs submissions and the trial judge should be able to reflect the relative success of the parties on different issues by making a percentage based costs order. This will invariably lead to shorter and more straightforward detailed assessments.
