When making an order for costs following litigation, the court will have regard to all of the circumstances of the case, including the conduct of all the parties throughout.
The court can exercise discretion in making an order for costs. Whilst the normal rule is that the unsuccessful party is liable for the winning party’s legal costs, , it is open to the court to exercise its discretion to consider making a different order. To depart from the norm, the court will not only consider the parties conduct, but the manner by which the claim was brought or defended by the parties or , and whether an offer to settle or payment into court was made regardless if a winning party is partly or wholly successful
When considering the parties conduct on the issue of costs, the court will look at:-
- Parties conduct before and during the proceedings;
- whether the allegations or issues raised were reasonable;
- the manner in which a case was pursued or defended; and
- whether a successful claimant has exaggerated the claim.
The effect of the parties’ conduct on the basis of the assessment of costs
The court’s discretion on costs, set out in the Civil Procedure Rules (CPR) 44.2, requires the court to take all of the circumstances into account when making an order for costs, including the conduct of the parties.
This includes considering to what extent the parties followed the Practice Direction Pre-Action Conduct and the relevant pre-action protocol.
Costs will be scrutinised in the light of whether they are proportional to the claim, whether they were well managed and whether the case management was robust and compliant with the court’s directions.
Alternative dispute resolution and offers of settlement are encouraged and those who don’t take reasonable steps to resolve an issue without recourse to the courts could be penalised when it comes to considering costs.
Costs implications when parties fail to negotiate, mediate or settle
Negotiating and settling
While parties who are involved in litigation are not obliged to settle out of court if they do not properly consider settlement this could count against them when it comes to the order for costs.
In the event that one party makes an offer to settle and the other party rejects that offer and does not make a counter-offer, there is a risk that the costs judge will impose a penalty for failing to negotiate.
Such an example can be illustrated by the case of Kupeli and others v Sirketi (t/a Cyprus Turkish Airlines) and another  EWHC 1478 (QB), where notwithstanding the claimant being successful (albeit not on all issues), the claimant failed to make full disclosure and refused to engage in settlement attempts. As a consequence the court only ordered the defendants were ordered to pay 33 per cent of the claimants’ reasonable costs.
When the court looks at whether it was unreasonable not to engage in ADR, it will consider the following points:
- The nature of the dispute;
- The merits of the case;
- To what extent settlement had been attempted;
- Whether there was any reason that the costs of ADR would be particularly high;
- Whether any delay in putting ADR in place would be been prejudicial;
- Whether there was a reasonable prospect of success of ADR;
- Whether a party has refused ADR despite the court’s encouragement.
Subsequent case law has extended the above principles to include possible costs penalties for a party who has caused an unreasonable delay in the mediation process.
In PGF II SA v OMFS Company 1 Ltd  EWCA Civ 1288, the Court of Appeal found that not responding to an invitation to mediate was in itself unreasonable, whether or not there was a valid reason for not engaging in ADR. Mediation can be turned down if there is a good reason, but the idea needs to be considered.
The costs judge will take these points into consideration but has the discretion in each individual case to make a decision on the facts. On occasion, this may mean that an unreasonable failure to engage will not be penalised but, overall, it is good practice to both consider ADR and to agree to take part in it where possible.
At what stage should the court hear points relating to conduct?
When one party wishes to raise the issue of conduct to mitigate their liability for costs, the case of Aaron v Shelton  3 All ER 561 found that it should be done with the judge making the costs order and not the costs judge.
Failure to raise matters at trial stage meant that it was not then open to the party concerned to raise the matter before the costs judge. If a party is not sure when to raise an issue, they can ask the trial judge, who will then consider whether he will deal with it or give directions for it to be dealt with by the costs judge on assessment.
The consent order should refer to any conduct issues to the costs judge for his consideration as well as including any provision for the successful party to be penalised as to costs.
Despite this, if the costs judge, having regard to all the circumstances of the case, wishes to take into account the conduct of the claimant when assessing costs he may do so. However, making wholesale reductions that should properly have been made by the trial judge would be acting beyond proper authority.
Conduct in litigation
The costs implications of conduct in litigation can be substantial. It is essential that the proper protocols are followed and that conduct is carefully considered throughout, particularly when considering negotiation, mediation and settlement.
At RSW Law we will advise you on best practice and ensure that you do not inadvertently reduce the amount of any costs you may receive following successful litigation.
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