It is trite that litigating parties must ensure that they have correctly pleaded their respective claims and defences.

Where amendments to a party’s pleadings are necessary at a late stage in the litigation process there is a risk that the court may, when dealing with costs, make an adverse costs order against that party. However, such orders will not be automatically made and, as the recent Court of Appeal case of Begum v Birmingham City Council [2015] EWCA Civ 386 illustrates, whether such an order is made will depend on the circumstances of the particular case.

The rules

The court maintains discretion to award costs in civil litigation (Civil Procedure Rule 44.2(1)). If the court does make a costs order the general principle is that the losing party will be ordered to pay the costs of the winning party (CPR 44.2(2)(a) – also referred to as the ‘usual costs order’).  However, the court may make a different order (CPR 44.2(2)(b)). Pursuant to CPR 44.2(4) the court will have regard to all the circumstances, including:

(a) the conduct of all the parties;

(b) whether a party has succeeded on part of its case, even if that party has not been wholly successful; and

(c) any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under part 36 apply.

The orders which the court may make are detailed in CPR 44.2(6) and include an order that a party must pay:

(a) a proportion of another party’s costs;

(b) a stated amount in respect of another party’s costs;

(c) costs from or until a certain date only;

(d) costs incurred before proceedings have begun;

(e) costs relating to particular steps taken in the proceedings;

(f) costs relating only to a distinct part of the proceedings; and

(g) interest on costs from or until a certain date, including a date before judgment.

First instance

The claimant purchased their council house under the right-to-buy provisions of the Housing Act 1985 from Birmingham City Council (BCC). As part of the purchase process, BCC provided the claimant with a house sale inspection report. After the purchase had been completed, cracking appeared in the rear extension of the house which the claimant’s insurers refused to pay for on the ground that the damage was attributable to pre-existing defects.

The claimant brought proceedings against BCC, arguing that it ought to have brought the defects to the attention of the claimant at the time of purchase but had failed to do so. Proceedings were issued on 8 April 2010 against BCC. The claimant’s solicitors originally pleaded a claim in negligence and misrepresentation. It was not until 14 May 2012 that they amended this to plead the cause of action for breach of statutory duty under the act.

HH Judge Grant, the Birmingham Technology and Construction Court judge, case-managed the litigation through to trial in May 2013. He held that there were two causes of the damage to the house, namely:

1. lack of wall ties between the right-hand corner of the rear wall of the back addition and the adjoining property; and

2. inadequate foundations, which progressively caused damage in the form of cracking in, and displacement of, the associated drains.

The judge held that, having regard to the council’s maintenance records over the years, the council was aware of defect 1 and ought to have disclosed it in the report. The council was in breach of its statutory duty under the act in that regard and liable to the claimant in damages. He also held that the council was not aware of, or liable for, defect 2. The judge dismissed the claimant’s claims for negligence and misrepresentation. The judge gave his judgment on costs orally on 18 December 2013.

In the costs judgment the judge made no order for costs in respect of the period before issue of proceedings. In respect of the period from issue to 14 May 2012 (which the judge called ‘period one’), he ordered the claimant to pay the defendant’s costs subject to one proviso: that the council should pay the claimant’s cost of obtaining expert evidence during that period.

This produced what Jackson LJ fittingly referred to as ‘the curious consequence’ that each party was required to pay the costs of the other side’s expert during period one. In respect of the period 14 May 2012 to 4 June 2013 (which the judge called ‘period two’), he ordered the defendant to pay 40% of the claimant’s costs. In respect of the period 5 June 2013 to 18 December 2013 (which the judge called ‘period three’), he ordered the defendant to pay 80% of the claimant’s costs.

The judge gave the following reasons for reaching those decisions.

During period one the action was bound to fail because the claimant’s only pleaded claim was for negligence and misrepresentation.

During period two the claimant was pursuing three causes of action, only one of which succeeded, namely her claim for breach of statutory duty.

The judge was of the opinion that if the claimant’s case had been properly pleaded, all issues would have been dealt with in the hearing during May 2013. Therefore the claimant’s inadequate pleading caused matters to be dealt with in two hearings rather than one. On the other hand, all the evidence at both hearings needed to be deployed in any event. In order to reflect the inefficient way in which the litigation proceeded, the claimant should recover 80%, rather than 100%, of her costs during period three. Unsurprisingly, the claimant appealed.

Court of Appeal

The claimant submitted that the judge fell into error in his approach towards costs. The claimant’s case from the beginning to the end of the litigation was that BCC was aware of serious structural defects to the property which it ought to have disclosed, but failed to disclose, to the claimant. The claimant succeeded on that case. 

The fact that the claimant originally applied the wrong legal label to the claim was immaterial. Little time was spent at trial debating whether the claimant had a cause of action in negligence and/or misrepresentation. Therefore the claimant ought to have recovered all her costs up to 4 June 2014, less only a small discount for the issues of negligence and misrepresentation on which she failed. The claimant accepted the judge’s decision on costs in period three.

BCC argued that the Court of Appeal does not interfere with decisions on costs unless the judge has made an error of law or an error of principle, and that no such error had been made by the judge.

Jackson LJ noted the general costs provisions which would apply in the case. The claimant had succeeded in her claim and recovered damages. Accordingly, the claimant was the successful party in the action. The starting point, therefore, is that the court, in the exercise of its discretion, should award costs in the claimant’s favour (that is, the usual costs order).

The next question to consider was what departures should be made from the starting point, having regard to all the circumstances of the case. Two factors required a departure from that starting point. First, although the claimant had succeeded on her claim for breach of statutory duty, she had failed in law on her claims for negligence and misrepresentation. Second, by reason of the claimant’s deficient pleading there were two trials rather than one. Jackson LJ agreed with the judge’s decision to reduce the claimant’s recoverable costs for period three by 20%.  

Jackson LJ went on to note that the real issue concerned the first factor, the claimant’s lack of success in relation to negligence and misrepresentation. His lordship disagreed with the judge’s approach on this issue. The claimant’s case was and has always been that BCC was at fault in failing to refer back to its own records and to alert the claimant to serious structural defects before selling the property to her.

The claimant’s pleaded claims for negligence, misrepresentation and breach of statutory duty were different labels which the pleader applied to the same underlying facts. The factual and expert evidence which both parties provided was directed to those facts. Both parties would have prepared and adduced substantially the same evidence, even if the claimant had only ever pleaded her claim as one for breach of statutory duty.

This case was, Jackson LJ held, very different from Beoco Ltd v Alfa Laval Co Ltd [1995] QB 137, on which BCC relied. Jackson LJ observed that in Beoco the claimant’s late reamendment substantially altered the case which the defendant had to meet. Also, the defendant was prejudiced by lack of opportunity to make a payment into court. In the present litigation, the case which the defendant had to meet was essentially the same both before and after the claimant’s reamendment.

The claimant continued to assert, and the defendant continued to deny, the same basic facts and the same disputed propositions of expert evidence. There was no suggestion that the defendant lost an opportunity to settle. The defendant at all times disputed the factual basis of the claimant’s claim. Further, Bean LJ also distinguished Beoco by pointing out the fact that where the claim was for damages of approximately £1m, an amendment was made after the trial had been under way for several days (too late for any payment into court, equivalent to a part 36 offer under the CPR). It introduced a new factual case, on which the claimant was expected to recover some £22,000. The original claim was rejected.

With this combination of factors – the very late amendment, the new factual case and the very small size of the claim introduced by amendment relative to the litigation as a whole – it was no surprise that the claimant was ordered to pay all the defendant’s costs up to the moment of amendment.

Allowing the appeal, Jackson LJ held that the proper way to reflect the claimant’s lack of success on negligence and misrepresentation was to make a discount of 15% from the claimant’s costs up to 4 June 2013. The claimant recovered 85% of her pre-issue costs and 85% of her costs during periods one and two. In respect of period three, for good reason neither party challenged the judge’s order and that order was upheld.

Begum reinforces the position that the courts must consider the circumstances of each case when considering the type of costs order to make.

The Court of Appeal’s judgment also helpfully distinguishes the case of Beoco and explains that it is not authority for the proposition that in all cases where an amendment to a claim makes the difference between failure and success, the claimant must pay the defendant’s costs up to the moment of the amendment. It will, as their lordships made clear in Begum, depend on the circumstances of the particular case.

Transformers and Rectifiers Ltd v Needs Ltd

In Transformers and Rectifiers Ltd v Needs Ltd [2015] EWHC 1687 (TCC) the court considered whether a judge who had not made costs orders in respect of various interlocutory orders could nevertheless summarily assess the costs which were the subject matter of those orders. The claimant submitted that he could; the defendant argued that only the judge who had made the orders could undertake that summary assessment.

Civil Procedure Rules

CPR part 44.6 provides as follows:

‘44.6(1) Where the court orders a party to pay costs to another party (other than fixed costs) it may either:

(a) make a summary assessment of the costs; or

(b) order detailed assessment of the costs by a costs officer, unless any rule, practice direction or other enactment provides otherwise.’

Paragraph 9.7 of practice direction 44 provides:

‘9.7 The court awarding costs cannot make an order for a summary assessment of costs by a costs officer. If a summary assessment of costs is appropriate but the court awarding costs is unable to do so on the day, the court may give directions as to a further hearing before the same judge.’

The overriding objective under CPR 1.1(1) is also relevant when assessing costs to enable the court ‘to deal with cases justly and at proportionate cost’.

Decision

Considering the wording of the rules, Coulson J (pictured) held that not only is there nothing in the rules or the practice direction which prevents a different judge from summarily assessing the costs of a hearing conducted (or an order made) by another judge, but such a blanket prohibition would not make practical sense. He stated that in the majority of cases it will be appropriate, even necessary, for the same judge to conduct the summary assessment.

For example, if there was a contested hearing, and the detail of any summary assessment exercise carried out thereafter depended on the views formed by the judge about the parties’ submissions, or the witnesses, or their conduct generally, then it would be inappropriate for any other judge to attempt the exercise. However, he stressed that an inflexible rule that the same judge must, in every case, conduct the summary assessment, could not be taken from the CPR.

Further, the provision at paragraph 9.7 of the practice direction was permissive: if time does not permit the summary assessment then and there, it may be heard later by the same judge. Equally, therefore, it may be heard by another judge. Coulson J also went on to stress the significance of the need to further the overriding objective. A blanket ban would not be in accordance with the overriding objective.

As Coulson J explained: ‘It is often the case that a summary assessment is the only just and proportionate way to deal with costs. It would be absurd if such an exercise could not be undertaken because of, say, the death or indisposition of the judge who conducted the original hearing or made the original order, or because he or she is on circuit and is unable to deal with the matter when it arises. Some degree of flexibility must be permissible.’

The defendant argued that only the judge who had made the orders could undertake that summary assessment. In support of its argument the defendant relied on the Court of Appeal case of Mahmood v Penrose & Others [2002] EWCA Civ 457. In that case both sides were representing themselves. By reference to the previous version of the practice direction, the Court of Appeal said that the judge had erred in summarily assessing the costs of a hearing which had taken place before a recorder. However, Coulson J rejected the defendant’s arguments and distinguished Mahmood on the following grounds:

  • The words of the practice direction then under consideration were different. The version then in force read: ‘If a summary assessment of costs is appropriate but the court awarding costs is unable to do so on the day, the court must give directions as to a further hearing before the same judge.’ In other words, the obligation was mandatory. That is not now the position: the word ‘must’ has been deleted, and the word ‘may’ has been added.
  • Mahmood was decided under the old version of the overriding objective. The new emphasis on proportionality means that an absolute bar on another judge summarily assessing costs would, at least in certain circumstances, be disproportionate and therefore not in accordance with the overriding objective.
  • Mahmood was concerned with the summary assessment of costs of a hearing which the present case was not. Different considerations may apply in such a situation.
  • Mahmood was a case in which counsel did not appear on either side. It is not clear whether any argument was addressed to the court on the point at all. It is very doubtful whether the Court of Appeal intended to lay down a principle to be followed in all subsequent cases.

This case raises an interesting issue about the jurisdictional scope of judges when assessing costs. It makes clear that a judge who did not make an earlier order does, nevertheless, possess the jurisdiction to assess costs associated with that order. As Coulson J made clear, the wording under the relevant rules is not mandatory and a contrary conclusion would run counter to the overriding objective of dealing with cases justly and at proportionate cost.

Masood Ahmed, University of Leicester

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