The costs of abandoning causes of action

What is the approach of the court on costs when a party abandons part of its case? This issue came before Mr Justice Foxton in Skatteforvaltningen v Solo Capital Partners LLP (In Special Administration) & others [2022] EWHC 2969 (Comm).

The principles

The court has a discretion on costs when a party ceases to pursue part of its case that it was previously pursuing. In RG Carter Projects Ltd v CUA Property Ltd [2020] EWHC 3417 (TCC), Pepperall J discussed the scenarios in which a party amends its case and where it abandons its case: ‘In many instances, an order for the costs of and caused by… an amendment or (as PD 17 puts it) the costs of and arising from the amendment, will meet the justice of the case. There will, however, be cases where the amendment abandons a particular cause of action that the defendant has spent a significant sum defending. Even in such cases, sometimes the amended statement of case will still pursue other causes of action arising out of the same facts, or the amendment will essentially just put a new label on previously pleaded facts such that the earlier costs have not been entirely wasted ...

‘Yet in other cases, the cause of action is simply abandoned, and substantial costs will have been wasted. An award of costs on the conventional basis would, in such cases, cover the defendant’s costs of amending his defence to delete the now redundant answer to the abandoned plea, but would not recompense such defendant for the costs of investigating the original case or of pleading the first defence. On such facts, the usual order would not be just and the appropriate order will often be to award the defendant not just the costs of and caused by the amendment, but also the costs in respect of the abandoned cause of action.’

Furthermore, in Genius Sports Technologies Ltd v Soft Construct (Malta) Ltd [2022] Cost LR 825, Smith J held that orders for assessment and payment of costs along the way when an issue which has been raised is abandoned will be rare because ‘the process of identifying in the course of proceedings what costs relate to which deletions will be time consuming, cumbersome and generally speaking unjust’.

SKAT v Solo Capital Partners

In its original particulars of claim, Skatteforvaltningen (the Danish Customs and Tax Administration – SKAT) alleged that the defendants had made a representation, and advanced four grounds for saying that the representation was false. Part of one ground was that a representation had been made regarding the beneficial ownership of certain companies which was false and fraudulent. That issue generated a number of pages of pleading by SKAT and the defendant’s solicitors. That ground was subsequently abandoned.

The issue before the court was whether an attempt to introduce the allegation, if it had not been previously pleaded, would have involved a new cause of action. Foxton J explained that it was important to look at how significant and discrete the new allegation was before it was possible to determine whether it involved a new cause of action. Referring to Savings & Investment Bank Ltd v Fincken [2001] EWCA Civ 1639, Foxton J observed that it could support the view that a fresh particular of falsity of the same misrepresentation will never involve the addition of a new cause of action. However, the answer to the issue of whether a new cause of action has been introduced can be ‘a matter of degree’ (May LJ in Steamship Mutual Underwriting Ltd v Trollope & Colls Ltd (1986) 6 Con LR 11).

Foxton J was satisfied that the beneficial ownership issue was sufficiently discrete and, in particular, the issues of international taxation to which it gave rise, to come close to the abandonment of a cause of action for the purpose of determining what approach to adopt to the costs of the abandoned case.

Foxton J held that it was appropriate to make a costs order in favour of the defendants but it would avoid awarding costs of investigating underlying facts that remain in issue and to avoid the concerns raised by Smith J in Genius Sports Technologies Ltd. Foxton J, therefore, made an order limited to the expert costs in relation to the beneficial ownership allegations that were abandoned and the costs directly concerned with that expert exercise. Those costs included the costs of instructing the expert and reviewing their reports and attendance with them, but not the underlying factual investigations conducted for the purpose of briefing the expert. Foxton J also ordered that the parties serve submissions on the costs they consider to relate to the expert’s costs, to deal with the matter on the papers and for costs to be paid on account.

There will be occasions when a party decides to abandon a cause of action during the litigation process which will trigger potential cost consequences, especially in complex disputes. Although costs orders in relation to issues which have been abandoned will be rare, each case will ultimately turn on its own particular facts, and the approach taken by the court will depend upon the nature of the issue abandoned and the nature of the costs order which the court decides to make.

Parties would be wise to carefully investigate any potential allegations and causes of action in detail (ideally at the pre-action stage) before subsequently including them within statements of case; a failure to do so will inevitably increase costs and delays for the parties.

Masood Ahmed is an associate professor at the University of Leicester and research fellow on the Vici Affordable Access to Justice project, Erasmus University, Netherlands. Lal Akhter is director of Docket Live Ltd and an unregistered barrister