In any keenly fought struggle, there will be winners and losers. But the phrase “we won all the battles but lost the war” has been said with chagrin by many. In this case, a Claimant pursued a case to trial and while the lawyers must have felt they won most of the battles, they lost overall. The Court recognised the Defendants had lost on the majority of their arguments, but awarded the Defendants 50% of their own costs with the Claimant having to bear all of their own.
The case began with land banking developers buying up unregistered greenfield farmland, which was then sold off in plots to investors between 2001 and 2008. With each sale was a covenant providing that the buyer pay the seller for the maintenance and upkeep of the roads and infrastructure planned for the sites. In 2012 the Claimant/Appellant in this case, Terracorp Ltd, was assigned the interests in the sales and covenants of the plots of land by the sellers.
Terracorp began pursuing the plot buyers for ongoing payments allegedly owed under the covenants for each plot. The resulting claims were consolidated in 2018 and the case culminated in a six-day trial in September 2019 involving 174 Defendants.
Arguments and counterclaims
The Defendants raised a number of arguments in their Defence and counterclaims. Their one ultimately successful argument was that they should not have to pay for roads and other infrastructure and maintenance when none actually existed. In fact not only did none of the infrastructure referenced in the plans of each sale and covenant exist, the sellers and Terracorp had never so much as asked for planning permission for the same.
The Defendants also argued the following in defences and counterclaims:
- There had been fraudulent misrepresentation that planning permission would be granted on the land in good time, meaning Terracorp was estopped from claiming covenant charges, and that this illustrated a conspiracy against the Defendant buyers
- Terracorp’s rights under the covenants had not been validly assigned
- Some of the sales had not been properly executed
- The monies previously paid by Defendants had not been converted
- The original sellers’ activities constituted an unregulated collective investment scheme
- The original sales fell foul of the Consumer Credit act 1974
- Terracorp was required to stablish title of each selling company.
- The headline decision the Court reached was that the Claimant lost and the Defendants won.
The Defendants obtained a declaration that they were not liable for the payments claimed by Terracorp under the covenant charges. The Court agreed with the first argument above that no reasonable party would agree to make set payments for the maintenance of something that did not presently exist, and which may never exist in the future.
This was particularly in view of the fact that Terracorp had not so much as asked for planning permission, and indeed was unlikely to be granted such permission for anything that would need such maintenance. The Court rejected the Defendants’ other arguments in their defences and counterclaims.
The Court then set about consider what costs order to make.
The starting point in deciding what costs order to make is CPR 44.2 and section 51 of the Senior Courts Act 1981. These stipulate that costs orders are within the discretion of the Court. The general rule is that the unsuccessful party will be ordered to pay the costs of the successful party but the Court may make a different order.
In this case, the Court took particular notice of the findings of Sycamore Bidco v Breslin  EWHC 583 and reached its decision by considering the following:
- In considering how to exercise its discretion, the Court should take set out from the principle that the successful party is entitled to an order for costs in their favour.
- The Court must then consider what departure are required from that point, having regard to all circumstances of the case
- The Court can make issue-based costs orders or proportionate (percentage) costs orders, to reflect the relative success of the parties on different strands of the case. Issue based costs orders should be treated with caution given potential practical difficulties, and consideration should be made not just to specific costs of issues but to costs in common of some of all issues
- The fact that a successful party has not won on every issue is not a reason to deprive that party of their costs. The reasonableness of pursuing failed points and the costs of those failed points should be taken into account
- One should stand back after any reductions and look at the matter globally and consider the extent to deprive successful party of their costs
- The Court ordered Terracorp to pay 50% of the Defendants’ costs on the standard basis. Terracorp would bear all of their own costs. The Court set out their reasoning for the same as follows:
- “ The Defendants are the winners. They have succeeded in defending the claim to the Covenant Charges in its entirety I must therefore give weight to the general rule that the winners should receive their costs.
-  It does seem to me though that the fact that the Defendants failed on the other defences requires that a different order be made. Those defences did account for a large part of the trial, both as to evidence and argument. Those circumstances take this case beyond those where a successful party loses on one or more issues but should not be deprived of any costs as a result.
-  However, while the defendants lost on the fraudulent misrepresentation defence and related arguments, the defendants were not, in my judgement, unreasonable in running that case. They honestly believed misrepresentations had been made to them about the availability of planning permission.
-  Further, I do not accept that, had the question of interpretation (of the Covenants) been the only one for trial, there would have been no evidence called at trial. The Covenants fell to be interpreted in light of the factual matrix existing when they were made. At least some live evidence is likely to have been called dealing with that matrix. Further, Terracorp called several witnesses detailing what works have been carried out at the sites, seemingly with a view to arguing that these works come week came within the scope of the Covenants.
-  Given these last two points and the fact that the Defendants have won overall, it would, in my judgment be unjust to make an order that the Defendants play any part of Terracorp’s costs. Rather, justice is done by ordering Terracorp to pay 50% of the Defendants’ costs of the proceedings.”
Terracorp sought to appeal the costs order. One ground was that the Court should have made an issue-based costs order. Permission for this was refused. Permission was limited to the other ground; the question of whether 50% of costs was unjustifiably high for Terracorp to be ordered to pay.
Terracorp argued that they had already been deprived of all of their costs of working on the Defendant’s unsuccessful points, before being ordered to then pay 50% of the Defendants’ overall costs. The Defendants’ unsuccessful arguments had needlessly prolonged and complicated the case and trial, and added significantly to the costs. Terracorp seem to have tried to raise a quasi-mathematical argument as to how much work was spent on what. It was contended that it could be shown that just 10% of the pages of the pleadings bundle was devoted to the issue of whether the payment obligations were binding and the rest, presumably, related to the unsuccessful defences.
They also argued that the Court had not given a detailed explanation as to how it had reached the figure of 50%.
The Appellate Court
The Appellate Court started from the presumption that even if no express explanation was given for 50% (why not 40% or 60%?) the Trial Judge would have had good reason to make such an award. Reference was made to Straker v Tudor Rose (a firm)  EWCA Civ 368 – “It is well known that this court will be loath to interfere with the discretion exercised by a judge in any area but so far as costs are concerned that principle has a special significance. The judge has the feel of the case after a trial which the Court of Appeal cannot hope to replicate and the judge must have gone seriously wrong if this court is to interfere.”
The Appellate Court recognised that the trial judge in this instance had been immersed in the case following a six-day trial. It was plain from reading the judgement that he had obviously taken into account that the Defendants had lost on a number of key issues, and the conduct of the parties; otherwise why make any proportionate order at all? The Judge would have had a far better understanding of the various strands of evidence that an appellate court could possibly achieve.
It was held that Terracorp had not established that the judge’s exercise of his discretion was flawed costs appeal dismissed.
In a complex case such as this which goes to trial with all the cut and thrust of litigation, the parties have learnt what any general in war will have known. A straight victory or defeat on all fronts is unlikely. You can win overall while losing on several fronts of your case, and you can lose while having won on many or most of the fronts of your case.
In this case, no doubt Terracorp’s lawyers felt they had spent the vast majority of the case and the trial victoriously overcoming unsuccessful arguments raised by Defendants, which must have led to their disillusionment that not only would they not recover the costs of this work, but would still have to pay half of the other side’s costs.
Even in the event a party loses on significant limbs of a claim, if they were reasonable in pursuing this it does not automatically mean they cannot recover the costs, or that their overall right to costs should be reduced. The Court will look at the individual strands of the case, as to where a party won or lost on arguments, and may depart from the general rule that the winner gets their costs. If it does decide to depart, then after analysing the extent of these wins and losses the Court will still step back and take a global overall view of what is appropriate to reduce a party’s overall costs by.
Courts may be even more reluctant now to make issue-based costs orders discretely separating the costs into separately calculated amounts per issue. Trying to separate the costs and work of various issues is like trying to separate out a cooked omelette back into its constituent eggs.
Courts are likely to find proportionate (percentage) costs orders more attractive. They will start by looking at the work and time spent on particular issues but will bear in mind the “factual matrix” that means that work involved in a particular issue will have relevance to the case as a whole, and cannot be easily struck out as a discrete part of the case. In this case for example, the defence raised of misrepresentation on obtaining planning permission failed, however the information and arguments raised on this point were still relevant to the overall case and part of the matrix to which the Defendants’ successful argument belonged.
In appealing a proportionate costs order, it is best to proceed with caution, even if you feel the Court has not forensically or satisfactorily set out how they calculated the costs liability awarded. A detailed judicial reasoning behind a percentage figure is not required.
Furthermore, any appellant court is likely to defer to the judge’s experience of managing the trial and its knowledge of a contested litigation, than for a different court to go over the papers. Anyone who has costed a file knows how difficult it can be to separate out costs.