Commercial Litigation Seminar COSTS. Maurice Collins SC Monday 13 February 2012

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1 Commercial Litigation Seminar COSTS Maurice Collins SC Monday 13 February 2012 PRELIMINARY 1. There are many aspects of the process by which an order for costs is, so to speak, translated into a sum of money to be paid by one party to another that may seem mysterious to members of the bar. When is the last time - if ever - that you received from an attending solicitor the docket of refresher to which such frequent reference is made in bills of costs? How many of us can, with confidence, explain the difference between party and party costs, solicitor and client costs and solicitor and own client costs? 2. Whatever about the process of measuring costs - traditionally, if confusingly, referred to as the taxation of costs but which on the enactment of the Legal Services Regulation Bill will be known as adjudication - it is incumbent on counsel to be fully familiar with the rules and principles which govern liability to pay costs. To that it may be said, as is provided for both in section 53 of the Supreme Court of Judicature (Ireland) and in Order 99, Rule 1 of the Rules of the Superior Courts, that costs shall follow the event. However, the beguiling simplicity of that formula is apt to conceal what is, in truth, a more complex situation. 3. The purpose of this paper is to identify and, so far as time permits, to consider briefly some of the more significant circumstances where a departure from the principle that costs follow the event may be warranted. 4. It also considers recent High Court authority, particularly the very significant decision of the High Court (Clarke J) in Veolia Water 2, where the Court considered how that principle applied in the context of complex litigation involving the resolution of multiple issues, some of which may have been decided against the party that achieves overall success. 5. Before concluding, I will also mention another decision of Clarke J which again appears to me to be significant, namely his decision, at the conclusion of longrunning commercial litigation, Moorview Construction Ltd v First Active plc, 3 to the effect that the power of the Court to make orders for costs extends to making orders for costs against non-parties. 6. Finally, I will say something about the provisions of Parts 9 and 10 of the Legal 1 For ease of reference, the provisions of section 53 are set out in an Appendix. 2 Veolia Water UK plc v Fingal County Council (No 2) [2006] IEHC 240; [2007] 2 IR 81 3 [2011] IEHC 117 Page 1 of 9

2 Services Regulation Bill. ORDER 99 AND THE RECENT AMENDMENTS TO IT The normal rule 7. As I have already indicated, it undoubtedly remains the position that the default position under order 99 is that costs follow the event. As the Supreme Court stated in Dunne v Minister for the Environment: 4 The rule of law that costs normally follow the event, that the successful party to proceedings should not have to pay the costs of those proceedings which should be borne by the unsuccessful party, has an obvious equitable basis. As a counterpoint to that general rule of law, the court has a discretionary jurisdiction to vary or depart from that rule of law if, in the special circumstances of a case, the interests of justice require that it should do so. There is no predetermined category of cases which fall outside the full ambit of that jurisdiction. If there were to be a specific category of cases to which the general rule of law on costs did not apply that would be a matter for legislation since it is not for the courts to establish a cohesive code according to which costs would always be imposed on certain successful defendants for the benefit of certain unsuccessful plaintiffs. The Court went to emphasise that each case must be assessed by reference to its own facts. Interlocutory Applications 8. One of a number of significant changes made to Order 99 in was the insertion of a new sub-rule, (4A) into Order 99, Rule 1, which provides that the High Court or Supreme Court upon determining any interlocutory application, shall make an award of costs save where it is not possible justly to adjudicate upon liability for costs on the basis of the interlocutory application. 9. The sense of this rule seems obvious. The previous practice was to reserve the costs of interlocutory applications to the trial judge. In theory, the trial judge would be in a position to determine who should be liable for those costs, armed with a greater knowledge of the merits of the proceedings. The reality was very different. In almost all cases, all reserved costs were simply awarded to the successful party, without inquiry as to the circumstances in which those costs arose or whether there might be a basis for any different order. Furthermore, the basic premise that the trial judge will be in a position of advantage is not self-evidently correct, assuming of course that there is a trail at all, which there will not be if the proceedings settle. Settlement offers 10. Another significant change was introduced in 2008 by the insertion of a new Rule 1A 4 [2008] 2 IR By SI 12 of A similar provision had been contained in Order 63A (governing proceedings in the Commercial list) Page 2 of 9

3 into Order 99. The effect of that rule is that the High Court (equivalent provision is made in relation to the Supreme Court): in considering the awarding of the costs of any action (other than an action in respect of a claim or counterclaim concerning which a lodgement or tender offer in lieu of lodgement may be made in accordance with Order 22) or any application in such an action, may, where it considers it just, have regard to the terms of any offer in writing sent by any party to any other party or parties offering to satisfy the whole or part of that other party s (or those other parties ) claim, counterclaim or application. Offer in writing is defined in terms of including any offer in writing made without prejudice save as to the issue of costs. 11. The effect of this new rule 1A is to give legislative recognition - albeit of a very limited kind - to so-called Calderbank offers. Notably, actions where a lodgement may be made are excluded. Thus the new rule would not have availed the defendants in Murnaghan v Markland Holdings [2004] 4 IR 537. At the conclusion of her judgment in that case, Ms Justice Laffoy observed: I think it probable that the eventual outcome of this matter will be that the costs for which the defendants are liable will appear to be disproportionate to the quantum of damages which the plaintiff was awarded. The Rules of Court provide a mechanism for avoiding this type of outcome: lodging money in court. 12. Notwithstanding those observations, it isn t immediately obvious to me why, apparently, Calderbank offers are to be wholly excluded from consideration in relation to actions where the mechanism of making a lodgement or tender is available under Order 22. I say apparently because it is possible that a court would consider it open to it to have regard to such an offer as a matter of general principle, though falling outside the scope of Rule 1A. That remains to be seen but the decision in Murnaghan v Markland Holdings would not encourage such a conclusion. 13. In this context, it should be remembered that Order 22 of the Rules makes very specific provision for the consequences of failing to beat a lodgement. One can readily understand the view that a Calderbank offer - which does not involve a defendant having to show the colour of his or her money - should not have the same effect as an unaccepted lodgement. It doesn t follow, however, that Calderbank offers should have no effect in actions where Order 22 permits a lodgement to be made. That is surely too extreme a position. 14. In any event, where Order 22 does not permit a lodgement to be made, or where what is at issue is an application in an action, Rule 1A provides that in considering the awarding of costs the court may, where it considers it just, have regard to the terms of any offer in writing. Thus, the question of whether, and if so to what extent, the court will have regard to an offer is at the discretion of the court concerned. Presumably, however, where the court considers it just, the effect of such an offer will be to limit the costs recoverable by the successful party, thus representing a qualification of the principle that costs follow the event. Page 3 of 9

4 15. Geraghty v Galway County Council 6 is the only decision I have been able to identify where the provisions of Rule 1A have been considered. There the court had awarded 26,000 in damages to the first plaintiff, in circumstances where a Calderbank offer had been made in a an amount in excess of 73,000. That being so, it was held, the Court could not award the first plaintiff his costs. It is not entirely clear why the Order 22 exclusion did not apply. Leaving that issue aside, it seems clear that, on any view, Rule 1A simply does not have the effect of per se precluding the making of an order for costs in favour of a successful party because a higher offer was made in a Calderbank offer. 16. There are, of course, many forms of proceedings where Order 22 does not enable a lodgement to be made. Companies Act proceedings, such as proceedings under section 205, are an important example. Family law proceedings are another. In addition, Order 99, Rule 1A may be availed of in relation to interlocutory applications. It represents an important means by which clients exposure to costs can be limited and it is something of which counsel should be conscious in their day to day practice. Mediation 17. By an amendment made in , a new Rule 1B was inserted into Order 99, in the following terms: 1B. Notwithstanding sub-rules (3) and (4) of rule 1, the Supreme Court or the High Court, in considering the awarding of the costs of any appeal or of any action, may, where it considers it just, have regard to the refusal or failure without good reason of any party to participate in any ADR process referred to in Order 56A, rule 1, where an order has been made under rule 2 of that Order in the proceedings This rule is fairly self-explanatory. Like Rule 1A, it is avoids prescription and instead gives a fairly broad discretion to the Court. Notably, the triggering event is the refusal or failure without good reason of any party to participate in any ADR process. It does not therefore appear to contemplate the court being asked to make any judgment as the quality of the participation. It remains to be seen how this rule will be applied in practice. English authority emphasises that a refusal or failure to participate in ADR must be unreasonable if an adverse costs order is to follow. 8 That appears to be reflected in the wording of Rule 1B. Important issues regarding access to the court - in this jurisdiction a constitutionally protected right - also arise. Furthermore, and fundamentally, it seems difficult to see why a refusal to mediate should lead to any reduction in costs unless the court is in a position to form a view as to the prospects of a mediation having been successful and as difficult to see how the court could carry out that assessment satisfactorily. SECTION 50B OF THE PLANNING AND DEVELOPMENT ACT, 2000 (AS AMENDED) 19. The genesis and effect of this section is quite different to the changes to Order 99 6 [2011] IEHC SI 502 of See eg Halsey v Milton Keynes General NHS Trust [2004] 1 WLR Page 4 of 9

5 just considered. 20. The effect of section 50B (inserted by section 30 of the Planning and Development Act, 2010 and subsequently amended materially by section 21 of the Environment (Miscellaneous Provisions) Act, 2011) is to introduce a default rule in certain planning/environmental proceedings that each party shall bear their own costs. By virtue of section 50A(3) the court may award costs against a party in certain circumstances and section 50A(4) saves the court s jurisdiction to award costs in a matter of exceptional public importance where there are special circumstances by reference to which such an award is in the interests of justice. 21. Section 50B has its genesis in the Aarhus Convention and in a decision of the ECJ finding Ireland to have in breach of that convention. Arguably, however, it goes further than what is required by the Convention. VEOLIA WATER 22. Recitation of the formula that costs shall follow the event may obscure the fact that it may sometimes be difficult to determine what is the relevant event and, in complex litigation, there may be multiple issues and, arguably, multiple events. 23. While, in practice, courts were sometimes persuaded to limit (by reference to hearing days or, sometimes, by reference to percentage proportions) the costs to be recovered by a successful party because his or her claim was partially unsuccessful, Veolia Water is, as far as I am aware, the first time that issues of this kind were subject to close analysis. 24. Veolia Water seems to me to be a decision of very considerable significance. The essence of it is reflected in the following passage from the judgement of Clarke J: However, as indicated above, it seems to me that the starting point of any consideration of costs has to be to identify what the "event" is and, thereby, identify the winning party. In the ordinary way, if the moving party required to bring either the proceedings as a whole (where the costs of the litigation as a whole are under consideration) or a particular interlocutory application (where those costs are involved) in order to secure a substantive or procedural entitlement, which could not be obtained without the hearing concerned, then that party will be regarded as having succeeded even if not successful on every point. The proceedings, or the relevant application as the case may be, will have been justified by the result. Where the winning party has not succeeded on all issues which were argued before the court then it seems to me that, ordinarily, the court should consider whether it is reasonable to assume that the costs of the parties in pursuing the set of issues before the court were increased by virtue of the successful party having raised additional issues upon which it was not successful Where the court is so satisfied, then the court should attempt, as best it can, to reflect that fact in its order for costs. Where the matter before the court involved oral evidence and where the evidence of certain witnesses was directed solely towards an issue upon which the party who was, in the overall sense, successful, failed, then it seems to me that, ordinarily, the court should disallow any costs attributable to such witnesses and, indeed, should provide, Page 5 of 9

6 by way of set off, for the recovery by the unsuccessful party of the costs attributable to any witnesses which it was forced to call in respect of the same issue. A similar approach should apply to any discrete item of expenditure incurred solely in respect of an issue upon which the otherwise successful party failed Similarly where it is clear that the length of the trial of whatever issues were before the court was increased by virtue of the raising of issues upon which the party who was successful in an overall sense, failed, then the court should, again ordinarily, award to the successful party an amount of costs which reflects not only that that party should be refused costs attributable to any such elongated hearing, but should also have to, in effect, pay costs to the unsuccessful party in relation to whatever portion of the hearing the court assesses was attributable to the issue upon which the winning party was unsuccessful. 25. While Veolia Water concerned an interlocutory application (the hearing of a preliminary issue as to whether the applicant had complied with the time limits in Order 84A and, if not, whether there were good grounds for extending the time), the analysis in it is equally applicable to trials and was in fact applied by the High Court in McAleenan v AIG (Europe) Limited. 9 The order for costs made in McAleenan should provide a cautionary tale. The defendant, who had successfully defended the plaintiff solicitor s claim that she was entitled to be indemnified against claims made against her by third parties arising from the activities of Michael Lynn, was held to be entitled to 20% of the costs of the proceedings only, by reason of the many issues which fell for determination because of the points taken by it, which were determined in favour of the plaintiff albeit that the plaintiff s claim ultimately failed. 26. It seems rather surprising that a party sued for certain relief, who succeeds in resisting the grant of any relief against it, should nonetheless be held to be entitled to a fifth of its costs and, without meaning to suggest that that outcome might not have been warranted in the specific circumstances of that particular claim, McAleenan does appear to me to illustrate one particular difficulty with the Veolia Water approach, namely the risk that one loses sight of the wood - the overall outcome of the action - for the trees - whether and to what extent individual issues in the action were determined for or against the successful party. Awarding a successful defendant (and it seems to me that, in this context, the position of a defendant may be different to that of a claimant, who has chosen to bring proceedings) only 20% of its costs seems difficult to reconcile with any underlying principle of costs following the event. 27. This difficulty is compounded by the fact that Veolia Water itself draws a distinction - a potentially significant distinction in this context - between complex litigation where the approach articulated in Veolia is applicable and more straightforward litigation where it may not be appropriate (see at para 18). The difficulty here is that that distinction will, in practice, often prove elusive. 28. Finally, there is an obvious risk that, in the post-veolia world, adjudications as to costs will result in lengthy and arguably artificial exercises being undertaken seeking to show that as much of the hearing as possible should be allocated to issues in respect of which one has been successful with a view to maximising the benefit/minimising the burden of the order for costs ultimately made by the Court. 9 [2010] IEHC 279. Page 6 of 9

7 29. Having said all of that, it does seem to me that the logic of Veolia Water is fundamentally sound. Adopting a more nuanced approach to costs in complex litigation should, as Clarke J said, discourage parties from raising unmeritorious issues. In any event, unless and until a different approach is taken by the Supreme Court (and in this regard, the provisions of Part 10 of the Legal Services Regulation Bill should are relevant) practitioners must take the principles in Veolia Water carefully into account in deciding what claims to pursue or what defences to rely in litigation. ORDERS AGAINST NON-PARTIES: THE DECISION IN MOORVIEW 30. In Moorview, Clarke J held that the court had jurisdiction to make orders for costs against a non-party, both by reason of the provisions of section 53 of the Supreme Court of Judicature (Ireland) 1877 and also by virtue of Order 15, rule 13 of the Rules. 10 That decision (which has, I should say, been appealed to the Supreme Court) brings Irish law into line with the position in England and Wales, New Zealand and Australia. 31. Where the party against whom an order for costs has been or is likely to be obtained does not have the resources to discharge those costs, consideration should be given as to whether there is a basis for seeking an order against a third party. A funding party is a quintessential example. 32. Conversely, counsel should always be alive to the possibility that a client, or someone associated with the client, may inadvertently put him or herself at risk of an order for costs being made against them, though not a party. PARTS 9 AND 10 OF THE LEGAL SERVICES REGULATION BILL 33. Part 9 of the Bill proposes to establish a new process for measuring costs. I shall say not more of that, other than to observe that the principles to be applied by the newly-established Legal Costs Adjudicator in adjudicating on a bill of costs, which are set out in Schedule 1 to the Bill, do not, at first glance, do not appear to differ dramatically from the provisions of Order 99. A notable omission from the Schedule is any reference to proportionality, a concept which, by reason of the provisions of the CPR, applies in some circumstances at least to the measurement of costs in England and Wales Part 10 of the Bill incorporates in clause 108 what is referred to in the marginal-note as costs to follow event. However, it is clear from the reference in that clause to a party who is entirely successful and from the provisions of clause 107(2) that these provisions effectively reflect the post-veolia position, where a party who is successful 10 Which provides for the joinder of parties. In Byrne v John S O Connor & Company [2006] 3 IR 379, the Supreme Court held that the High Court was entitled to join an insurance company in personal injury proceedings, in the context of an application to come off record, for the purposes of making an order for the plaintiff s costs. 11 See, for instance, Lownds v Home Office [2002] 4 All ER 775. Page 7 of 9

8 in a general sense, but who has raised issues which have been determined against that party, should not necessarily expect a full order for costs to be made in its favour. CONCLUSIONS 35. From the point of view of a party to litigation, whether and in terms an order for costs is made is a matter of the utmost importance. For a successful party, failing to secure an order for costs, or obtaining only a limited order, may substantially undermine the benefit of the substantive determination. For an unsuccessful party, having to pay all of the costs of the successful party may significantly exacerbate the substantive failure. 36. All practising barristers need to be familiar with the arguments that affect the making of orders for costs. More than that, they need to keep constantly under review what steps it may be open to take in litigation - whether by the making of without prejudice offers, deciding not to pursue particular claims or defences that may fail or otherwise - that may reduce clients exposure to costs. ENDS 13 th February, 2012 Maurice G Collins Page 8 of 9

9 APPENDIX Section 53 of the Supreme Court of Judicature (Ireland) 1877 provides: Subject to the provisions of this Act and of Rules of Court, the costs of and incident to every proceeding in the High Court of Justice and Court of Appeal respectively shall be in the discretion of the Court, but nothing herein contained shall deprive a trustee, mortgagee, or other person of any right to costs out of a particular estate or fund to which he would be entitled according to the rules hitherto acted on in Courts of Equity: Provided that (subject to all existing enactments limiting, regulating or affecting the costs payable in any action by reference to the amount recovered therein), the costs of every action, question, and issue tried by jury shall follow the event, unless, upon application, made the Judge, at the trial or the Court shall for special cause shown and mentioned in the order otherwise direct; and any order of a Judge as to such costs may be discharged or varied by a Divisional Court; And provided also, that in all actions for libel where the jury shall give damage under forty shillings, the plaintiff shall not be entitled to more costs than damages. Where in any proceeding in the High Court of Justice or Court of Appeal the costs of any party to the proceeding are ordered to be paid or borne by another party to the proceeding, or by a fund or estate, those costs shall, if the Court so directs, include, in addition to the costs now allowed on taxation as between party and party, all or any other costs, charges, and expenses reasonably incurred for the purposes of the proceeding; but this enactment shall not apply to any proceeding for the recovery of a penalty. Page 9 of 9