Islam v Ali

The successful party for costs purposes is identified by the practical outcome of the litigation, rather than merely by the party in whose favour a monetary judgment was entered. Success is not measured in absolute terms. The court should consider the issues won, the proportion of the claim successfully resisted, the parties’ conduct and any settlement offers.

An appellate court may interfere with a costs order where the judge erred in principle, disregarded a relevant factor, considered an irrelevant factor, or reached a result outside the generous ambit of reasonable disagreement. A claimant’s recovery of a comparatively small sum may justify no order as to costs where the defendant defeated the claim’s principal basis and resisted most of the amount sought.

Mr Islam claimed remuneration for managing the accountancy practice of Mrs Ali’s late husband. He alleged agreements permitting him to retain the profits and, alternatively, entitling him to payment at £40 per hour. Mrs Ali denied those agreements, accepted liability only for reasonable remuneration and counterclaimed for an account.

His Honour Judge Martineau rejected Mr Islam’s contractual and hourly-rate cases. He assessed reasonable remuneration by reference to the practice’s net profits and entered judgment for £12,746.41, inclusive of interest. He nevertheless ordered Mrs Ali to pay Mr Islam’s costs.

Mrs Ali appealed against the costs order alone. The central issue was whether Mr Islam’s monetary award made him the successful party, despite Mrs Ali having defeated the principal bases and most of the value of his claim.

1. Appeal allowed. Lord Justice Auld, with whom Lord Justice Mummery agreed, held that Mrs Ali was the successful party on a proper analysis of the litigation. The trial costs order was set aside and replaced with no order as to costs.

2. The general rule under Civil Procedure Rules Part 44.3(2)(a) is that the unsuccessful party pays the successful party’s costs. Part 44.3(2)(b) nevertheless gives the trial judge a wide discretion to make another order in furtherance of justice and fairness. Under Part 44.3(5), the judge must consider all the circumstances. Relevant matters include the parties’ conduct, how they framed and pursued their cases, partial success, and payments into court or settlement offers.

3. Success is not measured solely by the entry of a monetary judgment or in absolute terms. As explained in AEI Rediffusion Music Ltd v Phonographic Performance Ltd [1999] 1 WLR 1507, departure from the ordinary rule may be appropriate where the degree of success is substantially less than complete. The court must examine the substance and reality of the contest.

4. Mrs Ali had defeated the alleged agreements on which the claim was principally based, defeated the proposed hourly method of remuneration, and established that only reasonable remuneration calculated by reference to net profits was payable. Although judgment for £12,746.41 was entered against her, she resisted a much larger claim. The disparity between the amount sought and the amount recovered, together with Mr Islam’s failure on the principal issues, made her the true winner.

5. The Court of Appeal should interfere with a costs discretion only where the judge exceeded the generous ambit within which reasonable disagreement is possible. Intervention is also justified where the judge erred in principle, omitted a relevant consideration, took account of an irrelevant consideration, or failed fairly to balance the factors. The trial judge had wrongly treated the monetary judgment as controlling and failed to consider Mrs Ali’s substantial success on the basis and value of the claim.

6. The appropriate substitute order was no order as to the costs of the action. The formal order also recorded the appeal as allowed in part, with the appeal costs summarily assessed at £5,868.19 including VAT.

1. Court of Appeal (Civil Division): The appeal against the costs order was allowed. The order requiring Mrs Ali to pay Mr Islam’s trial costs was replaced by no order as to costs. The formal order recorded the appeal as allowed in part, with appeal costs summarily assessed at £5,868.19 including VAT.

2. Central London County Court: His Honour Judge Martineau entered judgment for Mr Islam for £12,746.41, inclusive of interest, and ordered Mrs Ali to pay his costs. Permission to appeal the costs order was refused.