Dearling v Foregate Developments (Chester) Ltd.

Where civil proceedings are settled before trial and costs remain disputed, the court has power to make a costs order. The overriding objective is to do justice without unnecessary court time or expense. If the court cannot fairly assess which party would have won, the ordinary fallback is no order as to costs, unless there is a good reason to depart from it. A settlement figure reached commercially, including one encouraged by the court, does not itself establish success merely because it exceeds an earlier offer. In assessing ADR costs, the court may consider the parties’ relative success and whether a claim was substantially exaggerated.

The defendant housebuilder agreed to construct a house for the claimant. Disputes arose concerning defects, the validity of a notice to complete and the costs of an agreed ADR process. The parties later pursued a breach of contract claim, which settled at £11,750 immediately before a four-day trial. They agreed that His Honour Judge Mackay should determine the unresolved costs issues.

The judge awarded the claimant the costs reserved in earlier injunction proceedings, left the ADR costs where they fell, and ordered the defendant to pay the costs of the action on the standard basis. The defendant appealed against the latter order. The claimant obtained permission to cross-appeal in relation to the ADR costs. The central issues were whether the ADR costs should be awarded to the claimant and whether the settlement justified an order for the costs of the action.

1. Disposition. The appeal was allowed and the cross-appeal was dismissed. The decision was unanimous.
2. As to the ADR costs, the judge had misunderstood Mr Miller’s direction on costs. The Court of Appeal was therefore entitled to exercise the discretion afresh. The claimant had established some Category A defects supporting his position on the notice to complete, but the defendant had shown that the claimant’s case had been substantially overstated. Both parties had achieved some success. It was therefore appropriate to leave the ADR costs where they fell, except where Mr Miller had made a different allocation.
3. As to the costs of the action, the court applied the principles identified in Brawley v Marczynski [2003] 1 WLR 813, drawing on R (Boxall) v Waltham Forest London Borough Council (unreported) 21 December 2000. Those principles apply to ordinary civil proceedings as well as judicial review. The court has power to make a costs order after settlement. The extent to which it should examine the unresolved merits depends on the circumstances, including the costs at stake and the parties’ conduct. Where the court cannot determine the likely outcome, the fallback is no order as to costs unless there is a good reason otherwise.
4. The settlement sum was a commercial figure reached through negotiations prompted by the court. It did not reflect the merits and exceeded the defendant’s earlier offer only because the parties compromised. The defendant’s failure to carry out the ADR recommendations, its refusal to increase its offer, and the claimant’s later open offer did not provide a good reason to depart from the fallback position.
5. The defendant was ordered to pay the claimant’s costs up to 3 June 2002, being the expiry of the period for accepting the 13 May offer. Thereafter there was no order as to costs. The respondent was ordered to pay the appellant’s costs of the appeal, assessed at £8,500.

• Court of Appeal (Civil Division): [2003] EWCA Civ 913. Appeal allowed and cross-appeal dismissed.
• Liverpool County Court: His Honour Judge Mackay’s costs decision of 3 September 2002 awarded the claimant the reserved costs and the costs of the action, while leaving the ADR costs where they fell.