Burchell v Bullard & Ors

In commercial litigation involving claims for money on both sides, the overall unsuccessful party will ordinarily be the party who must pay the balance at the end of the case. The court must then consider conduct, partial success, exaggeration and settlement offers before deciding whether to depart from costs following the event.

Where an issues-based costs order would be appropriate, the court should, if practicable, award a proportion of the overall costs. An unreasonable refusal to mediate may justify a costs sanction, including where the refusal precedes proceedings. Relevant considerations include the dispute’s nature and merits, the likely cost of mediation and its prospects of success.

A builder claimed sums due for extensions constructed at the respondents’ home. The respondents counterclaimed more than £100,000 for incomplete and defective work, including replacement of a roof built by a subcontractor. The builder therefore brought Part 20 proceedings against that subcontractor.

District Judge Tennant awarded the builder £18,327.04 on the claim and the respondents £14,373.15 on the counterclaim, leaving the respondents to pay a net balance of £5,025.63. He nevertheless ordered the respondents to pay the builder’s costs of the claim, the builder to pay their costs of the counterclaim, and the builder to pay the subcontractor’s costs.

The builder appealed only against those costs orders. The issues were whether the recorder had exercised his costs discretion on the correct principles, whether the Part 20 proceedings had been reasonably brought, and what costs order should replace the orders below.

1. Appeal allowed. A costs appeal ordinarily requires an error of principle or a decision outside the generous ambit of the trial judge’s discretion. The recorder crossed that threshold by treating separate success on the claim and counterclaim as effectively determinative and failing to consider an appropriate proportionate order under Rule 44.3(6)(a).

2. In commercial litigation where both sides seek money, the event is ordinarily identified by asking who must write the cheque at the conclusion. The respondents had to pay the net balance and were therefore the overall unsuccessful parties. The builder’s prima facie entitlement extended to the costs of the claim and counterclaim considered together.

3. The general rule remained subject to all the circumstances. The respondents recovered only about 15% of an exaggerated counterclaim, lost most major issues and had conducted the litigation more unreasonably. The builder nevertheless could not recover all his costs because the counterclaim achieved some limited success. A just result was an award of 60% of the combined costs.

4. The recorder also erred concerning the Part 20 proceedings. Joining the roofing subcontractor was reasonable and proper because the respondents alleged that the subcontractor’s roof required replacement. Notice of a possible later claim would not have protected the builder through issue estoppel or avoided the risk of inconsistent findings. Allowing for defects attributable to the builder himself, the respondents were ordered to bear 60% of the builder’s Part 20 costs and 60% of his liability for the subcontractor’s costs.

5. Applying Halsey, the dispute’s nature and merits, the modest cost of mediation and its reasonable prospects of success showed that the respondents’ refusal to mediate was unreasonable. A party cannot defeat that conclusion by relying upon its own obstinacy. No additional sanction was imposed because the refusal occurred before the later authorities had clarified the law and followed non-legal advice.

6. Rix LJ agreed. He emphasised the costs risks of adding claims of dubious merit and confirmed that an unreasonable refusal to mediate may be considered even when it occurs before formal proceedings.

1. Court of Appeal (Civil Division): The appeal was allowed. The recorder’s costs orders were discharged and replaced by orders requiring the respondents to pay 60% of the appellant’s relevant costs and liabilities. Permission to appeal to the House of Lords was refused.
2. Bournemouth County Court: District Judge Tennant awarded the appellant a net balance of £5,025.63 but made separate costs orders on the claim and counterclaim and required him to pay the Part 20 defendant’s costs.