National Westminster Bank Plc v Kotonou

An appellate court may interfere with a costs order only where the basis of the trial judge’s exercise of discretion reveals an error of principle or other flaw. It does not reconsider the order merely because it might have exercised the discretion differently.

Where the overall winner has lost distinct issues, the court may adopt an issue-based approach. If separate assessment of those issues is impracticable, the court should ordinarily translate their relative significance into proportions of the parties’ overall costs. The overall winner may therefore be ordered to pay a proportion of the losing party’s costs.

The bank’s claim to enforce a guarantee was dismissed after Mr Kotonou established one of five alleged representations. He failed on the other allegations, some of which the deputy judge considered unreasonable, improper or wholly unjustified. The deputy judge consequently ordered each party to pay 50% of the other’s costs.

In related mortgage proceedings, and in the guarantee proceedings, the deputy judge made no order concerning costs reserved from earlier hearings about adjournment, funding and priority arrangements. Mr and Mrs Kotonou renewed applications for permission to appeal those orders. Mr Kotonou also appealed the 50/50 order in the guarantee proceedings.

The central issues were whether the reserved costs should follow the result of the mortgage proceedings and whether the split costs order disclosed an error of principle permitting appellate intervention.

1. Appeal dismissed and renewed applications refused. The deputy judge was entitled to leave the reserved costs of the funding hearings where they fell. Those hearings had produced mixed results and ultimately an agreed arrangement. Their costs were not required to follow either the mortgage proceedings or the guarantee proceedings. The trial judge was entitled to assess them with the benefit of hindsight and to conclude that neither side should recover them.

2. An appellate court first asks whether the basis on which the costs discretion was exercised has been shown to be flawed. Only an error of principle or other vitiating flaw permits the appellate court to exercise the discretion afresh. The question is not whether the appellate court would itself have made the same order. The deputy judge had considered the relevant factors, and his reasoning disclosed no such error.

3. Although Mr Kotonou was the overall winner, he had fought and lost several distinct issues. The deputy judge found that some allegations should never have been raised and that an allegation of fraud against bank officials was wholly unjustified. He was therefore entitled to depart from the ordinary rule that the unsuccessful party pays the successful party’s costs and to use an issue-based approach under rule 44.3.

4. Where identifying the costs of individual issues would be difficult, rule 44.3(7) favours a proportionate order in place of an order confined to a distinct part of the proceedings. The deputy judge had heard the nine-day trial and was well placed to translate the significance and cost of the successful and unsuccessful issues into broad percentages. His 50/50 assessment was open to him.

5. The overall winner may be required to pay a proportion of the losing party’s costs. When costs follow the event issue by issue, the party losing a distinct issue will often bear the costs attributable to it. The deputy judge’s failure expressly to consider the intermediate possibility of merely disallowing part of Mr Kotonou’s costs did not amount to a misdirection. Lloyd LJ and Stanley Burnton J agreed with Chadwick LJ.

1. Court of Appeal (Civil Division): Dismissed Mr Kotonou’s appeal against the 50/50 costs order and refused the renewed applications for permission to appeal the no-order-as-to-costs rulings.

2. High Court, Chancery Division: Mr Jules Sher QC dismissed the bank’s guarantee claim, set aside the guarantee and later ordered each party to pay 50% of the other’s costs. In the related mortgage proceedings, reported at [2006] EWHC 1021 (Chancery), he decided the construction issue for Mr and Mrs Kotonou and awarded them their costs, but made no order concerning costs reserved from earlier hearings.