Nigel Witham Ltd v Smith & Anor (No. 2)

Costs ordinarily follow the event, but the court may make a proportionate order where the successful party failed on a distinct and significant issue. In complex litigation, a percentage reduction is generally preferable to detailed issue-by-issue assessment. The successful party is ordinarily identified by the overall result, including who must pay money at the end of the case. A late agreement to mediation does not justify a costs penalty unless the delay was unreasonable and earlier mediation had a reasonable prospect of success. A valid Part 36 offer does not require recovery of costs incurred on an abandoned counterclaim. An interim payment on account should reflect the sum likely to be recovered on detailed assessment.

The judgment concerned costs following an earlier five-day Technology and Construction Court trial between a building contractor and its clients. The principal judgment, [2007] EWHC 3027 (TCC), resulted in the claimant owing the defendants £1,683 after adjustments for VAT and interest.

The court had to determine which party was successful, whether the defendants’ abandonment of a substantial counterclaim justified a reduction, whether their late agreement to a judicial settlement conference should affect costs, the effect of their valid Part 36 offer, and the appropriate interim payment on account.

1. Successful party. The defendants were the successful party. Applying the approach in Burchell v Bullard and Johnsey Estates (1990) Ltd v The Secretary of State for the Environment, the overall result was decisive. The claimant had advanced substantial claims which failed or recovered substantially less than claimed, and the claimant was the party who ultimately had to pay.
2. Proportionate costs order. Costs ordinarily follow the event, but the court must consider all the circumstances, including success on separate issues. In a complex case, a percentage reduction was preferable to an issue-based order because detailed allocation would generate further disproportionate costs. The defendants’ abandoned counterclaim concerning negligent costs estimates justified a 15% reduction. The costs of two inadmissible or irrelevant expert reports were also excluded.
3. Mediation. The defendants had not unreasonably delayed agreeing to mediation. The claimant had not provided adequate detail at the early stage, and the claimant’s uncompromising approach meant that an earlier mediation had little or no reasonable prospect of success. The principles in Halsey v Milton Keynes General NHS Trust could apply in an exceptional case involving a very late mediation, but they did not justify a reduction on these facts.
4. Part 36 and interim payment. The defendants had beaten their valid Part 36 offer. They were therefore entitled to costs and interest on costs from 2 November 2007, but only in respect of 85% of their recoverable costs because the abandoned counterclaim remained an appropriate deduction. Applying Mars UK Ltd v Teknowledge Ltd (Costs), the court ordered an interim payment of £41,200 on account, payable by 6 February 2008.