Hannan & Anor v Maxton

Costs ordinarily follow the event. Where a party abandons its claims and the opposing party obtains the relief sought, a late change in commercial circumstances will rarely justify making no order for costs, particularly where the successful party made a settlement offer less favourable than the result. The trial judge’s discretion is wide, but must be exercised reasonably. Alternative dispute resolution is not confined to cases where facts are agreed; it may be especially valuable where facts are sharply disputed and litigation is commercially uncertain. Standard rather than indemnity costs may be appropriate where both sides bear some responsibility and the losing party made concessions.

The parties had litigated over beneficial interests in two adjoining properties and alleged loans. The counterclaim sought declarations of equal beneficial interests and an order for sale. After a late valuation showed that the properties had little net value, the claims and counterclaim were compromised by consent on terms giving the counterclaimant the relief sought and dismissing the loan claims.

The county court ordered costs against the claimants in respect of the loan claims but made no order as to the remaining costs. The counterclaimant appealed, arguing that the ordinary costs rule, her settlement offer and the history of rejected attempts at alternative dispute resolution justified an award of costs. The central issue was whether the judge had exercised the costs discretion properly.

The appeal was allowed. The respondent was ordered to pay the appellant’s costs on the standard basis. The request for indemnity costs was refused.

1. Exercise of discretion. The costs jurisdiction gives the first-instance judge a wide discretion, but the discretion must be exercised reasonably. The reasons for departing from the ordinary rule must be sufficiently explained. The judge’s reasoning was difficult to follow and did not justify making no order for the main costs.
2. Costs following the event. The respondent had abandoned all his claims, while the appellant obtained the relief for which she had consistently contended. She had also made a settlement offer on less favourable terms than the result ultimately achieved. In those circumstances, costs should have followed the event, and the failure to award them was outside the reasonable exercise of the discretion.
3. Changed circumstances. The proceedings became commercially unrealistic because of the collapse of the property market, rather than because the valuation was produced late. A party who starts litigation bears the risk that circumstances may change before trial. Such a change can very rarely justify departing from the ordinary costs rules.
4. Alternative dispute resolution. Lord Justice Carnwath emphasised that ADR is not suitable only where the facts are substantially agreed. It can be particularly useful where facts are hotly disputed, because it focuses attention on commercial reality, litigation costs and the uncertainty of witness assessment.
5. Basis of assessment. Standard costs, rather than indemnity costs, were appropriate because the respondent had made some concessions and the appellant also bore some responsibility for the course of the litigation.

The court noted Petrotrade Inc v Texaco Limited A3/00/0044 and McPhilemy v Times Newspapers Ltd and (2) Liam Clarke (3) Andrew Neil [2001] EWCA Civ 933, but identified no separate principle requiring detailed consideration.

• Court of Appeal (Civil Division): Allowed the counterclaimant’s appeal and ordered the respondent to pay the appellant’s costs on the standard basis.
• Preston County Court (HHJ Howarth QC): Ordered the claimants to pay the defendants’ costs relating to the loan claims, but made no order as to the remaining costs.