Naseem (t/a SH Builders) & Contractors v Kang

Under Civil Procedure Rules 1998, r 44.3, a party who achieves a net recovery after set-off is ordinarily the successful party and starts with an entitlement to costs. The costs court must nevertheless consider all the circumstances, including litigation conduct and each party’s success on distinct issues.

Conduct which causes serious confusion, and partial failure on claim or counterclaim, may justify a substantial reduction in costs. A complete deprivation of the successful party’s costs requires justification proportionate to the conduct and the parties’ respective responsibility for it.

A building contractor claimed an unpaid balance for works performed under two contracts. The property owner denied liability and counterclaimed for defective work. A third, separately paid, roof-works contract caused confusion after the contractor’s solicitors supplied the joint expert with drawings relating to it, without promptly correcting the expert’s misunderstanding.

Recorder Phillips gave the contractor judgment for £10,243 after set-off, but made no order for costs because of the contractor’s conduct of the litigation. Permission to appeal was refused on a factual challenge concerning a £5,000 payment, but granted on the costs issue. The central question was whether the contractor, as the overall successful party, could properly be deprived of all costs.

Appeal allowed unanimously. Jackson LJ gave the principal judgment, with which Tomlinson LJ and Sir Anthony May agreed.

1. The contractor was the successful party for the purposes of costs. He obtained a net judgment of £10,243 after claim and counterclaim had been set off. In the absence of a settlement offer from the owner, the starting point under r 44.3(2)(a) of the Civil Procedure Rules 1998 was that he should recover his costs.

2. The recorder was entitled to find that the contractor and his solicitors bore greater responsibility for the serious confusion concerning the drawings and the third contract. They had sent the drawings with the pleading and to the joint expert, and had failed to correct the expert’s misunderstanding promptly. The contractor had also failed on some valuation issues, while the owner had succeeded on part of the defects counterclaim.

3. There was, however, no proper basis for a finding of deliberate deception or dishonesty. The owner knew of the third contract and bore some responsibility for the confusion. The pleaded claim consistently excluded payment for the roof works. Those circumstances did not justify depriving the overall successful party of all costs.

4. The recorder therefore erred in principle in making no order for costs. Re-exercising the discretion under Part 44, the Court of Appeal held that a 50 per cent deduction properly reflected the parties’ conduct and their mixed success on the issues.

The costs order was varied: the contractor was awarded 50 per cent of his costs of the action, to be assessed if not agreed.

• Court of Appeal (Civil Division): Allowed the costs appeal and substituted an order awarding the appellant 50 per cent of the action costs: [2011] EWCA Civ 737.
• Huddersfield County Court (Recorder Phillips): Awarded the claimant £10,243 after set-off of claim and counterclaim, but made no order as to costs.