Connell v Mutch (t/a Southey Building Services) & Anor

The general rule in civil litigation is that costs follow the successful party, but the court may make a different order after considering all the circumstances, including relative success, conduct and admissible settlement offers. A defendant’s partial success on a counterclaim may justify a costs award in its favour even where the claimant obtains a net judgment. The trial judge’s evaluative decision attracts a wide margin. The Court of Appeal should not substitute a different order unless the decision falls outside the range of reasonable decisions. Although a proportionate award to the successful party may be preferable, it is not mandatory.

The dispute concerned building works carried out by the respondent contractor. The claim was initially brought by a company, although the judge found that the contract was between the respondent and the appellant personally. The appellant succeeded on defective roof works, while the respondent recovered part of his counterclaim, leaving the appellant with a net judgment.

The trial judge awarded the appellant the costs of his claim and the respondent the costs of the counterclaim, and entered judgment for the respondent on the counterclaim. The appellant appealed, arguing that he was the overall successful party and should receive the costs of both aspects of the proceedings. The central issue was whether the costs order fell outside the proper exercise of the trial judge’s discretion.

1. Appeal dismissed. The Court of Appeal declined to interfere with the trial judge’s costs order. The trial judge had recognised that the appellant was the successful party but considered that the respondent’s substantial success on the counterclaim should be reflected in the costs order.
2. The judge was wrong to enter judgment for the respondent on the counterclaim. The counterclaim had been pleaded as a set-off and operated as an equitable set-off, diminishing the appellant’s claim. The appropriate formal order would have been dismissal of the counterclaim or judgment on it for the appellant, since no sum remained payable to the counterclaiming respondent. This error did not require the costs order to be set aside. The principle was derived from Hanak v Green [1958] 2 QB 9.
3. Under rule 44.3(2)(a) of the Civil Procedure Rules 1998, the starting point was that the unsuccessful party should pay the successful party’s costs. Rule 44.3(2)(b) permitted a different order. The modern costs regime allowed a more flexible approach, as recognised in Naseem v Kang [2011] EWCA Civ 737. The judge had considered the relevant checklist, including admissible offers and conduct, and was entitled to take account of the parties’ relative success and failure.
4. It would generally have been preferable to order the respondent to pay a proportion of the appellant’s costs, with no order for the respondent’s costs, as contemplated by the cited CPR provisions. That approach may reduce disputes at detailed assessment. It was not, however, the only permissible order.
5. The trial judge was uniquely placed to assess the litigation and had given guidance indicating that the respondent’s recoverable counterclaim costs would be modest. The Court of Appeal could not safely substitute a percentage order or remit the matter for a new costs order without risking a less favourable and unintended result. The decision was within the ambit of reasonable decision-making, so the appeal was dismissed.

• Court of Appeal (Civil Division): dismissed the appellant’s appeal against the costs order and declined to substitute a different order.
• High Court of Justice, Technology and Construction Court sitting at Liverpool County Court: found that the contract was between the appellant and the respondent, awarded the appellant damages for defective roof works, allowed part of the respondent’s counterclaim by way of set-off, and made separate costs orders in respect of the claim and counterclaim.