Harrington & Charles Trading Company Limited (In Liquidation) & Ors v Mehta & Ors

Where an interim application has been compromised and only costs remain, the court should ordinarily avoid deciding the underlying merits. Parties may compromise for pragmatic or commercial reasons, and an arid prediction of the hypothetical outcome wastes resources and undermines the overriding objective. The court retains a broad discretion under the Civil Procedure Rules 1998, r 44.2, including declining to make any costs order. A costs order may be appropriate where the likely outcome is plain and obvious, but any assessment should remain high-level and broad-brush. Where responsibility is mixed and the application’s outcome cannot fairly be identified, no order for costs may be the appropriate result.

The claimants and the Active Defendants were involved in long-running commercial litigation. The Active Defendants issued an application for security for costs, seeking payment into court or a bank guarantee. The claimants had an existing after-the-event insurance policy, but the Active Defendants challenged its terms and level of cover.

Following negotiations, the policy was amended, its cover increased, and further endorsements were provided. The Active Defendants accepted the revised policy. The parties agreed that the substantive security application had therefore been resolved, leaving only the incidence of costs for determination.

The court was asked to decide whether the Active Defendants should receive their costs, whether costs should be costs in the case, or whether there should be no order for costs. The central issue was how the court should exercise its costs discretion where an interim application had been compromised without determination on its merits.

1. Disposition. The security for costs application had been compromised. The court made no order for costs.
2. Under CPR 44.2(1), (2) and (4), the court has a broad discretion whether to make a costs order and, if so, what order to make. The general rule that the unsuccessful party pays the successful party’s costs is applied on a broad-brush, commonsense basis by examining the overall balance and substance of who was successful.
3. Where an application has been compromised and only costs remain, it is rarely appropriate to investigate the underlying merits. Parties compromise applications for pragmatic and commercial reasons, and the court should encourage rather than penalise that conduct. It is not the court’s role to predict what the outcome would have been after a full hearing.
4. The approach in BCT Software Solutions Limited v C Brewer & Sons Limited [2003] EWCA Civ 939 and Powles v Reeves [2016] EWCA Civ 1375 applies equally to interim applications. The court may decline to determine costs or make no order, particularly where the answer is not obvious. The same approach was adopted in Guy v Brake [2023] EWHC 3179 Ch.
5. A costs order may nevertheless be considered where it is plain and obvious what the outcome would have been, but only by applying a high-level and broad-brush assessment. Here, delay and shortcomings existed on both sides; it was impossible to determine whether the application had caused the eventual resolution; and costs in the case would improperly attach a discrete security application to the outcome of the trial.

Not stated in the judgment.