When winning doesn't pay

Parties frequently agree to the trial of preliminary issues in the hope that this will lead to a quick resolution. Often, this is the case but how much thought is given to the cost consequences of such a course? Do the parties realise what costs may flow from a preliminary issue and do the Civil Procedure Rules help? The short answers to these questions are, I suspect, “no” and “not much”.

The general rule is that the unsuccessful party pays the successful party’s costs. The problem is whether success or failure can be ascertained at the preliminary issue stage.

In Copthorne Hotel (Newcastle) Ltd vs Arup Associates, the defendant was successful on all the preliminary issues. Not surprisingly, it sought an order for costs in its favour.

The problem was that, by the Rules of the Supreme Court, order 22, rule 7(1), neither party was entitled to inform the court whether there had been a payment into court until “all questions of liability … have been decided”. Since issues of liability remained, the court could not be told whether there had been a payment into court, much less the amount of any such payment.

It was held that the costs would have to be reserved to the trial of the remaining issues. This was a puzzling decision in at least one respect. While it would be understandable why a payment into court might influence the exercise of the discretion a claimant had been successful, how could it affect the position of a defendant who had been wholly successful?

The judge’s reasoning was: “Payments into court against all the claims in an action are formal offers to settle the whole action, which if made and accepted can save very large amounts of time and costs, and are therefore encouraged. In that context, it is as important to encourage properly judged payments by defendants as acceptance of them by plaintiffs. Just as the converse of the latter is that plaintiffs who do not accept adequate payments risk a detriment in costs, so the converse of the former is that defendants who make inadequate ones take the same risk.”

It is difficult to understand this reasoning. Even if it was held that the defendant was liable in a sum greater than any payment into court, how could this be a factor that could affect his entitlement or otherwise to the costs of the preliminary issue? One might have thought that the new Civil Procedures Rules would have addressed this type of problem. Unfortunately not, and, in one respect at least, the position has been made more confusing. Under CPR 44.3 (4), the court “must have regard to all the circumstances, including … any payment into court or admissible offer to settle…”

Claimants may not get costs even if wholly successful, on the basis that the court is obliged to have regard to such a payment but must not be so informed

However, just like the RSC, “the fact that a part 36 payment has been made shall not be communicated to the trial judge until all questions of liability and the amount of money to be awarded have been decided,” (CPR 36.19 (2)).

Part 36 sensibly makes express provision, not just for a payment into court, but also for a written offer in relation to any non-money claim.

It would seem, therefore, that although in some cases the court cannot be informed of a payment into court, there is no prohibition against a party informing the court of any written offer falling within part 36. Was it really intended that a different regime should apply to payments in and written offers? What lessons can be learned from all this?

Do not embark on a preliminary issue without considering the costs consequences

Claimants may not get costs at the preliminary trial stage, even if they are wholly successful, on the basis that the court is obliged to have regard to such a payment but must not be so informed, in the absence of the consent of the parties