There have been some interesting decisions recently on issue based costs orders and costs not always following the event. In Tradition Financial Services Ltd v Bilta (UK) Ltd & Ors [2023] EWCA Civ 112 the Court of Appeal upheld a judge’s decision that there should no order for costs on issues that had been resolved but where the parties had left the determination of costs to the judge. The judge had allowed 7.5% of the claimants’ costs because there had been adjournments caused by the defendants, but otherwise had made no order in relation to pre-settlement costs.


“The mere fact that one party pays money to another does not necessarily mean that the receiving party is the successful party, particularly in a case of a group of claimants pursuing individual claims, some of whom succeed and some of whom fail”


The judge had given judgment.  Prior to that judgment a large number of issues were resolved by a settlement.  The parties were asking the judge to consider the issue of costs arising from the action.  The judge, largely, made an order that there be no inter-partes costs for those issues that had been resolved. The judge awarded the claimants 7.5% of their costs because some hearings had been adjourned, beyond that there was no order for “pre-settlement” costs.  The first instance judgment is considered in Cost Bites 31.


Lord Justice Lewison considered the appeal, one of the grounds was an appeal against the order given for “pre-settlement” costs.

The costs appeal
    1. The claim form was issued against TFS on 8 November 2017. The trial was due to begin in January 2021, but it was adjourned because of the illness of a crucial witness. But on 21 February 2022 the parties entered into a confidential settlement agreement which, among other things, provided for the judge to determine the substantive issues relating to the limitation defence and section 213, and also the costs of the whole proceedings. It is important to note that in the settlement agreement TFS did not admit liability; and that it agreed to pay a proportion of the amount claimed by each claimant if it were established that any of the claims succeeded either on the limitation issue or the section 213 issue. In the event, three claimants (Bilta, Weston and Vehement) failed to establish any valid claim and thus obtained nothing under the settlement agreement. Nathanael and Inline’s claim for dishonest assistance in a breach of trust failed on limitation under section 32 of the Limitation Act 1980; but succeeded under section 213.
    1. The judge had been the “docketed judge” in relation to the action, and had dealt with various matters of case management. He also, of course, heard the trial of the issues that the settlement agreement did not resolve. The judge approached the question of costs by saying that a bright line needed to be drawn between the costs incurred before the settlement agreement and the costs incurred subsequently. The former constituted the vast bulk of the costs. It is important to note that, as the judge recorded at [9] of the costs judgment, neither side argued that the usual rule (costs follow the event) should be applied. Each party argued for an issues-based costs order.
    1. The judge rejected the claimants’ argument that they were the successful parties because they had recovered a substantial amount of money. He considered that it was a case in which he could not form a view about who would have won if the whole case had gone to trial. The payment that TFS agreed to make (without admission of liability) arose by way of settlement, not by a finding of liability and provided no element of vindication or indication of outcome. He concluded at [20]:
“I cannot possibly proceed on the basis that TFS would have lost at trial. Nor can I say that simply because the Settlement contained certain provisions, a consequence of making those concessions was that costs should be paid by TFS.”
    1. He therefore decided that this was not a case in which costs should follow the event. He then considered whether he should make an issues-based order, by “reading across” the parties’ success or failure on the issues which he did decide in his substantive judgment. He considered that it was wrong to allow the issues on which there had been success or failure to inform the issues which could not be assessed one way or the other. In relation to the pre-settlement costs, he concluded at [28]:
“As regards pre-settlement costs, the proper starting point is that there should be no order as to costs, and that each party should bear their own. That is because I cannot decide who would have won because there was no determination, and the Settlement does not assist.”
    1. He made an adjustment to that, by allowing the claimants 7.5% per cent of their pre-settlement costs to reflect the fact that, at TFS’s behest, there had been two adjournments of the trial.
    1. As regards the post-settlement costs he made an order that TFS should have its costs of the limitation defence, and the successful claimants should have their costs of the section 213 issue.
    1. There is no appeal against the judge’s decision as regards post-settlement costs. The judge himself gave permission to appeal against his decision on pre-settlement costs.
    1. It goes almost without saying that a first instance judge has a very wide discretion (a) whether to make any order for costs at all and (b) if so, what order to make. An appeal court can only interfere on very limited grounds. As Wilson J (sitting in this court) explained in SCT Finance v Bolton [2002] EWCA Civ 56 at [1]:
“This is an appeal brought with leave of the single Lord Justice from the county court in relation to costs. As such, it is overcast, from start to finish, by the heavy burden faced by any appellant in establishing that the judge’s decision falls outside the discretion in relation to costs conferred upon him under rule 44.3(1) of the Civil Procedure Rules 1998. For reasons of general policy, namely that it is undesirable for further costs to be incurred in arguing about costs, this court discourages such appeals by interpreting such discretion very widely.”
    1. The question is not, therefore, whether we would have made the same order for costs as the judge, nor even whether we disagree with it. The question is whether the judge exceeded the wide discretion that the law gives him.
    1. Moreover, where the first instance judge has determined costs in a case in which the parties have settled their dispute (apart from costs) an appeal court is even more reluctant to interfere.
    1. In a case in which the judge decides costs after settlement it has been said that an appeal court will only interfere if the judge’s decision is “manifestly unjust”. That test was first proposed by Mummery LJ (with whom Brooke LJ expressly agreed) in BCT Software Solutions Ltd v C Brewer & Sons Ltd [2003] EWCA Civ 939, [2004] FSR 9 at [9]. The appeal in that case was dismissed because the judge’s order was “not manifestly unjust in all the circumstances”: [20]. That test was approved by this court in Venture Finance plc v Mead [2005] EWCA Civ 325 at [25] and [34]; Promar International Ltd v Clarke [2006] EWCA Civ 332 at [35] and Bray v Bishop [2009] EWCA Civ 768 at [5]. In Patience v Tanner [2016] EWCA Civ 158 at [33] Gross LJ questioned whether the reference to “manifest injustice” imposed a further threshold requirement, but was content to proceed as if it did. But as David Richards LJ pointed out in Powles v Reeves [2016] EWCA Civ 1375[2017] 1 Costs LR 19 at [25] the decisions in Venture Finance plc v Mead and Bray v Bishop do not appear to have been cited in Patience v Tanner. In Powles v Reeves David Richards LJ confirmed at [26]:
“However the approach is expressed, I consider that these authorities show that an appellate court will be even more reluctant than in the case of a costs order after a contested hearing to interfere with a costs order made at the request of the parties after they have settled the substantive issues between them.”
    1. The claimants do not criticise the judge for having distinguished so sharply between pre-settlement and post-settlement costs. But they argue that the judge did indeed make an error of principle in relation to the pre-settlement costs. They say that because the outcome of the litigation was that TFS ended up “writing the cheque” the claimants were the successful party. Even though the judge might not have been able to decide who would have won on liability if the whole case had gone to trial, nevertheless this was a case where the terms of the settlement agreement contained the answer.
    1. In the BCT case, for example, Mummery LJ said at [7]:
“The judge has a discretion to decline to do what the parties ask him to do. If, on the one hand, the action is for damages, it will be relatively easy for the judge to tell from the size of the settlement sum and from the litigation history (offers, payments in and so on) how the costs should be borne. As I have already said, it would be relatively unusual for the parties themselves not to agree on the costs of such cases. In more complex cases, however, involving a number of issues and claims for discretionary equitable relief, the costs position is much more difficult for the judge to resolve without actually trying the case.”
    1. In R (M) v Croydon LBC [2012] EWCA Civ 595[2012] 1 WLR 2607 Lord Neuberger MR differentiated between cases where the claimant had achieved all the relief that he sought, and cases in which the claimant had achieved part of the relief he sought. In the latter kind of case, he said at [50]:
“The outcome will normally be different in cases where the consent order does not involve the claimant getting all, or substantively all, the relief which he has claimed. In such cases the court will often decide to make no order for costs, unless it can without much effort decide that one of the parties has clearly won, or has won to a sufficient extent to justify some order for costs in its favour. Thus the fact that the claimant has succeeded in obtaining part of the relief he sought may justify his recovering some of his costs, for instance where the issue on which the claimant succeeded was clearly the most important and/or expensive issue. But in many such cases the court may consider that it cannot fairly award the claimant any costs because, for instance, it is not easy to assess whether the defendants should have their costs of the issue on which the claimant did not succeed, and whether that would wipe out the costs which the claimant might recover in relation to the issue on which he won.”
    1. He added at [62]:
“I would accept the argument that, where the parties have settled the claimant’s substantive claims on the basis that he succeeds in part, but only in part, there is often much to be said for concluding that there is no order for costs.”
    1. Gossage v Bishton [2012] EWCA Civ 717 is another example of a case in which the achievement of partial success in a compromise resulted in no order for costs.
    1. Mr Parker also relied strongly on the decision of this court in McKeown v Langer [2021] EWCA Civ 1792[2022] 1 WLR 1255. That was a case of a petition for unfair prejudice brought under section 994 of the Companies Act 2006. There was a split trial of liability which was to be followed by the question of valuation if a buy-out order was made. The judge hearing the trial made an order for costs. The argument raised on appeal was that since the respondent had made a global Calderbank offer the judge was wrong not to have deferred the question of costs until after the second trial. This court rejected that argument. Whether to make a costs order was within the discretion of the judge. It is perfectly true that at [37] Green LJ said that:
“there is a general “salutary” rule that costs follow the issue rather than the “event”. This is because an overly robust application of a principle that costs should follow the final event discourages litigants from being selective as to the points they take in litigation and encourages an approach whereby no stone or pebble, howsoever insignificant or unmeritorious, remains unturned.”
    1. But that was in the context of a split trial; and the actual decision in that case was that the costs order that the judge in fact made was within the ambit of his discretion. The court did not say that he would have been wrong to have approached the question of costs differently. In my judgment, Mr Parker’s reliance on that case seeks to confine a judge’s discretion over costs impermissibly.
    1. Here, the claimants say, the action was for the recovery of money, and the claimants recovered a substantial sum. The judge should have been able to tell from the size of the settlement sum how the costs should be borne. It was not necessary (and was an error of principle) for him to have considered who might have won at trial if all the issues had been litigated. The claimants therefore argue that they should recover all their costs down to the date of the settlement agreement. Although I consider that there is considerable force in the argument that the terms of the settlement may in some cases provide a good proxy for deciding who is the successful party without having to second guess the result of a contested trial, this is not, in my judgment, a case of complete success, but of partial success. In addition it is, I think, necessary to consider the judge’s costs order in the round in order to decide whether it was “manifestly unjust”.
    1. The result of the claimants’ argument would produce the result that three claimants (Bilta, Weston and Vehement) whose claims failed completely would recover the bulk of their costs. That proposition only has to be stated in order to be seen to be unjust. This was not a case in which all costs were common costs. Substantial costs were incurred by TFS on individual claims by the individual companies. In addition, in relation to all the claimants, TFS won on a very substantial issue, namely the limitation defence. That entailed a detailed examination of the facts (unlike the section 213 issue which was a question of law). It could not be right that the claimants should recover their pre-settlement costs of that issue on which they all failed. Mr Parker was willing to accept that the claimants should not recover the costs of preparing Mr Hellard’s witness statement on that issue, but there would no doubt have been other costs incurred in relation to that issue (for example, statements of case, disclosure and inspection of documents). There would also have been costs incurred on the question of quantum which were overtaken by the settlement agreement. If one were to apply the principle that the unsuccessful party pays the successful party’s costs, and did not disaggregate the individual claimants, it might well be that TFS would recover three fifths of their costs, and Nathanael and Inline (or their liquidators) would recover all their costs, apart from the costs (both pre settlement and post-settlement) of the limitation issue. Although the judge did not approach it in quite this way, netting those costs off, one can see how the judge could have arrived at the decision he did.
    1. As Lord Neuberger said in Croydon, in cases of partial success it may not be easy to assess whether the defendants should have their costs of the issue on which the claimant did not succeed, and whether that would wipe out the costs which the claimant might recover in relation to the issue on which he won.
    1. It is also worth examining the BCT case a little more closely. BCT was a claim for copyright infringement. Shortly after the trial began the parties settled on terms that BCT should recover £10,000. The judge was invited to determine costs. He made a complex costs order to reflect the fact that BCT had radically amended (and narrowed) its claim a month before trial. The only part of his order that was appealed was his decision that BCT should pay 62.5 per cent of Brewer’s costs after the amendment. This was, then, a case in which BCT did recover a sum from Brewer. At [18] Mummery LJ said that if he had been the judge, he could probably have made no order for costs. Chadwick LJ said at [27] that he agreed with Mummery LJ that the judge could not have been criticised if he had decided to make no order. Accordingly, even where the claimant does recover money from the defendant, a judge is not necessarily wrong in making no order for costs.
    1. The Venture Finance case was a claim under a guarantee against two guarantors. The amount claimed was just under £300,000. Shortly before the claim was due to be heard the two guarantors agreed to pay £92,500 each. The judge made an order for costs. Although this court made an order for costs (which differed from the judge’s order), Chadwick LJ said at [12]:
“At first sight the present case was one in which the judge would have been entitled – indeed, I would say well advised – to decline to make any order as to costs. The claimant had obtained judgment (by consent) for less than one third of the amounts which it had been claiming in the application for summary judgment. There was nothing which enabled the judge to decide whether the claimant had been willing to settle at less than the amount claimed because it accepted that it could not prove the amount of Funds in Use on which the claim was based or because it accepted that the liability of each defendant was capped at the £100,000 limit. It is pertinent to keep in mind that the defendants had accepted, on the pleadings, that they were each liable up to £100,000 to the extent that the claimant could prove loss in that amount. It was impossible – as it seems to me – to say that one party had obviously won and the other party had obviously lost.”
    1. Capita (Banstead 2011) Ltd v RFIB Group Ltd [2017] EWCA Civ 1032, [2017] 4 Costs LR 669 is another case in which despite the fact that the claimants recovered a substantial sum the judge was entitled to make no order for costs, in view of the fact that they lost on one important issue. Thus even in a case where the claim was for money, and the claimant had recovered a substantial sum, it would not have been an error of principle for the judge to have declined to make an order for costs. The mere fact that one party pays money to another does not necessarily mean that the receiving party is the successful party, particularly in a case of a group of claimants pursuing individual claims, some of whom succeed and some of whom fail: Atlasjet Havacilik Anonim Sirketi v Kupeli [2018] EWCA Civ 1264[2019] 1 WLR 1235.
  1. In my judgment, the judge’s decision on pre-settlement costs did not fall outside the generous ambit of his discretion. I would dismiss this appeal.