COST BITES 177: SUCCESSFUL CLAIMANT RECOVERS ONLY 20% OF ITS COSTS (STILL GETS AN INTERIM PAYMENT OF £2 MILLION)
In Tata Consultancy Services Ltd v Disclosure and Barring Service [2024] EWHC 2025 (TCC) Mr Justice Constable found that a “successful” claimant who had recovered nearly £3.7 million in damages should only recover 20% of its costs. Both parties had “failed” on the issue that caused 95% of the costs to be incurred.
“… this is a case in which, quite unusually, over 95% of the time and cost spent by both parties was entirely unrelated to the single issue of contractual construction which drove the ultimate determination of winner/loser.”
THE CASE
The judge had earlier given judgment in a case where the claimant claimed £124 million and was awarded £8 million. The defendant counterclaimed for £120 million and was awarded £4.6 million. The defendant was ordered to pay £3,682,024.4040 (the balance).
THE ISSUE AS TO COSTS
The claimant argued that it was the successful party and should receive its costs, the defendant could have protected itself by making a Part 36 offer and did not. The defendant argued for no order for costs.
THE JUDGMENT ON COSTS
The judge decided that there were good reasons for departing from the “normal rule” as to costs. The bulk of expenditure in the case (95%) was spent on issues on which both parties had lost. However the judge rejected the argument that there should be no order for costs. Rather the defendant was ordered to pay 20% of the claimant’s costs.
Costs
Introduction
(1) The ultimate order is for payment by DBS to TCS in the sum of ‘£3,682,024.4040 (as corrected);
(2) TCS’s pleaded claim was for c.£124m, and it was awarded just over £8m (before set off). This was made up of just over £1m in respect its c.£110m delay losses claim; and just under £7m in respect of its c.£14m VBSC claim;
(3) DBS’s pleaded counterclaim for delay and defects related losses was for around £120m, and it was awarded around £4.6m. Other than the sum of just over £8,000 in relation to one defect, the amount awarded was always accepted as a ‘credit’ against TCS’s claims relating to a period prior to that under consideration in the litigation. The limited issue in relation to this sum related to whether it could be characterised as a debt for the purposes of whether 1998 Act interest ran, which DBS lost;
(4) The litigation started life as TCS’s Part 8 Claim relating to the VBSC issue alone. This was met with a denial of the right to payment and a counterclaim that DBS had overpaid in respect of VBSC, coupled with DBS’s enormous counterclaim for delay (liquidated and unliquidated damages) and defects. DBS’s position was that the VBSC issue should form part of the same overall claim. TCS did not object. The claim became a Part 7 Claim, and in TCS’s Amended Particulars of Claim, it introduced its own enormous delay and partial termination claim for relief from liquidated damages and loss and expense;
(5) If considered in isolation, the VBSC claim probably would have accounted for less than (and possibly significantly less than) 5% of the costs incurred on both sides. It took up, at most, around a day of the 28 day hearing. It was an entirely discrete issue, unrelated to the broader dispute arising out of delay, partial termination and defects. It was plainly the single determining issue upon which the outcome in terms of overall net-payor/payee turned. Ignoring the issue, TCS failed to recover more than the credit it accepted it owed DBS.
(6) No relevant offers were made.
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- Mr Cogley contends that the starting point is that, as net recipient of money overall, TCS is the winner and that it should, in the normal way, receive its costs. DBS could have made an offer to protect its position and it did not. The Court should not depart from this by adopting an issue based or proportional approach. It is also argued that, if a broad issues-based approach is adopted, it should recover costs relating to DBS’s counterclaim on an indemnity basis in light of what it says was DBS’s unreasonable conduct in advancing and persisting in a hopeless case, which crossed the threshold of being out of the norm.
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- Mr Croall contends that the correct outcome is no order as to costs. This is on the basis that the outcome that TCS is the net recipient is driven solely by the VBSC claim, but for which it would be the receiving party in the sum of over £3m. He argues that R1 B&B was the single biggest issue in terms of evidence and trial time, and TCS lost this completely; that the limited success in respect of R1-D did not overtop the sums owed to DBS in relation to preceding delays; and that TCS’s experts’ approach to delay was entirely rejected and the cause of significant wasted costs. It is accepted that DBS lost its counterclaims. Overall, no order as to costs, it is said, does justice between the parties. Alternatively, any costs awarded should be of a very small proportion.
THE JUDGE’S CONSIDERATION OF THE RELEVANT PRINCIPLES
The Legal Principles
(1) the Court has discretion as to whether costs are payable by one party to another, the amount of those costs and when they are to be paid (CPR 44.2(1));
(2) the general rule, or starting point, is that the unsuccessful party will be ordered to pay the costs of the successful party, although the Court may make a different order (CPR 44.2(2));
(3) having regard to the general rule, the first task must be to decide who is the successful party. The Court should then apply the general rule unless there are circumstances which lead to a different result (Straker v Tudor Rose [2007] 368 (CA) per Waller LJ at [12]).
(4) where the claim is for money, particularly in a commercial context, in deciding who is the successful party, the most important thing is to identify the party who is to pay money to the other. This has been made clear numerous times: see e.g. Barnes v Time Talk (UK) Ltd [2003] EWCA Civ 402 per Longmore LJ at [28], with whom Waller LJ agreed in Straker at [13]; Multiplex Constructions (UK) Limited v Cleveland Bridge UK Limited (No.7) [2008] EWHC 2280 (TCC) per Jackson J, as he was then, at [72]; Fiona Trust & Holding Corporation v Privalov [2011] EWHC 664 (Comm) at [36] per Andrew Smith J;
(5) in deciding whether to depart from the general rule, the Court will have regard to all the circumstances, including (as set out at (CPR 44.2(4)):
(a) the conduct of the parties (including consideration those factors listed at CPR 44.2(5));
(b) whether a party has succeeded on part of its case, even if that party has not been wholly successful; and
(c) any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply;
(6) as to CPR 44.2(4)(b):
(a) in departing from the general rule, the Court may order a party to pay a proportion of another party’s costs, or from or until a certain date (CPR 44.2(6)(a) and (c)), or an issues-based costs order (CPR 44.2(6)(f)). Before doing the latter, it will consider whether it is practicable to make an order limiting the costs payable to a proportion of the overall costs or by reference to a specific date (CPR 44.2 (7));
(b) however, a Court will be cautious before departing from the general rule. This is because, particularly in complex commercial litigation such as this, it is regularly the case that arguments or factual disputes may be relevant to a number of underlying issues which have to be addressed in the proceedings; and a party may rely on a number of grounds to support a claim, and succeed on some and not others. Parties should be afforded a reasonable degree of latitude in formulating claims, including pleading alternative bases for the same basic claim, and Courts should avoid an unduly finely detailed division of issues and sub-issues when deciding what costs orders to make (F&C Investments (Holdings) Ltd v Barthelemy [2011] EWHC 2807 per Sales J at [16]-[21]). Moreover, over-zealous departure from the general rule also generates unwelcome uncertainty for litigants (Fox v Foundation Piling Ltd [2011] 6 Costs LR 961 per Jackson LJ at [62])
(7) as to CPR 44.2(4)(c), the absence of an offer may be as relevant as the existence of one. Where a defendant is faced with an exorbitant claim which they wish to defend vigorously but where they are vulnerable to a finding that they are liable for a much smaller amount, there is a clear process provided by the CPR Part 36 which they can follow to protect their position (Global Energy Horizons Corporation v Gray [2021] Costs LR 133). I would add, in the context of the arguments made by the parties, that this is a relevant factor, not in all cases a determinative one.
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- In light of TCS’s specific reliance upon Global Energy in the face of DBS’s argument that there should be no order as to costs, it is necessary to consider this case in a little more detail. The Claimant, GEHC, had brought a claim for breach of fiduciary duty against the Defendant, Mr Gray, totalling just under £227.8m. It succeeded in the sum of £3.6m. The Court of Appeal decided that the judge below had been wrong to regard the outcome as a ‘score draw’ in which both parties had lost heavily. This is essentially the argument urged upon me by Mr Croall. The first reason given for considering that the judge’s conclusion was wrong in principle was that relating to the absence of a Part 36 offer which could have protected the defendant, the reasoning for which forms the substance of sub-paragraph 96(7) above. The second reason, however, set out at [11] to [14] of the judgment, was also a clearly material consideration. The Court of Appeal considered that the judge at first instance (who, unusually, determined costs not having had the benefit of being the trial judge – which is likely to have made the Court of Appeal more inclined to interfere with the exercise of discretion: see [6]) had been wrong to dismiss GEHC’s point that it had been necessary for it to pursue its claims against Mr Gray as a defaulting fiduciary, given that he had put forward a thoroughly dishonest account of the benefits he had received. The Court of Appeal concluded that GEHC should be regarded as the winner not just because it was awarded a substantial sum of money but also because it succeeded in showing, at great costs in time and money, that Mr Gray’s account had been false in many serious respects. The fact that only a small fraction of the amount claimed was awarded did not outweigh this fact. Ultimately, the thrust of the Court’s decision was that the enormous amount of time and money spent in the litigation should be laid at the door of the (dishonest) Mr Gray, irrespective of the limited recovery made by GEHC, against which an offer could have been made.
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- It is by reason of the existence of this clear and weighty second reason, linking the extraordinary waste of time and cost on numerous issues and the need for GEHC to prove Mr Gray’s dishonesty, that I accept Mr Croall’s submission that Global Energy is far from on all fours with the present case. Nevertheless, the absence of a Part 36 offer by which DBS could have protected itself remains an important factor, even though it is not, in this case, a determinative one.
THE DECISION IN THE CURRENT CASE
Analysis
(1) this is a case in which, quite unusually, over 95% of the time and cost spent by both parties was entirely unrelated to the single issue of contractual construction which drove the ultimate determination of winner/loser. Whilst not of direct relevance this point is demonstrated neatly as follows: the forensic accounting experts had prepared an agreed table of results in respect of the various outcomes from the VBSC issue, which contained a calculation error not discovered until the end of the trial. Had the error not been discovered, the sum which would have been awarded to TCS for VBSC based on the erroneous joint expert evidence would have been £1,275,638 rather than the £6,976,737 in fact awarded on the basis of the revised agreed calculations. If this had happened, applying the general principle, DBS would have been the net-winner;
(2) this is very a long way from the position in Global Energy where the principal driver for the enormous waste of time and costs remained upon the shoulders of the dishonest losing party, irrespective of the fact that a fraction of the sums claimed were awarded. In that case, the costly process of demonstrating the falsity of Mr Gray’s account was always a necessary part of the litigation in order to recover any sums;
(3) by contrast, if the discrete constructional VBSC issue is set to one side, virtually all the costs were incurred in the pursuit and defence (in both directions) of a classic multi-issue delay, defects and termination case between employer and contractor/supplier, in the context of an IT infrastructure project. Looking at the substance of the dispute which drove the expenditure, TCS was not the overall net-winner. Because of the £4.6m owed to DBS on account of a settlement of a claim arising out of previous delays, which it had not been paid by TCS, TCS had to succeed in recovering more than this sum in order, sensibly, to be regarded as the ‘winner’. It did not do so.
(4) Whilst Mr Cogley relies upon the fact it was DBS who first met the short constructional VBSC point with its large, and unmeritorious, counterclaim, this is of limited relevance where TCS responded by bringing its own, largely unmeritorious, claim;
(5) the majority of the costs, in terms of factual and witness evidence and time at trial, were undoubtedly taken up by questions of liability/causation in respect of R1 B&B. TCS failed on this completely. Its recovery in respect of R1-D was minimal and, as set out above, even though it succeeded in principle in relation to partial termination, its successful delay/termination claims remained insufficient to over-top the delay monies it accepted it owed DBS in respect of a prior period;
(6) enormous amounts of time and effort were expended on delay analysis, in respect of which TCS’s approach led by two experts was rejected. It effectively relied, in closing, on a modified version of DBS’s own analysis to establish such little success as it enjoyed.
(1) TCS won the VBSC issue, a discrete point accounting for less than 5% of the costs, and which drove its overall net success;
(2) Although its net success was (a) minimal and (b) unrelated to the issues on which over 95% of the costs were expended, it remains the case that DBS could have protected itself against a small liability by making a Part 36 Offer, which it did not do;
(3) In respect of the issues which drove 95% of the time and cost relating to this litigation:
(a) Neither side can sensibly be said to have ‘won’ delay. TCS’s minimal recovery did not overtop the other delay compensation it accepted it owed. However, DBS’s delay claims for liquidated and unliquidated damages also failed.
(b) DBS lost its counterclaim. I do not consider the somewhat ambitious approach to causation, in particular, nor the fact that as the litigation progressed defect claims were dropped as sufficient to warrant viewing DBS’s conduct as ‘out of the norm’ in this respect for the purposes of indemnity costs. DBS’s approach was no less ambitious than TCS’s to entitlement to relief fordamages and/or loss and expense on the basis of its expert analysis and in the face of the terms of Clause 7 of the Agreement.
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- I consider that the appropriate order is that TCS is the successful party and should recover its costs. Not least in light of CPR 44.2(7), I do not consider that it is sensible to make an issue based order separating out the VBSC issue, delay or the defects counterclaim. It is preferable to reflect the very large measure by which TCS failed on matters which generated significant costs in the litigation, notwithstanding its modest net-win. There should be a very significant reduction in the costs recovered to account for the matters I have outlined above. The deduction should be 80%. TCS is to recover 20% of its costs, on the standard basis, to be assessed if not agreed.
THE INTERIM COSTS ORDER OF £2 MILLION
Interim Costs
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- TCS is entitled to an interim costs order. I have only the headline figure of £18m. This compares with £12m incurred by DBS, although Mr Cogley may be right that the relative difference may be accounted for at least in part by the distinction between government and commercial rates. Irrespective of this point, in light of the eventual recovery, there may be forceful points made on assessment, if that occurs, as regards proportionality. The merit of such points is a matter for others, but I cannot assume that they will not be successful.