Proportionate costs awards: all is not lost

AMEY LG Ltd v Cumbria County Council [18.11.16]

The Technology and Construction Court gives a helpful reminder regarding the value of proportionate costs awards.

Implications

The Court retains a wide discretion in relation to costs, including proportionate costs awards or issues based costs orders. Both can have a significant impact on the paying party’s liability for costs, which can be central to the economics of any claim.

If faced with a case that may succeed as a whole (but fail in significant part) and/or unreasonable conduct, it may be helpful during negotiations to query with the other side the financial consequences of a proportionate costs award. Litigation is often run on tight budgets. If the claimant is unable to recover a significant percentage of its costs, even before detailed assessment, it may be possible to paint a bleak financial picture that punctures the commercial rationale for the claim.

Invoking the mere prospect of a proportionate costs award may help to achieve a more favourable settlement. The key considerations may be whether:

  • There are significant and time consuming parts of the claim that are likely to fail.
  • The other side are failing to make or to respond to admissible offers to settle.
  • Parts of the claim are exaggerated or inflated.
  • The other side’s conduct has been poor, which has caused costs to rise or time to be wasted.

During litigation, it is all too easy to make the mistake of spending too much money relative to the amount at stake. The judgment highlights the importance of thinking about the value of every pound spent, especially as a defendant.

Background

AMEY provided highways maintenance services to the Council. It made a final account claim against the Council of circa £30 million. The Council counterclaimed for alleged defects of circa £20 million. At trial, AMEY was the victor:

  • AMEY recovered £4.616 million for part 1 of its claim of £7.915 million.
  • AMEY recovered only £296,000 for part 2 of its claim of £19.774 million.
  • The Council recovered £1.214 million of its counterclaim.

After set-off, His Honour Judge Stephen Davies awarded AMEY £3.698 million, plus contractual interest of £1.697 million. AMEY claimed costs of £8.848 million. The claim fell outside the cost budgeting regime.

The Council argued that AMEY should be able to recover no more than 50% of its costs. It contended that:

  • AMEY failed in relation to large parts of its claim, especially part two, which took up considerable time and costs.
  • AMEY’s conduct throughout the claim was poor, including the failure to allow access to an e-disclosure database and allegations of fraud that were put to the Council only during trial.
  • AMEY failed to make or accept reasonable offers to settle, including a “drop hands” offer.

Decision

Davies J ordered a proportionate costs award of 85%. Although AMEY won the claim, its limited success in relation to part two of its claim was a significant factor in the 15% (or circa £1.32 million) deduction from its entitlement to costs. To a lesser extent, Davies J also accepted the Council’s arguments regarding AMEY’s failure to allow access to an e-disclosure facility for a period of several months.

Davis J held that deductions for proportionately (i.e. the amount of costs set against the sums at stake) should be applied by a costs judge. This was to avoid the risk of “double jeopardy” discounts, with the receiving party being penalised twice by the court.

 

Read other items in Construction Brief - December 2016