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Compromising Civil Proceedings - Pitfalls of Leaving Liability for Costs to be Determined by Court

Posted: in by Michelle Barron.

1. The Court of Appeal authority of Gossage v. Bishton [2012] EWCA Civ 717 makes clear the danger of parties managing to agree all issues in a case, save for the principle of costs, and seeking to leave that final issue for the Court to determine. The Court may not go along with it, and may decline to make any costs order at all, or may force the matter to proceed to judgment. Parties settling litigation should “confront the realities of their litigation situation” and agree the incidence of costs, no matter how painful that may be. Background to the Gossage case 2. The precise facts of the case are unimportant to the principle which it addresses. The case concerned a boundary dispute. The parties managed to agree what should be done about their boundary, but were unable to agree how costs should be dealt with, other than that the District Judge should deal with them. The Court’s options if the parties cannot agree the liability for costs on a settlement, but wish for the Court to determine the costs liability 3. Both Lord Neuberger MR, as he then was, and Lewison LJ referred to the judgment of Chadwick LJ in BCT Software Solutions Limited v. C. Brewer & Sons Limited [2003] EWCA Civ 939, where it was said that:- Unless the court is satisfied that it has a proper basis of agreed or determined facts upon which to decide whether the case is one in which it should give effect to “the general rule” - or should make “a different order” (and, if so, what order) it must accept that it is not in a position to make an order about costs at all. That is not an abdication of the court’s function in relation to costs. It is a proper recognition that the course which the parties have adopted in the litigation has led to the position in which the right way in which to discharge that function is to decide not to make an order about costs … “It does not, of course, follow that there will be no cases in which (absent a judgment after trial) the judge will be in a position to make an order about costs. There will be cases (perhaps many cases) in which it will be clear that there was only one issue, that one party has been successful on that issue, and that conduct is not a factor which could displace the general rule. But, in such cases, the answer to the question which party should bear the costs of the litigation is likely to be so obvious that …. pointed out, the judge will not be asked to decide that question. It will be agreed as one of the terms of compromise. The cases in which the judge will be asked to decide questions of costs - following a compromise of the substantive issues are likely to be those in which the answer is not obvious. And it may well be that, in many such cases, the answer is not obvious because it turns on facts which are not agreed between the parties and which have not been determined. The judge should be slow to embark on the determination of disputed facts solely in order to put himself in a position to make a decision about costs. … the better course may be to require the parties to confront the realities of their litigation situation; to point out to them that, if they have not reached an agreement on costs, they have not settled their dispute and the action must proceed to judgment. 4. What Chadwick LJ was saying therefore, was that if the parties have not managed to agree sufficient facts as part of a compromise to enable the Court to determine costs:- (a) The Court may decline to make any order for costs (and that will be the parties’ own fault); and (b) The Court will be slow to determine the facts which need to be determined to enable a costs decision to be reached. The Court may simply, as an alternative to making no order for costs, just point out to the parties that they have not settled their case and that the action must proceed to judgment. Settlement of all issues save for the incidence of costs: bad practice? 5. Lord Neuberger MR, as he then was, and Lewison LJ, were unable to agree on this issue:- (a) Lewison LJ expressed the unambiguous view that it was bad practice for the parties settling a case not to agree how costs should be dealt with; whereas (b) Lord Neuberger MR, as he then was, said that he was not at all sure that he subscribed to that view: “parties to litigation should be encouraged to settle as many issues as they can and if they can settle all issues except costs it would be wrong to discourage them from doing so. I would prefer to say that where parties reach an agreement which involves all issues save as to costs being agreed then, as the cases which Lewison LJ has cited demonstrate, first they should be encouraged to try and settle the issue of costs but, secondly, if they cannot do so then they should appreciate that there is a real risk that the court will make no order for costs”. 6. Both judges, however, unambiguously agreed that it was unsatisfactory for a judge to face arguments about costs in principle in a case which has otherwise settled.

Conclusion 7. It is open to debate whether it is “bad practice” or not to settle a case without managing to agree the liability in principle for costs. From the Gossage case it is at least clear that it is unsatisfactory to expect the judge to determine the incidence for costs. Parties invite the Court to do so at their own peril: the Court may simply decline to make any order for costs. If a case is to settle parties are better to “bite the bullet” and reach an agreement on costs, even if that does involve difficult decisions and sometimes difficult compromises. This article was reproduced with the kind permission of Ropewalk Chambers.

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