Legal costs: And you say we won?

The recent case of Costain vs Charles Haswell and Partners is a striking example of how legal costs can turn out to be the most important issue between parties. It also demonstrates the more rigorous and scientific approach the courts are now prepared to take when deciding who is to pay costs, and how much.

The case concerned professional negligence. A new water treatment plant was to be built near Bolton. Costain was invited to submit a tender for both design and construction and it engaged Haswell to design its foundations. Haswell considered three different approaches, piling, vibro-compaction and surcharging the soil, followed by conventional foundations. It recommended the last of these.

Costain submitted its tender incorporating this recommendation and was awarded the contract. The ground treatment works were then put in hand. Later on, Haswell produced a report that concluded that the likely differential movements between the structures would be greater than was permitted by the specification. So the design had to be changed and Haswell now advised that the most appropriate foundation solution was piling. Piling designs were then provided, which Costain put into effect. Costain claimed that this change by Haswell had caused it to incur considerable extra costs and delays. Breach of contract and negligence were alleged.

Costain was successful in proving liability. It was held that Haswell had been in breach of its duty of care in recommending the surcharge scheme. However, when it came to proving the losses that had been caused, Costain came a cropper. Most of its claims were rejected. The simple facts are:

Costain’s initial claim was for about £3.5m. This had been progressively reduced as the trial proceeded so that on the last day of evidence it was about £1.25m, excluding interest. The hearing had occupied the court for 14 sitting days and the combined legal costs amounted to about £2.9m. Haswell had not made any payment into court nor offered to settle under Part 36 of the Civil Procedure Rules. In the end, Costain was awarded only £163,478 (excluding interest).

The sum recovered by Costain was small compared with the legal costs, so the court’s order as to costs was likely to affect the financial position of the parties far more than the decisions on liability and quantum. As a result, both parties produced authorities and written submissions for the court on this aspect. Deputy Judge Fernyhough found the approach of Mr Justice Coulson in McGlinn vs Waltham Contractors the most helpful.

The general starting point is that costs follow the event. So the court has to ask itself who as a matter of substance and reality has won. In a commercial case, this usually means which party has to pay money to the other. If there has been a payment in or an offer to settle, that might alter things – but in this case there had not been.

Where there have been many issues for determination, it may not be possible to identify one overall winner and the court may then approach costs on an issue by issue basis. This means translating success or failure on particular issues into percentage terms. The conduct of the parties during the litigation is also taken into account – for example, had the claim been exaggerated, had the parties tried to settle, and so on.

The deputy judge estimated that the issues on which Costain had been successful had taken up about 65% of the court time and those on which Haswell had succeeded about 35%. So without considering the parties’ conduct he would have awarded Costain 65% of its costs and Haswell 35%. After considering the conduct of each party, he reduced these to 55% and 20% respectively. He then netted off the 20% of Haswell’s estimated costs against 55% of Costain’s, arriving at a notional sum of £620,000. This was about 38.75% of Costain’s total costs. So the final order was that Haswell should pay Costain £163,478.51 plus interest, but only 38.75% of its costs. Given the level of costs, this was something of a Pyrrhic victory.