Limitations on Loser Pays Rules - Principles

It has long been a principle of English law  that in litigation the loser pays their costs and those of the winner.

However, this principle has been diluted over the years and a recent court decision has spelled out the approach the courts may be expected to take when awarding costs in cases in which a number of issues are argued.

The basic idea is that the court will look at the entirety of the behaviour of any litigant, in particular regarding failures to make an offer to settle or a refusal to negotiate with the other side. In such cases, a cost ‘penalty’ may well result, especially if the costs are allowed to become large when compared with the value of the claim.

The main principles are as follows: 

• Where each party claims that the net position is that payment is due to it, the winner will normally be the party which receives payment;
• The court should take as its starting point the general rule that the successful party in litigation is entitled to an order for costs; 
• Having considered the above, the judge must then consider, having regard to all the circumstances of the case, what changes may be justified; 
• If possible, the judge should reflect the relative success of the parties on different issues by making an order for costs which is proportionate to this and which takes account of the cost of arguing each issue; 
• The judge will have to take account of any offers made to settle the litigation as well as each party's approach to negotiations and the general conduct of the litigation; 
• If a nearly sufficient offer is made to settle the matter which is rejected outright by the other party, then it might be appropriate to penalise the second party when awarding costs; and 
• In assessing a proportionate costs order the judge should consider what costs are common to several issues. Normally, the winner will be able to recover not only the costs specific to the issues which he has won, but also the common costs.