H B Kidsons (a firm) v Lloyds Underwriters
22 November 2007
 EWHC 2699 (Comm)
Citation:  EWHC 2699 (Comm)
The underlying case concerned claims on professional indemnity insurance by accountants in respect of tax advice. For present purposes, the case is reported only for some relatively brief observations on issue based costs orders and interest on costs.
(1) ISSUE BASED COSTS. On the facts, the claimants would pay 88.84% of the defendants' costs. The relevant principles were summarised as follows (paras 10-11), ' ... The court's discretion as to costs is a wide one. The aim always is to "make an order that reflects the overall justice of the case" (Travellers' Casualty v Sun Life  EWHC 2885 (Comm) at  per Clarke J. As [counsel] submitted, the general rule remains that costs should follow the event, ie that "the unsuccessful party will be ordered to pay the costs of the successful party": CPR 44.3(2). In Kastor Navigation v Axa Global Risks  2 Lloyd's Rep 119, the Court of Appeal affirmed the general rule and noted that the question of who is the "successful party" for the purposes of the general rule must be determined by reference to the litigation as a whole; see , per Rix LJ. The court may, of course, depart from the general rule, but it remains appropriate to give "real weight" to the overall success of the winning party: Scholes Windows v Magnet (No 2)  ECDR 266 at 268. As Longmore LJ said in Barnes v Time Talk  BLR 331 at , it is important to identify at the outset who is the "successful party". Only then is the court likely to approach costs from the right perspective. The question of who is the successful party's a matter for the exercise of common sense": BCCI v Ali (No 4) 149 NLJ 1222, per Lightman J. Success, for the purposes of the CPR, is "not a technical term but a result in real life" (BCCI v Ali (No 4) (supra)). The matter must be looked at "in a realistic ... and ... commercially sensible way": Fulham Leisure Holdings v Nicholson Graham & Jones  EWHC 2428 (Ch) at  per Mann J.  There is no automatic rule requiring reduction of a successful party's costs if he loses on one or more issues. In any litigation, especially complex litigation such as the present case, any winning party is likely to fail on one or more issues in the case. As Simon Brown LJ said in Budgen v Andrew Gardner Partnership  EWCA Civ 1125 at : "the court can properly have regard to the fact that in almost every case even the winner is likely to fail on some issues". Likewise in Travellers' Casualty (supra), Clarke J said at : "If the successful Claimant has lost out on a number of issues it may be inappropriate to make separate orders for costs in respect of issues upon which he has failed, unless the points were unreasonably taken. It is a fortunate litigant who wins on every point."
(2) INTEREST ON COSTS. It was conceded that the usual rule in the commercial court was to award interest on costs pre-judgment at base rate plus 1%. It was argued that this was appropriate where costs were funded from borrowing, but not where they were funded by savings, where interest paid is generally less than base. The court accepted that costs may well have been paid from savings, but declined to depart from the normal rule. It was said that conventions were valuable, and that it would be disproportionate to enquire into exactly how funding the litigation had impacted on the defendants' borrowing and saving. It was for the receiving party to adduce evidence to show that the conventional rate was unjust in any given case in any event.
This is one of a number of cases (including at Court of Appeal level) where a discretion as to interest on costs pre-judgment has simply been assumed. But it is far from clear that there is any such discretion. Interest is awarded under the Judgments Act 1843, which was amended to allow awards of interest pre-judgment at the time the CPR were introduced. That Act provides for a statutory rate of 8%, and does not permit of any discretion to award a lower rate. Therefore, it appears at the very least arguable that this case, and several others where a discretion as to the rate of interest was assumed (eg Bim Kemi AB v Blackburn Chemicals Limited  EWCA Civ 889) have been decided per incuriam. This could become an important issue when, as now, base rates are very low.