Discretion as to costs in multi-party litigation
15 July 2016
Mayer Brown Legal Update
Following a trial involving multiple claimants and test cases, the High Court's judgment in Kupeli and Ors v Sirketi (t/a Cyprus Turkish Airlines) and Anor  EWHC 1478 (QB) provides a useful reminder of how the Court may use its discretion to award costs under CPR 44.2 and the factors to be considered when making a costs order following trial. Defendants should be aware that they still may be regarded as the "loser" and therefore liable for the claimants' costs, even if they are successful in defending many of the claims.
The First Defendant, an airline company, had all of its operations suspended on 21 June 2010 after its Air Operator's Certificate was revoked. The First Defendant subsequently went into administration and played no part in the action. The Claimants, who had previously booked tickets to fly after that date, were required to purchase new tickets or were unable to travel altogether as a result of the suspension. The Second Defendant ("Atlasjet") had entered into an agreement to transport the Claimants, but failed to get the Claimants onto replacement flights. The Claimants brought three categories of claims. The "Category 1" claims were successful, whereas the Category 2 and 3 claims were not.
Issue 1: who was the successful party?
Both Atlasjet and the Claimants argued they were the winner, and therefore should be awarded their costs.
Atlasjet submitted that it should be awarded its costs because the majority of the claims against it (94% of the claims, according to Atlasjet) had failed. Atlasjet also submitted that this was group litigation, and as such the fact that two individuals within a large group succeeded should not detract from the overall failure for the bulk of the claims. Atlasjet further submitted that the trial was listed to determine, among other things, a "List of Issues" and Atlasjet had been successful on all of those issues.
The Claimants relied on Court of Appeal precedent in A L Barnes Limited v Time Talk (UK) Limited  EWCA Civ 402, in particular Longmore LJ's statement that:
"In deciding who is the successful party the most important thing is to identify the party who is to pay money to the other. That is the surest indication of success and failure".
In Fox v Foundation Piling Limited  EWCA Civ 790, even though the claimant recovered only a fraction of the overall claim, it was still considered the "winner" for costs purposes. The Claimants also cited Day v Day  EWCA Civ 415, and in particular Ward LJ's statement that "the question of who is the unsuccessful party can easily be determined by deciding who has to write the cheque at the end of the case...". In commercial litigation, the starting point in determining who the winner is for the purpose of costs orders would usually be to look at what money had been ordered to be paid, as the party being paid would be the successful party.
The judge stated that the broad principle, regardless of the number of claimants involved, is that "common sense must be applied to reach a realistic evaluation of who has won and who has lost, and that one highly relevant factor is whether, at the end of the day, one party will receive money from the other". The Claimants were to receive money from Atlasjet, and as such the Claimants were the winners and are entitled to their costs.
Issue 2: should the successful party's costs be discounted, reduced or subject to any offset?
Having resolved the first issue, the Court then needed to consider the factors in CPR 44.2(4) and (5) to determine whether there was a reason to depart from the general rule that the loser pays the winner's costs. The Court was influenced by the fact that the Claimants had lost on all of the "List of Issues". The Court also considered (i) Atlasjet's failure to make full disclosure, particularly in respect of log books that establish passenger numbers, and (ii) Atlasjet's refusal to engage in early attempts at discussion or negotiation (particularly in light of the Claimants' Calderbank offer).
The judge further considered that only a minority of the contractual claims succeeded at trial. However, the majority of the evidence and argument heard at trial would still have been required to establish just one of the successful claims. This was because the case relied on extensive evidence to establish the unreliability of Atlasjet's records, systems and witnesses, all of which were generic areas of evidence not related specifically to the claims. As such only limited weight could be given to the fact that only a very small fraction of the claims were successful, and the Court held that the Claimants should in principle recover their costs associated with it, as the evidence was very important to the successful claims.
Whipple J held that it was "both practicable and preferable" to award the Claimants a percentage of their costs under CPR 44.2(6)(a), rather than make an issues-based costs order permitted under CPR 44.2(6)(f). The benefit of this was that it avoided (i) the difficulty of identifying the issues to which the particular costs attach, and (ii) the prospect of continuing disputes over costs.
On that basis Atlasjet was ordered to pay 33% of the Claimants' reasonable costs on the standard basis. This percentage reflected the outcome of the case, the outcome on particular issues and the conduct of the parties, and in particular that one in three categories were successful. The judge also used her discretion to award no interest on costs pending their assessment or earlier agreement, which is a departure from the general rule that interest is awarded at a rate of 8% per annum from the date of judgment.