In the complex world of UK litigation, costs orders stand as a critical element that can significantly impact the financial outcome of a case. These judicial directives, which determine which party should bear the legal costs of proceedings, encompass a wide range of expenses including solicitor and barrister fees, court fees, and other litigation-related costs.

The availability of costs orders in UK civil proceedings is well-established, with courts wielding broad discretion in their application. This discretionary power finds its legal basis in Section 51 of the Senior Courts Act 1981[1] and is further reinforced by Civil Procedure Rule (CPR) 44.2[2]. The types of costs orders available are diverse, ranging from standard basis assessments, where the receiving party recovers proportionate and reasonably incurred costs, to the more generous indemnity basis, typically reserved for cases involving unreasonable conduct.

While the general principle that the unsuccessful party pays the costs of the successful party, often referred to as the “loser pays” principle, is enshrined in CPR 44.2(2)(a)[3], UK case law has demonstrated that this is not an immutable rule. The House of Lords (now Supreme Court) in Aiden Shipping Co. Ltd v Interbulk Ltd[4] emphasised that the court’s discretion in awarding costs is not confined by any rigid rules.

This discretion, however, is not unfettered. In Campbell v MGN Ltd (No 2)[5], the House of Lords clarified that while courts have wide discretion in costs matters, this discretion must be exercised judicially and in accordance with established principles.

Proportionality has become a key consideration in costs orders following the Jackson Reforms implemented in 2013. The Court of Appeal provided crucial guidance on applying the proportionality test in West v Stockport NHS Foundation Trust[6], emphasising that costs must be proportionate to the matters in dispute.

The conduct of parties during litigation can also significantly influence costs decisions. In Groupama Insurance Co Ltd v Overseas Partners Re Ltd[7], the Court of Appeal demonstrated how a party’s unreasonable conduct could lead to adverse costs consequences.

An applicant’s prospect of obtaining a costs order is further obscured in the presence of a Part 36 Offer. Settlement offers can play a pivotal role in shaping costs outcomes. The case of Carver v BAA Plc[1] explored the implications of narrowly beating a Part 36 settlement offer at judgment, declining to award costs where the amount awarded at trial was marginally higher than a settlement offer received from the other party. Thankfully, the court in JLE v Warrington & Halton Hospitals NHS Foundation Trust[2], removed this nebulous provision requiring arbitrary judiciary opinion in assessing the suitability of a costs order. It is now no longer up to judges to take into account the amount by which a Part 36 Offer was beaten, thereby re-introducing Carver, which had been expressly reversed in CPR 36.17(2)[3]. This illustrates the strategic importance of well-judged settlement proposals in litigation.