Case number: 1997 ORB 659 Date of Judgment: 7 December 1999
	Andrew White QC and Stephanie Barwise for the Plaintiff (solicitors: Masons, Leeds) Richard P Gray QC for the Defendant (solicitors: Winward Fearon)
	Costs - Preliminary issues - Claimant predominantly successful - Whether costs should follow event of preliminary issues or be reserved because of the possibility of there having been a payment into court.
	The text of the judgment approved by His Honour Judge John Hicks QC is as follows:
	JUDGMENT
	Introduction
1.	By his Order for Directions dated 16 October 1998 Judge Humphrey Lloyd QC directed the trial of a number of preliminary issues in this action. Those issues were tried before me on 16, 17, 18 and 24 March 1999 and I delivered a reserved judgment on 6 May 1999. Although the outcome was not completely one-sided Mr Gray, for the Defendant, concedes that, in his own words, "the substantive victors were the Claimants".
2.	Mr White, for the Claimant, now applies for an order in the Claimant's favour of the costs of and caused by the trial of those issues and for an order for a payment on account of those costs. Mr Gray seeks an order that those costs be reserved until the conclusion of the trial or trials of the remaining issues.
3.	The setting in which these competing applications are made is one in which I have not been told, as I could and would have been were either the case, that there has been no payment into court or that there has been a payment in or offer in respect only of the issues dealt with at the trial before me. It is therefore possible, although the parties are of course not permitted to tell me that it is the case, that there has been a more general payment in or offer. That was also the situation in Copthorne Hotel (Newcastle) Ltd v Arup Associates (1996) 58 Con L R 130, in which I reserved the costs, and Mr Gray invites me to apply the same reasoning and reach the same result here. Mr White says that Copthorne is distinguishable on the facts, but he also says that the principles to be applied have now changed, and it is convenient to deal with that point first.
	The transition issue
4.	At all times relevant to the decision on costs in Copthorne the position was governed by the Rules of the Supreme Court and the authorities decided on the basis of those rules. In my judgment in that case I quoted the relevant parts of Order 62 and summarised the relevant principle, as I understood it, in the following terms:
	Order 62 provides    2(4)   The powers and discretion of the Court under section 51 of the [1981] Act .... shall be exercised subject to and in accordance with this Order 3(3)   If the Court in the exercise of its discretion sees fit to make any order as to the costs of any proceedings, the Court shall order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs. 9(1)   The Court in exercising its discretion as to costs shall take into account ...    (b)   any payment into court and the amount of such payment; .... .    In my understanding the policy of the law is to encourage overall settlements and one element of that is to provide disincentives, such as the payment in system, against fighting on in the hope of succeeding on at least some issues, despite overall defeat, and hanging costs applications on the pegs of those subsidiary successes. One such disincentive is provided by a firm disinclination to accede to such applications.
5.	I have given in paragraph 1 above the dates of the trial with which I am concerned. Any relevant payment in or offer and any relevant decision whether or not to accept was probably earlier and cannot have been later. At all those dates the Rules of the Supreme Court were still in force.
6.	On 26 April 1999 the Rules of the Supreme Court were replaced by the Civil Procedure Rules. After providing that, as before, the court has discretion as to whether costs are payable by one party to another and if so in what amount rule 44.3 includes the following provisions:
	(2)   If the court decides to make an order about costs -    (a)   the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but (b)   the court may make a different order. (3)   .... (4)   In deciding what order (if any) to make about costs the court must have regard to all the circumstances, including -    (a)   .... ; (b)   whether a party has succeeded on part of his case, even if he has not been wholly successful; and (c)   any payment into court or admissible offer to settle made by a party which is drawn to the court's attention .... .
7.	Mr White points out that although the subject-matter of rule 44.3(4)(b) could properly have been taken into account before, its express inclusion marks a shift of emphasis, and he submits that effect should be given to that shift in this case by making the order which he seeks.
8.	There is a question which set of rules applies, to which I shall come, but Mr White sought to pre-empt it by submitting that the principles underlying the Civil Procedure Rules were already applicable at the time of the trial in March 1999 by virtue of an earlier Practice Direction. He was speaking from memory, but the only Practice Direction on costs of which he might have been thinking and which I have traced is that dated 1 February 1999. That, however, was confined to interlocutory hearings and was concerned only to encourage and regulate the use of the power to assess costs summarily; it did not touch the rules or practice as to the incidence of costs as between parties.
9.	The transitional provisions dealing with the introduction of the Civil Procedure Rules are contained in the Practice Directionpdp-51to Part 51. Paragraph 18 is entitled "Costs", but is in my understanding concerned with the assessment of costs rather than with their incidence. Paragraph 15, so far as relevant, reads as follows:
	(1)   When proceedings come before a judge .... for the first time on or after 26 April 1999, he may direct how the CPR are to apply to the proceedings and may disapply certain provisions of the CPR. .... (2)   The general presumption will be that the CPR will apply to the proceeding from then on unless the judge directs or this practice direction provides otherwise. .... (3)   .... (4)   When the first occasion on which existing proceedings are before a judge on or after 26 April 1999 is a trial or hearing of a substantive issue, the general presumption is that the trial or hearing will be conducted having regard to the CPR.
	I have not been asked to disapply any provisions of the CPR or to give any other special direction, and have not done so.
10.	In my view the relevant sub-paragraphs are (1) and(2) rather than (4), which is concerned with the conduct of a trial begun after 26 April 1999. The appointment for delivery of judgment on 6 May 1999 at which the costs application was made, and the argument on that application on 12 November, were continuations of the trial begun in March, but I see no reason to limit the ordinary meaning of sub-paragraph (1) by denying that on 6 May the "proceedings [came] before [me] ... for the first time ... after 26 April 1999".
11.	I therefore approach the exercise of my discretion on the basis that from 6 May onwards the Civil Procedure Rules applied.
12.	It does not, however, at all follow to my mind that I should necessarily exercise that discretion in the same way as if all the relevant events had occurred after 26 April 1999. For the reasons given in paragraph 5 above all of them except the application and argument occurred before that date. I can, and in my view should, assume that decisions taken by the parties during that period were informed by their then understanding and expectations, and those of their advisers, as to the likely costs consequences of their acts and omissions.
	Discussion
13.	In the light of the principle set out at the end of the quotation in paragraph 4 above Mr Gray's submissions, at their simplest, rested on the proposition that there may have been, before the trial of the preliminary issues, a payment in which the Claimant should have accepted, in the sense that it eventually recovers less, so that the costs of that trial were just as much thrown away by its failure to accept as those of later trials or the rest of the general costs of the action since the date of the payment in. On that basis costs should be reserved until those considerations, if it transpires that they are relevant, can be taken into account. Even if that argument does not result in the Claimant's paying the whole of the costs of the preliminary issues on failing to beat any payment in it should at least be allowed to affect the result, which cannot happen unless the decision is delayed until the fact, and the amount or terms, of any payment in or offer can be disclosed.
14.	To that proposition Mr White advanced a number of answers. They start with the assertion that the trial of the preliminary issues was a separate "event" for the purposes of the principle that generally speaking costs follow the event. In support of that assertion Mr White relied upon Surrey Heath Borough Council v Lovell Contruction Ltd(1980) 48 BLR 108 and W Lamb Ltd v J Jarvis & Sons Plc (1998) 60 Con L R 1. But in those cases it was known that there had been no payment into court, which is not the situation here. It is true that in those cases the trial of preliminary issues was treated as an "event", the outcome of which affected the award of costs (although in Lamb at least it by no means determined it), but they simply afford examples of the way in which the discretion was exercised in particular circumstances; they do not lay down rules which apply in others. To say that the costs here should follow the event of the trial of preliminary issues is simply to restate the result which the Claimant wishes to achieve, not to give reasons for it.
15.	Closely linked with that submission, if not just another way of putting it, is Mr White's reliance on CPR Rule 44.3(4)(b). I have dealt with the application of CPR in paragraphs 11 and 12 above. I accordingly take Rule 44.3(4)(b) into account, but I also have regard to the fact that at the relevant dates the parties are unlikely to have had it in mind in making their decisions.
16.	Mr White was next concerned to distinguish the Copthorne case on its facts. For the same reasons as those given in paragraph 14 above in dealing with the converse situation that is an unnecessary exercise; Copthorne does not and could not lay down any general rule requiring that the costs of preliminary issues must be reserved whenever there may have been an earlier payment into court or offer. It is, however, not at all clear to me that the differences to which Mr White drew attention would in any event, so far as relevant, operate in the sense which he advances. In Copthorne there was a trial of liability and of the measure of damages, although not of the quantification of those damages, in one out of three major areas of alleged professional negligence by the defendants. The winning of such a trial suits at least as well the ordinary meaning of what Rule 44.3(4)(b) calls a party's succeeding "on part of his case" as what happened here, where no distinct part of the case was or could have been disposed of by the trial, which was rather concerned with clearing the ground by establishing in various respects the basis on which the substantive issues would in due course have to be approached.
17.	In somewhat the same vein Mr White submitted that the preliminary issues tried here were ordered because they involved what he called "potentially show-stopping" defences. Mr Gray disagreed, and not being the case manager I do not know what was in the court's mind when the broad outline of the issues was selected (it was left to the parties to formulate them more precisely), but my impression of the scope and effect of the issues as tried is that set out at the end of the last paragraph, which does not assist the Claimant's argument.
18.	Mr White next drew an analogy with interlocutory hearings, where costs of disputed applications commonly follow the event. So they do, although not invariably, but that is simply one of the ways in which the court discourages wasted expense in the form of unmeritorious applications on the one hand and unmeritorious refusals of reasonable requests on the other. It has little or no relevance to the trial of preliminary issues.
19.	By a combination of the last two points, or perhaps as a separate one, Mr White submitted that what happened here was, in effect, the withdrawal or dismissal of a number of defences, and that if that had happened on an application by the Defendant for leave to amend the usual costs order would have been made against it. But a defendant who abandons a defence is not necessarily obliged to do so by amendment. If he does not, then any argument about a consequent costs penalty will normally have to await general orders for costs at the end of the proceedings. Whether he does or not the costs which he is at risk of being ordered to pay will be those thrown away by the abandonment. But that is not what the Claimant is asking for here, as Mr White accepted when I raised the question. If, as may be the case (I am not deciding whether it is), the Claimant has an argument for the payment of such costs here the opportunity to raise that argument at the appropriate time will be preserved by an order reserving the costs of the preliminary issue.
20.	Finally, Mr White submitted that an order in his client's favour would accord with the "Woolf approach". In so far as that approach is embodied in Rule 44.3(4)(b) I have already made it clear that I take it into account in the manner explained in paragraphs 12 and 14 above. The most important statement of the "Woolf approach", however, and one which is binding on me by virtue of paragraph 12 of the Practice Direction to CPR Rule 51, whether or not I am right in my conclusion on the narrower "transition issue", is that contained in Part 1 of CPR, entitled "Overriding Objective". I need not set out the whole text of that Part here, but I have re-read it and must and shall seek to give effect to the overriding objective in exercising my discretion as to the order to be made in respect of costs. I note, in particular, that included in the examples of active case mangement by which the court must further the overriding objective (Rule 1.4(2)) are both "(d) deciding the order in which issues are to be resolved" and "(f) helping the parties to settle the whole or part of the case". It seems to me that the latter accords entirely with the pre-Woolf policy summarised in the last part of the quotation from Copthorne in paragraph 4 above. The exercise which I have to undertake involves, among other things, an assesment of the relative importance, in all the circumstances of this case, of that element in the overriding objective and the approach represented by Rule 44.3(4)(b).
	Conclusion
21.	Taking all the relevant circumstances into account, and in particular the considerations canvassed above, I have come to the conclusion that I should exercise my discretion as to costs in this case by reserving the costs of the preliminary issues tried before me to the conclusion of the trial or other disposal of the remaining issues in the action.
22.	There is a separate application by the Defendant for the costs of the argument on costs of which I have just disposed. The ground is that when the Claimant's application for costs was first made on 6 May 1999, and Mr Gray told me that for reasons he was not free to disclose his submission was that costs should be reserved, I drew the attention of Miss Barwise, who then appeared for the Claimant, to the report of Copthorne Hotel (Newcastle) Ltd v Arup Associates (1996) 58 Con L R 130 and pointed out that if she adjourned her application and then renewed it and lost, that might itself have costs implications. The Claimant has renewed the application and lost, but in all the circumstances I do not consider that its having done so merits a costs penalty. The hearing of the costs argument was, in my understanding, still part of the trial, and in the absence of a special order the costs will therefore be covered by the decision reached in the last paragraph.
23.	In the course of his argument on the point dealt with in paragraph 19 above Mr White referred to the fact, as he alleged, that at a hearing before Judge Lloyd on 24 September 1999 the Defendant had said that its "Article 13.7" point was being taken in relation to all "VFs", a stance which had since been abandoned altogether. There was apparently some dicussion whether the costs implications of that were a matter for me, but so far as I am aware there is no application in that respect before me, so I make no order and express no view.