Question: What is the sanction for unreasonable behaviour in a fixed costs matter?
Answer: Traditionally, a party in whose favour a costs order was made could seek those costs on the indemnity basis where the other party had behaved unreasonably during the litigation. In fixed costs matters, a party could seek to escape the fixed costs regime by showing there were “’exceptional circumstances”, which would most commonly be unreasonable behaviour by the other side.
The extension of Fixed Recoverable Costs changes all this for cases in the fast track or intermediate track.
There is now a fixed reward/penalty where a party is found to have “behaved unreasonably”.
CPR 45.13(1) deals with the situation where the receiving party has behaved unreasonably:
“Where, in a claim to which Section VI, Section VII or Section VIII of this Part applies, an order for costs is made in favour of a party whom the court considers has behaved unreasonably, the other party may apply for an order that those costs be reduced by an amount equivalent to 50% of the fixed recoverable costs which would otherwise be payable.”
The successful party may therefore have their fixed recoverable costs reduced by 50% if they have behaved unreasonably.
CPR 45.13(2) deals with the situation where the paying party has behaved unreasonably:
“Where, in a claim to which Section VI, Section VII or Section VIII of this Part applies, an order for costs is made against a party whom the court considers has behaved unreasonably, the other party may apply for an order that those costs be increased by an amount equivalent to 50% of the fixed recoverable costs which would otherwise be payable.”
The successful party may therefore have their fixed recoverable costs increased by 50% if the paying party has behaved unreasonably.
CPR 45.13(3) defines “unreasonable behaviour” and the fixed recoverable costs being referred to:
“(3) In this rule—
(a) unreasonable behaviour is conduct for which there is no reasonable explanation; and
(b) “fixed recoverable costs which would otherwise be payable” does not include –
(i) VAT;
(ii) any additional amounts under rules 36.17 or 36.24; or
(iii) any disbursements.”
It appears the 50% sanction is intended to be an all-or-nothing one. If the court finds there was unreasonable conduct, it may increase/decrease the costs by the full 50%. If not, no adjustment may be made. There is no scope, for example, to allow a 30% adjustment. Further, it appears that the 50% adjustment must be made to the full amount of the Fixed Recoverable Costs as opposed to the costs for any particular Stage. If this is correct, it may act as a significant disincentive to judges to award the uplift/reduction.
The new provisions in CPR 45.13 make no reference to whether the power should only be exercised if it can be shown that the unreasonable conduct caused either party to incur additional costs. On the face of it, where a receiving party has behaved unreasonably they may have their costs reduced by 50% (or an unreasonable paying party have to pay 50% more) even though that conduct has had no impact on the work required by either party. It will be interesting to see whether the courts interpret this in such a literal way or whether they require an element of causation to be established.