Costs where there is a Claim and Counter-Claim

Useful Articles > Costs where there is a Claim and Counter-Claim (print this page )

Under English law, the legal costs of a court action are paid by the loser. 

This simple principle becomes much more complicated in the case of counterclaims, when it is sometimes difficult to work out who is the winner and who the loser, especially when a claim (or counterclaim) is only partially successful. In such cases, the key matter to identify is which of the parties will end up paying money to the other.

This principle was tested in a recent case in the Court of Appeal involving a building company, which took one of its customers to court over unpaid bills for work done. The customer counterclaimed.

The claim by the company was successful and it was held by the court to be entitled to £22,000 for the work done. However, the counterclaim by the customer was also partially successful and the court judged this to be worth £4,500 to him.

The Court required the customer to pay 80 per cent of the builder’s costs and the builder to pay the costs of the customer’s counterclaim in full. The building company, which had in effect been successful with regard to 75 per cent of its claim, appealed against the costs order.

The appeal was successful. Although it is not a rule of law as such, it would be unfair for the builder to meet in full the customer’s costs for the partially-successful counterclaim.

The Court of Appeal ruled that as the net effect was that the building company had succeeded to the extent of 75 per cent of its claim, the customer should bear all his own costs and 75 per cent of the costs of the claim and counterclaim taken together.

“This is a common-sense judgment which should be borne in mind when a counterclaim is being considered,” says Andrew Neat.

“The winner was the company, which was awarded 75 per cent of its claim. The customer was the loser. The parties shared the total costs of the action in proportion to their success. Successful litigants and their advisors should also always be careful to make sure that the wording in any consent order reflects their intentions about who will pay the costs when there has been a counterclaim.  If the order does not make it clear that the costs of a counterclaim are to be met in full then the rule in Medway Oil and Storage Co Ltd v Continental Contractors Ltd may apply. 

"This can mean that the only costs of the counterclaim that are recoverable are those costs which have come about solely as a result of the existence of the counterclaim. Costs which are common to both the claim and counterclaim may not be recovered as part of the costs of the counterclaim. 

" In practice this can mean that a party who has had a successful counterclaim may find that they  do not recover any costs relating to liability issues.”