A Reminder That Costs Are Always Discretionary

Whilst the general rule in the courts of England and Wales is that the loser pays the winner's costs, it is important to remember that the court has a wide discretion when it comes to costs orders. Section 51 of the Senior Courts Act provides that the Court shall have "full power to determine by whom and to what extent the costs are to be paid". It is for this reason that when considering the economics of funding applications, third party funders usually take no account of the possibility of recovering costs from the opponent.

On 24 April 2018 Hildyard J handed down his judgment in the case of Lehman Brothers International (Europe) (In Administration) [2018] EWHC 924 (Ch). This case dealt with the issue of costs in a tranche of the Lehman Waterfall proceedings. The basis of the substantive proceedings is not relevant for the purpose of this article, save to say that the joint administrators had applied to court for directions as regards the entitlement of creditors to payment of statutory interest prior to distribution of surplus funds.

There were six respondents in total represented by four sets of solicitors and counsel. The court accepted the arguments of the fourth respondent in the main proceedings who subsequently sought an order that his costs be paid as an expense of the administration. This was uncontentious. However, the issue to be determined was whether the costs of the other five respondents should also be paid as an expense of the administration, even though the arguments they put forward were ultimately unsuccessful.

Hildyard J noted that in the exercise of its discretion the court should be guided by the characterisation and substance of the proceedings, such that the discretion should be exercised with caution according to the circumstances of the particular case. In this instance the joint administrators had applied to court for directions on issues that they felt needed to be judicially determined before they could distribute surplus funds in the administration.

The respondents had been invited to put forward arguments on behalf of themselves and other creditors with similar interests and all the respondents had worked with the joint administrators to identify the issues that needed to be resolved.

Hildyard J drew a distinction between adversarial proceedings where costs should usually follow the event, and collaborative proceedings where all parties were acting together in the interests of the general body of creditors...