The Default Rule – and Why It Often Doesn’t Apply

The starting point in civil litigation is straightforward: costs follow the event. The losing party pays the winning party’s costs. That principle is embedded in CPR 44.2(2)(a) and has governed civil proceedings for generations.

But CPR 44.2 gives the court a wide discretion. The default rule is just that – a starting point. In practice, the court must consider all the circumstances of the case before making any order for costs. And increasingly, courts are using that discretion to make orders that reflect the reality of what actually happened at trial, not just the headline result.

The result is a growing body of case law around issue-based costs orders and percentage-based costs orders – tools that allow the court to reduce or redirect costs where a party has won overall but lost on distinct issues along the way.

 

What Is an Issue-Based Costs Order?

An issue-based costs order is one where the court departs from the general rule and either:

• Orders each party to pay the costs of the issues on which they succeeded, or
• Makes a percentage-based order to reflect the paying party’s partial success

These orders are most commonly made where the successful party ran arguments or issues that were separately identifiable, consumed significant court time, and ultimately failed.

The leading guidance on this comes from the Court of Appeal in Kastor Navigation Co Ltd v AXA Global Risks (UK) Ltd [2004] EWCA Civ 277, which confirmed that issue-based costs orders should not be made too readily – but equally that the court has a clear power to do so where justice requires it.

More recently, the approach taken in Environment Agency v Biffa Waste Services Ltd [2020] EWHC and subsequent decisions has reinforced that where a receiving party has failed on discrete issues that added measurably to the cost of proceedings, the trial judge has ample authority to reflect that failure in the costs order.

 

Percentage-Based Orders: A More Practical Alternative

In many cases, a strict issue-by-issue dissection is impractical. Where issues are intertwined, courts often prefer a percentage-based order – reducing the successful party’s overall costs recovery by a percentage that reflects the degree of failure.

This approach was endorsed in Fox v Foundation Piling Ltd [2011] EWCA Civ 790, where the Court of Appeal noted that percentage-based orders are generally preferable to pure issues-based orders because they avoid the disproportionate exercise of attributing every item of costs to a specific issue.

The practical effect is significant. A party who wins on liability but loses on quantum, or succeeds on the main claim but fails on a counterclaim, may find its order for costs reduced by 20%, 30%, or more. In high-value litigation, that can represent a substantial sum.

 

What the Court Will Look At

Under CPR 44.2(4) and (5), the court will consider:

• Whether the successful party exaggerated its claim
• Whether the paying party made a reasonable offer to settle
• The conduct of the parties before and during proceedings
• Whether a party succeeded on part of its case, even if not wholly successful
• Whether it was reasonable to raise, pursue or contest a particular allegation or issue

The phrase “unreasonably the successful party” has become a useful shorthand in costs arguments. Where a receiving party pursued issues unreasonably – or ran a case that was wider than necessary – courts have shown little reluctance to penalise that conduct through the costs order.

 

The Distinction Between Discrete Issues and General Conduct

Not every failed argument justifies departing from the default order. Courts have consistently distinguished between:

• Discrete issues: separately identifiable arguments that had their own evidence, witnesses or legal basis, where failure is clearly attributable and measurable
• General litigation conduct: where one party was simply less successful than hoped, but the issues were too intertwined to separate cleanly

The assessment of costs must be proportionate to the exercise of identifying issues. If the cost of the issue-based analysis would outweigh the saving, a broad percentage reduction is likely to be preferred.

 

Practical Implications for Solicitors

For solicitors advising clients on costs risk, these principles matter at every stage – not just at the end of proceedings.

Early advice on which issues are genuinely worth pursuing, which carry costs risk if they fail, and how to frame a Part 36 offer to protect against an adverse issue-based order can significantly affect the overall costs outcome.

At the assessment of costs stage, whether in summary or detailed assessment proceedings, the paying party will frequently argue for a reduction on issue-based grounds. The receiving party needs to be able to demonstrate that the costs claimed relate to issues on which it succeeded, or at least that success and failure were too intertwined to separate.

Greener Costs assists both paying and receiving parties in navigating these arguments – whether that means preparing a robust bill of costs that anticipates issue-based challenges, or advancing well-structured points of dispute where the other side has overclaimed on issues they lost.

 

Key Takeaways

• CPR 44.2 gives the court wide discretion to depart from the default costs order
• Issue-based and percentage-based costs orders are increasingly common where a party has failed on distinct issues
• Courts prefer percentage reductions over strict issue-by-issue attribution where issues overlap
• Conduct, exaggeration of claims, and unreasonable pursuit of arguments all affect the final order for costs
• Early strategic advice on costs risk – including Part 36 offers – remains the most effective protection

 

Speak to Greener Costs Today

Issue-based costs orders and percentage-based reductions are increasingly common, and the arguments on both sides require specialist knowledge of costs law, procedural rules, and the developing case law under CPR 44.2.

At Greener Costs, we act for both receiving and paying parties in civil litigation. Whether you need a robust bill of costs that anticipates issue-based challenges, well-structured points of dispute, or strategic costs advice at an earlier stage in proceedings, our team of specialist costs lawyers is here to help.

Get in touch with us today on 01204 263047 or email info@greenercosts.co.uk to discuss how we can support you.

 

Frequently Asked Questions

What is an issue-based costs order?

It is a departure from the default rule that the loser pays. Under CPR 44.2, the court can order each party to bear the costs of the issues they lost, or reduce the winning party’s overall recovery by a percentage that reflects their failure on distinct issues.

When will a court make an issue-based costs order?

Where a party won overall but failed on discrete, separately identifiable issues that added meaningfully to the cost and length of proceedings. The court will also factor in exaggerated claims, unreasonable conduct, and arguments that had little realistic prospect of success.

What is the difference between an issue-based and a percentage-based costs order?

An issue-based order attributes specific costs to specific issues. A percentage-based order simply reduces the winning party’s recovery by a set amount to reflect partial failure. Where issues are intertwined, courts generally prefer the percentage approach – a strict issue-by-issue analysis can itself become disproportionate.

Can a paying party raise issue-based arguments at detailed assessment?

Yes. Where no specific order was made at trial, the paying party can raise issue-based reductions in their points of dispute. They will need to identify the issues on which the receiving party failed and show that costs in the bill relate to those issues.

Does CPR 44.2 apply in personal injury cases?

Yes, though many lower-value personal injury claims now fall within the fixed recoverable costs regime, which limits the court’s discretion considerably. In higher-value cases – particularly where liability and quantum are disputed separately – issue-based orders remain very much in play.

How does a Part 36 offer affect an issue-based costs order?

A timely Part 36 offer can offer meaningful protection. If the paying party made a reasonable offer that the receiving party failed to beat, the court will take that into account under CPR 44.2 – even where the receiving party technically succeeded on the claim.

What should solicitors do to protect their client’s costs position?

Identify early which issues are necessary to pursue and which carry costs risk if they fail. Structure pleadings clearly, avoid conflating issues unnecessarily, and make timely Part 36 offers. Early costs risk advice is consistently the most effective protection against an adverse issue-based order.