The pitfalls of settlement in a multi-party action

The pitfalls of settlement in a multi-party action

One claimant, three defendants.  Two defendants settle just prior to trial and one continues it alone and loses.  Who should bear the claimant’s costs?

The losing defendant?

He had accepted the level of costs and that a large percentage would be on an indemnity basis.  The issue for him was that he should not be left to foot the costs bill on his own given that the claimant’s costs obviously included work done to deal with the other defendants’ cases which had settled.

The two settling defendants?

They had settled with the claimant on the basis that the claimant would not seek any costs from them.  So would it be fair that they would now have to pay costs, something they had envisaged would not be required when they settled?

What happened?

Sadly for the losing defendant, the trial judge did not take the same view and ordered that there be no contribution from the other defendants.  Feeling aggrieved, he sought and gained permission to appeal and before Lord Justice Jackson got the order for a contribution he had been seeking, though not for the indemnity part of the costs - Dufoo v Tolaini & Ors [2014] EWCA Civ 1536.

Key practical guidance

In making the order the key factors practitioners need to bear in mind are:

  • a settlement agreement was not a good reason for granting a party an exemption on costs, even where it is based on no costs being sought
  • parties enter into litigation knowing that they may be at risk on costs
  • the court has a discretionary power to order a party to contribute to costs payable by another party to their mutual adversary

Lesson to be learnt

Settlement in a multi-party action will not necessarily protect your client from potential costs orders if other defendants continue with the proceedings through to trial and the claimant wins.

For LexisPSL Dispute Resolution subscribers, a detailed analysis of this decision is available here. Click here for a free trial.

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About the author:

Janna is a dispute resolution lawyer. She deals primarily with cross border issues and is active in the work being undertaken in relation to the implications of Brexit for Dispute Resolution lawyers. Janna also heads up a LexisNexis costs team bringing together expertise from across the company to deal with the costs issues facing the profession.