Can Award of Costs Be Used As a Tool for Administration to Justice

CAN AWARD OF COSTS BE USED AS A CAN AWARD OF COSTS BE USED AS A TOOL FOR ADMINISTRATION TO JUSTICE By Barrister Ahmed Uzair, Lahore The National Judicial Policy 2009 of the National Judicial (Policy Making) Committee calls for cooperation among stakeholders to address 'backlog" and "delays" in our system of justice. All courts, from the Magistrate Courts to the Supreme Court, are overwhelmed by this backlog of cases, caused, primarily, by delay in dispute resolution. Efforts are being made at the policy level to identify ways to improve the administration of justice.1 The subject of this paper is that courts can use the award of costs as a method of effective administration of justice. One of the modes, which can result in speedier trials and bring about a reduction in backlog of cases, is award of costs mechanism. In order to achieve this objective, there is a need of change in law, in particular the High Court Rules. That being said, however, we can only achieve these goals if there is a change in mindset of the stakeholders(i.e. litigants, lawyers and the judiciary) on award of costs. Specifically, it is suggested that as a general rule costs should follow the event i.e. the successful party should recover its cost of pursuing the litigation. 1. DEFINITION The term "Costs" as is being used in this paper refers to the burden imposed on the losing side in a litigation to compensate the winning side for its expenditure. They are separate from and in addition to any award of damages or other order for the payment of money, but the order of costs would form part of the judgment. 2. CURRENT POSITION: THE LAW Section 35 of the Code of Civil Procedure, 1908 (hereinafter referred to as the "Code") deals with costs and reads as under: (1) Subject to such conditions and limitations as may be prescribed, and to the provisions of any law for the time being in force, the costs of an incident to all suits shall be in the discretion of the Court, and the Courts shall have full power to determine by whom or out of what property and to what extent such costs are to be paid, and to give all necessary directions for the purposes aforesaid. The fact that the Court has no jurisdiction to try the suit shall be no bar to the exercise of such powers. (2) Where the Court directs that any costs shall not follow the event, the Court shall state its reasons in writing. (3) The Courts may give interest on costs at any rate not exceeding six percent per annum, and such interest shall be added to the Costs and shall be recoverable as such.2 Under section 35 of the Code, the court is empowered to award actual costs3 in order to reimburse the expenses under gone by the successful litigant.4 The High Court Rules5 also deal with costs as follows: FEE OF COUNSEL 1. Liability for the fees of adversary's advocate.---(1) In all proceedings before the Courts subordinate to the High Court, the unsuccessful litigants shall ordinarily be liable for the fees of his adversary's Advocate (to be hereinafter called "the fee") subject to the conditions and according to the rates as provided by these rules. In Khurshid Ahmed Naz Afridi v. Bashir Ahmed6 the Supreme Court found the object behind award of costs to be two-fold: to compensate the aggrieved party and to penalize a party who may have initiated any action or passed the order in complete disregard of the obvious and glaring facts and provisions of law. It has been held that the award of costs under section 35 is not a penalty or punishment against the unsuccessful party.7 As a necessary corollary to the same, the award of costs under this head cannot be a source of profit for the successful party.8 The sole aim is to reimburse the successful party for the expenses incurred by him.9 This is different from section 35-A that deals with false and vexatious claims i.e. cases that necessitating an award of costs in addition to those under section 35 and is in the form of a penalty. Discussion on compensatory costs for false and vexatious claims is beyond the scope of this paper and will be discussed in the proposed sequel. 3. DISCRETION ON AWARD OF COURT It is recognized around the world that courts have discretion on whether to award costs or not.10 In Pakistan; the wording of section 35 allows this discretion whereby "the Courts [ .] have full power to determine by whom or out of what property and to what extent such costs are to be paid, and to give all necessary directions for the purposes aforesaid."11 The existence of this discretion has been highlighted over the years in a number of cases. For instance, it is in the discretion of the court to determine which one of the parties to the litigation will bear the costs of the litigation,12 the proportion in which the parties are to bear the costs13 and how much of the costs actual incurred are to be allowed.14 It can either direct the unsuccessful party to bear all or part of the costs of litigation or it may order the parties to bear their own costs or it may direct one defendant to a suit to bear the costs of all of the other parties including other defendants to a suit.15 Discretion, however, does not mean that a court can make whatever order it likes16 nor does it include failure to exercise discretion. 4. CURRENT POSITION: THE PRACTICE Section 35 of the Code and the High Court Rules notwithstanding, in practice, the courts rarely award costs. Invariably the order of the court merely states that the parties are to bear their own costs, be that the cost of counsel or the costs of filing/defending the suit. Costs--in particular counsel fee--are not recovered for various reasons. Not least because the method of calculation of fee provided in the High Court Rules is too rigid, mechanical and outdated. It sets specific guidelines on how much fee can be claimed. For example in a case of breach of contract where the damages awarded is Rs.20,000 the High Court Rules specify that the maximum counsel fee that can be recovered is Rs.1250. The maximum fee overall that can be recovered in any situation, irrespective of the complexity of the case or the final award is Rs. 15,000.17 It is not surprising that no one has felt the need to update these Rules since 1996. The High Court Rules do not provide sufficient incentive for a litigant to seek recovery of costs. Secondly, it is also suggested that tax implications for the legal practitioners and litigants may also be the reasons for non-implementation of the law. Under the High Court Rules a certificate has to be filed in court stating the fee paid to the practitioner.18 Finally, there appears to be a belief that an award of costs is a penalty and that costs should only be imposed when there is a clear wrongdoing by a party or his counsel. This is contrary to the judicial pronouncements on the law cited above.19 5. THE CHANGE IN LAW PROPOSED: RULE AS TO COSTS It is argued that there should be a "Rule" created by law to the effect that "the costs will follow the event save in recognized exceptions." The law as it was originally envisaged also supports this position. Reading section 35(2) of the Code together with section 35(1) it becomes apparent that the intention of the drafters in 1908 was that costs should generally follow the event requiring a reason to be provided if there is to be a divergence from the norm. Over the years other common law countries have developed on this position into a rule through judicial pronouncements20 and later on codified the same in codes of procedure.21 Broadly speaking the basis of this rule is that a successful party should not have to bear the costs of having his rights vindicated in circumstances where the stance taken by the unsuccessful party has been proven to be wrong. Therefore, it can be said, the successful party has a "reasonable expectation" of being awarded costs against the unsuccessful party.22 We find support to this proposition in other common law countries such as England and Australia.23 Looking at it narrowly, one could suggest that this Rule might increase costs of litigation. This perception may not be well founded. A party who uses the length of litigation to delay the disposal of the case will be deterred by the costs that will be imposed upon him. Therefore one would be inclined to resolve the dispute at the earliest so as to minimize ones' loss. Conversely speaking, implementing this Rule will also improve access to justice. For instance, a party is unlikely to pursue a right that involves huge time and expenditure vis-a-vis the reward. That being said, if that expenditure could be recovered, one would be inclined to pursue his lawful right. It can also be argued that this rule will encourage parties to settle their claims out-of-court. Ordinarily out of court settlement in Pakistan is the exception rather then the norm, whereas nearly 98% of all civil disputes are resolved out of court in the United Kingdom. One of the deterrents to unnecessary litigation in the United Kingdom is the costs associated with it. Therefore parties endeavor to avoid litigation as far as possible and resolve their disputes amicably. In terms of procedure, the High Court Rules should be changed to incorporate this Rule. Rather than providing a rigid framework on the maximum fee recoverable, the Court should be left to determine the appropriateness of the expenditure. Particularly because the court is to rule on whether there are circumstances (discussed below), which warrant a divergence from the Rule. In common law countries a hearing takes place at the conclusion of the case where there is either a "summary assessment" or "detailed assessment" of costs depending on the complexity of the case.24 6. CIRCUMSTANCES WHERE THE RULE CAN BE DISPLACED Needless to say that the Rule advocated here is rebuttable. Onus of rebuttal is on the unsuccessful party against whom the order of costs is to be made.25 It will be in the discretion of the court to displace the Rule. It will be displaced where there has been some conduct of the successful party disentitling him from the relief.26 It may be noted that the disentitling conduct need not amount to misconduct, and may simply be any conduct calculated to occasion unnecessary expense27 or delay. Another example where the rule will be rebutted is where the conduct of the successful party amounts to an abuse of court process such as in forum selection28 or where proceedings are commenced for a ulterior motive or collateral purpose.29 Finally the Rule will be rebuttal in a situation where the successful party refuses an offer for compromise and fails to obtain a result more favourable than what was offered by the unsuccessful party.30 7. A REASONED APPROACH TO COSTS In common Law countries a more detailed look at the award of costs is being solicited. This new approach is best summarized by Lord Woolf MR, the author of the reforms of Civil Procedure Rules (Wolf, Reforms in England and Wales), in case titled Phonographic Performance Ltd., v. AEI Rediffusion Music Ltd.31 "The most significant change in emphasis of the new rules is to require courts to be more ready to make separate orders which reflect the outcome of different issues. In doing this the new rules are reflecting a change of practice which has already started." It is believed that there is a need to follow a similar approach here in Pakistan requiring courts to perform a deeper and detailed analysis on costs involved in a case. 8. CONCLUSION We started with the objective of finding ways to obtain quicker disposal of cases and improve access to justice and identify whether award of costs can serve that purpose. We have found that the law as it exists today, in particular the High Courts Rules, is rigid, obsolete and in practice completely ignored. The idea of putting an upper-limit on recoverable fee has proven to be a failure. Court process continues to be abused to cause delay in the disposal of cases without any consequence. Rather then putting an upper-limit, specified in the High Court Rules, the decision on reasonableness of costs should be left to the discretion of the trial Court. Therefore the practice of making no order on costs should give way to the Rule. We have identified two bases for it. On the one hand, as a matter of principle, a successful party should not have to bear the costs of proving oneself to be correct. Except where by its own conduct it has shown to be disentitled to such relief or there is another sufficient reasons. The second basis is the wider implications for the justice system. The trials will be quicker as parties on a weaker footing will be compelled to minimize their losses. Through this Rule the practice of delaying tactics can be checked with award of costs taking into account such behavior. The Rule will encourage parties to seek alternative modes of dispute resolution. We have also found that the rule can improve access to justice. With the tax on services being sought, implementation of the rule will also improve tax collection, as parties would be required to disclose their counsel fees and other expenditure.