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'At the end of the day the tribunal will apply the general principle that costs should follow the event.' This wellworn adage is usually trotted out by lawyers in response to the reasonable enough question, 'what is this going to cost me?' writes Kim Franklin. But what are these 'costs' and what 'event' will they follow?

The fact that the lawyers may have been speaking in code occurred to those drafting the Construction Industry Model Arbitration Rules (CIMAR), designed to operate in conjunction with the 1996 Arbitration Act. The act trotted out the mantra that the award of costs should follow the event.

CIMAR obligingly translated this into 'costs should be borne by the losing party'.

When Lord Woolf came to rewrite the Civil Procedure Rules, studiously avoiding Latin and other lawyers' codes, he explained that the general rule was: 'The unsuccessful party will be ordered to pay the costs of the successful party.'

By now you are probably getting the idea. Unlike other jurisdictions, where the parties bear their own costs irrespective of the outcome, the award of costs makes litigation something of a gamble. And the game is double or quits. If you win the litigation you recover your reasonable costs. If you lose, you bear your own costs and pay the victor theirs. Of course, you can only guess at the final figure, as you have no idea of the size of other side's stake. And if you factor in any uncertainty as to the outcome, the game looks less like dice and more like roulette.

Lord Woolf, recognising that this could put punters off, introduced various innovations designed to even out the odds.

He was particularly keen to move away from the notion that any success, however small, would be sufficient to hit the costs jackpot.

Now, when deciding who should pay, the courts can weigh in the balance of the reasonableness of the allegations and the extent of the success. They also have more flexibility when deciding how much, and can reduce the overall prize or penalise bad gamesmanship.

All this came into play in the case of Hooper v Biddle & Co (Judgment 11.10.06). The claimant sued its solicitors for £3.75 million. By the time the action came to trial it was claiming £350,000. The day before the trial the claimant settled for £38,000. It claimed victory and wanted its costs prize of £120,000.

The defendant argued that the claim was grossly inflated and fundamentally flawed. It had settled for such a tiny fraction of the claim that it considered it should not count as a victory at all.

The judge agreed that the claimant was not the effective winner. In fact, when viewed in the light of the costs incurred to achieve it, the settlement for only 1 per cent of the claim could be seen as a failure. In order to reflect this measure of the claimant's success, the court made no order as to costs. The claimant did not win the jackpot. Instead, it lost its stake.

Kim Franklin is a barrister and chartered arbitrator at Crown Office Chambers in London. Visit www.

crownofficechambers. com

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