Report No. 240

2. 'Costs.- definition and governing principles

2.1 Before referring to the principles / guidelines in those decisions in some detail, it would be apposite to advert to the concept of 'costs' and the general principles governing the award of costs.

2.2 "Costs" signifies the sum of money which the court orders one party to pay another party in respect of the expenses of litigation incurred. Except where specifically provided by the statute or by rule of Court, the costs of proceedings are in the Court's discretion. Halsbury's Laws of England, 4th Edn., Vol 12, P 414

2.3 In Johnstone v. The Law Society of Prince Edward Island, 2 PEIR B-28 (1988) the Canadian Court of Appeal speaking through McQuaid, J described costs in the following words:

"the sum of money which the court orders one party to pay another party in an action as compensation for the expense of litigation incurred. The definition continues to the effect that costs are awarded as compensation (i.e. reimbursement); there is, unlike damages, no restitutio in integrum, that is to say, no concept in costs, as there exists in damages, that the injured person should be placed, in so far as money can do so, in the same position as he occupied before the injury was suffered".

2.4 The principle underlying levy of costs was stated succinctly thus in Manindra Chandra Nandi v. Aswini Kumar Acharjya, ILR(1921) 48 Cal 42.- a passage cited with approval by Supreme Court in Vinod Seth's case:

"We must remember that whatever the origin of costs might have been, they are now awarded, not as a punishment of the defeated party but as a recompense to the successful party for the expenses to which he had been subjected, or, as Lord Coke puts it, for whatever appears to the Court to be the legal expenses incurred by the party in prosecuting his suit or his defence.

The theory on which costs are now awarded to a plaintiff is that default of the defendant made it necessary to sue him, and to a defendant is that the plaintiff sued him without cause; costs are thus in the nature of incidental damages allowed to indemnify a party against the expense of successfully vindicating his rights in court and consequently the party to blame pays costs to the party without fault.

These principles apply, not merely in the award of costs, but also in the award of extra allowance or special costs. Courts are authorized to allow such special allowances, not to inflict a penalty on the unsuccessful party, but to indemnify the successful litigant for actual expenses necessarily or reasonably incurred in what are designated as important cases or difficult and extraordinary cases."1Passage cited with approval by Supreme Court in Vinod Seth's case.

These observations were made at a time when S. 35-A of CPC was not there on the Statute book.

2.5 In P. Ramanatha Aiyar's the Major Law Lexicon, 4th Edn. At p. 1571, costs have been described as follows:

"Costs are certain allowances authorized by statute to reimburse the successful party for expenses incurred in prosecuting or defending an action or special proceeding. They are in the 7 Passage cited with approval by Supreme Court in Vinod Seth's case nature of incidental damages allowed to indemnify a party against the expense of successfully asserting his rights in Court. The theory upon which they are allowed to a plaintiff is that the default of the defendant made it necessary to sue him, and to a defendant, that the plaintiff sued him without cause. Thus the party to blame pays costs to the party without a fault."

2.6 The provision for costs is intended to achieve the following goals, as pointed out by the Supreme Court in Vinod Seth v. Devinder Bajaj, supra

"(a) It should act as a deterrent to vexatious, frivolous and speculative litigations or defences. The spectre of being made liable to pay actual costs should be such, as to make every litigant think twice before putting forth a vexatious, frivolous or speculative claim or defence.

(b) Costs should ensure that the provisions of the Code, the Evidence Act and other laws governing procedure are scrupulously and strictly complied with and that parties do not adopt delaying tactics or mislead the court.

(c) Costs should provide adequate indemnity to the successful litigant for the expenditure incurred by him for the litigation. This necessitates the award of actual costs of litigation as contrasted from nominal or fixed or unrealistic costs.

(d) The provision for costs should be an incentive for each litigant to adopt alternative dispute resolution (ADR) processes and arrive at a settlement before the trial commences in most of the cases. In many other jurisdictions, in view of the existence of appropriate and adequate provisions for costs, the litigants are persuaded to settle nearly 90% of the civil suits before they come up to trial.

(e) The provisions relating to costs should not however obstruct access to courts and justice. Under no circumstances, the costs should be a deterrent, to a citizen with a genuine or bona fide claim, or to any person belonging to the weaker sections whose rights have been affected, from approaching the courts."

2.7 Manitoba Law Reform Commission, in its Report on "Costs Awards in Civil Litigation" sets out six broad goal.- not all mutually compatibl.- that costs rules should strive to achieve. The first goal is indemnification: successful litigants ought to be at least partially indemnified against their legal costs. The second is deterrence: potential litigants should be encouraged to think carefully before engaging the civil justice system to achieve their goals and should also be encouraged to refrain from taking unnecessary steps within that system.

The third goal is to make costs rules easy to understand and simple to apply. The fourth is to encourage early settlement of disputes, and the fifth is to facilitate access to justice. The sixth and final goal the Commission considered important is flexibility: the rules must allow judges to ensure that justice is done in particular cases".

2.8 The award of costs is generally not considered to be a penalty but a method used to reimburse the other party the expenses of litigation. However, the costs imposed on a party for indulging in frivolous or vexatious litigation stand on a different footing. The general rule is that that the unsuccessful party would be ordered to pay the costs to the successful party.

Thus, the rule has been coined to "costs follows the event", which means that the court will usually order that the loser of the litigation pays the winner's costs. However, the court has the discretion to award or not to award the costs. As stated in Halsbury's Laws of England, "This discretion must be exercised judicially; it must not be exercised arbitrarily but in accordance with reason and justice".1 8 Para 15, Vol. 10, 4th Edn. (Reissue)

2.9 Under the Federal Rules of Civil Proceeding (USA), "costs shall be allowed as of course to the prevailing party unless the court otherwise directs." In most of the States in US, attorney's fee is not allowed as litigation cost.

2.10 There could be final costs and interlocutory costs.

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