Report No. 14
1. A question of principle which calls for consideration is whether the costs (warded to a successful party in a civil proceeding should be a fair indemnity to him for the expenses incurred in asserting or defending his legal rights.
2. Original object: Checking frivolous suits and defences.-
The early English Statutes would seem to show that a right to recover costs from the opposite party was conferred upon a litigant with the object of checking frivolous suits and defences. We may quote the preamble to one of them.
"Foreasmuch as for want of a sufficient provision by law for the payment of costs Of suit, divers evil disposed persons are encouraged to bring frivolous and vexatious actions, and others to neglect the due payment of their debts, etc."1
1. 8 & 9 W. III, C II, f. 2, (1676).
The award of costs was thus made for its deterrent effect on litigants who may be disposed to file vexatious claims or adopt frivolous defences. The vexatious claimant or the defaulting debtor would before making a false claim or taking an unjustifiable defence remember that if he failed as he would, he would have not only to bear his own expenses but to pay those of the other side.
3. Purpose: Indemnity.-
Whatever may be the origin of the provision requiring the losing party to pay the expenses of the winning party, it is clear that in such systems of law as have adopted the principle of awarding such costs, the underlying purpose is to indemnify fairly the party who is proved to be in the right for the expenses legitimately incurred by him. The true principle underlying the award of costs was thus explained by Mookerjee, A.C.J.:-
"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 to 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."1
1. Maniandra Chandra Nandi v. Asiwani Kumar Acharjya, IL 48 Cal 427 (440-41).
4. Award of costs not universal.-
Certain systems of law have not, however, adopted the principle of awarding costs as an indemnity to the successful litigants. We understand that the system of awarding substantial costs does not obtain in the United States.
5. Objections to the system.-
A view has been taken that the award of costs results in unfairness and leads to extravagant litigation. It has been argued that it is unfair that a losing party should have to pay all the expenditure incurred by his opponent when he may honestly have believed, that the position he has taken was in law defensible and correct.
6. Unfairness encourages extravagance, Answered.-
It appears to us that these arguments overlook the provisions, which systems of law proving for the award of costs generally contain, to combat the alleged tendency of the award of costs to encourage extravagance in litigation. It must not be forgotten that the costs awarded to the winning party are not the actual expenses incurred by him in prosecuting his claim or defence, but only expenses reasonably incurred by him for that purpose. In order that the amount recoverable by the winning party may be limited to such reasonable expenditure, these systems provide either that the costs be quantified or that they be limited to such reasonable expenditure or that they be taxed on scales laid down by the Court itself.
To the argument that the unsuccessful claimant or defendant may have honestly believed in the correctness of his claim or defence and prosecuted or defended it in good faith, there is a two-fold answer. Firstly, such good faith may equally exist in the successful claimant or the successful defendant. If both the contending parties acted in good faith, it is only fair notwithstanding the bona fides of the opponent, that the person turning out to be right should get his expenses. Secondly, it does some times happen that the successful litigant has taken up an attitude which though correct in law is not just or fair. In such cases it is always open to the adjudicating Court in the exercise of its discretion to deprive even the successful litigant of his costs. In fact, Courts frequently do so.
7. System of awarding costs to continue.-
However, ever since the introduction of the British System of administration of justice into our country over a century ago, we have adopted the principle that costs should be awarded to the successful party against the losing party as an indemnity for the expenses to which he has been put by the opponent. A discussion therefore on the correctness or the propriety of awarding costs to a successful party against his opponent as compensation for the expenses incurred by him, is, it appears to us, not much in point.
8. True basis of the indemnity rule.-
The more important question is whether the rules as to. the award of costs which are followed by our Courts do serve the purpose of awarding costs viz., compensation to the successful party for all expenses necessarily or reason ably incurred by him in the prosecution or defence of the litigation. It is obvious that the successful party cannot expect to be compensated for any unnecessary or luxury expenses which he may have incurred. The true principle for measuring the indemnity to which the successful party may be said to be fairly entitled was laid down by Malins V.C. in the following words1:-
1. Smith v. Buller, 19 Eq 475.
"Costs chargeable under a taxation as between party and party are all that are necessary to enable the adverse party to conduct the litigation, and no more. Any charges merely for conducting litigation more conveniently may be called luxuries, and must be paid by the party incurring them."
9. Costs in India not an indemnity.-
Adopting the measure of indemnity so laid down, it is clear that by and large, the costs at present awarded by the Courts in India on the basis of the provisions of the Civil Procedure Code and the form set out therein do not give the successful party the indemnity which the law contemplates.
This view was expressed by the Judicial Reforms Committee for the State of West Bengal:
"It is admitted on all hands that the costs allowed by the rules of this Court form a very small percentage of the costs actually incurred and for which the parties are liable.1 * * * Admittedly, the costs allowed in the courts of the districts and on the Appellate Side of this Court bear, as we have said earlier, no relation to the actual costs of the proceedings. Such costs are fixed on an ad valorem basis and though in some cases, they may be generous, they usually form a very small proportion of the actual cost of the litigation. In seriously contested cases and in matters of difficulty the costs allowed by the rules of this Court, where the unitary system prevails, are hopelessly inadequate and that is the view of everyone who has any knowledge of litigation in this State."2
1. Report, p. 11.
2. Ibid., p. 33.
The same conclusion was reached by the Rankin Committee as far back as 1925 and they made certain recommendations in that regard.1 Notwithstanding the view expressed by that Committee, adequate steps have not been taken to increase the costs which may be awarded to the successful party so as to give him an indemnity on the principles indicated above.
1. Report of the Civil Justice Committee, p. 518.
A large mass of opinion elicited by us in the course of our enquiry which includes the views expressed by some High Courts, agrees that the position is as we have indicated, and that measures are necessary to make the costs awarded a fair indemnity to the successful party.
10. Items of expenditure.-
It therefore becomes necessary to ascertain the various items of expenditure that are actually incurred by a litigant in the conduct of a suit or proceeding and to determine whether or not the existing provisions of law or the rules made by the High Courts provide for adequate compensation for such expenditure.
11. Charges for lawyer's notice.-
We shall start with the stage prior to the filing of a suit. Generally the filing of suit is preceded by an advocate's or a solicitor's notice demanding redress and these notices form the foundation of the suit which is filed subsequently.
To rush to court without sending a lawyer's notice in advance is to invite a disallowance by the court of the costs incurred in the suit. Further, in certain categories of cases, viz., suits against railway authorities, municipal authorities, cantonment boards or the Government, a statutory notice setting out certain details is obligatory and is a prerequisite to the filing of a suit. Suits filed without such a notice are liable to summary dismissal. The technical and formal requirements of the contents of these notices are such that they can be given only after taking professional advice and it is usually necessary to have them drafted by a legal practitioner.
To be awarded.- We are conscious of our recommendation that the statutory provisions making these notices obligatory should be repealed. However the implementation of that recommendation is bound to take some time. It would therefore seem to be only just, that in those cases where an individual is required to give a statutory notice before filing a suit, the costs of such a notice should be allowed to him in the suit or proceeding in the event of his success.
The Courts might also be empowered in accordance with such rules as the High Courts may frame, to award in appropriate cases, notice charges in suits filed against private individuals.
The next major items a expenditure which in fact constitute the great bulk of the out-of-pocket expenses of a litigant are court-fees and the lawyer's fee. The present rules do give an adequate indemnity to the litigant for the amounts which he has to disburse as court-fees. The court-fees are allowable in full in proper cases as a necessary item of the taxed costs.
13. Lawyer's fees.-
The fees paid to a lawyer so long as they do not exceed the amounts prescribed by the rules framed by the several High Courts under the Legal Practitioners Act, 1879 are also recoverable from the opposite party, if a certificate is filed to the effect that the lawyer has actually received the fee claimed. No doubt the successful litigant does often pay higher fees to his lawyer than he gets from his opponent on taxation. These are however luxury expenses incurred by him for his convenience in respect of which he is not entitled to an indemnity. It may be that if the scales of lawyer's fees have for legitimate reasons risen in particular States, alterations may have to be made in the percentages prescribed by the-High Courts under the rules.
14. Typing charges.-
Though the remuneration of the advocate for the drawing of the pleadings is included in the fee payable to him, the party has, in addition, to incur some additional expenditure to get his pleadings typed and to have the necessary copies prepared for service on the other side.
Even in cases where the rules of the court do not require pleadings being typewritten, considerations of legibility, neatness and expedition necessitate that pleadings should, if possible, be typewritten. But typing involves payment to the typists, particularly in the mofussil where this work is frequently done not in the lawyer's office but by a job typist. This puts the party to additional expense in paying the typist. Even in cases where the typing is done by a clerk or someone else attached to the pleader's office "writing charges" have to be paid by the parties. In cases where the pleadings are lengthy or a large number of documents have to be annexed to them, the expenditure on paper and typing charges is considerable.
Rarely, however, is provision made for the recovery of such expenses though they have necessarily to be incurred by a party.
We may in this connection mention that the Rankin Committee also recommended that a successful party who had filed his pleadings in type should be allowed to recover his typing charges.1
1. Report, p. 520.
The practice of typing pleadings and documents has, since the Committee made its Report, grown and is fairly extensively resorted to and typing charges and the cost of stationery have considerably increased. Nevertheless, the suggestion of the Rankin Committee has not yet been accepted by some of the High Courts. Indeed it has been said that this expenditure would be included in the charge of the lawyer's fee which is allowed.
Such a view is obviously unsound. Pleader's fees represent only counsel's charges for drawing the pleadings, but do not include typing or copying charges for which the client has always to pay an additional charge.
It may be pointed out that the High Court of Patna has amended the form of decree in Appendix D of Schedule I of the Civil Procedure Code so that it now includes typing charges also as an item payable by the losing side. The Calcutta High Court has also provided by its rules for making the costs of demi paper payable by the losing side in civil suits.