Every litigant is, or should be, aware of the Litigation Risk – if you litigate you can lose. Once the “winner” and the “loser” have been established a more general consequence applies – the loser pays.

These propositions must rightly factor into local authority thinking when faced with refusal to pay all or part of a business rates bill for reasons given which the local authority considers, at the very least, to be questionable and sometimes spurious. These may include known avoidance schemes or often, in individual cases, leases enabling dubious tenancies.

In the magistrates’ court, where contested summonses for liability orders to pay business rates are determined, the costs consequences of a local authority losing or withdrawing a summons are governed by a number of statutory and judicial authorities. It is interesting to note what the statutory provisions are and then the context in which the courts have applied them.

When the local authority, as complainant, issues a summons in respect of unpaid business rates, that summons is successfully contested by the defendant which then wants its costs for its successful defence, the position is governed by section 64 of the Magistrates’ Courts Act 1980:-

“S64(1) On the hearing of a complaint, a magistrates’ court shall have power in its discretion to make such order as to costs –

(a) on making the order for which the complaint is made, to be paid by the defendant to the complainant;

(b) on dismissing the complaint to be paid by the complainant to the defendant,

as it thinks just and reasonable;…”

However, when we run a case for a local authority our advice as to the merits of that case may change as it progresses. Sometimes a defendant may produce evidence, which we have not seen before the summons was issued, which indicates that the defendant is likely to be successful. In those circumstances we may advise that the summons should be withdrawn and, in such cases, the cost position is governed by section 52(3)(b) Courts Act 1971;

“where a complaint is made to a justice of the peace acting in any local justice area but the complaint is not proceeded with, a magistrates’ court acting in that area may make such order as to costs to be paid…by the complainant to the defendant as it thinks just and reasonable”.

So, there is a clear statutory framework for a successful defendant to recover its costs from an unsuccessful local authority. It is therefore instructive to see how the courts have chosen to apply those statutes.

The leading guidance as to how the court should consider the question of costs if the summons for a liability order has been tried and lost by the local authority came in City of Bradford Metropolitan District Council v Booth [2000]. In that case Lord Bingham ruled:

“…the proper approach to questions of this kind can for convenience be summarised in three propositions:

1. Section 64(1) confers a discretion upon a magistrates’ court to make such order as to costs as it thinks just and reasonable. That provision applies both to the quantum of the costs (if any) to be paid, but also as to the party (if any) which should pay them.

2. What the court will think just and reasonable will depend on all the relevant facts and circumstances of the case before the court. The court may think it is just and reasonable that costs should follow the event, but need not think so in all cases covered by the sub-section.

3. Where a complainant has successfully challenged the four justices an administrative decision made by a police or regulatory authority acting honestly, reasonably, properly and on grounds that reasonably appeared to be sound, in exercising its public duty, the court should consider, in addition to any other relevant facts or circumstances both (i) the financial prejudice to the particular complainant in the particular circumstances if an order for costs is not made in his favour, and (ii) the need to encourage public authorities to make and stand by honest, reasonable and apparently sound administrative decisions made in the public interest without fear of exposure to undue financial prejudice if the decision is successfully challenged.”

Therefore the High Court sent out a very strong indication that, providing local authorities could show that they were acting honestly, reasonably and properly in its duty to collect the revenue, they should not have to face adverse costs orders in their pursuit of that public duty.

That is the well-established position in cases in which the proceedings have been forced and lost but what about when a local authority, during the course of proceedings, comes to the decision that it would no longer be prudent to continue and wishes to withdraw the summons? In a 2015 case The Chief Constable of Warwickshire v MT , the administrative court held that although the provisions to award costs to a defendant were set out in separate statutes, the Magistrates’ Courts Act 1980 and the Court Act 1971 the criteria which the magistrates’ court should consider in deciding costs should be the same under whichever Act the application for costs by a defendant was being made. In short, the same principles apply if the defendant is seeking costs because the local authority has lost the case or if the local authority has withdrawn the summons before the case has been determined.