Costs, credit hire and success

This post was published as an article in September 2011.

There is a legal saying that “hard cases make bad law”.  Nowhere is this more apparent at the current time than in the ever growing number of cases in the Court of Appeal which purport to establish principles meant to be acted upon by first instance judges on the proper order to make in relation to costs in a variety of factual circumstances arising in the context of hard fought litigation.

The more a court strives for perfect justice in an individual case, the greater the risk it seems of creating uncertainty across hundreds of other cases, through rendering it more difficult to predict with precision what costs consequences will apply in those cases.

A recent trio of cases in the Court of Appeal that of Abbott .v. Long (2011) EWCA Civ 874, Medway Primary Care Trust .v. Marcus (2011) EWCA Civ 750 and Fox .v. Foundation Piling Limited (2011) EWCA Civ 790 decided in the consecutive months of May, June and July illustrate this problem acutely.

In particular terms, the cases raise clear issues as to what order would be appropriate in terms of costs in common scenarios such as (i) when a credit hire claim largely collapses at trial or (ii) where a personal injury claim collapses with damages being reduced to a fraction of those claimed or (iii) where a claimant accepts a Part 36 offer made by a defendant which has to be considered against a higher gross sum offered by the defendant by way of earlier part 36 offer.

The Decision of the Court of Appeal in Abbott .v. Long

This decision will be of considerable interest to credit hire litigators as it involves an appeal against an Order of HH Judge Marshall QC made in the Central London County Court where a claim for credit hire damages was brought for £48,000.  That sum was considerably reduced by reason of a discount of 75% by way of contributory negligence and a finding by the trial judge that the claim for credit hire charges had been overstated in that a period of hire was reduced from June 2008 till December 2009 to a total of 6 months.

The credit hire damages recovered were only £8,600.

Crucially it should be noted that the defendant had made no offer and an appeal was made to the Court of Appeal when the circuit judge made no Order for Costs on the trial, pointing out that the appellant could be regarded as the successful party, liability had been denied, no offer had been made and the issues upon which the appellant had lost at trial were not causative of significant extra costs.

The circuit judge had been extremely critical of the approach of the hire company, which she had said was driving the litigation.  The circuit judge said this at paragraph 28 of the transcript in the court below:

The overall conclusion I have come to therefore, on hearing the arguments on both sides, is that the order I should make in these circumstances is that there be no order as to costs.  I do so particularly because of the balance between the following two principal considerations.  On the one hand Mr. Williams points out that once it was accepted by Miss McTague that in fact, there would at least have had to be a Fast Track trial in any event, and where his Client has made some recovery as a result, it is extremely difficult to justify any order requiring Mr. Abbott to pay any costs to Mr. Long.  On the other hand, owing to the way in which the matter has been conducted on the part of Mr. Abbott, without, as I see it any proper regard for Mr. Abbott’s duty to seek to mitigate his loss or to keep his expenses to an appropriate level for someone spending his own money rather than someone else’s, and where the defendant has had a significant measure of success both in resisting that last point in particular, and also establishing a measure of liability which shows that Mr. Abbott was vulnerable to a potential cross claim, I also do not consider it right that Mr. Long should pay any costs to Mr. Abbott.

As noted by the Court of Appeal at paragraph 8 of their Judgment:

In substance, the judge found that there were three factors: firstly, there had to be a trial because there was no offer; secondly, the conduct of the claimant had failed to show proper regard for the duty to mitigate and to keep expenses to an appropriate level; and thirdly, the defendant had had a significant measure of success both in resisting the claim for credit hire and also in establishing a division of liability, which shows that Mr. Abbott was vulnerable for a cross claim.  So the order made by the Judge was that there would be no order as to costs.

The Court of Appeal refused to interfere with the exercise by the Judge of her discretion.  The principal judgment in the Court of Appeal was given by Lady Justice Arden DBE who noted this at paragraph 13:

… the principal ground which there would have been in this case for reducing the costs of the appellant at the trial below were undoubtedly the fact that a claim had been made for credit hire of £48,000, which in the course of the trial was reduced by the concession that a replacement car could have been purchased in the course of the hearing, from June 2008 to December 2009, thus severely reducing that claim; and that I take to be the principal ground, and really the only relevant ground for a reduction in the entitlement as to costs. 

She continued at paragraph 15:

… it seems to me important that this court should consider what the Judge said about the reprehensible nature of the conduct and to what extent the Judge was saying it was reprehensible.  Going back to paragraph 26, which I have set out above, the kernel of the judge’s point as it seems to me was that this was a hirer who was a serial litigant, who ought to have systems in place to ensure that claims which were only properly capable of succeeding are pursued.  Of course that is not the same as dishonesty and Mr. Williams is quite right to make a submission that it is not.  But it is still blameworthy conduct or, to use Ward LJ’s term, it is still conduct which the Judge is capable of finding to be reprehensible.  To take the further argument advanced by Mr. Williams, he submits that the nature of that conduct has been fully taken into account in the Order made at trial for the payment of damages.  But if that was so, that would turn the costs jurisdiction on its head and of course it has been taken into account in relation to damages but it may also be taken into account in relation to costs as well.

She concluded at paragraph 18:

In those circumstances I do not consider that the appellant can overcome the standard that is required on a costs appeal of showing that the judge was not entitled to reach this conclusion.  It is a carefully reasoned judgment.  There are a basket of factors, and she is undoubtedly entitled to take into account the conduct which she had carefully described and of which she had marked her clear disapproval.  In those circumstances, in my judgment, there is no basis for saying that this order was disproportionate.  She was clearly only dealing with a proportion of the costs on the pleaded basis, and that proportion cannot in my judgment be said to have been a disproportionate sanction to which the Judge was not entitled to impose.

Against that backdrop this case will be of significance to those representing credit hire companies who no doubt will wish to argue that it is no more nor less than an instance of the Court of Appeal deciding a case on its own particular facts and failing to interfere with the very broad discretion that a trial judge has.

Conversely those representing motor liability insurers and defending claims from credit hire companies will say that what the case represents is recognition in terms of the appropriate order for costs and in circumstances where a credit hire company pursues a very high claim for credit hire damages but which is severely truncated at trial, that is a very material factor which should go into the balance and a judge will be entitled to make no order for costs in those circumstances even if the claimant succeeds in recovering some thousands of pounds worth of damages whether for credit hire or otherwise.

The difficulty that a case of this nature creates is the potential for uncertainty in the law and uncertainty in the prediction of the result.  This is a theme which will be picked up again in consideration of the later two decisions of the Court of Appeal below:

The Decision in Medway Primary Care Trust .v. Marcus

The case was concerned substantially with a decision made in the context of a claim for damages for clinical negligence whereby an appeal was brought by the defendants from an order that the claimant should have 50% of the costs of the entire action.  The appeal was made on the basis that this was a manifestly unjust and wrong decision and that they should have recovered all or a substantial proportion of their costs because the claim for practical purposes failed.

This is a classically hard case in one sense.  The claimant was a young man aged 31 who contracted a problem in his left lower leg which ultimately meant that it had to be amputated.  His case was that both his general practitioner and the hospital had failed to apply timely and appropriate treatment which would have saved his leg.  Quantum if it was found that negligence had caused his leg to be lost was agreed at £525,000.  At the trial the claimant lost on the basis of causation but succeeded on a barely pleaded and very much secondary point that he was entitled in any event to general damages for pain and suffering caused by delay in diagnosis even though ultimately it would have made no difference to the loss of his leg.  The judge at first instance awarded £2,000 damages a figure which as the respondent pointed out was 0.25% of the value of the claim as pleaded.

The decision went to the Court of Appeal who by a majority of 2-to-1 the leading judgment being given by the President of the Queen’s Bench Division with whom Lord Justice Tomlinson agreed, but a powerful dissenting Judgment given by Lord Justice Jackson, resulted in the overturning of the costs order below and an order that the Defendant should recover 75% of their costs from the Claimant.

The reasoning of the President was set out at paragraph 17 of the judgment:

In my judgment, the Deputy Judge was wrong in principle to conclude that the respondent was the successful party.  The award of £2,000 was insignificant in the context of the claim and the action as a whole, and, although it was technically within the pleaded claim, it was in truth a last minute addition to salvage something (0.25%) from an action which the respondent lost.  The whole action was about the cause of the need for the respondent to undergo a leg amputation and, for all that the first defendants did not admit breach until a late stage, the second defendant’s early admission would have carried the entire claim, if the respondent had succeeded on causation.  The causation issue was squarely advanced in the original defences.  Mr. Brierley’s opinion on the causation issue was the second defendant’s case from the start and it carried the day.  I have already indicated my view that such vindication as the action achieved was scant consolation for a claimant whose £525,000 claim had failed entirely.  This is not a case in which identification of the party who has to write the eventual (very small) cheque is persuasive as to the costs order. 

Interestingly the President went on at the same time to say this about the notion that the defendants could and should have made a Part 36 offer of say £3,000:

The fact that the appellants did not make a Part 36 offer or write a Calderbank letter is no more relevant to the costs issue than it was in Oksuzoglu.  If the defendants had made a Part 36 offer of (say) £3,000 at the outset, that would have carried a costs payment of some £100,000 which would have been disproportionate and unjust.  More importantly, however, an award of £2,000 on an afterthought claim for a short period of extra pain is insignificant in the context of the action as a whole and the nominal failure to make a Part 36 offer is of no consequence and a technical triviality.  As the Deputy Judge himself said, no rational person would issue or defend proceedings such as these, if the recovery was only £2,000. 

Lord Justice Jackson dissented powerfully from the decision of the majority in these terms.  He said at paragraph 28:

The blunt fact is that the claimant had a good claim for £2,000 and the defendants were refusing to pay anything.  The only way the claimant could recover the £2,000 due to him was by issuing proceedings and pressing on until the defendants agreed or were compelled to pay (a) £2,000 damages and (b) costs assessed on the standard basis.

He noted this at paragraph 30 as to what he saw the consequences of the law as framed by Part 36 and Part 44 of the Civil Procedure Rules:

In my view in a personal injury case where (a) the claimant has pursued his claim in a reasonable manner (b) the claimant recovers damages (other than nominal damages) and (c) there is no or no sufficient Part 36 offer, the starting point should be that the claimant recovers his costs.  That flows from rule 44.3(2)(a).  The next question to consider is whether any adjustment should be made to reflect the issues on which the claimant has lost.  In a typical personal injury or clinical negligence case where the Claimant is successful, the Claimant will win on some points and lose on other points along the way.  That is not normally a ground for reducing costs recovery: see the judgment of the Court of Appeal presided over by Sir Anthony Clark MR in Goodwin .v. Bennett UK Limited (2008) EWCA Civ 1658.  If, however, the claimant has lost on major issues which generated significant costs, then the Court will exercise its discretion under rule 44.3 to reduce the costs recovery.

He was scathing of the suggestion by the defendant’s counsel that costs as assessed by the Court on the basis of reasonableness and proportionality could in any shape or form be disproportionate at paragraph 25:

If the defendants had made and the claimant had accepted an offer of, say, £3,000 then the claimant would have been entitled to recover costs assessed on the standard basis.  Costs assessed on the standard basis are no more than is reasonable and proportionate: see rules 44.4(1) and (2).  Mr. Hutton argues that rules 44.4(1) and (2) have been interpreted by the Courts in such a way that the costs awarded would in fact be disproportionate.  Mr. Hutton draws attention to the decision of the Court of Appeal in Home Office .v. Lownds (2002) EWCA Civ 365.  Mr. Hutton may be right in his implicit criticism of the Lownds decision, but that is a matter for law reformers not for this Court.  We must proceed on the assumption that any assessment of costs made pursuant to rules 44.4(1) and (2) on the standard basis would result in a sum which is no more than is reasonable and proportionate.

This case in a sense illustrates fissures in the Court of Appeal.  Undoubtedly it represents what in one sense could be thought to be a sensible result, namely that a claimant whose claim had essentially collapsed at trial should not receive their costs of the action.

On the other hand the failure of the defendant to engage in the part 36 mechanism even with all that entailed in respect of a potential costs liability of £100,000 for settling a £3,000 claim raises the spectre of uncertainty.

Seasoned observers will have sympathy with the position of the defendants that after being through the mill of an assessment process a sum by way of costs would be awarded which would still be too high to be justice or good sense or a sum that the defendants should have to pay.

Nonetheless there is considerable force in Lord Justice Jackson’s logical proposition that if the rules provide for tests of reasonableness and proportionality to be applied and a judge purports to do that then absent his decision being shown to be wrong on appeal his decision must be taken as reasonable and proportionate.  In which case the debate is surely as to whether the rules require change rather than whether the rules have produced a wrong result in a particular case.

A matter of days later the issue arose again in a further case before the Court of Appeal where Lord Justice Jackson this time gave the only justice with which the balance of the court agreed.

The Decision in Fox .v. Foundation Piling Limited

This case involved a back claim emanating from the Sheffield County Court where the defendant obtained early and good surveillance evidence which revealed that the claimant was exaggerating the extent of his disability although he had undoubtedly suffered a genuine back injury which had accelerated the course of constitutional degeneration.  In September 2008 the defendant had made a Part 36 offer of £63,000 of which £39,449.21 would be paid to the Compensation Recovery Unit and the balance would be paid to the claimant.

Later in the action in November 2009 the defendant withdrew that Part 36 offer and made a new offer to settle whereby the claimant would be paid £31,702.53 and an additional figure of £7,597.47 in respect of the Compensation Recovery Unit’s liability.

The position was that the claimant accepted this latter payment and the question was what order for costs should be made in circumstances where the parties could not agree on the liability for costs.

In terms of the gross or headline figures, plainly the second offer was not as good as the first offer.  In terms however of the net receipt of sums the second offer was an increase on the first offer and it seems that the parties were unaware at first instance of the effect of rule 36.15(8) which clarifies that for the purposes of success in Part 36 it is the net sum which matters.

The Court of Appeal overturned the first instance judge and ordered the defendant to pay the claimant’s costs.  In so ordering Lord Justice Jackson drew a number of conclusions beginning at paragraph 44:

First, where one party makes a Part 36 offer and then achieves a more advantageous result than that proposed in his offer, the provisions of rule 36.14 modify the court’s general discretion in respect of costs.  This is important because parties who choose to use the Part 36 mechanism in their settlement negotiations need to have a clear understanding of the legal effects of making, accepting and rejecting offers under Part 36.

He continued:

Secondly, parties are quite entitled to make Calderbank offers outside the framework of Part 36.  Where a party makes such an offer and then achieves a more advantageous result, the court’s discretion is wider.  Nevertheless it may well be appropriate to order the party which has optimistically rejected the Calderbank offer to pay all costs since the date when that offer expired.  This is what the court ordered in Stokes.

He said at paragraph 46:

A not-uncommon scenario is that both parties turn out to have been over-optimistic in their Part 36 offers.  The claimant recovers more than the defendant has previously offered to pay, and less than the claimant has previously offered to accept.  In such a case the claimant should normally be regarded as the successful party within rule 44.3(2).  The claimant has been forced to bring proceedings in order to recover the sum awarded.  He has done so and his claim has been vindicated to that extent. 

He said at paragraph 47:

In that situation the starting point is that the successful party should recover its costs from the other side: see rule 44.3(2)(a).  The next stage is to consider whether any adjustment should be made to reflect issues on which the successful party has lost or other circumstances.  An adjustment may be required to reflect the costs referable to a discrete issue which the successful party has lost.  An adjustment may also be required to compensate the unsuccessful party for costs which it was caused to incur by reason of unreasonable conduct on the part of the successful party.

He said at paragraph 48:

In a personal injury action the fact that the claimant has won on some issues and lost on other issues along the way is not normally a reason for depriving the claimant of part of his costs: see Goodwin .v. Bennett UK Limited (2008) EWCA Civ 1658.  For example, the claimant may succeed on some of the pleaded particulars of negligence, but not on others.  Indeed the fact that the claimant has deliberately exaggerated his claim may in certain instances not be a good reason for depriving him of part of his costs: see Morgan .v. UPS.  A defendant who has obtained video surveillance evidence is perfectly well able to protect his position on costs by making a modest offer under Part 36.

Finally at paragraph 49 he noted:

Nevertheless in other cases (as stated above) the fact that the successful party has failed on certain issues may constitute a good reason for modifying the Costs Order in his favour.  This is commonly achieved by awarding the successful party a specified proportion of its costs.  In Widlake the facts were so extreme that the successful party was ordered to bear all its own costs.

Applying those principles in the context of this case he said at paragraph 61:

In my view there is no justification for departing from the usual starting point as set out in rule 44.3(2)(a) namely that the unsuccessful party should pay the successful party’s costs.  The Judge exercised his discretion on the wrong basis, namely the assumption that the defendant was the successful party.  It therefore falls to this court to re-exercise that discretion.

He then said in terms which appear to be heartfelt:

There has been a growing and unwelcome tendency by first instance courts and dare I say it, this court as well to depart from the starting point set out in rule 44.3(2)(a) too far and too often.  Such an approach may strive for perfect justice in the individual case, but at huge additional cost to the parties and at huge cost to other litigants because of the uncertainty which such an approach generates.  This unwelcome trend now manifests itself in (a) numerous first instance hearings in which the only issue is costs and (b) a swarm of appeals to the Court of Appeal about costs of which this case is an example.

He concluded at paragraph 63 in these terms:

I hope that the forthcoming amendment to rule 36.14 will point the way of a more clear cut approach to the cost rules in future.  In the context of personal injury litigation where the claimant has a strong case on liability but quantum is inflated, the defendant’s remedy is to make a modest Part 36 offer.  If the defendant fails to make a sufficient Part 36 offer at the first opportunity, he cannot expect to secure costs protection.  Different considerations may arise in cases where the claimant is proved to have been dishonest, but (on the Judge’s findings) that is not this case. 

Accordingly one can see in these circumstances that not only has Lord Justice Jackson reasserted himself in terms of the actual decision in this case but he is purported to lay down criteria or decisions now in the context of a unanimous division of the Court of Appeal in circumstances where he was in the minority in an earlier case decided the week before.

However the position taken by Lord Justice Jackson is likely to be embodied in the Civil Procedure Rules given the forthcoming amendments to Part 36 which it is contemplated will take effect in October 2011.

It may well be that the principles which have been established in the Court of Appeal are now tolerably clear as to how partial success in terms of a greatly truncated award of damages should be treated in the context of credit hire and personal injury claims.

But equally given the very wide discretion that a circuit judge has at first instance it seems likely that in particular where it would seem to be manifestly unjust that a party such as the claimant receiving a modest award of damages when they had hoped for a multiple many times higher and in particular terms given the ongoing nature of the credit hire awards in the county court it is the writer’s suspicion that these points will continue to be raised and run in circumstances where there is sufficient factual background to make it a viable proposition.

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