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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Lahey v Pirelli Tyres Ltd [2007] EWCA Civ 91 (14 February 2007)
Cite as: [2007] 3 Costs LR 462, [2007] EWCA Civ 91, [2007] WLR 998, [2007] PIQR P20, [2007] CP Rep 21, [2007] 1 WLR 998

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Neutral Citation Number: [2007] EWCA Civ 91
Case No: A2/2006/1418


Royal Courts of Justice
Strand, London, WC2A 2LL
14th February 2007

B e f o r e :



Joseph Lahey
Claimant/ Respondent
- and -

Pirelli Tyres Limited


(Transcript of the Handed Down Judgment of
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Judith Ayling (instructed by Cost Advocates Ltd) for the Appellant
Jeremy Roussak (instructed by Messrs Hough, Halton & Soal) for the Respondent
Hearing dates: 24 January 2007



Crown Copyright ©

  1. This is a second appeal which raises the question whether a costs judge has the jurisdiction at the outset of a detailed assessment of costs to order that a paying party must pay only a proportion of the costs that are ultimately assessed to be payable ("the assessed costs"). The issue arose in the present case in the context of a detailed assessment following the claimant's acceptance of a payment made by the defendant under CPR Part 36. But the point can also arise in the context of a detailed assessment following the acceptance of a Part 36 offer and following an order for costs already made after a trial, where the court has not made an order under rule 44.3(6)(a) allowing only a proportion of the costs of the successful party.
  2. The facts

  3. The claim arose from a personal injury suffered by the claimant during the course of his employment by the defendant. On 7 September 2003 and before proceedings were started, the defendant offered £5,000 in settlement. This offer was not accepted. Proceedings were issued on 31 March 2004. The claim was quantified at approximately £150,000. On 13 September 2004, the defendant made a Part 36 payment of £2,000. On 7 January 2005, this was increased to £4,000. On 27 January 2005, the claimant accepted the £4,000. He thereby became entitled to his costs of the proceedings up to the date of serving notice of acceptance on the standard basis if not agreed: see rule 36.13(1) and (4).
  4. The claimant's solicitors started proceedings for a detailed assessment. The total sum claimed in the bill of costs was £27,029.63. This figure included a 75% success fee and disbursements. The element for solicitor's base profit costs was £11,487.
  5. The defendant served points of dispute. He said that the success fee should be reduced to 25%. He also contended that the solicitors' costs of £14,279.50 were disproportionate to the settlement figure of £4,000 and that the manner in which the claim had been conducted by the claimant's solicitor had led to disproportionate costs, so that the costs judge should only allow those costs that were necessary, following the general guidance given in Lownds v Home Office [2002] 1 WLR 2450. He said that the claim as originally advanced was in respect of a repetitive strain injury. Later, this claim was abandoned and replaced by one based on an injury allegedly suffered as a result of an incident on 2 April 2001. The claimant's medical evidence did not support this revised case and the trial was abandoned on 20 January 2005. The defendant also relied on the fact that he had made the offer of £5,000 before the issue of proceedings, a figure less than that eventually accepted by the claimant.
  6. The detailed assessment was conducted by District Judge James on 21 February 2006. A preliminary issue was raised before the judge. Unfortunately, the issue was not reduced to writing, and this has given rise to considerable confusion. Indeed, there even seemed to be disagreement between counsel in their skeleton arguments in this appeal as to the terms of the preliminary issue. This is most unfortunate. What happened in this case shows how important it is in any form of proceedings to formulate a preliminary issue with care and precision and then reduce it to writing.
  7. It is now common ground that, at the outset of the hearing, the defendant asked the district judge to order, before embarking on the detailed assessment, that the claimant should be awarded only 25% of the assessed costs. The district judge decided to determine as a preliminary issue whether he had jurisdiction to make such an order. The defendant's principal argument that such jurisdiction existed was based on rule 44.3, but it seems that rule 44.4 and 5 (and possibly 44.14) were relied on as well. The district judge said that he was not satisfied that these rules gave him the necessary jurisdiction when carrying out an assessment consequent upon an automatic order for costs following acceptance of a Part 36 payment. He said:
  8. "13. I am satisfied therefore that the regime is clear, namely that if the Defendant elects to make a payment in without any conditions as to costs, and that is accepted by a Claimant within the appropriate timescale, then the Claimant is entitled to his costs, his full costs, subject only to any reduction that will arise during the usual assessment process. In those circumstances, I do not accept that there is any power for the Court, never mind whether it should be done, to order any reduction in the incidence of the costs arising out of the Part 36 payment and its acceptance within time.
    14. Having dealt with that, we then have to go on to the next point, which will be addressed by Mr. Vincent, it seems to me, of the general terms, and that is the question of proportionality, because we are now going on with the assessment of the costs as it has now been put to me by the Claimant in the bill."
  9. Having given judgment on the preliminary issue, the district judge carried out the detailed assessment of the bill of costs line by line in the usual way. He found that the bill as presented was disproportionate and applied the higher standard of necessity (rather than reasonableness) enunciated by Lord Woolf CJ in Lownds: see further paragraph 14 below. He reduced the bill to £15,182.71 inclusive of VAT. There was no appeal from this part of his decision. Indeed, the defendant's skeleton argument accepts that it was "an unimpeachable and rigorous assessment of the individual items in the bill".
  10. The defendant was given permission to appeal by His Honour Judge Baker on 24 March 2006. Judge Baker said that the preliminary issue was whether the district judge "may have regard to the conduct of the parties and to the proportionality between the costs and the matters in issue in the proceedings". This plainly was not the preliminary issue decided by the district judge and is a manifestation of the confusion that resulted from the failure to define the issue and record it in writing.
  11. The appeal was heard by His Honour Judge Appleton. On 6 June 2006, he dismissed the appeal. He said that CPR 44.3 was irrelevant and could not be relied on to confer the necessary jurisdiction. He concluded that the district judge reached the right conclusion for the reasons that he gave.
  12. Brooke LJ gave permission to appeal to this court because he thought that it raised an important point.
  13. The relevant rules of the CPR

    11. "Court's discretion and circumstances to be taken into account when exercising its discretion as to costs

    (1) The court has discretion as to-
    (a) whether costs are payable by one party to another;
    (b) the amount of those costs; and
    (c) when they are to paid


    (4) in deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including-
    (a) the conduct of all the parties;
    (b) whether a party has succeeded on part of his case, even if he has not been wholly successful; and
    (c) any payment into court or admissible offer to settle made by a party which is drawn to the court's attention (whether or not made in accordance with Part 36).
    (Part 36 contains further provisions about how the court's discretion is to be exercised where a payment into court or an offer to settle is made under that Part.)
    (5) The conduct of the parties includes-
    (a) conduct before, as well as during, the proceedings and in particular the extent to which the parties followed any relevant pre-action protocol;
    (b)whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;
    (c)the manner in which a party has pursued or defended his case or a particular allegation or issue; and
    (d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.
    (6) The orders which the court may make under this rule include an order that a party must pay –
    (a) a proportion of another party's costs;
    (b) a stated amount in respect of another party's costs;
    (c) costs from or until a certain date only;
    (d) costs incurred before proceedings have begun;
    (e) costs relating to particular steps taken in the proceedings;
    (f) costs relating only to a distinct part of the proceedings; and
    Basis of assessment
    (1) Where the court is to assess the amounts of costs (whether by summary or detailed assessment) it will assess those costs-
    (a) on the standard basis; or
    (b) on the indemnity basis,
    but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.
    (2) Where the amount of costs is to be assessed on the standard basis, the court will-
    (a) only allow costs which are proportionate to the matters in issue; and
    (b) resolve any doubt which it may have as to whether costs were reasonably incurred or reasonable and proportionate in amount in favour of the paying party.
    (Factors which the court may take into account are set out in rule 44.5.)
    Factors to be taken into account in deciding the amount of costs
    (1) The court is to have regard to all the circumstances in deciding whether costs were –
    (a) if it is assessing costs on the standard basis –
    (i) proportionately and reasonably incurred; or
    (ii) were proportionate and reasonable in amount, or
    (3) The court must also have regard to-
    (a) the conduct of all the parties, including in particular-
    (i) conduct before, as well as during, the proceedings; and
    (ii) the efforts made, if any, before and during the proceedings in order to try to resolve the dispute;
    (b) the amount or value of any money or property involved;
    (c) the importance of the matter to all the parties;
    (d) the particular complexity of the matter or the difficulty or novelty of the questions raised;
    (e) the skill, effort, specialised knowledge and responsibility involved;
    (f) the time spent on the case; and
    (g) the place where and the circumstances in which work or any part of it was done.
    Court's powers in relation to misconduct
    (1) The court may make an order under this rule where-
    (a) a party or his legal representative, in connection with a summary or detailed assessment, fails to comply with a rule, practice direction or court order; or
    (b) it appears to the court that the conduct of a party or his legal representative, before or during the proceedings which gave rise to the assessment proceedings, was unreasonable or improper.
    (2) Where paragraph (1) applies, the court may-
    (a) disallow all or part of the costs which are being assessed; or
    (b) order the party at fault or his legal representative to pay costs which he has caused any other party to incur.

    The defendant's submissions

  14. It is common ground that a judge has jurisdiction when making an order for costs to order that the paying party should pay only a proportion of the receiving party's costs: see rule 44.3(6)(a). It is by no means uncommon for a judge after a trial to disallow a proportion of the successful party's costs to reflect conduct of the kind described in rule 44.3(5). The trial judge is often in a better position than a costs judge to evaluate the conduct of the parties and decide what proportion of his costs the successful party should receive.
  15. It is also common ground that the rule 44.3 jurisdiction is not available to the costs judge at an assessment of costs following the acceptance of a Part 36 payment or offer. This is because rule 36.13(2), when read with rule 44.12(1)(b), provides that where a Part 36 payment or offer is accepted without needing the permission of the court, the claimant is entitled to his costs without an order of the court. Rule 44.3 is dealing with the powers of the court in relation to costs when it makes an order as to costs.
  16. So what is the source of the jurisdiction for which Miss Ayling contends? She submits that it is to be found in rules 44.4 and 44.5 and/or 44.14. She submits that, in determining whether costs have been "unreasonably incurred or are unreasonable in amount" (within the meaning of rule 44.4(1)), the court is not constrained only to look at items of costs individually. It may conclude that a whole stage of the proceedings was unreasonable. It can look at the conduct of the parties in the round and not only by reference to specific items of costs. That is why these rules, when properly construed, afford the costs judge the necessary jurisdiction to make the order that the defendant sought in this case.
  17. The general approach to assessment of costs is not in doubt. The guidance given in Lownds still holds good. At paragraph 31, Lord Woolf CJ said:
  18. "In other words what is required is a two-stage approach. There has to be a global approach and an item by item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations which CPR r 44.5(3) states are relevant. If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the cost for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable. If, because of lack of planning or due to other causes, the global costs are disproportionately high, then the requirement that the costs should be proportionate means that no more should be payable than would have been payable if the litigation had been conducted in a proportionate manner. This in turn means that reasonable costs will only be recovered for the items which were necessary if the litigation had been conducted in a proportionate manner."
  19. Miss Ayling submits, however, that there are cases where even the most robust application of this approach will not produce a reasonable result. For example, this approach will not enable a costs judge to disallow the whole of the costs of proceedings which should never have been issued because the claimant unreasonably refused an offer made by the defendant before the issue of proceedings; and it will not enable a costs judge to disallow the costs of an issue that was unreasonably raised and pursued and later abandoned by the claimant. It is submitted that in this sort of situation, an item by item assessment of costs, however rigorous, will never answer the paying party's concerns. It is only if the costs judge can approach the question of costs on a global basis, for example disallowing recovery for whole stages of the proceedings that the paying party will be sufficiently protected. For this reason, it is submitted that rules 44.4, 44.5 and 44.14 should be construed as giving the costs judge the jurisdiction to make a percentage reduction of the assessed costs before embarking on the assessment.
  20. In support of her submission that rules 44.4 and 44.5 support the approach for which she contends, Miss Ayling relies on three authorities. In Aaron v Shelton [2004] EWHC 1162 (QB), [2004] 3 All ER 561 paragraph 24, Jack J said that there would be power under rule 44.5 in an assessment of costs to reflect a claimant's unreasonable conduct in starting unnecessary proceedings. In Shirley v Caswell [2000] Lloyds Rep PN 955 (CA) paragraph 60, Chadwick LJ assumed that a costs judge could disallow the costs of an issue which had not been pursued at trial. In Booth v Britannia Hotels Ltd [2002] EWCA Civ 579, a personal injury claim had collapsed on the disclosure of surveillance evidence and a payment into court had been accepted. Kennedy LJ said at paragraph 25 that, after going through the bill line by line, "at that stage, but not at any earlier stage, it would, in our judgment, be appropriate for the district judge to consider awarding a percentage of the sum claimed…such that…the total sum…could be regarded as reasonable having regard to the amount of damages claimed."
  21. In the alternative, Miss Ayling submits that rule 44.14 gives power to make the order that was sought in the present case. She relies on obiter dicta of Lord Woolf MR in Burrows v Vauxhall Motors Limited [1998] PIQR P48 (CA). This was a pre-CPR case. For that reason alone, in our judgment its value is limited. It was a case concerning the application of RSC Ord 62 r 10(1) which, when taken with r 28(1), was in similar terms to CPR rule 44.14. The trial judge said that "to start proceedings in this way after withholding plainly relevant medical information and prevent an offer of settlement by insurers willing to negotiate is misconduct within Order 62 rule 10". At P54, Lord Woolf said that the defendant would have the opportunity to argue on taxation that the district judge should exercise his powers under Order 62 rule 28(1) "to disallow all or part of the plaintiff's costs and to require that the plaintiff pay some of or all of the defendant's costs".
  22. Conclusion

  23. We cannot accept Miss Ayling's submissions largely for the reasons given by Mr Roussak. The effect of rule 36.13(1) and (4) and 44.12(1)(b) was that, upon acceptance of the Part 36 payment, "a costs order [was] deemed to have been made on the standard basis" (44.12(1)(b)). This meant that the claimant was entitled to 100% of the assessed costs, ie the amount that the costs judge decided was payable at the conclusion of the detailed assessment. The district judge had no power to vary this order and decide that the claimant would only be entitled to 25% of the assessed costs. The ability of the court to vary an existing order is given by rule 3.1(7): "a power of the court under these Rules to make an order includes a power to vary or revoke the order". But we agree with what Park J said in Walker Residential Limited v Davis & another [2005] EWHC 3483 (Ch) at paragraph 49: the power to vary or revoke an order given by rule 3.1(7) is only exercisable in relation to an order that the court has previously made, and not to an order that is deemed to be made by operation of the rules.
  24. There is a real distinction between (a) carrying out an assessment and deciding as part of the assessment to reduce the bill by a percentage and (b) deciding in advance of the assessment that the receiving party will only receive a percentage of the assessed costs. The figure that results from (a) represents 100% of the assessed costs. In deciding as part of the assessment to reduce the bill by a percentage, the costs judge is giving effect to an order that the successful party is entitled to his costs, to be assessed if not agreed. The figure that results from (b) represents less than 100% of the assessed costs. In deciding in advance of the assessment that the receiving party will only receive a percentage of the assessed costs, the costs judge is not giving effect to an order that the successful party is entitled to his costs, to be assessed if not agreed.
  25. Rule 44.3 gives a judge jurisdiction to make a type (b) order. There is no doubt that at the end of a hearing, the judge may make an order of the kind that the defendant sought from the district judge in the present case. In such a case, the judge is not purporting to vary an order if he disallows the successful party a proportion of his costs. He is making the order. He does not have the advantage accorded to the costs judge of having a detailed bill of costs. He cannot, therefore, carry out a detailed assessment. But he usually has the benefit, denied to the costs judge, of knowing a good deal about the case, and is often in a good position to form a view about the reasonableness of the parties' conduct. When carrying out a detailed assessment, the costs judge is not making an order for costs. His position is quite different from that of a judge exercising the jurisdiction given by rule 44.3.
  26. In our judgment, none of the authorities cited by Miss Ayling assists her case. The dicta in Aaron v Shelton and Shirley v Caswell merely support the proposition that a costs judge has jurisdiction to disallow costs that have been unreasonably incurred. They do not address the question whether it is open to a costs judge to decide at the outset that the receiving party should recover only a proportion of his assessed costs. In Booth v Britannia Hotels, Kennedy LJ, with whom Jonathan Parker LJ and Sir Swinton Thomas agreed, expressly disapproved of the approach for which Miss Ayling contends: "at this stage, but not at any earlier stage, it would be appropriate to consider awarding a percentage of the sum claimed" (emphasis added). The obiter dicta in Burrows v Vauxhall Motors do not shed any light on the question whether, in a taxation of costs under the RSC, a district judge had the jurisdiction to decide at the outset to disallow a proportion of the assessed costs.
  27. The short answer to the defendant's submission is that the costs judge has no power to vary the costs order that is deemed to have been made. In our judgment, this is a complete answer to Miss Ayling's submissions, whether based on rules 44.4 and 44.5 or 44.14. It follows that the costs judge has no jurisdiction to make an order of the kind contended for by the defendant in this case.
  28. It is, in fact, quite unnecessary to give the costs judge the jurisdiction for which Miss Ayling contends. The premise on which her argument is based is that, without such a power, the costs judge cannot arrive at a fair result in certain situations. Mr Roussak concedes (rightly) that in an appropriate case, the costs judge can disallow entire sections of a bill of costs. If the costs judge considers that the claimant acted unreasonably in refusing an offer to settle made before proceedings were issued, he is entitled to disallow all the costs post-issue on the footing that they were costs "unreasonably incurred": rule 44.4(1). Similarly, where he decides that a party was unreasonable to raise and pursue an issue, the costs judge is entitled to disallow the costs relating to that issue on the grounds that they were unreasonably incurred.
  29. In the present case, it was open to the defendant to raise during the course of the detailed assessment all the points which he relied on in support of his submission that there should be a percentage reduction at the outset. In fact, the defendant's representative did not submit during the detailed assessment that the claimant should not have any of his post-issue costs because he acted unreasonably in not accepting the offer of £5,000 made on 7 September 2003. Nor did he submit that the claimant should not have any of the costs attributable to the repetitive strain issue. In our judgment, if there was substance in these complaints, it would have been open to the defendant to make these submissions during the detailed assessment.
  30. We, therefore, dismiss this appeal.
  31. Postscript

  32. We should add by way of postscript a few comments about rule 44.14. Our attention was drawn to what Lord Woolf said in Burrows about the predecessor provision in RSC Ord 62 r 10(1) and 28(1). Rule 28(1) dealt with the powers of a taxing officer in relation to "misconduct, neglect etc". It provided: "where…it appears to the taxing officer that anything has been done, or that any omission has been made, unreasonably or improperly by or on behalf of any party to the taxation proceedings or in the proceedings which gave rise to the taxation proceedings, he may exercise the powers conferred on the Court by rule 10(1)". The powers conferred by rule 10(1) are to disallow the costs in respect of the act or omission or order that any costs occasioned to any other party by the act or omission be paid to that other party.
  33. Lord Woolf said:
  34. "It is, perhaps, pertinent to observe that the relevant question under rules 10(1) and 28(1) of R.S.C., Ord. 62 is whether something has been done, or omitted, "unreasonably or improperly". To label as "misconduct" an act which is unreasonable but not improper - in the sense which those words convey in this context, as explained by this court in Ridehalgh v. Horefield [1994] Ch 205, at page 232D-F- may lead to misunderstanding and should be avoided. But the judge was entitled to take the view – as the district judge had done when making the order which was under appeal - that the conduct which he described was unreasonable."
  35. In Loucas Haji-Ioannou v Ioannis Frangos [2006] EWCA Civ 1663 at paragraph 10 Longmore LJ made some observations about rule 44.14(1). He noted that the word "misconduct" does not appear in the body of rule 44.14, but does appear in the title "Court's powers in relation to misconduct". He said that the words in the title "point to the nature of the court's discretion". In relation to rule 44.14(1)(a), therefore, the "failure to comply with a rule" would "usually have to be a breach of the rule which can properly be categorised as "misconduct". The Chancellor and Arden LJ agreed with the judgment of Longmore LJ.
  36. It may be that there is some tension between what Longmore LJ said in Haji-Ioannou and what Lord Woolf said in Burrows, although we note that Longmore LJ made no reference to section 51(6) of the Supreme Court Act 1981. To the extent that there is, we prefer the approach of Longmore LJ. The powers given to the court by rule 44.14 include powers that are similar to those available to a judge making a wasted costs order, since where rule 44.14(1) applies, the court may order the party at fault or his legal representative to pay costs which he has caused any other party to incur. It is unlikely that the draftsman intended that a legal representative could be ordered to pay costs under rule 44.14 in circumstances where a wasted costs order could not be made under section 51(6) of the 1981 Act in respect of costs incurred as a result of "any improper, unreasonable or negligent act or omission on the part of [the] legal representative". The word "unreasonable" in section 51(6) of the 1981 Act has been construed quite narrowly. In our view, it should be given a similarly narrow meaning in rule 44.14(1)(b). Its meaning cannot vary according to whether the conduct in question is that of the party or his legal representative. No such narrow meaning should be given to the words "unreasonably" and "unreasonable" in rule 44.4(1).
  37. We make it clear that, in our view, this appeal does not turn on the meaning of "unreasonable" in rule 44.14(1)(b). But since we heard some argument on the point and our attention was drawn to what may be somewhat conflicting statements in the authorities as to its meaning, we thought that we should briefly express our own opinion on the point.

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