MISCONDUCT IN ASSESSMENT AND REDUCTIONS IN COSTS – A REVIEW OF THE CASES 1: LAHEY -v- PIRELLI TYRES LIMITED

Recent cases on the issue of costs being reduced, or disallowed, due to the conduct of the assessment proceedings have led me to review the cases on this topic. This is the first in a series of posts about the topic.  A useful place to start is the Court of Appeal decision in Lahey v Pirelli Tyres Ltd [2007] EWCA Civ 91.  Strictly speaking this is slightly outside the ambit of the topic as it deals with conduct  in relation to the case rather than the assessment. However the central point here is that there is no power for a judge to simply reduce costs at the outset of the assessment, the issues have to be determined.

“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.”

THE CASE

The claimant in a personal injury case had brought an action for damages. The case was quantified at £150,000. The claimant accepted a Part 36  offer of £4,000 made by the defendant.

THE ISSUE ON ASSESSMENT

The defendant argued at the outset of the assessment that the claimant’s costs should be reduced and that only 25% of costs, as eventually assessed, should be awarded.

THE FINDING OF THE COURTS

At every level the courts found that it was not open to the costs judge to restrict costs in the manner sought by the defendant.

1. 1. 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.

1. 1. 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.

1. 1. 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.

1. We, therefore, dismiss this appeal.

THE POSTSCRIPT ON CONDUCT

1. 1. 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.

1. 1. Lord Woolf said:

“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.”

1. 1. 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.

1. 1. 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).

1. 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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Detailed assessment usually takes place after attempts at settlement of costs have failed and there are some major differences between the parties.

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