The Court of Appeal’s decision in Ward v Donnellan [2026] EWCA Civ 729 addresses the proper approach to costs orders where both the successful and unsuccessful parties have advanced dishonest cases at trial.
Background
This appeal arose from a costs order made following a 15-day trial in the Business and Property Courts. The trial judge was Ms Louise Hutton KC, sitting as a Deputy High Court Judge. The substantive judgment was handed down on 6 September 2024, running to 103 pages and 473 paragraphs. The costs judgment was delivered on an extempore basis on 14 October 2024.
The three actions concerned a property known as Creative House in Battersea. The first was the Partnership Claim, brought by Mr Donnellan against Mr Ward. Mr Donnellan, a mortgage broker, alleged that in 2012 he and Mr Ward, a property developer, had expressly agreed to enter into a partnership (or alternatively a joint venture) for the development of Creative House and future projects, with interests split 25% to Mr Donnellan and 75% to Mr Ward. The freehold of Creative House was held by Ebonair Investment SA, a Panamanian company which Mr Donnellan alleged was beneficially owned by Mr Ward. Mr Ward’s case was that the interests in Creative House were ultimately held by his wife, his former girlfriend, and Ebonair, which he said was owned by a group of overseas investors. A number of flats in the building were held by Mr Keane and Ms Howard as nominees. Mr Donnellan’s case was that they held those flats for the alleged partnership; the Ward parties’ case was that Ebonair was the ultimate beneficial owner. As part of the Partnership Claim, Ebonair brought a Part 20 Claim against Mr Keane and Ms Howard seeking declarations that they held their leases on trust for Ebonair. The second action was the Arbitration Claim brought by Mr Keane, which does not feature in the appeal. The third was the Possession Claim, also brought by Mr Keane, seeking possession of two flats in the building.
The Partnership Claim failed in its entirety. The judge found that no partnership had been formed and that there was no joint venture. As a consequence, the Part 20 Claim succeeded: Mr Keane and Ms Howard were found to hold their respective flats on trust for Ebonair. The Possession Claim also failed as a result of those findings.
Findings of Dishonesty
The judge was highly critical of the honesty of both Mr Donnellan and Mr Ward. In relation to Mr Donnellan, she found that he had given dishonest evidence about two key meetings said to have taken place in support of his partnership claim, that he had executed dishonest trust deeds, and that he had made assertions that were not true in order to bolster his case. In relation to Mr Ward, the judge found that he had created backdated documents, including a loan agreement and a trust deed, in order to conceal assets from his trustees in bankruptcy. She found that Mr Ward had at least a significant beneficial interest in Ebonair, rejecting his case that Ebonair was owned by overseas investors. That finding, referred to throughout as the Ebonair issue, meant that the Ward parties failed on that aspect of their defence, even though they ultimately succeeded on the Partnership Claim as a whole.
No finding of personal dishonesty was made against Mr Keane or Ms Howard, although the judge found that Mr Keane’s evidence could not be relied upon except where supported by reliable documents or the inherent probabilities, and that Ms Howard had thrown in her lot with Mr Donnellan and regarded her interests as inseparable from his. Both Mr Keane and Ms Howard had executed trust deeds which the judge found to be bogus.
Procedural Complication
A procedural complication arose when the appeal first came before the court on 5 February 2026. It emerged at the outset of that hearing that Mr Donnellan had been adjudicated bankrupt on 7 October 2025. His instructing solicitors had known of the bankruptcy, as they had been acting for the petitioning creditors. No trustee in bankruptcy had been appointed, so the bankrupt estate was vested in the Official Receiver, who had only been supplied with the appeal papers the afternoon before the hearing. The appeal was adjourned. The Official Receiver subsequently confirmed that she wished to play no part in the proceedings and remained entirely neutral. The Court of Appeal proceeded on the basis that, absent success in the appeal, there was no judgment debt capable of being proved in the bankruptcy, and the appeal was relisted. Due to the unavailability of the original constitution, only Lewison LJ remained from the first listing.
The Costs Order Under Appeal
The costs order under appeal was the judge’s decision to make no order for costs on either the Partnership Claim or the Part 20 Claim. The Ward parties, as the successful parties in both claims, appealed on the basis that the judge had erred in the exercise of her discretion.
The judge’s reasoning, as expressed in her extempore costs judgment and her subsequent reasons for refusing permission to appeal, was that Mr Ward’s dishonesty in advancing the Ebonair issue had taken up a very substantial part of the trial and the proceedings leading up to it, and that it would be inappropriate for the Ward parties to benefit from that dishonesty or to recover costs incurred in advancing a dishonest case. She took the view that the costs the Ward parties had incurred in advancing the dishonest Ebonair case, and the costs Mr Donnellan had incurred in meeting it, roughly cancelled each other out, producing a no order position. She applied the same reasoning to the Part 20 Claim on the basis that its issues followed and formed part of the matters in dispute on the main claim.
The Appellants’ Submissions
The appellants, represented by Timothy Polli KC and Tim Hammond, argued that the judge’s exercise of discretion was flawed on a number of grounds. They submitted that the judge had failed to take into account the extent of Mr Donnellan’s dishonesty, which had infected all three claims, and that she had only paid lip service to the principle that costs follow the event. They pointed out that the Partnership Claim had been brought entirely by Mr Donnellan, that it had failed in its entirety, and that it had been supported by dishonest evidence. They argued that the Ward parties were entitled to recover at least their costs of exposing Mr Donnellan’s dishonesty, as well as the costs reasonably incurred in resisting a failed and dishonest claim. They further submitted that no financial penalty of any kind had been imposed on Mr Donnellan, which was inconsistent with the approach endorsed in authorities such as Summers v Fairclough Homes Ltd [2012] UKSC 26 and Hutchinson v Neale [2012] EWCA Civ 345. Mr Polli also argued that the judge had overstated the legal relevance of the Ebonair issue to the Partnership Claim, since that issue went to the composition of partnership property rather than to the existence of the alleged partnership itself.
In relation to the Part 20 Claim, the appellants submitted that the judge’s reasoning was unsustainable. Ebonair had succeeded on that claim, and the defence advanced by Mr Keane and Ms Howard had been based on the dishonest trust deeds. The question of who ultimately owned Ebonair was entirely irrelevant to whether Mr Keane and Ms Howard held their leases on trust for that company. The Ward parties’ dishonesty on the Ebonair issue had no bearing on the Part 20 Claim. The appellants also pointed to the inconsistency between the no order position on the Part 20 Claim and the order that Mr Keane pay the costs of the Possession Claim, when the outcome of both claims stood or fell together.
The Court of Appeal’s Analysis
Lord Justice Lewison (with whom Lord Justice Arnold and Lady Justice Falk agreed) began by emphasising the heavy burden faced by any appellant seeking to overturn a costs decision. As Wilson J stated in SCT Finance v Bolton [2002] EWCA Civ 56, the court discourages such appeals by interpreting the discretion very widely. Davis LJ in F & C Alternative Investments (Holdings) Ltd v Barthelemy (No 3) [2012] EWCA Civ 843 articulated the test more fully: an appellate court may only interfere if the decision on costs is wrong in principle, or if it involves taking into account a matter which should not have been taken into account or failing to take into account a matter which should have been taken into account, or if it is plainly unsustainable.
Lewison LJ reviewed the authorities on dishonesty in pursuing a successful case. In Northstar Systems Ltd v Fielding [2006] EWCA Civ 1660 and Bank of Tokyo-Mitsubishi UFJ Ltd v Baskan Gida Sanayi Ve Pazarlama AS [2009] EWHC 1696 (Ch), it was established that even if the losing party is ordered to pay the winning party’s costs, the winning party will not be entitled to recover the costs of seeking to maintain a dishonest case, because such costs would not have been reasonably incurred. The court’s powers include disallowance of that party’s costs in advancing that case, an order that he pay the other party’s costs attributable to proving that dishonesty, and the imposition of an additional penalty which may in an appropriate case extend to a disallowance of the whole of the successful party’s costs.
In Hutchinson v Neale [2012] EWCA Civ 345, the Court of Appeal set aside a costs order which had the effect that the successful defendants received none of their costs of defending the claim, not even those which had been reasonably and necessarily incurred. Pitchford LJ emphasised that the starting point is that costs should follow the event, and that there is no general rule that a finding of dishonest conduct by the successful party will replace that starting point. What is required is an evaluation of the nature and degree of the misconduct, its relevance to and effect upon the issues arising in the trial, and its tendency to create an unwarranted increase in the costs of the action. The objective is not merely that the dishonest but successful party does not gain from his dishonesty but also that the honest but unsuccessful party does not lose.
Lewison LJ noted that Hutchinson was not a case where the unsuccessful party was also dishonest. He therefore turned to cases where dishonesty was found on both sides. In Intrigue Shipping Inc v Nikitin [2013] EWCA Civ 749, the trial judge had made no order for costs where the claimant had succeeded in part but had failed on its primary case (which accounted for most of the cost and effort) and had advanced that case on the basis of widespread dishonest evidence. The defendant had also given dishonest evidence. The Court of Appeal held that the judge had committed no error of principle, noting that courts do not look sympathetically on dishonest litigants.
In Ahuja Investments Ltd v Victory Game Ltd [2021] EWHC 2730 (Ch), HHJ Hodge QC addressed a case where the claimant had brought a fundamentally false claim in order to avoid repayment of a loan, and the defendants had met that claim with lies. The judge held that it would be wholly wrong to ignore the defendants’ success by making no order as to costs, as that would be to penalise unduly one of two dishonest parties and to ignore the fact that one of those two dishonest parties had succeeded on a claim that was fundamentally rooted in the prosecution of a dishonest claim by the unsuccessful party. The judge ordered the claimant to pay 75% of the defendants’ costs, ensuring that the defendants recovered no more costs than would have been incurred in advancing an entirely honest case, and adjusted to ensure that the claimant did not find itself bearing the costs of resisting those parts of the defence that were dishonest.
Lewison LJ also referred to the observations of Lord Clarke in Summers v Fairclough Homes Ltd [2012] UKSC 26, who said that in the ordinary way one would expect the judge to penalise the dishonest and fraudulent claimant in costs, and that it is entirely appropriate to order the claimant to pay the costs of any part of the process which have been caused by his fraud or dishonesty, on an indemnity basis if appropriate. Such cost orders may often be in substantial sums, leaving the claimant out of pocket, and the prospect of such orders is likely to be a real deterrent. Lewison LJ observed that in this case that claimant was Mr Donnellan.
Application to the Present Case
Lewison LJ held that the judge had erred in principle. The effect of her order was that the Ward parties, despite being the successful parties, were not entitled to recover any of their costs in successfully resisting the Partnership Claim or in advancing the Part 20 claim, not even those which were reasonably and properly incurred. Nor were they entitled to recover any of their costs in exposing the dishonesty of Mr Donnellan in advancing the Partnership Claim. That dishonesty also permeated the Part 20 Claim and the Possession Claim because in both of those claims the main plank on which the Donnellan parties relied was the dishonest trust deeds. No financial penalty of any kind was imposed on Mr Donnellan.
Lewison LJ agreed with HHJ Hodge QC that this was wrong in principle. Although the judge said that the starting point was that the unsuccessful party must pay the successful party’s costs, she departed far too readily from that starting point. The judge referred to the effect of Mr Ward’s dishonesty on the trial and “the proceedings leading up to it”, but it was entirely unclear to which proceedings she was referring. In fact, in her main judgment the judge held that there had been no significant breach by Mr Ward of his disclosure obligations. Moreover, there was no finding in the main judgment that Mr Ward’s dishonesty had in some way prompted Mr Donnellan to advance his own dishonest claim, or prompted Mr Donnellan to institute the Partnership Claim. As in Ahuja, the claim was fundamentally false, and the false claim spawned a partially false defence.
This was not a case like Intrigue in which the successful party had failed on its principal claim. On the contrary, the Ward parties were successful on all the claims. Nor was it a case like Hutchinson where the unsuccessful party was honest but the successful party was not. As in Hutchinson, the fact was that Mr Donnellan launched an action on grounds that failed, and which was supported by dishonest evidence.
In the critical part of her costs judgment the judge said that the Ward parties should not get the costs incurred in relation to advancing the dishonest Ebonair case and that they should pay the Donnellan parties’ costs of that case, and taking both those into account, she would say no order as to costs. Lewison LJ held that this left out of account the fact that the Donnellan parties ought to have been ordered to pay the Ward parties’ costs of exposing Mr Donnellan’s dishonesty, as well as the costs reasonably incurred by the Ward parties in resisting Mr Donnellan’s failed (and dishonest) claim. The judge’s approach was one-sided and failed to consider the conduct of both the Ward parties and Mr Donnellan. Nowhere in her judgment on costs did she refer to her findings about Mr Donnellan’s dishonesty. That omission was all the more surprising since Mr Donnellan’s dishonesty infected all three claims. This part of the judgment also left out of account the fact that none of the costs (including the costs of the evidence on the Ebonair issue) would have been incurred if Mr Donnellan had not chosen to litigate in the first place.
Moreover, the judge seemed to Lewison LJ to have overstated the legal relevance of the Ebonair issue to the Partnership Claim. Mr Donnellan’s claim was that a partnership existed and that it had been expressly agreed. The relevance of the Ebonair issue did not go to the existence (or not) of the partnership, but to what amounted to partnership property, if there were a partnership as Mr Donnellan claimed.
The Part 20 Claim
When she came to deal with the Part 20 Claim the judge said that she would make no order for costs because the issues raised in that claim “very much followed and formed part of the matters in dispute on the main claim”. Lewison LJ held that this observation was unsustainable. One of the main issues in the Partnership Claim was who was the beneficial owner of Ebonair. But the Part 20 Claim was brought by Ebonair itself against Mr Keane and Ms Howard for declarations that they held their leases on trust for Ebonair. Ebonair is a corporation with legal personality. Who is the ultimate owner of Ebonair is entirely irrelevant to the question whether Mr Keane or Ms Howard held their leases on trust for that corporation. The dishonesty of Mr Ward in relation to the Ebonair issue had no bearing on the issues raised in the Part 20 Claim. By contrast, the dishonesty of Mr Donnellan did, because the defence to the Part 20 Claim was based on the dishonest trust deeds.
The judge did not specifically deal with the Possession Claim. But success or failure on that claim also depended on whether the leases were held on trust for Ebonair or the alleged partnership. Once again, who was the beneficial owner of Ebonair had nothing to do with the Possession Claim. That position was reflected in the costs order that the judge in fact made in relation to the Possession Claim, namely that the unsuccessful claimant (Mr Keane) should pay the costs of the successful defendants (Ebonair and Luxap).
There was a further reason why the judge’s order in relation to the Part 20 Claim could not stand. The outcome of the Part 20 Claim and the Possession Claim stood or fell together. The judge recognised that. Yet the costs orders that she made in relation to the Part 20 Claim and the Possession Claim were inconsistent. She made no order for costs on the Part 20 Claim but ordered the unsuccessful claimant (Mr Keane) to pay the costs of the Possession Claim. There could be no rational explanation for that inconsistency.
The Substituted Order
Lewison LJ held that the court must exercise its discretion afresh. Although it is desirable for the court to make a global order dealing with the costs of all the actions tried together, he did not consider that to be possible in this case. Mr Ward’s dishonesty in relation to the beneficial ownership of Ebonair was not relevant to the issues raised in the Part 20 Claim. On the other hand, Mr Donnellan’s dishonesty was relevant to all the claims. Where several trials are conducted together, the judge must evaluate the relevance of the dishonesty to each of the trials.
In relation to the Part 20 Claim, Ebonair brought the claim against Mr Keane and Ms Howard for declarations that they held their leases on trust for it. They defended that claim unsuccessfully, on the basis of the trust deeds which the judge found to be bogus. But there was no finding that they themselves were dishonest. Since Ebonair was the successful party in the Part 20 Claim, the starting point was that the unsuccessful parties (Mr Keane and Ms Howard) should pay its costs. Although Mr Keane emphasised that he complied with all his procedural obligations and that he was drawn into the proceedings as a nominee, Lewison LJ did not regard these points as justification for departing from the starting point. Whether Mr Keane was drawn into the proceedings as a nominee (presumably for Mr Donnellan) was a matter between him and Mr Donnellan. Compliance with procedural obligations by an unsuccessful party is only to be expected and cannot justify a departure from the starting point. The court therefore ordered Mr Keane and Ms Howard to pay Ebonair’s costs of the Part 20 Claim to be assessed on the standard basis if not agreed.
In relation to the Partnership Claim, the court identified the following important considerations. First, the costs of the Partnership Claim were incurred solely because Mr Donnellan chose to bring it. Second, the Partnership Claim failed in its entirety. The starting point that the unsuccessful party should pay the successful party’s costs must be given proper weight. Third, Mr Donnellan supported his case by dishonest evidence. The Ward parties ought in any event to recover their costs of proving that dishonesty. Fourth, the Ward parties should not be entitled to recover any part of their costs incurred in advancing a dishonest case. This can be achieved either by reducing the proportion of costs to which, as the successful parties they would otherwise be entitled to recover, or by a direction to the costs judge to disallow the costs of advancing the dishonest case. Fifth, Mr Donnellan ought to be able to recover his costs of proving that dishonesty. Sixth, any costs order must not unduly penalise one of two dishonest parties.
The judge had taken the view that the costs incurred by the Ward parties in advancing the dishonest case and the costs incurred by Mr Donnellan in exposing that dishonesty were roughly equal and so balanced each other. Although Mr Polli KC submitted that the judge’s evaluation in that respect was flawed, Lewison LJ held that the judge was in a far better position to make that evaluation than the Court of Appeal. He would not disturb the judge’s conclusion in that respect.
Nevertheless, what the judge overlooked in striking that balance was the costs incurred by the Ward parties in exposing Mr Donnellan’s dishonesty. Nor did she visit any financial penalty on Mr Donnellan for supporting his failed case by dishonest evidence. She also gave little if any weight to the principle that the unsuccessful party should pay the successful party’s costs. In addition, she did not take into account the fact that the only reason that any costs were incurred in relation to the Ebonair issue was that Mr Donnellan had chosen to litigate.
Weighing all those considerations together and necessarily applying a broad brush approach, Lewison LJ ordered Mr Donnellan to pay 50% of the Ward parties’ costs of the Partnership Claim to be assessed on the standard basis if not agreed. He also directed that, as in Hutchinson, there should be no further deduction by the costs judge solely or mainly on the ground of the Ward parties’ dishonesty in relation to the Ebonair issue.
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