Costs Judge Bound by Deemed Order Entitling Claimant to 100% of Assessed Costs

Lahey v Pirelli Tyres Limited involved a personal injury claim that arose from an injury the claimant, Joseph Lahey, suffered while employed by the defendant, Pirelli Tyres Limited. The key background facts and chronology of events were as follows:

Chronology of relevant events:

• 7 September 2003: Before proceedings were issued, the defendant offered £5,000 to settle the claim. This offer was not accepted by the claimant.
• 31 March 2004: The claimant issued proceedings, quantifying the claim at approximately £150,000.
• 13 September 2004: The defendant made a Part 36 payment of £2,000.
• 7 January 2005: The defendant increased the Part 36 payment to £4,000.
• 27 January 2005: The claimant accepted the £4,000 Part 36 payment. Under CPR 36.13(1) and (4), the claimant became entitled to his costs of the proceedings up to the date of serving notice of acceptance on the standard basis if not agreed.
• The claimant’s solicitors commenced detailed assessment proceedings, claiming total costs of £27,029.63 in the bill of costs, including a 75% success fee and disbursements. The solicitor’s base profit costs were £11,487.

The key issues and background relevant to the legal costs dispute were:

• The defendant argued the success fee should be reduced to 25% and the claimed costs of £14,279.50 were disproportionate to the £4,000 settlement.
• The defendant contended the manner in which the claimant’s solicitor conducted the claim led to disproportionate costs. The claim was initially advanced for a repetitive strain injury, then later abandoned and replaced with a claim for an injury from a specific incident. The claimant’s medical evidence did not support the revised case.
• The defendant relied on its £5,000 offer made before proceedings were issued, which was more than the claimant eventually accepted.

These background facts and chronology set the context for the legal costs issues that arose during the detailed assessment proceedings before the district judge and on appeal.

Issues to Be Decided and Parties’ Positions

The key issue to be decided by the Court of Appeal was whether a costs judge has jurisdiction at the outset of a detailed assessment of costs to order that a paying party must pay only a proportion of the costs ultimately assessed to be payable (“the assessed costs”).

This issue arose in the context of a detailed assessment following the claimant’s acceptance of the defendant’s Part 36 payment. At the start of the detailed assessment hearing, the defendant asked the district judge to order that the claimant should be awarded only 25% of the assessed costs, before carrying out the line-by-line assessment.

The parties’ positions on this issue were as follows:

The Defendant/Appellant’s Position:

• Rules 44.4, 44.5 and/or 44.14 of the CPR give a costs judge jurisdiction to make a percentage reduction in the assessed costs at the outset of a detailed assessment.
• In determining if costs were “unreasonably incurred or unreasonable in amount” under Rule 44.4(1), the court can look at the conduct of the parties as a whole, not just on an item-by-item basis. This allows a percentage reduction for conduct.
• Without this power, costs judges cannot always arrive at a fair result, e.g. where a claimant unreasonably refused a pre-action offer or pursued issues that were later abandoned. An item-by-item assessment is insufficient to deal with such conduct.

The Claimant/Respondent’s Position:

• Upon acceptance of a Part 36 offer, a deemed costs order is made that the claimant is entitled to 100% of the assessed costs under CPR 44.12(1)(b). The costs judge has no power to vary this.
• There is an important distinction between reducing the bill by a percentage as part of the line-by-line assessment (which is permissible) and deciding in advance that the receiving party will only get a percentage of the assessed costs (which is impermissible).
• The court’s power under CPR 44.3 to award a proportion of assessed costs is not available to a costs judge on a detailed assessment. That power is only available when the court is making the costs order, not when giving effect to an existing deemed order.
• Any issues about unreasonable conduct can be adequately dealt with by the costs judge disallowing specific items or sections of the bill as “unreasonably incurred” during the detailed assessment, without needing to make a percentage reduction at the outset.

In essence, the issue was whether a costs judge can prospectively limit the costs to be awarded before carrying out the detailed assessment, or whether the judge is bound to assess 100% of the reasonably incurred costs in the usual way.

Judge’s Findings

The Court of Appeal held that a costs judge does not have jurisdiction at the outset of a detailed assessment to order that the paying party pay only a proportion of the assessed costs:

“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.

“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.” [23/24]

The Court distinguished between reducing the bill by a percentage as part of the line-by-line assessment (permissible) and prospectively deciding the receiving party will only receive a percentage of the assessed costs (impermissible):

“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.” [20]

The jurisdiction under CPR 44.3 to award a proportion of costs is only available when the court is making the costs order, not on a detailed assessment of costs:

“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.” [21]