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Cite as: [2002] EWCA Civ 1125

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		Neutral Citation Number: [2002] EWCA Civ 1125
		Case No: 2001/2298

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
(The Hon Mr Justice Wright)

Royal Courts of Justice
Strand,
London, WC2A 2LL

31st July 2002

B e f o r e :

LORD JUSTICE SIMON BROWN
(Vice-President of the Court of Appeal Civil Division)
LORD JUSTICE MANCE
and
LORD JUSTICE LATHAM
____________________

Between:

	BUDGEN	Claimant/ Respondent
	- and -
	ANDREW GARDNER PARTNERSHIP	Appellant/ Defendant

____________________

(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)

____________________

Bernard Livesey Esq, QC
(instructed by Messrs Thomson Snell Passmore) for the Appellant
Dermot O’Brien Esq, QC & Tim Lord Esq
(instructed by Messrs Druces & Attlee) for the Respondent
____________________

HTML VERSION OF JUDGMENT
AS APPROVED BY THE COURT
____________________

Lord Justice Simon Brown:

On 10 October 2001, after a trial lasting 7½ days, Wright J gave judgment for the claimant (the respondent) in the sum of £328,970 and ordered the defendant (the appellant) to pay 75% of the claimant’s costs of the action on the standard basis. The respondent had beaten the payment into court by some £44,000. He had failed, however, on one particular issue (the HIS issue) which had taken up a substantial part of the trial and which should not have been pursued and it was on that account that he was deprived of 25% of his own costs.

This appeal, brought with the permission of Buxton LJ given (following his initial refusal of the application on the papers) at an ex parte hearing on 7 December 2001, is directed solely to the costs order. The appellant had sought from the judge below an order under CPR 44.3(6)(f) (an issue based order) that the costs relating to the HIS issue should be paid by the respondent - the appellant being liable (subject to a different argument which failed, is not renewed, and need not therefore be further explored) to the respondent for the remaining costs of the action since he had beaten the payment in. The appellant’s primary complaint is that the judge refused to make such an issue-based order and made instead an order under rule 44.3(6)(a) (a “percentage” order, as it was called by this court in English -v- Emery Reimbold [2002] 3 All ER 385, 410j at paragraph 115). By its Notice of Appeal the appellant asks that the judge’s order be varied and that there be substituted for it an order:

“That the defendant should pay the costs of the action save those relating to the HIS issue and the claimant should pay the defendant’s costs of this issue.”

The grounds of appeal follow the same approach. Having set out as part of the background the fact (clearly accepted by the judge) that the respondent had failed on a substantial issue which he ought never to have pursued, the grounds continue:

“4.5 In these circumstances, unless there were a good reason for exercising his discretion in a judicial manner to the contrary, the Learned Judge ought to have awarded the costs of litigating the HIS issue to the defendant.

4.6 There was not any circumstance, good or otherwise, which can have constituted a sufficient reason for not making an award of the costs of fighting the HIS issue in favour of the defendant.

4.7 The Learned Judge was wrong to conclude that he was in the best position to determine what proportion of costs was just. He did not have the information to be able to do so. The only person who could have done this was a taxing officer.

4.8 The reduction of the claimant’s costs by only 25% (where the claimant’s costs were £174,000 and the defendant’s were over £200,000 and a broad estimate made by the defendant suggested that the costs of litigating the issue were about 66% of the action) was mathematically equivalent to an order that the defendant paid to the claimant 85% of the costs of litigating the issue on which he had lost.

4.9 Such an order was unjust.”

In his brief judgment granting permission to appeal Buxton LJ gave two specific reasons for having been persuaded (albeit only “by a narrow margin”) to do so:

“First of all, recent authority, particularly after the Civil Procedure Rules, has indicated that it may be appropriate to take a wider view of issue based costs orders than was the practice previously. The two authorities in particular that point in that direction are the well-known observations of Lord Woolf MR (as he then was) in AEI Rediffusion Music Limited -v- Phonographic Performance Limited [1999] 1 WLR 1507, and the case put before me this morning by Mr Livesey, unreported, Winter -v- Winter 10^th November 2000. None of those authorities, of course, come anywhere near to saying that a judge must always consider an issue based order. But I think it is arguable that in the present climate this case was such a strong one in respect of the separate HIS issue, and that that issue played such a large part in the trial, that it was necessary, even allowing for the wide ambit of the judge’s discretion, to make such an order. That is the first point.” (paragraph 12)

The second reason was more narrowly based on the particular (I wish I could say “precise”) terms of Wright J’s judgment below. I shall return to it later having set out something of the factual background to this appeal. My concern thus far has been to emphasise the essential focus of the appeal: what is principally under challenge is the judge’s decision to make a percentage order rather than an issue based order. And that certainly appears to be the central point of principle upon which permission to appeal was granted. Insofar as the appellant now seeks alternatively to challenge the sufficiency of the percentage order in fact made (contends, in other words, that any such order should more favourably have reflected its success on the HIS issue), not only is there little if anything in the Notice of Appeal to herald such a contention but, as I shall come to explain, there is scant material which would enable this court to reach any satisfactory decision of its own.

Having made those introductory remarks let me now sketch in, more briefly perhaps than either side would wish, the essential background to this appeal.

The respondent was injured in a road traffic accident on 25 February 1990 for which he was not to blame. The appellant firm of solicitors acted in the litigation which he brought against the negligent driver. Liability in that action was admitted. The appellant pursued the litigation actively but, through an oversight, fell foul of Order 17, rule 11 of the County Court Rules 1981 with the result that the action was automatically struck out in September 1994. An appeal against that striking out order failed in February 1995.

The respondent therefore in 1995 advanced a claim against the negligent appellant firm claiming damages for the loss of his chance of recovering damages in the underlying litigation. It was not in dispute that the appellant was negligent and that the respondent was entitled to recover 100% of the value of the underlying claim as it would have been assessed at the notional trial date - agreed to be the sixth anniversary of the accident, namely 25 February 1996. At an early stage of the hearing below, Wright J ruled that the underlying claim was so well evidenced by contemporary documentation that he would assess its value as though he were the trial judge adjudicating on it in February 1996. I come therefore to the underlying claim.

The respondent had suffered polio at the age of two, but was at the time of the accident still able to walk using weight-bearing callipers and elbow crutches. The effect of his injury was to cause immediate pain and disability and, after his recovery from the acute phase, deterioration so that he lost his ability to get about independently and became dependent on the use of a wheelchair. It was agreed between the parties that the effect of the accident was to advance his symptoms and disability by a period of nine years.

The major issue was the respondent’s claim for loss of earnings. In his working life he had become proficient in computer programming and had worked for a company called Lamix whose main customer was the Hyde Housing Association (“Hyde”). He became friendly both professionally and personally with Hyde’s manager, Mr Len Bishop. In about 1982 Mr Bishop suggested to the claimant that he set up in business on his own account and Hyde would transfer from Lamix to him a contract with a guaranteed income of some £5,500 per annum for the maintenance of its computers and software. The respondent duly formed his own company, Datared Computer Services Limited (“Datared”), which initially worked predominantly for Hyde (whose computer needs increased) but gradually extended its business to other customers, in part selling computer hardware and software but mainly providing maintenance services of systems and software. By 1989 Datared’s turnover had grown to £193,500 and during those seven years the respondent had become a specialist in the requirements of housing associations for computer software applications.

In early 1989, ie about a year before the accident, Hyde commissioned Datared to work on an ambitious scheme for the writing of an integrated software package which, if successful, would have dealt effectively with the whole of Hyde’s information technology needs (HIS is the acronym for Hyde Information System). If successful, this would have been the first product of its type on the market and the leader in the field. Each package would have a market value of between £250,000 and £500,000 and it could be projected that two such packages might be sold each year to other large housing associations, in turn engendering continuing maintenance and servicing contracts. In the underlying action a claim had been advanced for loss of profits based on the HIS package. The appellant firm had instructed forensic accountants, Accident Accounts Analysis, to take instructions directly from the respondent and to produce a report substantiating such a claim. The respondent certified the report’s contents and conclusions as “an appropriate reflection of the circumstances and the resulting losses”. It included statements that:

i) “the HIS software ‘was virtually complete … The injuries sustained in the accident prevented [the respondent] from getting out and about to sell the package and the company has since dwindled away to a point where it makes no sales and simply ticks over …”

ii) “although the development was virtually complete at the time of the accident, Mr Budgen’s lack of mobility prevented him from getting to potential customers to sell it to them. Indeed, the housing association which joined in the development of the software took some of Datared’s staff when Mr Budgen could no longer keep them occupied to capacity and had to let them go.”

iii) “Datared has now been run down to maintaining one contract, generating a turnover of about £65,000 per annum with costs of £57,000 per annum making a token contribution to overheads and no surplus to pay Mr Budgen’s salary”

The respondent claimed as damages the profits on the lost sales of the packages from the date of his accident.

As the judge found, however, the reality was very different. There was a fundamental mismatch between the AS400 computer which Hyde had recently purchased at great cost through Datared and PROIV, the computer “language” in which the software was written. These were incompatible with each other and caused any program to run so excessively slowly as to be unacceptable, a problem which was never resolved. A second fatal circumstance was the failure of Datared’s joint venture partner in 1991 as a result of which the intellectual property in the new product moved from Datared to Hyde together with the entitlement to make the software “bespoke” to Hyde’s specific requirements contrary though that might be to Datared’s commercial interests. Thirdly, the system never worked properly as a result of which the pre-condition of any successful marketing campaign, the enthusiastic support of one satisfied customer, was never achieved; on the contrary, Hyde was grossly dissatisfied.

In his reserved judgment on the issue of liability Wright J expressed his conclusion on this part of the respondent’s case as follows:

“The injuries suffered by Mr Budgen as a result of the accident of February 1990 did not cause or contribute in any way to the subsequent failure of the HIS project … [As to the accountant’s report] [i]t is sufficient to say that in the light of the evidence that has been developed before me in relation to matters which had occurred before this report was written, the contents of that report are so unrealistic and so remote from the true situation that I have to agree with Mr Livesey QC that a court that had been presented with such a report would have been forced to the conclusion that any claim for loss of profits arising out of the failure of the HIS package was simply unsustainable.”

That conclusion can have come as no surprise to the respondent. Let me explain. The trial had begun on 19 June 2001 but after four days (during which all the lay evidence was completed) it had had to be adjourned when the respondent suffered an unfortunate accident through falling out of his wheelchair whilst leaving the Royal Courts of Justice. The hearing resumed at the end of July for three further days mostly of expert evidence, judgment then being reserved. The draft judgment was circulated during September and eventually handed down on 10 October when there was a further half-day hearing (for which additional skeleton arguments had been provided) to deal principally with the question of costs. Before adjourning the trial on 22 June, the judge had taken the opportunity of seeing both counsel in his room to indicate his concern about the length and expense of the proceedings, not least with regard to the seemingly hopeless HIS claim.

The appellant’s solicitors had the previous year, on 31 July 2000, written to the respondent’s solicitors suggesting that the HIS claim “is wholly speculative and unsupported by evidence” and stating that if the respondent was not prepared to concede the issue “we will keep a separate account of the costs we have incurred in investigating this head of claim and should you not make any recovery of damages under this head, we shall ask the court for an order that your client pay our costs”. On 27 June 2001, following the adjournment of the trial, the appellant’s solicitors again wrote to the respondent’s solicitors stating “it is abundantly clear from the way the evidence had come out that your client will not recover any damages in respect of the HIS”, recalling their letter of the previous year, inviting the discontinuance of the HIS claim, and indicating that they were preparing up-to-date schedules of the costs incurred in defending it.

Whilst, however, as stated, the HIS claim was comprehensively rejected, the respondent’s (to some extent inter-related) claim for loss of earnings was allowed on the basis that he would have been able to salvage Datared “and restore its fortunes at least to the level of a small computer consultant organisation within a relatively short time”. Having noted that Mr Livesey “pours scorn on this suggestion” and had argued “that Datared was doomed to fail”, the judge continued:

“I think that this scenario is far too pessimistic. I have no doubt of Mr Budgen’s native intelligence and ability. The resourcefulness with which he was able to overcome disabilities flowing from his poliomyelitis and the courage with which he had prior to the accident confronted and overcome the handicaps deriving therefrom can only be the subject of admiration. … I am reasonably certain that Mr Budgen, if he had been functioning at his full pre-accident level would have realised at an early stage that the HIS project was showing ominous signs of turning sour and … would have turned his formidable energies into the task of building up Datared’s remaining customer base in order to guard against the possibility, which was rapidly ripening into a certainty, that Hyde were going to pull out of the project in any event. I am absolutely sure that Mr Budgen’s pride and self-esteem would have led him to strain every sinew to maintain his position of independence as, in effect, the sole proprietor of his business, rather than having to accept employment under the direction of another.”

In the result the judge awarded 11 years’ loss of earnings at £25,000 pa

That, for the present, must serve as a sufficient background to the judge’s eventual judgment on costs to which I now come. I must, I fear, quote a sizeable part of it (adding paragraph numbers for convenience).

“1. Effectively what Mr Livesey says is that a very substantial part of the claimant’s claim [the HIS claim] here was unsustainable and that that fact was or should have been obvious to the claimant … really from before this action ever started or, at the very latest, once the evidence began to come out from the witness box. … As I am reminded, the originally pleaded case was on the basis that this was a loss for which the claimant was entitled to be compensated in excess of £1 million.

2. The fact is, and it is apparent from my judgment that it is the fact, from a very early stage in the trial - in other words to that aspect of the case to which I was able to observe for myself - the factual weakness of that contention was becoming increasingly obvious. So obvious was it that I thought it appropriate, not without a great deal of hesitation … to give certain indications as to what I feared might happen at a time in the early stages of the case and before the case had to go off for a substantial period because of Mr Budgen’s injury.

3. I am bound to say that I think Mr Livesey is right in saying that there must have been a point in this case at which it became plain that the HIS project claim was untenable and it should at that stage have been abandoned. Indeed it is right to say that the defendants’ solicitors wrote [the letter of 27 June 2001] effectively pointing that fact out to them and inviting them to take the obvious steps. It is a pity, as it seems to me, that that letter, which I am bound to say seems to have been written with the best possible intentions, was treated, as Mr Lord has urged upon me, as merely another step in what he describes as a campaign of harassment which he suggests the defendants’ solicitors have conducted in this case.

4. The next problem is how I should give effect to my view under [rule] 44.3 - the view that I have taken about the claimant’s claim. Mr Livesey submits that I should in effect reflect that conclusion by ordering the claimant to pay a proportion, indeed a substantial proportion, of the defendant’s costs attributable to that issue. That would be a very draconian step to take. Mr Livesey raises cogent criticisms about the way in which this part of the claim has been presented. He criticises the partial way in which the witness statements were composed. He criticises failures … as far as discovery of documents is concerned - so much so that the defendants [had to go to Hyde themselves] in order to obtain the documentation which was available from that source.

5. I have hesitated long as to how I should deal with this but in the end I have come to the conclusion that it would be going too far, when dealing with a claim which was otherwise made in good faith (and to some extent the way in which it has been conducted may reflect an obsessive belief by Mr Budgen in the likely benefits that he would have been able to obtain from his package) to require him to make a positive payment towards the defendants’ costs, but I am absolutely clear that I should reflect the view I have formed by depriving him of a substantial proportion of his own costs. Such an order will of course enure to the benefit of the defendants pro-rata in the sense that they will not have to find that amount. I have considered what the proportion ought to be and in the end I have come to the conclusion that the appropriate deduction would be one of 25%.

6. I was asked to consider whether I should simply say that the costs attributable to the HIS issue should be left to the tax costs judge for himself to assess. I am bound to say that I think that would be an almost impossible task for the costs judge to undertake. I have heard the case, I am in the best position to assess, even on a very broad brush basis, the extent to which the maintenance of the HIS profits claim has increased the costs involved in the action overall and the additional days in court that have been necessary as a result and I take the view that it is for me to say what proportion of the overall costs of the parties can be dealt with in that way. …”

I confess to some difficulty in following parts of the judge’s reasoning there. What, however, is quite clear is that he was rejecting the appellant’s central contention that an issue based order should be made - an order for later assessment by a taxing officer - and not a percentage order. As I understand paragraph 6 of the judgment, he was saying a) that he was better placed than the taxing officer to assess the extent to which the HIS claim had increased the costs of the litigation, and in any event b) that it was for him rather than a taxing officer to decide what part of those increased costs should properly be borne by the respondent.

As to the first part of that process - determining what part of the costs of the action were attributable to the HIS claim - the judge received precious little help from the appellant. True, as stated in paragraph 4.8 of the grounds of appeal, Mr Livesey QC was advancing “a broad estimate” of 66%. But his real case, reflected in paragraph 4.7 of the grounds, was that it was impossible for the judge even to attempt this exercise. Despite the appellant’s letters to the respondent (referred to above) stating that they were keeping proper accounts and schedules of the costs being incurred in litigating this issue, the only schedules in fact available to the court were entirely unsatisfactory for the purpose. The transcript of the argument on 10 October shows Mr Livesey to have been submitting:

“There is a danger of us looking at the figures because they are someone’s assessment in a broad brush approach and at the end of the day would be subject to taxation, and this not a taxation, and I am not going to discuss the actual figures in detail because they do not actually matter … What neither of us are able to do today without taking further instructions, and an adjournment, and putting before you detailed arguments, is to explain to you what percentage is right. And if you did it on a broad brush basis you would not be doing justice.”

There seems to me some force in Mr O’Brien QC’s submission that the appellant was trying to force the judge into making an issue based order. Was he, however, obliged to do so? That is the critical question. Mr Livesey submits that he was. It is his principal contention on the appeal that, on the basis of the material before him, Wright J had no option but to make an issue based order or alternatively, of his own motion, to adjourn the question of costs for further detailed schedules and evidence and further argument on both sides.

It is time to set out the most directly relevant provisions of rule 44.3:

“44.3(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 …

(5) The conduct of the parties includes -

…

(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;

…

(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;

…

(c) costs from or until a certain date only;

…

(f) costs relating only to a distinct part of the proceedings;

(7) Where the court would otherwise consider making an order under paragraph 6(f), it must instead if practicable, make an order under paragraph 6(a) or (c).

In advancing this appeal Mr Livesey relies on a number of passages in Lord Woolf’s final report Access to Justice as well as upon the two authorities to which Buxton LJ referred when granting permission (see paragraph 4 above). As to the Access to Justice report it is sufficient, I think, to quote only from paragraphs 24 and 25 of Chapter 7:

“24. Orders for costs should reflect not only whether the general outcome of the proceedings is favourable to the party seeking an order in his favour but also how the proceedings have been conducted on his behalf. … Judges must therefore be prepared to make more detailed orders than they are accustomed to do now. The general order in favour of one party or another will less frequently be appropriate. Different orders will need to be made on different issues, eg, where … an offer to settle that issue has been unreasonably refused.

…

26. Unless the court is prepared to take the time necessary to elevate decisions as to costs above the conventional approach adopted at present, the parties will not take as seriously as they should the obligations which a managed system will place on them. …

In AEI Rediffusion Lord Woolf said at pp 1522 - 1523:

“The most significant change of emphasis of the new Rules is to require courts to be more ready to make separate orders which reflect the outcome of different issues.”

Brooke LJ’s judgment in the unreported case of Winter -v- Winter was to similar effect:

“… before the Civil Procedure Rules came into effect … if a claimant substantially succeeded he was likely to be awarded an order for costs even though he failed on certain issues. The new Rules provide a break from that tradition and enable a court to do greater justice if a party has caused court costs to be expended on an issue on which he ultimately fails.”

For my part I have no doubt whatever that judges nowadays should be altogether readier than in times past to make costs orders which reflect not merely the overall outcome of proceedings but also the loss of particular issues. If, moreover, the “winning” party has not merely lost on an issue but has pursued an issue when clearly he should not have done, then there are two good reasons why that should be reflected in the costs order: first, as a sanction to deter such conduct in future; secondly, to relieve the “losing” party of at least part of his costs liability. It is one thing for the losing party to have to pay the costs of issues properly before the court, another that he should have to pay also for fighting issues which were hopeless and ought never to have been pursued.

By no means does it follow, however, that the judge should give effect to these considerations by making an issue based costs order rather than a percentage costs order. Indeed, quite the contrary, as rule 44.3(7) makes plain. As was said of that rule in English (at p 410):

“In our view there are good reasons for this rule. An order which allows or disallows costs of certain issues creates difficulties at the stage of the assessment of costs because the costs judge will have to master the issue in detail to understand what costs were properly incurred in dealing with it and then analyse the work done by the receiving party’s legal advisors to determine whether or not it was attributable to the issue the costs of which had been disallowed. All this adds to the costs of assessment and to the amount of time absorbed in dealing with costs on this basis. The costs incurred on assessment may thus be disproportionate to the benefit gained. In all the circumstances, contrary to what might be thought to be the case, a ‘percentage’ order (under CPR 44.3(6)(a)) made by the judge who heard the application will often produce a fairer result than an ‘issues based’ order under CPR 44.3(6)(f). Moreover, such an order is consistent with the overriding objective of the CPR.”

Whether or not Wright J had rule 44.3(7) in mind in refusing to make an issue based order here is unclear: certainly neither side had referred him to it. It may be doubted, however, whether Buxton LJ was aware of it: paragraph 12 of his judgment (see paragraph 4 above) to my mind suggests he was not. There was no question here of a percentage order not being “practicable”. Of course, as the judge below expressly recognised, he himself was only able to make “a very broad brush” assessment of the costs attributable to the HIS issue. He cannot be forced, however, by the parties’ failure to provide him with more precise information into making an issue based order and he was not, of course, invited to adjourn for further information. Accordingly, the central ground of appeal, in my judgment, fails: Wright J was perfectly entitled to make a percentage costs order in this case.

I come now to the second reason which persuaded Buxton LJ to grant permission to appeal. This is how he put it:

“When the judge said … that it would be draconian to make an order of the sort that the defendant sought, and also when he referred to the otherwise proper conduct of the trial, it is difficult to avoid the possibility that he was regarding the matter solely in the perspective of what I would call for the purposes of identification only misbehaviour on the part of the claimant … rather than in the primary context of whether the issue should have been ventilated at all; and secondly whether in those circumstances the loss on that issue should be distinctively reflected in an order for costs.” (paragraph 14)

In examining this second and subsidiary ground of appeal it is necessary now to return to the costs judgment below (as set out in paragraph 18 above). In the first three paragraphs I understand Wright J to have been accepting the appellant’s argument that the HIS issue should never have been raised and that it should have been abandoned at the very latest during the enforced adjournment of the trial in June 2001. It is to that conclusion that he is referring when he speaks at the beginning of paragraph 4 of “the view that I have taken about the claimant’s claim”. He then states that it would be “very draconian” to order the respondent to pay a substantial proportion of the defendant’s costs incurred in fighting that issue. Finally in paragraph 4 he appears to accept various of the appellant’s criticisms as to how the claim was in any event presented - criticisms which were further ventilated before us but which I do not propose to lengthen this judgment by exploring.

The reasoning in paragraph 5 I find somewhat difficult. How precisely is the judge characterising the HIS claim? Is the necessary implication of his reference to “a claim which was otherwise made in good faith” that the HIS claim was made dishonestly? If so, how is that reconcilable with his apparent acceptance that the respondent had “an obsessive belief” in its validity. Whatever the answers to these questions, the judge clearly expresses his view that “it would be going too far” to order the respondent to make any payment towards the appellant’s costs; rather he thought the proper order was to disallow 25% of the respondent’s own costs.

In approaching the matter in this way can the judge be seen to have been concentrating exclusively on how far it would be right to “punish” the respondent for his “misbehaviour” and thus mistakenly overlooking the basic fact that, because objectively it was unreasonable for the respondent ever to have pursued this issue, it might in any event be appropriate to compensate the appellant for at least some of its costs (as well as to deny the respondent his costs) of contesting it? It is that “possibility” which I understand to have underlain Buxton LJ’s second reason for granting permission to appeal here. For my part, however, I am unpersuaded that the judge fell into this particular error. He was, as it seems to me, doing no more than recognising, rightly in my view, that it is even more deserving of an adverse costs order to pursue what is intrinsically an unreasonable issue in a way which itself involves “misbehaviour” than “merely” to pursue a hopeless claim. These considerations are separately raised by rule 44.3(5) respectively in sub-paragraphs (b) and (c). I can find no sufficient reason for supposing that the judge overlooked the former.

I come finally, therefore, to the appellant’s “bottom line” argument, its cri de coeur that merely to deny the respondent 25% of his own costs did not do justice between the parties. It is when one comes to examine this final argument that the deficiencies of the costs judgment become most apparent. To my mind we simply do not know enough about this case and the judge’s views upon it properly to allow the appeal on this broadest of grounds. First and foremost we have no way of knowing what view the judge took as to the actual extent to which the HIS issue had in fact increased the costs of this litigation. He surely cannot be thought to have accepted the appellant’s suggestion (see paragraph 4.8 of their grounds of appeal) that it trebled the costs of the action. The respondent, not surprisingly, was contending for a very different approach and was submitting that he should forfeit at most 10% of his costs. Mr Livesey’s principal argument has always been that not even the judge could have carried out this exercise, only a taxing officer. I need hardly emphasise how much less able are we to undertake the exercise than the judge below, after a seven day trial. And it goes even further than that. As Mr O’Brien submitted, the only order sought by the notice of appeal is an issue based costs order, not a revised percentage order. Nothing in the notice or the grounds of appeal alerted the respondent to the need to present a positive case of his own on just what proportion of the costs had been attributable to the HIS issue. Perhaps a transcript of the hearing would have been required; certainly we do not have one. All that we have are widely different submissions as to how the evidence with regard to the HIS issue related to the remainder of the respondent’s loss of earnings claim. The respondent contends for a very considerable overlap, the appellant for virtually none (although the appellant’s solicitors, in a letter dated 25 May 2001, described the claims respectively for loss of earnings and for lost profits flowing from the failure of HIS as “inextricably linked in our view”).

Even, moreover, if we knew what view the judge had formed on that crucially important initial question - the first limb of the two stage process of his determination as I suggested in paragraph 19 above - we still have no idea what factors he then took into account in discounting that percentage figure so as to reach his eventual decision to forfeit the respondent only 25% of his costs. Many such factors were urged upon him by the respondent. There was the fact that the appellant already had the benefit of a costs order worth some £5,500 following upon a specific discovery application relating to the HIS issue. There was the fact that it was the appellant’s own negligence which had precluded the respondent from advancing the HIS claim in the original proceedings; its defence to his present case, undertaken by the Solicitors’ Indemnity Fund, had adopted what was suggested to be an attritional approach, the respondent for his part having long since used up his own £50,000 legal expenses insurance. There was the fact that despite the appellant having made successive payments into court, the total sum in court had still been substantially beaten by the award. The payment into court mechanism available for protecting defendants against any costs liability (their own as well as the claimant’s) ought, submits the respondent, to be accorded a measure of primacy even where, as here, it is proper to make some order reflecting the winner’s failure on a particular issue: as Chadwick LJ pointed out in Johnsey Estates (1990) Limited -v- Secretary of State for the Environment EWCA Civ 535: “The advantage of the courses open under the rules is that they remove speculation”. Or as I put it in Amber -v- Stacey [2001] 1 WLR 1225, 1333: “That way [by making a Part 36 payment] lies clarity and certainty, or at any rate greater clarity and certainty than in the case of written offers”. True, the contrast there being struck was between Part 36 payments and written offers. The point to make, however, is that Part 36 forms the first line of defence against unreasonable opponents.

Mr Livesey submits that whether or not payments into court are sufficient (or, indeed, made at all) is nothing to the point when it comes to making costs orders intended, as here, to reflect the winner’s failure on a particular issue. That, to my mind, puts it too high. I entirely accept that a party remains entitled to have the other side’s conduct taken into account under rule 44.3(4)(a) (and, indeed, to have its own partial success recognised under (b) of the rule) irrespective of the sufficiency or otherwise (or even existence) of any payment in or offer to be considered under paragraph (c) of the rule. To my mind, however, the court can properly have regard to the fact that in almost every case even the winner is likely to fail on some issues and it should be less ready to reflect that sort of failure in the eventual costs order than the altogether more fundamental failure to make an offer sufficient to meet the winner’s true entitlement.

I do not pretend to be confident that, in making the particular decision made here, the judge below sufficiently took account of all the various circumstances which appear so strongly to have favoured the appellant. The reduction of the respondent’s recoverable costs by only 25% certainly suggests to me a greater reluctance to deprive him, as the successful claimant, of part of his damages than I suspect the facts warranted and than is now appropriate under the new rules. Given, however, the difficulty in knowing quite what view the judge took on some of the more important factual questions before him - above all, the extent to which the HIS issue had increased the overall costs of the action - and that the appellant never sought to clarify any of these matters with the judge following his ex tempore costs judgment; given that the central thrust of this appeal is directed less to the actual percentage of the reduction ordered than, as a matter of principle, to its being a percentage order at all; and given this court’s invariable and proper reluctance to interfere with the exercise of a trial judge’s very considerable discretion as to costs (unless only it can be shown clearly to have been exercised on an incorrect basis), I for my part would not be disposed to allow the appeal. As this court observed in English, at paragraph 30: “The appellate court will seldom be as well placed as the trial judge to exercise a discretion in relation to costs”.

In their postscript to the judgment in English, at paragraph 118, the court spoke of “the duty of the judge to produce a judgment that gives a clear explanation for his or her order”, as the first of two lessons to be drawn from the three cases before them. That is to be read in the context of paragraph 28 and 29 of the judgment where, having acknowledged that generally judges should be free to deal with costs “in a speedy and uncomplicated way”, the court noted:

“29 However, the CPR sometimes require a more complex approach to costs and judgments dealing with costs will more often need to identify the provisions of the rules that have been in play and why these have led to the order made. It is regrettable that this imposes a considerable burden on judges, but we feel that it is inescapable.”

Had the costs judgment below been given after the decision in English rather than before it, I can hardly doubt that it would have been expressed in altogether clearer terms - perhaps, indeed, reserved given the importance of the issue and the fact that it had been the subject of skeleton arguments and a half-day hearing. That, however, is for present purposes by the way. This appeal is not founded on the judge’s failure to give proper reasons for his decision. Had it been, paragraph 25 of the court’s judgment in English would have been in point.

For the reasons given earlier, I would dismiss this appeal.

Lord Justice Mance:

I adopt gratefully the summary of the facts and issues contained in Simon Brown LJ’s judgment, which I have had the benefit of considering in draft. Since I understand Latham LJ to agree with the reasons and conclusions which Simon Brown LJ states, and since I agree with most of what Simon Brown LJ says, but have the misfortune to disagree in one area, I can summarise the reasons which lead to my disagreement in that area quite shortly.

Like Simon Brown LJ (paragraph 30), I read Wright J’s judgment on costs as meaning that he was accepting, first and foremost, the appellant’s argument that the HIS issue should never have been raised, as well as the argument that once raised it should have been abandoned. Secondly, it seems to me that Wright J had it in mind to make an order relating to the costs attributable to the costs of the HIS issue (see the paragraph in Wright J’s judgment which has been set out and numbered 6 in paragraph 18 of Simon Brown LJ’s judgment). However, he decided that it would be “a very draconian step” to take to order the respondent (the claimant below) to pay any of the appellant’s (defendant’s) costs attributable to that issue (paragraph 4 in Wright J’s judgment).

Wright J was not expressly referred to CPR 44.3(7), whereby, when a court “would otherwise consider” making an order that a party pay costs relating to a distinct part of the proceedings, it “must instead, if practicable, make an order” that a party pay either a proportion of the other’s costs or costs from or until a certain date only. And it is clear from his language that his reason for refusing to consider ordering the respondent to pay the appellant’s costs of the HIS issue was not based on CPR 44.3(7). It was based on an obviously erroneous view of the circumstances in which a party who has won the litigation as a whole may be ordered to bear the costs of the party on a particular issue on which the latter party has unequivocally won. It is not “very draconian” to mark the outcome of a particular issue by ordering that the losing party on that issue bears, in whatever way, both parties’ costs of that issue. It is on the contrary in full accord with the principles underlying the new Civil Procedure Rules, which aim at making “orders for costs a more effective incentive for responsible behaviour and a more compelling deterrent against unreasonable behaviour” and “to discourage unreasonable conduct” (cf paragraphs 5(d) and 8 of Access to Justice Final Report by Lord Woolf, July 1996, as well as paragraphs 24-25 of that Report which Simon Brown LJ has quoted).

The judge went on in paragraph 5 of his judgment to give the further reason that

“it would be going too far, when dealing with a claim which was otherwise made in good faith (and to some extent the way in which it has been conducted may reflect an obsessive belief by Mr Budgen in the likely benefits that he would have been able to obtain from the HIS package) to require him to make a positive payment towards the defendant’s costs, but I am absolutely clear that I should reflect the view I have formed by depriving him of a substantial proportion of his own costs”.

The most natural meaning of this passage appears to me to be that the judge was finding that, although he had an obsessive belief in the likely benefits of the HIS package, even Mr Budgen did not fully believe in the HIS claim as it was put forward from the outset of the litigation. If that is right, the good faith of the other aspects of the claim cannot constitute any reason for not making a special order covering the costs of both parties on the HIS claim. But, if it is not right and the judge meant to say that the HIS claim was made in the full (though misguided) belief that it was justified in all its aspects, but that aspects of its subsequent pursuit (e.g. the preparation of witness statements and/or the making of disclosure) were not conducted in good faith, this is serious enough and it remains clear that the claim never had any reasonable basis; the fact that Mr Budgen in some way misguidedly believed in it still could not constitute a good reason for regarding it as “very draconian” to order him to bear the extra costs wasted by raising the issue.

The judge’s reasons for refusing any order which would involve Mr Budgen bearing both sides’ wasted costs of the HIS issue cannot therefore in my opinion stand. The actual order made by the judge provided only for a deduction from the costs recovered by Mr Budgen which can only have related to Mr Budgen’s own costs of the HIS issue. The judge assessed the amount of that deduction at 25%. Despite Mr O’Brien’s forceful submissions to the contrary, I consider that we have seen quite enough of the issues and evidence in this case to be very sure at the least that this figure does not exceed the percentage of Mr Budgen’s costs that the judge felt was attributable to the HIS issue. In other words, its size is further confirmation that the judge at this stage in his judgment was looking solely at Mr Budgen’s costs, having already decided that it would be “very draconian” to require Mr Budgen to bear any part of the appellant’s costs.

Had the judge concluded that Mr Budgen should also bear the appellant’s costs of that issue, he would have had to consider how. Had his attention or mind been directed to CPR 44.3(7), he would have been obliged, if practicable, to limit still further the proportion of Mr Budgen’s own costs that Mr Budgen recovered from the appellant, so as to allow for the costs of the HIS issue on both sides. Having concluded that 25% was the appropriate reduction to allow for Mr Budgen’s own costs, he could hardly have arrived at any other percentage when it came to allowing for the appellant’s wasted costs. In point of fact, the appellants costs were estimated to be substantially larger than Mr Budgen’s (some £200,000 as against £175,000), on which basis even a further 25% deduction from Mr Budgen’s recovery from the appellant would amount to less in monetary terms in relation to the appellant’s costs.

The fact that the appellant did not pay in sufficient to cover Mr Budgen’s legitimate claim is in my view incapable of leading to any other conclusion at this point. The nature of the orders taking account (in one way or another) of success or failure on a particular issue, which Lord Woolf’s reforms aim to encourage, is that they are appropriate when a party has made no payment in at all or has made a payment in which is otherwise insufficient. Costs incurred, as here, on inappropriately raised issues are a different matter. So too are costs incurred on issues on which an otherwise winning party is merely unsuccessful, although reasonableness in pursuing a claim (not present here) is of course an important discretionary consideration. CPR 44.3(4)(c) is not directed at providing that the court must take into account failure to make either a payment in or a sufficient payment in either context.

The judge (rightly in my judgment) only mentioned the question of payment when dealing with Mr Livesey’s unsuccessful argument relating to the general costs of this action, which (as Simon Brown LJ mentions in paragraph 2 of his judgment) has not been renewed in this court. In that context the judge said:

“Money can be and very often is paid into court and even though the claimant may accept it within the time permitted, there is always the opportunity for a defendant to argue costs in the way that Mr Livesey has done today, notwithstanding the acceptance of the payment in.”

It is common ground that that involves an error, since acceptance entitles a claimant to the whole costs (including in this case those of the HIS issue) up to the date of serving notice of acceptance (CPR 36.13(1)). So, if payment in were relevant, one would need to consider whether the appellants could reasonably have made a payment in respect of all parts of the respondent’s claim, save those involving the HIS issue (cf CPR 36.5(2)). We did not hear argument about this point, and I can leave it aside, in the light of my view that the appellants’ failure to make a sufficient payment in to cover the viable parts of the respondent’s case cannot influence the outcome of this appeal relating to the always unjustifiable HIS claim.

Since the judge, in my view, failed to exercise his discretion regarding the extra costs incurred by the HIS issue on any sustainable basis (cf paragraph 3-6 above), I consider that his decision on costs should not stand, and that this court has to exercise its own discretion in the matter. Mr O’Brien emphasises that the appellant deliberately refrained below from advancing any detailed arguments on the quantum of extra costs attributable to the HIS issue, submitting that these should be considered by a costs judge. However, the respondent did advance positive submissions, which Wright J accepted, that he was in the best position to assess the level of any reduction of costs recoverable appropriate to reflect the HIS issue. The respondent argued for a 10% reduction from his otherwise recoverable costs, and the judge ordered a 25% reduction.

On this appeal, Mr Livesey for the appellant has throughout persisted in his primary submission that there should, despite the provisions of CPR 44.3(7), be an order for costs of the HIS issue to be assessed by a costs judge and borne by the respondent. However, he has submitted in the alternative that the order made was simply unjust and disproportionate, and he has obtained permission to appeal with express reference to the judge’s reasoning that it would be “very draconian” to order the respondent to bear any of the appellant’s costs of the HIS issue. Mr O’Brien has submitted that, although the judge was in a position to make an appropriate assessment, this court is in a position where, due to lack of appropriate material and submissions, it simply cannot review the judge’s assessment of the appropriate deduction. All I would add is that the material before us leaves me in little doubt that the costs attributable to the HIS issue must greatly have exceeded 25% of the overall costs. (During submissions on costs before the judge, an estimate by the appellants of as high as two-thirds was being put to the judge and used in argument, having regard, among other matters, to what the appellants suggested would be the usual costs of personal injuries litigation of this nature.)

The arguments on this point do not in my view affect this court’s ability to substitute its own discretion in the area where I have identified the judge as having erred. Once one concludes, as I do, that the judge’s reasons for refusing to order the respondent to bear (whether by making an appropriate deduction from the costs recoverable by the appellant or in any other way) cannot stand, I can, in the light of all the circumstances put before us, see no basis upon which to refuse such an order or to make a further deduction of anything less than 25%. I would allow this appeal to the extent of increasing the deduction to be made from the respondent’s otherwise recoverable costs of the action from 25% to 50%.

Lord Justice Latham:

I would dismiss this appeal for the reasons given by Lord Justice Simon Brown.

ORDER: The appeal is dismissed with costs to be paid on the standard basis. The application to set aside judgment is dismissed with no order as to costs.

(Order not part of approved judgment)