England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM KINGSTON-UPON-HULL COUNTY COURT
(MR RECORDER SHELTON)

		Sitting at: Leeds Combined Court 1 Oxford Row Leeds West Yorkshire LS1 3BG
		14th July 2009

Lord Justice Patten:

Introduction

1. This is a costs only appeal in relation to an action for damages for personal injuries. On 19 October 2004 the claimant, Mrs Mary Hullock, tripped on a pavement in Seaside Road, Withernsea and suffered a soft tissue injury to her right wrist and a three part fracture of her right hip. At the time of the accident she was 69 years old.
2. She was taken to Hull Royal Infirmary where the hip fracture was repaired by the insertion of a plate. She was hospitalised there for two weeks and then spent a further two weeks in Withernsea Community Hospital undergoing rehabilitation. Following her discharge from hospital she received further physiotherapy treatment at home.
3. On 6 December 2004 her solicitors notified the appellant, the East Riding of Yorkshire Council, as the highway authority, that a claim would be made against them for damages for negligence and breach of statutory duty under Section 41 of the Highways Act 1980. On 7 March 2005 the Council conceded liability for the accident but alleged contributory negligence against the claimant which it put at 30 percent. This was later revised in correspondence on 22 March to 25 percent. At that stage the claimant continued to deny any fault on her part.
4. On 3 May 2005 the claimant's solicitors served a schedule of special damages as at 13 April 2005, which was limited to the travel costs incurred by the claimant's husband and son when visiting her in hospital together with the costs of further care by Mr Hullock between 15 and 30 April. This was followed in November 2005 by a comprehensive schedule of general and special damages. The schedule included a claim for continuing care and assistance. It stated that Mrs Hullock had been fit, active and independent prior to the accident but now required considerable assistance performing even routine domestic and personal tasks.
5. On 3 August 2005 the claimant served the first report of Mr Molitor a consultant orthopaedic surgeon. He said in the report that the claimant continued to experience occasional pain and stiffness in her hip and knees but could walk slowly with the aid of a stick. She said that she required help around the house, particularly with heavy lifting and shopping, and could no longer walk distances or carry out household decoration. He thought that there was scope for improvement in general mobility in the next six to nine months but he did not feel that the claimant would regain her pre-accident independence and mobility and said that the accident had significantly changed her lifestyle. This prognosis was supported by witness statements from the claimant and her husband, each dated 28 September 2005, in which Mrs Hullock said that she now needed assistance in most areas of her life, that she could no longer stand and walk for long periods of time and that she could no longer go shopping on her own. She relied on her husband to drive her about and to do most of the housework. Her injury, she said, had also affected their social life.
6. Based on Mr Molitor's report and these witness statements, the claimant on 29 November 2005 served a further schedule of general and special damages. The special damages claim amounted to some £93,000, most of which was made up of costs of past and future care assessed at the rate of £7,065 per annum. The schedule was approved by Mr Molitor and signed by the claimant with a statement of truth. Her solicitors then sought an interim payment on account of damages in the sum of £20,000, and in March 2006 the defendant agreed to pay £15,000 by way of interim payment. The payment was made on 13 April.
7. On 5 January 2007 the claimant's solicitors made a Part 36 offer to settle the claim in the sum of £100,000. In a further letter of 22 January they estimated the value of the claim for pain, suffering and loss of amenity to be £14,000 but declined to put forward a revised schedule of special damages. The offer was rejected by the defendant and on 27 March the claimant issued the proceedings. She sought damages of between £15,000 and £150,000 including a claim for past care and assistance of £15,000 and for the costs of further care and assistance for three hours a day at a rate of £7,873 per annum.
8. On 24 April 2007 the defendant made a Part 36 offer on liability at 75/25 per cent and then on 18 May served its defence and counter schedule disputing the claim of further care, which it described as exaggerated and manifestly excessive. The Part 36 offer on the split of liability was accepted on 11 June 2007 and directions were then agreed under which the defendant was to obtain its own orthopaedic report on the claimant's condition.
9. On 17 July the defendant obtained the first report from Mr Getty, a consultant orthopaedic surgeon. He noted in his report that the claimant maintained that she could still only walk about 200 yards at a time, that she needed to use a walking stick for support and still had difficulty bending. She also said that she continued to have difficulty sleeping due to the pain in her right side. As a result she could no longer decorate, garden or swim and was frightened about falling over.
10. Based on his examination of Mrs Hullock, Mr Getty said that he had some difficulty in substantiating the level of disability claimed, but noted that he had not seen the original X-rays or the hospital notes. On 13 August he produced his second report after reviewing this material. He maintained his view that it was difficult to substantiate the level of alleged disability but suggested that an up-to-date X-ray be taken.
11. On 18 October 2007 Mr and Mrs Hullock each signed new witness statements. Mrs Hullock said that she continued to be unable to walk unaided and would fall over if she did not have her stick with her for support. She still, she said, had difficulty sleeping and was unable to do anything but light household chores. She could not bend or kneel. Mr Hullock confirmed this in his own witness statement.
12. Beginning in late June 2007 the defendant's insurers arranged for video surveillance evidence to be obtained. Surveillance took place on various dates in June, October and November. On 20 December 2007 Mr Molitor and Mr Getty produced a joint medical report. By then both experts had seen the surveillance evidence. They stated that they were agreed:

"a) Mrs Hullock is not as disabled as she stated was the case to the two experts.

b) She is independently mobile with little reliance on the walking stick.

c) She is capable of walking significant distances.

6. Both experts accept the difficulty mobilising after a fractured femur for the first three months and the need for some support for three to six months thereafter, but from that point onwards neither expert anticipates her requiring care.

7. Both experts would anticipate her being largely recovered by nine months to twelve months post hip fracture. Thereafter there may be an awareness, for example, in cold damp weather, or even after walking some distance, that there has been an injury to the hip."

13. On 11 November 2008 the defendant offered to settle the action on terms that the claimant retained the interim payment of £15,000, that the defendant paid the claimant's costs up to the date of the interim payment and the claimant paid the defendant's costs thereafter. This was met with a further Part 36 offer to settle for £15,000 on terms that the defendant would pay the claimant's reasonable costs. The claimant's solicitors denied that their client had acted in any way dishonestly or that she had sought to exaggerate the size of her claim.
14. The claimant then on 30 March served a revised schedule of damages in which the claim for past care was reduced to £6,500 and the claim for future care was abandoned. The joint medical evidence and the video surveillance evidence were agreed. The trial of the action which was fixed for 16 and 17 April 2008 had to be vacated due to the claimant's ill health. Then on 18 August the defendant made a further offer to settle on payment of £15,000 with no order for costs. This was rejected. However, on 3 September the parties agreed to settle the claim for £15,000 after taking into account the 25 per cent reduction for contributory negligence and to proceed to trial only on the issue of costs.
15. The hearing took place before Mr Recorder Shelton on 9 September 2008. The claimant sought an order that the defendant should pay her costs of the action with costs on an indemnity basis from 16 February 2008, when the time for accepting her Part 36 offer expired. The defendant contended that it should pay the claimant's costs up to the date of the interim payment on 13 April 2006 but that the claimant should pay the defendant's costs thereafter.
16. Both sides asserted that their client was the successful party in the litigation. On behalf of the claimant Mr Naylor argued that the interim payment could not be treated as an offer to settle the action and that it was only on 3 September 2008 that the defendant finally agreed the figure of £15,000 as the appropriate settlement figure. The Part 36 offer was made to reflect the conclusion in the joint report of the experts and should, he said, have been accepted. The claimant had to pursue her claim to obtain agreement on damages in that sum.
17. For the defendant it was submitted that the action was only ever about quantum and that the only issue in the case was the claim for past and future care. The claim as originally formulated and maintained until March 2008 was for almost £100,000 and was then reduced to £6,500. The claimant succeeded in recovering no more than the agreed interim payment. It was unreasonable for the claimant to have pursued the claim for damages for care and attention in the amount that she did and the defendant was substantially successful in defeating that claim.
18. The judge ordered the defendant to pay 50 per cent of the claimant's costs, to be assessed on the standard basis. His reasons are set out in the following paragraphs of his judgment:

"31. Under CPR 44.3(1) the Court has a wide discretion as to whether costs are payable by one party to another. The general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, but the Court may make a different order: CPR 44.3(2).

32. The Claimant has succeeded in obtaining a judgment for £15,000 in this case. To that extent she was successful. However, the central issue in the case was her claim for future care, which she effectively abandoned in January 2008. This step followed the disclosure of the surveillance evidence and the obtaining of the joint medical report of 20^th December 2007. Its combined effect was to cause the Claimant to reduce what she had sought by way of claim for past and future loss of around £100,000 in March 2007 to £7,600 in March 2008.

33. In deciding what order, if any, to make I must have regard to all the circumstances of the case, including the matters set out in CPR 44.3(4)(5).

34. The Claimant did not give evidence before me or attend the hearing. I do not hold her absence against her in any way. However, the surveillance evidence and the joint medical report of 20^th December 2007 were agreed documents. The doctors agreed that the Claimant was '… not as disabled as she stated was the case [to them] …'. Her descriptions to them had also been repeated by her in her written evidence. The doctors also agreed that the Claimant would not have required any continuing care after nine months from the date of the accident; in other words, from around August 2005. Against this background the inescapable inference I draw is that the Claimant presented an exaggerated claim and pursued the issue of past and future care unreasonably.

35. The Defendant never made any Part 36 offer on quantum or for that matter an offer before January 2008 in which it acknowledged that the Claimant was entitled to judgment in the sum of £15,000, and until such acknowledgement was made the Claimant was obliged to continue the proceedings. In principle the general rule in those circumstances would be that she should have her costs. However, for the reasons I have set out above, it would, in my judgment, be unjust for the Claimant to receive the whole of her costs. It is appropriate, in my judgment, to mark the Court's disapproval of her conduct in a balanced and proportionate way by reducing the costs she should receive by 50 per cent. For the reasons I have given, the normal rule that she have indemnity costs from the date of her Part 36 offer, which she has equalled, would, in my judgment, be unjust in all the circumstances of this case."

19. Costs are in the discretion of the trial judge. It is common ground that this court can only interfere with the judge's order if it can be shown that he has either erred in principle in his approach to costs or has failed properly to exercise his discretion, either by taking into account something he should not have considered or by omitting to consider something that it was relevant for him to consider: see for example Adamson v Halifax Plc [2002] EWCA Civ 1134 at paragraph 16.
20. Much of the argument, both before the Recorder and before us, centred on the identification of the successful party in the litigation. This is important for the application of the general rule under CPR 44.3(2)(a), but its only practical effect is to determine the starting point for the exercise of the court's discretion. The successful party will be entitled to claim the benefit of the general rule but the court must then go on to consider whether to apply the general rule or to make a different costs order: see CPR 44.3(2)(b). That decision will and indeed must be made by having regard to the other factors specified in CPR 44.3(4) which include the conduct of the parties and the extent to which the parties succeeded on part of their case. Conduct of course includes the issue of whether a successful claimant has exaggerated his claim; see CPR 44.3(5)(d). In order to apply the general rule by reference to the headline figure awarded for damages, the court must first consider and discount any relevant factors under CPR 44.3(4) which point the other way.
21. Mr Cox on behalf of the defendant submits that the Recorder erred in the exercise of his discretion under CPR 44.3 in three ways. He failed correctly to identify who was the successful party in the litigation; he failed adequately to consider the effect of the interim payment made on 13 April 2006; and, having found that the claim for care and attention had been exaggerated, he then failed to consider or to give any real or proper weight to that in considering the costs order which he made.

Successful party

22. The provisions of CPR 44.3(2)(a) preserve the long-standing presumption that a successful party will get his costs, but the whole tenor of CPR 44.3 is that this is only the starting point in any decision about costs and that success alone will rarely be the sole determining factor of liability unless there are no countervailing circumstances of the kind specified in CPR 44.3(4).
23. So in a straightforward contractual dispute about money the ultimate financial success of one or other party may well be decisive of whether or not to apply the general rule. An example of this can be found in a decision of this court in A.L. Barnes v Time Talk (UK) Ltd [2003] EWCA Civ 402. That was a case in which there was nothing to displace the application of the general rule. But where, as here, liability is admitted and the only issue between the parties is one of quantum, the appropriate exercise of the discretion under CPR 44.3(2) is likely to require the court to identify what the real issue between the parties has been and to reflect this in the costs order which it makes.
24. The Recorder regarded Mrs Hullock as the successful party because, by bringing the proceedings, she eventually in 2008 obtained agreed damages of £15,000. In the absence of any Part 36 offer or payment in by the defendant, she was, he said, obliged to continue the proceedings until then.
25. Mr Cox submits that one can treat the interim payment of damages as the equivalent of a payment in or a Part 36 offer for costs purposes. I do not believe that one can. An interim payment, even if agreed, is no more than a payment on account of what the claimant is likely to recover by way of damages in the action. The court can only make the order if it is satisfied that the claimant will obtain judgment for a substantial sum against the defendant but it is not an offer to settle the claim. If the defendant wishes to cap its liability for costs by reference to the interim payment, then it must use the Part 36 procedure to do so. The claimant is entitled in my judgment to assume that he will not be penalised in costs simply by deciding to press on with the action after the interim payment in the absence of any such offer.
26. However, I do accept that a defendant's willingness to agree to an interim payment is likely to be relevant to a consideration of what were the real issues between the parties when the action came to be tried. So in this case it is obvious that the amount of general damages was never really in issue between the parties and was likely to be covered by the amount of the interim payment, which took that part of the claim into account. As already mentioned, it was assessed by the claimant's solicitors in January 2007 in the sum of £14,000. What kept the parties from settling the action was the amount claimed by way of special damages for care and attention, which the claimant was ultimately required to reduce to £6,500 in the light of the surveillance evidence and the conclusions in the joint experts' report.

A different order?

27. On the approach which he took, the question for the Recorder was whether he should make a different costs order from that which would follow under the general rule. He was satisfied that it would be unjust for the claimant to receive the whole of her costs and that the court's disapproval of her conduct in exaggerating her claim to special damages could be adequately reflected by limiting the costs order in her favour to 50% of her costs. Mr Cox says that this fails adequately to give effect to the findings made about the exaggerated nature of the claim for special damages which was the only real issue between the parties from the date of the interim payment in April 2006. That payment involved a recognition by both sides that the general and special damages claim would be at least in that sum and the only area of disagreement which remained was the size of the claim for care and attention which the defendant was ultimately forced to reduce from almost £100,000 to £6,500.
28. In Painting v Oxford University [2005] EWCA Civ 161, the claimant sued for damages for personal injuries sustained as a result of falling from a ladder where she worked. The university admitted liability for negligence subject to a 20% reduction for contributory negligence and judgment was entered for damages to be assessed. The damages claim was put at £400,000. The university made a payment into court of £184,422.91 three weeks before the hearing. It then obtained video surveillance evidence which showed that the claimant was exaggerating her condition. As a result, the university was permitted to take out of court all but £10,000 of the monies which it had paid in. At the trial the claimant was awarded £25,331.78 net of the 20% deduction for contributory negligence. As she had beaten the payment in, she claimed her costs. The judge awarded her the costs because the defendant had failed to maintain an adequate payment in. On appeal the Court of Appeal held that the judge was wrong to find that the claimant's success in beating the payment in outweighed the finding that she had exaggerated her claim. The central issue in the case at trial was the allegation of exaggeration and the defendant was to be regarded as the real winner in the litigation.
29. Maurice Kay LJ at paragraphs 21 and 22 of his judgment said this:

"21. To the question: who was the real winner in this litigation? There is, in my judgment, only one answer. The two-day hearing was concerned overwhelmingly with the issue of exaggeration, and the University won on that issue. Mr Farmer's submission that that was only one issue, the other issue being the quantification of the claim, is not persuasive. Quite simply, that second issue was hardly an issue at all once the Recorder had found the exaggeration and the cut-off date. It is true that that cut-off date was later than the one advanced on behalf of the University, but, viewed objectively, the totality of the judgment was overwhelmingly favourable to the University. It was in real terms the winner. Moreover, the costs incurred after the reduction of the money in court were expended almost entirely on the preparation for and conduct of a trial in which the central issue was that of exaggeration.

22. There are two additional points which seem to me to have called for the affording of considerable weight by the Recorder, whereas the transcript does not suggest that he afforded them any weight at all. The first is the strong likelihood that, but for exaggeration, the claim would have been settled at an early stage and with modest costs. The second is that at no stage did Mrs Painting manifest any willingness to negotiate or to put forward a counter-proposal to the Pt 36 payment. No one can compel a claimant to take such steps. However to contest and lose an issue of exaggeration without having made ever a counter-proposal is a matter of some significance in this kind of litigation. It must not be assumed that beating a Pt 36 payment is conclusive. It is a factor and will often be conclusive, but one has to have regard to all the circumstances of the case."


30. In Hall v Stone [2007] EWCA Civ 1354, which Mr Naylor cited to us, the claimants were involved in a minor car accident in which the defendant's car bumped into the back of the car in which they were travelling. They sought damages of several thousand pounds for the injuries which they said they had sustained, but recovered only modest damages of between £400 and £1,000 each. There was no Part 36 offer and they were alleged at the trial to have exaggerated or invented their injuries. The judge rejected this but held that their injuries merited much smaller awards than the amounts claimed. He gave them 60% of their costs. They appealed, seeking 100% of their costs. By a majority the Court of Appeal allowed their appeal. In her judgment Smith LJ explained why the earlier decision in Painting was distinguishable from the circumstances of that case:

"72. The judge clearly thought that the claimants had won to a substantial extent otherwise he would not have awarded them any costs but he thought that they had not succeeded altogether because they had not recovered as much as they had contended for. That question is best considered under the rubric of CPR 44.3(4) which requires the judge to consider whether a party has succeeded on part of his case even though not wholly successful. It seems to me that that provision is designed to allow the judge to take into account on costs the fact that the losing party actually won on one (or more than one) issue in the case. I do not think it means that the judge can cut down the costs of the successful party merely because he has not done quite as well as he had hoped.

73. What amounts to partial success will be a matter of fact and degree and will be case-sensitive. The focus should be on the partial success of the losing party on an issue with costs consequences. The mere fact that the defendant has succeeded in keeping the damages down below the sum claimed by the claimant will not necessarily make him the victor or even a partial victor. Of course, where, as in Painting, the main issue in the case was whether the claimant had grossly exaggerated the claim and that issue had important costs consequences, it will be open to the judge to hold that the defendant was the victor. But if the claimant's exaggeration was no more than to put his case rather high, it does not seem to me that a defendant who has not made an effective and admissible offer can be regarded as the victor. I would accept that exaggeration by a claimant may be taken into account as 'conduct' under CPR 44.3(4)(a). However, for a defendant to regard himself as a winner or even partial winner on an issue of exaggeration, the exaggeration must be an important feature of the claim with costs consequences."

31. There is obviously a danger in over-categorising cases of this sort. The discretion in each case falls to be exercised having regard to the particular facts and circumstances of the case. But the two decisions I have referred to draw a clear and justifiable distinction between a case where the claimant fails to make out the full measure of the claim and one where the outcome of the proceedings largely turns on a particular issue or issues on which the defendant is clearly the loser.
32. In a case such as the present, where the real dispute is confined to a claim for special damages which the judge finds to have been exaggerated and is therefore either dismissed or abandoned, that will normally be a central if not decisive consideration in determining who should pay the costs attributable to litigating that issue. The fact that the defendant has failed to make an effective Part 36 offer at or soon after the interim payment order is not in my judgment an answer to the argument that most if not all of the costs which followed were attributable to the disputed claim for care and attention. This was the justification for the claimant's Part 36 offer made in January 2007 and for the issue of the proceedings in March of that year. The dispute would obviously have been settled at the figure eventually agreed upon had the claimant not persisted in her exaggerated claim.
33. This is therefore in my judgment a case in which the exaggerated and unsuccessful claim for special damages had real costs consequences for which the claimant should be made liable. Although the appeal is against the exercise of a discretion, I think that Mr Cox is right in his submission that the Recorder failed properly to recognise and give effect to the importance of his finding about the defendant's conduct and was wrong to regard it as only a partial answer to the claimant's case based on her apparent success in the action. The real winner was the defendant. Had the disputed element of special damages not been included in the November 2005 schedule, the claim would have been settled without the need for proceedings. Instead of an agreed interim payment of £15,000, the money would have been paid to the claimant in satisfaction of her claim and any further costs would have been avoided.
34. For these reasons, I would allow the appeal and order that the defendant should pay the claimant's costs up to 13 April 2006 but that the claimant should pay the defendant's costs thereafter.

Lord Justice Toulson: I agree

Order: Appeal allowed

LORD JUSTICE TOULSON: Have you, in accordance with the normal direction, prepared a schedule for a summary assessment?

MR COX: Yes.

LORD JUSTICE TOULSON: Good, where is it? (judge handed a copy) Thank you very much.

LORD JUSTICE PATTEN: I am sorry. I haven't had a chance to look at this. This is just the costs of the appeal?

MR COX: It is, my Lord. There were very substantial costs below. My suggestion is that I am not…

LORD JUSTICE PATTEN: You are not asking us to make any assessment of…

MR COX: No, there will be significant issues over these. These are just the costs of the appeal.

LORD JUSTICE TOULSON: It's not a huge sum of money, but "Counsel's fees handing down judgment". What judgment is that talking about?

MR COX: My Lord, that is a fee of one of our junior colleagues who attended before the Recorder when judgment was handed down so that we could ask for permission to appeal.

LORD JUSTICE TOULSON: That's part of the costs of the trial, isn't it?

MR COX: I suppose, strictly speaking …

LORD JUSTICE TOULSON: That's the judgment in the trial?

MR COX: Yes, it is.

LORD JUSTICE TOULSON: Right, so that comes off the appeal costs.

MR COX: We will make sure that we claim that cost, yes. To be fair I think this document has been prepared in such a way as to show all the additional costs since the last schedule, which is why it has been included, but I take your Lordship's point it was …

LORD JUSTICE TOULSON: What was the date of the judgment?

MR COX: The judgment was handed down on 24 October of 2008

LORD JUSTICE TOULSON: We have got a bit of a problem there because you have got "attendances on clients" etc etc from 9 September.

MR COX: That was the date of the hearing.

LORD JUSTICE TOULSON: Yes, I follow that but… yes, well, it may be that one will just have to make an arbitrary cut-off.

MR COX: My Lords, given that the effect of the success of the appeal will be that we will be getting those costs in any event provided that we undertake not to claim any costs in the detailed assessment below before 9 September, would it not be appropriate to ask your Lordships rather than taking an arbitrary point just to say assessment of costs as well?

LORD JUSTICE TOULSON: I see the common sense of that. Right.

MR COX: I don't know whether your Lordships will have a copy of the respondent's schedule.

LORD JUSTICE TOULSON: No.

MR COX: The profit costs of the solicitors are much reduced. They obviously didn't have to do… make the running as it were with permission to appeal and bundles and the like. Counsel's fees are significantly in excess of those claimed.

LORD JUSTICE TOULSON: Yes.

MR NAYLOR: Your Lordships, if it assists, save for the counsel's fees in relation to handing down judgment, so far as the rest of the costs are concerned I have no instructions to agree the costs but I have no observations on them.

LORD JUSTICE TOULSON: No that's very fair When were they exchanged?

MR COX: The schedules?

LORD JUSTICE TOULSON: Yes.

MR COX: I think ours were served within seven days.

LORD JUSTICE TOULSON: So they have had an opportunity to consider them.

MR COX: Yes.

LORD JUSTICE TOULSON: OK. (judges confer) Yes? Well it's slightly unorthodox to include in the costs that we are assessing costs which are actually strictly not appeal costs but Dr Naylor says he doesn't take any point about that. It is, as you say, as broad as it is long and so we will deal with the matter on the basis you have indicated: that's to say you are undertaking not to seek (inaudible)

MR COX: Yes of course

LORD JUSTICE TOULSON: And the figures appear reasonable on the face of them and therefore we will summarily assess the costs of the appeal in the sum shown, which is £8235.

LORD JUSTICE PATTEN: Would you be able to agree a minute of the order?

MR COX: Yes, of course, my Lord

LORD JUSTICE PATTEN: I think that's going to be easier than trying to do it through the Court of Appeal.

MR COX: I will certainly do something in manuscript and hand it to your…

LORD JUSTICE PATTEN: Yes, you can e-mail to the court tomorrow if that's more convenient.

LORD JUSTICE TOULSON: Right. Well we're grateful for (inaudible) late. Thank you very much.