England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
HHJ SEYMOUR QC
7CB01145

		Royal Courts of Justice Strand, London, WC2A 2LL
		23 November 2009

Lord Justice Ward:

1. On 28th November 2008 His Honour Judge Seymour Q.C., sitting as a judge of the High Court, assessed the claimant's damages for personal injuries in the sum of £5,522.38 plus interest agreed at £355.33 but he nonetheless ordered the claimant to pay the defendant's costs of the action to be assessed on the standard basis if not agreed. The claimant now appeals against the award of costs against her.
2. The claimant, Miss Martine Widlake, was employed by BAA Ltd, the defendant, as a security guard at Stansted Airport. On 12th July 2004 she was undertaking a foot patrol in the baggage reclaim area of the airport and began to descend a staircase leading to an emergency exit when she lost her footing and fell 12 or 13 steps down the staircase. It was common ground that what caused her to lose her footing was a loose rider immediately below the top step. She brought a claim for damages for personal injury and liability was not disputed.
3. As a result of that fall she sustained bruising to her back, her buttocks, her legs and thighs, knees and elbow. The bruising to her arm settled within about a week of the accident. The bruising to the shin and ankles caused some discomfort on walking for about a week after the accident but resolved uneventfully. The right thigh was "black and blue" for about six weeks after the accident and caused her discomfort and disturbance of her sleep which persisted for about two months. The bruising to her back resolved itself but she contended that she continued to suffer low back pain.
4. There was a lively dispute about the consequences of that injury. The defendant accepted that the claimant had suffered aggravation for about twelve months of pain in her lower back referable to degenerative changes which existed prior to the accident. It was contended on behalf of the defendant that the appropriate compensation for pain and suffering and loss of amenity in respect of the injuries which BAA accepted was £3,250. Her case, on the contrary, was initially that she had sustained continuing pain to her right sacroiliac joint solely as a result of that fall. By the time of the commencement of the trial, her case was that the deterioration in the condition of her lower back, which it was by then accepted was inevitable even without the supervening accident, had been brought forward by 5 years as a result of the fall. She contended that the pain she was experiencing by the acceleration of the pre-existing degenerative changes justified an award of £11,000 for pain and suffering and loss of amenity.
5. There was also an issue as to the level of special damages. On her case, as set out in her third schedule of loss dated 16th October 2008, she had lost £23,906.40 but, on the defendant's case, the value of that claim was only £2,022.38.
6. Thus the judge identified the issues as follows:

"11. The important issues for determination at the trial were thus, first, whether the effect of the accident on Miss Widlake's back was simply to aggravate the pain resulting from pre-existing degenerative changes for about 12 months or to advance the inevitable deterioration in the pre-existing low back problem by about 5 years; and, second, the extent of the pain which Miss Widlake actually suffered between the days of her accident and the end of the period which I find is that over which the pain in the back was aggravated or by which the inevitable deterioration in her condition was advanced."

7. As is to be expected, there was considerable attention devoted at the trial to the extent of the claimant's suffering. The experts, Mr Macfarlane for the claimant, and Mr Karpinski for the defendant, were agreed that "the claimant had a significant pre-accident history of lumbar symptoms. The medical records refer to severe back pain radiating to the right leg in 1999. There is a reference to right lumbar back in 2001, and sacroiliac joint pain in 2003." The unusual feature of the case lies in the fact that Mr Macfarlane was not the first consultant to have been retained on behalf of Miss Widlake in connection with her claim for compensation for these injuries. The first consultant was Miss Porter, who saw her on two occasions and prepared two reports and wrote two letters relevant to the case, all of which material was relied on in the particulars of claim and put in evidence. In her first report dated 15th March 2005 Miss Porter recorded that:

"She reports no past history of low back pain and this is confirmed by review of the records. There is no other relevant past history."

In her second report dated 8th February 2006, she confirmed that:

"Ms Widlake's past medical history was covered in my previous report. She tells me she has had no medical problems other than those relating to the accident since my last examination."

Even when the claimant saw Mr Macfarlane on 23rd January 2008 he was told:

"There was no low back problem prior to the index accident."

8. As one would expect, Miss Widlake was cross-examined, and, having admitted that Mr Macfarlane has accurately recorded her recollection, she proffered the explanation that she had forgotten that she had had lower back pain previously.
9. When she was seen by Mr Karpinski on 7th December 2007 she gave him a broadly similar account of her symptoms as she was to give Mr Macfarlane on 23rd January 2008. Both surgeons addressed the possibility of "illness behaviour", that is a patient describing symptoms for the presenting condition for which there is no organic cause in the condition in question and they tested that by the presence of the so-called "Waddell's signs". Mr Karpinski found none, but Mr Macfarlane did find evidence of illness behaviour. Mr Karpinski's conclusion was:

"I therefore believe that Miss Widlake's injuries from a jarring of the lower back would have largely settled over a period of some twelve months post-injury."

Mr Macfarlane's conclusions were:

"Chronic pain is a debilitating condition and, in my opinion, there is evidence of illness behaviour although it is difficult to exclude malingering on the basis of a single consultation, I think she does have genuine symptoms emanating from the sacroiliac joint and any exaggeration is likely to be unintentional … Whilst accepting that there is no scientific basis upon which to base such estimations [as to when she would have suffered a relapse of her previous problems], I think a reasonable estimate would be an acceleration period of around 5 years."

10. In April 2008 the claimant was covertly filmed on behalf of the defendant and it seemed to the judge that "during all these activities … Miss Widlake was acting completely normally, as if she had no pain or disability."
11. The experts agreed that the surveillance video did not show any evidence of overt disability. Her explanation was that she took pain killers on a daily basis 4-5 times a day and had taken them shortly before she was filmed. The experts were not entirely agreed as to whether the claimant was deliberately exaggerating her disability as Mr Karpinski suggested or whether the difference in mobility could be accounted for by her having taken analgesics.
12. Miss Widlake's own evidence shifted. In her first witness statement prepared for the purposes of the action on 4th October 2004, she did not say much about the effects of her fall slightly less than three months earlier saying that the pain interfered with her keep fit exercises, and that she found it difficult to bend and therefore to do her work properly. That account indicated consequences considerably less serious than those later reported to Mr Karpinski and Mr Macfarlane. What the judge described as a "rather more dramatic account" was given by her in her second statement dated 14th December 2007 which recorded permanent feelings of cramp and stabbing pains every few minutes with resultant considerable interference with her daily life.
13. The shape of her claim also altered. In the first schedule of loss compiled on her behalf dated 6th June 2007 and in the second dated 16th August 2007 claims were made for loss of earnings as a security guard for the rest of her working life, that loss being put at £148,878.02. That claim was, however, modified in her third schedule dated 16th October 2008 to reflect the medical opinion and to claim a loss for a period of five years from the accident assessed at £23,906.40 as I have already set out.
14. The defendant paid £4,500 into court pursuant to CPR Part 36. The payment was made on 2nd July 2008, by which time the covert surveillance had been conducted, and the experts were in between their two meetings to reach their common ground which they did on 5th August 2008. The trial took place on 6th, 7th and 10th November 2008. No further payment in was made. No counter-offer was forthcoming.
15. The judge made these findings:

"52. I was not impressed by Miss Widlake as a witness. I considered her explanations offered in cross-examination on the important issues of why she had not disclosed to Miss Porter and Mr Macfarlane the previous history of her back problems and why she appeared to be acting perfectly normally in the extracts from the film which were put to her to be implausible. The truth of the matter, as I find, is that, while she did injure her back in a fall on 12th July 2004, the consequences were comparatively minor, as indicated by the first account contained in her witness statement dated 4th October 2004, which contain no reference to the sort of pain later described, made no reference to taking any drugs at all, and seemed to limit the consequences of the injury which endured to interference with keep fit exercises, the inability to use her cross-trainer, and not being able to bend at work to carry out body searches. I find that Miss Widlake, who was obviously a person of reasonable intelligence, deliberately concealed the previous history of her back from Miss Porter and then from Mr Macfarlane, in the hope of increasing the amount of compensation which she would recover in respect of her injuries in the accident on 12th July 2004. …"

16. The judge also said that whilst he was very impressed with Mr Macfarlane as a witness, in the end he did not feel able to accept his opinion as to the consequences for Miss Widlake of her injury because he differed from him on a matter which was uniquely within his [the judge's] province, namely the assessment of the evidence of Miss Widlake.
17. In the result, on the basis that the injuries would have resolved within 12 months of the accident, he assessed the quantum of damages for pain and suffering and loss of amenity at £3,500 and her loss of earnings, about there was no dispute, at £2,022.38. He was not satisfied she had suffered any other loss.
18. The judge then had to deal with the costs of the action. He repeated his findings that Miss Widlake had deliberately concealed her history of low back pain from Miss Porter and also from Mr Macfarlane "in the hope of increasing the amount of compensation which she would recover". He said that he had "in effect … accepted the position adopted by the defendant in the counter-schedule as to what it is that Miss Widlake is entitled to compensation for". He took account of the fact that the defendant had paid £4,500 into court and added that "obviously Miss Widlake has succeeded in obtaining judgment for a sum in excess of that". He recorded that it was "a feature of this case that Miss Widlake did not make any counter proposals to the Part 36 payment, and indeed she made no attempt … to negotiate in relation to the settlement of the claim, notwithstanding that liability was never in issue." He referred to decisions of this Court in Molloy v Shell UK Ltd [2001] EWCA Civ 1272 and to Painting v University of Oxford [2005] EWCA Civ 161 and concluded:

"13. It is plain, in my judgment, that the real winner of the trial before me was the defendant. The issues were whether Ms. Widlake suffered the back pain of which she complains to the extent to which she complained, and whether, as a result of suffering from such back pain, she had been disabled in the way that she complained and had the consequences of her low back pain brought forward for the period of five years, which I have mentioned. Ms. Widlake's case, in my judgment, is a rather more serious case than it appears that either of the cases of Molloy or Painting were, because in Ms. Widlake's case, it is plain, on the evidence, and I have found, that Ms. Widlake set out first of all to mislead her own medical experts. So it was not a case in which she was complaining merely of symptoms which were exaggerated. She deliberately withheld from her own medical experts material information as to her previous medical history. This case, in my judgment, is material because it amounts to an attempt – taking the words of Laws L.J. in Molloy – to manipulate the civil justice system. Not only that, but Ms. Widlake, in my judgment, who plainly knew at all material times what the effects upon her back of falling down the stairs had been, exaggerated them grossly in order to project a case of having suffered symptoms which, even on her latest revised case, were being brought forward by some five years, but which in fact, on my findings, as I have explained in my judgment, amounted to very little and resolved itself almost certainly within a few weeks of the date of the accident.

14. Although the figures in this case have been smaller than the figures which the Court of Appeal had to consider in the case of Molloy, and indeed smaller than the figures which the Court of Appeal had to consider in the case of Painting, the approach, in my judgment, has been to seek, so far as Ms Widlake is concerned, to manipulate the civil justice system on a grand scale, and although it appears that there has not so far been any decision – certainly my attention has not been drawn to any decision – in which the suggestion of Laws L.J. in Molloy has been adopted, in this case it seems to me that it is appropriate to adopt that suggestion and the consequence of setting out, as I find, to abuse the court's process, in the cynical and dishonest fashion which I have found Ms. Widlake did, should have the consequence, notwithstanding that she has recovered damages in excess of the amount which was paid into court on behalf of the defendant, that contrary to her recovering her costs she should pay the costs of the defendant."

19. The Civil Procedure Rules are by now well enough known. The overriding objective is to deal with cases justly. The court encourages parties to settle the whole or part of the case. Part 36 contains the rules about offers to settle and the consequences where an offer to settle is made in accordance with that Part. Relevantly for our case, if a claimant fails to obtain a judgment more advantageous than the defendant's Part 36 offer, then the court will, unless it is unjust to do so, order that the defendant is entitled to his costs and interest on those costs: CPR 36.14(2). Interestingly, and quite clearly as an encouragement to the claimant to make a Part 36 offer, he can recover interest up to 10% above base rate on any sum of money awarded to him, costs on the indemnity basis and interest on those costs not exceeding 10% above base rate if the judgment against the defendant is at least as advantageous to the claimant as the proposals in the claimant's Part 36 offer: CPR 36.14(3).
20. The general rule about costs is contained in Part 44 and CPR 44.3 sets out the circumstances to be taken into account when the court is exercising its discretion as to costs. The general rule is that the unsuccessful party pays the costs of the successful party but the court may make a different order in deciding what order (if any) to make: CPR 44.3(2). The court has regard to all the circumstances including conduct, success even on part of the case, and any payment into court or admissible offer to settle even if not an offer to which the costs consequences under Part 36 apply: CPR 44.3(4). Conduct includes conduct before as well as during the proceedings, whether it was reasonable to raise, pursue or contest a particular allegation or issue, the manner in which that was done and, relevantly for this case, "whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim": CPR 44.3(5). The orders the court can make are, among others, that a party pays but a proportion of the other's costs or a stated amount of those costs or costs from or until a certain date only or costs relating to particular steps or distinct parts of the proceedings: CPR 44.3(6).
21. It is obvious from the moment one sees that all the circumstances of the case must be taken into account when the Court exercises its discretion as to costs that every case will depend upon its own facts and that a close analysis of the facts of decided cases may not be very enlightening. But some points of principle may emerge. Judge Seymour was much influenced by Molloy v Shell UK Ltd [2001] EWCA Civ 1272 decided on 6th July 2001. That was a claim for damages for personal injury. Liability had been conceded. The defendant appealed against the order that it should recover 75% of its costs incurred after the date of a Part 36 payment made by it. In his schedule of loss the claimant claimed some £68,000 for past losses and some £232,000 for future loss of earnings from his employment working on the oil rigs. But a few days before the trial the defendant discovered that the claimant had indeed returned to work as scaffolder on the oil platforms some 3 years previously. It was "entirely plain that the claim had been grossly and deliberately exaggerated by him", and "his particulars of claim were spectacularly dishonest," per Laws L.J. giving the judgment with which Mummery LJ agreed.
22. It seemed to Laws LJ obvious that the claimant did not better the payment into court but even if that was wrong there was only one way in which the judge's discretion as to costs could properly have been exercised and that was to award the defendant its costs. But he added obiter:

"The judge was obliged by Part 44.3(5) as I have said, to consider the whole of the party's conduct. It does appear that he may have considered the respondent's conduct only after the date of the Part 36 payment. If that is so he fell into error. At least since the particulars of claim filed on 20th September 1999 and until he was found out the respondent's approach to this action has been nothing short of a cynical and dishonest abuse of the court's process. For my part I entertain considerable qualms as to whether, faced with the manipulation of the civil justice system on so grand a scale, the court should once it knows the facts, entertain the case at all save to make the dishonest claimant pay the defendant's costs."

23. Molloy must, however, be read in the light of Shah v Wassim Ul-Haq [2009] EWCA Civ 542 decided on 9th June 2009. There the issue was whether it was appropriate to strike out a genuine claim on the ground that the claimant had been involved in a fraud on the court in respect of an associated claim. The defendant Mrs Shah had negligently driven her motor car into the rear of Mr Ul-Haq's vehicle. He claimed for the damage to his car and he and his wife claimed that they had suffered minor whiplash injuries. But his mother also alleged that she had been in his car and had suffered a whiplash injury. The recorder held that was simply untrue. Mr Ul-Haq and his wife had conspired with his mother to support her fraudulent claim. Her claim was accordingly dismissed with costs awarded on an indemnity basis. At the end of the trial the recorder was invited to strike out Mr Ul-Haq's claim but declined to do so. He awarded him and his wife damages and directed that each should pay two thirds of Mrs Shah's costs of defending the claim. Mrs Shah appealed against the refusal to strike out the claim, impressing upon the court the gravity of the situation which faces insurance companies who have to contend with false claims. Smith L.J. gave the leading judgment. She said:

"17. I am satisfied that there is no such general rule of law [that the dishonest exaggeration of a genuine claim would result in the dismissal of the whole claim]. I am unaware of any reported case in which a judge has dismissed the whole of a claim because he has found that the claim has been dishonestly exaggerated. The invariable rule is that, in those circumstances, the judge awards the limited damages which are appropriate to his findings. Of course, a claimant's credibility may be so damaged that he fails to prove any part of his loss, but if he proves some loss, he recovers that even though he has fraudulently attempted to recover far more. Not only am I unaware of any reported case in which this rule has not been followed, my own long experience of personal injury work at the Bar and on the bench confirms this view. I have, I regret to say, considerable experience of exaggerated claims. Of course, not all exaggerated claims entail dishonesty; sometimes exaggeration can be innocent, resulting from a subconscious preoccupation, even obsession, with the injury. Judges are always careful to take account of such effects when assessing damages. But there are some cases where the exaggeration is plainly dishonest. In nearly 40 years' experience, I have never known a judge refuse to award damages for a genuine injury on the ground that the claimant had dishonestly sought to exaggerate the injury and its effects.

18. The only suggestion that it might be possible to refuse to award any damages at all where the claim has been exaggerated came in the obiter dicta remarks of Laws LJ in Molloy v Shell UK Ltd [2001] EWCA Civ 1271. …"

My Lady then gave a résumé of Molloy and set out the paragraph in that judgment cited above at [222]. She then continued:

"Thus, when seen in context, all Laws LJ was saying was that, where a genuine claim was dishonestly exaggerated on a grand scale, maybe the court should dismiss the whole claim. He did not consider whether there was power to do that or whether such a course would be consistent with existing authority or practice. In my respectful view, this was little more than wishful thinking by Laws LJ."

She had some sympathy for the insurance companies, observing that "their real problem with phantom passengers and staged accidents is detecting the frauds in the first place". The law was, however, too well-settled to change it by judicial intervention. In his concurring judgment Toulson L.J. suggested that if fraudulent claims have reached epidemic proportions, it may be that prosecutions are needed as a deterrent to others.

24. The other case to which Judge Seymour referred was Painting v University of Oxford decided on 3rd February 2005. This was another personal injuries claim in which the defendant admitted liability and admitted 80% responsibility for the accident. The claimant put the value of her claim at £500,000 which, less the 20% contributory negligence, would have given her judgment for £400,000. In fact, she only recovered some £32,000 less 20%, i.e. just over £25,000. The defendant had originally paid into court the sum of £184,000 but on seeing video surveillance evidence which undermined her claim, that payment was reduced with leave of the court to £10,000. So the claimant beat the relevant payment in and although the defendant contended that the claim was exaggerated, the recorder ordered the defendant to pay all the costs. The University appealed. The recorder was satisfied that the claimant had exaggerated her injuries and the Court of Appeal was satisfied he had taken that into account. Maurice Kay L.J. was of the view that the two day hearing was concerned overwhelmingly with the issue of exaggeration and the University won on that issue. Moreover, two further points called for the affording of considerable weight by the recorder which he had not given:

"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 put forward a counter-proposal to the Part 36 payment. No-one can compel a claimant to take such steps. However, to contest and lose an issue of exaggeration without ever having made a counter-proposal is a matter of some significance in this kind of litigation but must not be assumed beating a Part 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."

25. He did however also make this observation:

"What the University chose to do was to make a Part 36 payment which amounted to a rock-bottom figure even on the basis that it established exaggeration to the maximum extent.  If it had chosen to do so, it could have pitched the payment higher without for a moment weakening its position on the central issue in the case."

26. In his concurring judgment Longmore L.J. considered that a distinction should be drawn between intentional exaggeration and unintentional exaggeration. The fact that the exaggeration was intended and fraudulent was a very important element which needed to be addressed in any assessment of costs. But he too agreed that it was relevant that the claimant had made no attempt to negotiate, made no offer of her own and made no response to the offers of the University.

"That would not have mattered in pre-CPR days, but to my mind, that now matters very much. Negotiation is supposed to be a two-way street and the claimant who makes no attempt to negotiate can expect, and should expect, the courts to take that into account when making the appropriate order as to costs."

In the event the appeal was allowed and the claimant was ordered to pay the defendant's costs on the standard basis up to the date of the reduced payment in and on an indemnity basis thereafter.

27. Counsel placed a number of other authorities before us. The next in point of time was Jackson v Ministry of Defence [2006] EWCA Civ 46 decided on 12th January 2006. In that personal injury claim £150,000 was paid into court but the claimant recovered £155,000 and the judge ordered the defendant to pay 75% of the claimant's costs. The defendant appealed. The judge had decided that when the claimant gave his evidence there was a significant degree of exaggeration. There the attempt was made on the defendant's behalf to contend that, as in Painting, the defendant was the successful party because the whole trial was about whether the claimant had exaggerated his claim. Tuckey L.J. with whom Keene and Wilson L.JJ. agreed, held:

"15. Persuasively and persistently though these submissions were put, I do not accept them.  The claimant was successful in the sense that he established a claim for substantial damages and beat the payment into court, albeit by a small margin.  The defendant was perfectly able to protect itself against the fact that it faced an exaggerated claim.  As most defendants do in such circumstances, it had access to experienced lawyers and, if necessary, experts to evaluate the strength of the claim it faced.  It could with the benefit of such advice – and perhaps with the benefit of hindsight in this case should have – made an earlier Part 36 payment into court, and certainly could have increased that payment into court by making a further payment after the unsuccessful settlement meeting.  The judge took into account the fact that the claimant had only just beaten the payment in which had been made, as I have already said.  What is more, the judge made it clear that it was open to the defendant to challenge specific items relating to the abandoned claims, such as the costs of the experts which were not relied on at trial, at the detailed assessment, where of course the claimant will only be able to recover costs which were reasonably incurred.  ...

16. The reduction which the judge made - and the reduction which we can anticipate the costs judge is likely to make - must act as a considerable disincentive to claimants and their advisers against making exaggerated claims.  The case of Painting is, as Miss Griffiths accepted, an exceptional case where the claimant persisted in a claim for £400,000 at trial and was awarded about £25,000 at the end of the process."

The appeal was dismissed.

28. In Hall & ors v Stone [2007] EWCA Civ 1354, dated 18th December 2007, the claimants recovered damages for personal injuries suffered after a road traffic accident. The judge awarded them only 60% of their costs and they appealed submitting that there was no reason why they should not get 100%. The judge had acquitted the claimants of dishonesty and found that they had suffered injuries caused by the accident but found some exaggeration in that the injuries were much less serious than the claimants were alleging. Smith L.J., with whose judgment Lloyd L.J. agreed, Waller L.J. dissenting, held that the claimant was the successful party, having recovered damages in the face of a defence which asserted they were not entitled to a penny. There was no Part 36 offer. It was not a case such as Painting in which a defendant could claim to have won on such an important issue that he could properly regard himself as the victor even though the claimant had beaten the Part 36 offer. In Painting:

"the issue of exaggeration had been central to the case and the claimant had lost. Here the central issue of dishonest fabrication of symptoms had been resolved in the appellants' favour. The question of whether they had exaggerated (as opposed to fabricated) their symptoms was secondary. In any event the appellants were acquitted not only of dishonest fabrication but also of conscious exaggeration."

She did not think that a judge could cut down the costs of a successful party merely because he has not done quite as well as he had hoped. She added:

"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.

…

77. However, even if there were either a finding or an irresistible inference that the claimants had lied or exaggerated their symptoms to the first set of doctors, whether consciously or unconsciously, I do not think that would warrant any abatement of their costs.  …

79. Nor does it appear to me that the initial exaggeration of the claims had any real effect on the costs of the action.  The early medical reports were abandoned – so the claimants ought not in any event be entitled to recover the costs of obtaining them – but they were replaced by Mr Older's reports and would not have played any part in the hearing had the respondent's counsel not chosen to use them against the claimants on issues of credibility."

Exercising discretion afresh, Smith L.J. ordered the defendant to pay all the costs with the exception of the costs attributable to the first set of medical reports.

29. In Straker v Tudor Rose [2007] EWCA Civ 368, dated 25th April 2007, the defendants had made a Part 36 offer before the commencement of the proceedings and soon after the commencement had paid £9,000 into court under Part 36. The judge awarded over £11,000 and £2,000 of accrued interest. Despite beating the payment in the claimant was only given costs limited to pre-action costs and no costs thereafter. The claimant's appeal was allowed and he was awarded 60% of his costs. Waller L.J. did not gain much assistance from the authorities cited to him, save in so far as they laid down clear principles and urged that it was to the rules that one should go. He agreed with what Longmore L.J. had said in Barnes v Time Talk UK Ltd [2003] EWCA Civ 402 para 28 that "the most important thing is to identify the party who is to pay money to the other". But in considering whether factors militating against the general rule apply, clear findings are necessary to show for example that the successful party unreasonably pursued an allegation so as to deprive that party of what would normally be an order for costs in his favour. Unreasonableness or dishonesty, like exaggeration, can very properly lead to punitive orders though on the facts of that case, that was not established. The Court of Appeal awarded the claimant his costs but marked its disapproval of the claimant's failure to comply with the pre-action protocol by reducing his costs by 40%.
30. Bearing in mind Waller L.J.'s strictures in Straker that not much assistance can be gained from fact-sensitive decisions absent point of principle, I do not gain any assistance from Morgan v UPS [2008] EWCA Civ 1476 dated 11th November 2008.
31. The seminal textbook on costs is, of course, Cook on Costs and His Honour makes this useful observation in paragraph 11 of 11.12 of the 2009 edition:

"Although exaggeration of a claim cannot of itself deprive the claimant of his entitlement to costs, it is relevant to consider whether the exaggeration has caused costs to be incurred which would not have been incurred had there been a more realistic evaluation of the claim. "A claimant should be prima facie entitled to his full costs of preparing and presenting his claim. The Board of Assessment's discretion to reduce the award from the payment of full costs should be exercised judicially. If it holds that the claim was grossly excessive it is necessary for the Board then to enquire whether the exaggeration gave rise to an obvious and substantial escalation in the costs over and above those which it was reasonable for the claimant to incur. If it is satisfied that this was the case, then it is open to the Board to exercise its discretion to deprive the claimant of part of his costs. The amount of departure from full payment of the plaintiff's costs shall be proportionate, having regard to the waste of time and costs properly attributable to the claimant's acts or omissions": Blakes Estates Ltd v Government of Montserrat [2005] UKPC 46, [2006] 1 WLR 297."

32. I can broadly summarise the submissions made to us in this way. For the appellant, Mr Guy Sims submits that the judge was wrong to rely on Molloy; in so far as the claim was exaggerated, costs should be disallowed only in so far as they were attributable to the exaggeration; the defendant should have protected itself by using Part 36 to make a better offer than the judgment which the claimant could have obtained at trial; the effect of the order is to penalise the claimant disproportionately, bearing in mind she had, and was entitled to bring, a genuine claim for damages and, at least at the trial, had presented her case realistically. Thus he contends that the defendant should pay the costs because the claimant recovered more than had been offered and that any exaggeration should be reflected in a reduction of the proportion of costs she should be entitled to recover. Mr Alex Glassbrook, for the respondent, submits that the claimant's exaggeration permeated both the question of whether there was acceleration of back pain by five years or an aggravation of the pre-existing degeneration in the back by 12 months and the extent of the pain which she had suffered during the material period; this was deliberate exaggeration which justified a punitive order for costs; since the claim was not reduced until three weeks before the trial, the costs consequences of the exaggeration endured throughout and, bearing in mind there was no offer to settle, the court should mark its disapproval as the judge did. We should not interfere with that exercise of discretion.

Discussion

33. Costs being at the discretion of the judge, this Court will not interfere unless the judge has misdirected himself and was guilty of an error of principle or he has taken into account, or failed to take into account, of a fact which should not, or should, have been taken into account or he was plainly wrong in the sense that he has exceeded the generous ambit within which there is reasonable room for disagreement.
34. Here I am satisfied that Judge Seymour did misdirect himself in finding that this case is "a rather more serious case" than Molloy. Mr Molloy was claiming a loss of earnings when for 3 years or more prior to the trial he had been fully employed on the oil rigs and there was, therefore, every reason to find that he was "spectacularly dishonest". Here Miss Widlake lied to Miss Porter and to Mr Macfarlane. Mr Macfarlane was not taken in by the lie because he had access to her medical records as did Mr Karpinski. So although the claim was advanced in August 2007 on the basis of Miss Porter's report, the defendant knew the truth from December 2007 on receipt of Mr Karpinski's report. Thereafter there was disagreement between the medical experts as to the consequences of the injury and no criticism was made of Mr Macfarlane for holding his obviously honest professional opinion that there was five years' acceleration even if the judge found against him because he did not accept the claimant's evidence. This case does not approach the scale of Mr Molloy's dishonesty. The judge erred in characterising the claimant's actions as an attempt to manipulate the civil justice system on a grand scale tantamount to an abuse of the Court's process. Furthermore, the views of Laws L.J. in Molloy have been doubted in Shah v Ul-Haq and henceforth Molloy should be treated with considerable caution. To be fair to Judge Seymour, I must point out that Shah was decided after he had given his judgment. Since Molloy was considered to be a "useful" illustration in Painting, it may have had some influence on that decision. Be that as it may, I am satisfied that the judge misdirected himself and for that reason alone, I would allow the appeal. It is, therefore, necessary for this Court to exercise its own discretion.
35. I agree with Waller L.J. in Straker that one must go to the rules and apply the approach which the rules prescribe.
36. Thus the first question is to determine which was the unsuccessful party. There may appear to be some difference in the approach of this Court if one compares Painting with Jackson or Hall and I hope I can reconcile those differences. I prefer the approach of Tuckey, Keene and Wilson L.JJ. in Jackson that the claimant was successful in the sense that he had established a claim for damages and beaten the payment into court. Although it was a case set in a commercial context, Waller L.J. was surely right in Straker to endorse Longmore L.J.'s views that the most important thing is to identify the party who is to pay money to the other even in a case of personal injury. The claimant had to come to court to establish her claim, a genuine claim, because she had suffered an injury through the admitted negligence of the defendant. The judgment in her favour is a vindication of her stance.
37. The authorities which I have analysed deal with exaggeration as an "issue" in the case. I do not for a moment suggest that the question of exaggeration was not a proper and important consideration for the court in the exercise of its discretion and, having been given a steer in this direction by Waller L.J. in Straker, I find it useful to look at the rules to see how it fits into the analysis offered by the rules. The umbrella to cover it may be CPR 44.3(4)(a). That requires the court to have particular regard to the conduct of the parties and conduct is defined at 44.3(5) so as to include, at (b):

"whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue."

The rules draw a distinction between an "allegation" and an "issue" which I confess had not struck me until I read Waller L.J.'s judgment. At the risk of being pedantic, I think the cases can be reconciled by treating exaggeration as "an allegation" relevant to "the issue" of the quantum of damages.

38. So viewed, there may be no need to determine who has been the "winner" of a particular "issue". All the court needs to do is establish whether it was unreasonable for the claimant to pursue her allegation that she had suffered such pain (a) that it justified her case that her pre-existing condition was accelerated by 5 years and (b) that it was of the severity she described in support of her claim for general damages for pain and suffering. If it was unreasonable then that was conduct which the court had to take into account.
39. The way in which regard is to be had to that conduct is principally to enquire into its causative effect: to what extent did her lies and gross exaggeration cause the incurring or wasting of costs? It is obvious that she should recover nothing in respect of the reports she obtained from Miss Porter and the costs judge would disallow anything arising from that. On the other side of the balance sheet the defendant should have some compensation for the wasted costs incurred by having to consider those reports and to deal with the case on the basis that they formed part of the pleaded claim which it had to meet. The lie was short-lived: on receipt of its own medical report in January 2007 the defendant knew of the pre-existing injury and was able to judge how to run its own case. The defendant was able to protect itself by making a proper Part 36 offer. Nevertheless the schedule of loss before the court, and thus the case the defendant still had to meet, on paper at least, was one valued by the claimant in the sum of about £160,000. The defendant was entitled to protect itself against a claim of that magnitude or even a claim of some £35,000, which it became three weeks before the trial. The claimant was not treating it as a claim which should be measured at about £5,000. Small claims are not worth contesting, are not worth engaging enquiry agents to carry out covert surveillance and small claims are often not worth fighting and so are much more likely to settle. Here the defendant was put to expense arising out of the manner in which the case was unreasonably being conducted, certainly up until the final schedule of loss was served in October. Some compensation for the defendant put to the expense of defending such an exaggerated claim should be entered on the notional balance sheet.
40. Similar costs consequences apply if one considers the case under umbrella of CPR 44.3(5)(d) which is obviously the most appropriate rule in play. The court simply asks:

"whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim."

Here there was gross exaggeration as the judge found. That was, therefore, conduct to take into account in disapplying the general rule.

41. In addition to looking at it in terms of costs consequences, the court is entitled in an appropriate case to say that the misconduct is so egregious that a penalty should be imposed upon the offending party. One can, therefore, deprive a party of costs by way of punitive sanction. Given the judge's findings of dishonesty in this case, that may be appropriate here. I sound a word of caution: lies are told in litigation every day up and down the country and quite rightly do not lead to a penalty being imposed in respect of them. There is a considerable difference between a concocted claim and an exaggerated claim and judges must be astute to measure how reprehensible the conduct is.
42. Defendants are, therefore, used to having to cope with false or exaggerated claims. Defendants have a means of protecting themselves. Part 36 is that shield. The court may not now always attach the same significance to a defendant's failure to beat his payment into court as applied in the days before the CPR. Coming close can now sometimes have an impact on costs. But the rule remains that a defendant has this ability to win outright by making an offer which the claimant fails to beat and where, as here, the facts were well-known to this defendant from the time of Mr Karpinski's report, the fact that it did not make a sufficiently high Part 36 offer counts against it. The basic rule is that the claimant gets his (or her) costs if the defendant fails to make a good enough Part 36 offer so that goes to the claimant's credit on the balance sheet.
43. Part 36 now also affects a claimant. Whilst not obliged to make a counter-offer, in this day and age of encouraging settlement, claimants who do not do so run the risk that their refusal will impact upon the costs they may otherwise be entitled to recover. Here there was no attempt to negotiate and that counts against the claimant.
44. Having tried to represent these considerations in a balance sheet, where does the balance lie? I start with the claimant getting her costs because she beat the payment in and was the successful party. That is the starting point. Those costs should not include costs related to Miss Porter's reporting and the costs judge must be directed to exclude those matters. Pursuing her claim in the exaggerated way she did had the result that this became heavily contested litigation whereas it might have settled. The defendant has been put to unnecessary expense. But an order for costs against the claimant is less justified where, as here, the defendant failed to alleviate its predicament by making a proper Part 36 offer and so lost the opportunity provided by the rules of recovering those costs from the claimant. The claimant's dishonesty must be penalised. The claimant's failure to negotiate a claim which was clearly capable of being settled must also be recognised. When I balance those factors, and attempt to do justice to both parties and to be fair to them, I conclude that the right order in this case is that there be no order for costs.
45. I would therefore allow the appeal, set aside the judge's order and make no order for the costs below.

Lady Justice Smith:

46. I agree.

Lord Justice Wilson:

47. I also agree.