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Dominic Regan looks at how misconduct can influence the court into awarding more damages.
There has been a recent flurry of significant decisions where conduct, or frankly misconduct, has influenced the court. The conduct of the paying party is one of the five explicit issues that go to the dreaded proportionality of costs test. Conduct is also explicitly recognised under CPR 36.17(5)(d).
Normal Part 36 consequences can be abandoned where it would be unjust for them to apply. To this end, the court is compelled to consider ‘the conduct of the parties with regard to the giving or refusal to give information for the purposes of enabling the offer to be made or evaluated’. Yet again, there are sweeping powers under CPR 44.11(1)(b) to impose costs sanctions where the conduct of a party or their legal representative was unreasonable or improper. This applies to anything done before or during litigation, and to assessment proceedings too.
The Supreme Court looked at aggressive correspondence in the recent case of Times v Flood and others  UKSC 33. Delivering a unanimous judgment, the president of the court (at paragraph 71) highlighted material which militated against the defendant. ‘In addition, TNL suggested that Mr Flood would be likely to be financially ruined by the costs if he proceeded with his claim and lost, whereas TNL could easily take such a risk if it lost; the judge not unfairly described TNL’s approach as involving ”unsubtle threats” (para 20).’
He concluded: ‘Indeed, in my view the judge was entitled to regard TNL’s attitude in the open discussions and in the correspondence as a reason which militated against departing from the prima facie position, namely an unqualified costs order in favour of Mr Flood.’ A golden rule of litigation is never to write a word without thinking that one day what you say might end up being scrutinised by a judge. Here, five members of the Supreme Court reviewed the correspondence. Scary.
In Harrath v Stand For Peace Limited  EWHC 653 (QB), Mr Justice Eady pounced (in paragraph 13 of the judgment) upon solicitors’ correspondence (no doubt fired off on instructions from their client). This caused serious distress to the claimant and was plainly an aggravating factor. When will some solicitors learn that they are not ventriloquists’ dummies? It is the duty of a practitioner to curb the ravings of their client.
Incidentally, the case is interesting on another front. In a claim limited to £10,000, the highly experienced judge proceeded to award £140,000 in damages! The judge relied on CPR 16.3(7), which makes clear that the court is not constrained to only give judgment for the amount sought by the claimant. The claimant rightly and readily agreed to proffer any higher court fee payable that was commensurate with the award.
Yet another big decision this year was that of Lord Justice Jackson and Lord Justice Briggs in Thakkar v Patel  EWCA Civ 117. The claimant took proactive steps to arrange a mediation. The defendants ‘dragged their feet and delayed for so long that the claimants lost confidence in the process and closed it down’ (paragraph 27). This was unreasonable, and so the Court of Appeal upheld a tough costs order compelling D to pay 75 per cent of the costs of the claimant, despite the fact that C had failed to beat an offer made by D (paragraph 20).
The Court of Appeal again upheld an order penalising a defendant on account of conduct in Manna v Central Manchester NHS Trust  EWCA Civ 12. The trial judge had awarded the claimant indemnity costs for the final five months of the litigation. This was because she regarded the defendant as having taken an unreasonable stance as to the quantum of the claim. It was a clinical negligence action; and the case advanced by the defendant was found to have caused distress to the parents of the victim, and to have lengthened the duration of the trial. While there will always be a minority who seek to exploit and inflate claims, it is incumbent on the defendant to pick their fights carefully – and only proceed with sustainable arguments. Indemnity costs are excluded from the test of proportionality, and as such are highly desirable to say the least.
Yet another topical authority is Perry v Raley Solicitors  EWCA Civ 314, where the eight per cent judgment rate for interest was awarded on damages because the defendant (or their insurers) dragged out the proceedings, and unbelievably admitted breach of duty two days before trial. Worse, every conceivable defence was advanced.
Another fertile area for arguing conduct is in small claims. While the general rule is that legal costs, as opposed to disbursements, are irrecoverable, an exception is carved out under CPR 27.14(3). This empowers the court to assess by summary procedure costs that should be paid ‘by a party who has behaved unreasonably’. This issue has just been analysed by the Court of Appeal in Dammermann v Lanyon Bowdler LLP  EWCA Civ 269. The court refused to uphold an award of costs made against the losing party, since the claim was complex, and the judge who had ordered the appellant to pay had himself granted leave to appeal! The solicitors, who won outright at every turn, had also made an offer of £1,000 to see off the case.
This is not decisive when it comes to the test of unreasonableness. CPR 27.14 (3) declares that the act of rejecting an offer in settlement ‘will not of itself constitute unreasonable behaviour’, but it is a factor that the court may take into account. Obviously, Part 36 plays no part in small claims, as the measure is focused on costs benefits and burdens. Since costs do not form part of the regime, neither does Part 36.
By all means make offers without prejudice, since they can be germane to the issue of unreasonableness. But appreciate that there must be something more to pass the threshold. In Jago v Whibread Group plc , a decision of Master Whalen sitting in the Senior Courts Cost Office on 5 October 2016, the receiving party was heavily penalised for misguided impropriety in preparing a bill. An informal bill of costs claiming a tad over £100,000 was served in March 2015. It bizarrely included a success fee – perhaps because someone naively thought that you got one if you indeed were successful. The only slight problem was that no conditional fee agreement had ever been entered into.
Fully eight months later, a notice of commencement of detailed assessment was served, with a new bill set at about £10,000 less; yet still claiming a success fee, and at a higher level than before – even though the paying party had established from C that no CFA existed! Points of dispute generated a fresh bill of costs two months later. The defendant had merely requested a revision to the original bill. Now, the bill had plummeted by £40,000. Correspondence led to a further, amended bill being despatched. This saga provoked the paying party to make application under CPR 44.11(1) and (2), the measure described above which permits a conduct sanction to be imposed. The astute will take note of and remember that invaluable measure.
Mere improper conduct, not necessarily striking off the rolls misdemeanours, falls within the scope of the test; see Ridehalgh v Horsefield  3 All ER at 861 and 862. It matters not whether it violates the letter of any professional code. Master Whelan declared the saga was a ‘cock-up’ and there was no suggestion of duplicity. Nevertheless, the conduct was improper, and so a hefty 50 per cent of the bill was disallowed. Tens of thousands of pounds went out of the window.
Conduct was addressed in the seminal authority on relief from sanctions, Denton v White  EWCA Civ 906. Everyone should pay regard to paragraphs 39-43 inclusive. Heavy costs sanctions should be imposed where there is an unreasonable failure to agree extensions, or to wrongly oppose applications for relief (paragraph 43). The costs sanction could go beyond the costs of the application itself. Conduct is addressed at CPR 44.3(1)(b), which bans the court from allowing the recovery ‘of costs which have been unreasonably incurred’, regardless of whether they are on the standard or indemnity basis. What is counter-intuitive is that the innocent party could be penalised for having taken an unreasonable stance against the party in default.
Do not seek to exploit minor lapses, or else you will be paying the costs! The new litigation philosophy is captured by the fine judgment in Gotch v Enelco Ltd  EWHC 1802 (TCC). What the court emphasised was that parties and their legal representatives were under a duty to cooperate with one another, so as to further the overriding objective and enable the court to deal with matters justly and at proportionate cost. In the past, technical and even underhand activity was tolerated. No more. Be reasonable at every turn – or else.
This article was first published in Litigation Funding (June 2017). Civil Litigation Section receive an exclusive 40 per cent discount on the annual subscription fee. Find out more here .