In the second part of his article concerning conduct in relation to costs, Chris Lethem considers the recent decisions in Haji-Ioannou and Lahey


Haji-Ioannou v Frangos [2006] EWCA Civ 1663, [2006] All ER(D) 72 (Dec) and Lahey v Pirelli Tyres [2007] EWCA Civ 91, [2007] All ER(D) 165 (Feb) have recently clarified whether the court is entitled to take a broad percentage approach to the assessment of costs and explained the provisions concerning misconduct in part 44.14 of the Civil Procedure Rules.



It is established law that a court making a costs order can take a percentage approach, and in the first part of this article I explored the history of such orders following a trial. However, where a party accepts a part 36 offer or enters into a consent order, there is no trial and thus there is potential for an argument that the court ought to start with a percentage approach before assessing individual costs.



The argument was first raised in Booth v Britannia Hotels Ltd [2002] EWCA Civ 579, [2002] All ER(D) 422 (Mar), in which a chambermaid sought £617,000 in an employer's liability case. She won the liability trial but accepted, by way of a consent order, £2,500 and her costs after the late service of some rather damning video evidence. Delivering the lead judgment in the Court of Appeal, Lord Justice Kennedy had no hesitation in finding that the judge was obliged to consider the bill on an item-by-item basis, though he did suggest the possibility of then adopting a percentage approach. Whether this latter part of the judgment holds good, following the decision in Lownds v Home Office [2002] 1 WLR 2450, is doubtful, a point recognised in Lahey.



In Lahey, the claimant accepted a part 36 offer which was a fraction of the claim. The defendant sought to argue that the district judge should at the outset only permit the receiving party 25% of his costs. In support of this submission, it was suggested that a judge, relying on parts 44.4, 44.5 and 44.14, can look at the conduct of the parties in the round and not only by reference to specific items of costs, and conclude that a whole stage of proceedings was unreasonable.



In aid, the defendant sought to rely on dicta in Aaron v Shelton [2004] EWHC 1162 (QB), [2004] 3 All ER 561 and Shirley v Caswell [2000] All ER (D) 807, which I discussed in the first part of this article last week. The Court of Appeal rejected these arguments, holding that the effect of part 36 and part 44 is that acceptance of a part 36 payment is deemed to be an order for 100% of the costs and cannot be varied (see Walker Residential v Davis [2005] EWHC 3483 (Ch) [2005] All ER(D) 160 (Dec)). The court distinguished the making of the order (part 44.3 or part 36.13(1) and (4), and 44.12(1)(b)) and the assessment of the order (part 44.4 and 5), and reiterated that the latter is governed by the decision in Lownds. With this decision, the court has effectively ruled out any percentage approach to assessment and reinforced the Lownds approach, even where there has been no trial but obvious conduct.



Turning to the second issue, the history of part 44.14(1)(b) has been vexed, particularly in relation to a delay in assessing proceedings. The competing arguments were on the one hand that the most that the court can do in cases of delay in commencing assessment is to disallow interest because the paying party has a remedy for delay by applying under rule 47.8 for the assessment to be commenced and which only permits the court to disallow interest (Botham v Imran Khan [2004] EWHC 2602, [2004] All ER(D) 222 (Nov) and Less v Benedict [2005] EWHC 1643 (Ch), [2005] All ER(D) 355 (Jul)). The other argument is that the court can invoke part 44.14(1)(a) and disallow some or all of the costs (Haji-Ioannou at first instance). With the Court of Appeal decision in Haji Ioannou, the position is now resolved.



Detailed assessment should have commenced by 30 June 1999, but was not commenced until 1 July 2004. The court decided:

l The court has the power to disallow costs, but only where there is misconduct;

l Unlike part 44.14(1)(b), part 44.14(1)(a) does not require a causative link between the delay in commencing assessment and the reduction in costs being sought;

l There is a tension between part 47.8 and 44.14(1)(a). The clue to resolving the tension lies in the use of the word of 'misconduct' in the title of part 44.14. As a matter of discretion, the court must look at the quality of the misconduct. Inordinate and inexcusable delay might amount to misconduct. Inordinate but excusable delay might not be misconduct, especially if there was no prejudice to the paying party;

l Where a rule permits a party to take the initiative to prevent delay, as in part 47(8), and provides a sanction for delay, the courts should be hesitant to impose further sanctions; and

l The above formula should prevent satellite litigation between the parties as to the quantum of any reduction of costs, and between the solicitor and client as to who should bear any shortfall ordered by the court.



In Lahey, the court affirmed the Haji-Ioannou decision and returned to the meaning of the word 'misconduct' in part 44.14. In considering the use of the term 'unreasonable or improper conduct' in part 44.14(1)(b), it drew the comparison with the power to make wasted costs orders (see Ridehalgh v Horsefield [1994] Ch 205). The judges concluded that it was unlikely the court would order a solicitor to pay costs in circumstances where a wasted costs order could not be made. They felt the term 'unreasonable' should be narrowly construed.



Thus it is apparent that the court can disallow costs under part 44.14, even where the paying party has a remedy under part 47.8. However, it is equally clear that the Court of Appeal has sought to limit the occasions that either part of 44.14(1) can be invoked. To engage the powers of the court, the applicant will have to show that there has been misconduct under 44.14(1)(a) or unreasonable conduct under 44.14(b) and both have been narrowly construed. It will be a brave party who seeks to invoke these provisions save in unusual cases.



District Judge Lethem sits at Tunbridge Wells County Court