Issues concerning conduct and misconduct have long bedevilled the assessments of costs. In a two-part article, Chris Lethem reviews three recent decisions of the Court of Appeal


Both part 44.3 and 44.5 of the Civil Procedure Rules require the court to take into account the conduct of the parties to litigation when considering costs. Part 44.3(4) requires the court to take into account conduct when making the order, and by part 44.5(3) the court is required to consider conduct 'before, as well as during the proceedings' in assessing costs. Three recent decisions of the Court of Appeal have clarified the court's approach to conduct-related issues in the award and assessment of costs.



It is apparent that there is some scope for overlap between the consideration of costs in making the award and later in assessing the amount awarded. Thus there is a danger that a receiving party may be the subject of a 'double jeopardy', whereby the trial judge reduces the award of costs to take into account conduct, and then the assessing judge reduces the costs yet further because of the requirement that he or she take into account conduct in assessing the costs.



The potential for unfairness was first recognised by the Court of Appeal in Shirley v Caswell [2000] All ER (D) 807. Mr Justice Ferris found that the claimants had inflated their claim. He awarded them 60% of their costs but also ordered them to pay 40% of the defendant's costs. On appeal, the court held that where the successful party had pursued issues which were later abandoned but had incurred costs in the process, such costs were not to be deducted by the trial judge from the costs recoverable by the successful party. The costs of abandoned issues were prima facie to be disallowed at a detailed assessment by a costs judge as costs unnecessarily incurred. On this approach, the consideration of conduct falls on the district or costs judge assessing the costs.



Two problems arise. If the forum for considering conduct is the assessment of a bill, there is a danger that the disgruntled paying party will seek to re-litigate issues that are more often the province of the trial judge. A second difficulty is that the assessing judge does not have the intimate knowledge of the trial afforded to the trial judge, so time and money can be expended on simply establishing what happened at trial.



Most commentators prefer an approach whereby the trial judge, who has heard the evidence, is the primary arbiter of conduct. This was the approach adopted by Mr Justice Jack in Aaron v Shelton [2004] EWHC 1162 (QB), [2004] 3 All ER 561, commenting that it was the duty of the litigant seeking to raise conduct to do so at the time that the costs award is made and that it was not open to him to raise the issue in an assessment hearing.



Indeed, the judgment went further to suggest that where a percentage order was agreed in a consent order, then the parties should include guidance for the assessing judge. The rationale for this approach was a recognition of the double jeopardy problem identified in Shirley. Applying the rule in Henderson v Henderson [1843] 3 Hare 100, Mr Justice Jack considered that it was the duty of the paying party to raise the issue during the trial and that they should not be permitted to re-litigate the matter. It is fair to say that most commentators felt that Aaron was the better decision.



The Court of Appeal has added to the debate with its recent judgment in Northstar Systems Ltd (1), Seaquest Systems Ltd (2) and Ultraframe (UK) Ltd (3) v Fielding and ors [2006] EWCA Civ 1660, [2006] All ER(D) 81 (Dec). The facts of the case are complex, but in summary Mr Justice Lewison at first instance found that the respondents (Fielding and ors) were guilty of serious misconduct (dishonesty and forgery), but that they were nonetheless the overall winners. He ordered Ultraframe to pay the costs, but reduced the award to reflect the defendants' dishonesty. On appeal, the court recognised the potential for double jeopardy and that the receiving party could lose costs by virtue of the trial judge's order and again on assessment. It doubted the Aaron approach and suggested the following principles:

l Conduct is relevant to both part 44.3 and part 44.5;

l The assessing judge must avoid double jeopardy;

l To achieve this, the judge making the order should consider the effect of his order when the costs fall to be assessed;

l It would be wise for the judge making the order to spell out whether the assessing judge should take into account the conduct under part 44.5; and

l A judge considering conduct under part 44.3 may also want to

consider an order under part 44.14 before they make the costs order (though how this would work out in practice is a little unclear because the part 44.14 principles would be reflected in the part 44.3 consideration in any event).



The appeal court has attempted to square the circle by placing an onus on the trial judge to consider and indicate how conduct should be taken into account during assessment, but placing the duty of working out that indication on the assessing judge. Of course, it is the duty of the parties to assist the trial judge by bringing the authority to his or her attention and advocates would be well advised to be armed with the authority in any case where conduct will be raised as a consideration for reducing the costs order under part 44.3.



District Judge Lethem sits at Tunbridge Wells County Court