This was a determination of an application made by the second defendant (and supported by the first, third and fourth defendants) for partial or total disallowance of the claimants’ costs pursuant to rule 44.11(1)(b) of the Civil Procedure Rules 1998 (CPR) on grounds of alleged ‘gross misconduct before and during the proceedings’.
The underlying claim had concluded in February 2017 when the court made an issues-based order that, in essence, required the defendants to pay costs generally, but with the costs of various conduct issues (and one or two other issues) being the defendants.
The application was made part way through a post-provisional detailed assessment hearing of the claimants’ costs and raised several allegations against the claimants, including that the first claimant had:
- lied in witness statement evidence
- misled the court by exhibiting a letter with crucial elements redacted
- submitted a “smokescreen” report to the SRA to further mislead the court
- lied about his involvement in a campaign of online abuse against the defendants
- knowingly used hacked emails, including emails to and from the police (referring to a s9 police statement), and to and from D1’s solicitors, and made (or enabled to be made) such emails publicly available online
- abused his position as Managing Director of D1, and attempted to abuse his position as a shareholder in D1, in order to aid in the misappropriation by D1’s sales agent of revenues for sales of D1’s product
- personally, and (together with C2 through their solicitor), wrote to various trading partners and professional advisors of D1 attempting to prevent D1 from pursuing its business effectively, and then attempted to charge for those letters in their bill of costs.
The defendants said that the matters referred to amounted to unreasonable behaviour within the meaning of CPR, r 44.11(1)(b), and that as a result, some or all of the claimants’ costs ought to be disallowed.
DEPUTY MASTER FRISTON:
58. The court has always had the power to disallow costs in recognition of poor conduct. In Victorian times, costs might have been ‘expunged for scandal and impertinency’ ((1884) Law Times LXXVIII 115/2). The language may now be less elegant, but the court’s powers remain.
59. The modern-day provisions may be found in CPR, r 44.11, which reads as follows:
‘(1)?The court may make an order under this rule where—
(a) a party or his legal representative, in connection with a summary or detailed assessment, fails to comply with a rule, practice direction or court order; or
(b) it appears to the court that the conduct of a party or that party’s legal representative, before or during the proceedings or in the assessment proceedings, was unreasonable or improper.
(2)?Where paragraph (1) applies, the court may—
(a) disallow all or part of the costs which are being assessed; or
(b) order the party at fault or that party’s legal representatives to pay costs which that party or legal representative has caused any other party to incur.
(a) the court makes an order under paragraph (2) against a legally represented party; and
(b) the party is not present when the order is made,
the party’s legal representative must notify his client in writing of the order no later than 7 days after the legal representative receives notice of the order.’
60. As can be seen, there are two limbs to this rule. The first is governed by CPR, r 44.11(1)(a); this concerns failure to comply with rules, practice directions or court orders in connection with the assessment. This can be disregarded for present purposes as the Defendants do not take any such point. The second limb, however, is relied upon; it is set out in CPR, r 44.11(1)(b) and concerns ‘unreasonable’ and ‘improper’ conduct.
Unreasonable and improper conduct during the litigation that gave rise to the costs in question is capable of engaging CPR, r 44.11(1)(b). Indeed, I note that prior to April 2013, this was the only type of misconduct that could do so. The burden of proof will lie with the person alleging misconduct
(see Gempride v Bamrah  EWCA Civ 1367 at [26(v)]).
A finding of misconduct under CPR, r 44.11(1)(b) is a two-stage affair: first, the court must determine whether the relevant threshold criteria have been met (that is, whether there has been improper or unreasonable behaviour); and secondly, the court must consider whether it would be just to impose a discretionary sanction
(Haji-Ioannou v Frangos  EWCA Civ 1663, at , per Longmore LJ).
63. I deal first with the threshold criteria (see below).
Standard of conduct required
64. CPR, r 44.11(1)(b) does not itself contain the word ‘misconduct’, but I note that Longmore LJ has found that that word is contained in the title and that this points to the nature of the court’s discretion (see Haji-Ioannou at ). This was in respect of a prevision version of the rule, but in my view, nothing turns on that. Similarly, whilst he too was concerned with a previous version of the rule, I note that Dyson LJ has said (albeit obiter) that the word ‘unreasonable’ is to be construed ‘quite narrowly’, in much the same way as it is construed in the context of wasted costs (see Lahey v Pirelli Tyres Ltd  EWCA Civ 91, at ). More recently, Hickinbottom LJ has explained that
‘“unreasonable” is essentially conduct which permits of no reasonable explanation’
(see Gempride at [26(ii)]). Hickinbottom LJ has also explained that
‘“improper” has the hallmark of conduct which the consensus of professional opinion would regard as improper’
(see Gempride at [26(ii)]).
65. These things being so, it seems to me that guidance can be gleaned from authorities concerning wasted costs. In this regard, I note that in Ridehalgh v Horsefield  Ch 205, Lord Bingham MR said that
improper ‘covers … conduct which would ordinarily be held to justify disbarment, striking off, suspension from practice or other serious professional penalty’
The allegations in this case are against the First Claimant personally rather than against his solicitors, but in my view, Lord Bingham MR’s comments still have resonance in the sense that they give an indication of the seriousness of conduct that is required to engage CPR, r 44.11(1)(b). I also note that Dyson MR has said that
the meaning of the word ‘unreasonable’ should not vary depending on whether it is the client or the legal representative whose conduct is under consideration
(Lahey at ).
I also note that
mistakes or errors of judgment or negligence, without more, will be insufficient to amount to unreasonable or improper conduct
(see Gempride at [26(iii)].
66. To the extent that it is relevant, Hickinbottom LJ provided this helpful summary (Gempride at ):
‘[The] following propositions … can be made.
ii) Whilst “unreasonable” and “improper” conduct are not self-contained concepts, “unreasonable” is essentially conduct which permits of no reasonable explanation, whilst “improper” has the hallmark of conduct which the consensus of professional opinion would regard as improper.
iii) Mistake or error of judgment or negligence, without more, will be insufficient to amount to “unreasonable or improper” conduct.
iv) Although the conduct of the relevant legal representative must amount to a breach of duty owed by the representative to the court to perform his duty to the court, the conduct does not have be in breach of any formal professional rule nor dishonest.
v) Where an application under CPR rule 44.11 is made, the burden of proof lies on the applicant in the sense that the court cannot make an order unless it is satisfied that the conduct was “unreasonable or improper”.
vi) Even where the threshold criteria are satisfied, the court still has a discretion as to whether to make an order.
vii) If the court determines to make an order, any order made (or “sanction”) must be proportionate to the misconduct as found, in all the circumstances.’
67. I now turn to deal in more detail with sanctions.
68. To address the topic of sanctions, it is necessary to know something the history of the relevant law. The power to impose sanctions arising out of unreasonable or improper conduct during the claim is a continuation of a long-standing power that—four decades ago—vested only in the judge who made the entitling costs order (see RSC Ord 62, r 28). Following comments made by Megarry V-C in Re Solicitors  2 All ER 683 at 688, that power was delegated in the first instance to Masters and then to all costs judges. The relevance of this is that the power to impose a sanction derives from a power that was originally vested in the trial judge.
69. It is also worth pausing to note that the power to impose a sanction was just that: as Michael Cook said in 1995, it was a power to impose something that was ‘not just compensatory … but [also] punishment’ (Cook on Costs , 2nd edn, London: Butterworths, 1995), p 240). This was entirely in keeping with the fact that the power originally vested in the trial judge. Where a penalty was made prior to the introduction of the CPR, it commonly took the form of a percentage discount or flat reduction.
70. Thus, the pre-CPR law was that misconduct could lead to sanctions in the form of a disallowance of part or all of the costs (which is what is sought in this application). Given the fact that the CPR have preserved the power to impose sanctions (and that the CPR expressly refer to a power to ‘disallow all or part of the costs which are being assessed’), one would have expected the court’s powers to impose a sanction under the CPR to be no less liberal.
71. This being so, the following comments of Dyson LJ (Lahey at ) may come as a surprise:
‘The short answer to the defendant’s submission [that the cost[s] should be reduced by a percentage] is that the costs judge has no power to vary the costs order that is deemed to have been made. In our judgment, this is a complete answer to [the paying party’s] submissions, whether based on [the-then equivalents of CPR, r 44.3 and 44.4 or 44.11]. It follows that the costs judge has no jurisdiction to make an order of the kind contended for by the defendant in this case.’
72. I pause here to say that Dyson LJ was dealing with a case in which a deemed costs order had been made, but he made it clear (at ) that his comments were of general application.
73. At first blush, it seems as if Dyson LJ had ruled out the exact form of penalty that one would expect to be imposed as a result of misconduct (that is, a reduction in the receiving party’s costs). This, however, was at a time when the power under what is now CPR, r 44.11(1)(b) was limited to misconduct during the claim itself (see paragraph 61 above). In more recent times, Hickinbottom LJ has had this to say (at Gempride at ):
‘The jurisdiction is not compensatory: it is not necessary to show that the applicant has suffered any loss as a result of the misconduct. It is a jurisdiction intended to mark the court’s disapproval of the failure of a party or of a legal representative to comply with his duty to the court by way of an appropriate and proportionate sanction.’
This implies that a costs judge has the ability to reduce costs in a way that is discretionary (as opposed to as a matter of assessment).
74. There is a certain tension between Hickinbottom LJ’s comment and those of Dyson LJ referred to above, but I take the view that (in the absence of some form of special order: see paragraph 78 below) the latter continue to apply where the alleged misconduct took place during the claim itself (as opposed to during the assessment). This is not only because Gempride was dealing with misconduct during the assessment (and is therefore distinguishable on that basis), but also because Longmore LJ has made it clear that
the power to disallow costs by reason of unreasonable or improper conduct during the claim is limited to those costs that were incurred as a result of that conduct
(see Haji-Ioannou at ).
In my view, the changes to CPR, r 44.11 in 2013 have not changed this.
75. Indeed, I take the view that the changes to the overriding objective in 2013 make Dyson LJ’s analysis more rather than less likely to be enduring. This is because when applying the overriding objective, the court must now have regard to the use of its own resources (see CPR, r 1.1(1)(e)). The court must seek to give effect to the overriding objective when it (a) exercises any power given to it by the Rules; or (b) interprets any rule (see CPR, r 1.2). It would, in my view, not be in accordance with the post-2013 overriding objective to interpret or apply CPR, r 44.11(1)(b) in such a way as to allow parties to lengthen detailed assessment proceedings by allowing them to have, what in effect, are second bites at the cherry. In my view, that would be wasteful of the court’s limited resources.
76. If I am wrong on this point, on the facts of this case, I reach almost the same conclusion by a different route, at least in so far as certain aspects of this application are concerned. This is because
the court has already made an issues-based costs order that dealt with the Conduct Issues. To my mind, this means that the court has already decided certain issues, and this gives rise to issue estoppel in the sense that the court cannot revisit issues that were addressed at the time the costs order was made.
In this regard, I bear in mind that
it would have been open to the Defendants to have asked the court making the costs order not only to award them their costs of the Conduct Issues, but also to restrict or negate the Claimants’ entitlement to costs to take account of the Claimant’s alleged poor conduct.
In this regard, I refer to the findings made at paragraph 27 above.
77. Counsel drew my attention to Waller LJ’s decision in Ultraframe (UK) Ltd v Fielding  EWCA Civ 1660. At [], Waller LJ said this:
‘It seems to me that consideration of a party’s conduct should normally take place both at the stage when the judge is considering what order for costs he should make, and then during assessment. But the court will want to ensure that dishonesty is penalised but that the party is not placed in double jeopardy. Ultimately, the question is one of the proper construction of the order made by the judge. Thus it will be important for the judge, who is asked to take dishonesty into account at the end of a trial when considering the order as to costs, to consider what is likely to occur on assessment. Where dishonest conduct is being reflected in an order made by the trial judge, it must be wise for the future for judges to make clear whether they are making the order on the basis that, on the assessment, the paying party will still be entitled to raise the dishonesty in arguing that costs incurred in supporting the particular dishonesty were unreasonably incurred. Judges may also want to consider whether to make an order under rule 44.14 [the forerunner of CPR, r 44.11] and it would be wise to do that before considering precisely what order to make in relation to the costs of a trial generally. ’
78. This, to my mind, supports the notion that the court ought to guard against the possibility of double jeopardy. A costs judge will, of course, consider disallowing costs that have been incurred as a result of any unreasonable or improper behaviour, but even this must be done in such a way as to avoid double jeopardy. In my view,
a costs judge would (in the absence of some special order, such an order expressly reserving certain issues to the assessment) be overstepping the mark if he or she got drawn into making wholesale reductions that would properly be the province of the judge who made the order for costs.
Circumstances may exist, I would imagine, in which a costs order could be interpreted as being some form of special order that allowed a costs judge to exercise such powers, but this, in my view, is not even close to being such a case.
79. For all these reasons, I find that even if I were to find that there had been unreasonable or improper conduct, the court’s ability to impose the types of sanction sought by the Defendants is limited.
80. The above analyses boil down to what I believe to be a very simple principle, namely, that
in ordinary circumstances on assessment, CPR, r 44.11(1)(b) is not to be used in such a way as to allow a paying party to adjust or negate his or her liability for costs for reasons that were or could have been addressed at the time that the costs order was made.
a costs judge is bound by terms of the costs order as properly interpreted, and there is nothing in CPR, r 44.11(1)(b) that allows a costs judge to revisit the formulation of that order.
The Deputy Master went on to deal with, and reject, each allegation in turn.