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carvers last stand?

27 September 2011

The October update to the Civil Procedure Rule will amend Part 36 to reverse the decision in Carver v BAA. However, when it comes to disputes as to which party should pay costs, Carver is only the tip of the iceberg. That is hardly surprising in a system in which costs frequently exceed damages.

Recent cases emanating from the Court of Appeal give a flavour of the new fronts which may open up in the costs war.

Winning a battle but losing the war

In Medway v Marcus, the claimant sought £730,000 in damages for an amputation. Causation of the amputation was not established, but the claimant received £2,000 for additional pain and suffering suffered due to negligence in the course of treatment.

At first instance, the claimant recovered 50 of his costs: He had recovered some damages and so was the successful party. On appeal, the order was reversed. The defendant was awarded costs, reduced by 25 to reflect the small recovery made by the claimant. The damages awarded were minimal compared to the pleaded claim, and so the defendant should be considered the successful party.

Jackson LJ dissented, suggesting that if the defendant wanted protection then it should make an early Part 36 offer. He rejected the complaint of the defendant that (as a Part 36 offer must include costs), this could expose a defendant to an excessive costs liability.

Jacksons rebuff

Fox v Foundation Piling Ltd gave Jackson LJ the opportunity to give further consideration to the circumstances in which the courts should depart from the normal costs rules.

The claimant sought £280,000 in relation to an injury claim. This valuation was called into question by both surveillance obtained by the defendant and by medical evidence obtained in the course of proceedings.

The defendant made two Part 36 offers. Excluding recoverable benefits, they were £24,000 in 2008 and £32,000 in 2009. The second offer was accepted following disclosure of surveillance footage.

At first instance, the judge found that the defendant had "succeeded" on the claim since the 2008 offer. Alternatively, the claimants conduct in relation to the claim (ie the value of his claim was not borne out by the evidence) justified a costs order in favour of the defendant from 2008. The Judge refused to find misrepresentation on the part of the claimant.

Jackson LJ gave the leading judgment on appeal, and stood by his view that Part 36 generally held the key to determining costs liabilities. The claimant had succeeded in recovering damages, and these exceeded the 2008 offer. The starting point was that he should not be denied his costs.

Conduct would rarely justify a departure from that rule. While the settlement of this claim fell far short of the pleaded value, the judge had refused to find misrepresentation on the part of the claimant and so there were no grounds for depriving the claimant of his costs.

Choosing your battles

Lowe v W Machell Joinery Ltd provides another example of the Court of Appeal examining the parties conduct in order to make a costs order. The claimants alleged the defendant had sold them a staircase which was unsuitable as it did not comply with building regulations, contrary to an express term in their contract for building work.

On appeal, the claimants succeeded in their claim, but on the basis of an implied term as to suitability rather than the express term they had alleged throughout proceedings.

Lloyd LJs costs judgment was prefaced with the comment that the courts discretion in this situation was "unusually wide". Options included allowing the claimant to recover costs; applying a discount for time expended on unsuccessful issues; reducing the costs recovered by the claimant by a percentage to reflect their approach; or ordering the claimant to pay the defendants costs because they had persisted in perusing an unrealistic line of argument.

Having considered the manner in which the claimants had focused their efforts upon the unproven implied term, the Court made no order as to the costs of the first instance claim, but to permitted claimants to recover costs of the appeal, which had been properly pursued and was successful.

Neutralising Carver

Carver dealt with the question of when a judgment was to be considered more advantageous than a Part 36 offer and established that the test was not limited to a strict comparison of monetary values. In his final report, Jackson LJ bemoaned the uncertainty which arose as a result, and recommended that Caver be reversed. This will be achieved in the October update to the CPR, by defining more advantageous for money claims in strict monetary terms.

New fronts

However, while Jackson and the CPR committee are seeking to impose greater certainty on the costs outcome of claims, the Court of Appeals approach favours judicial discretion.

That discretion is likely to be tested as increased use of fixed fee schemes for particular types or stages of claims increases the costs-impact of conduct and erroneous valuations.

In a post-Carver era, we can expect further disputes around questions of whether a party has succeeded where a small recovery is made, when percentage discounts or issue based costs should be imposed, and whether a partys conduct justifies a decision to penalise them in costs.

The battle lines may be redrawn, but it is likely that the satellite litigation of the costs war will continue.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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