Costs and Exaggeration: Morrow v Shrewsbury RUFC LTD [2020] EWHC 999 (QB)

Introduction

In a case in which fundamental dishonesty or fraud has not been found but, there has been a significant level of exaggeration, will the court reduce an award of costs?  The answer, of course, is considering CPR Part 44: yes… possibly.

In the recent case of Morrow v Shrewsbury RUFC Ltd, in which costs judgment was handed down on 30th April 2020 by Mrs Justice Farbey, the High Court was invited to consider the following two issues:

1. Whether there were any reasons for departing from the general rule that costs follow the event; and,
2. If so, the extent of the deduction that should be made.

The Judgment can be found here.

Background

The Claim

The claim arose out of an accident that occurred on 28th February 2016 when C, 46 years old at the time, was struck on the head and injured by a rugby post while watching a game of rugby on D’s pitch. Liability was not in dispute.  Quantum and causation, however, remained contested.

C had worked as an IFA pre-accident and he alleged that as a result of the accident he was now unfit for work, particularly on psychological and/or psychiatric grounds. He alleged that he would only ever be capable of a minimum wage role until he retired at 65 years.  He alleged that if he had continued to work as an IFA he would have been promoted and his overall earnings would have followed a broadly upward trajectory.  C claimed in excess of £1 million including a claim for future loss of earnings of £946,097.28.

D’s case was that C was, and always had been, fit for work as an IFA or rather, the index accident had not impacted on his ability to work as an IFA.  C had documented psychological and psychiatric difficulties pre-accident which would have prevented him from continuing to work as an IFA irrespective of the accident.

The Trial

Farbey J dealt with questions relating to causation and quantum and handed down judgment on 21st February 2020: [2020] EWHC 379 (QB).  During the trial the most complex and time consuming issue was the extent of C’s loss of future earnings.

D had maintained at trial that C’s case was misleading, as opposed to dishonest, and he had described his post-accident problems in extravagant terms, failing to mention relevant pre-existing psychological problems to various experts and professionals.  Over the 5 years preceding the index accident C had made many complaints to various doctors about a range of problems, such as insomnia and fatigue, which were similar to the problems C said would prevent him from working in the future.

Nonetheless, during the oral evidence, a concession was made by D’s expert that C would have continued to work as an IFA until his 55th birthday but no longer, as a result of the index accident.

The Judge did not find that C had been dishonest but, she did find that he had exaggerated.  The upward trajectory of earnings that C alleged was found not proven.  He would have continued to receive the same basic salary with a structured bonus scheme.

Quantum was then agreed in accordance with the Judge’s findings, at £285,658.08 including PSLA of £58,000.

Costs

Costs remained in dispute and were considered on 13th March 2020.  C sought all of his costs of the claim.  D submitted that C’s costs should be reduced by one third (or such other amount as to be determined) because the claim was exaggerated and conducted in an unrealistic way.

A short time before trial C had made a Part 36 offer in the sum of £800,000 and D had made a Part 36 offer in June 2018 in the sum of £110,000.

Legal Framework

The Civil Procedure Rules

The general rule is that the unsuccessful party will be ordered to pay the costs of the successful party (CPR r.44.2(2)(a)) although the court may make a different order (CPR r.44.2(2)(b))  The court will have regard to all the circumstances including (under CPR r.44.2(4)):

(a) the conduct of all the parties;

(b) whether a party has succeeded on part of its case, even if that party has not been wholly successful; and

(c) any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply.”

With respect to conduct of the parties, CPR r.44.2(5) sets out that this includes:

(a) conduct before as well as during the proceedings;

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c) the manner in which a party has pursued or defended the case or a particular allegation or issue; and,

(d) whether a claimant who has succeeded in the claim, in whole or in part, exaggerated its claim.

The court has a broad discretion to reduce the costs recoverable by a successful party by a proportion in an appropriate case (CPR r.44.2(6)(a)).  However, a claimant losing on some issues and winning on others is not in and of itself a good reason for reducing an award of costs.

Case Law noted by Mrs Justice Farbey

As noted by Farbey J at paragraph 15 of her Judgment, referencing Widlake v BAA Ltd [2009] EWCA Civ 1256, the primary protection for defendants against paying the costs of exaggerated claims is CPR Part 36.  However, where the Part 36 offers do not bite, the starting point is the successful party should recover its costs from the unsuccessful party.

The next stage is to consider whether any adjustment should be made to reflect issues on which the successful party has lost or other circumstances (Fox v Foundation Piling Ltd [2011] EWCA Civ 790, paras.46-7).  In Widlake Ward LJ held that in having regard to a party’s conduct “the court is entitled in an appropriate case to say that the misconduct is so egregious that a penalty should be imposed upon the offending party” (para.39).

In Welsh v Walsall Healthcare NHS Trust[2018] EWHC 2491 (QB), Yip J reduced costs by 15% which was deemed to be a ‘meaningful’ proportion, not as a mathematic exercise but as a judgment as to how best to do justice between the parties.  This was not a legal benchmark, but a fact specific analysis.

The Judge’s Analysis

The Judge was in no doubt that C had exaggerated his claim for loss of future earnings although he was not dishonest.  His psychiatric/psychological condition may have made him prone to exaggeration and prone to pursue his claim beyond what common sense and realism would dictate.  Nonetheless, C did have capacity to litigate.  Therefore, C chose to put an exaggerated claim to the court.

The Judge noted that C instructed his solicitors to put forward an offer which was unrealistic, being nearly three times in excess of what he recovered at trial.  He therefore preferred to put forward an exaggerated case to the court rather than settle.

However, at paragraph 33 Farbey J noted that “in the absence of dishonesty, the claimant’s exaggeration is not the sort of egregious misconduct that in itself deserves a punitive costs order…” Ultimately D lost on the issue of C being unfit to work.  D lost the legal argument on causation.  The breadth of D’s denials meant that C would have needed to come to court to recover damages.

As the Judge put it (para.34): “In circumstances where each party stuck to its guns, how should the balance be struck in relation to the award of costs in an exaggerated but not dishonest claim?”

The Judge’s Conclusions

Considerable weight was given to exaggeration pursuant to CPR r.44.2(5)(d) given that it was engrained in C’s case, both before and at trial.  Some weight was given to the fact that C’s Part 36 offer was so much higher than the award of damages (CPR r.44.2(4)(c))

Although D could have increased its offer, particularly as they ought to have known that their own expert held the opinion that C may not have ceased work for a number of years but for the accident, the Judge concluded that C’s conduct was a cause of unnecessary expense.

Taking an overall view of the justice of the matter, the balance lay in favour of reducing the award of costs.

With respect to the extent of the deduction, the Judge was not persuaded that the costs had risen by one-third as a result of the exaggeration as D suggested.  D had to take some responsibility for the trial lasting as long as it did.  However, the exaggeration prolonged the cross-examination of multiple witnesses, including the psychological and psychiatric witnesses and those giving evidence relating to earnings quantification.

A deduction of 15% was made as being “broadly appropriate”.  This was not on the basis of Welsh, in which there had been improper or unreasonable conduct and a reduction of 15% made, but on the basis of the facts of this case.  Further, given the nature and length of the case, the reduction of 15% was meaningful in terms of the quantification of costs.

Conclusion

Where exaggeration is engrained in a claim and the way in which it is presented, even in the absence of dishonesty, causing the case and trial to be prolonged as a result, and a claimant does not recover the damages sought as a result of their exaggeration, the court may be persuaded that costs should be reduced.  Nonetheless, a balancing exercise will need to be undertaken considering all the circumstances of the case as per CPR r.44.2, including any offers made, arguments raised and contested, the conduct of both parties etc.  There is no set formula for the amount of reduction that could or should be made.  Ultimately it is a matter of court discretion and will be fact specific.  However, it seems unlikely that exaggeration in the absence of dishonesty will result in a high percentage of costs reduction.

Ruwena Khan

Ruwena is a Legal 500 Leading Junior in Personal Injury and Clinical Negligence law, recommended as being “extremely capable”, “highly experienced across a range of personal injury matters” and having “strong legal knowledge”. Ruwena has been recently appointed Deputy District Judge (North Eastern Circuit, 2019).

5th May 2020