We recently wrote about the Court of Appeal's consideration of penalty clauses in the case Houssein & Ors v London Credit Limited & Ors [2023] EWHC 1428 (Ch).
This case is also interesting because of the Court of Appeal's consideration of the decisions made by the first instance judge on costs. In particular, it examined whether the Judge had been entitled to:
- Apportion liability for costs between the parties on an issue-by-issue basis; and/or
- Refuse to award costs on an indemnity basis despite finding that both the borrowers and the lender had been dishonest in their evidence.
The costs order appeal
The usual position when determining liability for costs is that the 'losing' party will pay the 'winning' parties costs for the whole of the proceedings.
However, in this case the first instance Judge ordered that liability for costs should be divided between the parties on an issue-by-issue basis. He also declined to order that any party pay any part of the other parties' costs on an indemnity basis, despite finding that both parties had provided dishonest evidence in support of their case.
The appellants appealed both decisions, arguing that:
- The Judge’s decision to make an issues-based costs order was wrong, as LCL’s conduct and had not been properly considered by the Judge, and the possibility of a percentage costs order made an issues-based costs order inappropriate; and
- The Judge’s decision not to award the appellants their costs on the indemnity basis was wrong on the basis that: the dishonesty of LCL’s officer; and LCL's failure to engage with repeated offers to settle proceedings, took the case out of the norm and justified indemnity costs.
Issue-based costs order:
The Court of Appeal considered whether the Judge had been entitled to make an order for the payment of costs on an issue-by-issue basis, rather than the usual 'loser pays' approach.
The Court of Appeal noted that costs issues such as this are generally at the Judge's discretion. This discretion is wide, and such decisions can only be challenged in very limited circumstances. However, in this case, the Court of Appeal was satisfied that this high hurdle had been surmounted.
The Court of Appeal held that judges are required to begin their consideration of costs by determining whether there had been an overall winner on the issues at hand. In this case, the judge had not determined the overall winner, as required; the question of whether there had been an "outright winner", to which he had referred, was something different. Accordingly, the Judge had not properly approached the question of costs, and whether an award could be made on the usual basis that the losing party pays the winning party's costs.
Furthermore, the Judge had not carried out the exercise referred to in CPR r.44.2(7). He failed to consider whether it was appropriate to make an order on a proportional basis or from a particular date before embarking upon an issue-based order. He also failed to take conduct into account and did not consider the impact of the appellants' offers of settlement. In doing so, the Court of Appeal held that the Judge had fettered his discretion and did not apply the right test. He should have decided the question of the overall winner and whether the costs of that party should be discounted. Only if the conclusion was that a proportional award would not be appropriate should he have embarked on an issue-based costs order.
However, the Court of Appeal held that it could not reach a conclusion on what costs order would be appropriate. Accordingly, this matter would have to be remitted to the first instance judge for reconsideration.
Indemnity costs
Secondly, the Court of Appeal considered whether the Judge had been entitled to decline to order costs on the indemnity basis.
On this issue, it was held that the Judge had not exceeded their discretion on this issue. The Court of Appeal held that there is no automatic rule that indemnity costs must be awarded automatically where there has been dishonesty. As a result, whilst indemnity costs might have been appropriate, the Judge had been entitled to decide not to award them.
Conclusion
The judgment highlights the approach to be taken to costs where parties have been found to have acted dishonestly, and/or where different parties have succeeded on different issues.
With regard to the question of dishonesty, this will not automatically lead to an order that costs be paid on the indemnity basis. As a result, a decision not to award indemnity cost on this basis is likely to be difficult to challenge.
However, with regard to issue based costs orders, these are likely to be susceptible to challenge if the Judge has not properly considered whether the usual approach of "loser pays" costs orders could be adopted first. Further, where a Judge makes an order for costs on an issue-by-issue basis, they must make clear that they have properly carried out the exercise set out in CPR 44.2(7).