Posted by Christopher McClure, regional manager in the Manchester office of Litigation Futures Associate John M Hayes
The judgment of Deputy Master Friston in Andrew v Retro Computers Ltd  EWHC B2 (Costs) deals with an application made on behalf of the paying parties/defendants for the partial or total disallowance of the claimant’s costs pursuant to CPR rule 44.11(1)(b).
Deputy Master Friston had provisionally assessed the claimants’ costs but the defendants, dissatisfied with the result of that assessment, requested an oral review hearing.
The defendants’ application was made during that hearing and alleged gross misconduct before and during the main proceedings; particulars of those allegations were filed and served shortly thereafter.
CPR rule 44.11 provides that:
(1) The court may make an order under this rule where –
(a) a party or that party’s 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 representative to pay costs which that party or legal representative has caused any other party to incur.
The defendants submitted that the conduct, which was alleged to have taken place during the proceedings, was unreasonable for the purposes of rule 44.11(1)(b) and, as such, some or all of the costs to which the claimant was otherwise entitled ought to be disallowed either in full or in part.
Deputy Master Friston applied the misconduct test in two stages: “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.”
He relied upon the judgment of Hickinbottom LJ in Gempride v Bamrah  EWCA Civ 1367 in order to define the salient terms of rule 44.11(1)(b): “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.”
Deputy Master Friston then turned to the imposition of the sanction itself. The question for the court, broadly put, was whether the judge dealing with the claim for costs has power under rule 44.11(1)(b) to reduce or disallow costs on assessment as a result of poor conduct during the main action.
The decision was reached by two avenues of reasoning. Firstly, the court relied upon the decision of Dyson LJ in Lahey v Pirelli Tyres Ltd  EWCA Civ 91, in which he held: “The short answer to the defendant’s submission [that the costs should be reduced by a percentage] is that the costs judge has no power to vary the costs order. [I]t follows that the costs judge has no jurisdiction to make an order of the kind contended for by the defendant.”
The deputy master was fortified in his conclusion that a judge on assessment should not reduce or disallow costs on assessment as a result of misconduct during the main proceedings by reference to the overriding objective: “It would not be in accordance with the post-2013 overriding objective to interpret or apply CPR rule 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.”
The opportunity to make submissions on partial or full reductions under rule 44.11(1)(b) is during the main action itself. Any order made in deference to those submissions will then be reflected in the claim for costs accordingly.
Secondly, the court at the final hearing in main proceedings here had already recognised the claimants’ poor conduct in those proceedings by making an issues-based order, which essentially required the defendant to pay costs generally but with the costs of the conduct issues to be paid by the claimants.
This meant that, as the court at the final hearing had already made a determination in relation to conduct and costs (i.e. by way of an issues-based costs award), the court on assessment would be estopped from revisiting the conduct issues addressed at the final hearing which otherwise would need to be raised in support of a full or partial reduction under rule 44.11(1)(b).
Further, the defendants’ opportunity to request not only an issues-based costs award but also the imposition of sanction in the form of a partial/full reduction (the two being separate and distinct) by reference to rule 44.11(1)(b) in view of the claimant’s conduct arose at the final hearing (in this case an opportunity missed).
The risk of applying a wholesale reduction on assessment after an issues-based costs order has been made in the main action is that the receiving party stands at risk of double jeopardy in terms of disallowance of costs: a blanket reduction in consequence of unreasonable conduct serves to penalise a party a second time in a case where costs have, as a direct result of that very conduct, already been disallowed by means of an issues-base costs award.
Dr Friston summarised the position thus:
- A costs judge is bound by the terms of the costs order as properly interpreted and there is nothing in rule 44.11(1)(b) that allows a costs judge to revisit the formation of that order;
- 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;
- Rule 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; and
- The court on assessment ought to guard against the possibility of double jeopardy by making wholesale reductions where the receiving party is already the subject of an issues-based costs award.