Aujla v Sanghera

Where an appellate decision removes the basis on which a lower court exercised its costs discretion, the costs order must be set aside and the appellate court must exercise the discretion afresh. The ordinary starting point is that costs follow the event, so the court should identify the true winner. A court should not impose a costs penalty based on its own view of witness credibility where the lower court did not make credibility the basis of its costs order. The resulting order should reflect the issues actually determined, rather than matters outside the proceedings.

This was an appeal from an order of Mr Recorder Goodchild in Nottingham County Court concerning costs in a dispute involving interests in property and payment for a business. The recorder had reserved costs and indicated that neither side had wholly succeeded. The Court of Appeal had already set aside material parts of the recorder’s decision because issues concerning payment for the business and liability to lenders were outside the issues before him. The remaining question was how that affected the costs order and whether the parties’ credibility justified departing from the ordinary rule that costs follow the event.

Lady Justice Arden gave the leading judgment, with Lord Justice Thorpe and Mr Justice Park agreeing.

1. Effect of the earlier appellate decision. The recorder’s costs reasoning depended partly on the defendant’s failure to persuade him that he was not liable to make a payment for the business. Since that issue was outside the proceedings and the material part of the recorder’s order had already been set aside, the basis of the costs order was completely undermined. The costs order therefore had to be set aside and the Court of Appeal had to exercise its discretion afresh.
2. Costs discretion. The recorder had criticised the reliability of both parties as witnesses, but his costs reasoning was based on his comparison of the parties’ claims and his view that there was no true winner. The Court of Appeal should not substitute its own view of credibility so as to penalise a party on a basis that had not grounded the recorder’s order. The court concluded that Mr Sanghera was the winner and that the starting point was that costs should follow the event.
3. Disposition. The appeal on costs was allowed. In the terms stated in the judgment, the substituted order was that the claimant should have his costs of the action before the recorder. Further orders were made in accordance with the agreed minute of order.

1. Court of Appeal (Civil Division) — On appeal from Nottingham County Court, the court allowed the appeal on costs and substituted a costs order. The judgment is reported at [2004] EWCA Civ 122.
2. Nottingham County Court — Mr Recorder Goodchild reserved costs and indicated that he was inclined to make no order as to costs.