Northstar Systems Ltd & Ors v Fielding & Ors

In exercising its discretion as to costs, a court may take dishonest conduct into account both when making the costs order and on assessment. A percentage reduction in favour of the paying party does not, without clear words, permit a dishonest successful party to recover costs incurred in advancing or maintaining its dishonesty.

There is no general rule that a party which proves the opponent’s dishonesty must recover all its costs of doing so. The trial judge may take proportionality and the paying party’s conduct into account. An appellate court will interfere with a discretionary costs order only for legal error, an improper treatment of relevant factors, or a result outside the generous ambit of reasonable disagreement.

This was an appeal confined to costs arising from exceptionally long and complex litigation concerning conservatory-roof intellectual property, company ownership, debentures and a licence. Lewison J found serious dishonesty by several successful defendants, including fabrication and persistence in false documents, but held that the principal claims against them failed.

He made percentage costs orders in their favour, with substantial reductions to reflect the dishonesty. The appellants contended that the order wrongly allowed recovery of costs incurred in maintaining a dishonest case and gave inadequate credit for the costs of exposing it. They also challenged the separate treatment of costs relating to preliminary issues and the London action.

The central issue was the proper construction and appellate review of the discretionary costs order.

1. Appeal dismissed. Waller LJ, with whom Jacob LJ agreed, held that the appellate court could interfere with the costs order only if Lewison J had erred in principle, improperly dealt with relevant considerations, or reached a result outside the generous ambit of reasonable disagreement. None was shown.

2. The court held that the broad proposition stated in Aaron v Shelton [2004] EWHC 1162 was too wide. Conduct may normally be considered both when the trial judge makes a costs order and when costs are assessed. The question is the proper construction of the order, while ensuring that dishonesty is penalised without imposing double jeopardy.

3. On the proper construction of this order, the successful defendants could not recover on assessment costs incurred in seeking to establish as honest matters which the judge had found dishonest. Their concession to that effect was rightly made. A trial judge who reflects dishonesty in a costs order should, where possible, state whether the paying party may still contend on assessment that costs incurred in supporting the dishonesty were unreasonably incurred. The judge may also consider the powers concerning misconduct under CPR rule 44.14.

4. Once that construction was adopted, the principal objection to the order fell away. There is no general rule requiring recovery of all costs incurred in proving dishonesty. Lewison J was entitled to find that the expenditure on the conspiracy issue was disproportionate and to reflect that conclusion in the percentage orders.

5. The judge was also entitled to deal separately with the preliminary-issue and London-action costs. He had considered the relevance of dishonesty to the litigation as a whole and was entitled, in the exercise of his discretion, not to apply a further reduction to those costs.

• Court of Appeal (Civil Division) — dismissed the appeal against Lewison J’s costs order, while granting permission to appeal because the costs exercise required consideration as a whole.
• Chancery Division of the High Court — Lewison J determined the main litigation on 27 July 2005, made the contested costs order on 7 October 2005, and refused to vary it on 11 November 2005.