Mehnaz v Sabre Insurance Co Ltd

A successful claimant is ordinarily entitled to the whole of the costs of the claim. A court may reduce those costs for dishonesty or conduct that unnecessarily prolongs proceedings, but the grounds must be supported by evidence and the reduction must be proportionate. A collateral lie in an otherwise honest claim does not, without more, justify a costs penalty. Unsupported allegations about pre-action conduct are insufficient.

The claimant recovered £37,408 under a motor insurance policy after the insurer alleged, in substance, that her theft claim was fraudulent. The recorder accepted that the vehicle had been stolen and that the claimant had an insurable interest, but found that she had lied about a test drive and ordered the insurer to pay only 60% of her costs.

On appeal, the claimant challenged that costs order. The central issues were whether the recorder had a proper evidential basis for reducing the costs, whether the lie justified a penalty, and whether this court should receive further evidence or reassess witness credibility.

1. Appeal allowed. The recorder’s costs order was set aside. The Court of Appeal exercised its own discretion and ordered the defendant to pay 100% of the claimant’s costs, subject to detailed assessment unless agreed. The transcript’s final reference to “Appeal dismissed” is inconsistent with the judgment’s reasoning and operative variation of the order.
2. A judge has a wide discretion to take account of parties’ conduct before and during litigation under Civil Procedure Rules rule 44(3). The discretion must nevertheless be exercised judicially, on facts supported by evidence and on a justifiable basis.
3. A claimant who has been substantially successful starts with an entitlement to costs. A departure requires proper grounds. Where insurers attack a claimant’s honesty and fail, they should normally bear the costs of that unsuccessful attack.
4. A costs reduction may be justified where the successful party lies about important aspects of the case, or where conduct causes unnecessary expenditure or prolongation. The claimant’s lie about the test drive was collateral, did not go to the heart of the honest claim, and did not prolong the proceedings. The brother’s unsatisfactory evidence did not justify penalising the claimant absent a finding of collusion.
5. Assertions about what the claimant or family members told investigators could not support a costs penalty where the insurer called no evidence and the matters remained unsupported allegations in the pleadings. Any reduction must also be proportionate to the wrongdoing or its consequences.
6. The appellate court declined to receive solicitors’ evidence and considered that it should not make a fresh credibility finding where the trial judge had not done so. Without the whole evidential picture and the opportunity to see witnesses, an appellate court is poorly placed to impose a costs sanction.

• Court of Appeal (Civil Division) — [2007] EWCA Civ 1525: allowed the appeal against the Bradford County Court costs order, set aside the 60% costs direction, and ordered payment of 100% of the claimant’s costs.
• Bradford County Court — trial before Mr Recorder Barnett: judgment for the claimant for £37,408, with the defendant ordered to pay 60% of her costs.