Lahey v Pirelli Tyres Ltd

Where acceptance of a Part 36 payment gives a claimant costs on the standard basis without an order of the court, a costs order is deemed to have been made. A costs judge cannot, before detailed assessment, vary that deemed order by directing that the claimant receive only a percentage of the assessed costs.

The costs judge may nevertheless disallow costs, including the costs of an entire stage or issue, where they were unreasonably incurred under rule 44.4. The proportionality assessment remains the two-stage approach approved in Lownds v Home Office [2002] 1 WLR 2450. The narrower misconduct jurisdiction in rule 44.14 does not alter those conclusions.

The claimant accepted the defendant’s £4,000 Part 36 payment in a personal-injury claim. He was consequently entitled to his costs on the standard basis if not agreed. In the ensuing detailed assessment, the defendant asked the costs judge at the outset to direct that the claimant recover only 25% of the costs ultimately assessed.

District Judge James rejected that request for want of jurisdiction, then assessed the bill item by item and reduced it substantially. There was no appeal from that assessment. His Honour Judge Appleton dismissed the defendant’s first appeal. The defendant’s second appeal raised whether rules 44.4, 44.5 or 44.14 of the CPR empowered a costs judge to impose an advance percentage reduction after acceptance of a Part 36 payment.

1. Appeal dismissed. Acceptance of the Part 36 payment caused a costs order on the standard basis to be deemed made. The claimant was therefore entitled to 100% of the costs properly assessed. A costs judge had no power to vary that deemed order by deciding, before assessment, that the claimant should receive only 25% of the assessed costs.
2. There is a material distinction between reducing a bill during assessment and awarding only a percentage of assessed costs in advance. The former produces the full amount of the assessed costs and gives effect to the existing entitlement to costs. The latter alters that entitlement. Rule 44.3 permits a judge making a costs order to make a proportionate-costs order, but a costs judge conducting detailed assessment is not making that order.
3. The court agreed with the construction of rule 3.1(7) in Walker Residential Ltd v Davis [2005] EWHC 3483 (Ch): the power to vary or revoke concerns an order actually made by the court, not one deemed made by operation of the rules.
4. The absence of an advance percentage power does not prevent a fair assessment. A costs judge may disallow all post-issue costs if proceedings were unreasonably pursued after a pre-action offer, or the costs of an unreasonably raised issue. Those are costs unreasonably incurred under rule 44.4(1). The court reaffirmed the two-stage proportionality guidance in Lownds v Home Office [2002] 1 WLR 2450.
5. In an obiter postscript, the court preferred the approach in Loucas Haji-Ioannou v Ioannis Frangos [2006] EWCA Civ 1663. “Unreasonable” in rule 44.14(1)(b) should bear a narrow meaning comparable to section 51(6) of the Supreme Court Act 1981. That narrow meaning does not apply to “unreasonably” in rule 44.4(1).

• Court of Appeal (Civil Division). The defendant’s second appeal was dismissed: the costs judge lacked jurisdiction to impose an advance percentage reduction of costs deemed payable after acceptance of a Part 36 payment.
• Preston County Court. His Honour Judge Appleton dismissed the defendant’s appeal from District Judge James, who had rejected the preliminary jurisdictional argument and then conducted the detailed assessment.