M & S Restorations Limited v Banco Santander Totta SA & Ors

An appeal court reviewing a costs order must respect the broad discretion of the first-instance judge. It should intervene only where the decision is materially beyond the range of reasonable disagreement, or where there has been a serious procedural or other irregularity. The court must assess the judgment as a whole and avoid micro-analysis.

In deciding the proportion of costs recoverable, the court must balance the successful party’s conduct with the opponent’s conduct, including persistence with an untenable factual or legal defence and failure to accept a reasonable settlement offer. The proportion allowed for costs and the amount payable on account are distinct discretionary decisions. An unauthorised bank payment cannot be debited to the customer’s account.

The appellant succeeded at trial in a claim against its bank concerning a fraudulent payment instruction issued by third-party fraudsters. The County Court entered judgment for the appellant but awarded it only 50 per cent of its costs, citing the prolix and diffuse nature of its pleadings and the resulting overcomplication.

The bank had also maintained for years that the fraud was internal, although the evidence demonstrated an external fraud, and advanced an unsupported legal defence at trial. The appellant appealed under CPR rule 52.21(3), contending that the 50 per cent award was wrong and that it should receive all its costs. The central issues were the proper appellate approach to a discretionary costs order and the appropriate balance between the parties’ conduct.

1. Appeal allowed. The County Court’s 50 per cent costs award was wrong under CPR rule 52.21(3)(a). The appropriate award was 75 per cent of the appellant’s costs, subject to detailed assessment. The payment on account was to be correspondingly uplifted, with counsel directed to agree the precise figure and draft order.
2. An appeal against a discretionary costs decision is ordinarily limited to a review. The appellate court should intervene only where the correct decision is materially beyond the generous, but not limitless, range of reasonable decisions available to the first-instance judge. It should read the judgment as a whole and identify the decision and its main reasons without micro-analysing the text.
3. The judge correctly identified the appellant as the successful party and correctly considered whether to depart from the general rule under CPR rule 44.2. The appellant’s pleading was unnecessarily prolix and advanced alternative bases, including agency-based claims, which had no proper factual foundation. That justified a reduction from full costs recovery.
4. Greater weight nevertheless had to be given to the bank’s conduct. It persisted with an untenable factual case after the evidence made third-party fraud clear, failed to reconsider a Part 36 offer that the appellant had beaten, and advanced an unsupported impersonation defence. Under Philipp v Barclays Bank PLC [2023] UKSC 25, where a bank acts outside its mandate by making a payment the customer did not authorise, it cannot debit the customer’s account.
5. The proportionality of costs was relevant to the separate assessment of the reasonable payment on account. The judge did not impermissibly use proportionality to reverse-engineer the recoverable percentage. The appellate court’s adjustment reflected a materially different evaluation of the parties’ conduct, not criticism of the trial judge.

• High Court (King’s Bench Division) — Appeal from the County Court at Central London against the costs order made by HHJ Johns KC on 22 September 2023. Appeal allowed and the recoverable proportion increased from 50 per cent to 75 per cent.