Case No: B3/2008/1264
Neutral Citation Number: [2009] EWCA Civ 767
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM BOLTON COUNTY COURT
(MR RECORDER ATHERTON)

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Thursday, 11th June 2009

Before:

LADY JUSTICE SMITH
and
LORD JUSTICE WALL

- - - - - - - - - - - - - - - - - - - - -

Between:

	CUNNINGHAM	
Respondent/Claimant	
	- and -		
	
AST EXPRESS LTD & ANR	
Appellants/Defendants

- - - - - - - - - - - - - - - - - - - - -

(DAR Transcript of 
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No:  020 7404 1400  Fax No: 020 7831 8838
Official Shorthand Writers to the Court)

- - - - - - - - - - - - - - - - - - - - -

Mr D Crilley (instructed by Horwich Farrelly) appeared on behalf of the Appellant.
THE RESPONDENT APPEARED IN PERSON

- - - - - - - - - - - - - - - - - - - - -
 Judgment
Lady Justice Smith:

1.	This is an appeal from the costs order made by Mr Recorder Atherton following the trial of a personal injuries action in Bolton County Court on 2 May 2008.  In the action the claimant succeeded on liability but enjoyed only very modest success on damages.  The Recorder awarded general damages of £4,050, which, with interest, came to £4,143.20.  That was very modest, given that the claimant’s Schedule of Loss had initially claimed £180,000 plus damages for pain, suffering and loss of amenity.

2.	The defendant had made an offer of settlement of £4,700 on 10 August 2006, which was before action had begun.  The offer remained open for acceptance for 21 days.  At the end of the hearing, in the light of the Recorder’s award of damages, the defendant’s counsel made an application for costs.  He accepted that the defendant must pay the claimant’s costs up to 31 August 2006, but applied for his costs of the action after that date.  The Recorder made a different order.  As expected, he ordered that the defendant to pay the claimant’s costs up to 31 August 2006, but he ordered the defendant to pay half the claimant’s costs from 1 September 2006 until 15 November 2007.  He directed that the claimant should pay the defendant’s costs thereafter.  

3.	The defendant was aggrieved by the part of that order that he should pay half of the claimant’s costs between 1 September 2006 and 15 November 2007, which was likely to be a substantial sum. He sought permission to appeal.  This was refused on paper but granted by Ward LJ on renewal.

4.	The Recorder gave a short judgment on the costs issue.  We have been told today that costs fell to be discussed at about 5.00pm, so one can understand why the matter was dealt with quite briefly.  The appellant asserts that the Recorder misdirected himself in law in that short judgment or, alternatively, exercised his discretion quite wrongly.  In order to understand the appellant’s argument, it is necessary to set out a chronology of events.  

5.	The accident occurred in July 2003.  A claim was notified to the defendant’s insurer very promptly.  In October 2003 a Dr Milnes, instructed by the claimant, reported that the claimant had suffered an injury to the neck and back.  He had had a week off work after the accident and several more days a little later.  But within two weeks, according to Dr Milnes, he was apparently managing his job as a welder and had returned to playing football.  He was progressing well.  His neck symptoms had resolved within about eight weeks.  His lower back was still troubling him, in that he had intermittent discomfort about once or twice a month.  He would, according to Dr Milnes, make a good recovery from the accident within six months of the date of the accident.

6.	Thus it appeared that the claim would be modest and the defendant’s solicitors indicated a willingness to settle it on a full liability basis.  That concession was later to be withdrawn when a substantially increased claim was advanced.  

7.	Little, if any, progress was made with the claim or settlement of it until the spring of 2006, by which time the claimant had changed solicitors to a firm which I will call Messrs K.  The claimant had also changed his job twice and by that time was working as a window fitter.  During this interval, the claimant’s general practitioner had referred him to a physiotherapist with pain or discomfort but it appeared from the medical records that the claimant was continuing to play football.

8.	In July 2006 the claimant was examined for medico-legal purposes by a consultant orthopaedic surgeon Mr D’Souza.  His report confirmed that the neck symptoms had resolved quickly after the accident, but he said that the claimant still had back pain resulting from the accident and that it would be permanent.  The claimant would never again be able to undertake heavy manual work.  The claimant was at that time only 22 years old.

9.	On 23 July 2006 the limitation period expired.  However, two days later, the defendant very sensibly offered a further 14 days in which proceedings could be issued.  On 10 August, proceedings had still not been issued when the defendant made an offer of settlement of £4,700.  No response was received to that offer despite several chasing letters from the defendant’s solicitor. 
 
10.	In November 2006 the defendant made an interim payment of £1,000.  In January 2007 the claimant’s legal team formulated a Schedule of Loss, which, as I have said, claimed in excess of £180,000.  The claimant himself signed that Schedule of Loss.  It included £20,000 for ongoing domestic assistance or care, £148,000 for continuing partial loss of earnings and almost £30,000 for loss of earning capacity.  When this was disclosed to the defendant’s solicitors, they indicated that it would not be possible to settle the claim and proceedings should be issued.  

11.	Eventually a claim form was issued in late February 2007 and served the following month.  Although this was well outside the limitation period and the additional time the defendant had allowed for commencement of proceedings, the defendant did not take the limitation point.  The defence denied liability and put the claimant to proof of loss.
 
12.	Meanwhile, Mr D’Souza had provided a further report in which he confirmed his gloomy prognosis and said that he disagreed with the opinion of Dr Milnes.  The defendant instructed Mr AJ Banks, an orthopaedic surgeon. He opined that the claimant’s complaints of continuing back pain were inexplicable.  He thought that the effects of the accident would have worn off within six months.  

13.	By this time the defendant suspected that this was an exaggerated claim and commissioned video surveillance, which took place in August 2007.  This showed that the claimant was working as a window fitter and appeared quite agile.  In November 2007 the defendant disclosed the surveillance evidence and obtained permission to rely on it. 
 
14.	On 14 November 2007, which is an important date in the light of the Recorder’s costs order, Mr D’Souza retracted his earlier opinion and said that the accident had resulted in an absence from work of six to eight weeks and back symptoms for two years.  It would appear that this change of opinion had resulted from the disclosure of the video evidence.  I say that because the date of the change of opinion coincided so closely with the disclosure of the surveillance evidence.  Somewhat surprisingly, in the light of this climb down by Mr D’Souza, the claimant then made a Part 36 offer to settle his claim for £160,000 and costs.

15.	On 27 November 2007 there was a meeting of orthopaedic experts, and their joint report agreed that the injuries following the accident would have justified an absence from work for eight weeks and would have caused symptoms such as would have disrupted the claimant’s daily living for a period of two years.  In the light of that, in January 2008 the claimant withdrew his claim for past and future domestic assistance for care but, somewhat surprisingly, maintained his substantial claim for loss of earnings and loss of earning capacity.  In February 2008 the claimant’s solicitors, Messrs K, came off the record but later served a schedule of costs totalling almost £37,000 for their services and disbursements in the period in which they had had conduct of the action, namely between February 2006 and February 2008.

16.	Shortly before the hearing, the claimant instructed another firm of solicitors, Messrs Greenhalgh, who attempted to negotiate a settlement on the basis that the claimant would accept an offer of £4,700 in addition to the £1,000 already paid, provided that the defendant would pay all the costs.  The defendant did not agree, and the matter went to trial in May 2008.  The claimant was by that time in person, assisted by his father as a McKenzie friend.  

17.	As I have said, the claimant succeeded on liability.  In his main judgment, the Recorder made no findings or observations as to whether the claimant had at any stage advanced an exaggerated claim.  He simply awarded general damages of £4,000 on the basis of the agreement of the doctors.  He rejected any claim for past loss of earnings because no loss had been proved.  There could obviously be nothing for future loss of earnings or loss of earning capacity in the light of the agreed medical evidence.  The Recorder then awarded £50 for incidental expenses and, as I have said, interest of £93.20.

18.	In his application for costs, the defendant’s counsel asserted that the offer of £4,700, which the claimant had failed to beat, should be treated as having the effect of a Part 36 offer.  He took the Recorder through the events following the offer and submitted that the claim, as advanced, was unrealistic and exaggerated.  The claimant, who, as I have said, was acting in person, alleged that he had been unaware of the offer of £4,700 and also asserted that his then solicitor (that is, Mr K his second solicitor) had been deliberately putting off bringing the action to trial.  

19.	In his costs judgment the Recorder went through the history of the action. He expressed the view that, at the time of the defendant’s offer, it had been reasonable for the claimant to refuse it.  He went on to say that it had remained reasonable for the claimant to maintain his rejection of that offer and his adherence to his Schedule of Loss until Mr D’Souza’s report of 14 November 2007.  Thereafter he should have realised that his claim had a modest value, but he had gone ahead with a seriously exaggerated claim since that date.

20.	The Recorder then said that, because the defendant’s offer had not been paid into court, the claimant’s solicitor could legitimately have felt that the claimant was not at risk of an adverse costs order so long as there appeared to be support (that is, medical support) for the claimant’s position.  It is apparent that the Recorder thought that there was some support for that position until November 2007.  

21.	In this appeal the appellant submits that the Recorder has erred in law.  First, although he referred briefly to CPR Part 44 he did not refer to Part 44.3(2).   Part 44.3 provides: 
“(1) The court has discretion as to -- 
(a) whether costs are payable by one party to another;
(b) the amount of those costs; and
(c) when they are to be paid.

(2) If the court decides to make an order about costs -- 
(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful
party; but

(b) the court may make a different order.
…
4 In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including -- 
(a) the conduct of all the parties;
(b) whether a party has succeeded on part of his case, even if he has not been wholly successful;
and
(c) any payment into court or admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply.”

22.	Mr Crilley, for the appellant, submits that the Recorder did not properly consider from the effect of the Defendant’s offer, which should have been treated as a Part 36 offer. So, treated, its effect would have been to make the defendant the successful party from 1 September 2006.   
 
23.	Further, Mr Crilley submits that the Recorder was wrong to consider that the claimant and his then solicitors were acting reasonably in refusing the £4,700.  The judge thought that it was reasonable to for the claimant to refuse it because the sum had not actually been paid into court.  That is what appears from the judgment.  But, Mr Crilley submits, that was wrong. First, the claimant had not at that stage begun proceedings so the defendant could not protect himself by a payment into court.  Also, it was not a reasonable conclusion, in the light of the Court of Appeal decision in Trustees of the Stokes Pension Fund v Western Power Distribution [2005] EWCA Civ 854.  That case was authority for the proposition that the court has discretion as to when an offer to settle should have the same effect as a payment into court.  The offer would be equivalent to a payment in if it was a genuine offer made in clear terms, was open for acceptance for 21 days and if the offeror could show that he was good for the money.  There was no suggestion that this offer did not satisfy those conditions.

24.	Moreover, said Mr Crilley, it was never realistically possible for the defendant to make a payment into court. He could not do so before proceedings were commenced. When they were commenced in late March 2007, there was about to come into force a rule change which would prevent any payment into court.  That rule change would take effect on 5 April2007.  After that date a defendant could only make a Part 36 offer, not a payment into court.  Taking both those factors into account, the Recorder was plainly wrong to hold that it was reasonable for the claimant to reject the offer on the ground that it had not been paid into court.  The claimant’s solicitor should have realised that the offer was the equivalent of a payment in and that the offer had put the claimant at risk on costs. 

25.	Mr Crilley also submitted that, once it had been accepted that the offer was compliant with the requirement set out in Stokes, there was no possible reason for holding that it should not be given full effect.  The fact that the claimant might have acted reasonably from his point of view was no basis on which to deprive the defendant of the protection of an effective Part 36 offer.  On the facts of this case, said Mr Crilley, there was no basis on which the Recorder could properly depart from the usual order.  The defendant was the winner from 1 September 2006 onwards.

26.	In the alternative, Mr Crilley submitted that, if the Recorder did have a discretion to depart from the usual order, he exercised it in a wholly unreasonable way.  If it became relevant to consider the conduct of the parties, the considerations all pointed in one direction.  The defendant had behaved impeccably.  His conduct was beyond any possible criticism.  On the contrary the claimant’s conduct was open to serious criticism.  He had advanced a grossly exaggerated claim.  He had delayed in commencing proceedings.  He had delayed in responding to the offer.  Only when he was found out by video surveillance had he withdrawn any part of his exaggerated claim.  Even then, he continued to pursue a hopeless claim for loss of earnings and earning capacity.

27.	Mr Crilley closed his submissions by saying that if a defendant makes an accurate estimate of his liability and pitches his Part 36 offer well, he should be entitled to protection from costs after that date, provided he has not misconducted himself in such a way as to disentitle himself from receiving the whole or part of his costs.  Here the defendant’s conduct had been exemplary.

28.	Mr Cunningham, appearing today in person, again assisted by his father as a McKenzie friend, has made three submissions, none of which, I regret to say, is relevant to the issues that are germane in this appeal.  

29.	First of all, Mr Cunningham tells us that he has been deeply dissatisfied with Mr K’s conduct of the case.  He has particularly sought to tell us about events which he says occurred at a meeting in November 2007, which, as I understand it, was a meeting at which there was discussion of the video surveillance evidence.  What happened at a meeting between Mr Cunningham and his legal advisers is not a matter for this court to consider and is entirely irrelevant to the judge’s decision on costs.  It now appears that Mr Cunningham has made a complaint to the Solicitors Regulation Authority about, among other things, Mr K’s conduct at that meeting.  That complaint has been rejected by the SRA but is being pursued to the Legal Ombudsman, who has promised to investigate it.  But whatever happened between Mr Cunningham and Mr K is not a matter which this court can take into account.  For present purposes, this court must treat Mr Cunningham and his legal advisers as a team speaking with one voice.  There is no doubt that the offer of £4,700 was rejected and there is no doubt that, after the disclosure of the video surveillance evidence, the only change in the defendant’s stance was the withdrawal of the claim for care. That was not a reasonable stance.
  
30.	Second, Mr Cunningham submitted that Mr D’Souza had been wrong to change his view.  It was not true to say that the back trouble had disappeared.  Far from it, he is still having back trouble today.  Indeed it is getting worse.  I am afraid that submission cannot assist the respondent.  First of all, this is not an appeal from the judge’s findings or his assessment of damages.  It is only an appeal by the defendant from the Costs Order and, in any event, the judge was bound to assess damages on the basis of the agreed medical evidence.

31.	Third, Mr Cunningham says that the judge had been wrong to think that the damages should be so small.  The judge appeared to think that the claimant was still capable of playing football, and that was a misunderstanding.  Again, that is not relevant, for the reasons that I have just explained.  

32.	Finally Mr Cunningham told us that really what his case is that Mr K had put him up to advancing an exaggerated claim, in particular that he had been put under pressure to claim for damages for care.  But it is absolutely plain that Mr Cunningham well knew that the claim for care was wholly false.  He knew that he did not need any care.  He was working full-time as a window fitter.  So, whoever instigated this exaggerated claim, it was advanced with the claimant’s full knowledge. 

33.	I turn, therefore, to my conclusions in respect of the appeal.  I accept Mr Crilley’s submissions.  It seems to me that the Recorder did fall into error.  Although he referred to Part 44, he did not give proper consideration, as it seems to me, as to who was the successful party at the two important stages of the action.  Obviously the claimant had won some damages and was entitled to costs at the early stage, but the Recorder should have considered the effect of the offer of £4,700 made in August 2006.  Had he given proper consideration to that offer, he must have concluded that from 1 September 2006, the expiry of the 21-day period, the defendant was the successful party.  That was inevitable, because there was an adequate offer, obviously made in good faith and held open for 21 days.  The defendant was plainly able to satisfy that offer.  No-one in 2006 could have thought that such an offer did not put the claimant at risk on costs.  Thus the usual order would have been for the claimant to have his costs up to 1 September 2006 and the defendant to have his costs thereafter.  

34.	Certainly the Recorder was entitled to consider the conduct of the parties to see whether it provided any reason to depart from the usual order.  But it did not.  If anything, consideration of the conduct of the parties confirmed the justice and fairness of the usual order.  The defendant had, I accept, behaved impeccably.  His conduct could not possibly justify depriving him of any part of the costs to which he would usually be entitled.

35.	On the other hand, the claimant’s conduct was open to criticism on a number of grounds.  Leaving aside the delay in starting proceedings and the failure to respond to the offer made in 2006, the most significant aspect of his conduct was the advancement of a greatly exaggerated claim.  That claim was exaggerated from the moment that it was first advanced and not merely from the time when it was exposed as exaggerated.  The Recorder seems to have thought that the claimant had been acting reasonably in advancing a claim for more than £180,000 until such time as Mr D’Souza saw the video films and was obliged to accept that the injury had been of a more limited effect.  Whatever the explanation for the complaints of back pain, presumably reported by the claimant, which drove Mr D’Souza to conclude that the claimant was permanently unfit for any heavy work, and whether or not the explanation was one which reflected badly on the claimant or his solicitors, does not matter.  Even if the explanation gave rise to no cause to criticise the claimant, which seems doubtful, it cannot amount to a sufficient reason to deprive the defendant of the protection of an effective Part 36 offer.

36.	 In my view, the Recorder fell into error and the appeal must be allowed.  I would set aside the Recorder’s order and substitute an order that the appellant (that is, the defendant), should pay the respondent’s (that is, the claimant’s) costs up to 1 September 2006 and that the respondent should pay the appellant’s costs thereafter.

Lord Justice Wall:
 
37.	I agree.

Order: Appeal allowed