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	England and Wales High Court (Queen's Bench Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Morton v Portal Ltd [2010] EWHC 1804 (QB) (30 July 2010) URL: http://www.bailii.org/ew/cases/EWHC/QB/2010/1804.html Cite as: [2010] EWHC 1804 (QB)

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MANCHESTER DISTRICT REGISTRY

		Royal Courts of Justice Strand, London, WC2A 2LL
		30/07/2010

Mr Justice Walker :

Introduction

1. This judgment deals with aspects of the concluding stages of a high value personal injury claim. In December 2005, when aged 55, the claimant Mr Morton suffered serious injuries during the course of building work at the Royal Mills site in Manchester. The first defendant, Portal Limited ("Portal"), was the main contractor for the building of an atrium on the site. Mr Morton used a company, Holmeview Services Ltd ("Holmeview"), in order to carry on business as a roofer, including specialist rain screen insulation work. Holmeview was employed as a subcontractor by Portal to provide a membrane to the gutters. In fulfilment of Holmeview's sub-contract on 5 December 2005 Mr Morton was working on the roof at the site. He walked in a reverse direction and fell through a missing pane of glass. The resultant injuries to Mr Morton included fracture of his T12 vertebra and complete damage to his spinal cord at that level. He is paralysed and will remain so for the rest of his life.
2. These proceedings were begun in 2006. Agreement on liability was reached in 2007. By an order dated 27 November 2007 judgment was entered for Mr Morton against Portal for "75% damages to be assessed." The order also provided that Portal pay Mr Morton's costs of the issues of liability to be assessed, if not agreed, on the standard basis.
3. During 2007, 2008 and much of 2009 considerable work was done to prepare for trial of the dispute as to the damages payable by Portal to Mr Morton. Efforts were made towards settlement in this regard, but for a long time they were almost entirely unsuccessful. Assessment of damages was listed for trial before me at Chester Civil Justice Centre to start on Monday 2 November 2009. On that day Mr Winston Hunter QC and Mr Mark Rawlinson QC appeared for Mr Morton. Mr Mark Turner QC and Mr McCann appeared for Portal. Mr Hunter told me that the parties had been able to reach agreement on everything except for two matters. The first concerned past and future loss of earnings. The second concerned future care. In that regard agreement had been reached as to an annual multiplicand, but the parties had not been able to agree whether the court's order should take the form of a lump sum or periodical payment.
4. Further discussions took place between the parties on 2 November 2009. During the course of the afternoon I was told by counsel that agreement had been reached on past and future earnings. The issue as to whether the court should make a periodical payments order for future care remained. It would have to be decided by the court. Both sides were content that this be resolved on Thursday 5 November 2009. Evidence from Mr Morton's financial adviser would be lodged no later than 4pm on Wednesday 4 November 2009, along with any factual evidence from Mr Morton as to his preference and the reasons for this. I was also told that there would be an issue as to the appropriate order for costs to be made in respect of Mr Morton's claim for loss of past and future earnings. I shall refer to this as "the lost earnings costs issue".
5. On 5 November 2009 I heard oral evidence from Mr Edward Mark Tomlinson, a financial adviser employed by IM Asset Management. At the conclusion of his evidence I was concerned that I did not have an explanation of the risks to Mr Morton in the light of the amounts that had already been spent and how he could make arrangements for his future needs. I adjourned the matter so that further evidence could be prepared.
6. Further evidence was served in December 2009 in the form of two reports by Mr Richard Cropper, an independent financial adviser. The first was dated 30 November 2009. The second was prepared after a "fact find" discussion with Mr Morton, and was dated 4 December 2009. On 3 February 2010 Portal's legal team notified Mr Morton's legal team and the court that the appropriateness of a periodical payments order was no longer in issue.
7. The question whether a periodical payments order should be made is a question for the court. Under CPR 41.7 when considering whether to make such an order the court must have regard to all the circumstances of the case and in particular the form of award which best meets the claimant's needs, having regard to the factors set out in Practice Direction 41B. I shall return to this below.
8. The remaining issues between the parties were principally concerned with costs. It had become apparent that in addition to the issue I had been told about there was a dispute as to whether an agreement between the parties was reached on 2 November 2009 to the effect that Portal would pay Mr Morton's costs of the action save for the costs relating to past and future loss of earnings, which (as noted earlier) were to remain in issue. Resolution of this dispute potentially required analysis to determine what had been expressly agreed between the parties on 2 November 2009, and its true meaning and implications. I was reluctant to allow this complicated issue to delay resolution of the lost earnings costs issue. Accordingly I directed that all issues relating to costs incurred on or after 5 November 2009 should be the subject of directions to be dealt with separately.
9. In this judgment, having now heard oral submissions from Mr Winston Hunter QC on behalf of Mr Morton and Mr Stephen Grime QC on behalf of Portal, I deal with three matters:

(A) whether a periodical payment order should be made.

(B) the lost earnings costs issue

(C) an issue which has arisen as to the date from which interest should run.

(A) Periodical payments order

10. The reports of Mr Cropper identified disadvantages associated with a lump sum payment for future care. They explained how periodical payments could be used to generate a surplus in the early years and described how Mr Morton could "cut his suit according to his cloth" on matters other than future care.
11. The factors referred to in CPR 41.7 (see paragraph 7 above) are set out in paragraph 1 of Practice Direction 41B. I take them in turn.
12. The first factor is the scale of the annual payments taking into account any deduction for contributory negligence. My concern in November 2009 was that after the deduction of 25% as the agreed proportion for contributory negligence, the payments would be very significantly less than the amount that Mr Morton would require. This has now been examined in detail by Mr Cropper. I am satisfied from the explanation in his report that the difficulties facing Mr Morton in this regard are not as great as might ordinarily have been expected, and that the sums available by way of annual payments will go a considerable way towards meeting Mr Morton's needs.
13. The second factor is the form of award preferred by the claimant, including the reasons for the claimant's preference and the nature of any financial advice received by the claimant when considering the form of award. The principal reasons for Mr Morton's preference reflect the disadvantages associated with a lump sum payment for future care. Mr Cropper has given a full analysis of these disadvantages. I am satisfied that his report offers a thorough and independent analysis. In my view it is in Mr Morton's interests to avoid those disadvantages to the extent practicable.
14. The third factor is the form of award preferred by the defendant including the reasons for the defendant's preference. The position now is that Portal no longer has any objection to a periodical payments order.
15. Taking all these matters together I am satisfied that a periodical payments order is the appropriate order in the present case.
16. Earlier in this judgment I said that the question whether a periodical payments order should be made is a question for the court. It is a question which may be particularly acute when the claimant is too young to be able to form a considered opinion on the advantages and disadvantages of such an order, or otherwise lacks capacity.
17. Mr Morton is of full age and capacity. At one stage it appeared to be suggested on his behalf that for that reason the court should treat his desire to have a periodical payments order as conclusive. In my view that cannot be right. The legislative history is that s 2(1) of the Damages Act 1996 permitted the court to make an order that damages were wholly or partly to take the form of periodical payments. Such an order could, however, only be made if both parties agreed. In Wells v Wells [1999] 1 AC 345 Lord Steyn said at 384b:

… there is a major structural flaw in the present system. It is the inflexibility of the lump sum system which requires an assessment of damages once and for all of future pecuniary losses. … the lump sum system causes acute problems in cases of serious injuries with consequences enduring after the assessment of damages… it is a wasteful system since the courts are sometimes compelled to award large sums that turn out not to be needed. It is true, of course, that there is statutory provision for periodic payments: see s 2 of the Damages Act 1996. But the court only has this power if both parties agree. Such agreement is never, or virtually never, forthcoming. The present power to order periodic payments is a dead letter. The solution is relatively straight forward. The court ought to be given the power of its own motion to make an award for periodic payments rather than a lump sum in appropriate cases.

18. The concerns expressed by Lord Steyn were examined in the report of a Working Party set up by the Master of the Rolls. The report was in turn followed by amendments to the 1996 Act under the Courts Act 2003. Those amendments came into force on 1 April 2005. Since that date s 2(1) of the 1996 Act has provided:

2. (1) A court awarding damages for future pecuniary loss in respect of personal injury:-

(a) may order that the damages are wholly or partly to take the form of periodical payments, and

(b) shall consider whether to make the order.

19. It was in those circumstances that the Civil Procedure Rules Committee introduced CPR 41.7. As mentioned above, this required the court, when considering whether to make a periodical payments order, to have regard to all the circumstances of the case and in particular the form of award which best meets the claimant's needs. That requirement seems to me to be quite inconsistent with any contention that the amendments to the 1996 Act handed the claimant a trump card. If there is an issue as to what form of award best meets the claimant's needs, the court would have to determine that issue – and the mere fact that the claimant believes that such an award will best meet the claimant's needs cannot prevent a defendant from inviting the court to conclude that the claimant is wrong. If there were any doubt about this, the matter is made perfectly clear by paragraph 1 of Practice Direction 41B. This identifies as a factor – but no more than a factor – the form of award preferred by the claimant. Whatever may be the claimant's preference, the court must nevertheless have regard to other factors, the first of which is the scale of the annual payment taking into account any deduction for contributory negligence. The third factor is the form of award preferred by the defendant including the reasons for the defendant's preference. This approach is manifestly inconsistent with any contention that merely because a claimant is of full age and capacity the court must give effect to a preference on the part of the claimant for a periodical payments order.
20. Even without the Practice Direction and CPR 41.7 it seems to me that the legislative history is inconsistent with any contention that the 2003 Act amendments enabled a claimant of full age and capacity to insist that a periodical payments order must be made. I have quoted above from the speech of Lord Steyn in Wells v Wells where he identified problems in cases of serious injuries with consequences enduring after the assessment of damages. The problem which he highlighted was the unwillingness of defendants to agree to a periodical payments order. He did not suggest that defendants should be compelled to submit to such an order if a claimant desired it. The answer that he identified was for the court to have a power to make such an order "of its own motion" in appropriate cases. It seems to me plain that Lord Steyn contemplated that determination of what were "appropriate cases" would be a question to be considered and decided by the court. There is no reason to think that Lord Steyn had in mind that this would be so only in cases where a claimant was not of full age or for some other reason lacked capacity. Looking at the matter in the round, it seems to me that the problem identified by Lord Steyn was that under the 1996 Act as originally enacted the defendant held the trump card. There was good reason to deprive the defendant of that trump card, but I cannot detect any legislative intention to hand the trump card over to the claimant.
21. In written submissions Mr Morton's legal team did not seek to say that the effect of the Damages Act 1996 as amended is to give a trump card to a claimant of full age and capacity who desires a periodical payments order. Instead, however, it was submitted that a special position arose where a claimant of full age and capacity had reached agreement with a defendant that damages for future pecuniary loss in respect of personal injury should take the form of periodical payments. The written submissions acknowledged that under s 2(3) of the 1996 Act a court may not make an order for periodical payments unless satisfied that the continuity of payment under the order is reasonably secure. They appeared nonetheless to suggest that the court has no duty to consider whether it is so satisfied if the parties were agreed upon the matter. I doubt whether that is a tenable construction of s 2(3). Further, even without having regard to the provisions of s 2(3), it seems to me that s 2(1) of the 1996 Act makes it perfectly clear that before making an order which awards damages for future pecuniary loss in respect of personal injury the court is under an obligation to consider whether to make an order that the damages are wholly or partly to take the form of periodical payments. There is nothing to suggest that agreement of the parties - either that the damages should be lump sum only, or that they should wholly or partly take the form of periodical payments – would remove that obligation. It follows that if the parties were to reach a contractual agreement in this regard the court would not be required to give effect to that contract. Moreover, in the present case I doubt whether any such contractual agreement has been reached – Portal has done no more than indicate that it does not object to the making of a periodical payments order.
22. It is not necessary in the present case for me to determine whether any particular factor – be it the mere fact that a claimant of full age and capacity desires a periodical payments order, or this coupled with contractual agreement for, or a lack of objection to, a periodical payments order – means that the court is no longer under an obligation to consider whether to make the order. For the reasons given earlier, my view is that having considered all relevant factors it is right to make the order. Having reached that conclusion I did not think it either necessary or desirable to invite oral argument on the questions identified above, and the views which I have expressed should be regarded as provisional only.

(B) The lost earnings costs

23. Mr Morton's position is that he is entitled to an order that Portal pay his costs of the claim for loss of earnings on the standard basis to be assessed if not agreed. Such an order is without prejudice to Portal's right to raise before the costs judge all legitimate issues at the assessment including, where appropriate, issues as to unreasonableness, including 'conduct' and proportionality.
24. Portal submits that the costs of the issue of past and future earnings should be paid by Mr Morton to Portal. In the alternative, Mr Morton should be disallowed his costs of this issue, or at least have those costs substantially reduced. These submissions, as Portal acknowledges, are necessarily founded on an assertion that the loss of earnings costs should be dealt with differently from other costs. Portal accepts that it must pay the costs of all other issues on which agreement had been reached by the end of 2 November 2009. In order to understand the rationale for Portal's stance I give an account of the history of negotiations (B1 below), relevant parts of the Civil Procedure Rules (B2 below) and the parties' stance as to relevant legal principles (B3 below) before turning to my analysis (B4 below).

B1: history of negotiations

25. The relevant history begins with the formal schedule of damages in respect of which Mr Morton personally signed a statement of truth in June 2009. The schedule set out figures on a 100% basis. By this time, however, it had been agreed that Mr Morton would be entitled to recover on a 75% basis only. For convenience when describing the contentions in the schedule and all later discussions of figures, I shall unless stated otherwise set out figures on a 75% basis only. On that basis Mr Morton said that his claim for past and future earnings entitled him to a lump sum in the order of £1.72 million. In relation to future care and case management he sought annual payments in respect of his care requirements in the order of £36,400, with additional amounts in the region of £780 for pensions contributions from ages 61 to 80 and £22,400 for night sleep-in care from ages 65-80. While seeking periodical payments the schedule nevertheless identified lump sum values for the total future care which on a 75% basis amounted to roughly £750,000. As regards all other heads of damage, Mr Morton's 75% claim was in the region of £1 million. The total value of the 75% claim, if future care and case management were treated as a lump sum, was just under £3.5 million – but it should be noted that Mr Morton did not accept that future care and case management should be by way of a lump sum.
26. Portal's counter-schedule allowed £50,000 for past and future loss of earnings, £256,000 for future care and case management by way of lump sum only, and £183,000 for all other past and future loss. Taken together, Portal was thus admitting a total value for the claim on a 75% basis of £489,000. While this was the formal stance of Portal, it nevertheless on 24 June 2009 made two offers. The first was on a Part 36 basis in an amount of £1.5 million. The second was a without prejudice offer in an amount of £1.66 million.
27. On 14 July 2009 Mr Morton indicated that an amount of £1.7 million for the past and future earnings and "all other" elements would be acceptable, with a periodical payments order in relation to future care and case management.
28. Portal responded on 9 October 2009, again with two alternatives. The first was a Part 36 offer of £1.75 million on the basis that there would be no periodical payments order. The second was a Part 36 offer of £375,000 for the past and future loss of earnings element only.
29. Portal's offers of 9 October 2009 were the subject of responses by Mr Morton on 21 October 2009. As regards the overall position, he was prepared to accept £1.525 million provided that there was a periodical payments order in addition. As regards the single issue of past and future loss of earnings, he was prepared to accept £725,000.
30. On 30 October 2009, the Friday before the trial was due to commence the following Monday, Portal made a without prejudice offer. Under this offer future care and case management would be agreed at £40,000 per annum if the court considered it appropriate to make a periodical payments order. £725,000 was offered for the "all other" element of the claim. The offer of £375,000 for past and future loss of earnings, as previously made on 9 October 2009, remained in force.
31. In a telephone conversation on the afternoon of 30 October 2009 between Mr Hunter and Mr Turner it was agreed that the "all other" element of the claim was to be quantified at £725,000. It was further agreed that future care and case management should be valued at an annual sum of £40,000, with the court asked to determine whether it should be paid as a lump sum or as a periodical payments order, and that the court would be asked to determine the appropriate sum for past and future loss of earnings. It was broadly on this basis that the case was opened at the hearing before me on the morning of Monday 2 November 2009, although I was not told the detailed figures.
32. Further negotiations occurred after the case had been opened on 2 November 2009. The result was that on the afternoon of 2 November 2009 the parties agreed that the past and future loss of earnings claim should be quantified at £385,000. Thus on past and future loss of earnings Mr Morton by negotiation achieved £10,000 more than Portal had previously offered.

B2: relevant provisions of CPR

33. The relevant provisions of the Civil Procedure Rules are not in dispute. I take them from Portal's position paper.
34. CPR 44.3(1) gives the court general discretion as to whether costs are payable by one party to another. CPR 44.3(2) then states:

44.3(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. [emphasis added] .

35. CPR 44.3(4) states that the Court must have regard to all the circumstances of the case when deciding what order (if any) it make about costs, to include:

(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.

36. CPR 44.3(5) goes further to define what "the conduct of the parties" may include:

(5) The conduct of the parties includes –

(a) conduct before, as well as during, the proceedings and in particular the extent to which the parties followed the Practice Direction (Pre-Action Conduct) or any relevant pre-action protocol;

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c) the manner in which a party has pursued or defended his case or a particular allegation or issue; and

(d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim. [emphasis added]

37. CPR 44.3(5)(d) (in conjunction with CPR 44.3(2)(b)) gives the Court the power to disallow all of the claimant's costs of an issue if the conduct of the claim or the manner in which it has been presented was unreasonable. In this case, Portal's contentions are founded on the manner in which it says the case, which has been substantially dominated by the issue of earnings, has been conducted. The court can disallow costs under CPR 44.3(2)(b).
38. In the alternative, Portal notes that CPR 44.3(6) equips the Court with a number of possible orders which it may make once it is decided that an order for costs (other than under the "general rule" of CPR 44.3(2)(a)) is to be made. The range of available options under CPR 44.3(6) is:

(6) the orders which the court may make under this rule include an order that a party must pay-

a) a proportion of another party's costs;

b) a stated amount in respect of another party's costs;

c) costs from or until a certain date only;

d) costs incurred before proceedings have begun;

e) costs relating to particular steps taken in the proceedings;

f) costs relating only to a distinct part of the proceedings; and

g) interest on costs from or until a certain date, including a date before judgment.

B3: legal principles the parties' stance

39. Many of the relevant legal principles were not in dispute. In particular, Mr Morton identified agreed propositions of law as follows:

(a) where parties have reached agreement as to the substantive dispute but not as to costs there is no rule of law that precludes the Judge who was to hear the substantive dispute from determining issues as to costs: Brawley v Marczynski [2002] EWCA 756.

(b) The cases in which the judge will be asked to decide questions of costs – following compromise of substantial issues may well be those where the relevant facts material to a determination of the costs issue are disputed. Where it is clear which party is the winner and the loser a judge may be more willing to determine outstanding issues of costs even if for whatever reason the parties are not agreed. However a Judge should be slow to embark on the determination of disputed facts solely in order to put himself in a position to make a decision about costs: BCT Software Solutions Ltd v C Brewer & Sons Ltd [2003] EWCA Civ 939

(c) A costs judge carrying out an assessment of costs under CPR part 44.5 is entitled to take into account issues as to conduct in determining whether the costs incurred were proportionate and/or reasonable and is not precluded from doing so merely because the matters could have but were not raised before the judge who was due to hear the substantive action: Drew v Whitbread [2010] EWCA Civ 53.

40. I did not understand Mr Grime to dispute any of these propositions. Nor did Mr Grime dispute that the default position was that costs should follow the event, and that if that default position applied then the relevant event was an outcome favourable to Mr Morton. Mr Grime's essential submission was that the result of the process of settlement demonstrated that the amount of Mr Morton's claim had been grossly exaggerated. That crucial factor enabled the court to depart from the default position.
41. In relation to exaggeration Portal's written submissions referred to Painting v University of Oxford [2005] EWCA Civ 161. This was a personal injuries case in which liability was agreed. The claimant put the value of her claim at £400,000 on the basis of a contention that she had sustained a back injury which would prevent her from working again. The judge rejected this contention after hearing evidence in the course of a 2 day trial. He awarded the claimant just over £25,000. The defendant had £10,000 standing in court. As the claimant obtained judgment for a sum in excess of that, the judge made an order that the defendant should pay her costs. On appeal the defendant contended that the real issue at trial had been exaggeration, and that on that issue it had been successful. The Court of Appeal held that while the judge had a wide discretion on costs, he had erred in failing to have regard to the question, "who was the real winner in this litigation?" Maurice Kay LJ (with whom Longmore LJ agreed) identified two additional points which "called for the affording of considerable weight":

"The first is the strong likelihood that, but for exaggeration, the claim would have been settled at an early stage and with modest costs. The second is that at no stage did Mrs Painting manifest any willingness to negotiate or put forward a counterproposal to the Part 36 payment. No-one can compel a claimant to take such steps. However, to contest and lose an issue of exaggeration without ever having made a counterproposal is a matter of some significance in this kind of litigation. It must not be assumed that beating a Part 36 payment is conclusive. It is a factor and will often be conclusive but one has to have regard to all the circumstances of the case."

42. Exaggeration also featured in Jackson v Ministry of Defence [2006] EWCA Civ 46. This was a personal injuries action in which liability was admitted, although quantum was in dispute.  The claimant sought more than £1 million damages and was found at trial to have exaggerated his disabilities.  The defendant had made an offer of £150,000.  The Court awarded £155,000. It held that the claimant should be limited to recovering 75% of his costs in order to reflect the small margin by which he had beaten the defendant's offer and to reflect his conduct, including the exaggeration of his claim. The defendant appealed. Miss Griffiths on its behalf had argued that, as in Painting, it had been the successful party because all of the trial had been about whether the claimant had exaggerated his claim. The judge had rejected this argument, noting that it would be open to the defendant before the costs judge to challenge specific items relating to abandoned claims. The Court of Appeal did not interfere with the reduction made by the trial judge. Tuckey LJ (with whom Keene and Wilson LJJ agreed) said at paragraph 16:

The reduction which the Judge made – and the reduction which we anticipate the costs judge is likely to make – must act as a considerable disincentive to claimants and their advisers against making exaggerated claims. The case of Painting is, as Miss Griffiths accepted, an exceptional case where the claimant persisted in a claim for £400,000 at trial and was awarded about £25,000 at the end of the process.

43. These cases, along with Hall v Stone [2007] EWCA Civ 1354 and Straker v Tudor Rose [2007] EWCA Civ 368, were reviewed by the Court of Appeal in Widlake v BAA Limited [2009] EWCA Civ 1256. Ms Widlake claimed damages for injuries resulting from a fall. Liability was not disputed. Initially she claimed in excess of £150,000, but this was reduced to something in the region of £30,000 before trial. The defendant had paid £4,500 into court pursuant to CPR Part 36. The judge awarded a total of just over £5,500. He concluded that Ms Widlake had set out to abuse the court's process in a cynical and dishonest fashion. He held that for that reason, notwithstanding that she had recovered damages in excess of the amount paid into court on behalf of the defendant, Ms Widlake should pay the costs of the defendant. Ms Widlake successfully appealed. Ward LJ, with whom Smith and Wilson LJJ agreed, concluded that what the judge should have done was to make no order as to costs. At paragraphs 36-44 he said this:

36. Thus the first question is to determine which was the unsuccessful party. There may appear to be some difference in the approach of this Court if one compares Painting with Jackson or Hall and I hope I can reconcile those differences. I prefer the approach of Tuckey, Keene and Wilson L.JJ. in Jackson that the claimant was successful in the sense that he had established a claim for damages and beaten the payment into court. Although it was a case set in a commercial context, Waller L.J. was surely right in Straker to endorse Longmore L.J.'s views that the most important thing is to identify the party who is to pay money to the other even in a case of personal injury. The claimant had to come to court to establish her claim, a genuine claim, because she had suffered an injury through the admitted negligence of the defendant. The judgment in her favour is a vindication of her stance.

37. The authorities which I have analysed deal with exaggeration as an "issue" in the case. I do not for a moment suggest that the question of exaggeration was not a proper and important consideration for the court in the exercise of its discretion and, having been given a steer in this direction by Waller L.J. in Straker, I find it useful to look at the rules to see how it fits into the analysis offered by the rules. The umbrella to cover it may be CPR 44.3(4)(a). That requires the court to have particular regard to the conduct of the parties and conduct is defined at 44.3(5) so as to include, at (b):"whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue." The rules draw a distinction between an "allegation" and an "issue" which I confess had not struck me until I read Waller L.J.'s judgment. At the risk of being pedantic, I think the cases can be reconciled by treating exaggeration as "an allegation" relevant to "the issue" of the quantum of damages.

38. So viewed, there may be no need to determine who has been the "winner" of a particular "issue". All the court needs to do is establish whether it was unreasonable for the claimant to pursue her allegation that she had suffered such pain (a) that it justified her case that her pre-existing condition was accelerated by 5 years and (b) that it was of the severity she described in support of her claim for general damages for pain and suffering. If it was unreasonable then that was conduct which the court had to take into account.

39. The way in which regard is to be had to that conduct is principally to enquire into its causative effect: to what extent did her lies and gross exaggeration cause the incurring or wasting of costs? It is obvious that she should recover nothing in respect of the reports she obtained from Miss Porter and the costs judge would disallow anything arising from that. On the other side of the balance sheet the defendant should have some compensation for the wasted costs incurred by having to consider those reports and to deal with the case on the basis that they formed part of the pleaded claim which it had to meet. The lie was short-lived: on receipt of its own medical report in January 2007 the defendant knew of the pre-existing injury and was able to judge how to run its own case. The defendant was able to protect itself by making a proper Part 36 offer. Nevertheless the schedule of loss before the court, and thus the case the defendant still had to meet, on paper at least, was one valued by the claimant in the sum of about £160,000. The defendant was entitled to protect itself against a claim of that magnitude or even a claim of some £35,000, which it became three weeks before the trial. The claimant was not treating it as a claim which should be measured at about £5,000. Small claims are not worth contesting, are not worth engaging enquiry agents to carry out covert surveillance and small claims are often not worth fighting and so are much more likely to settle. Here the defendant was put to expense arising out of the manner in which the case was unreasonably being conducted, certainly up until the final schedule of loss was served in October. Some compensation for the defendant put to the expense of defending such an exaggerated claim should be entered on the notional balance sheet.

40. Similar costs consequences apply if one considers the case under umbrella of CPR 44.3(5)(d) which is obviously the most appropriate rule in play. The court simply asks: "whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim." Here there was gross exaggeration as the judge found. That was, therefore, conduct to take into account in disapplying the general rule.

41. In addition to looking at it in terms of costs consequences, the court is entitled in an appropriate case to say that the misconduct is so egregious that a penalty should be imposed upon the offending party. One can, therefore, deprive a party of costs by way of punitive sanction. Given the judge's findings of dishonesty in this case, that may be appropriate here. I sound a word of caution: lies are told in litigation every day up and down the country and quite rightly do not lead to a penalty being imposed in respect of them. There is a considerable difference between a concocted claim and an exaggerated claim and judges must be astute to measure how reprehensible the conduct is.

42. Defendants are, therefore, used to having to cope with false or exaggerated claims. Defendants have a means of protecting themselves. Part 36 is that shield. The court may not now always attach the same significance to a defendant's failure to beat his payment into court as applied in the days before the CPR. Coming close can now sometimes have an impact on costs. But the rule remains that a defendant has this ability to win outright by making an offer which the claimant fails to beat and where, as here, the facts were well-known to this defendant from the time of Mr Karpinski's report, the fact that it did not make a sufficiently high Part 36 offer counts against it. The basic rule is that the claimant gets his (or her) costs if the defendant fails to make a good enough Part 36 offer so that goes to the claimant's credit on the balance sheet.

43. Part 36 now also affects a claimant. Whilst not obliged to make a counter-offer, in this day and age of encouraging settlement, claimants who do not do so run the risk that their refusal will impact upon the costs they may otherwise be entitled to recover. Here there was no attempt to negotiate and that counts against the claimant.

44. Having tried to represent these considerations in a balance sheet, where does the balance lie? I start with the claimant getting her costs because she beat the payment in and was the successful party. That is the starting point. Those costs should not include costs related to Miss Porter's reporting and the costs judge must be directed to exclude those matters. Pursuing her claim in the exaggerated way she did had the result that this became heavily contested litigation whereas it might have settled. The defendant has been put to unnecessary expense. But an order for costs against the claimant is less justified where, as here, the defendant failed to alleviate its predicament by making a proper Part 36 offer and so lost the opportunity provided by the rules of recovering those costs from the claimant. The claimant's dishonesty must be penalised. The claimant's failure to negotiate a claim which was clearly capable of being settled must also be recognised. When I balance those factors, and attempt to do justice to both parties and to be fair to them, I conclude that the right order in this case is that there be no order for costs."

44. I shall return later in this judgment to examine the factual basis for the assertion that there had been exaggeration. Assuming that the assertion of exaggeration could be made good, Mr Grime acknowledged that he needed to deal with 3 matters relied upon by Mr Hunter. The first of these was a contention that it was inappropriate to isolate the claim for past and future loss of earnings. The second was an assertion that the better course was to leave questions of the present kind over to be dealt with at detailed assessment before the costs judge. The third concerned the effect that exaggeration had had in the particular circumstances of the case.
45. As to isolating out the costs of a particular issue – in the present case, the claim for past and future loss of earnings - Portal's written submissions referred to the leading case of AEI Rediffusion v Phonographic Performance [1999] 1 WLR 1507. Lord Woolf MR gave guidance as to how the then new CPR 44.3 should be applied. At pages 1522-1523 he said:

I draw attention to the new Rules because, while they make clear that the general rule remains, that the successful party will normally be entitled to costs, they at the same time indicate the wide range of considerations which will result in the court making different orders as to costs. From 26 April 1999 the 'follow the event principle' will still play a significant role, but it will be a starting point from which a court can readily depart. This is also the position prior to the new Rules coming into force. The most significant change of emphasis of the new Rules is to require courts to be more ready to make separate orders which reflect the outcome of different issues. In doing this, the new Rules are reflecting a change of practice which has already started.  It is now clear that too robust an application of the 'follow the event principle' encourages litigants to increase the costs of litigation, since it discourages litigants from being selective as to the points they take. If you recover all your costs as long as you win, you are engaged to leave no stone unturned in your effort to do so.

46. An issue based approach was further considered by the Court of Appeal in Burchell v Bullards [2009] EWCA Civ 1256. This was a construction case in which the claimant claimed payment for constructing extensions to the defendant's home. The defendant counterclaimed for defects in the roof. The claimant succeeded on his claim and the defendant had some success on its counterclaim.  The result was that a balance was payable to the claimant. The judge awarded the costs of the claim to the claimant and the costs of the counterclaim to the defendants. The Court of Appeal reversed that decision and held that the proper order was that the claimant should recover 60% of the costs of the entire proceedings. Ward LJ (with whom Rix LJ agreed) said:

29. The modern tendency is at least to consider the award of costs on an issue-by-issue basis.  The Recorder addressed that but dismissed it because of the difficulty in the preparation of a bill of costs and the enormous complication of the process of detailed assessment. I agree with that. I also agree with him that it is better, if possible, to deal with the matter another way. His judgment shows, however, that he did not find another way: he resorted to costs following the event. In doing so I fear he fell into error.

30. His error in my judgment was to fetter his discretion and not to go on to consider, as he should have considered, what alternatives were available to him. The most obvious and frequently most desirable option is that signposted in [CPR r.44.3(6)(a)], namely to order a proportion of the party's costs to be paid. The Recorder had directed his mind to paragraph (6)(f), namely ordering costs relating only to a distinct part of the proceedings, but he seems to have overlooked paragraph (7) which required him, where he would otherwise have considered confining costs to part of the proceedings only, to make instead, where practicable, an order under (6)(a) for a proportion of the costs. Ordering a proportion of costs obviates all the difficulties he acknowledged in an assessment of how much is properly to be allocated to each and every issue considered in isolation. Better by far to decide, despite the difficulty and imprecision of the calculation, that the relevant issue or issues should bear a percentage of the costs taken overall. As the Recorder erred in principle, the appeal on this aspect must be allowed.

...

33. I take as my starting point the Recorder's decision, which I would honour, to exercise his discretion to give separate judgments on claim and counterclaim on the basis that it would make no difference as to the costs. The order as drawn did in fact allow the set-off, because paragraph 3 of the judgment ordered the defendants to pay the claimant the difference between the sum awarded to the claimant on his claim and the sum awarded against him on the defendants' counterclaim. How, in circumstances like that, does one decide who the unsuccessful party is? This was, after all, a form of commercial litigation where each side was claiming money from the other.  Costs following the event is the general rule and in this kind of litigation the event is determined by establishing who writes the cheque at the end of the case. Here the defendants do. They were the unsuccessful parties and my starting point is that the claimant is entitled to the costs of the proceedings, claim and counterclaim taken together....

…

44. Balancing all those factors how then is justice to be done? The claimants cannot have the whole of their costs which follow the event that they were successful to the tune of £5,000-odd. Some recognition has to be paid to the fact that a large part of the trial was taken up with the counterclaim on which the defendants did have some, albeit limited, success. The object of the exercise is to make a just and fair award of costs. Standing back and looking at the matter in the round it seems to me that the claimant enjoyed the greater share of the spoils of victory. In my judgment justice is achieved by awarding the claimant 60% of the costs of the proceedings, claim and counterclaim, lumping them together."

47. As to the second point, Mr Grime submitted that leaving the matter to the costs judge in its entirety would waste the time and effort that has gone into the present exercise. It was appropriate for the court now to adjust the costs outcome because of specified features identified by Portal. Other more detailed points could then be made to the costs judge by Portal, and the costs judge would be astute to see that Mr Morton was not penalised twice for the same complaint. On the third point, Mr Grime advanced a number of reasons why it was likely that the exaggerated claim for past and future loss of earnings had increased Portal's costs. Mr Grime made a further observation that the court needed to consider the matter against the background that this kind of litigation is highly expensive. No further authorities were relied upon in argument on these additional points.

B4: analysis.

48. Mr Grime submitted that when the figures were squeezed down for settlement it can be seen that the element which gave was that for past and future loss of earnings. The figures which I have set out when reciting the history of negotiations in my view show that it was in relation to past and future loss of earnings that Mr Morton eventually agreed on the greatest reduction from his claimed figures. Mr Hunter did not seriously contend to the contrary.
49. Thus Mr Morton now accepts that the past and future loss of earnings claim is worth very much less than had originally been contended. In my view that fact does not of itself show that there has been exaggeration within CPR 44.3(2)(b). That paragraph cannot have been intended to be satisfied merely because a genuine claim was overestimated. In the Widlake case the court distinguished "exaggeration" from "concoction". Without needing to involve concoction, "exaggeration" for the purposes of CPR 44.3(2)(b) must nevertheless in my view indicate conduct meriting criticism.
50. Mr Grime noted that at the time of the accident Mr Morton was running his own business. His case that while past profits of that business had not been spectacular, those profits would have mushroomed during the period after the accident because he would have taken advantage of opportunities from a new product marketed by a German company, Continental Rubber Company. That claim thus depended on a single product. It also depended upon Mr Morton, who had moved to Cumbria for a better work/life balance, being not merely an active worker but also an active proprietor employing others in the exploitation of this supposedly highly profitable product. Mr Morton's assertions in this regard were the subject of witness evidence by him. They were also supported by expert evidence from Mr Udale who had been the auditor of Mr Morton's company in the period prior to the accident. Mr Udale could thus be expected to have a reasonably good knowledge of the company. What Mr Morton had said to Mr Udale about retirement conflicted with the case he sought to advance on loss of future earnings.
51. Prior to the trial Mr Morton admitted that he had misled his accountant and the Inland Revenue. In a witness statement dated 15 February 2009 he said that he had done "cash in hand" work which was not entered into the books. The amount involved was said to be of the order of £24,000 - £30,000 over a period of 2 years. In addition Mr Morton had now acknowledged that he had misled his accountants by falsely stating that around £20,000 had been spent on materials for work when, in fact, it was spent on renovating his own house. In his witness statement of 3 April 2009 Mr Morton acknowledged that he would routinely overstate the materials content of jobs and understate the labour content to the corresponding amount in order to reduce the level of tax that was stopped under the CIS scheme. Mr Grime accepted that these deceptions on the part of Mr Morton had had the effect of understating the profits of his company. Thus it could not be said that they had caused any detriment to Portal by giving rise to an overstatement of the trading figures from which the potential for future lost earnings would in part be derived. The relevance was simply this: it demonstrated that Mr Morton was a person whose books could not be believed. Accordingly it provided support for Portal's contention that there was no basis for the vast bulk of the loss of earnings claim.
52. Similar support was said by Mr Grime to be found in the disappearance of a substantial quantity of contemporaneous documentation. Mr Morton's account is that records of his business were destroyed when they were cleared out of his garage. Mr Grime acknowledged that this explanation has not been tested. He submits that it should nevertheless be borne in mind that there was a duty on Mr Morton as a director of the company to provide records for the purpose of enabling appropriate returns to be made to the revenue. He knew what the duties of a director were, and the storage of records in a garage would not appear to be consistent with the discharge of duties of a company director. The problems arising from absence of records cause difficulties both in relation to the illegitimate fiscal "adjustments" and the lack of year end stock data. Even without these records, however, Portal's expert concluded that enough records had been provided to enable him to form the view that the accounts for the year to 31 March 2006, a year of "fundamental importance" to the claims put forward, were not "entirely accurate in terms of sales and material costs."
53. In considering all these points it is important to bear in mind that I have not heard oral evidence on any of these matters. That fact distinguishes this case from all the authorities cited to me other than BCT Software Solutions Ltd v C Brewer & Sons Ltd. In accordance with what was said in that case I must exercise considerable caution before reaching, on a broad brush examination of documents alone, any conclusion adverse to Mr Morton. I do not say that the distinction is necessarily crucial. There may be cases in which from the documents alone the court can infer that exaggeration occurred and was of a nature which made it appropriate to depart from the default position. The relevant factors in the present case however do not all point towards exaggeration in the sense of conduct open to criticism. It appears to me to be a significant point in Mr Morton's favour that Mr Udale, the accountant who was familiar with the business, provided expert evidence generally supporting Mr Morton's contentions. While I do not in any way underestimate the seriousness of the illegitimate fiscal "adjustments" admitted by Mr Morton they were deceptions made with a view to minimising the company's tax liabilities. It cannot be assumed that a person who has been willing to deceive the Inland Revenue should be regarded as someone who is equally willing to deceive a court or has done anything else in his dealings with the court such as would merit criticism. As to the loss of documents, the account given by Mr Morton is plausible. This is not a case in which it is asserted that a claimant has produced false documents for the purpose of inflating a claim.
54. I add that standing back, whether the case is taken as a whole, or whether one looks at the lost earnings claim alone, overall it seems to me that Mr Morton is the winner. There has been no trial at which time has been taken up with points on which he lost. The preparatory work for trial has all been work of a kind familiar to experienced lawyers in this field. I add that this is not a case involving failure to negotiate (see para 44 of Widlake) or any willingness to put forward a counter-proposal (see Painting)
55. For all these reasons I do not consider that I am able to make any findings as to Mr Morton's conduct such as would warrant a departure from the default position.
56. In these circumstances it is not necessary for me to examine the three additional matters relied upon by Mr Hunter. I shall make only brief comments on each.
57. The first concerned whether it was appropriate to isolate out the past and future loss of earnings claim. In this regard Mr Hunter stresses that the negotiations on 2 November 2009 were consequent upon the settlement of the vast majority of all other matters in dispute on 30 October 2009. A difficulty for Mr Morton during the course of negotiations prior to 30 October 2009 was that he wished to have both a periodical payments order and a sizable contingency sum awarded for matters other than future care and case management. Without such a sum he would not to be able to meet the deficiency arising from the fact that the periodical payment would be for only 75% of his annual costs. It was only on 30 October 2009 that such an offer was on the table. Mr Grime responds that in large personal injuries claims it is often the case that different issues will arise some of which will not have much connection with others. This was a case where there was no residual earning capacity, and accordingly past and future loss of earnings had little in common with issues about care, aids and accommodation. That was a natural division and it was perfectly possible to look at separate issues. Such an approach was in accordance with what had been said by Lord Woolf MR in the AEI Rediffusion case. While later cases had pointed out that there could be practical problems with assessment, and accordingly a preferable course might be to make an order as regards a proportion of the overall costs, that was not open in the present case because the parties had specifically agreed that the costs of the loss of earnings claim could be the subject of argument before the court.
58. In my view the agreement by the parties does not materially assist Portal on this or any other aspect. It simply means that if the court thought it appropriate to make an issues-based order then Portal would be able to secure such an order. Had the issue of past and future earnings been the subject of a trial I might well have concluded that it would be appropriate to make such an order, although I am by no means persuaded that I would have done. Such an order has the disadvantages identified in Burchell. In the absence of a trial, and given the pressure of time during the course of the weeks and days prior to the start of trial, I do not consider that in the present case it would have been right to make an issues-based order. In that regard I take into account the second factor identified by Mr Hunter. It seems to me that the costs judge is the person who will be best equipped to assess whether particular elements of the claim were unfounded to such a degree as to make award of costs inappropriate. The costs judge will have the advantage of a structured procedure for detailed consideration of relevant questions. I would add that there is in my view some force in Mr Hunter's submissions that there is a danger of being penalised twice. That danger may be unlikely to arise if I direct that there be no order as to the lost earnings costs or that the entirety of the lost earnings costs be paid by one side to the other. If I were, however, to direct that a proportion of those costs be paid by one side to the other then it may be difficult for the costs judge to assess whether any particular detailed point that is advanced at the assessment stage is one which I have taken account of in my order.
59. The third matter identified by Mr Hunter was the question whether exaggeration had caused unnecessary expenditure of costs. Mr Grime accepted that it was only in such cases that the authorities encouraged the court to depart from the default position by reason of exaggeration. I do not consider that I can usefully offer comments on this aspect of the matter on a hypothetical basis. Consideration of this question seems to me necessarily to require consideration of the basis upon which the court has concluded that there was exaggeration, and I have not found it possible to reach a conclusion to that effect.
60. Mr Grime asked me to bear in mind that the costs in this case involve very substantial sums of money. I bear that factor fully in mind. That, as it seems to me, is a double edged sword. In a case where the court has heard evidence and reached conclusions on relevant factual issues, it may be desirable that the court should apply its detailed knowledge of the case so as to make a special costs order in the light of that knowledge. Where the court is asked to deal with the matter on a "broad brush" basis without the advantage of oral evidence and detailed submissions, it seems to me that the size of the sums at stake makes it all the more desirable that issues about appropriateness and proportionality are dealt with as part of detailed assessment by a costs judge.

(C) Interest

61. Mr Hunter noted that while Mr Morton had received interim payments on 19 November 2009 and 30 April 2010, he was nonetheless at a disadvantage in that if a final order had been made on 2 November 2009 he would have received his full lump sum entitlement no later than 19 November 2009. Initially Mr Hunter made reference to delay as regards an element of the periodical payment, but during the course of argument he disclaimed any claim to interest in that regard. The position under the Judgments Act 1838 s17 and CPR 40.8(1) is that interest begins to run from the date judgment is given unless the court orders otherwise. Mr Hunter's submission was that the court ought to use its power under CPR 40.8(2) to order that interest should begin to run from a date before the date that judgment was given.
62. In reply Mr Grime noted that the court was looking at the implementation of an agreement between the parties, the fact of which had been announced on 2 November 2009. It was not the case that on that date Mr Morton was entitled to judgment without the consent of Portal. No request for a judgment was made. Mr Grime accepted that a discretion existed under CPR 40.8. In exercising that discretion the court should additionally have regard to the fact that the Judgment Act rate was 8% and would confer a windfall benefit on Mr Morton. The current rate of interest on funds in court was 0.5% free of tax, while the market rate was 3%.
63. On the one hand Mr Morton has to a limited extent been deprived of money which Portal accepted was due to him. On the other hand if I were to direct that the judgment be backdated to November 2009 I would be conferring upon Mr Morton a significant windfall. In these circumstances I am satisfied that justice can be done by taking a broad brush approach. On that basis I conclude that I will achieve fairness to both sides by exercising my discretion under CPR40.8 so that interest on the lump sum shall begin to run from 19 April 2010.

Conclusion

64. It should now be possible to prepare a final order as regards all matters other than costs. I ask that the parties' legal teams prepare such an order, agreed if possible, but with alternatives where agreement cannot be reached. I also ask that they similarly prepare an order for directions as to the remaining question whether an agreement between the parties was reached on 2 November 2009 to the effect that Portal would pay Mr Morton's costs of the action save for the costs relating to past and future loss of earnings, which (as noted earlier) were to remain in issue. Those directions should be framed with a view to identifying whether there is any issue of fact as to who said what to whom and precisely what issues of law arise.

Postscript: 30 July 2010

65. This case was listed for hand-down of judgment on 16 July 2010 and a draft concluding with paragraph 64 above was circulated to the parties in advance of that date. It did not prove to be possible for the parties to agree upon all aspects of the order to be made, and on 16 July 2010 I adjourned the hearing in order to enable them to do so. I now record that in the light of my judgment the parties have reached agreement on a final order which resolves all outstanding matters. Under that order interest runs from 19 April 2010 on a sum of £110,000. I have accordingly today made the order agreed by the parties.