Morrow v Shrewsbury RFU: Tactical Costs Issues to Consider

Quirky factual circumstances and legal authorities are nothing new. The case of Morrow v Shrewsbury RFU concerned an unlucky claimant hit on the head by a falling rugby upright; however the point of interest was that the claimant’s entitlement to costs (subject to detailed assessment) was reduced by 15% based on conduct grounds.

Does this case signal a change in judicial approach or is it no more than a restatement of existing law? We think the latter but it serves to highlight some important tactical issues for insurers.

The decision and its underlying features

The Judge awarded £285,000 in damages and capped the losses to a period of five years. The claim as presented came in at around £1million. The defendant had made a Part 36 at £110,000 early on but filed a blanket denial on issues, contested every item and declined repeatedly to attend a JSM. Shortly before trial the claimant served a Part 36 at £800,000. During the trial the defendant’s primary case on causation was holed below the water line due to a concession by its medical expert accepting symptoms affected the claimant’s ability to work for five years.

There was no allegation or finding of fraud or dishonesty, but the Judge did find exaggeration (albeit contributed to by the effects of an underlying mental condition) and criticised the claimant for delaying a Part 36 till very late and at a level that suggested lack of realism. However, the claimant’s conduct fell short of “egregious misconduct” to warrant a punitive costs order.

This paper relates to those cases that fall short of Fundamental Dishonesty.

The law:

Does this case signal a change in judicial approach or is it no more than a restatement of existing law? We think the latter but it serves to highlight some important tactical issues for insurers.

The leading authority remains the Court of Appeal decision in Widlake v BAA Ltd [2009] EWCA Civ 1256. Given it is eleven year old, this provides an opportune moment to remind ourselves of the lessons from that case, as these underpin the decision in Morrow. Both cases involved allegations of exaggeration but in Widlake the exaggeration had clear evidence of intent due to video footage obtained by the defendant.

Widlake provides a useful template on how the Courts should approach their discretion on costs and the issue of whether or not to depart from the usual award of costs to the “successful party”, and if so, how to do so.  However it must be emphasised that Widlake predated the arrival of qualified one way cost shifting and the new hurdle of fundamental dishonesty.

The first question is to determine which was the “unsuccessful party”? The CA in Widlake took the view that the claimant was successful having established a claim for damages and beaten the Part 36: “the most important thing is to identify the party who is to pay money to the other”. In most cases this is the easy part; the next issue is the application of judicial discretion.

CPR 44.3(4) (a) 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." If it was unreasonable then that was conduct which the court had to take into account.

At (d): "whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim."

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, such as to deprive a party of costs by way of punitive sanction. The Court of Appeal however sounded a word of warning that 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.  

Finally the Court of Appeal highlighted the importance of Part 36 as both a shield for the defendant on costs and a sword for the claimant with punitive interest on damages. 

In Widlake the Court of Appeal made no order for costs, so that each side carried their own costs.

Comment:

In Widlake the sanction was to deprive the claimant of all legal costs, whereas in Morrow it was merely a loss of 15%. Why was the causative effect of the claimant’s conduct deemed so much less in Morrow?

Conclusion

There is a risk that too much is read into this decision. The Court has the power to make a global adjustment on costs to reflect conduct, even if the conduct falls short of fundamental dishonesty. That discretion will not be applied freely and will depend entirely on the facts of the case. It would be a mistake to assume that in every case where the claimant recovers substantially less than a schedule that the Court will apply a blanket discount of a given percentage.

However, such arguments can be bolstered materially pre-trial by timely and focussed concessions on issues, robust offers to settle and open engagement in timely ADR. Claimants who fail to engage in JSMs or run hopeless cases on a given issue need to be told early on why a given head of loss is disputed.  Notices to Admit are an underused tool in the defendant armoury on costs management.

All claims handlers should assume any letter or email they write will be seen by the Judge at trial and could have cost implications, good and bad.

In the autumn we expect amended Rules and a new Practice Direction dealing with variation of cost budgets. This mechanism will give fresh focus to a defendant’s ability to control and influence issues and costs and to create the best possible foundations for material discount on costs based on conduct arguments.

With cost budgeting ingrained in the litigation process now, there is an increasing need to focus on building a cost case through the life of the case right from letter of claim. Time invested here can reduce the final spend on costs.

 For more information, please contact Andrew Underwood or Howard Dean.