This case reaffirms the basic principle that winner should get his legal fees from the loser subject to appottionment for winners dishonest conduct. It also highlights again the importance of making sure that offers made during the life time of the case comply with Pt36 of CPR. Here they were not and N was not able to benefit of having made them
(1) PETER HUTCHINSON (2) SUSAN PENNING v (1) MICHAEL NEALE (2) ANN NEALE (2012)
 EWCA Civ 345
The starting point of an order for costs was that costs should follow the event. There was no general rule that a finding of dishonest conduct by the successful party would replace the usual starting point. An evaluation of the nature and degree of the misconduct and its effect on the issues in the trial was required.
The appellants (H) appealed against a costs order against them following their successful defence of a claim brought by the respondents (N).
The claim had involved a boundary dispute between N and H. The judge found in favour of H in relation to the correct boundary between the properties but found that H had acted dishonestly in defending the action, by altering a photocopy of a plan so that it supported their case. H made several offers of settlement in the pre-trial stages in reliance on the altered plan. Those offers were rejected. On the basis of H’s conduct, the judge held that there was no order for costs between the parties except that: H was to pay two-thirds of N’s costs on the standard basis of attendance by counsel and solicitor at a first trial, which had been adjourned for personal reasons relating to H; H was to pay N’s costs on an indemnity basis occasioned by their tampering with the plan, at the second trial; and H was to pay on an indemnity basis the costs occasioned by H’s assertion that an informal boundary had been agreed with N.
H submitted that the judge had incorrectly failed to take as his starting point the general rule under CPR r.44.3(2)(a) that an order for costs would be made in favour of the successful party. H further argued that they should have been awarded all their costs on the standard basis following N’s failure to accept offers more generous than the judge’s order.
HELD: (1) On the facts of the instant case, N chose to challenge the correctness of the physical boundary which had existed since they purchased the property. H’s misconduct had not influenced that challenge. The judge found that N were wrong about the measurement and had failed to ask the correct legal question. H had not sought any advantage at trial from the plan but had falsely alleged that N had forged it. On the judge’s order, H, against whom the action was unsuccessfully commenced, retrieved none of the costs of defending the claim, even those reasonably and necessarily incurred. The starting point for any order for costs was that costs should follow the event. There was no general rule that a finding of dishonest conduct by the successful party would replace the usual starting point. An evaluation of the nature and degree of the misconduct was required, its relevance to and effect upon the issues in the trial and its tendency to create an unwarranted increase in the costs of the action to either or both parties,Costs L.R. 657 applied. The judge erred in unreservedly accepting the sweeping proposition Bank of Tokyo-Mitsubishi UFJ Ltd v Baskan Gida Sanayi Ve Pazarlama AS  EWHC 1696 (Ch),  5 that H should not expect to be able to fabricate documents and lie under oath and still recover their costs if they succeeded at trial. The judge did not acknowledge that by the time N brought the proceedings, H’s misconduct was entirely isolated from the issue upon which the claim was founded. N’s claim was not infected by H’s abuse. The judge’s starting point should have been an order for costs in H’s favour subject to adjustments to ensure they did not recover any costs which might have been incurred in advancing a dishonest case. The order was amended accordingly (see paras 23-32 of judgment).
(2) The judge was not wrong to award costs against H on an indemnity basis but should not have included N’s expert costs in that assessment. The judge did not err in principle in ordering H to pay two-thirds of N’s costs of the first trial as H had sought the adjournment. H’s offers to settle did not comply with CPR r.36.2(2)(c) and were to be afforded little weight particularly as H had failed to acknowledge their dishonesty so that it would be wrong for them to benefit from N’s refusal to settle (paras 33-40).
Appeal allowed in part