Costs on Appeals: Accounting for Dishonesty on Both Sides and Issue-Relevance Across Joined Claims

1) Introduction

This appeal concerned a post-trial costs order made after a 15-day trial of three actions heard together: (i) a partnership/joint venture claim (the “Partnership Claim”) brought by the claimant alleging an oral agreement with a property developer to share interests in “Creative House”; (ii) a Part 20 trust claim (the “Part 20 Claim”) by a corporate freeholder seeking declarations that leaseholders held their leases on trust for it; and (iii) a possession claim (not directly appealed in respect of the impugned costs order).

The trial judge found extensive credibility problems on both sides. The claimant was found to have fabricated meetings and to have relied on “either/or” trust deeds regarded as dishonest devices; the developer was found to have deployed sham documentation linked to asset protection and to have made untrue statements. Substantively, the claimant’s Partnership Claim failed entirely; the corporate owner succeeded on the Part 20 Claim; and the possession claim failed consequentially.

Despite the defendants’ success on the Partnership Claim and the Part 20 Claim, the trial judge made no order as to costs for those claims, largely because of the developer’s dishonesty on an “Ebonair ownership” issue. The defendants appealed, contending that the judge had departed too readily from “costs follow the event” and had failed to account for the claimant’s dishonesty.

2) Summary of the Judgment

3) Analysis

3.1 Precedents Cited and Their Role

• SCT Finance v Bolton [2002] EWCA Civ 56, [2003] 3 All ER 434: relied upon for the principle that costs appeals face a “heavy burden” and appellate courts discourage further litigation over costs by construing discretion widely. The Court of Appeal acknowledged this starting point, but emphasised that appeals can succeed where the costs decision is wrong in principle.
• F & C Alternative Investments (Holdings) Ltd v Barthelemy (No 3) [2012] EWCA Civ 843, [2013] 1 WLR 548: cited for the modern appellate restraint test: interference only if wrong in principle, relevant matters ignored or irrelevant matters considered, or the decision is plainly unsustainable. The court applied this framework and concluded the trial judge’s reasoning failed that standard.
• Heath v Tang [1993] 1 WLR 1421: applied procedurally to explain the effect of bankruptcy: the bankrupt lacks a sufficient interest in the appeal, and the Official Receiver/trustee is the proper party to decide whether to oppose. The appeal proceeded because the Official Receiver remained neutral and no stay was sought.
• Northstar Systems Ltd v Fielding [2006] EWCA Civ 1660, [2007] Costs LR 264 and Bank of Tokyo-Mitsubishi UFJ Ltd v Baskan Gida Sanayi Ve Pazarlama AS [2009] EWHC 1696 (Ch), [2010] 5 Costs LR 657: used to ground two linked propositions: (i) on assessment, costs of advancing a dishonest case are ordinarily disallowed as not “reasonably incurred”; and (ii) the court has a menu of sanctions, from disallowance of costs to ordering payment of the opponent’s costs of proving dishonesty, to broader proportionate penalties—while keeping in view the applicant’s own conduct.
• Hutchinson v Neale [2012] EWCA Civ 345, [2012] 5 Costs LR: central authority for calibrating departures from “costs follow the event.” The Court of Appeal drew from Pitchford LJ’s structured approach: evaluate nature and degree of misconduct, its relevance to the issues, and its cost consequences; avoid treating dishonesty as automatically displacing the usual starting point; and adjust so the dishonest successful party does not recover dishonest-case costs, while the unsuccessful party still bears costs for failing on the merits.
• Intrigue Shipping Inc v Nikitin [2013] EWCA Civ 749, [2013] 5 Costs LR 689: offered a comparator where dishonesty existed on both sides and where the “successful” party had only limited success (failed on its primary case that drove most costs). The Court of Appeal distinguished it: here, the defendants succeeded on the claims at issue (despite losing a subsidiary “Ebonair ownership” issue), so an across-the-board “no order” lacked justification.
• Ahuja Investments Ltd v Victory Game Ltd [2021] EWHC 2730 (Ch): used as persuasive first-instance reasoning on how to handle mutual dishonesty without “unduly” penalising only one wrongdoer. The Court of Appeal endorsed the principle that it is wrong to ignore defendants’ success where the claimant’s claim was fundamentally dishonest and caused the litigation, while still ensuring dishonest defence costs are not rewarded.
• Summers v Fairclough Homes Ltd [2012] UKSC 26, [2012] 1 WLR 2004: cited for deterrence and proportionality: dishonest claimants should ordinarily be penalised in costs, potentially on the indemnity basis, at least for costs caused by fraud/dishonesty. The Court of Appeal treated this as reinforcing the need to reflect the claimant’s dishonest case in the costs outcome.

3.2 Legal Reasoning

The court accepted the broad discretion under CPR Part 44 (particularly r.44.2) but held the trial judge’s approach was flawed because it: (a) focused on the successful parties’ dishonesty while failing to engage with the claimant’s dishonest conduct; and (b) departed too readily from the general rule that the unsuccessful party pays the successful party’s costs.

Two core analytical moves drove the result:

• Mutual-dishonesty requires bilateral evaluation, not unilateral sanction. The trial judge’s “no order” effectively denied the successful parties any recovery (including costs of defeating a claim found to be supported by dishonest evidence), while imposing no costs burden reflecting the claimant’s dishonesty. The Court of Appeal treated that as a one-sided exercise of discretion.
• Issue-relevance is claim-specific, especially in joined trials. The developer’s dishonesty on the “Ebonair ownership” issue was held to have been overstated as a driver of costs across all claims. The Court of Appeal held the “Ebonair ownership” question was irrelevant to the Part 20 Claim (a corporate claimant’s entitlement to declarations against leaseholders did not depend on who beneficially owned the corporation) and likewise did not rationally explain the different costs treatment between the Part 20 Claim and the possession claim (which “stand or fall together”).

Having found error in principle, the court re-exercised the discretion. It treated the Part 20 Claim as “straightforward”: the corporate claimant succeeded, the defendants were not found dishonest, and the unrelated “Ebonair ownership” dishonesty could not justify depriving the successful party of costs. For the Partnership Claim, the court applied a “broad brush” balancing: the claim failed entirely; it was supported by dishonest evidence; the successful parties should not recover costs of advancing a dishonest case; but they should recover a substantial portion of their reasonable costs and the costs of exposing the claimant’s dishonesty. The outcome—50% of costs—sought to avoid unduly penalising one of two dishonest litigants while restoring meaningful effect to “costs follow the event.”

3.3 Impact

• Structured discipline in dishonesty-based costs arguments: Parties seeking exceptional costs orders based on opponent misconduct must be ready for the court to scrutinise their own conduct and to locate misconduct within the issues that truly generated cost.
• Joined proceedings require claim-by-claim calibration: The decision highlights that a global “misconduct” narrative may not justify global costs outcomes where multiple claims are tried together; the court expects analysis of how misconduct maps onto each claim’s issues and costs drivers.
• Reinforcement of deterrence against dishonest claims: By criticising a result that imposed no financial consequence on a dishonest (and losing) claimant, the court signalled that costs discretion should generally operate to prevent dishonest claimants from escaping costs responsibility simply because the defendant was also culpable on a separate issue.

4) Complex Concepts Simplified

• “Costs follow the event”: the default rule that the losing party pays the winning party’s costs. It is a starting point, not a rigid rule, but it must be given real weight.
• Standard vs indemnity basis: On the standard basis, doubts about reasonableness are resolved in favour of the paying party; on the indemnity basis, doubts are resolved in favour of the receiving party. Either way, unreasonable costs are not allowed.
• Dishonesty and recoverable costs: Even a successful party cannot ordinarily recover costs spent advancing a dishonest case, because such costs are not “reasonably incurred.” Courts can also order the dishonest party to pay the opponent’s costs of uncovering/proving the dishonesty.
• Error in principle on a costs appeal: Appellate courts rarely interfere with costs decisions, but will do so where the judge misdirected themself (e.g., ignored relevant misconduct, treated irrelevant issues as decisive, or reached an outcome that is not rationally supported).
• Corporate personality (re Part 20 Claim): A company’s rights and claims are distinct from questions about who ultimately owns or controls it; that separation mattered when deciding what issues were relevant to costs in the Part 20 Claim.

5) Conclusion

[2026] EWCA Civ 729 recalibrates the use of dishonesty in post-trial costs orders where both sides have engaged in misconduct. The Court of Appeal held it is wrong in principle to let a dishonest, unsuccessful claimant avoid meaningful costs consequences by focusing only on dishonesty within the successful party’s case—particularly where that dishonesty is irrelevant to other joined claims. The decision underscores a practical rule for complex, multi-claim litigation: assess misconduct bilaterally and map it to each claim’s true issues and cost drivers, while keeping “costs follow the event” as the genuine starting point.