This is an appeal from a decision of His Honour Judge Stewart QC dated 23rd March 2009 by which he reversed a ruling of the Costs Judge, District Judge Harrison dated 3^rd December 2008. This judgment is being handed down at the same time as that in Drew v Whitbread, the appeals having been argued consecutively raising somewhat similar points. In both appeals we have sat with Senior Costs Judge Peter Hurst for whose guidance we are extremely grateful. The relevant provisions of the CPR are fully set out in Drew v Whitbread and will not be repeated in this judgment. In this appeal the question is whether, where a case has been settled before any allocation by a consent order ordering costs to be paid on the standard basis, the costs judge is entitled to take the view that the case would have been allocated to the small claims track and thus that the paying party should only pay costs on the small claims track basis.

On 3^rd September 2006 the appellant was the driver of a car stationary at a roundabout when his car was hit from behind by a car driven by the respondent. Costs of repairs to the appellant’s vehicle were paid prior to the issue of proceedings. The appellant issued proceedings claiming general damages exceeding £1000. Prior to the case being allocated to any track, settlement was achieved in the sum of £400 general damages and £719.06 hire charges and payment of costs. That settlement was recorded in a consent order, paragraph 4 of which provided that “The defendants do pay the claimant’s reasonable costs and disbursement on the standard basis, to be subject to detailed assessment if not agreed.”

The respondent disputed the appellant’s bill of costs and on the assessment by points of dispute took a general point that if the case had gone to the allocation stage it ought to have been allocated to the small claims track. The respondent relied on a decision of the Court of Appeal in Voice & Script International Ltd v Alghafar [2003] EWCA Civ 736 and asserted that “the costs as a matter of principle should be “small claims” costs. Accordingly the court cannot permit recovery of costs other than those prescribed by Part 27 of the CPR; Issue Fee: £75 Medical Report: £200. The court may not order the paying party to pay costs except the fixed costs payable under CPR 27.14 and Part 45 namely: £80.00 fixed costs and £15 miscellaneous fixed costs for service of documents.”

It is not in dispute that if costs on a “small claims “ basis were all that could be allowed the sums identified by the respondent would be all that would be payable. It will be noted that nothing would be allowed for the employment of lawyers, it being understood that in essence “small claims track” claims are intended to be conducted without lawyers.

In response to the general point the appellant submitted that the terms of the consent order were such as to preclude the application of Part 27 or Part 45. It was submitted that Voice & Script was concerned with the appropriate order to be made at trial and, having regard to the wording of the order consented to, that costs should assessed on a standard basis, and that it followed that any fixed cost regime was excluded. It was that submission which was accepted by District Judge Harrison by a judgment dated 3^rd December 2008.

She accepted that both firms of solicitors would have been equally aware that, had the case been allocated, it would have been allocated to the small claims track and that before the allocation the parties reached a settlement on the terms recorded in the order. The District Judge ruled in paragraphs 9 and 10 of her judgment as follows:-

“9.

I have looked at that order carefully. In my view, a straightforward reading of the face of that order is such so as to exclude any reference to the application of small claims track costs. It is, on the face of it, a recording of the agreement between the parties, and my assessment of the nature of that agreement is that the order, as to costs that it contained, is, as Mr Pilling suggests, wholly distinct from an order which would restrict the claimant in the small claims costs regime.

10.

In that regards, I take into account the knowledge of the value of the claim available to both parties, and the very considerable experience of both sets of representatives in this regards. In the event that the defendant did not seek to pay costs other than small claims track, I have no understanding as to why they would sign an order in those terms. It is my view that the effect of paragraph 4 must be to fetter my discretion, and equally, that the effect of paragraph 4 must be to preclude the matter being limited solely to the small claims track regime, notwithstanding the arguments of the defendant.”

The District Judge ultimately assessed the appellant’s costs at £3,987.29.

The respondents appealed to His Honour Judge Stewart QC. Before the judge the respondents did not put their case as highly as before the District Judge. The judge in his judgment of 23^rd March 2009 records as follows:-

“13.

The first point is dealt with by the fact that the defendants do not say that the construction of the agreement is to limit the claimants to the small claims track or to costs by reference of the small claims tack, but that the Court had a discretion to decide whether or not to assess costs by reference to the small claims track.”

The judge then accepted the proposition that the Costs Judge has no power to vary the costs order, and summarised the issue before him in this way:-

“17.

Therefore as I say it is clear that it is impermissible to rewrite a costs order. That does not answer the question as to the proper interpretation of that order and the proper interpretation of the contract which gave rise to that order. The question is not whether it can or cannot be rewritten, clearly it cannot be rewritten. The question is whether the District Judge was right in saying that it precluded the Court in its discretion on assessment in assessing costs by reference to the small claims track.”

The judge then cited from Voice and Script paragraph 20 of the judgment of Judge LJ, as he then was, which is in these terms:

“20 . . . By treating the absence of allocation to track as conclusive in my judgment District Judge Jenkins misdirected himself. The omission may have meant that the small claims costs regime did not follow as a virtual automatic starting point, but it did not preclude the Court even from considering whether it would be reasonable to make an assessment consistent with the small cost regime, or for that matter to apply the regime for a claim which it should never have exceeded and never was anything more than a small claim. If that approach is not expressly stated in the Civil Procedure Rules, it follows from two essential principles. First, the discretionary nature of costs orders; and secondly, the overriding requirement of proportionality in civil litigation generally and also as an essential agreement for consideration when any question of costs arises. See Home Office v Lownds [2002] EWCA 365.”

The judge recorded not gaining any assistance from Coles v Keklik (an unreported county court decision) and then came back to construing the terms of the consent order in the light of the fact, as he records (as had the District Judge), that he struggled to see “on what basis it would have been allocated otherwise than under the small claims track had it been allocated.” Then in paragraph 21 to 23 he said this:-

“21.

Looking at the wording against the backdrop of two solicitors experienced in this sort of work, against the backdrop which I have just mentioned of the factual matrix of the case in terms of its value and in terms of the rest of the factual matrix, which I set out earlier in this decision, do the words, ‘the defendant do pay the claimant’s reasonable costs and disbursements on the standard basis to be subject to detailed assessment if not agreed’, do they, to use the District Judge’s words, fetter her discretion and preclude the matter being limited solely to the small claims track regime. That is what she held.

22.

In my judgment she was wrong. The wording is open and it entitles the Court, at the assessment stage, to decide whether it should or should not accede to the defendant’s argument that the costs should be assessed by reference to the small claims track regime, but they were certainly not precluded by anything in those words. There is nothing, therefore, within those words, whether in the word ‘reasonable’, whether in the words ‘standard basis’, or in the words ‘detailed assessment’, which takes away from the defendant their right to argue that costs should be assessed by reference to the small claims track

23.

It does not require that they be so; it is merely a matter which remains within the discretion of the Court when the question of costs comes to the court for assessment. To that extent and for that reason I find the District Judge’s judgment was wrong. I have not been addressed, having reached that conclusion only, on whether they should in fact be assessed by reference to the small claims track or not and I will let the parties think about what they want to say about that and tell me at two o’clock.”

The judge could be understood to be saying that the costs judge would have been entitled simply to accede to an argument that costs should be assessed by reference to the small claims track regime.

On the appeal to this court Mr Williams, for the appellants, submitted that the judge was wrong not to hold that the consent order precluded reference to the small claims track regime. He submitted that no one would use the words “reasonable” or on the “standard basis” if it was intended that fixed costs as contemplated by the small claims track regime was to be used. He particularly emphasised that, however reasonable or necessary, costs of lawyers were not allowed on the small claims track and that what must have been contemplated by those agreeing the consent order in the knowledge that lawyers had been involved was that the reasonable cost of those lawyers would be allowed.

Mr Morgan QC in seeking to defend the judge’s judgment did not put the position quite as the judge had done. His submission was that in a case such as this there should be an assessment, but an assessment by reference to what would have been payable on a case allocated to the small claims track. By that he explained he meant an assessment which, in considering whether costs were reasonably incurred or reasonable in amount, would conclude that an amount as laid down by the small claims track regime was reasonable and would do so not by coincidence but because it would not be reasonable for the paying party to pay more than he would have paid if the case were on the small claims track.

He emphasised a dictum of Aldous LJ in L v L (Legal Aid Taxation) [1996] 1 FLR 873 where he said “The reasonable amount is not necessarily the amount that a solicitor charges, but is the reasonable amount that a party ordered to pay costs should pay”.

In my view, despite the attractive argument of Mr Williams, the answer to this case is straightforward. This was a consent order providing for costs to be assessed on the standard basis; the addition of the words reasonable to my mind adds nothing to the order that costs were to be assessed on that basis. It certainly follows from that that the costs judge was not free to rule that the costs would be assessed on the small claims track basis and if and in so far as Judge Stewart might be understood to be saying that he was in my view wrong. But, and this is the critical point, in making an assessment the Costs Judge is entitled to take account of all circumstances (see CPR 44.5(1)), including the fact that the case would almost certainly have been allocated to a small claims track if it had been allocated. In so doing she would have regard to what could or could not be recovered if the case had been so allocated.

At that stage the Costs Judge must question whether, if it could have been fought on the small track, it is reasonable that the paying party should pay the costs of a lawyer. The Costs Judge would not be bound (as I think Mr Morgan’s formulation would suggest) only to allow the costs as per a case on the small claims track but it would be a highly material circumstance in considering what by way of assessment should be payable.

Lord Woolf said this in Lownds v The Home Office [2002] 1 WLR 2450 in dealing with a standard basis assessment. I accept he did not expressly consider how a standard basis assessment should be made in a case where it should have been allocated to the small claims track but what he says is of relevance to that situation:-

“29.

In assessing costs judges should have no difficulty in deciding whether, in order to conduct the litigation successfully, it was necessary to incur each item of costs. When an item of costs is necessarily incurred then a reasonable amount for the item should normally be allowed. Any item that was not necessary should be disallowed.

30.

In his advice the senior costs judge drew attention to the problems that can arise from “double jeopardy”; in other words from making a deduction when considering the bill item by item and then looking again at the situation as a whole and making a further global deduction. This danger will be avoided if a party receives at least a reasonable sum for the items of costs which were necessarily incurred.

31.

In other words what is required is a two-stage approach. There has to be a global approach and an item by item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations which CPR r 44.5(3) states are relevant. If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the cost for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable. If, because of lack of planning or due to other causes, the global costs are disproportionately high, then the requirement that the costs should be proportionate means that no more should be payable than would have been payable if the litigation had been conducted in a proportionate manner. This is turn means that reasonable costs will only be recovered for the items which were necessary if the litigation had been conducted in a proportionate manner.

32.

The fact that the litigation has been conducted in an insufficiently rigorous manner to meet the requirement of proportionality does not mean that no costs are recoverable. It means that only those costs which would have been recoverable if the litigation had been appropriately conducted will be recovered. No greater sum can be recovered than that which would have been recoverable item by item if the litigation had been conducted proportionately.

. . .

39.

Turning to specific points of principle raised by May LJ (paragraph 11 above), where a claimant recovers significantly less than he has claimed, the following approach should be followed. Whether the costs incurred were proportionate should be decided having regard to what it was reasonable for the party in question to believe might be recovered. Thus (i) the proportionality of the costs incurred by the claimant should be determined having regard to the sum that it was reasonable for him to believe that he might recover at the time he made his claim; (ii) the proportionality of the costs incurred by the defendant should be determined having regard to the sum that it was reasonable for him to believe that the claimant might recover, should his claim succeed. This is likely to be the amount that the claimant has claimed, for a defendant will normally be entitled to take a claim at its face value.”

I have quoted the passage from Judge LJ’s judgment in Voice and Script above. I accept that what was under consideration in that case was what order a trial judge should make when making an order for costs. Thus in many cases the problem that occurred in this case will not arise because the trial judge can actually make an order that costs be assessed on a small claims track basis. I also accept that as Judge Stewart noted, a costs judge has no power to alter the order for costs made by the a judge, and thus make a direction from the outset where costs have been awarded on the standard basis that costs will be assessed on a small track basis. But what lay behind what Judge LJ said reflects what Lord Woolf was saying in Lownds and provided the Costs Judge does not purport to vary the original order or tie himself to assessing by reference to the small claims track it is quite legitimate to give effect as far as possible to the philosophy which lies behind the above statements. There is a real distinction between directing at the outset that nothing but small claims costs will be awarded and giving items on a bill very anxious scrutiny to see whether costs were necessarily or reasonably incurred, and thus whether it is reasonable for the paying party to pay more than would have been recoverable in a case that should have been allocated to the small claims track. Was it for example necessary to have had lawyers and is it reasonable for the paying party to have to pay for lawyers are questions that should arise where a claim should have been allocated to the small claims track.

It seems to me that Judge Stewart was right to reverse the decision of the District Judge and the appeal should be dismissed although, as will have appeared from what I have said, I would put the way in which the Costs Judge should take account of the fact that the case should have been allocated to the small claims track slightly differently.

I agree and have only this to add. District Judge Harrison was right, in my view, to hold that the terms of the order precluded her from fixing the costs solely by reference to the small track regime. Where therefore HHJ Stewart QC said, in paragraph 22 of his judgment, that “she was wrong” in this respect, I disagree with him.

In my view Waller LJ correctly sets out the test in paragraph 19 of his judgment: “whether it is reasonable for the paying party to pay more than would have been recoverable in a case that should have been allocated to the small claims track”. The District Judge did not, so it appears, apply that test. HHJ Stewart, in paragraphs 22 and 23 of his judgment, said that the Costs Judge has the power to decide that the costs are to be assessed by reference to the small claims track although not obliged to do so. As I read his judgment he is saying that the Costs Judge could fix the costs solely by reference to the small track regime without consideration of each item separately but is not obliged to do so. If he is saying that, then, in my view, there is an important difference between that approach and the test set out by Waller LJ in paragraph 19 with which I agree.

I agree with both judgments.