The Court of Appeal has ruled that it can be within a court's discretion to reduce a successful defendant's costs award by two thirds because of lies told during the trial.

In Sulaman v AXA Insurance and Direct Line Insurance [2009] EWCA Civ 1331, the appellant was appealing against the first instance decision that her costs be reduced by two thirds because she had lied to the court in two respects while giving evidence.

Sulaman was suspected of being part of a group which defrauded insurance companies by insuring genuine cars and then making claims for accidents which often involved fictitious drivers or victims. The insurers brought what Lord Justice Longmore described as "inevitably a loss-making action" in order to establish the principle that fraudsters could not assume they would get away with fraud. Sulaman's involvement in the group was not proved and she consequently applied for her costs, which after a long civil trial stood at £450,000. These were assessed and awarded on the standard basis up to the expiry of a Part 36 offer, and on the indemnity basis after that. However, the judge reduced her entitlement by two thirds because he found she had lied to him in two respects.

On appeal, Sulaman argued that the lies had been of little consequence in the case and so the reduction by two thirds was overly harsh. She also claimed that the judge had not fully reasoned his decision because he merely relied on another case where a costs order was reduced because of lies.

It was held by the Court of Appeal that the judge was entitled to deprive Sulaman of some of her costs; the only question was by how much. Longmore LJ described the repeated lies as insidious and said they had made the complex litigation even more difficult, facts which justified the judge's discretion in this case (although Sedley LJ dissented, saying costs should only have been reduced by one third). Longmore LJ added that the decision had been properly decided because although another case where a defendant lied had been considered by the judge, the comparison with these facts was not such as to vitiate his discretion.