Laws LJ suggested in Molloy v Shell UK Limited  EWCA Civ 1272 that lying or grossly exaggerating claimants could be guilty of “a cynical and dishonest abuse of the court’s process” and questioned whether, when “faced with manipulation of the civil justice system on so grand a scale, the court once it knows the facts should entertain the claim at all save to make the claimant pay the defendant’s costs”. Since then, the Court of Appeal made clear in Shah v Wassim Ul-Haq  EWCA Civ 542 that there was no general rule of law that the dishonest exaggeration of a genuine claim should necessarily result in the dismissal of the whole claim. Rather, if the claimant still manages to prove some loss, he will receive compensation for that.
But what about costs where a party has lied or exaggerated but been wholly or partly successful?
The starting point is that costs should follow the event. But this is not the end of the matter. The court can make a different order, having regard to all the circumstances. This specifically includes conduct before, as well as during the proceedings. Conduct includes the manner in which a party has pursued or defended his case or a particular allegation or issue, and notably whether there has been exaggeration – see CPR 44.3(4)-(5).
So the court has power to deprive a successful party of part or all of his costs – or even order that party to pay the other side’s costs – for reasons of conduct, including lying or exaggerating. The points that emerge from case law are as follows:-
1) The court will start by looking at who’s “won”.
2) In some cases, where a trial is all about exaggeration, the claimant can win “on paper”, and recover some money or beat a Part 36 offer, but the defendant can, in reality, be the winner and recover its costs (See Painting v University of Oxford  EWCA Civ 161).
3) Thereafter, the court will look at the matter in the round to see whether a different order should be made.
4) The Court is entitled to mark its disapproval of lies by reducing the costs otherwise recoverable or even in a serious case ordering the successful party to pay the other side’s costs (See Widlake v BAA Ltd  EWCA Civ 1256, v AXA and Direct Line  EWCA Civ 1331). This is so even if the lies have not caused costs to increase.
5) Often, costs will have increased because of the lies. For example exaggeration may well prevent a case from settling at an early stage, or lies might prolong a trial. Where this has been the effect, the court can make the party at fault pay for these increased costs (Painting, Widlake).