BANKRUPTS – AVOIDING ACTING FOR THEM

A solicitor cannot act for a bankrupt without the agreement of the Trustee in Bankruptcy.

There are some limited exceptions – see my blog – Personal Injury: Acting for Bankrupts.

In practice always ask a client if s/he is bankrupt and insist that the client informs you if s/he becomes bankrupt after instructing you. Mention this at the first interview and include it in the Client Care Letter.

You can also carry out a free search through the Government website of the Individual Insolvency Register (IIR) at https://www.insolvencydirect.bis.gov.uk/eiir/

This gives details of all people in England and Wales who have become bankrupt or signed an agreement to deal with debts.

The IIR is an amalgamation of the Individual Insolvency, Bankruptcy Restrictions and Debt Relief Restrictions Registers. The Insolvency Service is required by statute to maintain these registers, keep them up to date and make them available for public inspection.

The register can be searched by name or by trading name for sole traders.

Records are usually removed three months after insolvency ends.

The IIR contains details of:-

• Bankruptcies that are current or have ended in the last three months

• Debt Relief Orders that are current or have ended in the last three months

• Current Individual Voluntary Arrangements (IVAs) and Fast-Track Voluntary Arrangements (FTVAs), including those that have ended in the last three months

• Current Bankruptcy Restrictions Orders or Undertakings (BROs/BRUs) and interim Bankruptcy Restriction Orders (iBROs)

• Current Debt Relief Restrictions Orders or Undertakings (DRROs/DRRUs) and interim Debt Relief Restrictions Orders (iDRROs)

I advise that this be part of the file opening procedure. Otherwise you risk doing a huge amount of work and receiving no payment and even being ordered to pay the other side’s costs when you inevitably have to discontinue.

THIS SERVICE IS FREE

In Jones v Spire Healthcare Ltd, Liverpool County Court 11 September 2015 case number A13YJ811

District Judge Jenkinson held that a Conditional Fee Agreement entered into between the claimant Ms Jones and the first firm of solicitors had not been validly assigned to the second firm of solicitors.

On 3 February 2012 the claimant entered into a Conditional Fee Agreement with Barnetts Solicitors which was valid according to the regulations as they then stood and on 17 January 2014 Barnetts became insolvent and administrators were appointed and sold that firm’s personal injury work to another firm of solicitors, SGI Legal LLP.

On 21 January 2014 a document entitled “Deed of Assignment” was executed between the administrators of Barnetts and SGi Legal LLP which sought to assign, among other things, the benefits and obligations of 228 retainers between Barnetts and various clients, including Ms Jones, to SGI Legal LLP.

On the same day SGI Legal LLP wrote to Ms Jones in what the court called “entirely proper terms” explaining that her claim had been transferred to them and that they were prepared to act for her on the basis of a Conditional Fee Agreement that she had entered into with Barnetts. They made it clear it was entirely up to Ms Jones as to whether or not she wished to instruct them or to instruct another firm of her choice.

Ms Jones agreed.

On 27 January 2014 she executed another document, again entitled “Deed of Assignment” where she sought to assign both the benefit and obligations of her retainer with Barnetts to SGI Legal LLP.

In fact the lawyer dealing with the matter transferred from Barnetts to SGI Legal LLP but the court found “as a fact, and on a balance of probabilities, that any decision by the Claimant to transfer her instructions to SGI Legal LLP was motivated by the unexpected insolvency of her former solicitors, and the ease of continuing her claim through an equally competent personal injury firm, who already had the file, and who were prepared to continue to act on the same basis. I find that the decision was in no way influenced by the transfer of Mr Eccles to SGI Legal LLP, even if Ms Jones knew about this, which on the evidence available I consider it unlikely that she did.”

The claim was settled by acceptance of a Part 36 offer which imputes an entitlement to costs. However the paying party contended that there was no entitlement to costs in this case as:-

(a)          The purported assignment of the conditional fee agreement was not valid; in fact it was a novation whereby SGI Legal LLP had entered into a new agreement with Ms Jones based upon the terms of the original Conditional Fee Agreement between her and Barnetts.

(b)          Whilst the CFA with Barnetts was valid at the time it was entered, the effect of subsequent changes to the rules meant that the CFA, as re-entered by way of such novation was unenforceable

The court correctly stated that the general principle is that a contract involving personal skill or qualifications is not capable of being assigned. The receiving party relied upon an exception to that general rule which it submitted applied following the decision in Jenkins v Young Brothers Transport Ltd (2006) 1 WLR 3189. In that case the solicitor acting for Mr Jenkins changed firms and the Conditional Fee Agreement was assigned from the first firm to the second and then from the second firm to the third firm when the solicitor again moved.

The judge there held that the Conditional Fee Agreement could be assigned on the basis that Mr Jenkins was loyally following an individual solicitor in which he had considerable trust or confidence from one firm to another and in that case the judge said:-

“Whether, absent that trust and confidence, a CFA could validly be assigned is not a matter upon which it has been necessary for us to reach a conclusion.”

Here the judge distinguished that case and also pointed out that the Court of Appeal in Davies v Jones [2009] EWCA Civ 1164 suggested that the case may have been wrongly decided by saying:-

“I have some doubt whether the relevant benefit and burden were correctly described.”

Due to the facts of the matter as set out above the judge held that here Ms Jones was not motivated in any way by particular trust and confidence in a particular fee earner, even though he had in fact transferred, and therefore held that the narrow exception to the general rule against the assignment of personal contracts as set out in Jenkins did not apply here and that “existing well established common law applies, and such an assignment is not possible.”

However the judge held that the benefit of the Conditional Fee Agreement, that is the right to be paid in the event of the claim being successful, had been validly assigned to SGI Legal LLP allowing the claimant “to recover the costs that would otherwise have been payable to Barnetts as a consequence of the subsequent settlement of this case.”

The judge found that there was a novation.

Clearly SGI Legal LLP would have been entitled to its costs going forward under the new Conditional Fee Agreement but as that simply replicated the old agreement, and there was no fresh agreement, it failed to satisfy the new provisions of the Conditional Fee Agreements Order 2013, specifically in that it did not impose the damages-based cap at 25% of general damages and past special damages.

Consequently the new retainer was invalid and did not allow recovery of SGI Legal’s costs.

At paragraph 25 the court said:-

“25.        In summary, therefore, I find as follows:-

• The conditional fee agreement between Ms Jones and Barnetts has not been assigned to SGI Legal LLP. Accordingly, and on simple application of the indemnity principle, it is not possible to base a claim for costs incurred by SGI Legal LLP parasitic to the terms of that CFA, valid as it was when entered with Barnetts;

• The benefit of the retainer between Barnetts and Ms Jones has been validly assigned to SGI Legal LLP, and the Claimant is accordingly entitled to claim the costs incurred by Barnetts;

• The agreement between Ms Jones and SGI Legal LLP was a novation, based on the terms of the original CFA with Barnetts, but taking effect from 27 January 2014. However, at that stage the CFA fell foul of the regulations which had been amended since the date that the CFA was originally validly entered with Barnetts. It is accordingly rendered unenforceable by section 58 (1) of the 1990 Act, and there is therefore no enforceable retainer upon which a claim for the costs incurred by SGI Legal LLP can be based.”

At paragraph 26 the judge said that the claimant could only recover the costs incurred by Barnetts plus “potentially, disbursements incurred by SGI Legal LLP”.

Comment

This is a confusing and inconsistent judgment.

The central point concerning problems with the Jenkins case may well be right. However I do not see how, given the clear finding at paragraph 25(a) that there has been no assignment of the Conditional Fee Agreement as the judge then found at paragraph 25(b) that the benefit of the retainer between the parties to that unassigned Conditional Fee Agreement, Barnetts and Ms Jones has been validly assigned to the new solicitors SGI Legal LLP.

There is no doubt that the original Conditional Fee Agreement between Ms Jones and Barnetts was valid and therefore that was the retainer between them and if that agreement, being the retainer, ends, and is not assigned, then it seems to me that the retainer also ends and therefore paragraphs 25(a) and (b) cannot both be correct.
Thus the judge appears to be holding that there was a retainer of some other kind between the original solicitors, Barnetts, and Ms Jones which was capable of valid assignment.

However at paragraph 25(c), in relation to the arrangements between Ms Jones and SGI Legal LLP, the judge says there is no valid CFA between Ms Jones and SGI Legal LLP and no other retainer either.

I cannot see the logic of that. Either the CFA is the complete and only retainer, or it is not. If it is not, which appears to be finding at paragraph 25(b) then why cannot there be a retainer outside the CFA between Ms Jones and SGI Legal LLP?

If there is no retainer how can SGI Legal LLP possibly recover disbursements – see paragraph 26?

Overall this judgment has the bizarre result that SGI Legal LLP may be able to claim disbursements but not costs, even though they won the case for the claimant, but that costs can be claimed for the work done by Barnetts under a Conditional Fee Agreement even though they did not win the case!

On 1 October 2015 a new rule was introduced in relation to case management of matters involving litigants in person and this was achieved by the 81st update to the Civil Procedure Rules.

” Case Management- unrepresented parties

3.1A – (1)  This rule applies in any proceedings where at least one party is unrepresented.

(2)  When the court is exercising any powers of case management, it must have regard to the fact         that at least one party is unrepresented.

(3) Both the parties and the court must, when drafting case management directions in the multi-track and fast track, take as their starting point any relevant standard directions which can be found online at www.justice.gov.uk/courts/procedure-rules/civil and adopt them as appropriate to the circumstances of the case.

(4)  The court must adopt such procedures at any hearing as it considers appropriate to further the overriding objective.

(5)  At any hearing where the court is taking evidence this may include-

(a) ascertaining from an unrepresented party the matters about which the witness may be able to give evidence or on which the witness ought to be cross-examined; and

(b) putting, or causing to be put, to the witness such questions as may appear to the court to be proper.”

Meanwhile in Akcine Bendore Bankas Snoras (in bankruptcy) v Yampolskaya [2015] EWHC 2136 (QB)

the Queen’s Bench Division of the High Court refused relief from sanctions to a litigant in person who had failed to file an appeal bundle in breach of an unless order.Her appeal was struck out.

The High Court gave guidance as to assessing defaults by litigants in person. They should not all be treated the same.The court may take into account the needs of a litigant in person who is impecunious or unable to speak English.

Please see also my blog “Litigants in Person: Acting in Cases Involving Them and Advising Them“

The following has been reported to me. Please comment or contact me if you know of such cases. Direct Line- anything to say?

A solicitor’s client is referred to DLG Services Ltd (DLG), part of the Direct Line Group (DL). It is regulated by the Solicitors Regulation Authority but from its website it seems only to accept clients who have a DL legal expenses policy.

A client care letter is sent by DLG at a flat rate of £270 an hour plus VAT, whoever is dealing with the matter.

They are way above the rates that DL will pay to firms of solicitors instructed as the client’s choice. So it pays itself getting on for double its usual rate.

Its client care letter has this odd paragraph, under “Introducers”:

” This firm is appointed by Direct Line. This firm is a member of the same Group of companies as Direct Line. Aside from that your insurer has no financial interest in referring your case to us. The advice we give to you will be independent.”

That is a variant on the old chestnut “Apart from that how did you enjoy the play Mrs Lincoln?”

In a free market why do not DL put the work out to firms who will happily work for a much lower rate than that?

See also INSURERS AT IT AGAIN (1) AND (2), CLINICAL NEGLIGENCE – DEFENDANTS AT IT AGAIN (3) and MEDICAL DEFENCE UNION: A SUITABLE CASE FOR TREATMENT

A client reports a matter to Aviva. Without her knowledge the information is sent to Minster Law who submit a Caim Notification Form (CNF) on the portal.

Two days after the accident her actual solicitors, who are unaware of this, submit CNFs for her and for the driver of the car. The client’s CNF is rejected as a duplicate.

The solicitors telephone and write several times to the third party insurer and eventually they ask the solicitors to resubmit the CNF, which they do, only for that also to be rejected.

Consequenty the solicitors issue proceedings and the matter proceeds to a disposal hearing.

Costs were not assessed on the day as the defendant alleged unreasonable removal from the portal, a point repeated in the Points of Duspute during provisional assessment.

The matter is listed for an oral hearing. The day before that hearing solicitors for the defendant insurers s concede  the point and agree to pay the costs of the main case and of detailed assessment.

See also INSURERS AT IT AGAIN (1) AND (2), CLINICAL NEGLIGENCE – DEFENDANTS AT IT AGAIN (3),  MEDICAL DEFENCE UNION: A SUITABLE CASE FOR TREATMENT and INSURERS AT IT AGAIN ? (4)

An accident involving a tram is clearly a road traffic accident and could also be an employers’ liability case, for example where the injured person is an employee, or a public liability case.

However section 4.3(11) of the Employers’ Liability and Public Liability Protocol provides that that portal does not apply to a claim

“for damages arising out of a road traffic accident (as defined in paragraph 1.1(16) of the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents).”
The scope of the RTA Protocol is defined as follows:-

“4.1.       This Protocol applies where—

• a claim for damages arises from a road traffic accident where the CNF is submitted on or after 31 July 2013”

The key question is whether an accident involving a tram is a road traffic accident. The definitions under the protocol read:-

“1.1. In this Protocol—

(13)        ‘motor vehicle’ means a mechanically propelled vehicle intended for use on roads…

(15)        ‘road’ means any highway and any other road to which the public has access and includes bridges over which a road passes;

(16)        ‘road traffic accident’ means an accident resulting in bodily injury to any person caused by, or arising out of, the use of a motor vehicle on a road or other public place in England and Wales unless the injury was caused wholly or in part by a breach by the defendant of one or more of the relevant statutory provisions as defined by section 53 of the Health and Safety at Work etc. Act 1974;”

An RTA is therefore an accident resulting in bodily injury to any person caused by, or arising out of, the use of a motor vehicle on a road or other public place in England and Wales.

Is a tram a motor vehicle?

The definition of motor vehicle under the protocol is limited but the Road Traffic Act 1988 specifically defines both motor vehicle and tram car.

Section 185 of that Act defines a motor vehicle as:-

“”motor car” means a mechanically propelled vehicle, not being a motor cycle or an invalid carriage, which is constructed itself to carry a load or passengers and the weight of which unladen—

• if it is constructed solely for the carriage of passengers and their effects, is adapted to carry not more than seven passengers exclusive of the driver and is fitted with tyres of such type as may be specified in regulations made by the Secretary of State, does not exceed 3050 kilograms,

• if it is constructed or adapted for use for the conveyance of goods or burden of any description, does not exceed 3050 kilograms, or 3500 kilograms if the vehicle carries a container or containers for holding for the purposes of its propulsion any fuel which is wholly gaseous at 17.5 degrees Celsius under a pressure of 1.013 bar or plant and materials for producing such fuel,

• does not exceed 2540 kilograms in a case not falling within sub-paragraph (a) or (b) above,”

It is true that that is the definition of the motor car whereas the Road Traffic Accident Protocol refers to a motor vehicle and clearly that includes all sorts of motor vehicles which are not cars.

However Section 192 of the Road Traffic Act 1988  specifically defines a tram car:-

““tramcar” includes any carriage used on any road by virtue of an order under the Light Railways Act 1896, and

“trolley vehicle” means a mechanically propelled vehicle adapted for use on roads without rails power transmitted to it from some external source”

Given the separate definition I do not believe that a tram would fall under the RTA Protocol definition of a motor vehicle. The RTA Portal Claim Notification Form does not lend itself to a claim involving a tram; what would one put as the vehicle registration number for example?

The Pre-Action Protocol for low value personal injury (employers’ liability and public liability) claims defines a public liability claim as:-

“(18)      ‘public liability claim’—

(a)          means a claim for damages for personal injuries arising out of a breach of a statutory or common law duty of care made against—

• a person other than the claimant’s employer…”

Thus a claim involving a tram car and a member of the public would fall under this broad definition but if the claim was by a driver or conductor or member of staff on tram car then it would fall under the Employers’ Liability Provision.

Actions for damages arising out of a road traffic accident, as defined in paragraph 1.1(16) of the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents are specifically excluded from the Employers’ Liability and Public Liability Portal, presumably to stop road traffic accidents attracting the higher fees in that portal.

However as set out above my view is that a tram car is not a motor vehicle and therefore does not come within the definition in paragraph 1.1(16) and so is not excluded from the Employers’ Liability and Public Liability Portal.

Consequently a tram car accident cannot go into the Road Traffic Accident Portal but can, in appropriate circumstances, go into the Employers’ Liability and Public Liability Portal.

Below is the text of a letter sent by MORE TH>N, a trading name of Royal & Sun Alliance Insurance plc, to a solicitor’s client questioning whether the client had actually instructed those solicitors at all. That appears to be an actionable libel, but let that pass.

The letter then assumes that the client has indeed instructed the solicitors. It asks the client to confirm that fact and writes to this client of a firm of solicitors on the other side:-

 “When responding we would also ask that you confirm how you came to instruct the firm in question?” [sic]

 “Did someone else refer you to them?

Did they contact you direct?

Did you contact them direct?”

Towards the end the letter says:-

“Deliberately fabricating losses, or exaggerating the value of your losses, is an offence under the Fraud Act 2006.”

Imagine a solicitor writing that to a lay client on the other side who has already instructed solicitors. That would be getting into striking off territory. It is potentially contempt of court to seek to dissuade another solicitor’s client direct from pursuing a claim by what could be construed as a threat, where those solicitors have initiated a claim through the court process, which lodging a CNF clearly is.

It gets worse.

The client telephoned MORE TH>N and was offered £1,500.00 direct and told that her solicitor, Infinity Law Ltd T/A DGM Solicitors as in the letter, would charge her more and she would come out with hardly anything.

They also told her that she had 14 days to cancel and so her solicitors could not charge her anything.

Thus a client protection measure – the right to cancel – becomes a way of the other side, seeking to prevent the client having legal representation. That is obviously very harmful to the client and causes far more damage than not having the right to cancel in the first place. The other side here is a massive insurance company.
The writer of this letter, without irony, is described as a “Customer Services Director”.

Here is a link to the actual Letter, the text of which is set out below. 

MORE TH>N

Claims Department

PO Box 21561

STIRLING

FK7 1AA

T   0330 1023630

F   01403 325889

E   claims@morethan.com

07 August 2015

Claim Number:

Our Insured:

Date of Accident:

Dear Mr

We have received a personal injury claims notification form from Infinity Law Ltd T/A DGM Solicitors, advising that that you have asked them to make a claim for injury on your behalf following a road traffic accident on the above date.

In the interests of preventing fraud, which has been on the increase, we hope you will not mind us writing directly to you in order to confirm that you are aware that Infinity Law Ltd T/A DGM Solicitors have made a claim on your behalf alleging you have suffered whiplash as a result of the above accident.

What to do Next

This depends on whether or not you have asked Infinity Law Ltd T/A DGM Solicitors to make a claim for these injuries on your behalf.

If you have asked the solicitors to make a claim on your behalf:

If you did ask these Solicitors to make a personal injury claim on your behalf, then we would be grateful if you could please confirm this to us. When responding we would also ask that you confirm how you came to instruct the firm in question? Did someone refer you to them? Did they contact you direct? Did you contact them direct?

After we hear from you, we will; not contact you again directly, and will deal exclusively with your solicitors.

Please contact us using any of the following methods quoting reference:

Email at:

Telephone on number 01422325255

Post Po Box 256 Wymond, NR18 9DQ

If you have not asked the solicitors to make a personal injury claim on your behalf:

If you have not asked Infinity Law Ltd T/A DGM Solicitors to make a claim for injury against our policyholder please contact us without delay by calling this dedicated number 01422325536 or by e-mailing us at alexandra.z.greaves@uk.rsagroup.com. We will take immediate steps to protect the position of your personal data and will also look into this matter further on your behalf.

If you do not want to pursue a personal injury claim, but have been told by an agency or other party that you will be charged a fee, please telephone us on 01422325536 and we will be happy to offer you further assistance.

It would be helpful if when writing you provide a telephone number in order that we can contact you to discuss this matter further.

Please be assured that any communication will be dealt with in confidence.

General Information for all Claimants:

Like most people we are sure that you will agree that exaggerating or making up claims against insurers is wrong, it cause motor insurance premiums to increase, and puts genuine victims of accidents in a bad light. We thank you for your assistance in helping us and the insurance industry as whole combat fraudulent claims.

As part of the claims process, we are obliged by law to register your personal details with the Department for Work and Pensions (DWP) Compensation Recovery Unit. The DWP works with insurers to recover benefits arising out of insurance claims.

We also pass claims information to the Claims and Underwriting Exchange (CUE), MIAFTR and other databases in order to assist with the prevention and detection of fraud. We may also search these and other databases, as well as share claims data with other insurers and organisations for the same purpose.

Deliberately fabricating losses, or exaggerating the value of your losses, is an offence under the Fraud Act 2006.

Thank you for your attention and assistance.

Yours sincerely

______________

Customer Service Director

See also my related blogs as listed below:-

INSURERS AT IT AGAIN (1) AND (2),

CLINICAL NEGLIGENCE – DEFENDANTS AT IT AGAIN (3),

MEDICAL DEFENCE UNION: A SUITABLE CASE FOR TREATMENT

INSURERS AT IT AGAIN ? (4)

INSURERS AT IT AGAIN (5)

It is well known that the introduction of Employment Tribunal fees has caused an 80% reduction in cases and that Unison’s Judicial Review applications have failed.
Less well-known is that there are further fees of £1,600.00 to appeal to the Employment Appeal Tribunal, being a fee of £400.00 to lodge the appeal and £1,200.00 to proceed to a full hearing once leave has been given. This will typically bring the total fees to £2,800.00 once the original Employment Tribunal fees are added in.

Rule 34A(2A) of the Employment Tribunal Rules 1993 – SI 1993/2854 – provides:-

“If the appeal tribunal allows an appeal, in full or in part, it may make a costs order against the respondent specifying the respondent pay to the appellant an amount no greater than any fee paid by the appellant under a notice issued by the Lord Chancellor.”

Thus the general no costs rule remains but an exception is made in relation to tribunal fees.

The Employment Appeal Tribunal has been interpreting and applying this rule in a harsh manner to appellants. It has rejected the suggestion that the winning party in an appeal should automatically have any tribunal fees refunded saying that that would involve adopting a costs shifting regime which does not exist in the Employment Appeal Tribunal.

In Look Ahead Housing and Care Limited v Chetty and Another [2015] ICR 375 – UKEAT/37/14

the Employment Appeal Tribunal was asked to make an order under Rule 34(A) (2A) of the Employment Tribunal Rules 1993.

Here the employer appellant had paid a total of £1,600.00 being the first fee of £400.00 to lodge the appeal and a further £1,200.00 to proceed to a full hearing once leave had been given.

Here the appellant had lost on every point argued before the Employment Appeal Tribunal but it had succeeded on one ground of the appeal which had in fact been agreed by the respondent to the appeal.

The appellant argued that it had succeeded in part on the appeal and had had to appeal to secure that success.
The respondent pointed out that the appeal had been lodged just two days before the expiry of the 42 day period for appealing and that the respondent had never objected to that particular ground of appeal as being unfounded or wrong.

To award costs against the respondent, that is the original claimant, would cause injustice. It would have been open to the appellant to seek reconsideration by the tribunal and had they done so it would have been obvious to the tribunal that it had made a mistake.

Neither had the appellant sought to agree this point with the claimant prior to incurring the fees in the Employment Appeal Tribunal.
The Employment Appeal Tribunal pointed out that the fees are paid whatever the result and are not refundable and “except perhaps in the most exceptional of circumstances, which very rarely if ever exist, the court never pays them back. Accordingly, what has to be achieved by application of Rule 34A (2A) is justice between the parties as to which should effectively incur the payment of fees which, viewed as between them, is a common expense which was incurred simply because there was an appeal.”

The Employment Appeal Tribunal said that although it was tempting to work on the same basis as the civil courts whereby costs are generally awarded to the party who substantially succeeds and are paid by the party who substantially fails that would be to adopt a costs shifting regime which did not exist in the Employment Appeal Tribunal. Rather the rules look simply at a question of repayment of fees which was necessary to pay in order to bring an appeal.
This is a disingenuous point as when Parliament set the system up in the 1960s as a costs free zone no one anticipated the introduction of punitive fees. Automatically to reject fee shifting because of a system designed to deal with a free procedure makes no sense.

Here the Employment Appeal Tribunal said that the appellant could have asked the original Employment Tribunal to reconsider the question and could have approached the claimant to see agreement on this particular point. Consequently the Employment Appeal Tribunal said:-

“I have concluded that there could have been and should have been action taken prior to the issue of the notice of appeal, of a kind which would not have imposed the payment of fees or an equivalent sum upon either party, and which should have been capable of remedying the injustice. In the light of that, I have concluded that in this case I should make no order as to costs: that is no order as to the repayment of fees.”

The Employment Appeal Tribunal then gave guidance in relation to other cases:-

“For the benefit of other cases which may follow, it seems to me that in a case in which an appeal is brought which is entirely rejected, there is no basis for any payment by the successful party to the appellant. Where there is an appeal which is partly successful, all will depend upon the particular facts. The rule does not permit the payment of the actual costs of litigation, apart from fees, from one party to another. What the court essentially has to assess is whether it was necessary to incur the expense in order to bring the appeal – this includes asking whether the appeal, as in the present case, could have been avoided by the appellant taking reasonable steps, or was made more likely to proceed by the behaviour of the respondent to it; it should then recognise the fact, if it be the case, that an appeal has largely failed or for that matter largely succeeded in deciding, in its discretion, exercised reasonably, whether it should award the full extent of the payment made by way of fees, or whether it should moderate that amount to a reasonable extent. A reasonable extent includes making no award at all, though in circumstances in which an appeal has been partly successful this would have to be carefully justified and is likely to be rare.”

In Portnykh v Nomura International plc, Unreported, UKEAT/0448/13/LA

the Employment Appeal Tribunal took a different view:-

“On an application under rule 34A(2A) of the Employment Appeal Tribunal Rules, as amended, the successful Appellant asked this Tribunal to exercise its discretion to order the Respondent to pay him the amount of that fee as costs. An order to that effect was made on the general principle, subject to specific exceptions arising from the particular circumstances, that where a party had succeeded, the unsuccessful party, after consideration of, and subject to, the means of the paying party to make such a payment, should pay the fees incurred by the successful party. The issue should be looked at broadly and whether or not an appellant has succeeded on all points argued would be a relevant consideration but where, as here, there had been substantial success, payment of the equivalent of the full fee(s) should be the usual outcome.”

Fee Remission

 Here the EAT, Judge Hand QC sitting alone, also considered the appropriate order where an application had been made for fee remission:-

“Where an application had been made for fee remission this Tribunal has power to postpone payment until the outcome of the application for fee remission is known and to make payment conditional upon the application for remission being rejected.”

This is correct but reflects an absurd rule. If a multi-million or billion pound business loses an appeal why should it not be responsible for the fee irrespective of whether the appellant will or will not get fee remission?

Letting a rich company off the hook simply means that appellants of modest means have to pay more to bring an appeal.

This was an appeal against an interlocutory order. Full feels are still payable. Thus if there is an appeal against the substantive decision in due course then the fees payable in the Employment Appeal Tribunal will double to £3,200.00.

A hearing fee of £1,200.00 for a judge sitting alone on an interlocutory matter, maybe without an oral hearing, is by any standards exorbitant.

In Metroline Travel Ltd v Stoute [2015] UKEAT/0302/14  Unreported

the respondent to an Employment Tribunal claim successful appealed against that tribunal’s finding that Type 2 Diabetes necessarily constituted a disability.

The substantive claim had been disposed of and the claimant had no interest in the appeal, which was of importance to the respondent employer in relation to other employees and potential claims, a fact recognised by the EAT which said:-

“I have been persuaded that I should allow the appeal and determine it and not regard it as being entirely academic, but it is an appeal that has been brought for the benefit of the Respondent…”

Nevertheless the EAT ordered the claimant to reimburse his employer for the £1,600.00 EAT Appeal fee occasioned by the Employment Tribunal’s mistake.

Fees Not Recoverable if Paid by Union

In Goldwater v Sellafield Ltd [2015] IRLR 381 EAT

the claimants successfully appealed against an Employment Tribunal finding in relation to deductions from wages.

However the Employment Appeal Tribunal refused the successful appellant employees the return of the £1,600.00 fees as these had been paid by their trade union.

Deciding this important point on the papers only HH Judge Shanks, sitting without members, said that Rule 34A(2A) limits the amount of any costs order to “any fee paid by the appellant” and said:-

“…the plain fact is that the appellants have paid no fees at all in this case and that the maximum order that can be made is therefore nil.”

Rule 76(4) of the Rules of Procedure for Employment Tribunals contains similar wording.

Many Employment Tribunal and Employment Appeal Tribunal matters are funded by trade unions and in other cases it is not unheard of for solicitors to pay the fees upfront.

Rule 34(2) of the EAT rules defines “costs” as including “fees… incurred by or on behalf of a party… in relation to the proceedings.”

Given that definition it seems clear that the intention of Rule 34A(2A) was to limit the maximum that could be awarded rather than to restrict the circumstances in which an award can be made.
The result is absurd. Presumably if the union gives the fee to the appellant who then pays it, it is recoverable. What happens if a solicitor pays the fee without having got money on account from the client?
This is a very poor decision which may have been avoided if submissions had been heard rather than the matter being dealt with on the papers and would almost certainly have never been made by a full tribunal enjoying the wisdom of employer and employee representatives.

In Insurers At It Again (4) I commented on Direct Line Group and its relationship with DLG Legal Services, a firm of solicitors and part of the Direct Line Group.

The standard client care letter from that firm to its “clients” states “This firm is appointed by Direct Line.”

Clients – for which read insured of Direct Line – are not asked to sign anything but are rather told:-

“This letter and the attached Terms of Business set out the contract between us, and unless we hear from you to the contrary we will assume that you are happy for us to act based on the terms of the policy of insurance in place with your insurers.”

So what you may think. Well how about this, at paragraph 14 of the Terms of Business, which the client is not asked to sign:-

“14. Limitation of Liability

Your relationship is solely with DLG Legal Services. We have sole legal liability for the work done for you. No director or member of staff working as an employee or in any other capacity at DLG Legal Services will have legal liability for that work whether in contract, tort, or on any other basis. Our liability to you for a breach of your instructions shall be limited to 200% of the amount of our fees for the matter or £100,000.00, whichever is the lesser, unless we expressly state a higher amount in the letter accompanying these Terms and Conditions of Business. We will not be liable for any consequential, special, indirect or exemplary damages, costs or losses, or any damages, costs or losses attributable to lost profits or opportunities. We can only limit our liability to the extent the law allows. In particular, we cannot limit our liability for death or personal injury caused by our negligence. Please ask if you would like us to explain any of the terms above.”

Let us say that firm settles a matter in the portal and receives a portal fee of £500.00. The client sues as it turns out that the claim may be worth £20,000.00 or whatever more than it was actually settled for.

This firm of solicitors, independent of, but “appointed by” – their words – Direct Line are seeking to limit their professional indemnity liability to £1,000.00 in a claim settled in the portal.

I wonder what view the Solicitors Regulation Authority would take of any of the rest of us who sought to do that:-

“Sorry, we screwed up on your conveyancing and you have lost £1 million, but we only charged you £400.00 so here is our cheque for £800.00.”

Why does my firm have to have minimum Professional Indemnity Insurance of £3 million if we are free to limit our liability to just twice our costs on any particular matter?

In 2012 the Financial Services Authority fined Direct Line and Churchill Insurance £2 million because 27 out 50 files requested by the Financial Services Authority for review were “altered improperly” before they were submitted to the Financial Services Authority and seven internal documents were found to contain signatures that had been forged – see Daily Mail 19 January 2012

At the time Direct Line was owned by the Royal Bank of Scotland. It no longer is. One year earlier the Royal Bank of Scotland was fined £2.8 million for “multiple failings” in complaints handling.

As at August 2015 the Government of the United Kingdom held and managed a 73% stake in the Royal Bank of Scotland through UK Financial Investments.

Imagine the consequences for any of the rest of us of altering improperly 27 out of 50 files requested by the Solicitors Regulation Authority and forging signatures. Why is Direct Line Group allowed to have any formal connection with a firm of solicitors?

UK Assistance

There is a company called UK Assistance, also part of Direct Line Insurance Group Plc and with the same registered office, and the “appointers” of DLG Legal Services, a firm of solicitors regulated – or perhaps not – by the Solicitors Regulation Authority.

Attached is a letter from UK Assistance to a client of a different firm of solicitors where a Claim Notification Form had already been submitted on the portal on that client’s behalf by that firm. Note the email contact details.

The text reads:-

Dear Mr

Road traffic accident on:

I have been instructed by Insurance Company, Peugeot, to contact you regarding this incident. A claim has been submitted in your name for personal injuries and we are required to check the details of the claim submitted before being in a position to proceed further.

UK Assistance provides specialist services to insurers, to assist them with their enquiries into incidents of this type.

Peugeot Insurance has requested that I arrange to meet you to discuss this incident in more detail. I would be grateful if you could telephone me on 07967 650 575 or email me at melony.buchan@directlinegroup.co.uk as soon as possible, in order to arrange an appointment.

I shall look forward to hearing from you.

Yours sincerely

MELONY BUCHAN

CLAIMS INSPECTOR

UK Assistance then sent an investigator to the client’s home in the full knowledge that the client had already instructed solicitors to pursue a claim.

How ironic that governments of all parties have abolished legal aid and yet have poured billions of pounds into failed banks to allow them to act in this way against the ordinary decent people of this country who have to pay their taxes to bail out these failed multinational institutions.

Many of you may have a term stronger than ironic in mind.

See also my related blogs as listed below:-

DLG LEGAL SERVICES & SOLICITORS CODE OF CONDUCT

INSURERS AT IT AGAIN? (4)

INSURERS AT IT AGAIN (5)

EVER SEEN WORSE TH>N MORE TH>N? – INSURERS AT IT AGAIN (6)

INSURERS AT IT AGAIN (1) AND (2),

CLINICAL NEGLIGENCE – DEFENDANTS AT IT AGAIN (3),

MEDICAL DEFENCE UNION: A SUITABLE CASE FOR TREATMENT

SETTLEMENT AGREEMENTS IN PERSONAL INJURY

In my blog earlier today – DIRECT LINE OR DIRECT LYING? – INSURERS AT IT AGAIN (7) I set out paragraph 14 of the Terms of Business sent by DLG Legal Services, a firm of solicitors and part of the Direct Line Group, to  clients.

That purports to limit liability in negligence to 200% of the amount of their fees for the individual matter or £100,000.00, whichever is the lesser.

Several people, including Richard Moorhead and my own business partner Robert Males have pointed out that this appears to be a  breach of the Solicitors Code of Conduct.

Outcome 1.8 of the Code of Conduct states that clients have the benefit of compulsory professional indemnity insurance “and you do not exclude or attempt to exclude liability below the minimum level of cover required by the SRA Indemnity Insurance Rules 2013 which require a minimum cover of £2 million for a partnership or £3 million for an incorporated firm.”

Outcomes are compulsory and are designed to achieve the principles which in this case would be:-

• Act with integrity
• Act in the best interest of each client
• Behave in a way that maintains the trust the public places in you and in the provision of legal services.

I am not holding my breath that the Solicitors Regulation Authority will take any action. Of course if it was any ordinary firm of solicitors they would be down on us like a ton of bricks.

INSURERS AT IT AGAIN? (4)

INSURERS AT IT AGAIN (5)

EVER SEEN WORSE TH>N MORE TH>N? – INSURERS AT IT AGAIN (6)

INSURERS AT IT AGAIN (1) AND (2),

CLINICAL NEGLIGENCE – DEFENDANTS AT IT AGAIN (3),

MEDICAL DEFENCE UNION: A SUITABLE CASE FOR TREATMENT

SETTLEMENT AGREEMENTS IN PERSONAL INJURY

In an email dated 22 October 2015 Claims Portal states that it is working on a new set of changes referred to as Release 5 which will be implemented in two phases.

Phase 2 in December 2016 will apparently result in an “improved user journey” but also provides:-

“The introduction of User Pays meaning CPL will apply a charge to Claimant Representatives using the Portal at the point of submitting a New Claims Notification Form.”

No details are provided.

Comment

 This will wreck the portals. I can see no legal justification for courts insisting on people using the portals, which are only voluntary, if they have to pay a fee and another fee to go to court and maybe a mediator’s fee.It is the inalienable right of every person in this country to have access to the court system.

What a shame. The Portal System has been one of the great improvements of recent times.

I suggest that everyone boycotts it from December 2016 and let us see how the Civil Court System copes with one million issued claims in 2017.

If you ever doubted it, it is now clear that we have Government of the People by the Insurers for the Insurers.  Time for direct action.

Dick Chilblain reports live from Westminster – May 2015

“My previous governments, comprising the Labour, Liberal and Conservative parties have been preparing for the 800^th anniversary of Magna Carta. To this end my governments of the last 18 years have: –

•  Scrapped legal aid

• Increased court fees tenfold

• Introduced employment tribunal fees causing an 80% reduction in cases

• Heavily restricted Judicial Review

• Allowed non-lawyers to practice law

• Allowed the banks to get away with treason

• Mounted a sustained attack on lawyers and professional people generally

• Introduced damaging and expensive reforms which do not work

• Introduced a further set of damaging and expensive reforms that do not work

• Caused a huge increase in litigants in person clogging up the courts and not getting justice

• Sought to destroy the rule of law

• Acted like a bunch of Nazi yobs towards the legal system.

The fees in my courts are now so expensive that even I cannot afford them and I am the Queen. I am surprised at the tenfold increase in court fees as I spend much of my time giving Royal Assent to endless Bills waffling on about reducing the cost of going to law.

Consequently in exercise of my Royal Prerogative and to celebrate 800 years of Magna Carta I am reversing all of the above changes.

In addition I will never again appoint a Lord Chancellor who is not a lawyer.”

SNIVEL INJUSTICE COUNCIL

Candidates required to make futile suggestions concerning the legal system:

Job requirements:

1. You must never have had a proper job.
2. You must never have dealt with a client or member of the public.
3. You most certainly must never have run your own business or taken any commercial risk.
4. You must use the terms “platform”, “portal” and “technology” in every paragraph of anything you write.

Personal attributes

1. A willingness to meddle in things you know nothing about.
2. Having a completely safe tax payer funded job with an index-linked pension.
3. Not have any real experience of real life.

Suffer little children, and forbid them not, to come unto me, except if you wish to bring a claim in an English or Welsh court.

Matthew 19:14, as amended.

April will indeed be the cruellest month for children in The Waste Land that our legal system is becoming.

The 78^th update to the Civil Procedure Rules, effective 6 April 2015, makes changes to the way deductions from damages in children’s cases are dealt with. The update is implemented by The Civil Procedure (Amendment no. 8) Rules 2014 (SI 2014 No 3299 (L. 36)).

The advice is simple: do not act for children unless you are satisfied that recoverable costs are sufficient. In reality you are never going to be able to charge the child anything. Recoverable portal costs are designed to be inadequate. Do not act for children in cases which start in the portal. Do not act for children in small claims matters.

Note that if you lose the case completely you can charge the child what you want. That is the genius of the new rule.

Contracts for legal services are contracts for necessities; if the case is lost there are no damages from which anything can be deducted, no infant approval hearing and usual solicitor and own client rules apply.

(For a detailed analysis of the law in relation to cases involving children see Jackson’s Children)

The new rules allow summary assessment (CPR 46.4(5)) rather than detailed assessment. This is referred to in the Practice Direction, but according to the Civil Procedure Rules Committee it was “unfortunately… omitted” from the Statutory Instrument. Unfortunate indeed. Not an excuse generally accepted by courts in relation to pleadings. Good job Denton/Mitchell does not apply to Parliament.

The procedure only applies:

• once recoverable costs have been assessed or agreed, unless fixed recoverable costs apply;
• where damages do not exceed £25,000.00;
• to personal injury cases;
• to the success fee, not ordinary costs.

There is no logic to this. As it is only the success fee that can be recovered under this mechanism, then how is the amount recoverable from the other side of any relevance? That defines the solicitor and own client/recoverable costs shortfall, and nothing else.

The success fee is capped at 25% of the Allowed Damages Pool and cannot exceed 100% of solicitor and own client costs.Recovered costs are entirely irrelevant to this issue.

Is the sub-text that the costs judge thinks that the solicitor has made a decent recovery from the other side then they should get no success fee? If so, why not? The success fee is for taking the risk. It is, and always has been, entirely separate from the amount of recovered costs.

Supposing there is a shortfall of £1,000 in recovered costs as against solicitor and own client costs, and that by coincidence the damages are £4,000 and the solicitor has capped her or his charges, of any kind, to 25% of damages – the Underwoods Method.

Thus the solicitor wishes to charge the child £1,000, but can only use this mechanism in relation to a success fee. Is the solicitor free to waive the unrecovered solicitor and own client costs and treat it all as a success fee? Or is the unrecovered cost the “first charge” or the contractually agreed maximum?

It is unclear what happens where damages exceed £25,000.00; presumably these are still subject to the detailed assessment procedure, but the old rules, which therefore continue to apply to such cases, are silent on the issue.

The Wrong Ministry of Justice Note

The Explanatory Note by the Ministry of Justice says:- “Amendments are made to address the growing number of applications made at approval hearings for payment out of damages awarded to a child or a protected party (a person lacking capacity to make decisions) to meet the success fee provided for in a conditional fee agreement or damages-based agreement entered into between the litigation friend (who represents the interests of the child or protected party) and the solicitor for the child or protected party. The rules are amended to reflect when and how a deduction from damages of a sum to meet any shortfall between the costs recoverable from the other party and the ‘solicitor and own client’ costs payable to the child or protected party’s solicitors applies. The amendments are confined to cases where the damages agreed or orders to be paid do not exceed £25,000.”

That would clearly cover any shortfall between the hourly rates charged by the solicitor and the sum recovered from the other side, that is the conventional shortfall between recovered costs and solicitor and own client costs, even where there is no success fee.

The Actual Law

However that is not what the new rules say. New CPR 21.12(1A) reads as follows:-

“(1A) Costs recoverable under this rule are limited to –

(a) costs incurred by or on behalf of a child and which have been assessed by way of detailed assessment pursuant to rule 46.4(2); or

(b) costs incurred by or on behalf of a child by way of success fee under a conditional fee agreement or sum payable under a damages-based agreement in a claim for damages for personal injury where the damages agreed or ordered to be paid do not exceed £25,000.00, which ere such costs have been assessed summarily pursuant to rule 46.4(5).”

The Explanatory Note to the Statutory Instrument, as compared with the Ministry of Justice’s Explanatory Note, states that the Rules are “amending rule 21.12, which concerns expenses incurred by a litigation friend, so that it covers the position wherever full recovery of costs from the other party to the proceedings is not achieved or is not possible by virtue of the changes brought about by the Legal Aid, Sentencing and Punishment of Offenders Act 2012.”

That Act did not deal with the shortfall between solicitor and own client costs and recoverable costs, only the success fee. Any element of shortfall must still be the subject of detailed assessment.

Thus the Explanatory Note issued by the Ministry of Justice is wrong in that it is not permissible to use this new provision to charge the shortfall between solicitor and own client costs and recoverable costs; rather it is only the success fee or the damages-based agreement fee that can be charged to the client.

The New CPR

CPR 21.12 formerly dealt with the expenses, not the legal costs, of a litigation friend, although an After-the-Event insurance premium, generally considered to be part of the legal costs, was specifically classed as an expense of a litigation friend (CPR 21.12(2)(a)).

CPR 21.12 is now amended to include “costs” as well as expenses.

As amended CPR 21.12(6) and (7) provide that costs and expenses are separately recoverable out of damages, with each being limited to 25% of general damages, giving a total of 50% potentially deductible from a child’s damages.

Thus there is now a mechanism for the court to order payment of a success fee, or damages based fee, out of a child’s damages, without the need for detailed assessment.

New CPR 21.12(7) & (8) limit the amount that can be charged and also when the application can be made.

New CPR 21.12(7) reads:-

“(7) the amount which the litigation friend may recover under paragraph (1) in respect of costs must not (in proceedings at first instance) exceed 25% of the amount of the sum agreed or awarded in respect of—

(a) general damages for pain, suffering and loss of amenity; and

(b) damages for pecuniary loss other than future pecuniary loss, net of any sums recoverable by the Compensation Recovery Unit of the Department for Work and Pensions.”

The rule that the application can only be made after all costs recoverable for the other side have been dealt with is contained in new CPR 21.12(8) which reads:-

“(8) Except in a case in which the costs payable to a child or protected party are fixed by these rules, no application may be made under this rule for a payment out of the money recovered by the child or protected party until the costs payable to the child or protected party have been assessed or agreed.”

Thus it will also be seen that the new mechanism only applies to personal injury actions and that the Allowed Damages Pool is utilised and the total amount deducted from the client’s damages cannot exceed 25% of the Allowed Damages Pool, and it is only the success fee, not the balance between ordinary solicitor and own client costs and recoverable costs that can be the subject of these rules.

That is not the end of it.

The New Practice Direction

Any such claim must be supported by a Witness Statement from the litigation friend, and not the solicitor (CPR PD 21 11.2).

Here is a template letter:-

Dear Mrs Jones,

As you will be aware you are your little Danny’s litigation friend as well as his mum.

Please sign the attached Witness Statement so that I can have 25% of his damages.

Yours sincerely

Ivor Snowball-In-Hells-Chance

Solicitor

I will not set out the template reply from Mrs Jones, but it begins and ends with the letter F.

Sometimes the solicitor is the litigation friend.

That will be interesting. Let us assume that there is the odd – odd indeed – litigation friend who puts the solicitor’s interests above those of the child.

It does not stop there. Practice Direction 21 11.12 details with general principle of the litigation friend having to make a statement:-

“11.2. In all circumstances, the litigation friend must support a claim for expenses by filing a witness statement setting out –

(1) the nature and amount of the expense; and

(2) the reason the expense was incurred.”

Practice Direction 21 11.3 provides as follows:-

“Where the application is for payment out of the damages in respect of costs pursuant to Rule 21.12(1A) the Witness Statement must also include (or be accompanied by) –

(1) a copy of the conditional fee agreement or damages-based agreement;

(2) the risk assessment by reference to which the success fee was determined;

(3) the reasons why the particular funding method was selected;

(4) the advice given to the litigation friend in relation to funding arrangements;

(5) details of any costs agreed, recovered or fixed costs recoverable by the child; and

(6) confirmation of the amount of the sum agreed or awarded in respect of:

a. general damages for pain, suffering and loss of amenity;

b. damages for pecuniary loss other than future pecuniary loss net of any sums recoverable by the Compensation Recovery Unit of the Department for Work and Pensions.”

How ultra vires can you get?

This is very obviously ultra vires the Courts and Legal Services Act 1990, which requires neither a risk assessment in relation to Conditional Fee Agreements, nor an analysis of the law of funding.

Can a Practice Direction overturn centuries of legal professional privilege? I am told that this is the first time in English and Welsh history that a rule or more has required a witness statement in civil proceedings to disclose the advice given by a lawyer to her or his client.

Risk Assessment

The Civil Procedure Rules were amended in 2013 to remove the requirement to carry out the Risk Assessment. This followed Parliament approving the Conditional Fee Agreements Order 2013, which contains no reference to risk assessment as a basis of calculating the success fee.

“CPR 46.9(4):

“(4) Where the court is considering a percentage increase on the application of the client, the court will have regard to all the relevant factors as they reasonably appeared to the solicitor or counsel when the conditional fee agreement was entered into or varied.”

That is the entirety of the Civil Procedure Rules dealing with success fees. (For a detailed analysis of the law relating to Conditional Fee Agreements see my blog Conditional Fee Agreements, Damages-Based Agreements and Contingency Fees.)

Any Senior Court will surely throw this Practice Direction out. So what then is the problem?

Well, once this obviously invalid Practice Direction is cast aside one is left with the existing law, which is that the matter is entirely within the discretion of the judge. Therein lies the problem. The judges are currently exercising this discretion by refusing to allow any deductions and that is why the rules and the Practice Direction now considered were written……..

Yet again the Rules Committee, whose proposal was rubber-stamped by Parliament, has wholly failed to understand how solicitors’ costs and solicitors’ practices work.

Even by the wretched standards of this wretched body this plumbs new depths.

What are the roots that clutch, what branches grow

Out of this stony rubbish?

T. S. Eliot The Waste Land

Here is how the new rule looks with effect from 6 April 2015, with tracked changes.

Expenses incurred by a litigation friend

21.12

(1) In Subject to paragraph (1A), in proceedings to which rule 21.11 applies, a litigation friend who incurs costs or expenses on behalf of a child or protected party in any proceedings is entitled on application to recover the amount paid or payable out of any money recovered or paid into court to the extent that it –

(a) has been reasonably incurred; and

(b) is reasonable in amount.

(1A) Costs recoverable under the rule are limited to costs incurred by or on behalf of a child by way of success fee under a conditional fee agreement or sum payable under a damages-based agreement in a claim for damages for personal injury where the damages agreed or ordered to be paid do not exceed £25,000.

(2) Expenses may include all or part of –

(a) a premium in respect of a costs insurance policy (as defined by section 58C(5) of the Courts and Legal Services Act 1990); or

(b) interest on a loan taken out to pay a premium in respect of a costs insurance policy or other recoverable disbursement.

(3) No application may be made under this rule for costs or expenses that –

(a) are of a type that may be recoverable on an assessment of costs payable by or out of money belonging to a child or protected party; but

(b) are disallowed in whole or in part on such an assessment.

(Expenses which are also ‘costs’ as defined in rule 44.1(1) are dealt with under rule 46.4(2).

(Costs and expenses which are also “costs” as defined in rule 44.1(1) are subject to rule 46.4(2) and (3).)

(4) In deciding whether the costs or expenses were reasonably incurred and reasonable in amount, the court will have regard to all the circumstances of the case including the factors set out in rule 44.4(3) and rule 46.9.

(5) When the court is considering the factors to be taken into account in assessing the reasonableness of the costs or expenses, it will have regard to the facts and circumstances as they reasonably appeared to the litigation friend or to the child’s or protected party’s legal representative when the cost or expense was incurred.

(6) Subject to paragraph (7), where the claim is settled or compromised, or judgment is given, on terms that an amount not exceeding £5,000 is paid to the child or protected party, the total amount the litigation friend may recover under paragraph (1) must not exceed 25% of the sum so agreed or awarded, unless the court directs otherwise. Such total amount must not exceed 50% of the sum so agreed or awarded.

(7) The amount which the litigation friend may recover under paragraph (1) in respect of costs must not (in proceedings at first instance) exceed 25% of the amount of the sum agreed or awarded in respect of—

(a) general damages for pain, suffering and loss of amenity; and

(b) damages for pecuniary loss other than future pecuniary loss,

net of any sums recoverable by the Compensation Recovery Unit of the Department for Work and Pensions.

(6) (8) Except in a case in which the costs payable to a child or protected party are fixed by these rules, no application may be made under this rule for a payment out of the money recovered by the child or protected party until the costs payable to the child or protected party have been assessed or agreed.

NEW PART 36: APRIL IS AGAIN THE CRUELLEST MONTH

The new Part 36, effective 6 April 2015, increases the anti-claimant bias of the rule and arguably there is now no point in a claimant ever offering to settle on liability.

It has become more, not less, complicated and as one writer has put it “nothing fundamental has been done to blow away the fog of confusions that currently surrounds Part 36.” (Alex Sciannaca and Giles Hutt, Law Society Gazette.)

The whole of the rule as it will be from 6 April is set out at Schedule 1 of The Civil Procedure (Amendments No 8) Rules 2014, SI 2014 No 3299 (L.36). Thus Part 36 is now a Statutory Instrument. CPR 36.1 makes it clear that Part 36 is a self-contained code; this reflects case law.

“36.1.—(1) This Part contains a self-contained procedural code about offers to settle made pursuant to the procedure set out in this Part (“Part 36 offers”).”

This puts in to statutory form the decision in Gibbon v Manchester City Council [2010] EWCA Civ 726.

The rule is divided into two parts with Section I dealing with all matters except those covered by the two personal injury portals, and the subsequent Fixed Recoverable Costs Scheme.

Section II deals with all other matters, including personal injury claims not brought within either of the two portals/Fixed Recoverable Costs. (CPR 36.1(3)).

CPR 36.2 makes it clear that parties are free to make offers in any way they want, but unless those offers comply with Part 36 they will not have Part 36 consequences, but the court must consider such offers when deciding what order to make about costs (CPR 36.2(2)).

CPR 36.2(3) makes it clear that the Part 36 procedure extends to counterclaims, additional claims, appeals and cross-appeals, thus confirming in the rules the decision of the Court of Appeal in AF v BG [2009] EWCA Civ 757.

CPR 36.3 is the definition section and includes new definitions in relation to trial, trial judge, a trial in progress, when a case is decided and relevant period.

It reads

“36.3. In this Section—

(a) the party who makes an offer is the “offeror”;

(b) the party to whom an offer is made is the “offeree”;

(c) a “trial” means any trial in a case whether it is a trial of all issues or a trial of liability, quantum or some other issue in the case;

(d) a trial is “in progress” from the time when it starts until the time when judgment is given or handed down;

(e) a case is “decided” when all issues in the case have been determined, whether at one or more trials;

(f) “trial judge” includes the judge (if any) allocated in advance to conduct a trial; and

(g) “the relevant period” means—

(i) in the case of an offer made not less than 21 days before a trial, the period specified under rule 36.5(1)(c) or such longer period as the parties agree;

(ii) otherwise, the period up to the end of such trial.””

CPR 36.4 confirms that Part 36 offers can be made on appeals.

However an offer made in the initial proceedings has costs consequences only in those proceedings and not in the appeal proceedings (CPR 36.4(1)).

Thus a new Part 36 offer must be made in relation to an appeal. This is in line with the decision in East West Corporation v P&O Nedlloyd BV and Utaniko Ltd [2003] EWCA Civ 174.

CPR 36.5 deals with the form and contents of the Part 36 offer and there is no substantive change, but a new provision makes it clear that an offer is deemed to include interest to the date of expiry of the offer (CPR 36.5(4)).

It is now sufficient to “make clear that [the offer] is made pursuant to Part 36” (CPR 36.5(1)(b)); it is no longer necessary to state in the body of an offer that it is “intended to have the consequences of Section I of Part 36” (old 36.2(2)(b)). Courts interpreted the old provision very strictly – see, for example, Shaw v Merthyr Tydfil County Borough Council [2014] EWCA Civ 1678.

However considerable formality remains, including that an offer has to spell out the costs consequences of acceptance, complete with cross references to the relevant provisions of new CPR 36.5(1)(c), 36.13 and 36.20.

CPR 36.7 confirms that an offer can be made at any time, including pre-issue, and that it is made when it is served on the offeree.

CPR 36.8 deals with clarification of a Part 36 offer and although there is a slight change in wording, there is no change in the law.

There are now separate rules dealing with the withdrawal of an offer or the changing of its terms.

The key point is that an improvement in the offer from the recipient’s point of view is neither a withdrawal, nor a variation, of the original offer but a new offer with time running from the date of service of the new offer (CPR 36.9(5)).

Thus Burrett v Mencap Ltd, 14 May 2014 is statutorily overturned.

An offer may now automatically be withdrawn in accordance with its own terms (36.9(4)(b)) provided the relevant period has passed. Thus it is now possible to make a Part 36 offer open for, say, 30 days and that offer is then deemed withdrawn at that point without further action or notice by the offeror.

An offer remains open for acceptance until withdrawn (C v D [2011] EWCA Civ 646) but that withdrawal can occur without further notice if the terms of the withdrawal are contained in the Part 36 offer itself.

CPR 36.10 deals with the withdrawal of an offer before the expiry of the relevant period. It also covers changing the terms to be less advantageous to the offeree.

Either of these actions requires the permission of the court, which must be satisfied that there is a change of circumstances and that it is in the interests of justice to grant permission.

The court remains able to give permission to withdraw, or vary, an offer after it has been accepted within the relevant period, so the scenario in Evans v Royal Wolverhampton Hospitals NHS Foundation Trust [2014] EWHC 3185 (QB) remains possible. The previous rule was silent on the criteria to be applied on such an application. The new rule does not allow a party to make a without notice application, nor to seek to withdraw the evidence from the other party as happened in Evans.

CPR 36.11 deals with acceptance of Part 36 offers and there is no substantive change in the law. The express provision in the old Part 36 that an offer could not be accepted between the end of a trial and judgment has been changed to allow such acceptance, but only with the court’s permission.

Split Trials

Where there has been a split trial, but judgment has not yet been given, a Part 36 offer cannot be accepted until seven days after judgment is handed down, unless the parties agree otherwise (36.12). Any Part 36 offer which relates only to parts of the claim or issues that have already been decided can no longer be accepted.

Costs Consequences of Acceptance of a Part 36 Offer

Important changes include:

• an express reference to a party being entitled to “recoverable pre-action costs”.

• an express provision that where a Part 36 offer is accepted late the court must, unless it is unjust so to do, give the claimant its costs up to the date of expiry of the relevant period and order the claimant to pay the defendant’s costs thereafter.

Thus the anti-claimant bias remains, a late accepting claimant is penalized twice in costs, once by being deprived of her or his own costs and secondly by having to pay the defendant’s costs from 21 days after the offer was made.

A late-accepting defendant suffers no penalty, either in costs or damages.

_______

____

Other effects of acceptance of a Part 36 offer

These are dealt with in CPR 36.14.

If a Part 36 offer is accepted, then the claim is stayed (36.14(1)).

In the case of acceptance of a Part 36 offer which relates to the whole claim, the stay is upon the terms of the offer (36.14(2)).

If the Part 36 offer relates to part only of the claim, acceptance results in a stay as to that part upon the terms of the offer (36.14(3)).

If court approval is required then the stay comes in to effect only when that approval is given (36.14(4)).

Any stay does not affect the power of the court to enforce the terms of the Part 36 offer (36.14(5)(a)), nor to deal with any question of costs, including interest on costs, in relation to any part of the proceedings (36.14(5)(b)).

The sum must be paid within 14 days unless the parties agree otherwise (36.14(6)(a)).

In provisional damages or periodical payment cases payment must be made within 14 days of the court order, but the court is free to vary that period (36.14(6)(b)).

If payment is not made on time then the claimant can enter judgment for the unpaid sum (36.14(7)).

Where a party alleges in a non-financial settlement that the other party has not honoured the terms of that offer, that party may apply to enforce the terms of the offer without the need for a new claim (36.14(8)).

Unaccepted offers

The provisions preventing disclosure of a Part 36 offer until after the case has been decided are contained in CPR 36.16, which contains new provisions dealing specifically with split trial, an cases where some, but not all, issues have been decided.

The trial judge may be told about any part of, or issue in the case that has been decided where the Part 36 offer relates only to those parts.

Where this situation occurs the trial judge may be told whether or not there are Part 36 offers other than those relating to decided issues, but must not be told the terms of any such other offers unless the defence is one of tender before claim, or proceedings have been stayed on acceptance of a Part 36 offer or the parties have agreed that the terms of such offer may be disclosed to the trial judge.

This overturns the definition in Beasley v Alexander [2012] EWCH 2715 (QB) where the court held that the judge could not be told of the existence of a Part 36 offer after a trial on liability until the case had been decided, that is the whole action concluded.

Where a party fails to file a costs budget in time the court may limit that party’s budget to court fees only. This is the notorious rule that achieved fame in the Mitchell case.

Apart from the obvious gross unfairness and disproportionality of the rule it neutered Part 36. A party faced with a Part 36 offer from a party where recoverable costs were limited to court fees could clearly ignore it.

CPR 36.23 introduces an entirely new provision whereby a court fees only offeror can recover 50% of its costs if the other party fails to beat a Part 36 offer.

It applies to claimants and defendants.

This means that even where a court imposes the no costs except court fees sanction it must now budget those costs.

New test of “Genuine Attempt”

There is a bizarre addition to the factors that a court must take in to account in considering whether it would be unjust for the usual Part 36 consequences to apply.

By virtue of new CPR 36.17(5)(e) the court must take in to account “whether the offer was a genuine attempt to settle the proceedings.”

Thus the certainty is totally removed and it becomes a lottery as to whether the court will in fact apply Part 36 in any given case. It is Carver v BAA [2008] EWCA Civ 412, repealed by Parliament, all over again.

Of all the stupid rules that the unelected, unaccountable Rules Committee has come up with this is one of the most stupid, albeit that technically it has been approved by Parliament. I wonder if a single Member of Parliament read the draft Statutory Instrusment.

An offer is an offer is an offer. Parties make offers for a million and one reasons. Why on earth should the court need to look at the virtue behind the offer? How will it do this? Presumably by calling the party to give oral evidence and be cross-examined. Yet virtually all Part 36 offers are on the advice of the party’s lawyer. Whither solicitor-client privilege?

Is this an attempt to revive the Huck v Robson issue, which Parliament has put to bed by legislating that a party only has to match, not beat its own offer?

Parliament has consistently sought certainty in relation to Part 36. It statutorily repealed Carver v BAA, as well as overruling the suggestion in Huck v Robson that a 99.9% offer may not be valid for Part 36 purposes.

The whole Huck v Robson debate was misconcerned in any event. There is an incentive for a defendant to accept a 100%, let alone a 99.9% offer on liability. It means that that issue is concluded and therefore the claimant can get no costs for any further liability work.

The whole point of Part 36 is to resolve those aspects of the claim that can be resolved; liability is a rather important one.

Part 36 is not all or nothing. Discrete aspects can be settled, for example past specials, or loss of earnings or whatever.

All this will do is create further satellite litigation. A defendant who is on the wrong end of a Part 36 may as well argue that it was not a genuine attempt to settle proceedings. It has nothing to lose.

It is hard to see how this new rule can ever apply to defendants; by definition if a claimant has failed to beat a defendant’s offer, then that offer must have been a genuine attempt to settle the proceedings.

Thus this is yet another anti-claimant rule.

Everyone agrees that too few claimants’ Part 36 offers are being made. This rule will reduce even further the number made.

Personal Injury Cases

There is no substantive change in relation to personal injury claims alone, although the general changes dealt with above apply to all cases, including personal injury ones.

There are substantive changes in relation to Part 36 and the portals and Fixed Recoverable Costs, which I deal with elsewhere.

However the structure of Part 36 has changed with all of the personal injury material now in one section as follows:

• CPR 36.18 deals with claims for future pecuniary loss and replicates existing CPR 36.5;

• CPR 36.19 deals with offers to settle claims for provisional damages and repeats existing CPR 36.6;

• CPR 36.20 covers costs consequences of acceptance of offers where Section IIIA of Part 45 applies, that is claims which no longer continue under the RTA Or EL/PL Pre-Action Protocols and fall into the Fixed Recoverable Costs scheme, and follows existing CPR 36.10A;

• CPR 36.21 deals with costs consequences following judgment where Section IIIA of Part 45 applies, reflects current CPR 36.14A;

• CPR 36.22 covers deductions of benefits, and lump sum payments and replicates current CPR36.14.

PORTAL AND FIXED RECOVERABLE COSTS CASES

These cases have their own discrete Section II and the rules considered so far in Section I do not apply to them. However most are replicated in Section II.

A protocol offer must be made and must be in the Court Proceedings Pack (Part B) form and contain the final total amount of each offer from both parties.

Protocol offers are treated as exclusive of interest, in contrast to non-protocol Part 36 offers which are deemed to include interest to the date of expiry of the offer (see above – CPR 36.5(4)).

As with non-portal offers the portal offer must not be commuted to the court until the claim is determined and any other offer must not be commuted at all.

If the claimant fails to beat the defendant’s portal offer then the court will order the claimant to pay fixed costs and interest on those costs.

If the claimant at least matches its own offer the defendant will pay an uplift on damages and additional interest on damages and costs.

In due course I will publish a detailed blog on how Part 36 works in practice in portal and Fixed Recoverable Costs Cases.

For the full new Part 36 see Schedule 1 of The Civil Procedure (Amendments No 8) Rules 2014, SI 2014 No 3299 (L.36).

_______

_____

Our dried voices when

We whisper together

Are quiet and meaningless

T.S Eliot: The Hollow Men

Here is a link to BBC Radio 4’s File on Four broadcast at 8:00pm on Tuesday 24 February 2015.

It lasts 40 minutes.

In its report implementing reforms to civil legal aid, 4 February 2015, the House of Commons Committee of Public Accounts, said that it had received evidence from the Magistrates’ Association that the increase in the number of people representing themselves in court, caused by legal aid cuts, may have a negative impact on the administration of justice, especially in cases involving children (paragraph 4).

The Ministry of Justice’s Exceptional Case Funding Scheme, which is intended to provide legal aid for people whose human rights would be breached without it, is virtually moribund. Between 5,000 and 7,000 applications a year were expected; in fact just 1,520 were received and only 69, or 4.54% were approved.

At paragraph 5 the committee said:-

“5. The Ministry cannot manage the impact of the increase in litigants in person, because it still does not understand the impact that they have on the courts service. The Ministry acknowledged in 2012 that the number of LIPs was likely to increase as a result of the reforms. Yet it has still not improved its ability to monitor the impact of LIPs on the courts. It does not collect reliable data on how long individual court hearings take, and its recently published analysis of court hearing durations was based on inadequate information. It is therefore not able to say whether hearings in which people represent themselves are longer or shorter than those in which legal representatives are present and it will not accept the anecdotal evidence provided by the judiciary. The NAO [National Audit Office] identified a 30% rise in the number of cases starting in family courts in which both parties were LIPs. The NAO also identified an increase in the number of contested family cases reaching the courts, with the figure rising from 64% to 89%. The Magistrates’ Association told us that these cases with litigants in person take longer and place additional pressure on the courts service.

Recommendation: The Ministry should routinely collect reliable data on the operations of the court service, for example on hearing length, use of other court resources, types of case, and representation, and use this to better understand and manage the impact of LIPs.”

The committee said that in the year following the legal aid cuts, there was an increase of 18,519 cases (30%) in which both parties were representing themselves in family courts. Within that figure there were 8,110 more cases involving contact with children in which both parties were LIPs in 2013/14 an increase of 89% from the previous year.

The report also said that judges have estimated the cases involving LIPs can take 50% longer than others and many legal professionals have said that they place additional demands upon court staff.

Bizarrely the Ministry of Justice told the committee that it did not believe the cases involving LIPs take longer than other cases and indeed suggested that those cases may be shorter than cases in which both parties are represented (paragraph 16 to 18 of the report).

The committee concluded:-

“17. The Ministry does not understand the impact of the increase in LIPs on court resources because it does not have reliable information about key aspects of the court system, particularly hearing lengths. The data that it collects on the representation status of litigants and the type and complexity of cases is also limited. The Ministry agreed that without this information, it cannot know what impact LIPs have on court costs. Research that the Ministry commissioned to examine the impact of LIPs recommended that follow up research is needed to examine the impact of legal aid reforms on the impact of LIPs on the court system.” (Paragraph 17)

The courts are experiencing a very significant increase in the number of Litigants in Person following the sharp increase in legal fees to be paid by individuals as a result of the Jackson reforms, and the virtual abolition of civil legal aid. This is already causing problems in the courts as cases involving Litigants in Person take much longer than those involving represented parties.

Indeed The Spectator, 20 February 2014, hardly a journal of the left, says “the number of them has exploded” since “the government slashed legal aid in April of last year.” (2013), and that the majority of trials now have at least one unrepresented party. One barrister commented that “the man in the street has as much chance of dealing with these issues as building their own rocket to the moon.”  It is a fascinating article and needs to be read.

In Lindner v Rawlins [2015] EWCA Civ 61

a divorce case where both parties were litigants in person, the Court of Appeal said

“The task that would normally have been fulfilled by the parties’ legal representatives, of finding relevant documents amongst the material presented, and researching the law and its application to the facts of the case, had to be done by the judges of the Court of Appeal instead. This is not a satisfactory state of affairs as the time taken to attend to this is considerable and cannot be spared in what is already a very busy court.” (Lady Justice Black).

and

“All this involves an expensive use of judicial time, which is in short supply as it is. Money may have been saved from the legal aid funds, but an equal amount of expense, if not more, has been incurred in terms of the costs of judges’ and court time. The result is that there is, in fact, no economy at all. Worse, this way of dealing with cases runs the risk that a correct result will not be reached because the court does not have the legal assistance of counsel that it should have and the court has no other legal assistance available to it.” (Lord Justice Aikens).

The Lord Chief Justice’s Report 2014

The Lord Chief Justice, in his Report to Parliament pursuant to section 5(1) of the Constitutional Reform Act 2005 said:

“The escalating cost of using lawyers in civil litigation in circumstances where legal aid has never been available has coincided with the major legal aid reforms under the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) which took effect in April 2013. This has resulted in a very significant rise in the proportion of litigants in person. This increase together with the time taken to control the costs of litigation through cost budgeting has placed a considerable strain on the civil justice system.

Although litigants in person have been a feature of the tribunals since their inception at the beginning of the twentieth century, outside the jurisdiction of the small claims procedure they have not been a common feature of the court system. Although litigants in person are not in themselves “a problem” for the courts, the issue for the courts and the Government is that the system has not developed with a focus on unrepresented litigants, and there is now an unprecedented increase in their incidence. The judiciary’s view, based on inquiries it has made albeit so far unsupported by full statistical evidence, is that cases are consequently taking longer.

Cases which may never have been brought or would have been compromised at an early stage are often fully-contested, and the take up of mediation and ADR has reduced. The judiciary is actively taking steps to provide litigants in person with access to justice in a proportionate manner. The steps taken include schemes in the Queen’s Bench and Chancery Division to provide pro bono help and simplified guides to litigation. The help that the courts have received from the Personal Support Unit and Citizens Advice Bureau has been immense. As discussed later in this section, the judiciary looks forward to further reforms to address this significant issue.”

The increase in Litigants in Person had prompted the publication of a number of guides:-

• “A guide to proceedings in the supreme court for those without a legal representative” February 2014, by the Supreme Court of the United Kingdom. This is a short, helpful guide which lawyers will also find useful;
• “A formal guide for Litigants in Person in interim applications” by the High Court;
• “A Handbook for Litigants in Persons” by six Circuit Judges, free on the Courts and Tribunal Judiciary website;
• “A Guide to Representing Yourself in Court” by the Bar Council;#
• “Helping Litigants in Person” by John Bolch on Stowe Family Law Blog.

The Civil Procedure (Amendment) Rules 2013, published on 13 February 2013, do not alter substantially the position in relation to Litigants in Person, but the relevant rule is now CPR 46.5, which I set out at the end of this piece.

In  R (Dinjan Hysaj) v Secretary of State for the Home Department and two other conjoined cases [2014] EWCA Civ 1633

the Court of Appeal considered whether the court should adopt a different approach to Litigants in Person in the context of applying the Mitchell/Denton criteria in relation to relief from sanctions, here in connection with appealing out of time.

The Court of Appeal held that the representation or not of a party is of no significance at the first stage of the enquiry, that is the assessment of the seriousness and significance of the failure to comply with the rules.

Whilst accepting that the second stage – the good reason stage – will depend upon the particular circumstances of the case the court said that it did “not think that the court can or should accept that the mere fact of being unrepresented provides a good reason for not adhering to the rules.”

“Litigation is inevitably a complex process and it is understandable that those who have no previous experience of it should have difficulty in finding and understanding the rules by which it is governed. The problems facing ordinary litigants are substantial and have been exacerbated by reductions in legal aid. Nonetheless, if proceedings are not to become a free-for-all, the court must insist on litigants of all kinds following the rules. In my view, therefore, being a litigant in person with no previous experience of legal proceedings is not a good reason for failing to comply with the rules.” (Paragraph 44).

The Court of Appeal did not then go on the consider the third stage of the Denton test here the court appears to have conflated the good reason test with the all of the circumstances test, thus falling into exactly the same error of law as it did in Mitchell.

Nevertheless the view is clear: no special rules for Litigants in Person, and that must be right.

The Court of Appeal went on to say, at paragraph 45:-

“45.        The Civil Procedure Rules are available free on line on the web site of the Ministry of Justice and to that extent are widely available. What the ordinary person requires, however, is more help in discovering and understanding the rules and some basic guidance about the way in which proceedings should be conducted. If, as seems inevitable, the courts can expect to see an increasing number of litigants in person, assistance of that kind will become essential if the administration of justice is not to be undermined.”

This was confirmed in Nata Lee Ltd v Abid [2014] EWCA Civ 1652

Where the Court of Appeal stated that a litigant in person does not have any special status in relation to procedural matters or relief from sanctions, although there may be cases where the fact that a party is a litigant in person may have an effect on such issues, but this will be ” at the margins.”

“53.        I make it clear at the outset that, in my view, the fact that a party (whether an individual or a corporate body) is not professionally represented is not of itself a reason for the disapplication of rules, orders and directions, or for the disapplication of that part of the overriding objective which now places great value on the requirement that they be obeyed by litigants. In short, the CPR do not, at least at present, make specific or separate provision for litigants in person. There may be cases in which the fact that a party is a litigant in person has some consequence in the determination of applications for relief from sanctions, but this is likely to operate at the margins.”

In calling for fixed solicitor and own client cots in family cases Mr Justice Mostyn had this to say in J v J [2014 EWHC 3654 (Fam)

“It might also have the beneficial consequence that the present volume of self-representation deriving from the wholesale withdrawal of legal aid from private family law cases is reduced. If a litigant on the cusp of self-representation new at the start of the case how much it was going to cost for each phase then he may well opt for representation. The benefits of representation are too obvious to spell out extensively. Far more cases with the benefit of representation settle, with the resultant avoidance of the legacy of heartache that contested litigation engenders. Those cases that do fight will be on rational and properly pleased justiciable issues. The lengthy delays in the court system caused by the explosion in self representation may be reduced.”

Documents

In East of England Ambulance Service NHS Trust v Sanders [2015] ICR 293

the Employment Appeal Tribunal stressed the importance of marking those passages to be relied upon from authorities in the bundle, including cases, statutes, regulations and other material.

Failure to so mark “is unfair to a litigant in person.” Sufficient time must be given to the other party to consider the marked passages “especially if a litigant in person”.

The EAT stressed that passages should be marked in all cases but that where the other party is a litigant in person there is a risk that the case will have to be adjourned with costs being ordered against the lawyer failing to mark the passages.

In UWUG Ltd and Haiss v Ball [2015] EWHC 74 (IPEC)

the High Court rejected the notion that any special consideration should be given to Litigants in Person in relation to Part 36 offers; “I accept the submission that litigants in person, like all litigants, must live with the consequences of ill advised procedural decisions.”

The Judicial Working Group on Litigants in Person has published a report making a number of recommendations to deal with the substantial increase in the number of Litigants in Person. The report suggests that there be additional training and guidance for the judiciary and that judges should deal proactively and robustly with vexatious litigants and in particular should declare appropriate claims and applications to be totally without merit and should use restraining orders to prevent individuals from issuing and pursuing claims.

The report suggests that there should be a special Civil Procedure Rule dealing with proceedings involving Litigants in Person and their need to obtain access to justice, while enabling courts to manage cases consistently with the overriding objective and that there should be a section added to CPR 3.1 allowing courts to handle such proceedings in a more inquisitorial form.

There should be a new rule regarding lay assistance and McKenzie Friends, including rules that govern the exercise of the right to reasonable assistance, the right to conduct litigation and the right to exercise rights of audience.

The Working Group has produced a handbook to help litigants in person understand and prepare for court proceedings and that is available on http://www.judiciary.gov.uk/publications-and-reports/guidance/2013/handbook-litigants-person-civil-221013.

The Civil Procedure Rules Committee has prepared draft guidance for lawyers acting against litigants in person. The draft guidance uses the quickly rejected term “self-represented litigant”.

“1. Where a self-represented litigant is involved in a case the court will expect the legal representatives for other parties in the case to do what they reasonably can to ensure that the self-represented litigant has a fair opportunity to prepare and put his or her case.

2. Of particular importance in such a case are the existing duties of an advocate:

2.1 to ensure that the court is informed of all relevant decisions and legislative provisions of which he or she is aware (whether favourable to the case he or she is advancing or not); and

2.2 to bring any procedural irregularity to the attention of the court before or during the hearing.

3. In the conduct of such a case, the legal representatives for other parties should take particular care:

3.1 to use language that the self-represented litigant will understand;

3.2 to keep to the timetable and the directions that the court has given in the case;

3.3 to give the self-represented litigant advance notice when the timetable cannot be met;

3.4 to co-operate if the self-represented litigant requires additional time and it is reasonable to agree that time; and

3.5 unless the court otherwise directs or allows, to copy to the self-represented litigant at the same time as they are provided to the court, every communication with the court in relation to the case, including written arguments.

4. In preparation for any hearings, the court will expect the legal representatives for other parties to the case to ensure that:

4.1 all necessary bundles of documents are prepared and provided to the court (unless the self-represented litigant confirms that he or she will undertake that work);

4.2 copies of the bundles are provided to the self-represented litigant at the same time as they are provided to the court;

4.3 unless it is wholly unavoidable, written arguments and documents are provided to the court and the self-represented litigant in good time before any hearing; and

4.4 where necessary, the order made by the court is drawn and sealed promptly (unless the self-represented litigant confirms that he or she will undertake that work).

5. At all times the legal representatives for other parties are expected to treat the self-represented litigant with courtesy and respect and

5.1 in correspondence, to be polite and factual and not intimidatory;

5.2 before any hearing at court to be ready and willing to speak to the self-represented litigant about any matter which can reasonably be answered or discussed prior to the hearing if the self-represented litigant has any questions or wishes to raise any matters; and

5.3 after any hearing at court, unless there is good reason to the contrary, to be ready and willing to speak to the self-represented litigant about the outcome of the hearing and any orders made by the Court.”

In Tinkler and another v Elliott [2012] EWCA Civ 1289 the self-representing Mr Elliott failed to attend trial but instead submitted a medical certificate of unfitness to attend court. The trial judge rejected this and granted the other party a permanent injunction and general restraining order against Mr Elliott.

On appeal the High Court set the judgment aside under CPR 39.3 holding that Mr Elliott had a good reason for not attending the original hearing.

The Court of Appeal restored the original court’s decision, holding that CPR 39.3 must be rigorously applied. Under that Part the court had no discretion to set aside a decision taken in a party’s absence until the applicant satisfied the three positive requirements of the rule.

The first requires that the applicant “has acted with all reasonable celerity* in the circumstances”.

– See Regency Rolls Ltd v Carnall [2000] EWCA Civ 379.

(*Celerity – noun archaic – “swiftness, speed”. Appears below celeriac and above celery in the Oxford English Dictionary).

Mr Elliott had relied on his poor mental health and “his ignorance as a litigant in person of the availability of an application to set aside”.

The Court of Appeal held that Mr Elliott had been capable of acting as a litigant in person. However the significance of the case is the Court of Appeal’s findings in relation to his ignorance as a person representing himself.

The Court of Appeal said that “there may be facts and circumstances in relation to a litigant in person that may go to an assessment of promptness……they will only operate close to the margins,” and that “an opponent of a litigant in person is entitled to assume finality without expecting excessive indulgence to be extended to the litigant in person,” and that lack of understanding of procedures “does not entitle him to extra indulgence”.

This was in the context of a 21 month delay in Mr Elliott making his CPR 39.3 application, but the findings are of relevance generally and were not specific to this case.

In Fernandes v Kenny and Others, Court of Appeal, 23 October 2012

an unrepresented landlord applied to set aside a judgment for damages in respect of a deposit, the judgment having been entered at a small claims hearing which he had failed to attend.

The application to the District Judge failed, as did the first tier appeal to the Circuit Judge, who held that there was no discretion to hear an application made out of time.

The Court of Appeal held that the Circuit Judge had overlooked the fact that CPR3.1 allowed the court to extend the time limit set out in CPR27.11(2) but nevertheless found that the lower courts had been correct in finding that the landlord had had no good reason for failing to attend the original hearing.

However the Employment Appeal Tribunal has taken a different view in relation to litigants in person in Employment Tribunals, possibly influenced by the fact that such tribunals have historically been no-costs zones where individuals were expected to be able to represent themselves.

In AQ Ltd v Holden [2012] IRLR 648

the Employment Appeal Tribunal held that a court was entitled to take in to account the fact that a party was a litigant in person in deciding whether to order costs against that party.

Although the law is the same whether a litigant is or is not professionally represented, the application of that law, and the court’s exercise of its discretion, must take in to account whether a litigant is professionally represented.

A tribunal cannot and should not judge a litigant in person by the standards of a professional representative.

Lay people are entitled to represent themselves in tribunals and, as legal aid is not available and they will not usually recover costs if they are successful, it is inevitable that many lay people will represent themselves.

Justice requires that tribunals do not apply professional standards to such people, who may be involved in legal proceedings for the only time in their life. They are likely to lack the objectivity and knowledge of law and practice brought by a professional legal adviser.

Even if the threshold tests for an order for costs are met, the tribunal has discretion whether to make an order, and that discretion must be exercised having regard to all of the circumstances.

However lay people should not regard themselves as immune from costs orders.

The EAT was here dealing with Rule 40(3) of Schedule 1 of the Employment Tribunals (Constitution and Rules of Procedure) Regulations 2004, which provides that an order for costs may be made where the paying party in bringing or conducting proceedings has acted vexatiously, abusively, disruptively or otherwise unreasonably.

In January 2013 the High Court published a self-help guide for litigants in persons presenting cases to the interim applications court. The Guide has been written by Mr Justice Foskett and takes litigants through each stage of the process, from giving notice and presenting documents to how to behave in court, apply for costs and seek permission to appeal.

The interim applications court deals with short applications of an interim nature within existing or, sometimes, proposed proceedings in the Queen’s Bench Division of the High Court. It does not deal with family or matrimonial cases. The most commonly heard applications include applying for an injunction to prevent a former employee from abusing confidential information, setting up in competition or working for a rival employer; preventing travellers occupying a site in contravention of the planning laws; freezing orders to prevent the sale of property; and applying for the disclosure of specific documents.

The Guide will be kept under review and updated.

The right of a Litigant in Person to claim costs derives from The Litigants In Person (Costs and Expenses) Act 1975; there was no such right at common law.

The Act gives a Litigant in Person the right to recover “sums in respect of any work done, and any expenses and losses incurred, by the litigant in or in connection with the proceedings to which the order relates”.

It applies to all civil and family courts, the Lands Tribunal and both the first tier and upper tribunals and most cost-bearing tribunals; by section 1(1) of the Act, only out of pocket disbursements are recoverable if costs are not recoverable.

CPR 46.5(6) below lists the categories of Litigants in Person. The fact that a party is represented for part of the proceedings does not prevent recovery for work done when not represented – see Agassi v Robinson (HM Inspector of Taxes) [2005] EWCA Civ 1507 [2006] 1 All ER 900

A Litigant in Person should file and serve written evidence to show actual loss 24 hours before any hearing and if the costs are to be subject to detailed assessment then written evidence is to be filed with the notice of commencement.  This will now virtually always be a provisional assessment.

Paragraph 52.4 of the Costs Practice Direction was amended with effect from 1 October 2011 to increase costs payable from £9.25 per hour to £18.00 per hour.

New CPR 46.5(5), replacing its identically worded predecessor, pre-empts double recovery by providing:

‘A litigant who is allowed costs for attending at court to conduct his case is not entitled to a witness allowance in respect of such attendance in addition to those costs.’

Litigants in person (LIPs) fall into two categories: those who can prove financial loss and those who cannot. The new rate of £18 an hour is compensation for time reasonably spent by those who cannot prove financial loss.

And what of those who can prove loss? There are two caps: first, they cannot recover more than they have lost. The second cap is that the litigant cannot recover more than two-thirds of the amount to which a solicitor would have been entitled.  This limit does not apply to disbursements.

It is for the Litigant in Person to shown on the balance of probabilities that a financial loss has been suffered, and what that loss is.

In Mainwaring v Goldtech Investments Ltd [1997] 1 All ER 467 the court referred to the difference between:

“a self-employed tradesman in a small but profitable way of business who has more custom than he can cope with and can fill every working hour to advantage; at the other extreme, a retired civil servant with an index-linked pension who finds the conduct of litigation a more interesting pastime than bowls or crossword puzzles”.

In Joseph v Boyd and Hutchinson [2003] EWHC 413 the court considered that it should adopt a broad brush approach in circumstances where work was done during hours when the Litigant in Person was available for work.  It was not necessary to enquire to any great extent as to whether they would have been engaged on other business, but the Litigant in Person must show that s/he would have been gainfully employed and also how much would have been earnt.

If the loss is less than £18 per hour the Litigant in Person is better off claiming the flat rate of £18 per hour.

In any event the maximum two-thirds of what would have been allowed to a legal representative applies.

CPR 46.5(3) below sets out the categories of claim that  Litigant in Person may make.

“Expert assistance” is defined in Practice Direction 46, Paragraph 3.1, as assistance from a barrister, solicitor, Fellow of the Chartered Institute of Legal Executives, Fellow of the Association of Costs Lawyers or a law costs draftsman who is a member of the Academy of Experts or the Expert Witness Institute.

Work done must be work that a legal representative would have undertaken and a disbursement must be one that would have been incurred by a legal representative.  The Litigant in Person must choose whether the claim as a witness or a notional legal representative; s/he cannot claim both (CPR 46.5(5)).

Additional Research

In Grand v Gill [2011] EWCA Civ 902 the court followed the decision in R v Legal Services Commission Ex Parte Wulfsohn [2002] EWCA Civ 250 that a reasonable sum for time spent on research is recoverable.

Proportionality

Proportionality applies in full to Litigants in Person.  In Grand the court reduced the costs from £15,000 claimed to £707.77.

Trial Costs

A Litigant in Person cannot recover notional disbursements such as counsel’s fees where counsel was not instructed – see

Hart v Aga Khan Foundation (UK) [1984] 2 All ER 439.

It appears that in a fast-track trial where a Litigant in Person establishes a financial loss they are entitled to two-thirds of the sum allowable to the trial advocate, whatever the actual oss, together with any additional CPR 45.39 costs.

Miscellaneous

Postage, telephones, copying etc are treated as unrecoverable office overheads for legal representatives.

In Mealing-McLeod v The Common Professional Examination Board [2000] EWHC 185 (QB) the court said

“A solicitor’s charging rate includes or takes account of the fact that he has support staff, secretaries, messengers and so forth.  A Litigant in Person, for example, must himself post letters, takes files to court and photocopy documents.  “The time spent reasonably doing the work…..” mentioned in CPR 48.6(4) permits a reasonable assessment of time spent by the Litigant in Person and should reflect those matters”.

However the phrase “time reasonably spent” no longer appears in the rule or practice direction and so it is questionable whether such costs can be recovered.  It could be argued that these expenses are reflected in a legal representative’s hourly rate, but not in the much lower hourly rate of a Litigant in Person, who should therefore be able to recover such actual costs.

The consequences of a LIP not using a solicitor were demonstrated in Agassi v Robinson (Inspector of Taxes) (Bar Council intervening) [2005] EWCA Civ 1507, [2006] 1 All ER 900, [2006] 1 WLR 2126. Mr Agassi retained a tax expert who was a member of the Chartered Institute of Taxation licensed to instruct counsel directly. No solicitors were involved. Mr Agassi was awarded his costs as a LIP. Were the tax expert’s fees recoverable as costs under the general costs provisions of CPR 48.6? The answer is no. Although Mr Agassi could recover counsel’s fee as a disbursement, he was not entitled to recover as a LIP costs as a disbursement in respect of work done by the tax expert which would normally have been done by a solicitor. That meant he was not entitled to recover the costs of the tax expert providing general assistance to counsel.

Bizarrely the Premier League, one of the richest organisations in the country, fall in to a similar trap. In bringing private criminal prosecution against those live streaming Premier League football matches without permission they instructed a non-law firm, Media Protection Limited, to lay the information.

Laying an information is, unsurprisingly, a reserved legal activity. Thus the informations were nullities and all of the convictions quashed. One week’s pay of virtually any Premier League footballer would have paid all the legal bills.

Below is the text of CPR 46.5 with effect from 1 April 2013, as created by The Civil Procedure (Amendment) Rules 2013.

CPR 46.5

Litigants in person

46.5.—(1) This rule applies where the court orders (whether by summary assessment or detailed assessment) that the costs of a litigant in person are to be paid by any other person.

(2) The costs allowed under this rule will not exceed, except in the case of a disbursement, two-thirds of the amount which would have been allowed if the litigant in person had been represented by a legal representative.

(3) The litigant in person shall be allowed—

(a) costs for the same categories of—

(i)            work; and

(ii)            disbursements,

which would have been allowed if the work had been done or the disbursements had been made by a legal representative on the litigant in person’s behalf;

(b) the payments reasonably made by the litigant in person for legal services relating to the conduct of the proceedings; and

(c) the costs of obtaining expert assistance in assessing the costs claim.

(4)The amount of costs to be allowed to the litigant in person for any item of work claimed will be—

(a) where the litigant can prove financial loss, the amount that the litigant can prove to have been lost for time reasonably spent on doing the work; or

(b) where the litigant cannot prove financial loss, an amount for the time reasonably spent on doing the work at the rate set out in Practice Direction 46.

(5) A litigant who is allowed costs for attending at court to conduct the case is not entitled to a witness allowance in respect of such attendance in addition to those costs.

(6) For the purposes of this rule, a litigant in person includes—

(a) a company or other corporation which is acting without a legal representative; and

(b) any of the following who acts in person (except where any such person is represented by a firm in which that person is a partner)—

(i) a barrister;

(ii) a solicitor;

(iii) a solicitor’s employee;

(iv) a manager of a body recognised under section 9 of the Administration of Justice Act 1985 (a) ; or

(v) a person who, for the purposes of the 2007 Act(b), is an authorised person in relation to an activity which constitutes the conduct of litigation (within the meaning of that Act).

Practice Direction

Litigants in person: rule 46.5

 3.1          In order to qualify as an expert for the purpose of rule 46.5(3)(c) (expert assistance in connection with assessing the claim for costs), the person in question must be a –

(a) barrister;

(b) solicitor;

(c) Fellow of the Institute of Legal Executives;

(d) Fellow of the Association of Costs Lawyers;

(e) law costs draftsman who is a member of the Academy of Experts;

(f) law costs draftsman who is a member of the Expert Witness Institute.

3.2          Where a self represented litigant wishes to prove that the litigant has suffered financial loss, the litigant should produce to the court any written evidence relied on to support that claim, and serve a copy of that evidence on any party against whom the litigant seeks costs at least 24 hours before the hearing at which the question may be decided.

3.3          A self represented litigant who commences detailed assessment proceedings under rule 47.5 should serve copies of that written evidence with the notice of commencement.

3.4          The amount, which may be allowed to a self represented litigant under rule 45.39(5)(b) and rule 46.5(4)(b), is £18 per hour.

(a) 1985 c. 61. Section 9 was amended by the Courts and Legal Services Act 1990, section 125(3), (7), Schedules 18 and 20; the Access to Justice Act 1999 section 106, Schedule 15 Part II; S.I. 2000/1119 regulation 37(3), Schedule 4 paragraph 15; the Legal Services Act 2007, section 177, 210, Schedule 16, Part 2, paragraphs 80 and 81 and Schedule 23; S.I. 2001/1090, regulation 1, 9, Schedule 5 paragraph 12; S.I. 2011/1716 article 4.

(b) 2007 c.29.

I am grateful to Regional Costs Judge Ian Besford for much of the information in this piece.

Comments on previous blog

Mac McCaskill: The law shouldn’t be something that is the preserve of solicitors and counsel. I think it’s good that more people feel able to tackle cases on their own and excellent that several bodies have produced guides to assist them to do so. Surely this is the best “access to justice”?

There will always be a place for lawyers etc but the law should be understandable by all and not a black art practised by a few.

Sincerely

Advocatus Diaboli

Kerry’s reply:

I agree, and I certainly think that the Court of Appeal doth protest too much in the Lindner case. However it should be a party’s choice to appear in person, rather than forced upon them by the cuts in legal aid etc. It is very clear that the sharp increase in Litigants in Person is not by choice of those people but because legal aid has been abolished.

Kerry

I am grateful to Simon Gibbs, http://www.gwslaw.co.uk/blog/ and Judge Michael Cook, both of whom know much more about this subject than I will ever know.

“Rule Forty-two. All persons more than a mile high to leave the Court”, from Alice in Wonderland.

That is as rational as it gets in this piece, although in September 2013 Professor Dominic Regan succinctly set out his view as to how the new proportionality test will be applied by the court:

“No one has a clue.”

Two years on Simon Gibbs feels nothing has changed.

“The key elements to achieving the Jackson goal of ensuring proportionality in civil litigation were the extension of fixed fees for lower value claims and a new proportionality test for higher value claims.

The extension of fixed fees has inevitably succeeded in bringing a degree of proportionality in the fast-track.

The missing piece in the jigsaw, and the last realistic hope of ensuring proportionality for the multi-track, is the new proportionality test.  Approaching two years after introduction we still do not know how the courts will apply this.  This will be the main battleground for 2015.

I predict a repeat of the relief from sanctions fiasco.  The matter will reach the Court of Appeal and they will deliver a robust decision following the guidance already given by Jackson.  This will be followed by howls of anguish from the usual suspects, with some justification, that the decision will deny access to justice for large numbers of potential claimants.

Shortly afterwards the Court of Appeal will then “clarify” their decision and reformulate their guidance giving such a watered-down test that it would have made the judges in Lownds blush.  The logic of Jackson’s recent calls for a massive extension of fixed fees will then become difficult resist, but only because a dog’s dinner was made of implementation of the original proposals.”

Speaking at an SJLive event on 25 February 2015 Master Peter Haworth of the SCCO said that there had been no guidance on proportionality and that the new “standing back” test is “arbitrary and subjective”.

Since 1 April 2013 the overriding objective of the Civil Procedure Rules enables the court to deal with cases justly “and at proportionate cost” (CPR 1.1).

The new proportionality test is contained in CPR 44.3, but it will not apply to work undertaken before that date, nor to any work, pre or post 1 April 2013, where proceedings were issued before 1 April 2013:

CPR 44.3(7)

“(7)        Paragraphs (2)(a) and (5) do not apply in relation to cases commenced before 1 April 2013 and in relation to such cases, rule 44.4(2)(a) as it was in force immediately before 1 April 2013 will apply instead.”

Proportionality also finds its way in to the new CPR 3.9 which deals with applications for relief from sanctions, where the application has been made since 1 April 2013, whatever the date of the breach.

CPR 3.9(1):

“On an application for relief from any sanction imposed for a failure to comply with any rule, practice directions or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need –

(a)    for litigation to be conducted efficiently and at proportionate cost; and

(b)   to enforce compliance with rules, practice directions and orders.”

 Master Haworth of the Senior Courts Costs Office, speaking in July 2014, has said that the new rule will be “a difficult test” until a higher authority rules on the issue, and noted that “uncertainty is the enemy of costs saving and encourages satellite litigation”.

Master Haworth asked a number of questions:

“What is a “reasonable relationship”? A set percentage of damages? If not, why not?

Even if you can compare costs with damages, how do you compare them with complexity or importance? What about the financial position of each party? Under the old test, that used to be relevant”.

“Why, as a matter of principle, if costs are necessarily incurred to achieve justice for a wronged person, shouldn’t the wrongdoer pay them? Is the new proportionality test a charter for the tortfeasor/wrongdoer? The new test is arbitrary: almost totally in the eye of the assessor. It is a subjective as opposed to an objective test”.

Master Haworth added that he liked Dominic Regan’s comment that “the new proportionality test is an utter mystery, as Sir Rupert frankly admitted in his essay in the October 2013 introduction to the White Book Supplement. We have only just started on what looks like an arduous and lengthy journey”.

PROPORTIONALITY: A MESS AT THE SAVOYE

In Savoye and Savoye Ltd v Spicers Ltd [2015] EWHC 33 (TCC)

Mr Justice Akenhead, sitting in the Technology and Construction Court, reduced the successful party’s recoverable costs to £96,465.00 from the sum claimed of £201,790.66, on the grounds that the bill was not reasonable or proportionate.

The claim was worth £889,300.00.

However as the concepts of reasonableness and proportionality were conflated the case does not assist in informing lawyers as to how the courts will deal with proportionality.

It would be helpful if judges arrived at what they judge to be a reasonable figure for the work necessarily done and then reduce that figure, if appropriate, on proportionality grounds and explaining the thinking behind that proportionality based reduction.

Furthermore it appears that the sum of £201,790.66 was the claim on an indemnity basis, where proportionality does not apply.

The Judge refused to award costs on an indemnity basis, but it is not clear what the full costs claimed on the standard basis were.

Consequently it is impossible to tell what the reduction was from, and whether that unknown deduction was made on the grounds of reasonableness or proportionality or both.

If both it is unclear as to what element was on the basis of reasonableness and what was on the basis of proportionality.

This judgment is all over the place and shows the problem which judges have always had, and will continue to have, in relation to proportionality.

Most of us would be surprised if proportionality, as compared with reasonable and necessary costs, reduced the bill to just 10.85%, including VAT, disbursements and counsel’s fees, of the sum claimed.

That will send a few shivers down a few spines.

In Kazakhstan Kagazy plc v Baglan Abdullayevich Zhunus [2015] EWHC 404 (Comm)

the Commercial Court of the High Court said that the amount to be recovered from the other side in costs is the lowest amount a party could reasonably be expected to spend in order to have its case concluded and presented proficiently having regard to all the circumstances.

Comment

How does this take matters beyond the time-honoured “reasonably and necessarily incurred” test?

How does it help with proportionality? The whole point is that even that “lowest” amount could be disproportionate.

Separately the court said that if costs claimed by a party are disproportionate that should not affect the sum which it is reasonable for the other party to be ordered to pay on account.

Proportionality, Costs Budgeting and Indemnity Costs

Alternative Dispute Resolution

How does proportionality fit in with ADR? What happens if the courts push the parties into ADR and that ADR fails, which adds significantly to the costs, and that causes the bill to be disproportionate? Will the court disallow costs on the basis of proportionality, even though it was the court that caused disproportionate costs to be expended on the matter?

The answer appears to be yes and this may lead to courts being reluctant to push the parties to ADR if they know that the costs will not be recoverable. In other words the whole concept of ADR is challenged by the concept of proportionality.

Fixed Recoverable Costs

Fixed recoverable costs are just that and no additional costs are recoverable if ADR is undertaken in a fixed recoverable cost case.

Will this affect the court’s attitude in relation to ADR in such cases?

Qualified One-Way Cost Shifting

In a Qualified One-Way Cost Shifting case, subject to certain exceptions, the Defendant cannot get costs but the Claimant can. Thus ADR will be an extra cost upon a Defendant which that Defendant can never recover.

At present fixed recoverable costs only cover personal injury work and therefore new cases without an additional liability that are fixed recoverable costs cases will, by definition, be Qualified One-Way Cost Shifting cases as well. In such cases neither party can ever get the extra costs of ADR.

As with so many of the Jackson Reforms the interplay between the various proposals has just not been thought through.

We already have two conflicting High Court decisions as to whether the costs budget has any relevance in a case where indemnity costs have been awarded.

In Elvanite Full Circle v AMEC Earth and Environmental (UK) Ltd [2012] EWHC 1643 (TCC)

the High Court held that even on an indemnity basis the starting point is the approved budget.

In a powerfully argued judgment in Kellie and Kellie v Wheatley and Lloyd Architects Ltd [2014] EWHC 2866 (TCC)

the High Court disagreed:

CPR 44.3 reads:

“44.3

(1) Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs –

(a) on the standard basis; or

(b) on the indemnity basis,

but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.

(Rule 44.5 sets out how the court decides the amount of costs payable under a contract.)

(2) Where the amount of costs is to be assessed on the standard basis, the court will –

(a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and

(b) resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.

(Factors which the court may take into account are set out in rule 44.4.)

(3) Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party.

(4) Where –

(a) the court makes an order about costs without indicating the basis on which the costs are to be assessed; or

(b) the court makes an order for costs to be assessed on a basis other than the standard basis or the indemnity basis,

the costs will be assessed on the standard basis.

(5) Costs incurred are proportionate if they bear a reasonable relationship to –

(a) the sums in issue in the proceedings;

(b) the value of any non-monetary relief in issue in the proceedings;

(c) the complexity of the litigation;

(d) any additional work generated by the conduct of the paying party; and

(e) any wider factors involved in the proceedings, such as reputation or public importance.

(6) Where the amount of a solicitor’s remuneration in respect of non-contentious business is regulated by any general orders made under the Solicitors Act 1974⁴, the amount of the costs to be allowed in respect of any such business which falls to be assessed by the court will be decided in accordance with those general orders rather than this rule and rule 44.4.

(7) Paragraphs (2)(a) and (5) do not apply in relation to –

(a) cases commenced before 1st April 2013; or

(b) costs incurred in respect of work done before 1st April 2013,

and in relation to such cases or costs, rule 44.4.(2)(a) as it was in force immediately before 1st April 2013 will apply instead.”

The court pointed out that whatever was previously thought it is now clear that an indemnity costs order is significantly more valuable than a standard order.

The court quoted Lord Woolf in

Lownds v Home Office [2002] EWCA Civ 365

“The fact that when costs are to be assessed on an indemnity basis there is no requirement of proportionality and, in addition, that where there is any doubt, the court will resolve that doubt (as to whether costs were unreasonably incurred or were unreasonable in amount) in favour of the receiving party, means that the indemnity basis of costs is considerably more favourable to the receiving party than the standard basis of costs”.

Here the court said that this distinction is highlighted by the CPR and Practice Direction concerning costs management. Practice Direction 3E paragraph 7.3 provides:

“When reviewing budgets, the court will not undertake a detailed assessment in advance, but rather will consider whether the budgeted costs fall within the range of reasonable and proportionate costs”.

CPR 3.18:

“In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –

(a) have regard to the receiving party’s last approved or agreed budget for each of the proceedings; and

(b) not depart from such approval or agreed budget unless satisfied that there is good reason to do so”.

In Henry v Group Newspapers Ltd [2013] EWCA Civ 19 the Court of Appeal said:

“The primary function of the budget is to ensure that costs incurred are not only reasonable, but proportionate to what is at stake in the proceedings.”

Here the defendant’s budget had been approved at £91,700 with the judge having refused, on proportionality grounds, to approve a budget of over £140,000.

The amount now sought on the indemnity basis was £166,469.

The court here in Kellie held that

“costs management orders are designed to set out the probable limits of the costs that will be proportionately incurred. It is for that reason, and not because of any quirk of drafting, that CPR 3.18 refers specifically to standard assessment and not to indemnity assessment. Proportionality is central to assessment on the standard basis and it trumps reasonableness. However, proportionality is not in issue if costs are to be assessed on the indemnity basis.”

“I therefore find it difficult to see why logical analysis requires importing the approach in CPR 3.18 into assessment on the indemnity basis. The first reason given by Coulson J, at [29], has force if at all only if an approved or agreed budget does indeed reflect the costs that the receiving party says it expects to incur. However, the present case is an example precisely of the proper use of costs management in approving a budget at a lower figure than that proposed by the receiving party, on the very ground of proportionality. To suppose that the imposition of a budget under Part 3 would create some sort of presumption as to the limits of reasonable costs would be to ignore the fact that the approval of costs budgets is done on the basis of proportionality, not mere reasonableness. The matters referred to in connection with the first reason may, accordingly, justify having regard to the amount of costs the receiving party expected to incur, but they do not justify applying the CPR 3.18 analogously to assessment of costs on the indemnity basis. Similarly, the second reason, stated at [30], seems to me, with respect, to go further than is justified by the costs management regime. When a costs management order is made, the parties know that costs within the approved budget are likely to be considered proportionate, and costs in excess of the approved budget are likely to be considered disproportionate; in either case, the burden of justification lies on the party seeking a departure from the approved budget. But the costs management regime is not intended to give litigants an expectation that they will not incur a liability for disproportionate costs pursuant to an order for costs on the indemnity basis; any such expectation must rest on a party’s own reasonable and proper conduct of litigation. It is no objection to an order for costs on the indemnity basis that it is likely to permit the recovery of significantly larger costs than would be recoverable on an assessment on the standard basis having regard to the approved costs budget; that possibility is inherent in the different bases of assessment, and costs on the indemnity basis are intended to provide more nearly complete compensation for the costs of litigation. I accept, of course, that a party seeking to recover disproportionate costs on an assessment on the indemnity basis is required to show that those costs were reasonably incurred; though that requirement is subject to the provisions of CPR 44.3(3). That does not, however, justify the analogous use of CPR3.18, which has three disadvantages. First, it is both unnecessary and contrary to the rationale of that rule. Second, it tends to obscure the fact that the nature of the justification required of a receiving party is quite different under the two bases of assessment. Third, and consequently, it risks the assimilation of the indemnity basis of assessment to the standard basis, which is not justified by the costs management regime in the CPR. In my judgment, the proper way of addressing the concern identified by Coulson J in Elvanite at [30] is, first, by ensuring that applications for indemnity costs are carefully scrutinised and, second, by the proper application of the well understood criteria of assessment in CPR 44.3(3) to the facts of the particular case. It might also be remembered that, even if there exist grounds on which an award of indemnity costs could properly be made, such an award always remains in the discretion of the court.”

In neither Elvanite or Kellie was an indemnity cost order in fact made, so both judgments are obiter, that is not relevant to the decision, and therefore not binding on other courts.

Timetable

The rules until 31 March 2013, and which continue to apply to all stage of cases issued before 1 April 2013, are that on a standard basis assessment the court will “only allow costs which are proportionate to the matters in issue” (CPR 44.4(2)(a)). When the Court of Appeal was asked to interpret in Lownds v Home Office [2002] EWCA Civ 365 what proportionality meant it held: “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 that Part 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 costs 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.”

This rule will remain in place in relation to all aspects of all cases where proceedings were issued before 1 April 2013.

In Ted Baker plc v Axa Insurance UK plc [2014] EWHC 4178 (Comm)

the court disallowed 75% of the defendant’s costs because they conducted the litigation in a wholly disproportionate manner.

“…the defendants pursued an approach which…seemed to ignore all sense of proportionality.”

Here the parties’ combined bills totalled £7 million in a case worth £90,000.00.

The New Rule

“44.3

(2) Where the amount of costs is to be assessed on the standard basis, the court will –

(a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred;

…

(5) Costs incurred are proportionate if they bear a reasonable relationship to –

(a) the sums in issue in the proceedings;

(b) the value of any non-monetary relief in issue in the proceedings;

(c) the complexity of the litigation;

(d) any additional work generated by the conduct of the paying party; and

(e) any wider factors involved in the proceedings, such as reputation or public importance.”

Thus it is assumed that Lord Justice Jackson’s approach will apply:

“I propose that in an assessment of costs on the standard basis, proportionality should prevail over reasonableness and the proportionality test should be applied on a global basis.  The court should first make an assessment of reasonable costs, having regard to the individual items in the bill, the time reasonably spent on those items and the other factors listed in CPR 44.5(3).  The court should then stand back and consider whether the total figure is proportionate.  If the total figure is not proportionate, the court should make an appropriate reduction”.

However the  definitions in CPR 44.3(5) are not straightforward. Take “the complexity of the litigation.” Fine – but what figure is to be put on this? A 50% uplift? Or a line by line examination of the work done due to “complexity” which takes one back to the Lownds test?

Likewise “any additional work generated by the conduct of the paying party.” Is that any work, such as denying liability or obtaining their own expert’s report? Or is it only to be misconduct that triggers extra fees?

Lord Neuberger summarized the aim of the new test as:

“effectively reversing the approach taken in Lownds. In this way, as Sir Rupert said, disproportionate costs, whether necessarily or reasonably incurred, should not be recoverable from the paying party. To put the point quite simply: necessity does not render costs proportionate”.

Lord Neuberger went on to say:

“As such it seems likely that, as the courts develop the law, the approach will be as Sir Rupert described it:

“….in an assessment of costs on the standard basis, proportionality should prevail over reasonableness and the proportionality test should be applied on a global basis. The court should first make an assessment of reasonable costs, having regard to the individual items in the bill, the time reasonably spent on those items and the other factors listed in CPR rule 44.5(3). The court should then stand back and consider whether the total figure is proportionate. If the total figure is not proportionate, the court should make an appropriate reduction”.

He added:

“It would be positively dangerous for me to seek to give any sort of specific or detailed guidance in a lecture before the new rule has come into force and been applied. Any question relating to proportionality and any question relating to costs is each very case-sensitive, and when the two questions come together, that is all the more true. The law on proportionate costs will have to be developed on a case by case basis. This may mean a degree of satellite litigation while the courts work out the law, but we should be ready for that, and I hope it will involve relatively few cases”.

Surely the whole point of proportionality is to give a broad-brush approach as to what is a proportionate level of costs to incur to recover, say, £25,000.00, or £50,000.00 or whatever.

True it is that no two cases are the same, but most litigation is routine and involves predictable factors. Most litigation is not test litigation and does not involve any wider factors, such as reputation or public importance.

If each case must be considered on its merits, then inevitably the courts will be looking at what work was it necessary and what work was it reasonable to carry out, but this is of course what is supposed to be forbidden under the new rule, as it is simply a return to Lownds. Indeed everything comes back to Lownds, maybe because it was a well-thought out judgment which addressed all of the issues and dealt with them. Why re-invent the wheel?

Unless specific, detailed advice is given, then what is the point of proportionality? Why should the country’s most senior judge not say:

“I have spoken with my judicial colleagues and reviewed the evidence and unless factors (d) and/or (e) apply I would expect a party never to recover more in costs than a sum equal to 40% of damages in a personal injury claim, 20% in a commercial claim……”

etc, etc.

As Simon Gibbs has said:

“Indeed, it is difficult to see why the answer to the issue of what is a proportionate level of costs to recover £25,000.00 should normally vary from case to case”. And

“I have yet to meet a costs practitioner who believes that the new proportionality test is workable. More worryingly, I have yet to meet a costs judge who is able to explain by what margin, if any, a Bill of Costs in relation to routine litigation that has been assessed at £75,000.00 applying the reasonableness test should then be reduced down to if the amount in dispute was only £25,000.00.”

True proportionality is achieved by fixed costs, or capped costs and of course contingency fees are the purest form of proportionality.

Absent fixed or capped costs no jurisdiction has ever succeeded in developing a consistent judicial approach to proportionality. That is unsurprizing as it is an entirely meaningless word in a financial context when not applied as a strict mathematical formula.

Proportionality = The Emperor’s New Clothes, which is why no court has ever applied it.

It is the costs equivalent of having the Ogden Tables without any of the figures filled in, or a crossword where the setter has not thought out the answers.

Now, Lord Neuberger is a very good judge indeed and has the chance in his new post of President of the Supreme Court to achieve greatness.

I believe that he knows that the piecemeal implementation of what was in any event a deeply flawed report is likely to be a disaster, and that he is laying the ground for what may turn out to be massive judicial intervention to prevent the civil justice system falling into chaos.

Predictions of “satellite litigation” and “a period of slight uncertainty” by the judiciary about a change in the law are hardly statements of judicial approval.

Specialist costs counsel Andrew Hogan, commenting on the model now adopted said:

“The notion of a “long stop” discount test of proportionality, is a recipe for satellite litigation, as it will introduce chronic uncertainty into the assessment of costs, both in terms of when such a deduction will be applied and in terms of what the quantum of deduction might be. Perhaps, more significantly, it is even more disappointing that even now, some 15 years after Lord Woolf ‘borrowed’ the concept of principle of proportionality from European Union law, it remains a nebulous and uncertain concept, hard to define and even harder to apply, which is conceptually very odd, when one considers that the stated aim of Jackson was to reduce perceived disproportionate costs to a proportionate level. If you can’t define proportionality, how can you judge whether you have succeeded or not in moving from a disproportionate model of costs to a proportionate one?”

Master Haworth of the Senior Court Costs Office, speaking at the LexisNexis Costs and Litigation Funding Forum on 31 October 2012, said that the new rule on proportionality was vulnerable to court challenge:

“It’s going to be left to decisions up and down the country to determine what is proportionate”,

which of course utterly defeats the point of proportionality.

In a recent webinar the legendary Judge Michael Cook, from whom I have learnt an enormous amount about all sorts of things, not all connected with costs, had this to say:

‘What is proportionality?’ is a conundrum the courts are still trying to solve. There are two problems with proportionality. First, no one knows what it means and second, where does it stand in relation to necessary costs and reasonable costs? Sir Rupert once told me that proportionality had caused him more problems than any other aspect of costs and then invited me to address a judicial conference on it!

At a meeting of costs experts five different definitions were debated without reaching any conclusion.

Is it proportionate for the recoverable costs to exceed the amount in dispute? If so when? And there is the more fundamental question of whether it is proportionate for a lawyer to earn more than a dustman but less than Wayne Rooney. What standard of living can a lawyer expect the costs of litigation to fund? Should he or she drive a Rolls Royce or a Lada and travel first or second class by train  at other people’s expense?

A practical ‘seat of the pants’ aid to considering proportionality is to look at the costs incurred by the paying party. What, for example, was their level of fee earner, charging rate, seniority of counsel and the amount of time spent? If the paying party has increased the stakes by using a senior partner, leading counsel and a fashionable expert, is it disproportionate for the receiving party to have done likewise? Is the pot calling the kettle black?

And then we have what Sir Rupert described as Professor Zuckerman’s ‘pithy summary’ of proportionality: ‘The aim of the proportionality test is to maintain a sensible correlation between costs, on the one hand, and the value of the case, its complexity and importance on the other hand’.

My own view is that the definition in CPR 44.3 (5) is as good as we are going to get – and it is not very good!

Sub paragraph (7) emphasises that proportionality trumps necessity and reasonableness and gives a timetable.

The rule expressly states that even costs which were necessarily and reasonably incurred may fall foul of the test of proportionality.

The distinction between necessary and reasonable is now so blurred it serves only to confuse and ‘necessary’ should once again be struck from the costs lexicon. Proportionality should prevail over reasonableness with the test of reasonableness only being applied to individual items once it has been established that the total costs are proportionate.

But there is trouble ahead – satellite litigation looms.

The requirement that costs should bear ‘a reasonable relationship’ to the factors specified in sub-rule (5) should keep the courts occupied for the foreseeable future.”

Transitional, revised transitional, varied revised uncertain transitional and provisions announced even when there was no intention of ever bringing them in

When the new costs rules were first published the relevant transitional provision concerning the new proportionality test read:

“Paragraphs (2)(a) and (5) do not apply in relation to cases commenced before 1 April 2013 and in relation to such cases, rule 44.4(2)(a) as it was in force immediately before 1 April 2013 will apply instead.”

This caused two problems. Firstly, the phrase “cases commenced” was ambiguous. Secondly, it appeared to be retrospective,  meaning that  the new test would apply in some cases to work already undertaken.

This problem was, partly, recognised and Richard LJ said that the rule committee “acknowledged the force” of the argument and was to insert a further transitional provision within rule 44.3:

“to the effect that costs incurred in respect of work done before 1 April 2013 will not be disallowed if they would have been allowed under the rules in force immediately before that date”.

Simon Gibbs comments:

“What makes this truly shocking is that the letter confirming these changes from Lord Stephen Richards, who chairs the rules committee, records the fact that the committee was aware of this problem and agreed to make this change at the meeting on 8 February 2013 which approved the rules that were then released on 12/13 February.  However, when releasing the Statutory Instrument there was no mention that they had already decided to change this in at least one crucial aspect.

How are practitioners mean to prepare for the changes and train staff when, ludicrously late in the day as the rules have been published, we can’t even trust the accuracy of what has been released?”

That would have meant all work done pre-April 2013 would be subject to the old test and any work done post-April 2013 subject to the new test.

We now have the Civil Procedure (Amendment No.2) Rules 2013 to deal with this. However, it does something totally different again:

“Paragraphs (2)(a) and (5) do not apply in relation to—

(a) cases commenced before 1st April 2013; or

(b) costs incurred in respect of work done before 1st April 2013,

and in relation to such cases or costs, rule 44.4.(2)(a) as it was in force immediately before 1st April 2013 will apply instead.”

Nevertheless, from the context I am treating “cases commenced” as meaning “cases where proceedings have been issued” (how hard would it have been to use that wording?).

This old proportionality test will apply to all work done for cases where proceedings were issued before 1 April 2013.”

The following variations therefore apply:

•  All work done pre-1 April 2013 – Old proportionality test applied to all work.
•  All work done post-1 April 2013  – New proportionality test applied to all work.
•  Work done pre and post-1 April 2013. Proceedings not issued – Old proportionality test applied to work done pre-1 April 2013. New proportionality test applied to work done post-1 April 2013.
•  Work done pre and post-1 April 2013. Proceedings issued pre-1 April 2013  – Old proportionality test applied to all work.
•  Work done pre and post-1 April 2013. Proceedings issued post-1 April 2013 – Old proportionality test applied to work done pre-1 April 2013. New proportionality test applied to work done post-1 April 2013.

Speaking on 5 February 2013 Master Haworth thought that the issue of proportionality may not arise much in practice as where a costs management order has been made there will be little to argue about on assessment.  Costs within budget will be deemed proportionate and it is unlikely that the Costs Judge will re-visit the issue.

Indeed, there is a clear tension between the cost process and proportionality.  The cost management process implies that once the court has decided that certain steps in litigation are reasonable, then the full cost of undertaking that work will be recoverable, as the judge dealing with assessment will not normally depart from the approved budget.

The new proportionality test means that on detailed assessment a judge may decide that even though a step within the litigation was reasonable, the full cost may not be recovered once the global basis test is applied.

Mr Justice Ramsey said:

“First, the court will have to apply the new proportionality test to the costs budget.  As stated in the Final Report, the judge carrying out costs management will not only scrutinize the reasonableness of each party’s budget, but also stand back and consider whether the total sums on each side are “proportionate” in accordance with the new definition.

If the total figures are not proportionate, then the judge will only approve budget figures for each party which are proportionate.  Thereafter if the parties choose to press on and incur costs in excess of the budget, they will be litigating in part at their own expense.  It will be important for the judges to apply the test consistently and for parties and their lawyers to be aware of the impact on recoverable costs.”

As Simon Gibbs points out, that simply shifts the problem back to the judge making the costs management order; it does not solve the problem or answer the questions raised above, and it begs the question as to what is the point of expensive and time-consuming costs management and detailed assessment hearings to determine what costs are reasonable if, at the end of the day, the judge can then knock the figure down further on an apparently arbitrary basis.

Both Mr Justice Ramsey and Master Haworth were speaking before the Rich Boys Club, aka the Commercial Court, Mercantile Court, Technology and Construction Court and the Chancery Division, opted out of costs management, which leaves rather a lot of big unmanaged bills for detailed assessment with proportionality to be considered.

There is also the interplay between provisional assessment and proportionality.  It appears that, rather than undertake the arithmetic on a provisionally assessed bill, Judges are simply to send the annotated Points of Dispute/Replies back to the parties to work out the final figure allowed.  Practice Direction 14.4(2) provides:

“Once the provisional assessment has been carried out the court will return Precedent G (the points of dispute and any reply) with the court’s decisions noted upon it.  Within 14 days of receipt of Precedent G the parties must agree the total sum due to the receiving party on the basis of the court’s decisions.  If the parties are unable to agree the arithmetic, they must refer the dispute back to the court for a decision on the basis of written submissions”.

Simon Gibbs again:

“How does this tie in with the new proportionality test?  If, at the end of the provisional assessment, the judge does not know the figure he has allowed (because he has not done the calculations) how does he know whether to apply a further discount to make the costs “proportionate”?  The new rules do not envisage any procedure for the parties to return to the court after they have agreed the “total sum due” to ask the court to make a further “proportionality adjustment if appropriate”.

There has been a staggering failure to think through the practicalities of how the new provisional assessment process will work.”

Well, that applies to almost all of the Jackson Reforms.

Thus we wait to see if this reform will be any more successful than The Recovery of Damages and Costs Act 1278 or the Commands in Delay of Justice Act 1328 and all of the subsequent attempts at establishing proportionality.

CASE LAW

In Savoye and Savoye Ltd v Spicers Ltd [2015] EWHC 33 (TCC)

Mr Justice Akenhead, sitting in the Technology and Construction Court, reduced the successful party’s recoverable costs to £96,465.00 from the sum claimed of £201,790.66, on the grounds that the bill was not reasonable or proportionate.

The claim was worth £889,300.00.

However as the concepts of reasonableness and proportionality were conflated the case does not assist in informing lawyers as to how the courts will deal with proportionality.

It would be helpful if judges arrived at what they judge to be a reasonable figure for the work necessarily done and then reduce that figure, if appropriate, on proportionality grounds and explaining the thinking behind that proportionality based reduction.

Furthermore it appears that the sum of £201,790.66 was the claim on an indemnity basis, where proportionality does not apply.

The Judge refused to award costs on an indemnity basis, but it is not clear what the full costs claimed on the standard basis were.

Consequently it is impossible to tell what the reduction was from, and whether that unknown deduction was made on the grounds of reasonableness or proportionality or both.

If both it is unclear as to what element was on the basis of reasonableness and what was on the basis of proportionality.

This judgment is all over the place and shows the problem which judges have always had, and will continue to have, in relation to proportionality.

Most of us would be surprised if proportionality, as compared with reasonable and necessary costs, reduced the bill to just 10.85%, including VAT, disbursements and counsel’s fees, of the sum claimed.

That will send a few shivers down a few spines.

In Davies and Others v Greenway, Senior Courts Costs Office, 30 October 2013, Case No JMS 1205590

the SCCO held that an order for assessment on the standard basis prevented the court from simply restricting the claimants’ costs to road traffic accident protocol amounts.

However the court was entitled to decide that those protocol amounts were the proportionate and reasonable sums without conducting a line by line assessment.

Here the claims were settled for less than £10,000 and would have been subject to RTA protocol fixed costs, but the claimants’ solicitors sent them to the wrong insurer and failed to re-submit them to the correct insurer, who had admitted liability.

Correspondence with the correct insurer produced a limited response and proceedings were issued and judgment entered with quantum to be assessed and the claims were then settled by consent, and the Consent Order provided:

“The Defendant to pay the Claimants’ costs of this action on the standard basis to be assessed if not agreed”.

The claimants’ solicitors served a bill totalling £17,430.11. The defendant served Points of Dispute arguing that the claimant had unreasonably failed to comply and/or elected not to continue with the RTA process and its fixed costs scheme and that costs should be limited to “an amount commensurate with the costs under CPR 45 of Section VI pursuant to the express power in CPR 45.36”.

In O’Beirne v Hudson [2011] 1 WLR 17171 the Court of Appeal held that where there was a consent order for assessment on a standard basis the court could not limit the costs to those that are fixed costs for the small claims track.

The defendant argued that the same difficulty does not arise in the RTA protocol as CPR 45.36 expressly provides that the court can limit costs to RTA protocol amounts.

The claimants argued that the consent order was binding and that the defendants were seeking to re-write it, and that pursuant to

Solomon v Cromwell [2011] EWCA Civ 1584

an award of fixed costs cannot constitute a standard basis of assessment.

The court held that CPR 45.36 did not apply; the defendant had consented to an order for detailed assessment on the standard basis and that is a contract that the court had no power to vary. The Master said that even if he was wrong about that he bore in mind that the power set out in CPR 45.36 is discretionary and not mandatory.

At the detailed assessment the Costs Judge is obliged to have regard to all the circumstances in deciding whether the costs were proportionately and reasonable incurred or were proportionate and reasonable in amount. The Costs Judge must also have regard to the conduct of the parties including in particular the efforts made, if any, before and during the proceedings in order to try and resolve the dispute.

The Costs Master then quoted at length from the Cambridge County Court decision of 13 January 2011 in Smith v Wyatt.

In that case the claimants sought permission to appeal to the Court of Appeal and at a permission hearing [2011] EWCA Civ 941, Lord Justice Moore-Bick stated:

“10.        It is the function of the Costs Judge to determine whether costs have been reasonably and necessarily incurred and if he can see that a particular course of conduct has led to a group of costs being incurred unnecessarily , he is entitled to say that and need not to consider each item individually. In my view the argument to the contrary is not really sustainable”.

The original Cambridge County Court judgment, approved by the Court of Appeal, contained the following passage, quoted by the Costs Master here:

“13.        The essential test that emerges from O’BeIrne and Drew appears to me to have two elements, one of substance and one of process.

(a) In substantive terms, the test to be applied on a detailed assessment when this problem arises is:

whether it is reasonable for the paying party to pay more than would have been recoverable had the relevant alternative regime applied.

(b) In process terms, what is important is that the Costs Judge always bears in mind that he is both conducting a detailed assessment and applying the test at (a) above. If he does so, and having done so concludes that it was not reasonable to take the case out of the alternative regime and hence not unreasonable to incur the extra costs that flow from that unreasonable decision, he will have remained within his proper discretion. If he does not do so, but simply concludes that the case ought really to have been (say) a small claim and therefore that the regime automatically and comprehensively applies, regardless of reasonableness one way or the other, he will have stepped outside of his discretion and in effect re-written the costs order he is supposed to be applying”.

The Costs Master here said “…..it is important that I form a view on the issue of proportionality”. That view was that the costs were disproportionate.

Furthermore the claimants’ failure to comply with the RTA protocol led to disproportionate costs being unreasonably and unnecessarily incurred.

Having found disproportionality the Costs Master said that it was open to him to go through the bill on an item by item basis but that, following Smith v Wyatt, he was not obliged to do so.

Had the claimants acted reasonably by re-serving the CNF on the correct insurer they would only have been able to recover RTA protocol costs. It would be unjust to allow them to recover more and thus benefit from their unreasonable conduct.

Thus although the consent order required the court to carry out a detailed assessment the court was entitled, in that detailed assessment, to limit costs to RTA protocol costs and that was the order of the Costs Master.

In Vitol Bahrain EC v Nasdec General Trading LLC and Others [2013] All ER (D) 38 (Nov)

the Commercial Court, part of the Queen’s Bench Division of the High Court, considered the issue of proportionality post-Jackson.

The facts of the case are not relevant for the purposes of considering its effect on proportionality, save that it related to interim injunction proceedings only in a claim worth US$119 million.

The defendant succeeded and Mr Justice Males ordered costs to be summarily assessed on the standard basis.  His opening remarks in his costs judgment set the tone:

“1.          I decided to take time to consider this summary assessment of the second and third defendants’ costs because the amounts claimed in the statement of costs filed on each side are eye watering”.

“Eye-watering” is precisely the term used by Mr Justice Moor in his criticism of Mrs Young’s costs of £6.4 million as “totally unacceptable” in Young v Young [2013] EWHC 3637, a family matter involving ancillary relief.

In the Bahrain case the claimant’s statement of costs was £242,760.48 and the defendants’ was £165,421.80.

The Judge referred to both sides “charging on an epic scale,” (paragraph 8).  Accepting that “the parties and their lawyers are free to agree whatever they wish”, (paragraph 11).  Mr Justice Males continued “……the rules make clear that the costs recoverable by the successful party from the unsuccessful party are limited to those which are reasonable and proportionate”.

He assessed the defendants’ costs at £75,000, that is less than half of the sum claimed and less than one-third of the claimant’s estimate, albeit accepting that the claimant had to carry out considerably more work.

In a key passage the Judge said:

“12.        It is important that the message should go out loud and clear that the Commercial   Court will not assess costs summarily in such disproportionate amounts merely because the figures on both sides are broadly comparable.  Control will be exercised to ensure that the costs claimed from the unsuccessful party are reasonable and proportionate”.

This case was not subject to costs budgeting but the principle must apply to costs budgeted cases, so the fact that a party comes within budget will not save it, even if that budget was agreed by the other side.

One wonders now whether there is any point in trying to agree a budget.

There is also little point in preparing one’s own budget conservatively so as to give weight to an objection to the other side’s costs in the event of defeat.

Now one can say “Well, I know my budget was for £242,760.48, but that does not make the other side’s budget of £165,421.80 proportionate”, or whatever.

A different approach was taken by the court in Slick Seatings Systems v Adams    [2013] EWHC B8 (Mercantile). There the damages were £4.4 million and the costs claimed were £351,000, within the budget of £359,000. Costs of £351,000 as claimed were ordered there and then. Master Haworth has pointed out that “the paying party has no chance to challenge the costs if the budget is simply approved without going to detailed assessment. It’s just a case of “pay it in 14 days”. (Litigation Funding/Law Society conference 15 October 2013).

It is still not clear how Judges are meant to approach proportionality.  Here the sum at stake was US$119 million, although as the Judge was at pains to point out this was an application, not a trial, – “It was, therefore a typical one day Commercial Court application such as might be encountered on any Friday”. (Paragraph 3).

Fair enough, but in such circumstances what makes £75,000.00 as compared with £50,000.00 or £150,000.00 proportionate?

This problem arose in the context of the pre 1 April 2013 rule in

1-800 Flowers Inc v Phonenames Ltd  [2001] EWCA Civ 721

where the Court of Appeal held that the trial Judge had been wrong in principle in summarily assessing costs in a trademark case at £10,000 compared with the sum claimed of £38,000.00.  The Judge’s error was in applying his own tariff as to what costs were appropriate rather than going in to any detailed analysis of the statement of costs and the objections to it.

That is exactly what occurred in the current case, although that is probably permissible under the new proportionality rule which specifically states:

“Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred”.

The problem is that another judge may have allowed £150,000.00 or £50,000.00 and none of us would ever know why, beyond that that is the proportionate sum, which takes us back to the question of what is proportionate?

I appreciate that all courts have a wide discretion in costs matters, but simply to say, without further ado, that a figure is disproportionate is not satisfactory.

Now, if the case was worth £100,000.00 one can understand that anyone might consider £165,000.00 disproportionate.  Res ipsa loquitur as we used to say.

But here the claim was worth US$119 million, so £165,000.00 is between one quarter and one fifth of one per cent of the value of the claim, or to put it another way the claim was worth between 400 and 500 times the amount of costs claimed.

Now that may be unreasonable and unnecessary and lots of other un-things but it does not immediately come across as disproportionate.

Lack of obvious disproportionality should not of course justify what may be outrageously high fees for an application, but surely the answer was to have a detailed assessment and go through the work line by line.

Item by item detailed assessment seems pointless if the end figure will then be knocked down further to produce a proportionate sum.  Why not just start and end with the proportionate sum?

If that is the case what is the point of a detailed budget?  If, to quote Simon Gibbs’ blog, the Judge can simply say on assessment:

“The damages were £x and I’m not going to allow costs of more than £y at the conclusion of the assessment.  Do I need to hear from either of your further?”

then why not do that at the Case Management and Costs Budget hearing and save everyone the bother?

Actually why not do it on receipt of the pleadings and cut out budgets and assessments?

“I have read the pleadings.  Whatever happens neither of you is getting more than £100,000.00 costs”.

Why not just have fixed costs?

Why not scrap recoverable costs and move to contingency fees?

Why not indeed.

As an aside, and entirely unconvincingly, the Judge here said that the opt-out would make no difference to a case such as this.

So there we have it.  The first decision on proportionality is made in a case where whatever else the costs were, they were not disproportionate, and made by a court which has chosen to opt out of costs budgeting.

Like all else Jackson-related – you could not make it up!

Proportionate Costs Orders

There is great scope for confusion between proportionality and proportionate costs orders.

“The power to make an order for only a proportion of the successful party’s costs (“a proportionate costs order”) is recognised in CPR44.2(6)(a). In deciding what order to make about costs, the court is required to have regard to all the circumstances, including those mentioned expressly in CPR44.2(4) and (5); the following provisions of those paragraphs are particularly relevant:-

“(4) In deciding what order (if any) to make about costs, the court will have regard to all circumstances, including –

(a) the conduct of all the parties;

(b) whether a party has succeeded on part of its case, even if that party has not been wholly successful…

(5) The conduct of the parties includes –

…

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c) the manner in which a party has pursued … a particular allegation or issue;…”

The above is a direct quote from paragraph 5 of the High Court’s decision in the case of Kellie v Wheatley & Lloyd Architects Limited [2014] EWHC 2886 (TCC). Paragraphs 6 and 7 are set out below.

“6. In Multiplex Construction (UK) Ltd v Cleveland Bridge UK Ltd [2008] EWHC 2280 (TCC), at [72], Jackson J derived a number of principles from the authorities; Mr Troup relied on the following principles in particular:

“(v) In many cases the judge can and should reflect the relative success of the parties on different issues by making a proportionate costs order.

(vi) In considering the circumstances of the case the judge will have regard not only to any part 36 offers made but also to each party’s approach to negotiations (insofar as admissible) and general conduct of the litigation.

…

(viii) In assessing a proportionate costs order the judge should consider what costs are referable to each issue and what costs are common to several issues. It will often be reasonable for the overall winner to recover not only the costs specific to the issues which he has won but also the common costs.”

7. In Enterprise Managed Services Ltd v Tony McFadden Utilities Ltd [2010] EWHC 1506 (TCC), Akenhead J said at [10]:

“A number of general observations can properly be made in the context of this case in relation to the fixing of the relevant percentage in the proportionate costs approach:

(a) The first step is obviously to determine which of the parties has been successful in overall terms; if one can not determine that, it may be that one needs to consider the issues-based approach.

(b) One needs to consider the overall context of the litigation, including the reasons which led to its genesis; that involves considering the conduct of the parties which led to the need for the litigation in the first place.

(c) The reasonableness, or unreasonableness, of each party taking the various points or issues upon which it lost, should be considered by the Court. The more unreasonable the position of the losing party, the more likely that, even if the court orders only standard, as opposed to indemnity, based costs, it will attach weight to this factor.

(d) Whilst one needs to have regard to the issues upon which each party has succeeded, a simple mathematical approach on the basis of the number of issues ‘won’ by each party will often not be an appropriate basis for fixing the percentage; thus, simply because the overall successful party has won 3 out of 5 issues, should not mean automatically that it should recover 60% of its costs. One needs to have regard to the likely amount of resources applied as well as to the impact overall of the success or failure on the various issues.

(e) Similarly, the Court should be cautious about fixing a proportion by reference to the amount of time or space applied by the judge in his or her judgement to the issues upon which each party has been successful or unsuccessful. The judge may simply have had to take up more time and space in the written judgement to address what may be more complex issues. The fact that 80% of the judgement addresses a legal issue upon which the overall successful party lost should not, at least generally, mean that it can only recover 20% of its costs.

(f) The Court needs also to have regard to the fact that the overall unsuccessful party will have incurred cost in dealing with the issues upon which it has ‘won’.

(g) Where the parties have put before the court summary costs bills for assessment, the Court can have regard to the likely cost and resource which each party will have applied in relation to the issues upon which they have won or lost.

(h) Where the parties cannot put such information before the Court, and in any event, the Court must do the best that it can in fixing a proportion.””

PROVISIONAL ASSESSMENT

There is a problem in the interplay between provisional assessment and proportionality. The parties undertake the arithmetic on the Bill after it has been provisionally assessed. How then does the judge carry out the global proportionality check on the final figure if she does not know what that figure is?

Some courts are issuing their own directions for the parties to inform the court of the initial calculations so that the court can then consider, and where appropriate, apply, proportionality and give a final, proportionate, figure.

However no provision whatsoever is made in the Civil Procedure Rules; they are simply silent on this point.

Master Gordon-Saker, Senior Costs Judge, commenting on Simon Gibbs blog, suggests:-

“There is no reason why, on provisional assessment under the new proportionality rule, the court cannot endorse the bill: “Provisionally assessed. If the costs allowed exceed £x (the proportionate amount of costs) they are limited to that sum.””

He added:-

“I usually provisionally assess the receiving party’s costs of the assessment as part of the provisional assessment. If there is no argument that the receiving party is entitled to costs, the job is done. If there is an argument, because the receiving party has failed to beat a Pt 36 offer, the pp can write in and ask for a different order.”

I hope all courts will adopt this sensible and clear advice. The common sense that emanates from the SCCO is such that maybe they should try all cases on all matters, rather than just dealing with costs.

Comments on previous blogs

Nick Hanning:

“a degree of satellite litigation while the courts work out the law”

Is that the same as when a Doctor says, “this may sting a little”?

Kerry’s reply: Apparently doctors now ask what the pain is like on a scale of 1 to 10. So what are the Jackson reforms like on a pain scale of 1 to 10?

Ian Pennock:

Dear Kerry,

I think the new principle is if the Judge thinks it’s a lot of money then it is disproportionate. Simples!

Don’t ask him to rationalise it or otherwise explain it’s just that (forgetting the comfortable living he made when he was a Barrister/Solicitor) no one should be earning more than me now that I am on the Bench because it makes him feel less important and reminds him every day of the pay cut he took when he went onto the Bench (if he’s good) or not (If he’s not!.and there is now a lot of them!).

Ours is not to reason why

Lets have a drink to ‘Jacksons new clothes’ with the rule on proportionality which cannot be defined and varies with the length of each judges foot!

N.B. is £5,000 to recover damages of £2,000 disproportionate given the fact it is twice as much as the amount recovered and, if so, how does one avoid the unavoidable fixed costs of bringing each and every claim?

Proportionality is in the eye of the beholder and if an amount was reasonably incurred and reasonable in amount why shouldn’t the loser pay regardless of the value of the case (the paying party always had a choice not to bring/defend the claim).

Kind Regards and hope you are well.

Ian Pennock Barrister Treasury Counsel Tel: 0113 228 5041 http://www.parklaneplowden.co.uk

Kerry’s reply: Thanks Ian.
Exactly!
Kerry

George Bladon: Good note Kerry, as always, just goes to show what a minefield that costs is becoming now and I’m sure there will be plenty of horror stories to follow.

It may be of relevance to note that in Slick, the defendants were barred from the proceedings due to their conduct and did not attend the costs hearing.

Also, Troy v Manton suggests that even if costs come within budget, it does not necessarily mean they are reasonable and proportionate (although the case settled, despite permission to appeal being granted).

Kerry’s reply: Thanks George – I did not know that about the Slick case.

Kerry

Root: This is what happens when courts are given what is damn nearly an unfettered discretion. Cost consequences have been ludicrous for years. Simple example: Application to strike out on 3 grounds. One succeeds. Other two not expresslly stated but they obviously failed. Should applicant receive 100% ? Or 33 %