Costs Management Orders

Simon Gibbs – simon.gibbs@gwslaw.co.uk – said on 11 February 2015: “Costs budgeting is already proving to be an expensive and counter-productive experiment.” Many share that view.

Nevertheless there is pressure for costs budgeting to spread, to Court of Protection cases – see the judgement of Mr Justice Peter Jackson in A and B (Court of Protections: Delay and Costs) [2014] EWCOP 8 and in the Family Court – see the judgment in J v J [2014] EWHC 3654 (Fam).

Costs Management Orders were introduced following a pilot that ran in the Technology and Construction Courts and the Mercantile Courts from 1 October 2011 to 31 March 2013. See here for Costs Management Pilot Final Report of 1 May 2013.

Costs Management Orders were to apply to all multi-track cases commenced on or after 1 April 2013 in the County Court, Chancery Division and Queen’s Bench Division, except the Admiralty and Commercial Courts, unless the proceedings are the subject of fixed costs or scale costs or the court orders otherwise, and to any other proceedings where the court so orders (CPR3.12(1)).

When costs budgeting came in in April 2013 only claims under £2 million had to be budgeted for; that figure was subsequently raised to £10 million.

Subject to the limited exceptions, it is envisaged that costs management orders would be made in all cases except where there is good reason not to do so. Even when the exceptions in the rule and the direction apply, the use of costs management should always be considered.

CPR 3 is divided in to sections, the first containing current rules on case management (CPR3.1 to 3.11) the second containing new rules on costs management (CPR3.12 to 3.18) and the third containing rules on costs capping (CPR3.19 to 3.21).

CPR 3.12(3) states that the “purpose of costs management is that the court should manage both the steps to be taken and the costs to be incurred by the parties to any proceedings so as to further the overriding objective”.

Under the pilot scheme solicitors were expected to liaise monthly to check that their respective budgets are not being exceeded (paragraph 5.5).

Unless the court orders otherwise, all parties except litigants in person must file and exchange costs budgets in precedent H within 28 days of the date specified in the court notice, or no later than seven days before the case management conference (CPR 3.13).

In Civil Recovery Proceedings Precedent H is no longer to be used. It is replaced by the Precedent for Estimate of Costs in Relation to Civil Recovery (Precedent Q). See Practice Direction – Civil Recovery Proceedings.

The court may at any time make a Costs Management Order to control the parties’ budgets in respect of recoverable costs. The order will record the extent to which the budgets are agreed, and, where not agreed, record the court’s approval after making appropriate revisions. It will be kept under review throughout the case. (CPR3.16(1)).

Any hearing which is convened solely for the purpose of costs management, for example, to approve a revised budget, is referred to as a costs management conference (CPR3.16(1).

Where practicable, costs management conferences should be conducted by telephone or in writing. (CPR3.16(2)).

The presumption is in favour of the court making an order, but even where this does not happen the court, in making any case management decision, will have regard to any available budgets of the parties and will take in to account the costs involved in each procedural step. (CPR3.17).

CPR 3.13 states:

“Unless the court otherwise orders, all parties except litigants in person must file and exchange budgets as required by the rules or as the court otherwise directs. Each party must do so by the date specified in the notice served under rule 26.3(1) or, if no such date is specified, seven days before the first case management conference.”

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 phase of the proceedings; and

(b) not depart from such approved or agreed budget unless satisfied that there is a good reason to do so. (CPR3.18).

Costs Judge Master Haworth has stated, correctly in my view, that if costs budgeting is done properly:

“detailed assessment will become redundant and I will be able to spend my time fishing.”

COSTS BUDGETS AND PRECEDENT H: PRACTICAL GUIDANCE

The Civil Procedure (Amendment) Rules 2013 (SI 2013/262) brought in the amendments to Part 3 of the Civil Procedure Rules which introduced the court’s costs management powers and the requirement for all parties except litigants in person to file and exchange costs budgets.

On 22 April 2014 the Civil Procedure (Amendment No 4) Rules 2014 (SI 2014 No 867) came in to force and amended CPR 3.12(1) to read:

“This Section and Practice Direction 3E applies to all Part 7 multi-track cases……”

This confirms that the costs management provisions, including costs budgets, do not automatically apply to Part 8 claims. Those provisions will only apply if the court makes a positive order that they should, as expressly confirmed by Rule 3.12 (1A).

Unless the court otherwise orders, all parties except litigants in person must file and exchange budgets as required by the rules or as the court otherwise directs. (3.13)

Costs budgets must be filed and exchanged in all Part 7 multi-track cases with a value of less than £10 million, other than where the proceedings are the subject of fixed costs or scale costs or where the court otherwise orders (3.12).

In any case where the parties are not required by the rules to file and exchange costs budgets, the court still has a discretion to make an order requiring them to do so. (Practice Direction 3E, paragraph)

Filing and Exchanging Budgets

Each party must file their costs budget ‘by the date specified in the notice served under rule 26.3(1) or, if no such date is specified, seven days before the first case management conference.’ (3.13)

The notice served under rule 26.3(1) is the notice of allocation:

“26.3

(1) If a defendant files a defence –

(a) a court officer will –

(i) provisionally decide the track which appears to be most suitable for the claim; and

(ii) serve on each party a notice of proposed allocation…”

The court failing to specify a date in the notice of allocation to file a costs budget is not a reason to fail to file a Precedent H, as set out in Aliasghar Porbanderwalla v Daybridge Limited (30/1/2014 HHJ) Worster Birmingham CC.

When completing the Directions Questionnaire (Form N181) in a multi-track claim section H in relation to costs prompts you to consider drafting Precedent H by stating:

‘If your claim is likely to be allocated to the Multi-Track form Precedent H must be filed at in accordance with CPR 3.13.’

You are then prompted to tick a box confirming that you have attached Precedent H to your Directions Questionnaire. Arguably the court is making a specific order in the Questionnaire requiring parties to file and exchange at the same time as completing the Questionnaire.

If there is any doubt as to whether you should file Precedent H then you should file Precedent H; this is the safest option.

Paragraph 6 of Practice Direction 3E sets out the following guidance on the budget format:

‘Unless the court otherwise orders, a budget must be in the form of Precedent H annexed to this Practice Direction. It must be in landscape format with an easily legible typeface. In substantial cases, the court may direct that budgets be limited initially to part only of the proceedings and subsequently extended to cover the whole proceedings. A budget must be dated and verified by a statement of truth signed by a senior legal representative of the party. In cases where a party’s budgeted costs do not exceed £25,000, there is no obligation on that party to complete more than the first page of Precedent H.’

Failure to File a Budget

The draconian consequences of failing to file Precedent H when required are well documented in the case of Mitchell MP v News Group Newspapers Ltd [2013] EWCA Civ 1537 and are set out clearly in rule 3.14, which states:

‘Unless the court otherwise orders, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees.’

Note that from 6 April 2015 this rule is modified where a defaulting party is successful in relation to its own Part 36 offer. It can then get 50% of its costs.

“Cases in which the offeror’s costs have been limited to court fees

36.23.—(1) This rule applies in any case where the offeror is treated as having filed a costs budget limited to applicable court fees, or is otherwise limited in their recovery of costs to such fees.

(Rule 3.14 provides that a litigant may be treated as having filed a budget limited to court fees for failure to file a budget.)

(2) “Costs” in rules 36.13(5)(b), 36.17(3)(a) and 36.17(4)(b) shall mean—

(a) in respect of those costs subject to any such limitation, 50% of the costs assessed without reference to the limitation; together with

(b) any other recoverable costs.”

FAILURE TO SERVE COSTS SCHEDULE

In Simpson MGN Ltd v Ward [2015] EWHC 126 (QB)

the court reduced the claimant’s costs by 10% due to the failure to serve a Costs Schedule on the defendant in accordance with PD 44, paragraph 9.5(4).

Drafting Precedent H

 The deceptively simple looking Precedent H form, a self-calculating Excel spreadsheet, is available in Practice Direction 3E together with the Guidance Notes on Precedent H.

If the estimated costs do not exceed £25,000.00 then only the first page needs completing and the matter will then be dealt with by way of provisional assessment at the end of the case, although to fill out the first page of Precedent H you will effectively have to prepare the entire nine pages of the spreadsheet.

Prior to the introduction of Form H Lord Justice Jackson estimated that it would take two hours to complete. However it is important not to treat drafting a Precedent H as simply a form filing exercise; any mistakes in your budget are likely to be costly ones.

Precedent H breaks down the costs into the following stages of litigation:

• Pre-Action Costs;
• Issue /statements of case;
• CMC;
• Disclosure;
• Witness statements;
• Expert Reports;
• PTR;
• Trial Preparation;
• Trial;
• ADR/ Settlement discussions; and
• Contingent costs.

The Guidance Notes on Precedent H provide the only explanation of what each phase of work should include and this guidance is limited.

Pre-Action Costs

The Guidance Notes on Precedent H state that the following work is included in Pre-Action Costs:

• Pre-Action Protocol correspondence
• Investigating the merits of the claim and advising client
• Considering ADR, advising on settlement and Part 36 offers
• All other steps taken and advice given pre-action

Pre-Action costs do not include any work incurred in relation to any other phase of the budget and this is made clear in the Guidance Notes.

There is a temptation to lump all pre-action work under the pre-action section of the Precedent H. However much pre-action work in fact comes under other sections of the Precedent H; for example, in order to issue the claim you would almost certainly have had to draft a claim form and this would come under Statements of Case. Likewise, it is likely that you will have drafted witness statements and instructed medical experts prior to issuing a claim.

Issue/Statements of Case

• Preparation of Claim Form
• Issue and service of proceedings
• Preparation of Particulars of Claim, Defence, Reply, including taking instructions, instructing
• counsel and any necessary investigation
• Considering opposing statements of case and advising client
• Part 18 requests (request and answer)
• Any conferences with counsel primarily relating to statements of case

This phase does not include amendments to Statements of Case.

Case Management Conference

• Completion of AQs
• Arranging a CMC
• Preparation of costs budget for first CMC and reviewing opponent’s budget
• Correspondence with opponents to agree directions and budgets, where possible
• Preparation for, and attendance at, the CMC
• Finalising the order

This phase does not include any subsequent CMCs.

Disclosure

• Obtaining documents from client and advising on disclosure obligations
• Reviewing documents for disclosure, preparing disclosure report or questionnaire response and list
• Inspection
• Reviewing opponent’s list and documents, undertaking any appropriate investigations
• Correspondence between parties about the
• scope of disclosure and queries arising
• Consulting counsel, so far as appropriate, in relation to disclosure

This does not include applications for specific disclosure or applications and requests for third party disclosure.

Witness statements

• Identifying witnesses
• Obtaining statements
• Preparing witness summaries
• Consulting counsel, so far as appropriate, about witness statements
• Reviewing opponent’s statements and undertaking any appropriate investigations
• Applications for witness summaries

This does not include arranging for witnesses to attend trial, as this should be included in trial preparation.

Expert Reports

• Identifying and engaging suitable expert(s)
• Reviewing draft and approving report(s)
• Dealing with follow-up questions of experts
• Considering opposing experts’ reports
• Meetings of experts (preparing agenda etc)

This does not include obtaining permission to adduce expert evidence (include in CMC or as separate application) or arranging for experts to attend trial (include in trial preparation).

PTR

• Bundle
• Preparation of updated costs budgets and reviewing opponent’s budget
• Preparing and agreeing chronology, case summary and dramatis personae (if ordered and not already prepared earlier in case)
• Completing and filing pre-trial checklists
• Correspondence with opponents to agree directions and costs budgets, if possible
• Attendance at the PTR

This does not include assembling and/or copying the bundle as this is not fee earners’ work.

Trial Preparation

• Trial bundles
• Witness summonses, and arranging for witnesses to attend trial
• Any final factual investigations
• Supplemental disclosure and statements (if required)
• Agreeing brief fee
• Any pre trial conferences and advice from Counsel
• Pre-trial liaison with witnesses

This does not include assembling and/or copying the trial bundle as this is not fee earners’ work.

Trial

• Solicitors’ attendance at trial
• All conferences and other activity outside court hours during the trial
• Attendance on witnesses during the trial
• Counsel’s brief fee and any refreshers
• Dealing with draft judgment and related applications
  

This does not include preparation for trial, as this should be included in the trial preparation phase, or agreeing brief fee.

ADR/Settlement discussions

• Settlement negotiations, including Part 36 and other offers and advising the client
• Drafting settlement agreement or Tomlin order
• Advice to the client on settlement (excluding advice included in the pre-action phase)

This does not include mediation as this should be included as a contingency.

Presumably this should also not include any advice on Part 36 offers or consideration of ADR that occurred pre-issue as this should come under the pre-action phase, although the Guidance Notes are far from clear on this.

Contingent costs

The only guidance provided on contingent costs is at the bottom of the Guidance Notes on Precedent H as follows:

‘The ‘contingent cost’ sections of this form should be used for anticipated costs which do not fall within the main categories set out in this form. Examples might be the trial of preliminary issues, a mediation, applications to amend, applications for disclosure against third parties or (in libel cases) applications re meaning. Costs which are not anticipated but which become necessary later are dealt with in paragraph 4.7 of the Practice Direction.’

However it is clear from this that contingent costs are anticipated costs, that is costs that are an actual and real possibility rather than costs that might arise at some indistinct point in the future. Contingent costs are not an ‘everything but the kitchen sink’ scenario.

In Tim Yeo MP v Times Newspapers Limited [2015] EWHC 209 (QB) the Queen’s Bench Division of the High Court said

“70. The first point to make about contingencies is that they must involve work that does not fall within the main categories on Precedent H. Secondly, in order for work to qualify as a contingency it must be possible to identify to the opposite party and the court what that work would be. Otherwise it would be impossible to determine whether the work falls within or outside a specified category, and it is hard to see how any assessment could be made of what its cost would be. Thirdly, there is the important issue of how likely it needs to be that the work will be required, before it can properly be included as a contingency. Mr Browne submitted that the test should be whether the work was “reasonably likely” at the time the budget was approved.

71. In my judgment work should be included as a contingency only if it is foreseen as more likely than not to be required. This seems to me a clear criterion that provides a practical solution, consistent with PD3E 7.4 and 7.9. If work that falls outside one of the main categories is not thought probable, it can reasonably and should be excluded from the budget. The time and costs involved in estimating how much work would cost are not easily justified if the work is no more than a possibility or is unlikely. If work identified as a contingency is included in a budget but not considered probable by the court no budget for it should be approved. If the improbable occurs, in the form of an unexpected interim application, the costs will be added to the budget pursuant to PD3E 7.9, unless the matter involves a “significant development” within para 7.4 in which case, if time permits, a revised budget should be prepared and agreed or approved.”

This is further highlighted by paragraph 7.6 of Practice Direction 3E:

‘Each party shall revise its budget in respect of future costs upwards or downwards, if significant developments in the litigation warrant such revisions.’ (My emphasis.)

Therefore if some unforeseen event occurs which requires additional costs to be incurred which were not envisaged when the Precedent H was drafted then parties have the ability to revise their budgets accordingly and should submit their revised budgets to the other parties for agreement.

Assumptions

These should concisely set out on what assumptions you have based your figures in the Precedent H in relation to each phase.

Statement of Truth

The statement of truth on Precedent H reads as follows:

‘This budget is a fair and accurate statement of incurred and estimated costs which it would be reasonable and proportionate for my client to incur in this litigation.’

This statement of truth ‘must be dated and verified by a statement of truth signed by a senior legal representative of the party.’ (Practice Direction 3E)

Estimated Costs

There is no guidance provided on how to go about calculating the future costs of a case. This is therefore a case of using your common sense and experience while taking into consideration the individual case and proportionality and should be done by somebody who is intimately familiar with the case, usually the file handler. There is little point in putting down excessive estimated costs in a claim that is only worth, say £30,000.00.

The estimate must deal with both costs and disbursements, both incurred and anticipated. As well as considering whether the amount of time spent by lawyers is necessary the courts are expected to subject to specific scrutiny the need for experts and their fees and the volume of documents. Professor Dominic Regan advises:

“If you are looking to involve expensive experts you ought to consider seeking tenders. Let them pitch for and give quotations.”

Incidentally, it is clear that many judges are as lacking in guidance in relation to Precedent H as lawyers are and are simply not dealing with costs budgeting.

Master Gordon-Saker, the new senior costs judge, has stated that many judges do not have the “faintest idea” in relation to costs budgeting and that “for judges required to do something completely alien it’s a difficult task to give them the education and confidence to do it properly.”

“How puzzling all these changes are! I’m never sure what I’m going to be, from one minute to another.”

Lewis Carroll, Alice’s Adventures in Wonderland

COMMENTS

It is most important to bear in mind that the budget relates to recoverable costs; it does not in any shape or form limit the amount chargeable to one’s own client, that sum being governed by the solicitor and own client retainer, which need bear no relation to recoverable costs.

Typically the arrangement with the client will provide for a greater sum to be charged to the client than is recovered, that being the difference between the solicitor and own client hourly rate and the between the parties hourly rate. This difference may or may not be capped by reference to damages, but unless the solicitor is stupid enough to have a lower charge to the client than appears in the budget, the indemnity principle has no application whatsoever to the budget.

It is true that an overspend on one part of the budget cannot be absorbed by an underspend on another part of the budget, but that is nothing at all to do with the indemnity principle, but rather because of 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 phase of the proceedings; and

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

Thus the budget creates a cap on recoverability for each phase of the proceedings, not just a global cap, but none of this prevents the solicitor charging the client whatever has been agreed.

Obviously if the budget provides for 20 hours work, but only 15 hours is done, then the solicitor can only recover 15 hours work from the other side and only 15 hours from the client. That is nothing to do with the indemnity principle; rather it is the law against fraud.

Any problems with the indemnity principle are solved by the simple, standard, practice of having a solicitor and own client indemnity rate well above the between-the-parties recoverable rate.

Many commentators have got this wrong in the sense that they correctly state that you cannot operate a “swings and roundabouts” policy, but incorrectly ascribe this to the indemnity principle.

I am very happy that the esteemed Simon Gibbs – simon.gibbs@gwslaw.co.uk – shares this view.

As we will see below a losing party which is ordered to pay costs on an indemnity basis, for example because a claimant has matched or beaten at trial its Part 36 offer, is in for a nasty over-budget shock, especially if the claimant is represented in a commercial case under a Damages-Based Agreement.

The phase by phase approach also fails to recognize that law is an art and not a science. Lord Woolf, with his fixing of costs by reference to the stage reached, realised this.

The budget method is by reference to the type of work, not the stage reached. There is enormous scope for allocating vague, continuing activities such as consideration of quantum, to any phase which has an apparent underspend.

The recoverable costs for preparing the budget are the higher of £1,000 or 1% of the approved budget and for dealing with all budgetary matters through the life of the case, but not assessment, 2% of the approved budget.

In Smales v Lea and Others [2011] EWCA Civ 1325, the Court of Appeal again drew attention to CPR 52 Practice Direction emphasising the need to include only those documents specifically required with all extraneous material to be excluded. The Court of Appeal said that in future it would consider imposing sanctions on solicitors who failed to exclude irrelevant documents. Very few documents now need to be supplied on provisional assessment, just the bill, points of dispute, replies, costs orders and fee notes.

The judge will consider the budgets and may make a Cost Management Order approving the budget, or a revised version of it. If it turns out to be no longer accurate the parties must produce a revised budget showing the departures from budget and the reasons for such departures.

Detailed assessment still occurs at the end of such a case provided that the bill for assessment exceeds £75,000. If it does not exceed that sum, then it will be subject to paper assessment in the first instance. The Costs Management Order cannot approve costs incurred up to that point, but can make comments on them. In regard to costs incurred in accordance with an approval budget the court, on detailed assessment, will not depart from the budgeted figure unless for good reason.

It is not clear how this ties in with proportionality. The Costs management process implies that once the court has decided that certain steps in litigation re reasonable, the full cost of undertaking that work will be recoverable. This is because the judge on assessment will not normally depart from the approved budget.

The proportionality test means that a judge on detailed assessment may determine that, despite a certain step within the litigation being deemed reasonable, the full cost of that work may not be recovered once the ‘global basis’ test is applied.

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 judges to apply the test consistently and for parties and their lawyers to be aware of the impact on recoverable costs.

However, there will be those who wonder what the point is of expensive and time consuming costs management and detailed assessment hearings to determine what costs are reasonable, if at the end, the judge can then knock the figure down further, on an apparently arbitrary basis.

The Costs Management Order will be based on the party’s budget, but the court can make appropriate revisions at the Case Management Conference and as the case progresses.

PROBLEMS WITH PRECEDENT H

I set out below an example of some of the problems raised by Precedent H, although this list is not exhaustive.

• The document is not programmed properly. Changes to the entries for the claim number, party’s names and the Court will change across all 5 pages if 1 page is changed. The information relating to fee earners, disbursements and details about counsel has to be changed manually on every page.
• The document is colour coded in a way that is counter intuitive so it is not clear where figures for disbursements should be entered. This has to be dealt with by trial and error and further adjustment of formulas to ensure that the correct totals are arrived at.
• Administrative issues add a significant amount of time to the task of preparing the costs budget which could have been avoided with a few more hours work of testing the document before making it available. Our estimate is that this added at least 1 hours work.
• The categories are overly simplistic given they are meant to cover all aspects of a claim:
  For example medical records. Do they go under ‘experts reports’ or ‘disclosure’?
• ‘Quantum’ does not feature anywhere in the guidance.

•  There is little interplay between the format and categories of Precedent H and a Bill of Costs, although the development of the J-Codes and the planned new format of a Bill of Costs will (eventually) resolve this problem.
• An entire phase of the Precedent H is dedicated to work on Settlement which includes, quite obviously, Part 36 offers. Yet the penultimate bullet point of work included in Pre-action states that “advising on settlement and Part 36 offers” should be included in Pre-action costs. Furthermore the guidance on the Settlement phase of the Precedent H states that this phase includes “advice to the client on settlement (excluding advice included in the pre-action phase).” This seems an arbitrary and unnecessary distinction; why not include all advice on settlement, whether pre-action or post-issue, under Settlement?

“If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn’t.”

Lewis Carroll, Alice Through the Looking Glass

DBAs AND COSTS BUDGETING: CURIOUSER AND CURIOUSER

The Civil Procedure Rules dealing with costs management and costs budgeting are entirely silent on the interplay with Damages-Based Agreements (DBAs).

I simply have no idea how a solicitor acting under a DBA is meant to prepare a costs budget.

There are at least three options, the apportionment one and the ordinary one, and the fixed fee one.

Let us take a case worth £100,000 with a DBA with a figure of 50% of damages recovered as the fee, that being the maximum allowed in a non-personal injury or non-employment matter.

Thus the maximum fee is £50,000. For simplicity’s sake let us assume ten relevant sections of Form H and where the solicitor estimates the costs of £10,000 for each stage, but knowing that, due to the indemnity principle, no more than £50,000 can ever be recovered.

One approach – the apportionment one – is for the solicitor to halve each component, so that although the court may have awarded £10,000 for pre-action work, the solicitor will only be able to claim £5,000. That would be unwise as obviously the claim may settle before £50,000 worth of between the parties costs have been incurred, so why artificially limit yourself to less than that sum?

By putting in the full amount the solicitor will get paid the correct sum if the case settles within the first five stages. Of course it means that if the case goes beyond Stage 5 the solicitor is earning nothing, but that is the reality anyway – once the solicitor has done work equal to half of the damages he or she is working pro bono.

Furthermore if the apportionment method is used one’s own client has an obvious complaint against the solicitor. Let us assume that the case settles at the end of Stage 5 and thus the solicitor, limited by the costs budget, receives £25,000 from the losing side and charges the client the balance of £25,000. The client has every right to point out that he is £25,000 out of pocket compared with the situation if the solicitor had put the full, arguably correct, sum in for each stage.

An alternative is to put the full sum in for each stage, accepting that however much that comes to the actual recoverable costs will never exceed £50,000.

Obviously it would be entirely wrong artificially to front load costs to ensure maximum between the parties costs whenever the matter settles……….

The third option is to state that whatever stage the case reaches the fee is a sum equivalent to 50% of the damages and that that is the sum sought from the other side. I advise against this as generally the judiciary are wedded to hourly rates, in spite of the clear will of Parliament that other funding options should be available. Strictly, in my view, this is the correct option. The client is paying a fixed lump sum and the indemnity principle means that the claimant solicitor should neither seek £5,000 or £10,000 for any given stage as the client is not liable for any sum for any given stage.

What seems to me to be crystal clear is that a claimant who matches or beats its own Part 36 offer at trial gets the full 50% DBA fee, that is he or she gets costs on the indemnity basis.

The solicitor and own client costs are unquestionably 50% and thus costs on the indemnity basis are 50% of damages.

A paying party has no prospect of arguing that a method of payment approved by Parliament, with Parliament fixing the maximum percentage, is unreasonable.

A matter is approaching trial. The costs budget, regularly updated, shows that the winning claimant’s costs will be £300,000 on £1 million claim.

Can the claimant and solicitor switch to a 50% DBA, thus triggering costs of £500,000 if the claimant’s Part 36 offer is matched?

Yes, in my view, and there is nothing to stop parties entering in to a DBA at any stage. In all cases there will have been some investigative work before a DBA is entered in to.

Supposing, very early on in a DBA case a claimant succeeds in obtaining summary judgment with an order for indemnity costs. The same principle applies, that is a sum equal to 50% of damages for what may have been relatively little work, all fully recoverable.

Supposing, in a personal injury case funded by a DBA and with costs limited to 25%, including VAT, of damages, the claimant puts in a high costs budget and subsequently the defendant finds out that the matter is being conducted under a DBA and therefore the maximum that they would ever be liable for, including costs, is 125% of damages.

Could a defendant, having fought the matter to trial, argue that if it had known that the matter was conducted under a DBA it would have settled much earlier as it would know the limit of their costs?

Suppose in a DBA case the claimant has made an offer under Part 36 to settle the whole claim for, say £100,000, and that offer remains open; is it acceptable for the claimant to put in a budget of say, £75,000, knowing full well that s/he is valuing the claim at a sum which will result in far lower costs, a matter that the defendant cannot refer to at that stage because of the Without Prejudice nature of a Part 36 offer?

Can the defendant subsequently argue that if they had known that the claimant was acting under a DBA, then they would have accepted the Part 36 offer, knowing that the claimant’s costs would be limited to 25% in personal injury cases and 50% in all other cases, including VAT and counsel’s fees?

An obvious answer is to amend the Civil Procedure Rules to provide that a claimant should notify the defendant within seven days of the signing of a DBA that the matter is being conducted under a DBA.

Even these scenarios are not clear. A personal injury claimant, knowing full well that the full value of the claim is £100,000 may nevertheless want the costs budget to give a figure of well over £25,000 as the court might decide to make an award based on the claimant getting only 50% of budgeted costs because s/he has exaggerated.

Arguably the correct order is to still allow the claimant’s lawyer the full 25%. Thus damages are in fact £100,000 where the claim was for £500,000, and the court penalizes the claimant to the extent of 50% because of this exaggeration.

Let us assume that the agreed budget was £50,000. 50% of that is £25,000 and the claimant therefore recovers costs of £25,000, which is the maximum that s/he could have recovered in any event under a DBA.

These are all reasons why DBA means Don’t Touch with a Bargepole, although if you are a claimant you may fancy a late switch to a DBA.

CPR 52.9A: ORDERS TO LIMIT THE RECOVERABLE COSTS OF AN APPEAL

“(1) In any proceedings in which costs recovery is normally limited or excluded at first instance, an appeal court may make an order that the recoverable costs of an appeal will be limited to the extent which the court specifies.

(2) In making such an order the court will have regard to –

(a) the means of both parties;

(b) all the circumstances of the case; and

(c) the need to facilitate access to justice.

(3) If the appeal raises an issue of principle or practice upon which substantial sums may turn, it may not be appropriate to make an order under paragraph (1).

(4) An application for such an order must be made as soon as practicable and will be determined without a hearing unless the court orders otherwise.”

In the process of costs management the court has no power to reduce the hourly rate that has been agreed by the client. That can only be done on a Solicitors Act 1974 assessment, and indeed there is a body of opinion that holds that the court has no power at all, even on a Solicitors Act 1974 assessment, to reduce the hourly rate, but rather can only restrict the number of hours claimed for to that which is no unreasonable. I disagree; my view is that the court has a free-standing jurisdiction as part of its supervisory role of solicitors in their capacity as Officers of the Court.

Thus a court has no costs management power to reduce the amount that may be charged to one’s own client. Obviously the court does have power to reduce the amount to be charged to the other side; indeed that is the whole point of costs management, but any such decision will not affect the hourly rate chargeable on a solicitor and own client basis.

However that does beg the question as to what rate should go in the budget. As the budget is to determine recoverability from the other side there is no need to put the full solicitor and own client rate in. Although the judge cannot interfere with that rate as between solicitor and client he or she can reduce it insofar as it is a potential charge to the other side and a high solicitor and own client may alienate the judge.

Clearly the rate should be well above guideline hourly rates, both to reflect the fact that guideline hourly rates are only suitable for summary assessment and also to provide an additional award as specifically sanctioned by Parliament, if you achieve indemnity costs, normally because you have matched or beaten your own Part 36 offer at trial.

With no particular magic I suggest a figure of £350 per hour plus VAT. Although guideline hourly rates have no application, this rate can be defended on the basis of the traditional expectation that a winning client would recover approximately two thirds of costs from the other side. Thus taking a guideline hourly rate of £220, this procures a solicitor and own client rate of £330 which I have rounded up.

This is not the whole story as of course the guideline rate of £220 is for an eight year qualified solicitor and I am suggesting that the rate be applied as a single blended rate.

There has been much discussion as to whether one even needs to put that indemnity rate in the costs budget, or can simply put the ordinary between the parties’ rate, and as yet there has been no definitive answer, but no doubt we will have one soon.

Thus my advice is as follows:-

1. Maintain a single rate of say £400 per hour plus VAT for the client.
2. Insert in the costs budget a blended rate of £350 plus VAT and explain that is a rate that you consider reasonable, and is not the indemnity rate. In my view there is no need to state what the indemnity rate is.

In fact, because of the restriction on the sum that solicitors normally will be charging to the client – 25% of damages in personal injury matters, say 40% in commercial matters – the true hourly rate charged to the client will almost never be anything like £400 per hour.

In my experience, generally it will work out at around £200 per hour including costs recovered from the other side, in cases that are subject to portal costs or Fixed Recoverable Costs.

CASE LAW

High Court Guidance re Budgeting

In Tim Yeo MP v Times Newspapers Ltd [2015] EWHC 209 (QB)

The Queen’s Bench Division of the High Court made observations on costs budgeting saying:-

• it should not be a lengthy exercise;
• it was appropriate to use correspondence instead of skeleton arguments;
• rates and projected hours may well need to be considered;
• contingencies should only be included in the budget if they are reasonably likely to occur;
• a budget may be for part, not all, of the action;
• sometimes it should take place at an earlier stage than usual.

The court reminded the lawyers that “where practical, costs management conferences should be conducted by telephone or in writing”. (CPR 3.16(2))

In a case that goes to trial the successful party’s costs incurred before approval of the budget will normally need detailed assessment, in the absence of an agreement.

The court also said:-

“The court has power to give directions for the filing and exchange of budgets at an earlier stage than the CMC. This is so as part of its general powers of management but is reflected in CPR 3.13, which requires parties other than litigants in person to “file and exchange budgets as required by the rules or as the court otherwise directs”. If that power is exercised the general rule will apply, that the court will make a costs management order. An early costs budgeting process may be initiated by the court or by one of the parties.”

“If a budget is required at an early stage it need not be for the entire litigation.”

Practice Direction 3E 6 says:-

“In substantial cases, the court may direct that budgets be limited initially to part only of the proceedings and subsequently extended to cover the whole proceedings.”

Items not in Budget

In Simpson MGN Ltd v Ward [2015] EWHC 126 (QB)

the court allowed the successful claimant costs in relation to applications which had not appeared in the claimant’s cost budget.

The court found that there was good reasons apart from the budget, in essence holding that this was a minor fault in the context of the whole litigation which had had no appreciable impact on the efficient conduct of the litigation.

Appeals Against Cost Management Orders

In Havenga v Gateshead NHS Foundation Trust [2014] EWHC B25 (QB)

the Queen’s Bench Division of the High Court refused an appeal against heavy cuts in the claimant’s budget in relation to a clinical negligence case.

The claim was worth over £5 million and liability had been agreed on a 75/25 basis in the claimant’s favour. At the cost budgeting hearing the District Judge reduced the claimant’s budget from £789,854.46 to £463,915.13.

The High Court held that appeals in relation to costs management orders are subject to the criteria in

Tanfern v Cameron MacDonald [2000] 1WLR 1311

that is that

“The appellate court should only interfere when they consider that the judge of the first instance has not merely preferred an imperfect solution which is different from an alternative imperfect solution which the Court of Appeal might or would adopt, but has exceeded the generous ambit within which a reasonable disagreement is possible.”

The appeal is limited to a review of the lower court’s decision and it is not the job of the appeal court to tinker with costs budgets.

Although the appeal court here would have been more generous than the District Judge the original budget was well within the generous ambit of the original judge’s discretion and thus there are no grounds to interfere with that decision on appeal.

Here the appellate judge refused to interfere even though he found “force” in the claimant’s submission, accepted the claimant’s propositions, thought that the judge had erred on the low side, “would have been more generous than the District Judge”, “would have been persuaded to allow somewhat more time” etc.

Appeal courts rarely interfere with case management decisions and it is clear that it would be very rare indeed for an appeal to court to interfere with a costs budget.

Discretion to Order Costs Budget

In Kershaw v Roberts [2014] EWHC 1037 (Ch)

the Chancery Division of the High Court held that the requirement to lodge a costs budget does not, and never did, apply to Part 8 proceedings and the White Book’s notes to the contrary are wrong.

The court has a discretion to order a costs management conference in such claims and in any event a costs budget will be necessary if the court transfers the claim to the Part 7 procedure and allocates it to the multi-track.

When costs budgeting came in in April 2013 only claims under £2 million had to be budgeted for; that figure was subsequently raised to £10 million.

In CIP Properties v Galliford Try Infrastructure Ltd and Others [2014] EWHC 3546 (TCC), the Technology and Construction Court, part of the High Court, held that it had a discretion to order budgets in cases involving over £10 million.

Mr Justice Coulson rejected the claimant’s argument that the court had no such discretion in such claims. He held that the claim was worth £18 million and the judge accepted that budgets are not automatically required in cases worth more than £10 million as proportionality is likely to be less relevant.

However he stated that costs budgets are “generally regarded as a good idea and a useful case management tool”, and that there should be no presumption against ordering them for higher value cases. Mr Justice Coulson said that he took into account “express advice” from the President of the Queen’s Bench Division that costs management should always be considered, even where not mandatory.

The judge also pointed out that ridged observance of the limits could “easily lead to the abuse of process” as claimants wanting to avoid the regime could simply make damages estimates £1.00 over the threshold. “This would then avoid any consideration at all by the court of the proposed costs, no matter how disproportionate or inflated they were.”

The claimants had submitted that there was no power to order budgets in such cases but the court relied on the wording of CPR 3.12 which excepts certain cases unless “the court otherwise orders”. Those words give the court a discretion to order costs budgeting in any case.

RELEVANCE OF COSTS ALREADY INCURRED

In Redfern v Corby Borough Council, 3 December 2014, the Queen’s Bench Division of the High Court upheld the decision of a Deputy Master that the amount of costs already incurred had a major impact upon the future costs budget.

This was an action for stress at work valued at £700,000.00; the trial was listed for 7 days with each side calling to expert witnesses.
At the costs budgeting hearing the Deputy Master said that the claimant’s costs incurred to date were excessive and disproportionate and that it was worrying that the claimant’s costs budget was equal to the value of the claim.

Consequently the approved budget would be much lower.

On appeal the judge held that the Master had not interfered with costs already incurred, but had taken them into account when considering the reasonableness and proportionality of subsequent costs, as required by Practice Direction 3 E, which the Deputy Master had applied correctly.

The only way to take into account excessive costs already incurred was to approve subsequent costs at a lower level than otherwise; it was sensible to fix a figure that was reasonable and proportionate for the entire action.

Costs outside the Costs Budget

In Excelerate Technology Ltd v Cumberbatch [2015] EWHC B1 Mercantile

the trial judge ordered payment on account of a very high percentage of the budgeted sum and also observed that certain additional costs outside the budget were, on the face of it, reasonable, as they “were quite properly incurred and were not remotely foreseeable.”

Those additional costs were in relation to specific hearings and applications and in relation to the First Defendant’s IVA.

Advocates need to be fully aware of the costs budget and also the need to ask the trial judge to consider matters outside the budget, although the court cannot increase a budget once the costs have already been incurred, as happened here. What the judge did was to record a note that on the face of it these costs were reasonably incurred and were proportionate to what was at stake.

Relief from Sanctions

The key case is of course Mitchell itself, that is Mitchell v News Group Newspapers Limited [2013] EWCA Civ 1537.

In Lotus Cars Limited v Mecanica Solutions Inc [2014] EWHC 76 (QB) Case no HQ13X02200

Master Kay rejected a Mitchell claim in a case where the claimant filed one costs budget covering all three cases which had been joined but where there were different defendants and the cases had not been consolidated.

Shortly before the CMC two of the claims were compromised and the claimant filed a revised costs budget in relation to the remaining action but the defendant refused to agree it as it covered all three cases.

Thus Master Kay had to consider whether the claimant had failed to file a costs budget and if so whether relief from sanctions should be granted.

Master Kay held that the claimant had complied with the order:

“17.        A significant purpose of cost budgeting is to ensure that the cases are handled as economically as possible and it seems logical that if cases are to be managed and tried together a single cost budgeting exercise should be sufficient. The provision of three separate budgets merely adds to the costs. If the other two claims had not been settled the single budget approach would have proved effective and it may well be that the Defendant’s multi budget approach might have been open to criticism. In my view the Claimant’s approach was not unreasonable”.

Consequently there was no need to consider the issue of relief from sanctions, but had it been necessary so to do the Master would have granted it, for the reasons set out in Paragraph 21 of the judgment:

“21. a. The failure to comply with the rules as found by Master McCloud in Mitchell was much more serious and, in my view, that decision is distinguishable from the present case where the Claimant was trying to comply with the Orders made;

b. The dicta of Coulson J. in Stella Willis v J Rundell & Associates Ltd [2013] EWHC 2923 indicates that the court should be cautious about penalising a party in respect of non-compliance with the cost budgeting rules;

c. I have had the opportunity to read the decision of the Court of Appeal in Mitchell [2013] EWCA Civ 1537 given on the 27^th November 2013 in which it was considered that the first task is to consider whether the non-compliance is trivial, and it if is not, then to consider whether there is a good reason for the default. If there is then the court is likely to grant relief. Applying those tests it seems to me that the default, if default it was, should be considered as trivial and even if it was not there was an understandable reason for the default which did not arise from the solicitor’s failure to act promptly or dereliction of duty.

d. Although the decision in Mitchell indicates that a more robust approach should be taken with applications for sanction from penalty it does not provide that a party should be penalised where the balance of justice and fairness would indicate that a contrary approach is appropriate. In my view, the reality of this case was that the Claimant was trying to comply with an aspect of the Orders and the rules which were not entirely clear and if, with hindsight, it is found that it failed to do so properly I think that it would be contrary to the overriding principle to apply the penalty required by the Defendant.

In Burt v Linford Christie, Birmingham District Registry, 10 February 2014, unreported

District Judge Lumb refused relief from sanctions where the defendant filed the costs budget one day late, that is six days, not seven days, before the Costs and Claims Management Conference. CPR 3.14 therefore applies and the defendant is treated as having filed a budget comprising only the applicable court fees.

This claim is a personal injury case where liability had been admitted and the pre-allocation notice gave dates for filing the directions questionnaire and other steps. The claimant filed a Precedent H costs budget but the defendant did not.

CPR 3.13 states:

“Unless the court otherwise orders, all parties except litigants in person must file and exchange budgets as required by the rules or as the Court otherwise directs. Each party must do so by the date specified in the notice served under rule 26.3(1) or, if no such date is specified, seven days before the first case management conference”.

CPR 3.14 provides:

“Unless the court otherwise orders, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees”.

On the facts of this case the District Judge held that there was no breach of CPR 3.13 occasioned by the failure of the defendant to file a costs budget with the Directions Questionnaire.

There was a clear breach of CPR 3.13 in that the defendant’s budget was filed six, not seven, days before the first case management conference.

Here the court held that that was not a trivial breach and thus imposed the full CPR 3.14 sanction, that is that the defaulting party, here the defendant but in Mitchell the claimant, stands to recover only court fees, even if wholly successful and indeed even if the other party’s case is totally unmeritorious and conducted in an appalling fashion.

Indemnity Costs and Part 36

Costs budgeting does not deal with indemnity costs, in the sense that the budgets do not contain indemnity costs figures.

Thus a claimant who matches his or her own Part 36 offer may get a figure well in excess of the amount in the budget.

This raises the issue of whether a Mitchell/Christie party, whose budget by CPR diktat consists only of court fees, may recover costs if they are awarded on an indemnity basis.

I think not. Generally a party will not get costs in excess of its budget. The budget is not just about money, it is about time. Thus an indemnity costs order will allow a party to get more per hour than in the budget, but will not be able to recover for more hours work than in the budget. In a Mitchell/Christie situation there is no budget save for court fees, so there are no hours and thus the court will not allow for any work.
Consequently an indemnity costs order makes no difference.

With effect from 6 April 2015 the “court fees only” rule in CPR 3.14 is modified where a defaulting party is successful in relation to its own Part 36 offer. It can then get 50% of its costs.

“36.23.—(1) This rule applies in any case where the offeror is treated as having filed a costs budget limited to applicable court fees, or is otherwise limited in their recovery of costs to such fees.

(Rule 3.14 provides that a litigant may be treated as having filed a budget limited to court fees for failure to file a budget.)

(2) “Costs” in rules 36.13(5)(b), 36.17(3)(a) and 36.17(4)(b) shall mean—

(a)in respect of those costs subject to any such limitation, 50% of the costs assessed without reference to the limitation; together with

(b)any other recoverable costs.”

Indemnity Costs and Budget

In Kellie and Kellie v Wheatley and Lloyd Architects Ltd [2014] EWHC 2866 (TCC)

the High Court looked at the interplay between costs budgets and indemnity costs.

Although this case dealt with alleged misconduct the findings concerning the interplay between costs budgeting and indemnity costs apply to indemnity costs orders arising out of a claimant matching its own Part 36 offer.

This was a professional negligence claim which was lost and the defendant sought indemnity costs on the ground of the claimant’s conduct.

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.

(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.

(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”.

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 thus had to consider the relevance of a costs budget when an indemnity costs order has been made and specifically disagreed with a previous decision of the High Court in

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

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

The court here in Kellie disagreed, holding 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.

As to payment on account the judge ordered £90,000 against the approved budget of £91,700.

The court, in rejecting the application for a indemnity costs order, gave extensive guidelines as to the grounds on which such an order should be made.

“18. In general terms, an award of costs on the indemnity basis is justified only if the paying party’s conduct is morally reprehensible or unreasonable to a high degree, so that the case falls outside the norm. The applicable principles were set out at length by Tomlinson J in Three Rivers District Council v The Governor and Company of the Bank of England [2006] EWHC 816 (Comm), at [25], in a passage on which Mr Lixenberg relied (omitting the eighth point, which was formulated with particular regard to the Three Rivers litigation):

“(1) The court should have regard to all the circumstances of the case and the discretion to award indemnity costs is extremely wide.

(2) The critical requirement before an indemnity order can be made in the successful defendant’s favour is that there must be some conduct or some circumstance which takes the case out of the norm.

(3) Insofar as the conduct of the unsuccessful claimant is relied on as a ground for ordering indemnity costs, the test is not conduct attracting moral condemnation, which is an a fortiori ground, but rather unreasonableness.

(4) The court can and should have regard to the conduct of an unsuccessful claimant during the proceedings, both before and during the trial, as well as whether it was reasonable for the claimant to raise and pursue particular allegations and the manner in which the claimant pursued its case and its allegations.

(5) Where a claim is speculative, weak, opportunistic or thin, a claimant who chooses to pursue it is taking a high risk and can expect to pay indemnity costs if it fails.

(6) A fortiori, where the claim includes allegations of dishonesty, let alone allegations of conduct meriting an award to the claimant of exemplary damages, and those allegations are pursued aggressively inter alia by hostile cross examination.

(7) Where the unsuccessful allegations are the subject of extensive publicity, especially where it has been courted by the unsuccessful claimant, that is a further ground.”

19. More recently, in Courtwell Properties Ltd v Greencore PF (UK) Ltd [2014] EWHC 184 (TCC), Akenhead J said this:

“22. So far as indemnity costs are concerned, there are numerous authorities which address the circumstances in which these may be ordered. A helpful if not absolutely exhaustive summary was given by Mr Justice Coulson in Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd [2013] EWHC (TCC):

’16. The principles relating to indemnity costs are rather better known. They can be summarised as follows:

(a)          Indemnity costs are appropriate only where the conduct of a paying party is unreasonable “to a high degree. ‘Unreasonable’ in this context does not mean merely wrong or misguided in hindsight“: see Simon Brown LJ (as he then was) in Kiam v MGN Ltd [2002] 1 WLR 2810.

(b)          The court must therefore decide whether there is something in the conduct of the action, or the circumstances of the case in general, which takes it out of the norm in a way which justifies an order for indemnity costs: see Waller LJ in Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson [2002] EWCA (Civ) 879.

(c)           The pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, provided that the claim was at least arguable. But the pursuit of a hopeless claim (or a claim which the party pursuing it should have realised was hopeless) may well lead to such an order: see, for example, Wates Construction Ltd v HGP Greentree Alchurch Evans Ltd [2006] BLR 45.

(d)          If a claimant casts its claim disproportionately wide, and requires the defendant to meet such a claim, there was no injustice in denying the claimant the benefit of an assessment on a proportionate basis given that, in such circumstances, the claimant had forfeited its rights to the benefit of the doubt on reasonableness: see Digicel (St Lucia) Ltd v Cable and Wireless PLC [2010] EWHC 888 (Ch).’

To this can be added a number of other specific and general points:

(i)            The discretion to award indemnity costs is a wide one and must be exercised taking into account all the circumstances and considering the matters complained of in the context of the overall litigation (see Three Rivers DC v the Governor of the Bank of England [2006] EWHC 816 (Comm) and Digicel (as above)).

(ii)           Dishonesty or moral blame does not have to be established to justify indemnity costs (Reid Minty v Taylor [2002] 1 WLR 2800).

(iii)          The conduct of experts can justify an order for indemnity costs in respect of costs generated by them (see Williams v Jervis [2009] EWHC 1837 (QB)).

(iv)         A failure to comply with Pre-Action Protocol requirements could result in indemnity costs being awarded.

(v)          A refusal to mediate or engage in mediation or some other alternative dispute resolution process could justify an award of indemnity costs.”

Schedule of Costs

In Devon County Council v Celtic Bioenergy Ltd [2014] EWHC 309 TCC

Mr Justice Stuart-Smith granted relief from sanctions when a schedule of costs was served 18 minutes late, saying it was a “substantive irrelevance”.

Statement of Truth on Costs Budget

In The Governor and Company of the Bank of Ireland v Phillip Rank Partnership [2014] EWHC 284 (TCC)

Mr Justice Stuart-Smith rejected an argument that an error in the statement of truth meant that the costs budget was filed late.

The claimant’s Precedent H costs budget had the words “statement of truth” immediately above the signature of his representative and the full wording was not included but a further copy was later served, in identical form, with the full statement of truth included.

17 days later and one day before the CMC the defendant took the point and the claimant applied for relief from sanctions saying that it was an error; the budget had been completed externally and the partner signing the form had failed to notice that the full statement of truth had not been included.

The defendant argued that the claimant was in breach of CPR 3.13 and that there was no reasonable excuse and that statements of truth were important.

The judge dismissed the arguments as having no merit, technical or otherwise and as bringing the rules of procedure and the law generally into disrepute.

The judge concluded that there was no breach of CPR 3.13; the claimant had filed and exchanged a costs budget on time, but the budget suffered an irregularity.

CPR 3.14 provides for a sanction in the event that a party “fails to provide a budget”. It does not include the words:

“complying in all respects with the formal requirements laid down by PD 3E” or any similar words.

As the judge pointed out, any other finding would mean that a budget would be a nullity if, for example, one word was mis-spelled.

Relief from sanctions was not required, but had it been required the judge made it clear that he would have granted it.

Although not trivial, this was a failure of form rather than of substance. The nature of form Precedent H was a trip for the unwary.

“The defendant’s submission is therefore rejected. The claimant did not fail to file and exchange a costs budget on 24 January 2014. It filed and exchanged a budget that was subject to an irregularity that has since been rectified. No question of relief from sanctions arises. If the taking of this issue serves to alert others to the need to change the form of Precedent H from that set out in the supplement, some useful purpose will have been served”.

In Willis v (1) MRJ Rondell and Associates Ltd and (2) Grovecourt Ltd [2013] EWHC 2923 (TCC)

the Queen’s Bench Division of the High Court, Technology and Construction Court (Mr Justice Coulson) held the costs budgets of both parties, which were very similar in total, to be disproportionate and unreasonable and expressly declined to approve either budget.

This was a claim for £1.1 million and the claimant’s costs budget was £821,000 and the defendant’s costs budget was £616,000 but as the defendant was not liable for VAT, causing its budget not to have VAT in, the true figures were much closer to one another.
This was a case to which Practice Direction 51G (Costs Management in the TCC applied) and the judge said:

“I apprehend that the outcome will not be uncommon under either PD51G, or the new costs budget rules which came into force in April 2013”. (Paragraph 1).

The judge noted that the total costs of both parties exceeded the value of the claim and held that on that basis alone the costs in both budgets were both disproportionate and unreasonable.

The judge also said that “……to allow a proper analysis, in order for the court to make a costs management order, the costs which have been incurred (and which therefore cannot be the subject of an order) must be separated out from those which are estimated (which can be the subject of an order)”. (Paragraph 19).

The judge said that the experts’ fees should be half those estimated; “unhappily, my recent experience is that the amount of experts’ fees in cases like this is often out of all proportion to the assistance provided”. (Paragraph 20).

The judge also had this to say about contingencies:

“…….whilst budgets of this sort can include contingent sums, it needs to be made very clear what those contingency sums are for and how they have been calculated. For example, it may be appropriate to put in, as a contingency sum, the estimated additional costs of written submissions, if the original budget assumed that oral submissions would be made at the end of the trial. Another example would be a contingency sum for any application for security for costs”. (Paragraph 21).

“It is not appropriate ………….to put in a single lump sum by way of a contingency figure and leave it at that. ……….such items ought to be included in the relevant line items as a cost incurred. For example, it is said that there is an additional cost because of the need to amend the pleadings. That ought to be shown as an additional cost under the relevant line item within the costs budget”. (Paragraph 22).

Generally the judge said:

“Of course in an ideal world, the court would be able to provide alternative figures for those estimated items in a costs budget which the court considers to be too high. The alternative figures could then be included in an approved costs budget and a costs management order could be made. But as I have already noted, I have nothing on which I could rely in order to come up with reasonably accurate alternative figures. I do not consider that it is appropriate for the court to impose its own figures without notice and without any supporting material”.

In his conclusion, the judge said (paragraph 25):

“In all those circumstances, I expressly decline to approve either party’s costs budget. For the reasons I have given, I consider them to be disproportionate and unreasonable. I therefore have no option but to decline to make a costs management order”.

It appeared to be becoming clear that the courts intended to take a very hard line in relation to Costs Management Orders, with the first decision being given by the Senior Costs Judge Peter Hurst in

Henry v News Group International Ltd [2012] EWHC 90218

This was a defamation action and as such was caught by an early budgeting pilot scheme applying only to defamation cases issued in the Royal Courts of Justice or Manchester District Registry on or after 1 October 2009. Here the Claimant submitted a bill which was 18 times higher than budgeted for in relation to witness statements and eight times higher for disclosure. Overall, the extra costs were nearly £300,000.

The Senior Courts Costs Office “reluctantly” held that there was “no good reason to depart” from the court approved budget where the claimant’s costs had exceeded that budget, even though the court recognized that the claimant could probably “make out a very good case on detailed assessment for the costs being claimed”. It found that the claimant had “largely ignored” the mandatory provisions of the Defamation Costs Management Scheme set out in CPR PD 51D, although recognizing that the issue was important and needed a definitive and binding decision, the SCCO indicated that it would be prepared to grant permission to appeal under CPR 52.3(6)(b).

Professor Dominic Regan, commenting on the decision, said

“What, one might ask, is the point of imposing a budget only to ignore it? The lesson is blindingly clear. If the approved budget, for whatever reason, seems to be no longer accurate then get back to court and seek approval for revised figures.”

Speaking at the LexisNexis Costs and Litigation Forum on 31 October 2012 SCCO Master Haworth said

“I can’t imagine that the Court of Appeal is going to row back from Costs Management and Costs budgeting.”

However that is exactly what they have done, unanimously allowing the appeal and remitting the matter to the SCCO.

In Henry v News Group Newspapers Ltd [2013] EWCA Civ 19

the Court of Appeal found that that was good reason to depart from the budget, which is precisely the same test in the new CPR3.18(b) inserted by The Civil Procedure (Amendment) Rules 2013.

In relation to the future, the Court of Appeal had this to say in two paragraphs which they headed “The future”:

“ 27.       The practice direction with which this appeal is concerned applies only to proceedings for defamation. It was the first pilot scheme introduced by the Civil Procedure Rule Committee (“the Rule Committee”) and was intended both to control the costs of defamation proceedings and to provide experience of how costs management would work in practice. A similar costs management pilot scheme which reflected developments in the understanding of how costs management could most usefully be applied was subsequently introduced in the Mercantile Courts and the Technology and Construction Courts (see Practice Direction 51G).

28. In the light of the experience gained from those pilots the Rule Committee decided to adopt Sir Rupert Jackson’s recommendation that the management of costs by the court should in future form an integral part of the ordinary procedure governing claims allocated to the multi-track. Those rules, which will become effective from 1^st April 2013, differ in some important respects from the practice direction with which this appeal is concerned. In particular, they impose greater responsibility on the court for the management of the costs of proceedings and greater responsibility on the parties for keeping budgets under review as the proceedings progress. Read as a whole they lay greater emphasis on the importance of the approved or agreed budget as providing a prima facie limit on the amount of recoverable costs. In those circumstances, although the court will still have the power to depart from the approved or agreed budget if it is satisfied that there is good reason to do so, and may for that purpose take into consideration all the circumstances of the case, I should expect it to place particular emphasis on the function of the budget as imposing a limit on recoverable costs. The primary function of the budget is to ensure that the costs incurred are not only reasonable but proportionate to what is at stake in the proceedings. If, as is the intention of the rule, budgets are approved by the court and revised at regular intervals, the receiving party is unlikely to persuade the court that costs incurred in excess of the budget are reasonable and proportionate to what is at stake.”

Nevertheless it remains a fact that the Court of Appeal allowed the claimant to proceed with the full costs claim in the absence of any revised budget being submitted to the court and in the absence of any notification to the other side’s solicitors of the amount of costs being incurred.

The judge at first instance said (paragraph 67):

“……the fact is that the budget has been exceeded by a very significant amount, and there has been no attempt by the Claimant to pass this information on. The fact that both sides exceeded their budgets does not assist the Claimant. The Defendant kept the Claimant informed, but the Claimant gave no indication to the Defendant”.

In paragraph 28 of the Court of Appeal decision dealing with the future the court made it clear that under the post-1April 2013 regime the court has the power to depart from the approved or agreed budget if it is satisfied that there is good reason to do so, precisely the finding here.

It is clear that faced with these facts under the new regime the Court of Appeal would have made the same decision.

However in another recent case –

Ryder Plc v Dominic James Beever [2012] EWCA Civ 1737

the Court of Appeal upheld a Circuit Judge’s overturning of a Deputy District Judge’s Order striking out the claimant’s claim for failing to comply with an unless order in relation to a costs estimate.

At paragraph 53 of that Judgment the Court of Appeal said that here…….

“the delay in providing the costs schedule had not caused any real prejudice of which the defendant complained. Nor had it delayed the progress of the action. That is not to say that a costs schedule is not important. It has two main purposes. One is to enable the parties to make fully-informed decisions on Part 36 offers. However, the powers of the court on making a costs order are wide and allowance can be made at that stage for any prejudice that a party has suffered as the result of the delayed service of a costs schedule. The costs schedule also enables a defendant’s insurer to estimate an appropriate reserve and thereby manage its financial affairs. However, I do not think that, in the absence of evidence, it should be assumed that the delay in service of a costs schedule could have a seriously prejudicial effect on a defendant”.

In personal injury cases – and Ryder was such a case – this will always be a one-way argument in the sense that Qualified One Way Costs Shifting means that unless and until a Defendant’s Part 36 Offer is not beaten a Claimant will generally not have to pay costs, but a Defendant will still have to provide a costs budget at a Costs Management Conference, as there are in fact many circumstances in which a claimant may be liable for the defendant’s costs, even in a Qualified One Way Costs Shifting case.

Consequently insurance companies, not always the most punctual of people in relation to court timetables, will mercilessly attack claimants’ costs budgets and any failure to supply them on time. They will have nothing to lose.

The Court of Appeal, in the two decisions, and in many ways Ryder is more significant that Henry, are making it clear that there will be no gauleiter approach by Judges to the Jackson Reforms.

Henry has been seen as a blow to the Jackson Reforms, and in some sense it is, but it is also a brave and heartwarming decision; courts are there to do justice, not to obey Government diktats.

The other side of that coin is shown in the decision of HH Judge Simon Brown in

Safetynet Security Ltd v Coppage [2012] EWHC B11 (Mercantile)

After giving judgment for the claimant the Judge decided that as the spend was within the court-approved budget a detailed assessment would be an expensive and futile exercise.

Consequently a final costs order was made within minutes of the substantive judgment being delivered.

Varying a Budget

In Murray and Stokes v Neil Dowlman Architecture Limited [2013] EWHC 872 (TCC)

the Technology and Construction Court considered “a potentially important question about the circumstances in which a costs budget, which has been approved by the court as part of a costs management order, can subsequently be revised or rectified. It comes at a critical time, as the CPR is radically amended to introduce costs budgeting and costs management for most types of civil litigation.” (Paragraph 1 of the judgment).

Although this case was conducted under the pilot costs management scheme the new provisions are very similar, a point made here by the court.

Here the claimant had failed to make it clear that their approved costs budget excluded a recoverable success fee and ATE premium, although the defendants were well aware of their existence as Form N251 had been served.

The defendant wrote to the claimant stating that it would object to recovery of these additional liabilities and the claimant made an old CPR 3.9 application for relief from sanctions.

The court said that that was not the appropriate application and treated it as an application for revision or certification or clarification of the approved budget.

Here, the court allowed the application partly on the ground that the defendant was well aware of the additional liabilities and suffered no prejudice, and partly because of the tick box nature of the old Form HB budget and partly because the new Form H specifically provides that the estimate excludes success fees and ATE insurance premiums.

This case is significant for the court’s warning in relation to post 1 April 2013 cases:

“…in an ordinary case, it will be extremely difficult to persuade a court that inadequacies or mistakes in the preparation of a costs budget, which is then approved by the court, should be subsequently revised or rectified…The courts will expect parties to undertake the costs budgeting exercise properly first time around, and will be slow to revise approved budgets merely because, after the event, it is said that particular items had been omitted or under-valued…any other approach could make a nonsense of the whole costs management regime.” (Paragraph 17).

In Elvanite Full Circle Ltd v AMEC Earth and Environmental (UK) Ltd [2013] EWHC 1643

the High Court refused to allow retrospective budget variation, after the trial had taken place, and placed tight constraints on what would constitute good reason to depart from a budget. In this case the court’s decision could cost the successful defendant £267,000.

Although the Defendant had, in advance of the trial, filed at Court and served on the Claimant a revised budget, it did not make a formal application to vary the Costs Management Order until the trial was concluded.  Coulson J held that the application was made too late, and warned that any such application should be made as soon as it becomes apparent that the budgeted costs have been significantly exceeded.

Pursuant to a CMO the Defendant’s budget had been set initially in Spring 2012 and then increased slightly in January 2013 to £268,488.  In February 2013, the Defendant revised its budget by almost doubling it to £531,946 to account for increased experts’ and counsel’s fees,  and sent it to the Claimant and the Court but did not apply to amend the CMO.  The trial took place in March 2013 and the successful Defendant sought costs of £497,593.

Coulson J held that the Defendant should have sought formal court approval of the revised budget and that such an application “ought to be made immediately it becomes apparent that the original budget costs have been exceeded by a more than minimal amount”.  He described an application to amend an approved budget after judgment at trial as a contradiction in terms:

“First, it would mean that the exercise would no longer be a budgeting exercise, and would instead be based on the actual costs that have been incurred.  Secondly, it would encourage parties to ‘wait and see’; only applying to increase the budget costs if it was in their interests.  Thirdly, it would make a nonsense of the costs management regime if, at the end of the trial, a party could apply to double the amount of its costs budget.  The certainty provided by the new rules would be lost entirely if the parties thought that, after the trial, the successful party could seek retrospective approval for costs incurred far beyond the level approved in the costs management order.”

He added that if he was wrong that an application to amend the CMO should not be entertained after judgment, then at the very least the Defendant would need to demonstrate a good reason why the application was made so late, and in this case the Defendant has failed to do so.

He went on to consider whether in any event there was a good reason to depart from the budget in this case, stating that there was not good reason because the case was not one “which somehow lurched off track after its commencement, or where the issues ended up being very different to those which had originally been canvassed in the pleadings.  Everything went pretty much as it might have been expected to go.  In those circumstances, it seems to me that the general scope for alleging in this case that there is good reason now to depart from the costs management order is relatively limited.”

Coulson J also considered, obiter, whether the CMO would have been rendered irrelevant if he had made an order for indemnity costs:

“Prima facie, whether under PD 51G paragraph 8, or CPR 3.18, the costs management order (with its approval of the costs budget) is expressed to be relevant only to an assessment of costs on a standard basis.  However, as a matter of logical analysis, it seems to me that the costs management order should also be the starting point of an assessment of costs on an indemnity basis, even if the ‘good reasons’ to depart from it are likely to be more numerous and extensive if the indemnity basis is applied.”

The judge’s point was that the approved budget should be the starting point for assessment even where indemnity costs are awarded, so as to eliminate unhelpful uncertainty.

In The Board of Trustees of National Museums and Galleries On Merseyside v AEW Architects and Designers Ltd and Others [2013] EWHC 3025 (TCC) the court adopted the same approach as in Elvanite.

In Mitchell v News Group Newspapers Limited [2013] EWCA Civ 1526, 27 November 2013

the Court of Appeal dismissed the appeal of Mr Mitchell against the refusal of Master McCloud to grant relief from sanctions.

Strictly the appeal was against two decisions, the first being the Master’s decision that as Mr Mitchell had failed to file his costs budget in time he was to be treated as having filed a costs budget comprising only the relevant court fees (CPR 3.14) and the second being the Master’s refusal to grant relief from that sanction.

The costs budget in question totalled £506,425.00 and so, apart from the court fee element, that is the amount potentially lost by Mr Mitchell as a result of this decision. Given that the defendant’s budget was for £589,558.00, this appears to be a realistic figure.

This was the first time the Court of Appeal has ruled “on the correct approach to the revised version of CPR 3.9 which came in to force on 1 April 2013 to give effect to the reforms recommended by Sir Rupert Jackson.”

At paragraph 1 the Court of Appeal said:

“The question at the heart of this appeal is: how strictly should the courts now enforce compliance with rules, practice directions and courts orders?”

Thus the Court of Appeal made no distinction between court orders and rules and practice directions, even though practice directions do not have the force of law and in many instances are hopelessly drafted, as indeed are many of the Jackson-related Civil Procedure Rules.

The Court of Appeal also accepted that the traditional approach of the courts was to excuse non-compliance if any prejudice caused to the other party could be remedied, usually by an appropriate costs order.

Here the budget was filed one day before the Case Management and Costs Budget hearing, that is six days late.

Master McCloud imposed what she described as “a mandatory sanction” of deeming the budget to comprise court fees only.

Master McCloud then dismissed the subsequent application for relief from that sanction.

The Court of Appeal dismissed the technical grounds of appeal, that is whether CPR 3.14 applied by analogy to a pre-1 April 2013 case and whether there was a difference between filing a budget late and not filing one at all.

Thus the issue is the key one set out by the Court of Appeal in paragraph 1 of its decision and which I have set out above.

The Court of Appeal held, correctly and sensibly in my view, that “the considerations to which the court should have regard when deciding whether it should “otherwise order” (CPR 3.14) – “unless the court otherwise orders”) are likely to be the same as those which are relevant to a decision whether to grant relief under CPR 3.9. “In each case, in deciding whether to “otherwise order”, the court must give effect to the overriding objective: see rule 1.2(a)” (Paragraph 32 of the judgment).

The Court of Appeal pointed out (paragraphs 34 and 35) that Sir Rupert Jackson had softened his approach between writing his Preliminary and Final Reports:

“However, I do not advocate the extreme course which was canvassed as one possibility in [the Preliminary Report] paragraph 43.4.21 or any approach of that nature.”

The “extreme course” was that non-compliance would no longer be tolerated, save in “exceptional circumstances”. Instead he recommended that sub-paragraphs (a) to (i) of CPR 3.9 be repealed and replaced by the wording which is now in the new rule, saying that the new form of words:

“does not preclude the court taking into account all of the matters listed in the current paragraphs (a) to (i). However, it simplifies the rule and avoids the need for judges to embark upon a lengthy recitation of factors. It also signals the change of balance which I am advocating.”

In a deeply worrying part of the judgment the Court of Appeal, at paragraph 39, specifically endorsed the approach – “We endorse this approach.” – set out in paragraphs 25 to 27 of the 18^th implementation lecture on the Jackson reforms delivered on 22 March 2013 by the Master of the Rolls.

Before considering what approach has now been endorsed let us look at the genesis of this approach:

• The Court of Appeal, of its own motion and without reference to , or the permission of, Parliament decides to review the civil justice system.

• A judge, Sir Rupert Jackson, immediately elevated to the very same Court of Appeal, is appointed to prepare the report.

• Jackson LJ’s Preliminary and Final Reports are published. The Final Report provokes a storm of criticism unmatched in recent history in relation to any report by a member of the judiciary.

• The Master of the Rolls makes a speech saying how these extremely controversial and socially devisive reforms are to be implemented.

• The Court of Appeal, comprising the Master of the Rolls and two other judges endorses that approach.

As Mandy Rice-Davies would have put it “They would, wouldn’t they?”

Thus the Court of Appeal has decided upon a review of the civil justice system, a Court of Appeal judge has produced a report subject to the most bitter criticism and controversy imaginable, a Court of Appeal Judge gives an implementation speech and the Court of Appeal endorses that speech.

That is not, and never should be, the way we do things in the United Kingdom.

So what approach did the Court of Appeal endorse? The following are quotes from the 18^th implementation speech; and are extensively quoted in the Court of Appeal judgment.

“…Jackson reforms were and are not intended to render the overriding objective, or rule 3.9, subject to an overarching consideration of securing justice in the individual case. If that had been the intention, a tough application to compliance would have been difficult to justify and even more problematic to apply in practice.”

“…the relationship between justice and procedure has changed.”

So, procedure now triumphs over justice, although the Court of Appeal, entirely unconvincingly, denies that.

“The tougher, more robust approach to rule-compliance and relief from sanctions is intended to ensure that justice can be done in the majority of cases. This requires an acknowledgement that the achievement of justice means something different now.”

The Court of Appeal may as well have quoted Alice Through the Looking Glass.

“When I use a word, it means just what I choose it to mean.”

Justice is not a concept that should be changed by diktat of an unelected Court of Appeal judge, or indeed anyone else.

Of the tough approach and the rules and obligations

“…more importantly they serve the wider public interest of ensuring that other litigants can obtain justice efficiently and proportionately, and that the court enables them to do so.”

Given the issues raised in the Mitchell/press/police/Parliament cases it is breathtakingly Orwellian to conceive of depriving Mr Mitchell of the prospect of any costs as in “the wider public interest.”

At paragraphs 40 to 43 the Court of Appeal sets out guidance as to how the new approach should be applied in practice, although this writer takes the view that in this decision the Court of Appeal has NOT followed that guidance.

I set out those paragraphs at the end of this piece.

The court should grant relief if the non-compliance is trivial AND an application is made promptly.

The court should “usually grant relief if there has been no more than an insignificant failure to comply…failure of form rather than substance; or where the party has narrowly missed the deadline imposed by the order, but has otherwise fully complied with its terms.”

Isn’t that what happened here?

The Court of Appeal accepted that the need for solicitors to take on less work “may seem harsh especially at a time when some solicitors are facing serious financial pressures. But the need to comply with rules, practice directions and court orders is essential if litigation is to be conducted in an efficient manner. If departures are tolerated, then the relaxed approach to civil litigation which the Jackson reforms were intended to change will continue.”

The type of acceptable reason may be “that the party or his solicitor suffered from a debilitating illness or was involved in an accident.”

Entirely at odds with logic of its decision the Court of Appeal said:

“We should add that applications for an extension of time made before time has expired will be looked upon more favourably than applications for relief from sanction made after the event.”

I fail to see how that has any relevance to anything. What is the qualitative difference between an application made 6 hours before the deadline and one made 12 hours later?

That is indeed a triumph of procedure over substance, of technicality over justice, of systems over freedom, of rules over liberty.

This is demonstrated by the Court of Appeal’s criticism of Mr Justice Smith for allowing an extension of two days, yes two days, for the service of Particulars of Claim. The Judge had said:

“Nor do I accept that the change in the Rule or a change in the attitude or approach of the courts to applications of this kind means that relief from sanctions will be refused even where injustice would result.”

The Court of Appeal quoted that statement and rejected it:

“51. It seems to us that, in making this observation, the judge was focusing exclusively on doing justice between the parties in the individual case and not applying the new approach which seeks to have regard to a wide range of interests.”

Thus Mr Justice Smith is criticized for making a ruling that avoided injustice in a case of trivial breach.

The terms of the Judicial Oath are

“I do swear by Almighty God that I will well and truly serve our Sovereign Lady Queen Elizabeth the Second…and I will do right to all manner of people after the laws and usages of this realm, without fear or favour, affection or ill will.”

Right has not been done to Mr Mitchell. Right will not be done to many other fellow citizens if this wholly punitive, disproportionate and unjust decision is followed.

Shame on you.

“40. We hope that it may be useful to give some guidance as to how the new approach should be applied in practice. It will usually be appropriate to start by considering the nature of the non-compliance with the relevant rule, practice direction or court order. If this can properly be regarded as trivial, the court will usually grant relief provided that an application is made promptly. The principle “de minimis non curat lex” (the law is not concerned with trivial things) applies here as it applies in most areas of the law. Thus, the court will usually grant relief if there has been no more than an insignificant failure to comply with an order: for example, where there has been a failure of form rather than substance; or where the party has narrowly missed the deadline imposed by the order, but has otherwise fully complied with its terms. We acknowledge that even the question of whether a default is insignificant may give rise to dispute and therefore to contested applications. But that possibility cannot be entirely excluded from any regime which does not impose rigid rules from which no departure, however minor, is permitted.

41. If the non-compliance cannot be characterised as trivial, then the burden is on the defaulting party to persuade the court to grant relief. The court will want to consider why the default occurred. If there is a good reason for it, the court will be likely to decide that relief should be granted. For example, if the reason why a document was not filed with the court was that the party or his solicitor suffered from a debilitating illness or was involved in an accident, then, depending on the circumstances, that may constitute a good reason. Later developments in the course of the litigation process are likely to be a good reason if they show that the period for compliance originally imposed was unreasonable, although the period seemed to be reasonable at the time and could not realistically have been the subject of an appeal. But mere overlooking a deadline, whether on account of overwork or otherwise, is unlikely to be a good reason. We understand that solicitors may be under pressure and have too much work. It may be that this is what occurred in the present case. But that will rarely be a good reason. Solicitors cannot take on too much work and expect to be able to persuade a court that this is a good reason for their failure to meet deadlines. They should either delegate the work to others in their firm or, if they are unable to do this, they should not take on the work at all. This may seem harsh especially at a time when some solicitors are facing serious financial pressures. But the need to comply with rules, practice directions and court orders is essential if litigation is to be conducted in an efficient manner. If departures are tolerated, then the relaxed approach to civil litigation which the Jackson reforms were intended to change will continue. We should add that applications for an extension of time made before time has expired will be looked upon more favourably than applications for relief from sanction made after the event.

42. A similar approach to that which we have just described has been adopted in relation to applications for an extension to the period of validity of a claim form under CPR

7.6. In Hashtroodi v Hancock [2004] EWCA Civ 652, [2004] 1 WLR 3206, this court said that (i) the discretion to extend time should be exercised in accordance with the overriding objective and (ii) the reason for the failure to serve the claim form in time is highly material. At para 19, the court said:

“If there is a very good reason for the failure to serve the claim form within the specified period, then an extension of time will usually be granted….The weaker the reason, the more likely the court will be to refuse to grant the extension.”

43. This approach should also be adopted in relation to CPR 3.9. In short, good reasons are likely to arise from circumstances outside the control of the party in default: see the useful discussion in Blackstone’s Guide to The Civil Justice Reforms 2013 (Stuart Syme and Derek French, OUP 2013) at paras 5.85 to 5.91 and the article by Professor Zuckerman “The revised CPR 3.9: a coded message demanding articulation” in Civil Justice Quarterly 2013 at pp 9 to 11.”

INACCURATE COSTS ESTIMATES

I am grateful to Simon Gibbs for the following extract from his blog of February 17 2015:

“The move from costs estimates to costs budgets has left rather a mess in the rules due to the absence of transitional provisions.

Nevertheless, under the old rules, and to the extent to which the old costs estimate rules continue to apply, the response of receiving parties to objections concerning inaccurate estimates is invariably, in my experience, misplaced.

Receiving parties almost always rely on the guidance given at paragraph 29 of Leigh v Michelin Tyre Plc [2003] EWCA Civ 1766:

“In our view, para 6.6 of the practice direction gives the court the power to take matters such as these into account in deciding whether, and if so how far, to reflect them in determining what costs it is reasonable to order the paying party to pay on an assessment. We do not, however, consider that it would be a correct use of the power conferred by para 6.6 to hold a party to his estimate simply in order to penalise him for providing an inadequate estimate. Thus, if (a) the paying party did not rely on the estimate in any way, (b) the court concludes that, even if the estimate had been close to the figure ultimately claimed, its case management directions would not have been affected, and (c) the costs claimed are otherwise reasonable and proportionate, then in our view it would be wrong to reduce the costs claimed simply because they exceed the amount of the estimate. That would be tantamount to treating a costs estimate as a costs cap, in circumstances where the estimate does not purport to be a cap.”

However, the guidance given in that case concerned an earlier version of CPD 6.6:

“On an assessment of the costs of a party the court may have regard to any estimate previously filed by that party, or by any other party in the same proceedings. Such an estimate may be taken into account as a factor among others, when assessing the reasonableness of any costs claimed.”

The Leigh judgment gave guidance as to how this should be applied in circumstances where the CPD was silent as to the approach to adopt.

Following Leigh, CPD 6.6 was significantly amended:

“(1) On an assessment of the costs of a party, the court may have regard to any estimate previously filed by that party, or by any other party in the same proceedings. Such an estimate may be taken into account as a factor among others, when assessing the reasonableness and proportionality of any costs claimed.

(2) In particular, where –

(a) there is a difference of 20% or more between the base costs claimed by a receiving party and the costs shown in an estimate of costs filed by that party; and

(b) it appears to the court that –

(i) the receiving party has not provided a satisfactory explanation for that difference; or

(ii) the paying party reasonably relied on the estimate of costs;

the court may regard the difference between the costs claimed and the costs shown in the estimate as evidence that the costs claimed are unreasonable or disproportionate.”

The amended CPD did not simply mirror the guidance in Leigh. It went further and produced a more robust test. Although the CPD was, no doubt, amended as a consequence of the Leigh decision, it was not an amendment designed to simply codify the Leigh guidance. Indeed, it is difficult to see that the guidance in Leigh was (or is) of much, if any, relevance, to detailed assessments undertaken after the CPD was amended.”

Recoverability of costs of negotiating costs

In Tasleem v Beverley [2013] EWCA Civ 1805 it was suggested that issuing Part 8 costs-only proceedings was not part of the detailed assessment proceedings and thus such costs fall outside the £1,500 cap for provisional assessment:-

“The bringing of Part 8 costs-only proceedings is not the commencement of, or part of, the detailed assessment proceedings, albeit it is a necessary preliminary to that process if there are no underlying proceedings in existence.”

This raises the issue of work done in relation to negotiating costs prior to Part 8 proceedings being issued and the earlier Court of Appeal decision in Crosbie v Munroe [2003] EWCA Civ 350 was simple and logical. There were two types of costs:-

1. Those costs incurred in relation to the substantive claim.

2. Those costs incurred quantifying the costs of the substantive claim. This would cover all work post-settlement of the substantive claim negotiating costs, dealing with Part 8 proceedings and through the assessment process.

Brooke LJ explained at paragraph 34:

“By this route it is easy to see that even when Part 8 proceedings have to be commenced in order to obtain a court order for detailed assessment, the ‘costs of the proceedings’ within the meaning of CPR 47.19 still relate only to the costs leading up to the disposal (on this occasion by agreement) of the substantive claim. They are ‘the proceedings which gave rise to the assessment proceedings’, and the assessment proceedings cover the whole period of negotiations about the amount of costs payable through the Part 8 proceedings to the ultimate disposal of those proceedings, whether by agreement or court order.”

Some of the difficulties are created by the confusing wording in the CPR and Practice Directions:-

“CPR 46.6

(1) Detailed assessment proceedings are commenced by the receiving party serving on the paying party –

(a) notice of commencement in the relevant practice form; and

(b) a copy of the bill of costs.”

This appears to support the Tasleem decision, that is that issuing Part 8 proceedings is not part of the assessment proceedings, simply a necessary preliminary step. On this analysis, service of the N252 commences the detailed assessment proceedings and work done before this falls outside the process and therefore outside the provisional assessment cap.

However Practice Direction 47 paragraph 5.19 states:-

“The bill of costs must not contain any claims in respect of costs or court fees which relate solely to the detailed assessment proceedings other than costs claimed for preparing and checking the bill.”

Implicit in this is the fact that the costs of drafting the bill are part of the detailed assessment proceedings, even if it is permissible to include these in the bill. Clearly a bill must be drafted before an N252 is served and the only court fee that might normally be incurred before a bill is drafted is the Part 8 issue fee.

This was the reason CPR 47.15(5) was amended from:-

“The court will not award more than £1,500 to any party in respect of the costs of the provisional assessment.”

to the current CPR 47.15(5):-

“In proceedings which do not go beyond provisional assessment, the maximum amount the court will award to any party as costs of the assessment (other than the costs of drafting the bill of costs) is £1,500 together with any VAT thereon and any court fees paid by that party.”

If the costs of drafting the bill were not costs of the assessment then the issue would never have arisen; a bill will always be drafted before it is served with an N252.

The distinction between whether work does or does not fall within the detailed assessment proceedings is made more important by the fact so many cases are now subject to provisional assessment.

Example

A claim settles prior to proceedings being issued with the defendant agreeing to pay the claimant’s costs. The claimant serves a draft bill and the defendant serves draft points of dispute. The claimant serves draft replies. Negotiations continue for several months and then break down and the claimant issues Part 8 proceedings.

An order for costs is made and the bill of costs is formally served.

Can it be argued that all of the work done up until the point at which the bill of costs is formally served falls outside the detailed assessment proceedings, because it pre-dates service of the N252, and therefore the cap of £1,500 does not apply?

If it does then CPR 47.15(5) should be amended accordingly.

Another twist that has arisen in Tasleem can be found at paragraph 13:-

“We have not called upon Mr Mallalieu [for the Claimants] to respond on behalf of the respondents to this appeal, but in his written arguments it is clear that he does not quarrel with the proposition that when there is an underlying claim followed by a notice of commencement of detailed assessment proceedings and a default costs certificate, the recoverable costs are limited to those in the default costs certificate. In such a case, the costs specified in it are apt to cover the additional costs the receiving parties incurred by using the procedure, subject only to the cap of the fixed costs regime.”

If that is correct then the following situation should be considered:-

Proceedings are issued in relation to the substantive claim which settles with the defendant being liable for the claimant’s costs. A bill is informally served and several months of heated negotiations then take place in relation to costs and break down whereupon a bill is formally served.

The defendant fails to file points of dispute and the claimant obtains a default costs certificate.

Are the claimant’s costs limited to those shown on the “default costs certificate” and is nothing recoverable for the months of negotiations?

We now await clarification from the Court of Appeal or the Rules Committee…

COSTS PROTECTION / COSTS CAPPING ORDERS

In Black v Arriva North East Limited [2014] EWCA Civ 1115

the Court of Appeal rejected an application for a costs capping order.

Here, the appellant appealed against a judgment in a disability discrimination case but had not taken out a sufficient level of After-the-Event insurance before such insurance became unrecoverable by virtue of the Legal Aid, Sentencing and Punishment of Offenders Act 2012. Thus any fresh premium, to cover the increased level of cover required, would not be recoverable.

Consequently the appellant sought to have Arriva’s costs capped at £50,000.00.

The Court of Appeal pointed out that this would now apply to all new cases as a result of Parliament ending recoverability of After-the-Event insurance premiums by means of LASPO 2012.

“So the argument could be raised in any appeal brought in respect of a case under that Act. Such a result is difficult to square with the indication in the Practice Direction that an order for costs capping should only be made in exceptional circumstances” (paragraph 12).

The Court of Appeal also pointed out that it is not a function of costs capping orders to remedy the problems of access to finance for litigation. “If for instance, the respondent’s costs were agreed to be proportionate, it would not be possible to exercise any jurisdiction to make a costs capping order simply because without it the appeal would not continue to be financially viable.”

That is because CPR 3.19(5) (b) only allows a costs capping order if “there is a substantial risk that without such an order costs will be disproportionately incurred…”

There were other fact- specific reasons for refusing a costs capping order in this case but they do not establish any new legal principles.

Interestingly one of the submissions made in favour of a costs capping order, but rejected, was that there was a lacuna in the law in that Qualified One-Way Costs Shifting applied in personal injury cases but not Equality Act cases. As this is a disability discrimination claim in relation to the provision of services one would expect damages for injuries to feelings to be available. The issue as to whether such damages are in fact damages for personal injuries, and thus covered by QOCS, does not appear to have been considered in this case.

“Another factor was that the potential subject of the Costs Capping Order – Arriva – had already incurred vastly more costs than £50,000.00 prior to the application being made and therefore the Costs Capping Order would have been retrospective:-

“The effect of what I have described is that by the time of the application, the major part of the solicitor’s costs of the appeal have been incurred. The effect of the order sought would, therefore, be that the respondents will have already spent what is, if the Costs Capping Order is made, in substance a budget laid down by the court without knowing that it had to stick to that insofar as it sought to recover its costs. In principle, the person who is the subject of the Costs Capping Order ought, so far as possible, to know the budget to which he must work in advance.” (Paragraph 25).

Costs Capping and CPR52.9A

In Tidal Energy v Bank of Scotland plc [2014] EWCA Civ 847

the Court of Appeal rejected an application for costs capping in a forthcoming Court of Appeal hearing holding that costs capping is not generally appropriate when costs can be controlled on assessment.

CPR 3.19 reads, where relevant:-

“(5) The court may at any stage of proceedings make a costs capping order against all or any of the parties, if –

(a) it is in the interests of justice to do so;

(b) there is a substantial risk that without such an order costs will be disproportionately incurred; and

(c) it is not satisfied that the risk in subparagraph (b) can be adequately controlled by –

(i) case management directions or orders made under this Part; and

(ii) detailed assessment of costs.”

Here the applicant applied for a costs capping order to provide that it would not have to pay the costs of leading counsel to be engaged by its opponent.

The Court of Appeal considered that the test in CPR 3.19 was not satisfied and that the costs of leading counsel could be disallowed on assessment if the court felt leading counsel to be an “unnecessary luxury”.

The Court of Appeal thus followed the decision in Eweida v British Airways Plc [2009] EWCA Civ 1025.

Comment

The problem with after-the-event costs control – that is by detailed assessment – is that a party will not know until the end of the case, when by definition it is too late, what costs bill it will face.

Thus a rich party can make it clear that it will incur very significant costs and use this as a threat to encourage a party to settle. This is a particular risk where the “poor” party has won at first instance (not the case here) where the rich party can use the threat of the costs of an appeal to intimidate financially the poorer party.

This is the role that CPR 52.9A is designed to remedy, but only where the appeal is from a jurisdiction where recoverable costs in the court below are limited or nil, for example employment tribunals and the Employment Appeal Tribunal.

That CPR 52.9A applies only to such cases was confirmed in

JE (Jamaica) v Secretary of State for the Home Department [2014] EWCA Civ 192

“52.9A

(1) In any proceedings in which costs recovery is normally limited or excluded at first instance, an appeal court may make an order that the recoverable costs of an appeal will be limited to the extent which the court specifies.

(2) In making such an order the court will have regard to –

(a) the means of both parties;

(b) all the circumstances of the case; and

(c) the need to facilitate access to justice.

(3) If the appeal raises an issue of principle or practice upon which substantial sums may turn, it may not be appropriate to make an order under paragraph (1).

(4) An application for such an order must be made as soon as practicable and will be determined without a hearing unless the court orders otherwise.”

Patents County Court – Caps

Patents County Court cases are subject to costs caps of £50,000 on the final determination of liability and £25,000 on an inquiry as to damages or account of profits.

In Azzurri Communications Limited v International Telecommunications Equipment Limited trading as SOS Communications [2013] EWPCC 22, 16 April 2013

the successful claimant argued that as the trial included a determination of liability and a decision on quantum he was entitled to £75,000, being the sum of both caps.

The court disagreed, holding that where there was only one set of proceedings with one trial then only one cap, that of £50,000, applied. The rules only contemplated separate caps if there were separate proceedings.

Patents County Court – Conditional Fee Agreements

In Jodie Henderson v All Around The World Recordings Limited [2013] EWPCC 19, 27 March 2013

the claimant had entered into a conditional fee agreement with her solicitor and had taken out after-the-event insurance.

The issue was whether those recoverable additional liabilities came within the cap, or were in addition to it.

The court held that “costs” included additional liabilities, both within the cap and by reference to scale costs and therefore no additional liabilities were recoverable.

Costs Free Zones

In The Manchester College v Hazel and another [2013] EWCA Civ 281

the Court of Appeal held that the claimants, who were resisting an appeal from their win in both the Employment Tribunal and the Employment Appeal Tribunal, were entitled to a costs protection order, that is an order that whatever the outcome of the appeal there be no order for costs.

Generally the Court of Appeal is free to impose such an order as a condition of granting leave to appeal (CPR 52.3(7)). However, here the application was retrospective, that is after leave to appeal had been given, and in those circumstances, in a pre-Jackson application there had to be a “compelling reason” to so order.

That was old CPR 52. The new CPR 52.9, in force from 1 April 2013, provides that where justice so requires the court could exclude or limit costs recovery where a case has passed from a “no costs” or “low costs” jurisdiction to a court with full costs-shifting powers.

Lord Justice Jackson decided the case under the old law and found that there was a compelling reason, but part of his reason for so finding was that the claimants could simply have waited until 1 April 2013 and made a fresh application which was bound to succeed under the new rule, designed precisely for cases such as this.

The Court of Appeal made it clear that the new rule has a wider application than just appeals from the Employment Appeal Tribunal to the Court of Appeal (paragraph 33).

At paragraph 30 the court said:

“Many individuals of modest means who litigate in “no costs” jurisdictions are often without legal representation. It is usually unjust to subject such litigants to a risk of adverse costs when they proceed to a higher level. This is particularly so if they win at first instance and are dragged unwillingly into an appeal. It may also be unjust to impost a costs risk if the litigant loses at first instance, but has proper grounds for bringing an appeal.”

THE FUTURE OF COSTS BUDGETING

“I can’t go back to yesterday because I was a different person then.”

Lewis Carroll, Alice’s Adventures in Wonderland

In his keynote speech at the “Costs Law and Practice” Conference On 30 September 2014, Lord Justice Jackson, stated that

“The time has now come to take stock and to develop a scheme for fixed costs in the lower reaches of the multi-track. Such a scheme may be particularly welcome now, because it will dispense with the need for costs management and costs budgeting in cases valued at less than £250,000. At the same time litigants will have certainty as to (a) their costs exposure if they lose and (b) their future costs recovery if they win.”

Approval has recently been given to the new J-Codes. These are integral to future case management software that will be used for drafting of costs budgets, costs schedules and bills of costs. The primary aim of the new J-Codes is to enable the courts in England and Wales to summarise and analyse time worked and costs incurred by lawyers during a litigation case.

The new bill of costs format will mirror the various phases that appear within costs budgets so that it will therefore be possible to see whether there has been an overspend in any phase.

However the new J-Codes are not intended to be mandatory. Alexander Hutton QC, who sits on the committee who is developing the new bill of costs format has stated

“All that is planned is that there will be a model bill of costs in the relevant Practice Direction just like there is now but which will be our committee’s recommended bill based on the J-Code time recording system (although it will be able to construct from scratch not having used the J-Codes, just as now).”

The idea is that a firm’s time recording system will generate both a Precedent H form and a bill of costs, where the bill can easily be compared to whatever was allowed in the approved budget in relation to each phase of work.

Unfortunately this is not expected to be ready for another 12 to 18 months but what is clear is that costs budgeting is here to stay.

SPREAD OF COSTS BUDGETING

There is pressure for costs budgeting to be introduced in Court of Protection cases – see the judgment of Mr. Justice Peter Jackson in A and B (Court of Protections: Delay and Costs) [2014] EWCOP 8 and in the Family Court – see the judgment in J v J [2014] EWHC 3654 (Fam).

LINKS

Precedent H and Guidance Notes:

1. Guidance Notes on Precedent H

2. Precedent H

For some useful guidance on dealing with Precedent H and costs budgeting in general see Gordon Exall’s blogs:

1. Costs Management Hearings and Form H: Practical Guidance and a Useful Schedule.

2. Costs Budgeting, Case Management & Technology: Useful Documents & Free Bundle Preparation for Case Management Hearings.

3. Precedent H and Costs Budgeting: New Links and Old Links

4. Precedent H: Pulling It All Together: Links To The Useful Posts On Costs Budgeting

5. Updated Guidance: Links To Help In Completing Precedent H and Costs Budgeting

Other links:

1. Consultation Paper – Costs Budgeting and Costs Management

2. Litigation Committee response to the Civil Procedure Rule Committee’s consultation on costs budgeting and costs management

Comments on previous blog

Peter Hall: Kerry can you comment on the continued practice of Defendant’s filing Notices of Funding seeking success fees on CCFA’s entered as long as 2009. It would appear that they can charge inter partes a success fee despite the April changes forever more! That said so might trade unions and other commercial claimant organisations but the ability to charge a success fee would have to be budgeted appropriately.

Kerry’s reply:

The much publicized increase in civil court fees took place on Monday 9 March 2015. Set out below is the draft Statutory Instrument which contains the fees.

There then follows a piece on Court Fee Remission and links to Form EX160 application form for remission, and to Guidance Notes: Court and Tribunal Fees – Do I have to pay them?

Fees in Employment Tribunals were introduced by The Employment Tribunals and the Employment Appeal Tribunal Fees Order 2013.

2015 No. (L. )

Senior Courts Of England And Wales

County Court, England And Wales

 Family Proceedings, England And Wales

The Civil Proceedings and Family Proceedings Fees (Amendment) Order 2015

Made                                                                                                ***

Coming into force in accordance with article 1

The Lord Chancellor, with the consent of the Treasury, makes the following Order in exercise of the powers conferred by section 92(1) and (2) of the Courts Act 2003(1) and section 180(1) of the Anti-social Behaviour, Crime and Policing Act 2014(2).

The Lord Chancellor has had regard to the matters referred to in section 180(3) of the Anti-social Behaviour, Crime and Policing Act 2014. The Lord Chancellor has consulted in accordance with section 92(5) and (6) of the Courts Act 2003.

A draft of this Order was laid before Parliament and approved by resolution of each House of Parliament in accordance with section 180(7) of the Anti-social Behaviour, Crime and Policing Act 2014.

Citation and commencement

1. This Order may be cited as the Civil Proceedings and Family Proceedings Fees (Amendment) Order 2015 and comes into force on 1st March 2015 or, if later, the next Monday after the day on which the Order is made.

Amendments to the Civil Proceedings Fees Order 2008

2.—(1) The Civil Proceedings Fees Order 2008(3) is amended as follows.

(2) In article 5 (remissions and part remissions), for paragraph (2)(a), substitute—

“(a) fee 1.2 if the fee relates to proceedings to recover a sum of money in cases brought by Money Claim OnLine users; or”

(3) In Schedule 1 (fees to be taken), for the column headers and for the text (in both columns) from “1. Starting proceedings (High Court and County Court)” to the end of the entry headed “Fees 1.1, 1.2 and 1.3”, substitute—

(4) In Schedule 1 (fees to be taken), for the entry in column 2 (amount of fee) corresponding to fee 2.1 (a) (case on the multi track) substitute “£1090”.

(5) In Schedule 1 (fees to be taken) for the entry in column 2 (amount of fee) corresponding to fee 2.1 (b) (case on the fast track) substitute “£545”.

Amendment to the Family Proceedings Fees Order 2008 3.—(1) The Family Proceedings Fees Order 2008(4) is amended as follows.

(2) In Schedule 1 (fees to be taken) for the entry in column 2 (amount of fee) corresponding to fee 1.2 (application for divorce etc), substitute “£410”.

EXPLANATORY NOTE

(This note is not part of the Order) This Order amends the Civil Proceedings Fees Order 2008 (S.I. 2008/1053) and the Family Proceedings Fees Order 2008 (S.I. 2008/1054).

Article 2(3) increases the fee (Fee 1.1) for starting proceedings to recover money where the sum exceeds £10,000 and alters the basis on which that fee is calculated. The fee is 5% of the amount claimed. Article 2(3) also merges two existing fees (Fees 1.2 and 1.3) which apply to starting proceedings by users of the County Court Business Centre and Money Claims Online. In those cases, the fee for starting proceedings where the sum exceeds £10,000 is 4.5% of the amount claimed.

Article 2(2) makes a minor amendment to the provision identifying exceptions from the provisions for remission to reflect the altered number of the fee for starting proceedings electronically by the Money Claims OnLine facility.

Articles 2(4) and (5) and 3 prescribe afresh, without altering the amount, three fees set before the enactment of section 180 of the Anti-social Behaviour, Crime and Sentencing Act 2014 (c. 12). Those three fees currently recover more than the costs of providing the service.

A full impact assessment accompanies this instrument.

COURT FEE REMISSIONS

The whole question of court fee remissions has just become much more important with the massive increase in court fees – effective 9 March 2015 – implemented by The Civil Proceedings and Family Proceedings Fees (Amendment) Order 2015.

To be eligible for a fee remission you must pass two tests, the disposable capital test and the gross monthly income test, and fill out Form EX160. Only the person who has to pay the court or tribunal fee can make a fee remission application. However, there are two exceptions to this rule:

• applications to the Court of Protection on behalf of ‘P’ (a ‘person’ who lacks the capacity to make decisions); or

• any person acting for or representing a child involved in legal action.

In the case of a litigation friend, they may sign Form EX160 on behalf of the claimant but the application must be made in the name of, and for the benefit of, the claimant, not the litigation friend.

Disposable capital test

The disposable capital test:

For people 61 years or older there is a single disposable capital limit of £16,000, regardless of the amount of the court fee.

Gross monthly income test

The gross monthly income test:

Remission 1: You will receive a full fee remission if you are in receipt of one of the means-tested benefits listed below:

• Income-based Jobseeker’s Allowance.

• Income-related Employment and Support Allowance.

• Income Support.

• Universal Credit with gross annual earnings of less than £6,000.

• State Pension Credit guarantee credit.

The court or tribunal will need to see original and official evidence that you are in receipt of one of these benefits.

Remission 2: If you and (if applicable) your partner’s gross monthly income is below these thresholds then you will receive a full fee remission:

If your gross monthly income exceeds the above figures you may still receive a partial fee remission. For every £10 of income you have over the threshold set out in the above table, you will be required to pay £5 towards your court or tribunal fee. The court or tribunal will calculate whether you are required to pay a contribution towards the fee – known as a partial remission.

If your gross monthly income is over the below figures, or your expected contribution is higher than the fee required, you will not be eligible for a fee remission:

Employment tribunals

In Dozie v Addison Lee plc (2013) UKEAT/0328/13, [2013] ICR D38, [2013] All ER (D) 172 (Sep), the EAT held that it can hear an appeal without a fee being paid or a fee remission granted as an appeal is properly instituted at the point it is presented. Although this was an urgent appeal, the logic is that the EAT is free to hear a non-urgent appeal in such circumstances.

Given that a claimant appellant will have forked out £1,200 to have the employment tribunal claim heard and £400 for the initial EAT sift, that is £1,600 before the appeal is even listed, the EAT may become a bit charitable about the payment of a further £1,200 for the appeal hearing. After all, it is hard to see the EAT surviving on the small number of appeals that it will be receiving.

This particular reform is very significant as it has proved what many of us were saying, that the Jackson reforms are about attacking access to justice and removing the ability of ordinary people to resolve disputes in the courts, rather than any grand scheme to improve the court and tribunal system.

This has been confirmed by the massive increase – over 600% in some cases – in court issue fees which come in to place on 9 March 2015.

Court Fee remissions

The whole question of court fee remissions has just become much more important with the massive increase in court fees – effective 9 March 2015 – implemented by The Civil Proceedings and Family Proceedings Fees (Amendment) Order 2015.

To be eligible for a fee remission you must pass two tests, the disposable capital test and the gross monthly income test, and fill out Form EX160. Only the person who has to pay the court or tribunal fee can make a fee remission application. However, there are two exceptions to this rule:

• applications to the Court of Protection on behalf of ‘P’ (a ‘person’ who lacks the capacity to make decisions); or

• any person acting for or representing a child involved in legal action.

In the case of a litigation friend, they may sign Form EX160 on behalf of the claimant but the application must be made in the name of, and for the benefit of, the claimant, not the litigation friend.

The fee remission scheme is based on two tests:-

• Disposable capital test;
• Gross monthly income test;

You will have to pass both tests in order to be eligible for a fee remission.

DISPOSABLE CAPITAL TEST

In order to pass the Disposable capital test, this is the first test that must be passed, you must have a disposable capital of below the following thresholds and if you do then you will pass the disposable capital test and can continue to the gross monthly income test.

For people 61 years or older there is a single disposable capital limit of £16,000, regardless of the amount of the court fee.

If you have disposable capital equal to or more than the relevant threshold you will not be eligible for a fee remission and will be required to pay the fee in full.

The Ministry of Justice states that disposable capital is:-

“the value of savings, investments and so on which you and your partner (if you have one) have on the date the application is made. It does not include wages or benefits. However, if you are bringing proceedings with a contrary interest, do not include the value of your partner’s disposable capital, or any capital held jointly by you or your partner (for example, a joint savings account).”

Examples of disposable capital are as follows:-

• capital held in any type of saving account(s); for example:
  • all ISAs;

• fixed rate bonds
• market linked investment bonds or savings; or
• any other form of savings account.

• any type of redundancy capital payment received;

• stocks or shares;

• any jointly held capital (where one or more parties have a financial interest in a disposable capital source);

• second homes;

• trust funds (where accessible), or any other fund available to you;

• any type of disposable capital held outside the UK;

• any type of capital financial product (for example, unit trusts, an OEICs/Open-Ended Investment Company, or derivatives

The following should not be included when calculating disposable capital:-

• Bereavement Payment;
• Self employed businesses – the capital value of your or (if you have one) your partner’s business;
• Criminal Injuries Compensation Scheme;
• First homes (the main property where you live);
• Home contents (for example, furniture or clothing);
• Independent Living Fund;
• Insurance contracts – the cash value of (for example, life insurance);
• Jobseeker’s Back to Work Bonus;
• Lump sum payments made on illness, disability or death from insurance or endowment policies (all other insurance or endowment payments are considered);
• Medical negligence or personal injury awards;
• Personal or occupational pension schemes (the cash value of);
• Student loans or student grants;
• Sure Start Maternity Grants;
• Tools and implements of trade (including vehicles used for business purposes);
• Trust funds, and any other fund available, which you or (if you have one) your partner, cannot access or receive advances from;
• Unfair dismissal awards;
• Vehicles (for example, cars or vans) – the sale of which would leave you or your partner without transport

If you pass the disposable capital test then you can continue to the gross monthly income test which will also need to be passed in order to be eligible for a full or part remission.

However, if you do not pass this test, that is the disposable capital test, then you are not eligible for any fee remission and you do not need to consider the Gross monthly capital test.

GROSS MONTHLY INCOME TEST

There are two types of fee remission and you have to pass both tests in order to be eligible for a fee remission:-

• Remission 1 – you will receive a full remission of a court or tribunal fee if you receive one

of the following benefits:-

• Income-based Jobseekser’s Allowance;
• Income-related Employment and Support Allowance;
• Income Support;
• Universal Credit – with gross annual earnings of less than £6,000.00;
• State Pension – Guarantee Credit;
• Scottish Civil Legal Aid; or
• Remission 2 – you will receive a full remission if your gross monthly income is below the following thresholds:-

If your gross monthly income exceeds the above figures you may still receive a partial fee remission. For every £10 of income you have over the threshold set out in the above table, you will be required to pay £5 towards your court or tribunal fee. The court or tribunal will calculate whether you are required to pay a contribution towards the fee – known as a partial remission.

If your gross monthly income is over the below figures, or your expected contribution is higher than the fee required, you will not be eligible for a fee remission:

You do not have to include the following benefits as part of your gross monthly income:-

Exceptional Circumstances

If a fee remission application is refused and you can prove that an unexpected and exceptional event has occurred that has seriously affected your ability to pay a court or tribunal fee, then you may not have to pay a court or tribunal fee as the Delivery Manager has the power to grant a full or part remission.

The Delivery Manager is the only person who can make this decision and it is based on the information given to the court or tribunal at the time the court or tribunal fee is due. The Delivery Manager’s decision is final and cannot be appealed.

Examples of exceptional circumstances may be when:

• payment of a fee would mean non-payment of an essential service or utility bill (for example, water or gas) that is likely to lead to the service being cut off;
• payment of a fee would mean non-payment of rent or mortgage amounts that are overdue, which could lead to you being made homeless;
• you have personal responsibility for caring for a dependent adult and that care can only be paid for from your own resources;
• you have suffered unexpected and sudden personal and financial loss or expense due to the death of a close family member or dependent relative; or
• you cannot pay the fee due to uninsured loss or damage to personal belongings as a result of fire, flood, theft or criminal damage

Case Law

 In the Nursing and Midwifery Council v Daniels [2015] EWCA Civ 225

the Court of Appeal emphasised the need for exceptional circumstances before a party will succeed in obtaining an extension of time in relation to a statutory time limit for appealing.

This was an appeal against a decision of the Nursing and Midwifery Council and the statutory time limit is 28 days. The deadline was 8 March 2014; Ms Daniels did not contact her solicitors until 7 March 2014 and the Notice of Appeal was lodged on 11 March 2014.

The first instance judge concluded that Ms Daniels’ inability to find £235.00 to pay the court fee in time constituted a good reason for the delay. Taking into account that the period of delay was only three days and that the Nursing and the Midwifery Council had not suffered any particular prejudice, the judge held that there were exceptional circumstances which enabled the court to extend time.

The rules here, unlike, for example, the Civil Procedure Rules and the Employment Appeal Tribunal Rules, do not make any provision for extension of the time limit for appeal.

The Court of Appeal overturned the first instance decision, holding that there was no discretion to do otherwise on the facts of the case.

There was no evidence that Ms Daniels had been unable to raise the court fee. During February and March 2014 no one had given any consideration to the question of whether Ms Daniels was entitled to remission of the court fees. It appeared that she was.

However the Court of Appeal said that in case it was wrong on those factual findings it would consider the matter on the same factual basis that the first instance judge did. It would still have overturned the decision as there is no power, other than in exceptional circumstances, to override the 28 day limit.

The significance of the decision is in what is effectively double obiter guidance; that is had the facts been found by the judge been correct and had there been a general discretion to extend time, as there is under the Civil Procedure Rules and the Employment Appeal Tribunal Rules, then the Court of Appeal “could not fault the judge’s exercise of that discretion.”

This decision was given as the up to 600% hike in court fees came in. The Court of Appeal is clearly suggesting that failure to raise a court fee in time may be a good ground for extension, including retrospective extension, of a time limit.

Amending the Claim Form

Under CPR 17.1(1) a party may amend the Statement of Case at any time before it has been served on any other party.

Pre-service amendment does not require permission of the court and does not require the written consent of all the other parties. One or the other is required once the Statement of Case has been served.

Thus on the face of it you could put in a figure of, say, £50,000.00 and pay the court fee on that basis and then amend that Statement of Case to say £200,000.00 prior to service.

My view is that the court does have the power to order you to pay the increased fee, but it may buy time.

However Part 22 requires amendments to the Statement of Case, whether made prior to service or after service, to be verified by a Statement of Truth unless the court orders otherwise. Thus the default position is that you must verify the amendment by a Statement of Truth. That could be problematic as you would have to explain why the position had changed in a relatively short time. In my view the court would have the power to dismiss the case as an abuse of process.

REFUNDS

A fee remission can be applied for before the case is issued or a refund can be applied for following payment of the court fee.

However, the time limit in which a refund of a court fee can be applied for is stated as within six months of paying the fee in Schedule 2 of The Civil Proceedings Fees Order 2008 and within three months of paying the fee on page 19 of the HM Courts & Tribunals Service’s own guidance on EX160.

Schedule 2 of The Civil Proceedings Fees Order 2008 states:-

“Refunds

9.—

1. Subject to sub-paragraph (3), where a party has not provided the documentary evidence required by paragraph 7 and a fee has been paid at a time when, under paragraphs 2, 3 or 4, it was not payable, the fee will be refunded if documentary evidence relating to the time when the fee became payable is provided at a later date.
2. Subject to sub-paragraph (3), where a fee has been paid at a time where the Lord Chancellor, if all the circumstances had been known, would have reduced or remitted the fee under paragraph 8, the fee or the amount by which the fee would have been reduced, as the case may be, will be refunded.
3. No refund will be made under this paragraph unless the party who paid the fee applies within 6 months of paying the fee.
4. The Lord Chancellor may extend the period of 6 months mentioned in sub-paragraph (3) if the Lord Chancellor considers that there is a good reason for an application being made after the end of the period of 6 months.

The HM Courts & Tribunals Service’s own guidance on EX160 and page 19 states:-

“For all courts and tribunals: You can apply for a refund (known as a retrospective application) if you have paid a court or tribunal fee within the last three months and can prove you would have been granted a remission at the time you paid the fee.”

It is also noted that the Courts will only be issuing retrospective remission where the individual applicant has paid the court fee and thus where a solicitor has paid the court fee then no retrospective fee remission can be made.

House of Commons Committee of Public Account – Legal Aid

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, received 1,520 applications in the first year after the legal aid reforms against an estimate of 5,000 to 7,000, but only 69 cases were approved. The Ministry could not explain why applications were below expected levels but the legal aid providers consulted by the National Audit Office said that the complexity of the exceptional case funding scheme made it very difficult for people to apply.

Mesothelioma Victims

Victims of mesothelioma that are unable to trace an insurer for the employer responsible for the exposure to asbestos were left without a remedy until the passing of the Mesothelioma Act implemented by The Diffuse Mesothelioma Payment Scheme Regulations 2014 S.I. 916 made under section 1 and section 17(4) of the Act.

Eligible individuals may now apply for compensation packages worth an average of £123,000.00.

If your application is successful, the Scheme will pay you a fixed fee of £7,000 out of which you can pay your solicitor’s fee. If you incur legal costs of less than £7,000 you are entitled to keep the difference. If your legal costs exceed £7,000, you will be liable to make up the difference.

This compensation will not affect the disposable capital of an individual, when considering fee remission, as medical negligence or personal injury awards are specifically excluded from an individual’s disposable capital.

Employment tribunals

Employment Tribunal Fees

Fees in Employment Tribunals were introduced by The Employment Tribunals and the Employment Appeal Tribunal Fees Order 2013:

• Employment Tribunal

The order divides claims to the Employment Tribunal into ‘Type A’ and ‘Type B’.

Under Schedule 2 of the Order Type A claims are:

1. Application by the Secretary of State to prohibit a person from running an Employment Agency.
2. Application by a person subject to a prohibition order to vary or set it aside.
3. Appeal against improvement or prohibition notice.
4. Appeal against assessment of training levy.
5. Complaint of deduction of unauthorised subscriptions.
6. Complaint relating to failure to deduct or refuse to deduct an amount to a political fund.
7. Complaint that an employer has failed to permit time off for carrying out trade union duties.
8. Complaint that an employer has failed to permit time off for union learning representatives.
9. Complaint that an employer has failed to pay for time off for union learning representatives.
10. Complaint that an employer has failed to permit time off for trade union activities.
11. Complaint that employer has failed, wholly or in part, to pay remuneration under a protective award.
12. Complaint that the Secretary of State has not paid, or has paid less than, the amount of relevant contributions which should have been paid into a pension scheme.
13. Breach of contract, except where the employer’s contract claim is made made by way of application as part of the employer’s response to the employee’s contract claim (as to which, see instead article 4 and Schedule 1 to this Order).
14. Reference to determine what particulars ought to be included in a statement of employment particulars or changes to particulars.
15. Reference to determine what particulars ought to be included in an itemised pay statement.
16. Complaint of unauthorised deductions from wages.
17. Complaint that employer has received unauthorised payments.
18. Complaint that employer has failed to pay guaranteed payment.
19. Complaint that employer has failed to permit time off for public duties.
20. Complaint that employer has refused to permit, or has failed to pay for, time off to look for work or arrange training.
21. Complaint that employer has refused to allow, or has failed to pay for, time off for ante-natal care.
22. Complaint that employer has refused to allow time off for dependants.
23. Complaint that employer has failed to allow, or to pay for, time off for trustee of pension scheme.
24. Complaint that employer has failed to allow, or to pay for, time off for employee representative.
25. Complaint that employer has failed to allow, or to pay for, time off for young people in Wales and Scotland.
26. Complaint that employer has failed to pay for time off on medical or maternity grounds.
27. Complaint that employer has failed to allow time of for studies or training or the refusal is based on incorrect facts.
28. Complaint that employer has unreasonably failed to provide a written statement of reasons for dismissal or the particulars are inadequate or untrue.
29. Reference in respect of a right to redundancy payment.
30. Reference related to payment out of National Insurance Fund.
31. References related to payments equivalent to redundancy payments.
32. Complaint that the Secretary of State has failed to make any, or insufficient, payment of out the National Insurance Fund.
33. Appeal against a notice of underpayment.
34. Appeal against a notice issued by the Commission for Equality and Human Rights where the notice relates to an unlawful act.
35. Complaint that prospective employer made enquiries about disability or health.
36. Application in relation to the effect of a non-discrimination rule in an occupational pension scheme.
37. Complaint in relation to a breach of a sex equality clause.
38. Complaint in relation to a breach of, or application in relation to the effect of, a sex equality rule in an occupational pension scheme.
39. Complaint in relation to a breach of a maternity equality clause.
40. Complaint in relation to a breach of, or application in relation to the effect of, a maternity equality rule in an occupational pension scheme.
41. Complaint in relation to terms prohibiting discussions about pay.
42. Complaint that a term in a collective agreement is void or unenforceable.
43. Appeal of decision of compensating authority.
44. Complaint that employer has failed to pay for remunerated time off for safety representative.
45. Reference that there has been a failure to consult with employee representatives about contracting out of pension scheme.
46. Complaint that employer has failed to pay for time off to carry out Safety Representative duties or undertake training.
47. Complaint that employer has refused to allow annual leave, compensation, payment, compensatory rest.
48. Appeal against improvement or prohibition notice.
49. Complaint in relation to refusal of annual leave or to make payment.
50. Complaint in relation to refusal to provide paid annual leave.
51. Complaint in relation to failure to provide free health assessments.
52. Complaint in relation to refusal of annual leave or to make payment.
53. Complaint that employer has refused to allow or failed to pay for time off for information and consultation or negotiating representatives.
54. Appeal against improvement notice.
55. Complaint in relation to failure of employer to inform or consult.
56. Complaint that employer has failed to allow, or pay for, time off for functions as employee representative.
57. Complaint that employer has failed to allow, or pay for, time off for members of special negotiating body
58. Complaint that employer has failed to allow, or pay for, time off for members of special negotiating body
59. Appeal against notice from Health and Safety Executive or a local authority
60. Reference to determine what particulars ought to be included in an itemised statement of stipend
61. Reference to determine what particulars ought to be included in a statement of particulars or changes to particulars
62. Complaint that employer has failed to allow, or pay for, time off for members of special negotiating body

Type A claims carry the following fees:

Type B claims are not defined by the Order. They carry the following fees:

There is also a fee of £600 is payable by the respondent for judicial mediation which applies to both claim types.

• Employment Appeal Tribunal

Appeals to the Employment Appeal Tribunal are not categorised.

The order sets fees of:

Fee Remissions

To be eligible for a fee remission you must pass two tests, the disposable capital test and the gross monthly income test, and fill out Form EX160.

Only the person who has to pay the court or tribunal fee can make a fee remission application. However, there are two exceptions to this rule:-

• applications to the Court of Protection on behalf of ‘P’ (a ‘person’ who lacks the capacity to make decisions); or
• any person acting for or representing a child involved in legal action.

In the case of a litigation friend, they may sign Form EX160 on behalf of the Claimant but the application must be made in the name of, and for the benefit of, the Claimant, not the Litigation Friend.

Disposable capital test

The disposable capital test:

For people 61 years or older there is a single disposable capital limit of £16,000, regardless of the amount of the court fee.

The gross monthly income test:

Remission 1:

You will receive a full fee remission if you are in receipt of one of the means-tested benefits listed below:-

• Income-based Jobseeker’s Allowance
• Income-related Employment and Support Allowance
• Income Support
• Universal Credit with gross annual earnings of less than £6,000
• State Pension Credit guarantee credit

The court or tribunal will need to see original and official evidence that you are in receipt of one of these benefits.

Remission 2: If you and (if applicable) your partner’s gross monthly income is below these thresholds then you will receive a full fee remission:

If your gross monthly income exceeds the above figures you may still receive a partial fee remission. For every £10 of income you have over the threshold set out in the above table, you will be required to pay £5 towards your court or tribunal fee. The court or tribunal will calculate whether you are required to pay a contribution towards the fee – known as a partial remission.

If your gross monthly income is over the below figures, or your expected contribution is higher than the fee required, you will not be eligible for a fee remission:

In Dozie v Addison Lee plc (2013) UKEAT/0328/13, [2013] ICR D38, [2013] All ER (D) 172 (Sep), the EAT held that it can hear an appeal without a fee being paid or a fee remission granted as an appeal is properly instituted at the point it is presented. Although this was an urgent appeal, the logic is that the EAT is free to hear a non-urgent appeal in such circumstances.

Given that a claimant appellant will have forked out £1,200 to have the employment tribunal claim heard and £400 for the initial EAT sift, that is £1,600 before the appeal is even listed, the EAT may become a bit charitable about the payment of a further £1,200 for the appeal hearing. After all, it is hard to see the EAT surviving on the small number of appeals that it will be receiving.

This particular reform is very significant as it has proved what many of us were saying, that the Jackson reforms are about attacking access to justice and removing the ability of ordinary people to resolve disputes in the courts, rather than any grand scheme to improve the court and tribunal system.

This has been confirmed by the massive increase – over 600% in some cases – in court issue fees which come in to place on 9 March 2015.#FootnoteB

EMPLOYMENT COSTS

In Sud v London Borough of Ealing [2013] EWCA Civ 949

the Court of Appeal upheld an employment tribunal order that a claimant, who had been successful in part, should pay 50% of the respondent’s costs.

The total, subject to detailed assessment in the County Court, is estimated at £100,000, resulting in the claimant having a potential liability of £50,000.

PETITION

To sign the online petition to stop the Court Fee increases see my blog COURT FEES PETITION! and sign here.

ALL COURT FEES

A full list of the court fees can be found here.

COMMENTS ON PREVIOUS BLOGS:

Beth King: Just sent off a fee remission for a £10K fee. The Action Department rang to ask what our funding arrangement is and insisted I tell them in writing that we’re on a CFA.

Why is it any of their business how the claimant is funding the claim? He is on benefits and entitled to the remission so why the extra hurdle? I suspect it’s data collecting for Grayling in the hope he will get proof that most claimants aren’t paying. If that were actually the case, why put the fees up at all?!!

Kerry’s reply: That is plain illegal – who do these people think they are?

I agree -court fee remission has nothing to do with whether client on CFA or not. part of the reason for putting fees up was to reduce claims, and it has that effect whether the client or the solicitor is paying. Very obviously if fees go up 600% solicitors can only afford to fund one sixth of the court issue fees compared with before.

Also suspect MoJ will try and disallow fee remission where client is on CFA – see government’s response to consultation.

None of this has anything to do with saving or making money. It is about stopping people bringing claims. Difficult to repeal laws that give people fundamental rights; far easier to close the court doors to those people, and that is what is happening.

Kerry

Phil Watters: Dear Kerry

I am sure you agree that these court fees are just another assault on small to medium sized solicitors and are aimed at denying justice for all but the wealthy.

Wouldn’t it be refreshing if the profession and the insurers just put their heads together(for once) and agreed not to take limitation issues etc and parties agreed not to issue for 12 or 18 months.It wouldn’t take long before the court system was brought to its knees as there would be no court fees coming in at all.

Sadly our profession is unlikely to ever get its act together in order to properly influence government and by the time it does only the big players will be left.Governments seem interested in city lawyers and big business only.Apparently litigation is optional when you are left seriously injured and poor-see quote below:

But the minister, Lord Faulks, was unmoved, describing litigation as “very much an optional activity” and court fees as “recoverable from any defendant in the event of a successful claim. They are a disbursement and cannot be challenged.”

Would value your views on this.I think we as a profession need to take a stand-what happened to the right to a fair trial?

Cheers

Phillip Watters
Partner
QualitySolicitors J W Hughes & Co
27 Augusta Street | Llandudno| Conwy | LL30 2AE
T 01492 874774 | F 01492 879750 | DX 11355 LLANDUDNO

Kerry’s reply: Philip

Many thanks for your comment concerning court fees and I agree entirely that the increase is a deliberate attack on small and medium sized firms of solicitors, as well as their clients, to prevent ordinary people obtaining justice.

It is far easier to close the doors of the court to people than it is to repeal laws giving people fundamental rights; those rights are of course useless without the ability to enforce them.

I agree that the Government’s only interest is in big business. The comment by Lord Faulks the litigation is “very much an optional activity” shows him for the moral bankrupt that he is.

It is also incorrect to say that a court fee cannot be challenged by the defendants. What about if you limit your claim to £100,000.00 and pay the court fee of £5,000.00 and then settle the matter for £50,000.00? Surely then the defendant can challenge the fact that you paid what in retrospect might seem to be an unnecessarily high fee. The trouble with that is that we are damned if we do and damned if we don’t – limit the claim to too small a sum and the client sues us, get the limit too high and we are deprived of fee recovery. Obviously if we knew exactly how much every claim was worth in advance then there would be no point in having courts.

I am interested in your suggestion about the profession and the insurers getting together and effectively abandoning the court system. Funnily enough my next piece for Litigation Funding is very much on that subject and I am also speaking at the Alarm Conference in Birmingham in June, mainly to publicly funded defendants, such as local authorities, police, fire brigades etc. on exactly that subject.

Good to hear from you and many thanks for your comments.

I will shortly be announcing a series of new courses.

Best wishes

Kerry

Adrian Berkeley:

“or a refund can be applied for following payment of the court fee” or so you think!

See the standard letter from Tameside CC when refunds are requested within weeks of paying a fee out of my CLIENTS ACCOUNT!

“The refund procedure is designed to enable a customer to make a time crucial, urgent application and allows them to obtain the necessary proof of entitlement to fee remission later. It is only the person who has paid the fee who may apply and the refund must be made to them, In your cases you are paying a fee and your client is applying for a refund. The Court Manager has indicated that he will no longer approve any refund requests of this nature.”

So DO NOT risk paying a fee prior to the EX160!!

Julian Evitts: The Order, as quoted by Kerry above, says that if the conditions are met a refund WILL be made, i.e. it’s mandatory. Plus the Order doesn’t have to specifically refer to solicitors being entitled to reclaim the fee on behalf of clients for us to be able to. Therefore it appears to me that the policy of the Tameside CC’s court manager is unlawful. Judicial Review time Adrian!

Adrian Berkeley: I just require a solicitor to rake this on on a CFA? Any takers?

Kerry’s reply: I agree.

Jake:

So, as I understand it, if a firm of solicitors has paid the fee, the courts will refuse to give a remission?
Yet the documentation, and Schedule 2 of the Fee Order, does not mention anything about that?

So there goes high street firms as well as access to justice for those on lower incomes in one fell swoop.

Kerry’s reply:

Jake

That is what the courts appear to be saying, but it must be illegal. This is now attracting a lot of attention. Some staff in some courts, but by no means all, seem to be going on a frolic of their own to prevent claims being made, which is curious as it will inevitably result in their redundancy.

Watch this space.

Kerry

Adrian Berkeley: Tameside County Court is also not refunding if the fee was originally paid even via my Clients account!!

Kerry’s reply:

I agree with Julian. JR them.

Kerry

Adrian Berkeley: Surely the Law Society should bring this JR case in my name? Is that not what we all pay them for, to stand up for us (occasionally!)

Kerry’s reply:

Disagree. It is for each lawyer to stand up for each client in each case. If that always happened we would not be where we are. Law Society may consider asking to intervene, but ultimately it is our responsibility, not that of the Law Society.

Kerry

BT: The guidance says you will not obtain a remission if you have a full LAA certificate as, “The solicitor, having filed notice of acting together with notice of issue of Legal Aid, will pay your court or tribunal fee for you”. Surely this applies equally to ATE/BTE…

Kerry’s reply:

I disagree. With legal Aid there can be no charge to the client and the solicitor will receive the court fee on account. It is one state body paying another; Peter is financing Paul or vice versa. With ATE, arrangements vary, but primarily there is only a liability on the ATE insurer if the case is lost and the primary liability, as with BTE insurance, remains with the client, as it has to because of the indemnity principle, which is abrogated for legal aid. In any event the starting point must be that if the client qualifies for fee remission under the capital and income tests, then they get it unless specifically excluded by some other provision.

Kerry

Craig Bibby:

Oooh look at this:-

http://www.lawgazette.co.uk/5048050.article?utm_source=dispatch&utm_medium=email&utm_campaign=GAZ010415

Kerry’s reply:

Craig

Thanks. Please see my blog Exaggeration = Fraud. This is an important case as it indicates the likely line to be taken by the courts in relation to fundamental dishonesty both under section 57 Criminal Justice and Courts Act 2015, in force Monday 13 April 2015, and to defeat Qualified One Way Costs Shifting.

Kerry

Provisional Assessment

I am grateful to Simon Gibbs at http://www.gwslaw.co.uk/blog/ for much of the material in this piece.

Provisional assessment applies to all detailed assessment proceedings commenced in the High Court or County Court on or after 1 April 2013 where the amount of costs claimed is £75,000 or less (CPR 47.15(1)).

This is treble the figure recommended in Chapter 45 of Lord Justice Jackson’s Final Report and treble the figure piloted in Leeds, Scarborough and York County Courts.

However the new provisional assessment regime for cases with costs up to £75,000.00 “just has not happened” according to Master Peter Haworth of the Senior Courts Costs Office; he also said that it was “quite incredible” that cases involving so much money should be decided on the papers without a hearing. (Master Haworth speaking at the Compass Law Commercial Litigation Conference in July 2014.)

Speaking at SJLive on 25 February 2015 Master Haworth said:-

“The six week target for provisional assessment is a joke – no court is complying. The Practice Direction is pointless if judges are not given the resources to comply.”

“Other than in London, District Judges are doing provisional assessments without seeing the papers – you may as well toss a coin.”

CPR 47.6(1) provides:-

“Detailed assessment proceedings are commenced by the receiving party serving on the paying party –

(a) notice of commencement in the relevant practice form;

(b) a copy of the bill of costs.”

CPR 44.1 defines costs:-

“’costs’ includes fees, charges, disbursements, expenses, remuneration, reimbursement allowed to a litigant in person under rule 46.5 and any fee or reward charged by a lay representative for acting on behalf of a party in proceedings allocated to the small claims track.”

There is a new form N258 – Request for Provisional/Detailed Assessment – which requires one of two options to be ticked:

“I confirm the costs claimed are £75,000 or less and I ask the court to undertake a provisional assessment” or

“I confirm the costs claimed are over £75,000 and I ask the court to arrange a detailed assessment hearing”.

In accordance with CPR 47.15(5) “the maximum amount the court will award to any party as costs of the assessment (other than the costs of drafting the bill of costs) is £1,500 together with any VAT thereon and any court fees paid by that party.”

In Crosbie v Munroe [2003] EWCA Civ 350 the Court of Appeal said:-

“Until the time the substantive claim is settled, the “proceedings” relate to liability and the amount of any compensation. After the substantive claim is settled, the “proceedings” relate to the assessment of the costs the paying party has to pay. Although CPR 43.2 contains no definition of “assessment” as such, the White Book comment on this rule accurately states that “assessment” is “the process by which the court decides the amount of any costs payable.

…the assessment proceedings cover the whole period of negotiations about the amount of costs payable through the Part 8 proceedings to the ultimate disposal of those proceedings, whether by agreement or court order.”

It is not clear, however, what happens about the costs that are incurred in relation to pre-provisional assessment applications such as applications to set aside default costs certificates, applications for interim payments or applications for relief from sanctions.

If such applications are dealt with pre-provisional assessment, it will not be known at that stage whether the proceedings will “go beyond provisional assessment”. Such pre-provisional assessment costs are therefore incurred within the detailed assessment proceedings but are they costs “of the assessment” or are they costs recoverable in addition to the £1,500 cap if the matter does not go beyond provisional assessment?

By virtue of the 66^th Update to the Civil Procedure Rules, effective 1 October 2013, CPR 47.15.5 is amended to read:-

“In proceedings which do not go beyond provisional assessment, the maximum amount the court will award to any party as costs of the assessment (other than the costs of drafting the bill of costs) is £1,500 together with any VAT thereon and any court fees paid by that party”.

There are no transitional provisions so the old rule applies to provisional assessments up to 1 October 2013 and the new rule to any provisional assessment undertaken on or after 1 October 2013.

Additional liabilities are included within the £1,500 and this is in line with the decision in Jodie Henderson v All Around The World Recordings Limited [2013] EWPCC 19, 27 March 2013, in relation to the cap in the Patents County Court.

Time spent drafting the bill of costs is allowable in addition to £1,500, but seemingly no allowance is made for checking the bill. Compare this with PD47, paragraph 5.19. “The bill of costs must not contain any claims in respect of costs or court fees which relate solely to detailed assessment proceedings other than costs claimed for preparing and checking the bill”.

There is no reference to work done in connection with issuing costs only proceedings and thus such work is included in the £1,500 – see Crosbie v Munroe [2003] EWCA Civ 350 above.

No indication is given for the change of heart, presumably because the true reason is that the original wording was very poor.

It is still unclear as to whether the failure to allow additional costs for checking the bill and the failure to allow additional liabilities over and above the cap are deliberate policy decisions or yet further errors.

Provisional assessment is a procedure whereby the court provisionally assesses costs on paper, that is without an oral hearing, and if either party is dissatisfied then it can seek an oral hearing, but will pay the costs of that exercise if it does not achieve a 20% improvement upon the provisional assessment.

All that is filed at court is:

• the bill
• points of dispute
• replies
• costs orders
• copies of fee notes

Also to be filed with the court when requesting a provisional assessment under the new Practice Direction 14.3(d) to CPR 47.15 are:

“the offers made (those marked “without prejudice save as to costs” or made under Part 36 must be contained in a sealed envelope, marked “Part 36 or similar offers”, but not indicating which party or parties have made them).”

and as per Practice Direction 14.3 (c)

“a statement of the costs claimed in respect of the detailed assessment drawn on the assumption that there will not be an oral hearing following the provisional assessment.”

Provisional assessment does not always appear to be going the way it should, as different courts are introducing their own directions.

Replies are optional, but some courts are ordering them and also asking parties to service Replies not limited to points of principle and concessions – that contradicts Practice Direction 47, paragraph 12.1.

In the absence of a Reply from the receiving party to Points of Dispute some courts are assessing costs as per the paying party’s offer, again in clear breach of PD47, paragraph 12.1.

Thus the concept is that at the end of the provisional assessment the judge will open the sealed envelope, see what offers have been made, decide liability and make a decision.

Practice Direction 14.4(1) to CPR 47 states:-

“On receipt of the request for detailed assessment and the supporting papers, the court will use its best endeavours to undertake a provisional assessment within 6 weeks.”

Practice Direction 14.2(2) to CPR 47 states that paragraph 13 of the Practice Directions, in relation to Detailed Assessment, also applies to Provisional Assessment and Practice Direction 13.12 refers to supporting documents as follows:-

“The papers to be filed in support of the bill and the order in which they are to be arranged are as follows –

(i) instructions and briefs to counsel arranged in chronological order together with all advices, opinions and drafts received and response to such instructions;

(ii) reports and opinions of medical and other experts;

(iii) any other relevant papers;

(iv) a full set of any relevant statements of case;

(v) correspondence, file notes and attendance notes;”

Thus at present it is unclear whether the court require the papers in support of the bill as set out in Practice Direction 13.12, as 13.11 requiring these documents to be filed is exempt from Provisional Assessment, and my advice is to seek the guidance of the court in any given case, and if this is not forthcoming to lodge the whole file and to lodge separately and in addition the very limited papers required by the Practice Direction.

The Senior Courts Costs Office recommends that receiving parties lodge the full file when requesting assessment, but has not made this mandatory, as it believes that it has no power to do so, but takes the view that parties who fail to lodge the full file will be at a serious disadvantage.

Some Regional Costs Judges have taken the same view.

Most of us believe that Practice Direction 47, paragraph 13.13 DOES give the court power to order the whole file to be produced:

“13.13 The court may direct the receiving party to produce any document which in the opinion of the court is necessary to enable it to reach its decision. These documents will in the first instance be produced to the court, but the court may ask the receiving party to elect whether to disclose the particular document to the paying party in order to rely on the contents of the document, or whether to decline disclosure and instead rely on other evidence.”

Any oral hearing will be conducted by the District Judge who made the provisional assessment on paper; an oral hearing is not an appeal but rather a “second stage of the process before the assigned District Judge”.

If the party is unhappy with the outcome of a provisional assessment they can request an oral hearing. Liability for the costs of the hearing are dealt with by new CPR 47.15 (10):

“Any party which has requested an oral hearing, will pay the costs of and incidental to that hearing unless –

(a) it achieves an adjustment in its own favour by 20% or more of the sum provisionally assessed; or

(b) the court otherwise orders.”

Practice Direction 14.5 to CPR 47.15 (10) states:

“When considering whether to depart from the order indicated by CPR 47.15 (10) the court will take into account the conduct of the parties and any offers made.”

It is unclear as to whether a successful Part 36 offer trumps the 20% rule.

Thus £30,000 is awarded. The paying party makes a Part 36 offer of £28,000. The court cuts the award to £27,000, that is a 10% reduction, which is obviously less than a 20% adjustment in the sum provisionally assessed, but nevertheless is more than the Part 36 offer.

Where do costs lie?

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.”

That seems to suggest the judge won’t do the calculations at the end of the provisional assessment. Why then require costs schedule(s) to be filed with the request for the provisional assessment if it is known that further work must be undertaken (doing the arithmetic) but the amount of work required will not be known?

For some bills the extra work needed may be relatively minimal but for others may be more drawn out, particularly where there is disagreement between the parties.

Further, in this situation if the parties have to do the arithmetic, what is the normal mechanism for then asking the court to determine liability for the costs of the provisional assessment where the parties cannot agree? Practice Direction 14.6 provides:-

“If a party wishes to be heard only as to the order made in respect of the costs of the initial provisional assessment, the court will invite each side to make written submissions and the matter will be finally determined without a hearing. The court will decide what if any order for costs to make in respect of this procedure.”

An appeal will be to a Circuit Judge.

This is one of the Jackson reforms that I support. The ‘costs of costs’ has become an Alice in Wonderland feature of English court procedure. Indeed I would go further and extend this procedure to all bills, whatever their value. There is the safeguard of an oral hearing and an appeal to the next tier of the judiciary. The danger is that, rightly or wrongly, High Street solicitors will see this as yet another aspect of the Jackson Report designed to put them out of business while letting firms in the City charge what they want without the same restrictions. That may be unfair, but trust me, that is likely to be the reaction of most solicitors given the bias of the report and the Government’s proposals generally.

Court forms

Provisional Assessment is a form of Detailed Assessment. New forms have been published:

• Precedent A: Model form of bill of costs
• Precedent F: Certificates for inclusion in bill of costs
• Precedent G: Points of Dispute and Reply
• Precedent H: Costs Budget
• Precedent P: Solicitors Act 1974: breakdown of costs

Points of Dispute: Precedent G

The new Practice Direction to CPR 47.9 states:-

“8.2                Points of dispute must be short and to the point. They must follow Precedent G in the Schedule of Costs Precedents annexed to this Practice Direction, so far as practicable. They must:

(a) identify any general points or matters of principle which require decision before the individual items in the bill are addressed; and

(b) identify specific points, stating concisely the nature and grounds of dispute.

Once a point has been made it should not be repeated but the item numbers where the point arises should be inserted in the left hand box as shown in Precedent G.”

The new rules relating to Replies to Points of Dispute apply to all Replies that are served after 1 April 2013.

When the receiving party replies to the Points of Dispute there must consider the new Practice Direction to CPR 47.13 which states:-

“12.1      A reply served by the receiving party under Rule 47.13 must be limited to points of principle and concessions only. It must not contain general denials, specific denials or standard form responses.”

Thus a receiving party should not reply to the grounds of dispute that has been raised unless a concession is inserted into the box relating to that point.

Precedent G: Points of Dispute and Reply gives the following example of a point of principle:-

“The claimant was at the time a child/protected person/insolvent and did not have the capacity to authorise the solicitors to bring these proceedings.”

Simon Gibbs, in his excellent blog at http://www.gwslaw.co.uk/blog/ suggests other potential points of principle:-

• a challenge concerning the indemnity principle;

• a challenge as to the enforceability of a conditional fee agreement;

• an argument that proceedings were issued prematurely and that only fixed pre-issue costs should apply.

He raises the question as to whether any of the following are points of principle:-

• an argument that defective notice was given in relation to an additional liability;

• the level of the success fee in a case where the success fee is recoverable;

• incorrect apportionment of VAT.

It should be noted that there is no transitional provision dealing with Points of Dispute and Replies and therefore the new rules apply to any Points of Dispute or Replies served on or after 1 April 2013.

The following are not treated as points of principle, but rather ground of dispute, in Precedent G: Points of Dispute and Reply, and therefore should not be replied to under the new Practice Direction 12.1 to CPR 47.13:-

• the number of conferences with counsel;

• the number of fee earners attending each conference;

• timed attendances on the claimant;

• time spent on documents;

• time spent on preparing and checking the bill.

The pre 1 April 2013 Costs Practice Direction concerning Points of Dispute, at CPD 35(3), required that Points of Dispute must “where practicable suggest a figure to be allowed for each item in respect of which a reduction is sought.”

For some reason that has now been dropped from the new Practice Direction to CPR 47.

Extending Time For Service of Points of Dispute

I am grateful to Paul Hughes – http://www.kingschambers.com for material in relation to this piece.

CPR  47.9(2) states that the period for service of Points of Dispute is 21 days after the date of service of the notice of commencement, and, CPR 47.9(3) prescribes that a party in default of service “may not be heard further in the detailed assessment proceedings unless the Court gives permission”.

Thus you are late with service of the Points, but have agreed an extension with the other side,  on the basis that that is allowed to under CPD 35.1 :

“The parties may agree under rule 2.11 (Time limits may be varied by the parties) to extend or shorten the time specified by rule 47.9 for service of the points of dispute.  A party may apply to the appropriate office for an order under rule 3.1(2)(a) to extend or shorten that time.”

On the face of it, this avoids CPR 47.9, but is in fact it does not.

CPD 35.1 expressly (and, insofar as variation by the parties is concerned, only) refers to the power contained in CPR 2.11, which entitles the parties to vary, by written agreement, “the time specified by a rule or by the court for a person to do any act” unless the Rules or a practice direction provide otherwise or a court orders otherwise, (my emphasis) and the Rules do provide otherwise as follows:-

CPR 3.8 (3):-

“(3)      Where a rule, practice direction or court order –

(a) requires a party to do something within a specified time, and

(b) specifies the consequence of failure to comply,

the time for doing the act in question may not be extended by agreement between the parties.

The fact that CPR 2.11 is subject to CPR 3.8 is clear from a reading of these provisions.  That this is correct is made clear by that reference in brackets to CPR 3.8 after the text of CPR 2.11

So, does CPR 3.8(3) apply to CPR 47.9?

Yes.  The paying party is required to do something – serve Points of Dispute within a specified time, and the Rule specifies the consequences of the failure to comply.

Given the wording of CPR 47.9, it might have been open to argue that as the consequence was qualified (by “unless the Court gives permission”), it was not, in fact, a sanction it all (as it is a discretionary, as opposed to automatic, consequence).  That argument, is ruled out by the judgment in Primus Telecommunications Netherlands BV v Pan European Ltd [2005] EWCA Civ 273 (at paras 58 and 59), which concerned CPR 32.10, but the relevant wording is identical to CPR 47.9.  Primus has been applied in Papa Johns (GB) Ltd v Doyley [2011] EWHC 2621(QB).

Accordingly, there is a clear conflict between the power in CPD 35.1 and the Rules.

Practice Directions cannot override the CPR (See May L.J. in Godwin v Swindon Borough Council [2001] EWCA Civ 1478 at [11]), so the provisions permitting the parties to agree to extend time for service of the points of dispute are of no effect.

Thus the sanction in CPR 47.9 applies, irrespective of whether there has been a purported agreement to extend time, unless the paying party applies for relief from sanctions under CPR 3.9.

The sanction to which the paying party is automatically subject is not being “heard further in the detailed assessment proceedings.”   This means that the paying party can no longer participate, by contributing to a joint statement or being represented at the hearing.

What, if the Points of Dispute that are filed late?  It seems that a paying party may rely upon them (as they predate – and indeed trigger – the debarral of further participation), but only in the sense that a Costs Judge may take them into account in assessing the Bill.

Thus the paying party is required to make an application to Court for an extension of time to avoid the automatic sanction in CPR 47.9.  That application should often be a formality, it is unfortunate that it needs to be made at all.

Commencing Costs Only Proceedings

Gone is the old CPR 44.12A(2):

“Either party to the agreement may start proceedings under this rule…”

Does this mean that paying parties can no longer get things going? If this was a deliberate decision, why was it taken? Are paying parties now unable to take any positive step to progress matters where a receiving party drags their heels?

Costs Officers

The new Practice Direction 3.1 to CPR 47.3 increases the powers of principle court officers from £75,000 including additional liabilities but excluding VAT to £110,000 base costs excluding VAT.

Once you add back in success fees, ATE premiums and VAT the size of the bill that can now be assessed by a principle court officer is £300,000 or more.

For non-principal court officers, the power increases from £30,000 including additional liabilities but excluding VAT to £35,000 base costs excluding VAT. That probably equates to covering some bills with a value of up to £100,000.

You can still object. If both parties agree, the court will automatically relist before a costs judge or district judge (Practice Direction 3.2 to CPR 47.3). Otherwise, an application is to be made to a costs judge or district judge (Practice Direction 3.3 to CPR 47.3).

Time to appeal

New CPR 47.14(7) introduced on 1 April 2013 states:-

“If an assessment is carried out at more than one hearing, then for the purposes of rule 52.4 time for appealing shall not start to run until the conclusion of the final hearing, unless the court orders otherwise.”

Under the section headed “Appeals from Authorised Court Officers in Detailed Assessment Proceedings” is CPR 47.23(1):

“The appellant must file an appeal notice within 21 days after the date of the decision against which it is sought to appeal.”

Note that this is a reference to date of the decision (as was the case prior to 1 April 2013), not the date of the conclusion of the final hearing. This is almost certainly a drafting error as the two conflict. There is no reason the time for appealing against a decision of a costs officer should be stricter that otherwise. Which prevails?

Proportionality

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”.

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.

Part 36 in Costs Proceedings

CPR 47.19 was scrapped with effect from 1 April 2013 and now Part 36 applies to detailed assessment proceedings, but the old CPR 47.19 applies where detailed assessment proceedings were commenced before 1 April 2013, and this is achieved by the Civil Procedure (Amendment) Rules 2013 at s.22(1).

“The provision made by rule 47.20(1) to (5) and (7) in the Schedule (liability for costs of detailed assessment proceedings) does not apply to detailed assessments commenced before 1 April 2013 and in relation to such detailed assessments, rules 47.18 and 47.19 as they were in force immediately before 1 April 2013 apply instead.”

Where a Part 47.19 offer was made prior to 1 April 2013, but notice of commencement was not served until 1 April 2013 or after, then the new Part 36 provisions apply, but it is not clear what happens in relation to a successful CPR 47.19 offer made before 1 April 2013 in such circumstances.

Since 1 April 2013, CPR 47.19 offers have disappeared and Part 36 applies, incorporated into detailed assessment proceedings by virtue of CPR 47.20(4), and the relevant part now reads:-

“Costs consequences following detailed assessment

36.14

(1) This rule applies where upon completion of the detailed assessment.

(a) a receiving party fails to obtain an outcome more advantageous that a paying party’s Part 36 offer; …

(b) the outcome of the detailed assessment hearing is at least as advantageous to the receiving party as the proposals contained in a receiving party’s Part 36 offer.

(2) The court will, unless it considers it unjust to do so, order that the paying party is entitled to –

(a) his costs from the date on which the relevant period expired; and

(b) interest on those costs.

(3) …the court will, unless it considers unjust to do so, order that the receiving party is entitled to –

(a) interest on the whole or part of any sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;

(b) costs on the indemnity basis from the date on which the relevant period expired;

(c) interest on those costs at a rate not exceeding 10% above base rate and

(d) an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is –

(i) where the claim is or includes a money claim, the sum awarded to the claimant by the court

…

Subparagraph (d)(i) appears to be drafted widely enough to cover a claim for costs. The successful receiving party therefore gets a 10% uplift on whatever the bill is assessed at plus the other benefits listed at (a) to (c).

The fact that the Judge does not make the final calculations also causes obvious problems with Part 36, specifically how does the Judge know whether a party has succeeded in relation to a Part 36 offer?

If the Judge does not know who or who has not won on Part 36, then how does the Judge know what decision to make in relation to the costs of the assessment?

A receiving party who matches or beats its own Part 36 offer receives a 10% uplift on costs, up to a maximum uplift of £75,000, calculated in the same way as the Part 36 uplift on damages. Care needs to be taken in drafting the retainer to ensure that you entitle yourself to this sum, as costs belong to the client and an additional sum cannot be charged in the absence of clear agreement.

As to the general concept of Part 36 in assessment proceedings I leave that to Simon Gibbs:-

“Let me tell you a story.

Claimant for, Paye Cash & Praye are currently negotiating with defendant costs firm Kermit & Co over a £10,000 bill. Points of Dispute and Replies have been served.

On 2 April 2013 Paye Cash & Praye make a Part 36 offer to settle those costs for £7,000.

Kermit & Co accept the offer on 3 April 2013.

Acceptance of the offer creates a deemed costs order under the new CPR 44.9(1)(b). Under CPR 36.10(1) this means the receiving party is entitled to their costs of the assessment proceedings up to the date on which notice of acceptance was served.

The new CPR 47.20(5) states:

“The court will usually summarily assess the costs of detailed assessment proceedings at the conclusion of those proceedings”

However, the new CPR 44.1(1) clearly states:

“‘summary assessment’ means the procedure whereby costs are assessed by the judge who has heard the case or application”

In this example the matter has never come before a judge and summary assessment is not appropriate. All that’s left is detailed assessment proceedings in the absence of agreement.

In reliance on the deemed costs order Paye Cash & Praye serve a Notice of Commencement and new bill in respect of their assessment costs on 10 April 2013. (As an aside, where a matter settles prior to a provisional assessment being carried out, but the bill is for less than £75,000, does the £1,500 cap apply?) The costs claimed are £1,000. Service of the new Notice of Commencement amounts to commencement of new detailed assessment proceedings.

Kermit & Co, rather taken back by this turn of events, make a Part 36 offer of £800 in respect of those costs on 17 April 2013. No response to that offer is received within 21 days of service of the Notice of Commencement forcing Kermit & Co to serve Points of Dispute to the bill, which they serve on 1 May 2013. On 3 May 2013 Paye Cash & Praye serve Replies. On 4 May 2013 Paye Cash & Praye accept the Part 36 offer of £800. As the offer has been accepted within 21 days of it being made the Claimant is entitled to their costs of the new assessment proceedings up to the date on which notice of acceptance was served, including the period covering preparation of the new Replies.

Acceptance of the new Part 36 offer also creates a further deemed order for costs.

In reliance on the new deemed costs order Paye Cash & Praye serve a Notice of Commencement and new bill in respect of their further detailed assessment costs considering the Defendant’s Points of Dispute, drafting Replies and considering the Part 36 offer.

And so on, for ever.”

On his blog on 22 January 2015 Simon Gibbs had this to say:-

“The rule concerning filing of statements of costs is a mess. PD 47 para.14.3(c) refers to filing “a [in the singular] statement of the costs claimed in respect of the detailed assessment” implying that it is just the receiving party that will file a statement. What if the paying party has won? There is no requirement to serve the statement of costs on the opponent. The statement of costs will have to be prepared before the provisional assessment has occurred and before the parties have agreed the arithmetic. How much time should go in the statement of costs for the post-assessment number crunching and trying to agree the figures with the other side, when the work has yet to be done? For a Bill at the top end of the £75,000 figure, this can be time consuming if there have been, for example, amendments to the hourly rates and VAT figures. What if the parties cannot agree the figures and need to make written submissions to the court. How is this time dealt with in the statement?

Post-assessment, the parties “must” agree the total sum due to the receiving party on the basis of the court’s decisions within 14 days of receipt of Precedent G. But they then have 21 days to request an oral hearing. Is it necessary to try to agree the exact figures if a party is going to request an oral hearing in any event?”

Offers

Contrary to what some commentators have said, there is no requirement on a paying party to make an offer, either under Part 36 or otherwise.

The new Practice Direction 8.3 to CPR 47.9 states:

“The paying party must state in an open letter accompanying the points of dispute what sum, if any, (my italics) that party offers to pay in settlement of the total costs claimed. The paying party may also make an offer under Part 36.”

Thus there is no requirement to make an offer; if there was, then the words “if any” would be superfluous. However, some claimants are, presumably through ignorance, taking this point and so it may save time to make it clear in writing that no offer is being made if that be the case.

I have not come across anyone who can explain to me what is the purpose of the open offer, but those drafting the Civil Procedure Rules and the Practice Directions move in mysterious ways.

Clearly the right to make a Calderbank offer in costs proceedings – that is an offer “without prejudice save as to the costs of assessment” remains as CPR 36.1(2) reads:

“Nothing in this Section prevents a party making an offer to settle in whatever way he chooses, but if the offer is not made in accordance with rule 36.2, it will not have the consequences specified in rules 36.10, 36.11 and 36.14.”

Will a party who wins on its open offer ever not be awarded the costs of the detailed assessment?

Practice Direction 14.3(d) to CPR 47.15 states that when a party request a provisional assessment, it must file with the court:

“the offers made (those marked “without prejudice save as to costs” or made under Part 36 must be contained in a sealed envelope, marked “Part 36 or similar offers” but not indicating which party or parties have made them).”

Thus it is clear that the rules envisage offers other than those under Part 36 being relevant to the costs of assessment.

The drafters of the new rules appear not to understand the difference between an offer that is “without prejudice save as to the costs of assessment” and one made “without prejudice save as to costs.”

PD 47 para.13.10 allows a party to vary their bill:

“(1) If a party wishes to vary that party’s bill of costs, points of dispute or a reply, an amended or supplementary document must be filed with the court and copies of it must be served on all other relevant parties.

(2) Permission is not required to vary a bill of costs, points of dispute or a reply but the court may disallow the variation or permit it only upon conditions, including conditions as to the payment of any costs caused or wasted by the variation.”

It is in the court’s discretion as to whether to disallow the variation. For a case proceeding to a detailed assessment hearing this is straightforward enough. The court can rule on this issue, if it is contentious, at the start of the hearing.

But what about a case going to provisional assessment? Does that require an application is advance of the provisional assessment, despite permission not being required to make the variation itself? Will the court even know there has been a variation if only the amended bill is filed with the court?

Costs Management Orders

Where costs are not expected to exceed £25,000 only the first page of the nine pages of Form H Costs Budget needs to be completed.

Now that provisional assessment is to cover all cases of £75,000 or less it remains to be seen whether the exemption from completing the full Costs Budget form will also rise to £75,000.

Otherwise there is the prospect of a very detailed budget and a Costs Management Order all ending in a paper-only assessment for those bills between £25,000 and £75,000.

Qualified One Way Costs Shifting (QOCS)

QOCS is widely regarded as the weakest part of the Jackson Reforms, and as the old joke has it, that is against some pretty stiff opposition. The unanswered question here is whether the costs risk of failing to achieve 20% more than the provisional assessment figure applies in QOCS cases, that is all personal injury cases of all kinds. On the face of it, it does not, as the exceptions to QOCS are limited, and this is not one of them.

Precisely the same point applies in relation to Fixed Recoverable Costs, which has the same 20% escape rule; here the rich irony is that Fixed Recoverable Costs apply only to personal injury cases, just like QOCS.

Oh dear! It cannot possibly be the case, can it, that Fixed Recoverable Costs were announced out of the blue, without thinking of this can it? Can it?

Obviously everything else in relation to this exercise has been checked and checked again by the Ministry of Justice until perfect. See for example Precedent A: Model Form Bill of Costs.

I set out below our annotations. Can you spot any more errors?

Wipe your hand across your mouth, and laugh;

The worlds revolve like ancient women

Gathering fuel in vacant lots.

T. S. Eliot: Preludes

SCHEDULE OF COSTS PRECEDENTS

PRECEDENT A: MODEL FORM OF BILL OF COSTS

2011 – B – 9999

IN THE HIGH COURT OF JUSTICE

QUEEN’S BENCH DIVISION

BRIGHTON DISTRICT REGISTRY

BETWEEN

AB

Claimant

– and –

CD

Defendant

__________________________________________

CLAIMANT’S BILL OF COSTS TO BE ASSESSED PURSUANT

TO THE ORDER DATED 2^ND APRIL 2013

_________________________________________

VAT NO. 33 4404 90

In these proceedings the claimant sought compensation for personal injuries and other losses suffered in a road accident which occurred on 1 January 2011 near the junction between Bolingbroke Lane and Regency Road, Brighton, East Sussex. The claimant had been travelling as a front seat passenger in a car driven by the defendant. The claimant suffered severe injuries when, because of the defendant’s negligence, the car left the road and collided with a brick wall.

The defendant was later convicted of various offences arising out of the accident including careless driving and driving under the influence of drink or drugs.

In the civil action the defendant alleged that immediately before the car journey began the claimant had known that the defendant was under the influence of alcohol and therefore consented to the risk of injury or was contributory negligent as to it. It was also alleged that, immediately before the accident occurred, the claimant wrongfully took control of the steering wheel so causing the accident to occur.

The claimant first instructed solicitors, E F & Co, in this matter in July 2011. The claim form was issued in October 2011 and in February 2012 the proceedings were listed for a two day trial commencing 25th July 2012. At the trial the defendant was found liable but the compensation was reduced by 25% to take account of contributory negligence by the claimant. The claimant was awarded a total of £78,256.83 plus £1,207.16 interest plus costs.

The claimant instructed E F & Co under a retainer which specifies the following hourly rates.

Partner – £217 per hour plus VAT

Assistant Solicitor – £192 per hour plus VAT

Other fee earners – £118 per hour plus VAT

Except where the contrary is stated the proceedings were conducted on behalf of the claimant by an assistant solicitor, admitted November 2008.

COMMENTS ON PREVIOUS BLOGS

Sue: What a mess! Kerry, may I ask you advice on one issue? As stated above – where a Part 47.19 offer was made prior to 1 April 2013, but notice of commencement was not served until 1 April 2013 or after, then the new Part 36 provisions apply. I have a case where a very healthy Part 47.19 offer was made before 1 April 2013. The NoC was served post 1.4.13 and Points have just been drafted. I do not wish to make a Part 36 offer that, if accepted, would entitle the Claimant to his costs to date. I believe he is at risk on the pre Pods Part 47.19 offer. Any suggestions?

Kerry’s reply:

I refer to my blog COURT FEES INCREASE: THE FIGURES.

An online petition to stop these increases has been launched and is attracting a huge number of signatures.

Whatever our views we can all agree that these increases harm individuals and businesses as well as society itself.

Please sign here.

UNDERWOOD ON FIXED RECOVERABLE COSTS AND PORTALS & QUALIFIED ONE WAY COSTS SHIFTING

2 courses, 3 hours CPD each, SRA authorized.

Notes updated electronically until 1 January 2017.

£100 plus VAT per course or £200.00 plus VAT for the whole day including lunch,

subsequent delegates 10% discount

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Comments from some of the 450+ who attended Underwood on Jackson

Contact Kerry Underwood on 01442 430 900 or email kerry.underwood@lawabroad.co.uk

This piece deals with the principles of when indemnity costs should be made as a result of a fault by the paying party. This is very different from indemnity costs under Part 36 which is considered in my piece Part 36: The Dry Salvages.

Courts have a very wide discretion in relation to costs. In Bolton Metropolitan District Council v Secretary of State for the Environment (Practice Note) [1995] 1 WLR 1176, referred to by Lord Phillips MR in R (Corner House Research) v Secretary of State for Trade and Industry [2005] EWCA Civ 192, the court said: –

“As in all questions to do with costs, the fundamental rule is that there are no rules. Costs are always in the discretion of the court, and a practice, however widespread and longstanding, must never be allowed to harden into a rule.”

That is as true of indemnity costs as anything else; with the increased emphasis on proportionality, whatever that means – see Proportionality: The Emperor’s New Clothes – indemnity costs have suddenly become very much more important.

CPR

Costs are governed by CPR 44 and CPR 44.2(1) gives the court a discretion as to whether costs are payable by one party to the other. CPR 44.2(4) and (5) provide, where relevant:-

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

• the conduct for the parties…

(5) The conduct of the parties includes –

…

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

• the manner in which a party has pursued or defended its case or a particular allegation or issue; and

• whether a claimant who has succeeded in the claim, in whole or in part, exaggerated its claim.”

CPR 44.3 deals with the basis of assessment as being either on the standard basis or on the indemnity basis and the default position is the standard basis (CPR 44.3(4)).

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 –

• on the standard basis; or

• on the indemnity basis,

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

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

• 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

• 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.

(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.”

EFFECT OF INDEMNITY COSTS ORDER

 In Siegel v Pummell [2015] EWHC 195 (QB)

the Queen’s Bench Division of the High Court said:-

“8.          The effect of an order requiring payment of costs on the indemnity basis is to disapply the requirement that, in addition to costs being reasonably incurred, they should also be proportionate to the sums and issues at stake in the litigation and that, in the event of the assessment Judge having a doubt as to whether or not an item of cost has been incurred reasonably, the benefit of such doubt should go to the receiving rather than the paying party.”

In Kellie v Wheatley and Lloyd Architects Ltd [2014] EWHC 2886 (TCC), [2014] All ER (D) 152 AUG

the Technology and Construction Court of the High 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, [2002] 4 All ER 775, [2002] 1WLR 2450:-

“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.”

The indemnity hourly rate or solicitor and own client hourly rate, which is the same thing, will almost always be higher than the amount stated in the budget and the amount sought from the other side on the standard basis. Many of us were brought up to advise clients that in the event of success they would recover about two-thirds of their costs. This was long before proportionality revealed its recent head and it reflected the difference in the hourly rates charged to one’s own clients and the rates generally recoverable on taxation (now assessment).

The courts themselves have said that they can and, where appropriate should, reduce hourly rates on proportionality grounds. It follows that if an order on an indemnity basis is made then that reduction goes out of the window.

You do not need to put the solicitor and own client rate in the budget. By not doing so you do not prejudice your chances of getting that full rate if an indemnity order is made.

WHEN SHOULD AN INDEMNITY COSTS ORDER BE MADE?

In Christian v The Commissioner of Police for the Metropolis [2015] EWHC 371 (QB)

the court said that public bodies do not have a stronger claim to indemnity costs than other litigants.

In Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (a firm) [2002] EWCA Civ 879

the Court of Appeal declined to give circumstances where indemnity costs orders should or should not be made and emphasised the breadth of discretion of the trial judge and simply said “there must be some conduct or some circumstances which takes the case out of the norm. That is the critical requirement.”

The Court of Appeal cited with approval a passage from the Court of Appeal’s own judgment Kiam II v MGN Ltd (2) [2002] EWCA Civ 66:-

“…conduct would need to be unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight. An indemnity costs order made under Part 44 (unlike one made under Part 36) does, I think, carry at least some stigma. It is of its nature penal rather than exhortatory…”

In Kellie v Wheatley and Lloyd Architects Ltd [2014] EWHC 2886 (TCC), [2014] All ER (D) 152 AUG

the Technology and Construction Court of the High Court, in rejecting the application for indemnity costs in that case, gave extensive guidance as to the grounds on which such an order should be made.

‘18.        In general terms, an award of costs on the indemnity basis is justified only if the paying party’s conduct is morally reprehensible or unreasonable to a high degree, so that the case falls outside the norm. The applicable principles were set out at length by Tomlinson J in Three Rivers District Council v The Governor and Company of the Bank of England [2006] EWHC 816 (Comm), at [25], in a passage on which Mr Lixenberg relied (omitting the eighth point, which was formulated with particular regard to the Three Rivers litigation):

““(1) The court should have regard to all the circumstances of the case and the discretion to award indemnity costs is extremely wide.

(2) The critical requirement before an indemnity order can be made in the successful defendant’s favour is that there must be some conduct or some circumstance which takes the case out of the norm.

(3) Insofar as the conduct of the unsuccessful claimant is relied on as a ground for ordering indemnity costs, the test is not conduct attracting moral condemnation, which is an a fortiori ground, but rather unreasonableness.

(4) The court can and should have regard to the conduct of an unsuccessful claimant during the proceedings, both before and during the trial, as well as whether it was reasonable for the claimant to raise and pursue particular allegations and the manner in which the claimant pursued its case and its allegations.

(5) Where a claim is speculative, weak, opportunistic or thin, a claimant who chooses to pursue it is taking a high risk and can expect to pay indemnity costs if it fails.

(6) A fortiori, where the claim includes allegations of dishonesty, let alone allegations of conduct meriting an award to the claimant of exemplary damages, and those allegations are pursued aggressively inter alia by hostile cross examination.

(7) Where the unsuccessful allegations are the subject of extensive publicity, especially where it has been courted by the unsuccessful claimant, that is a further ground.””

19. More recently, in Courtwell Properties Ltd v Greencore PF (UK) Ltd [2014] EWHC 184 (TCC), Akenhead J said this:

““22. So far as indemnity costs are concerned, there are numerous authorities which address the circumstances in which these may be ordered. A helpful if not absolutely exhaustive summary was given by Mr Justice Coulson in Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd [2013] EWHC (TCC):

‘“16. The principles relating to indemnity costs are rather better known. They can be summarised as follows:

(a) Indemnity costs are appropriate only where the conduct of a paying party is unreasonable “to a high degree. ‘Unreasonable’ in this context does not mean merely wrong or misguided in hindsight”: see Simon Brown LJ (as he then was) in Kiam II v MGN Ltd (2) [2002] EWCA Civ 66.

(b) The court must therefore decide whether there is something in the conduct of the action, or the circumstances of the case in general, which takes it out of the norm in a way which justifies an order for indemnity costs: see Waller LJ in Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (a firm) [2002] EWCA Civ 879.

(c) The pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, provided that the claim was at least arguable. But the pursuit of a hopeless claim (or a claim which the party pursuing it should have realised was hopeless) may well lead to such an order: see, for example, Wates Construction Ltd v HGP Greentree Allchurch Evans Ltd [2005] EWHC 2174 (TCC).

(d) If a claimant casts its claim disproportionately wide, and requires the defendant to meet such a claim, there was no injustice in denying the claimant the benefit of an assessment on a proportionate basis given that, in such circumstances, the claimant had forfeited its rights to the benefit of the doubt on reasonableness: see Digicel (St Lucia) Ltd & Ors v Cable and Wireless PLC & Ors [2010] EWHC 888 (Ch).”’

To this can be added a number of other specific and general points:

(i) The discretion to award indemnity costs is a wide one and must be exercised taking into account all the circumstances and considering the matters complained of in the context of the overall litigation (see Three Rivers DC v the Governor of the Bank of England [2006] EWHC 816 (Comm) and Digicel (as above)).

(ii) Dishonesty or moral blame does not have to be established to justify indemnity costs (Reid Minty v Taylor [2001] EWCA Civ 1723).

(iii) The conduct of experts can justify an order for indemnity costs in respect of costs generated by them (see Williams v Jervis [2009] EWHC 1837 (QB)).

(iv) A failure to comply with Pre-Action Protocol requirements could result in indemnity costs being awarded.

(v) A refusal to mediate or engage in mediation or some other alternative dispute resolution process could justify an award of indemnity costs.””’

In Fitzpatrick Construction Ltd v Tyco Fire and Integrated Solutions (UK) (Ltd) [2008] EWHC 1391 (TCC) the court said:-

“Examples of conduct that have led to such an order for indemnity costs include the use of litigation for ulterior commercial purposes… and the making of an unjustified personal attack on one party by the other.”

INTERPLAY WITH COSTS BUDGETING

In Kellie v Wheatley & Lloyd Architects Ltd [2014] EWHC 2886 (TCC), [2014] All ER (D) 152 (Aug), the High Court looked at the interplay between costs budgets and indemnity costs, and the grounds for making an indemnity costs order and fundamentally disagreed with another High Court decision on the costs budget issue.

Although this case dealt with alleged misconduct, the findings concerning the interplay between costs budgeting and indemnity costs apply to indemnity costs orders arising out of a claimant matching its own Part 36 offer.

This was a professional negligence claim which was lost and the defendant sought indemnity costs on the ground of the claimant’s conduct.

The relevant rule is CPR 44.3 as set out above.

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.

Here the court said that this distinction is highlighted by the CPR and Practice Direction concerning costs management. Practice Direction 3E, para 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 News Group Newspapers Ltd [2013] EWCA Civ 19, [2013] 2 All ER 840, 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 thus had to consider the relevance of a costs budget when an indemnity costs order has been made, and specifically disagreed with a previous decision of the High Court in Elvanite Full Circle Ltd v AMEC Earth and Environment (UK) Ltd [2013] EWHC 1643 (TCC), [2013] 4 All ER 765, [2013] BLR 473.

In Elvanite the High Court held that even on an indemnity basis the starting point is the approved budget. The court here in Kellie v Wheatley and Lloyd Architects Ltd [2014] EWHC 2886 (TCC), [2014] All ER (D) 152 AUG disagreed, holding that:

‘17. … 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, 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 Full Circle Ltd v AMEC Earth and Environment (UK) Ltd [2013] EWHC 1643 (TCC), [2013] 4 All ER 765, [2013] BLR 473 nor Kellie v Wheatley and Lloyd Architects Ltd [2014] EWHC 2886 (TCC), [2014] All ER (D) 152 AUG 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. As to payment on account the judge ordered £90,000 against the approved budget of £91,700.

LEGAL AID

In Brawley v Marczynski & Anor (2) [2002] EWCA Civ 1453, [2002] 4 All ER 1067 [2003] 1 WLR 813

the Court of Appeal awarded indemnity costs to a legally-aided party in order to penalise the losing party for its unreasonable conduct in the case. It is no bar to an indemnity costs order that the only beneficiary is the claimant’s lawyer, as the claimant would not have to pay anything in any event, whatever the result, that is a loss or a win with costs on the standard basis or a win with costs on an indemnity basis.

OTHER MATTERS

In Phoenix Finance Ltd v Federation Internationale de l’Automobile & Ors [2002] EWHC 1028 (Ch), [2003] CP Rep 1, (2002) The Times, 27 June, the Chancery Division of the High Court held that it is not the law that an indemnity costs order will only be made if the conduct complained of has increased the costs that are recoverable.

The question is the reasonableness or otherwise of the conduct and is not dependent upon whether the conduct, whether reasonable or unreasonable, has increased the costs payable.

WILL PROPORTIONALITY ENCOURAGE COURTS TO MAKE INDEMNITY COST ORDERS?

It will be interesting to see if a new line of awards on the indemnity basis emerges on the grounds that although the costs were disproportionate to the matters in issue there were, nevertheless, good reasons for incurring them and therefore the award should be on the indemnity basis so as to avoid the risk of reduction on the ground of disproportionality on the standard basis.

COSTS OF COSTS

In Zissis v Lukomski & Anor [2006] EWCA Civ 341, [2006] 1 WLR 2778, [2006] 15 EG 135 (CS)

the District Judge had awarded costs on the indemnity basis on the ground that if parties litigate only as to costs, then it seemed to him that they must bear a greater risk that if they are unsuccessful they will be ordered to pay costs on the indemnity basis. In allowing an appeal against that order the Court of Appeal held that there is no reason why parties litigating over costs alone should be at any greater risk of an award of indemnity costs than those litigating over other matters.

EXPERT EVIDENCE

In Siegel v Pummell [2015] EWHC 195 (QB)

the High Court ordered that the costs of the recall of an expert witness to deal with a written statement produced by the other side’s expert during the trial and at the order of the court should be paid on an indemnity basis.

The court said:-

“37.  In my judgment, however, the fact that the court was obliged to ask Professor Trimble, in the middle of his evidence, to provide a written statement as to what exactly his evidence was and the basis upon which he was saying that the Claimant’s continuing symptoms were psychogenic did arise from serious shortcomings in the way in which Professor Trimble approached the giving of his evidence. It was helpful to the court to have that material but it was necessary for the Claimant to recall Dr Allder to deal with this new basis upon which Professor Trimble was finally presenting his evidence.

38. In my judgment, that conduct on the part of Professor Trimble was so out of the norm that it justifies an order for indemnity costs.

39. Accordingly, I order that the costs of the recall of Dr Allder, occasioned by the production by Professor Trimble of the final written statement of his position shall be awarded on an indemnity basis. I make an order for indemnity costs but limited in that way.”

In Balmoral Group Ltd v Borealis (UK) (Ltd) [2006] EWHC 2531 (Comm), [2006] All ER (D) (183) Oct

the deficient expert evidence produced by the unsuccessful claimant had led to unnecessary costs being incurred by the defendant and accordingly the costs incurred by the defendant in that respect were awarded on the indemnity basis.

CPR 61

In MIOM 1 Ltd and Another v Sea Echo E.N.E (No. 2) [2011] EWHC 2715 (Admiralty), [2011] All ER (D) 51 (Nov)

the High Court said that CPR 61 does not provide for costs on the indemnity basis where a CPR Part 61 offer is successful, whereas CPR Part 36 does provide for indemnity costs when a CPR Part 36 offer is successful.

That was a clear indication that the authors of Part 61 did not intend that indemnity costs should be awarded merely because the Part 61 offer had been successful.

In those circumstances, it was not appropriate in a collision action in the Admiralty Division of the High Court, governed by Part 61, to order costs on the indemnity basis merely because an offer had been successful.

INDEMNITY COSTS AGAINST NON-PARTIES

In Excelerate Technology Ltd v Cumberbatch [2015] EWHC B1 Mercantile

the court joined a party who had direct control over the second defendant company to the action for the purpose of costs and then made an indemnity costs order against that person.

Third Party Funders

In Excalibur Ventures and Others v Psari Holdings and others [2014] EWHC 3436

the court awarded costs on an indemnity basis against third party funders.

The claimants brought what turned out to be a very speculative claim against the defendants and consequently costs were awarded against them on an indemnity basis.

However they did not pay and an application was made that the third party funders pay; some admitted liability to pay but not on an indemnity basis and others denied liability and one third party funder did not acknowledge service.

The claimants had been ordered to provide security for costs but there was a shortfall of £4.8 million between the security provided and the amount of costs.

The security that was paid, as ordered, was £17.5 million and that was supplied from funds from three sets of third party funders.

The basis of the security ordered was, as normal, the standard basis and the shortfall between the security provided and the amount of costs was almost entirely represented by the difference between standard costs and indemnity costs.

The court held that the fact that the security was inadequate was not a ground for declining to make a non-party costs order; indeed it may be the reverse – see Petromec Inc v Petroleo Brasileiro SA Petrobras [2006] EWCA Civ 1038 and Dolphin Quays Developments v Mills [2008] EWHC Civ 385.

At paragraph 58 of the judgment Christopher Clarke LJ sets out a lengthy list of reasons as to why he awarded indemnity costs against the claimant.

The judge then said:-

“60. The purpose of an order for indemnity costs is not to impose a penalty on the unsuccessful litigant (or his funders). It is to afford the successful party a more generous criterion for assessing which of his actual costs should be paid by his opponent because of the way in which the latter, or those in his camp, have acted. I set out some of the principles relating to the grant of indemnity costs in the costs judgment.”

The judge then dealt with the law concerning making a costs order against a non-party, commenting that the discretion under section 51(3) of the Senior Courts Act 1981 is very wide and the test is whether in all the circumstances it is just to exercise the power – see Globe Equities Ltd v Globe Legal Services Ltd [1999] EWCA Civ 3023 (see my piece Wasted Costs and Non-Party Costs Orders).

That discretion extends to the form of the order and the proportion of any costs to be paid and the amount of any award – see Nelson v Greening [2007] EWCA Civ 1358.

A third party order does not have to be on the basis of joint and several liability with the litigant.

Although there can be no comprehensive checklist of necessary or sufficient factors – see Systemcare (UK) Ltd v Services Design Technology Ltd [2011] EWCA Civ 546 [26] [64], the principles upon which the discretion should be issued were set out in Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 39 as follows:-

“(1) A costs order against a non-party is “exceptional”, but “exceptional” means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such “exceptional” case is whether in all the circumstances it is just to make the order.”

(2) The discretion will not generally be exercised against “pure funders” but where;

“the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party’s costs. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is “the real party” to the litigation…”

(3) The most difficult cases are those in which non-parties fund receivers or liquidators (or, indeed financially insecure companies generally, in litigation designed to advance the funder’s own financial interests. Lord Brown said this at [29]:-

“In the light of these authorities their Lordships would hold that, generally speaking, where a non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, he should be liable for the costs if his claim or defence or appeal fails.”

(4) Where a funder says that there is no impropriety in promoting a claim because it received “encouraging advice” from its lawyers;

“This cannot, however, avail them. The authorities establish that, whilst any impropriety or the pursuit of speculative litigation may of itself support the making of an order against the non-party, its absence does not preclude the making of such an order.”

On this point the judge concluded:-

“66. In the light of those principles I have no doubt that Psari and Mr Lemos… should be liable to the defendants for their costs. The claim could not have been brought without their assistance; they stood to benefit from its success to the tune of a healthy multiple of their investment. That the pursuit of speculative litigation is in the same category and to be viewed in the same way as impropriety for these purposes was affirmed by Rix LJ in Goodwood Recoveries Ltd v Breen [2005] EWCA Civ 414 at [59]. Similar considerations apply to the other funders.

67. In the same case Rix LJ, with whom May LJ agreed, accepted that where a non-party director could be described as “the real party”, seeking his own benefit, controlling and/or funding the litigation, then:

“even where he has acted in good faith or without any impropriety, justice may well demand that he is liable in costs on a fact sensitive and objective assessment of the circumstances”.

This is a change from the earlier requirement that there must be impropriety or a lack of good faith as set out in Metalloy Supplies Ltd v M/A. (UK) Ltd [1996] EWCA Civ 671, 1620; this approach was applied in Landare Investments Ltd v Welsh Development Agency [2004] EWHC 946 (QB).

In Systemcare (UK) Ltd v Services Design Technology Ltd [2011] EWCA Civ 546 the court pointed out the “and/or” formulation and said that it was not necessary for both elements to be present. So a third party can be liable in costs if they have controlled or funded the litigation. In Sims v Hawkins [2007] EWCA Civ 1175 the court referred to the principal question as “whether the non-party (who renders himself liable to the regime, whether by funding or controlling the litigation or even in some other way)” was the “real party” to the litigation.”

Indemnity Costs against the Funders 

The judge then went on to consider the issue of whether the costs to be paid by the funders should be on the indemnity basis.

The judge had no doubt that costs should be ordered on that basis if indemnity costs were appropriate generally in the case, and he had found that they were. “To do otherwise would, in my judgment, be unfair to the Defendants and their personnel, who were on the receiving end of claims and actions of the character that I described in the costs judgment.”

The Divisional Court had taken a similar view in R v SSHD Ex Parte Osman [1993] COD 204 and a similar approach was taken by the court in Murphy v Rayner [2011] EWHC 1 (Ch).

The judge said:-

“112. To make an order for indemnity costs would not be to penalize but to recompense. The sum presently in issue – about £ 4.8 million – is not disproportionate to the total monies contributed by Psari (and other funders), or to the individual contributions of most of them, and certainly not disproportionate to the anticipated return.”

The judge then reviewed, at length, the authorities in relation to indemnity costs against third party funders, which are essentially fact sensitive. The judge had this to say:-

“128. I recognize that there are, in this context, potentially competing public policies. If professional funders are exposed to the risk not only of standard but also of indemnity costs they may decline to fund, or only be prepared to do so at a higher cost or, perhaps more likely, against some form of indemnity or an increased reward for success, even in relatively standard cases. In either case access to justice may be curtailed…

129. I do not regard these considerations as compelling. Indemnity costs are awarded in circumstances (including but not limited to the conduct of a party and not necessarily involving dishonest, morally culpable or improper behaviour) which are outside the norm.”

Wasted Costs

The judge also said that he did not regard the possibility of a wasted costs order against the claimant’s solicitors, Clifford Chance, as a reason not to make an indemnity costs order against the third party funders.

The “Arkin Cap” and Indemnity Costs

The principle of the “Arkin Cap” is that a professional funder should normally be potentially liable to the opposing party only to the extent of the funding provided. Thus if a funder provides £1 million they should not be liable to the other side for more than £1 million.

Here the court explained it in this way:-

“70. The position of a professional funder i.e. a funder who has a commercial interest in the outcome of the litigation, as opposed to a “pure funder” was considered by the Court of Appeal in Arkin v Borchard Lines Ltd (numbers 2 and 3) [2005] EWCA Civ 655. The Court recognised that there were two competing principles. The first was that costs should follow the event so that a funder who wholly or partly causes the defendant to incur costs should be liable for those costs. The second was the policy of ensuring access to justice. Exposure of funders to the risk of having to pay costs of the opposing party assessed on an indemnity basis might increase the risk and hence the price of funding litigation.

71. The solution derived by the Court was to hold that a professional funder who financed part of a claimant’s costs of litigation (£1.3 million in respect of the cost of expert evidence), should be potentially liable for the costs of the opposing party to the extent of the funding provided. The Court said that it could see no reason in principle why the solution suggested should not also apply where the funder had contracted the greater part, or even all, of the expenses of the action. But it reached no decision on the point.

72. It seems to me that it is appropriate to apply the Arkin Cap in the present case. The position might be different if a funder had behaved dishonestly or improperly or if, as the Court put it in Arkin, “the funding agreement falls foul of the policy considerations which render an agreement champertous” e.g. if the funder has taken complete control over the litigation. In such a case it may be that there should be no cap at all.”

What was the Funder’s Exposure?

Here the court considered, apparently for the first time in any case, whether the cap should be the sum contributed by the funders for the claimant’s costs and thus not take into account the additional money provided for security of costs or whether it should be the total sum provided, including the sum provided for security of costs.

The court found that it was the total sum provided, including the sum provided for security of costs.

Thus if a funder provided £5 million towards the Claimant costs and then say £7 million for security of costs its total exposure in relation to an adverse costs order is £12 million.

Of course the amount provided by way of security of costs would go straight to the other party and would thus reduce the balance payable and thus it would not always be the case that the total further sum payable would equal the total sum invested by the funder.

The judge said:-

“135. The provision of money to Excalibur in order that it may provide security for costs is not the equivalent of a payment of costs ordered at the end of the case. It was a form of funding of the claim in exchange for a return attributable to the monies provided for that purpose – in effect an investment.”

The judge went on to say:-

“137. If the position were otherwise a funder whose sole contribution was to provide money for security for costs, without which the action would not have continued, would be in the happy position of facing no possible exposure under section 51; whereas those who funded the costs would bear that burden (alone). This would be the position even though, had the claim succeeded, the security for costs provider would have a right to share in the proceeds increased by a percentage reflecting what he had contributed in respect of security. In effect such a provider would have, so far as exposure to an order under section 51 was concerned, a “free ride”, on the back of those financing the costs. This could not be just and cannot be right.”

PART 36

In this piece I have looked at indemnity costs orders under CPR Part 44, and as set out above these should only be ordered when there has been conduct outside the norm.

Under Part 36 a claimant who matches his or her own Part 36 offer should get indemnity costs as a matter of right, without there being any suggestion of misconduct on the part of the defendant.

Thus very different considerations apply and I deal with these in my piece – Part 36: The Dry Salvages.

However the consequences of indemnity costs orders under Part 36 are as above, that is that proportionality does not apply and any doubts are resolved in favour of the receiving party rather than the paying party.

REFERENCES

Statutes

Senior Courts Act 1981

• Section 51(3)

Statutory Instruments

 Civil Procedure Rules 1998, S.I. 1998/3132

• CPR 3.18
• CPR 36
• CPR 44
• CPR 44.2(1)
• CPR 44.2(4)
• CPR 44.2(5)
• CPR 44.3
• CPR 44.3(3)
• CPR 44.3(4)
• CPR 61
• Practice Direction 3E, para 7.3

Case Law

 Arkin v Borchard Lines Ltd (numbers 2 and 3) [2005] EWCA Civ 655

Balmoral Group Ltd v Borealis (UK) (Ltd) [2006] EWHC 2531 (Comm), [2006] All ER (D) (183) Oct

Brawley v Marczynski & Anor (2) [2002] EWCA Civ 1453, [2002] 4 All ER 1067 [2003] 1 WLR 813

Bolton Metropolitan District Council v Secretary of State for the Environment (Practice Note) [1995] 1 WLR 1176 (Link not available)

Christian v The Commissioner of Police for the Metropolis [2015] EWHC 371 (QB) 

Courtwell Properties Ltd v Greencore PF (UK) Ltd [2014] EWHC 184 (TCC) 

Digicel (St Lucia) Ltd & Ors v Cable and Wireless PLC & Ors [2010] EWHC 888 (Ch)

Dolphin Quays Developments v Mills [2008] EWHC Civ 385

Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 39

Elvanite Full Circle Ltd v AMEC Earth and Environment (UK) Ltd [2013] EWHC 1643 (TCC), [2013] 4 All ER 765, [2013] BLR 473

Excalibur Ventures and Others v Psari Holdings and others [2014] EWHC 3436

Excelerate Technology Ltd v Cumberbatch [2015] EWHC B1 Mercantile

Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (a firm) [2002] EWCA Civ 879

Fitzpatrick Construction Ltd v Tyco Fire and Integrated Solutions (UK) (Ltd) [2008] EWHC 1391 (TCC)

Globe Equities Ltd v Globe Legal Services Ltd [1999] EWCA Civ 3023 

Goodwood Recoveries Ltd v Breen [2005] EWCA Civ 414

Henry v News Group Newspapers Ltd [2013] EWCA Civ 19, [2013] 2 All ER 840

Kellie v Wheatley and Lloyd Architects Ltd [2014] EWHC 2886 (TCC), [2014] All ER (D) 152 AUG

Kiam II v MGN Ltd (2) [2002] EWCA Civ 66 

Landare Investments Ltd v Welsh Development Agency [2004] EWHC 946 (QB) (Link not available)

Lownds v Home Office [2002] EWCA Civ 365, [2002] 4 All ER 775, [2002] 1WLR 2450

Metalloy Supplies Ltd v M/A. (UK) Ltd [1996] EWCA Civ 671, 1620

MIOM 1 Ltd and Another v Sea Echo E.N.E (No. 2) [2011] EWHC 2715 (Admiralty), [2011] All ER (D) 51 (Nov) 

Murphy v Rayner [2011] EWHC 1 (Ch)

Nelson v Greening [2007] EWCA Civ 1358

Petromec Inc v Petroleo Brasileiro SA Petrobras [2006] EWCA Civ 1038

Phoenix Finance Ltd v Federation Internationale de l’Automobile & Ors [2002] EWHC 1028 (Ch), [2003] CP Rep 1, (2002) The Times, 27 June 

R (Corner House Research) v Secretary of State for Trade and Industry [2005] EWCA Civ 192 R v SSHD Ex Parte Osman [1993] COD 204 (Link not available) 

Reid Minty v Taylor [2001] EWCA Civ 1723

Siegel v Pummell [2015] EWHC 195 (QB)

Sims v Hawkins [2007] EWCA Civ 1175

Systemcare (UK) Ltd v Services Design Technology Ltd [2011] EWCA Civ 546 

Three Rivers District Council v The Governor and Company of the Bank of England [2006] EWHC 816 (Comm) 

Wates Construction Ltd v HGP Greentree Allchurch Evans Ltd [2005] EWHC 2174 (TCC) 

Williams v Jervis [2009] EWHC 1837 (QB)

Zissis v Lukomski & Anor [2006] EWCA Civ 341, [2006] 1 WLR 2778, [2006] 15 EG 135 (CS)

The Jackson Reforms came in on 1 April 2013 to an almost unanimous chorus of approval.  Two years on, how are they doing?

Proportionality

Speaking to Liverpool Law Society on 11 March 2015 Dominic Regan, referring to the new proportionality test, said “which no one but no one comprehends”.

Provisional Assessment

“The six week target for provisional assessment is a joke – no court is complying. The Practice Direction is pointless if judges are not given the resources to comply. Other than in London, District Judges are doing provisional assessments without seeing the papers – you may as well toss a coin.”

– Senior Courts Costs Office Master Haworth speaking on 25 February 2015

Damages-Based Agreements

“The Damages-Based Agreements Regulations are unworkable and dead. It is astonishing that the MOJ embraced the Jackson Reforms but then shunned his plea to allow hybrid agreements. The sensible alternative funding option was not given a chance”.

– Dominic Regan speaking to Liverpool Law Society on 11 March 2015.

Famously dubbed “Don’t Bother Agreements”.

Relief from Sanctions

“Unfortunately, following the introduction of this rule, a series of judicial decisions attached such a high degree of weight to factor (b) that the cure was worse than the original disease. Litigants were being denied access to justice for breaches which were of little consequence. Satellite litigation was driving up costs.”

– Lord Justice Jackson himself – 20 October 2014, addressing Law Society Conference on Commercial Litigation

The relative peace following the Denton decisions may be about to end as the Supreme Court has granted leave to appeal against the Court of Appeal’s Relief from Sanctions decision in

Thevarajah v Riordan [2014] EWCA Civ 14

Recoverability

The Supreme Court has suggested that recoverability may be illegal and that all cases with recoverability dating back to 1 April 2000 may have to be revisited.

This is the effect of the original decision in Coventry and Others v Lawrence and Another (No. 2) [2014] UKSC 46.

In February 2015 the Supreme Court sat as a seven judge court for three days and the judgment is expected in July 2015.

In relation to mesothelioma claims the Government’s attempt to end recoverability were quashed by the Administrative Court in judicial review proceedings.

The Government has abandoned plans to end recoverability in insolvency proceedings.

Fixed Recoverable Costs

An unimplemented part of the Woolf Report.  The one unqualified success of the Jackson Reforms, although many would disagree about even this.

Costs Budgeting

High Court Master David Cook has said that the litigation system will “cease to function” unless radical changes are made to costs budgeting and that Lord Justice Jackson’s vision of a gradual implementation of costs budgeting “did not translate into reality”.

Litigants in Person

Litigants in person are clogging up the courts and even The Spectator has said that the legal aid cuts are costing more than they are saving, a view also taken by the Public Accounts Committee of the House of Commons, and the Justice Committee of the House of Commons.

Costs of Litigation

The Lord Chief Justice, in his 2014 report, to Parliament said:

“……….steps must be taken to examine why the cost of legal services is increasing despite the significant change in the legal market and the great number of providers of legal services.  Competition should have reduce cost significantly but this is not happening”.

Meanwhile on 9 March 2015 issue fees were increased massively, in some instances by more than 600%.

Legal Aid

Scrapped.  Lord Justice Jackson opposed any legal aid cuts.  His plea fell on deaf ears.

Court fees

Increased by up to 600% on 9 March 2015.  Lord Justice Jackson opposed any increase in court fees.  His plea fell on deaf ears.

Qualified One Way Costs Shifting

Unbelievably complex.  Concept of fundamental dishonesty to defeat costs protection has been hijacked by the government so that the whole of a successful claim is lost if there is any fundamental dishonesty in relation to any part – Section 57 Criminal Justice and Courts Act 2015.

Apart from that the Jackson Reforms have been a huge success.

Kerry is conducting a nationwide series of seminars on Qualified One-Way Costs Shifting.  For more details click here.

Such arrangements were not uncommon; it is widely used in cases where Before the Event legal insurance is in place and was often used where claims were funded by a Trade Union. The issue affects a huge number of agreements.

This scenario is simply not addressed in the rules, possibly because the members were unaware of the existence of such arrangements.

As we have seen above, QOCS does not apply to “proceedings where the claimant has entered into a pre-commencement funding arrangement (as defined in Rule 48.2)”. (CPR 44.17).

CPR 48.2 (1) says:-

“(i)          a funding arrangement as defined by rule 43.2(1)(k)(i) where –

(aa)        the agreement was entered into before 1 April 2013 specifically for the purposes of the provision to the person by whom the success fee is payable of advocacy or litigation services in relation to the matter that is the subject of the proceedings in which the costs order is to be made…”

Clearly a Conditional Fee Agreement with a nil success fee does indeed have a success fee, albeit that that success fee is nil.

However in circumstances where there is no success fee payable, because it is nil, it seems to me that there is no provision to the person “by whom the success fee is payable” of the relevant services so as to come within the definition of “a funding arrangement” so as to disqualify the claimant from the protection of QOCS.

The Oxford English Dictionary defines “payable” as:-

1. that is to be paid; due, owing; falling due

2. that can be paid; capable of being paid

Pay is defined as:-

“The action of paying, as a verb it is defined as:-

1.  to give
2. (personal) what is due in discharge of a debt, or as a return for services done, or goods received, or in compensation for injury done; to remunerate, recompense.
3. to give a recompense for, to recompense, reward, requite (a service, work, or action of any kind)
4. to give, deliver, or hand over (money, or some other thing) in return for goods or services, or in discharge of an obligation; to render (a sum or amount owed).
5. to give or hand over the amount of, give money in discharge of (a debt, dues, tribute, tithes, ransom, fees, hire, wages, etc.)
6. to give money or other equivalent in return for something or in discharge for an obligation;”

In my view there cannot be payment of zero and therefore there can be nothing payable and therefore a nil success fee cannot be “payable” and therefore such an arrangement is not disqualified from QOCS protection.

Thus on balance, my view is that a pre-1 April 2013 Conditional Fee Agreement with a success fee set at nil DOES attract the protection of QOCS, but that is only my view on balance.

It would have been nice had the Rules Committee dealt with this in their rules or in the Practice Direction accompanying those rules.

The courts must give a purposive construction to legislation and secondary legislation and rules approved by Parliament. Clearly the intention was that a party who is not seeking to recover any additional liability from the other side should attract QOCS protection, or to put it another way a person who is seeking to recover an additional liability from the other side should be deprived of QOCS protection.

In those circumstances, where there is nothing in fact recoverable from the other side, the purposive construction would give the claimant QOCS protection.

Note that if there was any recoverable After-the-Event insurance premium that disqualifies the claimant from QOCS protection.

General

The power of the court to award Wasted Costs against a legal representative arises from the Courts and Legal Services Act 1990, Section 4(1), which enacted a new section 51 of the Supreme Court (now Senior Courts) Act 1981 (“SCA 1991”), which relates to both the High Court and County Court, as well as the Court of Appeal. The power to make a non-party costs order also derives from section 51. Wasted costs orders can only be made against representatives; non-party costs orders can be made against anyone.

Sections 51(1) and (3) of the Senior Courts Act 1981 read:-

“51         Costs in civil division of Court of Appeal, High Court and County Courts.

1. Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in—

1. the civil division of the Court of Appeal;
2. the High Court; and
3. any county court,shall be in the discretion of the court.

The court shall have full power to determine by whom and to what extent the costs are to be paid.”

WASTED COSTS

Section 51(6) deals with wasted costs orders.

“(6)        In any proceedings mentioned in subsection (1), the court may disallow, or (as the

case may be) order the legal or other representative concerned to meet, the whole of any wasted costs or such part of them as may be determined in accordance with rules of court.”

The concept of wasted costs includes both disallowing costs and also ordering actual payment of costs.

Need for evidence as to costs wasted

In Nwoko v Oyo State Government Nigeria [2014] EWHC 4538

the judge said:-

“Mr Newman originally suggested that I should somehow summarily assess those costs by taking a broad brush. At one stage it was suggested that the relevant figure was 20%, and another time it was suggested it should be 80% of that figure. That approach is quite unacceptable. In order for the court to deal with it, even on a broad brush basis, it is incumbent upon a party to come before the court with proper evidence to identify what costs have been caused by what deficient conduct. I accept that in many cases it may be that some estimates have to be made, but it is unacceptable for any party simply to throw at the court a large schedule, a schedule containing a large bunch of figures which the court is then expected to plough through in order to arrive at some principled decision. It is simply impossible for the court to do that.”

A party can succeed in an application for a wasted costs order against its own lawyer, or against the other side’s lawyer (Medcalf v Mardell [2002] UKHL 27 [2003]).

It is anticipated that the introduction of Qualified One-Way Costs Shifting, and consequent non-liability of a losing claimant in a personal injury matter to pay costs, will lead to an increase in applications by defendants for wasted costs orders against solicitors for claimants. The wasted costs jurisdiction is not affected by Qualified One-Way Costs Shifting.

Although the system has been in place since 1 April 2013 it only applies to cases where there is no recoverable additional liability, that is a success fee or After-the-Event insurance premium, and thus there is a long tail of pre 1 April 2013 cases. Furthermore the issue of whether a case attracts Qualified One-Way Costs Shifting or not cannot be made until the end of the case, and therefore there needs to be either a trial or a disposal hearing. Consequently few cases have yet reached that stage and we do not yet know how successful defendants who would be unable to recover costs from the actual claimant, will use the wasted costs jurisdiction.

Non-party costs orders are bound to increase as a result of Qualified One-Way Costs Shifting as the CPR gives specific power for such orders to be made against the recipients of special damages, subject to exceptions.

A solicitor representing a party in an action can be made the subject of a non-party costs order, which involves a lower threshold for a wasted costs order.

Wasted Costs Orders

The SCA 1981, section 51(7) defines the concept of “wasted costs” as being costs incurred by a party resulting from the improper, unreasonable or negligent act or omission of any legal or other representative or anyone employed by the representative, or costs which, in the light of any such act or omission occurring after the costs are incurred, the court considers it is unreasonable to expect that party to pay.

A wasted costs order always involves criticism of the party against whom it is made. Consequently such orders are likely to be on the indemnity basis, although the court is free to make a wasted costs order on the standard basis.

A lawyer is not allowed to charge her or his own client those costs. So if, for example, a wasted costs order is made at the suit of the other party the lawyer cannot pass that charge on to the client.

Where the court is considering making a wasted costs order under this section the rule which applies is CPR 46.8 which states as follows:

“46.8

1. This rule applies where the court is considering whether to make an order under section 51(6) of the Senior Courts Act 1981³ (court’s power to disallow or (as the case may be) order a legal representative to meet, ‘wasted costs’).
2. The court will give the legal representative a reasonable opportunity to make written submissions or, if the legal representative prefers, to attend a hearing before it makes such an order.
3. When the court makes a wasted costs order, it will –

(a)specify the amount to be disallowed or paid; or

(b)direct a costs judge or a district judge to decide the amount of costs to be disallowed or paid.

4. The court may direct that notice must be given to the legal representative’s client, in such manner as the court may direct –

(a) of any proceedings under this rule; or

(b) of any order made under it against his legal representative.

Practice Direction 46

“5.1        A wasted costs order is an order –

(a) that the legal representative pay a sum (either specified or to be assessed) in respect of costs to a party; or

(b) for costs relating to a specified sum or items of work to be disallowed.

5.2          Rule 46.8 deals with wasted costs orders against legal representatives. Such orders can be made at any stage in the proceedings up to and including the detailed assessment proceedings. In general, applications for wasted costs are best left until after the end of the trial.

5.3          The court may make a wasted costs order against a legal representative on its own initiative.

5.4          A party may apply for a wasted costs order –

(a) by filing an application notice in accordance with Part 23; or

(b)by making an application orally in the course of any hearing.

5.5          It is appropriate for the court to make a wasted costs order against a legal representative, only if –

(a) the legal representative has acted improperly, unreasonably or negligently;

(b) the legal representative’s conduct has caused a party to incur unnecessary costs, or has meant that costs incurred by a party prior to the improper, unreasonable or negligent act or omission have been wasted;

(c) it is just in all the circumstances to order the legal representative to compensate that party for the whole or part of those costs.

5.6          The court will give directions about the procedure to be followed in each case in order to ensure that the issues are dealt with in a way which is fair and as simple and summary as the circumstances permit.

5.7          As a general rule the court will consider whether to make a wasted costs order in two stages –

(a) at the first stage the court must be satisfied –

(i) that it has before it evidence or other material which, if unanswered, would be likely to lead to a wasted costs order being made; and

(ii) the wasted costs proceedings are justified notwithstanding the likely costs involved;

(b) at the second stage, the court will consider, after giving the legal representative an opportunity to make representations in writing or at a hearing, whether it is appropriate to make a wasted costs order in accordance with paragraph 5.5 above.

5.8          The court may proceed to the second stage described in paragraph 5.7 without first adjourning the hearing if it is satisfied that the legal representative has already had a reasonable opportunity to make representations.

5.9          On an application for a wasted costs order under Part 23 the application notice and any evidence in support must identify –

(a) what the legal representative is alleged to have done or failed to do; and

(b) the costs that the legal representative may be ordered to pay or which are sought against the legal representative.”

Section 67 of the Criminal Justice and Courts Act 2015 requires a court to report to the appropriate regulatory body any lawyer who is made the subject of a wasted costs order.

“67         Wasted costs in certain civil proceedings

This sectionnoteType=Explanatory Notes has no associated

1. Section 51 of the Senior Courts Act 1981 (costs in civil division of Court of Appeal, High Court, family court and county court) is amended as follows.
2. After subsection (7) (wasted costs) insert—

“(7A)Where the court exercises a power under subsection (6) in relation to costs incurred by a party, it must inform such of the following as it considers appropriate—

(a) an approved regulator;

(b) the Director of Legal Aid Casework.”

3. After subsection (12) insert –

“(12A)In subsection (7A)—

“approved regulator” has the meaning given by section 20 of the Legal Services Act 2007;

“the Director of Legal Aid Casework” means the civil servant designated under section 4 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012.””

It is the court that makes the order for wasted costs not a costs judge. In the normal course of events it is the trial judge who should make the order. In Re P (a Barrister), (wasted costs order) [2001] EWCA Crim 1728, [2002] 1 Cr App Rep 207, (2001) Times, 31 July, the Court of Appeal held that in almost all wasted costs applications the trial judge should be the judge to deal with the matter. The court concluded that the jurisdiction was a summary jurisdiction to be exercised by the court which had ‘tried the case in the course of which the misconduct was committed’. Although the trial judge could decline to consider an application in respect of costs, it would only be in ‘exceptional circumstances’ that it would be appropriate to pass the matter to another judge.

As we have seen usually the trial judge will hear the wasted costs application.

However in Mengiste v Endowment Fund [2013] EWCA Civ 1003

the Court of Appeal held that this was an exceptional case where apparent bias had been shown by the judge and the Court of Appeal concluded that the judge should have recused himself.

Apparent bias was shown by:-

1. his criticisms of the solicitors as being responsible for the expert’s failings; these were unnecessary for his findings;
2. his criticisms left no scope for explanation by these solicitors, suggesting that the judge closed his mind;
3. the repetition of his criticisms of the solicitors.

Once a judge does deal with the wasted costs order it is difficult to overturn that decision, as in Persaud v Persaud [2003] EWCA Civ 394, 147 Sol Jo LB 301 where the Court of Appeal held that it was not right to interfere with the judge’s discretion.

The leading authority and guide to wasted costs is Ridehalgh v Horsefield [1994] Ch 205, [1994] 3 All ER 848, CA, where in appeals backed by the Bar Council, the Law Society and the Solicitors Indemnity Fund, the Court of Appeal set aside wasted costs orders against two solicitors and a barrister and in the lead case declined to make an order in a case referred to them by a different division of the Court of Appeal. In delivering the judgment of the court the Master of the Rolls said, at Page 38 LTL, that while judges must not reject the weapon which Parliament intended to be used for the protection of those injured by the unjustifiable conduct of the other side’s lawyers, they must be astute to control what threatened to become a new and costly form of satellite litigation.

Lord Bingham reiterated this view in Medcalf v Mardell [2002] UKHL 27 [2003] approving the approach of the Privy Council in a New Zealand case that wasted costs orders should be confined to questions which are apt for summary disposal by the court, such as failures to appear; conduct which leads to an otherwise avoidable step in the proceedings; the prolongation of a hearing by gross repetition or extreme slowness in the presentation of evidence or argument. Such matters can be dealt with summarily on agreed facts or after a brief enquiry. Any hearing to investigate the conduct of a complex action is itself likely to be expensive and time-consuming. Compensating litigating parties who have been put to unnecessary expense is only one of the public interests to be considered.

In Jackson v Cambridgeshire County Council UK EAT/0402/09, the Employment Appeal Tribunal (EAT) made the point that where an application cannot be fairly resolved without disproportionate investigation it can be dismissed on that basis alone.

In future, anyone considering applying for a wasted costs order should think twice.

The Practice Direction supplementing rule 46.8 helpfully embodies the major findings of the Court of Appeal in Ridehalgh. Because wasted costs orders are made under the statute, and rule 46.8 and its supplementary Practice Direction govern merely the practice and procedure, not the principles, this is an area in which decisions made prior to 26 April 1999 are still of relevance and assistance.

In Harrison v Harrison [2009] EWHC 428 QB, the High Court held that wasted costs were neither a punitive nor a regulatory jurisdiction, but rather a compensatory one and thus as a prerequisite an applicant had to show that the conduct complained of had caused them loss – see Ridehalgh.

In addition even where ‘improper, unreasonable and negligent’ conduct was shown, an order was within the court’s discretion.

Here the applicant applied for a wasted costs order against junior counsel who had acted for the respondent in a without notice application. Costs had been agreed at £205,000 of which all but £20,000 had been paid by the time of the application and the applicant conceded that the respondent was likely to pay the balance.

The applicant contended that the without notice application had been settled and argued by counsel without any or sufficient regard to her duty to bring to the attention of the court facts or arguments which were adverse to her client’s case and thus her conduct had been ‘improper, unreasonable and negligent’ in terms of section 51(7) of the SCA 1981.

The court held that on the balance of probabilities the applicant had failed to prove loss even if all of the allegations were proved, and thus no order should be made.

That judgment confirmed a three-stage test to be adopted when considering a costs order as set out in Re a Barrister (wasted costs order) (No 1 of 1991) [1993] QB 293, [1992] 3 All ER 429:

1. Has there been an improper, unreasonable or negligent act or omission?
2. As a result, had any costs been incurred by a party?
3. Should the court exercise its discretion to order the lawyer to meet the whole or any part of the relevant costs?

Only if all three questions were answered in the affirmative would an order be made. (See para 53.4 of the Practice Direction about costs supplementing CPR Pts 43–48.)

Improper, unreasonable or negligent conduct

“Improper” covered, but was not confined to, conduct which would ordinarily be held to justify disbarment, striking off, suspension from practice or other serious professional penalty. It also covered conduct which according to the consensus of professional, including judicial, opinion could be fairly stigmatised as being improper whether it violated the letter of a professional code or not (Page 23 Judgment, Ridehalgh v Horsefield [1994] Ch 205, [1994] 3 All ER 848, CA).

“Unreasonable” included conduct which was vexatious, designed to harass the other side rather than advance the resolution of the case: it made no real difference that the conduct was the product of excessive zeal and not improper motive.

Legal representatives should not lend assistance to proceedings which were an abuse of process and they were not entitled to use litigious procedures for purposes for which they were not intended, as by issuing or pursuing proceedings for purposes unconnected with success in the litigation, or pursuing a case known to be dishonest. Nor were they entitled to evade rules intended to safeguard the interests of justice, as by, knowingly failing to make full disclosure on a without notice application or knowingly conniving in incomplete disclosure of documents. However, conduct was not unreasonable simply because it led to an unsuccessful result or because other more cautious legal representatives would have acted differently. The acid test was whether the conduct permitted a reasonable explanation. It is not unreasonable to be optimistic.

“Negligent” did not mean conduct which was actionable as a breach of the legal representative’s duty to his own client. There is of course no duty of care to the other party. Negligence should be understood in an untechnical way to denote failure to act with competence reasonably expected of ordinary members of the profession. However, the court firmly rejected any suggestion that an applicant for a wasted costs order needed to prove under the negligence head anything less than he would have had to prove in an action for negligence. It adopted the test in Saif Ali v Sydney Mitchell & Co [1980] AC 198, [1978] All ER 1033, HL, ‘advice, acts or omissions in the course of their professional work which no member of the profession who is reasonably well-informed and competent would have given or done or omitted to do’; an error ‘such as no reasonably well-informed and competent member of that profession could have made’.

In Persaud v Persaud [2003] EWCA Civ 394, 147 Sol Jo LB 301, the Court of Appeal held that there had to be something more than negligence, more akin to abuse of process or breach of duty to the court, to make a legal representative subject to jurisdiction for a wasted costs order.

However, in Dempsey v Johnstone [2003] EWCA Civ 1134, [2004] PNLR 2, [2004] 1 Costs LR 41 the Court of Appeal held that negligence alone would justify the making of a wasted costs order, and the correct test was whether no reasonably competent legal representative would have continued with the action when there was a hopeless case.

Wasted costs orders should carefully balance two important public interests:

that lawyers should not be deterred from pursuing their clients’ interests by fear of incurring a personal liability to their clients’ opponents and that they should not be penalised by orders to pay costs without a fair opportunity to defend themselves and that such orders should not become a back-door means of recovering costs not otherwise recoverable against a legally aided or impoverished litigant; and

that litigants should not be financially prejudiced by the unjustifiable conduct of litigation by their or their opponents’ lawyers.

In Wall v Lefever [1998] 1 FCR 605, (1997) Times, 1 August, CA, Lord Woolf warned that appeals against wasted costs orders or the refusal thereof should not be used to create subordinate or satellite litigation which was as complex and expensive as the original litigation.

In Gill v Humanware Europe plc [2010] EWCA Civ 799, [2010] ICR 1343, [2010] IRLR 877, the Court of Appeal reviewed existing case law, in the context of an appeal from a decision of the Employment Appeal Tribunal (“EAT”).

The court accepted that the principles to be applied were the same as in a non-employment case. Employment tribunals and the EAT have their own set of rules but in relation to wasted costs the relevant wording is identical, rule 34C of the Employment Appeal Tribunal (Amendment) Rules 2004, stating:

“ (1)       The Appeal Tribunal may make a wasted costs order against a party’s representative.

(2)       …

(3)       “Wasted costs” means any costs incurred by a party (including the representative’s own  client and any party who does not have a legal representative):

(a)          as a result of any improper, unreasonable or negligent act or omission on the part of any representative; or

(b)          which, in the light of any such act or omission occurring after they were incurred, the Appeal Tribunal considers it reasonable to expect that party to pay.

Here there was a dispute about the facts of the alleged improper conduct of the respondent’s barrister at the employment tribunal hearing and the EAT made a wasted costs order against her, without giving her the chance to make oral submissions.

The Court of Appeal allowed her appeal and held that the jurisdiction in a wasted costs application should only be exercised in a reasonably plain and obvious case. Courts should think carefully before hearing a wasted costs application in a case in which there is a conflict of evidence to be resolved.

Here a better course would have been to report the matter to the Bar Standards Board, which could have investigated the alleged misconduct properly and, if appropriate, referred it to a hearing before a disciplinary tribunal, which had the power to order compensation.

In Casqueiro v Barclays Bank plc [2012] ICR Digest D 37

the Employment Tribunal allowed an appeal against a wasted costs order made by an Employment Tribunal Judge under Rule 48 of the Employment Tribunals Rules of Procedure 2004 where the Judge had failed to specify the amount, as required by Rule 48(7), but instead had ordered the costs to be assessed by the county court.

The EAT also held that the Employment Judge had failed to apply the correct test as set out in Ridehalgh v Horsefield, in particular by failing to address whether the representative’s conduct had caused the other party to incur unnecessary costs and whether it was just to order him to compensate the respondent for the whole or part of the costs.

Rule 48(1) allows for wasted costs orders against a party’s representative and Rule 48(7) provides:

‘“When a tribunal or employment judge makes a wasted costs order it must specify in the order the amount to be … paid.”’

Rule 41(1), which applies to an “ordinary” costs order, provides:

‘“The amount of a costs order against the paying party shall be determined in any of the following ways-

(a)          the tribunal may specify the sum which the paying party must pay to the receiving party…

(c)           the tribunal may order the paying party to pay the receiving party the whole or a specified part of the costs of the receiving party, with the amount to be paid being determined by way of a detailed assessment in a county court…”’

As there was no express provision in Rule 48 for county court assessment, in contrast to Rule 41(1)(c), there was no power to refer a wasted costs order to a county court for assessment.

The two-stage approach

The court will consider the making of a wasted costs order in two stages. First, the court must be satisfied that the evidence before it, if unanswered, would be likely to lead to a wasted costs order being made and the wasted costs proceedings are justified notwithstanding the likely costs involved. Secondly, the court will give the legal representative the opportunity to give reasons or show cause why the order should not be made and then consider, in the light of any such evidence, whether to make the wasted costs order. The Court of Appeal has emphasised that judges should approach their task with caution and, where possible, consider the applicability of other sanctions of a disciplinary nature. (See section 53.6 of the Practice Direction about costs supplementing CPR Pts 43–48.)

In Re Wiseman Lee (Solicitors) (Wasted Costs Order) (No 5 of 2000) [2010] EWCA Civ 799, [2010] ICR 1343, [2010] IRLR 877 the court made a wasted costs order against the defendant solicitors in their absence with permission to make representations against the order by a given date. When no representations were received, the order was drawn up. The solicitors’ appeal was allowed on the ground that a legal representative must be allowed to make representations before a wasted costs order is made under CPR 48.7(2). Although this was a criminal matter the principle applies equally to civil matters.

In Gill v Humanware Europe plc [2010] EWCA Civ 799, [2010] ICR 1343, [2010] IRLR 877 the Court of Appeal said that on the facts of that case the EAT should have referred the matter to the Bar Standards Board, rather than make a wasted costs order, and pointed out that the appropriate disciplinary body had power to order compensation.

Threats

The threat of a wasted costs order should not be used as a means of intimidation. However, if one side considered that the conduct of the other was improper, unreasonable or negligent and likely to cause a waste of costs it was not objectionable to alert the other side to that view. There appears to be a fine line between ‘threatening’ and ‘alerting’.

Advocacy

Although the legislation intended to encroach on the traditional immunity of the advocate by subjecting him or her to wasted costs jurisdiction, full allowance must be made for the fact that an advocate in court often had to make decisions quickly and under pressure. Mistakes would inevitably be made, things done which the outcome showed to have been unwise. Advocacy was more an art than a science; it could not be conducted according to formulae. It was only when, with all allowances made, an advocate’s conduct of court proceedings was quite plainly unjustifiable that it could be appropriate to make a wasted costs order against him.

In Robinson and another (appellants) v Hall Gregory Recruitment Ltd [2014] IRLR 761 EAT, the Employment Appeal Tribunal reminded itself that the wasted costs jurisdiction should be approached with caution, bearing in mind the constitutional position of the advocate and the fact that from their point of view the jurisdiction was penal.

The application

Applications for wasted costs are best left to the end of the trial and are governed by CPR Pt 23. Applications can be made orally in the course of any hearing or on application under CPR Pt 23. Such application, and the evidence in support, must identify what the legal representative is alleged to have done or not to have done and the costs that he may be ordered to pay. In addition the court has power to make a wasted costs order on its own initiative. The court should be slow to initiate an enquiry because:

1. the court does not serve a pleading informing the lawyer of the precise charges to be answered;
2. the court will be both the prosecutor and the adjudicator;
3. difficult and embarrassing issues on costs could arise if an order was not made. The costs of the enquiry would have to be borne by someone and it would not be the court.

In Gill v Humanware Europe plc [2010] EWCA Civ 799, [2010] ICR 1343, [2010] IRLR 877, the Court of Appeal held that the procedure to be adopted should depend upon the circumstances. Sometimes the application will be made at the end of a substantive hearing, sometimes not. Sometimes the person against whom it is to be made will have been present throughout that hearing, sometimes he or she will not.

If the application is made at the end of a hearing at which the respondent has been present, it may be possible to deal fairly with the whole application there and then. On the other hand it may be necessary to allow an adjournment for the respondent to make representations or even to call evidence from witnesses not then present.

In particular, there is no invariable requirement for a two-stage process, at which the court considers first whether there is a strong prima facie case for the making of a wasted costs order and then at a second stage decides whether it is appropriate to make one.

If the respondent has not been present at the hearing at which his or her conduct has been considered, there will have to be an adjournment. Whether or not there will then have to be an oral hearing will depend upon the nature of the issues in question and the way in which they will have to be resolved.

A relevant issue is the amount of money at stake. If it is small then it may be sensible, fair and proportionate to decide matters without an oral hearing. If the sum is large, or if a reputation is at stake, or issues of fact have to be decided, then an oral hearing will be necessary.

If no oral hearing is to be held then the respondent to the wasted costs application should be asked if he or she wishes to amplify their written submissions in the light of that decision.

In Ridehalgh v Horsefield [1994] Ch 205, [1994] 3 All ER 848, CA, the Court of Appeal considered some situations where it would be appropriate for the judge to initiate a wasted costs enquiry. These included a failure to appear at court, lateness and negligence leading to an otherwise avoidable adjournment, gross repetition or extreme slowness.

Judges should not make lawyers ‘show cause’ where the issue went to the merits. This should be left to the parties. An example of a case where the court did intervene was R v Secretary of State for the Home Department, ex p Abbassi (1992) Times, 6 April, CA.

On an application under CPR Pt 23, the court may proceed to the second of the two-stage process without adjourning the hearing if it is satisfied that the legal representative has already had a reasonable opportunity to give reasons why the court should not make a wasted costs order; in other cases the court will adjourn the hearing before proceeding to the second stage (See para 53.7 of the Practice Direction about costs supplementing CPR Pts 43–48).

The court should determine the procedure to be followed to meet the requirements of the individual case. The overriding requirements are that any procedure has to be fair and as simple and summary as the circumstances permit. Elaborate pleadings should in general be avoided. No formal process of discovery or interrogatories would be appropriate. The court could not imagine any circumstances in which the applicant should be permitted to interrogate the respondent lawyer (Ridehalgh v Horsefield [1994] Ch 205, CA, p 38).

In Godfrey Morgan Solicitors Ltd v Cobalt Systems Ltd (UKEAT/0608/10/LA) [2012] ICR 305, 155 Sol Jo (no 34) 31, EAT, the EAT held that in this context ‘interrogate’ meant to serve written interrogatories and did not prevent the cross-examination of the lawyer on the subject of the application.

On the other hand, the respondent must be entitled to present a full defence and must be informed of the conduct complained of, the amount claimed and the alleged causal link between the two. Hearings should be measured in hours, not days or weeks.

One of the drawbacks of the summary procedure was that the lawyers involved were often unable to make use of documents protected by legal professional privilege to justify their actions, it being a matter for the clients alone to decide whether to waive their privilege. The matter was considered by the House of Lords in Medcalf v Mardell [2002] UKHL 27, [2003] 1 AC 120, [2002] 3 All ER 721 on 27 June 2002. The court concluded that a party can seek a wasted costs order against his opponent’s legal representatives as well as his own. However, this poses a problem if the opponent does not wish to waive his privilege to assist his legal representative. The legal representative then has no ammunition with which to defend himself. The case centred around allegations of fraud contained in a notice of appeal drafted by leading and junior counsel and whether counsel had before them reasonably credible material which as it stood established a prima facie case of fraud. In order to justify their pleading counsel would need to obtain a waiver of privilege from their clients to release such material: such waiver was not forthcoming. The barristers argued that that they could not tell their tale to the court and fairness required that all relevant material should be before the court and if this could not happen, then no order for wasted costs should be made.”

At paragraph 23 Lord Bingham stated:

“Where a wasted costs order is sought against a practitioner precluded by legal professional privilege from giving his full answer to the application, the court should not make an order unless, proceeding with extreme care, it is:

1. satisfied that there is nothing the practitioner could say, if unconstrained, to resist the order; and
2. that it is in all the circumstances fair to make the order.”

At paragraph 40 Lord Steyn recognised that the burden of proof is on the party applying for the order. There is no shift in the evidential burden when barristers, and presumably solicitors, are prevented by professional privilege from telling their side of the story. The court should not speculate or guess about the material that was before the lawyers. Lord Steyn observed:

“Without knowing the barristers’ side of the story, I am unwilling to speculate about the nature of the documents before them … Lawyers are entitled to procedural justice. Due process enhances the possibility of arriving at a just decision. Where due process cannot be observed it places in jeopardy the substantive justice of the outcome.”

It was impossible to determine the issues fairly and the wasted costs order had to be quashed.

At paragraph 61, Lord Hobhouse reiterated the observations in Ridehalgh v Horsefield [1994] Ch 205, [1994] 3 All ER 848, CA that the respondent lawyers are entitled to the benefit of any doubt. He stated:

“The answer given therefore was not to treat the existence of privileged material as an absolute bar to any claim by an opposing party for a wasted costs order but to require the court to take into account the possibility of the existence of such material and to give the lawyers the benefit of every reasonably conceivable doubt that it might raise.

So, all that the lawyer has to do is to raise a doubt in the mind of the court whether there might not be privileged material which affected its decision whether or not to make a wasted costs order and, if so, in what terms and the court must give the lawyer the benefit of the that doubt in reaching its decision, including the exercise of its statutory discretion. I see nothing unfair about this approach.”

The Court of Appeal followed this approach in Dempsey v Johnstone [2003] EWCA Civ 1134, [2003] All ER (D) 515 (Jul) where a costs order was made against the defendant solicitors for pursuing a hopeless case. It was held that in the absence of privileged material it is not possible to reach a conclusion adverse to the defendant on the question of whether no reasonably competent legal adviser would have evaluated the chance of success as justifying continuation of the proceedings. Without any waiver of privilege in relation to counsel’s advice, it was impermissible to infer from the continuance of legal aid that the claimant’s legal representatives were asserting good prospects of success.

The House of Lords concluded that it should not make an order unless (Medcalf v Mardell [2002] UKHL 27, [2003] 1 AC 120, [2002] 3 All ER 721):

1. it is satisfied there is nothing the lawyer could say, if privilege had been waived, to resist the order; and
2. that it is in all the circumstances fair to make the order.

In this case, the court concluded it was impossible to determine the issues fairly as they were unaware of the nature of the documents before the barristers and consequently quashed the wasted costs order.

Solicitor’s liability for costs when representing a bankrupt

In Thames Chambers Solicitors v Miah [2013] 4 Costs LR 82

Mr Justice Tugendhat, sitting in the High Court, held that a judge had been correct to make a wasted costs order against solicitors who had acted for a bankrupt client for two and a half years. Any competent solicitor would have known that the assets of a bankrupt vest in his trustees and that proceedings to enforce a claim can only be pursued with the trustee’s consent, which had not been forthcoming. The solicitors had acted improperly, negligently and unreasonably and so would pay the wasted costs of the defendant.

In Nelson v Nelson (7 February 1996, unreported), CA, a firm of solicitors instituted proceedings, including obtaining a Mareva Injunction, on behalf of a client whom they were unaware was an undischarged bankrupt. A bankrupt was not entitled to bring an action relating to his property, the cause of action having vested in his trustee in bankruptcy. Nevertheless, he had the capacity and authority to retain solicitors, and solicitors acting for him without knowledge of his bankruptcy were saying no more than that they had a client and that the client had authorised the proceedings. The solicitors did not represent that a client had a good cause of action, and in commencing the proceedings warranted no more than they had authority from the client to do so. In those circumstances there had been no breach by them of their duty to the court, nor had they been negligent, and thus the court should exercise its discretion in their favour when considering an application for costs against them personally by a defendant.

No wasted costs on ex parte application

There is no power in the court to make a wasted costs order in favour of, or (by parity of reasoning) against, a person who elected to oppose an ex parte application for leave to apply for judicial review. In R v Camden London Borough Council, ex p Martin [1997] 1 All ER 307, [1997] 1 WLR 359, such a person was not a party for present purposes. The modern practice of the court in regularly hearing and sometimes inviting the participation of such persons could not make it otherwise; only legislation or a rule change could make it so.

Stay need not be lifted to seek wasted costs order

If a case is settled and stayed by way of consent order, it is still possible for a party to make an application for a wasted costs order. In Wagstaff v Colls [2003] EWCA Civ 469, (2003) Times, 17 April, 147 Sol Jo LB 419, the Court of Appeal reversed a judgment that disallowed a party’s application to lift a stay so an application for wasted costs could be made. The court held it to be unnecessary to require the stay to be lifted for the purpose of bringing a wholly different claim which might be connected with the stayed proceedings but where the connection was wholly tangible. There was thus nothing to prevent an application for a wasted costs order being made and entertained after a final order had been made, and perfected, entering judgment for or against the claimant.

Consideration of the issue of whether wasted costs should be awarded was only sensible if the scope of the costs sought was narrow and clear

In (1) Regent Leisuretime Ltd (2) Stephen Amos (3) Peter Barton v (1) Philip Skerrett (2) Ken Pearson & Reynolds Porter Chamberlain [2006] EWCA Civ 1032, [2006] All ER (D) 34 (Jul), the appellant third party firm of solicitors (R) appealed against the judge’s decision that the issue as to whether R should be liable for wasted costs should be investigated. The first claimant company (L), the second claimant (A) and the third claimant (B), who were directors and shareholders of L, had issued proceedings against the first and second defendant solicitors (S and P), alleging professional negligence in the performance of their duties in earlier proceedings. R, who had been instructed to act in the matter by P’s insurers, acknowledged service of the claim form on behalf of both S and P, although R had no instructions from S and did not contact him in connection with the matter. R subsequently served a defence, and further amended defences on behalf of both P and S. When P informed S of R’s actions, S contacted R and stated that they had no authority to act for him. As S had not been served personally with the claim, he then assumed that it was not proceeding against him. However, R later contacted S informing him to prepare for trial in the matter. S applied for the claim against him to be struck out. The judge granted that application on the grounds that:

S had been an undischarged bankrupt at the time the claim was issued and no permission had been sought from or given by the court to bring proceedings against him; and

the proceedings had never been served on S.

S then applied for an order that R pay all his costs lost, wasted or thrown away on an indemnity basis. A and B made a similar application on their own behalf. The judge found that it was obvious that R had had no authority to act as they had, and considered that the issue as to whether R should be liable for wasted costs should be investigated. R contended that the judge had erred in his decision because he had not received the required quantification of the costs sought to decide whether they were likely to be awarded, or whether a separate hearing would be proportionate. A and B submitted that, if R had not acknowledged service on S’s behalf, they would have served him another way, so that their pre-trial costs had been wasted. S submitted that, as a result of R’s conduct, he had incurred costs in trying to extricate himself from the action.

HELD: Appeal allowed.

The referral to the second stage of the issue as to whether wasted costs should be awarded was only sensible if the scope of the costs sought was narrow and clear. In the instant case, there had been insufficient material for the judge to make that determination. S, A and B were all litigants in person and their recoverable costs would, in any event, be limited. Further, both A and B had, in any event, incurred costs in pursuing the action against P, and their wasted costs in respect of the claim against S were likely to be modest. Moreover, so far as S was entitled to recover his costs in applying for the claim to be struck out, the parties liable for those costs were A and B, as in the light of S’s status as an undischarged bankrupt, no claim against him should have been made in any event. The judge’s order for assessment of wasted costs was, accordingly, set aside.

In Chief Constable of British Transport Policy v Soods Solicitors Ltd (2012) 156 Sol Jo (29) 31, [2012] All ER (D) 163 (Jul), DC, the Divisional Court dismissed the appeal by way of case stated against the District Judge’s refusal to award wasted costs against the respondent firm of solicitors. The claimant chief constable applied for the forfeiture, pursuant to s 298 of the Proceeds of Crime Act 2002 (‘PCA 2002’), of money which had been seized from an individual H. Shortly before the hearing, the respondent firm of solicitors came on the record purporting to act for a Ugandan company, SFK, which applied to be joined to the action pursuant to s 301 of the PCA 2002. That application was refused and the matter was adjourned.

It subsequently became clear that SFK was not a real company and that documents that had been provided by it had been forged. The forfeiture proceedings then proceeded unopposed and, following the conclusion of those proceedings, the claimant applied for wasted costs from the respondent, pursuant to s 145A(1) of the Magistrates’ Court Act 1980.

In May 2011, a district judge refused that application on the basis that, although the respondent should have exercised greater caution in its dealings with SFK, the claimant’s costs would have been incurred in any event as SFK would have made the application as an unrepresented party if necessary. The appellant appealed by case stated.

The principal question posed for the consideration of the court was whether, in the circumstances, the judge had applied the correct test for causation for wasted costs. He had. The appeal would be dismissed.

In the instant case, the appellant’s argument was fatally flawed as no wasted costs order could be made unless there had been a finding of fault against the respondent. The judge had not made a finding of fault against the respondent and there was no question before the court as to whether the judge had been correct or incorrect in so finding. Accordingly, the appeal would be dismissed as the real point had not been stated in the case and had not been for decision at the instant hearing.

In Tolstoy-Miloslavsky v Aldington [1996] 1WLR 736 the Claimant sought to set aside a libel judgment on the basis that it had been obtained by fraud; the application was struck out as an abusive process.

The successful party applied for a non-party costs order against both solicitor and counsel for the unsuccessful applicant.

The judge ordered the solicitors to pay 60% of the defendant’s costs on the ground that they have put themselves in the position of third party funders of the litigation.

In Medcalf v Mardell [2002] UKHL 27, [2003] 1 AC 120, [2002] 3 All ER 721, the House of Lords had to consider whether s 51(6) of the SCA 1981 conferred a right on a party to seek an order against the legal representative of the other party. The court upheld an earlier decision of Brown v Bennett (No 2) [2002] 2 All ER 273, [2002] 1 WLR 713 where Mr Justice Neuberger concluded that s 51(6) should be construed on a wide basis to cover the legal representative of any party to the proceedings. The House of Lords affirmed that judgment. Wasted costs orders are likely to become more common.

Unsuccessful applications

If the application is unsuccessful it is clear that the unsuccessful applicant can expect to pay the costs. In Bellamy v Central Sheffield University NHS Trust [2003] All ER (D) 50 (Jul), CA, the Court of Appeal upheld the principle that an unsuccessful applicant should normally pay the costs to the respondent. Denial of a successful party’s costs of success had to be explained. Some idea of the costs that can be incurred in a wasted costs application can be gathered by the estimates in Chief Constable of North Yorkshire v Audsley [2000] Lloyd’s Rep PN 675. The costs of the wasted costs application were estimated to be £130,000 when the amount in dispute was £169,000. Unsurprisingly the judge declined to issue a Notice to Show Cause on the grounds that the costs of the application were likely to be disproportionate.

In Hallam-Peel & Co v Southwark London Borough Council [2008] EWCA Civ 1120, [2008] All ER (D) 200 (Oct), the Court of Appeal held that a wasted costs order should not have been against solicitors who raised a new point in possession proceedings which led to further adjournments.

The judgment points out that different lawyers will look at the same case in different ways and have thoughts and ideas about them that others will or may not have. The same lawyer may also see it differently six months on and consider investigating an angle which had not previously occurred to him or her.

Here it meant that the solicitor should not be penalised by a wasted costs order when their counsel thought of a new point which they had not previously considered.

In Koo Golden East Mongolia v Bank of Nova Scotia [2008] EWHC 1120 (QB), [2008] All ER (D) 254 (May), the defendant bank claimed a wasted costs order against the solicitors who had acted for the unsuccessful claimant in a claim to trace and recover missing gold. It contended that it was entitled to a wasted costs order because the solicitors’ conduct was persistently negligent and unreasonable in making and continuing to have the Central Bank of Mongolia as a party to the action because the solicitors should have appreciated that the bank was immune from suit because of the provisions of the State Immunity Act 1978. In dismissing the claim the court gave the following reasons:

• a bill of costs should have been served before making the application;
• the claimant should have been given a proper opportunity to pay the costs;
• the absence of an application to strike out the claim was hardly consistent with the submission that it was misconceived;
• the suggestion that ‘no reasonable solicitor could have been optimistic’ was well below the threshold for sufficient negligence or unreasonableness to justify a wasted costs order;
• even a binding authority fatal, or almost fatal, to the client’s case might not justify a wasted costs order.

The power to make a wasted costs order is discretionary. In R (on the application of Hide) v Staffordshire County Council [2007] EWHC 241 (Admin), [2007] All ER (D) 402 (Oct), the claimant’s advocate had engaged in behaviour which could properly be regarded as improper, unreasonable and/or negligent. The proceedings were entirely unnecessary and were doomed to failure and a reasonably competent solicitor would have known that. Nevertheless, the judge concluded that no wasted costs order should be made against the solicitor as it was likely to result in the solicitor’s bankruptcy and that would be a disproportionate consequence.

Tribunals

From 3 November 2008, the Tribunal Procedure (Upper Tribunal) Rules 2008 and the Tribunal Procedure (First-Tier Tribunal) (Health, Education and Social Care Chamber) Rules 2008 provide that a tribunal shall not make an order in respect of costs other than for wasted costs or if the tribunal considers that a party or its representative has acted unreasonably in bringing, defending or conducting the proceedings. The Upper Tribunal may also make an order in respect of costs in proceedings on appeal from another tribunal, to the extent and in the circumstances that the other tribunal had the power to make an order in respect of costs. Either tribunal may make an order for costs on an application or on its own initiative. The amount of costs to be paid may be ascertained by:

1. summary assessment;
2. agreement of a specified sum by the paying person and the person entitled to receive the costs;
3. assessment as to the whole or a specified part of the costs incurred by the receiving person, if not agreed.

Following an order for assessment, the paying person or the receiving person may apply to the High Court in the Upper Tribunal and to the county court in the First-Tier Tribunal for a detailed assessment of costs in accordance with the Civil Procedure Rules 1998 on the standard basis or, if specified in the order, on the indemnity basis.

CPR 44.14 provides that on an assessment of costs between the parties where a party or his legal representative fails to comply with a rule, practice direction or court order or it appears to the court that the conduct of a party or his legal representative, before or during the proceedings which gave rise to the assessment proceedings, was unreasonable or improper the court may:

1. disallow all or part of the costs which are being assessed; or
2. order the party at fault or his legal representative to pay costs which he has caused any other party to incur.However, unlike s 51 of the SCA 1981, CPR 44.14 contains no provision preventing the solicitor from rendering a charge to his or her client in respect of any between-the-parties costs which have been disallowed. This is the case even though CPR 44.14(3) requires the solicitor to notify the client in writing of any order based upon his misconduct no later than seven days after the solicitor receives notice of the order if the party is not present when the order is made. One possible remedy is for the court to ask the solicitor to undertake not to render a charge to the client as an alternative to the court initiating an investigation under s 51 of the SCA 1981.

Employment tribunals

Employment tribunals have a significant personal injury jurisdiction in their own right but decisions on wasted costs are also relevant to cases conducted in the ordinary courts. Indeed, many recent decisions are those of the Employment Appeal Tribunal (“EAT”).

In Robinson and another (appellants) v Hall Gregory Recruitment Ltd [2014] IRLR 761 EAT

the Employment Appeal Tribunal dealt with the issue of costs orders and wasted costs.

Here a 17 year old girl brought various Employment Tribunal claims and lost all of them except one in respect of notice pay of £285.00.

Among her claims was one for personal injury, specifically that she had suffered a miscarriage as a result of her treatment at work. The Employment Tribunal said in relation to this that the claimant had “made a very serious assertion for which she has provided no evidence.”

It ordered her to pay £5,025.00 costs and made a wasted costs order of £10,050.00 against the solicitor.

The Employment Appeal Tribunal overturned both orders. In relation to the Claimant it held that the Employment Tribunal had omitted an important stage in the process of deciding to make a costs order, namely that of considering whether it had been appropriate to have done so as required by Rule 40(2) of the 2004 Rules of Procedure.

The claimant had been 17 years old and, on its finding in relation to the solicitor Mr Ojo, had not been properly advised. The tribunal did not appear to have had regard to those matters. It should have been obvious that, particularly given her age, her means were likely to have been of relevance both in deciding whether to make an order and as to how much it should be. The tribunal ought not to have made findings against her in relation to her means without having given her an opportunity to make representations or present evidence and thus the appeal against the costs order would be allowed.

The relevant part of Rule 40 reads as follows:-

“(2) A tribunal… shall consider making a costs order against a paying party where, in the opinion of the tribunal…, any of the circumstances in paragraph (3) apply. Having so considered, the tribunal… may make a costs order against the paying party if it… considers it appropriate to do so.

(3) The circumstances referred to in paragraph (2) are where the paying party has in bringing the proceedings, or he or his representative has in conducting the proceedings, acted vexatiously, abusively… or otherwise unreasonably…”

Rule 41 provides that the tribunal can specify a sum to be paid up to £20,000.00 and at Rule 41(2) that the tribunal “may have regard to the paying party’s ability to pay when considering whether it… shall make a costs order and how much that order should be.”

In relation to the wasted costs order the EAT reminded itself that an Employment Tribunal  had to approach that jurisdiction with caution, bearing in mind the constitutional position of the advocate and the fact that from their point of view the jurisdiction was penal.

The tribunal had to consider the possibility that issues of privilege might prevent a representative mounting a proper defence and that they should be given the benefit of any doubt.

A representative could (and indeed had to) argue a case which they considered hopeless and for which they had been advised was hopeless if those were the instructions of the client. There was a clear distinction between that situation and that of a representative lending assistance to proceedings which were an abuse of process.

Even if proper advice had been given it was possible that the Claimant would have insisted that the case continue and the solicitor would have been obliged to carry on.

Rule 48 of the Employment Tribunals (Constitution and Rules of Procedure) Regulations 2004, insofar as relevant reads:-

“(1) A tribunal… may make a wasted costs order against a party’s representative.

(2) In a wasted costs order the tribunal… may:—

(a) disallow, or order the representative of a party to meet the whole or part of any wasted costs of any party…

(3) “Wasted costs” means any costs incurred by a party: —

(a)          as a result of any improper, unreasonable or negligent act or omission on the part of any representative; or

(b)          which, in the light of any such act or omission occurring after they were incurred, the tribunal considers it unreasonable to expect that party to pay.

(4) In this rule “representative” means a party’s legal or other representative or any employee of such representative, but it does not include a representative who is not acting in pursuit of profit with regard to those proceedings. A person is considered to be acting in pursuit of profit if he is acting on a Conditional Fee Agreement.

(6) … The tribunal… shall also have regard to the representative’s ability to pay when considering whether it shall make a wasted costs order or how much that order should be.”

Note that under clause 58(3) of the Criminal Justice and Courts Bill, currently before Parliament, a court which makes a wasted costs order under section 51(6) of the Senior Courts Act 1981 must report the matter to the approved regulator, that is the Solicitors Regulation Authority in the case of a solicitor. Presumably Employment Tribunals would take the same action if a wasted costs order is made under Rule 48.

It should also be noted that although there is reference to a Conditional Fee Agreement it is illegal to act under such an agreement in Employment Tribunal matters – see Regulation 1(4) and 1(6) of the Damages-Based Agreements Regulations 2013.

In Godfrey Morgan Solicitors Ltd v Cobalt Systems Ltd (UKEAT/0608/10/LA) [2012] ICR 305, 155 Sol Jo (no 34) 31, EAT, the EAT gave guidelines on the proper approach to applications for wasted costs orders.

The appellant solicitors, Godfrey Morgan Solicitors, appealed against a wasted costs order made against them by an employment tribunal. They had been acting under a contingency fee agreement for an employee, Mr Willimott, in an unfair dismissal claim against the respondent employer Cobalt Systems Ltd.

The claim was listed for a two-day hearing. When the solicitors told C that he would have pay for counsel, Mr Willimott stated that he had understood that he would not have to pay anything upfront and that he could not afford to proceed with the claim.

The solicitors did not inform Cobalt’s solicitors that the claim had been withdrawn until a few days before the hearing. Cobalt’s solicitors applied for a wasted costs order against Godfrey Morgan Solicitors. The tribunal found that Godfrey Morgan Solicitors had wanted a settlement but when that was not available, they had failed promptly to advise Mr Willimott about his position and had failed to implement Mr Willimott’s instruction to withdraw the claim.

The tribunal ordered Godfrey Morgan Solicitors to pay the costs incurred by Cobalt’s solicitors from the date at which it became clear that the case would not settle. Godfrey Morgan Solicitors submitted that the judge had (1) erred in refusing to allow them to produce documents which cast doubt on criticisms made about their advice to Mr Willimott; and (2) acted contrary to the rule laid down in Ratcliffe Duce & Gammer v Binns (t/a Parc Ferme) UKEAT/0100/08/CEA, by allowing Cobalt to cross-examine them and to make submissions on the wasted costs issue.

HELD:

1. The correspondence and attendance notes Godfrey Morgan Solicitors sought to produce showed them in a less bad light. However, the judge’s decision not to allow those documents in so late in the day was within his discretion.
2. There was no general rule as Elias J. appeared to propound in Ratcliffe. His observations were on any view obiter and were made in the context of a very different procedural situation. As regards the making of submissions, it was standard practice in the context of other kinds of issue for one party to be able to comment on the other party’s submissions; there was nothing different about a wasted costs application. As for cross-examination of the representative against whom costs were sought, it was a fair and proportionate way of helping the tribunal get the right result in the instant case.
3. Save in straightforward cases tribunals should be reminded not only of the terms of the Employment Tribunals (Constitution and Rules of Procedure) Regulations 2004 SI 2004/1861, Sch 1, para 48, but also of the Court of Appeal’s guidance in Ridehalgh v Horsefield [1994] Ch 205, CA (Civ Div) at pp.226–239, and to refer to the relevant aspects of that guidance in its reasons.

The statement in Ridehalgh that the court could not imagine any circumstances in which the applicant should be permitted to interrogate the respondent lawyer referred to written interrogatories and did not prohibit cross-examination.

It was always wise to follow the approach outlined in Ridehalgh at p.231 F–G. As emphasised in Ridehalgh, the right procedure for determining claims for wasted costs would depend on the circumstances of the particular case. Proportionality was an important consideration. The only essential requirement was that the representative had a reasonable opportunity to make representations as to whether an order should be made. That could mean that an application for wasted costs could not be dealt with in the substantive hearing.

Tribunals would often understandably wish to deal with such applications there and then in the interests of economy. However, sometimes that would simply not be fair, and the representative would be entitled to more time to make representations.

As the Court of Appeal said in Ridehalgh, although the procedure had to be as simple and summary as possible, that could only be so far as fairness permitted.

Applications for wasted costs orders would often involve not only quite large sums but also what might be very serious criticisms of the representative’s competence or conduct which might have serious repercussions. Judges had to resist the temptation to treat wasted costs issues as matters of ancillary significance.

In any case where privilege had not been waived the tribunal had to give full weight to the warnings in Ridehalgh and ought to make it clear that it had done so. However, it would not always be necessary for a tribunal to consider privileged material in order to decide whether a representative was at fault.

The amount of detail required in written reasons in relation to a wasted costs order would vary enormously. The issues would sometimes be important and would not always be straightforward. In such cases, thorough treatment would be required.

Wasted costs orders were also disproportionately likely to generate appeals, so the EAT would need to have a clear account of the tribunal’s reasoning: Ridehalgh applied (para 36). Appeal dismissed.

In Fisher Meredith v JH and PH (Financial Remedy: Appeal: Wasted Costs) [2012] EWHC 408 (Fam), [2012] 2 FCR 241, the High Court revisited all of the authorities in relation to wasted costs and reaffirmed their relevance in a rapidly changing costs environment. Costs do not now follow the event in family matters, but the court here held that that made no difference to the principles in relation to applications for wasted costs. This is significant as the trend in all civil litigation is moving away from costs following the event.

In personal injury matters there has been no date announced for any increase in the small claims limit but since 1 April 2013 there has been a system of Qualified One Way Costs Shifting whereby claimants will, in general, not liable for defendants’ costs in the event of defeat. Clearly parties and their lawyers are likely to look more closely at making wasted costs applications if ordinary costs are not available. It is equally clear that there will be no lowering of the significant threshold to be overcome to succeed in such an application.

In Flatman and Germany v Weddall and Barchester Health Care Limited [2013] EWCA Civ 278 the Court of Appeal held that solicitors who help their clients by funding the cost of disbursements should not be liable for costs if the case fails even if no After-the-Event insurance is in place.

Although both appeals related to pre-Jackson cases the Court of Appeal recognised that the situation was likely to become much more common post-Jackson with the abolition of legal aid for all but a small number of clinical negligence cases and with the abolition of recoverability of After-the-Event insurance premiums.

The issue of solicitors being able to fund disbursements without being at risk of an adverse costs order is regarded as one of access to justice and the Court of Appeal allowed the Law Society to intervene. The Court of Appeal specifically approved the funding of disbursements generally with the client repaying the solicitor at the end and also the solicitor paying disbursements on a contingency basis, that is without recovering them from the client if the case is lost. Although not necessary for the judgment in these two cases by extension it allows solicitors to agree only to charge the client for disbursements actually recovered from the other side.

The Court of Appeal also recognised the importance of the decision in relation to Qualified One Way Costs Shifting:

“Defendant’s insurers can undermine the principle of qualified one way costs shifting (which will limit recovery of costs by insurers in failed personal injury actions) by pursuing the solicitors acting for the claimant who fails.”

The point here is that, contrary to popular belief, costs orders against claimants are made for the full sum, but may only be enforced beyond the level of damages with permission of the court.

Under CPR 44.16(3) where the claim is for the benefit of another, the court will usually order that beneficiary to pay costs. Thus if the solicitors had been held to be beneficiaries, then they could be ordered to pay the excess of costs awarded over the damages sum. The Court of Appeal conducted an exhaustive analysis of case law, stating at Paragraph 45:

“…the legislation does visualise the possibility that a solicitor might fund disbursements and, in that event, it would not be right to conclude that such a solicitor was ‘the real party’ or even ‘a real party’ to the litigation.”

and at paragraph 47:

“…payment of disbursements, without more, does not incur any potential liability to an adverse costs order.”

Shortly afterwards the Court of Appeal came to the same conclusion in another case.

In Heron v TNT (UK) Limited and Mackrell Turner Garrett (a firm) [2013] EWCA Civ 469 the Court of Appeal dismissed an attempt by the employers’ insurers to obtain an order for costs against solicitors who had been acting for the employee until they withdrew from the case.

The claimant had not had after-the-event insurance. In a passage quoted with approval by the Court of Appeal the Judge at first instance said:

“As to the suggestion [the solicitors] stood to gain a substantial financial benefit from the case (both in terms of profit costs and a success fee), this is undoubtedly true in the sense that any solicitor engaged on a CFA has an interest in the outcome of the case. If the submission [is] that this of itself will render a solicitor liable to a [wasted costs order] or [non party costs order], it is simply contrary to the public policy that parties, and in particular, impecunious parties, should have access to justice when they do not have the means to fund litigation themselves. There must be additional factors before an order can be appropriate.”

The Court of Appeal went on to say, at paragraphs 36 – 38:

“36.        Based on the facts as found by the judge and with which I would not interfere, the application has to be put on the basis that the failure by MTG to obtain ATE insurance (and the subsequent failure to admit that fact to Mr Heron) is itself sufficient not only to give rise to a breach of duty to him but, in addition, to demonstrate that MTG had become a ‘real party’ to the litigation, the person ‘with the principal interest’ in its outcome, or that it was acting ‘primarily for his own sake’. If that was so, as I have said, every act of negligence by a solicitor in the conduct of litigation (thereby giving rise to a conflict) which means that an opposing party incurs costs which might not otherwise have been incurred would be sufficient. When pressed by Beatson LJ during the course of argument, Mr Bacon was unable to identify a principled way of drawing the line so as to avoid this consequence.

37. I do not accept that the law goes anything like that far. A solicitor is entitled to act on a CFA for an impecunious client who they know or suspect will not be able to pay own (or other side’s costs) if unsuccessful (see Sibthorpe v Southwark BL [2011] 1 WLR 2111 at para. 50; Awwad v Geraghty [2001] QB 570 at 588; Dolphin Key v Mills [2008] 1 WLR 1829 at para. 75). As far as the other side is concerned, whether the solicitor has negligently failed to obtain ATE insurance to protect his client (as opposed to not being able to obtain such insurance) does not impact on the costs they will incur unless it is demonstrably provable that the costs would not have been incurred (as in Adris). That is not the case here.

38. Mr Sachdeva argued that the appeal was an attempt to short circuit threatened professional negligence proceedings by Mr Heron to which MTG would be able to put in issue questions of breach, causation, contributory negligence and quantum all of which could be challenged by cross examination. Speaking for myself, I doubt how live some of those issues will be but that arguments can be deployed with the benefit of tested evidence is beyond question. It is certainly appropriate for that forum to determine the extent to which MTG may be liable to compensate Mr Heron for any costs that he will have to pay to his employers’ insurers; this summary procedure is not.” (emphasis added)

Damages-Based Agreements

Lord Justice Jackson has suggested that solicitors acting under a damages-based agreement may be liable for the other side’s costs in the event of defeat, following the principles set out in

Arkin v Borchard Lines Ltd & Ors [2005] EWCA Civ 655 Arkin v Borchard Lines Ltd & Ors [2005] EWCA Civ 655Arkin v Borchard Lines Ltd [2005] EWCA Civ 655, [2005] 3 All ER 613

Few others share this view and in any event almost no damages-based agreements have been signed, except in employment matters where there is generally no costs-shifting in any event.

Arkin v Borchard Lines Ltd & Ors [2005] EWCA Civ 655

In Wilsons Solicitors (In a Matter of Wasted Costs) v Craig and Sybil Johnson and Others UK EAT/0515/10/DA, the employment judge had made a wasted costs order on the ground that a Case Management Discussion had been abortive due to the appellant’s solicitors not having properly prepared the case. On appeal the EAT upheld the order and gave the following guidance:

“Wasted costs orders are always, as the cases emphasise, a serious matter, involving as they do a finding of negligence (at least) on the part of the representative. We have observed a tendency among some judges to deal with them without full reasoning. That is to be deprecated. In every case where a wasted costs order is made the judge should remind himself or herself of the terms of rule 48 and of the relevant principles appearing from the authorities; and it is good practice to do so explicitly in the reasons given. But the Judge’s reasons here have to be assessed in the light of the submissions made. It is clear from the materials that we have set out above that Mr Wilson took no point before the Judge about the extent of his own responsibility for the defects in the presentation of his clients’ case: rather, he attempted to defend his pleadings and his conduct of the hearing on their merits. There are of course strict limits on what he could have said: the whole point about privilege is that the representative is unable to disclose what passed between him and his client. But in our view it would have been perfectly proper for Mr Wilson, as he did before us, to draw the Judge’s attention to the well-known passages in Ridehalgh and/or Ratcliffe and to have made the point, as a matter of principle, that the Judge could not assume that deficiencies in the way the case was formulated were his responsibility rather than his clients. He did not do so. Instead his case apparently was that his pleadings had been satisfactory and the case sufficiently clarified. In those circumstances we do not think that the Judge can be blamed for not explicitly addressing the question of whether Mr Wilson might not have been responsible for the defects which she found.”

Amercing

In the 15th Century a litigant who had wasted the court’s time, for example by failing to attend a hearing or to comply with an interim order, could be amerced by being ordered to pay compensation to the Crown. Indeed both parties could be amerced if, say, they had settled the matter but not let the court know thus leaving the judge with nothing to do. Given that the court service is now required to be a profiteering sector, some would say racketeering given the astronomical court fees and poor service, it is surprising that the revival of amercing has not found its way on to the statute book.

NON-PARTY COSTS ORDERS

General

The power to make a non-party costs order is derived from sections 51(1) and (3) of the Senior Courts Act 1981:

“51 Costs in civil division of Court of Appeal, High Court and county courts.

1. Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in-

(a) the civil division of the Court of Appeal;

(b) the High Court; and

(c) any county court,

shall be in the discretion of the court.

3. The court shall have full power to determine by whom and to what extent the costs are to be paid.”

Non-Party Costs Orders are also known as Third Party Costs Orders.

The principles, law and practice in relation to Non-Party Costs Orders have very recently been thoroughly reviewed by Mr Justice Akenhead in Weatherford Global Products Ltd v Hydropath Holdings Ltd [2014] EWHC 3243 (TCC). The case creates no law but it is a very useful examination of the law.

Other recent cases which have considered the authorities in non-party costs orders include:-

Excelerate Technology Ltd v Cumberbatch & Ors (Rev 1) [2015] EWHC 204 (QB) (16 January 2015)

Deutsche Bank AG v Sebastian Holdings Inc and Another [2014] 4 Costs LR 711.

The fact that the court is considering making a Wasted Costs Order against a lawyer does not prevent it also considering a Non-Party Costs Order against that lawyer, or indeed anyone else. (See Excalibur Ventures and Others v Psari Holdings and Others [2014] EWHC 3436.

The breadth of the court’s discretion has often been stressed and successful appeals will be rare; the appellant court should not interfere with the discretion of the trial judge unless he has plainly erred – see Alan Phillips Associates Ltd v Dowling (t/a the Joseph Dowling Partnership) [2007] EWCA Civ 64, [2007] BLR 51.

This has recently been confirmed by the Court of Appeal in Systemcare (UK) Ltd v Services Design Technology Ltd [2011] EWCA Civ 546.

Solicitors

Wasted Costs Orders can only be made against legal representatives, including solicitors and barristers and such orders are made under section 51(6) of the Senior Courts Act 1981 and are dealt with in my piece above – Wasted Costs Orders.

However where a court declines to make a Wasted Costs Order it can still make a costs order against a solicitor, or other lawyer, under the general, and very wide power to make a Non-Party Costs Order under sections 51(1) and (3) of the Senior Courts Act 1981, set out above.

However in Tolstoy-Miloslavsky v Aldington [1996] 1WRL 736

the Court of Appeal held that there was no jurisdiction under sections 51(1) and (3) to make an order for costs against legal representatives acting purely as legal representatives; in such cases an order could only be made under the Wasted Costs Orders Provisions of section 51(6).

In that case the Court of Appeal stated that there were only three categories of conduct which can give rise to an order for costs against a solicitor:-

1. if it is within the wasted costs jurisdiction;
2.  if it is otherwise a breach of duty to the court, for example acting without authority, or in breach of an undertaking;
3. if the solicitor acts outside the role of solicitor, for example in a private capacity or as a true third party funder for someone else.

The fact that a solicitor is working on a contingent fee, or no fee at all, as compared with an old fashioned retainer is irrelevant. In Tolstoy the court said:-

“There is, in my judgment, no jurisdiction to make an order for costs against a solicitor solely on the ground that he acted without fee. It is in the public interest, and it has always been recognised that it is proper, for counsel and solicitors to act without fee. The access to justice which this can provide, for example in cases without the scope of legal aid, confers a benefit on the public. Section 58 of the Act of 1990, which legitimises conditional fees, inferentially demonstrates Parliament’s recognition of this principle. For it would be very curious if a legal representative on a contingent fee and, therefore, with a financial interest in the outcome of litigation, could resist an order for costs against himself but one acting for no fee could not. Whether a solicitor is acting for remuneration or not does not alter the existence or nature of his duty to his client and the court, or affect the absence of any duty to protect the opposing party in the litigation from exposure to the expense of a hopeless claim. In neither case does he have to “impose a pre-trial screen through which a litigant must pass:” see per Sir John Donaldson M.R. in Orchard v South Eastern Electricity Board [1987] QB 565 572-574.”

The mere fact of acting under a Conditional Fee Agreement is not a factor which points in favour of imposing a non-party costs order, even though there is a financial interest in winning which is not present under a normal retainer: Hodgson v Imperial Tobacco [1998] 1 WLR 1056.

In Hodgson a large number of plaintiffs brought actions against three tobacco companies, claiming damages for personal injuries by reason of cancer caused by smoking cigarettes manufactured by the defendants. The plaintiffs had conditional fee agreements with their legal representatives under section 58 of the Courts and Legal Services Act 1990.

The defendants requested the disclosure of the agreements, indicating that in due course the might, if so advised, wish to seek an order for costs against the plaintiff’s legal advisers personally. The plaintiffs refused to disclose the agreements and applied for an order debarring the defendants from seeking costs against the plaintiff’s legal representatives other than by way of a wasted costs order. At a hearing for directions in chambers the judge refused to make a pre-emptive order relating to costs and, further, ordered that the parties and their legal advisors should not make any comment to the media about the litigation without leave of the court.

The Court of Appeal dismissed the appeal against the refusal to make the pre-emptive order relating to costs. It held as follows:

1. The existence of a conditional fee agreement did not entitle a legal adviser to come to any additional or collateral arrangement with his client which would not be permissible without such an agreement.
2.  Therefore, a legal adviser acting a under a conditional fee agreement which complied with section 58 of the Act of 1990 was no more at risk of being made personally liable for the costs of a party other than his client than one who was not acting under such an agreement.
3. In any event, any pre-emptive order would have to be so qualified that in practice it would not provide the plaintiff’s lawyers with any legal protection.
4. Accordingly, in the circumstances it would not be appropriate to make such an order.

The Court of Appeal said:

“There is no reason why the circumstances in which a lawyer acting under a conditional fee agreement can be made personally liable for the costs of a party other that his client should differ from those in which a lawyer who is not acting under a conditional fee agreement would be so liable…it is in the public interest and perfectly proper for counsel and solicitors to act under a conditional fee agreement.”

The Court of Appeal revisited this subject in Flatman and Germany v Weddall and Barchester Healthcare Ltd [2013] EWCA Civ 728 and quoted from the Judgment in Myatt v National Coal Board (Number 2) [2007] 1WLR 1559:

”       In my judgment, the third category described by Rose LJ in the Tolstoy-Miloslavsky case should be understood as including a solicitor who, to use the words of Lord Brown in Dymocks Franchise Systems (NSW) Pty Ltd v Todd, is ‘a real party … in very important and critical respects’ and who ‘not merely funds the proceedings but substantially also controls or at any rate is to benefit from them’. I do not accept that the mere fact that a solicitor is on the record prosecuting proceedings for his or her client is fatal to an application by the successful opposing party, under s.51(1) and (3) of [the Senior Courts Act 1981], that the solicitor should pay some or all of the costs. Suppose that the claimants had no financial interest in the outcome of the appeal at all because the solicitors had assumed liability for all the disbursements with no right of recourse against the clients. In that event, the only party with an interest in the appeal would be the solicitors. In my judgment, they would undoubtedly be acting outside the role of solicitor, to use the language of Rose LJ.”

28. Thus, as Eady J put it, if a funder is “a real party” in the sense that he has an interest in the outcome of the litigation it may not matter that it would be inappropriate to describe that funder as “the real party”. Eady J went on:

“It may suffice, depending upon the circumstances, that the funder has something to gain alongside the nominal party. In the case of a solicitor, for example, it is not necessary to demonstrate that in the event of the litigation leading to a successful outcome he would be the sole beneficiary. Even though his client may recover compensation for himself, the solicitor could still be regarded as benefiting, or potentially benefiting, from the case to the extent that a costs order should be made against him.”

In Myatt the Court of Appeal had upheld the lower court’s decision that the Conditional Fee Agreements were unenforceable and went on to hold that a non-party costs order could be made against solicitors on the record. Here the court did make such an order as the appeal proceedings had been launched so as to protect the solicitors claim for costs.

The court of appeal specifically confined its decision to cases where litigation was funded by a Conditional Fee Agreement and where the issue was the enforceability of that agreement.

In such cases parties considering applying for an order should warn the solicitor at risk at an early stage, so as to give the solicitor a reasonable opportunity to decide whether to continue with the proceedings.

Orders against Solicitors – Case Law

In HU v SU [2015] EWFC 535

the Family Court made a Wasted Costs Order against the mother’s solicitors in respect of a directions hearing which was necessary because of the failure of the solicitors to seek the leave of the court to extend the time for compliance with the directions order given at an earlier hearing and their failure to comply with those directions.

The conduct of those solicitors was characterised by the court as incompetence and “redolent of past poor practices which should no longer feature in private or public law family proceedings.”

The court said that it was satisfied that the conduct of the solicitors was so serious and so inexcusable that it amounted to improper and unreasonable conduct and it caused the father to incur unnecessary costs.

It thus satisfied the provisions of CPR 46.8 and the three stage test set out by the Court of Appeal in Ridehalgh v Horsefield [1994] Ch 205.

The court ordered the costs to be paid on an indemnity basis.

The conduct included incorrectly addressing two letters to the court, sending letters to the father’s solicitors and not to the court and failing to give any idea as to when the steps required by the earlier directions order would be complied with.

The mother was legally aided. The father was privately funded.

In Globe Equities v Globe Legal Services Ltd, an order under the SCA 1981, s 51 was made against a firm of solicitors who had created a limited liability company through which to lease their office premises. The company litigated with the freeholder and lost. The court held that the solicitors were the real defendants and the actions were continued for their benefit which enabled them to remain in the premises for over two years without paying rent; furthermore that the defences and counterclaims in the actions were hopeless. The Court of Appeal having analysed the authorities came to the firm conclusion that pure funders with no personal interest in the litigation, who do not stand to benefit from it, are not funding as a matter of business and do not seek to control its course, are immune from an order for costs under the SCA 1981, s 51.

The governing principle is as stated by Millet LJ in Abraham v Thompson [1997] 4 All ER 362, [1997] 37 LS Gaz R 41, CA:

“It may be unjust to a successful defendant to be left with unrecovered costs, but the plaintiff’s freedom of access to the courts has priority … it is preferable that a successful defendant should suffer the injustice of irrecoverable costs than that a plaintiff with a genuine claim should be prevented from pursuing it.”

Simon Brown LJ concluded that nothing in the facts of this case took it out of the general principle that pure funders generally are exempt from the SCA 1981, s 51 liability for costs.

Funding disbursements

In Flatman and Germany v Weddall and Barchester Health Care Limited [2013] EWCA Civ 278, the Court of Appeal held that solicitors who help their clients by funding the cost of disbursements should not be liable for costs if the case fails even if no After-the-Event insurance is in place.

Although both appeals related to pre-Jackson cases the Court of Appeal recognised that the situation was likely to become much more common post-Jackson with the abolition of legal aid for all but a small number of clinical negligence cases and with the abolition of recoverability of After-the-Event insurance premiums.

The issue of solicitors being able to fund disbursements without being at risk of an adverse costs order is regarded as one of access to justice and the Court of Appeal allowed the Law Society to intervene. The Court of Appeal specifically approved the funding of disbursements generally with the client repaying the solicitor at the end and also the solicitor paying disbursements on a contingency basis, that is without recovering them from the client if the case is lost. Although not necessary for the judgment in these two cases by extension it allows solicitors to agree only to charge the client for disbursements actually recovered from the other side.

The Court of Appeal also recognised the importance of the decision in relation to Qualified One Way Costs Shifting:

“Defendant’s insurers can undermine the principle of qualified one way costs shifting (which will limit recovery of costs by insurers in failed personal injury actions) by pursuing the solicitors acting for the claimant who fails.”

The point here is that, contrary to popular belief, costs orders against claimants are made for the full sum, but may only be enforced beyond the level of damages with permission of the court.

Under CPR 44.16(3) where the claim is for the benefit of another, the court will usually order that beneficiary to pay costs. Thus if the solicitors had been held to be beneficiaries, then they could be ordered to pay the excess of costs awarded over the damages sum. The Court of Appeal conducted an exhaustive analysis of case law, stating at Paragraph 45:

“…the legislation does visualise the possibility that a solicitor might fund disbursements and, in that event, it would not be right to conclude that such a solicitor was ‘the real party’ or even ‘a real party’ to the litigation.”

and at paragraph 47:

“…payment of disbursements, without more, does not incur any potential liability to an adverse costs order.”

Shortly afterwards the Court of Appeal came to the same conclusion in another case.

In Heron v TNT (UK) Limited and Mackrell Turner Garrett (a firm) [2013] EWCA Civ 469, the Court of Appeal dismissed an attempt by the employers’ insurers to obtain an order for costs against solicitors who had been acting for the employee until they withdrew from the case.

The claimant had not had after-the-event insurance. In a passage quoted with approval by the Court of Appeal the Judge at first instance said:

“As to the suggestion [the solicitors] stood to gain a substantial financial benefit from the case (both in terms of profit costs and a success fee), this is undoubtedly true in the sense that any solicitor engaged on a CFA has an interest in the outcome of the case. If the submission [is] that this of itself will render a solicitor liable to a [wasted costs order] or [non party costs order], it is simply contrary to the public policy that parties, and in particular, impecunious parties, should have access to justice when they do not have the means to fund litigation themselves. There must be additional factors before an order can be appropriate.”

The Court of Appeal went on to say, at paragraph 37:

“A solicitor is entitled to act on a CFA for an impecunious client who they know or suspect will not be able to pay own (or other side’s costs) if unsuccessful.”

In Adris and Others v Royal Bank of Scotland [2010] EWHC 941

the solicitor took on claims under the Consumer Credit Act 1974 on the basis that it was cost free to the claimants whose cases had been referred by a claims management company. Here the solicitor’s literature had represented that “your solicitor will purchase, at their cost, a legal expenses insurance policy” [i.e. ATE insurance] but had failed to do so.

However the solicitors failed to obtain after-the-event insurance and failed to explain to the claimants that they would have to pay the other side’s costs if the claims were lost.

The High Court held that this was a “gross breach of duty” towards the clients and that the solicitors were effectively acting without instructions as the clients were “prevented from giving instructions on anything like an informed view of the case” and said “it is obvious that if the clients had been told of the true position they are likely to have instructed (the law firm) not to progress the claims”.

The solicitors were made the subject of a non-party costs order upon the application of the defendant.

Solicitors Litigating Personally

In Virdi v RK Joinery Ltd [2014] EWHC 3492

the High Court upheld a Costs Order against a non-party, and commented on the nature of such orders and the duties of solicitors when litigating personally.

The High Court rejected the first instance judge’s finding that it was appropriate to apply the same standards to Mr Virdi’s conduct of his personal affairs as would have applied to his professional conduct.

“I see no justification for holding a solicitor, or any other professional person, to the same standards in the conduct of his private affairs as would apply to him when acting for a client in the course of his profession. The responsibilities and burdens of professional life are, quite rightly, of a stringent nature and subject to regulation in the public interest. But lawyers (or other professionals) are entitled to conduct their personal affairs as they chose, so long as they do not bring their profession into disrepute or otherwise infringe the Code of Conduct which governs their professional lives. The judge appears to have been judging Mr Virdi’s conduct as if he had been the solicitor on the record acting for Mrs Virdi, but that was not the position.”

Nevertheless the original order was upheld and the High Court found that the crucial point was that Mr Virdi, and Mr Virdi alone, generated Mrs Virdi’s unsuccessful defence in the action. With his legal knowledge and experience he was clearly the dominant partner. He “made the running in the events that led up to the litigation.”

The High Court took the view that the judge’s refusal to find that Mr Virdi had acted dishonestly was “possibly benevolent.”

He went on to say:-

“60. The case for making a Costs Order against him would, of course, be much stronger if he had acted dishonestly and deliberately persuaded his wife to advance a defence which he knew to be force… there is a wide spectrum of circumstances in which the discretion to make a third party costs order may legitimately be exercised. The authority shows that dishonesty is not a necessary ingredient, and (importantly) that the pursuit of speculative litigation falls into the same category as impropriety.”

Consequently Mr Virdi could be regarded as the “real party” and thus could properly be made the subject of a non-party costs order.

EXAGGERATION = FRAUD – KEY COURT OF APPEAL CASE

The Court of Appeal has said that exaggerating injuries for financial gain is fraud. This is a very important decision that suggests that the fundamentally dishonest threshold will be very much lower than most people thought. This is of key relevance in relation to the whole claim being dismissed under Section 57 of the Criminal Justice and Courts Act 2015 and to defeat Qualified One Way Costs Shifting protection.

In Hayward v Zurich Insurance Company plc [2015] EWCA Civ 327

the Court of Appeal overturned a first instance decision that a claimant should repay a large part of a personal injury award from an earlier settled action.

It will now be very difficult for the settled cases to be reopened.

Here the claimant had been injured at work and liability was admitted and shortly before trial the action was settled for £134,973.11, the insurer having argued that the claim was exaggerated. It settled for around one third of the sum claimed.

After settlement the insurers were informed that the claim had been inflated and they successfully sued the claimant for fraudulent misrepresentation in claimed rescission of the agreement. The judge held that the true value of the claim was £14,720.00 and ordered the claimant to repay the balance.

On appeal it was argued that the insurer had settled the original action on the basis that it was overstated and fraudulent and thus should not be allowed to reopen the case simply because it now had better evidence to establish one of the factors that it had taken into account when deciding to settle. To allow the insurer to reopen the case would make settlements difficult, if not impossible.

The Court of Appeal upheld those submissions. It pointed out that the contract was one to compromise a disputed claim and that the misrepresentation on which the claim for rescission was based consisted of some of the very facts averred by the claimant in advancing the claim. This was not a case of collateral representations designed to induce the settlement as in cases such as:-

Gilbert v Endean [1878] 9 Ch D 259 or Dietz v Lennig Chemicals [1969] 1 AC 170.

Consequently the defendant could not now have the agreement set aside simply because he could now show that the statements put forward by the claimant had been wrong.

“In deciding to settle the defendant takes the risk that those statements are in fact untrue (or, to put it more accurately, would not be proved at trial) and pays a sum commensurate with his assessment of that risk. He could have taken the case to trial in order to disprove the statements in question; but by settling he agrees to forego that opportunity and he cannot reserve the right to come back later for another attempt. If it were otherwise no settlement would be final.” (Paragraph 16 of the Judgment).

By entering into the settlement the defendant implicitly agrees not to seek to have it aside on the basis that the statements made in support of the claim were faults.

The Court of Appeal went on to say that the position would be different where the factual statements advanced by the claimant and replied upon by the defendant were not merely faults but were fraudulent. However the court went on to say:-

“If it is in any case sufficiently apparent that the defendant intended to settle notwithstanding the possibility that the claim was fraudulently advanced, either generally or in some particular respect – the paradigm being where he has previously so asserted – there can be no reason in principle why he should not be held to his agreement even if the fraud subsequently becomes demonstrable.” (Paragraph 19 of the Judgment).

The Court of Appeal said that it cannot be right that a defendant who has made an allegation of fraud against the claimant but decided not to have it tested in the court should be allowed, whenever he chooses, to revive that allegation as a basis for setting aside the settlement.

That was the case here.

Parties who settle claims with their eyes wide open should not be entitled to revive them only because better evidence comes along later. Here Zurich had alleged fraud from the outset and what happened afterwards was that better evidence of that fraud came to light after the settlement contract had been made.

At paragraph 33 the court said:-

“To extend the law of rescission in the manner here under consideration would have the most unfortunate consequences. The first would be that it would become almost impossible to compromise a whole swathe of litigation if settlements were vulnerable to being set aside in this manner. Apprehension by one party that his opponent may persuade the trial judge of matters which he denies, and disbelieves, is an everyday characteristic of litigation, and a healthy driver towards settlement, as every mediator knows. If the principle contended for were correct, almost any litigant could say that he was influenced to settle a case for more than it was worth because of a fear that the judge might believe his opponent, even though he did not. To be able to treat as an actionable misrepresentation the opponent’s statement of his case merely because of such an everyday apprehension would expose almost any settlement to subsequent attack if fresh evidence became available. Indeed, there is nothing in the reliance test propounded by the judge that would even make the obtaining of fresh evidence a necessary condition. The public policy which encourages settlement of litigation would be gravely undermined if, in effect, dissatisfaction on either side led, with or without later forensic research, to the settlement being impugned on the ground that the opponent’s case contained a misrepresentation which, without being believed, influenced the terms of settlement.”

This case would have been decided differently had the new section 57 of the Criminal Justice and Courts Act 2015 been in force at the time.

The court clearly found fundamental dishonesty, indeed fraud, and therefore there could have been no question of any part of the claim being allowed to stand; the whole claim would have had to have been dismissed, even though the Defendant was liable for part of the damages.

The case is potentially significant in relation to the definition of fundamental dishonesty, both in relation to section 57 and also in relation to Qualified One-Way Costs Shifting.

Working on the basis that anything that constitutes fraud has also passed the fundamental dishonesty test, that is assuming that fundamental dishonestly is in fact a step short of fraud, then any exaggeration for financial gain will constitute fundamental dishonesty and thus trigger the loss of Qualified One-Way Costs Shifting protection and also the loss of the whole claim which otherwise would have been successful.

Here the allegation of the defence was as follows:-

“The Claimant has exaggerated his difficulties in recovery and current physical condition for financial gain.”

There was no direct reference to fraud or dishonesty.

Indeed the whole point of the second action was that they had now discovered that the claimant had acted fraudulently and they had not taken that into account when setting the first action.

Here the court said, at paragraph 20:-

“The employers had in their Defence not simply put them in issue but positively asserted that they were dishonestly advanced: see para. 2 above. Ms Adams [counsel for the insurance company] argued that the relevant paragraphs did not amount to a plea of fraud, but I cannot see how an averment that the Appellant was exaggerating his disability “for financial gain” can be anything else.”

Later at paragraph 26 another judge of the Court of Appeal referred to “the grossly inflated amount which he received upon the settlement of his fraudulently exaggerated claim”.

INDUCEMENTS IN PERSONAL INJURY CASES

Sections 58 to 61 of the Criminal Justice and Courts Act 2015 introduce rules against inducements to bring personal injury claims. These are largely uncontroversial and came into effect on 13 April 2015, by virtue of The Criminal Justice and Courts Act 2015 (Commencement No. 1, Saving and Transitional Provisions) Order 2015 (SI 2015 no. 778).

Section 58 applies to regulated persons, which includes solicitors, and makes it unlawful to offer an inducement to make a personal injury claim, but not if the benefit is related to the provision of legal services in connection with a claim.

Thus offering a discount, or a no win no fee agreement, or offering to pay disbursements or cover adverse costs etc. does not amount to an inducement. An inducement is an offer of a benefit that is intended to encourage the person to make a claim or to seek advice about making a claim or which is likely to have that effect (section 58(2)).

A benefit may be an inducement regardless of when or how the offer is made, when it is received, whether it is subject to conditions or whether it is to be received by a third party (section 58(3)).

Section 58(4) provides that if a person other than the regulated person offers a benefit in accordance with arrangements made by or on behalf of the regulated person then the regulated person is to be treated as having offered that benefit.

Section 58(5) gives the Lord Chancellor power to make regulations as to the circumstances in which a benefit is related to the provision of legal services in connection with a claim, including provision about benefits relating to –

(a) fees to be charged in respect of the legal services;

(b) expenses which are or would be necessarily incurred in connection with the claim, or

(c) insurance to cover legal costs and expenses in connection with the claim.

Section 59(4) provides that breach of section 58 does not make a person guilty of a criminal offence and does not give rise to a right of action for breach of statutory duty.

Section 59 also provides that the appropriate regulator, the Solicitors Regulation Authority in the case of solicitors, must ensure that it has in place appropriate arrangements for monitoring and enforcing the restriction in section 58 and empowers the regulator to make rules and allows those rules to provide for any penalty that the regulator could impose for any other breach of another restriction.

The effect of this is that the SRA can make offering an inducement a disciplinary offence resulting in a solicitor being struck off the roll. Sections 59(5) and (6) allow the regulator to make rules which reverse the burden of proof, which means that if the regulator considers that there is an offer of an inducement, then it is for the solicitor to show that it was for some other reason, or that it was a benefit related to the provision of legal services in connection with the claim.

Section 60 is an interpretation section and section 60(1)(c) wrongly refers to the Law Society as the regulator for solicitors. It is in fact the Solicitors Regulation Authority.

Section 60(2) states:-

“benefit” means—

(a) any benefit, whether or not in money or other property and whether temporary or permanent, and

(b) any opportunity to obtain a benefit;

“claim” includes a counter-claim;

“legal services” means services provided by a person which consist of or include legal activities (within the meaning of the Legal Services Act 2007) carried on by or on behalf of that person;

“personal injury” includes any disease and any other impairment of a person’s physical or mental condition.”

Section 61 provides that regulations under section 58 or 60 are to be made by statutory instrument. The only regulations made to date are the ones commencing these provisions with effect from 13 April 2015 and they are the Criminal Justice and Courts Act 2015 (Commencement No. 1, Saving and Transitional Provisions) Order 2015.

Between them the sections are an all embracing prohibition on inducements in personal injury cases.

The issues raised in this blog are dealt with in Kerry’s course Fixed Recoverable Costs and Portals – book here.

Four courts have reached four different conclusions in cases where the wrong defendant has been named in a conditional fee agreement; what all four decisions have in common is that each states that there is never any need to name a defendant and doing so risks all costs being lost.

In Hailey v Assurance Mutuelle Des Motards SCCO: CCD 1405291

the Senior Court Costs Office held that if the wrong defendant was named in a Conditional Fee Agreement then there was no valid retainer and thus the indemnity principle meant that no costs could be recovered.

However the court held that disbursements could be recovered as these were payable by the claimant in any event, win or lose.

I do not pretend to understand the logic of this decision. The claimant won and therefore there must have been an implied term that he would pay his lawyers in the circumstances. Either the retainer is invalid in which case nothing is recoverable, or it is valid, in which case disbursements and costs were both recoverable.

There can be no logic in holding the retainer valid in relation to disbursements but not valid in relation to costs. If there was no retainer because there was no successful action against the driver of the motorcycle then clearly disbursements in relation to a completely different matter, which the court found this was, against the insurer could not be covered by that retainer.

Here the accident had occurred in France and thus the action, under French and apparently European Union Law, was against the insurer and not the driver of the motorcycle; the Conditional Fee Agreement wrongly named the driver rather than the insurance company and that part of the claim had been struck out.

Nevertheless it was the same accident which occurred on the same date.

In Brierley v Prescott [2006] EWHC 90062 (Costs)

the Conditional Fee Agreement covered:-

“Your claim against Hertz UK Limited Car Hire for damages for personal injury suffered on 7 January 2000”

where the true defendant should have been the other driver, a Mr Prescott. There Master Gordon-Saker said:-

“In my view the words “your claim against Hertz UK Limited Car Hire for damages for personal injury suffered on 7 January 2000” meant “the claim for damages arising out of the accident and which was being handled by Hertz”. “

He also said that the intention of the parties was obvious and that there was only ever one claim and therefore he held that the Conditional Fee Agreement was binding and the claimant was bound to pay his own solicitors under that agreement which meant that he could recover those costs from the defendant.

That decision is far better reasoned and clearly gives intention to the will of Parliament.

Simon Gibbs appeared for the defendant in each case and in Brierley v Prescott Simon Gibbs conceded that if the agreement had been expressed to cover “your claim for damages for personal injury suffered on 7 January 2000” without identifying the opponent, he would have no argument.

The court there said that it is commonly the case that Conditional Fee Agreements do not identify the opponent and that there is no requirement that they should, provided that “the particular proceedings” to which they relate are specified. As the court said “the sin therefore was one of addition: including an unnecessary detail.”

The key lesson to be drawn from these cases is that the defendant should never be mentioned in a Conditional Fee Agreement, but rather simply the date of the accident, and possibly the rough location, so that “the particular proceedings” are specified.

In that case the claimant and his solicitor had sought retrospectively to replace the 2002 agreement with one in 2005 but backdated. The court had this to say about that:-

“Although this is perhaps not the right vehicle to decide the point, I think it likely that a conditional fee agreement can have retrospective effect. However for the reasons suggested by Colman J in Arkin v Borchard Lines Ltd (Costs Judgment) [2001] NLJR 970, an agreement made after the conclusion of the proceedings to vary a conditional fee agreement relating to those proceedings would be unenforceable as contrary to public policy.”

In Law v Liverpool City Council [2005] EWHC 90020 (Costs)

the court also said that there was no requirement to name a defendant. There, Liverpool City Council were named as the defendant but in fact the property concerned, where the injury took place, had been transferred to Berrybridge Housing Association just two months before the accident. They were not named in the Conditional Fee Agreement. There the court held that there was a retainer, allowing the claimant to recover base costs but that there was no valid Conditional Fee Agreement, as the claim was not against Liverpool City Council, and therefore no success fee could be recovered.

The court said:-

“If the CFA as drafted is such that it can include a claim against any potential Defendant, then the present problem would not arise.”

It also said:-

“In my judgment, when it became apparent that the second defendant needed to be added the claimant and the solicitor should have considered the point and if it was the intention of both of them to have a CFA as well as a retainer covering the second defendant then a fresh CFA agreement should have been entered into or the existing one properly varied in writing and signed. This should have been effected.” (Paragraph 22).

In Brookes v DC Leisure Management Ltd and Technogym UK Ltd [2013] EW Misc 17 (CC) Exeter County Court considered a case where the CFA stated that it covered:-

“Your claim against Exeter City Council for damages for personal injury suffered in an accident at work on or about 19 May 2006”.

In fact the true defendants were DC Leisure Management Ltd and Technogym UK Ltd.

Yet again the court pointed out that it was unnecessary to name any defendant at all:-

“The claim could have been defined in relation to the date of the accident only, but the naming of a particular defendant evidences a clear intention to identify a particular legal claim against a particular Defendant.”

“Although the statutory requirement is that the CFA must be in writing, it does not have to identify the Defendant.”

In that case the court upheld the decision of Master Gordon-Saker sitting in the Senior Courts Costs Office that no costs would be recovered.

Thus on virtually identical facts we now have the following conflicting decisions:-

1. All costs can be recovered (Brierley v Prescott).
2. Base costs, but no success fee can be recovered (Law v Liverpool City Council).
3. Disbursements only can be recovered (Hailey v Assurance Mutuelle Des Motards).
4. Nothing can be recovered (Brookes v DC Leisure Management Ltd).

That is four different possibilities on the same facts. The ingenuity of the courts knows no bounds. I wonder how many further variations they can come up with.

For the sake of completion in the case of Scott v Transport for London (2009) Hastings County Court 23 December 2009 unreported the court allowed an appeal against the decision of the District Judge who had refused to allow any costs in relation to a Conditional Fee Agreement referred to “your claim against Lambeth Council” when in fact the defendant was Transport for London. Thus the County Court allowed costs in full as did the court in Brierley v Prescott.

Insofar as anything is clear from these decisions it is that you should never name a defendant in a Conditional Fee Agreement.

None of these problems are avoided by the fact that the Conditional Fee Agreement is a post 31 March 2013 one where the success fee is not recoverable from the other side. The central point in all of the above cases is that the retainer was invalid, in full or in part, and thus the claimant, that is the person entering into the Conditional Fee Agreement, was not liable to pay their own solicitors because of the defective retainer and therefore because of the indemnity principle those costs could not be recovered from the other side.

Exactly the same principle applies where the success fee is not recoverable, that is that if the claimant is not liable to pay it to the solicitor then obviously the solicitor cannot charge the success fee to the client. As we have seen above there is also the risk that the defendant will be off the hook in relation to base costs as the only retainer is the potentially defective Conditional Fee Agreement.

The issues raised in this blog are dealt with in Kerry’s course Qualified One Way Costs Shifting and Jackson Update – book here.

Type of work

 The current Qualified One Way Costs Shifting scheme covers all personal injury work without exception, but nothing else.  All relevant cases, irrespective of the parties’ financial circumstances, are covered.

CPR 44.13 states:

“(1)        This Section applies to proceedings which include a claim for damages –

(a) for personal injuries;

(b) under the Fatal Accidents Act 1976;

(c) which arise out of death or personal injury and survives for the benefit of an estate by virtue of section 1(1) of the Law Reform (Miscellaneous Provisions) Act 1934,

but does not apply to applications pursuant to section 33 of the Senior Courts Act 1981 or section 52 of the County Courts Act 1984 (applications for pre-action disclosure), or where rule 44.17 applies.

(2)          In this Section, “claimant” means a person bringing a claim to which this section applies or an estate on behalf of which such a claim is brought, and includes a person making a counterclaim or an additional claim”.

Section 57 applies “on a claim for damages in respect of personal injury” and by Section 57(8) “personal injury” includes any disease and any other impairment of a person’s physical or mental condition;”

DISCRIMINATION CASES

 Personal injury is not defined in the Civil Procedure Rules dealing with Qualified One Way Costs Shifting but CPR 2.3(1) provides that “a claim for personal injuries” means proceedings in which there is a claim for damages in respect of personal injuries to the claimant or any other person or in respect of a person’s death, and “personal injuries” includes any disease and any impairment of a person’s physical or mental condition.

Section 57(8) of the Criminal Justice and Courts Act 2015 uses exactly the same definition as CPR 2.3(1):

“”personal injury” includes any disease and any other impairment of a person’s physical or mental condition;”

Actual Injury

 Employment Tribunals have the power to award damages for actual personal injury arising out of discrimination, including physical, but more typically psychological, injuries, see for example Vento v Chief Constable of West Yorkshire Police (No 2) [2002] IRLR 102 Court of Appeal. The ordinary civil courts have the same power in relation to discrimination in non-employment fields, such as the provision of services.  Actual injury cases in the Employment Tribunal and in civil court discrimination cases would appear to be covered both by QOCS and Section 57 insofar as relevant, but in fact is it is not as simple as that.

In the civil courts the matter appears relatively straightforward – actual injury claims will be covered.

However the position in Employment Tribunals is less clear.  There are generally no costs in Employment Tribunals and therefore nothing to shift.  They are governed by entirely different costs rules and the Civil Procedure Rules dealing with QOCS – CPR 44.13 to CPR 44.17 – have no application.

Thus I am satisfied that QOCS does not apply to Employment Tribunal cases involving actual injury, let alone injury to feelings.

However on the face of it Employment Tribunal proceedings are capable of coming within section 57(1)……”proceedings on a claim for damages in respect of personal injury…..”.

As we have seen the duty under section 57(2) to dismiss the claim “includes the dismissal of any element of the primary claim in respect of which the claimant has not been dishonest”. (Section 57(3)).

So, exaggerate your client’s future loss of earnings claim and the safest case will be dismissed in its entirety if there is a personal injury element.

Is a safe unfair dismissal claim lost because of exaggeration of future loss if there is a personal injury claim for discrimination included, even though there is no exaggeration in relation to the personal injury element? The answer appears to be yes, just as an ordinary personal injury claim is lost in its entirety if, for example, the credit hire claim is exaggerated.

Injury to Feelings

 Is injury to feeling s species of personal injury? Does it involve impairment of a person’s mental condition?

Shorter Oxford English Dictionary

 Impairment

No definition given.

Impair

1. Make less effective or weaker; devalue, damage, injure.
2. Become less effective or weaker; deteriorate, suffer injury or loss.

Impaired

1. One that has been impaired.
2. Of the driver of a vehicle or driving; adversely affected by alcohol or narcotics.

Impairment

The action of impairing, or fact of being impaired; deterioration, injurious lessening or weakening.

Impair

To make worse, less valuable, or weaker; to lessen injuriously; to damage, injury.

Impaired

Rendered worse; injured in amount, quality or value; deteriorated, weakened, damaged.

Roget’s Thesaurus gives the following alternative for “impair”:

 Damage, harm, diminish, reduce, weaken, lessen, decrease, blunt, impede, hinder, spoil, disable, undermine, compromise, threaten.

Roget’s Thesaurus gives the following alternatives for “impaired”:

Disabled, handicapped, incapacitated, debilitated, infirm, weak, weakened, enfeebled, paralysed, immobilised.

Roget’s Thesaurus gives the following alternatives for “impairment”:

Disability, handicap, abnormality, defect, deficiency, flaw, affliction, disadvantage, problem.

Those definitions seem to me to be potentially wide enough to cause injury to feelings to amount to an impairment of a person’s mental condition and thus to bring injury to feelings into the sphere of QOCS protection.

Injury to feelings awards are usually in the Employment Tribunal.  There costs do not follow the event and thus QOCS is of no application, for the reasons set out above.

However injury to feelings awards are also made in the County Court where costs do follow the event; discrimination in relation to the provision of services is a County Court, not an Employment Tribunal matter.

My view is that the court could legitimately decide the issue of whether injury to feelings is a species of personal injury either way, although it is significant that the word “injury” is used.

Employment Tribunals have the power to award damages for actual personal injuries arising out of the discrimination, including physical, but more typically, psychological injuries.  These are generally awarded under the “injury to feelings” ahead of damages.  The appellate courts have frequently said that there is no fine line between actual psychological injuries and injuries to feelings.

For example, in Birmingham City Council v Jaddoo UKEAT/0448/04/LA

the Employment Appeal Tribunal referred to “the inevitable overlap between injury to feelings and psychiatric damages…..” (Paragraph 31).

In Vento v Chief Constable of West Yorkshire Police (No 2) IRLR 102 the Court of Appeal said that tribunals should have “……regard…..to the overall magnitude of the sum total of the award for compensation for non-pecuniary loss made under the various headings of injury to feelings, psychiatric damage and aggravated damages” such that “in particular, double recovery should be avoided by taking appropriate account of the overlap between the individual heads of damage”.

In HM Prison Service v Salmon [2001] IRLR 425 the Employment Appeal Tribunal said that it is “necessary to stand back and consider the non-pecuniary award as a whole”.

On balance my view is that injury to feeling should be classed as a species of personal injury and that cases involving claims for injury to feelings should attract the protection of Qualified One Way Cost Shifting in the civil courts, but not in Employment Tribunals.

In Timothy James Consulting Ltd v Wilton [2015] IRLR 368 EAT

the Employment Appeal Tribunal overturned the decision of the Employment Tribunal that had made an award of £10,000.00 for injury to feelings but had then grossed it up to take into account income tax at the rate of 40% and thus awarded £16,666.00.

There was no dispute that £10,000.00 was the correct figure; the issue was whether it should be grossed up to take into account tax and thus the real issue was whether injury to feelings awards are taxable.

Historically it had always been assumed that such awards were free of income tax and the current legislation is the Income Tax (Earnings and Pensions) Act 2003 and section 406 provides:-

“This Chapter does not apply to a payment or other benefit provided—

(a)          in connection with the termination of employment by the death of an employee, or

(b)          on account of injury to, or disability of, an employee.”

This replaced, and is a similar wording to, section 148 of the Income and Corporation Taxes Act 1988.

Here the Employment Appeal Tribunal carried out an exhaustive analysis of the authorities.

The Employment Appeal Tribunal said that the reasoning of the Employment Appeal Tribunal in the case of Orthet Ltd v Vince-Cain [2004] IRLR 857 EAT was persuasive and was preferable to a decision in the First Tier Tribunal (Tax Chamber) in Moorthy v Commissioners for HM Revenue and Customs [2015] IRLR 4 UKFTT which had held that awards for injury to feelings were taxable.

Consequently the Employment Appeal Tribunal held that injury to feelings awards are not taxable and therefore reduced the award back to £10,000.00.

It was a necessary part of the reasoning here, and in the Orthet case, that “injury” could include the concept of injury to feelings.

This reasoning was necessary because of the wording of section 406 set out above which exempts payments made “on account of injury to, or disability of, an employee”.

There is no reference there to injury to feelings and therefore to come within that definition the Employment Appeal Tribunal here and in Orthet held that “injury” includes injury to feelings, or to put it another way injury to feelings is a species of personal injury itself.

Thus here the Employment Appeal Tribunal, at least equal in standing to the High Court, held that injury to feelings Is an injury.

However the feedback that I am getting from practitioners in discrimination cases in the civil courts is that those courts are not treating injury to feelings as personal injury and thus are not providing QOCS protection.

In Black v Arriva North East Limited [2014] EWCA Civ 1115

the Court of Appeal rejected an application for a costs capping order.

Here, the appellant appealed against a judgment in a disability discrimination case but had not taken out a sufficient level of After-the-Event insurance before such insurance became unrecoverable by virtue of the Legal Aid, Sentencing and Punishment of Offenders Act 2012.  Thus any fresh premium, to cover the increased level of cover required, would not be recoverable.

Consequently the appellant sought to have Arriva’s costs capped at £50,000.00.

The Court of Appeal pointed out that this would now apply to all new cases as a result of Parliament ending recoverability of After-the-Event insurance premiums by means of LASPO 2012.

“So the argument could be raised in any appeal brought in respect of a case under that Act.  Such a result is difficult to square with the indication in the Practice Direction that an order for costs capping should only be made in exceptional circumstances” (paragraph 12).

The Court of Appeal also pointed out that it is not a function of costs capping orders to remedy the problems of access to finance for litigation.  “If for instance, the respondent’s costs were agreed to be proportionate, it would not be possible to exercise any jurisdiction to make a costs capping order simply because without it the appeal would not continue to be financially viable.”

That is because CPR 3.19(5) (b) only allows a costs capping order if “there is a substantial risk that without such an order costs will be disproportionately incurred;”

There were other fact- specific reasons for refusing a costs capping order in this case but they do not establish any new legal principles.

Interestingly one of the submissions made in favour of a costs capping order, but rejected, was that there was a lacuna in the law in that Qualified One-Way Costs Shifting applied in personal injury cases but not Equality Act cases.  As this is a disability discrimination claim in relation to the provision of services one would expect damages for injuries to feelings to be available.  The issue as to whether such damages are in fact damages for personal injuries, and thus covered by QOCS, does not appear to have been considered in this case.

“Another factor was that the potential subject of the Costs Capping Order – Arriva – had already incurred vastly more costs than £50,000.00 prior to the application being made and therefore the Costs Capping Order would have been retrospective:-

“The effect of what I have described is that by the time of the application, the major part of the solicitor’s costs of the appeal had been incurred. The effect of the order sought would, therefore, be that the Respondents will have already spent what is, if the costs capping order is made, in substance a budget laid down by the court without knowing that it had to stick to that insofar as it sought to recover its costs. In principle, the person who is the subject of the costs capping order ought, so far as possible, to know the budget to which he must work in advance.” (Paragraph 25).

QOCS

 QOCS protection is of no relevance in Employment Tribunals, neither in relation to actual injury or injury to feelings.

Section 57

  Applies to actual injury cases in civil courts arising out of discrimination.

May apply to injury to feelings cases in civil courts arising out of discrimination. – see the discussion of what is “injury” in Timothy James Consulting Ltd v Wilton [2015] IRLR 368 EAT.

Appears to apply to actual injury cases in Employment Tribunals arising out of discrimination.

May apply to injury to feelings cases in Employment Tribunals – see the discussion what is injury in Timothy James Consulting Ltd v Wilton [2015] IRLR 368 EAT.

Logically, in relation to injury to feelings awards, either both section 57 and QOCS apply in the civil courts or neither do.  The Simmons v Castle [2012] EWCA Civ 1039 10% uplift is subject to different reasoning, which I now consider.

Simmons v Castle 10% uplift

 Actual injury awards in the civil courts attract the Simmons v Castle [2012] EWCA Civ 1039 10% uplift.

The situation in relation to injury to feelings awards in the civil courts is unclear,  “general damages” awards attract the uplift and that is obviously a wider definition than “personal injury”.  My view is that injury to feelings awards being “general damages” do attract the 10% uplift in the civil courts.  That does not throw any light on the issue of whether injury to feelings is a species of personal injury.

In Employment Tribunals the position is even more complicated.

There remains the issue of whether injury to feelings awards in Employment Tribunals attract the 10% uplift.  Let us assume, as must be the case, that such awards are general damages and thus, on the face of it, attract the uplift.  Why is there any doubt?

In Chawla v Hewlett Packard Ltd [2015] IRLR 356 EAT

the Employment Appeal Tribunal held that the 10% uplift under Simmons v Castle [2012] EWCA Civ 1039 did not apply to injury to feelings awards nor actual personal injury awards in Employment Tribunal cases as the rationale does not apply as successful claimants do not generally recover their costs in Employment Tribunal cases.

The case was unusual in that an award for actual injury, as well as injury to feelings, was made. The EAT quoted from paragraph 15 of that judgment where Lord Judge, the Lord Chief Justice said:-

“15. Thirdly the increase we are laying down… is attributable to the forthcoming change in the civil costs regime initiated by Sir Rupert as an integral part of his proposed reforms which were unconditionally endorsed and supported as such by the judiciary publicly, and it was plainly on the basis that the 10% increase would be formally adopted by the judiciary that the 2012 Act was introduced and enacted.”

Here the EAT points out that Employment Tribunal claims are not included on the list of specific types of litigation dealt with in the report.

At paragraph 91 of the judgment the EAT says:-

“The rationale for the uplift… does not apply to litigation in the ET.  Accordingly the 10% uplift decided upon in that case does not apply to increase guidelines in cases on injury to feelings in discrimination cases in ET’s.”

This is in conflict with two previous decisions of the Employment Appeal Tribunal:-

Ozog v Cadogan Hotel Partners Ltd [2014] EqLR 691 EAT and

The Sash Window Workshop Ltd v King [2015] IRLR 348 EAT

In Ozog the point was conceded but the EAT said that the concession was rightly made.  In The Sash Window neither of the advocates nor the judge appeared to have a clue as to what the Simmons v Castle uplift was about, with references to inflation, the inflation uprating in Da’ Bell v NSPCC [2010] IRLR 19 EAT and that Simmons v Castle was decided because the level of general damages was generally low.  The Judge herself refers to the Da’ Bell v NSPCC inflation uplift as being 4 years old at the time of the hearing here.

The discussion and judgment on this point in The Sash Window are woeful.

Chawla is a much better reasoned decision and in my view is correct.

It is also in conflict with the Presidential Guidance 2014 which makes specific reference to the Vento guidelines on injury to feelings as having been updated by Simmons v Castle at paragraphs 13 and 14 which state:-

“13…tribunals may award a sum of money to compensate for injury to feelings…

14. They follow guidelines first given in Vento v Chief Constable of West Yorkshire Police, which have since been updated by Da’ Bell v NSPCC and Simmons v Castle, but are still referred to as the “Vento” Guidelines.”

A previous decision of the Employment Appeal Tribunal took the same line as the EAT here –

Pereira de Souza v Vinci Construction UK Ltd UK EAT/0328/14, unreported

Leave to appeal to the Court of Appeal has been given in Pereira.

If you can answer most of these questions then there is no need to book for Kerry on Tour; if you can’t then click here.

WHIPLASH AND MEDCO

Q1          Is the scheme confined to neck and associated injuries?

Q2          If the claim exits, or falls outside the portal do these whiplash/MedCo rules still apply?

Q3          Is use of MedCo compulsory?

Q4          Have pre-medical offers been banned?

Q5          What is the timescale for expert accreditation?

Q6          Can the report be prepared by someone who has treated the claimant?

Q7          When did fixed costs soft tissue medical reports come in?

Q8          When did the requirement to use MedCo in such cases come in?

Q9          What happens if I instructed an expert before 6 April 2015 but the CNF until on or after 6 April 2015?

Q10        Do the fixed costs medical report rules apply throughout the Fixed Recoverable Costs Scheme as well as the portal?

Q11        Does the Accreditation Scheme apply to FRC as well as the portals?

Q12        Does MedCo apply to EL (Employers Liability) and PL (Public Liability) matters?

Q13        Do the fixed medical report costs provisions apply to EL and PL claims?

Q14        Is a motorcyclist “an occupant of a motor vehicle” for the purposes of the definition of a soft tissue injury claim under the RTA Protocol?

Q15        What about a person in a side-car?

MEDICAL REPORTS

Q16        In EL/PL portal claims do you need to nominate a medical expert?

Q17        Is there any guidance as to appropriate fees for medical reports in cases where medical report fees are not fixed?

PREVIOUS CLAIMS HISTORY

Q18        When does the requirement to provide previous claims history apply?

Q19        Do the claimants’ previous claims history provisions apply to EL and PL claims?

GENERAL

Q20        Is it compulsory to use the portals?

Q21        Can a claim which exits the portal re-enter it?

Q22        Does the portal cover protected parties?

Q23        Does it cover cases where personal representatives are involved?

Q24        Does it cover children?

Q25        Does it cover bankrupts?

Q26        Is £25,000 the true upper limit of the portal?

Q27        What are vehicle related damages?

Q28        Does it cover MIB untraced driver claims?

Q29        Does it cover MIB uninsured drivers claims?

Q30        What happens if the claim becomes worth more than the limit?

Q31        What happens if the CNF is sent to the wrong defendant?

Q32        What happens if the claimant reasonably believes the claim is worth at least £1,000, and thus is above the small claims limit, but it then becomes clear that it is worth less than £1,000?

Q33        If an insurer does not respond to the CNF and the matter exits the portal can you issue proceedings without the need for a letter of claim?

Q34        Is there any case law on what constitutes complexity for the purposes of justifying taking the matter out of the portals?

Q35        Where personal injury damages are under £25,000 but the claim far exceeds that level because of the vehicle related damages which do not come into play for the upper limit the matter will be commenced in the portal.  If it falls out for any reason what costs regime applies?

EL AND PL

Q36        What happens if the claimants are considering applying for a Group Litigation Order?

Q37        What if there are complex issues of fact or law?

Q38        In a dog bite case against individual defendants what protocol and what costs regime applies?

FIXED RECOVERABLE COSTS

Q39        Can a claim that never entered a portal go to Fixed Recoverable Costs?

INFANT APPROVAL SETTLEMENTS

Q40        What fees do I get in relation to advice on an Infant Approval Settlement?

EXITING THE PORTAL

Q41        If the settlement monies and costs are not paid by the insurance company within 10 days can I exit the portal and issue proceedings?

Q42        If the defendant insurers fail to pay the medical fee with the Stage 1 costs on a soft tissue matter can I drop the claim out of the portal?

FEES

Q43        I recently completed an NI claim form for an RTA cases and in years gone by I would simply put “to be assessed” in the box where it asks for solicitors costs.  It no longer lets you type that in so I just put a fairly conservative figure down based on fixed recoverable costs.  The form was returned back to me saying they can’t issue the claim because my costs are too high.  I don’t understand this at all.  Even under Fixed Recoverable Costs there is a table and the costs recoverable depend on what stage you get to and is also linked to the settlement account.  The figure I put down was comfortably below the maximum costs recoverable, so in summary what figure am I supposed to put in that box?

COSTS

Q44        I want to settle a claim that has fallen out of the portal without proceedings being issued.  The level of costs is thus fixed by CPR 45.29C.  The insurers have offered to pay agreed damages but there is no reference to costs.

                Do I still need agreement to pay costs?

Q45        If a case drops out of the portal after Stage 1 costs have been paid and Part 7 proceedings are issued does credit have to be given for those Stage 1 costs against FRC?

Q46        Is a Pre-Action Disclosure Application in a claim that has exited the portal as interim application for costs purposes?

Q47        What fee do I get?

Q48        What is the position with multi-claimant matters?  Do you get just one fee or one for each claimant?

ADVOCACY

Q49        How is the advocacy fee calculated if you are representing more than one claimant?

COUNSEL

Q50        Is counsel’s fee for drafting pleadings every recoverable in an FRC case?

Q51        Is counsel’s fee for a conference every recoverable in an FRC case?

Q52        If I instruct counsel to conduct the advocacy in an FRC case and it settles is any fee recoverable in respect of counsel?

Q53        Is counsel’s fee recoverable from an interim application?

Q54        Does the advocacy fee vary depending on who undertakes the advocacy?

Q55        Can I ever recover an extra fee for counsel in the portal?

Q56        Is there any definition of “reasonably required”?

Q57        Can I recover the costs of counsel advising in liability in the portal?

Q58        How much is that fee?

SPECIALIST SOLICITORS

Q59        Can I instruct another firm of solicitors instead?

Q60        Can I instruct a specialist solicitor in my own firm and get the entire fee?

CFAs

Q61        I signed my client up to a CFA before 1 April 2013 but have only just issued the CNF.  Can I recover the success fee?

Q62        I have a child’s RTA claim from 2007.  Does this go into the portal?

Q63        Does the 12.5% London uplift apply in the portals?

Q64        I have a claim where there are two claimants and one claim is valued at £4,000 and one is valued at £9,000.  How do I calculate the court issue fee?

QOCS

Q65        Does QOCS apply to portal claims?

Q66        Does QOCS apply to FRC claims?

Q67        Does QOCs apply to Pre-Action Disclosure applications?

Q68        Does QOCS apply to other interim applications?

SECTION 57

Q69        Does section 57 Criminal Justice and Courts Act 2015 apply to portal claims?

Q70        Does section 57 apply to FRC claims?

MISCELLANEOUS

Q71        I have a small claims track case that has ended up in the Court of Appeal.  Are costs payable/recoverable?

Q72        Is a Noise Induced Hearing Loss claim covered by the EL/PL portal?

Q73        If it exits the portal does it go to FRC?

Q74        What is your authority for stating that NIHL claims are disease claims?

Q75        Are members of the Armed Forces employees for the purposes of the EL/PL portal?

Q76        What happens to such claims?

Kerry is the author of the After The Event Insurance chapter of Insurance Disputes.

In Impact Funding Solutions Ltd v Barrington Support Services Ltd (formerly Lawyers at Work Ltd) and AIG Europe Insurance UK Ltd [2015] EWCA Civ 31

the Court of Appeal considered the interplay between After-the-Event insurance and professional indemnity insurance and disbursements used or necessary to fund cases.

Here Impact Funding Solutions Ltd had made funds available to Barrington Support Services Ltd to fund disbursements in relation to noise induced hearing loss claims.

The funding was made available by way of loans to the claimants and if the claim was successful the costs would be recoverable from the defendants but if the claims failed, or settled on unfavourable terms, the loans made by Impact, together with interest, would have to be recovered in some other way.

If the claimants had Before-the-Event legal expenses insurance or After-the-Event insurance then the loans may be recoverable from the insurers. However if those insurers, for any reason, did not pay then Impact Funding Solutions Ltd would look to the solicitors, rather than their clients, to pay.

Solicitors must have professional indemnity insurance and the issue in this case was whether those professional indemnity insurers were obliged to indemnify solicitors who are liable to reimburse the loans made to their clients in order to defray the disbursements made by those clients.

Here the After-the-Event insurers succeeded in avoiding liability to Barrington on the ground that they had failed properly to assess the merits of the claims and also that they drew monies down from Impact apparently to pay for disbursements but in fact to pay referral fees to claims management companies and also to pay fees to a company called LCS Sprint for work that could and should have been done by Barrington.

In those circumstances Impact successfully sued Barrington and obtained judgment in the sum of £581,353.80 but Barrington had gone into liquidation.

Consequently Impact brought proceedings against Barrington’s insurers, AIG Europe Ltd, pursuant to the Third Parties (Rights Against Insurers) Act 1930 and AIG is entitled in those proceedings to rely on any defence which it would have had if it had been sued by its insured, that is Barrington.

AIG argued that they were not liable to indemnify Barrington in respect of liabilities to repay what the insurers referred to as “commercial loans” since professional indemnity insurers are not in the business of helping Impact or anyone else to obtain repayment of loans to solicitors which were made or drawn down for the purpose of carrying on their practices. The judge at first instance accepted that argument and thus gave judgment in favour of AIG and thus refused to allow Impact to claim against the solicitor’s professional indemnity insurance.

On appeal the Court of Appeal overturned that decision and entered judgment against AIG.

It held that obligations arising out of loans made to cover disbursements in intended litigation are essentially part and parcel of the obligations assumed by a solicitor in respect of his or her professional duties to the client, rather than obligations personal to the solicitor such as, for example, paying for a photocopier.

They are inherently part of the professional practice and are assumed as an essential part of the duty to advise the client as to the likelihood of success in the intended litigation. Disbursements should not be incurred in litigation which is unlikely to succeed. A solicitor who negligently advises the client that a claim is likely to succeed and causes a client to incur disbursements which should not have been incurred, will be liable to the client for disbursements needlessly incurred.

It makes no difference from the point of view of a professional indemnity insurer that the disbursement had been incurred before such advice is given or without such advice having been given at all.

Thus Barrington’s liability to Impact fell within clause 1 of the insurance cover as being “civil liability” arising “from private legal practice in connection with the insured firm’s practice” which is part of the Minimum Terms required by the Solicitors’ Indemnity Insurance Rules.

The fact that the loan was nominally made to the solicitor’s client but was in fact an inherent part of a set of interlocking agreements all intended to enable the solicitor to earn a professional livelihood did not alter that position.

The Civil Procedure Rules Committee, unelected, unrepresentative, unaccountable and undemocratic, has decided to remove judges from a whole series of judicial functions including deciding applications in relation to the following matters:-

• amending Particulars of Claim;
• stays;
• rectifying procedural errors;
• extending time for service of Claim Form;
• adding or substituting a party;
• making a counterclaim;
• setting aside or varying a default judgment;
• interim payments.

A pilot scheme comes into force on 1 October 2015 and covers claims issued at Northampton Bulk Centre, Money Claims Online and the County Court Money Claims Centre in Salford. This is achieved by Practice Direction 51K – The County Court Legal Advisers Pilot Scheme.

Extraordinarily CPR 51.2 gives the Civil Procedure Rules Committee entirely unlimited powers to modify or disapply any provision of any rule for the purposes of a pilot.

The rule reads:- “51.2 Practice directions may modify or disapply any provision of these rules –

(a) for specified periods; and

(b) in relation to proceedings in specified courts,

during the operation of pilot schemes for assessing the use of new practices and procedures in connection with proceedings.

I suspect no-one ever anticipated that this Rule would be used to abolish judges hearing a whole raft of applications.

Taken to its logical conclusions the Civil Procedure Rules Committee could abolish trials, appeals and indeed the whole civil justice system in England and Wales.

The Nazis in Germany or the apartheid regime in South Africa would have been delighted with such powers.

I trust that the Administrative Court will strike this provision down at the earliest opportunity and that every court will refuse to enforce it on the ground that it is a very obvious breach of Article 6 of the European Convention on Human Rights, that is the right to a fair trial. As this is secondary legislation courts can simply refuse to take any notice of it if it breaches the Human Rights Act; there is no need to refer it back to Parliament.

The Law Society Civil Justice Committee at its meeting on 25 February 2015, under Any Other Business, recorded this in the minutes:-

“Keith Etherington said that there was to be a pilot scheme run at the County Court Money Claims Centre in Salford, from around October 2015, under which cases would be dealt with by legal advisors rather than judges until they were allocated to a court. There was concern at the level of training the advisors would have and that judicial decisions would be taken by unqualified people; and that the service standard was being reduced when fees were rising. The Civil Procedure Rules Committee had been under pressure to introduce the system and had not consulted on it. The new rule and practice direction had not been written and the Society might wish to consider whether to contest the arrangement. Any decision made by a non-judge was likely to be challengeable. Martin Heskins would be asked to obtain, if possible, the report that the Rules Committee had considered.”

Legal advisers, who must be solicitors or barristers, will now make these decisions which have always been the responsibility of the judges. There will be no hearing.

There has been no consultation about this radical change, which overturns nearly 900 years of judicial matters being determined by judges. No details have been provided as to the training, or more likely lack of training, that these parajudges will receive. There is no minimum period of qualification or call.

The parties can within 14 days request a District Judge reconsider the decision. That reconsideration will take place without a hearing.

Now you know what the 622% court fee increase was for.

Remember it is this unbelievably incompetent Civil Procedure Rules Committee which brought you the Relief from Sanctions fiasco, along with unintelligible rules in relation to a whole host of matters including Part 36 and Qualified One-Way Costs Shifting and a complete lack of guidance on matters such as proportionality.

It is time for this bunch of incompetents to be banished and their committee and all its works abolished. Making Civil Procedure Rules should now become a matter for a Parliamentary Committee drawing on the use of experts, that is people who know what they are doing, when needed.

As to the removal of judges from any process whatsoever that should require an Act of Parliament.

NEXT WEEK: CIVIL PROCEDURE RULES COMMITTEE ABOLISHES PARLIAMENT AND DECLARES MARTIAL LAW

PERSONAL INJURY AND FUNDAMENTAL DISHONESTY – CLIENT CARE WORDING

I set out below suggested wording for the client care letter and statements by the client to assist lawyers in dealing with Section 57 of the Criminal Justice and Courts Act 2015 and also the disqualification of Qualified One-Way Costs Shifting caused by fundamental dishonesty.

These statements have been tested using the Flesch-Kincaid readability test which indicates how difficult a reading passage in English is to understand and all the statements are easily understood by 13 to 15 year olds.

Obviously having this wording does not prevent the court from overturning a claimant win and dismissing the successful claim under Section 57 and nor does it prevent a court from awarding costs in a lost claimant claim that would otherwise have been covered by QOCS.

However it should assist in dealing with any negligence action or complaint by clients and should also sharpen up a solicitor’s risk assessment in what is a new area of risk, that is that an otherwise safe claim is now lost under Section 57.

Client Care Letter

Add to “Your Responsibilities”:-

“You will not exaggerate any part of your claim.”

Below that I advise the following in bold:-

“Please note that in a personal injury claim any inaccuracy or exaggeration by you or on your behalf in relation to any part of the claim will lead to the whole claim being thrown out with you being ordered to pay the other side’s costs. This will happen even if you have already won your claim. For example if the court finds that the accident was the other party’s fault but you exaggerate your injuries or the amount that you have spent then your claim would be lost. You will then be responsible for my firm’s costs as well as the other side’s costs. Such conduct on your behalf will invalidate any insurance policy.”

This statement has a readability score of 61.7 on the Flesch-Kincaid readability scale meaning that it is easily understood by 13 to 15 year olds.

I advise that all clients be seen by a Senior Lawyer at least for the purposes of explaining the effect and meaning of fundamental dishonesty and also for discussing funding. Obviously a careful attendance note should be made.

Although the client has to sign a Statement of Truth in relation to their statement I suggest a following separate statement to be signed by the client in the following terms:-

“I have read and understood the statement that I have made. I have had any parts that I was unsure about explained to me and I confirm that the statement is true and correct in every respect. I understand that anything wrong in my statement may lead to my whole claim being thrown out and me being ordered to pay the other side’s costs as well as my own solicitor’s costs and expenses.”

This statement has a readability score of 63 on the Flesch-Kincaid readability scale meaning that it is easily understood by 13 to 15 year olds.

In relation to the Schedule of Special Damages I suggest the following be signed separately by the client:-

“I have read and understood my Schedule of Special Damages. I understand that these are expenses that I have actually paid or am liable for. I have had any parts that I was unsure about explained to me. I confirm that the Schedule of Special Damages is true and accurate in every respect. I understand that any inaccuracy in my Schedule of Special Damages may lead to my whole claim being thrown out and me being ordered to pay the other side’s costs as well as my own solicitor’s costs and expenses.”

This statement has a readability score of 64.5 on the Flesch-Kincaid readability scale meaning that it is easily understood by 13 to 15 year olds.

The above statement can be adapted for a Schedule of Future Loss.

In relation to medical evidence I advise the following:-

“I have read and understood my Medical Report. I have had any parts that I was unsure about explained to me. I confirm that the report is true and accurate in every respect. In particular I have been supplied with an explanation of the medical terms and I understand all of them. I understand that any inaccuracy in the Medical Report may lead to my whole claim being thrown out and me being ordered to pay the other side’s costs as well as my own solicitor’s costs and expenses.”

This statement has a readability score of 61 on the Flesch-Kincaid readability scale meaning that it is easily understood by 13 to 15 year olds.

The above wording can be adapted for any other reports obtained.

Solicitors may wish to have the client care statements in any Conditional Fee Agreement.

These are merely suggestions to try and assist lawyers in what is a new and very difficult area with a section of an Act of Parliament which goes against the grain for any lawyer anywhere.

Comments and suggestions as to how to improve the wording, or details of further issues that need to be addressed would be most welcome.

Related blogs:-

Qualified One Way Costs Shifting (“QOCS”)

Personal Injury Revolutionized: Criminal Justice and Courts Act 2015

Exaggeration = Fraud – Key Court of Appeal Case

Don’t dumb down

• Senior lawyer intervention at start;
• A stitch in time saves nine;
• Is it in the right portal – employees, Crown servants and all that;

Part 36

• Immediate offer on liability where appropriate;
• Specials to date;
• Settle early – settle low;

• Consider “one good offer or go to trial” policy;
• Anything and everything.
• Claimant lawyers’ 25% more valuable the earlier the case settles

Portals

• Never let it out!
• Is contributory negligence ever worth it?
• Court fees: unintentional tax on defendants?

Fixed Recoverable Costs

• Extend by agreement;
• Has the Claimant got ATE;
• The Claimant’s solicitors 25% damages charge – making it work for defendants;
• Agreeing to waive the indemnity principle;
• Agreeing DBAs plus costs;
• Don’t make the claimant’s solicitor do unnecessary work;
• Less work, lower costs but more profit makes both parties happy;
• No more fattening up a file up like a pig for market.

Qualified One Way Costs Shifting

• Part 36;
• Special Damages;
• Fundamental dishonesty, QOCS and Section 57 Criminal Justice and Courts Act 2015;
• Strike out;
• Summary judgment;
• Discontinuance.

ADR

• Private mediation/arbitration;
• Settlement agreements;
• Waiving indemnity principle;
• Waiving small claims limit.

Settlement Agreements

• Based on employment cases;
• Fee paid by defendant;
• Dealt with only by qualified lawyer;
• No deduction from client’s damages;
• Agree never to engage in Third Party Capture – unacceptable

Voluntary extension of Fixed Recoverable Costs

• Seek to agree FRC on anything;
• Use Tables with % applying to higher sums;
• Agree to waive indemnity principles;
• Saving costs of dealing with costs;
• Certainty suits everyone.

Unnecessary Costs

• Issue fee;
• ATE insurance;
• Costs lawyers;
• Costs negotiators;
• Most expert’s fees.

Good firms

• Work collaboratively with good firms;
• Agree structure workable for us both;
• Settlement agreements;
• No technical challenges on costs/retainer;
• Fixed Recoverable Costs extension;
• No small claims limit.

Bad firms and Claims Management Companies, Claim Farms etc.

• Fight;
• Claim fundamental dishonesty to defeat QOCS;
• Defeat QOCS – apply to strike out;
• Use Section 57 – fundamental dishonesty;
• “Financial benefit of another” QOCS exception.

Relevant Blogs

• FIXED COSTS, ALL THE PORTALS AND FIXED RECOVERABLE COSTS

• QUALIFIED ONE WAY COSTS SHIFTING (“QOCS”)

• CONDITIONAL FEE AGREEMENTS, DAMAGES-BASED AGREEMENTS AND CONTINGENCY FEES

• INSURANCE – INTERPLAY BETWEEN ATE INSURANCE AND PROFESSIONAL INDEMNITY INSURANCE

• PORTALS AND FIXED RECOVERABLE COST: 76 FAQ’S

• PERSONAL INJURY: QOCS, S.57 and 10% UPLIFT

• CFAS: NEVER NAME THE DEFENDANT!

• EXAGGERATION = FRAUD – KEY COURT OF APPEAL CASE

• COSTS AGAINST LAWYERS

• DOES QOCS APPLY WHERE THERE IS A NIL SUCCESS FEE?

• JACKSON: 2 YEARS ON

• INDEMNITY COSTS

• PROVISIONAL ASSESSMENT

• NEW PART 36: APRIL IS AGAIN THE CRUELLEST MONTH

• WASTED COSTS AND NON-PARTY COSTS ORDERS

• WHIPLASH: ALL YOU NEED TO KNOW ABOUT COSTS

• PERSONAL INJURY REVOLUTIONIZED: CRIMINAL JUSTICE AND COURTS ACT 2015

• FIXED RECOVERABLE COSTS IN ALL CIVIL CASES UP TO £250,000

• PART 36: CLAIMANTS’ OFFERS AND COURT BIAS – ELSEVIER CONSIDERED

QOCS, COSTS AND DISCONTINUANCE

In Dar Al Arkan Real Estate Company v Al Refai [2015] EWHC 1793 (Comm)

the Commercial Court of the High Court held that discontinuance of an action has no effect on any interlocutory costs orders.

Here the claimant discontinued the action but the defendant was still liable for interlocutory costs orders made in the life of the case. As the court pointed out, any other decision would leave a losing claimant who went to trial better off than a discontinuing claimant.

“As a matter of policy it would be surprising if the CPR provides for harsher consequences on a litigant who discontinues a claim or part of a claim than are typically visited on one who pursues an invalid claim or arid litigation to the bitter end. Surely a litigant who comes to appreciate that there is no point in pursuing a claim or part of one is to be encouraged to discontinue it promptly.” (Paragraph 37).

QOCS and Discontinuance

That must be right and presumably is the rationale for a discontinuing personal injury claimant still having the benefit of Qualified One-Way Costs Shifting, that is that it would be absurd to force a potential discontinuer to proceed and lose at trial in order to gain QOCS protection.

However life is not that simple and the unbelievably badly drafted CPR in relation to QOCS are already throwing up problems.

In a recent case in Newcastle County Court the claimant had issued against two defendants in a road traffic matter that exited the portal.

The claimants accepted agreed damages of £3,500.00 from the second defendant and discontinued against the first defendant who had never applied to have the action struck out. The first defendant obtained full costs against the claimant with an order that they be enforced in full even though the total exceeded £3,500.00.

CPR 44.13 to 44.17, dealing with Qualified One-Way Costs Shifting, does not anywhere or in any way change the basic law that a losing party is ordered to pay costs.

Throughout the rule the restriction is on enforcement without the permission of the court. Thus a costs order is always made in the usual way and CPR 44.14 is the rule that limits enforcement of the costs order to the aggregate amount of damages and interest made in favour of the claimant.

CPR 44.15 dis-applies that restriction and allows full enforcement in the usual way where the proceedings have been struck out on any of the grounds stated in that rule.

CPR 44.16 allows for enforcement to the full extent of the order, but only with the permission of the court, in the circumstances set out in CPR 44.16, essentially where there has been fundamental dishonesty or the claim is made for the financial benefit of another.

Thus the structure of what must be one of the worst drafted rules in history is that CPR 44.15 lists exceptions to Qualified One-Way Costs Shifting where permission is not required and CPR 44.16 lists exceptions to Qualified One-Way Costs Shifting where permission is required and the subheadings indeed indicate that.

Absent CPR 44.15 or CPR 44.16 applying, and clearly they did not in this case, then CPR 44.14 applies. That rule is ambiguous. CPR 44.14(1) allows a costs order made against a claimant to be enforced without the permission of the court up to the extent of damages and interest awarded.

My view is that the Deputy District Judge was wrong in law in allowing enforceability beyond the aggregate of damages and interest.

True it is that CPR 44.14(1) refers to enforcement without the permission of the court, which suggests that there can be enforcement beyond the total of damages and interest with the permission of the court. However if that were the case what is the point of CPR 44.16? It would be otiose as a court would always be able to give permission for the order to be enforced to its full extent by virtue of CPR 44.14(1).

There is a second question as to whether the court, properly exercising its discretion, should have made any award at all. On the face of it CPR 44.14(1) does allow an order to be made and as we have established allows that to be enforced up to the aggregate amount of damages and interest. Thus it could be argued that as an award has been made of £3,500.00, albeit against a different party, that sum can be used to discharge a costs order. Practice Direction 44 at 12.4(c) provides:-

“(c) Where the claimant has served a notice of discontinuance, the court may direct that issues arising out of an allegation that the claim was fundamentally dishonest be determined notwithstanding that the notice has not been set aside pursuant to rule 38.4;”.

That clearly envisages that in the absence of an allegation of a claim of fundamental dishonesty notice of discontinuance will not of itself trigger a costs liability; otherwise what is the point of that Practice Direction giving the court that power in the case of alleged fundamental dishonesty if the power is there in any event?

It also raises the policy point which is that if discontinuance of itself triggers costs, as it obviously does in the absence of Qualified One-Way Costs Shifting, then one is better going to trial and losing and wasting everyone’s time and money as generally following a lost trial no costs can be enforced against a claimant in the absence of fundamental dishonesty. Clearly if the claimant loses the trial then the aggregate amount in money terms of any orders for damages and interest is nil.There is a third argument. If one reads CPR 44.14(1) it does not actually say that orders for costs can be made for any amount but only enforced without permission of the court up to the aggregate amount in money terms of any orders for damages and interest. What it in fact says is:-

“…but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for damages and interest made in favour of the claimant.” (My Italics and bold)

Thus it appears to say that insofar as any order exceeds the amount of damages and interest it cannot be enforced even to the extent of the amount of the damages and interest.

Thus damages are £3,500.00. An order is made for £5,000.00. That order thus exceeds the aggregate amount in money terms etc. and therefore cannot be enforced without the permission of the court.

That is subject to CPR 44.15 and 44.16 which we have already considered. They have no application here.

Thus in my view if a court makes an order for £5,000.00 where the damages etc. are only £3,500.00 then none of it can be enforced without the permission of the court because that is what CPR 44.14(1) literally says.

The problem here is that presumably the court can give permission to enforce the whole sum and that appears to take it out of CPR 44.14, but does not affect the points raised above.

The final non-technical, but probably most important, point is this. The claimant would have been better simply throwing in the towel and losing against both parties, or indeed going to trial and losing as then the client would have received nothing but paid nothing. To win £3,500.00 but then be ordered to pay a greater sum very obviously leaves the client worse off than simply losing completely.

In the absence of fundamental dishonesty that cannot possibly have been the intention of those drafting the rules.

NEXT: QOCS, COSTS AND STRIKE-OUT

FUNDAMENTAL DISHONESTY, STRIKING OUT AND HUMAN RIGHTS ACT

In Fairclough Homes Ltd v Summers [2012] UKSC 26

the Supreme Court held that a court had the power to strike out a claim in its entirety in the event of fraud, but that that power should only be exercised in very exceptional circumstances. It has rarely been used.

Under the principles of this case a claimant would generally receive the genuine element of a claim even if a court found that s/he had dishonestly claimed other losses. This case is in a sense a forerunner of Section 57 of the Criminal Justice and Courts Act 2015. Here the Supreme Court said, at paragraph 1:-

“The principal issues in this appeal are whether a civil court (“the court”) has power to strike out a statement of case as an abuse of process after a trial at which the court has held that the defendant is liable in damages to the claimant in an ascertained sum and, if so, in what circumstances such a power should be exercised.”
There was no doubt that the claimant had had an accident which was the defendant’s fault but the trial judge found that he had exaggerated his symptoms to the extent of being fraudulent and had deliberately lied to those preparing medical reports.

At paragraph 33 of its judgment the Supreme Court said:-

“33. We have reached the conclusion that, notwithstanding the decision and clear reasoning of the Court of Appeal in Ul-Haq, the court does have jurisdiction to strike out a statement of case under CPR 3.4(2) for abuse of process even after the trial of an action in circumstances where the court has been able to make a proper assessment of both liability and quantum. However, we further conclude, for many of the reasons given by the Court of Appeal, that, as a matter of principle, it should only do so in very exceptional circumstances.”

Interestingly at paragraph 45 the Supreme Court said:-

“It was submitted that an ascertained claim for damages could only be removed by Parliament and not by the courts. We are unable to accept that submission. It is for the court, not for Parliament, to protect the court’s process. The power to strike out is not a power to punish but to protect the court’s process.”

Parliament has clearly taken a different view from the Supreme Court in passing Section 57.

Most interestingly of all the Supreme Court considered the role of the European Convention on Human Rights in the context. Specifically the Supreme Court accepted that a judgment is a possession within the meaning of Article 1 Protocol 1 of the European Convention on Human Rights and that the effect of striking out a claim for damages would be to deprive someone of that possession, which would only be permissible if “in the public interest and subject to the conditions provided for by law…”

The Supreme Court said that the State has a wide margin of appreciation in deciding what is in the public interest but that is subject to the principle of proportionality – Pressos Compania Naviera SA v Belgium (1995) 21 EHRR 301 Paras 31 to 39.

“48. It is in the public interest that there should be a power to strike out a statement of case for abuse of process, both under the inherent jurisdiction of the court and under the CPR, but the Court accepts the submission that in deciding whether or not to exercise the power the court must examine the circumstances of the case scrupulously in order to ensure that to strike out the claim is a proportionate means of achieving the aim of controlling the process of the court and deciding cases justly.”

The court then went on to say, at paragraph 49:-

“The draconian step of striking a claim out is always a last resort, a fortiori where to do so would deprive the claimant of a substantive right to which the court had held that he was entitled after a fair trial. It is very difficult indeed to think of circumstances in which such a conclusion would be proportionate. Such circumstances might, however, include a case where there had been a massive attempt to deceive the court but the award of damages would be very small.” (My italics)

Section 57 very obviously raises a major Human Rights Act issue. This case may give some indication as to how the Supreme Court will treat that issue.