The Costs of Detailed Assessment Proceedings – Against a Non-Party

This blog was written by Henry King, a barrister in 12 King’s Bench Walk’s Costs Team and looks at the case of Deutsche Bank AG v Sebastian Holdings Inc [2023] EWHC 9 (SCCO). This judgment concerns the costs of detailed assessment proceedings that lasted 97 days and was heard remotely. The Defendant for the purpose of the detailed assessment proceedings was Mr. Vik, against whom a non-party costs order had been made.

The salient takeaway point is that all practitioners (not just costs practitioners) should not assume a matter will settle without detailed assessment proceedings and so should ensure that they keep good attendance notes.

Background

  • In 2013, the Claimant obtained judgment against the Defendant for c. $243m. The judgment was 428 pages long. A payment on account of costs of £34.5m was ordered.
  • In 2016, the case became one of the foundations of non-party costs order applications where the Court of Appeal held that “the only immutable principle is that the discretion must be exercised justly”.
  • In 2017, the detailed assessment proceedings began.
  • In due course, the Bill totalled c. £53.4m, of which over £30m was disbursements.
  • By 2023, there had been:
    • 97 days of detailed assessment (which is twice as long as the trial took);At least 40 ex temporae judgments
    • 6 reserved judgments.
  • The Bill was finally assessed in the total sum of c. £36.5m. Thus, whilst £2m is a lot of money, vis-à-vis the payment on account (£34.5m was paid) the increase achieved by the detailed assessment process was modest. This was despite the assessment being on the indemnity basis.

This hearing was to determine the liability for costs of the detailed assessment process. Master Gordon-Saker described the process as “painful” and “forensic archaeology”.

The Paying Party achieved a 30% reduction on the costs of the assessment process for the following reasons:

  • The Receiving Party claimed costs on an issue it lost and on which it was not entitled to the costs. This caused the master to express “frustration” during the hearing and required an amended schedule to be produced.
  • The Receiving Party’s attendance notes were far from adequate. Accordingly, the length of the detailed assessment had been elongated by reason of the Receiving Party’s conduct and that merited a reduction.

This was despite the paying party seeking to challenge “almost every item on the Bill”. Further, the fact that the Bill was reduced by 31% was not held to be a persuasive factor. That position could have been protected by a suitable offer but the Paying Party elected not to make any offers. Senior Costs Judge Gordon-Saker concluded:

The prolongation of the detailed assessment by the Claimant, the claim for the costs of initial margin and, to a much lesser extent, the failure on the issues of the scope of the costs order and the exchange rate, do not justify an order for costs in Mr Vik’s favour but do justify an order that the Claimant should not be entitled to all of its costs of the assessment. In considering the percentage that should be disallowed I should bear in mind the costs which Mr Vik will have incurred, in particular in relation to the prolongation and the time spent on initial margin. Inevitably the court’s approach to this has to be broad, but in my judgment justice would be done by depriving the Claimant of 30% of its costs.

The costs of the assessment process are to be summarily assessed. Thus, nearly 10 years post judgment, the case might finally have come to a conclusion.

Practical Takeaways

  • Those reading this are advised to keep a good log of their work by way of attendance notes, particularly on higher value matters where assessment is going to be more likely.
  • Parties should always make Part 36 offers to protect the costs of the detailed assessment proceedings.

TRX v Southampton Football Club [2022] EWHC 3992 (KB): Retainers, lawful CFAs and Rule 47.20

This blog by Dan Tobin examines the Court of Appeal decision in TRX v Southampton Football Club [2022] EWHC 3392 (KB).

The Claimant sought to appeal the decisions of Costs Judge Brown in respect of three rulings, namely:

  1. the finding that there was no valid retainer between the Claimant and his solicitors until 17th October 2019, thereby resulting in the exclusion of costs for this period;
  2. that the CFA could not be effective until signed by the Claimant’s solicitors on 17th October 2019 (despite being signed by the Claimant on 3rd October 2019); and
  3. the finding of no order as to costs in respect of the costs of the detailed assessment hearings.

Chronology of events

The Claimant brought proceedings against the Defendant for sexual and emotional abuse by a Youth Development Officer of the Defendant between 1987 and 1988.

On 16th September 2016 BL Claims Solicitors were instructed under a CFA.  Despite serving a letter of claim on 14th February 2017 the case failed to settle and Hudgell Solicitors were then instructed on 22nd June 2017, also under a CFA. Again no settlement was reached.

On 17th June 2019 the Claimant contacted BBK solicitors and they agreed to take the case from Hudgell.  Pending delays in the file being transferred, the Defendant, in correspondence dated 10th September 2019, denied liability and sought to terminate the limitation moratorium.  When BBK received the file of papers on 1st October 2019 they secured an extension of limitation from the Defendant and subsequently issued proceedings.

The Claimant signed the CFA with BBK on 3rd October 2019 but BBK did not receive and sign it until 17th October 2019.

Despite denying liability the Defendant made, on 10th March 2020, a Part 36 Offer of £4,000 plus reasonable costs on the standard basis. This was accepted by the Claimant.

Costs claimed

The Claimant’s solicitors sought costs of £65,523.36 in their acceptance letter to the Part 36 Offer and £36,000 on account of costs.

On 16th March 2020 the Defendant stated that they would make a payment on account of £15,000 but would otherwise request a bill of costs.

On 4th May 2020 the Claimant’s solicitors made a Part 36 offer in respect of costs of £33,500 plus interest, which was not accepted by the Defendant.  A bill of costs was then served on the Defendant and so began the assessment process.

Following points of dispute and a reply being served the first hearing before Costs Judge Brown occurred on 2nd March 2021.  This was adjourned part heard and on 8th and 9th September 2021 Costs Judge Brown ruled in principle on the retainer and indemnity principle points.

On 6th October 2021 the Defendant offered £35,000 in a full and final drop hands settlement which was not accepted and on 28th October 2021, the day prior to the final costs assessment hearing, the parties agreed individual and generic costs of £23,008.15, subject to appeals and challenges.  This was 65% of the costs claimed. The reductions included hourly rates, as well as the costs claimed from 17th June 2019 to 17th October 2019 which Costs Judge Brown had disallowed as the CFA was not entered into until 17th October 2019.

Therefore at the hearing on 29th October 2021 Costs Judge Brown only considered the costs of the assessment and ordered the Claimant to pay the Defendant 50% of the costs relating to the retainer or indemnity issue and no order for costs in relation to other aspects of the costs assessments.

The Costs Judge’s Reasons

First decision

Costs Judge Brown considered whether costs before a CFA were entered into were recoverable. It was agreed that there was no valid CFA from 17th June 2019 until 3rd October 2019, and the issue was when the CFA came into effect: the 3rd October when signed by the Claimant or 17th October when signed by BBK?

Costs Judge Brown found that there was no private retainer prior to the CFA and therefore the Claimant was not required to pay for work carried out by his solicitor prior to the CFA coming into force.  Issues had arisen over contradictions in the documentation sent to the Claimant pertaining to terms of business and the Judge had concluded that the Claimant had not been sufficiently advised that he would be liable for any costs prior to the CFA.

Second decision

The second decision to be challenged was when the CFA had become legally binding and whether that was 3rd October 2019 or 17th October 2019?

Costs Judge Brown had concluded that the CFA had not become legally binding until it was signed by both parties on 17th October 2019.

Third decision

The third decision under appeal was that relating to the costs of the detailed assessment. 

Costs Judge Brown considered the cases of Fox, Millbrooke and Mullaraj and noted that the total reduction in the bill was exceptional and dramatic.

He also had concerns about a mis-certification point for BBK had certified that there was a CFA in place during a period in time in which there could be no CFA in place.

He considered the weight to be placed on a Part 36 Offer, before concluding that as the Claimant’s solicitors were clearly well aware that they would not recover an amount anywhere near that which they sought, no order for costs should be available in an exceptional case such as this.  

Analysis and Conclusion

Mrs. Justice Stacey considered the following issues:

  1. The terms governing the contractual relationship prior to the CFA.

HHJ Stacey stated that although the letter of 27th June 2019, with its contradictions, created a problem (it referred to terms of business and parts of the letter were consistent with a general private retainer but then the letter also referred to a no-win no-fee agreement), it needed to be construed against a background in which the Claimant’s solicitors were clearly hoping to be able to offer him a CFA. As such, HHJ Stacey found that looking at the terms of the letter and the subsequent actions on the case the Claimant was a client of BBK on a general private retainer basis during this period with the future hoped for intention of offering a CFA.  The Claimant had therefore instructed BBK on 21st June and HHJ Stacey found that it was wrong for Costs Judge Brown to conclude that there was no general retainer from 21st June.

  • The period between 3 and 17 October

As there was no difference in the hourly rates and material terms relevant to the costs issues as between the private retainer and the CFA, HHJ Stacey stated that it did not matter whether the relationship was one of a CFA or retainer for this period and she did not rule on this.

  • Rule 47.20 and the costs order.

Due to the decision on the first issue, HHJ Stacey held that the costs would now need to be reconsidered and the situation altered as the bill would no longer be reduced by 65%. However, clarity was sought regarding the cases of Mullaraj and Millbrooke in this regard.

HHJ Stacey recognised that the main issue of dispute was whether and if so the extent to which Rule 44.2 and Rule 36 and relevant authorities should apply to Rule 47.20.  It was the Claimant’s contention that Fox and Global Energy applied to the costs of detailed assessment and to the need for a party to protect itself and encourage realistic and early offers and that in this case the Defendant could not have the protection of Part 36 as they failed to make a Part 36 Offer that had not been beaten. The all-inclusive offer of 6th October was unclear because of how it had been structured and the Costs Judge was wrong therefore to make no order for costs.

It was the Defendant’s submission that applying Fox would improperly impose another hurdle on the paying party, which was not appropriate as Rule 47.20 stands alone and that therefore no order for costs was correct. The Judge had had full regard to of all of the factors in 47.20 and had acted within his discretion.

In reaching her decision, HHJ Stacey reiterated the principle that the receiving party is entitled to the costs of the detailed assessment analogous to a successful party in Rule 44.2 unless either 47.20 (1) (a) or (b) applies and in the current case she held that (b) was relevant, namely, “Where the Court make some other order in relation to all or part of the costs of the detailed assessment proceedings.”   She held that although there are three factors for the Court to have regard to when deciding to make some other order, it was not exhaustive and the Court must regard to “all the circumstances”.

Despite being urged to do so, HHJ Stacey did not want to issue guidance to limit the discretion of costs judges. She felt that CPR 47.20 provides a clear code.  Further, as such cases vary, she felt that setting rules would be wrong.

That said, she did accept that there will usually be no difficulties where a Part 36 Offer made in detailed assessment proceedings beats or is beaten by the amount allowed by the Costs Judge.   She conceded that the difficulties arise with ‘near misses’ or other offers but did not accept the Claimant’s argument that in those instances it would be wrong to make no order for the paying party to pay any costs of the receiving party although this could be a relevant but not the most important or only relevant factor.  HHJ Stacey referred to Fox and Global and whilst accepting some relevance they related to Part 36 Offers in damages proceedings and must be viewed through CPR 47.20.

HHJ Stacey accepted that it might be unusual for no order for costs to be made where no successful Part 36 Offer had been made but all the other circumstances must be taken into account; conduct, amount of reduction, reasonableness etc.  She added that Part 36 procedures had their own difficulties not least in that they could prove troublesome for litigants in person.

Accordingly, she did not accept the Claimant’s argument that Costs Judge Brown’s order was wrong in principle.

HHJ Stacey felt it inappropriate to analyse the Judge’s reasoning following her conclusions on issue one but did recognise that the Judge had identified a number of relevant circumstances including a large reduction in the bill.

In summary, HHJ Stacey held that Part 36 Offers must be taken into account and are likely to be relevant to the amount of percentage reduction but she would not go as far as to lay firm rules thus fettering the discretion of Costs Judges beyond the provisions of Rule 47.20. 

Takeaway Practice Points  

  • Claimant firms will welcome HHJ Stacey’s decision on the first issue, for had she found otherwise it may have encouraged Defendants to challenge even more often than is presently the case costs incurred prior to the signing of a CFA;
  • Although HHJ Stacey did not rule on the second issue, namely, whether the CFA came into force when signed by the Claimant or by the firm (these events having occurred in different dates), it seems more likely than not that the latter date must, as a point of basic contract law, be the relevant date. If nothing else, insofar as this may be relevant (if, for example, different rates apply as between the pre-CFA private retainer and the CFA itself), it behoves practitioners to invest in one or other of the many electronic document signing tools so as to ensure that the CFA is signed by both parties on the same date;

HHJ Stacey’s conclusion that CPR 47.20 is a standalone rule and not to be overshadowed by whether or not a party had also made a Part 36 Offer is to be welcomed, for it removes some of the uncertainty that had previously existed and makes clear that consideration must be given to “all the circumstances of the case”.

More bad news for defendants in QOCS claims: no set-off of costs against damages following settlement even where a court order is necessary.

In this blog Jeremy McKeown considers the Court of Appeal decision of University Hospitals of Derby & Burton NHS Foundation Trust v Harrison [2022] EWCA Civ 1660.

IMPORTANT PRACTICE POINT: This decision (as with all other similar authorities) is currently good law but its shelf-life has been severely limited by the recent published changes in the QOCS rules to take effect from April 2023 (see our recent blog post: Costs Earthquake – QOCS rules to change radically in April).

In this important decision on the impact of QOCS on a defendant’s ability to recover its costs, the Court of Appeal clarified Cartwright v Venduct Engineering Ltd [2018] EWCA Civ 1654 and confirmed that damages recorded or referred to in a necessary court order, for example where the court’s permission is required to accept a Part 36 offer after the relevant period, is not an “order for damages and interest” within the meaning of CPR 44.14.

If the resulting court order had been considered a qualifying order within CPR 44.14, the defendant could have set-off their costs against the agreed damages. Those costs were considerable since the claimant accepted a Part 36 offer some two years after the end of the relevant period.

The case builds on well-established authority that defendants cannot set-off their costs after the relevant period against damages resulting from acceptance of a Part 36. The rationale for this rule is that acceptance of an offer does not fall within the strict wording of the CPR which allows set-off against damages in QOCS claims only where there is an “order for damages and interest” (CPR 44.14). Where a case settles, there is rarely a court order for damages and therefore no ability to set-off.

However, in Harrison, owing to late acceptance of the offer (CRU had accrued since the offer was made) the court’s permission was required. In granting permission, the court issued an order which the defendants said satisfied CPR 44.14 and allowed them to set-off their costs against the agreement damages.

Decision

On appeal, Coulson LJ made the following key findings:

  • In (1) granting permission for the offer to be accepted and (2) directing the amount of the deduction payable to CRU, the court “was not carrying out any evaluation or assessment of what was due or to be paid. [The Judge at first instance] was not, therefore, making an order for damages in favour of the claimant” [para. 28].
  • Instead, the Judge was simply “directing the amount of deduction” that was to be made to the settlement figure in accordance with the CPR provisions.
  • This was reinforced by the method of enforcement open to the claimant if the defendants did not pay. The party would have to enforce in accordance with the procedure set out in CPR 36.14(7) rather than by claiming the other party had breached a court order. The defendant’s obligation to pay therefore arose from the effect of the CPR and not from the order [paras. 29-30].
  • If it were to be otherwise, “form would be elevated over substance”. It would create a two-tier system where certain (regular) settlements within Part 36 would continue to afford QOCS protection to a claimant whereas other settlements which happened to require the court to issue a certain type of order containing a reference to the damages in the body of the order, as here, would lose QOCS protection. If that were so, all that would matter would be the form of court order required [paras. 36-37].
  • In fact, the concern was said not to be merely hypothetical. There are certain types of claim where Part 36 requires the court to make an order to reflect the settlement between the parties. Those include: cases where the claimant lacks mental capacity, where the claimant is a child, where the claimant is disabled and qualifies for provisional damages or periodic payments, or where a dependant claimant of the deceased is entitled to an apportionment of dependency damages. If the appellant’s argument were to succeed, it would mean that an ‘ordinary’ claimant would keep QOCS protection whereas any of the above would lose it. The court concluded that was not what the CPR intended [paras. 40-41].

In obiter comments, the court also indicated that the following circumstances were also unlikely to entitle a defendant to set-off under CPR 44.14:

  • Approval hearings (CPR 36.14(2));
  • Orders for Periodical Payments (CPR 36.18(7));
  • Disputes over CRU (CPR 36.22(9)(b));
  • Judgment where, following acceptance of a CPR, Part 36 offer, payment is not made within 14 days (CPR 36.14(7)).

Comment

The decision follows closely on the heels of Chappell v Mrozek [2022] EWHC 3147 (QB) which also denied the defendant the ability to set-off its costs (see our previous blog post: QOCS trumps Part 36 – Another Claimant “victory” (for now)?).

The decision offers further proof of the claimant-friendly framing of the QOCS rules following settlement. It is a reminder to defendants that disposal by way of settlement, whether under Part 36 or otherwise, will almost never attract the right to set-off against damages.

Harrison appears to stand in contrast to the recent case of MRA v Education Fellowship Ltd [2022] EWHC 1069 (QB) where the High Court held that an order following approval of a settlement sum did constitute an order of the court allowing the defendants to set-off. That decision must be questioned in light of the Court of Appeal’s recent findings.

The Court of Appeal also addressed the ongoing consultation on changes to the QOCS rules triggered by the Supreme Court’s decision in Ho v Adelekun [2021] UKSC 43. Ironically, the fact that there is said to be a need for changes to CPR 44.14, and that there were known proposed changes in the works, supported the court’s thinking that the appellant’s interpretation of the rule as it currently stands must be wrong.

The decision also helpfully cites the current proposed changes under consideration by the CPR rules committee: At the meeting of the CPRC on 7 October 2022, a fuller amendment was agreed (emphasis added):

“(1) Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court 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 or agreements to pay damages, costs and interest made in favour of the claimant.”

For defendants, this presents a welcome change. As many commentators have noted, the rule as currently written clearly runs contrary to the intention and policy aims when QOCS was being debated:

“As to the second scenario (claimant fails to beat defendant’s offer), the defendant will have adequate protection: the court will be likely to make a costs order against the claimant in respect of the post-offer period in circumstances where (a) the claimant was acting unreasonably in rejecting a proper offer and (b) the costs in respect of the pre-offer period plus the damages recovered by the claimant provide sufficient funds out of which the claimant can reasonably be expected to pay at least some costs” Chapter 19, (4.10) of Jackson’s Review of Civil Litigation Costs: Final Report dated December 2009

Practice points

  • Defendants should go back and reconsider any Part 36 offers in live cases. If there was reliance on the defendants being able to set-off costs based on a reading of CPR 44.14 which the court in Harrison has now contradicted, you may wish to consider a revision of those offers.
  • The case is a useful reminder of the importance of the one strategic advantage held by defendants, namely the ability to severely limit the Claimant’s costs where the defendant makes an early Part 36 offer. In Harrison, the one consequence for the claimant in accepting an offer almost two years after the end of the relevant period was that they were denied all costs after that date.

Costs Earthquake – QOCS rules to change radically in April

This blog was written by Andrew Roy, Deputy Costs Judge & Head of 12KBW’s Costs Team.

The present

CPR 44.14 as currently (and originally) enacted provides (emphasis added):

Effect of qualified one-way costs shifting

(1) Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court 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.

(2) Orders for costs made against a claimant may only be enforced after the proceedings have been concluded and the costs have been assessed or agreed.

(3) An order for costs which is enforced only to the extent permitted by paragraph (1) shall not be treated as an unsatisfied or outstanding judgment for the purposes of any court record.

Cartwright v Venduct Engineering Ltd [2018] EWCA Civ 1654; [2018] 1 WLR 6137 established that this precluded enforcement against damages recovered via settlement under e.g. Part 36 or a Tomlin order.

For a time defendants could recover at least some of their costs by way of set off against a claimant’s costs, even if QOCS precluded direct recovery because there was no order for damages in the claimant’s favour.

However, the Supreme Court in Ho v Adelekun [2021] UKSC 43; [2021] 1 WLR 5132 then held that setting off a defendant’s costs against a claimant’s was a species of enforcement.  It was therefore precluded where it exceeded the cap reflecting the sum of any orders for damages and interest made in favour of the claimant. 

The upshot of all this is that QOCS makes it virtually impossible for a defendant to recover costs from a claimant when a claim settles. This was recently confirmed in University Hospitals of Derby & Burton NHS Foundation Trust v Harrison [2022] EWCA Civ 1660.

Given that (a) the vast majority of personal injury claims settle; and (b) going to trial and having an order for damages made against it is generally the last outcome that a defendant would wish to seek, in practical terms the scope for defendants to obtain any effective costs recovery (save where one of the exceptions such as fundamental dishonesty applies) is vanishingly small.

Defendants are therefore precluded from recovering costs in any number of very common scenarios e.g.:

  • When a claimant accepts a Part 36 offer out of time;
  • When a claimant is ordered to pay the costs of an interim hearing;
  • When a claimant loses a post-settlement costs dispute.

However, from April 2023 all this is going to change.

The future

Ho was a landmark victory for claimants.  However, it was so favourable a result that it carried with it the danger of winning not wisely but too well.

The Supreme Court at [9, 31, 44-45] acknowledges that the claimant’s interpretation led to results which could be considered counterintuitive and unfair.  It therefore recommended that the Rules Committee revisit the rules in question.

They have done so.  The result is a radical reformulation of QOCS.

CPR 44.14 will from 6 April 2023 read as follows (amendments tracked, bold emphasis added)

(1) Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court 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 or agreements to pay or settle a claim for, damages, costs and interest made in favour of the claimant.

(2) For the purposes of this Section, orders for costs includes orders for costs deemed to have been made (either against the claimant or in favour of the claimant) as set out in rule 44.9.

(2) (3) Orders for costs made against a claimant may only be enforced after the proceedings have been concluded and the costs have been assessed or agreed.

(4) Where enforcement is permitted against any order for costs made in favour of the claimant, rule 44.12 applies.

(3) (5) An order for costs which is enforced only to the extent permitted by paragraph (1) shall not be treated as an unsatisfied or outstanding judgment for the purposes of any court record.

(The Civil Procedure (Amendment) Rules 2023 (legislation.gov.uk))

The effect of this is as follows:

  • The new sub-paragraphs (2)-(3) explicitly and directly reverse Cartwright.
  • However, they go further than that.  They raise the general enforcement cap to give defendants an absolute right to enforce up to the level of any damages or costs recovered by claimants.  Pre-Ho, enforcement against costs could only be achieved indirectly by way of set-off.  That was so even pre-Cartwright.
  • Deemed orders at CPR 44.9 includes those under CPR 36.13(1) or (2) (claimant’s entitlement to costs where a Part 36 offer is accepted).  For there to be any jurisdiction for a claimant to seek assessment of his or her own costs there must be a document giving rise to a right to detailed assessment.  This means a costs order or proof of a deemed costs order; PD47 13.3, Bayliss v Powys [2021] EWHC (QB).  So the very fact of a claimant’s entitlement to costs will bring such costs within the scope of this provision.
  • However, this provision in fact appears academic, given that enforcement is possible in respect of any damages or costs recovered by it by order or by settlement.
  • The new sub-paragraph (4) explicitly and directly reverses Ho.

Ho has thus proved the ultimate Pyrrhic victory for claimants.  The changes to the rules it has prompted will not merely reverse the effects of Ho itself.  They will also reverse the effect of Cartwright.  Indeed, they will create a more favourable costs regime for defendants than if Cartwright had been decided the other way and the rules left unchanged.

There is however a silver lining for claimants in the form of a transitional provision that the amendments “apply only to claims where proceedings are issued on or after 6th April 2023”.

(The Civil Procedure (Amendment) Rules 2023 (legislation.gov.uk))

Takeaway Practice Points

  • Defendants’ Part 36 offers will in the future have much more bite.
  • This is self-evidently crucial in respect of costs, which are important in themselves. 
  • The effects moreover feed into settlement dynamics, and thus into both strategy and tactics. Parties and their advisers will need to factor these considerations into any decision, as to what offers to make, accept or reject.
  • These changes will also dramatically alter the cost/risk/benefit analysis of:
    • Making or resisting interim applications.
    • Post-settlements costs disputes.  This includes detailed assessments.  At the moment a defendant in a settled personal injury claim cannot recover its costs of these; PME v The Scout Association [2023] EWHC 158 (SCCO).  That will no longer be the case.
  • Claimants would be well advised where possible to issue proceedings before 6 April 2023.
  • There will an increased need for ATE insurance or other protection against adverse costs.  By the same token, premiums for such insurance are likely to rise to reflect the greatly increased risks.
  • The precise effect of these rules is likely to be subject to argument.  All of the many significant changes to the costs rules in recent times have generated satellite litigation.  Most if not all have generated unintended consequences (the original iteration of QOCS being a prime example). Watch this space.

QOCS trumps Part 36 – Another Claimant “victory” (for now)?

In this blog Henry King considers the decision of Judge Stevens in Chappell v Mrozek [2022] EWHC 3147 (KB).

Key Takeaways

The key takeaway from Chappell is that in a battle between the two self-contained regimes that are CPR Part 36 and QOCS: it is QOCS which comes out on top. If a Claimant accepts a Part 36 offer after the expiry of the relevant period, the Defendant will not be able to enforce its costs from the expiry of the relevant period against the sum offered under CPR Part 36. However, the editors of this blog note that this could soon be subject to change in light of the comments of LJ Coulson in University Hospitals of Derby & Burton NHS Foundation Trust v Harrison [2022] EWCA Civ 1660 at [51-52] and the proposed changes to CPR 44.14 discussed by the CPRC, see below.

Factual Background

The Claimant was severely injured on 16 December 2016 whilst riding his motorbike. Liability was formally admitted some 6 months after receipt of the letter of claim. Proceedings were served nearly 3 years later, accompanied by a Schedule of Loss totaling £8,432,461.26. On 19 May 2020 the Defendant served a Part 36 offer to settle the claim for the sum of £250,000, that offer was accepted nearly 2 years later on 16 February 2022: well beyond the expiry of the relevant period.

The (Cross)Applications

The Defendant refused to pay the settlement sum of £250,000, thereby attempting to force the Claimant to make an application for judgment pursuant to CPR 36.14(7) which provides that “If such sum is not paid within 14 days of acceptance of the offer, or such other period as has been agreed, the claimant may enter judgment for the unpaid sum.” However, what the Claimant did was make an application pursuant to CPR 34.14(8) which provides, where “a party alleges that the other party has not honoured the terms of the [Part 36] offer, that party may apply to enforce the terms of the offer without the need for a new claim.”

The Defendant cross-applied to enforce its costs against the £250,000 offered; it should be noted that the Defendant did not seek to offset its costs against the Claimant’s costs. The Defendant submitted that this should be done by either (i) treating the Part 36 offer as an order for damages; or (ii) asking that the Court enter judgment for the unpaid sum pursuant to CPR 36.14(7).

The Relevant CPR Provisions

CPR 44.14 provides for the enforcement of costs orders against claimants by way of set-off against “any orders for damages and interest made in favour of the claimant”. The question was whether such a set-off can apply against a “sum of money” tendered by way of a Part 36 offer. The Claimant submitted that it did not given that a Part 36 offer reflects the commercial value a party has placed on resolving a dispute which is markedly different to a judicially determined award of damages supplemented by a judicial calculation of interest. The Defendant submitted that it did.

A written notice of acceptance under CPR Part 36.11, results in a stay of proceedings and automatic obligations on the offeror to pay the settlement sum in a specified timeframe. If there is a breach of those obligations, the claimant contended that whilst the offeree can apply to enter judgment for the unpaid sum under CPR 36.14 (7), the resultant court order is not an “order for damages and interest”, but is a completely different species of order, with a DNA more analagous to that of a Tomlin order.

It was agreed by the parties that the Claimant had his costs up to the expiry of the relevant period and the Defendant had its costs from expiry to acceptance. However, despite both parties being represented by “very experienced” costs counsel it was noted at [11] that:

“Both parties asked me to imply markedly different meanings to words in the civil procedure rules in order to arrive at the respective interpretations which they say reflect the original policy intentions. The battleground in this case, has a focus on the words “settlement sum” or “damages and interest” as the target funding pot for the defendant’s additional costs outlay, beyond the relevant 21 day period for acceptance of their offer. There is a separate issue about which statements in the various judgments to which I was referred establish precedent or are otherwise binding upon me.”

The Decision

Having considered the authorities, including the policy background to QOCS following Sir Rupert Jackson’s Review of Civil Litigation Costs 2009 and the Government’s Response in March 2011, the Judge held that the Defendant’s course of action (deliberately refusing to pay the settlement sum offer under CPR 36) could not result in enforcement against the Claimant’s damages.

LJ Coulson’s judgment in Cartwright was considered in detail and it was noted at [35]:

The court rejected submissions that the addition of wording, (whether implied or express) in CPR 44.14(1)to include, “a sum payable by way of damages which is compellable by court order”, would fulfil the original purpose of the rule and indeed encompass Tomlin orders as well. A conclusion was reached at paragraph 46 “At the very least,…the rule would have to refer, not only to an order, but to an agreed settlement”. Once again, the line of reasoning, even though it did not reference Part 36, would naturally encompass it.

The Supreme Court’s judgment in Adelekun was also carefully considered and it was noted at [42]:

The clear message that I take from Adelekun is that the court was not prepared to imply or infer words into Part 44 to expand the scope for enforcement, where the brief wording of the rule might otherwise seem to produce an unfair result on occasion… the Supreme Court did not consider it appropriate to add words to the QOCS scheme which is currently set out “with commendable brevity” (as noted at paragraph 19), to expand its scope, preferring that words should be given their straightforward meaning and any amplification or further finesses should only be introduced by the CPRC.

The Defendant’s attempts to distinguish Adelekun v Ho [2021] UKSC 43 on the basis that it was a set off of costs against costs whereas this was set off against damages were rejected, see the judgment at [30].

However, MRA v The Education Fellowship [2022] EWHC 1069 (QB) [43; 50] was distinguished. It was noted that the real issue in that case was whether it would be unjust to order the Claimant to pay the Defendant’s costs after the expiry of the relevant period, which was not the issue to be adjudicated upon in this case.

Reference was made (although we are surprised it was only in passing at paragraph 54) to the commentary in The White Book at 36.14.2 which explicitly states: “a claimant is entitled to be paid the offered sum within 14 days, he is entitled to such payment without set off against an unquantified costs liability (Cave v Bulley Davey [2013] EWHC 4246 (QB) (HH Judge Seymour QC)).”

Accordingly, Judge Stevens acceded to the Claimant’s application that the Defendant pay the Claimant the “settlement sum” of £250,000 and that the costs order against the claimant made in respect of late acceptance is not to be set-off against any part of the ordered sums (£250,000) in the claimant’s favour. The defendant’s cross-application was dismissed to enter judgment pursuant to CPR 36.14(7) or to treat a Part 36 settlement as an order for damages.

Comment

Given the sums at stake, the case having been pleaded at over £8m and yet settling for just over 3% of this figure at £250,000, this may not be the last we hear on this matter. We also note that proposed changes to CPR 44.14(1) have already been discussed by the CPRC on 7 October 2022 at [34-40] (proposing the explicit addition of the word “costs” such that a Defendant could enforce a costs order in its favour up to the “aggregate amount in money terms of any orders for damages, costs and interest made in favour of the claimant”.

Contracting Out of Fixed Costs, or Not!

This blog is written by Henry King, a member of 12 King’s Bench Walk’s Costs Team and is our “Costs Christmas Cracker”, considering three important judgments from 2022 which look at when you can contract out of fixed costs.

In the furore over the Supreme Court decision of Ho v Adelekun (No. 2), the Court of Appeal’s decision in Ho v Adelekun (No. 1) might be left unduly forgotten, which is that, in certain circumstances, it is possible to contract out of fixed costs. Three cases in 2022 have dealt with this issue in detail and are the subject of this blog:

Soares v Wilson (unreported) SCCO

Doyle v M&D [2022] EWCA Civ 927

McGreevy v Kiramba [2022] EWHC 2561 (SCCO)

By way of background, a short history of the case law is helpful.

History

2012: Solomon v Cromwell [2012] Costs L.R. 314
At paragraph 22: “There is nothing in the Rules to prevent parties to a dispute settling it on whatever terms they please, including as to costs.” Accordingly, if parties agreed standard basis costs in a fixed costs matter, that agreement would be enforceable by ordinary process.

In Solomon, the parties had settled by way of part 36 in a fixed costs regime (under the old fixed costs rules) case. The Court of Appeal held that in the circumstances, i.e., settlement by way of Part 36, fixed costs applied.

2019: Ho v Adelekun (No. 1) [2019] Costs L.R. 1963
The wording of the offer is important. The wording in Ho was an offer: to pay £30,000 in full and final settlement, with costs to be paid “in accordance with Part 36 rule 13 of the Civil Procedure Rules, such costs to be subject to detailed assessment if not agreed”. CPR 36.13 references costs on the standard basis.

It was held that because it was a Part 36 offer, the Part 36 regime applied, and thus fixed costs applied as it was a fixed costs case.

However, the Court of Appeal issued words of warning to (Defendant) practitioners:
At paragraph 37, per Newey LJ:

“For the future, a defendant wishing to make a Part 36 offer on the basis that the fixed costs regime will apply would, of course, be well-advised to refer in the offer to CPR 36.20, and not CPR 36.13, and to omit any reference to the costs being ‘assessed’.”


At paragraph 44, per Males LJ:

“I will merely say, therefore, that parties who wish to settle on terms that fixed costs will be payable would be well advised to avoid reference to assessment “on the standard basis” in any offer letter or consent order which may be drawn up following acceptance of an offer.”

Ho (No. 1) and Solomon make clear that if a matter is a fixed costs matter and it settles by way of part 36 it will be subject to fixed costs. However, it remains good law that a party can contract out of fixed costs, as expressly noted by the Court of Appeal in Ho (No. 1).

Attempts to Get Around Fixed Costs in Fixed Costs Cases – a Year in Review

Soares v Wilson (2022, unreported)

The relevant facts were as follows:

• Pre-Issue, a CNF was sent. A claim was issued for in excess of £100,000.

• Following allocation to the Multi Track, the matter was allocated to the Fast Track.

• Thereafter, the Defendant made an offer of £9,000 to settle the claim. It offered to pay the Claimant’s fixed costs and reasonable disbursements.

• Five days later, this offer was accepted. The Claimant sought a notice of part 36 offer in the same terms.

• The Defendant forwarded a Part 36, as requested. This was accepted.

• The Claimant served a Bill of costs seeking costs on the standard basis up to the point of reallocation, then fixed costs thereafter. The Defendant resisted this. It contended that only fixed costs were recoverable.

• On provisional assessment, the Claimant was successful. On oral assessment, the Claimant remained victorious. The point in issue became whether the agreement reached was then displaced by the Part 36 offer.

• The Defendant successfully appealed.

It was held that the agreement was binding, and the Part 36 offer merely formalised the position in a cost-effective manner i.e. staying the claim immediately, rather than requiring a consent order (see paragraphs 44-58). In so deciding, reliance was placed on the judgment in Ho (No.1).

Doyle v M&D [2022] Costs L.R. 1055

In Doyle, a fixed costs claim was settled and that settlement was recorded way of consent order. The order provided for the Defendant to pay the Claimant’s costs, and such costs to be subject to detailed assessment if not agreed.

The Court of Appeal held that because the order had made express provision for the costs to be assessed by way of detailed assessment (rather than pursuant to the self-contained code of part 36), standard basis costs were recoverable.

Per Philips LJ at paragraph 44:

“In my judgment, and contrary to the appellant’s contention, there is no ambiguity whatsoever as to the natural and ordinary meaning of “subject to detailed assessment” in an agreement or order as to costs. The phrase is a technical term, the meaning and effect of which is expressly and extensively set out in the rules. It plainly denotes that the costs are to be assessed by the procedure in Part 47 on the standard basis (unless the agreement or order goes on to provide for the assessment to be on the indemnity basis).”

Thus, agreements and, indeed, orders that provide expressly for detailed assessment are likely to yield standard basis costs and not fixed costs.

McGreevy v Kiramba [2022] EWHC 2561 (SCCO)

The relevant facts were as follows:

  • Following a RTA, the Claimant submitted a CNF limited to £10,000. The Defendant admitted liability within the portal.
  • The claim form was limited to £50,000. Following service of the particulars of claim (with the six medical reports), the Defendant made a Part 36 offer in the sum of £50,000. This was not accepted.
  • The Defendant made a further “time bomb” offer of £100,000 with provision that the Defendant would pay the Claimant’s costs subject to CPR 45.29C (i.e. just the fixed costs). Two hours before expiry, the Claimant accepted on the following terms: the Claimant “accepts the defendant’s Calderbank offer of £100,000 in full and final settlement of his claim together with his legal costs.”
  • Thereafter, the Defendant made a Part 36 offer in the sum of £100,000. The Claimant purported to accept this offer, but stated that he was entitled to standard basis costs for a variety of reasons. The matter had not yet been allocated.
  • At the hearing, the Claimant contended that he should be awarded standard basis costs by reason of CPR 45.29J.

Costs Judge Leonard held that there was a binding agreement to pay damages and fixed costs under CPR 45.29C: the subsequent Part 36 offer did not change matters. It was meant to act as a device to save costs “albeit not a notably successful one”. Further, and in any event, the acceptance of the Part 36 pre-allocation meant that only fixed costs were recoverable.

As to the CPR 45.29J argument (which was by that juncture academic), the mere fact of the matter now being valued in excess of usual fast track provisions was not enough. There was nothing exceptional about the claim.

Comment
Parties are free to contract out of fixed costs as they see fit. The position in Solomon is still good law (and is likely to remain so). However, both Claimants and Defendants would do well to watch their wording when making Calderbank offers or orders, such that the law of unintended consequences does not come into play.

‘Costs case of the decade’: Court of Appeal hands down judgment in Belsner v CAM Legal Services Ltd

This blog by Jeremy McKeown examines the unanimous judgment handed down by the Court of Appeal on 27 October 2022 in the so-called ‘costs case of the decade’, Belsner v CAM Legal Services Ltd [2022] EWCA Civ 1387. The case of Karatysz v SGI Legal LLP [2022] EWCA Civ 1388 was linked and heard alongside it.

The importance of the case was reflected in the composition of the panel chosen to hear it. The Master of the Rolls (Sir Geoffrey Vos MR, who gave the principal judgment) was joined by the Chancellor of the High Court (Flaux LJ) and Nugee LJ.

Background

The underlying claims were modest county court claims for personal injury arising out of road traffic accidents.

After settling the claims, the claimants’ solicitors made deductions from their clients’ damages in accordance with CFA agreements purporting to allow success fees and certain unrecovered costs to be deducted. Both clients instructed new solicitors – checkmylegalfees.com – who brought section 70 Solicitor Act 1974 (‘1974 Act’) costs assessment proceedings to attempt to reduce their deductible fees.

In Belsner, the Claimant accepted that she had freely signed the CFA under which she agreed to pay personally any shortfall in the solicitors’ costs recovered from Defendant. This proved to be contentious when her solicitors sought to subtract the balance of their unrecovered (and irrecoverable) costs from the Claimant’s damages.

She accepted that she was told that her solicitors’ estimated costs would be £2,500 and her damages entitlement was around £2,000 but complained that she was not told that the fixed costs recoverable from D was only £500.

In both cases, the section 70 proceedings came before DJ Bellamy sitting in Sheffield County Court. The first appeal against DJ Bellamy’s decisions was made to Lavender J and a further appeal to the Court of Appeal followed.

Questions of law

Several costs issues were raised on appeal.

Belsner

The appeal principally concerned the way in which solicitors were entitled to charge their clients for bringing low-value road traffic claims through the online Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents (commonly called the ‘RTA portal’).

In determining the solicitors’ obligations to the client, section 74(3) of the 1974 Act and CPR 46.9(2) were the key provisions:

  • Section 74(3) is the general rule restricting any item of costs payable by the client to their solicitors to no more than the amount which could have been allowed in respect of that item as between the parties;
  • CPR 46.9(2) provides a long-standing exception to s.74(3) where the solicitor and client can enter into a “written agreement which expressly permits payment to the solicitor of an amount of costs greater than that which the client could have recovered from another party to the proceedings”.
  • In other words, the solicitor can recover from the client greater costs than have been recovered from the other side if the client has agreed in writing to that arrangement.

A key point to note is that these provisions only apply to ‘contentious business’ as defined by the 1974 Act.

The core question then was whether the Judge was right to assume that s. 74(3) and CPR 46.9(2) applied to cases brought in the RTA portal where no proceedings were actually issued. If so, the higher standard of ‘informed consent’ would be triggered. The answer to that question turned on whether claims made in the RTA portal are properly to be regarded as “non-contentious business” (as the solicitors claimed) or as “contentious business” (as the client argued).

Another important legal principle underpinning the dispute was the impact of any fiduciary duties owed by the solicitors to their client. It was argued that a solicitor, as fiduciary, could not receive a profit from their client without that client’s fully ‘informed consent’. In this case, the ‘informed consent’ would have been triggered when negotiating the CFA.

A related though distinct question asked and answered by the Court was whether the retainer agreement, which charged the client more that the costs recovered from D, was unfair pursuant to the Consumer Rights Act 2015?

Karatysz

The issues in the linked case of Karatysz focussed on how to determine the amount of a bill of costs.

This had particular importance when deciding whether there had been a reduction upon assessment, which in turn would likely determine who was responsible for paying the costs of the assessment (i.e., the challenger if the reduction was less than one fifth the amount of the bill and the solicitors if the reduction was greater than one fifth).

Decision of the Court of Appeal

Belsner

The Court decided 5 key questions:

  1. Does section 74(3) and/or CPR 46.9(2) apply at all to claims brought through the RTA portal without county court proceedings actually being issued? Answer: no, the above provisions do not apply at all to the RTA portal. though the Court went on to criticise the current position as unsatisfactory (see below);
  2. Were the solicitors required to obtain ‘informed consent’ from the Client in the negotiation and agreement of the CFA, either due to the fiduciary nature of the solicitor-client relationship or through the language of CPR Part 46.9(2)? Answer: No. Lavender J (on the first appeal) was wrong to find that the solicitors owed fiduciary duties in the negotiation of their retainer. They were not obligated to obtain the client’s ‘informed consent’ to the terms of the CFA;
  3. If informed consent was required, did the Client give informed consent to the terms of the CFA relating to the solicitors’ fees? Answer: informed consent was not necessary, however, the Court held that the approach of the solicitors had not complied with the SRA Code of Conduct in that they neither ensured that the client received best possible information about the likely overall costs nor did they ensure that the client was in a position to make an informed decision. However, whilst that be a matter of good professional practice, it “does not necessarily mean that the Solicitors’ Bill was unfair” [97].
  4. In any event, was the term in the solicitors’ retainer allowing them to charge the client more than the costs recoverable from the defendant unfair under the Consumer Rights Act 2015? Answer: No. The term did not infringe the CRA 2015. However, the basis for the finding was relatively narrow in that the Claimant’s CRA 2015 argument was premised on the idea that the term was unfair because it resulted in a liability for costs much in excess of the fixed minimum allowed under section 74(3). Since that section was held not to apply to RTA portal claims, the “foundation of [her] claim under the CRA 2015…is not available to her” [90].
  5. What were the consequences of the decision on the costs assessment? Answer: the Court would reconsider the assessment on the correct basis (i.e. assessed as non-contentious costs rather than contentious costs), namely para 3 of the Solicitors’ (Non-Contentious Business) Remuneration Order 2009 requiring solicitors’ costs to be “fair and reasonable having regard to all the circumstances of the case”. On that basis, the costs actually charged to C were fair and reasonable.

Despite having decided as it did, the Court went on to criticise the current state of the law and invited reform [15]:

  • The distinction between ‘contentious’ and ‘non-contentious’ costs was outdated and illogical and was in need of urgent legislative attention;
  • Whilst the Court confirmed that it was the current state of the law, there was no logical reason why section 74(3) and CPR 46.9(2) should not apply to cases where proceedings are issued in the county court but not to cases in the RTA or Whiplash portals;
  • It was unsatisfactory that, in RTA claims in the RTA portal (and perhaps the Whiplash portal), solicitors seemed to be signing their clients up to a costs regime that allowed the solicitors to charge significantly more than the claim was known in advance to be worth. That may be alleviated by certain solicitors exercising their discretion to charge clients lesser sums after the event but that was not a satisfactory answer. Counsel for the solicitors had submitted that the solicitors would not have “dreamed” of doing anything other than making a proportionate deduction as opposed to charging the full base costs to which they were entitled under the CFA agreement. However, the Court responded as follows: “In future, I hope that solicitors will not suggest CFA or other fee arrangements to their clients that allow for fees that they would not dream of actually charging.” [98]
  • It was illogical that the CPR should dictate mandatory costs and other provisions (e.g. Part 36, PD8B) that apply to pre-action online portals but otherwise deal only with proceedings once they are issued at court. Section 24 of the Judicial Review and Courts Act 2022 allows the new Online Procedure Rules Committee (OPRC) to make rules that affect claims made in the online pre-action portals and that committee should make all the rules for claims progressed online and in the online pre-action action portals.
  • It is unsatisfactory that solicitors like checkmylegalfees.com can adopt a business model that allows them to bring expensive High Court litigation to assess modest solicitors’ bulls in cases of this kind. The Court advised that the Legal Ombudsman scheme would be a cheaper and more effective method of querying solicitors’ bills in these circumstances.

Karatysz

At first instance there was a disagreement about the true amount of the solicitors’ bill of costs.

The solicitors had argued that the actual cost of their Bill was £1,571.50 which amounted to the £1,116 costs recovered from D plus the £455.50 shortfall deducted from C’s damages.

However, DJ Bellamy decided that the correct amount of the solicitors’ bill of costs was £2,731.90. Since he then reduced the size of the bill significantly, he ordered the solicitors to pay the costs of the assessment under section 70(9) of the 1974 Act provided that the costs of an assessment shall be paid according to the event of the assessment, “that is to say, if the amount of the bill is reduced by one fifth, the solicitor shall pay the costs”.

The issue on appeal was therefore how does a court determine the “amount of a bill” for these purposes? Lavendar J decided on first appeal that a “bill of costs is a demand for payment” therefore “the amount of a bill is the amount demanded by the bill”.

The Court of Appeal largely agreed and said the question was correctly framed as follows: “what is the total sum that the bill is demanding be paid to the Solicitors, whether or not all or part of that total sum has actually been paid”.

Comment and practice points

The Court of Appeal pointed out that, at its height, “more than 600,000 case per annum were brought through the RTA portal” [3]. Following the introduction of tariff damages for RTA claims up to £5,000, some 300,000 of these claims now brought through the alternative ‘Whiplash Portal’. Against that background, it is obvious why the decision in Belsner had the potential for a wide-ranging, perhaps even devastating, impact on claimant solicitors and the re-writing of thousands of current CFAs.

As it stands, the Court of Appeal’s decision represents a resounding win for the status quo as it was understood and practised by solicitors. On the other hand, it represents a mighty rebuke of that same status quo, indicating that change may be coming.

The Court was categorical in its criticism of the current state of law and practice. Arguably the most distinguished panel of the Court of Appeal, in a 3-0 ruling, made it known that their hand was forced by the unambiguous nature of the current provisions but that they were not impressed with how things stood.

Rarely does the Court of Appeal so explicitly criticise not only the state of the law but also the professionalism of those practitioners as a class conducting this type of litigation (although it must be stressed that there is no finding as to how representative or otherwise the arrangements in these cases were).

Claimant solicitors should be in no doubt that Belsner will be waved before the lower courts by parties hoping to hold solicitors to what the Court of Appeal has said is proper practice when advising claimants about the real-world impact of the CFA terms they are signing.

In particular, claimant solicitors ought to pay attention and amend their working practices to:

  • Think very carefully before asking clients to sign CFAs or other fee arrangements which allow for fees which they either would not “dream” of enforcing in full or which would, if enforced, likely wipe out the client’s damages award given the fixed costs rules at play in that particular claim;
  • Be sure to advise the client explicitly not only what the solicitors’ likely base costs would be but also the maximum fixed costs recoverable from the other side under the rules to allow the client to appreciate and anticipate the shortfall that they are agreeing to pay.

Another cautionary note arises in respect of bringing expensive section 70 proceedings to assess or challenge modest bills of costs. As advised by the Court, solicitors not advancing such matters before the Legal Ombudsman may find themselves criticised by the court. That said, the pros and cons of the Ombudsman route were not considered by the court, and it is tempting to wonder whether it really does provide a satisfactory alternative. However, it may be that solicitors ought to explore that route before advancing a section 70 to ensure that they have an answer if challenged as to why it was not suitable in that specific case.

As for the next steps, it is unclear whether a further appeal to the Supreme Court is on the cards.

If not, it is certainly possible that the attention that this appeal has garnered, and the force of the Court’s criticisms of the current state of the law, will provoke action

Court of Appeal Guidance on Costs Bills

This blog by Dan Tobin examines the recent Court of Appeal decision of AKC in which guidance was provided as to how paper and electronic bills of costs must be framed: AKC (A Protected Party by her mother and Litigation Friend, MCK) v. Barking, Havering & Redbridge University Hospitals NHS Trust [2022] EWCA Civ 630.

Background

In 2015 the appellant (AKC) made a clinical negligence claim against the respondent. That claim was eventually settled on terms that required the Trust to pay AKC’s costs, which were to be subject to a detailed assessment in default of agreement.

AKC commenced detailed assessment proceedings in respect of her quantum costs in 2019. Her bill of costs comprised a paper bill for the period up to 5 April 2018 and an electronic bill as regards work undertaken after that date.

The Trust served points of dispute in which it raised, by way of preliminary points, objections to the effect that, first, the bill of costs was not properly certified; secondly, the paper bill failed to provide the name and status (including qualification and years of post-qualification experience) of each fee earner in respect of whom costs were claimed; and, thirdly, the electronic bill failed to provide the name, status and Senior Courts Costs Office (“SCCO”) grade of each fee earner. AKC responded in points of reply in which she disputed the Trust’s complaints, but on 18 December 2019 the Trust applied for the bill of costs AKC had served to be struck out and for her to be required to serve a new bill.

The First Instance Decision

The Trust’s application came before Costs Judge Nagalingam, who dismissed it for the reasons given in a judgment handed down on 13 August 2020. However, Steyn J, sitting with Costs Judge Brown as an assessor, allowed the Trust’s appeal. She concluded that AKC’s bill of costs was not duly certified and that neither the paper bill nor the electronic bill contained all the necessary information about fee earners. In these circumstances, Steyn J struck out the existing bill of costs and ordered AKC to serve a replacement which complied with the Civil Procedure Rules.

Proceedings in the Court of Appeal

AKC’s appeal came before the Court of Appeal (Newey, Dingemans and Lewis LJJ, sitting with Costs Judge Rowley as an assessor) on 10th May 2022. By the date of the appeal, AKC was no longer pursuing the certification issue.

Paper Bills

The first question which arose in relation to the paper bill served by AKC was whether the fee earners should have been named? The Court stated that, in practice, fee earners are very commonly named even in paper bills, and that it was desirable that they should be, for doing so can be of help to both the paying party and the Court, and it was hard to think of a good reason for withholding the identity of fee earners. However, be that as it may, the Court nevertheless held that a paper bill does not strictly have to include fee earners’ names and that the omission of fee earners’ names did not render AKC’s paper bill deficient.

Information re. fee earners status

The next question related to what information needed to be given as to the status of the fee earner? The Court held that paragraph 5.11(2) of Practice Direction 47 cannot require a receiving party to specify any qualifications or post-qualification experience of a fee earner where none is relied on. If a receiving party is not suggesting that a fee earner had a relevant qualification, nothing need be said on the subject. The receiving party does not have to spell out the absence of any qualification or post-qualification experience. As such, the Court held that Steyn J had been right to hold that a paper bill must state any professional qualification of a fee earner and, unless the SCCO grade is given, the years of post-qualification experience. It also held that Steyn J was correct in finding that the August 2019 paper bill did not fully meet the requirement to give fee earners’ status. The references in the paper bill to solicitors’ “Years Experience” could be taken to refer to post qualification experience and, on that basis, the bill had sufficiently stated the “status” of “Solicitor 1” and “Solicitor 2”. Nor did any problem arise in relation to the “Others” or “Paralegal (Special Damages, Sheffield Based Fee Earner)” who could be assumed not to have had any professional qualification. However, insofar as AKC were proceeding on the basis that a “Partner” justified a high hourly rate, without either confirming that the “Partner” had a professional qualification or stating the number of years of post-qualification experience, this fell foul of what was required by 5.11(2) of Practice Direction 47.

Electronic Bills

Turning to the electronic bill, the Court observed that Practice Direction 47 does not expressly stipulate that an electronic bill must contain the information needed to fill in the columns of worksheet 5 of Precedent S. Nor does it even insist on Precedent S being used. Having observed that certain parts of the provision relating to the information to be contained within the columns of worksheet 5 were not entirely easy to interpret, the Court nevertheless concluded that a receiving party who elects to use the Precedent S spreadsheet format must include in his bill of costs information sufficient to enable the columns of worksheet 5 to be completed. However, one exception to this was that even a bill in Precedent S format need not necessarily include anything in the “LTM Name” column of worksheet 5 in respect of work delegated to an outside agency, the present example being work done by a medico-legal assistant.

The Court also recognised that an electronic bill does not have to use Precedent S but can instead be in “any other spreadsheet format” which satisfies the requirements of sub-paragraphs (a) to (e) of paragraph 5.A2 of Practice Direction 47. However, it held that if a party chooses to use any other spreadsheet format it had to provide as much information as a duly completed Precedent S.

The upshot was that, in the Court’s view, any electronic bill, whether in Precedent S spreadsheet format or any other spreadsheet format, must include the name, the SCCO grade and, in so far as it adds anything to the grade, the status of each fee earner except possibly in so far as the receiving party’s solicitors may have outsourced work to an agency. As such it ruled that in the present case, AKC’s electronic bill should have contained as much information as a duly completed Precedent S and, in particular, the name, the SCCO grade and, where it added something, the status of each fee earner. It did not do so. It neither gave fee earners’ names nor specified their SCCO grades. On this basis, the Court agreed with Steyn J, that the electronic bill failed to comply with paragraph 5.A2 of Practice Direction 47.

Consequences of AKC’s breaches

The Court then proceeded to consider the consequences of AKC’s breaches. It observed that it is very far from the case that a bill of costs which fails fully to comply with the rules should invariably be struck out, let alone treated as a nullity. It said that, typically, a defect will, at most, warrant a lesser sanction.

In the present case, the result of AKC’s breaches was that it made it more difficult, but not impossible, for the Trust to work out the names of the fee earners who worked on the matter and the grades and status attributed to them. The Court held that Steyn J had been fully entitled to decide that the appropriate course in the particular circumstances was to strike out the existing bill of costs and order AKC to serve a replacement which complied with the Civil Procedure Rules.

Comment

This decision is to be welcomed as it clarifies the hitherto somewhat unclear position as to precisely what information was required in respect of the fee earners on a Bill of Costs. Moreover, practitioners will take some comfort from the Court’s implicit recognition that the relevant provisions are not as clear as they might be and that those falling foul of a specific requirement will not, without more, automatically stand at risk of having her bill struck out or, worse still, treated as a nullity.

Practical Takeaways

Paper Bills

  • It is good practice to include fee earners’ names (although not strictly required in a paper bill);
  • Must state any professional qualification of a fee earner and, unless the SCCO grade is given, the years of post-qualification experience.

Electronic Bills of Costs must contain:

  • the name of the fee earner;
  • their SCCO Grade; and
  • where it adds something, the status of each fee earner.
    • If you use the Precedent S spreadsheet you must include sufficient information to enable the columns of worksheet 5 to be completed (although you need not necessarily include anything in the “LTM Name” column).