‘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). 


Costly Solicitor Own Client Costs Assessments

An important update on solicitor-own client costs assessments before the 4-day weekend! This blog looks at the decision of Mr Justice Ritchie in Edwards v Slater and Gordon UK Ltd [2022] EWHC 1091 (QB).

Background

Edwards is one of 10 test Claimants (“the clients”)[1] who are challenging their former solicitors’ costs by way of a part 8 claim[2] leading to solicitor-own client costs assessments (‘SOCAs’).[3] This was an appeal from a number of case management decisions made by CJ Rowley (‘the Costs Judge’) where he:

(1) Allowed the clients’ application for disclosure of telephone calls to determine whether the Claimants gave their informed consent to the CFAs which they entered with Slater & Gordon.

(2)  Refused the solicitors’ application for security for costs or a stay;

(3) Refused the clients’ request, in the Raubenheimer group claim, to put Part 18 questions to the solicitors in relation to ‘secret commission allegations’ on ATE.

Mr Justice Ritchie dismissed the solicitors’ appeals on issues (1-3) and the Raubenheimer appeal on issue (4) was granted.[4] He did this having reminded himself at [30] that “Appeals from case management decisions have a high threshold test”.

What did the court decide?

Issue (1) – Audio Recording Disclosure & Informed Consent to the Retainer

The clients, in seeking to challenge the deductions made from their damages, asserted that the retainers were void, including, amongst others, due to breaches of the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, the Unfair Trading Regulations 2008 and the Consumer Rights Act 2015. They also asserted that the CFAs were unclear regarding the deductions from their damages for unrecoverable costs. It is their case that the solicitors were not permitted to deduct any unrecovered costs from their damages due to a lack of “informed consent”.

Accordingly, the clients sought standard disclosure of the retainers and the audio recordings of the signing of the retainers and all other documents relating to the pleaded issues. They were sought pursuant to CPR 31, or alternatively pursuant to the Judge’s general case management powers. The Judge granted the disclosure.

At the root of the disclosure application appeal was the issue of whether in a part 8 SOCA the Cost Judge has power to order disclosure. Mr Justice Ritchie found that there was jurisdiction to order disclosure in Part 8 proceedings after considering the relevant sections of the Solicitors Act 1974 on SOCAs, the RTA portal and CPR Part 8, as well as the applicable case law. He pithily noted at [110] that “Procedure is the servant of justice, not the master” and that in Part 8 proceedings the court is prepared to deal with certain limited factual issues. He accordingly found that the Costs Judge’s decision was the correct one.

Issue (2) – Refusing to Grant Stay & Security for Costs

At the root of the solicitors’ appeals relating to the applications for a stay and for security for costs lay the issue of whether the retainer between CLL and each of the clients was an illegal/ unlawful/unregulated insurance contract and/or was champertous and whether CLL were impecunious.

Illegal Insurance Contract?

The Costs Judge ruled that the CLL CFA was a contract for legal services and the indemnity provision was peripheral. This was upheld on appeal, it was held that there was no illegal insurance contact as “there was no discernible premium paid by the [clients] to CLL” at [154]. Further, Ritchie J commented at [156] “It seems to me that the indemnity is more akin to a business expense used for marketing purposes than an insurance contract term. The evidence before the CJ was unopposed and to the effect that there was no ATE market for insuring ACOs in SOCAs. So CLL stepped up and took on the possible expense but not as an insurer, as a business person.”

Security for Costs & Champerty

The solicitors’ application for security for costs was against a third party: CLL, not against the clients themselves. The Costs Judge identified that the real issue was whether the CFA was champertous.  The Judge rejected the solicitors’ assertion that because, in the small minority of cases, where there was a no costs order, CLL could recover their hourly costs out of the sums recovered (capped at 20%), that recovery could be regarded as “taking a profit share from the proceedings”. He also ruled that mere recovery of costs in the SOCAs from the solicitors in a successful claim could not be regarded as a share in the clients’ winnings.

It was found by the Costs Judge that the CLL CFAs are such that CLL agreed to run the risk of a loss if the action in question failed, without enjoying any gain if the action succeeds. It was noted that no case was cited where such an agreement was held to be champertous.

Ritchie J commented at [196]: “I have considered the public interest in access to Justice for Claimants who feel aggrieved by deductions made from their damages by PI firms. I consider that it is in the public interest for claimants generally and these Claimants specifically to be enfranchised to test the way in which those fees were explained, charged, deducted and calculated.”

The solicitors’ submission that CLL was impecunious was rejected as their challenge to their listed £3 million of assets was unsupported by any evidence from a forensic accountant. It was upheld that there was no realistic evidence before the Costs Judge to found a finding of impecuniosity. Mr Justice Ritchie was also unimpressed with the solicitors arguing that part 31 of the CPR did not apply to part 8 claims but that part 25 of the CPR did apply such that costs should be ordered against the alleged third party funder: CLL.  

Accordingly, the decision not to grant a stay of proceedings or to order the clients to provide security for costs was upheld.

Issue (3) – Part 18 Requests in Relation to the ATE

At the root of the appeal over the part 18 request was the client’s (Raubenheimer’s) desire for answers from the solicitors as to the secret commissions allegedly paid by a certain ATE insurer (now in liquidation) as a result of the ATE policy taken out in his personal injury claim by the Defendant on his behalf. Accordingly, the client contended that the solicitors had, or at least appear to have, breached their fiduciary duty not to make a secret profit from their role as a fiduciary.

The Costs Judge at first instance held: “I reject the [client’s] clever, but ultimately faulted submission, that assessment of the ATE premium can occur in a SOCA through the back door route of it being listed in the Cash Account in the wrong sum and assessed there. A challenge to the quantum of the ATE premium is usually more of a Chancery matter…”

Mr Justice Ritchie overturned the decision on this issue by taking a pragmatic approach, holding at [223]:

“I do not consider that the right way to go forwards in these claims was or would be to require the Claimants to issue 150 or less part 7 claims relating to the alleged secret commissions. These commissions were very small sums. The issuing fees alone would be substantial. The better way for these issues to be dealt with would be to consider the correct Judge/transfer to the Chancery Division, at the next case management hearing after disclosure has been provided and the part 18 answers have been provided, certified by a statement of truth, and to determine the scope of the SOCA orders at the same time.”

Practice Points

  • Ensure clients give informed consent – clauses in CFAs relating to deductions of unrecovered costs from damages should be very clearly spelled out and appropriately highlighted;
  • Be prepared – more claims like these are likely to come, so get on the front foot;
  • Arguments relating to champerty / illegality in most cases won’t be worth running;
  • Look out for the Court of Appeal’s decision in Belsner v Cam Legal CA-2021-000398, to be heard on 11/12 July of this year, which will look at deductions of success fees and unrecovered costs from a client’s damages.

This article is by Cressida Mawdesley – Thomas and was first published by Lexis®PSL on 27/05/2022


[1]The other 140 cases are stayed pending the resolution of the lead claims. See paragraph [45] of the Judgment.

[2] Pursuant to CPR r.67.3 a claim for SOCA must be made under CPR part 8 (or in existing proceedings). See paragraph [103] of the Judgment.

[3] SOCAs are created pursuant to the Solicitors Act 1974. See paragraph [93] of the Judgment.

[4] See paragraph [224] of the Judgment.

News Flash! Two Government Consultations have opened on (1) QOCS (2) Vulnerable Parties

The Government has opened two consultations on Costs: (1) considers changes to the CPR dealing with QOCS (following the issues raised by the Supreme Court in Ho v Adelekun [2021] UKSC 43); and (2) concerning how costs for vulnerable parties might be uplifted under the extended FRC which is now set to come into force in April 2023.

The Consultations on QOCS is available here and on vulnerable parties is available here.

Proposed Changes to QOCS and Part 44
Background to QOCS
QOCS was originally implemented to enable the end of recoverable ATE premiums. Sir Rupert Jackson proposed that a new costs protection regime be developed, for PI claims, based on the legal aid ‘shield’, then in s. 11(1) of the AJA, such that:


“Costs ordered against the claimant [in any PI claim] shall not exceed the amount (if any) which is a reasonable one for him to pay having regard to all the circumstances including – (a) the financial resources of all parties to the proceedings, and (b) their conduct in connection..”


The Government decided, with the agreement of all sides that, for practical reasons, means should not be an issue in respect of QOCS in PI claims. Although conduct was accounted for in the rules as drafted through provisions such as those in relation to fundamental dishonesty. The policy objective was to put “parties who are in an asymmetric relationship onto a more equal footing.” In other words, a claimant who loses a reasonably brought PI claim should not lose their house paying the other side’s costs whilst a Claimant who has no assets may have nothing to lose.

The Current Position & Its Difficulties
At present, the QOCS regime operates such that [a Defendant’s] costs can be enforced up to the total awarded in damages; but it does not allow costs to be offset against costs, per the Supreme Court’s decision in Ho v Adelekun.

Ho follows the Court of Appeal’s decision in Cartwright v Venduct Engineering Ltd [2018] EWCA Civ 1654 which held the acceptance of a Part 36 offer does not create an enforceable order for the purposes of QOCS. Prior to Ho, Cartwright was manageable in practice because parties could agree an offset against costs. However, because Ho made it clear that any offset must be limited to damages only and not costs, the decision in Cartwright cannot now be managed between parties in the same way. Thus, the combined outcome of both of these cases is to undermine the effectiveness of QOCS and Part 36 in resolving disputes.

The Proposed Changes

The proposal states that the Government considers that the most effective way of addressing issues around QOCS is by amending Section II of Part 44 as follows:

  • A claimant’s entitlement to costs is considered to be part of the overall fund against which set-off can be applied; and
  • Extend costs orders to deemed orders, so a defendant can enforce a deemed order for costs (especially following acceptance of a Part 36 offer) without the permission of the court.

Discussion – Redressing the Balance
The policy objective of these changes is articulated in the consultation as follows:

“It is right that claimants have sufficient protection, so they are not left in a worse position after the claim than before it. However, there must be balance. It is the Government’s position that defendants must be able to make effective use of Part 36 and recover costs where appropriate and, if necessary, by set-off, so that there is effective control over the running of unmeritorious issues.”


Vulnerable Parties
The second consultation relates to vulnerable parties.
As those reading this blog will know, in Aldred v Cham [2019] EWCA Civ 1780 the Court of Appeal drew the distinction between “a feature of the claim” and “a feature of the claimant” (only costs incurred due to “a feature of the claim” are recoverable). Accordingly, the Court of Appeal held that the costs incurred for advising on a child settlement (which is mandatory under CPR 21) were a feature of the child as a claimant, not a feature of the claim, and were therefore not recoverable.


However, “the MoJ is keen to ensure that those who are vulnerable (either as parties or witnesses) are not disadvantaged in bringing or defending claims which are within the scope of FRC.” This issue was highlighted by the report by HHJ Cotter QC (as he then was) for the Civil Justice Council (CJC) in 2020, which was published after both Sir Rupert Jackson’s FRC report in 2017 and MoJ’s consultation on it in 2019.


Accordingly, the MoJ proposes that vulnerability in respect of parties and witnesses under the extended FRC (it should be noted that this is the new regime which has yet to come into effect, which, simply put, will be extending the fixed costs regime to all personal injury cases valued up to £100,000 with exceptions for certain diseases and a special regime for clinical negligence). The MoJ proposes that the extended FRC scheme should deal with costs associated with vulnerable parties as follows:


The Vulnerability Proposals for the Extended FRC
(i) It is a judicial decision to determine whether or not the vulnerability gives rise to sufficient extra work to justify, exceptionally, an additional amount of costs;
(ii) There needs to be a threshold, which is proposed to be 20% in line with existing provisions, of additional work caused by the vulnerability;
(iii) The procedure by which people can establish a vulnerability uplift needs to be clear and simple; and
(iv) The process needs to be retrospective (as with the assessment of costs generally), not prospective: the judge needs to be satisfied that sufficient extra work has been incurred, not that it may need to be.

Discussion
There are various existing CPR provisions which allow for the above proposals already. CPR 45.13-15 and 45.29J-L set a minimum threshold of 20% additional costs to trigger additional recovery and provide for the challenging party to pay the costs of challenge if the court does not consider the claim to be appropriate or, on assessment, the minimum 20% threshold is not met. However, costs would not be capped at a maximum but would be subject to assessment by a judge to determine reasonable and proportionate costs.

Comment
These proposals don’t offer much security to those who will be acting for vulnerable Claimants (i.e. children or those who lack capacity). In fact, it is a risky strategy to try and seek further costs as if you fall short of showing an additional 20% of costs have been generated you will have to pay the costs of challenge, which look, per the likely changes to QOCS, to soon be part of the ‘pot’ against which the Defendant’s costs can be enforced.


It should be noted that there is no proposal to change the existing FRC regime (although views are invited on the same as part of the consultation). This is because it is noted that “vulnerability in itself does not automatically generate exceptional extra work to require an uplift” and “vulnerability appears to have a minimal impact in existing (low value PI) FRC regimes because the cases covered are mainly straightforward low value claims where the presence of a vulnerability has little bearing on the case or the amount of time or work that is required. Furthermore, those cases that are not of this type are typically excluded from existing FRC altogether.”

Practical Takeaways

  • Claimants should continue to take advantage of Ho which remains the current state of the law – which in practice means that interim applications can be made with little fear as to costs. ATE premiums should reflect the currently small risks on costs.
  • However, this is likely to change and it will be wise to very carefully consider the merits of interim applications if Ho is reversed – with a knock on inflationary impact on ATE premiums.
  • No changes to the current FRC for claims up to £25,000 look likely in respect of vulnerable parties.
  • There is likely to be some costs protection for vulnerable parties under the new extended FRC scheme which has yet to come into force – however, to qualify litigators will need to show that they have incurred 20% more costs as a result of the vulnerability in question as fixed costs regimes by their nature operate a system of ‘swings and roundabouts’.

The new Guideline Hourly Rates in the Court of Appeal

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

Samsung Electronics Co. Ltd & Ors v LG Display Co. Ltd & Anor (Costs) [2022] EWCA Civ 466 is a short but important judgment in which the Court of Appeal considered and applied the 2021 Guideline Hourly Rates (‘GHRs’) in conjunction with the 2021 Guide to Summary Assessment of Costs.

The case

The substantive appeal concerned a price-fixing cartel. Both Samsung and LG were members of the cartel. UK local authorities brought a claim against Samsung for £5.4 million. The claim settled for £1.6 million plus costs. Samsung then sought to bring a contribution claim against LG.

At first instance Sir Michael Burton GBE held that England was not the appropriate forum and dismissed the claim for want of jurisdiction. Samsung appealed. The appeal was dismissed. LG was therefore entitled to its costs of the appeal. The Court of Appeal summarily assessed these.

LG submitted a schedule totalling £72,818.21. The Hourly Rates (‘HRs’) which were billed in dollars equated to:

(a) Between £801.40 and £1,131.75 for Grade A fee earners, as compared to the London 1 GHR of £512.
(b) Between £443.27 and £704 for Grade C fee earners, as compared to the London 1 GHR of £270.

The Court was not persuaded the rates claimed, which were above the GHRs, were justified.

Marks LJ (with whom Snowden and Lewison LJJ agreed) observed that London 1 GHRs applied to “very heavy commercial and corporate work by centrally based London firms”. He continued [@ 4]:

Whilst the guide recognises that in substantial and complex litigation an hourly rate in excess of the guideline figures may sometimes be appropriate, giving as examples “the value of the litigation, the level of the complexity, the urgency or importance of the matter, as well as any international element”. However, it is important to have in mind that the guideline rates for London 1 already assume that the litigation in question qualifies as “very heavy commercial work”.

He was singularly unimpressed with LG’s unconvincing attempt to support the high mark-ups sought, holding [@ 5-7]:

LG has not attempted to justify its solicitors charging at rates substantially in excess of the guideline rates. It observes merely “that its hourly rates are above the guideline rates, but that is almost always the case in competition litigation”.

I regard that as no justification at all. If a rate in excess of the guideline rate is to be charged to the paying party, a clear and compelling justification must be provided. It is not enough to say that the case is a commercial case, or a competition case, or that it has an international element, unless there is something about these factors in the case in question which justifies exceeding the guideline rate.

There is nothing in the present appeal to justify doing so. This was a one-day appeal, where the only issue was the appropriate forum for the trial, the documentation was not heavy, and the amount claimed (£900,000) was modest by the standards of commercial cases. (Emphasis added).

As a result, LG’s costs were reduced to £55,000.

Analysis

Samsung suggests that the Courts will be more reluctant to allow departures from the 2021 GHRs than was the case with their 2010 predecessors. The basis for this is that factors which under the old rates could have been deployed to justify a mark-up (complexity, value, etc.) will in many cases be already to baked into the new rates, at least to a degree.

There are sound reasons why this should be so. There are important material differences between the 2021 GHRs and their predecessors.

As explained by Master Rowley in Shulman v Kolomoisky & Anor [2020] EWHC B29 (Costs) [@ 31] the GHRs “were originally provided to judges when the Civil Procedure Rules arrived in April 1999 and the concept of summary assessment of costs first came into being. Many judges had little or no experience of costs and the guideline rates were there to provide assistance on summary assessment.” However, over time they have been increasingly relied upon in detailed assessment hearings. As observed in Shulman [@ 4]: “When the Master of the Rolls considered a report proposing to vary the Guideline Rates in 2014, he accepted the conclusion that they could be used as a starting point in detailed assessments even though they had originally only been intended to be used in summary assessments. That was, in my view, a reflection of the fact that there is rarely any other starting point offered by the parties to the court when considering the appropriate level of hourly rates”.

The 2021 GHRs reflect this trend. Indeed, they are a culmination of it. The Working Group’s report stated at §2.8 that:

“… there should be no difference in hourly rates allowed on detailed or summary assessment”

In light of this and other related factors it:

“ … resolved to seek evidence on what was in fact allowed by Costs Judges who have experience and expertise in reflecting what is reasonable and proportionate. The evidence was to be of the rates allowed on provisional and detailed assessment. Cases which go to a detailed assessment hearing will be predominantly multi-track and perhaps towards the more complex end of the multi-track spectrum.” (emphasis added)

This approach and the figures it generated were adopted in full. The 2021 GHRs reflect the Working Group’s recommendations precisely and without qualification.

The 2021 GHRs are, thus, far removed from the original conception of the guidelines which were only directly relevant to summary assessments, predominantly in fast-track claims. They reflect the reasonable and proportionate rates allowed in detailed assessment in multi-track claims, and indeed if anything towards the more complex end.

It follows that, whilst mark-ups to the 2010 GHRs would often be appropriate in multi-track cases to reflect that the rates were tailored to fast-track cases, that is not so with the 2021 GHRs. It would appear to follow that significant mark-ups will normally only be justified in cases which are at the higher end of the multi-track.

That said, there are arguments available to distinguish Samsung.

  • Firstly, and most obviously, on the available material Samsung concerned a case which was entirely run of the mill for the cohort covered by the GHRs in question. It will often be possible to show that there are features of given case which take it outside (or at least towards the upper end of) the relevant cohort. It should be noted that the Guide at §29 (as cited in Samsung) states: “It is important to note (a) that these are only examples and (b) they are not restricted to high level commercial work, but may apply, for example, to large and complex personal injury work.”
  • Secondly, this was an appeal. High solicitors’ costs will generally be more difficult to justify on appeal. As per §41 of the Guide: “On appeals where both counsel and solicitors have been instructed, the reasonable fees of counsel are likely to exceed the reasonable fees of the solicitor. In many cases the largest element in the solicitors’ reasonable fees for work on an appeal concerns instructing counsel and preparing the appeal bundles. Time spent by the solicitor in the development of legal submissions should only be allowed where it does not duplicate work done by counsel and is claimed at a rate the same or lower than the rate counsel would have claimed.” Whilst this guidance is predominantly directed at solicitors’ time, it arguably is also relevant to the HRs claimed. The scope for a solicitor to bring significant added value on an appeal will often be much more limited as compared to first instance litigation where many of the most important and challenging tasks (e.g. obtaining evidence) will be performed by the solicitors.
  • Thirdly, and most importantly, Samsung was a summary assessment. Whilst the GHRs are now much more important in detailed assessments than was historically the case, they do not carry the same weight in that process as they do for summary assessments. As per §28 of the Guide: “The guideline figures are intended to provide a starting point for those faced with summary assessment. They may also be a helpful starting point on detailed assessment.”

It therefore remains to be seen whether, and to what extent, this type of argument would prevail on detailed assessment. Certainly, the author’s attempts to deploy such arguments on detailed assessments have up to now (albeit without being able to cite Samsung in support) met with limited success.

Takeaway Practice Points

  • It is likely to be more difficult to recover a significant, or indeed in some cases any, mark-up on the 2021 GHRs as compared to their predecessors, at the very least on summary assessment.
  • Paying parties should deploy Samsung and the points identified above to keep the rates down.
  • Receiving parties seeking HRs significantly above the GHRs should adduce “clear and compelling” material to justify their mark-ups.

Greyson v Fuller – A Practical Application (Curtis v Lucking)

This blog is written by Henry King who appeared for the successful Defendant in Curtis v Lucking. The decision in Curtis followed the recent approach of the High Court in Greyson v Fuller [2022] EWHC 211 which highlighted the “highly prescriptive” nature of the pre-action RTA protocol (‘the protocol’) and portal governing MOJ stage 1, 2 and 3 proceedings.

The Facts in Greyson

  • On 28 June 2017, the Claimant (‘C’) and Defendant (‘D’) were involved in an RTA for which D was at fault.
  • On 3 August 2017, C saw a GP expert. The GP advised a 6-month prognosis for total recovery. If C did not recover within 6-months, the GP recommended a further report.
  • C did not recover in line with the expected prognosis and obtained further reports from an orthopaedic expert and a pain management expert.
  • All three reports were disclosed at the same time to the D with the Stage 2 settlement pack.
  • The matter did not settle at stage 2. The matter proceeded to stage 3.
  • The day before the stage 3 hearing, the Defendant served a witness statement taking issue with the service of the medical report on a strict reading of 7.8B, below. The matter was adjourned for full consideration and listed before HHJ Petts (formerly of 12KBW).

The RTA Protocol

Per the RTA Protocol, at 7.8B(2), a further medical report will only be “justified” where it is recommended by the first expert (which it was), and that first report was disclosed to the Defendant

The Decision of the Circuit Judge

In summary, on 19 February 2021 the circuit judge found that:

Paragraph 7.8B of the RTA protocol sets out two conditions for a further medical report to be justified. The first was satisfied. The second was not. Accordingly, the reports were not justified ([@8-9]). The Claimant submitted that 7.8B was a guide, rather than prescriptive. That was rejected by the judge [@ 11]. The judge held that the whole point was (in effect) to keep the Defendant in the loop through disclosure ([@ 12]). The Claimant submitted that 7.8B was a guide, rather than prescriptive. That was rejected by the judge [@11]. The judge held that the whole point was, in effect, to keep the Defendant in the loop through disclosure ([@12]).

However, the judge went on to reject the Defendant’s position that the fact that the reports were not justified meant that they were irredeemably inadmissible ([@ 27vi])

The judge, of his own volition, considered a relief from sanctions test was appropriate ([@ 30; 35]). Following Denton, the judge held that the Defendant’s position was opportunistic [@ 38]. He granted relief [@ 44]. He further held that the breach of 7.8B did not make it appropriate to disallow the costs of obtaining the further reports in principle, but that this could be argued at the adjourned Stage 3 hearing [@ 45].

As to the costs, the judge found that the matter had not left the stage 3 ‘arena’ and so awarded the Claimant fixed costs of £250+VAT (the stage 3 advocacy fee) ([@ 53]). He declined the Claimant’s invitation to transfer the matter to part 7 to allow greater costs recovery on the basis that such a course of action would be “to allow the tail to wag the dog” ([@ 54]).

The Defendant was granted permission to appeal on a point of public importance. This was because in Mason v Laing [2019] 9 WLUK 584, HHJ Gosnell had held that a relief from sanctions analysis cannot arise in a protocol case on the basis that:

  • It is not set out in the highly prescriptive process; and
  • The protocol must have “some teeth and there must be some effect if the Claimant breaches the protocol” ([@ 13]). Those teeth were, in that case, excluding the report and the costs thereof.

The Decision of the High Court

The matter came before Foster J one year later on 3 February 2022. After reciting the history of the case and the parties’ submissions [@1-33], the judge held as follows:

  • If a Claimant’s medical reports are not disclosed in accordance with the protocol, or in an “unorthodox manner”, the Claimant runs a “serious risk” of not recovering those costs and has to persuade the Court the Defendant should properly pay – if the Defendant takes the point ([@ 35]);
  • The overall structure of the protocols is to provide a disciplined and self-contained process that aims at the speedy and proportionate resolution of low value, liability admitted claims by imposing, pre-eminently, “a financial discipline” ([@ 37], emphasis original).
  • Accordingly, where a report is not justified, because of (say) a failure to disclose it in accordance with the rules, the penalty is failing to recover costs which is “written through every part of the scheme as the default sanction for compliance failures” ([@ 38] and [48]).

Curtis v Lucking

Facts

  • On 25 August 2018, C and D were involved in an RTA for which D admitted liability.
  • On 19 December 2019, C underwent an MRI scan at a cost of £650.
  • On 27 July 2020, the C sent the Stage 2 settlement pack. The MRI scan was not included as a disbursement.
  • On 29 September 2020, settlement was agreed. C’s representative sent details of their disbursements. The MRI scan was not included.
  • On or around 26 October 2020, the Defendant had paid the damages and disbursements claimed in full.
  • On 21 December 2020, i.e. two months later, the C’s representatives wrote to the D seeking payment of the MRI fee.
  • In the event, Part 8 proceedings were issued for the recovery of the MRI fee and, in due course, a detailed assessment listed before DJ Davies.
  • On 10 March 2021, the detailed assessment took place.

Point in Issue

Aside from the fact that the C sought to recover the costs of the MRI scan as a disbursement, two months after the file had been closed for a further disbursement, the case centred around whether, by analogy, Greyson applied and whether the sanction for failing to disclose the MRI scan meant that the costs could not be recovered. The provision for disbursements is included in  paragraph 7.32 of the Protocol:

Submitting the Stage 2 Settlement Pack to the defendant

7.32 The Stage 2 Settlement Pack must comprise—

(4) evidence of disbursements (for example the cost of any medical report);

Submissions

The Defendant submitted that evidence of disbursements means all disbursements i.e. at the point of the pack, the Claimant is presenting the full extent of his or her claim, including disbursements. Therefore, a failure to provide a disbursement meant that the cost could not be recovered. The Defendant relied on the passages of Mason v Laing and Greyson v Fuller above.

The Claimant argued that this is not what 7.32 said. The Defendant was reading in the word “all” which was not there. In the alternative, this sanction contended for by the Defendant was not written into the protocol and accordingly there was no such sanction.

Decision

The judge found that the fee could not be recovered. He held that 7.32 meant evidence of all disbursements regardless of whether it said “all”. This was because it would be “tautologous” to include the word “all” as it was clear from a plain reading of the provision. Further, the judge was greatly assisted by the case of Greyson. He held that whilst on a different point (a medical report rather than a disbursement); fundamentally the same issue was at stake. Given the decision in Greyson, the sanction must be failing to recover costs. Accordingly, the MRI fee was not allowed.

Comment

As DJ Davies said in his judgment, the word “prescriptive” is used more times in relation to the Protocol than any other part of the CPR. This decision indicates that the “serious risk” outlined by Foster J will be upheld by County Courts (unless there is a good reason not to) in relation to all facets of the protocol, including disbursements. This is to be applauded. The whole point of the fixed costs regime is certainty. Such decisions promote certainty between the parties, and ensure that the rules are applied, and the protocol followed.

Practical Takeaways

  • The RTA protocol is highly prescriptive. A failure to comply with its express provisions will likely lead to a sanction.
  • That sanction will likely be the failure to recover costs.
  • This applies to medical reports and disbursements.

Cost Capping Orders

PGI Group Ltd v Thomas & Ors [2022] EWCA Civ 233 is a rare example of a reported decision on an application to appeal and the first published decision on costs capping orders (“CCOs”) since the Jackson reforms introducing costs budgeting came into force.


Coulson LJ heard the Defendant’s application to appeal from Cavanagh J’s order (having sat with Costs Judge Brown) refusing to cap the Claimants’ future costs at £150,000, having subsequently budgeted them at just under £850,000 (£1.5 was million claimed). The decision is a useful reminder of the principles applicable to CCOs.


Kate Boakes of 12 King’s Bench Walk appeared as junior counsel for the Respondents, led by Benjamin Williams QC.

Background
This case arises out of a group claim brought by 31 Malawian women who worked at tea and nut plantations in Malawi, as employees of a Malawian company. They claim to have suffered sexual assault, rape and discrimination perpetrated by their male colleagues. The Applicant, and Defendant, is the parent company of Lujeri. The claim is headed to a trial of two test claims in June this year.

Incurred Costs
At the time of the application, the Respondents’ incurred costs were c. £1.6 million which, together with the £848,140 budgeted costs, gave a total of c. £2.5 million. The Applicant’s incurred costs were £750,000, and its future costs were budgeted by Cavanagh J at £1,750,000, giving the same total of £2.5 million.

The Order Sought to be Appealed
The applicant sought to appeal Cavanagh J’s order of 29 October 2021 refusing a CCO and his subsequent order of 8 December 2021, fixing the respondents’ costs budget in the sum of £848,140. In other words, despite the Claimants’ cost being budgeted at just over half the costs sought, the Defendant submitted the Claimants’ future costs to trial should be reduced to £150,000. This figure was said to be in line with the likely costs of pursuing the claims in Malawi.

The Test for a CCO

CPR r. 3.19(5) requires an applicant seeking a CCO to demonstrate that:
(a) such an order is in the interests of justice; and
(b) that there is a substantial risk that, without such an order, costs would 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.
(6) In considering whether to exercise its discretion under this rule, the court will consider all the circumstances of the case, including –
(a) whether there is a substantial imbalance between the financial position of the parties;
(b) whether the costs of determining the amount of the cap are likely to be proportionate to the overall costs of the litigation;
(c) the stage which the proceedings have reached; and
(d) the costs which have been incurred to date and the future costs.
It was also noted that CCOs are very rare and that per CPR PD 3F at 1.1 they will only be made “in exceptional circumstances”.

The Judgment at First Instance
All three limbs of the test under CPR 3.19(5) must be satisfied for a CCO to be granted. Cavanagh J found that none were satisfied and accordingly refused to grant a CCO.
He noted that according to the Defendant, the maximum damages each Claimant was likely to recover, if successful, was around £10,000 and whilst modest by English standards this sum would be “very significant for poor Malawian plantation workers”. Further, he noted that the claims were about more than money: the Claimants sought vindication. He noted that: “The importance of the matter to the parties is a relevant consideration, in relation to proportionality (see CPR 44.4(3)(c)).” Further, if a CCO were made it would likely “force the claimants to discontinue these proceedings”.

The Grounds of Appeal
The three grounds of appeal were as follows:
Ground 1: The judge applied the wrong proportionality test;
Ground 2: The judge failed properly to take account of the costs already incurred in his analysis;
Ground 3: The judge was wrong to hold that the costs of prosecuting the claims in Malawi was irrelevant to proportionality.

Coulson LJ noted that all three grounds of appeal went only to the second limb of the test under CPR r. 3.19(5)(b), that is to say, whether costs would be disproportionately incurred without a cost capping order for £150,000. It was commented [@18-19] that:


“The grounds do not on their face go either to the first pre-condition (namely that a CCO is not in the interests of justice) or the third (namely that the risk of costs being disproportionately incurred could be adequately controlled by cost budgeting).
That seems to me to be fatal to the application… because it would leave untouched the judge’s conclusions that a CCO was not in the interests of justice and that any risk of costs being disproportionately incurred could be dealt with by costs budgeting (which is what he went on to do).”

Refusal of permission to appeal

Coulson LJ reminded himself that decisions on costs are “pre-eminently matters of discretion and evaluation”. As such, appellate courts will only interfere if the decision is “wrong in principle, or if something was taken into account which should not have been, or was not taken into account which should have been, or is “plainly unsustainable”.

The application to appeal was given short shrift. It was noted that the decision was:

“not only well within the ambit of [the judge’s] discretion, but was also a conclusion which the vast majority of judges would also have reached. In short, that is because: £150,000 was accepted by everyone as being nowhere near the minimum reasonable and necessary costs … It is less than a fifth of the sum which the judge calculated as the appropriate costs budget.”

Comment

Coulson LJ was unimpressed with the Defendant’s application. The application sought to cap the Claimants’ costs at a tenth of the Defendant’s, at an amount that would have stifled the claims. Not only would a CCO of £150,000 amount to strike out by the back door but by setting the amount of the CCO by reference to the costs of litigation in Malawi would amount to a forum non-conveniens decision by the back door as well. Further, the Defendant’s focus on a cost/benefit analysis which did not give due weight to the wider importance of these claims and the desire for “vindication” was again, not well received when the first requirement of a CCO is that it be “in the interests of justice”.

Practical Takeaways

  • In any appeal, if the applicable test is cumulative, and none of the elements were found to be satisfied at first instance, all elements of the test should be expressly challenged in the grounds of appeal;
  • Ensure that a CCO will not amount to strike out via the backdoor, i.e. ensure that the amount of the CCO order does not stifle the claim.
  • Be reasonable – proposing to cap the other side’s costs at less than one tenth of your own is unlikely to be well received! It needs to be at or above the minimum reasonable and necessary costs required to litigate in England and Wales.
  • Arguments attacking proportionality need to not just address quantum but also what is at stake in the litigation;
  • You will need to justify why costs budgeting and or detailed assessment will not adequately control costs: perhaps if the Costs Judge will not be able to adequately distinguish between costs reasonably incurred and costs unreasonably incurred in a complex case, see the judgment [@8].

Interim Costs Orders and Part 36 offers: a recent restatement of the arguments and principles

This blog is written by Jeremy McKeown, a member of 12KBW’s costs team and considers the decision of Master Brown in NAX (a protected party, by JAX) v (1) MAX (2) Liverpool Victoria General Insurance Group Ltd [2021] EWHC 3492 (QB).

The matter concerned a request by the Claimant for final costs orders and/or an interim payments on account of costs.

The decision represents a helpful example of the submissions employed by Claimants and Defendants in such applications and a succinct restatement of the principles the court will apply.

Background

The claim arose out of a serious motorcycle accident in January 2017 when the 23 year-old Claimant suffered a brain injury, multiple fractures to the hip and femur and injuries which led to a below-knee amputation of his leg. The claim was pleaded close to £8 million.

Judgment was entered for primary liability and the Defendants accepted that the Claimant had suffered life-changing injuries, however, there was disagreement surrounding loss of capacity and alleged contributory negligence.

The claim had not been costs budgeted, though budgets had been served. The Claimant’s total costs were budgeted at around £1.23 million plus VAT, about £400,000 of which had been incurred. The Defendants’ total costs budget totalled around £500,000, approximately £175,000 having been incurred.

The matter was complicated by a series of pre-issue Part 36 offers, the earlier of which related to apportionment of liability and later offers in respect of quantum.

What the Claimant Sought & Why the Defendants Objected

The Claimant sought an interim costs order for (1) payment of his costs of the action up to end of the relevant period for the Part 36 on liability, and (2) an order relating to quantum from that date until the end of the relevant period for a second Part 36 liability offer, and (3) a further order for outstanding costs of the action to be assessed if not agreed.

The Defendants objected on a number of grounds, principally that the case was at too early a stage to make such orders. Witness statements had not been served and medical evidence had not been finalised which created doubt about the nature and extent of any damages eventually awarded.

The Decision

On the question of granting a final order for costs of the action

First, the Judge did not need to, nor did he in fact, make a finding that there was a high risk of poor conduct on the part of the Claimant. The fact that there was a possibility of exaggeration in relation to certain injuries was enough, see the judgment [@ 21-22].

Second, it was not appropriate to make orders on the understanding that the trial judge could set them aside for “material change of circumstances” ; a process which raised “the potential for time consuming and expensive application to set aside a final order made at the interlocutory stage”. Moreover, the court could not say with confidence that anything that would emerge could be described as “wholly a change of circumstances rather than the emergence of evidence, the nature of which could not be anticipated” [@ 23].

Third, whilst the judge accepted the force of the Claimant’s argument that the court ought to be wary of applying too much force to “slight risks” of something emerging, nevertheless “in cases where there are or remain issues of liability it seems to me there is greater potential for issues based or conduct-based costs orders at the conclusion of the case.” [@ 24].

Accepting the Defendants’ broader argument, the court was “not satisfied to the high degree of confidence necessary that [it] should at this early stage, and on limited evidence available, make the final orders sought”, being that a trial judge may consider it appropriate to make a different order. That judge would be in a much better position to consider the CPR 44.2 factors [@ 25].

The Claimant cited the Serious Injury Guide, section 9.3(iv) as support for the submission that issues of contributory negligence were issues of quantification rather than liability. The court dismissed this argument as an insufficient basis to grant an interim order which the court otherwise thought inappropriate to grant. Moreover, it was doubtful whether “resolution of liability” in that Guide was meant to cover the situation where primary liability only had been resolved [@ 27-28].

On the question of granting an interim payment

The period between the CMC and trial (up to 18 months) was “within the range of what might be regarded as normal”. The period between incurring disbursements and an expected final order was likely to be way short of the period identified in X v Hull & East Yorkshire Hospitals NHS Trust (unreported), where the Court of Appeal accepted that “an exceptionally long period before quantum can be finalised” was a “critical fact” [@ 29].

The Judge referred himself to the underlying funding documents and compared them to the Law Society’s model CFA, which provides that clients are ordinarily liable to their solicitors for the payment of costs when the claim is “finally decided in [their] favour”. One exception might be where interim costs orders have been made (e.g. following interlocutory hearings) when the solicitors are usually entitled to payment of those costs. However, the court noted that “entering into a CFA is that the solicitors will wait until the conclusion of the case before getting paid their fees.” [@ 30].

As to disbursement funding loans, the fact that a claimant had ATE insurance would assist in securing such finance. Further, an award of interest may be made at the conclusion of the case under CPR 44.2(6)(g) which “might compensate a claimant for the costs of financing disbursements” per Jones v SS for Energy and Climate Change [2014] EWCA Civ 363.

The nature of the risk with which the court is concerned when deciding whether to make an interim order was dealt with [@ 36]:

“…not the risk that such orders would be reversed and the interim payment paid back but the risk that by making an order for interim payment it would diminish such security as may currently exist against the Defendants’ incurred and future costs.”

It was necessary to look at the amount of the potential award of costs in the Defendants’ favour (£500,000 in the costs budget) to decide whether there was sufficient security to meet any final costs award in the Defendant’s favour.

The Claimant argued that the Defendants had several ‘securities’ in the event an interim costs order was made but was later reversed. The Judge dealt with each in turn [@ 40 – 48]:

  • Defendants can set-off against an order for costs in Claimant’s favour: (the matter was decided before the Supreme Court’s decision in Ho v Adelekun [2021] UKSC 43 so is likely of limited use).
  • A Claimant’s ATE insurance indemnity would cover any adverse costs in the Defendants’ favour: it was relevant that the same indemnity would have to be used to cover the Claimant’s own disbursements. Since the indemnity figure was capped at £100,000, there would be little indemnity left to meet the Defendants’ costs.
  • Defendants can set-off any costs against the award of damages (per the usual QOCS rules): the Defendants raised the following potential problems with predicting a substantial damages award and using it as ‘security’:
  • even though there had been substantial interim payments on account of damages, there was also a substantial prospect that by the time of trial these sums in respect of past losses will have all been spent;
  • in respect of interim payments for future losses, even though the Claimant might anticipate a substantial award of damages, it may well take the form of periodical payments. If so, that figure would not then be available to meet the Defendants’ costs;
  • even though the Schedule of Loss was pleaded at almost £8 million, the evidence of quantum was at an early stage and the court ought not simply take as established the assumptions upon which the Claimant has calculated that figure. In other words, the Claimant may have grossly over-estimated the quantum of the claim;
  • it was important not to rule out a significant deduction for contributory negligence (specifically, relating to the Claimant’s failure to properly secure his helmet).

In terms of how to calculated what figure would be reasonable when making an interim payment of cost, the court restated the principles in Excalibur Ventures LLC v Texas Keystone Inc [2015] EWHC 566 (Comm), per Christopher Clarke LJ [@ 50]:

What is a reasonable amount will depend on the circumstances, the chief of which is that there will, by definition, have been no detailed assessment and thus an element of uncertainty, the extent of which may differ widely from case to case as to what will be allowed on detailed assessment. Any sum will have to be an estimate. A reasonable sum would often be one that was an estimate of the likely level of recovery subject, as the costs claimants accept, to an appropriate margin to allow for error in the estimation. This can be done by taking the lowest figure in a likely range or making a deduction from a single estimated figure or perhaps from the lowest figure in the range if the range itself is not very broad. [@ 23]

To this end, Master Brown reviewed, in a broad-brush fashion, the breakdown of what the Claimant claimed in costs and concluded they seemed vulnerable to “heavy reduction on detailed assessment” [@ 53].

In terms of the “bald assertion” by the Claimant’s costs lawyer that work done was “indivisible” as between liability and quantum, the Judge was concerned about proceeding at an interim stage on such bald assertions. If the court was to do so, it would expect to see “considerably more detail justifying the costs lawyer’s conclusions” [@ 54].

Outcome

For the reasons above, the court concluded that it was not appropriate at this stage to make final orders as to costs in the action. Further, it was not appropriate to an make an order for an interim payment on account of costs.

Practical takeaways

  • Parties applying for final or interim costs orders should be mindful of the stage of proceedings and ask themselves whether there are too many unknowns at the point at which they make their request. Uncertainties, such as whether the pleaded quantum is realistic, whether costs are likely to be substantially reduced on detailed assessment and live issues of contributory negligence will impact the court’s decision.
  • The case offers a party intending to oppose an interim costs application some useful submissions they might consider employing.
  • Courts are conscious not to fetter the discretion of the trial judge by making costs orders too early. In general, the trial judge is likely to be in a better position to consider all the circumstances at the conclusion of the case and make a more appropriate costs award.
  • The Judge is likely to look critically at whether the ‘security’ a Claimant says the Defendant has, such as ATE indemnity insurance, set-off against damages et al. will in fact be sufficient if the interim order is later reversed.
  • The risk with which the court is concerned is not the mere fact that the order might be reversed and the interim sums repaid. It is whether, in making the interim order, that itself diminishes the ‘security’.
  • The likely period between incurring disbursements and trial is relevant. An exceptionally long period is a “critical fact”. Here, the predicted 18-months was considered normal.
  • Bald assertions” by costs lawyers are unlikely to be sufficient. The court will expect to see “considerably more detail justifying the costs lawyer’s conclusions”.
  • In obiter comments, the court queried whether “resolution of liability” mentioned in the Serious Injury Guide was meant to cover the situation where contributory negligence was at large and primary liability only had been resolved.

Hugh Hamill of 12KBW, instructed by Keoghs, appeared for the successful Defendants.

When will specialised solicitor hourly rates be recoverable?

This blog is written by Lois Aldred, a member of 12KBW’s costs team and is the second of a two-part blogpost looking at R v Barts Health NHS Trust [2022] EWHC B3 (Costs). This blog focuses on the second central issue considered by Master Rowley: when will specialised solicitor hourly rates be recoverable?


The background to this case is set out in our previous blog, see here. In short, it involved a severely brain-damaged little girl, Tafida, and whether her treatment ought to be withdrawn and only palliative care be given. 

The hourly rates claimed were subject to challenge before Master Rowley. The Claimant lived in London but had instructed Irwin Mitchell in Manchester, the paying-party took issue with this. An obvious reminder was given that it is usually a bad point to suggest that it was unreasonable to instruct solicitors in a different area, if the area is cheaper than the claimant’s locality. It was held [@ 42]:

“There can hardly ever be any criticism of a receiving party who instructs solicitors in a less expensive area of the country.”


Once Manchester was accepted the Court found that the 2021 Guideline Hourly Rates were the preferred starting point for work undertaken in 2019, rather than the 2010 Guideline Hourly Rates. No great surprises there, you might say.

The need for the exercise of specialist skill once the baton has been passed to Counsel


The more interesting and central point made by the Defendant questioned the need for the exercise of specialist skill by the solicitors if the “baton of responsibility and importance to the claimant” had been passed to Leading and Junior Counsel and if the solicitors relied heavily upon counsel’s specialised knowledge and skill to take the case forward. As such, it was argued the claimant’s solicitors did not “have to exercise any more skill, effort and specialised knowledge than that of an un-specialised solicitor.”
Master Rowley reminded himself that in cases that do not require a specialist solicitor, the hourly rate will be reduced to a non-specialist firm rate or more junior solicitor rate. Nonetheless this was not apposite here. The Court held [@ 50]:


“it is hard to imagine any case involving more importance to the client or, given the need for urgent action, one which would score more heavily on the circumstances in which the work was done.”

The Defendant also argued that the claimant’s solicitors did not display their skill in this particular case, and rendered their own specialism redundant due to the choice of Counsel and the arguments run. This was resolutely rejected [@ 53]:

“It is in my view, a remarkable suggestion that a case whose own weight clearly justified using expertise to pursue it, can be downgraded in the choice of an appropriate solicitor by that solicitor’s choice of external assistance.”

Master Rowley no doubt was assisted by a perusal of the correspondence between Counsel and the Claimant’s Solicitors that lead him to the conclusion [@ 54] that:

“There is very much a team effort between solicitors and counsel”. He went on [@ 55]: “I therefore conclude that the solicitors not only had the requisite skill, effort and specialised knowledge and responsibility appropriate for this grave case but also demonstrated it in their dealings with counsel and other solicitors. There is no warrant in my view for there to be a reduction in the hourly rates claimed simply on the basis that counsel was also involved in dealing with matters.”

The hourly rates were awarded as claimed.

Practical Takeaways

  • Paying parties should take a realistic view as to whether the case merits a specialist firm with corresponding fees in formulating offers on costs.
  • In cases requiring specialism a whole team of specialist legal advisors, including Counsel may well be reasonable.
  • Receiving parties, be prepared for your file to come under scrutiny from the Costs Judge when determining whether the work your fee earners undertook merited any ‘specialist’ fee. The Costs Judge may not have a background in your specialism, so make it easy and show your worth.