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  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.
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.
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  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  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  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].
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.
- 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.