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

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

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

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

Chronology of events

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

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

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

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

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

Costs claimed

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

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

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

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

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

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

The Costs Judge’s Reasons

First decision

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

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

Second decision

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

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

Third decision

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

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

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

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

Analysis and Conclusion

Mrs. Justice Stacey considered the following issues:

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

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

  • The period between 3 and 17 October

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

  • Rule 47.20 and the costs order.

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

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

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

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

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

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

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

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

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

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

Takeaway Practice Points  

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

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

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

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

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

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

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

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

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

Decision

On appeal, Coulson LJ made the following key findings:

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

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

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

Comment

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

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

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

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

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

“(1) Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for or agreements to pay damages, costs and interest made in favour of the claimant.”

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

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

Practice points

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

Costs Earthquake – QOCS rules to change radically in April

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

The present

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

Effect of qualified one-way costs shifting

(1) Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for damages and interest made in favour of the claimant.

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

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

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

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

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

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

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

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

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

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

The future

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

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

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

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

(1) Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for damages or agreements to pay or settle a claim for, damages, costs and interest made in favour of the claimant.

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

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

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

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

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

The effect of this is as follows:

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

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

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

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

Takeaway Practice Points

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

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

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

Key Takeaways

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

Factual Background

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

The (Cross)Applications

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

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

The Relevant CPR Provisions

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

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

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

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

The Decision

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

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

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

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

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

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

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

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

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

Comment

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

Contracting Out of Fixed Costs, or Not!

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

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

• Soares v Wilson (unreported) SCCO

• Doyle v M&D [2022] EWCA Civ 927

• McGreevy v Kiramba [2022] EWHC 2561 (SCCO)

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

History

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

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

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

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

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

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


At paragraph 44, per Males LJ:

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

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

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

Soares v Wilson (2022, unreported)

The relevant facts were as follows:

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

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

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

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

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

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

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

• The Defendant successfully appealed.

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

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

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

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

Per Philips LJ at paragraph 44:

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

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

McGreevy v Kiramba [2022] EWHC 2561 (SCCO)

The relevant facts were as follows:

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

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

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

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

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

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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

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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). 

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

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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’.

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

Editor – Cressida Mawdesley-ThomasLeave a comment

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.

The Pitfalls of Medway Oil

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This blog is written by Andrew Roy who is head of 12 King’s Bench Walk’s Costs Team. He also sits as a Deputy Costs Judge. He appeared for Mr Kimmins (D2) in Green (below).

Introduction

Green v Generali FA and Kimmins [2021] EWHC B25 (Costs) per Costs Judge Rowley at [41]:

“raises a novel point about the interaction between the Medway Oil approach to claim and counterclaim with the traditional splitting of work done between more than one claim where the work has benefitted both proceedings. I have not found this point easy and I am unaware of any direct authority upon it.”

More generally, the case provides an important illustration of: (1) the perils of the bear trap that is Medway Oil and Storage Co Ltd v Continental Contractors Ltd [1929] AC 88; (2) the consequential need to be exceptionally careful as to what orders are obtained or agreed in any multi-party action.

Facts

The claim arose out of a catastrophic road traffic accident in France in which D2’s passenger tragically died and in which D2 suffered severe injuries. C (the passenger’s estate) brought a claim against D1 (the insurer of the other driver). D1 issued contribution proceedings against D2. D2 had already brought his own claim against D1. The actions were ordered to be tried and managed together.

D1 and D2 sensibly agreed to each meet 50% of C’s claim, to be adjusted as necessary in light of the resolution of liability between each other. C’s claim settled on this basis. D2’s contribution claim against D1 and D1’s claim against D2 were subsequently compromised 75:25 in D1’s favour.

The liability agreement in respect of D2’s claim against D1 was embodied in a consent order which provided that “[D1] shall pay [D2’s] costs of liability”. Quantum of D2’s claim was subsequently agreed. This agreement was also embodied in a consent order which provided that: “[D1] shall pay [D2’s] costs of the action”. The liability agreement in respect of D1’s contribution claim against D2 was later embodied in a third consent order which provided that “[D2] shall meet [D1’s] costs of the Part 20 Claim”.

The Costs Proceedings

D1 subsequently served a bill on D2 claiming costs of dealing with liability, etc in respect of C’s claim and D1’s concurrent claim against D2, applying a 50% moiety.

D2 contested D1’s entitlement to any such liability costs. He did so primarily on the basis of the Medway Oil principle that a claimant who successfully defends a counterclaim is “only entitled to such extra costs as were occasioned by the counterclaim”. D2’s argument was that this principle applied to any additional claim (Cinema Press Ltd v Pictures and Pleasures Ltd [1945] KB 35, Parkes v Martin [2009] EWCA Civ 883) so as to preclude recovery, D2 having not obtained a wider or more tailored costs order. He also argued that the same result was arrived at by conventional construction of the third consent order against the background of the previous orders. D1 in reply argued that this was incorrect and unfair given that, between D1and D2, D1 won 75:25.

The Judgment

Cost Judge Rowley found for D2, holding that D1 could not recover any liability costs.

He held that Medway Oil and the previously reported cases following it did not by themselves necessarily provide a complete answer. This was because in Medway Oil there was no possibility of the work done in relation to liability being attributable to any claim other than the claim and counterclaim brought in those proceedings. The scenario here, where the benefit of the liability investigations might be spread across two different proceedings, was not considered.

He nevertheless held that, whilst division of the work between the two sets of proceedings might be a natural approach, it would lead to an absurd result. Medway Oil precluded recovery against D2 of a proportion of liability work done. These costs could only have been recovered if D1 had successfully defended C’s claim.

It was not open to D1 to circumvent this by seeking a proportion of the liability costs in the proceedings against D1. The judge recognised that D2 had succeeded in its claim against D1 and that viewed in isolation the third consent order would justify D2 recovering liability costs. However, the third order had to be interpreted in the context of preceding orders. Doing so lead to the conclusion that D1’s part 20 contribution claim against D2 fell to be treated as counterclaim to D1’s claim against D2. It followed that D2 claim for liability costs fell foul of Medway Oil.

Practice Points

There are three important points to take away from this case, one specific and two general.

  • The specific point is that litigators always need to keep Medway Oil firmly in mind in cases where it might apply (potentially any case where there is more than one claim). The very fact that Medway Oil is liable to produce unfair and counterintuitive results is what makes it such a nasty bear trap. It is in one sense easy to understand why D1 in Green assumed that it would be able to recover some of its liability costs. That was obviously the fair outcome. Indeed, this very point was explicitly recognised in Medway Oil itself. The House of Lords therefore emphasised the need for a party who would be adversely affected to obtain a more tailored costs order.
  • The first general point is that later orders will be construed against the background of earlier ones. It is thus vital to ensure insofar as possible that the terms of any order are not liable to foreclose any later order a party might wish to seek. If they do then the only way to avoid the type of result that D1 suffered in Green would be to try and ensure that the later order explicitly qualified the earlier one. However, that would almost inevitably be an uphill struggle. A later order which is inconsistent with a previous one is likely to be deemed to entail a variation of the earlier order. The test for variation is a demanding one; Tibbles v SIG Plc (t/a Asphaltic Roofing Supplies) [2012] EWCA Civ 518; [2012] 1 W.L.R. 2591.
  • The second even more general point that follows from this is that litigators always need to think very carefully about what cost orders they seek or agree. It is vital to look around the corners and consider all potential costs implications. Cases where Medway Oil could come into play are a paradigm example of this. However it is a point which applies generally.
  • Whilst this point may seem trite, it nevertheless bears emphasis. That the very experienced lawyers acting for D1 in Green failed to heed it with serious adverse consequences is eloquent testimony to this.