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Unenforceable means unenforceable – neither a win nor any fees for the solicitors

Rebecca Henshaw-KeeneLeave a comment

In this article, Henry King provides commentary on the case of Diag Human SE v Volterra Fietta [2023] EWCA Civ 1107, concerning an unenforceable discounted conditional fee agreement (CFA). The judgment underscores the need for all practitioners acting under a CFA to take great caution when agreeing success fees.

This is a short case comment on Diag Human SE v Volterra Fietta [2023] EWCA Civ 1107. This, and a number of other articles, foreshadowing 12KBW’s CFA series to follow in 2024.

The Conditional Fee Agreement (“CFA”) is subject to a wealth of regulations. This article provides a very short overview of one of them, namely that a success fee cannot exceed 100%.

A Short History of CFAs

As is set out in the judgment, CFAs were illegal and contrary to public policy until 1990. They were thus unenforceable.

Thereafter, s.58 Courts and Legal Services Act 1990 permitted a limited class of CFAs to be enforceable. Those CFAs had to comply with the above section. If not, the legal advisor acting under the CFA would not be entitled to recover anything by way of fees from the client in the event that things went south.

In short, CFAs must:

  1. Be in writing;
  2. Must not relate to litigation which cannot be the subject of an enforceable CFA (i.e. criminal proceedings and family proceedings); and
  3. Must comply with any such requirements as the lord chancellor prescribes.

So far, so good. However, many CFAs also have a success fee element within them. This is as consideration for the fact that a legal representative is (in essence) gambling on a win.

Should a legal advisor be seeking a success fee in addition, the CFA must also:

  1. Relate to proceedings of a description specified by order made by the Lord Chancellor. (This very rarely arises. This only applies to proceedings brought pursuant to s.82 of the Environmental Protection Act 1990 per r.2 The Conditional Fee Agreements Order 2013. This is unlikely to trouble the audience reading this article).
  2. State the percentage by which the amount of the fees is to be increased; and
  3. That percentage must not exceed (at present) 100%.

Prior to 2013, the success fee was recoverable from the other side. In some cases, that remains the case (see the ongoing case of Hirachand v Hirachand [2021] EWCA Civ 1498; [2022] 1 WLR 1162 – the appeal in this case was heard in the UKSC in January 2024).

Facts of Diag

Briefly:

  • Between February 2017 and September 2017, the solicitors acted under a conventional retainer.
  • Following discussions, by side letter, the solicitors started to act at a discounted rate of 70% of their hourly rates. In consideration of the discount, the solicitors would be entitled to a success fee that was to be calculated in accordance with the outcome of the arbitration.

The solicitors had comprehensively failed to abide by the requirements of s.58 in relation to success fees. Not only had the success fee percentage not been stated in writing, it amounted to 280% on a worked example (see paragraph 11). It was thus common ground that the agreement as a whole was a CFA and thus was prima facie unenforceable (see paragraph 6).

The solicitors mounted three grounds on which they could recover their fees (or a part thereof):

  1. That the success fee provisions were severable and thus under the doctrine of severance, the offending provisions were severable entitling the solicitors to the 70% “discounted” fees.
  2. In the alternative, the doctrine of quantum meruit was available to the solicitors;
  3. In any event, the solicitors should be entitled to retain the sums paid on account of costs.

The Decision

The Senior Courts Costs Office (Master Rowley), the High Court (Foster J) and the Court of Appeal (Stuart-Smith, Andrews and Newey LJJ) all roundly rejected the solicitors’ contentions.

In overview, the appeal was rejected on the grounds that the solicitors were seeking to make an unenforceable CFA enforceable. This would be contrary to public policy.

In slightly more detail:

  • As to severance:
    • There is a three stage test as is set out in Beckett Investment Management Group Ltd v Hall [2007] EWCA Civ 613, [2007] ICR 1539 at paragraph 40. The severance sought in this case by the solicitors fell foul of the third stage of this test, namely that “The removal of the unenforceable provision does not so change the character of the contract that it becomes ‘not the sort of contract that the parties entered into at all’.”
    • It was held that the severance sought would fundamentally change the character of the retainer from a CFA to a conventional retainer albeit for discounted rates (see paragraph 40 and 45).
    • Further, and in any event, the position was contrary to public policy. Per paragraph 62: “The principal effect of severance would be to permit partial enforcement of the unenforceable CFA. As was pointed out during submissions, if the client lost the arbitration, the effect of allowing severance would be that the solicitors would recover precisely the same amount of their fees as if the CFA had been held to be enforceable. That is not, in my view, a tolerable outcome.”
  • As to quantum meruit:
    • This was rejected for the same reasons. The Court of Appeal quoted from the decision in Awwad v Geraghty & Co [2001] QB 570 as follows: “If the court, for reasons of public policy refuses to enforce an agreement that a solicitor should be paid it must follow that he cannot claim on a quantum meruit. … In the present case, what public policy seeks to prevent is a solicitor continuing to act for a client under a conditional normal fee arrangement. That is what Miss Geraghty did. That is what she wishes to be paid for. Public policy decrees that she should not be paid”.
    • This reasonably short reasoning put an end to that argument.
  • Finally, as to the restitution point:
    • the Court of Appeal were uncomplimentary when it was held that “[t]he consequences that would follow if Ground 3 were to succeed are startling to the point of absurdity.”
    • Put bluntly, the Court of Appeal held that there was no good reason, particularly in the light of the public policy considerations outlined, that a different result should obtain where no fees at all should have been received by the solicitors on account.
    • The clients cannot be said to have been “unjustly” enriched by the receipt of services for which solicitors cannot claim to be paid under a contract which failed to comply with the specific requirements that would have made it a lawful and enforceable CFA. Equity will not step in to relieve the solicitors from the consequences of providing services pursuant to an unlawful agreement which they are precluded from enforcing.

Comment

This decision serves to underscore the need for all practitioners acting under a CFA to take great caution when agreeing success fees. Clarity of wording and compliance with the legislation is key.

Indeed, it is worth mentioning (if only in passing) the following cases:

  • Gloucestershire CC v Evans [2008] 1 W.L.R. 1883 was discussed in Winros (below) as follows, broken up for ease of reading:
    • The argument revolved around the question of whether the prescribed percentage increase (100%) was to be measured by reference to the increase over the costs at risk or the increase over the basic charges.
    • The Solicitors basic charges were £145 per hour which would be discounted to £95 per hour on a loss (so the costs at risk were £50 per hour) but increased to £290 per hour on a win. The Court of Appeal held that the increase over the basic charges was what mattered because that was the increase over the fees payable with all of the conditional elements removed.
    • Dyson LJ explained as follows: “a conditional fee agreement provides for a success fee if it [the CFA] provides for the amount of any fees to which it [the CFA] applies to be increased, in specified circumstances, above the amount which would be payable if it [the amount of fees to which the success fee is applied] were not payable only in specified circumstances.”
    • And further that: “the lawfulness of the percentage increase is measured not by reference to the costs at risk, but by reference to the fees that would have been payable if the CFA were not a CFA” (at paragraphs 20 and 27).
  • This colours the analysis of the Court of Appeal in Diag (though it was not expressly referred to).
  • In the (rather more recent) case of Winros Partnership v Global Energy Horizons Coporation [2021] EWHC 3410 (Ch), the High Court held that where an advance fee was payable, this is of little import. When assessing a success fee, it is “simply wrong to have regard to any other amounts that may be payable under the CFAs apart from the increase in the basic charges for which the client is liable in the specified circumstances.” (at paragraph 69).

These two cases make it yet more clear that the basic charges must be ascertained first, then the success fee calculated on top, and that success fee must be calculated with caution.

Public policy remains a potent weapon for clients in absolving them of liability for fees under CFAs. The scheme is deliberately “draconian” to ensure compliance with the relevant regulations.

Fixed Costs – Interpreters’ fees recoverable if reasonably incurred under CPR 45.29I

Editor – Cressida Mawdesley-ThomasLeave a comment

In this blog Jeremy McKeown looks at the decision in Santiago v Motor Insurers’ Bureau [2023] EWCA Civ 838.

Where an independent interpreter is essential to enable a party or witness to participate fully in proceedings or give their best evidence, the interpreter’s reasonable fee is recoverable as a disbursement under CPR r.45.29I(h) (‘any other disbursement reasonably incurred due to a particular feature of the dispute’). The overriding objective requires such a conclusion.

The Court of Appeal’s decision is important insofar as it distinguishes Cham (A Child) v Aldred [2020] 1 WLR 1276, until now the leading authority relied upon by courts (and Defendant counsel) to deny claimants the ability to recover interpretation and translation fees in cases subject to the fixed costs regime.

CPR Part 45, Section IIIA limits recoverable disbursements in RTAs, employers’ liability and public liability claims which start in the MOJ portal to only those specifically mentioned in CPR 45.29I. Neither interpreters’ nor translation fees are expressly named disbursements so are, without more, irrecoverable.

If a claimant wished to recover a disbursement other than those explicitly mentioned in CPR Part 45.29I they must convince a court that the particular disbursement falls within the ‘catch-all’ provision at sub-paragraph (2)(h): is this a disbursement that was “reasonably incurred due to a particular feature of the dispute”?

Until Santiago, it appeared that the Court of Appeal had excluded interpreters’ fees from the scope of that section, concluding that they were not a ‘particular feature of the dispute’. Why? Because in its earlier case of Cham the Court (per Coulson LJ) had examined what was meant by a ‘particular feature’ of a dispute and concluded the following (paras. 35-36) (emphasis added):

“35. … The fact that, in a particular case, a claimant is a child, or someone who cannot speak English, or who requires an intermediary, is nothing whatever to do with the dispute itself. Age, linguistic ability and mental wellbeing are all characteristics of the claimant regardless of the dispute. They are not generated by or linked in any way to the dispute itself and cannot therefore be said to be a particular feature of that dispute.

36. The particular features of the dispute in an RTA claim will commonly be matters such as: how the accident happened, whether the defendant was to blame for the accident, the nature, scope and extent of the injuries and their consequences, and other matters of that kind. For example, the particular circumstances of the accident may be sufficiently unusual to require an accident reconstruction expert, or the injuries may be so complex that they require a number of different experts’ reports. Such additional involvement of experts may also require specific advice from counsel. Depending always on the facts, such costs may be said to be a disbursement properly incurred as a result of a particular feature of the dispute.”

In short, the Court of Appeal had drawn a distinction between matters relating to a characteristic peculiar to the dispute (rather than the claimant personally) – for example, how an accident happened, the nature of the injuries etc. – which could fall within CPR Part 45.29I(2)(h) and might be recoverable, versus a characteristic peculiar to the claimant personally – such as whether they were a child or did not speak English.

The latter was not a feature of the dispute but instead was a feature of the claimant, the thinking being that those characteristics would be common to that claimant whether they were fighting this dispute or any other.

The Court of Appeal in Santiago disagreed. In doing so, it all-but reversed (by distinction) the previous decision in Cham. At the very least, this recent decision moves away from how courts and parties have interpreted and applied Cham to the recoverability of interpreters’ fees.

The result? In bad news for defendants, interpreter and translation fees are now evidently recoverable as ‘a particular feature of the dispute’ under CPR Part 45.29I(2)(h).

Decision

On appeal, Stuart-Smith LJ decided:

  1. First, the Court in Cham had had to decide only whether counsel’s fee for the advice required for settlement in a case involving a child was a ‘particular feature of the dispute’. It decided it was not. However, the Court’s comments at para. 35 (above) about whether that also applied to those who did not speak English were strictly obiter [at 55].
  2. Second, since Cham was decided the CPR has been amended in several places to include language which might have forced the Court to approach the question differently. In particular, the ‘vulnerability’ of a witness who cannot participate meaningfully in proceedings if they cannot speak English [at 39-42]:
    • The 2021 Amendments added to the overriding objective at CPR Rule 1.1(2)(a). It now provides that dealing with a case justly and at proportionate costs includes, so far as is practicable “ensuring that the parties are on an equal footing and can participate fully in proceedings, and that parties and witnesses can give their best evidence”;
    • New Practice Direction 1A is headed “Vulnerability” and includes provisions which record that the overriding objective requires consideration of a participant’s vulnerabilities. A person should be considered vulnerable where a factor – which could be personal or situational, permanent or temporary – may adversely affect their participation in proceedings or the giving of evidence. One example given at 1APD 4(b) is “communication or language difficulties (including literacy)”;
    • The 2021 Amendments introduced an amendment to the general costs provisions under CPR Part 44 to the effect that costs are proportionate if they bear a reasonable relationship to any additional work undertaken or expense incurred due to the vulnerability of a party or witness. It should, however, be noted that nothing is said in the 2021 Amendments to change the wording of the fixed costs regimes under CPR Part 45 or about how that Part should be interpreted.
  3. Third, in addition to recent changes to the CPR, there is one future proposed amendment. In March 2023, the CPR Committee approved draft amendments for the implementation of an extended fixed recoverable costs regime. Now included are express provisions relating to recovery of interpreters’ fees. Whilst that could not influence how the Court interpreted the rules as they currently are, it means that the decision in Santiago would be somewhat limited and will become redundant if and when those changes are adopted.
  4. Fourth, the Court ‘must’ seek to give effect to the overriding objective. Now that the CPR 1.1(2) wording mandates that the court ensure ‘parties can participate fully in proceedings and that parties and witnesses can give their best evidence’, it is “beyond argument… that an interpreter is essential if a person of witness who does not speak adequate English is to participate fully or give their best evidence” [at 56].
  5. Fifth, rejecting MIB’s submission to the contrary, if interpreter’s fees are not recoverable, they simply become “an additional expense that will fall upon the vulnerable party or their solicitor”. There will be a financial disincentive to a claimant’s solicitor to take their case if that fee falls to the solicitor and cannot be recovered. If it falls on the vulnerable party it may have the same effect. It is therefore an access to justice question [at 58].
  6. Sixth, it is possible – in terms of access to justice – to distinguish Cham (the question of denying counsel’s fee for an advice in a claim involving a child) from this case (the denial of translation or interpretation fees). Where the former counsel’s advice is required, the matter has already settled and the advice is needed for the court to approve the settlement. In the latter, the matter is ongoing and without the services of an interpreter the party who cannot speak English is precluded from having access to the court [at 59].
  7. Seventh, it is possible to distinguish Cham further. Are both ‘fees’ (counsel’s fee for an advice versus interpreter’s fees) comparable? No. On the one hand, counsel’s opinion in Cham was said to have been remunerated elsewhere in the fixed costs rules. It was held that counsel’s opinion formed part of the fixed costs in Table 6B (distinct from disbursements in CPR 45.29I) and was therefore not recoverable separately as a disbursement under CPR 45.29I(2)(h). The rationale was that Table 6B costs cover charges for all legal representatives (i.e. solicitors and counsel) [at 11]. By contrast, the interpreter’s fee clearly did not fall within Table 6B – not being legal representative costs – and so if it was not recoverable as a disbursement, it would not be recoverable at all [at 59].
  8. Eighth, the “most striking feature” of the decision in Cham is that there is no mention of the overriding objective. The Court “distinguished” the earlier case by speculating that the Court in Cham would surely have referred to it unless it had considered that the facts of that case did not engage the principle of access to justice (the writer makes no comment on the plausibility of that conclusion). In contrast, Santiago required consideration of the overriding objective. Consequently, the conclusion reached in Cham was not “open to [the Court] in the present case” [at 63].
  9. Finally, “the distinction permits us to conclude that we are not bound by Cham to adopt an interpretation of sub-paragraph (h) which is not in accordance with the overriding objective on the different facts that are in play in the present appeal. I would accept that the effect of Cham is that a disbursement should ordinarily be held to be “reasonably incurred due to a particular feature of the dispute” within sub-paragraph (h) if it was required to enable the determination by the Court of a particular issue in the case rather than because of a particular characteristic of a party or witness. However, where considerations of access to justice arise, a broader interpretation is necessary to enable the dispute to be determined by the Court in accordance with the overriding objective” [at 64].

Comment

By what might diplomatically be described as a dexterous and skilful contortion, the Court of Appeal in Santiago decided it could distinguish Cham in such a way that counsel’s fees for the mandatory advice (which were disallowed in Cham) differed from interpreters’ fees.

It appears that Cham still stands and counsel’s fees for advice – even advice required under the rules for the approval of an infant settlement – continues to be irrecoverable. That is not a ‘particular feature of the dispute’ but should be considered to fall within the fixed costs at Table 6B, being fixed costs relating to all legal representatives’ costs in the claim.

However, by contrast interpreters’ fees do not form part of Table 6B. In light of the rewritten overriding objective and the new PD 1A defining ‘vulnerability’, and to ensure access to justice, the interpreter’s fee is recoverable pursuant to CPR 45.29I(2)(h) as ‘a disbursement reasonably incurred due to a particular feature of the dispute’.

Practice points

  • Defendants can no longer point to Cham at the costs assessment stage of fixed cost trials to deny claimants recovery of interpretation or translation fees.
  • There is no suggestion that it is limited fees at trial. The principle will presumably apply to the cost of interpretation of witness evidence and other documents and, where necessary, the interpreter’s attendance at pre-trial conferences.
  • Since CPR 45 does not fix the cost of interpretation fees, defendant representatives would be well-advised to concede the point in principle but, where appropriate, challenge the sums claimed.
  • Interpreters’ rates can vary wildly so it would be sensible for insurers or solicitors to consider whether the sums claimed are unreasonable. The court is unlikely to accept that argument without hard figures offering a suitable comparison at cheaper cost. A few pages outlining two or three alternative rates for similar work would be especially helpful.
  • It may even be possible for defendant representatives and insurers to produce a pro forma document setting out hourly or daily rates by region obtained from several reputable translation agencies. This document would be ‘ready to go’ and could be easily served in advance or – if the statement of costs is not served ahead of time – handed-up during costs assessment to support the submission that the rates claimed are unreasonable.

Interpreting interest(ing) provisions in Part 36 settlement offers

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In this article Jake Loomes looks at the recent case of MGS v University Hospitals Bristol and Weston NHS Foundation Trust [2023] EWHC 1547 (KB).
The case concerned a child (MGS) born in October 2009 who suffered a permanent brain injury after becoming progressively hypoglycemic in the days after his birth. The claim related to the permanent injuries suffered as result of the clinical negligence of the Defendant: University Hospitals Bristol and Weston NHS Foundation Trust. Liability was admitted and two issues came before the Court, namely: (1) approval of the settlement agreement (the Claimant being a protected party); and (2) the interest payable on a Part 36 offer that had been accepted by the Defendant out of time. The second of these issues gives rise to instructive and important points of practice.

The facts


The Defendant admitted liability on 17 May 2018. The case therefore proceeded as a dispute as to quantum only. Following a joint settlement meeting in October 2022, both parties made Part 36 offers. The Claimant made a Part 36 offer dated 17 October 2022. That offer of full and final settlement was for a £9.3 million lump sum, pro rata sum for care and case management up until December 2022 and periodical payments starting in December 2022 at £190,000 and rising to £238,000 from December 2028.
On the issue of interest, the Claimant’s Part 36 offer read:

“The offer is deemed to include interest up to the 21 days of service of this notice. Thereafter, interest will accrue up to the date it is accepted.”

The Defendant accepted the Claimant’s Part 36 offer on 4 May 2023 nearly six months after the expiry of the relevant 21 day period.

The Part 36 interest issue


Both parties accepted that, in principle, interest was recoverable on Part 36 offers, subject to their wording. They agreed [§16] that as the settlement involved a protected party, some period of interest between acceptance and the time taken for it to be approved by the Court was not recoverable. This is because that period of ‘delay’ cannot be attributed to the Defendant’s late acceptance of the offer.

The dispute was whether the wording used by the Claimant allowed such recovery of interest and if so, on what damages and at what rate. The Court was therefore required to resolve the interpretation of the contractual terms of the Part 36 Offer.

A key thread to one of the Defendant’s submissions was that part of the net sum of the Part 36 offer (some money having been deducted for interim payments made) included future losses. In principle interest is not recoverable on future losses. The Defendant’s contention, amongst others, was that any interest on such future losses, however construed, was not recoverable.

Decision as to Part 36 interest

Against that background, Dexter Dias KC (sitting as a Deputy High Court Judge) decided as follows:

  1. The Court was not exercising discretion, it was interpreting a contract albeit in the context of Part 36 [§19]
  2. The well-established approach to contractual interpretation following Wood v Capita and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] Q WLR 896 [§912] should be applied [§21].
  3. An informed and reasonable observer would understand the offer term to mean that after 21 days, interest would accrue on the entire offer sum [§22].
  4. If the Claimant received that sum within the 21 days he could invest and receive interest from it. The delay of the Defendant allowed the Defendant to benefit from any such interest to the detriment of the Claimant [§22].
  5. The Defendant’s argument as to future loss and interest was misconceived. While correct following Jefford v Gee [1970] 2 QB 130 that interest does not accrue on future losses as the loss has not occurred, the Part 36 offer represents the damages the Claimant is willing to accept in order to meet his future losses. It is not interest on an unquantifiable future loss, rather is it for the period of delay the Claimant was deprived of that total loss figure [§23].
  6. Support for the position could be derived from Jefford. The Court of Appeal there referred to the claimant as not having been kept out of any sum of money. The opposite was true in the present case [§24]. Further support for this principle was derived from Sycamore Bidco Ltd v Breslin [2013] EWHC 174 (Ch)); and Bristow v Judd [1993] PIQR Q117 CA [§24].
  7. The Claimant had been deprived of the benefit of the whole of the lump sum (subject to interim payments) over the period of delay in acceptance. He was entitled to be compensated for being kept of out this money. The fact that some of it was in respect of future losses did not change this entitlement,
  8. As to the appropriate interest rate, this was unspecified in the Part 36 offer. Whilst it was open to the Claimant to have specified a rate of 8% in the offer (as was done in Calonne Construction Limited v Dawnus Southern Limited [2019] EWCA Civ 754) he had not done so [§26]
  9. The judgement rate contended for the claimant was, at 8%, too high. The informed observer would not conclude that the correct rate to be applied in the circumstances (as a matter of contractual construction) was the special investment rate [§27].

Comment and practical takeaways

MGS confirms that just because a Part 36 offer includes a sum of money representing future losses, interest on the full sum is still recoverable if the terms of the offer so provide.

This case is an important reminder that a well drafted Part 36 offer should include clear and unambiguous provisions as to interest. Crucially, practitioners should be aware of the following:

  1. If the interest provision is not included, then CPR 36.5(5) will apply, and the Part 36 offer will be treated as inclusive of all interest up to the date of acceptance. In the present case that would have potentially deprived the Claimant of a six-figure sum (interest of approximately £160,000).
  2. When seeking interest in a Part 36 offer, the following should be stated clearly:
    • The date from when interest applies;
    • What sum the interest applies to; and
    • The rate of interest.
  3. It is entirely open to claimants to specify a rate of 8% accruing after the end of the relevant period as was the case in Calonne.
  4. In the absence of any specified rate, the special account rate is likely to apply.

Percentage Offers – a wrong turn on Part 36?

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

Introduction

This article considers the judgment in Mundy v TUI UK Ltd [2023] EWHC 385 (Ch); [2023] Costs LR 153 in light of the subsequent decision Chapman v Mid and South Essex NHS Foundation Trust (Re Costs) [2023] EWHC 1871 (KB).

In Mundy Collins Rice J held therein that it was not possible within Part 36 to make an offer to settle liability on a percentage basis (90%/10% in this case) with the effect that the claimant could not obtain the benefits provided by CPR 36.17 when he established liability in full.

Such offers are very commonplace. If the judge’s reasoning is correct it will have widespread implications. However, this article will respectfully suggest that the reasoning is not correct.

Mundy – the facts and the judgement at first instance

The claimant brought a claim for food poisoning suffered whilst on a holiday. Liability was always disputed, and contributory negligence pleaded.

The claimant made two Part 36 offers; one to accept £20,000 in full and final settlement, and another to settle liability on the basis of a 90/10 apportionment in his favour (“the percentage offer”). The defendant made a Part 36 offer of £4,000. At trial the claimant established liability in full but only recovered c. £3,800.

HHJ Parkes KC held that the claimant was entitled to his costs up to the expiry of the defendant’s offer, and the defendant entitled to his costs thereafter.

The claimant appealed, arguing that because he had achieved a judgment more advantageous than the percentage offer, he should be entitled to all his costs from the expiry of the relevant period on the indemnity basis.

Mundy – the Judge’s Reasoning on Appeal

The appeal was dismissed. Collins Rice J’s key reasons were as follows:

  1. The claimant’s interpretation created the problematic prospect of both a claimant’s and defendant’s offer being simultaneously effective [32].
  2. By CPR 36.2(3) a Part 36 offer may be made in respect of the whole, or part of, or any issue that arises in a claim. In a claim for money where there is no prospect of a liability split, liability as such is not obviously a distinct or severable “part” or “issue” capable of being given a monetary value. “Liability” within the context of a percentage offer is thus not something which is capable of being the subject matter of a Part 36 offer [37].
  3. In a money claim, CPR 36.17 is concerned with comparing rejected quantified money settlement offers to the judgment entered. A percentage offer does not fit within that mechanism [39-40].
  4. As a matter of policy, it was contrary both to the letter and spirt of the rules for the claimant to gain the benefit of the percentage offer [41].

Chapman

Chapman was a clinical negligence claim. Hill J heard liability as a preliminary issue. The claim succeeded. The defendant’s allegations of contributory negligence were dismissed.

The claimant made a Part 36 offer tin the following terms “an offer to settle the liability and causation issues in this action for 90% of damages assessed on a 100% liability basis, that is with a deduction of 10% from the full value of the claim”. In other words, a 90/10 percentage offer as per Mundy.

The defendant argued that this was not effective, relying upon Mundy. The judge rejected this in the following terms (emphasis added):

  1. However, the factual context of Mundy is important. This was that the Claimant had made two separate Part 36 offers (one based on a 90/10 liability split and one to accept £20,000 pounds in settlement of the claim) and the Defendant had made a Part 36 offer of £4000 in full settlement. The Claimant was ultimately awarded £3,805.60 but nevertheless argued that the judgment was at least as advantageous to him as the proposals in his 90/10 offer: [1] and [6]-[8]. At [32], Collins Rice J identified a “particular difficulty” with the Claimant’s position, namely that it seemed to:

“…cut across the binary structure of CPR 36.17(1) by contemplating a situation in which the answer to both limbs could be “yes”: A claimant can have failed to beat a defendant’s money offer, but still have beaten or equalled his own liability offer. That raises the problematic prospect of subsections (3) and (4) both applying in circumstances where it is far from obvious that this is in the contemplation of the rule at all”.

  1. While Collins Rice J did discuss 90/10 liability offers in general terms at [36]-[42], I do not understand her judgment as purporting to hold that Part 36 consequences cannot flow from such offers made in different factual circumstances from those before her, and any such finding would be obiter in any event. Collins Rice J’s analysis was based on the difficulty of comparing monetary offers with liability offers of this kind. While such a difficulty may arise in claims such as Mundy where liability and quantum issues are tried together and both liability and monetary offers have been made, the analysis does not apply in this case given that a split liability trial had been ordered and the only substantive offer made by either party was the Claimant’s 90/10 liability split offer.
  2. Further, in Mundy at [36], Collins Rice J appeared to acknowledge that a 90/10 liability offer could be effective in cases where there was a “genuine question of issues-based liability”. There was, until judgment, a genuine prospect of a finding on split liability as between the parties in this case. I did not find that the contributory negligence argument in relation to the Dr Bopitiya claim was one that did not have “the slightest prospect of success” as in Mundy at [11] …
  3. In any event, Mundy is distinguishable from this case because the manner in which the Claimant’s 90/10 offer applied to the causation issue had been made clear in correspondence and was reflected in the liability judgment.
  4. For these reasons I do not accept that the reasoning in Mundy is applicable here. In my judgment the Claimant’s 22 December 2022 offer was a valid one for Part 36 purposes.

Hill J therefore did not have to decide whether or not Mundy was correctly decided (although some polite scepticism as to the correctness of Mundy is perhaps detectable). Nevertheless, she readily distinguished it, coming close to suggesting that it should largely be confined to its own facts.

Comment

There can be little doubt that the result in Mundy was correct. The claimant having recovered less than the defendant’s Part 36 offer, as a matter of basic fairness and common sense it is clear that he should pay the defendant’s costs from the date of expiry. Leaving aside the technicalities, the bottom line is that the claimant should have accepted the defendant’s offer and the costs thereafter flowed from his not doing so. It is entirely unsurprising that the court found the result contended for by the claimant “counter-intuitive, if not to a degree baffling” [49].

However, there are numerous difficulties with the reasoning by which the judge came to this result.

  • Firstly, the reasoning is questionable as a matter of principled analysis. It might well be said that, by reference to the plain language of CPR 36.2(3), liability was indeed an issue that arose within the claim (it was something the parties contested) and that as a matter of basic logic a judgment for 100% liability is at least as advantageous as a proposal for 90% liability so as to satisfy CPR 36.17(1)(b).
  • Even more basically, on any view, a percentage offer is precisely that; an offer. It is an invitation to compromise the disputed issue. It is difficult to see why the concept of an offer should be construed any more restrictively (indeed artificially so) for the purposes of Part 36.
  • It may be added that the possibility of a claimant’s and defendant’s offer being simultaneously effective is inherent in the rules. CPR 36.2(3) provides that offers can be made in relation to the whole claim, part of it or any issue within it. Given the infinite variety of issues that can arise in a claim (many of them not monetary) this inevitably envisages and permits the scenario of cross-offers being effective.
  • Secondly, the reasoning sits uneasily with other authority confirming that a percentage offer is an effective offer for the purposes of Part 36 providing that it contains some genuine and meaningful element of concession/consideration.
  • In Huck v Robson [2002] EWCA Civ 398 [2003] 1 W.L.R. 1340 an offer of 95/5 was held to be effective. Overturing the first instance below that it would be unjust for the claimant to benefit from the offer because liability would never have been apportioned 95/5, Tuckey LJ said this at [70]:
  • I do not think that the court is required to measure the offer against the likely outcome in a case such as this. In this type of litigation a Claimant with a strong case will often be prepared to accept a discount from the full value of the claim to reflect the uncertainties of litigation. Such offers are not usually based on the likely apportionment of liability but merely reflect the reality that most claimants prefer certainty to the ordeal of a trial and uncertainty about its outcome. If such a discount is offered and rejected there is nothing unjust in allowing the claimant to receive the incentives to which he or she is entitled under the Rules. On the contrary, I would say that this is a just result.
  • A 95/5 offer was likewise held to be effective under Part 36 Club Racecourse Ltd v Willmott Dixon Construction Ltd [2016] and [2019] 11 WLUK 247 and Astbury v Manchester Airport Holdings Ltd. See also JMX v Norfolk and Norwich Hospitals NHS Foundation Trust [2018] EWHC 185 (QB) wherein a 90/10 percentage offer was held to be effective.
  • Neither Huck not any of the cases following it were referred to by the judge in Mundy. (Chapman can now be added to this list).
  • Whilst the judge referred to Seabrook v Adam [2021] EWCA Civ 382; [2021] Costs LR 505 as an illustration of the difficulties of applying a 90/10 liability offer to issues of causation, that case tends to contradict rather than support her reasoning. The reason why the percentage offer in Seabrook was not effective was that the claimant only established liability in respect of one of the two injuries which formed the subject matter of the claim. It is implicit in the Court of Appeal’s analysis that if (as in Mundy) there had only been one injury and the defendant had been held liable in respect of it, the claimant’s offer would have been effective.
  • Thirdly, the judge’s reasoning would apply not only to somewhat token deductions such as that offered in Mundy but also to very substantial reductions reflecting significant litigation risks. For example, it is not uncommon in catastrophic peri-natal clinical negligence claims facing severe difficulties on breach and/or causation for a claimant to offer to accept, say, 40% of damages to be assessed. If that offer is rejected and the claimant goes on to establish liability in full, it is difficult to see why they should not obtain Part 36 benefits. Such a claimant would have offered an enormous discount which if accepted would have avoided significant expenditure of costs and court time. Part 36 offers function by placing the offeree costs at risk on costs; Matthews v Metal Improvements Co Inc [2007] EWCA Civ 215; [2007] C.P. Rep. 27 at [33]. It is difficult to identify any sound basis for disengaging that rationale in such circumstances.
  • Fourthly, it would appear to follow from the judge’s reasoning that a Part 36 percentage offer would be effective in a case where there was a prospect of a liability split i.e. where contributory negligence is in play. Indeed, it is impossible to see any sensible argument that a Part 36 offer in respect of contributory negligence would not be legitimate. However, further problems flow from this:
  • (a) It is very common, when both primary liability and contributory negligence are in issue, to make a percentage offer reflecting risks on both (e.g., if there was a 70% chance of establishing liability with a likely 50% reduction for contributory negligence a fair settlement value would be 35%). It will generally not be known what proportion of the offer relates to contributory negligence (which, following Mundy, is a proper subject matter for a Part 36 offer) and which relates to primary liability (which following Mundy is not). Even if this information were available, it is impossible to see how the “legitimate” element of the offer could be taken into account.
    (b) In this case, the defendant did in fact plead contributory negligence. However, HHJ Parkes KC disregarded this as he considered the plea to be hopeless. This leads to the surprising position that the defendant was better off having raised a hopeless contributory negligence case than it would have been had it raised a meritorious one (as the defendant did Chapman). It also appears to be directly contrary to Huck.
  • Fifthly, the characterisation of a percentage offer as not legitimate for the purposes of Part 36 runs contrary to established litigation practice. Such offers are routinely made and accepted. Settlements thereby agreed are routinely approved where court approval is required. The fact that the claimant’s position in Mundy was singularly unattractive is not a reason to downgrade an entire species of well-established offers.
  • Finally, it might be said that purposive and policy considerations point firmly in the other direction. Percentage offers are a valid means of compromising issues. Discouraging such compromises would not be consistent with the purposes of the overriding objective in general and Part 36 in particular. This is particularly so if one considers the not uncommon scenario of a preliminary trial on liability being ordered because damages will not be quantifiable for some time. A percentage offer might realistically be the only way to compromise such a trial. It is very difficult indeed to see why the rules should be construed so as discourage such offers.
  • Moreover, there was no need for the judge to adopt such a restrictive approach to what constitutes a valid Part 36 offer in order to achieve the correct and just result. It is suggested that the better route to this result would have been simply to hold that it was unjust (save possibly for the period between the claimant’s and the defendant’s offers) to award the claimant Part 36 benefits. This indeed is what HHJ Parkes KC held in the alternative.
  • This provides an answer to many of the concerns expressed by Collins Rice J. It was not an answer suggested by the claimant here, no doubt for the obvious reason that doing so would have, in effect, entailed inviting the appeal to be dismissed on an alternative basis. This is perhaps another reason (indeed possibly the real reason) why the analysis in Mundy is unsound.

Takeaway points

  1. The courts might well need little persuasion that Mundy can be distinguished in the vast majority of cases involving percentage offers. Hill J evidently took little such persuasion in Chapman and her reasoning provides strong support for the proposition that Mundy should largely be confined to its own facts.
  2. There is considerable scope for arguing that the reasoning in Mundy is wrong and should not be followed in those rare cases where it cannot be distinguished (albeit such an argument is of course not available in the county court).
  3. Parties should therefore not disregard the possibility of making a percentage offer, albeit unless and until there is clear authority overruling Mundy they may be faced with the argument that such an offer is not effective.

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

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

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

Background

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

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

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

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

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

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

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

Practical Takeaways

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

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

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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)?

Editor – Cressida Mawdesley-ThomasLeave a comment

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”.