Costs Litigation Blog

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

February 20, 2023February 20, 2023Editor – Cressida Mawdesley-ThomasLeave a comment

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

February 3, 2023Editor – Cressida Mawdesley-ThomasLeave a comment

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)?

January 3, 2023January 3, 2023Editor – 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”.

Contracting Out of Fixed Costs, or Not!

December 12, 2022Editor – Cressida Mawdesley-ThomasLeave a comment

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

October 31, 2022Editor – Cressida Mawdesley-ThomasLeave a comment

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:

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);
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;
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].
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].
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

July 4, 2022Editor – Cressida Mawdesley-ThomasLeave a comment

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).

Mathieu v Hinds: offers, conduct, reasonable attempts to settle and provisional damages

June 24, 2022Editor – Cressida Mawdesley-ThomasLeave a comment

This blog was written by Andrew Roy, Deputy Costs Judge & Head of 12KBW’s Costs Team. He was junior costs counsel for the Second Defendant in Mathieu.

The costs judgment in Mathieu v Hinds & Anor (No. 2: Costs) [2022] EWHC 1624 (QB) provides a salutary illustration of the exercise of judicial discretion where a Claimant achieves partial success in a substantial quantum claim. It is also the first reported judgment to consider the efficacy of a full and final offer where the Claimant obtains provisional damages.

The case

The Claimant, Mr Manuel Mathieu (then aged 29), suffered a traumatic brain injury in November 2015 when he was hit by a stolen moped, insured by the Second Defendant, who admitted liability.

At the time of the accident, Mr Mathieu was studying for a Masters’ degree in Fine Art at Goldsmiths College, London. Despite suffering a severe brain injury, by the date of trial, 6.5 years post-accident, he had gone on to enjoy a very successful international career as an artist. However, he claimed that ongoing headaches, fatigue and cognitive deficits resulted in a lifelong shortfall in his productivity, and he sued for £33,617,057.

Following a 10-day quantum trial Hill J, in a very detailed judgment ([2022] EWHC 924 (QB)), awarded the Claimant £3,178,741.64 (c. 9.5% of the total amount claimed) and provisional damages in respect of epilepsy. She dismissed a claim for provisional damages in respect of dementia.

The trial commenced on 8 February 2022. Prior to the trial, the parties had engaged in extensive attempts to settle the claim, including at a joint settlement meeting and a mediation. They also made the following offers:

On 19 October 2018 the Claimant made a Part 36 offer in the sum of £235,000 (which was more than his Schedule totalled at that time). This was withdrawn on 3 October 2019.
On 13 December 2021 the Claimant made Calderbank offers of (i) £10,950,000 excluding any award for provisional damages claims in relation to epilepsy and dementia; and (ii) £17,050,000 including the provisional damages claims. Both offers were open until 20 December 2021 and were then automatically withdrawn.
On 11 January 2022 the Second Defendant made (i) a Part 36 offer of £3,125,000; and (ii) a Calderbank offer of £3,550,000. Both were said to be in full and final settlement of all the Claimant’s claims. The latter offer was open until 18 January 2022 and was then automatically withdrawn.
On 13 and 19 January 2022 the Claimant made further Calderbank offers of £8,050,000 and £7,250,000, including his provisional damages claims. These offers were open until, respectively, 19 and 26 January 2022, and then automatically withdrawn.
On Saturday 5 February 2022, with the trial due to start on Tuesday 8 February 2022, the Second Defendant made a further Calderbank offer of £4,000,000.

The Costs Judgment

The Claimant contended that he should recover all his costs and a large payment on account.

The Second Defendant’s primary position was (1) up to 31 January 2022, the Claimant should recover 50% of his costs to reflect his partial success, exaggeration and conduct; and (2) from 1 February 2022, the Claimant should pay the Second Defendant’s costs. The Second Defendant accordingly contended for a much more limited payment on account.

The judge held that the Claimant’s costs recovery should be limited to 85% up 31 January 2022 and 40% thereafter (i.e. she ordered reductions of 15% and 60% respectively).

Her reasons, in summary, were as follows:

(1) In respect of costs up to 31 January 2022, the Second Defendant’s success on the dementia issue warranted a 15% reduction, notwithstanding that it had been reasonable for the Claimant to pursue this:
(a) It was a discrete issue, and a highly significant one which generated significant costs.
(b) It was also a real sticking point for settlement.
(c) Moreover, the Claimant had been unreasonable:
i. In his valuation of the dementia claim for the purposes of settlement.
ii. In claiming immediate damages for dementia of £4,921,873, only to summarily abandon this at the start of trial.
(2) In respect of costs from 1 February 2022, a 60% reduction was warranted to reflect the following:
(a) The Claimant had failed to beat the Second Defendant’s Calderbank offer of £3,550,000:
i. Although that offer did not include provisional damages for epilepsy, the £371,258.36 by which it exceeded the full and final damages obtained more than accommodated this.
ii. For the Claimant to have bettered the Second Defendant’s offer in financial terms the damages generated by uncontrolled epilepsy would have to in the region of £371,258.36 x 100/2.2 = c. £16,875,000. That was not realistic.
iii. Coward v Phaestos Ltd [2014] EWCA Civ 1256; [2014] 6 Costs LR 843 was distinguishable: in that case the offeree secured several very significant elements of non-financial relief. The Claimant’s claim here, by contrast, was purely for damages. His argument that the claim should not be considered purely in financial terms was rejected.
(b) The Claimant failed to beat the £4,000,000 Calderbank offer by an even greater margin.
(c) The points in respect of dementia which warranted a 15% reduction on the earlier period continued to apply in this later period.
(d) The Claimant’s pleaded case was unrealistic. He recovered less than 10% of the value of his pleaded claim, despite having succeeded on all the factual points underpinning the earnings claim.
(e) The Claimant’s offers were also unrealistically high.
(f) By contrast, the Second Defendant’s had taken a much more realistic approach.

The judge also rejected the Claimant’s submission that the payment on account should reflect the likelihood of a successful application to depart from the budget because (i) the budget only provided for a 5-day trial whereas the trial in fact took 9 days of evidence with further oral and written submissions thereafter; and (ii) the budget did not provide for a Pre-Trial Review (which the court eventually ordered) or a mediation which the parties had engaged in. She accepted the Second Defendant’s position that there were strong arguments to the effect that the additional costs incurred reflect a failure by the Claimant’s side to anticipate what were predictable litigation contingencies such that a departure from the budget should not be permitted.

The judge refused the Claimant’s application for permission to appeal.

Comment

Whilst much of this judgment concerns a fact and case specific exercise of discretion (albeit still an interesting and instructive one) several points of general interest emerge.

Perhaps the clearest message which emerges from the judgment is the need for realism both when formally advancing a claim and in negotiations. The judge was clearly unimpressed by the fact that the Claimant’s approach smacked of something of a try on. Conversely, the Second Defendant’s was credited for making realistic offers.

It is important to note a distinction here between advancing a valuation which may or may not be sustainable depending which way the evidence falls and advancing one which is unsustainable on any realistic view of the evidence. The criticism of the Claimant in Mathieu was not so much that he recovered much less than his pleaded case per se. That can happen without any criticism if, for example, a key expert does not come up to proof. That is the nature of litigation, and indeed the very point of having a trial. What clearly struck the judge was the fact that the damages awarded were only a fraction of those claimed despite the court taking a highly favourable view of the Claimant and his evidence. That was a very clear marker that that the claim was unrealistically inflated.

Mathieu also confirms that losing on a significant discrete issue is liable to carry adverse costs consequences, even absent any unreasonable conduct. This is, of course, not any type of novel point. However, it underlines that parties and their advisers should not proceed on an assumption that it will be “winner takes all” at the end of a case.

The novel point established by this judgment is that than an offer for full and final settlement can still bite even if a Claimant recovers provisional damages. Claimants should be alive to this.

However, defendants would be unwise to take this as a green light not to offer provisional damages in appropriate cases. If a claimant is likely to obtain provisional damages, a defendant should generally offer them. There are two reasons for this.

Firstly, not doing so is likely to stymie settlement. Parties and litigators should never lose sight of the fact that the primary purpose of an offer is to achieve settlement rather than tee up later costs arguments.
Secondly, the costs protection a defendant will derive from a full and final offer in provisional damages cases is very uncertain. Whilst in Mathieu it was readily demonstrable that the Claimant had failed to better the offer even once the value of provisional damages was taken into account, in other cases it might not be. Moreover, the offer in Mathieu only achieved partial costs protection. By far the best form of protection is such a case remains a Part 36 offer which includes provisional damages.

Finally, Mathieu confirms the cautious approach applied in respect of costs on account. The court is very unlikely to credit costs beyond those budgeted for the purposes of such a payment.

Takeaway Practice Points

Parties should be realistic as to how they advance their cases both formally and in negotiations.
Losing on a significant discrete issue is liable to carry adverse costs consequences even if it was reasonable to pursue the issue in question.
Claimants should not assume that obtaining provisional damages will automatically inure them from the costs consequences of an offer for full and final damages.
However, defendants would still be well advised to offer provisional damages in cases where the claimant is likely to obtain these.
The court is very unlikely to credit costs beyond those budgeted for the purposes of a payment on account.

Costly Solicitor Own Client Costs Assessments

June 1, 2022Editor – Cressida Mawdesley-ThomasLeave a comment

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

Background

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

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

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

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

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

What did the court decide?

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

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

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

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

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

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

Illegal Insurance Contract?

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

Security for Costs & Champerty

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

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

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

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

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

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

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

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

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

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

Practice Points

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

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

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

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

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

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

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

May 18, 2022Editor – Cressida Mawdesley-ThomasLeave a comment

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

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

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

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

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

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

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

The Proposed Changes

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

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

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

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

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

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

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

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

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

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

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

Practical Takeaways

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

The new Guideline Hourly Rates in the Court of Appeal

April 20, 2022Editor – Cressida Mawdesley-ThomasLeave a comment

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

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

The case

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

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

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

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

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

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

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

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

LG has not attempted to justify its solicitors charging at rates substantially in excess of the guideline rates. It observes merely “that its hourly rates are above the guideline rates, but that is almost always the case in competition litigation”.
I regard that as no justification at all. If a rate in excess of the guideline rate is to be charged to the paying party, a clear and compelling justification must be provided. It is not enough to say that the case is a commercial case, or a competition case, or that it has an international element, unless there is something about these factors in the case in question which justifies exceeding the guideline rate.
There is nothing in the present appeal to justify doing so. This was a one-day appeal, where the only issue was the appropriate forum for the trial, the documentation was not heavy, and the amount claimed (£900,000) was modest by the standards of commercial cases. (Emphasis added).

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

Analysis

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

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

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

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

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

In light of this and other related factors it:

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

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

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

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

That said, there are arguments available to distinguish Samsung.

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

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

Takeaway Practice Points

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