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 17^th 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 17^th October 2019 (despite being signed by the Claimant on 3^rd 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 16^th September 2016 BL Claims Solicitors were instructed under a CFA.  Despite serving a letter of claim on 14^th February 2017 the case failed to settle and Hudgell Solicitors were then instructed on 22^nd June 2017, also under a CFA. Again no settlement was reached.

On 17^th 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 10^th September 2019, denied liability and sought to terminate the limitation moratorium.  When BBK received the file of papers on 1^st October 2019 they secured an extension of limitation from the Defendant and subsequently issued proceedings.

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

Despite denying liability the Defendant made, on 10^th 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 16^th 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 4^th 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 2^nd March 2021.  This was adjourned part heard and on 8^th and 9^th September 2021 Costs Judge Brown ruled in principle on the retainer and indemnity principle points.

On 6^th October 2021 the Defendant offered £35,000 in a full and final drop hands settlement which was not accepted and on 28^th 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 17^th June 2019 to 17^th October 2019 which Costs Judge Brown had disallowed as the CFA was not entered into until 17^th October 2019.

Therefore at the hearing on 29^th 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 17^th June 2019 until 3^rd October 2019, and the issue was when the CFA came into effect: the 3^rd October when signed by the Claimant or 17^th 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 3^rd October 2019 or 17^th October 2019?

Costs Judge Brown had concluded that the CFA had not become legally binding until it was signed by both parties on 17^th 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 27^th 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 21^st June and HHJ Stacey found that it was wrong for Costs Judge Brown to conclude that there was no general retainer from 21^st 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 6^th 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”.