Detailed Assessment – Costs Litigation Blog

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

April 13, 2023Editor – Cressida Mawdesley-ThomasLeave a comment

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

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

Background

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

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

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

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

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

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

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

Practical Takeaways

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

The Pitfalls of Medway Oil

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

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

Introduction

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

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

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

Facts

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

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

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

The Costs Proceedings

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

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

The Judgment

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

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

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

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

Practice Points

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

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

Assessing Liability Costs when Quantum is ongoing

January 26, 2022January 26, 2022Editor – Cressida Mawdesley-ThomasLeave a comment

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

ABA v University Hospitals Coventry and Warwickshire NHS Trust [2022] EWHC B4 (Costs) concerned a single simple question; is a claimant, who wins a preliminary issue trial on liability and obtains a ‘vanilla’ order for liability costs, entitled to have those costs assessed before quantum has been determined?

Costs Judge Leonard held that the answer to this was a clear no. However, he also highlighted that this is not necessarily unadulterated good news for defendants.

The Case

This was a claim for clinical negligence. Liability and causation were tried as preliminary issues in January 2021. The claimant won.

As result the claimant obtained an order that “the Defendant do pay the Claimant’s costs of and incidental to the issue of liability on the standard basis such costs to be the subject of a detailed assessment, if not agreed”.

This might be described a standard vanilla order. It is evidence that the claimant did not seek an order permitting immediate assessment of these costs, commonly known as a “forthwith order”.

The quantum trial was set down for between February and May 2023. In the meantime, the claimant commenced detailed assessment proceedings in respect of the costs from the preliminary trial on liability. The defendant argued that there was no jurisdiction to assesses these before the conclusion of the claim in its entirety (i.e., until quantum was agreed or determined).

The Judgment

The judge identified the starting point as CPR 47.1. This provides:

The general rule is that the costs of any proceedings or any part of the proceedings are not to be assessed by the detailed procedure until the conclusion of the proceedings, but the court may order them to be assessed immediately.

(Practice Direction 47 gives further guidance about when proceedings are concluded for the purpose of this rule.)

PD 47 provides:

1.1 For the purposes of rule 47.1, proceedings are concluded when the court has finally determined the matters in issue in the claim, whether or not there is an appeal, or made an award of provisional damages under Part 41.
1.2 The court may order or the parties may agree in writing that, although the proceedings are continuing, they will nevertheless be treated as concluded.
1.3 A party who is served with a notice of commencement (see paragraph 5.2 below) may apply to a costs judge or a District Judge to determine whether the party who served it is entitled to commence detailed assessment proceedings. On hearing such an application the orders which the court may make include: an order allowing the detailed assessment proceedings to continue, or an order setting aside the notice of commencement.
1.4 A costs judge or a District Judge may make an order allowing detailed assessment proceedings to be commenced where there is no realistic prospect of the claim continuing.

The claimant argued that the order following the conclusion of the preliminary issue trial was a final order determining the matters in issue in the claim, thus entitling him to seek assessment.

The judge had little difficulty rejecting this. He found that the authorities; Industrie Chimiche Italia Centrale & Anor v Alexandra G. Tsavliris Maritime Co. & Ors [1992] 7 WLUK 182, Bottin (International) Investments Ltd v (Venson Group Plc & Ors [2005] EWHC 90005 (Costs), Crystal Decisions (UK) Ltd v Vedatech Corporation [2007] EWHC 1062 (Ch) and Khaira & Ors v Shergill & Ors [2017] EWCA Civ 1687; [2018] 3 All ER 44, were conclusively against it.

He further observed that the claimant’s arguments were flawed as a matter of plain construction. The claimant had been pursuing one personal injury claim, not two different ones. In a personal injury claim breach of duty, causation and the quantification of damages are all essential elements. The order of 21 January 2021 determined some of the matters in issue in this claim, but not all of them.

This is clearly correct. The claimant’s arguments were irreconcilable with (a) the plain wording of the rules; (b) authority; and (c) long established practice.

However, the judge concluded at [49] with the following highly pertinent observation:

I will only say, with apologies for perhaps stating the obvious, that the default position being that interest will accrue upon the Claimant’s unpaid liability costs at 8% per annum, it might be to the parties’ mutual advantage to use the work done to date in an effort to settle what would appear to be a substantial claim for costs.

With apologies for stating the even more obvious, interest accruing at a non-discretionary rate of 8% (Simcoe v Jacuzzi UK Group PLC [2012] EWCA Civ 137; [2012] 1 W.L.R. 2393) is likely to add significantly to a defendant’s overall outlay. In circumstances where a defendant has successfully resisted immediate assessment it would be difficult to say there is any basis for curtailing the period of interest.

Thus, taking ABA as an example, the following scenario is entirely plausible: (a) quantum trial in April 2023; (b) judgment in July 2023; (c) assessment proceedings commence in October 2023; (d) assessment proceedings concluded in October 2024. On that basis interest on the liability would run for 3.75 years from January 2021, adding an eye-watering 30%.

Takeaway Practice Points

Claimants who wish to obtain immediate assessment of their costs should seek, where appropriate, either (a) a summary assessment; or (b) an order for detailed assessment forthwith;
Failing that, they should seek a substantial payment on account of costs.
Given the punitive rate at which interest runs on outstanding unassessed costs, defendants should give serious consideration to agreeing (or indeed themselves seeking) a forthwith order or failing that a substantial payment on account.
These points are not limited to costs following a preliminary issue trial (be it of liability, limitation etc.). They apply whenever the court makes or is considering making an order for detailed assessment before the conclusion of the claim (e.g. following an interim application).