COSTS PAID BY A THIRD PARTY – BREACH OF THE INDEMNITY PRINCIPLE?

The case of HMRC -v- Gardiner and Others [2018] EWHC 1716 (QB) is a case concerning an alleged breach of the indemnity principle.

Background

The Respondents were amongst several tax payers challenging penalties imposed by HMRC for incorrect tax returns. EDF Tax Defence Ltd (“EDF”) were the tax advisors.

The Respondents were successful and HMRC were ordered to pay their costs.

Costs proceedings

EDF were at the forefront of the work carried out in the matter. Counsel was instructed to represent the Respondents and the fees were paid by EDF. HMRC therefore alleged a breach of the indemnity principle on the basis that the Respondents had not paid Counsel’s fees and that there was no direct retainer in place between the Respondents and Counsel.

The argument failed and the key points to note are as follows:

  1. There was never an agreement that the Respondent would not be liable for Counsel’s fees (see paragraph 30 of the Judgment – “The presumption that a client instructing a solicitor or representative to represent them will be liable for costs incurred for such representative may be rebutted by the paying party proving that there was a bargain between the client and the representative that under no circumstances was the client to be liable for costs”).
  2. Counsel represented the Respondents at the hearing, not EDF.
  3. The arrangement was no different to a trade union funding arrangement.
  4. The key for the indemnity principle is a liability to pay and not payment/discharge of the liability (see paragraph 30 of the Judgment – “It is liability to pay rather than who makes payment which is material”).

Had evidence been produced that the Respondents would never have been liable for Counsel’s fees, then the Court would have reached an alternative conclusion. This is therefore a useful case to rely on for parties seeking costs which have been met by a third party, but are facing indemnity principle challenges from a paying party.

This blog was prepared by Andrew McAulay who is a Partner at Clarion and the Head of the Costs Litigation Funding Team. Andrew can be contacted at andrew.mcaulay@clarionsolicitors.com
or on 0113 336 3334 or on 07764 501252.

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Proportionality – a flurry of cases

Proportionality is a hot topic in the legal costs world at the moment and in the last 4 months there has been a flurry of cases from the Senior Courts Costs Office and the High Court. The cases are as follows:

Marcura & DA-Desk FZ-LLC -v- Nisomar Ventures Limited & Claus Hyldager.

Various Claimants -v- MGN Ltd [2018]

Arjomandkhah -v- Nasrouallahi [2018]

Powell & others -v- The Chief Constable of West Midlands Police [2018]

The outcomes in each of these cases are of course case specific. Every case is different, and therefore in practice, this is what makes the application of the new test of proportionality difficult to predict.

It is now fundamentally important for all litigators and costs lawyers to have a sound knowledge of CPR 44.3 (5):

Costs incurred are proportionate if they bear a reasonable relationship to –

(a) the sums in issue in the proceedings;

(b) the value of any non-monetary relief in issue in the proceedings;

(c) the complexity of the litigation;

(d) any additional work generated by the conduct of the paying party; and

(e) any wider factors involved in the proceedings, such as reputation or public importance.

Lawyers should be able to link case facts/details to the above factors and articulate those facts to a Judge at a CCMC, summary assessment or to a Costs Judge on detailed assessment (or provisional assessment).

A really important point is that value shouldn’t be given superior status, as shown in the cases of Various Claimants -v- MGN Ltd [2018] and Marcura & DA-Desk FZ-LLC -v- Nisomar Ventures Limited & Claus Hyldager (costs can be higher than damages). However, in practice, Judge’s are often tactically led by Defendants to place a greater weight on value. It is therefore important for Claimants to be alive to this and ensure the Judge gives equal consideration to each factor in CPR 44.5 (3) and to encourage the Judge to adopt a ‘holistic’ approach (May & May -v- Wavell Group & Dr Bizzari [2018]) when applying the new test of proportionality.

The ’May’ case is the only case to date to give some real judicial guidance in relation to the test and how it should be applied. The decision in that case was appealed, but last week permission to appeal was refused by the Court of Appeal. Many legal experts expected the ‘May’ Appeal to provide the Court of Appeal with the chance to issue some clarity and guidance on the test – they will now have to wait a bit longer.

The area of proportionality is starting to develop and we will see many more decisions in 2018, with some appearing harsh and some lenient. The application of the test involves a large degree of judicial discretion and therefore practitioners should not expect a great deal of consistency. If certainty is what practitioners want then fixed costs is the remedy, which is of course not an attractive alternative!

This blog was prepared by Andrew McAulay who is a Partner at Clarion and the Head of the Costs and Litigation Funding team. He can be contacted on 0113 336 3334 or at andrew.mcaulay@clarionsolicitors.com

 

Make sure your costs budgets, statements of costs and bills of costs are prepared correctly!

The Court of Appeal recently handed down Judgment (Gempride -v- Jagrit Bamrah and Lawlords of London Limited [2018]) in a case which involved alleged misconduct in detailed assessment proceedings.

The underlying claim related to a claim by Ms Bamrah against Gempride for personal injuries. The claim settled by way of CPR 36 on 18 March 2013 for £50,000.00. Ms Bamrah initially dealt with the claim through her own law firm (Falcon Legal) before the claim was transferred to David Stinson & Co.

The case dates back to 2014 where Master Leonard in the Senior Courts Costs Office struck out Part 1 of the Claimant’s bill of costs (insofar as the costs exceeded the fixed hourly rate recoverable by litigants-in-person) due to mis-certification, on the basis that:

  1. the bill contained incorrect hourly rates; and
  2. mis-leading information in relation to Before-the-Event (BTE) insurance was provided in the Replies to Points of Dispute.

The Claimant successfully appealed that decision before His Honour Judge Mitchell in the Central London County Court. One of the most notable reasons for the reversal of the decision was that the judge found that the Claimant was not responsible for the acts and omissions of the costs consultants that were instructed (Lawlords of London Limited).

The Defendant (Gempride) appealed and was successful before the Court of Appeal. In respect of the instruction of Lawlords of London Limited, and the very important point about a Solicitor not being responsible for the acts of omissions of an agent, Lord Justice Hickinbottom said:

At a time when new business practices mean that solicitors are more frequently subcontracting work out to the unauthorised, it seems to me to be an important matter of principle that solicitors on the record – and other authorised litigators and ‘legal representatives’ for the purposes of the CPR – understand that they remain ultimately responsible for the acts and omissions of those to whom they delegate parts of the conduct of litigation, particularly where those to whom such work is delegated are not authorised… it is only in that way that the supervisory jurisdiction of the court can be effectively maintained…”

“The reverse side of that coin is that, because the solicitor has responsibility for the conduct of those to whom he subcontracts work for which he as a solicitor has been retained, then he is able to charge for that work at an appropriate rate as profit costs (together with any success fee uplift under a CFA) and not simply as a disbursement.”

In respect of the bill of costs the Court of Appeal felt that there should be a penalty for the mis-certification, but that Master Leonard’s penalty was too severe; they disallowed 50% of Part 1 of the bill of costs. The Court did emphasise that the Claimant’s conduct in attempting to claim hourly rates which exceeded those in the retainer was not, in its judgment, dishonest. However, it found that on the best interpretation the Claimant had believed that as she was essentially acting for herself (albeit under the umbrella of Falcon Legal) and was entitled to modify the retainer “at will”, that this was fundamentally wrong, and that such conduct was “unreasonable or improper” to a level that could justify a sanction.

This is a very important decision for Solicitors who instruct costs lawyers and other costs professionals. It is fundamentally important that costs budgets, statements of costs and bills of costs are prepared correctly and the hourly rates claimed do not breach the indemnity principle – the Solicitor has the overall responsibility to make sure the costs document is correct as they certify it. It is also important to make sure that information in Points of Dispute and Replies to Points of Dispute is accurate. Failure to do so can result in costs penalties, but more importantly, allegations of misconduct and associated legal reporting which would be damaging for any law firms’ or legal costs firms’ reputation.

This blog was prepared by Andrew McAulay, who is a Partner and the Head of the Costs & Litigation Funding team at Clarion. Andrew can be contacted on 0113 336 3334 or at andrew.McAulay@clarionsolicitors.com.

 

INDEMNITY COSTS FOLLOWING DISCONTINUANCE OF PROCEEDINGS

CPR 38.3 provides that a Claimant may discontinue a claim by filing and serving a Notice of Discontinuance on the other parties. Under CPR 38.6(1) it states the following:

“Unless the court orders otherwise, a Claimant who discontinues is liable for the costs which a Defendant against whom the Claimant discontinues incurred on or before the date on which the Notice of Discontinuance was served…”.

Under CPR 44.9(1), such an order is a deemed order for costs and the basis of assessment is the standard basis.

The case of Two Right Feet Limited (in liquidation) -v- National Westminster Bank PLC and others is a case where the Claimant discontinued proceedings against the Defendants and the Defendants made an application for costs to be awarded on the indemnity basis due to the following issues:

  1. failure to engage pre-action;
  2. improper and unjustified allegations;
  3. an exaggerated claim;
  4. a case which was speculative (both in facts and law);
  5. a claim which was brought without proper investigation;
  6. concerns as to the approach to disclosure; and
  7. delayed discontinuance, other delays and more minor points.

Background

On 3 March 2015, the Claimant commenced proceedings against the Defendants.  In the claim form, the Claimant alleged that the Defendants were liable for deceit and conspiracy.  The claim was first notified to the First and Second Defendants on 9 June 2015 and the claim form was served on 3 July 2015. The amounts claimed amounted to £20 million. The claims were strenuously denied by the Defendants.  On 7 October 2016 there was a case management conference where directions were set and the case was transferred into the Mercantile Court.  Disclosure followed in January 2017, but on 22 February 2017 the Claimant discontinued its claim. 

Indemnity Basis Costs Order

The Judgment provides very useful information for any party considering an application for an indemnity basis costs order as it cites the leading authorities (paragraph 36 is very useful to read in this regard).

The Judge concluded that an order for indemnity costs was appropriate and determined that the way in which the case had been advanced by the Claimant (and conducted) carried the case out of the norm, which is of course an important consideration for any court when deciding whether to award indemnity costs.

The case also highlights the importance of the receiving party (Defendants in this case) making an application. Notice of Discontinuance creates a deemed order for costs on the standard basis. Should a receiving party feel that they are entitled to indemnity basis costs then they should seek agreement with the paying party (Claimant in this case) or make an application to Court. A receiving party should not leave the matter for detailed assessment – the detailed assessment hearing is a forum to determine the quantum of costs, not to determine the basis of assessment.

This blog was prepared by Andrew McAulay who is a Partner at Clarion and the Head of the Costs and Litigation Funding team.  He can be contacted on 0113 336 3334 or at andrew.mcaulay@clarionsolicitors.com

 

Make sure you prepare a Risk Assessment!

The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) was a piece of legislation which introduced a number of very important changes to civil litigation costs and funding.

One of those changes was the abolition of the recovery of additional liabilities inter partes for retainers created on or after 1 April 2013 (save for some limited exemptions). This meant that additional liabilities were to be paid by clients, and on personal injury matters, it was foreseen (and currently happens in practice) that they would be deducted from the client’s damages. Additional liabilities are therefore now a solicitor/own client expense.

The case of Herbert -v- HH Law Limited is a case that any law firm conducting personal injury litigation (and deducting additional liabilities from clients’ damages) should read. The case relates to an Appeal by the Defendant Solicitors (“HH”) of decisions made by District Judge Bellamy at Sheffield County Court in April and June 2017. The decisions on Appeal were:

  1. The reduction of a success fee from 100% to 15%;
  2. Approval of a cash account in terms which treated the payment of an ATE Insurance Premium as a solicitor’s disbursement; and
  3. Ordering HH to pay the costs of the assessment and refusing to inquire further into HH’s contention that the retainer of the Claimant’s new solicitors (JG Solicitors Limited) was illegal and/or unenforceable.

The appeal was heard on 21 March 2018 before Mr Justice Soole at Sheffield High Court, where he dismissed all 3 grounds.

Key Points

  1. A Risk Assessment should always be prepared in respect of any Conditional Fee Agreement. The LASPO reforms have not resulted in risk assessments no longer being required (a point unsuccessfully argued by HH). A Risk Assessment is a very important document that goes to the heart of the calculation of the success fee. It is a key document for the Court to consider in any solicitor/own client dispute over the level of a success fee charged. It is important that law firms do not take a ‘blanket’ approach to success fees. Law firms should calculate success fees individually on each case, taking into account the specific facts and risks.

    In this case, the success fee was claimed at 100%, but by virtue of the LASPO reforms was subject to a maximum cap of 25% of the total amount of general damages for pain, suffering, loss of amenity and damages for past financial loss. The Appeal Judge endorsed the success fee allowed by District Judge Bellamy, which was based on the findings that the facts of the case were straightforward, the nature of the injury was minor soft tissue damage and whiplash, there was no time off work and it was likely that the case would be settled for a modest amount in a short period of time.

    The Appeal Judge stated: 

    in the circumstances of this particular case, allowing for the fact that the modest disbursements were funded by the solicitors for a fairly short period, the appropriate success fee was 15%……”.

    This case therefore represents a useful guide as to what the success fee should be on straightforward and low value personal injury work.

  2. An ATE insurance premium should be treated as a solicitor’s disbursement and should therefore be included in any final invoice to a client and in any solicitor/own client bill/breakdown of costs.

    In this case, the Defendant did not treat the ATE premium accordingly and therefore failed to properly include it within the final invoice. The result of this was that when District Judge Bellamy considered and approved the cash account, it left a balance of £349.00, which was ordered to be refunded to the Claimant (despite the Defendant actually paying the sum to the insurer!).

The Appeal Judge said the following:

“if the solicitor fails to include the item in the delivered bill of costs, he has to bear the consequence; subject to an application for leave to withdraw the bill and deliver a fresh bill”.

Summary

It is therefore very important for any firms which conduct litigation work under Conditional Fee Agreements (with the support of ATE insurance) to ensure that Risk Assessments are properly prepared for each case and that ATE insurance premiums are included in final invoices to clients.

This blog was prepared by Andrew McAulay, who is a Partner and the Head of the Costs and Litigation Funding Team at Clarion. He can be contacted on 0113 336 3334 or at andrew.mcaulay@clarionsolicitors.com.

GET YOUR ORDERS RIGHT!

The case of Tibbles v SIG PLC [2012], dealt with issues of allocation and ‘prompt recourse’ which directly affected the Claimant’s costs recovery.

The Court originally allocated the matter to the small claims track, which the Claimant’s solicitor disputed and the matter was successfully reallocated to the fast track.  The Claimant was successful at Trial and was awarded costs ‘on the standard basis to be subject to detailed assessment, if not agreed’.  The Claimant subsequently prepared a bill of costs and commenced detailed assessment proceedings. The Defendant argued that the Claimant was only entitled to small claims track costs whilst the matter was within the remit of the small claims track and entitled to fast track costs post allocation to that track.

Within the detailed assessment proceedings, the Claimant made an application to seek an order under CPR 3.1(7) or CPR 40.12, to vary the order and reallocate the entire matter to the fast track.  The District Judge varied the order accordingly.  The Defendant successfully appealed that decision and the Claimant therefore appealed to the Court of Appeal.

The Court of Appeal upheld the decision.  In essence, it held that the Claimant should have applied more promptly to vary the order and amending the order would be unfair on the Defendant who had relied on it.

What was interesting in the Judgment was what Rix LJ said at paragraph 48:

“There is nothing in civil procedure about which solicitors can justifiably be expected to know as much, as matters of costs”.

Whilst the above case relates to a procedural issue, it does feed into a topic which we (as a legal costs team at Clarion) regularly encounter difficulties; orders not being prepared properly or failing to include basic, but salient points.

Here are some basic costs related points that litigators should always think about when preparing consent orders, tomlin orders or any costs settlement agreement:

  1. Pursuant to the above case, think about any track issues.  If you do have a case which flips between tracks, then deal with the matter immediately upon reallocation to the higher track. If you fail to do so then maybe not all is lost because you could word the order for costs as follows:
  2. “The Defendant do pay the Claimants costs (based on fast track costs for the entirety of the case) on the standard basis to be subject to detailed assessment, if not agreed”.
  3. Always use the words incidental or occasioned by.  For example, “the Defendant do pay the Claimant’s costs of and incidental to the Claimant’s application for specific disclosure to be subject to detailed assessment on the standard basis, if not agreed”.  The words incidental or occasioned by are very powerful and can in most circumstances broaden the remit of the costs agreement.
  4. Think about payments on account.  Most matters are now budgeted and in light of the decision in ‘Harrison’ payments on account should always be sought.  It is much better to receive money sooner, rather than later.
  5. When dealing with the payment of money always make the date for payment clear. Don’t just include a date, include a time i.e. by 4:00 pm on xxxx date.  Also include the words ‘clear funds’.  It is much better to receive money which is cleared and immediately accessible rather than a cheque which can take 3-5 days to clear.
  6. Always ensure that the agreement to pay costs makes clear whether the assessment is on the standard or indemnity basis.  If the order is silent, then standard basis is the default.  You might be entitled to indemnity costs for a specific period, make it clear in the order or agreement.
  7. Always include the words “to be assessed, if not agreed”.  We have ran successful arguments (acting for the paying party) that an order for costs has not provided for an assessment and the Court therefore did not have the power under the order to hear the detailed assessment.
  8. Where the matter is subject to fixed costs, you should quantify the amount and include it in the order. Failure to do this can result in paying parties challenging the amount of fixed costs i.e. premature issue of proceedings or certain disbursements are unreasonable. It would be wise to agree the amount of fixed costs and define it in the settlement agreement to prevent such disputes occurring.
  9. In respect of interlocutory matters, ensure that the order provides for an “immediate” assessment. Failure to do so can create a technical argument that you do not have authority to commence detailed assessment proceedings until the claim has concluded (allowing the paying party to delay payment of the costs). An immediate assessment can create a significant tactical advantage.
  10. Think about counterclaim costs. It may be that the claim and counterclaim are both successful and therefore the case of Medway Oil and Storage Co Ltd v Continental Contractors Ltd [1929] needs to be considered.  However, it may be that you win your claim and successfully defend the counterclaim.  Make it very clear (in the order for costs) that the Claimant is entitled to both the costs of the claim and the costs of the counterclaim.  Again, lack of clarity could cause confusion and would result in arguments on detailed assessment.
  11. It is also worth making clear the position in relation to interest. The default position is 8% (see Judgments Act 1938).  However, we are increasingly seeing paying parties successfully reduce interest to a much lower rate given that the current Bank of England base rate is 0.5% (please see https://clarionlegalcosts.com/2017/06/20/interest-on-costs/). Therefore, it is advisable for the settlement agreement to state that interest is agreed and notably include a provision that interest is to be calculated at 8% from the date of the order for costs. This provides additional protection, therefore potentially preventing a paying party from attempting to argue a lower rate of interest (and a reduced time period) at a later stage.The inclusion of some of the points highlighted above will create a more robust order for costs and should result in a quicker and more economical compromise with the opponent.   What you do not want to do is work hard on a case, win it and then get bogged down in technical costs issues on detailed assessment which could have easily been avoided by a more clear and well drafted final order/agreement.
  12. The above are just some examples of difficulties that we have seen in the past.  There will probably be many more, and if you have any examples, then please feel free to share them through this blog.

This blog was prepared by Andrew McAulay who is a Partner at Clarion and the Head of the Costs and Litigation Funding team.  Andrew can be contacted on 0113 336 3334 or 07764501252 or at andrew.mcaulay@clarionsolicitors.com