Author: Andrew McAulay

Detailed guidance from Master Gordon-Saker on recoverable costs between the parties in Fuseon Ltd, R

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The recent judgment in Fuseon Ltd, R provides a reminder of a number of established principles in respect of recoverability of various heads of costs between the parties.

The costs claim arose from a private prosecution by Fuseon Ltd, a Lancashire based letting agency, against a Director of the business who had committed fraud and theft of over £100,000 relating to tenancy deposits, personal expenses and false invoices. The police were unable to investigate and therefore the company brought a private prosecution using Central London firm, Edmonds Marshall McMahon Limited, having failed to find a local firm to take the case. The Director was ultimately convicted and an order was made for a payment of costs to the prosecution out of central funds including costs of the investigation. 

Costs were submitted in the sum of £427,909.00 to the Criminal Cases Unit of the Legal Aid Agency and were initially determined by the case manager in the sum of £180,000.00. The key decisions being a reduction from London hourly rates to Preston guidelines, a reduction in travel time to what would have been reasonable for a local firm, removal of duplication between fee earners, non-fee earner work, and a Singh reduction for proportionality.

Fuseon requested a redetermination and costs were increased to £240,000.00, a subsequent appeal was then dismissed by Master Rowley. In August 2019 Fuseon commenced judicial review proceedings and the decision of Master Rowley was quashed. It was directed that the assessment of the Claimant’s costs be remitted to the Senior Costs Master for further directions. The matter came before Master Gordon-Saker who re-heard the appeal from the determination of the case manager. This was dealt with on the papers at the Claimant’s request.

Hourly rates – At the initial assessment, it was not accepted that there was no choice but to instruct a central London firm. Rates for a local firm were therefore applied based on guideline rates for Preston. Master Gordon-Saker, guided by the comments of Lane J. in the judicial review judgment, found the use of a Central London firm to be reasonable on the facts. The Claimant had carried out suitable research and contacted firms but could not find anyone offering private prosecutions for fraud. It was reasonable to use London solicitors due to the specialism required. The hourly rates claimed were therefore reviewed against the guidelines for central London. The rates were allowed save for reductions to the Grade C and D handlers. It is worth noting that Master Gordon-Saker commented at paragraph 30 that ‘the guideline rates are of course just that. They are fairly blunt instruments designed to assist judges in the summary assessment of costs. The passage of time since 2010 means that they tend now to be used as a starting position rather than as carved in stone.’

Travel time – Additional travel was allowed in light of the permitted use of London Solicitors, however, travel to attend the client was disallowed as a client is generally expected to travel to attend their solicitor. 

Inter-fee earner discussions / duplication – Detailed guidance was provided in respect of what is and is not recoverable in this regard in paragraphs 42 through 44. Master Gordon-Saker confirmed that ‘reasonable time spent in inter-fee earner discussions is properly allowable. It is difficult to delegate tasks to junior fee earners without instructing them what to do and the reasonable time of the delegator and delegate is usually now considered to be recoverable. […] On the other hand, two fee earners attending on a witness or the client will rarely be reasonable, unless there is a specific reason. Lawyers should be reasonably adept, like most people, at speaking or listening and writing at the same time. For similar reasons I cannot see that more than one fee earner attending trial, together with Counsel, was reasonably required.’ For example, additional time was allowed for the Partner reviewing documents such as witness statements prepared by others but time spent for an additional fee earner to prepare for attendance at the trial was removed.

Non-fee earner work – Researching social media, contacting witnesses about the trial and preparing bundles were allowed as work normally carried out by fee earners. Items that were disallowed included photocopying (described in the bill as ‘collating extra copies’ and ‘preparing copies’), printing, posting, booking flights, and elements of the bundle preparation such as scanning.

Proportionality – Following from the judicial review judgment, it was found that the initial use of the CPS as a comparator to find the costs disproportionate was not legitimate. The Claimant had tried his best to get the police to take the case and his decision to institute the private prosecution was a last resort. The hours spent by each fee earner were considered and reductions were made to the principal handler and the Grade D assistants.

Points to take away

  • Use of a London firm may be reasonable for a particular specialism and if the client has made such enquiries as can reasonably be expected of a person in their position.
  • Travel to attend the client is not generally recoverable, I would suggest that this would turn on the facts and would be recoverable if there was a particular reason such as incapacity or the need for a site inspection.
  • Multiple fee earners attending meetings and hearings will be vulnerable at assessment. The context of the meeting should be considered.
  • Inter fee earner discussions are recoverable where it is necessary for delegation purposes. Again, consider the context of the meeting.
  • Care should be taken when describing tasks associated with preparing bundles to show legitimate fee earning work rather than scanning and copying.

Helen Spalding is an Associate in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact her at helen.spalding@clarionsolicitors.com or on 0113 288 5639.

The Precedent T; a new Costs Management precedent, watch this space!

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The CPRC have released minutes of their latest meeting.  The committee has provided further information regarding the proposals and options relating to revisions to CPR r3.15 and PD 3E, please follow this link to see our previous update.

CPR r3.15 will be re-drafted stating that revisions to budgets are made promptly rather than the initial suggestion that revisions are made without delay. There will be further amendments to practice direction 3E with the introduction of a precedent T and accompanying rules in relation to the completion of the same. The precedent T will provide much needed structure regarding the process of revising budgets and we are expecting that it will outline how to revise budgets. The intention is that these updates will feature in the October 2020 update to the rules.

Please do not hesitate to give me a call or email if you have any queries regarding revising your budget or any other cost management requirements.  More detail regarding the importance of revising the budget can be found in our previous blog here. Remember that the rules provide for incurring 2% of your budget in respect to all cost management matters which includes monitoring and revising budgets.

You can find out more about our services here or you can contact the Costs Team at CivilCosts@clarionsolicitors.com

Third Party Funders – Exposure to Legal Costs

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The Court of Appeal has recently handed down its Judgment in the case of Chapelgate Credit Opportunity Master Fund Limited -v- Money and Others [2019], which was an eagerly awaited decision for litigation funders. The outcome of the case is as follows:

The Arkin Cap should be considered when determining costs, but it is not binding on the Courts.

Paragraph 38:

“……..I do not consider that the Arkin approach represents a binding rule. Judges, as it seems to me, retain a discretion and, depending on the facts, may consider it appropriate to take into account matters other than the extent of the funder’s funding and not to limit the funder’s liability to the amount of that funding”

For those unfamiliar with litigation funding and the Arkin Cap, this arises out of the Court of Appeal decision in Arkin -v- Borchard Lines Limited 2005. In that case, a company which had provided third party funding for an unsuccessful claim was ordered to pay the costs of the winning party, but only to the extent of the funding provided. The Arkin Cap has been a principle which has been regularly applied by the Courts since. The decision in Chapelgate will cause uncertainty for litigation funders, in a world which has significantly evolved since 2005.

The Judgment increases the requirement for litigation funders to properly engage costs lawyers. Funders should be engaging costs lawyers to scrutinise a law firm’s legal budget when they are applying for funding. Costs lawyers should also be retained to monitor costs versus budget (including the opponent’s costs) and to advise on costs management orders.

Costs management orders provide more certainty on detailed assessment (unless the order for costs is made on the indemnity basis). Such measures will ensure that the funder has the maximum control possible on both the costs of the firm they are funding and the opponent’s legal costs; the latter being important in the event that an adverse order for costs is made.


This blog was written 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 at mcaulay@clarionsolicitors.com

The Precedent T – a new Costs Management precedent, watch this space!

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The CPRC have released minutes of their latest meeting.  The committee had been asked to consider proposals and options relating to revisions to CPR r3.15 and PD 3E.

Discussions centred around whether the no retrospective costs budgeting rule applies and how it works within the budget variation. It was mooted that a rule change which sets out the factors that the court should take into account may be appropriate.  Proposals were also made regarding a new draft precedent T (in excel format), its intention being to set out the particulars of the proposed budget variation.

It was recognised that there were varying practices currently in play when applying to revise a budget, and  because of that it was proposed that a solution would be to codify the procedure. 

The committee remained alive to the fact that any rule change should not open up parties to attempt to budget repair. More detail regarding the importance of revising the budget can be found in our previous blog here.

The subjective topic of what is a ‘”significant development” was discussed. Currently PD3E paragraph 7.6 provides that budget variations are warranted if a significant development occurs. It was considered critical that the significant development was explained early in the process to avoid any attempt to budget repair.

The committee agreed the Precedent T in principle. It was agreed to re-draft their proposals which cater for ‘retrospective costs budgeting’. We should also see some further guidance which will add clarity between ‘budget variations’ and ‘ood reason to depart from the budget’.

You can find out more about our services here or you can contact the Costs and Litigation Funding team at CivilCosts@clarionsolicitors.com

Interesting comments from the MXX v United Lincolnshire NHS Trust case

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I posted a blog at the end of June about the case of MXX v United Lincolnshire NHS Trust (2018) (please follow this link to read the blog https://clarionlegalcosts.com/2019/06/25/ensure-consistency-between-your-costs-budget-and-bill-of-costs/).

In the Judgment of Master Rowley, there are some interesting points which I felt were appropriate to cite and share through this separate blog. Those points are as follows:

Master Rowley found that the inflated incurred costs amounted to improper conduct and said the following at paragraphs 57 and 58:

“57.      The need to comply with the indemnity principle must be on page 1 of any introduction to the law of costs. It is fundamental throughout the issues regarding what sums can be claimed from one party by another. It is, or should be, engrained in everyone dealing with solicitor’s costs. Whether it is a detailed bill of costs that is being produced, a summary assessment schedule or even simply a breakdown in a letter being provided to the opponent, it is imperative that the costs set out as being payable by the opponent do not exceed the sums payable by the client to their solicitor. The case of Harold v Smith (1850) 5 H. & N. 381 is more than 150 years old but it remains correct that the sum claimed should not be a punishment to an opponent nor a bonus to the client (or solicitor) which is the effect of claiming more costs from the opponent than are payable by the client.

  1. I do not accept that the statement of truth for Precedent H is intended to be a composite statement or one akin to signing an estimate. If that was so, in my Judgement, the Statement would simply say that the document was a fair and accurate estimate of the costs which it would be reasonable and proportionate for the client to incur in litigation. But that is not what it says. It specifically refers to incurred and estimated costs separately and it seems to me that a solicitor signing a Statement of Truth has to consider whether the incurred costs figure is fair and accurate separately from whether the figures for estimated costs are fair and accurate. There is absolutely no reason why the incurred costs figure should not be accurate. There are many reasons to understand that the estimated costs figure is no more than educated guesswork. The change in the hourly rates for future work identified by Irwin Mitchell is one of those reasons.”The importance of the indemnity principle (which I have blogged on previously and you can find here https://clarionlegalcosts.com/2019/02/12/the-indemnity-principle-what-is-it-is-it-important/) is clearly set out above at paragraph 57 of the Judgment.

    At paragraph 58, it is clear that the signature of a Precedent H should not be taken lightly, it is a statement of truth and is not akin to signing an estimate, the signature on the Precedent H is not intended to be a composite statement. Paragraph 58 also indicates that the courts do not expect the incurred costs to be calculated incorrectly because of the inclusion of any incorrect hourly rate/s. However, the courts would be open to the use of composite rates for estimated costs given that hourly rates could clearly change (both upwards and downwards) over time. If you consider this applies to any budget that you are preparing, then make this clear in the assumptions to your budget, this will provide you with protection on detailed assessment and ensure transparency with the court and your opponent.

In the Judgment, Master Rowley did not find that the significant difference between the costs claimed in the bill and those in the costs budget (144-147 hours) amounted to improper conduct. Master Rowley said the following:

“61.      Similarly, I do not think that the claimant’s approach to the amount of hours claimed in the budget and subsequently in the bill founds any significant criticism. My understanding of the limit of 1% of the total budget for the preparation of the precedent H was originally allowed for on the basis that clients would have been billed for the incurred costs by that point and so relatively little work would be needed to consider the incurred costs. If that is correct, it takes no account of matters dealt with under contingency arrangements such as a CFA when no bill will have been rendered by the time the Precedent H is prepared.

  1. It seems to me to be unrealistic to expect a party to vet the time recorded on a line by line basis in the manner suggested by the Defendant here. The bill of costs has taken nearly 100 hours to prepare and that involves a considerable greater sum than would be allowed by 1% of the budget. Whilst I accept Mr Bacon’s comment that the extent of the remuneration is not the touchstone for the effort that should be involved, it does seem to me to be a pointer as to the expectation of the time to be spent in preparing a budget. Most of the time will be spent in the estimation of future costs and much less will be spent in relation to incurred costs. Including items which are unlikely to be recoverable between the parties’ assessment runs a risk of the budgeting judge concluding that those costs are high and commenting about this in the CMO.
  2. I do not think that it can be said to be unreasonable for a solicitor to include in the budget, the time that the various fee earners have recorded on their system as being sums which the client is potentially liable to pay.
  3. Similarly, having considered that time to be vulnerable to challenge on a between the parties’ assessment, it can only be reasonable for the drafter of the bill of costs to exclude such time. Where, as here, the time is extensive, the incurred costs actually claimed between the parties will be significantly reduced. But that does not necessarily mean that something improper has occurred when the budget was prepared, in my view.”

Personally, whilst I cannot say that the discrepancy in time was improper, I struggle to accept the Master’s decision that there can be such a large discrepancy on detailed assessment (because the bill drafter excludes time when drafting the bill of costs). It is important that incurred costs are broadly correct in terms of time incurred and absolutely correct in terms of hourly rates. If not, it creates an incorrect starting point on detailed assessment and questions the signature of the costs budget. Furthermore, 1% can be a generous amount when preparing a high value costs budget (A £10 million budget would potentially allow a charge of £100,000 to prepare the costs budget).

The decision of the Master also troubles me for the following reasons:

  1. It is possible to prepare a budget as a bill of costs i.e. prepare a bill of costs which can be converted into a costs budget for the CCMC. Whilst this incurs greater cost, it effectively means that the costs are front-loaded so that the costs for drafting the bill at the conclusion of the matter are much lower.
  2. Lawyers have historically struggled with recording their time (and continue to struggle) in a way that reduces the time required to draft a bill of costs, not to mention time recording by using the phase, task and activity codes. It therefore surprises me that the Master seemed to accept an approach of calculating incurred costs by simply ‘lifting’ time from a time recording ledger. To my mind, time needs to be vetted correctly and incurred costs should not change significantly between those stated in the costs budget and those stated in the bill of costs.
  3. Where a costs management order has been made and the matter proceeds to a JSM or mediation, it can be possible for the parties to agree costs at the JSM or mediation based on the costs management order (Claimant providing some very basic updated figures). If the budget was not based on the accuracy expected within a bill of costs, then any breach of the indemnity principle would not be identified and there is a real risk that costs irrecoverable inter partes would potentially be recovered from the paying party.
  4. Furthermore, the Master’s approach is in real contradiction to the requirements of a document that contains a statement of truth, of which the budget is one of those documents.It is therefore imperative that the incurred costs figure is not only calculated correctly in terms of the hourly rate but is calculated correctly (with no significant errors) in relation to inter partes incurred costs. When litigating, each party should be able to proceed on the basis that the incurred costs included in the budget are correct and can be relied upon. Whilst the Claimant substantially reduced the incurred costs in the MXX case (which was to the benefit of the Defendant), it does raise a real question over the costs management process if a party can change their incurred costs figure, which in this instance was by nearly 150 hours.

The aim of this blog was to share some of the wider points which arise from the Judgment of Master Rowley. I would be interested to hear any other people’s views and opinions which can be shared through this blog.

Please note that the case was the subject of an Appeal and I will blog separately (and shortly) in relation to the outcome of the Appeal. The outcome does not impact the points raised in this blog.

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

Ensure consistency between your Costs Budget and Bill of Costs

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Consistency and a true connection between Costs Management and Detailed Assessment is essential for the successful recovery of costs on Detailed Assessment.

If a costs budget is prepared incorrectly, which creates a disconnection between the costs budget and bill of costs, then you can expect a costs law obstacle course and a heavy migraine on detailed assessment.

The case of MXX -v- United Lincolnshire NHS Trust [2018] is a great example, which is summarised below:

Background, Retainer and Hourly Rates

The Claimant instructed her Solicitors in 2012 and the matter was funded by way of a Conditional Fee agreement with the rate for the conducting lawyer (Grade A) agreed at £335 per hour.

In August 2013 the rate for the conducting lawyer increased to £460 per hour (this was an error). In January 2015 the hourly rate was reduced to £350 (effective from May 2014). It was increased to £360 in 2015 and £365 in 2016.

The substantive proceedings related to a high value injury claim, with quantification being resolved in November 2016. The claim was subject to a Costs Management Order dated 2 March 2015.

Detailed Assessment Proceedings were commenced in March 2017 and the bill of costs totalled circa. £1.3 million.

Background to the Costs Management Order

At the CCMC, the District Judge dealt with estimated costs and correctly stated that the incurred costs were for detailed assessment. The hourly rate included in the costs budget for the conducting lawyer was £465 per hour.

In respect of the estimated costs, the Judge indicated a composite rate of £280 per hour, which the parties then used to agree the estimated costs for each phase.

Discrepancies between Budget and Bill

Following the commencement of detailed assessment proceedings, the Defendant compared the costs budget (Costs Management Order) with the bill of costs and noted the following discrepancies:

  • Substantial differences in relation to hourly rates.The hourly rate included in the costs budget for the conducting fee earner was £465.00 per hour, but in the bill of costs hourly rates of £335.00 and £350.00 were claimed; and
  • The bill of costs included roughly 144 to 147 hours less time for incurred costs than the costs budget.

The Defendant had legitimate concerns and made an Application for an Order pursuant to CPR 44.11, arising out of what the Defendant described as a mis-certification of the Claimant’s costs budget in the substantive proceedings.

Decision

It is well worthwhile reading the Judgment and the very articulate submissions advanced by both parties. This will help you to fully understand the decision, which was as follows:

  1. The Master did not find that the errors regarding the rates for the conducting fee earner (in respect of estimated costs) or the significant time discrepancies in relation to the time included in the costs budget and the bill of costs amounted to improper conduct.
  1. However, the Master did find that there was improper conduct in relation to the inflated rate/s claimed within the budget (as incurred costs).The Master had previously dealt with a case with some similar issues (Tucker v Griffiths & Hampshire Hospitals NHS Trust 2017) and decided to apply the same sanction in this case as he did in that case, which was to disallow the items claimed in the bill of costs which related to the Costs Management Order.The Defendant had submitted that the Claimant’s bill of costs should be reduced by 75% due to the errors, but the Master said:“Whilst those behind the Defendant in both cases may have considered the sanction in Tucker to be insufficient, it seemed to me to be the only appropriate sanction. There is nothing wrong with the Bill in terms of the indemnity principle. The problem lies with the budget. I consider it to be entirely appropriate to impose a sanction in respect of the work which caused the problem.That work is the non-phase time spent creating and maintaining the budget. It would be wrong in my view retrospectively to disallow some of the budget itself”.

    The decision in this case (and in the case of Tucker) are both cases which were before Master Rowley at the Senior Courts Costs Office. Another Court/Judge could reach a different conclusion and I certainly expect to see this issue again before the Courts for the following reasons:

Lawyers do not time record consistently within their respective departments and firms, which means that discrepancies between budgets and bills will continue to regularly occur and a different Judge/Master may well adopt a more stringent approach;

Costs Budgets are regularly being prepared by non-specialists and prepared very “late in the day”, which leads to errors; and

There is a misconception that the costs budget is a more flexible document than a bill of costs i.e. the statement of truth to a bill of costs carries more weight than a statement of truth to a bill of costs.It is very important that all lawyers (and law firms) approach Costs Management consistently and understand the importance it has on detailed assessment. If that is done, then it leads to a consistent bill of costs, less obstacles on detailed assessment and no migraine – but maybe a headache!

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 at mcaulay@clarionsolicitors.com or on 0113 336 3334

NB There are some other interesting points and views in the Judgment which I will cover in a further blog.

Costs Capping Pilot Scheme

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Sir Rupert Jackson’s proposal regarding costs capping is now a reality, with the launch of the voluntary capped costs pilot scheme on 14 January in London, Manchester and Leeds Business and Property Courts.

The aim of the pilot scheme

The aim of the scheme is to improve access to the Courts through:

  • streamlining the procedures of the Pilot Courts;
  • lowering the costs of litigation;
  • increasing the certainty of costs exposure; and
  • speeding up the resolution of claims.

The pilot will provide for a cap on recoverable costs for each stage of the case, and an overall cap on the total, rather than a fixed sum. The maximum a party will be ordered to pay will be £80,000.

The promise of a fixed recoverable costs scheme was first made two years ago by Sir Rupert Jackson in his IPA annual lecture “The Time Has Come”. His view was that “high litigation costs inhibit access to justice. They are a problem not only for individual litigants, but also for public justice generally. If people cannot afford to use the courts, they may go elsewhere with possibly dubious results. If costs prevent access to justice, this undermines the rule of law”. He predicted, or perhaps rather hoped, that the fixed recoverable costs project could be accomplished during the course of that year.

However, the flurry of chatter and speculation regarding the fixed recoverable costs scheme was left behind in 2016 and, as we moved into 2017, it was replaced with Sir Rupert’s proposals regarding costs capping, which he advised would follow the model used in the Intellectual Property Enterprise Court.

About the pilot scheme

This newly launched pilot scheme will last for two years. For those cases with a monetary value that are less than £250,000, and where the trial is two days or less, the voluntary pilot scheme is available. It cannot be adopted, however, for any cases where there are allegations of fraud and dishonesty; where extensive disclosure, witness evidence or expert evidence is likely; or where the claim will involve numerous issues and numerous parties.

Agreement of both parties is essential if the pilot’s shortened litigation process is to be pursued. The claim will exit the pilot if there is any dispute by any party in that regard. This shortened process is expected to be less costly, with the initial statements of case being limited in length and accompanied by the documents upon which the party proposes to rely.

Further, witness statements will also be limited in length, with the general rule being reliance on oral evidence of two witnesses. There are restrictions placed on expert evidence, which will only be permitted if the court is satisfied that it’s necessary, and it is likely to be on a single joint basis.

The trial judge will take a hands-on approach, to ensure that the trial estimate is adhered to, and has the power to strictly control cross-examination. When the several imposed time limits for filing the documents are considered collectively, the whole process – from the issue of the claim to the hearing of the trial – should not exceed 11 months.

The costs for each phase of the litigation is restricted to the cap and an assessment of costs is still required. Costs budgeting and detailed assessment are not applicable, with summary assessment being the favoured choice of the rule makers. The normal practice of filing the statement of costs prior to the hearing and the assessment of those costs then taking place at the trial will be avoided. Instead, the parties shall file and exchange schedules of their costs incurred in the proceedings not more than 21 days after the conclusion of the trial.

The schedules shall contain details regarding each applicable stage in the Capped Costs Table. The maximum cap of £80,000 for recoverable costs does not include court fees, VAT, enforcement costs and wasted costs, which are claimed additionally.

For those instances where Part 36 offers have been made the cap is increased to £100,000, and so Part 36 offers continue to play a central role.

With claims now able to be issued and pursued to trial in less than 12 months, and with costs not exceeding £80,000, will more parties engage in litigation? Or, conversely, will this restriction on the amount of costs that can be recovered be off putting? Only time will tell.

You can find out more about our services here or you can contact the Costs and Litigation Funding team at CivilCosts@clarionsolicitors.com