Author: Anna Lockyer

Solicitor able to indemnify client?

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Can a solicitor acting for an impecunious client offer indemnity for adverse costs when ATE insurance is unobtainable? Master Rowley rejected the Defendant’s argument that such an agreement was champertous in Edwards v Slater & Gordon UK Limited [2021] SCCO (15/09/2021), but an appeal of this decision is being heard in the High Court this week, so some clarity of this important but ambiguous area of law should follow.

Whether a solicitor’s role extends to bearing the risk of liability for adverse costs is controversial in more ways than one.

If an ATE provider declines to insure a claim or if the premium is set too high, in the absence of indemnity from a solicitor, a claim may not proceed at all. This raises questions about how far ATE providers should be keepers to the gates of justice and no doubt is a common frustration of claimant solicitors.

An obvious consideration for the solicitor and their practice should be whether they would be able to afford adverse costs liabilities in the event of an unsuccessful claim. This issue came to the fore in the Edwards case as the Defendant alleged that the Claimant solicitors did not have adequate financial backing.

Most importantly, the legality of indemnifying a client must be at the very top of the checklist when deciding whether to offer indemnity, as supporting litigation for a share of the proceeds would ordinarily be considered champertous and contrary to public policy. Prior to the Courts and Legal Services Act 1990, contingent funding arrangements offered by solicitors were completely prohibited under the rules against maintenance and champerty, and although the Act sanctioned exceptions in certain circumstances, these are limited and strict conditions must be met to ensure enforceability.

Although the recent Court of Appeal case of Farrar v Candey Limited [2022] EWCA Civ 295 attempted to widen the scope for legitimate solicitor-client agreements, the case was dismissed.

Watch this space for the outcome of the Edwards v Slater & Gordon appeal…

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

Uplifted Guideline Hourly Rates in Commercial Litigation

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Nothing above London 1 guideline hourly rates should be charged to the paying party in the absence of “clear and compelling justification” was the message from LJ Males in his judgment on an issue concerning costs of appeal in Samsung Electronics Co. Ltd v LG Display Co. Ltd Anor (Costs) [2022].

The receiving party, whose solicitors billed in US Dollars, claimed costs equivalent to charges between £801 and £1,131 for Grade A work and between £443 and £704 for Grade C work. A comparison was made to London 1 guideline rates at £512 and £270 for A and C respectively, and the fact the White Book guides applicability of these rates to “very heavy commercial and corporate work by centrally based London firms”.

Consideration was given to the fact that hourly rates higher than guideline figures may be appropriate for substantial and complex litigation, and that value, urgency, the importance of the matter or an international element may all have a bearing on whether an uplift is justified. LJ Males also reflected on how:

“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“.”

The receiving party was criticised for attempting to justify the higher rates on the basis this was almost always the case in competition litigation.

“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.”

The delegation of work to juniors and a single junior barrister was however noted as appropriate, but the schedule claiming costs of £72,818 was still reduced to £55,000.

Planning a full and detailed justification, explaining why an uplifted hourly rate is reasonable in a particular matter, is the key to good recovery.

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

Commercial Litigation Costs: disapplying budgeting when the £10m claim value threshold is disputed

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Section D2.2 of the 11th edition of the Commercial Court Guide (2022) sets out how parties should approach costs budgeting where there is disagreement over whether costs management is applicable.

The Costs Management section of CPR 3 and PD3E applies in the Business and Property Courts so that all parties, except litigants in person, must file a costs budget unless the claim commenced before 22 April 2014 or where the claim value is stated on the claim form as £10m or more.

In a situation where the parties sit on different sides of this fence in relation to the £10m threshold, the guidance steers the parties towards discussion with a view to resolving the point by agreement or otherwise. If this proves impossible, the matter should be raised with the Court at the first opportunity (which may be the first Case Management Conference).

The guidance states that the requirements for filing and exchanging costs budgets will not apply until the matter is resolved.

This assumed disapplication is however contrary to the requirement in CPR 3.12 (1) (e) and CPR 3.13 (1) for budgets to be filed unless the court has specifically ordered otherwise.

Caution should therefore be exercised when seeking to rely on this guidance, firstly because it is only guidance and secondly because the civil procedure rules by their very nature carry more weight.

Where there is disagreement over whether a budget is required, best practice would be to contact the court for clarity as soon as the issue arises and in good time before the first listed Case Management Conference to avoid missing the costs budget deadline in line with CPR 3.13 (1) (b).

The CPR 3.14 sanction of court fees only for failing to file a budget could be catastrophic compared to unnecessarily incurring a costs budget drafting fee.

This article originally featured in our March 2022 newsletter which can be found here.

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

Falling short when advising client of ‘shortfall’

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The importance of clear client communication on costs budgets has again come to the fore, this time in the context of solicitor-own client costs.

When a case is subject to a costs management order, if budgeted costs are to be exceeded it follows that the implications of that overspend are properly explained to the client. Even if the client has been notified that the excess may not be recoverable from the opponent, further steps need to be taken before deductions can instead be made from damages.

The SCCO case of ST v ZY [2022] EWHC B5 (Costs) (21 February 2022) highlighted exactly that. The costs exceeded the budget by £31,304.68 in the following phases:

-Issue/statements of case: the figure approved was £4,792.46, but £10,771.50 was claimed, an excess of £5,979.04.

-Witness statements: the figure approved was £1,391.51, but £7,643.50 was claimed, an excess of £6,251.99.

-ADR/Settlement: the figure approved was £12,452.85, but £31,526.50 was claimed, an excess of £19,073.65.

In points of dispute, the Defendant relied on the ‘good reason’ requirement of CPR 3.18 (b) not being met to challenge the Claimant’s departure from their budgeted costs.

No attempts were made by the Claimant to advance a reply on the grounds of ‘good reason’ in relation to the excess in the issue/statements of case or the ADR/settlement phases. Recovery from the Client’s damages was instead the default position.

In relation to the overspend in the witness phase, the Claimant did however seek to justify extra costs on the basis that some unexpected work was required in relation to additional witness statements. The time included in the bill of costs for this amounted to 1.9 hours. Unsurprisingly no good reason was found for the £6,251.99 overspend.  

The Defendant also took issue with £11,038 being claimed over and above the 1% and 2% caps allowed for costs management. The Claimant conceded that recovery of this additional excess from the Defendant was not possible and again turned to the Client’s damages.

Senior Costs Judge Gordon-Saker commented in his judgement that he had seen nothing to suggest that the excess had been explained to the Client.

Counsel for the Claimant set out in his skeleton argument that costs information had been provided to the extent that she had been advised there would be a shortfall and the advice letters estimated that shortfall to be £43,500 plus VAT the month before settlement. This figure was very close to the budget overspend of both the budget phases and the costs management cap combined, which altogether totalled £42,342.68 plus VAT.

Claimant’s Counsel submitted that the excess costs were not unusual in nature or in amount and were therefore reasonably incurred so the presumption as per CPR 46.9(3)(c) was not applicable. SCJ Gordon-Saker agreed that they were not of an unusual nature but did consider them to be unusual in amount, distinguishing both elements with a simple analogy:

“Paying a brief fee of £50,000 when the usual fee would be £5,000 would be unusual and one can easily see that the solicitor should be at risk if the client is not informed that the fee might not be recovered because of that. The amount can be unusual without the nature being unusual.”

On the facts of this case SCJ Gordon-Saker then pointed out that the issue/statement of case budgeted costs were exceeded by 100%, witness statement budgeted costs by over 400% and ADR/settlement budgeted costs by over 150%.

He did however accept that the Client was advised throughout that there would be costs deducted from damages because they were not recoverable from the Defendant, but that there was nothing to suggest she was told about the set budget or the effect of the budget. He further went on to say:

“To avoid the presumption applied by CPR 46.9(3)(c), the solicitor must tell the client that as a result the costs might not be recovered from the other party. That must mean as a result of their unusual nature or amount. Telling the client that some costs might not be recovered from the other side is not sufficient. ST should have been told that the budget was being exceeded by a wide margin and that, as a result, those costs might not (and, indeed, almost certainly would not) be recovered from the other side.”

Consequently, costs in excess of both the budget and the 1% and 2% caps were presumed to have been unreasonably incurred. On a practical note SCJ Gordon-Saker concluded his judgment by stating:

“I should add that I think it very surprising that a solicitor would not tell their client that the budget had been exceeded and that the costs in excess of the budget would not be recoverable. At that point the client is moving from pursuing a claim in which reasonable and proportionate costs will be recoverable to a claim where no further costs will be recoverable in respect of some or all of the phases.”

This case exemplifies the interplay between budgeted cases and solicitor-own client costs and the consequences of ambiguity.

When a budget is to be exceeded and it is apparent that those costs would neither satisfy the ‘significant development’ requirement for upward budget revision nor the ‘good reason’ test at assessment, the client needs to be advised of ‘unusual’ costs from all angles to minimise any potential write-off.  If and when a budget has actually been set, be clear about the consequences of exceeding that budget, especially if the client is to foot the shortfall bill. 

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

Late costs budget? Not all lost…

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The sanction imposed for failing to file a costs budget when required applied to future costs only in the recent appeal case of Hardy v Skeels (04.03.21, County Court at Stoke).

The ‘court fees only’ restriction was found to have been wrongly interpreted at the detailed assessment when only court fees were recoverable by the defaulting party who filed their budget a day late. Recovery of incurred costs, which can be substantial by the time a requirement for filing budgets arises, were seemingly overlooked.

In points of dispute, the paying party referenced Ali v Channel 5 [2018] to support their position, as the court took the view in this case that the purpose of the CPR 3.14 sanction would be undermined if it were applied to future costs alone and had no effect on incurred costs. The District Judge at the Hardy assessment sided with this stance, reportedly commenting that the sanction was intentionally draconian. This resulted in the sanction being applied to all costs.

In the subsequent overturning of this decision on appeal the CPR wording was scrutinised.

CPR 3.14: Failure to file a budget, states “Unless the court otherwise orders, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees”.

Although the term ‘budget’ is a blanket reference to both incurred and future costs, the second reference to the term in the Rule was in effect found to mean costs comprising of only ‘future costs’ or ‘budgeted costs’. Incurred costs were therefore determined as recoverable subject to assessment. As the claim settled shortly after the budget filing deadline, the recovery by the receiving party of almost all costs became a possibility.

The rationale behind the appeal decision has brought to the fore how CPR 3.14 is not aligned with other Part 3 rules such as 3.15 and 3.18 which clearly define applicability to future costs. The Circuit Judge who dealt with the Hardy appeal was said to have commented on how CPR 3.14 was poorly worded and that the drafters may not have anticipated the effect of its literal definition. It seems the intention of the Rule was more meaningfully explored in the appeal as CPR 3.14 was found not be a standalone sanction of court fees and instead had to be read in conjunction with CPR 3.18 which has clear applicability to future costs only.

Anna Lockyer is an Associate in our Costs and Litigation Funding team. If you have any questions please contact her on 0113 2885619 or at anna.lockyer@clarionsolicitors.com.

This article was featured in our March 2021 newsletter, see the full newsletter here.

Reform to Trial Witness Statements in the Business and Property Courts

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New duties and obligations will be placed on commercial litigators from the 6 April 2021 – Anna Lockyer and Professor Dominic Regan discuss the key features of these changes, their wider reaching implications in practice and the likely impact on costs budgeting

This video features Professor Dominic Regan who is working with the Costs and Litigation Funding team as a consultant.

Anna Lockyer is an Associate in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact her at Anna.Lockyer@clarionsolicitors.com and on 0113 288 5619.

More changes are coming to costs in the latest amendments to the CPR – Civil Procedure (Amendment) Rules 2021

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More changes are coming to costs in the latest amendments to the CPR – Civil Procedure (Amendment) Rules 2021, which comes into force on 6 April 2021, and the 127th update to the PD. 

Costs Management

These changes are not significant, however it is noted that there has been one amendment that is worthy of mention particularly for practical reasons. During the last tranche of costs changes in October 2020 (122nd update) when the costs practice directions and rules were consolidated and the precedent H guidance notes were incorporated into PD 3E, it was identified that one of the amendments created difficulties in terms of drafting of the budget. The amendment related to CPR 3.17(3)(a) which stated that the Court may not approve costs incurred before the date of any costs management hearing and replaced the previous practice direction that referred to how the courts may not approve incurred costs up to and including the date of the costs and case management hearing. This amendment resulted in the provision of updated incurred costs information that included an element of estimated costs, i.e. the costs associated with attending the CCMC. Please see follow this link https://www.clarionsolicitors.com/articles/costs-and-litigation-funding-newsletter-october-2020 for more a detailed analysis in that regard.

Master Cook recognised the difficulties that rule change made in the 122nd update created and has now addressed this in this latest tranche of rule changes. The rules have been amended, as follows:

“(3) Subject to rule 3.15A, the court (a) may not approve costs incurred up to and including the date of any costs management hearing; but (b) may record its comments on those costs and take those costs into account when considering the reasonableness and proportionality of all budgeted costs.”

This is a change that is very much welcomed and simplifies the presentation of incurred costs.

Some minor amendments to the cost management Practice direction 3E have been made which are limited to substituting “budgeted costs” for total costs (incurred and estimated) in paragraph 4b of practice direction 3E; and the substitution of interlocutory for interim at paragraph 10 (a). The final amendment relates to the table found in PD 3E in the Disclosure section, where ”third party” is to be substituted with “non-party”.

Summary assessment

The PD 51X Costs for Summary Assessment Pilot scheme has been running for nearly 2 years and the judiciary have confirmed that they have received some useful comments, however they have extended the voluntary pilot scheme for a further year to enable the capture of more data.

Capped Costs Pilot

PD51W Capped Costs pilot scheme was launched in January 2019 and has run for 2 years. The scheme was limited to cases valued up to £250,000 in the Business and Property Courts in Manchester, Leeds and London Circuit Commercial Court. It followed a recommendation made by Sir Rupert Jackson in his 2017 report as part of his push for fixed costs. There has been limited uptake with only one case being heard under the pilot and consequently the scheme has not been extended.

The CPRC have commented that “it was acknowledged that the broad aims remain as current as ever and the need for schemes of this kind for the efficient despatch of medium value claims, whether as pilots or not, will continue to be considered in the context of post Covid-19 recovery and new ways of conducting business litigation”.

Joanne Chase is a Senior Associate in our Costs and Litigation Funding team. If you have any questions, please contact her on 07826 166 300 or at joanne.chase@clarionsolicitors.com .

High Court ruling addresses Part 36 anomaly

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In the privacy case of Pallett v MGN Ltd [2021], the Defendant sought to exploit an anomaly in the Part 36 rules by accepting an offer outside the relevant period and inviting the court to consider the liability for costs, on the assumption this would result in them paying less in costs to the Claimant.

CPR 36.13 (4) (b) states that where a Part 36 offer, which relates to the whole of the claim, is accepted after the expiry of the relevant period the liability for costs must be determined by the court.

The Defendant accepted the offer on day 22, post-expiry of the relevant period. If the Defendant had accepted the offer made by the Claimant within 21 days, they would have been bound to pay the Claimant’s costs. The Defendant’s tactic was to avoid these costs consequences and instead have costs put “at large” for determination by the court.

The High Court ruled that although the Defendant was entitled to take this approach, normal consequences should follow and the Claimant was awarded all the costs of the proceedings in the same way they would have been if the offer was accepted within 21 days.

The anomaly in the rules relating to Part 36 may have previously deterred Claimants from advancing Part 36 offers but this case demonstrates that the court can impose the same costs outcome, whether a Part 36 offer is accepted in or out of the 21 days, at their discretion.

This article was featured in our January 2021 newsletter, see the full newsletter here.

Anna Lockyer is an Associate in our Costs and Litigation Funding team. If you have any questions please contact her on 0113 2885619 or at anna.lockyer@clarionsolicitors.com.