Forgot to secure a payment on account of costs at the final hearing? All may not be lost…

This brief judgment concerned whether or not a party could seek an order for a payment on account of costs after a costs award had been ordered, but before detailed assessment proceedings had begun.

In Ashman v Thomas [2016] EWHC 1810 (Ch), judgment had been given extempore on preliminary issues on 21 June 2016. Following the hearing, and as part of seeking to agree terms of the order, the defendant sought a payment on account of costs. On 23 June 2016, 2 days after the hearing, the defendant served a costs schedule totalling circa. £48,650. The claimant disputed the defendant’s entitlement to a payment on account on the basis they had failed to make the request at the time the order was made. The claimant relied on there being no provision within the rules for the defendant to now seek a payment on account of costs until they had commenced detailed assessment proceedings and sought an interim costs certificate under CPR 44.16(1).

In addition, the claimant alleged that the defendant was in breach of CPR 44PD 9.5 (4)(b), as they had failed to serve a costs schedule 24 hours before the hearing. Master Matthews dismissed this point on the basis that PD 9.5 (4)(b) concerned summary assessment of costs and was not applicable to detailed assessment.

The main issue between the parties was whether an order could be made to include a term for a payment on account of costs when that request had not been made at the actual hearing.

Master Matthews considered CPR 44.2(8):

“Where the court orders a party to pay costs subject to detailed assessment, it will order that party to pay a reasonable sum on account of costs, unless there is good reason not to do so”,

and decided that there was good reason to consider the defendant’s request on the basis that it had been made after the hearing but before the order was sealed. The court retains power to alter its judgment or order until it is perfected and sealed in accordance with Re Barrell Enterprises [1973] 1 WLR 19, CA.

The defendant sought a payment on account of costs in the sum of £20,000. The claimant challenged the statement of costs on several grounds, including excessive hourly rates, signature of the statement by the firm and not individual solicitor, and failure to identify which costs the statement related to.

Master Matthews accepted that the statement was restricted to preliminary issues only, and he was also not concerned with the signature challenge on the basis that the matter was not subject to a summary assessment.

He was, however, in agreement with the claimant that the hourly rates were excessive. Furthermore, he believed that some of the work undertaken by the Grade A Solicitor could have been delegated to a more junior fee earner. He stressed that “the paying party should not be asked to pay more than is reasonable and proportionate”.

Taking the above into consideration, Master Matthews agreed that a payment on account of costs was justified, however, given the excessive level of costs claimed, the award was limited to £17,500, to be paid within 14 days.

This short judgment contains several reminders about good practice. The filing of a statement of costs before any hearing ensures that the issue of a payment on account of costs can be dealt with as soon as a costs award has been made, as per CPR 44.2(8).

However, if the receiving party did not secure an order for a payment on account of costs at the time the costs award was made, they still have an opportunity to seek inclusion within the order prior to it being sealed by the Court. A statement of costs is likely to prove essential in quantifying the amount of the payment on account to be made.

If you have any questions or queries in relation this blog or legal costs in general please contact Joanne Chase (joanne.chase@clarionsolicitors.com and 0113 336 3327) or the Clarion Costs Team on 0113 246 0622.

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Non-Party Costs Orders

The case of Housemaker Services & Anor -v- Cole and Anor [2017] is a useful case for any litigant or law firm considering whether to make an application for a non-party costs order.

Facts

  1. The claim was brought under CPR Part 8 for a limitation direction under Section 1028 of the Companies Act 2006. The underlying claim related to three disputed invoices rendered by the First Claimant to the Defendants. The First Claimant had subsequently been struck off the register and dissolved.
  2. The Court dismissed the claim because the First Claimant could not demonstrate that the dissolution of the company had caused the claim not to be brought, and therefore the Court declined to give a limitation direction.
  3. The Court ordered the First Claimant to pay the Defendants’ costs on the standard basis. The Defendants applied for Mr Wayne Williams, the sole director of the Claimant, to be joined as Second Claimant to the proceedings, for the purposes of making an application for a non-party costs order against him.
  4. The Court made the order joining Mr Williams (Second Claimant) and then gave further directions for the application against him to be dealt with on paper. The Judgment essentially deals with those submissions and the Courts determination of the application for a non-party costs order against Mr Williams.

Submissions of Interest/Note

  1. Mr Williams gave instructions to pursue the proceedings and appeared to have funded them. The First Claimant had no assets and it was highly unlikely that they would be able to satisfy an order for costs.
  2. In respect of a non-party costs order, a warning at the earliest opportunity should be given. The first warning of the application was made at a very late stage.
  3. There was no suggestion that proceedings were brought in bad faith, for an ulterior motive or improperly. 

    Useful Information/Comments from the Judgment

     

  • Paragraph 10 – “A decision to make a non-party costs order is exceptional, but this only means that it is outside of the ordinary run of cases. In a case where a non-party funds and controls or benefits from proceedings, it is ordinarily just to make him pay the costs, if his side is unsuccessful, because the non-party was gaining access to justice for himself, and thus can be regarded as the real party to the litigation”. (this was a general comment about non-party costs orders).

 

  • Paragraph 11 – “However, the director of a limited company is in a special position. It is not an abuse of the process for a limited company with no assets to bring a claim in good faith. It is always open to a defendant to such a claim to apply for security for costs. The mere fact that a director who controls the company’s litigation also funds the claim is not enough in the ordinary case to justify a non-party costs order against him if the company’s case fails”. 

     

  • Paragraph 12“A company is indeed owned by its members. But this does not mean that the shareholder is the “real” party to the claim. In law, the assets of the company (including any claim) belong to the company, and not to the members. Where the proceedings are brought in good faith and for the benefit of the company (rather than for some collateral purpose), the company is indeed the real claimant. If it were otherwise, the principle of the separate liability of the company from its members would be eroded”. 

     

  • Paragraph 13“Moreover, it is not an unusual thing, let alone wrong, that a director who is a shareholder of a company and who funds the company’s claim will ultimately benefit from it if it is successful. It is simply a consequence of the policies adopted by our company law, allowing businessmen to take some risks in seeking profit without incurring unlimited liability”. 

     

  • Paragraph 14 – “A person choosing to deal voluntarily with (or to sue) a limited liability company does so against the legal background. Any potential unfairness caused to a party who is (involuntarily) sued by such a company is remedied by the security for costs jurisdiction”. 

     

  • Paragraph 15“Accordingly, in order to make it just to order a director to pay the costs of unsuccessful company litigation, it is necessary to show something more. This might be, for example, that the claim is not made in good faith, or for the benefit of the company or it might be that the claim has been improperly conducted by the director”. 


    Conclusion
     

    The Court decided that this was not a case where non-party costs order should be made. The Court did not find that the behaviour of Mr Williams in controlling, funding and ultimately hoping to benefit from the claim went beyond the ordinary case of the director and shareholder of a company pursuing a legal claim (paragraph 22). 

    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.

Sue Fox considers the practical effect of the Harrison budgeting decision

In the eagerly awaited decision in Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] WECA Civ 792 (seearticle, page 8), the key findings of the Court of Appeal were that (1) budgeted costs will not be departed from in the absence of a ‘goodreason’; (2) incurred costs do not form part of the budgeted costs; and (3) the good reason test does not apply to those incurred costs. So, what does this decision mean in practice, and what further observations can we make?

Of particular interest is how the courts will deal with ‘incurred costs’. During the Court of Appeal case, thecourt’s attention was drawn to incurred costs when the respondent presented what was described by Davis LJ as ‘an ingenious argument’ regarding incurred costs being potentially approved ‘through the back door’ at the budgeting stage. The respondent submitted that: ‘The incurred costs will have acquired a special status:
in that, while not “approved” as such, they will have been taken into account by the court at the costs management hearing in managing the future estimated costs.’ Please click here to read the full article.

Sue Fox is a Senior Associate and the Head of Costs Budgeting in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact her at sue.fox@clarionsolicitors.com and 0113 336 3389, or the Clarion Costs Team on 0113 246 0622.

 

The importance of an accurate and correctly certified Bill of Costs…….

The case of Jago v Whitbread Group plc relates to the Defendant’s application for an order pursuant to CPR 44.11(1) & (2), which reads as follows:

“The Court may make an order under this rule where –

  • a party or that party’s legal representative, in connection with a summary or detailed assessment, fails to comply with a rule, practice direction or court order; or
  • it appears to the Court that the conduct of a party or that party’s legal representative, before or during the proceedings or in the assessment proceedings, was unreasonable or improper.”

The Defendant requested that the Court disallow all or part of the Claimant’s entitlement to costs on the grounds of her solicitors improper and/or unreasonable conduct during the detailed assessment proceedings.

The following is a brief summary of the substantive case and detailed assessment proceedings:

  1. The Claimant brought a personal injury claim against the Defendant, which settled for damages of circa £41,000, with costs to be subject to detailed assessment, if not agreed.
  2. The matter settled on 4 March 2015 and on 12 March 2015, the Claimant disclosed an informal statement of costs to the Defendant. The statement of costs was a two page document which totalled £101,677.21. The statement included a success fee of 20%, various disbursements in the total sum of £537.00 and two and half hours for preparing and checking the statement of costs. The statement was signed by a senior solicitor and partner at the Claimant’s firm.
  3. On receipt of the statement of costs, the Defendant’s solicitors responded requesting disclosure of the Claimant’s conditional fee agreement, with the Claimant’s solicitors responding on 18 June 2015, stating that the Claimant “……was not subject to a CFA in regards to this matter”.
  4. The Defendant’s solicitors responded querying why therefore a success fee of 20% had been claimed in the statement of costs when no CFA was in existence.
  5. On 19 November 2015, the Claimant served notice of commencement of detailed assessment, with the bill of costs totalling £91,474.41. This bill of costs was of course over £10,000 less than the sum claimed in the statement of costs. Disbursements had been reduced to £430.00 and profit costs had also been reduced. A success fee of 25% was claimed in the bill of costs, despite the correspondence on 18 June 2015 stating that the matter was not subject to a CFA.
  6. The bill of costs was certified by the supervising solicitor and partner. A claim of three and a half hours was included by a law costs draftsman and one hour by the supervising solicitor to check the bill of costs. The certification confirmed that the bill of costs was valid and accurate (and therefore no breach of the indemnity principle).
  7. In December 2015, the Defendants served points of dispute and shortly thereafter amended points of dispute raising a number of significant queries and challenges to the bill of costs.
  8. On 15 January 2016, the Claimant filed and served a fresh bill of costs. Instead of amending the existing bill of costs, the Claimant’s solicitors effectively started the detailed assessment proceedings again with a redrafted bill of costs. The redrafted bill totalled £56,719.00, which represented a reduction of circa. £35,000.00 from the total sum claimed in the bill of costs served in November 2015.
  9. In respect of the revised bill of costs, the success fee was removed. Disbursements were reduced further to £385.00 and the profit costs sought in the bill were significantly reduced. Again, a claim of three and half hours was included in the bill of costs for a law costs draftsman preparing the same, together with an hour for the supervising solicitor/partner checking and certifying the bill of costs.
  10. On receipt of the redrafted bill of costs, the Defendant’s solicitors wrote to the Claimant’s solicitors highlighting the procedural error in that they should have simply amended the existing bill of costs rather than creating a new bill of costs.
  11. In response to that correspondence, on 8 April 2016 the Claimant’s solicitors filed and served a further bill, this time an amended bill of costs. The total sum claimed in the bill was £55,393.19. Profit costs were reduced again together with a further reduction to disbursements. Again, the bill was signed and certified by the supervising solicitor and partner.


    Outcome

    Master Whalan found the Claimant’s solicitors’ actions to be “improper” and “unreasonable” and imposed the following penalty for the “improper” and “unreasonable” behaviour:

  • The Claimant’s entitlement to costs be disallowed to the extent of 50% of the assessed costs allowed on detailed assessment.
  • Specific deductions to the bill of costs (see paragraph 41 of the Judgment). These reductions included time in relation to other work done i.e. preparing, checking and certifying the bill of costs.

    In reaching his decision, Master Whalan stated that the breaches in the case were significant, repeated and either unexplained or unjustified (paragraph 40 of the Judgment).

    This is an excellent case which demonstrates the importance of preparing an accurate bill of costs and ensuring that a bill of costs does not breach the indemnity principle before certifying the same. What is clear from the Judgment is that Master Whalan would probably have been forgiving for the errors made in the first instance, but the failings the second time round and further failings thereafter were not capable of forgiveness and resulted in the severe penalty reduction of only 50% of assessed costs for the Claimant’s solicitors. So ensure statements of costs and bills of costs are prepared and checked properly!

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

Indemnity Basis Costs Awards

The case of MacInnes v Hans Thomas Gross [2017] contains some very useful information for any law firm or litigant considering the issue of indemnity basis costs awards. Pages 2 and 3 are the relevant pages to consider in the judgment.

In the case, the First Defendant applied for an indemnity basis costs award against the Claimant, but this was rejected by The Honourable Mr Justice Coulson, and in doing so he considered a number of authorities in relation to such awards. Those very useful authorities are at paragraph 3 of the judgment and are as follows:

  1. Indemnity costs are appropriate only when the conduct of the paying party is unreasonable “to a high degree. ‘Unreasonable’ in this context does not mean merely wrong or misguided in hindsight” see Kiam v MGN Limited [2002].
  2. The court must therefore decide whether there is something in the conduct of the action, or the circumstances of the case in general, which takes it “out of the norm” in a way which justifies an order for indemnity for costs, see Excelsior Commercial & Industrial Holdings Limited v Salisbury Hammer Aspden & Johnson [2002].
  3. The pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, provided the claim was at least arguable. The pursuit of a hopeless claim (or a claim which a party pursuing it should have realised was hopeless) may well lead to such an order, see Wates Construction Limited v HGP Greentree Allchurch Evans Limited [2006].

The review of key authorities in the judgment is very useful and provides an excellent starting point for anyone tasked with considering whether to apply for an indemnity basis costs award.

Do remember that an indemnity basis costs award should always be sought in the appropriate cases, due to the fact that proportionality is not a consideration/factor when costs are assessed on the indemnity basis. There is also case law that supports the position that a receiving party is not restricted/held to its costs budget where costs are assessed on the indemnity basis (Slick Seating Systems [2013] and Kellie v Wheatley [2014]). CPR 3.18 also supports this.

The new test of proportionality has had a real impact (negatively for receiving parties) on some reported cases (see, for example, The new test of proportionality – 66% reduction) and therefore an indemnity basis award would provide protection for a receiving party from the new test of proportionality. Furthermore, there is a strong argument that an indemnity basis costs award escapes fixed costs (Broadhurst v Tan [2016]) and therefore applications for indemnity basis costs awards may well be on the increase given the likely extension of fixed costs for civil and commercial litigation in the not too distant future.

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 at andrew.mcaulay@clarionsolicitors.com.

 

The importance of the precedent H Costs Budget! Harrison on appeal – no second bite of the cherry.

Jacqueline Dawn Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] WECA Civ 792 – the Court of Appeal has found that the budgeted costs will not be departed from in the absence of a “good reason”. Davis LJ further found that incurred costs do not form part of the budgeted costs and the good reason test does not apply to those incurred costs. Davis LJ confirmed that the proportionality test can be applied to the final claim for costs. This is despite the proportionality test having been applied when the costs budget was approved, this may result in claims for costs being subject to detailed assessment on the issue of proportionality alone.

Davis LJ summarised the Applicant’s submissions regarding what reliance should be placed on the budget at detailed assessment, as follows:

“The premise underpinning Mr Hutton’s argument thus was that CMOs in effect are but summary orders which at best give no more than a snapshot of the estimated range of reasonable and proportionate costs: often reached, as Mr Hutton would have it, on a broad brush or rough and ready judicial approach after a hearing which would have been limited in time, rushed in argument and incomplete in the information advanced”.

Davis LJ considered this to be a sceptical appraisal, commenting:

“that to sanction, at detailed assessment, a departure from the budget in the absence of good reason would overlook (among other things) that budgeted costs are already required to have regard both to reasonableness and to proportionality; that the aims of costs budgeting include a reduction in detailed assessments and of issues raised in points of dispute; and that the element of certainty to clients (in the form of knowing what costs they are likely to face, in terms of payment or recovery) would be removed.

Moreover, if approval of a costs budget by a CMO has the more limited status which the appellant would ascribe to it then that would have a potentially adverse impact on parties thereafter attempting to agree matters without requiring a detailed assessment.  Although Mr Hutton queried if that was one of the perceived prospective benefits of the costs budgeting scheme, it seems to me – as it did to the editors of Cook on Costs – wholly obvious that it was indeed designed to be one of the prospective benefits of cost budgeting that the need for, and scope of, detailed assessments would potentially be reduced.”

The court’s attention was then drawn to incurred costs. The respondent presented what was described by Davis LJ as an ingenious argument to the court regarding incurred costs being potentially, in essence, approved ‘through the back door’. The respondent submitted that:

the incurred costs will have acquired a special status: in that, while not “approved” as such, they will have been taken into account by the court at the costs management hearing in managing the future estimated costs.”

Davis LJ disagreed and found that:

With respect, this will not do.  Either incurred costs are within the ambit of CPR 3.18 (b) or they are not.  Since they are not approved budgeted costs, by the terms of paragraph 7.4 of PD 3E and of the Rules, they are not within that sub-rule.”

Davis LJ recognised that practical problems remained surrounding incurred costs and advised that the CPR committee’s intention was to amend the rules to decouple incurred costs from budgeted costs.

In summary, a good reason is required to depart from the budget, the proportionality test can be applied to budgeted costs, thus a reason to escape the restrictions of the budget; incurred costs should be considered in isolation to the budgeted costs and the rules still require amendments regarding incurred costs to ensure that costs management works.

It is therefore essential that an accurate budget is presented to the court, this Court of Appeal decision has ruled that a budget cannot be departed from unless there is a good reason to do so, this is a difficult test to overcome. There is no second bite of the cherry.

Sue Fox is a Senior Associate and the Head of Costs Budgeting in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact her at sue.fox@clarionsolicitors.com and 0113 336 3389, or the Clarion Costs Team on 0113 246 0622.

 

Fixed Recoverable Costs – the pilot scheme

News story imageFollowing on from my newsletter below, the Civil Procedure Rule Committee meeting notes have been published today. Last month I explained how Jackson LJ had suggested how ‘capped fixed costs’ would work. The meeting notes have now confirmed how the pilot scheme will work, explaining that costs for preaction would be capped at £10,000, for particulars of claim at £7,000 and for defence and counterclaims at £7,000.

Many thanks to John Hyde of the Law Society Gazette who has reported that “Parties can claim up to £6,000 for a reply and defence to the counterclaims, £6,000 for the case management conference, £6,000 for disclosure and £8,000 for witness statements. Expert reports are capped at £10,000, with the trial and judgment costs limited to £20,000.

The working group dedicated to the pilot scheme proposes an overall cap of £80,000 rather than setting an actual fixed amount at this stage.

The proposal, backed in principle by the committee, is to run the pilot in certain specialist civil courts: the London Mercantile Court and three courts in each of the Manchester District Registry and Leeds District Registry. Any cases where the trial will go beyond two days, or where the value is more than £250,000, are excluded“.

Clarion May 2017 Newsletter: Fixed Recoverable Costs. A taster of how the pilot scheme may work.

The judiciary have released an outline regarding how the fixed recoverable costs regime may work. Jackson LJ attended a costs seminar in Birmingham back in March 2017, which focused on mercantile and business litigation. At that seminar both Jackson LJ and HHJ Waksman outlined their proposals for the fixed costs pilot scheme, those proposals being subject to the approval of the Civil Procedure Rules Committee. The details of their proposals were as follows:

The pilot scheme will run in the London Mercantile court, and Manchester and Leeds specialist courts.

  • It is likely that the pilot will commence in October 2017 and will last for two years.
  • The pilot scheme is optional.
  • There will be a separate fixed costs list.
  • The pilot can be joined at certain stages:
    • The pre-action stage
    • No later than 14 days after service of the defence
    • At the case management conference (CMC)
    • Claimants can commence proceedings in the fixed costs list.

The Defendant has an absolute right to object to this, and if so then the proceedings would be removed from the fixed cost list.

  • The CMC will be the last opportunity to join the pilot.
  • Parties will not be able to withdraw from the pilot, apart from the Defendant if the Claimant issues in the pilot scheme (see above).
  • There will be a shortened process with strict case management .

The pilot is currently a ‘work in progress’, however it is envisaged that these proposals will be making their way to the Civil Procedure Rules Committee in June 2017, so these could be public by July 2017. It is currently predicted that:

  • Parties will be required to file their “core documents” (the documents that are relevant to the issues in the claim) with their statements of case, i.e. the particulars of claim, defence, reply and defence to counterclaim.
  • There will be no need for further disclosure, unless parties can justify this at the CMC.
  • If further disclosure is required, parties will need to apply for the same before the CMC. If the parties cannot agree, an order will be made.
  • At the CMC, the judge will suggest Alternative Dispute Resolution (ADR), including Early Neutral Evaluation (ENE).
  • The CMC will be the only interim hearing, this will include setting the trial timetable.
  • Consideration is being given to limiting the number of witnesses, the thoughts are that there will be one factual witness on each side.
  • Costs budgeting will not be required and there will be no pre-trial review.
  • The trial length will be up to two days (excluding judicial reading).
  •  Cross-examination will be “very strictly controlled”.
  • An early hearing date will be guaranteed.
  • Judgments will be produced within a short period of time.
  • Pilot participants can expect “active and proactive” case management.
  • Costs will be summarily assessed at the end of trial.

The above proposals were made in March 2017, however since then there have been further proposals, as follows:

  • The pilot will only relate to claims that are less than £250,000.
  • The pilot will only relate to claims where the trial is no more than 2 days.
  • The pilot will only relate to non-complex matters.
  • The maximum costs that will be allowed will be £80,000. The pilot scheme will be similar to the IPEC costs regime. There will be caps for phases of litigation and those phases will be the same as the phases used in costs budgets.
  • Parties can only leave the scheme under exceptional circumstances, examples of those circumstances are; allegations of fraud, if the matter subsequently is listed for a 3 day trial.
  • Judgment will be handed down within 6 weeks.
  • The proposed ‘grid’ is not yet available and it is likely that this will not be available until the practice directions are published, so it may make its way into any July update to the rules. The main benefits of the pilot scheme are that claims will be resolved speedily and parties will be more aware of their potential costs exposure.
  • We will continue to provide updates regarding fixed costs, as well as all costs related law.

 

Sue Fox who is a Senior Associate and Head of Costs Budgeting at Clarion, can be contacted on 0113 336 3389 or on sue.fox@clarionsolicitors.com