Various Claimants v MGN – Some much needed clarity!

 

Bespoke budgets in multi-party litigation, proportionality, updating the incurred costs included in the budget prior to the CCMC, including the costs of interim hearings in the budget, disapplying the 2% cap for costs management and the resourcing of fee earners were all points that were dealt with at the most recent CCMC in the latest phone hacking cases (Various Claimants including (1) John Leslie (2) Chantelle Houghton v MGN Limited [2018] EWHC 1244 (Ch)).

MULTI-PARTY LITIGATION – The court’s approach to this multi-party litigation avoided the need for multiple costs management hearings for similar claims. The court applied a structure that was similar to a GLO and directions were made regarding managing the costs of the claim. Common and individual costs were split, and Costs Management was dealt with by the application of template budgets for individual costs and common costs. There were 3 categories of claims for the individual costs and the court could order that there be bespoke individual budgets in place of the template budgets. In this decision the court agreed that bespoke budgets were applicable to two of the Claimants, Leslie and Houghton.

THE BUDGET AND PROPORTIONALITY – Chief Master Marsh applied the proportionality test to the Claimants’ budgets commenting that “I would emphasise that the court is not required to have regard to the constituent elements of each budget phase (it may do so) and the court’s task is to decide whether the total for each phase falls within a range of reasonable and proportionate costs…. And the court is not looking to establish what the budget figure should be objectively ascertained, but rather a figure that falls within the applicable range applying the reasonableness and proportionality tests alongside each other.”

“The court must apply both the reasonableness and proportionality tests, but the former may yield to the latter. And, in practice, although PD3E, paragraph 7.3, requires the court to consider each budget phase separately, and therefore to consider the proportionality of each phase total, the task has to be undertaken with an initial overall review of proportionality by reference to the factors in CPR44.3(5)…

The costs in the budget phases must not only be reasonable but must also bear a reasonable relationship with the proportionality factors I have indicated. The proportionality factors that are relevant are to be taken together and given notional weight as a whole. In these cases, the sums in issue are not large for High Court claims when taken in isolation. But when the proportionality factors are put together, the financial value of the claims proves to be relatively unimportant because of the wider factors. The budgets substantially exceed the sums in issue but is not a reason to conclude that the overall budgeted sums and the totals per phase are disproportionate.

It seems to me that the wider factors I have summarised, in particular the public importance and test case factors, will have the effect that if the costs are reasonable they are proportionate. That conclusion chimes with the approach the parties have adopted and avoids the court wielding a concept of uncertain application.”

UPDATING INCURRED COSTS – There was a considerable time period between the date that budgets were required to be filed and when the CCMC was listed. Mr Leslie updated his budget prior to the CCMC to include incurred costs up to 1 May 2018, however the other parties did not. The Master recognised the problems of one party updating the incurred costs and the other parties not, explaining that this approach resulted in Mr Leslie having “ousted the court’s jurisdiction to consider a significant amount of expenditure” and consequently found that “the relevant date for the purposes of incurred costs as being 17 January 2018.”

This can be avoided by agreeing a date that the incurred costs are included up to and in turn obtaining the court’s permission to update the incurred costs.

HOURLY RATES – Chief Master Marsh refused to be drawn into the debate regarding hourly rates and instead considered the allocation of work in the budget between different grades of fee earner and the total figure claimed for each phase was of greater importance.

INTERIM HEARINGS – An amount for specific disclosure had been included in the disclosure phase, the Master found that the inclusion of interim hearings in the budget were wrong in principal as they may be subject to an inter partes costs order, the costs were moved into the contingency phase.

COSTS MANAGEMENT COSTS – The costs associated with costs management are subject to a 2% cap. Chief Master Marsh was asked to consider lifting the cap, he agreed on the basis that the complexities surrounding the multi-party litigation warranted exceptional circumstances in this case.

Any questions? Please contact me at sue.fox@clarionsolicitors.com or call me on 0113 336 3389.

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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.

 

When a CFA describes the claim rather than the work it covers

The recent Court of Appeal decision of Malone v Birmingham Community NHS Trust [2018] EWCA Civ 1376 reinforced the importance of a clearly drafted funding document.

The case involved a prisoner at HMP Birmingham who pursued a claim for failure to diagnose testicular cancer between August 2010 and January 2011. The prison was operated by the Ministry of Justice, and health care services were provided by Birmingham Community NHS Trust, and Birmingham and Solihull Mental Health Foundation Trust.

The Claimant initially instructed Ross Aldridge Solicitors, who had difficulty in identifying the correct Defendant, and in March 2012 the Claimant transferred instructions to New Law Solicitors. They, too, encountered uncertainty when trying to identify the correct negligent Defendant.

The Claimant entered into a CFA with New Law Solicitors on 16 January 2013, which stated that the agreement covered “All work conducted on your behalf following your instructions provided on [sic] regarding your claim against Home Office for damages for personal injury suffered in 2010.”

On 04 October 2013, after proceedings were issued but yet to be served, Birmingham Community NHS Trust admitted responsibility for the Claimant’s treatment, and on 20 March 2014 damages were agreed in the sum of £10,000 plus costs.

A detailed assessment of costs commenced, and the Defendant challenged the enforceability of the CFA on the basis that it was limited to a claim against the Home Office/Ministry of Justice only. DJ Phillips, regional costs judge for Walker, found on 27 April 2015 that the CFA excluded a claim against the Defendant and therefore costs were not recoverable under the agreement as the Claimant had no contractual liability to pay his Solicitor for the work done in suing the Defendant.

The Claimant applied for permission to appeal, which was initially dismissed by HHJ Curman QC in a judgment dated 25 September 2015, but was later granted by Brigg LJ by way of order dated 28 July 2017.

On appeal, Patten LJ and Hamblen LJ considered whether the critical wording of the CFA (highlighted in bold above) merely identified the claim to which it related, or whether it limited the scope of the CFA to a claim against the Home Office only. It was necessary to consider the principles established in paragraphs 11-13 of Wood v Capita Insurance Services [2017] UKSC 24 to ascertain whether a textual analysis of the agreement was required or whether greater emphasis should be given to the factual matrix (contextualism).

[A textual analysis is typically used for agreements that have been negotiated and prepared with the assistance of skilled professionals. Alternatively, consideration of a factual matrix can also lead to the correct interpretation of an agreement, particularly if a contract had been made without skilled input].

Hamblen LJ stated that the “insertions made to the CFA demonstrate it as poor quality drafting and little attention to detail. The critical wording consists of only one sentence and yet it contains three manifest mistakes: (i) the omission of the date of the instructions and (ii) the omission of the definite article before “Home Office” and (iii) the description of the claim being against “Home Office”. The Home Office had not been responsible for operating prisons for some years”. The poor drafting led to a greater emphasis being placed on the factual matrix of the agreement rather than a close textual analysis.

Hamblen LJ considered the most natural reading of the critical wording as being a CFA that covered “all work conducted” on the Claimant’s behalf following “instructions provided” in respect of his claim “against Home Office” and he concluded that the wording was descriptive of the instructions received rather than of the work to be done. Further, he suggested that if the CFA had meant to provide only a limited coverage, greater care and precision would have been expected, but that in any event it would have been in neither party’s interest to seek to impose a strict definitional limit on the agreement so early in the claim.

Therefore, taking into account both textualism and contextualism, it was found that the CFA was not limited to a claim against the Home Office/Ministry of Justice only and the Claimants appeal was allowed.

Whilst in this case the judgment goes in favour of the receiving party, it highlights the importance of giving careful consideration to exactly what a retainer provides for, both at the outset and during the life of a claim, to ensure there are no pitfalls on assessment. It is crucial that time is invested into the creation of a retainer at the outset of a matter, and that it is regularly reviewed throughout the life of a case.

If you have any questions or queries in relation this blog please contact Joanne Chase (joanne.chase@clarionsolicitors.com and 0113 336 3327) or the Clarion Costs Team on 0113 2460622.

The Hourly Rate Debate: the effect of costs management on hourly rates

There has recently been a flurry of case law in respect of the effect of costs management on hourly rates at detailed assessment.

With regard to costs management, there are two rules of central importance, both contained within Practice Direction 3E:-

Para 7.3 provides that “The court’s approval will relate only to the total figures for budgeted costs of each phase of the proceedings, although in the course of its review the court may have regard to the constituent elements of each total figure. When reviewing budgeted costs, the court will not undertake a detailed assessment in advance, but rather will consider whether the budgeted costs fall within the range of reasonable and proportionate costs.”

CPR PD 3E (7.10), which states that It is not the role of the Court in the costs management hearing to fix or approve the hourly rates claimed… the underlying detail… is provided for reference purposes only”.

As to Detailed assessment, the relevant rule is Part 44.3(1), which provides that:-

Regardless of the basis upon which costs are assessed “…the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount”.

The starting point is the judgment in Harrison -v- University Hospitals Coventry & Warwickshire NHS Trust [2017] EWCA Civ 792, which held that where there is an approved budget, the court is empowered to sanction a departure from the budget if it considers that there is good reason to do so. What the judgment did not say is that the figure allowed for a particular phase in a costs management order will be allowed unless there is good reason to depart from it. The distinction is subtle, but important.

Following a month later, the judgment in RNB -v- London Borough of Newham [2017] EWHC B15 (Costs) gave guidance on how the Court would approach hourly rates in the context of a costs management order. In RNB it was held that if hourly rates were reduced on assessment, that reduction would apply to all of the costs claimed, whether they were incurred pre- or post- the costs management order.

In Bains -v- Royal Wolverhampton NHS Trust, 18th August 2017, The County Court at Birmingham (Unreported), District Judge Lumb expressly disagreed with the position in RNB and found that “to reduce hourly rates for budgeted costs to the same levels as those allowed for the incurred costs… would be to second guess the thought process of Costs Managing Judge and would impute a risk of double jeopardy...”

In the absence of a report or transcript, we do not know what reasoning underpinned the judge’s finding in Bains. What is clear is that a central assumption to the finding in Bains was that the judge at costs management may have accounted for a reduction to hourly rates when making the costs management order. It could be said that such an assumption would be tantamount to a finding that the judge at costs management had breached CPR PD 3E (7.10), by in effect setting the hourly rates when making the costs management order. It might well be argued that such an assumption was unreasonable.

Furthermore, the judgment in Bains explicitly states that there is a risk of double jeopardy; in other words, that the judge on assessment may have considered a reduction to hourly rates when making the costs management order. At least on a standard basis assessment, CPR 44.3(2)(b), any doubt as to whether the court on costs management had done so should be resolved in favour of the paying party. Thus in the absence of an explicit finding that the judge on costs management had factored in a reduction to the hourly rates, the court on assessment should assume that they did not.

A little later, in Nash -v- Ministry of Defence [2018] EW Misc B4 (CC), Master Nagalingam of the Senior Courts Costs Office held that a reduction to hourly rates in respect of the incurred costs would not be a ‘good reason’ to depart from the budget for future costs. This has led to some litigants arguing that where there is a Costs Management Order, so long as the party is within budget for the given phase, a reduction to hourly rates will not ‘carry through’ to the future costs in the budget. It is important to recognise that, in Nash, the receiving party’s budget had been agreed.

The central question here is whether or not a reduction to hourly rates is a ‘departure’ from the costs management order. As stated above, hourly rates are not to be fixed or set by the court on costs management. Therefore, if the hourly rates do not form a part of the costs management order, a reduction to hourly rates for ‘future’ costs cannot be said to be a departure from it. By analogy, an additional liability (such as an ATE premium, which is recoverable in Clinical Negligence matters) does not form a part of the budget, and therefore a reduction to such a premium does not constitute a departure.

It is also important to note that CPR PD 3E 7.3 provides that the purpose of costs management is for the court to identify a range of costs which it considers to be reasonable and proportionate for the conduct of the claim. However, the fact that a costs management order has been made does not justify a party incurring costs which are individually unreasonable so long as they fall within budget. In the context of hourly rates, therefore, if it is found that an hourly rate of say £450 per hour is unreasonable, then that hourly rate is unreasonable regardless of whether the work was done before or after the costs management order was made.

Some commentators have argued that the judgments in Bains and Nash are an attempt by the Courts to implement the intention of Jackson LJ to remove the need for detailed assessment. Returning to Harrison, Davis LJ commented that the case had “descended into a kind of arms race in collecting views or comments… with an aim of… extracting some kind of clue as to what [had been] intended…” when the rules were drafted. Importantly he went on to comment “this is beside the point… what we have to do is construe the wording of [the CPR]”. It is quite clear that, in the judgment of the Court of Appeal, it is not the function of the Court to decide what the intention behind the rules was, but only to interpret what the Rules mean and how they apply to the facts.

The difficulty faced by litigators and judges at present is that the rules are unclear, and there is little guidance as to how they should be implemented. This results in a lack of clarity and certainty when proceeding to assessment of costs. In my opinion, there are two potential routes by which the rules might be improved:-

  1. The detailed approach

The Precedent H is amended to remove reference to hourly rates and time. There could then be no question of the assessing judge taking hourly rates into account. As the court cannot set the hourly rates in any event, this should have no practical impact upon the making of costs management orders; the judge on costs management will have a feel for the case and will be fully qualified to consider the work which needs to be done in each phase and make a judgment as to the amount of costs which it would be reasonable and proportionate to incur in doing it.

  1. The summary approach

The court is empowered to set rates at costs management, and also to make a judgment in relation to incurred costs. Under this system, the judge would summarily consider the costs already incurred in the litigation and include within the costs management order what each party will be allowed at the conclusion in respect of the costs already incurred. The court will set a limit for future costs, and the successful party is entitled at the conclusion of the litigation to the amount allowed by the court in respect of incurred costs, plus all amounts incurred after the costs management order so long as they are less than the budget.

The first approach would continue to provide for a detailed assessment at the conclusion of the proceedings, the second approach would not. Of course, the problem with the second approach is that it could give rise to unfairness as parties would not be able to deal with their opponents’ costs in detail.

What is clear is that under the current rules, there is significant doubt over how they should be interpreted, and we will have to wait and see whether this doubt will be rectified by the rules or by binding judgments in the courts.

Matthew Rose is a Solicitor in the Costs and Litigation Funding department at Clarion Solicitors. You can contact him at matthew.rose@clarionsolicitors.com, or the Clarion Costs Team on 0113 2460622.

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