In October 2019 proposals to reform the Damages Based Agreement (DBA) Regulations were published. Here I give a brief rundown of what the new proposals mean.
The Law Society has recently published a more detailed analysis of the key points which can be viewed here.
Matthew Rose is a Solicitor in the Clarion Costs Team. You can contact him on 0113 222 3248 or by email to matthew.rose@clarionsolicitors.com.
Where the Court awards an “additional amount” under CPR 36.17(4)(d) as a claimant / receiving party beating its own Part 36 offer, the additional amount will not attract “enhanced” interest under CPR 36.17(4)(a).
In FZO -v- Adams & Anor [2019] EWHC 1286 (QB) the court allowed an additional amount under CPR 36.17(4)(d), but held that interest under CPR 36.17(4)(a) – enhanced interest at 10% above base rate – was not payable on that amount. Giving judgment, Mrs Justice Cutts found that the construction of CPR 36.17(4)(d) was that the “additional amount” was not a “sum awarded” and that the words “additional” and “amount” mean that the award is in addition to the enhanced interest at CPR 36.17(4)(a).
It should be noted that CPR 36.17(4) states that where the claimant has beaten their own offer the court “…must, unless it considers it unjust to do so, order that the claimant is entitled to…” and thereafter lists the consequences (enhanced interest, additional amount, etc). This does not appear to accord with the judge’s acceptance of the defendant’s submission that the additional amount is not a “sum awarded”. On the construction of CPR 36.17(4) it seems that those consequences are sums awarded by the court, albeit they are sums which the court is bound to award save where it considers it to be unjust.
Notwithstanding, the second strand of the judge’s reasoning appears wholly sound insofar as the “additional amount” is additional to the other consequences and therefore not itself subject to those consequences.
However, practitioners should be aware that this applies only to interest arising under CPR 36.17(4)(a). As the additional amount is a sum which a party is ordered to pay, and (as above) is a sum which the court orders that party to pay, it is a judgment debt and thus interest will, in the author’s opinion, arise under section 17 of the Judgments Act 1838 at the rate of 8% should payment not be made within the prescribed period (14 days pursuant to CPR 40.11 unless otherwise ordered)
Matthew Rose is an Associate in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact him at matthew.rose@clarionsolicitors.com and 0113 222 3248. You can contact the Clarion Costs Team on 0113 246 0622.
***THIS JUDGMENT HAS NOW BEEN SUPERSEDED***
Senior Courts Costs Office extends the principle in JLE v Warrington & Hamilton Hospitals NHS Foundation Trust [2018] EWHC B18 (Costs).
In JLE Master McCLoud held that where a Part 36 offer is beaten at a hearing, the Court has the power to consider the justness of each of the consequences of CPR 36.17 individually. In that case, the Court held that whilst it would not be unjust to allow costs on the indemnity basis or interest at the rate of 10% over base rate, it would be unjust to allow the uplift of 10% (often known as the “penalty payment”) given the amount by which the offer was beaten.
Following judgment in Andrews & Anor -v- Retro Computers & Anor [2019] EWHC B2 (Costs), there was a hearing to determine consequential orders on 5th March 2019.
Prior to the Oral Assessment of the Claimants’ costs, the Claimants had made Part 36 offers in the sum of £40,000. The bill of costs was ultimately assessed in the sum of a little more that £43,000 (inclusive of interest). Accordingly the Claimants submitted that they were entitled to the full range of orders under CPR 36.17. After finding that the Claimants should be entitled to additional interest and costs on the indemnity basis, Maser Friston considered whether or not to allow the “penalty payment” of 10% of the amount of the bill as assessed.
The Deputy Master pointed out that the Claimants had beaten the amount of the assessed bill by “only” 7.5%, and therefore considered that the uplift of 10% would be too high and therefore was minded to disallow the uplift under CPR 36.17(4)(d) on the basis that to do so would be unjust.
The Claimants submitted that pursuant to JLE the court had the power to “deconstruct” CPR 36.17 and to consider the unjustness or otherwise of each consequence individually, and that Master McCloud had held that the consequences of CPR 36.17 were not “all or nothing”. Therefore, they argued, that the Court had a general discretion not only to allow or disallow the penalty uplift, but where it considers that an uplift of 10% would be unjust, the Court may reduce the amount of the penalty uplift to a just level. The Court is therefore not constrained to disallow the penalty uplift in full if it considers that 10% is too high.
Following these submissions, Deputy Master Friston allowed an uplift of 7.5%, commensurate with the proportion by which the Claimants had beaten their offer.
Summary
The Court has the power to vary the percentage level of the uplift proscribed at CPR 36.17(4)(d). The proscribed rate is therefore a cap, not an entitlement, but if the Court finds that to allow the entirety of the 10% uplift would be unjust it is not bound to disallow the uplift entirely.
Every case will be decided on its own merits, but it seems reasonable that where a Claimant has beaten its own offer by less than 10%, the uplift should in principle be allowed in proportion to which the offer has been beaten.
The Claimants were represented by Richard Wilcock of Exchange Chambers, assisted by Matthew Rose of Clarion Solicitors.
We found in Culliford & Anor v Thorpe [2018] EWHC 2532 (Ch) that a payment on account can be made by the Court after the judgement has been made and after the Order has been sealed. Previously, it had been widely understood that a Part 36 agreement, as it is a deemed Order for costs under CPR 44.9(b), provides authority for a party to apply for an Order for a payment on account and the Court can make such an Order upon settlement, as obligated pursuant to CPR 44.2(8).
However, in the High Court case of Finnegan v Frank Spiers [2018] EWHC 3064 (Ch),a successful professional negligence claim from last year, Mr Justice Birss ruled that the Court does not have the power to make an Order for a payment on account where a claim is settled by way of Part 36, as the agreement does not provide authority to do so.
It was considered and argued by the Claimant Counsel that the decision for a payment on account should be based on the authority under CPR 44.9 for a deemed costs Order. The Part 36 agreement is a deemed costs Order and provides authority for costs to be assessed on the standard basis, outlined under CPR 44.3(2) and which Part 36 indicates. Counsel for the Claimant relied on the rule under CPR 44.2(8) – where an order has been made for costs to be assessed by way of detailed assessment, as they would be here, then an order shall be made for a payment on account.
Presiding over the case, Justice Birss ruled that Part 36 was a self-contained code, as is written within the part. He highlighted that it is clearly not entirely complete given the inclusion of the CPR 44.9; however, as it is a self-contained code, it should follow that it should be treated as such. Part 36 contains its own authority for the consequence of costs following settlement, and as such, there is no reason that CPR 44.2(8) should be followed when looking at whether to make an order for a payment on account. Justice Birss stated that much of CPR 44.2 is not applicable to Part 36 settlement and therefore one could not correctly apply CPR 44.2(8) to the rule. This is because the place for any authority for making a payment on account following Part 36 should be within the Part itself, from which it is absent. Furthermore, the Defendant Counsel argued that CPR 44.9 is in place in order to trigger the detailed assessment proceedings; however, it does not include any other provision of Part 44.2 when triggering the process, therefore highlighting that it should be no different when dealing with Part 36. Justice Birss dismissed the Claimant’s appeal.
The ruling has caused much debate, and was a topic of discussion at the annual Association of Costs Lawyers Conference, in which even the Counsel for the Defendant, Mr Rupert Cohen, agreed with costs judges that perhaps the decision went the wrong way. I am sure that it will not be the last time we see argument over this point and will discuss further any decisions that arise on this blog.
The case of Gamal -v- Synergy Lifestyle [2018] EWCA Civ 210 has reinforced the position that a payment on account does not “increase” the value of a paying party’s Part 36 offer when considering whether the offer has been “beaten” for the purpose of CPR 36.17.
Case Summary
The original action between Synergy Lifestyle (the Claimant / Respondent), and Ms Nivin Gamal (the Defendant / Appellant) related to a claim for unpaid invoices. For ease of reading, the parties are referred to throughout as the Claimant and Defendant respectively. There were various issues relating to the fraudulent nature of the invoices, applicability of VAT, payment or a carpet in October 2013, and the level of costs payable as a result, however these have been omitted for the sake of simplicity and ease of reading.
29 October 2013 – Defendant paid the Respondent £6,600
October 2014 – Claim issued for £151,000
24 August 2015 – Defendant’s CPR 36 offer of £15,000
8 February 2016 – Defendant pays £10,000 to the Claimant
10 May 2016 – Judgment for the Claimant in the sum of £14,275.49 (assessed at £30,275.49 less £16,600 already paid by the Defendant in respect of that work) and the Defendant pay the Claimant’s costs.
The Defendant appealed on the basis that she had beaten the CPR 36 offer of £15,000 and that the judge had failed to properly apply CPR 36.17.
Judgment on Appeal
Giving Judgment, Flaux LJ placed great reliance upon the earlier authority of MacLeish -v- Littlestone [2016] EWCA Civ 127. In that case, Briggs LJ had held that a Part 36 offer was made to settle the entirety of the claim, and that admissions made by a defendant do not have the effect of modifying the Part 36 offer such that it applied only to those parts of the claim which remained in dispute (i.e. a Part 36 offer made in respect of the whole of the claim relates to the whole of the claim, whether or not part of that claim is subsequently admitted).
In Gamal, the court extended this principle to apply not only where a payment had been made following admissions but to any payment on account whether or not an admission had been made. The effect of the payment on account was to reduce the amount which the Defendant could ultimately be ordered to pay, and therefore to a corresponding reduction to the Part 36 offer. As such, the Court dismissed the appeal, held that the Part 36 offer had not been beaten, and upheld the award of costs.
Summary
In summary, the judgment reinforces what many would consider to be the “common sense” position. A payment on account is just that; a payment in anticipation of a future liability. It therefore does not have the effect of making a defendant’s offer more attractive or a claimant’s offer less attractive.
The discussion regarding a “reduction” to the Part 36 offer in the judgment may be somewhat confusing, however this is simply because there are two ways of looking at the issue:-
1. The court gave judgment for £23,675.49[1], distinct from the balance of £14,275.49 payable once credit was given for the payments applicable payments on account (i.e. those made after the date of the offer). Looked at in this way, the Defendant had obviously not beaten her own offer.
2. The court gave judgment for £14,275.49 (as a result of the payments on account), however just as the payment on account reduced the judgment sum, it also reduced the level of the Defendant’s Part 36 offer (i.e. the offer of £15,000 became £5,000 once the payment on account was applied). This is the approach the court adopted.
Both of the approaches above arrive at the same conclusion though by different methods.
All practitioners should note that whether a payment is “on account” is open to judicial interpretation however the general presumption is that payments made during the currency of a claim are payments on account unless specifically stated otherwise.
Matthew Rose is a Solicitor and Associate in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact him on 0113 222 3248 or by email at matthew.rose@clarionsolicitors.com.
[1] In fact, the court assessed the value of the work at £30,275.49, which was necessary as the Claimant admitted that the invoices it had submitted were part of a fraud between it and the Defendant. However, the Claimant had already paid £6,600 towards this work in satisfaction of invoices prior to the commencement of proceedings. Therefore, the total value of the work done was found to be £30,275.49 but the total value of the claim against the Defendant was £23,675.49.
We have incorporated a collection of our blogs into a Blog booklet. The blogs were current at the
date of publication, however these may have now been superseded. Please visit our blog
(https://clarionlegalcosts.com/) for continuous updates on all costs law.
• Page 1 – Introduction
• Page 2 – Good news for those that prepare an accurate costs budget by Sue Fox
• Page 4 – Fixed Costs – the effect of acceptance of a Part 36 offer by Matthew Rose
• Page 6 – Payment on Account or Final Invoices? – another solicitor/own client costs
battle… by Andrew McAulay
• Page 7 – The Disclosure Pilot Scheme – what roles do costs estimates and precedent H
costs budgets have? by Sue Fox
• Page 8 – Proportionality – a flurry of cases by Andrew McAulay
Joanne Chase
• Page 9 – Part 36 offers, the basis of assessment, and knowing your expert by
Joanne Chase
Please click here
For any assistance, please contact the Costs and Litigation Funding Team at Clarion Solicitors 0113 246 0622.
In the 100th update to the CPR, PRACTICE DIRECTION 57AB for SHORTER AND FLEXIBLE TRIALS SCHEMES has been published and is implemented from 1 October 2018. This Practice Direction supplements CPR Part 57A.
A claim in the Shorter Trials Scheme may be started in any of the Business and Property Courts.
Costs are to be assessed by way of summary assessment, save in exceptional circumstances. Furthermore, the court can order, or parties can agree that costs management applies and if a costs management order is made costs will be summarily assessed on a phase by phase basis.
Costs
2.56 – CPR 3.12 shall not apply to cases in the Shorter Trials Scheme, unless the parties otherwise agree. If at the outset of the proceedings the parties agree that Costs Management should apply, they should seek an order to that effect at the CMC and apply for directions as to when budgets should be subsequently exchanged, discussed and submitted for the court’s approval.
2.57 – Within 21 days of the conclusion of the trial, or within such other period as may be ordered by the court, the parties shall each file and simultaneously exchange schedules of their costs incurred in the proceedings.
2.58 – Such schedules should contain sufficient detail of the costs incurred in relation to each applicable phase identified by Precedent H to the Costs Budgeting regime to enable the trial judge to be in a position to make a summary assessment thereof following judgment.
2.59 Save in exceptional circumstances—
(a) the court will make a summary assessment of the costs of the party in whose favour any order for costs is made; (b) rules 44.2(8), 44.7(1)(b) and Part 47 do not apply.
Any questions? Please contact me at sue.fox@clarionsolicitors.com or call me on 0113 336 3389.
CPR 47 provides that Points of Dispute and Replies should follow “as closely as possible” the format of Precedent G. CPR 47.9 allows for the paying party to raise disputes to points in the Bill of Costs drafted by the receiving party.
Points of Dispute ‘must be short and to the point’; parties are expected to make their point in a succinct and concise way. In the recent case of Mead v British Airways PLC, the Defendant spent over seven pages setting out one point of dispute. The claimant’s reply was two pages. District Judge Moss accepted the Claimant’s position and the point was dismissed. This is a clear example that a point can be raised and dealt with concisely without the need for disproportionate and lengthy argument. Indeed, in our experience less is often more and judges can be put off and confused by excessive Points of Dispute or Replies. It is not uncommon to see assessing judges commenting to the effect that Points of Dispute were too long and whilst this may not directly affect the outcome, it may well make the judge less well-disposed to a party in the assessment.
Practitioners tempted to set out Points of Dispute or Reply at great length should bear in mind the cautionary tale of Mylward -v- Weldon [1595] EWHC Ch 1, in which the court held that the matters in dispute could have been set out in 16 pages, rather than the 120 page bundle which the claimant’s lawyer had filed. The court ordered that the claimant’s legal representative should be brought to court, and the warden “shall cut a whole in the myddest of the {bundle}, and put {the lawyer’s} head through the hole, so that it hangs about his shoulders; and then shall lead him bare headed and bare faced round about Westminster Hall whilst the Courts are sitting and shew him at the bar of every of the three Courts within the Hall, and shall then take him back again to the Fleet {prison} and keep him prisoner until he shall have paid £10 to Her Majesty for a fine, and 20 nobles to the defendant for his costs in respect of the aforesaid abuse”.
That said, it is imperative for parties to explaining the reasoning as to why they dispute an item in a Bill of Costs. It is not enough to merely state that an item is disputed; the reasons for the dispute must be disclosed. The onus is on the parties to find the correct balance of getting the point across and providing the required information to ensure the point/reply is agreed with by the DJ.
When filing Points and Replies, it is imperative all parties know the relevant dates they are required to adhere to. For context, when a formal Bill of Costs is served by the receiving party, with an N252 will be served. This gives the date for which Points of Dispute are required to be served, which in general is 21 clear days following the date of service. The paying party is permitted to request an extension of time for this, and it is at the discretion of the receiving party to grant or deny the same and there are consequences for failure to comply. Whilst the Rules state that replies to points of dispute must be filed within 21 days of receipt of the points of dispute, there is no sanction for failure to comply. Therefore there is less risk to a receiving party which serves its Replies out of time, however it is possible for the court to impose a sanction (though this is not automatic). CPR 47.13 stipulates that the receiving party may reply to the points of dispute and the receiving party may do so within 21 days. This was supported in Pipe v Electrothermal Engineering Limited where it was confirmed that the receiving party is not limited to 21 days to respond.
The main differences between the paying and receiving party are as follows: should the paying party fail to serve points of dispute within the 21 days, there could be cost implications and the receiving party would be permitted to apply to the court for a Default Costs Certificate, which is an order that the costs claimed by the receiving party be paid in full (effectively a Default Judgment in costs). Whilst it may be possible to apply to set a Default Costs Certificate aside, there is inevitably a risk that the application will not be granted and it is likely that there will be a costs sanction to the receiving party even if it is.
In summary, parties should always follow Precedent G; always ensure points and replies are short and to the point. When undertaking costs proceedings, always be aware of the deadlines and dates to adhere to ensure you are not subjecting your client to unnecessary costs.
At February’s Civil Procedure Rules Committee meeting Mr Justice Birss reported that “work was ongoing to make certain that the new bill costs, Precedent H and Precedent H Guidance are consistent and accurate and that N260 the summary costs statement follows the same format. The content of Precedent H itself would not be changing. The Chair added that in his experience having settled down, Precedent H and R are working very well“. Therefore no changes are expected to the precedent H budget or the precedent R budget discussion report, the remaining changes relate to the bill of costs and statements of costs.
The wholesale changes to costs that we have encountered over the last 5 years were made as a result of Sir Rupert Jackson’s report whereby he likened the current bill of costs to a “Victorian style account book” making it “relatively easy for a receiving party to disguise or even hide what has gone on”. His purpose was to create transparency and unison with time recording systems and costs related documents, hence the need for the new electronic bill of costs, which is the final piece of Jackson’s jigsaw.
If the legal profession were to embrace time recording as Jackson intended, i.e. recording time in phase, task and activity, then astonishingly some 5 years after the publication of his legendary reforms, Sir Rupert Jackson may achieve his aim. However, Sir Rupert narrowly missed having his vision fully formalised and embedded into the rules during his working lifetime, his retirement has pipped him to the post. He can now sit back and watch from afar, how his intended co-ordinated approach to costs will work in reality!
Sue Fox is a Senior Associate and the Head of Costs Management 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 Hutton Committee set up in May 2016 has unanimously approved a revised electronic bill of costs, the application of which is now on course to become mandatory in respect of work done on or after 1 October 2017, with the final date to be confirmed in May 2017.Read More »
