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.

 

Merrix v Heart of England NHS Foundation Trust [2017] EWHC 346 (QB) – On appeal, Mrs Justice Carr confirms that the good reason test to depart from a budget relates to both downward and upward departures.

Merrix v Heart of England NHS Foundation Trust [2017] EWHC 346 (QB) – On appeal, Mrs Justice Carr confirms that the good reason test to depart from a budget relates to both downward and upward departures.

The inter-action between costs budgeting and costs assessment has been considered again in the appeal of the case of Merrix v Heart of England NHS Foundation Trust [2016]. DJ Lumb found that:

It is not helpful in the context of this debate to consider “departure” within the meaning of CPR 3.18 as being upwards or downwards. It is important to understand that the departure refers to a departure from the budget not from a fixed sum. Just because a party has incurred costs that come in at under the total for a phase is not a departure from the budget. Applying the ordinary meaning of the words the party is still within the budget unless or until the Court revises the budget. It is not the replacement of one fixed sum with another fixed sum. The purpose of the form Precedent Q is to set out the differences between the actual expenditure and the budgeted figures for each phase. It is not intended to be some advanced assessment of the recoverable costs. If having completed a line by line assessment of the reasonable costs the Court considers that the costs are still disproportionate, the Precedent Q could be a useful breakdown for the Court to use to make adjustments to ensure the resulting figure is proportionate”. 

DJ Lumb concluded that the budget and the bill of costs were different tools for Courts to manage costs, which were applied at different times. Consequently, despite the cost claimed being less than the budget, DJ Lumb (Regional Costs Judge) ordered that detailed assessment was appropriate.

This decision has been appealed to the High Court and the appeal has been allowed, with Mrs Justice Carr finding:

“In my judgment, the answer to the preliminary issue is as follows: where a costs management order has been made, when assessing costs on the standard basis, the costs judge will not depart from the receiving party’s last approved or agreed budget unless satisfied that there is good reason to do so. This applies as much where the receiving party claims a sum equal to or less than the sums budgeted as where the receiving party seeks to recover more than the sums budgeted”.

This decision now falls in line with LJ Jackson’s report and the cases of Slick Seating and Safetynet. In 2012, in the case of Safetynet Security LTD v Coppage [2012] EWHC B11, HHJ Simon Brown QC stated that “since the Claimant’s costs were within the budget approved by the court, a detailed assessment would be an unnecessary and expensive course of action to take”. Costs were awarded in the Claimant’s favour, in the amount of the budget. Later in the case of Slick Seating Systems & Ors v Adams & Ors [2013] EWHC B8 (Mercantile), HHJ Simon Brown QC observed that the Claimant had “laudably kept within the budget and exercised due control over their activities and expenditure in an exemplary fashion” and that their budget was proportionate to what was at stake, he awarded the claimant their costs as claimed.

LJ Jackson’s view of how cost budgeting would work was explained at Chapter 40 1.4 (iv) of his report:

“At the end of the litigation, the recoverable costs of the winning party are assessed in accordance with the approved budget

And at Chapter 40 1.5 of his report:

“Issues for consideration. If costs management becomes a feature of civil litigation in the future, many issues will have to be considered before any set of costs management rules is drawn up. In particular: (iv) In so far as the last approved budget is binding, should it operate as an upper limit upon recoverable costs or should it operate as a form of assessment in advance? “

At Chapter 45 of his final report the Law Society noted that:

”If the costs management proposals set out in the Preliminary Report are accepted, it would seem that detailed assessment will have a place only in the context of cases where RP’s costs significantly exceed the budget”. The Commercial Litigation Association (“CLAN”) believed that “detailed assessment will become less common if costs management is adopted”.

That said, the case of Troy Foods v Manton [2013] EWCA Civ 615, Lord Justice Moore-Bick warned that an approved budget is not a licence to conduct litigation in ‘an unnecessarily expensive way’. He added that: “I do not accept that costs judges should, or will, treat the court’s approval of a budget as demonstrating, without further consideration, that the costs incurred by the receiving party are reasonable or proportionate simply because they fall within the scope of the approved budget.”

So, the question to be answered is – will your costs be allowed in full if they are less than the budget? Yes, unless parties can show a good reason to depart from the budget – Merrix  now confirms that this applies to both downward and upward revisions to the budget.

Sue Fox is 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.

What impact the budget has on recoverable costs – Merrix v Heart of England Trust NHS Foundation Trust [2016]

In my most recent article that was published in the Litigation Funding magazine, I discussed the Merrix case and what impact the budget has on recoverable costs.

  • The recent case of Merrix v Heart of England Trust NHS Foundation Trust [2016] has again brought the interaction between costs  budgeting and costs assessment into focus.  Before we look at what we can take from the decision, I will set out below a number of cases that have come along and shaped our thinking on the court’s application of costs budgeting (precedent H)…………….

For the full article please follow this link  Budgetary position.

Sue Fox is 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.

Costs Budgeting is essential”, hails LJ Jackson.

“Costs Budgeting is essential”, hails LJ Jackson.

Jackson told a London Common Law and Commercial Bar Association event last night that:

“Costs budgeting is an essential element of any programme to make the costs of litigation proportionate”, and that:

Litigation is a commercial enterprise.’  He added ‘there are no other commercial projects which people enter without a budget” and that “some form of costs management or costs budgeting is essential.’ This echoes comments he made in his 2009 final report.

In Jackson’s final report in 2009 he said “Any measures to control the costs of a project are themselves a source of some expense. Quantity surveyors have to be paid professional fees for their services in monitoring the costs of a construction project and determining what amounts are payable at each stage or what sums are due in respect of variations. But no-one suggests that quantity surveyors should be dispensed with, in order to “save” the costs of employing them. The costs of any multi-track case can be substantial, ranging from tens of thousands of pounds to tens of millions of pounds. In other words, the costs of every multi-track case, unless it settles early, are comparable to at least the costs of a small building project and sometimes they are comparable to the costs of a major building project. There is precisely the same need to control the costs of litigation as there is need to control the costs of any other project”.

After 7 years since his report was written, 1 pilot scheme and the 3 year practical application of the amended Civil Procedure Rules, Jackson’s opinion on both the effect of costs management and the costs of the same, remains constant.  Costs Management works and the costs of the same are a sensible part of the ‘project’.

Please follow this link to the Law Society Gazette’s article.

Sue Fox is 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.