Court holds that an application under CPR 44.11 to reduce a party’s costs on the basis of misconduct is not a vehicle to give paying parties a “second bite of the cherry”

In Paul Andrews & Anor -v- Retro Computers Ltd & Ors [2019] EWHC B2 (Costs), Master Friston held that an application that the receiving party’s costs should be reduced or disallowed under CPR 44.11 on the basis of that party’s conduct was not to be used as a vehicle to contest the order for costs made by the trial judge.

This update is a summary of a complex and lengthy judgment. A full analysis will follow in due course.

CPR 44.11

CPR 44.11 states (so far as relevant) that:-

(1) The court may make an order under this rule where –

(a) 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

(b) 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.

(2) Where paragraph (1) applies, the court may –

(a) disallow all or part of the costs which are being assessed; or

(b) order the party at fault or that party’s legal representative to pay costs which that party or legal representative has caused any other party to incur.

The Case

The Defendants applied under CPR 44.11(2)(b) on the basis that the Claimants’ conduct had been “unreasonable or improper”. There was no suggestion that the Claimants’ legal representatives had acted improperly or that there had been a failure to comply with a rule or practice direction.

Summary of Judgment

The court held that:-

  1. An application under CPR 44.11 is not a vehicle to allow the paying party to have a “second bite of the cherry”, and that issues which were before the trial judge (or which the parties were reasonably capable of bringing to the trial judge’s attention) could not be considered on such an application;

2. The conduct complained of must have been relevant to the proceedings;

3. There is a high bar for establishing that the conduct was unreasonable; and

4. The sanctions the court can impose are limited.

Conclusion

It is important that solicitors and advocates ensure that issues of conduct are raised at trial and are incorporated into the order for costs.

The issues which the court can consider are wide-ranging but should generally have some relevance to the proceedings.

There is a high bar to establishing that conduce was unreasonable, that “unreasonableness” is to be interpreted narrowly, and is conduct which is so bad as to “permit no reasonable explanation” or which “the consensus of professional opinion would regard as improper”.

The sanction which the court can impose will generally be restricted to disallowing the costs which have been incurred as a result of the unreasonable conduct.

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Good news for those that prepare an accurate costs budget

Following on from the Court of Appeal decision in Jacqueline Dawn Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] WECA Civ 792 where the Court of Appeal found that:

  • The budgeted costs will not be departed from in the absence of a “good reason”;
  • Incurred costs do not form part of the budgeted costs;
  • The good reason test does not apply to those incurred costs;
  • The proportionality test can be applied to the final claim for costs, despite the proportionality test having been applied when the costs budget was approved.

As predicted, we have seen that in practical terms this is good news for those that prepare accurate budgets, but not so for those that don’t. The practical implications of this Court of Appeal decision has an impact on the recovery of your legal fees, as follows:

If the budget has not been exceeded:

  • The budgeted costs will be allowed in full unless a good reason is demonstrated to depart from the budget;
  • A detailed assessment of the budgeted costs can be avoided.

If the budget has been exceeded:

  • The budgeted costs will be restricted to the amount of the budgeted costs that were approved, unless good reason can be demonstrated to depart from the budget.

Win win for those with well prepared budgets. In addition, following approval of the budget, further consideration should be given to the budget throughout the lifetime of the claim. Examples of which are as follows:

Q1. Is it necessary to consider the budget in preparation for the trial?

Answer – yes.

If you win and your budget has not been exceeded:

  • Ask the court to order that the budgeted costs claimed are allowed in full;
  • Only incurred costs will be assessed by way of detailed assessment;
  • If the trial is less than one day, ask the court to summary assess the incurred costs. The court may assess the budgeted costs, however if the costs fall within budget, these should be allowed in full. Present your budgeted costs in phases to demonstrate to the court that the budget has not been exceed on a phase by phase basis;
  • Assess any potential good reasons that your opponent may raise to depart downwards from your budget and be ready to defend those arguments;
  • Ask for a payment on account of the incurred costs, these remaining costs being subject to assessment.

If you win and your budget has been exceeded:

  • If no good reason can be demonstrated to depart from your budget, the court should limit your claim for costs to the approved budget amounts;
  • Therefore establish a good reason to depart from the budget so that the costs can be assessed by way of detailed assessment rather than being restricted to the approved amount of the budget. This will provide you more of an opportunity to justify your costs and overspends;
  • Request a payment of the approved costs, payable within 14 days;
  • Request a payment on account of the remaining incurred costs, payable within 14 days.

If you lose and your opponent’s budget has been exceeded, their budgeted costs should be limited to the budget:

  • The winner can obtain costs in excess of the budget if they can show a good reason to depart from the budget, so be ready so defend any good reasons that the winner may raise to depart from the budget.

If you lose and your opponent’s budget has not been exceeded, their budgeted costs should be limited to the budget:

  • A good reason is required to depart from the budget, therefore if you can identify a good reason to depart from the winner’s budget you can secure a reduction to the winner’s budgeted costs.

Q2. What are examples of a good reason?

Answer – examples of a good reason to depart down are:

  • Did the winner undertake all the work that was provided for in the budget?
  • Were there any adverse costs orders, amount needs to be excluded from the budget?
  • Proportionality test – does the proportionality test that was applied at the CCMC require revisiting?

Q3. Why raise those good reasons at the trial?

Answer

  • Defers the assessment of costs to detailed assessment, if deemed beneficial;
  • Minimises the amount of the payment on account;
  • Minimise the amount of budgeted costs payable.

Remember, incurred costs are subject to detailed assessment in the normal way – ensure that the court is aware that this is only applicable to budgeted costs.

Q4. What role does the budget have in securing a Payment on Account?

Answer – the court will scrutinise the amount that was approved in the budget when determining the amount of the payment on account.

  • If the court refuses to order the payment of your budgeted costs in full, and opts to order a payment on account instead, request the following amounts:
    • Thomas Pink Ltd v Victoria’s Secret UK Ltd [2014] EWHC 3258 (Ch) (31 July 2014) – POA of 90% of budget;
    • Cleveland Bridge UK Ltd v Sarens (UK) Ltd [2018] EWHC 827 (TCC) – POA of 70% incurred costs and 90% estimated costs.
  • Be ready to defend any good reason to depart from the budget that your opponent may raise, this will assist in securing the maximum payment on account, conversely remember to raise any good reason arguments to depart down if you are payer rather than payee.

Q5. What role does the budget have at the mediation or settlement meeting?

Answer – the budget enables parties to be fully aware of their costs exposure, so an informed decision can be made when determining whether to settle. Update the budget for the ADR meeting so that costs may be agreed at the same time and be ready with the same arguments in terms of departure from the budget that would be applied at the trial.

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

Are you J Code ready?

The J-Codes are a set of electronic codes proposed by Jackson LJ, where time is recorded in phase, task and activity. These codes were first published in July 2014 and over 3 years later the MOJ have now included guidance in their 92nd update to the CPR regarding phase, task and activity time recording. The MOJ have decided not to adopt the full J-Code structure proposed by Jackson LJ and have published an alternative and apparently simpler version of the Phase, Task, Activity (PTA) approach. That said, J-Codes can still be adopted or the Phase, Task, Activity (PTA) method can be used, it is down to choice.

The electronic bill of costs is mandatory for all Part 7 multi-track claims from 6 April 2018 and therefore Phase, Task and Activity codes (PTA codes) are crucial.  J Codes/ PTA codes however are not mandatory, although it is expected that any additional costs associated with the drafting of the electronic bill of costs due to PTA code time recording not being adopted, may not be recoverable on an inter-partes basis.

This only applies to work undertaken from 6 April 2018.
Recording time in line with phase, task and activity will at last enable budgets to be monitored with ease.

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

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.

THE NEW TEST OF PROPORTIONALITY – 66% REDUCTION!

 

The recent case of Rezek-Clarke -v- Moorfields Eye Hospital is another example of how the new test of proportionality is being applied and the impact it is having on the receiving parties’ claims for costs.

This case related to a low value medical negligence claim.  The Claimant instructed his solicitors on 31 July 2013 and letters of claim were sent to the proposed Defendants on 20 June 2014. The Defendant admitted liability on 14 November 2014, but denied causation.  Proceedings were issued against the Defendant on 1 October 2014 (mainly due to impending limitation issues).

The claim, at best, was worth £5,000.00 and was compromised on 8 July 2015 for £3,250.00.

On 29 October 2015, the Claimant’s solicitors commenced Detailed Assessment Proceedings.  The bill of costs for detailed assessment totalled £72,320.85.  The matter proceeded to a Provisional Assessment before Master Simons on 21 July 2016, where he assessed the bill and reduced this to £24,604.40. On 24 August 2016, the Claimant requested an oral hearing in relation to the provisional assessment and that oral assessment took place on 10 January 2017.

The judgment dealt solely with the issues of proportionality and the ATE insurance premium. The Master did make some increases (to other items within the bill of costs) to what he originally allowed on Provisional Assessment, however, these other items/issues that were heard at the oral hearing did not form part of the judgment.

The key points which arose from the judgment are as follows:

Proportionality

At paragraph 19 the Master referred to the well-known case of Jefferson -v- National Freight Carriers Plc [2001] EWCA Civ 2082 where HHJ Bolton said the following:

“In modern litigation, with the emphasis on proportionality, it is necessary for parties to make an assessment at the outset of the likely value of the claim and its importance and complexity, and then to plan in advance the necessary work, the appropriate level of person to carry out the work, the overall time which will be necessary and appropriate to spend on the various stages in bringing the action to trial, and the likely overall cost. While it is not unusual for costs to exceed the amount in issue, it is, in the context of modern litigation such as the present case, one reason for seeking to kerb the amount of work done, and the cost by reference to the need for proportionality”.

Master Simons, in his judgment, seemed to be critical of the Claimant’s solicitors inability to be able to produce any evidence to support any case planning or consideration regarding the appropriate costs to be incurred (taking into account the fact that the claim was always going to be of a low value).  Looking at this point from a practical perspective, it seems logical for any Claimant solicitor, as a matter of course, to produce a case plan from the outset of a case together with a skeleton costs budget.  Documentation (evidence) of this nature could prove invaluable when trying to demonstrate to a Master or Costs Judge that case planning and consideration did take place. In the absence of such evidence the receiving party could be left in a more vulnerable position, particularly in low value claims where costs are globally disproportionate.

Furthermore, Master Simons ruled that the new test for proportionality does apply to liabilities incurred post 1 April 2013. In this case the ATE insurance premium was one which is still allowed under the Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings (No. 2) Regulations 2013). This contradicts the decisions of Master Rowley in King v Basildon and of Master Brown in Murrells v Cambridge University. However, it is consistent with the decision of Master Saker in BNM v MGN.

What is abundantly clear is there is disagreement at the Senior Court Costs Office as to the application of the new test of proportionality in relation to post 1 April 2013 additional liabilities and clarity is required to ensure that any confusion is avoided.

ATE Insurance Premium

The ATE premium totalled £31,976.49. On Provisional Assessment, the Master reduced the premium to £2,120.00 (a reduction of circa. 93%).  This was reduced on the basis of proportionality.

The Claimant’s solicitors made the usual submissions in relation to ATE premiums and relied on the well-known case of Rogers v Merthyr Tydfil County Borough Council. However, Master Simons ruled that the case was distinguishable from ‘Rogers’ as ‘Rogers’ was decided pre-LASPO.  Paragraph 64 of the Judgment is useful to read in relation to this point, but essentially it explains that the test of proportionality was fundamentally different when the ‘Rogers’ case was decided. In ‘Rogers’ the Court concluded that if it was necessary to incur an ATE insurance premium, then it should be adjudged a proportionate expense.  However, now proportionality trumps necessity.  No doubt the ATE insurance market had some tears in their eyes when they read this paragraph of the judgment as it will no doubt cause challenges to those ATE insurance premiums which remain in the system.

Another interesting point made was at paragraph 67 of the judgment where the Master made a comment in relation to the calculation of an ATE insurance premium:

“……As the premium is deferred, surely the basis of calculation should be on the reasonable amount of the fees for the medical reports, not the actual cost…….”.

The Master therefore felt that the premium should be calculated taking into account the amount allowed on assessment and not the claimed amount.  I suspect such an approach would receive some real opposition from the ATE insurance market, as ATE insurers pay the claimed amount to experts if the claim fails.

Another interesting point is made further on in paragraph 67:

“……Furthermore, it is often the case that the fee claimed for a medical report includes the fee charged by a medical agency.  I query whether any attempt is made by solicitors or the insurers when calculating the premium, to distinguish between the actual cost of the report and the fee paid to the medical agency……”.

Clearly, for those acting for paying parties, there are some useful questions and points to raise in relation to post 1 April 2013 ATE insurance premiums following this judgment.

Preparation of the bill of costs

A separate point raised in the submissions regarding the ATE insurance premium was the calculation of the premium and in turn, the preparation of the bill of costs.  This was quite a serious point and demonstrates the importance of preparing accurate bills of costs for detailed assessment.  The premium was claimed at £31,976.49, but during the oral detailed assessment hearing, the receiving party explained that the premium had been calculated incorrectly, and that the correct amount was £22,255.23.  However, the Claimant could not provide an explanation regarding why there had been an error in the calculation and (more importantly), why the bill of costs had been certified as accurate and true when it contained such a substantial error (the error being £9,721.26).

This did seem to trouble the Master and paragraphs 61, 62 and 63 are useful to read in this regard.  The Master raised concerns regarding the lack of evidence that had been provided to support the correct level of the premium. The methodology in calculating the premium at £22,225.23 was based on witness evidence. The only evidence in front of the Master was a Schedule of Insurance which showed a premium of £30,916.50, and therefore the failure to include the correct (or evidence the correct) premium in the bill of costs caused some real prejudice to the Claimant.  At paragraph 63, Master Simons stated that he would have been justified in disallowing the premium in full.

This demonstrates the importance of preparing accurate bills of costs and ensuring that each item is correct before a bill is signed and detailed assessment proceedings are commenced. The premium was claimed incorrectly and even when the error was identified the Claimant failed to explain how the new and correct figure was calculated. This failure could not have helped the Claimant in their submissions that the premium was proportionate or support their arguments that the drastic reduction at provisional assessment was incorrect.

Summary

The real headline point that can be taken from this case is how the courts are approaching the application of the new test of proportionality to additional liabilities. This case further adds to the current confusion as to how the new test of proportionality is to be applied in relation to post 1 April 2013 additional liabilities.  Hopefully, by the end of the year we should have clarity as the Court of Appeal is due to look at the matter at some point in October.  Until then, we should all expect a mixed bag of outcomes (or adjournments) on detailed assessment from the different Masters and Costs Judges all around the country!

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.

 

Clarion Costs and Litigation Funding’s February 2017 Newsletter

Please follow this link for Clarion Costs and Litigation Funding’s February 2017 Newsletter.  In this month’s issue:

Andrew McAulay provides a “Fixed Costs Update”.

Sue Fox provides a case management refresher and discusses “costs estimates for fast track cases and non-budgeted cases”; “indemnity basis costs awards at CMCs” and “no fixed fast track costs for disposal hearings”.

And finally………..

Matthew Rose discusses the dangers of the late filing of points of dispute to a bill of costs.

 

 

Proportionality – a common sense decision from Master Rowley

In the case of BNM v MGN Limited [2016] EWHC B13 (costs) the Senior Costs Judge applied the new test of proportionality to post Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) additional liabilities. The claim was for defamation and therefore the additional liabilities (despite being incurred post 1 April 2013) were recoverable inter partes (additional liabilities for defamation and mesothelioma cases remain recoverable inter partes post LASPO).

In BNM the Senior Costs Judge based his decision on the fact that pursuant to CPR 44.3(7) the old test of proportionality was not preserved for additional liabilities incurred post 1 April 2013. The key paragraphs from BNM on this point are as follows:

28 – It seems to me that the intention was that the rules as to the recoverability of additional liabilities would be preserved in relation to those additional liabilities which remain recoverable after 1 April 2013. However, the old test of proportionality was not preserved in relation to those additional liabilities. Had that been intended it could have been achieved quite easily by a further exception in CPR 44.3(7).

31 – A consequence of the reduction of the base costs to a proportionate figure will be that the success fee, a percentage of those base costs, also reduces. It would be absurd and unworkable to apply the new test of proportionality to the base costs, but the old test of proportionality to the success fee.

32 – Ring fencing and excluding additional liabilities from the new test of proportionality would be a significant hindrance on the court’s ability to comply with its obligation under CPR 44.3(2)(a) to allow only those costs which are proportionate.

In the case of King v Basildon & Thurrock University Hospitals NHS Foundation Trust [2016] EWHC B32 (Costs) Master Rowley reached a difference conclusion, albeit the additional liabilities in this care were incurred pre 1 April 2013 i.e. pre LASPO. Master Rowley’s decision was primarily based on the definition of costs in the CPR post 1 April 2013. The useful paragraphs of Master Rowley’s judgment to consider are as follows:

23 – The key phrase in the new proportionality test in 44.3 (5) states that “costs incurred are proportionate if they bear a reasonable relationship to ….”. The word “costs” as now defined refers to profit costs and disbursements but does not include additional liabilities. Given that the proportionality test in 44.3 (5) only applies to work carried out since that definition of costs has come into being, the obvious interpretation is that it only relates to the base costs of a CFA. It is not clear to me why additional liabilities should necessarily be caught by a test which is based on a definition recast specifically to exclude such liabilities.

24 – In my view, treating the word “costs” as only referring to base costs fits in with the provisions of Part 3 in relation to costs budgeting which were also brought into the CPR in April 2013. For example, in rule 3.15 the court “may manage costs to be incurred by any party in any proceedings” and in doing so will make a costs management order. Such an order will record the extent to which budgets are agreed between the parties and, to the extent they are not agreed, will record the court’s approval after making appropriate revisions. “The court will thereafter control the parties’ budgets in respect of recoverable costs”. Precedent H, which sets out the costs to be managed, expressly excludes any additional liabilities that may still be recoverable between the parties. Consequently, the only interpretation of the recoverable costs which the costs management order is controlling, is that they are the base costs of a CFA as set out in the Precedent H. The court is required to set a budget which is specifically described as allowing reasonable and proportionate costs notwithstanding that it excludes additional liabilities.

25 – In my judgment, being consistent with the costs management arrangements and avoiding bizarre outcomes in bills which involve both proportionality tests, point towards the rules being interpreted as continuing to require the court to assess the base costs and additional liabilities separately.

 26 – Furthermore, the purpose of the Jackson reforms in initiating a sea change could have resulted in Parliament disallowing the recoverability of success fee and ATE premiums from 1 April 2013. But it did not do so and has allowed for the run-off of recoverable success fees and premiums in the main and the continued recoverability of success fees or premiums in particular instances. It seems to me that the fact that additional liabilities are still allowed for by the provisions of CPR rule 48.1 simply means that they remain in existence. It does not mean that they have to be assessed in the aggregate with the base fees using a test which has no recognition of additional liabilities. This is particularly so when aggregation will render those additional liabilities effectively irrecoverable in practice”.

The approach of Master Rowley has recently been followed by Master Brown in the case of Murrells, Estate of v Cambridge University NHS Foundation Trust [2017] EWHC B2 (Costs).

The following are useful extracts from the Judgment:

33(7) – …It seems likely that they will have entered into such arrangements in the reasonable expectation that the additional liabilities would continue to be recoverable as they were pre-LASPO. To apply the new test to additional liabilities in the way contended for would, however, require many litigants to submit to a substantial, if not complete, disallowance of their additional liabilities as against the other party or parties to the litigation, while at the same time the liability to pay an insurer or the lawyers the additional liability would be preserved. If that were right, it would inevitably lead to many litigants, including – it might be observed – victims of mesothelioma, having to give up deserving claims or defences. I agree with Master Rowley: in these circumstances, the defendant’s contention cannot be reconciled with transitional provisions and the clear will of Parliament. The intention must have been to provide, at the very least, an orderly retreat from the old funding scheme.

34 – In the circumstances, I respectfully disagree with the decision of Master Gordon-Saker in BNM as to the application of the new proportionality test to additional liabilities and therefore also as to the need to aggregate base costs with additional liabilities.

The case of BNM is currently on its way to the Court of Appeal, with a hearing date expected for October 2017. Hopefully, this will bring some clarity to the position, but until then expect lots of costs litigation over the point. Hopefully, the Court of Appeal will not simply address the additional liabilities in BNM, but also address the position of pre-LASPO additional liabilities in the context of the King case.

Personally, I think the position adopted by the Senior Costs Judge represents a drafting error in relation to CPR 44.3(7). The intention of LASPO in my view was very clear:

  1. Additional liability incepted pre 1 April 2013 = recoverable inter partes and not subject to the new test of proportionality
  2. Additional liability incepted post 1 April 2013 = not recoverable inter partes
  3. Additional liability (defamation and mesothelioma cases) incepted post 1 April 2013 = recoverable inter partes and not subject to new test of proportionality

Surely, it was never the intention for additional liabilities at 1 and 3 above to be recoverable only for them to be crippled by the new test of proportionality (resulting in a non-recovery)?  Surely, it was never the intention to specifically ‘carve out’ defamation and mesothelioma claims only for the additional liabilities to then be squashed on detailed assessment due to the new test of proportionality? This is particularly relevant in defamation cases where costs can easily dwarf damages.

What all this does show is the problems that can be caused when even minor changes are made to the CPR. I say this in the context of a significant extension of fixed costs on the horizon. There are fixed costs disputes every day at the moment in relation to portal cases and fast track injury cases where the numbers in dispute are very small. Where the numbers in dispute are large i.e. in multi-track fixed costs cases then this will undoubtedly cause satellite litigation, for example arguments about location, what stage the case settled and disbursements.

LJ Jackson thinks that fixed costs will bring certainly, but if Defendants (paying parties) are prepared to exploit a ‘gap in the rules’ as highlighted in the BNM case then expect Costs War 2 post implementation of fixed fees! The Courts are going to be busier than ever, which would be contrary to what LJ Jackson and the governments wants.

LJ Jackson maybe about to score an ‘own goal’ with his planned extension of fixed fees……

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