The 70% Costs Myth…..

Throughout the legal profession there is a ‘myth’ that a Receiving Party should expect to recover in the region of 70% of their costs on detailed assessment. Many lawyers advise their clients of this. In some instances this may be a reasonable estimate, but in my experience the figure is often arrived at without any consideration of the costs contained within the bill of costs.

The bill of costs is the absolute starting point in relation to the likely outcome on detailed assessment. If the hourly rates claimed in a bill of costs are in accordance with the SCCO Guideline Hourly Rates, the costs claimed are clearly proportionate and the time claimed is generally reasonable then one would expect any reductions on detailed assessment to be minimal. The recovery should therefore be way in excess of 70%.

However if, for example, the following issues relate to a bill of costs then one could expect the recovery to be much less than 70%:

1. the hourly rates are significantly above the SCCO Guideline Hourly Rates

2. the claim for costs is globally disproportionate

3. there is lots of duplication and solicitor/own client communications claimed

4. There has been a lack of delegation.

We recently prepared Points of Dispute (acting for the Paying Party) on a matter and following Provisional Assessment the bill of costs was reduced by 50%. This was mainly due to proportionality and VAT being incorrectly claimed.

When considering a claim for costs, lawyers should pay attention to the costs contained within the bill of costs when estimating the likely level of recovery. The 70% ‘myth’ should not be the starting point. Advising a client that 70% is the ‘norm’ could actually mean the client is paying more or receiving less than they should be. My advice is therefore to proceed with caution and shy away from relying on the 70% ‘costs myth’. This is now more important than ever in light of the new test for proportionality and the impact that this can have on summary or detailed assessment (Who Needs Fixed Costs and Proportionality continues to get tougher).

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

Part 36 in Personal Injury Claims

Practitioners in RTA or EL/PL cases take note! Settlement by Part 36 can have unexpected consequences, and defendants must seriously consider whether making a Part 36 offer is appropriate if they wish to dispute the costs claimed.

[27/09/18 – UPDATE] the issues have been determined on appeal – read the report here

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Who needs Fixed Costs!

The case of BNM and MGN Limited  is one of the first cases to really demonstrate the power of CPR 44.3 (2) (‘Jackson test of proportionality’), which states:

Where the amount of costs is to be assessed on the standard basis, the court will –

(a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and

(b) resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.

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The Changing Face of Costs

The judgment in BP -v- Cardiff & Vale University Local Health Board[i] brings detailed assessment proceedings into the post-Jackson era

Every solicitor who has practiced litigation after 1 April 2013 will be aware of the introduction of costs management as an integral part of litigation. The judgment in BP -v- Cardiff & Vale is the first step in determining the process by which costs in this post-Jackson era will be assessed.

The case related to costs in a claim in which proceedings had been commenced prior to 1 April 2013, but which settled substantially after the new rules came into force.

The judgment made two extremely important observations in relation to the way in which bills of costs are drafted:-

1. Proportionality

In cases where work has been done before 1 April 2013, but which have concluded subsequently, two different tests for proportionality apply:-

a) Under the old rules, the court would disallow costs which were not reasonably and proportionately incurred. The case of Home Office –v- Lownds[ii] held that where costs were found to be globally disproportionate, the court would apply the test of ‘necessity’, which is to say that it would allow individual items only if they were reasonable, proportionate, and necessary.

b) Under the new CPR 44.3(2)(a), the court will only allow costs which are proportionate, and the court may reduce or disallow costs which are disproportionate in amount even if they were reasonably or necessarily incurred’.

In BP -v- Cardiff & Vale Master Gordon-Saker stated that, as the tests to be applied to the costs are different ‘it must be convenient and necessary for the bill to be divided into parts so as to distinguish between costs claimed for work done before 1 April 2013 and costs claimed for work done after 1 April 2013’.[iii]

It has traditionally been open to parties to argue that there was no requirement to split the bill of costs into parts, as CPR 47 PD 5.8 stated that a bill ‘may be’ divided into parts. However, the judgment is unequivocal and clearly mandates that this must now be done.

At present there is no case law regarding the consequences if the receiving party does not split the bill in this way, however two possible options available to the court are (i) to order that the bill of costs be redrafted, on the basis that the court is unable to properly assess the costs, and in such circumstances it is likely that the court would order the costs of the entire detailed assessment thrown away as a sanction; or (ii) find that as it is unable to consider which test is to be applied to which item, the court will apply the new (more stringent) test to all of the costs within the bill.

2. Phased Bill of Costs 

The second, and more long-lasting, effect of the judgment is the introduction of a requirement that a bill of costs be drafted in such a way as to group work done into parts based upon which budget phase that work belongs to.[iv] The wording used is the same as that in relation to proportionality, that it is both ‘convenient and necessary.

Again it is likely that failure to comply with the requirement to split the bill into budget phases will result in costs sanctions, which could include an order that the bill be redrafted at the receiving party’s expense.

Another, potentially more serious, consequence could be that the court applies broad brush reductions to the entirety of the bill. In the case of a phased bill, it will be clear which items have been incurred in phases where the budget has been exceeded. For example, in a case where a party has exceeded the witness statement phase, but was under budget in respect of disclosure. The court should, therefore, allow all of the costs within the disclosure phase (or take the view that those costs are in general proportionate) and therefore will simply consider whether items within that phase were reasonably incurred. The court would then look only apply the test of proportionality on an item by item basis to the costs incurred within the witness statement phase. Furthermore, it will be much easier for the receiving party to argue that there was a good reason that the costs exceeded the budget, and therefore a good reason for the court to depart from the budget.

Conversely in circumstances where the bill of costs has not been phased, the court may apply a more stringent test for proportionality[v] to every item within the bill of costs. Such an approach would undoubtedly result in a greater reduction to the amount awarded that where such test is applied only to items within a phase which has been exceeded.

Summary

A bill of costs must be drafted in such a way as to identify the costs which have been incurred pre- and post- 1 April 2013, and must also be separated into parts based upon the phases within the budget. The bill should also identify which costs were ‘incurred’ at the time of the budget, and which were ‘estimated’. Failure to draft bills in a manner which complies with this judgment is likely to result in significant repercussions in costs.

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.

 

[i] [2015] EWHC B13 (Costs)

[ii] [2002] EWHC Civ 365

[iii] Master Gordon-Saker at para. 26

[iv] Para 30

[v] CPR 44.3(2)(a); the court may disallow any costs which it finds are disproportionate even if they have been reasonably and necessarily incurred