COSTS PAID BY A THIRD PARTY – BREACH OF THE INDEMNITY PRINCIPLE?

The case of HMRC -v- Gardiner and Others [2018] EWHC 1716 (QB) is a case concerning an alleged breach of the indemnity principle.

Background

The Respondents were amongst several tax payers challenging penalties imposed by HMRC for incorrect tax returns. EDF Tax Defence Ltd (“EDF”) were the tax advisors.

The Respondents were successful and HMRC were ordered to pay their costs.

Costs proceedings

EDF were at the forefront of the work carried out in the matter. Counsel was instructed to represent the Respondents and the fees were paid by EDF. HMRC therefore alleged a breach of the indemnity principle on the basis that the Respondents had not paid Counsel’s fees and that there was no direct retainer in place between the Respondents and Counsel.

The argument failed and the key points to note are as follows:

  1. There was never an agreement that the Respondent would not be liable for Counsel’s fees (see paragraph 30 of the Judgment – “The presumption that a client instructing a solicitor or representative to represent them will be liable for costs incurred for such representative may be rebutted by the paying party proving that there was a bargain between the client and the representative that under no circumstances was the client to be liable for costs”).
  2. Counsel represented the Respondents at the hearing, not EDF.
  3. The arrangement was no different to a trade union funding arrangement.
  4. The key for the indemnity principle is a liability to pay and not payment/discharge of the liability (see paragraph 30 of the Judgment – “It is liability to pay rather than who makes payment which is material”).

Had evidence been produced that the Respondents would never have been liable for Counsel’s fees, then the Court would have reached an alternative conclusion. This is therefore a useful case to rely on for parties seeking costs which have been met by a third party, but are facing indemnity principle challenges from a paying party.

This blog was prepared by Andrew McAulay who is a Partner at Clarion and the Head of the Costs Litigation Funding Team. Andrew can be contacted at andrew.mcaulay@clarionsolicitors.com
or on 0113 336 3334 or on 07764 501252.

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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.

 

The importance of an accurate and correctly certified Bill of Costs…….

The case of Jago v Whitbread Group plc relates to the Defendant’s application for an order pursuant to CPR 44.11(1) & (2), which reads as follows:

“The Court may make an order under this rule where –

  • 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
  • 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.”

The Defendant requested that the Court disallow all or part of the Claimant’s entitlement to costs on the grounds of her solicitors improper and/or unreasonable conduct during the detailed assessment proceedings.

The following is a brief summary of the substantive case and detailed assessment proceedings:

  1. The Claimant brought a personal injury claim against the Defendant, which settled for damages of circa £41,000, with costs to be subject to detailed assessment, if not agreed.
  2. The matter settled on 4 March 2015 and on 12 March 2015, the Claimant disclosed an informal statement of costs to the Defendant. The statement of costs was a two page document which totalled £101,677.21. The statement included a success fee of 20%, various disbursements in the total sum of £537.00 and two and half hours for preparing and checking the statement of costs. The statement was signed by a senior solicitor and partner at the Claimant’s firm.
  3. On receipt of the statement of costs, the Defendant’s solicitors responded requesting disclosure of the Claimant’s conditional fee agreement, with the Claimant’s solicitors responding on 18 June 2015, stating that the Claimant “……was not subject to a CFA in regards to this matter”.
  4. The Defendant’s solicitors responded querying why therefore a success fee of 20% had been claimed in the statement of costs when no CFA was in existence.
  5. On 19 November 2015, the Claimant served notice of commencement of detailed assessment, with the bill of costs totalling £91,474.41. This bill of costs was of course over £10,000 less than the sum claimed in the statement of costs. Disbursements had been reduced to £430.00 and profit costs had also been reduced. A success fee of 25% was claimed in the bill of costs, despite the correspondence on 18 June 2015 stating that the matter was not subject to a CFA.
  6. The bill of costs was certified by the supervising solicitor and partner. A claim of three and a half hours was included by a law costs draftsman and one hour by the supervising solicitor to check the bill of costs. The certification confirmed that the bill of costs was valid and accurate (and therefore no breach of the indemnity principle).
  7. In December 2015, the Defendants served points of dispute and shortly thereafter amended points of dispute raising a number of significant queries and challenges to the bill of costs.
  8. On 15 January 2016, the Claimant filed and served a fresh bill of costs. Instead of amending the existing bill of costs, the Claimant’s solicitors effectively started the detailed assessment proceedings again with a redrafted bill of costs. The redrafted bill totalled £56,719.00, which represented a reduction of circa. £35,000.00 from the total sum claimed in the bill of costs served in November 2015.
  9. In respect of the revised bill of costs, the success fee was removed. Disbursements were reduced further to £385.00 and the profit costs sought in the bill were significantly reduced. Again, a claim of three and half hours was included in the bill of costs for a law costs draftsman preparing the same, together with an hour for the supervising solicitor/partner checking and certifying the bill of costs.
  10. On receipt of the redrafted bill of costs, the Defendant’s solicitors wrote to the Claimant’s solicitors highlighting the procedural error in that they should have simply amended the existing bill of costs rather than creating a new bill of costs.
  11. In response to that correspondence, on 8 April 2016 the Claimant’s solicitors filed and served a further bill, this time an amended bill of costs. The total sum claimed in the bill was £55,393.19. Profit costs were reduced again together with a further reduction to disbursements. Again, the bill was signed and certified by the supervising solicitor and partner.


    Outcome

    Master Whalan found the Claimant’s solicitors’ actions to be “improper” and “unreasonable” and imposed the following penalty for the “improper” and “unreasonable” behaviour:

  • The Claimant’s entitlement to costs be disallowed to the extent of 50% of the assessed costs allowed on detailed assessment.
  • Specific deductions to the bill of costs (see paragraph 41 of the Judgment). These reductions included time in relation to other work done i.e. preparing, checking and certifying the bill of costs.

    In reaching his decision, Master Whalan stated that the breaches in the case were significant, repeated and either unexplained or unjustified (paragraph 40 of the Judgment).

    This is an excellent case which demonstrates the importance of preparing an accurate bill of costs and ensuring that a bill of costs does not breach the indemnity principle before certifying the same. What is clear from the Judgment is that Master Whalan would probably have been forgiving for the errors made in the first instance, but the failings the second time round and further failings thereafter were not capable of forgiveness and resulted in the severe penalty reduction of only 50% of assessed costs for the Claimant’s solicitors. So ensure statements of costs and bills of costs are prepared and checked properly!

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