Following the introduction of Qualified One Way Costs Shifting (QOCS), parties have begun seeking to find ways to try to recover their costs where they are not, on the face of it, recoverable. One of the methods currently being tried is to make a CPR 36 offer on the basis that beating a CPR 36 offer will entitle the defendant to all of its costs, assessed on the standard basis.Read More »
The cases of Sutherland v Khan and Summers v Bundy look at the way fixed costs interacts with the CPR 36 regime.Read More »
I recently held a seminar at my offices on the issue of fixed costs. The seminar was in conjunction with the Leeds Law Society and Kings Chambers. The format of the seminar was a question and answer session and it was interesting to hear views from Leeds based litigators (claimant and defendant) on the issue of fixed costs.
On 28 January 2016 LJ Jackson is due to speak on the issue of fixed fees within the legal profession. It is widely predicted that he will recommend an extension of fixed fees for ‘low end’ multi track disputes.
In my opinion, LJ Jackson is of the view that legal costs disputes should be preserved for high value claims, so that the cost of a legal dispute and the cost of detailed assessment proceedings are always proportionate to the cost of the claim. Furthermore, it is fair to say that costs management has not been embraced by the profession and this is probably another reason why LJ Jackson is likely to recommend further fixed fees.
Whilst everyone in the profession has found costs management challenging, any new rule change or procedure will always create difficulties. Costs management has officially now been with us since 1 April 2013, and I think that more time should be provided to smooth out some of the problems. I say this because I am starting to see the benefit of costs management in some of the claims for costs that I have dealt with recently. For example, we were recently instructed on a clinical negligence matter and prepared a Bill of Costs. We prepared the Bill of Costs in phases and provided precedent Q when detailed assessment proceedings were commenced. The Bill of Costs came in under budget or on budget for each phase. We received a telephone call within 14 days of service of the bill where an offer equating to 95% of the Bill of Costs was made. That offer was accepted the same day and our client received payment within 14 days. This is a perfect example of how costs management can bring significant benefits to a successful Claimant/Receiving Party.
Another example is on a high value personal injury claim where the Claimant/Receiving Party came in within budget for each phase, save for one phase. Points of Dispute were prepared and at the same time the Paying Party served a strong Part 36 offer. I responded with a counter offer and the matter settled shortly thereafter. The costs of the detailed assessment proceedings were minimal.
In both of these examples, the paying parties received the bills of costs and knew that if they proceeded to detailed assessment they would struggle to reduce the bills by any sensible sum and therefore made very strong opening offers. Strong opening offers from paying parties in the past were unheard of but now we might start to see a new culture from paying parties. If the bill is largely in line with the budget then settlement should in theory become quite easily achievable and the costs of detailed assessment proceedings will largely be avoided.
In both examples, the Paying Parties made very strong opening offers of settlement because the costs claimed were broadly in line with the costs management orders. The Paying Parties had been advised what they were likely to pay (the costs management orders) and given that both bills of costs were broadly in line with the costs management orders it resulted in swift settlements. This is evidence that costs management can work!
it may be that maybe costs management is starting to settle down and the benefits are starting to show. If costs management is starting to work then, the costs of detailed assessment proceedings will begin to decrease significantly.
I do hope that LJ Jackson stumbles across my blog and takes my thoughts into consideration, but maybe I am being slightly optimistic!
This blog was written by Andrew McAulay, who is a Costs Lawyer and Partner in the Costs and Litigation funding team at Clarion. Andrew can be contacted on 0113 336 3334 or at andrew.mcaulay@clarionsolicitors.com.
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.
Should you have any questions, you can contact the team at CivilCosts@clarionsolicitors.com
[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
Clarion are holding a Costs and Litigation Funding Update Seminar on Thursday 22 October 2015. The seminar will provide a valuable update on a broad range of topics relating to legal costs and litigation funding. Clarion will provide up-to-date and useful guidance on case law post Jackson, cost budgeting and WIP due-diligence.
For more information, please click the link below:
http://www.clarionsolicitors.com/who-we-are/events/costs-and-litigation-funding-update
It’s a case that everyone has being waiting for and it proved to be fairly anti-climatic in the end. For those who want to refresh their memories we wrote an extensive article on the background of the Coventry case which you can read by clicking here.
The full Judgment of Coventry -v- Lawrence [2015] UKSC 50 was published yesterday confirmed that nothing will change and that the recovery of additional liabilities did not breach the European Convention on Human Rights. The Supreme Court commented as follows:
“The scheme as a whole was a rational and coherent scheme for providing access to justice to those to whom it would probably otherwise have been denied. It was subject to certain safeguards. The government was entitled to a considerable area of discretionary judgment in choosing the scheme that it considered would strike the right balance between the interests of appellants and respondents whilst at the same time securing access to justice to those who would previously have qualified for legal aid. It had to find a solution to the problem created by the withdrawal of legal aid. The government has now produced three different schemes. Each was produced after wide consultation. Each has generated considerable criticism. As already indicated, once civil legal aid was constrained to the extent that it was in 1999, it became impossible to come up with a solution which would meet with universal approval. This is relevant to the question whether the 1999 Act scheme struck a fair balance between the interests of different litigants.”
This should put to bed any arguments over the recoverability of any success fee / ATE Premium on pre-Jackson cases. The outcome shouldn’t come as a big surprise to lawyers. Notably Lord Mance stated as follows;
In the above circumstances, I reject the respondents’ challenge to the system of costs whereby they are potentially liable in respect of success fees agreed and ATE premium incurred by the appellants. The position must, as Lord Neuberger and Lord Dyson have said, be considered as a whole. The system had a legitimate aim, the present is on its face an extreme and unusual case. It is difficult to conceive of any solution which would cater for such cases, without imperilling the whole system. The system has been repeatedly endorsed by domestic courts over a decade. Litigants and their lawyers have justifiably relied upon its validity.
The Judgment prevents any complications for Claimants seeking to recover a success fee and also prevents a hefty bill for the UK government who could have found themselves having to remedy the success fees and ATE Premiums already paid and to be paid as part of on-going pre-Jackson cases.
The Supreme Court invariably made the right decision but what Coventry has done is to place in everybody’s mind the disproportionate nature of the old costs regime and only seeks to reinforce the importance of costs management (and perhaps even the extension of fixed fees) in the years to come. I end this article the same as I ended my previous analysis of this case and it is one of Lord Neuberger’s original comments that has stuck with me the most;
“The fact that it can cost two citizens £400,000 in legal fees and disbursements to establish and enforce their right to live in peace in their home is on any view highly regrettable. The point is reinforced when one takes into account the value of their home,
which is less than £300,000 (coupled with the effect of the nuisance on that value,
£74,000 at the most)
[…]
These figures are very disturbing.”
Regardless of the judgment yesterday, one thing is clear, the figures are very disturbing indeed.
Do you agree with the Supreme Court’s decision? Let us know in the comments below.
I completely agree with the ideology and concept that Precedent H Costs Budgets should be prepared once the order for directions has been made. This enables all parties to cost their budget from the same case plan and then draw the correct comparisons when negotiating. Having an order detailing the directions made avoids parties drafting budgets with assumptions which differ, this naturally makes drawing comparisons a challenging task and negotiations sometimes impossible. Preparing the budget following the directions order can also avoid the inevitable amendments which will be required to reflect the directions made and also the subsequent hearing which may be necessary, surely a much simpler and more cost effective process – “hear, hear” are the shouts from all the Costs Draftsmen/Costs Lawyers.
Perhaps the reason that this was not adopted is because the Courts are, or should be, guided by the costs of a particular task/aspect when determining the directions, this was certainly the intention of the Jackson Reforms. What a quandary? Should the Courts be implementing a system which results in a more costs effective solution – utopia for the Costs Lawyer, or; should the Courts implement the Jackson Reforms correctly, thus ensuring that the Courts are managing the cases properly by determining the cost of each direction sought before assessing whether it is proportionate to make that direction? This certainly opens up an additional very interesting discussion.
Please see the attached link: https://www.linkedin.com/pulse/its-just-silly-phase-im-going-mark-carlisle?trk=prof-post
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