Tag: Legal Costs

Does a paying party have to pay VAT on costs if an insurer is no longer trading?

ujjainimistryLeave a comment

The case of Shmuel Moller & Ors v One Touch Solution Limited & Anor [2026] was a routine summary assessment of costs arising from an interlocutory hearing where the Court was required to undertake a focused examination of VAT recoverability where the receiving party was in liquidation.

Background information

The proceedings arose out of a commercial claim brought by the Claimants against One Touch Solution Limited and its insurer, Hiscox Insurance Company Limited. During the litigation, the Claimants were granted permission to amend their statement of case.

The Court ordered that the Claimants should pay the Defendants’ reasonable costs of responding to the amendment, including the costs of preparing an amended defence, such costs to be assessed if not agreed.

By the time the costs issue arose, One Touch Solution Limited had entered creditors’ voluntary liquidation. This gave rise to a dispute as to whether VAT on the Defendants’ legal costs was recoverable as part of the costs order. The Claimants argued that VAT should not be included because it was recoverable by the Defendant (or its estate). The Defendants contended that liquidation meant VAT was irrecoverable and therefore payable by the Claimants.

The Court was therefore required to determine, in the context of a costs assessment, whether VAT on the relevant legal services was recoverable where the receiving party was a company in liquidation, and whether any additional costs should be awarded in relation to the VAT dispute itself.

The Parties’ arguments

The Claimants argued that VAT was only recoverable if the receiving party cannot recover it as input tax from HMRC and that the First Defendant had been VAT-registered at the relevant time legal services were supplied. They also argued that the liquidation did not change the VAT position; insolvency and VAT deregistration on liquidation does not automatically render VAT irrecoverable.

Furthermore, they argued that in respect of the First Defendant’s costs that were funded by the insurer, the insurer was not the entity that incurred the legal services and had no independent right to recover VAT as costs.

The Defendants argued that VAT was irrecoverable and therefore recoverable from the Claimants as part of the costs order. They stated that the liquidation rendered VAT irrecoverable and that VAT could not be recovered in an ordinary way.

Conclusion

The Court held that the First Defendant’s liquidators can recover VAT by filing appropriate VAT returns, meaning neither Defendant has suffered a recoverable loss for VAT in their costs. The Court’s decision was based on the wording of the Regulation 111(5) of the Value Added Tax Regulations 1995. The wording clearly supported the Claimant’s position, and it was held that the Defendants’ position flew in the face of the regulation and was unexplained.

The Claimants sought £1,000 (excluding VAT) for the costs of preparing submissions on the VAT issue. The court noted that the issue had been fully argued in correspondence, the Claimants succeeded on the point, and the Defendants could have avoided further costs by addressing it clearly at the earlier hearing.

Although the Court did not hear submissions from the Defendants on these costs, it found that the Claimants were clearly successful, that the usual CPR Part 44 costs principles applied, and that the amount claimed was reasonable and proportionate.

Accordingly, the Court ordered the Defendants to pay the Claimants’ costs of £1,000, subject to the Defendants’ right to apply in writing to set aside or vary the order, with any such application to be determined on the papers and with modest further costs expected.

Key Takeaways

Although the decision in Moller is not groundbreaking, it is a timely reminder that insolvency does not simplify VAT issues—it often complicates them. VAT recoverability turns on tax entitlement, not litigation status and insurers cannot assume VAT will be recoverable from the opposing party.

VAT on costs remains a technical issue requiring proper analysis. Treating it as an afterthought can prove an expensive mistake.

The Court rejected the common assumption that where a company is in liquidation, VAT on its legal costs must be irrecoverable and therefore payable by the opponent as part of a costs order.

Therefore, the key principle remains unchanged: VAT is only recoverable as part of costs if the receiving party cannot recover it as input tax. Liquidation or VAT deregistration does not, without more, make VAT irrecoverable.

Ujjaini Mistry is a Paralegal in the Civil and Commercial Costs Team at Clarion Solicitors. You can contact the team at civilandcommercialcosts@clarionsolicitors.com.

The Court of Appeal finds solicitors’ time attending rehabilitation case management meetings is recoverable in principle

Ellena HunterLeave a comment

The anticipated Court of Appeal judgment of Hadley v Przybylo [2024] EWCA Civ 250 has been handed down this morning. The panel, consisting of Lord Justice Coulson and Lord Justice Dingemans (‘Lord Justices’), considered whether the cost of a fee earner’s attendance at rehabilitation case management meetings was irrecoverable in principle as legal costs.

Background

The proceedings concerned a road-traffic accident that caused the Claimant to suffer catastrophic injuries including numerous broken bones, damage to his spleen, bladder, kidney and lungs, a traumatic brain injury, permanent brain damage and sub-arachnoid haemorrhaging. Following the accident, the Claimant underwent rehabilitation at numerous facilities and once a Court of Protection order was in place, the Claimant was discharged into the community with a team of carers that provided 24-hour care.

First Instance Judgment

The cost budget put forward on behalf of the Claimant sought £1.18 million in costs.

Master McCloud ordered that the parties engage in ADR in respect of the future costs. Following ADR, only the “Issues and Statements of Case” phase remained in issue, in which £68,400 was claimed for estimated costs.

The Defendant challenged the costs claimed in this phase on the basis that a solicitor’s attendance at case management meetings with medical and other professionals during management of the Claimant’s rehabilitation needs, and at meetings with professional deputies (said to be part of creating a Schedule of Loss) were not in principle recoverable as costs of the litigation.

Master McCloud considered whether such attendances were progressive. She determined that they were not and that the costs were not capable of being recovered inter-partes.

Master McCloud gave permission for a ‘leapfrog’ appeal to the Court of Appeal.

Court of Appeal Judgment

The Claimant appealed Master McCloud’s finding and the Court of Appeal were tasked with determining whether a solicitor’s time attending rehabilitation case management meetings and the like were recoverable in principle as inter-partes costs.

The Court of Appeal considered that there were two issues:

  1. Is attendance at rehabilitation case management meetings recoverable in principle?
  2. If it is, are there any limits that this court should place on its recoverability at this stage, or should those be addressed on assessment?

The Lord Justices held that this element of the costs was recoverable in principle and found that:

“the Serious Injury Guide and the Rehabilitation Code both envisage the possible involvement of a solicitor in ongoing rehabilitation meetings. Whilst the extent of them, and the amount of necessary attendance, is a matter for the assessment of the cost budget or detailed assessment, both of those guides would clearly indicate that, as a matter of principle, this was a recoverable category of costs.”

The Lord Justices stated that:

“It would be wrong to decide that the costs of the solicitors’ attendance at rehabilitation case management meetings are always irrecoverable. Equally, it would be wrong for the claimant’s solicitor to assume that routine attendance at such meetings will always be recoverable. It will always depend on the facts.”

Whilst finding that the costs of attending rehabilitation case management meetings are recoverable in principle, these costs are of course subject to reasonableness and proportionality. The Lord Justices warned that there was no blanket or default entitlement to attend rehabilitation case management meetings routinely.

Ellena Hunter is an Associate in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact the team at civilandcommercialcosts@clarionsolicitors.com

Apply for Fee Remission or pay the price

Joanne Chase1 Comment

In Gibbs v King’s College NHS Foundation Trust [2021] EWHC B24 (Costs), it was held that a party which failed to apply for fee remission (of court fees) where they would have been eligible to do so may not recover those fees from their opponent on assessment of costs. This reverses the position in Cook -v- Malcolm Nicholls Ltd (Coventry County Court , 11 April 2019) and Ivanov -v- Lubble (Central London County Court, 17 January 2020) in which it had been held that as a matter of public policy a decision not to rely on the public purse was not unreasonable.

Solicitors should ensure that they investigate their client’s eligibility for fee remission and ensure that they have evidence to support any claim that their client is not eligible. It may be prudent to complete and submit a request for remission in all cases (even where it is believed the client is ineligible) as confirmation from the court of ineligibility would be powerful evidence upon assessment. It would also be sensible to implement procedures for monitoring and updating the client’s eligibility. A policy to send a financial information form to the client whenever a court fee is payable would minimise the risk of non-recovery.

Parties may apply for fee remission after the court fee is incurred however time limits to do so apply. Practitioners should therefore check historic cases and apply for fee remission retrospectively where necessary and possible.

Should you have any questions, you can contact the team at civilandcommercialcosts@clarionsolicitors.com.

How do I deal with my costs following the death of P?

Ellie Howard-TaylorLeave a comment

Costs following the death of the Protected Party are often a grey area in Court of Protection matters. 

In some cases, the Deputy may wish to subject their costs to detailed assessment, however, in most incidents the Protected Party’s estate will be in probate and the Deputy’s costs will be agreed with the Executors of the estate.

What happens following the death of P?

Following the death of the Protected Party, the Deputy’s authority under the First General Order seizes with immediate effect. Once the matter has been transferred to the Executors of the Protected Party’s Estate, the Deputy can agree their costs directly without the need for a detailed assessment, saving the Protected Party further expense. It may be necessary to negotiate a discount with the Executors which would take into account any likely reductions that you might expect from the SCCO. 

If the costs cannot be agreed with the Executors, the Deputy will need to contact the Court for authority for assessment. Ordinarily, the SCCO will give permission by email to enable the assessment in these circumstances, otherwise it may be necessary to apply to the COP for further authority. After the assessment, the allowed amount should be paid by the Executor.

Can I be remunerated for work done after the death of P?

Rule 165 under Part 19 (Costs) to the Court of Protection Rules 2007 states that the Deputy’s costs can be remunerated where “an order or direction that costs incurred during the Protected Party’s lifetime be paid out of or charged on his estate may be made within 6 years after the Protected Party’s death.” If there is no Order as to costs then the Deputy cannot be remunerated through detailed assessment.

Can I recover all costs incurred following the death of P?

The SCCO may allow ‘reasonable costs’, post death of the Protected Party, in order for the Deputy to finalise their involvement in the matter. The SCCO have indicated that such costs should not be expected to exceed £1,500.00 + VAT.

We would recommend separating your costs into pre and post death of the Protected Party to distinguish the time spent both before and after the death. This may assist the recovery of costs on assessment as the Costs Officer can clearly see the time spent post death. 

Do I have to go to a detailed assessment?

If the Executors do not contest the Deputy’s costs, the Deputy will be invited to raise a final invoice which will then be settled from the Protected Party’s funds once the Grant of Probate has been drawn. Where the Deputy’s costs are disputed, the Executors can elect for the Deputy’s costs to be subject to detailed assessment, as explained above. 

In either of the above situations, the Deputy’s authority to administrate the Protected Party’s affairs will be discharged on the Protected Party’s death unless an Order is made to extend the Deputy’s powers.

If you have any questions relating to post death costs, please get in touch with myself at ellie.howard-taylor@clarionsolicitors.comor on 0113 288 5660.

Ho v Adelekun – update

Andrew McAulay2 Comments

The long awaited judgment in Ho v Adelekun [2021] UKSC 43 was handed down in October with the appeal being unanimously allowed.

The judgment clarifies the position in respect of the interplay between CPR 44.12 and CPR 44.14, and the effect of QOCS on a Defendant’s ability to offset an order for their own costs against the Claimant’s costs.

The issue arose from a personal injury claim which settled by way of Part 36 acceptance. A dispute ensued regarding whether fixed costs applied and the Defendant was successful on that point in the Court of Appeal. The Defendant was awarded their costs in the sum of £48,600. The Claimant had recovered damages of £30,000 and fixed costs of £16,700. As QOCS applied, and there was no order for damages, the Defendant could not offset their costs against the Claimant’s damages but argued that they could still offset part of their costs against the Claimant’s costs under CPR 44.12. 

CPR 44.14 states :

44.14 – Effect of qualified one-way costs shifting

(1) Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for damages and interest made in favour of the claimant.

(2) Orders for costs made against a claimant may only be enforced after the proceedings have been concluded and the costs have been assessed or agreed.

(3) An order for costs which is enforced only to the extent permitted by paragraph (1) shall not be treated as an unsatisfied or outstanding judgment for the purposes of any court record

The judgment confirms that off-setting under CPR 44.12 constitutes an enforcement for the purpose of CPR 44.14, above. As such, a Defendant’s costs can be set-off against opposing costs orders but only to the extent that those costs do not exceed the amount ordered for the Claimant’s damages and interest (absent any QOCS exceptions such as fundamental dishonesty). In this case, as there was no order for damages, there could be no offset against costs and the Defendant would recover nothing.

The word ‘order’ is key, any other form of settlement will mean that the Defendant cannot recover any of its costs unless an exception applies. A Part 36 acceptance or a Tomlin order where the damages provision is not within the order will not suffice. Similarly, where there is an order for damages but those damages are small, a Defendant’s costs (which may significantly exceed those damages) will be capped at that damages amount, even where the Claimant has recovered some costs.

The judgment has serious implications for Defendants and it was conceded that it may cause results that look ‘counterintuitive and unfair’. At paragraph 9, it was suggested that the issue may need to be reviewed by the Civil Procedure Rules Committee to put right any ambiguities. The minutes of the CPRC November meeting are now available here and confirm that the review is likely to be delayed until after the work on fixed recoverable costs is concluded.

This article originally featured in our November newsletter which can be found here. It has been updated to include the outcome of the recent CPRC meeting.

You can find out more about our services here or you can contact the Costs and Litigation Funding team at CivilCosts@clarionsolicitors.com.

Part 36 Rewards

Dominic ReganLeave a comment

HOCHTIEF V ATKINS ( 2019) EWHC 3028 ( TCC) saw a claimant who bettered their Part 36 quantum offer by just  £4,500 secure  an uplift of £65,000 and interest at 6% above base plus indemnity costs.

JLE V WARRINGTON NHS TRUST (2019) 1WLR 6497  –  On 21 June 2018 the claimant made a Part 36 offer in the sum of £425,000, inclusive of interest, in respect of the Bill of Costs. That offer accordingly expired on Friday 13 July 2018, i.e. the last working day before the hearing commenced.  Master McCloud assessed the bill inclusive of interest in the sum of £431,813.05, i.e. £421,089.16 plus £10,723.89 interest. The claimant therefore beat her Part 36 Offer by just under £7,000.

Had the Court  granted the default Jackson 10% uplift the claimant would receive an additional £43,181-30.

The Master considered this to be unjust given that the offer was made late on and it was only bettered by a slender margin .The Master was plainly troubled by the disparity between the amount by which the offer was beaten (£7,000) and the consequential uplift ( 6 times as much ).

She thus  declined to award the uplift. The claimant successfully appealed to Stewart J who made the award. The defendant ought to have paid up and settled. It only had itself to blame . The offer was plainly good.

In TELEFONICA  V OFFICE FOR COMMUNICATIONS (2020) EWCA Civ 1374 the claimant had bettered its offer by £4.5m or 9% yet received no more interest than would have been payable had it made no offer at all. The Appeal Court endorsed the view of Stewart J in JLE ( above ) that it would be highly unusual for the Court to grant some benefits but to withhold others .This was particularly so on the facts of this £54m case. Indemnity costs and an additional £75,000 “was an almost trivial uplift and any significant enhancement in overall relief would only have been achieved by the award of additional interest on the principal sum “ ( paragraph 42).The Judge was in error by regarding the award of 2 trivial enhancements as justification for not awarding the major enhancement, uplifted interest. The Appeal Court corrected the omission and so Telefonica gained  a useful extra £900,000.

Some Judges at first instance had flirted with the concept of withholding some of the rewards, adopting a pick and mix approach. The Appeal Court made it abundantly clear that the victor  ought to  receive each of the four enhancements pursuant to CPR 36.17(1)(b).There is nothing in the Rule which undermines or lessens entitlement to the others. The rewards are a composite package. All of them  ought to be bestowed .

On a practical note I surmise that Sir Rupert Jackson would agree. An approach which encouraged arguments about dividing up the spoils would be a blatant incentive for the paying party to raise challenges in the hope of shaving something off. Finality and certainty are secured by this approach.

HOCHTIEF was a good offer on quantum. JLE was a good one on costs. These examples demonstrate why it is crucial for a receiving party to make good, early offers to settle. We do !

You can find out more about our services here or you can contact the Costs and Litigation Funding team at CivilCosts@clarionsolicitors.com.

Fixed recoverable costs to be extended as Jackson proposals accepted

Andrew McAulay2 Comments

The government’s response to the MOJ consultation on Extending Fixed Recoverable Costs in Civil Cases has now been published and can be found here.

The report confirms that the recommendations made by Sir Rupert Jackson in 2017 will largely be implemented, save for the introduction of an ‘Intermediate Track’ as those cases will fall into an expanded Fast Track for cases valued up to £100,000.

Mesothelioma, clinical negligence, actions against the police, child sexual abuse claims and IP matters will be excluded. There will also be a fixed costs regime for noise induced hearing loss claims and costs budgeting will be introduced for judicial review claims where costs exceed £100,000.

Cases within the new expanded Fast Track will be allocated to one of four bands based on complexity with uplifts to apply where a Part 36 offer is beaten (35%) or there has been ’unreasonable behaviour’ (50%). The figures set out by Sir Rupert Jackson in 2017 will be adjusted for inflation, the original Fast Track and Intermediate Track proposals are, however, set out below:

The draft rules will be submitted to the Civil Procedure Rules Committee for consideration before being finalised. It is anticipated that the changes will be implemented in April 2023.

You can find out more about our services here or you can contact the Costs and Litigation Funding team at CivilCosts@clarionsolicitors.com.

Increased Guideline Hourly Rates approved by Master of the Rolls

Andrew McAulayLeave a comment

Following the publication of the Civil Justice Council working group’s final report on guideline hourly rates, the proposed changes have now been accepted by the Master of the Rolls.

The revised rates are as follows and are expected to come into force on 1st October 2021 together with the revised Guide to the Summary Assessment of Costs.

For more details see the recent video on our youtube channel where Professor Dominic Regan and Stephanie Kaye discuss the report, including the practicalities and potential issues going forward for both COP practitioners and commercial litigators.

You can find out more about our services here or you can contact the Costs and Litigation Funding team at CivilCosts@clarionsolicitors.com.

Guideline Hourly Rates – Final Report

Andrew McAulayLeave a comment

The Civil Justice Council working group has now published their final report on guideline hourly rates following the consultation that took place between January and March 2021.

The report responds to the concerns raised during the consultation process, however, the working group’s recommendations remain as per the interim report and will now be considered by the Master of the Rolls.

The recommended revised rates are as follows:

The full report can be found here.

You can find out more about our services here or you can contact the Costs and Litigation Funding team at CivilCosts@clarionsolicitors.com.

Fixed costs when the claimant dies, which section of CPR 45 applies?

Daniel MurrayLeave a comment

The Court of Appeal has delivered an important ruling in the case of West v Burton [2021] WLR(D)379], on which provisions of CPR 45 apply where the claimant dies throughout the course of a matter in which the fixed costs regime applies. The issue in dispute between the parties was whether it was the lesser provisions, in monetary value, of section III, or the more favourable in this instance, provisions of section II.

Both at first instance and at the initial appeal it had been decided that it was the provisions of section II of CPR 45 which ought to apply, as was argued on by the claimant. The reasoning being that claims brought by personal representatives were excluded from the protocol.

The unanimous decision was delivered by Sir Nigel Davis, who confirmed he had not found the decision altogether easy. It was said that “for the purposes of the Protocol, the claimant throughout is regarded as the person who was involved in the road traffic accident.”

“Furthermore, r.45.29A and r.45.29B are in terms confined to claims started under the Protocol. I consider, accepting the submissions of Mr Williams, that in this case the claim that was settled was that of Mr West. But Mr West was not himself the person who started the claim, within the meaning of the Protocol. Indeed, as executor he never could have started such a claim, given the provisions of paragraph 4.5(3) of the Protocol. Consequently, this was not a claim, for the purposes of assessing costs, within the ambit of CPR r.45.29A or r. 45.29B. Accordingly, costs fall to be assessed by reference to section II.”

“It further follows that I agree with the judge that the outcome would have been the same even had the claim not exited the portal. The provisions of section III would not have come into play; and this would still have remained a section II case.”

Thus, the earlier decisions were upheld and a more favourable costs award made. It will be interesting to see if the rules committee now sets out the position in express terms, as alluded to by Sir Nigel in his conclusions. The decision will however lead to more advantageous awards not only in low value RTA claims, but in low value EL/PL cases also, to which the same provisions apply.

This article was featured in our July 2021 newsletter, see the full newsletter here.

You can find out more about our services here or you can contact the Costs and Litigation Funding team at CivilCosts@clarionsolicitors.com.