Estimating your legal costs – Why?

Not only is it prudent and good practice, but it is essential that clients are regularly provided with estimates of their potential legal costs and are appraised in that regard.

The SRA require lawyers to provide their clients with the best possible information regarding the cost of the matter. This should be provided at the outset and reviewed and updated as and when necessary. Estimates of costs up to a particular stage are inadequate to meet the SRA requirements, an estimate of costs up to the conclusion of the claim is required.

The SRA requires lawyers at the outset to analyse whether pursuing the claim is commercially viable. Does the outcome justify the risk of having to pay someone else’s fees? So, an explanation needs to be given to the client of the likely costs of the claim, to include both party’s costs and whether the claim is worth pursuing in view of that. This should be reviewed throughout the lifetime of the claim and updated if appropriate. The reasoning is that the client should be able to make a fully informed decision when deciding to pursue litigation, a partial estimate does not allow this.

This is good practice in any event as it ensures that your client’s expectations are managed and will lead to no surprises. This transparency can lead to less disputes regarding the level of fees and the avoidance of any complaints in law firms which centre around fees.

The type or complexity of the claim will really depend on how sophisticated the estimate will need to be, however scoping the work properly will alleviate any scope creep.

Moreover, preparing an estimate of how much you consider that the claim will cost will assist regarding your approach, a more informed decision can be made regarding this. Providing this information does show confidence in pricing and in any event this more sophisticated pricing is being seen in the marketplace.

In the event of scope creep, a detailed estimate can assist and justify those further costs that are associated with the additional work. It is wise to keep your client informed if any of the out of scope work is not recoverable from the otherside, failure to do so may put you at risk regarding those additional costs.

In addition to identifying out of scope work, it is sensible to monitor your estimate and advise the client if the estimate is subject to change. If a detailed estimate has been provided at the outset it will be much easier to explain why the estimate requires increasing.

The draconian sanctions and restrictions surrounding budgets do not apply to estimates, the estimates are used as a yardstick to measure reasonableness. It is not intended to be straight jacket, that said, they do need to be prepared with care because if the client can show reliance and the matter proceeds to solicitor and own client assessment then your costs are at risk of a reduction as a result of that reliance.

Sue Fox is a Senior Associate and the Head of Costs Management in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact her at sue.fox@clarionsolicitors.com and 0113 336 3389, or the Clarion Costs Team on 0113 246 0622

 

Disproportionate Costs in the Court of Protection

In the case of Hounslow v A Father & Mother (Costs in the Court of Protection – Disproportionate litigation) [2018] EWCOP 23, Judge Eldergill looked at the effects of deviating away from the simple issue at hand and the way that costs can spiral when disproportionate and unnecessary work is undertaken. It also looked at the costs consequences and the unfairness that can be encountered by a Litigant in Person.

The proceedings were in relation to a young man. The Applicant was the London Borough of Hounslow and the Respondents, were the young man’s parents.  The young man resided with his father and suffered from a severe learning disability, which rendered him unable to manage his own property and financial affairs. The financial assets were modest, and the young man received a number of benefits. At the time that the proceedings were issued, the father was the Department of Work and Pensions appointee and the mother assisted with the administration of his state benefits.

In this case, the local authority considered that a Deputyship would be more appropriate due to financial safeguarding concerns, obtained by an anonymous informant.  On 6 February 2017, the Court issued an application filed by the local authority, which asked the Court to appoint the Director of Children’s and Adult Social Services as the Deputy.

On 1 March 2017, the father filed an acknowledgement of service, opposing the application. The father stated that the local authority had failed to provide him with a copy of the application saying it was ‘confidential’. It was also stated that the local authority had not provided any more details or evidence in support of the application.

A Dispute Resolution Hearing had been listed for 2 May 2017, following which no resolution was reached. Judge Hilder listed a number of comprehensive directions in relation to the filing of evidence, position statements and the trial. The matter then came before Judge Eldergill and he stated the following;

1) A case involving the alleged misuse of state benefits has generated an enormous amount of documentation, and no doubt legal costs, quite disproportionate to the simple central issue of an alleged misuse of benefits.

2) The position statements and correspondence are full of generalised assertions of abuse of process, applications being misconceived, summary judgment, etc, which no doubt partly explains why so much paper has been generated.

3) Both legally-represented parties have made basic procedural errors (filing lengthy documents electronically despite what the rules say, including references to discussions at a DRH, filing bundles that are immediately to be returned, not serving the application within the required time limits).

I make these points because of the very clear costs implications.

He then made a further order on 13 November 2017, setting out concerns and the following directions:

UPON

(1)  Considering bundles and other filed documentation concerning this application of in excess of one thousand pages.

WHEREAS

(1)  The local authority has applied to be appointed as the deputy for property and financial affairs of [the son] who is a gentleman in receipt of social security benefits that are managed under a DWP appointeeship held by the First Respondent.

(2)  The outcome of the application will be either that the First Respondent continues to act as [his son’s] appointee (if the application is dismissed) or that the local authority is appointed as [his son’s] deputy, in which case the local authority automatically becomes his appointee.

(3)  The overriding objective of the rules is to enable the court to deal with a case justly. This includes ensuring that it is dealt with expeditiously, in ways which are proportionate to the nature, importance and complexity of the issues, saving expense, and allotting to it an appropriate share of the court’s resources. The parties are required to help the court to further the overriding objective.

(4) Unfortunately, an application concerning the management of [the son’s] benefits has generated over one thousand pages of documents and a huge amount of professional time, expenditure and legal costs quite disproportionate to a simple central issue of alleged misuse of benefits. While the court acknowledges that some of the documentation and expense was required of the parties as a result of the court’s case management directions of 2 May 2017, the amount of documentation filed has nevertheless been contrary to the overriding objective.

(5) Furthermore, and notwithstanding any submissions to the contrary:

(a) The position statements and correspondence are full of generalised assertions of abuse of process, applications being misconceived, summary judgment, etc, which no doubt partly explains why so much paper has been generated.

(b) Both legally-represented parties have made basic procedural errors (filing lengthy documents electronically despite what the rules say, including references to discussions at a DRH, filing bundles that are immediately to be returned, not serving the application within the required time limits, referring inappropriately to public interest immunity, etc).

(6) The parties will be aware that such considerations and observations have clear implications in terms of the recovery of the legal costs generated by these proceedings.

(7) On the documentary evidence filed to date, the court makes the following provisional observations in order to assist the parties:

(a)  The safeguarding investigation was fundamentally flawed and unfair.

(b) The financial information filed to date suggests that there was a lack of prudent good housekeeping under the previous arrangements in force until February 2017 in relation to the way in which benefits were used for [the son’s] benefit.

(c)  The position statement dated 27 September 2017 filed on behalf of the First Respondent is in quite general terms, in particular the financial tables at (internal) pp.10-12.

(d)  A hearing in the Court of Protection regarding the redaction of the identity of the informant would be disproportionately costly. Whether the initial report was malicious or not, and whoever the informant was, it is for the local authority to establish on evidence that there has been mismanagement or misuse by the Second Respondent of [her son’s] funds, that such mismanagement or misuse means that the First Respondent (sic) cannot remain as [his son’s] appointee, and furthermore that it justifies a deputyship order in favour of the local authority.

(e) To date, and despite a prolonged safeguarding investigation, the local authority has not established that the Second Respondent has used [the son’s] funds for her own benefit or that the First Respondent is an inappropriate appointee. If the local authority cannot prove that then it follows that the informant was an unreliable informant.

(f)  In relation to that issue, the local authority has not received unredacted copies of the Second Respondent’s bank statements or had an opportunity to test the evidence of both Respondents by way of cross-examination. That being so, summary dismissal of the application (with the likely costs consequences) would not be just or appropriate at this stage.

(g) On the basis that the local authority is unwilling to withdraw its application, a short half-day final trial is appropriate with the following witness template: First Respondent Evidence-in-Chief 15 minutes, Cross-Examination 30 minutes; Second Respondent Evidence-in-Chief 15 minutes, Cross-Examination 30 minutes; Submissions 30 minutes; Judgment 30 minutes.

(h) Prior to the hearing the Second Respondent must (as she has very fairly willingly agreed to do) file and serve unredacted copies of the previously filed bank statements.

The mother provided the bank statements and details of the withdrawals and expenditure and the final hearing was on 2 February 2018. The Local Authority had withdrawn its application and left the matter of costs to be determined.

The young man had no savings so the usual rule of costs, that the costs be paid from the estate was not an option.  Judge Eldergill stated that the ‘proceedings had taken up a wholly disproportionate amount of court time and had been conducted with insufficient proportionality.’ The Judge concluded that the case could have been resolved in an efficient manner by simply reviewing bank statements and asking questions, but instead there were ‘hundreds of unnecessary and bad-tempered correspondence, witness statements, position statements and emails’ which amounted to approximately £50,000.00 plus VAT costs in respect of the Respondents costs and £15,000.00 in respect of the local authority’s costs.

Payment of costs in respect of property and financial affairs applications under Rule 19.2, state that the ‘costs should be paid by P or charged by to P’s estate’, however Rule 19.5 can be applied when there is support in departing from the general rule. The judge held that the litigation was conducted disproportionately by both sides and there was a failure to focus on the simple central issue of; whether the bank statements could indicate any misuse of funds. Furthermore, Judge Eldergill stated that he did not believe that the ‘costs incurred by the First Respondent were proportionate to the issues, complexity of the case and the son’s circumstances’.

The proportionality of the work undertaken on behalf of the First Respondent were deemed to be assessed on an item-by-item detailed assessment basis. The Local Authority would then pay 90% of those costs, with the 10% reduction reflecting the Courts findings of the conduct of the other party. The costs in relation to the Litigant in Person were much more complex and the Judge felt that they lead to an injustice. The Judge also called for the rules to be reviewed and revised so that the Court can award a Litigant in Person costs in a case such as this one. It will be interesting to see if there are any developments in this area.

Partial strike out of the budget – Page v RGC Restaurants Ltd !

Partial strike out of the budget in the case of Page v RGC Restaurants Ltd !

Be wary when preparing budgets, do NOT prepare a budget up until a particular stage, unless the court orders otherwise. In this case, the Claimant had decided to prepare their budget up until the PTR stage only, the Master found that they had not complied with the CPR and limited the budget to court fees only. The Claimant appealed the decision on the grounds that a budget had been filed, questioning the Master’s irrational approach of limiting the budget to court fees, claiming that CPR 3.15 (the fact that the parties had agreed the Claimant’s budget up to the PTR stage) trumps the sanctions imposed by CPR 3.14 and submitting that the default sanction should be dis-applied. 

On appeal, the Master found that this was partial non-compliance rather than full non-compliance. So rather than striking the full budget out, the court struck out those phases of the budget where forecast costs had not been provided.

It has to be said, the preparation of partial budgets makes assessing proportionality impossible, which is an essential part of costs management. 

In practical terms, this is important for split trials. My advice has always been NEVER to prepare a budget up to the first trial, unless the court orders otherwise as there is the risk that the court will deem this to be non-compliant and the budget may be reduced to court fees. We now have case law which provides guidance regarding the approach to be adopted, which is helpful.  

Sue Fox is a Senior Associate and the Head of Costs Management in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact her at sue.fox@clarionsolicitors.com and 0113 336 3389, or the Clarion Costs Team on 0113 246 0622.

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.

Proportionality and budget comparisons

Budgets were once again considered in the case of Red and White Services Ltd v Phil Anslow Ltd & Anor [2018] EWHC 1699 (Ch). This was a competitions claim about a bus company and its parking bays. In summary, the Claimant had the use of more parking bays than the Defendant, the Claimant sued the Defendant for trespass and the Defendant in turn brought, by way of a counterclaim, a competitions Act law claim against the Claimant and pursed a Part 20 Competitions Act claim against the Third Party.

All parties were ordered to prepare budgets with the Claimant’s and Third Party’s budgets being in similar amounts, each in the region of £1.5 million; and the Defendant’s budget coming in at just less than £300,000.00.

The Defendant not surprisingly submitted the Claimant’s and the Third Party’s budgets were seriously disproportionate, given that the damages in this claim were likely to be in the region of £80,000 to £120,000.

Mr Justice Birss commented that “It is essentially, although these are my words not counsel’s, an attempt to create figures for costs which are unrealistically low for the purpose of budgeting and to act as an unfavourable contrast to the figures from the claimant and the third party”

He considered proportionality and commented…

“I do not regard the budget costs figures in this case as proportionate or reasonable, particularly given the relatively limited nature of the disputes between the parties. The individual dispute which is worth the most is the overpayment/overvaluation claim. That will involve some quantity surveying evidence, although experience of such disputes leads me to suspect that this will not necessarily be extensive: the various valuation items in issue will probably fall into a handful of types or categories, so that once an expert has addressed the leading items in each category, there will be little left for the expert to do. The defects are a relatively modest element of this claim, so that even if they required both M and E and architectural experts, the involvement of such experts ought to be relatively limited.

He further commented that ..

“It is a matter for the defendant to have chosen to join both of those independent companies and therefore the fact that the two budgets together, each of £1.5 million, mean that the defendant could be bearing a cost risk of £3 million, does not seem to me to be a matter of great significance on the facts of this case. The individual budgets are the figures I need to consider, not the net risk to the defendant of aggregating the two.”

The judge, after applying the proportionality test and refusing to make comparisons with the Defendant’s budget, approved budgets for the Claimant and Third Party each in a sum not exceeding £800,000.00.

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

 

 

 

 

Proportionality – a flurry of cases

Proportionality is a hot topic in the legal costs world at the moment and in the last 4 months there has been a flurry of cases from the Senior Courts Costs Office and the High Court. The cases are as follows:

Marcura & DA-Desk FZ-LLC -v- Nisomar Ventures Limited & Claus Hyldager.

Various Claimants -v- MGN Ltd [2018]

Arjomandkhah -v- Nasrouallahi [2018]

Powell & others -v- The Chief Constable of West Midlands Police [2018]

The outcomes in each of these cases are of course case specific. Every case is different, and therefore in practice, this is what makes the application of the new test of proportionality difficult to predict.

It is now fundamentally important for all litigators and costs lawyers to have a sound knowledge of CPR 44.3 (5):

Costs incurred are proportionate if they bear a reasonable relationship to –

(a) the sums in issue in the proceedings;

(b) the value of any non-monetary relief in issue in the proceedings;

(c) the complexity of the litigation;

(d) any additional work generated by the conduct of the paying party; and

(e) any wider factors involved in the proceedings, such as reputation or public importance.

Lawyers should be able to link case facts/details to the above factors and articulate those facts to a Judge at a CCMC, summary assessment or to a Costs Judge on detailed assessment (or provisional assessment).

A really important point is that value shouldn’t be given superior status, as shown in the cases of Various Claimants -v- MGN Ltd [2018] and Marcura & DA-Desk FZ-LLC -v- Nisomar Ventures Limited & Claus Hyldager (costs can be higher than damages). However, in practice, Judge’s are often tactically led by Defendants to place a greater weight on value. It is therefore important for Claimants to be alive to this and ensure the Judge gives equal consideration to each factor in CPR 44.5 (3) and to encourage the Judge to adopt a ‘holistic’ approach (May & May -v- Wavell Group & Dr Bizzari [2018]) when applying the new test of proportionality.

The ’May’ case is the only case to date to give some real judicial guidance in relation to the test and how it should be applied. The decision in that case was appealed, but last week permission to appeal was refused by the Court of Appeal. Many legal experts expected the ‘May’ Appeal to provide the Court of Appeal with the chance to issue some clarity and guidance on the test – they will now have to wait a bit longer.

The area of proportionality is starting to develop and we will see many more decisions in 2018, with some appearing harsh and some lenient. The application of the test involves a large degree of judicial discretion and therefore practitioners should not expect a great deal of consistency. If certainty is what practitioners want then fixed costs is the remedy, which is of course not an attractive alternative!

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

 

Indemnity Basis Costs Awards

The case of MacInnes v Hans Thomas Gross [2017] contains some very useful information for any law firm or litigant considering the issue of indemnity basis costs awards. Pages 2 and 3 are the relevant pages to consider in the judgment.

In the case, the First Defendant applied for an indemnity basis costs award against the Claimant, but this was rejected by The Honourable Mr Justice Coulson, and in doing so he considered a number of authorities in relation to such awards. Those very useful authorities are at paragraph 3 of the judgment and are as follows:

  1. Indemnity costs are appropriate only when the conduct of the paying party is unreasonable “to a high degree. ‘Unreasonable’ in this context does not mean merely wrong or misguided in hindsight” see Kiam v MGN Limited [2002].
  2. The court must therefore decide whether there is something in the conduct of the action, or the circumstances of the case in general, which takes it “out of the norm” in a way which justifies an order for indemnity for costs, see Excelsior Commercial & Industrial Holdings Limited v Salisbury Hammer Aspden & Johnson [2002].
  3. The pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, provided the claim was at least arguable. The pursuit of a hopeless claim (or a claim which a party pursuing it should have realised was hopeless) may well lead to such an order, see Wates Construction Limited v HGP Greentree Allchurch Evans Limited [2006].

The review of key authorities in the judgment is very useful and provides an excellent starting point for anyone tasked with considering whether to apply for an indemnity basis costs award.

Do remember that an indemnity basis costs award should always be sought in the appropriate cases, due to the fact that proportionality is not a consideration/factor when costs are assessed on the indemnity basis. There is also case law that supports the position that a receiving party is not restricted/held to its costs budget where costs are assessed on the indemnity basis (Slick Seating Systems [2013] and Kellie v Wheatley [2014]). CPR 3.18 also supports this.

The new test of proportionality has had a real impact (negatively for receiving parties) on some reported cases (see, for example, The new test of proportionality – 66% reduction) and therefore an indemnity basis award would provide protection for a receiving party from the new test of proportionality. Furthermore, there is a strong argument that an indemnity basis costs award escapes fixed costs (Broadhurst v Tan [2016]) and therefore applications for indemnity basis costs awards may well be on the increase given the likely extension of fixed costs for civil and commercial litigation in the not too distant future.

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.

 

The importance of the precedent H Costs Budget! Harrison on appeal – no second bite of the cherry.

Jacqueline Dawn Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] WECA Civ 792 – the Court of Appeal has found that the budgeted costs will not be departed from in the absence of a “good reason”. Davis LJ further found that incurred costs do not form part of the budgeted costs and the good reason test does not apply to those incurred costs. Davis LJ confirmed that the proportionality test can be applied to the final claim for costs. This is despite the proportionality test having been applied when the costs budget was approved, this may result in claims for costs being subject to detailed assessment on the issue of proportionality alone.

Davis LJ summarised the Applicant’s submissions regarding what reliance should be placed on the budget at detailed assessment, as follows:

“The premise underpinning Mr Hutton’s argument thus was that CMOs in effect are but summary orders which at best give no more than a snapshot of the estimated range of reasonable and proportionate costs: often reached, as Mr Hutton would have it, on a broad brush or rough and ready judicial approach after a hearing which would have been limited in time, rushed in argument and incomplete in the information advanced”.

Davis LJ considered this to be a sceptical appraisal, commenting:

“that to sanction, at detailed assessment, a departure from the budget in the absence of good reason would overlook (among other things) that budgeted costs are already required to have regard both to reasonableness and to proportionality; that the aims of costs budgeting include a reduction in detailed assessments and of issues raised in points of dispute; and that the element of certainty to clients (in the form of knowing what costs they are likely to face, in terms of payment or recovery) would be removed.

Moreover, if approval of a costs budget by a CMO has the more limited status which the appellant would ascribe to it then that would have a potentially adverse impact on parties thereafter attempting to agree matters without requiring a detailed assessment.  Although Mr Hutton queried if that was one of the perceived prospective benefits of the costs budgeting scheme, it seems to me – as it did to the editors of Cook on Costs – wholly obvious that it was indeed designed to be one of the prospective benefits of cost budgeting that the need for, and scope of, detailed assessments would potentially be reduced.”

The court’s attention was then drawn to incurred costs. The respondent presented what was described by Davis LJ as an ingenious argument to the court regarding incurred costs being potentially, in essence, approved ‘through the back door’. The respondent submitted that:

the incurred costs will have acquired a special status: in that, while not “approved” as such, they will have been taken into account by the court at the costs management hearing in managing the future estimated costs.”

Davis LJ disagreed and found that:

With respect, this will not do.  Either incurred costs are within the ambit of CPR 3.18 (b) or they are not.  Since they are not approved budgeted costs, by the terms of paragraph 7.4 of PD 3E and of the Rules, they are not within that sub-rule.”

Davis LJ recognised that practical problems remained surrounding incurred costs and advised that the CPR committee’s intention was to amend the rules to decouple incurred costs from budgeted costs.

In summary, a good reason is required to depart from the budget, the proportionality test can be applied to budgeted costs, thus a reason to escape the restrictions of the budget; incurred costs should be considered in isolation to the budgeted costs and the rules still require amendments regarding incurred costs to ensure that costs management works.

It is therefore essential that an accurate budget is presented to the court, this Court of Appeal decision has ruled that a budget cannot be departed from unless there is a good reason to do so, this is a difficult test to overcome. There is no second bite of the cherry.

Sue Fox is a Senior Associate and the Head of Costs Budgeting in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact her at sue.fox@clarionsolicitors.com and 0113 336 3389, or the Clarion Costs Team on 0113 246 0622.

 

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.

 

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.