Archive for March 2015
This piece deals with the principles of when indemnity costs should be made as a result of a fault by the paying party. This is very different from indemnity costs under Part 36 which is considered in my piece Part 36: The Dry Salvages.
Courts have a very wide discretion in relation to costs. In Bolton Metropolitan District Council v Secretary of State for the Environment (Practice Note)  1 WLR 1176, referred to by Lord Phillips MR in R (Corner House Research) v Secretary of State for Trade and Industry  EWCA Civ 192, the court said: –
“As in all questions to do with costs, the fundamental rule is that there are no rules. Costs are always in the discretion of the court, and a practice, however widespread and longstanding, must never be allowed to harden into a rule.”
That is as true of indemnity costs as anything else; with the increased emphasis on proportionality, whatever that means – see Proportionality: The Emperor’s New Clothes – indemnity costs have suddenly become very much more important.
“(4) In deciding what order (if any) to make about costs, the court will have regard to all the circumstances including –
- the conduct for the parties…
(5) The conduct of the parties includes –
- whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;
- the manner in which a party has pursued or defended its case or a particular allegation or issue; and
- whether a claimant who has succeeded in the claim, in whole or in part, exaggerated its claim.”
CPR 44.3 reads:-
(1) Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs –
- on the standard basis; or
- on the indemnity basis,
but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.
(2) Where the amount of costs is to be assessed on the standard basis, the court will –
- only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and
- resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.
(3) Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party.”
EFFECT OF INDEMNITY COSTS ORDER
the Queen’s Bench Division of the High Court said:-
“8. The effect of an order requiring payment of costs on the indemnity basis is to disapply the requirement that, in addition to costs being reasonably incurred, they should also be proportionate to the sums and issues at stake in the litigation and that, in the event of the assessment Judge having a doubt as to whether or not an item of cost has been incurred reasonably, the benefit of such doubt should go to the receiving rather than the paying party.”
the Technology and Construction Court of the High Court pointed out that whatever was previously thought it is now clear that an indemnity costs order is significantly more valuable than a standard order. The Court quoted Lord Woolf in Lownds v Home Office  EWCA Civ 365,  4 All ER 775,  1WLR 2450:-
“The fact that when costs are to be assessed on an indemnity basis there is no requirement of proportionality and, in addition, that where there is any doubt, the court will resolve that doubt (as to whether costs were unreasonably incurred or were unreasonable in amount) in favour of the receiving party, means that the indemnity basis of costs is considerably more favourable to the receiving party than the standard basis of costs.”
The indemnity hourly rate or solicitor and own client hourly rate, which is the same thing, will almost always be higher than the amount stated in the budget and the amount sought from the other side on the standard basis. Many of us were brought up to advise clients that in the event of success they would recover about two-thirds of their costs. This was long before proportionality revealed its recent head and it reflected the difference in the hourly rates charged to one’s own clients and the rates generally recoverable on taxation (now assessment).
The courts themselves have said that they can and, where appropriate should, reduce hourly rates on proportionality grounds. It follows that if an order on an indemnity basis is made then that reduction goes out of the window.
You do not need to put the solicitor and own client rate in the budget. By not doing so you do not prejudice your chances of getting that full rate if an indemnity order is made.
WHEN SHOULD AN INDEMNITY COSTS ORDER BE MADE?
the court said that public bodies do not have a stronger claim to indemnity costs than other litigants.
the Court of Appeal declined to give circumstances where indemnity costs orders should or should not be made and emphasised the breadth of discretion of the trial judge and simply said “there must be some conduct or some circumstances which takes the case out of the norm. That is the critical requirement.”
The Court of Appeal cited with approval a passage from the Court of Appeal’s own judgment Kiam II v MGN Ltd (2)  EWCA Civ 66:-
“…conduct would need to be unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight. An indemnity costs order made under Part 44 (unlike one made under Part 36) does, I think, carry at least some stigma. It is of its nature penal rather than exhortatory…”
the Technology and Construction Court of the High Court, in rejecting the application for indemnity costs in that case, gave extensive guidance as to the grounds on which such an order should be made.
‘18. In general terms, an award of costs on the indemnity basis is justified only if the paying party’s conduct is morally reprehensible or unreasonable to a high degree, so that the case falls outside the norm. The applicable principles were set out at length by Tomlinson J in Three Rivers District Council v The Governor and Company of the Bank of England  EWHC 816 (Comm), at , in a passage on which Mr Lixenberg relied (omitting the eighth point, which was formulated with particular regard to the Three Rivers litigation):
““(1) The court should have regard to all the circumstances of the case and the discretion to award indemnity costs is extremely wide.
(2) The critical requirement before an indemnity order can be made in the successful defendant’s favour is that there must be some conduct or some circumstance which takes the case out of the norm.
(3) Insofar as the conduct of the unsuccessful claimant is relied on as a ground for ordering indemnity costs, the test is not conduct attracting moral condemnation, which is an a fortiori ground, but rather unreasonableness.
(4) The court can and should have regard to the conduct of an unsuccessful claimant during the proceedings, both before and during the trial, as well as whether it was reasonable for the claimant to raise and pursue particular allegations and the manner in which the claimant pursued its case and its allegations.
(5) Where a claim is speculative, weak, opportunistic or thin, a claimant who chooses to pursue it is taking a high risk and can expect to pay indemnity costs if it fails.
(6) A fortiori, where the claim includes allegations of dishonesty, let alone allegations of conduct meriting an award to the claimant of exemplary damages, and those allegations are pursued aggressively inter alia by hostile cross examination.
(7) Where the unsuccessful allegations are the subject of extensive publicity, especially where it has been courted by the unsuccessful claimant, that is a further ground.””
- More recently, in Courtwell Properties Ltd v Greencore PF (UK) Ltd  EWHC 184 (TCC), Akenhead J said this:
““22. So far as indemnity costs are concerned, there are numerous authorities which address the circumstances in which these may be ordered. A helpful if not absolutely exhaustive summary was given by Mr Justice Coulson in Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd  EWHC (TCC):
‘“16. The principles relating to indemnity costs are rather better known. They can be summarised as follows:
(a) Indemnity costs are appropriate only where the conduct of a paying party is unreasonable “to a high degree. ‘Unreasonable’ in this context does not mean merely wrong or misguided in hindsight”: see Simon Brown LJ (as he then was) in Kiam II v MGN Ltd (2)  EWCA Civ 66.
(b) 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 costs: see Waller LJ in Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (a firm)  EWCA Civ 879.
(c) The pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, provided that the claim was at least arguable. But the pursuit of a hopeless claim (or a claim which the party pursuing it should have realised was hopeless) may well lead to such an order: see, for example, Wates Construction Ltd v HGP Greentree Allchurch Evans Ltd  EWHC 2174 (TCC).
(d) If a claimant casts its claim disproportionately wide, and requires the defendant to meet such a claim, there was no injustice in denying the claimant the benefit of an assessment on a proportionate basis given that, in such circumstances, the claimant had forfeited its rights to the benefit of the doubt on reasonableness: see Digicel (St Lucia) Ltd & Ors v Cable and Wireless PLC & Ors  EWHC 888 (Ch).”’
To this can be added a number of other specific and general points:
(i) The discretion to award indemnity costs is a wide one and must be exercised taking into account all the circumstances and considering the matters complained of in the context of the overall litigation (see Three Rivers DC v the Governor of the Bank of England  EWHC 816 (Comm) and Digicel (as above)).
(ii) Dishonesty or moral blame does not have to be established to justify indemnity costs (Reid Minty v Taylor  EWCA Civ 1723).
(iii) The conduct of experts can justify an order for indemnity costs in respect of costs generated by them (see Williams v Jervis  EWHC 1837 (QB)).
(iv) A failure to comply with Pre-Action Protocol requirements could result in indemnity costs being awarded.
(v) A refusal to mediate or engage in mediation or some other alternative dispute resolution process could justify an award of indemnity costs.””’
“Examples of conduct that have led to such an order for indemnity costs include the use of litigation for ulterior commercial purposes… and the making of an unjustified personal attack on one party by the other.”
INTERPLAY WITH COSTS BUDGETING
In Kellie v Wheatley & Lloyd Architects Ltd  EWHC 2886 (TCC),  All ER (D) 152 (Aug), the High Court looked at the interplay between costs budgets and indemnity costs, and the grounds for making an indemnity costs order and fundamentally disagreed with another High Court decision on the costs budget issue.
Although this case dealt with alleged misconduct, the findings concerning the interplay between costs budgeting and indemnity costs apply to indemnity costs orders arising out of a claimant matching its own Part 36 offer.
This was a professional negligence claim which was lost and the defendant sought indemnity costs on the ground of the claimant’s conduct.
The relevant rule is CPR 44.3 as set out above.
The court pointed out that whatever was previously thought it is now clear that an indemnity costs order is significantly more valuable than a standard order.
Here the court said that this distinction is highlighted by the CPR and Practice Direction concerning costs management. Practice Direction 3E, para 7.3 provides:
‘When reviewing budgets, the court will not undertake a detailed assessment in advance, but rather will consider whether the budgeted costs fall within the range of reasonable and proportionate costs.’
‘In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –
(a) have regard to the receiving party’s last approved or agreed budget for each of the proceedings; and
(b) not depart from such approval or agreed budget unless satisfied that there is good reason to do so.’
In Henry v News Group Newspapers Ltd  EWCA Civ 19,  2 All ER 840, the Court of Appeal said:
‘The primary function of the budget is to ensure that costs incurred are not only reasonable, but proportionate to what is at stake in the proceedings.’
Here the defendant’s budget had been approved at £91,700 with the judge having refused, on proportionality grounds, to approve a budget of over £140,000. The amount now sought on the indemnity basis was £166,469. The court thus had to consider the relevance of a costs budget when an indemnity costs order has been made, and specifically disagreed with a previous decision of the High Court in Elvanite Full Circle Ltd v AMEC Earth and Environment (UK) Ltd  EWHC 1643 (TCC),  4 All ER 765,  BLR 473.
In Elvanite the High Court held that even on an indemnity basis the starting point is the approved budget. The court here in Kellie v Wheatley and Lloyd Architects Ltd  EWHC 2886 (TCC),  All ER (D) 152 AUG disagreed, holding that:
‘17. … costs management orders are designed to set out the probable limits of the costs that will be proportionately incurred. It is for that reason, and not because of any quirk of drafting, that CPR 3.18 refers specifically to standard assessment and not to indemnity assessment. Proportionality is central to assessment on the standard basis and it trumps reasonableness. However, proportionality is not in issue if costs are to be assessed on the indemnity basis. … I therefore find it difficult to see why logical analysis requires importing the approach in CPR 3.18 into assessment on the indemnity basis. The first reason given by Coulson J, at , has force if at all only if an approved or agreed budget does indeed reflect the costs that the receiving party says it expects to incur. However, the present case is an example precisely of the proper use of costs management in approving a budget at a lower figure than that proposed by the receiving party, on the very ground of proportionality. To suppose that the imposition of a budget under Part 3 would create some sort of presumption as to the limits of reasonable costs would be to ignore the fact that the approval of costs budgets is done on the basis of proportionality, not mere reasonableness. The matters referred to in connection with the first reason may, accordingly, justify having regard to the amount of costs the receiving party expected to incur, but they do not justify applying the CPR 3.18 analogously to assessment of costs on the indemnity basis. Similarly, the second reason, stated at, seems to me, with respect, to go further than is justified by the costs management regime. When a costs management order is made, the parties know that costs within the approved budget are likely to be considered proportionate, and costs in excess of the approved budget are likely to be considered disproportionate; in either case, the burden of justification lies on the party seeking a departure from the approved budget. But the costs management regime is not intended to give litigants an expectation that they will not incur a liability for disproportionate costs pursuant to an order for costs on the indemnity basis; any such expectation must rest on a party’s own reasonable and proper conduct of litigation. It is no objection to an order for costs on the indemnity basis that it is likely to permit the recovery of significantly larger costs than would be recoverable on an assessment on the standard basis having regard to the approved costs budget; that possibility is inherent in the different bases of assessment, and costs on the indemnity basis are intended to provide more nearly complete compensation for the costs of litigation. I accept, of course, that a party seeking to recover disproportionate costs on an assessment on the indemnity basis is required to show that those costs were reasonably incurred; though that requirement is subject to the provisions of CPR 44.3(3). That does not, however, justify the analogous use of CPR3.18, which has three disadvantages. First, it is both unnecessary and contrary to the rationale of that rule. Second, it tends to obscure the fact that the nature of the justification required of a receiving party is quite different under the two bases of assessment. Third, and consequently, it risks the assimilation of the indemnity basis of assessment to the standard basis, which is not justified by the costs management regime in the CPR. In my judgment, the proper way of addressing the concern identified by Coulson J in Elvanite at  is, first, by ensuring that applications for indemnity costs are carefully scrutinised and, second, by the proper application of the well understood criteria of assessment in CPR 44.3(3) to the facts of the particular case. It might also be remembered that, even if there exist grounds on which an award of indemnity costs could properly be made, such an award always remains in the discretion of the court.’
In neither Elvanite Full Circle Ltd v AMEC Earth and Environment (UK) Ltd  EWHC 1643 (TCC),  4 All ER 765,  BLR 473 nor Kellie v Wheatley and Lloyd Architects Ltd  EWHC 2886 (TCC),  All ER (D) 152 AUG was an indemnity cost order in fact made, so both judgments are obiter, that is not relevant to the decision, and therefore not binding on other courts. As to payment on account the judge ordered £90,000 against the approved budget of £91,700.
the Court of Appeal awarded indemnity costs to a legally-aided party in order to penalise the losing party for its unreasonable conduct in the case. It is no bar to an indemnity costs order that the only beneficiary is the claimant’s lawyer, as the claimant would not have to pay anything in any event, whatever the result, that is a loss or a win with costs on the standard basis or a win with costs on an indemnity basis.
In Phoenix Finance Ltd v Federation Internationale de l’Automobile & Ors  EWHC 1028 (Ch),  CP Rep 1, (2002) The Times, 27 June, the Chancery Division of the High Court held that it is not the law that an indemnity costs order will only be made if the conduct complained of has increased the costs that are recoverable.
The question is the reasonableness or otherwise of the conduct and is not dependent upon whether the conduct, whether reasonable or unreasonable, has increased the costs payable.
WILL PROPORTIONALITY ENCOURAGE COURTS TO MAKE INDEMNITY COST ORDERS?
It will be interesting to see if a new line of awards on the indemnity basis emerges on the grounds that although the costs were disproportionate to the matters in issue there were, nevertheless, good reasons for incurring them and therefore the award should be on the indemnity basis so as to avoid the risk of reduction on the ground of disproportionality on the standard basis.
COSTS OF COSTS
the District Judge had awarded costs on the indemnity basis on the ground that if parties litigate only as to costs, then it seemed to him that they must bear a greater risk that if they are unsuccessful they will be ordered to pay costs on the indemnity basis. In allowing an appeal against that order the Court of Appeal held that there is no reason why parties litigating over costs alone should be at any greater risk of an award of indemnity costs than those litigating over other matters.
the High Court ordered that the costs of the recall of an expert witness to deal with a written statement produced by the other side’s expert during the trial and at the order of the court should be paid on an indemnity basis.
The court said:-
“37. In my judgment, however, the fact that the court was obliged to ask Professor Trimble, in the middle of his evidence, to provide a written statement as to what exactly his evidence was and the basis upon which he was saying that the Claimant’s continuing symptoms were psychogenic did arise from serious shortcomings in the way in which Professor Trimble approached the giving of his evidence. It was helpful to the court to have that material but it was necessary for the Claimant to recall Dr Allder to deal with this new basis upon which Professor Trimble was finally presenting his evidence.
- In my judgment, that conduct on the part of Professor Trimble was so out of the norm that it justifies an order for indemnity costs.
- Accordingly, I order that the costs of the recall of Dr Allder, occasioned by the production by Professor Trimble of the final written statement of his position shall be awarded on an indemnity basis. I make an order for indemnity costs but limited in that way.”
the deficient expert evidence produced by the unsuccessful claimant had led to unnecessary costs being incurred by the defendant and accordingly the costs incurred by the defendant in that respect were awarded on the indemnity basis.
the High Court said that CPR 61 does not provide for costs on the indemnity basis where a CPR Part 61 offer is successful, whereas CPR Part 36 does provide for indemnity costs when a CPR Part 36 offer is successful.
In those circumstances, it was not appropriate in a collision action in the Admiralty Division of the High Court, governed by Part 61, to order costs on the indemnity basis merely because an offer had been successful.
INDEMNITY COSTS AGAINST NON-PARTIES
the court joined a party who had direct control over the second defendant company to the action for the purpose of costs and then made an indemnity costs order against that person.
Third Party Funders
the court awarded costs on an indemnity basis against third party funders.
The claimants brought what turned out to be a very speculative claim against the defendants and consequently costs were awarded against them on an indemnity basis.
However they did not pay and an application was made that the third party funders pay; some admitted liability to pay but not on an indemnity basis and others denied liability and one third party funder did not acknowledge service.
The claimants had been ordered to provide security for costs but there was a shortfall of £4.8 million between the security provided and the amount of costs.
The security that was paid, as ordered, was £17.5 million and that was supplied from funds from three sets of third party funders.
The basis of the security ordered was, as normal, the standard basis and the shortfall between the security provided and the amount of costs was almost entirely represented by the difference between standard costs and indemnity costs.
The court held that the fact that the security was inadequate was not a ground for declining to make a non-party costs order; indeed it may be the reverse – see Petromec Inc v Petroleo Brasileiro SA Petrobras  EWCA Civ 1038 and Dolphin Quays Developments v Mills  EWHC Civ 385.
At paragraph 58 of the judgment Christopher Clarke LJ sets out a lengthy list of reasons as to why he awarded indemnity costs against the claimant.
The judge then said:-
“60. The purpose of an order for indemnity costs is not to impose a penalty on the unsuccessful litigant (or his funders). It is to afford the successful party a more generous criterion for assessing which of his actual costs should be paid by his opponent because of the way in which the latter, or those in his camp, have acted. I set out some of the principles relating to the grant of indemnity costs in the costs judgment.”
The judge then dealt with the law concerning making a costs order against a non-party, commenting that the discretion under section 51(3) of the Senior Courts Act 1981 is very wide and the test is whether in all the circumstances it is just to exercise the power – see Globe Equities Ltd v Globe Legal Services Ltd  EWCA Civ 3023 (see my piece Wasted Costs and Non-Party Costs Orders).
That discretion extends to the form of the order and the proportion of any costs to be paid and the amount of any award – see Nelson v Greening  EWCA Civ 1358.
A third party order does not have to be on the basis of joint and several liability with the litigant.
Although there can be no comprehensive checklist of necessary or sufficient factors – see Systemcare (UK) Ltd v Services Design Technology Ltd  EWCA Civ 546  , the principles upon which the discretion should be issued were set out in Dymocks Franchise Systems (NSW) Pty Ltd v Todd  UKPC 39 as follows:-
“(1) A costs order against a non-party is “exceptional”, but “exceptional” means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such “exceptional” case is whether in all the circumstances it is just to make the order.”
(2) The discretion will not generally be exercised against “pure funders” but where;
“the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party’s costs. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is “the real party” to the litigation…”
(3) The most difficult cases are those in which non-parties fund receivers or liquidators (or, indeed financially insecure companies generally, in litigation designed to advance the funder’s own financial interests. Lord Brown said this at :-
“In the light of these authorities their Lordships would hold that, generally speaking, where a non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, he should be liable for the costs if his claim or defence or appeal fails.”
(4) Where a funder says that there is no impropriety in promoting a claim because it received “encouraging advice” from its lawyers;
“This cannot, however, avail them. The authorities establish that, whilst any impropriety or the pursuit of speculative litigation may of itself support the making of an order against the non-party, its absence does not preclude the making of such an order.”
On this point the judge concluded:-
“66. In the light of those principles I have no doubt that Psari and Mr Lemos… should be liable to the defendants for their costs. The claim could not have been brought without their assistance; they stood to benefit from its success to the tune of a healthy multiple of their investment. That the pursuit of speculative litigation is in the same category and to be viewed in the same way as impropriety for these purposes was affirmed by Rix LJ in Goodwood Recoveries Ltd v Breen  EWCA Civ 414 at . Similar considerations apply to the other funders.
- In the same case Rix LJ, with whom May LJ agreed, accepted that where a non-party director could be described as “the real party”, seeking his own benefit, controlling and/or funding the litigation, then:
“even where he has acted in good faith or without any impropriety, justice may well demand that he is liable in costs on a fact sensitive and objective assessment of the circumstances”.
This is a change from the earlier requirement that there must be impropriety or a lack of good faith as set out in Metalloy Supplies Ltd v M/A. (UK) Ltd  EWCA Civ 671, 1620; this approach was applied in Landare Investments Ltd v Welsh Development Agency  EWHC 946 (QB).
In Systemcare (UK) Ltd v Services Design Technology Ltd  EWCA Civ 546 the court pointed out the “and/or” formulation and said that it was not necessary for both elements to be present. So a third party can be liable in costs if they have controlled or funded the litigation. In Sims v Hawkins  EWCA Civ 1175 the court referred to the principal question as “whether the non-party (who renders himself liable to the regime, whether by funding or controlling the litigation or even in some other way)” was the “real party” to the litigation.”
Indemnity Costs against the Funders
The judge then went on to consider the issue of whether the costs to be paid by the funders should be on the indemnity basis.
The judge had no doubt that costs should be ordered on that basis if indemnity costs were appropriate generally in the case, and he had found that they were. “To do otherwise would, in my judgment, be unfair to the Defendants and their personnel, who were on the receiving end of claims and actions of the character that I described in the costs judgment.”
The Divisional Court had taken a similar view in R v SSHD Ex Parte Osman  COD 204 and a similar approach was taken by the court in Murphy v Rayner  EWHC 1 (Ch).
The judge said:-
“112. To make an order for indemnity costs would not be to penalize but to recompense. The sum presently in issue – about £ 4.8 million – is not disproportionate to the total monies contributed by Psari (and other funders), or to the individual contributions of most of them, and certainly not disproportionate to the anticipated return.”
The judge then reviewed, at length, the authorities in relation to indemnity costs against third party funders, which are essentially fact sensitive. The judge had this to say:-
“128. I recognize that there are, in this context, potentially competing public policies. If professional funders are exposed to the risk not only of standard but also of indemnity costs they may decline to fund, or only be prepared to do so at a higher cost or, perhaps more likely, against some form of indemnity or an increased reward for success, even in relatively standard cases. In either case access to justice may be curtailed…
- I do not regard these considerations as compelling. Indemnity costs are awarded in circumstances (including but not limited to the conduct of a party and not necessarily involving dishonest, morally culpable or improper behaviour) which are outside the norm.”
The judge also said that he did not regard the possibility of a wasted costs order against the claimant’s solicitors, Clifford Chance, as a reason not to make an indemnity costs order against the third party funders.
The “Arkin Cap” and Indemnity Costs
The principle of the “Arkin Cap” is that a professional funder should normally be potentially liable to the opposing party only to the extent of the funding provided. Thus if a funder provides £1 million they should not be liable to the other side for more than £1 million.
Here the court explained it in this way:-
“70. The position of a professional funder i.e. a funder who has a commercial interest in the outcome of the litigation, as opposed to a “pure funder” was considered by the Court of Appeal in Arkin v Borchard Lines Ltd (numbers 2 and 3)  EWCA Civ 655. The Court recognised that there were two competing principles. The first was that costs should follow the event so that a funder who wholly or partly causes the defendant to incur costs should be liable for those costs. The second was the policy of ensuring access to justice. Exposure of funders to the risk of having to pay costs of the opposing party assessed on an indemnity basis might increase the risk and hence the price of funding litigation.
- The solution derived by the Court was to hold that a professional funder who financed part of a claimant’s costs of litigation (£1.3 million in respect of the cost of expert evidence), should be potentially liable for the costs of the opposing party to the extent of the funding provided. The Court said that it could see no reason in principle why the solution suggested should not also apply where the funder had contracted the greater part, or even all, of the expenses of the action. But it reached no decision on the point.
- It seems to me that it is appropriate to apply the Arkin Cap in the present case. The position might be different if a funder had behaved dishonestly or improperly or if, as the Court put it in Arkin, “the funding agreement falls foul of the policy considerations which render an agreement champertous” e.g. if the funder has taken complete control over the litigation. In such a case it may be that there should be no cap at all.”
What was the Funder’s Exposure?
Here the court considered, apparently for the first time in any case, whether the cap should be the sum contributed by the funders for the claimant’s costs and thus not take into account the additional money provided for security of costs or whether it should be the total sum provided, including the sum provided for security of costs.
The court found that it was the total sum provided, including the sum provided for security of costs.
Thus if a funder provided £5 million towards the Claimant costs and then say £7 million for security of costs its total exposure in relation to an adverse costs order is £12 million.
Of course the amount provided by way of security of costs would go straight to the other party and would thus reduce the balance payable and thus it would not always be the case that the total further sum payable would equal the total sum invested by the funder.
The judge said:-
“135. The provision of money to Excalibur in order that it may provide security for costs is not the equivalent of a payment of costs ordered at the end of the case. It was a form of funding of the claim in exchange for a return attributable to the monies provided for that purpose – in effect an investment.”
The judge went on to say:-
“137. If the position were otherwise a funder whose sole contribution was to provide money for security for costs, without which the action would not have continued, would be in the happy position of facing no possible exposure under section 51; whereas those who funded the costs would bear that burden (alone). This would be the position even though, had the claim succeeded, the security for costs provider would have a right to share in the proceeds increased by a percentage reflecting what he had contributed in respect of security. In effect such a provider would have, so far as exposure to an order under section 51 was concerned, a “free ride”, on the back of those financing the costs. This could not be just and cannot be right.”
In this piece I have looked at indemnity costs orders under CPR Part 44, and as set out above these should only be ordered when there has been conduct outside the norm.
Under Part 36 a claimant who matches his or her own Part 36 offer should get indemnity costs as a matter of right, without there being any suggestion of misconduct on the part of the defendant.
Thus very different considerations apply and I deal with these in my piece – Part 36: The Dry Salvages.
However the consequences of indemnity costs orders under Part 36 are as above, that is that proportionality does not apply and any doubts are resolved in favour of the receiving party rather than the paying party.
- CPR 3.18
- CPR 36
- CPR 44
- CPR 44.2(1)
- CPR 44.2(4)
- CPR 44.2(5)
- CPR 44.3
- CPR 44.3(3)
- CPR 44.3(4)
- CPR 61
- Practice Direction 3E, para 7.3
Bolton Metropolitan District Council v Secretary of State for the Environment (Practice Note)  1 WLR 1176 (Link not available)
Landare Investments Ltd v Welsh Development Agency  EWHC 946 (QB) (Link not available)
R (Corner House Research) v Secretary of State for Trade and Industry  EWCA Civ 192 R v SSHD Ex Parte Osman  COD 204 (Link not available)
I am grateful to Simon Gibbs at http://www.gwslaw.co.uk/blog/ for much of the material in this piece.
Provisional assessment applies to all detailed assessment proceedings commenced in the High Court or County Court on or after 1 April 2013 where the amount of costs claimed is £75,000 or less (CPR 47.15(1)).
This is treble the figure recommended in Chapter 45 of Lord Justice Jackson’s Final Report and treble the figure piloted in Leeds, Scarborough and York County Courts.
However the new provisional assessment regime for cases with costs up to £75,000.00 “just has not happened” according to Master Peter Haworth of the Senior Courts Costs Office; he also said that it was “quite incredible” that cases involving so much money should be decided on the papers without a hearing. (Master Haworth speaking at the Compass Law Commercial Litigation Conference in July 2014.)
Speaking at SJLive on 25 February 2015 Master Haworth said:-
“The six week target for provisional assessment is a joke – no court is complying. The Practice Direction is pointless if judges are not given the resources to comply.”
“Other than in London, District Judges are doing provisional assessments without seeing the papers – you may as well toss a coin.”
CPR 47.6(1) provides:-
“Detailed assessment proceedings are commenced by the receiving party serving on the paying party –
(a) notice of commencement in the relevant practice form;
(b) a copy of the bill of costs.”
CPR 44.1 defines costs:-
“’costs’ includes fees, charges, disbursements, expenses, remuneration, reimbursement allowed to a litigant in person under rule 46.5 and any fee or reward charged by a lay representative for acting on behalf of a party in proceedings allocated to the small claims track.”
There is a new form N258 – Request for Provisional/Detailed Assessment – which requires one of two options to be ticked:
“I confirm the costs claimed are £75,000 or less and I ask the court to undertake a provisional assessment” or
“I confirm the costs claimed are over £75,000 and I ask the court to arrange a detailed assessment hearing”.
In accordance with CPR 47.15(5) “the maximum amount the court will award to any party as costs of the assessment (other than the costs of drafting the bill of costs) is £1,500 together with any VAT thereon and any court fees paid by that party.”
In Crosbie v Munroe  EWCA Civ 350 the Court of Appeal said:-
“Until the time the substantive claim is settled, the “proceedings” relate to liability and the amount of any compensation. After the substantive claim is settled, the “proceedings” relate to the assessment of the costs the paying party has to pay. Although CPR 43.2 contains no definition of “assessment” as such, the White Book comment on this rule accurately states that “assessment” is “the process by which the court decides the amount of any costs payable.
…the assessment proceedings cover the whole period of negotiations about the amount of costs payable through the Part 8 proceedings to the ultimate disposal of those proceedings, whether by agreement or court order.”
It is not clear, however, what happens about the costs that are incurred in relation to pre-provisional assessment applications such as applications to set aside default costs certificates, applications for interim payments or applications for relief from sanctions.
If such applications are dealt with pre-provisional assessment, it will not be known at that stage whether the proceedings will “go beyond provisional assessment”. Such pre-provisional assessment costs are therefore incurred within the detailed assessment proceedings but are they costs “of the assessment” or are they costs recoverable in addition to the £1,500 cap if the matter does not go beyond provisional assessment?
By virtue of the 66th Update to the Civil Procedure Rules, effective 1 October 2013, CPR 47.15.5 is amended to read:-
“In proceedings which do not go beyond provisional assessment, the maximum amount the court will award to any party as costs of the assessment (other than the costs of drafting the bill of costs) is £1,500 together with any VAT thereon and any court fees paid by that party”.
There are no transitional provisions so the old rule applies to provisional assessments up to 1 October 2013 and the new rule to any provisional assessment undertaken on or after 1 October 2013.
Additional liabilities are included within the £1,500 and this is in line with the decision in Jodie Henderson v All Around The World Recordings Limited  EWPCC 19, 27 March 2013, in relation to the cap in the Patents County Court.
Time spent drafting the bill of costs is allowable in addition to £1,500, but seemingly no allowance is made for checking the bill. Compare this with PD47, paragraph 5.19. “The bill of costs must not contain any claims in respect of costs or court fees which relate solely to detailed assessment proceedings other than costs claimed for preparing and checking the bill”.
There is no reference to work done in connection with issuing costs only proceedings and thus such work is included in the £1,500 – see Crosbie v Munroe  EWCA Civ 350 above.
No indication is given for the change of heart, presumably because the true reason is that the original wording was very poor.
It is still unclear as to whether the failure to allow additional costs for checking the bill and the failure to allow additional liabilities over and above the cap are deliberate policy decisions or yet further errors.
Provisional assessment is a procedure whereby the court provisionally assesses costs on paper, that is without an oral hearing, and if either party is dissatisfied then it can seek an oral hearing, but will pay the costs of that exercise if it does not achieve a 20% improvement upon the provisional assessment.
All that is filed at court is:
- the bill
- points of dispute
- costs orders
- copies of fee notes
Also to be filed with the court when requesting a provisional assessment under the new Practice Direction 14.3(d) to CPR 47.15 are:
“the offers made (those marked “without prejudice save as to costs” or made under Part 36 must be contained in a sealed envelope, marked “Part 36 or similar offers”, but not indicating which party or parties have made them).”
and as per Practice Direction 14.3 (c)
“a statement of the costs claimed in respect of the detailed assessment drawn on the assumption that there will not be an oral hearing following the provisional assessment.”
Provisional assessment does not always appear to be going the way it should, as different courts are introducing their own directions.
Replies are optional, but some courts are ordering them and also asking parties to service Replies not limited to points of principle and concessions – that contradicts Practice Direction 47, paragraph 12.1.
In the absence of a Reply from the receiving party to Points of Dispute some courts are assessing costs as per the paying party’s offer, again in clear breach of PD47, paragraph 12.1.
Thus the concept is that at the end of the provisional assessment the judge will open the sealed envelope, see what offers have been made, decide liability and make a decision.
Practice Direction 14.4(1) to CPR 47 states:-
“On receipt of the request for detailed assessment and the supporting papers, the court will use its best endeavours to undertake a provisional assessment within 6 weeks.”
Practice Direction 14.2(2) to CPR 47 states that paragraph 13 of the Practice Directions, in relation to Detailed Assessment, also applies to Provisional Assessment and Practice Direction 13.12 refers to supporting documents as follows:-
“The papers to be filed in support of the bill and the order in which they are to be arranged are as follows –
(i) instructions and briefs to counsel arranged in chronological order together with all advices, opinions and drafts received and response to such instructions;
(ii) reports and opinions of medical and other experts;
(iii) any other relevant papers;
(iv) a full set of any relevant statements of case;
(v) correspondence, file notes and attendance notes;”
Thus at present it is unclear whether the court require the papers in support of the bill as set out in Practice Direction 13.12, as 13.11 requiring these documents to be filed is exempt from Provisional Assessment, and my advice is to seek the guidance of the court in any given case, and if this is not forthcoming to lodge the whole file and to lodge separately and in addition the very limited papers required by the Practice Direction.
The Senior Courts Costs Office recommends that receiving parties lodge the full file when requesting assessment, but has not made this mandatory, as it believes that it has no power to do so, but takes the view that parties who fail to lodge the full file will be at a serious disadvantage.
Some Regional Costs Judges have taken the same view.
Most of us believe that Practice Direction 47, paragraph 13.13 DOES give the court power to order the whole file to be produced:
“13.13 The court may direct the receiving party to produce any document which in the opinion of the court is necessary to enable it to reach its decision. These documents will in the first instance be produced to the court, but the court may ask the receiving party to elect whether to disclose the particular document to the paying party in order to rely on the contents of the document, or whether to decline disclosure and instead rely on other evidence.”
Any oral hearing will be conducted by the District Judge who made the provisional assessment on paper; an oral hearing is not an appeal but rather a “second stage of the process before the assigned District Judge”.
If the party is unhappy with the outcome of a provisional assessment they can request an oral hearing. Liability for the costs of the hearing are dealt with by new CPR 47.15 (10):
“Any party which has requested an oral hearing, will pay the costs of and incidental to that hearing unless –
(a) it achieves an adjustment in its own favour by 20% or more of the sum provisionally assessed; or
(b) the court otherwise orders.”
Practice Direction 14.5 to CPR 47.15 (10) states:
“When considering whether to depart from the order indicated by CPR 47.15 (10) the court will take into account the conduct of the parties and any offers made.”
It is unclear as to whether a successful Part 36 offer trumps the 20% rule.
Thus £30,000 is awarded. The paying party makes a Part 36 offer of £28,000. The court cuts the award to £27,000, that is a 10% reduction, which is obviously less than a 20% adjustment in the sum provisionally assessed, but nevertheless is more than the Part 36 offer.
Where do costs lie?
Practice Direction 14.4(2) provides:
“Once the provisional assessment has been carried out the court will return Precedent G (the points of dispute and any reply) with the court’s decisions noted upon it. Within 14 days of receipt of Precedent G the parties must agree the total sum due to the receiving party on the basis of the court’s decisions. If the parties are unable to agree the arithmetic, they must refer the dispute back to the court for a decision on the basis of written submissions.”
That seems to suggest the judge won’t do the calculations at the end of the provisional assessment. Why then require costs schedule(s) to be filed with the request for the provisional assessment if it is known that further work must be undertaken (doing the arithmetic) but the amount of work required will not be known?
For some bills the extra work needed may be relatively minimal but for others may be more drawn out, particularly where there is disagreement between the parties.
Further, in this situation if the parties have to do the arithmetic, what is the normal mechanism for then asking the court to determine liability for the costs of the provisional assessment where the parties cannot agree? Practice Direction 14.6 provides:-
“If a party wishes to be heard only as to the order made in respect of the costs of the initial provisional assessment, the court will invite each side to make written submissions and the matter will be finally determined without a hearing. The court will decide what if any order for costs to make in respect of this procedure.”
An appeal will be to a Circuit Judge.
This is one of the Jackson reforms that I support. The ‘costs of costs’ has become an Alice in Wonderland feature of English court procedure. Indeed I would go further and extend this procedure to all bills, whatever their value. There is the safeguard of an oral hearing and an appeal to the next tier of the judiciary. The danger is that, rightly or wrongly, High Street solicitors will see this as yet another aspect of the Jackson Report designed to put them out of business while letting firms in the City charge what they want without the same restrictions. That may be unfair, but trust me, that is likely to be the reaction of most solicitors given the bias of the report and the Government’s proposals generally.
Provisional Assessment is a form of Detailed Assessment. New forms have been published:
- Precedent A: Model form of bill of costs
- Precedent F: Certificates for inclusion in bill of costs
- Precedent G: Points of Dispute and Reply
- Precedent H: Costs Budget
- Precedent P: Solicitors Act 1974: breakdown of costs
Points of Dispute: Precedent G
The new Practice Direction to CPR 47.9 states:-
“8.2 Points of dispute must be short and to the point. They must follow Precedent G in the Schedule of Costs Precedents annexed to this Practice Direction, so far as practicable. They must:
(a) identify any general points or matters of principle which require decision before the individual items in the bill are addressed; and
(b) identify specific points, stating concisely the nature and grounds of dispute.
Once a point has been made it should not be repeated but the item numbers where the point arises should be inserted in the left hand box as shown in Precedent G.”
The new rules relating to Replies to Points of Dispute apply to all Replies that are served after 1 April 2013.
When the receiving party replies to the Points of Dispute there must consider the new Practice Direction to CPR 47.13 which states:-
“12.1 A reply served by the receiving party under Rule 47.13 must be limited to points of principle and concessions only. It must not contain general denials, specific denials or standard form responses.”
Thus a receiving party should not reply to the grounds of dispute that has been raised unless a concession is inserted into the box relating to that point.
Precedent G: Points of Dispute and Reply gives the following example of a point of principle:-
“The claimant was at the time a child/protected person/insolvent and did not have the capacity to authorise the solicitors to bring these proceedings.”
Simon Gibbs, in his excellent blog at http://www.gwslaw.co.uk/blog/ suggests other potential points of principle:-
- a challenge concerning the indemnity principle;
- a challenge as to the enforceability of a conditional fee agreement;
- an argument that proceedings were issued prematurely and that only fixed pre-issue costs should apply.
He raises the question as to whether any of the following are points of principle:-
- an argument that defective notice was given in relation to an additional liability;
- the level of the success fee in a case where the success fee is recoverable;
- incorrect apportionment of VAT.
It should be noted that there is no transitional provision dealing with Points of Dispute and Replies and therefore the new rules apply to any Points of Dispute or Replies served on or after 1 April 2013.
The following are not treated as points of principle, but rather ground of dispute, in Precedent G: Points of Dispute and Reply, and therefore should not be replied to under the new Practice Direction 12.1 to CPR 47.13:-
- the number of conferences with counsel;
- the number of fee earners attending each conference;
- timed attendances on the claimant;
- time spent on documents;
- time spent on preparing and checking the bill.
The pre 1 April 2013 Costs Practice Direction concerning Points of Dispute, at CPD 35(3), required that Points of Dispute must “where practicable suggest a figure to be allowed for each item in respect of which a reduction is sought.”
For some reason that has now been dropped from the new Practice Direction to CPR 47.
Extending Time For Service of Points of Dispute
I am grateful to Paul Hughes – http://www.kingschambers.com for material in relation to this piece.
CPR 47.9(2) states that the period for service of Points of Dispute is 21 days after the date of service of the notice of commencement, and, CPR 47.9(3) prescribes that a party in default of service “may not be heard further in the detailed assessment proceedings unless the Court gives permission”.
Thus you are late with service of the Points, but have agreed an extension with the other side, on the basis that that is allowed to under CPD 35.1 :
“The parties may agree under rule 2.11 (Time limits may be varied by the parties) to extend or shorten the time specified by rule 47.9 for service of the points of dispute. A party may apply to the appropriate office for an order under rule 3.1(2)(a) to extend or shorten that time.”
On the face of it, this avoids CPR 47.9, but is in fact it does not.
CPD 35.1 expressly (and, insofar as variation by the parties is concerned, only) refers to the power contained in CPR 2.11, which entitles the parties to vary, by written agreement, “the time specified by a rule or by the court for a person to do any act” unless the Rules or a practice direction provide otherwise or a court orders otherwise, (my emphasis) and the Rules do provide otherwise as follows:-
CPR 3.8 (3):-
“(3) Where a rule, practice direction or court order –
(a) requires a party to do something within a specified time, and
(b) specifies the consequence of failure to comply,
the time for doing the act in question may not be extended by agreement between the parties.
The fact that CPR 2.11 is subject to CPR 3.8 is clear from a reading of these provisions. That this is correct is made clear by that reference in brackets to CPR 3.8 after the text of CPR 2.11
So, does CPR 3.8(3) apply to CPR 47.9?
Yes. The paying party is required to do something – serve Points of Dispute within a specified time, and the Rule specifies the consequences of the failure to comply.
Given the wording of CPR 47.9, it might have been open to argue that as the consequence was qualified (by “unless the Court gives permission”), it was not, in fact, a sanction it all (as it is a discretionary, as opposed to automatic, consequence). That argument, is ruled out by the judgment in Primus Telecommunications Netherlands BV v Pan European Ltd  EWCA Civ 273 (at paras 58 and 59), which concerned CPR 32.10, but the relevant wording is identical to CPR 47.9. Primus has been applied in Papa Johns (GB) Ltd v Doyley  EWHC 2621(QB).
Accordingly, there is a clear conflict between the power in CPD 35.1 and the Rules.
Practice Directions cannot override the CPR (See May L.J. in Godwin v Swindon Borough Council  EWCA Civ 1478 at ), so the provisions permitting the parties to agree to extend time for service of the points of dispute are of no effect.
Thus the sanction in CPR 47.9 applies, irrespective of whether there has been a purported agreement to extend time, unless the paying party applies for relief from sanctions under CPR 3.9.
The sanction to which the paying party is automatically subject is not being “heard further in the detailed assessment proceedings.” This means that the paying party can no longer participate, by contributing to a joint statement or being represented at the hearing.
What, if the Points of Dispute that are filed late? It seems that a paying party may rely upon them (as they predate – and indeed trigger – the debarral of further participation), but only in the sense that a Costs Judge may take them into account in assessing the Bill.
Thus the paying party is required to make an application to Court for an extension of time to avoid the automatic sanction in CPR 47.9. That application should often be a formality, it is unfortunate that it needs to be made at all.
Commencing Costs Only Proceedings
Gone is the old CPR 44.12A(2):
“Either party to the agreement may start proceedings under this rule…”
Does this mean that paying parties can no longer get things going? If this was a deliberate decision, why was it taken? Are paying parties now unable to take any positive step to progress matters where a receiving party drags their heels?
The new Practice Direction 3.1 to CPR 47.3 increases the powers of principle court officers from £75,000 including additional liabilities but excluding VAT to £110,000 base costs excluding VAT.
Once you add back in success fees, ATE premiums and VAT the size of the bill that can now be assessed by a principle court officer is £300,000 or more.
For non-principal court officers, the power increases from £30,000 including additional liabilities but excluding VAT to £35,000 base costs excluding VAT. That probably equates to covering some bills with a value of up to £100,000.
You can still object. If both parties agree, the court will automatically relist before a costs judge or district judge (Practice Direction 3.2 to CPR 47.3). Otherwise, an application is to be made to a costs judge or district judge (Practice Direction 3.3 to CPR 47.3).
Time to appeal
New CPR 47.14(7) introduced on 1 April 2013 states:-
“If an assessment is carried out at more than one hearing, then for the purposes of rule 52.4 time for appealing shall not start to run until the conclusion of the final hearing, unless the court orders otherwise.”
Under the section headed “Appeals from Authorised Court Officers in Detailed Assessment Proceedings” is CPR 47.23(1):
“The appellant must file an appeal notice within 21 days after the date of the decision against which it is sought to appeal.”
Note that this is a reference to date of the decision (as was the case prior to 1 April 2013), not the date of the conclusion of the final hearing. This is almost certainly a drafting error as the two conflict. There is no reason the time for appealing against a decision of a costs officer should be stricter that otherwise. Which prevails?
Practice Direction 14.4(2) provides:
“Once the provisional assessment has been carried out the court will return Precedent G (the points of dispute and any reply) with the court’s decisions noted upon it. Within 14 days of receipt of Precedent G the parties must agree the total sum due to the receiving party on the basis of the court’s decisions. If the parties are unable to agree the arithmetic, they must refer the dispute back to the court for a decision on the basis of written submissions”.
There is a problem in the interplay between provisional assessment and proportionality. The parties undertake the arithmetic on the Bill after it has been provisionally assessed. How then does the judge carry out the global proportionality check on the final figure if she does not know what that figure is?
Some courts are issuing their own directions for the parties to inform the court of the initial calculations so that the court can then consider, and where appropriate, apply, proportionality and give a final, proportionate, figure.
However no provision whatsoever is made in the Civil Procedure Rules; they are simply silent on this point.
Master Gordon-Saker, Senior Costs Judge, commenting on Simon Gibbs blog, suggests:-
“There is no reason why, on provisional assessment under the new proportionality rule, the court cannot endorse the bill: “Provisionally assessed. If the costs allowed exceed £x (the proportionate amount of costs) they are limited to that sum.””
“I usually provisionally assess the receiving party’s costs of the assessment as part of the provisional assessment. If there is no argument that the receiving party is entitled to costs, the job is done. If there is an argument, because the receiving party has failed to beat a Pt 36 offer, the pp can write in and ask for a different order.”
I hope all courts will adopt this sensible and clear advice. The common sense that emanates from the SCCO is such that maybe they should try all cases on all matters, rather than just dealing with costs.
Part 36 in Costs Proceedings
CPR 47.19 was scrapped with effect from 1 April 2013 and now Part 36 applies to detailed assessment proceedings, but the old CPR 47.19 applies where detailed assessment proceedings were commenced before 1 April 2013, and this is achieved by the Civil Procedure (Amendment) Rules 2013 at s.22(1).
“The provision made by rule 47.20(1) to (5) and (7) in the Schedule (liability for costs of detailed assessment proceedings) does not apply to detailed assessments commenced before 1 April 2013 and in relation to such detailed assessments, rules 47.18 and 47.19 as they were in force immediately before 1 April 2013 apply instead.”
Where a Part 47.19 offer was made prior to 1 April 2013, but notice of commencement was not served until 1 April 2013 or after, then the new Part 36 provisions apply, but it is not clear what happens in relation to a successful CPR 47.19 offer made before 1 April 2013 in such circumstances.
Since 1 April 2013, CPR 47.19 offers have disappeared and Part 36 applies, incorporated into detailed assessment proceedings by virtue of CPR 47.20(4), and the relevant part now reads:-
“Costs consequences following detailed assessment
(1) This rule applies where upon completion of the detailed assessment.
(a) a receiving party fails to obtain an outcome more advantageous that a paying party’s Part 36 offer; …
(b) the outcome of the detailed assessment hearing is at least as advantageous to the receiving party as the proposals contained in a receiving party’s Part 36 offer.
(2) The court will, unless it considers it unjust to do so, order that the paying party is entitled to –
(a) his costs from the date on which the relevant period expired; and
(b) interest on those costs.
(3) …the court will, unless it considers unjust to do so, order that the receiving party is entitled to –
(a) interest on the whole or part of any sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;
(b) costs on the indemnity basis from the date on which the relevant period expired;
(c) interest on those costs at a rate not exceeding 10% above base rate and
(d) an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is –
(i) where the claim is or includes a money claim, the sum awarded to the claimant by the court
|Amount awarded by the court||Prescribed percentage|
|up to £500,000||10% of the amount awarded;|
|Above £500,000 up to £1,000,000||10% of the first £500,000 and 5% of any amount above that figure”|
Subparagraph (d)(i) appears to be drafted widely enough to cover a claim for costs. The successful receiving party therefore gets a 10% uplift on whatever the bill is assessed at plus the other benefits listed at (a) to (c).
The fact that the Judge does not make the final calculations also causes obvious problems with Part 36, specifically how does the Judge know whether a party has succeeded in relation to a Part 36 offer?
If the Judge does not know who or who has not won on Part 36, then how does the Judge know what decision to make in relation to the costs of the assessment?
A receiving party who matches or beats its own Part 36 offer receives a 10% uplift on costs, up to a maximum uplift of £75,000, calculated in the same way as the Part 36 uplift on damages. Care needs to be taken in drafting the retainer to ensure that you entitle yourself to this sum, as costs belong to the client and an additional sum cannot be charged in the absence of clear agreement.
As to the general concept of Part 36 in assessment proceedings I leave that to Simon Gibbs:-
“Let me tell you a story.
Claimant for, Paye Cash & Praye are currently negotiating with defendant costs firm Kermit & Co over a £10,000 bill. Points of Dispute and Replies have been served.
On 2 April 2013 Paye Cash & Praye make a Part 36 offer to settle those costs for £7,000.
Kermit & Co accept the offer on 3 April 2013.
Acceptance of the offer creates a deemed costs order under the new CPR 44.9(1)(b). Under CPR 36.10(1) this means the receiving party is entitled to their costs of the assessment proceedings up to the date on which notice of acceptance was served.
The new CPR 47.20(5) states:
“The court will usually summarily assess the costs of detailed assessment proceedings at the conclusion of those proceedings”
However, the new CPR 44.1(1) clearly states:
“‘summary assessment’ means the procedure whereby costs are assessed by the judge who has heard the case or application”
In this example the matter has never come before a judge and summary assessment is not appropriate. All that’s left is detailed assessment proceedings in the absence of agreement.
In reliance on the deemed costs order Paye Cash & Praye serve a Notice of Commencement and new bill in respect of their assessment costs on 10 April 2013. (As an aside, where a matter settles prior to a provisional assessment being carried out, but the bill is for less than £75,000, does the £1,500 cap apply?) The costs claimed are £1,000. Service of the new Notice of Commencement amounts to commencement of new detailed assessment proceedings.
Kermit & Co, rather taken back by this turn of events, make a Part 36 offer of £800 in respect of those costs on 17 April 2013. No response to that offer is received within 21 days of service of the Notice of Commencement forcing Kermit & Co to serve Points of Dispute to the bill, which they serve on 1 May 2013. On 3 May 2013 Paye Cash & Praye serve Replies. On 4 May 2013 Paye Cash & Praye accept the Part 36 offer of £800. As the offer has been accepted within 21 days of it being made the Claimant is entitled to their costs of the new assessment proceedings up to the date on which notice of acceptance was served, including the period covering preparation of the new Replies.
Acceptance of the new Part 36 offer also creates a further deemed order for costs.
In reliance on the new deemed costs order Paye Cash & Praye serve a Notice of Commencement and new bill in respect of their further detailed assessment costs considering the Defendant’s Points of Dispute, drafting Replies and considering the Part 36 offer.
And so on, for ever.”
On his blog on 22 January 2015 Simon Gibbs had this to say:-
“The rule concerning filing of statements of costs is a mess. PD 47 para.14.3(c) refers to filing “a [in the singular] statement of the costs claimed in respect of the detailed assessment” implying that it is just the receiving party that will file a statement. What if the paying party has won? There is no requirement to serve the statement of costs on the opponent. The statement of costs will have to be prepared before the provisional assessment has occurred and before the parties have agreed the arithmetic. How much time should go in the statement of costs for the post-assessment number crunching and trying to agree the figures with the other side, when the work has yet to be done? For a Bill at the top end of the £75,000 figure, this can be time consuming if there have been, for example, amendments to the hourly rates and VAT figures. What if the parties cannot agree the figures and need to make written submissions to the court. How is this time dealt with in the statement?
Post-assessment, the parties “must” agree the total sum due to the receiving party on the basis of the court’s decisions within 14 days of receipt of Precedent G. But they then have 21 days to request an oral hearing. Is it necessary to try to agree the exact figures if a party is going to request an oral hearing in any event?”
Contrary to what some commentators have said, there is no requirement on a paying party to make an offer, either under Part 36 or otherwise.
The new Practice Direction 8.3 to CPR 47.9 states:
“The paying party must state in an open letter accompanying the points of dispute what sum, if any, (my italics) that party offers to pay in settlement of the total costs claimed. The paying party may also make an offer under Part 36.”
Thus there is no requirement to make an offer; if there was, then the words “if any” would be superfluous. However, some claimants are, presumably through ignorance, taking this point and so it may save time to make it clear in writing that no offer is being made if that be the case.
I have not come across anyone who can explain to me what is the purpose of the open offer, but those drafting the Civil Procedure Rules and the Practice Directions move in mysterious ways.
Clearly the right to make a Calderbank offer in costs proceedings – that is an offer “without prejudice save as to the costs of assessment” remains as CPR 36.1(2) reads:
“Nothing in this Section prevents a party making an offer to settle in whatever way he chooses, but if the offer is not made in accordance with rule 36.2, it will not have the consequences specified in rules 36.10, 36.11 and 36.14.”
Will a party who wins on its open offer ever not be awarded the costs of the detailed assessment?
Practice Direction 14.3(d) to CPR 47.15 states that when a party request a provisional assessment, it must file with the court:
“the offers made (those marked “without prejudice save as to costs” or made under Part 36 must be contained in a sealed envelope, marked “Part 36 or similar offers” but not indicating which party or parties have made them).”
Thus it is clear that the rules envisage offers other than those under Part 36 being relevant to the costs of assessment.
The drafters of the new rules appear not to understand the difference between an offer that is “without prejudice save as to the costs of assessment” and one made “without prejudice save as to costs.”
PD 47 para.13.10 allows a party to vary their bill:
“(1) If a party wishes to vary that party’s bill of costs, points of dispute or a reply, an amended or supplementary document must be filed with the court and copies of it must be served on all other relevant parties.
(2) Permission is not required to vary a bill of costs, points of dispute or a reply but the court may disallow the variation or permit it only upon conditions, including conditions as to the payment of any costs caused or wasted by the variation.”
It is in the court’s discretion as to whether to disallow the variation. For a case proceeding to a detailed assessment hearing this is straightforward enough. The court can rule on this issue, if it is contentious, at the start of the hearing.
But what about a case going to provisional assessment? Does that require an application is advance of the provisional assessment, despite permission not being required to make the variation itself? Will the court even know there has been a variation if only the amended bill is filed with the court?
Costs Management Orders
Where costs are not expected to exceed £25,000 only the first page of the nine pages of Form H Costs Budget needs to be completed.
Now that provisional assessment is to cover all cases of £75,000 or less it remains to be seen whether the exemption from completing the full Costs Budget form will also rise to £75,000.
Otherwise there is the prospect of a very detailed budget and a Costs Management Order all ending in a paper-only assessment for those bills between £25,000 and £75,000.
Qualified One Way Costs Shifting (QOCS)
QOCS is widely regarded as the weakest part of the Jackson Reforms, and as the old joke has it, that is against some pretty stiff opposition. The unanswered question here is whether the costs risk of failing to achieve 20% more than the provisional assessment figure applies in QOCS cases, that is all personal injury cases of all kinds. On the face of it, it does not, as the exceptions to QOCS are limited, and this is not one of them.
Precisely the same point applies in relation to Fixed Recoverable Costs, which has the same 20% escape rule; here the rich irony is that Fixed Recoverable Costs apply only to personal injury cases, just like QOCS.
Oh dear! It cannot possibly be the case, can it, that Fixed Recoverable Costs were announced out of the blue, without thinking of this can it? Can it?
Obviously everything else in relation to this exercise has been checked and checked again by the Ministry of Justice until perfect. See for example Precedent A: Model Form Bill of Costs.
I set out below our annotations. Can you spot any more errors?
Wipe your hand across your mouth, and laugh;
The worlds revolve like ancient women
Gathering fuel in vacant lots.
T. S. Eliot: Preludes
SCHEDULE OF COSTS PRECEDENTS
PRECEDENT A: MODEL FORM OF BILL OF COSTS
2011 – B – 9999
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
BRIGHTON DISTRICT REGISTRY
– and –
CLAIMANT’S BILL OF COSTS TO BE ASSESSED PURSUANT
TO THE ORDER DATED 2ND APRIL 2013
VAT NO. 33 4404 90
In these proceedings the claimant sought compensation for personal injuries and other losses suffered in a road accident which occurred on 1 January 2011 near the junction between Bolingbroke Lane and Regency Road, Brighton, East Sussex. The claimant had been travelling as a front seat passenger in a car driven by the defendant. The claimant suffered severe injuries when, because of the defendant’s negligence, the car left the road and collided with a brick wall.
The defendant was later convicted of various offences arising out of the accident including careless driving and driving under the influence of drink or drugs.
In the civil action the defendant alleged that immediately before the car journey began the claimant had known that the defendant was under the influence of alcohol and therefore consented to the risk of injury or was contributory negligent as to it. It was also alleged that, immediately before the accident occurred, the claimant wrongfully took control of the steering wheel so causing the accident to occur.
The claimant first instructed solicitors, E F & Co, in this matter in July 2011. The claim form was issued in October 2011 and in February 2012 the proceedings were listed for a two day trial commencing 25th July 2012. At the trial the defendant was found liable but the compensation was reduced by 25% to take account of contributory negligence by the claimant. The claimant was awarded a total of £78,256.83 plus £1,207.16 interest plus costs.
The claimant instructed E F & Co under a retainer which specifies the following hourly rates.
Partner – £217 per hour plus VAT
Assistant Solicitor – £192 per hour plus VAT
Other fee earners – £118 per hour plus VAT
Except where the contrary is stated the proceedings were conducted on behalf of the claimant by an assistant solicitor, admitted November 2008.
|Description of work done||
|8th July 2011 – E F & Co instructed|
|7th October 2011 – Claim issued|
|21st October 2011 – Particulars of claim served|
|25th November 2011 – time for service of defence extended by agreement to 14 January 2012|
|Fee on allocation||
|20th January 2012 – case allocated to multi-track|
|9th February 2012 – Case management conference at which costs were awarded to the claimant and the costs were summarily assessed at £400 (paid on 24th February 2012)|
|23rd February 2012 – Claimant’s list of documents|
|12th April 2012 – Part 36 Offer £25,500|
|13th April 2012 – Filing pre-trial checklist|
|Paid listing fee||
|Paid hearing fee||
|25th July 2012 – Attending first day of trial: adjourned part heard|
|Engaged in court 5.0 hours||
|Engaged in conference 0.75 hours||
|Travel and waiting 1.5 hours||
|Total solicitors fee for attending||
|Counsel’s fee for trial (Miss GH)||
|Fee of expert witness (Dr IJ)||
|Expenses of witnesses of fact||
|26th July 2012 – Attending second day of trial when judgment was given for the claimant in the sum of £78,256.53 plus £1,207.16 interest plus costs|
|Description of work done||
|Engaged in court 3.0 hours||
|Engaged in conference 1.5 hours||
|Travel and waiting 1.5 hours||
|Total solicitor’s fee for attending||
|Counsel’s fee for second day (Miss GH)||
|8th July 2011 – First instructions: 0.75 hours by Partner:Other timed attendances in person and by telephone – See Schedule 1||
|Total fee for Schedule 1 – 7.5 hours||
|Routine letters out and telephone calls – 29 (17+12) total fee||
|Witnesses of fact|
|Timed attendances in person, by letter out and by telephone – See Schedule 2|
|Total fee for Schedule 2 – 5.2 hours||
|Routine letters out, emails and telephone calls – 8 (4+2+2) total fee||
|Paid travelling on 10th October 2011||
|Medical Expert (Dr IJ)|
|11 September 2011 – long letter out 0.33 hours fee||
|31st January 2012 – long letter out 0.25 hours fee||
|23rd May 2012 – telephone call 0.2 hours fee||
|Routine letters out and telephone calls – 10 (6+4) total fee||
|Dr IJ’s fee for report||
|Defendant and his solicitor|
|8th July 2011 – timed letter sent 0.5 hours fee||
|19th February 2012 – telephone call 0.25 hours fee||
|Routine letters out and telephone calls – 24 (18+6) total fee||
|Communications with the court|
|Routine letters out and telephone calls – 9 (8+1) total fee||
|Description of work done||
|Communications with counsel|
|Routine letters out, emails and telephone calls – 19 (4+7+8) total fee||
|Work done on documents|
|Timed attendance – see Schedule 3|
|Total fees for Schedule 3 – 0.75 hours at £217, 44.5 hours at £192, 12 hours at £118||
|Work done on negotiations|
|23rd March 2012 – meeting at offices of solicitors for the Defendant|
|Engaged 1.5 hours||
|Travel and waiting – 1.25 hours||
|Total fee for meeting||
|Other work done|
|Preparing and checking bill|
|Engaged solicitor – 1 hour||
|Engaged: Costs draftsman – 4 hours (at £110)||
|Total fee on other work done||
|VAT on solicitor’s fees (20% of
|VAT on Counsel’s fees (20% of
COMMENTS ON PREVIOUS BLOGS
Sue: What a mess! Kerry, may I ask you advice on one issue? As stated above – where a Part 47.19 offer was made prior to 1 April 2013, but notice of commencement was not served until 1 April 2013 or after, then the new Part 36 provisions apply. I have a case where a very healthy Part 47.19 offer was made before 1 April 2013. The NoC was served post 1.4.13 and Points have just been drafted. I do not wish to make a Part 36 offer that, if accepted, would entitle the Claimant to his costs to date. I believe he is at risk on the pre Pods Part 47.19 offer. Any suggestions?