Kerry Underwood

Archive for November 2015

PROPORTIONALITY: THE EMPEROR’S NEW CLOTHES  

with 3 comments


This blog has been fully updated to 23 June 2016.

 

Section 4 of the Distress Act 1267, still in force, provides:-

“Moreover, Distress shall be reasonable, and not too great”

which shows that 749 years ago no one could define proportionality. That remains the case.

LJ Jackson, speaking on 23 May 2016, recognized this and referring to the factors in CPR 44.3(5) – set out below – said:-

“The best way to satisfy the requests for clarification is to convert the five identified factors into hard figures: in other words, to create a fixed costs regime… those seeking certainty about how rule 44.3 (5) will apply are “seeking something akin to a fixed fee regime for all cases.”

He proposed that for each financial level of claim – £25,000.00 to £50,000.00, £50,000.00 to £100,000.00 etc. a figure that is deemed to be proportionate be determined and that that figure then be adjusted to take into account factors (c), (d) and (e), for example by specifying a percentage uplift.

On 13 April 2016 the Queen’s Bench Division of the High Court in the seminal Contingency Fee Agreement case of

Bolt Burdon Solicitors v Tariq & Others [2016] EWHC 811 (QB)

made the point that Contingency Fee Agreements protect clients more than Conditional Fee Agreements:-

“This is because in a conditional fee agreement costs are always tied to the work done, whereas in a contingency fee agreement costs are always proportionate to recovery.”

The existing Fixed Recoverable Costs Scheme, with its combination of a core fee and a damages-based percentage fee is in part a recoverable contingency fee scheme.

Until we have contingency fees and/or fixed fees in all cases we have a problem.

That problem is that no one has ever defined what “proportionate” means. As Master Haworth said:-

“What is a “reasonable relationship”?  A set percentage of damages?  If not, why not? Even if you can compare costs with damages, how do you compare them with complexity or importance?”

He described it as “arbitrary and subjective.”

Professor Dominic Regan has called the test “an utter mystery” and said that it is something “which no one, but no one comprehends.”

So what is this test?

Before April 2013 it was whether costs had been reasonably or necessarily incurred and this is often known as the Lownds Test after the case of

Lownds v Home Office [2002] EWCA Civ 365

That test still applies to all work done on cases issued before 1 April 2013 and in all other cases to work done before that date.

For all cases not issued by 1 April 2013, all work done since then is subject to the new test of proportionality contained in CPR 44.3, which provides that the court will only allow costs which are proportionate to the matters in issue and costs which are disproportionate may be disallowed or reduced even if reasonably or necessarily incurred. (CPR 44.3(2) (a)).

Any doubts must be resolved in favour of the paying party (CPR 44.3 (2) (b)).

Proportionality relates only to recoverable costs and not to solicitor and own client costs (CPR 44.3(6)).

Costs are proportionate if they bear a reasonable relationship to:-

  • the sums in issue in the proceedings;

 

  • the value of any non-monetary relief in issue in the proceedings;

 

  • the complexity of the litigation;

 

  • any additional work generated by the conduct of the paying party; and

 

  • any wider factors involved in the proceedings, such as reputation or public importance. (CPR 44.3(5)).

 

Although Lord Justice Jackson is now proposing that fixed costs is the answer the new rule, which everyone agrees that no one understands, is in fact his doing and follows this recommendation in his report:-

“I propose that in an assessment of costs on the standard basis, proportionality should prevail over reasonableness and the proportionality test should be applied on the global basis. The court should first make an assessment of reasonable costs, having regard to the individual items in the bill, the time reasonably spent on those items and the other factors listed in CPR 44.5(3). The court should then stand back and consider whether the total figure is proportionate. If the total figure is not proportionate, the court should make an appropriate reduction.”

The courts often conflate and confuse proportionality and reasonableness. An example is

Kazakhstan Kagazy plc v Zhunus [2015] EWHC 404 (Comm)

where, in a short judgment, a High Court Judge ran the terms together on nine occasions.

Other cases where this happened include

Various Claimants v Sir Robert McAlpine [2015] EWHC 3543

CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd [2015] EWHC 481 (TCC) and

Savoye & Savoye Ltd v Spicers Ltd [2015] EWHC 33 (TCC)

One judge who got it right was Master O’Hare in

Hobbs v Guy’s & St Thomas’ NHS Foundation Trust [2015] EWHC B20 (Costs)

He reduced the bill by two thirds without any reference to proportionality. That reduction was made on the ground of reasonableness and would have been made under the old law and the Lownds Test.

The Master then looked at the remaining one third and decided that even that greatly reduced sum was disproportionate.

Thus the Master, having determined what was a reasonable amount, reasonably and necessarily incurred, had to cut further.

What he did is telling. A Grade A fee earner had actually done the work but the Master found that it should have been done by a Grade B fee earner and that that was reasonable and necessary but then allowed only the rate for a Grade C fee earner, on the ground of proportionality.

 

Thus the Master held that proportionality required the work to be done by someone not capable of doing it, or rather not of such seniority as to be likely to do the work properly.

He specifically stated that the amount required to run the case proficiently was the amount he had allowed prior to the proportionality reduction, and thus the amount that he allowed was not sufficient to run the case proficiently.

True proportionality can only be achieved by contingency fees, whether payable only by one’s own client, or by the losing party, or a mixture of both.

The New Rule

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 –

(a)       on the standard basis; or

(b)       on the indemnity basis,

but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.

(Rule 44.5 sets out how the court decides the amount of costs payable under a contract.)

(2)       Where the amount of costs is to be assessed on the standard basis, the court will –

(a)       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

(b)       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.

(Factors which the court may take into account are set out in rule 44.4.)

(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.

(4)       Where –

(a)       the court makes an order about costs without indicating the basis on which the costs are to be assessed; or

(b)       the court makes an order for costs to be assessed on a basis other than the standard basis or the indemnity basis,

the costs will be assessed on the standard basis.

(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.

(6)       Where the amount of a solicitor’s remuneration in respect of non-contentious business is regulated by any general orders made under the Solicitors Act 19744, the amount of the costs to be allowed in respect of any such business which falls to be assessed by the court will be decided in accordance with those general orders rather than this rule and rule 44.4.

(7)       Paragraphs (2)(a) and (5) do not apply in relation to –

(a)       cases commenced before 1st April 2013; or

(b)       costs incurred in respect of work done before 1st April 2013,

and in relation to such cases or costs, rule 44.4.(2)(a) as it was in force immediately before 1st April 2013 will apply instead.

 

Thus it is assumed that Lord Justice Jackson’s approach will apply:

I propose that in an assessment of costs on the standard basis, proportionality should prevail over reasonableness and the proportionality test should be applied on a global basis. The court should first make an assessment of reasonable costs, having regard to the individual items in the bill, the time reasonably spent on those items and the other factors listed in CPR 44.5(3). The court should then stand back and consider whether the total figure is proportionate. If the total figure is not proportionate, the court should make an appropriate reduction.

However the definitions in CPR 44.3(5) are not straightforward. Take ‘the complexity of the litigation’. Fine – but what figure is to be put on this? A 50% uplift? Or a line by line examination of the work done due to ‘complexity’ which takes one back to the Lownds test?

Likewise ‘any additional work generated by the conduct of the paying party’. Is that any work, such as denying liability or obtaining their own expert’s report? Or is it only to be misconduct that triggers extra fees?

Lord Neuberger summarized the aim of the new test as:

effectively reversing the approach taken in Lownds. In this way, as Sir Rupert said, disproportionate costs, whether necessarily or reasonably incurred, should not be recoverable from the paying party. To put the point quite simply: necessity does not render costs proportionate.

Lord Neuberger went on to say:

As such it seems likely that, as the courts develop the law, the approach will be as Sir Rupert described it:

….in an assessment of costs on the standard basis, proportionality should prevail over reasonableness and the proportionality test should be applied on a global basis. The court should first make an assessment of reasonable costs, having regard to the individual items in the bill, the time reasonably spent on those items and the other factors listed in CPR rule 44.5(3). The court should then stand back and consider whether the total figure is proportionate. If the total figure is not proportionate, the court should make an appropriate reduction.

He added:

It would be positively dangerous for me to seek to give any sort of specific or detailed guidance in a lecture before the new rule has come into force and been applied. Any question relating to proportionality and any question relating to costs is each very case-sensitive, and when the two questions come together, that is all the more true. The law on proportionate costs will have to be developed on a case by case basis. This may mean a degree of satellite litigation while the courts work out the law, but we should be ready for that, and I hope it will involve relatively few cases.

Surely the whole point of proportionality is to give a broad-brush approach as to what is a proportionate level of costs to incur to recover, say, £25,000, or £50,000 or whatever.

True it is that no two cases are the same, but most litigation is routine and involves predictable factors. Most litigation is not test litigation and does not involve any wider factors, such as reputation or public importance.

If each case must be considered on its merits, then inevitably the courts will be looking at what work was it necessary and what work was it reasonable to carry out, but this is of course what is supposed to be forbidden under the new rule, as it is simply a return to Lownds. Indeed everything comes back to Lownds, maybe because it was a well-thought out judgment which addressed all of the issues and dealt with them. Why re-invent the wheel?

Unless specific, detailed advice is given, then what is the point of proportionality? Why should the country’s most senior judge not say:

I have spoken with my judicial colleagues and reviewed the evidence and unless factors (d) and/or (e) apply I would expect a party never to recover more in costs than a sum equal to 40% of damages in a personal injury claim, 20% in a commercial claim……

etc, etc.

As Simon Gibbs has said:

Indeed, it is difficult to see why the answer to the issue of what is a proportionate level of costs to recover £25,000 should normally vary from case to case. And

I have yet to meet a costs practitioner who believes that the new proportionality test is workable. More worryingly, I have yet to meet a costs judge who is able to explain by what margin, if any, a Bill of Costs in relation to routine litigation that has been assessed at £75,000 applying the reasonableness test should then be reduced down to if the amount in dispute was only £25,000.

True proportionality is achieved by fixed costs, or capped costs and of course contingency fees are the purest form of proportionality.

Absent fixed or capped costs no jurisdiction has ever succeeded in developing a consistent judicial approach to proportionality. That is unsurprising as it is an entirely meaningless word in a financial context when not applied as a strict mathematical formula.

Proportionality = The Emperor’s New Clothes, which is why no court has ever applied it.

It is the costs equivalent of having the Ogden Tables without any of the figures filled in, or a crossword where the setter has not thought out the answers.

Now, Lord Neuberger is an outstanding judge.

I believe that he knows that the piecemeal implementation of what was in any event a deeply flawed report is likely to be a disaster, and that he is laying the ground for what may turn out to be massive judicial intervention to prevent the civil justice system falling into chaos.

Predictions of ‘satellite litigation’ and ‘a period of slight uncertainty’ by the judiciary about a change in the law are hardly statements of judicial approval.

 

Specialist costs counsel Andrew Hogan, commenting on the model now adopted said:

The notion of a “long stop” discount test of proportionality, is a recipe for satellite litigation, as it will introduce chronic uncertainty into the assessment of costs, both in terms of when such a deduction will be applied and in terms of what the quantum of deduction might be. Perhaps, more significantly, it is even more disappointing that even now, some 15 years after Lord Woolf “borrowed” the concept of principle of proportionality from European Union law, it remains a nebulous and uncertain concept, hard to define and even harder to apply, which is conceptually very odd, when one considers that the stated aim of Jackson was to reduce perceived disproportionate costs to a proportionate level. If you can’t define proportionality, how can you judge whether you have succeeded or not in moving from a disproportionate model of costs to a proportionate one?

Master Haworth of the Senior Court Costs Office, speaking at the LexisNexis Costs and Litigation Funding Forum on 31 October 2012, said that the new rule on proportionality was vulnerable to court challenge:

It’s going to be left to decisions up and down the country to determine what is proportionate

which of course utterly defeats the point of proportionality.

In a recent webinar the legendary Judge Michael Cook, from whom I have learnt an enormous amount about all sorts of things, not all connected with costs, had this to say:

“What is proportionality” is a conundrum the courts are still trying to solve. There are two problems with proportionality. First, no one knows what it means and second, where does it stand in relation to necessary costs and reasonable costs? Sir Rupert once told me that proportionality had caused him more problems than any other aspect of costs and then invited me to address a judicial conference on it!

At a meeting of costs experts five different definitions were debated without reaching any conclusion. Is it proportionate for the recoverable costs to exceed the amount in dispute? If so when? And there is the more fundamental question of whether it is proportionate for a lawyer to earn more than a dustman but less than Wayne Rooney. What standard of living can a lawyer expect the costs of litigation to fund? Should he or she drive a Rolls Royce or a Lada and travel first or second class by train at other people’s expense? A practical ‘seat of the pants’ aid to considering proportionality is to look at the costs incurred by the paying party. What, for example, was their level of fee earner, charging rate, seniority of counsel and the amount of time spent? If the paying party has increased the stakes by using a senior partner, leading counsel and a fashionable expert, is it disproportionate for the receiving party to have done likewise? Is the pot calling the kettle black? And then we have what Sir Rupert described as Professor Zuckerman’s ‘pithy summary’ of proportionality: ‘The aim of the proportionality test is to maintain a sensible correlation between costs, on the one hand, and the value of the case, its complexity and importance on the other hand’. My own view is that the definition in CPR 44.3 (5) is as good as we are going to get – and it is not very good!

Sub paragraph (7) emphasizes that proportionality trumps necessity and reasonableness and gives a timetable. The rule expressly states that even costs which were necessarily and reasonably incurred may fall foul of the test of proportionality. The distinction between necessary and reasonable is now so blurred it serves only to confuse and ‘necessary’’ should once again be struck from the costs lexicon. Proportionality should prevail over reasonableness with the test of reasonableness only being applied to individual items once it has been established that the total costs are proportionate. But there is trouble ahead – satellite litigation looms. The requirement that costs should bear ‘a reasonable relationship’ to the factors specified in sub-rule (5) should keep the courts occupied for the foreseeable future.

Transitional, revised transitional, varied revised uncertain transitional and provisions announced even when there was no intention of ever bringing them in

 

When the new costs rules were first published the relevant transitional provision concerning the new proportionality test read:

Paragraphs (2)(a) and (5) do not apply in relation to cases commenced before 1 April 2013 and in relation to such cases, rule 44.4(2)(a) as it was in force immediately before 1 April 2013 will apply instead.

This caused two problems. Firstly, the phrase ‘cases commenced’ was ambiguous. Secondly, it appeared to be retrospective, meaning that the new test would apply in some cases to work already undertaken. This problem was, partly, recognised and Richard LJ said that the rule committee ‘acknowledged the force’ of the argument and was to insert a further transitional provision within rule 44.3:

to the effect that costs incurred in respect of work done before 1 April 2013 will not be disallowed if they would have been allowed under the rules in force immediately before that date.

Simon Gibbs comments:

What makes this truly shocking is that the letter confirming these changes from Lord Stephen Richards, who chairs the rules committee, records the fact that the committee was aware of this problem and agreed to make this change at the meeting on 8 February 2013 which approved the rules that were then released on 12/13 February. However, when releasing the Statutory Instrument there was no mention that they had already decided to change this in at least one crucial aspect. How are practitioners meant to prepare for the changes and train staff when, ludicrously late in the day as the rules have been published, we can’t even trust the accuracy of what has been released?

That would have meant all work done pre-April 2013 would be subject to the old test and any work done post-April 2013 subject to the new test. We now have the Civil Procedure (Amendment No 2) Rules 2013 to deal with this. However, it does something totally different again:

Paragraphs (2)(a) and (5) do not apply in relation to—

(a)       cases commenced before 1st April 2013; or

(b)       costs incurred in respect of work done before 1st April 2013,

and in relation to such cases or costs, rule 44.4.(2)(a) as it was in force immediately before 1st April 2013 will apply instead.”

Nevertheless, from the context I am treating ‘cases commenced’ as meaning ‘cases where proceedings have been issued’ (how hard would it have been to use that wording?). This old proportionality test will apply to all work done for cases where proceedings were issued before 1 April 2013.

The following variations therefore apply:

  • All work done pre-1 April 2013 – Old proportionality test applied to all work.
  • All work done post-1 April 2013 – New proportionality test applied to all work.
  • Work done pre and post-1 April 2013. Proceedings not issued – Old proportionality test applied to work done pre-1 April 2013. New proportionality test applied to work done post-1 April 2013.
  • Work done pre and post-1 April 2013. Proceedings issued pre-1 April 2013 – Old proportionality test applied to all work.
  • Work done pre and post-1 April 2013. Proceedings issued post-1 April 2013 – Old proportionality test applied to work done pre-1 April 2013. New proportionality test applied to work done post-1 April 2013.

Speaking on 5 February 2013 Master Haworth thought that the issue of proportionality may not arise much in practice as where a costs management order has been made there will be little to argue about on assessment. Costs within budget will be deemed proportionate and it is unlikely that the Costs Judge will re-visit the issue. Indeed, there is a clear tension between the cost process and proportionality. The cost management process implies that once the court has decided that certain steps in litigation are reasonable, then the full cost of undertaking that work will be recoverable, as the judge dealing with assessment will not normally depart from the approved budget. The new proportionality test means that on detailed assessment a judge may decide that even though a step within the litigation was reasonable, the full cost may not be recovered once the global basis test is applied. Mr Justice Ramsey said:

First, the court will have to apply the new proportionality test to the costs budget. As stated in the Final Report, the judge carrying out costs management will not only scrutinise the reasonableness of each party’s budget, but also stand back and consider whether the total sums on each side are “proportionate” in accordance with the new definition. If the total figures are not proportionate, then the judge will only approve budget figures for each party which are proportionate. Thereafter if the parties choose to press on and incur costs in excess of the budget, they will be litigating in part at their own expense. It will be important for the judges to apply the test consistently and for parties and their lawyers to be aware of the impact on recoverable costs.

As Simon Gibbs points out, that simply shifts the problem back to the judge making the costs management order; it does not solve the problem or answer the questions raised above, and it begs the question as to what is the point of expensive and time-consuming costs management and detailed assessment hearings to determine what costs are reasonable if, at the end of the day, the judge can then knock the figure down further on an apparently arbitrary basis. Both Mr Justice Ramsey and Master Haworth were speaking before the Commercial Court, Mercantile Court, Technology and Construction Court and the Chancery Division opted out of costs management, which leaves rather a lot of big unmanaged bills for detailed assessment with proportionality to be considered. There is also the interplay between provisional assessment and proportionality. It appears that, rather than undertake the arithmetic on a provisionally assessed bill, Judges are simply to send the annotated Points of Dispute/Replies back to the parties to work out the final figure allowed. 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.

Simon Gibbs again:

How does this tie in with the new proportionality test? If, at the end of the provisional assessment, the judge does not know the figure he has allowed (because he has not done the calculations) how does he know whether to apply a further discount to make the costs “proportionate”? The new rules do not envisage any procedure for the parties to return to the court after they have agreed the “total sum due” to ask the court to make a further “proportionality adjustment if appropriate. There has been a staggering failure to think through the practicalities of how the new provisional assessment process will work.

Well, that applies to almost all of the Jackson Reforms. Thus we wait to see if this reform will be any more successful than The Recovery of Damages and Costs Act 1278 or the Commands in Delay of Justice Act 1328 and all of the subsequent attempts at establishing proportionality.

 

Speaking at an SJLive event on 25 February 2015 Master Peter Haworth of the SCCO said that there had been no guidance on proportionality and that the new “standing back” test is “arbitrary and subjective”.

 

Since 1 April 2013 the overriding objective of the Civil Procedure Rules enables the court to deal with cases justly “and at proportionate cost” (CPR 1.1).

 

This proportionality test is contained in CPR 44.3, but does not apply to work undertaken before that date, nor to any work, pre or post 1 April 2013, where proceedings were issued before 1 April 2013. Thus the pre 1 April 2013 rule is becoming of less importance and will wither on the vine.

 

CPR 44.3(7)

 

“(7)        Paragraphs (2)(a) and (5) do not apply in relation to cases commenced before 1 April 2013 and in relation to such cases, rule 44.4(2)(a) as it was in force immediately before 1 April 2013 will apply instead.”

 

Proportionality also finds its way in to the new CPR 3.9 which deals with applications for relief from sanctions, where the application has been made since 1 April 2013, whatever the date of the breach.

CPR 3.9(1):

“On an application for relief from any sanction imposed for a failure to comply with any rule, practice directions or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need –

 

(a)    for litigation to be conducted efficiently and at proportionate cost; and

(b)   to enforce compliance with rules, practice directions and orders.”

 

Master Haworth of the Senior Courts Costs Office, speaking in July 2014, has said that the new rule will be “a difficult test” until a higher authority rules on the issue, and noted that “uncertainty is the enemy of costs saving and encourages satellite litigation”.

Master Haworth asked a number of questions:

“What is a “reasonable relationship”?  A set percentage of damages?  If not, why not?

Even if you can compare costs with damages, how do you compare them with complexity or importance?  What about the financial position of each party? Under the old test, that used to be relevant”.

“Why, as a matter of principle, if costs are necessarily incurred to achieve justice for a wronged person, shouldn’t the wrongdoer pay them?  Is the new proportionality test a charter for the tortfeasor/wrongdoer?  The new test is arbitrary: almost totally in the eye of the assessor.  It is a subjective as opposed to an objective test”.

Master Haworth added that he liked Dominic Regan’s comment that “the new proportionality test is an utter mystery, as Sir Rupert frankly admitted in his essay in the October 2013 introduction to the White Book Supplement.  We have only just started on what looks like an arduous and lengthy journey”.

PROPORTIONALITY: COURT HALVES COSTS

In BNM v MGN Ltd [2016] EWHC B13 (Costs) 3 June 2016

Master Gordon-Saker dealt with the issue of proportionality in a breach of privacy case where damages of £20,000.00 had been awarded and an undertaking given not to use or disclose confidential information illegally obtained by Mirror Group Newspapers from her mobile phone, which had been lost or stolen.

The claimant was a primary school teacher with no public or media profile who had a relationship with a successful premiership footballer.

The facts could hardly have been more damning for Mirror Group Newspapers and clearly the case was about  more than the relatively low sum of damages awarded.

The costs claimed, including a recoverable success fee for both solicitor and counsel and a recoverable After-the-Event insurance premium, were £241,817.00.

Half a day was taken up with the Mirror’s argument, which it lost, that the recoverability of additional liabilities was incompatible with its right to freedom of expression under Article 10 of the European Convention on Human Rights.

The Master conducted a line by line Detailed Assessment and produced the following figures:-

 

 

Base profit costs £46,321
Base Counsel’s fees £14,687.50
Court fees £1,310
Base costs of drawing the bill £4,530
Atkins Thomson’s success fee £16,780.83
Counsel’s success fee £4,846.88
ATE premium £61,480
VAT £17,433.24
Total base costs £62,318.50
Total costs £167,389.45

 

The defendant, the paying party, argued that these costs, held by the court to be reasonable, were disproportionate and should be reduced further.

The court did just that and  halved the costs and arrived at proportionate figures as follows:-

Base profit costs £24,000
Base Counsel’s fees £7,300
Court fees £1,310
Base costs of drawing the bill £2,250
Atkins Thomson’s success fee £7,920
Counsel’s success fee £2,409
ATE premium £30,000
VAT £8,775.80
Total costs £83,964.80

 

The Master then set out the current law and the pre-April 2013 law and the key cases.
The Master said:-

“It is clear that the new test of proportionality was intended to bring about a real change in the assessment of costs.” (Paragraph 20)

Here the court said that there were three issues in this case:-

  • Does the new test of proportionality apply to additional liabilities?
  • If it does should it be applied to additional liabilities separately, rather than by the global basis, that is looking at the whole bill?
  • Were the costs in this case allowed on a line by line Detailed Assessment disproportionate?

The court set out at length the changes to the Civil Procedure Rules which occurred in April 2013 both in relation to additional liabilities and proportionality.

This was a post March 2013 Conditional Fee Agreement but in breach of privacy claims recoverability remained, and indeed still remains and so the point is an important one.

Here the court held that the new test of proportionality does indeed apply to additional liabilities and said:-

“32. Ringfencing 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.”

The court also held that when applying the new test of proportionality, the court need not consider the amount of any additional liability separately from the base costs, although the court did consider the After-the-Event insurance premium separately in this case.

The Master then considered the issue of proportionality and accepted that “there is little guidance on how the new test of proportionality should be applied.”

He accepted that had it been intended that costs should never exceed the sums in issue the rule could easily have stated that. “There will be cases in which the costs bear a reasonable relationship to the sums in issue even though they exceed those sums.”

The court also found that the value of the non-monetary relief in this case was not substantial and the judge based the view on the fact that the claimants knew in March 2011 that the defendant had access to the information on her phone and the phone was returned to her in May 2011 but she did not approach solicitors until March 2013 following press reports of similar cases.

No information taken from the phone had been published in the intervening two years and no application was made for an interim injunction and the court took the view that but for the claim for damages it is unlikely that a claim would have been brought.

The Master described the defendant’s conduct as “reprehensible” but said that much of the civil litigation is based on the bad behaviour of others.

The court also halved the amount of the ATE premium to be recovered holding that it was necessary for the claimant to purchase After-the-Event insurance but the cost was disproportionate.

Comment

This decision shows how random and arbitrary the whole new concept of proportionality is.

What the Master has done here is merely to chop the costs in half but with no real explanation as to why he has done that, rather than, say, reducing the costs by a quarter or three quarters or whatever.

As Simon Gibbs says in his always excellent blog:-

“It is not obvious to me that there was any need to provide a breakdown of the further “Jackson adjustment”. It seems artificial to rule that it was reasonable to spend, say, £10,000 on experts’ fees but that this will then be adjusted down to £5,000.  The “Jackson adjustment”, as the second part of the proportionality test, is to ensure that the total the paying party is asked to pay is proportionate to the claim.  This is concerned with the total, not the constituent parts of that total.  The constituent parts are dealt with in the line by line element of the assessment.”

Simon goes on to point out that the one thing that the Senior Costs Judge did not touch was the court fee and asks why a court fee should be ring-fenced from the proportionality test.

That is a very good point indeed and obviously it would have nothing to do with the possibility of a Senior Costs Judge not wishing to implicitly criticize the Ministry of Justice for the level of its fees, would it?

The problem for lawyers and their clients is that as they go through the case they will have no idea what the court will allow as proportionate whereas any experienced lawyer has a fairly clear idea as to what will be allowed as reasonable and necessary.

It can also act as a deterrent to settle, as settling for a lower sum, even if the claimant could have carried on and got more, will almost inevitably reduce the amount of costs recovered for that work, purely because the receiving party is being reasonable and settling for less than the full value.

I agree with Lord Justice Jackson that the only way to achieve proportionality is to have fixed recoverable costs for everything.

PROPORTIONALITY AGAIN: COURT CHOPS REASONABLE COSTS BY 60%

In May v Wavell Group plc [2016] EWHC B16 (Costs)

the Senior Courts Costs Office conducted a detailed assessment of costs in an action where the claimants accepted the defendant’s first Part 36 offer of £25,000.00 and that meant that the defendants were automatically liable to the claimants for their costs under the usual provisions of Part 36.

The matter was settled before a defence was entered.

The Bill of Costs submitted came to £208,236.54 and the court conducted an item by item assessment and held that the reasonable costs came to £99,655.74.

Thus, without considering the issue of proportionality, the court reduced the bill by more than half and presumably was not impressed by the original bill being twice what it should have been.

On proportionality grounds the Master then reduced the bill on a global basis from just short of £100,000.00 to £35,000.00 plus VAT, a further reduction of around 60% from the sum that it had held to be reasonable in relation to costs reasonably incurred.

The Master took into account the fact that the case was settled at an early stage and said that the proportionate amount of costs will inevitably be smaller for a case that settles early than for one that reaches a final hearing.

The judge also took into account the following matters:-

  • the sum accepted – £25,000.00 – reflected the sums in issue;
  • there was a possibility of an injunction and that had to be weighed in the balance when considering proportionality;
  • the case was neither legally nor factually complicated;
  • there was nothing in the defendant’s conduct which caused additional work to be done;
  • there were no wider factors relevant to the issue of proportionality.

Here the Master said that the amount that can be recovered from the paying party “is not the minimum sum necessary to bring or defend the case successfully. It is a sum which it is appropriate for the paying party to pay by reference to the five factors in CPR 44.3(5). It is not the amount required to achieve justice in the eyes of the receiving party but only a contribution to that receiving party’s costs in many modest cases.” (Paragraph 35).

The Master went on to say, at paragraph 42:-

“In cases such as this, it seems to me that the new test of proportionality… will require legal representatives to inform their clients that, even if successful, they will receive no more than a contribution to the costs that will be incurred.

Here the judge took the view that he did not need to adopt the approach taken in BNM v MGN Ltd [2016] EWHC B13 (Costs) by making a proportionate reduction on each and every item, but rather he should take a global approach and noted that the effect of that “is that the resulting figure becomes entirely a matter of judgment.”

The Master, in a colourful but illustrative phrase said:-

“There is only so much finesse that can be employed when using a broadsword rather than a rapier. A concluding global assessment of proportionality as envisaged by the new approach involves the court wielding a blunt instrument rather than a precision tool.”

Comment

It cannot be right that the stage that the case has reached has any effect on proportionality.

That appears to have no basis in law and certainly does not appear in the Civil Procedure Rule dealing with proportionality. Indeed it seems to be plainly wrong – the amount of work done and the stage that the case has reached is reflected in the figure reached after an ordinary assessment. In other words very obviously if a case settles very early on then the work reasonably and necessarily done will be far less than a case that goes to a trial.

Another interesting factor of this case is that solicitors were not involved as Mr and Mrs May had instructed a QC direct under the Direct Access Scheme.

One wonders if a more worldly person, such as a trainee solicitor which is probably the appropriate level of fee earner for a minor civil claim, would have given some practical and sensible advice which might have saved the Mays around £160,000.00.

Who knows?

Here, at paragraph 41, the Master said:-

“In the present case therefore there was no estimate given to the client in the manner expected (but by no means always achieved) by the SRA Code of Conduct.”

The Master appeared to recognize this and I set out in full paragraph 4 of his judgment:-

“The extent of the reduction in the bill as originally claimed was undoubtedly due in part to the method of representation adopted by the claimants. They instructed Simon Farrell QC on their behalf. Mr Farrell is authorized by the Bar Standards Board to conduct litigation. Consequently no firm of solicitors were instructed and Mr Farrell utilized the services of other barristers and a solicitor as required. The Bar Standards Board had only begun to authorize barristers to conduct litigation shortly before Mr Farrell was instructed by the claimants. Inevitably therefore, there was some novelty in conducting litigation for Mr Farrell and his team. Nevertheless, I am satisfied that the sum that I have ultimately allowed as being a reasonable sum is so whether or not it had been incurred by a firm of solicitors or by direct access counsel. As Mr Carpenter, counsel for the defendants said, and I accept, the reasonableness and proportionality of the recoverable costs cannot depend upon the method of representation. I have raised the point merely to provide some reasoning for the significant level of reduction on assessment from the original sum claimed.”

As noted above the Master here pointedly chose not to revisit each item and reduce it on proportionality grounds but rather simply, in his words, to take a broadsword rather than a rapier and to use “a blunt instrument rather than a precision tool.”

This is precisely the opposite to what the Master did in BNM v MGN Ltd and shows the hopeless confusion and uncertainty that is the nonsensical law in relation to proportionality.

Roll on Fixed Recoverable Costs for everything.

It is now over three years since the new test came in and it is safe to say that none of us is any wiser.

CASE LAW

PROPORTIONALITY: HAS ONE JUDGE HAD ENOUGH?

On Margate Sands

I can connect

Nothing with nothing

TS Eliot: The Waste Land

Section 4 of the Distress Act 1267, still in force, provides:

“Moreover Distress shall be reasonable, and not too great”

which just goes to show that 750 years ago no-one could define proportionality. That remains the case.

In Hobbs v Guy’s and St Thomas’ NHS Foundation Trust [2015] EWHC B20 (Costs)

Master O’Hare considered proportionality in relation to a low value clinical negligence case.

The claim settled for £3,500 before issue and the claimant’s bill was £32,329.12.

The bill being under £75,000.00 it went to provisional assessment, that is consideration by a Costs Master or Judge without the parties being present and, usually, on very limited papers. However this matter was in the Senior Courts Costs Office where it is the practice to consider the whole file.

Although Master O’Hare certainly did not confuse reasonableness and proportionality, which so many judges do, some of those commenting on this case have confused those matters.

Here Master O’Hare, on provisional assessment, reduced the bill by two thirds without any reference to proportionality. He made that reduction purely on the grounds of reasonableness. That reduction would have been made under the old law and the old test in Lownds v Home Office [2002] EWCA Civ 365.

Having slashed the bill the Master then looked at the remaining one third of the original bill and decided that even that greatly reduced sum was disproportionate.

The claimant applied for an oral hearing and the Master upheld his own decision.

In many ways the case contains more of interest in relation to reasonableness and necessity than it does proportionality. Overall the bill was reduced to £9,879.34 including VAT, a reduction of 69.44%.

The Master disallowed all Grade A fee earner work and allowed a mid-range Grade B fee earner at £200.00 per hour saying that there was nothing complex about the case and that a Grade B fee earner could have dealt with it and deferred to advice from a more senior practitioner, whether solicitor or counsel, had any points of sufficient complexity arisen in the matter. This is an unusually detailed analysis of the correct level of fee-earner which I return to later.

The Master disallowed the costs of the conference with counsel on the basis that “it achieved no advantage in the conduct of the claim”.

The Master then dealt separately with pre April 2013 work and post April 2013 work and said that no issues of proportionality arose in relation to the earlier work which was subject to the Lownds test.

He set out the new rule contained in CPR 44.3(5) and referred to rule 44.3(2) which, crucially, states:-

“Where the amount of costs is to be assessed on the standard basis … Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred …” (My Italics)

The Master said that there is little by way of authoritative guidance as to how this new test is to be applied.

Interestingly the Master said that although it will be wrong to disallow any pre April 2013 costs on the basis of the new Jackson test of proportionality:

“In my view it is right to take into account Parts 1 and 2 [the pre-Jackson work] in this calculation even though, if the total is disproportionate, it would be wrong to disallow any costs in Parts 1 and 2 on the basis of the Jackson test of proportionality.”

Thus what he is doing is not disallowing anything pre-Jackson but allowing the pre-Jackson costs to justify disallowance of post-Jackson costs, which to me seems a distinction without a difference. I suspect that that is the Master’s view too. That is a correct analysis of the law and that  amounts to retrospective rule making.

On the reasonable or necessary grounds – the old test – the judge had allowed costs of around £11,000.00 plus VAT.

So it was that sum that he considered in relation to proportionality.

The judge then considered the judgment of Mr Justice Leggatt in

Kazakhstan Kagazy plc v Zhunus [2015] EWHC 404 (Comm) where the judge gave guidance in relation to the new proportionality test and said:-

“13. In a case such as this where very large amounts of money are at stake, it may be entirely reasonable from the point of view of a party incurring costs to spare no expense that might possibly help to influence the result of the proceedings. It does not follow, however, that such expense should be regarded as reasonably or proportionately incurred or reasonable and proportionate in amount when it comes to determining what costs are recoverable from the other party. What is reasonable and proportionate in that context must be judged objectively. The touchstone is not the amount of costs which it was in a party’s best interests to incur but the lowest amount which it could reasonably have been expected to spend in order to have its case conducted and presented proficiently, having regard to all the relevant circumstances. Expenditure over and above this level should be for a party’s own account and not recoverable from the other party. This approach is first of all fair. It is fair to distinguish between, on the one hand, costs which are reasonably attributable to the other party’s conduct in bringing or contesting the proceeding or otherwise causing costs to be incurred and, on the other hand, costs which are attributable to a party’s own choice about how best to advance its interests. There are also good policy reasons for drawing this distinction, which include discouraging waste and seeking to deter the escalation of costs for the overall benefit for litigants.”

Applying that test would have meant no further reduction from that sum of £11,000.00 plus VAT etc.

Here the Master said:-

“I next considered whether the sum allowed as reasonable was also proportionate. The answer would be yes if I were to apply the test propounded by Leggatt J: I had already assessed what was the lowest amount which the Claimant could reasonably have been expected to spend in order to have this case conducted and presented proficiently, having regard to all the relevant circumstances. However, I do not think that test applies in cases such as this where the amount of reasonable costs will inevitably exceed the value of the claim. Kazakhstan Kagazy PLC was a case where the sums in issue bore no relation to the costs however high they were. However the amount of the sums in issue is one of the factors I have to take into account here and, indeed, it is the first factor listed in CPR 44.3. I provisionally ruled that the sum I had allowed as reasonable was not proportionate. In doing so I had regard to the factors listed in CPR 44.3(5) (especially (a) and (c)).”

The Kazakhstan case needed distinguishing. In my write up of it I said:

“…the Commercial Court provided another example of a court conflating proportionality and reasonableness. The terms are run together on at least nine occasions in a short judgment”.

The Master then decided against  “chopping off a slice of all the costs” (his words) that he had just found to be reasonable and thought it better to target particular items of work which were disproportionate  in the particular circumstances of the case and as a result of that exercise disallowed the cost of three items on the basis that they were inconsistent with the true value of the claim.

One item was the cost of the consultant anaesthetist.

Another was in relation to making a Part 36 offer.

The third was to reduce the Grade B fee earner rate to Grade C. Thus the Grade A fee earner had actually done the work and the Master had found that it should have been done by a Grade B fee earner and that that was reasonable and necessary but then allowed only the rate for a Grade C fee earner on the ground of proportionality.

Thus the Master held that proportionality required the work to be done by someone who was not capable of doing it, or rather was not of such seniority as to be likely to do the work properly. This is in the context, as set out above, of the Master going in to unusual detail about exactly what level of fee-earner was necessary – a mid-level Grade B with support from a grade A and/or counsel.

The  judgment suggests that the Master is not keen on proportionality and it may be that he is using deliberately absurd examples to make that point.

He also points out that the general rule is that a judge may not use hindsight in cost assessment – see Francis and Francis v Dickerson [1955] 3 All ER 836.

However the judge says that  today that must trumped by proportionality so effectively a judge does use hindsight – see CPR 44.3 (2).

The judge is right in that statement of the law. However that makes it impossible for a lawyer to work out what s/he can and should spend on a case as obviously we do not have the benefit of hindsight when running a case. That is why there has always been a rule against hindsight in such matters and that was carried through to assessing risk in conditional fee cases. The judge was not to apply hindsight, not to second guess the solicitor’s assessment on the information s/he had at the time of making that decision.

That has been thrown out of the window with proportionality.

The judge also rejected an argument that proportionality did not apply to matters that were absolutely necessary. That must be right. Something is either necessary or it is not – there can be no degrees of necessity.

The Master also said that VAT should not be taken into account in considering proportionality.

Comment

In very round terms the judge reduced the bill around £20,000.00 on the traditional basis and £1,100.00 due to proportionality; in other words around 95% of the reduction would have occurred pre-Jackson.

The Master was clearly very disturbed about the level of the bill absent any issue of proportionality. Was this Master making a point about the futility and unfairness of proportionality?

The logic of this decision is that I should have the following conversation in my office and indeed in counsel’s chambers:-

“This case needs to be dealt with by a recently qualified solicitor with the assistance of counsel of up to five years call. However that would be disproportionate so it will be dealt with by a new trainee and by a pupil.

That will be proportionate but also negligent. I will be obeying the Civil Procedure Rules but failing in my duty to our client.

I also consider that I am failing in my duty as an Officer of the Court by having the matter dealt with by lawyers who I know are not sufficiently senior and experienced to deal with this matter.”

I do not wish to put words into Master O’Hare’s mouth but I think that is a fair paraphrasing of what he says in this judgment, and I believe that he is very well aware of that.

The Master specifically states that the amount required to run the case proficiently was the amount he allowed prior to the proportionality reduction. He then distinguished a post Jackson High Court decision on the point.

It  follows that the Master is saying that the amount he allowed was not sufficient to run the case proficiently. That is reinforced by his decision to make a proportionality cut in relation to the proper level of fee-earner. Having explained at some length that this was suitable for a mid-level Grade B fee-earner with support from more senior lawyers, the Master then imposes Grade C, recognizing that a Grade C is not sufficiently senior to do this work.

There was no need for the Master to go there. No paying party was going to appeal against a two-thirds only reduction. He could have made a global cut – “applied on a global basis” – as per the Jackson Report, quoted by the Master at paragraph 27 of his judgment. He could have chopped a bit more off on the reasonable and necessary basis – who would have noticed? He could have reduced the number of hours rather than saying very clearly that the case required Grade B but proportionality demanded Grade C.

It is hard from the judgment to see exactly what sums were cut under Lownds, and which for proportionality because the Master refers to no specific figure, but refers to costs “exceeding £11,000 plus VAT” etc, but roughly £20,000 was reduced under the Lownds  test and roughly £2,000 due to proportionality. Because the figures include disbursements – not set out in the Judgment – and VAT, which will vary on which disbursements attracted VAT, the actual “profit costs” reduction looks to be even lower. I am not criticising the Master – we simply do not have the details of the figures on provisional assessment.

In the context of the overall reduction the proportionality reduction verges on de minimis, that is so small as to be disregarded by the law.

Was the Master making a point, namely that all that really needs to be done to control costs can be done under the old test and that lawyers are now forced to work in a way that is not proficient, that is by a person who is not “possessed of or advanced in acquiring a skill; expert, skilled, adept” – Shorter Oxford English Dictionary.

Simon Gibbs:

“ I predict a repeat of the relief from sanctions fiasco. The matter will reach the Court of Appeal and they will deliver a robust decision following the guidance already given by Jackson. This will be followed by howls of anguish from the usual suspects, with some justification ,that the decision will deny access to justice for large number of potential claimants.

Shortly afterwards the Court of Appeal will “clarify” their decision and reformulate guidance giving such a watered-down test that it would have made the judges in Lownds blush. The logic of Jackson’s recent calls for a massive extension of fixed fees will then become difficult to resist, but only because a dog’s dinner was made of implementation of the original proposals”.

Proportionality is meaningless, incapable of sensible definition and therefore its imposition is arbitrary and unfair.

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In Various Claimants v Sir Robert McAlpine and others [2015] EWHC 3543

the High Court has yet again got proportionality and reasonableness hopelessly mixed up and specifically applied Home Office v Lownds, which judgement was overturned by the Civil Procedure Rule change in 2013.

Here the court found the overall budget to the disproportionate and then went through each item to see if it was reasonable, that is the Lownds approach.

That is now exactly the wrong way around. What the court must now do is to assess the reasonableness of each item and then, even if every piece of work is both reasonable and necessary, chop it again if it is disproportionate, whatever that means.

That was the approach correctly taken by Master O’Hare, clearly with some reluctance, in

Hobbs v Guy’s and St Thomas’ NHS Foundation Trust [2015] EWHC B2 (Costs).

PROPORTIONALITY: GUIDANCE?

 

In CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd [2015] EWHC 481 (TCC)

 

the judge found that the claimant’s costs budget contained figures which were “wholly unreasonable and unjustified” and that the upper limit of what is reasonable and proportionate was £4.3 million in both previously incurred costs and estimated costs.

The claimant’s already incurred costs were stated to be over £4.2 million with future estimated costs being over £5 million creating a total of over £9.2 million.

The matter had already been adjourned because of the claimant’s “entirely unreliable” budget presented on a previous occasion and that itself followed the claimant’s objection to there being any budgeting at all as the claim was for over £10 million. The court said that “both the costs already incurred by the claimant, and its estimated costs for the future, were disproportionate and unreasonable.”

  1. In Redfern v Corby Borough Council [2014] EWHC 4526 (QB) HHJ Seymour QC upheld the decision of Deputy Master Eyre in a case where the Deputy Master considered that a proper figure for the costs of the case as a whole was £220,000. That was broadly equivalent to what had already been spent. On the appeal it was argued that the consequence was that the amounts which had been allowed for costs yet to be incurred were inadequate. Judge Seymour rejected that submission, saying:

“That, I think, must be a consequence, potentially, of taking into account in fixing the budgets the amount of the costs already incurred in deciding what would be reasonable and proportionate in respect of all subsequent costs. The only way in which one can take into account excessive costs already incurred in determining the reasonableness and proportionality of subsequent costs is to limit the approved subsequent costs at figures below what they might otherwise have been approved at but for the excessive sums which have already been expended.”

  1. In Yeo v Times Newspapers Ltd [2015] EWHC 209 (QB) Warby J also had to consider the problem of incurred costs. He said:

“61. However, if by the time the costs management process takes place substantial costs have been incurred, one thing the court may do is to “record its comments on those costs”: see PD3E 7.4. What the court will do is to “take those costs into account when considering the reasonableness and proportionality of all subsequent costs”: ibid. The court may reduce a budget for reasons which apply equally to incurred costs, or for reasons which have a bearing on what should be recoverable in that respect, for instance, that so much had been spent before the action began that the budgeted cost of preparing witness statements is excessive. If so, it is likely to help the parties reach agreement without detailed assessment later on if these reasons are briefly recorded at the time the budget is approved. I make some comments of this kind below.”

The judge identified four options:-

1A.         To order the claimant to prepare a new budget.

1B.          To decline to approve the claimant’s costs budget.

  1. To try and set a costs budget on a phase by phase basis, looking primarily at the estimated costs rather than the actual costs.
  1. Simply to refuse to allow anything more in the costs budget beyond that which had already been spent, so that the claimant could recover nothing more and costs already incurred.

The judge chose option 2 but his arguments in considering the various options are useful guidance on the way that courts may deal with such matters.

8. OPTION 1A: ORDERING A NEW BUDGET

  1. I ruled this out of the hearing on 13 February 2015. There are two reasons for that. First, the court’s decision on costs budgets has been adjourned already in this case.  To make the claimant go away and produce a fresh budget would simply add to the already high costs, and with no realistic prospect of any improvement in the information.
  1. Secondly, the real difficulty in the present case is the huge volume of costs which the claimant says it has already incurred. That is not going to change in any new budget. That problem therefore needs to be tackled head on, and now.

 

  1. OPTION 1B: DECLINE TO APPROVE CLAIMANT’S COSTS BUDGET
  1. In one sense, this is the easiest solution. It ensures that the court does not approve a costs budget which it considers to be unreliable, disproportionate and unreasonable.
  1. But the downside of this option is also clear. If I decline to approve the claimant’s costs budget, then all of the arguments that have already been canvassed will have been unresolved, and they will all fall to be considered and decided much later on in the litigation. In addition, the claimant’s legal team may take the view that, without an approved costs budget, they can spend what they like and take their chances on the assessment of the costs incurred.
  1. For theses reasons, I have concluded that declining to order a costs budget, even in the extreme circumstances of this case, would be of no assistance to the parties, particularly the defendant and the additional parties. It is therefore not an option which I propose to adopt.
  1. OPTION 2: SETTING BUDGET FIGURES
  1. Option 2 is to set budget figures, notwithstanding the difficulties created by all of the factors that I have already outlined. The claimant favoured this course. It is easy to see why: Mr Post QC repeatedly argued that costs budgeting was essentially a prospective exercise, so he wanted a costs budget fixed for the various phases of estimated costs, allowing the claimant to take its chances on my comments on the level of costs incurred to date.
  1. The difficulty with this course is obvious. If I simply commented on the costs incurred, and then did a budgeting exercise for the prospective costs, I would arrive at an overall figure that was far in excess of that which I consider to be a reasonable and proportionate figure for the costs as a whole. That was the defendant’s concern, a concern shared by the additional parties.   In addition, this would have the effect of allowing the claimant to ride roughshod over the costs management process; to be rewarded for the wholly unreasonable stance that they have taken throughout.
  2. OPTION 3: REFUSE TO ALLOW ANY FURTHER COSTS
  1. This would involve putting the figure for all phases of future costs at ‘nil’. The defendant and the additional parties were in favour of this option, which seems similar to the approach in Redfern (paragraph 9 above). They say that, if I refused to allow any further costs beyond those which have been incurred, because that figure is broadly in line with what I consider to be a reasonable figure for the claimant’s costs in this case overall, then that would be an appropriate and just solution. It would also mean that the future risks as to costs would be borne by the claimant, which is the party who are, in that sense, in default.
  1. The potential difficulty with this course is the one that I myself identified during the hearing. If I did not allow any further costs beyond those which have already been incurred, then there is nothing to stop the defendant, at the assessment of the costs already incurred, seeking to reduce those figures considerably. The claimant may then be doubly penalised because its costs incurred would be the subject of significant reduction on assessment, and it would not have got anything further in relation to the costs to be incurred because I would have set its prospective costs at nil.
  1. I am not persuaded that this difficulty is alleviated by CPR 3.18, despite Mr Constable QC’s submissions to the contrary. If I set the prospective costs budget at nil because of the size of the costs incurred to date, then it might be difficult for the claimant to modify that result by making an application under CPR 3.18. After all, all the relevant information is available now. That might be unfair in the result, for the reasons given.
  1. Regrettably, I conclude that this makes Option 3 (which would otherwise have been the best alternative because it put the risks where they belong, with the claimant) unworkable.
  1. CONCLUSIONS ON THE AVAILABLE OPTIONS
  1. For the reasons that I have indicated, only Option 2 is workable. But, in the unusual circumstances of this case, I have decided that Option 2 needs to be modified in order to arrive at a better approximation to justice.”

The judge then set out all of the figures for all of the phases and said:-

“In that way, going forward, the assessed costs/costs budget for the claimant will be a total of £4.28 million, made up of the figures which I consider to be recoverable on assessment in respect of the costs said to have been incurred, and the approved budget figures in respect of the estimated costs. As noted above, the estimated costs fall to be reduced, £ for £, to the extent that the amounts actually recovered on assessment in respect of costs incurred are higher than the figures which I have indicated.”

 

What the judge in fact there was doing is saying that if costs recovered in respect of already incurred work were higher than he estimated then the future estimates should drop £ for £ to reflect the fact that matters were further advanced than he thought.

 

A flavour of this can be given in this paragraph from the judgment:-

 

“In relation to the Pre-Action Costs, I conclude that, on assessment, those should not exceed £680,000. I take that figure into account when assessing each element of the prospective/estimated costs dealt with below. To the extent that the claimant recovers more than £680,000 on assessment under this head, it would mean that more work had been legitimately done in the earlier stages of the case than I thought, which would in turn mean that less remained to be done in the future. Thus the prospective costs figures approved below would fall to be reduced by an equivalent sum.”

 

For all intents and purposes this is a summary assessment of already incurred costs.

 

3EPD.2 Practice Direction states at that:-

 

“2.4        As part of the costs management process the court may not approve costs incurred before the date of any budget. The court may, however, record its comments on those costs and should take those costs into account when considering the reasonableness and proportionality of all subsequent costs.”

 

This has subsequently been amended to provide that the court “will” take previous costs into account when considering the reasonableness of proportionality of those costs to be incurred.

 

As in most cases on proportionality the court here seems to be confusing and conflating reasonableness and proportionality.

 

Unreasonable costs, or costs unreasonably incurred will always be disallowed, whether costs are on the standard or contingency basis.

 

What the judge has done here is to refer to the costs as being “disproportionate” and then gone on to refer to the hourly rate as being “unreasonable” and the hours claimed as being “much more extensive than is reasonable or appropriate” and the use of a Grade A partner instead of more junior lawyers being “a specific cause of the unreasonable level of the claimant’s costs.”

 

That is entirely the wrong way round and does not throw any light on the issue of proportionality. Turning it round the other way costs may be proportionate but unreasonably incurred, or reasonably incurred but disproportionate.

 

The idea is that the court must look at what is reasonable and necessary as part of its ordinary supervisory function and then, if inappropriate, reduce what would otherwise have been the figure allowed on the grounds of proportionality.

 

It is very clear that in this case the judge thought that a very considerable amount of costs were being unreasonably incurred; it may in fact be that there is no true reduction for proportionality as compared with unreasonableness.

 

This confirms what many are saying, namely that proportionality as a concept is incomprehensible.

 

PROPORTIONALITY: A MESS AT THE SAVOYE

 

In Savoye and Savoye Ltd v Spicers Ltd [2015] EWHC 33 (TCC)

 

Mr Justice Akenhead, sitting in the Technology and Construction Court, reduced the successful party’s recoverable costs to £96,465.00 from the sum claimed of £201,790.66, on the grounds that the bill was not reasonable or proportionate.

 

The claim was worth £889,300.00.

 

However as the concepts of reasonableness and proportionality were conflated the case does not assist in informing lawyers as to how the courts will deal with proportionality.

 

It would be helpful if judges arrived at what they judge to be a reasonable figure for the work necessarily done and then reduce that figure, if appropriate, on proportionality grounds and explaining the thinking behind that proportionality based reduction.

 

Furthermore it appears that the sum of £201,790.66 was the claim on an indemnity basis, where proportionality does not apply.

 

The Judge refused to award costs on an indemnity basis, but it is not clear what the full costs claimed on the standard basis were.

 

Consequently it is impossible to tell what the reduction was from, and whether that unknown deduction was made on the grounds of reasonableness or proportionality or both.

 

If both it is unclear as to what element was on the basis of reasonableness and what was on the basis of proportionality.

 

This judgment is all over the place and shows the problem which judges have always had, and will continue to have, in relation to proportionality.

 

Most of us would be surprised if proportionality, as compared with reasonable and necessary costs, reduced the bill to just 10.85%, including VAT, disbursements and counsel’s fees, of the sum claimed.

 

In Savoye the court said:

 

“In the light of the above, and for the purposes of costs assessment, the Court should have regard when assessing proportionality and the reasonableness of costs, in the context of the current case or type of case, to the following:

 

  • The relationship between the amount of costs claimed for and said to have been incurred and the amount in issue. Thus, for example, if the amount in issue in the claim was £100,000 but the costs claimed for are £1 million, absent other explanations the costs may be said to be disproportionate.

 

  • The amount of time said to have been spent by solicitors and barristers in relation to the total length of the hearing(s). For example, if 3,000 hours of lawyers time is incurred on a case which involves only a one day hearing, that might well point to a disproportionate incurrence of time spent.

 

  • In the context of time spent, the Court can have regard to the extent to which the lawyers for the party claiming costs and the party itself has incurred cost and spent time before the Court proceedings in connection with any other contractual dispute resolution machinery agreed upon between the parties. Here, for instance, there was provision for adjudication, in which the parties were required to pay their own costs of that process. If and to the extent that the work in connection with the adjudication duplicates the work done in the Court proceedings, or, put another way, if the same issue arises and was addressed in the Court proceedings as in the adjudication, it may be disproportionate to expend anew what is repetitious effort and time in the later proceedings.

 

  • The extent to which the case is a test case or in the nature of a test case.

 

  • The importance of the case to either party. If for instance an individual or a company is being sued for everything which he, she or it is worth, it may not be disproportionate for that individual to engage a QC even if the amount in issue is objectively not very large.”

 

That will send a few shivers down a few spines.

In Kazakhstan Kagazy plc v Baglan Abdullayevich Zhunus [2015] EWHC 404 (Comm)

 

the Commercial Court provided another example of a court conflating proportionality and reasonableness. The terms are run together on at least nine occasions in a short judgment.

 

If costs are unreasonably incurred then proportionality does not come into play. No court allows unreasonably incurred costs, either on the standard basis or on the indemnity basis.

 

We will only get guidance on proportionality when a court says, for example:-

 

“Reasonable and necessary incurred costs in this case total £20,000.00. However I regard £15,000.00 as a proportionate sum. My reasons for this are:-

 

 

…”

 

What the court here did say is that the fact that costs claimed by a party are disproportionate should not affect, either upwards or downwards, the sum which it is reasonable to order the other party to pay on account.

 

Attempt to limit costs renders offer ineffective

In Burrell v Clifford [2016] EWHC 578 (Ch)

the defendant made an offer which matched exactly the damages awarded and so the claimant had failed to beat the offer. Had it been a Part 36 offer it would have been effective.

However when making the offer the defendant made it conditional on costs being only £5,000.00 and when the offer was made the costs were already much higher than that.

The defendant could and should have made a Part 36 offer which involved paying costs to the date of the offer. The defendant had the protection of the costs budgeting regime and of proportionality.
Consequently the offer was ineffective. The claimant had won. The defendant had to pay the claimant’s costs for the whole action.
The claimant sued and won and was awarded £5,000.00 damages, exactly the same as already offered and when making that offer the defendant had offered costs limited to £5,000.00 and argued now that that offer should be taken into account on the assessment of costs.

The Chancery Division of the High Court rejected that argument.
The facts show the dilemma facing a defendant – make a Part 36 offer and pay all costs or limit costs and risk getting no protection.
This can be particularly difficult when a defendant is making a low offer compared with a high claim as potentially the costs reflect the high, essentially lost – claim.

The case is also a powerful argument for fixed recoverable costs in all civil work. Here costs budgeting applied to the claim and the claimant’s costs were fixed at £128,695.41 plus VAT and the defendant’s at £90,295.00 plus VAT.

It seems to me that this became a small claim and there is plenty of authority stating that when the balance is under the small claims limit it should be treated as a small claim.
Although the court here referred to the judgment in Walker Construction (UK) Ltd v Quayside Homes Ltd & Brett [2014] EWCA Civ 93 it appeared to find that that case was wrongly decided, although it is not clear from paragraph 9 of the judgment as to why it did not feel bound by a decision of the Court of Appeal.

However what the court said at paragraph 9 does describe the problem facing a defendant where a high value claim is settled for a low amount:-

“9. Now, it is submitted by Mr. Barrett [counsel for the paying party], by reference to the notes in The White Book and a case called Walker Construction (UK) Ltd v Quayside Homes Ltd & Brett [2014] EWCA Civ 93 that the Court of Appeal were critical of the first instance judge in that case because he did not give appropriate consideration to the fact that the losing party could not realistically have made a part 36 offer because it would have had the automatic consequence that if it was accepted the successful party would have been entitled to all its costs in the proceedings to date. I obviously pay careful regard to that, but I do not find it a persuasive proposition, at least in the context of this case. To my mind, somebody making an offer of this sort who includes an offer for the costs to date has all the protection they could reasonably expect by reason of the assessment regime which will have regard to reasonableness of costs and proportionality.”

That proposition is made laughable by the actual costs budgeted in this case – set out above – and that in this very judgment the court rejected further arguments on proportionality stating:-

“The difficulty that I see – while I am very sympathetic to a number of the points that Mr. Barrett has made about proportionality – is that where somebody has a proper claim with a good foundation and they bring it in the proper court, it is not in my judgment reasonable that one should end up by saying, “Well, the value is very low compared to the costs, and therefore either you shouldn’t have your costs, or you should have to pay the defendant’s costs, or you should have a radical reduction in the proportion of your costs recoverable because of the disparity between the value of the claim and the costs”. As I say, the question of reasonableness and proportionality of costs, in my judgment, is dealt with by the costs budgeting and costs assessment exercises, and in my judgment that is the answer to the thrust of Mr. Barrett’s submissions.”

 

What the court appears to be saying is that here costs of around £150,000.00 including VAT are proportionate to a claim of £5,000.00.

Somehow I suspect that that will not be followed in personal injury work.

In Group Seven Ltd v Nasir [2016] EWHC 629 (Ch)

Mr Justice Morgan sitting in the Chancery Division of the High Court was dealing with costs budgets and had to consider the issue of proportionality.

He said “the decided cases do not give much direct help” when considering the relationship between the costs and the sums in issue in the case.
The judge commented that budgeted costs of just over £5 million seemed to him to be disproportionate in relation to a claim for just over £7 million. The £5 million included a sum of £700,000.00 for contingencies but the judge held that even by removing all of that the result was still disproportionate.

The fact that the matter could well be leapfrogged on appeal to the Supreme Court was irrelevant – “I am not expected at this stage to manage the costs of any future appeal.”

The judge also held that the potential obstructiveness of the defendant could be dealt with by way of a contingency in the budget.

The judge also held that allegations of dishonesty and fraud are not freestanding considerations and that “In some cases of fraud or alleged fraud, at the end of the case, a court may be influenced by its finding of fraud, or of the absence of the alleged fraud, to award costs on an indemnity basis. If that were ordered, then the recoverable costs would not be restricted to proportionate costs. However, at the costs budgeting stage, the court is required to consider the question of the proportionality of the costs, even in a case involving an allegation of fraud.”

In relation to the solicitor’s hourly rates the judge used the 2010 guideline hourly rates and rejected submissions that they were guidelines for summary assessment and not for a major High Court action resulting in a long trial and that they were from 2010 and six years out of date and that they were for the guidance of the court and not binding on the court. Here the trial was estimated to last 40 days.

The judge then reduced the budgeted fees for Queen’s Counsel from £1,135 million to £398,000.00 and Junior Counsel’s fee from £468,650.00 to £199,000.00. In relation to another party’s Queen’s Counsel the judge reduced the budget from £487,000.00 to £250,000.00 and Junior Counsel’s fee from £319,000.00 to £155,000.00.

The judge rejected the idea that he should allow the market rate for counsel. “it seems to me that the sums being claimed are a major reason why these parties’ budgeted costs give rise to sums which are disproportionate… As already explained, even if I were persuaded that the fees claimed for counsel were reasonable, they should not be included in the budget at that level when they contribute to the overall result that the budgeted sums for Group Seven, ETS and the Swiss Bank are disproportionately high.”

Insofar as Counsel utilised hourly rates the judge approved a maximum of £500.00 per hour for Leading Counsel and £275.00 per hour for Junior Counsel.

Proportionality, Costs Budgeting and Indemnity Costs

 

Alternative Dispute Resolution

 

How does proportionality fit in with ADR?  What happens if the courts push the parties into ADR and that ADR fails, which adds significantly to the costs, and that causes the bill to be disproportionate?  Will the court disallow costs on the basis of proportionality, even though it was the court that caused disproportionate costs to be expended on the matter?

 

The answer appears to be yes and this may lead to courts being reluctant to push the parties to ADR if they know that the costs will not be recoverable.  In other words the whole concept of ADR is challenged by the concept of proportionality.

 

Fixed Recoverable Costs

 

Fixed recoverable costs are just that and no additional costs are recoverable if ADR is undertaken in a fixed recoverable cost case.

 

Will this affect the court’s attitude in relation to ADR in such cases?

 

Qualified One-Way Cost Shifting

 

In a Qualified One-Way Cost Shifting case, subject to certain exceptions, the Defendant cannot get costs but the Claimant can.  Thus ADR will be an extra cost upon a Defendant which that Defendant can never recover.

 

At present fixed recoverable costs only cover personal injury work and therefore new cases without an additional liability that are fixed recoverable costs cases will, by definition, be Qualified One-Way Cost Shifting cases as well.  In such cases neither party can ever get the extra costs of ADR.

 

As with so many of the Jackson Reforms the interplay between the various proposals has just not been thought through.

 

We already have two conflicting High Court decisions as to whether the costs budget has any relevance in a case where indemnity costs have been awarded.

In Elvanite Full Circle v AMEC Earth and Environmental (UK) Ltd [2012] EWHC 1643 (TCC)

the High Court held that even on an indemnity basis the starting point is the approved budget.

In a powerfully argued judgment in Kellie and Kellie v Wheatley and Lloyd Architects Ltd  [2014] EWHC 2866 (TCC)

the High Court disagreed.

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.

The court quoted Lord Woolf in

Lownds v Home Office [2002] EWCA Civ 365

“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”.

Here the court said that this distinction is highlighted by the CPR and Practice Direction concerning costs management.  Practice Direction 3E paragraph 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”.

CPR 3.18:

“In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –

  • have regard to the receiving party’s last approved or agreed budget for each of the proceedings; and
  • not depart from such approval or agreed budget unless satisfied that there is good reason to do so”.

In Henry v Group Newspapers Ltd [2013] EWCA Civ 19 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 here in Kellie held that

“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 [29], 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 [30], 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 [30] 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 or Kellie 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.

 

Timetable

 

The rules until 31 March 2013, and which continue to apply to all stage of cases issued before 1 April 2013, are that on a standard basis assessment the court will “only allow costs which are proportionate to the matters in issue” (CPR 44.4(2)(a)).

 

When the Court of Appeal was asked to interpret in Lownds v Home Office [2002] EWCA Civ 365 what proportionality meant it held: “what is required is a two-stage approach. There has to be a global approach and an item by item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations that Part 44.5(3) states are relevant. If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the costs for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable.”

 

This rule will remain in place in relation to all aspects of all cases where proceedings were issued before 1 April 2013.

 

In Ted Baker plc v Axa Insurance UK plc [2014] EWHC 4178 (Comm)

 

the court disallowed 75% of the defendant’s costs because they conducted the litigation in a wholly disproportionate manner.

 

“…the defendants pursued an approach which…seemed to ignore all sense of proportionality.”

 

Here the parties’ combined bills totalled £7 million in a case worth £90,000.00.

 

 

 

 

In Davies and Others v Greenway, Senior Courts Costs Office, 30 October 2013, Case No JMS 1205590

the SCCO held that an order for assessment on the standard basis prevented the court from simply restricting the claimants’ costs to road traffic accident protocol amounts.

However the court was entitled to decide that those protocol amounts were the proportionate and reasonable sums without conducting a line by line assessment.

Here the claims were settled for less than £10,000 and would have been subject to RTA protocol fixed costs, but the claimants’ solicitors sent them to the wrong insurer and failed to re-submit them to the correct insurer, who had admitted liability.

Correspondence with the correct insurer produced a limited response and proceedings were issued and judgment entered with quantum to be assessed and the claims were then settled by consent, and the Consent Order provided:

“The Defendant to pay the Claimants’ costs of this action on the standard basis to be assessed if not agreed”.

The claimants’ solicitors served a bill totalling £17,430.11.  The defendant served Points of Dispute arguing that the claimant had unreasonably failed to comply and/or elected not to continue with the RTA process and its fixed costs scheme and that costs should be limited to “an amount commensurate with the costs under CPR 45 of Section VI pursuant to the express power in CPR 45.36”.

In O’Beirne v Hudson [2011] 1 WLR 17171 the Court of Appeal held that where there was a consent order for assessment on a standard basis the court could not limit the costs to those that are fixed costs for the small claims track.

The defendant argued that the same difficulty does not arise in the RTA protocol as CPR 45.36 expressly provides that the court can limit costs to RTA protocol amounts.

The claimants argued that the consent order was binding and that the defendants were seeking to re-write it, and that pursuant to

Solomon v Cromwell [2011] EWCA Civ 1584

an award of fixed costs cannot constitute a standard basis of assessment.

The court held that CPR 45.36 did not apply; the defendant had consented to an order for detailed assessment on the standard basis and that is a contract that the court had no power to vary.  The Master said that even if he was wrong about that he bore in mind that the power set out in CPR 45.36 is discretionary and not mandatory.

At the detailed assessment the Costs Judge is obliged to have regard to all the circumstances in deciding whether the costs were proportionately and reasonable incurred or were proportionate and reasonable in amount.  The Costs Judge must also have regard to the conduct of the parties including in particular the efforts made, if any, before and during the proceedings in order to try and resolve the dispute.

The Costs Master then quoted at length from the Cambridge County Court decision of 13 January 2011 in Smith v Wyatt.

 

In that case the claimants sought permission to appeal to the Court of Appeal and at a permission hearing [2011] EWCA Civ 941, Lord Justice Moore-Bick stated:

“10.        It is the function of the Costs Judge to determine whether costs have been reasonably and necessarily incurred and if he can see that a particular course of conduct has led to a group of costs being incurred unnecessarily , he is entitled to say that and need not to consider each item individually.  In my view the argument to the contrary is not really sustainable”.

The original Cambridge County Court judgment, approved by the Court of Appeal, contained the following passage, quoted by the Costs Master here:

“13.        The essential test that emerges from O’BeIrne and Drew appears to me to have two elements, one of substance and one of process.

  • In substantive terms, the test to be applied on a detailed assessment when this problem arises is:

 

whether it is reasonable for the paying party to pay more than would have been recoverable had the relevant alternative regime applied.

 

  • In process terms, what is important is that the Costs Judge always bears in mind that he is both conducting a detailed assessment and applying the test at (a) above. If he does so, and having done so concludes that it was not reasonable to take the case out of the alternative regime and hence not unreasonable to incur the extra costs that flow from that unreasonable decision, he will have remained within his proper discretion.  If he does not do so, but simply concludes that the case ought really to have been (say) a small claim and therefore that the regime automatically and comprehensively applies, regardless of reasonableness one way or the other, he will have stepped outside of his discretion and in effect re-written the costs order he is supposed to be applying”.

The Costs Master here said “…..it is important that I form a view on the issue of proportionality”.  That view was that the costs were disproportionate.

Furthermore the claimants’ failure to comply with the RTA protocol led to disproportionate costs being unreasonably and unnecessarily incurred.

Having found disproportionality the Costs Master said that it was open to him to go through the bill on an item by item basis but that, following Smith v Wyatt, he was not obliged to do so.

Had the claimants acted reasonably by re-serving the CNF on the correct insurer they would only have been able to recover RTA protocol costs.  It would be unjust to allow them to recover more and thus benefit from their unreasonable conduct.

Thus although the consent order required the court to carry out a detailed assessment the court was entitled, in that detailed assessment, to limit costs to RTA protocol costs and that was the order of the Costs Master.

 

In Vitol Bahrain EC v Nasdec General Trading LLC and Others [2013] All ER (D) 38 (Nov)

 

the Commercial Court, part of the Queen’s Bench Division of the High Court, considered the issue of proportionality post-Jackson.

 

The facts of the case are not relevant for the purposes of considering its effect on proportionality, save that it related to interim injunction proceedings only in a claim worth US$119 million.

The defendant succeeded and Mr Justice Males ordered costs to be summarily assessed on the standard basis.  His opening remarks in his costs judgment set the tone:

 

“1.          I decided to take time to consider this summary assessment of the second and third defendants’ costs because the amounts claimed in the statement of costs filed on each side are eye watering”.

 

“Eye-watering” is precisely the term used by Mr Justice Moor in his criticism of Mrs Young’s costs of £6.4 million as “totally unacceptable” in Young v Young [2013] EWHC 3637, a family matter involving ancillary relief.

 

In the Bahrain case the claimant’s statement of costs was £242,760.48 and the defendants’ was £165,421.80.

 

The Judge referred to both sides “charging on an epic scale,” (paragraph 8).  Accepting that “the parties and their lawyers are free to agree whatever they wish”, (paragraph 11).  Mr Justice Males continued “……the rules make clear that the costs recoverable by the successful party from the unsuccessful party are limited to those which are reasonable and proportionate”.

 

He assessed the defendants’ costs at £75,000, that is less than half of the sum claimed and less than one-third of the claimant’s estimate, albeit accepting that the claimant had to carry out considerably more work.

 

In a key passage the Judge said:

 

“12.        It is important that the message should go out loud and clear that the Commercial   Court will not assess costs summarily in such disproportionate amounts merely because the figures on both sides are broadly comparable.  Control will be exercised to ensure that the costs claimed from the unsuccessful party are reasonable and proportionate”.

 

This case was not subject to costs budgeting but the principle must apply to costs budgeted cases, so the fact that a party comes within budget will not save it, even if that budget was agreed by the other side.

 

One wonders now whether there is any point in trying to agree a budget.

 

There is also little point in preparing one’s own budget conservatively so as to give weight to an objection to the other side’s costs in the event of defeat.

 

Now one can say “Well, I know my budget was for £242,760.48, but that does not make the other side’s budget of £165,421.80 proportionate”, or whatever.

 

A different approach was taken by the court in Slick Seatings Systems v Adams    [2013] EWHC B8 (Mercantile). There the damages were £4.4 million and the costs claimed were £351,000, within the budget of £359,000. Costs of £351,000 as claimed were ordered there and then. Master Haworth has pointed out that “the paying party has no chance to challenge the costs if the budget is simply approved without going to detailed assessment. It’s just a case of “pay it in 14 days”. (Litigation Funding/Law Society conference 15 October 2013).

 

It is still not clear how Judges are meant to approach proportionality.  Here the sum at stake was US$119 million, although as the Judge was at pains to point out this was an application, not a trial, – “It was, therefore a typical one day Commercial Court application such as might be encountered on any Friday”. (Paragraph 3).

 

Fair enough, but in such circumstances what makes £75,000.00 as compared with £50,000.00 or £150,000.00 proportionate?

 

This problem arose in the context of the pre 1 April 2013 rule in

 

1-800 Flowers Inc v Phonenames Ltd  [2001] EWCA Civ 721

 

where the Court of Appeal held that the trial Judge had been wrong in principle in summarily assessing costs in a trademark case at £10,000 compared with the sum claimed of £38,000.00.  The Judge’s error was in applying his own tariff as to what costs were appropriate rather than going in to any detailed analysis of the statement of costs and the objections to it.

 

That is exactly what occurred in the current case, although that is probably permissible under the new proportionality rule which specifically states:

 

“Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred”.

 

The problem is that another judge may have allowed £150,000.00 or £50,000.00 and none of us would ever know why, beyond that that is the proportionate sum, which takes us back to the question of what is proportionate?

 

I appreciate that all courts have a wide discretion in costs matters, but simply to say, without further ado, that a figure is disproportionate is not satisfactory.

 

Now, if the case was worth £100,000.00 one can understand that anyone might consider £165,000.00 disproportionate.  Res ipsa loquitur as we used to say.

 

But here the claim was worth US$119 million, so £165,000.00 is between one quarter and one fifth of one per cent of the value of the claim, or to put it another way the claim was worth between 400 and 500 times the amount of costs claimed.

 

Now that may be unreasonable and unnecessary and lots of other un-things but it does not immediately come across as disproportionate.

 

Lack of obvious disproportionality should not of course justify what may be outrageously high fees for an application, but surely the answer was to have a detailed assessment and go through the work line by line.

 

Item by item detailed assessment seems pointless if the end figure will then be knocked down further to produce a proportionate sum.  Why not just start and end with the proportionate sum?

 

If that is the case what is the point of a detailed budget?  If, to quote Simon Gibbs’ blog, the Judge can simply say on assessment:

 

“The damages were £x and I’m not going to allow costs of more than £y at the conclusion of the assessment.  Do I need to hear from either of your further?”

 

then why not do that at the Case Management and Costs Budget hearing and save everyone the bother?

 

Actually why not do it on receipt of the pleadings and cut out budgets and assessments?

 

“I have read the pleadings.  Whatever happens neither of you is getting more than £100,000.00 costs”.

 

Why not just have fixed costs?

 

Why not scrap recoverable costs and move to contingency fees?

 

Why not indeed.

 

As an aside, and entirely unconvincingly, the Judge here said that the opt-out would make no difference to a case such as this.

 

So there we have it.  The first decision on proportionality is made in a case where whatever else the costs were, they were not disproportionate, and made by a court which has chosen to opt out of costs budgeting.

 

Like all else Jackson-related – you could not make it up!

 

Proportionate Costs Orders

 

There is great scope for confusion between proportionality and proportionate costs orders.

 

“The power to make an order for only a proportion of the successful party’s costs (“a proportionate costs order”) is recognised in CPR44.2(6)(a).  In deciding what order to make about costs, the court is required to have regard to all the circumstances, including those mentioned expressly in CPR44.2(4) and (5); the following provisions of those paragraphs are particularly relevant:-

 

“(4) In deciding what order (if any) to make about costs, the court will have regard to all circumstances, including –

 

  • the conduct of all the parties;

 

  • whether a party has succeeded on part of its case, even if that party has not been wholly successful…

 

 

(5) The conduct of the parties includes –

 

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

 

(c) the manner in which a party has pursued … a particular allegation or issue;…”

 

The above is a direct quote from paragraph 5 of the High Court’s decision in the case of Kellie v Wheatley & Lloyd Architects Limited [2014] EWHC 2886 (TCC). Paragraphs 6 and 7 are set out below.

 

“6. In Multiplex Construction (UK) Ltd v Cleveland Bridge UK Ltd [2008] EWHC 2280 (TCC), at [72], Jackson J derived a number of principles from the authorities; Mr Troup relied on the following principles in particular:

“(v) In many cases the judge can and should reflect the relative success of the parties on different issues by making a proportionate costs order.

(vi) In considering the circumstances of the case the judge will have regard not only to any part 36 offers made but also to each party’s approach to negotiations (insofar as admissible) and general conduct of the litigation.

(viii) In assessing a proportionate costs order the judge should consider what costs are referable to each issue and what costs are common to several issues. It will often be reasonable for the overall winner to recover not only the costs specific to the issues which he has won but also the common costs.”

  1. In Enterprise Managed Services Ltd v Tony McFadden Utilities Ltd [2010] EWHC 1506 (TCC), Akenhead J said at [10]:

“A number of general observations can properly be made in the context of this case in relation to the fixing of the relevant percentage in the proportionate costs approach:

  • The first step is obviously to determine which of the parties has been successful in overall terms; if one can not determine that, it may be that one needs to consider the issues-based approach.
  • One needs to consider the overall context of the litigation, including the reasons which led to its genesis; that involves considering the conduct of the parties which led to the need for the litigation in the first place.
  • The reasonableness, or unreasonableness, of each party taking the various points or issues upon which it lost, should be considered by the Court. The more unreasonable the position of the losing party, the more likely that, even if the court orders only standard, as opposed to indemnity, based costs, it will attach weight to this factor.

 

  • Whilst one needs to have regard to the issues upon which each party has succeeded, a simple mathematical approach on the basis of the number of issues ‘won’ by each party will often not be an appropriate basis for fixing the percentage; thus, simply because the overall successful party has won 3 out of 5 issues, should not mean automatically that it should recover 60% of its costs. One needs to have regard to the likely amount of resources applied as well as to the impact overall of the success or failure on the various issues.

 

  • Similarly, the Court should be cautious about fixing a proportion by reference to the amount of time or space applied by the judge in his or her judgement to the issues upon which each party has been successful or unsuccessful. The judge may simply have had to take up more time and space in the written judgement to address what may be more complex issues. The fact that 80% of the judgement addresses a legal issue upon which the overall successful party lost should not, at least generally, mean that it can only recover 20% of its costs.
  • The Court needs also to have regard to the fact that the overall unsuccessful party will have incurred cost in dealing with the issues upon which it has ‘won’.

 

  • Where the parties have put before the court summary costs bills for assessment, the Court can have regard to the likely cost and resource which each party will have applied in relation to the issues upon which they have won or lost.

 

  • Where the parties cannot put such information before the Court, and in any event, the Court must do the best that it can in fixing a proportion.””

 

PROVISIONAL ASSESSMENT

 

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.””

 

He added:-

 

“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.

 

In Mehmi v Pincher 20 July 2015 Liverpool County Court Unreported

 

HHJ Wood held that a decision on the papers in a Provisional Assessment was not a sanction but a judicial determination.

 

Consequently an oral review was possible and thus here the receiving party was entitled to such an oral review where the Regional Costs Judge could decide whether the assessment remained valid.

 

The judge also held that an oral review of a Provisional Assessment was not akin to an appeal, where there were restrictions on the admission of fresh evidence, but rather was a new hearing where new evidence could be produced.

 

Here the Costs Judge had assessed costs at nil due to the receiving party’s failure to produce the necessary documents under Practice Direction 47.13.2, here a Conditional Fee Agreement.

 

On appeal the judge said that there is a typographical error in the wording of Form N258 – Request for Provisional/Detailed Assessment – which might have misled lawyers into thinking that it was not necessary to file the Conditional Fee Agreement or other retainer.

 

PART 36

Proportionality does not apply where a claimant beats its own Part 36 offer as costs are then awarded against the defendant on the indemnity basis for the period after the expiry of the offer and proportionality does not apply to indemnity costs.

WITHIN BUDGET

 

Proportionality can still be a major issue even if the successful claimant comes within budget. If the budgeting judge has allowed a budget as proportionate because the claim is put at say £1 million, but subsequently turns out to be worth say only £200,000.00, then that which was proportionate may properly be judged to be disproportionate.

INTERIM COSTS ORDERS

In Rallison v North West London Hospitals NHS [2015] EWHC 3255 (QB)

the High Court ordered the defendant to pay £306,763.00 on account of costs, which was less than 30% of the claimant’s costs claim of £1.1 million but the judge did not consider that claim to be proportionate.

The decision is a reminder that determination of the sum to be paid on account of costs under CPR 44.2(8) involves consideration of proportionality.

In Capital for Enterprise Fund AP v Bibby Financial Services Limited, Chancery Division, Manchester 18 November 2015

the defendant had greatly exceeded its costs budget.

The Judge ordered an interim payment of 70% of its costs budget, not the amount claimed and rejected the defendant’s submission that he should take in to account additional costs incurred by the defendant in relation to which they had not sought an increase in the budget.

 

 

READER COMMENTS:-

 

Proportionality:- Has One Judge Had Enough?

 

Hxyay’s comment on 6 November 2015:-

 

He recognised that some work or fees incurred were reasonably incurred but they should not be paid by the defendant. So who pays them?

 

If there is ATE the case has “won” so there is no pay out. If the claimant has to pay it that will reduce damages (possibly leaving them with nothing) and may also lead to a negligence claim against their solicitor.

 

Do we now need standard phraseology?

 

‘The opinion is necessary but even though it be necessary and/or reasonably obtained you may be liable to pay the expert’s fee in the event that you win but a judge rules that your opponent does not have to pay it.’

 

And by the way the expert’s fee is around £2k and our costs will be £1,500 dealing with it so you might get nothing at all…

 

Or do the claimant’s solicitors take the hit?

 

Kerry’s reply:-

 

Quite. Proportionality is utterly meaningless. Fixed Costs and/or contingency fees achieve certainty, albeit not without problems. Proportionality, by contrast, is fluid and subjective – a moveable feast , or perhaps a moveable famine.

 

Kerry

 

 

Ed Lyons’ comment on 5 November 2015:-

 

The more the successful party is unable to recover his costs from the other side the greater is the argument to do away with costs orders and leave each party to pay their own costs via a contingency fee arrangement . It must therefore follow that there should be reform of the Law of quantification of damages.

 

Kerry’s reply:-

 

I agree. Let us adopt the US system of out and out contingency fees and jury trials in civil cases to ensure that all citizens receive a fair trial and fair compensation.

 

Kerry

 

Julian Evitts’ comment on 6 November 2015:-

 

I am restoring a defendant company. The Central London County Court, who now deal with restorations, do not answer the phone, nor do they reply to emails. They are also rejecting applications arbitrarily for nonsensical reasons and not approving applications by consent until very close to the date for the restoration hearing.

 

In my case the restoration hearing was today. As of yesterday we hadn’t heard from the Court so we arranged for (very cheap junior) counsel to attend.

 

This morning we received the sealed order from the Court in the DX. The Court had made the order on the papers on Tuesday. I now have counsel wanting paying at least part of their fee for pulling the instructions on the morning of the hearing.

 

All of this work, including counsel’s fee was necessary. The claim couldn’t continue without it. The claim is probably worth £5000 – £10,000 so the costs will exceed the damages. Presumably there is a chance that a judge will now not allow my counsel’s fee from today, despite this being necessary (and incurred as a result of the uselessness of the Court). How can this possibly be fair?

 

Similarly, I am a Grade A fee earner. Presumably now every defendant is going to be wanting to cut my rate to Grade C in every case.

 

 

Kerry Underwood’s reply:-

 

Quite. Cutting bills would be much more palatable if we had a Rolls Royce court system where parties could do the job with the minimum work necessary. Yet the court system is falling apart- it is not the fault of the staff- it is the low pay, cuts and low morale caused by widespread court closures with more to come.

 

As a society we are entering dangerous territory. No court access = no rule of law= civil disorder as the President of the Supreme Court has pointed out.

 

Kerry

 

Hastanton’s comment on 6 November 2015:-

 

In the words of Charkes Dickens , the law is an ass

 

Kerry Underwood’s reply:-

 

But without law there is anarchy. More those who prepare reports who are the asses.

 

Kerry

 

Mac McCaskill’s comment on 6 November 2015:-

 

Thanks for an excellent post. As ever, full of helpful detail and comment.

There are often complaints that this or that measure “restricts access to justice”, and it usually means “access to justice for claimants”. However, defendants (and even their insurers!) are also entitled to access to justice.

I thought proportionality was intended to avoid a situation where the prospect of disproportionate costs could “bully” a party out of pursuing/defending a legitimate case.

 

Kerry Underwood’s reply:-

 

I do not disagree. The problem with proportionality is that no-one knows how any particular judge will apply it. Does it mean no more than 300% of damages as here? Or 100% or what? Fixed Recoverable Costs introduce certainty for both sides.

 

Kerry

 

David Simpson’s comment 6 November 2015:-

 

If we cannot recover reasonable and necessarily incurred costs from a wrongdoer in order to achieve justice for a wronged person then the law is an ass.

 

Kerry Underwood’s reply:-

 

I agree and I believe the assessment procedure gives judges all the control that they need and that proportionality brings nothing to the party except confusion, uncertainty and unfairness.

 

Kerry

 

 

But with fixed costs you know in advance what you will get and the matrix punishes non-settlement. It works very well, provided the figures are reasonable, which current ones are.

 

Kerry

 

Sue King’s comment on 6 November 2015:-

 

Kerry

I would like to thank you for, yet again, another informative and interesting blog. I am very grateful to you for bringing these cases to our attention. In particular the information in this article has helped me enormously in being able to bring home to my principal that gone are the days when we can recover £20, £30, £40k worth of costs for extremely low value, non fixed costs pi cases some of which we still have in the system and to stop being so ready to rush off to provisional assessment. I haven’t done too badly so far in my judgment of settlement offers and have only been beaten once on a provisional assessment. However it is becoming more and more of an uncertain art isn’t it!

Sue

 

Kerry Underwood’s reply:-

 

Many thanks for your kind remarks. You are right in your analysis of the current situation. One of the problems with clinical negligence is the NHSLA. Few insurers are as difficult or obstructive as the NHSLA. This makes it difficult to know whether the costs were hugely inflated or problems were caused by the NHSLA. A combination of both I suspect. I would certainly not be happy about one of my firm’s files going to assessment if I was claiming 10 x the settlement amount.

 

Worth bearing in mind that absent proportionality the Master allowed £11,000 plus VAT for a £3,500 claim.

 

Also worth bearing in mind this settled pre-issue. Quite how you do that much work without issuing is a mystery to me, and presumably to Master O’Hare.

 

Kerry

 

Rob Carter’s comment on 6 November 2015:-

 

A test that trumps reason works only to reduce costs and will only (if ever) be comprehensible after a smorgasbord of Appeals on different topics allows its reasoned application, must fall foul of some basic consumer legislation provisions for Court fee payers?

 

Kerry Underwood’s reply:-

 

All the powers are there in primary legislation. Enforced by secondary legislation so judges could declare them non Article 6 compliant, but it is those same judges applying proportionality.

 

Think that is a non-starter.

 

Kerry

 

Root’s comment on 11 November 2015:-

 

It so saddens me that it has taken nigh on 15 years for the full implications of the innocuous words which crept into the over riding objective during the Woolf reforms to begin to sink in.

 

Kerry Underwood’s reply:-

 

They just don’t think things through anymore.

 

Robert Pettitt’s comment on 19 November 2015:-

 

And car insurance has gone up, on average, in the last year by +9% and the IPT incrase is far lower.

 

So the publically popular reason for reforming CFA funding (that your premiums will go down) has died quickly.

 

Insurer lobbying a glorious success?

 

Kerry Underwood’s reply:-

 

Worth remembering too that whole point of Jackson Reforms was to reduce costs, yet courts now swamped with litigants in person who cannot afford legal costs, court fees have gone up 600% in some cases, employment tribunal fees have led to 80% reduction in claims.

 

All the reforms, except fixed costs – a previously unimplemented Woolf Reform – have been a disastrous failure.

 

Kerry

 

Proportionality: The Emperor’s New Clothes:-

 

Dominic Cooper’s comment on 26 February 2015:-

 

One thing I have never understood, is if CPR 44.4(3) (b) to (g) set out the circumstances to which the court will have regard when assessing costs, why they are invariably all ignored and the sole consideration appears to be that set out in 44.4(3)(f) – the time spent. The practice forms, the standard form of bill of costs, costs budgets and summary assessments are all calculations based on time spent.

 

I recall attending one of your seminars many moons ago Kerry, where you pointed out the fallacy of “time spent”. A client calls you for an important contract. You drop everything and spend two days drafting it. You produce it and charge £1,500 plus VAT based on the time spent. The next day, by bizarre co-incidence, a different client calls and want the self-same contract to be drafted. Would you charge £20, on the basis that you are just printing out the same document?

 

I think that if a court considered proportionality in accordance with all the other factors (i.e. importance to the parties, skill and responsibility accepted by the lawyers, *duration of the case* rather than time spent) and combined that with costs budgeting – along the lines of “I think this matter would justify a client spending £x on it for the following reasons” then I would think it may work.

 

But every costs budget I have been involved with has been nothing other than a summary assessment in advance. Nothing more, nothing less. I once made the mistake of agreeing an opponent’s costs budget, and thinking that I ought to be reasonable. Never again!

 

I load it with everything imaginable. Plus the kitchen sink. Refuse to agree opponent’s. They refuse to agree mine. Then the DJ reduces the hourly rates to the 2010 guideline rates, and knocks 20% of the time spent. And occasionally says that a lower grade of fee earner should do certain things (like trial bundles, even though the practice direction states that it is the conducting fee earner’s personal responsibility to the court to ensure they are done). And that’s it. Total waste of time.

 

I do a fair number of “small” claims (i.e. under £10,000 which is not small by anybody’s standards). We charge the client a fixed fee for each stage (e.g. per witness statement, for managing the case, for filing questionnaires, for representation, etc.). We agree what we consider reasonable. The client knows what it is and knows whether it is “proportionate” or not. It’s none of the court’s business what we charge. No assessment. No time wasting. No need to justify whether it was reasonable for a Grade B fee earner to call the court listing office or not. I think in reality this is the way forward. No inter partes costs recovery (other than disbs, and if one party has been wholly unreasonable).

 

This post has ended up longer than I anticipated! Rant over.

 

Kerry Underwood’s reply:-

 

I agree entirely with you concerning the obsession with the time spent on a case.

 

You are right in saying that generally proportionality is being considered only in relation to time spent and costs rather than the other factors that you mentioned and which should be taken into account.

 

You are also correct in saying that for all intents and purposes the costs budgeting exercise is summary assessment in advance; indeed if you look at the detail of the decision in CIP Properties v Galliford Try Infrastructure Ltd [2015] EWHC 481 (TCC) that amounts to summary assessment of costs incurred to date.

 

That case is interesting; the judge recognised that by effectively capping the costs at a figure he thought reasonable he was not guaranteeing that the claimant would get that sum as the paying party could attack that figure in relation to the individual items and thus reduce it to a sum below what the judge thought was reasonable and proportionate.

 

The compromise that he arrived at is creative, but in my view of doubtful legality, although arguably it is sanctioned by the Practice Direction, also of doubtful legality in my view.

 

3EPD.2 reads:-

 

“2.4. As part of the costs management process the court may not approve costs incurred before the date of any budget. The court may, however, record its comments on those costs and should take those costs into account when considering the reasonableness and proportionality of all subsequent costs.”

 

Quite clearly the message is, as you correctly say, that you should never agree an opponent’s costs budget.

 

I also agree with you that the way forward is contingency fees with no recoverable costs and we are clearly moving that way.

 

Many thanks for commenting. We will get there in the end!

 

Kerry

 

 

Written by kerryunderwood

November 27, 2015 at 8:02 am

Posted in Uncategorized

PERSONAL INJURY SMALL CLAIMS LIMIT WILL BE £5,000

with 145 comments


Kerry will deal with the small claims limit rise and contingency fees in his Small Claims, Portals and Fixed Costs course in March to May of this year – click here

The Autumn Statement to the House of Commons this afternoon contained an announcement that the small claims limit for all personal injury claims will be raised from £1,000 to £5,000. No date has been set but it is likely to be April 2017.

Courts will be prohibited from awarding general damages for pain, suffering and loss of amenity in minor soft tissue injuries, but “Claimants will still be entitled to claim for “special damages” including treatment for any injury if required and any loss of earnings.” So, an injured person will have to prove their claim and get medical evidence accordingly, but will then get no general damages for those proven injuries.

In reality that means that the small claims limit for whiplash will be £10,000 as it is only general damages which has the lower threshold, currently £1,000 but to be raised to £5,000. Absent general damages the small claims limit is  and will remain £10,000.

The proposals are at page 125 at section 3.103 and read, in full:

 

Insurance

3.103 Motor insurance – The government will bring forward measures to reduce the excessive costs arising from unnecessary whiplash claims, and expects savings of £40 to £50 per motor insurance policy to be passed onto customers, including by:

removing the right to general damages for minor soft tissue injuries;

removing legal costs by transferring personal injury claims of up to £5,000 to the small claims court.

Claimants will still be entitled to claim for “special damages” including treatment for any injury if required and any loss of earnings.”

 

The raising of the small claims limit does not require primary legislation. My view is that the removal of the courts’ power to compensate for a tort does require an Act of Parliament.

Please see my related blogs:-

PERSONAL INJURY SMALL CLAIMS LIMIT GOING UP?

LIES, DAMNED LIES AND THE SMALL CLAIMS LIMIT

PERSONAL INJURY SMALL CLAIMS LIMIT AND THE MINISTRY OF TRUTH

SETTLEMENT AGREEMENTS IN PERSONAL INJURY

Written by kerryunderwood

November 25, 2015 at 4:49 pm

Posted in Uncategorized

COURT AND TRIBUNAL FEES AND HELP WITH FEES (REMISSION)

with 24 comments


The application form

An application for help with fees, that is to avoid paying a court or tribunal fee altogether, or getting a reduction on the normal fee, is made on Form EX160 – Apply for Help with Fees – available here.

From 20 June 2016 potential users of the court have been able to apply for “Help with Fees” online at www.gov.uk/help-with-court-fees

“Help with Fees” is the name now given to fee remission.

The process for applying online is:-

  • court users will be able to enter their details and check them before submitting the application;
  • court users will receive an application reference number that needs to be written on their Court/Tribunal claim or application form;
  • if the application reference number is not written on the Court/Tribunal claim or application form, staff will not be able to process the application for help with fees;
  • the applicant will receive a confirmation email from the Court/Tribunal containing the application reference number;
  • the Court/Tribunal will then contact the applicant to let them know whether the application was successful or not, and if not if there is any additional information required;
  • there is no need to provide any paper evidence unless the court or tribunal specifically asks for it.

In June 2016 HM Courts and Tribunals Service updated its guide on how to apply for help with fees and that 20 page publication is on Form EX160A and the link is here.

The Ministry of Justice has published its response to the consultation on yet further increases in court fees, over and above the very substantial increases which took effect on 9 March 2015.

The current maximum fee of £10,000.00 will remain for the time being and thus the proposal to increase the maximum to £20,000.00 has been put on hold, but the Government has made it clear that this is a temporary reprieve and does not rule out implementing that proposal in the future.

Broadly all other fees are increased by 10% including those in the Court of Appeal, the Upper Tribunal (Lands Chamber), Judicial Review Proceedings, Civil Proceedings in the Magistrates’ Court, appeals to the County Court and to the High Court and in proceeding for the assessment of costs and in proceedings for enforcement.

Fees will be introduced in some other tribunals, beyond the Employment Tribunal and the Employment Appeal Tribunal.

No date has been given in relation to implementation.

Set out below is the  Statutory Instrument which contains the current fees, that is with effect from 9 march 2015.

There then follows a piece on Court Fee Remission and links to Form EX160 application form for remission, and to Guidance Notes: Court and Tribunal Fees – Do I have to pay them?

Fees in Employment Tribunals were introduced by The Employment Tribunals and the Employment Appeal Tribunal Fees Order 2013.

                               

                  

2015 No. (L. )

Senior Courts Of England And Wales

County Court, England And Wales

 Family Proceedings, England And Wales

The Civil Proceedings and Family Proceedings Fees (Amendment) Order 2015

 

Made                                                    5th March 2015

 

Coming into force in accordance with article 1

 

The Lord Chancellor, with the consent of the Treasury, makes the following Order in exercise of the powers conferred by section 92(1) and (2) of the Courts Act 2003(1) and section 180(1) of the Anti-social Behaviour, Crime and Policing Act 2014(2).

The Lord Chancellor has had regard to the matters referred to in section 180(3) of the Anti-social Behaviour, Crime and Policing Act 2014.

The Lord Chancellor has consulted in accordance with section 92(5) and (6) of the Courts Act 2003.

A draft of this Order was laid before Parliament and approved by resolution of each House of Parliament in accordance with section 180(7) of the Anti-social Behaviour, Crime and Policing Act 2014.

Citation and commencement

  1. This Order may be cited as the Civil Proceedings and Family Proceedings Fees (Amendment) Order 2015 and comes into force on 1st March 2015 or, if later, the next Monday after the day on which the Order is made.

 

Amendments to the Civil Proceedings Fees Order 2008

2.—(1) The Civil Proceedings Fees Order 2008(3) is amended as follows.

(2) In article 5 (remissions and part remissions), for paragraph (2)(a), substitute—

“(a) fee 1.2 if the fee relates to proceedings to recover a sum of money in cases brought by Money Claim OnLine users; or”

(3) In Schedule 1 (fees to be taken), for the column headers and for the text (in both columns) from “1. Starting proceedings (High Court and County Court)” to the end of the entry headed “Fees 1.1, 1.2 and 1.3”, substitute—

“Column 1 Number and description of fee Column 2 Amount of fee (or manner of calculation)
1 Starting proceedings (High Court and County Court)
(a) does not exceed £300; £35
(b) exceeds £300 but does not exceed £500; £50
(c) exceeds £500 but does not exceed £1,000; £70
(d) exceeds £1,000 but does not exceed £1,500; £80
(e) exceeds £1,500 but does not exceed £3,000; £115
(f) exceeds £3,000 but does not exceed £5,000; £205
(g) exceeds £5,000 but does not exceed £10,000; £455
(h) exceeds £10,000 but does not exceed £200,000; 5% of the value of the claim
(i) exceeds £200,000 or is not limited. £10,000
1.2 On starting proceedings in CCBC cases brought by Centre users or cases brought by Money Claim OnLine users, to recover a sum of money where the sum claimed:
(a) does not exceed £300; £25
(b) exceeds £300 but does not exceed £500; £35
(c) exceeds £500 but does not exceed £1,000; £60
(d) exceeds £1,000 but does not exceed £1,500; £70
(e) exceeds £1,500 but does not exceed £3,000; £105
(f) exceeds £3,000 but does not exceed £5,000; £185
(g) exceeds £5,000 but does not exceed £10,000; £410
(h) exceeds £10,000 but does not exceed £100,000. 4.5% of the value of the claim
Fee 1.1
Where the claimant does not identify the value of the claim when starting proceedings to recover a sum of money, the fee payable is the one applicable to a claim where the sum is not limited.
Fees 1.1 and 1.2.
Where the claimant is making a claim for interest on a specified sum of money, the amount on which the fee is calculated is the total amount of the claim and the interest.”

(4) In Schedule 1 (fees to be taken), for the entry in column 2 (amount of fee) corresponding to fee 2.1 (a) (case on the multi track) substitute “£1090”.

(5) In Schedule 1 (fees to be taken) for the entry in column 2 (amount of fee) corresponding to fee 2.1 (b) (case on the fast track) substitute “£545”.

Amendment to the Family Proceedings Fees Order 2008 3.—(1) The Family Proceedings Fees Order 2008(4) is amended as follows.

(2) In Schedule 1 (fees to be taken) for the entry in column 2 (amount of fee) corresponding to fee 1.2 (application for divorce etc), substitute “£410”.

EXPLANATORY NOTE

(This note is not part of the Order) This Order amends the Civil Proceedings Fees Order 2008 (S.I. 2008/1053) and the Family Proceedings Fees Order 2008 (S.I. 2008/1054).

Article 2(3) increases the fee (Fee 1.1) for starting proceedings to recover money where the sum exceeds £10,000 and alters the basis on which that fee is calculated. The fee is 5% of the amount claimed. Article 2(3) also merges two existing fees (Fees 1.2 and 1.3) which apply to starting proceedings by users of the County Court Business Centre and Money Claims Online. In those cases, the fee for starting proceedings where the sum exceeds £10,000 is 4.5% of the amount claimed.

Article 2(2) makes a minor amendment to the provision identifying exceptions from the provisions for remission to reflect the altered number of the fee for starting proceedings electronically by the Money Claims Online facility.

Articles 2(4) and (5) and 3 prescribe afresh, without altering the amount, three fees set before the enactment of section 180 of the Anti-social Behaviour, Crime and Sentencing Act 2014 (c. 12). Those three fees currently recover more than the costs of providing the service.

A full impact assessment accompanies this instrument.

                               

                  

Court Fee remissions

The whole question of court fee remissions has just become much more important with the massive increase in court fees – effective 9 March 2015 – implemented by The Civil Proceedings and Family Proceedings Fees (Amendment) Order 2015.

To be eligible for a fee remission you must pass two tests, the disposable capital test and the gross monthly income test, and fill out Form EX160. Only the person who has to pay the court or tribunal fee can make a fee remission application. However, there are two exceptions to this rule:

  • applications to the Court of Protection on behalf of ‘P’ (a ‘person’ who lacks the capacity to make decisions); or
  • any person acting for or representing a child involved in legal action.

The guidance now says

Minors: If you are acting for or representing a child involved in court or tribunal proceedings, in your capacity as a Litigation Friend, parent or guardian, you can apply for a full or part remission using your own details.”

The fee remission scheme is based on two tests:-

  • Disposable capital test;

 

  • Gross monthly income test;

You will have to pass both tests in order to be eligible for a fee remission.

 

Lord Dyson, The Master of the Rolls has expressed his concern, to the Lord Chancellor and Secretary of State for Justice, in relation to the increased fees and the potential impact on mid and higher value claims and in his letter of response Chris Grayling states that he has

“…asked officials to monitor the situation in respect of the type of higher value claims that are the cause of your concern and consider whether guidance needs to be strengthened on the use of the exceptional circumstances remission. This would work alongside the current standard remission scheme and ensure that those who have meritorious claims but are genuinely unable to fund the fee through other means, are not prevented from accessing the courts.”

 

 

DISPOSABLE CAPITAL TEST

 

In order to pass the Disposable capital test, this is the first test that must be passed, you must have a disposable capital of below the following thresholds and if you do then you will pass the disposable capital test and can continue to the gross monthly income test.

Court or tribunal fee Disposable capital threshold
 Your court or tribunal fee is: You, and your partner’s disposable capital is less than:
Up to £1,000 £3,000
£1,001–£1,335 £4,000
£1,336–£1,665 £5,000
£1,666–£2,000 £6,000
£2,001–£2,330 £7,000
£2,331–£4,000 £8,000
£4,001–£5,000 £10,000
£5,001–£6,000 £12,000
£6,001–£7,000 £14,000
£7001 or more £16,000

 

For people 61 years or older there is a single disposable capital limit of £16,000, regardless of the amount of the court fee.

 

If you have disposable capital equal to or more than the relevant threshold you will not be eligible for a fee remission and will be required to pay the fee in full.

 

The Ministry of Justice states that disposable capital is:-

 

the value of savings, investments and so on which you and your partner (if you have one) have on the date the application is made. It does not include wages or benefits. However, if you are bringing proceedings with a contrary interest, do not include the value of your partner’s disposable capital, or any capital held jointly by you or your partner (for example, a joint savings account).”

Examples of disposable capital are as follows:-

  • capital held in any type of saving account(s); for example:
    • all ISAs;
    • fixed rate bonds
    • market linked investment bonds or savings; or
    • any other form of savings account.
  • any type of redundancy capital payment received;
  • stocks or shares;
  • any jointly held capital (where one or more parties have a financial interest in a disposable capital source);
  • second homes;
  • trust funds (where accessible), or any other fund available to you;
  • any type of disposable capital held outside the UK;
  • any type of capital financial product (for example, unit trusts, an OEICs/Open-Ended Investment Company, or derivatives

The following should not be included when calculating disposable capital:-

  • Bereavement Payment;
  • Self employed businesses – the capital value of your or (if you have one) your partner’s business;
  • Criminal Injuries Compensation Scheme;
  • First homes (the main property where you live);
  • Home contents (for example, furniture or clothing);
  • Independent Living Fund;
  • Insurance contracts – the cash value of (for example, life insurance);
  • Jobseeker’s Back to Work Bonus;
  • Lump sum payments made on illness, disability or death from insurance or endowment policies (all other insurance or endowment payments are considered);
  • Medical negligence or personal injury awards;
  • Personal or occupational pension schemes (the cash value of);
  • Student loans or student grants;
  • Sure Start Maternity Grants;
  • Tools and implements of trade (including vehicles used for business purposes);
  • Trust funds, and any other fund available, which you or (if you have one) your partner, cannot access or receive advances from;
  • Unfair dismissal awards;
  • Vehicles (for example, cars or vans) – the sale of which would leave you or your partner without transport

If you pass the disposable capital test then you can continue to the gross monthly income test which will also need to be passed in order to be eligible for a full or part remission.

 

However, if you do not pass this test, that is the disposable capital test, then you are not eligible for any fee remission and you do not need to consider the Gross monthly capital test.

GROSS MONTHLY INCOME TEST

There are two types of fee remission and you have to pass both tests in order to be eligible for a fee remission:-

  • Remission 1 – you will receive a full remission of a court or tribunal fee if you receive one

of the following benefits:-

  • Income-based Jobseekser’s Allowance;
  • Income-related Employment and Support Allowance;
  • Income Support;
  • Universal Credit – with gross annual earning sof less than £6,000.00;
  • State Pension – Guarantee Credit;
  • Scottish Civil Legal Aid; or
  • Remission 2 – you will receive a full remission if your gross monthly income is below the following thresholds:-

 

Gross monthly income cap thresholds – full remissions:
Gross monthly income with: Single Couple
No children £1,085 £1,245
One child £1,330 £1,490
Two children £1,575 £1,735
£245 for each additional child

If your gross monthly income exceeds the above figures you may still receive a partial fee remission. For every £10 of income you have over the threshold set out in the above table, you will be required to pay £5 towards your court or tribunal fee. The court or tribunal will calculate whether you are required to pay a contribution towards the fee – known as a partial remission.

If your gross monthly income is over the below figures, or your expected contribution is higher than the fee required, you will not be eligible for a fee remission:

Gross monthly income cap thresholds – partial remissions:
Gross monthly income with: Single Couple
No children £5,085 £5,245
One child £5,330 £5,490
Two children £5,575 £5,735
£245 for each additional child

                You do not have to include the following benefits as part of your gross monthly income:-

 

· Armed Forces Independence Payment (AFIP) · Constant Attendance Allowance

 

· Housing Element of Universal Credit

 

· Attendance Allowance · Direct payments made under Community Care, Services for Carer and Children’s Services · Industrial Injuries Disablement Benefit
· Back to Work Bonus

 

· Disability Living Allowance (DLA)

 

· Independent Living Fund payments
· Bereavement Allowance

 

· Disabled and Severely Disabled elements of Child Tax Credit

 

· Limited Capability for Work Element of Universal Credit

 

· Budgeting Advances paid under Universal Credit

 

· Disabled and Severely Disabled Child elements of Working Tax Credit

 

· Personal Independence Payment (PIP)
· Budgeting Loan

 

· Disabled and Severely Disabled Child elements of Universal Credit

 

· Any pension paid under the Naval, Military and Air forces etc (Disablement and Death) service Pension Order 2006

 

· Carer’s Allowance

 

· Exceptionally Severe Disablement Allowance

 

· Severe Disablement Allowance

 

· Carer Element of Universal Credit

 

· Financial support under an agreement for the foster care of a child

 

· Short Term Benefit Advances (STBAs )

 

· Childcare Element of Working Tax Credit · Funeral Payment

 

· Universal Credit Advances

 

· Childcare Element of Universal Credit · Housing Benefit

 

· Widowed Parents Allowance

 

· Cold Weather Payment · Housing Credit Element of Pension Credit

 

 

 

 

 

Exceptional Circumstances

 

If a fee remission application is refused and you can prove that an unexpected and exceptional event has occurred that has seriously affected your ability to pay a court or tribunal fee, then you may not have to pay a court or tribunal fee as the Delivery Manager has the power to grant a full or part remission.

The Delivery Manager is the only person who can make this decision and it is based on the information given to the court or tribunal at the time the court or tribunal fee is due. The Delivery Manager’s decision is final and cannot be appealed.

Examples of exceptional circumstances may be when:

  • payment of a fee would mean non-payment of an essential service or utility bill (for example, water or gas) that is likely to lead to the service being cut off;
  • payment of a fee would mean non-payment of rent or mortgage amounts that are overdue, which could lead to you being made homeless;
  • you have personal responsibility for caring for a dependent adult and that care can only be paid for from your own resources;
  • you have suffered unexpected and sudden personal and financial loss or expense due to the death of a close family member or dependent relative; or
  • you cannot pay the fee due to uninsured loss or damage to personal belongings as a result of fire, flood, theft or criminal damage

 

Automatic Strike-out, Costs and Small Claims

CPR 3.7A 1(7) provides that if the trial fee has not been paid on or before the trial fee payment date, then the claim will automatically be struck out without further order of the court, and unless the court orders otherwise, the Claimant will be liable for the costs which the Defendant has incurred.

That is a draconian penalty which lawyers need to be aware of and if a claim is struck out an immediate application to reinstate should be made.

However, here I want to consider the effects of the automatic liability for payment of the Defendant’s costs, unless the court orders otherwise.

Qualified One-Way Costs Shifting

CPR 44.15 allows a Defendant to enforce “to the full extent of such orders” – that is exceeding damages, without permission of the court, where the proceedings have been struck out on the ground that –

(a)          the claimant has disclosed no reasonable grounds for bringing the proceedings;

(b)          the proceedings are an abuse of the court’s process; or

(c)           the conduct of –

(i) the Claimant; or

(ii) a person acting on the Claimant’s behalf and with the Claimant’s knowledge of such conduct,

is likely to obstruct the just disposal of the proceedings.”

Automatic strike-out for failure to pay the trial fee is not caught by this exception and thus, although the Defendant will have a costs order in its favour against a personal injury Claimant whose claim is struck out for failure to pay the fee, the Defendant will be unable to enforce that costs order.

Small Claims

CPR 27.14 sets out the limited circumstances in which costs may be ordered in the Small Claims Track, and the circumstances set out in CPR 3.7 do not come with any of the listed exceptions in CPR 27.14.

CPR 44.9 is headed “Cases where costs orders deemed to have been made” and reads:

44.9

(1) Subject to paragraph (2), where a right to costs arises under –

(a) rule 3.7 or 3.7A1 (defendant’s right to costs where claim is struck out for non-payment of fees);

(a1) rule 3.7B (sanctions for dishonouring cheque);

(b) rule 36.13(1) or (2) (claimant’s entitlement to costs where a Part 36 offer is accepted); or

(c) rule 38.6 (defendant’s right to costs where claimant discontinues),

a costs order will be deemed to have been made on the standard basis.”

The rest of the rule does not apply to this situation.

Thus CPR 44.9 deems there to have been an order in those circumstances and, as we have seen, the strike-out is automatic.

Thus the effect of the combination of CPR 3.7 and CPR 44.9(1)(a) is that upon the non-payment of a trial fee the matter is automatically struck out and there is automatically deemed to have been a costs order made.

Thus the strike-out and the costs order occur without any judicial discretion or intervention. They are automatic.

Thus there is a clear contrast and conflict between these provisions and CPR 27.14

This issue needs clarifying as it will become of much greater importance as and when the small claims limit for personal injury rises to £2,000.00 generally and £5,000.00 in relation to road traffic accident matters.

The general small claims limit is already £10,000.00 and under the Briggs Reforms is proposed to rise to £25,000.00.

I am grateful to Alex Williams of Oriel Chambers for bringing this to my attention.

 

Case Law

In Lifestyles Equities CV v Sportsdirect.com Retail Ltd [2016] EWHC 2092

 the claimant had brought a claim for an account and enquiry into damages and the court held that that was an action for damages and a higher court fee was payable than the sum that the claimant had paid.

The defendant, rather than applying to strike for abuse of process applied for the matter to be stayed pending payment of the additional court fee and the court granted that application.

The case of Lewis and Others v Ward Hadaway – see below – was not referred to at all and the court distinguished the case of Page v Hewetts [2013] EWHC 2845 (Ch) and this may represent a softening of the line in Lewis and Others v Ward Hadaway.

In Lewis and Others v Ward Hadaway [2015] EWHC 3530 (Ch)

the Chancery Division of the High Court held that issuing a claim form with the statement of value lower than the true value of the claim, and in the knowledge that it would be amended later to increase the value of the claim, was an abuse of process and this was the case even though prior to service the claim forms were amended and the increased court fee paid.
This case concerned 31 claims brought against a firm of solicitors that alleged professional negligence by them in relation to conveyancing matters.

Letters of Claim were sent and in each case the claim ran into several hundred thousand pounds.

However when the claims were issued, but not served, just prior to limitation expiring each Claim Form had a very much lower sum than that contained in the Letters of Claim and consequently low issue fees were paid.

In each case the Claim Form was amended just before service of the claim to the correct sum and the additional issue fee was paid.
The Chancery Division found an abuse of process because:-

  • it was always the intention of the claimants to amend their claims and the only reason that the sum claimed was deliberately and misleadingly set at a very low sum was to avoid paying the full fee
  • although the proper fee was subsequently paid this caused disruption to cash flow for the court system and increased administration by dealing with two sets of fees and two sets of Claim Forms
  • the public interest demanded that claimants did not behave in this way
  • there was a possible advantage gained by the claimant over the defendant by stopping time running by paying a lower fee to issue the claim
  • The claim forms were signed by a partner in the firm representing the claimants with a statement of truth, something that the court found difficult to understand
  • The solicitors pursued this strategy even though such conduct by them had been held in previous actions to be an abuse of process.

Although this matter was in the High Court a number of District Judges had reached the same conclusion on the same issue in cases involving the same firm of solicitors.

Due to the lack of prejudice to the defendant, and because the period of abuse was limited, the claims were not struck out.

However in relation to 11 of the claimants whose claims were delivered to the court office prior to limitation expiring, but where claim forms were only issued after limitation had expired, the judge gave summary judgment to the defendant.

Generally there is no problem in a claim form being issued out of time as long as it was delivered to the court office in time and indeed paragraph 5.1 of Practice Direction 7A provides that in those circumstances the claim is “brought” for the purposes of the Limitation Act 1980 on the date of delivery and not the date of issue.

Here the judge found that as those 11 Claim Forms were not accompanied by the appropriate fee the claims had not “been brought” and were thus out of time.

The judge referred to

Page v Hewetts [2012] EWCA Civ 805

Comment

This decision must be right. The issue of court fees is a political one and for solicitors deliberately to claim a low sum with the intention of subsequently increasing that claim is unacceptable and must be an abuse of process.

Very lucky not to have all of the claims struck out.

 

In the Nursing and Midwifery Council v Daniels [2015] EWCA Civ 225

the Court of Appeal emphasised the need for exceptional circumstances before a party will succeed in obtaining an extension of time in relation to a statutory time limit for appealing.

This was an appeal against a decision of the Nursing and Midwifery Council and the statutory time limit is 28 days. The deadline was 8 March 2014; Ms Daniels did not contact her solicitors until 7 March 2014 and the Notice of Appeal was lodged on 11 March 2014.

The first instance judge concluded that Ms Daniels’ inability to find £235.00 to pay the court fee in time constituted a good reason for the delay. Taking into account that the period of delay was only three days and that the Nursing and the Midwifery Council had not suffered any particular prejudice, the judge held that there were exceptional circumstances which enabled the court to extend time.

The rules here, unlike, for example, the Civil Procedure Rules and the Employment Appeal Tribunal Rules, do not make any provision for extension of the time limit for appeal.

The Court of Appeal overturned the first instance decision, holding that there was no discretion to do otherwise on the facts of the case.

There was no evidence that Ms Daniels had been unable to raise the court fee. During February and March 2014 no one had given any consideration to the question of whether Ms Daniels was entitled to remission of the court fees. It appeared that she was.

However the Court of Appeal said that in case it was wrong on those factual findings it would consider the matter on the same factual basis that the first instance judge did. It would still have overturned the decision as there is no power, other than in exceptional circumstances, to override the 28 day limit.

The significance of the decision is in what is effectively double obiter guidance; that is had the facts been found by the judge been correct and had there been a general discretion to extend time, as there is under the Civil Procedure Rules and the Employment Appeal Tribunal Rules, then the Court of Appeal “could not fault the judge’s exercise of that discretion.”

This decision was given as the up to 600% hike in court fees came in. The Court of Appeal is clearly suggesting that failure to raise a court fee in time may be a good ground for extension, including retrospective extension, of a time limit.

 

 

Amending the Claim Form

 

Under CPR 17.1(1) a party may amend the Statement of Case at any time before it has been served on any other party.

Pre-service amendment does not require permission of the court and does not require the written consent of all the other parties. One or the other is required once the Statement of Case has been served.

Thus on the face of it you could put in a figure of, say, £50,000.00 and pay the court fee on that basis and then amend that Statement of Case to say £200,000.00 prior to service.

My view is that the court does have the power to order you to pay the increased fee, but it may buy time.

However Part 22 requires amendments to the Statement of Case, whether made prior to service or after service, to be verified by a Statement of Truth unless the court orders otherwise. Thus the default position is that you must verify the amendment by a Statement of Truth. That could be problematic as you would have to explain why the position had changed in a relatively short time. In my view the court would have the power to dismiss the case as an abuse of process.

 

Multiple Claimants

 

Where there is more than one Claimant in the same claim, the relevant law is the High Court and County Courts Jurisdiction Order 1991 – 1991 no. 724 (L.5), which is itself referred to in Part 7, Practice Direction 7A – “where to start proceedings”.

That part reads:-

“2.2 Proceedings which include a claim for damages in respect of personal injuries must not be started in the High Court unless the value of the claim is 50,000 or more (paragraph 9 of the

High Court and County Courts Jurisdiction Order 1991 (S.I. 1991/724 as amended) describes how the value of a claim is to be determined).”

Paragraph 9 of the High Court and County Courts Jurisdiction Order 1991 reads:-

Definition of value of action

9.—(1) For the purposes of articles 5 and 7—

  • the value of an action for a sum of money, whether specified or not, is the amount which the plaintiff or applicant reasonably expects to recover;
  • an action for specified relief other than a sum of money—
  • has a value equal to the amount of money which the plaintiff or applicant could reasonably state to be the financial worth of the claim to him, or
  • where there is no such amount, has no quantifiable value;

(c)           an action which includes more than one claim—

  • if one or more of the claims is of a kind specified in paragraph (b)(ii), has no quantifiable value;
  • in any other case, has a value which is the aggregate of the values of the claims as determined in accordance with paragraphs (a) and (b)(i).

(2)          In determining the value of an action under paragraph (1), claims for—

  • unspecified further or other relief,
  • interest, other than interest pursuant to a contract, and
  • costs,

shall be disregarded.

(3)          In determining the value, under paragraph (1), of an action which is brought by more than one plaintiff or applicant regard shall be had to the aggregate of the expectations or interests of all the plaintiffs or applicants.

(4) In determining the value of an action under paragraph (1)(a)—

  • the sum which the plaintiff or applicant reasonably expects to recover shall be reduced by the amount of any debt which he admits that he owes to a defendant in that action and which arises from the circumstances which give rise to the action;
  • no account shall be taken of a possible finding of contributory negligence, except to the extent, if any, that such negligence is admitted;
  • where the plaintiff seeks an award of provisional damages as described in section 32A(2)(a) of the Supreme Court Act 1981(28), no account shall be taken of the possibility of a future application for further damages;
  • the value shall be taken to include sums which, by virtue of section 22 of the Social Security Act 1989(29), are required to be paid to the Secretary of State.”

Thus you must put the sum of the two claims as the value of the claim and pay the court fee accordingly.

 

REFUNDS

 

A fee remission can be applied for before the case is issued or a refund can be applied for following payment of the court fee.

However, the time limit in which a refund of a court fee can be applied for is stated as within six months of paying the fee in Schedule 2 of The Civil Proceedings Fees Order 2008 and within three months of paying the fee on page 19 of the HM Courts & Tribunals Service’s own guidance on EX160.

Schedule 2 of The Civil Proceedings Fees Order 2008 states:-

 

Refunds

9.

  • Subject to sub-paragraph (3), where a party has not provided the documentary evidence required by paragraph 7 and a fee has been paid at a time when, under paragraphs 2, 3 or 4, it was not payable, the fee will be refunded if documentary evidence relating to the time when the fee became payable is provided at a later date.
  • Subject to sub-paragraph (3), where a fee has been paid at a time where the Lord Chancellor, if all the circumstances had been known, would have reduced or remitted the fee under paragraph 8, the fee or the amount by which the fee would have been reduced, as the case may be, will be refunded.
  • No refund will be made under this paragraph unless the party who paid the fee applies within 6 months of paying the fee.
  • The Lord Chancellor may extend the period of 6 months mentioned in sub-paragraph (3) if the Lord Chancellor considers that there is a good reason for an application being made after the end of the period of 6 months.

 

The HM Courts & Tribunals Service’s own guidance on EX160 and page 19 states:-

“For all courts and tribunals: You can apply for a refund (known as a retrospective application) if you have paid a court or tribunal fee within the last three months and can prove you would have been granted a remission at the time you paid the fee.”

It is also noted that the Courts will only be issuing retrospective remission where the individual applicant has paid the court fee and thus where a solicitor has paid the court fee then no retrospective fee remission can be made.

 

 

House of Commons Committee of Public Account – Legal Aid

 

The Ministry of Justice’s exceptional case funding scheme, which is intended to provide legal aid for people whose human rights would be breached without it, received 1,520 applications in the first year after the legal aid reforms against an estimate of 5,000 to 7,000, but only 69 cases were approved. The Ministry could not explain why applications were below expected levels but the legal aid providers consulted by the National Audit Office said that the complexity of the exceptional case funding scheme made it very difficult for people to apply.

 

 

Mesothelioma Victims

 

Victims of mesothelioma that are unable to trace an insurer for the employer responsible for the exposure to asbestos were left without a remedy until the passing of the Mesothelioma Act implemented by The Diffuse Mesothelioma Payment Scheme Regulations 2014 S.I. 916 made under section 1 and section 17(4) of the Act.

Eligible individuals may now apply for compensation packages worth an average of £123,000.00.

If your application is successful, the Scheme will pay you a fixed fee of £7,000 out of which you can pay your solicitor’s fee. If you incur legal costs of less than £7,000 you are entitled to keep the difference. If your legal costs exceed £7,000, you will be liable to make up the difference.

This compensation will not affect the disposable capital of an individual, when considering fee remission, as medical negligence or personal injury awards are specifically excluded from an individual’s disposable capital.

Employment tribunals

Employment Tribunal Fees

Fees in Employment Tribunals were introduced by The Employment Tribunals and the Employment Appeal Tribunal Fees Order 2013:

  1. Employment Tribunal

The order divides claims to the Employment Tribunal into ‘Type A’ and ‘Type B’.

Under Schedule 2 of the Order Type A claims are:

  1. Application by the Secretary of State to prohibit a person from running an Employment Agency.
  2. Application by a person subject to a prohibition order to vary or set it aside.
  3. Appeal against improvement or prohibition notice.
  4. Appeal against assessment of training levy.
  5. Complaint of deduction of unauthorised subscriptions.
  6. Complaint relating to failure to deduct or refuse to deduct an amount to a political fund.
  7. Complaint that an employer has failed to permit time off for carrying out trade union duties.
  8. Complaint that an employer has failed to permit time off for union learning representatives.
  9. Complaint that an employer has failed to pay for time off for union learning representatives.
  10. Complaint that an employer has failed to permit time off for trade union activities.
  11. Complaint that employer has failed, wholly or in part, to pay remuneration under a protective award.
  12. Complaint that the Secretary of State has not paid, or has paid less than, the amount of relevant contributions which should have been paid into a pension scheme.
  13. Breach of contract, except where the employer’s contract claim is made made by way of application as part of the employer’s response to the employee’s contract claim (as to which, see instead article 4 and Schedule 1 to this Order).
  14. Reference to determine what particulars ought to be included in a statement of employment particulars or changes to particulars.
  15. Reference to determine what particulars ought to be included in an itemised pay statement.
  16. Complaint of unauthorised deductions from wages.
  17. Complaint that employer has received unauthorised payments.
  18. Complaint that employer has failed to pay guaranteed payment.
  19. Complaint that employer has failed to permit time off for public duties.
  20. Complaint that employer has refused to permit, or has failed to pay for, time off to look for work or arrange training.
  21. Complaint that employer has refused to allow, or has failed to pay for, time off for ante-natal care.
  22. Complaint that employer has refused to allow time off for dependants.
  23. Complaint that employer has failed to allow, or to pay for, time off for trustee of pension scheme.
  24. Complaint that employer has failed to allow, or to pay for, time off for employee representative.
  25. Complaint that employer has failed to allow, or to pay for, time off for young people in Wales and Scotland.
  26. Complaint that employer has failed to pay for time off on medical or maternity grounds.
  27. Complaint that employer has failed to allow time of for studies or training or the refusal is based on incorrect facts.
  28. Complaint that employer has unreasonably failed to provide a written statement of reasons for dismissal or the particulars are inadequate or untrue.
  29. Reference in respect of a right to redundancy payment.
  30. Reference related to payment out of National Insurance Fund.
  31. References related to payments equivalent to redundancy payments.
  32. Complaint that the Secretary of State has failed to make any, or insufficient, payment of out the National Insurance Fund.
  33. Appeal against a notice of underpayment.
  34. Appeal against a notice issued by the Commission for Equality and Human Rights where the notice relates to an unlawful act.
  35. Complaint that prospective employer made enquiries about disability or health.
  36. Application in relation to the effect of a non-discrimination rule in an occupational pension scheme.
  37. Complaint in relation to a breach of a sex equality clause.
  38. Complaint in relation to a breach of, or application in relation to the effect of, a sex equality rule in an occupational pension scheme.
  39. Complaint in relation to a breach of a maternity equality clause.
  40. Complaint in relation to a breach of, or application in relation to the effect of, a maternity equality rule in an occupational pension scheme.
  41. Complaint in relation to terms prohibiting discussions about pay.
  42. Complaint that a term in a collective agreement is void or unenforceable.
  43. Appeal of decision of compensating authority.
  44. Complaint that employer has failed to pay for remunerated time off for safety representative.
  45. Reference that there has been a failure to consult with employee representatives about contracting out of pension scheme.
  46. Complaint that employer has failed to pay for time off to carry out Safety Representative duties or undertake training.
  47. Complaint that employer has refused to allow annual leave, compensation, payment, compensatory rest.
  48. Appeal against improvement or prohibition notice.
  49. Complaint in relation to refusal of annual leave or to make payment.
  50. Complaint in relation to refusal to provide paid annual leave.
  51. Complaint in relation to failure to provide free health assessments.
  52. Complaint in relation to refusal of annual leave or to make payment.
  53. Complaint that employer has refused to allow or failed to pay for time off for information and consultation or negotiating representatives.
  54. Appeal against improvement notice.
  55. Complaint in relation to failure of employer to inform or consult.
  56. Complaint that employer has failed to allow, or pay for, time off for functions as employee representative.
  57. Complaint that employer has failed to allow, or pay for, time off for members of special negotiating body
  58. Complaint that employer has failed to allow, or pay for, time off for members of special negotiating body
  59. Appeal against notice from Health and Safety Executive or a local authority
  60. Reference to determine what particulars ought to be included in an itemised statement of stipend
  61. Reference to determine what particulars ought to be included in a statement of particulars or changes to particulars
  62. Complaint that employer has failed to allow, or pay for, time off for members of special negotiating body

Type A claims carry the following fees:

For a single claimant:
Issue £160
Hearing fee £230
For multiple claimants:
Issue fee:

2-10 claimants

11-200 claimants

Over 200 claimants

£320

£640

£960

Hearing fee:

2-10 claimants

11-200 claimants

Over 200 claimants

£460

£930

£1,380

Other fees
Reconsideration of a default judgment £100
Reconsideration of a judgment following a final hearing £100
Dismissal following withdrawal £60
An employer’s contract claim made by way of application as part of the response to the employee’s contract claim £160

Type B claims are not defined by the Order. They carry the following fees:

For a single claimant:
Issue £250
Hearing fee £950
For multiple claimants:
Issue fee:

2-10 claimants

11-200 claimants

Over 200 claimants

£500

£1,000

£1,500

Hearing fee:

2-10 claimants

11-200 claimants

Over 200 claimants

£1,900

£3,800

£5,700

Other fees
Reconsideration of a default judgment £100
Reconsideration of a judgment following a final hearing £350
Dismissal following withdrawal £60

There is also a fee of £600 is payable by the respondent for judicial mediation which applies to both claim types.

  1. Employment Appeal Tribunal

Appeals to the Employment Appeal Tribunal are not categorised.

The order sets fees of:

Appeal fee £400
Hearing fee £1,200

Fee Remissions

To be eligible for a fee remission you must pass two tests, the disposable capital test and the gross monthly income test, and fill out Form EX160.

Only the person who has to pay the court or tribunal fee can make a fee remission application. However, there are two exceptions to this rule:-

  • applications to the Court of Protection on behalf of ‘P’ (a ‘person’ who lacks the capacity to make decisions); or
  • any person acting for or representing a child involved in legal action.

In the case of a litigation friend, they may sign Form EX160 on behalf of the Claimant but the application must be made in the name of, and for the benefit of, the Claimant, not the Litigation Friend.

The disposable capital test:

 

Court or tribunal fee

Your court or tribunal fee is:

Disposable capital threshold

You, and your partner’s disposable capital is less than:

Up to £1,000 £3,000
£1,001 – £1,335 £4,000
£1,336 – £1,665 £5,000
£1,666 – £2,000 £6,000
£2,001 – £2,330 £7,000
£2,331 – £4,000 £8,000
£4,001 – £5,000 £10,000
£5,001 – £6,000 £12,000
£6,001 – £7,000 £14,000
£7001 or more £16,000

For people 61 years or older there is a single disposable capital limit of £16,000, regardless of the amount of the court fee.

The gross monthly income test:

 

Remission 1:

You will receive a full fee remission if you are in receipt of one of the means-tested benefits listed below:-

  • Income-based Jobseeker’s Allowance
  • Income-related Employment and Support Allowance
  • Income Support
  • Universal Credit with gross annual earnings of less than £6,000
  • State Pension Credit guarantee credit

The court or tribunal will need to see original and official evidence that you are in receipt of one of these benefits.

 

Remission 2:

If you and (if applicable) your partner’s gross monthly income is below these thresholds then you will receive a full fee remission:

Gross monthly income cap thresholds – full remissions:

Gross monthly income with: Single Couple
No children £1,085 £1,245
One Child £1,330 £1,490
Two Children £1,575 £1,735
£245 for each additional child

 

If your gross monthly income exceeds the above figures you may still receive a partial fee remission.

For every £10 of income you have over the threshold set out in the above table, you will be required to pay £5 towards your court or tribunal fee. The court or tribunal will calculate whether you are required to pay a contribution towards the fee – known as a partial remission.

If your gross monthly income is over the below figures, or your expected contribution is higher than the fee required, you will not be eligible for a fee remission:

Gross monthly income cap thresholds – partial remissions:

Gross monthly income with: Single Couple
No children £5,085 £5,245
One Child £5,330 £5,490
Two Children £5,575 £5,735
£245 for each additional child

The House of Commons has provided a written answer to the following questions:-

  • how much has been received by HM Courts and Tribunals Service in payment of employment tribunal fees since 29 July 2013?
  • how many
  • single; and
  • multiple claims

were received by employment tribunals between 1 January and 31 March 2014?

  • what the total value of all grants of remission of employment tribunal fees has been since 29 July 2013.?

The written answer provides that only 24% of remission applications between 29th July and 31st December 2012 were granted (in part or in full). The full statistics can be found in the Tribunal statistics – October to December 2013 and the Employment and EAT Tribunals quarterly statistics.

In Dozie v Addison Lee plc (2013) UKEAT/0328/13, [2013] ICR D38, [2013] All ER (D) 172 (Sep), the EAT held that it can hear an appeal without a fee being paid or a fee remission granted as an appeal is properly instituted at the point it is presented. Although this was an urgent appeal, the logic is that the EAT is free to hear a non-urgent appeal in such circumstances.

Given that a claimant appellant will have forked out £1,200 to have the employment tribunal claim heard and £400 for the initial EAT sift, that is £1,600 before the appeal is even listed, the EAT may become a bit charitable about the payment of a further £1,200 for the appeal hearing. After all, it is hard to see the EAT surviving on the small number of appeals that it will be receiving.

This particular reform is very significant as it has proved what many of us were saying, that the Jackson reforms are about attacking access to justice and removing the ability of ordinary people to resolve disputes in the courts, rather than any grand scheme to improve the court and tribunal system.

This has been confirmed by the massive increase – over 600% in some cases – in court issue fees which come in to place on 9 March 2015.#FootnoteB

EMPLOYMENT COSTS

 

In Sud v London Borough of Ealing [2013] EWCA Civ 949

the Court of Appeal upheld an employment tribunal order that a claimant, who had been successful in part, should pay 50% of the respondent’s costs.

The total, subject to detailed assessment in the County Court, is estimated at £100,000, resulting in the claimant having a potential liability of £50,000.

It is well known that the introduction of Employment Tribunal fees has caused an 80% reduction in cases and that Unison’s Judicial Review applications have failed.
Less well-known is that there are further fees of £1,600.00 to appeal to the Employment Appeal Tribunal, being a fee of £400.00 to lodge the appeal and £1,200.00 to proceed to a full hearing once leave has been given. This will typically bring the total fees to £2,800.00 once the original Employment Tribunal fees are added in.

Rule 34A(2A) of the Employment Tribunal Rules 1993 – SI 1993/2854 – provides:-

“If the appeal tribunal allows an appeal, in full or in part, it may make a costs order against the respondent specifying the respondent pay to the appellant an amount no greater than any fee paid by the appellant under a notice issued by the Lord Chancellor.”

Thus the general no costs rule remains but an exception is made in relation to tribunal fees.

The Employment Appeal Tribunal has been interpreting and applying this rule in a harsh manner to appellants. It has rejected the suggestion that the winning party in an appeal should automatically have any tribunal fees refunded saying that that would involve adopting a costs shifting regime which does not exist in the Employment Appeal Tribunal.

In Look Ahead Housing and Care Limited v Chetty and Another [2015] ICR 375 – UKEAT/37/14

the Employment Appeal Tribunal was asked to make an order under Rule 34(A) (2A) of the Employment Tribunal Rules 1993.

Here the employer appellant had paid a total of £1,600.00 being the first fee of £400.00 to lodge the appeal and a further £1,200.00 to proceed to a full hearing once leave had been given.

Here the appellant had lost on every point argued before the Employment Appeal Tribunal but it had succeeded on one ground of the appeal which had in fact been agreed by the respondent to the appeal.

The appellant argued that it had succeeded in part on the appeal and had had to appeal to secure that success.
The respondent pointed out that the appeal had been lodged just two days before the expiry of the 42 day period for appealing and that the respondent had never objected to that particular ground of appeal as being unfounded or wrong.

To award costs against the respondent, that is the original claimant, would cause injustice. It would have been open to the appellant to seek reconsideration by the tribunal and had they done so it would have been obvious to the tribunal that it had made a mistake.

Neither had the appellant sought to agree this point with the claimant prior to incurring the fees in the Employment Appeal Tribunal.
The Employment Appeal Tribunal pointed out that the fees are paid whatever the result and are not refundable and “except perhaps in the most exceptional of circumstances, which very rarely if ever exist, the court never pays them back. Accordingly, what has to be achieved by application of Rule 34A (2A) is justice between the parties as to which should effectively incur the payment of fees which, viewed as between them, is a common expense which was incurred simply because there was an appeal.”

The Employment Appeal Tribunal said that although it was tempting to work on the same basis as the civil courts whereby costs are generally awarded to the party who substantially succeeds and are paid by the party who substantially fails that would be to adopt a costs shifting regime which did not exist in the Employment Appeal Tribunal. Rather the rules look simply at a question of repayment of fees which was necessary to pay in order to bring an appeal.
This is a disingenuous point as when Parliament set the system up in the 1960s as a costs free zone no one anticipated the introduction of punitive fees. Automatically to reject fee shifting because of a system designed to deal with a free procedure makes no sense.

Here the Employment Appeal Tribunal said that the appellant could have asked the original Employment Tribunal to reconsider the question and could have approached the claimant to see agreement on this particular point. Consequently the Employment Appeal Tribunal said:-

“I have concluded that there could have been and should have been action taken prior to the issue of the notice of appeal, of a kind which would not have imposed the payment of fees or an equivalent sum upon either party, and which should have been capable of remedying the injustice. In the light of that, I have concluded that in this case I should make no order as to costs: that is no order as to the repayment of fees.”

The Employment Appeal Tribunal then gave guidance in relation to other cases:-

“For the benefit of other cases which may follow, it seems to me that in a case in which an appeal is brought which is entirely rejected, there is no basis for any payment by the successful party to the appellant. Where there is an appeal which is partly successful, all will depend upon the particular facts. The rule does not permit the payment of the actual costs of litigation, apart from fees, from one party to another. What the court essentially has to assess is whether it was necessary to incur the expense in order to bring the appeal – this includes asking whether the appeal, as in the present case, could have been avoided by the appellant taking reasonable steps, or was made more likely to proceed by the behaviour of the respondent to it; it should then recognise the fact, if it be the case, that an appeal has largely failed or for that matter largely succeeded in deciding, in its discretion, exercised reasonably, whether it should award the full extent of the payment made by way of fees, or whether it should moderate that amount to a reasonable extent. A reasonable extent includes making no award at all, though in circumstances in which an appeal has been partly successful this would have to be carefully justified and is likely to be rare.”

A similar line was taken in

Hafiz & Haque Solicitors v Mullick and another [2015] ICR 1085 EAT where a firm of solicors successfully appealed against the making of a wasted costs order by the Emploment Tribunal.

The EAT accepted that it had been necessary to lodge the appeal and thus ordered the losing respondent to pay to the successful appellant the lodgment fee of £400.

However in relation to the hearing fee of £1,200 the EAT, presided over by its President, a High Court Judge, said at paragraph 56:

“56. However, I do think that different considerations apply here in respect of the £1,200. Given the correspondence, given what had taken place, there was room, it seems to me, for the solicitors to have spoken to the respondents at or immediately after the hearing before Judge Peter Clark and before the £1,200 came to be paid. If they had done so, I doubt it would ever have been necessary to pay this further sum. That is not a conclusion I am at all unhappy to reach in this particular case, given aspects of the background which it is unnecessary for me to refer to further.”

It is perfectly true that the solicitors in question had not covered themselves in glory. But they won the appeal and surely, more than in any other type of case, a lawyer is entitled to seek in open court the overturning of a wasted costs order. Such an order involves a finding of negligence against the solicitor and now involves automatic reporting to the Solicitors Regulation Authority ( Section 67(2) Criminal Justice and Courts Act 2015).

The fees were caused by one matter only: the Employment Tribunal got the law wrong. To refuse the successful appellant the return of the hearing fee- in effect a £1,200 fine- is wrong in principle. The solicitor’s conduct of the original employment tribunal litigation is not relevant- they were cleared of conduct warranting a wasted costs order.

This has the flavour of the old magistrates’ court joke” We find that there is a reasonable doubt and so we find you Not Guilty, but don’t do it again”.

Portnykh v Nomura International plc, Unreported, UKEAT/0448/13/LA

the Employment Appeal Tribunal took a different view:-

“On an application under rule 34A(2A) of the Employment Appeal Tribunal Rules, as amended, the successful Appellant asked this Tribunal to exercise its discretion to order the Respondent to pay him the amount of that fee as costs. An order to that effect was made on the general principle, subject to specific exceptions arising from the particular circumstances, that where a party had succeeded, the unsuccessful party, after consideration of, and subject to, the means of the paying party to make such a payment, should pay the fees incurred by the successful party. The issue should be looked at broadly and whether or not an appellant has succeeded on all points argued would be a relevant consideration but where, as here, there had been substantial success, payment of the equivalent of the full fee(s) should be the usual outcome.”

In Horizon Security Services Ltd v Ndeze and Another [2014] IRLR 854

the Employment Appeal Tribunal considered the principles involved in dealing with the refund of Employment Appeal Tribunal fees to a successful appellant.

Here Mr Ndeze was the first respondent to the appeal and PCS Group were the second respondent to the appeal.

Mr Ndeze had brought an unfair dismissal claim against PCS Group but they asserted that his employment had transferred to Horizon under the Transfer of Undertakings (Protection of Employment) Regulations 2006 and that was the decision of the Employment Tribunal.

Horizon successfully appealed to the EAT against that decision and the EAT substituted its judgment that the claimant’s employment had not transferred to Horizon.

Horizon then succeeded in its application for PCS to pay to it the sum of £1,600.00 representing the fees paid to appeal.

The EAT said that where an appeal had been allowed, in full or in part, the EAT has a broad discretion to order that a respondent pay to the appellant a sum no greater than the fees incurred. As a statement of general principle it would seem unjust if a successful appellant were unable to recover those fees from the party that resisted the appeal. That statement of general principle needs to be tempered to take account of the particular facts of an appeal and the issue will not be clear cut if for example the appellant has only been partly successful.

It is also relevant to take into account the respondent’s means.

However the general expectation must be that the successful appellant will be entitled to recover the sums paid from a respondent who has sought to resist the appeal.

Comment

Why should a party who has won before the Employment Tribunal, due to an error of law by that Employment Tribunal, have to pay £1,600.00 to the other party when the Employment Appeal Tribunal corrects that error?

Surely Her Majesty’s Courts and Tribunal Service should pay where the expense has been incurred entirely by the error of the Employment Tribunal.

Fee Remission

 Here the EAT, Judge Hand QC sitting alone, also considered the appropriate order where an application had been made for fee remission:-

“Where an application had been made for fee remission this Tribunal has power to postpone payment until the outcome of the application for fee remission is known and to make payment conditional upon the application for remission being rejected.”

This is correct but reflects an absurd rule. If a multi-million or billion pound business loses an appeal why should it not be responsible for the fee irrespective of whether the appellant will or will not get fee remission?

Letting a rich company off the hook simply means that appellants of modest means have to pay more to bring an appeal.

This was an appeal against an interlocutory order. Full feels are still payable. Thus if there is an appeal against the substantive decision in due course then the fees payable in the Employment Appeal Tribunal will double to £3,200.00.

A hearing fee of £1,200.00 for a judge sitting alone on an interlocutory matter, maybe without an oral hearing, is by any standards exorbitant.

In Metroline Travel Ltd v Stoute [2015] UKEAT/0302/14  Unreported

the respondent to an Employment Tribunal claim successful appealed against that tribunal’s finding that Type 2 Diabetes necessarily constituted a disability.

The substantive claim had been disposed of and the claimant had no interest in the appeal, which was of importance to the respondent employer in relation to other employees and potential claims, a fact recognised by the EAT which said:-

“I have been persuaded that I should allow the appeal and determine it and not regard it as being entirely academic, but it is an appeal that has been brought for the benefit of the Respondent…”

Nevertheless the EAT ordered the claimant to reimburse his employer for the £1,600.00 EAT Appeal fee occasioned by the Employment Tribunal’s mistake.

Fees Not Recoverable if Paid by Union

In Goldwater v Sellafield Ltd [2015] IRLR 381 EAT

the claimants successfully appealed against an Employment Tribunal finding in relation to deductions from wages.

However the Employment Appeal Tribunal refused the successful appellant employees the return of the £1,600.00 fees as these had been paid by their trade union.

Deciding this important point on the papers only HH Judge Shanks, sitting without members, said that Rule 34A(2A) limits the amount of any costs order to “any fee paid by the appellant” and said:-

“…the plain fact is that the appellants have paid no fees at all in this case and that the maximum order that can be made is therefore nil.”

Rule 76(4) of the Rules of Procedure for Employment Tribunals contains similar wording.

Many Employment Tribunal and Employment Appeal Tribunal matters are funded by trade unions and in other cases it is not unheard of for solicitors to pay the fees upfront.

Rule 34(2) of the EAT rules defines “costs” as including “fees… incurred by or on behalf of a party… in relation to the proceedings.”

Given that definition it seems clear that the intention of Rule 34A(2A) was to limit the maximum that could be awarded rather than to restrict the circumstances in which an award can be made.
The result is absurd. Presumably if the union gives the fee to the appellant who then pays it, it is recoverable. What happens if a solicitor pays the fee without having got money on account from the client?
This is a very poor decision which may have been avoided if submissions had been heard rather than the matter being dealt with on the papers and would almost certainly have never been made by a full tribunal enjoying the wisdom of employer and employee representatives.

In Secretary of State for Justice v Lown [2016] IRLR 22 EAT

Mr Lown succeeded in the employment tribunal in claims for unfair dismissal and wrongful dismissal against his employer the Secretary of State for Justice.

The Employment Appeal Tribunal allowed the secretary of state’s appeal due to the mishandling of the case by the employment judge and sent the matter back for rehearing in front of a fresh tribunal.

However Mr Lown was ordered to pay the Employment Appeal Tribunal fees, not costs, of £3,200.00, the fee being £1,600.00 per appeal even in relation to the same matter.

So Mr Lown has to pat the Secretary of State for Justice £3,200.00 to reimburse the EAT fees the secretary of state pays himself, all because the employment judge for whom the Secretary of State for Justice is responsible, screwed up.

You could not make it up.

In Aslam v Travelex UK Ltd [2015] ICR Digest D21

The employment Appeal tribunal upheld the decision of an employment tribunal dismissing a claim for non-payment of the hearing fee.

The claimant was initially represented by an organisation who appeared on the ET1 application to the tribunal and who applied for remission of the issue fee.

That organisation was replaced by another one and the tribunal wrote to the new representative stating that a hearing fee of £950.00 was due or remission application had to be submitted by a specified date.

The date passed and the tribunal dismissed the claim under Rule 40(2) of the Employment Tribunal Rules Procedure 2013.

The organisation representing the claimant submitted an application for reinstatement under rule 40(5), stating that the representative dealing with the case had been ill.

The employment judge refused the application on the grounds that it would not be in the interest of justice to allow it.

The Employment Appeal Tribunal upheld that decision, signalling a hard line on the issue,

Evidence of President of the Employment Tribunals

60% of claimants have been shut out of the Employment Tribunal system by the introduction of employment tribunal fees, according to Judge Brian Doyle, President of the Employment Tribunals, in his evidence to the Justice Committee of the House of Commons. He said that ” the introduction of fees has had an adverse effect upon access to justice.”

Fees have not increased the uptake of employment tribunal judicial mediation.

The President suggested that employers should have to pay a fee to be allowed to file a response and that employers should also pay the hearing fee.

The evidence of the President is in marked contrast to the findings of the Administrative Court in the failed Judicial Review proceedings in relation to employment tribunal fees.

 

ALL COURT FEES

 

A full list of the court fees can be found here and I set these out below.

County Court Fees

 

Commencing proceedings

1.1 Issuing a claim (excluding County Court Business Centre (CCBC) cases or Money Claim Online cases) to recover a sum of money which:
does not exceed £300

exceeds £300 but does not exceed £500

exceeds £500 but does not exceed £1,000

exceeds £1,000 but does not exceed £1,500

exceeds £1,500 but does not exceed £3,000

exceeds £3,000 but does not exceed £5,000

exceeds £5,000 but does not exceed £10,000

exceeds £10,000 but does not exceed £200,000

exceeds £200,000 or is not limited

(If the claim also includes a non-money claim, an additional or alternative fee will be payable (see fees 1.4 and 1.5 below).)

£35

£50

£70

£80

£115

£205

£455

5% of the value of the claim

£10,000

1.4 Issuing a claim for the recovery of land:
other than where using the Possession Claims Online website

using the Possession Claims Online website

(Where a money claim is additional or alternative to a claim for the recovery of land, only fee 1.4 is payable.)

£280

£250

1.5 Issuing a claim for any remedy other than the recovery of a sum of money or the recovery of land.

(Where a money claim is additional or alternative to a claim for the recovery of goods, only fee 1.5 is payable.

Where a money claim is additional to a non-money claim (other than a claim for the recovery of goods or land), fee 1.5 will be payable in addition to fee 1.1.

Where a money claim is alternative to a non-money claim (other than a claim for the recovery of goods or land), whichever is the greater of fee 1.5 and fee 1.1 will be payable.

Where more than one non-money claim is made in the same proceedings, fee 1.5 is payable only once, in addition to any fee which may be payable under fee 1.1.)

£280
1.6 Issuing a claim against an additional or substituted party £50
1.7 Issuing a counterclaim The same fee as if the remedy sought were the subject of separate proceedings
1.8(a) Application for permission to issue proceedings £50
1.8(b) Issuing of costs only proceedings £50

Proceedings in the County Court Business Centre (CCBC)

1.2 Issuing a claim to recover a sum of money which:
does not exceed £300

exceeds £300 but does not exceed £500

exceeds £500 but does not exceed £1,000

exceeds £1,000 but does not exceed £1,500

exceeds £1,500 but does not exceed £3,000

exceeds £3,000 but does not exceed £5,000

exceeds £5,000 but does not exceed £10,000

exceeds £10,000 but does not exceed £100,000

£25

£35

£60

£70

£105

£185

£410

4.5% of the value of the claim

Proceedings by Money Claim Online users

1.3 Issuing a claim to recover a sum of money which:
does not exceed £300

exceeds £300 but does not exceed £500

exceeds £500 but does not exceed £1,000

exceeds £1,000 but does not exceed £1,500

exceeds £1,500 but does not exceed £3,000

exceeds £3,000 but does not exceed £5,000

exceeds £5,000 but does not exceed £10,000

exceeds £10,000 but does not exceed £100,000

£25

£35

£60

£70

£105

£185

£410

4.5% of the value of the claim

Making an application

2.4 Making an application on notice (if no other fee applies and the application is not made in an appeal notice) £155
2.5 Making an application without notice or by consent (if no other fee applies and the application is not made in an appeal notice) £50
2.5 Filing a request for judgment on admission or in default Nil
2.6 Making an application for a witness summons (except where a judgment debtor is required to provide information in connection with the enforcement of a judgment) £50
2.7 Application to vary a judgment or suspend enforcement £50

Hearing fees

These fees are payable by the claimant only, unless the case proceeds on the counterclaim alone, when they are payable by the defendant. Fee 2.1 is not payable where the court fixed the hearing date on the issue of the claim.

2.1(a) On the multi-track £1,090
2.1(b) On the fast track £545
2.1(c) On the small claims track where the sum claimed:
does not exceed £300

exceeds £300 but does not exceed £500

exceeds £500 but does not exceed £1,000

exceeds £1,000 but does not exceed £1,500

exceeds £1,500 but does not exceed £3,000

exceeds £3,000

£25

£55

£80

£115

£170

£335

Rebate of hearing fees

2.1 On the multi-track or fast track if the court has been notified that the case has been settled or discontinued:
more than 28 days before the hearing

between 15 and 28 days before the hearing

between seven and 14 days before the hearing

100%

75%

50%

On the small claims track if at least seven days’ notice in writing is given before the hearing date 100%

Costs

5.2 Request for detailed assessment where the party is not legally aided, where the amount of costs to be assessed:
does not exceed £15,000

exceeds £15,000 but does not exceed £50,000

exceeds £50,000 but does not exceed £100,000

exceeds £100,000 but does not exceed £150,000

exceeds £150,000 but does not exceed £200,000

exceeds £200,000 but does not exceed £300,000

exceeds £300,000 but does not exceed £500,000

exceeds £500,000

£335

£675

£1,005

£1,345

£1,680

£2,520

£4,200

£5,600

5.3 Request for the issue of a default costs certificate £60
5.4 Appeal against a detailed assessment decision £210
5.5 Request or application to set aside a default costs certificate £110

Appeals

2.3 Filing an appellant’s notice (or a respondent’s notice where the respondent is appealing or asking the appeal court to uphold the order for different or additional reasons):
in a claim on the small claims track

in all other claims

(Fee 2.3 does not apply on appeals against detailed assessment decisions.)

£120

£140

Enforcement

8.1 Issue of a warrant of control against goods except to enforce payment of a fine:
in CCBC cases or cases in which a warrant of control is requested in accordance with paragraph 11.2 of Practice Direction 7E (Money Claim OnLine cases)

in any other case

£70

£100

8.2 Request for a further attempt at execution of a warrant £30
8.3 Application for a judgment debtor or other person to attend court to provide information in connection with enforcement of a judgment £50
8.4(a) Application for a third party debt order

(The fee is payable in respect of each third party against whom the order is sought even though several orders can be sought in one application.)

£100
8.4(a) Application for the appointment of a receiver by way of equitable execution £100
8.4(b) Application for a charging order

(The fee is payable for each charging order sought.)

£100
8.5 Application for a judgment summons £100
8.6 Issue of a warrant of possession or delivery £110
8.7 Application for an attachment of earnings order

(The fee is payable in respect of each defendant against whom an order is sought.)

£100
8.8 Consolidated attachment of earnings order or administration order 10p per £1 or part thereof of the money paid into court for debts to creditors
8A.1 Request for service by a bailiff of an order to attend court for questioning £100

Requests for copy documents

4.2 A document on a computer disk or in other electronic form £10 per copy
4.1 In other cases £10 for ten pages or less, then 50p per subsequent page

 

 

High Court Fees

 

Commencing proceedings

1.1 Issuing a claim to recover a sum of money which:
does not exceed £300

exceeds £300 but does not exceed £500

exceeds £500 but does not exceed £1,000

exceeds £1,000 but does not exceed £1,500

exceeds £1,500 but does not exceed £3,000

exceeds £3,000 but does not exceed £5,000

exceeds £5,000 but does not exceed £10,000

exceeds £10,000 but does not exceed £200,000

exceeds £200,000 or is not limited

(If the claim also includes a non-money claim, an additional or alternative fee will be payable (see fees 1.4 and 1.5 below).)

(Note the financial thresholds of the High Court: see Practice note, Case management: which court: High Court or County Court?)

£35

£50

£70

£80

£115

£205

£455

5% of the value of the claim

£10,000

1.4 Issuing a claim for the recovery of land

(Where a money claim is additional or alternative to a claim for the recovery of land, only fee 1.4 is payable.)

£480
1.5 Issuing a claim for any remedy other than the recovery of a sum of money or the recovery of land.

(Where a money claim is additional or alternative to a claim for the recovery of goods, only fee 1.5 is payable.

Where a money claim is additional to a non-money claim (other than a claim for the recovery of goods or land), fee 1.5 will be payable in addition to fee 1.1.

Where a money claim is alternative to a non-money claim (other than a claim for the recovery of goods or land), only fee 1.1 will be payable.

Where more than one non-money claim is made in the same proceedings, fee 1.5 is payable only once, in addition to any fee which may be payable under fee 1.1.)

£480
1.6 Issuing a claim against an additional or substituted party £50
1.7 Issuing a counterclaim The same fee as if the remedy sought were the subject of separate proceedings
1.8(a) On an application for permission to issue proceedings £50
1.8(b) Issuing of costs only proceedings £50

Making an application

2.4 Making an application on notice (if no other fee applies and the application is not made in an appeal notice) £155
2.5 Making an application without notice or by consent (if no other fee applies and the application is not made in an appeal notice) £50
2.5 Filing a request for judgment on admission or in default Nil
2.6 Making an application for a witness summons (except where a judgment debtor is required to provide information in connection with the enforcement of a judgment) £50
2.7 Application to vary a judgment or suspend enforcement £50

Affidavits

12.1 For each person swearing an affidavit £11
12.2 For each exhibit referred to in an affidavit £2

Hearing fees

These fees are payable by the claimant only unless the case proceeds on the counterclaim alone, when they are payable by the defendant. Fee 2.1 is not payable where the court fixed the hearing date on the issue of the claim.

2.1(a) On the multi-track £1,090
2.1(b) On the fast track £545

Rebate of hearing fees

2.1 On the multi-track or fast track if the court has been notified that the case has been settled or discontinued:
more than 28 days before the hearing

between 15 and 28 days before the hearing

between seven and 14 days before the hearing

100%

75%

50%

Costs

5.2 Request for detailed assessment where the party is not legally aided, where the amount of costs to be assessed:
does not exceed £15,000

exceeds £15,000 but does not exceed £50,000

exceeds £50,000 but does not exceed £100,000

exceeds £100,000 but does not exceed £150,000

exceeds £150,000 but does not exceed £200,000

exceeds £200,000 but does not exceed £300,000

exceeds £300,000 but does not exceed £500,000

exceeds £500,000

£335

£675

£1,005

£1,345

£1,680

£2,520

£4,200

£5,600

5.3 Request for the issue of a default costs certificate £60
5.4 Appeal against a detailed assessment decision £210
5.5 Request or application to set aside a default costs certificate £110

Appeals in the High Court

2.2 Filing an appellant’s notice (or a respondent’s notice where the respondent is appealing or asking the appeal court to uphold the order for different or additional reasons)

(Fee 2.2 does not apply on appeals against detailed assessment decisions.)

£240

Appeals in the Court of Appeal

13.1 Filing an appellant’s notice (or a respondent’s notice where the respondent is appealing):
where permission to appeal or an extension of time for appealing is applied for £235
where permission to appeal is not required or has been granted by the lower court £465
13.1(c) Filing an appeal questionnaire £465
13.2 Filing a respondent’s notice where the respondent wishes the appeal court to uphold the order for different or additional reasons £235
13.3 Filing an application notice

(This fee is not payable for an application made in an appeal notice.)

£235

Judicial review

1.9(a) For permission to apply for judicial review £140
1.9(b) On request to reconsider at a hearing a decision on permission £350
1.9(c) Where the court has granted permission to proceed with a claim for judicial review:

if the judicial review procedure has commenced

(Fee 1.9(c) is £350 where fee 1.9(b) has been paid and permission was granted at a hearing.)

£700
1.9(d) Where the court has granted permission to proceed with a claim for judicial review:

if the claim for judicial review commenced otherwise than by the judicial review procedure

£140

Enforcement

7.1 Sealing a writ of control, possession or delivery £60
7.2 Application for a judgment debtor or other person to attend court to provide information in connection with enforcement of a judgment £50
7.3(a) Application for a third party debt order

(This fee is payable in respect of each third party against whom an order is sought)

£100
7.3(a) Application for the appointment of a receiver by way of equitable execution £100
7.3(b) Application for a charging order

(This fee is payable in respect of each charging order applied for)

£100
7.4 Application for a judgment summons £100
7.5 Request or application to register a judgment or order, or for permission to enforce an arbitration award, or for a certificate or a certified copy of a judgment or order for use abroad £60

Requests for copy documents

4.2 A document on a computer disk or in other electronic form £10 per copy
4.1 In other cases £10 for ten pages or less, then 50p per subsequent page

Searches

10.2 Official certificate of result of search for each name in any register or index held by the court £45
10.3 Search in person of the court’s records, including inspection, for each 15 minutes or part of 15 minutes £10

Arbitration

10.4(a) and 10.5(a) Appointment of a Commercial Court judge as an arbitrator or umpire £2,455, then £2,455 for every day (or part of a day) after the first day of the hearing
10.4(b) and 10.5(b) Appointment of a Technology and Construction Court judge as an arbitrator or umpire £2,455, then £2,455 for every day (or part of a day) after the first day of the hearing

 

READER COMMENTS:-

Claire Hodgson’s comment on 3 March 2015:-

Impact assessment indeed. and as you know, Kerry, in some cases one can’t put a final defined value on a claim….

Kerry Underwood’s reply:-

Claire

There is so much that I could say about these increases, but it has been said already and rather more politely than I would put it.

Kerry

Nick Bettridge’s comment on 2 March 2015:-

Thanks Kerry. Very helpful as always.

What do you make of the PicArbs being offered by Mr Ritchie QC?

http://www.picarbs.co.uk/index.htm

I saw it in the Gazette but it’s the first I have heard of it. It deserves to be a success in my view and I will certainly be giving it serious consideration.

Best regards and keep up the good work.

Nick Bettridge

Kerry Underwood’s reply:-

Nick

Thank you. Inevitably private law will thrive. For the cost of the clinical negligence issue fee – £10,000.00 – you could get a retired Law Lord for a 2 day arbitration. However there are huge social and legal disadvantages in mediation in the personal injury sector:

– they are private, so no new law is established

– the law is not developed/clarified

– potential defendants/tortfeasors are not put off by potential negative publicity

– damages guidelines become much harder to establish

There are plenty of other disadvantages too. Would the basic concept of negligence ever have been established through arbitration, rather than a court system?

Kerry

Richard Coulthard’s comment on 3 March 2015:-

What about a claim for an unspecified sum e.g. PI claims where you would plead the claim in a bracket i.e. £50k – 100k. How do you assess the amount of the fees – is it the up level of the bracket? I confess that I have not read the full explanatory notes but I can’t see express reference to this point.

Given the huge additional cash flow burden this will place on firms and also the added risk on difficult cases we are going to have to go through the hassle of considering fee exemptions at the outset as part of the risk assessment process and prior to issuing proceedings.

Kerry Underwood’s reply:-

Richard

Yes- see above – it is all based on brackets. In the case of an unlimited claim, or one where the claim is £200,000 or more, the fee is £10,000. A claim of £50k to £100k attracts a fee of £5,000.00 – no doubt about it.

You will certainly have to consider fee exemptions in every case – arguably you should anyway already – it will also be more important to consider all forms of ADR as the paying party could say : “If you had been pro-active about ADR we could have saved £10,000 issue fee”. Reality is you could get a retired judge to hear the case for much less than the court fee.

Kerry

Richard Coulthard’s reply:-

Historically the statement of value has always been linked to the court fee e.g. there was a £15k – 50k bracket, £50k – 100k bracket etc etc

Under the new scheme however the 5% fee applies to all claims between £10k – 200k. Is there any reason therefore why you couldn’t limit a claim to any figure in that bracket – e.g. the claim is limited to £75k or even a random amount, say £56k, for arguments sake?

If you do this are there dangers if you need to later amend the statement of value? In PI particularly the value of the claim may not be fully known at the point of issue, particularly if limitation has been an issue. It also begs the question as to whether Defendant costs draftsman will use this against you at the end of a claim for example a claim issued limited to a value of £100k which later settles at say £25k due to change in medical evidence or litigation risk. I can see costs draftsman arguing that the recoverable court fee should be limited to 5% of the recovered amount rather than the statement of value. What do you think?

Kerry Underwood’s Reply:-

Richard

Under the new scheme it is clear that the brackets only apply from £0.00 to £10,000.00, for which there is a specific fee and then there is another band of a claim which is either unlimited or exceeds £200,000.00 and the fee for that is again a fixed sum, that is £10,000.00.

However where a claim is between £10,000.00 and £200,000.00 then, as you correctly say, the fee is 5% of the value of the claim.

Thus my view is that you can indeed limit a claim to any figure in that bracket and the fee would then be 5% of that limit. Thus if one limited the claim to £100,000.00 then the fee would be £5,000.00.

The statutory instrument is not clear, and neither is the explanatory note, but I believe that that is the way it will be interpreted by the courts.

I am certain beyond any doubt that defendant paying parties will indeed seek to limit the recoverable issue fee to the sum actually awarded. Thus in the example you give of a claim limited to £100,000.00 which settles at £25,000.00, then the issue fee would have been £5,000.00 but I am sure that the defendants will seek to argue that they should only pay £1,250.00 being the appropriate issue fee on the sum actually paid out in damages, that is £25,000.00.

Thus one is caught between the devil and the deep blue sea as I believe there would indeed be difficulties in successfully amending the statement of value after proceedings have been issued. Thus the safest course is clearly to limit the claim to the maximum possible, and indeed to add a percentage for safety’s sake and contingencies there as well but that inevitably means that there will be a risk of not recovering the whole issue fee.

Obviously guidance on this point in advance of the increase would have been welcome………

Kerry

Sarah Thomsen’s comment on 4 March 2015:-

Presumably protective claims issued this week will attract the lower court fee?

Kerry Underwood’s reply:-

Yes.

Simon Bradshaw’s comment on 5 March 2015:-

I would not want to be working at the Bulk Claims Centre today or tomorrow!

(I had to very quickly draft a claim form on Tuesday to properly reflect a claim with multiple causes of action, as my instructing solicitor was not unreasonably worried that an attempt to issue it at the end of the week might find the claim in a long queue of others rushed in ahead of the fee rise.)

Kerry Underwood’s reply:-

All rushed through with indecent haste and with Ministers lying about potential impact.

John Kushnick’s comment on 5 March 2015:-

Does this affect Stage 3 Rapid Claims fees and infant approval fees? the courts have been inconsistent abotu Part 8 fees to say the least.

Kerry Underwood’s reply:-

John

No.

Kerry.

Paul Carroll’s comment on 5 March 2015:-

Hi. If I have a file with say £20k hire and £5k PI but I would be happy with say £15k hire could i limit the issue fee to £20k?

Kerry Underwood’s reply:-

Yes.

John Kushnick’s second comment on 5 March 2015:-

Lord Faulks: “Anyone advising a claimant will probably need to satisfy that claimant that there is at the very least a better than even—probably a 75%—chance of success before they commence proceedings.”

And they say satire is dead.

Kerry Underwood’s reply:-

John

Hard to believe that any of that speech was given by a Justice Minister in the United Kingdom Parliament. The wretched Bridget Prentice said that legal services should be like buying baked beans. This is the end result.

Kerry

Sue King’s comment on 5 March 2015:-

Hi Kerry

If acting for a client under a CFA that provides the client never has to pay the court fees win, lose or draw or has an ATE policy to cover own disbursements, then presumably the client cannot apply for fees remission?

Obvious I would have thought but argument raging in the office.

Thanks,

Sue

Kerry Underwood’s reply:-

Sue

There has to be a primary obligation on the client to pay the issue fee in the event of success; otherwise the indemnity principle kicks in and you can never recover that fee from the other side, just as with ordinary costs. I would be amazed if the ATE policy says otherwise.

Given that there is a primary obligation on the client to pay then, yes, in my view the client can apply for remission. There is almost certainly a duty to the potential paying party to minimize costs by seeking remission; if you fail to do so in circumstances where you could have got remission then why should the other side pay?

Kerry

Luke Hallinan’s comment on 6 March 2015:-

People in ivory towers without a clue about how the real world works.

Kerry Underwood’s reply:-

Luke

That is the most charitable explanation. The less charitable one is that they know exactly what they are doing and exactly the effect it will have.

Kerry

Geoff Jeffington’s comment on 11 March 2015:-

It seems to me that the safest course of action might be to err very much on the side of caution and underestimate the value of the claim, to achieve a lower fee (as long as in so doing you do not find yourself in the realms of the Fast Track when it should be a Multi Track matter).

CPR 16.3(7) says “The statement of value in the claim form does not limit the power of the court to give judgment for the amount which it finds the claimant is entitled to.”

So the judge’s hands are not tied by your pleaded statement of value. The Defendant is hardly likely to raise issue with the point during the course of the matter – as in so doing they will merely be destroying any complaint they could later seek to make that too high a fee was paid. Even if they did, you would simply pay the fee that they proposed was appropriate, safe in the knowledge that they could not then argue the toss at the end of the matter.

If you later felt comfortable that you were going to achieve significantly more than pleaded in your statement of value, you could amend the Claim Form and pay the surplus issue fee.

Kerry Underwood’s reply:-

Geoff

I think that that is a dangerous idea. The court is not compelled to award more than claimed and in the current anti- claimant hysteria I think it most unlikely that they will.

I do not follow your point about the defendants. True it is that they will not complain about the fee being too low, but they will beyond doubt protest loudly at any attempt to recover damages above the limit claimed. Understating the claim also has a depressing effect on Part 36 offers etc – it lowers expectations all round.

Kerry

Tim Beasley’s comment on 13 March 2015:-

I cannot see anywhere whether the fee for applications, listing etc have changed.

Kerry Underwood’s reply:-

Tim

They have not. But another consultation closed on 27th February and that proposes doubling the uncontested application fee from £50 to £100 and increasing the contested fee from £155 to £255.

Kerry

Paul Carroll’s comment on 16 April 2015:-

Hi Kerry

If you were issuing for two claimants (driver/passenger) one valued at £9000.00 the other £4000.00, should I restrict the claim value to £9000.00 or £13000.00?

Many thanks for all your help.

Paul

Kerry Underwood’s reply:-

Paul

The relevant law is the High Court and County Courts Jurisdiction Order 1991 – 1991 no. 724 (L.5), which is itself referred to in Part 7, Practice Direction 7A – “where to start proceedings”.

That part reads:-

“2.2 Proceedings which include a claim for damages in respect of personal injuries must not be started in the High Court unless the value of the claim is 50,000 or more (paragraph 9 of the

High Court and County Courts Jurisdiction Order 1991 (S.I. 1991/724 as amended) describes how the value of a claim is to be determined).”

Paragraph 9 of the High Court and County Courts Jurisdiction Order 1991 reads:-

“Definition of value of action

9.—(1) For the purposes of articles 5 and 7—

(a)          the value of an action for a sum of money, whether specified or not, is the amount which the plaintiff or applicant reasonably expects to recover;

(b)          an action for specified relief other than a sum of money—

(i)            has a value equal to the amount of money which the plaintiff or applicant could reasonably state to be the financial worth of the claim to him, or

(ii)           where there is no such amount, has no quantifiable value;

(c)           an action which includes more than one claim—

(i)            if one or more of the claims is of a kind specified in paragraph (b)(ii), has no quantifiable value;

(ii)           in any other case, has a value which is the aggregate of the values of the claims as determined in accordance with paragraphs (a) and (b)(i).

(2)          In determining the value of an action under paragraph (1), claims for—

(a)          unspecified further or other relief,

(b)          interest, other than interest pursuant to a contract, and

(c)           costs,

shall be disregarded.

(3)          In determining the value, under paragraph (1), of an action which is brought by more than one plaintiff or applicant regard shall be had to the aggregate of the expectations or interests of all the plaintiffs or applicants.

(4) In determining the value of an action under paragraph (1)(a)—

(a)          the sum which the plaintiff or applicant reasonably expects to recover shall be reduced by the amount of any debt which he admits that he owes to a defendant in that action and which arises from the circumstances which give rise to the action;

(b)          no account shall be taken of a possible finding of contributory negligence, except to the extent, if any, that such negligence is admitted;

(c)           where the plaintiff seeks an award of provisional damages as described in section 32A(2)(a) of the Supreme Court Act 1981(28), no account shall be taken of the possibility of a future application for further damages;

(d)          the value shall be taken to include sums which, by virtue of section 22 of the Social Security Act 1989(29), are required to be paid to the Secretary of State.”

Thus you must put £13,000.00 as the value of the claim, that is the sum of the two claims, and pay the court fee accordingly.

Kerry

Gary Whitaker’s comment of 4 November 2015:- 

Say you issue protectively before March 2015 and the case is then stayed. You then finalise quantum evidence and case value has increased tremendously. You want to increase the statement of value on the pleadings. Do you pay the old court fee upon amending statement of value to increase it or are you bound by the new court fee? This could be an £8,000 difference in court fee.

The “Guidance” on the current form EX50 simply states:

“Time for payment of fees
Court fees are payable at the time you file any document or commence any process requiring a fee, unless otherwise stated.”

It seems this can wash either way.

Lack of judicial guidance and the fact each Court operates to its own drum beat mean some do agree whilst some don’t agree that its the old fee that applies.

Any guidance much appreciated.

Kerry Underwood’s reply:- 

Gary

You will have paid the issue fee; on the face of it there is no additional fee payable simply for serving, so if no increase then no additional fee. I realise that you are saying that there is a significant increase. My instinct is that if there is an additional fee payable then it is based on the NEW rate of fees, with credit being given for anything that you have paid already. You can of course amend without leave prior to service. Presumably you are assuming, correctly in my view, that the increase will be picked up by the Defendant and/or judge at a CMC and the court will demand an extra fee, as it is entitled to do. As you say – could go either way but my instinct is that you are hit with the new, higher fee – it will be open to abuse if it were otherwise.

Good question though!

Kerry

Written by kerryunderwood

November 25, 2015 at 8:30 am

Posted in Uncategorized

THIRD PARTY FUNDING

with 6 comments


 

Look here for Kerry’s new course on this subject

 

Third Party Funding is likely to play a vitally important role in litigation now that Jackson is in and the abolition of recoverability of success fees and after-the-event insurance premiums has taken place and legal aid abolished.

 

High Street firms in particular may find a relationship with a Third Party Funder more attractive than trying to borrow from a bank or being a minor owner of an Alternative Business Structure or being swallowed up by a bigger firm.

 

Properly run and regulated, Third Party Funding may be the salvation of independent law firms and their clients and could indeed be the private sector’s answer to the abolition of legal aid. In particular the receipt of payment of costs on account as the case progresses allows smaller firms to ameliorate the cash-flow problems of dealing with substantial cases under conditional fee agreements.

 

My starting point is that it is the potential saviour of the English legal system and my concerns and critical comments below should be seen in that light.

 

What is Third Party Funding?

Third Party Funding has come to mean funding of litigation by a professional funder or investor with no previous interest in the case in return for a share of the damages in the event of success. Unfortunately the Code of Practice uses the term “Litigation Funding” which is obviously a misnomer.  I use the term Third Party Funding.

 

It does not include funding by, for example, insurers or trades unions.

 

A typical Third Party Funding agreement provides for payment of some or all of the client’s own legal costs on an interim basis with the Third Party Funder’s fee being either a percentage of any damages received or a multiple of the amount of funding provided.

 

Confusingly the Third Party Funder’s fee is often referred to as a success fee but it has nothing to do with a conditional fee success fee, although a Third Party Funded case may well be conducted under a conditional fee agreement.  Consequently I utilize the term “Funder’s Fee”.

 

Few cases have been funded by Third Party Funders and the demand outstrips supply and Funders have been highly selective in the cases that they choose to back.

 

In particular very few personal injury cases have been funded in this way, but that is changing rapidly now that the Jackson reforms are in place.

 

How much is charged?

The Third Party Funder’s fee is typically two to four times the investment.  Thus an investment of £100,000 funds will result in a fee of £200,000 to £400,000.

 

If the Funder’s Fee is calculated by reference to damages then the funder will generally expect between 25% and 45% of those damages.

 

Under The Damages-Based Agreements Regulations 2013 the maximum that a solicitor can charge is:

  • personal injury 25%
  • employment 35%
  • all other work 50%

 

There is no limit on the Third Party Funder’s fee and thus lawyers may choose to act as Third Party Funders rather than under a conditional fee agreement, or a Damages-Based Agreement, although acting as a Third Party Funder does create a potential Arkin liability for adverse costs – see below. Such a risk in relation to adverse costs does not exist in conditional fee cases – see Hodgson & Ors v Imperial Tobacco Ltd & Ors [1998] EWCA Civ 224 (12 February 1998), [1998] 1 WLR 1056, [1998] 2 All ER 673, [1998] EWCA Civ 224 – but on the face of it, applies to damages-based agreements, although it is likely that the courts will apply the Hodgson exception to damages-based agreements, but see Jackson LJ’s view below.

 

Third Party Funders may become Alternative Business Structures running cases through the medium of conditional fee agreements, thus avoiding the Arkin risk. They will still be able to take 45% or 50%, or whatever, without exceeding the success fee cap, as much of the fee will be solicitor and own costs on a no win lower fee agreement and/or an after-the-event insurance premium.

 

The same result can be achieved by using the Underwoods Method and Third Party Funders are now becoming increasingly involved in lower value cases and smaller firms of solicitors.

 

Code of Conduct for Litigation Funders

On 14 January 2014 the Civil Justice Council published an amended voluntary Code of Conduct for Litigation Funders, their name for Third Party Funders.  The newly-formed Associate of Litigation Funders (ALF) agreed to abide by the Code. The Code appears at the end of this piece.

 

Under the Code the funder agrees not to seek more than 100% of the proceeds of the dispute unless the Litigant is in material breach of the Litigation Funding Agreement, but there is no other restriction or guidance in relation to the amount to be charged by the Litigation Funder, either by reference to a percentage of damages or otherwise.

 

Compare this with the restrictions on solicitors’ charges in employment cases and personal injury cases, whether conducted under a conditional fee agreement or a Damages-Based Agreement.  Thus, as ever in this country, professionally qualified lawyers are heavily restricted, but bankers, which effectively describes the role of Litigation Funders, are free to do and charge what they like.

 

Disconcerting as that is it does give lawyers and their clients a degree of flexibility that they do not have in the absence of a Third Party Funder.

 

Paragraph 9 of the Code provides that a Funder will:

 

9.1 take reasonable steps to ensure that the Funded Party shall have received independent advice on the terms of the LFA prior to its execution, which obligation shall be satisfied if the Funded Party confirms in writing to the Funder that the Funded Party has taken advice from the solicitor or barrister instructed in the dispute;

 

9.2 not take any steps that cause or are likely to cause the Funded Party’s solicitor or barrister to act in breach of their professional duties;

 

9.3 not seek to influence the Funded Party’s solicitor or barrister to cede control or conduct of the dispute to the Funder;

 

9.4 Maintain at all times access to adequate financial resources to meet the obligations of the Funder, its Funder Subsidiaries and Associated Entities to fund all the disputes that they have agreed to fund and in particular will;

 

9.4.1 ensure that the Funder, its Funder Subsidiaries and Associated Entities maintain the capacity;

 

9.4.1.1. to pay all debts when they become due and payable; and

 

9.4.1.2. to cover aggregate funding liabilities under all of their LFAs for a minimum period of 36 months.

 

9.4.2 maintain access to a minimum of £2m of capital or such other amount as stipulated by the Association;

 

9.4.3 accept a continuous disclosure obligation in respect of its capital adequacy, including a specific obligation to notify timeously the Association and the Funded Party if the Funder reasonably believes that its                representations in respect of capital adequacy under the Code are no longer valid because of changed circumstances;

 

9.4.4 undertake that it will be audited annually by a recognised national or international audit firm and shall provide the Association with:

 

9.4.4.1. a copy of the audit opinion given by the audit firm on the Funder’s or Funder’s Subsidiary’s most recent annual financial statements (but not the underlying financial statements), or in the case of Funders who are investment advisors to an Associated Entity, the audit opinion given by the audit firm in respect of the Associated Entity (but not the underlying financial statements), within one month of receipt of the opinion and in any case within six months of each fiscal year end. If the audit opinion provided is qualified (except as to any emphasis of matters relating to the uncertainty of valuing relevant litigation funding investments) or expresses any question          as to the ability of the firm to continue as a going concern, the Association        shall be entitled to enquire further into the qualification expressed and take any further action it deems appropriate; and

 

9.4.4.2. reasonable evidence from a qualified third party (preferably from an auditor, but alternatively from a third party administrator or bank) that the Funder or Funder’s Subsidiary or Associated Entity satisfies the minimum capital requirement prevailing at the time of annual subscription.

 

9.5 comply with the Rules of the Association as to capital adequacy as amended                from time to time.

 

 

Capital adequacy is not defined and it is not stated as to how this requirement will be policed.

 

Paragraph 10 provides that the Litigation Funding Agreement shall state whether, and to what extent, the Funder will:

 

10.1 meet any liability for adverse costs;

10.2 pay any premium (including insurance premium tax) to obtain costs insurance;

10.3 provide security for costs;

10.4 meet any other financial liability.

 

Paragraph 11 sets out the circumstances in which a Funder can terminate the agreement.

 

The Code gives very little protection to clients.  In particular there is no guidance as to the interplay between the conditional fee success fee, to be paid by the client in conditional fee agreements entered in to on or after 1 April 2013, and the funder’s fee.  Taking in to account both of those matters and an after-the-event insurance premium to cover adverse costs orders, and the Funder will almost always insist on such insurance, the risk is that there may not be much left for the winning client.

 

Amidst the plethora of reforms it would be helpful to have guidance from the judiciary or lawyers’ regulatory bodies as to what is the maximum reasonable percentage total deduction from damages, including the funder’s fee and any lawyers’ contingency fee, or conditional fee success fee, and after-the-event insurance premium.

 

Adverse Costs Risk

The waters have been further muddied by Lord Justice Jackson’s suggestion that solicitors acting under a Damages-Based Agreement may be liable for the other side’s costs in the event of defeat, following the principles set out in

 

Arkin v Borchard Lines Ltd [2005] EWCA Civ 655, [2005] 3 All ER 613

 

It is well-established that there is no such liability for adverse costs orders on solicitors in conditional fee cases  Hodgson & Ors v Imperial Tobacco Ltd & Ors [1998] EWCA Civ 224 (12 February 1998) ([1998] 1 WLR 1056, [1998] 2 All ER 673, [1998] EWCA Civ 224.

 

Ironically it has only recently become clear beyond doubt that solicitors are allowed to assume responsibility for adverse costs orders – see Sibthorpe and Morris v Southwark London Borough Council (Law Society intervening) [2011] EWCA Civ 25, [2011] 06 LS Gaz R 18, [2011] NLJR 173.

 

Solicitors are also allowed to help their clients by funding the cost of disbursements without being liable for costs should the case fail, even if there is no After-the-Event insurance in place – see Flatman and Germany v Weddall and Barchester Health Care Limited [2013] EWCA Civ 278, and see also Heron v TNT (UK) Limited and Mackrell Turner Garrett (a firm) [2013] EWCA Civ 469, where the Court of Appeal dismissed an attempt by the successful defendant’s insurers to obtain an order for costs against solicitors who had been acting for the employee until they withdrew from the case and where the claimant did not have After-the-Event insurance. The Court of Appeal said:

 

“A solicitor is entitled to act on a CFA for an impecunious client who they know or suspect will not be able to pay own (or other side’s) costs if unsuccessful.”

 

The fact that before 1 April 2013 most personal injury clients expected a free ride with no deductions from damages partly explains the low incidence of such funding in personal injury cases. That all changed on 1 April 2013, with clients now routinely losing 25% of their damages to their own lawyer.

 

The Funder’s Fee is not recoverable on a between-the-parties basis and thus must be paid by the client out of damages, but that now happens in relation to conditional fee success fees and already happened in contingency fee cases.

 

Unlike After-the-Event insurance, Third Party Funding generally covers the clients own legal costs in full or in part, and Third Party Funders who fund a losing case are potentially liable for the other side’s costs to the extent of their own contribution.

 

Thus a Third Party Funder provides £100,000 but the case is lost.  The Funder can be ordered to pay up to £100,000 to the successful party by way of costs, giving a total of £200,000 in all – see

 

Arkin v Borchard Lines Ltd [2005] EWCA Civ 655 [2005] 3 All ER 613

 

Consequently Third Party Funders will often insist upon After-The-Event insurance being taken out to cover that risk.

 

Lord Justice Jackson has suggested that in a Damages-Based Agreement case the court might hold the solicitor liable, in accordance with the principles in Arkin – see below.

 

If After-the-Event insurance is not taken out and the funder is willing to bear the adverse costs risk then inevitably the Funder will charge an even higher fee to the client. If there is no After-the-Event insurance in place and the Third Party funder is not indemnifying the client against an adverse costs order then it must be determined who will be liable to satisfy the adverse costs order.

 

A funding agreement will invariably comprise a contract to support litigation in exchange for a fee similar to that contained in the CFA model. Such funding agreements are not regulated by statute but are governed largely by common law principles, recently to a more limited extent by the CPR and finally by the jurisdiction on costs contained in s 51 of the Senior Courts Act 1981.

 

Such funding fills a gap which exists where clients cannot afford to pay lawyers and experts.  Experts are expected not to work on terms which are conditional or contingent.

 

Great care must be taken in drafting the various agreements between the client, the solicitor, the After-the-Event insurer and the Third Party Funder.

 

In particular it is of crucial importance to agree in advance the order of priority of application of damages in the event that the eventual recovery is insufficient to discharge all of the fees and disbursements, which will include the After-the-Event insurance premium, the Funder’s Fee and the lawyer’s fees and disbursements, including the lawyer’s success fee.

 

Case Law

In Harcus Sinclair v Buttonwood Legal Capital Ltd and Others [2013] EWHC 1193 (Ch)

 

the Chancery Division of the High Court allowed a third-party funder to terminate the agreement.

 

Here Buttonwood sought to terminate the agreement following a review of the case’s prospects of success, which it considered to have fallen below its required 60% threshold.

 

Funding had been granted on the basis of a preliminary opinion of counsel, which had not been updated as promised and when the solicitors failed to obtain a further advice the funders obtained their own advice. This showed the prospects of success to be less than 60% and so the funder terminated the agreement and the court held that they were entitled so to do.

 

The leading case in relation to Third Party Funding is

 

Arkin v Borchard Lines Ltd [2005] EWCA Civ 655, [2005] 3 All ER 613

 

The Arkin case

Mr Arkin, having originally had legal aid, switched to a CFA with solicitors and counsel but required funding for the forensic support and evidence of Ernst & Young. The case involved an alleged shipping cartel. The funder was Managers and Processors of Claims (MPC) who ended up funding £1.3 million for disbursements and forensic support. Their fee arrangement was 25% of damages (the claim was £80 million). The defendants incurred costs of nearly £6 million.

 

Mr Arkin lost. The judge at first instance decided that no third party costs order should be made against MPC on the grounds that this would act as a disincentive for professional funders of litigation. The Court of Appeal decided that there had to be a balance between access to justice on the one hand and being fair to defendants on the other. Their compromise was to order that a professional funder shall be liable for third party costs to the extent of their investment in the case.

 

In so deciding, they accepted that the funding arrangement was not champertous. To arrive at this conclusion, they satisfied themselves that the funder did not exercise control over the conduct of the litigation, and that control remained at all times with the claimant and his lawyers.

 

The case was more about the liability of the funder for adverse costs than about the minutiae of funding agreements themselves.

 

Here was the kind of funding usually afforded by a non-lawyer who finances a claim on terms in exchange for a shire of the proceeds. The funding is invariably specific to the facts and is usually agreed as a last resort means of advancing litigation.

 

It is also important to stress that they type of agreement which was made in Arkin was approved of by the court as the funder did not retain any control over the litigation.  At all times control remained with the claimant and his lawyers and not the funder.

 

The Court of Appeal formulated a solution so as to give effect to the twin public policy objectives of:

 

  1. encouraging funding which enables access to justice; and

 

  1. ensuring defendants who successfully defend such claims can still recover costs if the claimant is a man of straw.

 

The decision has implications for:

 

  • the extent to which such agreements can now be said to be lawful and therefore enforceable as between the parties;

 

  • the effect which the solution will have on the price a claimant must pay for funding.

 

Interplay between Third Party Funding and Maintenance and Champerty

The funding of litigation by third parties without an interest in the dispute is classic maintenance and champerty and has traditionally been unlawful and indeed was a criminal offence until 1967.  It has been illegal since at least as early as 1275 when the Statute of Westminster codified the ban on such arrangements.

 

However for more than a century there has been a tension between that principle and the recognition that without third party funding many, probably most, claimants could not afford to pursue perfectly valid claims.

 

Although “access to justice” is a modern phrase that was the principle behind the courts allowing various litigation to be funded by various third parties, such as:

 

  • a master funding a servant’s litigation;

(ii)           trades’ unions funding members’ litigation;

(iii)          insurance companies funding their insured’s litigation;

(iv)         legal aid;.

(v)          lawyers working pro bono.

 

The Criminal Law Act 1967 abolished criminal and tortious liability for maintenance and champerty (section 14(1)) but section 14(2) unhelpfully provided that such abolition “shall not affect any rule of that law as to the cases in which a contract is to be treated as contrary to public policy or otherwise illegal,” a measure described by Lord Neuberger, President of the Supreme Court, as giving the rule against maintenance and champerty “a continuing half-life.” (Speech: From Barretry, Maintenance and Champerty to Litigation Funding, Harbour Litigation Funding First Annual Lecture – 8 May 2013.

 

As early as 1883 the Court of Appeal questioned the rule against maintenance and champerty. In Alabaster v Harness [1895] 1 QB 339 Lord Esher, Master of the Rolls, said:-

 

“The doctrine of maintenance…does not appear to be founded so much on general principles of right and wrong or of natural justice as on considerations of public policy. I do not know that, apart from any specific law on the subject, there would necessarily be anything wrong in assisting another man in his litigation.”

 

Here the Court of Appeal held that maintenance was permissible if given by “a man in (sic) behalf of a poor man, who but for the aid of his rich helper could not assert his rights, or would be oppressed and overbourne in his endeavour to maintain them.”

 

Thus a contract could be declared unenforceable on public policy grounds, although not of itself illegal.  This was very much the model followed in relation to conditional fees in both the Courts and Legal Services Act 1990 and the Access to Justice Act 1999 and indeed is central to the concept of the indemnity principle.

 

In terms it is a message, essentially to lawyers but also to third party funders, that although nothing is now illegal in terms of funding you will always be taking a substantial risk as to whether you will be able to recover your costs from the other side or from your own client.  Furthermore you are at risk of paying the other side’s costs in the event of defeat.

 

However the courts have worked hard to make conditional fees, and to a lesser extent, third party funding, work and there is no doubt that overall the senior judiciary take the view that the ethical problems are outweighed by the need to give access to justice to people of ordinary means in a post-legal aid world.

 

Lord Justice Jackson devotes a whole chapter of his Final Report to Third Party Funding (see below) and refers to the “uncertain ambit” of the law of maintenance and champerty casting “doubt as to the precise boundaries of proper conduct in relation to litigation funding” but does not offer any clear answers.

 

He supports the continued existence of section 14(2) of the Criminal Law Act 1967 but suggests that it be made clear “either by statute or by judicial decision that if third party funders comply with whatever system of regulation emerges from the current consultation process, then the funding agreements will not be overturned on grounds of maintenance and champerty”.

 

Overseas

Overseas, the Courts have been giving positive encouragement to Third Party Funding.

 

Jersey

In Barclay Wealth Trustees (Jersey) Limited v Equity Trust Jersey Limited and Equity Trust Services Limited, June 2013

 

the Royal Court of Jersey has supported the concept of Third Party Funding saying:

 

“There is a strong public interest in persons being able to obtain funding to enable them to bring proceedings to vindicate their rights”.

 

The court rejected an argument that such funding arrangements were unlawful as contrary to the law of champerty and the Jersey Code of 1771.

 

It made it clear that public policy requires that third party funding is properly structured, but that where it is “it facilitates the important objective of access to justice”, and that the Jersey Code of 1771 was designed to prevent the trafficking of claims, that is their sale, purchase and assignment.  It was not a bar to funding arrangements which did not involve assignment.

 

In the Jersey case the Royal Court also considered what the position would have been if, contrary to its finding, the funding agreement had infringed a Jersey statute.

 

It held that even if the funding arrangement was void, voidable or unenforceable the defendants would not have been able to stay or strike out the proceedings as an abuse of process.

 

Claimants have a right to pursue their claims.  Whether the claimant and the funder have an enforceable contract is not a defence to the claim.

 

This follows the Royal Court of Jersey’s similar decision in

 

In the Matter of the Valetta Trust, 25 November 2011

 

Canada

In E Eddy Bayens and others v Kinross Gold Corporation and others 2013 ONSC 4974

 

the Ontario Superior Court approved the use of third party litigation funding in one of the first cases of its kind in Canada, stating that in the absence of funding the exposure to the risk of adverse costs was a barrier to access to justice.

 

The court held that court approval was required in any class action before third party funding could be used.

 

The court would need to be satisfied that the following principles were satisfied:

 

  • non-interference by the litigation funder and no reduction in either the plaintiff’s right to control the litigation or the lawyer’s duties to the client;

 

  • an undertaking by the litigation funder in relation to its duty of confidentiality;

 

  • a finding that litigation funding is necessary to provide access to justice;

 

  • fair and reasonable financial terms, with the benchmark being the percentage charged by the Ontario Class Proceedings Fund.

 

New Zealand, Bermuda, British Virgin Islands

The New Zealand Court of Appeal and the Supreme Courts of Bermuda and the British Virgin Islands have also given their support to the concept of Third Party Funding.

 

In Saunders v Houghton [2012] NZCA 545

 

the New Zealand Court of Appeal said that the involvement of a litigation funder should provide reassurance for the defendants that the litigation will be conducted responsibly, as well as appropriately funded.

 

Jackson

Until 1 April 2013 a client’s success fee was paid by the other side but the third party funder’s fee was paid by the client.

 

Now that the client is to be the payer in any event then an informed decision needs to be made in each case between these two methods of funding.

 

For example in what looks like a safe case the client may feel better off with a Third Party Funder taking 25% of any damages and agreeing to pay the solicitor in the event of defeat.  The potential loser here is the solicitor who will receive no success fee but who will face no risk.

 

These will be difficult calls and the tension between non-recoverable success fees and third party funding has not been fully considered.

 

In the pre-2000, pre-recovery days there was no third party funding and so the issue has not arisen.

 

Suppose a third party funder was to advertise that it would back any viable road traffic accident case in return for 25% of damages.

 

What would the solicitor’s duty then be? To limit their own charge to the client to 25%?  To limit their own charge to the client to 10%, that is the client paying 35% in all?

 

Lord Justice Jackson says in favour of Third Party Funding that it provides an additional means of funding litigation, “and for some parties the only means” and, unlike conditional fee agreements does so without “any additional financial burden upon opposing parties,” and that it tends “to filter out unmeritorious cases”.

 

Reflecting his view that recoverability of success fees be banned, which of course they have been, Lord Justice Jackson states that it is better for a claimant “to recover a substantial part of damages than nothing at all,” and noted, correctly, that Third Party Funding would “become even more important as a means of financing litigation if success fees under conditional fee agreements become irrecoverable.”

 

Jackson also appeared to accept that in the absence of the recoverability of after-the-event insurance Third Party Funding may fill the gap.

 

In referring to Stone and Rolls (in Liquidation) v Moore Stephens (a Firm) [2009] UKHL 39 where the third party funded claimant lost and had not taken out after-the-event insurance to cover its adverse costs risk Lord Justice Jackson said:

 

“These facts illustrate that third party funders can operate satisfactorily in the absence of ATE insurance and they can accept liability for any adverse costs orders”, adding that the risk undertaken by the funder was reflected in the percentage of damages which the funder was entitled to receive in the event of success.

 

What was not addressed is the percentage of damages to be left to the successful third party funded claimant.

 

Thus a clinical negligence action is third party-funded in a post-Jackson world where there is no recoverability of the success fee and only limited recovery of the after-the-event insurance premium.  The third-party funder agrees to cover any adverse costs order, in other words to be the after-the-event insurer as well as the funder.  In those circumstances a percentage take towards the top of the range for the third party funder would not be unreasonable – say 40% of damages.  It agrees to pay a discounted fee to the solicitor in any event, that is the solicitor works under a discounted conditional fee agreement.

 

The solicitor’s conditional fee agreement success fee is capped at 25% of damages.

 

The claimant wins and thus gets 35% of damages awarded.

 

It could in fact be rather less – there may be interest on the third party funding and some irrecoverable solicitor and own client costs.

 

That is why Third Party Funding in an age of non-recoverability of success fees and after-the-event insurance premia risks a re-run of Claims Direct and the Accident Group.

 

While endorsing Third Party Funding, Lord Justice Jackson identifies three main areas of concern:

 

  • Withdrawal by a funder

Jackson’s view is that “the funder should be obliged to continue to provide whatever funding it originally contracted to provide unless there are proper grounds to withdraw”.

 

The Code of Conduct sets out the circumstances in which a funder may withdraw.

 

(ii)       Capital adequacy

Jackson’s initial view was that capital adequacy, that is the third party funder’s ability to pay the costs, was “a matter of such pre-eminent importance that it should be the subject of statutory regulation by the Financial Services Authority”.

 

He now states that given that most third party funded clients are commercial parties there is no need for regulation.

 

Quite why a commercial client should be unprotected is unclear.

 

What is clear is that Jackson fails to see the likely role of third party funding in lay client work, especially personal injury and clinical negligence.

 

The Code of Conduct provides that there must be capital adequacy to meet liabilities for a 3 year period, but there is no indication as to how this will be policed.

 

(iii)      Liability for adverse costs

Jackson supports the notion that third party funders should be liable for all adverse costs, stating that it was wrong in principle that a litigation funder who stood to recover a share of damages in the event of success should be “able to escape part of the liability for costs in the event of defeat”.

 

He said that going against the Arkin principle, whereby third party funders’ liability for adverse costs was limited to a sum equal to the extent of the funding provided (see above), would not inhibit third party funding.

 

“There is no evidence that full liability for adverse costs would stifle third party funding or inhibit access to justice”.

 

Well, obviously there is no evidence as it has never happened, but some would      say that it speaks for itself – res ipsa loquitor in language that Lord Justice Jackson may understand.

 

He points out, with justification, that such limited liability “is unjust not only to the opposing party (who may be left with unrecovered costs) but also to the client (who may be exposed to costs liabilities which it cannot meet)”.

 

However Lord Justice Jackson appears not to see the irony in this.  Until 1 April 2013 after-the-event insurance dealt with all of these problems at no cost to the claimant, but it is the Jackson Report itself which has successfully argued for the abolition of recoverability of after-the-event insurance premia, now enacted in Section 45 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and now in force.

 

He also argues that experience in Australia was “to the opposite effect” in that only five costs orders, out of 200 funded cases, had been made against third-party funded claimants.

 

However in Australia third party funders themselves are not liable at all for adverse costs, following the decision of the High Court of Australia:

 

Jeffery and Katauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43

 

Consequently it may be that cases were settled which otherwise would not have been, maybe on a drop hands basis, as the potentially successful defendant knows that it cannot get costs from the third party funded claimant, who is unlikely to be good for the costs.  If they were then they are unlikely to have entered into a third party funding agreement to start with.

 

Lord Justice Jackson states that it is perfectly possible for litigation funders to have business models encompassing full liability for adverse costs.  “This will remain the case, even if ATE insurance premiums cease to be recoverable under costs orders”.

 

That is correct, but it will come at a heavy price to the claimant, maybe 40% to 45% of damages, with the lawyer taking up to 25% of damages by way of a conditional fee success fee, so the client being left with just 30%.

 

What is almost certain to happen is that certain Alternative Business Structures       will offer claims management services and third party funding comprising after-the-event insurance and legal services and take a very hefty slice of damages – possibly as much as 50%.

 

It could be worse.  Let us look at a variation on the clinical negligence action looked at earlier. The third party funder agrees to fund expensive        disbursements and, say, half of the claimant’s solicitors costs in the event of defeat, but this time not to cover an adverse costs order.  Because s/he is receiving something in any event the solicitor charges 15% of damages as a success fee rather than the maximum 25%.  In fact the case settles for £40,000.00, which is distributed as follows:

 

Damages £40,000.00
to Third Party Funder – 40% £16,000.00
Success fee to solicitor – 15% £6,000.00

_________

Balance £18,000.00

 

out of which the after-the-event insurance premium has to be paid.  That could be as much as £20,000.00, leaving the successful client with a shortfall of £2,000.00.

 

It is Claims Direct and the Accident Group all over again.

 

The issues were not addressed in the Jackson Report.  The formal recommendations are:

 

“6.1        I do not consider that full regulation of third party funding is presently required. I do, however, make the following recommendations:

 

(i)            A satisfactory voluntary code, to which all litigation funders subscribe, should be drawn up. This code should contain effective capital adequacy requirements and should place appropriate restrictions upon funders’ ability to withdraw support for ongoing litigation.

 

  • The question whether there should be statutory regulation of third party funders by the FSA ought to be re-visited if and when the third party funding market expands.

 

  • Third party funders should potentially be liable for the full amount of adverse costs, subject to the discretion of the judge.”

 

Unfortunately this chapter also dealt with Maintenance and Champerty and even more unfortunately recommended retaining the rule, and even more unfortunately that the rule should be abrogated for third party funders.

 

So, a qualified extremely heavily regulated, insured solicitor who agrees to indemnify his or her client against an adverse costs order breaks the rule.

 

A voluntary coded (weren’t they discredited 30 years ago) unqualified Third Party Funder Claims Management Company Alternative Business Structure is free from such restriction.

 

Why?

 

Because “A number of respondents pointed out that abolishing the common law doctrine of maintenance could have unintended consequences”.

 

Well, that could apply to any proposal ever made anywhere.  That is the problem with unintended consequences – they are just that – unintended.

 

Furthermore Lord Justice Jackson, speaking in January 2012, suggested that solicitors acting on a contingency fee basis should be liable for adverse costs orders.  I have dealt with this issue above, but this threat makes contingency fee agreements in civil litigation even less attractive to lawyers.

 

As solicitors have to deduct, pound for pound, any costs received from the other side from the Damages-Based Agreement charged to the client, and as they do NOT have to do that in relation to a conditional fee success fee it will almost never be in the solicitor’s interest to act on a contingency fee basis as compared with a conditional fee agreement. Furthermore the indemnity principle applies in full to Damages-Based Agreements, giving the tortfeasor a windfall.

 

For clients the opposite is true – they will nearly always be better off under a Damages-Based Agreement than under a conditional fee agreement.

 

The risk of solicitors being liable for adverse costs under a Damages-Based Agreement, but not a conditional fee agreement reinforces this point.

 

Six months in to Jackson it is clear that almost no Damages-Based Agreements have been signed, outside the employment field where they are compulsory if acting on a contingent or conditional basis.

 

Third Party Funders and Indemnity Costs

 

In Excalibur Ventures and Others v Psari Holdings and others [2014] EWHC 3436 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 Petroleo Brasileiro Petrobras [2006] EWCA Civ 1038 and Dolphin Quays Developments v Mills [2008] 1WLR 1829.

 

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 [1999] BLR 232,240.

 

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 [2007] 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 [2011] EWCA Civ 546 [26] [64], the principles upon which the discretion should be issued were set out in Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1WLR 2807 [25] 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 [29]:-

 

“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 [2006] 2 All ER 533 at [59]. Similar considerations apply to the other funders.

 

  1. 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 [1997] 1 WLR 1613, 1620; this approach was applied in Landare Investments Ltd v Welsh Development Agency [2004] EWHC 946 (QB).

 

In Systemcare 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 [2007] 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 [1993] COD 204 and a similar approach was taken by the court in Murphy v Rayner [2014] 1 WLR 672.

 

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…

 

  1. 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.”

 

Wasted Costs

 

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”

 

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) [2005] 1 WLR 3055. 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.

 

  1. 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.

 

  1. 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.”

 

Legal Aid Privatisation?

Speaking to the Association of Costs Lawyers annual conference in May 2013, Mr Justice Ramsey, the High Court judge responsible for implementing the Jackson reforms, referred to the future of third-party litigation funding as one of the “great questions” of the post-Jackson era.

 

He said that he expected greater certainty in the market over the next three years, which would give investors confidence to fund more cases.

 

“Funders should be able to make a decent profit and in effect transfer legal aid from the public sector to the private sector.”

 

Children

The words on the door of The Old Bailey read “Defend the Children of the Poor and Punish the Wrongdoer.”

 

They appear not to have been brought to the attention of Lord Justice Jackson during the preparation of his report, or to the attention of Parliament, or the Rules Committee, or indeed anyone else.  It was probably not at the forefront of the minds of the Worshipful Company of Rich Commercial Litigators and other such consultees.

 

How children are to fare post-Jackson is entirely unaddressed by everyone – see my piece Jackson’s Children – Children, Patients, Costs and Deductions from Damages.

 

In this piece I will pass over the apparent ignorance of all of the above of another Old Bailey inscription:

 

“The welfare of the people is supreme”.

 

The move towards costs not following the event throws in to sharp relief the issue of deducting costs from the damages of someone under a legal disability, typically a child.

 

This arises in the context of a solicitor seeking to charge solicitor and own client costs/success fee and also in relation to the deduction of a Third Party Funder’s fee, and to the taking out of after-the-event insurance with a non-recoverable premium.

 

It is clear beyond doubt that no money may be deducted from an award to a child or a protected party without the permission of the court (CPR 46.4).

 

Generally there must be a detailed assessment (CPR 46.4(2)), although in most cases that will now take the form of a paper-only provisional assessment.

 

The court need not order detailed assessment of costs in the circumstances set out in Practice Direction 46 (CPR 46.4(3)).

 

Practice Direction 46, Paragraph 2.1 reads:

 

“2.1        The circumstances in which the court need not order assessment of costs under rule 46.4(3), are as follows –

 

  • where there is no need to do so to protect the interests of the child or protected party or their estate;
  • where another party has agreed to pay a specified sum in respect of the costs of the child or protected party and the legal representative acting for the child or protected party has waived the right to claim further costs;
  • where the court has decided the costs payable to the child or protected party by way of summary assessment and the legal representative acting for the child or protected party has waived the right to claim further costs; and
  • where an insurer or other person is liable to discharge the costs which the child or protected party would otherwise be liable to pay to the legal representative and the court is satisfied that the insurer or other person is financially able to discharge those costs.”

 

Thus (b) allows a Litigation Friend to agree to pay a child claimant’s solicitor a success fee.

 

Once the child achieves adulthood then none of the rules concerning court approval and assessment that are particular to children apply.

 

Thus it is perfectly proper to have an agreement with a Litigation Friend that provides that if the child achieves majority before the case is resolved then the now adult claimant will pay solicitor and own client costs and a success fee or whatever.  The claimant’s only remedy then would be a Solicitors Act 1974 solicitor and own client assessment, the same as any other adult client.

 

Summary Assessment

By Practice Direction 60th Update Annex B Practice Directions 44-48 Practice Directions 44, paragraph 9.9, the court will not make a summary assessment of the costs of a receiving party who is a child or a protected party within the meaning of Part 21 unless the legal representative acting for the child or protected party has waived the right to further costs. (9.9(1)).

 

The court may make a summary assessment of costs payable by a child or protected party. (9.9(2)).

 

QOCS

There are no special rules relating to children in relation to Qualified One Way Costs Shifting.

 

Court’s discretion

The key question is as to how the courts exercising their discretion in the post-Jackson world of uneconomic portal fees where it is simply not worth lawyers taking on cases where they cannot charge the client an element of solicitor and own client costs over and above the low, fixed recoverable portal costs.  25% of damages has become the standard charge.

 

Any increase in the personal injury small claims limit exacerbates the problem, as obviously no costs at all are then recoverable.

 

The courts are faced with the dilemma of sanctioning a costs charge to a protected party, something that they have traditionally disliked, or risking children and protected parties becoming a no-go zone for lawyers, especially now that legal aid has been abolished for all except babies under eight weeks old with a clinical negligence claim.

 

Reports are varied, but it is clear that many judges are refusing to allow any deduction from damages.

 

ATE Insurance

CPR 21.12 provides that a Litigation Friend who incurs expenses on behalf of a child is entitled to recover them out of monies received provided that the expenses have been reasonably incurred and are reasonable in amount.

 

CPR 21.12(6) limits the total expenses that a Litigation Friend may recover to 25% of the sum awarded where the claim dos not exceed £5,000 unless the court orders otherwise and in any event must not exceed 50% of the sum agreed or awarded.

 

An after-the-event insurance premium is specifically an expense, rather than legal costs, because CPR 21.12(2)(a) says so:

 

“(2)        Expenses may include all or part of –

 

  • a premium in respect of a costs insurance policy (as defined by section 58C(5) of the Courts and Legal Services Act 1990.”

 

All of the costs principles in relation to children apply in relation to Third Party Funding, which is not specifically mentioned in the Civil Procedure Rules or Practice Directions relating to children.

 

Presumably the incurring of a Third Party Funder’s fee is potentially a legitimate expense of a Litigation Friend under CPR 21.12, but unlike an after-the-event insurance premium, it is not specifically mentioned.

 

As Third Party Funding nearly always involves an adverse costs indemnity it is sensible to state a separate and precise figure for that element in cases involving children.

 

The issue is not decided until detailed assessment at the end of the case, which is obviously too late for the solicitor to change his or her mind.  Early Court of Appeal guidance would be welcome.

 

Conclusion

Properly regulated, Third Party Funding has a major role to play in the funding of civil litigation in England and Wales and should be welcomed.

 

Unregulated they risk a repeat of Claims Direct and The Accident Group, where winning clients found themselves left with nothing.

 

I set out below the January 2014 Code of Conduction for Litigation Funders:

 

The code

  1. This code (‘the Code’) sets out standards of practice and behaviour to be observed by Funders (as defined in clause 2 below) who are Members of The Association of Litigation Funders of England & Wales (‘the Association’) in respect of funding the resolution of disputes within England and Wales.

 

  1. A Litigation Funder:

 

2.1. has access to funds immediately within its control, including within a corporate parent or subsidiary (‘Funder’s Subsidiary’); or

2.2. acts as the exclusive investment advisor to an entity or entities having access to funds immediately within its or their control, including within a corporate parent or subsidiary (‘Associated Entity’), (‘a Funder’) in each case:

2.3 to fund the resolution of disputes within England and Wales; and

2.4 where the funds are invested pursuant to a Litigation Funding Agreement (‘LFA’) to enable a party to a dispute (‘the Funded Party’) to meet the costs (including pre-action costs) of resolving  disputes by litigation, arbitration or other dispute resolution procedures. In return the Funder, Funder’s Subsidiary or Associated Entity:

2.5  receives a share of the proceeds if the claim is successful (as defined in the LFA); and

2.6 does not seek any payment from the Funded Party in excess of the amount of the proceeds of the dispute that is being funded, unless the Funded Party is in material breach of the provisions of the LFA.

 

  1. A Funder shall be deemed to have adopted the Code in respect of funding the resolution of disputes within England and Wales.

 

  1. A Funder shall accept responsibility to the Association for compliance with the Code by a Funder’s Subsidiary or Associated Entity. By so doing a Funder shall not accept legal responsibility to a Funded Party, which shall be a matter governed, if at all, by the provisions of the LFA.

 

  1. A Funder shall inform a Funded Party as soon as possible and prior to execution of an LFA:

 

5.1. if the Funder is acting for and/or on behalf of a Funder’s Subsidiary or an Associated Entity in respect of funding the resolution of disputes within England & Wales; and

5.2  whether the LFA will be entered into by the Funder, a Funder’s Subsidiary or an Associated Entity.

 

  1. The promotional literature of a Funder must be clear and not misleading.

 

  1. A Funder will observe the confidentiality of all information and documentation relating to the dispute to the extent that the law permits, and subject to the terms of any Confidentiality or Non-Disclosure Agreement agreed between the Funder and the Funded Party. For the avoidance of doubt, the Funder is responsible for the purposes of this Code for preserving confidentiality on behalf of any Funder’s Subsidiary or Associated Entity.

 

  1. An LFA is a contractually binding agreement entered into between a Funder, a Funder’s Subsidiary or Associated Entity and a Funded Party relating to the resolution of disputes within England and Wales.

 

  1. A Funder will:

 

  • take reasonable steps to ensure that the Funded Party shall have received independent advice on the terms of the LFA prior to its execution, which obligation shall be satisfied if the Funded Party confirms in writing to the Funder that the Funded Party has taken advice from the solicitor or barrister instructed in the dispute;
  • not take any steps that cause or are likely to cause the Funded Party’s solicitor or barrister to act in breach of their professional duties;
  • not seek to influence the Funded Party’s solicitor or barrister to cede control or conduct of the dispute to the Funder;
  • Maintain at all times access to adequate financial resources to meet the obligations of the Funder, its Funder Subsidiaries and Associated Entities to fund all the disputes that they have agreed to fund and in particular will;

 

  • ensure that the Funder, its Funder Subsidiaries and Associated Entities maintain the capacity;

 

9.4.1.1. to pay all debts when they become due and payable; and

9.4.1.2. to cover aggregate funding liabilities under all of their LFAs for a minimum period of 36 months.

 

  • maintain access to a minimum of £2m of capital or such other amount as stipulated by the Association;
  • accept a continuous disclosure obligation in respect of its capital adequacy, including a specific obligation to notify timeously the Association and the Funded Party if the Funder reasonably believes that its representations in respect of capital adequacy under the Code are no longer valid because of changed circumstances;
  • undertake that it will be audited annually by a recognised national or international audit firm and shall provide the Association with:

 

9.4.4.1. a copy of the audit opinion given by the audit firm on the Funder’s or Funder’s Subsidiary’s most recent annual financial statements (but not the underlying financial statements), or in the case of Funders who are investment advisors to an Associated Entity, the audit opinion given by the audit firm in respect of the Associated Entity (but not the underlying financial statements), within one month of receipt of the opinion and in any case within six months of each fiscal year end. If the audit opinion provided is qualified (except as to any emphasis of matters relating to the uncertainty of valuing relevant litigation funding investments) or expresses any question as to the ability of the firm to continue as a going concern, the Association shall be entitled to enquire further into the qualification expressed and take any further action it deems appropriate; and

 

9.4.4.2. reasonable evidence from a qualified third party (preferably from an auditor, but alternatively from a third party administrator or bank) that the Funder or Funder’s Subsidiary or Associated Entity satisfies the minimum capital requirement prevailing at the time of annual subscription.

 

  • comply with the Rules of the Association as to capital adequacy as amended from time to time.

 

  1. The LFA shall state whether (and if so to what extent) the Funder or Funder’s Subsidiary or

Associated Party is liable to the Funded Party to:

 

  • meet any liability for adverse costs;
  • pay any premium (including insurance premium tax) to obtain costs insurance;
  • provide security for costs; and
  • meet any other financial liability.

 

  1. The LFA shall state whether (and if so how) the Funder or Funder’s Subsidiary or Associated Entity may:

 

  • provide input to the Funder Party’s decisions in relation to settlements;
  • terminate the LFA in the event that the Funder or Funder’s Subsidiary or Associated Entity:

 

  • reasonably ceases to be satisfied about the merits of the dispute;
  • reasonably believes that the dispute is no longer commercially viable; or
  • reasonably believes that there has been a material breach of the LFA by the Funded Party.

 

  1. The LFA shall not establish a discretionary right for a Funder or Funder’s Subsidiary or Associated Party to terminate a LFA in the absence of the circumstances described in clause 11.2.

 

  1. If the LFA does give the Funder or Funder’s Subsidiary or Associated Entity any of the rights described in clause 11, the LFA shall provide that:

 

  • if the Funder or Funder’s Subsidiary or Associated Entity terminates the LFA, the Funder or Funder’s Subsidiary or Associated Entity shall remain liable for all funding obligations accrued to the date of termination unless the termination is due to a material breach under clause 11.2.3;

 

  • if there is a dispute between the Funder, Funder’s Subsidiary or Associated Entity and the Funded Party about settlement or about termination of the LFA, a binding opinion shall be obtained from a Queen’s Counsel who shall be instructed jointly or nominated by the Chairman of the Bar Council.

 

  1. Breach by the Funder’s Subsidiary or Associated Entity of the provisions of the Code shall constitute a breach of the Code by the Funder.

 

  1. The Association shall maintain a complaints procedure. A Funder consents to the complaints procedure as it may be varied from time to time in respect of any relevant act or omission by the Funder, Funder’s Subsidiary or Associated Entity.

 

  1. The Code (as amended) applies to LFAs commencing on or after the date hereof.

 

READER COMMENTS:-

 

Comment from Jason Libby on 11 September 2013:-

Hi Kerry,

That makes a really interesting read and could well be the saviour of the PI market.

Although I have a question about how this would work to the benefit of a firm. You talk about using Litigation Funding to ease the cashflow of smaller firms and state that:-

“Third Party Funders may become Alternative Business Structures running cases through the medium of conditional fee agreements, thus avoiding the Arkin risk.”

Surely, if the matter was being run under a CFA then the firm could not utilise the funding to ease cashflow, as they would not be able to bill the client on an interim basis, given that payment under the CFA is contingent on their being a ‘win’?

If this is correct how would the firm be able to utilise Litigation Funding and run a claim on a CFA basis?

I would appreciate your thoughts.

Many thanks

 

Kerry Underwood’s reply:-

Hi Jason

Through a discounted conditional fee agreement as approved by the Court of Appeal in Gloucestershire County Council v Evans [2008] EWCA Civ 21, 1 WLR 1883, [2008] NLJR 219.

Kerry

Written by kerryunderwood

November 25, 2015 at 8:05 am

Posted in Uncategorized

LITIGANTS IN PERSON: ACTING IN CASES INVOLVING THEM AND ADVISING THEM

with 8 comments


 

Look here for Kerry’s new course on this subject

In Jones v Longley & Others [2015] EWHC 3362 (Ch)

the Chancery Division of the High Court said that litigants in person are not subject to any special rules and are as liable as represented litigants to have costs orders made against them, here in favour of a solicitor personally.

This was a complicated contested probate matter but the key paragraph in relation to litigants in person is 43.

“43. Of course, I accept that the First Defendant is not a lawyer, but he is clearly an intelligent and articulate man, and in any event there are not two sets of rules, one for lawyers and one for laymen. If you embark on litigation without a lawyer, you cannot expect to be judged by rules different from those which apply to litigants legally represented.”

On 1 October 2015 a new rule was introduced in relation to case management of matters involving litigants in person and this was achieved by the 81st update to the Civil Procedure Rules.

” Case Management- unrepresented parties

3.1A – (1)  This rule applies in any proceedings where at least one party is unrepresented.

(2)  When the court is exercising any powers of case management, it must have regard to the     fact         that at least one party is unrepresented.

(3) Both the parties and the court must, when drafting case management directions in the multi-track and fast track, take as their starting point any relevant standard directions which can be found online atwww.justice.gov.uk/courts/procedure-rules/civil and adopt them as appropriate to the circumstances of the case.

 

(4)  The court must adopt such procedures at any hearing as it considers appropriate to further the overriding objective.

(5)  At any hearing where the court is taking evidence this may include-

(a) ascertaining from an unrepresented party the matters about which the witness may be able to give evidence or on which the witness ought to be cross-examined; and

(b) putting, or causing to be put, to the witness such questions as may appear to the court to be proper.”

Meanwhile in Akcine Bendore Bankas Snoras (in bankruptcy) v Yampolskaya [2015] EWHC 2136 (QB)

the Queen’s Bench Division of the High Court refused relief from sanctions to a litigant in person who had failed to file an appeal bundle in breach of an unless order. Her appeal was struck out.

The High Court gave guidance as to assessing defaults by litigants in person. They should not all be treated the same. The court may take into account the needs of a litigant in person who is impecunious or unable to speak English.

In Oyesanya v Mid-Yorkshire Hospital Trust [2015] EWCA Civ 1049.

Lord Justice Christopher Clarke criticised the defendant:-

“… I am surprised that the respondent, a Health Trust, thought it appropriate to plead the Limitation Act in order to resist paying the appellant the money which it accepted was owed to him for his work as a locum consultant – a course which, in the event, will have caused it much additional cost and expense.”

He also suggested that had the appellant continued as a Litigant in Person he may have lost, rather than won:-

“…it is largely as a result of the pro bono assistance of Mr Colton that the appellant has been able to vindicate his rights. Without it a different result might well have occurred.”

In Veluppillai v Veluppillai

Mr Justice Mostyn highlighted the actions of a Litigant in Person who sent abusive emails and assaulted his opposing counsel, to demonstrate the scale of the problems for courts in the face of “unrepresented and malevolent litigants”.

He said:-

“The public should be aware of the scale of problems that courts administering justice and implementing the rule of law have to face at the hands of unrepresented and malevolent litigants determined to do everything they can to destroy the process.”

Some commentators have pointed out that there have always been Litigants in Person and that very often they are a problem. Many commenting on the Law Society Gazette’s article pointed out that the appalling behaviour of this particular individual is the sort of thing that solicitors have to deal with day in and day out and that it might have been a good thing had the judiciary recognised this and recognised that that is one of the reasons that we should have qualified lawyers and not Alternative Business Structures, banks, insurance companies and any other Tom Dick and Harry being allowed to practise law and that that is why legal aid rates should be decent enough to attract decent lawyers. IMHO these commentators have a point.

Meanwhile a visitor from Planet Zog said that there is no evidence that the rising number of Litigants in Person has caused more delays in civil courts and that it was not proven that the court process had been slowed down by legal aid cuts forcing more people to represent themselves.

Unfortunately this visitor from Planet Zog is Natalie Ceeney, who is apparently Chief Executive of Her Majesty’s Courts and Tribunals Service and was giving evidence to the House of Commons Justice Committee.

When asked whether her agency had considered the effects of reducing legal aid she said:-

“[LiPs] have not actually increased the court budget or the demands on the court. Some [cases] take longer but some are shorter.”

It is reassuring that not a single Member of Parliament, nor judge, nor lawyer, nor legal journalist, nor indeed anyone on Earth, has agreed with Ms Ceeney. One wonders how she achieved her current position.

District Judge Peter Glover, who sits at Dartford County Court, and who is very much on the front line, in a letter to the Law Society Gazette and published on 26 October 2015 said that most District Judges have doubled time estimates to deal with LiPs – “Natalie Ceeney would know this if she had bothered to talk to us.”

The letter sets out the position better than I can:-

Letter from District Judge Peter Glover, Dartford County Court

“I read with interest your report on evidence given by Natalie Ceeney to the House of Commons justice committee. This concerned the budgetary and ‘demand’ consequences for HM Courts & Tribunals Service of the ever growing number of litigants in person. Some readers may recall that in 2011 the Gazette published my article predicting dire consequences for other court users of the then proposed removal of family and children cases from the scope of legal aid.

Well, it seems I must have been wrong, even though most district judges I know have, particularly in family and children cases, doubled time estimates to accommodate the need to explain process to, and deal fairly with, LiPs. As district judges deal with more than 90% of all civil and family cases, mostly in the county court, it is a pity that Bob Neill’s enquiry related to ‘circuit judges’, to whom Ms Ceeney speaks ‘very frequently’.

Perhaps they should both make contact with those who actually do most of this work and ascertain their views and experience. Practitioners, too, might express a contrary view, based on their experiences of increased waiting times. As for the statistical evidence to which Ms Ceeney referred, it would be interesting to know if it is derived from the same sources as the ‘estimated’ statistics released by the previous Lord Chancellor, which were roundly derided. Unfortunately, it would seem that empirical evidence is out of fashion.

Ms Ceeney may be right in saying that some cases take longer while others are shorter. My experience suggests that for shorter cases, such as small claims, possession claims and enforcement hearings, LiPs fail to turn up more frequently than parties with representation. Of course, since LASPO, many cases do not take place at all. The curtailment of public funding and continually increasing court fees have put access to court beyond the available means of huge swathes of citizens.

For the courts to go trundling on only because access to justice has been put beyond the reach of the general public is a tragic irony.”

Peter Glover, district judge, Dartford County Court

Indeed, how ironic that the court budget has not increased because fewer people can afford to go to court.

In Kishenin and Another v Bleach and Others [2015] EWCA Civ 1184 the Court of Appeal granted a litigant in person an extension of time for filing a Notice of Appeal even though the deadline for doing so had long gone and the application to extend time was made at the appeal hearing itself.

 

The litigant in person was one of four defendants and a company she controlled was another and she did not realize that she had to appeal separately on behalf of the company.

 

At the appeal hearing itself she applied for permission to file a Notice of Appeal out of time on behalf of the company and the Court of Appeal, in granting permission, applied the three stage Denton test and held that:-

 

  • the delay was serious or significant;

 

  • the excuse for the delay was that S, a litigant in person, did not realize that she also needed to appeal separately on behalf of T, the company she controlled;

 

  • it was just to extend time.

 

The circumstances were “truly exceptional”. S did not realise that in appealing only in her personal capacity she had not appealed on behalf of the company and a judgment against the company, could, in theory, result in proceedings against her under the legislation concerning the disqualification of directors.

 

The facts were exactly the same and the claimant was fully aware that for all intents and purposes S and T were the same party.

 

In its report implementing reforms to civil legal aid, 4 February 2015, the House of Commons Committee of Public Accounts, said that it had received evidence from the Magistrates’ Association  that the increase in the number of people representing themselves in court, caused by legal aid cuts, may have a negative impact on the administration of justice, especially in cases involving children (paragraph 4).

 

The Ministry of Justice’s Exceptional Case Funding Scheme, which is intended to provide legal aid for people whose human rights would be breached without it, is virtually moribund. Between 5,000 and 7,000 applications a year were expected; in fact just 1,520 were received and only 69, or 4.54% were approved.

 

At paragraph 5 the committee said:-

 

“5. The Ministry cannot manage the impact of the increase in litigants in person, because it still does not understand the impact that they have on the courts service. The Ministry acknowledged in 2012 that the number of LIPs was likely to increase as a result of the reforms. Yet it has still not improved its ability to monitor the impact of LIPs on the courts. It does not collect reliable data on how long individual court hearings take, and its recently published analysis of court hearing durations was based on inadequate information. It is therefore not able to say whether hearings in which people represent themselves are longer or shorter than those in which legal representatives are present and it will not accept the anecdotal evidence provided by the judiciary. The NAO [National Audit Office] identified a 30% rise in the number of cases starting in family courts in which both parties were LIPs. The NAO also identified an increase in the number of contested family cases reaching the courts, with the figure rising from 64% to 89%. The Magistrates’ Association told us that these cases with litigants in person take longer and place additional pressure on the courts service.

 

Recommendation: The Ministry should routinely collect reliable data on the operations of the court service, for example on hearing length, use of other court resources, types of case, and representation, and use this to better understand and manage the impact of LIPs.

 

The committee said that in the year following the legal aid cuts, there was an increase of 18,519 cases (30%) in which both parties were representing themselves in family courts. Within that figure there were 8,110 more cases involving contact with children in which both parties were LIPs in 2013/14 an increase of 89% from the previous year.

 

The report also said that judges have estimated the cases involving LIPs can take 50% longer than others and many legal professionals have said that they place additional demands upon court staff.

 

Bizarrely the Ministry of Justice told the committee that it did not believe the cases involving LIPs take longer than other cases and indeed suggested that those cases may be shorter than cases in which both parties are represented (paragraph 16 to 18 of the report).

 

The committee concluded:-

 

“17. The Ministry does not understand the impact of the increase in LIPs on court resources because it does not have reliable information about key aspects of the court system, particularly hearing lengths. The data that it collects on the representation status of litigants and the type and complexity of cases is also limited. The Ministry agreed that without this information, it cannot know what impact LIPs have on court costs. Research that the Ministry commissioned to examine the impact of LIPs recommended that follow up research is needed to examine the impact of legal aid reforms on the impact of LIPs on the court system.” (Paragraph 17)

 

The courts are experiencing a very significant increase in the number of Litigants in Person following the sharp increase in legal fees to be paid by individuals as a result of the Jackson reforms, and the virtual abolition of civil legal aid. This is already causing problems in the courts as cases involving Litigants in Person take much longer than those involving represented parties.

 

Indeed The Spectator, 20 February 2014, hardly a journal of the left, says “the number of them has exploded” since “the government slashed legal aid in April of last year.” (2013), and that the majority of trials now have at least one unrepresented party. One barrister commented that “the man in the street has as much chance of dealing with these issues as building their own rocket to the moon.”  It is a fascinating article and needs to be read.

 

In Lindner v Rawlins [2015] EWCA Civ 61

 

a divorce case where both parties were litigants in person, the Court of Appeal said

 

“The task that would normally have been fulfilled by the parties’ legal representatives, of finding relevant documents amongst the material presented, and researching the law and its application to the facts of the case, had to be done by the judges of the Court of Appeal instead. This is not a satisfactory state of affairs as the time taken to attend to this is considerable and cannot be spared in what is already a very busy court.” (Lady Justice Black).

 

and

 

“All this involves an expensive use of judicial time, which is in short supply as it is. Money may have been saved from the legal aid funds, but an equal amount of expense, if not more, has been incurred in terms of the costs of judges’ and court time. The result is that there is, in fact, no economy at all. Worse, this way of dealing with cases runs the risk that a correct result will not be reached because the court does not have the legal assistance of counsel that it should have and the court has no other legal assistance available to it.” (Lord Justice Aikens).

 

 

The Lord Chief Justice’s Report 2014

 

The Lord Chief Justice, in his Report to Parliament pursuant to section 5(1) of the Constitutional Reform Act 2005 said:

 

“The escalating cost of using lawyers in civil litigation in circumstances where legal aid has never been available has coincided with the major legal aid reforms under the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) which took effect in April 2013. This has resulted in a very significant rise in the proportion of litigants in person. This increase together with the time taken to control the costs of litigation through cost budgeting has placed a considerable strain on the civil justice system.

 

Although litigants in person have been a feature of the tribunals since their inception at the beginning of the twentieth century, outside the jurisdiction of the small claims procedure they have not been a common feature of the court system. Although litigants in person are not in themselves “a problem” for the courts, the issue for the courts and the Government is that the system has not developed with a focus on unrepresented litigants, and there is now an unprecedented increase in their incidence. The judiciary’s view, based on inquiries it has made albeit so far unsupported by full statistical evidence, is that cases are consequently taking longer.

 

Cases which may never have been brought or would have been compromised at an early stage are often fully-contested, and the take up of mediation and ADR has reduced. The judiciary is actively taking steps to provide litigants in person with access to justice in a proportionate manner. The steps taken include schemes in the Queen’s Bench and Chancery Division to provide pro bono help and simplified guides to litigation. The help that the courts have received from the Personal Support Unit and Citizens Advice Bureau has been immense. As discussed later in this section, the judiciary looks forward to further reforms to address this significant issue.”

 

The increase in Litigants in Person had prompted the publication of a number of guides:-

 

 

  • “A formal guide for Litigants in Person in interim applications” by the High Court;

 

 

 

 

The Civil Procedure (Amendment) Rules 20131, published on 13 February 2013, do not alter substantially the position in relation to Litigants in Person, but the relevant rule is now CPR 46.5, which I set out below.

The Law Society, Bar Council and Chartered Institute of Legal Executives have issued joint guidance on how lawyers can best support a litigant in person (LIP) without this conflicting with their duties to their clients and the court.

 

In Minkin v Landsberg [2015] EWCA Civ 1152

 

the Court of Appeal said:-

 

“73. The District Judges, more than any other level of the judiciary, are finding their lists are overwhelmed as a consequence of the increase in court time taken by each case where (as is now routinely the case) the parties appear as litigants in person.

 

 

 

The guidance covers various areas of practice of conduct, including:

 

Communicating with LIPs

 

The guidance recommends adopting a professional, cooperative and courteous approach at all times, taking care to communicate clearly and avoid any technical language or legal jargon. Lawyers should recommend to a LIP that they seek independent legal advice, or direct them to other advice or support agencies. A list of sources of advice and information is annexed to the guidance, together with a note for LIPs explaining the extent of the assistance that an opponent lawyer can provide.

 

Explaining to clients

 

Lawyers should explain to their clients why they are giving assistance to the opposing party, emphasising that they have a professional duty to the court that may require the provision of procedural assistance to a LIP. A note for clients is annexed to the guidance.

 

Case management

 

The guidance states that a case involving a LIP might require more directions hearings than would usually be necessary, or a pre-trial review. It suggests that it may be helpful for such a case to be reserved to the same judge. If it ever appears that a LIP is heading towards non-compliance with a Case Management Order, lawyers should consider drawing this to the LIP’s attention.

 

The guidance also provides advice for dealing with instances where a LIP is assisted by a McKenzie Friend.

 

Source – Bar Council Litigants in Person: Guidelines for Lawyers (June 2015)

 

The Civil Procedure (Amendment) Rules 2013, published on 13 February 2013, do not alter substantially the position in relation to Litigants in Person, but the relevant rule is now CPR 46.5, which I set out at the end of this piece.

CASE LAW

 

 

In R (Dinjan Hysaj) v Secretary of State for the Home Department and two other conjoined cases [2014] EWCA Civ 1633

 

the Court of Appeal considered whether the court should adopt a different approach to Litigants in Person in the context of applying the Mitchell/Denton criteria in relation to relief from sanctions, here in connection with appealing out of time.

 

The Court of Appeal held that the representation or not of a party is of no significance at the first stage of the enquiry, that is the assessment of the seriousness and significance of the failure to comply with the rules.

 

Whilst accepting that the second stage – the good reason stage – will depend upon the particular circumstances of the case the court said that it did “not think that the court can or should accept that the mere fact of being unrepresented provides a good reason for not adhering to the rules.”

 

“Litigation is inevitably a complex process and it is understandable that those who have no previous experience of it should have difficulty in finding and understanding the rules by which it is governed. The problems facing ordinary litigants are substantial and have been exacerbated by reductions in legal aid. Nonetheless, if proceedings are not to become a free-for-all, the court must insist on litigants of all kinds following the rules. In my view, therefore, being a litigant in person with no previous experience of legal proceedings is not a good reason for failing to comply with the rules.” (Paragraph 44).

 

The Court of Appeal did not then go on the consider the third stage of the Denton test here the court appears to have conflated the good reason test with the all of the circumstances test, thus falling into exactly the same error of law as it did in Mitchell.

 

Nevertheless the view is clear: no special rules for Litigants in Person, and that must be right.

 

The Court of Appeal went on to say, at paragraph 45:-

 

“45.        The Civil Procedure Rules are available free on line on the web site of the Ministry of Justice and to that extent are widely available. What the ordinary person requires, however, is more help in discovering and understanding the rules and some basic guidance about the way in which proceedings should be conducted. If, as seems inevitable, the courts can expect to see an increasing number of litigants in person, assistance of that kind will become essential if the administration of justice is not to be undermined.”

 

This was confirmed in Nata Lee Ltd v Abid [2014] EWCA Civ 1652

 

Where the Court of Appeal stated that a litigant in person does not have any special status in relation to procedural matters or relief from sanctions, although there may be cases where the fact that a party is a litigant in person may have an effect on such issues, but this will be ” at the margins.”

 

“53.        I make it clear at the outset that, in my view, the fact that a party (whether an individual or a corporate body) is not professionally represented is not of itself a reason for the disapplication of rules, orders and directions, or for the disapplication of that part of the overriding objective which now places great value on the requirement that they be obeyed by litigants. In short, the CPR do not, at least at present, make specific or separate provision for litigants in person. There may be cases in which the fact that a party is a litigant in person has some consequence in the determination of applications for relief from sanctions, but this is likely to operate at the margins.”

 

In calling for fixed solicitor and own client cots in family cases Mr Justice Mostyn had this to say in J v J [2014 EWHC 3654 (Fam)

 

“It might also have the beneficial consequence that the present volume of self-representation deriving from the wholesale withdrawal of legal aid from private family law cases is reduced. If a litigant on the cusp of self-representation new at the start of the case how much it was going to cost for each phase then he may well opt for representation. The benefits of representation are too obvious to spell out extensively. Far more cases with the benefit of representation settle, with the resultant avoidance of the legacy of heartache that contested litigation engenders. Those cases that do fight will be on rational and properly pleased justiciable issues. The lengthy delays in the court system caused by the explosion in self representation may be reduced.”

 

Documents

 

In East of England Ambulance Service NHS Trust v Sanders [2015] ICR 293

 

the Employment Appeal Tribunal stressed the importance of marking those passages to be relied upon from authorities in the bundle, including cases, statutes, regulations and other material.

 

Failure to so mark “is unfair to a litigant in person.” Sufficient time must be given to the other party to consider the marked passages “especially if a litigant in person”.

 

The EAT stressed that passages should be marked in all cases but that where the other party is a litigant in person there is a risk that the case will have to be adjourned with costs being ordered against the lawyer failing to mark the passages.

 

Part 36 Offers and Litigants in Person

 

In UWUG Ltd and Haiss v Ball [2015] EWHC 74 (IPEC)

 

the High Court rejected the notion that any special consideration should be given to Litigants in Person in relation to Part 36 offers; “I accept the submission that litigants in person, like all litigants, must live with the consequences of ill advised procedural decisions.”

 

The Judicial Working Group on Litigants in Person has published a report making a number of recommendations to deal with the substantial increase in the number of Litigants in Person. The report suggests that there be additional training and guidance for the judiciary and that judges should deal proactively and robustly with vexatious litigants and in particular should declare appropriate claims and applications to be totally without merit and should use restraining orders to prevent individuals from issuing and pursuing claims.
The report suggests that there should be a special Civil Procedure Rule dealing with proceedings involving Litigants in Person and their need to obtain access to justice, while enabling courts to manage cases consistently with the overriding objective and that there should be a section added to CPR 3.1 allowing courts to handle such proceedings in a more inquisitorial form.

 

There should be a new rule regarding lay assistance and McKenzie Friends, including rules that govern the exercise of the right to reasonable assistance, the right to conduct litigation and the right to exercise rights of audience.

 

The Working Group has produced a handbook to help litigants in person understand and prepare for court proceedings and that is available on http://www.judiciary.gov.uk/publications-and-reports/guidance/2013/handbook-litigants-person-civil-221013.
The Civil Procedure Rules Committee has prepared draft guidance for lawyers acting against litigants in person. The draft guidance uses the quickly rejected term “self-represented litigant”.

 

“1. Where a self-represented litigant is involved in a case the court will expect the legal representatives for other parties in the case to do what they reasonably can to ensure that the self-represented litigant has a fair opportunity to prepare and put his or her case.

 

  1. Of particular importance in such a case are the existing duties of an advocate:

 

2.1 to ensure that the court is informed of all relevant decisions and legislative provisions of which he or she is aware (whether favourable to the case he or she is advancing or not); and

 

2.2 to bring any procedural irregularity to the attention of the court before or during the hearing.

 

  1. In the conduct of such a case, the legal representatives for other parties should take particular care:

3.1 to use language that the self-represented litigant will understand;

 

3.2 to keep to the timetable and the directions that the court has given in the case;

 

3.3 to give the self-represented litigant advance notice when the timetable cannot be met;

 

3.4 to co-operate if the self-represented litigant requires additional time and it is reasonable to agree that time; and

 

3.5 unless the court otherwise directs or allows, to copy to the self-represented litigant at the same time as they are provided to the court, every communication with the court in relation to the case, including written arguments.

 

  1. In preparation for any hearings, the court will expect the legal representatives for other parties to the case to ensure that:

 

4.1 all necessary bundles of documents are prepared and provided to the court (unless the self-represented litigant confirms that he or she will undertake that work);

 

4.2 copies of the bundles are provided to the self-represented litigant at the same time as they are provided to the court;

 

4.3 unless it is wholly unavoidable, written arguments and documents are provided to the court and the self-represented litigant in good time before any hearing; and

 

4.4 where necessary, the order made by the court is drawn and sealed promptly (unless the self-represented litigant confirms that he or she will undertake that work).

 

  1. At all times the legal representatives for other parties are expected to treat the self-represented litigant with courtesy and respect and

 

5.1 in correspondence, to be polite and factual and not intimidatory;

 

5.2 before any hearing at court to be ready and willing to speak to the self-represented litigant about any matter which can reasonably be answered or discussed prior to the hearing if the self-represented litigant has any questions or wishes to raise any matters; and

 

5.3 after any hearing at court, unless there is good reason to the contrary, to be ready and willing to speak to the self-represented litigant about the outcome of the hearing and any orders made by the Court.”

 

The massive increase in the number of litigants in person and the ever increasing complexity of CPR 36 are causing the courts problems; in particular the court has to consider to what extent a solicitor should explain to a litigant in person what a Part 36 offer is and the consequences of accepting or not accepting such an offer.

 

In Kunaka v Barclays Bank [2010] EWCA Civ 1035

 

the Court of Appeal gave guidance.

 

There a claimant acting in person accepted the defendant’s Part 36 offer three months late and the defendant bank had not pointed out to the claimant the consequences of late acceptance.
There the Court of Appeal held that it had to take into account that the claimant was a litigant in person and ordered that there be no order as to costs from 21 days after the date when the offer was made with the claimant recovering costs up until then. Thus the lack of explanation by Barclays Bank meant that they did not get post expiry costs as would usually be the case.
The issue was considered in May 2015 by a District Judge in Liverpool County Court in a personal injury claim where a claimant had been represented pre-issue but had become a litigant in person.

 

She claimed £1.4 million and tried to increase the value of the claim to over £4 million but ultimately accepted, in April 2015, the defendant’s Part 36 offer of £50,000.00 which had been made one year earlier but she disputed that she should pay costs for the 11 months between expiry of the offer and acceptance.

 

The defendant’s letter making the Part 36 offer set out the costs consequences in detail and both counsel and solicitor for the defendant attempted, without success, on more than one occasion to discuss settlement with the claimant. The defendant’s solicitor then sent a five page letter to the claimant setting out clearly and plainly how the claim would be valued at trial, the defendant’s view of the likely outcome and the consequences of accepting the defendant’s offer late and of not beating it.

 

The defendant’s solicitor invited the claimant to contact him and gave her his direct dial telephone offer.

 

She rejected the offer.

 

At a costs hearing the judge commented that although the CPR applied equally to litigants in person and represented parties he was well aware that Part 36 was complex. However the defendant’s solicitor had made every effort to explain the costs consequences and therefore it was just to make the normal order with regard to costs.

 

Thus the claimant was ordered to pay the defendant’s costs incurred from 21 days after the offer and also the costs of the costs hearing.

 

It is most important that when faced with a litigant in person the solicitor acting for the other party does absolutely everything possible to ensure that the litigant in person is fully aware of the consequences of Part 36 offers and the consequences both of acceptance and rejection.

 

 

Failure to Attend Trial

 

In Tinkler and another v Elliott [2012] EWCA Civ 1289 the self-representing Mr Elliott failed to attend trial but instead submitted a medical certificate of unfitness to attend court. The trial judge rejected this and granted the other party a permanent injunction and general restraining order against Mr Elliott.

 

On appeal the High Court set the judgment aside under CPR 39.3 holding that Mr Elliott had a good reason for not attending the original hearing.

 

The Court of Appeal restored the original court’s decision, holding that CPR 39.3 must be rigorously applied. Under that Part the court had no discretion to set aside a decision taken in a party’s absence until the applicant satisfied the three positive requirements of the rule.

 

The first requires that the applicant “has acted with all reasonable celerity* in the circumstances”.

– See Regency Rolls Ltd v Carnall [2000] EWCA Civ 379.

 

(*Celerity – noun archaic – “swiftness, speed”. Appears below celeriac and above celery in the Oxford English Dictionary).

 

Mr Elliott had relied on his poor mental health and “his ignorance as a litigant in person of the availability of an application to set aside”.

 

The Court of Appeal held that Mr Elliott had been capable of acting as a litigant in person. However the significance of the case is the Court of Appeal’s findings in relation to his ignorance as a person representing himself.

 

The Court of Appeal said that “there may be facts and circumstances in relation to a litigant in person that may go to an assessment of promptness……they will only operate close to the margins,” and that “an opponent of a litigant in person is entitled to assume finality without expecting excessive indulgence to be extended to the litigant in person,” and that lack of understanding of procedures “does not entitle him to extra indulgence”.

 

This was in the context of a 21 month delay in Mr Elliott making his CPR 39.3 application, but the findings are of relevance generally and were not specific to this case.

 

In Fernandes v Kenny and Others, Court of Appeal, 23 October 2012

 

an unrepresented landlord applied to set aside a judgment for damages in respect of a deposit, the judgment having been entered at a small claims hearing which he had failed to attend.

 

The application to the District Judge failed, as did the first tier appeal to the Circuit Judge, who held that there was no discretion to hear an application made out of time.

 

The Court of Appeal held that the Circuit Judge had overlooked the fact that CPR3.1 allowed the court to extend the time limit set out in CPR27.11(2) but nevertheless found that the lower courts had been correct in finding that the landlord had had no good reason for failing to attend the original hearing.

 

However the Employment Appeal Tribunal has taken a different view in relation to litigants in person in Employment Tribunals, possibly influenced by the fact that such tribunals have historically been no-costs zones where individuals were expected to be able to represent themselves.

 

In AQ Ltd v Holden [2012] IRLR 648

 

the Employment Appeal Tribunal held that a court was entitled to take in to account the fact that a party was a litigant in person in deciding whether to order costs against that party.

 

Although the law is the same whether a litigant is or is not professionally represented, the application of that law, and the court’s exercise of its discretion, must take in to account whether a litigant is professionally represented.

 

A tribunal cannot and should not judge a litigant in person by the standards of a professional representative.

 

Lay people are entitled to represent themselves in tribunals and, as legal aid is not available and they will not usually recover costs if they are successful, it is inevitable that many lay people will represent themselves.

 

Justice requires that tribunals do not apply professional standards to such people, who may be involved in legal proceedings for the only time in their life. They are likely to lack the objectivity and knowledge of law and practice brought by a professional legal adviser.

 

Even if the threshold tests for an order for costs are met, the tribunal has discretion whether to make an order, and that discretion must be exercised having regard to all of the circumstances.

However lay people should not regard themselves as immune from costs orders.

 

The EAT was here dealing with Rule 40(3) of Schedule 1 of the Employment Tribunals (Constitution and Rules of Procedure) Regulations 2004, which provides that an order for costs may be made where the paying party in bringing or conducting proceedings has acted vexatiously, abusively, disruptively or otherwise unreasonably.

 

In January 2013 the High Court published a self-help guide for litigants in persons presenting cases to the interim applications court. The Guide has been written by Mr Justice Foskett and takes litigants through each stage of the process, from giving notice and presenting documents to how to behave in court, apply for costs and seek permission to appeal.

 

The interim applications court deals with short applications of an interim nature within existing or, sometimes, proposed proceedings in the Queen’s Bench Division of the High Court. It does not deal with family or matrimonial cases. The most commonly heard applications include applying for an injunction to prevent a former employee from abusing confidential information, setting up in competition or working for a rival employer; preventing travellers occupying a site in contravention of the planning laws; freezing orders to prevent the sale of property; and applying for the disclosure of specific documents.

 

The Guide will be kept under review and updated.

 

The right of a Litigant in Person to claim costs derives from The Litigants In Person (Costs and Expenses) Act 1975; there was no such right at common law.

 

The Act gives a Litigant in Person the right to recover “sums in respect of any work done, and any expenses and losses incurred, by the litigant in or in connection with the proceedings to which the order relates”.

 

It applies to all civil and family courts, the Lands Tribunal and both the first tier and upper tribunals and most cost-bearing tribunals; by section 1(1) of the Act, only out of pocket disbursements are recoverable if costs are not recoverable.

 

CPR 46.5(6) below lists the categories of Litigants in Person. The fact that a party is represented for part of the proceedings does not prevent recovery for work done when not represented – see

Agassi v Robinson (HM Inspector of Taxes) [2005] EWCA Civ 1507 [2006] 1 All ER 900

 

A Litigant in Person should file and serve written evidence to show actual loss 24 hours before any hearing and if the costs are to be subject to detailed assessment then written evidence is to be filed with the notice of commencement.  This will now virtually always be a provisional assessment.

Paragraph 52.4 of the Costs Practice Direction was amended with effect from 1 October 2011 to increase costs payable from £9.25 per hour to £18.00 per hour.

 

New CPR 46.5(5), replacing its identically worded predecessor, pre-empts double recovery by providing:

 

‘A litigant who is allowed costs for attending at court to conduct his case is not entitled to a witness allowance in respect of such attendance in addition to those costs.’

 

Litigants in person (LIPs) fall into two categories: those who can prove financial loss and those who cannot. The new rate of £18 an hour is compensation for time reasonably spent by those who cannot prove financial loss.

 

And what of those who can prove loss? There are two caps: first, they cannot recover more than they have lost. The second cap is that the litigant cannot recover more than two-thirds of the amount to which a solicitor would have been entitled.  This limit does not apply to disbursements.

It is for the Litigant in Person to shown on the balance of probabilities that a financial loss has been suffered, and what that loss is.

 

In Mainwaring v Goldtech Investments Ltd [1997] 1 All ER 467 the court referred to the difference between:

 

“a self-employed tradesman in a small but profitable way of business who has more custom than he can cope with and can fill every working hour to advantage; at the other extreme, a retired civil servant with an index-linked pension who finds the conduct of litigation a more interesting pastime than bowls or crossword puzzles”.

 

In Joseph v Boyd and Hutchinson [2003] EWHC 413 the court considered that it should adopt a broad brush approach in circumstances where work was done during hours when the Litigant in Person was available for work.  It was not necessary to enquire to any great extent as to whether they would have been engaged on other business, but the Litigant in Person must show that s/he would have been gainfully employed and also how much would have been earnt.

 

If the loss is less than £18 per hour the Litigant in Person is better off claiming the flat rate of £18 per hour.

 

In any event the maximum two-thirds of what would have been allowed to a legal representative applies.

 

CPR 46.5(3) below sets out the categories of claim that Litigant in Person may make.

 

“Expert assistance” is defined in Practice Direction 46, Paragraph 3.1, as assistance from a barrister, solicitor, Fellow of the Chartered Institute of Legal Executives, Fellow of the Association of Costs Lawyers or a law costs draftsman who is a member of the Academy of Experts or the Expert Witness Institute.

 

Work done must be work that a legal representative would have undertaken and a disbursement must be one that would have been incurred by a legal representative.  The Litigant in Person must choose whether the claim as a witness or a notional legal representative; s/he cannot claim both (CPR 46.5(5)).

 

Additional Research

 

 In Grand v Gill [2011] EWCA Civ 902 the court followed the decision in R v Legal Services Commission Ex Parte Wulfsohn [2002] EWCA Civ 250 that a reasonable sum for time spent on research is recoverable.

 

Proportionality

 

 Proportionality applies in full to Litigants in Person.  In Grand the court reduced the costs from £15,000 claimed to £707.77.

 

Trial Costs

 

 A Litigant in Person cannot recover notional disbursements such as counsel’s fees where counsel was not instructed – see

 

Hart v Aga Khan Foundation (UK) [1984] 2 All ER 439.

 

It appears that in a fast-track trial where a Litigant in Person establishes a financial loss they are entitled to two-thirds of the sum allowable to the trial advocate, whatever the actual loss, together with any additional CPR 45.39 costs.

 

Advice re Fundamental Dishonesty 

 

The Judiciary Working Group Guide for Litigants in Person, prepared by six Circuit Judges, states:-

 

“Too often (indeed far too often) witnesses who have had statements prepared for them by solicitors tell the Judge that matters in the statement are not correct; they say (all too believably) that they simply signed what the solicitor had drafted for them without reading it through carefully and critically.”

 

It is of extreme importance that solicitors check with their clients that they have read and understood every word of their statement.

 

Careful attendance notes should be made. A separate statement should be signed by the client and kept on file and be along the lines of:-

 

“I have read and understood my Witness Statement and I have had any parts that I was unsure about explained to me and I confirm that the statement is true and accurate in every regard. I understand that any inaccuracy in my statement may lead to my whole claim being thrown out and me being ordered to pay the other side’s costs as well as my own solicitor’s costs and disbursements.”

 

Miscellaneous

 

Postage, telephones, copying etc are treated as unrecoverable office overheads for legal representatives.

 

In Mealing-McLeod v The Common Professional Examination Board [2000] EWHC 185 (QB) the court said

 

“A solicitor’s charging rate includes or takes account of the fact that he has support staff, secretaries, messengers and so forth.  A Litigant in Person, for example, must himself post letters, takes files to court and photocopy documents.  “The time spent reasonably doing the work…..” mentioned in CPR 48.6(4) permits a reasonable assessment of time spent by the Litigant in Person and should reflect those matters”.

 

However the phrase “time reasonably spent” no longer appears in the rule or practice direction and so it is questionable whether such costs can be recovered.  It could be argued that these expenses are reflected in a legal representative’s hourly rate, but not in the much lower hourly rate of a Litigant in Person, who should therefore be able to recover such actual costs.

 

The consequences of a LIP not using a solicitor were demonstrated in Agassi v Robinson (Inspector of Taxes) (Bar Council intervening) [2005] EWCA Civ 1507, [2006] 1 All ER 900, [2006] 1 WLR 2126. Mr Agassi retained a tax expert who was a member of the Chartered Institute of Taxation licensed to instruct counsel directly. No solicitors were involved. Mr Agassi was awarded his costs as a LIP. Were the tax expert’s fees recoverable as costs under the general costs provisions of CPR 48.6? The answer is no. Although Mr Agassi could recover counsel’s fee as a disbursement, he was not entitled to recover as a LIP costs as a disbursement in respect of work done by the tax expert which would normally have been done by a solicitor. That meant he was not entitled to recover the costs of the tax expert providing general assistance to counsel.

 

Bizarrely the Premier League, one of the richest organisations in the country, fall in to a similar trap. In bringing private criminal prosecution against those live streaming Premier League football matches without permission they instructed a non-law firm, Media Protection Limited, to lay the information.

 

Laying an information is, unsurprisingly, a reserved legal activity. Thus the informations were nullities and all of the convictions quashed. One week’s pay of virtually any Premier League footballer would have paid all the legal bills.

 

Below is the text of CPR 46.5 with effect from 1 April 2013, as created by The Civil Procedure (Amendment) Rules 2013.

 

CPR 46.5

Litigants in person

 

46.5.—(1) This rule applies where the court orders (whether by summary assessment or detailed assessment) that the costs of a litigant in person are to be paid by any other person.

 

(2) The costs allowed under this rule will not exceed, except in the case of a disbursement, two-thirds of the amount which would have been allowed if the litigant in person had been represented by a legal representative.

 

(3) The litigant in person shall be allowed—

 

  • costs for the same categories of—
    • (i) work; and
    • (ii) disbursements,

which would have been allowed if the work had been done or the disbursements had been made by a legal representative on the litigant in person’s behalf;

 

  • the payments reasonably made by the litigant in person for legal services relating to the conduct of the proceedings; and
  • the costs of obtaining expert assistance in assessing the costs claim.

 

(4)The amount of costs to be allowed to the litigant in person for any item of work claimed will be—

 

  • where the litigant can prove financial loss, the amount that the litigant can prove to have been lost for time reasonably spent on doing the work; or

 

  • where the litigant cannot prove financial loss, an amount for the time reasonably spent on doing the work at the rate set out in Practice Direction 46.

 

(5) A litigant who is allowed costs for attending at court to conduct the case is not entitled to a witness allowance in respect of such attendance in addition to those costs.

 

(6) For the purposes of this rule, a litigant in person includes—

 

  • a company or other corporation which is acting without a legal representative; and

 

  • any of the following who acts in person (except where any such person is represented by a firm in which that person is a partner)—

 

  • (i) a barrister;
  • (ii) a solicitor;
  • (iii) a solicitor’s employee;
  • (iv) a manager of a body recognised under section 9 of the Administration of Justice Act 1985 (a) ; or
  • (v) a person who, for the purposes of the 2007 Act(b), is an authorised person in relation to an activity which constitutes the conduct of litigation (within the meaning of that Act).

 

Practice Direction

 Litigants in person: rule 46.5

 3.1          In order to qualify as an expert for the purpose of rule 46.5(3)(c) (expert assistance in connection with assessing the claim for costs), the person in question must be a –

  • barrister;
  • solicitor;
  • Fellow of the Institute of Legal Executives;
  • Fellow of the Association of Costs Lawyers;
  • law costs draftsman who is a member of the Academy of Experts;
  • law costs draftsman who is a member of the Expert Witness Institute.

 

3.2          Where a self represented litigant wishes to prove that the litigant has suffered financial loss, the litigant should produce to the court any written evidence relied on to support that claim, and serve a copy of that evidence on any party against whom the litigant seeks costs at least 24 hours before the hearing at which the question may be decided.

 

3.3          A self represented litigant who commences detailed assessment proceedings under rule 47.5 should serve copies of that written evidence with the notice of commencement.

 

3.4          The amount, which may be allowed to a self represented litigant under rule 45.39(5)(b) and rule 46.5(4)(b), is £18 per hour.

 

  • 1985 c. 61. Section 9 was amended by the Courts and Legal Services Act 1990, section 125(3), (7), Schedules 18 and 20; the Access to Justice Act 1999 section 106, Schedule 15 Part II; S.I. 2000/1119 regulation 37(3), Schedule 4 paragraph 15; the Legal Services Act 2007, section 177, 210, Schedule 16, Part 2, paragraphs 80 and 81 and Schedule 23; S.I. 2001/1090, regulation 1, 9, Schedule 5 paragraph 12; S.I. 2011/1716 article 4.
  • 2007 c.29.

 

I am grateful to Regional Costs Judge Ian Besford for much of the information in this piece.

1

SI 2013/262.

 

READER COMMENTS:-

 

Comment from Mel on 26 October 2015:-

 

Dear Mr Underwood, I am a litigant in person but am told by opposing counsel that East of England Ambulance Service NHS Trust v Sanders [2015] ICR 293 does not apply to Civil courts (High Court), but only for Employee Tribunals. Is this correct? Thank you

 

Kerry Underwood’s reply:-

 

Mel

I cannot comment on individual cases and do not know the facts of your matter. However there is nothing in that case suggesting that it applies only to Employment Tribunals. On the contrary I would expect it to be applied even more rigorously in the courts as compared with the Employment Tribunals as generally tribunals have a looser procedure to reflect the fact that it has always had a relatively high number of litigants in person compared with the “ordinary” courts. I would certainly not regard it as acceptable for a Circuit Judge or a High Court Judge to carry out internet research, without prior notification to the parties, and rely on that research, rather than the evidence in court, on reaching a decision and I have never heard of it happening.

The court here itself, said the “tribunal judge persisted in asking that question, which might be thought leading if asked in a traditional courtroom.” – the relevance of that being that the EAT here allowed the appeal because of the employment tribunal’s conduct, whilst making the point that the procedure in the employment tribunal is allowed to be more relaxed than in a traditional court room. This is dealt with at some length in paragraph 28 of the judgment.

Again at paragraph 31 ” Accordingly it is quite likely that there will be a degree of intervention in proceedings before a tribunal which might raise some eyebrows in civil courts.”

At paragraph 34 ” In accessing the Internet, it did what in or view it should not have done.”

My view is that the decision applies with even more force in the County Court/High Court.

Kerry

 

Written by kerryunderwood

November 25, 2015 at 7:57 am

Posted in Uncategorized

CANCELLATION OF CONTRACTS & ADR REGULATIONS – UNIFIED

with one comment


CLIENT’S RIGHT TO CANCEL

(a) Cancellation of Contracts etc Regulations 2008

 

In Kupeli & Others v Cyprus Turkish Airlines & Another [2016] EWHC 1125 (QB)

 

the Queen’s Bench Division of the High Court held that clients who had entered into Conditional Fee Agreements with solicitors in a community centre rather than the solicitor’s office, in circumstances where that location had been agreed jointly because of the large numbers attending, were not entitled to notice of the right to cancel the contract.

 

The decision turned on whether the Conditional Fee Agreements had been made “during or after an excursion organized by the trader away from business premises”.

 

These are the words used in the Cancellation of Contracts made in a Consumer’s Home or Place of Work etc. Regulations 2008 (SI2008/1816]

 

The High Court said that the word “excursion” had to be given its broadest interpretation to reflect the intentions of the regulations to protect people from high pressure salesmanship but the mere fact that a consumer travelled to meet a trader away from the trader’s business premises did not mean that they were vulnerable to such salesmanship.

 

Had the regulations intended to cover such a situation they would have provided for the protection whenever a contract was not signed on business premises.

 

Consequently the meeting here should not be classified as an excursion.

 

It should be noted that those regulations only apply to contracts made before 13 June 2014 as then the 2008 regulations were replaced by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (SI 2013/3134).

 

Those regulations do indeed provide that protection applies whenever a contract is not signed on business premises.

 

Under the 2013 regulations the definition of an “off-premises contract” is a contract “concluded in the simultaneous physical presence of the trader and the consumer, in a place which is not the business premises of the trader”.

 

Thus this decision is only of interest and use in relation to the contracts still governed by the 2008 regulations.

 

(b) Alternative Dispute Resolution for Consumer Disputes Regulations 2015

 

The Alternative Dispute Resolution for Consumer Disputes (Amendment) (No 2) Regulations 2015 (SI 2015/1972) (ADR Amendment Regulations No 2) have been published.

These Regulations:

  • Introduce one provision which implements a provision of Regulation (EU) 524/2013 on online dispute resolution for consumer disputes (ODR Regulation) to provide that a competent authority and an ADR entity (including a body applying to become an ADR entity) must provide a link to the online dispute resolution platform on its website. Although the ODR Regulation, which applies from 9 January 2016, is directly applicable in the UK, this provision requires specific transposition into domestic law in order to make the obligation it contains enforceable.
  • Correct minor errors (namely, to omit the definition of “ADR official” which is redundant) made by the Alternative Dispute Resolution for Consumer Dispute (Amendment) Regulations 2015 (SI 2015/1392) (ADR Amendment Regulations), which were published in June 2015 (see Legal update, The Alternative Dispute Resolution for Consumer Disputes (Amendment) Regulations 2015 published). The ADR Amendment Regulations, in turn, amend the Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015 (SI 2015/452) (ADR Regulations). The ADR Regulations implement the majority of Directive 2013/11/EU on alternative dispute resolution for consumer disputes (ADR Directive), which member states were required to implement by 9 July 2015.

The ODR Regulation and the ADR Directive were published in the Official Journal on 18 June 2013 and aim to step up the use of out-of-court schemes in the EU by giving shoppers a fast, cheap and informal way to settle disputes with traders, as an alternative to often lengthy court proceedings. For further information on these initiatives, see Practice note, The EU Mediation Directive and other EU dispute resolution initiatives; ODR and ADR.

The ADR Amendment Regulations No 2 come into force on 9 January 2016.

Source: The Alternative Dispute Resolution for Consumer Disputes (Amendment) (No 2) Regulations 2015 and Explanatory Memorandum to the Alternative Dispute Resolution for Consumer Disputes (Amendment) (No 2) Regulations 2015.

 

I am grateful to Ben Williams and Roger Mallalieu for their helpful comments, many of which I have incorporated in this piece.

 

The 2013 Regulations

 

The 2013 Regulations have themselves been amended, with effect from 1 October 2015, by the Consumer Contracts (Amendment) Regulations 2015 (SI 2015/1629). The amendments make no substantive changes to the law as far as the provision of legal services is concerned. They reflect the fact that certain provisions formerly in the 2013 Regulations are now contained in the Consumer Rights Act 2015 and are therefore removed from the Regulations. Those provisions which have moved from the 2013 Regulations to the 2015 Act are those which:

 

–              make any pre-contract information provided by the trader pursuant to the 2013 Regulations into a term of the contract;

–              require that a change to any pre-contract information (whether the change is made before or after entering into the contract) must be expressly agreed between the consumer and the trader.

–              Establishes rules for the delivery of goods and remedies if those rules are breached;

–              Set out the rules for the transfer of risk in goods sold to consumers.

 

The provisions relating to the status of ,and changes to, pre-contract information in relation to digital content provided under a contract other than for a price remain in the 2013 Regulations. All but one of the digital content provisions of the Act apply only to digital content provided for a price, or bundled with something provided for a price.

 

There is a substantive change, which personal injury lawyers may or may not think applies to them, especially when acting under a conditional fee agreement, and that is that the 2013 Regulations have been amended to state specifically that they do not apply to contracts for the sale of national lottery tickets.

 

These Regulations apply to contracts made in the solicitor’s office as well as elsewhere and are very important and came into effect on 13 June 2014. Thus all contracts, other than those made with a business client, are now covered.  The Regulations impose considerable obligations on lawyers.

 

The Regulations and Guidance Note and Law Society Practice Note run to 64 pages and cover most consumer transactions.

 

This piece deals only with contracts for the provision of legal services but the other provisions of the Regulations are of key importance to your clients.

 

The Regulations came in on 13 June 2014 when the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (S.I. 2013 no. 3134) replaced the Consumer Protection (Distance Selling) Regulations 2000 and the Cancellation of Contracts Made in a Consumer’s Home or Place of Work etc Regulations 2008.

 

They complete the implementation of the European Union Consumer Rights Directive – 2011/83/EW.

 

The new Regulations apply in relation to contracts entered into on or after 13 June 2014 and the old Regulations continue to apply to contracts made before 13 June 2014.

 

The new Regulations regulate all contracts made between a trader and a consumer.

 

The Regulations unquestionably apply to solicitors as Regulation 4 defines a trader as: –

 

“a person acting for purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf.” ( my italics)

 

A consumer is: –

 

“an individual acting for purposes which are wholly or mainly outside that individual’s trade, business, craft or profession.”

 

(c) Summary – Consumer Contracts Regulations 2013

 

The key exception is that the Regulations only apply where the client is a consumer and therefore if the client is a business there is no need to comply with the Regulations. However lawyers need to check that the work they are doing is really for the business.  For example, where a solicitor is preparing a will for the Managing Director of a business that work will come within the Regulations.

 

The key changes are that On-Premises Contracts are now covered and the Regulations list extensive information that must be given to a client before the client is bound by the contract.  An On-Premises Contract is where the solicitor and client are simultaneously physically present together in the solicitor’s office when the contract is made.  The Regulations are badly worded and some people take the view that the information has to be given before the client is bound by the contract and that if it is not given then the client is not bound; in other words it is a condition precedent of the contract.

 

Others take the view that this is simply Parliament stating when the information needs to be given and if it is not given then that does not of itself void the contract.  However it is likely to result in a finding of inadequate professional service and it is of course a breach of a statutory instrument and therefore for lawyers the consequences are likely to be the same – no compliance with the Regulations – no fee and an additional penalty payable to the client.

 

Regulation 31 deals with what happens if a business does not give the schedule 2 information in respect of cancellation. The result is that the consumer’s right to cancel the contract is extended by up to 12 months, but after that period the right to cancel is lost.

 

The argument is that this means that failure to supply information cannot result in the contract being unenforceable as this provision would be inconsistent with that concept.

 

The requirement of something needing to be done “before the consumer is bound” by the regulations is used also in Regulation 9, 10 and 13 and it is argued that in the contexts of for example Regulation 40(1) there could be no argument that the customer is not bound by the event of the breach. If so Regulation 40 would be meaningless.

 

It is also clearly a breach of the Solicitors Code of Conduct to fail to comply with consumer protection legislation passed by Parliament.

 

When simultaneous physical presence occurs off the premises that is an Off-Premises Contract and when there is no such simultaneous physical presence anywhere then that is Distance Selling.

 

In relation to Off-Premises Contracts and Distance Selling, in addition to all of the information being given to the client in advance of the contract the client has the right to cancel and that notice must be served by the solicitor on the client.  This has been the case for some time now but the period of cancellation goes up from seven days to 14 days and is now calendar days and not working days.

 

Furthermore the client no longer has to cancel in writing; the contract is cancelled if the client makes it ‘clear’ that they wish to end the contract. This will cause enormous problems for businesses and it is evident that the Regulations are much tougher than the 2008 Regulations

 

In relation to Off-Premises and Distance Selling Contracts the wording of the right to cancel has changed and is much more extensive.  The Regulations themselves give standard wording and a standard letter and the Law Society recommends that this is followed and I agree entirely.

 

In practice all  client care letters should now contain all the extensive information that now needs to be given whether that is for On-Premises, Off-Premises or Distance Selling.  I  give the suggested text below.

 

Many of the new aspects of the Regulations are to be welcomed, for example it is no longer legal to use:

 

  • premium telephone numbers, and
  • pre-ticked boxes,

 

In other words clients must opt in or not opt out.

 

For the first time there are extensive statutory requirements even in relation to a contract made in a solicitor’s office. It is clear that these represent a much tougher approach to consumer/client rights.

 

Solicitors need to be very careful that contract has actually been made and my advice is that the client care letter containing the terms and conditions of business, and the funding agreement, whether that is a conditional fee agreement, a damages-based agreement, a contingency fee agreement, a contentious business agreement or an old-fashioned hourly rate agreement or whatever should be signed by the client in the solicitor’s office and should be witnessed by two members of staff, which can include the solicitor dealing with the matter.

 

The burden of proof is on the solicitor to show that they have complied with the Regulations and this should put it beyond doubt.  If the contract is made in the office then there is no need to give the right to cancel.

 

Where the is a right to cancel the client does not now have to do this in writing so firms must have a procedure for logging every call because if a client phones up and cancels and that is not picked up, the firm may end up doing a huge amount of work for which they will not be paid.

 

The Law Society suggests that shortly after the end of the cancellation period the solicitor positively contacts the client for confirmation that they have not cancelled the contract.  If the client agrees that they have not cancelled the contract, and it is after the period for cancellation, then there should be no problem.

 

The trend is towards making it difficult for lawyers to act for clients without seeing them and the end is in sight for Distance Selling for lawyers in my view.  It is obviously good practice to see every client, for a whole host of reasons.  Firstly, the solicitor can make an assessment of the client and the case which avoids fraud etc and it also builds a relationship and helps in cross-selling and building up the reputation of the practice.  It is the factory firms that are going bust and their days are numbered.

 

My practical advice is to treat all solicitor-client contracts as attracting full protection-maximum information and the right to cancel. You are specifically allowed to go beyond the minimum protection. In any event, why take the risk? If solicitors give all of the information required by Parliament, then there is no problem.

 

  1. ON-PREMISES CONTRACT

 

An On-Premises Contract is one between a solicitor and client which is not an Off-Premises Contract nor a Distance Contract.

 

This covers all contracts made at a solicitor’s office where the client is not a business.

 

Regulation 9(1) provides that before a client is bound by an On-Premises Contract the solicitor must give or make available to the client the information described in Schedule 1 in a clear and comprehensible manner, if that information is not already apparent from the context.  See above for a discussion of what “before a client is bound” may or may not mean.

 

No, or inadequate, information = no enforceable contract.

 

Regulation 9(3) incorporates such information into the contract and any change to any of that information is not effective unless expressly agreed by the client (Regulation 9(4)).  Thus it will no longer be permissible for a solicitor to increase the hourly rate without the client’s consent unless this is set out in the information given in advance, that is the actual increase or its method of calculation must be given in advance, not just a statement that the solicitor will review the hourly rate each year or whatever.

 

If the solicitor fails to comply with the information requirements there is no specific provision rendering the retainer unenforceable, but Regulation 18 provides that the retainer is to be treated as including a term that there has been compliance with Regulation 9.

Regulation 18 does not provide a consequence; it describes a statutory state of affairs, very much like the equality clause provisions.

Likewise Regulation 45 – that is aimed at seeking an injunction to prevent a company trading, and is not aimed at interfering in any given contract.

Thus failure to give Regulation 9 information is clearly a breach of contract. That is also the view of The Law Society – see Practice Note of 15 May 2014 at paragraph 6.

It is hard to see how failure to comply with a Statutory Instrument could be anything other than a fundamental breach of contract, although that only gives the client the right to end the contract.

It is clearly a serious breach of the Solicitor’s Code of Conduct and will mean that the client will not have to pay the bill and indeed will receive additional compensation for inadequate professional service.

 

Non-compliance will thus give the client potential remedies for breach of contract and/or misrepresentation, as well as complaining to the Ombudsman in relation to inadequate professional service.

 

For all intents and purposes for lawyers non-compliance equals no fee.  The key question is whether a paying third party, typically the losing party in litigation, will be able to challenge a between the parties bill under the indemnity principle.

 

That has now been put beyond doubt. Fail to comply with the regulations in a way which means that the client is not bound and the indemnity principle applies and YOU GET NOTHING from the third party.

 

In Cox v Woodlands Manor Care Home [2015] EWCA Civ 415

 

the Court of Appeal held that solicitors fail to give a client notice of the right to cancel the agreement, which happened to be a Conditional Fee Agreement, then it would be unenforceable and no costs could be recovered from the paying party, this being as a result of the indemnity principle.

 

The decision was made under the 2008 Regulations which, as we have seen, have now been replaced by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (SI 2013/3134), themselves amended by the 2015 Regulations, which although has been described in court as “somewhat less inflexible” imposed the same obligation and in my view the same result would arise in the event of failure to give proper notice.

 

The court also held that it made no difference that the Conditional Fee Agreement was subject to a condition which meant that the obligations under it might not come into immediate effect. The client was still legally committed at the time of signing and, therefore, the agreement was made at that time.

 

Following an accident at work the claimant wished to instruct a particular firm of solicitors but it transpired that the claimant had BTE insurance and the solicitors were not on the insurer’s panel. The claimant agreed with those solicitors that if the insurers will not authorise them being instructed then the matter would proceed under a CFA.

 

The solicitors visited the claimant at her home and she signed the CFA and the BTE insurer refused to allow the solicitors to act and so they continued under the CFA.

 

The Court of Appeal held that the parties had entered into a legally binding agreement at the claimant’s home and there was an intention to create legal relations and the claimant was legally committed at that time and had no control over the suspensory condition, which depended upon the attitude of the BTE insurer.

 

The aim of the regulations is to protect consumers in their homes as they might feel pressured into making a decision and that pressure operated at the time of the decision.

Regulation 9(4) makes it clear that any change in the information, whenever given is “not effective unless expressly agreed between the consumer and the trader.” That does not envisage the possibility of no information or inadequate information being given AFTER a contract has been formed. The very fact that there is no provision or penalty for post contract provision of original information, as opposed to a change in the information, strongly indicates that Parliament intends that there cannot be a binding contract unless the information is provided in advance.

Furthermore the word “bound” in Regulation 9(1) would be otiose; it clearly envisages there being a “contract” but not one by which the consumer is bound unless the information is provided “before”. It is a condition precedent.

Regulation 9(1) could be better worded – “No consumer shall be bound by an on-premises contract unless the trader provides the information….before…” etc, but I am satisfied that that is what it means.

The Explanatory Notes, which are not part of the Regulations, state that the information is that “which a trader must provider (sic) to a consumer before entering into an on-premises contract.” Must is mandatory.

These considerations apply to off-premises and distance contracts as well.

 

However if I am right about Regulation 9 and its equivalents for off-premises and distance contracts, then other provisions in the Regulations would be redundant. For example, Regulation 10(1) requires information in schedule 2 to be given before a customer is bound by an off-premises contract. Paragraph (f) of schedule 2 requires the customer to be informed of the price of the goods and services being supplied. Paragraph (g) requires the customer to be informed of ancillary charges like delivery charges. Regulation 10(4) provides that if the customer does not provide the information required by schedule 2(g) (i.e. in respect of delivery charges), then those charges cease to be payable. What is the point of this express provision if the whole contract is unenforceable? Note there is no such provision in respect of schedule 2(f). So, if you do not inform the customer of the primary charges, nothing in the regulations makes those unenforceable. This is consistent with the wider purpose of the regulations, which is to regulate ‘additional charges’, but not the main contract price.

 

  • Information relating to On-Premises Contracts

 

The mandatory information to be given to a client in advance of the contract is set out in Schedule 1 at (a) to (k).

 

Here I set out the prescribed statutory information together with the relevant commentary from the Law Society Practice Note and, where useful the Implementing Guidance issued by the Department for Business Innovation and Skills.

 

  • the main characteristics of the goods or services, to the extent appropriate to the medium of communications and to the goods of services;

 

Law Society Guidance

 

This may not always be readily apparent in relation to solicitors’ services. However you are required under the Code of Conduct to ensure that clients are in a position to make informed decisions about their matters. This means that you need to make sure that they understand the characteristics of your service (outcome 1.12).

 

  • the identity of the trader (such as the trader’s trading name), the geographical address at which the trader is established and the trader’s telephone number;

 

Law Society Guidance

 

Your name and address may be obvious for clients who visit your premises. However, you must also tell your clients about a telephone number for further contact.

 

  • the total price of the goods or services inclusive of taxes, or where the nature of the goods or services is such that the price cannot reasonably be calculated in advance, the manner in which the price is to be calculated;

 

Law Society Guidance

 

If you cannot reasonably calculate the price in advance, as with many legal matters, then you should give information on how the price will be calculated. The Code of Conduct also requires you to provide the best possible information about the likely overall cost of their matter (outcome 1.13).

 

  • where applicable, all additional delivery charges or, where those charges cannot reasonably be calculated in advance, the fact that such additional charges may be payable.

 

Law Society Guidance

 

You should inform your client if these may be payable, even if you can’t reasonably calculate the charges in advance.

 

  • where applicable, the arrangements for payment, delivery, performance, and the time by which the trader undertakes to deliver the goods or to perform the service;

 

Law Society Guidance

 

This might include setting out what the next steps in the matter might be, estimated timescales and how frequently you will get in contact with your client.

 

(f)           where applicable, the trader’s complaint handling policy;

 

Law Society Guidance

 

You are already required to provide information about how to make a complaint. More information on this is available in our Client Care Information Practice Note.

 

  • in the case of a sales contract, a reminder that the trader is under a legal duty to supply goods that are in conformity with the contract;

 

Law Society Guidance

 

For example, the statement that the goods should be of satisfactory quality and be fit for purpose as required by consumer rights law.

 

(h)          where applicable, the existence and the conditions of after-sales services and commercial guarantees;

 

(i)            the duration of the contract, where applicable, or, if the contract is of indeterminate duration or is to be extended automatically, the conditions for terminating the contract;

 

Law Society Guidance

 

Most retainers involving legal proceedings will be of an indeterminate duration, so you will need to provide information on how a client can end the retainer. We provide guidance on this in paragraph 5.2.7 of our Client Care Information Practice Note.

 

(j)           where applicable, the functionality, including applicable technical protection measures, of digital content;

 

(k)          where applicable, any relevant compatibility of digital content with hardware and software that the trader is aware of or can reasonably be expected to have been aware of.

 

Law Society Guidance

 

If you are providing digital content, you must provide the following information:

 

  1. digital content functionality – for example, information about:

 

  • language

 

  • duration

 

  • file type

 

  • access

 

  • updates

 

  • tracking

 

  • internet connection

 

  • geographical restrictions

 

  • any additional purchases required

 

  1. digital content compatibility

 

You do not need to provide the above information if the contract involves a day to day transaction, where the consumer pays and gets the goods straightaway – for example if they buy a paper or a takeaway coffee.

 

 

Regulation 5 defines “digital content” as “data which are produced and supplied in digital form”.

 

In relation to a contract entered into in a solicitor’s office there is no right for the client to change his or her mind. Consequently no cancellation notice or similar document need be supplied to the client.

 

The telephone number offered by the solicitor for clients to contact the solicitor about services provided must be a number where the cost of the call is charged at no more than the basic rate. Thus premium rate telephone lines are banned.

 

There is no requirement that any phone calls be subsidised and the use of standard mobile numbers by the solicitor, at the standard mobile tariff, is permitted.

 

 

An On-Premises Contract requires the solicitor and client to be physically present together. That means what it says. Communication by Skype or any other electronic means does not make the contract an On-Premises Contract.
The burden of proof that the required information has been given rests with the solicitor.

 

The Law Society Guidance says: –

 

“Much of the information that solicitors are required to provide under the Regulations is likely to be included in your client care letters and terms of business.”

 

I agree. I advise that all of the information be contained in the client care letter, which itself should include the terms of business but you should not act for a non-business client until that client care letter has been signed and returned by the client. This letter will now inevitably run to 10 pages or more.

 

Under Regulation 18 every contract to which the Regulations apply will be treated as including the term that the solicitor has complied with the Regulations regarding the provision of information and therefore failure to provide the information will be a breach of contract and arguably the client will have a remedy in damages in the event of a loss

The following quote is from Hansard and was made by the Under Secretary of State for DBIS when promoting the draft Statutory Instrument (then referred to as the Consumer Rights Bill) through Parliament:

“We also agreed that in some cases, which we hope will be the minority, termination of the contract will unfortunately be the most appropriate remedy, so we make it clear in the Bill that it is still open to the consumer to terminate the contract, which they have a right to do under common law. Under common law this right is reserved for serious breaches, or for breaches of the most important terms. It is right that termination of a contract should be reserved for the most serious cases, rather than being an easy fall-back.”

The intention appears to be that a minor breach of the Regulations would not lead to unenforceability of the loss of payment for services.

 

However Regulation 19 makes it a criminal offence to fail to supply Schedule 2 (l), (m) and (n) information – yet (m) and (n) look minor breaches. Would a court consider the committing of a criminal offence a sufficiently minor breach as to not allow the consumer to end the contract?

 

In relation to an On-Premises Contract there is no criminal liability for failing to comply with the Regulations. This is in contrast to contracts that are not On-Premises Contracts, where there is a criminal liability.

 

  • Third Party Funder

 

It is irrelevant as to who is funding the work.

 

The relevant contract for the purposes of the Regulations is between the client and the solicitor even if the solicitor receives payment from a third party funder, including the Legal Aid Authorities.
The Law Society Guidance specifically states that in a legally aided matter the client care letter should state that reapplying for legal aid for the same issue might be difficult if the contract is terminated.

 

  1. OFF-PREMISES CONTRACTS

 

The key difference between On-Premises Contracts and Off-Premises Contracts is that clients have the right to cancel the contract in relation to an Off-Premises Contract, but not in relation to an On-Premises Contract.

 

From 13 June 2014 the cancellation period was extended from seven calendar days to 14 calendar days.

 

The client does not have to give a reason and the cancellation period runs from when the contract is concluded in relation to the provision of legal services.

 

The client no longer has to cancel in writing and the cancellation is valid provided that the client makes a clear statement that they wish to cancel. The burden of proof that the contract has been cancelled rests with the client.

 

More information has to be given to the client in advance of the client being bound by the contract than is the case with On-Premises Contracts.

 

Off-Premises Contracts valued at less than £42 are exempt from the Information and Cancellation Provisions of the Regulations but are subject to the Regulations on additional payments and charges and delivery and risk. The Statutory Instrument, implementing European Union Directives, refers to Euros, so you need to keep an eye on the exchange rate if relying on this exception.

It is a criminal offence to fail to inform a client in an Off-Premises Contract of their right to cancel, (Regulation 19) but it is not a criminal offence in relation to a distance contract. The greatest protection is therefore in relation to off-premises contracts and I see the logic of that and that being reflected in the potential criminal liability for that type of contract alone. This is to deal with the historic abuse of high pressure selling by door to door operators. There is considerable research showing that consumers, especially vulnerable ones, will sign up to anything to get the seller out of the house. With distance-selling the remedy is rather easier – put the phone down.

If you do not give your client the required information regarding the right to cancel, including the time limit and procedures for cancelling, then the cancellation period is extended as follows: –

 

  1. 14 days after your client receives the information if it is given within a period of 12 months after the contract is entered into;

 

  1. if you do not give any information at all to the client the cancellation period ends 12 months and 14 days after the contract is entered into.

 

Consequently if the client is not given notice of the right to cancel then you are unable to enforce the contract against them until you either give them the relevant information or a period of 12 months and 14 days has passed.

 

The contract is not void, and thus still enforceable by the client against the solicitor.

 

If you give your client the option of filling in and submitting a cancellation form or other statement on your website, then they do not have to use it, but if they do so the solicitor must acknowledge receipt of the cancellation on a durable medium without delay.

 

The key date in relation to the 14 day period is when the cancellation is sent by the client and not when it is received by the solicitor.
The Law Society Practice Note, paragraph 8.4, recommends that in order to avoid any disputes and misunderstanding solicitors should check with their clients, shortly after the end of the cancellation period, to ascertain that the client has not exercised the right to cancel.

 

Cancellation of the contract by the client within the relevant period ends the obligations for both parties to the contract.

 

If this happens the solicitor must reimburse all payments to the client, using the same means of payment, unless expressly agreed otherwise by the client, without undue delay and no later than 14 days after the day on which the solicitor receives notification of the client’s decision to cancel the contract.

 

No fee must be charged to the client for reimbursing the fees.

 

 

In Allpropertyclaims Ltd v Mr Tang Pang and ITC Compliance Ltd [2015] EWHC 2198 (QB)

 

the Queen’s Bench Division of the High Court held that the claimant was unable to enforce its debt for work done in circumstances where it had failed to give written explanation as the right to cancel the agreement as required by the Cancellation of Contracts made in a Consumers Home or Place at Work etc. Regulations 2008.

 

These regulations have since been replaced by the 2013 Regulations but the principles set out in this case will apply to those new regulations.

 

The successful defence was funded by Zurich Insurance plc, of whom the court were highly critical.

 

Here the whole contract was read to Mr Tang Pang and the court had no doubt whatsoever that he knew that he had the right to cancel as this had been explained to him in full and he knew it in any event and was a sophisticated customer with a degree in business studies and a master’s degree in marketing and management who worked for Legal in General Insurance company for seven years and as a management accountant at Clifford Chance Solicitors for two years.

 

The court accepted the claimant’s evidence in full and largely rejected the evidence of Mr Tang Pang. In what the court accepted was a genuine mistake the claimant accidently picked up the document containing the notice to cancel and realised that they had done so and later the same day sent an email to Mr Tang saying:-

 

“Our surveyor has just called to advise us he accidentally picked up your copy of the forms which were signed on site. As soon as he returns to office we will send these to you by post and also mail you a scanned copy.”

 

In fact they were not emailed that day and Mr Tang requested them and the claimant sent them by post.
The relevant regulations at the time were the 2008 Regulations, Regulation 7(2) provided:-

 

“The trader must give the consumer a written notice of his right to cancel the contract and such notice must be given at the time the contract is made except in the case of a contract to which regulation 5(1)(c) applies in which case the notice must be given at the time the offer is made by the consumer.”

 

Regulation 7(6) provided:-

 

“A contract to which these Regulations apply shall not be enforceable against the consumer unless the trader has given the consumer a notice of the right to cancel and the information required in accordance with this regulation.”

 

As the notice was not given at the time the contract was made the court held that the contract was not enforceable.

 

At paragraphs 84 and 85 the High Court said:-

 

“84. Accordingly, APC’s claim fails on one very narrow and technical ground, otherwise both on the underlying facts of the case and in relation to virtually all of the multiplicity of other arguments raised it has succeeded. Unfortunately, however, that does not avail APC in relation to the recovery of its fees.

 

  1. I think it is worth stating that in my view Mr and Mrs Kara [of APC] have behaved very properly and reasonably throughout this entire episode. As against that Mr Tang appears to have embarked on this very lengthy and involved defence of the claim at the behest of Zurich. Were it not for Zurich I cannot imagine this case would not or should not have settled at an early stage.”

 

COMMENT

 

This shows the extreme importance of complying with Regulations in relation to the cancellation of contracts.

 

 

  • Ancillary contracts

 

If a client cancels a contract then any ancillary contracts are automatically terminated without any costs to the client. Solicitors should ensure that third parties are aware that the contract is subject to cancellation and the consequences of such cancellation.  An ancillary contract is defined as a contract by which the consumer acquires goods or services related to the main contract, where those goods or services are provided by the solicitor or a third party on the basis of an arrangement between the third party and the solicitor.

 

Upon cancellation solicitors should notify third parties immediately. These may include counsel, medical experts, and after-the-event insurers etc.

 

  • Digital contracts

 

Solicitors must not begin to supply digital content which is not on a tangible medium before the end of the cancellation period unless the client provides express consent and acknowledges that the right to cancel the contract will be lost.

 

  • Urgent work

 

If the client wishes the solicitor to do work urgently the client can ask the solicitor to commence work before the cancellation period expires but the solicitor must not provide a service before the end of the cancellation period unless the client has made an express request on a durable medium.

 

The request then means that the client must pay for services provided even if the contract is later cancelled and the payment must be: –

 

  1. based on the supply of the service for the period for which it is supplied, ending when the solicitor is notified of the decision to cancel;

 

  1. in proportion to what has been supplied in comparison with the full contracted service.

 

However the client will not be liable for any costs if any of the following is true: –

 

  1. the solicitor fails to provide the client with information on the right to cancel;

 

  1. the solicitor fails to provide the client with information on payment of reasonable costs;

 

  1. the service is not supplied in response to a request to commence work during the cancellation period.

 

The client loses the right to cancel the contract if the service has been fully performed at the client’s request and the client has acknowledged that they would lose the right to cancel once the contract has been completed.

 

  • The Detail

 

Regulation 5 defines an Off-Premises Contract as a contract between a trader and a consumer which is any of the following: –

 

  • a contract concluded in the simultaneous physical presence of the trader and the consumer, in a place which is not the business premises of the trader;

 

  • a contract for which an offer was made by the consumer in the simultaneous physical presence of the trader and the consumer, in a place which is not the business premises of the trader;

 

  • a contract concluded on the business premises of the trader or through any means of distance communication immediately after the consumer was personally and individually addressed in a place which is not the business premises of the trader in the simultaneous physical presence of the trader and the consumer;

 

  • a contract concluded during an excursion organised by the trader with the aim or effect of promoting and selling goods or services to the consumer.

 

Thus the key ingredient of an Off-Premises Contract is that there is a physical meeting between the trader and the consumer and that it was away from the trader’s business premises.

 

If there has been no simultaneous physical presence of the trader and the consumer, for which read solicitor and client, then the contract will be a Distance Contract – see below.
The Law Society’s practice note has this to say about Off-Premises Contracts: –

 

“It may be difficult to determine when and where a contract was made, if you discuss the contract with your client in your business office, either face to face or on the telephone, and then continue the discussions during an off-premises visit. The answer will depend on the facts of the particular case.

 

In other cases, it will be clear at which point the contract came into effect. For example, if a client telephones you, and you run through the terms of the agreement and inform them of costs, then send them a client care letter with their agreement prior to any visit or excursion, then the situation would be unlikely to fall within the definition of an Off-Premises Contract.

 

However, you must exercise caution if you make a subsequent agreement during a follow-up visit: this may be a new contract, and caught by the definition.

 

A contract may fall within the definition of an Off-Premises Contract even if it is made in your office, if it is made after an offer of the relevant kind made by the client.

 

For example, if you visit a client at home, the client offers to engage you to carry out legal work, and you then accept the offer by telephoning the client from your office the following day, this would be considered to be an Off-Premises Contract.

 

Contracts agreed on excursions are only considered to be Off-Premises Contracts if you organised the outing. For example, if a contract is made over dinner at a restaurant, and the meal was organised by your client, then it would be considered an On-Premises Contract and this section does not apply. However, if you organised the meal then it does apply.

 

The precise scope of what is defined as an excursion is currently unclear. Until it is clarified by case law, you should assume that this section would apply to any situation where you arrange to meet a client away from your business premises.

 

Therefore, if you arrange to meet a client in hospital, you should assume that this falls within this section, even though the meeting would not be social in nature and you and your client would not go anywhere or do anything together.”

 

Regulation 10(1) provides that before the client is bound by an Off-Premises Contract, the solicitor

 

  • must give to the consumer the information listed in Schedule 2 in a clear and comprehensible manner, and

 

  • if a right to cancel exists, must give or make available to the consumer a cancellation form as set out in part B of Schedule 3.

 

The information and any cancellation form must be given on paper or, if the consumer agrees, on another durable medium and must be legible (Regulations 10(2)).

 

Regulation 5 defines “durable medium” as paper or email, or any other medium that –

 

  • allows information to be addressed personally to the recipient,

 

  • enables the recipient to store the information in a way accessible for future reference for a period that is long enough for the purposes of the information,

 

  • allows the unchanged reproduction of the information stored.

 

Note that the information and the cancellation form must be on paper unless the client agrees otherwise and therefore an email is not sufficient unless the client has positively consented to the information and cancellation form being given on a durable medium other than paper.

 

Note that this requirement does not apply to information to be provided before the making of an On-Premises Contract.
As with an On-Premises Contract any information the solicitor gives to the client as required by these Regulations is to be treated as included as a term of the contract and a change to any of that information, whether made before entering into the contract or later, is not effective unless expressly agreed between client and the solicitor.

 

Regulation 10(4) provides that if a trader has not complied with, among other things, paragraph (h) of Schedule 2 then “the consumer is not to bear the charges or costs referred to in those paragraphs”.

 

Paragraph (h) provides that information must be given as follows:

 

“(h)        in the case of a contract of indeterminate duration or a contract containing a subscription, the total costs per billing period or (where such contracts are charged at a fixed rate) the total monthly costs”.

 

Failure so to do allows a client to challenge the bill on the basis that s/he is “not to bear the charges or costs” referred to in that paragraph.  Whether or not the client has any objection a paying third party, typically a losing litigant, or rather their insurer, can take the point and challenge a between the parties bill under the indemnity principle. See Cox v Woodlands Manor Care Home [2015] EWCA Civ 415 discussed above.

 

“indeterminate duration” is not defined, but will cover litigation as well as non-contentious matters such as probate and even conveyancing.

 

Schedule 2 contains the information relating to both the Distance Contracts and Off-Premises Contracts and here I give the information required as set out in that Schedule together with the Law Society Guidance where appropriate: –

 

  • the main characteristics of the goods or services, to the extent appropriate to the medium of communication and to the goods or services;

 

Law Society Guidance

 

This may not always be readily apparent in relation to solicitors’ services. However, you are required under the Code of Conduct to ensure that clients are in a position to make informed decisions about their matter. This means that you need to make sure that they understand the characteristics of your service (outcome 1.12).

 

  • the identity of the trader (such as the trader’s trading name);

 

Law Society Guidance

 

Your name and address may be obvious for clients who visit your premises. However, you must also tell your clients a telephone number for further contact.

 

  • the geographical address at which the trader is established and, where available, the trader’s telephone number, fax number and e-mail address, to enable the consumer to contact the trader quickly and communicate efficiently;

 

  • where the trader is acting on behalf of another trader, the geographical address and identity of that other trader;

 

Law Society Guidance

 

If you are acting on their behalf.

 

  • if different from the address provided in accordance with paragraph (c), the geographical address of the place of business of the trader, and, where the trader acts on behalf of another trader, the geographical address of the place of business of that other trader, where the consumer can address any complaints;

 

Law Society Guidance

 

If it is different to the address supplied for the business or the third party trader you are acting on behalf of.

 

  • the total price of the goods or services inclusive of taxes, or where the nature of the goods or services is such that the price cannot reasonably be calculated in advance, the manner in which the price is to be calculated,

 

Law Society Guidance

 

If you can’t reasonably calculate the price in advance, as with many legal matters, then you should give information on how the price will be calculated. The Code of Conduct also requires you to provide best possible information about the likely overall cost of their matter (outcome 1.13).

 

  • where applicable, all additional delivery charges and any other costs or, where those charges cannot reasonably be calculated in advance, the fact that such additional charges may be payable;

 

Law Society Guidance

 

You should inform your client if these may be payable, even if you can’t reasonably calculate the charges in advance.

 

  • in the case of a contract of indeterminate duration or a contract containing a subscription, the total costs per billing period or (where such contracts are charged at a fixed rate) the total monthly costs;

 

Law Society Guidance

 

If the contract is of an indeterminate length or is a subscription, the monthly costs (where the contract is charged at a fixed rate) or billing period costs. If you have an ongoing retainer, you should give estimates at each stage.

 

[See above for discussion about the potential consequences of failing to comply with this provision].

 

  • the cost of using the means of distance communication for the conclusion of the contract where that cost is calculated other than at the basic rate;

 

Law Society Guidance

 

If they are above basic rate for instance where the contract is concluded via a telephone number which has a higher rate charge.

 

  • the arrangements for payment, delivery, performance, and the time by which the trader undertakes to deliver the goods or to perform the services;

 

Law Society Guidance

 

This might include setting out what the next steps in the matter might be, estimated timescales and how frequently you will get in contact with your client.

 

  • where applicable, the trader’s complaint handling policy;

 

Law Society Guidance

 

You are already required to provide information about how to make a complaint. More information on this is available in our client care information practice note.

 

  • where a right to cancel exists, the conditions, time limit and procedures for exercising that right in accordance with regulations 27 to 38;

 

Law Society Guidance

 

See section 8 for more information.

 

  • where applicable, that the consumer will have to bear the cost of returning the goods in case of cancellation and, for distance contracts, if the goods, by their nature, cannot normally be returned by post, the cost of returning the goods;

 

Law Society Guidance

 

Where applicable.

 

  • that, if the consumer exercises the right to cancel after having made a request in accordance with regulation 36(1), the consumer is to be liable to pay the trader reasonable costs in accordance with regulation 36(4);

 

  • where under regulation 28, 36, or 37 there is no right to cancel or the right to cancel may be lost, the information that the consumer will not benefit from a right to cancel, or the circumstances under which the consumer loses the right to cancel;

 

 

  • in the case of a sales contract, a reminder that the trader is under a legal duty to supply goods that are in conformity with the contract;

 

Law Society Guidance

 

For example, a statement that the goods should be of satisfactory quality and be fit for purpose as required by consumer rights law.

 

  • where applicable, the existence and the conditions of after-sale customer assistance, after-sales services and commercial guarantees

 

  • the existence of relevant codes of conduct, as defined in regulation 5(3)(b) of the Consumer Protection from Unfair Trading Regulations 2008, and how copies of them can be obtained, where applicable;

 

Law Society Guidance

 

Information on how your client can obtain a copy of the Solicitors Handbook – for example by providing a link to the SRA’s website.

 

  • the duration of the contract, where applicable, or, if the contract is of indeterminate duration or is to be extended automatically, the conditions for terminating the contract;

 

Law Society Guidance

 

Most retainers involving legal proceedings will be of an indeterminate duration, so you will need to provide information on how a client can end the retainer. We provide guidance on this in paragraph 5.2.7 of our client care information practice note.

 

  • where applicable, the minimum duration of the consumer’s obligations under the contract;

 

  • where applicable, the existence and the conditions of deposits or other financial guarantees to be paid or provided by the consumer at the request of the trader;

 

  • where applicable, the functionality, including applicable technical protection measures, of digital content;

 

  • where applicable, any relevant compatibility of digital content with hardware and software that the trader is aware of or can reasonably be expected to have been aware of;

 

Law Society Guidance

 

If you are providing digital content, you must provide the following information:

 

  1. digital content functionality – for example, information about:

 

  • language

 

  • duration

 

  • file type

 

  • access

 

  • updates

 

  • tracking

 

  • internet connection

 

  • geographical restrictions

 

  • any additional purchases required

 

  1. digital content compatibility

 

  • where applicable, the possibility of having recourse to an out-of-court complaint and redress mechanism, to which the trader is subject, and the methods for having access to it.

 

Law Society Guidance

 

A notification that the Legal Ombudsman handles complaints about lawyers, and the details for contacting them. You are, in any case, required to provide this information in writing under outcome 1.10.

 

Note: in the case of a public auction, the information listed in paragraphs (b) to (e) may be replaced with the equivalent details for the auctioneer.

 

 

Method of giving information in an Off-Premises Contract

 

Regulation 10(3) provides that the information required in (l), (m) and (n) of Schedule 2,that is in relation to the conditions, time limit and procedures for exercising the right to cancel and the obligation on the consumer to pay the costs of returning the goods, be provided by means of the model instructions on cancellation set out in part A of Schedule 3. A solicitor who has supplied those instructions to the client, correctly filled in, is to be treated as having complied with Regulation 10(1) in respect of those paragraphs.

 

Regulation 10(4) provides that if the trader has not given the information required in paragraph (g), (h) or (m) of Schedule 2, that is in relation to additional delivery charges, the total costs per billing period in the case of a contract of indeterminate duration or containing a subscription and the total monthly costs for the costs of returning the goods, the client is not to bear the charges or costs referred to in those paragraphs.

 

Part B of Schedule 3 contains the model cancellation form that must be used.

 

Confirming an Off-Premises Contract

 

Regulation 12 provides that a solicitor must give the client a copy of the signed contract or confirmation of the contract.

 

If the information is supplied by way of confirmation that confirmation must include all the information referred to in Schedule 2 unless the solicitor has already provided that information to the client on a durable medium prior to the conclusion of the Off-Premises Contract.

 

By Regulation 12(3) – the copy or confirmation must be provided on paper unless the client agrees otherwise in which case it still must be on another durable medium. For definition of durable medium see above.

 

A copy or confirmation must be provided to the client within a reasonable time after the conclusion of the contract, but in any event

 

  • not later than a time of the delivery of any goods supplied under the contract and

 

  • before performance begins of any service supplied under the contract.

 

  1. DISTANCE SELLING

 

Distance Selling has been heavily regulated for many years and the changes here are fewer than in any other type of solicitor-client contract. A distance contract is any contract where the solicitor and client have not been physically and simultaneously present together, if concluded “under an organized distance sales or service-provision scheme without the simultaneous physical presence of the trader and the consumer, with the exclusive use of one or more means of distance communication up to and including the time at which the contract is concluded”.

 

Nowhere is “organised distance sales or service provision scheme” defined. Does the word “organised” apply to both distance sales and service provision or just distance sales? Does a solicitor-client contract fall into the definition of a “service-provision scheme” whether organised or not? What provision of services by a business will not be “organised?”

 

If the words “organised distance sales or service provision scheme” were to be removed from the definition then it would apply to any distance contract. Therefore the inclusion of the words “organised distance sales or service provision scheme” suggests something more is required.

 

Consequently if there has been no “simultaneous physical presence of the trader and consumer” it is best to assume that the contract is a distance contract rather than an on-premises contract.  It cannot ever be an off-premises contract as those contracts always require the simultaneous physically presence of the trader and consumer.

 

My advice is to play safe and assume that where there has been “simultaneous physical presence” that is an off-premises contract and where there has not been that simultaneous physical presence assume that it is a distance contract, that is assume that nothing is an on-premises contract with the lower information requirements and no requirement to give notice of cancellations rights.

It would be an unattractive defence for a solicitor to say the provision of the services was not organised, but rather it was chaotic! However – why the word “scheme” ? If I act for a one-off client without seeing them is that a “service-provision scheme” ? If I run adverts on radio or on my website about certain issues, never intending to see the clients does that then make it an organised service provision scheme? I can see the logic of that but it is far from clear.

Does the service provision need to be organised at all? The word “organised ” does not appear immediately before “service-provision”. If I ask you if you want sparkling wine or tea I am not envisaging that the tea will be sparkling. Thus if it simply needs to be a “service-provision scheme” then I think a one-off is caught, although we come back to what “scheme” brings to the party.

The now defunct Office of Fair Trading made the following statement in relation to the now repealed Consumer Protection (Distance Selling) Regulations 2000:

“Organised distance sales or service provision scheme is not defined in the DSRs. Each case must be considered on its merits. We take the view that where, for example, standard letters, emails or faxes are sent to potential customers who then order by returning them by post, email or fax then it is likely that such an arrangement falls within the definition.”

This suggests that for non-face to face solicitor client contracts we must assume that it is a Distance Contract and give the 14 day notice.

In December 2013 the Department for Business Innovation & Skills Implementing Guidance provides further clarification on what amounts to a distance contract.

“What is a distance contract or an off premises contract?

I sell on the phone but also visit people to sell my products. What kind of contracts are these?

 

  1. Phone and online sales, where the trader and consumer are not physically together, are distance contracts. Contracts concluded away from business premises and where both are present, e.g. when visiting homes, are off-premises contracts. Generally, the same information must be given for both, although requirements over the way information is given are slightly different and it remains a criminal offence not to inform a consumer buying off-premises of their cancellation rights.”

 

Thus it is the government’s view that taking instructions, over the phone, with a retainer letter etc. to follow, is a distance contract.

Little is lost by giving the client the right to cancel. The contract is terminable at will by the client anyway, and if the work has been done that is that. We have decided to do that, even though we see every client because it is often unclear where the contract was made.

The Regulations do not apply if your client is a business; if your client is not a business then the Regulations apply to all contracts with all clients wherever made, although here I am only dealing with Distance Selling.

 

A solicitor is required to provide to a client “before the consumer is bound by a distance contract” all of the information contained in Schedule 2 of the Regulations. This information is exactly the same as that to be supplied in Off-Premises Contracts and indeed is the same Schedule. Please see above re Off-Premises contracts, which contains all of the information required to be given together with appropriate Law Society Guidance.  See On-Premises Contracts for a discussion of the effect of “before the consumer is bound”.

 

The information must be in a clear and comprehensible manner and in a way appropriate to the means of distance communication used.

 

The solicitor must give or make available to the client a cancellation form as set out in part B of Schedule 3. Again this is the same as for Off-Premises Contracts and the form and information is all in my piece on Off-Premises contracts.

 

The cancellation period is now 14 calendar days, up from seven days.

 

The client no longer needs to cancel in writing; any method is acceptable as long as it is “clear” that the client wishes to cancel.

 

Schedule 3 of the Underwoods Model Conditional Fee Agreement and the Law Society Model Conditional Fee Agreement need amending accordingly; each contains the Notice of Right to Cancel, and that has changed.

 

Where a distance contract is concluded by electronic means then the solicitor must ensure that before the request for the service is made the client is aware of her or his obligation to pay for that service.

 

There are specific requirements as to the labelling of buttons on websites and the clarity of the obligation to pay notice when an order is placed, for which read when instructions are given.

 

Regulation 14(5) provides that if these requirements are not met then the client is not bound by the contract and so does not have to pay.  This again opens the door for a paying third party, such as a defendant’s insurance company to invoke the indemnity principle and refuse to pay between the parties’ costs.

 

There are also requirements as to the content of telephone conversations where contracts are concluded and also in relation to providing confirmation of the terms of the contract following its execution.

 

The pecking order, from least protection to most protection, is On-Premises contracts, distance selling and Off-Premises contracts. It seems strange, even given the wording, that an exchange of emails/phone calls requires only the same protection where solicitor and client have met in the solicitor’s office and gone through everything.

 

This piece only relates to solicitor-client contracts. Your own business clients are likely to need specific advice tailored to them.

 

  1. NOTICE OF RIGHT TO CANCEL AND REQUIRED INFORMATION

 

  • Distance Selling, On-Premises and Off-Premises Contracts

 

It may be that you are entering in to more than one agreement with us, for example a pre-issue Contingency Fee Agreement under the Solicitors Act 1974 and a bridging agreement and a Conditional Fee Agreement. The information given to you in this document, including the information required under Schedules 1 and 2 of the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 applies to all such agreements, as does the Notice of the Right to Cancel and the Cancellation Form.

 

These matters are governed by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 which give you the right to certain information about the agreement between us and the right to cancel that agreement within 14 days.  I am setting out below the required information and your right to cancel including a Notice of Cancellation for you to use if you so wish.

 

 

  1. The main characteristics of the services are legal services which includes, but is not limited to, advice, both oral and written, preparation of documents, attendance in meetings, advocacy and representation.

 

  1. The identity of the trader is [ ] trading as [                               ].

 

  1. The geographical address of the trader is [ ].

 

The telephone number is[                             ].

 

The email address is [                             ].

 

  1. The trader is not acting on behalf of another trader.

 

  1. The trading address for consumers to address complaints is as at (c) above.

 

  1. The total price of our service is set out in our Costs Schedule which is attached to this letter.

 

  1. Any costs which cannot be calculated in advance (if applicable) are estimated and details of that estimate are contained in the Costs Schedule.

 

  1. This contract is not of a fixed duration and the total costs (or an estimate if applicable) is contained in the Costs Schedule.

 

  1. As the costs of any distance communication in conclusion of the contact are not other than at the basic rate then there is no further information required to be given.

 

  1. The terms for payment of our fees to perform the services are upon receipt of an invoice or where required a payment on account of the services. Payment can be made on-line via our website at [                               ] or by credit/debit card including American Express over the telephone.

 

We agree to perform the legal services for you within [      ] weeks/months of receiving your full and proper instructions and written confirmation that you agree to all of our terms and conditions of business (whichever is the later) although in certain matters it is not possible to give a timescale for completion as our arrangement may continue indefinitely but in those circumstances you may terminate the agreement between us – please see section relating to Termination.

 

  1. Please refer to the section relating to Complaints.

 

  1. You have the right to cancel this agreement as set out in the attached Notice of Cancellation.

 

  1. In the case of cancellation you will not have to bear any cost of returning goods.

 

  1. If you exercise your right to cancel having already made an express request in writing for us to do the work urgently and before the cancellation period runs out then you are liable to pay us our reasonable fees for the work carried out up until you have cancelled the contract between us. Those reasonable fees will be based upon a proportion of the work carried out when compared to the full service we have agreed to supply to you.  If the service has been fully performed at your request prior to you cancelling the contract with us then you lose your right to cancel and you acknowledge that you have received notice of your loss of the right to cancel in these circumstances.

 

  1. There are no circumstances where your right to cancel may be lost within 14 days of us giving you notice of your right to cancel except as set out in this agreement between us at paragraph (n) above or where we have supplied you with digital content before the end of the cancellation period and you have provided your express consent for us to do so and have acknowledged that your right to cancel has been lost. In these circumstances you will not benefit from a right to cancel.

 

  1. We are under a legal duty to supply goods and/or services to you which conform with the agreement we have entered into with you for the supply of those goods and/or services as set out in the Supply of Goods and Services Act 1982.

 

  1. If you have at any time questions about the legal service provided then please contact the personal named in this agreement who will be dealing with your work.

 

  1. Our work for you is governed by the Solicitors Code of Conduct and a copy of this can be obtained from the Solicitors Regulation Authority from their website – sra.org.uk

or by request from Solicitors Regulation Authority, The Cube, 199 Wharfside Street, Birmingham B1 1RN.

 

  1. This contract between us will continue until we have completed the legal services required but in certain circumstances we cannot say how long that will take in which case the contract will continue until terminated in accordance with the agreement between us. Please see the section entitled Termination.

 

  1. The contract between us has no minimum duration of your obligations but please refer to the section in this agreement which sets out your responsibilities and these continue as long as the agreement between us continues.

 

  1. We may ask you to make a payment on account of fees and disbursements. These will be notified to you in advance with an explanation of why these payments are required.  Payment on account of our fees will be held in our client account until such time as an invoice is prepared and delivered to you and at that time the money held on account will be transferred to us in payment of such invoice.  Payment on account of disbursements will be held in our client account until we have discharged such disbursements and then the money will be transferred to us.

 

  1. We do not provide digital content as part of our legal services.

 

  1. Not applicable as we do not provide digital content.

 

  1. If you have any complaint about our legal service then please refer to the Section on Complaints for details of now to access our Complaints Procedure and details of the right to take up matters with the Legal Ombudsman.

 

(c) Underwoods Model Notice of the Right to Cancel

Under the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 you have the right to cancel this contract within 14 days without giving any reason.

 

The cancellation period will expire after 14 days from the day of the conclusion of the contract.

 

To exercise the right to cancel, you must inform us, [                            ], [Address], [Telephone number], [Email] of your decision to cancel this contract by a clear statement (e.g. a letter sent by post or e-mail).

 

You may use the attached model cancellation form, but it is not obligatory.

 

To meet the cancellation deadline, it is sufficient for you to send your communication concerning your exercise of the right to cancel before the cancellation period has expired.

 

Effects of cancellation

If you cancel this contract, we will reimburse to you all payments received from you, including the costs of delivery (except for the supplementary costs arising if you chose a type of delivery other than the least expensive type of standard delivery offered by us).

 

We may make a deduction from the reimbursement for loss in value of any goods supplied, if the loss is the result of unnecessary handling by you.

 

We will make the reimbursement without undue delay, and not later than –

 

  • 14 days after the day we receive back from you any goods supplied, or

 

  • (if earlier) 14 days after the day you provide evidence that you have returned the goods, or

 

  • if there were no goods supplied, 14 days after the day on which we are informed about your decision to cancel this contract.

 

We will make the reimbursement using the same means of payment as you used for the initial transaction, unless you have expressly agreed otherwise; in any event, you will not incur any fees as a result of the reimbursement.

 

In the case of sales contracts in which we have not offered to collect the goods in the event of cancellation we may withhold reimbursement until we have received the goods back or you have supplied evidence of having sent back the goods, whichever is the earliest.

 

If you requested to begin the performance of services during the cancellation period, you shall pay us an amount which is in proportion to what has been performed until you have communicated us your cancellation from this contract, in comparison with the full coverage of the contract.

 

Cancellation form

To [                            ], [Address         ], [Telephone], [Email]

 

I/We [*] herby give notice that I/We [*] cancel my/our [*] contract of sale of the following goods [*]/ for the supply of the following service [*],

 

Ordered on [*]/ received on [*],

 

Name of consumer(s),

 

Address of consumer(s),

 

 

 

Signature of consumer(s) (only if this form is notified on paper),

 

Date

 

[*] Delete as appropriate.

 

 

 

(6) ADR REGULATIONS FOR SOLICITORS: 1 OCTOBER 2015

 

On 1 October 2015 the Alternative Dispute Resolution for Consumer Disputes (Amendment) Regulations 2015 came in to force implementing the EU Directive on Consumer Alternative Dispute Resolution. These require solicitors to provide information about an ADR approved body but solicitors are not required to submit complaints to that body. The obligation in the ADR Directive and the Regulations is to give information, not to agree the use of ADR. Thus solicitors are free to use wording along the lines of “this is the name of an ADR body. We do not agree to use this body etc.”

The requirement is to point complaints to an ADR body in the final response letter. There is no requirement to have it in the complaints policy or initial acknowledgement letter or Client Care Letter but solicitors may consider it good practice to have the name of its ADR body in all of their documents.

 

The requirements in relation to the Legal Ombudsman remain unchanged whether or not solicitors agree to submit the claims to an ADR approved body. Solicitors remain obliged not only to give information about the Legal Ombudsman but to cooperate actively with that body.

 

Given the internal complaints procedure which solicitors are obliged to have and given the compulsory use by solicitors of the Legal Ombudsman and given the heavy and unique restrictions on solicitors enforcing bills and given the rights of clients to apply to the court for assessment of costs under the Solicitors Act 1974 solicitors may feel that yet another tier, that would be the fourth apart from resort to the ordinary courts, is wholly unnecessary and pointless.

 

That is the view that my firm has taken.

 

From 1 October 2015 solicitors must, at the end of the first tier complaints process, that is the internal complaint procedure:-

 

  • provide information on the Legal Ombudsman as the Statutory Complaints Scheme for Solicitors, and

 

  • inform the client, on a durable medium:

 

– that they cannot settle the complaint with the client;

 

– of the name and web address of an ADR approved body which would be competent to deal with                 the complaint, should both parties which to use the scheme;

 

– whether they intend to use that ADR approved body.

 

The Legal Ombudsman had applied to the Legal Services Board to become certified as an ADR approved body for the purposes of the ADR Directive and it was assumed that virtually all solicitors would name the Legal Ombudsman.

 

However the Legal Ombudsman has unexpectedly withdrawn its application.

 

The Chartered Trading Standards Institute (CTSI) has approved a number of ADR entities who will be able to provide ADR services and these can be checked by solicitors and indeed their clients on the list of approved providers on their website, that is the CTSI website.

 

The Law Society has published an updated guidance on 10 September 2015 on how to comply with the Directive.

 

It suggests the following text once the first tier complaints process has been concluded:-

 

“We have been unable to settle your complaint using our internal complaints process. You have a right to complain to the Legal Ombudsman, an independent complaints body, established under the Legal Services Act 2007, that deals with legal services complaints.

 

You have six months from the date of this (our final) letter in which to complain to the Legal Ombudsman.

 

Legal Ombudsman

PO Box 6806

Wolverhampton

WV1 9WJ

 

Telephone: 0300 555 0333

 

Email address: enquiries@legalombudsman.org.uk

 

Website: http://www.legalombudsman.org.uk

 

Alternative complaints bodies (such as [include one of them and their website]) exist which are competent to deal with complaints about legal services should both you and our firm wish to use such a scheme.

 

We [state whether you do or do not] agree to use [include name of scheme].”

 

At present the following three alternative complaints bodies are approved:-

 

Ombudsman Services

 

ProMediate

 

Small Claims Mediation

 

Clearly this or similar wording has to be used once the internal complaints procedure at the firm has been exhausted.

 

I advise that you also include the following in your Client Care Letter, which anticipates that wording, should there be a complaint and should the complaints procedure be exhausted:-

“At the conclusion of any internal complaints handling procedure you also have the right to complain to the Legal Ombudsman, full details of this, their address and our complaints procedure is set out below.”

 

I advise against having this information in a Conditional Fee Agreement or Damages-Based Agreement. It is perfectly proper and lawful, and indeed in my view advisable, for solicitors not to agree to utilise the scheme but I think that is better contained in the Client Care Letter rather than a Conditional Fee Agreement or DBA which is much more likely to be seen by the other side and the court who could take the point, albeit a dud point.

 

From January 2016 additional requirements will apply to online traders and online marketplaces, including, if appropriate, solicitors.

 

More information can be obtained from the Trading Standards website the January 2016 requirements stem from the EU Regulation on Consumer Online Disputes Resolution (ODR).

An online trader is defined as “a trader who intends to enter into online sales contracts or online service contracts with consumers” (Regulation 19A(7) of the Alternative Dispute Resolution for Consumer Disputes (Amendment) Regulations 2015).

 

This definition is likely to capture many solicitors who would not necessarily consider themselves to be online traders. The Department for Business, Innovation Skills, states that it will include solicitors who send and receive contracts, customer care information, etc. to clients via email and thus virtually every firm will be court by these new requirements.

 

The information to be given will depend on whether or not the Legal Ombudsman resubmits its application to the LSB and become certified as an ADR approved body.

 

If it does then solicitors will be required to:-

 

  • provide a link to the ODR platform in any offer made to a client by email, and

 

  • inform clients of;

 

– the existence of the ODR platform;

 

– the possibility of using the ODR platform for resolving complaints

 

The information in the second bullet point above must also be included in the general Terms and Conditions of online sales contracts and online service contracts, where such general Terms and Conditions exist. Thus that information will need to be in the Conditional Fee Agreement or Damages-Based Agreement as well as the Client Care Letter but there is no such requirement in relation to the information required from 1 October 2015 and indeed strictly that does not need to be in any document at the beginning but only included once the internal complaints process has been exhausted.

 

If the Legal Ombudsman does not become an ADR approved body by 1 January 2016 solicitors will be required to provide on their websites:-

 

  • a link to the ODR platform

 

  • the email address of the online trader

 

No decision as to whether the Legal Ombudsman will reapply for approval is expected until December 2015.

 

The Department for Business, Innovation Skills has issued detailed guidance for business.

Please note that the Consumer Contract (Information, Cancellation and Additional Charges) Regulations have been the subject of a very hard line by the courts – see Cox v Woodlands and the recent case of Allpropertyclaims Ltd v Mr Tang Pang and ITC Compliance Ltd [2015] EWHC 2198 (QB) above. There is no reason to think that the courts will adopt any softer approach to these new regulations.

Written by kerryunderwood

November 24, 2015 at 9:52 am

Posted in Uncategorized

PART 36: THE DRY SALVAGES : UNIFIED

with 6 comments


Updated to July 2016

 

Time present and time past

Are both perhaps present in time future

And time future contained in the past.

If all time is eternally present

All time is unredeemable

 

T.S. Eliot: The Four Quartets

 

Fail to beat a Part 36 offer and all time is indeed unredeemable.

 

Record every offer and keep that record on a separate sheet of paper; better still have it stuck to the inside of the file.

 

Review it each month.  Should it be withdrawn?  Should the other side’s offer now be accepted?  There is no time limit on accepting an unwithdrawn Part 36 offer.

 

More than one offer can be outstanding.  Thus a claimant may make an offer and then make a much higher offer.  The defendant is free to accept the original offer until and unless it is withdrawn.  A fresh higher offer makes no difference to the original offer.  A claimant who does not wish an old offer to be accepted should withdraw it unequivocally and in writing.  New offers do not supersede old offers.

 

Even express written rejection of an offer leaves it as open to acceptance as if there had been no communication of any kind – Gibbon v Manchester City Council (2010) 1 WLR 2081.

 

Defendants are in the same position.  An old offer might still be left on the table when the defendant discloses, for example, surveillance evidence which lessens, or totally undermines the claimant’s case.  Unless the original offer has been withdrawn the claimant can accept it.

 

CLAIMANTS’ PART 36 OFFERS: SIX NEW KEY DECISIONS

 

There have been six very recent decisions, five supportive of claimants and one not, and dealing with matters of great importance to civil litigators.

 

The first decision confirms the law as set out in my blog – Part 36: Does a Claimant get Indemnity Costs on Late Acceptance?, that is that the claimant does indeed get indemnity costs in those circumstances. This is a very important decision.

 

That decision follows on from Broadhurst v Tan as does the second decision, concerning provisional assessment, where the court held that the cap of £1,500.00 plus VAT and court fees on provisional assessment is overridden by Part 36.

 

That decision also follows my view in the same blog post.

 

The third and fourth decisions deal with the situation where there is an appeal and the fifth decision deals with the 10% Part 36 uplift on the interest element of any award.

 

Overall these decisions are correct, helpful and give expression to the will of Parliament in relation to Part 36 offers, especially those made by claimants.

 

These decisions, along with Broadhurst v Tan and other recent decisions – dealt with in my blog post – Part 36 – Important Recent Cases – have gone a very long way to resolve the problems caused by earlier courts failing to realize that indemnity costs for successful Part 36 claimants are the mirror image of defendants getting costs when a claimant wins a claim but fails to beat a defendant’s Part 36 offer.

 

  1. INDEMNITY COSTS PAYABLE BY LATE ACCEPTING DEFENDANT

 

In Sutherland v Khan, Kingston-Upon-Hull County Court, Case number A81YM424

 

District Judge Besford, Regional Costs Judge, held that a late accepting defendant of a claimant’s Part 36 offer was liable to pay indemnity costs from the date of expiry of the time for accepting the offer.

 

This was a fixed costs case. Broadhurst v Tan and Taylor v Smith [2016] EWCA Civ 94 (23 February 2016) establishes that a successful Part 36 claimant, that is one who matches or beats her or his own offer, is entitled to indemnity costs on an open basis, that is that those indemnity costs are not limited to a sum equal to fixed costs.

 

I deal with the Broadhurst case in my blog post – Claimant’s Part 36 Offer Overrides Fixed Costs.

 

The issue remained, and as this is a first instance decision, albeit by a highly respected Regional Costs Judge, remains, whether in the absence of judgment being entered a late accepting defendant is liable to pay indemnity costs in the way that a late accepting claimant has to pay costs from the date of expiry of time for acceptance.

 

I deal with this whole subject in detail in my post – Part 36: Does a Claimant get Indemnity Costs on Late Acceptance?  where I expressed the view that a claimant is indeed entitled to indemnity costs on late acceptance by a defendant.

 

Here the judge said, correctly:-

 

“Unfortunately, part 36, whilst dealing with situations where the claimant accepts out of time a defendant’s offer, would appear to be silent as to a defendant accepting a claimant’s offers out of time or prior to trial. The nearest analogy is part 36.17, but it is accepted that part 36.17 can only apply where a judgment has been entered. That situation is not applicable here.”

 

The judge declined to follow the High Court decision in Fitzpatrick Contractors Ltd v Tyco

Fire v Integrated Solutions (UK) Ltd [2010] 2 Costs LR 115 on the ground that it is “perhaps a statement of the law as it was in 2009, but not necessarily the way the law in respect of Part 36 is being interpreted in 2016.”

 

In Fitzpatrick the court was referred to Petrotrade Inc v Texaco Ltd [2000] All ER (D) 724.

 

In the key section of the judgment DJ Besford said:-

 

“18. In addition, in the course of submissions I was referred to Petrotrade Inc v Texaco Ltd [2000] All ER (D) 724, which is mentioned by Coulson J in Fitzpatrick. Coulson J dealt with these cases at paragraph 22: “I accept Mr Thomas’s submissions that the other cases relied upon by Fitzpatrick, namely Petrotrade, Hook and Read, do not offer very much assistance to the central question here, which is whether a rebuttable presumption in favour of the indemnity costs, taken from a rule dealing with a situation following a trial, where the offer has not been accepted, should be inferred into a rule dealing with the position prior to trial, where the offer has been accepted. I do not accept that the present situation is analogous to those cases. In all three of them, the courts were endeavouring to apply the words of the old CPR 36.21, in a commonsense way, to achieve a just and sensible result and to prevent injustice; they all arose after a trial on the merits, (either on a summary or a full basis). In contrast, I conclude that the replacement of old CPR 36.21 – the new CPR 36.14 – does not apply to the present case, because there has been a settlement, and it has occurred before the trial. The claimant has therefore been spared the cost, disruption and stress of the trial.”

 

“19. The interpretation of these cases put forward by Coulson J is not, with respect how I read the more recent cases coming forth from higher courts. My understanding is, as I have alluded to, that there has been a tightening up as to the ‘carrot and stick effect’ of part 36 offers. To my mind, notwithstanding the comments of Coulson J, if there was no incentive or penalty there would be little point in a defendant accepting offers early doors, as opposed to waiting immediately prior to trial. It also seems to me unsatisfactory that there should be penalties flowing if you do not beat an offer at trial, whereas if you settle before trial there are none. This position does not sit comfortably with the overriding objective of saving expense. In my view, I think that Fitzpatrick is perhaps a statement of the law as it was in 2009, but not necessarily the way the law in respect of part 36 is being interpreted in 2016.”

 

“20. In conclusion, I do not find that the court has to find that the defendant has, in some way been guilty of inappropriate behaviour or conduct capable of censor before I can consider making an order for costs on an indemnity basis.”

 

The judge then set out the relevant provisions of Part 36 and said:-

 

“27. It follows that for the court to deny the consequences that flow from accepting a part 36 out of time the court has to make pretty exceptional findings and there has to be some very good reason as to why it is unjust not to make the usual order. The very fact that the claimant obtains a ‘windfall’, most certainly does not constitute unjustness, under part 36.17.”

 

Comment

 

Unsurprisingly I always agree with decisions that follow my blog posts. Having said that this is a sensible, pragmatic and bold decision giving effect to the will of Parliament.

 

It is a shame that the Rules Committee cannot rise above nursery class English.

 

I am very grateful to John McQuater for his help in relation to this piece and for bringing it to my attention and, most of all, for being the solicitor who pushed this issue and won.

 

  1. PROVISIONAL ASSESSMENT

 

In Lowin v W Portsmouth and Co Ltd, 20 June 2016

 

the Queen’s Bench Division of the High Court held that where a receiving party matched or beat its own Part 36 offer in provisional assessment proceedings it was entitled to costs on the indemnity basis under CPR 36.17(4) which overrode the cap of £1,500.00 plus VAT and court fees contained in CPR 47.15(5).

 

The decision thus followed the Court of Appeal’s reasoning in Broadhurst v Tan and Taylor v Smith [2016] EWCA Civ 94 (23 February 2016) where it ruled that a claimant matching or beating its own Part 36 offer received indemnity costs, and not fixed costs and that those indemnity costs were to be assessed on the open basis and not by reference to fixed costs.

 

The argument here, successful in front of the original master but not on appeal, was apparently the same – namely that even an order that costs should be assessed on the indemnity basis would be subject to the £1,500.00 cap.

 

The paying party here had submitted that there is a difference in principle between fixed costs as dealt with in Broadhurst v Tan and capped costs.

 

The logic of this argument is that in fixed costs, costs are just that: fixed and therefore unless costs on the indemnity basis could exceed fixed costs an order for indemnity costs would be meaningless, and indeed arguably as far as costs are concerned, a claimant’s Part 36 offer would be meaningless.

 

However with capped costs it would be possible for costs on the standard basis to be say, £750.00 but, say £1,250.00 on the indemnity basis and therefore an indemnity costs order would still mean something in practice and would still incentivize a receiving party to make a Part 36 offer.

 

Whatever the original status of the parties, that is claimant or defendant, in provisional assessment proceedings for all intents and purposes the receiving party is the claimant.

 

Thus the argument was that where the costs cap applied, indemnity costs could be assessed and awarded but would be subject to the cap – see Nizami v Butt [2006] EWHC 159 (QB).

 

Here the High Court rejected that approach.

 

CPR 47.20(4) considered how Part 36 should apply to Part 47 and it applies to the costs of a detailed assessment, with modifications.
There was a conflict between CPR 47.15(5) and Part 36 because CPR 47.15(5) potentially derogated from the entitlement to costs on an indemnity basis under Part 36.

 

Here the court said that the correct view was that taken by the Court of Appeal in Broadhurst, namely that CPR 36.14 continued to have “full force and effect”.

 

Had the Draftsman of the Rules Committee wished Part 36 to be modified so that the cap would remain then that would have been stated.

 

The High Court further stated that the dislodging of the cap would incentivize parties to accept reasonable costs offers because if they did not do so they would be at risk of substantial costs under Part 36.

 

I deal with this whole area in detail in my post – Claimant’s Part 36 Offer Overrides Fixed Costs.

 

In that post I said of the Broadhurst v Tan decision:-

 

“The same principle appears to apply to provisional assessment and thus a receiving party who matches or beats its own offer will get indemnity costs.”

 

Comment

 

Unsurprisingly I always agree with decisions that follow my blog posts. Having said that this is a sensible, pragmatic decision giving effect to the will of Parliament.

 

It is a shame that the Rules Committee cannot rise above nursery class English.

 

  1. APPEAL

 

In Pawar v JSD Haulage Ltd [2016] EWCA Civ 551

 

the Court of Appeal considered the effect of two Part 36 offers made by the defendant in the original proceedings where the amount of damages was increased on appeal to a figure above the first offer but below the second offer.

 

On 5 February 2014 the defendant made a Part 36 offer of £80,000.00. It was refused. On 1 May 2014 a further offer in the sum of £129,332.00 was made and that too was refused and neither offer was beaten at trial.

 

Consequently the trial court made the usual order that the defendant pay the costs to the date of expiry of the first unbeaten offer and the claimant pay the costs thereafter. The Court of Appeal allowed the substantive appeal in part and increased the damages to a figure above the first offer, but below the second offer.

 

It was common ground that that costs order had to be amended as the claimant had now beaten the first offer.

 

The Court of Appeal allowed the claimant its costs up to expiry of the period of acceptance of the second offer and ordered the claimant to pay the defendant’s first instance costs thereafter.

 

So far, so clear.

 

The issue then arose as to the costs of the appeal. It was common ground that an unsuccessful party will generally be ordered to pay the successful party’s costs – see CPR 44.2(2)(a).

 

The claimant said that his damages had been increased by the Court of Appeal and so he should get the costs of that appeal.

 

The defendant conceded that rules governing Part 36 offers apply to the proceedings in which they are made, not the costs of any appeal, but said that pursuant to CPR 44.2(4)(c) the Court of Appeal should consider the second offer when assessing who is the real winner on appeal.

 

If the claimant had accepted the sum in the second Part 36 offer he would have been better off by some margin than he was following the Court of Appeal’s ruling as the increased sum awarded by that court still fell well short of the amount in the second Part 36 offer.

 

The defendant had made no offer once appeal proceedings had been launched, even though the trial court had awarded a sum significantly below the sum that the defendant had previously considered reasonable.

 

Although the amount recovered on appeal fell short of the second offer by some margin that offer was not open to the claimant once the first instance proceedings had concluded.

 

In order to improve his position the claimant had to pursue the appeal, for which he had permission on all grounds, to its conclusion.

 

Consequently the claimant was entitled to the costs of the appeal.

 

Comment

 

A correct and sensible decision.

 

Lawyers should always review Part 36 offers if a matter is appealed as any Part 36 offer made in the previous proceedings falls away at the end of those proceedings.

 

  1. CLAIMANT’S PART 36 OFFER DURING APPEAL

 

In Summers v Bundy [2016] EWCA Civ 126

 

the Court of Appeal held that the claimant was entitled to a 10% uplift on general damages under the principles set out in

 

Simmons v Castle [2012] EWCA Civ 1039 and [2012] EWCA Civ 1288

 

There the court held that this uplift is compulsory and not a matter for judicial discretion – see my post 10% Uplift in all Cases Except where there is a Recoverable Success Fee.

 

This is of course a different 10% uplift from the one that is payable on all damages where a claimant matches or beats its own Part 36 offer.

 

This case involved the interplay between the two and also what happens when a claimant makes a Part 36 offer during appeal proceedings and matches or beats it.

 

Here, in relation to the appeal proceedings, the claimant made a Part 36 offer to accept an additional 9% Simmons v Castle general damages uplift.

 

As stated above the Court of Appeal held that there was a mandatory 10% uplift on general damages and ordered accordingly.

 

Thus the claimant had beaten at the appeal its own Part 36 offer made in the course of those appeal proceedings.

 

Consequently the court ordered the defendant to pay the claimant’s costs on an indemnity basis from the end of the relevant period, that is expiry of the time for accepting the Part 36 offer.

 

In relation to enhanced interest and a further 10% Part 36 uplift on the Simmons v Castle 10% uplift the Court of Appeal accepted that it had the power to make that order but exercised its discretion not to on the basis, contained within Part 36 itself, that it would be unjust to do so.

 

Comment

 

This reinforces the point made in Pawar v JSD Haulage Ltd [2016] EWCA Civ 551see above.

 

Lawyers should always review a Part 36 offer if a matter is appealed. This is for two reasons. Any Part 36 offer made in the previous proceedings falls away at the end of those proceedings. Secondly, as here, a party should look carefully at what it seeks to achieve on appeal and make a well-pitched Part 36 offer accordingly.

 

My only slight criticism of the court here is that in my view it should have awarded the 10% Part 36 uplift on the 10% Simmons v Castle uplift.

 

In reality the Simmons v Castle 10% is not an uplift at all but rather an uprating of general damages in the same way as the Judicial College uprates general damages and it is incorporated into the full general damages figure and should not be regarded as a bonus itself. Thus in my view the Court of Appeal should have awarded the 10% Part 36 uplift on the additional sum achieved by the claimant on appeal.

 

  1. 10% UPLIFT ON INTEREST

 

In Bolt Burdon Solicitors v Tariq & Others [2016] EWHC 1507 (QB) (22 June 2016)

 

the Queen’s Bench Division of the High Court held that where a claimant matches or beats its own Part 36 offer it is entitled to the 10% damages uplift on contractual interest as well as on the principal sum.

 

The additional amount was calculated by applying the prescribed percentage “to an amount which is… the sum awarded to the claimant by the court.”

 

Whatever the position may be in respect of interest awarded by the court a as matter of discretion, for example under Section 35A of the Senior Courts Act 1981, the court here had awarded interest at 8% as part of the sum to which the claimant was contractually entitled.

 

That was to be regarded as part of the sum awarded “as a specific sum” and had it been the intention always to exclude interest from the provisions relating to the 10% uplift then it would have been simple for the rule to have said so.

 

The court held that it was not unjust to order the defendant to pay the uplift on the interest in this case as the claimant had not made a claim for enhanced interest on the damages under CPR 36.17(4) and the parties had agreed the interest rate in the contract.

 

The provision for an uplift when a claimant matches or beats its Part 36 offer was clearly designed as a penal sanction to mark a defendant’s failure to accept a Part 36 offer when he should have done and to award the claimant for a commendable attempt to settle the case.

 

As the court said here:-

 

“10. The “additional amount” is, in effect, a further head of damages, and is intended to provide a reward of real value to a claimant who makes a successful claimant’s Part 36 offer.”

 

The court also pointed out that in CPR 36.17(4)(a), which deals with enhanced interest of up to 10% above base rate on any award where a claimant matches or beats its own Part 36 offer, the rule specifically states that that enhanced interest shall not be payable on any interest element of the award.

 

There is no such exclusion in CPR 36.17(4)(d) in relation to the 10% uplift on the award.

 

As the court said:-

 

“As a matter of statutory construction, the inclusion of the words “excluding interest” in one part of the Rule but the omission of the same words in another part, is a strong indication that there was intended to be a difference.” (Paragraph 19).

 

The High Court left open the issue of whether the 10% uplift applies to interest awarded by the court, rather than contractual interest.

 

The court also left open the issue of whether the 10% uplift applies to enhanced interest on any award. The potential effect of this is that under CPR 36.17(4)(a) a successful Part 36 claimant can get enhanced interest of 10% above base rate on the principal sum, but not on interest, but could then get a further 10% uplift on that sum under CPR 36.17(4)(d), thus achieving an overall rate of 11%, an approach rejected in

 

Watchorn v Jupiter Industries Ltd [2014] EWHC 3003 (Ch)

 

Here there was no claim for enhanced interest under CPR 36.17(4)(a) and so the court did not have to consider that matter and no issue of it being unjust to award the 10% uplift on the maximum rate of enhanced interest arose.

 

The court here suggested, correctly in my view, that Watchorn was wrongly decided as the judge appeared not to have considered the significance of the specific mention “excluding interest in sub-paragraph (4)(a), in contrast of the absence of any such mention of those words in sub-paragraph (4)(d).”

 

Comment

 

Yet another sensible, pragmatic decision on claimants’ Part 36 offers.

 

6. CAN A DEFENDANT BE BETTER OFF PAYING MORE THAN THE CLAIMANT WANTS?

 

A case to do your head in

 

In Purrunsing v A’Court & Co (a firm) and another [2016] EWHC 1528 (Ch) (1 July 2016)

 

the High Court held that in considering whether a claimant had matched or beaten its own Part 36 offer the court should calculate interest to the expiry of the Relevant Period, generally 21 days after the Part 36 offer was made.

 

To do otherwise would mean that whether or not the claimant had matched or beaten its own offer would depend upon the length of time between the offer and trial.

 

Here the claimant had made a Part 36 offer to settle the claim for £516,000.00 inclusive of interest and that offer was made on 20 May 2015.

 

Following the trial the claimant recovered £470,000.00 together with interest at the rate of 2.5% above base rate, which down to the date of the order of 14 April 2016, was £48.983.01 giving a total of £518,983.01.
The claimant submitted that as he had recovered a sum in excess of his offer he was entitled to, among other things, indemnity costs for the period from the expiry of the relevant period, that is 21 days after the Part 36 offer was made on 20 May 2015, that is from 10 June 2015.

 

The paying party submitted that it was necessary to deduct the interest awarded in relation to the period after expiry of the relevant period, that is in this case after 20 May 2015.

 

If that was done then the total substantive damages and interest to 10 June 2015 resulted in a figure less than the claimant’s offer and thus he had failed to beat or match his Part 36 offer and should not get the various uplifts, including indemnity costs. The resultant figure became £507,046.30, which was clearly below the claimant’s Part 36 offer.

 

The judge, correctly in my view, relied on CPR 36.5(4) which reads:-

 

“(4)    A Part 36 offer which offers to pay or offers to accept a sum of money will be treated as inclusive of all interest until—

 

  • the date on which the period specified under rule 36.5(1)(c) expires; or

 

  • if rule 36.5(2) applies, a date 21 days after the date the offer was made.”

 

Comment

 

In my view this decision is correct but the rule itself, as with much of Part 36, throws up other problems.

 

Let us suppose that the claimant has called the matter exactly right and offers to accept £500,000.00 and that is precisely the sum that will be awarded for substantive damages and interest to the end of the relevant period and thus the claimant will have matched its own offer and is entitled to the extra.

 

Six months pass.

 

The claimant can either withdraw that first offer on the basis that the additional interest accrued in those six months means that it is now too low but if the claimant does that then the penalties only run from any later, higher, offer.

 

If the claimant does nothing and does not withdraw the offer then it is capable of acceptance at any time and the claimant stands to get the additional benefits, including additional interest, indemnity costs and a 10% uplift on damages.

 

However the defendant is then off the hook for that additional interest as they are free to accept the offer made with the calculation of interest up to the expiry of the relevant period six months earlier.

 

Thus the defendant avoids six months interest. That can be a significant sum even now during a period of very low interest rates. As and when interest rates rise it can become a very significant sum indeed.
Furthermore it is not yet settled law that a late accepting defendant, as compared with a defendant who has had judgment entered against it, is liable for indemnity costs for the period after expiry of the relevant period.

 

No superior court has ruled on that point.

 

In Sutherland v Khan, Kingston-Upon-Hull County Court, Case number A81YM424

 

District Judge Besford, Regional Costs Judge, held that a late accepting defendant of a claimant’s Part 36 offer was liable to pay indemnity costs from the date of expiry of the time for accepting the offer.

 

In my view that decision is correct but it is still only a first instance decision, albeit by a highly respected Regional Costs Judge.

 

I deal with that case in my blog – Claimants’ Part 36 Offers: Five New Key Decisions and the whole issue of what happens when a defendant accepts late in my blog – Part 36: Does a Claimant get Indemnity Costs on Late Acceptance?

 

The decision here in the Purrunsing case should give strong support to the public policy argument that where a defendant accepts a Part 36 offer late, then the claimant should always get indemnity costs and the other uplifts.

 

The rule throws up further problems. Let us take the scenario above. Let us assume that the extra interest, that is from the end of the relevant period until today, totals £10,000.00.
Clearly a fresh offer could be made with the original offer being withdrawn which would mean that the defendant would have to pay an additional £10,000.00 in order to settle the matter by way of acceptance of that Part 36 offer. However if the defendant did that then clearly there would be no uplift on anything as the offer would have been accepted within time, that is within the relevant period.

 

However if Sutherland v Khan is right then if the defendant accepts the original offer it will be liable for indemnity costs from expiry of the relevant period as well as a 10% uplift on damages and interest on costs and damages etc.

 

Thus that will be a mathematical calculation as to which suits the claimant best. I refer to it as a mathematical calculation but of course the amount of costs that will be allowed by the court is speculation rather than calculation.

 

In fact a claimant may be best served by leaving the original lower offer unimproved as indemnity costs and a 10% uplift on damages will normally be a much higher figure than the further interest from the date of expiry of the relevant period.

 

Of course a claimant can make a fresh, higher, Part 36 offer and leave the original one on the table.

 

Bizarre as it may seem, for the same reasons set out in the last paragraph, a defendant will normally be better accepting that higher offer in time and thus avoiding the uplifts contained in CPR 36.17(4) including indemnity costs and 10% on damages etc.

 

I must confess to not understanding whether that succeeds in avoiding those consequences or not.

 

CPR 36.17(7) states:-

 

“(7)    Paragraphs (3) and (4) do not apply to a Part 36 offer—

 

  • which has been withdrawn;

 

  • which has been changed so that its terms are less advantageous to the offeree where the offeree has beaten the less advantageous offer;”

 

Clearly the offer would not have been withdrawn and therefore CPR 36.17(7) (a) does not apply.

 

However if a claimant offers to accept £500,000.00 and then says that it will take £510,000.00 clearly that offer has been changed so that its terms are less advantageous to the offeree – that is the paying party – as the offeree will now have to pay more.

 

However the offeree, in accepting that second less advantageous offer, has not “beaten the less advantageous offer” – how can an accepting party ever “beat” anything?

 

In other words if a defendant accepts a claimant’s Part 36 offer of £510,000.00, and the first offer of £500,000.00 is on the table, then as the amount paid is greater than that first offer presumably the defendant does have to pay the uplift on damages and indemnity costs and so on.

 

However that is all predicated on the basis that a late accepting defendant has to pay anything additional, as stated earlier we await a superior court decision on that point.

 

It probably never occurred to anyone that a defendant faced with different still extant claimants’ Part 36 offers who chose to accept the higher one.

 

What happens in the above scenario if the defendant, unsure of whether acceptance of £510,000.00 will trigger indemnity costs etc. from the first offer of £500,000.00, makes its own Part 36 offer in the sum of £515,000.00, which is then accepted by the claimant?

 

Thus the matter is resolved by a claimant accepting within time a defendant’s Part 36 offer.

 

Presumably then no additional interest, indemnity costs or uplift are payable even though the amount changing hands is higher than both of the claimant’s Part 36 offers still on the table.

 

Again presumably those wise J people sitting on our beloved Rules Committee did not envisage a defendant making a Part 36 offer higher than a claimant’s Part 36 offer which was still available for acceptance.

 

I have said before that Part 36 would challenge Einstein. It certainly challenges me.

 

Any thoughts from you genuinely wise people out there?

 

NEW PART 36: APRIL IS AGAIN THE CRUELEST MONTH

 

The new Part 36, effective 6 April 2015, increases the anti-claimant bias of the rule. It applies to all Part 36 offers made on or after 6 April 2015.

 

In Gulati and Others v MGN Ltd [2015] EWHC 1805 (Ch)

 

the Chancery Division of the High Court held that where a claimant’s Part 36 offer had been withdrawn and then beaten at trial it was not appropriate to award the claimant indemnity costs in the absence of otherwise unreasonable conduct which would attract an indemnity costs award in any event.

 

The court’s general costs discretion under CPR 44.3 did not justify an award of indemnity costs absent such unreasonable conduct.

 

The court distinguished the decision in The Trustees of Stokes Pension Fund v Western Power Distribution (South West) plc [2005] EWCA 854

 

where the Court of Appeal allowed an inoperative Part 36 offer – no money had been paid into court as then required – to have Part 36 effects.

 

It also refused to apply CPR 44.2(4)(c) which allows a court to take non Part 36 offers into account and give them the same effect as Part 36 offers.

 

Comment

 

This is another fundamentally flawed decision reflecting the courts’ anti-claimant bias when it comes to Part 36.

 

Here, as before, the court is equating indemnity costs orders with misconduct. That is not the case when a claimant matches or beats its own Part 36 offer; it is merely a device to give claimants an incentive to make such offers and defendants to accept such offers.

 

It is no more punitive and requiring of misconduct than the fact that a successful claimant has to pay the unsuccessful defendant’s costs if it fails to beat a defendant’s Part 36 offer.

 

By virtue of the transitional provisions set out in rule 18 of The Civil Procedure (Amendment No 8) Rules 2014, SI 2014 No 3299 (L.36) the following new provisions also apply to any Part 36 offer made before 6 April 2015, provided that a trial of any part of the claim or issue in it starts on or after that date:

 

  • CPR 36.3 – definitions;
  • CPR 36.11 – acceptance of a Part 36 offer;
  • CPR 36.12 – acceptance of a Part 36 offer in a split-trial case;
  • CPR 36.16 – restriction on disclosure of a Part 36 offer.

 

It has become more, not less, complicated and as one writer has put it “nothing fundamental has been done to blow away the fog of confusions that currently surrounds Part 36.” (Alex Sciannaca and Giles Hutt, Law Society Gazette.)

 

The whole of the rule as it has been from 6 April 2015 is set out at Schedule 1 of The Civil Procedure (Amendment No 8) Rules 2014, SI 2014 No 3299 (L.36). Thus Part 36 is now a Statutory Instrument. CPR 36.1 makes it clear that Part 36 is a self-contained code; this reflects case law.

 

“36.1.—(1) This Part contains a self-contained procedural code about offers to settle made pursuant to the procedure set out in this Part (“Part 36 offers”).”

 

This puts in to statutory form the decision in Gibbon v Manchester City Council [2010] EWCA Civ 726.

 

The rule is divided into two parts with Section I dealing with all matters except those covered by the two personal injury portals, and the subsequent Fixed Recoverable Costs Scheme.

 

Section II deals with all other matters, including personal injury claims not brought within either of the two portals/Fixed Recoverable Costs. (CPR 36.1(3)).

 

CPR 36.2 makes it clear that parties are free to make offers in any way they want, but unless those offers comply with Part 36 they will not have Part 36 consequences, but the court must consider such offers when deciding what order to make about costs (CPR 36.2(2)).

 

CPR 36.2(3) makes it clear that the Part 36 procedure extends to counterclaims, additional claims, appeals and cross-appeals, thus confirming in the rules the decision of the Court of Appeal in AF v BG [2009] EWCA Civ 757.

 

CPR 36.3 is the definition section and includes new definitions in relation to trial, trial judge, a trial in progress, when a case is decided and relevant period.

 

It reads

 

“36.3. In this Section—

  • the party who makes an offer is the “offeror”;

 

  • the party to whom an offer is made is the “offeree”;

 

  • a “trial” means any trial in a case whether it is a trial of all issues or a trial of liability, quantum or some other issue in the case;

 

  • a trial is “in progress” from the time when it starts until the time when judgment is given or handed down;

 

  • a case is “decided” when all issues in the case have been determined, whether at one or more trials;

 

  • “trial judge” includes the judge (if any) allocated in advance to conduct a trial; and

 

  • “the relevant period” means—

 

  • (i) in the case of an offer made not less than 21 days before a trial, the period specified under rule 36.5(1)(c) or such longer period as the parties agree;

 

  • (ii) otherwise, the period up to the end of such trial.””

 

CPR 36.4 confirms that Part 36 offers can be made on appeals.

 

However an offer made in the initial proceedings has costs consequences only in those proceedings and not in the appeal proceedings (CPR 36.4(1)).

 

Thus a new Part 36 offer must be made in relation to an appeal. This is in line with the decision in East West Corporation v P&O Nedlloyd BV and Utaniko Ltd [2003] EWCA Civ 174.

 

CPR 36.5 deals with the form and contents of the Part 36 offer and there is no substantive change, but a new provision makes it clear that an offer is deemed to include interest to the date of expiry of the offer (CPR 36.5(4)).

 

It is now sufficient to “make clear that [the offer] is made pursuant to Part 36” (CPR 36.5(1)(b)); it is no longer necessary to state in the body of an offer that it is “intended to have the consequences of Section I of Part 36” (old 36.2(2)(b)). Courts interpreted the old provision very strictly – see, for example, Shaw v Merthyr Tydfil County Borough Council [2014] EWCA Civ 1678.

 

However considerable formality remains, including that an offer has to spell out the costs consequences of acceptance, complete with cross references to the relevant provisions of new CPR 36.5(1)(c), 36.13 and 36.20.

 

CPR 36.7 confirms that an offer can be made at any time, including pre-issue, and that it is made when it is served on the offeree.

 

CPR 36.8 deals with clarification of a Part 36 offer and although there is a slight change in wording, there is no change in the law.

 

There are now separate rules dealing with the withdrawal of an offer or the changing of its terms.

 

The key point is that an improvement in the offer from the recipient’s point of view is neither a withdrawal, nor a variation, of the original offer but a new offer with time running from the date of service of the new offer (CPR 36.9(5)).

 

Thus Burrett v Mencap Ltd, 14 May 2014 is statutorily overturned.

 

Time-limited offers

 

An offer may now automatically be withdrawn in accordance with its own terms (36.9(4)(b)) provided the relevant period has passed. Thus it is now possible to make a Part 36 offer open for, say, 30 days and that offer is then deemed withdrawn at that point without further action or notice by the offeror.

 

An offer remains open for acceptance until withdrawn (C v D [2011] EWCA Civ 646) but that withdrawal can occur without further notice if the terms of the withdrawal are contained in the Part 36 offer itself.

 

CPR 36.10 deals with the withdrawal of an offer before the expiry of the relevant period. It also covers changing the terms to be less advantageous to the offeree.

 

Either of these actions requires the permission of the court, which must be satisfied that there is a change of circumstances and that it is in the interests of justice to grant permission.

 

The court remains able to give permission to withdraw, or vary, an offer after it has been accepted within the relevant period, so the scenario in Evans v Royal Wolverhampton Hospitals NHS Foundation Trust [2014] EWHC 3185 (QB) remains possible. The previous rule was silent on the criteria to be applied on such an application. The new rule does not allow a party to make a without notice application, nor to seek to withdraw the evidence from the other party as happened in Evans.

 

CPR 36.11 deals with acceptance of Part 36 offers and there is no substantive change in the law. The express provision in the old Part 36 that an offer could not be accepted between the end of a trial and judgment has been changed to allow such acceptance, but only with the court’s permission.

 

Split Trials

 

Where there has been a split trial, but judgment has not yet been given, a Part 36 offer cannot be accepted until seven days after judgment is handed down, unless the parties agree otherwise (36.12). Any Part 36 offer which relates only to parts of the claim or issues that have already been decided can no longer be accepted.

 

Costs Consequences of Acceptance of a Part 36 Offer

 

Important changes include:

 

  • an express reference to a party being entitled to “recoverable pre-action costs”.

 

  • an express provision that where a Part 36 offer is accepted late the court must, unless it is unjust so to do, give the claimant its costs up to the date of expiry of the relevant period and order the claimant to pay the defendant’s costs thereafter.

 

Thus the anti-claimant bias remains, a late accepting claimant is penalized twice in costs, once by being deprived of her or his own costs and secondly by having to pay the defendant’s costs from 21 days after the offer was made.

 

A late-accepting defendant suffers no penalty, either in costs or damages.

_______

____

 


 

Other effects of acceptance of a Part 36 offer

 

These are dealt with in CPR 36.14.

 

If a Part 36 offer is accepted, then the claim is stayed (36.14(1)).

 

In the case of acceptance of a Part 36 offer which relates to the whole claim, the stay is upon the terms of the offer (36.14(2)).

 

If the Part 36 offer relates to part only of the claim, acceptance results in a stay as to that part upon the terms of the offer (36.14(3)).

 

If court approval is required then the stay comes in to effect only when that approval is given (36.14(4)).

 

Any stay does not affect the power of the court to enforce the terms of the Part 36 offer (36.14(5)(a)), nor to deal with any question of costs, including interest on costs, in relation to any part of the proceedings (36.14(5)(b)).

 

The sum must be paid within 14 days unless the parties agree otherwise (36.14(6)(a)).

 

In provisional damages or periodical payment cases payment must be made within 14 days of the court order, but the court is free to vary that period (36.14(6)(b)).

 

If payment is not made on time then the claimant can enter judgment for the unpaid sum (36.14(7)).

 

Where a party alleges in a non-financial settlement that the other party has not honoured the terms of that offer, that party may apply to enforce the terms of the offer without the need for a new claim (36.14(8)).

 

Unaccepted offers

 

The provisions preventing disclosure of a Part 36 offer until after the case has been decided are contained in CPR 36.16, which contains new provisions dealing specifically with split trial, an cases where some, but not all, issues have been decided.

 

The trial judge may be told about any part of, or issue in the case that has been decided where the Part 36 offer relates only to those parts.

 

Where this situation occurs the trial judge may be told whether or not there are Part 36 offers other than those relating to decided issues, but must not be told the terms of any such other offers unless the defence is one of tender before claim, or proceedings have been stayed on acceptance of a Part 36 offer or the parties have agreed that the terms of such offer may be disclosed to the trial judge.

This overturns the definition in Beasley v Alexander [2012] EWCH 2715 (QB) where the court held that the judge could not be told of the existence of a Part 36 offer after a trial on liability until the case had been decided, that is the whole action concluded.

 

Where a party fails to file a costs budget in time the court may limit that party’s budget to court fees only. This is the notorious rule that achieved fame in the Mitchell case.

 

Apart from the obvious gross unfairness and disproportionality of the rule it neutered Part 36. A party faced with a Part 36 offer from a party where recoverable costs were limited to court fees could clearly ignore it.

 

CPR 36.23 introduces an entirely new provision whereby a court fees only offeror can recover 50% of its costs if the other party fails to beat a Part 36 offer.

 

It applies to claimants and defendants.

 

This means that even where a court imposes the no costs except court fees sanction it must now budget those costs.

 

New test of “Genuine Attempt”

 

There is a bizarre addition to the factors that a court must take in to account in considering whether it would be unjust for the usual Part 36 consequences to apply.

 

By virtue of new CPR 36.17(5)(e) the court must take in to account “whether the offer was a genuine attempt to settle the proceedings.”

 

Thus the certainty is totally removed and it becomes a lottery as to whether the court will in fact apply Part 36 in any given case. It is Carver v BAA [2008] EWCA Civ 412, repealed by Parliament, all over again.

 

Of all the stupid rules that the unelected, unaccountable Rules Committee has come up with this is one of the most stupid, albeit that technically it has been approved by Parliament. I wonder if a single Member of Parliament read the draft Statutory Instrument.

 

An offer is an offer is an offer. Parties make offers for a million and one reasons. Why on earth should the court need to look at the virtue behind the offer? How will it do this? Presumably by calling the party to give oral evidence and be cross-examined. Yet virtually all Part 36 offers are on the advice of the party’s lawyer. Whither solicitor-client privilege?

 

Is this an attempt to revive the Huck v Robson issue, which Parliament has put to bed by legislating that a party only has to match, not beat its own offer?

 

Parliament has consistently sought certainty in relation to Part 36. It statutorily repealed Carver v BAA, as well as overruling the suggestion in Huck v Robson that a 99.9% offer may not be valid for Part 36 purposes.

 

The whole Huck v Robson debate was misconcerned in any event. There is an incentive for a defendant to accept a 100%, let alone a 99.9% offer on liability. It means that that issue is concluded and therefore the claimant can get no costs for any further liability work.

 

The whole point of Part 36 is to resolve those aspects of the claim that can be resolved; liability is a rather important one.

 

Part 36 is not all or nothing. Discrete aspects can be settled, for example past specials, or loss of earnings or whatever.

 

All this will do is create further satellite litigation. A defendant who is on the wrong end of a Part 36 may as well argue that it was not a genuine attempt to settle proceedings. It has nothing to lose.

 

It is hard to see how this new rule can ever apply to defendants; by definition if a claimant has failed to beat a defendant’s offer, then that offer must have been a genuine attempt to settle the proceedings.

 

Thus this is yet another anti-claimant rule.

 

Everyone agrees that too few claimants’ Part 36 offers are being made. This rule will reduce even further the number made.

 

Personal Injury Cases

 

There is no substantive change in relation to personal injury claims alone, although the general changes dealt with above apply to all cases, including personal injury ones.

 

There are substantive changes in relation to Part 36 and the portals and Fixed Recoverable Costs, which I deal with elsewhere.

 

However the structure of Part 36 has changed with all of the personal injury material now in one section as follows:

 

  • CPR 36.18 deals with claims for future pecuniary loss and replicates existing CPR 36.5;

 

  • CPR 36.19 deals with offers to settle claims for provisional damages and repeats existing CPR 36.6;

 

  • CPR 36.20 covers costs consequences of acceptance of offers where Section IIIA of Part 45 applies, that is claims which no longer continue under the RTA Or EL/PL Pre-Action Protocols and fall into the Fixed Recoverable Costs scheme, and follows existing CPR 36.10A;

 

  • CPR 36.21 deals with costs consequences following judgment where Section IIIA of Part 45 applies, reflects current CPR 36.14A;

 

  • CPR 36.22 covers deductions of benefits, and lump sum payments and replicates current CPR36.14.

 

PORTAL AND FIXED RECOVERABLE COSTS CASES

 

These cases have their own discrete Section II and the rules considered so far in Section I do not apply to them. However most are replicated in Section II.

 

A protocol offer must be made and must be in the Court Proceedings Pack (Part B) form and contain the final total amount of each offer from both parties.

 

Protocol offers are treated as exclusive of interest, in contrast to non-protocol Part 36 offers which are deemed to include interest to the date of expiry of the offer (see above – CPR 36.5(4)).

 

As with non-portal offers the portal offer must not be commuted to the court until the claim is determined and any other offer must not be commuted at all.

 

If the claimant fails to beat the defendant’s portal offer then the court will order the claimant to pay fixed costs and interest on those costs.

 

If the claimant at least matches its own offer the defendant will pay an uplift on damages and additional interest on damages and costs.

 

In due course I will publish a detailed blog on how Part 36 works in practice in portal and Fixed Recoverable Costs Cases.

 

For the full new Part 36 see Schedule 1 of The Civil Procedure (Amendments No 8) Rules 2014, SI 2014 No 3299 (L.36).

 

PART 36 AND FIXED RECOVERABLE COSTS

 

The provisions are complicated but I set out various scenarios where claims have left the portal and fall to be dealt with under the Fixed Recoverable Costs Regime, whether or not the claim has been issued.

 

Claimant accepts defendant’s Part 36 offer within the relevant period

 

The claimant is entitled to Fixed Recoverable Costs according to the stage reached when the Notice of Acceptance was served. It follows from this that if a further stage is crossed during the 21 day period for accepting a Part 36 offer then it makes sense to wait until that stage has been crossed before serving Notice of Acceptance as the fee will then jump sharply.

 

Claimant accepts defendant’s Part 36 offer after expiry of the relevant time

 

The claimant is entitled to Fixed Recoverable Costs until the date of the expiry of the relevant period. The defendant is entitled to the difference, if any, between those Fixed Recoverable Costs payable to the claimant and what would be the Fixed Recoverable Costs as at the date of acceptance.

 

Thus if in fact no further stage has been passed between the expiry of the relevant period and acceptance there is no fee due to the defendant as there is no difference between the Fixed Recoverable Costs payable to the claimant and the Fixed Recoverable Costs to be received by the defendant.

 

Claimant fails to beat a defendant’s Part 36 offer at trial

 

The defendant is entitled to the difference between the Fixed Recoverable Costs payable to the claimant, that is up to the date of expiry of the relevant period, and the balance due to the defendant, including trial costs.

 

Claimant accepts defendant’s portal offer after the case leaves the portal, or the claimant fails to beat the defendant’s portal offer at trial

 

The claimant receives only stage 1 and stage 2 portal costs. The defendant is entitled to the difference between that sum and Fixed Recoverable Costs as at the date of the acceptance of the offer or trial.

 

Claimant obtains a Judgment at least as advantageous to the claimant as its Part 36 offer

 

The claimant gets a 10% increase in damages. Disbursements will be assessed on the indemnity basis. In relation to costs and disbursements and damages there is a potential for a higher rate of interest – up to 10% above base rate.

 

The unanswered question is whether the claimant simply gets Fixed Recoverable Costs, in which case there is little point in making a Part 36 offer, or whether the claimant will get indemnity costs, which will be based on the hourly rates in the claimant’s retainer, generally a Conditional Fee Agreement. The rules are contradictory and unclear.

 

Clearly if fixed costs continue to apply then a claimant’s Part 36 offer is more or less pointless. On the other hand if indemnity costs apply then arguably that undermines the whole concept of fixed costs.
Thus Part 36 risks undermining fixed costs just as it undermines Qualified One-Way Costs Shifting.

Part 36 in combination with anything other than open costs simply does not work and that is why it has never applied to the costs free regime of the small claims track and nor to tribunal proceedings and nor in family matters.

The whole issue will assume much greater importance if fixed costs are introduced in clinical negligence cases in October 2016 as now proposed and if they spread to other areas of work and with a higher damages maximum than £25,000.00. These horizontal and vertical extensions of fixed costs have broad support among politicians and the judiciary, confirmed recently by the Lord Chief Justice in his 2015 Annual Report to Parliament pursuant to Section 5(1) of the Constitutional Reform Act 2005;

“The judiciary has constantly pressed for the widespread adoption of fixed recoverable costs. This was one of the core recommendations in the Jackson review’s final report, but its application has thus far been restricted to a small number of areas of litigation (such as road traffic accidents). The judiciary strongly supports the application of fixed recoverable costs across the range of fast track cases, and in the lower reaches of the multi-track. This would help to ensure that litigation costs are reasonable, proportionate and that all parties can proceed with greater certainty. The judiciary hopes that the Government will give this proposal favourable consideration.”

Many would agree with that. The problem is that until we have a superior court decision on various aspects of Fixed Recoverable Costs parties are proceeding with greater uncertainty than ever, rather than with greater certainty.

I have pointed out in my courses that the law is clear, or rather the laws are clear but there is a complete conflict between two clear laws.

Part 36 states that the indemnity basis is the correct basis of assessment when a claimant matches or beats its own Part 36 offer. That is a key incentive to a claimant to make such an offer and a key penalty on a defendant for failing to accept it. It is the necessary counterpoint to the fact that a defendant whose Part 36 offer is not beaten gets costs from 21 days after its offer, even though it has lost the case overall.

However CPR 45 applies fixed costs to certain types of cases without reference to any exception being made due to Part 36.

Thrown into the mix is the fact that Part 36 specifically does not apply to small claims but there is no such specific exclusion in relation to fast track claims or fixed costs cases.

Unsurprisingly there have been two distinct lines of authority with one set of cases holding that indemnity costs apply and another set holding that fixed costs apply.

That difference of opinion has been confirmed at the first tier of appeal with Circuit Judges coming to two different conclusions.

The matter was to have been resolved by the Court of Appeal on 8 February 2016 in a case called Butler v Palmer but that case has now settled.

Examples of recent conflicting decisions at Circuit Judge level are to be found in

Smith v Taylor, HH Judge Freedman, Newcastle-upon-Tyne County Court, 9 November 2015

Dixon v Bennett, HH Judge McKenna, Birmingham County Court, 23 December 2015

In Smith v Taylor Judge Freedman held that fixed costs did not apply stating:-

“I ask rhetorically what is the point of preserving the Part 36 benefits of indemnity costs if, in reality, the claimant’s solicitor receives no more by way of cost?”

Here it was conceded that the claimant was entitled to costs on the indemnity basis from the date of expiry of the relevant period pursuant to CPR 36.17(4) (b) and the issue was what, in practical terms, costs on an indemnity basis meant in the context of case where ordinarily the fixed costs regime pursuant to CPR 45 applied.

The judge held that costs under the fixed costs regime and costs on the indemnity basis cannot and should not be construed as being one and the same and that they are separate and distinct and require “a completely different approach when costs are being assessed.”

The judge said that if the intention was that the claimant should only recover fixed costs from the defendant in the event of a successful Part 36 offer that would have been spelt out in the amendment to the rules made by CPR 36.21. The judge said:-

“It cannot merely have been oversight that 36.21(3) applies only to where a claimant fails to obtain a judgment more advantageous than the defendant’s Protocol offer.  If what was contemplated was that the claimant should be limited to fixed costs in the same way that a defendant is in circumstances where there has been a successful Part 36 offer, it would have been straightforward for the Rules Committee to add a subsection to CPR 36.21 to the effect that where the claimant obtains a judgment more advantageous than the defendant’s Protocol offerthe amount of costs ordered shall not exceed the fixed costs…  The absence of any such wording, to my mind, makes it clear that the intention is that not only that the claimant should recover costs on an indemnity basis in accordance with CPR 36.17(4) (b) but that the costs should be quantified on an indemnity basis, not merely being awarded fixed costs.”

“…given the amendments to CPR 36 in the form of CPR 36.21 which were drafted at the same time as, and in contemplation of, the Fixed Costs regime in CPR 45 that CPR 36.21 is the specific rule and takes precedence over CPR 45.29B.  In other words, it seems to me that the proper construction is that the restriction on only fixed costs being allowed in accordance with CPR 45.29B must be read as being subject to the provisions of the Part 36 regime.”

“I do not think it at all surprising that the rules provide for the defendant only to recover fixed costs following a successful Part 36 offer whereas the claimant is entitled to indemnity costs.  The starting point is that where the claimant obtains a judgment, and neither party does better than a Part 36 offer, the claimant is entitled to all of her costs of the action. If, on the other hand, the claimant does better than her Part 36 offer, she should be entitled to something on top and that is by way of indemnity costs.  Similarly, if the defendant does better than his Part 36 offer, he should be entitled to something on top and that is by way of recovering fixed costs from the claimant.  There seems to me to be no illogicality in that approach.”

The judge also pointed out that the Explanatory Memorandum to the Statutory Instrument laid before the Lord Chancellor at the same time as the Statutory Instrument states:-

“If a defendant refuses a claimant’s offer to settle and the court subsequently awards the claimant damages which are greater than or equal to the sum they were prepared to accept in settlement, the claimant will not be limited to receiving his fixed costs, but will be entitled to costs assessed on the indemnity basis in accordance with rule 36.14.”

Although that is not the law it is a strong indication that the intention of Parliament was that a claimant who is successful in her or his Part 36 offer should receive indemnity costs and “will not be limited to receiving his fixed costs”.

In Dixon v Bennet His Honour Judge McKenna fell into the trap identified by HH Judge Freedman in Smith v Taylor of referring it to being “an oddity” if a successful Part 36 Defendant was limited to fixed costs but a successful Part 36 claimant was not so limited. That misses the point that the very fact that a defendant gets any costs at all in a case that it has lost is the Part 36 benefit and absent indemnity costs a Part 36 claimant gets no such benefit, as obviously it is successful and gets costs anyway.

In my view the reasoning of Judge Freedman in Smith v Taylor is much to be preferred to that of Judge McKenna in Dixon v Bennet on this point..

In Dixon v Bennett the judge held that although the claimant was entitled to indemnity costs and in the context of fixed costs cases that simply meant fixed costs and nothing extra. The judge quoted with approval the District Judge’s finding in this matters:-

““The indemnity basis” has a specific definition under the provisions of CPR 44.3(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”.  In a fixed costs regime, as far as there is any doubt, the cost is fixed and therefore the difference between quantification on the standard or indemnity basis has no practical effect.  That being the case, in my judgment it follows that indemnity costs under CPR 36.17(4) (b) prima facie means that all the claimant is entitled to are those fixed costs. There is no provision to dispense with the Part 45 fixed costs regime unless I apply CPR 45.1(1) which states: “This section sets out the amounts which, unless the court orders otherwise, are to be allowed in respect of legal representatives’ charges”.  The court thus retains discretion to order otherwise.  In my judgment, if it had been intended that the occurrence on a claimant beating his own Part 36 offer was that the Part 45 fixed costs regime was not to apply, the rules would make specific provision for that. The CPR do not do so. In particular, the situation is not addressed in CPR 36.21. Therefore, in my judgment, simply because the claimant has beaten the Part 36 Offer, it does not follow and it is not appropriate to make an order that the CPR 45 fixed costs regime should not apply.”

The Circuit Judge held that the wording of CPR 45.29A is clear:-

“It states in terms that Section IIIA of Part 45 will apply where a claim is commenced under the Portal but no longer continues under the Portal. There is no ambiguity or lack of clarity in the meaning of the words used. The fixed costs regime is plainly engaged and in those circumstances there is, as it seems to me no need for the court to interpret the rule, purposively or otherwise. The court’s task is merely to apply the plain meaning of the words…”

As I have been pointing out for some years CPR 45 and CPR 36 contradict each other in relation to fixed costs.

I sympathise with the judges who have to deal with these rules.

On balance, given the statement to Parliament in relation to Part 36 and fixed costs – quoted above – and given that even under the fixed costs regime the defendant achieves the benefit of receiving costs when it has made a successful Part 36 offer, my view is that to balance that a claimant should get a benefit when making the successful Part 36 offer and that that was the intention of Parliament.

Consequently, on balance and only on balance, I prefer the decision of Judge Freedman in Smith v Taylor.

 

The claimant discontinues the claim or loses at trial

 

The starting point is that the claimant will have the benefit of Qualified One-Way Costs Shifting, subject to exceptions dealt with in my piece – Qualified One-Way Costs Shifting. Discontinuance no longer triggers and automatic liability for costs.

 

In cases where QOCS does not apply, rather than the protection is lost through misconduct, the costs order in the defendant’s favour is capped at the Fixed Recoverable Costs that would have been payable to the claimant at the stage at which the costs order is made. If the matter is discontinued this will be at the stage at which the claim was discontinued; otherwise it will be the trial costs.

As there has been no award for damages so as to calculate the Fixed Costs, there is a complicated method attributing a value to the claim that serves to calculate the Fixed Costs and this is largely based on the information contained in the Claim Form but with vehicle based damages being excluded.

 

The claimant’s claim fails and Qualified One-Way Costs Shifting protection is lost for any one of the various potential reasons

 

The defendant’s costs are not capped by reference to Fixed Recoverable Costs but will be assessed in the usual way. Given that QOCS protection is only lost essentially for misconduct the award of costs in a defendant’s favour will almost certainly be on the indemnity basis.

 

The claimant fails to beat defendant’s Part 36 offer at trial in a claim where QOCS applies

 

See my piece – Qualified One-Way Costs Shifting for full details. Basically a failure to beat a defendant’s Part 36 offer means that QOCS protection is lost but costs will not be awarded on an indemnity basis absent any other factors. Thus the defendant will get costs capped at the Fixed Recoverable Cost level for the post Part 36 work and will get the full order but will only be able to enforce that order, without leave of the court, up to the level of damages awarded to the claimant.

Given that Fixed Recoverable Costs are essentially a form of recoverable contingency fees with the costs being calculated in part on a percentage basis, the defendant’s costs should never be able to exceed the damages in any event as the Fixed Recoverable Costs at which the defendant’s costs are capped are always lower than the amount of damages.

 

The claimant has QOCS protection and accepts the defendant’s offer out of time

 

If there is no court order then there is nothing for the defendant to enforce and the traditional rules do not apply. Generally the matter would be dealt with by a Consent Order but of course if a claimant accepts a defendant’s Part 36 offer then certain consequences apply automatically without the need for an order but on the face of it the claimant still gets QOCS protection.

 

However a defendant will simply refuse to pay anything beyond Fixed Recoverable Costs up to the date of expiry less defendant’s costs capped at Fixed Recoverable Costs for the post expiry period. The claimant would then have to sue for the balance of costs and the defendant could rely on the common law doctrine of setoff.

 

In a road traffic accident matter the defendant’s counterclaim succeeds and the court makes an order in the defendant’s favour

 

The defendant’s costs are assessed by reference to Fixed Recoverable Costs in the usual way.

If the defendant’s counterclaim succeeds but there is no personal injury element in relation to that counterclaim then the defendant is limited to recovering half of type A and B stage 3 costs, that is a total of £125.00, where the case does not go to trial and half of the applicable costs where it does go to trial, that is a total of £250.00.

 

What happens in a defendant’s counterclaim in Fixed Recoverable Costs as compared with settling in the portal?

 

In Crooks v Hendricks Lovell Limited (2016) EWCA Civ 8 an important issue was raised into the relationship between Part 36 and the effect of CRU.

Early on in the proceedings the defendant had made a Part 36 offer to settle using the standard form N252 A. That offer was “£18,500.00 net of CRU and inclusive of interim payments in the sum of £18,500.00.” On the next page of the form there was a statement which says “this offer is made without regard to any liability for recoverable benefits under the Social Security (Recovery of Benefits Act) 1997” and the box was ticked. There is an alternative box which reads “this offer is intended to include any relevant deductible benefits for which I am liable under the Social Security (Recovery of Benefits Act) 1997.” But that box was not ticked. There is also a space for an “amount…. offered by way of gross compensation” but no figure was put in there.

That part 36 Offer was not withdrawn and was still open for acceptance by the time the trial arrived.

At trial the claimant recovered £29,550.00 which consisted of general damages of £4,000.00, £25,500.00 for past loss of earnings and £50.00 for miscellaneous expenses.

The defendant at the time of judgment had discharged deductible benefits which then stood at £16,267.76 but because the CRU certificate was being reviewed, the judge adjourned the consideration of the issue of costs for further submissions.

Subsequently the CRU certificate was reviewed and the deductible benefits reduced to £9,502.65.

Following submissions on costs the judge ordered that the defendant pay the claimant’s costs up to a date 21 days after the original Part 36 offer had been made and thereafter the claimant pay the defendant’s costs.

I set out below a table showing the situation before and after the review of the CRU certificate

 

  Before CRU review After CRU review
Sum awarded £29,550.00 £29,550.00
CRU £16,267.76 £9,502.65
Net sum £13,282.24 £20,047.35

 

Lord Justice Lindbolm considered the effect of the Part 36 offer in respect of CRU. He concluded that the defendant’s offer was clearly made as a figure that was net of CRU and that the key issue was the figure that the claimant actually received rather than what the defendant was offering. There was no doubt that the Part 36 was a valid offer but what the defendants were offering was the sum of £18,500.00 net of CRU and that ultimately the claimant recovered more than that Net offer and therefore had beaten the Part 36 offer by the defendant. The court therefore concluded that the claimant was entitled to all of the costs of the action and overturned the decision of the judge at first instance.

The court said it would not become involved in a speculative exercise to consider whether a claimant should have accepted the offer when it was originally put forward and appealed the CRU certificate at that time.

It is therefore vital for the defendants to be very careful when considering the impact of CRU on the offer that they are making and construct their offers accordingly.

 

 

 

In Yentob v MGN Ltd [2015] EWCA Civ 1292

the Court of Appeal upheld a judge’s decision not to impose the normal penalties when a claimant failed to beat the defendant’s Part 36 offer.

The general rule is that the normal costs consequences apply unless the court finds that it would be unjust and the court must take into account all of the circumstances of the case in deciding that issue.

 

Here the claimant brought an action against the defendant for phone hacking and at trial failed to beat the defendant’s Part 36 offer. The court declined to order the claimant to pay the defendant’s post Part 36 costs.

This was an unusual case and lawyers should assume that generally the normal costs consequences of Part 36 will apply, while keeping their eyes and minds open to possible exceptions.

Here the trial judge had held that the case was exceptional because, until the trial took place, the claimant would not know how badly he had in fact been hacked and it was unlikely that MGN would have agreed to make a statement which matched the findings made at trial and because it was not apparent until the trial that the claimant could never get disclosure of the full extent of the hacking, due to destruction of documents.

The claimant could not recover his post Part 36 costs from MGN but justice did not, in those circumstances, require him to pay their costs. There would be no order for costs in relation to the post Part 36 period.

The trial judge, with whom the Court of Appeal agreed, said:

“45 In the circumstances, I consider that the justice of the case does involve a departure from the normal rule which would otherwise entitle the defendant to their costs from the 21-day period applicable to the offer, but not to the extent of entitling Mr Yentob to his costs throughout. Mr Yentob did have, but did not take, an opportunity to clarify the position in response to the offer in the last sentence of MGN’s Part 36 offer letter, and so did not take the opportunity to avoid having this debate or perhaps the whole action. In my view, the justice of the case is met not by simply imagining Part 36 offer had never been made, but by acknowledging that in financial terms Mr Yentob ought to have accepted that offer but has lost an opportunity perhaps to have avoided the action completely, with a serious question mark as to whether the defendants would have taken it, and to say that from the date of the expiry of the relevant period under that offer (which is, I think, the wording in the rule), there should be no order as to the costs of Mr Yentob’s action. Each side will bear their own costs. That will be my order.” (Italics added by the Court of Appeal).

 

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Our dried voices when

We whisper together

Are quiet and meaningless

T.S Eliot: The Hollow Men

 

 

 

Part 36 has been amended so that if a defendant makes a Part 36 offer before the defendant receives a fixed cost medical report, the provision that the claimant will be entitled to the fixed costs and will be responsible for the defendant’s costs for the period from the date of expiry of the relevant period to the date of acceptance will only have effect if the claimant accepts the offer more than 21 days after the defendant received the report.

 

I set out the wording of the changes as follows:-

 

“Amendments to the Civil Procedure Rules 1998

 

  1. In Part 36—

(a)in rule 36.10A—

(i)in paragraph (4), for “paragraph (5)”, substitute “paragraphs (5), (5A) and (5B)”;

(ii)in paragraph (5), for “Where” substitute “Subject to paragraphs (5A) and (5B), where”; and

(iii)after paragraph (5)(b) insert—

“(5A) In a soft tissue injury claim, if the defendant makes a Part 36 offer before the defendant receives a fixed cost medical report, paragraphs (4) and (5) will only have effect if the claimant accepts the offer more than 21 days after the defendant received the report.

(5B) In this rule, ‘fixed cost medical report’ and ‘soft tissue injury claim’ have the same meaning as in paragraph 1.1(10A) and (16A), respectively, of the RTA Protocol.”;

 

(b)in rule 36.14—

(i)in paragraph (2), for “paragraph (6)” substitute “paragraphs (6) and (7)”; and

(ii)after paragraph (6)(c), before the words in parentheses insert—

“(7) Paragraph (2) of this rule does not apply to a soft tissue injury claim to which rule 36.14A applies.”; and

 

(c)in rule 36.14A—

(i)in paragraph (2), for “paragraph (3)” substitute “paragraphs (3), (3A) and (3B)”;

(ii)in paragraph (3), for “Where” substitute “Subject to paragraphs (3A) and (3B), where”; and

(iii)after paragraph (3)(c), below the words in parentheses, insert—

“(3A) In a soft tissue injury claim, if the defendant makes a Part 36 offer or Protocol offer before the defendant receives a fixed cost medical report, paragraphs (2) and (3) will only have effect in respect of costs incurred by either party more than 21 days after the defendant received the report.

(3B) In this rule, ‘fixed cost medical report’ and ‘soft tissue injury claim’ have the same meaning as in paragraph 1.1(10A) and (16A), respectively, of the RTA Protocol.”.”

 

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Further, major changes to Part 36 came in in April 2015.

 

Proportionate Costs

In Webb v Liverpool Womens’ NHS Foundation Trust [2015] EWHC 449 (QB)

the Queen’s Bench Division of the High Court held that the fact that a claimant matched or beat its own Part 36 offer at trial did not prevent the court from making a percentage costs order on the basis that the claimant had failed on some of her specific claims.

Here the claimant’s allegations fell into two main parts:-

  • that during the labour of the claimant’s mother the need for a Caesarean section was indicated at 13.50 on 25 October 1999 and on at least three subsequent occasions but, negligently, no Caesarean section was performed and instead the defendant negligently decided that the birth should be allowed to proceed to a vaginal delivery;

 

  • that that vaginal delivery was negligently managed because the midwives undertaking it failed to adopt recognised procedures to deal with the shoulder dystocia that the claimant suffered in the course of the vaginal delivery.

 

The judge found for the claimant in respect of the failure to carry out a Caesarean section at 13.50 but against the claimant in respect of the defendant’s subsequent conduct and in relation to the vaginal delivery.

The effect of this ruling is that the defendant was liable to the claimant for 100% of her damages even though she had failed in relation to certain specific allegations.

On 1 October 2014 the claimant made a Part 36 offer to settle on liability on the basis that she received  65% of the damages that would accrue on a 100% basis. That offer was rejected on 9 October 2014. There were no other Part 36 offers but on 10 October 2014 the defendant repeated in writing an offer that it had made verbally at a settlement meeting on 1 October 2014 that it would settle on the basis that the claimant receives 30% of damages.

Clearly the claimant beat her own offer. She argued that she should receive indemnity costs from the expiry of the relevant period plus enhanced interest plus enhanced damages.

The defendant argued that it would be unjust to allow the normal Part 36.14(3) consequences and that even if they were not dis-applied the court was entitled to, and should, make a proportionate costs order to reflect the claimant’s failure on many issues.

The court held that it was not unjust for the usual Part 36 consequences to apply.

The court then considered whether, in the absence of a Part 36 offer, a proportionate costs offer pursuant to CPR44.2 would have been appropriate, bearing in mind the general rule that the unsuccessful party pay the costs of the successful party.

In Day v Day [2006] EWCA Civ 415

the Court of Appeal applied the test of identifying the successful party by asking which party was writing the cheque as a result of the judgment. On that test the claimant here was the successful party and thus a proportionate costs order would be a departure from the normal rule.

In Multiplex Constructions UK Ltd v Cleveland Bridge UK Ltd [2008] EWHC 2280 TCC

the Technology and Construction Court set down propositions of general application concerning issue based orders identified from a review of previous cases.

There the court held that an issue based, or proportionate, costs order need not be confined to exceptional cases. The extent to which costs should be disallowed should be left to the evaluation of the judge “by reference to the justice and circumstances of the particular case”.

The reasonableness of taking failed points can be taken into account.

There is no automatic rule that an issue based order should be made because the successful party loses on one or more issues and indeed the mere fact that such a party was not successful on every issue cannot, of itself, justify an issue based costs order. This is so because in complex litigation including complex personal injury cases any winning party is likely to lose on one or more issues in the case.

Here the court found that the allegations were separate and not dependent upon one another and there was separate expert evidence in relation to each limb of the case.

Consequently the judge found that, absent a Part 36 offer, he would have exercised his discretion to make a proportionate costs order.

PART 36 OFFER

The claimant maintained that Part 36 is a self-contained regime and that costs have to be considered in the context of that regime and not the one created by CPR 44 and that as the claimant had beaten her own Part 36 offer that insulated her against a proportionate or issue based costs order.

The defendant argued that the court was free to make such an order and referred to the cases of Thinc Group Ltd v Jeremy Kingdom [2013] EWCA Civ 1306 and Davison v Leitch [2013] EWHC 3092 (QB) both of which suggested that Part 36 is not “all or nothing”.

By analogy the defendant argued that avoiding injustice was not limited to considering whether the successful Part 36 party receives all of the enhancements on costs; it must also permit the court to take the view that not all costs should be awarded where to do so would cause injustice.

The judge found in favour of the defendant and said that he was satisfied that the fact that there was a successful Part 36 offer did not prevent the court from making an issue based or proportionate costs order.

Consequently a proportionate costs order, limited to a percentage of the claimant’s costs would be made, with that figure to be determined at a subsequent hearing.

On the costs to be allowed the Part 36.14 enhancements would apply and a 10% uplift on damages would apply as would the enhanced interest rate on damages.

 

The court here failed to consider the key case of Fox v Foundation Piling Limited [2011] EWCA Civ 790 where the claimant claimed £280,000.00 but secured judgment for only £31,700.00 but nevertheless beat the defendant’s Part 36 offer of £23,500.00.

 

The Court of Appeal held that the claimant was the winner with Lord Justice Jackson stating that “in a personal injury action the fact that the claimant has won on some issues and lost on others along the way is not normally a reason for depriving the claimant of part of his costs… For example, the claimant may succeed on some of the pleaded particulars of negligence, but not on others.”

 

In Magical Marking Ltd and Another v Ware and Kay LLP and Others [2013] EWHC 59 (Ch) the claimant recovered just £28,000.00 of a £12 million claim in a trial lasting 13 days.

 

The judge held that the defendant had acted properly in never making a Part 36 offer, even a modest one of say £30,000.00, as acceptance of any such offer would have triggered a liability for all of the claimant’s costs. The judge ordered the successful claimant to pay 85% of the defendant’s costs.

 

 

PART 36: CLAIMANTS’ OFFERS AND COURT BIAS – ELSEVIER CONSIDERED

 

In R (on the application of MVN) v London Borough of Greenwich [2015] EWHC 2663 Admin the Administrative Division of the High Court held that the fact that the claimant matched its own Part 36 offer was not of itself sufficient to justify an award of indemnity costs. There must be some concession by the claimant.

 

Here the claimant matched its own offer in a case which involved a declaration concerning the claimant’s age and did not involve quantum.

 

The court relied on AB v CD [2011] EWHC 602 (Ch) where the court held that a request to a defendant to submit to judgment for the entirety of the relief sought by the claimant could not be an “offer to settle” within the meaning of Part 36 and that the offer must contain some genuine element of concession on the part of the claimant.

 

The court also referred to the case of East West Corporation v DKBS [2002] All ER (D) 361 where the claimants sought Part 36 indemnity costs in relation to an offer, made seven days after the letter before action, to settle for 100% of the claim.

 

That decision in any event predated the change in the law by Parliament whereby, in spite of this decision, a claimant only has to match the offer. Previously the claimant had to beat the offer to get the Part 36 bonus of indemnity costs.

 

Since then Parliament has added considerable extra bonuses, including a 10% uplift of damages for a claimant who matches or beats its own Part 36 offer.

 

Here the judge found that there was no genuine offer to settle within the meaning of CPR 36.17(5)(e) as the claimant was offering no concession.

 

In a judgment which, if followed, largely destroys the concept of claimant Part 36 offers, the court said at paragraph 40:

 

“It is not merely a case of considering whether the judgment, which has been obtained is “at least as advantageous to a claimant” as the offer made (see CPR 36.17(1)(b)” .That is a prerequisite for the application of CPR 36.17(4) at all. CPR 36.17(5) however, requires the court to look at the position, it seems to me, not only of the claimant but more generally, and in the case of CPR 36.17(5)(e) to decide whether the offer has both “give” and “take”, and then, having made that assessment, determine whether it would be unjust for the consequences referred to in CPR 36.17(4) to operate notwithstanding that CPR 36.17(1)(6) applies. It cannot, therefore, be right that the only question is whether the judgment is “at least as advantageous to the claimant” as the offer.

 

If this judgment is correct then what was the point of Parliament changing the law so that the claimant has only to match, and not beat, its own offer?

 

Absent that clear line in the sand there is no certainty at all. Is a 95% offer “genuine”? 90%? 99%?

Why should not a defendant pay indemnity costs and the extras if it fails to settle a claim at a level with which the court subsequently agrees?

 

If a defendant gets it exactly right, by offering exactly the sum which the court eventually orders then the claimant always gets punished hard in costs, possibly wiping out the whole award, yet in reality in such cases the defendant has made no concession. It has simply offered what the court ultimately awarded. A concession would involve offering more than the court ultimately awards.

Why should a claimant be in any different position?

 

Why are the courts so biased against claimants when it comes to Part 36?

 

Part 36 is far more important than any other rule and has application in virtually every civil case.

 

I support fully the proposals of Jackson L J in relation to claimants’ Part 36 offers and indeed would have gone further and made the uplift 20%.

 

So why are the courts getting claimants’ Part 36 offers hopelessly wrong and why do they think it acceptable to punish severely a claimant who fails to beat a defendant’s Part 36 offer but unacceptable to do the same to a defendant who fails to accept a claimant’s proper offer?

 

In Elsevier Limited v Robert Munro [2014] EWHC 2728 (QB) Supplementary Judgment

 

the Queen’s Bench Division of the High Court considered the costs position where a claimant matches or beats its own Part 36 offer in a non-monetary claim.

 

Here the proceedings concerned a successful application for an injunction by an employer to prevent an employee from working for a competitor during his notice period.

 

Before trial the employer had made an offer which would have allowed the employee to start work over three months earlier than the date ultimately ordered by the court.

 

Damages were claimed in the claim form but not pursued and thus the claim was a non-monetary one.

 

The parties agreed that the claimant was entitled to costs on the indemnity basis and they also agreed interest on those costs at 4.5% above base rate.

 

The remaining issue between the parties was whether the claimant was entitled to a 10% uplift on costs pursuant to CPR 36.14(3) which, insofar as relevant, reads:

 

“….where rule 36.14(b) applies, the court will, unless it considers it unjust to do so, order that the claimant is entitled to……

 

(b)          costs on the indemnity basis from the date when 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 –

 

  • where the claim is or includes a money claim, the sum awarded to the claimant by the court;

 

(ii)           where the claim is only a non-monetary claim, the sum awarded to the claimant by the court in respect of costs”.

 

The prescribed percentage for the purposes of CPR 36.14(3)(d) is, where the award is up to £500,000, 10% of the amount awarded and, where the award is above £500,000 and up to £1 million, 10% of the first £500,000 and 5% of any amount above that figure.

 

It is important to note that the new provisions of Part 36 were made pursuant to section 55 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012.  Thus Parliament thought it important enough to set this out in primary legislation, rather than leave it to the Rules Committee.

 

This legislation is simply not mentioned in the judgment and it appears that the judge was unaware of it, specifically Section 55(5) which provides that in relation to a non-monetary claim the uplift order

 

“must provide for the amount to be calculated by reference to one or more of the following –

 

“(a)        any costs ordered by the court to be paid to the claimant by the defendant in the proceedings

 

[(b)        related to mixed claims]

 

(c)           the value of any non-monetary benefit awarded to the claimant”.

 

Section 55 was implemented by The Offers to Settle in Civil Proceedings Order 2013, SI 2013 No 93 and Article 3(4)(b) reads as follows:

 

“(b)        in a non-monetary claim only, the following percentages of any costs ordered by the court to be paid to the claimant by the defendant –

 

Costs ordered to be paid to the claimant Amount to be paid by the defendant
Up to £500,000 10% of the costs ordered to be paid
Above £500,000, up to £1,000,000 10% of the first £500,000 and 5% of any costs ordered to be paid above that figure

 

(5)          The amount to be paid shall not exceed £75,000.”

 

Again the judgment makes no mention whatsoever of this Statutory Instrument or its terms, directly or indirectly.

 

Here the claim form was issued on 4 June 2014 and on 9 June 2014 the claimant made a Part 36 offer to settle the claim on the basis that the defendant would be allowed to start work with the competitor on 1 January 2015.

 

Time for accepting that offer expired on 30 June 2014 and the trial started on 9 July 2014 and ended on 16 July 2014, and the judge restrained the defendant from working until 11 April 2015.

 

Thus the judgment obtained by the claimant falls within the scope of CPR 36.14(1)(b) as being “at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer”.

 

The court rejected the defendant’s argument that as the pleaded claim included a claim for damages it was a CPR 36.14(3)(d)(i) claim and not a (d)(ii) claim meaning that no additional amount could be claimed in relation to costs.  The damages claim was an alternative to an injunction; the injunction having been granted, there was no damages claim.

 

At paragraph 6 the court said:

 

“6.          The question arises of what is meant by “the claim” in CPR36.14(3)(d)(i) and (ii).  If those words refer to the entire claim as advanced in a claim form or Particulars of Claim then the pleaded claim in this case is one which “includes a money claim”.  It seems to me, however, that the language of the sub-paragraph directs attention to the time at which the court is deciding whether to order payment of an additional amount and that “the claim” means the claim in respect of which the court has given the judgment which is more advantageous than the offer.  Moreover, if the Defendant’s submission was right then in any case where the principal claim is for an injunction but damages are claimed in the alternative a defendant enjoined after refusing a reasonable offer of settlement under Part 36 would have no exposure to any additional liability.  By losing on the injunction claim the defendant would eliminate any liability in damages and consequently any exposure to the additional amount.  That cannot have been the intention.”

 

The court then went on to consider whether it would be unjust to order the defendant to pay the additional amount pursuant to CPR 36.14(3)(d)(ii).

 

CPR 36.14(4) provides that in considering whether the award of an additional amount would be unjust the court “will take into account all the circumstances of the case” including four specified matters:

 

“(a)        the terms of any Part 36 offer;

 

(b)          the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;

 

(c)           the information available to the parties at the time when the Part 36 offer was made; and

 

(d)          the conduct of the parties with regard to the giving or refusing to give information for the purpose of enabling the offer to be made or evaluated”.

 

At paragraph 9 and 10 the court said:

 

“9.          There is more force in some of the Defendant’s other submissions.  He says that the compressed timescale of these proceedings means that the Claimant’s offer was made close to trial, with the result that there was little time for negotiation and in any event he did not have the Claimant’s witness statements available until 30 June 2014, the last day for acceptance of the offer.  This makes any criticism of him for failing to settle less cogent, he suggests.  The proximity of the offer to the trial also means, submits the Defendant, that an order for an additional amount would have a disproportionate and unjust effect.  Unlike the provision for interest on costs the additional amount would not be tied to the timing of the offer but has an “all-or-nothing” effect.”

 

“10.        In the circumstances of this case the effect of an order for an additional amount would be twofold.  First, it would add a penal element in relation to costs incurred in the period from 1 July 2014 onwards. In addition to compensating the Claimant on the indemnity basis for costs incurred over that period, and paying interest on those costs at 4.5% above base rate, the Defendant would pay an additional sum of up to 10% of the costs awarded.  The intention of this provision was to penalise a defendant for failure to accept a reasonable offer in time. The rule clearly contemplates such consequences which are not unjust within the meaning of the rule.”

 

At paragraph 11 the court points out that a 10% uplift would impose upon the defendant a substantial additional liability in respect of costs incurred before 1 July 2014, that is by the deadline for accepting the offer.  Indeed it would involve an uplift on some costs incurred before any offer was made.

 

The court then said:

 

“The additional liability order would add 5-10% to the amount of those costs.  Its effect would be to impose a liability close to or possibly greater than that which would flow from an indemnity costs order”.

 

The judge concludes consideration of the Part 36 issue at paragraph 12:

 

“12.        It may be that in some cases it would be just to impose such a liability on a defendant.  That might be so, for instance, if a claimant made a Part 36 offer which ought to have been seen immediately as at least equal to the best outcome the defendant could reasonably expect.  That is not this case, however.  Although it failed, the Defendant had a legitimate argument for a shorter period of restraint.  Moreover, it would be unduly harsh to criticise the Defendant for failing to accept the offer promptly given the pace with which the proceedings were advancing, the pressures imposed by that pace, and the last stage during the 21 days at which he obtained sight of the Claimant’s statements.  The imposition of an additional liability would therefore involve an element of penalty that I do not consider it just to impose on this Defendant and I decline to make an order for an additional amount. ”

 

Comment

 

This whole judgment shows a woeful failure to understand Part 36, especially claimants’ offers.

 

By definition an alteration of the usual costs rule involves a “penal element.”  What could be more penal than a winning claimant being deprived of all of its damages and costs by being forced to pay all of the defendant’s post Part 36 costs on failure to beat that Part 36 offer, even in a finely balanced case?

 

Those of us of a certain pre ATE insurance vintage recall vividly cases where someone had been terribly injured but received nothing due to a failure to beat what was then a payment into court.

 

Undue harshness, talk of prompt acceptance and criticism of conduct never comes in to it when a claimant fails to beat a defendant’s Part 36 offer – the penal costs consequences are regarded as automatic.

 

The judge says “It may be that in some cases it would be just to impose such a liability on a defendant”.

 

That is hopelessly the wrong way round.  The law requires that the court “will, unless it considers it unjust to do so….”.

 

The word “will” means that it is mandatory for the court to impose the sanction “unless it considered it unjust to do so”.  Thus it is for the defendant to prove that it is unjust, not for the claimant to show that it is just.

 

The judge also seems perturbed that the 10% uplift applies to pre-Part36 offer costs.  Well that is very clearly what the legislation says.

 

Furthermore had this been a damages claim the successful claimant would get a 10% uplift on all damages.  Suppose this was a £500,000 claim and the claimant matched its offer. It gets a bonus of £50,000.  If the judge ordered £499,000 then for the sake of £1,000 the claimant fails to get £50,000.

 

That is the nature of Part 36.  A claimant who fails by a penny to beat a defendant’s Part 36 offer gets slaughtered in costs.

 

Parliament has not allowed this to be open-ended; there is a maximum uplift of £75,000 comprised of 10% on the first £500,000 and 5% on damages/costs between £500,000 and £1 million.

 

The judge’s ignorance of costs is reflected in the statement that an increase of 5% to 10% would be “close to or possibly greater than that which would flow from an indemnity costs order”.  Thus he thinks that solicitor and own client indemnity rates in commercial work are no more than 5% to 10% above recoverable between the parties rates.  Really?

 

The court here recognized that this very reform “was introduced in 2013 pursuant to the Jackson reforms because it was considered by Jackson L J that under the previous regime “the claimant was insufficiently rewarded and the defendant insufficiently penalised when the claimant had made an adequate offer”.

 

That is direct quote from the Jackson Report and thus Jackson L J, correctly in my view, used the word “penalised”, but the court here refused to apply the law because “it would add a penal element”.

 

Firstly it is not for judges to disobey Parliament and secondly what does the judge think indemnity costs are if not penal?  Or interest at up to 10% above base rate?

 

Yet again this shows that the courts are quick to punish claimants in costs re Part 36 but very reluctant to punish defendants.

 

We already have a situation where a late – accepting claimant has to pay the defendant’s costs for the period after time for acceptance has expired but where there is no penalty on a late – accepting defendant. We need a claimant’s equivalent of CPA 36.10(5).

 

The approach of the courts to claimants’ Part 36 offers is a serious problem which is undermining one of the best of the Jackson Reforms.

 

It is time for the Court of Appeal to give no-nonsense guidance on the issue and time also to increase the penalty to 20% and change the wording to:

 

“Unless the court considers it unjust to do so and considers it would cause the defendant severe financial hardship”.

 

Until then claimants and their lawyers will continue to believe that Part 36 as applied by the courts is an anti-claimant stitch up.

 

In Gulati and Others v MGN Ltd [2015] EWHC 1805 (Ch)

 

the Chancery Division of the High Court held that where a claimant’s Part 36 offer had been withdrawn and then beaten at trial it was not appropriate to award the claimant indemnity costs in the absence of otherwise unreasonable conduct which would attract an indemnity costs award in any event.

 

The court’s general costs discretion under CPR 44.3 did not justify an award of indemnity costs absent such unreasonable conduct.

 

The court distinguished the decision in The Trustees of Stokes Pension Fund v Western Power Distribution (South West) plc [2005] EWCA 854

 

where the Court of Appeal allowed an inoperative Part 36 offer – no money had been paid into court as then required – to have Part 36 effects.

 

It also refused to apply CPR 44.2(4)(c) which allows a court to take non Part 36 offers into account and give them the same effect as Part 36 offers.

 

Comment

 

This is another fundamentally flawed decision reflecting the courts’ anti-claimant bias when it comes to Part 36.

 

Here, as before, the court is equating indemnity costs orders with misconduct. That is not the case when a claimant matches or beats its own Part 36 offer; it is merely a device to give claimants an incentive to make such offers and defendants to accept such offers.

 

It is no more punitive and requiring of misconduct than the fact that a successful claimant has to pay the unsuccessful defendant’s costs if it fails to beat a defendant’s Part 36 offer.

 

However in Cashman v Mid Essex Hospital Services NHS Trust [2015] EWHC 1312 (QB)

 

the Queen’s Bench Division of the High Court held that the starting point where a claimant at least matches its own Part 36 offer is that the claimant is entitled to an award under each of the sub-paragraphs of CPR 36.14(3). Only if it is unjust to do so will the court decline to make an award.

 

CPR 36.14(3) deals with:-

 

  • interest of up to 10% above base;

 

  • indemnity costs;

 

  • interest of up to 10% above base on costs;

 

  • 10% uplift on damages.

 

Where, as here, the matter in dispute is costs, then the 10% uplift at (d) is on those costs.

 

Here a clinical negligence claim settled for £90,000.00 with costs to be assessed on the standard basis if not agreed. The receiving party submitted a bill for £262,000.00 and made a Part 36 offer of £152,500.00 and on assessment the court awarded £173,693.78.

 

The Master awarded the additional benefits under (a) to (c), but not the 10% uplift on costs under (d).

The High Court overturned that decision and ordered a 10% uplift on costs, the subject matter of the Part 36 offer.

 

The court recognised that “the rule was introduced not only to provide an incentive to a claimant to make a timely realistic Part 36 offer but also to penalise a defendant for not accepting such an offer.” (Paragraph 7)

 

Costs were not to be treated any differently from damages. A high bill which is much reduced on assessment is not a valid reason for refusing to make an additional award under CPR 36.14(3)(d).

 

It is the terms of the Part 36 offer, not the level of the original bill, which is key; otherwise the claimant is penalised for making a reasonable Part 36 offer.

 

There may be circumstances when it would be unjust to make an award under (d) but just to make awards under (a) to (c) (paragraph 23).

 

In Duncan v Churm Oxford County Court, 14 September 2014 the court ordered the claimant to pay the defendant’s costs from the date of the claimant’s original, too high, schedule of May 2013 rather than from the date of the defendant’s Part 36 offer on 14 January 2014 which was accepted by the claimant on 17 July 2014.

The schedule was for £1 million and was amended to £500,000.00 and the Part 36 offer which was accepted was for £202,500.00.

In Hertel and Artemis v Saunders and Others [2015] EWHC 2848 (Ch)

the Chancery Division of the High Court, in allowing an appeal, held that a Part 36 offer which failed to state whether it related to the whole of the claim or just part of it was not a valid Part 36 offer and therefore no costs consequences would flow from its acceptance.

Here the claimants sued a number of parties alleging that certain individuals were involved in a partnership in claiming sums due from certain companies.

The claimants applied for permission to amend the Particulars of Claim and before they were amended the defendants’ solicitors wrote a letter offering to settle and stated that it was made under Part 36.

That Part 36 offer stated that the claim as pleaded was bound to fail against the individual defendants but the offer was made on the basis of the proposed amendments. The claimant accepted.
Before the Master both parties agreed that it was a valid Part 36 offer and the Master ordered the defendants to pay the claimants’ costs, which one might have thought was the end of the matter.

However the defendants appealed arguing, contrary to their stated position before the Master, that the offer was not a Part 36 offer even though it stated that it was a Part 36 offer and was treated by the claimants as a Part 36 offer and was stated by both parties in front of the Master to be a Part 36 offer and unsurprisingly was held by the Master to be a Part 36 offer as that was not in dispute.

 

The defendants maintained that a Part 36 offer could not be construed so as to cover a case that had not in fact been pleaded or formulated into an existing action.

The High Court upheld that submission.

It is not clear from the judgment as to why the claimants did not argue estoppel; at paragraph 35 the judge specifically notes that “the Claimants do not argue that the Defendants are estopped from contending otherwise. Accordingly, I must deal with the new case on its merits.”

That may be so, but the Appeal Court is entitled, and indeed generally bound, to prevent matters being raised on appeal which were not raised at the original hearing, here that point being that the defendants’ offer was not in fact a Part 36 offer.

For all intents and purposes this was an appeal against a consent order as far as the issue of Part 36 was concerned.

It is true that the offer did not deal with the whole of the claim and therefore had, under the old CPR 36.2(2) (d) to:

“state whether it relates to the whole of the claim or to part of it or to an issue that arises in it and if so to which part or issue;”

The judge found that the Particulars of Claim had never been amended and that the defendants’ statement that they would not oppose the amendment did not amount to consent under CPR 17.1(2).

Therefore the accepted offer did not relate to any part of the claim and could not be a Part 36 offer.

The judge rejected the claimants’ submission that that did not matter as a Part 36 offer could be made at any time, including before proceedings, so the amendment or otherwise of the issued proceedings was irrelevant.

Comment

 

So the defendants make an offer which states that it is a Part 36 offer. The claimants accept on that basis. Thus both parties agree that it is a Part 36 offer.

At the hearing before the Master the defendants still agree that the Part 36 offer made by them was indeed a valid Part 36 offer but argue, for reasons particular to the case, that the usual costs consequences of a Part 36 offer should not apply. The Master rejects their submission.
The defendants then appeal claiming that it was not a Part 36 offer after all, a point they had never raised in front of the Master. Indeed they had always stated that it was a  Part 36 offer.

The High Court judge agrees and allows the appeal, and indeed orders the claimants to pay the defendants’ costs, meaning that the claimant would have been far better off not accepting the Part 36 offer but proceeding to trial.

Part 36 gets more uncertain by the day and as it is the chief disqualifier of Qualified One-Way Costs Shifting it makes the already Byzantine concept of Qualified One-Way Costs Shifting even more difficult to follow.

In NJ Rickard Ltd v Holloway, Court of Appeal, 3 November 2015, Unreported

 

the Court of Appeal held that the failure of a Part 36 offer to state that the person receiving the offer would be liable for the offeror’s costs if the offer was accepted invalidated it, meaning that the judge should have regard to CPR 44.

 

Looking afresh at the matter under CPR 44 the Court of Appeal said that the correct order was no order for costs.

 

The landlord claimant received £16,000.00 at trial having made a Part 36 offer to drop hands, that is that the landlord would drop the claim for arrears of rent and damage to the property and the tenant would drop the counter-claim for breach of quiet enjoyment. At trial the tenant received £7,000.00 on the counter-claim meaning that the net beneficiary was the landlord.

 

The first instance judge held that Part 36 consequences should apply and ordered the tenant to pay the claimant’s costs up to the end of the relevant period and on the indemnity basis with 8% interest thereafter.

 

The costs were between £85,000.00 and £100,000.00.

 

The Court of Appeal found that the claimant had taken much time on unsuccessful points and the defendant had won on important points and that the landlord had not responded to the tenant’s requests for mediation.

 

The refusal to engage in ADR was unreasonable. The appropriate order was no order for costs even though the landlord had won financially.

Comment

Claimant’s Part 36 offers are now virtually pointless given the court’s hostility to them. Costs are becoming more of a lottery than the case itself.

 

What happened to the simple, good old test of deciding who had lost by looking at the party writing the cheque?

Here the claimant offered to drop hands, the defendant refused and lost and yet the claimant was punished in costs for not mediating. Making a Part 36 offer is a far more effective way of seeking to settle a case than offering to go to mediation.

The full transcript is not yet available and it may be that there is more to this case than meets the eye, but the uncertainty around the effectiveness of claimant’s Part 36 offers is unsettling. Such a hard, technical line, is rarely taken with defendants’ Part 36 offers.

The Court of Appeal also indicated its support for fixed costs, stating that the fact that the costs were £85,000.00 to £100,000.00 made as strong a case as was possible that there should be some form of limitation on recoverable costs.

In Worthington v 039184284 Ltd (unreported) Manchester District Registry, 16 June 2015

 

the defendant accepted, out of time, the defendant’s Part 36 offer and the usual consequences would be that the defendant pays the costs to the expiry of the relevant period and the claimant pays the defendant’s costs on the standard basis thereafter.

 

Here the court found that the claimant had exaggerated the claim and that had he not done so the matter would have been resolved by June 2012.

 

The defendant made a Part 36 offer in May 2014 and that was accepted out of time.

 

The claimant argued that by leaving the offer on the table the defendant was submitting to the Part 36 process and the ordinary costs consequences should apply.

 

The judge disagreed and said that a claimant who does not accept an offer within time “necessarily puts himself at risk and knew or ought to have known that he put himself at risk of an argument as to the principle of costs.”

 

The judge accepted that at the time that he made the offer the defendant had “if not all, certainly the vast majority of the surveillance evidence to hand.”

 

Consequently rather than making the usual order that the defendant pay the costs up to the expiry of the relevant period, generally 21 days after the offer is made, with the claimant paying thereafter the judge ordered the defendant to pay the claimant’s costs up to 30 June 2012, when he thought the case should have been settled, and ordered the claimant to pay the defendant’s costs thereafter, that is for a period of two years before the defendant made the Part 36 offer.

 

To rub salt into the wound the judge ordered the claimant to pay those costs to the defendant on the indemnity basis.

 

Comment

 

A defendant, in full possession of surveillance evidence, makes a Part 36 offer, expressed to have the consequences of Part 36 and does so in May 2014 having not made a previous offer.

 

The claimant accepts it late, but it is well-established law that an unwithdrawn Part 36 offer is always capable of acceptance.

 

Why on earth should the claimant’s initial exaggeration make any difference to the usual Part 36 consequences on costs? The defendant could have made an earlier offer; the defendant could have made the offer other than under Part 36; the defendant could have withdrawn the offer.

 

The situation here is that the claimant has won the case but been ordered to pay costs for very nearly two years when it was impossible for the claimant to settle the offer by accepting a Part 36 offer, because none had been made.

 

The claimant then accepts the Part 36 offer in the full knowledge that he will get his costs up to the expiry of the relevant period and have to pay them on the standard basis thereafter. However the court does not do that, rather it orders the claimant to pay costs for two years longer than he was expecting to do so and orders them on the indemnity, not the standard basis.

 

It makes a complete mockery of Part 36.

 

Why are not defendants punished for derisory offers? If a defendant offers £10,000.00 and subsequently settles for £50,000.00 why should they not routinely be ordered to pay indemnity costs.

 

Indemnity Costs

 

A claimant who matches or beats its own Part 36 offer at trial gets amongst other things, indemnity costs. Note that proportionality does not apply to indemnity costs. This is another powerful reason for always making a Part 36 offer.

 

In Kellie and Kellie v Wheatley and Lloyd Architects Ltd [2014] EWHC 2886 (TCC)

 

the High Court was considering indemnity costs in the context of misconduct, rather than Part 36, but the principles are the same in terms of the amount awarded. There the court considered the interplay between indemnity costs and costs budgets.

 

This was a professional negligence claim which was lost and the defendant sought indemnity costs on the ground of the claimant’s conduct.

 

CPR 44.3 reads:

 

“44.3 (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”.

 

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.

 

The court quoted Lord Woolf in

 

Lownds v Home Office [2002] EWCA Civ 365

 

“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”.

 

Here the court said that this distinction is highlighted by the CPR and Practice Direction concerning costs management.  Practice Direction 3E paragraph 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”.

 

CPR 3.18:

 

“In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –

 

  • have regard to the receiving party’s last approved or agreed budget for each of the proceedings; and
  • not depart from such approval or agreed budget unless satisfied that there is good reason to do so”.

 

In Henry v Group Newspapers Ltd [2013] EWCA Civ 19 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 [2012] EWHC 1643 (TCC).

 

In that case the High Court held that even on an indemnity basis the starting point is the approved budget.

 

The court here in Kellie disagreed, holding that

 

“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 [29], 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 [30], 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 [30] 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 or Kellie 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.

 

10% uplift on damages for successful Part 36 claimants

 

The Jackson Report proposed a 10% uplift for claimants who matched or beat their own Part 36 offer and this has now become Section 55 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, implemented by The Offers to Settle in Civil Proceedings Order 2013, Statutory Instrument 2013 No 93.

 

Implementation is by the Lord Chancellor by Statutory Instrument (55(8)), and Article 2(b) of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No 2 and Specification of Commencement Date) Order 2012 (SI 2012 No. 2412 (c.94) brought Section 55 in to force. The explanatory note to the Statutory Instrument reads:

 

“Article 2(b) brings into force section 55 of the Act. Section 55 provides for rules of court to be made in relation to civil proceedings involving a claim for money to permit a court to order an additional amount to be paid to a claimant by a defendant, where the defendant does not accept the claimant’s offer to settle, and the court gives judgment for the claimant that is at least as advantageous to the claimant as the claimant’s offer. Section 55 also confers a power on the Lord Chancellor to provide that rules of court may make similar provision in relation to civil proceedings which include a non-monetary claim.”

 

The Offers to Settle in Civil Proceedings Order 2013 prescribes the percentage uplifts in various types of case.

 

Money only claims

 

Article 2 prescribes the uplift on damages in money only claims as follows:

 

Amount awarded by the court                                   Prescribed percentage

 

Up to £500,000                                                                  10% of the amount awarded

 

Above £500,000, up to £1 million                               10% of the first £500,000 and 5% of the amount awarded above that figure

 

Above £1 million                                                               7.5% of the first £1 million and 0.001% of the amount awarded above that figure

 

This is as expected, with the addition of 0.001% of damages over £1 million, that is one-one thousandth of a per cent, or £10 for ever extra £1 million. There must be a reason for this, but it eludes me.

 

Mixed claims, that is monetary and non-monetary benefits

 

Article 3(4)(a) provides:

 

Amount awarded by the court                                   Amount to be paid by the defendant

 

Up to £500,000                                                                  10% of the amount awarded

 

Above £500,000, up to £1 million                               10% of the first £500,000 and 5% of the amount awarded above that figure

 

By Article 3(5) the maximum is specifically stated to be £75,000.

 

Non-monetary only claims

 

Article 3(4)(b) provides for an uplift on costs not damages in such cases:

 

Costs ordered to be paid to the claimant              Amount to be paid

 

Up to £500,000                                                                  10%

 

Above £500,000 and up to £1 million                        10% of the first £500,000 and 5% of any costs above that

 

By Article 3(5) the maximum is specifically set at £75,000.

 

Those Rules must make provision as to the calculation of the value of a non-monetary benefit awarded to a claimant (Article 3(3)(b)), a hospital pass if ever there was one.

 

Part 36 & Litigants in Person

 

The massive increase in the number of litigants in person and the ever increasing complexity of CPR 36 are causing the courts problems; in particular the court has to consider to what extent a solicitor should explain to a litigant in person what a Part 36 offer is and the consequences of accepting or not accepting such an offer.

 

In Kunaka v Barclays Bank [2010] EWCA Civ 1035

 

the Court of Appeal gave guidance.

 

There a claimant acting in person accepted the defendant’s Part 36 offer three months late and the defendant bank had not pointed out to the claimant the consequences of late acceptance.
There the Court of Appeal held that it had to take into account that the claimant was a litigant in person and ordered that there be no order as to costs from 21 days after the date when the offer was made with the claimant recovering costs up until then. Thus the lack of explanation by Barclays Bank meant that they did not get post expiry costs as would usually be the case.
The issue was considered in May 2015 by a District Judge in Liverpool County Court in a personal injury claim where a claimant had been represented pre-issue but had become a litigant in person.

 

She claimed £1.4 million and tried to increase the value of the claim to over £4 million but ultimately accepted, in April 2015, the defendant’s Part 36 offer of £50,000.00 which had been made one year earlier but she disputed that she should pay costs for the 11 months between expiry of the offer and acceptance.

 

The defendant’s letter making the Part 36 offer set out the costs consequences in detail and both counsel and solicitor for the defendant attempted, without success, on more than one occasion to discuss settlement with the claimant. The defendant’s solicitor then sent a five page letter to the claimant setting out clearly and plainly how the claim would be valued at trial, the defendant’s view of the likely outcome and the consequences of accepting the defendant’s offer late and of not beating it.

 

The defendant’s solicitor invited the claimant to contact him and gave her his direct dial telephone offer.

 

She rejected the offer.

 

At a costs hearing the judge commented that although the CPR applied equally to litigants in person and represented parties he was well aware that Part 36 was complex. However the defendant’s solicitor had made every effort to explain the costs consequences and therefore it was just to make the normal order with regard to costs.

 

Thus the claimant was ordered to pay the defendant’s costs incurred from 21 days after the offer and also the costs of the costs hearing.

 

It is most important that when faced with a litigant in person the solicitor acting for the other party does absolutely everything possible to ensure that the litigant in person is fully aware of the consequences of Part 36 offers and the consequences both of acceptance and rejection.

 

CASE LAW

 

In Watchorn v Jupiter Industries Limited [2014] EWHC 3003 (Ch) the Chancery Division of the High Court set out the approach to be taken when a claimant matches or beats its own offer at trial.

 

Here the claimant was awarded £360,000.00 at trial having made a Part 36 offer of £325,000.00.

Costs were ordered on the indemnity basis.

 

Interest on costs from 21 days after the Part 36 offer was awarded at 10% above base rate, the highest rate allowed.

 

Interest on damages was also awarded at 10% above base rate, again the highest rate allowed.

The court awarded a 10% uplift on damages but held that that uplift applied to damages before the 10% interest was added, pointing out that otherwise the real uplift would be 11%.

 

In summary the claimant got:-

 

  • indemnity costs;

 

  • 10% above base rate interest on those costs;

 

  • 10% above base rate interest on damages;

 

  • 10% uplift on those damages but no uplift on the interest.

 

Comment

This is how claimants’ Part 36 offers are supposed to work.

 

 

 

Additional Damages

 

In Downing v Peterborough and Stamford Hospitals NHS Foundation Trust [2014] EWHC 4216 (QB)

 

the High Court awarded the claimant the current maximum of £75,000.00 additional damages for matching or beating its own Part 36 offer.

 

The High Court held that it was obliged to make such an order unless it considers it “unjust” to do so.

 

The High Court also ordered indemnity costs and had this to say:-

 

“60. Mr Porter [counsel for the defendant] referred to the indemnity costs provision as “punitive” in character. In one sense he is right, but one must be careful in the use of language in this context. It is quite clear that this rule, which obviously has legislative sanction, was not intended to “punish” only conduct which is deemed in some way morally reprehensible or which was in breach of a rule or statutory requirement. A decision was taken, as a matter of public policy, to impose sanctions in order to encourage and facilitate the settlement of litigation and, correspondingly, to avoid parties incurring the costs involved in going to trial and also to save court time. Indemnity costs are, therefore, bound sometimes to be payable under CPR 36.14(3)(b) because an assessment of the merits proves not to have been justified or simply because an informed guess as to the outcome turns out to be wrong.

 

  1. It is elementary that a judge who is asked to depart from the norm, on the ground that it would be “unjust” not to do so, should not be tempted to make an exception merely because he or she thinks the regime itself harsh or unjust. There must be something about the particular circumstances of the case which takes it out of the norm.”

 

“62… The Defendant’s advisers made a particular judgment call which turned out (at least at first instance) to have been wrong. Such an award does not carry with it any implied criticism of their professional skill or of their conduct. It is just one of the consequences imposed by the rules. I rule, accordingly, that costs should be assessed from the relevant date on the indemnity basis and, further, that there should be interest on those costs at 10% above base rate under CPR 36.14(3)(c).”

 

In RXDX v Northampton Borough Council [2015] EWHC 2938 (QB)

the Queen’s Bench Division of the High Court applied some, but not all, of the punitive awards in CPR 36.14(3), which sets out the sums that the court will order “unless it considers it unjust”:-

(a)          interest on the whole or part on 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 expires;

 

(c)           interest on those costs at a rate not exceeding 10% above base rate; and

 

(d)          an additional amount which shall not exceed £75,000.00…”

 

The claimant beat its offer to accept an 80% – 20% liability split at a split trial on liability.

The judge prepared a draft costs order providing for indemnity costs and interest, but no uplift in damages and no additional interest on damages.

The claimant submitted that the judge was not free to apply on some elements; it was a complete code and “a complete menu all of whose courses must be delivered”.

The judge rejected that argument and held that he should consider each individual sub-paragraph and whether its application would be unjust in the circumstances of the case.

 

Comment

 

The courts finally seem to be realising that the law as passed by Parliament is just that and that when a claimant matches or beats its Part 36 offer then they must get indemnity costs and must get the 10% enhancement on damages and should get interest at 10% above base rate unless it is “unjust” to do so.

 

Damages in claims in the Intellectual Property Enterprise Court are capped at £500,000.00.

 

In Abbott v Design and Display Ltd [2014] EWHC 3243 (IPEC)

 

that court held that the 10% increase in damages where a Claimant matches or beats its own Part 36 offer is not included within that cap and thus can be awarded over and above the limit of £500,000.00.

 

The court said:-

 

“…the “additional amount” has nothing to do with compensating a Claimant for any wrong committed by the Defendant in the substantive dispute. Along with other provisions in CPR36.14(3) it is solely intended to serve as an incentive to encourage claimants to make, and defendants to accept, appropriate Part 36 offers. That incentive is every bit as important to effective procedure in the IPEC as it is in other courts. The court has a discretion not to apply the provisions of CPR36.14(3) where the court considers that it will be unjust to do so. In my judgment that also allows the court to apply only some of those provisions and not others, as may be appropriate to the case. However the principle to be maintained in relation to CPR36.14(3) is that it should be applied in a way such as to generate a vigorous incentive to make and accept claimant’s Part 36 offers.”

 

However the court held that it had no power to exceed the cost cap; in other words it will not be possible to award indemnity costs if the limit has been reached by standard or scale costs.

 

Claimant’s Part 36 Offers on Liability

 

A claimant now only has to match its own offer at trial, or on judgment being entered, to achieve the very significant claimant’s Part 36 bonuses as set out in CPR 36.14.  CPR 36.14 (3) provides:

 

“Subject to paragraph (6), where rule 36.14 (1) (b) applies, the court will, unless it considers it unjust to do so, order that the claimant is entitled to –

 

  • 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 day on which the relevant period expired;

 

  • his costs on the indemnity basis from the date on which the relevant period expired;

 

  • interest on those costs at a rate not exceeding 10% above base rate.”

 

CPR 36.14 (6) covers situations where a Part 36 offer has been withdrawn; has been changed so that its terms are less advantageous to the offeree, and the offeree has beaten the less advantageous offer; or has made less than 21 days before trial (unless the court has abridged the relevant period).

 

Consequently if a claimant makes a liability offer of 100% and then has judgment entered on that basis, or succeeds on a 100% liability at trial, then the claimant is clearly entitled to those extras.

 

In Hamed v Mills and Tottenham Hotspur Football Club and Others [2015] EWHC 387 (QB)

 

the High Court ordered indemnity costs against the first defendant from the date of the expiry of a liability offer whereby the claimant offered to resolve liability on the basis of 95% liability of the defendants and where the offer was not beaten at trial but rather on the third day of the trial the defendant conceded full liability.

 

Furthermore the offer had only been made to Doctor Mills and not Tottenham Hotspur Football Club.

 

Ultimately the Football Club were found to be liable for 70% of the costs and Doctor Mills for 30%.

 

The High Court ordered Doctor Mills not only to pay his costs on an indemnity basis from the expiry of the Claimant’s Part 36 offer on liability but to pay the difference between the claimant’s costs on a standard basis and the claimant’s costs on an indemnity basis on the other 70% of the costs ordered to be paid by the Football Club and in relation to the period after the expiry of the Part 36 offer.

 

However by virtue of The Offers to Settle in Civil Proceedings Order 2013 SI 2013 No 93 the claimant now also gets 10% additional damages in those circumstances.

 

Does a claimant get that 10% uplift on damages where it has matched or beaten its own offer on liability?

 

Thus for example a claimant offers to accept 95% and wins at trial.  Does the claimant get a 10% uplift on the 95% bringing it to 104.5%?  Or in the case of a 100% offer does the claimant get 110%?

 

The answer appears to be yes and in the Jolly case that I deal with below, simply dealing with CPR 36.14 and not the 10% damages uplift which was not then enforced, the court assumed that a claimant matching or beating its liability offer at trial, or on judgment being entered, would achieve all of the bonuses.  For reasons set out in that case, these were not awarded as judgment had not been entered.

 

However it must follow that the damages uplift would also apply where a claimant matches or beats its own liability offer.

 

Gordon Exall takes the same view.  On 16 August 2013, commenting on a blog, he said:-

 

“I think the 10% additional damages apply.  CPR 36.14 (b) deals with the situation where “judgment against the defendant is at least as advantageous to the claimant as proposals contained in a claimant’s Part 36 offer”.

 

If a claimant beats its own offer on liability then it has obtained a more advantageous offer and the new laws (10% extra damages etc.) come into effect.  The extra 10% may have to be assessed at a later date if the trial is on liability.”

 

In fact of course a claimant only has to match, not beat, its own offer and this is still very widely misunderstood and indeed in the Jolly case the offer made on liability was 99%.

 

I have recently heard of a barrister adamantly insisting that a claimant was not allowed to make a liability offer above 90%.  That is absolute nonsense.

 

A further additional point is whether the claimant gets indemnity costs in relation to all work done.  Thus a claimant offers to accept liability on a 100% basis and the defendant does not accept that offer.  There is then a huge amount of work done on quantum as well as on liability.  The claimant wins the case on a full liability basis.

 

My view is that the claimant gets indemnity costs on all of the work from 21 days after the date of the Part 36 offer as it has achieved a judgment against the defendant” at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer”.

 

All claimants should always make a Part 36 offer on liability on the day that the case comes into the office.

 

As we await the long talked about amendments to Part 36 there remains an un-level playing field; it is far harder for a claimant to get the benefits of matching or beating its own Part 36 offer as compared with the claimant’s liability when failing to beat a defendant’s Part 36 offer.

 

The key difference is that a claimant has just 21 days to accept a defendant’s offer; late acceptance triggers adverse costs from the end of that 21 day period as well as loss of recovery of own costs.

 

In contrast a defendant can accept as late as it wants without penalty.  The claimant bonuses – 10% damages increase, indemnity costs and additional interest on everything – only come in to play when judgment is entered for the claimant and indeed CPR 36.14 is entitled “Costs consequences following judgment.”

 

This itself is a slight softening of the old CPR 36.21 in the 1998 rules where the claimant had to beat its own offer – now it only has to match it – and had to do so at trial; judgment being entered was not sufficient under the old rules.

 

In Jolly v Harsco Infrastructure Ltd [2012] EWHC 3086 (QB)

 

the Queen’s Bench Division of the High Court considered the position where a defendant accepted the claimant’s offer on liability outside the 21 day period.

 

The claimant claimed the additional benefits, but the defendant pointed out, correctly, that these were not available to the claimant as judgment had not been entered.  Consequently the claimant applied for judgment to be entered.

 

The claimant accepted that there was no specific power to enter judgment in these circumstances, and accepted that there are situations where it would not be appropriate to enter judgment following acceptance of a Part 36 offer.  An example would be where the parties compromise a claim with a money offer, but without acceptance of liability.  The claimant submitted that here there was no valid reason not to implement the agreed liability apportionment by entering judgment with damages to be assessed.  CPR 36.11, which stays an action when an offer is accepted, did not preclude the court from entering judgment.

 

Here the acceptance had been late and the court found that CPR 36.10 and 36.11 applied and said:-

 

“13. If Part 36 is a self-contained code, and the claimant wishes to take advantage of its provisions, it seems to me that she is confined by its terms.  The defendant has accepted the claimant’s Part 36 offer outside the period of 21 days specified in CPR 36.2(2) (c), but before its withdrawal.  The applicable regime is therefore CPR 36.10, “Costs consequences of acceptance of a Part 36 offer” and CPR 36.11, “The effect of acceptance of a Part 36 offer”.  As we have seen CPR 36.10(5) provides for certain costs consequences where paragraph (4) (b) applies, unless the court orders otherwise.

 

  1. In principle CPR Part 36.10 (5) would appear to apply in this case but the claimant is entitled to argue for a different order and the court may agree. CPR 36.11 provides that a stay operates. As we have seen under CPR 36.11 (5) (b) the stay does not affect the power of the court to order costs.  Nothing in the self-contained code which is Part 36 provides for judgment to be entered in the situation.  Mr Steinberg [counsel for the claimant] could point to no specific power in the CPR.  To my mind the change in terminology from the 1998 version of Part 36 does not fill the gap.  What has happened in this case is that the issue of liability has been compromised by the late acceptance of a Part 36 offer.  The defendant has not consented to judgment being entered.  There is no power for me to enter judgment under Part 36.  In my judgment the appropriate order should follow CPR 36.10 and 36.11, and CPR 36.14 is not applicable.  The issue of liability should be stayed upon the terms of the claimant’s offer and the question of the costs relating to that issue (including the basis of the assessment of those costs) should be postponed to be dealt with under CPR 36.10 (4) and (5) or under the general discretion under CPR 44.3.”

 

Thus the court was not ruling out making an indemnity award of costs.

 

Secret Applications by NHS

 

In Evans v Royal Wolverhampton Hospitals NHS Foundation Trust [2014] EWHC 3185 QB

 

Mr Justice Leggatt overturned the first instance decision to allow a defendant to withdraw its Part 36 offer and to set aside the claimant’s acceptance of that offer in circumstances where the claimant was not notified of the application.

 

At paragraph 55 the judge held…

 

“(i)    It was not permissible to allow the defendant to withdraw its Part 36 offer and to set aside the claimant’s purported acceptance of that offer on an application made without notice to the claimant, and the ex parte order dated 7 August 2014 must therefore be set aside;

 

(ii)    The defendant cannot rely in opposition to the claimant’s application to enter judgment or in support of a request to adjourn the hearing on evidence or arguments not disclosed to the claimant and to which the claimant has no opportunity to respond;

 

(iii)   It follows that, unless the defendant serves the evidence and discloses the arguments on which it wishes to rely in opposition to the claimant’s application forthwith, the claimant is entitled to enter judgment pursuant to CPR 36.11(7).”

 

Here the defendant had made a secret application to withdraw a Part 36 offer and persuaded the original court that the reasons for the application, and evidence upon which it was based, should be withheld from the claimant.

 

This was a clinical negligence case. On 3 July 2014 the defendant made a Part 36 offer of £325,000.00 and on 23 July 2014 at 11.25am served a notice of withdrawal of the offer. As this was within 21 days of the offer having been made the defendant needed the court’s permission to withdraw it.

 

At 12.45pm on the same day, still within the 21 day period, the claimant accepted the offer.

 

The defendant did not pay up and the claimant applied for judgment pursuant to CPR 36.11(7) –

 

“If the accepted sum is not paid within 14 days or such other period as has been agreed the offeree may enter judgment for the appeal sum.”

 

Unbeknownst to the claimant the defendant made a without notice – ex parte in old money – application to withdraw the offer. The judge, remarkably in Mr Justice Leggatt’s view, “breath-taking, bizarre, strangest case I have ever read on procedure” in Mr Gordon Exall’s view, gave permission to withdraw the offer and dispensed with the requirement that the application notice and evidence be served on the claimant.

 

The judge who made the order held that the court had jurisdiction to permit the defendant to withdraw its Part 36 offer after a claimant had accepted it, but adjourned the question of whether the claimant was entitled to see the evidence upon which the order was made to a High Court judge.

 

Mr Justice Leggatt sets out how matters developed:-

 

“13. On 13 August 2014 the claimant received a copy of this order (which I will call “the ex parte order”). However, as sanctioned by paragraph 5 of the ex parte order, the claimant was not served with the application notice or the evidence which had been relied on in support of the defendant’s application. Nor was the claimant given any note or other record of what had been said at the hearing. Even now, the claimant and her representatives do not know the basis on which the ex parte order was made. The only information provided to them has been a redacted version of the defendant’s skeleton argument for the hearing on 7 August 2014. This contains a submission that there was a change of circumstances which justified permitting the defendant to withdraw its offer. However, in the copy disclosed to the claimant the parts of the skeleton argument which presumably explained the nature of this alleged change of circumstances have been blanked out.”

 

“17. I have not seen the defendant’s application notice dated 24 July 2014 nor the evidence relied on in support of its application for permission to withdraw its Part 36 offer; nor have I been told the grounds on which the defendant contends that there had been a change of circumstances which made it just to give such permission. The defendant has asked me to consider this material without it being disclosed to the claimant. The claimant objects to that course.”

 

The claimant relied on three recent decisions of the Supreme Court which considered the requirements for natural justice and faced with that submission the defendant conceded that the claimant could, and should, see the evidence and know the basis on which the order was made. The defendant asked for an adjournment.

 

Matters then proceeded as follows, and I quote from the judgment of Mr Justice Leggatt:-

 

“31. Before granting an adjournment, however, the court would need to be satisfied that there is a sufficient reason to do so. Mr Counsell submitted that, for this limited purpose, it is permissible for the court to consider evidence and argument which has not been disclosed to the claimant. In support of this contention he relied on the passages in the judgment of Lord Hope in the Al-Rawi case at para 72 [Al Rawi v Security Service [2012] 1 AC 531] and in the Bank Mellat case at para 81 [Bank Mellat v Her Majesty’s Treasury (No. 2) [2014] AC 700] which I have quoted above and on the similar distinction between ancillary matters and questions of substantive rights drawn in the BSkyB case [R (BSKyB Limited) v Central Criminal Court [2014] AC 885]. He submitted that the adjournment which the defendant is seeking is a procedural matter which does not engage the fundamental principles of open and natural justice. In due course the claimant can see the defendant’s evidence and the substantive questions raised by the applications can then be argued and decided in accordance with an open and fair procedure.

 

  1. Mr Samuel responded to the effect that justice delayed is justice denied. The claimant is at present being kept out of money which, if her acceptance of the defendant’s Part 36 offer was valid, she should have been paid by 6 August 2014. He submitted that the delay that has already occurred, and any further delay, affects her substantive rights and is causing her, as a severely disabled person, real prejudice. In these circumstances any application to adjourn the hearing can itself only properly be conducted on the basis that the grounds and evidence relied on in seeking an adjournment are disclosed to the claimant.

 

  1. The question which I found difficult when listening to the oral argument and which led me to reserve judgment is whether I should look at the defendant’s evidence solely for the purpose of deciding whether there is any merit in the application for an adjournment. On the one hand it seemed to me unfair to follow a procedure, for any purpose at all, which involves putting the parties on an unequal footing. But on the other hand I felt a concern that, without knowing the reasons which are said by the defendant to require an adjournment, I cannot say whether they are insufficient. I also felt a concern that it might be unfair to require the defendant to disclose the reasons to the claimant, or for the court to refuse to consider them unless they are disclosed, when it is the defendant’s case that such disclosure would itself defeat the reasons why an adjournment is required.

 

  1. On consideration, however, I have come to the clear conclusion that these concerns are misplaced and that I can and should reject the application for an adjournment without considering any evidence or argument which the defendant has refused to disclose to the claimant.”

 

Mr Justice Leggatt then launched into a strong attack on the way the matter had been handled and stressed the importance of full disclosure and went on to say at paragraph 49:-

 

“I conclude that it would be unlawful and improper for the court to receive evidence or argument from the defendant in support of a request for an adjournment without the claimant knowing the contents of that evidence and argument.”

 

The judge also said:

 

“It is difficult to see how it could ever be compatible with natural justice to determine a question of substantive legal right against a party to litigation at a hearing held without notice to that party…” (Paragraph 38).

 

“I cannot accept that it was or could have been appropriate in this case for the defendant to apply to the court for permission to withdraw its Part 36 offer and to have the claimant’s purported acceptance of the offer set aside without giving notice of the application to the claimant.” (Paragraph 39).

 

“ It was all the more wrong in my view when such permission was given and the claimant’s purported acceptance of the Part 36 offer was set aside at a hearing from which the claimant was excluded, to conceal from the claimant the grounds on which that order had been made.  I am not aware of any precedent for such procedure and none was cited. This is unsurprising as the procedure seems to me to represent a denial of justice.” (Paragraph 43).

 

As far as I am aware neither the claimant nor any of the judges dealing with this matter are any the wiser as to what the reasons lay behind the extraordinary behaviour of the Royal Wolverhampton Hospitals NHS Foundation Trust and its lawyers.

 

Part 36 & Contribution Proceedings

 

In Chief Constable of Hampshire Constabulary v Southampton City Council [2014] EWCA Civ 1541

 

the Court of Appeal held that the two year time limit for bringing a claim for a contribution under the Civil Liability (Contribution) Act 1978 ran from the date of acceptance of a Part 36 offer, not from the date of the subsequent court order.

 

It ruled that previous decisions holding that date of settlement, not the date of the consent order, was the relevant date were good law.

 

It rejected an argument that, because costs still had to be assessed the “amount to be paid” had not been determined.

 

Section 10(4) of the Limitation Act 1980 focuses on the sum which the Defendant agrees to pay for the actual damage caused, not any ancillary liability for costs, even though that liability can be subject to a contribution claim under the 1978 Act.

 

Non-Part 36 Offer

 

In Sugar Hut Group Ltd and Others v AJ Insurance [2014] EWHC 3775

 

the Commercial Court of the Queen’s Bench Division of the High Court reduced the successful claimant’s costs by 25% as they had failed to succeed on several heads of damages.

 

In one discreet area the defendant made a non-Part 36 offer which the claimant beat. However adding that to the total offer by the defendant produced a figure which the claimant failed to beat, although no Part 36 offers were made.

 

The claimant was also slow to give disclosure and pursued an unduly high claim for business interruption, leading to an overall figure below what the defendant would have paid. Consequently the defendant was awarded its costs from the date of the non-Part 36 offer.

 

The judge was very careful to distinguish previous cases and to make it clear that he was not reintroducing the “near miss” rule as in Carver v BAA, which had been overturned by Parliament. He recognised the danger that it may be seen that way.

 

The non-Part 36 offer made by the Defendant clearly showed that the defendant was prepared to value the loss of profit at £600,000.00, and it said so in the offer, and that is more than the judge awarded at the hearing.

 

The case contains a detailed examination of previous case law in relation to this matter and also in relation to depriving a successful claimant of part of its costs when it had lost on various issues.

 

CPR 44.2(5)(b) provides that the conduct of the parties includes “…whether it was reasonable for a party to… pursue or contest a particular allegation or issue…”

 

The court held that it was not reasonable for the claimants to pursue the claim for lost profit given the background set out above.

 

In making the reduction in costs the court also reflected the fact that the claimant had exaggerated its claim.
CPR 44.2(5)(d) expressly provides that the conduct of the parties which the court must have regard to under CPR 44.2(4)(a) includes whether “a claimant who has succeeded in the claim in whole or in part, exaggerated its claim”.

 

In Haynes v Department for Business, Innovation and Skills [2014] EWHC 643(QB)

 

the Queen’s Bench Division of the High Court confirmed that in cases involving multiple defendants, an individual defendant may, on acceptance of a Part 36 offer, be liable for non-specific common costs in addition to the costs attributable to the proceedings against it.

 

In Burrett v Mencap Ltd, 14 May 2014

 

DJ Ackroyd considered the position when a Part 36 offer is varied, rather than withdrawn with a fresh offer being made.

 

Here the defendant made a Part 36 offer of £15,000.00 to settle a personal injury claim but after reviewing video evidence reduced it to £2,500.00 by variation and the claimant accepted it within 21 days of the variation.

 

The wording of the revised offer was:-

 

“We hereby change the terms of our client’s Part 36 offer dated 19 July pursuant to CPR 36.3.6.”

 

Was the client entitled to costs up to the date of acceptance or was the defendant entitled to costs from the time for accepting the original, higher offer?

 

The judge found in favour of the defendant, holding that the costs consequences ran from the date of the first offer; there was nothing in the rules and no cases that indicated any entitlement to additional time when an offer is varied.

 

Given this finding a defendant intending to reduce an offer should do so by way of variation, rather than by withdrawing the original offer and replacing it with a lower offer.

 

Likewise a claimant who wishes to increase a claimant’s Part 36 offer. An accepting defendant would then face indemnity costs and increased interest from the date of the original, lower offer.

 

Ms Burrett was granted leave to appeal to the Court of Appeal but did not pursue the appeal.

 

CPR 36.5 to 36.7 read:-

 

“(5) Before expiry of the relevant period, a Part 36 offer may be withdrawn or its terms changed to be less advantageous to the offeree, only if the court gives permission.

 

(6) After expiry of the relevant period and provided that the offeree has not previously served notice of acceptance, the offeror may withdraw the offer or change its terms to be less advantageous to the offeree without the permission of the court.

 

(7) The offeror does so by serving written notice of the withdrawal or change of terms on the offeree.”

 

In Sutton Jigsaw Transport Ltd v Croydon London Borough Council – Queens Bench Division 27 February 2013

 

the claimant purported to accept the defendant’s Part 36 offer during an adjournment on the first day of the trial, first orally then by a hand written note given to the defendant. Two minutes after receiving the hand written note the defendant sent a fax to the claimant’s solicitors with written notice that the offer was withdrawn.
The court held that the offer had not been validly accepted.

 

CPR36.9(1) provides that a Part 36 offer is accepted by serving written notice on the offeror and CPR6.22(3) allows personal service of documents except for when an address for service has been provided. Here the claimant had not served written notice of acceptance on the defendant’s address for service before the offer was formally withdrawn.

 

The court refused the claimant’s application to dispense with service, or for retrospective substituted service, as this would have given it an unfair advantage over the defendant who had complied with the rules.

 

Here the claimant needed the court’s permission to accept the offer as the trial had already started, but the same principles would apply in a case where the court’s permission is not required.

 

In Magical Marking Ltd v Ware and Kay LLP [2013] EWHC 636 (Ch) the Claimant recovered £28,000.00 after a three week trial of a £10 million claim, and the defendant was awarded 85% of its costs.

 

The defendant had not made a Part 36 offer and the court held that that decision was reasonable given the automatic liability for the claimant’s costs had a Part 36 offer been accepted.

 

The court referred to the Court of Appeal decision in Medway PCT v Marcus [2011] EWCA Civ 750

 

which made the same point. In that case that claimant had a conditional fee agreement with a recoverable success fee and a recoverable After-the-Event insurance premium. The effect of a defendant’s Part 36 offer would have been to expose the defendant to a costs liability of several hundred thousand pounds even if the offer accepted had been £30,000, which was the eventual value of the claim.

 

In Fox v Foundation Piling Ltd [2011] EWCA Civ 790 the claim was for £280,000 but the claimant obtained judgment for £31,700, thus beating the defendant’s Part 36 offer of £23,500. The court held that the claimant was the winner and thus entitled to full costs. At paragraph 48 Jackson LJ said

 

“in a personal injury action the fact that the claimant has won on some issues and lost on other issues along the way is not normally a reason for depriving the claimant of part of his costs: … For example, the claimant may succeed on some of the pleaded particulars of negligence, but not on others.”

 

In Dumcum v Churm Oxford County Court 12 September 2014, HHJ Harris QC

 

exercised the court’s discretion to vary the usual costs consequences of accepting a defendant’s Part 36 offer in circumstances where the claimant had grossly exaggerated the claim.

 

The claimant commenced proceedings in 2011 and on 31 May 2013 served a Schedule of Loss claiming Special Damages of £1 million.

 

In January 2014 the claimant revised that Schedule of Loss, dropping it to £500,000.00.
The defendant then made a Part 36 offer of £202,500.00 on 14 January 2014 which was accepted in July 2014.

 

As this was after the expiry of the relevant period the starting point, unless the court ordered otherwise, was that the claimant was entitled to the costs of proceedings to the date of expiry of the relevant period and the defendant was entitled to costs thereafter.

 

In SG (a minor) v Hewitt [2012] EWCA Civ

 

the Court of Appeal held that CPR 36.10(4)(b) should be interpreted consistently with CPR 36.14(2) so that the court should make the usual order unless that would be “unjust in all the circumstances”.

 

Applying that, and authorities such as Hullock v East Riding County Council [2009] EWCA Civ 1039, the judge here held that when it can be properly inferred that the case would have settled much sooner had the claimant been reasonable then that fact should be reflecting costs. The original claim here was likely to have greatly inhibited the prospect of an early settlement and it would be unjust for the defendant to bear the costs incurred when the claimant was seeking to recover five times what she eventually settled for.

 

Accordingly the judge ordered that the claimant pay all of the defendant’s costs from the date of service of the initial exaggerated Schedule of Loss.

 

This problem has not been addressed in the new post April 2015 Part 36.

 

Knowledge of level of costs is key when considering making or accepting a Part 36 offer, but there is no entitlement to such information.

 

In Mehjoo v Harben Barker (A firm) [2013] EWHC 1669 (QB)

 

the defendant complained that it did not know the claimant’s costs and therefore could not judge the offer. The Queen’s Bench Division of the High Court held that the defendant was not entitled to the information under Part 36 but suggested that CPR 36.8 be amended so that the clarification process covered costs information.

 

That would assist those in receipt of a Part 36 offer but would not help defendants considering making such an offer.

 

In Thinc Group Ltd v Kingdom [2013] EWCA Civ 1306 the potential paying party asked for such costs information so as to assess the Part 36 offer, but there was no response.

 

The Court of Appeal held that that failure to respond could properly be taken in to account in deciding not to make the usual costs order.

 

An offer purported to be under Part 36 and which makes an inclusive offer dealing with damages and costs is in fact not a valid Part 36 offer, but rather a Calderbank offer, which can be taken into account under CPR 44.3.

 

There is a tension here in that although the court can take any offer into account it should not turn offers that fail to comply with Part 36 into Part 36 offer – see

 

Hammersmith Properties (Welwyn) Ltd v Saint-Gobain Ceramics and Plastics Ltd [2013] EWHC 2227 (TCC)

 

In Sycamore Bidco Ltd v Breslin [2013] EWHC 583 (Ch)

 

the court expressed the view that the defendant could have made a counter-offer under Part 36 offering to pay the damages sum claimed but less than all of the costs.

 

In Bellway Homes Ltd v Seymour (Civil Engineering Contractors) Ltd [2013] EWHC 1890 (TCC)

 

the court suggested that is was open to the parties to agree when using Part 36 that the issue of costs be left to the court.

 

Neither of these suggestions reflect the wording of Part 36 and both appear to be inconsistent with the decision of the Court of Appeal in

 

Gibbon v Manchester City Council [2010] EWCA Civ 726

 

to the effect that Part 36 is a self-contained code whose rules must be followed and which is not bound by ordinary common law principles.

 

In Procter and Gamble v Svenska Cellulosa Aktiebolaget SCA [2012] EWHC 2839 (Ch)

 

the claimant made a claimant’s offer, expressed to be under Part 36, but offering to forego its own Part 36.10 entitlement to costs and indeed to pay the defendant’s costs. Here the judge said:-

 

“I do not accept that it is impossible for a claimant to comply with Part 36 unless he requires to be paid his costs…”

 

Again this appears to conflict with the clear wording of Part 36.

 

Costs

 

With effect from 1 April 2013 the old CPR 47.19 dealing with offers in costs only proceedings has gone and Part 36 now covers all costs proceedings. This is not without its problems – see Provisional Assessment.

 

The 10% uplift for a receiving party matching or beating its own Part 36 offer applies in detailed costs proceedings, including provisional assessment which is a subset of detailed assessment.

 

Costs belong to the client, and therefore in order to charge this extra 10% the solicitor – client retainer must expressly allow for this. In a Conditional Fee Agreement funded cases, this should be in the CFA itself.

 

It should be noted that the anti-claimant bias of Part 36 remains; a claimant only gets the enhancement if judgment is given at a hearing and thus a defendant is free to accept a claimant’s Part 36 offer years out of time with no penalty, whereas a claimant who accepts a defendant’s Part 36 offer out of time pays every penny of costs of both sides from the minute after the expiry date for accepting the offer.

 

The 10% claimant’s uplift is a curious beast.  In reality it is a punishment of the defendant quantified by reference to damages, except that if there is no monetary award, then the 10% is calculated by reference to costs.

 

In reality it is a costs penalty.  Whether it is damages or costs, they belong to the client, and specific provision must be made in the contract with the client if any charge is to be made.

 

If the contract provides for the solicitor to take up to 25% of damages over and above recoverable costs, then clearly 25% may be taken, provided that this does not cause the solicitor to fall foul of the rules in relation to success fees, and provided it is justified by the amount of work done.  This will always need careful retrospective analysis – see CFA Analysis Form re The Underwoods Method.

 

Note that if the claimant has matched or beaten his or her own Part 36 offer, then there should not be much “fat” in the difference between solicitor and own client costs and recoverable costs as indemnity costs, that is solicitor and own client costs, should be awarded in such a scenario.

 

Thus it will be much more likely that the success fee, with all of its restrictions, will need to be utilized.  This begs the question as to what element of the 10% uplift falls into the Allowable Damages Pool.  Clearly the 10% on general damages and specials to date fall in to the pool, but so also should future specials, as the rule preventing success fee deduction from this element is to ensure that the claimant is not deprived of, say, a quarter of future care.

 

In reality this 10% is a bonus, a windfall, and is not required to fund future care costs.

 

In practice a client who has won and matched or beaten their own Part 36 offer and achieved this bonus is unlikely to complain, but some guidance from the courts would be welcome.

 

The problem is that the description of specified damages in Article 5 of The Conditional Fee Agreements Order 2013 neither includes, nor excludes this type of award from the Allowable Damages Pool.  A similar problem arguably arises in relation to bereavement damages.

 

Article 5(2) reads:

 

“(2)        The description of damages specified for the purposes of section 58(4B)(d) of the Act are-

 

  • general damages for pain, suffering and loss of amenity; and

 

  • damages for pecuniary loss, other than future pecuniary loss,

 

net of any sums recoverable by the Compensation Recovery Unit of the Department for Work and Pensions”.

 

It will be seen that the Article states what does form the Allowed Damages Pool, rather than simply listing exclusions. Thus it is not clear whether any part of bereavement damages may be taken by way of a success fee.  This problem is largely avoided by using the Underwoods Method.

 

An issue also arises in relation to Part 36 offers in detailed assessment proceedings (see below).

 

It must be noted carefully that the 10% Part 36 uplift is additional to, and separate from, the Simmons v Castle 10% uplift on general damages. There are obvious problems in relation to the interplay between the two.

 

Supposing a claimant offered £10,000.00 pre 1 April 2013 and a defendant offered £9,500.00, also pre 1 April 2013, and in June 2013 the court awards £9,200.00, uprated by 10% to £10,120.00.

 

Has the claimant beaten its own offer, thus qualifying for indemnity costs, or has the claimant failed to beat the defendant’s offer, thus incurring liability for all of the defendant’s costs from 21 days after the defendant’s offer?

 

Why should a defendant who made an offer above what a court would have ordered not get the Part 36 benefits? In the scenario set out above salt will be rubbed in to the defendant’s wound as he will have to pay indemnity costs as well!

 

Of course it can be argued that any defendant could have increased its Part 36 offer by 10%, but why should a defendant pay over the odds in relation to a regime that was not yet in?

 

In any event that is not a complete solution.

 

Supposing a defendant in a clinical negligence case made an offer of £200,000.00 in August 2010 and, in October 2012, increased that to £220,000.00 and in June 2013 the court awards £190,000.00 uprated to £209,000.00.

 

The defendant has at each stage offered more than the claim is worth, but presumably will only get costs protection from the Part 36 offer made in October 2012. Thus, entirely unfairly, the defendant will have to pay both its own costs and the claimant’s costs for the two years plus between August 2010 and October 2012, even though throughout that period there was on offer a sum which should have been accepted.

 

Actually it is even worse. The Offers to Settle in Civil Proceedings Order 2013, S.I. 2013 No 93, implementing Section 55 of LASPO allows for a damages uplift where a claimant matches or beats its own Part 36 offer.

 

This 10% is wholly separate from the 10% general damages uplift. It applies in all cases, contract as well as tort, and to special damages as well as general damages, although subject to a cap of £75,000.00 in relation to the additional award.

 

Let us revisit the clinical negligence case above. In August 2010 the defendant makes a Part 36 offer of £440,000.00 to include general damages and special damages. As we have seen the correct level of general damages is £190,000.00. Let us assume that £250,000.00 is the correct level of special damages.

 

However this time the defendant has not increased its offer to reflect the proposed general damages uplift.

 

On 9 March 2013 the claimant makes a Part 36 offer of £445,000.00.

 

In June 2013 the court awards £190,000.00 general damages and £250,000.00 special damages, total, in old money, of £440,000.00.

 

The general damages are uprated by 10% to £209,000.00, giving a new total of £459,000.00, which means that the claimant has beaten its Part 36 offer made just 9 weeks earlier, and in the certain knowledge that the judgment would be given after 1 April 2013.

 

In fact it is much more complicated than that.  Part 36 offers usually encompass both general damages and special damages in one sum.  However it is only general damages, not special damages, that will receive the 10% uprating, so in each case the court, having made its award, will need to dissect any Part 36 offer – claimant’s as well as defendant’s – to see precisely how much of the offer related to general damages, to see who has beaten what.

 

Law is often said to be a matter of chance but courts should not be casinos, and it is never a good idea to make the outcome of a case dependent upon the date that judgment is given.

 

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.

 

Clearly a paying party should not repeat the offer post 1 April 2013 as a Part 36 offer as acceptance would deprive the paying party of any right to any costs of detailed assessment and entitles the receiving party to all costs up to acceptance, including those incurred after the reasonable CPR 47.19 offer was made.

 

Thus this throws up similar problems to the Simmons v Castle uplift dealt with above.

 

A paying party is probably best to leave the CPR 47.19 offer in place and to rely on the court to exercise its discretion.

 

The presumption remains that a receiving party is entitled to costs of the assessment.  New CPR 47.20(3) states:

 

“In deciding whether to make some other order, the court must have regard to all the circumstances, including-

 

  • the conduct of all the parties;

 

  • the amount, if any, by which the bill of costs has been reduced; and

 

  • whether it was reasonable for a party to claim the costs of a particular item or to dispute that item”.

 

The paying party should seek to persuade the court that “all the circumstances” include a successful pre-Jackson CPR 47.19 offer.

 

CPR 47.19 offers have disappeared and Part 36 applies, incorporated into detailed assessment proceedings by virtue of CPR 47.20(4), the whole of CPR 47.20 is set out at the end of this piece, and the relevant part now reads:-

 

“Costs consequences following detailed assessment

 

36.14

(1) Subject to rule 36.14A, this rule applies where upon judgment being entered –

  • a claimant fails to obtain a judgment more advantageous than a defendant’s Part 36 offer; or
  • judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer.

 

(1A) For the purposes of paragraph (1), in relation to any money claim or money element of a claim, ‘more advantageous’ means better in money terms by any amount, however small, and ‘at least as advantageous’ shall be construed accordingly.

 

(2) Subject to paragraph (6), where rule 36.14(1)(a) applies, the court will, unless it considers it unjust to do so, order that the defendant is entitled to –

  • costs from the date on which the relevant period expired; and
  • interest on those costs.

 

(3) Subject to paragraph (6), where rule 36.14(1)(b) applies, the court will, unless it considers it unjust to do so, order that the claimant is entitled to –

  • interest on the whole or part of any sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate(GL)for some or all of the period starting with the date on which the relevant period expired;
  • hiscosts on the indemnity basis from the date on which the relevant period expired;
  • interest on those costs at a rate not exceeding 10% above base rate(GL); and
  • 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; or
    • (ii) where the claim is only a non-monetary claim, the sum awarded to the claimant by the court in respect of costs –

 

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.

 

Offers

 

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.

 

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.”

 

Costs Practice Directions

 

Practice Direction 47 reads:

“14.3 In cases falling within rule 47.15, when the receiving party files a request for a detailed assessment hearing, that party must file—

(a) the request in Form N258;

(b) the documents set out at paragraphs 8.3 and 13.2 of this Practice Direction;

(c) an additional copy of the bill, including 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;

(d) 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);

(e) completed Precedent G (points of dispute and any reply).

 

Note that a receiving party which makes a Part 36 offer that is not beaten at assessment, including provisional assessment which is a subject of detailed assessment, is entitled to a 10% uplift on costs.

 

Costs belong to the client and therefore in order to charge the extra 10% the solicitor – client retainer must expressly allow for this.  In a CFA funded case this should be in the CFA.

 

Carver v BAA plc reversed

With effect from 1 October 2011 CPR 36 was amended with a new Rule 36.14(1A) reading:

 

“For the purposes of paragraph (1), in relation to any money claim or money element of a claim, “more advantageous” means better in money terms by any amount, however small, and “at least as advantageous” shall be construed accordingly.”

 

The effect of this rule change is formally to overturn the decision in

 

Carver v BAA plc [2008] EWCA Civ 412 [2008] 3 All ER 911

 

obviously wrong but understandable, insofar as it survived the conjoined cases of

 

Gibbon v Manchester City Council and

L G Blower Ltd v Reeves [2010] EWCA Civ 726

 

It is worded this way to deal with claimants’ offers where the claimant needs to secure a result “at least as advantageous” as his or her own offer to achieve the benefits of making a successful Part 36 offer and defendants’ offers where a claimant needs to secure a result “more advantageous” than the defendant’s Part 36 offer to avoid the adverse costs consequences of failing to beat a defendant’s Part 36 offer.

 

This was one of the first proposals in the Jackson Report to be implemented.

 

The amendment was effected by the 57th update to the Civil Procedure Rules.

 

In a separate Part 36 development in relation to the road traffic portal, Paragraph 7.55 has been amended to make it clear that there is a difference between open offers and Part 36 offers.

 

Where damages have not been agreed in Stage 2 and the case is about to proceed to Stage 3, the protocol requires the claimant to send to the defendant the Court Proceedings Pack (Part A and Part B).

 

Part A of the pack contains the final open offers of each party, after assessing damages the district judge opens the sealed envelope containing Part B, which gives the final Part 36 offers of each party. This is for the purpose of deciding costs.

 

PORTALS AND PART 36

 

CPR 36.21 envisages three scenarios in relation to costs consequences following a Stage 3 hearing:

 

  • where the claimant fails to beat the defendant’s protocol offer then the claimant must pay the defendant’s Stage 3 costs as well as not recovering its own Stage 3 costs;

 

  • where the claimant beats the defendant’s offer but does not match its own offer the defendant pays the claimant’s Stage 3 costs;

 

  • where the claimant beats the defendant’s offer and matches or beats its own offer the defendant pays:

 

  • the claimant’s Stage 3 costs;
  • interest on those Stage 3 costs at a rate not exceeding 10% above base rate;
  • 10% additional damages;
  • interest on all damages at a rate not exceeding 10% above base rate running from the first business day after the court proceedings pack (part A and part B) was sent to the defendant.

 

FIXED RECOVERABLE COSTS AND PART 36

 

Section 1 of Part 36 remains in force for non-portal cases and also applies to cases which exit either of the portals.

 

A new CPR 36.10A provides that where a claimant accepts a Part 36 offer within the relevant period the defendant will pay the claimant’s costs up to the stage reached when the offer is accepted.

 

This is clearly open to abuse.   A defendant makes an offer which the claimant intends to accept but during the 21 day acceptance period another stage is due to be passed.  The claimant delays acceptance thus triggering an additional fee as the next stage is passed.

 

Where a defendant’s Part 36 offer is accepted after the relevant period the claimant gets the appropriate fixed costs applicable at the date of expiry of the relevant period, and the claimant pays the defendant’s costs from expiry to acceptance.

 

Where a claimant accepts the defendant’s protocol offer after the claim has exited the portal the claimant gets Stage 1 and 2 costs but pays the defendant’s costs from expiry to acceptance.

 

Judgment

 

A new CPR 36.14A deals with the position on judgment, rather than acceptance of an offer, but the principles are exactly the same, save that the claimant who matches his or her own offer at trial gets indemnity costs, not fixed recoverable costs, from the date of expiry of the period for accepting the offer.

 

Defendants’ costs are capped, not fixed, by reference to the level of the claimants’ fixed recoverable costs.

 

Some scenarios

 

  1. The Claimant accepts the Defendant’s Part 36 offer within time.

 

The Claimant is entitled to fixed costs based on the date of service of the notice of acceptance – see CPR36.10A (2). Clearly it may be in the Claimant’s interest to accept the offer towards the end of the relevant period if that is after a further trigger point increasing costs, for example the case is allocated or is listed during the period for accepting the offer.

 

This can be particularly dramatic if the Part 36 offer is made before proceedings are issued and the Claimant then issues proceedings and accepts the Part 36 offer as there is a very sharp jump in fixed costs upon the occasion of issuing proceedings.

 

There is a potential argument that that is an abuse of process but the rules do not deal with that and a Claimant could always argue that he or she had decided not to accept the offer and then issued the proceedings and then changed his or her mind.

 

  1. The Claimant accepts the Defendant’s Part 36 offer out of time.

 

The Claimant is entitled to fixed costs until the date of the expiry of the relevant period and the Defendant is entitled to the difference if any between those fixed costs payable to the Claimant and the fixed costs that would have been payable at the date of acceptance of the offer.

 

Thus if the Claimant accepts late but no further trigger points have been passed then the Claimant will not have to pay the Defendant anything. If however a further trigger point is passed, for example allocation which increases the fixed costs by say £800.00 in that particular case, then a Claimant must account to the Defendant for £800.00, effectively as a set off against fixed costs – see CPR36.10A(4).

 

  1. The Claimant fails to beat the Defendants Part 36 offer at trial.

 

The position is as above, that is that the Defendant is entitled to the difference, if any, between the fixed costs payable to the Claimant at the expiry of the period for accepting the offer and the fixed costs payable at the end of the trial. Thus this will always include the fixed advocacy costs unless the trial takes place within the period for accepting the Part 36 offer – see CPR36.14A(2).

 

  1. The Claimant accepts the Defendant’s protocol offer after the case leaves the protocol.

 

The Claimant is entitled to stage 1 and stage 2 protocol costs only. The Defendant is entitled to the difference between that sum and the fixed costs in Section IIIA  calculated at the date of acceptance of the offer – see CPR36.10A(5).

 

  1. The Claimant fails at trial to beat the Defendant’s protocol offer.

 

The Claimant is entitled only to stage 1 and stage 2 protocol costs and the Defendant is entitled to the difference between that sum and the fixed costs following trial – see CPR36.14A(3).

 

  1. The Claimant matches or beats at trial its own Part 36 offer.

 

Damages will automatically be increased by 10% and this will cause a slight increase in the fixed costs, as those are partly dependent upon the amount of damages awarded.

 

Interest on those costs may be awarded at up to 10% above base rate.

 

Disbursements will be dealt with on an indemnity basis.

 

The area of uncertainty is as to whether the Claimant matching or beating its own Part 36 offer frees the case from fixed costs and results in costs being dealt with on an open basis and indeed on the indemnity basis.

 

The rules do not clearly say that but others, including District Judge Suzanne Burn, who sits on the Rules Committee, take the view that in such circumstances costs are open and on the indemnity basis.

 

  1. The Claimant discontinues the claim.

 

By definition, at present, a portal/fixed recoverable costs claim must be a personal injury claim as the system does not apply to any other type of claim.

 

If there was no potential recoverable additional liability, that is a success fee or After-the-Event insurance premium, then Qualified One-Way Costs Shifting applies and that is not defeated by discontinuance of a claim. Consequently no costs would be awarded.

 

If it is a case where there was a potential recoverable additional liability then Qualified One-Way Costs Shifting does not apply.

 

In those circumstances the order for costs in the Defendant’s favour will not exceed the fixed costs that would have been payable to the Claimant at the stage at which the costs order was made – see CPR45.29F(2).

 

Fixed costs are in part calculated on the value of the claim and as, by definition, on discontinuance there has been no award of damages, CPR45.29F(4) provides for a complicated method of attributing a value to the claim so as to enable a fixed costs calculation to be made. This is largely based on the information contained in the claim form, although any claim for vehicle based damages is excluded.

 

  1. A Claimant’s claim fails at trial.

 

The position is as above, that is that in the absence of a recoverable additional liability the Claimant will not pay costs as he or she will be protected by Qualified One-Way Costs Shifting.

 

If QOCS does not apply then the basis for calculating the Defendant’s costs is as set out above.

 

Note that in relation to either discontinuance or failure at trial where there was a potential additional liability recoverable the Claimant could now argue that in fact that sum was never recoverable due to the views of the Supreme Court expressed in the case of Coventry and others v Lawrence and another (No 2) [2014] UKSC 46, and that consequently  Qualified One-Way Costs Shifting applies and there can be no adverse costs liability.

 

  1. The Claimant’s claim fails and one of the exceptions to Qualified One-Way Costs Shifting applies, for example the claim is struck out on certain specified grounds under CPR44.15 or the claim is found to be fundamentally dishonest under CPR44.16.

 

In these circumstances the Defendant’s costs are not limited by reference to fixed costs but will be assessed in the usual manner applying CPR44.3.

 

If one of the exceptions to QOCS is satisfied this always involves serious criticism of the Claimant’s behaviour and it is very likely that the open costs order will be for costs on the indemnity basis.

 

  1. In a road traffic accident case the Defendant’s counterclaim to which the Road Traffic Accident Protocol applies succeeds and the court makes an order in the Defendant’s favour.

 

The Defendant’s costs are assessed by reference to section III A of CPR45 in the same way as a Claimant’s costs would be have been dealt with.

 

Where a Defendant’s counterclaim succeeds but there is no personal injury element then the Defendant is limited to recovering half of the relevant type A and B stage three costs, that is £125.00 if the case does not go to trial and £250.00 where it does.

 

  1. Note that clause 49 of the Criminal Justice and Courts Bill, currently before Parliament, requires a court to dismiss the whole of a personal injury claim if it is satisfied on the balance of probabilities that the Claimant has been fundamentally dishonest in relation to the primary claim or a related claim.

 

The court must record the amount of damages it would otherwise have awarded and any costs order then made against the Claimant must take into account the foregone damages.

 

Thus if the Claimant would have won, but for the fundamental dishonesty, and would have received £5,000.00 and the Defendant’s costs of the whole action are £7,000.00 then the Claimant has to pay to the Defendant the sum of £2,000.00.

 

Nothing is stated directly in the bill but it is presumed that in such cases fixed costs have no application and obviously Qualified One-Way Costs Shifting has no application as that is defeated by fundamental dishonesty, the term used in both the rules and clause 49 of the bill.

 

Qualified One Way Costs Shifting – Defamation and Privacy

 

Costs protection in defamation and privacy claims: the Government’s proposals

 

Annex D

 

“69.        The effect of “Part 36” offers is an important consideration.  A claimant who does not accept the defendant’s Part 36 offer to settle, but does not ultimately beat that offer will, on the standard Part 36 offer basis, be liable for the defendant’s additional costs incurred after the time of the offer that the claimant did not accept and failed to beat.  Those additional costs may be recovered by the defendant, but only by set-off up to the level of damages awarded (on the same basis as costs of “bad applications in good cases”)”.

 

 

CPR 36 is by far the most important rule and the whole post 6 April 2015 rule appears here:-

 

 

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PART 36 OFFERS TO SETTLE

Contents of this Part

Title                                                                                                                                       Rule number

Scope of this Part                                                                                                             Rule 36.1

Section 1 – Part 36 Offers to Settle

 

GENERAL

Scope of this Section                                                                                                      Rule 36.2

Definitions                                                                                                                          Rule 36.3

Application of Part 36 to appeals                                                                               Rule 36.4

 

MAKING OFFERS

Form and content of a Part 36 offer                                                                         Rule 36.5

Part 36 offers – defendant’s offer                                                                            Rule 36.6

Time when a Part 36 offer is made                                                                           Rule 36.7

 

CLARIFYING, WITHDRAWING AND CHANGING THE TERMS OF OFFERS

Clarification of a Part 36 offer                                                                                     Rule 36.8

Withdrawing or changing the terms of a Part 36 offer generally                  Rule 36.9

Withdrawing or changing the terms of a Part 36 offer before the expiry of the relevant period                                                                                                                                                   Rule 36.10

ACCEPTING OFFERS

Acceptance of a Part 36 offer                                                                                     Rule 36.11

Acceptance of a Part 36 offer in a split-trial case                                                 Rule 36.12

Costs consequences of acceptance of a Part 36 offer                                      Rule 36.13

Other effects of acceptance of a Part 36 offer                                                    Rule 36.14

Acceptance of a Part 36 offer made by one or more, but not all, defendants

Rule 36.15

UNACCEPTED OFFERS

Restriction on disclosure of a Part 36 offer                                                            Rule 36.16

Costs consequences following judgment              Rule 36.17

 

PERSONAL INJURY CASES

Personal injury claims for future pecuniary loss                                                  Rule 36.18

Offer to settle a claim for provisional damages                                                   Rule 36.19

Costs consequences of acceptance of a Part 36 offer where Section IIIA of Part 45 applies                                                                                                                                                            Rule 36.20

Costs consequences following judgment where Section IIIA of Part 45 applies

Rule 36.21

Deduction of benefits and lump sum payments                                                 Rule 36.22

 

MISCELLANEOUS

Cases in which the offeror’s costs have been limited to court fees            Rule 36.23

Section II – RTA Protocol and EL/PL Protocol Offers to Settle

Scope of this Section                                                                                                      Rule 36.24

Form and content of a Protocol offer                                                                      Rule 36.25

Time when a Protocol offer is made                                                                        Rule 36.26

General provisions                                                                                                          Rule 36.27

Restrictions on disclosure of a Protocol offer                                                       Rule 36.28

Costs consequences following judgment                                                                              Rule 36.29

Deduction of benefits                                                                                                    Rule 36.30

Scope of this Part

 

36.1.—(1) This Part contains a self-contained procedural code about offers to settle made pursuant to the procedure set out in this Part (“Part 36 offers”).

 

(2) Section I of this Part contains general rules about Part 36 offers.

 

(3) Section II of this Part contains rules about offers to settle where the parties have followed the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents (“the RTA Protocol”) or the Pre-Action Protocol for Low Value Personal Injury (Employers’ Liability and Public Liability) Claims (“the EL/PL Protocol”) and have started proceedings under Part 8 in accordance with Practice Direction 8B.

 

SECTION I Part 36 Offers to Settle

GENERAL

Scope of this Section

 

36.2—(1) This Section does not apply to an offer to settle to which Section II of this Part applies.

 

(2) Nothing in this Section prevents a party making an offer to settle in whatever way that party chooses, but if the offer is not made in accordance with rule 36.5, it will not have the consequences specified in this Section.

 

(Rule 44.2 requires the court to consider an offer to settle that does not have the costs consequences set out in this Section in deciding what order to make about costs.)

 

(3) A Part 36 offer may be made in respect of the whole, or part of, or any issue that arises in—

 

(a)a claim, counterclaim or other additional claim; or

 

(b)an appeal or cross-appeal from a decision made at a trial.

 

(Rules 20.2 and 20.3 provide that counterclaims and other additional claims are treated as claims and that references to a claimant or a defendant include a party bringing or defending an additional claim.)

 

Definitions

 

36.3.  In this Section—

 

(a)the party who makes an offer is the “offeror”;

 

(b)the party to whom an offer is made is the “offeree”;

 

(c)a “trial” means any trial in a case whether it is a trial of all issues or a trial of liability, quantum or some other issue in the case;

 

(d)a trial is “in progress” from the time when it starts until the time when judgment is given or handed down;

 

(e)a case is “decided” when all issues in the case have been determined, whether at one or more trials;

 

(f)“trial judge” includes the judge (if any) allocated in advance to conduct a trial; and

 

(g)“the relevant period” means—

 

(i)in the case of an offer made not less than 21 days before a trial, the period specified under rule 36.5(1)(c) or such longer period as the parties agree;

 

(ii)otherwise, the period up to the end of such trial.

Application of Part 36 to appeals

 

36.4.—(1) Except where a Part 36 offer is made in appeal proceedings, it shall have the consequences set out in this Section only in relation to the costs of the proceedings in respect of which it is made, and not in relation to the costs of any appeal from a decision in those proceedings.

 

(2) Where a Part 36 offer is made in appeal proceedings, references in this Section to a term in the first column below shall be treated, unless the context requires otherwise, as references to the corresponding term in the second column—

 

Term                                                                                     Corresponding term

Claim                                                                                     Appeal

Counterclaim                                                                     Cross-appeal

Case                                                                                      Appeal proceedings

Claimant                                                                              Appellant

Defendant                                                                          Respondent

Trial                                                                                        Appeal hearing

Trial judge                                                                           Appeal judge

 

MAKING OFFERS

Form and content of a Part 36 offer

 

36.5.—(1) A Part 36 offer must—

 

(a)be in writing;

 

(b)make clear that it is made pursuant to Part 36;

 

(c)specify a period of not less than 21 days within which the defendant will be liable for the claimant’s costs in accordance with rule 36.13 or 36.20 if the offer is accepted;

 

(d)state whether it relates to the whole of the claim or to part of it or to an issue that arises in it and if so to which part or issue; and

 

(e)state whether it takes into account any counterclaim.

 

(Rule 36.7 makes provision for when a Part 36 offer is made.)

 

(2) Paragraph (1)(c) does not apply if the offer is made less than 21 days before the start of a trial.

 

(3) In appropriate cases, a Part 36 offer must contain such further information as is required by rule 36.18 (personal injury claims for future pecuniary loss), rule 36.19 (offer to settle a claim for provisional damages), and rule 36.22 (deduction of benefits).

 

(4) A Part 36 offer which offers to pay or offers to accept a sum of money will be treated as inclusive of all interest until—

 

(a)the date on which the period specified under rule 36.5(1)(c) expires; or

 

(b)if rule 36.5(2) applies, a date 21 days after the date the offer was made.

Part 36 offers – defendant’s offer

 

36.6.—(1) Subject to rules 36.18(3) and 36.19(1), a Part 36 offer by a defendant to pay a sum of money in settlement of a claim must be an offer to pay a single sum of money.

 

(2) A defendant’s offer that includes an offer to pay all or part of the sum at a date later than 14 days following the date of acceptance will not be treated as a Part 36 offer unless the offeree accepts the offer.

Time when a Part 36 offer is made

 

36.7.—(1) A Part 36 offer may be made at any time, including before the commencement of proceedings.

 

(2) A Part 36 offer is made when it is served on the offeree.

 

(Part 6 provides detailed rules about service of documents.)

 

CLARIFYING, WITHDRAWING AND CHANGING THE TERMS OF OFFERS

Clarification of a Part 36 offer

 

36.8.—(1) The offeree may, within 7 days of a Part 36 offer being made, request the offeror to clarify the offer.

 

(2) If the offeror does not give the clarification requested under paragraph (1) within 7 days of receiving the request, the offeree may, unless the trial has started, apply for an order that the offeror do so.

 

(Part 23 contains provisions about making an application to the court.)

 

(3) If the court makes an order under paragraph (2), it must specify the date when the Part 36 offer is to be treated as having been made.

Withdrawing or changing the terms of a Part 36 offer generally

 

36.9.—(1) A Part 36 offer can only be withdrawn, or its terms changed, if the offeree has not previously served notice of acceptance.

 

(2) The offeror withdraws the offer or changes its terms by serving written notice of the withdrawal or change of terms on the offeree.

 

(Rule 36.17(7) deals with the costs consequences following judgment of an offer which is withdrawn.)

 

(3) Subject to rule 36.10, such notice of withdrawal or change of terms takes effect when it is served on the offeree.

 

(Rule 36.10 makes provision about when permission is required to withdraw or change the terms of an offer before the expiry of the relevant period.)

 

(4) Subject to paragraph (1), after expiry of the relevant period—

 

(a)the offeror may withdraw the offer or change its terms without the permission of the court; or

 

(b)the offer may be automatically withdrawn in accordance with its terms.

 

(5) Where the offeror changes the terms of a Part 36 offer to make it more advantageous to the offeree—

 

(a)such improved offer shall be treated, not as the withdrawal of the original offer; but as the making of a new Part 36 offer on the improved terms; and

 

(b)subject to rule 36.5(2), the period specified under rule 36.5(1)(c) shall be 21 days or such longer period (if any) identified in the written notice referred to in paragraph (2).

Withdrawing or changing the terms of a Part 36 offer before the expiry of the relevant period

 

36.10.—(1) Subject to rule 36.9(1), this rule applies where the offeror serves notice before expiry of the relevant period of withdrawal of the offer or change of its terms to be less advantageous to the offeree.

 

(2) Where this rule applies—

 

(a)if the offeree has not served notice of acceptance of the original offer by the expiry of the relevant period, the offeror’s notice has effect on the expiry of that period; and

 

(b)if the offeree serves notice of acceptance of the original offer before the expiry of the relevant period, that acceptance has effect unless the offeror applies to the court for permission to withdraw the offer or to change its terms—

 

(i)within 7 days of the offeree’s notice of acceptance; or

 

(ii)if earlier, before the first day of trial.

 

(3) On an application under paragraph (2)(b), the court may give permission for the original offer to be withdrawn or its terms changed if satisfied that there has been a change of circumstances since the making of the original offer and that it is in the interests of justice to give permission.

 

ACCEPTING OFFERS

Acceptance of a Part 36 offer

 

36.11.—(1) A Part 36 offer is accepted by serving written notice of acceptance on the offeror.

 

(2) Subject to paragraphs (3) and (4) and to rule 36.12, a Part 36 offer may be accepted at any time (whether or not the offeree has subsequently made a different offer), unless it has already been withdrawn.

 

(Rule 21.10 deals with compromise, etc. by or on behalf of a child or protected party.)

 

(Rules 36.9 and 36.10 deal with withdrawal of Part 36 offers.)

 

(3) The court’s permission is required to accept a Part 36 offer where—

 

(a)rule 36.15(4) applies;

 

(b)rule 36.22(3)(b) applies, the relevant period has expired and further deductible amounts have been paid to the claimant since the date of the offer;

 

(c)an apportionment is required under rule 41.3A; or

 

(d)a trial is in progress.

 

(Rule 36.15 deals with offers by some but not all of multiple defendants.)

 

(Rule 36.22 defines “deductible amounts”.)

 

(Rule 41.3A requires an apportionment in proceedings under the Fatal Accidents Act 1976(6) and Law Reform (Miscellaneous Provisions) Act 1934(7).)

 

(4) Where the court gives permission under paragraph (3), unless all the parties have agreed costs, the court must make an order dealing with costs, and may order that the costs consequences set out in rule 36.13 apply.

Acceptance of a Part 36 offer in a split-trial case

 

36.12.—(1) This rule applies in any case where there has been a trial but the case has not been decided within the meaning of rule 36.3.

 

(2) Any Part 36 offer which relates only to parts of the claim or issues that have already been decided can no longer be accepted.

 

(3) Subject to paragraph (2) and unless the parties agree, any other Part 36 offer cannot be accepted earlier than 7 clear days after judgment is given or handed down in such trial.

Costs consequences of acceptance of a Part 36 offer

 

36.13.—(1) Subject to paragraphs (2) and (4) and to rule 36.20, where a Part 36 offer is accepted within the relevant period the claimant will be entitled to the costs of the proceedings (including their recoverable pre-action costs) up to the date on which notice of acceptance was served on the offeror.

 

(Rule 36.20 makes provision for the costs consequences of accepting a Part 36 offer in certain personal injury claims where the claim no longer proceeds under the RTA or EL/PL Protocol.)

 

(2) Where—

 

(a)a defendant’s Part 36 offer relates to part only of the claim; and

 

(b)at the time of serving notice of acceptance within the relevant period the claimant abandons the balance of the claim,

 

the claimant will only be entitled to the costs of such part of the claim unless the court orders otherwise.

 

(3) Except where the recoverable costs are fixed by these Rules, costs under paragraphs (1) and (2) are to be assessed on the standard basis if the amount of costs is not agreed.

 

(Rule 44.3(2) explains the standard basis for the assessment of costs.)

 

(Rule 44.9 contains provisions about when a costs order is deemed to have been made and applying for an order under section 194(3) of the Legal Services Act 2007(8).)

 

(Part 45 provides for fixed costs in certain classes of case.)

 

(4) Where—

 

(a)a Part 36 offer which was made less than 21 days before the start of a trial is accepted; or

 

(b)a Part 36 offer which relates to the whole of the claim is accepted after expiry of the relevant period; or

 

(c)subject to paragraph (2), a Part 36 offer which does not relate to the whole of the claim is accepted at any time,

 

the liability for costs must be determined by the court unless the parties have agreed the costs.

 

(5) Where paragraph (4)(b) applies but the parties cannot agree the liability for costs, the court must, unless it considers it unjust to do so, order that—

 

(a)the claimant be awarded costs up to the date on which the relevant period expired; and

 

(b)the offeree do pay the offeror’s costs for the period from the date of expiry of the relevant period to the date of acceptance.

 

(6) In considering whether it would be unjust to make the orders specified in paragraph (5), the court must take into account all the circumstances of the case including the matters listed in rule 36.17(5).

 

(7) The claimant’s costs include any costs incurred in dealing with the defendant’s counterclaim if the Part 36 offer states that it takes it into account.

Other effects of acceptance of a Part 36 offer

 

36.14.—(1) If a Part 36 offer is accepted, the claim will be stayed.

 

(2) In the case of acceptance of a Part 36 offer which relates to the whole claim, the stay will be upon the terms of the offer.

 

(3) If a Part 36 offer which relates to part only of the claim is accepted, the claim will be stayed as to that part upon the terms of the offer.

 

(4) If the approval of the court is required before a settlement can be binding, any stay which would otherwise arise on the acceptance of a Part 36 offer will take effect only when that approval has been given.

 

(5) Any stay arising under this rule will not affect the power of the court—

 

(a)to enforce the terms of a Part 36 offer; or

 

(b)to deal with any question of costs (including interest on costs) relating to the proceedings.

 

(6) Unless the parties agree otherwise in writing, where a Part 36 offer that is or includes an offer to pay or accept a single sum of money is accepted, that sum must be paid to the claimant within 14 days of the date of—

 

(a)acceptance; or

 

(b)the order when the court makes an order under rule 41.2 (order for an award of provisional damages) or rule 41.8 (order for an award of periodical payments), unless the court orders otherwise.

 

(7) If such sum is not paid within 14 days of acceptance of the offer, or such other period as has been agreed, the claimant may enter judgment for the unpaid sum.

 

(8) Where—

 

(a)a Part 36 offer (or part of a Part 36 offer) which is not an offer to which paragraph (6) applies is accepted; and

 

(b)a party alleges that the other party has not honoured the terms of the offer,

 

that party may apply to enforce the terms of the offer without the need for a new claim.

Acceptance of a Part 36 offer made by one or more, but not all, defendants

 

36.15.—(1) This rule applies where the claimant wishes to accept a Part 36 offer made by one or more, but not all, of a number of defendants.

 

(2) If the defendants are sued jointly or in the alternative, the claimant may accept the offer if—

 

(a)the claimant discontinues the claim against those defendants who have not made the offer; and

 

(b)those defendants give written consent to the acceptance of the offer.

 

(3) If the claimant alleges that the defendants have a several liability(GL) to the claimant, the claimant may—

 

(a)accept the offer; and

 

(b)continue with the claims against the other defendants if entitled to do so.

 

(4) In all other cases the claimant must apply to the court for permission to accept the Part 36 offer.

 

UNACCEPTED OFFERS

Restriction on disclosure of a Part 36 offer

 

36.16.—(1) A Part 36 offer will be treated as “without prejudice except as to costs”.

 

(2) The fact that a Part 36 offer has been made and the terms of such offer must not be communicated to the trial judge until the case has been decided.

 

(3) Paragraph (2) does not apply—

 

(a)where the defence of tender before claim has been raised;

 

(b)where the proceedings have been stayed under rule 36.14 following acceptance of a Part 36 offer;

 

(c)where the offeror and the offeree agree in writing that it should not apply; or

 

(d)where, although the case has not been decided—

 

(i)any part of, or issue in, the case has been decided; and

 

(ii)the Part 36 offer relates only to parts or issues that have been decided.

 

(4) In a case to which paragraph (3)(d)(i) applies, the trial judge—

 

(a)may be told whether or not there are Part 36 offers other than those referred to in paragraph (3)(d)(ii); but

 

(b)must not be told the terms of any such other offers unless any of paragraphs (3)(a) to (c) applies.

Costs consequences following judgment

 

36.17.—(1) Subject to rule 36.21, this rule applies where upon judgment being entered—

 

(a)a claimant fails to obtain a judgment more advantageous than a defendant’s Part 36 offer; or

 

(b)judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer.

 

(Rule 36.21 makes provision for the costs consequences following judgment in certain personal injury claims where the claim no longer proceeds under the RTA or EL/PL Protocol.)

 

(2) For the purposes of paragraph (1), in relation to any money claim or money element of a claim, “more advantageous” means better in money terms by any amount, however small, and “at least as advantageous” shall be construed accordingly.

 

(3) Subject to paragraphs (7) and (8), where paragraph (1)(a) applies, the court must, unless it considers it unjust to do so, order that the defendant is entitled to—

 

(a)costs (including any recoverable pre-action costs) from the date on which the relevant period expired; and

 

(b)interest on those costs.

 

(4) Subject to paragraph (7), where paragraph (1)(b) applies, the court must, unless it considers it unjust to do so, order that the claimant 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 (including any recoverable pre-action 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)provided that the case has been decided and there has not been a previous order under this sub-paragraph, an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is—

 

(i)the sum awarded to the claimant by the court; or

 

(ii)where there is no monetary award, the sum awarded to the claimant by the court in respect of costs—

 

 

Amount awarded by the court                                                   Prescribed percentage

Up to £500,000                                                                                  10% of the amount awarded

Above £500,000                                                                                10% of the first £500,000 and (subject to                                                                                                               the limit of £75,000) 5% of any amount                                                                                                                  above that figure.

 

(5) In considering whether it would be unjust to make the orders referred to in paragraphs (3) and (4), the court must take into account all the circumstances of the case including—

 

(a)the terms of any Part 36 offer;

 

(b)the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;

 

(c)the information available to the parties at the time when the Part 36 offer was made;

 

(d)the conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated; and

 

(e)whether the offer was a genuine attempt to settle the proceedings.

 

(6) Where the court awards interest under this rule and also awards interest on the same sum and for the same period under any other power, the total rate of interest must not exceed 10% above base rate.

 

(7) Paragraphs (3) and (4) do not apply to a Part 36 offer—

 

(a)which has been withdrawn;

 

(b)which has been changed so that its terms are less advantageous to the offeree where the offeree has beaten the less advantageous offer;

 

(c)made less than 21 days before trial, unless the court has abridged the relevant period.

 

(8) Paragraph (3) does not apply to a soft tissue injury claim to which rule 36.21 applies.

 

(Rule 44.2 requires the court to consider an offer to settle that does not have the costs consequences set out in this Section in deciding what order to make about costs.)

 

PERSONAL INJURY CLAIMS

Personal injury claims for future pecuniary loss

 

36.18.—(1) This rule applies to a claim for damages for personal injury which is or includes a claim for future pecuniary loss.

 

(2) An offer to settle such a claim will not have the consequences set out in this Section unless it is made by way of a Part 36 offer under this rule.

 

(3) A Part 36 offer to which this rule applies may contain an offer to pay, or an offer to accept—

 

(a)the whole or part of the damages for future pecuniary loss in the form of—

 

(i)a lump sum;

 

(ii)periodical payments; or

 

(iii)both a lump sum and periodical payments;

 

(b)the whole or part of any other damages in the form of a lump sum.

 

(4) A Part 36 offer to which this rule applies—

 

(a)must state the amount of any offer to pay or to accept the whole or part of any damages in the form of a lump sum;

 

(b)may state—

 

(i)what part of the lump sum, if any, relates to damages for future pecuniary loss; and

 

(ii)what part relates to other damages to be paid or accepted in the form of a lump sum;

 

(c)must state what part of the offer relates to damages for future pecuniary loss to be paid or accepted in the form of periodical payments and must specify—

 

(i)the amount and duration of the periodical payments;

 

(ii)the amount of any payments for substantial capital purchases and when they are to be made; and

 

(iii)that each amount is to vary by reference to the retail prices index (or to some other named index, or that it is not to vary by reference to any index); and

 

(d)must state either that any damages which take the form of periodical payments will be funded in a way which ensures that the continuity of payments is reasonably secure in accordance with section 2(4) of the Damages Act 1996(9) or how such damages are to be paid and how the continuity of their payment is to be secured.

 

(5) Rule 36.6 applies to the extent that a Part 36 offer by a defendant under this rule includes an offer to pay all or part of any damages in the form of a lump sum.

 

(6) Where the offeror makes a Part 36 offer to which this rule applies and which offers to pay or to accept damages in the form of both a lump sum and periodical payments, the offeree may only give notice of acceptance of the offer as a whole.

 

(7) If the offeree accepts a Part 36 offer which includes payment of any part of the damages in the form of periodical payments, the claimant must, within 7 days of the date of acceptance, apply to the court for an order for an award of damages in the form of periodical payments under rule 41.8.

 

(Practice Direction 41B contains information about periodical payments under the Damages Act 1996.)

 

Offer to settle a claim for provisional damages

 

36.19.—(1) An offeror may make a Part 36 offer in respect of a claim which includes a claim for provisional damages.

 

(2) Where the offeror does so, the Part 36 offer must specify whether or not the offeror is proposing that the settlement shall include an award of provisional damages.

 

(3) Where the offeror is offering to agree to the making of an award of provisional damages, the Part 36 offer must also state—

 

(a)that the sum offered is in satisfaction of the claim for damages on the assumption that the injured person will not develop the disease or suffer the type of deterioration specified in the offer;

 

(b)that the offer is subject to the condition that the claimant must make any claim for further damages within a limited period; and

 

(c)what that period is.

 

(4) Rule 36.6 applies to the extent that a Part 36 offer by a defendant includes an offer to agree to the making of an award of provisional damages.

 

(5) If the offeree accepts the Part 36 offer, the claimant must, within 7 days of the date of acceptance, apply to the court for an award of provisional damages under rule 41.2.

Costs consequences of acceptance of a Part 36 offer where Section IIIA of Part 45 applies

 

36.20.—(1) This rule applies where a claim no longer continues under the RTA or EL/PL Protocol pursuant to rule 45.29A(1).

 

(2) Where a Part 36 offer is accepted within the relevant period, the claimant is entitled to the fixed costs in Table 6B, Table 6C or Table 6D in Section IIIA of Part 45 for the stage applicable at the date on which notice of acceptance was served on the offeror.

 

(3) Where—

 

(a)a defendant’s Part 36 offer relates to part only of the claim; and

 

(b)at the time of serving notice of acceptance within the relevant period the claimant abandons the balance of the claim,

 

the claimant will be entitled to the fixed costs in paragraph (2).

 

(4) Subject to paragraphs (5), (6) and (7), where a defendant’s Part 36 offer is accepted after the relevant period—

 

(a)the claimant will be entitled to the fixed costs in Table 6B, Table 6C or Table 6D in Section IIIA of Part 45 for the stage applicable at the date on which the relevant period expired; and

 

(b)the claimant will be liable for the defendant’s costs for the period from the date of expiry of the relevant period to the date of acceptance.

 

(5) Subject to paragraphs (6) and (7), where the claimant accepts the defendant’s Protocol offer after the date on which the claim leaves the Protocol—

 

(a)the claimant will be entitled to the applicable Stage 1 and Stage 2 fixed costs in Table 6 or Table 6A in Section III of Part 45; and

 

(b)the claimant will be liable for the defendant’s costs from the date on which the Protocol offer is deemed to have been made to the date of acceptance.

 

(6) In a soft tissue injury claim, if the defendant makes a Part 36 offer before the defendant receives a fixed cost medical report, paragraphs (4) and (5) will only have effect if the claimant accepts the offer more than 21 days after the defendant received the report.

 

(7) In this rule, “fixed cost medical report” and “soft tissue injury claim” have the same meaning as in paragraph 1.1(10A) and (16A) respectively of the RTA Protocol.

 

(8) For the purposes of this rule a defendant’s Protocol offer is either—

 

(a)defined in accordance with rules 36.25 and 36.26; or

 

(b)if the claim leaves the Protocol before the Court Proceedings Pack Form is sent to the defendant—

 

(i)the last offer made by the defendant before the claim leaves the Protocol; and

 

(ii)deemed to be made on the first business day after the claim leaves the Protocol.

 

(9) A reference to—

 

(a)the “Court Proceedings Pack Form” is a reference to the form used in the Protocol; and

 

(b)“business day” is a reference to a business day as defined in rule 6.2.

 

(10) Fixed costs shall be calculated by reference to the amount of the offer which is accepted.

 

(11) Where the parties do not agree the liability for costs, the court must make an order as to costs.

 

(12) Where the court makes an order for costs in favour of the defendant—

 

(a)the court must have regard to; and

 

(b)the amount of costs ordered must not exceed,

 

the fixed costs in Table 6B, Table 6C or Table 6D in Section IIIA of Part 45 applicable at the date of acceptance, less the fixed costs to which the claimant is entitled under paragraph (4) or (5).

 

(13) The parties are entitled to disbursements allowed in accordance with rule 45.29I incurred in any period for which costs are payable to them.

Costs consequences following judgment where section IIIA of Part 45 applies

 

36.21.—(1) Where a claim no longer continues under the RTA or EL/PL Protocol pursuant to rule 45.29A(1), rule 36.17 applies with the following modifications.

 

(2) Subject to paragraphs (3), (4) and (5), where an order for costs is made pursuant to rule 36.17(3)—

 

(a)the claimant will be entitled to the fixed costs in Table 6B, 6C or 6D in Section IIIA of Part 45 for the stage applicable at the date on which the relevant period expired; and

 

(b)the claimant will be liable for the defendant’s costs from the date on which the relevant period expired to the date of judgment.

 

(3) Subject to paragraphs (4) and (5), where the claimant fails to obtain a judgment more advantageous than the defendant’s Protocol offer—

 

(a)the claimant will be entitled to the applicable Stage 1 and Stage 2 fixed costs in Table 6 or 6A in Section III of Part 45; and

 

(b)the claimant will be liable for the defendant’s costs from the date on which the Protocol offer is deemed to be made to the date of judgment; and

 

(c)in this rule, the amount of the judgment is less than the Protocol offer where the judgment is less than the offer once deductible amounts identified in the judgment are deducted.

 

(“Deductible amount” is defined in rule 36.22(1)(d).)

 

(4) In a soft tissue injury claim, if the defendant makes a Part 36 offer or Protocol offer before the defendant receives a fixed cost medical report, paragraphs (2) and (3) will only have effect in respect of costs incurred by either party more than 21 days after the defendant received the report.

 

(5) In this rule “fixed cost medical report” and “soft tissue injury claim” have the same meaning as in paragraph 1.1(10A) and (16A) respectively of the RTA Protocol.

 

(6) For the purposes of this rule a defendant’s Protocol offer is either—

 

(a)defined in accordance with rules 36.25 and 36.26; or

 

(b)if the claim leaves the Protocol before the Court Proceedings Pack Form is sent to the defendant—

 

(i)the last offer made by the defendant before the claim leaves the Protocol; and

 

(ii)deemed to be made on the first business day after the claim leaves the Protocol.

 

(7) A reference to—

 

(a)the “Court Proceedings Pack Form” is a reference to the form used in the Protocol; and

 

(b)“business day” is a reference to a business day as defined in rule 6.2.

 

(8) Fixed costs must be calculated by reference to the amount which is awarded.

 

(9) Where the court makes an order for costs in favour of the defendant—

 

(a)the court must have regard to; and

 

(b)the amount of costs ordered shall not exceed,

 

the fixed costs in Table 6B, 6C or 6D in Section IIIA of Part 45 applicable at the date of judgment, less the fixed costs to which the claimant is entitled under paragraph (2) or (3).

 

(10) The parties are entitled to disbursements allowed in accordance with rule 45.29I incurred in any period for which costs are payable to them.

Deduction of benefits and lump sum payments

 

36.22.—(1) In this rule and rule 36.11—

 

(a)“the 1997 Act” means the Social Security (Recovery of Benefits) Act 1997(10);

 

(b)“the 2008 Regulations” means the Social Security (Recovery of Benefits)(Lump Sum Payments) Regulations 2008(11);

 

(c)“recoverable amount” means—

 

(i)“recoverable benefits” as defined in section 1(4)(c) of the 1997 Act; and

 

(ii)“recoverable lump sum payments” as defined in regulation 1 of the 2008 Regulations;

 

(d)“deductible amount” means—

 

(i)any benefits by the amount of which damages are to be reduced in accordance with section 8 of, and Schedule 2 to the 1997 Act(12) (“deductible benefits”); and

 

(ii)any lump sum payment by the amount of which damages are to be reduced in accordance with regulation 12 of the 2008 Regulations (“deductible lump sum payments”); and

 

(e)“certificate”—

 

(i)in relation to recoverable benefits, is construed in accordance with the provisions of the 1997 Act; and

 

(ii)in relation to recoverable lump sum payments, has the meaning given in section 29 of the 1997 Act, as applied by regulation 2 of, and modified by Schedule 1 to, the 2008 Regulations.

 

(2) This rule applies where a payment to a claimant following acceptance of a Part 36 offer would be a compensation payment as defined in section 1(4)(b) or 1A(5)(b)(13) of the 1997 Act.

 

(3) A defendant who makes a Part 36 offer must, where relevant, state either—

 

(a)that the offer is made without regard to any liability for recoverable amounts; or

 

(b)that it is intended to include any deductible amounts.

 

(4) Where paragraph (3)(b) applies, paragraphs (5) to (9) will apply to the Part 36 offer.

 

(5) Before making the Part 36 offer, the offeror must apply for a certificate.

 

(6) Subject to paragraph (7), the Part 36 offer must state—

 

(a)the gross amount of compensation;

 

(b)the name and amount of any deductible amounts by which the gross amount is reduced; and

 

(c)the net amount of compensation.

 

(7) If at the time the offeror makes the Part 36 offer, the offeror has applied for, but has not received, a certificate, the offeror must clarify the offer by stating the matters referred to in paragraph (6)(b) and (c) not more than 7 days after receipt of the certificate.

 

(8) For the purposes of rule 36.17(1)(a), a claimant fails to recover more than any sum offered (including a lump sum offered under rule 36.6) if the claimant fails upon judgment being entered to recover a sum, once deductible amounts identified in the judgment have been deducted, greater than the net amount stated under paragraph (6)(c).

 

(Section 15(2) of the 1997 Act provides that the court must specify the compensation payment attributable to each head of damage. Schedule 1 to the 2008 Regulations modifies section 15 of the 1997 Act in relation to lump sum payments and provides that the court must specify the compensation payment attributable to each or any dependant who has received a lump sum payment.)

 

(9) Where—

 

(a)further deductible amounts have accrued since the Part 36 offer was made; and

 

(b)the court gives permission to accept the Part 36 offer,

 

the court may direct that the amount of the offer payable to the offeree shall be reduced by a sum equivalent to the deductible amounts paid to the claimant since the date of the offer.

 

(Rule 36.11(3)(b) states that permission is required to accept an offer where the relevant period has expired and further deductible amounts have been paid to the claimant.)

 

MISCELLANEOUS

Cases in which the offeror’s costs have been limited to court fees

 

36.23.—(1) This rule applies in any case where the offeror is treated as having filed a costs budget limited to applicable court fees, or is otherwise limited in their recovery of costs to such fees.

 

(Rule 3.14 provides that a litigant may be treated as having filed a budget limited to court fees for failure to file a budget.)

 

(2) “Costs” in rules 36.13(5)(b), 36.17(3)(a) and 36.17(4)(b) shall mean—

 

(a)in respect of those costs subject to any such limitation, 50% of the costs assessed without reference to the limitation; together with

 

(b)any other recoverable costs.

SECTION IIRTA Protocol and EL/PL Protocol Offers to Settle

Scope of this Section

 

36.24.—(1) Where this Section applies, Section I does not apply.

 

(2) This Section applies to an offer to settle where the parties have followed the RTA Protocol or the EL/PL Protocol and started proceedings under Part 8 in accordance with Practice Direction 8B (“the Stage 3 Procedure”).

 

(3) A reference to the Court Proceedings Pack Form is a reference to the form used in the relevant Protocol.

 

(4) Nothing in this Section prevents a party making an offer to settle in whatever way that party chooses, but if the offer is not made in accordance with this Section, it will not have any costs consequences.

Form and content of a Protocol offer

 

36.25.—(1) An offer to settle which is made in accordance with this rule is called a Protocol offer.

 

(2) A Protocol offer must—

 

(a)be set out in the Court Proceedings Pack (Part B) Form; and

 

(b)contain the final total amount of the offers from both parties.

Time when a Protocol offer is made

 

36.26.—(1) The Protocol offer is deemed to be made on the first business day after the Court Proceedings Pack (Part A and Part B) Form is sent to the defendant.

 

(2) In this Section “business day” has the same meaning as in rule 6.2.

General provisions

 

36.27.  A Protocol offer—

 

(a)is treated as exclusive of all interest; and

 

(b)has the consequences set out in this Section only in relation to the fixed costs of the Stage 3 Procedure as provided for in rule 45.18, and not in relation to the costs of any appeal from the final decision of those proceedings.

 

Restrictions on the disclosure of a Protocol offer

 

36.28.—(1) The amount of the Protocol offer must not be communicated to the court until the claim is determined.

 

(2) Any other offer to settle must not be communicated to the court at all.

Costs consequences following judgment

 

36.29.—(1) This rule applies where, on any determination by the court, the claimant obtains judgment against the defendant for an amount of damages that is—

 

(a)less than or equal to the amount of the defendant’s Protocol offer;

 

(b)more than the defendant’s Protocol offer but less than the claimant’s Protocol offer; or

 

(c)equal to or more than the claimant’s Protocol offer.

 

(2) Where paragraph (1)(a) applies, the court must order the claimant to pay—

 

(a)the fixed costs in rule 45.26; and

 

(b)interest on those fixed costs from the first business day after the deemed date of the Protocol offer under rule 36.26.

 

(3) Where paragraph (1)(b) applies, the court must order the defendant to pay the fixed costs in rule 45.20.

 

(4) Where paragraph (1)(c) applies, the court must order the defendant to pay—

 

(a)interest on the whole of the damages awarded at a rate not exceeding 10% above base rate for some or all of the period starting with the date specified in rule 36.26;

 

(b)the fixed costs in rule 45.20;

 

(c)interest on those fixed costs at a rate not exceeding 10% above base rate; and

 

(d)an additional amount calculated in accordance with rule 36.17(4)(d).

Deduction of benefits

 

36.30.  For the purposes of rule 36.29(1)(a) the amount of the judgment is less than the Protocol offer where the judgment is less than that offer once deductible amounts identified in the judgment are deducted.

 

(“Deductible amount” is defined in rule 36.22(1)(d).)”

 

 

PRACTICE DIRECTION 36A – OFFERS TO SETTLE

This Practice Direction supplements CPR Part 36

Contents of this Practice Direction
Title
FORMALITIES OF PART 36 OFFERS AND OTHER NOTICES UNDER THIS PART
APPLICATION FOR PERMISSION TO WITHDRAW A PART 36 OFFER
ACCEPTANCE OF A PART 36 OFFER

FORMALITIES OF PART 36 OFFERS AND OTHER NOTICES UNDER THIS PART

1.1

A Part 36 offer may be made using Form N242A.

1.2

Where a Part 36 offer, notice of acceptance or notice of withdrawal or change of terms is to be served on a party who is legally represented, the document to be served must be served on the legal representative.

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APPLICATION FOR PERMISSION TO WITHDRAW A PART 36 OFFER

2.1

Rule 36.3(4) provides that before expiry of the relevant period a Part 36 offer may only be withdrawn or its terms changed to be less advantageous to the offeree with the permission of the court.

2.2

The permission of the court must be sought –

(1) by making an application under Part 23, which must be dealt with by a judge other than the judge (if any) allocated in advance to conduct the trial, unless the parties agree that such judge may hear the application;

(2) at a trial or other hearing, provided that it is not to the trial judge or to the judge (if any) allocated in advance to conduct the trial, unless the parties agree that such judge may hear the application.

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ACCEPTANCE OF A PART 36 OFFER

3.1

Where a Part 36 offer is accepted in accordance with rule 36.9(1) the notice of acceptance must be served on the offeror and filed with the court where the case is proceeding.

3.2

Where the court’s permission is required to accept a Part 36 offer, the permission of the court must be sought –

(1) by making an application under Part 23, which must be dealt with by a judge other than the judge (if any) allocated in advance to conduct the trial, unless the parties agree that such judge may hear the application;

(2) at a trial or other hearing, provided that it is not to the trial judge or to the judge (if any) allocated in advance to conduct the trial, unless the parties agree that such judge may hear the application.

3.3

Where rule 36.9(3)(b) applies, the application for permission to accept the offer must –

(1) state

(a) the net amount offered in the Part 36 offer;

(b) the deductible amounts that had accrued at the date the offer was made;

(c) the deductible amounts that have subsequently accrued; and

(2) be accompanied by a copy of the current certificate.

 

PRACTICE DIRECTION 36B – 36B

This Practice Direction supplements CPR Part 36

Contents of this Practice Direction
Title Number
Offers and Payments made before 6th April 2007 Para. 1.1
Permission of the court Para. 2.1
Payments into court made before 6th April 2007 Para. 3.1
Offers remaining open for acceptance Para. 4.1
Offers made before commencement of proceedings Para. 5.1

From 6th April 2007, new rules came into force concerning offers to settle, and Part 36, as it was in force immediately before 6th April 2007, was substituted by a new Part 36.

Rule 7 of the Civil Procedure (Amendment No.3) Rules 2006 that brought those new rules into force and replaced the previous rules contained some provisions that dealt with how the rules are to apply to offers and payments into court made before 6th April 2007.

This Practice Direction explains how those provisions will operate.

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Offers and Payments made before 6th April 2007

1.1

Paragraph (2) of rule 7 provides that where a Part 36 offer or Part 36 payment was made before 6th April 2007, if it would have had the consequences set out in the rules of court contained in Part 36 as it was in force immediately before 6th April 2007, it will have the consequences set out in rules 36.10, 36.11 and 36.14 after that date.

1.2

This provision makes clear that a Part 36 offer or Part 36 payment that was valid before 6th April 2007, will continue to be a valid Part 36 offer under the rules in force from 6th April 2007, and will have the consequences set out in those rules, specifically in relation to costs and the effect of acceptance.

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Permission of the court

2.1

Paragraph (3) of rule 7 provides that where a Part 36 offer or Part 36 payment was made before 6th April 2007, the permission of the court is required to accept that offer or payment, if permission would have been required under the rules of court contained in Part 36 as it was in force immediately before 6th April 2007.

2.2

This provision preserves the requirement to obtain the permission of the court to accept an offer as it existed under the rules in force immediately before 6th April 2007. Therefore, if permission would have been required before 6th April 2007, it will be required after that date. But, if permission would not have been required because the parties have been able to agree liability for costs, or if a further offer has been made triggering a new period for acceptance, permission will not be required after 6th April 2007.

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Payments into court made before 6th April 2007

3.1

Paragraph (4) of rule 7 provides that rule 37.3 will apply to a Part 36 payment made before 6th April 2007 as if that payment into court had been made under a court order.

3.2

Rule 37.3 applies to all payments under Part 37, including payments into court under order, and permission is required to take the money out of court.

3.3

By applying rule 37.3 to payments into court made before 6th April 2007, this provision preserves in particular the requirement that permission be obtained to withdraw such payment.

3.4

But, rule 37.3 also provides that money may be taken out of court without the court’s permission where a Part 36 offer (including an offer underlying a Part 36 payment) is accepted without needing the permission of the court and the defendant agrees that the sum may be paid out in satisfaction of the offer. Paragraph 3.4 of the Practice Direction to Part 37 makes provision about how to take money out of court.

3.5

This exception to the permission requirement preserves the right under rule 37.2, as it was in force immediately before 6th April 2007, to treat a payment into court made under order or by way of a defence of tender before claim as a Part 36 payment.

3.6

This provision has the effect that a Part 36 payment made before 6th April 2007 may be taken out of court simply by filing a request for payment if the offer underlying the Part 36 payment is accepted without needing permission. In those circumstances, it may be assumed that the defendant agrees to the money being used in satisfaction of the sum offered, and the requirement in paragraph 3.4 of the Practice Direction to Part 37 to file a Form 202 will not apply.

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Offers remaining open for acceptance

4.1

Paragraph (5) of rule 7 provides that the rules of court contained in Part 36 as it was in force immediately before 6th April 2007 shall continue to apply to a Part 36 offer or Part 36 payment made less than 21 days before 6th April 2007.

4.2

This provision preserves those rules in their entirety in relation to offers and payments made less than 21 days before 6th April 2007 for the period that they are expressed to remain open for acceptance.

4.3

Paragraph (6) of rule 7 provides that paragraph (5) ceases to apply at the expiry of 21 days from the date that the offer or payment was made, unless the trial has started within that period.

4.4

This provision has the effect that once the 21 day period has expired, the new regime (including the modifications at paragraphs (2), (3) and (4) of rule 7) will apply to the offer or payment.

4.5

If the trial has started within the 21 day period, the rules that were in force before 6th April 2007 will continue to apply to the offer or payment.

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Offers made before commencement of proceedings

5.1

Paragraph (7) of rule 7 deals with the position where, before 6th April 2007, a person made an offer to settle before commencement of proceedings which complied with the provisions of rule 36.10 as it was in force immediately before 6th April 2007.

5.2

The court will take that offer into account when making any order as to costs. This preserves the discretion of the court to take into account an offer made before commencement of proceedings as it existed before 6th April 2007.

5.3

The permission of the court will be required to accept such an offer after proceedings have been commenced. This preserves the position under rule 36.10(4) as it was in force immediately before 6th April 2007.

5.4

If proceedings are commenced after 6th April 2007, the requirement to pay money into court in respect of a defendant’s money offer under rule 36.10(3)(a) (as it was in force before 6th April 2007) will not an apply to a defendant’s money offer made before the proceedings were commenced.

 

 


 

Liability for costs of detailed assessment proceedings

 

47.20

 

  • The receiving party is entitled to the costs of the detailed assessment proceedings except where –

 

  • the provisions of any Act, any of these Rules or any relevant practice direction provide otherwise;

 

or

 

  • the court makes some other order in relation to all or part of the costs of the detailed assessment proceedings.

 

  • Paragraph (1) does not apply where the receiving party has pro bono representation in the detailed assessment proceedings but that party may apply for an order in respect of that representation under section 194(3) of the 2007 Act.

 

  • In deciding whether to make some other order, the court must have regard to all the circumstances, including –

 

  • the conduct of all the parties;

 

  • the amount, if any, by which the bill of costs has been reduced; and

 

  • whether it was reasonable for a party to claim the costs of a particular item or to dispute that item.

 

  • The provisions of Part 36 apply to the costs of detailed assessment proceedings with the following modifications –

 

  • ‘claimant’ refers to ‘receiving party’ and ‘defendant’ refers to ‘paying party’;

 

  • ‘trial’ refers to ‘detailed assessment hearing’;

 

  • a detailed assessment hearing is “in progress” from the time when it starts until the bill of costs has been assessed or agreed;

 

  • for rule 36.14(7) substitute “If such sum is not paid within 14 days of acceptance of the offer, or such other period as has been agreed, the receiving party may apply for a final costs certificate for the unpaid sum.”;

 

  • a reference to ‘judgment being entered’ is to the completion of the detailed assessment, and references to a ‘judgment’ being advantageous or otherwise are to the outcome of the detailed assessment.

 

  • The court will usually summarily assess the costs of detailed assessment proceedings at the conclusion of those proceedings.

 

  • Unless the court otherwise orders, interest on the costs of detailed assessment proceedings will run from the date of default, interim or final costs certificate, as the case may be.

 

  • For the purposes of rule 36.17, detailed assessment proceedings are to be regarded as an independent claim.


 

REFERENCES

 

 

Statutes

 

Legal Aid, Sentencing and Punishment of Offenders Act 2012

 

 

Statutory Instruments

 

Civil Procedure Rules 1998, S.I. 1998/3132

 

Conditional Fee Agreements Order 2013

 

Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No 2 and Specification of Commencement Date) Order 2012 (SI 2012 No. 2412 (c.94)

 

Offers to Settle in Civil Proceedings Order 2013, SI 2013 No 93

 

 

Case Law

 

Bellway Homes Ltd v Seymour (Civil Engineering Contractors) Ltd [2013] EWHC 1890 (TCC)

 

Bolt Burdon Solicitors v Tariq & Others [2016] EWHC 1507 (QB) (22 June 2016)

 

Carver v BAA plc [2008] EWCA Civ 412 [2008] 3 All ER 911

 

Cashman v Mid Essex Hospital Services NHS Trust [2015] EWHC 1312 (QB)

 

Elsevier Limited v Robert Munro [2014] EWHC 2728 (QB)

 

Elvanite Full Circle Ltd v AMEC Earth and Environment (UK) Ltd [2012] EWHC 1643 (TCC)

 

Fox v Foundation Piling Limited [2011] EWCA Civ 790

 

Gibbon v Manchester City Council [2010] EWCA Civ 726

 

Hammersmith Properties (Welwyn) Ltd v Saint-Gobain Ceramics and Plastics Ltd [2013] EWHC 2227 (TCC)

 

Henry v Group Newspapers Ltd [2013] EWCA Civ 19

 

Kellie and Kellie v Wheatley and Lloyd Architects Ltd [2014] EWHC 2886 (TCC)

 

Lowin v W Portsmouth and Co Ltd, 20 June 2016

 

Lownds v Home Office [2002] EWCA Civ 365

 

Magical Marking Ltd v Ware and Kay LLP [2013] EWHC 636 (Ch)

 

Medway PCT v Marcus [2011] EWCA Civ 750

 

Mehjoo v Harben Barker (A firm) [2013] EWHC 1669 (QB)

 

Pawar v JSD Haulage Ltd [2016] EWCA Civ 551

 

Procter and Gamble v Svenska Cellulosa Aktiebolaget SCA [2012] EWHC 2839 (Ch)

 

Purrunsing v A’Court & Co (a firm) and another [2016] EWHC 1528 (Ch) (1 July 2016)

 

Simmons v Castle (no 2) [2012] EWCA Civ 1288

 

Summers v Bundy [2016] EWCA Civ 126

 

Sutherland v Khan, Kingston-Upon-Hull County Court, Case number A81YM424

 

Sycamore Bidco Ltd v Breslin [2013] EWHC 583 (Ch)

 

Thinc Group Ltd v Kingdom [2013] EWCA Civ 1306

 

Written by kerryunderwood

November 24, 2015 at 8:55 am

Posted in Uncategorized

AFTER-THE-EVENT INSURANCE – UNIFIED

with 3 comments


Look here for Kerry’s new course on this subject 

 

In Coventry v Lawrence [2015] UKSC 50 the Supreme Court rejected an argument that recoverability of success fees and After-the-Event insurance premium constituted a breach of either the Human Rights Act 1998 or the European Convention on Human Rights which is scheduled to that Act.

In The Queen (on the application of Tony Whitston for and on behalf of Asbestos Victims Support Groups Forum UK) and Secretary of State for Justice and The Association of British Insurers [2014] EWHC 3044 (Admin) the Administrative Court quashed the Government’s attempt to abolish recoverability of success fees and After-the-Event insurance premiums in mesothelioma cases.

 

I gave expert evidence for the successful party in each case.

 

 

 

The abolition of recoverability of after-the-event insurance premiums came in on 1 April 2013 and this was achieved by Article 3 (c) of The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No 5 and Saving Provision) Order 2013, Statutory Instrument 2013 No 77.

 

Article 2(1)(c) brought Section 46 of LASPO in to effect from 19 January 2013 in relation to the exercising of any power to make orders, regulations or rules of court.

 

Section 46(3) provides that the abolition of recoverability does not apply in relation to a costs order made in favour of a party to proceedings who took out the policy before the commencement date, 1 April 2013. The courts have consistently upheld the rights of parties to enter in to retrospective agreements, including retrospective conditional fee agreements and after-the-event insurance policies, so in theory a policy made retrospective to before 1 April 2013, even though arranged after that date, would carry a recoverable premium.

 

It is unlikely that the court would exercise any discretion in favour of the receiving party; in other words a claimant is unlikely to be awarded the cost of the after-the-event insurance premium in a retrospective agreement, even if technically allowable.

 

The section refers to when the policy is taken out, not when the premium is paid.

 

Thus it is unclear what the position will be in relation to a policy taken out in March 2013 with a ceiling of, say, £50,000.00 which in May 2013 was increased on payment of a further premium.

 

Is only the pre-1st April 2013 premium recoverable, or are both recoverable as the policy was taken out before the commencement date?

 

What about staged premia? Suppose a further tranche of the premium is payable on setting down.  It appears that the recoverability of that element, often of tens of thousands of pounds, may depend upon whether setting down took place before 1 April 2013 or not.

 

In relation to staged premiums my view is that they are recoverable in full as staging  is simply a method and timetable for payment, analogous to agreeing to pay a builder one sum when the foundations are completed and another on completion of the first floor.

Also both the courts and paying parties encouraged staged premiums as it reduced the costs if the matter settled.

 

Discounted Premiums

 

What about a single premium, subsequently heavily discounted in the event of settlement? Will the courts view this as an unlawful attempt to recover an element of premium really incurred since 1 April 2013?

 

Thus a single premium of £50,000 is incurred, but will be discounted to £40,000 if settled before trial and to £30,000 if settled before setting down. The case was set down in May 2013 and settled shortly thereafter. Thus the premium is discounted to £40,000. Clearly the extra cost of the risk for the period between setting down and trial is £10,000 as reflected in the proposed discount from £40,000 to £30,000 if it does not reach that stage. Will the defendant be able to argue successfully that there is a separate risk incurred wholly after 1 April 2013, and thus not recoverable?

 

This is possible, but unlikely, as it would simply lead to after-the-event insurers not discounting at all in relation to premiums incurred before 1 April 2013.

 

Parties and their advisers now have to consider whether or not to take out after-the-event insurance at all, but in the event that they do take out such insurance, they will need to decide whether to choose a staged premium policy or a single premium policy.

 

If a claimant believes that the claim will settle early he or she may favour a staged premium, in which case only the stage one premium will be lost from the damages, or indeed may choose not to insure at all.

 

A claimant who thinks that the case will fight might prefer a single premium as that is likely to be cheaper than a staged premium once a number of stages are reached.

 

It must be noted that QOCS applies only to personal injury claims, including clinical negligence claims.

 

Children

 

CPR 21.12 provides that a Litigation Friend who incurs expenses on behalf of a child is entitled to recover them out of monies received provided that the expenses have been reasonably incurred and are reasonable in amount.

 

CPR 21.12(6) limits the total expenses that a Litigation Friend may recover to 25% of the sum awarded where the claim dos not exceed £5,000 unless the court orders otherwise and in any event must not exceed 50% of the sum agreed or awarded.

 

An after-the-event insurance premium is specifically an expense, rather than legal costs, because CPR 21.12(2)(a) says so:

 

“(2)        Expenses may include all or part of –

 

  • a premium in respect of a costs insurance policy (as defined by section 58C(5) of the Courts and Legal Services Act 1990.”

 

In A & M (by a litigation friend) v Royal Mail Group (2) [2015] Misc. B3 (CC) District Judge Lumb, sitting in Birmingham County Court, dealt with the issue of litigation expenses incurred by a litigation friend under CPR 21.12.

 

The judge said that under CPR 21.12 “simply because an ill-informed litigation friend signs up to a CFA with a success fee of 100% does not automatically mean that a 100% success fee is a reasonable expense for the purposes of CPR 21.12.”  That must be right.

 

As the success fee is calculated by reference to base costs then for the purposes of CPR 21.12 the judge assessed base costs and reduced them notionally, purely for the purposes of calculating the success fee, by 60%.

 

Again that concept must be right. However it is important to note that the reduction was purely notional in order to calculate the potential deduction of costs from the child’s damages. It does not affect the sum due from the litigation friend to the solicitor. The judge has no power to reduce that sum except on a Solicitors Act assessment, where very different legal considerations apply.

Here the judge found that the After-the-Event insurance premium was not a reasonable expense within CPR Part 21.12 saying:-

 

“27. In the circumstances of this case there were effectively no risks to ensure against and this was confirmed by Mr Susak [the claimant’s representative] who when challenged by the court to specify any risk that could justify taking out an ATE policy in this case could not do so. Even if there was a risk, that risk was so small or remote that any competent solicitor would not advise a client to go to the expense of taking out an ATE policy. It follows that the court will not give its approval to the ATE premiums being deducted from the children’s damages.

 

It is true that this was a case involving two children who were passengers, and one would think that there was no chance of the case being lost.

 

However the judge’s reasoning at paragraph 26 is full of errors and omissions and he clearly does not begin to understand Qualified One-Way Costs Shifting and the very many circumstances in which protection can be lost. I set out the paragraph below but readers will note that there is no reference to the fact that protection is lost if part of the claim is for the benefit of another, or if it is struck out on one of the number of grounds. This can include delay, which means that an apparently safe case can be struck out and QOCS dis-applied.

 

For these reasons this first instance judgment, which has received considerable publicity, is almost certainly wrongly decided and in any event will be distinguishable on its facts. It is not binding on anyone.

 

“The Jackson Reforms introduced the concept of Qualified One-Way Costs Shifting (QOCS). Under these provisions claimants only become liable for defendant’s costs in the event that the claim is lost in very limited circumstances. Essentially full QOCS protection would only be lost if the claim featured fundamental dishonesty by the client (highly unlikely if not impossible in the circumstances of the present case and in any event if present would provide a ground for the solicitors to be no longer bound by the CFA) and partial loss of QOCS protection would only apply up to the amount of damages recovered in the event of a claimant failing to beat a CPR Part 36 offer. Again that does not arise in this case and even if it did would represent such a negligible risk that it would not be reasonable or proportionate to take out insurance to protect against it.”

 

That statement is fundamentally flawed.

 

Membership Organizations

 

Section 47 abolishes recoverability of notional insurance premia by membership organisations and contains similar provisions as section 46 in relation to liability incurred pre-commencement date.

 

Clinical Negligence

 

By virtue of a new Section 58C(2) to (4) of the Courts and Legal Services Act 1990 the Lord Chancellor is empowered to make Regulations allowing recovery of just that element of an after-the-event insurance premium relating to the costs of a claimant’s own risk of having to pay for one or more expert’s reports.

 

New Regulations were laid before Parliament on 28 March 2013 to rectify the defects in SI 2013/92, which has been revoked.

 

The Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings (No 2) Regulations 2013, effective 1 April 2013, provide that recovery of the ATE premium is only allowed if

 

  • the financial value of the claim for damages in respect of clinical negligence is more than £1,000; and

 

  • the risk insured is of incurring liability to pay for an expert relating to liability or causation, and

 

  • recoverability is limited to that part of the premium relating to the “risk of incurring liability to pay for an expert or reports relating to liability or causation in respect of clinical negligence in connection with the proceedings.”

 

See also my blog Clinical Negligence and ATE Recoverability.

 

All of this is a huge improvement on the issues raised in the consultation paper.  In particular out go:

–              any limit on the number of reports;

–              any limit on the costs of those reports;

–              any limit on the ATE premium;

–              any requirement to give notice to the defendant;

–              any restriction on a liability/causation report also dealing with quantum.

 

 

Clinical Negligence – Recovery of ATE Premium

 

In Nokes v Heart of England Foundation NHS Trust 29 May 2015 – SCCO CL 1404886

 

the Senior Courts Costs Office upheld a Costs Master’s decision to allow recovery of a premium of £5,680.00 in respect of cover of £10,000.00 in relation to liability and causation reports in a clinical negligence case where, to a limited extent, recoverability remains post LASPO. The cost for the reports was £2,530.80.

 

The regime means that both the cost of the reports and the insurance premium insuring them are recoverable from an unsuccessful defendant. The relevant regulations are the Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings (No. 2) Regulations 2013, made under Section 58 C of the Courts and Legal Services Act 1990.

 

The premium for £100,000.00 of adverse costs cover was 3% of damages.

 

The premium in relation to reports “self-insured”, in other words the claimant did not actually have to pay it if the case was lost. This is standard and is often known as a silver bullet scheme. The SCCO rejected the defence submission that this made it unrecoverable as the premium included insuring the cost of the premium itself, as well as the cost of the liability/causation reports.

 

On the facts the SCCO found that it was the separate 3% premium which “self-insured” both premiums. The judgment is somewhat confused and it appears to say that even if each part was a self-insuring premium it would still have been recoverable.

 

The claimant settled for £40,000.00. The SCCO rejected the defendant’s argument that the premium was disproportionate in relation to the sum insured. Proportionality must be measured against the whole value of the claim, not just one part.

 

As to the reasonableness of the amount, as compared with proportionality, the court rejected the defendant’s submission that a premium of £6,020.80 (including Insurance Premium Tax) for an indemnity of £10,000.00 defies logic and makes no commercial sense. The defendant said that although it was not known by the paying party how the premium was calculated, the calculation must have been fundamentally flawed, as well as grossly disproportionate. The premium was compared to the actual costs of the medical reports in this case – £2,530.80 – and the defendant asked:-

 

“Why would any Claimant pay an ATE premium that was nearly three times the potential exposure?” (Paragraph 34).

 

The SCCO rejected the defendant’s statement that “it is difficult, if not impossible, to avoid the conclusion that the insurer is greatly inflating its prices where there is the prospect of inter parties recovery” (paragraph 59).

 

 

Mesothelioma

 

Diffuse mesothelioma claims have been exempted from the ban on recoverability of success fees and after-the-event insurance premiums; in other words claimants will continue to recover success fees and insurance premiums even when the conditional fee agreement is entered in to after 1 April 2013 and the insurance is taken out after that date. In relation to the success fee this remains recoverable, and not subject to the 25% damages cap by virtue of Article 6(2)(a) of The Conditional Fee Agreements Order 2013.

 

In relation to ATE insurance the continuing recovery of the ATE premium from the losing party is achieved by Article 4 (a) of The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No 5 and Saving Provision) Order 2013. Statutory Instrument 2013 No 77.

 

In The Queen (on the application of Tony Whitston for and on behalf of Asbestos Victims Support Groups Forum UK) and Secretary of State for Justice and The Association of British Insurers [2014] EWHC 3044 (Admin) the Administrative Court quashed the Government’s attempt to abolish recoverability of success fees and After-the-Event insurance premiums in mesothelioma cases.

Diffuse Mesothelioma is defined in Section 48(2) of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 as having the same meaning as in the Pneumoconiosis etc. (Workers’ Compensation) Act 1979.

The all-party House of Commons Select Committee on Justice, in its 1 August 2014 report was highly critical of the decision to scrap the mesothelioma exception.

 

 

Insolvency

 

On 17 December 2015 the Ministry of Justice announced that with effect from April 2016 recoverability of ATE premiums and success fees will cease in insolvency matters.

That will leave full recoverability of ATE premiums and success fees in mesothelioma cases and defamation and privacy cases.

There is limited recoverability in clinical negligence cases in that the ATE premium in relation to the cost of a liability and causation medical report remains recoverable.

At the same time Justice Minister Lord Faulks said that the review of those remaining exemptions is unlikely to take place until the end of 2017 or the beginning of 2018.

 

 

Defamation and Breach of Privacy

 

Recoverability of the success fee is maintained by Articles 1 and 6(2)(b) of The Conditional Fee Agreements Order 2013  and of the ATE premium by Article 4(b) of The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No 5 and Saving Provision) Order 2013, Statutory Instrument 2013 No 77.

 

 

Clients changing firms

 

The policy is between the client and the after-the-event insurance company and therefore there is nothing to stop the policy continuing and, in the case of a pre-1 April 2013 premium, remaining recoverable from the other side, in circumstances where the client changes solicitors. This may come about because the client chooses to move firms or, more likely, because the original law firm becomes insolvent or sells it caseload to another firm.

 

However many after-the-event insurance policies provide that the policy ends if the client moves firms.

 

If the after-the-event policy is cancelled then clearly the premium will not be payable by anyone and this is not recoverable, whatever the outcome of the case; the after-the-event insurer is off risk but has also lost any chance of getting a premium and typically such premiums are not paid by anyone until the end of the case and in the event of defeat are not paid at all.

 

If the policy is not cancelled, then there should be no problem. If it is then there are a variety of options:-

 

  1. to continue without after-the-event insurance in place;

 

  1. for the new firm to self-insure, that is to accept liability for any adverse costs Order; this is perfectly lawful – see Sibthorpe and Morris v Southwark London Borough Council (Law Society intervening) [2011] EWCA Civ 25;

 

  1. for the new firm to fund the unrecoverable after-the-event insurance premium; the lawfulness of this has been recently confirmed by the Court of Appeal in Flatman and Germany v Weddall and Barchester Health Care Limited [2013] EWCA Civ 278;

 

  1. for the client to pay the premium himself; generally such a premium is a so-called “silver bullet” one which is payable only in victory, and therefore the client would not physically have to pay anything out unless and until the case is won; payment can then be taken by deduction from damages;

 

  1. for the solicitor to self-insure or arrange the insurance and pay for it out of an overall charge to the client, typically 25% of damages in a post-31 March 2013 conditional fee agreement.

 

In any situation where the client pays, directly or indirectly, for the after-the-event insurance premium he or she is likely to have a valid complaint that this expense has been forced upon him or her by the conduct of both the outgoing firm and the incoming firm.

 

In my view, in the absence of the after-the-event insurer allowing the policy to continue with the new firm, the firms should arrange between them for the insurance to be obtained, or an indemnity given, at no cost to the client.

 

Clearly the most satisfactory outcome is for the After-the-Event insurance provider to agree to allow the policy to continue with the new or merged firm and I advise that the After-the-Event insurer in each case be approached and be asked to agree.

 

The benefit to the After-the-Event insurer is that they stand to recover a premium in a case which they had previously agreed to insure and where the risk profile should not have changed.

 

In Jones v Spire Healthcare Ltd. Liverpool County Court, 11 September 2015, case no. A13YJ811 District Judge Jenkinson held that a Conditional Fee Agreement entered into between one firm of solicitors and a client was not capable of assignment to another firm. However this decision does not mean that a client changes firms loses the benefit of After-the-Event insurance, although as set out above, that will depend upon the contract between the client and the After-the-Event insurer as many policies provide that it ends if the client moves firms.

 

Is ATE still necessary in personal injury cases?

 

Here I deal only with personal injury claims, where the introduction of Qualified One-Way Costs Shifting may lead solicitors and clients to consider after-the-event insurance unnecessary.  In non-personal injury cases where a losing party still pays all of the winner’s costs the argument in favour of having such insurance is much clearer.

 

As we have seen recoverability of After-the-Event insurance premiums was abolished in relation to policies incepted after 31 March 2013 except in relation to mesothelioma claims, insolvency proceedings, defamation and privacy cases, and, to a limited extent, clinical negligence cases.

 

Most After-the-Event insurance policies are not paid for upfront by anyone. During the period of recoverability the premium was paid by the unsuccessful Defendant at the end of the case. If the Claimant was unsuccessful no premium was payable by anyone. Thus for the Claimant it was always free.

 

Given that situation it was very common for After-the-Event insurance to be taken out as it gave protection to a client at no possible cost to the client. Such insurance generally covered the Claimant’s solicitors own disbursements if the case was lost and the post Part 36 costs of the Defendant who had made a successful Part 36 offer, that is one that the Claimant failed to beat.

 

Thus take a case where a Defendant had made a Part 36 offer of £50,000.00 and the Claimant proceeded to trial and failed to beat that offer. The Defendant’s post Part 36 costs and disbursements, as well as the Claimant’s own post Part 36 disbursements, were all picked up by that insurance thus leaving the only risk to the client being that the court would award less than the sum on offer under Part 36.  That should rarely happen as solicitors will generally advise acceptance of an offer below the sum likely to be recovered at court; there is always a litigation risk.

 

The solicitor in such a case did not recover post Part 36 costs but had taken the matter on under a Conditional Fee Agreement and thus always anticipated a risk of not being paid.

 

After-the-Event insurance was, and is, available as a freestanding product even if no Conditional Fee Agreement has been entered into, although it is more difficult to obtain in such circumstances.

 

However in relation to personal injury work a system of Qualified One-Way Costs Shifting was introduced on 1 April 2013, although it is fully retrospective – see Wagenaar v Weekend Travel Limitedt/a Ski Weekend and Serradji (Third Party) [2014] EWCA Civ 1105 (31 July 2014).

 

To put it simply, a Claimant in a personal injury matter who is not seeking a recoverable success fee or After-the-Event insurance premium from the Defendant will be awarded costs in the usual way if successful but will not be liable for the Defendant’s costs in the event of defeat.

 

The theory behind this is that Defendants are relieved of the cost of recoverable After-the-Event insurance premiums but that Claimants are not deterred from bringing claims by the risk of paying costs if they lose, that risk being removed by Qualified One-Way Costs Shifting.

 

Thus a personal injury Claimant can enter into a Conditional Fee Agreement with their own lawyer, thus removing the risk of payment of their own legal fees in the event of defeat, and is off risk of paying the successful Defendant’s costs due to Qualified One-Way Costs Shifting.

 

However Part 36 retains its full force in such cases. In other areas where costs are not recoverable Part 36 has no application, for example in Employment Tribunals, in family work and Smalls Claims Track matters.

 

Thus a successful Claimant who fails to beat a Defendant’s Part 36 offer is liable for the Defendant’s costs from the expiry of the date for acceptance of the Part 36 offer, which must be a minimum of 21 days after the offer is made.

 

A full costs order is made in the usual way but cannot be enforced by the Defendant beyond the level of damages awarded, so the Claimant faces losing all of their damages but not having to pay the Defendant’s costs over and above those damages.

 

That concept alone is not without its problems. Supposing a Defendant has made an interim payment of £25,000.00 and the overall damages awarded by the court are £50,000.00 and the Defendant’s costs are exactly £50,000.00. The Defendant can enforce to recover the £25,000.00 interim payment without leave of the court.

 

It also leaves outstanding the issue of the Claimant’s post Part 36 own disbursements.

 

Both of these matters are generally picked up by a typical After-the-Event insurance policy.

 

It is strongly arguable that the Claimant’s pre Part 36 costs can be eaten into either by set off under CPR 44.12 or by the common law doctrine of set off. Thus if the Defendant’s costs are £60,000.00 and the damages are £50,000.00 then potentially the Defendant, as well as paying no damages, can set off the unrecovered £10,000.00 against the Claimant’s pre Part 36 costs.

 

It is well established law that costs belong to the client and not the solicitor and therefore in theory the doctrine of set off applies. There is a case on similar principles under the old Legal Aid system and that case is R (Burkett) v London Borough of Hammersmith and Fulham [2004] EWCA Civ 1342 where the court did indeed find that a Defendant could set off costs against, in that case the Claimant’s costs for part of the period when they had been legally aided.

 

Clearly a Claimant who has After-the-Event insurance is in a stronger position in relation to Defendants’ Part 36 offers than a Claimant without such insurance.

 

Thus the apparent answer is to continue to take out After-the-Event insurance to deal with the Part 36 risk. However the cost of that insurance must be paid out of damages if the client wins although nothing is paid if the case is lost on liability.

 

I deal with the whole subject of Qualified One-Way Costs Shifting elsewhere but it is clear that the courts are working very hard to award defendants in personal injury cases costs when they win and many consider Qualified One-Way Costs Shifting to be almost meaningless. The problem is that the grounds that disqualify Qualified One-Way Costs Shifting, including fundamental dishonesty and striking out for abuse of process or because there was no reasonable ground for bringing the case, are also likely to void the After-the-Event insurance policies.

 

When I am lecturing or carrying out consultancies I put forward the scenario of a case that is good on liability where the Claimant will be awarded £100,000.00 at court if all heads of damages are awarded and the Claimant wins on all points, in other words the best case scenario for the Claimant. The question I then ask is at what point, with After-the-Event insurance in place, would a solicitor advise their client to accept an offer or, if those attending are Defendant solicitors, when they would expect the offer to be accepted.

 

The typical answer is around £80,000.00.

 

I then put forward the same scenario with the same question but with no After-the-Event insurance in place and the answer is then generally around £50,000.00.

 

They would be my answers.

 

I have no doubt that Claimants in personal injury cases where they do not have After-the-Event insurance will settle claims for significantly lower sums that when After-the-Event insurance is in place. That is not under-settling; it is settling at the appropriate figure given the much more serious consequences of failing to beat the Defendant’s Part 36 offer. The risk of failing to beat the offer has not changed, but the consequences of failing to beat the offer have changed. It is like shoplifting in Britain as compared with Saudi Arabia; the chances of getting caught may be the same but the consequences are very different indeed.

 

The crucial, and very difficult, issue in each case is as to whether the cost of the After-the-Event insurance premium will outweigh the extra sum achieved by the greater negotiating power of the Claimant’s solicitors.

 

To take the above example – let us assume across a basket of cases the existence of After-the-Event insurance gains an extra £30,000.00 damages. If the premium is £35,000.00 then the client has actually lost in financial terms. Thus a cost benefit analysis needs to be undertaken in each case. This is very difficult given the variables in any given case, and given that this exercise has to be carried out early in the case in order to obtain After-the-Event insurance.

 

It is correct that this is a reversion to the pre-April 2000 position.

 

However Legal Aid was far more widely available then. It has now for all intents and purposes been abolished for conventional personal injury work although there is a limited exception in relation to clinical negligence where a child is injured in the womb or within eight weeks of birth and certain further conditions apply.

 

The exceptions to the prohibition on the recoverability of the After-the-Event insurance premiums are the same as for success fees with the same history and the same proposals, with one exception. That exception is in relation to clinical negligence cases where the After-the-Event insurance premium remains recoverable in relation to medical reports obtained in relation to liability and causation and that is achieved by The Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings (No 2) Regulations 2013.

 

Many consider this to be the third piece of protection required for clients. The existence of no win no fee arrangements under Conditional Fee Agreements protect clients against their own legal costs and Qualified One-Way Costs Shifting theoretically protects clients against adverse costs, but subject to the whole issue of Part 36 set out above. If the Part 36 exception was removed then that would leave just the issue of the Claimant’s own disbursements which in clinical negligence cases is dealt with by the After-the-Event insurance premium for such disbursements remaining recoverable from the other side.

 

The protection apparently afforded by Qualified One-Way Costs Shifting is very substantially reduced by the continuing full force of Part 36 of the Civil Procedure Rules, subject only to the starting point that the Defendant’s post Part 36 costs cannot be enforced over and above the level of damages awarded.

 

It is clear that the personal injury claimants will receive significantly less in damages than they did prior to April 2013. The protection apparently given by Qualified One-Way Costs Shifting is largely illusionary, although clearly there is protection to the Claimant where the case is lost on liability.

 

 

Security for Costs

 

In Geophysical Service Centre v Dowell Schlumberger (Middle East) Inc [2013] EWHC 147 (TCC)

 

the Technology and Construction Court held that, depending on the terms of the policy, After-the-Event insurance may be adequate security for costs.

 

Previously in Michael Phillips Architects Ltd v Riklin [2010] EWHC 834 the court held that the ATE insurance policy was insufficient, saying:-

 

“it is necessary where reliance is placed by a claimant on an ATE insurance policy to resist or limit a security for costs application for it to be demonstrated that it actually does provide some security. Put another way, there must not be terms pursuant to which or circumstances in which the insurers can readily but legitimately and contractually avoid liability to pay out for the defendant’s costs.”

 

In Geophysical the defendant contended that the insurer could avoid the policy if there was fraudulent non-disclosure or misrepresentation and that this was likely as the claim was partly based on alleged representations made by the defendant to the claimant. Rejection of the claimant’s case by the court, the trigger for a costs liability, was likely to lead to avoidance of the policy.

 

The court said that this was no more than a theoretical possibility; it was not alleged that the claim was fraudulent or a sham. There is a significant difference between a finding that evidence is incorrect and a finding that it was fraudulent.

 

The court also considered that there was only a theoretical chance that breach of the ATE insurance could lead to avoidance; the terms were not onerous.

 

Furthermore the insurers here would be liable to provide an indemnity for the defendant’s costs incurred before cancellation and so the defendant was safe up until that point and could then make a fresh application for security of costs.

 

The court said:-

 

“… the funding of litigation by ATE policies is, and has for some years now, been a central feature of the ability of the parties to gain access to justice.

 

In the absence of evidence to the contrary, the court’s starting position should be that a properly drafted ATE policy provided by a substantial and reputable insurer is a reliable source of litigation funding.”

 

 

In Practice

 

There is no requirement that a client be able to satisfy an adverse costs order before a solicitor takes the matter on under a conditional fee agreement, nor is there any requirement to have after-the-event insurance in place – see Heron v TNT (UK) Limited and Mackrell Turner Garrett (a firm) [2013] EWCA Civ 469 where the Court of Appeal said at paragraph 37:-

 

“A solicitor is entitled to act on a CFA for an impecunious client who they know or suspect will not be able to pay own (or other side’s costs) if unsuccessful”.

 

Solicitors need a clear policy, which may differ from firm to firm.  For example it may be that one firm is prepared to cover the Part 36 adverse costs risk in relation to all cases within the portals; another may cover all cases within fixed recoverable costs etc. This policy of indemnifying a client against an adverse costs risk has been approved by the Court of Appeal in Sibthorpe and Morris v Southwark London Borough Council (Law Society intervening) [2011] EWCA Civ 25. The specific wording of that indemnity, which the Court of Appeal said was lawful and unobjectionable, was:-

 

“If you lose, you pay your opponents charges and disbursements. You may be able to take out an insurance policy against this risk. If you are unable to obtain an insurance policy against this risk, we indemnify you against payment of your opponents charges at the end of the case if you lose. This means that we will pay those charges.”

 

For taking such a risk it is perfectly proper to charge an additional fee to the client, say 30% of damages rather than 25%.

 

A solicitor is free to fund disbursements on a contingency fee basis, that is without recovering them from the client if the case is lost – see Flatman and Germany v Weddall and Barchester Health Care Limited [2013] EWCA Civ 278.

 

It is again reasonable and proper for a solicitor to charge the client an additional fee, by way of a percentage or some other method, for providing this service.

 

Contrary to popular belief there is no maximum percentage of damages that may be taken from a personal injury client, subject to the Solicitors Code of Conduct duty not to take advantage of clients. It is the success fee alone which is capped at 25%, including VAT, of certain specified damages. The same limit applies in Damages-Based Agreements, but with DBAs that is indeed an absolute cap and no more may be charged.
Unrecovered disbursements, in particular the now unrecoverable After-the-Event insurance premium, and unrecovered solicitor and own client costs may be charged to the client without statutory limit in a non DBA case.

 

Is the firm prepared to act for a client who has not got ATE insurance in place and is not prepared to pay extra for the solicitor to indemnify her or him?  Such a client is likely to be the one who complains about “under-settling” and rushes off to one of those parasitic companies seeking to encourage such claims.

 

For more substantial claims is third party funding rather than ATE the answer?  It normally provides the benefit of ATE plus disbursement funding and some own costs, win or lose.  The disadvantage is that the third party funder will take the 25% or 30% of damages as its fee.  This is done under a no win-lower fee conditional fee agreement.

 

A policy of the law firm indemnifying claims of a certain value, in return for a higher fee, and utilizing third party funding for claims above that ceiling, may be the answer.

 

Clear advice sheets should be prepared for clients and the client care letter, terms and conditions of business and funding agreement should reflect the agreement reached.

 

Each client should be seen in person as this needs a verbal explanation.  In any event the Consumer Contracts Regulations 2013 make it very risky not to see a client in a litigation matter, as does the negligence finding in finding by the Court of Appeal in Procter v Raleys Solicitors [2015] EWCA Civ 400

 

 

Failure to explain the consequences of not having After-the-Event insurance

 

In Adris and Others v Royal Bank of Scotland [2010] EWHC 941

 

the solicitor took on claims under the Consumer Credit Act 1974 on the basis that it was cost free to the claimants whose cases had been referred by a claims management company.

 

However the solicitors failed to obtain after-the-event insurance and failed to explain to the claimants that they would have to pay the other side’s costs if the claims were lost.

 

The High Court held that this was a “gross breach of duty” towards the clients and that the solicitors were effectively acting without instructions as the clients were “prevented from giving instructions on anything like an informed view of the case” and said “it is obvious that if the clients had been told of the true position they are likely to have instructed (the law firm) not to progress the claims”.

 

The solicitors were made the subject of a non-party costs order upon the application of the defendant.

 

 

Insurer Avoiding Policy

 

In IHC (a firm) and Another v Amtrust Europe Ltd [2015] EWHC 257

 

the High Court considered the ability of an ATE insurer to avoid a policy for fraudulent misrepresentation in circumstances where it had made a payment out under the policy and increased the indemnity limit.

 

The High Court rejected the claimants’ pretension that by paying out £10,000.00 under the policy to comply with a costs order and increasing the limit of the indemnity the ATE insurer had made clear and unequivocal representations that it would not refuse to indemnify the insured in respect of its costs liability.

 

Although the representation giving rise to waiver by estoppel could be either by words or conduct, it must result in a clear and unequivocal message by the insurer to the insured that it will not exercise that right and the insured must rely on that message in a way that makes it inequitable for the insurer to go back on it.

 

Here the ATE insurer was unaware that the insured had lied on the proposal form, so the representations could not carry an apparent awareness of the right to avoid the policy. Therefore the insured could not have understood the representations to mean that the ATE insurer would not avoid the policy.

 

 

ATE Insurance and Professional Indemnity Insurance

In Impact Funding Solutions Ltd v Barrington Support Services Ltd (formerly Lawyers at Work Ltd) and AIG Europe Insurance UK Ltd [2015] EWCA Civ 31

 

the Court of Appeal considered the interplay between After-the-Event insurance and professional indemnity insurance and disbursements used or necessary to fund cases.

 

Here Impact Funding Solutions Ltd had made funds available to Barrington Support Services Ltd to fund disbursements in relation to noise induced hearing loss claims.

 

The funding was made available by way of loans to the claimants and if the claim was successful the costs would be recoverable from the defendants but if the claims failed, or settled on unfavourable terms, the loans made by Impact, together with interest, would have to be recovered in some other way.

 

If the claimants had Before-the-Event legal expenses insurance or After-the-Event insurance then the loans may be recoverable from the insurers. However if those insurers, for any reason, did not pay then Impact Funding Solutions Ltd would look to the solicitors, rather than their clients, to pay.

 

Solicitors must have professional indemnity insurance and the issue in this case was whether those professional indemnity insurers were obliged to indemnify solicitors who are liable to reimburse the loans made to their clients in order to defray the disbursements made by those clients.

 

Here the After-the-Event insurers succeeded in avoiding liability to Barrington on the ground that they had failed properly to assess the merits of the claims and also that they drew monies down from Impact apparently to pay for disbursements but in fact to pay referral fees to claims management companies and also to pay fees to a company called LCS Sprint for work that could and should have been done by Barrington.

 

In those circumstances Impact successfully sued Barrington and obtained judgment in the sum of £581,353.80 but Barrington had gone into liquidation.
Consequently Impact brought proceedings against Barrington’s insurers, AIG Europe Ltd, pursuant to the Third Parties (Rights Against Insurers) Act 1930 and AIG is entitled in those proceedings to rely on any defence which it would have had if it had been sued by its insured, that is Barrington.

 

AIG argued that they were not liable to indemnify Barrington in respect of liabilities to repay what the insurers referred to as “commercial loans” since professional indemnity insurers are not in the business of helping Impact or anyone else to obtain repayment of loans to solicitors which were made or drawn down for the purpose of carrying on their practices. The judge at first instance accepted that argument and thus gave judgment in favour of AIG and thus refused to allow Impact to claim against the solicitor’s professional indemnity insurance.

 

On appeal the Court of Appeal overturned that decision and entered judgment against AIG.

 

It held that obligations arising out of loans made to cover disbursements in intended litigation are essentially part and parcel of the obligations assumed by a solicitor in respect of his or her professional duties to the client, rather than obligations personal to the solicitor such as, for example, paying for a photocopier.

 

They are inherently part of the professional practice and are assumed as an essential part of the duty to advise the client as to the likelihood of success in the intended litigation. Disbursements should not be incurred in litigation which is unlikely to succeed. A solicitor who negligently advises the client that a claim is likely to succeed and causes a client to incur disbursements which should not have been incurred, will be liable to the client for disbursements needlessly incurred.

 

It makes no difference from the point of view of a professional indemnity insurer that the disbursement had been incurred before such advice is given or without such advice having been given at all.

 

Thus Barrington’s liability to Impact fell within clause 1 of the insurance cover as being “civil liability” arising “from private legal practice in connection with the insured firm’s practice” which is part of the Minimum Terms required by the Solicitors’ Indemnity Insurance Rules.

 

The fact that the loan was nominally made to the solicitor’s client but was in fact an inherent part of a set of interlocking agreements all intended to enable the solicitor to earn a professional livelihood did not alter that position.

 

 

 

Information

 

Each issue of Litigation Funding has, at the back, several pages listing those companies which provide After-the-Event insurance and the names of brokers who deal in such policies. There is also a list of third party funders and as such arrangements commonly include, or have available, After-the-Event insurance, they too should be considered.

 

Contact each and every one – there are not that many – and see what deals are available so that you have the maximum and most up to date information for the firm and the client.

 

Qualified One-Way Costs Shifting is set to make relief from sanctions look like the proverbial vicar’s tea party.

Written by kerryunderwood

November 24, 2015 at 8:05 am

Posted in Uncategorized

ISSUING SMALL CLAIMS WITH COST-BEARING CLAIMS

with 4 comments


This blog has been updated to 21 June 2016.

 

In Dilip v Paynes Dairies Ltd, case number A53YJ800, 2015, Leicester County Court,

 

the court held that it was appropriate for three claims arising out of a road traffic accident to be included on one claim form and to be allocated to the Fast-Track even though only one claim was potentially a Fast-Track claim and the other two were small claims which settled for £550.00 each.

 

Furthermore it was appropriate for Fast-Track cost consequences to follow in relation to all three claims.

 

The claimants were a mother and two children and the children’s claims were the lower value ones and they all started off in the Road Traffic Accident Portal and the defendants put the claimants to proof that they had actually been passengers in the vehicle at the relevant time.

 

No offers to settle were made and so the claims exited the portal and the defendant challenged the claimants’ decision to issue all of the claims on one claim form and also the judge’s decision to award Fast-Track costs in all three claims.

 

The judge noted that the defendant had not sought to settle the claims at an earlier stage and that the claimant was entitled to use one claim form and had the claimant used three separate forms she would have been open to an argument that there had been an unnecessary duplication of court issue fees.

 

Having allocated the claims to the Fast-Track the court was entitled to award Fast-Track costs. The smaller claims would not ordinarily have been allocated to the Small Claims Track as they were properly and correctly brought alongside the larger claim.

 

However Newport County Court, on 31 May 2016, had a similar case where there were two successful claimants but the second claimant was awarded just £200.00 in damages, this had a twist in the tale in that the judge accepted that in principle both claimants were entitled to the full fixed costs, and also the full separate advocacy fee but was clearly unhappy about awarding that level of fixed costs – in excess of £3,000.00 – to a claimant who had recovered £200.00.

 

Consequently what the judge did was to reallocate the case to the small claims track after giving judgment and award fixed costs of £80.00!

 

Please see my related blogs:-

PERSONAL INJURY SMALL CLAIMS LIMIT GOING UP?

LIES, DAMNED LIES AND THE SMALL CLAIMS LIMIT

PERSONAL INJURY SMALL CLAIMS LIMIT AND THE MINISTRY OF TRUTH

FIXED COSTS WHERE LISTED FOR TRIAL AT ALLOCATION

DISPOSAL HEARINGS: WHICH FIXED COSTS ARE PAYABLE?

 

 

Written by kerryunderwood

November 20, 2015 at 11:08 am

Posted in Uncategorized

PERSONAL INJURY SMALL CLAIMS LIMIT GOING UP?

with 24 comments


Look here for Kerry’s new course on this subject

That title alone guarantees a large number of visits: nothing exercises the minds of lawyers more than this subject.

An increase in the personal injury small claims limit – currently £1,000.00 – is once again on the agenda.

Speaking on 18 November 2015 Justice Minister Caroline Dinenage said potential changes to the small claims limit will be included in the Insurance Fraud Task Force Report due out next month.

(Note: the Insurance Fraud Task Force is not a body tasked to look at the fraud that is Britain’s insurance industry; it was set up by former Lord Chancellor Grayling to look at alleged fraud by the British Public).

The report will also consider reducing the limitation period in soft tissue injury cases from three years to one year.

One of the most famous laws is the law of unforeseen consequences. The RTA Portal does not apply to small claims, that is currently claims under £1,000.00, and thus its scope is £1,000.00 to £25,000.00.

The vast majority of the 850,000 RTA Portal claims each year fall in the £1,000.00 to £5,000.00 bracket, so an increase in the small claims limit to £5,000.00 releases around 750,000 claims from the portal process.

Those claims will either have to settle or be issued at court as the portal process will not be available.

Very obviously there will be a huge increase in issued road traffic claims imposing a burden on an already creaking court system.
As no costs are recoverable in small claims it is safe to assume that very many of the claimants going to court will be Litigants in Person. Earlier this month, giving  judgment in Minkin v Landsberg [2015] EWCA Civ 1152 the Court of Appeal said:-

“73. The District Judges, more than any other level of the judiciary, are finding their lists are overwhelmed as a consequence of the increase in court time taken by each case where (as is now routinely the case) the parties appear as litigants in person.”

You ain’t seen nothing yet.

The cost to the state will rocket; the cost to insurance companies will plummet.

Why does it not surprise me that this government is once again considering this proposal?

Please see my related blogs:-

ISSUING SMALL CLAIMS TOGETHER TO MAKE A BIG CLAIM

LIES, DAMNED LIES AND THE SMALL CLAIMS LIMIT
INSURERS AT IT AGAIN (1) AND (2),

PERSONAL INJURY SMALL CLAIMS LIMIT AND THE MINISTRY OF TRUTH

CLINICAL NEGLIGENCE – DEFENDANTS AT IT AGAIN (3),

INSURERS AT IT AGAIN? (4)

INSURERS AT IT AGAIN (5)

EVER SEEN WORSE TH>N MORE TH>N? – INSURERS AT IT AGAIN (6)

MEDICAL DEFENCE UNION: A SUITABLE CASE FOR TREATMENT

SETTLEMENT AGREEMENTS IN PERSONAL INJURY

DLG LEGAL SERVICES & SOLICITORS CODE OF CONDUCT

SETTLEMENT AGREEMENTS IN PERSONAL INJURY

 

Written by kerryunderwood

November 20, 2015 at 8:08 am

Posted in Uncategorized

FAST-TRACK TRIAL FIXED COSTS OUTSIDE FIXED RECOVERABLE COSTS

with 12 comments


Look here for Kerry’s new course on this subject. 

Relatively few lawyers are aware that there has for some time been fixed trial costs for all Fast-Track matters except those covered by Fixed Recoverable Costs, which are subject to a separate Fixed Trial Costs Regime.

The Fixed Recoverable Costs Scheme covers all ex-portal claims, whether allocated to the Fast-Track or the Multi-Track but do not cover cases which would be allocated to the Small-Claims Track.

Broadly the extent of the portals is all claims up to £25,000.00 in value arising out of road traffic accidents or employers’ liability or public liability cases, although there are some exceptions.

Any Fast-Track trial not covered by Fixed Recoverable Costs is covered by a separate regime of Fast-Track Trial costs. This will cover claims which are employers’ liability claims but which do not go into the portal, for example industrial disease claims where there is more than one defendant. There is far more flexibility in this scheme.

The Fast –Track fixed costs cover all non-personal injury cases without exception, and some personal injury cases.

The Fixed Recoverable Costs Scheme is dealt with in table 6 – see my blog FIXED COSTS, ALL THE PORTALS & FIXED RECOVERABLE COSTS.

Other Fast-Track trial costs covered by Table 9 which is contained in CPR 45.38.

The Fixed Fast-Track Trial Costs are as follows:-

Value of the claim Amount of costs
   
No more than £3,000.00 £485.00
More than £3,000.00 but not more than £10,000.00 £690.00
More than £10,000.00 but not more than £15,000.00 £1,035.00
Over £15,000.00 where proceedings issued on or after 6th April 2009 £1,650.00

These are very slightly below the Table 6 Recoverable Costs advocacy fees.

However CPR 45.37(1) makes it clear that these Fast-Track trial costs cover the cost of preparing for the hearing as well as appearing at the trial of the matter where as in Fixed Recoverable Costs under Table 6 the advocacy fee is an add-on to the previous fixed costs. No doubt it is intended to reflect that there is preparation for a trial but the two are not directly comparable and Table 6 Fixed Recoverable Costs is clearly more generous than Table 9.

In all cases VAT may be added on to the fees, both in Table 6 and Table 9.

In Fast-Track trial matters CPR 45.37 states that:-

“‘trial’ includes a hearing where the court decides an amount of money or the value of goods following a judgment under Part 12 (default judgment) or Part 14 (admissions) but does not include –

  • the hearing of an application for summary judgment under Part 24; or
  • the court’s approval of a settlement or other compromise under rule 21.10.”

CPR 45.38(2) makes it clear that the figures are fixed and that a court may award neither more nor less unless it makes a decision to award no costs at all or CPR 45.39 applies.

The court is free to apportion the amount awarded between the parties to reflect their respective degrees of success on the issues at trial.

Lost claims

Where the claim is lost then for the purposes of quantifying the cost to be awarded to the successful defendant the value of the claim is deemed to be the amount specified in the Claim Form, excluding interest and costs.

Non-monetary and hybrid claims

By CPR 45.38(4) where the claim is only for a remedy other than the payment of money the claim is deemed to be £3,001.00 to £10,000.00 giving a fixed advocacy fee of £690.00.

Where there is a hybrid claim, that is a claim seeking a remedy other than the payment of money as well as the payment of money, then the value of the claim is deemed to be £3,001.00 to £10,000.00 or the value of the money claimed, whichever is higher.

Counter-claims

Under CPR 45.38(6) where a defendant makes a counterclaim against the claimant and that has a higher value than the claim and the claimant succeeds on both matters then the value of the claim is deemed to be the value of the defendant’s counterclaim.

Exceptions

CPR 45.39 sets out the circumstances where the court is allowed to depart from the fixed costs set out in Table 9 in CPR 45.38(1).

Legal representative in addition to advocate

Where a party’s legal representative attends the trial in addition to the advocate and the court considers that that was necessary to assist the advocate and the court awards Fast-Track trial costs to that party, the court may award an additional £345.00 in respect of the legal representative’s attendance at the trial (CPR 45.39(2)).

Separate trials

If the court orders a separate trial of an issue, for example a spit trial on liability and quantum, then it may award an additional amount not exceeding two thirds of the amount of the fixed advocacy costs but subject to a minimum award of £485.00 (CPR 45.39(3) and (4)).

Litigants in person

In relation to litigants in person the court may award costs in their favour, provided that they can prove financial loss, up to two thirds of the fixed advocacy costs.

If a litigant in person cannot prove financial loss then the court may award to that person an amount in respect of the time spent reasonably doing the work at the rate specified in Practice Direction 46, currently £19 an hour.( CPR 45.39 (5)).

Mixed result cases

Where a defendant makes a counter-claim against the claimant and the claimant succeeds on that claim and the defendant also succeeds on the counter-claim then the court looks at each sum separately and makes an award of the difference of fixed advocacy costs, if any, to the party entitled to the higher award of costs.

Thus if a claimant got say £12,000.00 and the counter-claimant £9,000.00 then the calculation is as follows:-

Claimant’s costs                                £1,035.00
Defendant’s costs                           £  690.00

The defendant will be ordered to pay the claimant the difference, that is £345.00 (CPR 45.39(6)).

Improper or unreasonable conduct at trial

Where the court considers that the recipient of Fast-Track trial costs has behaved unreasonably or improperly during the trial, it may award that party less than the fixed costs sum.

Likewise where the paying party has behaved improperly during the trial the court may award extra costs.

The conduct of the receiving party qualifies for a reduction if it is either unreasonable or improper but the paying party can only be penalised if its behaviour is improper and not simply unreasonable.

The figures in those circumstances are entirely within the discretion of the court.

The reduction or addition can only be made for conduct at trial and not during the life of the claim.

 

Written by kerryunderwood

November 18, 2015 at 7:56 am

Posted in Uncategorized

COSTS MANAGEMENT ORDERS & COSTS BUDGETING: REVISED

with 9 comments


 

Much of the material in this piece was prepared by my business partner Robert Males

Costs Management Orders

Simon Gibbs – simon.gibbs@gwslaw.co.uk – said on 11 February 2015: “Costs budgeting is already proving to be an expensive and counter-productive experiment.” Many share that view.

Nevertheless there is pressure for costs budgeting to spread, to Court of Protection cases as referred to in the judgement of Mr Justice Peter Jackson in A and B (Court of Protections: Delay and Costs) [2014] EWCOP 8 and in the Family Court – see the judgment in J v J [2014] EWHC 3654 (Fam).

Costs Management Orders were introduced following a pilot that ran in the Technology and Construction Courts and the Mercantile Courts from 1 October 2011 to 31 March 2013. See here for Costs Management Pilot Final Report of 1 May 2013.

Costs Management Orders were to apply to all multi-track cases commenced on or after 1 April 2013 in the County Court, Chancery Division and Queen’s Bench Division, except the Admiralty and Commercial Courts, unless the proceedings are the subject of fixed costs or scale costs or the court orders otherwise, and to any other proceedings where the court so orders (CPR3.12(1)).

When costs budgeting came in in April 2013 only claims under £2 million had to be budgeted for; that figure was subsequently raised to £10 million.

Subject to the limited exceptions, it is envisaged that costs management orders would be made in all cases except where there is good reason not to do so. Even when the exceptions in the rule and the direction apply, the use of costs management should always be considered.

CPR 3 is divided in to sections, the first containing current rules on case management (CPR3.1 to 3.11) the second containing new rules on costs management (CPR3.12 to 3.18) and the third containing rules on costs capping (CPR3.19 to 3.21).

CPR 3.12(3) states that the “purpose of costs management is that the court should manage both the steps to be taken and the costs to be incurred by the parties to any proceedings so as to further the overriding objective”.

Under the pilot scheme solicitors were expected to liaise monthly to check that their respective budgets are not being exceeded (paragraph 5.5).

Unless the court orders otherwise, all parties except litigants in person must file and exchange costs budgets in precedent H within 28 days of the date specified in the court notice, or no later than seven days before the case management conference (CPR 3.13).

In Civil Recovery Proceedings Precedent H is no longer to be used. It is replaced by the Precedent for Estimate of Costs in Relation to Civil Recovery (Precedent Q). See Practice Direction – Civil Recovery Proceedings.

The court may at any time make a Costs Management Order to control the parties’ budgets in respect of recoverable costs. The order will record the extent to which the budgets are agreed, and, where not agreed, record the court’s approval after making appropriate revisions. It will be kept under review throughout the case. (CPR3.16(1)).

Any hearing which is convened solely for the purpose of costs management, for example, to approve a revised budget, is referred to as a costs management conference (CPR3.16(1)).

Where practicable, costs management conferences should be conducted by telephone or in writing. (CPR3.16(2)).

The presumption is in favour of the court making an order, but even where this does not happen the court, in making any case management decision, will have regard to any available budgets of the parties and will take in to account the costs involved in each procedural step. (CPR3.17).

CPR 3.13 states:

“Unless the court otherwise orders, all parties except litigants in person must file and exchange budgets as required by the rules or as the court otherwise directs. Each party must do so by the date specified in the notice served under rule 26.3(1) or, if no such date is specified, seven days before the first case management conference.”

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 phase of the proceedings; and

(b) not depart from such approved or agreed budget unless satisfied that there is a good reason to do so. (CPR3.18).

Costs Judge Master Haworth has stated, correctly in my view, that if costs budgeting is done properly:

“detailed assessment will become redundant and I will be able to spend my time fishing.”

Each party must file their costs budget ‘by the date specified in the notice served under rule 26.3(1) or, if no such date is specified, seven days before the first case management conference.’ (3.13)

The notice served under rule 26.3(1) is the notice of allocation:

“26.3

(1) If a defendant files a defence –

(a) a court officer will –

(i) provisionally decide the track which appears to be most suitable for the claim; and

(ii) serve on each party a notice of proposed allocation…”

The court failing to specify a date in the notice of allocation to file a costs budget is not a reason to fail to file a Precedent H, as set out in Aliasghar Porbanderwalla v Daybridge Limited (30/1/2014 HHJ) Worster Birmingham CC.

When completing the Directions Questionnaire (Form N181) in a multi-track claim section H in relation to costs prompts you to consider drafting Precedent H by stating:

‘If your claim is likely to be allocated to the Multi-Track form Precedent H must be filed at in accordance with CPR 3.13.’

You are then prompted to tick a box confirming that you have attached Precedent H to your Directions Questionnaire. Arguably the court is making a specific order in the Questionnaire requiring parties to file and exchange at the same time as completing the Questionnaire.

Paragraph 6 of Practice Direction 3E sets out the following guidance on the budget format:

‘Unless the court otherwise orders, a budget must be in the form of Precedent H annexed to this Practice Direction. It must be in landscape format with an easily legible typeface. In substantial cases, the court may direct that budgets be limited initially to part only of the proceedings and subsequently extended to cover the whole proceedings. A budget must be dated and verified by a statement of truth signed by a senior legal representative of the party. In cases where a party’s budgeted costs do not exceed £25,000, there is no obligation on that party to complete more than the first page of Precedent H.

COSTS BUDGETS AND PRECEDENT H: PRACTICAL GUIDANCE

 

The Civil Procedure (Amendment) Rules 2013 (SI 2013/262) brought in the amendments to Part 3 of the Civil Procedure Rules which introduced the court’s costs management powers and the requirement for all parties except litigants in person to file and exchange costs budgets.

On 22 April 2014 the Civil Procedure (Amendment No 4) Rules 2014 (SI 2014 No 867) came in to force and amended CPR 3.12(1) to read:

“This Section and Practice Direction 3E applies to all Part 7 multi-track cases……”

This confirms that the costs management provisions, including costs budgets, do not automatically apply to Part 8 claims.  Those provisions will only apply if the court makes a positive order that they should, as expressly confirmed by Rule 3.12 (1A).

Unless the court otherwise orders, all parties except litigants in person must file and exchange budgets as required by the rules or as the court otherwise directs. (3.13)

Costs budgets must be filed and exchanged in all Part 7 multi-track cases with a value of less than £10 million, other than where the proceedings are the subject of fixed costs or scale costs or where the court otherwise orders (3.12).

In any case where the parties are not required by the rules to file and exchange costs budgets, the court still has a discretion to make an order requiring them to do so. (Practice Direction 3E, paragraph 2)

Filing and Exchanging Budgets

Each party must file their costs budget ‘by the date specified in the notice served under rule 26.3(1) or, if no such date is specified, seven days before the first case management conference.’ (3.13)

The notice served under rule 26.3(1) is the notice of allocation:

“26.3

  • If a defendant files a defence –

(a) a court officer will –

(i) provisionally decide the track which appears to be most suitable for the claim; and

(ii) serve on each party a notice of proposed allocation…”

The court failing to specify a date in the notice of allocation to file a costs budget is not a reason to fail to file a Precedent H, as set out in Aliasghar Porbanderwalla v Daybridge Limited (30/1/2014 HHJ) Worster Birmingham CC.

When completing the Directions Questionnaire (Form N181) in a multi-track claim section H in relation to costs prompts you to consider drafting Precedent H by stating:

‘If your claim is likely to be allocated to the Multi-Track form Precedent H must be filed at in accordance with CPR 3.13.’

You are then prompted to tick a box confirming that you have attached Precedent H to your Directions Questionnaire. Arguably the court is making a specific order in the Questionnaire requiring parties to file and exchange at the same time as completing the Questionnaire.

If there is any doubt as to whether you should file Precedent H then you should file Precedent H; this is the safest option.

Paragraph 6 of Practice Direction 3E sets out the following guidance on the budget format:

‘Unless the court otherwise orders, a budget must be in the form of Precedent H annexed to this Practice Direction. It must be in landscape format with an easily legible typeface. In substantial cases, the court may direct that budgets be limited initially to part only of the proceedings and subsequently extended to cover the whole proceedings. A budget must be dated and verified by a statement of truth signed by a senior legal representative of the party. In cases where a party’s budgeted costs do not exceed £25,000, there is no obligation on that party to complete more than the first page of Precedent H.’

Failure to File a Budget

The draconian consequences of failing to file Precedent H when required are well documented in the case of Mitchell MP v News Group Newspapers Ltd [2013] EWCA Civ 1537 and are set out clearly in rule 3.14, which states:

 

Unless the court otherwise orders, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees.’

Note that from 6 April 2015 this rule is modified where a defaulting party is successful in relation to its own Part 36 offer. It can then get 50% of its costs.

Cases in which the offeror’s costs have been limited to court fees

36.23.—(1) This rule applies in any case where the offeror is treated as having filed a costs budget limited to applicable court fees, or is otherwise limited in their recovery of costs to such fees.

(Rule 3.14 provides that a litigant may be treated as having filed a budget limited to court fees for failure to file a budget.)

(2) “Costs” in rules 36.13(5)(b), 36.17(3)(a) and 36.17(4)(b) shall mean—

(a) in respect of those costs subject to any such limitation, 50% of the costs assessed without reference to the limitation; together with

(b) any other recoverable costs.”

FAILURE TO SERVE COSTS SCHEDULE

In Simpson MGN Ltd v Ward [2015] EWHC 126 (QB)

the court reduced the claimant’s costs by 10% due to the failure to serve a Costs Schedule on the defendant in accordance with PD 44, paragraph 9.5(4).

Drafting Precedent H

 

The deceptively simple looking Precedent H form, a self-calculating Excel spreadsheet, is available in Practice Direction 3E together with the Guidance Notes on Precedent H.

If the estimated costs do not exceed £25,000.00 then only the first page needs completing and the matter will then be dealt with by way of provisional assessment at the end of the case, although to fill out the first page of Precedent H you will effectively have to prepare the entire nine pages of the spreadsheet.

Prior to the introduction of Form H Lord Justice Jackson estimated that it would take two hours to complete. However it is important not to treat drafting a Precedent H as simply a form filing exercise; any mistakes in your budget are likely to be costly ones.

Precedent H breaks down the costs into the following stages of litigation:

  • Pre-Action Costs;
  • Issue /statements of case;
  • CMC;
  • Disclosure;
  • Witness statements;
  • Expert Reports;
  • PTR;
  • Trial Preparation;
  • Trial;
  • ADR/ Settlement discussions; and
  • Contingent costs.

The Guidance Notes on Precedent H provide the only explanation of what each phase of work should include and this guidance is limited.

Pre-Action Costs

 

The Guidance Notes on Precedent H state that the following work is included in Pre-Action Costs:

  • Pre-Action Protocol correspondence
  • Investigating the merits of the claim and advising client
  • Considering ADR, advising on settlement and Part 36 offers
  • All other steps taken and advice given pre-action

Pre-Action costs do not include any work incurred in relation to any other phase of the budget and this is made clear in the Guidance Notes.

There is a temptation to lump all pre-action work under the pre-action section of the Precedent H. However much pre-action work in fact comes under other sections of the Precedent H; for example, in order to issue the claim you would almost certainly have had to draft a claim form and this would come under Statements of Case. Likewise, it is likely that you will have drafted witness statements and instructed medical experts prior to issuing a claim.

Issue/Statements of Case

 

  • Preparation of Claim Form
  • Issue and service of proceedings
  • Preparation of Particulars of Claim, Defence, Reply, including taking instructions, instructing
  • counsel and any necessary investigation
  • Considering opposing statements of case and advising client
  • Part 18 requests (request and answer)
  • Any conferences with counsel primarily relating to statements of case

This phase does not include amendments to Statements of Case.

Case Management Conference

 

  • Completion of AQs
  • Arranging a CMC
  • Preparation of costs budget for first CMC and reviewing opponent’s budget
  • Correspondence with opponents to agree directions and budgets, where possible
  • Preparation for, and attendance at, the CMC
  • Finalising the order

This phase does not include any subsequent CMCs.

Disclosure

 

  • Obtaining documents from client and advising on disclosure obligations
  • Reviewing documents for disclosure, preparing disclosure report or questionnaire response and list
  • Inspection
  • Reviewing opponent’s list and documents, undertaking any appropriate investigations
  • Correspondence between parties about the
  • scope of disclosure and queries arising
  • Consulting counsel, so far as appropriate, in relation to disclosure

This does not include applications for specific disclosure or applications and requests for third party disclosure.

Witness statements

 

  • Identifying witnesses
  • Obtaining statements
  • Preparing witness summaries
  • Consulting counsel, so far as appropriate, about witness statements
  • Reviewing opponent’s statements and undertaking any appropriate investigations
  • Applications for witness summaries

This does not include arranging for witnesses to attend trial, as this should be included in trial preparation.

Expert Reports

 

  • Identifying and engaging suitable expert(s)
  • Reviewing draft and approving report(s)
  • Dealing with follow-up questions of experts
  • Considering opposing experts’ reports
  • Meetings of experts (preparing agenda etc)

This does not include obtaining permission to adduce expert evidence (include in CMC or as separate application) or arranging for experts to attend trial (include in trial preparation).

PTR

 

  • Bundle
  • Preparation of updated costs budgets and reviewing opponent’s budget
  • Preparing and agreeing chronology, case summary and dramatis personae (if ordered and not already prepared earlier in case)
  • Completing and filing pre-trial checklists
  • Correspondence with opponents to agree directions and costs budgets, if possible
  • Attendance at the PTR

This does not include assembling and/or copying the bundle as this is not fee earners’ work.

Trial Preparation

 

  • Trial bundles
  • Witness summonses, and arranging for witnesses to attend trial
  • Any final factual investigations
  • Supplemental disclosure and statements (if required)
  • Agreeing brief fee
  • Any pre trial conferences and advice from Counsel
  • Pre-trial liaison with witnesses

This does not include assembling and/or copying the trial bundle as this is not fee earners’ work.

Trial

 

  • Solicitors’ attendance at trial
  • All conferences and other activity outside court hours during the trial
  • Attendance on witnesses during the trial
  • Counsel’s brief fee and any refreshers
  • Dealing with draft judgment and related applications

 

This does not include preparation for trial, as this should be included in the trial preparation phase, or agreeing brief fee.

 

ADR/Settlement discussions

 

  • Settlement negotiations, including Part 36 and other offers and advising the client
  • Drafting settlement agreement or Tomlin order
  • Advice to the client on settlement (excluding advice included in the pre-action phase)

This does not include mediation as this should be included as a contingency.

Presumably this should also not include any advice on Part 36 offers or consideration of ADR that occurred pre-issue as this should come under the pre-action phase, although the Guidance Notes are far from clear on this.

Contingent costs

 

The only guidance provided on contingent costs is at the bottom of the Guidance Notes on Precedent H as follows:

‘The ‘contingent cost’ sections of this form should be used for anticipated costs which do not fall within the main categories set out in this form. Examples might be the trial of preliminary issues, a mediation, applications to amend, applications for disclosure against third parties or (in libel cases) applications re meaning. Costs which are not anticipated but which become necessary later are dealt with in paragraph 4.7 of the Practice Direction.’

However it is clear from this that contingent costs are anticipated costs, that is costs that are an actual and real possibility rather than costs that might arise at some indistinct point in the future. Contingent costs are not an ‘everything but the kitchen sink’ scenario.

In Tim Yeo MP v Times Newspapers Limited [2015] EWHC 209 (QB) the Queen’s Bench Division of the High Court said

“70. The first point to make about contingencies is that they must involve work that does not fall within the main categories on Precedent H. Secondly, in order for work to qualify as a contingency it must be possible to identify to the opposite party and the court what that work would be. Otherwise it would be impossible to determine whether the work falls within or outside a specified category, and it is hard to see how any assessment could be made of what its cost would be. Thirdly, there is the important issue of how likely it needs to be that the work will be required, before it can properly be included as a contingency. Mr Browne submitted that the test should be whether the work was “reasonably likely” at the time the budget was approved.

  1. In my judgment work should be included as a contingency only if it is foreseen as more likely than not to be required. This seems to me a clear criterion that provides a practical solution, consistent with PD3E 7.4 and 7.9. If work that falls outside one of the main categories is not thought probable, it can reasonably and should be excluded from the budget. The time and costs involved in estimating how much work would cost are not easily justified if the work is no more than a possibility or is unlikely. If work identified as a contingency is included in a budget but not considered probable by the court no budget for it should be approved. If the improbable occurs, in the form of an unexpected interim application, the costs will be added to the budget pursuant to PD3E 7.9, unless the matter involves a “significant development” within para 7.4 in which case, if time permits, a revised budget should be prepared and agreed or approved.”

This is further highlighted by paragraph 7.6 of Practice Direction 3E:

‘Each party shall revise its budget in respect of future costs upwards or downwards, if significant developments in the litigation warrant such revisions.’ (My emphasis.)

Therefore if some unforeseen event occurs which requires additional costs to be incurred which were not envisaged when the Precedent H was drafted then parties have the ability to revise their budgets accordingly and should submit their revised budgets to the other parties for agreement.

Assumptions

 

These should concisely set out on what assumptions you have based your figures in the Precedent H in relation to each phase.

Statement of Truth

 

The statement of truth on Precedent H reads as follows:

‘This budget is a fair and accurate statement of incurred and estimated costs which it would be reasonable and proportionate for my client to incur in this litigation.’

This statement of truth ‘must be dated and verified by a statement of truth signed by a senior legal representative of the party.’ (Practice Direction 3E)

Estimated Costs

 

There is no guidance provided on how to go about calculating the future costs of a case. This is therefore a case of using your common sense and experience while taking into consideration the individual case and proportionality and should be done by somebody who is intimately familiar with the case, usually the file handler. There is little point in putting down excessive estimated costs in a claim that is only worth, say £30,000.00.

The estimate must deal with both costs and disbursements, both incurred and anticipated. As well as considering whether the amount of time spent by lawyers is necessary the courts are expected to subject to specific scrutiny the need for experts and their fees and the volume of documents.  Professor Dominic Regan advises:

“If you are looking to involve expensive experts you ought to consider seeking tenders. Let them pitch for and give quotations.”

Incidentally, it is clear that many judges are as lacking in guidance in relation to Precedent H as lawyers are and are simply not dealing with costs budgeting.

Master Gordon-Saker, the new senior costs judge, has stated that many judges do not have the “faintest idea” in relation to costs budgeting and that “for judges required to do something completely alien it’s a difficult task to give them the education and confidence to do it properly.”

How puzzling all these changes are! I’m never sure what I’m going to be, from one minute to another.”

 

  • Lewis Carroll, Alice’s Adventures in Wonderland

COMMENTS

It is most important to bear in mind that the budget relates to recoverable costs; it does not in any shape or form limit the amount chargeable to one’s own client, that sum being governed by the solicitor and own client retainer, which need bear no relation to recoverable costs.

Typically the arrangement with the client will provide for a greater sum to be charged to the client than is recovered, that being the difference between the solicitor and own client hourly rate and the between the parties hourly rate. This difference may or may not be capped by reference to damages, but unless the solicitor is stupid enough to have a lower charge to the client than appears in the budget, the indemnity principle has no application whatsoever to the budget.

It is true that an overspend on one part of the budget cannot be absorbed by an underspend on another part of the budget, but that is nothing at all to do with the indemnity principle, but rather because of CPR 3.18:

“In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –

  • have regard to the receiving party’s last approved or agreed budget for each phase of the proceedings; and
  • not depart from such approved or agreed budget unless satisfied that there is good reason to do so.”

Thus the budget creates a cap on recoverability for each phase of the proceedings, not just a global cap, but none of this prevents the solicitor charging the client whatever has been agreed.

Obviously if the budget provides for 20 hours work, but only 15 hours is done, then the solicitor can only recover 15 hours work from the other side and only 15 hours from the client. That is nothing to do with the indemnity principle; rather it is the law against fraud.

Any problems with the indemnity principle are solved by the simple, standard, practice of having a solicitor and own client indemnity rate well above the between-the-parties recoverable rate.

Many commentators have got this wrong in the sense that they correctly state that you cannot operate a “swings and roundabouts” policy, but incorrectly ascribe this to the indemnity principle.

I am very happy that the esteemed Simon Gibbs – simon.gibbs@gwslaw.co.uk – shares this view.

As we will see below a losing party which is ordered to pay costs on an indemnity basis, for example because a claimant has matched or beaten at trial its Part 36 offer, is in for a nasty over-budget shock, especially if the claimant is represented in a commercial case under a Damages-Based Agreement.

The phase by phase approach also fails to recognize that law is an art and not a science. Lord Woolf, with his fixing of costs by reference to the stage reached, realised this.

The budget method is by reference to the type of work, not the stage reached. There is enormous scope for allocating vague, continuing activities such as consideration of quantum, to any phase which has an apparent underspend.

The recoverable costs for preparing the budget are the higher of £1,000 or 1% of the approved budget and for dealing with all budgetary matters through the life of the case, but not assessment, 2% of the approved budget.

In Smales v Lea and Others [2011] EWCA Civ 1325, the Court of Appeal again drew attention to CPR 52 Practice Direction emphasising the need to include only those documents specifically required with all extraneous material to be excluded. The Court of Appeal said that in future it would consider imposing sanctions on solicitors who failed to exclude irrelevant documents. Very few documents now need to be supplied on provisional assessment, just the bill, points of dispute, replies, costs orders and fee notes.

The judge will consider the budgets and may make a Cost Management Order approving the budget, or a revised version of it. If it turns out to be no longer accurate the parties must produce a revised budget showing the departures from budget and the reasons for such departures.

Detailed assessment still occurs at the end of such a case provided that the bill for assessment exceeds £75,000. If it does not exceed that sum, then it will be subject to paper assessment in the first instance. The Costs Management Order cannot approve costs incurred up to that point, but can make comments on them. In regard to costs incurred in accordance with an approval budget the court, on detailed assessment, will not depart from the budgeted figure unless for good reason.

It is not clear how this ties in with proportionality. The Costs management process implies that once the court has decided that certain steps in litigation re reasonable, the full cost of undertaking that work will be recoverable.  This is because the judge on assessment will not normally depart from the approved budget.

The proportionality test means that a judge on detailed assessment may determine that, despite a certain step within the litigation being deemed reasonable, the full cost of that work may not be recovered once the ‘global basis’ test is applied.

If the total figures are not proportionate, then the judge will only approve budget figures for each party which are proportionate.  Thereafter if the parties choose to press on and incur costs in excess of the budget, they will be litigating in part at their own expense.  It will be important for judges to apply the test consistently and for parties and their lawyers to be aware of the impact on recoverable costs.

However, there will be those who wonder what the point is of expensive and time consuming costs management and detailed assessment hearings to determine what costs are reasonable, if at the end, the judge can then knock the figure down further, on an apparently arbitrary basis.

The Costs Management Order will be based on the party’s budget, but the court can make appropriate revisions at the Case Management Conference and as the case progresses.

PROBLEMS WITH PRECEDENT H

I set out below an example of some of the problems raised by Precedent H, although this list is not exhaustive.

  • The document is not programmed properly. Changes to the entries for the claim number, party’s names and the Court will change across all 5 pages if 1 page is changed. The information relating to fee earners, disbursements and details about counsel has to be changed manually on every page.
  • The document is colour coded in a way that is counter intuitive so it is not clear where figures for disbursements should be entered. This has to be dealt with by trial and error and further adjustment of formulas to ensure that the correct totals are arrived at.
  • Administrative issues add a significant amount of time to the task of preparing the costs budget which could have been avoided with a few more hours work of testing the document before making it available. Our estimate is that this added at least 1 hours work.
  • The categories are overly simplistic given they are meant to cover all aspects of a claim:
    For example medical records. Do they go under ‘experts reports’ or ‘disclosure’?
  • ‘Quantum’ does not feature anywhere in the guidance.
  • There is little interplay between the format and categories of Precedent H and a Bill of Costs, although the development of the J-Codes and the planned new format of a Bill of Costs will (eventually) resolve this problem.
  • An entire phase of the Precedent H is dedicated to work on Settlement which includes, quite obviously, Part 36 offers. Yet the penultimate bullet point of work included in Pre-action states that “advising on settlement and Part 36 offers” should be included in Pre-action costs. Furthermore the guidance on the Settlement phase of the Precedent H states that this phase includes “advice to the client on settlement (excluding advice included in the pre-action phase).” This seems an arbitrary and unnecessary distinction; why not include all advice on settlement, whether pre-action or post-issue, under Settlement?

If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn’t.”

 

  • Lewis Carroll, Alice Through the Looking Glass

On 1 October 2015 CPR 47.6 was amended to provide that the documents to be served when commencing detailed assessment include “if a costs management order has been made, a breakdown of costs claimed for each phase of the proceedings.”

Simon Gibbs points out that the Rules Committee appears to have overlooked Practice Direction 44, paragraph 3.4:-

“On an assessment of the costs of a party, the court … may have regard to any other budget previously filed by that party, or by any other party in the same proceedings. Such other budgets may be taken into account when assessing the reasonableness and proportionality of any costs claimed.”

There should be a need for a breakdown by phase whenever a budget has been served, regardless of whether a costs management order has been made.

Simon Gibbs points out the problems of serving a breakdown of costs by phase:-

“Firstly, to prepare a breakdown by phase requires either the fee earner to have accurately recorded all work by phase (highly unlikely), as the case progressed, or the costs draftsman preparing the Bill to allocate each routine communication and unit of work to the appropriate phase. Once this work has been undertaken, it is surely almost as simple to simply draft the Bill itself by phase. Why force the receiving party to do all the hard work and then not require the small additional step to be undertaken to complete the process?

Secondly, is there seriously anyone on the Rules Committee naïve enough to think that were a party discovers they are over on some phases but under on others that they will not be tempted to shift some of the work over into other phases of the breakdown in the knowledge it will be an extremely difficult task for the paying party to cross-check the accuracy against the non-phased Bill?

Thirdly, what is a judge on assessment meant to do with a breakdown showing a party has gone over for some phases but where the Bill itself is not drafted by phase? Presumably they will go through the Bill in the normal way applying reductions in the ordinary manner, but then what? How are they to tell whether they have now reduced some phases below that approved by a costs management order (which normally should not happen) or whether they are still over on others and further reductions are required? Are the advocates at the assessment meant to adjourn and work out which reductions have been made to each phase before going back before the judge to consider whether he needs to increase or decrease further? Has the slightest thought been given as to how long this would take (not to mention the problems trying to apportion routine communications to any particular phase)?”

As is obvious I am grateful to Simon Gibbs for much of what appears above

 

DBAs AND COSTS BUDGETING: CURIOUSER AND CURIOUSER

The Civil Procedure Rules dealing with costs management and costs budgeting are entirely silent on the interplay with Damages-Based Agreements (DBAs).

I simply have no idea how a solicitor acting under a DBA is meant to prepare a costs budget.

There are at least three options, the apportionment one and the ordinary one, and the fixed fee one.

Let us take a case worth £100,000 with a DBA with a figure of 50% of damages recovered as the fee, that being the maximum allowed in a non-personal injury or non-employment matter.

Thus the maximum fee is £50,000.  For simplicity’s sake let us assume ten relevant sections of Form H and where the solicitor estimates the costs of £10,000 for each stage, but knowing that, due to the indemnity principle, no more than £50,000 can ever be recovered.

One approach – the apportionment one – is for the solicitor to halve each component, so that although the court may have awarded £10,000 for pre-action work, the solicitor will only be able to claim £5,000.  That would be unwise as obviously the claim may settle before £50,000 worth of between the parties costs have been incurred, so why artificially limit yourself to less than that sum?

By putting in the full amount the solicitor will get paid the correct sum if the case settles within the first five stages.  Of course it means that if the case goes beyond Stage 5 the solicitor is earning nothing, but that is the reality anyway – once the solicitor has done work equal to half of the damages he or she is working pro bono.

Furthermore if the apportionment method is used one’s own client has an obvious complaint against the solicitor.  Let us assume that the case settles at the end of Stage 5 and thus the solicitor, limited by the costs budget, receives £25,000 from the losing side and charges the client the balance of £25,000.  The client has every right to point out that he is £25,000 out of pocket compared with the situation if the solicitor had put the full, arguably correct, sum in for each stage.

An alternative is to put the full sum in for each stage, accepting that however much that comes to the actual recoverable costs will never exceed £50,000.

Obviously it would be entirely wrong artificially to front load costs to ensure maximum between the parties costs whenever the matter settles……….

The third option is to state that whatever stage the case reaches the fee is a sum equivalent to 50% of the damages and that that is the sum sought from the other side.  I advise against this as generally the judiciary are wedded to hourly rates, in spite of the clear will of Parliament that other funding options should be available.  Strictly, in my view, this is the correct option.  The client is paying a fixed lump sum and the indemnity principle means that the claimant solicitor should neither seek £5,000 or £10,000 for any given stage as the client is not liable for any sum for any given stage.

What seems to me to be crystal clear is that a claimant who matches or beats its own Part 36 offer at trial gets the full 50% DBA fee, that is he or she gets costs on the indemnity basis.

The solicitor and own client costs are unquestionably 50% and thus costs on the indemnity basis are 50% of damages.

A paying party has no prospect of arguing that a method of payment approved by Parliament, with Parliament fixing the maximum percentage, is unreasonable.

A matter is approaching trial. The costs budget, regularly updated, shows that the winning claimant’s costs will be £300,000 on £1 million claim.

Can the claimant and solicitor switch to a 50% DBA, thus triggering costs of £500,000 if the claimant’s Part 36 offer is matched?

Yes, in my view, and there is nothing to stop parties entering in to a DBA at any stage. In all cases there will have been some investigative work before a DBA is entered in to.

Supposing, very early on in a DBA case a claimant succeeds in obtaining summary judgment with an order for indemnity costs. The same principle applies, that is a sum equal to 50% of damages for what may have been relatively little work, all fully recoverable.

Supposing, in a personal injury case funded by a DBA and with costs limited to 25%, including VAT, of damages, the claimant puts in a high costs budget and subsequently the defendant finds out that the matter is being conducted under a DBA and therefore the maximum that they would ever be liable for, including costs, is 125% of damages.

Could a defendant, having fought the matter to trial, argue that if it had known that the matter was conducted under a DBA it would have settled much earlier as it would know the limit of their costs?

Suppose in a DBA case the claimant has made an offer under Part 36 to settle the whole claim for, say £100,000, and that offer remains open; is it acceptable for the claimant to put in a budget of say, £75,000, knowing full well that s/he is valuing the claim at a sum which will result in far lower costs, a matter that the defendant cannot refer to at that stage because of the Without Prejudice nature of a Part 36 offer?

Can the defendant subsequently argue that if they had known that the claimant was acting under a DBA, then they would have accepted the Part 36 offer, knowing that the claimant’s costs would be limited to 25% in personal injury cases and 50% in all other cases, including VAT and counsel’s fees?

An obvious answer is to amend the Civil Procedure Rules to provide that a claimant should notify the defendant within seven days of the signing of a DBA that the matter is being conducted under a DBA.

Even these scenarios are not clear. A personal injury claimant, knowing full well that the full value of the claim is £100,000 may nevertheless want the costs budget to give a figure of well over £25,000 as the court might decide to make an award based on the claimant getting only 50% of budgeted costs because s/he has exaggerated.

Arguably the correct order is to still allow the claimant’s lawyer the full 25%. Thus damages are in fact £100,000 where the claim was for £500,000, and the court penalizes the claimant to the extent of 50% because of this exaggeration.

Let us assume that the agreed budget was £50,000. 50% of that is £25,000 and the claimant therefore recovers costs of £25,000, which is the maximum that s/he could have recovered in any event under a DBA.

These are all reasons why DBA means Don’t Touch with a Bargepole, although if you are a claimant you may fancy a late switch to a DBA.

CPR 52.9A: ORDERS TO LIMIT THE RECOVERABLE COSTS OF AN APPEAL

“(1) In any proceedings in which costs recovery is normally limited or excluded at first instance, an appeal court may make an order that the recoverable costs of an appeal will be limited to the extent which the court specifies.

  • In making such an order the court will have regard to –

(a) the means of both parties;

(b) all the circumstances of the case; and

(c) the need to facilitate access to justice.

  • If the appeal raises an issue of principle or practice upon which substantial sums may turn, it may not be appropriate to make an order under paragraph (1).
  • An application for such an order must be made as soon as practicable and will be determined without a hearing unless the court orders otherwise.”

In the process of costs management the court has no power to reduce the hourly rate that has been agreed by the client.  That can only be done on a Solicitors Act 1974 assessment, and indeed there is a body of opinion that holds that the court has no power at all, even on a Solicitors Act 1974 assessment, to reduce the hourly rate, but rather can only restrict the number of hours claimed for to that which is no unreasonable.  I disagree; my view is that the court has a free-standing jurisdiction as part of its supervisory role of solicitors in their capacity as Officers of the Court.

Thus a court has no costs management power to reduce the amount that may be charged to one’s own client.  Obviously the court does have power to reduce the amount to be charged to the other side; indeed that is the whole point of costs management, but any such decision will not affect the hourly rate chargeable on a solicitor and own client basis.

However that does beg the question as to what rate should go in the budget.  As the budget is to determine recoverability from the other side there is no need to put the full solicitor and own client rate in.  Although the judge cannot interfere with that rate as between solicitor and client he or she can reduce it insofar as it is a potential charge to the other side and a high solicitor and own client may alienate the judge.

Clearly the rate should be well above guideline hourly rates, both to reflect the fact that guideline hourly rates are only suitable for summary assessment and also to provide an additional award as specifically sanctioned by Parliament, if you achieve indemnity costs, normally because you have matched or beaten your own Part 36 offer at trial.

With no particular magic I suggest a figure of £350 per hour plus VAT.  Although guideline hourly rates have no application, this rate can be defended on the basis of the traditional expectation that a winning client would recover approximately two thirds of costs from the other side.  Thus taking a guideline hourly rate of £220, this procures a solicitor and own client rate of £330 which I have rounded up.

This is not the whole story as of course the guideline rate of £220 is for an eight year qualified solicitor and I am suggesting that the rate be applied as a single blended rate.

There has been much discussion as to whether one even needs to put that indemnity rate in the costs budget, or can simply put the ordinary between the parties’ rate, and as yet there has been no definitive answer, but no doubt we will have one soon.

Thus my advice is as follows:-

  1. Maintain a single rate of say £400 per hour plus VAT for the client.
  2. Insert in the costs budget a blended rate of £350 plus VAT and explain that is a rate that you consider reasonable, and is not the indemnity rate. In my view there is no need to state what the indemnity rate is.

In fact, because of the restriction on the sum that solicitors normally will be charging to the client – 25% of damages in personal injury matters, say 40% in commercial matters – the true hourly rate charged to the client will almost never be anything like £400 per hour.

In my experience, generally it will work out at around £200 per hour including costs recovered from the other side, in cases that are subject to portal costs or Fixed Recoverable Costs.

 

CASE LAW

High Court Guidance re Budgeting

In Tim Yeo MP v Times Newspapers Ltd [2015] EWHC 209 (QB)

The Queen’s Bench Division of the High Court made observations on costs budgeting saying:-

  • it should not be a lengthy exercise;
  • it was appropriate to use correspondence instead of skeleton arguments;
  • rates and projected hours may well need to be considered;
  • contingencies should only be included in the budget if they are reasonably likely to occur;
  • a budget may be for part, not all, of the action;
  • sometimes it should take place at an earlier stage than usual.

The court reminded the lawyers that “where practical, costs management conferences should be conducted by telephone or in writing”. (CPR 3.16(2))

In a case that goes to trial the successful party’s costs incurred before approval of the budget will normally need detailed assessment, in the absence of an agreement.

The court also said:-

“The court has power to give directions for the filing and exchange of budgets at an earlier stage than the CMC. This is so as part of its general powers of management but is reflected in CPR 3.13, which requires parties other than litigants in person to “file and exchange budgets as required by the rules or as the court otherwise directs”. If that power is exercised the general rule will apply, that the court will make a costs management order. An early costs budgeting process may be initiated by the court or by one of the parties.”

“If a budget is required at an early stage it need not be for the entire litigation.”

Practice Direction 3E 6 says:-

“In substantial cases, the court may direct that budgets be limited initially to part only of the proceedings and subsequently extended to cover the whole proceedings.”

Queen’s Bench Division Guidance

In Stocker v Stocker [2015] EWHC 1634 (QB)
the Queen’s Bench Division gave guidance on costs budgeting.
The court said that the starting point is to look at the global costs and that an approach based purely on financial proportionality might prevent litigants from fairly presenting their cases but, in most cases, it is vital for the court to control recoverable costs.

In this libel case the defendant’s costs were disproportionate to the issues at stake and were reduced, both on the grounds of proportionality and to ensure a “reasonably level playing field” between the parties.

The defendant’s estimated future costs were reduced from £330,000.00 to £197,000.00 and the judge said that it would be absurd to suggest that this was insufficient to allow a proper defence.

The following points were also decided:-

  • A party cannot claim the maximum allowed for the costs of preparing budgets and also include budgeting costs in the estimated or incurred figures.
  • “Improbable” contingencies were not allowed; if unexpected interim applications were necessary then they could be accommodated outside the budget.
  • Assumptions could be challenged. Thus the court ruled that a seven day trial would be sufficient rather than the 10 days budgeted for and, for example, that as Witness Statements should be in the witnesses’ own words an assistant solicitor should be able to do most of the work rather than a partner.

 

Examining and Considering Documents

 

In Imtec Inviron Ltd v Loppingdale Plant Ltd [2014] EWHC 4109 (TCC)

 

Mr Justice Edwards-Stuart, sitting in the Technology and Construction Court of the High Court, summarily assessed the Claimant’s costs on the standard basis exactly as claimed.

The case contains some interesting observations on costs. In dealing with the length of time taken to examine and consider documents the judge rejected the idea that the only factor was the length of document:-

“… it is the content of the material, not its quantity, that matters.” (Paragraph 7)

The paying party also complained about a claim for a partner reviewing and amending draft proceedings. The judge had this to say:-

“In my view, this is exactly what partners are there for: to consider documents prepared by junior solicitors and make any alterations or amendments that they think fit. That does not imply that the assistant solicitor has made mistakes, rather that the partner can suggest modifications or improvements that a partner’s experience can bring.” (Paragraph 8)

 

Items not in Budget

In Simpson MGN Ltd v Ward [2015] EWHC 126 (QB)

the court allowed the successful claimant costs in relation to applications which had not appeared in the claimant’s cost budget.

The court found that there was good reasons apart from the budget, in essence holding that this was a minor fault in the context of the whole litigation which had had no appreciable impact on the efficient conduct of the litigation.

Surveillance costs in budget

In Purser v Hibbs and Another, Queens Bench Division, 19 May 2015

the High Court held that it was not necessary for an allowance of surveillance to be included in a defendant’s costs budget and the note to the contrary in the current White Book is wrong.

Whereas most litigation is to be conducted on a cards-on-the-table basis some degree of cunning was required in the administration of surveillance evidence and the court would not wish to do anything to discourage the judicious use of such evidence, or to alert fraudsters to its use.

Thus the court directed under CPR 44.2 that the defendant should be allowed the reasonable cost of surveillance, on the indemnity basis, notwithstanding that those costs had not been listed in the costs budget.

Appeals Against Cost Management Orders

 

In Havenga v Gateshead NHS Foundation Trust [2014] EWHC B25 (QB)

the Queen’s Bench Division of the High Court refused an appeal against heavy cuts in the claimant’s budget in relation to a clinical negligence case.

The claim was worth over £5 million and liability had been agreed on a 75/25 basis in the claimant’s favour. At the cost budgeting hearing the District Judge reduced the claimant’s budget from £789,854.46 to £463,915.13.

The High Court held that appeals in relation to costs management orders are subject to the criteria in

Tanfern v Cameron MacDonald [2000] 1WLR 1311

that is that

“The appellate court should only interfere when they consider that the judge of the first instance has not merely preferred an imperfect solution which is different from an alternative imperfect solution which the Court of Appeal might or would adopt, but has exceeded the generous ambit within which a reasonable disagreement is possible.”

The appeal is limited to a review of the lower court’s decision and it is not the job of the appeal court to tinker with costs budgets.

Although the appeal court here would have been more generous than the District Judge the original budget was well within the generous ambit of the original judge’s discretion and thus there are no grounds to interfere with that decision on appeal.

Here the appellate judge refused to interfere even though he found “force” in the claimant’s submission, accepted the claimant’s propositions, thought that the judge had erred on the low side, “would have been more generous than the District Judge”, “would have been persuaded to allow somewhat more time” etc.

Appeal courts rarely interfere with case management decisions and it is clear that it would be very rare indeed for an appeal to court to interfere with a costs budget.

Discretion to Order Costs Budget

In Kershaw v Roberts [2014] EWHC 1037 (Ch)

the Chancery Division of the High Court held that the requirement to lodge a costs budget does not, and never did, apply to Part 8 proceedings and the White Book’s notes to the contrary are wrong.

The court has a discretion to order a costs management conference in such claims and in any event a costs budget will be necessary if the court transfers the claim to the Part 7 procedure and allocates it to the multi-track.

When costs budgeting came in in April 2013 only claims under £2 million had to be budgeted for; that figure was subsequently raised to £10 million.

In CIP Properties v Galliford Try Infrastructure Ltd and Others [2014] EWHC 3546 (TCC), the Technology and Construction Court, part of the High Court, held that it had a discretion to order budgets in cases involving over £10 million.

Mr Justice Coulson rejected the claimant’s argument that the court had no such discretion in such claims. He held that the claim was worth £18 million and the judge accepted that budgets are not automatically required in cases worth more than £10 million as proportionality is likely to be less relevant.

However he stated that costs budgets are “generally regarded as a good idea and a useful case management tool”, and that there should be no presumption against ordering them for higher value cases. Mr Justice Coulson said that he took into account “express advice” from the President of the Queen’s Bench Division that costs management should always be considered, even where not mandatory.

The judge also pointed out that ridged observance of the limits could “easily lead to the abuse of process” as claimants wanting to avoid the regime could simply make damages estimates £1.00 over the threshold. “This would then avoid any consideration at all by the court of the proposed costs, no matter how disproportionate or inflated they were.”

The claimants had submitted that there was no power to order budgets in such cases but the court relied on the wording of CPR 3.12 which excepts certain cases unless “the court otherwise orders”. Those words give the court a discretion to order costs budgeting in any case.

In GSK Project Management Ltd (In Liquidation) v QPR Holdings Ltd [2015] EWHC 2274 (TCC)

the Technology and Construction Court of the High Court reduced the claimant’s costs budget by half and followed the decision in

CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd [2015] EWHC 481 (TCC)

in selecting option 2, that is setting budget figures rather than ordering a new budget, declining to approve the budget or, taking into account pre-budget costs, refusing to allow any further costs.

The judge here quoted, with approval, part of the judgment in the case of

Gotch v Enelco Ltd [2015] EWHC 1802 (TCC) as follows:-

“61. I respectfully repeat and adopt the recent observations of Edwards-Stuart J in Gotch v Enelco Ltd [2015] EWHC 1802 (TCC), where he said:

“44. It is therefore time to say, in the clearest terms, that parties and their solicitors can no longer conduct litigation in a manner which does not keep the proportionality of the costs being incurred at the forefront of their minds at all times.

  1. It is no longer acceptable – if it ever was – for the parties to pursue issues or applications that have no real impact on the issues that are central to the dispute. Further, it is no longer acceptable for solicitors to carry on a war of attrition by correspondence, whether instructed to do so or not; it is the parties who are the subject of the duty in CPR 1.3, not merely their solicitors.
  1. […]
  1. Whilst English law is an adversarial process, that goes to the issues in the case: not to every aspect of the procedure. Parties to litigation, in the TCC at least, are expected to conduct that litigation in the manner that is most expedition [sic] and economical. Bringing the right issues to trial in the most economical fashion, and taking steps to ensure that the costs are kept at a level that is proportionate to what is at stake, is to be at the heart of the process.
  1. Unreasonableness, intransigence and the taking of every point must in my view now be regarded as unacceptable, because conducting litigation in that way flies in the face of the overriding objective as it is now formulated. These habits must disappear from the landscape of litigation in the TCC. If they do not, offending litigants must expect to bear the costs.
  1. If access to justice is to have any real meaning, then the aim of keeping costs to the reasonable minimum must become paramount. Procedural squabbles must be banished and a culture of co-operative conduct introduced in their place. This will not prevent contentious issues from being tried fairly: on the contrary it should promote it.””

RELEVANCE OF COSTS ALREADY INCURRED

In Redfern v Corby Borough Council, 3 December 2014, the Queen’s Bench Division of the High Court upheld the decision of a Deputy Master that the amount of costs already incurred had a major impact upon the future costs budget.

This was an action for stress at work valued at £700,000.00; the trial was listed for 7 days with each side calling to expert witnesses.
At the costs budgeting hearing the Deputy Master said that the claimant’s costs incurred to date were excessive and disproportionate and that it was worrying that the claimant’s costs budget was equal to the value of the claim.

Consequently the approved budget would be much lower.

On appeal the judge held that the Master had not interfered with costs already incurred, but had taken them into account when considering the reasonableness and proportionality of subsequent costs, as required by Practice Direction 3 E, which the Deputy Master had applied correctly.

The only way to take into account excessive costs already incurred was to approve subsequent costs at a lower level than otherwise; it was sensible to fix a figure that was reasonable and proportionate for the entire action.

Costs outside the Costs Budget

In Excelerate Technology Ltd v Cumberbatch [2015] EWHC B1 Mercantile

the trial judge ordered payment on account of a very high percentage of the budgeted sum and also observed that certain additional costs outside the budget were, on the face of it, reasonable, as they “were quite properly incurred and were not remotely foreseeable.”

Those additional costs were in relation to specific hearings and applications and in relation to the First Defendant’s IVA.

Advocates need to be fully aware of the costs budget and also the need to ask the trial judge to consider matters outside the budget, although the court cannot increase a budget once the costs have already been incurred, as happened here. What the judge did was to record a note that on the face of it these costs were reasonably incurred and were proportionate to what was at stake.

Relief from Sanctions

 

The key case is of course Mitchell itself, that is Mitchell v News Group Newspapers Limited [2013] EWCA Civ 1537.

In Lotus Cars Limited v Mecanica Solutions Inc [2014] EWHC 76 (QB) Case no HQ13X02200

Master Kay rejected a Mitchell claim in a case where the claimant filed one costs budget covering all three cases which had been joined but where there were different defendants and the cases had not been consolidated.

Shortly before the CMC two of the claims were compromised and the claimant filed a revised costs budget in relation to the remaining action but the defendant refused to agree it as it covered all three cases.

Thus Master Kay had to consider whether the claimant had failed to file a costs budget and if so whether relief from sanctions should be granted.

Master Kay held that the claimant had complied with the order:

“17.        A significant purpose of cost budgeting is to ensure that the cases are handled as economically as possible and it seems logical that if cases are to be managed and tried together a single cost budgeting exercise should be sufficient.  The provision of three separate budgets merely adds to the costs.  If the other two claims had not been settled the single budget approach would have proved effective and it may well be that the Defendant’s multi budget approach might have been open to criticism. In my view the Claimant’s approach was not unreasonable”.

Consequently there was no need to consider the issue of relief from sanctions, but had it been necessary so to do the Master would have granted it, for the reasons set out in Paragraph 21 of the judgment:

“21.        a.            The failure to comply with the rules as found by Master McCloud in Mitchell was              much more serious and, in my view, that decision is distinguishable from the present             case where the Claimant was trying to comply with the Orders made;

  1. The dicta of Coulson J. in Stella Willis v J Rundell & Associates Ltd [2013] EWHC 2923 indicates that the court should be cautious about penalising a party in respect of non-compliance with the cost budgeting rules;
  1. I have had the opportunity to read the decision of the Court of Appeal in Mitchell [2013] EWCA Civ 1537 given on the 27th November 2013 in which it was considered that the first task is to consider whether the non-compliance is trivial, and it if is not, then to consider whether there is a good reason for the default. If there is then the court is likely to grant relief.  Applying those tests it seems to me that the default, if default it was, should be considered as trivial and even if it was not there was an understandable reason for the default which did not arise from the solicitor’s failure to act promptly or dereliction of duty.
  1. Although the decision in Mitchell indicates that a more robust approach should be taken with applications for sanction from penalty it does not provide that a party should be penalised where the balance of justice and fairness would indicate that a contrary approach is appropriate. In my view, the reality of this case was that the Claimant was trying to comply with an aspect of the Orders and the rules which were not entirely clear and if, with hindsight, it is found that it failed to do so properly I think that it would be contrary to the overriding principle to apply the penalty required by the Defendant.

In Burt v Linford Christie, Birmingham District Registry, 10 February 2014, unreported

District Judge Lumb refused relief from sanctions where the defendant filed the costs budget one day late, that is six days, not seven days, before the Costs and Claims Management Conference. CPR 3.14 therefore applies and the defendant is treated as having filed a budget comprising only the applicable court fees.

This claim is a personal injury case where liability had been admitted and the pre-allocation notice gave dates for filing the directions questionnaire and other steps.  The claimant filed a Precedent H costs budget but the defendant did not.

CPR 3.13 states:

“Unless the court otherwise orders, all parties except litigants in person must file and exchange budgets as required by the rules or as the Court otherwise directs.  Each party must do so by the date specified in the notice served under rule 26.3(1) or, if no such date is specified, seven days before the first case management conference”.

CPR 3.14 provides:

“Unless the court otherwise orders, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees”.

On the facts of this case the District Judge held that there was no breach of CPR 3.13 occasioned by the failure of the defendant to file a costs budget with the Directions Questionnaire.

There was a clear breach of CPR 3.13 in that the defendant’s budget was filed six, not seven, days before the first case management conference.

Here the court held that that was not a trivial breach and thus imposed the full CPR 3.14 sanction, that is that the defaulting party, here the defendant but in Mitchell the claimant, stands to recover only court fees, even if wholly successful and indeed even if the other party’s case is totally unmeritorious and conducted in an appalling fashion.

Failure to serve a Costs Schedule

In Simpson MGN Ltd v Ward [2015] EWHC 126 (QB)

the court reduced the claimant’s costs by 10% due to the failure to serve a Costs Schedule on the defendant in accordance with PD 44, paragraph 9.5(4).

Indemnity Costs and Part 36

 

Costs budgeting does not deal with indemnity costs, in the sense that the budgets do not contain indemnity costs figures.

Thus a claimant who matches his or her own Part 36 offer may get a figure well in excess of the amount in the budget.

This raises the issue of whether a Mitchell/Christie party, whose budget by CPR diktat consists only of court fees, may recover costs if they are awarded on an indemnity basis.

I think not.  Generally a party will not get costs in excess of its budget.  The budget is not just about money, it is about time.  Thus an indemnity costs order will allow a party to get more per hour than in the budget, but will not be able to recover for more hours work than in the budget.  In a Mitchell/Christie situation there is no budget save for court fees, so there are no hours and thus the court will not allow for any work.
Consequently an indemnity costs order makes no difference.

With effect from 6 April 2015 the “court fees only” rule in CPR 3.14 is modified where a defaulting party is successful in relation to its own Part 36 offer. It can then get 50% of its costs.

“36.23.—(1) This rule applies in any case where the offeror is treated as having filed a costs budget limited to applicable court fees, or is otherwise limited in their recovery of costs to such fees.

(Rule 3.14 provides that a litigant may be treated as having filed a budget limited to court fees for failure to file a budget.)

(2) “Costs” in rules 36.13(5)(b), 36.17(3)(a) and 36.17(4)(b) shall mean—

(a)in respect of those costs subject to any such limitation, 50% of the costs assessed without reference to the limitation; together with

(b)any other recoverable costs.”

Indemnity Costs and Budget

In Kellie and Kellie v Wheatley and Lloyd Architects Ltd  [2014] EWHC 2866 (TCC)

the High Court looked at the interplay between costs budgets and indemnity costs.

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.

CPR 44.3 reads:

“44.3 (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”.

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.

The court quoted Lord Woolf in

Lownds v Home Office [2002] EWCA Civ 365

“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”.

Here the court said that this distinction is highlighted by the CPR and Practice Direction concerning costs management.  Practice Direction 3E paragraph 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”.

CPR 3.18:

“In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –

  • have regard to the receiving party’s last approved or agreed budget for each of the proceedings; and
  • not depart from such approval or agreed budget unless satisfied that there is good reason to do so”.

In Henry v Group Newspapers Ltd [2013] EWCA Civ 19 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 [2012] EWHC 1643 (TCC).

In that case the High Court held that even on an indemnity basis the starting point is the approved budget.

The court here in Kellie disagreed, holding that

“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 [29], 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 [30], 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 [30] 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 or Kellie 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, in rejecting the application for a indemnity costs order, gave extensive guidelines 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 [2006] EWHC 816 (Comm), at [25], 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.”

  1. More recently, in Courtwell Properties Ltd v Greencore PF (UK) Ltd [2014] 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 [2013] 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 v MGN Ltd [2002] 1 WLR 2810.

(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 and Johnson [2002] 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 Alchurch Evans Ltd [2006] BLR 45.

(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 v Cable and Wireless PLC [2010] 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 [2006] 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 [2002] 1 WLR 2800).

(iii)          The conduct of experts can justify an order for indemnity costs in respect of costs generated by them (see Williams v Jervis [2009] 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.”

In Arcadia Group Brands Ltd and Others v Visa Inc and Others [2015] EWCA Civ 883

the Court of Appeal overturned an order for indemnity costs made by the first instance High Court judge.
The Court of Appeal said that the weakness of a legal argument is not, without more, justification for an indemnity order which is in its nature penal.

The position might be different if proceedings or steps taken within them are not only based on a plainly hopeless case but are motivated by some ulterior commercial or personal purpose or otherwise for purely tactical reasons unconnected with any real belief in their merits. (Paragraph 83).

Schedule of Costs

 

In Devon County Council v Celtic Bioenergy Ltd [2014] EWHC 309 TCC

Mr Justice Stuart-Smith granted relief from sanctions when a schedule of costs was served 18 minutes late, saying it was a “substantive irrelevance”.

Statement of Truth on Costs Budget

 

In The Governor and Company of the Bank of Ireland v Phillip Rank Partnership [2014] EWHC 284 (TCC)

Mr Justice Stuart-Smith rejected an argument that an error in the statement of truth meant that the costs budget was filed late.

The claimant’s Precedent H costs budget had the words “statement of truth” immediately above the signature of his representative and the full wording was not included but a further copy was later served, in identical form, with the full statement of truth included.

17 days later and one day before the CMC the defendant took the point and the claimant applied for relief from sanctions saying that it was an error; the budget had been completed externally and the partner signing the form had failed to notice that the full statement of truth had not been included.

The defendant argued that the claimant was in breach of CPR 3.13 and that there was no reasonable excuse and that statements of truth were important.

The judge dismissed the arguments as having no merit, technical or otherwise and as bringing the rules of procedure and the law generally into disrepute.

The judge concluded that there was no breach of CPR 3.13; the claimant had filed and exchanged a costs budget on time, but the budget suffered an irregularity.

CPR 3.14 provides for a sanction in the event that a party “fails to provide a budget”.  It does not include the words:

“complying in all respects with the formal requirements laid down by PD 3E” or any similar words.

As the judge pointed out, any other finding would mean that a budget would be a nullity if, for example, one word was mis-spelled.

Relief from sanctions was not required, but had it been required the judge made it clear that he would have granted it.

Although not trivial, this was a failure of form rather than of substance.  The nature of form Precedent H was a trip for the unwary.

“The defendant’s submission is therefore rejected.  The claimant did not fail to file and exchange a costs budget on 24 January 2014.  It filed and exchanged a budget that was subject to an irregularity that has since been rectified.  No question of relief from sanctions arises.  If the taking of this issue serves to alert others to the need to change the form of Precedent H from that set out in the supplement, some useful purpose will have been served”.

 

In Willis v (1) MRJ Rondell and Associates Ltd and (2) Grovecourt Ltd [2013] EWHC 2923 (TCC)

the Queen’s Bench Division of the High Court, Technology and Construction Court (Mr Justice Coulson) held the costs budgets of both parties, which were very similar in total, to be disproportionate and unreasonable and expressly declined to approve either budget.

This was a claim for £1.1 million and the claimant’s costs budget was £821,000 and the defendant’s costs budget was £616,000 but as the defendant was not liable for VAT, causing its budget not to have VAT in, the true figures were much closer to one another.
This was a case to which Practice Direction 51G (Costs Management in the TCC applied) and the judge said:

“I apprehend that the outcome will not be uncommon under either PD51G, or the new costs budget rules which came into force in April 2013”. (Paragraph 1).

The judge noted that the total costs of both parties exceeded the value of the claim and held that on that basis alone the costs in both budgets were both disproportionate and unreasonable.

The judge also said that “……to allow a proper analysis, in order for the court to make a costs management order, the costs which have been incurred (and which therefore cannot be the subject of an order) must be separated out from those which are estimated (which can be the subject of an order)”. (Paragraph 19).

The judge said that the experts’ fees should be half those estimated; “unhappily, my recent experience is that the amount of experts’ fees in cases like this is often out of all proportion to the assistance provided”. (Paragraph 20).

The judge also had this to say about contingencies:

“…….whilst budgets of this sort can include contingent sums, it needs to be made very clear what those contingency sums are for and how they have been calculated.  For example, it may be appropriate to put in, as a contingency sum, the estimated additional costs of written submissions, if the original budget assumed that oral submissions would be made at the end of the trial.  Another example would be a contingency sum for any application for security for costs”. (Paragraph 21).

“It is not appropriate ………….to put in a single lump sum by way of a contingency figure and leave it at that.  ……….such items ought to be included in the relevant line items as a cost incurred.  For example, it is said that there is an additional cost because of the need to amend the pleadings.  That ought to be shown as an additional cost under the relevant line item within the costs budget”.  (Paragraph 22).

Generally the judge said:

“Of course in an ideal world, the court would be able to provide alternative figures for those estimated items in a costs budget which the court considers to be too high.  The alternative figures could then be included in an approved costs budget and a costs management order could be made.  But as I have already noted, I have nothing on which I could rely in order to come up with reasonably accurate alternative figures.  I do not consider that it is appropriate for the court to impose its own figures without notice and without any supporting material”.

In his conclusion, the judge said (paragraph 25):

“In all those circumstances, I expressly decline to approve either party’s costs budget.  For the reasons I have given, I consider them to be disproportionate and unreasonable.  I therefore have no option but to decline to make a costs management order”.

It appeared to be becoming clear that the courts intended to take a very hard line in relation to Costs Management Orders, with the first decision being given by the Senior Costs Judge Peter Hurst in

Henry v News Group International Ltd [2012] EWHC 90218

This was a defamation action and as such was caught by an early budgeting pilot scheme applying only to defamation cases issued in the Royal Courts of Justice or Manchester District Registry on or after 1 October 2009. Here the Claimant submitted a bill which was 18 times higher than budgeted for in relation to witness statements and eight times higher for disclosure. Overall, the extra costs were nearly £300,000.

The Senior Courts Costs Office “reluctantly” held that there was “no good reason to depart” from the court approved budget where the claimant’s costs had exceeded that budget, even though the court recognized that the claimant could probably “make out a very good case on detailed assessment for the costs being claimed”. It found that the claimant had “largely ignored” the mandatory provisions of the Defamation Costs Management Scheme set out in CPR PD 51D, although recognizing that the issue was important and needed a definitive and binding decision, the SCCO indicated that it would be prepared to grant permission to appeal under CPR 52.3(6)(b).

Professor Dominic Regan, commenting on the decision, said

“What, one might ask, is the point of imposing a budget only to ignore it? The lesson is blindingly clear. If the approved budget, for whatever reason, seems to be no longer accurate then get back to court and seek approval for revised figures.”

Speaking at the LexisNexis Costs and Litigation Forum on 31 October 2012 SCCO Master Haworth said

“I can’t imagine that the Court of Appeal is going to row back from Costs Management and Costs budgeting.”

However that is exactly what they have done, unanimously allowing the appeal and remitting the matter to the SCCO.

In Henry v News Group Newspapers Ltd [2013] EWCA Civ 19

the Court of Appeal found that that was good reason to depart from the budget, which is precisely the same test in the new CPR3.18(b) inserted by The Civil Procedure (Amendment) Rules 2013.

In relation to the future, the Court of Appeal had this to say in two paragraphs which they headed “The future”:

“ 27.       The practice direction with which this appeal is concerned applies only to proceedings for defamation. It was the first pilot scheme introduced by the Civil Procedure Rule Committee (“the Rule Committee”) and was intended both to control the costs of defamation proceedings and to provide experience of how costs management would work in practice. A similar costs management pilot scheme which reflected developments in the understanding of how costs management could most usefully be applied was subsequently introduced in the Mercantile Courts and the Technology and Construction Courts (see Practice Direction 51G).

  1. In the light of the experience gained from those pilots the Rule Committee decided to adopt Sir Rupert Jackson’s recommendation that the management of costs by the court should in future form an integral part of the ordinary procedure governing claims allocated to the multi-track. Those rules, which will become effective from 1st April 2013, differ in some important respects from the practice direction with which this appeal is concerned. In particular, they impose greater responsibility on the court for the management of the costs of proceedings and greater responsibility on the parties for keeping budgets under review as the proceedings progress. Read as a whole they lay greater emphasis on the importance of the approved or agreed budget as providing a prima facie limit on the amount of recoverable costs. In those circumstances, although the court will still have the power to depart from the approved or agreed budget if it is satisfied that there is good reason to do so, and may for that purpose take into consideration all the circumstances of the case, I should expect it to place particular emphasis on the function of the budget as imposing a limit on recoverable costs. The primary function of the budget is to ensure that the costs incurred are not only reasonable but proportionate to what is at stake in the proceedings. If, as is the intention of the rule, budgets are approved by the court and revised at regular intervals, the receiving party is unlikely to persuade the court that costs incurred in excess of the budget are reasonable and proportionate to what is at stake.”

Nevertheless it remains a fact that the Court of Appeal allowed the claimant to proceed with the full costs claim in the absence of any revised budget being submitted to the court and in the absence of any notification to the other side’s solicitors of the amount of costs being incurred.

The judge at first instance said (paragraph 67):

“……the fact is that the budget has been exceeded by a very significant amount, and there has been no attempt by the Claimant to pass this information on.  The fact that both sides exceeded their budgets does not assist the Claimant.  The Defendant kept the Claimant informed, but the Claimant gave no indication to the Defendant”.

In paragraph 28 of the Court of Appeal decision dealing with the future the court made it clear that under the post-1April 2013 regime the court has the power to depart from the approved or agreed budget if it is satisfied that there is good reason to do so, precisely the finding here.

It is clear that faced with these facts under the new regime the Court of Appeal would have made the same decision.

However in another recent case –

Ryder Plc v Dominic James Beever [2012] EWCA Civ 1737

the Court of Appeal upheld a Circuit Judge’s overturning of a Deputy District Judge’s Order striking out the claimant’s claim for failing to comply with an unless order in relation to a costs estimate.

At paragraph 53 of that Judgment the Court of Appeal said that here…….

“the delay in providing the costs schedule had not caused any real prejudice of which the defendant complained.  Nor had it delayed the progress of the action.  That is not to say that a costs schedule is not important.  It has two main purposes.  One is to enable the parties to make fully-informed decisions on Part 36 offers.  However, the powers of the court on making a costs order are wide and allowance can be made at that stage for any prejudice that a party has suffered as the result of the delayed service of a costs schedule.  The costs schedule also enables a defendant’s insurer to estimate an appropriate reserve and thereby manage its financial affairs.  However, I do not think that, in the absence of evidence, it should be assumed that the delay in service of a costs schedule could have a seriously prejudicial effect on a defendant”.

In personal injury cases – and Ryder was such a case – this will always be a one-way argument in the sense that Qualified One Way Costs Shifting means that unless and until a Defendant’s Part 36 Offer is not beaten a Claimant will generally not have to pay costs, but a Defendant will still have to provide a costs budget at a Costs Management Conference, as there are in fact many circumstances in which a claimant may be liable for the defendant’s costs, even in a Qualified One Way Costs Shifting case.

Consequently insurance companies, not always the most punctual of people in relation to court timetables, will mercilessly attack claimants’ costs budgets and any failure to supply them on time. They will have nothing to lose.

The Court of Appeal, in the two decisions, and in many ways Ryder is more significant that Henry, are making it clear that there will be no gauleiter approach by Judges to the Jackson Reforms.

Henry has been seen as a blow to the Jackson Reforms, and in some sense it is, but it is also a brave and heartwarming decision; courts are there to do justice, not to obey Government diktats.

The other side of that coin is shown in the decision of HH Judge Simon Brown in

Safetynet Security Ltd v Coppage [2012] EWHC B11 (Mercantile)

After giving judgment for the claimant the Judge decided that as the spend was within the court-approved budget a detailed assessment would be an expensive and futile exercise.

Consequently a final costs order was made within minutes of the substantive judgment being delivered.

In BP v Cardiff and Vale University Local Health Board [2015] EWHC B13 (Costs) the Senior Costs Judge, Master Gordon-Saker gave guidance as to how bills should be divided.

Different Proportionality Test

“In any case in which both approaches need to be taken it will be necessary to identify the work which falls before and after that date and to identify the sums claimed for the work done before and after that date.” that is prior to and on or after 1 April 2013.

Phases

“In order for the paying party and the court to know which items of work are claimed in relation to each phase the bill would need to be drawn in parts which reflect the phases.”

“Where a bill has already been drawn without being divided into phases, one possible course to avoid re-drawing the bill would be to serve schedules setting out the individual items of costs claimed in relation to each phase.”

Pre and Post Costs Management Order

“Within each part it will also be necessary to distinguish between the costs incurred before and after the budget was agreed or approved. This could be done without further sub-division by use of italics, bold, superscript or some other formatting device.”

Costs Budgeting Costs

“Where a costs management order has been made and the receiving party’s budget has been agreed by the paying party or approved by the court it will be both necessary and convenient that the bill be divided so as to identify the costs of initially completing Precedent H and the other costs of the budgeting and costs management process, unless those costs can be clearly identified in some other way.”

Costs of Budgeting

Practice Direction 3E, at paragraph 7.2 reads:-

“Save in exceptional circumstances-

(a)          the recoverable costs of initially completing Precedent H shall not exceed the higher of £1,000 or 1% of the approved or agreed budget;”

The Master here held that, for the purposes of Practice Direction 3E.7.2, the capped recoverable costs of the budgeting process include additional liabilities, that is in practice the success fee, but not VAT.

This remains a matter of some controversy with Simon Gibbs taking the view that capped costs include VAT.

There is also uncertainty as to whether the cap applies only to the costs