Archive for June 2016
sdsThere 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.
- INDEMNITY COSTS PAYABLE BY LATE ACCEPTING DEFENDANT
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  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  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  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  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.”
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.
- PROVISIONAL ASSESSMENT
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  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  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.”
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.
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.
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.
- CLAIMANT’S PART 36 OFFER DURING APPEAL
the Court of Appeal held that the claimant was entitled to a 10% uplift on general damages under the principles set out in
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.
This reinforces the point made in Pawar v JSD Haulage Ltd  EWCA Civ 551 – see 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.
- 10% UPLIFT ON INTEREST
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
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).”
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
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.”
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?
Please see my related blogs:-
the Conditional Fee Agreement, under the heading “What is covered by this agreement” said:-
“Your claim against the defendant L & Q for damages”.
In fact proceedings were issued against both L & Q and the Academy of Plumbing Ltd (APL) and was settled by a “Tomlin” order, the relevant terms of which read:-
“2. [APL] do pay the Claimant’s costs of this action, such costs to be assessed on a standard basis by way of detailed assessment if not agreement.
- Upon payment by [APL] of the agreed sum and costs, [L & Q and APL] be discharged from all further liability to the Claimant in respect of the claims made by the Claimant in this action.
- The Claimant has agreed to accept the sum of £10,000 plus costs in full and final settlement of the claims brought in this action.
- The sum of £10,000 be paid by [APL] to the Claimant’s solicitors by 4 pm on 26 July 2011.”
I deal with the issue of a win below but in relation to the named defendant both courts below held that Ms Engeham could not recover any costs in relation to the action against APL as the words in the Conditional Fee Agreement quoted above “were not wide enough to encompass an action against anybody else.”
That matter was not before the Court of Appeal as Ms Engeham did not pursue that point but the court confirmed the correctness of the lower courts’ decision:-
“On this further appeal, Ms Engeham does not seek to challenge those conclusions, and I consider that she was right to do so. It follows, that the only costs which she can now recover are costs which relate to her action against L & Q.”
Thus naming a defendant means that costs cannot be recovered in relation to work against any other party and thus it remains crucial not to name the defendant in any Conditional Fee Agreement – see my post CFAs: Never Name the Defendant! (1)
This case thus follows the reasoning in
dealt with in my post referred to above.
What the Court of Appeal was actually considering here was whether the outcome of the action represented a win for the claimant Ms Engeham under the terms of the Conditional Fee Agreement.
The Principal Costs Officer and Master Haworth held that it was not a win, but on further appeal HH Judge Mitchell sitting with Master Hurst, Senior Costs Judge, held that it was a win and APL now appealed against that decision, seeking to restore the order of the first two courts.
The definition of a win was the one contained in both the Underwoods Model Conditional Fee Agreement and the Law Society Model Conditional Fee Agreement:-
“Your claim for damages is finally decided in your favour, whether by a court decision or an agreement to pay you damages or in any way that you derive benefit from pursuing the claim.
‘Finally’ means that your opponent:-
- is not allowed to appeal against the court decision; or
- has not appealed in time; or
- has lost any appeal.”
APL argued that Ms Engeham had not won against L & Q and as they were the only defendant named in the Conditional Fee Agreement she had not won anything under that agreement and so was not bound to pay her solicitors anything and under the indemnity principle she could not recover costs from anyone in respect of her non-existent liability to pay costs.
Here the terms of the Tomlin order provided for payment of damages by APL but that such payment acted as a discharge for both L & Q and APL.
The Court of Appeal upheld the decision of HH Judge Mitchell that APL were liable for the costs of Ms Engeham’s action against L & Q.
The court pointed out that as far as Ms Engeham was concerned the object was to obtain damages for her injuries. She had done that. She had won. True it was that the action against L & Q was not finally decided in her favour by an agreement to pay her damages if one read into the Conditional Fee Agreement a clause that it must be L & Q who actually pay the damages, but there was no reason to do so.
As the court said:-
“It frequently occurs that a settlement is achieved with an action, but the person who pays the damages is not the defendant who is being sued.”
The Court of Appeal said that the parties could not have contemplated “that a win was restricted to causing L & Q to be the payer, even if L & Q was the only anticipated defendant at the date of the CFA. I therefore consider that the “win” clause in the CFA is not limited by reference to the identity of a person who actually pays the damages. Once one construes the CFA in that way, it seems to me that the Tomlin order is plainly an agreement to pay damages within the meaning of the CFA. The fact that those damages were to be paid by APL and not L & Q is not relevant.”
The Court of Appeal also pointed out that had Ms Engeham just sued L & Q and L & Q had brought Part 20 proceedings against APL, who then made payment in an overall settlement, she would have won against L & Q.
The court said:-
“Other examples abound, such as a parent or a related company, a shareholder or a simple well-wisher making the payment of damages.”
That is perhaps not a valid point – the “win” would still have been against the named defendant, whoever actually paid the damages. The argument here was that there had not been a win within the proceedings against the named defendant.
This is a very fact specific case. A differently worded Tomlin order may have resulted in Ms Engeham recovering no costs. As Simon Gibbs says in his always excellent blog – Wrong defendant named in CFA – again:-
“The important point to note is that for many – probably most – cases where the wrong defendant is named, this decision will be of no assistance. The Court of Appeal has recognised that expressly naming one party as defendant in a CFA limits the scope of what the agreement covers. Perhaps the classic example of this problem arises where a CFA in a highway tripping claim names a local authority as defendant but it is subsequently discovered the correct defendant is actually another party (eg utilities company), with the claim then being successfully pursued against that other party. Ordinarily, and absent a rather unusual final costs order, there will be no recoverable costs given the limitation of the CFA.”
As the High Court said in
“If the CFA as drafted is such that it can include a claim against any potential Defendant, then the present problem would not arise.”
the High Court said that it is commonly the case that Conditional Fee Agreements do not identify the opponent and that there is no requirement that they should, provided that “the particular proceedings” to which they relate are specified. The court said:-
“…the sin therefore was one of addition: including an unnecessary detail.”
As stated in my post – Conditional Fee Agreements, Damages-Based Agreements and Contingency Fees:-
“The key lesson to be drawn from these cases is that the defendant should never be mentioned in a Conditional Fee Agreement, but rather simply the date of the accident, and possibly the rough location, so that “the particular proceedings” are specified.”
The decision in Engeham has been widely misreported, as pointed out by Simon Gibbs. I suspected that that was the case and as I said in my post:-
“I have not yet got the full Judgment and my advice remains that you should not name the defendant in a Conditional Fee Agreement.”
That advice is reinforced, not changed, by the Court of Appeal’s decision in this case.
Please see my related blogs:-
Please see my blog: Proportionality: Court Halves Costs and please note that the decision in BNM v MGN Ltd  EWHC B13 (Costs) 3 June 2016, 3 June 2016 has been leapfrogged to the Court of Appeal and an expedited hearing has been ordered.
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  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.”
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.
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 authorised by the Bar Standards Board to conduct litigation. Consequently no firm of solicitors were instructed and Mr Farrell utilised the services of other barristers and a solicitor as required. The Bar Standards Board had only begun to authorise 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.
Please also see my blogs –
What fixed costs are payable where, on allocation, or shortly after, the court gives directions through to trial, including listing the matter for trial and giving a trial date?
Thus the matter moves from being in the first post-issue stage of Issued – Post-Issue Pre-Allocation straight through to the third stage of Issued – Post-Listing Pre-Trial without ever being in the second stage of Issued – Post–Allocation Pre-Listing.
Thus on the face of it the defendant loses the chance of settling the claim in that second phase as the matter has already been listed for trial.
It makes a significant difference in costs :
EL £930 plus 5% of damages
PL £725 plus 5% of damages
It also obviously makes the jump between costs on a case settled pre-allocation and one settled post allocation much greater. The figures become:
EL £1,950 plus 10% of damages
PL £1,340 plus 10% of damages
A number of courts are following this procedure, and indeed it makes perfect sense.
It has been suggested that the pre-trial checklist could be used as the trigger point for the third and final phase of pre-trial costs and that prior to that it will be in the second phase.
I do not think that that is correct – if the matter has been listed then it is post-listing, whether or not a pre-trial checklist has been done.
In any event many courts are dispensing with pre-trial checklists.
It is hoped that the Court of Appeal may give some obiter guidance on this point when it considers the disposal hearing issue in the case of Bird v Acorn Group Ltd on 19 and 20 October 2016.
I am grateful to Will Balfry in relation to this matter.
The table of fixed costs appears at page 154 of my course notes.
I deal with this in my new book – Kerry on… Personal Injury Small Claims, Portals and Fixed Costs. To order one click here .
In Jones v Spire Healthcare Ltd, Liverpool County Court, 11 May 2016 – case no. A13YJ811
a Circuit Judge, allowing an appeal from a District Judge, held that an insolvent firm of solicitors can validly assign its entitlement and responsibility under a Conditional Fee Agreement with a client to another firm of solicitors.
If it could not do so then the agreement would be a novation, that is a new agreement, and the costs of the insolvent firm would be unrecoverable.
If no new compliant agreement was entered into following a statutory change in relation to technical requirements, as happened in April 2013 in relation to conditional fee agreements, then the agreement would not be enforceable by the new firm and so no costs at all could be recovered from the losing party.
This would be to the disadvantage of any creditor in the administration and would represent a windfall to a losing defendant.
The Circuit Judge analyses the law in relation to Conditional Fee Agreements and in relation to assignment in considerable detail.
The benefit of a contract, other than one which involves personal skill and confidence dependent upon a particular individual discharging obligations under it, can be assigned, whereas the burden cannot, subject to certain exceptions.
One of those exceptions is where the benefits and burdens are inextricably linked, for example where entitlement to the right or benefit is dependent upon, or conditional upon, the discharge of certain responsibilities.
Here the court analysed at some length the decision of the High Court in
Jenkins v Young Brothers Transport Ltd  EWHC 151
and followed it.
Here the court held that, as in Jenkins, the benefits and burdens were inextricably linked, thus allowing the burden to be assigned.
The court said:-
“Rules restricting burden assignment were clearly devised to protect the non-participating counterparty. This is clear from the Tolhurst case [Tolhurst v Associated Portland Cement Manufactures  2 KB 660]. In circumstances where there is tripartite involvement to the extent that not only do the assignee and the assignor agree to the shifting of the burden, but so too does the recipient of the benefit (here the Claimant) and a separate deed of assignment is entered into in relation to her own conditional fee agreement, it would be an unduly restrictive and overly legalistic approach to deny the parties the effect of what they intended.”
I must admit to an almost complete failure to understand the law on assignment and the logic of the law. Surely every contract involves a benefit and a burden, as otherwise there is no consideration and therefore no contract. Surely also one party’s burden is another party’s benefit. The benefit to the client is getting the work done and the burden is paying the fee. The benefit to the solicitor is earning the fee and the burden is doing the work. Surely also the benefit and burden must always be inextricably linked.
Leaving that aside in my view practitioners should be very wary of relying on this judgment in the sense of assuming that Conditional Fee Agreements can be validly assigned.
First of all a contract for the provision of legal services is one which involves personal skill and confidence dependent upon a particular individual discharging obligations under it and therefore the starting point is that such a contract can never be assigned.
The judge here worked on the basis that that was no longer the case in personal injury work –
“It is axiomatic that case handling these days is conducted at a distance, and that it would be very difficult to identify those cases where a particular client had been insistent on the continuity of a specific fee earner.”
Axiomatic means: “self-evident, indisputably true”. (Shorter Oxford Dictionary.
That statement by the judge is just plain wrong and is itself sufficient grounds to overturn the decision as it is central to his reasoning. It is putting the cart before the horse – just because firms like Barnetts conduct themselves in this way- and go bust- does not mean that all firms do.
The fact that work which is clearly personal in nature is being done in an impersonal, and generally poor quality way, by some solicitors does not alter the law of assignment.
What the judge is in effect saying is that there is a law against assignment of work which should be undertaken personally but if you don’t undertake it personally then you can avoid the law against assignment of such contracts.
That does not make sense.
The Judge may also have cared to look at why Barnetts went bust – they were the paradigm of a pile it high sell it cheap firm who did indeed do work at a distance. Does the Judge wish to encourage that?
Many commentators, including me, think that the decision in Jenkins is wrong. If there is a law preventing assignment of contracts involving personal skill and confidence then the fact that assignment may achieve that objective, as in the Jenkins case, does not mean that the contract is in fact capable of assignment.
It can be argued that the law against assignment is a common law principle and that the whole point of common law is that it evolves and that therefore the public policy reasons for not allowing assignment in contracts of a personal nature were precisely the public policy reasons which allowed the Jenkins exception.
Even if all of that is true that does not justify the decision in this case.
In any event another court could distinguish this case on the ground that the original firm of solicitors was insolvent and therefore could not continue to do the work. The contract was frustrated.
A different court may take a very different view in relation to a firm which is solvent but simply chooses to abandon its responsibilities to its personal injury clients by selling them on.
Neither did the court here consider the issue of referral fees. Such fees are illegal in personal injury work and invalidate the retainer.
I do not know the arrangements in this case but if a firm of solicitors buys out the personal injury work from another firm, that is the new firm obtains personal injury cases by paying a fee to the old firm, then on the face of it that is an illegal referral fee, which whilst attracting no criminal sanction, invalidates the retainer.
A High Court or Court of Appeal decision on the assignment of Conditional Fee Agreements would be welcome.
We may get that relatively soon as the case of Budana v Leeds Teaching Hospitals NHS Trust has been leapfrogged to the Court of Appeal but no date has yet been set for the hearing.
In the meantime I probably need to read a book on the subject, or perhaps write one.
This write up is now included in my detailed blog on this subject: Proportionality: The Emperor’s New Clothes.
The decision set out below has been leapfrogged to the Court of Appeal and an expedited hearing has been ordered.
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|
|Base costs of drawing the bill||£4,530|
|Atkins Thomson’s success fee||£16,780.83|
|Counsel’s success fee||£4,846.88|
|Total base costs||£62,318.50|
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|
|Base costs of drawing the bill||£2,250|
|Atkins Thomson’s success fee||£7,920|
|Counsel’s success fee||£2,409|
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.
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 criticise 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.
I deal with this in my new book relating to Personal Injury Small Claims and Fixed Costs etc. To order one click here .
Part 36 is a freestanding provision and a Part 36 offer can be made at any time in any case, provided that it is not a small claim, as Part 36 has no application in the small claims track – see CPR 27.2(1) (g).
Section II of Part 36 specifically deals with matters in the portals and the relevant rules are CPR 36.24 to CPR 36.30.
However CPR 36.24(2) provides that that section only applies once the stage 3 procedure in the portal has been engaged and Part 8 proceedings issued. That Section makes a Part 36 offer compulsory in stage 3.
Until stage 3 is engaged section I of Part 36 applies as section I is only excluded by section II once stage 3 is reached.
Clearly if liability is in issue then stage 3 will not be reached as the matter drops out of the portal.
Consequently a Part 36 offer on liability can be made in every case at the outset and there is no need to wait until the matter reaches stage 3, when a Part 36 offer on quantum is compulsory and nor is there any need to wait until the matter drops out of the portal.
“(1) A Part 36 offer may be made at any time, including before the commencement of proceedings.”
The court must apply the costs consequences of Part 36 unless it would be unjust to do so and, in considering whether it would be unjust, the court must take into account all of the circumstances of the case, including whether the offer was a genuine attempt to settle the proceedings (CPR 36.17(5) (e)).
That is the reason why I suggest making a 95%/5% offer on liability as some courts have held that by making a 100%/0% offer there is no genuine attempt to settle the proceedings as no concession is being offered.
Obviously the client’s permission to make such an offer must be obtained as if it is accepted then damages will be 5% less than the full value of the claim. However in a personal injury matter, or indeed in any type of claim where there are general damages, these are not capable of precise quantification in any event and few lawyers would advise a client in any circumstances to reject a defendant’s offer that amounted to 95% of the full value of the claim.
If a claimant making such an offer matches or beats that offer then the client gets a 10% uplift on damages and thus those damages rise to 110%.
In a personal injury matter involving insurance it is important to check that there will be no effect on the client’s no claims bonus by the 5% concession.
Such an agreement does not cause the matter to drop out of the portal. That only occurs when the defendant alleges contributory negligence. An agreement to accept 95% of what damages are awarded is not a concession of contributory negligence; it is a sensible commercial arrangement and the whole purpose of the portal process, and Part 36, is to limit the matters that remain in issue.
A claimant successful at trial on a 100% basis clearly beats the Part 36 offer and gets indemnity costs and a 10% uplift on all damages and the position is the same if judgment is entered.
What has not yet been determined is whether a claimant in such a position gets indemnity costs on late acceptance by a defendant of a claimant’s Part 36 offer.
It is clear the courts have a discretion to order indemnity costs and indeed has that general discretion of whether or not a Part 36 offer has been made.
What is needed now is a decision of the High Court or the Court of Appeal giving guidance as to how that discretion should be exercised on late acceptance by a defendant.
I deal with all of this at great length in my blog – Part 36: Does a Claimant get Indemnity Costs on Late Acceptance?