Kerry Underwood

Archive for July 2016


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In Novus Aviation Ltd v Alubaf Arab International Bank BSC(c) [2016] EWHC 1937 (Comm) (27 July 2016)


a claimant beat its own Part 36 offer only because of a change in the exchange rate between the pound and the dollar by the time the Judgment was given.


The claimant had made an offer of £3,775,272.00.


The court made an award of $5,430,924.00 equating to £4,117,114.00 at the exchange rate current on the day of judgment.


However when the offer was made it equalled $6,342,457.00 and thus taking that figure the claimant had not beaten its offer.


The court held that the value must be taken as at the date when the order containing the court’s judgment is made – see Barnett v Creggy [2015] EWHC 1316 (Ch).


Thus the claimant had beaten its offer.


However the court held that it was entitled to take into account the fact that the only reason that the claimant had beaten its offer was the fall in the value of Sterling against the Dollar.


Even at the start of the trial the value of the offer was more than subsequently awarded:-


“If judgment had been entered at any time between the start of the trial on 26 April and 23 June 2016, Novus would not have beaten its Part 36 offer and orders for interest at an enhanced rate and indemnity costs could not have been made. It is only through the happenstance that the judgment was not handed down until 30 June 2016 that the possibility of making such orders exists.”


The court exercised its discretion to refuse to award these extras as it would be unjust so to do as provided by CPR 36 itself:-


“I consider that it would in these circumstances be unjust to make orders under CPR 36.14(3) for any part of the period between the date on which “the relevant period” expired and today’s date. The reality is that if at almost any time between the date when the offer was made and the end of the trial Alubaf had accepted the offer, the sum received by Novus would have been worth more than the judgment which it has ultimately obtained (even ignoring the time value of money). It would in these circumstances be adventitious and inconsistent with the principle of risk allocation which underlies Part 36 to penalise Alubaf for not accepting the offer.”




Variations on this theme throw up some interesting points.


Supposing the Pound strengthens against the Dollar and the claimant had made an offer of £4 million.


The court makes a Dollar award which at the exchange rate at the date of the offer exceeded £4 million but, due to the weakening of the Dollar, as at the date of judgment is, say, £3.5 million.


Following the logic in Novus, that the claimant had beaten its offer as the relevant date is the date of judgment, then it must follow that in this scenario the claimant has failed to beat or match its offer.


In those circumstances the court has no discretion to give the extras, although arguably it could use its general discretion to award the claimant indemnity costs from the date of expiry of the relevant period.


However, traditionally, where a claimant does not match or beat its own offer then there can be no criticism of the defendant for failing to accept an offer that is higher than the court eventually awards.


In any event the court has no discretion to award the 10% uplift in damages. That only occurs when a claimant matches or beats its own Part 36 offer.


Thus, on the logic of Novus, a claimant making a Part 36 offer always loses out on currency exchange.


My view is that the court exercised its discretion wrongly, or at least failed to consider its effect in other scenarios.


Defendants’ Part 36 offers


Sterling weakens


The defendant makes a Part 36 offer of £4 million, which at the time it is worth $6 million.


Sterling weakens. The court orders exactly $6 million and so by that measure the claimant has failed to beat the defendant’s Part 36 offer and is liable for costs from the expiry of the relevant period until judgment.


However, due to the weakening of Sterling, that award of $6 million is now worth £5 million and thus the claimant has beaten the defendant’s Part 36 offer.
Again, absent any wrongdoing on the claimant’s behalf, the court appears to have no discretion to award  costs against the claimant, even though, at one level, the claimant clearly should have accepted the offer.


Sterling strengthens


The defendant makes an offer of £4 million, which equates to $5 million.


The court awards $6 million, but that is now worth only £3.9 million as Sterling has strengthened and therefore more Dollars buy less Pounds.
Thus the claimant has failed to beat the defendant’s offer even though it has recovered more in Dollars than was effectively on offer for the period of accepting the defendant’s offer.


Presumably there the court would exercise its discretion not to order the claimant to pay  costs from expiry of the relevant period.

Are parties under a duty to keep an eye on exchange rates in such circumstances?


In the Novus case the claimant simply did not get the benefit following from beating its own offer.


Is it open to a court, under its general discretion on costs – which is very wide – to say in such a situation:-


“You should have lowered your offer. You knew any award would be made in Dollars and therefore you would require fewer Pounds as those Dollars would be worth more on judgment.”


Matters can become extremely complicated if both parties have made Part 36 offers – a blog on that must wait another day.


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July 29, 2016 at 8:45 am

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A client is a passenger in a bus which is involved in a collision with a car and the passenger has no idea what happened as they were reading and not paying attention to what the bus was doing.
The passenger is injured and eventually issues proceedings against the bus company who blame the driver of the car and the passenger then issues against the driver of the car.


The driver of the car then makes a Part 36 offer in the sum of £2,500.00, which is a good offer.


However Part 36 provides that an offer cannot be accepted by the claimant unless all defendants consent and the bus company has not consented as they want their costs.
There are different insurers involved for the bus company and the car driver.


Ignoring the Part 36 point for the moment, can the bus company avoid the QOCS protection that the passenger has by setting off the costs order that it will get, but be unable to enforce, against the damages?


On the face of it the answer should be no as set-off is between parties where A owes B money and B owes A money and the fact that C is owed money should not affect the transaction between and A and B.


However there is a case at first instance which came to a different view.


As far as the Part 36 point is concerned it appears that the claimant could make a Part 36 offer in the sum of £2,500.00 as there is nothing to prevent a defendant from accepting a claimant’s offer in such circumstances.


Alternatively the claimant could ask the defendant to make a non-Part 36 offer of £2,500.00 and undertake to accept such an offer within 10 minutes of it being made, or whatever.
Thus the rule in Part 36 appears to be capable of being got round if there is a genuine wish to settle between, in this case, the passenger and the car driver, but there remains the issue of enforcement or otherwise of the costs order which the bus company will inevitably obtain on discontinuance or on dismissal of the claimant’s claim against the bus company.


Written by kerryunderwood

July 28, 2016 at 9:56 am

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New rules in relation to costs budgeting came in on 6 April 2016, but only apply to proceedings issued after that date and so will only now be starting to have effect.


Dates for filing costs budgets


New CPR 3.13 provides:-



  • Unless the court otherwise orders, all parties except litigants in person must file and exchange budgets—


  • where the stated value of the claim on the claim form is less than £50,000, with their directions questionnaires; or


  • in any other case, not later than 21 days before the first case management conference.


  • In the event that a party files and exchanges a budget under paragraph (1), all other parties, not being litigants in person, must file an agreed budget discussion report no later than 7 days before the first case management conference.”


The sanction remains the same,  that is that failure to file the budget on time results in the defaulting party having its own costs budget limited to court fees, unless relief from sanction is granted.


In those circumstances, that is where the costs budget is limited to court fees, this rule has been softened in relation to the situation where a claimant matches or beats its own Part 36 offer at trial.


By virtue of CPR 36.23 such a claimant can get 50% of its assessed costs without reference to that limitation.


Likewise a defendant who makes an offer which a claimant fails to beat shall receive 50% of its assessed costs from the period from the expiry of the time for accepting the Part 36 offer until settlement or court order stop.


There is little problem with CPR 3.13(1) (a) as the parties know when the Directions Questionnaires are to be filed, but (b) can cause problems as the costs budget has to be filed 21 days before the first Case Management Conference, even if the court only gives little notice, due to the frequent and lengthy time gap between the court making the order and the order being sent out.  


Simon Gibbs, in his excellent Legal Costs Blog states in his post on 19 July 2016 – Date to File Costs Budgets


“It is difficult to see the logic behind the different dates for when the budgets should be filed and exchanged.  To do so with the directions questionnaire, for lower value claims, is inevitably a costs front-loading step.  It is likely to be a more disproportionate additional cost for these lower value claims than it would be for higher value ones.  It is also more likely to be an additional wasted cost as lower value claims are, on average, more likely to settle at an early stage in proceedings and often well before a CMC (when a costs management order might actually be made).


The latter problem is compounded by the fact that the courts continue to struggle to list matters for CMCs at an early stage.  The consequence of this is that by the time the matter does reach a CMC the earlier costs budgets will often be out-of-date and largely redundant (with the work therefore either being wasted or having to be repeated with up-to-date budgets).


It is unfortunate that the rules have been drafted in such a way as to generate a largely unnecessary and unhelpful front-loading of costs.  Unless you are a costs lawyer or law costs draftsman I suppose.”


It has also been pointed out that the “unless the court otherwise orders” provision still remains in force and that courts are still sending out the Notice of Allocation which contains a provision that budgets are to be filed with the Directions Questionnaire regardless of the value. On the face of it this conflicts with CPR 3.13, but is arguably allowed under the “unless the court otherwise orders” provision, even though no one will have actually made a decision.


Changes to Practice Direction 3-E Costs Management


Sub-paragraph (b) provides that “parties must follow the Precedent H Guidance Notes in all respects”.


(c) states:-


“(c) In cases where a party’s budgeted costs do not exceed £25,000 or the value of the claim as stated on the claim form is less than £50,000, the parties must only use the first page of Precedent H.”


Thus if the value of the claim as stated on the Claim Form is less than £50,000.00 then only the first page of Precedent H must be completed.


Even if the value of the claim stated on the Claim Form is £50,000.00 or more then only first page of Precedent H must be completed if the party’s budgeted costs are £25,000.00 or less.


In non-multi track claims and fixed costs cases there is no requirement to file a budget. Consequently claims for damages for £25,000 or less, which will normally be fast-track claims, do not require a budget unless allocated to the multi-track. A higher value claim not allocated to the multi-track does not require a budget either.

Fixed Costs cases can be allocated to the multi-track, for example if there is an allegation of fraud, but do not require a budget unless the court so orders, which it may well do in those circumstances.


Budget discussion report


New Practice Direction 3 – E – C – 6A provides:-


“The budget discussion report required by rule 3.13(2) must set out—


(a)          those figures which are agreed for each phase;


(b)          those figures which are not agreed for each phase; and


(c)           a brief summary of the grounds of dispute.


The parties are encouraged to use the Precedent R Budget Discussion Report annexed to this Practice Direction.”


Precedent R is here.


Other changes


Exemption for children


A new CPR 3.12(1 )(c) is inserted:-


“(c)         where in proceedings commenced on or after 6th April 2016 a claim is made by or on behalf of a person under the age of 18 (a child) (and on a child reaching majority this exception will continue to apply unless the court otherwise orders); or


  • where the proceeding are the subject of fixed costs or scale costs; or


(e) the court otherwise orders.”


CPR 3.12 is the exception provision and the full rule may be found here.


This new provision may well apply to fatal accident cases where a claim is brought on behalf of a child, even where the child is not a party as the rules state “made by or on behalf of a child”. Thus in a fatal accident case where one of the dependents is a child this provision may apply. The action may be brought by the executors, administrators or other dependents, but the claim is brought on behalf of all of the dependents.


Impaired life expectancy


As we have seen the exemption for children is part of the Civil Procedure Rules. The Practice Direction provides another potential exemption in that it states that the court will “normally dis-apply” costs management in a case where the claimant has limited or severely impaired life expectancy.


The relevant Practice Direction is PD 3E-2(b) which reads:-


“(b) In cases where the Claimant has a limited or severely impaired life expectation (5 years or less remaining) the court will ordinarily disapply cost management under Section II of Part 3.”


No fixing of hourly rates


Generally courts have not set hourly rates at the costs budgeting stage and there is a new Practice Direction at paragraph 7.10 of Practice Direction 3-E:-


“7.10 The making of a costs management order under rule 3.15 concerns the totals allowed for each phase of the budget. It is not the role of the court in the cost management hearing to fix or approve the hourly rates claimed in the budget. The underlying detail in the budget for each phase used by the party to calculate the totals claimed is provided for reference purposes only to assist the court in fixing a budget.”


Bill of Costs to show each phase


In Practice Direction 47 – Procedure for Assessment of Costs and Default Provisions – new sub-paragraphs 5.8(7), (8) and (9) are inserted as follows:-


“(7) Where the case commenced on or after 1 April 2013, the bill covers costs for work done both before and after that date and the costs are to be assessed on the standard basis, the bill must be divided into parts so as to distinguish between costs shown as incurred for work done before 1 April 2013 and costs shown as incurred for work done on or after 1 April 2013.


(8) Where a costs management order has been made, the costs are to be assessed on the standard basis and the receiving party’s budget has been agreed by the paying party or approved by the court, the bill must be divided into separate parts so as to distinguish between the costs claimed for each phase of the last approved or agreed budget, and within each such part the bill must distinguish between the costs shown as incurred in the last agreed or approved budget and the costs shown as estimated.


(9) 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, (a) the costs of initially completing Precedent H and (b) the other costs of the budgeting and costs management process must be set out in separate parts.”


The amendment rules are the Civil Procedure (Amendment) Rules 2016 and are here 

The 83rd Update – Practice Direction Amendments – are here.

I am very grateful to Gordon Exall for his indispensable blog – Civil Litigation Brief and to Simon Gibbs for his excellent Legal Costs Blog.

Written by kerryunderwood

July 28, 2016 at 7:23 am

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Kerry Underwood

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

“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…

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Written by kerryunderwood

July 27, 2016 at 10:01 am

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Suppose for example the vehicle damages aspect of a claim is settled for £2,000.00 out of the portal but pre-issue and the general damages claim settles for £5,000.00 post-allocation.


The fee for a matter settled post-allocation is £1,880.00 as the core fee plus 20% of damages. Thus in that example is it 20% of £7,000.00, being the total of the settlement sum, or is it 20% of £5,000.00 being the sum settled at that stage?


A case settled pre-issue for between £1,000.00 and £5,000.00 attracts a fee that is the greater of £550.00 or £100.00 plus 20% of damages.


Thus in the example given a fee for settlement of the £2,000.00 element pre-issue would be £550.00 as that is the minimum, but arguably the claimant has then effectively got two core fees.


In that particular example the claimant would receive more costs because part of the claim was settled early. That seems to make little sense.




Fee payable
In relation to the settlement pre-issue of £2,000.00, the fee would be: £550.00
Balance of £5,000.00, the fee would be £1,880.00
20% of damages £1,000.00
Overall total £3,430.00



However if the correct analysis is that the whole of the £7,000.00 comes into play at the post allocation period then the calculation would be:-


Fee payable
Balance of £7000.00, the fee would be £1,880.00
20% of damages £1,400.00
Overall total £3,280.00


However let us turn that around and assume that the £5,000.00 element was settled pre-issue and the £2,000.00 element post-allocation.


The calculation is then as follows:-


Pre-issue costs of £100.00 plus 20% of damages £1100.00
Post-allocation costs of £1,880.00 plus 20% of damages of £2,000  (£400.00) £2280.00
Total £3380.00


Again the claimant is getting more because part of the claim settles early and that does not seem logical.


Clearly fixed costs are structured on the basis of a fixed core cost plus a percentage of damages. The fixed core cost is to represent the fact that there is a minimum amount of work in any case.


The potential effect is that if different parts of the claim are settled at different stages then the claimant could get the core costs several times over.


On the other hand if no fee is payable in respect of the first payment then surely the value of that payment must be taken into account later on as otherwise the claimant will get nothing for the work done in relation to the earlier settled aspect of the claim.


For example if there is a £100,000.00 claim, of which £80,000.00 is vehicle related damage and that element settles pre-issue and the £20,000.00 element settles later and costs paid on the basis of that £20,000.00, then the claimant’s solicitors would have recovered £80,000.00 and received no costs.


Thus it seems likely that one takes the later stage at which any part of the claim was settled but then uses the total settlement figure, whenever those elements have been settled.


However it appears that nothing settled in the portal comes into play.


On a high value claim this can have a significant effect.


Let us take the £100,000.00 claim, of which £80,000.00 is vehicle related damage. There is no doubt that such a claim goes into the portal and therefore goes into the Fixed Costs Regime.


If the £20,000.00 aspect is settled pre-issue and the £80,000.00 aspect settled post-allocation then the calculation is as follows:-


Pre-issue element £1,930.00 + 10% of £10,000.00 (damages over £10,000.00) £2,930.00
Post-allocation £1,880.00 plus 20% of damages (£80,000.00) £17,880.00
Total £20,810.00


Turn that around the other way:-


Pre-issue element £1,930.00 plus 10% of damages over £10,000.00 (£70,000.00) £8,930.00
Post-allocation £1,880.00 + 20% of damages (£20,000.00) £5,880.00
Total £14,810.00


If part of a claim is resolved within the portal then the portal costs are payable for that element and only the unresolved balance is subject to fixed costs and that was confirmed in the case of


Bewicke-Copley v Ibeh, Oxford County Court, 029YJ613, 4 June 2014


where most of the claim had been resolved in the portal leaving the balance, which was not resolved in the portal, as below the small claims limit.


The judge held that no costs were payable in relation to that balance as it was below the small claims limit and the solicitors had been paid in the portal for the resolved element.


All of this will be of greater significance once fixed costs cover everything up to £250,000.00.


The key point is that Fixed Costs are far from fixed.


Written by kerryunderwood

July 27, 2016 at 7:25 am

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In Versloot Dredging BV and another v HDI Gerling Industrie Versicherung AG and others [2016] UKSC 45   20 July 2016


the Supreme Court has held that where an insured lies in support of a claim but those lies do not affect the right of the insured’s recovery under the insurance policy, then the insurance company must pay out.


This decision has been widely misunderstood in relation to its application to the concept of fundamental dishonesty in personal injury claims, presumably by people who have not got as far as reading paragraphs 94 to 96 of the 55 page judgment.


Far from indicating a lax approach to fundamental dishonesty the case strongly suggests a very tough line indeed, that is that any dishonest exaggeration for financial gain, however small, amounts to fraud and therefore fundamental dishonesty, and therefore brings Section 57 of the Criminal Justice and Courts Act 2015 into play to overturn the whole award.


At paragraph 95 the Supreme Court points out, but does not seek to define, the “substantial injustice” exception.


Here the Supreme Court termed lies which made no difference “collateral lies” and held, by a 4 – 1 majority, that the fraudulent devices rule, which allows insurers to reject fraudulent claims, does not apply to such collateral lies.


Thus such a claim is not a fraudulent claim entitling the insurer to avoid it.


In relation to contracts of insurance concluded after 12 August 2016 the rule has been restated, and its other consequences defined, in Section 12 of the Insurance Act 2015. This ruling applies to that Act as that Act does not attempt to define what makes a claim fraudulent.

Contracts between insurers and their insured are contracts of utmost good faith. That principle does not apply to negligence actions against another party which is indemnified by insurance.


Here the insurers were seeking to avoid the claim, not the contract, and therefore the Supreme Court was not considering the issue of utmost good faith in its entirety.


It was accepted that even where a party is claiming against its own insurer the utmost good faith condition is modified in relation to the bringing of a claim, as compared with the entering into of the contract in the first place.


This case involved a cargo ship which ran into difficulty after its engine room was flooded. The owners deliberately lied in saying that the crew did not investigate an alarm call as the ship was rolling in heavy seas.


In fact the accident was caused during the voyage by sea water entering the engine room and was thus covered by the insurance policy, which remained valid, and so the lie was irrelevant.


The insured had made this false statement in the belief that it would fortify the claim and accelerate payment, as he was frustrated by the insurer’s delay.


The false statement was made once in one email to the insurer’s solicitors and was not persisted in at the trial.


The High Court sitting at first instance found as a fact that the lie was irrelevant to the merits of the claim but that the insurers were nevertheless entitled to repudiate the claim.


The Court of Appeal agreed but the Supreme Court overturned that finding, with Lord Clarke saying:-


“The critical point is that, in the case of a collateral lie… the  insured  is  trying  to  obtain  no  more  than  the  law  regards  as  his entitlement and the lie is irrelevant to the existence or amount of that entitlement. Such a lie is thus immaterial to the claim. As Lord Sumption puts it, the lie is dishonest but the claim is not.” (Paragraph 40).


Lord Sumption said that for a claim to be fraudulently exaggerated the insured’s dishonesty must be calculated to get him something to which he is not entitled.


The position is different where the insured is trying to obtain no more in law than his entitlement and the lie is irrelevant to that entitlement.


Here the lie was dishonest, but the claim was not. A policy of deterrence did not justify the application of the fraudulent claims rule in such a situation.

Note that if the lie had been a relevant one, for example a small exaggeration of the amount, then one email would have been enough to lose the whole claim. Personal injury lawyers take very careful note.


The obiter comments of Lord Mance in the Court of Appeal in


Agapitos v Agnew (The Aegeon) [2002] EWCA Civ 247;


that insurers could reject a claim because of collateral lies were rejected.


In fact even exaggerated claims against another person’s insurance company have traditionally been allowed by the courts in circumstances where they would have failed against the person’s own insurance company.


On the face of it that remains the law; any exaggerated claim against one’s own insurer would still be disallowed as a material lie is not a collateral lie, but a claim against someone else’s insurance company would be allowed to the extent of the true validity of the claim.


In other words you can “try it on” against someone else’s insurer and still win, but not your own insurer.


The Supreme Court recognized this, saying at paragraph 9:-


9. What matters for present purposes is the rationale of the rule, on which there is a broad consensus in the authorities. It is the deterrence of fraud. As Lord Hobhouse observed in

The “STAR SEA” [Manifest Shipping Co Ltd v Uni-Polari Insurance Company Ltd (The “STAR SEA”) [2003] 1 AC469] at paragraph 62,


“The logic is simple.  The fraudulent insured must not be allowed to think: if the fraud is successful, then I will gain; if it is unsuccessful, I will lose nothing.”


The Supreme Court also recognized that this rule did not apply where the contract was not one of insurance, for example a negligence action in personal injury.


“10. Fraudulent insurance claims are a serious problem, the cost of which ultimately falls on the general body of policyholders in the form of increased premiums. But it was submitted to us that a forfeiture rule was not the answer to that problem. There was, it was said, little empirical evidence that the common law rule was an effective deterrent to fraud, and no reason to think that the problem was peculiar to claims on insurers as opposed to, say, claims in tort for personal injuries, the cost of which also falls ultimately on insurers and policyholders without there being any equivalent common law rule. Informational asymmetry is not a peculiarity of insurance, and in modern conditions may not even be as true of insurance as it once was. These points have some force. But I doubt whether they are relevant. Courts are rarely in a position to assess empirically the wider behavioural consequences of legal rules. The formation of legal policy in this as in other areas depends mainly on the vindication of collective moral values and on judicial instincts about the motivation of rational beings, not on the scientific anthropology of fraud or underwriting. As applied to dishonestly exaggerated claims, the fraudulent claims rule is well established and, as I have said, will shortly become statutory.”


Curiously the law has always been that any duty of good faith in the presentation of a claim ended with the commencement of proceedings even as between an insured and its own insurer.


Returning to the difference between a fraudulently exaggerated claim and a justified claim supported by collateral lies the Supreme Court had this to say:-


“25. In this context, there is an obvious and important difference between a fraudulently exaggerated claim and a justified claim supported by collateral lies. Where a claim has been fraudulently exaggerated, the insured’s dishonesty is calculated to get him something to which he is not entitled. The reason why the insured cannot recover even the honest part of the claim is that the law declines to sever it from the invented part. The policy of deterring fraudulent claims goes to the honesty of the claim, and both are parts of a single claim: Galloway v Guardian Royal Exchange (UK) Ltd[1999] Lloyd’s Rep IR 209, 213-214 (CA); Direct Line Insurance v Khan[2002] 1 Lloyd’s Rep IR 364; AXA General Insurance Ltd v Gottlieb [2005] 1 All ER (Comm) 445 (CA), para 31. The principle is the same as that which applies in the law of illegality. The courts will not sever an agreement affected by illegality into its legal and illegal parts unless it accords with public policy to do so, even if each part is capable of standing on its own: Kuenigl v Donnersmarck [1955] 1 QB 515, 537 (McNair J); Royal Boskalis Westminster NV v Mountain [1999] QB 674, 693 (Stuart-Smith LJ), 704 (Pill LJ).


  1. The position is different where the insured is trying to obtain no more than the law regards as his entitlement and the lie is irrelevant to the existence or amount of that entitlement. In this case the lie is dishonest, but the claim is not. The immateriality of the lie to the claim makes it not just possible but appropriate to distinguish between them. I do not accept that a policy of deterrence justifies the application of the fraudulent claim rule in this situation. The law deprecates fraud in all circumstances, but the fraudulent claim rule is peculiar to contracts of insurance. It reflects, as I have pointed out, the law’s traditional concern with the informational asymmetry of the contractual relationship, and the consequent vulnerability of insurers. It is therefore right to ask in a case of collateral lies uttered in support of a valid claim, against what should the insurer be protected by the application of the fraudulent claims rule? It would, as it seems to me, serve only to protect him from the obligation to pay, or to pay earlier, an indemnity for which he has been liable in law ever since the loss was suffered. It is not an answer to this to say, as Christopher Clarke LJ did in the Court of Appeal, that the insurer may have been “put off relevant inquiries or … driven to irrelevant ones”. Wasted effort of this kind is no part of the mischief against which the fraudulent claims rule is directed, and even if it were the avoidance of the claim would be a wholly disproportionate response. The rule, moreover, applies irrespective of whether or not the lie set a hare running in the insurer’s claims department. Nor is it an answer to say, as the courts have often said of fraudulently inflated claims, that the insured should not be allowed a one-way bet: he makes an illegitimate gain if the lie persuades, and loses nothing if it does not. This observation, which is true of fraudulently inflated claims, cannot readily be transposed to a situation in which the claim is wholly justified. In that case, the insured gains nothing from the lie which he was not entitled to have anyway. Conversely, the underwriter loses nothing if he meets a liability that he had anyway.”


Although the Supreme Court recognized the difference between claims against one’s own insurance company and claims against another party who is insured it said that “the two species of fraud clearly exhibit shared features” and “an unacceptably high level of fictitious and dishonestly inflated claims thus formed part of the background against which the proper ambit of the fraudulent claims rule falls to be considered.” (Paragraph 56).


Thus the Supreme Court clearly had in mind application of its judgment to so-called third party claims,  that is a claim by one party against another party, rather than its own insured.


Fundamental dishonesty, Section 57 and Qualified One-Way Costs Shifting


The Supreme Court set out three possible scenarios:-


  1. The whole claim is fabricated.


  1. There is a genuine claim, the amount of which has been dishonestly exaggerated.


  1. The entire claim is justified, but the information given in support of it has been dishonestly embellished, either because the insured was unaware of the strength of the case or with a view to obtaining payment faster and with less hassle.


Scenario 1: The whole claim is fabricated


In scenario 1 the insurer will win on liability and no special rules need apply.


Section 57


Section 57 of the Criminal Justice and Courts Act 2015 will not apply as that only comes into effect if the claimant wins on liability.


Qualified One-Way Costs Shifting


The starting point is that a losing claimant pays costs.


In personal injury cases that rule is abrogated in certain circumstances by CPR 44.13 – 44.17 of the Civil Procedure Rules dealing with Qualified One-Way Costs Shifting whereby a winning personal injury claimant recovers costs, but a losing claimant does not pay them.


However QOCS does not apply to a fundamentally dishonest claim, which obviously a fabricated claim would be.


This disapplication of QOCS in a lost, fundamentally dishonest claim simply restores the normal, default position,  that is that the losing claimant pays.


As scenario one is the only instance in which the case is lost it is the only one to which QOCS applies.
Thus this decision makes no difference whatsoever to the application of Qualified One-Way Costs Shifting.



Scenario 2: There is a genuine claim, the amount of which has been dishonestly exaggerated


Qualified One-Way Costs Shifting


The claim is genuine, but exaggerated and so is won and therefore QOCS does not apply.


Section 57


This is a classic scenario for Section 57 to apply. The claim is won on liability but has been dishonestly exaggerated.


Thus the win is overturned in a personal injury case, as Section 57 only applies to personal injury claims.


Nothing in this decision softens that approach. On the contrary the Supreme Court reinforces the view that any dishonest exaggeration of the amount claimed, however small, allows the insurer to avoid the claim.


Although the law relating to insurer and insured does not apply directly to claims against someone else’s insurance company it is inconceivable that the court would apply a different principle in personal injury claims where Parliament has enacted that if the claimant has been fundamentally dishonest then the whole claim is lost.


The only issue in relation to fundamental dishonesty is how the courts will interpret Parliament’s use of the word “fundamental”.


Clearly the slightest exaggeration, even of a few pounds in a £1 million claim, is dishonest. It remains unclear as to whether in such circumstances a court could rule that such an exaggeration was dishonest, but nevertheless not fundamentally dishonest, or strictly, as the law requires, whether the claimant was fundamentally dishonest.


On the face of it even a collateral lie involves the claimant in being dishonest, but maybe the courts will hold that such an irrelevant lie does not satisfy the “fundamentally” dishonest test and that the significance or otherwise of the lie goes to its fundamental nature.


At the time of writing the Supreme Court’s decision in


Hayward v Zurich Insurance Company plc – UKSC 2015/0099


is awaited. The Supreme Court hearing took place on 16 June 2016.


However here the Supreme Court appears to be anticipating its decision in that case.


The Court of Appeal in


Hayward v Zurich Insurance Company plc [2015] EWCA Civ 327


held that any exaggeration for financial gain was fraudulent.


Here, in a different context, the Supreme Court held that any such exaggeration of the amount of a claim is indeed fraudulent.


It seems unlikely that “fundamentally dishonest” requires a higher threshold than “fraudulent”. Thus it is likely that the courts will take a hard line on any exaggeration of any kind, however small, if that exaggeration is for financial gain.

Section 57 is indeed likely to apply to an exaggeration of a very small part of the claim.




Scenario 3: Dishonesty which makes no difference to the claim.


Qualified One-Way Costs Shifting


QOCS does not apply as the case is won and QOCS only applies to cases that are lost or where there is a failure to beat a Part 36 offer.


Section 57


The Supreme Court has held that such exaggeration which makes no difference to the claim is not fraudulent, even though it is dishonest. The court said that the lie is dishonest but the claim is not.


Given that the test in Section 57 is whether the claimant is fundamentally dishonest, rather than the claim, it could be argued that Section 57 still applies in such a scenario and therefore the win would be overturned.


This part of the decision is the most important as far as Section 57 is concerned.


It leaves open the ability of the court to find that such dishonesty, which does not affect the amount of claim, is indeed dishonest but not fundamentally dishonest, thus leaving the claim intact, valid and won.


It is possible, but in my view unlikely, that even in such circumstances, where a non-personal injury claim would succeed even against one’s own insurers, the courts could hold that the claimant him or herself was being fundamentally dishonest even though the claim was not.


If that is the view that the courts take then the win is overturned.
Those who take the view that requiring the claimant to be fundamentally dishonest, rather than the claim, involves a higher threshold of dishonesty before the claim can be overturned, are, to adapt a phrase, fundamentally wrong.




Qualified One-Way Costs Shifting


There is no doubt that as far as QOCS is concerned the decision is of no relevance whatsoever.


Section 57


  1. An entirely fabricated claim is lost anyway and thus Section 57 does not apply.


  1. A claim exaggerated for financial gain is fraudulent and therefore is likely to be held to be made by the claimant being fundamentally dishonest and be disallowed in full under Section 57, however small the exaggerated amount is and however low a percentage it is of the genuine element of the claim.


  1. Exaggeration which does not affect the validity, nor the amount of the claim, while dishonest, is likely to be held not to mean that the claimant is fundamentally dishonest and therefore the claim will not be overturned under Section 57. However for the reasons set out above this is not certain.


Dishonest exaggerations that do not affect a claim.


Examples may include:-


  • The speed of the other vehicle;


  • an untrue statement that the other party had admitted liability;


  • an untrue statement that the other driver’s breath smelled of alcohol or that the other driver was aggressive, or whatever;


  • lying about who the driver was in the mistaken belief that the actual driver was not insured – see the Australian case of of


Tiep Thi Ho v  Australian Associated Insurance Ltd [2001] VSCA 48;


  • causing further damage to an already damaged door before photographing it and sending it to the insurers in a claim for theft consequent upon a forcible entry – see the Australian case of


GRE Insurance Ltd v Ormsby [1982] 29SASR 498 ;


  • a genuinely burgled householder unquestionably absent at the time lying about where he was to avoid domestic embarrassment (see paragraph 90 of the judgment);


  • fabricating an invoice for the genuine value of a stolen item where the original had been lost.


Anything other than a hard, bright line where there has been dishonesty seeking financial advantage would be almost impossible to apply.


Would a £5,000.00 exaggeration be okay on a £1 million claim but not a £10,000.00 claim?


Is there to be a permissible fraudulent percentage, that is it is okay to lie to the extent of say 10% of the value of the claim, but nothing more?


One analysis of Section 57 is that effectively it applies the insurer/own insured test to claims between parties where the claimant is not seeking recovery from its own insurer, but rather the other party, normally the other party’s insurance company.


It is hard to argue with the logic of the rule being the same in both cases.


It may be that the rule is too severe under Section 57, but if that is the case it is strongly arguable that it is also too severe between an insured and its own insurance company but that argument has been comprehensively rejected by the Supreme Court here, and indeed by all courts over a very long period of time.


Specific reference to Section 57


At paragraphs 94 and 95 of the judgment here the Supreme Court refers to Section 57 in the context of a scenario 2 cliam, that is one where the claim is genuine but there is dishonest exaggeration for financial gain.


At paragraph 94 the court said:-


“94. There  is  no  doubt  that  the  purpose  of  the  fraudulent  claims  rule  is  to discourage  fraud,  having  regard  to  the  particular  vulnerability  of  insurers. This rationale has frequently been reiterated. In Galloway v Guardian Royal Exchange (UK) Ltd [1990] Lloyd’s Rep IR 209, 214, it was expressed thus by Millett LJ at 214: “The making of dishonest insurance claims has become all too common. There seems to be a widespread belief that insurance companies are fair game, and that defrauding them is not morally reprehensible. The rule which we are asked to enforce today may appear to some to be harsh, but it is in my opinion a necessary and salutary rule which deserves to be better known by the public. I for my part would be most unwilling to dilute it in any way.” And in The Star Sea Lord Hobhouse said this at para 62: “The logic is simple.  The fraudulent insured must not be allowed to think: if the fraud is successful, then I will gain; if it is unsuccessful, I will lose nothing.” This latter formulation of the justification for the rule, which has often been repeated, gives rise to the commonly used shorthand that the fraudulent insured must not be allowed a “one-way bet”. It was the principal argument relied upon by the insurers in The Aegeon and in the present case for the inclusion of collateral lies within the rule.”


The Supreme Court then links this “own insurer” rule,  that is that any dishonesty of any kind which affects the value of the claim leads to the whole claim being forfeited, to Section 57:


“95. The need for such a rule, severe as it is, has in no sense diminished over the years. On the contrary, Parliament has only recently legislated to apply a version of it to the allied social problem of fraudulent third party personal injuries claims. Section 57 of the Criminal Justice and Courts Act 2015 provides that in a case where such a claim has been exaggerated by a “fundamentally dishonest” claimant, the court  is  to  dismiss  the  claim  altogether,  including  any  unexaggerated  part,  unless satisfied that substantial injustice would thereby be done to him. Parliament has thus gone further than this court was able to do in Summers v Fairclough Homes.”


Thus the Supreme Court seems to leave open as the only possible difference being the “substantial injustice” exception.


In paragraph 96, which follows that link the Supreme Court said:-


“96. Severe as the rule is, these considerations demonstrate that there is no occasion to depart from its very long-established status in relation to fraudulent claims, properly so called. It is plain that it applies as explained by Mance LJ in The Aegeon at paras 15 – 18. In particular, it must encompass the case of the claimant insured who at the outset of the claim acts honestly, but who maintains the claim after he knows that it is fraudulent in whole or in part. The insured who originally thought he had lost valuable jewellery in a theft, but afterwards finds it in a drawer yet maintains the now fraudulent assertion that it was stolen, is plainly within the rule. Likewise, the rule plainly encompasses fraud going to a potential defence to the claim. Nor can there be any room for the rule being in some way limited by consideration of how dishonest the fraud was, if it was material in the sense explained above; that would leave the rule hopelessly vague.” (My emphasis)


The Supreme Court’s assertion that any consideration of the extent of the dishonesty would leave the rule “hopelessly vague” must also apply to any attempt to interpret Section 57 in that way.


Contrary to what many assume, this decision undoubtedly envisages a clear, bright, and some would say hard, line in relation to the interpretation of fundamental dishonesty, or rather a fundamentally dishonest claimant, under Section 57.


You can order my Book on Qualified One-Way Costs Shifting, Section 57 and Set-Off by clicking here or from Amazon.


This book is updated on Kerry on QOCS: Book Update and Links  and the links provide the full judgment of all cases, statutes, statutory instruments etc.


To see a trailer of the book, including all the contents etc click here.




Section 57 of the Criminal Justice and Courts Act 2015 reads:-


“57         Personal injury claims: cases of fundamental dishonesty


(1)         This section applies where, in proceedings on a claim for damages in respect of personal injury (“the primary claim”)—


  • the court finds that the claimant is entitled to damages in respect of the claim, but


  • on an application by the defendant for the dismissal of the claim under this section, the court is satisfied on the balance of probabilities that the claimant has been fundamentally dishonest in relation to the primary claim or a related claim.


(2)          The court must dismiss the primary claim, unless it is satisfied that the claimant would suffer substantial injustice if the claim were dismissed.


(3)          The duty under subsection (2) includes the dismissal of any element of the primary claim in respect of which the claimant has not been dishonest.


(4)          The court’s order dismissing the claim must record the amount of damages that the court would have awarded to the claimant in respect of the primary claim but for the dismissal of the claim.


(5)          When assessing costs in the proceedings, a court which dismisses a claim under this section must deduct the amount recorded in accordance with subsection (4) from the amount which it would otherwise order the claimant to pay in respect of costs incurred by the defendant.


(6)          If a claim is dismissed under this section, subsection (7) applies to—


(a)          any subsequent criminal proceedings against the claimant in respect of the fundamental dishonesty mentioned in subsection (1)(b), and


  • any subsequent proceedings for contempt of court against the claimant in respect of that dishonesty.


(7)          If the court in those proceedings finds the claimant guilty of an offence or of contempt of court, it must have regard to the dismissal of the primary claim under this section when sentencing the claimant or otherwise disposing of the proceedings.


(8)          In this section—


“claim” includes a counter-claim and, accordingly, “claimant” includes a counter-claimant and “defendant” includes a defendant to a counter-claim;


“personal injury” includes any disease and any other impairment of a person’s physical or mental condition;


“related claim” means a claim for damages in respect of personal injury which is made—


  • in connection with the same incident or series of incidents in connection with which the primary claim is made, and


  • by a person other than the person who made the primary claim.


(9)          This section does not apply to proceedings started by the issue of a claim form before the day on which this section comes into force.”


Section 12 of the Insurance Act 2015 reads:-


“12. Remedies for fraudulent claims


  • If the insured makes a fraudulent claim under a contract of insurance –


  • the insurer is not liable to pay the claim,


  • the insurer  may  recover  from  the  insured any sums paid by the insurer to the insured in respect of the claim, and


  • in addition,  the  insurer  may  by  notice  to  the insured treat the contract as having been terminated with effect from the time of the fraudulent act.”


Please also see my related blogs:-








Written by kerryunderwood

July 26, 2016 at 7:30 am

Posted in Uncategorized


leave a comment »

Kerry Underwood

Before any claim is placed on any portal a senior lawyer should review it. Here are some reasons why. Non personal injury lawyers need to start getting to grips with portal and fixed costs concepts, which are not always straightforward.

A claim is placed on the portal and it subsequently becomes apparent that damages on a full liability basis exceed £25,000.00 but contributory negligence is almost bound to reduce it below that sum. Let us assume that it becomes apparent that the claim is £48,000.00 on a full liability basis but there is likely to be a finding of 50% contributory negligence.

By paragraph 1.2 (1) (a) of the RTA Portal, £25,000.00 is the “Protocol Upper Limit” if the accident occurred on or after 31 July 2013 and that is on a full liability basis, including pecuniary loss but excluding interest. Vehicle damage does not come within that limit but…

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Written by kerryunderwood

July 21, 2016 at 1:11 pm

Posted in Uncategorized


with 10 comments

Here are some ideas for cleaning up personal injury work and I have put them in the form of a draft Bill.


Any other ideas?


  1. It shall be an offence, punishable by up to two years imprisonment, for an insurance company to seek to settle a personal injury claim with its insured’s opponent direct, save as provided for by section 2.
  2. If a potential claimant enters a matter on the portal as a Litigant in Person then Section 1 shall not apply.
  3. It shall be an offence punishable by up to two years imprisonment for a solicitor to act for a client with Before-the-Event insurance where that solicitor knows, or should reasonably have known, that that client has been deprived of freedom of choice of solicitor by that BTE insurance company.
  4. It shall be an offence punishable by up to two years imprisonment for a BTE insurer to seek to persuade its insured to go to a solicitor of the BTE insurance company’s choice.
  5. It shall be an offence, punishable by up to two years imprisonment for a solicitor to place a matter on the portal without the written instructions so to do from the claimant.
  6. A representative who does not physically meet with a client shall not be able to recover costs.
  7. A solicitor paying a referral fee in a personal injury case shall be struck off the Roll and be subject to imprisonment for up to two years.
  8. Any person who knowingly presents false information in any Parliamentary consultation shall be guilty of an offence punishable by up to two years imprisonment.
  9. No person, company or body of any kind which deals with personal injury work shall make a donation to any political party, or associated body, which exceeds £5,000.00 a year and anyone who does so shall be guilty of an offence punishable by up to five years imprisonment.
  10. If a defendant in a personal injury claim alleges fundamental dishonesty or fraud and fails at trial to substantiate that allegation then the court shall increase general damages by 100% and shall award the claimant costs on the indemnity basis and shall increase those costs by 100%.


Please see my following blogs:-





Written by kerryunderwood

July 19, 2016 at 10:01 am

Posted in Uncategorized


with 14 comments

A young man suffered significant injuries in a motorcycle accident which was reported to everyone as required by law, including his own insurers. He made no request for representation and indeed instructed other solicitors who have sent the information to me.


DAS LAW wrote to him telling him that they will be dealing with the matter on his behalf and sent him a full questionnaire (not shown here as it has personal details on it).


Apart from being an unsolicited approach, there was no advice about alternative funding.


The questionnaire quoted the client’s full personal details and clearly someone has acted in breach of the Data Protection Act.


The letter appears below.


DAS Law Letter

Please see my related blogs: –












Written by kerryunderwood

July 18, 2016 at 10:35 am

Posted in Uncategorized


with 27 comments

TESCO Bank have written to the “carer/guardian” of a seriously injured vulnerable client, who they knew to be vulnerable because of the circumstances of the accident as demonstrated by the fact that the letter is addressed to the “carer/guardian”.

The client was an adult with pre-existing learning difficulties, cognitive impairment and chronic health problems.

TESCO are the insurers for the injured vulnerable person’s opponent, apparently through the medium of TESCO Underwriting Ltd.


Here is the letter.

(You will need to press download pictures to see letter)

Tesco Bank Letter

Please see my related blogs: –














Written by kerryunderwood

July 15, 2016 at 10:33 am

Posted in Uncategorized


with 14 comments

May a judge re-allocate a case to the small claims track after having given judgment?


That is precisely what happened in Newport County Court recently.


There were two claimants in a fixed costs personal injury case and they won at trial.


The trial judge accepted that each was entitled to fixed recoverable costs, that is in principle there would be two sets of preparation costs and two sets of advocacy fees, even though only one advocate appeared at trial.


I deal with this general issue in my blog – Advocacy Fees in Fixed Costs Cases.


However one of the claimants was awarded just £200.00.


The judge, apparently accepting that there would have to be two sets of fees if the matter remained in the fixed costs regime, reallocated the matter to the small claims track after having given judgment.


He then awarded fixed costs of £80.00 being the appropriate small claims track level of fixed costs.


No doubt the judge was unhappy with the prospect of the claimant getting over £3,000.00 in fixed recoverable costs on a claim where he had just awarded £200.00.


That raises the issue of whether a judge has the discretion in such a case not to order fixed costs, or to award some other sum.


It also raises the issue of whether a judge in a fixed recoverable costs case can, or indeed is bound, to apply the proportionality test set out in CPR 44.3(5).


Is a judge allowed to reallocate a claim to the small claims track at any time – even after judgment has been given? As with so many of the Jackson Reforms there are more questions than answers.


However in Conlon v Royal Sun Alliance and Insurance plc [2015] EWCA Civ 92


the Court of Appeal, while on the facts of the case declining to reallocate the claim, held that it did have the power to do so and a court has the power retrospectively to re-allocate the claim, which is what happened in the Newport County Court case referred to in this piece.


The Court of Appeal said this:-


“19.        I therefore accept that this court has the power to re-allocate this claim from the small claims track to the multi-track. It is also clear that, were we to make that order, any special rules applying to costs of claims proceeding in the small claims track would continue to apply to the claim up to the date of re-allocation, unless we were to order otherwise. It is, I think, implicit in rule 46.13 that the court has the power to order otherwise and so, effectively, backdate the re-allocation for costs purposes, though any court contemplating making such an order would need to be satisfied that there are good reasons for doing so.”


Please see my related blogs: –






Written by kerryunderwood

July 14, 2016 at 11:30 am

Posted in Uncategorized


with 3 comments

In Radford v Frade & Others [2016] EWHC 1600 (QB)


the solicitors were acting for a number of defendants including individuals and corporate clients and the individual defendants were successful in arguing that proceedings had not been properly served but the case continued in relation to the corporate clients and the solicitors, and counsel, continued to act for them.


Ultimately the claim was dismissed on the corporate defendants’ successful application for summary judgment.


The claimants were ordered to pay the defendants’ costs and a dispute arose as to whether the terms of the Conditional Fee Agreement entered into between the corporate defendants and the solicitor and counsel covered the work done.


Clearly all of the defendants had won and there was no dispute that the terms of the Conditional Fee Agreement covered the work done for the individual defendants who had successfully argued that they had not been properly served.


The dispute was as to whether work subsequently done for the corporate defendants after the hearing in relation to service was, or was not, covered by the Conditional Fee Agreement.


The court held that the CFA did not cover such work and therefore neither the solicitors nor counsel were entitled to be paid for work done after that date and there was no residual or ongoing retainer outside of the Conditional Fee Agreement.


Rectification would not affect liability to pay because, in accordance with previous decisions in relation to Conditional Fee Agreements, rectification would not be allowed after the order to pay costs was made.


This was a commercial case where the solicitors were acting for defendants but they had adapted the Law Society Model Conditional Fee Agreement for claimant personal injury work including under the heading:-


“What is not covered by this agreement?”


the bullet point: –


  • Any claim against you by your opponent or counterclaim by you to the claim as opposed to a claim for damages under the cross undertaking.


As the court here said: –


“The exclusion of “any claim against you by your opponent …” is “highly unusual wording where the clients were defendants to a claim”. That wording indicated that “No claim by the Claimants was contemplated by the CFA … All that was covered was the Defendants’ claim to have the proceedings against them dismissed.””


“11(7). The words “to have the proceedings against you dismissed” were not to be construed broadly, so as to encompass the proceedings to strike out or for summary judgment that were “not issued until many months after disposal of the procedural issues” and “could not be foreseen”. Such a construction would “fly in the face of the entire purpose for which CFAs were put in place”, namely to reward the solicitor for risks he undertakes. It would allow the solicitor to be “compensated by up to 100% of his base costs for risks that were not even in his contemplation at the time that the agreement was entered into.” The risk assessment, which supports this view, cannot be divorced from the question of the scope of the CFA; it forms part of the agreement.”


At paragraph 12 the court here then set out the reasoning of the Costs Judge, whose decision the court here upheld, at paragraph 40 of the Costs Judge’s decision:-


“I am satisfied that on a true construction of the scope of this CFA … its scope was meant to cover only procedural issues such as service and jurisdiction and if the Defendants won on either of those issues, the Defendants’ damages under the cross undertaking. The scope of the agreement has to be construed narrowly in that way. The consequence of my finding is that the Defendants had obtained a win as defined by the agreement by 23 May 2012. By that date the scope of the agreement had come to an end and accordingly the Defendants are unable to recover costs from the Claimants under the terms of the CFA from that date.”


Leading counsel for the defendants here unsuccessfully submitted that the Costs Judge’s use of the risk assessment to determine the contract between the defendants and their lawyers was misconceived.


He argued that the retainer was indeed limited in scope but it covered all interim applications to dismiss the claim without a trial but did not otherwise apply to the defence of the substantive proceedings and that that was the effect of the “what is not covered” section to the effect that the CFA did not apply to “any claim against you by your opponent…”


The court held that it was a fundamental principle of contractual interpretation that regard must be had to the entire contract and the risk assessment formed “part of the contractual documentation”.


In Jones v Wrexham Borough Council [2008] 1 WLR 1599 the Court of Appeal had applied that principle to the construction of a Conditional Fee Agreement saying: –


“I can see no reason why the court should not look at the whole package produced by the solicitor, the CFA agreement, the rule 15 letter explaining to the client the effect of the agreement, and indeed the insurance policy recommended by the solicitor…”


On this point the court concluded:-


“29. For the reasons given above I reject the contention that the Costs Judge was wrong in his construction of the CFA. In my judgment he applied the right principles, and arrived at the correct interpretation. In the end, one comes back to the meaning of the words used, in their context. The work for which the parties contracted under the CFA was limited to the pursuit of procedural points which had already been identified, on the basis of which the defendants were to seek to get rid of the claim and obtain damages under the cross-undertaking and possibly an anti-suit injunction. That work came to an end on the making of the consent order of 23 May 2012. It is common ground that the CFA did not extend to work on the defence of the claim, or the counterclaim. It did not, on its true construction, extend to work on the much later application to strike out or for summary judgment.”




This is far from the first time that commercial lawyers have fallen foul of the law relating to Conditional Fee Agreements and have lost out heavily in costs for want of spending a few hundred pounds or so on getting a specialist to check or draft the Conditional Fee Agreement. A ha’porth of tar indeed.


It also reinforces the point that generally the less said in a Conditional Fee Agreement the better. See for example my post: CFAS: NEVER NAME THE DEFENDANT! (1) & CFAS: NEVER NAME THE DEFENDANT! (2)


Here the court also rejected the idea that the original retainer continued to exist, or was revived by the end of the work covered by the Conditional Fee Agreement:-


“In my judgment, entry by the Defendants into the CFA brings the earlier retainer to an end. There is no evidence before the court to the effect that the Defendants were ever advised that were the CFA to be rendered unenforceable or to subsist in relation to only part of the proceedings, that the earlier retainer with their lawyers would continue as before. The reasonable expectations of the Defendants based on the evidence that I have considered leads me to the conclusion that the Defendants would not expect to have to pay their lawyers for work done in those circumstances.”


That is a quote from the Costs Judge.


It is a curious finding as it effectively states that corporate defendants assumed that their lawyers were continuing to work free of charge, win or lose.


How so?


How can a CFA revoke a prior retainer in respect of work to which the CFA did not apply?


Would a CFA revoke, for example, instructions to draft a Will for the same client, or sell a house? How can any agreement revoke something to which it does not apply?


Here the court held that what  had happened was that the defendants and the solicitors had intended that the work not covered by the original Conditional Fee Agreement would indeed by dealt with by a fresh Conditional Fee Agreement but that fresh agreement was never put in writing and therefore fell foul of Section 58(3)(a) of the Courts and Legal Services Act 1990.


Of course the reason that no fresh CFA was entered into was that the defendants and their solicitors assumed that the first one did indeed cover the work done in relation to the successful application to strike out the claims and obviously no one reduces to writing an agreement that they have not in fact made as they thought the existing agreement covered the work done.


Here it was the other party, relying on the indemnity principle, who picked apart the agreement and successfully persuaded both the costs judge and here the High Court judge to find that the lawyers were entitled to nothing for the work done after the service issues had been dealt with.


Talk about windfall! A ridiculous decision which is grossly unfair and should be overturned by the Court of Appeal and one seemingly at odds with the decision of the High Court in:-


Surrey v Barnet and Chase Farm Hospitals NHS Trust [2016] EWHC 1598 (QB) (1 July 2016) – see my blog CONDITIONAL FEE AGREEMENTS: SWITCHING FROM LEGAL AID IS REASONABLE


This is not a case where there was no written Conditional Fee Agreement. On the contrary there was a full written agreement with a very detailed risk assessment, and indeed it is that risk assessment which is the undoing of the defendant lawyers in this case.


It would have been perfectly open to the court, and very clearly what the court should have done, to find that there was a Conditional Fee Agreement in writing and that it was an implied term of that agreement that the work carried out in relation to the summary applications was covered.


It is not the law that every conceivable possibility in a Conditional Fee Agreement has to be put in writing. If it was then the agreements would be hundreds of pages long and would need to include clauses such as:-


  • You will see that you have a duty to cooperate with us and if you do not do so then we can terminate the agreement. Because we have to put absolutely everything in writing there follows 2,873 situations which we do not regard as a failure to cooperate on your behalf entitling us to terminate the retainer;


  • An earthquake prevents you from attending an appointment;


  • You suffer a heart attack on the way to the office;


  • [insert all other circumstances that you can think of]


All contracts reduced to writing in fact contain a welter of unwritten, implied terms. Indeed much of the law of employment contracts is based on an implied term of trust and confidence which is just that – implied. This is in spite of the fact that, as with Conditional Fee Agreements, contracts of employment must be in writing – see section 1 of the Employment Rights Act 1996.


There seems to be a circular argument:-


“You did not intend the CFA to cover post service argument work. You did not enter into a fresh written agreement because you thought the first one had covered the work.”


When will all of the judiciary realize that Conditional Fee Agreements promote access to justice, are a legal and proper form of funding as far as Parliament is concerned and are far more ethical and satisfactory and fair than the dodgy old hourly rate scam.


This decision is wrong.




The proverb “do not spoil the ship for a ha’p’orth of tar” has nothing at all to do with ships. Ship is an old dialectal pronunciation of sheep and thus the original literal sense was “do not allow sheep to die for the lack of a trifling amount of tar”, tar being used to protect sores and wounds on sheep from infection by flies.


Not a lot of people know that.

Written by kerryunderwood

July 11, 2016 at 2:06 pm

Posted in Uncategorized


with 2 comments

In Surrey v Barnet and Chase Farm Hospitals NHS Trust [2016] EWHC 1598 (QB) (1 July 2016)


the High Court allowed appeals against three decisions from different first instance courts, all of which had held that the success fee and ATE premium were not recoverable in circumstances where the claimant’s funding arrangements have been changed from legal aid to a Conditional Fee Agreement coupled with After-the-Event insurance shortly before those items became irrecoverable as a result of the Jackson Reforms which came into force on 1 April 2013.


The law is that if a Conditional Fee Agreement was entered into before that date then the success fee remains recoverable whenever the case ends and if an After-the-Event insurance premium was incepted before that date then that too remained recoverable whenever the case concludes.


However where there is such an arrangement, known as a pre-Jackson Funding Arrangement, then the client does not get the 10% increase on general damages under the principles set out in Simmons v Castle [2012] EWCA Civ 1039 & [2013] 1WLR 1239 and nor do they enjoy the protection of Qualified One-Way Costs Shifting.


Irrespective of when the actual cause of action arose a claimant who does not have a pre-Jackson Funding Arrangement does get the 10% Simmons v Castle uplift and does enjoy Qualified One-Way Costs Shifting, although Qualified One-Way Costs Shifting only applies in personal injury cases, but all of these cases were personal injury ones.


In each case here the Conditional Fee Agreement was what is generally known as “CFA Lite”, that is that the client’s liability to pay was limited to the amount of costs recoverable from the other party with the balance being absorbed by the solicitors. In other words, the client kept all of the damages.


It was accepted that in none of the cases had the claimant been advised that the change from Legal Aid to a Conditional Fee Agreement would result in the loss of the 10% Simmons v Castle uplift. The court said:-


“There has been no suggestion that this was anything other than an oversight and I have been told, and I accept entirely, that appropriate advice was given to the Litigation Friends as soon as the oversight was appreciated (and indeed before the issue was raised in the various costs proceedings) in case they should wish to pursue this matter further.”


Here Mr Justice Foskett, a full High Court Judge, sitting with the Senior Costs Judge Gordon-Saker said that there was no previous authority on this matter. He held that:-


  • “Each costs judge placed too much weight on the suggested analogy with the need for informed consent in the context of medical treatment. The issue was simply whether the additional liabilities were reasonably or unreasonably incurred. That question should be determined by applying the “Wraith test”: an objective test, applied in the particular circumstances of the claimant. Properly applied, that test enabled a costs judge to decide whether the failure to mention the 10% uplift would be likely to have made any difference to the decision to transfer from legal aid to a CFA, without the need for evidence from the claimant.


  • Although the 10% uplift should have been mentioned, the failure to do so was a matter between the claimant and his solicitors. It was no concern of the paying party. Detailed assessments should be kept as straightforward as possible. They should not involve wide-ranging inquiries into the decision-making processes between claimants and their solicitors.”


The court held that the fact that there would be a 10% increase in general damages was, in the context of these cases, a minor issue. The court pointed out that in, for example, the Surrey case the additional 10% general damages would amount to £19,000.00 and although that may be a significant sum in its own right it was part of an overall settlement of £7,165,255.00 and therefore represented just 0.026% of the total.


This had to be considered when looking at the question of whether a reasonable claimant or Litigation Friend in that situation would hold out for obtaining such a tiny percentage increase of the total sum rather than to have the uncertainty of the possible effects of the statutory charge, the possible effect of a Part 36 offer and possible delays that might be overcome by being answerable to an ATE insurer rather than the legal aid authorities.


In one of the other cases the Simmons v Castle increase amounted to just under 0.4% and in the third case around 5%.


The court held that when looked at in this way no reasonable claimant or Litigation Friend would hold out for such a marginal improvement on the overall settlement compared with the benefits of being on a CFA rather than being in receipt of Legal Aid.


The courts should not need to call witnesses at assessment hearings. Matters should be capable of being resolved, if at all possible, without the need for evidence.


Interestingly the court had this to say about solicitors making commercial decisions about funding to assist themselves:-


“…He [counsel for the paying party] accepted that the pre-1 April 2013 system was designed to reward solicitors in cases where the success fees were payable for those cases where costs were not recovered, but suggested, as I understood him, that the timing of the transfer to a CFA in each of these cases meant that this was not the motive. As to that, he may be right, but for my part I do not see why that could not have been the motive and, if it was, that there was anything wrong about it. If the solicitor was “playing the system” within the prevailing rules, I have difficulty in understanding why there was anything wrong about it such that complaint could be made at the costs assessment stage.”


The court also said:-


“99.        The principles and practice to be applied to this issue if it arises should, in my judgment, be informed by the need to ensure that detailed assessments of costs do not become an arena for a wide-ranging inquiry into the decision-making processes as between the claimant (usually, through his or her litigation friend) and his or her solicitors. Inevitably, any such inquiry would involve a number of logistical problems, one being the privilege accorded to communications between a litigant and the litigant’s legal adviser. There was a distinctly unhappy period in the early stages of CFAs during which defendants sought to challenge (and indeed in some cases did so successfully) the validity of the CFAs entered into by reference to the adequacy of the advice received prior to the entry by the claimant into the relevant CFA. It is worth recalling it briefly.


  1. The Conditional Fee Agreement Regulations 2000 imposed obligations on solicitors to inform clients of certain matters before entering into a CFA. A material breach of the regulations rendered the agreement unenforceable: see Hollins v Russell [2003] EWCA Civ 718. On detailed assessment paying parties would seek to establish that the solicitors for the receiving party had failed to comply with the regulations, that the CFA was thereby unenforceable and that the receiving party, not being liable to pay his own solicitor’s costs, could not recover them from the paying party. This was part of the “costs war” described by Sir Rupert Jackson in section 5(iv) of Chapter 3 of his Preliminary Report.


  1. The issue of whether the solicitors had complied with the regulations became the subject of witness statements produced for the detailed assessment hearing. Statements would be produced from the solicitor and also from the lay client. This could include the widows of deceased husbands and the parents of severely disabled children. Master Gordon-Saker has advised me that there were occasions he recalls when paying parties required such witnesses to attend to be cross-examined. An example from his own experience was Puksis v Brumby [2008] EWHC 90095 (Costs) in which the defendant required the mother and litigation friend of a claimant who had suffered severe head injuries in a road accident to attend court to be cross-examined about the inquiries that the claimant’s solicitor had made as to the existence of other means of funding the claim. In an intervention during the hearing of these appeals, Master Gordon-Saker characterised the period prior to the Conditional Fee Agreements (Revocation) Regulations 2005, which stopped this type of challenge for CFAs concluded after 1 November 2005, as “the bad old days”.


  1. Without sacrificing entirely the possibility of a proper challenge to a changed funding arrangement that is demonstrably improper or seriously prejudicial to a defendant for no good reason, any return to such days must be resisted strongly. Master Rowley said in Surrey (see paragraph 51 above) that the absence of any evidence from the Litigation Friend in relation to the 10% uplift “speaks volumes”. I do not, of course, possess anything like his experience in these matters and, accordingly, I differ from his view with considerable diffidence. However, I would be inclined to be less robust in my attitude to this particular omission. The claimant’s litigation friend was his mother (and thus the mother of a severely disabled child) who would doubtless have been relieved that the claim for her son had been resolved satisfactorily when the settlement was finally approved by the court. She will have walked away from that hearing thinking that she could forget the litigation and get on with the life that she and the rest of her family had to contemplate. The putting forward of any statement by her in relation to this issue may have led to a request that she should give evidence at the costs hearing. If that occurred it really would be a return to the “bad old days” and one wonders what truly useful evidence on the issue in question she could possibly have given.


  1. Detailed assessment hearings should, in my judgment, be kept as simple and straightforward as possible so that the Costs Judge can focus upon and deal with (robustly if necessary) the real issues concerning the costs sought that traditionally arise. It must, in my view, be a wholly exceptional case where, for example, the litigation friend of the kind I have identified should ever be required to attend to relive one decision made in the litigation that probably did not seem a particularly difficult or important one at the time…”


At paragraph 110 of the judgment the court gave guidance as to how such matters should be dealt with in future.


“The practice in future


  1. The procedural framework for the way in which what I have termed the “Simmons v Castle 10% issue” should be dealt with in future is summarised as follows:


  • In any case in which the claimant changed funding from Legal Aid to a CFA in the period from 26 July 2012 (the date of the first judgment in Simmons v Castle) to 1 April 2013, the claimant’s solicitors should state in the narrative to the bill whether or not before the CFA was entered into the claimant or his/her Litigation Friend was advised of the 10% uplift. The solicitor’s certificate that the bill is accurate will apply to that statement.


  • The court will go behind that certificate only if there is a genuine issue as to whether what is stated is accurate. In the event that there is a genuine issue, that should be raised in the points of dispute and the reasons for the issue explained clearly. If the court accepts that a genuine issue has been raised, the question of whether or not advice was given should be resolved at the detailed assessment hearing either by production of the claimant’s solicitor’s attendance note of the advice or by a short witness statement from the claimant’s solicitor. It should never be necessary to adduce evidence from the claimant or the litigation friend. Furthermore, it is difficult to anticipate any circumstances in which it would be helpful for the claimant’s solicitor to be required to attend for cross-examination.


  • If in a case where the advice was not given the defendant wishes to argue that the change from legal aid to a CFA was unreasonable, that argument must be raised in the points of dispute. In the event that the argument is pursued, the claimant’s solicitor should indicate the actual or presumed value of the 10% uplift in the replies together with any reasons relied on as to why the change was reasonable. To the extent that it may not be apparent from other material, the claimant’s solicitor should also indicate the capitalised value of the agreed award or of the award of the court following a contested hearing.


  • If the issue falls to be determined at a detailed assessment hearing, the Costs Judge should endeavour to reach a decision based on the arguments raised in the points of dispute and replies without any need for further evidence. Evidence as to what the claimant may or may not have done had the advice been given will not be helpful, given that the question for the court is whether the decision was reasonable in the way set out in this judgment. It would only be in the most exceptional case, where there is some suggestion of impropriety, that any oral evidence from any party should be considered. The Costs Judge should give careful directions concerning the reception of such evidence if it should be necessary.”



Written by kerryunderwood

July 11, 2016 at 9:34 am

Posted in Uncategorized


with 3 comments

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 10 June 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 extras.


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: Six 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 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 actually 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;”


Obviously 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 would 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:-












Written by kerryunderwood

July 7, 2016 at 2:38 pm

Posted in Uncategorized

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