Archive for May 2018
DISCONTINUANCE: USUAL RULE DISAPPLIED DUE TO DEFENDANT’S CONDUCT
In Harrap v Brighton and Sussex University Hospitals NHS Trust [2018] EWHC 1063 (QB) (9 May 2018)
the Queen’s Bench Division of the High Court held that the Defendant’s failure properly to deal with witness evidence was unreasonable conduct justifying departure from the usual rule that a discontinuing Claimant is liable for the Defendant’s costs (CPR 38.6(1)).
This was a clinical negligence action where the Claimant discontinued after cross examination of one of the Defendant’s witnesses at trial elicited new evidence which was fatal to the Claimant’s case on causation.
The evidence given by the defence witness in cross examination had not been in his Witness Statement.
The judge found that the new evidence amounted to a change of circumstances and was due to the unreasonable conduct of the Defendant and constituted a good reason to depart from the general rule in relation to costs on discontinuance as set out by the Court of Appeal in
Brookes v HSBC Bank [2011] EWCA Civ 354.
The Defendant had unreasonably failed to set out the full story in witness evidence and no explanation had been provided and it must have been obvious that such evidence was highly relevant following the service of the Claimant’s expert’s report.
There had been a failure to take a proper Witness Statement from the expert.
The High Court held that the appropriate order was that the Claimant bear the costs up to the date of service of the expert report and that thereafter there be no order for costs.
CPR 38.6(1) provides that:
“Unless the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant, against whom the claimant discontinues, incurred on or before the date on which the notice of discontinuance was served on the defendant.”
The key authorities are:
Teasdale v HSBC Bank Plc [2010] EWHC 612,
as approved by the Court of Appeal in one of the Teasdale appeals in
Erica Brookes v HSBC Bank [2011] EWCA Civ 354,
where the Court of Appeal said:
“i) When a claimant discontinues the proceedings, there is a presumption by reason of CPR 38.6 that the defendant should recover his costs; the burden is on the claimant to show a good reason for departing from that position;
- ii) the fact that the claimant would or might well have succeeded at trial is not itself a sufficient reason for doing so;
iii) however if it is plain that the claim would have failed, that is an additional factor in favour of applying the presumption;
- iv) the mere fact that the claimant’s decision to discontinue may have been motivated by practical, pragmatic or financial reasons as opposed to a lack of confidence in the merits of the case will not suffice to displace the presumption;
- v) if the claimant is to succeed in displacing the presumption he will usually need to show a change of circumstances to which he himself has not contributed;
- vi) however, no change in circumstances is likely to suffice unless it has been brought about by some form of unreasonable conduct on the part of the defendant which in all the circumstances provides a good reason for departing from the rule.”
A discontinuing Claimant has a high hurdle to clear to displace the normal rule.
In Nelson’s Yard Management Co v Eziefula [2013] EWCA Civ 235,
the Court of Appeal stressed that higher threshold for avoiding the usual costs consequences of discontinuance and stated that once there was to be no trial, it was not the function of the court considering costs to decide whether or not the claim would have succeeded.
DATA, RIVAL BUSINESS AND GOOD FAITH
In Health & Care Management Ltd v The Physiotherapy Network Ltd [2018] EWHC 869 (QB)
the High Court considered the relationship between an express clause of good faith and a confidentiality clause which restricted disclosure only in the context of a referral agreement.
The referral agreement stated that Health & Care Management Ltd “anticipates making circa 700 referrals per month to TPN” and that it “shall act in good faith towards TPN at all times”.
The court found that Health & Care Management Ltd had breached the good faith clause in that it had set up a rival business and had obtained and used The Physiotherapy Network’s database, consisting of a list of clinics and its leading professionals, the number of referrals made, and the pricing structures.
It actively diverted referrals away from The Physiotherapy Network and misled that company about the rival business’ target market and failed to tell the truth about using The Physiotherapy Network’s database when confronted.
The judge stated that the act of covertly using the database to set up a rival business was probably sufficient of itself to be a breach of the good faith clause.
The Physiotherapy Network also argued that Health & Care Management Ltd’s use of the database to set up the rival business was itself a breach of the confidentiality clause, but the judge rejected that contention as the confidentiality clause only restricted the disclosure of confidential information, and did not restrict its use.
The Physiotherapy Network’s claim in passing off also failed but the court held that Physiotherapy Network’s database was protected under the Database Directive 1996/9/EC and that Health & Care Management Ltd had infringed the Directive by extracting a substantial part of the database on several occasions.
The court also held that the wording of the referral clause, specifically the use of “anticipates” and “circa” did not create a contractual obligation on Health & Care Management Ltd to make any particular number of referrals, or indeed any referrals at all.
COSTS: HE WHO WRITES THE CHEQUE PAYS THE COSTS
In Wall v Munday [2018] EWHC 879 (Ch)
the Chancery Division of the High Court allowed an appeal against the order of the Recorder in relation to the incidence of costs.
The substantive case concerned whether or not the estate was entitled to a share of the proceeds of a property that had been held by the deceased and his former wife as joint tenants.
The rival positions were:
- Mrs Munday claimed she was entitled to “scoop” the lot as the survivor of a joint tenancy;
- Mr Wall, on behalf of the estate, claimed that the estate was entitled to the whole sum;
- In the alternative Mrs Munday counterclaimed that the property belonged beneficially to the estate and her in equal shares absolutely.
The Recorder dismissed Mr Wall’s claim and allowed Mrs Munday’s counterclaim, the net effect being that the proceeds of the property were to be split equally between the estate and Mrs Munday.
None of those findings was challenged on appeal, and the appeal related only costs.
The Recorder had ordered Mr Wall, on behalf of the estate, to pay 80% of Mrs Munday’s costs.
Mr Wall argued that he had been the true winner in the litigation as the starting point had been that the estate got nothing and the result was that the estate got 50% of the proceeds of sale and so the net effect was that the estate gained 50% of the proceeds of sale and Mrs Munday lost 50% of the proceeds of sale.
The Chancery Division agreed and overturned the Recorder’s decision and ordered Mrs Munday to pay the costs of the action.
However the Chancery Division recognised that there should be a discount from a 100% order to reflect those aspects of the case where Mr Wall had failed.
Consequently the Chancery Division discounted the costs that Mrs Munday had to pay to Mr Wall by 40% and thus allowed the appeal on costs and substituted for the Recorder’s order an order that Mrs Munday pay 60% of Mr Wall’s costs.
Thus the Chancery Division followed the line of cases whereby the person who has to write the cheque in the litigation, in this case clearly Mrs Munday, has to pay the costs.
The court also referred to the decision of the Court of Appeal in
where the facts were very similar to this case and where the party who had lost part of the proceeds of sale was ordered to pay the costs.
DERIVATIVE CLAIMS AND CHARITIES
In Mohamed and others v Abdelmamoud and another [2018] EWCA Civ 879
the Court of Appeal held that directors of a charitable company were not “directly affected” by a judgment in default entered against the charity, and therefore they lacked the standing to apply under CPR 40.9 to have the judgment set aside.
CPR 40.9 provides:
“A person who is not a party but who is directly affected by a judgment or order may apply to have the judgment or order set aside or varied.”
The Court of Appeal also held that the individual directors could not seek permission to bring a derivative claim in their capacity as members of the charitable company, as such a claim would not be necessary given the powers of the Charity Commission and the Attorney General to act to protect the interests of charities.
Here the Court of Appeal gave guidance on circumstances in which a judgment can be set aside under CPR 40.9, and said that the power should only be exercised where the non-party applying to set aside the judgment would be able either to defend the claim itself, or on behalf of the defendant.
The court doubted that an application to set aside a judgment against a company could ever be justified on the basis that it was made by one or more of the company’s directors.
The judgment is also of interest for the views of the Court of Appeal on the application of the principle of derivative claims to charitable companies.
Useful guidance is given in paragraphs 35 and 36 of the judgment.
“35. Derivative claims are nowadays provided for in Part 11 of the Companies Act 2006. By section 261 of that Act, a member of a company who brings a derivative claim must apply to the Court for permission to continue it. If the material put before the Court does not disclose a prima facie case for permission to be given, the application will be dismissed at that stage (see section 261). The application can otherwise be expected to proceed to a hearing at which the Court will consider whether permission should be given having regard to the various matters identified in section 263.
- Part 11 of the Companies Act 2006 is in principle capable of applying to charitable companies as well as to companies with commercial objects. I find it quite difficult, though, to envisage circumstances in which the Court would give permission for a derivative claim on behalf of a charitable company. Not only are charities overseen by the Charity Commission, whose functions include “taking remedial or protective action in connection with misconduct or mismanagement in the administration of charities” (see section 15(1) of the Charities Act 2011), but the Attorney General acts as the protector of charity and has a duty “to intervene for the purpose of protecting charities and affording advice and assistance to the court” in the administration of charities (see Wallis v Solicitor General of New Zealand [1903] AC 173, at 181). If the Commission or Attorney General is persuaded that there has been misconduct, it can be addressed without a derivative claim being brought. If, on the other hand, neither the Commission nor the Attorney General sees the need to intervene, it may be hard to persuade a Court that a derivative claim should be sanctioned. I would add that, on the face of it, an application to continue a derivative claim would require the blessing of either the Commission or the Court under section 115 of the Charities Act 2011 and that the Attorney General would seem to be a necessary party to such an application.”
REASONS TO DEPART FROM BUDGET: A HIGH THRESHOLD
In Jallow v Ministry of Defence [2018] EWHC B7 (Costs)
Master Rowley, sitting in the Senior Courts Costs Office held that neither the reduction of the hourly rates for incurred costs, nor the fact that the matter settled for a significantly lower sum than claimed, and on which the budgets were based, were good reasons to depart from the claimant’s costs budget.
Here Mr Jallow brought a personal injury claim against the Ministry of Defence claiming £185,000, or in the alternative £312,000.
Shortly before the quantum hearing to assess damages, the claimant accepted the defendant’s Part 36 Offer of £90,000.
At detailed assessment Master Rowley reduced some of the hourly rates of Mr Jallow’s solicitors for incurred costs, but these reductions would only apply to the budgeted costs if the Master found that the reduction in those hourly rates was a good reason to depart from the budget.
The Master held that the parties would need to raise something specific to the case to succeed in an argument that the costs budget should be departed from and there was nothing specific to this particular case in the hourly rates challenge, and if the budget was departed from for that reason, then the same point would apply in other, many cases.
The Master considered that a similar test to “good reason” was whether a “genuine issue” existed as in
Hazlett v Sefton Metropolitan Borough Council [2001] 1 Costs LR 89
and rejected Mr Jallow’s argument that there needed to be a “significant development” in the litigation.
The Master also pointed out the recent authorities that warned against costs judges adopting too low a threshold in relation to the question of what is a good reason – see for example
Merrix v Heart of England NHS Foundation Trust [2017] EWHC 346 (QB)
The Master expressed concern that the lack of court scrutiny at the detailed assessment stage of the hourly rates or budgeted costs may encourage parties to incur costs up to the budget set for each phase, in the knowledge that these figures were unlikely to be successfully challenged on detailed assessment.
However, it acknowledged that the aim of costs management was to make detailed assessments shorter, and that that was a price that might have to be paid.
The Master also rejected the Ministry of Defence’s argument that the fact that the case settled for a much lower sum than the sum claimed was a good reason to depart from the budget.
The claimant had put forward alternative cases as to quantum, and that showed that he was alive to the issues surrounding the potential level of damages.
This case was one where a wide range of damages might be achieved, and it was reasonable for Mr Jallow to have believed that his case was worth the sum claimed.
This finding followed the case law on the old proportionality test, and in particular the decision of the Court of Appeal in
Lownds v Home Office [2002] EWCA Civ 365
where the Court of Appeal was alive to the issue of the sums claimed being higher than the sums achieved and said that the test was what it was reasonable for the claimant to consider that he could recover in the proceedings.
The Court of Appeal said:
“The rationale for this approach is that a claimant should be allowed to incur the cost necessary to pursue a reasonable claim but not allowed to recover costs increased or incurred by putting forward an exaggerated claim and a defendant should not be prejudiced if he assumes the claim which was made was one which was reasonable and incurs costs in contesting the claim on this assumption.”
Here the Master said that the essence of the point is whether it was reasonable for the claimant to believe that his case was worth the sum that he claimed.
It is only if the claimant could not reasonably have had that belief, because his claim was exaggerated in some way, that the budget might be considered to have been set on a false premise and as such should be departed from on assessment, and that was not the case here.
VOID INSURANCE DOES NOT PREVENT SERVICE ON INSURER WHEN DRIVER UNIDENTIFIED
In Farah v Abdullahi & Ors [2018] EWHC 738 (QB)
Master Davison allowed service on an insurer of an unidentified driver in circumstances where the insurer had already obtained a declaration that the insurance policy was void.
This follows the decision in
Cameron v Hussain [2017] EWCA Civ 366
where the Court of Appeal held that the claimant, a victim in a road traffic accident, could add as a defendant a person who could only be described as “the person unknown driving vehicle registration number Y598 SPS who collided with vehicle registration number KG03 ZIZ on 26th May 2013”.
There, as here, the circumstances were that the claimant could not identify the driver, but could identify both the car and an insurer who had provided insurance cover for the vehicle at the time of the accident.
An important part of that case was the fact that a section 151 insurer, that is an insurer who, in spite of the fact that the use of their vehicle was outside the scope of the contract of insurance, was statutorily liable to meet the claim.
The case of
Bloomsbury Publishing Group Ltd. & Anor v News Group Newspapers Ltd. & Ors [2003] EWHC 1205 (Ch)
had established that there was no procedural bar to issuing proceedings and obtaining orders against persons unknown.
Here the Master said that the principal question was whether he should permit the claim to proceed even though the insurer had already obtained a declaration that it was entitled to avoid the policy from the beginning on the grounds of material non-disclosure.
Consequently, on the face of it, there was no section 151 insurer.
In those circumstances the Master had to consider whether the claim against the unnamed third defendant should be allowed to proceed.
The Master said:
“It seems to me that it would be both efficacious and consistent with the overriding objective to allow the claim to go forward in that way. The entitlement of a claimant to proceed against an unnamed driver should not depend on the section 151 liability of the insurer being incontrovertibly established.”
The Master also rejected an argument that permission of the court was required in order to issue against an unnamed party.
As well as being a sensible and a just decision, the judgment also gives helpful guidance about section 151 liabilities and also that the section 152(2) exception is incompatible with the Sixth Motor Insurance Directive 2009/103/EC:
“8. Section 151 of the Road Traffic Act 1988 provides that insurers must meet judgments in respect of insured third party liabilities even if the insurer is not liable to its insured as a matter of contract. A typical situation would be where the person driving was a partner or friend who was not actually a named driver on the policy. The insurer would have to meet a claim under section 151 in respect of liabilities incurred by such a driver. Indeed, section 151 would even extend to driving by a thief. But there are various “get-outs” for insurers. The relevant one for present purposes is contained in section 152(2). By that sub-section, (paraphrasing it), if a policy has been obtained by misrepresentation or failure to disclose material facts, then, if the insurer obtains a declaration that it is entitled to avoid the policy on these grounds, “no sum is payable … under section 151”. There are time limits to be observed if an insurer wishes to take advantage of section 152(2). The insurer must commence the action for a declaration “before or within three months after the commencement of” the proceedings leading to the judgment in favour of the victim of the road accident.
- There is an issue as to whether section 152(2) is compatible with the Sixth Motor Insurance Directive 2009/103/EC. The Directive (which is a consolidating measure) imposes on Member States an obligation to ensure that civil liability in respect of the use of vehicles based in each Member State’s territory is covered by insurance. Only where a vehicle is unidentified or uninsured is the victim of a road accident to be thrown back on to a body of last resort; (in the UK this body is the Motor Insurers’ Bureau). Thus, in Fidelidade-Companhia de Seguros SA v Caisse Suisse de Compensation & Ors Case C-287/16 [2017] RTR 26, the European Court of Justice held that national laws that permitted motor insurers to deny a third party claim on the ground that the policyholder’s misrepresentation rendered it void were contrary to EU law. Fidelidade led to a concession by the government in Roadpeace v Secretary of State for Transport & Anor [2017] EWHC 2725 (Admin) that section 152(2) was no longer compatible with EU law.”
Note that the Supreme Court has given the insurer in the Cameron case permission to appeal to the Supreme Court.
INDEMNITY COSTS
There have been three recent Court of Appeal decisions involving indemnity costs.
Guidance
In Whaleys (Bradford) Ltd v Bennett& Anor [2017] EWCA Civ 2143 (15 December 2017)
the Court of Appeal gave guidance in relation to the correct test when considering indemnity costs.
This was not in the context of Part 36.
Here the Defendants had been avoiding enforcement action in relation to a judgment debt and the judge awarded costs to the Claimants for three scheduled oral examination hearings, but only on the standard basis.
The Court of Appeal held that the conduct of the Defendants warranted indemnity costs.
Despite having the means to pay, they deliberately sought to avoid payment and were arrogant and disobedient towards court orders and evaded service of the order for oral examination.
They failed to comply with orders for rearranged hearings and were uncooperative.
All of this put the Claimants to unnecessary and considerable trouble and expense.
The judge had used the word “exceptional” instead of the phrase “out of the norm” when considering the application and the Court of Appeal said that “exceptional” suggests a stricter test and is best avoided and judges should use the test of whether conduct is “out of the norm” as previously established by the Court of Appeal in
This had been further explained by the Court of Appeal in
Esure Services Ltd v Quarcoo [2009] EWCA Civ 595
where the Court of Appeal said that a court can take account of conduct, whether it occurred frequently or was rare, and the word “norm” was not intended to reflect whether what occurred was something that happened often, so that it could be described as “normal”, but rather “something outside the ordinary and reasonable conduct of proceedings”.
Thus even ordinary conduct could be unreasonable and therefore render the party guilty of such conduct liable to an indemnity costs order against it.
Here the judge’s failure to award indemnity costs on the basis that debtors often avoid paying debts, and that he had seen more sophisticated attempts to avoid judgments, was an error of law justifying the Court of Appeal overturning the decision.
This was a fixed costs case under CPR 45.8 which lays down fixed costs for enforcement.
Here the Trial Judge had allowed standard costs rather than fixed costs, and as we have seen the Court of Appeal substituted an order for indemnity costs.
The principles are the same in relation to fixed costs cases generally under CPR 45, including low value personal injury cases.
Indemnity Costs Ordered Against Home Secretary
In Secretary of State for the Home Department v Barry [2018] EWCA Civ 790
the Court of Appeal was hearing a second-tier appeal by the Home Secretary against a decision of the Upper Tribunal (Immigration and Asylum Chamber).
The Home Secretary claimed that there had been a systemic failure by the Tribunals properly to apply the law, but that allegation was abandoned at the appeal, which failed, and the Court of Appeal then considered the issue of costs.
The Court of Appeal referred to the conduct of the Home Secretary as “troubling” (paragraph 31).
Here the Secretary of State had made what the Court of Appeal described as “an unusual allegation and a serious one” and said that that was clearly the basis on which the Single Judge of the Court of Appeal granted permission to appeal.
Having obtained that permission the Home Secretary failed either to make the sufficient good with evidence or to pursue the argument, but rather abandoned it “without even explaining why”.
The Court of Appeal found the Home Secretary’s conduct “unreasonable to a high degree”.
Consequently the Court of Appeal ordered the Home Secretary to pay costs on the indemnity basis, due to her unreasonable conduct.
Lawyers ordered to pay Indemnity Costs of Assessment
In GSD Law Ltd v Wardman & Ors [2017] EWCA Civ 2144
the Court of Appeal upheld a District Judge’s order in detailed assessment proceedings under CPR 44.11 whereby the judge had disallowed all costs claimed by the Claimant because of misconduct by their lawyers and ordered those lawyers, GSD Law Limited, to pay all of the costs of the assessment on the indemnity basis.
The court exercised its power under CPR 44.11 and rejected the solicitors’ argument that that was a summery jurisdiction akin to the wasted costs jurisdiction and therefore not suitable where there were detailed allegations of dishonest conduct.
GSD’s admitted conduct included forging a Conditional Fee Agreement. Other conduct including claiming for work which was not done and deliberately falsifying the status of the fee earner who had carried out work and claiming at a higher hourly rate than in the solicitor and own client retainer.
The Court of Appeal held that the guidance in relation to wasted costs matters was not relevant in relation to CPR 44.11.
For applications under CPR 44.11, the court should bear in mind the overriding objective and, particularly, proportionality.
It was possible to deal with applications under CPR 44.11 in the course of a pending assessment and conduct alleged as justifying the disallowance of costs may also be relevant as to how costs of the detailed assessment proceedings should be assessed.
In contrast a wasted costs application was a free standing one usually made when the litigation was over.
It was easier to determine unreasonable or improper conduct in relation to assessment proceedings than in relation to substantive proceedings.
Furthermore, unlike wasted costs applications, no issues of privilege could arise and there was no need for any investigation into the merits of the substantive claim.
There was a strong public interest in ensuring that solicitors did not dishonestly certify costs figures.
Given the seriousness of the allegations and the money at stake, it was not disproportionate to have held a three day hearing.
It was also important that the profession and parties generally maintained faith in the integrity of the costs negotiation system, as otherwise all matters would end up at detailed assessment.
PORTALS, PART 8 AND PART 7
In Lyle v Allianz Insurance plc Case No A00CH865, Chester County Court 21 December 2017
the Circuit Judge , on appeal , considered whether the court has a power to direct that proceedings that were issued pursuant to CPR 8, to protect the claimant’s position on limitation, but were stayed to allow compliance with the RTA Protocol, pursuant to Paragraph 16.2 of Practice Direction 8B, could be directed to continue as Part 7 proceedings.
There is no reported authority on this point.
The defendant submitted that where the claimant wished to proceed for a sum above the portal limit, then it had to start fresh proceedings under Part 7.
The Circuit Judge, as had the District Judge, rejected that submission and held that the court had power to direct that such a matter could continue as Part 7 proceedings.
Nevertheless, on the particular facts of this case, the District Judge had been correct to refuse to lift the stay, effectively meaning that the claim was struck out.
There had been years of delay by the claimant in seeking to exit the portal, due to value, even though it now valued the claim at over £200,000.00, as compared with the upper portal limit at the time of £10,000.00.
Even now, six years on the schedule of loss was described as “provisional.”
The defendants had been prejudiced in that they had been unable to object to the choice of medical experts, as the portals, being streamlined procedures, do not allow for that.
The Circuit Judge also said that the White Book was plain wrong on this point.
Quelle Surprise.
CONDITIONAL FEE AGREEMENTS: LEVEL OF RECOVERABLE SUCCESS FEE
In Hampshire Hospitals, NHS Foundation Trust v Tucker [2017] EWHC 3650 (QB)
the Queen’s Bench Division of the High Court allowed an appeal against a judge’s assessment of a recoverable success fee on the ground that the judge’s failure to take into account relevant documents was a procedural irregularity.
The issue here was whether the success fee should have been 100% as allowed by the judge, or 70% as contended by the paying party.
Even given this fairly narrow area of disagreement, the High Court declined to substitute its own decision, in spite of being invited to do so.
“The assessment of a reasonable success fee is one for an experienced costs judge, with years of experience of assessing the risks of litigation and of conditional fee agreements, to make. It is not one for a very new visitor to this highly specialised arena.”
Comment:
Ridiculous. So we now have full High Court judges unprepared to assess the risks of litigation. What happens if this comes back on appeal? Parliament has decided that High Court judges should have an appellate function. End of.
COSTS CAPPING ORDER IN CROWDFUNDED JUDICIAL REVIEW
In Stephen Hawking and Others v Secretary of State for Health and Social Care and National Health Service Commissioning Board
the High Court granted a costs capping order in judicial review proceedings financed by crowdfunding.
The court held that costs certainty in respect of claimants bringing a claim in the public interest was a key factor, even though the individuals were of relatively significant means and had crowdfunded to meet their own lawyers’ costs as well as any Adverse Costs Order.
The court recognised that where a judicial review application is crowdfunded, the public is funding both sides: the government by tax payers and the claimants by crowdfunding.
The court also noted that crowdfunding is inherently uncertain and the certainty provided by a costs capping order was necessary to enable individuals to take a public interest case forward.
The order was not for the full amount of the money raised, thereby enabling the claimants’ lawyers own costs to be met.
At an oral hearing on 22 February 2018 the High Court overturned a paper ruling rejecting the application and held that this judicial review, funded by thousands of backers on CrowdJustice, met the statutory test set out in Section 88(6) of the Criminal Justice and Courts Act 2015 which provides that the court may make a costs capping order only if it is satisfied that –
“(a) the proceedings are public interest proceedings,
(b) in the absence of the order, the applicant for judicial review would withdraw the application for judicial review or cease to participate in the proceedings, and
(c) it would be reasonable for the applicant for judicial review to do so.”
The court took into account the fact that the defendants’ costs were very high and without a costs cap there could be no certainty for the claimants as to their potential exposure and they could not be criticised as being unreasonable in not proceeding with open ended potential liabilities.
The claimants needed certainty to inform them of fundraising targets and to allow them to make an informed decision on whether to proceed.
The claimants were willing to meet a substantial degree of the defendants’ costs by raising money through crowdfunding.
The case of
anticipated a variety of circumstances in which costs capping orders could be made, and not just where there was a single claimant of very modest means.
The court made a costs capping order of £80,000.00 in respect of each of the defendants’ costs, £160,000.00 in total, and a reciprocal cap of £115,000.00 in respect of the claimants’ costs.
The claimants had raised nearly £265,000.00 after three rounds of crowdfunding and private donations and so the decision allowed for funds to meet the costs of the claimants’ own lawyers.
ATE: RECOVERABLE PREMIUM REDUCED BY 90%
In Nicolaou v Cass Liverpool County Court, 1 November 2017, Case number BO4L V651
the District Judge disallowed recovery of a large part of an After the Event insurance premium as there was insufficient evidence to support the claim.
This was a clinical negligence matter that settled for £250,000.00.
The defendant paying party challenged the reasonableness of the After the Event insurance premium of £53,145.00, including a stage two premium of £48,195.00, and sought to rely on less expensive comparator policies while the claimant sought to justify the choice of policy, whilst seeking to resist giving details of how the premium was calculated.
The claimant’s solicitors erroneously stated that it was a block-rated policy with a fixed second stage premium and erroneously stated that the second stage premium was £48,195.00, when in fact it was £27,170.00.
The policy was an ARAG one and the defendant stated that in a number of similar cases ARAG had sought to put before the court different and inconsistent statements as to how the second stage premium was calculated.
The paying party also submitted that there was a breach of the indemnity principle in that the failure to provide proper documentation to the claimant meant that she was not liable to pay at the stage 2 premium and therefore the paying party did not have to indemnify her for a non-existent contractual liability.
The court held that even in the absence of the correct documentation being supplied to the claimant, she was liable to pay the premium and therefore the indemnity principle argument failed.
The court also held that the mere provision of comparator policies without more detail of an expert underwriting nature on the unreasonableness of the index policy, either as to terms or cost, was insufficient to justify a finding of unreasonableness in taking out that particular policy.
However, for reasons set out in paragraph 41 of the judgment, the court disallowed the whole of the stage 2 premium and allowed recoverability of just £4,950.00, holding that without needing to consider reasonableness or proportionality, the stage 2 claim failed for lack of quantifiability.
“41. However, after careful consideration of the evidence before me and the submissions made at the hearing, I have concluded that the Claimant has not proved to my satisfaction and on the balance of probabilities any quantifiable level of that premium, for these reasons:-
(i) the initial stage 2 premium claimed had every appearance of being genuinely and correctly calculated by ARAG and, but for my agreement to adjourn for further evidence, might well have been held as part of the assessed costs payable to the Claimant in these proceedings;
(ii) it is only as a result of happy chance that, consequent upon my decision on the last occasion, Mr Dyer came to reconsider the figure and reached his conclusion as to the “typographical error”, with the consequential considerable reduction in the figure claimed;
(iii) in those circumstances, in my view the court is entitled, in this matter at least, to entertain doubts as to the reliability of prima facie assertions of evidence and to expect a comprehensive approach to proving what might otherwise have been relatively straightforward matters of fact;
(iv) as such, in that the evidence of Mr Dyer does little more than point out the error and apparently correct it, without supplying the court with any cogent, persuasive and thus apparently reliable basis upon which to accept not only the existence of the initial error but also the accuracy of the consequential correction, such that the Claimant is forced to resort to matters of theory alone as exemplified upon Issue 1 [12], I remain unpersuaded in support of a claim for a significant individual lump sum in excess of £27,000, set against this particular background of error and confusion, that the figure sought in substitution for that documented at [26] can be safely accepted as accurate on balance.”
CPR 44.2 TRUMPS FIXED COSTS
In Chapman v Tameside Hospitals NHS Foundation Trust, Bolton County Court 15 June 2016
the court was considering the issue of costs in; a fixed costs, ex portal employers liability claim discontinued shortly before trial but where the court found the successful defendant’s conduct of the litigation to be “entirely unacceptable and egregious.”
The court found that this was “exactly the type of conduct which Part 44.2 is designed to address.”
CPR 44.2.1 gives the court a very wide discretion as to costs and 44.2.4(a) specifically states that in deciding what order, if any, to make about costs, the court will have regard to all of the circumstances including the conduct of the parties.
Here, the court held that it could apply CPR 44.2 in a fixed costs case and that the indemnity principle did not apply to such cases.
see Nizami v Butt [2006] EWHC 159 (QB)
“18. Mr Bacon, for the Claimant submitted:
- i) Master O’Hare’s analysis was correct. CPR 45 Section II provides for a self-contained scheme for the recovery of costs in litigation involving road traffic accidents giving rise to relatively small claims. The costs are recoverable whether or not they have actually been incurred. The Indemnity Principle has no place in a scheme where the costs are fixed. The Defendant’s arguments subvert this principle.
- ii) CPR 45 Section II applies to a closely confined category of cases. As CPR 45.7 makes clear, it is limited to costs-only proceedings under the procedure set out in CPR 44.12A.
Costs-only Proceedings
44.12A
(1) This rule sets out a procedure which may be followed where –
(a) the parties to a dispute have reached an agreement on all issues (including which party is to bear the costs) which is made or confirmed in writing; but
(b) they have failed to agree the amount of such costs; and
(c) no proceedings have been started.
If the Defendant’s argument that the indemnity principle applies to this category of cases is correct, there is no reason why it could not challenge the amount of costs.
iii) As to Mr Mallalieu’s point iii), the success fee which is recoverable under Part 43.11 is in relation to a funding agreement as defined in CPR 43.2 (1)(k)(i), and not as defined in CPR 43.2 (3) and (4), which require ‘an agreement which satisfies all the conditions applicable to it by virtue of s.58 of the Courts and Legal Services Act 1990.’ CPR 43.11 is not concerned with compliance with conditions, simply with a funding arrangement, which is defined as a conditional fee agreement which provides for a success fee within the meaning of s.58(2) of the Courts and Legal Services Act 1990. Section.58(2) provides:
For the purposes of this section and section 58A –
(a) a conditional fee agreement is an agreement with a person providing advocacy or litigation services which provides for his fees and expenses, or any part of them, to be payable only in specified circumstances; and
(b) a conditional fee agreement provides for a success fee if it provides for the amount of any fees to which it applies to be increased, in specified circumstances, above the amount which would be payable if it were not payable only in specified circumstances.
- iv) In any event this appeal is premature since the Claimants have not yet prepared a bill of costs, let alone been in a position to provide a certificate. As Master O’Hare recorded:
The Claimants’ solicitor volunteers to give a certificate as to compliance with the Conditional Fee Agreement regulations in this case.
Conclusion
- I am advised by the Assessors that until the Court of Appeal decision in Hollins v. Russell [2003] EWCA Civ 718 numerous technical challenges were made to the validity of conditional fee agreements. As Mr Mallalieu put it in the course of argument, ‘the history of litigation in this field indicates that disproportionate points were taken.’ The challenges sought to show that conditional fee agreements did not comply with primary and secondary litigation; and were therefore unenforceable between solicitor and client. On this basis the paying party was able to rely on the Indemnity Principle so as to argue that it could avoid liability for the receiving party’s costs. It is clear that such challenges had a significantly detrimental effect on the efficient conduct of personal injury litigation and were inconsistent with the overriding objective of enabling the court to deal with cases justly. As Judge LJ noted in Bailey v. IBC Vehicles Ltd [1998] 3 All ER 570 at 575a:
The defendants’ request that the plaintiff be required to provide information proving that the indemnity principle has been observed represents pointless satellite litigation.”
INSTALMENT ORDER DOES NOT STOP BANKRUPCTY PETITION
In Loson v Stack and another [2018] EWCA Civ 803 (17 April 2018)
the Court of Appeal considered the interplay between an order that a debtor pay a judgment creditor’s costs by instalment and bankruptcy proceedings against that debtor, and also the circumstances in which an instalment order should be made.
Here the Court of Appeal upheld a High Court decision to set aside an instalment order as the debtor had not provided evidence of a realistic payment schedule and so the creditor could enforce the debt in any way it wanted.
The creditor had enforced the costs order by way of a statutory demand and a bankruptcy petition, and the debtor subsequently obtained an instalment order as the County Court took the view that that would not stop the creditor from continuing with the bankruptcy proceedings.
The creditor applied to set aside the instalment order on the ground that it rendered the bankruptcy petition debt no longer due and immediately payable, and the High Court set aside the instalment order and the debtor appealed.
The Court of Appeal held that the debtor did not have the ability to pay the costs order and failed to provide any evidence of his ability to repay the debt and therefore the High Court had been right to set aside the instalment order.
The Court of Appeal commented that although the court has jurisdiction to make a bankruptcy order based on the position at the date that the bankruptcy petition was presented, it must, in the exercise of its discretion, consider the change of circumstances created by an instalment order.
The Court of Appeal considered, by analogy with Rule 10.24 of the Insolvency (England and Wales) Rules 2016, that there was significant doubt that a bankruptcy order could be made where the petition debt was no longer due and payable, and where any arrears were below the bankruptcy level of £5,000.
The decision is Court of Appeal authority for the proposition that a bankruptcy petition, based on a debt which is due and payable at the time that the petition was presented, may continue to be prosecuted by a creditor even where an instalment order is subsequently made, but it is unlikely that a bankruptcy order will be made if the petition debt is less than the bankruptcy level at the time of the hearing, even if the debt was originally above the bankruptcy level of £5,000.
It also demonstrates that, when applying for an instalment order under CPR 40.11 or CPR 40.9A, a debtor must provide evidence that he can pay the principal and interest within a reasonable time.
If that is not the case, then the court should not interfere with the creditor’s right to enforce the judgment by whatever means available.
INSOLVENCY PROCEEDINGS: NEW PRACTICE DIRECTION: 25 APRIL 2018
The new Practice Direction on Insolvency Proceedings was published on 25 April 2018 and came into force immediately.
It replaces all previous Practice Directions, Practice Statements and Practice Notes relating to Insolvency Proceedings, but it does not affect other Practice Directions in the Civil Procedure Rules, the Practice Direction for Insolvency Express Trials, and neither does it affect the Practice Direction for Directors Disqualification Proceedings.
As with previous Insolvency Proceedings Practice Directions, the new one contains procedural requirements for various aspects of proceedings under the Insolvency Act 1986 and the Insolvency (England and Wales) Rules 2016 and the various European Union Regulation.
Insolvency Proceedings are defined as any proceedings under
- Parts 1 to 11 of the Act;
- The Insolvency Rules;
- The Administration of Insolvent Estates of Deceased Persons Order 1986;
- The Insolvent Partnerships Order 1994;
- The Limited Liability Partnerships Regulations 2001;
- Any proceedings under the EU Regulations on Insolvency Proceedings or the Cross-Border Insolvency Regulations 2006; and
- in an insolvency context an application made pursuant to Section 423 of the Act.
The relevant European Union Regulations on Insolvency Proceedings are:
- Council Regulation (EC) 1346/2000 on 29 May 2000 on Insolvency Proceedings;
- Regulation (EU) 2015/848 of The European Parliament and of the Council of 20 May 2015 on Insolvency Proceedings (known as the “Recast” EU Insolvency Regulation);
- Service Regulation meansCouncil Regulation (EC) 1393/2007 – or any successor – concerning the service in the Member States of judicial and extrajudicial documents in civil and commercial matters.
Provisions are made as to who should hear matters and the jurisdiction of various level of the judiciary, including an “ICC Judge” which stands for an Insolvency and Companies Court Judge, (previously a Registrar in Bankruptcy) under Section 89(1) of the Senior Courts Act 1981.
There are new provisions in relation to the Service of Bankruptcy Petitions and new provisions on unfair prejudice petitions under the Companies Act 2006.
There are also new references to the Electronic Working Pilot Scheme.
Kerry Underwood 