Kerry Underwood

Archive for July 2018

PROPORTIONALITY AND NON-FINANCIAL MATTERS

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This blog first appeared on the Practical Law Dispute Resolution Blog on 30 July.

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In three recent cases the courts have considered how to apply the proportionality test in CPR 44.3(5) in cases where damages are not the main issue, or where no damages are in issue at all.

CPR 44.3(5) reads:

(5) Costs incurred are proportionate if they bear a reasonable relationship to –

 

(a) the sums in issue in the proceedings;

 

(b) the value of any non-monetary relief in issue in the proceedings;

 

(c) the complexity of the litigation;

 

(d) any additional work generated by the conduct of the paying party; and

 

(e) any wider factors involved in the proceedings, such as reputation or public importance.”

 

In Various Claimants v MGN Ltd [2018] EWHC 1244 (Ch) (24 May 2018)

the Chief Costs Master dealt with costs and costs management issues in the daily Mirror Hacking Litigation which is not subject to a Group Litigation Order under CPR 19.10 to 19.15, but its structure is similar, with Individual Costs and Common Costs.

Template Costs Budgets apply to Individual Costs and Common Costs, with the template to follow Precedent H in so far as possible.

Two of the claimants applied for an Individual Bespoke Budget.

The main points of interest in the judgment concern proportionality, with the Costs Judge saying that:

 

“…when the proportionality factors are put together, the financial value of the claims proves to be relatively unimportant because of the wider factors.”

 

The Costs Judge held that in such cases, reasonable costs will be proportionate.

 

“22. I do not find it easy to apply a principled approach to proportionality in relation to these budgets. I can infer, for what it is worth, from the parties’ agreement to having bespoke budgets that they consider larger amounts of costs than those in the template budgets will be reasonable and proportionate. It seems to me that the only principled way of applying the test in these cases is to have only very limited regard to the possibility that proportionality may produce a cap that will limit what would otherwise be a reasonable figure. This is what the parties have done in their submissions. To take any other approach in this bespoke litigation risks the court merely applying arbitrary limits because there is no financial reference point for proportionality.

  1. It seems to me that the wider factors I have summarised, in particular the public importance and test case factors, will have the effect that if the costs are reasonable they are proportionate. That conclusion chimes with the approach the parties have adopted and avoids the court wielding a concept of uncertain application.”

 

The key other factors here were the value of the non-monetary relief in issue in the proceedings and the wider factors in the proceedings, such as reputation or public importance – see CPR 44.3(5)(b) and CPR 44.3(5)(e).

Effectively the Costs Judge has restored the test in

 

Home Office v Lownds [2002] EWCA Civ 365 (21st March, 2002)

 

when considering proportionality in cases involving more than just money.

 

In Various Claimants v MGN Ltd [2018] EWHC B13 (Costs) 1 June 2018

the Chief Costs Master was again dealing with costs issues a writing out of the Daily Mirror Hacking Litigation.

The court here had to consider proportionality without first having carried out an item-by-item assessment as the parties had agreed reasonable costs and here the Master ruled that none of the agreed reasonable costs were disproportionate.

The Master recognised that the new proportionality test, since 2013, was intended to bring about a real change in the assessment of costs, as set out in the case of

 

BNM v MGN Ltd [2016] 3 Costs L.O 441

 

but this case was very different to that one and was not a typical case.

 

In this case the Master followed the approach adopted in

 

May v Wavell [2016] 3 Costs L.O 455,

 

but had particular regard to the wider factors set out in CPR 44.3(5), and in particular the value of the non-monetary relief sought in this matter.

Financial value is just one of five factors set out in CPR 44.3(5) and there will be cases where, by reason of the four factors other than the financial value of the claim, costs are proportionate even though they exceed the sums in issue.

CPR 44.3(5) does not identify any of the five factors as being more important than any of the others.

The claimants did not want just to win damages; they wanted to hold the defendants to account and the value of the non-monetary relief in issue was substantial, and at least as important as the financial sums in issue.

The Master said that a “lazy, but arguably foolproof” test of any particular issue, and its complexity and importance, was to consider the amount of time that the court was prepared to devote to it.

In Arjomandkhah v Nasrouallahi [2018] EWHC B11 (Costs) (6 July 2018) (Master Leonard)

the Senior Courts Costs Office upheld a detailed assessment of costs which had found that there was no basis for disallowing any costs as disproportionate.

The judgment provides guidance on the court’s approach to the new test of proportionality in a claim with limited financial value, but of importance to the parties.

Here, the claimant and defendant had been in a relationship, and after it ended the claimant obtained an interim judgment against the defendant preventing her from contacting him, or his wife or children or from showing images of him to anyone else.

The claimant alleged that the defendant had blackmailed him and tried to make the injunction permanent, but he lost and was ordered to pay the defendant’s costs on the standard basis and the reasonable costs were assessed at just under £20,000.

On appeal Master Leonard, in the SCCO, rejected the claimant’s submission that proportionality should be judged by reference to a notional financial claim valued at between £3,000 and £5,000, as the Particulars of Claim sought only a final injunction, rather than damages or costs.

The court held that this ignored the wider criteria in CPR 44.3(5)(e) and CPR 44.4(3)(c) which were much more significant in this case, given the potential effect of the claim on the defendant’s reputation.

The Costs Master also considered that it was relevant to look at the claimant’s budgeted costs of £60,000 and pointed out that that did not assist his argument that costs assessed at one-third of that figure were disproportionate.

The court also rejected the claimant’s argument that his own disproportionate approach to the litigation was a matter for him and had no bearing on the proportionality of the defendant’s costs, as in the Master’s view, it would not be right if the defendant was then left with a debt to her own solicitors that she could not afford, simply because the claimant could afford to conduct the litigation in a disproportionate way.

It should also be noted that the figure in a costs budget is the figure that the party will seek to recover from the other side, and it is a standard basis figure, and not an indemnity basis figure, which is the basis on which the client pays his own solicitors.

In relation to the difference between reasonableness and proportionality, the court said that CPR 44.3(5) provided that costs were proportionate if they bore a reasonable relationship to specified criteria and that was not the same as whether they were reasonably incurred or reasonable in amount.

Matters such as the defendant’s approach to evidence and settlement had already been considered when the defendant’s costs were assessed as reasonably incurred and reasonable in amount.

Whilst reasonable costs may be disallowed as disproportionate, costs could not be disallowed as disproportionate solely on the basis that they were unreasonable.

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Written by kerryunderwood

July 31, 2018 at 8:27 am

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NO REDUCTION IN BRIEF FEE ON LATE SETTLEMENT

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In Hugh Cartwright & Amin v Devoy-Williams and another [2018] EWHC 1692 (QB) (4 July 2018) (Davies J)

the High Court has ruled that a Master had wrongly reduced counsel’s brief fee, on a challenge to a detailed costs assessment, whereby the case settled the day before the trial was due to start.

The brief fee claimed was £6,500, which Master Rowley considered reasonable for preparation and trial, but he allowed only £3,000 as the mediation time claimed by the solicitor indicated that the case had settled in the afternoon of the day before trial, but counsel had not been notified until 10.30 pm.

He held that had the brief been cancelled in the afternoon, some preparation could have been avoided and counsel could have done something else the next day.

The High Court held that there were no good grounds to reduce the fee.

In the context of this “high temperature” litigation, with allegations of fraud, misrepresentation and deceit, a case was not settled until it was finally settled and mediation had not ended until 10.30 pm.

No counsel properly observing their duty would stop work on the case until final settlement had been confirmed.

All the preparation work had been done.

Whether counsel could find something else to do was irrelevant to the brief fee, which was payable on a brief properly delivered.

The decision highlights the default position regarding the receiving party’s entitlement to the costs of detailed assessment proceedings under CPR 47.20(1).

The paying party had made a Calderbank offer in respect of the receiving party’s costs, which incorporated various conditions relating to a second action between the parties.

Master Rowley had accepted that the receiving party was incapable of accepting the offer because its insurers had conduct of the second action, but determined that the receiving party could have accepted quantum and either varied the conditions, or sought a hearing to determine set-off.

The High Court disagreed, ruling that a valid Calderbank offer had to be acceptable on its stated terms and should not be one which contemplated further negotiation.

The Master had incorrectly placed the burden on the receiving party to negotiate on the conditions or make a counter-offer.

That reflected neither the wording of the rules nor the nature of Calderbank offers.

Written by kerryunderwood

July 30, 2018 at 8:29 am

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DISCLOSURE OF FUNDING ARRANGEMENTS

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In JSC BTA Bank v Ablyazov and another [2018] EWHC 1368 (Comm) (8 June 2018)

the Commercial Court ordered the second defendant, who was subject to a Worldwide Freezing Order, to provide full disclosure of how his legal expenses were being funded.

The court applied principles established in

JSC BTA Bank v Ablyazov [2011] EWHC 2664 (Comm)

and

JSC Mezhprom Bank v Pugachev [2017] EWHC 184i7 (Ch).

The second defendant claimed that his mother was funding the litigation.

The claimant bank did not believe that she had sufficient assets, and said there was reason to believe she was using funds belonging to the first defendant, who was also subject to Worldwide Freezing Orders.

The judge noted that it was for the claimant to show adequate grounds,as in Ablyazov and Pugachev.

She rejected the claimant’s submission that she could adopt findings in litigation against the first defendant to which the second defendant was not party, provided this “was not unfair”.

Nor did she consider that Eder J, in Okritie v Gersamia [2015] EWHC 821 (Comm), intended to say that findings of fact by an earlier court entitle a later court to arrive at the same conclusions without exercising its own judgment.

The claimant’s evidence showed a real risk of the Worldwide Freezing Orders being breached, which made it reasonable “to probe beyond” evidence in the second defendant’s mother’s witness statement.

Although the evidence did not raise a strong (as opposed to a good arguable) case of breach, the importance of maintaining the effectiveness of the court’s orders was a “potent factor” weighing heavily in favour of an order.

It was not oppressive for the second defendant to disclose information he knew or could reasonably find out.

The second defendant’s mother’s concerns about information being used against her in other proceedings could be addressed through a confidentiality club.

At the hearing, the claimant alternatively submitted that undisclosed assets of the second defendant might be funding the proceedings.

Initially, the judge saw some force in an objection based on the late addition of this point, but she found it impossible to ignore the fact that, since the hearing, the Court of Appeal had found a good arguable case that the second defendant had lied in disclosure regarding his personal assets.

It was not unfair to take account of these findings, which were binding on the second defendant, and it would be “wrong in principle” to ignore them.

Disclosure was necessary and appropriate to establish whether either of the scenarios applied.

 

 

 

 

 

Written by kerryunderwood

July 27, 2018 at 8:26 am

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INDEMNITY COSTS ORDERED ON LATE DISCONTINUANCE

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In PJSC Aeroflot – Russian Airlines v Leeds and another (Trustees of the estate of Berezovsky) and others [2018] EWHC 1735 (Ch) (6 July 2018) (Rose J).

the High Court ordered the claimant to pay the defendants’ costs on an indemnity basis, following its application to discontinue the claim shortly before trial.

The defendants applied for an order that the claimant pay their costs on an indemnity basis following its discontinuance of the claim, without explanation, shortly before trial.

The Court considered that where a claimant made serious allegations of fraud, conspiracy and dishonesty as here, and then abandoned those allegations, an order for indemnity costs was likely to be the just result, unless the claimant could explain why it had decided those allegations were bound to fail.

This was on the basis that such conduct deprived the defendant of any opportunity to vindicate its reputation.

 

It followed the approach in

 

Clutterbuck and another v HSBC plc and others [2015] EWHC 3233 (Ch),

 

In the alternative, the court considered that circumstances “out of the norm” justified indemnity costs and took into account factors including, inaccurate statements made by the claimants during interlocutory proceedings and the aggressive stance adopted by the claimants during the litigation.

In particular, the judge criticised correspondence from the claimant’s solicitors following the death of the second defendant as “losing sight of any basic standard of decent and compassionate behaviour.”

The judge’s comments on the effect of the defendants’ refusal to mediate are also worth noting.

She did not consider it appropriate to take this into account when assessing costs, because she stated that where allegations of fraud and serious wrongdoing were made, proceedings were intrinsically unsuitable for mediation.

In her view, this would be penalising the defendants for insisting on their right to have their reputations vindicated through the trial process.

Her experience in case managing this case meant that she was satisfied that there was no possibility of the parties making progress through alternative dispute resolution.

She did not consider that they would have been able to agree a mediator.

Given the general trend towards encouraging parties to mediate and the mechanisms which can be used to deal with deadlock over choosing a mediator, it may be risky to rely, in insolation, on an argument that the parties would have been unable to agree a mediator as good reason for refusing to mediate.

Written by kerryunderwood

July 26, 2018 at 9:24 am

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SOLICITOR LITIGANTS COSTS FOR WORKING FOR HIMSELF

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In Robinson v EMW Law LLP [2018] EWHC 1757 (Ch) (10 July 2018) (Roth J)

the High Court, on appeal from the Senior Courts Costs Office, held that a solicitor engaged as a consultant by a law firm instructed in relation to his own matter could recover legal costs for the time that he had personally spent working on the matter.

Thus the case applies the existing principles in relation to a solicitor-litigant’s ability to recover her or his legal costs for her own time to where a solicitor is engaged as a consultant for a law firm instructed by her or him.

The cases establishing the original principle of a solicitor being able to charge solicitor’s rates for work done as a litigant are contained in

 

London Scottish Benefit Society v Chorley and others (1884) 13 QBD 872;

Halborg v EMW Law LLP [2017] EWCA Civ 793 (23 June 2017)

Shackleton and Associates Ltd v Al Shamsi and others [2017] EWHC 304 (Comm)).

 

A separate issue, of wider application, arose as to the date from which the solicitor could recover from the other side ordinary costs that he was liable to pay his own solicitors.

The SCCO said that recovery only ran from the date of the written retainer between client and solicitor and refused to allow recovery in relation to pre-written retainer costs on the basis that the client, who happened to be a solicitor, could not positively demonstrate that he was liable for those costs, in accordance with the indemnity principle.

The High Court stated that that was the wrong way to approach the matter and the issue is whether it could be shown that the solicitors were instructed before the date of the written retainer, and here they clearly were as they were on the record for the client.

If that was the case, then unless it could be established that there was an agreement that the client would not be liable to pay the solicitors’ costs in any circumstances, the presumption was that a party instructing a firm to act for it would be responsible for paying the firm’s fees.

This is a decision of a full High Court Judge and is thus binding on all lower courts.

Written by kerryunderwood

July 24, 2018 at 10:22 am

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SECURITY FOR COSTS – DO NOT DELAY

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In Accident Exchange Ltd and another v McLean and others [2018] EWHC 1533 (Comm) (12 June 2018)

the Commercial Court has granted the solicitors’ application for security for costs, including firms of solicitors, whereby proceedings alleged conspiracy and deceit against defendants.

However, Teare J significantly reduced the amount ordered in respect of incurred costs due to the solicitors’ delay in making the application.

The decision highlights the importance of defendants taking proactive steps to monitor the claimant’s financial position to ensure that any anticipated improvement in that position which has caused the defendant to hold off from seeking security has, in fact, come to fruition.

The claimants’ case on delay originated from events in October 2016, when the claimants’ then solicitors had stated in correspondence that the claimant had completed, subject to shareholder approval, a refinancing which would strengthen the claimant’s financial position.

Consequently, the solicitors decided not to pursue security at that time.

However, the refinancing was not approved, and the solicitors did not make further enquiries until early 2018.

The claimant contended that there was culpable delay between around November 2016 and January 2018 because:

 

  • a prudent solicitor would have immediately asked for details of when shareholder approval was to be given.
  • the solicitor should have kept the matter under review, for example by inspecting the claimant’s accounts in March 2017, which would have revealed that approval had not been obtained.

 

Teare J observed that this was a major piece of litigation, involving very substantial costs (the solicitors’ total costs to the end of trial were estimated at £19 million).

Consequently, one would have expected the solicitors to pursue the matter and, had they done so, it was very likely that the lack of shareholder approval would have emerged.

Even if the claimant would still have suggested that the security application should await completion of refinancing negotiations, having regard to the date for trial, it would probably have been made earlier than it was.

On quantum, the judge noted that the solicitors sought security for 80% of their costs.

He referred to Stokors SA v IG Markets Ltd [2012] EWCA Civ 1706, in which the Court of Appeal supported the view that around 60% was appropriate.

Having regard to this and to the solicitors’ delay, he ordered “60 per cent of 60 per cent” of the incurred costs.

In relation to costs to be incurred, he ordered 60% of the costs claimed.

Written by kerryunderwood

July 23, 2018 at 8:45 am

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FIRST-TIER TRIBUNAL LACKED JURISDICTION TO DETERMINE POST-ISSUE LEGAL COSTS WHERE A CASE WAS TRANSFERRED FROM THE COUNTY COURT (UPPER TRIBUNAL (LANDS CHAMBER))

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In Avon Ground Rents Ltd v Child [2018] UKUT 204 (LC), 20 June 2018

The Upper Tribunal considered an appeal by a landlord against a costs determination made by the First-Tier Tribunal (Property Chamber), on the basis that the First-Tier Tribunal did not have jurisdiction to make such a determination.

The landlord had issued a claim in the County Court to recover unpaid service and administration charges from a tenant and the matter had been transferred to the First-Tier Tribunal by the County Court under section 176A of the Commonhold and Leasehold Reform Act 2002 (CLRA 2002).

The First-Tier Tribunal considered the reasonableness of the outstanding charges and then proceeded to determine the landlord’s post-issue legal costs, on the basis that these were also administration charges.

The Upper Tribunal (Lands Chamber) agreed that the First-Tier Tribunal had been acting outside its jurisdiction in determining the post-issue costs.

Although it was possible for a judge to act both as a First-Tier Tribunal Judge and a County Court Judge under the Residential Property Disputes Deployment Pilot, the statutory jurisdiction of each forum was unchanged.

The post-issue legal costs did not constitute administration charges, although it has since become possible for a lessee to make an application under paragraph 5A of Schedule 11 to the CLRA 2002 for determination of litigation costs that are yet to be incurred.

Under the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules (SI 2013/1169), the First-Tier Tribunal’s jurisdiction on costs is tightly prescribed.

The costs should therefore have been determined by the County Court under section 51 of the Senior Courts Act 1981.

Although it originated from a small claim, this case gave the Upper Tribunal the opportunity to provide welcome guidance on how the parallel jurisdictions of the First-tier Tribunal and the County Court should operate under the Pilot (see Guidance for future applications).

Although all matters in relation to a property dispute may now be determined by a single judge acting in two capacities, it will be very important for that judge to make it clear which role they are performing at which point in the proceedings and to notify the parties accordingly.

Written by kerryunderwood

July 20, 2018 at 9:42 am

Posted in Uncategorized

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