Archive for May 2020
CLAIMANT’S JUDICIAL REVIEW COSTS INCLUDE COSTS OF INTERVENING IN UNCONNECTED PROCEEDINGS
Kerry Underwood offers consultancy services in relation to this and other matters and details are here.
In
Hunt v Director of Public Prosecutions [2020] EWHC 1292 (Admin)
the High Court held that a claimant could recover her costs of intervening in entirely unconnected proceedings in the Court of Appeal, Criminal Division, as part of her costs in the judicial review proceedings.
Section 51(1) of the Senior Courts Act 1981 provides so far as relevant:
“(1) Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in… the High Court… shall be in the discretion of the court.”
The claimant’s judicial review claim concerned the defendant Director of Public Prosecutions’ decision not to prosecute an individual for voyeurism.
On the same day that the claimant’s skeleton argument had to be filed, the Crown Prosecution Service applied to adjourn the judicial review proceedings because the unconnected Court of Appeal proceedings raised the same point of law; the claimant had been unaware of the Court of Appeal proceedings.
The claimant was granted permission to intervene in the Court of Appeal proceedings and made written and oral submissions through counsel, and the Court of Appeal’s judgment meant that the defendant could no longer defend the judicial review claim.
It agreed to quash the decision not to prosecute and to make a fresh decision, resulting in the claimant withdrawing her claim.
The High Court held that the claimant’s judicial review costs should include her costs of intervening in the Court of Appeal proceedings, and that the latter were “of or incidental to” the judicial review proceedings pursuant to section 51(1) of the Senior Courts Act 1981.
The Court of Appeal’s judgment would bind the High Court and would determine the claimant’s judicial review claim, and so it was “understandable and appropriate” that she made submissions in the Court of Appeal.
The granting of permission for the claimant to intervene in the Court of Appeal proceedings was exceptionally rare and was a measure of how directly relevant and important her intervention was to her judicial review claim, and her submissions appeared “focused and valuable” in the judgment.
The High Court was critical that the Crown Prosecution Service made “diametrically opposed” arguments in each set of proceedings and added that it was regrettable that the claimant had not been informed of the Court of Appeal proceedings, which raised an identical point of law, much earlier.
“56. The intervention was “attributable to the defendant’s conduct” because there was a most unusual and unsatisfactory contradiction between the stance taken by the defendant in resisting the judicial review on the one hand and resisting the criminal appeal on the other. The Crown was, in effect, arguing opposite cases on the same point of law in parallel proceedings. More generally, the intervention was attributable to the defendant’s conduct because the reason underlying the necessity for the claimant to intervene and argue the same legal point arose from the decision not to prosecute XY, which was the conduct challenged in the judicial review.”
Here, the court considered in detail the decision in
Roach & Ors v Home Office [2009] EWHC 312 (QB).
The court here had this to say about that judgment:
“57….The case involved two separate costs appeals in civil proceedings for negligence arising from deaths by suicide in prison. The issue in each case was whether the costs of the subsequent personal injury claim could include the costs of counsel and solicitors attending and taking part in the inquest into the prisoner’s death Were those costs recoverable as costs “of or incidental to” the subsequent civil proceedings? Like Gibson, the case therefore related to costs incurred before the personal injury claim was commenced. But that was not the issue in the appeals. The value of the case is that the costs in dispute were the costs of taking part in other court proceedings.
58. Davis J held that there was no rule that the costs of one set of proceedings were never recoverable as costs “of or incidental to” another set of proceedings, within the meaning of s.51(1) of the Act. The costs of attendance at an inquest were therefore capable of being recoverable as costs “incidental to” subsequent civil proceedings. In other words, there was jurisdiction to award such costs.
59. Davis J also held that although the purpose of a party’s attendance at an inquest will be a relevant consideration when determining whether, or the extent to which, the costs of such attendance were “of or incidental to” subsequent proceedings, it could not be decisive. It was essential also to have regard to the relevance of such attendance to the subsequent proceedings and to the reasonableness and proportionality of the costs so incurred.
60. At the conclusion of his judgment, Davis J declined to lay down guidelines for the assistance of costs judges and those who practise in this field. He said, at [62]:
“Each case should properly be decided by reference to its own circumstances. I am fortified in this view by the suggestion, as to which I express no opinion, that what is decided in these cases (which relate solely to inquests preceding a subsequent resolution of civil proceedings) may also be relevant in other contexts: for example, attendance prior to civil proceedings at a criminal trial involving death by dangerous driving or a criminal trial involving health and safety issues. Better, I think, to leave it to costs judges to decide each case on its own facts by reference to section 51 and the subordinate statutory rules and having regard to the principles indicated in In re Gibson’s Settlement Trusts [1981] Ch 179.””
In finding for the claimant here the court said:
“65. Because that point of law was likely to be determinative of the judicial review, and because she should not have been disadvantaged by the fact that the criminal appeal was to be argued before the judicial review, it was necessary, reasonable and proportionate that she should intervene and participate actively in the criminal appeal, through counsel, to argue that which she sought to argue in the judicial review and (in effect) seek to persuade the Court of Appeal to declare the law to be in her favour. Had she not intervened she would have been deprived of the opportunity to argue her case in the forum which was to decide the very point of law on which her judicial review claim would stand or fall.”
COSTS BUDGETING: UNDERSPEND IS NOT A GOOD REASON TO DEPART
The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.
Kerry Underwood offers consultancy services in relation to this and other matters and details are here.
In
Utting v City College Norwich [2020] EWHC B20 (Costs)
a Master of the Senior Courts Costs Office held that an underspend on one or more of the phases of a budget did not amount to a good reason to depart from a budget pursuant to CPR 3.18.
The relevant part of CPR 3.18 provides:
In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –
(a) have regard to the receiving party’s last approved or agreed budgeted costs for each phase of the proceedings;
(b) not depart from such approved or agreed budgeted costs unless satisfied that there is good reason to do so;……
The Master held that there was a clear and obvious distinction between an underspend and substantial non-completion of a phase, for example the Trial and Trial Preparation phases where a matter settled.
The court thus disagreed with the decision of the County Court in
Salmon v Bart Health NHS Trust [2019] unreported,
and followed the decision of the District Judge in
Chapman v Norfolk and Norwich University Hospital NHS Foundation Trust, March 2020
who relied on the Court of Appeal decision in
Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] EWCA Civ 792.
It should be noted that the indemnity principle still applies in full, so if the budget for a particular phase is £10,000, but only £7,000 worth of work has been done, then the party gets only £7,000, and not £10,000.
This is confirmed at Paragraph 18 of the judgment here:
“As the learned District Judge suggested, the observation that the indemnity principle applies to cost budgeting does not say much beyond affirming that the amount that the receiving party receives in respect of a budgeted phase is limited to the amount the receiving party has incurred: the client has to be liable for the sums sought and there is no “automatic entitlement” to the budgeted sum”.
Given that, one might wonder what all the fuss is about as an underspend saves the paying party money, so why would that paying party want to depart from the budget?
The answer is that departing from the budget triggers a detailed assessment where everything is open to attack.
As the court here said, it that were the case:
“…solicitors who had acted efficiently and kept costs within budget would find their costs subject to detailed assessment, whereas less efficient solicitors who exceeded the budget would, absent any other “good reason”, receive the budgeted sum and avoid detailed assessment.” (Paragraph 19).
Comment
A correct decision.
Having said that, is it not high time to get rid of all this nonsense and introduce fixed recoverable costs for everything?
TWO MORE RECIPES FROM ANDY WAKEFORD AT WEST HERTS COLLEGE
Set out below are two new recipes from my close friend Andy Wakeford who is Head of School for Food Academy, Hospitality & Restaurant Services at West Herts College.
Also see my previous blogs –
FOUR RECIPES FROM ANDY WAKEFORD AT WEST HERTS COLLEGE
THREE NEW RECIPES FROM ANDY WAKEFORD
MORE NEW RECIPES FROM ANDY WAKEFORD
THREE MAYDAY RECIPES FROM ANDY WAKEFORD
FOUR MAYDAY RECIPES FROM ANDY WAKEFORD AT WEST HERTS COLLEGE
MORE RECIPES FROM ANDY WAKEFORD AT WEST HERTS COLLEGE
FIXED COSTS AND COUNSEL’S FEES: SUPREME COURT REFUSES LEAVE TO APPEAL
The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.
Kerry Underwood offers consultancy services in relation to this and other matters and details are here.
The Supreme Court has refused permission to the claimant to appeal against the decision of the Court of Appeal which held that counsel’s fees are not recoverable in infant approval cases in the fixed costs system.
The Supreme Court said that “the application does not raise a point of law of general public importance which ought to be considered at this time”.
However, the Supreme Court did suggest that it was appropriate for the Civil Procedure Rule Committee to reconsider the rule preventing the recoverability of counsel’s fees in such cases.
In
Aldred v Cham [2019] EWCA Civ 1780
the Court of Appeal held that counsel’s fees, necessary for an approval hearing, fell within the fixed recoverable costs scheme and could not be separately recovered as a disbursement “reasonably incurred due to a particular feature of the dispute”.
At paragraph 3 of the judgment, the Court of Appeal set out the issue:
“3. The issue that arises in the present case concerns the recoverability of the cost of counsel’s advice as to the quantum of the proposed settlement of the RTA claim, in a case where the claimant is a child. The question for this court is whether that is a claim for a disbursement which should be allowed (in addition to the fixed recoverable costs) because, in the words of the relevant rule, it was “reasonably incurred due to a particular feature of the dispute”. That simple question is then said to raise other issues, some arising out of the use of similar wording in other parts of the fixed recoverable costs regime”.
The Court of Appeal, correctly in my view as the Civil Procedure Rules stand, held that the particular characteristics of a claimant did not amount to a “particular feature of the dispute”.
The relevant rule is CPR 45.12 which reads:
“45.12
(1) The court –
(a) may allow a claim for a disbursement of a type mentioned in paragraph (2); but
(b) will not allow a claim for any other type of disbursement.
(2) The disbursements referred to in paragraph (1) are –
(a) the cost of obtaining –
(i) medical records;
(ii) a medical report;
(iii) a police report;
(iv) an engineer’s report; or
(v) a search of the records of the Driver Vehicle Licensing Authority;
(b) where they are necessarily incurred by reason of one or more of the claimants being a child or protected party as defined in Part 21 –
(i) fees payable for instructing counsel; or
(ii) court fees payable on an application to the court; or
(c) any other disbursement that has arisen due to a particular feature of the dispute.”
The Court of Appeal then said:
“21. In this way, r.44.12(2)(b) provides a particular route for the recovery of counsel’s fees, over and above the fixed recoverable costs, “where they are necessarily incurred by reason of one or more of the claimants being a child or protected party”. There is then what has been called a catch-all[2] at r.45.12(2)(c), in respect of “any other disbursement that has arisen due to a particular feature of the dispute.”
Where the claimant is a child, Table 6 of the fixed recoverable costs scheme, applicable when the claim remains within the portal process, expressly provides that the cost of the advice on the amount of damages is included within Type C fixed recoverable costs in the sum of £150. (Paragraph 24).
Disbursements are governed by CPR 45.19 which does not contain a provision in the list of allowable disbursements for the cost of instructing counsel to advise on settlement where the claimant is a child.
Here the Court of Appeal said:
“That is probably because, as we have seen, the cost of that advice is already included in the fixed costs at Table 6”. (Paragraph 25).
CPR 45.19(2)(e) nevertheless retains the “any other disbursement that has risen due to a particular feature of the dispute” provision.
CPR 45.29 governs ex-portal claims and CPR 45.29I(2)(h) contains a slightly differently worded exception:
“..any other disbursement reasonably incurred due to a particular feature of the dispute”.
The District Judge and, on appeal, the Circuit Judge, both allowed counsel’s fee for the advice on settlement under CPR 45.29I(2)(h).
The Court of Appeal set out in full the relevant provisions of the Civil Procedure Rules but said the issues could be narrowed down to:
- Was counsel’s advice “due to a particular feature of the dispute”?
- If so, was the cost of the disbursement reasonably incurred so that the court should allow recovery of it in addition to the fixed recoverable costs?
The Court of Appeal said that there was no reported decision on the point but considered two first instance decisions relating to the cost of translators where the issue was whether the fact that a claimant was not an English speaker meant that the fee was as result of “a particular feature of the dispute”.
The two judges at first instance had reached different conclusions.
In
Olesiej v Maple Industries, Liverpool County Court, 4 January 2012
the judge refused to allow recovery, holding that the disbursement arose from a characteristic of the claimant and not out of a particular feature of the dispute.
In
Madej v Maciszyn [2013] Lexis Citation 143
the Senior Courts Costs Office allowed recovery, stating that a claimant’s personal characteristics can amount to a particular feature of the dispute.
The Court of Appeal here held that counsel’s fee was not recoverable:
“35. Having considered these careful judgments, I prefer the approach of HHJ Wood QC. The fact that, in a particular case, a claimant is a child, or someone who cannot speak English, or who requires an intermediary, is nothing whatever to do with the dispute itself. Age, linguistic ability and mental wellbeing are all characteristics of the claimant regardless of the dispute. They are not generated by or linked in any way to the dispute itself and cannot therefore be said to be a particular feature of that dispute.
36. The particular features of the dispute in an RTA claim will commonly be matters such as: how the accident happened, whether the defendant was to blame for the accident, the nature, scope and extent of the injuries and their consequences, and other matters of that kind. For example, the particular circumstances of the accident may be sufficiently unusual to require an accident reconstruction expert, or the injuries may be so complex that they require a number of different experts’ reports. Such additional involvement of experts may also require specific advice from counsel. Depending always on the facts, such costs may be said to be a disbursement properly incurred as a result of a particular feature of the dispute.
37. In contrast, the cost of counsel’s advice in the present case was not necessitated by any particular feature of the dispute, and was instead required because it is an almost mandatory requirement in all RTA cases where the claimant is a child. It was therefore caused by a characteristic of the claimant himself and does not fall within the exception.
38. I reach that conclusion based on the plain words of r.45.29I(2)(h). I do not derive any particular assistance in that interpretation from the similar words used in r.45.12(3)(b) and r.45.19(2)(e), in Sections II and III of Part 45 respectively. However, I do consider that my reading of these words, which would limit recoverability of sums over and above the fixed costs to disbursements due to specific features of the dispute which has arisen between the parties, is consistent with the overall purpose of the fixed recoverable costs regime, and in particular its aim of ensuring that, save for express exceptions, the amount recoverable is limited to the sums set out in the tables by way of fixed recoverable costs. I come back to that topic again, in a slightly different context, in the next section of this judgment.”
The Court of Appeal said:
“If an item of work is deemed (or can be said implicitly) to be within the fixed recoverable costs in Table 6B, then it will not be separately recoverable as a disbursement. The brief fee is the most obvious example of that analysis”. (Paragraph 51)
The Court of Appeal also held that it was irrelevant that some parts of the Civil Procedure Rules did provide for an additional fee for counsel in these circumstances.
It said that the figure in Table 6B is higher than in Table 6 and “the comparison cannot prevent the conclusion that, for Table 6B, the cost of a child settlement advice is included in the stated fixed costs.”
Note that the decision to the contrary in
Dover v Finsbury Food Group Plc [2019] EWHC B11 (Costs)
by Master Brown in the Senior Courts Costs Office, given just 15 days earlier than this decision and coming to a contrary conclusion is clearly wrong.
COSTS OF APPLICATIONS FOR INTERIM INJUNCTION DECIDED ON BALANCE OF CONVENIENCE
These principles, and the whole issue of Qualified One-Way Costs Shifting, is dealt with in my book – Qualified One-Way Costs Shifting, Section 57 and Set-Off – Available from me here for £15.
Kerry Underwood offers consultancy services in relation to this and other matters and details are here.
In
Koza Ltd and another v Koza Altin Isletmeleri AS [2020] EWHC 1092 (Ch) (12 May 2020)
the Chancery Division of the High Court considered the question of costs on successful applications for interim injunctions where the balance of convenience was a decisive factor.
In
Picnic at Ascot Inc v Derigs [2001] FSR 2,
the court stated that, in a case without any other special factors, where an applicant obtains an interlocutory injunction on the basis of the balance of convenience, the court normally reserves costs until after trial but in the Picnic case, the court was not laying down a hard and fast rule on how costs should be dealt with on applications for interlocutory injunctions where the balance of convenience was a decisive factor.
The logic of this practice is that, at this stage, there is no winner or loser.
There was no rule against awarding costs on such applications.
The present case was so significantly against the claimants on the balance of convenience that it was not within the general approach described by the court and it would be wrong to treat it as such and it would also be wrong to put off dealing with the matter of costs and, having heard the injunction application, the judge was best placed to ascertain whether the claimants really were justified in resisting the application.
The court here also ruled that there was no invariable rule that, when parties make common cause, running the same arguments, a costs order should be on a joint and several basis.
The costs order here was made against only one of two claimants as he was the “the real master of the litigation” on the claimants’ side.
An order against the other claimant might also have interfered with the purpose of the injunction.
The court held that it may not be possible to set off costs when different parties are involved and clear distinctions can be drawn.
The party facing the costs order here was not entitled to take advantage of a previous costs award that only his fellow claimant had obtained.
MORE RECIPES FROM ANDY WAKEFORD AT WEST HERTS COLLEGE
Set out below are three new recipes from my close friend Andy Wakeford who is Head of School for Food Academy, Hospitality & Restaurant Services at West Herts College.
Also see my previous blogs –
FOUR RECIPES FROM ANDY WAKEFORD AT WEST HERTS COLLEGE
THREE NEW RECIPES FROM ANDY WAKEFORD
MORE NEW RECIPES FROM ANDY WAKEFORD
THREE MAYDAY RECIPES FROM ANDY WAKEFORD
FOUR MAYDAY RECIPES FROM ANDY WAKEFORD AT WEST HERTS COLLEGE
COURT REFUSES PRE-JUDGMENT INTEREST IN PERSONAL INJURY – BUT OK IN COMMERCIAL CASES
The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.
These principles, and the whole issue of Qualified One-Way Costs Shifting, is dealt with in my book – Qualified One-Way Costs Shifting, Section 57 and Set-Off – Available from me here for £15.
Kerry Underwood offers consultancy services in relation to this and other matters and details are here.
In
Nosworthy v Royal Bournemouth & Christchurch NHS Foundation Trust [2020] EWHC B19 (Costs)
in detailed assessment proceedings, the Master rejected the successful claimant’s claim for pre-judgment interest in relation to the funding of an expert by way of a loan at an interest rate of 15%.
The power stems from CPR 44.2(6)(g):
“(6) The orders which the court may make under this rule include an order that a party must pay –
…
(g) interest on costs from or until a certain date, including a date before judgment.”
The Master rejected the claimant’s contention that there was a general rule, or normal practice of awarding pre-judgment interest costs are referred to by the Court of Appeal in
Jones and others v Secretary of State for Energy and Climate Change and others [2014] EWCA Civ 363.
The Master also rejected the views of a full High Court Judge set out in the case of
Involnert Management Inc v Aprilgrange Limited & Ors [2015] EWHC 2834 (Comm) .
The Master also cast doubt on the validity of CPR 44.2(6)(g), as specifically approved by both the Court of Appeal and the High Court.
But apart from that, he cited authorities, including
Schumann and another v Veale Wasbrough [2013] EWHC 4070 (QB),
where the judge concluded such an award was not the general rule in “ordinary litigation”, and that such a rule would be “undesirable”.
Such an inquiry over interest was likely to be much more proportionate in large commercial, or multi-party, actions but, “self-evidently”, not here.
Nothing took this case “out of the ordinary”, and making an order for pre-judgment interest would add an “unnecessary level of sophistication” into costs assessment, and if it was necessary to consider the interest rate for experts funding, that might be necessary for other costs and disbursements, and to take account of payments on account, for example.
Paying parties might legitimately question whether they should pay interest if the receiving party paid disbursements upfront, without a loan.
Funding costs are generally not recoverable –
Hunt v RM Douglas (Roofing) Ltd [1987] 11 WLUK 221.
Payment of judgment rate interest from the date of the costs order rather than from when costs are ascertained or agreed provides substantial mitigation, and the Master was not aware of any legal principle preventing him having regard to judgment rate interest received when exercising his discretion under CPR 44.2(6)(g) or providing that such sum could not be expected to be used to defray costs of funding.
The claimant argued that he should not be expected to defray costs of funding disbursements out of judgment rate interest.
It was not unreasonable to take account of the wide availability of legal expenses insurance, which might have avoided the need for funding with the premium possibly recoverable in such a claim.
Costs recovery is not intended to provide a complete indemnity and if Parliament had intended that costs of funding should be recoverable, there would be an appropriate mechanism, which CPR 47.15 was not.
Comment
This decision is wrong, but difficult to challenge as it involves the exercise of a Costs Judge’s discretion:
See my write-up –
In
Involnert Management Inc v Aprilgrange Limited & Ors [2015] EWHC 2834 (Comm)
the High Court Judge said:
“”Since Hunt’s case was decided, the CPR have given the court power to order interest to be paid on costs from a date before judgment: see CPR 44.2(6)(g). This power is now routinely exercised when an order for costs is made following a trial to award interest at a commercial rate from the dates when the costs were incurred until the date when interest becomes payable under the Judgments Act . In the usual way, I have made such orders in this case.””
The Master here said:
“At the risk of stating the obvious, in large commercial claims or multi party actions it is much more likely to be proportionate for the Court to undertake the sort of enquiry into interest which is anticipated by this claim. In a case such as this one, self- evidently, it is not.”
That is wrong on at least two levels.
Firstly, proportionality relates to the actual case. It is not some general principle of law. If it was, then the end game is that the courts should not hear anything other than substantial commercial claims. Unfortunately, many judges seem to take that view.
Thus, although the interest claimed here was low, this was in a context of a relatively low-value claim.
Secondly, a commercial client will get tax relief on loans, as well as generally paying a lower interest rate than a private individual.
So, in fact the effect on an individual in a modest claim is, in real terms, greater than on party in a substantial commercial case.
Widow’s mite and all that.
Here, at Paragraph 20, the Master even questioned whether he had power to order such interest, in spite of the clear wording of CPR 44.2(6)(g) and the comment in
Involnert Management Inc v Aprilgrange Limited & Ors [2015] EWHC 2834 (Comm) ,
and the Court of Appeal decision in
Jones and others v Secretary of State for Energy and Climate Change and others [2014] EWCA Civ 363.
Paragraph 22 says it all:
“As Dingemans J observed, the making of an order of the sort which is requested by the Claimant would introduce an unnecessary level of sophistication into the process for assessing costs. If it were right that the court were required in general to specifically consider the interest rate applicable to experts funding, presumably also the same would apply to counsel’s fees, solicitors fees. and other disbursements (such as court fees). Further, the parties would have to take into account such matters as the payments on account and the allocation of such payments to different expenditure. The schedule of the Claimant’s costs relied on for the oral hearing put his costs at close to £4,000. Even ignoring the extent to which the Claimant’s representatives have been dealing with what, to my mind, might be regarded as a novel point the costs incurred in dealing with claims such as this are still liable to be disproportionate. The complications which would arise would, to my mind, be substantial even in a modest case; and they would exist even assuming that the rates and the principle of payment were agreed. Further, paying parties might legitimately question whether they should be paying any interest if the receiving party had, for instance, the means, by way of insurance or otherwise, to pay up front for disbursements without taking out a loan. The potential for yet further legitimate disagreement would be substantial in the context of ordinary litigation (which may involve litigants in person). In respectful agreement with the comments of Dingemans J such complications and costs would, to my mind, set significant barriers for parties litigating in the courts.”
Translation: I can’t be bothered dealing with this sort of thing.
Note the reference to “ordinary litigation”.
The argument that post-judgment interest could be used to defray the costs of funding is illogical.
Supposing a party incurs significant interest costs during a life of a hard-fought case, but the judgment debtor pays up as soon as judgment is given.
Then there is no post-judgment interest.
Generally, this decision is all over the place and should be overturned on appeal.
See my blog –
SOLICITORS ACT ASSESSMENTS: HIGH COURT CONSIDERS “PAYMENT”, PARTIAL PAYMENT AND SPECIAL CIRCUMSTANCES
The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.
These principles, and the whole issue of Qualified One-Way Costs Shifting, is dealt with in my book – Qualified One-Way Costs Shifting, Section 57 and Set-Off – Available from me here for £15.
Kerry Underwood offers consultancy services in relation to this and other matters and details are here.
In
Rippon Patel And French LLP v Mowlam [2020] EWHC 1079 (QB)
a High Court Judge considered the question of when and whether a bill had been paid for the purposes of the time limits in the Solicitors Act 1974.
The court also considered the question of special circumstances in Section 70(3) of that Act.
Put simply, the client has an absolute right to detailed assessment without any conditions if the application is made within one month of the delivery of a bill (Section 70(1)).
After one month the court has a discretion as to whether or not to order detailed assessment and can impose any conditions that it thinks fit, for example that the client pay security for costs (Section 70(2)).
After one year the court can only order detailed assessment if there are special circumstances, and again can impose any conditions that it thinks fit (Section 70(3)).
Once a year has passed since payment of the bill, no assessment may be ordered (Section 70(4)).
Here, there had been a dispute about the bill on various grounds, but the main one was whether or not the costs sum included VAT.
It was common ground that a partial payment of a bill is not payment for the purposes of Section 70(4).
This is for the very good policy reason that if it were otherwise a client would always have to refuse to pay any part of the bill or lose the right to have a detailed assessment after a year had passed.
Here the total sum of the bill was £78,000, being £65,000 plus VAT of £13,000.
This sum was deducted from the total sum, including damages, received from the other side on settlement.
Due to the dispute over VAT, the solicitors transferred £65,000 to Office Account, but retained £13,000, being the VAT element, in Client Account.
The High Court upheld the Master’s decision that that sum of £13,000 had not been paid, as it had not been transferred from Client Account to Office Account.
Consequently, there was no statutory bar on the court ordering detailed assessment, as it was not the case that a year had passed since payment of the bill.
If only part of a bill has been paid, as here, the client is still entitled to challenge the whole bill, and not just the unpaid element.
Thus the court here had the power to order detailed assessment of the whole sum.
There remained the issue of whether there were special circumstances as required by Section 70(3), as the bill, although held to be unpaid, was nevertheless more than a year old.
Thus although there was no absolute bar on ordering detailed assessment, this could only occur if the court found that there were special circumstances.
The Master found that there were and ordered detailed assessment, and here, on appeal, the High Court examined the case law in relation to special circumstances, which is fact-based, or as described by the High Court in
Falmouth House Freehold Company Ltd & Anor v Morgan Walker LLP [2010] EWHC 3092 (Ch)
“a value judgment.”
It depends on comparing the particular case with the run of the mill case.
In
Re Cheeseman [1891] 2 Ch 289
the Court of Appeal held that it would not interfere with the decision of the first instance judge on whether special circumstances existed, except in a strong case.
The Master found that the wording of the agreement concerning costs between the solicitor and client on the issue of VAT was ambiguous, although on the facts of the case it looks as though it did include VAT, that is it was an inclusive figure.
The parties agreed that the solicitor should retain:
“£65,000 plus £13,000 VAT in your clients account until such time as we have resolved the question of your actual costs in this matter and how we can deal with the question of VAT”.
The Master held that that uncertainty constituted special circumstances as it made this other than a run of the mill case.
The High Court rejected the solicitor’s appeal against the finding of special circumstances.
Even if special circumstances are established, it is still in the court’s discretion as to whether or not to order detailed assessment.
One of the factors in relation to that discretion concerns delay and here there had been a delay of over three years in presenting the application under the Solicitors Act 1974.
This issue have been considered in
Kundrath v Harry Kwatia & Gooding [2005] 2 Costs LR 279:
which the court here considered.
It found that there was no significant prejudice caused to the solicitors by the delay and the Master had not exercised his discretion wrongly.
Neither had the Master wrongly exercised his discretion by not imposing terms on the detailed assessment, specifically by not ordering security for costs and not restricting the assessment to the disputed VAT element.
Comment
A detailed and helpful analysis of the law in this difficult area.
I am not sure that a dispute over whether or not the bill was VAT inclusive takes this out of the “run of the mill” category.
Such disputes are common.
Run of the mill must refer to the facts in the context of the Solicitors Act proceedings, not relations between the solicitor and client.
By definition, the very fact that a matter is subject to a Solicitors Act 1974 application by the client takes it out of being run of the mill as far as ordinary, undisputed, bills between solicitor and client are concerned.
I think that the court lost sight of this here, possibly due to the specific facts.
It also reinforces the point that solicitors should always make it crystal clear whether a bill includes or excludes VAT and should always set out clearly the total figure including VAT.
Underwoods Solicitors are specialists in resisting Solicitors Act 1974 applications.
FOUR MAYDAY RECIPES FROM ANDY WAKEFORD AT WEST HERTS COLLEGE
Set out below are four new recipes from my close friend Andy Wakeford who is Head of School for Food Academy, Hospitality & Restaurant Services at West Herts College.
Also see my previous blogs –
FOUR RECIPES FROM ANDY WAKEFORD AT WEST HERTS COLLEGE
THREE NEW RECIPES FROM ANDY WAKEFORD
MORE NEW RECIPES FROM ANDY WAKEFORD
THREE MAYDAY RECIPES FROM ANDY WAKEFORD
INSOLVENCY: DIRECTORS AND SHAREHOLDERS CANNOT APPLY FOR INJUNCTION AGAINST PRESENTING A WINDING-UP PETITION
Kerry Underwood offers consultancy services in relation to this and other matters and details are here.
In
Shorts Gardens LLB v London Borough of Camden Council [2020] EWHC 1001 (Ch)
the High Court held that simply being a director or shareholder of a company does not give an individual sufficient personal interest to apply for an injunction to prevent winding-up proceedings against the company.
The right to dispute a winding-up petition is the right of a company and not the right of a director or shareholder.
Directors are not personally entitled to any benefit because of holding office, and the making of a winding-up order does not deprive shareholders of their shares.
Accordingly, the court refused the director/shareholder’s applications in this case, which had sought to restrain presentation of winding-up petitions against two entities owned by her.
The court also held that, on the facts the applications were an abuse of process.
In particular, one application had been made by the director/shareholder precisely because the company itself was subject to a general civil restraint order barring it from making any application to the High Court without first obtaining the permission of a nominated judge.
The court noted that disobedience of a civil restraint order is capable of being a contempt of court by the person who is the subject of the order.
Depending on the circumstances, a director/shareholder who seeks to assist their company to evade a civil restraint order by making an application in place of the company may also be committing a contempt of court although the judge did not pursue the contempt issue further.
Underwoods Solicitors are the solicitors for Crowe UK LLP, the Joint Liquidators of the Cambridge Analytica Group of Companies
INSOLVENCY: FURLOUGHING IS AN ADOPTION OF EMPLOYMENT CONTRACTS SAYS COURT OF APPEAL
Kerry Underwood offers consultancy services in relation to this and other matters and details are here.
In
Debenhams Retail Ltd, Re [2020] EWCA Civ 600
the Court of Appeal upheld the decision of the High Court – reported in my blog
FURLOUGHING, INSOLVENCY AND ADOPTION OF EMPLOYMENT CONTRACTS
that the furloughing of employees under the government’s Job Retention Scheme in relation to coronavirus amounts to an adoption of contracts of those employees.
The significance of an employment contract being adopted in an administration is that it gives employees what is known as “super-priority” in that salaries, sick pay and holiday pay for the period from adoption until termination of the employment or, if earlier, the end of the administration, are payable as expenses of the administration ahead of not only pre-administration unsecured liabilities, but also ahead of many of the costs and expenses of the administration itself.
Hence the term “super-priority”.
The judgment examines in detail the current Job Retention Scheme.
The judgment also contains a helpful and detailed analysis of the general law in relation to the adoption of employment contracts by Administrators.
“30. The effect of the relevant provisions of paragraph 99 was helpfully summarised by Mr Smith as involving the following points:
(1) A liability arising under a contract of employment which is adopted by an administrator is charged on and payable out of the property of which the administrator has custody or control immediately before the cessation of his appointment (paragraph 99(3)).
(2) The liability ranks ahead of the administrator’s remuneration and expenses and any amounts secured by a floating charge, which themselves rank ahead of ordinary unsecured liabilities, and is therefore commonly described as enjoying “super-priority” (paragraph 99(4)).
(3) The liability is restricted to “wages or salary” and excludes any liability which arises by reference to anything which is done, or which occurs, before the adoption of the contract (paragraph 99(5)). Wages or salary includes holiday pay and sick pay (paragraph 99(6)), but has been held not to include redundancy payments and payments for unfair dismissal (Re Allders Department Stores Ltd [2005] EWHC 172 (Ch), [2005] ICR 867, [2006] 2 BCLC 1) or protective awards or payments in lieu of notice (Re Huddersfield Fine Worsteds Ltd [2005] EWCA Civ 1072, [2005] 4 All ER 886).
(4) The administrator is given an initial 14-day period following appointment to decide on the action, if any, to be taken. Any action taken within that period does not amount or contribute to the adoption of a contract (paragraph 99(5)(a)).”
For the facts of the case please see my previous blog
FURLOUGHING, INSOLVENCY AND ADOPTION OF EMPLOYMENT CONTRACTS.
The court rejected the submission that in reality the Administrators were not adopting the contracts as the government was making all of the payments and thus there was no financial impact on the administration estate and consequently the Administrators did not need to make any election to treat the liabilities as having super-priority.
Debenhams argued that this was consistent with the object of an administration.
The Court of Appeal held that the Job Retention Scheme required employees to continue to be employed; indeed that was the whole point of the scheme and therefore to be furloughed employees had to remain in employment and therefore the act of furloughing by the Administrators amounted to adoption of those employment contracts.
No specific evidence of adoption was needed; it is a matter of law and the Court of Appeal had this to say at Paragraph 54 of its judgment:
“54. We agree with the way in which Laddie J summarised the effect of Paramount on the meaning of adoption in Re Antal International Ltd [2003] EWHC 1339 (Ch), [2003] 2 BCLC 406 at [7]:
“What Lord Browne-Wilkinson was pointing out was that it was important to find some conduct on behalf of the administrator or receiver which could be treated as an election or could be regarded as him exercising a choice as to whether or not the contracts of employment were to be adopted.”
And again at [12] where he said:
“It is necessary to look at the facts and to decide whether there has been some conduct by the administrator or receiver which can legitimately be treated as an election to continue the contract of employment.”
Adoption of Employment Contracts in the Present Case
The Court of Appeal recognised the fact that furloughed employees are not carrying out any work for the company, and indeed are not permitted to do so under the Job Retention Scheme. While regarding that as a significant factor, and one that distinguishes the current case from the facts of previous decisions, the Court of Appeal did not consider that it was sufficient to justify a finding that the contracts had not been adopted.
The Court of Appeal did say that “there may be good reasons of policy for excluding action restricted to implementation of the Scheme from the scope of “adoption” under paragraph 99 [that is paragraph 99 of Schedule B1 to the Insolvency Act 1986], but such exclusion cannot be accommodated under the law as it stands.”
On the day that the reasons were published the Administrators announced that they would be permanently closing five further stores, with 1,000 jobs at risk at a result.
CAPPED COSTS AND VAT: AN ANOMALY
The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.
Kerry Underwood offers consultancy services in relation to this and other matters and details are here.
In
Response Clothing Ltd v The Edinburgh Woollen Mill Ltd [2020] EWHC 721 (IPEC)
the Business and Property Courts of England and Wales held that the £50,000 cap on recoverable costs in IPEC cases (CPR 45.31(1)(a)) is inclusive of VAT.
Where a receiving party is registered for VAT, VAT is not included in the claim, as it can be recovered as input tax – Practice Direction 44.2.3.
Here, the successful claimant, who was not registered for VAT and whose costs exceeded £50,000, submitted that it should recover costs of £50,000 plus VAT.
The defendant argued that claimant’s costs, including VAT, could not exceed £50,000.
The judge considered section IV of CPR 45 Scale Costs for Claims in the Intellectual Property Enterprise Court and the wording in Practice Direction 45 relating to scale costs for IPEC proceedings.
The judge noted that the only exception to the £50,000 cap, in the rules, is in CPR 45.32 where a party has behaved unreasonably, which was not applicable here.
He noted that, in Henderson, HHJ Birss QC – as he then was – had held that the court also had a discretion to depart from the £50,000 cap “in an exceptional case” although he did not do so and, as far as Hacon J was aware, the cap has always been adhered to.
In Henderson, HHJ Birss QC also unequivocally concluded that VAT, if appropriate, was dealt with “on top of the PCC costs cap”, apparently on the basis that “scale costs” in CPR 45.42(5) then in force in identical terms to the current CPR 45.31(5) referred to total and stage costs.
The judge noted that the headings of section IV of CPR 45 and CPR 45.31 suggest that the term “scale costs” applies to both total and stage costs.
However, in his view, CPR 45.30(4) creates a definition of scale costs that is “too strong” to allow for any alternative interpretation.
That, combined with the “unambiguous” wording of CPR 45.31(a), led him to conclude that a party claiming VAT on its costs can only recover £50,000 including VAT, subject only to CPR 45.32 and/or Henderson “exceptional circumstances”.
Therefore, the claimant was only entitled to £50,000 in costs.
This has a curious effect. A party which charges VAT, as it is over the VAT threshold of a turnover of £85,000 does not claim VAT from the other party as it can set off the VAT against VAT received from its customers or clients.
Thus for a VAT registered business where the costs are £50,000 plus VAT, the VAT will not be claimed from the other party and therefore the full £50,000 is recovered and is all costs, with no element being VAT.
For a non-VAT registered company, the calculation will be as follows:
£
Costs 41,667
VAT thereon at 20% 8,333
Total 50,000
Thus, as the court here recognised, smaller enterprises are unfairly disadvantaged because their net recovery of costs will be lower than £50,000, whereas larger businesses can claim the full £50,000 in costs and recover the VAT on top of that.
The court described this as “an unfortunate anomaly.”
The court suggested that the Civil Procedure Rules be amended.
This issue does not arise in fixed costs as the fixed costs sum is always net of VAT, and therefore if, for example, the fixed costs were £50,000 then that is what the other side would pay in relation to a VAT registered company, whereas in relation to a non-VAT registered company they would pay £60,000, being £50,000 plus VAT.
PERSONAL INJURY COSTS REDUCED FOR EXAGGERATION WHERE NO DISHONESTY
These principles, and the whole issue of Qualified One-Way Costs Shifting, is dealt with in my book – Qualified One-Way Costs Shifting, Section 57 and Set-Off – Available from me here for £15.
The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.
Kerry Underwood offers consultancy services in relation to this and other matters and details are here.
In
Morrow v Shrewsbury Rugby Union Football Club Ltd [2020] EWHC 999 (QB)
the Queen’s Bench Division of the High Court reduced the claimant’s costs by 15% to reflect the fact that he had exaggerated his personal injury claim.
There was no submission of dishonesty, let alone fundamental dishonesty.
The case is a reminder that the general power of the court to punish a claimant in costs for exaggerating a claim still exists alongside the ability to disallow the claim, even where it would otherwise have been successful, for fundamental dishonesty under Section 57 of the Criminal Justice and Courts Act 2015.
The judgment here considers the case law on reducing costs due to exaggeration.
There are those of us who cannot see how knowingly putting forward an exaggerated – and therefore false – claim is other than dishonest.
CAPPED COSTS IN BUSINESS CASES: THREE NEW CASES
This piece, in slightly different form, first appeared on the Practical Law Dispute Resolution Blog.
The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.
Kerry Underwood offers consultancy services in relation to this and other matters and details are here.
These principles, and the whole issue of Qualified One-Way Costs Shifting, is dealt with in my book – Qualified One-Way Costs Shifting, Section 57 and Set-Off – Available from me here for £15.
Here I look at three recent business cases involving capped costs, including the first two cases to be tried in the Capped Costs List Pilot Scheme and one in the Intellectual Property and Enterprise Court.
Both are part of the Business and Property Courts of England and Wales.
Capped costs are different from fixed costs in that the receiving party still has to show what work was done and justify the rates and levels of fee earners utilised.
Thus, in two capped costs cases involving the same issues and the same amount of damages and concluding at the same stage, the actual costs within the cap may be quite different.
That cannot happen in fixed costs cases.
Lord Justice Jackson’s last report recommended the introduction of fixed recoverable costs in all claims valued at £100,000 or less, but the consecutive issues of Brexit and coronavirus have meant that nothing has happened.
In April 2020, the government announced that the Civil Procedure Rule changes and small claims limit changes in personal injury work, and other personal injury reforms, were being put back until April 2021 at the earliest.
It is unlikely that the extension of fixed recoverable costs will come in before October 2021, or even April 2022.
This delay is likely to lead to greater use by the courts of their powers to cap costs.
It may be that one the lasting effects of coronavirus will be more remote hearings, cutting costs and justifying capped costs, especially as many parties in the Business and Property Courts are likely to be short of money for some time.
Consequently, understanding capped costs and considering the early decisions is important. As with Conditional Fee Agreements, it is much more difficult to get a grip of the relevant law if you come to the party late.
Both of the cases in the Capped Costs Scheme were accommodated within the two-day trial period, even though, in both cases, more witnesses than anticipated by the Pilot were allowed.
This may well encourage cases to be listed in this scheme, even though, on the face of it, they are not suitable due to the number of witnesses.
IPEC £50,000 Recoverable Costs Cap Inclusive of VAT Subject Only to CPR 45.32 Or Henderson “Exceptional Circumstances”
In
Response Clothing Ltd v The Edinburgh Woollen Mill Ltd [2020] EWHC 721 (IPEC)
the Business and Property Courts of England and Wales held that the £50,000 cap on recoverable costs in IPEC cases (CPR 45.31(1)(a)) is inclusive of VAT, subject only to CPR 45.32 or the “exceptional circumstances” contemplated in
Henderson v All Around the World Recordings Ltd [2013] EWPCC 19.
As far as the court was aware, the point had not arisen before in the IPEC.
Where a receiving party is registered for VAT, VAT is not included in the claim, as it can be recovered as input tax – Practice Direction 44.2.3.
Here, the successful claimant, who was not registered for VAT and whose costs exceeded £50,000, submitted that it should recover costs of £50,000 plus VAT.
The defendant argued that claimant’s costs, including VAT, could not exceed £50,000.
The judge considered section IV of CPR 45 Scale Costs for Claims in the Intellectual Property Enterprise Court and the wording in Practice Direction 45 relating to scale costs for IPEC proceedings.
The judge noted that the only exception to the £50,000 cap, in the rules, is in CPR 45.32 where a party has behaved unreasonably, which was not applicable here.
He noted that, in Henderson, HHJ Birss QC – as he then was – had held that the court also had a discretion to depart from the £50,000 cap “in an exceptional case” although he did not do so and, as far as Hacon J was aware, the cap has always been adhered to.
In Henderson, HHJ Birss QC also unequivocally concluded that VAT, if appropriate, was dealt with “on top of the PCC costs cap”, apparently on the basis that “scale costs” in CPR 45.42(5) then in force in identical terms to the current CPR 45.31(5) referred to total and stage costs.
The judge noted that the headings of section IV of CPR 45 and CPR 45.31 suggest that the term “scale costs” applies to both total and stage costs.
However, in his view, CPR 45.30(4) creates a definition of scale costs that is “too strong” to allow for any alternative interpretation.
That, combined with the “unambiguous” wording of CPR 45.31(a), led him to conclude that a party claiming VAT on its costs can only recover £50,000 including VAT, subject only to CPR 45.32 and/or Henderson “exceptional circumstances”.
Therefore, the claimant was only entitled to £50,000 in costs.
This has a curious effect. A party which charges VAT, as it is over the VAT threshold of a turnover of £85,000 does not claim VAT from the other party as it can set off the VAT against VAT received from its customers or clients.
Thus for a VAT registered business where the costs are £50,000 plus VAT, the VAT will not be claimed from the other party and therefore the full £50,000 is recovered and is all costs, with no element being VAT.
For a non-VAT registered company, the calculation will be as follows:
£
Costs 41,667
VAT thereon at 20% 8,333
Total 50,000
Thus, as the court here recognised, smaller enterprises are unfairly disadvantaged because their net recovery of costs will be lower than £50,000, whereas larger businesses can claim the full £50,000 in costs and recover the VAT on top of that.
The court described this as “an unfortunate anomaly.”
The court suggested that the Civil Procedure Rules be amended.
This issue does not arise in fixed costs as the fixed costs sum is always net of VAT, and therefore if, for example, the fixed costs were £50,000 then that is what the other side would pay in relation to a VAT registered company, whereas in relation to a non-VAT registered company they would pay £60,000, being £50,000 plus VAT.
Capped Costs List Pilot Scheme Decisions
In
only the second case to be tried as part of the Capped Costs List Pilot Scheme under Practice Direction 51W , the court noted that the trial had been “comfortably accommodated” within the two-day period allowed by the Capped Costs List and heard within the Capped Costs List time limits.
As in the first case under the Capped Costs List
Faiz v Burnley Borough Council [2020] EWHC 407,
The court relaxed the general rule that each party may call no more than two witnesses, and here allowed five witnesses to give oral evidence, as well as receiving the evidence of another witness under a Civil Evidence Act notice giving no particular reason for allowing this.
The High Court observed:
- one of the consequences of the Capped Costs List time limits is less opportunity to explore the reliability of witnesses.
- Despite this, where there are factual disputes, the court must still decide which evidence is to be preferred, and should not “shy away from” finding that people have been dishonest with the court.
- The Capped Costs List costs caps mean that disclosure may be more limited, and that a party dissatisfied with the other’s disclosure may be more hesitant to apply for specific disclosure.
- Although Practice Direction 51W.3.10 provides that the costs of an application will be reserved until the end of a trial, when they will be summarily assessed, there was insufficient time here to deal with summary assessment before handing down judgment, and it would be dealt with on paper as soon as practicable.
The court also noted that two of the witnesses gave oral evidence by telephone because they were self-isolating during the COVID-19 pandemic; it had been hoped they would give evidence by Skype, but this did not prove practicable.
They were still able to give their evidence clearly, and the judge did not consider that the method used impaired their evidence.
On the facts, the underlying claim for £100,000 plus interest said to be contractually due as a loan introduction fee, failed.
The case also shows the danger of ever using initials. There was dispute over the meaning of the initials “BQ” with the defendant stating that the B stood for beer whereas the judge found it was more likely that it referred to borrowing as in Borrowing Questionnaire.
Beer Quotient or Borrowing Questionnaire – much the same I suppose.
NGLIMHO initials are not a good idea.
In
Faiz v Burnley Borough Council [2020] EWHC 407,
the first case in which proceedings subject to the Capped Costs List Pilot reached trial, the court made the following helpful observations about procedural matters in such cases:
“28. The Capped Costs List Pilot Scheme is governed by the provisions of CPR Practice Direction 51W. The Pilot is scheduled to last for two years having commenced on 14th January 2019 and it applies to the courts identified in PD51W Para 1.4. These include the London Circuit Commercial Court and courts now subsumed in the Business and Property Courts in Leeds and Manchester. It is a separate list, not a sub-list. Subject to the matters listed in Para 1.6(3), it is available for all cases to a value not exceeding £250,000 where the trial is expected to require no more than two days.
29. In the present case, the Claimants applied promptly for interim injunctive relief following the action taken by the Council to obtain peaceable re-entry. At that stage, it is unlikely the Claimants contemplated issuing proceedings in the Capped Costs List and, in any event, they did not have any realistic opportunity to raise this with the Council before issuing their application. At the hearing, on 22ndNovember 2019, of the Claimants’ initial application, I granted them interim relief and fixed a return date on 3rdDecember 2019.
30. On the return date, the parties agreed to treat the hearing as the Case Management Conference. In view of the urgency of the case, it was listed for trial on 4th-5thFebruary 2020 on the basis that the interim injunctive relief would continue until trial or earlier order. I canvassed with counsel the Capped Costs List Pilot Scheme and, ultimately, the parties together agreed to transfer the case to the Capped Costs List. Consistently with PD 51W Para 2.28, the parties agreed to rely only on the documents contained in their bundles of core documents with no other directions for disclosure. A deadline was provided for the exchange of witness statements but, consistently with Para 2.33, there were no directions for expert evidence. Having been allocated to the Capped Costs List, there was no provision for cost budgeting.
31. Although Para 2.31 provides for the parties to be limited to no more than two witnesses, agreement was reached that the Council should be permitted to call three witnesses. For reasons to which I shall refer later, I was satisfied that this was appropriate and, at the commencement of the trial, I thus made an order providing for the Council to have permission to do so.
32. A trial bundle was filed at Court amounting to 568 pages. Skeleton arguments were delivered in accordance with the Chancery Guide and the parties jointly prepared a Trial Timetable. At all stages, there was a significant degree of collaboration to ensure that the case was ready by the agreed trial date. For this, the parties are to be commended.
33. The trial occupied the Court for no more than two full days.”
INSOLVENCY: MEADOWSIDE EXCEPTIONS TO BRESCO RULE APPLIED: ADJUDICATIONS TO PROCEED
Kerry Underwood offers consultancy services in relation to this and other matters and details are here.
In
Balfour Beatty Civil Engineering Ltd v Astec Projects Ltd (In Liquidation) [2020] EWHC 796 (TCC)
the High Court considered the Meadowside exceptions to the Bresco rule and held that they applied here and consequently the adjudications were allowed to proceed and Balfour Beatty‘s application for an injunction to restrain them failed.
In
Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd [2019] EWCA Civ 27
the Court of Appeal held that, if a company was in insolvent liquidation, it was “an exercise in futility” to allow an adjudication to continue.
The matter has been appealed to the Supreme Court and we are currently awaiting the decision of that court.
In
an Appeal Judge, sitting in the High Court, held that exceptional circumstances could arise, which would allow an adjudication to continue even where a company was in insolvent litigation.
The decision here in the Balfour Beatty case is the first judgment dealing with the Meadowside factors, and permitting an insolvent company – Astec – to proceed with three adjudications, but on conditions.
There were three potential adjudications in relation to three separate contracts here and here the High Court Judge held that a final net position could be reached and there was nothing in the judgments in Bresco or Meadowside that prevented this.
Those adjudications would deal with the entirety of the parties’ mutual dealings and would mirror rule 14.25 of the Insolvency (England and Wales) Rules 2016 (SI 2016/1024).
Because Astec has been in liquidation since October 2014 and is legally funded, along with having legal expenses and after the event insurance, the conditions ordered include:
- A security for costs payment of £750,000.
- Astec to issue the remaining two adjudication notices within 21 days, with the same adjudicator appointed to deal with all three adjudications, and those adjudications to be dealt with together, but over an 84-day period to allow 28 days for each one.
- Alternatively, the parties could agree to confer jurisdiction on an adjudicator to deal with all three contracts in one adjudication.
- Balfour Beatty has six months from the adjudicator’s decision(s) to issue court proceedings to seek a different result.
- Astec cannot seek to enforce the adjudicator’s decision(s) during that period or while any litigation proceedings are ongoing.
Astec says it is owed £4 million, Balfour Beatty counterclaims and says it is owed £1 million.
Underwoods Solicitors are the solicitors for Crowe UK LLP, the Joint Liquidators of the Cambridge Analytica Group of Companies
QOCS AND SET-OFF – COURT OF APPEAL DECISION
The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.
Kerry Underwood offers consultancy services in relation to this and other matters and details are here.
These principles, and the whole issue of Qualified One-Way Costs Shifting, is dealt with in my book – Qualified One-Way Costs Shifting, Section 57 and Set-Off – Available from me here for £15.
In
Ho v Adelekun [2020] EWCA Civ 517
the Court of Appeal considered the interplay between Qualified One-way Costs Shifting (QOCS) and set-off, and held that a QOCS protected claimant in a personal injury matter was liable to have adverse costs set off against the costs order in her favour in the proceedings generally.
Here Miss Adelekun was the successful claimant in a QOCS protected personal injury case, but there was a dispute as to costs, specifically whether the agreement between the parties meant that fixed costs did, or did not, apply.
Miss Adelekun lost that aspect of the case when the Court of Appeal ruled that fixed costs applied, thus reducing her costs from £42,000 to £16,000.
See my blog – STANDARD COSTS MEANS FIXED COSTS: COURT OF APPEAL DECISION
Mrs Ho, the defendant, having won that aspect of the case was awarded costs, as usual as QOCS relates to the enforcement of costs orders, not whether they should be made in the first place.
Thus the issue here was whether a losing defendant in a QOCS protected personal injury case could set off against the costs of that action the costs order made in her favour, but on the face of it unenforceable, in the fixed costs/not fixed costs dispute, in which she was successful.
Yes, said the Court of Appeal, holding that it considered itself bound by its own decision in
Howe v Motor Insurers’ Bureau (No 2) [2017] EWCA Civ 2523,
where the court allowed such set-off.
See my blog – QOCS AND SET-OFF BY SUCCESSFUL DEFENDANT IN MULTI-DEFENDANT CASES
The Court of Appeal said that there was no question of a claimant ever having to make a payment to a defendant under the set-off provisions, but the costs awarded to the claimant could be substantially reduced, or extinguished altogether, by set-off of costs awarded to a defendant in the course of those proceedings, as here.
The potential effect is that a successful claimant in such a situation will have a potential liability to her or his own solicitors for the effectively unrecovered costs, unreceived due to set-off.
Here, the Court of Appeal suggested that as the challenge on the fixed costs point was for the potential benefit of the solicitors, rather than the claimant, the solicitors may choose not to enforce any bill, and indeed may not be entitled to.
The Court of Appeal suggested that the Civil Procedure Rules Committee should reconsider the rules and consider whether set-off should ever be available in a case subject to QOCS, although two of the three Court of Appeal Judges said that they could see arguments both ways.
The decision is being appealed to the Supreme Court.
The Court of Appeal described the set-off issue as “a point of some general importance”, but did not find the decision in Howe was per incuriam, that is wrongly decided, but saw considerable force in the submission that enforcement should extend in the context of CPR 44.14 to set-off, and that there was a “powerful case” for calling into question the decision in Howe.
Analysis of authorities on judicial precedent, including
Young v Bristol Aeroplane Co Ltd [1944] 1 KB 718
satisfied the Court of Appeal that it was bound by the decision in Howe and had to order set-off.
Absent the decision in Howe, and finding itself bound by that decision, the Court of Appeal here would have held that in a QOCS case the court has no jurisdiction to order costs liabilities to be set off against each other and that Section II of CPR 44 is a self-contained code only allowing a defendant to recover costs it has been awarded by setting off against damages and interest under CPR 44.14, or by invoking CPR 44.15 or CPR 44.16, in line with
Darini v Markerstudy Group Central London County Court,24 April 2017
a case not considered by the Court of Appeal in Howe.
See my blog – QOCS AND SET-OFF: CONFLICTING CASES
Costs set-off may have been common in a legal aid context, but QOCS does not mirror that regime.
The Court of Appeal found it hard to see how the fact that CPR 44.14 enables enforcement without the court’s permission, while permission is required under CPR 44.12 could justify set-off.
CPR 44.14 seemed to the Court of Appeal to be designed to bar any enforcement of costs orders against claimants in excess of damages and interest, so no set-off of costs against costs, unless CPR 44.15 or CPR 44.16 applies, not merely enforcement without the court’s permission.
The Court of Appeal saw compelling reason for interpreting “enforced” in CPR 44.14 as extending to set-off.
The QOCS rules in Section II of CPR 44 do not refer to CPR 44.12 and the explanatory note to the rules refers to “set-off against any damages received”, not costs set-off.
CPR 44.12 reads:
“(1) Where a party entitled to costs is also liable to pay costs, the court may assess the costs which that party is liable to pay and either—
(a) set off the amount assessed against the amount the party is entitled to be paid and direct that party to pay any balance; or
(b) delay the issue of a certificate for the costs to which the party is entitled until the party has paid the amount which that party is liable to pay.”
To me that is very clear and, as I pointed out when QOCS came in seven years ago, it is of great significance that this statement of the common law principles of set-off appears immediately before the new rules on QOCS in the Civil Procedure Rules.
I cannot see why the Court of Appeal is so upset about set-off against a claimant’s costs, as compared with set-off against damages and interest.
Set-off against damages and interest, which is very clearly allowed by the rules on QOCS, potentially removes the client’s damages.
Set-off against costs generally affects the solicitor, rather than the client, depending upon the terms of the retainer.
It is the ability to set-off against damages that wrecks QOCS protection whenever a Part 36 offer is made by a defendant, a point recognised in Paragraph 14 of the judgment here.
As the law stands this decision, and the decision in Howe are unquestionably correct.
My book on the subject is called Qualified One-Way Costs Shifting, Section 57 and Set-Off, as it was obvious to me when I wrote that book that that was the case.
Here is the opening page of Chapter 13 from that book:
SET OFF
The common law concept of legal set-off has existed since at least as early as 1745 – see Hanak v Green, Court of Appeal 1958, 2 QB 9
The Civil Procedure Rules deal with it in the briefest of terms: –
“Set-off
44.12
(1) Where a party entitled to costs is also liable to pay costs, the court may assess the costs which that party is liable to pay and either –
(a) set off the amount assessed against the amount the party is entitled to be paid and direct that party to pay any balance; or
(b) delay the issue of a certificate for the costs to which the party is entitled until the party has paid the amount which that party is liable to pay.”
The Practice Direction is silent as to the effect of this rule.
Significantly this rule appears immediately above the rule dealing with Qualified One Way Costs Shifting – CPR 44.13 to CPR 44.17 – also notable for its brevity.
This raises the question as to whether, in a QOCS case, even the claimant’s pre Part 36 costs are at risk of being eaten in to to satisfy the unsatisfied element of a costs order in favour of a defendant when a defendant’s Part 36 offer has not been beaten.
Thus the claimant is awarded £30,000 at court and an order is made in the defendant’s favour for £40,000, leaving an unsatisfied balance of £10,000.
May the defendant set this off against the claimant’s pre Part 36 costs?
Yes, seems to be the clear answer. That situation appears to fall fairly and squarely with CPR 44.12(1)(a).
Parties could have saved themselves a lot of time and money by purchasing it. You can – details above.
FURLOUGHING, INSOLVENCY AND ADOPTION OF EMPLOYMENT CONTRACTS
Kerry Underwood offers consultancy services in relation to this and other matters and details are here.
The decision of the High Court reported below has been upheld by the Court of Appeal. Reasons were given on 6 May 2020 and are here.
In
Debenhams Retail Ltd, Re [2020] EWHC 921 (Ch)
the Chancery Division of the High Court considered the relationship between the furloughing of employees due to the coronavirus issue and the adoption of the employees by the Administrators within the meaning of Paragraph 99(5) of Schedule B1 of the Insolvency Act 1986.
The Administrators sought a declaration that:
““None of the contracts of employees who have been furloughed will be adopted by the Joint Administrators if the employees remain furloughed and the Joint Administrators take no further action in relation to these employees except for issuing such communications as may be required to confirm the terms of the employees’ ongoing engagement and to seek any required consent in relation to such terms and to pay to the furloughed employees amounts that are to be reimbursed to the Company through its participation in the Coronavirus Job Retention Scheme.””
The court set out the reason for the urgency at paragraphs 3 and 4 of the judgment.
“3. The Administrators were appointed by the directors of the Company on 9 April 2020. The urgency of the application flows from the fact that they need to make a decision in the next few days as to whether or not to dismiss a significant number of the Company’s employees. That decision will be informed in part by the answer to the question raised by the application. The reason for this is that, if the contracts of employment are adopted, the relevant employees will then enjoy super-priority status in the administration in respect of their wages or salary referable to periods post-adoption pursuant to paragraphs 99(5) and 99(6) of Schedule B1. This means that they will rank ahead both of the provable claims of other creditors and of other expenses of the administration, a consequence which may have a significant effect on the future conduct of the administration.
4. As Mr Smith QC and Mr Fisher QC say in their skeleton argument in support of the application, the financial consequences of adopting contracts of employment mean that these types of decision can be difficult in any administration. This is particularly acute in the present case because the Company has more than 15,000 employees, the majority of whom have already been furloughed.”
The court also considered the Job Retention Scheme (JRS).
“6. It is also said by the Administrators that it may well be the case that they would have no alternative but to dismiss the furloughed employees (who are not providing any services to the Company, and cannot do so under the terms of the JRS) if there is exposure to a super-priority liability for wages or salary over and above the amounts which will be reimbursed under the JRS. Because of the way that the JRS works (with which I will deal later in this judgment), and subject to the impact of consents which have been received from a large number of the furloughed employees, the extent of the exposure is the 20% shortfall between the JRS proposed reimbursement of 80% of wages subject to a £2,500 cap, and the liabilities under the contract of employment which are referable to the period after the time of its adoption (paragraph 99(5)(b) of Schedule B1). Subject to a substantial reduction for the consents I have mentioned, this exposure is estimated to amount to over £3 million a month.”
Here, the court declined to grant the declaration sought and instead gave directions.
“8. …Those directions were that the Administrators be at liberty to act on the basis that they will be taken to have adopted any contract of employment between the Company and its employees in circumstances where, in respect of any particular employee or employees, at any time after 14 days from the time of their appointment:
(1) the Joint Administrators cause the Company to make payments to such employee or employees under and in accordance with their employment contracts including in respect of amounts which may be reimbursed to the Company by a grant under the JRS; or
(2) the Administrators make an application in respect of such employee or employees under the JRS.”
It is clear that the Job Retention Scheme applies to companies in administration and is intended to work within the mandatory principles of insolvency law and the Scheme Guidance contains the following:
““Administrators
Where a company is being taken under the management of an administrator, the administrator will be able to access the Job Retention Scheme. However, we would expect an administrator would only access the scheme if there is a reasonable likelihood of rehiring the workers. For instance, this could be as a result of an administration and pursuit of a sale of the business.””
Here the court referred to the very recent judgment of the Chancery Division in relation to the administration of Carluccio’s Limited:
Re Carluccio’s Limited [2020] EWHC 886 (Ch)
which involved similar issues, but where the Administrators were seeking directions before furloughing staff.
Here, the court quoted, with approval from that decision and the issue of the effect of Paragraph 99 of Schedule 1 of the Insolvency Act 1986.
“31. The effect of paragraph 99 of Schedule B1 was described by Snowden J in paragraphs 39 to 41 of his judgment in Carluccio, in a passage with which the Administrators do not take issue (and with which I agree):
“39. The effect of these paragraphs is that liabilities for wages or salary arising out of contracts of employment adopted by an administrator following the onset of administration (subject to the condition that no act taken within the first 14 days of the administrator’s appointment may amount or contribute to such adoption) are payable out of the assets held by the administrator in priority to the administrator’s remuneration and expenses, which in turn have priority over the claims of floating charge creditors and unsecured creditors.
40. This order of priority is confirmed at Rule 3.51(1) of the Insolvency (England and Wales) Rules 2016, which states (before setting out the priority among expenses of the administration) as follows:
“Where there is a former administrator, the items in paragraph 99 of Schedule B1 are payable in priority to the expenses in this rule.”
41. In contrast, employees whose contracts of employment are not adopted in the first 14 days (in other words, whose employment is terminated by Administrators during this time or whose employment contracts are not adopted for some other reason), do not gain the benefit of super-priority under Paragraph 99(5), and their claims are instead merely unsecured provable debts.””
In Carluccio’s, which has partly been overtaken by events and by the decision in the Debenhams case, the court nevertheless gave a detailed and helpful analysis of how the Job Retention Scheme works, including the formalities that employers must enter into.
The Carluccio’s judgment contains a very detailed, exhaustive and helpful analysis of the law in relation to the adoption of contracts by Administrators.
Underwoods Solicitors are the solicitors for Crowe UK LLP, the Joint Liquidators of the Cambridge Analytica Group of Companies
THREE MAYDAY RECIPES FROM ANDY WAKEFORD
Set out below are three new recipes from my close friend Andy Wakeford who is Head of School for Food Academy, Hospitality & Restaurant Services at West Herts College.
Also see my previous blogs – FOUR RECIPES FROM ANDY WAKEFORD AT WEST HERTS COLLEGE
THREE NEW RECIPES FROM ANDY WAKEFORD
MORE NEW RECIPES FROM ANDY WAKEFORD
Kerry Underwood 