EMPLOYMENT: SETTLEMENT: EFFECT OF BREAKING CONFIDENTIALITY CLAUSE

In

Duchy Farm Kennels Ltd v Steels [2020] EWHC 1208 (QB)

the Queen’s Bench Division of the High Court considered, on appeal, the effect of an employee breaking the confidentially clause in a Form COT3.

COT3 agreements are binding terms of settlement negotiated through ACAS, but the court here made it clear that the same principles would apply in relation to a Settlement Agreement under section 203 of the Employment Rights Act 1996.

Here, unusually, the terms of settlement were that the employer would pay the agreed damages by instalments, rather than in one go.

As is usual, the employee gave up his right to bring proceedings in relation to the alleged unfair dismissal.

The employee broke the confidentially clause and the company then stopped the instalments on the basis that its obligation to pay had fallen away due to the employee’s breach of the confidentially clause.

The employee then brought County Court proceedings under section 19A of the Employment Tribunals Act 1996 to recover by means of execution the sums payable under the COT3 agreement.

The court held that the employee had indeed breached the confidentially clause.

However, the court found that this amounted to a breach of an intermediate or innominate term of the COT3 agreement, rather than a breach of a condition, and so that did not automatically mean that the company was freed from its obligation to pay.

On the facts, it was not a repudiatory breach, or a renunciation of the COT3 agreement.

Consequently, the company still had an obligation to pay the remaining instalments.

The High Court upheld that decision on appeal.

The High Court said that there may well be cases which confidentially clause in a COT3 Agreement or Settlement Agreement might be of sufficient importance to achieve the status of a condition, but that was not the position here.

The High Court observed that the issue flagged up the general problem of enforceability of confidentially clauses in employment settlement.

It said that there are two answers to that problem, without recourse to treating any breach of the confidentially clause as a breach of condition.

The first, and most important one, is that the parties can make specific provision in the contract terms for what should happen if there is a breach of confidentiality.

For example, parties can agree that in the event of a breach, the ex-employee must repay all, or a proportion, of the money already paid over.

The second, and related, answer is that the COT3 Agreement, or Settlement Agreement itself, can specify that the confidentially clause is a condition.

If the parties state that a particular clause is a condition, then it is.

Absent those terms, then the parties risk a court finding that the clause is not a condition, but rather an intermediate or innominate term, and if that is the case, then the party seeking relief needs to show that there was a repudiatory breach, or a renunciation, of the agreement.

In ordinary circumstances, where no particular damage is done to the other party due to a breach of confidentiality clause, that will not be the case and relief will not be granted.

Comment:

A useful reminder that COT3’s and Settlement Agreements should not just be treated as templates to be printed off from Wikipedia or whatever.

Tick box law never works.

EMPLOYMENT: CONSTRUCTIVE DISMISSAL: THREE RECENT CASES

Termination of Employment

 In

Butcher v Surrey County Council UKEAT/0022/19/LA

the Employment Appeal Tribunal held that a variation or withdrawal of a Notice of Termination can either be an express agreement in writing, or verbal, but it can also be implied by the conduct of the parties, and could be a mixture of something in writing and conduct.

A resignation can only be withdrawn by agreement of both the employee and the employer.

The Employment Tribunal’s decision that withdrawal could only be by express words, rather than conduct, was wrong.

Here the council had asked the claimant to reconsider her resignation and to stay on in employment, which she did beyond the termination date, even though there was nothing in writing about this.

The employee’s appeal was allowed, which allowed her to continue her claim for constructive dismissal and that claim was remitted to the Employment Tribunal.

 

‘Last Straw’ Doctrine in Constructive Dismissal

In

Williams v Governing Body of Alderman Davies Church in Wales UKEAT/0108/19/LA

The Employment Appeal Tribunal considered the issue of the last straw doctrine in a claim for constructive dismissal; the doctrine provides that even if the final act by the employer would not of itself justify the employee resigning and claiming constructive dismissal, it may be the last in a series of actions which, taken together, enable the employee to resign.

Hence, the name of the doctrine.

Here, the Employment Tribunal held that although there was much in the school’s actions before the final act that the claimant could have relied upon as a breach of the implied term of trust and confidence, it held that the final action in preventing the employee from contacting his colleague who was his Trade Union Representative, was innocuous, and therefore could not contribute to the school’s previous action.

Consequently, the constructive dismissal claim was dismissed.

The Employment Appeal Tribunal overturned that decision and substituted its own finding that the claimant was unfairly constructively dismissed.

In employment law the implied term of trust and confidence is known as the Malik term after the case of that name.

The Employment Appeal Tribunal considered in detail the decision of the Court of Appeal in

Kaur v Leeds Teaching Hospital NHS Trust [2018] EWCA Civ 978

which set out the factors to be taken into account, and the approach to be made, when considering whether there is a constructive dismissal.

The Tribunal should ask if the most recent act by the employer was not itself a repudiatory breach of contract, was it nevertheless a part of the course of conduct which viewed cumulatively amounted to a repudiatory breach?

That is almost a perfect description of the last straw doctrine.

However, that did not cover the factual situation here where the conduct relied upon as the last straw was not part of a course of conduct.

However, the Employment Appeal Tribunal held here that:

‘’… if the most recent conduct was not capable of contributing something to a breach of the Malik term, then the tribunal may need to go on to consider whether the earlier conduct itself entailed a breach of the Malik term, has not since been affirmed, and contributed to the decision to resign.’’

Thus

 ‘’so long as there has been conduct which amounts to a fundamental breach, the right to resign in response to it has not been lost, and the employee does resign at least partly in response to it, constructive dismissal is made out. That is so, even if other, more recent, conduct has also contributed to the decision to resign. It would be true in such a case that ‘’in point of time’’, it will be the later conduct that has ‘’tipped’’ the employee into resigning; but as a matter of causation, it is the combination of both the earlier and the later conduct that has together caused the employee to resign.’’

Strictly, in such a case the most recent conduct is not a last straw.

The significance of the decision is to remind Employment Tribunals that they should not rule out a constructive dismissal claim simply because the final event is innocuous, or does not form part of a previous course of conduct which could enable the employee to resign and claim constrictive dismissal.

 

Enforcement of Continuation of Employment Contract

 In

Square Global Limited v Leonard [2020] EWHC 1008(QB)

the Queen’s Bench Division of the High Court was considering whether there had been a repudiatory breach by the employer entitling the employee to resign and claim constructive dismissal.

This was a factually complicated case concerning inter-dealer and agency broking services and enormous salaries and bonuses.

The significance of constructive dismissal in such a case is that a finding of constructive dismissal of itself means that the employer has been in  repudiatory breach of contract.

A party in repudiatory breach of contract cannot rely on any term of the contract, and thus cannot enforce post-termination restrictive covenants.

That is often the motive for claiming constructive dismissal.

Here, there was a six-month non-compete clause in the contract and that ran from the end of the notice period.

As there was no repudiatory breach, the employee was not entitled to resign without notice, which is also part of the test, that is that the breach is such that the employee is entitled to resign without notice, and so the High Court ordered that he would continue to be employed by Square Global Limited until the end of his six-month notice period, and would then be bound for a further six months by the non-compete clause, making 12 months in all.

TAINTED ACQUITTALS

Few lawyers, let alone the general public, are aware that an acquittal, whether by a Magistrates’ Court or a jury in the Crown Court can be overturned if the High Court certifies that it is a Tainted Acquittal.

Sections 54 – 57 of the Criminal Procedure and Investigations Act 1996 enable the High Court to make an order quashing an acquittal in circumstances where the acquittal resulted from interference with, or intimidation of, a juror or witness (or potential witness). In such circumstances, an acquitted person can be re-tried for the original offence.

 

An application to quash an acquittal may only be made when:

• a person has been convicted of an “administration of justice” offence involving the interference or intimidation of a witness or juror;
• the court before which that person was convicted, “certifies” in accordance with section 54(2) of the Criminal Procedures and Investigations Act 1996 that there is a real possibility that the acquittal resulted from the interference or intimidation; and
• it would not, because of the lapse of time or for any other reason, be contrary to the interests of justice to take proceedings against the acquitted person for the offence of which she/he was acquitted.

 

“Administration of justice” offences for these purposes are:

• the offence of perverting the course of justice
• the offence of intimidation of witnesses, jurors or others, under section 51(1) of the Criminal Justice and Public Order Act 1994; and
• an offence of aiding, abetting, counselling, procuring, suborning or inciting another person to commit an offence under section 1 of the Perjury Act 1911.

 

Under section 54(3) and section 55, where a court provides a certificate of tainted acquittal, an application may be made to the High Court for an order quashing the acquittal. The High Court will make an order if:

• it appears likely that the acquitted person would not have been acquitted were it not for the interference or intimidation;
• it would not be contrary to the interests of justice to take proceedings against the acquitted person;
• the acquitted person has been given a reasonable opportunity to make written representations to the court; and
• it appears likely that the conviction for the administration of justice offence will stand.

 

Note: These provisions only apply in relation to acquittals in respect of offences alleged to have been committed on or after 15 April 1997.

 

Certification of Tainted Acquittal

A certification of tainted acquittal by either a Magistrates’ Court or the Crown Court shall be made at any time following conviction, but no later than immediately after the court sentences or otherwise deals with the convicted person.

A prosecutor in the Magistrates’ Court or prosecuting advocate in the Crown Court should therefore at that time be in a position to remind the court of its powers and to otherwise assist with information in relation to the original case. This should include the name and address of the original prosecutor and of the acquitted defendant.

 

Levels of Decision Making

The decision to seek “certification” should be referred to the Chief Crown Prosecutor or Head of Division.

 

Timing

Once the court has “certified” in accordance with section 54(2) of the Criminal Procedure and Investigations Act 1996, the prosecution may apply for the acquittal to be quashed. Applications must be made within 28 days of expiry of the period allowed for giving notice of appeal or for the determination of an appeal in respect of the administration of justice offence.

 

Application to the High Court

A prosecutor makes an application for an order quashing an acquittal to the High Court, by way of an originating motion that shall be issued out of the Crown Office. The application shall be accompanied by:

• an affidavit that addresses the conditions set out in section 54 of the 1996 Act;

• a copy of any relevant record of court proceedings which the prosecutor wishes to place before the single judge; and

• a copy of the certification under section 54(2) of the 1996 Act.

 

As to the procedure for obtaining the quashing of an acquittal under section 54(3), see part 27 Criminal Procedures Rules 2015.

Strict time limits apply in relation to the application to the High Court, as imposed by Order 116 of the Rules of the Supreme Court 1965.

The acquitted person should be charged for the original offence, which should be proceeded with as though it is a fresh charge.

It will be seen that under the procedure for obtaining a certificate of tainted acquittal, that certification should be made by the court at any time following conviction, but no later than immediately after the court sentences or otherwise deals with the convicted persons.

The rule applies in a situation where the defendant or defendants have been acquitted of one or more charges, but nevertheless convicted in relation to other charges.

COSTS BUDGETING: PUBLICATION OF PRECEDENT T (BUDGET VARIATION SUMMARY SHEET) FOR USE FROM 1 OCTOBER 2020

On 24 July 2020, the Ministry of Justice updated the Civil Procedure Rules (CPR) homepage to refer to the publication of a new Precedent T (Budget variation summary sheet).

Precedent T is to be used in the event of variation of a budget, pursuant to CPR 3.15A, and is introduced as part of the changes to Practice Direction 3E from 1 October 2020, under the 122nd Practice Direction Update – for more information see

– Publication of 122nd Practice Direction Update.

The CPR homepage states that Precedent T has been published ahead of these changes “in the interests of helpfulness”.

PRACTICE NOTE: HEARINGS AND DETAILED ASSESSMENTS IN SENIOR COURTS COSTS OFFICE FROM 1 AUGUST 2020

On 24 July 2020, Master Gordon-Saker, the Senior Costs Judge, published a Practice Note relating to hearings and detailed assessments in the Senior Courts Costs Office from 1 August 2020, based on experience during the pandemic.

 Detailed assessment hearings

• The format of the hearings (remote, partly remote, or in-person) will be decided by the costs judge or costs officer, and stated on the notice of hearing sent by the court.
• Parties may apply in writing for a different format, within 14 days of receiving the notice of hearing.

The court will make the arrangements for video hearings, and invitations will be sent to the representatives nominated by the parties.

For telephone hearings, the receiving party should arrange the conference call in accordance with paragraph 6.10 of Practice Direction 23A, unless the court has directed otherwise.

Filing papers in support of the bill of costs

• The Practice Note encourages electronic filing, and prescribes specific requirements for filing via the Courts Electronic Filing system (CE-File), the HMCTS Document Upload Centre, or through a safe third-party online file sharing platform.
• Where papers are filed non-electronically, the receiving party is nonetheless expected to file an electronic bundle of key documents, for which the Practice Note provides specific filing requirements and deadlines.

Filing other documents

• Parties should electronically file any documents which they intend to refer to at a hearing, as handing up documents in hearings may not now be permitted.
• Skeleton arguments must be filed electronically (by CE-File or email) at least two days before the hearing. Statements of costs for summary assessment must be filed using CE-File, not less than 24 hours before the hearing.

Provisional assessments

• The guidance on detailed assessment hearings applies to oral hearings of provisional assessments, as well as appeals from costs officers.
• Between-the-parties bills under £75,000 will continue to be provisionally assessed, although the receiving party is not required to file papers in support of the bill unless the court expressly requests this.

Bills of a deputy appointed by the Court of Protection.

• On the provisional assessment of such bills, the deputy’s solicitor must still file the papers in support of the bill together with the bill. Electronic filing is similarly encouraged here.

PERSONAL INJURY, EMPLOYMENT TRIBUNALS, QOCS AND ABUSE OF PROCESS

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

Akay v Newcastle University [2020] EWHC 1669 (QB)

the Queen’s Bench Division of the High Court, on appeal, upheld the decision of Newcastle County Court to strike out as an abuse of process a personal injury claim, and to order the claimant to pay costs.

 

Abuse of Process

Originally the claimant brought an Employment Tribunal claim for unfair dismissal, harassment, victimization and discrimination on the grounds of age, race and religion.

Although the Employment Tribunal has jurisdiction to determine a claim for damages for personal injury, the claimant did not claim personal injury damages in the Employment Tribunal claim, but the present claim relied on the same underlying facts as those in the Employment Tribunal proceedings.

The Employment Tribunal claim was struck out due the claimant’s failure to comply with the orders requiring provision of particulars, and because the claimant had no reasonable prospect of success.

As the court here said, this case had similarities to the case of

Sheriff v Klyne Tugs (Lowestoft) Ltd [1999] EWCA Civ 1663  .

There Mr Sheriff brought a personal injury claim against his employer in the County Court after he had brought and settled an Employment Tribunal claim arising out of the same fact.

The Court of Appeal held that the personal injury claim was an abuse of process both because it was settled by the Settlement Agreement, and because the case fell within the principles set out in

Henderson v Henderson (1843) 3 Hare 100.

So far, so clear.

However, not all of the Employment Tribunal claims had been struck out and the parties entered into a Settlement Agreement, which, as usual, compromised all claims, but the wording in relation to personal injury claims was different from the usual one.

The usual term in a Settlement Agreement compromises all personal injury claims of which the claimant is aware, or ought to have been aware, at the time of the Settlement Agreement.

Thus, it leaves open the possibility of the claimant suing for a latent injury such as asbestosis, which the claimant develops later, and was unaware of at the time of the Settlement Agreement.

Here the Settlement Agreement read:

“The Claimant confirms that he is aware of no other cause of action which he has made against the Respondent (save for the personal injury claim referred to in clause 7) …

The Claimant is not precluded by this agreement from bringing any personal injury claim against the Respondent where he is not and could not reasonably have been, aware of any such claim at the date of this Agreement. For the avoidance of doubt nothing in this Agreement prevents the Claimant from pursuing the personal injury claim that he has already made. The making and pursuing of this claim is not a breach of this agreement.”

Thus it was clear that the claimant had not, in the Settlement Agreement, compromised this personal injury claim.

The judge at first instance rejected the claimant’s contention that the terms of the Settlement Agreement precluded the defendant from seeking to strike out the claim as an abuse of process, and held that it was appropriate to strike out the claim as an abuse of process, but that the claim was not res judicata.

Here, the High Court upheld that decision.

The judge at first instance quoted from

 Johnson v Gore-Wood & Co (No 1) [2002] 2 AC 1

“The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before.”

As to the Settlement Agreement the original judge said:

“As set out above, I do not consider that there is anything in the terms of the Compromise Agreement to suggest that it extended beyond compromising the ET claim, leaving the issues in the personal injury action at large. Therefore, I consider that the defendant is entitled to argue res judicata and/or abuse of process as part of its defence to the personal injury claim.”

The trial judge also held that there was no special reason why the ordinary rule, as set out in

Davies v Carillion Energy Services Ltd [2018] 1 WLR 1734

that where a first action has been struck out as itself being an abuse of process, a second action covering the same subject matter will be struck out as an abuse of process unless there is a special reason.

Making a deliberate decision not to advance a personal claim in Employment Tribunal proceedings cannot amount to a special reason, and neither can ignorance of the fact that it was possible to bring personal injury claims in Employment Tribunal.

A party must bring forward any claim for personal injuries in the Employment Tribunal if the injuries were caused by the conduct which gives rise to the discrimination claim.

Elevating the claimant’s deliberate decision to refrain from pursuing his personal injury claim to a special reason would be to encourage duplicative litigation.

 

Comment

Over specialization is a disaster.

Most of my case load for other solicitors stems from personal injury firms, or individuals within them, not having a basic understanding of the law of contract, or probate law, or the fact that Employment Tribunals have extensive personal injury jurisdictions.

SECURITY FOR COSTS: HIGHER AMOUNT NOT JUSTIFIED BY POTENTIAL INDEMNITY COSTS AWARD

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

In

Phones 4u Ltd v EE Ltd and others [2020] EWHC 1943 (Ch) (20 July 2020)

the claimant was in administration and agreed to provide security for costs to all of the defendants and the issue was whether the security should be for a higher amount based on a potential award of indemnity costs as the claimants’ claim raised serious allegations of impropriety.

Here, the Chancery Division set out the principles in relation to indemnity costs, stating that the critical requirement is that “there must be some conduct or some circumstance which takes the case out of the norm” – see

Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (a firm) [2002] EWCA Civ 879 .

The court also set out the principles contained in the case of

Three Rivers District Council & Ors v The Governor & Company of the Bank of England [2006] EWHC 816 .

Here the defendants relied on the case of

Danilina v Chernukhin [2018] EWHC 2503 (Comm),

where the court said that where there was a reasonable possibility of indemnity costs, security should be by reference to about 75% of incurred and expected costs.

The Chancery Division followed this in

Re Ingenious Litigation [2020] EWHC 235 (Ch)

Here, the court referred to the specific factual context of Danilina and Ingenious and said that it was important not to read the judges’ words in those cases as if they were a statutory test.

It was not the case that the fact that there was a real possibility or reasonable possibility of an ultimate award of indemnity costs justified a higher level of security. That is much too low a threshold.

In

Stokors SA v IG Markets Ltd [2012] EWCA Civ 1706,

where a high percentage of security was sought as the defendants might recover indemnity costs, the Court of Appeal said that they had never heard of security being awarded on a more generous basis for that reason.

Stokors was apparently not cited in Danilina or Ingenious.

The court should not engage with the merits of a case when considering security for costs, save in the most obvious cases, and that weakness of legal argument is not, without more, justification for the indemnity basis of costs, which is in its nature penal  – see

Arcadia Group Brands Ltd v Visa Inc [2015] EWCA Civ 883 .

Consequently the application for a higher level of security for costs based on a potential indemnity costs order was refused.

INTEREST ON COSTS: COURTS MAKING IT UP AS THEY GO ALONG

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 two decisions just four days apart, two different parts of the High Court came to diametrically opposed decisions on two areas of interest on costs.

Now, costs are always in the discretion of the court, and interest on those costs is an extra layer of discretion, but in each case the court assumed that its decisions were in accordance with normal practice.

Thus, each court’s understanding of normal practice was fundamentally different from that of the other court.

First in time was the decision of the Senior Courts Costs Office on 10 July 2020 in

Marbrow v Sharpes Garden Services Ltd [2020] EWHC B26 (Costs) .

No Interest On Disbursement Funding Loan

In relation to this issue the Senior Courts Costs Office held that the losing defendant in a personal injury case should not be liable for interest on a disbursement funding loan taken out by the claimant.

The agreed rate of interest was 5% and the total interest was £2,484.48.

Here, the claimant sought that sum as an item of costs and alternatively by way of allowing interest to run from an earlier period, that is to award pre-judgment interest.

The court disallowed both bases of the claim, but set out the different case law and considerations in relation to these two alternative methods of seeking to recover the cost of disbursement funding.

As A Costs Item

The court held that there was no discretion to allow disbursement funding interest as a costs item, as compared with pre-judgment interest.

In

Hunt v RM Douglas (Roofing) Ltd [1987] 11 WLUK 221

the Court of Appeal held that funding costs had never been included in the categories of expense recoverable as costs and to include them would constitute an unwarranted extension.

In

F & C Alternative Investments (Holdings) Ltd & Ors v Barthelemy & Anor [2012] EWCA Civ 843 

the Court of Appeal approved the submission that “costs of funding litigation by way of bridging loans are not ordinarily recoverable in themselves as costs of litigation”.

The decision in

Secretary of State for the Department of Energy And Climate Change & Anor v Jones & Ors [2014] EWCA Civ 363

concerned the rate of interest that could be allowed in costs from a date earlier than judgment rather than claiming it as a separate capital item of costs.

Thus the fact that there the court upheld the lower court’s decision to allow interest on pre-judgment disbursements at 4% above base rate, rather than at any lower rate, did not affect the principle that interest of itself cannot be claimed as an item of costs.

Pre-judgment Interest  

Nevertheless CPR 44.2(6)(g) does allow the court to order the payment of interest on costs from a date before judgment.

Here, the court held that while it clearly had that power, justice in this case did not require a departure from the general rule that interest should only be paid from the date of the costs order, and the court also pointed out that the high rate of interest under the Judgment Act 1838 – 8 % –  “should go some way to compensating the claimant for the interest that he is liable to pay for funding the disbursement.”

The Senior Costs Judge gave his reasons for declining to exercise his jurisdiction to order pre-judgment interest:

“33. Jones was a rather different case to the present: a group action in which the disbursements came to a total in excess of £787,500. The present case is a straightforward personal injury claim. No evidence of the Claimant’s means has been produced but for present purposes I am happy to accept, on my reading of the papers, that it is unlikely that the Claimant would have had the means to fund disbursements other than by a loan. That is almost certainly the case for the vast majority of claimants in personal injury actions. Yet the incipitur rule remains the default position and parliament did not choose, when enacting the Legal Aid, Sentencing and Punishment of Offenders Act 2013, to make specific provision for the funding of disbursements whether by enabling the recovery of funding costs or by creating a default entitlement to pre-judgment interest.”

The decision not to award pre-judgment interest follows the recent case of

Nosworthy v Royal Bournemouth & Christchurch NHS Foundation Trust [2020] EWHC B19 (Costs)

It should be noted that Parliament has specifically given the courts power to award pre-judgment interest and a full High Court Judge in the case of

Involnert Management Inc v Aprilgrange Limited & Ors [2015] EWHC 2834 (Comm) 

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.”

Just four days later, on 14 July 2020, the Chancery Division of the High Court awarded pre-judgment interest on costs in the commercial case of

Sharp and others v Blank and others [2020] EWHC 1870 (Ch) .

In that case the court said:

“22. CPR44.2(6)(g) provides that the Court may order interest on costs from a date before judgment. It is common ground that this jurisdiction will generally be exercised where a party has had to put up money to pay its solicitors and has thereby either lost the beneficial use of that money or has had to borrow it. It is also common ground that the rate awarded will be determined by weighing the factors identified by Sharp LJ in Jones v SoS for Energy and Climate Change [2014] EWCA Civ 363 at [17]-[18], generally with the aim of identifying a commercial rate in the circumstances. In the instant case there is no argument about the rate. The Claimants submit (and the Defendants accept) that, if ordered for any period, the appropriate rate is base rate simpliciter. The issue is whether interest should be awarded at all.

23. For the Claimants Mr Hill QC submits that it should not. His argument was that the Claimants obtained (in the face of opposition from the Defendants) a costs management order so that they could secure an accurate assessment of the costs risks that they faced and could compare it with the level of ATE insurance available to them. The Defendants did not signal an intention to claim pre-judgment interest on costs at any time when costs budgets were under consideration, and a possible claim for interest was not factored in to the level of ATE cover obtained. The figure at which Defendants invited the Claimants to secure insurance cover (with which request they broadly complied) did not include any element of interest at costs.

24. For the Defendants Ms Davies QC submitted (i) that interest on costs does not form an element of recoverable costs for the purpose of costs budgeting so that it is not surprising that it was not mentioned in the costs budget debates; (ii) there had been no representation that interest would not be claimed; (iii) no-one could during the costs budgeting process know for what period or at what rate interest would run and it was for the Claimants to assess their exposure on that account and (if desired) cover it; (iv) there was no justice in the current shareholders in Lloyds being deprived of compensation for the loss of the beneficial use of their money simply to benefit a group of past shareholders.

25. I accept that the Defendants had a commercial interest in the level of ATE cover obtained by the Claimants because of the great difficulties attending costs recovery under the GLO. But it was ultimately for the Claimants to decide against what risks to insure and what risks to bear themselves. A claim for pre-judgment interest on costs is commonplace, and it was for the Claimants to decide whether any protective measures were required, not for the Defendants to call for them. I shall exercise the discretion in the way in which it is customarily exercised and order the Claimants to pay interest on the Defendants’ costs at the applicable Bank of England base rate from the date of payment of each invoice until the earlier of (i) payment of such costs or (ii) the date from which interest at the rate prescribed by the Judgments Act 1838 become payable.”

So not only did the court come to a completely different conclusion but it referred to a claim for pre-judgment interests on costs as being commonplace and that it is normal for pre-judgment interest to be ordered.

So we now have two different parts of the High Court in the space of four days saying completely different things.

On 11 September 2020 the Technology and Construction Court, part of the Queen’s Bench Division of the High Court, delivered yet another decision on the subject –

Essex County Council v UBB Waste (Essex) Ltd (No. 3) [2020] EWHC 2387 (TCC) (11 September 2020) .

There the court followed the decision in

Involnert Management Inc v Aprilgrange Limited & Ors [2015] EWHC 2834 (Comm) 

and awarded interest on pre-judgment costs at the rate of 2.4% per annum, being the actual cost of borrowing of Essex County Council.

The court dealt with the matter in Paragraph 84 of its judgment:

“84. The parties agree that interest on costs should run from the date of payment of the costs rather than from the date of my costs order. As I have already observed, such order is of course made pursuant to r.44.2(6)(g). Unless the court makes a contrary order, interest on the award of costs would, however, run at 8% per annum pursuant to s.17 of the Judgments Act 1838. Given the disparity between that rate and the Authority’s true cost of borrowing, the parties are agreed that the court should make an order pursuant to r.40.8(1) delaying the running of interest on costs under the 1838 Act until 14 September 2020 and setting a more commercial rate until that date. I agree that such course is appropriate for the reasons explained by Leggatt J, as he then was, in Involnert Management Inc. v. Aprilgrange Ltd [2015] EWHC 2834 (Comm), [2015] 5 Costs LR 813 in circumstances where a significant interim payment has been ordered and it is not reasonable to expect the paying party to pay the balance of the costs liability until it has had a fair opportunity to determine what sum it accepts is properly payable. I therefore order that, subject to the order already made under r.36.17(4)(c), interest on costs shall run at the rate of 2.4% per annum from the date when the costs were incurred until 14 September 2020 and thereafter at the rate specified by s.17.”

For my critique of that difference, and why the decisions are irrational, see my blog

COURT REFUSES PRE-JUDGMENT INTEREST IN PERSONAL INJURY – BUT OK IN COMMERCIAL CASES

Post-judgment Interest on Costs

In the first of the three cases decided, that is

Marbrow v Sharpes Garden Services Ltd [2020] EWHC B26 (Costs) 

the Senior Courts Costs Office held that interest should normally run from the date of the original order for costs and at the judgment rate of 8%.

This may seem obvious, but in fact it involved the court disagreeing with the decision of the High Court in

Involnert Management Inc v Aprilgrange Limited & Ors [2015] EWHC 2834 (Comm)

where the court said:

“it seems to me that a reasonable objective benchmark to take is the period prescribed by the rules of court for commencing detailed assessment proceedings. Pursuant to CPR 47.7, where an order is made for payment of costs which are to be the subject of a detailed assessment if not agreed, the time by which detailed assessment proceedings must be commenced (unless otherwise agreed or ordered) is three months after the date of the costs order. In order to commence such proceedings, the receiving party must serve on the paying party a bill of costs giving particulars of the costs claimed. It is then for the paying party to decide which items in the bill of costs it wishes to dispute. Postponing the date from which Judgments Act interest begins to run by three months will therefore generally serve to ensure that the party liable for costs has received the information needed to make a realistic assessment of the amount of its liability before it begins to incur interest at the rate applicable to judgment debts for failing to pay that amount.”

Strictly the court here distinguished that decision on the basis that it was a commercial case in which the court had ordered the payment of interest at 2% over base rate from when the costs were incurred, that is pre-judgment interest, until the date three months after the date of the costs order was made.

Nevertheless, it is clear that the judgment in Involnert was wrong, and so obviously wrong that it need no longer be followed, as it failed properly to take into account a Court of Appeal decision to the contrary, and failed properly to implement an Act of Parliament.

As the court here pointed out the entitlement to interest on costs is automatic under section 17 of the Judgments Act 1838 which provides:

(1) Every judgment debt shall carry interest at the rate of 8 pounds per centum per annum from such time as shall be prescribed by rules of court . . . until the same shall be satisfied, and such interest may be levied under a writ of execution on such judgment.

(2) Rules of court may provide for the court to disallow all or part of any interest otherwise payable under subsection (1).

Rule 40.8 of the Civil Procedure Rules 1998 provides:

(1) Where interest is payable on a judgment pursuant to section 17 of the Judgments Act 1838 or section 74 of the County Courts Act 1984, the interest shall begin to run from the date that judgment is given unless –

(a) a rule in another Part or a practice direction makes different provision; or

(b) the court orders otherwise.

(2) The court may order that interest shall begin to run from a date before the date that judgment is given.

Rule 44.2 provides (in part):

(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.

Consequently interest is payable on costs at 8% from the date of judgment without the need for an order to that effect, unless the court makes a different order under either CPR 40.8 or CPR 44.2(6)(g) – see Hunt v R.M.Douglas (Roofing) Ltd [1990] 1 AC 398.

The court here quoted from the case of

Simcoe v Jacuzzi UK Group Plc [2012] EWCA Civ 137

which is a Court of Appeal case which pre-dated the Involnert case and the High Court there appears not properly to have considered the judgment in Simcoe.

In Simcoe the Court of Appeal said:

“47. We were referred to Fattal v Walbrook Trustees (Jersey) Ltd [2009] EWHC 1674 (Ch), [2009] 4 Costs LR 591, paras 25-30, in which Christopher Clarke J held, in summary terms, that the effect of CPR 40.8 was that (a) the general rule is that interest on costs runs from the incipitur date, (b) a departure from that general rule is justified if it is ‘what justice requires’; (c) the notion that a departure can only be justified in ‘exceptional’ cases is an unhelpful guide; (d) the primary purpose of an award of interest is ‘to compensate the recipient for [having] been precluded from obtaining a return on [his] money’; (e) ‘[s]ince the payment of solicitors’ costs involves the payment of money which could otherwise have been profitably employed, the overwhelming likelihood is that justice requires some recompense in the form of interest’.

48. I agree with all those observations, but would add two precautionary comments on his observations. First, I would discourage too detailed an approach into the facts of the particular case in hand for the purpose of determining the date from which interest should run. As Lord Ackner’s speech in Hunt [1990] 1 AC 398 implies, when making such a determination, the court should take a broad view of the position. Prolonged argument, let alone detailed evidence, on the issue must be avoided. There will often be no perfect date, and the decision inevitably will, indeed should, be broad brush. Further, if interest was to run from different dates on different components of the costs, it would, in many cases, lead to arguments which would do the legal system no credit. The second observation is that I would not necessarily agree with the suggestion, at [2009] 4 Costs LR 591, para 30, that it may be inappropriate to award interest on costs where the case is being funded by a third party entirely voluntarily or otherwise free of any cost. I would have thought that, following the logic of reason (v) in para 11 above (and see para 46 above), if interest on costs is payable from the incipitur date, the party to whom it is paid may have to account for it to the third party, and, if that is correct, there would seem to me to be a powerful argument for saying that the third party should get interest on costs in the normal way.”

However, four days later, the Chancery Division of the High Court in

Sharp and others v Blank and others [2020] EWHC 1870 (Ch)

took a completely different view and awarded it judgment interest on costs from four months after the date of its judgment on costs, and thus followed the decision in

Involnert Management Inc v Aprilgrange Limited & Ors [2015] EWHC 2834 (Comm) .

Date Of Start Of Interest On Costs At 8%

Here the court said that the judgment debt rate should only apply from four months after the order for costs.

Again, this is in stark contrast to the decision in Marbrow where the court said that interest should normally run from the date of the original order, where the court held that the decision in

Involnert Management Inc v Aprilgrange Limited & Ors [2015] EWHC 2834 (Comm) 

was for all intents and purposes wrong.

I agree with that statement.

However, here the court approved of Involnert saying it was “a thorough analysis” of the issues and saying this:

“Normally the interests of justice will indicate that the rate of interest applicable in the event of non-payment of a judgment debt should only run from the time when (i) the amount of that debt is known (or can at least be the subject of fair estimation for the purposes of offers of compromise) and (ii) the essential mechanics of payment can be completed.”

The complete mess that the courts are in on the issues of interest and costs can be demonstrated by my own statement in my blog on the Marbrow case – judgment given on 10 July 2020 – where I said:

“This very helpful decision should put this issue to bed. Interest on costs runs at 8% from the date of the original order for costs and Involnert was wrongly decided.”

Just four days later, the High Court has taken a diametrically opposed view.

I realise that where there is discretion, different courts will come to different conclusions.

The problem here is that both courts are assuming that the decision that they have arrived at in each case is normal and customary etc.

For full and detailed analysis of the Marbrow case – see my blog

NO INTEREST ON DISBURSEMENT FUNDING LOAN; INTEREST ON COSTS IS 8% FROM DATE OF ORIGINAL ORDER; CAPPED RECOVERABLE COSTS FIGURES FOR COSTS BUDGETING ARE EXCLUSIVE OF VAT

Part 36 Uplift on Interest on Costs

There is a twist in the tale in relation to interest on costs where a claimant has matched or beaten its own Part 36 offer.

In those circumstances the court must, unless it considers it unjust to do so, order that the claimant is entitled to costs on the indemnity basis from the date on which the relevant Part 36 period expired and, under CPR 36.17(4)(c):

“(c) interest on those costs at a rate not exceeding 10% above base rate;”

In

Essex County Council v UBB Waste (Essex) Ltd (No. 3) [2020] EWHC 2387 (TCC) (11 September 2020)

the Technology and Construction Court, part of the Queen’s Bench Division of the High Court, pointed out that the ruling in

McPhilemy v Times Newspapers Ltd & Ors [2001] EWCA Civ 933

wrongly stated that what is now CPR 36.17(4)(c) was designed to redress the unfairness that arises from the rule that interest is not normally awarded on costs before judgment.

As the court here pointed out, the court does have that power pursuant to CPR 44.2(6)(g) and indeed in the Essex case awarded such interest.

The award of interest on costs at 4% above base rate in McPhilemy became the conventional award, but the court here declined to follow the Court of Appeal decision on the basis that it was wrongly decided as it had failed properly to consider the law and the relevant Civil Procedure Rule.

Consequently the court awarded interest upon costs pursuant to CPR 36.17 at the full rate of 10% over base rate from the expiry of the period for accepting the Part 36 offer on damages.

It is important to note that the CPR 36.17 power to award this punitive rate of interest covers the period from when the date for acceptance of the Part 36 offer expired, and thus potentially can apply to years of pre-judgment costs.

This is a very important decision which has got a bit lost given the eight separate significant costs and Part 36 offers issues considered in the Essex case.

Comment

How about a nice, long, detailed and clear Civil Procedure Rule in relation to interest.

It is not rocket science.

It could deal with all normal scenarios, that is where there is a third party litigation funder, where the client borrows from a bank, where the solicitor effectively funds the case, where there is only disbursement funding etc, etc.

The rule could then end with the statement:

“A court shall only depart from the above provisions if there are exceptional circumstances, which would make the application of these provisions clearly unjust.”

FIXED COSTS: TWO RECENT 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.

 

Portals: Offer By Mistake Not Binding If Other Party Knew

The Court of Appeal has refused permission to appeal against a decision of a Circuit Judge in Bradford County Court, on appeal, that a mistaken offer in the portal system can be rectified by applying the Overriding Objective, rather than importing the common law doctrine of mistake into the portal system.

The Court of Appeals did so in damning terms:

 

“Reasons

The appeal has no real prospect of success. The parties agreed that the Judge was required to apply the Overriding Objective. He did so entirely properly at paragraph 72 of the judgment onwards. That assessment of how the Overriding Objective applied in this case is not capable of successful challenge in this court. Further, the case raises no important point of law or practice. As the judge points out, the decision turned entirely upon the very particular facts of this case and gives rise to no general issue of importance. I agree with the points made in the Respondent’s PD at paragraph 19 Statement.

I reach this conclusion with no regret whatsoever, so avoiding what would obviously be a monstrous injustice. (my bold)”

 

The significance of this decision, and the way the Court of Appeal has expressed its views, is that the decision in

Mahoney v Royal Mail, Truro County Court, 26 May 2020

was wrongly decided and must be ignored.

I dealt with this decision in my blog –

PORTAL MISTAKE BINDING: OUTRAGEOUS AND SHAMEFUL DECISION

The case here where the Court of Appeal refused permission is

Harris v Browne, Bradford County Court, Case No: D00BD701

In the portal process here, the defendant had admitted liability and offers went to and fro as to quantum.

The claimant’s third offer was made up of individual items as follows:

                                                                        £

pain, suffering and loss of amenity               4,000

postage                                                              30

care expenses                                                3,895

medical expenses                                              470

Total                                                               8,395

However, by mistake, or problems with the Rapid Settlement website, the claimant’s global offer showed a sum of £6,115, which the insurers accepted on the same day.

The insures contended that that was a binding settlement even though the District Judge found that it was a unilateral mistake and that the insurer accepted the offer knowing that it was not the intended offer.

 

The District Judge said:

 

“26.  Then at paragraph 24: –

“I agree that the Protocol and the Portal represent a stand‑alone arrangement.  It is designed to effect speedy settlement.  It is rough and ready.  The application of common law principles would result in uncertainty, potential satellite litigation and delay”.

27. Then moving on to paragraph 32: –

“I am mindful that the Defendant well knew at the time of acceptance that the Claimant intended to offer more than £6,115.   The Solicitors had received the email.  It may seem unfair that a settlement be upheld in such circumstances.  However, I have concluded that what happens in the Portal is specific to the Portal.  The Protocol does not allow for reference to be made to external data”.”

 

Thus, the District Judge held that the common law doctrine of mistake had no place in the portal system.

On appeal the Circuit Judge upheld that finding, having considered a number of authorities in relation to Part 36 being a self-contained code, the argument being that the portal should also be a self-contained code.

However, the Circuit Judge allowed the appeal by applying the Overriding Objective which requires the court to deal with cases justly, a point apparently not raised in the reported cases in relation to mistake and Part 36.

It was significant here that the insurance company knew that the offer was a mistake. That fact engaged the Overriding Objective. 

“In my judgment, a case cannot be dealt with justly in a case such as ours where, before acceptance, one party knows that the other party has mistakenly put forward an offer undervaluing its intended offer by more than one third.” (Paragraph 73)

The rough justice concept of the portal “cannot be used as a licence for the deliberate infliction of any degree of injustice.”

“Rough justice there may be but, on a continuum of roughness, moving through rougher justice and roughest justice, there must eventually come a point where the justice is so rough that it becomes injustice…”

 

Comment

Absolutely right.

I am very grateful to Adam Oldale, the Negotiations Manager of Total Legal Solutions for supplying me with information about this case. Adam very kindly said:

“Feel free to share if you wish and I hope this goes someway to restore your faith in the Judiciary.”

It does Adam. Thank you.

 

No Counsel’s fee in Fixed Costs Cases

In

Coleman v Townsend, SCC Senior Court Costs Office, 13th July 2020, Case No: PHW 1806767

the Senior Courts Costs Office held that in a fixed costs case counsel’s brief fee, and counsel’s fee for preparing a skeleton argument, could not be recovered where the matter settled the day before trial.

Table 6B provides for a trial advocacy fee to be recoverable where a claim is settled on the day of the trial or at trial, and this is part of the fixed costs regime and is not a disbursement.

Here, the receiving party argued that counsel’s fees were recoverable as a disbursement as they were reasonably incurred due to a particular feature of the dispute, pursuant to CPR 45.29I(2)(h).

The counsel’s fees claimed related to the advocacy fee, which was a hopeless argument given Table 6B and Table 6C and was rejected by the Senior Courts Costs Office, but which, bizarrely, had been allowed by the original Costs Officer.

Unsurprisingly the Senior Courts Costs Office allowed the appeal.

More interesting, and arguable, was the issue of counsel’s fee for preparing a skeleton argument in circumstances where the court had ordered an exchange of skeleton arguments, obviously prior to the day of trial.

Nevertheless, the Senior Courts Costs Offices disallowed this item as well stating:

 

“The costs in Table 6B set out the recoverable costs for each stage of the claim which no longer continues under the RTA Protocol and include all the work which could reasonably be expected to be carried out for each stage. In relation to Table C that specifically includes the trial advocacy fee and implicitly the costs of preparing for the trial which self-evidently would include a skeleton argument. That stage was not reached in this case. The day of the trial was not yet at hand. It follows that both the claim for the preparation of the skeleton argument and an abated brief fee fall within Table B, which includes all work “on or after the day of listing, but prior to the date of trial”.”

 

Here, the court referred to the decision of the Court of Appeal in

Aldred v Cham [2019] EWCA Civ 1780

where that court held that the cost of a written quantum report almost always required where a claimant is an infant, was not recoverable as a disbursement over and above fixed costs, as

“the work that is the subject of the disbursement has already been allowed for in the fixed recoverable costs”.

That applied here. The court also held that these disbursements by way of counsel’s fees were not properly incurred, nor reasonably incurred.

The Supreme Court has refused leave to appeal in Aldred v Cham – for a detailed write-up of that Court of Appeal decision – see my blog

FIXED COSTS AND COUNSEL’S FEES: SUPREME COURT REFUSES LEAVE TO APPEAL

 

Comment

How on earth are these matters still reaching the appeal stage?

All of this was dealt with five years ago in my blog

COUNSEL’S FEES IN FIXED RECOVERABLE COSTS CASES

where I said:

“Counsel’s fees as such are not recoverable in Fixed Recoverable Costs cases – it is assumed that the solicitor will deal with all matters in such cases. You are free to instruct counsel but you do not get a separate fee as it is part of the legal spend. If it were otherwise you could take the fixed costs and get counsel to do everything and charge all of counsel’s fees as a disbursement.

Advocacy fees, for trial, are recoverable as per the Tables and the fee is the same whoever the advocate is, barrister or solicitor, and irrespective of seniority or expertise.

No advocacy fee is recoverable if the matter settles before trial. Clearly the solicitor gets the benefit of a higher fee the further the matter progresses through the Fixed Costs Matrix. Counsel does not.”

In that blog I also said that in my view it was wrong for the courts to allow counsel’s fees under the provisions of CPR 45.29I(1)(h) as “any other disbursement reasonably incurred due to a particular feature of the dispute.”

I know that all the judges dealing with these matters read my blogs; solicitors and barristers will be well advised to do so as well.

THIRD PARTY FUNDER JOINTLY AND SEVERALLY LIABLE FOR COSTS IN GROUP LITIGATION ORDER CLAIM

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

Sharp and others v Blank and others [2020] EWHC 1870 (Ch)

one of the matters to be considered by the court was the costs liability of the litigation funder who had funded an unsuccessful claim on behalf of 5,800 claimants in a matter subject to a Group Litigation Order and where the defendants’ costs were over  £30 million.

The claimants had After-the-Event insurance cover of £6.5 million, plus a third party funding arrangement with the litigation funder who had excess insurance totalling a further £14.95 million, giving overall insurance cover of £21.45 million.

The litigation funder – Therium Finance No.1 IC-  had been added as a party for the purposes of the application against it for costs.

The Group Litigation Order provided that the liability of each claimant to the defendants for costs should be several and not joint.

Therium accepted, in principle, that as a commercial funder it was liable to pay costs awarded against the claimants, but that it should be so liable only to the extent that the claimants themselves did not satisfy the costs order, and also that the Arkin cap should apply, that is that costs liability of Therium should not exceed the extent of its funding.

The Arkin cap is named after the case of

Arkin v Borchard Lines Ltd & Ors [2005] EWCA Civ 655 .

Here the court considered the recent decision of the Court of Appeal in

Chapelgate Credit Opportunity Master Fund Ltd v Money & Ors [2020] EWCA Civ 246

which held that the Arkin cap is not a binding rule, but simply guidance given to individual judges, who retain a complete discretion in relation to third party costs orders.

For a detailed analysis of this decision see my blog –

ARKIN FUNDERS’ CAP SCRAPPED BY COURT OF APPEAL

Here, there was insufficient information about the funding arrangements for the judge properly to exercise his discretion regarding all the costs claimed by the defendants, but a limited exercise could be conducted on the figures available.

The court here found that even if the Arkin cap was applied, the interim payment of £17 million fell within the Arkin cap, and so an interim order for costs of £17 million could be made, with permission to apply.

The extent of Therium’s liability, as a litigation funder, beyond that was adjourned.

The court also held that the liability of Therium should not be secondary, but rather should be joint and several.

Consequently, they were primarily for the costs of the defendant and the defendant did not have to try and enforce those costs against the 5,800 claimants first, before turning to Therium.

 

“34. I can now revert to the first issue. It is accepted that a third-party costs order is in principle appropriate. I see no reason in principle why the liability of Therium (which has indemnified the Claimants) should be secondary and not simply joint and several in the usual way. Mr Marven QC accepted that if I made an order for an interim payment of costs in (say) 21 days which the Claimants did not satisfy, then Therium’s liability would be triggered (without the Defendants having to seek recovery of a several share from each Claimant). But such “default” on the part of the Claimants would seem to result from a failure on the part of Therium to honour its indemnity to them. I cannot see what is achieved by postponing any liability of Therium direct to the Defendants for 21 days. Therium’s liability should be joint and several.”

 

PRE-JUDGMENT INTEREST AWARDED; INTEREST ON COSTS FROM FOUR MONTHS AFTER ORDER; THIRD PARTY FUNDER JOINTLY AND SEVERALLY LIABLE FOR COSTS

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.

 

Sharp in sharp contrast to Sharpes

In  

Sharp and others v Blank and others [2020] EWHC 1870 (Ch)

the Chancery Division was considering various costs matters following the dismissal of the claimants’ claim against former directors of Lloyds TSB, which  claim had been on behalf 5,800 claimants, subject to a Group Litigation Order, and where the defendants claimed over £30 million costs.

There were three decisions on separate key issue of principle.

 

Pre-judgment Interest

Here the court ordered the claimants to pay interest on the defendants’ costs at the applicable Bank of England base rate from the date of payment of each invoice until the earlier of:

(i) payment of such costs; or

(ii) the date from which interest at the rate prescribed by the Judgments Act 1838 become payable.

The significance of this decision, by a full High Court Judge, is that the court worked on the basis that pre-judgment interest was usual and standard and set:

 

“22. CPR44.2(6)(g) provides that the Court may order interest on costs from a date before judgment. It is common ground that this jurisdiction will generally be exercised where a party has had to put up money to pay its solicitors and has thereby either lost the beneficial use of that money or has had to borrow it. It is also common ground that the rate awarded will be determined by weighing the factors identified by Sharp LJ in Jones v SoS for Energy and Climate Change [2014] EWCA Civ 363 at [17]-[18], generally with the aim of identifying a commercial rate in the circumstances. In the instant case there is no argument about the rate. The Claimants submit (and the Defendants accept) that, if ordered for any period, the appropriate rate is base rate simpliciter. The issue is whether interest should be awarded at all.”

 

The court agreed that pre-judgment interest is not a costs item in its own right, and therefore should not appear in a costs budget.

To that extent, and that extent only, the court agreed with the decision of the Senior Courts Costs Office just four days earlier in the case of

Marbrow v Sharpes Garden Services Ltd [2020] EWHC B26 (Costs).

However, in terms of the general rule relating to pre-judgment interest the court here as approached could not have been more different to that in Marbrow.

The court here said:

 

“A claim for pre-judgment interest on costs is commonplace…”

 

In the Marbrow case the court referred to “the general rule that interest should only be paid from the date of the costs order…”.

 

Date Of Start Of Interest On Costs At 8%

Here the court said that the judgment debt rate should only apply from four months after the order for costs.

Again, this is in stark contrast to the decision in Marbrow where the court said that interest should normally run from the date of the original order, where the court held that the decision in

Involnert Management Inc v Aprilgrange Limited & Ors [2015] EWHC 2834 (Comm) 

was for all intents and purposes wrong.

I agree with that statement.

However, here the court approved of Involnert saying it was “a thorough analysis” of the issues and saying this:

 

“Normally the interests of justice will indicate that the rate of interest applicable in the event of non-payment of a judgment debt should only run from the time when (i) the amount of that debt is known (or can at least be the subject of fair estimation for the purposes of offers of compromise) and (ii) the essential mechanics of payment can be completed.”

 

The complete mess that the courts are in on the issues of interest and costs can be demonstrated by my own statement in my blog on the Marbrow case – judgment given on 10 July 2020 – where I said:

“This very helpful decision should put this issue to bed. Interest on costs runs at 8% from the date of the original order for costs and Involnert was wrongly decided.”

Just four days later, the High Court has taken a diametrically opposed view.

I realise that where there is discretion, different courts will come to different conclusions.

The problem here is that both courts are assuming that the decision that they have arrived at in each case is normal and customary etc.

I will deal with the issue of the third party’s liability for costs in a separate post.

 

For full and detailed analysis of the Marbrow case – see my blog

NO INTEREST ON DISBURSEMENT FUNDING LOAN; INTEREST ON COSTS IS 8% FROM DATE OF ORIGINAL ORDER; CAPPED RECOVERABLE COSTS FIGURES FOR COSTS BUDGETING ARE EXCLUSIVE OF VAT

NO INTEREST ON DISBURSEMENT FUNDING LOAN; INTEREST ON COSTS IS 8% FROM DATE OF ORIGINAL ORDER; CAPPED RECOVERABLE COSTS FIGURES FOR COSTS BUDGETING ARE EXCLUSIVE OF VAT

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

Marbrow v Sharpes Garden Services Ltd [2020] EWHC B26 (Costs) 

the Senior Courts Costs Office, in a clear and succinct judgment, ruled on three different and significant areas of costs.

 

No Interest On Disbursement Funding Loan

In relation to this issue the Senior Courts Costs Office Office held that the losing defendant in a personal injury case should not be liable for interest on a disbursement funding loan taken out by the claimant.

The agreed rate of interest was 5% and the total interest was £2,484.48.

Here, the claimant sought that sum as an item of costs and alternatively by way of allowing interest to run from an earlier period, that is to award pre-judgment interest.

The court disallowed both bases of the claim, but set out the different case law and considerations in relation to these two alternative methods of seeking to recover the cost of disbursement funding.

 

As A Costs Item

The court held that there was no discretion to allow disbursement funding interest as a costs item, as compared with pre-judgment interest.

In

Hunt v RM Douglas (Roofing) Ltd [1987] 11 WLUK 221

the Court of Appeal held that funding costs had never been included in the categories of expense recoverable as costs and to include them would constitute an unwarranted extension.

In

F & C Alternative Investments (Holdings) Ltd & Ors v Barthelemy & Anor [2012] EWCA Civ 843 

the Court of Appeal approved the submission that “costs of funding litigation by way of bridging loans are not ordinarily recoverable in themselves as costs of litigation”.

The decision in

Secretary of State for the Department of Energy And Climate Change & Anor v Jones & Ors [2014] EWCA Civ 363

concerned the rate of interest that could be allowed in costs from a date earlier than judgment rather than claiming it as a separate capital item of costs.

Thus the fact that there the court upheld the lower court’s decision to allow interest on pre-judgment disbursements at 4% above base rate, rather than at any lower rate, did not affect the principle that interest of itself cannot be claimed as an item of costs.

 

Pre-judgment Interest

Nevertheless CPR 44.2(6)(g) does allow the court to order the payment of interest on costs from a date before judgment.

Here, the court held that while it clearly had that power, justice in this case did not require a departure from the general rule that interest should only be paid from the date of the costs order, and the court also pointed out that the high rate of interest under the Judgment Act 1838 – 8 % –  “should go some way to compensating the claimant for the interest that he is liable to pay for funding the disbursement.”

The Senior Costs Judge gave his reasons for declining to exercise his jurisdiction to order pre-judgment interest:

 

“33. Jones was a rather different case to the present: a group action in which the disbursements came to a total in excess of £787,500. The present case is a straightforward personal injury claim. No evidence of the Claimant’s means has been produced but for present purposes I am happy to accept, on my reading of the papers, that it is unlikely that the Claimant would have had the means to fund disbursements other than by a loan. That is almost certainly the case for the vast majority of claimants in personal injury actions. Yet the incipitur rule remains the default position and parliament did not choose, when enacting the Legal Aid, Sentencing and Punishment of Offenders Act 2013, to make specific provision for the funding of disbursements whether by enabling the recovery of funding costs or by creating a default entitlement to pre-judgment interest.”

 

The decision not to award pre-judgment interest follows the recent case of

Nosworthy v Royal Bournemouth & Christchurch NHS Foundation Trust [2020] EWHC B19 (Costs)

It should be noted that Parliament has specifically given the courts power to award pre-judgment interest and a full High Court Judge in the case of

Involnert Management Inc v Aprilgrange Limited & Ors [2015] EWHC 2834 (Comm) 

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.””

There is now a clear pattern of courts awarding pre-judgment interest in commercial cases, but not personal injury cases, but there is no justification whatsoever in law for adopting that different approach.

Indeed just four days after this decision the Chancery Division of the High Court awarded pre-judgment interest on costs in the commercial case of

Sharp and others v Blank and others [2020] EWHC 1870 (Ch)

where the court had this to say:

 

“22. CPR44.2(6)(g) provides that the Court may order interest on costs from a date before judgment. It is common ground that this jurisdiction will generally be exercised where a party has had to put up money to pay its solicitors and has thereby either lost the beneficial use of that money or has had to borrow it. It is also common ground that the rate awarded will be determined by weighing the factors identified by Sharp LJ in Jones v SoS for Energy and Climate Change [2014] EWCA Civ 363 at [17]-[18], generally with the aim of identifying a commercial rate in the circumstances. In the instant case there is no argument about the rate. The Claimants submit (and the Defendants accept) that, if ordered for any period, the appropriate rate is base rate simpliciter. The issue is whether interest should be awarded at all.

23. For the Claimants Mr Hill QC submits that it should not. His argument was that the Claimants obtained (in the face of opposition from the Defendants) a costs management order so that they could secure an accurate assessment of the costs risks that they faced and could compare it with the level of ATE insurance available to them. The Defendants did not signal an intention to claim pre-judgment interest on costs at any time when costs budgets were under consideration, and a possible claim for interest was not factored in to the level of ATE cover obtained. The figure at which Defendants invited the Claimants to secure insurance cover (with which request they broadly complied) did not include any element of interest at costs.

24. For the Defendants Ms Davies QC submitted (i) that interest on costs does not form an element of recoverable costs for the purpose of costs budgeting so that it is not surprising that it was not mentioned in the costs budget debates; (ii) there had been no representation that interest would not be claimed; (iii) no-one could during the costs budgeting process know for what period or at what rate interest would run and it was for the Claimants to assess their exposure on that account and (if desired) cover it; (iv) there was no justice in the current shareholders in Lloyds being deprived of compensation for the loss of the beneficial use of their money simply to benefit a group of past shareholders.

25. I accept that the Defendants had a commercial interest in the level of ATE cover obtained by the Claimants because of the great difficulties attending costs recovery under the GLO. But it was ultimately for the Claimants to decide against what risks to insure and what risks to bear themselves. A claim for pre-judgment interest on costs is commonplace, and it was for the Claimants to decide whether any protective measures were required, not for the Defendants to call for them. I shall exercise the discretion in the way in which it is customarily exercised and order the Claimants to pay interest on the Defendants’ costs at the applicable Bank of England base rate from the date of payment of each invoice until the earlier of (i) payment of such costs or (ii) the date from which interest at the rate prescribed by the Judgments Act 1838 become payable.”

So not only did the court come to a completely different conclusion but it referred to a claim for pre-judgment interests on costs as being commonplace and that it is normal for pre-judgment interest to be ordered.

So we now have two different parts of the High Court in the space of four days saying completely different things.

For my critique of that difference, and why the decisions are irrational, see my blog

COURT REFUSES PRE-JUDGMENT INTEREST IN PERSONAL INJURY – BUT OK IN COMMERCIAL CASES

 

Interest On Costs Is 8% From Date Of Original Order

On this issue the court held that interest should normally run from the date of the original order, but unfortunately, in the case already referred to of

Sharp and others v Blank and others [2020] EWHC 1870 (Ch)

the court followed the decision in

Involnert Management Inc v Aprilgrange Limited & Ors [2015] EWHC 2834 (Comm),

whereas we will see below here the court had disagreed with that decision.

The court in Sharp and others v Blank thus awarded judgment interest on costs from four months after the date of its judgment.

The Senior Courts Costs Office considered a number of matters arising out of a detailed assessment of costs in a personal injury case, and here I just deal with the issue of the date from when interest runs on costs.

Here the court held that interest should normally run from the date of the original order for costs and at the judgment rate of 8%.

This may seem obvious, but in fact it involved the court disagreeing with the decision of the High Court in

Involnert Management Inc v Aprilgrange Limited & Ors [2015] EWHC 2834 (Comm)

where the court said:

“it seems to me that a reasonable objective benchmark to take is the period prescribed by the rules of court for commencing detailed assessment proceedings. Pursuant to CPR 47.7, where an order is made for payment of costs which are to be the subject of a detailed assessment if not agreed, the time by which detailed assessment proceedings must be commenced (unless otherwise agreed or ordered) is three months after the date of the costs order. In order to commence such proceedings, the receiving party must serve on the paying party a bill of costs giving particulars of the costs claimed. It is then for the paying party to decide which items in the bill of costs it wishes to dispute. Postponing the date from which Judgments Act interest begins to run by three months will therefore generally serve to ensure that the party liable for costs has received the information needed to make a realistic assessment of the amount of its liability before it begins to incur interest at the rate applicable to judgment debts for failing to pay that amount.”

Strictly the court here distinguished that decision on the basis that it was a commercial case in which the court had ordered the payment of interest at 2% over base rate from when the costs were incurred, that is pre-judgment interest, until the date three months after the date of the costs order was made.

Nevertheless, it is clear that the judgment in Involnert was wrong, and so obviously wrong that it need no longer be followed, as it failed properly to take into account a Court of Appeal decision to the contrary, and failed properly to implement an Act of Parliament.

As the court here pointed out the entitlement to interest on costs is automatic under section 17 of the Judgments Act 1838 which provides:

(1) Every judgment debt shall carry interest at the rate of 8 pounds per centum per annum from such time as shall be prescribed by rules of court . . . until the same shall be satisfied, and such interest may be levied under a writ of execution on such judgment.

(2) Rules of court may provide for the court to disallow all or part of any interest otherwise payable under subsection (1).

Rule 40.8 of the Civil Procedure Rules 1998 provides:

(1) Where interest is payable on a judgment pursuant to section 17 of the Judgments Act 1838 or section 74 of the County Courts Act 1984, the interest shall begin to run from the date that judgment is given unless –

(a) a rule in another Part or a practice direction makes different provision; or

(b) the court orders otherwise.

(2) The court may order that interest shall begin to run from a date before the date that judgment is given.

Rule 44.2 provides (in part):

(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.

Consequently interest is payable on costs at 8% from the date of judgment without the need for an order to that effect, unless the court makes a different order under either CPR 40.8 or CPR 44.2(6)(g) – see Hunt v R.M.Douglas (Roofing) Ltd [1990] 1 AC 398.

The court here quoted from the case of

Simcoe v Jacuzzi UK Group Plc [2012] EWCA Civ 137

which is a Court of Appeal case which pre-dated the Involnert case and the High Court there appears not properly to have considered the judgment in Simcoe.

In Simcoe the Court of Appeal said:

 

“47. We were referred to Fattal v Walbrook Trustees (Jersey) Ltd [2009] EWHC 1674 (Ch), [2009] 4 Costs LR 591, paras 25-30, in which Christopher Clarke J held, in summary terms, that the effect of CPR 40.8 was that (a) the general rule is that interest on costs runs from the incipitur date, (b) a departure from that general rule is justified if it is ‘what justice requires’; (c) the notion that a departure can only be justified in ‘exceptional’ cases is an unhelpful guide; (d) the primary purpose of an award of interest is ‘to compensate the recipient for [having] been precluded from obtaining a return on [his] money’; (e) ‘[s]ince the payment of solicitors’ costs involves the payment of money which could otherwise have been profitably employed, the overwhelming likelihood is that justice requires some recompense in the form of interest’.

48. I agree with all those observations, but would add two precautionary comments on his observations. First, I would discourage too detailed an approach into the facts of the particular case in hand for the purpose of determining the date from which interest should run. As Lord Ackner’s speech in Hunt [1990] 1 AC 398 implies, when making such a determination, the court should take a broad view of the position. Prolonged argument, let alone detailed evidence, on the issue must be avoided. There will often be no perfect date, and the decision inevitably will, indeed should, be broad brush. Further, if interest was to run from different dates on different components of the costs, it would, in many cases, lead to arguments which would do the legal system no credit. The second observation is that I would not necessarily agree with the suggestion, at [2009] 4 Costs LR 591, para 30, that it may be inappropriate to award interest on costs where the case is being funded by a third party entirely voluntarily or otherwise free of any cost. I would have thought that, following the logic of reason (v) in para 11 above (and see para 46 above), if interest on costs is payable from the incipitur date, the party to whom it is paid may have to account for it to the third party, and, if that is correct, there would seem to me to be a powerful argument for saying that the third party should get interest on costs in the normal way.”

 

This very helpful decision should put this issue to bed. Interest on costs runs at 8% from the date of the original order for costs and Involnert was wrongly decided.

 

Capped Recoverable Costs Figures For Costs Budgeting Are Exclusive Of Vat

On this issue the Senior Courts Costs Office considered whether the figures for the caps on recoverable costs in relation to costs budgeting and assessment include VAT, or whether VAT should be added to them.

With the VAT rate being 20%, and almost certain to rise, this makes a significant difference.

The court held that the limits set out in the rules are exclusive of VAT, and therefore VAT can be added to those figures.

Paragraph 7.2 of Practice Direction 3E provides:

Save in exceptional circumstances—

(a) the recoverable costs of initially completing Precedent H shall not exceed the higher of £1,000 or 1% of the total of the incurred costs (as agreed or allowed on assessment) and the budgeted costs (agreed or approved); and

(b) all other recoverable costs of the budgeting and costs management process shall not exceed 2% of the total of the incurred costs (as agreed or allowed on assessment) and the budgeted (agreed or approved) costs.

In

Response Clothing Limited v The Edinburgh Woollen Mill Limited [2020] EWHC 721 (IPEC)

the court was concerned with the cap on costs in the Intellectual Property Enterprise Court of £50,000 in relation to the liability aspect of the claim.

In that case the court held that the £50,000 cap included VAT.

Here the court distinguished that case on the basis that caps provided by Paragraph 7.2 set out above cannot include VAT as they are expressed as percentages of figures which do not include VAT.

All of the figures set out in a budget exclude VAT, as Precedent H makes clear.

Thus 2% of £100,000 excluding value added tax, would be £2,000 excluding value added tax.

 

Comment

This is a difficult area, and, as ever, the Civil Procedure Rules are a mess, as evidenced by two different decisions of the High Court in relation to two different aspects of interest on costs in the space of two days.

Nevertheless, my view is that the decision re the costs cap and VAT is correct for the reason given by the Senior Costs Judge, that is that if costs are expressed as a percentage, rather than a cash sum, then if the fund on which the percentage is based is net of VAT, then so must the resultant costs be net of VAT.

In any event having a VAT inclusive figure can act unfairly, as the court itself recognised in the Response Clothing case.

As I said in my write-up of that case:

“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.”

 

This is all dealt with in my blog –

CAPPED COSTS IN BUSINESS CASES: THREE NEW CASES

ANOTHER RECIPE FROM KERRY UNDERWOOD!

Gooseberry Ice cream

Ingredients:

1 lb of gooseberries

4 tablespoonsful of water

5 tablespoonsful of caster sugar

250 ml of whipping cream

 

Method:

Put the gooseberries and water and sugar in a pan and cover and simmer until the fruit is soft – about 15 minutes.

Put the mixture into a food processor or blender and process to a smooth paste and sieve or strain the mixture.

Mix the strained liquor with the whipping cream and then mix in the ice cream maker as usual.

 

To liven it up a bit you can replace the water with Pimms 😊

The mush left in the strainer can be mixed with yoghurt to make a yoghurt raita 😊

EMPLOYEE: WORKER: NEITHER

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

Kerry Underwood is a former Employment Tribunal Judge.

In

Varnish v British Cycling Federation (t/a British Cycling) UKEAT/0022/20/LA{V]

the Employment Appeal Tribunal upheld the decision of the Employment Tribunal that Ms Varnish was neither an employee nor a worker in relation to her written agreement with the British Cycling Federation.

Here is the summary of the judgment as prepared by the Employment Appeal Tribunal:

 

EMPLOYEE, WORKER OR SELF EMPLOYED

The Claimant is a talented professional cyclist. The Respondent is a not-for-profit organisation that promotes and controls the sport of cycling in the UK. The Claimant entered into a written agreement with the Respondent, pursuant to which she undertook (amongst other things) to train hard for the common purpose of winning medals for the British cycling team. The question for the Tribunal was whether the Claimant was an employee or a worker of the Respondent within the meaning of s.230 of the Employment Rights Act 1996. The Tribunal concluded that the Claimant was neither.

The Claimant appealed.

Held, dismissing the appeal, that the Tribunal was entitled to conclude, based on an evaluative judgment taking account of all relevant factors, that the Claimant was not an employee or a worker.

The Tribunal had not erred in its approach to the assessment of employee status and nor had it reached conclusions that no reasonable tribunal, properly directed, could have reached.

 

Although the decision involves no new law, it contains a very thorough and detailed examination of the relevant case law in this difficult area.

RECIPE FROM KERRY UNDERWOOD!

If, like me, you have a surfeit of gooseberries, then here is an old German/Scandinavian recipe for gooseberry cold soup.

The gooseberry raita is my own invention 😊

Gooseberry Cold Soup and Gooseberry Raita

 

For the soup:

1 lb gooseberries

1 ½ pints of water

1 heaped tablespoonful of cornflour

A little lemon rind

Sugar to taste

 

For the Raita:

Yoghurt

 

Method:

Wash and top and tail the gooseberries and simmer with the lemon rind in the water until soft.

Mix the cornflour to a thin paste with a little cold water, and stir it into the berries.

Bring back to the boil, stirring well.

Sieve and sweeten to taste.

 

Stuff left in the sieve – I am sure there is a culinary name for it – can be mixed with yoghurt to form the best raita you will ever taste 😊

BANKRUPTCY: RETROSPECTIVE PERMISSION TO SUE BANKRUPT DOES NOT CURE DEFECTIVE SERVICE

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

Gallagher v Hallows Associates [2020] EW Misc 7 (CC) (2 July 2020)

Mold County Court held that the court’s power to grant retrospective permission to bring proceedings against a bankrupt, under section 285(3)(b) of the Insolvency Act 1986, relates only to the commencement of proceedings, and it would be inappropriate retrospectively to validate service of a claim form that had not been effected in accordance with the Civil Procedure Rules.

Here the bankrupt was a solicitor who had allegedly acted negligently in a personal injury claim. The solicitor had himself become bankrupt; a claim against a bankrupt cannot be issued without the permission of the court.

Section 285 (3) of the Insolvency Act 1986 provides as follows:

After the making of a bankruptcy order no person who is creditor of the bankrupt in respect of a debt provable in the bankruptcy shall –

(a)  have any remedy against the property or person of the bankrupt in respect of that debt, or

(b)  before the discharge of the bankrupt, commence any action or other legal proceedings against the bankrupt except with the leave of the court and on such terms as the court may impose.

In

Bank of Ireland (UK) Plc v Colliers International UK Plc [2012] EWHC 2942 (Ch)

the court held that proceedings commenced without such permission were not a nullity and could be cured with a retrospective grant of permission.

The court there reviewed the authorities on this point, and in particular considered the cases of

Re Saunders [1997] Ch 60; and

Adorian v Commissioner of Police of the Metropolis [2009] EWCA Civ 18 .

It was common ground that this principle applied to the present claim.

The issue was whether granting retrospective permission to issue proceedings would allow the court to give directions as to the service of the claim, so as to cure any defect in the service of the claim, as compared with the issuing of the claim.

CPR 7.5(1) provides:

Where the claim form is served within the jurisdiction, the claimant must complete the step required by the following table in relation to the particular method of service chosen, before 12.00 midnight on the calendar day four months after the date of issue of the claim form.

That time can be extended by an order under rule 7.6, but subparagraph (3) provides:

(3) If the claimant applies for an order to extend the time for compliance after the end of the period specified by rule 7.5 or by an order made under this rule, the court may make such an order only if –

(a) the court has failed to serve the claim form; or

(b) the claimant has taken all reasonable steps to comply with rule 7.5 but has been unable to do so; and

(c) in either case, the claimant has acted promptly in making the application.

This power was considered by the Supreme Court in

Barton v Wright Hassal LLP [2018] UKSC 12

where the court said:

“The problem was that Mr Barton made no attempt to serve in accordance with the rules. All that he did was employ a mode of service which he should have appreciated was not in accordance with the rules. I note in passing that if Mr Barton had made no attempt whatever to serve the claim form, but simply allowed it to expire, an application to extend its life under CPR rule 7.6(3) would have failed because it could not have been said that he had “taken all reasonable steps to comply with rule 7.5 but has been unable to do so.” It is not easy to see why the result should be any different when he made no attempt to serve it by any method permitted by the rules.” 

The manner of service is dealt with in CPR Part 6. Rule 6.7 provides for service on a solicitor within the United Kingdom as follows:

(1) Solicitor within the jurisdiction: Subject to rule 6.5(1), where—

(a) the defendant has given in writing the business address within the jurisdiction of a solicitor as an address at which the defendant may be served with the claim form; or

(b) a solicitor acting for the defendant has notified the claimant in writing that the solicitor is instructed by the defendant to accept service of the claim form on behalf of the defendant at a business address within the jurisdiction,

the claim form must be served at the business address of that solicitor.

Where no notice has been given in writing by either the defendant or the solicitor acting for the defendant, service under rule 6.7 is not engaged. Instead service must be affected in accordance with rule 6.9(2), which provides that the claim form must be served on the defendant at the place shown in the table therein set out, which on the facts of the present case means the usual or last known residence of Mr Hallows, or the principal or last known place of business.

The claimant had served the claim form at the address of the bankrupt’s solicitors without obtaining confirmation that the solicitors were instructed to accept service, as required by rule 6.7(1) of the CPR.

The court held that service was invalid because it was not in accordance with the CPR, not because the claimant lacked the court’s permission to commence proceedings.

If service had been in a manner permitted by the CPR, retrospective permission to commence proceedings under section 285(3)(b) would have validated it.

The court considered the factors to be taken into account on an application for retrospective permission set out in

Bristol & West Building Society v Trustee of the property of Back and another (bankrupts) (1998) 1 BCLC 485.

In that case the court said out the factors to be taken into account when considering the issue of granting retrospective permission to issue proceedings.

They are:

(1) the claim should not be clearly unsustainable but the court would not investigate the merits of the claim;

(2) there should be no prejudice to the creditors or to the orderly administration of the bankruptcy if the action were to proceed;

(3) the claim should be of a type which should proceed by action rather than through the proofing procedure in bankruptcy;

(4) leave was more likely to be granted where there was an insurance company standing behind the respondent to pay any judgment debt the plaintiff might obtain since, if successful, such an action was unlikely to prejudice the creditors of the respondent;

(5) a condition was often imposed that the plaintiff would not enforce any judgment against the respondent without the leave of the court to ensure that the bankruptcy court retained ultimate control;

(6) mere delay itself in applying for leave would not prevent leave being granted. Leave was not to be withheld simply and solely as a punishment; and

(7) leave might be granted after the expiry of the relevant period of limitation to continue an action commenced within the limitation period without the leave of the court.

In the present case, it was not submitted that the claim is clearly unstainable or would prejudice creditors or orderly administration or should have been proved in the bankruptcy. Moreover, Endurance provided professional indemnity insurance to the firm in respect of the claim, and Mr Hallows is now discharged from bankruptcy.

It held that although retrospective permission should be given to commence the claim, an order should be made that the court should not exercise jurisdiction in respect of the claim.

This was a result of the bankrupt’s application under rule 11(1) of the CPR disputing the exercise of the court’s jurisdiction, in respect of which the court found that even if it has jurisdiction to try a claim that has not been validly served in time and where no extension for time has been or could reasonably be made, it should not exercise it.

NO INTEREST ON DISBURSEMENT FUNDING LOAN

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

Marbrow v Sharpes Garden Services Ltd [2020] EWHC B26 (Costs) 

the Senior Courts Costs Office held that the losing defendant in a personal injury case should not be liable for interest on a disbursement funding loan taken out by the claimant.

The agreed rate of interest was 5% and the total interest was £2,484.48.

Here, the claimant sought that sum as an item of costs and alternatively by way of allowing interest to run from an earlier period, that is to award pre-judgment interest.

The court disallowed both bases of the claim, but set out the different case law and considerations in relation to these two alternative methods of seeking to recover the cost of disbursement funding. 

As A Costs Item

The court held that there was no discretion to allow disbursement funding interest as a costs item, as compared with pre-judgment interest.

In

Hunt v RM Douglas (Roofing) Ltd [1987] 11 WLUK 221

the Court of Appeal held that funding costs had never been included in the categories of expense recoverable as costs and to include them would constitute an unwarranted extension.

In

F & C Alternative Investments (Holdings) Ltd & Ors v Barthelemy & Anor [2012] EWCA Civ 843 

the Court of Appeal approved the submission that “costs of funding litigation by way of bridging loans are not ordinarily recoverable in themselves as costs of litigation”.

The decision in

Secretary of State for the Department of Energy And Climate Change & Anor v Jones & Ors [2014] EWCA Civ 363

concerned the rate of interest that could be allowed in costs from a date earlier than judgment rather than claiming it as a separate capital item of costs.

Thus the fact that there the court upheld the lower court’s decision to allow interest on pre-judgment disbursements at 4% above base rate, rather than at any lower rate, did not affect the principle that interest of itself cannot be claimed as an item of costs.

Pre-judgment Interest

Nevertheless CPR 44.2(6)(g) does allow the court to order the payment of interest on costs from a date before judgment.

Here, the court held that while it clearly had that power, justice in this case did not require a departure from the general rule that interest should only be paid from the date of the costs order, and the court also pointed out that the high rate of interest under the Judgment Act 1838 – 8 % –  “should go some way to compensating the claimant for the interest that he is liable to pay for funding the disbursement.”

For further discussion on this point see my blog –

INTEREST ON COSTS IS 8% FROM DATE OF ORIGINAL ORDER

The Senior Costs Judge gave his reasons for declining to exercise his jurisdiction to order pre-judgment interest:

 

“33. Jones was a rather different case to the present: a group action in which the disbursements came to a total in excess of £787,500. The present case is a straightforward personal injury claim. No evidence of the Claimant’s means has been produced but for present purposes I am happy to accept, on my reading of the papers, that it is unlikely that the Claimant would have had the means to fund disbursements other than by a loan. That is almost certainly the case for the vast majority of claimants in personal injury actions. Yet the incipitur rule remains the default position and parliament did not choose, when enacting the Legal Aid, Sentencing and Punishment of Offenders Act 2013, to make specific provision for the funding of disbursements whether by enabling the recovery of funding costs or by creating a default entitlement to pre-judgment interest.”

 

Comment

Another short, succinct but thorough judgment from the Senior Costs Judge which has led to no fewer than three blogs by me

 – See

INTEREST ON COSTS IS 8% FROM DATE OF ORIGINAL ORDER

CAPPED RECOVERABLE COSTS FIGURES FOR COSTS BUDGETING ARE EXCLUSIVE OF VAT

 

The decision not to award pre-judgment interest follows the recent case of

Nosworthy v Royal Bournemouth & Christchurch NHS Foundation Trust [2020] EWHC B19 (Costs) 

It should be noted that Parliament has specifically given the courts power to award pre-judgment interest and a full High Court Judge in the case of

Involnert Management Inc v Aprilgrange Limited & Ors [2015] EWHC 2834 (Comm) 

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.””

 

There is now a clear pattern of courts awarding pre-judgment interest in commercial cases, but not personal injury cases, but there is no justification whatsoever in law for adopting that different approach.

For my critique of that difference, and why the decisions are irrational, see my blog

COURT REFUSES PRE-JUDGMENT INTEREST IN PERSONAL INJURY – BUT OK IN COMMERCIAL CASES

INTEREST ON COSTS IS 8% FROM DATE OF ORIGINAL ORDER

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

Marbrow v Sharpes Garden Services Ltd [2020] EWHC B26 (Costs) 

the Senior Courts Costs Office considered a number of matters arising out of a detailed assessment of costs in a personal injury case, and here I just deal with the issue of the date from when interest runs on costs.

Here the court held that interest should normally run from the date of the original order for costs and at the judgment rate of 8%.

This may seem obvious, but in fact it involved the court disagreeing with the decision of the High Court in

Involnert Management Inc v Aprilgrange Limited & Ors [2015] EWHC 2834 (Comm)

where the court said:

“it seems to me that a reasonable objective benchmark to take is the period prescribed by the rules of court for commencing detailed assessment proceedings. Pursuant to CPR 47.7, where an order is made for payment of costs which are to be the subject of a detailed assessment if not agreed, the time by which detailed assessment proceedings must be commenced (unless otherwise agreed or ordered) is three months after the date of the costs order. In order to commence such proceedings, the receiving party must serve on the paying party a bill of costs giving particulars of the costs claimed. It is then for the paying party to decide which items in the bill of costs it wishes to dispute. Postponing the date from which Judgments Act interest begins to run by three months will therefore generally serve to ensure that the party liable for costs has received the information needed to make a realistic assessment of the amount of its liability before it begins to incur interest at the rate applicable to judgment debts for failing to pay that amount.”

Strictly the court here distinguished that decision on the basis that it was a commercial case in which the court had ordered the payment of interest at 2% over base rate from when the costs were incurred, that is pre-judgment interest, until the date three months after the date of the costs order was made.

Nevertheless, it is clear that the judgment in Involnert was wrong, and so obviously wrong that it need no longer be followed, as it failed properly to take into account a Court of Appeal decision to the contrary, and failed properly to implement an Act of Parliament.

As the court here pointed out the entitlement to interest on costs is automatic under section 17 of the Judgments Act 1838 which provides:

(1) Every judgment debt shall carry interest at the rate of 8 pounds per centum per annum from such time as shall be prescribed by rules of court . . . until the same shall be satisfied, and such interest may be levied under a writ of execution on such judgment.

(2) Rules of court may provide for the court to disallow all or part of any interest otherwise payable under subsection (1).

Rule 40.8 of the Civil Procedure Rules 1998 provides:

(1) Where interest is payable on a judgment pursuant to section 17 of the Judgments Act 1838 or section 74 of the County Courts Act 1984, the interest shall begin to run from the date that judgment is given unless –

(a) a rule in another Part or a practice direction makes different provision; or

(b) the court orders otherwise.

(2) The court may order that interest shall begin to run from a date before the date that judgment is given.

Rule 44.2 provides (in part):

(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.

Consequently interest is payable on costs at 8% from the date of judgment without the need for an order to that effect, unless the court makes a different order under either CPR 40.8 or CPR 44.2(6)(g) – see Hunt v R.M.Douglas (Roofing) Ltd [1990] 1 AC 398.

The court here quoted from the case of

Simcoe v Jacuzzi UK Group Plc [2012] EWCA Civ 137

which is a Court of Appeal case which pre-dated the Involnert case and the High Court there appears not properly to have considered the judgment in Simcoe.

In Simcoe the Court of Appeal said:

“47. We were referred to Fattal v Walbrook Trustees (Jersey) Ltd [2009] EWHC 1674 (Ch), [2009] 4 Costs LR 591, paras 25-30, in which Christopher Clarke J held, in summary terms, that the effect of CPR 40.8 was that (a) the general rule is that interest on costs runs from the incipitur date, (b) a departure from that general rule is justified if it is ‘what justice requires’; (c) the notion that a departure can only be justified in ‘exceptional’ cases is an unhelpful guide; (d) the primary purpose of an award of interest is ‘to compensate the recipient for [having] been precluded from obtaining a return on [his] money’; (e) ‘[s]ince the payment of solicitors’ costs involves the payment of money which could otherwise have been profitably employed, the overwhelming likelihood is that justice requires some recompense in the form of interest’.

48. I agree with all those observations, but would add two precautionary comments on his observations. First, I would discourage too detailed an approach into the facts of the particular case in hand for the purpose of determining the date from which interest should run. As Lord Ackner’s speech in Hunt [1990] 1 AC 398 implies, when making such a determination, the court should take a broad view of the position. Prolonged argument, let alone detailed evidence, on the issue must be avoided. There will often be no perfect date, and the decision inevitably will, indeed should, be broad brush. Further, if interest was to run from different dates on different components of the costs, it would, in many cases, lead to arguments which would do the legal system no credit. The second observation is that I would not necessarily agree with the suggestion, at [2009] 4 Costs LR 591, para 30, that it may be inappropriate to award interest on costs where the case is being funded by a third party entirely voluntarily or otherwise free of any cost. I would have thought that, following the logic of reason (v) in para 11 above (and see para 46 above), if interest on costs is payable from the incipitur date, the party to whom it is paid may have to account for it to the third party, and, if that is correct, there would seem to me to be a powerful argument for saying that the third party should get interest on costs in the normal way.”

 

This very helpful decision should put this issue to bed. Interest on costs runs at 8% from the date of the original order for costs and Involnert was wrongly decided.

FUNDER’S SHARE BASED ON NET SUM AFTER CONTRIBUTORY NEGLIGENCE REDUCTION

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

Singularis Holdings Ltd v Chapelgate Credit Opportunity Master Fund Ltd [2020] EWHC 1616 (Ch) (22 June 2020)

the Chancery Division of the High Court construed a litigation funding agreement, and held that the reduction for contributory negligence should not be added back in when calculating the litigation funder’s share of the proceeds of the litigation.

The agreement required “any netting, set-off or other reduction, including, without limitation, by reason of a counterclaim or costs order against the claimant”, to be disregarded in calculating the proceeds – the disregarding clause.

It provided that any reduction in “the amount of any award by reason of a set-off for any reason, including counterclaims, or as a result of a costs order against the claimant or as a result of any other quantifiable order” be added to the proceeds  – the adding clause.

The litigation funder argued that the reduction of 25% in the damages awarded to the claimant, for contributory negligence, should be ignored and the litigation funder’s share should be calculated by reference to the unreduced damages.

The court agreed with the claimant that the adding and disregarding clauses were primarily concerned with set-off, and that a contributory negligence reduction was fundamentally different from the reductions specified in the disregarding clause, as a finding of contributory negligence was not based on a claim against the claimant and did not denote liability by the claimant to anyone else.

Further, the contributory negligence finding did not entail a “quantifiable order”, for the purpose of the adding clause. The only order was the award of damages to the claimant.

The court held that the function of both clauses was to protect the litigation funder from the risk of recoveries being reduced by any liability of the claimant arising under separate claims or court orders, but that the risk of a defence, including contributory negligence, succeeding, was inherent in an agreement to fund a claim in return for a share of the proceeds.

Also, both parties knew that a contributory negligence defence had been pleaded against the claimant when they entered into the agreement.

On the correct construction of the agreement, no adding back of the reduction for contributory negligence was intended.

 

Comment

Correct. Might have been worth getting a funding expert to check the agreement 😊

CAPPED RECOVERABLE COSTS FIGURES FOR COSTS BUDGETING ARE EXCLUSIVE OF VAT

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

Marbrow v Sharpes Garden Services Ltd [2020] EWHC B26 (Costs) 

the Senior Courts Costs Office considered whether the figures for the caps on recoverable costs in relation to costs budgeting and assessment include VAT, or whether VAT should be added to them.

With the VAT rate being 20%, and almost certain to rise, this makes a significant difference.

The court held that the limits set out in the rules are exclusive of VAT, and therefore VAT can be added to those figures.

Paragraph 7.2 of Practice Direction 3E provides:

Save in exceptional circumstances—

(a) the recoverable costs of initially completing Precedent H shall not exceed the higher of £1,000 or 1% of the total of the incurred costs (as agreed or allowed on assessment) and the budgeted costs (agreed or approved); and

(b) all other recoverable costs of the budgeting and costs management process shall not exceed 2% of the total of the incurred costs (as agreed or allowed on assessment) and the budgeted (agreed or approved) costs.

In

Response Clothing Limited v The Edinburgh Woollen Mill Limited [2020] EWHC 721 (IPEC)

the court was concerned with the cap on costs in the Intellectual Property Enterprise Court of £50,000 in relation to the liability aspect of the claim.

In that case the court held that the £50,000 cap included VAT.

Here the court distinguished that case on the basis that caps provided by Paragraph 7.2 set out above cannot include VAT as they are expressed as percentages of figures which do not include VAT.

All of the figures set out in a budget exclude VAT, as Precedent H makes clear.

Thus 2% of £100,000 excluding value added tax, would be £2,000 excluding value added tax.

 

Comment

This is a difficult area, and, as ever, the Civil Procedure Rules are a mess.

Nevertheless, my view is that the decision is correct for the reason given by the Senior Costs Judge, that is that if costs are expressed as a percentage, rather than a cash sum, then if the fund on which the percentage is based is net of VAT, then so must the resultant costs be net of VAT.

In any event having a VAT inclusive figure can act unfairly, as the court itself recognised in the Response Clothing case.

As I said in my write-up of that case:

“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.”

 

This is all dealt with in my blog –

CAPPED COSTS IN BUSINESS CASES: THREE NEW CASES

 

CLIENT CHALLENGES TO SOLICITORS’ BILLS: IMPORTANT NEW CASE

Underwoods Solicitors specialize in defending Solicitors Act 1974 challenges by clients in relation to solicitors’ bills: contact Kerry Underwood at  Kerry.underwood@lawabroad.co.uk or 01442 430 900 for advice.

 

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

Iwuanyawu v Ratcliffes Solicitors [2020] EWHC B25 (Costs)

the Senior Courts Costs Office considered a number of issues concerning assessment of bills under the Solicitors Act 1974, including time limits, the right to deliver interim statute bills, and the information to be contained in such bills.

It is a short, succinct and important judgment.

The dispute covered 13 bills and in relation to one bill the solicitors argued that the court had no jurisdiction as the bill had been paid more than 12 months before proceedings had been issued, and in relation to four other bills, which had been paid less than 12 months before proceedings had been issued, the claimant needed to show special circumstances.

In relation to eight bills that have been delivered less than 12 months before the issue of proceedings the court had previously ordered detailed assessment.

The solicitors argued that they had a contractual right to deliver interim bills, and these were delivered at the end of each month during the retainer between October 2018 and October 2019.

The Client Care Letter said that the client would be invoiced for charges and disbursements for each month, and that she should pay the bills within 30 days but had the right to challenge or complain and a section headed “Complaints” set out the firm’s internal procedure, and the procedure for complaining to the Legal Ombudsman, but not details of the right to seek assessment by the court.

The jurisdiction concerning the ordering of detailed assessment of solicitors’ bills on the application of clients is contained in section 70 of the Solicitors Act 1974 and the relevant provisions are:

 

“(3) Where an application under subsection (2) is made by the party chargeable with the bill—

(a) after the expiration of 12 months from the delivery of the bill, or

(b) after a judgment has been obtained for the recovery of the costs covered by the bill, or

(c) after the bill has been paid, but before the expiration of 12 months from the payment of the bill,

no order shall be made except in special circumstances and, if an order is made, it may contain such terms as regards the costs of the assessment as the court may think fit.

(4) The power to order assessment conferred by subsection (2) shall not be exercisable on an application made by the party chargeable with the bill after the expiration of 12 months from the payment of the bill.”

 

The issues between the parties were:

 

“i) Whether the Defendants’ bills contained enough information to be bills.

ii)  If they did, whether the Defendants were entitled to render interim statute bills.

iii) If the bills were bills which were capable of assessment, whether there were special circumstances such as to justify the assessment of the third to sixth bills.”

 

The first two issues were raised by the claimant in order to defeat the argument that the court did not have jurisdiction to order the assessment of the first bill.

If the first bill was not a bill when it was paid, then it was not a bill paid more than 12 months before the issue of proceedings.

This would lead to a potential problem for the claimant in that all of the bills were in similar form and if the first bill was not a bill capable of assessment, then nor were any of the others.

This is a common and central circular argument in such cases; a client can only seek assessment of a statute bill, but often argues that the bill was not truly a statute bill.

If that argument succeeds, then on the face of it there is nothing to be assessed.

At Paragraph 8 the Senior Courts Costs Office here set out the law in relation to what a statute bill must contain:

 

“A bill must contain sufficient information to enable the client to obtain advice as to its detailed assessment. In Ralph Hume Garry v Gwillim [2003] 1WLR 510, the Court of Appeal considered whether a series of bills submitted by the claimants to the defendant complied with section 69 of the Solicitors Act 1974. Ward LJ summarised the authorities:

63 I accept the principle expressed in Lord Campbell CJ’s judgment in Cook v Gillard 1 E & B 26 , 36–37 that:

the defendant who undertakes to prove that the bill is not a bona fide compliance with the Act cannot found an objection upon want of information in the bill, if it appears that he is already in possession of that information … a client has no ground of objection to a bill who is in possession of all the information that can be reasonably wanted for the consulting on taxation.

In Eversheds v Osman [2000] 1 Costs LR 54 , 61–63 Nourse LJ posed this test in not dissimilar terms, viz: is the client unable to judge as to the justice of the amount of the fees which are charged?

…

64 Thus I would accept the proper principle to be that there must be something in the written bill to indicate the ambit of the work but that inadequacies of description of the work done may be redressed by accompanying documents (as in Eversheds v Osman where it was doubtful whether the bill on the face of it would have been sufficient) or by other information already in the possession of the client. That, it seems to me, would serve the purpose of the Act to give the client the knowledge he reasonably needs in order to decide whether to insist on taxation. If the solicitor satisfies that then the bill is one bone fide complying with the Act.

…

70 This review of the legislation and the case law leads me to conclude that the burden on the client under section 69(2) of the Solicitors Act 1974 to establish that a bill for a gross sum in contentious business will not be a bill “bona fide complying with this Act” is satisfied if the client shows: (i) that there is no sufficient narrative in the bill to identify what it is he is being charged for, and (ii) that he does not have sufficient knowledge from other documents in his possession or from what he has been told reasonably to take advice whether or not to apply for that bill to be taxed. The sufficiency of the narrative and the sufficiency of his knowledge will vary from case to case, and the more he knows, the less the bill may need to spell it out for him. The interests of justice require that the balance be struck between protection of the client’s right to seek taxation and of the solicitor’s right to recover not being defeated by opportunistic resort to technicality.”

 

Here, the court held that the bills did contain sufficient information for the client to know what she was being charged for.

The court here recited the fact, often overlooked by solicitors in my experience, that a solicitor’s retainer is an entire contract and generally solicitors are not in entitled to payment on account, other than for disbursements.

There are two exceptions.

Firstly, an interim bill can be delivered where there is a natural break in protracted litigation and, secondly, an interim bill may be delivered where there is an agreement that the solicitor can submit interim statute bills, that is a self-contained bill rendered before the conclusion of the case, but which is final in respect of the period that it covers.

There was no suggestion here that the bills were rendered in natural breaks in protracted litigation.

Thus the issue was whether there was a contractual right to deliver interim statute bills.

The court here set out the facts at paragraphs 13 to 15 of its judgment:

 

“13. The client care letter dated 18^th October 2018 provided on the fourth page:

You are personally responsible for the legal costs set out in this letter. We will invoice you for our charges and disbursements every month while your case is in progress. All invoices are payable within 30 days.

14. The Defendants’ standard terms provided on the fourth page:

Bills should be paid within 30 days. We may charge interest on overdue bills at 15% per annum. If we have to take proceedings and obtain a judgment against you then interest on the judgment debt will continue to run at 15% per annum.

We may cease acting for you if an interim bill remains unpaid after 30 days or if our reasonable request for a payment on account of costs or disbursements is not met.

You have the right to challenge or complain about our bill. Please see the paragraph Complaints for details of how to complain about our bill.

15. The paragraph headed “complaints” set out the Defendants’ internal complaints procedure and the possibility of complaining to the Legal Ombudsman. It did not refer to the right to seek assessment by the court.”

 

The court held that that wording did not give the solicitors the right to deliver interim statute bills, as it was not expressly provided for that the invoices would be final bills for the periods that they covered.

The court then considered, at paragraphs 17 and 18, the relevant case law:

 

“17. In Vlamaki v Sookias & Sookias [2015] 6 Costs LR 827 the solicitors’ retainer provided:

To help you budget, we will send you a bill for our charges and expenses at the end of each month while the work is in progress. We will send you a final bill after completion of the work.

If not paid from monies on account, payment is due to us on delivery of a bill. We reserve the right to charge you interest on the bill at 4% over the base rate prevailing from time to time from the date of the bill if you do not pay our bill within this time …

18.Walker J. decided that the solicitors were not entitled to render interim statute bills:

23. Absent from those clauses in particular and the retainer in general is any express statement that each interim bill would be a final bill for the period that it covered. I do not underestimate the force of the argument that they must be statute bills because of what is said in the retainer as to payment being due and as to interest. That argument, however, assumes knowledge of the 1974 Act and procedures under it: but this does not sit happily with concession (2)^[1]. In the ordinary course a lay client cannot be assumed to have such knowledge. 

24. To an objective reader without special knowledge of the 1974 Act the only indication that any bill is to be final is what is said in the second sentence of clause 6.1. I agree with the master that there is a substantial ambiguity here. The ambiguity is not removed by the provisions cited by Mr Mallalieu. Those provisions do not tell the client that the bill “at the end of each month” will be final as to work and expenses during the period covered by the bill. From the solicitor’s point of view, they are all consistent with Sookias & Sookias wanting to minimise risks in relation to their cash position …”

The court then said that if a solicitor wishes to reserve a right to deliver interim statute bills which are intended to be final for the periods that they cover, as opposed to requests for payment on account, that right must be spelled out clearly in the contract with the client, and in this case that was not done.

This finding potentially caused a problem that if the bills were not interim statute bills, then there was nothing to assess.

The court here held that the position was similar to that in the well-known case of

Chamberlain v Boodle & King [1982] 1 WLR 1443.

In that case the terms of the solicitor’s retainer did not allow for self-contained interim bills, but did allow for regular “statements”.

The retainer lasted for six months over the course of which the solicitors delivered four bills to the claimant.

The court held that there had been no natural breaks, but that the bills “should be regarded as one bill in respect of one complete piece of work, although divided into part”.

As the claimant had demanded assessment of the last bill within one month, he was entitled to have the whole of it taxed.

The court here then quoted from that judgment:

 

“25.  As Lord Denning MR explained:

The next point in the case is whether the bills were four separate bills or whether they were one. If they were four separate bills, the client would have to demand taxation of each within a month of receipt. If they were one bill, divided into separate parts, as long as he demands taxation within a month of the final account, then he has a right to taxation.

We were referred to one or two cases on this point. First In re Romer & Haslam [1893] 2 Q.B. 286 : and the latest was a case in this court on March 6, 1980, of Davidsons v. Jones-Fenleigh, The Times, March 11, 1980 . Putting it quite shortly, as Bowen L.J. said [1893] 2 Q.B. 286, 298, it is a question of fact whether there are natural breaks in the work done by a solicitor so that each portion of it can and should be treated as a separate and distinct part in itself, capable of and rightly being charged separately and taxed separately. Applying that simple test, it seems to me that over this short time — the end of November 1978 to the beginning of May 1979 — this was one continuous dealing and work done by a solicitor, not dividing itself naturally or otherwise into any breaks at all. When the bills were delivered, they were delivered each time as part of the running account — “account rendered” being carried on in each to the next. I agree with the judge on this point too that this should be regarded as one bill in respect of one complete piece of work, although divided into parts. As this is one bill, and the client demanded taxation within the month, he is entitled to have the whole of it taxed.”

 

Applying the law to the facts of this case, the court said:

 

“26. This reflects reality. A client receiving monthly invoices may well have no idea whether she will wish to challenge them until either she has received sufficient to be caused concern or has reached the end of the matter and can consider the total, perhaps against any estimate that may have been given. In most cases it will be unrealistic to expect a client to be able to challenge her own solicitors’ bills in the middle of matrimonial proceedings.

27. Accordingly, in my judgment, the 14 bills delivered by the Defendants were not interim statute bills, but were part of a running account which should be regarded as one bill delivered on the date of the last, namely 18^thOctober 2019 when the Defendants’ retainer was determined. That bill has not been paid and is dated within 12 months of the issue of proceedings. There is therefore no need for the Claimant to show special circumstances.

28. Accordingly the profit costs claimed in the bill, comprising the 14 invoices rendered by the Defendants, should be the subject of detailed assessment.”

The court here then went on to deal with the issue of special circumstances and said that if it was wrong on the status of the solicitors’ invoices then it would have held that there were special circumstances justifying an order for assessment of the four bills covered which had been paid, but have been paid less than 12 months before proceedings had been issued.

 

It had this to say:

 

“33. A second potential special circumstance is that the bills, at least as presented in the hearing bundle, did not contain the usual information about the client’s right to seek an assessment by the court under the Solicitors Act. In my experience it is the invariable practice of solicitors still to provide that information. Yet here it was not apparently included on the bills nor was it mentioned in the client care letter.”

 

Comment

This is a short, but very thorough and important decision which should be read in full by every solicitor.

There is a woeful ignorance of the provisions of the Solicitors Act 1974, and it is this basic ignorance of how to deliver a solicitor’s bill which is leading to the explosion in solicitor and own client challenges under the Solicitors Act 1974.

Virtually all of these challenges can be avoided by having proper funding documentation in place and by delivering proper statute bills.

PART 36: CLAIMANT’S OFFER TO ACCEPT 99.7% WAS GENUINE OFFER TO SETTLE

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

Rawbank SA v Travelex Banknotes Ltd [2020] EWHC 1619 (Ch) (23 June 2020)

the Chancery Division of the High Court held that the claimant’s Part 36 offer to accept just 0.3% less than the full sum claimed was a “genuine offer to settle” as required by CPR 36.17(5)(e).

Although each case will depend upon its facts, this is a very important decision and develops a long line of cases, in which I have been heavily involved, as to when a claimant making a Part 36 offer should get indemnity costs.

Here, the court said that the key issue was not mathematical, but rather whether it could be inferred that there was no genuine attempt to settle.

Here there was no issue over quantum, and clearly no defence, and therefore a discount of any amount involved the claimant giving up something it had a near certainty of obtaining.

This decision will be of particular importance in relation to debt collection matters, and also in relation to liability offers when liability cannot seriously be in dispute.

The law used to be that a claimant had to beat its own offer, but was then changed so that a claimant only had to match its own offer, and was then changed again to add in the requirement that the court must consider whether the Part 36 offer was a genuine attempt to settle the proceedings.

Even before that addition to the Civil Procedure Rules the courts had considered effectively the same question.

In

Huck v Robson [2002] EWCA Civ 398

the Court of Appeal held that an offer to settle at 95% of the sum claimed on liability was a genuine offer to settle.

In

AB v CD & Ors [2011] EWHC 602 (Ch)

the Chancery Division of the High Court had said that the offer must contain some genuine element of concession, so that an offer to accept the full amount claimed would not satisfy Part 36.

Thus the position had been that an offer to accept 100% was not a genuine offer to settle, but that an offer to settle 95% definitely was a genuine offer to settle.

That left open any figure in between.

In Huck v Robson the Court of Appeal had cast doubt, obiter, on my suggestion that a claimant who wins in full should get the Part 36 benefits, including indemnity costs, where an offer of 99.9% of the full value of the claim has been made.

In Huck v Robson the Court of Appeal said:

“…if it was self-evident that the offer made was merely a tactical step designed to secure the benefit of the incentives provided by the rule (e.g. an offer to settle for 99.9% of the full value of the claim) I would agree with Jonathan Parker LJ that the judge would have a discretion to refuse indemnity costs. But that cannot be said of the offer made in this case.”

Since Huck v Robson I have therefore advised that offers on liability should be on the basis of 95% / 5%.

I now change that advice, so that where liability cannot seriously be in dispute, then an offer of 99% / 1% should be made.

Likewise, on quantum where there is no serious dispute, for example in debt collection claims.

In the quantum of personal injury claims, there is nearly always room for argument that the offer does constitute a genuine offer to settle, due to the unfixed and uncertain element of general damages.

Practitioners making a Part 36 offer of 99% should refer to the case here.

This case is also of key importance in relation to Part 36 offers to be made to airlines, holiday companies and credit card companies for failing to return money due where flights or holidays have been cancelled due to coronavirus.

It is important to note that not only does the claimant get indemnity costs, but the claimant stands to have an enhancement of 10% on the damages.

Thus a claimant who is prepared to give up 1% of the value of the claim in order to achieve a swift settlement and payment of the money stands to get an additional 10% if she or he has to go to trial.

BANKRUPTCY PETITION REMEDIED WHERE NO PREJUDICE

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

In

Moorgate Industries UK Ltd v Mittal [2020] EWHC 1550 (Ch) (19 June 2020)

the Chancery Division of the High Court remedied a creditor’s defective bankruptcy petition, using rule 12.64 of the Insolvency (England and Wales) Rules 2016, where no prejudice had been caused to the debtor.

Here, the creditor had included accrued interest on the judgment debt stated in the statutory demand and converted it from a foreign currency to sterling, but a creditor’s bankruptcy petition should not include interest which has accrued after the date of the statutory demand – see  Paragraph 12.2.2 of the Insolvency Practice Direction (July 2018).

While rule 10.9(1)(e) of the Insolvency (England and Wales) Rules 2016, arguably allows a petitioner to claim a rate of charge or interest if stated in their statutory demand, this is not how the court has traditionally understood the legislation.

Rule 14.21 of the Insolvency (England and Wales) Rules 2016 sets out the only currency conversion requirement in the insolvency legislation, which provides that a proof for a debt incurred or payable in a foreign currency must state the amount of the debt in that currency, and the trustee in bankruptcy then converts the debt into sterling using the exchange rate prevailing on the date of the bankruptcy order.

As no prejudice had been caused to the debtor by these defects, the court remedied them by using rule 12.64 of the Insolvency (England and Wales) Rules 2016 by reducing the amount claimed in the creditor’s petition to the amount claimed in their demand.

The court also declined to apply its discretion, under section 266(3) of the Insolvency Act 1986, to stay or dismiss proceedings as the creditor owed a costs award to the debtor following the withdrawal of an earlier bankruptcy petition.

There was no authority preventing a creditor from presenting a second petition where a costs order, made on withdrawing an earlier petition, remained unpaid.

Instead, it permitted the creditor to apply equitable set-off of the costs award against the debt owed by the debtor.

The decision reflects the approach taken with defective statutory demands which contain incomplete, misleading or inaccurate details of the debt since –

Agilo Ltd v William Henry [2010] EWHC 2717 (Ch).

Here, the court made the bankruptcy order on the creditor’s remedied petition as there was no evidence of a reasonable prospect of it being paid in full within a reasonable period of time.

 

Underwoods Solicitors are the solicitors for Crowe UK LLP, the Joint Liquidators of the Cambridge Analytica Group of Companies