Kerry Underwood

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ENTITLEMENT TO ISSUE FOR COSTS ONLY

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In Ayton v RSM Bentley Jennison and Ors [2018] EWHC 2851 (QB)

the Queen’s Bench Division of the High Court ordered a defendant to pay costs where terms of settlement of damages had been agreed before proceedings had been issued, but where the defendant had refused to pay costs.

The claimant sent the defendant a Professional Negligence Pre-Action Protocol letter seeking £100,000 damages plus interest and costs.

The defendant sent the claimant a cheque for the full amount of damages and interest, but refused to pay costs, stating that there was no obligation to do so pre-issue and no mechanism for the claimant to claim costs when the defendant had paid the full amount due.

The claimant returned the cheque and issued proceedings for £100,000 plus £1,500 consequential loss and expense, and £30,000 in relation to a car upgrade.

The defendant pleaded tender before claim and paid £103,576 into court and defended the action and pleaded that it had no liability to pay costs.

At trial the claimant was awarded £119,578.22, including interest. The car upgrade claim was dismissed.

The claimant was awarded 70% of its costs up to the Case Management Conference and was ordered to pay 80% of the defendant’s costs thereafter.

The defendant had ignored a number of Part 36 offers, but the court held that it would be unjust to apply the normal consequences of the defendant’s failure to beat the claimant’s offers as the claimant had pursued the car claim to trial at disproportionate expense and that amounted to an abuse of process.

The High Court allowed the claimant’s appeal, stating that the Pre-Action Protocol places the onus to avoid proceedings on both parties.

It must have been obvious to the defendant that an investigation into serious allegations against a reputable professional firm would incur significant costs and the defendant had acted unfairly in refusing to pay any of the claimant’s pre-action costs.

The only option for a claimant where a pre-action offer is made to pay damages, but not costs, is to issue.

The High Court made interim costs order of £430,000.

The High Court held that it was legitimate and reasonable to issue proceedings purely to recover costs:

“Most parties who capitulate will bow to the inevitable and offer to pay the other side’s reasonable costs.” (Paragraph 46).

 

“The only option  left to a claimant in circumstances where a pre-action offer is made to pay damages  but  there  is  a  persistent  refusal  to  cover  legal  costs  is  to  issue  proceedings.” (Paragraph 48).

 

“It was wrong that a claim had had to be issued at all. It would not  have  had  to  have  been  if  the  defendants  had  made  an  offer  to  settle  the  claimant’s reasonable costs at the same time as (effectively) conceding his claim.” (Paragraph 55).

 

Comment

This is a difficult area. The starting point is of course that pre-action no costs are payable, and that is why pre-issue work is non-contentious.

However, the moment proceedings are issued, the successful party can recover pre-issue costs in the same way as post-issue costs, and that is why, upon issue of proceedings, pre-issue work retrospectively becomes contentious.

Thus where, as here, the defendant refuses to pay costs, then the claimant can issue, and upon issuing it becomes entitled to its pre-issue costs.

The issue will then be whether or not issuing proceedings was reasonable.

Personal injury lawyers will be well aware of this; it is standard practice outside the protocol procedure to create a contractual entitlement for costs if a matter is settled or pre-issued, and defendants virtually always agree, knowing that in the absence of agreement, the claimant can issue and will then be entitled to pre-issue costs.

As in many other areas, general civil litigation lawyers are often woefully ignorant of general costs principles.

Here, the unsuccessful defendant, who was fairly obviously bound to lose on this point, was represented by Clyde and Co, who specifically stated that they had Leading Counsel’s opinion stating that there was no liability for costs in these circumstances.

The claimant was represented by Mr Ben Williams QC, who does know the law on costs.

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Written by kerryunderwood

November 21, 2018 at 6:30 am

Posted in Uncategorized

PART 36: THREE NEW DECISIONS

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No Interim Costs Payment

In Finnegan v Frank Spiers (t/a Frank Spiers Licensed Conveyancers) [2018] EWHC 3064 (Ch) (27 June 2018)

the Chancery Division of the High Court held that the court has no power to order a payment on account of costs where a party has accepted a Part 36 offer.

The claimant accepted the defendant’s Part 36 offer and issued an application for an interim payment on account of costs.

The District Judge held that there was no power to make such an order and the Chancery Division upheld that decision.

By CPR 44.9(1) acceptance of a Part 36 offer deems that a standard basis costs order has been made.

CPR 44.2(8) provides that where the court has ordered a party to pay costs, it may order an amount to be paid on account before the costs are assessed.

Here the court held “that the place to find the court’s ability to make a payment on account order after acceptance of a Part 36 offer is in Part 36 itself. It is absent from there. There is no reason in my judgment, to read rule 44.2(8) to make a payment on account applicable when a Part 36 offer is accepted”. (Paragraph 30)

The court distinguished the case of

Barnsley v Noble [2012] EWHC 3822

where the court held that it had power to order a payment on account following discontinuance.

This was because the rule on discontinuance preserved the court’s discretion as CPR 38.6 provides that a claimant who discontinues is liable for costs “unless the court orders otherwise”.

There is no such discretion in Part 36.

 

CPR 44.9(1) reads:

 

“(1) Subject to paragraph (2), where a right to costs arises under –

(a) rule 3.7 or 3.7A1 (defendant’s right to costs where claim is struck out for non-payment of fees);

(a1) rule 3.7B (sanctions for dishonouring cheque);

(b) rule 36.13(1) or (2) (claimant’s entitlement to costs where a Part 36 offer is accepted); or

(c) rule 38.6 (defendant’s right to costs where claimant discontinues),

a costs order will be deemed to have been made on the standard basis.”

 

 

Part 36 Offer Only Covers the Claim When Made, Not the Claim When Accepted

In Bentley Design Consultants Ltd v Sansom [2018] EWHC 2238 (TCC) (29 August 2018)

the Technology and Construction Court, part of the Queen’s Bench Division of the High Court, held that a Part 36 offer made by a claimant could not be held to cover matters that the claimant added to the action after the Part 36 offer was made.

This was a professional negligence action in relation to a survey carried out on two properties, but when proceedings were issued they only related to one plot.

On 23 April 2015 the claimant made what was accepted to be a valid Part 36 offer in relation to that claim and it referred to the claim number, and it was common ground that at that stage it was an offer to settle the claim in respect of the first plot only as the only claim that had been made was in relation to that plot.

The offer was not accepted and later the Particulars of Claim were amended to plead a case in relation to Plot 2, which then formed part of the same claim, with the same claim number.

In November 2016 the defendant then purported to accept the Part 36 offer that had been made in April 2015 and the dispute was whether that acceptance covered both plots, or only the first plot, which was the only dispute in existence when the Part 36 offer was made.

The Circuit Judge held that the acceptance only covered the first plot, and here, on appeal, the High Court upheld that decision.

 

Comment

This decision is wrong. If a Part 36 offer is made in relation to the whole of a claim, and is not withdrawn, and is then accepted, the whole of the claim at that stage must be compromised.

Otherwise, for example, where a defendant decided to accept the offer because it looked as though the claimant’s damages might be higher – perhaps because of a longer than expected period of recovery in the personal injury case – then this logic would mean that the acceptance only covered the claim as formulated at the time of the offer.

Here, the claimant’s remedy was simple – it could have withdrawn the Part 36 offer once it added another claim by amending the Particulars of Claim.

On the logic of this decision, any amendment to any pleading at any stage means that any pre-amendment Part 36 offer can only be for part of the case.

 

Accepted Part 36 Offer Can Be Communicated To Judge, Even Though Case Continues

In Sir Cliff Richard v BBC and Chief Constable of South Yorkshire Police [2018] EWHC 2504 (Ch) (March 2018)

the Chancery Division of the High Court held that a Part 36 offer can be communicated to the trial judge where the Part 36 offer has been accepted, even if the case has not concluded.

CPR 36.16 provides that the existence and terms of a Part 36 offer must not be communicated to the trial judge until the case has been decided.

In a claim brought by Sir Cliff Richard against the BBC and the South Yorkshire Police, the two defendants had served contribution notices on each other under the Civil Liability (Contribution) Act 1978.

South Yorkshire Police subsequently made a Part 36 offer and settled with Sir Cliff.

The terms of that settlement were disclosed to the BBC.

At the pre-trial review, the BBC maintained that the terms of the settlement, particularly the settlement sum, would be material at trial.

South Yorkshire Police gave several reasons why the information should be withheld from the judge at trial, including the restrictions in CPR 36.16.

Noting that CPR 36.16 exists so that parties can make offers to each other without the risk that those offers will be held against them in the proceedings, the court found that, once there is a binding settlement agreement, those considerations fall away.

There is no longer a Part 36 offer but a binding agreement, and CPR 36.16 does not apply to that situation.

Although South Yorkshire Police was still a party to the contribution proceedings, the Part 36 offer had not been made in those proceedings but rather to settle Sir Cliff’s claim against South Yorkshire Police.

The court therefore rejected the argument that CPR 36.16 provided a basis for not referring to the settlement terms at trial.

The court nevertheless had a discretion to refuse disclosure, depending on the relevance of the information and the prejudice caused by its disclosure.

In that regard the prejudice would have to be very heavy to outweigh a case of relevance, especially a strong one.

Ultimately these matters would have to be dealt with at trial, once South Yorkshire Police had clarified in an amended contribution notice, how it could pursue its contribution claim against the BBC without reference to the settlement sum.

 

Written by kerryunderwood

November 20, 2018 at 6:28 am

Posted in Uncategorized

LIQUIDATION: INDIVIDUALS BEHIND LIMITED COMPANY: INDUCING BREACH OF CONTRACT AND UNLAWFUL MEANS CONSPIRACY

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In October I am delivering my new course – Getting the Retainer Right – in 7 cities – details and booking form here.

In Palmer Birch (A Partnership) v Lloyd [2018] EWHC 2316 (TCC)

the Technology and Construction Court  upheld economic tort  claims by a building contractor against two individuals who directed the affairs of the limited company with which the building contractor had contracted under a JCT contract.

 

The judge found that:

 

  • The first defendant and the second defendant had committed unlawful means conspiracy by colluding to bring about the limited company’s liquidation so that it could escape the contract and avoid having to pay the building contractor for the work done.
  • The first defendant, who was the limited company’s sole funder, though not a director, had induced the limited company’s breach of contract.

 

The contract concerned the renovation of a house in which the limited company had a leasehold interest and where the freehold was held by a company beneficially owned by the first defendant, whose English residence it was.

The first defendant was non-UK domiciled and had deliberately not become a director of the limited company so as to distance himself from the limited company’s affairs and by interposing the limited company between himself and the property, he benefitted financially.

However, he behaved throughout as the effective client under the contract, and the key decision-maker.

The first defendant’s decision to divert his funding away from the limited company persuaded the judge that he had crossed the line from “merely preventing” the contract to inducing its breach.

The first defendant had treated the works as a “pay as you go” arrangement, not a contractual commitment and the second defendant was denied the protection of the corporate veil regarding the conspiracy element.

He had acted neither constitutionally nor in good faith.

Written by kerryunderwood

October 15, 2018 at 7:24 am

Posted in Uncategorized

ISSUE-BASED COSTS ORDERS

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In October I am delivering my new course – Getting the Retainer Right – in 7 cities – details and booking form here.

In Welsh v Walsall Healthcare NHS Trust (Costs) [2018] EWHC 2491 (QB)

the Queen’s Bench Division of the High Court, in making a costs order in a clinical negligence claim departing from the general rule that the “loser pays”, has provided useful guidance on issue-based costs orders, reviewing the authorities and rules in detail.

The High Court endorsed the approach set out in the notes of the White Book at paragraph 44.2.10 summarised below.

The rules do not require that an issue-based costs order only be made “in a suitably exceptional case”, and nor was this to be implied, although there needs to be a reason based on justice for departing from the general rule:

 

“… the extent to which costs of a particular issue are to be disallowed should be left to the evaluation and discretion of the judge by reference to the justice and circumstances of the particular case.”

 

The reasonableness of taking failed points, and the extra associated costs, should be considered.

The judge should express an issue-based order by reference to the costs of an issue when appropriate.

However, generally, because of practical difficulties, they should hesitate in doing this, and, where practicable, express the order as a percentage of total costs or with reference to a distinct period of time.

There is no automatic rule requiring an issue-based costs order in the form of a reduction of a successful party’s costs if he loses on one or more issues.

The mere fact that a successful party was not successful on every last issue cannot, of itself, justify an issue-based costs order.

The courts recognise that, in any litigation, any winning party is likely to fail on one or more issue and possibly issues on which the losing party could have taken steps to protect himself, at least to an extent, as to a costs liability.

 

The court then cited with approval the second principle set out in

 

Factortame v Secretary of State [2002] EWCA Civ 22:

 

Each case will turn on its own circumstances, but the court should be trying to assess” who in reality is the unsuccessful party and who has been responsible for the fact that costs have been incurred which should not have been””.

 

This was a clinical negligence case which the claimant won, but the claimant had made allegations of lack of informed consent to the operation, but dropped that allegation part way through the trial.

The defendant paying party argued that that issue had caused unnecessary costs and that the claimant should only recover part of its costs, and also be responsible for 30% of the defendant’s costs.

The court held that a claimant’s offer was not a valid Part 36 offer as it was made less than 21 days before trial.

Here, the court’s order reflected the fact that the claimant did not succeed on a discrete part of her case, which had taken up a substantial amount of time at trial and was ultimately withdrawn.

The court ordered the defendant to pay 85% of the claimant’s costs of the proceedings.

This was not based on any precise mathematical analysis, but rather the court’s judgment on doing justice in all of the circumstances.

The failure by the defendant to make an offer of settlement, or accept an offer by the claimant which would have left it in a better position than following trial, were relevant factors in determining the percentage reduction in the claimant’s costs when the claimant had unreasonably pursued an issue to trial.

The court reminded litigants that the best way for a defendant to protect itself in relation to costs is by making a Part 36 offer.

 

Written by kerryunderwood

October 12, 2018 at 7:40 am

Posted in Uncategorized

SECURITY FOR COSTS ON INDEMNITY BASIS

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In October I am delivering my new course – Getting the Retainer Right – in 7 cities – details and booking form here.

In Danilina v Chernukhin and others [2018] EWHC 2503 (Comm)

the Commercial Court ordered the claimant to pay further security to three defendants being 75% of incurred and expected costs, as there was a reasonable possibility of indemnity costs being ordered if the claimant lost, accepting the defendants’ argument that if the claimant lost at trial, it was highly likely that she would be ordered to pay indemnity costs, on the basis that she knowingly gave false evidence, as, on the facts, there was no room for mistaken recollection.

In the absence of a possible indemnity costs order, security was generally ordered by reference to 60 to 70% of incurred and expected costs.

This did not involve considering the merits of the claimant’s claims, it assumed she lost them.

The court held that if this happened, it was likely to be because the claimant was dishonest.

The first defendant was also involved in an arbitration with a third party which raised the same issue as one of the claimant’s claims.

The court held that the apportionment of the defendants’ future costs 65% to the claim and 35% to the arbitration was a reasonable possibility, so could be used for the purpose of the security order.

The claimant was unable to establish that her claim would be stifled if she was ordered to pay the level of security sought.

The third party had already provided funds to the claimant and made it clear that he wished her to pursue and win the proceedings.

The claimant’s statement that the third party had not agreed to provide further security was not “full, frank, clear and unequivocal evidence” that he was not willing or able to provide the security sought.

Although the claimant was being asked to provide security at a late stage, two months before trial, this did not justify not making the order, particularly as there was no evidence that providing the security would be burdensome to the third party.

 

 

Written by kerryunderwood

October 11, 2018 at 7:55 am

Posted in Uncategorized

COSTS: PAYMENT ON ACCOUNT

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In October I am delivering my new course – Getting the Retainer Right – in 7 cities – details and booking form here.

In Culliford & Anor v Thorpe [2018] EWHC 2532 (Ch) (02 October 2018)

the Chancery Division of the High Court held that a court could entertain an application for a payment on account of costs even after an order for costs has been made, drawn up and sealed.

“There is nothing in the rules that so requires, and there may be good reason why payment of the sum on account is not considered at the time the order was made.”

 

Indeed the starting point is that the court must, of its own volition, order a payment on account of costs, as CPR 44.2(8) states:

 

“Where the court orders a party to pay costs subject to detailed assessment, it will order that party to pay a reasonable sum on account of costs, unless there is good reason not to do so.”

 

That was not done in this case and the successful defendant subsequently applied for a payment on account and the losing claimant argued that the good reason not to do so was that the defendant had not requested such a payment when the order was made.

Even though the defendant had failed to apply for a payment on account of costs at the hearing, the court here ordered the claimant to pay the costs of the application in accordance with the usual “loser pays” rule.

 

 

Written by kerryunderwood

October 10, 2018 at 7:26 am

Posted in Uncategorized

CLIENT CHALLENGES TO BILLS: IMPORTANT GUIDANCE

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In October I am delivering my new course – Getting the Retainer Right – in 7 cities – details and booking form here.

In Allen v Brethertons LLP [2018] EWHC B15 (Costs) (02 October 2018)

the Senior Courts Costs Office ordered the defendant solicitors to deliver a bill of costs, pursuant to its jurisdiction under 68 of the Solicitors Act 1974 and CPR 67.2.

The case has several points of interest.

It confirmed the requirement that a bill must be delivered to the client in relation to all costs received, including portal fixed costs paid by the other side.

Here the bills were addressed to the claimant at his home address and described as “Payable by Ageas Insurance Ltd” but not delivered to the claimant.

The court ordered delivery of bills, for that and for other reasons.

 

The case confirmed that a statement reading:

 

Therefore, if you obtain £10,000 compensation I would be able to deduct £2500 towards my success fee and you would receive £7500 …”

 

meant just that and so the solicitor could not deduct a further £150 in respect of the unrecovered element of a medical report fee.

There were also mathematical errors in the calculation of the extra sum claimed and the balance due to the client and none of the disbursements appeared in any bill, whether delivered to the claimant or not.

The reference throughout the “success fee” was wrong – much of it was unrecovered solicitor and own client costs.

Costs, even fixed costs, always belong to the client.

Where the amount of recoverable costs is prescribed by statute, those costs are not open to challenge by a paying party under the indemnity principle

 

– see Butt v Nizami [2006] EWHC 159 (QB) .

 

However, that does not mean that the costs become the costs of the solicitor rather than the client

 

– see Cobbett v Wood [1908] 2 KB 420.

 

Stage I and Stage II costs are described at CPR 45.18 as “the legal representative costs” only to distinguish them from an advocate’s costs. It does not create any exception to the principle referred to in Cobbett v Wood above.

A solicitor cannot on the one hand hold the claimant contractually responsible for all its costs and disbursements, even on a capped basis, and on the other hand assert that the client is not entitled to receive a bill for, or challenge, part of them because they are not his costs.

Here the claimant, that is the client/former client, was represented by Checkmylegalfees.com and the court added this important footnote, which should be read and understood by all of those dealing with Solicitors Act challenges.

 

Footnote

61. Ms Moore, the Claimant’s professional adviser, is a Costs Lawyer, that is to say a person regulated by the Costs Lawyer Standards Board and with the right, in cases such as this, to conduct litigation and to exercise a right of audience. In correspondence with the Defendant, she identified herself as such from an early stage and from the outset requested that the Defendant communicate with Checkmylegalfees.com, rather than with the Claimant directly.

  1. That seems to me to be consistent with the current provisions of the Solicitors’ Code of Conduct (at chapter 11), which indicate that a solicitor should not contact a party directly where that solicitor is aware that that party has instructed “a lawyer”, defined in the glossary to the Code of Conduct to include “a profession whose members are authorised to carry on legal activities by an approved regulator other than the SRA”.
  2. If the Defendant had been any doubt about Ms Moore’s status, a quick check of the public register maintained by the CLSB, and freely available on the Internet, would have confirmed it.
  3. The Defendant refused to comply with Ms Moore’s request not to contact the Claimant directly. Its response to Ms Moore’s initial communication was to write directly to the Claimant on the basis that Checkmylegalfees.com is not a firm of solicitors. Even after its file had been released to Checkmylegalfees.com and it had received notice that the Claimant’s application had been filed, the Defendant wrote its letter of 18 February 2018 directly to the Claimant, encouraging him to deal with the Defendant directly.
  4. I appreciate that the Defendant may have had some initial concerns about its authority to release papers to Checkmylegalfees.com, but by 18 February 2018 can have been no mistake about the Claimant’s wishes or Ms Moore’s professional status.
  5. Whether the Defendant has complied with the Code of Conduct is not a matter for me, but I would offer the view that Ms Moore, when acting as a Costs Lawyer with a right to conduct litigation, is at the least entitled to expect from the Defendant the same professional courtesy as a solicitor would expect. It does not seem to me that she has received it.”

 

 

 

Written by kerryunderwood

October 9, 2018 at 8:48 am

Posted in Uncategorized

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