Costs Case Law Update October 2015
The steady stream of case law in relation to Costs Budgets continues unabated. The following is a brief roundup of some of the latest reported decisions:
GSK Project Management Ltd v QPR Holdings Ltd  EWHC 2274 (TCC) – The Claimant’s costs budget totalling £824,038.00 was reduced to £425,000.00. In his judgement, Stuart-Smith J followed the approach adopted by Coulson J in CIP Properties (AIPT) Limited v Galliford Try Infrastructure Limited  EWHC 481 (TCC) and in relation to proportionality he stated that a case would have to be wholly exceptional to render a costs budget of £824,000.00 proportional to the recovery of £805,000.00 plus interest. He also considered that the incurred costs of £312,978.00 revealed a disproportionate level of expenditure with no consequential benefit being reflected in the estimate of future costs. Finally, Stuart-Smith J awarded the Defendant its costs, which he summarily assessed in the sum of £1,000.00, for having to deal with an “exorbitant estimate” and further directed that the Claimant's solicitors bring the terms of the judgment to the attention of any paying client who has retained them in the action and notify the Court when that had been done. The warning is clear; Solicitors who file and serve an excessive and disproportionate budget do so at their peril!
BP v Cardiff & Vale University Local Health Board  EWHC B13 (Costs) – Upon the detailed assessment of costs in this fatal clinical negligence claim the Senior Costs Judge, Master Gordon-Saker, gave his opinions as to the proper format of bills where a there is an agreed/approved budget and what the caps upon the costs of the budgeting process include. Master Gordon-Saker stated that in a case in which a budget has been approved or agreed and the costs are to be assessed on the standard basis it will be both necessary and convenient to draw the bill in parts which correspond with the phases of the budget. He also considered that within each part it will also be necessary to distinguish between the costs incurred before and after the budget was agreed or approved and that this could be done without further sub-division by use of italics, bold, superscript or some other formatting device. Furthermore, he believes that the costs of the initial budget preparation and the other costs of the costs management and budgeting process will have to be identified separately in the bill. As to the £1,000.00/1% cap for preparing the initial budget and the 2% cap for all other work in relation to cost management and budgeting, the Master considers that this includes any success fee but excludes VAT. Therefore, in a claim with a 100% success fee and a costs budget under £100,000.00, the base profit costs for preparing the initial budget would be capped at £500.00.
Stocker v Stocker  EWHC 1634 (QB) – In this libel action between the Claimant and his ex-wife, the Claimant had filed a cost budget totalling £260,264.30, of which £92,134.00 was incurred costs, and the Defendant had filed a budget of £575,441.39, including £225,536.00 of incurred costs. Giving his judgement in relation to the Defendant’s budget, Warby J accepted that an approach based purely on financial proportionality would run the risk of disabling litigants from fairly presenting their cases and that the "small" cases such as this, involving relatively few publishees, are not inherently cheaper and can tend to be more expensive than cases over mass media publication. He also acknowledged the importance of ensuring that the costs budgeting process does not result in a party being unable to recover the costs necessary to assert their rights. However, he still considered that the Defendant's global costs figure was considerably out of proportion to what was at stake and the nature of the issues, and should be substantially reduced for that reason, as well as in order to ensure a reasonably level playing field as between the parties. The Defendant’s budget was reduced to £422,924.00.
Yeo v Times Newspapers Ltd  EWHC 2132 (QB) – The Claimant in this libel action applied to revise his costs budget in several respects, including by adding a contingency in the sum of £36,120.00. However, nearly £21,000.00 of that contingency total had already been incurred by the time the revised budget was signed and the question arose as to whether PD 3E 7.6 can be used to obtain approval of costs that, by the time of the revised budget, are incurred costs. In his Judgment, Warby J considered that the submissions on behalf of the Defendant were correct and that PD3E 7.6 is not an apt vehicle for obtaining the court's approval for costs incurred before the budget. He also thought that the wording of PD3E 7.6 and PD3E 7.4 point firmly in that direction.
SWITCHING FROM PUBLIC FUNDING TO CFA AND ATE – A REASONABLE CHOICE?
Twice this year Master Rowley of the SCCO was been faced with the question of whether it was reasonable for a Claimant to switch from being Publicly Funded to entering into a CFA backed by an ATE policy and came to a different answer in each case.
In the case of Hyde v Milton Keynes Hospital NHS Foundation Trust  EWHC B17 (Costs) the Claimant brought a clinical negligence claim against the Defendant and from 10th July 2008 she had the benefit of a CLS Funding Certificate. Liability had been conceded and a consent order to this effect was filed with the Court, after which the Defendant made a Part 36 offer of £150,000.00 and the claimant made a part 36 offer of £275,000.00. The scope of the Claimant’s Funding Certificate allowed her Solicitors to deal with Quantum after judgement but there was a costs limitation which the Solicitors considered was inadequate to cover all steps required in relation to quantum and their request for a further extension of the financial limit was denied. By March of 2013, the Claimant’s solicitors believed that they were about to “hit the buffers” of the costs limitation so they entered into a CFA with the Claimant backed by an ATE policy but they did not seek a discharge of the Funding Certificate. The first question to be dealt with was whether the Claimant could recover costs inter partes pursuant to the CFA when the Funding Certificate had never been discharged. Master Rowley found that where a party has exhausted the costs that can be claimed under a certificate so that it is “spent”, they can in principle establish a discharge by conduct in the same manner as certificates in which all of the work up to a limitation of scope has been carried out. The effect of that discharge is to end the services funded by the LSC and enable a private retainer to fund the remainder of the proceedings. He also considered that the serving of the N251 Notice of Funding upon the Defendant was just as determinative of a change in the claimant's status as a notice of change to a litigant in person would have been and if the claimant had sought to argue that she had the benefit of costs protection after 25 March 2013, she would have been unsuccessful in so doing. Therefore, the Claimant could in principle recover her costs under the CFA and ATE policy, so long as the decision to do so was a reasonable one. The Defendant argued that entering into the CFA was unreasonable given the proximity of settlement and the lack of risk at the point at which it was made. However the Master felt that a Claimant and her solicitor who keep an eye on the costs being incurred and so are aware of the limitation problem should not be obliged to continue to use the certificate come what may and, where it is clear that the available public funding is going to be insufficient, a decision to change to another option must be a reasonable step to take.
As an aside to the main argument, the Master also considered the appropriate level of the success fee, which was claimed at 100% for both the Solicitors and Counsel. Following the judgment in C v W  EWCA Civ 1459, he reduced the Solicitor’s success fee to 20% and allowed only 10% for Counsel, who did not assume any risk in respect of Part 36 offers under his CFA.
Having dealt with the above claim in March, Master Rowley then had to consider similar issues in June of this year in the case of Surrey v Barnet & Chase Farm Hospitals NHS Trust  EWHC B16 (Costs). This was also a claim for clinical negligence, brought by a minor through his Mother and Litigation Friend and where a CLS Funding Certificate had been granted in January 2006 and liability had been agreed and judgment entered to that effect leaving only quantum in dispute. In February 2015, the Claimant’s Solicitor reviewed the position in relation to funding as part of a firm wide exercise to consider the potential effects of LASPO on any existing publicly funded claims and came to the conclusion that the Claimant would be better off switching to a CFA back by an ATE Policy. That conclusion was based mainly on the premise that there was no guarantee that the Legal Aid Agency would increase the costs limitation sufficiently to cover an assessment of damages hearing. Advice to this effect was given to the Litigation Friend, who agreed with the Solicitor, and the CLS Funding Certificate was discharged and a CFA entered into in March 2015, backed by an ATE policy. The Defendant raised a number of issues in relation to the advice given to the Claimant’s Litigation Friend and the merits of abandoning Public Funding in favour of a CFA and ATE but in Master Rowley’s view the crucial issue was the apparent failure by the Solicitor to give any advice on the point concerning the Simmons 10% increase in general damages for claims that settled without a CFA or ATE funding arrangement. In giving his judgment, Master Rowley said “There is no evidence before me to indicate whether the claimant or his Litigation Friend would have considered the abandoning of up to £20,000, which was more or less guaranteed, in return for peace of mind regarding future funding. They may have decided that the system that had apparently worked for 7 years was unlikely to break down in the final stages and they would rather have the money and risk the funding issues. They may have taken the view that QOCS protected them sufficiently not to incur an ATE premium. The possibilities for speculation are endless. What is certain however is that the Simmons damages were of significance and so should have been explained to the claimant's Litigation Friend so that informed consent to a change in funding could be given. The absence of any evidence from the Litigation Friend on this point, to my mind, speaks volumes. In the absence of being informed of these issues it seems to me impossible to say that the claimant can have made a reasonable choice to change funding arrangements. Consequently, I find that the additional liabilities flowing from the new arrangements are unreasonably incurred and as such are not recoverable from the defendant”.
Despite finding that the additional Liabilities were not recoverable, Master Rowley went on to consider the level of success fees that he would have allowed and, for the same reasons given in Hyde above, confirmed that he would have reduced the Solicitor’s success fee from 100% to 20% but not interfered with Counsel’s success fee, which had been set at only 11%. He also considered the reasonableness of the ATE premium and confirmed that he would have reduced the same from £50,681.78 to £31,800.00 on the basis the cover of £500,000.00 was excessive in the circumstances of this claim. Finally, Master Rowley considered the hourly rates being claimed and reduced these overall by around 5% for the main grade A fee earner and around 11 to 14% for the lower grade fee earners.
CLINICAL NEGLIGENCE ATE PREMIUM
Post LASPO, one of the few remaining additional liabilities recoverable inter partes is the cost of an ATE premium to cover the fees of experts reports in clinical negligence claims but in this developing market, what is a reasonable and proportionate ATE premium?
In Nokes v Heart of England Foundation NHS Trust  EWHC B6 (Costs) the Claimant sought to recover an ATE premium of £5,680.00 plus IPT for cover of £10,000.00 in relation to the risk of incurring a liability to pay for any expert’s reports in connection with her clinical negligence claim. Aside from a technical argument as to whether the wording of the policy complied with the statutory provisions and regulations (which was resolved in favour of the Claimant) the Defendant argued that the premium was unreasonable and disproportionate. The Claimant produced evidence from the ATE underwriter which suggested that their loss ratio in clinical negligence matters was around 81% and that they had settled on a uniform indemnity level of £10,000.00 as expert’s reports could reach that level if numerous reports in different disciplines were required. The Defendant argued that the level of cover was excessive as the actual cost of the expert’s reports in this case was only around £2,500.00 and was on average around £2,000.00 and challenged the underwriter’s figure for their loss ratio. In his conclusions, Costs Master Leonard found that for a block rated premium such as this the level of cover was not unreasonable as is represented a reasonable maximum exposure. Also, in the absence of expert evidence, the Defendant’s arguments and evidence did not stand up to analysis so as to lead the Master to substitute his own judgment on the level of premium for that of the underwriter. Finally, the Master found that the evidence of comparable premiums produced by the Defendant did not give any indication that the premium in this case was unreasonable and the premium was not disproportionate. Accordingly, the premium was recoverable in full.
DEDUCTING SUCCESS FEES AND ATE PREMIUMS FROM A CHILD’S DAMAGES
Regional Costs Judge Lumb sitting in Birmingham County Court has recently given two judgements in linked post LASPO cases relating to issues over a Solicitor seeking to deduct success fees and ATE premiums from children’s damages. These judgments are best read in full but the following is a brief summary of the background and decisions made.
The judgments are reported on BAILII under the citations A & B -v- The Royal Mail Group  EW Misc B24(CC)(14th August 2015) and A & Anor v Royal Mail Group (No. 2)  EW Misc B30 (CC) (18 September 2015). The two children aged 12 and 4 brought claims for injuries suffered in an RTA on 31.07.13 through their Father and Litigation Friend. The claims proceeded via the portal process with both liability and quantum being agreed in the sums of £2,115.00 and £2,065.00. These settlements were approved by the Court and the Defendant agreed to pay the appropriate fixed costs. However, the Claimants’ Solicitors also sought approval to deduct from the Children’s damages a success fee of 100% (capped at 25% of general damages) and ATE premiums. DJ Lumb decided:-
Taking out an insurance policy in a case where children were involved and QOCS applied was not justifiable. There were no risks to insure against.
If a solicitor wished to justify an additional liability in order to deduct fees from a protected party’s damages then a risk assessment was usually necessary.
The litigation friend had not been given adequate advice in relation to his potential liabilities.
It was very unlikely that a court would be satisfied that a 100% success fee would be justified.
The fact that there was a cap of 25% of general damages does not mean that a court will accept the deduction. The reasonableness of the success fee has to be established.
An attempt to always recover 25% of damages is dangerously close to a contingency fee and may be unlawful.
The notion that 25% would be taken from general damages in every case was not part of the Jackson reforms.
A suggestion that solicitors would not take up the work without enhancement (in straightforward cases) is unfounded by the experience of the courts.
A solicitor who does not wish to do the work without a success fee may be under a professional obligation to inform the Litigation Friend that other solicitors may be prepared to accept instructions without insisting upon a success fee
Following on from this judgement, DJ Lumb did not consider that it would be proportionate to order a full blown detailed assessment under CPR Part 47 and therefore gave special directions to enable an assessment on paper of the outstanding issue namely what amount, if any, should be deducted from the children’s damages under CPR Part 21.12 as a reasonable expense reasonably incurred by the Litigation Friend for the success fee of the Claimants’ solicitors costs. This is what he decided:-
The starting point for the figure for the success fee is the base figure from which the success fee percentage is multiplied. If the base costs are unreasonably high then any calculated success fee would be similarly skewed.
The court reduced the base fee to an appropriate level.
The object of a risk assessment is to assess the chances of winning the case. In this context this means obtaining an award of damages and/or payment of costs.
The key point is the known facts at the commencement of the claims and at the time the CFAs were entered into.
The risk factors in these straightforward cases gave rise to an additional liability of 5%.
The additional liability due because of deferment of the fees was a further 5%.
The sum of £141.60 as an additional liability was allowed in relation to each claim compared to the £528.76 and £516.25 originally claimed.
BRIEF ROUND UP
The following is a selection of costs related decisions from the past few months
Transformers And Rectifiers Ltd v Needs Ltd  EWHC 1687 (TCC) (12 June 2015) – A summary assessment of costs does not have to carried out by the same Judge who made the order for costs.
Dar Al Arkan Real Estate Company & Anor v Al Refai  EWHC 1793 (Comm) (24 June 2015) – An order for costs in the Defendant’s favour following the Claimant’s discontinuance of the claim against him does not affect previous costs orders made against the Defendant in the Claimant’s favour.
Solicitors Regulation Authority, R (on the application of) v Imran  EWHC 2572 (Admin) (22 July 2015) – A successful respondent to an appeal asked for his costs to be put off for a detailed assessment as no statement of costs had been filed or served by his Solicitors in anticipation of a Summary Assessment. The Judge felt that adding to the costs by ordering a detailed assessment would be disproportionate so assessed the costs in the notional sum of £5,000.00.
Wall v British Canoe Union (unreported) Birmingham County Court (30 July 2015) – The Claimant’s QOCS protection was lost pursuant to CPR 44.15 (a) as her claim was struck out as disclosing no reasonable cause of action. Therefore the Defendant was entitled to enforce the order for costs in full against the Claimant without permission of the Court (although the assessment of costs and enforcement thereof were stayed pending determination of any appeal).