Costs Update - March 2016

Posted by Michelle Barron on 8th March, 2016 in Opinion and categorised in .

WHEN SHOULD JUDGMENTS ACT INTEREST START TO RUN ON COSTS?

In a High Court Commercial Case, Mr Justice Legatt addressed the issue of when interest should start to run on costs at the Judgments Act rate, which is currently 8%:

Involnert Management Inc -v- Aprilgrange Limited [2015] EWHC 2834 (Comm) – The Claimant had been ordered to pay 75% of the Defendant’s costs and the costs of a third party, an issue arose as to when interest at the Judgement Act rate should start to run. The “default” date from when such interest is to run is the date when the order for costs is made but given the current gulf between the “commercial” rate of 2.5% and the Judgement Act rate of 8%, this can lead to a draconian penalty on a paying party when the costs may not be assessed for many months. The specific point in issue was that under the default position a paying party may be paying that high rate of interest during a period when they might not have a detailed statement or bill of costs so as to allow them to consider what the receiving party’s reasonable costs are and make an appropriate offer or payment on account to protect their position.

Legatt J, noted that the Court has the power to order interest to accrue from a date other than the “default” date and that exceptional circumstances are not required. Instead, such discretion should take account of the overriding objective to deal with cases justly. Having applied that consideration, Legatt J did not think it just to make an order under which interest runs at Judgments Act rates until such time as the paying party had had a fair opportunity to see exactly what sums were being claimed and to decide what sums are reasonably payable. Furthermore, Legattt J felt that is was “desirable to set a date from which Judgments Act interest will run which is based, if possible, on some objective benchmark and does not depend simply on the judge’s general feeling of what length of postponement is fair”. He felt that period should be three months from the date of the order for costs, being the time limit for a paying party to serve a bill of costs and commence detailed assessment proceedings under CPR 47.7. As Legatt J noted, if a receiving party does not serve a bill of costs within that period then further interest would normally be disallowed either in whole or in part pursuant to CPR 47.8 (3)

It will be interesting to see whether this “benchmark” starts to be applied generally when dealing with interests on costs.

 

RELIEF FROM SANCTIONS FOR LATE SERVICE OF NOTICE OF FUNDING

It appears that the balance may be swinging in the favour of the defaulting party upon applications for relief from sanctions for late service of a Notice of Funding.

Jackson -v- Thompson Solicitors (& others) [2015] EWHC 549 (QB) – The Claimant had been ordered to pay the various Defendants’ costs but in the case of one of the Defendants his solicitors had served their Notice of  Funding either 3 or 7 weeks late. An application for relief from sanctions was made and, applying the Denton test, Simon J found that the delay in service was neither serious or significant, there had been no prejudice caused by the delay and the reason for the breach was an oversight. Therefore, looking at the matter and taking into account issues of proportionality and compliance, relief from sanctions should be granted,

Mischon De Reya -v- Caliendo [2015] EWCA Civ 1029 – The Claimant’s Solicitors had served Notice of Funding in relation to their own CFA and the ATE policy over 3 months late and Notice of Counsel’s CFA over 2 months late. Upon the Claimant’s application, Hildyard J had granted relief from sanctions when applying the Denton test, the Defendant appealed. The Court of Appeal held that the granting of relief was an exercise of discretion by the Judge below and since he had taken account of all relevant factors the Court would not interfere with his decision and the appeal was dismissed.

 

CAN FIXED COSTS APPLY TO A CLAIM ALLOCATED TO THE MULTI-TRACK?

According to a Circuit Judge at Birmingham County Court, the answer is yes.

Quader -v- Esure Services Limited (Birmingham County Court 15th October 2015 – The claim related to an RTA worth no more than £15,000.00 which had gone through the Portal but later Part 7 proceedings were issued and the Defendant alleged that it was a staged accident. The claim was allocated to the Multi Trach due the issues that had been raised and the parties had been ordered to file costs budgets but when the matter came before the District Judge he ordered – “CPR 45.29A fixed costs will apply to the claimant’s costs. Costs management does not apply to this case.” The Claimant appealed that decision. HHJ Grant dismissed the appeal and held “The text of CPR rule 45.29A is quite clear: it states that Section IIIA of Part 45 will apply when a claim is started under the RTA Protocol, but no longer continues under that Protocol or the stage 3 procedure set out in Practice Direction 8B.” He also held that the order did not breach the overriding objective or the Claimant’s Article 6 rights to a fair trial. However, the “escape provision” under CPR 47.29J could still be used to allow the Claimant to recover costs in excess of the fixed recoverable costs.

 

DOES AN AWARD OF INDEMNITY COSTS UNDER CPR 36 DISAPPLY FIXED COSTS?

Another issue in relation to fixed costs that has arisen in recent months was whether an award of costs on the indemnity basis to a Claimant who had beaten his own Part 36 offer at trial would mean that fixed costs no longer apply. Conflicting decisions were coming out at Circuit Judge level including a Judgment in Birmingham County Court that Fixed Recoverable Costs do apply even when an award of costs was made on the indemnity basis, whereas a Newcastle County Court decision soon after decided the exact opposite. Fortunately, two test cases on this point were fast tracked to the Court of Appeal in order to put a stop to the growing confusion.

Broadhurst -v- Tan and Swift v Taylor [2016] EWCA Civ 94. – These two appeals concerned opposing judgements from the Courts below on the same point. In one case the Judge held that fixed costs still applied when an order for costs on the indemnity basis had been made and in the in the other case it was decided that they did not. The Court of Appeal decided that where a Defendant fails to beat a Claimant’s Part 36 offer in a case where fixed costs would normally apply then a subsequent award of indemnity costs is inconsistent with fixed costs. The costs on the indemnity basis that follow from the expiry date of that offer are not fixed. The Court of Appeal also considered how this ruling would work in practice since the costs in such a situation would be partly fixed and partly assessed, their solution is as follows:-

“Where a claimant makes a successful Part 36 offer in a section IIIA case, he will be awarded fixed costs to the last staging point provided by rule 45.29C and Table 6B. He will then be awarded costs to be assessed on the indemnity basis in addition from the date that the offer became effective. This does not require any apportionment. It will, however, lead to a generous outcome for the claimant. I do not regard this outcome as so surprising or so unfair to the defendant that it requires the court to equate fixed costs with costs assessed on the indemnity basis.”

In consequence, Claimants will need to consider making a realistic and early Part 36 offer to gain a potential “windfall” on costs and Defendants will need to give very careful scrutiny to any such offers as the penalty on costs could be significant.

 

TRIAL JUDGES, COSTS BUDGETS AND INTERIM PAYMENTS

In a recent judgement in Manchester County Court the following questions were answered (1) Can a Trial Judge give an indication as to his opinion on whether a party can show “good reasons” to depart from their last approved budget? (2) If not, can he amend the costs budget after trial (3) What percentage of the last approved costs budget should normally be awarded as an interim payment on account of costs.

Capital for Enterprise Fund AP -V- Bibby Financial Services Limited (Chancery Division, Manchester, 18/11/2015) – HHJ Pelling (sitting as a High Court Judge) dealt with these issues after awarding the Defendant 70% of its costs. The Defendant knew that it had exceeded its last approved costs budget but it was confirmed by HHJ Pelling that he had no power to amend that costs budget following the conclusion of the trial. The Defendant therefore asked the Trial Judge if he would give an indication that a departure from the budget would be authorised but HHJ Pelling ruled this would be an interference with the independent decision of the costs judge and would undermine the current costs code. The Judge did say that such an indication could be given if both parties expressly or impliedly agreed that it was appropriate to do so but there was no such agreement in this case. Finally, in relation to an order for an interim payment on account, HHJ Pelling considered that each case should still be assessed on its own merits but the sum awarded should be higher in a case where there is an approved budget than in a case where there is not. Having ordered the Claimant to pay only 70% of the Defendant’s costs, HHJ Pelling ordered an interim payment that was equivalent to 80% of 70% of the Defendant’s approved budget.

 

SWITCHING FROM PUBLIC FUNDING TO CFA AND ATE – MORE CASES/LACK OF PROPER ADVICE

In our previous Costs Update, we highlighted two decisions of Master Rowley in the SCCO where a Claimant in clinical negligence proceedings had switched from a public funding certificate to a CFA backed by an ATE policy. In one case the decision was found to have been a reasonable so that the success fee and ATE premiums were recoverable. However, in the other the case the failure by the Solicitor to give the Litigation Friend any “Simmons” advice as to the 10% increase in general damages that would be lost by such a switch made the choice an unreasonable one and so both the success fee and ATE premium were disallowed.

Two further decisions in the SCCO have now been reported dealing with the same issue and with the same result. In Ariana Ramos v Oxford University NHS Trust [2016] EWHC B4 (Costs) and AH v Lewisham Hospital NHS Trust [2016] EWHC B3 (Costs) both Master Leonard in the former case and Deputy Master Campbell in the latter case found that the lack of the “Simmons” advice to the Claimants (and other incorrect advice in the case of Ramos) made the decision to switch from Public Funding to a CFA and ATE policy unreasonable so that the success fees and premiums were irrecoverable.

 

BRIEF ROUND UP

The following is a selection of costs related decisions from the past few months:

Martin Rallison v North West London Hospitals NHS [2015] EWHC 3255 (QB) – A Clinical negligence claim that settled close to trial for £450,000.00 when the Claimant had originally pleaded nearly £4 million. The claimant prepared a schedule of costs just over £1.1 million and sought an interim payment on account of costs in the sum of £574,000.00, the defendant was offering £250,000.00. The Defendant’s primary submission was that the costs claimed were globally disproportionate to the final settlement and the Judge agreed. Therefore, he considered the schedule of costs in more detail and concluded that the number of hours claimed by the Solicitors appeared to be excessive, particularly in view of the heavy involvement of Counsel. The Judge noted that there was an ATE premium of just over £100,000.00 which he considered was likely to be recoverable in full so to take account of that he ordered an interim payment of £306,763.00.

RXDX v Northampton Borough Council [2015] EWHC 2938 (QB) – The Claimant had beaten his Part 36 offer on liability and in his draft Judgment following the liability trial the Judge has initially awarded the Claimant his costs of the liability issue on an indemnity basis throughout. After hearing further argument as to the correct interpretation of CPR 36.14(3), the Judge accepted that this was wrong and that the award of indemnity basis costs could only run from the date of expiry of the Part 36 offer.

Hobbs -v- Guy’s and St Thomas’ NHS Foundation Trust [2015] EWHC B20 (Costs) – This clinical negligence claim settled for £3,500.00, the Claimant served a bill of cost totalling  £32,329.12. The bill was reduced on provisional assessment by around two thirds on the basis of reasonableness and then further reduced on the grounds of proportionality to £9,879.34. The Claimant sought an oral hearing but this did not result in an increase. The Master considered that in a case such as this proportionality was more important than necessity, also he reduced the costs after applying the “necessity” test on the grounds that, even after applying that test, the costs were disproportionate.

Engeham -v- London & Quadrant Housing Ltd & Academy of Plumbing Ltd (01/12/2015) - The Court of Appeal upheld a finding that a consent order which stated that damages and costs were to be paid by a defendant not named in the Conditional Fee Agreement was a “win” which entitled the claimant to recover costs from that defendant.

Various Claimants -v- Sir Robert McAlpine & others [2015] EWHC 3543 (QB) Mr Justice Supperstone (sitting with Master Leslie & Chief Master Gordon Saker) - Considered costs budgeting within a Group Litigation Order. The court is able to budget the costs of all the parties subject to a Group Litigation Order. The court found that some of the proposed costs were disproportionate, even having regard to the complexity, numbers of claimants and issues involved.

Bristow  -v- The Princess Alexander Hospital NHS Trust [2015] EWHC B22 (Costs) – The inclusion of items in the bill of costs that should never have been there led to the Claimant’s costs of assessment only being allowed at 80%. However, due to the Defendant’s unreasonable refusal of an offer of mediation, those costs would be assessed on the indemnity basis.

 

BUDGETS

Three years after the introduction of Costs Budgeting as part of the new Costs Management regime, the rules committee have made their first major alterations to the rules, practice directions and forms relating to costs budgets as part of the 83rd Update to the Civil Procedure Rules, coming into force on 6th April 2016. The following is a summary of the changes that have been made.

The Substantial Changes

1. Only the first page of the Precedent H is to be filed and exchanged if the value of the claim is under £50,000.00 (as per the claim form).

2. Claims by or on behalf of a child (under 18 years of age) are excluded from the costs management regime.

3. In cases where the Claimant has a limited or severely impaired life expectation (5 years or less) the court will ordinarily disapply cost management.

4. For low value claims (under £50,000.00 on the claim form) the costs budget must be filed with the Direction Questionnaire, for all other claims it must be filed 21 days before the case management conference.

5. There is a new Budget Discussion Report form (precedent R) which must be filed by both parties 7 days before the first case management conference.

Other Changes to Practice Direction 3E – Costs Management

1. There is a new direction – 6 (b) - That parties must follow the Precedent H guidance in all respects.

2. The new direction – 6 (c) – states that if costs are under £25,000.00 or the value of the claim is less than £50,000.00 parties must only use the first page of the Precedent H.

3. Another new direction – 7.10 – confirms that the making of a costs management order concerns the totals allowed for each phase of the budget and that it is not the role of the court in the costs management hearing to fix or approve the hourly rates claimed in the budget. The underlying detail in the budget for each phase used by the party to calculate the totals claimed is provided for reference purposes only to assist the court in fixing a budget.

4.  The amended practice direction also includes provisions in relation to the new budget discussion reports and confirms that parties are encouraged to use the Precedent R annexed to the practice direction.

The Amended Precedent H

1. The assumptions boxes now appear at the bottom of each phase rather than on the first page.

2. The new form does not allow for estimated costs in the pre-action phase or incurred costs in the PTR, Trial Preparation and Trial phases.

3. There are new boxes on the first page for the cost of budget drafting and budget process.

4. The previous line 12 – “Explanation of disbursements [details to be completed]” that came after the “other disbursements” line has been removed.

5. The Expert Report phase has been expanded by the addition of a summary of expert’s fees which includes columns for the type of expert, their total fees incurred and their estimated fees for reports, conferences and joint statements.

Guidance Notes on Precedent H

There are four new paragraphs added:-

a. Confirming that if the value of the claim is under £50,000.00 or the cost are under £25,000.00 then parties must only use the first page of Precedent H.

b. Directing that, save in exceptional circumstances, parties are not expected to lodge any documents other than the Precedent H and the Budget Discussion Form (precedent R)

c. Giving an explanation of what and what not the “assumptions” should include – they should not repeat the wording in the guidance for the phases, they should only include assumptions that significantly impact on the level of costs claimed e.g the duration of proceedings, number of experts and witnesses or number of interlocutory applications envisaged, brief details only are required in the box beneath each phase and additional documents (e.g annex with expanded assumptions) are not encouraged and, if disregarded by the court the costs of preparing such documents may be disallowed, additional documents should only be included where necessary and, finally, written assumptions are not normally required by the court in cases where the parties are only required to lodge the first page of the Precedent H.

d. Explaining that the time spent in preparing the budget and associated material must not be claimed in the draft budget under any phase as the permitted figure will be inserted in the new box on page 1 of the Precedent H once the final budget figure has been approved by the court.

There are also a number of changes to the guidance in relation to what is and is not to be included in each phase:-

a. Issue/Statement of Case – Now includes updating schedules and counter schedules of loss. Amendments to statements of case are still excluded but the additional wording “(see below)” has been removed – probably because there was never any further mention below about amendments to statements of case!

b. CMC – No longer includes preparation of the costs budget (to be included in the new box on page 1) and specifically states that such work is not to be included in this phase.

c. Expert Reports – Now includes any conferences with counsel primarily relating to expert evidence.

d. PTR – Now includes the words “preparation for” before “and attending PTR”.

e. Settlement – Now includes any conferences and advice from Counsel in relation to settlement.

Precedent R – Budget Discussion Report

This new form is similar to what some Courts and Judges have been ordering to be filed ahead of Costs Management Conferences.
It appears that parties will file a Precedent R in relation to the costs budgets of all other parties (but not their own) setting out what has been claimed, what is being offered, what has been agreed, what has not been agreed and a brief summary of the grounds of dispute.

Observations

From an initial consideration of the proposed changes, the following points are to be noted:-

1. The exception from costs management of claims by or on behalf of a child could include Fatal Accident Act cases where one of the dependants is a child.

2. There is no exemption from costs management for any other type of protected party.

3. Unlike the exemption for claims by children, the possible exemption for claimants with a limited life expectancy is not absolute and is an amendment to the Practice Direction rather than the rule. Therefore, cost management will still apply until the court disapplys it, which it should “ordinarily” do.

4. The amended practice direction in relation to cases where the costs are under £25,000.00 or the value of the claim is under £50,000.00 states that parties must only use the first page of the Precedent H. Previously, for costs under £25,000.00, the practice direction said that parties were not obliged to complete more than the first page.

5. The new Expert Fees summary in the Precedent H includes columns for future fees in respect of reports, conferences and Joint statements but does not account for questions to experts. Pending any clarification, the most obvious column to use for questions would be “reports”.

6.  The removal of line 12 in the Precedent H to explain and give details of the disbursements is curious; the court will now be left with a total figure for disbursements but with no indication of what is included in that sum to assist in deciding whether it is reasonable. Presumably, parties will need to have those details with them at the CMC to be able to explain to the Judge what it includes.

7. The new guidance notes for precedent H make it clear that the budget preparation is not be included in any of the phases as the 1% or £1,000.00 for that work will now be included in the new box on page 1. However, there is also a box on page 1 for the 2% other costs of the budget process yet the guidance still includes work on updating and negotiating cost budgets in the PTR when that would come within the 2%.

8. The amended practice directions and guidance make it clear that parties must follow the guidance absolutely and that will include not preparing and filing additional annexes/schedules in relation their budgets such as expanded assumptions and lists of disbursements, even if that could potentially assist the court in some cases.