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More CPR changes to Budgeting and Fixed Costs to come into force

The Civil Procedure (Amendment) Rules 2017 were released on the 3rd February with most of them coming into force on 6th April 2017.

 

In relation to costs budgeting the Civil Procedure Rules Committee is clearly attempting to bypass the ruling in SARPD Oil International Limited v. Addax Energy SA and another [2016] EWCA Civ. 120. As some of you may recall the CoA ruled that the time to raise issues as reasonableness and proportionality in relation to incurred costs is at the CCMC. This meant (in theory) that these issues could not be raised during the assessment process following conclusion of the main action if they were not raised at the CCMC in the first instance.

 

The new rules are designed to bypass this decision and provide for the judge to record his views on incurred costs without the need for an all out “assessment” at the CCMC stage.

 

The new rules now specifically allow for the Court to make comments about incurred costs if they so wish. Instead of recording any agreement relating to the “budgets” the Court records agreements about “the budgeted costs” (incurred costs are not budgeted costs). The Court can also record the extent to which any incurred costs have been agreed.

 

This new rule puts us back to what was originally intended i.e. that a judge would simply be asked to note that the incurred costs were disproportionate and would record this. This means that not raising proportionality/reasonableness at the CCMC stage no longer precludes you from raising it during the assessment process.

 

Over and above costs budgeting the CPRC has also clarified the position in relation to fixed costs v multi track cases. The new rules now specifically state that fixed costs cease to apply when an action is in the multi track which is inline with the CoA decision in Qader and others v. Esure Services Limited [2016] EWCA Civ 1109.

 

The new rules in full can be accessed at http://www.legislation.gov.uk/uksi/2017/95/pdfs/uksi_20170095_en.pdf

 

 

SCCO v BNM – Costs Judges tussle over proportionality

Master Howarth and Master Brown have been very busy at the beginning of 2017 disagreeing with the Senior Costs Judge's decision in BNM. Interestingly, both decisions were released and dated 17th January 2017.

 

In the first case of Savings Advice Ltd v EDF Energy Customers plc [2017] EWHC B1 (Costs) (17 January 2017) Master Haworth held that the law relating to the recovery of insurance premiums is governed by the pre-April 2013 costs rules and costs practice directions, and proportionality must be assessed on the same basis.

 

As a result he found that there was no evidence before him that the Claimants' ATE insurance premiums (together almost £256,000 in a claim for just over £1 million but which settled for £400,000) were disproportionate.

 

Even if the new test of proportionality applied, he could distinguish this case from BNM because he had not been asked to assess the claimants' costs on a line-by-line basis (as they had already been agreed by the parties) but simply to determine what was recoverable by way of the ATE premiums.

 

Applying the new test to the premiums alone and not globally with the costs, the relevant factors here were the sums in issue and the complexity of the litigation. On this basis too, he concluded that the premiums were not disproportionate.

 

In Murrells v Cambridge University NHS Foundation Trust, a clinical negligence case, Master Brown expressly disagreed with the Senior Costs Judge on the issue of whether pre-LASPO additional liabilities should be subject to the new proportionality test.

 

Master Brown said that additional liabilities should not be aggregated with the claimant’s base costs for the purposes of the test. If the test did apply to additional liabilities, it would have “a considerable prejudicial effect upon those litigants and lawyers who have entered into pre-commencement funding arrangements”.

 

He went on to say:

 

“To apply the new test to additional liabilities in the way contended for would, however, require many litigants to submit to a substantial, if not complete, disallowance of their additional liabilities as against the other party or parties to the litigation, whilst at the same time the liability to pay an insurer or the lawyers the additional liability would be preserved. If that were right it would inevitably lead to many litigants, including -it might be observed- victims of mesothelioma, having to give up deserving claims or defences. I agree with Master Rowley: in these circumstances the defendant’s contention cannot be reconciled with transitional provisions and the clear will of Parliament. The intention must have been to provide, at the very least, an orderly retreat from the old funding scheme…”

 

The BNM case is being appealed (currently listed for October 2017) and so this position may change. It does certainly appear that - like most Solicitors and Costs Lawyers - both Masters are of the opinion that the BNM case was incorrectly decided and appears to fly in the face of every decision made before it. We will all no doubt welcome the much needed clarity the Court of Appeal will hopefully provide in October (some 4.5 years after LASPO redefined proportionality)

Never too late to seek an interim payment on costs

In the case of Aliston Albert Ashman v Clyde Caulson Thomas [2016] EWHC 1810 (Ch) costs were awarded to the Defendant, to be paid by the Claimant on the standard basis if not agreed. In seeking to agree the terms of the order Counsel for the Defendant sought to include a term for a payment on account of costs.

In this matter there was no request for a payment on account of costs at the time the order was made and no detailed assessment proceedings had been commenced therefore not allowing the Defendant to seek an interim costs certificate be issued under CPR 44.16(1).

CPR 44.2(8) provides: "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".

The mandatory terms of CPR 44.2(8) (subject to the existence of a 'good reason') mean that there is even more reason for the Court to exercise its power when the matter is drawn to the Court’s attention than there might otherwise be.

The general rule is that an order takes effect from the moment it is made by the Court, not when it is entered and sealed by the Court office however the Court retains power to alter its judgment or order at any time until it is entered and perfected by sealing.

Accordingly the Master concluded that there could be no objection in principle to considering the Defendant's request for a payment on account of costs, and indeed there was good reason to do so, when this is sought after the hearing but before the order is sealed.

The Defendant’s statement of costs was in the sum of £48,647.70 (including VAT) and their order asked for £20,000 to be paid on account within 14 days.

The Claimant criticised the statement on a number of grounds. Given the criticisms made (particularly in relation to excessive rates, excessive hours and lack of delegation) the Master ordered that £17,500 be paid on account of costs within 14 days.

The key point here is that a request for a payment on account can be made after the hearing so long as the order has not been sealed and the Court chooses to exercise its discretion which, given the contents of CPR 44.2 (8), should occur in most cases.

 

Bill reduced by 80% on basis of proportionality

Hot on the heels of the BNM v MGN case earlier this month (where Master Gordon Saker applied sizeable reductions to a bill on the basis of proportionality)  comes the case of May v (1) Wavell Group Ltd (2) Dr Bizzari (16/06/16).

In this case the claimants brought an action in private nuisance. Proceedings were issued and the claimants accepted the first offer of £25,000.

The bill of costs came to £208,236.54. After an assessment of the costs on an item by item basis on assessment the reasonable costs came to £99,655.74.

Master Rowley in the SCCO then stood back and reduced the costs yet again to a staggering £35,000 plus VAT based on a global approach to proportionality. In other words the Claimants recovered only around 20% of the costs originally claimed.

The judgment contains a detailed examination of the principles relating to proportionality.  Master Rowley, in reaching his decision had regard to all of the factors set out in CPR 44.3(5). The Master found that the sum accepted (£25,000) reflected the sums in issue, that the case was not complicated and the Defendant’s conduct did not contribute to an increase in costs and that there were no wider factors which were relevant to the issue of proportionality.

The level of reduction in this case is remarkable and sets a worrying precedent going forward. Further, Solicitors will now need to be extra careful in the way they explain costs to the their clients as clearly the level of unrecovered costs will increase (if decisions such as this continue) and in turn so will the contribution clients are asked to pay at the end of the day.

Additional Liabilities reduced on basis of Proportionality

The issues of proportionality and recoverability of additional liabilities were brought to the forefront on 3 June 2016 in the judgment handed down by Master Gordon-Saker in the case of BNM v MGN Limited [2016] EWHC B13 (Costs).

At the part heard Detailed Assessment hearing in November 2015  following the line by line assessment, the Master assessed costs at £167,389.45, including an ATE premium of £61,480.00.

The Defendant argued that these sums were disproportionate and should be reduced further. Master Gordon-Saker sided with the Defendant concluding that the sums which had been allowed as reasonable in the first instance were disproportionate and were approximately twice the sum which would be proportionate.

At the adjourned hearing in April 2016, the Master applied the new test of proportionality and considered the factors under CPR 44.3, reducing total costs to the sum of £83,964.80 and the ATE premium to £30,000.00. Apart from the court fee, each of the individual items of costs was reduced by about one half.

In paragraph 21 of his judgment, Master Gordon-Saker observed that on an assessment of costs on the standard basis, proportionality should prevail over reasonableness. He commented that the court should first make an assessment of reasonable costs, having regard to the individual items in the bill, the time reasonably spent on those items and the other factors listed in CPR rule 44.5(3). The court should then stand back and consider whether the total figure is proportionate. If the total figure is not proportionate, the court should make an appropriate reduction. He concluded by stating that when applying the new test of proportionality the court need not consider the amount of any additional liability separately from the base costs.

As a result of this judgement it now appears that the test of proportionality applies to those cases where additional liabilities remain recoverable on an inter partes basis. Further this case provides some interesting guidance in relation to the application of the new test of proportionality, which thus far has been an area where there has been a lack of clarity.

To read the full judgment: http://www.bailii.org/cgibin/format.cgi?doc=/ew/cases/EWHC/Costs/2016/B13.html

Taking advantage of Part 36 to get Indemnity Costs

When you ask yourself whether it is in your client’s best interests to make a Part 36 offer bear in mind what happens if you beat it. The Claimant lawyer in the case of Jockey Club Racecourse v Willmott Dixon Construction [2016] EWHC 167 (TCC) clearly did.

Although this case related to a property dispute it can be applied to any area of Law where you can make a Part 36 offer. The background facts are not overly important however if you want a full picture you can read the case report at http://www.bailii.org/ew/cases/EWHC/TCC/2016/167.html. What is important is that the Claimant made a Part 36 offer on liability of 95% in a case where the Defendant was fully at fault or not at all.

So why make the offer? The offer did not reflect a possible outcome therefore it was purely commercial and/or it was made in order to achieve an early resolution to the claim.

Ultimately the Claimant was fully successful on liability (by consent). In the circumstances the Claimant contended that it was entitled to the benefits that Part 36 confers on a Claimant who has bettered its own Part 36 offer, namely indemnity costs.

The Defendant’s argument was that it was not a valid offer because (mainly) the discount offered was only 5% and that this was an all or nothing case and that therefore the Court could not have made an order for 95% liability. The Court disagreed and awarded indemnity costs on the basis that the offer was a genuine attempt to settle (the 5% discount in monetary terms was not insignificant) which made it a valid Part 36 offer.

Choosing to make a creative/commercial offer (ideally as early as possible) that may well be outside what a Court could order does not mean the Court cannot take it into account. In fact if the Court does take it into account the successful party will receive the rare reward of indemnity costs as well as (potentially) enhanced interest.

Jackson recommends that fixed fee regime be extended to all civil claims up to £250,000

Lord Justice Jackson, the principal architect of the LASPO Act 2012, gave a speech last night where he recommended that fixed costs be applied to all civil claims valued up to £250,000. Currently fixed costs apply only to personal injury claims valued up to £25,000. Lord Jackson would like to see his plan implemented as early as the end of this year and has urged the government to make this a priority.

In his speech he proposed a grid of rates (which excludes VAT and disbursements) for each value of claim: £18,750 for claims up to £50,000; £30,000 for claims up to £100,000; £47,500 for claims up to £175,000 and £70,250 for claims up to £250,000.

On a positive note for clinical negligence practitioners Lord Jackson recommended that the government not apply fixed fees to clinical negligence claims for the moment in order to stop the ‘Balkanisation’ of fees for different types of claim.

“What we do not want to have is a series of separate grids for different types of cases,” he said. “There should be a single fixed costs grid for all multi-track cases up to £250,000.”

In relation to claims over £250,000 Lord Jackson stated that “would be too great a change for the profession to accept”, though he did say a universal costs regime could be implemented once the dust had settled on his latest proposal.

Lord Jackson accepted that the proposed extension of the fixed fee regime was not likely to be welcomed by either claimant or defendant solicitors.  We suspect it will actually be welcomed by defendant insurers for the purposes of applying a reserve to the claim. Further we are of the opinion that many more cases will likely proceed to Trial given that the proposed change will very much limit a defendant insurer’s desire to propose a commercial settlement on “50/50 cases” so as to avoid the usual high costs associated with proceeding to a five day Trial. Further what incentive is there for the defendants to conduct their end of the case cost effectively? Currently, no proposal has been made in this regard by Lord Jackson.

As he has done before Lord Jackson stated that the fixed fee regime will help solicitors to explain to clients how costs have been accrued and what the likely final fees will be. This cannot be contested however, we suggest, this is the wrong consideration. The extension of the fixed fee regime is more likely to lead to solicitors having to explain to clients why they cannot take on a case unless the client is willing to contribute to the “shortfall” in costs from their damages as a result of the fact that the fixed fee is insufficient in some cases. Ultimately this is likely to lead to a further hurdle to jump for clients to get access to justice.

Lord Jackson also stated that “My impression is that the profession is now more willing to accept fixed costs than it was in the past”. He went to say “I do accept if we have a regime of fixed costs there will be winners and losers, it is impossible a case will cost the client precisely the amount set out in the grid. That is a price worth paying in order to obtain the benefits of certainty, predictability and proportionality. I have come across cases which have flown out of control where the issue is of modest value.” In our experience the only reason fixed fees have been “accepted” is because solicitors do not have a choice on the matter, not because they like it.

It should be noted that not all of Lord Jackson’s recommendations have been accepted by the government in the past. By example Lord Jackson opposes the increase in the limit of the small claim track yet this is currently still proceeding however, given past experiences, we suspect this is one recommendation that will likely be implemented.

Free Seminar On Cyber Security For Law Firms & Everything You Need To Know About The New J Codes

When: 17th February 2016 - 9am to 12pm

Where: The IBM Centre, SE1 9PZ, London

The content of this event will firstly be focused on Cyber Security and will present the best tactics of keeping your data safe online. Cyber security is of paramount importance to solicitors.

Secondly this event will focus on the New format Bill of Costs and the introduction of the J Codes and how this will effect the day to day running of a Solicitor's case load as well as to how to best adapt to the changes.

Why you should attend it?

The issues are highly topical and highly relevant for legal practitioners who want to be fully prepared for the changes and challenges that the new year will bring.

During this seminar, the speakers will share from their practical experience of helping firms in these complex areas. 

About the speakers

Osman Ismail has been steering the direction of DPS Software for more than 30 years. His leadership transformed the legal software house into the only UK-based legal technology provider to offer a holistic IT solution for law firms. DPS is Cyber Essentials certified and ISO 27001:2013 accredited, currently protecting the data of more than 140 firms whose data is hosted on DPS’s servers. He is a regular speaker at events such as Legalex, Securing the Law Firm and Law BizTech where he  recently addressed the topic of Cyber Security.

James Scozzi and John Mistri are specialists in costs with over 45 years combined experience. James is the Managing Partner of Elite and is a specialist in high value claims having prepared Bills in a variety of areas (some in excess of 5 million pounds) with a particular interest in clinical negligence. James was most recently a speaker at the annual ACL Conference. He is also a committee member of the Surrey Law Society.

John’s specialities are in relation to solicitor and own client disputes and non-contentious disputes. He is responsible for the supervision of all Detailed Assessment hearings at Elite,  attending many of those hearings personally. John has been involved in very high value assessments, prepared expert evidence for security for costs claims and has been involved in numerous high value group litigation claims and assisted with the highest valued claim from public funds in the Isle of Man. John is also an ADR Group Accredited Civil & Commercial Mediator.

Format of the Seminar

Two 1 hour sessions will be held throughout the duration of the morning with refreshments in between and an opportunity to network.

If you are becoming increasingly concerned about the security of your data and the introduction of the J Codes then please register by contacting us at info@elitelawsolicitors.co.uk

Costs Update - October 2015

There have been a number of changes related to costs since 1st October 2015. No doubt too many to go through fully but here are some of the highlights.

As many will be aware most costs assessment take place in the Senior Courts Costs Office inside the High Court of Justice. Master Gordon-Saker (Senior Costs Master) attended a conference on 30th September 2015 where he confirmed that five of the eight Costs Judges at the SCCO will retire in the next 5 years and will be replaced by new Judges.  Jennifer James has been appointed as a new Costs Judge.  She was a Deputy for 30 years and she is the first female Costs Judge to be appointed.  Further two new extra Costs Officers will be appointed shortly. This is in part to reduce the current waiting list for costs hearing which is currently 6 to 10 months.  Most of the Masters are currently listing cases from April 2016 onwards however Master Gordon-Saker is actually listing matters as late as March 2017.

By now many will know that the new format Bill of Costs has been released and is being used in a voluntary pilot scheme at the SCCO which is to run until October 2016 (after which there will be a mandatory pilot scheme). The pilot applies to Bills where costs proceedings where commenced post 1st October 2015 and a costs case management order is in place. For further information see CPR Practice Direction 51L.

The new Bill of Costs is essentially a spreadsheet with 60 columns which is meant to be automatically populated as long as you record your time in accordance with the dreaded “J Codes”.

J Codes mean that you know not only need to prepare notes for how you have spent your time but must also code them by phase, task and activity. In the same vein all your disbursements will need to be coded in accordance with “X Codes”.

The most worrying aspect is the fact that application of J Codes to your work is retrospective. In other words once the pilot is mandatory all those that need to submit bills for assessment to the SCCO will need to go back through their files and codify all their work in accordance with the J Codes. This will be a very time consuming task which will have to be either done by the fee earner or outsourced to a Costs Lawyer.

The important point to take away is that all firms must ensure that going forward they have case management systems which have the ability to record time in accordance with the J Codes otherwise they are likely to go to great expense to prepare Bills and in all likelihood will not be able to recover the cost of the same in the long term.

Interestingly Master Gordon-Saker did say that if people filed the new format Bill of Costs it was highly likely they would get a much earlier hearing date.  In relation to the costs hearing the idea is that the Master will have a large screen facing him on which he amends the Bill electronically whilst there is a secondary screen facing the advocates where they can see what the Master is actually changing.

I now turn to the proposal of applying fixed fees to noise induced claims and clinical negligence claims. The relevant committees are at a very preliminary stage of looking at whether fixed costs can be applied to these types of claims.  It is interesting to note that these are the only two areas to which the Government wishes to apply fixed fees particularly when one considers that the paying party will either be insurers or the Government. 

In relation to clinical negligence claims the proposal is to set fixed fees for claims where damages do not exceed £250,000 in damages.  There has been no real discussion as to what the fixed costs will be in the end however the model that was suggested by Lord Jackson was that it is literally a percentage of damages up to £250,000 that constitutes the fixed fee.  Such a matrix would be ghastly as it does not take into account the fact that most clinical negligence claims are very complex and often costs exceed damages. If such a matrix were to be used it would undoubtedly lead to many potential Claimants being unable to access justice.

As a further point it should also be noted that the Government and the insurers are also looking at capping ATE policy premiums for clinical negligence claims.

Turning to cases involving minors Part 21 of the CPR was changed earlier this year for those of you do not know.  Rule 21.12 changed in that it now allows the Court to summarily assess costs at approval hearings where damages are less than £25,000. This means they can assess the success fee and the ATE premium.

An example of the rule change in action can be seen in the case of (1) A (2) M –v- Royal Mail Group [2015] CC (Birmingham) 14/08/15.  In this case the Judge ruled that a 100% success fee was unreasonable despite the 25% cap imposed in clinical negligence cases.  Liability was admitted.  He also questioned the need for ATE.  He criticised the lack of a bespoke risk assessment.  He eventually ordered the Detailed Assessment.  There is anecdotal evidence that there have been a number of these cases over the country, some of which are actually being appealed where literally all the DJs are disallowing success fees in cases involving minors at infant approval hearings.

In relation to mediation the recent case of Laporte v Commissioner of the Police of the Metropolis [2015) is of particular significance. This case is very recent and essentially will put you in a position to understand what costs consequences apply where mediation is refused.  In summary even if you win at trial and you failed to mediate the presiding Judge can make an Order for costs that is disadvantageous.  This did happen in Laporte where the case did go to trial, they did win but because they refused mediation the Judge made a percentage reduction to the overall potential award for costs.

In this regard it is important to note that as of 1st October 2015 there has been a CPR rule change that is encouraging ‘early neutral evaluation’.  This is a type of mediation that is actually administered by the Court.  Interestingly there is no requirement for the parties to agree to it, the Judge can just order it. 

Finally I turn to costs in the Court of Protection. There has been an important change to Court of Protection claims as of the 1st October 2015 whereby costs estimates now have to be provided when the annual report is completed and will have to accompany any Bill submitted for assessment at the SCCO. The format of the estimate will follow the old Form H.

The above changes to current costs practice is merely a brief summary and many more are afoot. No doubt many Solicitors will need to think ahead and plan for some of these changes, whether they would like to or not.

James Scozzi

Elite Law Solicitors

The Solicitors Who Specialise in Costs

The SCCO changes the way Formal Bills are to be prepared where a Costs Management Order is in place

On 17th August 2015 judgment was handed down by Master Gordon-Saker in the case of BP v Cardiff and Vale University Local Health Board. This case is of particular significance as it changes how Formal Bills are to be prepared where a Costs Budget is in place as well as define the cap in relation to the preparation of the Budget to include success fees but exclude VAT.

This was a clinical negligence matter where liability was denied but in any event settled shortly prior to Trial for £205,000 plus costs on the standard basis.

A Formal Bill was prepared in the sum of £586,456.73 inclusive of a 100% success fee. The Bill was not divided into parts to reflect the phases of the budget, work done before and after 1st April 2013 or the costs of budgeting. The result of the detailed assessment was that the Claimant’s costs were assessed in the sum of £339,671.89.

In relation to proportionality the Master was critical of the fact the Bill was not separated pre and post 1st April 2013 as it made it very difficult to apply the two differing tests of proportionality. In other words any Formal Bill that has work pre and post 1st April 2013 should be split.

In relation to the Costs Budget aspect the Bill had not been split to reflect the work done under each phase which the Master was critical of as it made it impossible for him to follow CPR 3.18.

With effect from 1st October 2015 in any case in which a costs management order (CMO) has been made a receiving party will be required to serve with the notice of commencement a breakdown of the costs claimed for each phase of the proceedings. But that breakdown will show only the total sums for costs incurred before and after the budget which are claimed in each phase. It will not identify the phase into which the individual items of work in the Bill fall.

The Master commented that in order for the paying party and the court to know which items of work are claimed in relation to each phase the Bill needs to be drawn in parts which reflect the phases. Within each part it will also be necessary to distinguish between the costs incurred before and after the budget was agreed or approved. As such in all cases where a CMO has been made and a Formal Bill is required said Bill will need to be “phased”. This will in part be resolved by the upcoming new format Bill of Costs but in the interim it means that the traditional Formal Bill of Costs will look quite different and it will prove more difficult to prepare and deal with on detailed assessment.

The final point (and the most interesting) is in relation to the costs relating to the preparation of the Costs Budget. The Master stated that on detailed assessment it will be necessary to identify (a) the costs of initially completing Precedent H and (b) all other costs of the budgeting and costs management process. Further, in the Master’s view, the caps imposed by paragraph 7.2 of PD 3E include additional liabilities but do not include value added tax. As such it is the Master’s view that the £1,000 or 1% cap for preparation of the Budget is inclusive of success fee but exclusive of VAT. It could be argued that this is an odd interpretation particularly bearing in mind that Budgets are exclusive of success fees however the interpretation is in line with how the SCCO impose the cap for costs of assessment in provisional assessments. No doubt this will be considered a controversial decision by Receiving Parties as it deprives them of success fees when looking at the costs of preparing their Costs Budgets.

To read the full judgment - http://www.bailii.org/ew/cases/EWHC/Costs/2015/B13.html