On 5th December 2017 the Court of Appeal ruled in an important case that had been leapfrogged to them - Budana v The Leeds Teaching Hospitals NHS Trust  EWCA Civ 1980
The issue was whether claimants who were represented under a CFA signed pre-April 2013 whose cases had subsequently been transferred to a new firm (as a result of merger, acquistion or, indeed, for any other reason) post-April 2013 could recover success fees – and ATE premiums. Readers can get all the outline facts from the 4 New Square website at https://www.4newsquare.com/court-of-appeal-upholds-assignments-of-pre-laspo-cfas/ Leading costs silk Nicholas Bacon QC was instructed for the successful claimant firm and has hailed the decision as “probably the most significant costs case post Jackson”.
Giving the leading judgment, Gloster LJ said: “It is clear… that, objectively construed, the intention of the parties was that Hudgell [new firm] should simply be substituted in Baker Rees’s [old firm] place… under and subject to the same terms of the existing (and so far as the parties were concerned, at least) continuing retainer…
“[It would be] an over-technical application of the doctrine of novation so as to prevent any litigant, who had begun a claim under a CFA prior to 1 April 2013, from recovering costs in respect of a success fee, simply because a novation had occurred as a result of a change in the constitution of the firm of solicitors acting for her, or as a result of the conduct of her claim being transferred, for whatever reason, to a new firm of solicitors.”
In other words the CA took a purposive construction of the new regime and this approach could end up being reflected in other issues that come before that court. In the meantime this is welcome news for those firms who acquired cases – or even whole books of work - from other firms and removes a lot of uncertainty that has – in many cases – delayed or affected costs settlements since that time.
If you have any queries about retainers and/or recoverability please feel free to contact us. Our expert team of costs lawyers stand ready to help.
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  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)
In the case of Aliston Albert Ashman v Clyde Caulson Thomas  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.
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.
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  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
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  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.
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
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Following the introduction of costs budgeting, Solicitors are required to have a good understanding of procedures to ensure compliance with budgeting regulations. The penalty for non-compliance is extraordinarily draconian:
“Unless the Court orders otherwise, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees” [CPR 3.14]."
Commercial litigators could potentially be making themselves vulnerable to potential professional negligence claims over costs budget failures. Many law firms have reported that they are incurring costs over and above the agreed budget level, yet only a small percentage of firms have made applications to the Court to revise the agreed costs budget.
Typically Solicitors that have attempted to revise the budget upwards have claimed that the other side was responsible for developments within the litigation and sometimes overspend was inescapable. Overspend inevitably is very difficult to recover without applying to increase the approved budget.
It has also been established that many Solicitors are unware of the processes that exist in relation to the revision of budgets. Many of the Solicitors who are aware of this process feel that applications will fail in any event. This begs the question: What is the point in issuing an application for revision of a budget if it is doomed to fail from the outset?
This also highlights that once the threshold is met law firms could potentially be working for free and be limited in what they can recover.
Lord Jackson recently commented that costs budgets had been working well and brought significant benefits for Court users since they were introduced as part of the civil litigation reforms two years ago. Lord Jackson predicted that costs budgeting would be accepted as an “entirely normal discipline” by many law firms in the future.
Many Solicitors have had budgets approved and have successfully recovered their costs which have fallen within the scope of the budget. Solicitors are aware of the need to ensure that costs incurred when the matter is concluded, fall within the agreed Costs Budget. However there are clearly risks, including the prospect of overspend even if Solicitors are monitoring their costs. Litigation is not an exact science; there will always be issues that arise and unexpected turns within proceedings. Is it fair that solicitors are not able to recover their reasonable costs when they fall outside of the budget? Tweet us with your thoughts….