Cashflow is King: Payments on Account in Litigation

May 06, 2020 | Sue Nash

Now more than ever, all firms – particularly those dealing with PI litigation – need regular income to stay afloat.  Yet the vast majority of personal injury, employers’ liability or public liability claims are conducted under Conditional Fee Agreements meaning, in most instances, no payment of legal costs until the end of the proceedings – and that’s assuming your client’s claim succeeds.

At the same time, these areas are subject to portal and/or fixed recoverable costs with the small claims limit set to rise.  It is therefore vital that higher value cases not only ‘pay their way’ but bring in regular payments to protect that all-important cashflow.  Obviously, if you can secure payments on account during the life of the case, for example when an interlocutory application succeeds, so much the better.  In most cases however the issue is more one of ensuring that at least some costs are paid as soon as possible following settlement.

So how do you do this?  The following is very much a case of Good News/Bad News.

Get a payment on account at the end of a litigated case

Under CPR Rule 44.2(8):

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.

Therefore, where an issued case goes to a hearing you should always ask for a payment on account of your costs.  All is not lost though if you forget to do so (although your cashflow position won’t have been improved) as the recent case of Culliford & Anor v Thorpe [2018] EWHC 2532 (Ch) shows https://www.bailii.org/ew/cases/EWHC/Ch/2018/2532.html

Here the court ruled:

“In my judgment, it is not the law that, once an order for costs has been made, drawn up and sealed, no further application can be made to the court for an order for a payment of a sum on account of those costs. There is nothing in the rules which 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.”

So you have two opportunities to obtain a payment on account before the matter goes for costs drafting/assessment (more below about the procedure in assessment proceedings).  The next question is, how much should you seek?

This is easier to ascertain in a case which has been budgeted.  The case of Thomas Pink Ltd v Victoria’s Secret UK Ltd [2014] EWHC 3258 (Ch) is much cited.  In that case Birss J ordered a payment on account of 90% of the whole budget i.e. of both incurred and forecast costs.   However, since then we have had the case of Cleveland BridgeUK Ltd v Sarens (UK) Ltd [2018] EWHC 827 (TCC) https://www.bailii.org/ew/cases/EWHC/TCC/2018/827.html   Here the judge distinguished incurred costs (i.e. incurred as at the date of the budget) from approved, budgeted (aka forecast) costs saying, “I do not accept that this [90%] is necessarily the approach that the court should adopt to incurred costs, which are, by definition, not approved costs.”  The judge, rightly, pointed out that those costs remain subject to detailed assessment and that the correct test is the one which would also apply in a non-budgeted case:

“…. a reasonable sum in respect of incurred costs will often be one that is an estimate of the likely level of recovery subject to an appropriate margin to allow for error.”

In Cleveland the figure she reached was approximately 70% but, as she was careful to point out, this will always be a case specific figure.  A receiving party should usually be able to obtain a payment of at least 50% and I suspect 60%-70% would be the range in most cases.

Payments on account and Part 36

However, a 2018 case has shut off the above route to payments on account in a great many cases. In Finnegan v Spiers [2018] EWHC 3064 (Ch) https://www.bailii.org/ew/cases/EWHC/Ch/2018/3064.html Mr Justice Birss concluded that the court has no power to order a payment on account of costs after a party has accepted a Part 36 offer.  This was on appeal from the county court where the judge decided that the court had no power to make an order for a payment on account, essentially because Part 36 is a complete code and the rules make no provision for a payment on account in these circumstances.  Birss J agreed and dismissed the appeal.

Hopefully the Civil Procedure Rule Committee will correct the situation by a swift amendment to Part 36 (see further below about the situation in non-issued cases) but you should always try to incorporate a payment on account in your Part 36 offer/acceptance.

Payments on account during the assessment process

The full assessment process can take a considerable length of time, particularly where a case is costed at over £75,000 and therefore is going to be subject to detailed  rather than provisional assessment (although the latter can take considerably longer than the target 6 weeks).  The relevant provisions for obtaining costs during assessment proceedings can be found in Rule 47.16

(1)(a) The court may at any time after the receiving party has filed a request for a detailed assessment hearing issue an interim costs certificate for such sum as it considers appropriate

and

(2) An interim certificate will include an order to pay the costs to which it relates, unless the court orders otherwise.

The earliest that a request for a hearing can be filed is after service of Points of Dispute to the bill of costs but, assuming you are going to serve optional Replies, such an application would usually be made after those have been served.  An application for an Interim Costs Certificate can be made at the same time and payment, when ordered, is usually within 14 days.

Voluntary payments on account / Part 8

You – or probably your costs representatives – can of course seek a voluntary payment on account of costs where one hasn’t already been made or, if one has but is deemed to be too low, a further payment.  Paying parties will often make one to reduce their interest liability where a case has been litigated.

However, there has always been an issue where a case has settled pre-issue as there is no statutory entitlement to interest on your costs.  Unless the paying party is prepared to make one anyway your only option is to first issue Part 8 costs-only proceedings (Rule 46.14).  Not only does this cause delay in getting some much-needed monies in, you will be criticised – rightly – for going down this route without first attempting to negotiate settlement.  This of course builds in more potential delay.

The situation is now exacerbated by the ruling in Finnegan v Spiers. A large number of cases settle pre-issue on acceptance of a Part 36 offer so there is no deemed order for costs. As for litigated cases, it is strongly advised that you try to incorporate a payment on account as part of your pre-issue Part 36 offer/acceptance.  If you don’t and/or can’t negotiate this then ask for one when you make your Part 8 application.  Note however that as the application for the Part 8 order will be made pursuant to acceptance of the Part 36 offer, it would appear that no order for payment on account can/will be made (although it can’t hurt to ask).

Conclusions

Although there is a mechanism for getting timely payments on account, as things stand if you settle under Part 36 you cannot use it unless you have incorporated one into your offer/acceptance.  Absent a voluntary payment you will have to wait until you can apply for an interim costs certificate.  Put another way, to get paid more quickly the case will have to have gone to trial which may well not be in your client’s interests and, furthermore, is against the spirit of CPR 1.1.  This cannot have been the intention of those who drafted Part 36 and it is surprising that this has not come up before.  Here’s hoping for (yet) another Rule change.

Until then you will, in ‘Part 36 cases’, have to ensure that strict deadlines are adhered to in the assessment process in order to get an interim costs certificate as soon as possible – and get that cash flowing!

How Elite Law Solicitors can help

Sue Nash is a Senior Costs Consultant and former chair of the Association of Costs Lawyers.  She can provide specialist advice in relation to all aspects of legal costs.

If you have any queries relating to any of the issues mentioned in this article, please get in touch with Sue by calling 0800 086 2929, emailing info@elitelawsolicitors.co.uk or completing our Free Online Enquiry Form.