Court of Appeal Legal Costs Judgments

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You wait ages for an interesting legal costs decision from the Court of Appeal and then two come along together. 

Both cases concerned a similar issue as to the extent of a costs judge’s discretion to limit costs in a manner that appears to go beyond a strict reading of the final costs order.
In Drew v Whitbread [2010] EWCA Civ 53 the claim had been allocated to the multi track on the basis of the claimant’s schedule of special damages.  At trial the matter went into a second day and the judge limited the claimant’s damages to an amount within the fast track limit.  The final order was that costs were to be assessed on the standard basis. 
The District Judge ruled on commencement of the detailed assessment that costs would be assessed as if the matter had been allocated to the fast-track.  This restricted the level of costs recoverable. 
The Court of Appeal recognised that the case raised a number of points of principle:
“Where the trial judge has in a multi-track case ordered costs to be paid on the standard basis, to what extent is a costs judge free to rule that the case was in reality a fast track case and assess trial costs on a fast track basis?  Is this a matter which a paying party has to raise before the trial judge or be precluded from raising the point thereafter?  In particular should a party obtain a ruling from the trial judge as to whether a case should have been disposed of within a day when in fact it was not?  If the costs judge is free to consider whether a case should have been allocated to the fast track, how should he or she approach assessment thereafter; can he or she simply say I am going to assess the costs of trial as if it was a fast track case or is it simply something to be taken into account when assessing the costs?”
The Claimant argued by reference to Aaron v Shelton [2004] EWHC 1162 that if a party wishes to argue that a case was, in reality, a fast-track case, and in particular that it was a case that should only have lasted a day, that must be raised with the trial judge, and if not raised with the trial judge cannot be raised with the costs judge.  
The Court of Appeal rejected that approach:
“in fulfilling their different functions, the trial judge under 44.3 and the costs judge under 44.5 are enjoined to take into account many similar factors.  That may mean that if a factor has been raised before the trial judge and the trial judge has ruled on that factor, that will bind the costs judge but (and it is important to emphasise this) more often than not the costs judge has material which the trial judge did not have, and thus will not be bound.  But the notion that if a party has not raised a matter under 44.3 he should be precluded from raising it under 44.5 does not sit easily with the express provisions. … In my view it would not be consistent with the express provisions of 44.3 and 44.5 and with the court’s duty to see that costs are proportionate and reasonable to preclude a party raising a point highly material to that question because it had not been raised before the judge under 44.3.”
It was doubtful that Aaron v Shelton (see previous post) ever represented good law but it now entirely clear it does not.  The Aaron Principle has not survived. 
The following guidance was given by the Court:
“In my view 44.3 and 44.5 are intended to work in harmony and it is intended that the parties’ conduct (for example) may have to be considered under both. If what is sought is a special order as to costs which a costs judge should follow that obviously should be sought from the trial judge. If it is clear that a costs judge would be assisted in the assessment of costs by some indication from the trial judge about the way in which a trial has been conducted, a request for that indication should be sought. But none of this needs a rule as per Henderson v Henderson that a failure to raise a point before the trial judge will preclude the raising of a point before the costs judge.
In this case the question of exaggeration was raised before the trial judge. He was expressly enjoined to take the possibility of exaggeration into account under 44.3(5)(d). That might have led to a special order for costs, e.g. that the claimant should only get 50% of his costs. But the fact that no special order has been made does not preclude the costs judge in assessing costs considering whether the conduct of a party should preclude an award of costs for some particular item. I can see no reason why the costs judge should not consider the effect of such conduct unless some specific finding of the trial judge binds him. Thus a view expressed that exaggeration was not such as to lead to a special order, ought not it seems to me to prevent a costs judge who must have regard to all the circumstances of the case, being entitled to assess what would have happened if a claimant had instructed his lawyers properly.
… in my view the costs judge was not entitled simply to rule that she was going to assess the costs of trial as if the case were on the fast track. To so rule does seem to me to rescind the Recorder’s order. I cannot accept that in ruling as she did it can be said she was simply “assessing costs on the standard basis taking into account that the case should have been allocated to the fast track” which in my view is the permissible approach. It may in some cases be a distinction without a major difference, i.e. where a case has finished within a day and the sums awarded have fallen well within the fast track limits, but that was not on the face of it this case. This case had run into a second day due at least very arguably to the fact that liability was fought hard. Simply ruling that costs of the trial should be on a fast track basis may have meant that the costs judge gave no separate consideration to the question whether it was a trial that would always have been likely to run into a second day.
I accept that, if appreciating that the case had run into a second day, she had given reasons as to why it should not have done so, and that on that basis fast track trial costs was all it was reasonable for the paying party to have to pay, she could not have been faulted.”
So Aaron is completely dead and we now have the Drew Principle which allows conduct to be taken fully into account on assessment even where it has not been raised before the judge making the final order.  Further, even where conduct has been raised before the trial judge, it can also be raised on assessment unless this would conflict with a specific finding by the trial judge.  This is a very useful decision from a defendant’s perspective but I anticipate that it may create some practical difficulties for judges on assessment who will not now be able to avoid considering issues of conduct.
The case of O’Beirne v Hudson [2010] EWCA Civ 52 concerned the question of whether, where a case has been settled before any allocation by a consent order ordering costs to be paid on the standard basis, the costs judge is entitled to take the view that the case would have been allocated to the small claims track and thus that the paying party should only pay costs on the small claims track basis.  This was a very similar issue to Drew as it concerned the extent to which a judge on assessment can go behind a strict interpretation of the costs order.
The Court of Appeal ruled:
“This was a consent order providing for costs to be assessed on the standard basis; the addition of the words reasonable to my mind adds nothing to the order that costs were to be assessed on that basis. It certainly follows from that that the costs judge was not free to rule that the costs would be assessed on the small claims track basis and if and in so far as Judge Stewart might be understood to be saying that he was in my view wrong. But, and this is the critical point, in making an assessment the Costs Judge is entitled to take account of all circumstances (see CPR 44.5(1)), including the fact that the case would almost certainly have been allocated to a small claims track if it had been allocated. In so doing she would have regard to what could or could not be recovered if the case had been so allocated.
At that stage the Costs Judge must question whether, if it could have been fought on the small track, it is reasonable that the paying party should pay the costs of a lawyer. The Costs Judge would not be bound (as I think Mr Morgan’s formulation would suggest) only to allow the costs as per a case on the small claims track but it would be a highly material circumstance in considering what by way of assessment should be payable.
I also accept that as Judge Stewart noted, a costs judge has no power to alter the order for costs made by the a judge, and thus make a direction from the outset where costs have been awarded on the standard basis that costs will be assessed on a small track basis. But what lay behind what Judge LJ said reflects what Lord Woolf was saying in Lownds and provided the Costs Judge does not purport to vary the original order or tie himself to assessing by reference to the small claims track it is quite legitimate to give effect as far as possible to the philosophy which lies behind the above statements. There is a real distinction between directing at the outset that nothing but small claims costs will be awarded and giving items on a bill very anxious scrutiny to see whether costs were necessarily or reasonably incurred, and thus whether it is reasonable for the paying party to pay more than would have been recoverable in a case that should have been allocated to the small claims track. Was it for example necessary to have had lawyers and is it reasonable for the paying party to have to pay for lawyers are questions that should arise where a claim should have been allocated to the small claims track.”
This might be thought to create something of an artificial distinction.  A judge cannot simply apply the small claims track costs regime where the costs order is for costs on the standard basis.  However, as part of the assessment process, the judge can disallow all the solicitor’s costs as being unreasonably incurred and thus limit the costs to what would have been recovered in the small claims track.  Artificial or not, this is another good decision from a defendant perspective. 
Taken together, these decisions considerably widen the scope for challenges on detailed assessment where the final costs order was not ideal and where issues of conduct had not been raised before the trial judge or incorporated into a final consent order. 

Middleton v Vosper Thornecroft (UK) Ltd

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I acted in a detailed assessment recently where the Claimant had failed to serve a statement of reasons in respect of the success fee in accordance with CPD 32.5(3) when serving the bill of costs and notice of commencement.   The appropriate statement was subsequently served.  It was argued for the Defendant that the failure to serve with the bill amounted to a breach of the rules which was not rectified simply by serving the document late and the consequence was that the success fee was not recoverable.  The judge questioned where in the rules it stated that the document needed to be served with the actual bill.  Despite my best efforts, I was unable to point to a specific provision that dealt with the time for service.  The judge concluded that it would be sufficient to serve the document in advance of the hearing and therefore allowed the success fee.

In the event, this decision was not decisive to the outcome of the detailed assessment and I still managed to comfortably win on the Defendant’s offer.  However, I was left with the strong feeling that the judge was wrong but unable to identify quite where he had gone wrong.  The best I was able to do was note that the heading to the section listing the documents to be served is worded: “Commencement of detailed assessment proceedings”.  Common sense therefore suggests that the timing for service of the documents is at the same time as commencement of the detailed assessment proceedings (ie when the bill and notice of commencement is served, as per CPR 47.6).

Before travelling to the hearing I had put in my briefcase a copy of a judgment I had come across on Lawtel that looked interesting.  I didn’t have a chance to read this on the day of the hearing.  You can imagine how annoyed I was when, a few days later, I got around to reading the judgment only to discover it was exactly the case I needed.

In Middleton v Vosper Thornecroft (UK) Ltd & Others, CC (Winchester) 2/6/09, the claim was funded under a CFA that pre-dated the revocation of CFA Regulations 2000.  No statement of reasons was served with the Bill but some reasons were subsequently provided in the Claimant’s replies.  His Honour Judge Iain Huges QC, sitting with Regional Costs Judge James, made a number of findings:
1.                  The “statement of reasons” to be served must be “the statement of reasons as included in the CFA.  The paying party is entitled to the whole of that statement and not an abbreviated version.  Further, he is entitled to know that that is what he is being given”.  He concluded: “the statement of reasons set out in the reply did not amount to a compliant statement.  First, because it was neither provided nor identified as being the statement of reasons given in the CFA.  Secondly, it did not have the appearance of being such a statement.  Thirdly, even if it had been identified as the statement of reasons in accordance with the rules, in fact it was not”. 
2.                  The “CPR require the receiving party to serve the statement of reasons and the other documents specified in section 32 at the same time of serving the notice of commencement and that the Claimant in this case failed to do that.  That triggers the sanction imposed by CPR 44.3B(1)(d) which denies recovery of his success fee”.
Another useful case in defendants’ armoury.

Business Environment Bow Lane Ltd v Deanwater Estates Ltd

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Where a claimant has picked up one or more costs orders in its favour on the way to a trial, but fails very badly at the trial (for example due to exaggeration), can the costs judge assess those costs at nil on the footing that they were not, as it turned out, reasonably incurred because they had been incurred in an action that sought an exaggerated sum which should never have been claimed?  No, according to Business Environment Bow Lane Ltd v Deanwater Estates Ltd [2009] EWHC 2014 (Ch).

Ahmed v Aventis Pharma Ltd

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The recent case of Ahmed v Aventis Pharma Ltd [2009] EWHC 9052 (Costs) dealt with two small issues but both ones of interest.

Firstly, following the decision in Crane v Canons Leisure Ltd [2007 EWCA Civ 1352, where solicitors outsourced the job of sorting and summarising medical records they could treat this work as forming part of their profit costs rather than being treated as a disbursement, and thereby make a profit on this work.

The second issue considered whether photocopying charges were recoverable. CPD 4.16(5) states: “The cost of making copies of documents will not in general be allowed but the court may exceptionally in its discretion make an allowance for copying in unusual circumstances or where the documents copied are unusually numerous in relation to the nature of the case”.

Master Gordon-Saker dealt with the matter in this way: “Photocopying charges will generally only be allowed where they are exceptional, otherwise they are considered to fall within the solicitor’s overhead. To my mind what is exceptional will have to be measured by the facts of the particular case. In a case where the profit costs are less than £7,000 it would be unusual to see the generation of 2,540 photocopies. Accordingly I would view this as exceptional and allow the sum of £154.80 claimed as a disbursement”. This is no doubt correct. What might be considered exceptional in a low value matter may not be exceptional in a substantial piece of litigation.

Regulation 4(2)(c) lives on

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Under the old Conditional Fee Agreement Regulations 2000 a solicitor had a duty, before entering into a CFA, to inform the client “whether the legal representative considers that the client’s risk of incurring liability for costs in respect of the proceedings to which agreement relates is insured against under an existing contract of insurance” (Regulation 4(2)(c)).  Failure to comply would generally render the CFA unenforceable (see Myatt v National Coal Board [2006] EWCA Civ 1017). 
The CFA Regulations have now been revoked.  Does that mean that a powerful weapon has been lost to defendants and that sloppy claimant solicitors can rest easy?  Not necessarily.  A fascinating decision has recently emerged from the Senior Courts Costs Office that suggests this issue may still be a live one.
The decision in Thomas v Butler and Other T/A Worthingtons Solicitors [2009] EWHC 90153 (Costs) concerned a solicitor/own client assessment but there is no reason to suppose the decision would have been any different if this had been an inter partes assessment.  The key issue that arose was whether the solicitors had complied with their duties under the Solicitors Costs Information and Client Care Code 1999 that was in force at the time (and remained in force until 30 June 2007) which states:
“4. Advance costs information – general
The overall costs
(a) The solicitor should give the client the best information possible about the likely overall costs, including a breakdown between fees, VAT and disbursements.
Client’s ability to pay
(j) The solicitor should discuss with the client how and when any costs are met, and consider:
(i) whether the client may be eligible and should apply for legal aid (including advice and assistance);
(ii) whether the client’s liability for their own costs may be covered by insurance;
(iii) whether the client’s liability for another party’s costs may be covered by pre-purchased insurance and, if not, whether it would be advisable for the client’s liability for another party’s costs to be covered by after the event insurance (including in every case where a conditional fee or contingency fee arrangement is proposed); and …”
Having considered the evidence presented, Master Campbell concluded:
“Having considered this course of events revealed by the contemporary documents, I am satisfied that Worthingtons [the Claimant’s solicitors] did not comply with the Code and I reject Mrs Nicholaou’s [the fee earner] evidence that she used her “best attempts to ‘discover’ pre-existing legal expenses insurance, none was identified” as the points of reply contend.  Whilst it may be correct that Mrs Nicholaou examined Mr Thomas’ home insurance policy for LEI cover and found none, Mrs Nicholaou knew from the papers she had received from Irwin Mitchell that there was a policy with Lawclub.  Accordingly she had a duty under paragraph 4(j) (ii) and (iii) of the Code to explore that policy further.
In breach of the Code, Mrs Nicholaou failed to discuss funding options adequately and compounded the problem by omitting to contact Lawclub.
It follows, for the reasons I have given, that I consider that Worthington‘s costs have been unreasonably incurred in this case. Had Mrs Nicholaou followed the Code correctly and investigated the availability of the Lawclub policy as Mr Thomas had instructed her to do, he would not have been obliged to meet Worthington’s costs out of his own pocket; either the firm would have acted for him under a CFA backed by Lawclub or he would have taken his case elsewhere to another firm which would have done so. Under CPR 44.4(1) the court “will not allow costs which have been unreasonably incurred.”  Accordingly, the fees that have been unreasonably incurred must be disallowed and any sums that Mr Thomas has paid to Worthingtons fall to be returned to him with interest.”
(One odd thing to note about this judgment is that the Code states that certain information “should” be discussed.  Not “must”.  Master Campbell has previously interpreted “should” as being no more than a recommendation (see Metcalfe v Clipston [2004] EWHC 9005 (Costs) and Cullen v Chopra [2007] EWHC 90093 (Costs).  On this occasion he appears to have treated “should” as introducing a mandatory requirement.) 
If correct, not only does this decision reintroduce Regulation 4(2)(c) challenges by the back door but throws open a whole host of other challenges for failure to comply with the Code.  Although the 1999 Code is no longer in force, similar requirements now appear in the Solicitors’ Code of Conduct 2007.

One should perhaps be cautious about reading too much into this case as it was very fact specific.  What was no doubt at the front of Master Campbell’s mind was the fact that the Claimant had given clear instructions that he wished his claim to be dealt with by way of a CFA backed by his legal expenses policy.  This was not done. 
However, it has been a question that has long troubled legal costs practitioners as to whether switching the consumer protection element from the Regulations to the solicitors’ rules really ended the scope for challenges.  As Cook on Costs 2010 puts it:
“It is supremely optimistic to hope that transferring regulation to the SRA will put an end to future costs satellite litigation.  If the solicitor contravenes the code of conduct, which has the same statutory force as the revoked regulations, cannot the client still contend that the retainer is unenforceable … thereby enabling the paying party to rely on the indemnity principle to avoid liability for payment?”
Happy days are here again.

Tranter v Hansons (Wordsley) Ltd – Duty to investigate BTE

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Under the, now revoked, CFA Regulations 2000 there was a duty to advise a client whether the legal representative considered that the client was insured under an existing contract of insurance (BTE) before the CFA was entered into (Regulation 4(2)(c)). Failure to do this would render the CFA invalid.

Since the Court of Appeal decision in Sarwar v Alam [2001] EWCA Civ 1401, if not before, it has been common knowledge that motor policies commonly contained BTE cover available for the benefit of passengers, even if the potential claim is against the insured driver. Therefore, failure to consider whether a passenger may have the benefit of BTE cover available through the defendant driver may amount to a breach of the Regulations.

A subtle variation of this issue arises where the claimant was a passenger on a bus and the accident was caused by the negligence of the bus driver. It has been common, for a number of years, for such BTE cover to also be attached to bus companies’ motor insurance.

There have now been a number of decisions covering this issue and exploring whether a failure to make appropriate enquiries of the defendant bus company as to whether such cover was available would invalidate the CFA.

In Cochrane v Chauffeurs of Birmingham (Central London CC) 22/6/07, Donaldson v Four Square Coach Company (Huddersfield CC) 11/6/07 and Robinson v Doselle (Milton Keynes CC) 19/12/05 the courts held on each occasion that there had been a material breach of the Regulations.

The one case that went against the flow was the decision of Master Rogers in Dole v ECT Recycling Ltd [2007] EWHC 90086 (Costs). In that case the Claimant’s solicitors put forward witness evidence that stated: “I confirm that as at the date when the CFA was signed in this case (15/07/2004) it was not common knowledge that the bus companies would have been covered by Before the Event Legal Expenses insurance which would have been available for passengers to sue the bus company for the negligent driving of its own drivers”. The Defendant did not put forward any evidence to counter this claim. Master Rogers held: “I accept the clear conclusion from Mr Bennett’s uncontradicted evidence that the state of knowledge of solicitors specialising in this field in the summer of 2004 was not that the defendants to a claim of this nature might have passenger cover, and in particular that such cover would be dealt with independently of any claim made against them by the passenger.” He therefore concluded that the reasonable enquiries that a solicitor was expected to undertake would not have extended to considering whether BTE cover was available in this situation as they would not have known such cover might be available.

The latest decision on this issue is that of Tranter v Hansons (Wordsley) Ltd [2009] EWHC 90145 (Costs). The Claimant’s solicitors produced a witness statement that stated: “I confirm that as at the date when the CFA was signed in this case (14/04/05) and based on my experience in the personal injury field, it was not common knowledge in the industry that a bus company would have applied Legal Expenses Insurance to the passengers on a bus to sue itself”.

Master Wright nevertheless concluded: “In my judgment the Defendant has raised a genuine issue and I consider that the Claimant’s solicitors in this case have failed to comply with Regulation 4(2)(c) of the CFA Regulations 2000. Whether or not it was common knowledge in the industry at the date the conditional fee agreement was signed that a bus company would have applied legal expenses insurance to the passengers on a bus to sue itself, it certainly was common knowledge that motor insurance policies frequently provide insurance cover for passengers to enable them to sue the driver. This is clear from Sarwar v Alam where the judgment of the Court of Appeal was given in 2001. In my judgment there is no justification for making a distinction between private motor insurance policies and insurance policies taken out by the operators of public vehicles such as buses. … In the present case the Claimant’s solicitors knew (or ought to have known because of the Court of Appeal’s decision in Sarwar) that private motor insurance policies often contained provisions which protect passengers. They ought also to have anticipated that in the case of public vehicles (such as buses) there could be similar provisions in the insurance policies taken out by the operators of such vehicles. They should have taken reasonable steps (a letter or two would have sufficed) to enquire. However they did not do this”.

The CFA was therefore held to be invalid.

Cole v News Group – The unread judgment

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Many years ago, when I was studying for my law degree, I was told never to simply rely on the headnote of a law report, but to read the judgment in full. This was for two reasons. Firstly, it was often only by reading the full judgment would one properly understand the decision and the reasoning behind it. Secondly, and perhaps more importantly, the headnote was sometimes inaccurate and misleading. Of course, at the time, I ignored that advice.

The modern equivalent to that advice is never trust case summaries you have simply read on the internet (this blog included) but to actually read the full judgment yourself.

A perfect example of the problems that arise from not following this advice is the strange case of Cole v News Group Newspapers Ltd (18/10/06, SCCO, unreported). I say “strange” because of the way this case has been reported. The background to the judgment was a libel claim brought by a certain well known footballer. I don’t need to repeat the salacious details of the original story, but I’m sure Ashley would be intrigued to discover this case has become best known in certain circles as a legal costs law authority rather than for the original allegations.

A quick Google search for “Cole v News Group” produces a number of legal websites offering case summaries of this judgment. They all appear to be inaccurate. I say “appear” because the difficulty with this case is it truly does seem to be unreported and is not available on any of the normal resources such as Bailli or Lawtel. This seems to have encouraged a number of individuals to pass on details of this case on a Chinese whispers basis without actually obtaining and reading a copy. Further, a growing number of claimant costs draftsmen routinely quote this case to resist requests for disclosure of CFAs. It may be that the transcript of the case that I have seen is not the final decision and that a further decision exists. If that is the case, and any reader can produce a more recent decision, I will happily write a further post on the subject.

Of the various case summaries that do exist on the internet, three of them refer to this being a decision of Master Haworth in the SCCO. Two of those give the date of the judgment as being February 2007. The third states it is a decision of the Court of Appeal in February 2007. All the summaries seem to suggest that the Court (whichever Court it was) held that a court would not order disclosure of a CFA unless the paying party had first raised a “genuine issue”. I don’t propose in this post to address what the law actually is on that point.

So what did the judgment actually say? I believe the summary in Cook on Costs 2009 provides a true account of the decision (if not the law): “With the removal of the [CFA] Regulations from 1 November 2005 a CFA needs only to be in writing and signed but that did not stop an application for disclosure in Ashely Cole v News Group (2006) Oct 18 SCCO. That application failed simply because no points of dispute had been served hence CPR 47.14 and CPD 40.14 did not apply. No decision was made as to the applicability of Hollins to post 1 November 2005″.

The transcript I have is dated 18 October 2006 (the same as the one quoted in Cook on Costs) and I am therefore proceeding on the basis that it is indeed the only judgment made in this case on that point. Cook on Costs’ summary is accurate. The application was dismissed simply on the basis that it was premature. There is absolutely no mention of “genuine issue” in the judgment, let alone any finding on this point. Indeed, the judgment concludes that when the matter comes back to the Court for the detailed assessment hearing “it may very well be that at that stage a disclosure of the CFA is appropriate”.

So my advice, particularly to any claimant law costs draftsmen reading this blog, is obtain and read the actual judgment in this case before seeking to rely on a decision that does not actually support your position.

I’ll come back to why Cook on Costs was wrong on the law on another day.