Does proportionality still have a role in legal costs disputes?

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At the end of a costs presentation I recently gave to some solicitor clients I was asked if the issue of proportionality was one that still carried any weight in legal costs disputes.
Given how central the issue of proportionality was meant to be when the Civil Procedure Rules were introduced, it is strange that this question even needs to be asked.  However, it is one that is entirely legitimate to raise.  As Cook on Costs 2009 states: “‘What is proportionality?’ is a conundrum the courts are still trying to solve”.  In an effort to throw some light on the issue, I will let you have my thoughts on the subject.
The starting point is CPR 44.4(2): “Where the amount of costs is to be assessed on the standard basis, the court will – (a) only allow costs which are proportionate to the matters in issue”.
In the early days of the CPR, defendants, naively with the benefit of hindsight, thought this meant what it said.  Costs would not be allowed at a level that was disproportionate to the matters in issue.  Therefore, for example, if there was a straightforward RTA claim with damages of £3,000 being recovered, if at the detailed assessment hearing the judge reduced the costs to £7,000 on the basis of what had been “reasonably” incurred, the judge would then stand back and make a further reduction to, say, £3,000 to ensure that the final amount allowed was “proportionate”.  If only.
The correct approach was indentified by the Court of Appeal in Lownds v Home Office [2002] EWCA Cic 365:
“what is required is a two-stage approach. There has to be a global approach and an item by item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations which Part 44.5(3) states are relevant. If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the cost for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable.”
 This test begs the question of what is the difference between “necessary” and “reasonable”.  Surely costs that are not necessary will not be reasonable.  Equally, costs that are not reasonable will not be necessary.  It is the lack of any obvious distinction between the two tests that has led to the widely held view that “proportionality” is a dead issue.  I have certainly routinely been in the Senior Courts Costs Office (as we must now call it) where, having heard detailed arguments as to whether the costs claimed are proportionate, the judge has given his decision and then commented, as an aside, that in his experience it will make little or no difference to what costs are ultimately awarded.
This problem, at least in part, appears to have been recognised by the House of Lords in Fourie v Le Roux [2007] UKHL 1 where Lord Scott of Foscote said:
“I think it needs to be understood that the difference between costs at the standard rate and costs on an indemnity basis is, according to the language of the relevant rules, not very great. According to CPR 44.5(1), where costs are assessed on the standard basis the payee can expect to recover costs ‘proportionately and reasonably incurred’ or ‘proportionate and reasonable in amount’; and where costs are assessed on the indemnity basis the payee can expect to recover all his costs except those that were ‘unreasonably incurred’ or were ‘unreasonable in amount’. It is difficult to see much difference between the two sets of criteria, save that where an indemnity basis has been ordered the onus must lie on the payer to show any unreasonableness. The criterion of proportionality, which applies only to standard basis costs, seems to me to add very little to the reasonableness criterion. The concept of costs that were unreasonably but proportionately incurred or are unreasonable but proportionate in amount, or vice versa, is one that I find difficult to comprehend.”
So is there any mileage at all in this issue from a paying party’s perspective?
It is clear that the judge at the outset of the detailed assessment must make a decision as to whether the costs overall are proportionate or not, assuming the issue has been raised.  The judge’s decision is then meant to influence how he approaches the assessment itself on an item-by-item basis.
If the paying party persuades the Court that the costs are disproportionate, then there is some scope to use this finding to attack costs that might not otherwise be considered unreasonable.  For example, an EL claim with a value at the lower end of the multi-track might have been handled by a Grade A fee earner.  Depending on the facts of the case, this might not be “unreasonable”.  However, the issue arises as to whether it was “necessary”.  This is a far higher hurdle and the receiving party may struggle to show that it was a necessary step and that a Grade B or C fee earner could not have handled the matter.  The Court may reduce the hourly rates accordingly.  Equally, in a particular claim it may not be “unreasonable” to obtain an advice on quantum from counsel.  Whether such a step was actually “necessary” is a different issue.  It is important at the detailed assessment for the paying party’s advocate (whether costs draftsman, costs counsel or other) to keep reminding the judge of his preliminary finding, where the costs have been found to be disproportionate, when dealing with individual items. 
The fact that, at the first stage, the costs as a whole appear to be proportionate does not prevent the court from finding that individual items are disproportionate and applying the test of necessity to them alone (Giambrone v JMC Holidays [2002] EWHC 2932 (QB)).
Going back to the original question, the issue of proportionality can be a useful tool in nibbling at the edges of the costs claimed.  However, it is important to understand that even where a claim for costs is ruled at the outset to be wholly disproportionate, at the end of the assessment the amount may still be allowed in full.  Whether this is what those drafting the rules had in mind when they drafted: “the court will only allow costs which are proportionate to the matters in issue” is doubtful.  It is this problem that I constantly struggle to explain to some of my solicitor/insurer clients who cannot understand why it may be necessary to offer a figure that is clearly disproportionate to the damages recovered.

My intellectual property rights have been infringed

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I assume readers are familiar with search engines such as Google and Yahoo.

In addition to the ordinary search results they produce, they also also show sponsored links.  This works by allowing advertisers to purchase the right to have their advert displayed when certain keywords are typed into the search engine.  For example, a business selling designer goods might choose the keywords “designer goods” and “fashion”.

Louis Vuitton brought a case against Google complaining that adverts for counterfeit items popped up when internet users searched for the company and that this infringed their trademark rights.  They wanted to prevent others from being able to use their registered trademarks as a keywords. 

The case ended up being referred to the European Court of Justice.  The preliminary ruling was that there was no breach.

All very interesting, but what has this got to do with legal costs, I hear you ask?

I recently discovered that a Google search for Gibbs Wyatt Stone produces a sponsored link for an entirely different firm of law costs draftsmen (although I wouldn’t quite describe our services as being those of traditional costs draftsmen).  I suppose I should be flattered that our reputation is such that others hope to raise their own profile by association with our name.  However, I’m left feeling vaguely used and violated.

And so what do you do?

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In the past, when meeting people for the first time, I have always dreaded being asked what it is I do for a living.  To a non-lawyer there is no easy way to explain the role of a defendant costs consultant.  However, the recent furore over MPs’ expenses has made my task easier.

Now, when I get asked this question, I can respond: “You know the way when MPs were allowed to police their own expenses they claimed for the most outrageous things?  Well, claimant lawyers are much the same when it comes to their legal billing.  I’m the type of lawyer whose job it is to police claimant lawyers and stop them from claiming for their duck house or to have their moat cleaned”.

If any readers have a better summary of a defendant law costs consultant’s role, that is remotely printable, please feel free to add under comments.

Future of the legal costs industry

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An article of mine was recently published in the Solicitors Journal on the future of the legal costs industry.  For those who haven’t already read it, it can be found here (click link).  Sure to ruffle a few feathers.

Not enough personal injuries occuring

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The following letter was published in the latest edition of the Law Gazette:
“Rhonwen Barraclough’s letter (8 October) complained about Lord Justice Jackson’s recent suggestion of increasing the small claims limit if a deal cannot be done on fixing legal costs in fast-track claims.  Among the various reasons put forward as to why this was a bad thing, the most desperate was:
‘There is also the prospect of losing even more high street practices, given the constant onslaught from professional indemnity insurance and farcical legal aid rates. Like it or not, personal injury is big business, with the majority of fee income going back into the economy in the form of taxes, VAT, wages and to other associated businesses. Has the practical impact of the reforms been considered in that context at all? Can the government really afford to lose the revenues generated by PI?’
Criminal behaviour is big business, keeping employed criminal lawyers, police, prison offices, security firms and so on, and generating various taxes as a result.  However, one would have to be going it some to argue that the government should be very cautious about trying to reduce crime.
What next?  The Association of Personal Injury Lawyers campaigning for more dangerous driving, unsafe work practices and more potholes in an effort to bail the government out of its current financial difficulties?
Forget high street practices, what about your average poor costs consultant if fixed fees are introduced? Now that is serious.
Simon Gibbs, Partner, Gibbs Wyatt Stone (defendant costs consultants), London

Notification of funding – The New Rules

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In a previous posting (read here) I discussed the old rules relating to providing information about the funding of a claim.  The latest update to the Civil Procedure Rules has made important amendments which came into force on 1st October 2009.
The old CPR 44.3B read:
“(1) A party may not recover as an additional liability –
(c) any additional liability for any period in the proceedings during which he failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order”
The new wording of CPR 44.3B is:
“(1) Unless the court orders otherwise, a party may not recover as an additional liability –
(c) any additional liability for any period during which that party failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order;
(e) any insurance premium where that party has failed to provide information about the insurance policy in question by the time required by a rule, practice direction or court order.
(Paragraph 9.3 of the Practice Direction (Pre-Action Conduct) provides that a party must inform any other party as soon as possible about a funding arrangement entered into before the start of proceedings.)”
These changes fall into four categories:
1.      The wording “in the proceedings” is deleted and the reference to the new wording of the Practice Direction (Pre Action Conduct) makes it clear that notice must now be given pre-proceedings.
2.      The insurance premium provision deals with the consequence of not giving the information discussed below.
3.      The addition of the new wording “unless the court orders otherwise” is perhaps surprising. It was previously clear that failure to comply with the notification provision produced an automatic sanction in that the additional liability was not recoverable (in the absence of a successful application for relief from sanctions).  It now appears to be in the general discretion of the court as to whether to allow the additional liability despite the breach, although the starting point is obviously non-recoverability.  What is strange is that the new wording is followed by the same note that previously appeared: “Rule 3.9 sets out the circumstances the court will consider on an application for relief from a sanction for failure to comply with any rule, practice direction or court order”.  If the court now has a general discretion there would be no need to formally make an application for relief from sanctions.  Or, is the wording “unless the court orders otherwise” meant to refer to the situation where a successful application has indeed been made, but not otherwise?  We’ll no doubt have to wait for the first decisions on the correct interpretation.
4.      The word “he” is replaced by the non-sexist “that party” (so as not to upset any chicks reading).
Paragraph 9.3 of the Practice Direction (Pre-Action Conduct) now reads (amendments underlined):
“Where a party enters into a funding arrangement within the meaning of rule 43.2(1)(k), that party must inform the other parties about this arrangement as soon as possible and in any event either within 7 days of entering into the funding arrangement concerned or, where a claimant enters into a funding arrangement before sending a letter before claim, in the letter before claim.”
For the reasons I gave in the previous posting on this subject, I am of the view that these changes clarify, rather than change, the requirements concerning pre-proceedings notification (although the corresponding transitional provisions might suggest the contrary).
An important change has been made to the Costs Practice Direction in respect of staged After-the-Event (ATE) premiums.  CPD 19.4(3) now reads:
“Where the funding arrangement is an insurance policy, the party must –
(a) state the name and address of the insurer, the policy number and the date of the policy and identify the claim or claims to which it relates (including Part 20 claims if any);
(b) state the level of cover provided by the insurance; and
(c) state whether the insurance premiums are staged and, if so, the points at which an increased premium is payable.”
This finally formalises the guidance given by the Court of Appeal in Rogers v Merthyr Tydfil CBC [2006] EWCA Civ 1134.
What is not 100% clear is what the consequence would be of failing to give notification of the fact the policy is staged or to give the trigger points.  Would the receiving party lose all premiums or would they still be able to recover the first stage premium (on the basis that the paying party can be no worse off in respect of this first premium even if they were not notified of the staging; the prejudice comes from not having the opportunity to settle the claim before the subsequent premiums become payable)?  More test litigation ahead for costs draftsmen and other costs professionals.
It should be pointed out that none of these changes affect those acting under discounted CFAs\CCFAs without a success fee (usually defendants).  There is no need to provide notice of funding in this situation because the full hourly rate payable in the event of a win is not treated as being an additional liability (see Gloucestershire CC v Evans [2008] EWCA Civ 21).
There are also important changes to the rules concerning ATE premiums in publication proceedings although, frankly, if you work in that niche area you should already be more than aware of those changes.

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qc sept 16 97



The Legal Costs Blog – Who reads this rubbish?

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Contrary to all logic and common sense, the Legal Costs Blog appears to have acquired a not insignificant readership.

The Solicitors Journal, aimed not just at solicitors but lawyers generally, claims that its website attracts over 34,000 users a month. Insurance Times, aimed at the whole insurance industry, claims over 45,000 users per month. Both websites have excellent and comprehensive content. The Gibbs Wyatt Stone website attracts over 12,000 users per month. The majority of this traffic is attracted to the Legal Costs Blog pages. Gibbs Wyatt Stone are a niche firm operating in a niche area of the law. These figures suggest one of two things. First, it may be that the figures quoted by the Solicitors Journal and Insurance Times are not as impressive as they first appear. Alternatively, the Legal Costs Blog is attracting a surprisingly high readership given the nature of its content. I’ll leave readers to make up their own minds as to which of these it is.

It can safely be assumed that a large proportion of the readership are those who work within the English legal costs world. However, it appears that this blog has a wider reach. We have one subscriber from the High Court in Anguilla in the Caribbean. The other week I was contacted by a charming chap from the Czech Republic asking for book recommendations on the subject of legal costs as this was his “hobby” (and I thought I was the only one).

A comment recently added to one of my previous posts concerning the Jackson Costs Review complained that this was “a most biased defendant based blog”. Well, yes. That’s the point. Unfortunately, the comment was posted anonymously and so we will never know who expressed that view (although I’m sure there are plenty who share it). Strangely, a specialist costs barrister who had recently seen the blog suggested I should consider “making it more overtly for defendants”. Goodness knows how some people would react if I did make it more defendant leaning.

On a related topic, it has recently been reported that Rupert Murdoch’s News Corporation (whose publications include The Sun and The Times) is set to start charging online customers for news content across all of its websites. The internet has increasingly been viewed as a source of unlimited free information (in theory paid for by advertising). The tide may be starting to turn. You’ll be pleased to know that we currently have no plans to start charging for the blog. Remember, you can subscribe to the blog by entering your email address in the box part way down the web page and receive posts straight to your inbox. If you get tired of receiving them, just unsubscribe.

Jackson Costs Review – Part 7 – A shrinking role for costs draftsmen?

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Lord Justice Jackson’s Preliminary Report on Civil Litigation Costs (see previous post) focuses on the perceived problems that have arisen in recent years in relation to legal costs: “There is no doubt that litigation over costs has increased dramatically in recent years, and that this growth is one of the driving factors behind the present review. Whilst many such disputes concerned issues which would need to be resolved under any system which involves costs-shifting, the disputes over the enforceability of conditional fee agreements have generated more litigation, arguably to less useful purpose, than any other. … [L]engthy detailed assessment hearings (largely devoted to legal arguments about recoverability and other technical challenges) still abound. This continuance of technical battles, albeit on changing fronts, appears to be attributable to the huge sums of costs which are in play. Both in the field of personal injury and in other areas, the Costs War is still being fought with some vigour.”

The Report goes on: “Taken collectively, the law reports of the last decade present the unseemly spectacle of endless and expensive squabbles about how much money should be paid to lawyers. … The question must be asked whether the Costs War either serves the public interest or benefits the profession as a whole. If the answer to this question is no, then consideration must be given to what further measures (beyond those already adopted) should be taken in order to stamp out such litigation. … In commenting on the issues raised in Phase 1 of the Costs Review, Professor Ian Scott (general editor of the White Book) stated: ‘I do fear that the profession to which I belong has lost its soul and is far too preoccupied with making money. Further, I think it is capable by its actions of killing the goose that has laid the golden egg. Another thing I feel strongly about is the shocking squandering of scarce court resources on refereeing of disputes about costs’”.

In addition to some of the radical proposals for dealing with these perceived problems, such as increased fixed fees and an end to two-way costs shifting, a number of the options up for consideration include changes to the current detailed assessment process. Some of the problems and options highlighted by the Report include:

1. “The most frequently expressed view is that the costs of detailed assessment and the court fees charged for it are often disproportionate to the amounts at stake in the main proceedings.”
2. “What is required is a bill which gives relevant information to the court and to the paying party and which is transparent. The current form of bill makes it relatively easy for a receiving party to disguise or even hide what has gone on.”
3. “Whilst detailed points of dispute may be necessary in high value complex cases, there is no such necessity in low value, straightforward bills.”
4. “A major problem in the SCCO is the fact that many detailed assessment cases settle very late in the day when it is too late to appoint another case in place of the settled case.”
5. “If a matrix, scale or tariff is in place for fast track cases there is no need for points of dispute or any reply. Depending on the structure of the fast track costs scheme it may be possible to do away with detailed assessment of such cases altogether. In order to cater for exceptional cases there should be an escape clause enabling a receiving party [or paying party] who feels that the scale allowance is too low [or too high] to apply to the court for a detailed assessment subject to a costs risk, e.g., if the assessment does not result in an increase [or decrease] of 20% or more the party applying will bear the costs of the detailed assessment.”
6. “[I]t is suggested that the Costs Practice Direction should be amended to the effect that in fast track cases points of dispute should not extend to more than three pages. … In low value cases it may be possible to dispense with points of dispute altogether, or at least to limit them to points of principle rather than quantum.”
7. “There should be a requirement that the paying party should make an offer in respect of the costs at the same time as serving points of dispute. Where the points of dispute assert that no costs should be payable, eg because of a breach of the CFA Regulations, a provisional offer should be made on the basis that the preliminary issue is decided in favour of the receiving party.”
8. “There appears to be no reason why Part 36 should not apply to detailed assessment proceedings in the same way as it applies to the substantive proceedings. This would provide greater certainty than the present provision in the rules that any offer to settle ‘may be taken into account’.”
9. “For bills of up to say £50,000 it may be possible to have a system of provisional assessment whereby the costs officer considers the bill and supporting papers in the light of the points of dispute.”
10. The decision in Crane v Canons Leisure Centre [2007] EWCA Civ 1352 may need to be reversed.

All these proposals are designed to reduce costs disputes and reduce the cost of costs disputes. None of this is good news for the average law costs draftsman or other costs professional.

Changes to the assessment process

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At the end of July I attended the last of Jackson LJ’s Costs Review Seminars. This seminar focused on detailed assessments and explored various ways to try to improve the process. The majority of those attending were costs draftsmen, costs judges and other costs professionals.

What was interesting was the way that some of the ideas that emerged were met with virtually unanimous support from those present except for one or two individuals who clearly passionately believed that these very same proposals were either unworkable or entirely counter-productive.

One of the suggestions was that the current format for bills of costs was inappropriate and should be replaced with a new format. Rather than, as now, largely focusing on a list of chronological items of work, the bill should be more focused on providing an explanation as to why certain work was necessary or why this work was unusually time consuming. This proposal received virtually unanimous support and a costs judge and a regional costs judge have been tasked with producing a new model bill to incorporate this suggestion.

Although understanding the logic behind this proposal, I was one of the very few who strongly opposed this idea. Preambles to bills are already often unnecessarily long and self-serving, trying to justify the level of costs claimed by highlighting the supposed difficulties in the matter. My concern is that any formal requirement to explain and justify at the outset the costs claimed will turn bills into pages of lengthy prose that serve little purpose other than to drive up costs. Worse, much of this may prove to be entirely wasted. Time will be spent seeking to justify work that the paying party may have had no intention of disputing. Hopefully the model bill and any changes to the rules will overcome my concerns.

A second proposal was to introduce provisional assessments for lower value claims for costs. These would be conducted on paper with an option to proceed to a full detailed assessment if a party was unhappy with the provisional assessment, though possibly with strict costs penalties if a party failed to do better at the full assessment. I shared the majority view that this was a sensible proposal. There were only two dissenters and these were, interestingly enough, a regional costs judge and a costs officer. Their concern was that the provisional assessment option would be so attractive to parties that it would lead to a far higher number of cases reaching the courts than currently proceed to detailed assessment. This would lead to the courts being swamped with work they could not cope with. Of course, given any proposals emerging from the Jackson Review will almost certainly include fixed costs for fast-track claims this concern may be somewhat misplaced. Based on the figures being discussed at the seminar, for cases to be eligible for provisional assessment, most multi-track claims would be excluded. There would be relatively few claims likely to qualify once fast-track claims are removed from the process. Further, the workload of the courts should significantly decrease, in terms of costs disputes, as a result of fixed costs.

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qc june3 1997

Advising on success fees

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Advising clients on the level of success fee that might be allowed in any given case is an inherently difficult task given the unpredictability of the courts. Another reason why it is difficult to advise is due to the method by which success fee are normally calculated. The courts generally accept, as a starting point, the “Ready Reckoner” (see for example paragraph 4 of Atack v Lee [2004] EWCA Civ 1712). This allows for a calculation that, based on the prospects of success fee in any given case, produces the correct level of success fee to reflect that risk. The difficulty with the figures produced by this method is that a tiny change in the prospects of success can produce a radically different success fee. For example, a case with a 50% chance of success produces a 100% success fee. A case with a 60% chance of success produces only a 67% success fee. Therefore even a very small difference in a judge’s assessment of the prospects of success can radically alter the amount that can be allowed on a bill. How can one accurately advise a client as to what a judge is likely to allow?

Gibbs Wyatt Stone were instructed in relation to a case concerning a claimant who had tripped over a defective paving stone. This type of claim is generally recognised as not being straightforward due to the availability of a s58 statutory defence. However, the typical difficulty still arose as to what figure to recommend in relation to the level of success fee. In the event, GWS advised that the Defendant’s offer of £14,500, made prior to a formal Bill being served, provided reasonable protection. A formal Bill was served and the matter proceeded to detailed assessment in the Supreme Court Costs Office. The matter was heard by Principal Costs Officer Lambert. He assessed the prospects of success at 65% and, using the “Ready Reckoner”, allowed a success fee of 55%. Taken together with the other reductions made, the Bill of Costs was reduced from £35,150.50 to £13,991.83. The Defendant therefore succeeded on its offer and was awarded the costs of the detailed assessment proceedings.

The Claimant was unhappy with the success fee allowed and appealed to a Costs Judge. An odd aspect of appeals from a Costs Officer to a Costs Judge, in addition to there being an automatic right of appeal, is that such an appeal is by way of a complete rehearing rather than a straight appeal. This means that the Costs Judge will consider the matter afresh rather than simply decide whether to uphold or overturn the Costs Officer’s decision.

The “appeal” was heard by Master O’Hare who decided not only that the Costs Officer’s assessment of the prospects of success had not been unduly low but had actually been too high. He assessed the prospects of success at 67% and, based on the “Ready Reckoner”, this reduced the success fee to 50%, which was what he allowed. The Claimant’s appeal therefore not only failed but resulted in a further reduction to the amount which had originally been awarded. The Defendant was awarded the costs of the appeal.

Until fixed success fees are introduced for this type of case, costs draftsmen and other costs professionals will continue to struggle to advise their clients in these claims.