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).

Specialist costs counsel

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The 2010 edition of the Association of Law Costs Draftsmen’s diary contains advertisements from six barristers’ chambers holding themselves out as specialists in legal costs matters.  Five of these give the names of the barristers in their costs teams.  The number of named individuals totals 49.  There are a number of other chambers who have costs specialists who did not advertise in the diary.  So how many specialist costs barristers are there?  There were a large number of names I did not recognise and it may be that there is a certain amount of wishful thinking going on as to who can be properly described as a costs specialist.  Alternatively, it may be that they operate in areas of costs law that I do not deal with and our paths therefore do not cross.

A number of years ago, and before there were anything like the current number of specialist costs counsel, a senior judge (can anyone remind me who?) expressed displeasure about the fact that the complexity and number of legal costs disputes had reached the level that some lawyers were basing their whole career on costs matters.

Quite how many will be left in the post-Jackson world remains to be seen but their prospects are probably better than those of a large number of costs draftsmen.

Click image to enlarge: 

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Jackson Report – Success fees

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Arguably, Lord Justice Jackson’s most significant recommendation, in his Final Report, is an end to recovery between the parties of success fees.

This proposal will lead to obvious and huge savings to defendants.  Those who think that current political uncertainty will lead to much of the Report being shelved should think again.  Whichever party is in power after the general election, there will be a pressing need to control public expenditure.  In terms of the money paid out by the NHSLA alone, and ignoring all the other areas where the public purse pays for litigation, this will be a compelling reason to adopt this recommendation.  This is great news for defendants but really bad news for claimant lawyers.

Yes, solicitors can still enter into CFAs with their clients and charge a success fee.  But there are two big problems.  Firstly:

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Heavy advertising in recent years telling potential claimants that they will keep 100% of their damages will make it very unattractive for claimant solicitors to now start taking a cut of their clients’ damages.  There will be enough firms who decide to take the hit themselves that others will be forced to follow.  Success fees in personal injury claims are likely to disappear.  For the lower-end RTA claims, the loss of the 12.5% success fee will not be dramatic but it will come straight from solicitors’ profit margins.  It is likely to discourage some claims from being pushed to trial where the incentive of the automatic 100% success fee will disappear.  On the other hand, the removal of the 100% threat will encourage defendants to take more cases to court, especially in relation to quantum disputes.

Even if firms do feel able to charge success fees, Jackson LJ’s proposed cap will limit to a large extent the amount that can be charged.  Not only is a cap of 25% of damages recommended, but Jackson LJ’s master-stroke is that this cap will exclude damages referable to future loss.  The element of damages that claimants will be required to pay as success fee will be limited to the general damages and past losses.  In heavy litigation, and in particular catastrophic injury and clinical negligence claims, the cap is going to bite significantly in a high proportion of claims.  This will have a big impact on profit margins for some firms.

The claimant lobby has been arguing that this proposal will reduce access to justice.  This argument fails for a number of reasons.  These proposals largely revert the position to the one that existed prior to the Access to Justice Act 1999.  As Jackson LJ happily notes: “During 1996 APIL confirmed that those arrangements provided access to justice for personal injury claimants and that those arrangements were satisfactory”.  He further notes: “In this regard, it is significant that in Scotland personal injury cases are conducted satisfactorily on CFAs, despite the fact that success fees are not recoverable”.  Until recently, most BTE work and trade union work was conducted on unwritten speccing arrangements.  It is not obvious that recoverability of success fees brought about an increase in the kind of claim that was pursued.  The same kind of claim will still be run but the profit margins will shrink.

The Jackson package, and in particular this recommendation, is designed, at least in relation to personal injury work, to reduce legal costs at the expense of claimant lawyers.  And that can be no bad thing.

Dr Friston’s Civil Costs – A short teaser

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I have recently been commenting on the forthcoming publication of Civil Costs – Law and Practice, a new book by Dr Mark Friston. To give you some idea as to the scope and ambition of this book have a look at this sample chapter (external link).

This chapter deals with the important topic of contracts made away from solicitors’ places of business.  If this looks like a difficult and obscure subject that you can ignore, think again.  If a solicitor’s paperwork is not in order their bill will be unenforceable.  In the current edition of Claims Management magazine, Andrew Twambley, managing partner at Amelans, wrote: “Well, I have a word from the dark side – from the deepest annals of defendant burrows, from behind the largest rock – that an attack is imminent.  Mark my words, brace yourselves and hope you are not the ones chosen by them, to be the receivers of test litigation”.