From 1 April 2013 we have a new proportionality test (although it will not apply to work undertaken before that date). New CPR 44.3(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. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred”

New CPR 44.3(5):

“Costs incurred are proportionate if they bear a reasonable relationship to—

(a) the sums in issue in the proceedings;
(b) the value of any non-monetary relief in issue in the proceedings;
(c) the complexity of the litigation;
(d) any additional work generated by the conduct of the paying party; and
(e) any wider factors involved in the proceedings, such as reputation or public importance.”

No Practice Direction to explain how this is to be applied.

It is envisaged that the approach proposed by Lord Justice Jackson will apply:

“I propose that in an assessment of costs on the standard basis, proportionality should prevail over reasonableness and the proportionality test should be applied on a global basis. 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.”

Now, back to my post the other day concerning whether costs judges are expected to undertake the arithmetic on a bill following a provisional assessment or whether they simply send the annotated Points of Dispute/Replies back to the parties and it is for them to work out the final figure allowed. Practice Direction 14.4(2) provides:

“Once the provisional assessment has been carried out the court will return Precedent G (the points of dispute and any reply) with the court’s decisions noted upon it. Within 14 days of receipt of Precedent G the parties must agree the total sum due to the receiving party on the basis of the court’s decisions. If the parties are unable to agree the arithmetic, they must refer the dispute back to the court for a decision on the basis of written submissions.”

How does this tie in with the new proportionality test? If, at the end of the provisional assessment, the judge does not know the figure he has allowed (because he has not done the calculations) how does he know whether to apply a further discount to make the costs “proportionate”? The new rules do not envisage any procedure for the parties to return to the court after they have agreed the “total sum due” to ask the court to make a further “proportionality” adjustment if appropriate.

There has been a staggering failure to think through the practicalities of how the new provisional assessment process will work. But then, there was a notable category of lawyer absent from the rules committee: a Costs Lawyer.

I mentioned the other day the new test for relief from sanctions applications and suggested this is intended to be a much tougher test. One reader disagreed on the basis that:

“Aren’t the words here: ‘the court will consider all the circumstances of the case’ the most important. I can’t see in practice how this is will be any different to the current test under 3.9. Aren’t all the circumstances of the case just the current 3.9 factors anyway?”

I defer to others better informed.

David Marshall, managing partner of Anthony Gold, was quoted in Solicitors Journal saying that lawyers who apply for relief from sanctions under the new rules will no longer be able to take advantage of a list of extenuating circumstances.

Dominic Regan writing in the New Law Journal:

“The current genteel approach is to be replaced by a much harsher one for all applications made from 1 April, regardless of how long ago the breach arose. … Judges in their current training are being told to be firm and less forgiving. You have been warned.”

District Judge Buckley writing in the Solicitors Journal:

“a tougher CPR 3.9 is being introduced. It is intended that relief from sanctions will be less readily available and district judges are being encouraged to be robust. Lack of prejudice may on its own be insufficient.”

District Judge Gold writing in the New Law Journal:

“obtaining relief from sanctions will be tougher when you apply on or after 1 April 2013 (r 5). The raft of the nine specific CPR 3.9 factors to be taken into account as part of all the circumstances (interests of the administration of justice, whether application made promptly, whether failure to comply was intentional and the rest) has been dumped. … The change is intended to reflect the Jackson recommendation that the courts should be less tolerant of unjustified delays and breaches of orders. Unless the weakness or strength of the applicant’s substantive case is clear as a pikestaff, we suggest that the courts will not normally take substantive merits into account in determining a relief application.”

Well, obviously, but what I really want to know is whether they are now meant to do their own detailed arithmetic.

Amongst the documents to be filed with the court when requesting a provisional assessment under the new Practice Direction 14.3(d) to Rule 47.15 are:

“the offers made (those marked “without prejudice save as to costs” or made under Part 36 must be contained in a sealed envelope, marked ‘Part 36 or similar offers’, but not indicating which party or parties have made them)”

And Practice Direction 14.3(c):

“…a statement of the costs claimed in respect of the detailed assessment drawn on the assumption that there will not be an oral hearing following the provisional assessment”

That would seem to suggest that at the conclusion of the provisional assessment the judge will open the sealed envelope, see what offers have been made, decide liability for the provisional assessment and assess the same based on the statements filed. (Although why does it refer to “statement” in the singular?)

If that is so, judges are going to be in for a fright when they realise how long it takes to recalculate a bill of up to £75,000 when they adjust the hourly rates claimed and adjust the applicable VAT rate. It is also likely to lead to some “interesting” final figures. At the end of a detailed assessment no two law costs draftsmen ever get the same figure at first attempt.

But.

Practice Direction 14.4(2) provides:

“Once the provisional assessment has been carried out the court will return Precedent G (the points of dispute and any reply) with the court’s decisions noted upon it. Within 14 days of receipt of Precedent G the parties must agree the total sum due to the receiving party on the basis of the court’s decisions. If the parties are unable to agree the arithmetic, they must refer the dispute back to the court for a decision on the basis of written submissions.”

That seems to suggest the judge won’t do the calculations at the end of the provisional assessment. Why then require costs schedule(s) to be filed with the request for the provisional assessment if it is known that further work must be undertaken (doing the arithmetic) but the amount of work required will not be known? For some bills the extra work needed may be relatively minimal but for others may be more drawn out, particularly where there is disagreement between the parties.

Further, in this situation if the parties have to do the arithmetic, what is the normal mechanism for then asking the court to determine liability for the costs of the provisional assessment where the parties cannot agree? Practice Direction 14.6 provides:

“If a party wishes to be heard only as to the order made in respect of the costs of the initial provisional assessment, the court will invite each side to make written submissions and the matter will be finally determined without a hearing. The court will decide what if any order for costs to make in respect of this procedure.”

Is this going to become the norm for anything but the most clear cut of cases? Remember, the receiving party is doing all this for £1,500 (to include VAT, court fees, additional liabilities and, arguably, the costs of drafting the bill).

The provisional assessment process was intended to be simple and cheap.

It’s not simple because the rules have been so poorly drafted we don’t know how it’s meant to work. It looks increasingly as though it won’t be cheap (notwithstanding the cap on the recoverable costs).

If I were a Costs Lawyer trying to prepare for 1 April 2013 I would be crying tears of bitter frustration at the shambolically thought out new costs rules.

D’oh. I am a Costs Lawyer.

If a party is unhappy with the outcome of a provisional assessment they can request an oral hearing. Liability for the costs of the hearing are dealt with by the new CPR 47.15(10):

“Any party which has requested an oral hearing, will pay the costs of and incidental to that hearing unless—

(a) it achieves an adjustment in its own favour by 20% or more of the sum provisionally assessed; or
(b) the court otherwise orders.”

This may be thought very harsh but it is clearly designed to discourage requests for oral hearings where a party is a bit unhappy about the outcome. Of course, in the context of provisional assessments of bills worth up to £75,000, a “bit unhappy” may represent a figure of up to £15,000.

But.

The new Practice Direction 14.5 to CPR 47.15(10) states:

“When considering whether to depart from the order indicated by rule 47.15(10) the court will take into account the conduct of the parties and any offers made.”

Given Part 36 offers will apply to assessment proceedings, does a good Part 36 offer trump the 20% rule?

For example, a judge undertaking a provisional assessment wrongly allows work relating to funding which amounts to £200 on a bill otherwise assessed at £30,000. As the paying party, at the conclusion of the provisional assessment can I make an offer of £29,800 and then request an oral hearing knowing I have properly protected myself or will the 20% rule prevail? Will the court now take into account the new proportionality test and limit the recoverable costs of the oral hearing to an amount it considers proportionate to appeal a £200 decision? What advice do you give the client?

The issuing of the new costs rules has clearly been shambolic, in part due to the artificial deadlines set, but Andrew Parker of DAC Beachcroft makes the fair point:

“Compare the position on these rules with the approach of the Chancellor when changes are announced in the budget – businesses and consumers are given just hours to react.”

Costs Lawyers are meant to have a central role in the new costs budgeting process (at least in theory).

Costs budgeting is being introduced on 1 April 2013 through amendments to CPR Part 3.

Costs Lawyers’ rights are governed by The Statement of Rights, which governs the rights of a Costs Lawyer holding a current practising certificate, which covers:

“Rights of audience in all proceedings being conducted under Parts 43-48 of the Civil Procedure Rules 1999 (“CPR”) and under Part 52 of those rules with regard to appeals from detailed assessment hearings before a High Court Judge or a Circuit Judge such rights to exclude an issue of entitlement to costs under CPR 44.3 and entitlement to a wasted costs order arising solely under CPR 44.14(1)(b) or CPR 48.7 other than in connection with proceedings commence [sic] under (vi) and (vii) below.”

and

“The right to litigate in all the proceedings under parts 43-48 of the CPR and under part 52 of those rules with regard to appeals from detailed assessment hearings to be listed before a High Court judge or a circuit judge”

CPR Part 3 is not covered by either of these sections and in the absence of an amendment to the Statement of Rights before 1 April 2013 Costs Lawyers will have no “right” to be involved in costs budgeting. Fortunately for Costs Lawyers, and contrary to what many of them previously hoped for (beware of what you wish for), Kynaston v Carroll [2011] EWHC 2179 removes this problem as costs management hearings will be treated as being heard in chambers and Costs Lawyers can attend so long as they are instructed by a solicitor.

Unfortunately, it does mean Costs Lawyers will not be able to act for litigants-in-person. Although litigants-in-person will not be required to prepare costs budgets they may well want to be represented to make representations as to the other side’s budget. Even if Practice Direction 46 at paragraph 3.1 is amended as per my suggestion the other day, this will not assist as that rule is concerned with “assistance in assessing the costs claim”, not the setting of a budget.

On the other hand, one change to the CPR significantly increases the rights of Costs Lawyers.

The Statement of Rights above currently excludes the right to deal with issues as to the entitlement to costs under CPR 44.3. It is not remotely clear why this should. If the powers that be consider Costs Lawyers competent enough to deal with the often very complex issues of the quantification of costs why are they deemed incapable of dealing with the issues of entitlement?

However, the issue of entitlement is currently dealt with by CPR 44.3 but that rule moves, from 1 April 2013, to CPR 44.2. At a stroke Costs Lawyers will not now be excluded from dealing with this area.

Equally, CPR 44.14(1)(b) now moves to CPR 44.11 and Costs Lawyers will be able play too.

Same with CPR 48.7, which has now moved to 46.8.

Of course, it may be that the powers that be are on top of this and a new Statement of Rights is imminent. (I can’t be the only one busy reading the new rules.) If so, I would suggest the rights are widened to cover costs budgeting/management and the previously excluded sections of CPR 44 to 48, rather than simply retain the current restrictions.

Association of Costs Lawyers’ president Michael Bacon writing in a recent edition of Costs Lawyer magazine commenting on a Legal Services Board report on the work of the Costs Lawyer Standards Board:

“…the most interesting element of the report relates to the question of entity regulation. The LSB points out that once transitional provisions are lifted (expected in 2014), Costs Lawyers offering reserved legal activities, who are not sole traders, will have to be regulated as an entity. If the CLSB has no arrangements to regulate entities, such individuals will either have to cease trading or find an alternative entity regulator.”

Just as the bottom drops out of the costs market a new layer of, no doubt, expensive regulation will be foisted on the profession. Costs Lawyers will probably be the smallest most highly regulated profession on the planet by 2015.

Blog post from March 2012:

CPR 48.6 allows for a litigant in person to recover “the costs of obtaining expert assistance in assessing the costs claim”.

CPD 52.1 states that those who qualify for the purposes of this rule will include a “Fellow of the Association of Law Costs Draftsmen”.

The problem with this rule is that most Fellows have been converted to Costs Lawyers over the last few years and the category of Fellow ceased to exist entirely as of 31 December 2011. (And there is now no such thing as the Association of Law Costs Draftsmen – now renamed the Association of Costs Lawyers).

Therefore, the rules as currently drafted refer to a category of lawyer that no longer exists and no longer allow for the recovery of costs that would otherwise have been recoverable. (The problem ceases to exist if a Costs Lawyer goes on record as acting for the litigant in person because they then cease to be a litigant in person. However, not all litigants in person may want this to happen and it potentially means that the costs of isolated work, such as a Costs Layer just drafting points of dispute, would not be recoverable by the litigant in person.)

The Civil Procedure Rules Committee are fully aware of this rather embarrassing oversight in failing to update the CPD and I am sure we can expect the words “Costs Lawyer” to be substituted in place of “Fellow of the Association of Law Costs Draftsmen” in the October 2012 CPR amendments even if, inexplicably, this has not made it into the April 2012 update.

Oddly, no such change was made in April 2012 or October 2012.

Thankfully the costs rules have now been fully redrafted in light of the Jackson reforms by a team of dedicated experts and this glaring oversight has now been corrected. Practice Direction 46 at paragraph 3.1 now reads:

“In order to qualify as an expert for the purpose of rule 46.5(3)(c) (expert assistance in connection with assessing the claim for costs), the person in question must be a—

(a) barrister;
(b) solicitor;
(c) Fellow of the Institute of Legal Executives;
(d) Fellow of the Association of Costs Lawyers;
(e) law costs draftsman who is a member of the Academy of Experts;
(f) law costs draftsman who is a member of the Expert Witness Institute.”

You couldn’t make it up.

I’ve dropped the Civil Procedure Rules Committee a note in advance of the meeting on Friday, when they will try to deal with outstanding errors/corrections, but I’m not holding my breath.

Time to appeal in detailed assessment proceedings currently runs from the date of the decision being appealed rather than the end of the assessment proceedings. This can cause problems where a matter goes part heard.

A new CPR 47.14(7) is therefore going to be introduced on 1 April 2013 that reads:

“If an assessment is carried out at more than one hearing, then for the purposes of rule 52.4 time for appealing shall not start to run until the conclusion of the final hearing, unless the court orders otherwise.”

Very sensible.

But.

Under the section headed “Appeals from Authorised Court Officers in Detailed Assessment Proceedings” is CPR 47.23(1):

“The appellant must file an appeal notice within 21 days after the date of the decision against which it is sought to appeal.”

Note: this is a reference to date of the decision (as now), not the date of the conclusion of the final hearing. This is almost certainly a drafting error as the two conflict. There is no reason the time for appealing against a decision of a costs officer should be stricter than otherwise. Which prevails?

I have every expectation that an announcement will be made in the next day or two that there has been a terrible administrative mistake by a kid on work experience who has accidently released an early rough draft of the new CPR and Practice Directions and the real ones are yet to be released.

The Association of Costs Lawyers’ response to the preliminary Jackson Report recommended that Part 36 offers be introduced into detailed assessment proceedings. So it has come to pass, with Part 36 in assessment proceedings from 1 April 2013. Iain Stark, ACL Chairman, writing in Costs Lawyer magazine, “applauded” this development.

Let me tell you a story.

Claimant firm Paye Cash & Praye are currently negotiating with defendant costs firm Kermit & Co over a £10,000 bill. Points of Dispute and Replies have been served.

On 2 April 2013 Paye Cash & Praye make a Part 36 offer to settle those costs for £7,000.

Kermit & Co accept the offer on 3 April 2013.

Acceptance of the offer creates a deemed costs order under the new CPR 44.9(1)(b). Under CPR 36.10(1) this means the receiving party is entitled to their costs of the assessment proceedings up to the date on which notice of acceptance was served.

The new CPR 47.20(5) states:

“The court will usually summarily assess the costs of detailed assessment proceedings at the conclusion of those proceedings”

However, the new CPR 44.1(1) clearly states:

“‘summary assessment’ means the procedure whereby costs are assessed by the judge who has heard the case or application”

In this example the matter has never come before a judge and summary assessment is not appropriate. All that’s left is detailed assessment proceedings in the absence of agreement.

In reliance on the deemed costs order Paye Cash & Praye serve a Notice of Commencement and new bill in respect of their assessment costs on 10 April 2013. (As an aside, where a matter settles prior to a provisional assessment being carried out, but the bill is for less than £75,000, does the £1,500 cap apply?) The costs claimed are £1,000. Service of the new Notice of Commencement amounts to commencement of new detailed assessment proceedings.

Kermit & Co, rather taken back by this turn of events, make a Part 36 offer of £800 in respect of those costs on 17 April 2013. No response to that offer is received within 21 days of service of the Notice of Commencement forcing Kermit & Co to serve Points of Dispute to the bill, which they serve on 1 May 2013. On 3 May 2013 Paye Cash & Praye serve Replies. On 4 May 2013 Paye Cash & Praye accept the Part 36 offer of £800. As the offer has been accepted within 21 days of it being made the Claimant is entitled to their costs of the new assessment proceedings up to the date on which notice of acceptance was served, including the period covering preparation of the new Replies.

Acceptance of the new Part 36 offer also creates a further deemed order for costs.

In reliance on the new deemed costs order Paye Cash & Praye serve a Notice of Commencement and new bill in respect of their further detailed assessment costs considering the Defendant’s Points of Dispute, drafting Replies and considering the Part 36 offer.

And so on, for ever.

Blindly incorporating Part 36 into detailed assessment was a terrible idea, unless you are a costs lawyer or law costs draftsman looking to make one case last you through to retirement.