The 109th Update to the Civil Procedure Rules implements an amendment, effective from 1 October 2019, to Paragraph 7.4 of Practice Direction 3E.
By substituting the words “before the date of any” with “up to and including the date of the”, paragraph 7.4, will now read:
“As part of the costs management process the court may not approve costs incurred up to and including the date of the costs management hearing. The court may, however, record its comments on those costs and will take those costs into account when considering the reasonableness and proportionality of all budgeted costs”.
The effect of the change is to draw a line between costs up to and including the CCMC (all such costs being incurred costs) and costs to be incurred after that date (budgeted costs). Formerly this line was drawn in a different place: incurred costs (subject to detailed assessment) were all costs up to the date of the budget; budgeted costs ran from that date.
The former position was, in a sense, simpler as incurred time ended on the date on which the budget was drawn. There was no need to estimate costs between the budget and the CCMC.
In practice what this change is likely to mean is that:
i. budgets, prepared significantly ahead of a CCMC (for example, when the budget is filed with the directions questionnaire), will need to be updated before the CCMC; and/or
ii. budgets in higher value cases, to be filed and exchanged 21 days before the CCMC, should be produced, where practicable, as close to the hearing as possible; and
iii. it will now be necessary to estimate (and treat as incurred) the work between the budget and the CCMC.
In respect of (ii) above, there are obvious (and potentially very serious) risks with leaving this too late and therefore early discussions between solicitors and costs lawyers will be crucial.
The amount by which a Claimant beat its own Part 36 offer is irrelevant
In JLE (A Child by her Mother and Litigation Friend, ELH) v Warrington & Halton Hospitals NHS Foundation Trust [2019] EWHC 1582 (QB) the successful claimant served a bill of costs for £615,751 and then made a Part 36 offer to accept £425,000. The offer was not accepted. On assessment the Claimant beat her offer by £7,000.
The Rules provide that where a Claimant beats her Part 36 Offer the court must, unless it considers it unjust to do so, order that the Claimant is entitled to (a) interest; (b) costs on the indemnity basis from the expiry of the offer; (c) interest on those costs and (d) an additional amount, not exceeding £75,000, calculated by applying 10% to the sum awarded by the Court (CPR Part 36.17(4)(a)-(d)).
At first instance the Master awarded the sums provided for in CPR 36.17(4)(a)-(c) but held that it would be unjust to award the additional amount, that is the uplift on damages or, in this case, costs, under CPR 36.17(4)(d) which, the Master said, would result in a disproportionate “bonus” of c. £40,000.
That decision was appealed.
It was held that, when considering injustice, the court may find it unjust to award some of CPR 36.17(4)(a) – (d), but not all. However, it is not open to judges to take into account, in the exercise of their discretion, the amount by which a Part 36 Offer had been beaten. Taking into account the significance of the 10% uplift (c. £40,000) relative to the margin by which the offer was beaten (£7,000) was an error of law. The additional award of 10% should not be characterised as a “bonus”. It is not meant to be compensatory. It is supposed to include a penal element when a Claimant had made an offer which it matched or bettered.
There is no power to award a lower percentage than the 10% prescribed by CPR 36.17(4)(d). The language of the rule makes it clear that the uplift is all (i.e. 10%) or nothing.
Another case in which the Court rejects comparison between each sides’ costs
In Monex Europe Limited v Pothecary and Kaufman [2019] EWHC 2204 (QB), following the refusal of an application for an injunction against the Defendants, costs against the Claimant fell to be summarily assessed. The Defendants’ costs, of c. £85k, were nearly twice that of the Claimant, of c. £44k. The Claimant, claiming to have borne the burden of the application, said that, as compared with their own, the Defendants’ costs were unreasonably high.
The Judge rejected the comparison approach: “it is not appropriate for the Court simply to compare the two sets of costs and say that the Defendants’ costs were disproportionate because they were greater, or that elements of them were greater, than that of the Claimant. It is necessary to look at the specific items for which costs are claimed”.
The Claimant was ordered to pay £74k (87% of the claimed costs) to the Defendants.
Lawyers avoid non-party costs order
In Willers & Joyce & Ors [2019] EWHC 2183 (Ch) the Court dismissed an application to fix the Lawyers with a non-party costs liability.
The case followed an initial unsuccessful claim (“the Langstone action”) brought by Mr Gubay (“G”) against Mr Willers (“W”). W was awarded costs which were settled a c. £1.5m leaving a shortfall of c. £2m. Of the shortfall c. £1m was attributable to the costs of W’s solicitor (“S”) in the Langstone action and c. £500k each to Leading and Junior Counsel (“L” and “J”).
W brought proceedings against G’s estate (G having died) alleging G had maliciously prosecuted the Langstone action against him. One of the heads of damages was the c. £2m shortfall in costs.
When W’s malicious prosecution claim was lost, G’s executors sought to add S, L and J (“the Lawyers”) as defendants for the purposes of costs on the basis that the Lawyers were the real parties to the claim because the principal purpose of the claim was the recovery of the Lawyers’ unpaid fees. This “direct, personal financial interest” was said to go further “in a significant way” than the interest that any lawyer has in a successful outcome for their client under a CFA.
The Judge, noting the key question is “whether [it makes a difference that] the … damages claimed … included a substantial amount of money still owed to [the Lawyers] from the Langstone Action”, concluded that the Lawyers had not acted outside the role of legal representatives to such an extent as to bring themselves within the non-party costs jurisdiction.
In reaching the decision the Judge considered that the risk of a non-party costs order would, in many instances, force a party to instruct new lawyers, who may not understand the case as well as the former lawyers, and who would cost more to get up to speed. Such consideration may not apply to the other side leading to unfairness.
Further, there are many scenarios in which damages claimed in second proceedings include unpaid costs incurred in first proceedings. For policy reasons, including access to justice, lawyers should, generally, be protected from non-party costs applications in such cases.
Press Release: Panel Success for Phoenix Legal Services
Phoenix Legal Services is featured on Business Live and in Western Mail Business Wales today as we celebrate our success in winning a place on the Crown Commercial Services panel for legal costs services. Here is what Business Live had to say about us:
‘A Cardiff law firm is expected to double in size after securing panel status with Crown Commercial Service.
Phoenix Legal Services believes the contract has a potential value of up to £4m and increase the staffing levels to 34 in the next two years.
Phoenix was created in 2003 by Stephen Averill and is the only Welsh company to win a place on this national framework, achieving panel status following a tendering process. The firm offers costs management and recovery.
CCS is the largest public procurement organisation in the UK, playing a role in helping the UK public and third sectors save money when buying common goods and services – everything from locum doctors and laptops to police cars and electricity.
CCS is free to use for public and third sector organisations, and in 2017/18 CCS helped 17,000 buyers save £601m of public money using CCS commercial agreements.
Mr Averill said: “When I set up Phoenix I wanted to stand out from the competition, with an ethos of nurturing and supporting the individuals in my team and making them feel valued.
“It’s testament to their skills and commitment that we have achieved this prestigious panel status, a game changer for us, and we can now all look forward to significant future expansion with real confidence.”’
You can see the article here
No revision of budget absent significant developments
Seekings & Ors v Moores & Ors [2019] EWHC 1476 (Comm)
The Defendant applied to increase its budget by £130,000 citing ‘significant developments’ in the action.
Budgets were agreed ahead of the CCMC, at which time the Claimant had already served Requests for Further Information (“RFIs”). The initial replies to the RFIs were not deemed satisfactory and subsequently became the subject of interim applications brought by the Claimant.
The Defendant’s application was made on the basis that (i) significant costs had been incurred in addressing the RFIs and (ii) that a greater than anticipated number of documents had been produced.
The Judge found no significant development in the proceedings. The RFIs preceded, and were therefore anticipated within, the budget. In addition, the crux of the application was that the Defendants had failed adequately to reply to the RFIs (on more than one occasion, resulting in adverse costs). It followed that the Defendant could not recover their costs of the applications relating to their failures to reply to the RFIs.
The Judge also refused the application for revision in respect of the additional disclosure documents as these were the Defendant’s own documents. The Defendant should have reasonably anticipated the extent of its own disclosure.
This case reaffirms that it is inconsistent with the overriding objective to allow parties to amend budgets because they have overlooked something or erred in estimations, or where the case develops in a way that should have been foreseen.
Budget that included overstated hourly rate was “improper”
MXX v United Lincolnshire NHS Trust [2019] EWHC 1624 (QB)
The Claimant’s solicitor overstated their hourly rates in their costs budget. Following the conclusion of the matter the Defendant applied for a sanction under CPR Part 44.11. In the SCCO the Costs Judge held that it was improper:
- to include incurred costs in a budget comprising anything other than time multiplied by agreed rates; and
- to claim more than a client was obliged to pay.
However, the Costs Judge did not accept that failures to revise the budget before or at the CCMC were further acts of improper conduct.
The Defendant appealed and six of nine grounds of appeal succeeded. The consequence is that the Master carrying out the detailed assessment will now decide whether the substantial overstatement of the hourly rate in the budget is a ‘good reason’ (within the meaning of CPR 3.18) for departing from the budget so as “to correct any injustice caused by [the] improper conduct”.
A further affirmation of the “high bar” for “exceptional circumstances”
Hammond v SIG plc & Subsidiary Companies [2019] EWHC B7 (Costs)
The claim started in the portal and was subsequently resolved under Part 36. The SCCO found that the Claimant was entitled to fixed costs only despite arguing for an ‘escape’ from fixed costs under CPR 45.29J (i.e. “exceptional circumstances”).
The case is notable because the SCCO cited only one authority in which exceptional circumstances have been made out: “The only finding of exceptional circumstances produced by either party, notwithstanding the very substantial number of cases that are taken through the Portal each year, was … Jackson v Barfoot Farms, an unreported decision … and which is helpful if only as a contrast to the case before me. That particular case proved (as the Judge found) to be very complicated and settled for some £350,000. I would respectfully agree … that that case was indeed exceptional, but none of those considerations apply here”.
This case affirms what we already know: that the test of exceptionality is indeed a high bar.
Significant developments and good reasons
Click here to view the full text of our July “Costs Alerter” in which we consider how a party may (or may not) revise and/or depart from an approved or agreed budget.