Proposal to extend the fixed costs scheme

A consultation, that fixed costs (i.e. where the amount of costs recoverable at the end of a case is fixed by Rule rather than assessed by court) should apply to most civil cases worth up to £100,000, will end on 6 June 2019.

Clinical negligence cases and claims in the business and property courts are excluded from the proposals, but all other civil claims in the fast track are intended to come into scope. The proposals take forward recommendations made two years ago by Lord Justice Jackson, who advocated fixed costs for all fast-track cases and a new ‘intermediate track’ for certain claims up to £100,000. It is not proposed to bring forward a new track but it is proposed that the fast-track be extended.

As the MoJ considers that Part 36 works well (encouraging settlement by applying higher costs where an offer is made but not beaten at trial) it is proposed that there should be a 35% uplift on fixed costs in Part 36 cases.

Fixed costs at present

This may be an opportune time to recap the existing regime in Part 45 of the Civil Procedure Rules which provides for fixed recoverable costs in:

  • Section I – proceedings in which early judgment is entered
  • Section II  – costs only proceedings or approval of settlement in RTA cases where agreed damages do not exceed £10,000, and to which neither Section III nor Section IIIA applies
  • Section III – claims pursued under the Pre-Action Protocols for Low Value PI Claims in RTA and Low Value PI (Employers’ Liability and Public Liability) Claims.  Essentially, personal injury claims valued at up to £25,000.
  • Section IIIA – claims which started under the above protocols but exited them (because liability was not admitted) provided the claim is not allocated to the multi-track
  • Section IV  – proceedings in the Intellectual Property Enterprise Court
  • Section V – County Court claims conducted by officers of HM Revenue and Customs
  • Section VI  – which fixes the costs for fast track trials
  • Section VII – Aarhus Convention claims.

Third party funding – “Arkin” cap disapplied – Funder held liable for Defendants’ costs

Davey v Money and others [2019] EWHC 997 (Ch)

The Court considered the application of the “Arkin” cap to limit the extent of a non-party costs order.

The “Arkin” cap, from the Court of Appeal decision in Arkin v Borchard Lines Ltd [2005], limits the amount payable by a litigation funder to the other side to an amount equal to the sum funded. The basis of the “Arkin” cap is access to justice (i.e. by not deterring commercial funders) balanced against the competing principle that ‘costs follow the event’.

The Court disapplied the “Arkin” cap stating that, on the facts of the case, the balance between the principle that the successful party should have its costs, and enabling commercial funders to continue to provide finance to facilitate access to justice, should be struck differently than it was in Arkin.

The Court ordered the Funder to pay all of the Defendants’ costs on the indemnity basis from the date of the funding agreement.

While the “Arkin” cap has often been criticised as being too far in the favour of the funder it has, to date, been readily adopted by the commercial funding industry. This may now change.

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Issues-based costs order: only where an issue on which the successful claimant lost “so starkly stands out as being separate”

Canary Wharf (BP4) T1 Limited and others v European Medicines Agency [2019] EWHC 921 (Ch)

The Court considered whether it could make an issues-based costs order, i.e. an order in favour of the winning party in respect of issues won and countervailing in respect of issues lost.
The Court noted that in any litigation, but especially in complex commercial litigation, any winning party is likely to fail on one or more (often intertwined) issues. The Court found that “unless there is an issue which so starkly stands out as being separate and on which [the Claimant] lost, [it] should not make an issues-based costs order”.
The Court found only one issue which stood out so as to justify an issues-based order and, as a result, reduced the recoverable costs by 15%.

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Budgeting and Proportionality

Red & White Services Limited v Phil Anslow Limited [2018] EWHC 1699 (Ch)

Costs may be disproportionate where it will cost significantly more to fight than a party stands to recover. One test is whether the trial is likely to be an end in itself or merely part of the process of arguing who should pay (all or most of) the costs. Where costs exceed quantum it will often be the latter, and costs may be disproportionate.

While the dispute was not simply as to money, the claim having a higher value and greater significance than that shown only by the quantum of damages, the issues in the case did not justify disproportionate costs nor the very substantial differences between the parties’ budgets (a party’s disproportionately low budget is not an appropriate yardstick to assess another party’s higher budget).

The Judge considered the matters in issue and used his own experience to arrive at a reasonable and proportionate figure.

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Acceptance of Part 36 offer after end of relevant period (CPR 36.13(4)) – right to detailed assessment

Where a Part 36 offer is accepted after the end of the ‘relevant period’ the liability for costs must be determined by the court unless the parties have agreed the costs[. The effect of this is that the parties must agree a consent order dealing with costs or the court will need to make an order. Conversely where a case settles within the relevant period a deemed costs order arises (CPR 44.9(1)(b)).

It is the cost order, whether made by court, by consent or deemed, which gives rise to the right to detailed assessment (CPR 47.7). Therefore, when a claim settles after the expiry of the relevant period there is no automatic costs order on settlement and, unless the parties agree a consent order, the receiving party will need to apply for a cost order before commencing detailed assessment.

An interim bill can be a statute bill even though it only includes profit costs or disbursements, and not both

Richard Slade and Company Solicitors v Boodia and Boodia [2018] – EWHC Civ 2667

The Court of Appeal held that a solicitor’s invoice could be an interim statute bill for the relevant period, even though it did not contain disbursements incurred during that period. As a matter of practicality and policy, it was unsatisfactory for a solicitor to be unable to issue a statute bill until it had been invoiced for all disbursements incurred during the relevant period which left the solicitor dependent upon third parties, such as experts and counsel, to raise invoices.  

While a client needs sufficient information to determine whether to exercise the right to assess the bill, a bill containing profit costs only would not necessarily fail that test.

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Success fee – it is not necessary to undertake a risk assessment and/or charge success fee in line with prospects of success, but the solicitor must explain the calculation of success fee

Herbert v HH Law Limited [2019] EWCA Civ 527

The CFA contained a 100% success fee capped at 25% of damages. Post-settlement Ms Herbert challenged the CFA on the basis that the solicitor had not conducted a risk assessment. The Court of Appeal considered whether it is necessary to undertake a risk assessment and charge a success fee in line with the prospects of success.

The Court of Appeal found that, as a success fee is traditionally calculated by reference to risk, if a solicitor charges a success fee on a different basis, the solicitor must (1) explain why the success fee is calculated in that (different) way and (2) be clear that risk plays no part in the calculation. (3) The solicitor must tell the client that the success fee is irrecoverable from the opponent and must be paid by the client. If a client has been told these things it will amount to informed consent.

An interim bill can be a statute bill even though it only includes profit costs or disbursements, and not both

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Unreasonable and Improper Conduct – Solicitor Remains Responsible for the Detailed Assessment Process

Gempride Ltd -v Bamrah [2018] EWCA Civ 1367

The Court of Appeal handed down a ruling on the conduct of detailed assessment proceedings, which one of the lawyers involved described as a ‘watershed’ moment.

The Claimant (who was a personal injury solicitor herself) tripped over a doorstep while visiting a client.  The Claimant’s own firm of solicitors acted for her in the litigation.  A bill of costs was subsequently drawn and certified by the solicitor.  It was found that the bill of costs was claiming rates in excess of those that had been agreed in the funding documentation.  In the Replies to the Points of Dispute, the Claimant averred that there was no BTE Insurance available, however it was found there was in fact BTE available.

The Court of Appeal ruled that even though the Claimant was not found to be acting dishonestly, the conduct was regarded as something more than an honest mistake.  The salient point of this judgment was that the authorised persons certifying the bill of costs has ultimate responsibility for the acts and omissions of those to whom they delegate parts of the conduct of litigation.  Consequently, the Court disallowed half of the profit costs within Part 1 of the bill.

Interim Payments on Account of Budgeted Costs – Case Update

Cleveland Bridge UK Ltd v Sarens (UK) Ltd [2018] EWHC

In this case the Court allowed a 90% interim payment upon the budgeted costs but made a final decision of 70% for an interim payment overall when taking into account the incurred costs element of the matter. The Judge went on to say that, “Accordingly in my Judgment, a reasonable sum in respect of incurred costs will often be one that is an estimate of the likely level of recovery, subject to an appropriate margin to allow for error”.