PRE-JACKSON COSTS REGIME HELD TO BE COMPATIBLE WITH THE EUROPEAN CONVENTION ON HUMAN RIGHTS

on Wednesday, 15 October 2014.

The Supreme Court has indicated that the pre-Jackson Costs Regime may breach the rights of paying parties.

Judgment has now been received in the matter of Coventry & Others –v- Lawrence & Another (2015) UKSC 50. The judgment was concerned with an attack on the compatibility of the European Convention on Human Rights with the system for recovery of costs in civil litigation in England and Wales following the passing of the Access to Justice Act 1999.

The case was originally concerned with private nuisance. The total damages at stake were at most £74,000. The losing party was ordered to pay 60% of the successful party’s costs which amounted to base costs of £398,000 with a 100% success fee and an ATE premium of approximately £350,000 giving a total bill of £1,067,000. The paying party was Ordered to pay 60% of this bill leaving a total liability of £640,000.

It was initially argued that the requirement to pay 60% of the success fee and ATE premium under the Pre Jackson Cost Regime was a breach of the Respondent’s rights under Article 6 ECHR and under Article 1 under the first protocol of the Convention, since the Court was public body and was under an obligation to exercise its discretion as to costs, according to the Convention. In the original judgment, Lord Neuberger stated that “the issue of whether the 1999 Act costs regime and in particular a Claimant’s rights to recover any success fee and ATE premium from an unsuccessful Defendant, infringes the Convention, is one which it is open to this Court to reconsider.” He then further stated that “it may be that the Respondents are right in their contention that their liability for costs would be inconsistent with their Convention rights”. Any determination by a Court that the provisions of the Access to Justice Act 1999 infringed Article 6 would have very serious consequences for the Government as litigants would have a claim for compensation against the Government for that infringement. The Supreme Court adjourned the issue of the Respondent’s contention that their liability for costs infringed their right under Article 6 of the ECHR for a further hearing after notice had been given to The Attorney General and The Secretary of State for Justice.

By a majority of 5:2, the Supreme Court held that the Access to Justice Act Regime was compatible with the European Convention on Human Rights. Lord Neuberger and Lord Dyson gave the joint leading judgment and Lord Mance gave a concurring judgment. Lord Clarke gave a dissenting judgment with which Lady Hale agreed. It was stated the issue was not whether the Access to Justice Act Regime had flaws but was whether it was a proportionate way of achieving the legitimate aims it pursued. These were to contain the rising costs of Legal Aid, to improve access to the Court for members of the public with meritorious claims and to discourage weak claims. He stated there was a powerful argument that the 1999 Act scheme was compatible with the Convention, simply because it was a general measure which was justified by the need to widen access to justice to litigants, following withdrawal of Legal Aid, was made following wide consultation and fell within the wide area of discretionary judgement for law makers to make. It was stated there was no perfect solution to the problem of how best to enhance the access to justice, following the withdrawal of Legal Aid for most civil cases.

Clearly the decision contains an element of political expediency, but this should hopefully now speed up settlement of costs claims, where Defendant’s representatives have refused to make offers in relation to pre April 2013 additional liabilities.

CRIMINAL JUSTICE AND COURTS ACT 2015

on Monday, 02 November 2015.

Section 57 of the Criminal Justice & Courts Act 2015 is a potential cause concern for Claimants and their Solicitors. This Act came into force on 13th April 2015.

This clause allows the Court to dismiss a personal injury claim if it is satisfied that the Claimant has been “fundamentally dishonest” during the case even where the Court finds that the Claimant is entitled to damages in respect of the claim. The Court must now dismiss the primary claim unless it is satisfied that the Claimant would suffer substantial injustice if the claim were dismissed. Where the Court dismisses the claim the Court must record the amount of damages the Court would have awarded to the Claimant in respect of the primary claim but for the dismissal of the claim. A Costs Order made by the Court which dismisses the claim may require the Claimant to pay costs incurred by the Defendant only to the extent that they exceed the amount of damages that the Court would have awarded. Therefore the “qualified one-way costs shifting” rules will not apply.

In the circumstances, we believe that Personal Injury solicitors need to advise their clients of this legislation and, if necessary, amend their client care letters. A clause needs to be added to the “Your Responsibilities” part of any CFA documentation to make sure than an entitlement to costs is preserved where a client has been “fundamentally dishonest”.

THE IMPORTANCE OF CANCELLATION NOTICES

on Monday, 02 November 2015.

The decision of Cox –v- Woodlands Manor Care Home (2015) EWCA Civ 415 has held that if a solicitor fails to give a client notice of the right to cancel an agreement, which was a CFA in this case, then it would be unenforceable and no costs could be recovered from the paying party due to the indemnity principle.

This decision was made on the basis of the Cancellation of Contracts Made in a Consumers Home or Place of Work etc Regulations (2008). These regulations have since been replaced by the Consumers Contracts (Information, Cancellation and Additional Charges) Regulations (2013). However, the general obligations under both sets of regulations are similar.

In the circumstances, it is vital that solicitors review their retainer documentation to ensure compliance with the regulations. We are finding that Defendant’s representatives are increasingly taking the point as to whether relevant notice has been given. The retainer documentation will need to be provided to the Court ahead of any assessment of costs.

COSTS BUDGETING PROBLEMS

on Tuesday, 05 May 2015.

Costs Budgeting continues to cause difficulties for Courts. Master David Cook of the Queens Bench Division has stated that the litigation system will “cease to function” unless radical changes are made to the cost budgeting process. He is of the opinion that the new Civil Procedure Rules came into force with little preparation for Barristers and solicitors and little training for Judges. There is no formal scheme for controlling pre-issue costs. In approximately 180 cost budget hearings overseen by Master Cook and his colleague Master Roberts, only a handful of budgets had been agreed by the parties. Defendants had a lack of confidence that they could challenge the final Bill of Costs once the budget had been set. Claimant’s solicitors simply wished to budget for every conceivable contingency in view of the fact that costs will not be recovered if they exceed the budget. Clearly these difficulties should have been foreseen when the Costs Budgeting process was implemented.

It is worth looking at a number of decisions which have recently arisen.

The case of Tim Yeo MP –v- Times Newspapers Ltd (2015) EWHC 209 (QB) dealt with the methodology of Costs Budgeting. Justice Warby heard 2 hours of oral arguments and gave guidance as to the Costs Management process.

Justice Warby concluded that he acknowledged Costs Management should not be a Detailed Assessment but that he should properly look at hourly rates and time spent as would be done on a Summary Assessment, distinguishing that approach from a Detailed Assessment. The Judge went on to reduce figures by approximately 25% as the solicitor’s hourly rates were too high and time was excessive. Ultimately, the guidance provides that:

  1. A substantive Costs Management conference should generally not be needed.

  1. Significant costs incurred prior to Costs Budgeting are outside the scope of the approval process, but the Court should take them into account to determine reasonable future costs.

  1. The general test is as to whether the overall totals for each phase are reasonable and proportionate. However, in order to assess the same, the Court will need to consider hourly rates and time to be spent.

  1. Contingencies should only be allowed where they are “more likely than not to be required”.

The Yeo decision relates to a libel case, but it is increasingly being adopted by the industry as providing guidance in all cases.

It is also worth considering the decision in the matter of Simpson –v- MGN (2015) EWHC 126 (QB). This was a defamation claim. The Claimant was seeking recovery of costs in relation to applications to list a matter for a preliminary issue. The Claimant included these costs in the Costs Budget as a contingency.

At the Directions Hearing, the Master declined to order a Preliminary Issue Hearing. However he specifically stated that neither party was precluded from issuing an application for a ruling on the Preliminary Issue. Despite this, the Master did not allow contingent costs for such an application when approving the Costs Budget. These costs were therefore not approved. Ultimately, a Preliminary Issue Hearing did take place, which was won by the Claimant. However the Claimant had failed to seek approval from the Court for the revised Costs Budget, to include costs of the hearings and failed to serve the Defendant with a Schedule of Costs for the purpose of the Costs Hearing. Therefore, the Claimant’s solicitors ended up with an order in which they were only entitled to 90% of costs which would have been approved as reasonable had the Claimant submitted his budget for approval ahead of the hearing. Ultimately, costs of the applications were reduced by 50% once deductions to time spent and hourly rates were considered.

This case raises a number of issues in relation to the use of contingencies and the approval of the same by the Courts. It may have been better for the solicitors to have simply not included any costs at all for this contingency within the Costs Budget, but simply worded the Costs Budget to state that it did not include the costs of any potential application and make reliance upon CPR Practice Direction 3E, Paragraph 7.9. This provides that costs of Interim Applications not included in any Costs Budget, should be treated as additional costs over and above those in the Budget, if it was reasonable for the party not to have included them. This decision calls into question the whole purpose of the use of contingencies on the Precedent H form as the solicitor had followed expressly the MOJ Guidance that contingent costs should be used for anticipated costs, which do not fall within the main categories set out on the form. The Guidance even states that an example may be the trial of Preliminary Issues.

FIXED COSTS NOT APPLIED TO EX POLITICAL CASES WHICH ARE ALLOCATED TO THE MULTI TRACK

on Thursday, 06 July 2017.

The Court of Appeal has handed down judgment in the matter of Qader -v- Esure (2016) EWCA Civ 1109.

This dealt with a situation where a case starts by going through the Portal but the case is subsequently allocated to the Multi Track. CPR 45 Section III A deals with claims which no longer continue under the RTA or EL/PL Pre Action Protocols. CPR Rule 45.29 did not expressly limit fixed recoverable costs to the Fast Track or even mention Multi Track at all. The wording of the rule appeared to apply the fixed recoverable costs scheme to any claim which commenced within the portal but subsequently exited the portal process.

In the Qader decision, the modest value claim was allocated to the Multi Track in view of fraud allegations. Initially a District Judge held that CPR Part 45 Section III A meant that only fixed costs were recoverable, despite the Multi Track allocation and the fact that the trial was expected to last more than 1 day. This was also upheld by the Circuit Judge on the first appeal.

The Court of Appeal has now determined that CPR Part 45 Section III A does not apply if the case is allocated to the Multi Track.

Subsequently CPR Part 45.29 B has been amended. It now states that “and for so long as the claim is not allocated to the Multi Track, if, in a claim started under the RTA Protocol, the claim notification form is submitted on or after 31st July 2013, the only costs allowed are ….”.

In the circumstances, this provides much needed clarity for Claimant’s solicitors.

BIRD -V- ACORN GROUP

on Thursday, 06 July 2017.

The Court of Appeal has now handed down judgment in the above decision. Thousands of cases have been stayed whilst this issue was resolved.

This decision concerned the application of fixed recoverable costs for claims which started under the RTA Protocol or the EL/PL Protocol, where the claim exited the portal before conclusion and Part 7 proceedings were commenced. A number of County Courts list the matter for disposal without formally allocating the same.

CPR Rule 45 Section III A sets out formally the level for fixed costs and the level of costs depends on the stage the claim settles at. Table 6B relates to RTA claims, Table 6C for EL claims and Table 6D for PL claims. Effectively there are 3 stages of the litigation which each provide for a different costs figure under the fixed costs rules.

The 3 stages are as follows:

  1. On or after the date of issue, but prior to the date of allocation under CPR Part 26

  1. On or after the date of allocation under CPR Part 26, but prior to the date of listing

  1. On or after the date of listing but prior to the date of trial

The Defendant’s representatives argued that as the matter had been listed for disposal prior to being allocated to track, the matter had not been allocated and therefore the fixed recoverable costs should be limited to those applicable to the post issue/pre allocation phase. The Claimant argued that the matter had been listed for trial and therefore the pre trial phase had commenced and therefore a greater level of costs was recoverable.

The Court of Appeal held that a disposal hearing fell within the definition of “final contested hearing” contained within CPR Part 45. The matter being listed for disposal rendered the Claimant entitled to costs applicable to fixed recoverable costs as per the 3rd stage. It was therefore possible to reach the final stage of fixed recoverable costs by bypassing earlier stages.

Clearly this is a beneficial decision for Claimant’s solicitors.

PROPORTIONALITY AND ADDITIONAL LIABILITIES

on Thursday, 06 July 2017.

A new proportionality test was introduced as part of the Jackson Reforms. The new test of proportionality under CPR Rule 44.3 (2) provides that “Where the amount of costs is to be assessed on a 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; and (b) resolve any doubt which it may have as to whether costs were reasonably and proportionally incurred or were reasonable and proportionate in amount in favour of the paying party”.

The rules do not mention the application of this new test to additional liabilities. However, a significant number of cases continue to run where additional liabilities continue to be recoverable as CFAs and ATE insurance policies were incepted prior to 1st April 2013. There are also a number of cases post 1st April 2013 where additional liabilities are still recoverable, such as insolvency cases where the funding arrangements were entered into prior to 6th April 2016, mesothelioma cases, publication and privacy cases and clinical negligence cases. The success fees remain recoverable in the first of those 3 examples and the ATE Premium relating to the insuring of the costs of obtaining own liability and causation reports remains recoverable in clinical negligence cases.

There have been numerous competing judgments in relation to how the new proportionality test applies to additional liabilities.

The matter of BNM -v- MGM Ltd (2016) EWHC B13 (Costs) was a matter in which the Claimant’s Bill of Costs totalling £241,817 was reduced to £167,389.45. The claim concerned a primary school teacher who had a relationship with a premier league footballer. She lost her mobile phone, which ended up in the hands of a national newspaper and therefore the Claimant brought proceedings seeking an injunction to restrain the paper from using or publishing confidential information taken from her phone, damages and an Order for delivery of any confidential information. The claim was concluded by a Consent Order at an early stage and damages were agreed at £20,000 plus costs. Master Gordon-Saker held that the new proportionality test applies to both base costs and any additional liability. However, this was a case in which the additional liabilities arose from funding arrangements entered into after 1st April 2013.

The case of King -v- Basildon & Thurrock University Hospitals NHS Foundation Trust (2016) EWHC B32 (Costs) was a clinical negligence claim with additional liabilities pre dating 1st April 2013. In this case, Master Rowley declined to follow the BNM decision. His reasoning was that under the old CPR Part 44, the definition of costs included additional liabilities. Under the new rules, additional liabilities were not included in the definition of costs. Therefore, as the new proportionality rules state that “Costs are proportionate” then additional liabilities can be excluded from that definition. Policy decisions were also advanced in that Parliament had preserved the recoverability of additional liabilities in run off matters.

If additional liabilities were aggregated with base costs in order to assess proportionality, then this would have the effect of making those additional liabilities irrecoverable.

This reasoning was also followed in the case of Murrells -v- Cambridge University Hospitals NHS Foundation Trust (2017) EWHC B2 (Costs). In this matter, it was stated that in many run off cases, the success fee would be fixed and it would therefore be odd if these sums were effectively reduced by the new proportionality test.

Ultimately, an appeal is due to be heard in the BNM decision later this year. Hopefully further guidance from the Courts will be provided.