Copy of A Round-Up of 2020 in Costs [Extended]
2020 has been a year without parallel. Whilst every year typically has defining moments, 2020 has produced so many paradigm shifting events that have affected the entire world. In these challenging times, those in the legal costs arena have been able to adapt quickly to support our clients, colleagues and opponents.
As a result of the hard work of the court staff and the ability to adjust shown by legal costs professionals, the courts were able to make a successful transition to remote video and telephone hearings, which are set to become of greater use in the Senior Courts Costs Office even after the coronavirus pandemic has passed.
The timely arrival of electronic filing in January 2020 meant that few hearings at the SCCO were adjourned despite some administrative delays, and the general consensus has been that detailed assessment hearings have worked much more efficiently where the receiving party has filed an electronic bundle of papers.
Overall, the legal costs industry was able to navigate with agility through a pandemic that has changed the way we live and how we connect with each other, at least temporarily.
Against the backdrop of the pandemic, 2020 produced some important procedural revisions in respect of qualified one-way costs shifting (QOCS) and the costs budgeting and management process, as well as a range of notable decisions on QOCS, costs budgeting, indemnity basis costs, hourly rates and retainers.
To round-up 2020 in legal costs, we have revisited the key costs decisions from each month over the last year, along with the procedural revisions of note.
The Court of Appeal ruled that QOCS covers appeals where it applies to the first instance proceedings. Lord Justice Baker interpreted the word "proceedings" in rule 44.13 as including both first instance proceedings and an appeal. He said this interpretation applied even where the court was dealing with a second appeal. Giving the ruling of the court, Baker LJ said “if a claimant's access to justice is dependent on the availability of the QOCS regime, that access will be significantly reduced if he is exposed to a risk as to the costs of any unsuccessful appeal which he may bring or any successful appeal a defendant may bring against him”.
The Court of Appeal ruled that the High Court was wrong to award costs on the standard basis and instead should have awarded costs on an indemnity basis following an unsuccessful professional negligence claim. The trial judge had applied the wrong test by considering that the claims were not hopeless; rather, he should have considered whether the respondents “knew or ought to have known that their claims were speculative/weak and therefore likely to fail”. The respondents’ failures to accept and beat the appellant’s Part 36 offer was a separate and standalone element of conduct that was out of the norm and separately justified an order for indemnity costs. The court also considered the gap between the appellant’s costs budget of £415,000 and her actual “eyewatering” costs of £724,265.63 and commented that “it could not affect whether or not the court should make an order for indemnity costs”.
A party that failed to file and serve its costs budget in time because it was not included in a list of agreed pre-case and costs management conference steps was granted relief from sanctions. The parties agreed a timetable of 19 pre-CMC procedural steps. The timetable did not mention filing and exchanging budgets. The oversight was “understandable”. The paperwork was all in order by the time the bundles were filed for the CCMC and, more importantly, the judge was able to hear full argument and rule upon both parties’ costs budgets at the hearing.
A circuit judge made a “highly unusual” and large third-party costs order against a claimant’s medical expert witness, whose “improper, unreasonable, or negligent conduct” caused the case to fail. The expert, who went on sick leave but failed to mention it to the claimant he was giving evidence for, was ordered to pay almost £89,000 to the defendant.
The defendant flatly refused to engage in ADR because it believed it had a strong defence and because “no purpose would be served by any form of ADR”. The claimant beat its own Part 36 offer made in December 2019 and would have, therefore, been entitled to costs on the indemnity basis from the date of expiry of that offer. However, instead the claimant was awarded costs on the indemnity basis from 25 February 2019, being the date on which the defendant refused to attend a joint settlement meeting.
Not spending the totality of the budgeted figure for a phase was not in itself a good reason to depart from the costs budget. District Judge Lumb disagreed with HHJ Dight’s ruling in Salmon, which concluded that if a party had not spent the totality of the budgeted figure for a phase, that amounted to a good reason to depart. DJ Lumb stated “if that approach was correct, virtually every case would go to detailed assessment and there would be a perverse incentive to a prospective receiving party to overspend and marginally exceed every phase in order to avoid a detailed assessment.”
The court in Brown v Commissioner of Police of the Metropolis & Anor  EWCA Civ 1724 considered the wording of paragraph 12.6 of Practice Direction 44 to be wrong and to require urgent amendment. The amendment changed the reference to proceedings being ones “to which rule 44.16 applies” [Exceptions to qualified one-way costs shifting where permission required] with a narrower and more accurate reference to proceedings to which one of two specific provisions in issue apply –
- Claims found to be fundamentally dishonest; and
- Proceedings including a claim which is made for the financial benefit of a person other than the claimant or a dependant within the meaning of section 1(3) of the Fatal Accidents Act 1976 (other than a claim in respect of the gratuitous provision of care, earnings paid by an employer or medical expenses).
The Court of Appeal held that a QOCS protected claimant in a personal injury matter was liable to have adverse costs set off against the costs order in her favour in the proceedings generally. The issue was whether a losing defendant in a QOCS protected personal injury case could set off against the costs of that action the costs order made in her favour (but on the face of it unenforceable) in a fixed costs/not fixed costs dispute in which she was successful. The Court of Appeal said the defendant could, holding that it considered itself bound by its own decision in Howe v Motor Insurers’ Bureau (No 2)  EWCA Civ 2523. The Court of Appeal has since urged the Civil Procedure Rule Committee to consider preventing defendants setting off costs in cases covered by QOCS. It also granted the claimant permission to appeal to the Supreme Court.
The Court of Appeal upheld a ruling from Master Rowley that the claimant’s solicitors had acted unreasonably in switching the funding from legal aid to a CFA. Coulson LJ noted that the claimant’s solicitors decided to move to a CFA-lite without instructions and there was no evidence that, had the litigation friend been advised about the features of CFA-lite, he would have chosen to switch. “On that basis, therefore, the appellant has not discharged the necessary burden of proof: she has not shown on the facts that the change to CFA-lite was reasonable.” The claimant’s success fee and ATE insurance totalling nearly £1.1m were not recoverable. The claimant’s solicitors have previously said they would look to appeal to the Supreme Court.
The High Court rejected the argument that a procedural timetable longer than expected in a large group action was good reason to revise the claimants’ costs budget upwards.
Master Brown concluded that an ‘underspend’ was not a good reason to depart downwards from a costs budget. However, he emphasised that there was a clear and obvious distinction between an ‘underspend’ and a situation where there was, at the very least, substantial non-completion of a budget phase. He found that, “at the risk of stating the obvious”, it would be unjust for a receiving party to receive the full amount of a budgeted sum in circumstances where only a modest amount of the expected work had been done.
A Calderbank offer to settle detailed assessment proceedings could be accepted once the hearing had begun as it had not lapsed at the start, the High Court ruled. The defendant could have made a part 36 offer, which the claimant would have needed the court's permission to accept, or a time-limited offer that was only acceptable prior to the hearing, but they chose not to.
On an application for relief from sanction, the second defendant, whose conduct of its case had been “outstandingly bad”, saw its costs budget limited to court fees after being late in submitting one for £110,000. The second defendant “failed or refused to recognise” the seriousness of its default.
The second defendant had placed a value of US$500 million on the claim. Master Rowley commented that the length of time since the guideline hourly rates were reviewed “has led to them becoming much maligned”. He observed that, despite the receiving party’s solicitors being located in Canary Wharf (Outer London), the presence of firms such as Skadden and Clifford Chance as well as many multinational financial institutions led to the conclusion that rates equivalent to those found in the City were more appropriate. Master Rowley also observed that litigation can command City rates in appropriate circumstances, guideline hourly rates are not intended to replace a more thorough consideration of appropriate hourly rates in detailed assessments and, in substantial claims, guideline rates are barely even a starting point.
Master Nagalingam rejected an application for relief from sanction from a claimant who failed to comply with the terms of a consent order. The order required him to pay £150,000 on account of costs that had been owing since 2015 by a specified date or be debarred from the detailed assessment proceedings. Debarring the claimant – rather than striking out the points of dispute or otherwise locking the claimant out of the detailed assessment process altogether – was “a measured sanction”.
The High Court ruled that a damages-based agreement can lawfully require a client who prematurely terminates the agreement to pay the solicitor for the time and disbursements incurred to that point. His Honour Judge Parfitt, sitting as a High Court judge, said Parliament would have been explicit had it intended lawyers not to be able to recover any fees on termination. The Court of Appeal has granted permission to appeal.
Senior Costs Judge, Master Gordon-Saker ruled that the 1% and 2% allowances for the costs of budgeting and costs management (under CPR 3.15(5)) do not include VAT.
Master James ruled three CFAs unenforceable for having the potential to lead to a claim for a success fee exceeding 100%. Each agreement included an Advance Fee of CAN$315,000, £1,000,000 and £300,000 respectively that would be retained win or lose, although credited against the fees due under the CFA in the event of a win. The CFAs were poorly drafted and said two conflicting things. They stated that the Advance Fee would be credited against future billing, but they also stated that it would be kept by the defendant win or lose. The latter was fatal to the CFAs. The Advance Fee meant that a final bill would have never been raised for lower than the amount of the Advance Fee, even if the matter had settled early when the time spent, plus success fee and disbursements came to less than the Advance Fee at the time. As a result, the CFAs breached section 58(4) of the Courts and Legal Services Act 1990 and were rendered unenforceable. It is understood the defendant has sought permission to appeal.
Master Whalan ruled that appointed deputies can recover hourly rates in the Court of Protection at 120% of the 2010 guideline hourly rates. Having considered calculations based upon inflation, salary evidence and other commercial factors, Master Whalan determined that, with immediate effect, "if the rates claimed fall within approximately 120% of the 2010 GHR, then they should be regarded as being prima facie reasonable". Master Whalan continued "this approach can be adopted immediately and is applicable to all outstanding bills, regardless of whether the period is to 2018, 2019 or 2020 or subsequently".
Costs incurred in attending an inquest were recoverable as costs in a subsequent action because the defendant had failed to make an appropriate admission within the meaning of the CPR. Shortly before the inquest into his death, the defendant’s solicitors advised that, whilst not admitting liability, their client was prepared to pay damages and would not seek to allege contributory negligence. The claimant’s solicitors insisted upon an open admission of liability on the basis that the willingness to pay compensation could be withdrawn at any time. No such admission was made prior to the inquest. The costs of preparing for and attending the inquest were therefore costs "of and incidental" to the claim.
The update introduced a new rule CPR 3.15A, which sets out a new process for revising and varying a costs budget. The new rule maintains the threshold test of “significant developments”; however, no further guidance was provided on what will amount to a significant development warranting a change.
The one addition to the Practice Direction concerns “oppressive behaviour”. The new paragraph 13 provides that “Any party may apply to the court if it considers that another party is behaving oppressively in seeking to cause the applicant to spend money disproportionately on costs and the court will grant such relief as may be appropriate.”
The update also introduced a new Precedent T to be used in the event of variation of a budget pursuant to rule 3.15A.
The High Court ruled that personal injury law firms need their clients’ informed consent to the deductions that will be made from their damages for outstanding costs, even if that liability is voluntarily capped when it falls due. It was the first time a court has had to decide whether a solicitor seeking to rely on CPR 46.9(2) has to show that the client gave informed consent to paying the solicitor more costs than it could have recovered from another party. The firm is seeking permission to appeal.
The Court of Appeal ruled that making one of the four enhanced awards of beating a part 36 offer does not “in any way” undermine or lessen entitlement to the others. It overturned the decision of a deputy High Court judge not to award enhanced interest on both the principal and indemnity costs, saying he had taken into account “irrelevant considerations”. “The rule provides for the successful claimant (in the terms of CPR 36.17(1(b)) to receive each of the four enhancements and there is no suggestion that the award of one in any way undermines or lessens entitlement to the others.”
The claimants’ application for a group litigation order had been refused on the basis that it was inadequate and premature, and the defendants sought their costs of the application. The claimants accepted that a costs order should be made against them but said QOCS applied and so the order should not be enforceable without the permission of the court. The defendants argued that no claim form had been issued and so there were no proceedings and QOCS did not apply. The question before the court was whether the word ‘proceedings’ in CPR 44.13 included claims which have not yet been issued. The judge found no reason why it should have a different meaning to the general definition contained in rule 7.2, which says “proceedings are started when the court issues a claim form at the request of the claimant”. It was held that QOCS did not apply to the pre-issue application.
Be sure to keep an eye out on our page for legal costs news throughout the remainder of this year, along with the appeals that will potentially be heard in 2021.
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