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Costs Bulletin for January 2017

As the Christmas decorations are put away for another year and the unfortunate yuletide trees are dispatched for recycling or worse, thoughts turn to the developments we can expect in 2017 in Costs Law and Practice.

In the last bulletin of 2016, we said a lot about Fixed Costs and of Lord Justice Jackson’s brief to write a report by 31 July 2017 into the possible extension of this regime. No more to be said here, except that the consultation period is still open and Sir Rupert will accept submissions until 16 January 2017 (send them to fixed.costs@judiciary.gsi.gov.uk).

And for the rest of 2017? How are the Jackson reforms faring?

Remember his terms of reference? They were:

“To review the rules and principles governing the costs of civil litigation and to make recommendations in order to promote access to justice at proportionate cost” (Final report published December 2009 – Executive Summary).

His recommendations?

“Conditional Fee Agreements (‘CFAs’) … I recommend that success fees and ATE insurance premiums should cease to be recoverable from unsuccessful opponents in litigation. If this recommendation is implemented, it will lead to significant cost savings, whilst still enabling those who need access to justice to obtain it. It will be open to clients to enter into ‘no win, no fee’ (or similar) agreements with their lawyers, but any success fee will be borne by the client, not the opponent” (Major recommendation 2.1 and 2.2).

And proportionality?

“If a judge assessing costs concludes that the total figure, alternatively some element within that total figure, was disproportionate, the judge should say so … In my view, that disproportionate element of the costs cannot be saved, even if individual items within it were both reasonable and necessary … In other words, I propose that in an assessment of costs on the standard basis, proportionality should prevail over reasonableness” (Report: 5.12–5.13)
“I recommend that ‘proportionate costs’ be defined in the CPR by reference to sums in issue, value of non-monetary relief, complexity of litigation, conduct and any wider factors, such as reputation or public importance; and that the test of proportionality should be applied on a global basis” (Report: 6.1)

So how is it all going seven years on? Under the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO), success fees and ATE premiums ceased to be recoverable from unsuccessful opponents in most types of litigation as the report had recommended (privacy, mesothelioma and until April 2016 insolvency are the exceptions) and a new rule 44.3(5) was implemented on 1 April 2013 to make standard costs proportionate via a new proportionality test to replace Lownds v Home Office. Accordingly, for almost four years, the full majesty of the Jackson reforms have been in place so it is not unreasonable to suppose that we should now be reaping the benefits that Sir Rupert predicted would follow when he wrote his report eight years ago.

Before taking a look at the current state of play, it is worth recalling what the Court of Appeal said about CFAs and the “Costs War” in the “noughties”:

“The Parliamentary purpose is to enhance access to justice, not to impede it and to create better ways of delivering litigation services, not worse ones. These purposes will be thwarted if those who render good service to their clients under CFAs are at risk of going unremunerated at the culmination of the bitter trench warfare which has been such an unhappy feature of the recent litigation scene.” (Brooke LJ – Hollins v Russell [2003] 3 Costs LR 423, para 224)

Against this background, how are the reforms working? First conditional fee agreements. This is what Sir Rupert and the Court of Appeal can expect in 2017.

(1) Can a CFA be assigned? The problem: your firm signed a CFA with your client pre–1 April 2013. After that date, the case needed to be handled by a different firm (the circumstances in which that might happen are multifarious – on the insolvency of firm one, on the death of the client, on merger, on the case handler moving from old firm to new firm etc). You say that the mechanics of doing that can be achieved by an assignment under which the new firm will act under the terms of the original CFA so that, upon a win, the success fee and ATE insurance premium remain recoverable from the unsuccessful opponent and are not struck down by LASPO. Not so, says the opponent. First, a personal contract such as a CFA cannot be assigned as a matter of law: second, even if it can, your CFA was terminated when the client gave instructions to the new firm. When that happened, there was a novation of the contract, not an assignment and the success fee and ATE premium cannot be recovered. Who is right? The Court of Appeal is hearing Budana v Leeds Teaching Hospitals NHS Trust on 4 July 2017, upon the outcome of which the validity of thousands of assignments and sums in the millions of pounds turn.

(2) Moving a client from legal aid to a CFA made shortly before 1 April 2013 (part 1). The problem: clients paying their solicitors by public funds and then moving to CFAs before LASPO came into force, thereby incurring additional liabilities (success fees and ATE insurance premiums) which, upon success, are then visited upon losing NHS Trusts. Under legal aid, there would be no such costs to pass on and where the clients had not been told that by moving, they would lose the 10% additional damages under Simmons v Castle, were these reasonable costs to pass on to the unsuccessful opponents? No said the costs judges. Yes, said Foskett J in conjoined appeals in Surrey v Barnet Hospitals NHS Trust [2016] 4 Costs LO 571. A decision on permission to appeal on the papers is awaited.

(3) Moving a client from legal aid to a CFA made shortly before 1 April 2013 (part 2). The problem: work authorised under the certificate having been completed with an application to extend legal aid still pending, the client signed a CFA to cover the imminent next stage of the proceedings. Since the legal aid certificate had not been discharged, did this arrangement infringe the rule that you cannot concurrently have public funding and be a privately paying client? The costs judge and Soole J said it did not matter and the CFA was valid. The Court of Appeal will decide if they are right when the case floats on 4 or 5 April 2017.

(4) Can you rectify defects in a CFA? The problem: costs for work done outside the scope authorised within the CFA (summary judgment and a counterclaim) was held to be irrecoverable: only costs for the procedural work mentioned could be recovered from the unsuccessful opponent. Once the costs order had been made at trial, it is too late to rectify the CFA by deed; so said Warby J in Radford v Frade [2016] 4 Costs LO 653. Or is it? The Court of Appeal will decide “by 30 October 2017”.

(5) Cancellation notices and CFA signed at home or out of the office. The problem: clients signed CFAs at the local community centre because the office was not big enough to house them all. No notice given. Breach of the Cancellation of Contracts made in a Consumer’s Home or Place of Work Regulations 2008 rendering the CFAs unenforceable? No said Slade J in Kupeli v Cyprus Turkish Airlines [2016] 3 Costs LO 365. Had it been practicable to do so, the meeting would have taken place in the solicitor’s office. Will the Court of Appeal agree? Decision time is on July 2017.

(6) Reasonableness of entering into an ATE Insurance policy. The problem: when is it reasonable to take out an ATE policy? The district judge came to one view; it wasn’t on the facts: the circuit judge on appeal said it was: McMenemy v Peterborough & Stamford Hospitals NHS Foundation Trust. Who was correct? Attend the visitors’ gallery in the Court of Appeal on 5 June 2017 for five hours and find out.

(7) Now proportionality. How is the “new ”test to be applied? There are rival views. View 1: the detailed assessment of standard basis costs is carried out line by line to decide whether each item is reasonable, necessary and proportionate. View 2: the line by line assessment proceeds to identify reasonable and necessary items. Upon completing that task, the court stands back, looks at the resulting figure, and, if it is disproportionate by reference to CPR 4.3(5), takes more off. How dramatic that can be was illustrated in litigation concerning Queen guitarist Brian May. Writing in the Times, he complained that:

“The upshot is that by trying to obtain some kind of compensation, I spent £208,000, received £25,000 in damages plus a derisory £42,000 in costs and so I end up being out of pocket on the whole thing by about £141,000. Where’s the proportionality in that? Where’s the justice? This absurd proportionality rule makes it impossible for any abused party to protect himself … What was in the mind of the people who introduced this ridiculous rule of proportionality?”

The answer was to have been given by the Court of Appeal in BNM v MGN [2016] 3 Costs LO (Lower Courts Supplement) 341, fast tracked on appeal from the Senior Costs Judge, but the matter has been put on hold pending decisions by the Supreme Court as to whether success fees are incompatible with the rights of freedom of expression under Article 10 of the European Convention on Human Rights, and so are irrecoverable – Miller v Associated Newspapers Ltd [2016] 2 Costs LR 195 Mitting J and Eight Representative Claimants v MGN Ltd [2016] 3 Costs LO 413 (Mann J). Until those cases are heard, Brian May will have to wait for his answer.

That leaves just two appeals not arising out of the Jackson Recommendations!

(8) Lowin v W Portsmouth & Co [2016] 5 Costs LO 719 (awaiting decision on permission). On provisional assessment, an effective offer under Part 36 displaces the fixed costs regime so receiving party who beats his own offer is able to claim the benefits under CPR 36.17(4)(c), namely an additional 10% of the assessed costs, costs of the assessment on the indemnity basis plus enhanced interest, so held Laing J. The losing party hopes that the Court of Appeal will say she was wrong.

(9) EMW Law LLP v Halborg [2015] 4 Costs LO 427. Listed for a 22 March 2017. Is a firm of solicitors which is an LLP, a litigant in person and therefore limited to £19 an hour?

So much, then for promoting access to justice at proportionate cost. With seven prospective appeals arising directly from the Jackson Recommendations, far from the reforms having achieved this, we now appear to be back to the trench warfare about which Brooke LJ complained 15 years ago. At least there will be no shortage of cases for us to publish in Costs Law Reports!

The headnotes and full texts of the cases below are available to online subscribers at www.costslawreports.co.uk. Follow Costs Law Reports on Twitter to be notified of new cases as soon as they are published.

New cases this month

The Council of the Borough of Milton Keynes v Viridor (Community Recycling MK) Ltd [2016] 6 Costs LR 1041: CPR 19(2): consideration of the court’s power to join a party as defendant against the claimant’s wishes thereby making the claimant potentially liable for the costs of the new defendant.

Actavis Group PTC EHF and Others v Icos Corporation and Another [2016] 6 Costs LR 1051: The court’s approach to the award of costs where a claimant succeeds in challenging the validity of one patent, but has lost on another found to be valid and infringed.

Pittville Ltd v Hunters & Frankau Ltd and Another [2016] 6 Costs LR 1059: Relief from sanctions against the breach of an unless order to provide security for costs; variation of an order for security on the grounds of a material change in circumstances to enable that security to be given by an after the event insurance policy.

Wes Futures Ltd v Allen Wilson Construction Ltd [2016] 6 Costs LR 1083: CPR 36.13(1); whether adjudication costs were recoverable inter partes: consideration of the costs consequences of a compromise reached between the parties.

Distinctive Care Ltd v The Commissioners for Her Majesty’s Revenue & Customs [2016] 6 Costs LR 1091: Rule 10 of the Tribunal Procedure (FTT) (Tax Chamber) Rules 2009; tribunal’s jurisdiction to award costs.

Amey LG Ltd v Cumbria County Council [2016] 6 Costs LR 1113: Court’s discretion as to costs under CPR 44.2 following a trial of a claim and counterclaim which had succeeded in part but not in full; whether proportionality in CPR 44.3 is to be taken into account in the exercise of that discretion.

Sony Communications International AB v SSH Communications Security Corporation; SSH Communications Security Corporation v Sony Mobile Communications AB and Others [2016] 6 Costs LR 1141: Summary assessment of trial costs on the basis of costs budgets managed by the court under CPR 3.15(3); circumstances in which a party can exceed its costs budget where prior approval not given.

Holyoake and Another v Candy and Others [2016] 6 Costs LR 1157: Circumstances in which a defendant who has withdrawn a security for costs application made under CPR 25.3(2)(c) might be entitled to make a second application without giving rise to an abuse of process.

Octoesse LLP v Trak Special Projects Ltd [2016] 6 Costs LR 1187: Litigant in person costs: whether costs incurred by claims consultants assisting a litigant in person are recoverable in adjudication enforcement proceedings.

Harlequin Property (SVG) Ltd and Another v Wilkins Kennedy (a Firm) [2016] 6 Costs LR 1201: Liability for costs of action under CPR 44.2 where the claim of the second claimant had been dismissed in its entirety but that of the first claimant had succeeded on one sizeable issue: deciding who had been the successful party under CPR 44.2(2)(a); payment on account.

Barkhuysen v Hamilton [2016] 6 Costs LR 1217: Costs following the event of a trial for damages for false imprisonment, slander and harassment; reasons for refusing to make an issue-based costs order; factors to take into account when awarding costs on the indemnity basis; consequences under CPR 36.17(4)(a)–(d) of beating an offer under Part 36; permitting costs above the costs budget.

Bloomsbury Law v MacPherson [2016] 6 Costs LR 1227: Proceedings under the Solicitors Act 1974; factors to take into account when making an order for delivery of a final bill to enable the client to know whether or not to seek an assessment under the Act.

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