Kain Knight Case Law Update April/May 2018
It has been a sunny spring, yet it hardly seems any time since we opened our Costs Case Law Update with a reference to the “Beast from the East”. However, if the weather is a constant source of discussion, one area which it does not affect is the relentless outflow of costs cases from the courts. April and May have been no exceptions and interestingly, in this Costs Case Law Update, we can report the delivery of several “twins”, that is to say cases which are on the same point. As always, we do not highlight every case, only those which are likely to be of practical significance, but if you would like to discuss these or indeed any other cost judgments, please do not hesitate to contact Matthew Kain at [email protected] or Colin Campbell at [email protected].
The Solicitor’s Equitable Lien
This is our first “twin”!
Suppose you are a firm of solicitors acting for a large number of clients against a common foe. In each matter, the claim is funded by a Conditional Fee Agreement “Lite” and the opponent is aware of that fact. Contact is then made by the opponent direct with your client, with promises that if the claim is settled without involving your firm, the compensation will be higher and paid more quickly, since anything relating to your firm’s fees can be excluded. With the twin inducement of a speedier settlement and a more generous payment, and without any suggestion of any collusion to cheat you out of payment, your client settles direct, leaving you with nothing for your fees.
Do you have a remedy against the opponent?
Equitable jurisdiction going back centuries indicates that you do. In Read v Dupper (1795) Lord Kenyon explained the existence of the Solicitor’s equitable lien:
“The principle by which this application is to be decided was settled long ago, namely that the party should not run away with the fruits of the cause without satisfying the legal demands of his attorney, by whose industry, and in many instances, at whose expense, those fruits are obtained”.
In the modern world, our twin cases explain how the principle is to be applied with differing results.
In Gavin Edmondson Solicitors v Haven Insurance Co Ltd  2 Costs LR 347, Edmondson had acted for numerous claimants who had been injured in minor road traffic accidents. In each case, notification of the claims had been given to Haven as the tortfeasors’ insurers using, the Road Traffic Accidents Portal. Haven had then contacted the claimants, informing them if they settled direct, the damages would be more generous than would be the case if the matter went through Edmondson because they would insist on payment of their fixed costs. Many such claims were settled this way with the result that Edmondson went unpaid.
In the Supreme Court, there were two issues (1) whether Haven had notice of Edmondson’s interest in the outcomes of the claims and (2) whether or not Edmondson had a contractual entitlement to its fees under the CFA “Lites”.
Edmondson succeeded on both points. Lord Briggs held that by the time that Haven had paid the settlement monies, it had known that each of the claimants had retained Edmondson under a CFA, since that had been apparent from the Claim Notification Form which the firm had placed on the Portal. In addition, the CFA had preserved and affirmed the basic contractual liability between solicitor and client to the full extent necessary to form the basis of a claim to an equitable charge as security over the fruits of the litigation. Thus Edmondson was entitled to enforce a lien against Haven by requiring it to pay the fees in the CFAs direct to the firm up to the amount of the agreed settlement payments in each case.
Lucky Edmondson which had lost at first instance!
Now contrast Bott & Co Solicitors v Ryanair  EWHC 534 (Ch) in which Bott acted for numerous claimants involving thousands of flight delay compensation claims under CFAs. Until 16 February 2016, Ryanair dealt direct with the firm. Thereafter it resolved such claims either direct with Bott’s clients or via its own compensation scheme under which delayed passengers are asked to contact the carrier before “considering other means to seek redress”.
As Edmondson had done, Bott sought to assert a solicitor’s equitable lien over the settlement sums on the basis that its letter before action in each case was sufficient notice of the claim to Ryanair.
Ryanair contended that the lien could only attach to the “fruits of litigation”: there could be no lien over the fruits of mere negotiation.
Ryanair won, Mr Edward Murray QC holding that there needed to be a “fund in sight” as a fruit of litigation or arbitration and that the Bott claims model was not a formalised scheme sanctioned by the judiciary, as was the case with the RTA Protocol. Accordingly, equity would not intervene to extend the lien over the settlement funds in order to secure the firm’s fees.
The lesson to be learned? For the equitable lien to be of any use to solicitors, the fund over which it is to attach must be secured through litigation: a letter before action followed by no action, as was the case in Bott, will not do.
Discontinuance under CPR 38: who pays?
Our second twin!
The default rule is that the party who discontinues pays the costs- CPR 38.6(1), but within the space of a week, two judgments have departed from the rule.
Ashany v Eco-Bat Technologies  EWCA Civ 1066 is a useful authority since it sets out the principles and then departs from the default rule, so that the defendant recovered its costs for 17 rather than the full 21 months during which the proceedings were ongoing. The principal reason for that was that the claim had been started because the claimants wanted copies of a relevant e-mail and, according to the judgment “… had been frustrated, over many months, in their attempts to obtain copies of it” and that the conduct of the defendant over a particular period had been unreasonable. In another period, both parties’ conduct had been unreasonable, and no order for costs in that period was appropriate, so due to its unreasonable conduct overall, the defendant, lost out on a significant chunk of the costs that it would otherwise have recovered.
Likewise in Harrap v Brighton & Sussex University Hospitals NHS Trust  EWHC 1063 (QB) Lambert J was persuaded to depart from the default rule. This was discontinuance on the third day of the trial due to the emergence of new evidence during cross-examination which had justified such a departure. That had concerned the defendant’s consultant cardiologist’s oral evidence which had never featured in his witness statement but was fatal to the claimant’s case on causation. As a consequence, the claimant had been confronted with a new factual scenario in respect of which he had no effective means of challenge. The witness had been inadequately proofed and by oversight, salient details had been omitted from the witness evidence. That failure to set out the full story had been unreasonable and no explanation for the absence of the evidence had been provided by the defendant at any stage. Accordingly, the default rule was varied, on the basis that there would be no order as to costs from the date of exchange of witness statements.
Payments on Account under CPR 44.2(8)
Our third twin!
In a costs budgeted case which settles or is decided at trial, what level of interim costs payment can the receiving party expect?
In Marcura Equities FZE v Nisomar Ventures Ltd  2 Costs LR 227, the claimant’s cost budget had been approved at £449,929 but the agreed recovery was just £35,000. The defendant’s starting point was that the claimant should pay the defendant’s costs after the expiry of an offer which had been open for acceptance until 6 November 2017. That submission failed because the £35,000 could not be characterised as a sum that was nominal or trifling, nor could the important delivery-up and injunctive relief that had been obtained, be ignored: the usual rule that “costs follow the event” would apply.
That left the payment on account. The budget provided for a five-day trial which had not taken place. The starting point was therefore £330,000 and from that sum would be deducted 30%, on the basis that many of the costs were for costs incurred pre-budget, in respect of which there was more scope for challenge. £231,000 was the appropriate figure to order.
In Cleveland Bridge UK Ltd v Sarens (UK) Ltd  2 Costs LR 333, the case had gone to trial and the judge had to decide how much to order as a payment on account. In doing so, she drew a distinction between the incurred costs and the budgeted costs. For the former, she allowed 70% in order to arrive at a reasonable sum with a sufficient margin for error. For the latter, the figure was 90%, with the balance of 10% to take account of the possibility that there might be deductions on “good reason” being advanced on assessment under CPR 3.18.
The lessons: it looks like a reasonable expectation, if the case goes to trial, will be a payment on account of not less than 90% of the budgeted costs, with somewhat less for incurred costs, on the basis that they can be challenged without having to show “good reason” at the detailed assessment.
Fixed Costs under CPR 45.24 – failure to follow the Pre-Action Protocol
No twin here, although the judgment in Williams v Secretary of State for Business  2 Costs LR 391 refers to several familiar cases on this subject.
In Williams, the claimant had unreasonably failed to follow the pre-action protocol, which allows for the recovery of fixed costs and disbursements only, in a dispute which had settled without proceedings. The reason, it was argued, was that there had been two potential defendants and the Protocol was designed to apply only where there was one.
That argument raised two issues: did the fixed costs regime apply in a case that settled before proceedings actually started, and if it did not, did the conduct rules in CPR 44 mean that only fixed costs and disbursements in accordance with the Protocol were recoverable?
Coulson LJ held that neither the Protocol nor CPR 45.24 provides a mechanism which automatically applies the fixed costs regime where a claim has not been started under the Protocol and is not the subject of a claim and a judgment. However, where, as here, the Protocol should have been used, and its non-use had been unreasonable, under the conduct provisions, the claimant would usually be entitled to recover only the fixed costs and disbursements.
Costs Budgeting under CPR 3.12-3.18
The extempore decision of Fraser J in Broom & Broom v Archer has now been transcribed. It addresses the circumstances in which an approved costs budget can be amended under CPR PD3E paragraph 7.6.
In Broom, the case had been subject to costs budgeting, but there had been an error when the order was drawn up, namely that the provision for geotechnical engineering evidence had been omitted. Fraser J held that had there been compliance with paragraph 7.7 that after the budgets have been approved, there needs to be refiling and re-service in the form approved, with recast figures annexed to the order, the error would have been detected at an earlier pre-trial review hearing. The failure to comply with paragraph 7.7 meant that it had not. For that reason, approval of an order putting right the arithmetical error would not be given. However, the first defendant had amended its pleadings and had effectively changed its case. In particular, there had been an increase in the complexity of an alternative remedial scheme. That was a “significant development” justifying an increase in the claimant’s budget to £840,580, so an increase to that sum under paragraph 7.6 was authorised.
The judgment makes clear that it was transcribed from poor quality recording and it is not a straightforward read! The message nonetheless is clear: if you depart from the strict terms of the Practice Direction on Costs Management, you do so at your peril as to costs.
What is coming up?
Lots! Judgment was reserved on 10 May by the Court of Appeal in Bamrah v Gempride Ltd on appeal from HH Judge Mitchell, decisions by a Lord Justice on the papers are awaited in Herbert v HH Law Ltd and May v Wavell Group on applications for permission, and Sony Mobile Communications International AB v SSH Communications is due to be heard by the Court of Appeal in July. Watch this space!