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Kain Knight Case Law Update Winter/Spring 2018/2019

The number of cases at High Court level and above which are being handed down continue at a relentless pace. Now that we have had a taste of Spring (or even Summer), this update principally features judgments which have appeared in the Law Reports over the Winter and late Autumn. As usual, we do not mention those at Circuit Judge or Master level as they are not binding, but the important decisions by High Court judges and above are here, with the cases grouped by subject matter. Those judgments are not necessarily “the last word” as permission to appeal to higher courts has been given in some of them, as we mention below. However, it usually takes at least a year for the Court of Appeal to hear a case from the date Notice of Appeal is served until judgment is handed down, so for those, the wait for the “last word” goes on.

We start with Costs Budgeting and Relief from Sanctions. Although it is almost six years since rule changes were implemented to introduce costs budgeting in the multi-track, how they were to be applied in practice remained unclear in some areas such as hours spent doing the work and hourly expense rates. Now we have more clarity given by Jacobs J in a refreshingly short extempore judgment in Yirenki v Ministry of Defence [2018] 5 Costs LR 1177 as follows : when the court is carrying out costs budgeting under Part II of CPR 3, hourly expense rates must not be left open for argument at detailed assessment, nor should the court approve in advance the number of hours to be spent by fee earners undertaking work on the case. The ultimate aim of Paragraph 7.3 of the Practice Direction is to arrive at budgeted costs which fall within a range of reasonable and proportionate costs, and for there to be a figure given for each phase of the proceedings. The Master below had permitted the parties to reserve their positions as to hours and hourly rates until the detailed assessment. That was wrong so his order could not stand. In making this ruling, Jacob J has made it clear that you look at the total for the phase and once that has been settled, it is up to the solicitors to spend that allowance how they like.

At least we thought that was the case until Arcadia Group Ltd v Telegraph Media Group Ltd [2019] 1 Costs LO 169 came along! In Arcadia, Warby J in hotly contested privacy proceedings, held that although budgeting was not the same as detailed assessment, it was almost inescapable for the court not to give some thought to hours and hourly rates for the work in question. Those rates claimed by the claimant ranged from £190 (for Grade D) to £690 (for Grade A). Such rates were above guideline rates and whilst an excess was justified, they would be limited to £550 for partners. That begs the question; does that mean that the pre-budget costs when they fall to be assessed by the Costs Judge must also be limited to £550 per hour? The jury is out on that one!

Next, two cases where it all went wrong. What sympathy can you expect from the court where the budget is defective (e.g. served late or is incomplete) so the defaulting party’s costs going forward are limited to applicable court fees under CPR 3.14? Not much, is the answer. In BCME Bank v Phoenix Commodities PVT Ltd [2018] 6 Costs LO 767, the defendant’s budget should have been filed under CPR 3.13 by 27 September 2018 but was not delivered until 11 October 2018 because the partner with conduct of the case had been away on business in Brazil. The consequence of the of late filing meant that no budget discussion reports could be served in time for them to be dealt with at the Costs & Case Management hearing, so an additional appointment was needed, thereby wasting valuable court resources. Held by Bryan J: the breach of the rule was serious and significant, there been no good reasons in terms of an explanation for it, and the application had not been made promptly. Relief from sanctions was refused : defendant’s future costs were limited to applicable court fees.

What about a budget served in time but only partially complete? No relief there either, where the budget had deliberately omitted figures for trial preparation and trial because it was believed that a further costs management conference would be needed. Such a budget was not a complete costs budget. Applicable court fees only for the defaulting claimant would be allowed for those phases, but where agreement had been reached with the defendant for the costs of the other phases, those costs would not be so limited and would be budgeted at the agreed figures – see Page v RGC Restaurants Ltd [2018] 5 Costs LO 545 Walker J.

Next, Security for Costs under CPR 25. Thinking of applying? If so, do not delay. In Accident Exchange Ltd v Mclean and Others [2018] 4 Costs LR 807, Teare J held that in an action listed for a 14 day trial in October 2018 in which there had been a delay in making an application for security under CPR 25, a relevant factor in deciding whether to make the order was that the issue had been raised two years earlier, but not proceeded with. To reflect the delay, the order was granted but with a reduction in the amount of security ordered to be paid.

Delay was also a feature in OPTAGLIO LIMITED v TETHAL [2019] EWHC 151 (Ch). In that case, the claim had started in 2013 but, having had a “chequered initial history”, was only due to come to trial 4 February 2019. On that basis, His Honour Judge Barker QC held that an application for security made on 8 January 2019, four weeks before the trial, was extremely late. Nonetheless, the delay was not fatal since some responsibility for it lay at the claimant’s door. Taking into account all the circumstances, it was appropriate to grant security for costs, albeit not in the sum of £196,000 as requested by the defendants but in a lesser sum to be determined.

For guidance about a material change in circumstances providing grounds to set aside an order for security, see Catalyst Management Services v Libya Africa Investment Portfolio (2018) [2018] 4 Costs LR 713 – Sharp LJ, David Richards LJ, Newey LJ. In proceedings for damages for wrongful termination of a management agreement in which the claimant had been ordered to provide security for costs in the sum of £1.75m but had failed to do so, the judge below had been correct to find that there had been no material change in circumstances providing grounds to set aside the order.

For guidance about how security should be given, see Lewis Thermal Ltd v Cleveland Cable Company Ltd [2018] 6 Costs LO 759 in which O’Farrell J allowed a variation of the order for security by permitting the claimant to provide it by way of a deed from an After-the-Event insurer, where the policy limit was £850,000, with £750,000 having been allowed for the defendant’s budgeted costs.

After a trial is over, it is now customary for there to be an order for a Payment on Account of costs under CPR 44.2(8). If you forget to ask and go back later, for that purpose, that does not matter. In Culliford v Thorpe [2018] 5 Costs LR 1039 the fact that the trial judge had nor ordered a payment on account did not preclude a later application : nothing in the rules excludes the possibility of ordering a payment at a later date so in Culliford, Birss J made one!

The decision in Ogiehor v Belinfantie [2018] 6 Costs LR 1329 shows the rule in a somewhat different context. The Appellant, a Litigant in Person, had disclosed a “without prejudice” offer of settlement made by the Respondent during the trial, although he had been told repeatedly (in appropriate judicial language), to shut up and sit down. Advice not heeded, the trial had had to be adjourned and with that, came the issue of the costs thrown away. Taking account of the LIP’s limited means, the Court of Appeal upheld the decision of the court below that an order for a payment on account of £10,000 with six months to pay was a just figure.

The Solicitors Act 1974 is still giving clients and their former solicitors legal headaches, as well as continuing to provide the Bar with a good living as a consequence. In Gill v Heer Manak [2018] 5 Costs LR 1165, Walker J grappled with the circumstances in which a solicitor is permitted to terminate the retainer with the client. The facts were that the solicitors had given notice of termination with immediate effect because the practice had been unable to obtain professional insurance cover meaning that it had had to close straightaway. So what, said the court. The fact that the solicitors could not have given any longer notice because they had not known that they would cease trading until the date that they did, did not matter. The termination had put in jeopardy the client’s ability to comply with a tight timetable imposed at a Case Management Conference in the litigation in which he was involved. It followed that the firm had not been entitled to terminate the retainer without any notice and the fees sought by the solicitors were, accordingly, irrecoverable.

And now, an old favourite : interim and statute bills and what they should contain. In Richard Slade & Co Solicitors v Boodia [2018] 5 Costs LR 1185, the solicitors had rendered 61 bills of which 43 had related to profit costs only and the balance of 18 were for disbursements. Below, Slade J (see [2017] 6 Costs LO 781) had said that they were interim on-account bills so the client’s time for applying for assessment could not arise under s.70 until a final bill had been delivered. Not so held the Court of Appeal. There is no requirement that a solicitor’s bill has to include both profit costs and disbursements for the same period to be a final “statute” bill. Nor is it to be inferred that a statute bill must always, or even usually, include both profit costs and disbursements. The client’s time for applying for assessment had arisen when the bills had been delivered and for most of them, that time had expired.

Next Part 36 which continues to produce about a case a month. Devoy-Willliams v Hugh Cartwright & Amin [2018] 5 Costs LR 1105 (Falk J) is an interesting case in which the claim had been struck out before the time for accepting an offer made by the Defendant under Part 36 had expired. That being so, the Claimant could not accept the offer, nor would relief from sanctions be given to permit him to do so. Part 36 was not some form of “trump card”. Once struck out, the action remained struck out and the offer had ceased to be open for acceptance from that point.

What happens when you accept a Part 36 offer? As well as your costs, can you have a payment on account? Answer “No”. Under a Part 36 “deemed” costs order, the place to find the court’s ability to order a payment on account after acceptance lies in Part 36 itself. Since Part 36 does not provide the court with a provision giving the ability to direct such a payment, none can ordered. CPR 44.2(8) cannot help since there is no reason to read that rule in such a way as to make it applicable on acceptance of a Part 36 offer: see Finnegan v Spiers Licensed Conveyancers [2018] 6 Costs LO 729 (Birss J).

For guidance about the construction of a Part 36 offer, see Bentley Design Consultants Ltd v Sansom [2018] 6 Costs LO 743 where the claimant had offered to accept “the sum of £25,025 in full and final settlement of the whole of this claim”. The issue then arose: what was meant by “the claim” since the proceedings for professional negligence had concerned two plots of land, known as plot 1 and plot 2. As a matter of construction, Jefford J held that the parties had always regarded plot 2 as a distinct claim to which the Part 36 offer did not apply, so an appeal against the same finding by the judge below was dismissed.

Next, what happens if a Part 36 offer is withdrawn by the offeror only for the offeree then to fail to beat it at trial? The answer is that the deemed costs consequences under Part 36 do not apply and the the existence of the Part 36 offer is not enough to reverse the incidence of costs, namely that costs follow the event. Where parties want a guarantee of such an outcome, their course is clear, namely to make and stick to a Part 36 offer. Nonetheless, the existence of the offer is a factor to take into account when deciding the costs of the action and when that was done by Marcus Smith J in Britned Development Ltd v ABB AB [2018] 6 Costs LO 807, he decided that the fair order was that each party should pay their own costs, so there would be “no order as to costs”.

Discontinuance under CPR 38. The normal rule is that the discontinued against party has his standard basis costs paid by the discontinuing party, but it can be disapplied where the circumstances take it “out of the norm” in which case, the indemnity basis applies. That is what happened in Hosking v Apax Partners LLP [2018] 5 Costs LR 1125 when four days into a six week trial, joint liquidators served notice of discontinuance in litigation described as “high -risk…aggressively and very expensively pursued”. Such conduct, held Hildyard J, justified an indemnity basis order together with an interim payment on account of the costs of £2.65m

Of course, whether to award Standard or Indemnity Basis Costs has assumed much more importance since the CPR rule changes of 1 April 2013, since it will be remembered that the proportionality rule under CPR 44.3(5) only applies to standard basis costs. Whether or not a failure to comply with a pre-action protocol in petitions under s.994 Companies Act 2006 was sufficient to justify an indemnity basis order, was the point Sir Nicholas Warren had to decide in Griffiths v Gourgey [2018] 1 Costs LO 43. It was, he held: the petitioner’s conduct had taken the case out of the norm due to the delay in making an application to amend the petition and the failure to comply with paragraph 6 of the Practice Direction. In addition, the application had not been supported by evidence. The deficiencies in the amendment, whilst not in themselves giving rise to conduct out of the norm, reinforced Sir Nicholas’ conclusion that the costs should be paid on the indemnity basis.

In Kent v Paterson-Brown [2018] EWHC 2830 (Ch) Zacaroli J also awarded indemnity basis costs order where the inherent weakness in the claim and the disproportionate approach taken by the claimant to aspects of it, had justified such an order. However, ordering indemnity costs for discrete aspects of the proceedings was potentially expensive and cumbersome. Accordingly, a particular time was chosen. The first defendant was allowed indemnity costs from 27 October 2017.

Non-Party Costs Orders continue to be made. In Various Claimants v Giambrone & Law (a firm) [2019] I Costs LR 63 Foskett J held that a professional indemnity insurer in group litigation which had substantially relinquished control over the conduct of the litigation to the insured and had done so in the expectation that it would be immune from a costs liability, nonetheless left itself open to a third party costs order under s.51 Senior Courts Act 1981 where the prospects of success for the insured were poor. For that reason, the insurer was ordered to pay 50% of the claimant’s costs even though it had limited its liability to £3 million.

It is six years on from the rule changes ending the recoverability of success fees and ATE premiums from opponents in most types of litigation, yet we still have disputes about Conditional Fee Agreements under the CPR as they were until 31 March 2013. The first is to do with the level of success fee where liability has been admitted. In NJL v PTE [2018] 6 Costs LR 2389 in proceedings for personal injury which had been resolved in favour of the claimant for £1.1 million, an application was made under CPR 45.19(2), to increase the fixed success fee of 12.5% to 67% (claimed at 100%). That got nowhere, Martin Spencer J holding that a success fee of 100% can never be justified where liability has been admitted before the CFA claiming it has been made, as had been the case. As to the Part 36 risk, that depends upon (1) timing and (2) the risk of rejecting the offer and failing to better it at trial. Having made some observations about those risks, he went on to find that if the risk of going unpaid was 50% and if only 25% of costs were at risk, using the ready reckoner, 14.29% would be the success fee and 20% would be considered generous. It followed that the claimant could not satisfy CPR45.19(2) and the success fee was allowed at 12.5% being the fixed amount payable under the rule.

In view of the decision in Warren v Hill Dickinson LLP [2018] EWHC 3322 (QB), it looks like we may have heard the last word on assignments of CFAs since Pepperell J, having heard full argument from the prospective appellant, refused permission to appeal. The issue was whether the CFA had been validly assigned following the closure of the original firm of solicitors instructed by Mr Warren to a successor firm. The judge gave that short shrift: in his judgment, no merit existed in the argument that the CFA was not capable of assignment or novation, because the original firm had ceased to trade. The appeal had no prospect of success, nor was there any other compelling reason why an appeal should be heard. End of story.

Pre-Action costs. It is trite law that costs incurred before the issue of proceedings are recoverable as a matter of principle, but what happens if your opponent pays up on receipt of your letter of claim but without any offer on costs? That was the situation in Ayton v RSM Bentley Jennison [2018] 5 Costs LR 915 where a defendant the defendant had tendered the full amount asked for in response to the letter of claim but had declined to pay any costs of work undertaken during the pre-action protocol. May J’s answer to that was that the defence of tender failed: it ought to have been obvious to the defendant that a proper investigation would have been required before allegations of fraud and negligence could be advanced against a reputable professional firm of accountants such as the defendants and that such an investigation would incur significant costs. The claimant had been entitled to bring proceedings to recover those costs and a payment on account of them was also due – a mere £430,000! Subsequently the Court of Appeal has refused permission to appeal.

Who was the winner in litigation is not always easy to ascertain, but whoever comes first is likely to be awarded their costs. At first glance, recovering £258,000 might give the appearance of being a stunning victory but not when it is just 2% of the claim! That was the situation in Rotam Agrochemical Co Ltd v GAT Microencapsulation (AG) [2018] 6 Costs LR 1365 where the claimant had sought £13.5m damages for unjust enrichment, later reduced the claim to £8.9m.

Butcher J held that the reality was that the defendant had won since it had substantially denied the claimant the prize which it had fought the action to win. Taking account of those matters on which the defendant had lost, the appropriate order was that the claimant should pay 50% of the costs of the action. figure was 50%. The claimant was thus ordered to pay 50% of the defendant’s costs.

Trustees’ costs and “Beddoes” orders . These orders permit trustees who do not wish to undertake litigation at their own risk to obtain the court’s approval to take steps, with the costs to be paid out of the estate (see Re Beddoe [1893] 1 Ch 547). In Airways Pension Scheme Trustee Ltd v Fielder & Anor [2019] 1 Costs LO 121, Arnold J dealt with the costs of Trustees who wished to pursue an appeal. The proceedings involved a decision to amend a trust deed. The High Court had rejected the defendants’ challenge, but that decision had been reversed by the Court of Appeal by a majority. Success on a further appeal to the Supreme Court would benefit the vast majority by value of the scheme’s members and with the Trustees being the only party capable realistically of pursuing the appeal, they were given an indemnity in respect of the costs of appealing from trust assets. It was not to be all their own way however. Arnold J limited the indemnity to £1,034,000 for a day and a half appeal in the Supreme Court, £1,240,000 having been sought!

As usual, these are a selection of the important cases likely to be of practical help to practitioners. Not every case is featured, but if you need any further details, please contact Matthew Kain at matthew.kain@kain-knight.co.uk or Colin Campbell at colin.campbell@kain-knight.co.uk who will be glad to help.

Winter/Spring 2018/2019

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