KAIN KNIGHT COSTS CASE LAW UPDATE AUTUMN 2017
Eager readers of our Costs Case Law Updates will have noticed that we skipped a month in September and that this update covers both that month and October. The reason for that lies in the continuing durability of the Long Vacation, when the High Court and Court of Appeal do not sit and consequently, few judgments are handed down. Rumour has it that the Ministry of Justice has long since had its eye on shortening the Long Vacation, which runs from 1st August to 30th September each year, so far without any success. It appears that the last time that the Long Vacation was shortened was after the War: in those days it did not end until 15th October!
Long Vacation over, we can now report on a number of important costs cases. As always, we have been selective and those of practical importance have been chosen. For more details please contact Matthew Kain at email@example.com or Colin Campbell at firstname.lastname@example.org who will be glad to discuss any aspects with you.
Conditional Fee Agreements
We reported Stevensdrake v Hunt  4 Costs LR 779 in July, focusing on the first part of the judgment and the fact that no terms needed to be implied to give the CFA business efficacy. The other part of the solicitors’ appeal concerned whether there had been an estoppel by convention that payment of the solicitors’ charges by their Insolvency Practitioner (IP) client would not be insisted upon unless there were funds available from recoveries and realisations to meet them. The court held that it had been plain that the firm knew full well that, had that not been the case, the IP would have replaced them with other solicitors, in addition to which, insofar as any recoveries would have needed to be apportioned, all professionals involved had agreed to take “an equal bath”. It followed that there had been a shared common understanding that the solicitors would only be paid out of recoveries which it would have been unjust and unconscionable to allow the solicitor to go back on. So although the solicitor won on the implied term, the firm’s appeal failed overall and it went unpaid for the work it had done under its CFA with the IP.
The decision in Briggs v First Choice Holidays  4 Costs LR 595 Singh J was given on 8th February, but the transcript has only recently been approved. It concerns the decision by 152 disappointed holidaymakers to enter into CFAs rather than have their claims resolved using an ABTA mediation service. Below, the court had disallowed their costs, but Singh J held on appeal that the position has not yet been reached where the mere presence of ADR has meant that it is not reasonable to litigate. All considerations need to be taken into account, including, in this case, the fact that the travel company had contested liability and had not itself made any offer of arbitration or mediation. Holidaymakers’ appeal allowed.
Costs budgeting is supposed to apply in cases worth less than £10m – see CPR 3.12. The reality is that it does not matter because the court considers that it has an unfettered discretion even in cases where the damages are likely to exceed that figure. In Napp Pharmaceutical Holdings v Dr Reddy’s Laboratories (UK) Ltd  4 Costs LR 647, the claim was said be worth between £53m and £100m. Nonetheless, Birss J considered that he had jurisdiction to order costs budgeting, but deemed that the process was not yet required and that the matter should be revisited after pleadings had closed. At that point, the parties would need to produce and exchange statements setting out how much they had spent and estimating what their future costs would be. The issue of whether to apply costs budgeting could then be revisited, notwithstanding that the case fell outside the letter of CPR 3.12.
What about increasing the budget? Birss J has given guidance here too in Jscezhdunarodiny Promysenniy v Pugachev  5 Costs LR 861. Partway through the trial, it had become clear that an additional day and a half would be needed as the matter could not be completed in the allotted eight days. The claimant applied to increase the budget to cover the extra time and closing submissions which would assist the court in coming to a just resolution of the proceedings. That application was granted in the sum of a mere £84,000! Interestingly, too, the judge indicated that the hourly rates charged and the daily rates for counsel and the claimant’s solicitors were reasonable and proportionate, “at least for the purposes of approving the budget“.
What is a costs budget worth in terms of obtaining a payment on account at the end of trial? It is the starting point – The Governors and Company of the Bank of Ireland v Watts Group Plc  5 Costs LR 899 Coulson J, but the figure of £384,424 was discounted by 15%, which gave “…proper effect to CPR 3.18”, presumably to take account of the fact that the paying party, on detailed assessment, might be able to advance a “good reason” for allowing less than the figure in the last approved costs budget. It was not more because the court had not been asked to approve an increase in the budget, and because the court had declined to award costs on the indemnity basis, which would have been a mechanism by which the relevant amount could have been increased beyond the approved costs budget figure.
Indemnity Basis Costs and Part 36 – the interplay
The Bank of Ireland case features here too and illustrates what is perhaps a lacuna in the rules. Watts had made three offers to settle, two under Part 36, the last of which was just under £545,000. The action failed at trial and Watts asked for its costs on the indemnity basis. Had the boot been on the other foot, the bank would have been entitled to indemnity basis costs under CPR 36.17(4), but unlike a successful claimant, there is no automatic entitlement to indemnity costs for a defendant who has made an effective Part 36 offer. “I know this misalignment is considered by some to be unjustified, but it remains the law”, said Coulson J. There were, in any event, other factors in play, namely that this was not obviously a hopeless case, but one which Watts had plainly taken seriously having made three offers. In those circumstances it was inappropriate to order indemnity basis costs save in respect of the conduct of the claimant’s expert witness. The rest were payable on the standard basis.
Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd  5 Costs LO 631 provides a useful summary of the principles to apply when considering making a costs order on the indemnity basis. Fraser J considered it had been justified to award the defendant costs on the indemnity basis. Evidence had emerged at trial which had shown a wholly unreasonable attitude by the claimant in terms of its contractual obligations to the defendant and during the trial itself, the claimant had not given the court correct or full and frank information. Indeed, there had been conduct which demonstrated “turpitude on the part of those involved”!
Things not going well at the trial, so you want to bail out and take the Part 36 offer out of time? Theoretically, you can, but not in this case, said Morgan J in Houghton v PB Donoghue (Haulage & Plant Hire) Ltd  5 Costs LR 857. Six months before the trial, the defendant had offered £300,000 under Part 36. Two days into the trial, the claimant wanted to accept it and applied to a different judge (Morgan J) to do so under Part 36.11(3) (d). The application was refused. To do otherwise would permit a party to see which way the wind was blowing at the trial and to repent of the decision not to accept the offer if the case was going less well or more badly than had been predicted.
Post Script. The trial continued before M Rosen QC and the claimant went down with all hands!
Relief from Sanctions
Remember Lakhani (see the July update) – one day late with your costs budget and you are limited to recoverable court fees going forward? Now we have a case going the other way. In Mott v Long  4 Costs LR 815, HH Judge Grant was told that the reason for the defendant having delivered his costs budget 10 days late, was due to IT difficulties in the office. No problem. Relief from sanctions would be given from the automatic sanction under CPR 3.14. In considering all the relevant circumstances, it was noteworthy that even if the budget had been served on time, the costs budgeting process would not have been completed on the day set aside for it. A revised costs budget for the defendant would be have been needed. As the parties were in exactly the same procedural position as they would have been had the budget been served on time, it was appropriate to give relief from sanctions. Phew!
Costs under the Solicitors Act 1974
Harrison v Eversheds  5 Costs LR 931 Slade J. Another case about estimates. The client had been given two estimates (£333,102 and £548,054 respectively) and Slade J accepted a submission that he could not possibly have been relying on both at the same time. Nonetheless, a bill of £1,602, 436 which had greatly exceeded the estimate required explanation and justification. The court below had allowed an increase of more than £300,000 in profit costs based upon a mistake. In the result, the matter was remitted to the Master for determination of what would be a reasonable sum for the client to pay for the solicitor’s profit costs and counsel’s fees.
Fixed Costs and the limits on a solicitor’s duty to advise
Thomas v Hugh James Ford Simey  5 Costs LO 643 is not strictly about costs and is more concerned with the duties of solicitors when advising in small claims to which fixed costs apply. However, it provides important guidance about the professional standards expected of solicitors in such cases. The solicitor defendant had acted for the claimant in the Vibration White Finger litigation and his claim had been settled in February 2001 for approximately £10,000. Subsequently, the claimant followed up an advertisement by his current solicitors which suggested that his claim had been under settled, and that he would have received more but for the negligence of his former solicitors. That submission failed in no uncertain terms, Lord Justice Jackson recognising the need to adopt a realistic standard when assessing the performance of solicitors conducting litigation under high-volume, low-cost commoditised schemes. While solicitors needed still to exercise reasonable skill and care in advising clients in pursuing such claims, they could not be expected to turn over every stone, and pursue avenues of enquiry which the client had closed down. Importantly, the solicitors had had two separate meetings with the claimant at which the possibility of seeking special damages for services, which the claimant now said had never been explored, had been covered. Stingingly, Sir Rupert concluded that “The civil justice system exists to enable injured parties to recover compensation for genuine wrongs. It does not exist to service artificial claims stirred up by advertisements”. The judgment repays a thorough reading in respect of the level of service a solicitor is expected to give in low value fixed cost claims. Here, the fact the solicitors had met the client face to face and kept a good attendance note, appeared to have weighed heavily with the court in finding in their favour.
Time for commencing detailed assessment proceedings
Surprisingly, the answer until now has not been particularly clear. Whilst under CPR 47.1, an entitlement to have costs assessed arises on judgment, or when an order for costs is made at the end of the case or there is a direction for an immediate assessment, the blurred issue has been whether a party receiving costs can serve a bill when a discrete interlocutory point has been finally decided by the Court of Appeal. In Khaira v Shergill 2017 5 Costs LR 953, in which Nick McDonnell of Kain Knight acted for the successful appellants, the answer to that given by David Richards LJ was a firm “No”. He held that there is nothing in CPR 2.4 to suggest that another court can exercise a jurisdiction clearly vested in the Court of Appeal since an appeal is not a proceeding in the High Court, but in the Court of Appeal. Here, the Supreme Court had allowed an interlocutory appeal and had directed that the appellants’ costs be paid both in that court and in the Court of Appeal. That did not mean that the Court of Appeal costs could be assessed and paid immediately because the Supreme Court had never addressed the point and neither a judge of the High Court, nor a costs judge could exercise a jurisdiction clearly vested in the Court of Appeal to make such an order. Where, as here, the Court of Appeal had not ordered an immediate assessment, there was no entitlement to it. The message for the profession? If you win an interlocutory appeal in the Court of Appeal or, indeed, any interim hearing, you must ask for an order for costs to be assessed and paid forthwith, otherwise (absent a summary assessment) you will have to wait until the conclusion of the proceedings before they can be assessed.
Jabang v Wadham & others  4 Costs LR 807 is a useful reminder about how Bullock orders work- see Bullock v The London General Omnibus Company  1 KB 264. It addresses the issue of the appropriate costs order to make where a claim succeeds against one defendant but fails against others. Who should pay the costs of the defendants whose defences were successful? In Jabang, Nichol J had to face that problem head-on. The claimant had succeeded in a clinical negligence action only against the second defendant. The case had failed against the third and fourth defendants who, on basic principles, would ordinarily be entitled to their costs from the claimant. However, Nichol J decided that the claims against those defendants had been reasonably brought and had the second defendant accepted his responsibility at the outset, there would have been no need for any proceedings against the other defendants. In those circumstances, a Bullock order was appropriate and the second defendant was ordered to pay the costs of the other defendants instead of the clamant.
Non-Party costs orders
These are designed to bring those who are not a party to litigation but have an interest in its outcome, within the ambit of a costs order, meaning they can be ordered to pay the winner’s costs if the losing party is unable to do so. HHJ Saffman’s decision in Montpelier Business Reorganisation Ltd v Armitage Jones LLP  5 Costs LO 659 provides a comprehensive resume of the applicable law. Here the claim had been dismissed but the claimant was insolvent and unable to discharge the costs order made in favour of the third, fourth and fifth defendants. Other defendants were joined on the basis that they had had much to gain from the outcome of the proceedings and had been the real parties to the litigation. As against the sixth defendant, that was incorrect as it was not a real party and had no control over how the seventh defendant spent its money. As to that defendant, it had been the predominant funder and had much to gain from the successful outcome of the litigation. The seventh defendant was, accordingly, ordered to pay the costs third, fourth and fifth defendants instead of the insolvent claimant.