Kain Knight: March 2017 Monthly Case Law Update
March has already seen two important cases about costs budgeting. We focus on these below, but for the diminishing band of Lawyers who undertake criminal work, there have been a couple of interesting decisions to report. They concern remuneration for Pages of Prosecution Evidence (“PPE”) and fees payable under a Defendant’s Costs Order.
Proportionality is continuing to cause problems. Another decision at Costs Judge level has sided with the approach of the Senior Costs Judge in BNM which is going to the Court of Appeal, but not until October. Until then, mayhem will continue.
This update does not contain every costs decision handed down over the past few weeks. As always we have been selective and the focus is on those which will be of particular practical importance when advising clients about costs. Any further information can be obtained from and will be gladly given by Matthew Kain – firstname.lastname@example.org or Colin Campbell – email@example.com.
So far Merrix v Heart of England NHS Foundation Trust  1 Costs LR 91 is the most important costs case this year. Until now, there has been no guidance, at an authoritative level, about how the Court should approach a bill of costs, subject to a standard basis Detailed Assessment, where the case has been costs managed.
Carr J has resolved the dilemma. When carrying out the Detailed Assessment, the Costs Judge is bound by the budget unless “good reason” can be shown under CPR 3.18(b) to depart from it. The words of CPR 3.18 do not permit the Court to carry out a line by line assessment merely using the budget as a guide or factor to be taken into account. The budgeted costs must be approved unless a good reason can be shown for not doing so.
What constitutes “good reason”? About this, Carr J avoided giving guidance, but alluded to the fact that if the hourly rates at the Detailed Assessment are different to those used in the budget, that might be a good reason for allowing less (or more) than some of the phase totals in the budget. Likewise, spending less than was approved or agreed might require a departure from the budget in order to comply with the Indemnity Principle [see Judgment paragraphs 73 and 74].
It is our view that costs budgeting and the decision in Merrix will not eliminate the need for Detailed Assessment. Indeed, the reverse may be true, and the budget may make a Detailed Assessment more likely because there will be an increase in the number of circumstances in which it is not possible to narrow the issues and reach a settlement.
As well as those mentioned above, in brief, these will include situations:-
- where there are the incurred costs to be assessed, which must then be aggregated with the budgeted costs for proportionality purposes;
- where there is a split Costs Order, usually after a Part 36 offer;
- where the Court has made an issue-based costs order;
- where some of the costs are to be paid on the standard basis but others on the indemnity basis;
- where the recovery has been a small fraction of the claim as originally formulated;
- where there are costs of the claim or counterclaim to consider;
- where the paying party raises issues of conduct.
For a more detailed analysis, please see our article published on behalf of Practical Law Dispute Resolution and Arbitration at http://disputeresolutionblog.practicallaw.com/merrix-and-detailed-assessment-business-as-usual/
Car Giant Ltd v The Mayor and Burgesses of the London Borough of Hammersmith  EWHC 464 (TCC), Mr Stephen Furst QC, is the first High Court decision to be handed down after Merrix and is another example of the muddle that costs budgeting can cause.
Car Giant won £179,000 damages at trial, but failed to beat Hammersmith’s Part 36 offer of £250,000 so the Judge ordered the loser to pay the winner’s costs up to the last date that the offer could have been accepted, but thereafter, the winner to pay the loser its costs on the standard basis.
Straightforward so far. The wrinkle concerned the costs budget. Post-trial, Hammersmith had issued an application to vary their budget upwards and, following Judgment, had requested an indication from Mr Furst that costs incurred in excess of the latest costs budget had been reasonably incurred. These included extra work on producing the trial bundle, the fact that an expert had attended all three days rather than just the first day of trial and various unbudgeted mediation costs.
The Judge declined to give any indication or guidance. He said it was for the Costs Judge to exercise jurisdiction under CPR 3.18 and that a Court should not seek to “trammel the Costs Judge’s jurisdiction, particularly where the Costs Judge has much greater experience in such matters than I have”. Whilst acknowledging that there were authorities showing that the Court could give such indications (none quoted), he held that “..the Court should be slow to do so”[paragraph 33] without explaining why.
This decision simply adds to the confusion about varying a costs budget. In the New Year Costs Update, we drew attention to Barkhuysen v Hamilton in which Warby J did the opposite and was willing to increase the successful Claimant’s costs after trial beyond the budgeted amount in five areas.
See too Thomas Pink v Victoria’s Secret  3 Costs LR 463, in which Birss J increased the costs budget by £50,000 after he had circulated his reserved Judgment but before formal handing down.
Contrast that with Elvanite Full Circle v AMEC  4 Costs LR 612 in which Coulson J said that “The certainty provided by the new rules would be lost entirely if the parties thought that, after the trial, the successful party could seek retrospective approval of the costs incurred far beyond the level of the approved Costs Management Order”.
The outcome? First, lack of consistency, which will continue until a decision on this point is dealt with by the Court of Appeal. Nothing on the horizon so far. Second, the Merrix and Car Giant approach means a Detailed Assessment is more rather than less likely; the Trial Judge will have heard the evidence and be fully familiar with the issues, yet if he/she fails to grasp the nettle and provide the parties with a steer, Detailed Assessment will be the logical consequence. Not what Jackson LJ had in mind when he wrote in his report that costs budgeting ought to reduce the need for Detailed Assessment.
Part 36 and failure to mediate
Rickard v Holloway  1 Costs LR 1,  EWCA Civ 1631, the Court of Appeal deliberated upon the validity of a Part 36 offer and held that it had been invalid due to the failure to specify a period not less than 21 days in which the offeror would be liable for the offeree’s costs in accordance with rule 36.10 if the offer was not accepted. In making “no order as to costs”, the Court paid particular attention to a drop hands offer and to the fact that the Claimant had received no response to many requests made for mediation.
Fixed Costs under CPR 45
Sharp v Leeds City Council  1 Costs LR 129, is an important case about fixed costs which concerned whether the regime provided for by section IIIA of CPR 45 claims, that begin but do not continue under the Employers’ Liability/Public Liability Protocol, apply to the costs of an application for pre-action disclosure in such a claim.
Below, the Court had assessed the costs of the application as if governed by CPR 46.1 rather than CPR 45.29H allowing £1,250 instead of the fixed £305.
Held. That had been wrong. Making a pre-action disclosure application subject to assessed costs would give rise to an undesirable form of satellite litigation. £305 allowed.
Rezek-Clarke v Moorfields High Hospital. Master Simons – SCCO 17 February 2017. The Brethren split further. Three Costs Judges having decided that additional liabilities should be left out of the calculation when deciding proportionality, in Rezek, the Court held that a premium of over £32,000 should not be looked at separately from base costs. At paragraph 68, the Master gave his reasons: “… Costs must include those costs as claimed in the bill of costs that are presented to the Court. CPR 44.3(2) does not make any distinction between profit costs, disbursements or additional liabilities. In my judgment, this means that any item contained in the bill of costs, including any ATE premium, may be disallowed or reduced on the ground that it is disproportionate, even if it was reasonably or necessarily incurred”.
And so we must wait until October for the Court of Appeal to decide which Costs Judge is right: at present, the score is three against two, the two being the decisions in BNM and Rezek.
After-The-Event Insurance Premiums
Pollard v University Hospitals of North Midlands NHS Trust  1 Costs LR 45 Langstaff J.
What principles apply in assessing an ATE premium in a personal injury case in which the Claimant recovers £3,000, plus costs, but the premium exceeds £18,000 and provides cover for adverse costs in excess of £100,000? According to Langstaff J, the answer is not to look at the premium and to find instinctively that it is too high and then to reduce it taking a broad brush approach. The correct approach is to assess the premium with particular regard to whether it has been reasonable for the Claimant to have chosen the particular insurance product in question. As that had not been done, the point needed to be remitted to the Regional Costs Judge for decision applying the correct principles.
Lord Chancellor v Edward Hayes LLP  1 Costs LR 147. An important case for criminal practitioners claiming graduated fees under the Criminal Legal Aid (Remuneration) Regulations 2013. Nicola Davies J addressed the thorny question of the extent to which discs containing documentary evidence are payable under the scheme. In her Judgment, she dismissed in no uncertain terms the Lord Chancellor’s submission that the material in question could not be PPE because it had not formed part of the committal bundle, nor had it been included in any Notice of Additional Evidence. The fact was that it had been served directly on Counsel at Court and also by the Police in chambers for pragmatic reasons of time and efficiency. The material in question fell within the definition of PPE and was to be remunerated under the 2013 regulations.
R v Patel  1 Costs LR 77. In proceedings in which the Court of Appeal had made a Defendant’s Costs Order and had directed a payment of £500,000 on account, further investigation of the bill for £2,916,396 exclusive of VAT revealed that 2783 hours work out of 3047 hours, had been claimed on a false basis. An alleged agreement with the client to dispense with a £275,000 costs cap and to increase the bill by approximately eight times, had been a sham. A Direction was made for repayment of the £500,000, the papers were to be sent to the Director of Public Prosecutions for consideration and there would be a Law Society Investigation!
In-House Solicitor’s costs
Shackleton & Associates v Al Shamsi and others  EWHC 304 Teare J. The Judgment provides a resume of the law where a company seeks to recover the costs of a Solicitor who would normally be providing services for the Company, but instead has undertaken work on the case which an instructed Solicitor would otherwise have carried out.
Here, the Claimant Company had been owned by a Solicitor Advocate whose business had been to provide his services in that capacity in international arbitration. It sought costs compensation for the time spent by the Solicitor Advocate working on the case in respect of tasks which otherwise an instructed Solicitor would have had to do. The losing defendants contended that were such a recovery to be permitted, the Indemnity Principle would be breached on the basis that a successful party cannot recover more than it is liable to pay to its own Lawyers, and since no salary was being paid to the Solicitor Advocate, the Company had suffered no loss.
That argument failed. The Company had suffered a loss because the Solicitor Advocate had spent his time on the Claimant’s claim and as a result, his services could not be used to earn fees in other cases. The Judgment contains a useful review of the case law on this point.
As always, please feel free to contact us should you wish to discuss any of these cases.
Matthew Kain: Matthew.Kain@kain-knight.co.uk
Colin Campbell: Colin.Campbell@kain-knight.co.uk