Costs Law Review of 2024
2024 has been significant in the world of costs law, with the creation of no less than four Working Groups by the Civil Justice Council to work on so-called costs reforms. In this context, it is useful to recall the wise words of Emeritus Professor Adrian Zuckerman of the University of Oxford, who said that:- “All attempts to reform costs have resulted in costs increasing” !!
Working Group 1: Review of third party litigation funding
It was the TV series “Mr Bates v The Post Office” which propelled third party funding (“TPF”) into the spotlight and into the public eye. It is now clear that even the government watched the programme as a working group was set up in April under the aegis of Picken J to carry out a review of TPF. On 1 November, its interim report was published which set out the history of TPF in a commendably interesting and readable way. The working group is now consulting on the following:-
- how litigation funding should be regulated;
- if funders’ returns should be capped:
- what role the courts should play in controlling funded litigation
- the existence of funding arrangements should be disclosed to opponents,
- the extent to which funders should be able to control litigation.
- questions relating to client protection,
- the interplay between litigation finance and other sources of funding such as legal expenses insurance and crowd funding.
The consultation is open until the end of January 2025. After that, the working group will write its final report with its recommendations, which will be delivered to the Lord Chancellor next summer. Watch this space!
Meanwhile, the fall-out from PACCAR remains unabated -see R (PACCAR) Inc v Competition Appeal Tribunal [2023] Costs LR 1193 : the Supreme Court held that Litigation Funding agreements (LFAs) (which calculate the funder’s payment in the event of success by reference to a percentage of the damages recovered by the funded party in the litigation), fall within the regulations that govern Damages-Based agreements (DBAs). Since none of the LFAs did so, they were unenforceable.
Labour decided not to revive the Litigation Funding (Enforceability) Bill introduced by the previous government to reverse PACCAR by legislation. Instead the new government gave the following written reply in answer to a parliamentary question on 1 August:-
“The Civil Justice Council is considering [these] questions and others in its review of third-party litigation funding and hopes to report in summer 2025. The Government will take a more comprehensive view of any legislation to address issues in the round once that review is concluded.’
Thus, in so far as the present is concerned, PACCAR remains good law, and to be enforceable, LFAs must comply with the DBA Regulations following the Supreme Court’s decree that they are DBAs, even though the Court of Appeal below had said that they were not!
Working Group 2: Review of the Solicitors Act 1974
It was the Act’s fiftieth birthday (not quite true as the origins of the Act are to be found in the Solicitors and Attorneys Act 1727!), but in view of the criticism that the Act has received in recent judgments, perhaps it was not too happy. In Belsner v Cam Legal Services Ltd [2022] Costs LR 1569, Vos MR said at [61]:-
“I have no doubt that the 1974 Act is in urgent need of legislative attention”
That sentiment has been repeated in subsequent judgments and the outcome has been the setting up of another working group under the control of Adam Johnson J. Its task: to –
- Consider recommendations for primary legislative reform to the Solicitors Act 1974.
- Consider a Solicitors Act 1974 section 56 general order, to help develop a better scheme for non-contentious costs.
- Consider a possible costs regime for online digital portals.
- Consider the scope of future reform in relation to contentious / non-contentious costs.
The Solicitors Act Working Group’s interim report and consultation will follow in early 2025. However, notable absentees from their brief are whether the distinction between interim “on account” bills and interim “statutory” bills have any real place in 21st century retainers. That point came up with a vengeance for the solicitors in Signature Litigation LLP v Ivanishvili [2024] Costs LR 1153. The Court of Appeal held that 79 bills which had been delivered between 2016 to 2022, were “on account” so all could be assessed to see if they were reasonable, contrary to the solicitors’ case that the bills were “statutory” and that as the application for assessment had not been made within a year of payment, it now too late under s.70(4).
Nor has the working party been given the task at looking at s.71(1) of the Solicitors Act under which a third party chargeable with payment of a bill, such as a borrower disputing a bank’s bill, has no useful remedy under the section where the bill has been approved by the party with primary liability to pay it. That can be contrasted with the position under s.71(3) in which the Court of Appeal held in Kenig v Thomson Snell & Passmore [2024] Costs LR 1 that the court in Tim Martin Interiors v Akin Gump [2012] 2 Costs LR 325, had been wrong not to draw a distinction between s.71(1) and s.71(3). The court held that s.71(3) gives rights to a third party, such as a beneficiary who has an interest in the funds out of which an executor or trustee has paid a bill, which are not available to a third party under s.71(1). It follows that where the executor has paid a solicitor’s bill out of an estate in which a beneficiary’s gift will be paid out of residue, the deduction can be challenged, even if the bill has been approved.
That all said, at least the issue of when a client has paid a bill has been resolved. In Menzies v Oakwood Solicitors [2024] UKSC 34, in a five-nil judgment overturning a three -nil Court of Appeal (see [2023] Costs LR 1083), which included Vos MR, the Justices held that “payment” of a bill does not occur when solicitors deduct their fees from funds held on account. On the contrary, the Supreme Court held that:-
“71. The authorities therefore provide strong support for the Client’s case of the need for an agreement as to the amount to be paid in respect of the bill of costs andthat mere delivery of the bill does not suffice.” Per Lord Hamblen
All clear now, then, one first instance judgment, and three appeals later!
Working Group 3: Review of Pre-Action Protocols
This has been ongoing since 2021 through the efforts of another working group. The second and final part of the Civil Justice Council’s (CJC) “bifurcated” review of Pre-Action Protocols (PAPs) was published in November. It followed the CJC’s interim report in November 20211 and Part I of the CJC’s final report published in August 2023. Numerous proposals have been made for the reform of litigation specific PAPS including:-
- Personal Injury
- Housing,
- Judicial Review
- Debt,
- Construction and Engineering
- Professional Negligence
- Media and Communications
The report also recommends the creation of two new PAPs; one for dealing with child abuse claims and another for claims on the multi-track in the Business & Property Courts.
The Master of the Rolls responded by saying that
“This second phase of work provides important recommendations about specific subject-area protocols. I very much hope that their implementation will be prioritised.”
It waits to be seen whether the MOJ implement the recommendations.
Working Group 4: Counsels’ Fees
In July, the CJC appointed a Working Group under the chairmanship of Miles J to consider the outstanding recommendations made by the CJC Costs Review Report published in May 2023. The Working Group is to focus on the issue of guideline hourly rates (GHR) relating to Counsel’s fees, and a new top rate for complex commercial work. It will report in due course to Vos MR, but as GHR are alien to the deliberations of counsels’ clerks when they are negotiating brief fees, the outcome will be most interesting ….a fortiori as the working group members include a Master who was formerly at the Bar, together with the two longest called costs silks!
What else has happened in 2024?
Fixed Costs
The government’s obsession with fixed costs continues, but thankfully the proposal to introduce a fixed costs regime (FCR) for clinical negligence claims up to £25,000 seems to have gone away for the time being. However, CPR 45 was amended on 1 November with the introduction of a new “Fixed Costs Determination” procedure, and an excel costs form called “Precedent U”. Under new section X of CPR 45, any disputes arising from claims subject to fixed costs will be dealt with on paper following a process akin to Provisional Assessment that is to say:-
- no hearing for initial determination
- either party to be able to request an oral appeal of any determination. Costs of the hearing will be paid by the requesting party unless they achieve an adjustment in their favour of at least 20%. Those costs will be treated as an interim application (£250-£333).
Thus, the direction of travel is clear: more fixed costs which in reality does little to control costs, because if there is a shortfall between what the winner recovers in costs and the amount that it actually costs the solicitor to run the case, the deficiency is deducted from the compensation payable by the tortfeasor.
Extension of Alternative Dispute Resolution
It’s one way traffic here too! It will not be long before it is impossible to “have your day in court” unless the parties have gone through a process of ADR first, whether that be an early neutral evaluation, an expert determination or a mediation.
The reasons?
First the amendments to the CPR via the Civil Procedure (Amendment No.3) Rules 2024 and 171st Practice Direction in force 1 October 2024. They made the following changes to:-
CPR 1.1 – The overriding objective of enabling the court to deal with cases justly and at proportionate cost now includes
“promoting or using alterative dispute resolution”.
CPR 1.4(2)(e)- “ordering or encouraging the parties to use, and facilitating the use of, alternative dispute resolution”.
CPR 3.1(2) – The court’s duty actively to manage cases permits the judge to
“(o) order the parties to engage in alternative dispute resolution; “
Parts 28 (fast track, intermediate track) and 29 (multi-track claims) – the courts’ general case management duties now include;-
“whether to order or encourage the parties to engage in alternative dispute resolution”.
CPR 44 – When the court exercises its discretion as to whether to make an order as to costs, in considering the conduct of the parties, the court must have regard to :-
(e) whether a party failed to comply with an order for alternative dispute resolution, or unreasonably failed to engage in alternative dispute resolution.”.
Second, so far as costs are concerned, Master McCloud actually ordered that the parties engage in a costs mediation before the court will indulge them in a detailed assessment. In Elphicke v Times Media Ltd [2024] EWHC 2595 (KB) she gave detailed reasons at paragraphs 133-137, stating that:-
“I shall include a provision of my own motion that the parties must engage in alternative dispute resolution as to the costs claimed by the Defendant. Good reason will need to be shown if the form of that dispute resolution is at any less engaged a level than mediation via Costs Lawyers given that the Bill here more than justifies Costs Lawyer input. ….”
The way ahead is clear, therefore. Make sure that the parties are ready for mediation in 2025. Decline to do so, and they will proceed at their peril as to costs, even if it is the party’s own bill that has been referred to the costs judge for detailed assessment.
Costs Budgeting
In its Report published in May 2023, the CJC recommended Costs Budgeting “Lite”. In the minutes of the CJC Meeting on 4 October, “Lite” has metamorphosed into “Light” with the following recommendation at minute 50:-
“The sub-committee have, therefore, prepared two new, draft, costs budgeting pilots. One for cases within the Business and Property Courts and one for certain other cases valued at under £1m. A new Precedent costs form is also proposed (currently referred to for drafting purposes as Precedent “Z”) and has been modelled on the existing Precedent H costs form…”
Work is also progressing on a pilot for cases where Qualified One Way Costs Shifting applies, it having been recognised at long last that there is no point in defendants having to prepare budgets in personal injury cases : defendants pay no costs if their defence succeeds unless the claimant has been fundamentally dishonest or the action has been struck out, so requiring a budget is a waste of time and costs.
Colin Campbell says “2024 has been a busy one in the world of costs and I look forward to seeing the outcome of the Working Groups’ recommendations and how they will shape the future of cost management practices. I have no doubt that the ever-evolving landscape of costs will continue in 2025 as a direct consequence of the changes we’ve seen already this year, and I am confident that the profession will rise to meet the challenges ahead.”
