Kain Knight Case Law Update August/September 2018
The long hot summer did not cause any downturn in the number of decisions about costs which have been given by High Court Judges and above. What is also notable, however, is that they have been spread over a large area of the law, encompassing most of the relevant Civil Procedure rules involving costs, but not limited thereto. On the contrary, as many eminent legal commentators have previously predicted, we are seeing an increase in the number of solicitor and own client disputes under the Solicitors Act 1974.
Let’s start there!
The Solicitors Act 1974 (and related issues) Solicitors’ Act 1974
What have been called “fishing expedition cases” have on been on going for a year or so in the Senior Courts Costs Office. They concern the proliferation of applications by ex- clients for disclosure of copies of documents and files belonging to their former solicitors (but not to the clients), so that freshly instructed solicitors can advise whether they should apply for a detailed assessment of the original solicitors’ fees pursuant to section 70 of the Act. The rationale behind these applications is to reveal whether the clients received the correct advice about funding at the outset. Suppose, for example, that the client had been a member of a Trade Union which was willing to provide a costs indemnity for the claim. In those circumstances, why would the client have signed up the client to a Conditional Fee agreement with an ATE insurance premium payable out of the relevant damages recovered? Some, however, on advice from their then solicitors, did so, leading to entities such as Checkmylegalfees have become active in this area, in order to obtain disclosure of documents from the solicitors’ files which might provide answers.
On the Masters’ corridor, there had been split decisions on this point. Now we have the answer (see Hanley v JC & A Solicitors  4 Costs LR 693 -Soole J). Neither the court under its inherent jurisdiction over its officers, nor under s.68 of the Act, can the solicitors be ordered to deliver up or provide copies of papers that they own (and the clients do not). Empty net for the fishermen.
Next Robinson v EMW Law LLP  4 Costs LO 477 and our old friend, the indemnity principle. This was a long running dispute between EMW solicitors and the firm’s erstwhile partner Mr Robinson (“Mr R”) in which he was entitled to costs from his former employers. Simplistically, there were two issues: first, was there a retainer between Mr R and his new firm, Fidelity Law Ltd (“F”) under which he was liable to pay the firm any fees for acting for him ; second, what, if any, charges could Mr R recover for work done by him on his own case, when he was employed as a consultant solicitor at F?
On the first issue, Roth J decided there was a complete absence of evidence of any agreement, express or implied, between Mr R and F, that under no circumstances would he be liable for their costs, save in respect of work he did personally on his own case. For the latter, F would not charge him.
What of work done by Mr R which, if he had not undertaken it, another solicitor at F would have had to do so? Could Mr recover his charges as a practising solicitor for doing work on his own case in his capacity as a consultant at F even though F had agreed that no charge would be made where that was the case? At first sight, attempting to recover those costs from EMW would appear to infringe the indemnity principle.
No so. The answer took the court back to the Victorian decision in London Scottish Benefit Society v Chorley  13 QBD 872 known as the Chorley principle that :-
“… A solicitor who sues or defends in person will be entitled, if he is successful, to full costs, subject to certain deductions, of which his unsuccessful opponent will get the benefit “ [i.e costs of taking instructions from and attendances upon himself]
It followed that where Mr R had undertaken work for the firm which relieved F from having to use another fee earner to do so, the Chorley principle applied and he was entitled to recover his time. The rate to be allowed was a solicitor’s rate, that being £200 per hour. Even then, there was a saving to EMW because Mr R could not charge for attending upon himself or for taking instructions from himself! A good-sense decision by Roth J.
Finally, a case where it all went wrong and a salutary reminder that even the biggest firms can make fundamental mistakes, here in relation to the retainer. Fancourt J’s observations in Griffith v Gourgey  3 Costs LR 605 explain concisely what happened:-
“Improbably”, he said, “ …….. three successive law firms…wrongly believed that they had the authority of the directors of [the defendant company] to represent it in the proceedings.”
The result? Those solicitors having gone onto the court record on behalf of a defendant company with whom they had no retainer, found themselves defendants in claims against them for breach of warrant of authority. Not only that, due to their “negligent mistakes” innocent parties had been adversely affected to the extent that their conduct had been “out of the norm”. Costs were awarded against the firms on the indemnity basis to ensure that this was “ ..not a situation in which the proportionality of costs to the matters in issue should play a part.”
Hourly rates, the “local solicitor” point and counsel’s fees
A couple of cases which will be useful when arguing hourly rates at detailed assessment and whether the choice of solicitor instructed by the winning claimants had been objectively reasonable.
In JXA v Kettering General Hospital NHS Foundation Trust  4 Costs LO 469 Goss J appears to have reversed the decision of the court below that the objectively reasonable choice of solicitor to handle a cerebral palsy claim worth potentially £20m was a firm in Outer London, rather than the City firm used. However, the decision allowing hourly expense rates appropriate for a notional Outer London firm, remained unchanged, so the City firm’s rates allowed both below stayed at respectively for Grades A,C and D, £350, £200 and £150 against of claims of up to £420, £270 and £190 per hour.
In Hugh Cartwright & Amin v Devoy-Williams  4 Costs LO 437, it was brief fees which were under the spotlight. On the evening before a mediation was due to take place, the dispute had been settled. Below, the court had reduced the brief fee as “counsel could have done something else the next day”. Nicola Davies J reversed that decision holding that no counsel properly observing his or her duty would have stopped working on the case until informed of a final settlement. Since that had not occurred until 10:30 PM on the night before the hearing, the barrister was entitled to be paid the brief fee in full . Whether or not alternative work could have been undertaken had no relevance to the fee payable on a brief properly delivered. Brief fee allowed in full.
HMRC v Gardiner  4 Costs LO 451 (Slade J) concerned the indemnity principle and counsel’s fees in the First tier Tribunal (Tax Chambers). As to the former, HMRC’s attempt to having a nil assessment of the costs ordered against them on the basis of non-compliance with the indemnity principle, sank with all hands : Mr Gardiner had been an honest witness and his evidence that he was liable to pay counsel, was to be believed. As to counsel’s fees, the Revenue had held up its hands and had indicated that it would not be adducing evidence at the tax appeal. That meant that counsel’s would be less than would have been the case had the appeal been vigorously contested. That justified a reduction in the brief fee from £25,000 to £12,000.
CPR Part 36
Back to the Civil Procedure Rules and much has been going on.
First, a trio of interesting Part 36 cases to look out for.
In Tuson v Murphy  4 Costs LR 733, the claimant had accepted a Part 36 offer after expiry of the 21 day period allowed for doing so, having been guilty of dishonest and misleading conduct regarding her ability to work. The defendant argued that to reflect that, her costs retrospectively up to that date should be disallowed. Not so said the Court of Appeal. The Part 36 offer had been made in the full knowledge of the claimant’s non-disclosure and with no special terms as to costs having been made. It followed that she was entitled to her costs up to the date she should have accepted the offer but would pay the defendant’s costs thereafter.
Holmes v West London Mental Health Trust  4 Costs LR 763 hit the legal headlines not because of Part 36 but because of what HHJ Gore called “bimbling” by which we think he meant inexcusable delay! The case had “bimbled” on for years, the tortious act having occurred in February 2012, but with the trial window not opening until 1 October 2018 and then to last until 30 April 2019. The claimant had, however, made a Part 36 offer on 17 February 2017 to recover 95% of full liability which had eventually been accepted by the defendant out of time. That left the costs. The judge held that the “bimbling” by the defendant was not the norm : indeed it had been “out of the norm” which justified an order for the costs of the action to date to be paid to the claimant on the standard basis up to the end of the relevant period for acceptance, and thereafter on the indemnity basis.
Hoping to settle the case pre- proceedings by making an offer? Be careful. An offer purportedly made under CPR Part 36 cannot have the costs consequences under the rule pre the commencement of proceedings : nor can it in respect of a new claim intimated by claimants by way of a proposed amendment to the particulars of claim in an issued case, but which has yet to be the subject of a court order granting permission see Hertel v Saunders  4 Costs LR 879 in which the Court of appeal held that to decide otherwise would be wrong in principle. An offer of settlement can only be a Part 36 offer under CPR 36.5(1)(d) if it refers to a “ claim or part of a claim of an issue which arose in the claim”. Accordingly, an offer to settle made in respect of a claim which has been proposed or intimated, but has yet to be incorporated into pleadings, it cannot be effective under the Part 36 regime and have the costs consequences thereof. Prospective offerors beware!
Security for Costs under CPR 25
And now a trio of cases under this rule!
The first illustrates what constitutes (or in that case did not) a “change in circumstances” justifying a variation in the order for security for costs. Catalyst Management Services v Libya Africa Investment Portfolio (2018)  4 Costs LR 807 concerned proceedings for damages for wrongful termination of a management agreement in which the claimant had been ordered to provide security for costs under CPR 25 in the sum of £1.75m but had failed to do so. The court found that there had been no material change in circumstances providing grounds to set aside the order. An e mail purporting to be evidence of an agreement to provide third party funding, only for the funder to have withdrawn at short notice, had illustrated that no funding had, in fact, been in place when it had been sent and there had been no funding available at the time of the hearing. The original order was to stand.
Next Accident Exchange Ltd v Mclean and Others  4 Costs LR 713 Teare J . This concerned the timing and amount of security to be ordered. The defendants had delayed making their application. When the issue of security had been raised two years earlier, the claimants had contended that the condition in CPR 25.13(2)(c) had not been satisfied namely that they would be unable to pay the defendants’ costs. Subsequently, the claimants had accepted that that position had changed, but the defendants had deferred their application. To reflect that fact, the court, on being satisfied that the making of an order for security would not stifle the claim, directed the claimants to give security but limited to 60 per cent of 60 per cent of the costs that had already been incurred and to 60 per cent of the costs to be incurred from the end of July 2018 until the finish of the trial.
Finally in Chernukhin v Danilina  4 Costs LR 859, the court was concerned with security where the claimant was resident in a non-Convention jurisdiction (viz not in a state which was a Brussels contracting State, a state bound by the Lugano Convention or the Hague Convention, nor a Regulation State – (see generally CPR 25.13(2)(a)(ii)). In fact the claimant was a Russian national resident in Moscow and there was a real risk of non-enforcement of an order for costs. Since the purpose of security was to provide protection against the relevant risk and the starting point was that the defendant be entitled to security for the entirety of the costs, the court held that there was no room for discounting the security by grading the risk using a sliding scale approach. Accordingly, the full amount of security would be ordered without any discount.
Conditional Fee Agreements
Apart from Part 36, there have probably been more costs cases about CFAs than anything else since the Woolf reforms of 1998. The first such cases were to do with the CFA Regulations. The complicated case of FPH Law (a firm) v Brown (Y/A Integrum Law) (2018) 4 Costs LR 823 is a throw-back to those days. In proceedings in which the court was required to determine as a preliminary issue, whether damages could be recovered for the loss of chance to receive a sum from a paying party for costs incurred under a CFA, in respect of which no costs had been recovered on detailed assessment, the CFA having not complied with the CFA Regulations 2000 then in force. At first instance, Slade J had held that the claimant could seek to recover damages for the loss of chance, but its success could only be determined at trial. The Court of Appeal agreed, holding that whilst sometimes things went wrong with CFAs, it would be going much too far to say that where, as there, the CFA was unenforceable, that should always result in the striking down an earlier bone fide compromise of costs based upon that CFA. Appeal dismissed.
At High Court level, the court has been split about whether the last agreed or approved budget can be varied by the trial judge, for example if, through no fault of the parties, the trial overran. In Thomas Pink v Victoria’s Secret  3 Costs LR 463 Birrs J said “Yes” – Have another £58,000!” , but in Elvanite v AMEC  4 Costs LR 612, Coulson J said “No”:-
“The certainty provided by the new rules would be lost entirely if the parties thought that, after trial, the successful party could seek retrospective approval of the costs incurred far beyond the level of the approved costs management order “.
Now we have the answer handed down by the Court of Appeal on 12 October in Sony Mobile Communications International AB (a company incorporated under the laws of Sweden) v SSH Communications Security Corporation ( a Company incorporated under the laws of Finland )  EWCA Civ XXX . judgment 12 October 2018
TO BE UPDATED ON OR AFTER 12 OCTOBER
For some general guidance about how to go about costs budgeting when there is a massive disparity in the proposed budgets of the claimant and third party (£1.5m each), and that of the defendant (£288,000!), Red and White Services v Phil Anslow Ltd  4 Costs LO 425, is worth a read. Birss J decided that the budgets at £1.5m were not only high but also disproportionate. He considered that the court should have in mind what was at stake, both in terms of quantum and wider issues, and court’s own experience of high-value, commercial litigation and the defendant’s budget. Having regard to these factors, the appropriate sums to allow in respect of each of the claimant’s and third party’s budgets was £800,000 each.
Kain Knight had a strong presence at this year’s Costs Law Reports Conference on 27 September and with 125 other delegates, heard leading Costs silk Nicholas Bacon QC criticise heavily, the lack of guidance about how the proportionality test in CPR 44.3(5) should be applied, getting on for six years after it was implemented. Dismayed by the Court of Appeal’s decision to refuse permission to appeal in May v Wavell Group, square in his sights was Reynolds v One Stop Stores Ltd (HHJ Auerbach- Norwich County Court 21 September 2018- unreported). In that case, the claimant had settled at the door of the court for £50,000 for personal injuries having sought £175,000 in her schedule of loss. The case had been costs budgeted and the claimant’s last approved budget had been in the sum of £120,000. Following a line by line assessment, the Regional Costs Judge had allowed £115,000 for reasonable and necessary costs. With the agreement of the parties, he had then applied CPR.44.3(5) and reduced those costs to £75,000, which he considered to be a proportionate amount to allow in a claim which had settled for £50,000. On appeal to HHJ Auerbach, his reasoning was upheld on all grounds. Mr Bacon’s view of that decision was that justice needs certainty and rule 44.3(5) as currently being applied is little more than guess work. Whether or not the Court of appeal, having turned down May, will be willing to grant permission for a second appeal, is another matter.
CPR 38 Costs on discontinuance
The default costs order when a party discontinues the action under CPR 38 is that that party must pay the opponent’s costs on the standard basis. The rule also provided for variation, so that, for example, the “discontinued against ” party can apply for an indemnity basis costs order. We can report on two recent examples ;-
In PJSC Aeroflot- Russian Airlines v Leeds  4 Costs LR 775, the claimant had made serious and consistent allegations of fraud which had been abandoned without explanation and the proceedings discontinued, thereby depriving the defendants of any opportunity to vindicate their reputation. Such conduct justified an indemnity basis costs order being “out of the norm “. The fact that the defendants had refused to mediate made no difference : the allegations of fraud and serious wrongdoing made the proceedings intrinsically unsuitable for mediation. Order made for payment of all the defendants’ costs to be assessed on the indemnity basis for the whole proceedings.
BAE Systems Pension Funds Trustees Ltd v Bowner & Kirkland Ltd (2018) EWCA 1222 (TCC) illustrates a different point : what happens if the claimant discontinues against one defendant but succeeds against another? In BAE held that although the claimant could not be criticised for having commenced proceedings against all possible defendants where the limitation period was about to expire, whether it had or had not been reasonable to do so, was not a factor sufficient to displace the default presumption. The claimant in bringing the action had taken the risk that the proceedings might prove to be ill judged, as had been the case as against the defendant upon whom notice of discontinuance had been served. Accordingly, no adjustment to the default rule was appropriate.
Qualified One Way Costs Shifting under CPR 44.13
By now, everyone knows that in a lost personal injury claim, QOCS protection means that the defendant’s order for costs cannot be enforced unless the court gives permission. That has thrown up the following conundrum: where an action is for more than just damages for personal injury and is a “mixed” claim, is QOCS protection still automatic? In The Commissioner of Police of the Metropolis v The Chief Constable of Greater Manchester Police  4 Costs LR 897 Whipple J made clear that it is not : were that to be the case, mixed claims would have automatic protection which would permit actions to be dressed up as personal injury claims in order to obtain that benefit. Accordingly, a judge was to be given a discretion to limit the QOCS protection discretely to the personal injury aspects advanced, meaning that in the case in point, it was open to the court to order the claimant to pay the costs of the unsuccessful Data Protection and Human Rights issues which had been pleaded.
Non-Party Costs Orders
Planning to make an application for costs against a non-party to the action? Better give notice of your intention to do so, otherwise you are wasting your time. So held the Court of Appeal in Sony /ATV Music Publishing LLC v WPMC Ltd (2018) EWCA Civ 2005 reversing the decision of the court below. The absence of any form of warning proved fatal to the application: the non-party, albeit an individual who had provided limited funding for and had hoped to benefit from a successful outcome to the litigation, had been deprived of any realistic opportunity to settle or otherwise protect himself against the adverse effects of a non-party costs order or, indeed, to have abandoned the defence at an earlier stage. Application for a non-party costs order dismissed.
Power of Costs Judges to award costs of the action
Have Costs Judges been all powerful since the CPR replaced RSC Order 62 in 1998? The answer is that yes, some distinctions such as that they were only “the court” when dispensing justice within Solicitors Act matters, have been changed, but overall it is “No” and HHJ Kramer’s decision in Old Street Homes v Chelsea Bridge Apartments Ltd  EWHC 1162 (Ch) explains why that is the case.
In Old Street Homes, a Deputy Chancery Master had ordered that who was to pay the costs of various freezing order hearings and those relating to possible adjournments, should be determined by a Costs Judge on a detailed assessment. On appeal, the appellant contended that the Costs Judges do not have power to determine costs incurred in ongoing proceedings. The Respondent argued that they do, since costs are a matter for the discretion of “the court” and the Costs Judges are “the court “ for that purpose.
The appellant was correct HHJ Kramer held. Two sets of proceedings were involved and those before the Costs Judges were different proceedings to those in the Chancery Division. The latter were the proceedings for the freezing injunction and other relief being sought, whilst the former were proceedings for detailed assessment started under CPR 47. It followed that the Deputy Master’s order was wrong in law since the Costs Judge was not seized of the Chancery proceedings and could not decide which party should pay the costs. It followed that the order would be set aside so the Costs Judges are not all powerful after all even if the Deputy Master thought that they were!
Let us suppose, however, that there had been no appeal. What could or should the Costs Judge have done faced with an order that appeared to be wrong in law? The answer is to obey it since it is trite that a Costs Judge cannot decline to give effect to an order of the court even if this appears to be ultra vires or just plain wrong! See Cope v United Dairies  Costs LR (Core) 23 followed by Mann J post the CPR in Business Environment Bow Lane Ltd v Deanwater Estates Ltd  4 Costs LR 672.
Allocation and re- Allocation under CPR 26
Francois v Barclays Bank PLC  EWHC 3531 (QB) (Slade )J is an unusual case. Ms Francois had alleged that the bank’s staff had refused to allow her to withdraw £500 in cash on account of her race. The judge below had disagreed and dismissed her claim. The issue was the what to do about the costs. The claim had been allocated to the small claims track but the judge had ordered that they be paid as a fast track claim. However, Ms Francois’ case was that no order on the court file nor one that had been communicated to her had ever re-allocated the case to the fast track. That was good enough for Slade J to allow her appeal : in her judgment, the allocation of a claim to a particular track was a significant matter, not least because a claimant’s exposure to costs in the small claim as track would be minimal. Allocation and re-allocation under CPR 26.9 must be notified and since that had not happened, it followed that the judge’s order on costs (made on 20th March 2013!), could not stand and Ms Francois’ appeal would be allowed.
As usual, theses are a selection of the costs cases likely to be of practical help to practitioners. We cannot feature every case, but if you need any further details about the featured cases, or, indeed , any others which you come across, please contact Matthew Kain at [email protected] or Colin Campbell at [email protected] who will be glad to help.