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Kain Knight Case Law Update January 2018


This update focuses on decisions handed down in the hectic weeks before the Christmas holiday began. 2017 has undoubtedly been a “best ever” year in terms of the number of costs appeals which have been heard by the Court of Appeal in a calendar year and never have there been so many costs cases at lower levels, either, come to that. As always, we have not reported every decision and our focus has been on those which are informative and likely to be of practical use to the profession. Of particular note in this issue are three Court of Appeal decisions handed down in late November and December- McMenemy, BNM and Lowin. If you require any further information, please contact Matthew Kain at [email protected]  or Colin Campbell at [email protected].


After-the-Event Insurance Premiums

McMenemy v Nottingham University Hospitals NHS Foundation Trust [2017] 6 Costs LR 973   was an eagerly awaited decision on whether it was reasonable to take out an After-the-Event insurance policy in a low value clinical negligence claim before the NHS Trust had had an opportunity to admit liability, in circumstances where the block-rated premium was substantial (over £6,000) and exceeded the damages of £2,500. Held – it was! Entering into a block rated 18 policy at the same time as signing the CFA was a reasonable way to conduct litigation since block-rated premiums were lower than what would be the case for a “bespoke“policy. Costs judges still do not have the experience to second-guess the insurance market, still less to de-construct a policy into constituent parts. That said, the court made it clear that it was not dealing with questions of quantum only principle. Quantum will be addressed in July 2018 when the court hears West v Stockport NHS Foundation Trust.

“Defence de de-construction” was also the approach in Percy v Anderson-Young {2017] 6 Costs LR 1013 in which Martin Spencer J allowed a premium of £533,107, which had been purchased to provide £500,000 cover against adverse costs when the matter had settled within 45 days of trial. He held that the District Judge’s deduction of 75%, thereby allowing just £82,500 was arbitrary and had been made without any evidence that the underwriting risk had been mismanaged. The defendant had chosen to fight the claim bullishly and should have anticipated that the premium would be significant. Decision below reversed. Premium allowed as claimed.


Conditional Fee Agreements

Budana v Leeds Teaching Hospitals NHS Trust [2017] 6 Costs LR 1135 was another eagerly awaited decision. Under the “old” pre-1 April 2013 CFA regime under which success fees and ATE premiums in principle were recoverable between the parties, the issue for decision was whether it was permissible as a matter of law to assign a CFA to a successor firm of solicitors (for example on a name change, incorporation or sale of the book of business) and for the CFA to continue on the same terms. Yes, said the Court of Appeal, although the Lord’s Justices were not unanimous about the route they took to reach their decision. However, as Gloster LJ put it

“…There is no reason in principle why rights and benefits under a firm of solicitors contracts with its clients or its books of business should not be capable of assignment in today’s business environment…Given the circumstances in which most claimant personal injury litigation is now conducted … the CFA between a client and his solicitor in such a case lacks the features of a personal contract. What the client wants is representation by a competent practitioner…”

A word of caution. The paperwork in Budana was comprehensive, almost too much so and the client had been fully involved. If, in a future case, the point crops up, it will be essential to ensure that the client is fully involved in the assignment (see judgment paragraph 84) and provides his or her consent for it to be effective.



BNM v MGN [2017] 6 Costs LO 829 was also eagerly awaited but unfortunately it has taken the prize for being the most disappointing case of the year. The issue was proportionality. The “old” pre-1 April 2013 rule required the court to carry out a global approach: if the costs were or appeared to be disproportionate, then they needed not only to be reasonable but also necessary. “New”CPR 44.3(5) added the requirement that from 1st April 2013, standard costs also needed to be proportionate but without providing any guidance about whether the rule should be applied at the outset of the assessment, item by item during it, or at the end, nor what yardstick should be used to decide by what sum reasonable and necessary costs should be reduced in order to make them proportionate. BNM was expected to be the fount of all knowledge on these points.

Sadly, it was not. The case answered one point namely that where a CFA was signed before 1 April 2013, CPR 44.3(5) does not apply to additional liabilities, even if, as was the case in BNM, the ATE premium in question was incepted after that date. Subjecting both base costs and the additional liabilities to the new proportionality test had been wrong in principle and the final costs certificate in the sum of £83,960 was set aside with the matter to be remitted to the Master to reconsider the proportionality of costs applying the “old” test.

Hopes for some guidance lay with the decision on appeal in May v Wavell Group PLC [2016] 3 Costs LO 455, albeit that the appeal was heard in January 2017 and the reserved judgment was still awaited from HHJ Dight nearly a year later! That judgment has now been handed down (LTL 15/1/2018). The judge overruled the decision below in which the court, when applying the proportionality test to the reasonably and necessarily incurred costs (as assessed) had reduced them from just under £100,000 to £35,000 plus VAT. In doing so, Judge Dight found that the sums in issue had been undervalued and too little weight had been given to the complexity of the litigation. Rule CPR 44.4(5) was not to be used as a blunt instrument to make substantial reductions to the reasonable costs to bring them down to a proportionate level. The appropriate amount of proportionate costs to allow was thus £75,000 plus VAT applying these principles, so Mr May won his appeal to that extent, but as this was a decision at County Court level, we are not much further on in understanding how Rule 44.4(5) is to be applied and we do not know of any other appeal waiting to be heard on this point.


Qualified One Way Costs Shifting (QOCS)

In proceedings for personal injuries, if you lose, you do not pay the costs. Although the winning defendant will receive an order in their favour, it cannot be enforced without the permission of the court. That was a Jackson reform embodied in CPR 44.13 (QOCS). However QOCS protection can be lost in a “fundamentally dishonest” claim under CPR 44.16(1).  In Howlett v Davies [2017] 6 Costs LO 761 the claim had been dishonest within the rule because the accident alleged to have taken place had never occurred but had been staged. However “fundamental dishonesty” had not been pleaded, so the argument advanced by the Howletts was that CPR 44.16(1) could not be invoked. Not so, said the Court of Appeal. An insurer could invoke the rule regardless of whether there had been a reference to fundamental dishonesty in the defence.


Part 36

It has been a busy couple of months for Part 36.

In Optical Express Ltd v Associated Newspapers Ltd [2017] 6 Costs LO 803, the court dealt with the costs consequences of a late acceptance of a Part 36 offer in a libel action pleaded at £2.89m  but which had settled for “ just”£125,000.

In Lokhova v Longmuir [2017] EWHC 3152 (QB), the court considered whether a defendant’s  part 36 offer accepted late,  should confer an entitlement to indemnity rather than standard basis costs and decided that it should due to the claimant’s “highly unreasonable” decision  to press on with an amendment application, amongst other things.

In Mohamed v the Home Office [2017] EWHC 3051 (QB), it was the level of enhanced interest payable by the losing party, after the claimant had beaten his own Part 36 offer and was enjoying the benefits conferred by CPR 36.17(4), which was the issue before the court.

In Houghton v PB Donoghue (Haulage & Plant Hire) Ltd [2017] 5 Costs LR 857, late acceptance was again under the spotlight, this time resulting in the refusal of the court to  permit the claimant to accept an offer of £330,000 made six months earlier, two days into the trial (which the claimant subsequently lost a week later).

Finally, Lowin v Portsmouth & Co [2-17] EWCA Civ 2172 has resolved the relationship between CPR 47.15(5) and CPR rule 36.17(4) in proceedings for provisional assessment where a receiving party has beaten their own part 36 offer. In that case, the claimant had done so by £255, having offered to accept £32,000! Below (Laing J) had said that in such an eventuality, the fixed costs of £1,500 plus VAT under CPR 47.15(4) did not apply. The Court of Appeal ruled to the contrary: whilst the costs of assessment would be payable on the indemnity basis, they remained capped at £1,500. Success under CPR 36 was not an authority for the proposition that the cap no longer applied.


The Solicitors Act 1974

Cases under the Act seldom disappoint and the difference between interim bills, interim “statute” bills and final bills, still trip solicitors up. In Richard Slade & Co Solicitors v Boodia [2017] 6 Costs LO 781 the firm had submitted monthly accounts for profit costs and separate bills for disbursements incurred over the same periods. Contrary to the solicitors’ view that the bills were “statute” bills and it was too late to apply for assessment under section 70, Slade J held that disbursements are to be regarded as costs for the purposes of statute bills and that as none of them had included a charge for both profit costs and disbursements, they could not be interim statute bills. Accordingly, the client’s time for applying for assessment would not begin until delivery of the last bill in the series.


Another Solicitor case

GSD Law Ltd v Wardman [2017] 6 Costs LR 1253 is not actually a case under the Act, but it concerned the court’s powers in relation to misconduct during the assessment process, in which it had been alleged that the solicitors had sought to claim higher hourly rates than those properly claimable, had charged for work not actually done, and had sought additional liabilities which were either not payable or which were less than the amounts claimed. The Court of Appeal upheld the decisions below that the conduct and dishonesty of the solicitors had been sufficiently egregious as to make the only appropriate sanction -the disallowance of all costs, with the firm also to pay costs of the detailed assessment proceedings.


Relief from sanctions for failing to file a costs budget under CPR 3.13

Who can forget Lakhani v Mahmud: one day late with your costs budget and your costs going forward are limited to applicable court fees (see CPR 3.14)?

The defendant in Freeborn v Marcal [2017]  6 Costs LR 1103 might consider himself fortunate that a different judge was hearing his application for relief from sanctions. In Freeborn, the court office had written to the parties notifying them that the date for filing budgets was 7 days (not 21 days) before the case management conference. Although it does not appear from the transcript that there was any judicial involvement in the letter, still less had an order been sealed, Coulson J decided that the communication amounted to the court having “ordered otherwise” under CPR 13.13, so the 21 day time limit did not apply. Having complied with the terms of the letter, the defendant had not been in breach of his obligation to file his budget, no application for relief from sanctions was needed and the claimants would pay the costs of opposing it!

That is it for the 2017 cases! If any additional information is needed about the cases, please do not hesitate to ask Matthew Kain or Colin Campbell.


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