Kain Knight InBrief 26 by YUMYUM

Issue 26 | Feb 2017

Costs InBrief

Solving your costs problems in the new legal landscape

Inside this issue 02 Provisional Assessment - the Roulette Wheel

05 2017 and the Crystal Ball - What can we expect in costs?

2 | KAIN KNIGHT INBRIEF

Provisional Assessment - the Roulette Wheel

he Final Report had suggested that Provisional Assessment should be piloted for a year for bills up to £25,000 with the option to have an oral hearing at which the electing party would pay both sides’ costs if it did not do better than the Provisional Assessment by a defined percentage “possibly 10%”. Crucial issues were to be monitored during the pilot including (1) the demands which Provisional Assessment would make upon the resources of the Court (2) how many assessments would be taken further and (3) the costs savings which such a procedure would make. As we now know and to the surprise of

First, the law From 1 April 2013, the receiving party is entitled to the costs of the Detailed Assessment proceedings but the provisions of Part 36 apply (CPR 47.19(1)-(4)). That means that where a receiving party is willing to make an offer to the paying party of an amount at which it will take for the costs, if that offer is rejected and more is awarded by the Court on a Provisional Assessment, the jackpot under CPR 36.17 (4) is available, namely:-

For receiving parties, however, help is at hand for those willing to make a flutter on the roulette wheel!

the then serving Costs Judges, there was no pilot, the figure for bills was fixed at £75,000 (not £25,000) and where there was a challenge to a Provisional Assessment, the party requesting the oral hearing paid the costs unless it achieved an adjustment of 20% (not 10%) or more of the sum provisionally assessed (CPR 47.15(10)). Not only that, the procedure, required a bill, points of dispute, (plus optional replies) and a Court fee, all for the price of £1,500 plus VAT where the proceedings did not go beyond Provisional Assessment (CPR 47.15(5)). The trade-off for that was that the Court would use its best endeavours to complete the assessment “within six weeks” (PD 14.4(1) to CPR 47).

Anecdotal evidence, but based to a considerable extent upon fact, is that Provisional Assessment has proved to be “hit and miss”, that the time it takes for the Court to deal with a Provisional Bill is seldom six weeks and more like six months, and that the procedure for review is a waste of time. The reason for the latter is that unless something has gone badly wrong, it is impossible as a matter of mathematics for a receiving party to obtain a favourable adjustment of 20% if more than 80% of the Bill has been allowed. Likewise for a paying party, if the Court has allowed 80%, the task of reducing the bill by a further 20% is a formidable, if not impossible, one. The result: little justice all round as the costs of drafting the bill, dealing with the points of dispute, agreeing the arithmetic and getting paid is not something that can be accomplished for £1,500. For receiving parties, however, help is at hand for those willing to make a flutter on the roulette wheel! Here is how.

Interest on the costs awarded at a rate not exceeding 10% above base rate starting from the date on which the offer should have been accepted:

-- costs

of the assessment on the indemnity basis from the same date

-- interest on those costs at a rate not exceeding 10% above base rate

-- an additional 10% of the costs provisionally allowed

“Hooray!” “you Mr paying party owe me not only £70,000 but another £7,000 because I beat my own Part 36 offer plus enhanced interest, plus the costs of the Provisional Assessment on the indemnity basis” The receiving party

Second: This example The Bill is brought in at £75,000 and assessed at £70,000. When the ceremonial unveiling of the offers under CPR 47.15 PD 14.3(d) takes place, it transpires that the receiving party would have taken £65,000 under Part 36.

“It seems to us that one consequence of our conclusion is that it increases the incentives on parties to accept sensible Part 36 costs offers because, if they do not, then there is the potential for them to incur further costs if that rejection is proved wrong by a Detailed Assessment”. Mrs Justice Laing

“Hooray” says the receiving party, “you, Mr Paying Party, owe me not only £70,000 but another £7,000 because I beat my own Part 36 offer plus enhanced interest, plus the costs of the Provisional Assessment on the indemnity basis”. The additional sum is what it says it is: 10%, but we know that the costs of the Provisional Assessment are only £1,500 so beating the offer won’t make any difference to the receiving party’s actual costs.

Or are they? This very point came up in Lowin v Portsmouth & Co Ltd [2016] Costs LR. Lowin’s Bill claimed £55,086.52 but had been provisionally assessed at £32,255.35 a reduction of over 41%. That sum by a whisker had beaten Lowin’s Part 36 offer of £32,000. Portsmouth could not resist the consequences of CPR 36.17(4) but argued that the costs of the Provisional Assessment should still be £1,500. Lowin contended that Part 36 was not displaced by the fixed fee regime, a proposition with which Mrs Justice Laing agreed. So far, very good for the receiving party but the rewards from the Part 36 roulette wheel do not stop there. Not only has the receiving party escaped from the fixed costs regime, but under Part 36, the costs from the date from which the offer should have been accepted are payable on the indemnity basis, so proportionality does not apply since CPR 44.3(2) applies only to standard basis costs. It follows that by making a well judged Part 36 offer, Christmas for the receiving party can come early this year. But a word of caution, in 2017 matters might not be quite so good as permission has been sought from the Court of Appeal against Laing J’s decision in Lowin. “It seems to us“ said Mrs Justice Laing “that one consequence of our conclusion is that it increases the incentives on parties to accept sensible Part 36 costs offers because, if they do not, then there is the potential for them to incur further costs if that rejection is proved wrong by a Detailed Assessment”. If it is thought that the table is now loaded in favour of receiving parties, those paying the costs should do what they can to protect themselves from such outcomes. Stage one is to take professional advice following receipt of the Bill about the amount the receiving party is likely to recover on a Provisional Assessment. Stage two is to make an offer under Part 36 which is both sufficient to tempt the receiving party but, more importantly, to put that party at risk as to future costs. Since a failure to recover more on assessment than the sum on the table will mean that the receiving party will be ordered to pay the paying party’s costs on the indemnity basis from the date upon which the offer should have been accepted. That will include the Court fee.

There is, however, another way to resolve bills which otherwise would be sent for Provisional Assessment. This is by way of a mediated “Paper” Assessment, which is a service offered by Costs Alternative Dispute Resolution (“CADR”) (www.costs-adr.com). Provided both paying and receiving parties are willing to do so, the bill and any offers, points of dispute and replies which they wish the Assessor to see, can be presented for a Paper Assessment to be carried out within 28 days with written reasons to be provided and all arithmetic undertaken by the Assessor. There is a CADR panel of Assessors and it is up to the parties to decide who they want to undertake the assessment. The outcome can be binding or non-binding, again at the insistance of the parties. Further details can be obtained from the Registrar at CADR, Hannah Rawlins (hannah.rawlins@costsadr.com)

4 | KAIN KNIGHT INBRIEF

Looking ahead to 2017 What will the Court of Appeal be up to? Who said satellite litigation about costs would end with the Jackson reforms? These are cases which M’luds are expected to hear this year :

• BNM v MGN [2016] 3 Costs LO 441. Leap- frogged appeal on how to apply the “new” proportionality test, but currently adjourned pending the Supreme Court deciding Miller v Associated Newspapers Ltd and Eight Representative Claimants v MGN Ltd.

•

Kupeli v Cyprus Turkish Airlines [2016] 3 Costs LO 365 . CFA cancellation of contracts notice

•

Budana v Leeds Teaching Hospitals NHS Trust Assignment of CFA

•

Surrey v Barnet Hospitals NHS Trust [2016] 4 Costs LO 571 Late transfer from legal aid to CFA

•

EMW Law LLP v Halborg [2015] 4 Costs LO 427. Litigant in person rate. Is an LLP an LIP?

•

Lowin v Portsmouth & Co [2016] 5 Costs LO 717. Provisional assessment : does an effective Part 36 offer trump CPR 47.15(5) fixed costs of £1,500?

•

Radford v Frade [2016] 4 Costs LO 653. Doing work outside the scope of the CFA : rectification of the CFA ; when can you do it?

• McMenemy v Peterborough & Stamford Hospitals NHS Foundation Trust Unreported. Quantum of ATE premium.

•

Hyde v Milton Keynes NHS Foundation Trust [2016] 1 Costs LR 1. Transfer to CFA before discharge of legal aid certificate

It promises to be an eventful year ahead.

2017 and the Crystal Ball - What can we expect in costs?

t is now seven years since Sir Rupert Jackson published his Final Report into civil costs (see “Review of Civil Litigation Costs: Final Report”). Most of his proposals were accepted by the government of the day, with the exception of his recommendation that the indemnity principle be abolished (shame about that - after all, it was the indemnity principle that was at the root of the “Costs War 2000 – 2010”!). So we now have costs budgeting in the multitrack, a different proportionality rule, no recoverable success fees or ATE premiums any more except in privacy and mesothelioma claims, Provisional

Assessments, a re-jigged Part 36 regime and a pilot scheme for an electronic bill to name but a few. Is it safe to assume, therefore, that all in the civil litigation garden is green and tranquil?

Is it safe to assume, therefore, that all in the civil litigation garden is green and tranquil?

The answer, as we all know, is that it is not. With Court closures, conflicting decisions, disinterested Judges who hate costs budgets, repeated interferences and more changes to the procedure rules before the last amendments have bedded in, the lot of the 2016 crop of lawyers has not been a particularly happy one. Is there something that we lawyers can really look forward to in 2017? We have been reading the tea leaves and here is what they have told us to expect in no particular order save alphabetical!!

6 | KAIN KNIGHT INBRIEF

Conditional Fee Agreements A key recommendation of the Jackson Report was that success fees and after-the-event insurance premiums should cease to be recoverable from paying parties with effect from 1 April 2013, in most types of civil litigation. That came to pass (privacy, mesothelioma and insolvency exempted), but it left the problem of what to do with cases which began life using pre-1 April 2013 CFAs but which concluded after that date. What would happen to the success fees and ATE premiums? The answer was status quo: if you were a pre-1 April 2013 litigant under a CFA, you stayed that way. If you were a post-1 April 2013 litigant under a CFA, you paid your own success fee and ATE premium out of your damages. The difficulty then arose about what to do if there was a development post 1 April 2013 which affected the validity of a pre-1 April CFA. Examples abound. The original Claimant died, so the old CFA terminated automatically: the Claimant did not die but changed solicitors, either because he wanted to, or because his original solicitors went bust and sent him to new solicitors, or simply because the firm originally instructed had merged and from having been called “Bloggs & Co” was now ”Bloggs & Snooks LLP”. If any of these things happened, putting it into legalese, was it possible to assign the pre-1 April CFA in a way that permitted both the original solicitors and their successors to be paid if the case was won, and if so what role (if any) did the Client need to play in the changeover? Could the new solicitors take over without his consent, or indeed his knowledge?

the entitlement to a success fee was not assigned? This is a matter with which the Court of Appeal will grapple on 5 July 2017 in a case called Budana which has been leap-frogged for that purpose. If this were an individual problem involving a single client, the result of Budana would not matter. However, out in the marketplace there are thousands of CFAs in cases which have been transferred to new solicitors following mergers, insolvencies or firm name changes in which the “assignment point”, as it has become known, has been taken by the parties ordered to pay costs. It follows that very significant sums of money potentially turn on the outcome in Budana since if the assignments are upheld, Defendant insurers will have to pay thousands, or even millions, in success fees and ATE premiums. On the other hand, if the Court of Appeal takes a legalistic approach and decides that a CFA cannot be assigned, the likelihood is that some firms will go out of business because the work in which they successfully acted for their clients will go unpaid. It is a hard one to call. The Court of Appeal will no doubt be sympathetic to the winning parties, but it is the application of the law and not the application of sympathy that must prevail. As Lord Neuberger said about a case in which he had sat: “Anyone would have wanted to find for the child [the Claimant]. But I didn’t. I had to rule according to the law. I didn’t like doing it, but Judges do that every day”.

So too may the Court of Appeal!

Surprisingly, the law in this area is far from clear and arguments centre upon whether it is “Anyone would have wanted to find for possible to assign a personal the child [the Claimant]. But I didn’t. contract such as a CFA at all and even if it is, whether both I had to rule according to the law. the benefit (the right to be paid) I didn’t like doing it, but Judges do and the burden (the obligation to that every day”. continue to work on the case) of the contract is capable of being assigned. Where too, in the Lord Neuberger midst of this legal conundrum, does the client fit? If at the moment that old-firm ceased to act and the new-firm took over, was there a termination, meaning that the original CFA ended, and the creation of a new contract, so that the original CFA and

The Court of Appeal will no doubt be sympathetic to the winning parties.

Fixed costs- up to £250,000?

ir Rupert’s last stand! On 11 November, it was announced that Jackson LJ would carry out a review of fixed recoverable costs to be completed by 31 July 2017 in order to recommend whether the existing regime should be extended to matters valued upwards of £25,000 and possibly as far as £250,000. Since he will be 70 years old on 7 March 2018, this will be Sir Rupert’s last report, as a serving Judge cannot sit beyond his 70th birthday. However, the potential to do lasting damage to the legal profession still remains as the imposition of fixed costs has been the Jackson recommendation most feared ever since Sir Rupert’s original report was published in December 2009.

We recognise that fixed costs in cases valued at a much higher level than £25,000 are not a matter of “if” but “when”. That said, the whole concept of fixed costs in all but straightforward claims is fraught with difficulty. Take clinical negligence. A claim may only be worth £50,000, but such a sum might be life changing for the victim of the negligence. Nonetheless, to succeed, that victim may have to prove negligence, breach of duty, causation and quantum, all in the face of an opponent such as the NHSLA or an insurer with a deep pocket. What self-respecting solicitor could expect to do a competent job if costs are fixed by scales calculated by reference to potential damages which will only become payable when liability, breach and causation have been investigated and proved successfully?

As with costs budgeting, some ideas for changing the way costs have been dealt with historically look good on paper but in practice simply do not work without adding significantly to the overall expense of running the case.

After all, all that fixed costs do is to limit the costs that a losing party can be required to pay a paying party.

That is just a starting point. Other problems abound. Suppose there is more than one Defendant: how are the fixed costs to be attributed? What if the Claimant pursues just one Defendant but that Defendant brings in third parties and makes a counterclaim: is there an additional allowance of fixed costs to reflect the second action? And suppose the Court makes an issuebased costs order because the Claimant wins on some points but loses on others. How on earth are the fixed costs to be attributed and paid?

There are thirteen assessors who have been appointed to assist Sir Rupert and it is to be hoped that they will prevail upon him to limit the level at which the fixed costs regime will start to a realistically low figure. After all, all that fixed costs do is to limit the costs that a losing party can be required to pay a paying party. They do not restrict in any way the amount

that the parties themselves can spend on a case, so the idea that using a fixed costs regime is a method by which the Court can control the costs expended in litigation, is a complete fallacy. Sir Rupert is far too clever not to realise that, or at least we hope so.

8 | KAIN KNIGHT INBRIEF

New Bill Out with the Victorian Accounts Book and in with the Spreadsheet all by 1 October 2017. At least, that is the plan. Although the pilot scheme using the electronic bill produced by Alexander Hutton QC’s Committee to replace the traditional paper bill has been ongoing for fifteen months with no take up, the powers-that-be are determined that it should become compulsory in all Courts in all cases for all costs orders made on or after 1 October 2017.

Will it happen? This is another key component of the Jackson recommendations and after so much time, trouble and expense has been expended in researching and producing an electronic bill, it is unthinkable that it will be abandoned at this stage, despite the reluctance of the profession to use it. In view of this, firms are being urged to “get ready for the new bill” by recording their time by reference to phase, task and activity, so that the work undertaken can seamlessly be reproduced in a spreadsheet setting out what was done, when, the cost and how long it took.

Get ready for the new Bill Over the year, we have undertaken many seminars advising clients about the new bill and the changes in work practice which will be required. Although Jackson has ditched the mandatory use of J codes, the requirement to record time by reference to phase, task and activity has been retained. The question that must be asked, therefore, is “are you ready for 1 October 2017?” Firms that are not will be unable to lodge paper bills after that date in cases in which orders are made on or after 1 October 2017. So it is going to be a case of “change your ways or don’t get paid”.

Change your ways or don't get paid

Proportionality Sir Rupert recommended a rule change and we got it with CPR 44.3(2). To be recoverable in litigation, costs on the standard basis must be reasonable, necessary and proportionate, and of the three, proportionate is the most important. Thus in May v Wavell Group [2016] EWHC B 16 (Costs) reasonable and necessary costs of £99,655 (reduced from a bill of £208,000) were chopped down still further to £35,000 plus VAT upon the application by the Court of the “new” proportionality rule. In BNM v MGN Ltd [2016] EWHC B13 (Costs), the result was even more dramatic: •

A Bill of £241,000;

•

Reasonable and necessary costs assessed at £167,000;

•

Wield the proportionate chopper: reasonable, necessary and proportionate costs = £83,964 so that is what the Daily Mirror paid.

May being a County Court case is going to a County Court Judge this year on appeal (HH Judge Dight). BMN being a High Court case is destined for the Court of Appeal where it was to float on 8th–9th February but has now been adjourned pending a decision by the Supreme Court about whether the recovery of success fees is compatible with the European Convention on Human Rights in Miller v Associated Newspapers Ltd and Eight Representative Claimants v MGN Ltd. What will happen when the appeals are finally heard? Brian May (former guitarist of Queen) has a view!

The question that must be asked, therefore, is “are you ready for 1 October 2017”? Firms that are not will be unable to lodge paper bills after that date in cases in which Orders are made on or after 1 October 2017. So it is going to be a case of “change your ways or don’t get paid”.

“The upshot is that by trying to obtain some kind of compensation, I spent £208,000, received £25,000 in damages plus a derisory £42,000 in costs and end up being out of pocket by about £141,000. Where’s the proportionality in that? Where’s the justice? This absurd proportionality rule makes it impossible for any wronged party to protect himself… What was in the mind of the people who introduced this ridiculous rule of proportionality?” Unfortunately for Brian, we predict that an appellate Court is unlikely to interfere with the decisions of the Judges below, which (the Court will say), were all made within the generous ambit of their discretion, in circumstances where they took nothing into account that they should not have done, and took everything into account that they should have done, and not least in this case, where to do otherwise would be to ride roughshod over the new proportionality rule! Indeed, it is unthinkable that the Court of Appeal will allow an appeal that would demolish a pillar upon which the Jackson reforms have been based.

It is unthinkable that the Court of Appeal will allow an appeal that would demolish a pillar upon which the Jackson reforms have been based.

Tough on the winners? Yes, but practitioners and their clients need to recognise that in 2017 and henceforth, standard costs must now be reasonable, necessary and proportionate, and if any one of these components is absent, recovery from an opponent will be limited to a contribution to costs and a small one at that.

Is there an answer? Yes. Wherever possible, ask for and obtain an order for costs on the indemnity basis if you win. The proportionality rule does not apply to indemnity basis costs so if you obtain an indemnity basis order, you can tear up CPR 44.3(2) and with it, your costs budget (see Judgment of Dyson MR in Denton v White [2014] 4 Costs LR 752 paragraph 43).

Brian May

Practitioners and their clients need to recognise that in 2017 and henceforth, standard costs must now be reasonable, necessary and proportionate

10 | KAIN KNIGHT INBRIEF

Provisional Assessment Bills up to £75,000 are assessed on paper by the Court with a right of any party dissatisfied by the outcome to apply for an oral hearing. Sir Rupert’s original proposal was that the procedure would be suitable for bills up to £25,000 but the government bounced them up by £50,000 whilst at the same time allowing just £1,500 plus VAT and the Court fee for costs. Add to that Court delays, illegible judicial handwriting so no one knows how much has been allowed, plus the time it takes to sort out the figures, no wonder that Provisional Assessment has never been popular.

Sir Rupert’s original proposal was that the procedure would be suitable for bills up to £25,000 but the Government bounced them up by £50,000 whilst at the same time allowing just £1,500 plus VAT and the Court fee for costs. Add to that Court delays, illegible judicial handwriting so no one knows how much has been allowed, plus the time it takes to sort out the figures, no wonder that Provisional Assessment has never been popular.

However, help is now at hand, at least for receiving parties and we predict that in 2017, much more use will be made of Part 36 offers in Provisional Assessments than hitherto has been the case. The decision in Lowin v Portsmouth & Co [2016] 5 Costs LO 719 illustrates perfectly why this will be so: •

Bill served at £55,000

•

Claimant offers to accept £32,000 under Part 36

•

Defendant declines

•

Bill assessed at £32,255.

Thus by £255, the Claimant beat his own offer and in doing so, opened up an early Christmas present of unexpected goodies. Not only was the additional sum of 10% of the assessed costs payable (£3,225), together with interest and all costs at an enhanced rate under CPR 36.17(4), but also the fixed costs shackles were severed and Lowin was able to collect indemnity basis costs not limited to the £1,500 plus VAT – they were claimed at £6,091! Not a good day for Portsmouth.

A New Year’s resolution for receiving parties? It must be to take advice on making an early and effective Part 36 offer in order to maximise the chances of obtaining the Part 36.17 (4) benefits if it is turned down, together with costs to be assessed rather than the £1,500 fixed costs.

And if you are paying the costs? Make an early and realistic Part 36 offer otherwise you will be condemned to paying the costs under CPR 47.20.

Thus by £255, the Claimant beat his own offer and in doing so, opened up an early Christmas present of unexpected goodies.

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Looking ahead

o one thing is clear. If the purpose of the Jackson Report was to introduce reforms to costs in civil litigation which would control costs and promote access to justice, what has been implemented so far has failed to deliver. Whether 2017 will see any change is a matter for conjecture. With seven years having elapsed since its publication, it is hard to be optimistic that it will.

Chuckles

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