Why hourly rates should not be reduced for budgeted costs where rates reduced for incurred costs on assessment
In the recent case of RNB v London Borough of Newham, Deputy Master Campbell found that reducing the hourly rates for the incurred costs was a “good reason” for reductions to be made to the budgeted costs. Deputy Master Campbell stated that “to do otherwise would mean that the Claimant would recover an hourly rate at a level that significantly exceeds the figure I consider to be reasonable and proportionate for the pre-budget stage”.
That decision is now being appealed and I would be surprised if the Court of Appeal supported the Deputy Master in his decision.
To an extent, I can understand the Deputy Master’s reasoning but the decision to my mind misses the point of the costs budgeting process.
The CPR was changed in recent time to cover the reference to hourly rates in costs management and the CPR now states:
“The making of a costs management order under rule 3.15 concerns the totals allowed for each phase of the budget. It is not the role of the court in the cost management hearing to fix or approve the hourly rates claimed in the budget. The underlying detail in the budget for each phase used by the party to calculate the totals claimed is provided for reference purposes only to assist the court in fixing a budget”
The Court therefore approves a budgeted figure for each phase, with the parties then at liberty to use that allowance however they see fit (ie a small amount of partner time with a lot of lower grade fee earner assistance may be the approach taken or a larger amount of partner time with a smaller amount of lower grade fee earner assistance may be preferred). Ultimately, it is for the parties to manage the costs they are incurring and attempt to ensure that they fall within the budgeted figure.
In Harrison v University Hospitals Coventry & Warwickshire NHS Trust  EWCA Civ 792, it was confirmed that there must be “good reason” for costs to be reduced below the level of the budget as well as increased above it. I don’t consider that this represents a “good reason”.
For costs management to be successful, the outcome must be that it reduces the volume, the complexity and the time spent on detailed assessment. If a judge has set a budget at the costs management stage, there will have been some consideration of the underlying detail of each phase and this would include the hourly rates.
To revisit the rates on detailed assessment for budgeted costs would lead to more detailed assessments and increased costs being incurred.
If the budgeted hourly rates are left untouched, it may well result in a less than ideal outcome on the odd occasion, but a fair and reasonable outcome will be achieved in most cases and the costs management process will be stronger for it.
In the case of Mitchell v Gilling-Smith  EWHC B18 (Costs), Master Leonard has allowed an ATE insurance premium of £10,000.00 in a case that settled for £200,000.00.
The Defendant had argued that the Claimant should not have taken out ATE insurance at all as Qualified One Way Costs Shifting provided adequate protection. In the alternative, the Defendant argued that a bespoke policy rather than a block rated policy should have been taken out by the Claimant.
The Master rejected the Defendant's arguments on the basis that the Claimant was always going to require medical evidence and that the Claimant could not have known that the claim would ultimately settle. To consider that argument would be to apply the benefit of hindsight.
The Master also confirmed that it was reasonable to take out a block rated policy as the alternative would result in some cases being rejected and others accepted with increased premiums.
The Defendant invited Master Leonard to give his considered view as to the inclusion of additional liabilities in relation to the new proportionality test. The Master refused to do so on the basis that this point will shortly be considered by the Court of Appeal in the case of BNM v Mirror Group Newspapers.
Comment: The Defendant raises points that seem to cover old ground. The issues of the early uptake of ATE insurance and the application of a block rated policy have been considered many years ago in cases such as Callery v Gray and Rogers v Myrthyr Tydfil County Borough Council with those decisions confirming that an ATE policy can be taken out at an early stage and that a block rated policy is reasonable. In my view, the fact that this relates to the recoverable element of a policy covering the obtaining of medical evidence is not good reason for such issues to be reconsidered.
The appeal in BNM will no doubt give us some guidance on the issue with regard to the inclusion of additional liabilities in the new proportionality test. Watch this space!
Following the judgment in the case of Denton v TH White  EWCA Civ 906, guidance was given by the Court of Appeal in relation to relief from sanctions.
The hard line taken in Mitchell v Newsgroup Newspapers Ltd  EWCA Civ 1537 was watered down into a new test which can be briefly summarised as the three stage test below:
1. Was the breach serious or significant?
2. Was there good reason for the breach?
3. Considering all the facts of the case, is it just to allow relief?
The Court of Appeal in Denton maintained that the guidance given in Mitchell remained "substantially sound".
Since then, many cases have been reported in relation to applications for relief.
This week, there has been the case of Mott v Long  EWHC 2130 (TCC) in which the Defendant was 10 days late in filing a Costs Budget. The Defendant blamed unspecified IT issues for the delay but provided no evidence of such issues.
The judge considered that the breach was "serious or significant" and that the lack of any detail provided with regard to the IT issues led him to doubt that there were any such issues. The Defendant therefore failed on stages 1 and 2 but relief was allowed under stage 3 as the judge considered that the Defendant would have had to revise their Costs Budget in any event due to case management decisions taken earlier in the CMC process.
Given that Denton states that greater weight should be given to stages 1 and 2, it seems to be a fairly generous decision to me.
Another recent decision is in the case of Rotronic Instruments (UK) Ltd v A One Distribution (UK) Ltd  EWHC 1833 (TCC) where the Defendant failed to file and serve either an acknowledgement or a Defence to the claim. The Defendant, over three months later, made an application for relief from sanctions and an extension of time for filing their Defence.
The judge considered that the breach was serious or significant and that there was no good reason for the breach. However, the Defendant was allowed relief on the basis that their conduct had no material impact upon the proceedings as the Particulars of Claim had been revised and no costs had been incurred as a result of their conduct.
What I found interesting about this case was that the judge described relief from sanctions in a case where it was concluded that the Defendant had failed stages 1 and 2 was "relatively rare". I wondered whether this was borne out in recent case law, so I decided to have a look through the cases that have been heard this year and on a quick trawl through Bailii, I noted the following applications where stages 1 and 2 were failed yet relief was granted:
Mott v Long  EWHC 2130 (TCC)
Rotronic Instruments (UK) Ltd v A One Distribution (UK) Ltd  EWHC 1833 (TCC)
Newland Shipping and Forwarding Ltd v Mr Ahmed Sakr Mohammed Salem Al Qassimi  EWHC 1416 (Comm)
And the following where relief from sanctions was denied:
Gladwin v Bogescu  EWHC 1287 (QB)
Redbourn Group Limited v Fairgate Development Ltd  EWHC 1223 (TCC)
Kimathi and Ors v The Foreign and Commonwealth Office  EWHC 939 (QBD)
Michael and Ors v Phillips and Ors  EWHC 142 (QB)
Elbrook Cash and Carry Ltd v The Commissioners for Her Majesty's Revenue and Customs  UKFTT 143 (TC)
Couper and Ors v Albion Properties Ltd and Ors  EWHC 22 (Ch)
It seems that it remains difficult to obtain relief from sanctions where the breach is "serious or significant" and the Court considers that there was no good reason for the breach, though not impossible as the recent cases highlighted above show.
Of course, the best approach remains to be vigilant on compliance with Court Orders and Directions to avoid being in the position where relief is required in the first place!
Following the last few years of speculation and uncertainty on the subject of fixed costs, Lord Justice Jackson finalised his report on the issue this week and provided some much needed clarity on the subject.
As has been widely reported in recent times, the recommendations made included the addition of a new track (the intermediate track) for cases between £25,000 and £100,000. This will not, however, apply to clinical negligence cases where fixed costs will only apply to claims for damages under £25,000 and even then only where both breach of duty and causation have been admitted in the letter of response.
The proposals also suggest that there be no provision for indemnity costs. In its place would be an enhancement of the appropriate fixed costs figure of 30% or 40%.
The parties will be expected to agree a band of complexity and the appropriate figures will be calculated on the basis of that band with a fixed amount plus a percentage of the damages being awarded. If the parties are unable to agree the appropriate band, then the judge will deal with that on allocation. Either party may challenge the band but will be ordered to pay fixed costs of £150 if unsuccessful.
Where the Claimant is successful, the damages for the purpose of the calculations are the damages recovered. Where the Defendant is successful, reference to damages means the claim defeated, so the amount as valued in the particulars of claim.
There is also a matrix of fixed trial costs. Provision is made within both fixed fee matrix for instructions to Counsel or a specialist lawyer to draft statements of case and advise at that stage, to advise in conference prior to trial and to attend the trial. There is also provision for fixed fees to be recovered for the attendance of both Solicitor and Counsel at any JSM.
These proposals are now to be the subject of a government consultation with further review as to their implementation by the Civil Procedure Rules committee sometime next year. The earliest we are likely to see any implementation is around October 2018.
The long awaited judgment in the case of Harrison v University Hospitals Coventry & Warwickshire NHS Trust  EWCA Civ 792 has confirmed that there must be good reason to depart from the approved or agreed budgets.
This applies whether that is to apply any increase or decrease from the approved budgeted figures, but does not apply to the incurred costs. The incurred costs were not considered to fall within the ambit of CPR 3.18 at all and they must be the subject of detailed assessment in the usual way.
The Court did not provide any guidance on what might constitute a "good reason" but it was confirmed that the bar should be set high and reference was made to the test set out in Denton v TH White Limited  EWCA Civ 906 relating to relief from sanctions.
It was also confirmed that, despite proportionality being considered at the budgeting stage, it should also be considered upon detailed assessment. Lord Justice Davis stated:
"where a costs judge on detailed assessment will be assessing incurred costs in the usual way and will also be considering budgeted costs, the costs judge ordinarily will still ultimately have to look at matters in the round and consider whether the resulting aggregate figure is proportionate"
Davis LJ also confirmed that the comments of Sales LJ in the case of Sarpd Oil may have gone too far in suggesting that the paying party must raise issue with the incurred costs at the budgeting stage in order to challenge the same at detailed assessment.
Whilst the judgment gives some welcome clarity on the process of costs management, there is still much to be answered such as what constitutes a "good reason" and how the proportionality test will be applied at assessment.
The lead case in relation to proportionality, BMG v MGN remains listed in the Court of Appeal for October. We will no doubt get further clarity on another of the main parts of the Jackson reforms in the autumn!
The recent decision in the case of Choudhury (suing by his Litigation Friend) v Markerstudy Limited is evidence of the problems that can occur if a party does not pay sufficient attention to their funding arrangements.
In Choudhury, the Claimant's claim was purported to have been funded by way of a Collective Conditional Fee Agreement dated 19 December 2011.
The claim arose from an accident on 12 March 2013 and the Claimant's Solicitors were quick to sign the Claimant up to the CCFA before the additional liabilities became irrecoverable post 1 April 2013.
The claim settled in the sum of £1150.00 and the Defendant raised arguments against the validity of the funding arrangement as it was contended that no work that fell within the definition of legal services pursuant to section 199 of the Courts and Legal Services Act 1990 has been done.
There had been a single telephone call and a letter to the Claimant prior to 1 April 2013. The letter was related to funding issues and DJ Wildsmith found that the single unit telephone call was related to those same funding related issues.
As such, no litigation services had been provided under that agreement prior to 1 April 2013 and the Claimant's funding arrangement was found to be unenforceable.
This is a reminder to check the arrangements that you have in place where CFA's and CCFA's were entered into in the lead up to 1 April 2013.
If the Court considers that no litigation services were provided then the CFA will be unenforceable as the agreement will not provide for the success fee to be capped at 25% of damages. It is not just the additional liabilities that will be lost, it is the entire claim for costs.
It is worth reviewing any cases where the argument may be raised and considering whether alternative funding should be put in place. Don't leave it to chance or you may find you are unable to recover any costs on conclusion of your case.
If you need any advice on funding options, then get in touch with us at Sextons Legal Costs for a free appraisal of your current arrangements.
As the government continues to ponder further reform of the personal injury sector, some recent decisions from the County Courts in Liverpool and Manchester suggest that the reforms may not be as pressing as some insurers would suggest.
In a recent case in Manchester, a District Judge awarded exemplary damages against the Claimants on the basis of fundemental dishonesty.
Toby Evans of Keoghs, acting for the Defendant was reported in Litigation Futures as stating:
"robust counter-fraud measures adopted by Zurich, good old fashioned intelligence analysis and a strong collaberative approach between Zurich, Salford Van Hire, their brokers and Keoghs, led to an early detection of fraud and allowed us to be entirely on the front foot in taking the fight to fraudulent Claimants, who now find themselves in the unenviable position of each having a five figure judgment against them".
This was after reports in December of a medical expert being ordered to pay a costs bill in excess of £100,000.00 after questions were raised by the Defendant over the validity of her reports.
Reading the reports of these cases, it struck me that at least some insurance companies are targeting the real source of the problem.
The problem is not whiplash itself or those representing Claimants in low value injuries. The problem is fraud and there is a need for better measures to tackle that problem. The tools are already there as the cases above demonstrate, it is up to the insurers as to whether they wish to use them.
Reforms are fine if they are targeted in the right way, but it cannot be right that many innocent Claimants stand to be undercompensated or not compensated at all for the actions of a small minority.
Any reforms should be targetting the fraudsters, making it easier to bring them to book and providing a greater deterrent against bringing a fraudulent claim. The current proposed reforms do not do that. A fraudster can still bring a claim, it will be just as easy for them to do so, with little in the way of a deterrent other than the fact that they might not get as much of a return as they do at present.
Anyway, here's hoping for more "good old fashioned intelligence analysis".
It is now approaching 8 years since the publication of Lord Justice Jackson's final report following his review of Civil Litigation costs.
The bulk of the reforms that Jackson LJ recommended were implemented in April 2013. There remains uncertainty and confusion over much of those reforms, with the law in relation to Costs Management and proportionality constantly changing and updating with each decision from the Courts.
So what might we expect from 2017. More of the same?
The appeal in BNM v MGN has been leapfrogged to the Court of Appeal, so some welcome clarity may well be forthcoming on proportionality, though do not expect that to come soon as the Judiciary website currently suggests that this hearing will not occur until October 2017!
So what about Costs Management? It is nearly four years since costs budgeting was introduced and we are only now starting to see a meaningful amount of budgeted cases proceed to the detailed assessment process.
The success or failure of Costs Management can only really be considered once a reasonable body of evidence is collected and analysed. That has not happened to date, yet there seems an inexorable stampede towards fixed costs in civil litigation. Jackson LJ will again be tasked with consulting with the industry over the next steps, though it seems inevitable that fixed costs of some variety will be implemented.
Even if fixed costs are introduced, it is likely that any introduction will start with the Fast Track or lower reaches of the Multi Track. That will mean that costs budgeting will remain for some time to come.
It is my hope that any introduction of fixed costs will be limited to the Fast Track, with some proper consideration of the impact of Costs Management completed before there is any move to extend to the Multi Track. Surely, after four years of practitioners getting to grips with budgets, phases and the like, there must be some evaluation of the success or failure of Costs Management.
The other headlines from 2016 that will continue to dominate are the increase to the small claims limit and plans to limit damages recoverable in whiplash claims with the consultation on those issues due to end on 6 January.
It seems that (at least in the early part of 2017) the issues that dominated 2016 will continue to dominate the legal press in 2017.
Whatever comes along this year, we hope that 2017 is a successful and prosperous year for all our clients and colleagues.
I will live in the Past, the Present, and the Future. The Spirits of all Three shall strive within me. I will not shut out the lessons that they teach! (A Christmas Carol by Charles Dickens)
Well, it’s the present, 10 months in from the launch of Sextons Legal Costs, and we have been reviewing our successful year-to-date!
We have welcomed a number of new clients and have been updating them on the ever-changing world of costs with our free in-house seminars. In addition, we have kept our own knowledge updated with attendance at Cost Conferences and our regular bi-monthly meetings with fellow costing professionals in the Wessex area.
Now, to head into the Christmas season with a festive image:
“…in the very air through which this Spirit moved it seemed to scatter gloom and mystery…”
Yes, that old chestnut proportionality, Claimant costings very own Ghost of Christmas Yet to Come looms over all areas of costs from Court of Protection to defamation and personal injury. We have been and will be working closely with our clients, irrespective of their main area of work, to provide an analytical approach to their current recording methods and recovery of costs. Sextons Legal want to ensure that their clients can increase productivity and profitability in this era of uncertainty.
The goose is not however entirely cooked, as there are pending Court of Appeal hearings on both BNM v MGN Limited and Brian May v Wavell Group PLC, which might provide clarity over the issues of proportionality. Hopefully we will soon be hearing the clank of chains on the issue of proportionality, but the lessons have been invaluable.
The costs world is not stagnant, it requires continuous initiative, invention and evaluation to remind us why the work undertaken by Solicitors, both Claimant and Defendant, is invaluable to our justice system. Sometimes a shock is required to remind us of what the true value and purpose of our work is.
In the case of Agents' Mutual Ltd v Gascoigne Halman Ltd (Costs Management II)  CAT 20, Mr Justice Roth has continued to make a costs management order despite agreement between the parties to dispense with the costs management process.
Roth J confirmed that the Court did not have to accept any agreement between the parties to dispense with costs management. The Claimant had denied that any such agreement had been reached and Roth J considered that the Court should make a costs management order in the litigation. This was due to the fact that the CPR did not apply to proceedings in the Competition Appeal Tribunal but Roth J also confirmed that he would have come to the same conclusion if the CPR were to apply, on the basis that the Court had the power to make a costs management order if it was considered appropriate.
Roth J went on to confirm that "any such agreement (to dispense with costs management) between the parties would be a very relevant factor to take into account".
The Claimant's costs budget was agreed between the parties at £1.8m, but the Defendant's budget was not. Roth J went on to reduce the Defendant's budget to £2.8m following reductions made to all the anticipated costs phases. The overall reduction of the anticipated costs came to 37%.
Roth J went on to confirm that the Court was not concerned with what the Defendant's Solicitor might charge their client and only by what is a reasonable and proportionate amount for the Defendant to recover on the standard basis between the parties should they win the case.