Contents and timing of Replies to Points of Dispute

The Association of Costs Lawyers recently set up a working party, which I was roped into, on the new(ish) provisional assessment process.

One of the problems identified (although this is not strictly a problem limited to provisional assessment) is the timing and content of Replies to Points of Dispute.

CPR 47.13 states:

“(1) Where any party to the detailed assessment proceedings serves points of dispute, the receiving party may serve a reply on the other parties to the assessment proceedings.

(2) The receiving party may do so within 21 days after being served with the points of dispute to which the reply relates.”

What are the consequences of serving outside 21 days?

As to content, PD 47 para.12.1 states:

“A reply served by the receiving party under Rule 47.13 must be limited to points of principle and concessions only. It must not contain general denials, specific denials or standard form responses.”

Other than the very limited examples given in Precedent G, what does this allow and not allow?

The decision in Pipe v Electrothermal Engineering Ltd (SCCO, 2014) from Costs Judge Master Rowley gives some guidance on the issue. At the risk of doing a serious injustice to a very carefully considered, reserved, judgment, it might be summarised as: serve what you like when you like and the only adverse consequence is likely to be in costs.

Of course, this is not a binding decision (even on Master Rowley) and I have had different results before other judges. The Regional Costs Judge in Manchester struck out Replies that had been served late and without permission and ruled that if the receiving party wished to rely on the same they would need to make a formal application for permission to serve late. The Senior Costs Judge Master Gordon-Saker disallowed late Replies where the application for permission to rely on the same was made orally at a detailed assessment hearing, as there was no good reason for late service. He did observe that the argument was really about the costs of the late Replies, as opposed to the admissibility of the same. Replies are optional and the receiving party could simply recite orally the contents of the Replies even if permission for late service was refused. Nevertheless, the consequence was that the costs of drafting the Replies would not be recoverable and the outcome for the receiving party might have been different if the matter was proceeding to provisional assessment (where there would have been no opportunity to make oral submissions).

In any event, this is a helpful judgment and sets out the competing arguments.

Costs budgeting and detailed assessment

I note one of Lord Justice Jackson’s recent recommendations concerning costs budgeting is:

“Until the new form bill of costs is developed, in those cases where detailed assessment proceedings are commenced, the receiving party should lodge a summary of its bill in a format which matches Precedent H”

Is it just me or is it hopelessly naive to believe that a receiving party who discovers they have overspent on one phase of a budget but underspent on another will not simply shift the work over in the summary from the overspend to the underspend? In the absence of a detailed bill showing what work has actually been done by phase, how is the true position to be established?

I also find it difficult to see how the information provided by a summary (even if accurate) is then meant to be applied to a detailed bill that is not drafted by phase. For example, if the summary shows an overspend of £10,000 on a particular phase, where does the judge make the deduction from the detailed bill? Does the judge just not knock £10,000 off the total bill at the end of the assessment?

Cap on costs budgeting fees

The post-Jackson CPR remains a mess of badly drafted and confusing rules.

The Glossary to the CPR defines “Budget” as:

“An estimate of the reasonable and proportionate costs (including disbursements) which a party intends to incur in the proceedings.”

The words “intends to incur” suggests that “budget” is limited to future costs. However, PD 3E para.6 states:

“Unless the court otherwise orders, a budget must be in the form of Precedent H annexed to this Practice Direction.”

There is no doubt that Precedent H requires both past (“incurred”) costs and future (“estimated”) costs to be included. A completed budget (following Precedent H) will therefore include, by necessity, both past and future costs.

PD 3E para.7.4, under the hearing “Costs management orders” states:

As part of the costs management process the court may not approve costs incurred before the date of any budget. The court may, however, record its comments on those costs and will take those costs into account when considering the reasonableness and proportionality of all subsequent costs.”

It is therefore clear that a costs management order can only “approve” future costs. This is well established and not disputable.

PD 3E para.7.2 states:

“Save in exceptional circumstances – (a) the recoverable costs of initially completing Precedent H shall not exceed the higher of £1,000 or 1% of the approved or agreed budget”

What though, for these purposes, is the “approved or agreed budget”? The court cannot “approve” costs already incurred.

I am sure that this was intended to mean that if a budget filed by a party totalled £110,000 which was agreed/approved in full, the costs of completing that budget would be limited to £1,100 (being 1% of £110,000.

But, what if the budget includes £110,000 incurred costs and £110,000 future estimated costs and the same is agreed/approved in full? Which of these applies:

  1. The cap of the total for preparing the whole budget is £1,100 (being 1% of the £110,000 future costs) with nothing recoverable for the work including in the budget the incurred costs?
  2. The cap on preparing the part of the budget relating to the future costs is £1,100 (being 1% of the £110,000 future costs) with no cap on the recoverable costs for the work including in the budget the incurred costs?
  3. Is there a distinction depending on whether the budget is approved or agreed? PD 3E para.7.4 prevents the court approving incurred costs but does not prevent the other side from agreeing incurred costs. If a party agrees a budget without further comment, are they taken to have agreed the incurred costs or is it implicit the incurred costs are excluded from the agreement as the court has no control over such costs?

Cook on Costs 2015 identifies this problem and concludes the cap is calculated by reference to the future costs only:

“There appears to be some confusion as to what constitutes the ‘approved budget’ for the purposes of the percentage calculation. As the court may only budget costs to be incurred, it seems clear that the percentage is only of the sum approved by the court/agreed by the parties as the ‘to be incurred’ costs within those phases budgeted. This view is supported by the fact that CPR PD 3E, para 7 refers back to CPR 3.15. CPR 3.15(1) makes it clear that a costs management order may only be made in respect of costs to be incurred and CPR 3.15(2) makes it clear that budget for these purposes relates to the agreed or court approved figure after revision by the court. As the court cannot revise ‘incurred’ costs’, then the agreed or approved budget seems to be only the figures included in any costs management order. The alternative construction appears to us to rely upon the budget after a costs management hearing including both the costs managed costs and the non-costs managed costs, being described as an agreed or approved budget. This would have a curious effect at subsequent assessment as this would mean that even in respect of non-costs managed costs a party seeking to depart would need to show ‘good reason’.”

This does not seem to answer the problem as to whether the work done preparing the incurred part of the budget is covered by the same cap or whether those costs are entirely at large.

Cook on Costs introduces the subject with:

“Inevitably the costs management process adds an additional expense to litigation. Rather than allow for protracted argument about how much, the rules prescribe the sums that will be recoverable.”

This suggests nothing is recoverable for the work done concerning the incurred costs, otherwise a potentially significant part of the process is not prescribed and protracted argument is inevitable.

Now imagine the poor District Judge (or Deputy District Judge) trying to get their head around this issue based on points of dispute that are “short and to the point” and replies that are “limited to points of principle and concessions only”.

Costs budgeting here to stay

In a surprise development, Lord Justice Jackson, the architect of the costs budgeting regime, has come out in support of the retention, largely unchanged, of costs budgeting.

The one thing we can now be certain of is that the extension of fixed fees will come sooner rather than later. This would immediately:

  • Remove the need for costs budgeting in those cases and thus save court time avoiding the need for costs management hearings.
  • Ensure “proportionality” of the costs recovered.
  • Save further court time by reducing the number of provisional/detailed assessments.

I am becoming increasingly convinced that the total balls-up of the introduction of the Jackson reforms is a cunning plan to make fixed costs across the board inevitable.

Shock non-reduction in claim numbers post-Jackson

Another financial year passes and, regular as clockwork, the Association of Personal Injury Lawyers (APIL) release another misleading set of figures relating to claim numbers that totally misses the real story.

Regular readers will remember last year’s APIL story “that an information request from the Compensation Recovery Unit (CRU) has shown the number of whiplash claims has fallen by 29% in only four years.”

This has been trotted out again with it being reported: “the number of whiplash claims registered with the government has fallen by 23% since the Jackson reforms. A freedom of information request by the Association of Personal Injury Lawyers (APIL) found that a total of 376,513 claims, mostly following road collisions, were made during 2014/15”.

Jonathan Wheeler, APIL’s new president blogged: “Government figures tell us that whiplash claims have fallen over the last four years by more than a third – that’s almost 200,000 claims. A Freedom of Information Act request made by APIL shows that they have fallen by eight per cent in the past year alone”.

So what do the CRU figures actually show for the number of RTA cases registered to CRU for recent years:

2014/15           761,878

2013/14           772,843

2012/13           818,334

2011/12           828,489

2010/11           790,999

This shows a modest reduction of under 4% in RTA claims from 2010/11. Even from the peak of 2011/12, this is only an 8% reduction. If whiplash claims are declining, it must have strangely coincided with a large increase in non-whiplash claims. The far more likely explanation is that the same types of claim have (for unexplained reasons) been recategorised from whiplash to non-whiplash.

The real story from the latest CRU figures concerns the total numbers of new claims reported (RTA and non-RTA):

2014/15           998,359

2013/14           1,016,801

2012/13           1,048,309

2011/12           1,041,150

2010/11           987,381

The total number of new claims is virtually unchanged from pre-Jackson and, indeed, slightly up on 2010/11.

So, the real story is that, contrary to all the scaremongering that went on pre-Jackson, two full years post-Jackson there has been no massive drop in the number of claims being brought (the Access to Justice Action Group predicted a 25% drop). No doubt claimant solicitors are feeling the pinch in terms of profits post-Jackson, but access to justice (presumably claimant solicitors’ primary concern) has been maintained in personal injury litigation. And APIL has nothing to say on the subject as it fails to fit in with their access to justice crisis narrative.

Is VAT included in provisional assessment cap?

At the panel session of last week’s Association of Costs Lawyers’ Annual Conference I was surprised when one delegate seriously asked if the £75,000 figure for provisional assessment included or excluded VAT.

However, my gast was truly flabbered when Regional Costs Judge Simon Middleton expressed the firm view that it excluded VAT (meaning he provisionally assesses bill well in excess of £75,000) and none of the other panel members contradicted him.

His reasoning appeared to be by reference to the definitions under CPR 44.1:

“‘costs’ includes fees, charges, disbursements, expenses, remuneration, reimbursement allowed to a litigant in person under rule 46.5 and any fee or reward charged by a lay representative for acting on behalf of a party in proceedings allocated to the small claims track”

As VAT is not mentioned, he concludes it is therefore not an item of costs.

If this is true, on what basis does a party who has a successful costs order in their favour recover VAT? Surely you would also need a specific order awarding VAT in addition to costs. Where a deemed order for costs is made (following acceptance of a Part 36 offer, for example) there would never be such an order for VAT in addition (CPR 44.9 is entirely silent as to any entitlement to VAT).

I’ve been known to advance some optimistic arguments in my time, but even I would struggle to keep a straight face defending Points of Dispute that read:

“The Defendant notes the claim in the Bill of Costs for VAT. The final order is: ‘The Defendant do pay the Claimant’s costs of this action to be assessed if not agreed’. There is no separate order for the Defendant to pay VAT and the Court accordingly has no jurisdiction to assess or allow VAT. Disallow VAT.”

It also makes a nonsense of certain parts of PD 44:

“2.2     The number allocated by HMRC to every person registered under the Value Added Tax Act 1994 (except a Government Department) must appear in a prominent place at the head of every statement, bill of costs, fee sheet, account or voucher on which VAT is being included as part of a claim for costs.

2.3       VAT should not be included in a claim for costs if the receiving party is able to recover the VAT as input tax. Where the receiving party is able to obtain credit from HMRC for a proportion of the VAT as input tax, only that proportion which is not eligible for credit should be included in the claim for costs.”

Why the express reference to VAT being included “as part of a claim for costs” and “included in the claim for costs” if VAT is separate from costs?

I also note that Cook on Costs 2015, that DJ Middleton co-authors, states:

“Form H also stipulates that certain costs are specifically excluded from the budget. These are set out on page 1 of Precedent H and are VAT (where applicable)…”.

Why would this need to be mentioned if VAT is not a head of “cost”?

I’m sorry, but VAT is an element of costs (CPR 44.1 containing a non-exhaustive list of elements included within the definition, not an exhaustive one) and the £75,000 provisional assessment cap includes any VAT claimed.

Costs Lawyer legal research

The Association of Costs Lawyers’ training material advises:

“Whilst it is acceptable to use the internet for legal research, this means proper legal research on sites such as Westlaw, Lexis, Bailii, legislation.gov.uk et cetera; citing Google or Wikipedia and such as authority for any legal proposition is unacceptable”

I guess that still leaves the Legal Costs Blog as something of a grey area.

Guideline Hourly Rates for 2015, 2016, 2017…

The Master of the Rolls has announced guideline hourly rates (GHRs) are to be frozen at their 2010 levels indefinitely as there is no prospect of proper evidence being produced to justify a revision.

This may not be entirely bad news for claimant lawyers as it was widely anticipated any revision would be in a downward direction.

On the other hand, what role now for GHRs? Dyson statement noted:

“They remain an integral part of the process of judges making summary assessments of costs in proceedings. They also form a part, even if only a starting reference point, in the preparation of detailed assessments. They also provide a yardstick for comparison purposes in costs budgeting.”

Without any amendments to the published rates, over time they will inevitably be given less and less weight on assessment. Claimant solicitors will inevitably seek to argue the rates should be uplifted. They will face the obvious problem that they cannot simply seek to ask the court to increase the rates in line with inflation. That is the approach the Master of the Rolls has positively rejected. Further, the payment of referral fees was one of the justifications previously put forward in a GHRs review as to why claimant hourly rates were higher than those charged by defendants. With referral fees now banned, guideline rates are arguably to high. This was the logic used to reduce fixed fees in low value RTA claims.

The one inevitable outcome of all this is more uncertainty and more satellite litigation. If individual judges increasingly department from GHRs, but not based on any empirical evidence, how are parties to predict what might or might not be allowed? For all the flaws with GHRs, at least they provided a useful guide as to what the starting point. If this is lost, what is the alternative?

Lord Dyson’s answer, in part, is to continue pressing the government to extend the use of fixed fees. Solicitors may come to regret not taking part in the GHRs survey when they had the chance.

Drafting time

Further to my post yesterday, the time claimed for drafting the three virtually identical Notices of Funding was a total of three hours (one hour for each). Did you guess correctly?

Being charitable, I suppose it is possible the fee earner recorded the time as being 1 unit per notice. An inexperienced costs draftsman then misread the corresponding attendance notes as recording 1 hour per notice and failed to engage brain when drafting the bill to consider whether this was remotely realistic. The matter was then passed to a partner who was too busy to give even a cursory glance at the contents of the bill before signing the certificate of accuracy. At no stage was there ever any intention to defraud the defendant.

Other possible explanations are also available.

Drafting Notice of Funding

I’m currently dealing with a case where the claimants’ solicitors were acting for three claimants arising out of the same incident. Same fee earner dealing with each claim.

Notices of Funding were prepared; one for each of the three claimants, all on the same date. Each claimant had the benefit of a CFA and an ATE policy. The dates of the three CFAs were identical. The dates and details of the three ATE polices were identical other than the policy numbers. To make matters easier, the policies were not staged. Other than the name of the claimant and the date of the ATE policy, each Notice of Funding was identical.

Would readers like to take a guess as to how long is being claimed for completing these three notices (which were, of course, just standard N251 forms)? The answer is higher than you might suppose.

Answer tomorrow.