At the heart of the successful appeal in May v Wavell Group was the appeal judge’s view that, apparently, the issue of proportionality is something readily discoverable once all the relevant factors have been taken into account. He held:
“the construction of the rules relating to the definition of proportionality and their application do not involve a discretion properly so called but require the court to make a judgment on what the rules mean and how they should be applied. That is a matter of law. The application of the rules, once interpreted, require a balance to be undertaken, in that weight (which includes the possibility of no weight) has to be accorded to each of the factors specified by the rules, but that again is the making of a judgment, albeit of a rather broader nature than construction of the rules, rather than the exercise of a discretion.”
“There may be a limited range of acceptable difference in the total figure once the rules have been applied, in that different judges could legitimately come to slightly different conclusions as to the proportionate sum, and so long as they have applied the rules correctly they should not be open to challenge on appeal.”
Given the rules and Practice Direction are entirely silent as to what amounts to “proportionality”, this is a surprising view. We now have a member of the judiciary who believes that the new proportionality test can be applied in a quasi-scientific manner.
“Whether the relationship is reasonable is, in my view, a matter of judgment, rather than discretion, and, as I have said above, requires a costs judge to attribute weight, and sometimes no weight, to each of the factors (a) to (e).”
His criticism of Master Rowley’s decision was that:
“the final figure in this case does not appear to be based on any specific mathematical calculation nor is there a specific explanation of how the weighting of the various factors resulted in the final figure.”
Surely then, the appeal decision undertook just such a careful mathematical calculation and/or gave a specific explanation as to the weighting given when allowing the figure of £75,000 plus VAT. Here it is:
“In those circumstances we have undertaken our own assessment of the costs having regard to the factors mentioned in this judgment. We have given greater weight to the sums in issue and to the factor of complexity, both of which tip the balance significantly in the appellants’ favour. We have discounted the notional reduction for early settlement. We bear in mind, as the respondents recognised in argument, that the reduction made on the item by item assessment was unusually large, albeit unchallenged on appeal and that the learned Master concluded that it had been reasonable for the claimants to have spent nearly £100,000 on costs prior to settlement. When the reasonable costs are compared against a value of between £50,000 and £100,000 in a reasonably complex claim requiring specialist expert evidence, in what is to judge from the pre-action correspondence likely to be hard fought litigation, they appear less disproportionate than previously. We have revisited the elements of the bill and take the following approach, having regard to our view of the factors, including the factors which were not challenged before us. First, we would not reduce the court fees or costs of drawing the bill and secondly we would apply a smaller reduction to the expert’s fees than we would to the profit costs reflecting our view of the essential part played by the expert evidence. In those circumstances I concluded that in all the circumstances the proportionate figure is £75,000 (plus VAT), which I believe to be a fair figure bearing a reasonable relationship to the factors as I see them after taking careful account of the advice of Master Whalan to whom I am particularly indebted at this stage of the process.”
I am sorry, but this is doing no more than substituting one arbitrary figure for another. There is nothing approaching any kind of reasoning as to why one figure is more proportionate than another.
For example, the judge disagreed with Master Rowley’s decision that this “case was neither legally nor factually complicated”. The appeal judge concluded:
“If one compares such a claim to the range of claims which are made in the county court it can readily be seen that this is towards the more complex end of the range. It is almost impossible to generalise but there will be many road traffic accident claims and those arising out of sale of goods or contracts, all of similar value (ie £50,000 to £100,00) which may be much less complex than this claim. … Although this case may not have been complex within its category it seems to me that it was complex when compared with other claims of similar value within the county court.”
However, the judgment fails to give any indication as to how much weight the complexity issue was given, other than it was “greater” than Master Rowley (who in fact gave it no weight as he concluded it was not complex). Put another way, if this claim had been, in terms of complexity, more like the many “road traffic accident claims and those arising out of sale of goods or contracts” that are “much less complex”, what amount would have been judged as proportionate? If this is a question of law, as opposed to discretion, there should be a ready answer and it should be spelt out in any detailed assessment (or subsequent appeal).
There is something rather unsatisfactory about an appeal judge criticising a judge below for lack of reasoning and then repeating exactly the same “error” himself.
The history of the courts’ attempts to ensure legal costs are proportionate is a strange one. The appeal decision in May v Wavell Group Plc is no exception to that trend.
To recap, Master Rowley, on a line-by-line assessment, reduced the costs claimed from £208,236.54 to £99,655.74. He then concluded that this was still disproportionate for a claim which settled pre-trial for £25,000 and made a further global reduction, to reflect proportionality, down to £35,000 plus VAT.
On appeal, His Honour Judge Dight, CBE concluded that Master Rowley had misinterpreted and misapplied the new proportionality test and concluded a figure of £75,000 plus VAT was proportionate (presumably resulting in a global figure close to £90,000). (There was no challenge to the finding that the reasonable costs were £99,655.74.)
Of the various interesting comments made by the judge, one that stands out is:
“I doubt … that the proper interpretation of the rules requires or indeed entitles a costs judge at the end of an item by item assessment to impose a very substantial reduction on the overall figure without regard to the component parts.”
The issue of whether it is appropriate to reduce a successful litigant’s costs below the level that it was reasonable and necessary for him to incur is one of policy. There were many strong arguments advanced as part of the Jackson consultation process as to why this was wrong, but those arguments did not prevail. (It is equally a matter of policy that means that in the field of personal injury claims, successful defendants are now usually deprived of all the legal costs they have reasonably and necessarily incurred.)
The rules relating to proportionality expressly state:
“Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred”
The express intention of the new rule is that proportionality trumps reasonableness/necessity (ie the assessment of the component parts).
On what basis can it be suggested from the wording of the rules that the test is not designed to “impose a very substantial reduction on the overall figure”? There is none. A County Court judge has decided he does not like the new proportionality test and has therefore sought to re-write the rules. Presumably, he would have the rules read:
“Costs which are disproportionate in amount may be disallowed or reduced to a small extent even if they were reasonably or necessarily incurred”
We have, of course, been here before. The old proportionality test was completely undermined by the Court of Appeal in Lownds v Home Office by the Court ruling that the word “proportionate” (which clearly has one meaning) should be read as “necessary” (which clearly has a completely different meaning).
It was only a matter of time before the judiciary started to try to dismantle the Jackson reforms. Expect more of the same to come.
The Court of Appeal has given an important judgment on the issue of the costs of provisional assessment. In W Portsmouth and Company Ltd v Lowin  EWCA Civ 2172, the Court ruled that the £,1500 cap on the costs of provisional assessment continues to apply even where a party has succeeded on a Part 36 offer made in the assessment proceedings.
This is to be distinguished from the situation where a party succeeds on a Part 36 offer in relation to a fixed fee matter. In that case, Part 36 trumps fixed fees (as per Broadhurst v Tan  1 WLR 1928).
This is a sensible decision and should speed up the provisional assessment process by reducing the scope for argument and ensure the overall costs are proportionate.
Interestingly, an unnamed spokesman for the Association of Costs Lawyers was reported as commenting:
“While the clarity provided by the ruling was needed, the outcome is very harsh for costs lawyers.
There will be plenty of cases where the paying party does not accept a part 36 offer and instead causes the other side to spend significantly more than £1,500 in dealing with costs issues.
But on beating their own offer at assessment, the receiving party enjoys all the usual benefits, except in relation to this one aspect of their case. And it will be their costs lawyer who suffers through no fault of their own.
We call on the Civil Procedure Rule Committee to consider the impact and fairness of this ruling – making this exception seems at odds with the thrust of the whole part 36 scheme.”
I am not sure I agree.
Plainly, this decision will have no adverse impact on in-house Costs Lawyers.
It will also have no impact on Costs Lawyers employed by costs firms.
I believe the “harsh” outcome being described was intended to mean: “Costs Lawyers who own their own costs firms and who conduct costs litigation on a CFA Lite basis will lose out because they will be unable to recover any shortfall between the work undertaken and the cap of £1,500”.
I do not know how common it actually is for costs firms to agree to limit their fees to the level of costs recovered from the other side.
More to the point, although there will clearly be some exceptions, generally the reason the level of costs exceeds the £1,500 cap in provisional assessment matters is because:
- The receiving party has ignored PD 47 para.12.1: “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”; or
- the paying party has ignored PD 47 para.8.2: “Points of dispute must be short and to the point. They must follow Precedent G in the Schedule of Costs Precedents annexed to this Practice Direction, so far as practicable.”
If Costs Lawyers comply with the Practice Direction, their costs of assessment should rarely exceed the cap.
The Court of Appeal decision in BNM v MGN Ltd  EWCA Civ 1767 manages to be both very important and a massive anti-climax.
The decision is important because it finally resolves the issue of whether post-1 April 2013 additional liabilities are subject to the old or new proportionality test. The answer is that the old test applies (contrary to Master Gordon-Saker’s original decision). Although this will potentially have a large impact on the costs recoverability of some big-ticket costs claims, this is mainly limited to a dwindling number of old cases (4½ years and older).
What the judgment entirely fails to do is give any wider guidance as to how the new test should be applied. Even on the facts of the case, we still do not know the answer as the matter is to be referred back to Master Gordan-Saker for him to have another go.
In light of the problems facing ACL Training, I commented that: “It seems unlikely it can possibly continue in its current form”.
Unsurprisingly, the CLSB has now announced that it is to suspend any further intake onto the current three year Costs Lawyer qualification.
The CLSB “will now focus on other means of entry into the profession e.g. Costs Lawyer competence test, apprenticeship, thus assuring standards expected of a regulated profession are met”.
The negative impact of the Jackson reforms continues apace.
Virtually simultaneous to the news about Just Costs, is the announcement that defendant costs firm Cost Advocates is to close at the end of the year.
As an example of the rise and fall of the costs industry, Cost Advocates’ story is, perhaps, even more dramatic than that of Just Costs.
Cost Advocates (then Cost Auditing) was purchased by outsourcing giant Capita in 2002 for an initial consideration of £4.9m in cash with additional deferred payments of potentially another £3m.
The inevitable post-Jackson shake down continues to make itself felt across the industry.
Back in December 2016, costs firm Just Costs Ltd entered into a company voluntary arrangement (CVA) due to significant debts including owing £781,758 to HM Revenue & Customs.
In a statement at the time, the firm said:
‘The business has traded profitably every year since our inception in 2006. We continue to do so and our forecasts moving forward show continued profitability. We continue to have the total support of our bank and funders. … We will be meeting our liabilities in full. … We are dealing with work of an ever-increasing value and complexity. It is business as usual.’
Presumably matters did not go quite as smoothly as anticipated as Just Costs Ltd has just folded, only to be reborn as Just Costs Solicitors Ltd by means of a pre-pack administration deal.
Back in December 2016, it was explained that Just Costs had “consolidated” from four to two offices and reduced its headcount from 110 to 70.
The latest statement, explaining the CVA, states that it has saved 46 jobs.
It is clearly a good thing that so many jobs have been saved but 46 must be viewed as against 70 less than a year ago and 110 before that.
It must not be overlooked that these job losses have come about following just the first wave of the Jackson reforms, with the negative impact being felt largely in the fast-track arena. The next wave of reforms has yet to strike.
The Solicitors Regulation Authority has an online guide about Costs and Legal Aid for members of the public.
In relation to Conditional Fee Agreements, it states:
- “your lawyer will only get paid if the case is successful. If you lose your claim, your lawyer does not get paid”.
Am I alone in being concerned that the SRA appears to be unaware of discounted CFAs?
It then lists a number of bullet points as to what happens where a claim is run under a CFA and the claim is successful. The first of these is:
- “you receive 100% of any compensation awarded”
Where does this come from? There has never been a statutory or regulatory requirement that claimants keep 100% of their damages. True, in the past there were many firms of solicitors that made such a promise; but this was not an inherent element of a CFA. Post-Jackson, this is now relatively uncommon.
Further bullet points state:
- “the ‘success fee’ can be up to 100% of your lawyer’s costs, however in personal injury cases, this is limited to 25% of the damages awarded (excluding any damages for future care and loss),
- the losing side will have to pay your lawyer’s costs and any expenses that you may be liableto pay as part of your legal costs,
- you will however have to pay the success fee to your lawyer. It is therefore very important that your lawyer properly informs you at the very beginning of the success fee that will be payable if you win your case.”
Remember, this guide is for members of the public. How are they meant to interpret the contradictory statements that they will get to keep 100% of their damages but, in personal injury cases, may have to pay a success fee of up to 25% of their damages.
It is also fairly obvious that the SRA is unfamiliar with the concept of solicitor/own client costs.
If a solicitor produced a client care letter with so many misleading statements, they would rightly be hauled over the coals.
And this was produced by the body which is meant to police solicitors.
Last week’s annual ACL Conference saw speakers include:
Lord Justice Jackson
Senior Costs Judge Master Gordon-Saker
Costs Judge Master James
Regional Costs Judge Besford
Regional Costs Judge Lethem
Regional Costs Judge Lumb
Regional Costs Judge Middleton
Nicholas Bacon QC
Simon Browne QC
PJ Kirby QC
Andrew Post QC
Vikram Sachdeva QC
Dr Mark Friston
Professor Dominic Regan
There are clearly some outsiders who believe the ACL is getting something right.
Two of the Regional Costs Judges present told me they had taken Friday as annual leave so they could attend the conference. This suggests a number of possible things:
- The ACL Annual Conference is THE legal event of the year.
- The ACL Annual Conference is THE social event of the year.
- Some judges need to get out more. (To be fair, this conference is not so much the highlight of my social calendar, rather the only entry.)
The only body authorised to provide the Costs Lawyer qualification is ACL Training. This is wholly owned by the Association of Costs Lawyers. This is not a stich up but simply a reflection of the fact the demand for training has always been so limited that no other academic organisation would dream of trying to set up an alternative training programme and jump through the hoops required to obtain authorisation.
ACL Training has gone through a strange period.
Back in September 2014 it was announced, with some fanfare, that almost 200 students had signed up to the new training course to become Costs Lawyers. The exact number was, apparently, 189.
The number of new students for that year was always misleadingly high:
- There had been no new students enrolled the previous year as the course had been suspended whilst it was comprehensively redesigned post-Jackson. In reality, it was two years’ worth of students rolled into one.
- The figures included a number of experienced law costs draftsmen who had finally decided to make the jump to become qualified Costs Lawyers. This was, no doubt, partly in the belief that formal qualification would enhance employability in a post-Jackson world where the number of costs jobs was likely to decline.
- As this was shortly after the Jackson reforms had been introduced, this was in the rather artificial environment where costs budgeting was generating additional work but the adverse impact of Jackson had not yet started to work through into the system. In some quarters, during this brief period, it looked as though overall work levels might not drop. This no doubt encouraged some to seek qualification.
The recent edition of Costs Lawyer magazine records 97 students as having recently taken final year exams. This would be from the 2014 intake of 189 students. This suggests a very high level of drop-out/failure during the previous 3 years.
The post-Jackson environment is now taking its toll.
The number of new student for this year is 20.
Unsurprisingly, ACL Training is projected to start making significant losses over the next few years. It seems unlikely it can possibly continue in its current form.