n Harrison v University Hospitals Coventry & Warwickshire NHS Trust  EWCA Civ 792 the Court of Appeal confirmed that a court, on detailed assessment, would not depart upwards or downwards from the last agreed or approved budget unless there was a good reason to do so. The battle has now moved on to the issue of what constitutes a “good reason”.
An interesting decision on this issue comes in the case of RNB v London Borough of Newham  EWHC B15 (Costs).
Deputy Master Campbell decided that there was a “good reason” where the hourly rates claimed in the agreed/approved budget were in excess of the reasonable hourly rates as determined as part of the detailed assessment process.
This decision is contrary to my understanding as to the judicial training for costs budgeting. The rules expressly state (at PD3E para.7.3):
“The court’s approval will relate only to the total figures for budgeted costs of each phase of the proceedings, although in the course of its review the court may have regard to the constituent elements of each total figure.”
and (at PD3E para.7.10):
“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.”
It was generally understood that the purpose of these provisions was to set a globally reasonable and proportionate figure for each phase of a case. It was not to dictate how the work for that phase would then be undertaken.
For example, a budget might include 10 hours at £300 per hour by a Grade A fee earner for the witness statement phase, equating to a total of £3,000. If that figure is agreed/approved for the phase, it is then entirely a matter for that party as to whether the work is actually done by a Grade A fee earner in 10 hours, or by a Grade D fee earner charging £150 per hour who takes 20 hours on the task, or the matter is outsourced to Counsel who charges a fixed fee of £3,000 for completing the relevant work. So long as the work envisaged at the time the budget were agreed/approved is completed, and there is no breach of the indemnity principle, there should be no issue at the detailed assessment point as to recovery of costs. If the total claimed to undertake the budgeted work is within budget it should normally be allowed.
The cause of the problem in the RNB case is that if the defendant was unhappy with the totals claimed for any of the relevant phases in the claimant’s budget, they should not have agreed the same. This applies as much whether it is the time or the hourly rates claimed that is deemed excessive. Inevitably, this does create a problem. How does a party raise legitimate challenges to an opponents budget, in Precedent R or at a CCMC, where their concern is with the hourly rates being applied, rather than the time sought, if the court will not determine the appropriate hourly rate as part of the budgeting process? I have seen some parties attempting to agree the number of hours claimed within budgets but not the hourly rates. The difficulty with this is that PD 3E, para.7.10 states the making of a CMO “concerns the totals allowed for each phase of the budget”. Unless a total figure is agreed for the phase, there can be no CMO made on the back of that “agreement”.
The problem, so far as Deputy Master Campbell saw it, was:
“At the assessment hearing, I made reductions to the hourly rates claimed for the incurred costs to a level which has meant that the overall recovery by the Claimant for the period of work before the CMO has been reduced by significant amounts. Were that not to be reflected in the budgeted costs, that would mean that the Claimant will appear to recover an hourly rate as set out in Precedent H for the budgeted stage at a level that significantly exceeds the figure I consider to be reasonable and proportionate for the pre-budget stage. … If, (as it is the case), the hourly rate is a mandatory component in Precedent H which is not and cannot be subjected to the rigours of detailed assessment at the CCMC, it makes no sense if it is automatically left untouched when the rates for the incurred work are scrutinised at the ‘conventional’ assessment. …. Indeed, as Mr Clayton points out, it is only on that occasion that a paying party has an opportunity to challenge the rate and I agree with him for the reasons given above, that that is a ‘good reason’ to depart from the costs allowed in the Claimant’s last approved budget.”
This is a legitimate criticism of the whole costs budgeting process. One of the concerns when costs budgeting was first introduced was that judges would make rough-and-ready decisions in relation to setting costs budgets that resulted in figures that were higher than would be likely to be allowed under the scrutiny of a detailed assessment hearing. Parties would then be stuck with those excessive figures. However, although that may be a legitimate criticism of the costs budgeting process, it is difficult to see how that amounts to a “good reason” to override agreed/approved costs budgets.
Deputy Master Campbell took support for his approach from the comments made by the Court in Merrix v Heart of England NHS Foundation Trust  EWHC 346 (QB):
“As the notes to CPR 3.18 in the White Book reflect, the fact that hourly rates at the detailed assessment stage may be different to those used for the budget may be a good reason for allowing less, or more, than some of the phase totals in the budget.”
The flaw with this approach, I would suggest, is to focus simply on the hourly rate element of budgets. Although it is clearly correct that when approving a budget a court does not “fix or approve the hourly rates claimed in the budget”, it is equally true that the court is not meant to fix or approve the number of hours claimed within the budget. It is meant to do no more than approve “total figures for budgeted costs of each phase of the proceedings”. Neither the hourly rates nor number of hours set out are approved. If it is legitimate to reduce an agreed/approved budget because the hourly rate is too high, why not equally challenge the budget because the time claimed is too high for that phase? Would it not be an equally “good reason” to depart from the budget if the judge on assessment considered the time claimed in the budget to be too high?
The practical problem from this approach can be seen from the way many budgets are agreed/approved. A budget may be advanced that claims, for example, £20,000 for the disclosure phase based on 100 hours at an hourly rate of £200. The global figure for that phase may be reduced by agreement or court decision to £15,000, with no breakdown as to how that figure is arrived at. Can a party on detailed assessment challenge a claim for costs that comes in at £15,000 for that phase on the basis that the £200 per hour claimed is too high, even if the time claimed is only 75 hours (even though the £15,000 agreed/approved contained no figure for hourly rates)? What if the bill limits the hourly rate to £125 but now claims 120 hours work? Can a challenge be raised that the time spent was too long and higher than the original budget?
The proper analysis, I would suggest, is that an agreed/approved budget acts as a form of fixed fee for the relevant phase. So long as all relevant work for the phase has been completed (eg if a witness statement budget phase was based on there being three witness statements from each party, it would be necessary for those statements to have been completed and exchanged) and there is no breach of the indemnity principle, a party should be able to expect to recover the amount as set out in the agreed/approved budget (in the absence of some other “good reason” as to why this would be inappropriate).
When analysed properly, the RNB decision appears to be no more than saying budgets can be reduced on assessment simply on the grounds that the judge considers the constituent figures in the budget to be too high.
Deputy Master Campbell was canny enough to ensure his decision was not open to appeal by finding, in the alternative, that the overall costs (after the line-by-line assessment) were disproportionate but that a proportionate figure could be arrived at by reducing the hourly rates further:
“It follows that if I am wrong about ‘good reason’, the amount to be allowed on assessment must be adjusted by the application of CPR 44.3(5) so that the sum payable is the same as if the rates allowed for the incurred had been used to work out the amount to be allowed for the budgeted work.”
It therefore seems unlikely that this decision will be taken further. However, I rather doubt that the RNB approach will gain approval from the higher courts in due course.
The response to the Jackson reforms has taken the classic five stages of grief: denial, anger, bargaining, depression and acceptance (although not everyone has worked through all the stages yet).
When the original reforms were first published, back in 2010, many confidently predicted that the reforms would never come to pass (denial stage) and the report would quietly gather dust, particularly as this coincided with the new coalition government with many anticipating they would have more pressing matters to worry about than civil costs reforms.
The “new” proposals for fixed costs across the fast-track are, of course, no more than what had been proposed originally. The further proposals for fixed fees for most claims with a value of up to £100,000 are more significant and far reaching than originally proposed. It is certainly true that Jackson’s original report suggested the possibility of extending fixed fees further if his initial reforms were successful, but I suspect most observers anticipated that his original package of reforms would, if implemented, take sufficient heat out of the system such that further reform would be unnecessary. We therefore now find ourselves in a much “worse” position than expected from the initial Jackson Report.
The Association of Costs Lawyers seems to have been particularly susceptible to the denial stage of the grief process.
There do appear to have been some members who genuinely believed that the Jackson reforms presented all kinds of exciting opportunities for Costs Lawyers, including costs budgeting and (apparently) the project management of litigation. In reality, it was difficult to see that any new work generated could realistically compensate for the large volume of lower value work that would disappear. It is only from the perspective of positive denial that some of the ACL’s past decisions make any real sense.
There was, at one stage, quite a lot of discussion about the ACL going to university milk rounds to promote becoming a Costs Lawyer as a wonderful future career. Post-Jackson this was difficult to justify on any level. In so far as the ACL’s primary role is to promote the interests of its members, it was not obviously consistent with that role to encourage a new group of, potentially, better qualified new entrants to join the profession just as the existing work was likely to begin to dry up. Equally, it is difficult to see how the very uncertain outlook for the costs profession could ever be honestly presented as a golden opportunity for new graduates.
The ACL has traditionally been run through the hard work of members volunteering their time (with some invaluable paid support staff). It was therefore an odd decision, in light of Jackson and with future financial pressure likely if membership numbers started to drop as a consequence of the reforms, to take on, for the first time, a paid CEO and paid Policy Officer. (Both roles have now, perhaps unsurprisingly, been scrapped.)
Again, the decision to spend, apparently, £10,000’s on a new website for the Association (that, in terms of IT input, looks like a few hours’ work) is not one that made obvious sense in a post-Jackson world.
If some of these past decisions were made during a period of collective “denial”, we can perhaps hope that an element of “acceptance” will now come to pass (even if combined with “anger” and “depression”) and the Association can now consider what it’s future will be. It certainly cannot continue as though Jackson was something that happened to other people only.
Ancient Chinese curse: “May you live in interesting times”.
And so, Lord Justice Jackson has published his recommendations for extending fixed fees. The key proposals for extending fixed recoverable costs (“FRC”) to all fast-track cases, and a significant increase in fixed fees for the majority of claims with a value of up to £100,000, are no great surprise.
In more detail, he proposes:
- All recoverable costs in the fast track should be fixed, the figures should be reviewed every three years.
- A new ‘intermediate’ track with a streamlined procedure should be created for monetary relief cases above the fast track, which are of modest complexity and up to a value of £100,000.
- There should be a grid of FRC for intermediate track cases, the figures should be reviewed every three years.
- There should be FRC for (a) applications to approve settlements for children and protected parties and (b) costs only proceedings, in respect of intermediate track cases.
- Save as set out in recommendation (iv), Part 8 claims should be excluded from the proposed FRC regime.
- The Civil Justice Council should, in conjunction with the Department of Health, set up a working party to develop a bespoke process for clinical negligence claims up to £25,000, together with a grid of FRC for such cases.
- There should be a voluntary pilot of capped recoverable costs, in conjunction with streamlined procedures, for business and property cases with a value up to £250,000. If the pilot is successful, such a regime should be made available at the judge’s discretion for any suitable case in the Business and Property Courts or the Business and Property Lists of the County Court.
- For FRC cases, where a defendant fails to beat a claimant’s Part 36 offer, instead of indemnity costs applying in place of FRC, the claimant should be awarded a 30% or 40% uplift on costs. (This is what I suggested, although with a different level of uplift, 18 months ago.)
- A mediated agreement has been reached as to a new claims process for NIHL claims, with corresponding FRC, and this is endorsed.
- The Aarhus Rules should be adapted and extended to all judicial review claims.
- Costs management should be introduced, at the discretion of the judge, in ‘heavy’ judicial review claims.
Once the new reforms have bedded in, it is proposed that further consideration should be given to further extensions of fixed fees for other cases. It is proposed that this review should be after four years.
In relation to fast-track matters, they should be placed into four bands of complexity, band 1 being the least complex and band 4 the most:
- Band 1: RTA non-personal injury, defended debt cases;
- Band 2: RTA personal injury (within protocol), holiday sickness claims;
- Band 3: RTA personal injury (outside protocol), employers’ liability accident, public liability, tracked possession claims, housing disrepair, other money claims; and
- Band 4: Employers’ liability disease claims (other than noise-induced hearing loss, which is set to have its own dedicated FRC scheme), any particularly complex tracked possession claims or housing disrepair claims, property disputes, professional negligence claims and other claims at the top end of the fast-track.
The criteria to qualify for the new intermediate track would be:
- The case is not suitable for the small claims track or the fast-track;
- The claim is for debt, damages or other monetary relief, no higher than £100,000;
- If the case is managed proportionately, the trial will not last longer than three days;
- There will be no more than two expert witnesses giving oral evidence for each party;
- The case can be justly and proportionately managed under a new expedited procedure;
- There are no wider factors, such as reputation or public importance, which make the case inappropriate for the intermediate track;
- The claim is not for mesothelioma or other asbestos-related lung diseases;
- Alternatively, if the above do not apply, where there are particular reasons to assign the case to the intermediate track.
When will all this happen?
Firstly, it would need government approval and then go out for public consultation. Then the relevant Civil Procedure Rules would need to be re-written. There is no realistic prospect of this all happening by October 2017. April 2018 also looks optimistic. We are probably therefore looking at October 2018. In response to questions, Jackson indicated that the goalposts should not be moved mid-litigation. I would therefore anticipate that the trigger-date will be the date of issue (ie all claims issued on or after 1 October 2018).
In Azure East Midlands v Manchester Airport Group Property Developments Ltd  EWHC 1644 (TCC), a pre-Denton decision, it was held that a delay of two days in filing costs budgets in the context of a time frame of seven days was a “trivial” breach.
In Wain v Gloucestershire County Council  EWHC 1274 (TCC), again pre-Denton, the Court held that serving a costs budget served a day late was a “trivial” breach and an application for relief from sanctions was allowed.
In Utilise TDS Limited v Davies  EWCA Civ 906, another appeal heard at the same time as Denton and reported with it, the claimant failed to comply with an Unless Order by filing a costs budget 45 minutes late. The Court of Appeal held this delay to be “trivial”.
Most recently, in the judgment in Lakhani v Mahmud  EWHC 1713 (Ch), the defendant was one day late in filing its budget. The judge at first instance refused relief from sanctions on the basis the breach was “not a trivial breach. It is a serious breach.” This was a case specific decision and the full judgment needs to be considered to understand the reasons as to the conclusions as to the seriousness of the breach. However, on appeal the decision was upheld even if some doubt was cast on whether the original judge had correctly followed the sequence of tests as set out by Denton.
The problem with these decisions is that if the issue of whether a delay of one or two days is, or is not, a serious/trivial breach is a matter which is fact sensitive, it inevitably leads to parties who are in breach feeling justified in making applications for relief and the other side feeling equally justified opposing those applications. Satellite litigation prevails.
The current prediction is that Lord Justice Jackson will recommend fixed fees are extended to all claims with a value of less than £100,000. If this is true, and subsequently introduced, there are two obvious issues to comment on:
- Without undertaking a detailed statistical analysis, it is reasonable to estimate that a figure of £100,000 is likely to mean at least twice as much costs work will survive as if the figure had been set at the previously mooted figure of £250,000. That is a good thing.
- A number of costs firms appear to have muddled through the original Jackson reforms as a consequence of the additional work generated by costs budgeting compensating, in part, for the loss of other work. Fixed fees for all claims under £100,000 will coincide with costs budgeting being abandoned for this category of claim. This, combined with the other significant losses in work that will result from the extension of fixed fees, is likely to see civil costs work decline in volumes by 80-90% compared to current levels, and that is against the serious job losses that have already been seen. That is a bad thing.
An interesting recent blog post from Kerry Underwood discusses offshoring legal work.
He admits to a direct interest in this issue as Underwoods Solicitors offshore some of their work through their South African office and other firms have used this facility.
He also suggests:
“The same is true in relation to costs lawyers: why is it necessary to prepare a bill of costs here when it could be prepared for a fraction of that cost abroad?”
If memory serves me right, a few years ago a costs firm did outsource much of their work to Pakistan. It did not go well and the firm is no longer trading.
Of course, one example of offshoring not working is not evidence the theory is flawed. However, I believe part of the problem stemmed from the fact that the overseas costs draftsmen did not have access to the full files of papers. In theory, the relevant papers were meant to be scanned and sent over, but this no doubt proved impractical for larger matters.
Therein lies the problem so far as costs work is concerned. The majority of solicitor firms’ files are still, at least in part, paper based. Access to all relevant documents is essential to properly prepare a bill of costs. Unless, and until, firms move over to fully paperless offices it is unlikely outsourcing of costs work will catch on. By that stage, most cases will be subject to fixed fees in any event and the economies that might be achieved by offshoring volume costs work will no longer be available. There is likely to be limited demand for offshoring a relatively small number of higher value (and thus more important) costs matters.
The nice people at 4 New Square invited me to their Summer Party on Tuesday evening. Although the weather was terrible, they had had the sense to book an indoor venue.
In addition to their own embarrassment of riches in terms of their specialist costs counsel, there were also a number of other costs practitioners attending as guests and it gave me the opportunity to catch up on the latest news and gossip from the costs world.
In no particular order:
- Word on the grapevine is that Lord Justice Jackson is likely to recommend next moth that fixed costs are introduced for all claims with a value of up to £100,000, as opposed to his previously mooted figure of £250,000. This may be no more than rumour and we will shortly know for sure.
- One experienced costs draftsman was of the view that the Jackson reforms to date had led to approximately 50% of independent costs firms closing and job losses in the profession running at a similar level.
- In September 2014, a record number of almost 200 new students started the Costs Lawyer training course. Current numbers are barely in double figures.
- One well-informed source estimated that once the full Jackson shake-up has gone through we may be left with around 200 practising Costs Lawyers.
Plenty for me to comment on in the coming days, weeks and months.
- The Court of Appeal has handed down judgment in the important case of Harrison v University Hospitals Coventry & Warwickshire NHS Trust  EWCA Civ 792 concerning the correct approach to take to detailed assessment where there has been a costs management order made.
The facts of the case are irrelevant. The four points of principle that emerge are:
· Where a costs management order has been made, in relation to future estimated costs, at detailed assessment the court will not depart upwards or downwards from that approved budget without ‘good reason’. The court declined to provide further guidance on what amounted to ‘good reason’ other than to comment: “Costs judges should therefore be expected not to adopt a lax or over-indulgent approach to the need to find ‘good reason’”. This clearly leaves plenty of scope for argument on detailed assessment.
· No such ‘good reason’ is required in relation to incurred costs. Incurred costs are to be the subject of detailed assessment in the usual way, except to the extent to which the court may take into account comments made in relation to incurred costs by the judge when the costs management order was made.
· Importantly, the making of a costs management order does not close-off arguments on assessment as to what global figure would be proportionate for the case. This is because “the costs judge ordinarily will still … ultimately have to look at matters in the round and consider whether the resulting aggregate figure is proportionate”.
· For the purposes of proportionality and the transitional provisions, a claim is “commenced” when the relevant proceedings are issued by the court, not the date they are sent to the court. This is important for those cases issued around 1 April 2013. Unless the court actually issued the claim form before 1 April 2013, the new proportionality test will apply to post-1 April 2013 work.
It was a funny old General Election.
We witnessed the worst Conservative manifesto in history and watched as the Prime Minister went, in the public eye, from “strong and stable” to “weak and wobbly” in a few short weeks. The Conservative share of the vote duly increased by 5.5% compared to the brilliant and ruthless campaign run by David Cameron at the last election.
A highly efficient Labour campaign saw the all-conquering Jeremy Corbyn fall a mere 55 seats behind the disastrous Conservative campaign and achieve a massive 4 seats more than the terrible Labour campaign of Gordon Brown in 2010.
The Liberal Democrats ran a no-brainer of a campaign to appeal to the 48% of the population who voted Remain, and duly saw their share of the vote decline by 0.5% compared to their train-crash result in 2015.
At a more granular level, Diane Abbott had, what was widely regarded as being, the worst election campaign of an individual British politician in living memory. She was duly returned with a 12.2% increase in support and a massive 75.1% share of the vote in her constituency. (This was before any proper medical explanation was advanced for her shockingly poor media performance.)
In politics, perception may well be all. Nevertheless, one does begin to wonder whether voters were partaking in a parallel election to that being observed by most political commentators.
Meanwhile, back in the world of law and cold hard facts, Access to Justice tweeted: “We definitively prove that #PIReforms are a huge mistake!” on the basis that research they commissioned apparently shows the government’s personal injury reforms will boost insurers’ profits by up to £700m a year. Virtually simultaneously, the Law Society Gazette published an article highlighting that motor insurers suffered combined losses of £3.5bn last year as a consequence of the changes to the Ogden rate change.
In a post-truth world, there is a “fact” out there to satisfy any point of view.
What steps in costs litigation are (non-Costs Lawyer) law costs draftsmen able to undertake?
Although the issue, inexplicably, still sometimes arises, it should now be clear (post-Kynaston v Carroll  EWHC 2179) that they can appear at (first-instance) detailed assessment hearings so long as they are properly instructed by the legal representative on record.
However, the role of independent (ie not in-house) costs draftsmen extends beyond advocacy at detailed assessment. It is not uncommon for costs draftsmen/costs firms to:
- Serve Notices of Commencement.
- Make Part 36 offers in detailed assessment proceedings.
Is this permissible?
Both Notices of Commencement and Part 36 offers are subject to the formalities that go with service (CPR 6). If a costs draftsman is not on record as acting for a party (and, further, not an authorised litigator), can they properly serve a Notice of Commencement or Part 36 offer?
The answer is possibly now to be found in the recent decision of Coulson J in Ndole Assets Ltd v Designer M&E Services UK Ltd  EWHC 1148 (TCC).
In brief terms, the issue arose as to whether a non-regulated claims firm could properly serve a Claim Form and Particulars of Claim on behalf of a litigant in person. It was not in issue that the claim firm was not permitted to carry out reserved activities.
The judgment analyses whether service of Claim Form and Particulars of Claim amounted to “prosecution” of the proceedings (a reserved activity). If I have understood the judgment correctly, it concludes that such service was a reserved legal activity but this was a task that could legitimately be delegated to a third party, it being noted that service by process-servers happens all the time:
“In my view, the (partial) answer to this is that process-servers are engaged by the relevant solicitors to carry out this particular task. They have the solicitors’ delegated authority to serve the documents. In those circumstances, since the solicitors on the record are responsible for the carrying out of all reserved legal activities, the solicitors remain responsible for the service of the documents, even if they have sub-contracted the task to professional process-servers. In that way, there is nothing inconsistent in concluding that the service of proceedings by process-servers is a reserved legal activity, for which the solicitors on the record are and remain responsible.”
To the extent to which a solicitor could delegate such a task, so could a litigant in person.
If this reasoning is correct, it would equally mean solicitors could delegate the service of a Notice of Commencement or the making of a Part 36 offer to external law costs draftsmen. The extent to which such work needs to be properly supervised and undertaken under express instructions is less straightforward.