£17,000 bill of costs served in relation to appeal. Notice of Commencement relies on a court order and attaches a copy of the same. The costs provision of the order reads:

“No order as to costs”

You couldn’t make it up.

Perhaps when the new “automatic” bill drafting software is introduced it will also be able to interpret what costs orders mean.

Lord Justice Jackson’s recent suggestion that fixed costs should be extended to disputes worth up to £250,000 was, according to the Association of Costs Lawyers’ e-bulletin, accompanied by the comment:

“I appreciate that, in complex and value [sic] cases, fixed costs still won’t work. Here, the only way to control costs in advance would be to continue with costs budgeting and costs management”

This is presumably meant to mean no more than cases over £250,000 should be exempt from fixed costs because they are, by their nature, complex and higher value matters where the costs are more variable from case-to-case.

The ACL e-bulletin commented this was “an observation that many costs lawyers will be relieved to hear”. I’m sure they will both be very happy. Realistically, £250,000+ cases must make up a very small proportion of the cases that most costs lawyers deal with day-to-day.

Further, nice as it would be to have some work remaining to see me through to retirement, once fixed costs are extended up to £250,000 there seems limited logic to stopping at that stage.

Fixed costs are not meant to produce a “reasonable” figure on a case-by-case basis. A fixed fee will always be too much or too little when compared to the number of hours spent. Fixed costs, at best, are designed to produce an average figure that is reasonable across a basket of cases (although it might need to be topped up on a solicitor/own client basis).

Fixed costs on the fast-track has some logic and justification. Although fast-track cases have varying (relative) degrees of complexity, by their nature, a judge must have decided each case is straightforward enough to be heard in one day. There is a relative cap on the complexity of such cases. Fixed costs for such claims will contain a margin of error as to how close the figures are compared to the time spent, but there should be a limit to the level of discrepancy.

However, once you start to introduce fixed costs for claims up to £250,000, any attempt at producing figures that correspond to the actual work undertaken is clearly abandoned. The figure will be an arbitrary payment to the other side, often likely to be too much or too little by £10,000s.

There are good arguments for and against introducing an extension to £250,000. But if the arguments in favour prevail, there is no obvious reason why fixed costs should not be introduced for all litigation regardless of value. A £250,000 cap has as little to recommend it as the old £2,000,000 (now £10,000,000) cap for costs budgeting.

The Jackson Final Report stated the purpose of the planned new case management software, for which the new J-Codes have recently been approved, was so the software included the ability to "automatically generate schedules for summary assessment or bills for detailed assessment as and when required".

I’m currently dealing with a bill where the costs order was:

“The First Defendant shall pay 37.5% of the Claimant’s generic costs and disbursements of the action until the Second Defendant was added to the proceedings (19 November 2013) and the First Defendant shall pay 75% of the Claimant’s costs and disbursements as incurred solely against the First Defendant from 19 November onwards.”

I look forward to seeing the automatically generated bill that properly reflects that order.

You couldn’t make it up.

A recent post discussed the Court of Appeal’s decision in Tasleem v Beverley [2013] EWCA Civ 1805 and apparent suggestion (flying in the face of an earlier Court of Appeal decision) that issuing Part 8 costs-only proceedings was not part of the detailed assessment proceedings (with the apparent consequence that such costs would fall outside the £1,500 cap for provisional assessment). The crucial passage was:

"The bringing of Part 8 costs-only proceedings is not the commencement of, or part of, the detailed assessment proceedings, albeit it is a necessary preliminary to that process if there are no underlying proceedings in existence."

This leads on to a secondary issue of work done in relation to negotiating costs prior to Part 8 proceedings being issued.

The earlier Court of Appeal decision in Crosbie v Munroe [2003] EWCA Civ 350, [2003] 1 WLR 2033 was simple and logical. There were two types of costs:

1. Those costs incurred in relation to the substantive claim.

2. Those costs incurred quantifying the costs of the substantive claim. This would cover all work post-settlement of the substantive claim negotiating costs, dealing with Part 8 proceedings and through the assessment process. Brooke LJ explained at paragraph 34:

“By this route it is easy to see that even when Part 8 proceedings have to be commenced in order to obtain a court order for detailed assessment, the 'costs of the proceedings' within the meaning of CPR 47.19 still relate only to the costs leading up to the disposal (on this occasion by agreement) of the substantive claim. They are 'the proceedings which gave rise to the assessment proceedings', and the assessment proceedings cover the whole period of negotiations about the amount of costs payable through the Part 8 proceedings to the ultimate disposal of those proceedings, whether by agreement or court order.”

It all seemed neat and straightforward until Tasleem v Beverley.

Some of the difficulties are created by the confusingly worded CPR and Practice Directions.

CPR 46.6(1) (mirroring the pre-Jackson wording) states:

“Detailed assessment proceedings are commenced by the receiving party serving on the paying party –

(a) notice of commencement in the relevant practice form; and

(b) a copy of the bill of costs.”

That would appear to support the Tasleem thinking that issuing Part 8 proceedings is not part of the assessment proceedings, simply a necessary preliminary step. On this analysis, service of the N252 commences the detailed assessment proceedings and work done before this falls outside the process (and therefore outside the provisional assessment cap).

On the other hand, PD 47 para.5.19 (again mirroring the pre-Jackson wording):

“The bill of costs must not contain any claims in respect of costs or court fees which relate solely to the detailed assessment proceedings other than costs claimed for preparing and checking the bill.”

Implicit in this is the fact that the costs of drafting the bill are part of the detailed assessment proceeding, even if it is permissible to include these in the bill. Clearly a bill must be drafted before an N252 is served and the only court fee that might normally be incurred before a bill is drafted is the Part 8 issue fee. This of course was the reason CPR 47.15(5) had to be amended from:

“The court will not award more than £1,500 to any party in respect of the costs of the provisional assessment.”

to the current:

“In proceedings which do not go beyond provisional assessment, the maximum amount the court will award to any party as costs of the assessment (other than the costs of drafting the bill of costs) is £1,500 together with any VAT thereon and any court fees paid by that party.”

If the costs of drafting a bill were not costs of the assessment the issue would never have arisen. Self-evidently, a bill will always be drafted before it is served with an N252.

The importance of the distinction between whether work does or does not fall within the detailed assessment proceedings is heightened by the fact so many cases are now subject to provisional assessment.

Take the following example. A claim settles prior to proceedings being issued with the defendant agreeing to pay the claimant’s costs. The claimant serves a draft bill. The defendant serves draft points of dispute. The claimant serves draft replies. Negotiations continue for several months. Negotiations break down and the claimant issues Part 8 proceedings. Following an order for costs being made, the bill is formally served. Can it seriously be argued that all work done up until that point falls outside the detailed assessment proceedings (because it pre-dates service of the N252) and therefore both parties have effectively managed to totally escape the £1,500 cap? If it does, CPR 47.15(5) needs to be rapidly redrafted (third time lucky?).

A further oddity thrown up by Tasleem is to be found at paragraph 13:

“We have not called upon Mr Mallalieu [for the Claimants} to respond on behalf of the respondents to this appeal, but in his written arguments it is clear that he does not quarrel with the proposition that when there is an underlying claim followed by a notice of commencement of detailed assessment proceedings and a default costs certificate, the recoverable costs are limited to those in the default costs certificate. In such a case, the costs specified in it are apt to cover the additional costs the receiving parties incurred by using the procedure, subject only to the cap of the fixed costs regime.”

If that is correct, consider the following situation. Proceedings are issued in relation to the substantive claim which settles, with the defendant being liable for the claimant’s costs. A bill is informally served. Several months of heated negotiations are then entered into over costs. Negotiations break down and a bill is formally served. The defendant fails to file points of dispute and the claimant obtains a default costs certificate. Are the claimant’s costs really limited to those shown on the “default costs certificate”? Is nothing recoverable for the months of negotiations?

The Court of Appeal has created various problems entirely unnecessarily. It would have been much simpler to conclude, adopting a purposive approach to interpretation of the rule the court was being asked to consider, that the fixed fees under CPR 47.11 were intended to cover the costs of applying for a default costs certificate alone. It would not then have been necessary to try to treat the issuing of Part 8 proceedings as falling outside the assessment process (clearly contrary to Crosbie).

The Court of Appeal will no doubt shortly be asked to sort out the mess they have created, unless the rules committee gets there first.

There appears to be some confusion over the role the new J-Codes will play and whether it will be compulsory to use case management software that incorporates the J-Codes. I am therefore grateful to Alexander Hutton QC, who sits on the committee responsible for developing the new bill of costs format, for the following comments:

“It is not mandatory to use the J-Codes now, nor is it planned that it shall ever be so. Many one-man/woman band solicitors and certainly many litigants in person may be unlikely ever to do so. All that is planned is that there will be a model bill of costs in the relevant Practice Direction just like there is now but which will be our committee’s recommended bill based on the J-Code time recording system (although it will be able to construct from scratch not having used the J-Codes, just as now). It will however be much easier to prepare a bill like this having time recorded by the J-Codes, as it will not involve reinventing the wheel by a costs draftsman drafting a bill from scratch, but instead using the time recording system itself to generate both a Precedent H form and a bill of costs, and where the bill can easily be compared to whatever was allowed in the approved budget in relation to each phase.

That is the plan. It is obviously up to others if and when that plan comes in. While the senior judiciary have approved the J-Codes in principle, they have no official status at the moment in the rules. If and when the model bill of costs is changed in the rules to ours (and obviously that is up to others ultimately), then those who have been using the J-Codes from now will have a much easier time of it. But ultimately, at this stage, all we have done is publish them and it is up to others to use them or not as they see fit.”

A recent post commented on the potential problems caused by CCFAs which define “basic charges” along the following or similar lines:

“charges for work done by or on behalf of Smith and Jones Solicitors, calculated on the basis of the hourly rates allowable for the work in the court in which the claim in question is conducted or would be conducted if proceedings were to be issued”

I suggested “allowable” was meant refer to the Guideline Hourly Rates for the relevant court and that treating “allowable” as meaning whatever hourly rates it might be possible to persuade a judge to allow at the conclusion of the case would create all kinds of indemnity principle problems.

Of the various comments posted in response Jacques Hughes (whose contributions are always most welcome) stated:

“Why would the broader interpretation of ‘allowable’ create indemnity principle problems? ‘Work will be paid for by the hour at a rate to be determined by the court’ gives rise to no issues of uncertainty, any more than, say, a lease which provides that rents will be determined annually by a nominated surveyor”

I therefore thought it might be worth expanding on my thoughts.

As no more than an aside, given leases are presumably not subject to the indemnity principle, no such issue would arise with the wording of a lease drafted in such a manner. I would suggest that a lease that said no more than the rents would be those rents “allowable”, without further qualification, almost certainly would cause problems.

If such CCFAs are meant to mean “Work will be paid for by the hour at a rate to be determined by the court”, why do they not say that? At best this is sloppy drafting. However, if that is what they are meant to mean, there is a clear indemnity principle problem.

A bill of costs must be accompanied by a signed certificate confirming the accuracy of the bill, which has always been treated to mean that there has been no breach of the indemnity principle. If the appropriate hourly rate is to be determined by the Court at some future date, how can a bill be prepared, with accompanying certificate of accuracy, claiming a rate in excess of Guideline Rates? Or at Guideline Rates? Or below Guideline Rates? The hourly rates, on this reading of the CCFA, are entirely up in the air and yet to be determined. A properly drafted bill would need to leave all the figures for profit costs blank and simply detail the hours worked. Equally, it would never be possible to apply for a default costs certificate when dealing with such a bill. Unless and until the bill was assessed by a costs judge the amounts payable (under the agreement) would be unknown.

A second indemnity principle problem arises from the case of Customs and Excise v Vaz (1995) STC14 which made it clear that if the agreement between the client and solicitor is that the client is under no obligation to pay save and to the extent that the solicitor obtains costs from the other side, then, in fact, the client is under no obligation to pay at all and, pursuant to the indemnity principle, the solicitor cannot recover from the losing party. CFA Lites were first introduced by Reg 3A of the Conditional Fee Agreements Regulations 2000 (as amended), being an agreement in which the client was:

“liable to pay his legal representative’s fees and expenses only to the extent that sums are recovered in respect of the relevant proceedings, whether by way of costs or otherwise”

Under such an agreement, it would be permissible to set the hourly rate in the CFA at, say, £500 but in the event the Court only awarded £200, and that was the sum recovered from the other side, the client’s liability would be accordingly limited. This creates no indemnity principle problem as the client was potentially liable for £500 per hour, subject to that rate being recovered. Equally, if the Court allows £200 per hour but the paying party only coughs up half that amount, the client’s liability would be limited to £100 per hour. However, both these situations are quite different to a CFA specifying no rate at all.

A further difficulty with arguing that “allowable” is meant to mean ‘work will be paid for by the hour at a rate to be determined by the court” is the inclusion of the wording “calculated on the basis of the hourly rates allowable for the work in the court in which the claim … would be conducted if proceedings were to be issued”.

This clearly envisages a case settling pre-issue but a certain rate still being payable. If “allowable” in this context does not mean Guideline Rates, what does the reference to the court in which the claim “would be conducted if proceedings were to be issued” mean? This is particularly stark where the claim would have been conducted in the High Court if issued but where any assessment would be done in the Senior Courts Costs Office. Other than summary assessments, the High Court rarely assesses costs. What the SCCO may or may not allow is irrelevant if the reference is to the court in which the claim itself would have been conducted if issued.

I have no doubt that the intention of those who drafted such CCFAs was indeed to set the rates by reference to Guideline Rates. Now clever specialist costs counsel are required to try to escape the natural consequences.

Lord Justice Jackson has called for the development of a fixed costs scheme for all claims with a value of up to £250,000. Kerry Underwood’s blog helpfully sets out a summary of how this might work and concludes:

“The potential massive losers here are barristers”

Barristers? Sorry? There is one much more important group I can think of that might be losers if this were to happen (and I’m not just talking about costs officers in the Senior Courts Costs Office).

Interestingly, the recent major extension of fixed costs in the fast-track and the end to recoverability of success fee and ATE premiums has already ended much of the clamour for further major costs reforms from claimants and defendants. Once the main run-off of pre-Jackson cases has gone through the system, one would have expected pressure from the judiciary for further change to also end if it was not for one thing: costs budgeting and costs management (or is that two things?).

The new Senior Costs Judge Master Gordon-Saker recently launched a strongly worded attack on the lack of training for judges in costs budgeting. He reported how, at a recent Jackson training session he attended, the group of judges he was with were asked to estimate the costs of a five day professional negligence case at the High Court. The results were estimates varying from £30,000 to £150,000.

We may well see the situation that the nightmare unleashed by the ill-thought-out introduction of costs budgeting will, within a year or two, cause the judiciary (and possibly practitioners alike) to conclude a massive extension of fixed fees is the only solution to the mess that has been created. Indeed, Lord Justice Jackson highlighted one of the advantages of the extension of fixed costs to be:

“Such a scheme may be particularly welcome now, because it will dispense with the need for costs management and costs budgeting in cases valued at less than £250,000.”

Some possible alternatives include:

1. Suspending costs budgeting until there is a new bill of costs format that mirrors costs budgeting phases.

2. A comprehensive survey of costs budgets approved to date to see whether there is any consistency in amounts allowed (or logic to the figures) and whether the amounts allowed are likely to have any downward pressure on the overall costs that may be awarded at the conclusion. The whole purpose of costs budgeting was to control costs. To the best of my knowledge, no attempt has been made to determine (from proper evidence rather than anecdote or self-selecting survey) whether this is achieving that aim.

3. Intensive costs management training for judges (surely a minimum of one week) with no judge allowed to make costs management orders until that training has been completed and the judges understanding properly assessed.

4. A clear and sensible timetable put in place for the exchange and filing of budgets so 1000s of these documents do not continue to be prepared that then serve no useful purpose (either because the matter settles before a costs management hearing or the court decides not to make a costs management order) other than wasting the parties’ time and money.

5. Scrapping costs budgeting for cases where estimated costs do not exceed £100,000. Replace then with costs estimates (giving a global figure) from which the court can make a costs management order. It is wishful thinking on the part of costs budgeting evangelists that a phase-by-phase budget for such cases is likely to produce a more rational, reasoned or fair overall figure than a global costs estimate. This would save an enormous amount of time and expense to the parties and the courts, both at the time of making the costs management order and at any subsequent detailed assessment hearing avoiding arguing over phase-by-phase issues.

No doubt the rules committee would welcome any other helpful suggestions.

Many costs firms appear to be busy expanding and recruiting. However, one recent comment on a post stated:

“I know of at least 6 north west cost drafting firms who are making redundancies.”

There is perhaps no mystery to these two apparently conflicting accounts at this stage in the post-Jackson cycle. Costs budgeting, etc has increased the need for experienced law costs draftsmen and Costs Lawyers for higher-end costs work where we have yet to see a significant reduction of work caused by other elements of the Jackson reforms. However, the impact of an expansion of fixed costs work at the lower-end should now have begun to kick-in and impact on work volumes for some firms. It is therefore perfectly possible that some firms are currently expanding at the same time as others are shrinking.

Is this an accurate summary of the current position?

Many cases are still being run under CCFAs which define “basic charges” along the following or similar lines:

“charges for work done by or on behalf of Smith and Jones Solicitors, calculated on the basis of the hourly rates allowable for the work in the court in which the claim in question is conducted or would be conducted if proceedings were to be issued”

I take “allowable” to refer to the Guideline Hourly Rates for the relevant court. “Allowable” cannot refer to whatever hourly rates it might be possible to persuade a judge to allow at the conclusion of the case. This would create all kinds of indemnity principle problems. Neither can it mean the rates that another judge in that court once allowed in a vaguely similar case in the past. That does not make the rate “allowable” but simply “once allowed in the case of X”.

If that is correct, it means there is no discretion to seek rates in excess of Guideline Rates.

Secondly, what happens if the claim was one of those issued out of Northampton (CCMCC) County Court and settled prior to transfer to a specific court? Although it was a purely administrative matter that Northampton County Court was the named court, was it not being “conducted” in that court if issued or “would be conducted” in that court if not yet issued? If so, the rates under a similarly worded CCFA would be limited to National 2 rates.

Is an accident concerning an elderly lady being hit by a mobility scooter in the fruit and vegetable aisle of a Tesco superstore a “road traffic accident” under CPR 45.7 (now CPR 47.9) such that fixed predictive costs apply; a road traffic accident being defined as:

“an accident resulting in bodily injury to any person or damage to property caused by or arising out of the use of a motor vehicle on a road or other public place”
“‘motor vehicle’ means a mechanically propelled vehicle intended for use on roads”
“‘road’ means any highway and any other road to which the public has access and includes bridges over which a road passes.”

Yes, said Deputy District Judge Dawson in Scott v Malcolm (Liverpool County Court, 5 April 2013).

Thanks to Patrick Driscoll at Shakespeares for providing a copy of the judgment.

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