The decision of His Honour Judge Mark Pelling QC in ABS Company Ltd v Pantaenius UK Ltd & Ors  EWHC 3720 (Comm) has already generated a certain amount of interest in relation to his comments as to the appropriate hourly rates to allow in a summary assessment.
The underlying claim proceeded in the shorter trial scheme and concerned the costs of repairing a yacht under an insurance policy. The claim settled for €244,000.
The comment which has generated interest is:
“There are at least two points which need to be made in relation to grade rates under the guideline rate scheme. First of all, the rates are significant out of date. They were fixed in 2010 and they, therefore, reflect the position as it was in 2010, not as it was in 2020. … The conventional approach in relation to guideline rates is to uplift them by about 25 per cent in order to reflect the effects of inflation on the figures previously arrived at.”
It is difficult to know exactly what to make of this, although receiving parties will no doubt seek to rely on it.
If this is the conventional approach, when did it develop? Presumably not in 2011. Did it only develop in 2020 and, if so, what was it before?
What does “conventional approach” mean? Was the judge taking judicial notice that this is what judges up and down the country, whether County Court, High Court, Senior Courts Costs Office, Admiralty Court, etc, all routinely apply? If so, the lengthy Civil Justice Council working group report on amending Guideline Hourly Rates, now out for consultation, could have been significantly shorter. As it is, the Civil Justice Council working group certainly did not suggest that this was their research revealed into what is allowed on assessment.
The fact that this decision has been reported as “Legal News” suggests that these comments do not simply reflect what we all already knew judges to be doing.
As it was, this case was proceeding in the Business and Property Court. Perhaps the comment was intended to simply reflect the judge’s experience of what was typically allowed in that court. However, this then raises the question as to what extent should GHRs be departed from to reflect complexity. If, in 2020, the Business and Property Court sticks fairly rigidly to GHRs but just adds an element for inflation, then this decision may be rather less favourable to receiving parties then in initially appears, at least so far as more complex litigation is concerned.
In fact, the judge commented:
“it has always been the case that specialist solicitors in specialist areas of activity should recover an uplifted fee to reflect that specialism”
It is entirely unclear from the judgment as to what is the interplay, if any, between the need to reflect inflation since 2010 and the need to reflect specialism. Matters are not helped by the fact that the judgment does not specify what rates were claimed or actually allowed.
PD 28 para.6.1(4) reads:
“Attention is drawn to the Costs Practice Direction, Section 6, which requires a costs estimate to be filed and served at the same time as the pre-trial check list is filed.”
Naturally, it is therefore sensible to refer to the Costs Practice Direction to see exactly what it has to say on the subject of costs estimates.
Unfortunately, the Costs Practice Direction ceased to exist in 2013 when the Jackson costs reforms were introduced.
The closest equivalent to Section 6 of the Costs Practice Direction is now found at PD 44 paras.3.1 to 3.7. However, that deals with formal costs budgets rather than the earlier requirements relating to costs estimates.
I wonder how many more years will pass before the CPR is updated to remove erroneous references to the Costs Practice Direction.
The problem with the 2020 Guideline Hourly Rates is that there aren’t any. Because nature abhors a vacuum, the judiciary has been taking steps to fill the void.
In PLK & Ors (Court of Protection : Costs)  EWHC B28 (Costs), Master Whalan gave guidance as to the appropriate hourly rate for Deputies in Court of Protection matters. Pending the outcome of the ongoing formal review into Guideline Hourly Rates, he concluded that Costs Officers in the SCCO should allow uplifts to GHRs of approximately 20%:
“I am satisfied that in 2020 the GHR cannot be applied reasonably or equitably without some form of monetary uplift that recognises the erosive effect of inflation and, no doubt, other commercial pressures since the last formal review in 2010. I am conscious equally of the fact that I have no power to review or amend the GHR. Accordingly my finding and, in turn, my direction to Costs Officers conducting COP assessments is that they should exercise some broad, pragmatic flexibility when applying the 2010 GHR to the hourly rates claimed. If the hourly rates claimed fall within approximately 120% of the 2010 GHR, then they should be regarded as being prima facie reasonable. Rates claimed above this level will be correspondingly unreasonable. To assist with the practical conduct of COP assessments, I produce a table below which demonstrates the effect of a 20% uplift of the 2010 GHR. I stress again that I do not purport to revise the GHR, as this court has no power to do so; instead this is a practical attempt to assist Costs Officers and avoid unnecessary delay”
Now, in the case of Cohen v Fine & Ors  EWHC 3278 (Ch) a High Court judge has suggested that GHRs should be uplifted by 35%:
“In my experience of sitting in the Business & Property Courts, both in the North-West and in the Rolls Building, the present Guideline Hourly Rates are considerably below the rates actually being charged by the solicitors who practise in those courts. Likewise, the Table of Counsel’s Fees bears no relationship to the fees which the courts see being charged for counsel appearing in the Business & Property Courts. In my judgment, pending the outcome of the present review, the Guideline Hourly Rates should be the subject of, at least, an increase that takes due account of inflation. Using the Bank of England Inflation Calculator, it seems to me that an increase in the (Band One) figures for Manchester and Liverpool broadly in the order of 35% would be justified as a starting point (appropriately rounded-up for ease of calculation). That would produce figures as follows (with the present rates shown in brackets):
A 295 (217) B 260 (192) C 220 (161) D 160 (118)”
To the extent to which the judge was intending this decision to set down some wider guidance beyond the facts of the case, it is unfortunate that the paying parties were not legal represented at either the original hearing or on appeal. There is nothing within the judgment to indicate that the paying parties, at any stage, made any submissions of any kind as to what, if any, principles should be applied when considering a departure from GHRs.
It should also be noted that this was an assessment that was being conducted on the indemnity basis. It is therefore arguable that any assessment on the standard basis would justify a different approach.
More generally, the decision appears to have been reached based on the judge’s own personal experience of what solicitors in the North-West are charging for work proceeding in the Business & Property Courts. Any matters proceeding in other courts, in other parts of the country, will be immediately distinguishable.
A further important point has been highlighted by Andrew Hogan in his costs blog:
“It will be observed that he has used the Bank of England calculator … but that index is not free from controversy. It will be remembered that in the matter of PLK & Ors (Court of Protection : Costs) that Master Whalan rejected the use of RPI for these reasons:
- The Brown Shipley & Co. report entitled ‘SCCO Guideline Rates and the Impact of Inflation’ and dated October 2019 demonstrates an RPI inflation rate increase of 31% between 2010 and the end of 2018. The hourly rates claimed in the bills drafted by Clarion and considered in this assessment all apply RPI inflation to the 2010 GHR. Indeed, this is the only basis upon which the hourly rates are argued in the PLK, Thakur, Chapman and Tate bills. Mr Wilcock submits, as a secondary alternative to his primary argument, that the court ‘is invited to apply RPI inflation to the GHR and allow the rates as claimed’ (SA, paragraph 49). But the problem with this approach (at least in empirical terms) is that most official indexes of the impact of inflation prefer the CPI to the RPI rate. The official rate of UK inflation has used the CPI since 2004. Dr Friston, as Mr Wilcock acknowledges, uses CPI inflation in his table(s) at 68.3 to 68.10 in the third edition of Friston on Costs. CPI inflation from 2010 to 2019 is approximately 21%.”
This decision may not be followed as closely as some would wish.
The wheels of justice turn slowly at the best of times but one would hope the regulatory authorities would act with a degree of alacrity.
Many readers will recall the case of GSD Law Ltd v Wardman & Ors  EWCA Civ 2144. This case concerned a number of personal injury claims where GSD Law acted for the claimants.
At the subsequent detailed assessment of the costs of those claims in 2014, the paying parties’ insurer alleged systematic fraud and misconduct against GSD Law, including claiming for hourly rates in excess of the retainer rates, claims for senior lawyers’ rates for work done by junior fee-earners, and claims for work that had simply not been done.
At first instance, Regional Costs Judge Neaves found GSD Law’s principal, Kirna Madhas, to be “a wholly unreliable witness” and that her evidence was “not only evasive and inconsistent, but dishonest”.
He held all the allegations made against GSD Law proved and that the extent of the conduct and dishonesty of GSD Law was at the most serious end of the scale. This included submitting a forged conditional fee agreement to the court.
He concluded: “The conduct of the receiving party’s solicitor is sufficiently egregious as to make the only appropriate sanction the disallowance of all costs on the sample files. The receiving party will also pay the costs of the assessment proceedings including the preliminary issues.”
The Court of Appeal rejected GSD Law’s subsequent appeal.
One of the most striking features about the case (as if forging a CFA were not bad enough) is that during the detailed assessment proceedings Ms Madhas admitted making false allegations to the Costs Lawyer Standards Board about the conduct of the insurer’s Costs Lawyer, Jon Williams of Williams Associates Costs Lawyers. This was clearly a blatant attempt to undermine the proper challenges that had been made to her fraudulent claim for costs. Jon Williams is one of the country’s most highly respected Costs Lawyers and, even at the time, this act alone appeared to be adequate reason for Ms Madhas to be struck off.
The original decision was in 2014 and the Court of Appeal decision was in December 2017. The relevant authorities do not appear to have taken immediate action against GSD Law and Ms Madhas after either of those hearings.
Apparently, it was not until August 2019 that the SDT intervened in her firm (now practising under a new name following the shame of the Court of Appeal decision) with her practising certificate suspended.
The Solicitors Disciplinary Tribunal (SDT) has finally struck off Ms Madhas. The list of sins for which the SDT struck her off included:
- Producing dishonest costs schedules and false documents to the court.
- Failing to inform clients of adverse costs orders, so they only found out when pursued for payment by defendants.
- Failing to inform a client of a court hearing date or the outcome of her case.
- Failing to notify after-the-event insurers of advice from counsel that personal injury claims may well not succeed.
- The fact Ms Madhas’s motivation was a “nakedly financial one and greed was at the heart of this matter”.
- The making of “unfounded and malicious complaints” against Mr Williams which were “disgraceful and outrageous”.
- Between February 2016 and November 2017 the Legal Ombudsman made awards against Ms Madhas for inadequate professional service in respect of eight clients, which were never paid.
- Failure to provide the SRA with access to all the files for which they had issued a production notice.
- Failure to provide files to clients who had requested them.
- Submitting a proposal to a professional indemnity insurer which said the firm had not been the subject to LeO rulings or an SRA investigation in the previous decade, both of which were false.
Given the findings of fact made by Regional Costs Judge Neaves in 2014, and Ms Madhas’s own admission during that hearing that she made false allegations to the Costs Lawyer Standards Board, one does have to wonder why she was not immediately suspended.
The decision in Belsner v Cam Legal Services Ltd  EWHC 2755 (QB) will have sent a shiver down the spine of many claimant solicitors in the personal injury field, although the decision may well have wider implications.
The case concerned a solicitor/own client assessment.
The underlying matter concerned a low value RTA being pursued in the RTA portal. The costs recoverable from the opponent to the RTA claim were limited to fixed costs plus disbursements.
The client’s solicitors sought to charge their client the costs recovered from the opponent plus 25% of the damages recovered.
Section 74(3) of the Solicitors Act 1974 provides:
“The amount which may be allowed on the assessment of any costs or bill of costs in respect of any item relating to proceedings in the county court shall not, except in so far as rules of court may otherwise provide, exceed the amount which could have been allowed in respect of that item as between party and party in those proceedings, having regard to the nature of the proceedings and the amount of the claim and of any counterclaim.”
Although the claim itself settled prior to proceedings being issued, it was not disputed that this section applied to the case.
CPR 46.9(2) provides, in relation to the detailed assessment of solicitor and client costs:
“Section 74(3) of the Solicitors Act 1974 applies unless the solicitor and client have entered into a written agreement which expressly permits payment to the solicitor of an amount of costs greater than that which the client could have recovered from another party to the proceedings.”
The issue for the court was whether a solicitor seeking to rely on CPR 46.9(2) has to show that the client gave informed consent to the payment to the solicitor of an amount of costs greater than that which the client could have recovered from another party to the proceedings.
The terms of the CFA, which governed the costs payable between the solicitors and the client, contained standard Law Society wording:
“Normally, you can claim part or all of our basic charges and our expenses and disbursements from your opponent. You provide us with your irrevocable agreement to pursue such a claim on your behalf. However, you cannot claim from your opponent the success fees or the premium of any insurance policy you take out.
If we and your opponent cannot agree the amount, the court will decide how much you can recover. If the amount agreed or allowed by the court does not cover all our basic charges and our expenses and disbursements, then you pay the difference.”
Elsewhere, the Client Care Letter advised the client she would be able to recover “some” of her costs from the opponent and she would have to bear “a proportion” of her costs herself.
It was clear that the solicitors disclosed to the client that the agreement between them permitted payment to the solicitors of an amount of costs greater than that which the client could have recovered from another party to the proceedings. In particular, the solicitors disclosed that:
(1) if she won her claim, the client would pay the success fee and could not recover it from her opponent; and
(2) the client would pay the difference between the solicitors’ basic charges, expenses and disbursements and the amount agreed or allowed by the Court in respect thereof.
The client had also been given an estimate of costs of £2,500 plus VAT and disbursements.
Crucially, the client was not informed that, based on the likely value of the claim and the point the matter would probably settle, the recoverable fixed costs from the other side would be limited to £500-£550 plus VAT plus disbursements.
The solicitors argued that the information provides to the client was sufficient to displace the requirement under CPR 46.9(2) because it “expressly permitted” them to charge more than could be recovered from the opponent.
The Court rejected this argument.
The Court concluded:
“A solicitor who wishes to rely on CPR 46.9(2) must not only point to a written agreement which meets the requirements of the rule, as the Defendant did, but must also show that his client gave informed consent to that agreement insofar as it permitted payment to the solicitor of an amount of costs greater than that which the client could have recovered from another party to the proceedings. For this purpose, the solicitor must show that he made sufficient disclosure to the client.
It seems to me that I have to consider whether this is material information, in the sense that it may have affected the Claimant’s consent to the agreement between them insofar as it permitted payment to the Defendant of an amount of costs greater than that which the Claimant could have recovered from another party to the proceedings.
If it had been pointed out to the Claimant that, while the Defendant’s estimate of costs was £2,500 plus VAT, she might recover only £500 or £550 plus VAT from the Insurers, then that may have affected the Claimant’s consent to the agreement between them insofar as it permitted payment to the Defendant of an amount of costs greater than that which the Claimant could have recovered from the Insurers. It may, for instance, have led the Claimant to ask whether her liability could be capped, or to approach a different firm of solicitors, who would cap her liability. Prima facie, therefore, it ought to have been disclosed.
Each case has to be decided on its own facts. In this case, it is a very striking feature of the agreement being proposed to the Claimant by the Defendant that the Defendant’s estimated basic charges were five times the amount which the Claimant might be entitled to recover from the Insurers if her claim settled for less than £10,000 at Stage 2 in the Protocol and that, in that event, she might have to pay the first £3,200 of her damages to the Defendant. This was so striking that it ought, in my judgment, to have been brought specifically to the Claimant’s attention, if she was to give informed consent to the agreement insofar as it permitted payment to the Defendant of an amount of costs greater than that which the Claimant could have recovered from the Insurers, that, while the Defendant’s estimate of costs was £2,500 plus VAT, she might recover only £500 or £550 plus VAT from the Insurers.
I conclude that the Claimant did not give her informed consent to the agreement and the Defendant cannot rely on it for the purposes of CPR 49(2).”
In his submissions to the Court on behalf of the solicitors, Nicholas Bacon QC argued: “Allowing the Claimant’s appeal would result in a wholesale change of the basis on which solicitors advise their clients in fixed costs cases. The Law Society’s Model CFA would be insufficient to meet the threshold proposed by the Claimant”. This is no doubt correct.
Robin Dunne, who acted with PJ Kirby QC for the client, commented in a briefing note on this case: “The implications of this judgment are very significant. There are huge numbers of cases where deductions have been made from damages where the cap in 46.9(2) would result in a repayment to the client. Indeed, the number of retainers signed where informed consent has been given is likely to be very small.”
Although this case was concerned with a fixed fee matter where the recoverable costs were likely to be relatively easy to predict, this may well lead to many more solicitor/own client disputes where there is a shortfall in costs recovery. It may not be sufficient to simply advise of the fact there is a likelihood of a shortfall.
Gibbs Wyatt Stone specialise in drafting CFAs and advising solicitors on retainer issues.
I have already written about the case of Marbrow v Sharpes Garden Services Ltd  EWHC B26 (Costs) (10 July 2020) where the Senior Costs Judge Master Gordon-Saker declined the Claimant’s invitation to award pre-judgment interest on costs.
He also declined my invitation, on behalf of the Defendant paying party, to only allow interest from 3 months after the date of the order for costs.
This was the approach adopted by Leggatt J. (as he then was) in the High Court decision of Involnert Management Inc v Aprilgrange Limited & Ors  EWHC 2834 (Comm) at paragraph 24:
“it seems to me that a reasonable objective benchmark to take is the period prescribed by the rules of court for commencing detailed assessment proceedings. Pursuant to CPR 47.7, where an order is made for payment of costs which are to be the subject of a detailed assessment if not agreed, the time by which detailed assessment proceedings must be commenced (unless otherwise agreed or ordered) is three months after the date of the costs order. In order to commence such proceedings, the receiving party must serve on the paying party a bill of costs giving particulars of the costs claimed. It is then for the paying party to decide which items in the bill of costs it wishes to dispute. Postponing the date from which Judgments Act interest begins to run by three months will therefore generally serve to ensure that the party liable for costs has received the information needed to make a realistic assessment of the amount of its liability before it begins to incur interest at the rate applicable to judgment debts for failing to pay that amount.”
It is clear from this passage that he was attempting to set out a general principle as to the date from which interest should run, as opposed to the decision being based on the particulars of the case. This decision is heavily criticised in Cook on Costs 2020 (at 32.5).
The Master summarised the law as being:
“The entitlement to interest on costs under section 17 of the 1838 Act is automatic. Generally the court will not order it expressly. Interest is therefore payable on costs at 8 per cent from the date of judgment (Hunt v R.M.Douglas (Roofing) Ltd  1 AC 398) without an order to that effect unless the court makes a different order under either CPR 40.8 or CPR 44.2(6)(g).”
Relying on Simcoe v Jacuzzi UK Group PLC  EWCA Civ 137 he commented:
“Accordingly the court should depart from the incipitur rule only where that is what justice requires in the particular case and should avoid awarding interest from different dates on different components of costs.”
He distinguished Involnert on the basis:
“However that was a commercial case in which the court had ordered the payment of interest at 2% over base rate from when the costs were incurred (ie pre-judgment interest) until the date 3 months after the date of the costs order when interest would become due at 8%.
As far as I am aware, most if not all of the cases in which the court has awarded Judgment Act interest only from a date after judgment have been commercial cases, in which orders for pre-judgment interest on costs at commercial rates are often made.”
He therefore found no reason to depart from, what he held to be, the default position and allowed interest from the date of judgment.
White Paper’s always excellent annual costs conference did not proceed as normal this year for obvious reasons.
However, the full conference with the full array of speakers proceeded as a pre-recorded webinar event.
This is still available to view online here (until 29 July 2020) for a very modest £204 plus VAT.
Last week in Marbrow v Sharpes Garden Services Ltd  EWHC B26 (Costs) (10 July 2020) the Senior Costs Judge Master Gordon-Saker handed down a reserved judgment in relation to three discreet issues where I acted for the Defendant paying party.
None of the issues were novel, but they are ones that have continued to trouble the lower courts, which was no doubt part of the reason for the reserved judgment.
The issue I will deal with today is the decision relating to whether the interest paid on a disbursement funding loan was recoverable as an item of cost or, alternatively, by way of allowing interest to run from an earlier period.
The Claimant claimed, as an item of costs, the interest payable under a loan agreement with his solicitors in relation to the funding of disbursements. The agreed interest rate was 5%.
The Claimant relied on the decision of the Court of Appeal in Secretary of State for Energy v Jones  EWCA Civ 363 as authority that such an item was recoverable as an item of costs. The Master rejected that on the basis the Court in that case was concerned with the rate of interest that could be allowed on costs from a date earlier than judgment where, as here, the claimants had incurred a liability to pay interest to their solicitors in respect of the funding of disbursements.
In Hunt v RM Douglas (Roofing) Ltd  11 WLUK 221 the claimant sought to recover on the taxation of his costs the interest that he had incurred under an overdraft to fund the disbursements required for his claim. The Court of Appeal held that funding costs had never been included in the categories of expense recoverable as costs and to include them would constitute an unwarranted extension.
The Master held that it was clear following Hunt that interest incurred under a disbursement funding loan cannot be recoverable as costs and so disallowed the item within the bill.
However, the Master then considered CPR 44.2(6)(g), which does allow the court to order the payment of interest on costs from a date before judgment. He distinguished Jones on the basis it was a different case to the present: a group action in which the disbursements came to a total in excess of £787,500. The present case was a straightforward personal injury claim. Although there was no evidence of the Claimant’s means, for present purposes he accepted that it was unlikely that the Claimant would have had the means to fund disbursements other than by a loan, as is almost certainly the case for the vast majority of claimants in personal injury actions. Nevertheless the incipitur rule remains the default position and parliament did not choose, when enacting the Legal Aid, Sentencing and Punishment of Offenders Act 2013, to make specific provision for the funding of disbursements whether by enabling the recovery of funding costs or by creating a default entitlement to pre-judgment interest.
He concluded that justice did not require a departure from the general rule in this case such as to aware interest from an earlier date.
This was the same conclusion that was recently reached by Master Brown in Nosworthy v Royal Bournemouth & Christchurch Hospitals NHS Foundation Trust  EWHC B19 (Costs) (30 April 2020).
Can a “Calderbank” offer made during the course of detailed assessment proceedings be accepted by a receiving party after the detailed assessment hearing has commenced and once it has become clear that the receiving party will ultimately recover less than the amount of the offer? Yes, ruled Mr Justice Morris in MEF v St George’s Healthcare NHS Trust  EWHC 1300 (QB).
Various offers and counter-offers had been made during the detailed assessment proceedings. These concluded with an offer on 19 August 2019 by the paying party to settle for £440,000 (the same amount as had previously been offered) with the following condition attached:
“The Defendant’s offer dated 27/09/18 is only capable of acceptance subject to the agreement of the Defendant’s costs of Detailed Assessment incurred since that date.”
It was not in dispute that this was not a Part 36 offer.
The matter was listed for a three day detailed assessment due to commence on 17 September 2019.
At the end of the second day of the hearing, the Bill of Costs had been reduced – as a consequence of concessions already made by the receiving party and by decisions made by the costs judge – to below £440,000. Just before the end of the second day, the receiving party sent an email purporting to accept the 19 August 2019 offer. The paying party argued it was too late for the offer to be accepted.
The matter initially came before Master Rowley for determination as to whether the detailed assessment proceedings had been compromised. He concluded that the matter was subject to common law principles of offer and acceptance. As there was no time limit placed on acceptance of the offer, he held that the offer had been properly accepted.
On appeal before Mr Justice Morris, it was decided that Master Rowley had not expressly applied the contractual principle of an offer being capable of lapsing after a reasonable time. However, applying that principle to the facts of the case, where none of the earlier offers had contained a time limit, he concluded that the offer had not lapsed and was therefore still capable of acceptance.
Although it was held that the prior offers were “highly relevant context”, it is not obvious that the position would be materially different as against a different factual matrix. To the extent to which a “Calderbank” offer is made without a time limit, a court is likely to conclude it may be accepted at any point before the conclusion of the detailed assessment.
The Court expressly noted that it would have been open to the paying party to put a time limit on the offer or to have withdrawn the offer themselves during the hearing. The Court did not explore to what extent, if any, a time limited or withdrawn offer would reduce the costs protection afforded by the offer. To the extent to which the offer subject to Part 44.2(4)(c) (“In deciding what order (if any) to make about costs, the court will have regard to all the circumstances, including … any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply”), if it had not been accepted its existence would simply be one of the factors the Court could take into account when deciding what order to make in respect of the costs of assessment.
The clear lesson is that any “Calderbank” offers made in detailed assessment proceedings should be time limited.
Guidance on remote costs hearings has now been produced. This has apparently been produced by a group of costs professionals with the support of the regional costs bench. It has been met with approval by the costs judges at the Senior Courts Costs Office. The guidance can be found on the Association of Costs Lawyer’s website here.