The recent decision of Louis Dreyfus Company Suisse S.A. v International Bank of St. Petersburg (Joint-Stock Company)  EWHC 1039 (Comm) contains a short passage dealing with the approach on detailed assessment where costs are to be paid on the indemnity basis.
The decision was reported in Costs Law Reports. (Copies of their latest reported judgments are available free for a short period on their website, where you can also sign up to their monthly newsletter.)
The headnote to this decision included:
“On taxation the costs would be heavily taxed down, even after the application of the receiving party’s presumption that the costs had been reasonably incurred and any doubt was to be given in its favour under CPR 44.3(3).”
However, there is nothing in the judgment itself that refers to there being a presumption that costs have been “reasonably incurred”.
The relevant part of the judgment reads:
“CPR 44.3 and 44.4 provide that where costs are to be assessed on an indemnity basis, the court (1) will not allow costs which have been unreasonably incurred or are unreasonable in amount; (2) will have regard to all the circumstances in deciding whether costs were unreasonably incurred or unreasonable in amount; and (3) will resolve any doubt which it may have as to whether costs were unreasonably incurred or were unreasonable in amount in favour of the receiving party (“the receiving party presumption”).”
It is more than simple semantics to note that there is a crucial distinction between “any doubt” being resolved in favour of the receiving party and whether there is a “presumption” that any costs have been reasonably incurred. This judgment supports the former (because that is what the rule says) but not the latter.
Interestingly, comments closer to the summary in the headnote were made by Woolf CJ in Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (a firm)  EWCA Civ 879, dealing with the pre-Jackson rules, addressing the distinction between costs on the standard basis and the indemnity basis:
“The differences are two-fold. First, the differences are as to the onus which is on a party to establish that the costs were reasonable. In the case of a standard order, the onus is on the party in whose favour the order has been made. In the case of an indemnity order, the onus of showing the costs are not reasonable is on the party against whom the order has been made.”
It is difficult to see how this properly reflects the wording of the actual rule (whether old or new). As currently drafted, CPR 44.3 provides:
“(1) Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs –
(a) on the standard basis; or
(b) on the indemnity basis,
but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.
(2) Where the amount of costs is to be assessed on the standard basis, the court will –
(a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and
(b) resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.
(3) Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party.”
There is no presumption, on either basis, that costs have, or have not, been reasonably incurred.
For example, if a straightforward, low value, contractual dispute has been dealt with by a Grade A fee earner and a QC, there is no presumption on the indemnity basis that this is reasonable. Conversely, on the standard basis there would be no presumption that this was unreasonable. It is for the judge on detailed assessment to decide what is a reasonable and what is not. The “presumption” only comes into play if there is doubt. Cook on Costs quotes the former Chief Taxing Master Matthews on the issue: “If there I no doubt, there is no difference”. That is surely correct.
For the vast majority of item-by-item decisions made by a costs judge, whether on the standard or the indemnity basis, there should not be any doubt. A decision as to what is a reasonable hourly rate, reasonable fees of counsel or reasonable number of hours spent on documents should be clear to the costs judge making the decision (even if not necessarily easily predictable by the parties). Borderline issues where the “doubt” comes into play should be relatively few.
To the extent to which some costs judges adopt a more generous approach as to what they will allow where costs are being assessed on the indemnity basis, they are, I would suggest, falling into error and not applying the actual wording of the rule.
When is it preferable to have a costs order on the standard basis rather than on the indemnity basis? Potentially, where a costs management order has been made.
CPR 3.18(b) provides:
“In any case where a costs management order has been made, when assessing costs on the standard basis, the court will not depart from such approved or agreed budgeted costs unless satisfied that there is good reason to do so”
Although the decision in Barts Health NHS Trust v Salmon  took a different approach, the generally accepted position is that, all other things being equal, a receiving party will recover their costs up to the amount of the last approved budget.
Therefore, for example, if a budget (in respect of estimated costs) is approved at £100,000 to take a matter to trial, and the case settles at trial, if the receiving party has incurred costs of £95,000 they should expect to recover those costs in full. The exception is where the paying party can identify a “good reason” to depart from the approved budget. However, crucially, this only applies to an assessment on the standard basis.
If costs are payable on the indemnity basis, CPR 3.18(b) has no application. On detailed assessment the court will assess the costs on a line-by-line basis applying just the test of whether the court considers the costs claimed to be reasonable. The receiving party will benefit from the fact that any doubt will be resolved in their favour and proportionality will not apply. However, the benefit of the doubt conferred by CPR 3.18(b) will not apply if they are within budget. In the above example, if a court assesses the reasonable costs as being £90,000, that is all they will allow, notwithstanding the approved budget of £100,000. From the paying party’s perspective, there is no “good reason” hurdle to overcome.
It is therefore perfectly possible for a receiving party to find themselves at a disadvantage with an indemnity basis costs order in their favour rather than a standard basis one. Parties might wish to be careful before they push too eagerly for a costs order on the indemnity basis.
The costs subcommittee of the Civil Procedure Rule Committee (CPRC) is apparently due to consider whether it should be possible to make Part 36 offers in relation to the costs of detailed assessment.
This follows the recent decision of Master Leonard in Best v Luton & Dunstable Hospital NHS Foundation Trust  EWHC B2 (Costs) whereby he concluded a Part 36 offer could not be made in respect of the costs of the detailed assessment proceedings (although Part 36 offers can clearly be made in respect of the costs claimed in the Bill).
It will be a missed opportunity if the CPRC considers this narrow issue alone.
Part 36 offers in detailed assessment proceedings create a unique imbalance between receiving parties and paying parties.
Normally, the Part 36 benefits to claimants will only crystalise if a claimant wins on a Part 36 offer at trial. In relation to substantive matters, there is the process of disclosure. By the time a matter reaches trial, and usually long before then, both parties will have received disclosure of all relevant evidence and documents from the other side and will therefore be on a broadly equal footing in terms of considering the reasonableness of any Part 36 offers. The Part 36 sanctions therefore bite when a defendant has failed to accept a reasonable offer in circumstances where they were in a fair position to judge the reasonableness of that offer.
In detailed assessment proceedings, the receiving party is treated as the claimant for the purposes of Part 36. However, unlike in substantive proceedings, there is no disclosure process to the paying party of any kind during detailed assessment proceedings.
A paying party is required, for example, to consider the reasonableness of the number of communications and attendances on the claimant without sight of any of those communications or attendance notes. A paying party is required to consider the reasonableness and quantum of advices from, and conferences with, counsel, often with no information from the Bill or fee notes as to what they related to, much less copies of the advices or attendance notes themselves. And on it goes.
Paying parties are at a material disadvantage to the usual position that arises when Part 36 offers are made.
Rather than focus on the narrow issue of whether the scope of Part 36 should be extended in detailed assessment proceedings, surely the question is whether the continued existence of Part 36 offers can be justified in the absence of disclosure.
As far back as 2005, Lord Justice Brooke observed in Black v Pastouna & Anor  EWCA Civ 1389 that:
“It is incumbent on those advising parties appearing before this, or any, court to take all the steps they can in accordance with CPR Rules 1.1 and 1.3 to reduce the cost of the proceedings. This includes taking advantage of such cost-saving facilities as video-conferencing whenever they are available and it is appropriate to use them.”
It is fair to say that this was probably observed more in the breach than the observance.
Eighteen months ago, many solicitors would have been astounded at the suggestion that it might be possible to hold a conference with the client and/or counsel and/or experts other than around a table with everyone in attendance. As a consequence, £1,000s of additional costs were routinely incurred in travel time and costs for each conference.
Now, conferences, JSMs, and even full trials, are routinely being conducted remotely.
It will no longer be plausible to argue that a conference needs to be face-to-face to be effective.
However, the technology to make this happen has not been invented in the last eighteen months. Its existence was recognised in 2005. The technology has been in most people’s pockets for at least the last decade.
It is not really much of an excuse to argue that it is only because of Covid-19 that solicitors realised what was possible and available.
For any existing, or future, claims for costs, receiving parties are likely to face an uphill struggle justifying the cost of travel to conferences.
The latest podcast from the Practico “Costs chat with friends” series features Andrew Hogan and covers a number of interesting costs issues. Available via:
Video – https://youtu.be/JluOwGBASyU
A pleasant and convenient way to pick up some free CPD points.
The Civil Justice Council’s consultation on Guideline Hourly Rates (GHRs) ends today.
One of the questions put out for consultation was whether the N260 for summary assessment and the information provided in a formal Bill of Costs for detailed assessment should require the signatory to specify the location of the fee earners who carried out the work.
This appears to have been prompted by concerns raised in the previous 2014 Foskett report into GHRs that firms were charging for work at their Central London office rates, while much or all of the work was actually carried out in regional or outsourced offices.
The wording of any proposed rule change remains to be drafted, but it is difficult to see how an amendment requiring the location of the fee earners carrying out the work to be specified would only be relevant for work undertaken in a regional/outsourced office.
A statement that all work was undertaken in the City would clearly be fundamentally inaccurate if 50% of the work was undertaken from a shed at the bottom of a fee earner’s garden in Brighton.
It would also be illogical to require an N260/Bill of Costs to specify if work was undertaken from a regional/outsourced office but for there to be no matching requirement to make it clear if work is undertaken from a home office.
The traditional reason for differing GHRs for different geographical locations is:
- At least in the case of City firms and, to an extent, Central London firms, the recognition that the work they undertake is normally of a more specialised nature than that of firms practising elsewhere.
- The overheads (such as office rental, cost of support staff, etc) will vary depending on the location of the firm.
To the extent to which the latter of these applies when comparing the work of a personal injury firm based in central Manchester compared to a personal injury firm based in Skegness, how much more must this apply when the work is undertaken by a fee earner working from home with no office rental cost to the firm and, usually, much lower additional overheads?
Home working, at least part-time, is not an entirely new phenomenon, but Covid-19 has pushed the issue to the forefront.
The suggested amendment to the information required in an N260/Bill of Costs, would produce a logistical nightmare if applied literally. Fee earners would need to record, and the N260/Bill of Costs reflect, whether work was undertaken in an office or at home. There would be no logical reason not to also record whether the work was undertaken on the train or on a beach in Florida whilst on holiday. How much more complex would an N260/Bill of Costs become where work has been undertaken from multiple-locations during the life of the case?
To what extent would a court on assessment then apply the updated GHRs? Would a premium rate be appropriate if work is undertaken from a bespoke designed home-office as compared to a kitchen table? Are higher rates appropriate if a fee earner is working in First Class on the train as opposed to slumming it in Second? Are solicitors entitled to recover higher rates if they work from home and their home is a posher part of the country?
The current consultation mentions the fact that it was suggested the report be paused because of the effect Covid-19 was having on the business models of solicitors’ firms. The report’s response to this was:
“It was not within our remit to pause the review. Nor did we believe it to be necessary or appropriate. We have taken this factor into account in our recommendation for a further review within a relatively short period of time. … Such future review should take into account changes in working practice brought about by new technology, the sequelae of the Covid-19 pandemic and the HMCTS reform programme.”
To an extent, the current consultation is proposing a sticking plaster solution to a fundamental change in the way the legal profession works.
However, another way of looking at the issue is to suggest that Covid-19 has done no more than highlight the outdated geographical approach to GHRs. The horse bolted long before Covid-19 and not just because of homeworking.
Claims management company, trade union and insurer referrals broke much of the geographical link between clients and their solicitors many years ago in the field of claimant personal injury work. Insurer panel work broke the link for large volumes of other work. The destination for heavy commercial work is largely driven by where the firms are located, as opposed to the client.
Is there now any reason why the choice made by a client as to the geographical location of the solicitor they instruct should have any impact on what a paying party is liable for? Should the solicitors’ choice as to where they open an office have an impact? As Kerry Underwood has noted:
“Now lawyers and everyone else should be free to have offices wherever they want, but how can there be any justification now for a paying party to pay for very expensive London rents and salaries? …
Am I suddenly worth less because I am sitting in an office in Wellington in the Western Cape rather than in Hemel Hempstead?
What hourly rates do I charge for my colleagues sitting with me here in the office in South Africa?
If I am working on a file and I travel from Hemel Hempstead to the Western Cape via Qatar, as I have just done, do I charge different rates depending on where I happen to be?”
The only remaining justification for differential GHRs, other than to reflect the experience of the fee earner, is to acknowledge the widely different levels of complexity in the work solicitors undertake. Oddly, the working group’s initial report does not do much more than address this in passing in the context of London GHRs:
“The working group concluded that the proper approach to London 1 and London 2 was to re-define London 1 by nature of work by centrally based London firms, rather than by geographical location in the City, and to use the BPC data as the recommended GHRs for such work. London 1 would primarily be for very heavy commercial and corporate work, whether undertaken by firms geographically located in the City or central London. London 2 would be for all other work carried out by firms geographically located in either the City of London or the area at present covered by London 2.”
The end result will be updated GHRs that provide one set of figures (even allowing for the fact they are guidelines only and no more than a starting point) for matters as diverse as routine low value personal injury claims (that are not subject to fixed fees), complex clinical negligence matters and heavy commercial disputes. Surely the way forward is to scrap geographical differences and provide GHRs based on the broad nature of the litigation being undertaken.
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.