Congratulations to all the speakers and The Legal Training Consultancy for managing to proceed with the Solicitor and Client Costs Conference last week.
The event was live streamed over Zoom with the speakers giving their talks from their respective lockdowns.
There were some inevitable comic moments with technical issues but, to be fair, most of these came from the delegates rather than the speakers. (My tip for delegates at these conferences is to watch via a desktop computer with any microphone and webcam unplugged. Anything else is just asking for trouble.)
With much of the legal profession now in lockdown, attention has naturally started to focus on the use of telephone/video conferencing facilities to undertake court hearings, mediations, meetings, etc.
Gordon Exall’s Civil Litigation Brief blog has been providing a large number of useful links providing various guidance on how to make use of this technology. The natural danger with this is to believe this is largely a matter of acquiring the necessary technical know-how of Skype, Zoom, etc and understanding the appropriate etiquette (eg giving consideration to what will be seen in the background of your video call). However, I have one word of warning: Scraps.
For those of us already used to working from home, there is one thing that can be guaranteed to happen during a crucial telephone hearing, video conference with client, etc. The guaranteed event is that the dog that has been happily snoozing at your feet for the past hour will suddenly hear the postman 200 yards down the road and start hysterically barking as though his life depended on it.
Equally, you can also guarantee that the doorbell will go at a crucial moment. Even if the dog is not already awake and barking, it will be now. At normal times, and disregarding barking dogs, you might simply ignore the doorbell and continue. These are not normal times. If there is no one else in the house to answer the door at that moment, ignoring the doorbell is not an option. It may be a courier delivery of papers with urgent instructions. If you miss it, there is no way of knowing if, when or how you will be able to rearrange delivery. Or, it may be an emergency gin delivery. Either way, you will have to break-off to answer it.
Four-legged friends are not the only peril. Two-legged ones pose just as much of a danger. You can explain to little Tarquin until you are blue in the face that “Daddy has a very important telephone hearing to deal with an application for relief from sanctions in the Chancery Division and must not be disturbed for the next two hours”. But the moment Tarquin gets two crayons stuck up his nose, all bets are off.
Or, your valet pops his heard around the door to enquire as to whether he should put out your brown Harris Tweed suit for later.
The perils of working from home.
If costs management orders simply set a total figure for each phase, how are VAT and success fees to be determined? This problem is explored on our Costs Budgeting Blog.
Ancient Chinese curse: “May you live in interesting times”
With much of the economy in total shutdown, coronavirus has had very limited disruption on my typical working day. When we first set up 14 years ago, it was based on remote working for all fee earners and still is. Other than the fact I will not be attending any in-person hearings for the foreseeable future, my day-to-day work continues virtually uninterrupted.
I have therefore had to spend recent days worrying about first-world, middle-class, pandemic problems:
- Being informed by our cleaning lady, who has a compromised immune system, that she is now selfishly self-isolating at home and we will have to do our own dusting for the next few weeks. Noooooooooo!
- Discovering that streaming services are considering stopping all HD streaming and limiting to SD quality as the coronavirus crisis puts unprecedented load on interweb. Noooooooooo!
- Worrying as to whether the manufacturers of Fever Tree premium tonic water are key workers and, if not, how long existing UK supplies are going to last. Noooooooooo!
- Being told by Ocado that you are now limited to two boxes of quails eggs in any one order. Noooooooooo!
I don’t have enough time left over to worry about getting sick.
Preparation of the Precedent H costs budget requires figures to be inserted for both past incurred work and future estimated work.
PD 3E para.7.4 provides:
“As part of the costs management process the court may not approve costs incurred before the date of any costs management hearing. The court may, however, record its comments on those costs and will take those costs into account when considering the reasonableness and proportionality of all budgeted costs.”
Therefore, although Precedent H includes both incurred and estimated costs, any costs management order will relate only to future estimated work.
CPR 3.18 states:
“In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –
(a) have regard to the receiving party’s last approved or agreed budgeted costs for each phase of the proceedings;
(b) not depart from such approved or agreed budgeted costs unless satisfied that there is good reason to do so; and
(c) take into account any comments made pursuant to rule 3.15(4) or paragraph 7.4 of Practice Direction 3E and recorded on the face of the order.”
In light of PD 3E para.7.4, the “approved or agreed budgeted costs” in CPR 3.18 appears to relate only to the future estimated costs, as opposed to the incurred pre-budget costs, and CPR 3.18(a) or (b) cannot act as a limit on the incurred pre-budget costs.
What happens when the pre-budget costs claimed in a subsequent Bill of Costs exceed the costs that were shown in the earlier Precedent H?
Absent something going seriously wrong, the main reasons for a discrepancy between the incurred costs shown in a Precedent H and a final Bill are:
(a) The costs draftsman drafting the Bill identifies some additional pre-budget work that was not included by the fee earner who prepared Precedent H.
(b) The costs draftsman drafting the Bill places some of the pre-budget work into more appropriate phases than the fee earner had done when preparing Precedent H.
The generally accepted starting point is that the incurred costs simply fall to be dealt under detailed assessment by reference to the ordinary reasonableness and proportionality tests.
However, matters are not necessarily that straightforward where the costs shown in the incurred part of Precedent H are inaccurate.
I have had a number of first-instance decisions where the court has limited the incurred costs to those shown in the receiving party’s Precedent H. The reasoning has included:
- As PD 3E para.7.4 requires the court to “take [incurred] costs into account when considering the reasonableness and proportionality of all budgeted costs”, the court may well have allowed less than it did for the future budgeted costs if it had been aware of the true level of the incurred costs.
- Precedent H amounts to a statement of costs in relation to incurred costs and the paying party may well have acted in reliance of it. The court should not allow more than the figures contained within that statement in the absence of a good explanation for the inaccuracy.
- Precedent H contains a Statement of Truth that the budget is “a fair and accurate [emphasis added] statement of incurred” costs. A receiving party’s costs should be limited to the amount set out in such a statement.
It will be interesting to see if the higher courts follow this approach.
The new Guidance Notes on Precedent H, following the update to PD3E para.7.4 (which came into force on 1 October 2019), moves trial brief fees from the Trial phase to the Trial Preparation phase. This is presumably on the basis that the brief will be delivered before the trial commences and liability for the brief fee will often be treated (at least as between the solicitor and counsel) as being payable upon delivery.
Strangely, the Guidance Notes give no indication as to what phase any experts’ fees for attending trial should be placed into. Traditionally, these fees have been placed in the Trial phase. However, the majority of experts will usually expect payment of their fee, or at least a discounted payment, where they have been booked for the trial even if the matter settles early. Should experts’ fees for attendance at trial therefore not also be placed in the Trial Preparation phase?
Why does only the first page of the Precedent H costs budget need to be completed where the value of the claim as stated on the claim form is less than £50,000? This strange provision is explored on our Costs Budgeting Blog.
I’ve run a complete overhaul on Legal Costs Central (the one-stop gateway to legal costs information on the internet) part of our website. This has updated all the relevant rules and fixed a number of broken links.
Let me know if there is anything else I should be adding.
This is the second look at the guidance given on the new proportionality test by the Court of Appeal in West v Stockport NHS Foundation Trust  EWCA Civ 1220.
The previous post explored how the Court dealt a fatal blow to the new rule by introducing a test as to whether work was “unavoidable expenditure” (in which case it was to be allowed) and pretended that this was logically different to the “necessarily incurred” test under Lownds.
The problem with this judgment does not end there.
Remember how the new test was meant to work?
The current version of the White Book states at 44.3.3:
“The general practice on detailed assessment is to consider the reasonableness of each item that has been challenged and then to consider whether the total sum that would be allowed on that basis is proportionate or not. If it is not proportionate, the court will then reduce the total figure to a sum which is proportionate. That is the approach suggested by Jackson LJ in the Review of Civil Litigation Costs: Final Report (December 2010) Pt 1, Ch.3, para.5.13, and endorsed by Lord Neuberger (then Master of the Rolls) in the 15th implementation lecture on the Jackson reforms, entitled Proportionate Costs and given on 29 May 2012.”
At the lecture referred to, Lord Neuberger summarised the aim of the new test as:
“effectively reversing the approach taken in Lownds. In this way, as Sir Rupert said, disproportionate costs, whether necessarily or reasonably incurred, should not be recoverable from the paying party. To put the point quite simply: necessity does not render costs proportionate.”
The practical effect of this would be:
“As such it seems likely that, as the courts develop the law, the approach will be as Sir Rupert described it:
‘. . . in an assessment of costs on the standard basis, proportionality should prevail over reasonableness and the proportionality test should be applied on a global basis. The court should first make an assessment of reasonable costs, having regard to the individual items in the bill, the time reasonably spent on those items and the other factors listed in CPR rule 44.5(3). The court should then stand back and consider whether the total figure is proportionate. If the total figure is not proportionate, the court should make an appropriate reduction.”
The architect of these reforms (Jackson) and the previous Master of the Rolls therefore both approved the initial line-by-line approach followed by a global reduction, if necessary, to produce a final proportionate figure.
This approach appeared to have been given the blessing of the Court of Appeal in Harrison v University Hospitals Coventry & Warwickshire NHS Trust  EWCA Civ 792:
“I add that where, as here, a costs judge on detailed assessment will be assessing incurred costs in the usual way and also will be considering budgeted costs (and not departing from such budgeted costs in the absence of “good reason”) the costs judge ordinarily will still, as I see it, ultimately have to look at matters in the round and consider whether the resulting aggregate figure is proportionate [emphases added], having regard to CPR 44.3 (2)(a) and (5): a further potential safeguard, therefore, for the paying party.”
In BNM v MGN Limited  EWHC B13 (Costs), the Senior Costs Judge Master Gordon-Saker followed this approach. The line-by-line assessment produced a figure of £167,389.45. He then stood back and made a global reduction to £83,964.80 to produce a proportionate figure.
Costs judge Master Rowley adopted a similar approach in May v Wavell Group Plc  EWHC B16 (Costs). The initial assessment, on the basis of reasonableness alone, reduced the bill from £208,236.54 to £99,655.74. The second part of the test, the “Jackson reduction”, reduced this to £35,000 plus VAT. This was, on appeal, overturned with a figure of £75,000 plus VAT substituted for £35,000 plus VAT. Although the appeal judgment makes some passing reference to having “revisited the elements of the bill”, it is not obvious that the figure of £75,000 was arrived at with any express reference to the constituent parts of the bill. Rather, one relatively arbitrary figure was replaced with another.
As against that background, and the lengthy Jackson consultations with the whole legal profession, including the senior judiciary, three judges in the Court of Appeal have decided that, in truth, it was a terrible idea to simply apply a global reduction to the final figure. They ruled:
“At the conclusion of the line-by-line exercise, there will be a total figure which the judge considers to be reasonable (and which may, as indicated, also take into account at least some aspects of proportionality). …
The proportionality of that total figure must be assessed by reference to both r.44.3(5) and r.44.4(1). If that total figure is found to be proportionate, then no further assessment is required. If the judge regards the overall figure as disproportionate, then a further assessment is required. That should not be line-by-line, but should instead consider various categories of cost, such as disclosure or expert’s reports, or specific periods where particular costs were incurred, or particular parts of the profit costs.
The judge will undertake the proportionality assessment by looking at the different categories of costs (excluding the unavoidable items noted above) and considering, in respect of each such category, whether the costs incurred were disproportionate. If yes, then the judge will make such reduction as is appropriate. In that way, reductions for proportionality will be clear and transparent for both sides.
Once any further reductions have been made, the resulting figure will be the final amount of the costs assessment. There would be no further stage of standing back and, if necessary, undertaking a yet further review by reference to proportionality. That would introduce the risk of double-counting.”
This is a complete mess from both a theoretical and practical perspective.
The reductions to be applied under the proportionality cross-check are now not meant to be undertaken with a view to the global figure this will produce, but by looking at “different categories of costs” or “specific periods where particular costs were incurred” or “particular parts of the profit costs”. Once these further reductions have been applied, it then matters not one jot whether the resultant global figure is still plainly disproportionate.
Even from a theoretical perspective, it is difficult to discern the logic behind this approach. One of the key aims of proportionality in costs is to ensure that excessive costs are not loaded onto unsuccessful litigants (thus deterring meritorious claims from being brought or meritorious defences being run). However, the unsuccessful litigant is ultimately only concerned with the total costs they may have to pay to the other side. It is no consultation to the paying party faced with a disproportionate total to be informed that the constituent parts of the bill had all been reduced to a proportionate amount.
Take, for example, a routine personal injury claim that settles for £50,000. It might be relatively common ground that it would be disproportionate to incur costs of £250,000 to successfully bring that claim. But what if that £250,000 is conveniently split equally between the 10 phases of an electronic bill? It is rather less obvious that £25,000 is disproportionate to incur on the Witness Statement phase, Expert Reports phase, Trial phase or any other phase. The global figure is logically reduceable to a proportionate amount (even if there is plenty of scope for disagreement as to what that proportionate amount should be). How though is proportionality to be measured in relation to discrete phases of the bill? If the court is not meant to be concerned with what impact the further individual reductions will have on the total amount (because the resulting global figure is apparently sacrosanct) what is the measure to be?
Even on a theoretical level, how is the further reduction to be calculated? The initial line-by-line assessment will have produced a figure that the judge considers “reasonable”. If a judge has considered it reasonable to have incurred costs of £25,000 in relation to preparing witness statements, what is to be the reference point for making a further reduction to that figure? The judge is apparently meant to revisit the £25,000 figure because the £250,000 total of the bill is deemed disproportionate but to undertake this exercise in an apparent vacuum as to what impact on the global total will result from reducing the £25,000 figure.
Why is it legitimate to make further reductions for “specific periods where particular costs were incurred” but to not to make further reductions for the whole period costs were incurred?
How is a fairer result achieved by making the proportionality reductions to discrete parts of the bill rather than the total? It is claimed that the result of this approach is the “reductions for proportionality will be clear and transparent for both sides”. But how is any greater transparency achieved by making, for example, a 50% reduction to various specific parts of the bill as opposed to a 50% reduction to the total?
Even from a practical perspective, this is a nightmare. There will be many bills which proceed to assessment which are not drafted by phase. The judge will need to know what costs were incurred in relation to the various categories/periods/parts before being in a position to consider what further reductions to apply. As costs counsel Andrew Hogan has noted, the likely consequence of this judgment is that:
“the time spent adding up the bill after the assessment (assuming that it is not digital) and then as part of this process devising categories of costs for arguments sake, has now doubled”
This bizarre judgment is a theoretical, logical and practical dog’s dinner and somehow manages to simultaneously undermine a major plank of the Jackson reforms whilst nevertheless increasing the likely level of costs satellite litigation and increasing the length of any resultant detailed assessment hearings. So not all bad then.
There has now been time to reflect on the Court of Appeal’s proportionality guidance given in the case of West v Stockport NHS Foundation Trust  EWCA Civ 1220. And what a sorry mess that guidance was.
The first part of the guidance related to the reasonableness and proportionality of the ATE premium. The Court was concerned with two ATE premiums, each costing £5,088, as against two separate clinical negligence claims that settled for £10,000 and £4,500 respectively.
The Court reheated the pre-Jackson decision of Rogers v Merthyr Tydfil County Borough Council  EWCA Civ 1134 and decided, so far as relevant, that it basically remained good law when assessing ATE premiums. (The key finding in Rogers being: “if the court concludes that it was necessary to incur the staged premium, then as this court’s judgment in Lownds shows, it should be adjudged a proportionate expense”.) This is surprising given Lownds was clearly overturned by the Jackson reforms, as expressly recognised by the Court here:
“we make clear that Lownds must no longer be regarded as good law”
Nevertheless, the Court decided that the dead body of Lownds was to be resurrected in the context of assessing ATE premiums:
“Specifically, therefore, if the ATE premium is assessed as reasonable, it will not fall to be reduced by any further assessment of proportionality.”
It is the reasoning behind this conclusion that is particularly troubling:
“This last point raises the wider issue as to whether, when considering proportionality, the judge needs to have regard to every item of cost, or whether there are some costs which ought to be removed from that part of the assessment. We consider that, when the judge comes to consider proportionality, there are some elements of costs which should be left out of account.
The exceptions are those items of cost which are fixed and unavoidable, or which have an irreducible minimum, without which the litigation could not have been progressed. Court fees are perhaps the best example.”
The Court elaborated:
“We recognise that this means that, when undertaking the proportionality exercise, it is those elements of cost which are not inevitable or which are not subject to an irreducible minimum which will be vulnerable to reduction on proportionality grounds in order that the final figure is proportionate. Such costs are, however, likely to be costs which have been incurred as a result of the exercise of judgement by the solicitor or counsel. Those are precisely the sorts of costs which the new rules as to proportionality were designed to control.
As should be apparent, leaving particular items out of account when considering proportionality because they are both reasonable and an unavoidable expenditure does not re-introduce the Lownds test, by which necessity always trumped proportionality. Most costs will still be subject to the proportionality requirement.”
With respect to the Court of Appeal, the suggestion that this does not re-introduce the Lownds test is complete twaddle.
It unarguably re-introduces the Lownds test in respect of ATE premiums. There is no difference whatsoever between “unavoidable expenditure” (under West) or “necessarily incurred” (under Lownds).
This problem might be overlooked if it were limited to the small category of cases where ATE remains recoverable. Unfortunately, the Court did not stop there. The Court noted, with apparent approval, the approach that had been adopted by some other judges on detailed assessment of excluding from the proportionality test elements such as court fees, VAT and the costs of drafting the Bill of Costs itself. Happily disregarding the law of unintended consequences, the Court concluded:
“any reductions for proportionality should exclude those elements of costs which are properly regarded as unavoidable, such as court fees, the reasonable element of the ATE premium in clinical negligence cases, and the like”
The words “and the like” will return to haunt the Court of Appeal and will lead to years of argument in the corridors of the Senior Courts Costs Office and county courts across the country.
If a court fee is an “unavoidable” cost where proceedings are issued, what type of cost is the cost of a psychological expert’s fee where a claimant is believed to have incurred psychological injuries? Is this not “unavoidable…without which the litigation could not have been progressed”? In what sense is this a cost incurred simply “as a result of the exercise of judgment by the solicitor”? Why should a court fee be elevated to a higher category than a necessary medical report? The solicitor is unlikely to have any more control over the amount a psychologist will charge for a report then they do over the amounts ATE providers charge for insurance. At best, in each case, they can look for an alternative provider that may, or may not, be slightly cheaper. If it is unavoidable to instruct a psychologist, is it not also an unavoidable cost to have to write the letter of instruction? Is it not an unavoidable cost to have to read and consider the report that is subsequently produced? Is it not an unavoidable cost to have to advise the client on the contents of the report and seek instructions? Perhaps there is an element of “exercise of judgement” when deciding what level of fee earner should undertake discrete items of work, but there remains an “irreducible minimum” in respect of the work that any matter will require. Once this “irreducible minimum” is reached, the Court of Appeal appears to be saying that no further reduction should be applied to reflect proportionality. But this takes us straight back to Lownds.
The wording of the post-Jackson CPR was expressly drafted to kill off Lownds:
“Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred” [emphasis added]
The Court of Appeal (ie just three judges), have now decided, at least partially, to disregard the clear wording of the CPR by introducing a new concept of “unavoidable” costs that is, linguistically and logically, indistinguishable from the concept of “necessarily incurred”. The Jackson reinterpretation of proportionality was open to a number of legitimate criticisms (and everyone was aware of these when the new rules were drafted). However, surely it cannot be appropriate for a tiny number of judges to drive a coach-and-horses through the rules whilst pretending to uphold the integrity of those reforms.
The West judgment does not just open a crack in the door that leads straight back to Lownds, it takes the door off the hinges and jumps up and down on it until there is nothing but a few splinters left.
If anything, the judgment then gets worse. But I will leave that for another day.