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.
The new Guidance Notes on Precedent H have now been published following the update to PD3E para.7.4 (which came into force on 1 October 2019) which now defines budgeted and incurred costs as:
“a. Incurred costs are all costs incurred up to and including the date of the first costs management order, unless otherwise ordered.
b. Budgeted costs are all costs to be incurred after the date of the first costs management order.”
However, there are other significant amendments to the Guidance Notes. The most important being that trial brief fees are now to be placed in the “Trial preparation” phase rather than the “Trial” phase, although refreshers remain in the “Trial” phase.
This amendment is likely to trip up many. It will be interesting to see how lenient the courts are where the brief fee is placed in the wrong phase.
I have seen a number of Precedent H costs budgets which include, within the ADR/Settlement phase, the anticipated court fee for the Consent Order recording the settlement agreement. Is this correct?
Costs budgets are predicated on the basis that the matter will proceed to a final trial. That is why there is a Trial phase. The total figure for the budget therefore reflects the anticipated costs that will be incurred if the matter does not settle and proceeds all the way to trial. Given that is clearly correct, surely the court fee for a Consent Order should not be included.
On the other hand, the Guidance Notes on Precedent H include, under examples of the work to be included within the Settlement phase:
“Drafting settlement agreement or Tomlin order”
That would therefore suggest that any corresponding court fee should indeed be included.
What happens then if a budget is approved/agreed that includes the court fee but the matter does not settle before trial? On detailed assessment, does the fact that one of the assumptions on which the budget was prepared (that the matter would settle within the ADR/Settlement phase) did not occur mean that there is a “good reason” to depart downwards from the budget? If so, to what extent?
For example, a claimant’s budget is prepared estimating, for the ADR/Settlement phase, £2,000 profit costs and £100 consent order fee. The budget is approved as drafted. Negotiations are unsuccessful and so no settlement agreement or Tomlin order is drafted and no consent order is filed. The claim succeeds at trial. The claimant serves a bill claiming exactly £2,100 profit costs. The court’s approval of the budget will “relate only to the total figures for budgeted costs of each phase of the proceedings” and the approved figure would have been a global total of £2,100, which the receiving party has not exceeded.
As per HHJ Dight CBE in Barts Health NHS Trust v Salmon :
“it seems to me that the fact that the phase of the budget relating to experts was … substantially incomplete was capable of being a good reason, and it would have been open to the Master on that basis to consider whether to reduce the figure”
If this applies in this situation, by how much should the approved budget be reduced? It is unlikely anyone will lose too much sleep over the £100 court fee, but what about the additional costs? Will there always be a “good reason” to depart downwards from the ADR/Settlement phase if a matter proceeds to trial?
The Law Society Model Conditional Fee Agreement contains the following clause:
“It may be that your opponent makes a formal offer to settle your claim which you reject on our advice, and your claim for damages goes ahead to trial where you recover damages that are less than that offer. If this happens, we will [not add our success fee to the basic charges] [not claim any costs] for the work done after we received notice of the offer or payment.”
The section in bold gives an either/or option as to the relevant consequence if the offer is not beaten. The vast majority of claimant solicitors’ CFAs that I have seen have a similar clause.
This clause is contractual in nature and therefore, if the “not claim any costs” option is taken, also impacts on the indemnity principle.
This would not be a problem, subject to what I say below, for claimant lawyers if the normal costs consequences of CPR 36.17 were automatic (ie the claimant cannot recover costs from the date on which the relevant period expired if an offer is not beaten). But CPR 36.17 simply sets our the default position. The consequences of failure to beat a defendant’s offer are not automatic as the court may order otherwise if “it considers it unjust” to apply the default position. However, if this standard clause is used, the solicitors are unable to charge their client a success fee (at best, if the first option is chosen) or recover any costs from the client or the opponent (at worst, if the second option is chosen) from the date of receipt of the offer or payment, regardless of whether the court limits the period for which costs are recoverable.
In any event, the wording of the clause itself is somewhat strange:
- It refers to “the work done after we received notice of the offer or payment”. CPR 36.17 anticipates that the trigger point will be “from the date on which the relevant period expired”. The clause therefore also prevents recovery of either any costs or the success fee at least 21 days earlier than CPR 36.17 anticipates.
- It refers to “formal offer”, not “Part 36 offer”. It is therefore arguable that the clause applies whenever a “Calderbank” style offer is made, in addition to an offer than complies with the formalities of a Part 36 offer, and regardless of what costs order is made as a consequence of the offer.
It is strange that this clause remains so popular in CFAs.
Our sister company GWS Costs offers a full CFA drafting service for solicitors and can advise on the most suitable CFA for your firm’s requirements.
If a matter is funded by way of a CFA and the case goes to trial where the claimant recovers damages that are less than an earlier offer, defendant paying parties should always question the entitlement to recover any costs from the date of receipt by the claimant’s solicitors of that offer
I’ve uploaded an old article from September 2009 that made predictions on the future of the legal costs industry in light of the Preliminary Report from Lord Justice Jackson. How many of these predictions were accurate? First published in the Solicitors Journal.
I’ve uploaded an old article from April 2011 that originally appeared Litigation Funding magazine. This was written in response to research commissioned by the National Accident Helpline that formed part of their response to the original Jackson consultation process. At the time, an article based on this report appeared in the Law Society Gazette, written by the National Accident Helpline. The thrust of that article (and the research) was to try to justify the continued recoverability of success fees and ATE premiums on the basis that the true cause of high legal costs was delay/unreasonable behaviour by defendant insurers as opposed to recoverable additional liabilities. In fact, what the research seemed to show was that success fees and ATE premiums were set at excessive levels in light of the very high success rate of claims. In the event, the research made no difference and the Jackson proposals were accepted.
The case of Allen v Brethertons LLP  EWHC B3 (Costs) has received a fair amount of commentary in relation to the entitlement of non-Costs Lawyers to undertake certain “reserved activities”.
Costs Judge Master Leonard had no difficulty accepting that where a costs draftsman prepared a bill of costs under the supervision and instruction of a Costs Lawyer, that, although bill preparation amounted to a “preparation of a reserved instrument” and was therefore a “reserved activity”, the costs draftsman became an “exempt person” in this situation and the costs of preparing the bill are recoverable in principle.
Further, in relation to a costs draftsman attending a costs hearing:
“The issue of his right to appear as an advocate on costs hearings has come up before. His case is probably on all fours with Kynaston v Carroll but it is in any event my practice, for the avoidance of doubt, to grant him a right of audience. That was the basis upon which I heard him on 15 January. He was, for the purposes of that hearing, an exempt person, and his costs of preparation for and attending that hearing are, insofar as reasonable and proportionate, recoverable.”
The case of Kynaston was as far back as 2011 and it is surprising that the same tired arguments keep being re-run.
Nevertheless, re-run it was and appears to have been, at least in part, inspired by (or at least support sought from) a guidance note published by the Costs Lawyers Standards Board (CLSB). Master Leonard summarised the contents of that guidance as stating:
“That guidance emphasises that the CLSB authorises and regulates individual costs lawyers, not authorised entities or licensed alternative business structures: and in consequence, that a Costs Lawyer cannot delegate reserved legal activities such as the exercise of a right of audience or the conduct of litigation.”
The CLSB guidance note is titled Reserved Legal Activity Rights and was apparently published on 18 July 2018, although I do not recall the CLSB circulating it to Costs Layers. It states:
“This guidance has been written to clarify the authorised rights of a Costs Lawyer (as defined). It has been approved by specialist regulatory counsel, Gregory Treverton-Jones QC.”
It is worth setting out in full what the guidance says in relation to rights of audience:
“3. RIGHT OF AUDIENCE
(i) Definition under the LSA
Schedule 2, paragraph 3(1):
A “right of audience” means a right to appear before and address a court, including the right to call and examine witnesses.
(ii) Can a Costs Lawyer delegate this right?
No. The CLSB authorises and regulates individual Costs Lawyers, and under s.18 it is the Costs Lawyer who is authorised in relation to this reserved legal activity. Under s.13 only an entitled (authorised) person may undertake a reserved legal activity, and the LSA makes no provision for the delegation of this specific right by an entitled (authorised) person.
Therefore, subject to paragraph 1(7) of Schedule 3 (set out below), if a Costs Lawyer sends a colleague to a Court hearing, that individual will not be entitled (authorised) to address the Court unless they are entitled (authorised) as a Costs Lawyer, or they are permitted to address the Court by the Court itself in the exercise of its discretion.
(iii) Exemptions to an offence under s.14
Schedule 3, paragraph 1:
(2) The person is exempt if the person-
(a) is not an authorised person in relation to that activity, but
(b) has a right of audience granted by the court in relation to those proceedings.
(3) The person is exempt if the person-
(a) is not an authorised person in relation to that activity, but
(b) has a right of audience before the court in relation to those proceedings granted by or under any enactment.
(7) The person is exempt if-
(a) the person is an individual whose work includes assisting in the conduct of litigation,
(b) the person is assisting in the conduct of litigation-
(i) under instructions given (either generally or in relation to the proceedings) by an individual to whom sub-paragraph (8) applies, and
(ii) under the supervision of that individual, and
(c) the proceedings are being heard in chambers in the High Court or a county court and are not reserved family proceedings.
(8) This sub-paragraph applies to-
(a) any authorised person in relation to an activity which constitutes the conduct of litigation;
(b) any authorised person who by virtue of section 193 is not required to be entitled to carry on such an activity.”
The guidance note expressly recognises the exemption set out in paragraph 1(7) of Schedule 3. However, I struggle to understand the purpose of a “guidance note” that sets out an exemption but then conspicuously fails to explain in what situation this exemption will apply.
Even those who have, in the past, sought to put the most limited interpretation on “being heard in chambers”, have treated this as permitting (where instructed and supervised) a non-regulated person (eg costs draftsman) to attend a hearing in private (eg trial ordered to be in private on national security grounds; although this is, admittedly, not an example usually put forward by those arguing for this interpretation of “in chambers”). But, even on this interpretation, it clearly would permit a Costs Lawyer to send a colleague to a Court hearing where the hearing is “in private”.
In truth, of course, “in chambers” does not mean “in private” and on a proper analysis (ie the analysis applied in Kynaston and applied daily by the Senior Courts Costs Office), “in chambers” will cover any detailed assessment hearing (and, almost certainly, any costs management hearing). For the purposes of the day-to-day work of Costs Lawyers, and those to whom they might delegate attendance at court, the guidance note is simply wrong. Paragraph 1(7) of Schedule 3 probably only prevents delegation in respect of appeals or hearings concerning what costs order to make at the conclusion of a case.
Other interpretations are available (see Friston on Costs at 3.85-3.90 for an analysis of the competing arguments) but it is less than helpful if the CLSB issues guidance notes stating as fact something which is, at best, highly debatable. I say: “highly debatable”; the High Court in Kynaston said such: “arguments have no merit at all”. Master Leonard’s decision certainly reflects what I understand to be the Senior Courts Costs Office’s belt-and-braces approach to the issue: costs draftsmen instructed in this way are probably covered by Kynaston but, if not, the court would exercise its discretion as a matter of routine.
What is interesting about the Allen decision is how this has been greeted by the Association of Costs Lawyers (ACL). Responding to the decision, incoming ACL chair Claire Green said:
“Master Leonard has firmly dismissed this attempt to undermine the work of Costs Lawyers, who play a vital role in ensuring that the costs regime works smoothly and fairly. We are independent, regulated lawyers, with the attendant benefits and responsibilities that such status brings. This ruling should halt in their tracks what the judge called ‘arid technical objections’ to the recovery of the costs of our work.”
It may be remembered that the ACL had previously been very vocal in attempts to exclude costs draftsmen from detailed assessment hearings and limit rights of audience to Costs Lawyers (and, perhaps, begrudgingly, costs counsel). Now, it sees it as a positive development that Costs Lawyers can delegate attendance at detailed assessment hearings to costs draftsmen.