Update: costs

The Court of Appeal recently handed down two important judgments concerning the extent of a costs judge's discretion to limit costs in a manner that appears to go beyond a strict reading of the final costs order.

In Drew v Whitbread [2010] EWCA Civ 53, the claim had been allocated to the multi-track on the basis of the claimant's schedule of special damages. At trial the matter went into a second day and the judge limited the claimant's damages to an amount within the fast-track limit. The final order was that costs were to be assessed on the standard basis.

The district judge ruled on commencement of the detailed assessment that costs would be assessed as if the matter had been allocated to the fast track. This restricted the level of costs recoverable.

The Court of Appeal recognised that the case raised a number of points of principle:

'Where the trial judge has in a multi-track case ordered costs to be paid on the standard basis, to what extent is a costs judge free to rule that the case was in reality a fast-track case and assess trial costs on a fast-track basis? Is this a matter which a paying party has to raise before the trial judge or be precluded from raising the point thereafter?'

The claimant argued by reference to Aaron v Shelton [2004] EWHC 1162 (see Solicitors Journal 149/42, 4 November 2005) that if a party wishes to argue that a case was, in reality, a fast-track case, and in particular that it was a case that should only have lasted a day, that must be raised with the trial judge, and if not raised with the trial judge cannot be raised with the costs judge.

The Court of Appeal rejected that approach and concluded that, in fulfilling their different functions, the trial judge under CPR 44.3 and the costs judge under CPR 44.5 are enjoined to take into account many similar factors. The fact that a paying party has not raised a matter before the trial judge does not preclude it from being raised before the costs judge. Walker LJ stated:

'In my view 44.3 and 44.5 are intended to work in harmony and it is intended that the parties' conduct (for example) may have to be considered under both'¦ But the fact that no special order has been made [by the trial judge] does not preclude the costs judge in assessing costs considering whether the conduct of a party should preclude an award of costs for some particular item. I can see no reason why the costs judge should not consider the effect of such conduct unless some specific finding of the trial judge binds him. Thus a view expressed that exaggeration was not such as to lead to a special order, ought not it seems to me to prevent a costs judge who must have regard to all the circumstances of the case, being entitled to assess what would have happened if a claimant had instructed his lawyers properly.'

On the facts of the case, the court ruledthat the costs judge was not entitled simply to rule that she was going to assess the costs of trial as if the case were on the fast track.

That would have been to rescind the recorder's order. However, it would have been permissible to adopt the approach of 'assessing costs on the standard basis taking into account that the case should have been allocated to the fast track'. If the costs judge had ruled that it was a case that should not have run into a second day, and that on that basis fast-track trial costs was all it was reasonable for the paying party to have to pay, she could not have been faulted.

The important principle that flows from this case, if it was unclear before, is that conduct can be taken fully into account on assessment even where it has not been raised before the judge making the final order. Further, even where conduct has been raised before the trial judge, it can also be raised on assessment unless this would conflict with a specific finding by the trial judge. This is a very useful decision from a paying party's perspective but may not be one welcomed by costs judges who will have to delve into difficult issues of conduct.

The case of O'Beirne v Hudson [2010] EWCA Civ 52 concerned the question of whether, where a case has been settled before any allocation, by a consent order ordering costs to be paid on the standard basis, the costs judge is entitled to take the view that the case would have been allocated to the small-claims track and thus that the paying party should only pay costs on the small-claims track basis.

This was a very similar issue to Drew as it concerned the extent to which a judge on assessment can go behind a strict interpretation of the costs order.

The Court of Appeal ruled:

'There is a real distinction between directing at the outset that nothing but small claims costs will be awarded and giving items on a bill very anxious scrutiny to see whether costs were necessarily or reasonably incurred, and thus whether it is reasonable for the paying party to pay more than would have been recoverable in a case that should have been allocated to the small-claims track. Was it, for example, necessary to have had lawyers and is it reasonable for the paying party to have to pay for lawyers are questions that should arise where a claim should have been allocated to the small-claims track.'

This might be thought to create something of an artificial distinction. A judge cannot simply apply the small-claims track costs regime where the costs order is for costs on the standard basis. However, as part of the assessment process, the judge can disallow all the solicitor's costs as being unreasonably incurred and thus limit the costs to what would have been recovered in the small-claims track. Artificial or not, this is another good decision from a paying party's perspective.

Taken together, these decisions considerably widen the scope for challenges on detailed assessment where the final costs order was not ideal and where issues of conduct had not been raised before the trial judge or incorporated into a final consent order.

CPR update

The 51st update to the Civil Procedure Rules introduces changes in a number of costs areas. The changes come into force on 6 April 2010.

There are some minor amendments allowing emails out to be treated in the same way as letters out for the purpose of bill drafting and costs recovery. In reality, this had already become normal practice.

In addition to some other more minor amendments are the following:

• CPD 6.4(1)(a) is amended to remove the requirement to file an estimate of costs with an allocation questionnaire in fast-track matters. Although this is no doubt designed to save time and cost it must be viewed as being a retrograde step. In future, parties in fast-track matters will not know the level of costs their opponent is incurring until the pre-trial check list stage. By that time most of the damage will have been done and it will be too late for the other side to take a commercial view of the claim. Equally, it will be too late for the court to make robust case management decisions to control disproportionate costs.
• CPD 13.5(4) is amended so that a statement of costs for a fast-track trial must now be filed and served not less than two days before the trial.
• CPD 32.3 and 43.3(e) are amended so that evidence in support of disbursements other than fee notes of counsel or experts' fees only needs to be served and lodged where the amount exceeds £500.
• A new CPD 39.2 is created which reads: 'Where there is a dispute about the insurance premium in a staged policy (which has the same meaning as in paragraph 19.4(3A)) it will normally be sufficient for the receiving party to set out in any reply the reasons for choosing the particular insurance policy and the basis on which the insurance premium is rated whether block rated or individually rated.' This formalises the guidance given in Rogers v Merthyr Tydfil CBC [2006] EWCA Civ 1134.

The big changes relate to CPD 32.5 and the documents to be served with a bill where there is an additional liability. These merit being recited in full:

(b) where the conditional fee agreement was entered into before 1 November 2005, a statement of the reasons for the percentage increase given in accordance with regulation 3(1)(a) of the Conditional Fee Agreements Regulations 2000 or regulation 5(1)(c) of the Collective Conditional Fee Agreements Regulations 2000. (Both sets of regulations were revoked by the Conditional Fee Agreements (Revocation) Regulations 2005 but continue to have effect in relation to conditional fee agreements and collective conditional fee agreements entered into before 1 November 2005);

(c) where the conditional fee agreement was entered into on or after 1 November 2005 (except in cases where the percentage increase is fixed by CPR part 45, sections II to V) either a statement of the reasons for the percentage increase or a copy of the risk assessment prepared at the time that the conditional fee agreement was entered into;

(d) if the conditional fee agreement is not disclosed (and the Court of Appeal has indicated that it should be the usual practice for a conditional fee agreement, redacted where appropriate, to be disclosed for the purpose of costs proceedings in which a success fee is claimed) a statement setting out the following information contained in the conditional fee agreement so as to enable the paying party and the court to determine the level of risk undertaken by the solicitor '“

(i) the definition of 'win' and, if applicable, 'lose';

(ii) details of the receiving party's liability to pay costs if that party wins or loses; and

(iii) details of the receiving party's liability to pay costs if that party fails to obtain a judgment more advantageous than a part 36 offer.

These disclosure requirements are crucial as failure to comply may be fatal to recovery of the additional liability. Oddly, the new wording seems to suggest that for CFAs and CCFAs that were entered into before 1 November 2005, a statement of reasons still needs to be served even where the success fee is fixed. These changes are to finally get the rules up to speed with the revocation of the Conditional Fee Agreement Regulations 2000 and Collective Conditional Fee Agreement Regulations 2000.

The next big development in the costs world will be the introduction of the new RTA claims process with its new fixed costs rules. This is too big, important and complex to cover in this update.