What costs are recoverable? Plus, the latest decision on costs budgeting and relief from sanctions

Paul Mertens reviews two important decisions from the Court of Appeal on fixed recoverable costs, along with the Court’s most recent decision on costs budgeting and relief from sanctions.

Fixed Recoverable Costs

In the last week, The Court of Appeal has handed down two important judgments concerning the recoverable costs that will apply to claims exiting the RTA / EL/PL Protocols. Both are likely to be welcomed by claimant lawyers and will be seen as a blow to the insurance industry, at a time when a review of the fixed recoverable costs regime has recently been announced (link).

Bird v Acorn Group Limited [2016] EWCA Civ 1096

Bird v Acorn considered the question of the applicable fixed costs regime that applies to cases commenced under the EL/PL Protocol, where judgment is entered and the case is never allocated to a case management track, a disposal hearing is listed to quantify damages and before that hearing takes place, the case is settled.

The appeal turned on the definition of “trial‘ within CPR 45.29E(4)(c), which relates to the EL/PL Protocol, although it was noted that the same definition also applies to cases started under the RTA Protocol.

At issue was the question of whether a disposal hearing, was a “trial‘ within the meaning of the rules. If it was, the recoverable fixed costs would be the higher costs provided in column 3 of Table 6B which apply when the case settles, ‘on or after the date of listing but prior to the date of trial‘; rather than those in column 1 of Table 6B, which apply ‘on or after date of issue, but prior to the date of allocation under Part 26′.

Giving the only judgment with which the other Lord Justices agreed, Lord Justice Briggs held that the definition of a “trial‘ as a “final contested hearing‘ within the rules, was not effected by the possibility that the disposal hearing may not be the last hearing of the matter – for example if directions were given, or that it may be contested.

Lord Justice Briggs also agreed with the Claimant’s submission that the columns within the tables were “…sequential, in the sense that once a particular column beyond the first had been reached, there could be no back-tracking‘.

Accordingly, he ruled that:

” In every case where a claimant obtains judgment for damages to be assessed, followed by a disposal hearing for that assessment, there will be a progression from column 1 (which comes into force when proceedings are issued) to column 3, when the disposal hearing is listed. The fact that column 2 is jumped over because there is no intermediate allocation to the fast track seems to me to be just one of those events which means that the three columns will not always be triggered in succession. But that by no means undermines the good sense of a conclusion that, once there has been a listing for a disposal hearing, column 3 is triggered.’

Lord Justice Underhill and Lady Justice Arden agreed and this was therefore the judgment of the court.

Qader v Esure Services Limited [2016] EWCA Civ 1109

Qader v Esure concerned the question of whether the fixed costs regime continues to apply to cases that no longer continues under the RTA Protocol, but are allocated to the multi-track after being issued under Part 7.

The issue had arisen because of the wording of Section IIIA of CPR Part 45, and in particular the following heading:

“Claims Which No Longer Continue Under the RTA or EL/PL Pre-Action Protocols – Fixed Recoverable Costs’

It was argued by the Defendants that the natural meaning of these words was that in any case that had commenced within the Protocol but no longer continued within it, the recoverable costs would be limited to the fixed costs set out within that section.

As was pointed out in the judgment, however, the rules and tables within that section were premised on the basis that any claim exiting the RTA Protocol would be allocated to the fast track. This failed to recognise that there were a number of possible circumstances when a case exiting the Protocol would properly be allocated to the multi-track. These included:

(a) where a case that was originally thought to be valued at less than £25,000 is re-valued at a substantially higher value;

(b) where the inclusion of the cost of vehicle damage (which is excluded from the assessment of value for the purposes of the upper Protocol) takes the value of the case significantly above the ceiling of the fast-track limit; and

(c) where the defence that is raised involves allegations of fraud and the effect on the trial estimate is such that more than one day will be required. In this regard, the Court recognised that the consequences for the Claimant of being found to have acted fraudulently, are so substantial that the proceedings were “…likely to be pursued and defended on the basis that no stone is left unturned, and therefore at very substantial cost.’

Having analysed the rules, the possible construction arguments, and the history of the fixed costs provisions, including, importantly a statement by the Ministry of Justice that it had, “…always been the Government’s intention that [the fixed costs] proposals apply only to cases in the fast track‘ and that “…normal multi-track costs rules will apply‘, Lord Justice Briggs ruled that the unusual circumstances required to invoke the power to put right drafting errors in statutory provisions, as described by Lord Nicholls in Inco Europe Limited v First Choice Distribution [2000] 1 WLR 586 (at 592C-H), applied here.

As such, Lord Justice Briggs ruled that the following words should be added to CPR Part 45.29B, after the reference to 45.29J:

“…and for so long as the claim is not allocated to the multi-track…‘

This approach was agreed by Lord Justice Gross and Lord Justice Tomlinson and was therefore the judgment of the Court.

Costs Budgeting and Relief from Sanctions

In Jamadar v Bradford Teaching Hospitals NHS Foundations Trust [2016] EWCA Civ 1001, the Court of Appeal dismissed an appeal by the appellant claimant against an order limiting his recoverable costs by reason of a failure to file a costs budget: CPR 3.14.

Practitioners will recall that these were the factual circumstances in the now well-known case of Mitchell v News Group Newspapers Ltd (Practice Note) [2013] EWCA Civ 1537, in which the Court of Appeal issued guidance on the approach that Court’s should take to applications for relief from sanctions pursuant to CPR 3.9.

That guidance has since been clarified by the Court of Appeal, in the later case of Denton v TH White Ltd [2014] EWCA Civ 906, in which Lord Dyson MR and Lord Justice Vos clarified the three-stage approach that is to adopted:

“25. The first stage is to identify and assess the seriousness or significance of the “failure to comply with any rule, practice direction or court order’;

“29. The second stage…the court should consider why the failure or default occurred’;

“31. [The third stage]…Rule 3.9(1) requires that in every case, the court will consider “all the circumstances of the case, so as to enable it to deal justly with the application’.

Very briefly, the facts in Jamadar were as follows. The Claimant made a clinical negligence claim seeking damages of £3 million. The Court gave notice of proposed allocation to the multi-track, but shortly thereafter, liability was admitted and that notice was revoked and judgment entered for an amount to be decided by the Court.

A CMC was listed and the Defendant’s Solicitors filed a directions questionnaire, proposed draft directions and a costs budget. The Claimant’s Solicitors did not file a costs budget however and despite repeated chasing letters from the Defendant’s costs lawyers, no budget was forthcoming.

Shortly before the CMC, the Defendant’s Solicitors updated their costs budget and again asked the Claimant’s Solicitors to provide their budget. Instead, in correspondence, the Claimant’s Solicitors expressed the view that costs budgets were not required because judgment had been entered. As a result, no budget was produced.

At the CMC, the District Judge gave directions for disclosure and for the exchange of expert reports in five different disciplines. A 5-day trial was listed to determine the quantum of the claim. On the issue of costs, the Claimant’s counsel produced an unsigned costs budget that had been handed to the Defendant’s counsel on the morning of the hearing. It was suggested that if a budget was required, this unsigned budget should be used for the purpose of costs management. The Defendant’s counsel opposed proceeding on that basis, having only received it that morning. The District Judge agreed that he could not carry out costs management and therefore made an order under CPR 3.14 restricting the Claimant’s recoverable costs to the court fees.

The Claimant issued an application to vary that Order or alternatively for relief from sanctions. The application was considered by the same District Judge and dismissed. The Claimant appealed to the Circuit Judge on the basis that the District Judge had been wrong in law to hold that CPR 3.13 applied, or alternatively that relief from sanctions should have been granted.

His Honour Judge Gosnell heard and dismissed the appeal on both grounds, holding that the case was self-evidently a multi-track case even though there was no formal notice of allocation in force. CPR 3.13 therefore applied and the Claimant had breached that rule, so an Order rule under CPR 3.14 was appropriate. Having considered the guidance given in Mitchell and Denton, His Honour Judge Gosnell also upheld the refusal to grant relief from sanctions.

Before the Court of Appeal, the Claimant argued that the effect of the revocation of the original notice of proposed allocation was that CPR 3.12 no longer applied and therefore there was no formal obligation to file a costs budget pursuant to CPR 3.13. In argument, the Claimant’s counsel nevertheless had to accept that the case would be allocated to the multi-track. Indeed, the Court commented that, “no one could conceivably think that this multi million pound personal injury action could sensibly proceed on the fast track‘.

Giving a judgment (with which Lord Justice Lindblom agreed), Lord Justice Jackson held that:

“…the Claimant’s solicitors expressed doubt that the costs budget was required since they had by then obtained judgment on liability. There was no basis for such doubt. Quantum only litigation can be expensive, especially when, as here, there are five experts on each side. The fact that this had become quantum only litigation did not take the case out of the costs management regime‘

On the issue of relief from sanctions, Lord Justice Jackson dismissed the appeal and held that although His Honour Judge Gosnell had expressed “harsh‘ words about the Claimant’s solicitors’ decision not to file a budget, that these were

“…proper comments for the judge to make. They were plainly relevant to the exercise of the exercise of the court’s discretion under CPR rule 3.9. They were plainly relevant to the application of the three-fold test in Denton‘

Analysing the Judge’s application of that three-fold test, Lord Justice Jackson held that the Judge had applied the correct test and had reached a decision that was open to him. Although other judges might have taken a “more lenient‘ view, he considered there had been no error of principle and dismissed the appeal.

As a postscript, however, Lord Justice Jackson noted that:

“…any harshness of the order has been mitigated by the fact that the action subsequently settled, so this is not a case which has proceeded to trial at the expense of the Claimant’s solicitors or their insurers’

One is therefore left wondering whether the decision on this appeal might have been different, had the financial impact on the Claimant been actual rather than theoretical…

Comment

The decision in Jamadar re-emphasises the importance of filing and serving costs budget in multi-track cases and the potentially significant consequences of failing to do so. The fact that Lord Justice Jackson gave the judgment, may also be seen by practitioners as an insight into the proposals that he may come to make in his recently announced review of fixed recoverable costs.

Following the Court’s judgment in Qader, the dividing line between fast- and multi- track cases is also brighter, with the court’s reasoning on the recoverability of costs giving due recognition to the fact that the amount of work necessary to do justice in cases on the multi-track, should not be limited by costs, subject to appropriate budgeting.

Although disliked by many, it also seems inevitable that costs budgeting on the multi-track, is here to stay. Indeed, at a London Common Law and Commercial Bar Association event this week, Lord Justice Jackson reportedly said: “If you do not have a regime of fixed costs, some form of costs management or costs budgeting is essential‘ (link).