The back of the queue

This post first appeared as an article in the February 2017 issue of Litigation Funding magazine.

As 2017 opens, despite predictions that the Brexit process would absorb the attentions of lawmakers and divert scarce resources away from the dry and dusty terrain of costs reform, to greener European pastures, there are a significant number of reform projects under way.

First the misleadingly entitled “Reforming the soft tissue injury (whiplash) claims process”, secondly the imminent and overdue consultation on fixed costs in clinical negligence claims, thirdly Jackson LJ’s further report into fixed costs and fourthly the move to a digital bill of costs in October 2017.

However seemingly left high and dry, despite the flood waters of reform flowing, remains the vexed question of amending the current regime for Damages Based Agreements (DBAs) prescribed by the Damages Based Agreements Regulations 2013 made under section 58AA of the Courts and Legal Services Act 1990.

That this reform is sorely needed, is apparent to me from the increasing trickle of cases which come across my desk, where the shortcomings, failings and drafting infelicities of the current Regulations are manifest. It is salutary also to note both that there are no decided cases on the Damages Based Agreements Regulations 2013 and also that the Law Society has produced no model DBA.

A few examples of some of the problems will suffice. As is well known, the government declined to give lawyers what they really wanted, which was a form of hybrid Conditional Fee Agreement (CFA), whereby the lawyers would be able to recover costs from the losing party to litigation and a success fee, calculated as a percentage of the damages recovered by the client.

Instead the “Ontario” model was adopted, whereby the client agrees to pay a percentage of the damages recovered, and then in turn is able to deduct from the payment, the amount of costs recovered from the other side and retained by his lawyer.

The first problem that this creates is a conceptual one: what costs are to be credited against the payment, if a client has entered into multiple DBAs, with for example a solicitor and counsel, or a DBA with a claims management company and a further CFA with a solicitor’s firm? Is it the totality of the costs recovered from the other side? Or just the costs peculiar to each “representative”? Given that claims management companies “costs” will not be generally recoverable from the other side to litigation this creates real doubt as to the client’s liability.

Secondly, because the payment agreed under the DBA, acts as a cap for the purposes of the indemnity principle on costs recoverable from the losing side per rule 44.18 CPR, the suitability of the DBA for litigation which takes a surprising turn, may change overnight. A £3000 claim for example, funded by a DBA with a provision for payment of 25% of damages recovered, would cap any recoverable costs at £750. This would be a good deal for a solicitor, if the case settles after a dozen letters have been written.

It could prove an unfortunate bargain, if proceedings need to be issued, fraud is raised as a defence, and a low value case proceeds as a multi-track claim. Although the retainer may be capable of novation in such circumstances, should the client agree, a further layer of needless complexity will need to be addressed to ensure retainer issues are not problematic at the end of the case.

Thirdly, do you trust your client? If the client has entered into a DBA and as things get tougher, in prosecuting the claim, changes his mind, and no longer wishes to proceed with the claim, he can end the DBA. Whilst the client can end the agreement, unless it concerns an employment matter, then the Regulations give the solicitor no facility to send the client a bill for early termination. The Regulations are silent as to the client’s liability in those circumstances: but given that regulation 4 prescribes what payments can be made and the only payments that can be made, the solicitor is likely to be horribly exposed.

An unintended consequence of the introduction of DBAs, which can be utilised by claims management companies (CMCs), as well as solicitors, and which apply to the provision of claims management services, is that they are being deployed to arguably circumvent the referral fee ban, in personal injury litigation. The client enters into a DBA with the CMC, the CMC refers the case to a solicitor who enters into a CFA with the client and no prohibited referral fee changes hands.

But a solicitor cannot ignore the presence of the DBA, or turn a Nelsonian blind eye, to the client’s agreement with the CMC, taking the view that this occurred before his instruction and is none of his business, but is under a duty to advise a client of the nature of the agreement and his obligations.

The sad cases of Beresford and Smith, where solicitors failed to do so and whose relationships with claims management companies were pored over and found wanting, are instructive and on point: the decision of the Solicitors Disciplinary Tribunal was upheld by the High Court: Beresford and Smith v Solicitors Disciplinary Tribunal [2009] EWHC 3155 (Admin).

Although the Solicitors Practice Rules have been swept away and replaced by the Solicitors Code of Conduct, I do not think it is the case that the regulatory requirements have eased in the years since this case: far from it, if anything the regulatory net is likely to tighten further both for solicitors and CMCs who will shortly be regulated by the FCA.

There are other flaws with the drafting of the Regulations and the uses to which they might be put: these issues can be divided into drafting issues and matters of policy. These were addressed in a very interesting and useful report from the Civil Justice Council entitled The Damages Based Agreements Reform Project: Drafting and Policy Issues.

The report was published in August 2015 and runs to 145 pages, of closely argued text, dealing with the details of the confusingly named Damages Based Agreements Regulations 2015. These “Regulations” as the report makes clear in its introduction are a set of draft Regulations, provided to the report’s working party, which were intended to be brought into force in 2015, subject to any revisions or amendments flowing from the working party’s report.

In this respect, it is interesting to note what the working party recorded the then government as wishing to achieve in its terms of reference:

In particular, the Government’s intention is ‘substantively to improve the regulatory framework without encouraging more litigation’, and that the overriding objective is ‘to ensure that any  changes we make do not encourage litigation which would not otherwise be taken forward. Given the  similarities in substance between DBAs and CFAs, the Government does not see DBAs are filling  an access to justice gap — rather, they are intended to be an alternative form of funding, perhaps  in niche areas of litigation.’ In stating this, however, Lord Faulks acknowledged that it was a  ‘complex issue’, and that the Government was keen to avoid, so far as was possible, the ‘unintended  consequences’ that may flow from the redrafting of the DBA Regulations.

Reading that passage one comes away with the conclusion that not only was the government of the day reluctant to reform DBAs for fear of the law of unintended consequences, but it had no interest in promoting DBAs as a form of mainstream funding, perhaps seeing the model, as another unwelcome piece of fuel for the “compensation culture”.

Accordingly, given the current zeitgeist, I suspect the excellent 2015 report will remain to gather dust on the shelf for quite a while to come. DBA reform, is, in Mr Obama’s memorable phrase “at the back of the queue”.

A copy of the article as originally published can be found here: The Back of the Queue PDF

Rogue One

The whiplash “industry” of claims management companies, solicitors, medical reporting agencies et al provokes strong views from those who are part of it and those who deal with it.

Those who represent injured claimants with damaged vehicles regard themselves as obtaining access to justice on behalf of victims, from plutocratic insurance companies who have taken the premiums for the very risk that has materialised.

Insurance companies conversely regard the whole superstructure as riddled with fraud, and absent proof of fractured vertebrae, each claim is either exaggerated at best or fraudulent at worst.

The legal press and social media in the last couple of months, has been full of coverage of the views of those with an interest in the reforms on either the part of the insurers or those who represent claimants, vociferously arguing the toss with the publication of Reforming the Soft Tissue (‘whiplash’) Claims Process a copy of which can be found here: Reforming the Soft Tissue Injury (‘whiplash’) Claims Process.

It is hard to resist the conclusion that more heat than light has been generated by the debate so far: both sides are overstating their case, with the insurers painting a gloomy picture of a fraud riddled compensation culture dragging the insurance industry down to bankruptcy and in turn claimants representatives seemingly suggesting that it would be positively un-English if the Small Claims track limit were to be raised.

On a more human note there is a very real expressed fear amongst claimants’ representatives that significant reform will imperil the viability of their businesses and lead to wide ranging redundancies. The same concerns afflict the insurance industry’s panel firms to a lesser degree, but are expressed in a more muted tone.

The further conclusion that I have drawn is that the debate is not driven by evidence: nor does the consultation represent the fruits of any exercise in evidence based policy.

The pity is that there are undoubtedly a number of issues thrown up by the debate which would benefit from the production of evidence, to inform rational decision making for the collective good.

The starting point is surely to determine whether whiplash is a genuine condition or not. I have fond memories of litigating these claims in the 1990s when a series of studies from the Baltic countries, were regularly produced by medical experts instructed by the defence to suggest that whiplash in the UK was an illusory condition, or largely so.

Such views were always counter to the mainstream and indeed common sense. On the internet, one can observe videos of crash tests using dummies, at 20 mph, which illustrate vividly how a strain injury might be caused. Equally one can observe videos of impacts at 3mph and wonder how on earth anyone with a human neck could possibly sustain injury in that context.

If one takes the view that a physical whiplash type injury may well be sustained in a negligently caused collision to the extent that is more than de minimis, then the common law would prescribe that a remedy in damages should be given: to the full extent of the loss, not one penny more, nor one penny less. Because the common law is judge made law, the levels of damages awarded are those devised by the judges.

The next issue then is in what forum and against what criteria, should full compensation be awarded? Nearly 20 years ago I remember traveling to the Lincoln County Court in the full majestic panoply of wig and gown, my instructing solicitor in tow to argue issues of liability and quantum in a three party road traffic accident trial against two other barristers and two other solicitors.

It occupied a full day of a kindly QC’s time sitting as a Recorder, who took full and proper notes with his Mont Blanc pen poised over his red note book.

Each of the parties claims was worth about £3000: collectively well under £10,000 was at stake. Even then it struck me as absurd that a quicker and cheaper way of shifting small amounts of money from one party to another on simple criteria could not be devised.

What sort of justice system do you want to determine liability and award a remedy? You can have one where a wise man or woman sits under a palm tree to hear disputes between parties. They could each pay him or her a donative of £10 by way of fee: he or she would listen to each side’s version of events, with a fixed time of 15 minutes and then give a decision and remedy based upon what he or she considered fair. Simple, quick and cheap.

Or you can have a more involved system, with a settled system of laws, which grade results by ever finer and more complex criteria, to try and reach an increasingly perfect decision. You can require the parties to provide documents by way of disclosure.

You can require witness evidence in written form. You can require expert evidence, on those tricky areas of knowledge that are not within the purview of a layman, to try and reach a better decision.

But all this superstructure, requires a legal profession to operate it efficiently and to advise people how to use it. And that and the steps required by the process cost money.

Which of these models is best suited to whiplash injuries ?

Assuming you take the view that palm tree justice is inappropriate for today’s society and you need a legal system with a degree of complexity and professional lawyers, costing money the question then is who pays?

There are a number of options. The first is to require individuals to pay their own costs. This runs counter to the costs shifting philosophy of English law: that the party in the wrong pays the reasonable costs of the injured party getting vindication at law.

The second is to note that legal costs, or rather the overheads of legal practice are likely to result in a bill in an individual case, which is too large for an individual to reasonably bear.

This in turn leads to a conclusion that such costs should be collectively funded: in the same way that other services such as medical treatment, social security or ill health insurance are.

The question then is what structure of collective funding is likely to be effective?

Provision can be made through the state, through a Legal Aid scheme. If that is not thought to be appropriate, it can be made through insurance, or through other forms of collective organisation such as trade unions or membership organisations.

Buried away in the whiplash consultation is the interesting statistic whose provenance is uncertain that 70% of injured whiplash claimants have BTE insurance.

If that is so then I would suggest a real issue that is thrown up by the consultation but not addressed by it, is how that provision might be extended to 100% of injured claimants.

They would then have the benefit of insurance funding for their costs whether those were incurred in pursuit of a claim allocated to the Small Claims Track or a costs bearing track.

Then the further issue is to ensure that the BTE insurance which is provided is actually adequate to ensure that access to justice is not only preserved but enhanced with proper indemnities and freedom of choice when it comes to instructing a lawyer.

If this could be achieved then the expressed fears of the courts collapsing under the strain of unrepresented litigants or being exploited by claims management companies or unscrupulous Mackenzie friends might not come to pass.

Spring is in the air

The early part of 2017 has seen the pace of costs reform picking up in relation to the introduction of fixed costs in clinical negligence claims and what might be considered to be more fundamental reforms in relation to small personal injury claims generally.

Two major consultations have been embarked upon and the consultation period for the misleadingly entitled Reforming the Soft Tissue Injury (“whiplash”) Claims Process closed on 6th January 2017. A copy of the consultation document can be viewed here: Reforming the Soft Tissue Injury (‘whiplash’) Claims Process.

I describe the document’s title as misleading: as its principal proposed reform is to increase the Small Claims Track limit for personal injury claims, to a level where any claim where damages for pain, suffering and loss of amenity is worth up to £5000 will now be treated as a small claim.

Thus a small workplace injury claim, or a tripping claim involving injury sustained on the public highway, will be affected by the principal reform proposed in the paper.

I describe the proposed increase in the Small Claims Track limit as the principal reform, because I regard it as the realistic one. It only requires secondary legislation to raise the Small Claims Track, there is a respectable argument that an inflation based increase at least, is well overdue and the government can avoid the perils of primary legislation, necessary to remove someone’s right at common law to claim damages for a soft tissue injury, or to substitute a fixed scheme of compensation.

It is worth noting as well, that there may be nothing to prevent an insurer or other defendant, from admitting a liability to compensate for an injury and plead an admission that the damages for PSLA are say, £4500, and thus reach a further mezzanine level, where only if damages are worth £5000 more than the admitted sum will a case escape the Small Claims limit.

The consultation contemplates a reform which will undoubtedly affect both the public and that section of the legal profession which depends on the whiplash industry (or small personal injury claims generally) to earn its daily crust.

The latter is not lying down. There have been numerous submissions to the consultation and the progress from here on, is likely to be controversial.

In due course the recent Supreme Court judgment of R on the application of Moseley v London Borough of Haringey [2014] UKSC 56 the leading case on the requirements for any consultation to be lawful will undoubtedly be dusted down and a judicial review of any secondary legislation is likely.

The Moseley case was the first time that the Supreme Court has considered the extent of a public law duty to consult.  This is perhaps surprising: the development of the doctrine of legitimate expectation requiring consultation in such cases as R v North and East Devon Health Authority Exp Coughlan [2001] QB 123 by the Court of Appeal has not escaped criticism in other common law jurisdictions around the world.

In the Supreme Court, the main judgment was given by Lord Wilson: although there are differences between his judgment and that of the other justices who concurred in the result, his reasoning repays careful scrutiny.

Of particular interest, are his comments at paragraphs 27 and 28 of the judgment which suggest that sometimes fairness will require that interested persons be consulted not only upon the preferred option but also arguable yet discarded alternative options. Even where the subject of the requisite consultation is limited to the preferred option, fairness could require passing reference to be made to arguable yet discarded alternative options.

In the Moseley case the subject of the consultation was the Council’s preferred scheme relating to relief from the liability to pay the Council tax, but in order for the consultation to be fair, the consultees had to be aware of the other ways in the which the shortfall in funding which was vexing the Council could have been deployed. The alternative options would not have been obvious to those who were being consulted. The consultation had in fact been positively misleading, by suggesting that there were no other options.

There seems an increasing vogue for public law challenges to alterations to the framework within which private law claims are made or funded: see the recent case brought by the ABI over the discount rate for multipliers in personal injury claims.

I have little doubt that when the government actually announces its preferred option, at the very least, consideration will be given by the various interest groups to a judicial review of whatever measures are to be introduced.

Costs 2017 on 3rd March 2017 in Nottingham

On 3rd March 2017, I shall be delivering a paper on current issues in litigation funding and costs at the Ropewalk Chambers Personal Injury Conference in Nottingham.

Although primarily of interest to those who work in the fields of personal injury and clinical negligence I shall be covering some issues of general interest including fixed costs, the collective delusion of proportionality and other matters.

Attendance at the conference is notionally free: I do ask however for a small donation to charity. You also get lunch. And some of my greatest gags.

You can book a ticket here:

http://ropewalk.co.uk/knowledge-sharing/events2

I hope to see some of you on the day. In the usual course, the paper will be posted online shortly after the conference.

A thought on fixed costs reforms

Some time ago the Voice of Common Sense on the District Bench reminisced about those halcyon days pre 1999, now long gone, when there was little law on costs, no CFAs and a dispute about costs was usually settled by agreement in advance of any taxation hearing.

I pointed out that was not quite the case: even in the days of scale costs fixed by the County Court Rules, every scale 1 bill seemed to start with a request for the exercise of a discretion for an award of costs in excess of the scale.

There have always been disputes about costs, and always will be, as long as there is a shifting of costs from the losing party to the winning party in litigation. What has changed, is perhaps the enthusiasm for reform.

Each legal generation notoriously has re-invented the wheel, whether in the Civil Justice Review of 1988, the Woolf Report of 1996, the Jackson Report of 2010 or in earlier reforms.

What has changed this time round in my view is the degree of enthusiasm for reform. For instance, after fairly seismic changes in 2013, a period of stability might have been appropriate, if only to assess whether the changes had actually produced a net benefit to the public.

Far from it. At the current time the misleadingly entitled whiplash consultation has closed, which contemplates the enactment of primary legislation to remove from an entire class of claimant a substantive common law right to damages and less significantly a fairly sweeping change in the small claims track limit.

A clear issue exists about whether such claimants will be able to effectively source legal advice and representation. What I found interesting in the documents was the indication that perhaps 70% of claimants in road traffic claims have the benefit of legal expense insurance.

In which case one would have thought that the problems of collective funding and ensuring access to justice would have been best addressed by ensuring that the legal insurance market worked effectively in this field and was extended to cover the remaining 30%.

That however is an issue which is curiously absent from the government’s own documents, the responses I have seen from compensating parties and those who represent claimants. Such a solution, would render the raising of the small claims limit something of a side issue as claimants would claim on their legal expense insurance policies to obtain advice and representation in the Small Claims Court.

In addition, there is further work being undertaken by Jackson LJ, in relation to an overarching scheme of fixed costs, presumably applying to all cases, possibly worth up to £75,000. It is this exercise which I think should be of the greatest concern, as it will represent a development easily on a par with the abolition of additional liabilities in terms of its impact on access to justice and the funding of the legal profession.

Such a change to the recovery of costs would have sweeping consequences for access to justice and whether the “polluter pays” principle is maintained in a recognisable form, whether the viability of litigation is adversely affected or improved and the viability of certain sectors of the legal profession.

It also would be introduced presumably because costs budgeting and management would be perceived to be an expensive failure and hence fixed costs would be the cheaper and simpler solution to bespoke costs management in the context of an individual case.

And yet still further, there is a long promised consultation on fixed costs in clinical negligence cases, and on the horizon a digital bill of costs, whose use is compulsory from October 2017 and which may yet prompt a surge in the sales of “Microsoft Excel for Dummies” as the most modest of the expenditures solicitors would have to make in order to draw their bills.

With these reforms in mind, it struck me that the fires of satellite litigation are being banked ever higher, as rules are tested, explored and arguments made by those who perceive an advantage in doing so. Even relatively small points, which should be uncontroversial can give rise to argument.

A little while ago, I was asked to advise on whether in the context of a road traffic accident case, which concluded at trial where a single firm of solicitors represented three claimants, that meant a single amount of fixed costs should be awarded, or three sets of fixed costs. The paying party contending the former, the receiving party the latter.

Each claimant in the proceedings was jointly represented and solicitors issued a single claim form, naming the claimants as first, second or third claimant.

Turning to consider the rules, rule 2.3 defines a claimant as a person who makes a claim. It defines claim for personal injuries as meaning proceedings in which there is a claim for damages in respect of personal injuries to the claimant or any other person or in respect of a person’s death. The rule further defines a statement of case to mean a claim form, particulars of claim where these are not included in a claim form, defence, Part 20 claim or reply to a defence.

A “claim” is not the claim form, nor even the proceedings before the court, but rather the individual demand by a particular person for damages which is included in proceedings. Each claimant has an individual “claim”.

Turning to consider 45.29A, the starting point to note is that section IIIA of part 45 only has application where “a claim” is started under the protocol. Rule 45.29B provides that the fixed costs in rule 45.29C apply where “a claim” is started under the protocol and where the claim notification form is submitted after July 2013 and limits those costs accordingly. It does not limit costs by reference to “proceedings”.

It follows, that the wording of the rule, relates to “a claim”, being the individual’s demand for damages, indicating that costs are awarded per claim, not per claim form or per set of proceedings. It would be an absurd result, if the contrary were true and the fact that three claims are brought in one claim form, as opposed to three claims in three claim forms might make a material difference.

There exists in any case the possibility of individual part 36 offers being made in relation to individual claimants at varying stages, and the rules make no provision for apportionment of a single award of costs.

It can be mere chance that all three claims will go to trial  as opposed to one settling pre-issue, one settling after issue, and one being determined at trial, all of which predicate different awards of costs.

Finally the old PD 45.7 made it plain that costs accrued per claimant, cases of this nature were always settled, per claimant: if a radically different approach were to be taken, then one would have thought that there would be something clear to this effect. The rules are clear, once it is appreciated, what a “claim” is, from rule 2.3.

I was told it took half a day’s argument before the court concluded that indeed three sets of costs were recoverable. If a point like that can absorb so much argument, the new framework of fixed costs as and when it emerges may create just as many difficulties as those it purports to solve.

Legal professional privilege and detailed assessment

An issue that arises in virtually every detailed assessment, is the extent to which a paying party can pore over the file, attendance notes, advices, and other documents of the receiving party’s lawyers which may need to be produced to the court to justify the fees claimed on assessment.

Prima facie most (though by no means all) of the documents in a solicitors file will attract legal professional privilege: the maintenance of that privilege can be very important in practical terms where proceedings are not yet concluded, or there may be further proceedings.

Even if the parties are unlikely to encounter each other again, as in most personal injury claims, the maintenance of privilege concerns a client’s rights, not least to confidentiality in his or her affairs.

Legal professional privilege is a fundamental common law right upon which the whole administration of justice rests. It is not a rule of evidence or procedure. Per R v Derby Magistrates Court ex parte B [1996] 1 AC 487 the court has no power to order disclosure, of privileged material: in that case, the court observed that there was no balance of the parties interests to strike: the balance had been struck by the formulation of the doctrine of legal privilege centuries earlier.

Even where the CPR have assumed a power to order disclosure of privileged material (the former CPR 48.7(3)) that rule has been struck down as ultra vires per the case of General Mediterranean Holdings v Patel [2000] 1 WLR 272.

There has been no attempt to replace that rule and the position of disclosure of documents in the context of assessment proceedings remains that established at common law and embodied in the Practice Direction to part 47 at paragraph 13.13.

The Practice Direction applies where a claim for costs is being pursued and the court is actually being asked to make a decision on the recovery of costs but even then, the court has no power to compel a particular document to be shown to the paying party: the receiving party is free to decline to do so and seek to rely on alternative evidence to prove a claim for costs:

13.13 The court may direct the receiving party to produce any document which in the opinion of the court is necessary to enable it to reach its decision. These documents will in the first instance be produced to the court, but the court may ask the receiving party to elect whether to disclose the particular document to the paying party in order to rely on the contents of the document, or whether to decline disclosure and instead rely on other evidence.

The procedure embodied in this document, attempts to balance both the receiving party’s right to protection of his or her privilege and the paying party’s right not to pay more than reasonable and proportionate costs: the assessment of which is heavily bound up with consideration of the documentary material which would justify the claims for costs.

This paragraph of the Practice Direction reflects what has been termed the “Pamplin” procedure, as formulated by Hobhouse J as he then was in the case of Pamplin v Express Newspapers [1985] 1 WLR 689 :see in particular page 696H and 697A.

Thus even  assuming that a court put the receiving party to his election to disclose the entire file of papers, the receiving party can accordingly decline to produce them. Such a decision would not be likely in practice: the Practice Direction is predicated on disclosure of “particular” documents on a document by document basis. The costs judge would have to formulate reasons for his decision and they would be subject to a right of appeal. If, in a truly exceptional case, a party was put to his or her election in respect of an entire file, he or she would still not be obliged to disclose it.  But alternative evidence is unlikely to be judged trustworthy. The likely consequence would be that the Bill of Costs would be assessed at nil.

However even documents disclosed during the process of an assessment do not lose their inherently privileged nature. Longstanding authority running from the case of Goldman.v.Hesper [1988] 1 WLR 1238  to the recent decision of the Court of Appeal in the case of Dechert LLP v Eurasian Natural Resources Corporation Ltd [2016] EWCA Civ 375 confirms that in the case of documents from a solicitors file, provided as part of the election process, the waiver of privilege is partial, not complete and limited to the particular proceedings only.

This principle has real significance in respect of further proceedings between the same parties, or rather where there are recurrent proceedings between a particular firm of solicitors and paying parties.

Sometimes an attempt will be made to use documents disclosed in other cases, or findings in judgments obtained in other cases to seek to argue that that material is probative and relevant in the unrelated proceedings. Such an approach is wrong as it ignores the limited waiver that exists in relation to documents produced during an assessment and in respect of other decisions on particular facts which raise no issue of law, is wrong in principle.

Decisions in individual cases between different parties or even the same parties are generally irrelevant where no issues of res judicata or issue estoppel arise: see the general statements of principle on the admissibility of findings of fact in other litigation in the case of Secretary of State for Trade and Industry v Bairstow [2003] EWCA Civ 321 particularly paragraphs 15 to 27.

Discontinuance and detailed assessment proceedings

From time to time, for a variety of reasons, it may become necessary to discontinue detailed assessment proceedings. This may be because they have misfired, or there are problems with a retainer, or a potential for embarrassment, or some other reason.

When they are discontinued, there is no obligation to give an explanation as to why they are being discontinued, a fact which may be of some comfort to the erstwhile receiving party and may vex the putative paying party.

The usual procedure for discontinuing proceedings under part 38 CPR is modified in certain respects.

The Practice Direction to part 47 CPR provides as follows at paragraph 9.4:

(1) The receiving party may discontinue the detailed assessment proceedings in accordance with Part 38 (Discontinuance).

(2) Where the receiving party discontinues the detailed assessment proceedings before a detailed assessment hearing has been requested, the paying party may apply to the appropriate office for an order about the costs of the detailed assessment proceedings.

(3) Where a detailed assessment hearing has been requested the receiving party may not discontinue unless the court gives permission.

(4) A bill of costs may be withdrawn by consent whether or not a detailed assessment hearing has been requested.                                 

Rule 38.2 provides as follows:

(1) A claimant may discontinue all or part of a claim at any time.

(2) However –

(a) a claimant must obtain the permission of the court if he wishes to discontinue all or part of a claim in relation to which –

(i) the court has granted an interim injunction(GL); or

(ii) any party has given an undertaking to the court;

(b) where the claimant has received an interim payment in relation to a claim (whether voluntarily or pursuant to an order under Part 25), he may discontinue that claim only if –

(i) the defendant who made the interim payment consents in writing; or

(ii) the court gives permission;

(c) where there is more than one claimant, a claimant may not discontinue unless –

(i) every other claimant consents in writing; or

(ii) the court gives permission.

(3) Where there is more than one defendant, the claimant may discontinue all or part of a claim against all or any of the defendants.

Rule 38.3 provides as follows:

(1) To discontinue a claim or part of a claim, a claimant must –

(a) file a notice of discontinuance; and

(b) serve a copy of it on every other party to the proceedings.

(2) The claimant must state in the notice of discontinuance which he files that he has served notice of discontinuance on every other party to the proceedings.

(3) Where the claimant needs the consent of some other party, a copy of the necessary consent must be attached to the notice of discontinuance.

(4) Where there is more than one defendant, the notice of discontinuance must specify against which defendants the claim is discontinued.

Rule 38.4 provides:

(1) Where the claimant discontinues under rule 38.2(1) the defendant may apply to have the notice of discontinuance set aside.

(2) The defendant may not make an application under this rule more than 28 days after the date when the notice of discontinuance was served on him.

Rule 38.7 provides:

A claimant who discontinues a claim needs the permission of the court to make another claim against the same defendant if –

(a) he discontinued the claim after the defendant filed a defence; and

(b) the other claim arises out of facts which are the same or substantially the same as those relating to the discontinued claim.

It is noteworthy that the requirements of part 38 where permission is required, are primarily concerned with instances, where the claimant has received interim payments or an interim remedy, or given undertakings to the court, or might be contemplating a further set of proceedings.

This supports the conclusion that the requirement to obtain permission is to ensure that a claimant has to come to court to satisfy the court that such matters are “tidied up” and not left unaddressed when proceedings are concluded by way of discontinuance, or that a claimant has not obtained a collateral advantage by discontinuance or abused the process of the court by starting proceedings and discontinuing them by eg retaining interim payments.

The power to discontinue proceedings post dates the Judicature Acts of 1873-75 and replaced the common-law power of non-suiting a litigant. The root of modern authority lies in the case of Castanho.v.Brown & Root [1981] AC 557where the House of Lords per Lord Scarman at pages 571-572 considered when it might be appropriate to strike out a Notice of Discontinuance as an abuse of process (there being no requirement in the RSC as then formulated to seek the court’s permission) and the conclusion at page 577 that discontinuance would be permitted once the issues of costs, repayment of interim payments and future proceedings had been settled.

Similarly, in the case of Gilham.v.Browning and Another [1998] 1 WLR 682 a defendant was debarred from adducing evidence on his counterclaim, and sought to discontinue proceedings in order to circumvent the debarral, by fresh proceedings. The judge at first instance struck out the notice of discontinuance as an abuse of process. The defendant offered no evidence at the trial of the counterclaim and it was dismissed. The Court of Appeal upheld the judge’s reasoning (and the result). See in particular the discussion of the origins do discontinuance at pages 686 and 691 of May LJ’s judgment. The key to striking out the notice or by way of analogy, granting or refusing permission or applying terms, was the seeking of a collateral advantage.

In the recent case of High Commissioner for Pakistan in the UK.v.National Westminster Bank and others [2015] EWHC 55 (Ch)the High Court set aside Notice of Discontinuance, because the claimant was attempting to obtain a collateral advantage by doing so, the resumption of sovereign immunity. See paragraph 78 of the judgment. See further the discussion at paragraphs 79 to 83 in which the court discussed what terms would have been imposed in order to grant a discontinuance.

It should be noted that due to rule 38.7 a second set of proceedings cannot be started as of right against the same parties: in such a scenario it may well be necessary to lift the cloak of privilege when applying for permission, in order to explain to the court why it would be just to give permission.

QUOCS, ATE insurance and non party costs Orders

QUOCS was introduced as part of the LASPO 2012 reforms on 1st April 2013 to provide that subject to a limited number of exceptions, a costs Order made against a losing claimant bringing a personal injury claim could not be enforced against the claimant.

The principal exceptions provided for QUOCS protection not to apply in circumstances where a claim was struck out, where it was found to be fundamentally dishonest and when it was brought for the financial benefit, in whole or in part of another party. This was the quid pro quo, for the abolition of recoverable liabilities namely success fees and ATE insurance premiums.

The result has been that the insurance industry and other serial litigants if they successfully defend a claim at trial on its merits, will be left with an irrecoverable bill for their own costs.

One of the more predictable results of the LASPO 2012 reforms, is that the last 3 1/2 years have seen an upsurge in wasted costs applications against solicitors representing the losing claimants in personal injury claims, numerous allegations of fundamental dishonesty being levied at claimants sometimes with, sometimes without a proper foundation and the development of some arguments, that could be regarded as risible, including the argument that a claim struck out, is synonymous with it being dismissed at trial.

A far more fruitful argument has long seemed to me, to be the potential for a non party costs application to be made under section 51 of the Senior Courts Costs Act 1981 against an ATE insurer who has written a policy providing an indemnity for adverse costs for the benefit of a claimant in a personal injury claim.

That few such applications have been made is surprising: I suspect the reason is that it has simply been assumed that the QUOCS scheme precludes any such applications being made.

The starting point to note is that QUOCS protection applies to claimants, not to insurance companies  that have agreed to provide them with an insurance indemnity for their own unrecovered costs and any adverse costs, they may be liable to pay.

Rule 44.14 provides as follows:

(1) Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for damages and interest made in favour of the claimant.

(2) Orders for costs made against a claimant may only be enforced after the proceedings have been concluded and the costs have been assessed or agreed.

(3) An order for costs which is enforced only to the extent permitted by paragraph (1) shall not be treated as an unsatisfied or outstanding judgment for the purposes of any court record.

It will be noted that the express scope of the prohibition on enforcement of costs Orders is limited to those costs Orders made against the claimant: there is nothing in the prohibition which would preclude an application being made directly against an ATE insurer.

Moreover, the rules plainly contemplate that a claimant who has had a costs Order made against them, is liable to pay the costs of that Order: it remains due and owing but is simply unenforceable, meaning that court proceedings to recover the costs will fail. This seems clear from rule 44.14(3), which provides that an unsatisfied costs Order will not taint the claimant’s credit record by reason of its status on the court record. There is no wider development of a “hold harmless” provision, nor do the Rules provide, as they might that no costs Order at all should be made against a claimant, merely that such an Order is unenforceable.

The criteria upon which a non part costs Order might be made would be drawn from the leading case on non party costs Orders against legal expense insurers, that of Murphy and Another v Young & Co.’s Brewery and Another [1997] 1 W.L.R. 1591 which provided the following reasoning for making such an Order as follows drawing together a number of principles:

(1) In Giles v. Thompson [1994] 1 A.C. 142 , 164 Lord Mustill suggested that the current test of maintenance should ask the question whether: “there is wanton and officious intermeddling with the disputes of others in where the meddler has no interest whatever, and where the assistance he renders to one or the other party is without justification or excuse.” Where such a test is satisfied, I would expect the court to be receptive to an application under section 51 that the meddler pay any costs attributable to his intermeddling.

(2) Where a non-party has supported an unsuccessful party on terms that place the non-party under a clear contractual obligation to indemnify the unsuccessful party against his liability to pay the costs of the successful party, it may well be appropriate to make an order under section 51 that the non-party pay those costs directly to the successful party. Such an order may, for instance, save time and costs in short-circuiting the Third Parties (Rights against Insurers) Act 1930 . Bourne v. Colodense Ltd. [1985] I.C.R. 291 is a case where the court might well have thought fit to make such an order had it appreciated that it had jurisdiction to do so.

(3) Where a trade union funds unsuccessful litigation on behalf of a member the following factors, in addition to the funding itself, are likely to be present and, where they are, to make it appropriate to order the union to pay the successful party’s costs should such an order be necessary: (a) an implied obligation owed by the union to its member to do so—see (2) above; (b) an interest on the part of the union in supporting and being seen to support the member’s claim; (c) the conduct of the litigation; (d) expectation based on convention that the union will bear the costs of the successful party should the member lose.

(4) Where an unsuccessful defendant’s costs are funded by insurers who have provided cover against liability, which is not subject to any relevant limit, the same considerations that I have set out under (3) are likely to apply.

The analysis above is untested, as far as I can glean in any decided case post April 2013.

There are of course excellent arguments which ATE insurers could deploy to argue that they should not be made subject to non party costs Orders, but given the length of this post already, I shall have to save those for another day.

The top 5 ways your solicitor rips you off

What do you think of the title to this post? Does it catch your attention? Admittedly it is not blessed with the same power and venom possessed by the phrase “Enemies of the People” but it both catches the attention and has power to shock.

However the title was not  devised by me. Rather it reflects the a marketing wheeze devised by a company that had spotted a perceived gap in the market for advice  in relation to solicitor-own client assessments under the Solicitors Act 1974. The aggressive tone of the advertisement led to a complaint to the Advertising Standards Authority, which was upheld: you can read the report here: https://www.lawgazette.co.uk/practice/-your-solicitor-rips-you-off–cmc-told-to-pull-provocative-ad/5055869.article

The accompanying video to the advertisement still lingers palely (and amusingly) in cyberspace on Youtube, with an earnest presenter providing an explanation of what wicked creatures solicitors are.

In truth few professions are more regulated than the legal profession, and rightly so given the quasi-monopoly it has over litigation and the need to ensure that the public interest is protected.

The history of regulation and in particular constraints upon what lawyers may charge their clients is long and goes back centuries before the enactment of the Solicitors Act 1974.

A fairly basic safeguard, is a statutory requirement that when a solicitor levies a bill, upon which they may take legal action if it is not paid, that bill must contain a sufficient narrative of what work has been done, and what the client is being charged for, so that it constitutes a “proper” bill. Unless and until such a bill is served, no action can be brought.

As noted in the case of Ralph Hume Garry v Gwillim [2002] EWCA Civ 2002 the origins of the requirement that a solicitors bill should have a narrative, can be traced back to Georgian times and the Act for the better Regulation of Attorneys and Solicitors, 1729, 2 Geo. II. c 23, section 23

As early as that time there had been a bar on the solicitor commencing action until the expiration of one month from the delivery of his bill and there were provisions, slightly different provisions it has to be emphasised , for the taxation of that bill. Even then the bill had to be properly delivered and “subscribed with the proper hand of such attorney or solicitor”. The content of the bill received a little more clarification than has since appeared in that it was prescribed that the bill should be:−

“Written in a common legible Hand and in the English Tongue (except Law Terms and Names of Writs) and in Words at length (except Times and Sums) ×”

That may explain the practice of having a narrative account of the work done.

That Act was succeeded by the Solicitors Act 1843 which provided in section 37 as follows:

“No solicitor shall commence or maintain any action or suit for the recovery of any fees, charges, or disbursements for any business done by such × solicitor, until the expiration of one month after such × solicitor × shall have delivered unto the party to be charged therewith × a bill of such fees, charges, and disbursements, and which bill shall either be subscribed with the proper hand of such × solicitor, (or, in the case of a partnership, by any of the partners.

….

Provided also, that it shall not in any case be necessary in the first instance for such solicitor  in proving a compliance with this Act, to prove the contents of the bill he may have delivered, sent, or left, but it shall be sufficient to prove that a bill of fees, charges, or disbursements, subscribed in the manner aforesaid, or enclosed in or accompanied by such letter as aforesaid, was delivered, sent, or left in the manner aforesaid; but nevertheless it shall be competent for the other party to show that the bill so delivered, sent, or left was not such a bill as constituted a bona fide compliance with this Act “

Section 37 gave rise to some titanic battles in the Victorian courts about the taxation of solicitors bills. Keene v Ward (1849) 13 Q.B. 513. That was an action by the solicitors under a bill which contained charges in respect of nine actions in the Court of Exchequer and two in the Common Pleas. It also contained items in respect of two other actions as to one of which the parties were named and the bill was itemised to state, for example, “Instructions to sue 3s. 4d., writ of summons 12s. 6d”. The final charges in the bill did not identify at whose suit the defendant was the client and contained the fascinating description:−

“Attending you on your informing an action had been brought against you, and as to possibility of throwing it over the Long Vacation; and you were to bring me the writ and notice of declaration × 6s.8d.

The defendant objected to the bill submitting it did not satisfy the requisites of section 37. The argument was that because the bill did not state the court to which the business related, no−one could advise as to the taxation of those parts of the bill and if the bill could not be referred for taxation, it was insufficient. Patteson J. delivering the judgment of the court held:−

“In requiring the delivery of an attorney’s bill, the legislature intended that the client should have sufficient materials for obtaining advice as to taxation: and we think that we fulfil that intention by holding the present bill sufficient within that principle: whereas, if we required in respect of every item a precise exactness of form, we should go beyond the words and meaning of the statute, and should give facilities to dishonest clients to defeat just claims upon a pretence of a defect of form in respect of which they had no real interest.

The next case of interest was Cook v Gillard (1852) 1 E. & B. 26. Here the solicitor Mr Cook delivered a bill to his client divided into four parts. The first part was headed “Yourself and Ransom”. It consisted of a charge for attending the defendant and consulting as to slanderous reports; and then, under a fresh head, “Hilary Term 1846”, there were charges for “Letter before action”, “Instructions to sue”, “Writ of summons”, and “Attending settling”. The amount of the first part of the bill was £2. 19s. 8d. Except insofar as might be inferred from the items quoted there was nothing to show whether the suit of Gillard v Ransom had been pending in any, or which, of the superior courts. The second part of the bill related to conducting the defence of a case at the Middlesex Quarter Sessions and the third part for conducting a prosecution there. The fourth part of the bill was headed “Yourself and Mrs Heydeman”. It contained charges for taking the opinion of counsel on the construction of an agreement, various charges for collecting evidence and making enquiries at Hatton Garden, Tottenham Court Road, and other places well known to be in Middlesex, but which were not stated on the face of the bill to be there; for “Instructions to sue in an action on the case”; for “Writ” and “Service”; for attending in court when on motion by counsel “A rule was made to refer all matters in dispute”; and for attending the reference. The amount of this head of the bill was £122. 8s. 10d. Except insofar as might be inferred from the items quoted there was nothing to show whether the cause of Gillard v Heydeman had been pending in any, or which, of the superior courts. It was contended for the defendant that the first and last parts of the bill were insufficient, as they did not show in what courts the business there charged for was transacted; and therefore that the bill, being one entire bill, was not sufficient as to any part. For the plaintiff it was contended that the bill was sufficient for the whole; or, if not, that it was divisible and good pro tanto.

Lord Campbell C.J. delivered the judgment of the court. He referred to Ivimey v Marks (16 & W.) 843 in which the rule was laid down that a charge for an item in an action, without specifying in what court the action is brought, rendered the bill bad, the reason being that the client ought to be enabled by the bill to obtain advice as to taxation without the need of further question. The Lord Chief Justice pointed out section 37 of the 1843 Act and said:−

“No requisites for the bill are particularised: there is no requirement that the court should be specified: and the section further declares that the plaintiff is not bound in the first instance, in proving a compliance with the Act, to prove the contents of the bill delivered; but it is presumed sufficient unless the defendant proves that it is not such a bill as constitutes “a bona fide compliance with this Act.” The defendant here does not prove that any further information was practically wanted for taxation, or suggest that the name of the court in which the two writs of summons were issued would have been of any use to him: nor does he contend that the Act has not in this case been bona fide complied with, unless the arbitrary rule be deduced from the cases above mentioned, that the name of the court as to every item is indispensable, can be maintained. Now this rule, as applied to the existing statute, appears to have originated in a mistake: it was first introduced by judges applying the provisions of stat. 2 G. 2, c 23, s.23; and then there was good reason for it; for the jurisdiction to tax under that statute is given to the court in which the greater part of the business was done; and it was therefore indispensable for the parties and for the taxing officer to be able to assign each item to its appropriate court, before the taxation could be entered upon: moreover at that time the scale of charges in the different courts was different; so that the name of the court was also wanted in order to estimate the amount of charges. But, under the existing statute, if there is any item in any court of law, jurisdiction is given to all the superior courts indifferently; so that in respect of jurisdiction the name of the court is entirely immaterial: and so likewise it is for estimating the amount due, as the scale of charges in all the superior courts is now uniform. The judges, who instituted the rule in relation to the existing statute, adopted it from cases under the former statute, without adverting to the important changes in the law which the legislature had made; and thereby, as we think, contravened the intention of the legislature. If this reasoning is correct, it follows that the rule, which so originated, has been maintained without any useful purpose.”

He analysed a number of cases including Keene v Ward and then said:−

“This has been followed by a very salutary judgment in Cozens v Graham (16 Jurist, 952), where a bill was held valid although the court in which the business was done was not mentioned or described, it being clear that the defendant, knowing the court, did not want the information and only made the objection to evade payment of a debt.

Lord Campbell C.J. held:−

“I think the plaintiff has proved that he delivered such a bill as the statute requires. The statute, it is to be observed, requires the delivery of a bill of fees, charges and disbursements, but does not specify further what its contents shall be. I agree, however, that the bill must disclose on the face of it sufficient information as to the nature of the charges. I adopt the rule as to this, laid down in Keene v Ward  and in Cook v Gillard.The view taken by my brother Patteson in Keene v Ward seems very sensible.

He went on to say:−

“Complaints have sometimes been made that solicitors are not at liberty to recover the fair remuneration for their services as freely as any other person. It may be necessary to subject them to some regulation; but they have just ground for complaint if those regulations are vexatious, preventing the fair recovery of a just amount. I do not think that the legislature intended to throw on the solicitors the burthen of preparing a bill such that another solicitor on looking at it should, without any further statement, see on the face of the bill all the information requisite to enable him to say the charges were reasonable.

The principles to be derived from these cases were summarised by Ward LJ in his judgment in the Ralph Hume Garry case as follows:

Against that background the principles to be deduced from those cases appear to me to be these:−

i) the legislative intention was that the client should have sufficient material on the face of the bill as to the nature of the charges to enable him to obtain advice as to taxation. The need for advice was to be able to judge the reasonableness of the charges and the risks of having to pay the costs of taxation if less than one−sixth of the amount was taxed off.

ii) that rule was, however, subject to these caveats:−

a) precise exactness of form was not required and the rule was not that another solicitor should be able on looking at the bill, and without any further explanation from the client , see on the face of the bill all information requisite to enable him to say if the charges were reasonable;

b) thus the client must show that further information which he really and practically wanted in order to decide whether to insist on taxation had been withheld and that he was not already in possession of all the information that he could reasonably want for consulting on taxation.

iii) the test, it seems to me, is thus, not whether the bill on its face is objectively sufficient but whether the information in the bill supplemented by what is subjectively known to the client enables the client with advice to take an informed decision whether or not to exercise the only right then open to him, viz., to seek taxation reasonably free from the risk of having to pay the costs of that taxation.

iv) a balance has to be struck between the need, on the one hand, to protect the client and for the bill, together with what he knows, to give him sufficient information to judge whether he has been overcharged and, on the other hand, to protect the solicitor against late ambush being laid on a technical point by a client who seeks only to evade paying his debt.

The Victorian authorities formed a backdrop, to the very issue the Court of Appeal had to decided in the Ralph Hume Garry case: namely the sufficiency of a narrative for the purposes of section 69 of the Solicitors Act 1974 which provided:

(1) Subject to the provisions of this Act, no action shall be brought to recover any costs due to a solicitor before the expiration of one month from the date on which a bill of those costs is delivered in accordance with the requirements mentioned in subsection (2);

(2) The requirements referred to in subsection (1) are that the bill

(a) must be signed by the solicitor, or if the costs are due to a firm, by one of the partners of that firm, either in his own name or in the name of the firm, or be enclosed in, or accompanied by, a letter which is so signed and refers to the bill; and

(b) must be delivered to the party to be charged with the bill, either personally or by being sent to him by post to, or left for him at, his place of business, dwelling house, or last known place of abode;

and, where a bill is proved to have been delivered in compliance with those requirements, it shall not be necessary in the first instance for the solicitor to prove the contents of the bill and it shall be presumed, until the contrary is shown, to be a bill bona fide complying with this Act.

The Court of Appeal formulated the test as follows:

70.This review of the legislation and the case law leads me to conclude that the burden on the client under section 69(2) to establish that a bill for a gross sum in contentious business will not be a bill “bona fide complying with the Act” is satisfied if the client shows:−

i) that there is no sufficient narrative in the bill to identify what it is he is being charged for, and

ii) that he does not have sufficient knowledge from other documents in his possession or from what he has been told reasonably to take advice whether or not to apply for that bill to be taxed.

The sufficiency of the narrative and the sufficiency of his knowledge will vary from case to case, and the more he knows, the less the bill may need to spell it out for him. The interests of justice require that the balance be struck between protection of the client’s right to seek taxation and of the solicitor’s right to recover not being defeated by opportunistic resort to technicality.

71. On the facts of this case each bill was obviously and latterly expressly for professional charges. Even though it may have been perfectly obvious, the bills did identify the matter. Crucially for a determination of what was being charged for, the bill identified the period over which the work was being done. These bills may not have said much, but they did say something.

72. Whether the client’s knowledge was sufficient to supplement the lack of full narrative is a matter of fact. The judge held upon a review of the evidence that it was inappropriate to strike out the claim since Mr Ralph had shown a real prospect of establishing at the trial that Mr Gwillim knew all he needed to know about the work and the basis of charging reasonably to be able to exercise his right to seek taxation. I could not possibly interfere with those conclusions which, if the law is as I have stated it to be, were inevitable in the particular circumstances of this case. I would, therefore, dismiss the appeal.

73. I add this postscript for the profession’s consideration so that an unseemly dispute of this kind does not happen again. Surely in 2002 every second of time spent, certainly on contentious business, is recorded on the Account Department’s computer with a description of the fee−earner, the rate of charging and some description of the work done. A copy of the print−out, adjusted as may be necessary to remove items recorded for administrative purposes but not chargeable to the client, could so easily be rendered and all the problems that have arisen here would be avoided. In these days where there seems to be a need for transparency in all things, is a print−out not the least a client is entitled to expect?

A full copy of the judgment can be found here: Ralph Hume Garry v Gwillim [2002] EWCA Civ 1500.

A bridge too far

The text of this article first appeared in the December 2016 issue of Litigation Funding.

The recent decision of HH Judge Waksman QC in the Commercial Court in the case of Essar Oilfields Services Limited v Norscot Rig Management PVT Limited [2016] EWHC 2361 (Comm) repays careful reading, as it is the one of the few decisions of the High Court on the measure of recoverable costs in an international arbitration, albeit one conducted in London under the auspices of both the ICC Rules and the Arbitration Act 1996.

The case is notable chiefly for the endorsement by the court of the recovery of the charges made for the provision of third party funding to the winning party, as an item of “other costs” by the receiving party, under section 59 of the Arbitration Act 1996.

The background facts can be briefly stated.The case involved hard fought arbitral proceedings before Sir Philip Otton sitting as the arbitrator, concerning the commercial dispute arising out of the breach of an Operations Management Agreement relating to the sem-submersible offshore drilling platform “Wildcat”. Essar lost those proceedings. Essar had indemnity costs awarded against it. Norscot obtained from Woodsford, a third party funder, the sum of £647,086.49 on the basis that either 300% of the sum advanced would be paid by way of fee, or 35% of the total recovery, whichever was the higher.

The point which arose from the Fifth Partial Award and it’s Addendum, was whether the arbitrator’s award of this sum, the charge made for litigation funding, as part of the costs of the arbitration constituted a serious irregularity on the part of the arbitrator in that he had no power through a combination of sections 59 and 63 of the Arbitration Act 1996 to award this sum.

The parties had excluded a right of appeal on a question of fact or law, by their agreement to use ICC Rules.

Although issues of a time bar, waiver and whether the challenge was properly to be construed as an appeal on a point of law, rather than an irregularity challenge, the principal point of interest of the judgment, lies in whether the charge for litigation funding was a sum the arbitrator had power to award as an item of “other costs”.

Essar’s case was straightforward: the argument ran as follows. Properly construed neither the combination of section 59 nor 63 of the Arbitration Act 1996 or rule 31 of the 1998 ICC Rules gives an arbitrator the power to award the charges made for funding the costs of the arbitration. There is a clear distinction between “the costs of the arbitration” and the “cost of financing the costs of the arbitration”. The two are conceptually distinct and it is the former that are recoverable but not the latter.

The wording “other costs” in the relevant section. when considered in context, should not permit the recovery of the “cost of financing the costs of the arbitration”: rather its focus was narrower and directed at permitting for example, litigant in person costs, costs of managerial time, costs of employees acting as experts or other analogous categories of costs.

Rather, the “cost” of financing arbitration costs is properly to be considered in the context of an award of interest on costs under section 49 of the Arbitration Act 1996

Developing the argument, section 59 of the Arbitration Act 1996 states as follows:

1)References in this Part to the costs of the arbitration are to—

(a)the arbitrators’ fees and expenses,

(b)the fees and expenses of any arbitral institution concerned, and

(c)the legal or other costs of the parties.

(2)Any such reference includes the costs of or incidental to any proceedings to determine the amount of the recoverable costs of the arbitration (see section 63).

The starting point when considering this section is that it gives the arbitrator power to make an award of “the costs of the arbitration”.

Secondly that it specifies the type of costs that can be awarded by reference to subsections (1)(a) to (c) of which the words “other costs” are residual words.

Thirdly that it does not expressly provide for the charges for financing the “costs of the arbitration” to be recoverable.

Fourthly that the section as a whole and the particular words of the residual category of “other costs” which the Defendant has to rely on, to justify the award of the cost of litigation funding has to be interpreted according to the canons of statutory construction: in particular was it intended to include in 1(c) for example some “other costs” and also the cost of financing such “other costs”?

The better view, Essar contended is that “other costs” is to be construed narrowly to include categories of expenditure other than purely legal costs, with the cost of financing that expenditure dealt with under section 49 as an award of interest?

The award of costs was made in the context of an arbitration, not litigation, but the issue on is primarily concerned with the construction of an English statute made by Parliament: the statute does not stand in a vacuum, and the ultimate question is what did Parliament intend when enacting this statute in order to determine its construction.

The position in English law generally, is that the cost of financing litigation, has always been irrecoverable as an item of costs and is reflected instead in an award of interest. See Motto.v.Trafigura Ltd [2012] 1 WLR 657  at paragraphs 104 to 107 with its observations on the irrecoverable nature of the cost of funding and the case of Simcoe.v.Jacuzzi [2012] 1 WLR 2393 at paragraphs 39 to 42, which explains the purpose of an award of interest on costs is to compensate for the cost of financing the litigation.

The cost of litigation funding is a paradigm example of a cost of funding that has never been recoverable. Other examples are general or bridging loans, or less obviously, success fees and ATE premiums, which required statutory intervention through the Access to Justice Act 1999, to be recoverable as a cost inter partes.

The Access to Justice Act 1999, in force from 1st April 2000 to 1st April 2013, permitted the recovery of success fees and ATE premiums: costs which were otherwise irrecoverable at common law. The repeal of those provisions by the Legal Aid Sentencing and Punishment of Offenders Act 2012, means that the situation in the English courts, is as it always was prior to the 1999 statutory experiment: the cost of funding litigation costs is irrecoverable as a head of costs.

It is trite law that in litigation only legal costs can be recovered at common law: see London Scottish Benefit Society.v.Chorley [1884] XIII QB 872. Thus the time of a layman conducting litigation, loss of managerial time, the cost of employees acting as experts are not recoverable.

In respect of litigants in person, statutory intervention has occurred to ensure they can recover costs in respect of the time that they spend conducting their litigation: absent CPR rule 46.5 such costs would prove irrecoverable. This is the backdrop, to which it must be contended by the receiving party, that Parliament intended, to permit the charges for financing “the costs of the arbitration” to be recoverable.

An enactment by implication imports any principle or rule of law (whether statutory or non-statutory) which prevails in the territory to which the enactment extends and is relevant to its operation in that territory. As a general rule Parliament must have been taken to have legislated against the background of the general principles of the common-law (Bennion on Statutory Interpretation 6th edition at 929-937).

The Latin words ejusdem generis (of the same kind or nature) have been attached to a principle of construction whereby wide words associated in the text with more limited words are taken to be restricted by implication to matters of the same limited character. The principle may apply whatever the form of the association, but the most usual form is a list or string of genus describing terms followed by wider or residuary sweeping up words (Bennion on Statutory Interpretation 6th edition at 1105 to 1108)

The court seeks to avoid a construction that cures the mischief the enactment was designed to remedy only as the cost of setting up a disproportionate counter-mischief, since this is unlikely to have been intended by Parliament. Sometimes however, there are overriding reasons for applying such a construction, for example where it appears that Parliament really intended it or the literal meaning is too strong (Bennion on Statutory Interpretation 6th edition at 901 to 904).

The starting point must be that the purpose of the section is to award the “costs of the arbitration”. A charge made for financing the “costs of the arbitration” is conceptually distinct from the “costs of the arbitration”. A clear analogy is to be drawn with the “costs of the litigation” and the cost of financing the “costs of the litigation”. On this point alone, it is clear that the ambit of sections 59 and 63 cannot stretch to anterior costs, or wide categories of economic loss arising from engaging in arbitral proceedings.

The residuary category “other costs” is readily capable of meaning, those costs which would be irrecoverable in litigation due to the general prohibition noted above: but which share the common quality of being “costs of the arbitration”. Otherwise, logically, on the arbitrator’s approach, “other costs” means all types of economic loss or cost, provided they can be quantified in pounds and pence that might be sustained in litigation. The statutory focus is narrower than that.

The statute does not say in subsection (1)(c) that recoverable under section 59 are legal costs, and the costs of financing those legal costs: instead “other costs” is a sweeping up, residual category. On a natural and ordinary interpretation, bearing in mind the statutory purpose is to provide for awards of costs in various different arbitral contexts such that it will encompass such elements as litigant in person costs, the costs of managerial time, the costs of employees acting as experts or other analogous categories of costs.

What it should not encompass, both as a matter of natural and ordinary interpretation and when considering the purposive construction to be provided to the statute, is categories of economic loss, such as the cost of funding litigation which have never been recoverable at common law.

Instead, it could be argued the solution adopted by Parliament, to compensate a successful party who has made expenditure on legal costs during the course of litigation is an award of interest, a structure mirrored by section 49 of the Arbitration Act 1996 (interest) and section 59 (costs).

In such a context, when enacting the scheme of the Arbitration Act 1996 it can be noted that Parliament extended the ambit of recoverable costs of the arbitration, to include costs under sections 59 and 63 which would otherwise be caught by the general prohibition “other costs” and also provided for an award of interest under section 49 which can be simple or compound interest, and the rate of which is discretionary.

In those circumstances Parliament has provided a broad definition of recoverable costs and also allowed for an award of interest, to compensate at least in part for the cost of financing arbitration costs. There is no requirement therefore for section 59(1)(c) to practically overlap with section 49 in dealing with the financing of costs. Indeed, the construction adopted by the arbitrator, conflicts with the statutory scheme, a point which will be developed below.

The ejusdem generis rule provides that ostensibly wide phrases, which in fact form a residuary category, are to be construed narrowly based on the same categorisation as applies to the limited words preceding it. Legal costs, represent a solicitors profit costs and disbursements, chargeable to the client. They represent an expenditure on work done which is progressive and falls within the scope of advice, preparation for and appearance at the arbitration. They do not include the cost of financing any part of the arbitration costs.

Similarly “other costs” should be read as limited to a fee or expense charged for work done which constitutes, advice preparation or appearance at the arbitration: something spent which can properly be said to be part of the “costs of the arbitration.” To construe “other costs” more widely, is to say that the costs of financing the costs properly falls within a residuary category, far wider than the limited words preceding it. Such a construction is impermissible on the ejusdem generis principle.

Perhaps the simplest point is this: the statutory scheme contemplates an award of costs and an award of interest meant to compensate the receiving, for, amongst other things the costs of financing its costs. The construction adopted by the arbitrator merges the two concepts reflected in two different statutory sections, in a way that it is submitted runs counter to the intention of Parliament, as to how the two issues are to be separately addressed.

These arguments were rejected by the court. The result is that by endorsing the decision of the arbitrator, the law has been changed, so that in arbitration proceedings, the award of charges for litigation funding is now lawful as an item of “other costs”. This is an immediate consequence. There are three further consequences.

The first, is that although funding was obtained in this case from a bespoke litigation funder, as a point of principle the receiving party was in no different position than any party who funds litigation through a loan, be it credit card, overdraft, family member or high street bank and has to pay interest or a fee for the financial accommodation they are granted. Presumably such charges are now also recoverable as “other costs”.

The second, is that arbitration is now a much more attractive option than litigation in the Commercial Court, given the limitations of recovery of litigation costs. Given the pronouncements in the last year or so of the Lord Chief Justice, bemoaning the lack of appeals from arbitration proceedings to the High Court, the irony is acute.

The third consequence, is that no further appeal was possible from this decision to the Court of Appeal, due to the bar in section 68(4) of the Arbitration Act 1996, once the High Court had refused permission. Accordingly, it will be years, before this issue is reconsidered, if it ever is, by the Court of Appeal in some other case.