Part 36 offers and detailed assessments

Part 36 of the Civil Procedure Rules has been around since the initial implementation of the Woolf Reforms in 1999 but has been more heavily amended and redrafted than perhaps any other section of the rules.

The introduction of part 36 offers into detailed assessment proceedings occurred as one of the Jackson reforms a few years ago. Despite the passage of time and the use  of part 36 offers it remains surprisingly common for lawyers to make mistakes when putting part 36 offers, rendering their attempts to either settle a case or obtain part 36 benefits nugatory.

The starting point is to consider the formality requirements of the rules when drafting part 36 offers. There is an easy way to cheat. A court form has been produced, which enables a party to ensure that they are making an effective part 36 offer. It can be found here: https://formfinder.hmctsformfinder.justice.gov.uk/n242a-eng.pdf.

An oddity is that in dozens of detailed assessment proceedings that I have conducted for both receiving and paying parties, the number of times that I have seen that form used can be counted on the fingers of one hand.

It may be that  lawyers are adventurous souls who prefer the challenge of drafting their own offers. Or there may be some other reason.

If an offeror wishes to draft their own offer, then it becomes incumbent to consider how that should be done, by reference to the rules. In the context of costs, the starting point must be to consider the provisions of rule 47.20(4)-(7) which modifies the usual rules for part 36 to take account of the context of detailed assessment proceedings:

(4) The provisions of Part 36 apply to the costs of detailed assessment proceedings with the following modifications –

(a) ‘claimant’ refers to ‘receiving party’ and ‘defendant’ refers to ‘paying party’;

(b) ‘trial’ refers to ‘detailed assessment hearing’;

(c) a detailed assessment hearing is “in progress” from the time when it starts until the bill of costs has been assessed or agreed;

(d) for rule 36.14(7) substitute “If such sum is not paid within 14 days of acceptance of the offer, or such other period as has been agreed, the receiving party may apply for a final costs certificate for the unpaid sum.”;

(e) a reference to ‘judgment being entered’ is to the completion of the detailed assessment, and references to a ‘judgment’ being advantageous or otherwise are to the outcome of the detailed assessment.

(5) The court will usually summarily assess the costs of detailed assessment proceedings at the conclusion of those proceedings.

(6) Unless the court otherwise orders, interest on the costs of detailed assessment proceedings will run from the date of default, interim or final costs certificate, as the case may be.

(7) For the purposes of rule 36.17, detailed assessment proceedings are to be regarded as an independent claim.

When drafting an effective part 36 offer it must comply with the following requirements. Rule 36.5 states:

(1) A Part 36 offer must—

(a) be in writing;

(b) make clear that it is made pursuant to Part 36;

(c) specify a period of not less than 21 days within which the defendant will be liable for the claimant’s costs in accordance with rule 36.13 or 36.20 if the offer is accepted;

(d) state whether it relates to the whole of the claim or to part of it or to an issue that arises in it and if so to which part or issue; and

(e) state whether it takes into account any counterclaim.

(Rule 36.7 makes provision for when a Part 36 offer is made.)

(2) Paragraph (1)(c) does not apply if the offer is made less than 21 days before the start of a trial.

(3) In appropriate cases, a Part 36 offer must contain such further information as is required by rule 36.18 (personal injury claims for future pecuniary loss), rule 36.19 (offer to settle a claim for provisional damages), and rule 36.22 (deduction of benefits).

(4) A Part 36 offer which offers to pay or offers to accept a sum of money will be treated as inclusive of all interest until—

(a) the date on which the period specified under rule 36.5(1)(c) expires; or

(b) if rule 36.5(2) applies, a date 21 days after the date the offer was made.

It is then important to note what you can offer, if a paying party in rule 36.6

(1) Subject to rules 36.18(3) and 36.19(1), a Part 36 offer by a defendant to pay a sum of money in settlement of a claim must be an offer to pay a single sum of money.

(2) A defendant’s offer that includes an offer to pay all or part of the sum at a date later than 14 days following the date of acceptance will not be treated as a Part 36 offer unless the offeree accepts the offer.

So the rules are clear: there has to be a specific single sum, inclusive of interest to the point 21 days after the part 36 offer is served. A surprising number of offers do not deal with interest appropriately.

Part 36 offers are formal documents: they attract the application of the rules on service:

(1) A Part 36 offer may be made at any time, including before the commencement of proceedings.

(2) A Part 36 offer is made when it is served on the offeree.

(Part 6 provides detailed rules about service of documents.)

Equally the acceptance of a part 36 offer must be by way of service:

(1) A Part 36 offer is accepted by serving written notice of acceptance on the offeror.

(2) Subject to paragraphs (3) and (4) and to rule 36.12, a Part 36 offer may be accepted at any time (whether or not the offeree has subsequently made a different offer), unless it has already been withdrawn.

It still remains the case that although lawyers are happy to use email, to correspond about a case, many firms do not accept the service of documents (including part 36 offers) by email.

It follows that any part 36 offer to be effective, must be served in accordance with the rules of service. The simplest thing to do, is to send it by post.

For service by email to be effective the requirements of Practice Direction 6A must be met:

4.1  Subject to the provisions of rule 6.23(5) and (6), where a document is to be served by fax or other electronic means –

(1) the party who is to be served or the solicitor acting for that party must previously have indicated in writing to the party serving –

(a) that the party to be served or the solicitor is willing to accept service by fax or other electronic means; and

(b) the fax number, e-mail address or other electronic identification to which it must be sent; and

(2) the following are to be taken as sufficient written indications for the purposes of paragraph 4.1(1) –

(a) a fax number set out on the writing paper of the solicitor acting for the party to be served;

(b) an e-mail address set out on the writing paper of the solicitor acting for the party to be served but only where it is stated that the e-mail address may be used for service; or

(c) a fax number, e-mail address or electronic identification set out on a statement of case or a response to a claim filed with the court.

4.2  Where a party intends to serve a document by electronic means (other than by fax) that party must first ask the party who is to be served whether there are any limitations to the recipient’s agreement to accept service by such means (for example, the format in which documents are to be sent and the maximum size of attachments that may be received).

4.3  Where a document is served by electronic means, the party serving the document need not in addition send or deliver a hard copy.

The continued reference within the rules to fax machines is, in a sense bizarre. As the old joke runs, a solicitor was asked why he did not have a fax number: he replied that there were no fax machines where he worked: asked where that was, he replied “the twenty first century.”

If a part 36 offer is defectively served, or indeed the acceptance is defectively served, then there remains scope to ask the costs judge for an order under rule 3.10 CPR to cure the defective service. A useful example of a case where this was successfully done albeit not in the context of a detailed assessment, is that of Thompson v Reeve and MIB Master Yoxall QBD 20th March 2017.

Although I act for both receiving and paying parties in detailed assessments, in the last four assessments I have undertaken for receiving parties where they have beaten their own part 36 offers, on two occasions the offers were defective for various reasons in their drafting and service, and thus did not bite.

The end of the road

The judgment of the Court of Appeal in the case of Budana v The Leeds Teaching Hospitals NHS Trust [2017] EWCA Civ 1980 was handed down on Tuesday of this week and may represent the last pronouncement by the courts on the principles applicable to the transfer of instructions by a client from one firm of solicitors to another. That does not however mean the end of the assignment arguments in costs proceedings.

Although the decision of the Court of Appeal settles a number of points of principle, they will have to be applied in numerous different factual contexts where solicitors will have drafted all sorts of documents in the last few years, in an attempt to transfer retainers to a new firm, and with unforeseen and unfortunate consequences, which will be thrashed out in satellite litigation to come.

The judgment itself is not the easiest to read and has I think already been misunderstood, it being suggested that it is now possible to assign a CFA. For reasons I will explore below that is not the case.

Although the judgment of Davis LJ suggests that it is possible to assign a CFA and that the case of Jenkins v Young Brothers [2006] 1 WLR 3189 remains good law, his judgment is a minority dissenting judgment and the position of the majority of the Court of Appeal (Gloster and Beatson LJJ) is that it is not possible to assign a contract when a new party is substituted to it: this is the doctrine of novation.

Gloster LJ explained in clear terms why the Jenkins case was wrongly decided.  It is possible to assign rights and benefits under a CFA including the entitlement to be paid, but that has always been the case in the majority of contracts save for narrow categories of personal contracts or where a contract expressly forbids assignment.

At the most basic level it remains the case, that a client is not a commodity to be bought and sold: the client’s consent to a change of solicitor requiring a change of retainer is required, and the addition of this element of consent, is one reason that removes the possibility of an assignment

The Court of Appeal also contemplated the possibility that a solicitor’s retainer is not a personal contract, or may not be a personal contract, particularly if it is a bulk or impersonal contract such as  a low value personal injury case. That suggestion is surprising: a CFA will contain mutual obligations on both the client and the solicitor which might render it a personal contract.

For instance, I wonder how many solicitors would regard with equanimity the prospect of a client purportedly assigning the contract to his friend Joe Bloggs, with the intriguing prospect of Joe Bloggs giving evidence in the client’s place in court or turning up to be medically examined in the client’s place.

These are peripheral points however.

The real significance of the judgment can be found in the decisions of the majority on (i) how unfortunately worded correspondence by a solicitor pulling out of the personal injury market will in many instances not serve to terminate a CFA (ii) how despite a novation rather than an assignment taking place accrued contractual rights to payment in respect of an earlier CFA will not necessarily be discharged and (iii) also how the transitional provisions flowing from LASPO 2012 fall to be interpreted.

Dealing with the first point the judgment of Gloster LJ records her decision on what the legal effect is of a letter which might be read as evincing a determination by a solicitor not to perform his retainer:

37. I can deal with this issue shortly since in my judgment it is clear that the BR CFA was not terminated by BR’s conduct, and that the judge erred in law in reaching the contrary conclusion.

38. As the claimant submitted, neither the 22 March letter nor any (purported or actual) transfer of the BR CFA could amount to a termination of the contract without the claimant having elected to treat the contract as terminated. It is trite law that a repudiatory breach by one party cannot unilaterally terminate the contract. Instead, the innocent party may elect between termination and affirmation of the contract. Unless and until the innocent party terminates the contract, it subsists. This basic proposition of contract law has been recently reaffirmed in Société Générale, London Branch v Geys [2012] UKSC 63, [2013] 1 AC 523.

39. Accordingly, in my judgment, the BR CFA undoubtedly subsisted after the 22 March 2013 letter, the Master Deed and the second deed – even assuming (without deciding) that these individually or collectively amounted to a repudiatory breach of contract. Even if BR had indeed wished to end the contract, or their obligations thereunder, they could not, in the particular circumstances of the case, do so unilaterally.

40. Moreover, in my judgment the claimant did not terminate the contract but instead affirmed it by the second deed and her conduct more generally. On the instant facts, which are not in dispute, the terms of the documentation clearly show that the claimant did not elect to terminate her contract with BR, but instead decided to preserve and, to use a neutral word, transfer it. Of course, that per se is not determinative of whether that transfer must be characterised as a novation, which would involve a discharge of the original contract. But, on these facts, it is sufficient to determine that the claimant did not terminate the contract in response to such repudiatory breach, if any, as there might have been by BR.

41. The BR CFA therefore survived and BR remained entitled to payment, if it fulfilled its entire obligations under the contract. The defendant (rightly) did not submit that, even if the contract was affirmed and was fully performed, the breach would itself amount to a failure to fulfil BR’s entire obligations under the contract.

She went on to deal with (ii) how the substitution of a party will create a new contract and what happens to the rights of a solicitor to be paid under his CFA when he is no longer acting on behalf of the client.

65. In my judgment, there can be little doubt that, on 10 April 2013 the claimant entered into a new contract with NH (and probably also BR) pursuant to the terms of the second deed and the letter of instruction. (I assume, without deciding, that prior to that date the claimant was not contractually committed to being represented by NH and that, accordingly, no contract as between the claimant and NH came into existence before the critical date of 1 April 2013). Under the terms of the second deed, by which she ratified the Master Deed, the claimant agreed to the transfer of the rights and obligations of BR under the BR CFA to NH, on the express terms inter alia that:

i) the BR CFA remained “binding and enforceable” as between the claimant and NH;

ii) the only effect of the second deed was that all the rights and liabilities, benefits and burdens created by the BR CFA were assigned to NH, so that:

a) all benefits including all accrued rights to cost debts contingent “upon the happening of some future event”, previously held by BR, were transferred to NH;

b) likewise, all obligations previously borne by BR under the BR CFA were transferred to NH, on the basis that BR was discharged from all obligations thereunder as if the obligations had always been borne by NH;

c) NH would continue with the conduct of the claimant’s claim and supply legal services pursuant to the BR CFA, on the basis that the claimant would continue to provide instructions as required by the BR CFA; and

iii) the transfer would take effect retrospectively from 22 March 2013.

66. That contract was, in accordance with the authorities on novation to which I have referred above and by which this court is bound, a new contract as between all three parties, involving, as it did, the discharge of BR from all obligations under the BR CFA and the consent of the claimant to NH assuming such obligations. As was accepted by both counsel for the Law Society and for the appellant, there could have been no transfer of the retainer without the express consent of the claimant; and, on the authorities by which this court is bound, that gives rise to a new contract.

Earlier in the judgment she considered the effect of the recent decision of the Supreme Court in Plevin Paragon Personal Finance Limited [2017] UKSC 23, [2017] 1 WLR 1249:

51. Although neither party suggested that Plevin was a binding authority to the effect that rights under a CFA were assignable, the decision in my view at least supports three important propositions relevant to the determination of the present case:

i) that as a matter of law rights and benefits under a CFA together with the benefits of any accompanying retainer are capable of assignment, notwithstanding the fact that a client may place trust and confidence in her solicitor;

ii) that an original CFA can remain in existence, as a contract valid as its date of creation, notwithstanding its transfer as between successive firms of solicitors; and

iii) that even if a client subsequently assents to such transfer, as Mrs Plevin did, nonetheless the client’s original CFA remains in existence as a contract valid as its original date.

Thus except in insolvency situations, or where a solicitor has ceased to exist, any accrued rights to be paid will endure: the question as to whether they remain with the original solicitor or whether they are permissibly assigned as “rights and benefits” to the second solicitor, perhaps does not matter as far as the paying party’s liability is concerned.

The third issue involved consideration of whether the transitional provisions of LASPO 2012 had to be interpreted purposively, in order to read that if the claimant entered into any CFA, before 1st April 2013 rather than the particular CFA in respect of which she sought costs, this had the effect of ensuring that the costs claim remained subject to the “old law” as far as recoverability was concerned, and in terms of the formality requirements for a conditional fee agreement to be enforceable. The Court of Appeal had no difficulty in deciding that it did.

71. It is clear, from the expressly stated terms in the Master Deed and the second deed, that, objectively construed, the intention of the parties was that NH should simply be substituted in BR’s place, as solicitors acting in connection with the claimant’s claim, under and subject to the same terms of the existing (and so far as the parties were concerned, at least) continuing retainer – i.e. the BR CFA. That CFA was intended to remain in force as an operative contractual instrument as between NH and the claimant, and pursuant to which, if the case was won or settled, it was intended that NH should be able to enforce the previously accrued, and accruing, rights to conditional fees, which had indeed been assigned to it by BR. An analogy could be drawn with the effects of a novation in the type of syndicated loan situation exemplified in Essar Steel, where one participating syndicate member transfers its obligations to a third party. Whatever the technicalities of novation as a concept, the original syndicated loan agreement remains as a continuing operating contractual instrument between the borrower and all parties.

72. In those circumstances, the fact that, technically, there may have been a novation of the BR CFA after 1 April 2013 does not predicate that the success fee payable by the claimant to NH could not qualify as “a success fee payable by …. [the claimant] under a conditional fee agreement entered into before” 1 April 2013. The clear expectation of both parties, as evidenced by their agreement and stated intentions, as set out in the second deed and the surrounding correspondence, was that, in relation to the claimant’s claim, their contractual relations would, as previously in relation to BR, be governed by the continuing terms of the BR CFA.

73. Accordingly I accept the claimant’s submissions in relation to the construction of section 44 of LASPO. It is clear that the modern approach to statutory interpretation takes account of the apparent policy of that legislation: Regina (Quintavalle) v Secretary Of State [2003] AC 687 at [7]; and Barclays Mercantile v Mawson [2005] 1 AC 684 at [28]. Moreover, the policy of LASPO is also clear. In Plevin Lord Sumption, giving judgment for the majority, stated at [21] that:

“The purpose of the transitional provisions of LASPO, in relation to both success fees and ATE premiums, is to preserve vested rights and expectations arising from the previous law. That purpose would be defeated by a rigid distinction between different stages of the same litigation.”

74. Similarly, in my judgment, that purpose would be defeated by an over technical application of the doctrine of novation so as to prevent any litigant, who had begun a claim under a CFA prior to 1 April 2013, from recovering costs in respect of a success fee, simply because a novation had occurred as a result of a change in the constitution of the firm of solicitors acting for her, or as a result of conduct of her claim case being transferred, for whatever reason, to a new firm of solicitors. Obviously, whether or not any relevant CFA under which the success fee was payable to a new firm could be characterised, as in the present case, as “payable under a conditional fee agreement entered into before” 1 April 2013, would depend on the precise terms of the relevant contractual arrangements entered into between the parties and whether the new firm was indeed intended to operate “under” the terms of the previous CFA. But where, as here, the parties expressly provide by their contractual arrangements that their vested rights and expectations, under the previous CFA entered into under the previous law, should be continued, I see no difficulty in construing section 44 to give effect to that intention.

75. As Mr Holland QC, on behalf of the Law Society, submitted, such a construction was necessary in order to achieve the intention expressed by Parliament: namely, a division between litigants who had instructed solicitors before LASPO came into force, whose rights and expectations would be preserved, and those who had done so post-LASPO, who would lose some of the advantages of the pre-LASPO regime but receive some mitigating benefits. The defendant’s argument would mean the worst of both worlds for the claimant: she would lose the pre-LASPO regime advantages but receive none of the mitigating benefits. This would place the claimant into a third category of litigant which Parliament had not intended to create. Indeed, whilst it is not necessary to decide the point, the result suggested by the defendant may impede the constitutional right of access to the court for those in a similar position to the claimant.

I do not anticipate that this decision will be appealed: the Defendant effectively won on the assignment point, but lost on the transitional provision point, and given the tenor of the Plevin judgment where the Supreme Court considered the transitional provisions in very similar terms to those adopted by the majority of the Court of Appeal in this case, the prospects of the Supreme Court both reversing themselves and the Court of Appeal must be remote.

Interpreting part 36 offers

One of the perennial areas of work in costs litigation concerns disputes over part 36 offers. Even now, in November 2017, some 18 years after the introduction of part 36 CPR there remains fruitful scope for satellite litigation over their (mis)use.

One area that arises from time to time, is construing what a part 36 offer actually means, as sometimes a dispute can ensue over whether a claim has been compromised, or whether if there has been a compromise it includes all or only part of the claim or what the terms of the compromise are.

It should be noted that part 36 offers may be made at an early stage of litigation, but subsist for a number of years before the offeree decides that it may be better to accept for one reason or another, a part 36 offer that has been made. At that time the litigation may have entirely changed in nature or scope.

The conceptual difficulty that arises, however, is that a part 36 offer can only ever have one meaning: the rules in part 36 provide for it to be “clarified” at the offeree’s request, but it can only have one true meaning. Logically, the offer must mean the same thing when it is made, whilst it exists and when it is accepted even though that period might span years.

It follows in turn, logically, that events or negotiations or documents, created subsequent to the making of the part 36 offer can have no bearing on what the offer meant when made. How could they? They were not in existence or were unknown factors when the part 36 offer was made.

When identifying what a part 36 offer means, it is entirely appropriate to apply by analogy, the general principles of contractual interpretation but suitably modified to take account of the self contained nature of part 36. In C v D itself, the Court of Appeal observed:

45 It follows from my answer to the first issue that there is a necessary inconsistency between an offer being both time-limited and a Part 36 offer. An offer may be one or the other, it cannot be both. That is the objective context in which the offer in this case was made by the claimant’s solicitors to the defendant’s solicitors. Both the writer and the reader of that offer must be taken, objectively, to know the legal context. Of course, mistakes occur and must be allowed for. However, the question is how a reasonable solicitor would have understood the offer in that context, including the known context of the dispute as it stood at that time: Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896.

(emphasis added)

This passage makes it plain that although the contractual rules of construction are adopted by way of analogy, the point in time whereby the court construes the background matrix of fact, is the date when the offer is made, not as in a contractual compromise, the date the contract is made. This in turn is a logical approach to adopt. Unlike a contractual compromise, which might be contained in a number of interlocking documents, a compromise brokered through part 36 will only consist of the part 36 offer, and a simple acceptance of it.

It follows, that this is one of the differences between the part 36 regime the self-contained code, and the general law of contract: when the court construes a contract, it is concerned to construe the contract at the date it is made.

In cases where disputes arise under part 36, because a part 36 offer is either accepted or it is not, the court is concerned not to construe the compromise, but rather to construe the offer and then see whether that has been accepted or not. This is a subtle but very important difference. Because at a stroke, the subsequent events to the making of the part 36 offer become irrelevant.

The exclusion of subsequent material once, it is accepted that the material date is the date of making the part 36 offer, rather than the date of acceptance of it, to determine what the compromise means is supported by the analogous position in contract law: per Union Insurance Society of Canton Limited v George Wills and Co [1916] 1 AC 281

“It is immaterial to the construction of the contract to consider subsequent events. The intention of the parties must be gathered from the language of the contract, the subject matter, and the circumstances in existence at the time it was made.”

If you ignore all events after the making of a contractual compromise, because the compromise was frozen in amber, at the time it was made, logically you must also ignore all events after the making of a part 36 offer, which is similarly frozen in amber. Otherwise as noted you reach the problem in James Miller and Partners Limited v Whitworth Street Estates (Manchester) Limited [1970] AC 583

I must say that I had thought it now well settled that it is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made. Otherwise one might have the result that a contract meant one thing the day it was signed, but by reason of subsequent event meant something different a month or a year later.

The law has moved on from ICS Ltd.v.West Bromwich Building Society [1998] WLR 896 in that Lord Hoffmann’s principles have been expanded, and explained in a series of further cases, before the House of Lords and Supreme Court. The most recent of these is Arnold.v.Britton [2015] AC 1619.

Reference is made to Lord Neuberger’s restatement of principles in paragraphs 14 to 22: those principles demonstrate a re-emphasis on the importance of the language used, and count against broad, sweeping constructions which do violence to the language used by the parties.

It follows that construction of a part 36 offer can be just as involved as construction of a contractual compromise, where there may be little doubt that a claim has been compromised, but a real dispute as to the terms of that compromise.

Costs and unallocated cases

From time to time, part 36 offers are made and accepted in respect of unallocated claims which if they had run their course, may well have been allocated to the Small Claims Track. The settlement will usually provoke service of a Bill of Costs in detailed assessment proceedings in due course, claiming “standard basis” costs, quantified and advanced on the traditional hourly rate basis.

The counterblast in the Points of Dispute will assert that the case was always a Small Claim in all aspects, would have been so allocated and the only costs that should be awarded are the costs appropriate to a Small Claim. How should the court resolve this dispute?

Rule 36.13 provides so far as is material as follows:

(1) Subject to paragraphs (2) and (4) and to rule 36.20, where a Part 36 offer is accepted within the relevant period the claimant will be entitled to the costs of the proceedings (including their recoverable pre-action costs) up to the date on which notice of acceptance was served on the offeror.

(Rule 36.20 makes provision for the costs consequences of accepting a Part 36 offer in certain personal injury claims where the claim no longer proceeds under the RTA or EL/PL Protocol.)

(2) Where—

(a) a defendant’s Part 36 offer relates to part only of the claim; and

(b) at the time of serving notice of acceptance within the relevant period the claimant abandons the balance of the claim,

the claimant will only be entitled to the costs of such part of the claim unless the court orders otherwise.

(3) Except where the recoverable costs are fixed by these Rules, costs under paragraphs (1) and (2) are to be assessed on the standard basis if the amount of costs is not agreed.

(emphasis added)

Rule 27.14 provides so far as is material as follows:

27.14

(1) This rule applies to any case which has been allocated to the small claims track unless paragraph (5) applies.

(Rules 46.11 and 46.13 make provision in relation to orders for costs made before a claim has been allocated to the small claims track)

(2) The court may not order a party to pay a sum to another party in respect of that other party’s costs, fees and expenses, including those relating to an appeal, except –

(a) the fixed costs attributable to issuing the claim which –

(i) are payable under Part 45; or

(ii) would be payable under Part 45 if that Part applied to the claim;

(b) in proceedings which included a claim for an injunction or an order for specific performance a sum not exceeding the amount specified in Practice Direction 27 for legal advice and assistance relating to that claim;

(c) any court fees paid by that other party;

(d) expenses which a party or witness has reasonably incurred in travelling to and from a hearing or in staying away from home for the purposes of attending a hearing;

(e) a sum not exceeding the amount specified in Practice Direction 27 for any loss of earnings or loss of leave by a party or witness due to attending a hearing or to staying away from home for the purposes of attending a hearing;

(f) a sum not exceeding the amount specified in Practice Direction 27 for an expert’s fees;

(g) such further costs as the court may assess by the summary procedure and order to be paid by a party who has behaved unreasonably;

(emphasis added)

Rule 46.13 provides

46.13

(1) Any costs orders made before a claim is allocated will not be affected by allocation.

(2) Where –

(a) claim is allocated to a track; and

(b) the court subsequently re-allocates that claim to a different track,

then unless the court orders otherwise, any special rules about costs applying-(i) to the first track, will apply to the claim up to the date of re-allocation; and

(ii) to the second track, will apply from the date of re-allocation.

(3) Where the court is assessing costs on the standard basis of a claim which concluded without being allocated to a track, it may restrict those costs to costs that would have been allowed on the track to which the claim would have been allocated if allocation had taken place.

(emphasis added)

It will be seen that the fact that a Part 36 offer has been made and accepted creating a deemed costs Order for costs to be assessed on the standard basis does not preclude the court from restricting those costs to the costs allowable on the track to which the case would have been allocated, had matters gone so far.

Rule 46.13(3) predicates that (i) if the court is satisfied that the claim would have been allocated to the Small Claims Track it can (ii) exercise its discretion to restrict the costs to Small Claim Track costs.

This in turn means that the parties will draw their arguments based on consideration of what is the “normal” track per rule 26.6(3) CPR for the case as put and whether consideration of the various factors in rule 26.8 CPR indicate that it might have found a home on another track.

The origins of the provisions in rule 36.13(3) and the discretion in rule 46.13(3) can be traced to cases such as Solomon v Cromwell Group plc [2012] 1 WLR 1048 where use of a part 36 offer and a deemed costs Order, did not oust a fixed costs regime and O’Beirne v Hudson [2010] EWCA Civ 52 where a consent Order for standard basis costs did not preclude fixed Small Claims track costs being applied by way of analogy to limit the costs to a sum equivalent to fixed costs.

An obvious concern displayed by the Court of Appeal in both cases was that the manner of settlement of a low value claim should not confer an advantage on the receiving party when it came to matters of costs.

The Civil Procedure Rules are delegated legislation and have the force of statute. The construction should give to the discretion in this case afforded to the court by the word “may” should be exercised in accordance with what can be discerned to be the Parliamentary purpose: see R (on the application of Electoral Commission) v City of Westminster Magistrates Court and United Kingdom Independence Party [2011] 1 AC 496.

The purpose behind the inclusion of the discretion is plainly to ensure that like cases are treated alike and that proportionate costs are awarded on a consistent basis in cases that are either actually allocated or would be so allocated to the Small Claims Track.

The rule also provides an incentive for the parties to settle a case on the merits as quickly and efficiently as possible, without being overly concerned as to whether they should delay the settlement until after allocation in order to achieve clarity on the costs position.

Finally the rule is intended to provide certainty of outcome: although the use of the word “may” imparts to the court a discretion, in context it must be regarded as a “weak” discretion, rather than a “strong” judicial discretion. In effect the court exercises it’s discretion, to do what it must.

The costs that have been decided to be reasonable and proportionate costs for a litigant to recover in a claim allocated to the Small Claims Track are the fixed costs prescribed by the rules.

If the claim had been allocated to the Small Claims Track, then the receiving party’s costs would have been limited to the Small Claims with no “escape route” or provision in the rules, by which a sum in excess of those prescribed by rule 27.14 CPR could have been awarded.

Consequently, the fact that a case settles a matter of weeks, or possibly days, before the court would have made a decision on allocation should be neither here nor there.

The rule is an interesting evolution from the case law on costs in low value claims and is  another preliminary Point of Dispute, which can have devastating consequences on a Bill of Costs despite the making of a deemed costs Order on a standard basis.

 

Spring Lecture Tour

Already the diary is filling up for the first few months of next year, and so, precipitate as it may seem, I have had to bring forward my booking arrangements for my spring lecture tour.

If you would like me to come and give a talk to your firm, please do drop me a line and we can discuss matters further.

I charge a reasonable fee and some travelling expenses, and would like some lunch and coffee.

Popular seminars that I deliver include:

Costs budgeting

Clients, retainers and bills

Costs and commercial clients

A conversation on costs

Soon the clocks will be changing and winter will have arrived, but the next few months usually pass very quickly. Mince pie anyone?

If you have enjoyed reading this article and found it useful, then I would be pleased if you would subscribe to this blog by using the subscription form on the right hand side and you will then receive email updates when I post a new article.

A new model for group litigation

This summer has seen the conclusion of a number of group actions, including the RBS Rights Issue litigation and the failed attempt at collective proceedings of Merricks v MasterCard Incorporated [2017] CAT 18 under section 47B of the Competition Act 1998. All of these group actions have thrown up interesting issues on the relationship between group litigation or “class action” and litigation funding, which will prove food for thought in the years to come.

Group litigation is on the rise. The 1980s and 1990s saw a series of pioneering group actions in the fields of product liability and personal injury, which in turn led to judges developing a series of principles for the efficient management and disposal of group litigation. These in turn found their way into the Civil Procedure Rules, in particular part 19, practice direction 19B and part 46, which deals with costs. These actions may historically have benefitted from Legal Aid funding, or the backing of trade unions.

The demise of Legal Aid and the introduction of LASPO 2012 with the removal of recoverable additional liabilities left an effective funding gap: whilst for example personal injury claims continue to benefit from a protected costs regime, through for example, qualified one way costs shifting, other areas such as environmental litigation where there is a need to insure against adverse costs have been much more problematic.

The way this gap can and is being filled, is through group litigation to achieve economies of scale and to obtain litigation funding, which can be used to purchase ATE insurance and fund what can be very expensive disbursements.

The important group actions of the second decade of the 21st century, will include environmental litigation, shareholder actions, competition claims, and particularly claims for breach of data protection and privacy laws: a single data breach of personal information held by a large plc could affect tens of thousands of customers or employees.

In turn, the compilation and structuring of cohorts of claims and funding them, will pose unique challenges for solicitors in terms of constructing a litigation scheme, complying with increasingly onerous requirements for client care and regulatory considerations, and measuring and recovering costs. Information technology, and artificial intelligence will assist this process and also throw up more problems which will have to be anticipated and managed.

I therefore turn to what I consider can be described as the key considerations when contemplating venturing into the field of group litigation. Overall I am optimistic that information technology and increasing access to capital, through litigation funding will facilitate group litigation but also lower barriers to entry into what is a very profitable line of business. Even a small well run firm, provided it can access the necessary expertise, technology and capital, can rapidly step up to handle this challenge.

The starting point for group litigation will inevitably be “an event”, causing harm to large numbers of people. It will become apparent that there has been a disaster, a large scale data breach, a well publicised breach of competition law, a product liability scandal, a chemical leak or some other event giving rise to a cause of action.

A solicitor who realises that there is a business opportunity and wishes to act for the victims must then carefully set about constructing a litigation scheme, which satisfies regulatory requirements, is properly funded, fair to the clients and which will profitable at the end of the day.

Underpinning every consideration are the regulatory requirements. Many solicitors will not have read the Code of Conduct since law school, but it contains clear and precise directions on how clients must be treated fairly, provided with the best possible costs advice, the restrictions on advertising and payment of referral fees. Solicitors must also consider the requirements they are subject to, when undertaking insurance mediation activities and now the role of the FCA, which is an issue when funding litigation, if clients are being provided with credit, for eg the funding of disbursements.

Client relationships have a new dimension, when undertaking group litigation. How do you take instructions from 10,000 clients? The usual way is to structure a management committee of representative clients, who have authority to act on behalf of all the clients, effectively being the body which gives instructions to the solicitors in a manageable way. This in turn means that an agreement to provide authority to act must be made between each client and the committee, and then between the committee and the solicitors. Both agreements are usually contained in one document. This is often described as a litigation management agreement.

The drafting of a litigation management agreement poses further challenges. A solicitor will be conscious that it should contain provisions which deal with the usual incidences of litigation, a procedure for settling the case, or a formula for distributing the proceeds to clients who may have different degrees of interest. Can it legitimately commit the cohort of claimants to agreeing unlimited funding advances, ultimately repayable from damages? Can it grant a unilateral power of variation of the terms of the retainer to the solicitors? Would these provisions infringe the obligations in the Code of Conduct to act fairly?

In a group action, the need for funding will be evident and the funding requirements will run into millions. How can this money be obtained, as few firms will have a “war chest” which they could or would wish to use to fund the litigation?

Litigation funding is often used as a synonymous term for third party funding, but it is wider than that. Third party funding is on the rise due to the enormous thirst litigants have for capital. A firm such as Burford Capital, has seen its share price rise from just over 400p per share a year ago, to 1135p at the time of writing, as business is booming.

The drafting of a funding agreement is an intricate business as it must lock in, with the litigation management, and also the terms of the ATE insurance policy, it will invariably be used in part to purchase. The suite of documents would ideally be drafted together.

But third party funding, where the funder asks for three times their outlay or a percentage of damages recovered, whichever is higher, as their fee is expensive. There are other options available.

The litigation against the West Bromwich Building society last year, by the Property118 action group, was crowded funded, using the platform www.crowdfunder.co.uk. It’s campaigns are still ongoing. There is no reason in principle, why crowdfunding cannot be used more widely for group litigation, but it requires detailed knowledge of the regulatory provisions, special purpose vehicles and potential liabilities eg for non party costs to structure efficiently.

On the horizon, is an even more interesting potential development that of raising litigation funding through an initial coin offering (ICO), a cryptocurrency. Although bitcoin remains the best known currency, anyone can launch an ICO, which involves selling cryptographic tokens to investors. These can represent anything from a currency to exclusive access to a service, or potentially a share in the proceeds of litigation. Regulators are globally playing “catch up” with this phenomenon, where already there is a global market estimated at £136 billion.

A solicitors retainer in group litigation will almost invariably be a variant of a conditional fee agreement (CFA). But this could be a collective CFA (CCFA) made with a special purpose vehicle or a normal CFA or a CFA Lite. Almost inevitably a solicitor will charge a success fee. But this in turn, as it will be payable out of the proceeds of the action, will necessitate a priorities agreement, between the litigation funder, the ATE insurer and the lawyers, as a scenario might arise where there would be insufficient money recovered to pay all these parties in full. Moreover, a solicitor will be mindful of the need to ensure that the client’s interests are protected too, with a given percentage of recoveries ringfenced for the client.

The efficient running of group litigation will be dependent on information technology. A solicitor can expect to obtain his clients through the Internet and should consider the construction of a “portal” which acts as an advertisement, but also permits a client to complete retainer documentation, to signify agreement to giving authority to a committee, and which provides information to the client. This in turn requires consideration of regulatory requirements and also cyber security.

Information technology also raises interesting dilemmas for the calculation of individual costs. The cost of servicing a client through email, who is simply part of the cohort, will be very low, well under a £100. At a press of a button, 10,000 standard letters providing a monthly update can be sent. How does one quantify and claim for such work which is delivered at near zero marginal cost? In earlier litigation 1/3 of a unit has been allowed for paralegals stuffing form letters into envelopes and paying for a stamp. In the digital age such justifications can’t apply. The humble unit, however, may not yet have had its day.

From the defendant’s point of view, any costs Order made as part of the GLO will usually provide for several liability on the part of the claimants. There are few defendants who will contemplate with equanimity 10,000 or more sets of enforcement proceedings, each to recover a fraction of their total costs.  Accordingly a defendant will scrutinise hard the provision made by the claimants for ATE insurance, be concerned to find out the identities of the litigation funders, and consider at an early stage, applications for security for costs. The RBS Rights Issue litigation demonstrates how important early applications are, and astute litigators will also be aware of the pressure such applications can place upon claimants.

A version of this article first appeared in Litigation Funding magazine October 2017.

Creative accounting

In the last few months I have been undertaking an increasing number of detailed assessments where costs management orders have been made in the substantive proceedings and there are “budgeted costs” and phase totals to consider when assessing the costs, acting for both receiving and paying parties.

The hearings have been illuminating both for the problems that are emerging when carrying out the assessment, but also for the fact that many of the problems are created at the time when the costs management order is made but not spotted and then lie placidly hidden within the file, until bursting into sight again some years down the line. So what follows are some personal thoughts, on the problems and potential improvements that can be made to the budgeting process.

Take ownership

All too often the budget is outsourced, to a costs draftsman or costs lawyer, who is left to get on with the budget. The reasons for taking this course can range from a belief that it is more efficient, needs a specialist knowledge of costs or simple disinterest in the turgid exercise of creating Precedent H.

But unless there is extremely close co-operation between the drafter and the solicitor actually running the case, there will be a plain disconnect between the budgeted costs and what the case actually requires. This will only be exacerbated, if the budget is prepared a significant time before the CCMC. There is no substitute in my view, for the solicitor running the case, going through the Precedent H, line by line, and checking or challenging what is put in it by the drafter. The profitability of the case depends upon getting a robust budget, fit for purpose.

Take stock

I still undertake a significant amount of personal injury litigation and have devised my own project management form, whereby I list the assumptions that I have made about the case, and then plot out my fees. Drafting particulars of Claim, drafting schedule(s) of loss, conferences, part 35 questions, brief fees for CCMC and PTR, refresher fees, advices, approval hearings, a joint settlement meeting etc and provide this to my instructing solicitor for inclusion in the budget.

This “project management” function extends to all aspects of the budget, including getting quotations from expert witnesses, and particularly a solicitor sitting down and estimating the time that will be required for key pieces of work, such as disclosure, and drafting of witness statements. The Precedent H will never be perfect, but at least it should be informed.

Update

“Phew. That’s that done. Lets get on with the case.” is a recipe for disaster and selling the ultimate costs claim short. There is scope within the rules in part 3 CPR, to revise budgets when there have been significant developments in the litigation. If there needs to be a further round of expert evidence, or further experts instructed, plainly the budget should be revised.

But I would go further and suggest that every time the case comes back to court, there should be scope to revise the parties budgets. And this should be seized by the paying party as well as the receiving party: budgets can go down as well as up, and if the experts are largely agreed, the trial length and its costs might fall to be revised downwards. Moreover if there is a significant gap between the submission of Precedent H and the CCMC hearing, do an updated Precedent H, a few days before.

Attendance

I can see no need for there to be more than one advocate at a CCMC, who should be competent to conduct both the advocacy for the directions and the costs management. Costs and costs budgeting is a necessary skill set for all advocates. Moreover it removes duplication and the need to co-ordinate submissions, ensuring that matters are more likely to be addressed holistically.

Good reason arising from flaws with the budgeting process

Problems that have recently have arisen, include budgets which have significantly underestimated costs for phase totals, but for which there is no good reason for a  departure and budgets which were prepared 4 months before a CCMC, which massively understated incurred costs when the budget was approved, which were then sought to be later claimed in the Bill.

Accuracy in calculating incurred costs is important. Budgets which underestimate incurred costs, might be misleading, and falsify the premise on which budgeted costs are set, opening the door for a paying party to argue there is good reason to depart from the budgeted costs, as a false picture was presented at the CCMC.

Trust and fiction

I always read carefully the Precedent Q, I receive with the Bill when acting for  a paying party to look at the costs claimed against the budgeted costs. God knows why, because it could be a complete work of fiction, and I would have very little means of discovering that.

Although Bills are divided into many, many parts, with work attributed to phase totals, I have no means when acting for a paying party of doing more than the crudest cross check as to whether the costs claimed actually have been properly attributable to the correct phase. The scope to conceal work within the Bill or indulge in creative accounting is enormous.

Revised budgets

Rule 3.18 CPR is clear that when applying the budget, it is the last approved or agreed budget which is applied. The Rules contemplate that a budget will be revised at various points in the case. But what does one do with budgeted costs, which by the time a further CCMC takes place, have by reason of effluxion of time become incurred costs? Practically how does one draft the Precedent H, given that there is no column for incurred costs which were once budgeted? Which column do they go in then? And if it is incurred, then on the last approved budget, the former budgeted costs will escape the stricture of costs budgeting.

Apportionment of phase total

Say £20,000 is allowed as a phase total for trial. The costs claimed on the Bill amount to £30,000. But included within the trial costs, are VAT’able and non-VAT’able disbursements, fees some of which attract a recoverable success fee, and others of which do not. Which elements of fees and in what proportions, of the £30,000 is allowed as a phase total? There is no guidance, and some judges are adopting a parri passu approach. This can have a very significant effect on the total claim for costs.

Perhaps most significantly, I have not to date, found that costs management is making for shorter detailed assessment hearings, not least because the incurred costs still have to be gone through, and the costs budgeting arguments simply add to the overall time required, to assess a bill.

Costs budgeting 2017

On 16th October 2017 I am speaking at the Law Society Commercial Litigation Conference in Chancery Lane on the subject of costs budgeting.

Full details of the conference can be found here:

https://events.lawsociety.org.uk/ClientApps/Silverbear.Web.EDMS/public/default.aspx?tabId=37&id=1798&orgId=1&guid=07979564-cb9b-404e-ae6c-190c60330413

I understand that there are still a few places left, but for those who cannot attend the conference, I have placed a copy of the paper that I am delivering here:

Costs Budgeting A presentation for the Law Society PDF

I am now undertaking a significant number of detailed assessments, both for paying and receiving parties, in budgeted cases where a lot of new issues are being thrown up about the budgeting regime. In the next couple of posts on this blog, I shall consider those further.

 

Hard times

The Civil Proceedings Fees Order 2008 amongst other horrors, provides a set of convoluted provisions for remission of court fees for people of modest means.

A complicated scheme is set up by article 5 and schedule 2 of the Order, providing that if a gross monthly income and/or disposable income test is met, then a party can be granted a fee remission.

The amount of detail required to complete a fee remission application, and the supporting documents is frankly eyewatering, and must be completed on a “per fee” basis, not a per case basis, so potentially requiring multiple applications during the same piece of litigation.

I am seeing points of dispute arise that paying parties can take advantage of a receiving party’s right to a fee remission to argue that they should not have to pay court fees, which may have been paid by the receiving party.

The arguments put forward by paying parties are that in circumstances where court fees are paid when a client is entitled to a remission, the payment constitutes an unreasonable expense, as the receiving party could have avoided the expense entirely. The argument is not the same as, but akin to, an argument that the failure to claim a remission is a failure to mitigate.

Such an argument is likely to be misconceived for two reasons. The first is that the sheer amount of time a solicitor must spend, to complete the applications will in many cases outweigh the savings to be gained from doing so. The decision to pay the court fee may actually be a conscious decision to adopt a cheaper course of action.

The second reason arises from a point of law. Many personal injury practitioners will be familiar with the battles a decade ago, where it was argued on the part of the insurers that they could reduce their claims for care, by requiring a claimant to claim their entitlements to social care from the public purse, and if they did not, that claimant was acting unreasonably in failing to mitigate their loss and the sums which could have been obtained from the state, should be deducted from the damages they were claiming for care costs.

In the case of Peters v East Midlands Strategic Health Authority [2010] QB 48, the Cout of Appeal found no difficulty in finding that the argument was misconceived, as the claimant had a right to claim damages from a tortfeasor without any requirement to mitigate their loss by reliance on the public purse:

53 Having reviewed these authorities, we can now express our conclusion on this issue. We can see no reason in policy or principle which requires us to hold that a claimant who wishes to opt for self-funding and damages in preference to reliance on the statutory obligations of a public authority should not be entitled to do so as a matter of right. The claimant has suffered loss which has been caused by the wrongdoing of the defendants. She is entitled to have that loss made good, so far as this is possible, by the provision of accommodation and care. There is no dispute as to what that should be and the council currently arranges for its provision at The Spinnies. The only issue is whether the defendant wrongdoers or the council and the PCT should pay for it in the future.

54 It is difficult to see on what basis the present case can in principle be distinguished from the case where a claimant has a right of action against more than one wrongdoer or a case such as The Liverpool (No 2) [1963] P 64 where a claimant has a right of action against a wrongdoer and an innocent party. In The Liverpool (No 2) , those two cases were treated alike. In our judgment, the present case should be treated in the same way. It is true that in the present case, the claimant’s right against the council is the statutory right to receive accommodation and care. But the fact that there is a statutory right in the claimant to have his or her loss made good in kind, rather than by payment of compensation, is not a sufficient reason for treating the cases differently.

If that is the position in relation to damages, it is difficult to see why it should be any difference in relation to costs, and a claimant declining to rely on a statutory right to fee remission and actually paying the court fees should be able to recover them as of right from the tortfeasor.

The Imitation Game

QUOCS (or QOCS as some term it) is one of the more sensible aspects of the LASPO 2012 reforms: in return for the abolition of recoverable success fees and ATE premiums, the insurance industry and other compensating bodies were made subject to a regime of one way costs shifting, which was broadly fair and ensured access to justice for injured people.

This is not to say that the scheme is not without its rough edges: there are still quite a number of points, which fall to be worked out.

Earlier this year I wrote about one of them, namely to what extent in a multi-party action successful defendants could recover their costs from any pot of damages that a claimant won against an unsuccessful defendant.

The article is here:   http://costsbarrister.co.uk/uncategorized/quocs-and-nihl-claims/.

Rather sooner that I expected, the arguments I formulated have found favour with the County Court bench and have been accepted in this case:  Bowman v Norfran Aluminium HH Judge Freedman County Court at Newcastle 11th August 2017 Approved judgment.

I am grateful to Caroline Cousins of A and M Bacon, for kindly forwarding me a copy of the judgment and acknowledging that the article on this blog played some useful role in the arguments put forward successfully on the part of the claimant.

I do not yet know if there will be an appeal from this judgment. There are a number of potentially very good arguments on the part of a defendant in this situation, which do not feature in the judgment and may or may not have been raised in oral argument.

The point is now starting to gather traction: I am arguing it next month in another case, and so yet another area of satellite litigation is launched.