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.

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.

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.

Your flexible friend

An interesting and potentially lucrative area of work for practitioners in the field of consumer rights can be found in competition law. Competition law in England and Wales has a long pedigree which pre-dates the establishment of the common law and can trace its origins back to legislation emanating from the Roman Empire.

In medieval times, the Plantagenet kings legislated through Parliament such acts as the Statute of Labourers which to control wages and prices, in an early attempt at market manipulation, in the aftermath of the Black Death.

Even before the birth of modern economics it was recognised that markets are prone to failure, have a tendency towards monopoly and need to be regulated in the public interest.

Historians will note that on the other hand the same kings also were very fond of granting monopolies themselves to such of their subjects as were willing to pay a fee, finding them a useful source of income not dependent on the will of Parliament.

These days modern competition law in England and Wales is largely to be found in the Competition Act 1998 and the Enterprise Act 2002, but this area of practice is also strongly influenced by European Union law, as inevitably many transactions will span European borders. For how much longer this will remain the case as the country lurches towards the door marked Brexit, remains to be seen.

The principal body tasked with the enforcement of competition law is the Competition and Markets Authority, but other public bodies have a role to play within particular spheres in enforcing competition law and consumer disputes can end up in the Competition Appeal Tribunal by way of litigation. It is this latter aspect of the work of the tribunal which can give rise to cases where damages can be claimed on a massive scale.

One particular case that is of interest for reasons of costs and litigation funding, relates to the MasterCard litigation which concluded this summer and which will be considered below.

The case of Merricks v Mastercard Competition Appeal Tribunal [2017] CAT 16 was concerned with an application for a collective proceedings Order. The application was summarised by the tribunal in these terms:

This is an application for a collective proceedings order (“CPO”) under sect 47B of the Competition Act 1998, as amended, (the “CA”) to enable the continuation of collective proceedings on an opt-out basis claiming damages for breach of what is now Art 101 of the Treaty on the Functioning of the European Union (“TFEU”). The proceedings are brought on behalf of a class of some 46.2 million people. The class is defined in the application as follows: 1

“Individuals who between 22 May 1992 and 21 June 2008 purchased goods and/or services from businesses selling in the UK that accepted MasterCard cards, at a time at which those individuals were both (1) resident in the UK for a continuous period of at least three months, and (2) aged 16 years or over.”

The collective proceedings regime warrants some further explanation as was later set out in the tribunal’s judgment.

The Consumer Rights Act 2015 (“CRA”) made substantial amendments to the CA as regards private actions in competition law. The new sect 47A CA entitles a person to make a claim in the Tribunal for loss or damage in respect of an infringement of, inter alia, Art 101 TFEU determined by a decision of the EU Commission, or an alleged infringement of Art 101 TFEU. The new sect 47B is entitled “Collective proceedings before the Tribunal” and includes the following provisions:

“(1) Subject to the provisions of this Act and Tribunal rules, proceedings may be brought before the Tribunal combining two or more claims to which section 47A applies (“collective proceedings”).

(2) Collective proceedings must be commenced by a person who proposes to be the representative in those proceedings…

(4) Collective proceedings may be continued only if the Tribunal makes a collective proceedings order.

(5) The Tribunal may make a collective proceedings order only—

(a) if it considers that the person who brought the proceedings is a person who, if the order were made, the Tribunal could authorise to act as the representative in those proceedings in accordance with subsection (8), and

(b) in respect of claims which are eligible for inclusion in collective proceedings.

(6) Claims are eligible for inclusion in collective proceedings only if the Tribunal considers that they raise the same, similar or related issues of fact or law and are suitable to be brought in collective proceedings.

(8) The Tribunal may authorise a person to act as the representative in collective proceedings— (a) whether or not that person is a person falling within the class of persons described in the collective proceedings order for those proceedings (a “class member”), but

(b) only if the Tribunal considers that it is just and reasonable for that person to act as a representative in those proceedings.

(11) “Opt-out collective proceedings” are collective proceedings which are brought on behalf of each class member except—

(a) any class member who opts out by notifying the representative, in a manner and by a time specified, that the claim should not be included in the collective proceedings, and

(b) any class member who—

(i) is not domiciled in the United Kingdom at a time specified, and

(ii) does not, in a manner and by a time specified, opt in by notifying the representative that the claim should be included in the collective proceedings.”

17. Further, sect 47C(2) provides:

“The Tribunal may make an award of damages in collective proceedings without undertaking an assessment of the amount of damages recoverable in respect of the claim of each represented person.”

18. The claims which are combined in collective proceedings must each be claims “to which section 47A applies”. The statutory regime for collective proceedings therefore constitutes a new procedure not a new form of claim.

19. Moreover, the grant of permission to pursue such claims by way of collective proceedings is expressed in discretionary terms in sect 47B(5) and requires two distinct aspects to be satisfied: (a) the Tribunal must authorise the person bringing the proceedings to act as the class representative; and (b) the Tribunal must certify the claims as eligible for inclusion in such proceedings. This is reflected in rule 77(1) of the Competition Appeal Tribunal Rules 2015 (the “CAT Rules”).3 The two requirements are addressed in separate rules: rule 78 (authorisation of the class representative); and rule 79 (certification of the claims). The CAT Rules are supplemented by the Tribunal’s Guide to Proceedings 2015 (the “Guide”), which has the status of a practice direction pursuant to rule 115(3).

MasterCard (unsurprisingly) fought the making of a collective proceedings order tooth and nail, and part of their arguments as to why the Order should not be made, related to the litigation funding which had been obtained to support the proceedings. The thrust of their objections on this aspect is summarised below:

93. Mastercard submitted as a separate and independent ground of objection that the Applicant should not be authorised as a class representative. The Applicant, Mr Walter Merricks CBE, is a qualified solicitor who has had a long and distinguished career in fields concerned with consumer protection. From 1996-1999, he was the Insurance Ombudsman, and between 1999 and 2009 he was the chief ombudsman of the Financial Ombudsman Service, which operates under the statutory framework of the Financial Services and Markets Act 2000. The Applicant has served on a number of public inquiries examining issues related to legal procedure and he is currently a commissioner on the Gambling Commission and a trustee and non-executive director of the legal charity, JUSTICE.

94. The Applicant is a member of the class covered by the proposed CPO but there is no suggestion in that respect that he has any conflict of interest with other class members. By his background, experience and qualifications, it is clear that the Applicant is well able to give appropriate instructions to the lawyers instructed on behalf of the class and is eminently suited to act as the class representative in these collective proceedings. Mastercard indeed did not suggest otherwise.

95. The opposition to authorisation of the Applicant related not to him personally but to the terms of the agreement (the “Funding Agreement” or “FA”) which he had entered into with a third party funder, by which the collective proceedings and any liability in costs would be funded. It was argued by Mr Ben Williams QC for Mastercard and by Mr Nicholas Bacon QC for the Applicant in response.

97. The objection was based on three grounds, which can be summarised as follows:

(i) the Funding Agreement would not enable the Applicant to continue to fund the litigation or pay Mastercard’s recoverable costs, if he were ordered to do so, since it could be terminated by the funder;

(ii) even if it could not be so terminated, the limit of £10 million for funding a liability for Mastercard’s recoverable costs was inadequate;

(iii) the terms of the Funding Agreement gave rise to a conflict of interest on the part of the Applicant.

Mastercard contends that these are very material considerations on the question of authorisation of the class representative. See in that regard rule 78(2)(d) and (3)(c)(iii).

In effect, the existence of litigation funding in a particular form, was turned against the applicant, as a reason why the proceedings should not be authorised. The tribunal therefore had to consider how litigation funding which provided for a substantial fee to be paid in the event of a successful outcome ran with the grain of the costs provisions governing the proceedings.

The starting point was that it was accepted by the tribunal that a funder’s fee was a proper item of costs or expense, with echoes of the arguments in  the case I argued last year of Essar being deployed:

115. Sect 47C CA introduced new and distinct provisions concerning the costs of collective proceedings. We see no reason to give the words used a special meaning or to treat them as terms of art governed by jurisprudence on very different statutory provisions. In the ordinary sense, if a third party agrees to provide substantial monies in order to fund litigation, the payment which has to be made to that third party in consideration of this commitment, whether out of the damages recovered or otherwise, is a cost or expense incurred in connection with the proceedings.

116. As for the supposed difficulty of the lack of expertise of the Tribunal in deciding what is an appropriate price for litigation funding, on which Mr Williams sought to rely, that is no less novel a task than the process of approving a collective settlement under sects 49A or 49B CA. There is now a developing market in litigation funding, and the Tribunal can if necessary hear evidence as to what would represent an appropriate return. We note that this appears to be what Sir Philip Otton did as the arbitrator faced with such a question in the Essar Oilfields case: see at [22].

117. Mr Williams submitted that the CAT Rules cannot give the Tribunal a broader power than the governing statute. That is clearly correct, but our conclusion is entirely consistent with the CAT Rules. Rule 104(1) defines “costs” in terms of the costs and expenses recoverable in proceedings in the civil courts. As the further sub-paragraphs of rule 104 show, that is clearly referring to an adverse costs order (e.g inter partes costs). This definition is expressly “for the purpose of these rules.” Rule 93(4) addresses specifically the operation of sect 47C(6) CA. It provides that an order can be made for payment in respect of the class representative’s “costs, fees or disbursements”. Since the word “costs” in that expression accordingly has the meaning defined by rule 104(1), “fees or disbursements” clearly refer to additional matters. They are apt to cover, for example, an ATE premium or the fee of a commercial funder.

So far, so good but due to drafting errors, in the litigation funding agreement there was not actually an obligation on the part of the applicant to pay the funder’s fee: which in turn raised the question how this could be one of his costs or expenses.

118. For Mastercard, it was submitted that even if the amount due to the funder under sect 2.5(b) FA constitutes “costs or expenses” within the terms of sect 47C(6) CA, given the nature of the contractual obligations on the Applicant under sects 2.1 and 2.5 FA, it was not a cost “incurred” by the Applicant. The obligation under sect 2.1, which appears to be somewhat duplicated in sect 2.5(b), is only a “best endeavours” obligation and in any event does not impose any liability on the Applicant to pay the “Total Investment Return”. As we understood it, the objection to the obligation under sect 2.5(c) was that it is entirely contingent: there is no obligation at all until the Tribunal has made an order for payment of these monies to the Applicant. As regards either form of obligation, it was therefore submitted that since this is not a cost incurred by the Applicant, there is no basis on which the Tribunal could order that it be paid to him, and the primary position of payment to the prescribed charity under sect 47C(5) CA would therefore apply.

119. For the Applicant, it was emphasised that payment of the fee charged by the funder was essential for the operation of the Funding Agreement. Clearly, no commercial funder would provide substantial funding and assume the significant financial risk of major litigation without consideration, and the structure of the collective proceedings regime for opt-out proceedings was to enable that consideration to be paid out of the unclaimed damages awarded to the class of claimants. The Applicant could not be expected to assume an independent personal liability to the funder for its fee. The statute should accordingly be given a purposive interpretation to encompass a funding structure such as the present. In that regard, we were referred to a range of extra-judicial material which recognised the importance of third party funding in enabling access to justice.

120. We accept that sect 47C(6) CA should be given a purposive construction to further the effective operation of the collective proceedings regime introduced by Parliament. However, such a purposive approach has limits and cannot do violence to the language of the statute. We do not see how the obligation in sect 2.1 and/or sect 2.5(b) FA can be viewed as an obligation on the Applicant to pay the fee of the funder and thus come within the ambit of sect 47C(6), even if broadly interpreted. The obligation in sect 2.5(c) FA comes closer, but since it does not arise until after the Tribunal has made an order for payment, we still consider that it would not constitute an incurred liability for which the Tribunal has power to make an order.

121. Thus, in its present form, we consider that the Funding Agreement would not entitle or enable the Tribunal to order the payment of the “Total Investment Return” in the manner envisaged. It follows that the funder could terminate under sect 2.4 FA; and given that it faces the prospect of failing to recover the consideration for which substantial funds would be advanced, that must be, at the very least, a realistic possibility. As things stand, therefore, we would not authorise the Applicant to act as the class representative.

This could have been fatal to the application. However the tribunal went on to exercise the prerogative of mercy:

122. However, faced with this submission, Mr Bacon said that the Applicant was prepared to amend the Funding Agreement so as to provide for an obligation on him to pay the Total Investment Return, subject to recovering it out of the unclaimed damages pursuant to an order of the Tribunal. That would create a conditional liability, but nonetheless a direct liability. Although this offer was made only towards the end of the oral argument, it clearly would not be right to refuse to authorise the class representative if the obstacle to that authorisation could be readily overcome Accordingly, the Applicant was permitted to put in a short note after the conclusion of the hearing, setting out the terms of the proposed amendment, with permission for Mastercard to submit its observations in writing in response.

123. This was duly done, and the Applicant informed the Tribunal that he had agreed with the funder that sect 2.1 FA could be amended so as to read:

“In consideration of the Commitment, Seller, agrees to pay the Purchaser the Total Investment Return, limited to such amount of the Total Investment Return as determined by the Tribunal to be payable to the Seller pursuant to Competition Act 1998, s.47C(6) and, subject to any order of CAT, (a) absolutely assigns, conveys, sells, sets over, transfers, and warrants to Purchaser the Transferred Costs Rights, free and clear of any Encumbrance; and (b) agrees to use his best endeavours to ensure Purchaser obtains the full benefit of the Transferred Undistributed Proceeds Rights.”

Somewhat surprisingly, no corresponding amendment was proposed to sect 2.5(b) FA. Nonetheless, the additional wording inserted into sect 2.1 imposes an obligation on the Applicant to pay the funder, conditional upon the Tribunal making an order to pay the Applicant the equivalent amount under sect 47C(6) CA.

The arguments did not stop there, as an issue was then taken on the point that section 47C did not include provision similar to that made in the Civil Procedure Rules 1998 for “CFA Lites”, permitting waivers without erosion of the indemnity principle. It can of course be observed, that there is a school of thought that no statutory intervention was required for the CFA Lite regime at all, and the original 2003 Regulations were an exercise in excessive caution.

124. In his written observations, Mr Williams argued that this does not solve the problem as it is circular: no costs are incurred by the Applicant unless an order is made by the Tribunal; therefore the Tribunal has no power to make an order since no costs have been incurred. He submitted that to encompass such a situation sect 47C(6) CA would need to contain wording analogous to those inserted by amendment in sect 51(2) SCA and the consequential rule of the Civil Procedure Rules (“CPR”) to enable the recovery of costs covered by conditional fee agreements. CPR rule 44.1(3) thus provides:

“Where advocacy or litigation services are provided to a client under a conditional fee agreement, costs are recoverable under Parts 44 to 47 notwithstanding that the client is liable to pay the legal representative’s fees and expenses only to the extent that sums are recovered in respect of the proceedings, whether by way of costs or otherwise.”

In the event the tribunal were not troubled by this point when reaching their decision:

125. However, sect 47C(6) CA is not an inter partes costs rule and it is not dependent on a strict application of the indemnity principle as that applies to recovery of costs. As we have already observed, this is a specific rule designed for a new and discrete procedural regime. The question is whether the statutory reference to a cost or expense being “incurred” is broad enough to cover a conditional liability. In our judgment, it is. Given the purpose of the CRA and the new collective proceedings regime, that is the correct and appropriate construction. Indeed, we think it is similarly the basis on which this provision, in conjunction with rule 93(4), enables the recovery out of unclaimed damages of the success fee or ‘uplift’ element of legal costs “incurred” under a conditional fee agreement, which is not recoverable as costs in the High Court (and therefore does not fall within rule 104: see also rule 113). Put another way, if a funding agreement contained a clause stating:

(a) the class representative is obliged to pay the funder’s fee of £x;

(b) the obligation under sub-clause (a) is reduced to the extent that the amount which the Tribunal orders should be paid to the class representative in respect of this obligation falls below £x”

then we consider the obligation to pay the funder’s fee of £x would be a cost “incurred” within the meaning of sect 47C(6) CA. And on that basis, we do not see that the different formulation used in the amendment here should produce a fundamentally different result: that would elevate form over substance.

126. We accordingly do not think that this is a case of statutory ambiguity so as to justify resort to Hansard under the principle of Pepper v Hart. However, in the course of argument both sides took us to different passages in the Parliamentary debates on what became the CRA. We did not find the passage relied on by Mr Williams advanced matters either way. But Mr Bacon referred us to the House of Lords debate on 3 November 2014, when the Parliamentary Under Secretary of State for Business, Innovation and Skills resisted a proposed backbench amendment to what became sect 47C CA that would have prohibited the use of third party funding in collective proceedings. Baroness Neville-Rolfe stated:

“We have thought carefully about this. The Bill already contains restrictions on the financing of claims as it prohibits damages-based agreements and does not provide for a claimant to be able to recover any uplift in a conditional fee agreement. Therefore there is a need for claimants to have the option of accessing third-party funding so as to allow those who do not have a large reserve of funds or those who cannot persuade a law firm to act pro bono to be able to bring a collective action case in order to ensure redress for consumers.

Blocking access to such funding would result in a collective actions regime that is less effective. This would bar many organisations, including reputable consumer organisations such as Which?, from bringing cases as Parliament hoped in 2002. Restricting finance could also create a regime which was only accessible to large businesses. This would weaken private enforcement in competition law, which is of course not the Government’s wish or intention.”

The tribunal went onto observe:

127. The Government in promoting the legislation therefore clearly envisaged that many collective actions would be dependent on third party funding, and it is self-evident that this could not be achieved unless the class representative incurred a conditional liability for the funder’s costs, which could be discharged through recovery out of the unclaimed damages. Accordingly, insofar as it might be thought that the statutory provision is ambiguous, we consider that the statement from the relevant Minister in the House of Lords on the passage of the Bill supports the conclusion we have reached. In the form in which it is proposed to be amended, the Funding Agreement is therefore not rendered ineffective by sect 47C(6) CA.

The application failed on more substantive grounds, but the arguments put forward in relation to the effect of litigation funding may well have traction in other more mainstream areas of work where a group litigation order is sought.

In particular, a prize that is usually sought by claimants at the time of making the GLO is several liability for costs: this can in turn render scrutiny of funding arrangements and the ATE policy a legitimate exercise antecedent to making such an order. It may in turn fuel applications for security for costs against funders.

Winter has come

The clouds closed in today, the temperature plunged and the heavens opened. A sure sign that summer has effectively come to an end and autumn has begun.

I have returned from various trips to a mountain of work, and a hefty backlog of topics to write about in relation to matters of costs and litigation funding.

On the plus side, season 7 of Game of Thrones is now available to buy, and an artisan bake house has opened just round the corner from chambers, with a tempting array of sourdough creations (particularly the cinnamon whirls) which pair perfectly with 11am coffee. Here it is:

In the next few blog entries I shall be looking at a number of issues, including the ongoing war between the insurance industry and the credit hire companies over the scope of the non party costs jurisdiction, some recent group actions, successful and unsuccessful and the use of litigation funding made in them and also consider the new Jackson Report, not least because I am giving a seminar on it next month. In truth, it is a curious document, which repays careful attention.

In the meantime, for those cake lovers amongst my readership, here are some of Tough Mary’s finest creations:

 

And the last enemy to be destroyed shall be Death

Capacity to make a contract arises as in issue in costs disputes, when a paying party wishes to dispute the validity of a retainer, on the basis that it is void or unenforceable because the client lacked capacity to enter into it.

The point has been thoroughly ventilated in the context of persons who lack mental capacity, and also minors, but there are other types of incapacity.

A particular point that arises from time to time, in costs claims made by the administrators of an estate or executors who pursue litigation on behalf of a deceased person’s estate or for the benefit of their dependents under the Fatal Accidents Act 1976, is whether the costs they incur under a conditional fee agreement will prove recoverable from a paying party, when the agreement is made before letters of administration are obtained or a grant of probate made. Do they lack capacity at that time?

The question then can be summarised as whether an eventual administrator can make a valid and binding contract, on behalf of a person’s estate before assuming that role through the completion of the appropriate formalities.

Section 21 of the Administration of Estates Act 1925 provides as follows:

Every person to whom administration of the real and personal estate of a deceased person is granted, shall, subject to the limitations contained in the grant, have the same rights and liabilities and be accountable in like manner as if he were the executor of the deceased.

The effect of section 21, if applied widely means that principles which apply to probate cases may also be the same principles which apply to administration cases. It should be noted that the concept of administration is very old, and originally descends from the ecclesiastical courts or Church courts, which in medieval times had jurisdiction over the estates of dead persons. It follows that much of the law on this subject, is antique.

The starting point as he notes, is that the law on nullity of actions, ie proceedings commenced by an administrator before the grant of letters of administration and exemplified by the case of Milburn-Snell v Evans [2011] EWCA Civ 577 has no application to this question, which is whether a contract of retainer can be made in anticipation of an eventual grant of letters of administration. Thus the lack of letters of administration were fatal to a case commenced without them:

16 I regard it as clear law, at least since Ingall’s case, that an action commenced by a claimant purportedly as an administrator, when the claimant does not have that capacity, is a nullity. That principle was recognised and applied by this court in Hilton v Sutton Steam Laundry [1946] KB 65 , 71 (per Lord Greene MR) and Burns v Campbell [1952] 1 KB 15 (per Denning LJ at p 17, and Hodson LJ at p 18). In Finnegan v Cementation Co Ltd [1953] 1 QB 688 , 700 Jenkins LJ said:

“As to the law, so far as this court is concerned it seems to me to be settled by Ingall v Moran and Hilton v Sutton Steam Laundry and, I may add, Burns v Campbell, that an action commenced by a plaintiff in a representative capacity which the plaintiff does not in fact possess is a nullity, and, further, that it makes no difference that the claim made in such an action is a claim under the Fatal Accidents Acts which the plaintiff could have supported in a personal capacity as being one of the dependants to whom the benefit of the Acts extends.”

But this is a rule of law, which applies to the issue of proceedings: it does not provide an answer to the contractual point as to whether a retainer can be lawfully incepted.

Instead one turns to the nineteenth century authorities to see the emergence of a principle of “relation back” which was devised by the courts really to meet the mischief that might arise, in the period between a person’s death intestate, and the issue of letters of administration which might take some time to obtain. This doctrine was expressed in the case of Foster v Bates (1843) 12 Meeson and Welsby 226 and expressly applied not only to actions in tort but also contracts:

[233] It is clear that the title of an administrator, though it does not exist until the grant of administration, relates back to the time of the death of the intestate; and that he may recover against a wrong doer who has seized or converted the goods of the intestate after his death, in an action of trespass or trover. All the authorities on this subject were considered by the Court of Common Pleas, in the case of  Tharpe  v.  Stallwood  , (12 Law J. N. S., 241. See also Brooke’s Abr., Relation, 15), where an action of trespass was held to be maintainable. The reason for this relation given by Rolle, C. J., in  Long  v.  Hebb  (Styles, 341), is, that otherwise there would be no remedy for the wrong done. The relation being established for the benefit of the intestate’s estate, against a wrong doer, we do not see why it should not be equally available to enable the administrator to obtain the benefit of a contract intermediately made by suing the contracting party; and cases might be put in which the right to sue on the contract would be more beneficial to the estate than the right to recover the value of the goods themselves. In the present case, there is no occasion to have recourse to the doctrine, that one may waive a tort and recover on a contract; for here the sale was made by a person who intended to act as agent for the person, whoever he might happen to be, who legally represented the intestate’s estate; and it was ratified by the plaintiff, after he became administrator: and, when anyone acting on behalf of the intestate’s estate, and not on his own account, means to act as agent for another, a subsequent ratification by the other is always equivalent to a prior command; nor is it any objection that the intended principal was unknown, at the time, to the person who intended to be the agent, the case of Hull  v.  Pickersgill  (1 Bro. & B. 282), cited by Mr. Greenwood, being an authority for that position. We are, therefore, of opinion, that the plaintiff is entitled to recover.

(emphasis added)

Indeed there is a chain of nineteenth century authority, which both established the doctrine of relation back, but also started to impose limits on its application. So, for example, the act validated by “relation back” had to be actually done in furtherance of the role as administrator or quasi administrator. Thus in the case of Morgan, Administrator of Thomas Morgan, Deceased v Thomas (1853) 8 Exchequer Reports (Welsby, Hurlstone and Gordon) 302 155 E.R. 1362 it was stated as followed:

Pollock , C. B. I am of opinion that this rule ought to be discharged. Unless the conduct of the party whose [306] act is relied upon as binding the estate of the intestate be done by him in the character of administrator, it can have no operation upon the estate, and, accordingly, the utmost effect that can be given to the defendant’s argument is, that where a party does an act professedly intending to take out letters of administration, and afterwards becomes administrator, the administration has relation back, and gives effect to what he had done by anticipation. But if that proposition be true in point of law, this case would entirely fail upon the facts, for there was no evidence whatever to warrant the jury in finding that the plaintiff had assented. Upon considering all the facts, there is no evidence bearing out the proposition of an assent, although it is true that the plaintiff was living at the time in the neighbourhood, and was probably aware of what the parties were doing, and did not choose to interfere; yet it does not follow that he was acting in the character, or even in the assumed character, of administrator. With respect to the legal consideration of the case, the only matter adduced by the defendant’s counsel, which is in the least in his favour, is what fell from the Court of King’s Bench in Kenrick  v.  Burges  , and which turns out to have been a mere dictum, although, no doubt, the Judges entertained that view of the question. But the modern authorities are opposed to the defendant’s arguments, and, amongst other cases, that of  Woolley  v.  Clark  may be cited.

An act done by a party who afterwards becomes administrator, to the prejudice of the estate, is not made good by the subsequent administration. It is only in those cases where the act is for the benefit of the estate that the relation back exists, by virtue of which relation the administrator is enabled to recover against such persons as have interfered with the estate, and thereby to prevent it from being prejudiced and despoiled. It was not the duty of the plaintiff, acting in the character of administrator, to assent to a legacy till he had seen all the just debts owing by the estate duly satisfied.

(emphasis added)

The doctrine of relationback has been of crucial importance in more recent times. In the case of Mills v Anderson [1984] Q.B. 704 a purported settlement was made by a person, in advance of the issue of letters of administration, which he then wished to resile from due to a change in the law. The issue was whether the settlement was binding on the estate, because the doctrine of relationback conferred a validity on it, notwithstanding the lack of letters at the time it was made. If it did not, the administrator could resile from the agreement. The decision is a High Court one, so binding:

These being the facts Mr. Potts, on behalf of the plaintiff, made a number of submissions of law based on statements in two textbooks, Williams Mortimer and Sunnicks, Executors, Administrators and Probate 16th ed. (1982) (to which I shall refer as Williams ) and Spencer Bower & Turner, The Law Relating to Estoppel by Representation, 3rd ed. (1977), (to which I shall refer as  Spencer Bower ). These textbook statements were supported by footnotes referring to old cases none of which was or could have been available to counsel and with the consent of both counsel I have subsequently read the cases concerned to ensure that they do indeed support the textbook statements.

In essence Mr. Potts submitted that letters of administration do not in general relate back to the date of death nor can estoppel operate against a party who has changed his legal personality but that letters may relate back where this would operate for the benefit of the estate. The agreement concluded between the parties in the instant case not being of benefit to the estate since the decision of the Court of Appeal in Gammell v. Wilson was indeed upheld by the House of Lords [1982] A.C. 27, the exceptions to the general rule do not apply and consequently the agreement between Mr. Dodgson and Mr. Peacock was not binding on a subsequent administrator.

Williams states, at pp. 91-92:

“Cases may, however, be found, where the letters of administration have been held to relate back to the death of the intestate, so as to give a validity to acts done before the letters were obtained” but *710 “Such relation back exists only in those cases where the act done is for the benefit of the estate.”

This statement is supported by a reference to Morgan, decd. v. Thomas (1853) 8 Exch. 302 and I am satisfied that this decision does indeed support that statement which appears to be taken almost verbatim from the judgment of Parke B., at p. 307:

“An act done by a party who afterwards becomes administrator, to the prejudice of the estate, is not made good by the subsequent administration. It is only in those cases where the act is for the benefit of the estate that the relation back exists, by virtue of which relation the administrator is enabled to recover against such persons as have interfered with the estate, and thereby to prevent it from being prejudiced and despoiled.”

The fact that relation back does exist in certain cases as an exception to the general rule that it does not is supported by three further statements in Williams , at p. 428:

“It is clear that the title of an administrator, though it does not exist until the grant of administration, relates back to the time of the death of the intestate; and that he may recover against a wrongdoer who has seized or converted the goods of the intestate after his death in an action of trespass or trover”

And, at p. 429:

“It would also seem that whenever makes a contract with another before any grant of administration, the administration will have relation back, so that the benefit of the contract is not lost and the administrator may sue upon it, as made with himself.” (emphasis added)

The latter being supported by Bodger v. Arch (1854) 10 Exch. 333 which I am satisfied does justify it. I pause here to observe that it is clear from that statement that although letters may not have been granted a person may act “on behalf of the intestate’s estate” and it was therefore perfectly proper for Mr. Peacock to write the letter before action “on behalf of the estate” even though he knew that there was no administrator. The third statement in Williams  is at p. 430: “The doctrine of ‘relation back’ must be applied only to protect the estate from wrongful injury occurring in the interval before grant.” A statement said to be supported by Waring v. Dewberry (1718) 1 Str. 97 and again I am satisfied that it is a statement supported by the ratio in that case.

Subject to a submission by Mr. Fox to which I shall refer below and subject to one possible ambiguity these statements seem to me to support Mr. Potts’s submissions. I have however to consider whether an act done for the benefit of the estate means objectively an act which looking back is of benefit to the estate or whether it may include acts which were done subjectively for the benefit of the estate even though looking back they have not benefited the estate at all. It is perfectly clear that in arriving at his decision to conclude an agreement with Mr. Dodgson, Mr. Peacock believed that he was acting for the benefit of the estate. Indeed had the *711 House of Lords in Gammell v. Wilson [1982] A.C. 27 decided that damages for loss of expectation of life should be a token figure never intended to rise with inflation at all and consequently should have reverted to £250 the agreement would have been of considerable benefit to the estate.

I am satisfied, looking at all the cases as a whole, that relation back only occurs where it would be beneficial to the estate for the general doctrine not to operate. The exception applies to prevent injury to the estate, and in my judgment, the approach should be a purely objective one.

Before turning to the submission of Mr. Fox and for the sake of completeness I turn to consider whether the doctrine of estoppel can apply. Mr. Potts relied on Spencer Bower , ch. VI, para. 127:

“Just as, for the purposes of estoppel by representation, amongst other purposes, there may be a unity of persona (in the strict juridical sense of the word) between two physically distinct individuals, e.g. principal and agent, as has already been pointed out, so, conversely, one and the same person in the physical sense may in contemplation of law occupy two personae or characters, one private, and the other official, in which case, when litigating in the latter capacity, he is not estopped by any representation made by him in the former, and vice versa.”

Again the footnote case, Metters v. Brown (1863) 1 H. & C. 686, fully supports that statement. Channell B. said, at p. 693:

“In Doe d. Hornby v. Glenn (1834) 1 A. & E. 49 which was cited on the argument, it was held that an agreement entered into by an executor de son tort did not bind him after he had become rightful administrator. In our opinion the plaintiff, who sues as administrator of his mother, must be considered in the position of a stranger, and therefore the rule as to estoppel does not apply; for whenever a person sues, not in his own right, but in the right of another, he must for the purposes of estoppel be deemed a stranger.”

I am consequently quite satisfied that the plaintiff in this case cannot be estopped from denying the validity of an act done by him in relation to the estate before he became administrator.

This latter doctrine was not challenged in principle by Mr. Fox who nevertheless submitted that in the circumstances of this case the doctrine did not apply; nor did he challenge the general validity of the submissions made by Mr. Potts. In an ingenious argument however he submitted that where there was an agreement concluded between parties one of whom later became an administrator and where the agreement was such as would permit the administrator to sue upon it, the contract could then be used by the other party as a shield even though he could never use it as a sword.

There is no doubt in my mind that Mr. Fox’s first premise is justified. Let us suppose that before any act were done by the plaintiff, subsequent to letters of administration, to deny the validity of the contract, a witness had been discovered who wholly exonerated the defendant from all blame *712 for the death of the deceased. The plaintiff could successfully have sued upon the agreement. So, submits Mr. Fox, it would be wholly anomalous if in such circumstances the defendant could not, in answer to a claim, set up the same agreement as a defence.

This argument merits careful consideration but I can find nothing in the two textbooks or in the cases which supports it. In the light of the decision in Gammell v. Wilson [1982] A.C. 27 the agreement concluded by both parents purportedly on behalf of the estate was not of benefit to it. The judgment at first instance in Gammell v. Wilson which the House of Lords later affirmed as good law was given on 27 July 1979 which not only preceded the agreement but also the death itself. The judgments in the Court of Appeal were delivered on 1 April 1980 which also predated the agreement. It cannot be said therefore that even at the date of the agreement it was of benefit to the estate. I do not therefore have to consider the position which might arise if the act done was, at the time of its performance, of benefit to the estate but as a result of supervening events including decisions of the courts had later become injurious to the estate.

In these circumstances I have reached the conclusions first, that this agreement was not concluded on behalf of the estate by the administrator; second, that the doctrine of relation back does not operate to bind him as administrator; and third, that as administrator he is not estopped from denying the validity of an agreement entered into by him on behalf of himself and his wife; and I consequently hold on the preliminary issue that the defendant has not made out the averment of accord and satisfaction.

I regard this decision as most important: it indicates modern acceptance of the doctrine that relation back applies to contracts made by an administrator, who is not, in fact an administrator at the time they are made provided that the contract is for the benefit of the estate, as objectively assessed.

Accordingly, looking at the nineteenth century cases, and also the decision in Mills it can be convincingly argued that a conditional fee agreement  drafted to take effect between the solicitors, and the person who intended to become the administrator and did indeed become the administrator, will be valid, and not void for want of capacity.

 

Costs budgeting after Harrison II

The second issue that was debated in the case of Harrison v University Hospitals and Coventry and Warwickshire NHS Trust [2017] EWCA Civ 792 was described in these terms:

3. The second issue is whether, with regard to costs incurred prior to the budget (“incurred costs”), there is or is not a like requirement of good reason if a costs judge on a subsequent detailed assessment is to depart from the amount put forward at the relevant costs management hearing.

The origins of this issue can be found in what might now be termed “the Sarpd Oil” heresy: this was a belief that gained some traction after obiter remarks by Sales LJ in the case of that of that name, that unless incurred costs were challenged at the costs and case management hearing, they were to be taken as drawn. This in turn led to lengthy recitals in costs management orders that the issue of incurred costs had specifically not been considered at the costs and case management hearing, and in effect, the issue was shunted off to detailed assessment.

The Court of Appeal in Harrison was at pains to state that the issue was to be resolved again, according to the wording of the rules and Practice Direction, applying the conventional canons of construction.

45. Although the second issue to an extent is connected with the first issue it seems to me that the same process of interpretation – that is, giving the wording of the Rules their natural and ordinary meaning – again indicates a clear outcome: this time, in favour of the appellant.

46. The starting point is this. CPR 3.18 (b), in its then form, relates to a departure from “the approved or agreed budget”. But the costs incurred before the date of the budget were never agreed in this case. Nor were they ever “approved” by the CMO. On the contrary the focus of a judge making a CMO is on estimating the costs reasonably and proportionately to be incurred in the future: as the opening words of CPR 3.15 (1) make clear. In undertaking this exercise the court may have regard to costs stated already to have been incurred: and that may in turn impact on its assessment of what may be reasonable or proportionate for the future. But paragraph 7.4 of PD 3E is quite specific: as part of the costs management process the court may not approve costs incurred before the date of the budget costs management conference. What it can do is record in the CMO its comments (if any) on such costs: which are then be taken into account when considering reasonableness and proportionality: a direction now enshrined in the amended CPR 3.15 (4) and CPR 3.18 (c) with effect from 1 April 2017.

47. It follows, in my view, that incurred costs are not as such within the ambit of CPR 3.18 (in its unamended form) at all. Accordingly such incurred costs are to be the subject of detailed assessment in the usual way, without any added requirement of “good reason” for departure from the approved budget.

It should logically be conceptually clear then, that it follows that incurred costs are simply not up for consideration at a costs budgeting hearing, but rather to be dealt with at a detailed assessment.

However this is not the case. Instead incurred costs can be considered at the costs budgeting hearing in two potentially important regards. The first, is that the amount of incurred costs could logically form an important consideration in setting budgeted costs: if, for example disclosure has already been undertaken to all intents and purposes, by the time a costs budgeting hearing takes place, then a very limited amount of budgeted costs might be allowed for disclosure in the disclosure phase. Similar arguments might be raised in relation to other phases.

Secondly, the court can record comments on incurred costs. How useful this would be, is moot. If a district judge, simply records on the order that the incurred costs are “too high”, how does this translate into specific findings or rulings on a detailed assessment? Any comments which can reasonably be recorded on the face of an Order, are likely to be so vague or non-specific as to be meaningless, and not least because in the context of a costs budgeting hearing the court would have only limited material before it, to give any context to highly impressionistic comments.

The issue of proportionality also has to be considered, and the conceptual confusion this might create will be explored below.

The Court of Appeal did firmly put to rest the spectre of Sarpd Oil, in so far as it lingered after the 1st April 2017 amendments to the costs budgeting rules:

50. In reaching his conclusion, the costs judge was clearly influenced by certain obiter remarks of Sales LJ delivering the judgment of the court in the case of Sarpd Oil (cited above) at paragraphs 41-44 of the judgment. That case did not in fact involve a detailed assessment as such but related to an issue on security of costs. I should also note that the budgeted costs in that case had been approved by the judge as part of an agreed CMO. At paragraph 43 Sales LJ indicated in general terms that, where positive comments were made in the CMO as to incurred costs, the receiving party would have the legitimate expectation of being likely to recover such costs if successful in the litigation. That having been said, at paragraph 44 of the court’s judgment it was then said: “Parties coming to the first CMC to debate their respective costs budgets therefore know that that is the appropriate occasion on which to contest the costs items in those budgets, both in relation to the incurred costs elements in their respective budgets and in relation to the estimated costs elements. The rubric at the foot of Precedent H also makes that clear, since it requires signed certification of the positive assertion that “This budget is a fair and accurate statement of incurred and estimated costs which it would be reasonable and proportionate for my client to incur in this litigation.” Similar points were made at paragraphs 47 and 50 of the judgment.

51. One can see that the wording used in Precedent H might tend to support such a view. But it does not accord with the language of paragraph 7.4 of PD 3E or CPR 3.15 or CPR 3.18: nor does it sit comfortably with the expressed entitlement (but not obligation) of the judge conducting the costs management hearing to record comments on incurred costs which, if made, will then be “taken into account” when considering reasonableness and proportionality.

 The Court of Appeal then went onto consider proportionality and indicated that the incurred costs will be considered as part of the round of an overall view on proportionality, to be formed at the end of a detailed assessment. However, if budgeted costs have been set on the basis of what is reasonable and proportionate, in the light of the incurred costs which have already been accrued, one can legitimately ask oneself, what scope might there be in the ordinary case, for a global proportionality deduction?

The answer will depend on the figures in an individual case: where incurred costs are very modest, there might be very little scope: for the budgeted costs forming the majority of the costs will have been expressly set on the basis they are reasonable and proportionate.

Conversely, where the incurred costs are very great, not only might this result in modest budgeted costs being allowed, the scope for a proportionality argument to succeed must be greater: as the reasonableness and proportionality of those costs would be very much up for argument. One can see in this case “good reason” and proportionality arguments being run together.

52. I add that where, as here, a costs judge on detailed assessment will be assessing incurred costs in the usual way and also will be considering budgeted costs (and not departing from such budgeted costs in the absence of “good reason”) the costs judge ordinarily will still, as I see it, ultimately have to look at matters in the round and consider whether the resulting aggregate figure is proportionate, having regard to CPR 44.3 (2)(a) and (5): a further potential safeguard, therefore, for the paying party.

The Court of Appeal concluded that incurred costs and budgeted costs are to be sharply distinguished for the purpose of a costs budgeting hearing, as provided for by the amended rules, and in relation to the former rules, when properly construed.

53. Costs budgeting, to be performed properly, undoubtedly places a real burden on the parties and court. It would potentially greatly extend that burden if incurred costs were to be subjected to the same degree of preparation and appraisal as budgeted costs. One can understand that there are principled arguments which nevertheless could favour such an approach: but there are also competing arguments. At all events, the then and current versions of the Rules and Practice Direction clearly sharply distinguish, for these purposes, incurred costs from estimated budgeted costs. I therefore think, with all respect, that those particular obiter comments of Sales LJ in Sarpd Oil may have gone too far in so far as they suggest otherwise in terms of how costs management hearings are to be approached in this respect.

54. I should add that it seems that those remarks of Sales LJ in Sarpd Oil with regard to incurred costs gave rise to a degree of disquiet. The matter came to the attention of the Civil Procedure Rule Committee. It considered that the consequences of those observations in Sarpd Oil were “unexpected”. It also considered that the effect of those observations would be to complicate, not simplify, costs management and might undermine desirable attempts to agree costs budgets. The outcome of the Report of the relevant sub-committee of 9 December 2016 was to recommend that incurred costs indeed should be “decoupled” from budgeted costs so that the court’s budgeting would only relate to the costs to be incurred (but retaining the court’s power to comment on previously incurred costs, which could provide a “steer” thereafter): thus restoring the position to the perceived status quo ante. This is designed to be made clear beyond argument for the future by the subsequent amendments to CPR 3.15 and CPR 3.18 with effect from 6 April 2017. As will be gathered, I in fact consider, and disagreeing with the obiter remarks of the court in Sarpd Oil, that the status quo ante was in any event to the same effect.

The third and final issue hinged on when a case was commenced for the purpose of rule 44.3(7)(a): the court had little difficulty in deciding that meant when proceedings were issued by the court.

Although the rules are clear, and indeed have been clear in my view since 2013, in their intended effect, the Harrison judgement clarifies the position and confirms the interpretation. To that extent the judgment is a valuable jurisprudential contribution.

What the judgment does not do, and does not purport to do, is address the philosophical contradictions at the heart of the current costs budgeting regime.

In particular, in a world where there is an ever greater impetus to fixed costs, with their settled, if not arbitrary amounts, it could be thought to be puzzling that the rules remain so tender of the notion of incurred costs and their inviolability to control or assessment at an early stage in a case.

Moreover, the provision in the rules for variation of a budget, cuts against the provision of certainty that a costs management order is meant to achieve: if a party’s potential liability for costs can be increased through the raising of a party’ budgeted costs, then a decision made to contest a case, will have been made on the basis of an invalidated premise.