Costs and deductions from damages

“He, er, doesn’t appear much in the history books,” said Vimes. “Sometimes there has to be a civil war, and sometimes, afterwards, it’s best to pretend something didn’t happen. Sometimes people have to do a job, and then they have to be forgotten. He wielded the axe, you know. No one else’d do it. It was a king’s neck, after all. Kings are,” he spat the word, “special. Even after they’d seen the…private rooms, and cleaned up the…bits. Even then. No one’d clean up the world. But he took the axe and cursed them all and did it.”

Terry Pratchett: Men At Arms.

Some solicitors believe, that all judges wield a metaphorical axe when it comes to assessment of their bills. This is simply untrue. Some judges prefer to use a metaphorical baseball bat, or a snooker cue, or perhaps even a  well swung sock, full of wet sand.

One of the issues that has been bubbling away since the introduction of the LASPO 2012 reforms in April 2013, and which was exacerbated by the extension of fixed costs in many personal injury claims in July 2013, has been the issue of deductions from damages to pay success fees, or shortfalls in recovered costs.

In the halcyon days before 2013, when the sun always shone, Covid was thought to be a rival to Blockbusters and solicitors recovered standard basis costs and a success fee, as an additional liability from the compensating party, deductions from damages were almost unheard of.

Solicitors accepted the costs they recovered from the opposing party to litigation. Many of them did not trouble the client with delivery of a formal bill of costs. But when the rules changed, and costs recoveries shrunk, solicitors started levying unrecovered charges to their own clients, to be paid out of their damages.

This has had two immediate consequences. The first is the undoubted surge in solicitor-own client assessments under section 70 of the Solicitors Act 1974. Leaving aside the deduction by way of success fee, sums are frequently claimed in respect of unrecovered basic charges and outraged clients are more than capable of bringing challenges in the SCCO or the District Registries to seek a refund.

The second, is that it has brought into sharper focus in personal injury claims the practice of deductions from damages in cases where the client is a child or a protected party, who proceeds by way of a Litigation Friend.

Experience will lead any solicitor acting for a claimant who falls into either or both these categories, to realise that if they wish to obtain a deduction from damages to cover unrecovered costs, they must follow “to the letter” the rules and procedures that the rules impose to protect the interests of children and protected parties.

But what are those rules? They are to be found principally in Part 21 and its associated Practice Direction, but have recently been subject to further guidance through a Practice Note: to be found here

SCCO_Practice_Note_-_Deductions_from_damages

Although describing practice in the SCCO, it is likely to be adopted on a wider basis in the regions, when considering deductions from damages to pay costs.

 8. Ordinarily the Court approving settlement of the claim (or awarding damages) will have incorporated in its costs order either provision for the detailed assessment of any costs claimed by the child or protected party’s representatives, or will have dispensed with detailed assessment on one or more of the grounds provided for at Practice Direction 46, paragraph 2.1.

9. If the costs order does not dispense with detailed assessment as between the child or protected party and their legal representatives, then it may provide for detailed assessment subsequently to be dispensed with if the criteria set by Practice Direction 46 at paragraph 2.1 are met.

10. Where the court has ordered detailed assessment, the costs payable by the paying party have subsequently been agreed and the child or protected party’s legal representatives have waived any further claim to costs, the costs settlement with the paying party can be approved under CPR 21.10. Application to the SCCO for approval should be made under CPR 23. Appendix 1 to this practice note is a model form of approval order based on waiver.

11. Where the criteria set by Practice Direction 46 at paragraph 2.1 are not met but the child or protected party’s representatives seek payment only of a CFA success fee or the balance payable under a DBA (and summary assessment is not precluded by CPR 21.12(1A)), application to the SCCO may be made under CPR 23 for a summary assessment under CPR 46.4(5). Appendix 2 to this practice note is a model form of summary assessment order.

12. Applications for orders that the court “approves” or “certifies” the payment of costs by a child or protected party to their legal representatives are unlikely to be appropriate. If the legal representatives wish to dispense with detailed assessment on one or more of the grounds set out in paragraph 2.1 of Practice Direction 47 (other than waiver of any further claim to costs) they should make an application specifying the grounds relied on. The application must be supported by evidence.

13. Otherwise a request for a detailed assessment hearing must be filed in form N258 and a hearing fee paid by reference to Schedule 1, paragraph 5.2 of the Civil Proceedings Fees Order 2008.

14. It will not normally be necessary for the paying party to attend the detailed assessment hearing, because the receiving party’s costs will usually be assessed at the agreed amount. The court’s concern will be to assess the additional costs and disbursements claimed against the child or protected party.

15. Accordingly, on filing form N258, the legal representative should notify the court that costs have been agreed with the paying party and that the purpose of the hearing will be to assess the costs and/or disbursements sought by the child or protected party’s legal representatives, and should provide a time estimate suitable for such a hearing. Appendix 3 to this practice note is a model form of directions for the hearing.

16. The assessing judge is likely to take as a starting point that the hearing has been arranged for the benefit of the legal representatives and that it is not incumbent upon the child or protected party to bear the attendant costs.

17. For that reason, unless the child or protected party’s litigation friend or Court of Protection deputy takes issue with the costs sought by the legal representatives and participates in the detailed assessment of those costs, the court is likely to make no order as to the costs of the detailed assessment process beyond any figure agreed with the paying party.

The content of the Practice Note would appear to be unremarkable: but it potentially sets a solicitor up who wishes to make deductions beyond the unexceptional, for a world of pain.

In particular, it provides that the judges in the SCCO will assess in a quasi-inquisitorial capacity all the costs that are claimed against the child or protected party, in order to determine whether any residual element is payable over and above what has been agreed with the opponent to litigation.

It is thus entirely possible that in a given case, the costs might be assessed at a figure lower than that agreed with the opponent, which does not form a floor or irreducible minimum of costs that the solicitor can bank on: in those circumstances, as the recovered costs are client money, the solicitor will be obliged to provide a refund to the client.

An interesting example of this approach can be found in the case of BCX v v DTA Master Brown SCCO 16th December 2021. The issues were described thus:

4. The sum payable by the Defendant on the inter partes order for costs, inclusive of interest and costs of detailed assessment, has been agreed, following mediation, in the sum of £330,000. The Claimant’s solicitors Irwin Mitchell LLP (‘IM’) have not waived their entitlement to claim further costs against the Claimant and seek payment of a sum from the Claimant of £159,758.30 of the following:

(i) £94,977.38 (inclusive of VAT), representing what is says it a shortfall in profit costs from those recovered from the Defendant (the ‘shortfall’ claim);

(ii) payment of a success fee in the sum of £62,848.92 (inclusive of VAT); and,

(iii) payment of the costs of an ATE premium in the sum of £1,932.

The Master then undertook a very thorough provisional assessment of the Bill.

Interestingly, the consent of the Litigation Friend to pay these charges, was not regarded as particularly significant:

29. I would doubt that many litigation friends, typically, of course, relatives of injured claimant, would be in a position to know whether the costs claimed by the solicitors are reasonable. It strikes me that there is a risk that the litigation friend may simply have been informed by the solicitors, or led to believe, that the costs they are claimed are payable without any reference to the need to determine whether they are reasonable or indeed that such costs are payable only if reasonable. Moreover, the solicitors are themselves in a position of trust. On this issue their interests are plainly not aligned with the protected party or the litigation friend and they are not in a position to give advice on the reasonableness of their own charges. Indeed, the litigation friend may not fully take into account the consequence of substantial deductions from damages; they may just be relieved that she or he does not have to pay for them themselves. Whilst I have every reason to be believe that the litigation friend in this case has acted conscientiously and assiduously in the interests of the protected party, I have not been give any sufficient basis for thinking that she is in a position to give informed consent to the deductions.

Moreover the judge gave no weight to an advice that had been obtained from counsel on the reasonableness of the deductions:

30. I should add that at the application for approval I was also provided with advice from counsel (not Mr. Mallalieu QC) in respect of the costs claimed by IM. I understand that this would have been provided to the litigation friend. As I think is clear from the provisions under CPR 46.9 a detailed scrutiny is required of the costs claimed. It is not enough in my view for an advice from counsel simply to indicate that a claim for ‘shortfall’ costs looks reasonable or indeed that a success fee looks reasonable, at least without an adequate analysis of the nature of the claims and the objections that might reasonably and properly be raised to them. Nor is it enough simply to say that because assessment can be costly that therefore it is reasonable to agree to an amount that otherwise might be appear unreasonable. There is or might be no need for any attendance of the part of the litigation friend or the deputy at the assessment. Further, as was the practice of Costs Judge O’Hare, now retired, there might be a provisional assessment as a preliminary to any detailed assessment in person.

When assessing costs the judge made the following decisions, after evaluation of the bill, delving into the detail of the times claimed:

I calculate that the allowances above amount to £274,859. I have allowed counsel fees of £18,828 (plus VAT) in full: total, £22,710 . I have moderated the disbursements only slightly to £66,340.25 plus VAT of £7,550.55, totalling £73,089.80. That leaves the solicitor’s fees which I provisionally assess in a sum which I calculate to be £179,059.2 including VAT. Given the burden of work falling to a significant extent on the Claimant (and the fact that the Defendant obtained less evidence), and given the different hourly rates application, it is not necessarily or usually illuminating to make any comparison with the Defendant’s costs and I am not satisfied it is in this case.

Overall my assessment of the reasonable sum the Claimant is required to pay his solicitors is less that the Defendant had agreed to pay. However it is in accordance with my own instinctive and necessarily highly preliminary view that the inter partes compromise looked generous and should be approved. The consequence of this finding is that, provisionally, I am not currently satisfied, that any payment should be made by the protected party in respect of IM’s claim for a ‘shortfall’.

In addition a 15% success fee, and an ATE premium were payable, but the overall figure is still less than the £330,000 that the opponent had paid.

Undoubtedly this decision will go to review, and perhaps to appeal, but if there was any residual practice outside the SCCO of waving through deductions from damages in cases falling within part 21, I think the days of that practice have now come to an end.

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