Costs and deductions from damages II

“It was much better to imagine men in some smokey room somewhere, made mad and cynical by privilege and power, plotting over brandy. You had to cling to this sort of image, because if you didn’t then you might have to face the fact that bad things happened because ordinary people, the kind who brushed the dog and told the children bed time stories, were capable of then going out and doing horrible things to other ordinary people. It was so much easier to blame it on Them. It was bleakly depressing to think that They were Us. If it was Them, then nothing was anyone’s fault. If it was Us, then what did that make Me? After all, I’m one of Us. I must be. I’ve certainly never thought of myself as one of Them. No one ever thinks of themselves as one of Them. We’re always one of Us. It’s Them that do the bad things.”

-Terry Pratchett: Jingo

Its been another disconcerting week.

The world seems to be progressively going to hell in a handcart.

The agony of Ukraine continues with no abatement yet in sight.

In wholly unrelated news, the continuing quiet revolution in the treatment of deductions from damages from minors or protected parties continues with another case in the Senior Courts Costs Office.

The case of ST v ZY SCCO 21st February 2022 is a a decision of the Senior Costs Judge, assessing costs and determining the appropriate deductions from damages this time in the context of a claim brought on behalf of a child, whose father was killed in a road traffic accident.

A significant bill of costs was prepared by the Claimant’s solicitors, in the sum of £187,506.24. On an inter partes basis it was agreed that the defendant should pay £132,000 inclusive of interest and the costs of the detailed assessment process.

One of the key issues on any solicitor-own client assessment, is the application of the presumptions in part 46 CPR. These provide as follows:

(3) Subject to paragraph (2), costs are to be assessed on the indemnity basis but are to be presumed –

(a) to have been reasonably incurred if they were incurred with the express or implied approval of the client;

(b) to be reasonable in amount if their amount was expressly or impliedly approved by the client;

(c) to have been unreasonably incurred if –

(i) they are of an unusual nature or amount; and

(ii) the solicitor did not tell the client that as a result the costs might not be recovered from the other party.

Of particular significance is the presumption relating to “unusual” costs, and often Points of Dispute and Replies will plead specifically, that costs are unreasonably incurred, due to a failure in respect of presumption (c). But even where a presumption is not pleaded, as this case makes plain, the court will have regard to it, when assessing costs in the case of a child or protected party. 

As noted by the judge:

9. The costs which IM seeks from C consist of:

i) A shortfall of £53,719.16, inclusive of value added tax. Of the amount claimed in the bill, IM have deducted £16,602.24, the costs of preparing and checking the bill, and £1,617, the costs of preparing the schedule of costs for the joint settlement meeting. That reduces the bill to £169,287. From the agreed settlement figure of £132,000, IM have deducted 85% of the costs of drafting the bill (£12,896) and £3,659.16 in respect of interest and the costs of detailed assessment.  £169,287 minus £115,444.84 leaves a shortfall of £53,842.16. However the figure they seek is capped at £53,719.16, which was the figure
given to ST in their letter dated 28th July 2021.

ii) A success fee of 12.5%. The profit costs will have to be assessed before the amount is known and article 5 of the Conditional Fee Agreements Order 2013 may limit the success fee payable.

iii) £1,092 in respect of the after the event insurance premium.

Ominously the judge noted:

17. In the years since the 2012 Act came into force, some solicitors have sought to recover their success fees from their clients when acting for children or protected parties. In the Costs Office I am aware of only two firms of solicitors who, in such cases, regularly seek to recover the fees which exceed the basic charges recovered between the parties. This is not a consequence of the 2012 Act, as shortfalls in basic charges have always been recoverable in principle.

The Master considered issues of enforceability of the retainer, and also whether all costs sought in the bill were aptly to be considered costs which fell within the scope of the retainer. Of particular interest however was the Master’s careful evaluation of not only how the shortfall was incurred, but also why it was not recoverable by reason of failings in the advice given to the client, and in particular how a substantial shortfall between an approved budget and costs that were later incurred was dealt with:

49. Were the excess costs unusual in amount? In my judgment they were. In approving the budget at £53,401.72, rather than at £147,981.50,4 the court arrived at the figures which it considered would be reasonable and proportionate to take the case to trial. In respect of issue/statement of case, that reasonable and proportionate figure was exceeded by over 100 per cent. In respect of witness statements, the reasonable and proportionate figure was exceeded by over 400 per cent. In respect of ADR/settlement, the reasonable and proportionate figure was exceeded by over 150 per cent. These figures are so far over what they should be, and what the court has already decided that they should be, that they must be unusual in amount.

The Master noted what the client had been told:

50. I accept that IM did tell ST throughout that there would be costs which would not be recovered from the Defendant and which would be deducted from the damages. At the initial discussion about funding5 ST was told that:

“we would hope to conclude this case without incurring any significant amount of costs and so hopefully any shortfall will not equate to much in relation to the compensation”.

51. In the costs update letter dated 12th July 2019 IM wrote:

“Now that your case has been issued in Court, it is possible that the Court will set a budget which limits the amount of costs that the parties would have to pay to each other. We will advise you of this further if and when it arises.”

But it seems this did not happen: in particular there was nothing before the Master, to indicate that the client was told about the budget, or the effect of the budget:

52. In the costs updates ST was given specific estimates of what the shortfall would be. In March 2020 the estimate was £43,500 plus value added tax. The shortfall claimed is £53,719.16 including value added tax, so the final estimate before settlement was very close. I have found nothing to suggest that ST was told about the budget or about the effect of the budget.

This failure to involve the client in the costs budgeting process permitted the invocation of the presumptions which apply to solicitor-own client assessments of costs, contained in part 46, particularly in relation to what may be termed “unusual costs”:

53. To avoid the presumption applied by CPR 46.9(3)(c), the solicitor must tell the client that as a result the costs might not be recovered from the other party. That must mean as a result of their unusual nature or amount. Telling the client that some costs might not be recovered from the other side is not sufficient. ST should have been told that the budget was being exceeded by a wide margin and that, as a result, those costs might not (and, indeed, almost certainly would not) be recovered from the other side.

This then led inexorably to the conclusion:

54. Accordingly, in my judgment, the costs in excess of the budget and in excess of the caps imposed by CPR 3.15(5) are to be presumed to have been unreasonably incurred.

55. I should add that I think it very surprising that a solicitor would not tell their client that the budget had been exceeded and that the costs in excess of the budget would not be recoverable. At that point the client is moving from pursuing a claim in which reasonable and proportionate costs will be recoverable to a claim where no further costs will be recoverable in respect of some or all of the phases.

56. Instead IM appear to have been happy simply to ignore the budget and incur costs which they would or should have known would not be recovered from the Defendant. 

For years I have been telling solicitors and costs lawyers, that the budgeting process needs to engage the client, as part of the general duty to update the client on costs estimates and their potential liability. In a sense, the budgeting exercise should make it easier for a solicitor to advise their client upon the costs that they may incur and the extent to which they are likely to prove recoverable: by the act of drawing the budget, and then by learning what the approved budget figure is, at a costs and case management hearing.

But many solicitors still seem to regard the costs budget as having nothing to do with the client: in particular they may be led astray by the curious requirement that it is the solicitor who signs to certify the accuracy of the budget, leading them to assume that it is primarily a matter for the lawyers to sort out, rather than for the client to worry about.

Conversely, if a client is provided with a budget, and approves it, so that the solicitor can sign it and use it at court, the client is going to be in some difficulty in later unpicking the argument that they have given approval to those costs, if, once the budget has been costs managed and a reduced figure obtained and provided to the client, they then authorise the incurrence of those costs notwithstanding their likely irrecoverability.


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