2016: A Year in Costs
2016 has been an eventful year. It is the year which has given us Brexit, President-Elect Trump and seen the tragic loss of celebrities including David Bowie, Gene Wilder and Alan Rickman (the list really could go on). 2016 has hardly been a quiet year for costs law. Notwithstanding the fact we are on the cusp of some seismic judiciary reforms which will have a profound impact for all there have been multiple major costs decisions. Sean Linley, Costs Consultant at PIC, reports.
Fixed Costs and Part 36
One of the biggest cases of the year came in the form of (1) Broadhurst (2) Taylor v (1) Tan (2) Smith  EWCA Civ 94. The Court of Appeal confirmed that in cases where a Claimant obtained judgment for a figure more advantageous then their Part 36 offer in cases which run under the RTA or EL / PL Protocols their entitlement to indemnity costs thereafter is not limited to fixed costs.
Late Acceptance of Part 36 and Indemnity Costs
Claimant’s had more good news in the case of Sutherland -v- Khan (Kingston-upon-Hull County Court, 21 April 2016, unreported) which followed shortly after Broadhurst. The Court found that where a Claimant’s Part 36 offer was accepted out of time that indemnity costs would apply for time spent after the expiry of the relevant period.
Doubt was cast over Sutherland in October in Whiting v Carillionamey (Housing Prime) Limited (unreported) with the Court ruling that late acceptance of a Part 36 offer by a Defendant did not equate to indemnity costs.
We will no doubt have to wait for this saga to be determined but the power of Part 36 in 2016 is plain for all to see.
Fixed Costs and Multi-Track
2016 saw the Court of Appeal step into the “legislature’s shoes” as our Alex Taylor reported when discussing the case of Qader & Others v Esure Services Ltd. In its simplest form the Court of Appeal held that a claim which leaves the Portal protocol and is subsequently allocated to the multi-track does not attract the Fixed Costs Regime. What is less simple was the way in which the decision was arrived at. The Court of Appeal specifically criticised the drafting of the CPR and went as far as to amend the rules themselves in an unprecedented step.
Given the expected extension of fixed costs and the legislative steps required to reflect any changes in the Civil Procedure Rules (CPR) could this lead to further uncertainty? If the Court of Appeal can alter the wording of the CPR here, then there’s what to stop this occurring again?
Who needs Miller and others v Ministry of Justice when costs has constitutional issues all of its own.
One of the year’s hot topics is the issue of CFA assignment.
In February, it was found in Budana v Leeds Teaching Hospitals NHS Trust (CC (Kingston-upon-Hull) 04/02/16) that a retainer was terminated when a firm had written to their client confirming they were stopping PI work on the basis that there was no retainer capable of assignment.
The Budana case is presently undergoing Appeal and is due to be heard in 2017.
As we moved through the year and into spring we were greeted with news of the appeal decision in Jones v Spire Healthcare Ltd. The Judge held that Jenkins v Young Brothers Transport Ltd established a general principle that both the benefit and the burden of a CFA can be validly assigned from one firm to another. The Judge further provided that this principle was not restricted to the situation where the client’s agreement to the transfer was motivated by a relationship of personal trust and confidence with the fee earner who is moving from the first to the second firm.
The decision in Jones was echoed in August with Master Leonard finding that a CFA could properly be assigned in Azim -v- Tradwise Insurance Services Limited  EWHC B20 (Costs).
2016 has shown that CFA assignment, whilst filled with pitfalls, if done correctly is lawful. 2017 promises to deliver more guidance.
This list wouldn’t be complete without some discussion of proportionality.
One of the biggest proportionality decisions came in April 2016. In BNM – v – MGN Limited  EWHC B13 (Costs). Master Gordon-Saker stated that “it is clear that the new test of proportionality was intended to bring about a real change in the assessment of costs”. BNM saw the Bill of Costs of £241,817.00 reduced to £167,389.00 following a line by line assessment and then reduced again to £83,964.80 following the application of the proportionality test.
One of the key issues deriving from BNM was the application of the proportionality test on additional liabilities (both the CFA and ATE Premium were incepted post-Laspo in this Defamation case). The case saw the ATE Premium of £58,000.00 by half.
As with a number of cases on this list BNM is currently awaiting Appeal.
Another case which warrants a mention is that of May & May -v- Wavell Group & Dr Bizarri  which dealt with a Private Nuisance claim. The Bill of Costs totalled £208,236.54. Following detailed assessment Master Rowley reduced the Bill of Costs to £99,655.74. Master Rowley stated that he considered that after assessment the costs were disproportionate. He had regard to the facts that the claim settled for £25,000.00 and was neither legally or factually correct. Master Rowley then sat back and reduced the Bill of Costs to £35,000.00.
Master Rowley made one of the most powerful statements of the year when said “It seems to me to be clear that where the sums in issue are modest, the Kazakhstan method is still too generous to the receiving party under the new approach. The amount that can be recovered from the paying party is not the minimum sum necessary to bring or defend the case successfully. It is a sum which is appropriate for the paying party to pay by reference to the five factors CPR 44.3 (5). It is not the amount required to achieve justice in the eyes of the receiving party but only a contribution to that receiving party’s costs in many modest cases”
May is another list to add to those on Appeal.
Family Law didn’t escape proportionality either with the case of Kay v Kay  EWHC 2002 (Fam) seeing the successful party’s claim for costs reduced on Summary Assessment from £33,813.00 to £3,737.50, a reduction of approximately 89%.
Costs Budgeting also felt the might of proportionality in the Competition Appeal Tribunal. In Socrates Training Ltd v The Law Society  CAT 5 applied the proportionality test to budgeting to cap the Law Society’s budgeted costs at £350,000 against the costs claimed in its budget of £637,000
The saga of proportionality rages on and over 3 years on since the new proportionality test arrived we are still left awaiting for a consistent definition (and application).
No doubt 2017 will allow us to understand the full effect of these cases on the assessment of costs.
Costs Budgets and Significant Developments (CPR 3E 7.6)
No year in (costs) review would be complete without a look at Costs Budgeting.
In April the unreported case of Churchill v Boot appeared. The original Costs Budget in the claim was approved in 2014. Since this time the claim doubled in size, the Trial had been delated and there had been additional disclosure. The Claimant applied to vary the Costs Budget whereupon the Master refused to vary the Costs Budget as there had not been a change in circumstances.
Understandably the Claimant appealed the first instance decision. On Appeal the Judge held that there had not been significant developments. It was stated that the increased value of the claim did not mean there would be higher costs (the parties had permission to call the relevant experts), additional disclosure was clearly foreseeable when the costs budget set was set and whilst an adjournment could potentially be a significant development in this case it was not.
With the threshold for CPR 3E 7.6 (‘significant development’) set, a further decision came in September 2016.
In the case of Warner v The Pennine Acute Hospitals NHS Trust (Manchester County Court 23/09/16) the court found that “significant developments in the litigation seems to me to require that the case has gone off in a different direction in some manner or other, that it has taken a turn that was not reasonably foreseeable or envisaged at the time of the original exercise. The fact that the expert evidence tells us something that we had not totally anticipated is not itself I think sufficient to pass that ‘significant development’ test”.
The ruling echoed the decision in Churchill and demonstrated the difficulties that lawyer’s face in seeking to amend an approved Costs Budget.
The lesson of 2016? That a well-crafted and thought-out Costs Budget is imperative else revising the Precedent H will be an up-hill struggle.
Finally, more Costs Budget troubles
Everyone is aware that the Court can only approve estimated costs, not incurred costs. In SARPD Oil International v Addax Energy SA  EWCA Civ 120,  All ER (D) 56 (Mar) the Court of Appeal stated that whilst the Court can comment on incurred costs, if a Budget is simply agreed, the opportunity to seek court comments on incurred costs has not been taken and consequentially the effect is the same as if those costs have been agreed.
This case makes it on the round-up has it led to a changed approach when dealing with costs management. A potential windfall for Receiving Parties but a grenade for Paying ones.
The Cases above are just a small snapshot of an eventful year in costs and does not even begin to consider the developing fixed costs consultation, the well-publicised Legal Aid/CFA switch rulings or the ‘genuine attempt to settle’ issues addressed in Jockey Club Racecourse Ltd v Willmott and the many other cases / issues which emerged.
2016 has been a busy year for costs and 2017 is already shaping up to give us crucial decisions on Proportionality and CFA Assignment. Practitioners would be wise to enjoy the Christmas break and the brief respite it gives because 2017 is shaping up to be a very interesting year indeed.
For further information and support on any of these matters, please contact Sean Linley, Costs Consultant at PIC or call us now on 03458 72 76 78.